UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1998
Commission file number: 1-10245
RCM TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
Nevada 95-1480559
(State of Incorporation) (IRS Employer Identification No.)
2500 McClellan Avenue, Suite 350, Pennsauken, New Jersey
08109-4613 (Address of principal
executive offices)
(609) 486-1777
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
Indicate the number of shares outstanding of the Registrant's class of common
stock, as of the latest practicable date.
CLASS 10,447,350
Common Stock, $.05 par value Outstanding as of September 2, 1998
1
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
Item 1 - Consolidated Financial Statements
<TABLE>
<CAPTION>
<S> <C>
Page
Consolidated Balance Sheets as of July 31, 1998 (Unaudited)
and October 31, 1997 (Audited) 3
Unaudited Consolidated Statements of Income for the Nine Month
Periods Ended July 31, 1998 and 1997 5
Unaudited Consolidated Statements of Income for the Three Month
Periods Ended July 31, 1998 and 1997 6
Unaudited Consolidated Statement of Changes in Shareholders'
Equity for the Nine Month Period Ended July 31, 1998 7
Unaudited Consolidated Statements of Cash Flows for the Nine
Month Periods Ended July 31, 1998 and 1997 8
Notes to Unaudited Consolidated Financial Statements 10
ITEM 2
Management's Discussion and Analysis of Financial Condition
and Results of Operations 14
PART II - OTHER INFORMATION
ITEM 5 - Other Information 20
ITEM 6 - Exhibits and Reports on Form 8-K 20
SIGNATURES 21
</TABLE>
2
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
July 31, 1998 and October 31, 1997
ASSETS
<TABLE>
<CAPTION>
1998 1997
-------------- ---------
(Unaudited) (Audited)
Current assets
<S> <C> <C>
Cash and cash equivalents $ 32,317,407 $ 918,028
Accounts receivable, net of allowance for doubtful accounts
of $405,700 and $316,000 in 1998 and 1997, respectively 36,164,691 24,850,304
Prepaid expenses and other current assets 1,063,051 673,265
--------- -------
Total current assets 69,545,149 26,441,597
---------- ----------
Property and equipment, at cost
Equipment and leasehold improvements 4,525,423 2,508,680
Less: accumulated depreciation and amortization 2,278,128 1,373,275
--------- ---------
2,247,295 1,135,405
--------- ---------
Other assets
Deposits 147,542 94,149
Intangible assets (net of accumulated amortization
of $1,507,307 and $804,640 in 1998 and 1997,
respectively) 45,517,910 26,411,445
---------- ----------
45,665,452 26,505,594
Total assets $117,457,896 $ 54,082,596
============ = ==========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
3
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - CONTINUED
July 31, 1998 and October 31, 1997
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
1998 1997
(Unaudited) (Audited)
Current liabilities
<S> <C> <C>
Note payable - bank $ 2,000,000 $ 2,000,000
Accounts payable and accrued expenses 2,949,558 1,315,937
Accrued payroll 6,449,498 4,501,502
Taxes other than income taxes 1,748,292 665,106
Income taxes payable 876,576 679,937
------- -------
Total current liabilities 14,023,924 9,162,482
---------- ---------
Income taxes payable 308,129
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; 10,445,650 and
7,582,206 shares issued in 1998 and
1997, respectively 522,282 379,110
Additional paid-in capital 92,969,419 40,877,540
Retained earnings 9,942,271 3,355,335
--------- ---------
103,433,972 44,611,985
Total liabilities and shareholders' equity $117,457,896 $ 54,082,596
============ = ==========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
4
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Nine Months Ended July 31,
1998 1997
(Unaudited) (Unaudited)
<S> <C> <C>
Revenues $138,182,996 $ 76,540,067
Cost of services 105,099,254 58,275,612
----------- ----------
Gross profit 33,083,742 18,264,455
---------- ----------
Operating costs and expenses
Selling, general and administrative 20,872,931 12,616,194
Depreciation and amortization 962,896 368,503
------- -------
21,835,827 12,984,697
Operating income 11,247,915 5,279,758
Interest (expense) income, net 7,657 ( 282,444 )
----- -------
Income before income taxes 11,255,572 4,997,314
Income taxes 4,668,636 2,093,066
--------- ---------
Net income $ 6,586,936 $ 2,904,248
= ========= = =========
Basic earnings per share $.80 $.55
Weighted average number of common
shares outstanding 8,238,172 5,290,599
Diluted earnings per share $.75 $.53
Weighted average number of common
and common equivalent shares
outstanding 8,732,895 5,465,851
</TABLE>
The accompanying notes are an integral part of these
financial statements.
5
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended July 31,
1998 1997
(Unaudited) (Unaudited)
<S> <C> <C>
Revenues $ 52,008,578 $ 28,009,367
Cost of services 39,684,660 21,090,427
---------- ----------
Gross profit 12,323,918 6,918,940
---------- ---------
Operating costs and expenses
Selling, general and administrative 7,732,561 4,672,356
Depreciation and amortization 369,890 130,422
------- -------
8,102,451 4,802,778
--------- ---------
Operating income 4,221,467 2,116,162
Interest (expense) income, net 198,281 ( 19,777 )
------- ------
Income before income taxes 4,419,748 2,096,385
Income taxes 1,828,964 890,457
--------- -------
Net income $ 2,590,784 $ 1,205,928
= ========= = =========
Basic earnings per share $.27 $.19
Weighted average number of common
shares outstanding 9,476,925 6,253,754
Diluted earnings per share $.26 $.19
Weighted average number of common
and common equivalent shares
outstanding 9,971,684 6,429,006
</TABLE>
The accompanying notes are an integral part of these
financial statements.
6
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Nine Months Ended July 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Retained
Shares Amount Capital Earnings
<S> <C> <C> <C> <C> <C> <C>
Balance, October 31, 1997 7,582,206 $ 379,110 $40,877,540 $3,355,335
Exercise of Stock Options 200,255 10,013 620,206
Exercise of Warrants 153,209 7,660 2,232,433
Sale of Common Stock 2,509,980 125,499 49,239,240
Net Income 6,586,936
Balance, July 31, 1998 10,445,650 $ 522,282 $92,969,419 $9,942,271
========== ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
7
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended July 31,
1998 1997
(Unaudited) (Unaudited)
Cash flows from operating activities:
<S> <C> <C>
Net income $ 6,586,936 $ 2,904,249
- --------- - ---------
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 962,896 368,503
Provision for losses on accounts
receivable 89,700 224,748
Changes in assets and liabilities:
Accounts receivable ( 11,404,087) ( 4,368,088 )
Prepaid expenses and other
current assets ( 389,786) ( 299,850 )
Accounts payable and accrued expenses 1,533,621 ( 358,058 )
Accrued payroll 1,947,996 254,210
Taxes other than income taxes 1,083,186 246,560
Income taxes payable ( 111,490) ( 471,510 )
------- -------
Total adjustments ( 6,287,964) ( 4,403,485 )
--------- ---------
Net cash provided by (used in) operating activities 298,972 ( 1,499,236 )
------- ---------
</TABLE>
The accompanying notes are an integral part of these
financial statements.
8
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
Nine Months Ended July 31,
1998 1997
(Unaudited) (Unaudited)
Cash flows from investing activities:
<S> <C> <C>
Property and equipment acquired ($ 648,812) ($ 379,996 )
Increase in deposits ( 53,393) ( 23,392 )
Cash paid for acquisitions,
net of cash acquired ( 20,532,439) ( 5,813,183 )
------------- ---------
Net cash used in investing activities ( 21,234,644) ( 6,216,571 )
---------- ---------
Cash flows from financing activities:
Sale of common stock 49,464,739 23,288,728
Exercise of stock options and warrants 2,870,312 1,094
Net repayments under short term debt arrangements ( 746,636 )
-------
Net cash provided by financing activities 52,335,051 22,543,186
---------- ----------
Net increase in cash and cash equivalents 31,399,379 14,827,379
Cash and cash equivalents at beginning of period 918,028 5,989
------- -----
Cash and cash equivalents at July 31, $ 32,317,407 $ 14,833,368
= ========== = ==========
Supplemental cash flow information:
Cash paid for:
Interest expense $ 338,033 $ 393,931
Income taxes $ 4,780,126 $ 2,489,576
Acquisitions:
Fair value of assets acquired $ 27,224,553 $ 6,442,972
Liabilities assumed 6,692,114 628,986
--------- -------
Cash paid, net of cash acquired $ 20,532,439 $ 5,813,183
= ========== = =========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
9
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. General
The accompanying consolidated financial statements have been prepared by
the Company pursuant to the rules and regulations of the Securities and
Exchange Commission (SEC). This Report on Form 10-Q should be read in
conjunction with the Company's Annual Report on Form 10-K for the year
ended October 31, 1997. 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. 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 nine months ended July 31, 1998 are not necessarily
indicative of the results to be expected for the full year.
2. Sale of Common Stock
On June 3, 1998, the Company completed a public offering of 2,700,000
shares of its Common Stock, of which, 2,509,980 shares were sold by the
Company and 190,020 shares were sold by certain selling stockholders. The
public offering was undertaken pursuant to the terms of a Registration
Statement on Form S-3 originally filed with the Securities and Exchange
Commission on April 29, 1998 and a final Prospectus dated May 29, 1998. The
net proceeds to the Company after estimated offering costs was
approximately $49,500,000. The Company did not receive any of the proceeds
from the sale of the shares by the selling stockholders.
3. Acquisition
On July 14, 1998, the Company acquired all of the outstanding stock of
Software Analysis and Management, Inc. ("SAMCO"), an Orange,
California-based provider of information technology staffing services
specializing in software and system engineering services, for a purchase
price consisting of: (i) $7.5 million in cash; (ii) $4.5 million of
contingent consideration, payable over three years upon attaining certain
earnings targets; and (iii) additional consideration to the extent that
during the three year period, SAMCO exceeds the earnings targets. Any
additional consideration paid will be recorded as additional purchase
price. SAMCO generated revenues of approximately $20.0 million during the
fiscal year prior to the date of acquisition.
The following unaudited results of operations have been prepared assuming
that all acquisitions which have occurred since November 1, 1996 had
occurred at the beginning of the periods presented. Those results are not
necessarily indicative of results of future operations nor of results that
would have occurred had the acquisitions been consummated as of the
beginning of the periods presented.
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
July 31, July 31,
1998 1997 1998 1997
---------------- ---------------- ---------------- ----------
<S> <C> <C> <C> <C>
Revenues $ 160,176,000 $ 132,115,000 $ 55,693,000 $ 47,701,000
Operating income $ 13,425,000 $ 10,510,000 $ 4,597,000 $ 4,013,000
Net income $ 7,466,000 $ 4,827,000 $ 2,791,000 $ 1,944,000
Diluted earnings per share $.85 $.87 $.28 $.30
Weighted average shares outstanding 8,732,895 5,545,354 9,971,684 6,508,509
</TABLE>
10
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
4. Revolving Credit Facility
On August 19, 1998, the Company and its subsidiaries entered into an
agreement with Mellon Bank N.A., administrative agent for a syndicate of
banks, which provides for a $75.0 million Revolving Credit Facility (the
"Revolving Credit Facility"). Borrowings under the Revolving Credit
Facility bear interest at the Company's option, at LIBOR (London Interbank
Offered Rate), plus applicable margin or the agent bank's prime rate.
Borrowings under the Revolving Credit Facility are collateralized by all of
the assets of the Company and its subsidiaries and a pledge of all of the
stock of its subsidiaries. The Revolving Credit Facility also contains
various financial and non-financial covenants. The Revolving Credit
Facility expires August 2001. There were no amounts outstanding under the
Revolving Credit Facility at September 2, 1998.
5. Stock Options
On April 23, 1998, the stockholders of the Company approved amendments to
the 1992 Incentive Stock Option Plan (the "1992 Option Plan") and the 1994
Non-Employee Director Stock Option Plan (the "Director Option Plan"). The
amendments increase the number of shares of the Company's common stock
issuable under the 1992 Option Plan by 400,000 shares to 500,000 shares and
increase the number of shares issuable under the Non- Employee Director
Option Plan by 100,000 shares to 180,000 shares.
<TABLE>
<CAPTION>
Transactions related to all stock options during the nine months ended July
31, 1998 are as follows:
<S> <C>
Outstanding options, beginning of period......................................... 1,087,400
Granted.......................................................................... 130,000
Forfeited........................................................................( 103,350)
Exercised........................................................................( 200,255)
Outstanding options, end of period............................................... 913,795
Exercisable options ............................................................. 883,795
==========
Option grant price per share..................................................... $3.44
to $14.50
</TABLE>
11
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
6. Earnings Per Share
On November 1, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings Per Share." Basic earnings per
share are computed based upon the weighted average number of common
shares outstanding and diluted earnings per share are computed based upon
the weighted average number of common shares outstanding and dilutive
common share equivalents (consisting of incentive stock options,
non-qualified stock options and warrants) outstanding during the periods
using the treasury stock method. Following is a reconciliation of the
shares used to compute basic and diluted earnings per share:
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
July 31, July 31,
1998 1997 1998 1997
---------------- ---------------- ---------------- ----------
Weighted average number of shares
<S> <C> <C> <C> <C>
outstanding used to compute basic
earnings per share 8,238,172 5,290,599 9,476,925 6,253,754
Dilutive effect of stock options
and warrants 494,723 175,252 494,759 175,252
------- ------- ------- -------
Number of shares used to compute
diluted earnings per share 8,732,895 5,465,851 9,971,684 6,429,006
========= ========= ========= =========
</TABLE>
7. Accounts Payable and accrued expenses
Accounts payable at July 31, 1998 and October 31, 1997 consists of the
following:
July 31, October 31,
1998 1997
Accounts payable 2,134,258 1,315,937
Funds due sellers (1) 815,300 ________
-------
2,949,558 1,315,937
(1) Represents funds due to shareholders of acquired companies.
12
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
8. Interest (Expense) Income, Net
Interest (expense) income, net for the nine and three months ended July
31, 1998 and 1997 consists of the following:
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
July 31, July 31,
1998 1997 1998 1997
---------------- ---------------- ---------------- ----------
<S> <C> <C> <C> <C>
Interest expense ($ 338,034) ($ 393,916) ($ 131,187) ($ 131,264 )
Interest income 345,691 111,472 329,468 111,487
------- ------- ------- -------
$ 7,657 ($ 282,444) $ 198,281 ($ 19,777 )
= ===== = ======= = ======= = ======
</TABLE>
13
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Private Securities Litigation Reform Act Safe Harbor Statement
When used in or incorporated by reference into this Report, the words
"estimate," "project," "intend," "expect" and similar expressions are intended
to identify forward-looking statements regarding events and financial trends
which may affect the Company's future operating results and financial position.
Such statements are subject to risks and uncertainties that could cause the
Company's actual results and financial position to differ materially. Certain of
these factors have been identified within the Company's various Reports,
Registration Statements and other filings previously made with the SEC.
Overview
The Company is a multi-regional provider of information technology and other
professional staffing services though its 54 branch offices located in 23
states.
The Company's business and strategy have changed dramatically since its
inception in 1971. From 1992 through 1994, current management 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 has resulted in the
acquisition of 14 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 Fiscal 1994 accounted for
approximately 51.0% of the Company's revenues, decreased as a percentage of the
Company's revenues to 12.1% during the nine months ended July 31, 1998.
Correspondingly, revenues from the Company's specialty professional services
accounted for 87.9% of the Company's revenues during the nine months ended July
31, 1998.
The Company realizes revenues from the placement of contract and temporary
staffing personnel. Principally all of 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. In some instances, the Company derives
revenues on a fixed-fee basis in connection with 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.
The majority of the Company's services 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 on 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 to 90 days notice. Revenues are recognized when
services are provided.
14
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
Overview - (Continued)
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. 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 which is being amortized over 40-year
periods.
Liquidity and Capital Resources
To support its acquisition program and related working capital requirements, the
Company has historically used borrowings under its bank credit facility which
was in existence prior to August 19, 1998 and proceeds from offerings of Common
Stock. On June 13, 1997, the Company completed a public offering which raised
$23.3 million in proceeds for the Company. The net offering proceeds through
July 31, 1998, have been used to fund acquisitions and retire bank debt.
On June 3,1998, the Company completed a public offering of 2,700,000 shares of
Common Stock, of which 2,509,980 shares were sold by the Company and 190,020
were sold by certain selling stockholders. The proceeds to the Company net of
estimated offering costs was approximately $49.5 million. Concurrently, with the
offering, the Company received $557,000 from the exercise of stock options upon
which the shares were sold in the offering by the selling shareholders.
At July 31, 1998, the Company had approximately $32.3 million in cash and
approximately $18.0 million in unused loan availability under the bank credit
facility in existence at July 31, 1998.
Cash provided by operating activities was $300,000 for the nine months ended
July 31, 1998 compared to a use of cash of $1.5 million for the nine months
ended July 31, 1997. The increase of $1.8 million was the result of the increase
of $4.1 million in net income before depreciation and amortization and other
non-cash charges and a decrease of $2.3 million from changes in working capital,
primarily an increase in accounts payable and taxes other than income taxes
which was in turn offset by an increase in accounts receivable.
Cash used in investing activities for the nine months ended July 31, 1998 was
$21.2 million compared to $6.2 million for the nine months ended July 31, 1997.
This increase was principally the result of larger acquisitions completed by the
Company during the nine months ended July 31, 1998 as compared to those
acquisitions completed during the nine months ended July 31, 1997.
Cash provided by financing activities for the nine months ended July 31, 1998
was $52.3 million compared to $22.5 million for the nine months ended July 31,
1997. This increase was principally the result of proceeds from the June 3, 1998
public offering as well as the exercise of stock warrants.
15
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
Liquidity and Capital Resources - (Continued)
On August 19, 1998, the Company and its subsidiaries entered into an agreement
with Mellon Bank N.A., administrative agent for a syndicate of banks, which
provides for a $75.0 million Revolving Credit Facility (the "Revolving Credit
Facility"). Borrowings under the Revolving Credit Facility bear interest, at the
Company's option, at LIBOR (London Interbank Offered Rate) or the agent bank's
prime rate, plus applicable margin.
Borrowings under the Revolving Credit Facility are collateralized by all of the
assets of the Company and a pledge of all of the stock of its subsidiaries. The
Revolving Credit Facility also contains various financial and non-financial
covenants. The Revolving Credit Facility expires August 2001. At October 31,
1997, and July 31, 1998, the Company and its subsidiaries were in compliance
with all financial covenants contained within the Revolving Credit Facility in
effect prior to August 19, 1998.
Borrowings under the Revolving Credit Facility are to be used to meet cash flow
requirements for the Company's subsidiaries as well as operating expenses for
the Company. At October 31, 1997 and July 31, 1998 there was approximately $14.0
million and $18.0 million, respectively, of unused loan availability under the
bank credit facility which was in effect at July 31, 1998. The Company utilized
approximately $10.0 million (as of September 2, 1998) of the net proceeds from
its June 3, 1998 public offering to pay down the bank credit facility which had
a balance of approximately $10.0 million as of June 3, 1998, although the
Company does intend to draw on the Revolving Credit Facility 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 working capital. The
Company's business strategy is to achieve growth both internally through
operations and externally through strategic acquisitions. The Company's
liquidity and capital resources may be affected in the future as the Company
continues to grow through implementation of this strategy which may involve
acquisitions facilitated through the use of cash and/or debt and equity
securities. Funding for future acquisitions and working capital will be obtained
from the proceeds of the June 3, 1998 public offering, the Revolving Credit
Facility, funds generated through operations and future financing transactions.
The Company does not currently have material commitments for capital
expenditures and does not anticipate entering into any such commitments during
the next twelve months. The Company continues to evaluate acquisitions of
various businesses which are complementary to its current operations. The
Company's current commitments consist primarily of lease obligations for office
space. The Company believes that its capital resources are sufficient to meet
its present obligations and those to be incurred in the normal course of
business for the next twelve months.
During the nine months ended July 31, 1998, the Company derived $2.2 million of
proceeds from the issuance of 153,209 shares of Common Stock upon the exercise
of its Class C Warrants (the "Warrants") at an effective exercise price of
$15.00 per share. The Warrants were issued in a public offering undertaken by
the Company during 1989, and after several extensions, expired on April 30,
1998.
16
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
Year 2000 Compliance
Many existing computer programs use only two digits to identify a year in the
date field. These programs were designed and developed without considering the
impact of the upcoming change in the century. If not corrected, many computer
applications could fail or create erroneous results by or at the Year 2000. In
connection with this problem (the "Year 2000 Issue"), and in order to deliver
quality customer service and centrally manage it operations, the Company is
currently upgrading its internal information system. The Company anticipates
that the upgrade will be completed during the calendar year 1999. If such
upgrade is not completed in a timely manner, the Year 2000 Issue may have a
material effect on the operations of the Company. While the total cost
associated with the upgrade of the Company's system is not known at this time,
it is not expected to be material to the Company's financial position and is
being capitalized as incurred. The Company is in the process of developing a
contingency plan if it fails to meet its timetable.
17
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
<TABLE>
<CAPTION>
Results of Operations - Nine Months Ended July 31, 1998, Compared to Nine Months Ended July 31, 1997
Nine Months Ended July 31,
1998 1997
<S> <C> <C>
Revenues $ 138,182,996 $ 76,540,067
Cost of services 105,099,254 58,275,612
Gross profit 33,083,742 18,264,455
Selling, general and administrative 20,872,931 12,616,194
Depreciation and amortization 962,896 368,503
Operating income 11,247,915 5,279,758
Interest (expense) income, net 7,657 ( 282,444 )
Income before income taxes 11,255,572 4,997,314
Income taxes 4,668,636 2,093,066
Net income 6,586,936 2,904,248
Diluted earnings per share $.75 $.53
</TABLE>
Revenues. Revenues increased 80.5%, or $61.6 million, for the nine months ended
July 31, 1998, as compared to the comparable prior-year period. Of this
increase, approximately $45.2 million was attributable to revenue growth through
acquisitions made during Fiscal 1997 and the nine months ended July 31, 1998,
and approximately $16.4 million was attributable to internal growth. For the
nine months ended July 31, 1998 internal growth was 38.1% for the Professional
Engineering and Information Technology groups and 25.5% for the Company as a
whole.
Cost of Services. Cost of services increased 80.3%, or $46.8 million, for the
nine months ended July 31, 1998, as compared to the comparable 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 76.0% for the nine months
ended July 31, 1998, from 76.1% for the comparable prior-year period. This
improvement 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 65.4%, or $8.3 million, for the nine months ended July 31,
1998, as compared to the comparable prior-year period. This increase was
primarily due to selling, general and administrative expenses associated with
increased revenues during the nine months ended July 31, 1998, as compared to
the comparable prior-year period. Selling, general and administrative expenses
as a percentage of revenues decreased to 15.1% for the nine months ended July
31, 1998, from 16.5% in the comparable prior-year period, primarily attributable
to the sharing of administrative overhead over a larger revenue base.
Depreciation and Amortization. Depreciation and amortization increased 161.3%,
or $594,000, for the nine months ended July 31, 1998, as compared to the
comparable prior-year period. This increase was primarily due to the
amortization of intangible assets acquired in connection with the acquisitions
that occurred after July 31, 1997.
Interest (Expense) Income, Net. Actual interest expense of $338,000, for the
nine months ended July 31, 1998, was offset by $346,000 of interest income,
which was earned from the investment in interest-bearing deposits of the net
proceeds of the Company's public offerings in June 1997 and 1998, after the
repayment of bank debt. Interest expense decreased 14.2%, or $56,000, for the
nine months ended July 31, 1998, as compared to the comparable prior-year
period. This decrease was primarily due to the decreased borrowings necessary to
provide the funds for working capital.
Income Tax. Income tax expense increased 123.1%, or $2.6 million, for the nine
months ended July 31, 1998, as compared to the comparable prior-year period.
This increase was due to increased levels of income.
18
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
<TABLE>
<CAPTION>
Three Months Ended July 31, 1998 Compared to Three Months Ended July 31, 1997
Three Months Ended July 31,
1998 1997
<S> <C> <C>
Revenues $ 52,008,578 $ 28,009,367
Cost of services 39,684,660 21,090,427
Gross profit 12,323,918 6,918,940
Selling, general and administrative 7,732,561 4,672,356
Depreciation and amortization 369,890 130,422
Operating income 4,221,467 2,116,162
Interest (expense) income, net 198,281 ( 19,777 )
Income before income taxes 4,419,748 2,096,385
Income taxes 1,828,964 890,457
Net income 2,590,784 1,205,928
Diluted earnings per share $.26 $.19
</TABLE>
Revenues. Revenues increased 113.8%, or $24.0 million, for the three months
ended July 31, 1998, as compared to the comparable prior-year period. Of this
increase, approximately $18.0 million was attributable to revenue growth through
acquisitions made during Fiscal 1997 and the three months ended July 31, 1998,
and approximately $6.0 million was attributable to internal growth. For the
three months ended July 31, 1998 internal growth was 35.3% for the Professional
Engineering and Information Technology groups and 23.8% for the Company overall.
Cost of Services. Cost of services increased 88.2%, or $18.6 million, for the
three months ended July 31, 1998, as compared to the comparable 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 increased to 76.3% for the three months
ended July 31, 1998, from 75.3% for the comparable prior-year period. This
increase was primarily due to increased paid vacation, holiday and training
costs as well as a decrease in general support margins and certain high margin
short term projects in the three months ended July 31, 1997.
Selling, General and Administrative. Selling, general and administrative
expenses increased 78.1%, or $5.4 million, for the three months ended July 31,
1998, as compared to the comparable prior-year period. This increase was
primarily due to selling, general and administrative expenses associated with
increased revenues during the three months ended July 31, 1998, as compared to
the comparable prior-year period. Selling, general and administrative expenses
as a percentage of revenues decreased to 23.7% for the three months ended July
31, 1998, from 24.7% in the comparable prior-year period, primarily attributable
to the sharing of administrative overhead over a larger revenue base.
Depreciation and Amortization. Depreciation and amortization increased 183.6%,
or $239,000, for the three months ended July 31, 1998, as compared to the
comparable prior-year period. This increase was primarily due to the
amortization of intangible assets acquired in connection with the acquisitions
that occurred after July 31, 1997.
Interest (Expense) Income, Net. Actual interest expense of $131,000 for the
three months ended July 31, 1998 was offset by $329,000 of interest income,
which was earned from the investment in interest-bearing deposits of the net
proceeds of the Company's public offering in June 1998, after the repayment of
bank debt. Interest expense remained the same for the three months ended July
31, 1998 as compared to the comparable prior-year period.
Income Tax. Income tax expense increased 105.4%, or $939,000, for the three
months ended July 31, 1998, as compared to the comparable prior-year period.
This increase was due to increased levels of income.
19
<PAGE>
PART II
Item 5. Other Information
A stockholder of the Company may wish to have a proposal presented at
the 1999 Annual Meeting of Stockholders, but not to have such proposal
included in the Company's proxy statement and form of proxy relating
to that meeting. If notice of any such proposal is not received by the
Company at 2500 McClellan Avenue, Suite 350, Pennsauken, New Jersey
08109-4613, Attention president, by January 24, 1999, then such
proposal shall be deemed "untimely" for purposes of rule 14a-4(c)
promulgated under the Securities Exchange Act of 1934, as amended,
and, therefore, the Board of Directors of the Company will have the
right to exercise discretionary voting authority with respect to such
proposal.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10 Loan and Security Agreement dated August 19, 1998 between
RCM Technologies, Inc. and all of its Subsidiaries and
Mellon Bank, N.A. as Agent.
27a Financial Data Schedule.
27b Restated Financial Data Schedule July 31, 1997.
(b) Reports on Form 8-K
1. The Company filed a Current Report on Form 8-K (under Item
5) dated March 17, 1998 reporting the resignation of Barry
S. Meyers from the Board of Directors of RCM Technologies,
Inc. on March 12, 1998.
2. The Company filed a Current Report on Form 8-K dated June
12, 1998, as amended by a Current Report on Form 8-K/A
(under Item 5) dated June 18, 1998, reporting the
acquisitions of Northern Technical Services, Inc. on January
4, 1998 and Global Technology Solutions, Inc. on February 2,
1998.
3. The Company filed a Current Report on Form 8-K (under Item
2) on July 23, 1998 reporting the acquisition of Software
Analysis and Management, Inc. on July 14, 1998.
20
<PAGE>
RCM TECHNOLOGIES, INC.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
RCM Technologies, Inc.
(Registrant)
Date: September 2, 1998 By:/s/ Stanton Remer
-----------------
Stanton Remer
Chief Financial Officer and Treasurer
(Principal Accounting Officer)
21
<PAGE>
LOAN AND SECURITY AGREEMENT
RCM Technologies, Inc. and All of Its Subsidiaries
with
Mellon Bank, N.A., as Agent
and
Each of the Financial Institutions Now and Hereafter
Shown on the Signature Pages Hereof as Lenders
Dated as of August 19, 1998
<PAGE>
<TABLE>
<CAPTION>
ix
TABLE OF CONTENTS
PAGE
<S> <C>
SECTION 1. DEFINITIONS AND INTERPRETATION...................................................................... 1
1.1 Terms Defined................................................................................. 1
1.2 Accounting Principles..........................................................................8
SECTION 2. THE LOANS............................................................................................9
2.1 Revolving Credit - Description.................................................................9
2.2 Advances, Conversions, Renewals and Payments..................................................10
2.3 Interest......................................................................................12
2.4 Additional Interest Provisions................................................................15
2.5 Fees..........................................................................................15
2.6 Prepayments...................................................................................17
2.7 Use of Proceeds...............................................................................17
2.8 Indemnity/Loss of Margin......................................................................17
2.9 Capital Adequacy..............................................................................18
SECTION 3. COLLATERAL..........................................................................................19
3.1 Description...................................................................................19
3.2 Lien Documents................................................................................20
3.3 Other Actions.................................................................................20
3.4 Searches......................................................................................20
3.5 Landlord's Waivers............................................................................21
3.6 Filing Security Agreement.....................................................................21
3.7 Power of Attorney.............................................................................21
3.8 Verifications.................................................................................21
SECTION 4. CLOSING AND CONDITIONS PRECEDENT TO ADVANCES........................................................22
4.1 Resolutions, Opinions, and Other Documents....................................................22
4.2 Absence of Certain Events.....................................................................23
4.3 Warranties and Representations at Closing.....................................................23
4.4 Compliance with this Agreement................................................................23
4.5 Officer's Certificate.........................................................................23
4.6 Closing.......................................................................................23
4.7 Non-Waiver of Rights..........................................................................23
SECTION 5. REPRESENTATIONS AND WARRANTIES......................................................................24
5.1 Corporate Organization and Validity...........................................................24
5.2 Places of Business............................................................................24
5.3 Pending Litigation............................................................................24
5.4 Title to Properties...........................................................................25
5.5 Governmental Consent..........................................................................25
5.6 Taxes.........................................................................................25
5.7 Financial Statements..........................................................................25
5.8 Full Disclosure...............................................................................25
5.9 Subsidiaries..................................................................................26
5.10 Guarantees, Contracts, etc....................................................................26
5.11 Government Regulations, etc...................................................................26
5.12 Business Interruptions........................................................................27
5.13 Names.........................................................................................27
5.14 Other Associations............................................................................28
5.15 Environmental Matters.........................................................................28
5.16 Regulation O..................................................................................28
5.17 Capital Stock.................................................................................29
5.18 Solvency......................................................................................29
5.19 Patents, Trademarks, Etc......................................................................29
5.20 Investment Company............................................................................29
5.21 Year 2000 Compliance..........................................................................29
5.22 Location of Customer Lists....................................................................30
SECTION 6. AFFIRMATIVE COVENANTS...............................................................................30
6.1 Payment of Taxes and Claims...................................................................30
6.2 Maintenance of Properties and Corporate Existence.............................................31
6.3 Business Conducted............................................................................32
6.4 Litigation....................................................................................32
6.5 Taxes.........................................................................................33
6.6 Bank Accounts.................................................................................35
6.7 Employee Benefit Plans........................................................................35
6.8 Warranties for Future Advances................................................................35
6.9 Financial Covenants...........................................................................36
6.10 Financial and Business Information............................................................36
6.11 Officers' and Accountant's Certificates.......................................................38
6.12 Inspection....................................................................................38
6.13 Tax Returns and Reports.......................................................................39
6.14 Information to Participant....................................................................39
6.15 Material Adverse Developments.................................................................39
6.16 Name Changes, Places of Business..............................................................39
6.17 Change in Chief Executive Officer.............................................................39
6.18 Year 2000 Compliance..........................................................................39
SECTION 7. NEGATIVE COVENANTS:................................................................................ 40
7.1 Merger, Consolidation, Dissolution or Liquidation............................................ 40
7.2 Acquisitions................................................................................. 40
7.3 Liens and Encumbrances....................................................................... 40
7.4 Transactions With Affiliates or Subsidiaries................................................. 41
7.5 Guarantees................................................................................... 41
7.6 Distributions, Redemptions and Other Indebtedness............................................ 42
7.7 Loans and Investments........................................................................ 42
7.8 Use of Lenders' Name......................................................................... 42
7.9 Capital Expenditures..........................................................................42
7.10 Miscellaneous Covenants...................................................................... 42
7.11 Change of Ownership Interests................................................................ 43
SECTION 8. DEFAULT.............................................................................................43
8.1 Events of Default.............................................................................43
8.2 Cure..........................................................................................45
8.3 Rights and Remedies on Default................................................................45
8.4 Nature of Remedies............................................................................46
8.5 Set-Off.......................................................................................46
SECTION 9. AGENT...............................................................................................47
9.1 Appointment and Authorization.................................................................47
9.2 General Immunity..............................................................................47
9.3 Consultation with Counsel.....................................................................47
9.4 Documents.....................................................................................47
9.5 Rights as a Lender............................................................................47
9.6 Responsibility of Agent.......................................................................47
9.7 Collections and Disbursements.................................................................48
9.8 Indemnification...............................................................................49
9.9 Expenses......................................................................................49
9.10 No Reliance...................................................................................50
9.11 Reporting.....................................................................................50
9.12 Removal of Agent..............................................................................50
9.13 Action on Instructions of Lenders.............................................................50
9.14 Several Obligations...........................................................................50
9.15 Consent of Lenders to Agent's Rights..........................................................51
9.16 Participations and Assignments................................................................51
SECTION 10. MISCELLANEOUS......................................................................................52
10.1 Governing Law.................................................................................52
10.2 Integrated Agreement..........................................................................52
10.3 Waiver........................................................................................53
10.4 Time..........................................................................................53
10.5 Expenses of Agent and Lenders.................................................................53
10.6 Brokerage.....................................................................................54
10.7 Notices.......................................................................................54
10.8 Headings......................................................................................55
10.9 Survival......................................................................................55
10.10 Successors and Assigns.........................................................................55
10.11 Duplicate Originals............................................................................55
10.12 Modification...................................................................................55
10.13 Third Parties..................................................................................56
10.14 Discharge of Taxes, Borrowers' Obligations, Etc................................................56
10.15 Withholding and Other Tax Liabilities..........................................................56
10.16 Consent to Jurisdiction........................................................................56
10.17 Waiver of Jury Trial.......................................................................... 56
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT LIST
<S> <C> <C> <C> <C> <C> <C>
Exhibit 1......... --.......Form of Borrowing Authorization
Exhibit 2.1 -- Form of Revolving Credit Note
Exhibit 5.1....... --.......Borrower's States of Qualifications
Exhibit 5.2....... --.......Places of Business
Exhibit 5.3....... --.......Judgments, Proceedings, Litigation and Orders
Exhibit 5.4....... --.......Existing Liens and Claims
Exhibit 5.6....... --.......Tax Assessments
Exhibit 5.7....... --.......Tax Identification Number
Exhibit 5.9....... --.......Subsidiaries and Affiliates
Exhibit 5.10 -- Existing Guaranties, Investments and Borrowings, Leases and
Employment Agreements
Exhibit 5.11...... --.......Employee Benefit Plans
Exhibit 5.12...... --.......Business Interruptions
Exhibit 5.13(a) ..-- Schedule of Names
Exhibit 5.13(b)...-- Trademarks, Patents and Copyrights
Exhibit 5.14...... --.......Other Associations
Exhibit 5.15...... --.......Environmental Disclosure
Exhibit 5.17...... --.......Capital Stock
Exhibit 6.11 ..... --.......Form of Compliance Certificate
</TABLE>
<PAGE>
SCHEDULES
Schedule A........-- Schedule of Lenders
Schedule B -- Address of Lenders
<PAGE>
LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement ("Agreement") is dated as of the 19th
day of August, 1998, by and among RCM TECHNOLOGIES, INC., (ARCM@) and ALL OF ITS
SUBSIDIARIES (collectively, the "Borrower"), MELLON BANK, N.A., a national
banking association, in its capacity as agent, ("Agent") and MELLON BANK, N.A.
("Mellon") and SUNTRUST BANK, ATLANTA, THE FIRST NATIONAL BANK OF MARYLAND, BANK
OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, and FLEET NATIONAL BANK,
(AOthers@), in their capacity as lenders (Mellon and Others individually each
being a "Lender" and collectively referred to as "Lenders").
BACKGROUND
A. Borrower desires to establish financing arrangements with Lenders to
permit its uninterrupted and continuous business operations. Lenders are willing
to make loans and grant extensions of credit to Borrower, under the terms and
provisions hereinafter set forth.
B. The parties desire to define the terms and conditions of their
relationship and reduce them to writing.
NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
SECTION 1. DEFINITIONS AND INTERPRETATION
1.1......Terms Defined: As used in this Agreement,
the following terms have the following respective --------------
meanings:
Account - Any right to payment for goods sold or leased or for
services rendered which is not evidenced by an instrument or chattel paper,
whether or not it has been earned by performance.
Account Debtor - Any Person obligated on any Account owing to
Borrower.
Acquisition - Section 2.7.
Advance(s) - Any monies advanced or credit extended to
Borrower by any Lender under the Revolving Credit, including without limitation
cash advances.
<PAGE>
29
Affiliate - Any entity which directly or indirectly through
one or more intermediaries controls or is controlled by or is under common
control with Borrower, which control may be by ownership, contract, or
otherwise.
Agreement - This Loan and Security Agreement, as it may
hereafter be amended, supplemented or replaced from time to time.
Applicable LIBOR Rate Margin -The Borrower shall pay interest
on the amounts borrowed under the Revolving Credit in accordance with the ratio
of Borrower's Total Funded Debt to EBITDA as set forth in the following matrix:
Total Funded Revolving Credit
Debt to EBITDA LIBOR Rate plus:
--------------- ----------------
$2.50x-3.25x Libor+125b.p.
$2.0x-2.50x Libor+100b.p.
$1.5x-2.0x Libor+87.5b.p.
--1.50x... Libor+75b.p.
The above pricing index shall be tested quarterly and shall be
effective upon receipt of quarterly financial statements.
Authorized Officer - Any officer or employee of Borrower
authorized by Borrower to request Advances as set forth in a Borrowing
Authorization.
Borrowing Authorization - A document, in the form of Exhibit 1
attached hereto and made part hereof, signed and delivered to Agent by an
Authorized Officer of Borrower.
Business Day - Any day that is not a Saturday or Sunday or day
on which Agent or any Lender is required or permitted to close, provided,
however, that solely with respect to LIBOR Rate Loans requested by Borrower,
such day shall also be a day on which the Agent is able to determine the LIBOR
Rate for such requested LIBOR Rate Loan.
Capital Expenditures - Any expenditure that would be
classified as a capital expenditure on a statement of cash flow of Borrower
prepared in accordance with GAAP, consistently applied.
Century Compliant - Software that is capable and will remain
capable of providing accurate results using data having date ranges spanning the
twentieth (20th) and twenty first (21st) centuries (the AY2K Period@).
Closing - Section 4.6.
<PAGE>
Closing Date - Section 4.6.
Closing Net Worth - The Net Worth of Borrower as of the date
of Closing.
Collateral - Section 3.1.
Credit Facility - The lending arrangements and all Advances
established and/or extended pursuant to this Agreement.
Default Rate - Section 2.4(c).
Distribution -
(1) Dividends or other distributions of any kind on
capital stock of Borrower;
(2) The redemption, repurchase or acquisition of such stock or
interests or of warrants, rights or other options to purchase such stock or
interests.
EBIT - The sum of Net Income before interest and taxes.
EBITDA - The sum of Net Income before interest, taxes,
depreciation, amortization and other non-cash charges approved by Majority
Lenders which approval will not be unreasonably withheld.
ERISA - The Employee Retirement Income Security Act of
1974, as the same may be amended, from
-----
time to time.
Event of Default - Section 8.1.
Expenses - Section 10.5.
Fixed Charge Ratio - EBITDA divided by: the sum of interest
expense plus income taxes paid plus scheduled principal payments plus Capital
Expenditures plus dividends paid.
GAAP - Generally accepted accounting principles applied in a
manner consistent with the most recent audited financial statements of Borrower
referred to in Section 5.7 herein.
Good Business Day - Any Business Day when banks in
Philadelphia, Pennsylvania, New York, New York and London, England are open for
business.
<PAGE>
Intercompany Notes - All notes, instruments, entries or other
evidence of any indebtedness between any of the Borrowers.
Interest Coverage - EBIT divided by interest expense.
Inventory - As defined in the UCC.
IRS - Section 6.7.
Liabilities - All liabilities of every kind as would be shown
on a balance sheet of Borrower prepared in accordance with GAAP.
LIBOR Based Rate - The LIBOR Rate plus the Applicable LIBOR
Rate Margin.
LIBOR Based Rate Loan - That portion of the Loans on which
interest accrues at the LIBOR Based
---------------------
Rate.
LIBOR Interest Period - Section 2.3(b)(ii).
<PAGE>
LIBOR Rate - An annual rate of interest determined by Agent as
being the rate available to Agent at approximately 11:00 a.m. London time in the
London Interbank Market, as referenced by Reuters Screen "LIBO", in accordance
with the usual practice in such market, for the LIBOR Interest Period elected by
Borrower, in effect two Good Business Days prior to the funding date for a
requested LIBOR Based Rate Loan (including those requested in connection with
the conversion of a Prime Rate Loan to a LIBOR Based Rate Loan in accordance
with Section 2.3 hereof), or for a LIBOR Based Rate Loan which Borrower has
elected to continue as a LIBOR Based Rate Loan beyond the expiration of the then
current LIBOR Interest Period with respect thereto, for deposits of dollars in
amounts equal (as nearly as may be estimated) to the amount of the LIBOR Based
Rate Loan which shall then be loaned by the Lenders to Borrower as of the time
of such determination, as such rate may be adjusted by the reserve percentage
applicable during the LIBOR Interest Period in effect (or if more than one such
percentage shall be applicable, the daily average of such percentages for those
days in such LIBOR Interest Period during which any such percentage shall be so
applicable) under regulations issued from time to time by the Board of Governors
of the Federal Reserve System (or any successor) for determining the applicable
reserve requirement (including without limitation, any emergency, supplemental
or other marginal reserve requirement) for the Agent with respect to liabilities
or assets consisting of or including "Eurocurrency Liabilities" as such term is
defined in Regulation D of the Board of Governors of the Federal Reserve System,
as in effect from time to time, having a term equal to such LIBOR Interest
Period ("Eurocurrency Reserve Requirement"), as reasonably applied to loans of
this type generally by the asset based loan department of Agent. Such adjustment
shall be effectuated by calculating, and the LIBOR Rate shall be equal to, the
quotient of (i) the offered rate divided by (ii) one minus the Eurocurrency
Reserve Requirement.
Lien - Any security interest or lien of any kind or nature in
property securing an obligation owed to, or a claim of any kind or nature in
Property by, a Person other than the owner of the Property, whether such
interest is based on the common law, statute, regulation or contract, and
including, but not limited to, a security interest or lien arising from an
encumbrance, pledge, conditional sale or trust receipt, a capitalized lease,
consignment or bailment for security purposes, a trust, or an assignment, or as
a result of the issuance of any execution or distraint process against Borrower.
The term "Lien" shall include without limitation, reservations, exceptions,
covenants, conditions, restrictions, leases and other encumbrances affecting
Property other than those which would not materially interfere with Borrower's
use of the Property and would not materially detract from the value of the
Property. For the purposes of this Agreement, Borrower shall be deemed to be the
owner of any Property which it has acquired or holds subject to a conditional
sale agreement or other arrangement pursuant to which title to the Property has
been retained by or vested in some other Person for security purposes.
Loans - Collectively, the unpaid balance of all Advances under
the Revolving Credit.
Loan Documents - This Agreement, the Revolving Credit Notes,
Subordination Agreements, Blocked Account Agreements and all agreements,
instruments and documents executed and/or delivered from time to time pursuant
to this Agreement or in connection therewith, as amended or replaced from time
to time.
Majority Lenders - At any time, Lenders holding Revolving
Credit Pro Rata Percentages aggregating at least sixty-six and two thirds
(66.66%) percent of the total Revolving Credit Pro Rata Shares at such time.
Material Adverse Effect - Any material adverse effect on the
Borrower's consolidated financial condition, assets, operating status or
projected financial condition or any fact or circumstance that, singly or in the
aggregate with any fact or circumstance, has a reasonable likelihood of
resulting in or leading to the inability of Borrower to perform in any material
respect its obligations under this Agreement or under any Loan Document or the
inability of Agent and/or Lenders to enforce in any material respect the rights
purported to be granted to them under this Agreement or any Loan Document or
which might have a material adverse effect on the ability of Borrower to
effectuate (including hindering or unduly delaying) the transactions
contemplated by this Agreement and the Loan Documents on the terms contemplated
hereby and thereby.
Minimum Net Worth - RCM=s consolidated Net Worth from and
after April 30, 1998 plus 75% of
------------------
quarterly net income with no credit for losses.
<PAGE>
Mellon - Mellon Bank, N.A., in its capacity as a Lender.
Net Income - Consolidated net income of RCM after taxes as
such would appear on a statement of income prepared in accordance with GAAP.
Net Worth - The amount by which the assets of Borrower exceed
all Liabilities.
Notes - Collectively the Revolving Credit Notes.
Obligations - All existing and future liabilities and
obligations of every kind or nature at any time owing by Borrower to Lenders,
Issuing Bank, and/or to Agent in connection with the Loan Documents (including,
without limitation, this Agreement and the Revolving Credit Notes) and the
transactions contemplated hereby and thereby or administration thereof, whether
joint or several, related or unrelated, primary or secondary, matured or
contingent, direct or indirect, due or to become due, and whether principal,
interest, fees or Expenses, including, without limitation, Obligations in
respect of the Credit Facility whether related to cash Advances and any
extensions, modifications, substitutions, increases and renewals thereof, and
the payment of all reasonable amounts advanced by Agent (or any Lender after the
occurrence of an Event of Default), on behalf of Lenders, to preserve, protect
and enforce rights hereunder and in the Collateral and all Expenses incurred in
connection therewith and herewith.
Permitted Acquisitions - Section 2.7.
Permitted Investments - (a) Investments in direct or indirect
obligations of, or obligations unconditionally guaranteed by, the United States
of America and maturing within twelve (12) months from the date of acquisition;
(b) investments in commercial paper of Agent or commercial paper rated "Prime-1"
by Moody's Investors Services or "A-1" by Standard & Poor's Corporation, or with
an equivalent rating by another rating agency of nationally recognized standing,
maturing within twelve (12) months from the date of acquisition; and (c)
certificates of deposit maturing within twelve (12) months from the date of
acquisition and issued by Agent.
PBGC - Section 6.7.
Permitted Liens - Section 7.3.
Person - An individual, partnership, corporation, trust,
unincorporated association or organization, joint venture, limited liability
company or partnership, or any other entity.
<PAGE>
Prime Rate - That per annum rate designated or announced by
Agent at its principal office from time to time as its prime rate of interest,
which may be greater or less than other interest rates charged by Agent to other
borrowers and is not solely based or dependent upon the interest rate which
Agent may charge any particular borrower or class of borrowers.
Prime Rate Loan - That portion of the Loans on which interest
accrues at the Prime Rate.
Prime Rate Option - Section 2.3(a).
Pro Rata Percentage - Section 2.1(a)(ii).
Property - Any interest in any kind of property or asset,
whether real, personal or mixed, or
--------
tangible or intangible.
Regulation D - Regulation D of the Board of Governors of the
Federal Reserve System, comprising Part 204 of Title 12, Code of Federal
Regulations, as amended, and any successor thereto.
Reserves - Section 2.1(a)(i).
Revolving Credit - Section 2.1(a)(i).
Revolving Credit Limit - $75,000,000.
Revolving Credit Loans - Section 2.1(a)(i).
Revolving Credit Maturity Date - August 19, 2001.
Revolving Credit Notes - Those notes described in Section
2.1(b), as they may be amended, supplemented, replaced or restated from time to
time.
Revolving Credit Pro Rata Share - Section 2.1(a)(ii).
Revolving Credit Term - Section 2.1(c).
SEC - The Securities and Exchange Commission.
Sellers Notes - Any notes or other instruments evidencing any
indebtedness or other obligations of Borrowers to a seller of an acquired or
merged Person.
Settlement Date - Section 2.2(b)(iii)(A).
<PAGE>
Software - collectively, all applications, operating and other
computer programs (including, without limitation, all object code and the source
code therefor), all documentation (including, without limitation, all
programmers=, users= and technical manuals for all such programs), the visual
expressions, screen formats, report formats and other design features of all
such programs, all ideas, methods, algorithms, formulae and concepts used in
developing and/or incorporated into such programs or documentation, all future
modifications, revisions, updates, releases, refinements, improvements and
enhancements of such programs or documentation, all derivative works based upon
any of the foregoing, and all copies of the foregoing.
Structuring Fee - Section 2.7(a).
Subsidiary - Any Person (other than an individual) more than
fifty percent (50%) of whose ownership interests or voting stock is legally and
beneficially owned directly or indirectly by Borrower or owned by a Person
(other than an individual) more than fifty percent (50%) of whose ownership
interests or voting stock is legally and beneficially owned directly or
indirectly by Borrower.
Termination Fee -Section 2.5(c).
Total Funded Debt - The sum of bank debt, capital leases,
as well as all other funded debt
-------------------
including Sellers Notes.
UCC - The Uniform Commercial Code as adopted in the State of
New Jersey
Unfunded Capital Expenditures - Capital Expenditures made with
(i) use of cash Advances or (ii) Borrower's own funds obtained other than (A)
through equity contributed subsequent to the Closing or (B) purchase money or
other financing or lease transactions.
Unmatured Event of Default - An event which with the passage
of time, the giving of notice, or both would constitute an Event of Default.
Unused Line Fee - Section 2.5(b).
Working Capital - Current assets minus current liabilities as
defined in accordance with GAAP.
1.2......Accounting Principles: Where the character or amount of any
asset or liability or item of income or expense is required to be determined or
any consolidation or other accounting computation is required to be made for the
purposes of this Agreement, this shall be done in accordance with GAAP, to the
extent applicable, except as otherwise expressly provided in this Agreement.
<PAGE>
SECTION 2. THE LOANS
2.1......Revolving Credit - Description:
(a) (i)......Subject to the terms and conditions of this
Agreement, each Lender hereby establishes for the benefit of Borrower a
revolving credit facility (collectively, the "Revolving Credit") which shall
include Advances extended by Lenders to or for the benefit of Borrower from time
to time hereunder ("Revolving Credit Loans"). The aggregate principal amount of
all Revolving Credit Loans, shall not, at any time, exceed the Revolving Credit
Limit. Subject to such limitation, the outstanding balance of Revolving Credit
Loans may fluctuate from time to time, to be reduced by repayments made by
Borrower, to be increased by future Revolving Credit Loans which may be made by
Lenders and, subject to the provisions of Section 8 below, shall be due and
payable on the Revolving Credit Maturity Date. If the aggregate principal amount
of all Revolving Credit Loans at any time exceeds the Revolving Credit Limit,
Borrower shall immediately repay such excess in full.
(ii) Subject to Section 8.3(a) below and the terms of this
Agreement, each Lender agrees to
lend to Borrower an amount equal to such Lender's respective percentage (as to
each Lender, the percentage of the Credit Facility set forth opposite its name
on Schedule "A" attached hereto and made a part hereof and referred to as its
"Pro Rata Percentage") of the Advance requested by Borrower. The outstanding
balance of Advances under the Revolving Credit of each Lender shall not exceed
the respective amount (as such amount may change from time to time in accordance
with the terms hereof, the "Revolving Credit Pro Rata Share") set forth opposite
its name on Schedule "A".
(b) At Closing, Borrower shall execute and deliver its
promissory note to each Lender for the total principal amount of such Lender's
Revolving Credit Pro Rata Share (collectively, as may be amended, modified or
replaced from time to time, the "Revolving Credit Notes"). Each Revolving Credit
Note shall evidence Borrower's absolute and unconditional obligation to repay
such Lender for all outstanding Revolving Credit Loans owed to such Lender, with
interest as herein and therein provided. Each and every Advance under the
Revolving Credit shall be deemed evidenced by the Revolving Credit Notes, which
are deemed incorporated herein by reference and made a part hereof. All
Revolving Credit Notes shall be substantially in the form set forth in Exhibit
"2.1" attached hereto and made a part hereof.
(c) The term of the Revolving Credit ("Revolving Credit Term")
shall expire on the Revolving Credit Maturity Date. On such date, unless having
been sooner accelerated by Agent on behalf of Lenders or sooner terminated by
Borrower pursuant to Section 2.5(c) hereof, all Obligations shall be due and
payable in full, and as of and after such date no further Advances shall be
available from Lenders.
<PAGE>
(d) Borrower may, at its option from time to time, permanently
reduce the Revolving Credit Limit in $5,000,000 increments by giving Agent at
least ten (10) days prior written notice.
2.2......Advances, Conversions, Renewals and Payments:
(a) Except to the extent otherwise set forth in this
Agreement, all payments of principal and of interest on the Revolving Credit,
the Structuring Fee, the Expenses, the Unused Line Fee and all other charges and
any other Obligations of Borrower hereunder, shall be made to Agent at its main
Philadelphia banking office, Mellon Bank Center, 1735 Market Street,
Philadelphia, Pennsylvania, in United States dollars, in immediately available
funds. Agent, on behalf of all Lenders, shall have the unconditional right and
discretion to make a cash Advance under the Revolving Credit to pay, and/or to
charge RCM's operating account with Agent or any Lender for, all of Borrower's
Obligations as they become due from time to time under this Agreement including
without limitation, interest, principal, fees and reimbursement of Expenses. Any
cash Advance shall not, in any event, cause the Loans to exceed the Revolving
Credit Limit.
(b) (i)......Cash Advances which may be made by Lenders from
time to time under this Agreement shall be made available for the use and
benefit of Borrower by crediting such proceeds to RCM's operating account with
Agent.
....... (ii).....All cash Advances subject to the Prime Rate Option
requested by RCM under the Revolving Credit must be requested by 11:00 A.M.,
Philadelphia time, on the date such Advance is to be made, which must be a
Business Day. All cash Advances subject to the LIBOR Rate Option or conversions
from cash Advances subject to the Prime Rate Option to the LIBOR Rate Option,
requested by Borrower must be requested by 11:00 A.M. Philadelphia time, three
Good Business Days prior to the date of such requested cash Advance or
conversion. If Borrower does not have the required availability for such
requested Advance on the date any such LIBOR Based Rate Loan is to be made, then
Lenders shall not be required to make such Advance. All remittances at any time
among Lenders and Agent under this Agreement shall be made in immediately
available funds by federal funds wire transfer. All requests for a cash Advance
may be made either by telephone or in writing, provided that all telephonic
requests are, upon Agent's request, to be confirmed by Borrower in writing on
the same day, and further provided that such written confirmation may be sent by
telecopy or facsimile transmission. No Lender shall be obligated, for any reason
whatsoever, to advance or reimburse Agent for the share of any other Lender.
<PAGE>
(iii) A. Between each Settlement Date, Agent, in its capacity as a Lender,
shall have the
discretion (without any duty or obligation regardless of any prior practice or
procedures) to make all cash Advances for the account and on behalf of the
Lenders in accordance with each Lender's Pro Rata Percentage. Periodically but
not less frequently than once every week on the same day of each week, unless
such day is not a Business Day, in which event such determination shall be made
the next Business Day ("Settlement Date"), Agent shall make a determination of
the appropriate dollar amount of each Lender's Revolving Credit Loans based upon
each such Lender's Pro Rata Percentage of all then outstanding Revolving Credit
Loans, which amounts shall be calculated as of the close of the Business Day
immediately preceding each respective Settlement Date. A Settlement Date shall
occur notwithstanding any intervening Event of Default or other occurrence,
event or circumstance, including without limitation the commencement of a
bankruptcy or reorganization case. Amounts of principal paid to Agent by
Borrower with respect to the Revolving Credit from time to time, between
Settlement Dates, shall be applied to the outstanding balance of Revolving
Credit Loans made by Agent, as a Lender pursuant hereto, with the outstanding
balance of Revolving Credit Loans made by each other Lender to be adjusted on
the next Settlement Date. Interest shall accrue and each Lender shall be
entitled to receive interest at the applicable rate only on the actual
outstanding dollar amount of its respective outstanding Loans without regard to
a prospective settlement. On each Settlement Date, Agent shall then issue to
each Lender a settlement schedule containing information with respect to the
status of the Loans and the relevant net positions of the Lenders and the
outstanding balances of their respective Loans as of the close of the Business
Day preceding such Settlement Date. Each settlement schedule shall show the net
amount then owing by each Lender to Agent or by Agent to each such Lender based
upon the aggregate cash Advances made and collections received since the most
recent Settlement Date and settlement among the Lenders and the Agent shall be
made in accordance with the direction of Agent no later than 11:00 A.M.
Philadelphia time, on each Settlement Date. To the extent Agent is not
reimbursed by any Lender on a Settlement Date in accordance with Agent's
direction, Borrower shall immediately repay Agent on demand the amount of any
reimbursement not so made by any Lender.
. B. Each Lender is absolutely and unconditionally obligated
without setoff or deduction of any kind, to remit to Agent on the Settlement
Date any amount owing to Agent by such Lender on the settlement schedule for
such date. Agent shall also be entitled to recover any and all actual losses and
damages (including without limitation, reasonable attorneys' fees) from any
party failing to remit payment on the Settlement Date in accordance with this
Agreement. Agent may set off the obligations of such party under this paragraph
against any distributions or payments of the Obligations which such party would
otherwise make available at any time.
<PAGE>
(iv).....A. In lieu of the procedure set forth in
the preceding subparagraph (iii),
Agent shall provide the Lenders with notice that the Borrower has requested a
cash Advance, on the same Business Day as such request, and request each Lender
to provide Agent with such Lender's Pro Rata Percentage of such requested cash
Advance prior to Agent's making such cash Advance. Upon receipt of such notice
from Agent prior to 12:00 p.m., Philadelphia time, each Lender shall remit to
Agent its respective Pro Rata Percentage of such requested cash Advance, prior
to 1:00 P.M. Philadelphia time, on the Business Day Agent is scheduled to make
such cash Advance in accordance with Section 2.2(b)(ii) hereof. Neither Agent
nor any other Lender shall be obligated, for any reason whatsoever, to remit or
advance the share of any other Lender. Agent shall not be required to make the
full amount of the requested cash Advance unless and until it receives funds
representing each other Lender's Pro Rata Percentage of such requested cash
Advance, but Agent shall advance to Borrower that portion of the requested cash
Advance equal to the Pro Rata Percentages of such requested cash Advance which
it has received from the Lenders.
B. If Agent does not receive each other
Lender's Pro Rata Percentage of
such requested cash Advance, and Agent elects, in its sole discretion, to make
the requested cash Advance on behalf of Lenders or any of them, Agent shall be
entitled to recover each Lender's Pro Rata Percentage of each cash Advance
together with interest at a per annum rate equal to the federal funds rate
during the period commencing on the date such cash Advance is made and ending on
(but excluding) the date Agent recovers such amount. Each Lender is absolutely
and unconditionally obligated, without deduction or setoff of any kind, to
forward to Agent its Pro Rata Percentage of each cash Advance made pursuant to
the terms of this Agreement. To the extent Agent is not reimbursed by such
Lender, Borrower shall repay Agent immediately on demand, such amount. Agent
shall also be entitled to recover any and all actual losses and damages
(including, without limitation, reasonable attorneys' fees) from any Lender
failing to so advance upon demand of Agent. Agent may set off the obligations of
a Lender under this paragraph against any distributions or payments of the
Obligations which Agent would otherwise make available to such Lender at any
time.
(v)......To the extent and during the time period in
which any Lender fails to provide
or delays providing its respective payment to Agent pursuant to clause (iii) or
(iv) above (any such Lender being referred to, during such period, as a
"Defaulting Lender"), such Lender's percentage of all payments of the
Obligations (but not its Pro Rata Percentage of future Advances required to be
funded by such Lender) shall decrease to reflect the actual percentage which its
actual outstanding Loans bears to the total outstanding Loans of all Lenders and
said amount shall be subordinate to the outstanding Loans of all Lenders.
In addition, notwithstanding any definition or other provision in this
Agreement to the contrary, during any period in which a Lender is a Defaulting
Lender and such default continues for three (3) Good Business Days, all
calculations for voting purposes among the Lenders shall be made as if the
Defaulting Lender were not a Lender and not a party to this Agreement.
2.3......Interest:
(a) Prime Rate Option - The unpaid principal balance of Loans,
unless subject to the LIBOR Rate Option, shall bear interest, subject to the
terms hereof, at the per annum rate equal to the Prime Rate. Changes in the
Prime Rate shall become effective on the same day as Agent announces a change in
its Prime Rate. Interest on Prime Rate Loans shall be due and payable in arrears
on the first day of each calendar month commencing the first day of the first
full month following the Closing Date.
<PAGE>
(b) LIBOR Rate Option:
(i)......So long as no Event of Default has occurred
and is continuing, Borrower shall
have the option to have the unpaid principal balance of Loans bear interest at
the LIBOR Based Rate ("LIBOR Rate Option"), provided that LIBOR Rate Loans shall
be in a minimum amount of One Million Dollars ($1,000,000.00). In no event,
however, may Borrower have more than five (5) LIBOR Rate Loans outstanding at
any one time.
(ii).....LIBOR Based Rate Loans shall be selected for
a period of either one month, two
months, three months or six months duration, as the Borrower may elect, during
which the LIBOR Based Rate is applicable ("LIBOR Interest Period"); provided,
however, that (a) if the LIBOR Interest Period would otherwise end on a day
which shall not be a Good Business Day, such LIBOR Interest Period shall be
extended to the next succeeding Good Business Day, unless such Good Business Day
falls in another calendar month, in which case such LIBOR Interest Period shall
end on the next preceding Good Business Day subject to clause (c) below; (b)
interest shall accrue from and including the first day of each LIBOR Interest
Period to, but excluding the day on which any LIBOR Interest Period expires; and
(c) with respect to any LIBOR Interest Period which begins on the last Good
Business Day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such LIBOR Interest
Period), the LIBOR Interest Period shall end on the last Good Business Day of a
calendar month. Interest on a LIBOR Based Rate Loan shall be due and payable in
arrears on the last day of the applicable LIBOR Interest Period. No LIBOR
Interest Period may end after the Revolving Credit Maturity Date. Subject to all
of the terms and conditions applicable to a request that a new cash Advance be a
LIBOR Based Rate Loan, Borrower may extend a LIBOR Based Rate Loan as of the
last day of the LIBOR Interest Period to a new LIBOR Based Rate Loan or, subject
to clause (i) above, may convert a portion of the Loans subject to the Prime
Rate Option to a LIBOR Based Rate Loan. If the Borrower fails to notify the
Agent of the LIBOR Interest Period for a subsequent LIBOR Based Rate Loan at
least three Good Business Days prior to the last day of the then current LIBOR
Interest Period of an outstanding LIBOR Based Rate Loan, then such outstanding
LIBOR Based Rate Loan shall become a loan subject to the Prime Rate Option at
the end of the current LIBOR Interest Period for such outstanding LIBOR Based
Rate Loan and shall accrue interest in accordance with Section 2.3(a) above.
<PAGE>
(iii) The LIBOR Rate may be automatically adjusted by Agent
on a prospective basis to take
into account the additional or increased cost of maintaining any necessary
reserves for Eurodollar deposits or increased costs due to changes after the
date hereof in applicable law or regulation or the interpretation thereof
occurring subsequent to the commencement of the then applicable LIBOR Interest
Period, including but not limited to changes after the date hereof in tax laws
(except changes of general applicability in corporate income tax laws as they
affect financial institutions) and changes in the reserve requirements imposed
by the Board of Governors of the Federal Reserve System (or any successor),
excluding any such changes that have resulted in a payment pursuant to Section
2.9 hereof, that increase the cost to Lenders of funding the LIBOR Based Rate
Loan. Agent shall promptly give the Borrower and each Lender notice of such a
determination and adjustment, which determination shall be conclusive as to the
correctness of the fact and the amount of such adjustment, absent manifest
error. The Borrower may, by written notice to Agent, (A) request Agent to
furnish to the Borrower a statement setting forth the basis for adjusting such
LIBOR Based Rate and the method for determining the amount of such adjustment;
and/or (B) prepay the LIBOR Based Rate Loan with respect to which such
adjustment is made, subject to the requirements of Section 2.8 below.
(iv).....In the event that the Borrower shall have
requested the LIBOR Rate Option in
accordance with Section 2.3(b) and Agent shall have reasonably determined that
Eurodollar deposits equal to the amount of the principal of the requested LIBOR
Based Rate Loan and for the LIBOR Interest Period specified are unavailable,
impractical or unlawful, or that the rate based on the LIBOR Rate will not
adequately and fairly reflect the cost of funds of the LIBOR Based Rate
applicable to the specified LIBOR Interest Period, of making or maintaining the
principal amount of the requested LIBOR Based Rate Loan specified by the
Borrower during the LIBOR Interest Period specified, or that by reason of
circumstances affecting Eurodollar markets, adequate and reasonable means do not
exist for ascertaining the rate based on the LIBOR Rate applicable to the
specified LIBOR Interest Period, Agent shall promptly give notice of such
determination to the Borrower that the rate based on the LIBOR Rate is not
available. A determination by Agent hereunder shall be prima facie evidence of
the correctness of the fact and amount of such additional costs or
unavailability. Upon such a determination, (A) the right of Borrower to select,
convert to, or maintain a LIBOR Based Rate Loan at the rate based on the LIBOR
Rate shall be suspended until Agent shall have notified the Borrower that such
conditions shall have ceased to exist, (which notice Agent shall give promptly
after such cessation) and (B) the Loans subject to the requested LIBOR Rate
Option shall accrue interest in accordance with Section 2.3(a) above.
(v)......In the event that, as a result of any
changes in applicable law or regulation
or the interpretation thereof after the date hereof, it becomes unlawful for a
Lender to make or to continue to fund or maintain LIBOR Based Rate Loans or to
maintain Eurodollar liabilities sufficient to fund any LIBOR Based Rate Loan
subject to the LIBOR Based Rate, then such Lender shall immediately notify Agent
who shall immediately notify the other Lenders and Borrower thereof and such
Lender's obligations to make, convert to, or maintain a LIBOR Based Rate Loan at
the LIBOR Based Rate shall be suspended until such time as such Lender may again
cause the LIBOR Based Rate to be applicable to its share of any LIBOR Based Rate
Loans and such Lender's share of the Loans subject to the LIBOR Based Rate shall
accrue interest in accordance with Section 2.3(a) above. Promptly after becoming
aware that it is no longer unlawful for such Lender to maintain such Eurodollar
liabilities, such Lender shall notify Agent who will notify Borrower thereof and
such suspension shall cease to exist.
<PAGE>
2.4......Additional Interest Provisions.
(a) Calculation of Interest: Interest on the Loans, regardless
of the rate option, shall be based on a three hundred sixty (360) day year and
charged for the actual number of days elapsed.
(b) Limitation on LIBOR Based Rate Loans: Upon the occurrence
and continuance of an Event of Default described in Section 8 below, Agent may
in its sole discretion eliminate the availability of LIBOR Based Rate Loans.
(c) Default Rate: After the occurrence and during the
continuance of an Event of Default hereunder, Agent may, and shall at the
direction of the Majority Lenders, increase the per annum effective rate of
interest on all Loans outstanding under the Revolving Credit, regardless of the
rate option, to a rate equal to two (2%) percentage points in excess of the then
current applicable interest rate (the "Default Rate"). Borrower acknowledges
that the Default Rate is imposed as a direct result of the increased cost
attendant to the administration of the Revolving Credit because of said Event of
Default.
(d) Continuation of Interest Charges: All contractual rates of
interest chargeable on outstanding Loans, regardless of the rate option, shall
continue to accrue and be paid even after default, maturity, acceleration,
judgment, bankruptcy, insolvency proceedings of any kind or the happening of any
event or occurrence similar or dissimilar.
(e) Applicable Interest Limitations: In no contingency or
event whatsoever shall the aggregate of all amounts deemed interest hereunder
and charged or collected pursuant to the terms of this Agreement exceed the
highest rate permissible under any law which a court of competent jurisdiction
shall, in a final determination, deem applicable hereto. In the event that such
court determines Lenders have charged or received interest hereunder in excess
of the highest applicable rate, Agent, on behalf of Lenders, shall in its sole
discretion, apply and set off such excess interest received by Lenders against
other Obligations due or to become due and such rate shall automatically be
reduced to the maximum rate permitted by such law.
2.5 .....Fees:
(a) Structuring Fee: As of the Closing, Borrower shall have
paid to Agent a non-refundable structuring fee (AStructuring Fee@) as set forth
in a certain letter agreement between Mellon and the Borrower dated July 21,
1998 ("Agent Fee Letter").
<PAGE>
(b) Unused Line Fee: So long as the Revolving Credit is
outstanding and has not been terminated pursuant to the terms hereof, Borrower
shall unconditionally pay to Agent, for the benefit of Lenders in accordance
with their Pro Rata Percentages, a non-refundable fee ("Unused Line Fee") based
on the Borrower=s financial condition tested quarterly as follows:
Total Funded
Debt to EBITDA Unused Line Fee
1. > 2.50X - 3.25X 30.0 bp
-
2. > 2.0X - 2.50X 25.0 bp
3. > 1.50X - 2.0X 20.0 bp
-
4. < 1.50X 15.0 bp
The Unused Line Fee shall be charged on the average daily unused portion of the
Revolving Credit calculated by subtracting the average daily outstanding balance
of all Revolving Credit Loans from the Revolving Credit Limit. The Unused Line
Fee shall be computed and paid on a quarterly basis, in arrears, on the first
day of each April, July, October and January beginning on October 1, 1998.
(c) Termination Fee: Borrowings under the LIBOR Based Rate may
not be repaid other than on the last day of the applicable interest period. If
Borrower prepays a portion or all of the outstanding debt under a LIBOR Based
Rate Loan option prior to the last day of the applicable interest period,
Borrower shall indemnify Agent on behalf of Lenders against any loss or expense
which Agent on behalf of Lenders has sustained or incurred as a consequence of
the prepaid portion. The ATermination Fee@ means the amount which Borrower shall
pay to Lender as a premium in connection with a repayment of outstanding
principal earning interest at the LIBOR Based Rate at the time of repayment
which amount shall be the amount determined by Agent on behalf of Lenders to be
the difference between (a) the present value of the interest payments that would
have been paid in the future to Agent on behalf of Lenders by Borrower on such
repaid portion of principal accruing at the LIBOR Rate but for such repayment,
and (b) the present value of the interest payments that would be paid in the
future to Agent on behalf of Lenders at the United States Treasury Rate if on or
about the date of repayment Agent on behalf of Lenders made a hypothetical
investment of the repaid portion of principal accruing at a fixed rate of
interest in United States Treasury securities maturing on or about the date that
the repaid portion of principal would have matured but for such repayment and
bearing interest accruing from the date of repayment, payable on each date on
which Undersigned, but for such repayment, would have paid interest on the
repaid portion of principal. AUnited States Treasury Rate@ means a rate of
interest per annum, equal to (rounded downward to the nearest 1/100 of one
percent) the annual yield Agent on behalf of Lenders could obtain by purchasing
on the date of repayment United States Treasury Securities with semi-annual
interest payments, maturing on or about the date on which the repaid portion of
principal would have matured.
(d) Origination Fee: As set forth in the Agent Fee Letter.
<PAGE>
(e) Agency Fee: As set forth in the Agent Fee Letter.
(f) Calculation of Fees: All fees provided for in this Section
2.5 shall be based on a three hundred sixty (360) day year and charged for the
actual number of days elapsed.
(g) Lenders= Fees: Lenders will receive up front fees as set
forth in the offer letter dated July 23, 1998 payable at closing, which will be
for the account of Borrower.
2.6......Prepayments:
(a) LIBOR Based Rate Loans: Subject to the terms of the Agent
Fee Letter, apart from the provisions of Section 2.5(c) above, if applicable, no
portion of any LIBOR Based Rate Loan may be prepaid at any time unless Borrower
first satisfies in full its obligations under Section 2.8 below arising from
such prepayment.
(b) Prime Rate Loans: Subject to the terms of the Agent Fee
Letter, Prime Rate Loans may be prepaid at any time and from time to time in
whole or in part without premium or penalty.
(c) Proceeds of Collateral: Except for sales or dispositions
in the ordinary course of Borrower=s business and with respect to equipment
which is replaced, Borrower shall, upon the receipt of proceeds from the sale or
other disposition of any Collateral, hold such proceeds in trust for Lenders and
immediately remit in specie, all such proceeds to Agent.
2.7......Use of Proceeds: The extensions of credit hereunder and
proceeds of the Loans shall be used for (i) acquisition financing (subject to
the conditions set forth below), and (ii) working capital and other general
corporate purposes. All acquisitions must be approved by Majority Lenders if
Funded Debt to EBITDA of the merged entity (for the prior rolling two (2)
quarters times two (2)) exceeds 1.5X on a proforma basis. Any acquisition of an
entity exhibiting negative EBITDA in the preceding 12 months must be approved by
Majority Lenders. All Acquisitions shall be in the same line or similar line of
business and show historical and pro forma covenant compliance based on
unadjusted historical financial basis. The results of due diligence, including
review of the acquisition documents shall be to the satisfaction of Majority
Lenders. Notwithstanding anything herein to the contrary, any Acquisition shall
have been approved by the Board of Directors or like governing body of the
acquiree.
2.8......Indemnity/Loss of Margin:
<PAGE>
(a) Borrower shall indemnify, defend and hold harmless Agent
and Lenders against any and all out of pocket loss, liability, cost or expense
which Agent and any Lender or Lenders may sustain or incur as a consequence of
(i) any failure of Borrower to obtain, convert or extend any LIBOR Based Rate
Loan after notice thereof has been given to Agent; or (ii) any payment,
prepayment, termination or conversion of a LIBOR Based Rate Loan made for any
reason on a date other than the last day of the applicable LIBOR Interest
Period. Borrower shall pay the full amount thereof to Agent, for the ratable
benefit of Lenders, within fifteen (15) days on demand by Agent.
(b) In the event that any future law, rule, regulation, treaty
or official directive or the interpretation or application thereof by any
central bank, monetary authority or governmental authority, or the compliance
with any future guideline or request of any central bank, monetary authority or
governmental authority (whether or not having the force of law) imposes,
modifies or deems applicable any deposit insurance, reserve, special deposit, or
other similar requirement with respect to deposits in or for the account of, or
loans or advances or commitment to make loans or advances by a Lender and the
result of any of the foregoing is to increase the costs of a Lender, reduce the
income receivable by or return on equity of Lender or impose any expense upon
Lender with respect to any advances or extensions of credit or commitments to
make advances or extensions of credit under this Agreement, such Lender shall so
notify Agent in writing. Upon notice from Agent, Borrower agrees to pay such
Lender the amount of such increase in cost, reduction in income, reduced return
on equity or capital, or additional expense after presentation by such Lender of
a statement in reasonable detail concerning such increase in cost, reduction in
income, reduced return on equity or capital, or additional expense. Such
statement shall be limited to ninety (90) days and shall set forth a brief
explanation of the amount and such Lender's calculation of the amount (in
determining such amount such Lender may use any reasonable averaging and
attribution methods), which statement shall be conclusively deemed correct
absent error. The terms of this Agreement and the Loan Documents shall be
amended to eliminate any such expenses and/or loss to Lenders.
<PAGE>
2.9......Capital Adequacy: If any future law, governmental rule,
regulation, policy, guideline, directive or similar requirement (whether or not
having the force of law) imposes, modifies, or deems applicable any capital
adequacy, capital maintenance or similar requirement which affects the manner in
which any Lender allocates capital resources to its commitments (including any
commitments hereunder), and as a result thereof, in the opinion of such Lender,
the rate of return on such Lender's capital with regard to the Loans and/or its
obligations hereunder is reduced to a level below that which such Lender could
have achieved but for such circumstances taking into account such Lender's
policies regarding capital adequacy, then in such case and upon notice from
Agent to Borrower, from time to time, Borrower shall pay such Lender such
additional amount or amounts as shall compensate such Lender for such reduction
in its rate of return. Such notice shall contain the statement of such Lender in
reasonable detail with regard to any such amount or amounts which shall, in the
absence of error, be binding upon Borrower. In determining such amount, such
Lender may use any reasonable method of averaging and attribution that it deems
applicable. In the event that a Lender, other than Mellon, exercises its rights
under this Section 2.9, Borrower shall have the option to replace such Lender
with another financial institution (acceptable to Agent) who will purchase all
(but not part) of such Lender's Revolving Credit Pro Rata Share. Such Lender
shall be required to assign and transfer to the financial institution obtained
by Borrower, pursuant to an agreement reasonably satisfactory to such Lender and
without representation, warranty or recourse, its respective Revolving Credit
Pro Rata Share in exchange for full payment of the outstanding balances thereof,
with accrued interest and unpaid fees.
SECTION 3. COLLATERAL
3.1......Description: As security for the payment of the Obligations,
and satisfaction by Borrower of all covenants and undertakings contained in this
Agreement and the other Loan Documents:
(a) Borrower hereby assigns and grants to Agent, on behalf of
Lenders and Issuing Bank, a continuing first lien on and security interest in,
upon and to all of its following described Property ("Collateral"):
(i)......Accounts, Contract Rights, Etc. -
All now owned and hereafter acquired,
----------------------------------
created, or arising Accounts, accounts receivable, notes receivable, contract
rights, chattel paper, documents (including documents of title), instruments and
letters of credit;
(ii).....Inventory - All now owned or hereafter
acquired, created or arising Inventory
---------
of every nature and kind, wherever located;
(iii)....Equipment - Except as set forth in Section
7.3(d), all now owned or hereafter
---------
acquired equipment, including without limitation machinery, furniture and
fixtures, wherever located, and all replacements, parts, accessories,
substitutions and additions thereto;
(iv)....General Intangibles - All now owned and
hereafter acquired, created or arising
-------------------
general intangibles of every kind and description, including, but not limited,
to all existing and future customer lists, telephone lists and directories,
choses in action, loans, claims, books, records, patents and patent
applications, copyrights, trademarks, tradenames, tradestyles, trademark
applications, blueprints, drawings, designs and plans, trade secrets, formulae,
tax and any other types of refunds, rights to or in employee or other pension,
retirement or similar plans and any assets thereof, or any portion thereof,
including without limitation refunds for overpayments, distributions upon
termination, reversion of any surplus assets or otherwise, returned and unearned
insurance premiums, rights and claims under insurance policies relating to the
Collateral, computer information, software, records, data and, except where the
terms of same prohibit the grant of a security interest, contracts, contract
rights, distributorship agreements, licenses and license agreements.
<PAGE>
(v).....Deposit Accounts and Related Property
- - All now existing and hereafter
-----------------------------------------
acquired or arising deposit accounts, investment accounts, commercial paper,
investment property, including investment securities, and certificates of
deposit, of every nature, wherever located, and all documents and records
associated therewith;
(vi).....Property in Lender's Possession - All
Property, now or hereafter in Agent's or
-------------------------------
any Lender's possession;
(vii)....Other Property - All other personal
Property of such entity not described
---------------
above whether now existing or hereafter acquired;
(viii)...Proceeds - The proceeds (including,
without limitation, insurance proceeds),
--------
whether cash or non-cash, of all of the foregoing; and
(ix) Intercompany Notes - All Intercompany Notes.
3.2......Lien Documents: At Closing and thereafter as Agent deems
necessary, Borrower shall execute and deliver to Agent, or have executed and
delivered (all in form and substance reasonably satisfactory to Agent):
(a) Financing Statements - Financing statements pursuant to
the UCC, which Agent, on behalf of Lenders, may file in any jurisdiction where
any Collateral is or may be located and in any other jurisdiction that Agent
deems appropriate; and
(b) Other Agreements - Any other agreements, documents,
instruments and writings, including, without limitation, patent and trademark
security agreements, reasonably required by Agent to evidence, perfect or
protect Lenders' Liens and security interests in the Collateral or as Agent may
reasonably request from time to time.
3.3......Other Actions: In addition to the foregoing, Borrower shall do
anything further that may be lawfully and reasonably required by Agent to secure
Lenders and effectuate the intentions and objects of this Agreement, including,
but not limited to, execution and delivery of continuation statements,
amendments to financing statements, security agreements, contracts and any other
documents required hereunder. At Agent's request, Borrower shall also promptly
deliver (with execution by Borrower of all necessary documents or forms to
reflect Agent's Lien thereon) to Agent as bailee for Lenders, all items for
which Lenders must receive possession to obtain a perfected security interest,
including without limitation, all notes, letters of credit, documents of title,
chattel paper, warehouse receipts, instruments, and any other similar
instruments constituting Collateral.
3.4......Searches: Agent shall, prior to or at Closing, and thereafter
as Agent or Majority Lenders acting through Agent may reasonably determine from
time to time, at Borrower's expense, obtain the following searches (the results
of which are to be consistent with the warranties made by Borrower in this
Agreement):
<PAGE>
(a) UCC Searches: UCC searches with the Secretary of State and
local filing office of each state where Borrower maintains its executive office,
a place of business, or assets;
(b) Judgments, Etc.: Judgment, federal tax lien and corporate
tax lien searches, in all applicable filing offices of each state searched under
subparagraph (a) above.
Borrower shall, prior to or at Closing and at its expense,
obtain and deliver to Agent good standing certificates showing Borrower to be in
good standing in its state of incorporation and in each other state or foreign
country in which it is doing and presently intends to do business except any
such jurisdiction for which such failure to be so qualified will not have a
Material Adverse Effect or adversely effect Agent's and/or Lenders' rights
hereunder.
3.5......Landlord's Waivers: Borrower will use commercially reasonable
efforts to cause each landlord or warehouseman of all premises occupied by
Borrower or to be occupied by Borrower, or where Collateral at any time is held
to execute and deliver to Agent an instrument, in form and substance reasonably
satisfactory to Agent, under which such landlord or warehouseman waives
its/his/their right to distrain on or foreclose against the Collateral.
3.6......Filing Security Agreement: A carbon, photographic or other
reproduction or other copy of this Agreement or of a financing statement is
sufficient as and may be filed in lieu of a financing statement.
3.7......Power of Attorney: Each of the officers of Agent is hereby
irrevocably made, constituted and appointed the true and lawful attorney for
Borrower (without requiring any of them to act as such) with full power of
substitution to do the following: (a) endorse the name of Borrower upon any and
all checks, drafts, money orders and other instruments for the payment of monies
that are payable to Borrower and constitute collections on Borrower's Accounts
or proceeds of other Collateral; (b) execute in the name of Borrower any
financing statements, schedules, assignments, instruments, documents and
statements that Borrower is obligated to give Agent hereunder or is necessary to
perfect Agent's security interest or lien in the Collateral; (c) to verify
validity, amount or any other matter relating to the Collateral by mail,
telephone, telecopy or otherwise in accordance with the customary procedures of
Agent's asset based lending department; and (d) following an Event of Default
and during the continuance thereof, do such other and further acts and deeds in
the name of any such entity that Agent may reasonably deem necessary or
desirable to enforce any Account or realize upon any other Collateral. This
power of attorney is coupled with an interest, and is irrevocable until the
Obligations are indefeasibly paid in full.
3.8......Verifications: Agent, on behalf of Lenders, shall be entitled
to verify validity, amount, or any other matter relating to the Collateral by
mail, telephone, telecopy or otherwise in accordance with the customary
procedures of Agent.
<PAGE>
SECTION 4. CLOSING AND CONDITIONS PRECEDENT TO ADVANCES
Closing under this Agreement is subject to the following conditions
precedent (all documents to be in form and substance satisfactory to Agent and
Lenders and their respective counsel):
4.1......Resolutions, Opinions, and Other Documents: Each of Borrowers
shall have delivered to Agent the -------------------------------------------
following:
(a) this Agreement and the Revolving Credit Notes all properly executed;
(b) each document and agreement required to be executed under any provision
of this Agreement or any related agreement;
(c) certified copies of (i) resolutions of the board of
directors of Borrower authorizing the execution of this Agreement, and the
Revolving Credit Notes to be issued hereunder and each document required to be
delivered by any Section hereof and (ii) Borrower's Articles or Certificate of
Incorporation and By-laws;
(d) an incumbency certificate for Borrower identifying all Authorized
Officers, with specimen signatures;
(e) a written opinion of Borrower's independent counsel
addressed to Agent for the benefit of all Lenders and opinions of such other
counsel as Agent deems necessary;
(f) certification by Borrower signed on its behalf by the
chief financial officer of Borrower that there has not occurred any material
adverse change in the operations and condition (financial or otherwise) of
Borrower since April 30, 1998.
(g) payment by Borrower of all fees including, without
limitation, the Agency Fee owing to Agent and/or Lenders and Expenses associated
with the Revolving Credit incurred to the Closing Date;
(h) Agreements subordinating all Intercompany Notes including
but not limited to intercompany or acquisition related indebtedness and other
indebtedness which is not Permitted Indebtedness;
(i) Uniform Commercial Code, judgment, federal and state tax
lien searches against Borrower, at Borrower's expense, showing that the Property
of Borrower is not subject to any Liens except for Permitted Liens, together
with Good Standing and Corporate Tax Lien Search Certificates showing no Liens
on Borrower's Property and showing Borrower to be in good standing in each
jurisdiction as required by Section 3.4 above;
<PAGE>
(j) certificates evidencing each Borrower=s compliance in all material
respects with all Federal, State and local laws;
(k) all documents necessary to evidence and perfect Lender=s
security interests in Borrowers intellectual property including but not limited
to trademark and copyright assignments, registration with the U.S. Patent and
Copyright offices and powers of attorney;
(l) certified copies of or original hazard, liability,
business interruption and workman=s compensation insurance, coverage on terms
and in amounts acceptable to Lenders and shall have Agent named as co-insured
loss payee, on behalf of Lenders; and
4.2......Absence of Certain Events: At the Closing Date, no Event of
Default or Unmatured Event of --------------------------
Default hereunder shall have occurred and be continuing.
4.3......Warranties and Representations at Closing: The warranties and
representations contained in Section 5 as well as any other Section of this
Agreement shall be true and correct in all material respects on the Closing Date
with the same effect as though made on and as of that date. Borrower shall not
have taken any action or permitted any condition to exist which would have been
prohibited by any Section hereof.
4.4......Compliance with this Agreement: Borrower shall have performed
and complied with all agreements, covenants and conditions contained herein
including, without limitation, the provisions of Sections 6 and 7 hereof, which
are required to be performed or complied with by Borrower before or at the
Closing Date.
4.5......Officer's Certificate: Agent shall have received a certificate
dated the Closing Date and signed on the Borrower=s behalf by the chief
financial officer and President of each Borrower certifying that all of the
conditions specified in this Section have been fulfilled.
4.6......Closing: Subject to the conditions of this Section 4, the
Credit Facility shall be made available on the date ("Closing Date") this
Agreement is executed and all of the conditions contained in Section 4.1 hereof
are completed or waived by Agent (the "Closing").
4.7......Non-Waiver of Rights: By completing the Closing hereunder, or
by making advances hereunder, Agent and Lenders do not thereby waive a breach of
any warranty or representation made by Borrower hereunder or any agreement,
document, or instrument delivered to Agent or any Lender, or otherwise referred
to herein, including without limitation, the Existing Loan Documents, any claims
and rights of Agent or any Lender resulting from any breach or misrepresentation
by Borrower are specifically reserved by Agent and Lenders.
<PAGE>
SECTION 5. REPRESENTATIONS AND WARRANTIES
To induce Lenders to complete the Closing and make the initial Advances
under the Revolving Credit to Borrower, each Borrower warrants and represents to
Agent and Lenders that:
5.1......Corporate Organization and Validity:
(a) Each Borrower is a corporation duly organized and validly
existing under the laws of its state of incorporation, is duly qualified, is
validly existing and in good standing and has lawful power and authority to
engage in the business it conducts in each state where the nature and extent of
its business requires qualification, except where the failure to so qualify will
not have a Material Adverse Effect. A list of all states and other jurisdictions
where Borrower is qualified to do business is attached hereto as Exhibit "5.1"
and made a part hereof.
(b) The making and performance of this Agreement and the other
Loan Documents will not violate or result in a default (immediately or with the
passage of time) under any law, government rule or regulation, or the charter,
minutes or bylaw provisions of any Borrower, or any material contract, agreement
or instrument to which Borrower is a party, or by which it is bound which
violation would have a Material Adverse Affect. Borrower is not in violation of
and has not knowingly caused any Person to violate any term of any material
agreement or instrument to which it or such Person is a party or by which it may
be bound or of its charter, minutes or its bylaws which violation would have a
Material Adverse Affect.
(c) Each Borrower has all requisite corporate power and
authority to enter into and perform this Agreement and to incur the obligations
herein provided for, and has taken all proper and necessary corporate action to
authorize the execution, delivery and performance of this Agreement, and the
documents and related agreements required hereby.
(d) This Agreement and the Revolving Credit Notes to be issued
hereunder, and all related agreements and documents required to be executed and
delivered by Borrower hereunder, when delivered, will be valid and binding upon
Borrower, and enforceable in accordance with their respective terms subject to
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally and general equitable principles.
5.2......Places of Business: The only places of business of Borrower,
and the places where it keeps and intends to keep its Property and records
concerning its Property, are at the addresses listed in Exhibit "5.2" attached
hereto and made a part hereof.
<PAGE>
5.3......Pending Litigation: There are no judgments or judicial or
administrative orders, proceedings, litigation or investigations (civil or
criminal) pending, or to the knowledge of Borrower threatened, against Borrower
in any court or before any governmental authority or arbitration board or
tribunal which is reasonably likely to have a Material Adverse Effect except as
shown in Exhibit "5.3" attached hereto and made a part hereof, none of which are
reasonably likely to have a Material Adverse Effect. Borrower is not in default
with respect to any order of any court, governmental authority, regulatory
agency or arbitration board or tribunal. Neither Borrower nor any executive
officer of Borrower has been indicted or convicted in connection with or is
engaging in any criminal conduct, or is currently subject to any lawsuit or
proceeding or, to Borrower's knowledge, under investigation in connection with
any anti-racketeering or criminal conduct or activity.
5.4......Title to Properties: Borrower has good and marketable title to
all the Property constituting Collateral, free from Liens, except those of Agent
and/or Lenders, except for Permitted Liens as set forth in Section 7.3 and those
Liens set forth on Exhibit "5.4", attached hereto and made a part hereof.
5.5......Governmental Consent: Except as set forth on Exhibit A5.5",
neither the nature of Borrower or of its business or Property, nor any
relationship between Borrower and any other Person, nor any circumstance
affecting Borrower in connection with the issuance or delivery of this Agreement
or the other Loan Documents, is such as to require a consent, approval or
authorization of, or filing, registration or qualification with, any
governmental authority on the part of Borrower in connection with the execution
and delivery of this Agreement or the issuance or delivery of the other Loan
Documents.
5.6......Taxes: All tax returns required to be filed by Borrower in any
jurisdiction have in fact been filed, and all taxes, assessments, fees and other
governmental charges upon Borrower, or upon any of its respective Property,
income or franchises, which are shown to be due and payable on such returns have
been paid, except for those taxes being contested in good faith with due
diligence by appropriate proceedings for which appropriate reserves have been
maintained under GAAP. Borrower is not aware of any proposed additional tax
assessment or tax to be assessed against or applicable to Borrower that would be
reasonably likely to have a Material Adverse Effect.
5.7......Financial Statements: RCM's consolidated and consolidating
annual audited balance sheets as of October 31, 1997, and the related income
statement and statement of cash flow as of such date, accompanied, by the
unqualified report thereon, by Borrower's independent certified public
accountants, (complete copies of which have been delivered to Agent), have been
prepared in accordance with GAAP and present fairly, the financial position of
Borrower as of such date and the results of its operations for such period.
Borrower's fiscal year ends on October 31 of each calendar year. Borrowers=
federal tax identification numbers are set forth on Exhibit 5.7 hereto.
<PAGE>
5.8......Full Disclosure: Neither the financial statements referred to
in Section 5.7, nor this Agreement nor any other Loan Document or any financial
projections, written reports or certificates regarding Accounts or Inventory, or
other financial statements or reports furnished by Borrower to Agent or any
Lender in connection with the negotiation of this Agreement or contained in any
financial statements or documents relating to Borrower, as of the time they were
furnished, contained any untrue statement of a material fact or omit a material
fact necessary to make the statements contained therein or herein not
misleading. There is no fact known to Borrower which has not been disclosed in
writing to Agent which has or could have a Material Adverse Effect.
5.9 .....Subsidiaries: Borrower has no Subsidiaries or Affiliates, except
as listed on Exhibit "5.9" ------------
attached hereto and made a part hereof.
5.10.....Guarantees, Contracts, etc.:
(a) Borrower does not own or hold equity or long term debt
investments in, have any outstanding advances to, or serve as guarantor, surety
or accommodation maker for the obligations of, or have any outstanding
borrowings from, any Person, or has entered into any leases for real or personal
property (whether as landlord or tenant), except as described in Exhibit "5.10",
attached hereto and a made part hereof.
(b) Borrower is not a party to any contract or agreement, or
subject to any charter or other corporate restriction, which has or could have a
Material Adverse Effect.
(c) Except as otherwise specifically provided in this
Agreement, Borrower has not agreed or consented to cause or permit any of its
Property whether now owned or hereafter acquired to be subject in the future
(upon the happening of a contingency or otherwise) to a Lien not permitted by
this Agreement.
5.11.....Government Regulations, etc.:
(a) The use of the proceeds of and Borrower's issuance of the
Revolving Credit Notes will not directly or indirectly violate or result in a
violation of Section 7 of the Securities Exchange Act of 1934, as amended,
Regulations U, T, G and X of the Board of Governors of the Federal Reserve
System, 12 C.F.R., Chapter II. Borrower neither owns nor intends to carry or
purchase any "margin stock" within the meaning of said Regulation U.
(b) Borrower has obtained all licenses, permits, franchises or
other governmental authorizations necessary for the ownership of its Property
and for the conduct of its business, except those which, if not obtained, would
have or could have a Material Adverse Effect.
<PAGE>
(c) As of the date hereof, no employee benefit plan ("Pension
Plan"), as defined in Section 3(2) of ERISA, maintained by Borrower or under
which Borrower could have any liability under ERISA (i) has failed to meet the
minimum funding standards established in Section 302 of ERISA, except for any
such failure corrected in full prior to the date hereof, and described on
Exhibit "5.11", attached hereto and made a part hereof; (ii) has failed to
comply in all material respects with all applicable requirements of ERISA and of
the Internal Revenue Code, including all applicable rulings and regulations
thereunder, (iii) has engaged in or been involved in a prohibited transaction
under Section 406 of ERISA or Section 4975 of the Internal Revenue Code which
would subject Borrower to any material liability, or (iv) has been terminated if
such termination would subject Borrower to any material unfunded liability.
Borrower has not assumed, or received notice of a claim asserted against
Borrower for, withdrawal liability (as defined in Section 4207 of ERISA) with
respect to any multi-employer pension plan and is not a member of any Controlled
Group (as defined in ERISA). Borrower has timely made all contributions when due
with respect to any multi-employer pension plan in which it participates and no
event has occurred triggering a claim against Borrower for withdrawal liability
with respect to any multi-employer pension plan in which Borrower participates.
All Pension Plans and multi-employer pension plans to which Borrower
participates are listed on Exhibit "5.11" attached hereto and made a part
hereof.
(d) Borrower is not in violation of, and has not received
written notice that it is in violation of, or has knowingly caused any Person to
violate any applicable statute, regulation or ordinance of the United States of
America, or of any state, city, town, municipality, county or of any other
jurisdiction, or of any agency, or department thereof, (including without
limitation, environmental laws and regulations).
5.12.....Business Interruptions: Except as set forth in Exhibit "5.12"
hereof, within five (5) years prior to the date hereof, none of the business,
Property or operations of Borrower have been materially and adversely affected
in any way by any casualty, strike, lockout, combination of workers, order of
the United States of America, or any state or local government, or any political
subdivision or agency thereof, directed against Borrower. There are no pending
or threatened labor disputes, strikes, lockouts or similar occurrences or
grievances affecting the business being operated by Borrower.
5.13.....Names:
(a) Within five (5) years prior to the Closing Date, Borrower
has not conducted business under or used any other name (whether corporate or
assumed) except for the names shown on Exhibit "5.13(a)", attached hereto and
made a part hereof. Borrower is the sole owner of all names listed on such
Exhibit "5.13(a)" and any and all business done and all invoices issued in such
trade names are Borrower's sales, business and invoices. Each trade name of
Borrower represents a division or trading style of Borrower and not a separate
corporate subsidiary or affiliate or independent entity.
<PAGE>
(b) All registered trademarks, patents or copyrights, or such
as to which applications for registration have been submitted, which Borrower
uses, plans to use or has a right to use are listed on Exhibit "5.13(b)"
attached hereto and made a part hereof. The Borrower is the sole owner of such
Property except to the extent any other Person has claims or rights in such
Property, as such claims and rights are described on such Exhibit "5.13(b)". To
the best of Borrower's knowledge, Borrower is not in violation of any rights of
any other Person with respect to such Property.
5.14.....Other Associations: Borrower is not engaged or does not have
an interest in any joint venture or partnership with any other Person except as
described on Exhibit "5.14" hereto and made a part hereof.
5.15.....Environmental Matters: Borrower has no knowledge:
(a) of the presence of any Hazardous Substances that require
remediation under any applicable environmental statute, rule or regulation of
any governmental entity presently in effect on any of the real property on which
the Collateral is located including, without limitation, the properties listed
on Exhibit 5.15(a), or
(b) of any on-site spills, releases, discharges, disposal or
storage of Hazardous Substances that have occurred or are presently occurring on
any of such real property in violation of any applicable environmental statute,
rule or regulation of any governmental entity presently in effect, or
(c) of any spills, releases, discharges or disposal of
Hazardous Substances that have occurred or are presently occurring at other real
properties as a result of the activities or omissions of Borrower or for which
Borrower is reasonably likely to be held responsible in violation of any
applicable environmental statute, rule or regulation of any governmental entity
presently in effect, or
(d) of any notice, summons, citation or other communication
sent to Borrower from any state or federal agency concerning any intentional or
unintentional action or conduct, inaction or omission, past or present which is
or may be in violation of any state or federal environmental law, rule or
regulation.
As used herein, the term "Hazardous Substances" means any substances defined or
designated as hazardous or toxic waste, hazardous or toxic material, hazardous
or toxic substance or similar term, by any environmental statute, rule or
regulation of any governmental entity presently in effect and applicable to such
real property.
<PAGE>
5.16.....Regulation O: No director, executive officer or principal
shareholder of Borrower is a director, executive officer or principal
shareholder of any Lender. For the purposes hereof the terms "director" (when
used with reference to a Lender), "executive officer" and "principal
shareholder" have the respective meanings assigned thereto in Regulation O
issued by the Board of Governors of the Federal Reserve System.
5.17.....Capital Stock: The authorized and outstanding capital stock of
Borrower is as set forth on Exhibit "5.17" attached hereto and made a part
hereof. All of the outstanding capital stock of Borrower has been duly and
validly authorized and issued and is fully paid and non-assessable and has been
sold and delivered to the holders thereof in compliance with, or under valid
exemption from, all Federal and state laws and the rules and regulations of all
regulatory bodies thereof governing the sale and delivery of securities. Except
for the rights and obligations set forth in Exhibit "5.17", there are no
subscriptions, warrants, options, calls, commitments, rights or agreements by
which Borrower or any of its shareholders is bound relating to the issuance,
transfer, voting or redemption of shares of its capital stock or any pre-emptive
rights held by any Person with respect to the shares of Borrower's capital
stock. Except as set forth in Exhibit "5.17", Borrower has not issued any
securities convertible into or exchangeable for shares of its capital stock or
any options, warrants or other rights to acquire such shares or securities
convertible into or exchangeable for such shares.
5.18.....Solvency: Borrower is solvent, able to pay its debts as they
become due, and has capital sufficient to carry on its business and all
businesses in which it is about to engage, and now owns Property having a value
both at fair valuation and at present fair salable value greater than the amount
required to pay its debts. Borrower will not be rendered insolvent by the
execution and delivery of this Agreement or any of the other documents executed
in connection with this Agreement or by the transactions contemplated hereunder
or thereunder.
5.19.....Patents, Trademarks, Etc.: Except as set forth on Exhibit 5.19
attached hereto and made a part hereof, (a) Borrower does not require any
patents, trademarks or other intellectual property, or any license(s) to use any
patents, trademarks or other intellectual property in order to conduct business;
and (b) Agent will not require any patents, trademarks or other intellectual
property or any licenses to use the same in order conduct business after the
occurrence of an Event of Default.
5.20.....Investment Company: Borrower is not an "investment company"
registered or required to be registered under the Investment Company Act of
1940, as amended, nor is Borrower controlled by such a company.
<PAGE>
5.21.....Year 2000 Compliance: Each Borrower will have, by June of
1999, reviewed its operations with a view to assessing whether its business or
operations will, in the receipt, transmission, processing, manipulation,
storage, retrieval, retransmission or other utilization of data, be vulnerable
to any significant risk that computer hardware, Software or any equipment
containing embedded microchips used in their business or operations will not, in
the case of dates or time periods occurring after December 31, 1999, function at
least as effectively as in the case of dates or time periods occurring prior to
January 1, 2000. Each Borrower has taken all action necessary to assure that
there will be no Material Adverse Effect on any of Borrower=s business by reason
of the advent of the year 2000. In addition, all Software included within the
general intangibles described in Section 3.1(a)(iv) produced by each Borrower
will, after December 31, 1999, function at least as effectively as it would have
prior to January 1, 2000. Each Borrower represents and warrants that the
Software is and shall remain Century Compliant. Without limiting the generality
of the foregoing, each Borrower represents and warrants that all such Software
can currently and shall, during the Y2K Period, continue to (a) manage and
manipulate data involving all dates within the Y2K Period (including the fact
that the year 2000 is a leap year) without functional or data abnormality
related to such dates; (b) manage and manipulate data involving all dates within
the Y2K Period without inaccurate results related to such dates; (c) have user
interfaces and data fields formatted to distinguish between dates within the Y2K
Period; and (d) store all core application data in a format that includes
indications of the millennium, century, and decade as well as the actual year.
5.22.....Location of Customer Lists: Borrower has a complete and
accurate list of all of RCM=s and its Subsidiaries= customers names and
addresses kept at 277 Fairfield Road, Suite 210, Fairfield, New Jersey, 07004.
SECTION 6. AFFIRMATIVE COVENANTS
Borrower covenants that until all of the Obligations to Lenders are
indefeasibly paid and satisfied in full and the Revolving Credit has been
terminated:
6.1......Payment of Taxes and Claims: Borrower shall pay, before they
become delinquent, ---------------------------
(a) all taxes, assessments and governmental charges or levies imposed upon
it or its Property, and
(b) all claims or demands of materialmen, mechanics, carriers,
warehousemen, landlords and other Persons entitled to the benefit of statutory
or common law Liens, which, if unpaid, would result in the imposition of a Lien
upon its Property; provided, however, that Borrower shall not be required to pay
any such tax, assessment, charge, levy, claim or demand if the amount,
applicability or validity thereof shall at the time be contested in good faith
and by appropriate proceedings by Borrower, and if Borrower shall have set aside
on its books adequate reserves in respect thereof, in accordance with GAAP;
which deferment of payment is permissible so long as no Lien other than a
Permitted Lien has been entered and Borrower's title to, and its right to use,
its Property are not materially adversely affected thereby.
<PAGE>
6.2......Maintenance of Properties and Corporate Existence:
(a) Property - Borrower shall maintain its Property in good
condition and make all renewals, replacements, additions, betterments and
improvements thereto in the ordinary course of business, as Borrower deems
reasonably necessary in good faith in the exercise of its business judgment, and
will pay and discharge when due the cost of repairs and maintenance to its
Property.
(b) Property Insurance - Borrower shall maintain insurance on
all insurable tangible Property against fire, flood, casualty and such other
hazards (including, without limitation, extended coverage, workmen's
compensation, boiler and machinery) in such amounts, with such deductibles and
with such insurers as are customarily used by companies operating in the same
industry as Borrower and reasonably acceptable to Agent. At or prior to Closing,
Borrower shall furnish Agent with a schedule of all such insurance prepared by
its insurance broker, and certificates of insurance with respect thereto
(including the text of the Lender's Loss Payable Clause in favor of Agent
required below), or such other evidence of insurance as Agent may require.
Borrower shall furnish Agent with a copy of such policy within thirty (30) days
after Closing. In the event Borrower fails to procure or cause to be procured
any such insurance or to timely pay or cause to be paid the premium(s) on any
such insurance, Agent (on behalf of Lenders) may do so for Borrower, but
Borrower shall continue to be liable for the same. The policies of all casualty
insurance shall contain standard Lender's Loss Payable Clauses issued in favor
of Agent (on behalf of Lenders) indicating that Agent is sole Lender Loss Payee,
under which all losses thereunder shall be paid to Agent (on behalf of Lenders)
as Agent's interest may appear provided that Agent will release insurance
proceeds to Borrower for repair or replacement provided that Borrower
demonstrates to the satisfaction of Agent that (i) the business interruption
resulting from the casualty will not have a Material Adverse Effect; (ii) the
Borrower has the financial resources to effectuate repairs and/or restoration;
and (iii) the repairs and/or restoration can be completed within sixty (60)
days. Such policies shall expressly provide that the requisite insurance cannot
be altered or canceled without thirty (30) days prior written notice to Agent
and shall insure Lenders notwithstanding the act or neglect of Borrower.
Borrower hereby appoints Agent as its attorney-in-fact, exercisable at Agent's
option (without any obligation to do so), to endorse any check which may be
payable to Borrower, and to file proofs of loss with respect to any insurance
claims, in order to collect the proceeds of such insurance and any amount or
amounts collected by Agent pursuant to the provisions of this paragraph may be
applied by Agent to the Obligations. Borrower further covenants that all
insurance premiums due and owing under their current casualty policies have been
paid. Borrower also agrees to notify Agent, promptly, upon any receipt of a
notice of termination, cancellation, or non-renewal from its insurance company
of any such policy.
(c) Public and Products Liability Insurance - Borrower shall
maintain, and shall deliver to Agent upon Agent's request evidence of, public
liability and business interruption insurance in such amounts as are reasonably
acceptable to Agent, but in any event not more than are customary for companies
in the same or similar businesses located in the same or similar area.
<PAGE>
(d) Financial Records - Consistent with the existing practice
of Borrower, it shall keep current and accurate books of records and accounts in
which full and correct entries will be made of all of its business transactions,
and will reflect in its financial statements adequate accruals and
appropriations to reserves, all in accordance with GAAP. Borrower shall not
change its fiscal year end date without providing Agent thirty (30) days prior
written notice thereof, provided that Borrower may make such change only once
prior to the Revolving Credit Termination Date.
(e) Corporate Existence and Rights - Borrower shall do (or
cause to be done) all things necessary to preserve and keep in full force and
effect its existence, good standing in all jurisdictions where its failure to be
in good standing would likely result in a Material Adverse Effect, and all of
its rights, licenses and franchises, the absence of which might result in a
Material Adverse Effect.
(f) Compliance with Laws - Borrower shall (i) be in material
compliance with any and all laws, ordinances, governmental rules and
regulations, and court or administrative orders or decrees to which it is
subject, whether federal, state or local, (including, without limitation,
environmental or environmental-related laws, statutes, ordinances, rules,
regulations and notices); (ii) shall obtain and maintain any and all licenses,
permits, franchises or other governmental authorizations necessary to the
ownership of its Property or to the conduct of its business, which violation or
failure to obtain or maintain causes or might cause a Material Adverse Effect.
Borrower shall timely satisfy all assessments, fines, costs and penalties
imposed by any governmental body against Borrower or any Property of Borrower
subject to the provisions of Section 6.1 above.
6.3......Business Conducted:
(a) Borrower shall continue in the business presently operated
by it using commercially reasonable efforts to maintain its customers and
goodwill. Borrower shall not engage, directly or indirectly, in any material
respect in any line of business substantially different from the business
conducted by the Borrower immediately prior to the Closing Date, unless such
line of business is reasonably related to such business so conducted prior to
the Closing Date.
........(b) Borrower shall materially comply with all agreements to which
it is a party and by which it is bound and comply with all laws and regulations
applicable to it.
6.4......Litigation: Borrower, upon having knowledge thereof, shall
give prompt notice to Agent of (a) the commencement against Borrower of any
litigation claiming from Borrower more than $50,000 in excess of any available
insurance coverage Borrower may have for such claim, and (b) any other claims
made against Borrower, or investigations or proceedings commenced against
Borrower the existence of which or adverse disposition of which might have a
Material Adverse Effect.
<PAGE>
6.5......Taxes:
(a) Notwithstanding any other provision of this Agreement
other than 6.5(f) and (g), any and all payments by Borrower hereunder shall be
made free and clear of and without deduction for any and all present or future
taxes, levies, imposts or withholding taxes, and all liabilities with respect
thereto, excluding taxes imposed on Agent's or any Lender's net income or gross
receipts and capital stock or franchise taxes or similar taxes imposed on Agent
or any Lender (all such non-excluded taxes, levies, imports, withholding taxes
and liabilities being hereinafter referred to as "Taxes"). If Borrower shall be
required by law to deduct any Taxes from or in respect of any sum payable
hereunder to any Lender or Agent (i) the sum payable shall be increased by the
amount necessary so that after making all required deductions (including
deductions applicable to additional sums payable under this Section 6.5) such
Lender or Agent shall receive an amount equal to the sum it would have received
had no such deductions been made, (ii) Borrower shall make such deductions and
(iii) Borrower shall pay the full amount deducted to the relevant taxing
authority or other governmental authority in accordance with applicable law.
(b) In addition, Borrower agrees to pay any present or future
stamp or documentary taxes or any other general intangible, excise or property
taxes, charges or similar levies which arise from any payment made hereunder or
from the execution, delivery or registration of, or otherwise with respect to,
this Agreement or any other Loan Document (hereinafter referred to as "Other
Taxes").
(c) Borrower will indemnify each Lender and Agent for the full
amount of Taxes and Other Taxes (including any Taxes or Other Taxes imposed by
any jurisdiction on amounts payable under this Section 6.5) paid by such Lender
or Agent in respect of any and all payments made by Borrower hereunder, as the
case may be, and any liability (including penalties, interest and expenses other
than those resulting from the failure of a Lender or Agent to pay any Taxes or
Other Taxes for which it shall have received an indemnity payment hereunder)
arising therefrom or with respect thereto, whether or not such Taxes or Other
Taxes were correctly or legally asserted. Such indemnification shall be made
promptly after the date any Lender or Agent, as the case may be, makes written
demand therefor showing in reasonable detail the basis for such demands. If a
Lender or Agent shall become aware that it is entitled to receive a refund of
taxes or other taxes (including penalties and interest) paid or indemnified by
Borrower under this Section, it shall notify Borrower and shall, promptly after
receipt of a request by Borrower, apply for and pursue such a refund at
Borrower's expense. If any Lender or Agent receives a refund in respect of any
Taxes or Other Taxes for which such Lender or Agent has received payment from
Borrower hereunder it shall promptly upon receipt repay such refund to Borrower
without interest, except to the extent interest shall have accompanied such
refund, provided that Borrower, upon the request of such Lender or Agent, agrees
to return such refund (plus penalties, interest or other charges) to such Lender
or Agent in the event such Lender or Agent is required to repay such refund.
<PAGE>
(d) Within 45 days after the date of any payment of Taxes or
Other Taxes withheld by Borrower in respect of any payment to any Lender or
Agent, Borrower will furnish to the Agent, the original or a certified copy of a
receipt evidencing payment thereof.
(e) Without prejudice to the survival of any other agreement
contained herein, the agreements and obligations contained in this Section 6.5
shall survive the payment in full of principal and interest hereunder.
(f) On or prior to the date it becomes a party to this
Agreement, each Lender that is organized outside of the United States shall
deliver to Borrower such certificates, documents or other evidence, as required
by the Code or Treasury Regulations issued pursuant thereto, including Internal
Revenue Service Form 4224, 1001 or W-8 and any other certificate or statement or
exemption required by Treasury Regulation Section 1.1441-4(a) or Section
1.1441-6(c) or any subsequent version thereof, properly completed and duly
executed by such Lender establishing that such payment is (i) not subject to
withholding under the Code because such payment is effectively connected with
the conduct by such Lender of a trade or business in the United States or (ii)
totally exempt from United States Federal withholding tax under a provision of
an applicable tax treaty. In addition, each such Lender shall, if legally able
to do so, thereafter deliver such certificates, documents or other evidence from
time to time, including, without limitation, Internal Revenue Service Form W-8,
establishing that payments received hereunder are not subject to such
withholding upon receipt of a written request therefor from Borrower or Agent.
Unless Borrower and Agent have timely received forms or other documents
satisfactory to them indicating that payments hereunder or under the Revolving
Credit Notes are not subject to United States Federal withholding tax under an
applicable tax treaty, Borrower or Agent shall withhold taxes from such payments
at the applicable statutory rate.
(g) Borrower shall not be required to pay any additional
amounts to any Lender in respect of United States Federal withholding tax
pursuant to this Section 6.5 if the obligation to pay such additional amounts
would not have arisen but for a failure by such Lender to deliver the
certificate, documents or other evidence specified in this Section 6.5 unless
such failure is attributable to (i) a change in applicable law, regulation or
official interpretation thereof or (ii) an amendment or modification to or a
revocation of any applicable tax treaty or a change in official position
regarding the application or interpretation thereof, in each case on or after
the date such Lender becomes a party to this Agreement, provided, however, that
such Lender shall promptly notify Borrower of any such matter described in
clause (i) or (ii) above upon its learning of the same and shall thereafter take
all reasonable actions resulting from such matter including delivering
certificates, documents or other evidence as may be necessary to eliminate or
reduce the amount of tax required to be withheld.
<PAGE>
(h) Any Lender claiming any additional amounts payable
pursuant to this Section 6.5 shall use reasonable efforts (consistent with legal
and regulatory restrictions) to file any certificate or document requested by
Borrower or to change the jurisdiction of its applicable lending office if the
making of such filing or change would avoid the need for or reduce the amount of
any such additional amounts which may thereafter accrue and would not result in
the incurrence by such Lender of any cost for which Borrower does not provide
such security or indemnity as may be reasonably required by the Lender to
indemnify it in full for such cost and would not in the judgment of such Lender
be otherwise disadvantageous to it. Each Lender agrees with reasonable
promptness to notify Borrower of any determination which it shall make to make
any claim for additional amounts payable pursuant to this Section 6.5.
6.6......Bank Accounts: Borrower shall maintain its principal depository
and disbursement account(s) --------------
with Agent.
6.7......Employee Benefit Plans: Borrower will (a) fund all its Pension
Plan(s) in a manner that will satisfy the minimum funding standards of Section
302 of ERISA, or will promptly satisfy any accumulated funding deficiency that
arises under Section 302 of ERISA, (b) furnish Agent, promptly upon Agent's
request of the same, with copies of all reports or other statements filed with
the United States Department of Labor, the Pension Benefit Guaranty Corporation
("PBGC") or the Internal Revenue Service ("IRS") with respect to all Pension
Plan(s), or which Borrower, or any member of a Controlled Group, may receive
from the United States Department of Labor, the IRS or the PBGC, with respect to
all such Pension Plan(s), and (c) promptly advise Agent of the occurrence of any
reportable event (as defined in Section 4043 of ERISA, other than a reportable
event for which the thirty (30) day notice requirement has been waived by the
PBGC) or prohibited transaction (under Section 406 of ERISA or Section 4975 of
the Internal Revenue Code) with respect to any such Pension Plan(s) and the
action which Borrower proposes to take with respect thereto. Borrower will make
all contributions when due with respect to any multi-employer pension plan in
which it participates and will promptly advise Agent (i) upon its receipt of
notice of the assertion against it of a claim for withdrawal liability, (ii)
upon the occurrence of any event which, to the best of Borrower's knowledge,
would trigger the assertion of a claim for withdrawal liability against
Borrower, and (iii) upon the occurrence of any event which, to the best of
Borrower's knowledge upon its learning of the same, has placed Borrower in a
Controlled Group as a result of which any member (including Borrower) thereof
may be subject to a claim for withdrawal liability, whether liquidated or
contingent.
6.8......Warranties for Future Advances: Each request by Borrower for
an Advance under the Revolving Credit in any form following the Closing Date
shall constitute an automatic representation and warranty, the truth and
accuracy of such representation and warranty of which shall be a further
condition to the funding of each Advance, by Borrower to the effect that
(without waiving, impairing or limiting the rights of Agent and the Lenders
under Section 8 below):
<PAGE>
(a) There has not occurred any event or occurrence since the
date of delivery of Borrower's most recent financial statements which has
resulted in, or has had, a Material Adverse Effect.
(b) No Event of Default or Unmatured Event of Default; then exists;
(c) Each Advance is within and complies with the terms and
conditions of this Agreement including without limitation the notice provisions
contained in Section 2.2 hereof; and
(d) Each representation and warranty set forth in Section 5 of
this Agreement is then true and correct in all material respects; provided that
Borrower may update all Exhibits and prepare additional Exhibits so that all
such Exhibits and the representations and warranties, taken together, accurately
reflect the state of Borrower's affairs as of the date of a request for an
Advance by giving written notice thereof to Agent, and further provided that
such updated and additional Exhibits do not reflect events or conditions which
constitute violations of Section 6 or 7 hereof or otherwise reflect material
adverse developments.
6.9......Financial Covenants: RCM shall maintain and comply with the
following financial covenants, to be tested on a consolidated basis quarterly on
a rolling two quarters times two basis, (trailing unadjusted EBITDA of all
acquisitions will be included for covenant compliance purposes) (calculated on
the basis of GAAP):
(a) Fixed Charge Ratio shall be maintained at a minimum of
1.25x (contingent payments to acquirees are excluded from this calculation);
(b) Total Funded Debt to EBITDA shall not exceed 3.25x;
(c) Interest Coverage shall be maintained at a minimum of 3.50X; and
(d) RCM shall maintain, on a consolidated basis, a Net Worth no less than
the Minimum Net Worth.
6.10.....Financial and Business Information: Borrower shall deliver to
Agent the following: ----------------------------------
(a) Financial Statements and Collateral Reports: Such data,
reports, statements and information, financial or otherwise, as Agent may
reasonably request, including, without limitation:
<PAGE>
(i)...... within ninety (90) days after the end of each fiscal year of RCM,
financial statements of Borrower for such year on a consolidated (and unaudited
consolidating) basis, eliminating inter-company transactions, including the
balance sheet as at the end of such fiscal year and a statement of cash flows
and income statement for such fiscal year, setting forth in the consolidated
statements in comparative form, the corresponding figures as at the end of and
for the previous fiscal year, all in reasonable detail, including all supporting
schedules, and audited and certified on an unqualified basis by independent
public accountants of recognized standing, selected by Borrower and reasonably
satisfactory to the Agent ( provided that Borrower=s current accountant, Grant
Thornton, any ABig 6" accounting firm or any other accounting firm reasonably
approved by the Agent shall be deemed satisfactory), to have been prepared in
accordance with GAAP, along with Borrower's Form 10K Report filed with the SEC
and a management letter.
(ii) ...within fifteen (15) days of the end of each calendar month,
Borrower's certificates and such other reports as Agent deems reasonably
necessary.
(iii) ...quarterly covenant compliance certificates in a form reasonably
satisfactory to Lender, signed on Borrower=s behalf by Borrower=s CFO, to
accompany quarterly financials.
(iv).....no later than forty-five (45) days after the end of each fiscal
year, Borrower=s form 10-Q filed with the SEC, annual projections for the
upcoming/current fiscal year of profit and loss, cash flows and balance sheets
prepared on a monthly basis in a manner consistent with the prior year's
financial statements, all in form reasonably satisfactory to Agent.
(v)......Copies of all other periodic or episodic SEC filings by Borrower
to be delivered promptly after such filing, including Forms 10-K and 8-K,
registration statements and prospectuses.
(vi).....Quarterly covenant compliance certificates in a form satisfactory
to Agent, signed on behalf of Borrower by its Chief Financial Officer, to
accompany quarterly financials.
(vii)....Updated customer lists within thirty (30) days after the end of
each calendar quarter.
(b) Notice of Event of Default - promptly upon becoming aware
of the existence of any condition or event which constitutes an Event of Default
under this Agreement, or which with the passage of time or the giving of notice,
or both, could become an Event of Default hereunder, a written notice specifying
the nature and period of existence thereof and what action Borrower is taking
(and proposes to take) with respect thereto;
(c) Notice of Claimed Default - promptly upon receipt by
Borrower, notice of default, oral or written, given to Borrower by any creditor
for borrowed money in excess of $100,000;
<PAGE>
(d) Securities and Other Reports - if Borrower shall be
required to file reports with the SEC pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended, promptly upon its becoming
available, one copy of each financial statement, report, notice or proxy
statement sent by Borrower to stockholders generally, and, a copy of each
regular or periodic report, and any registration statement, or prospectus in
respect thereof, filed by Borrower with any securities exchange or with federal
or state securities and exchange commissions or any successor agency.
6.11.....Officers' and Accountant's Certificates: Along with the set of
financial statements and other reports delivered to Agent and each Lender at the
end of each fiscal quarter and fiscal year, as applicable, pursuant to Section
6.10(a) hereof, Borrower shall deliver to Agent a certificate (in the form of
Exhibit "6.11" attached hereto and made a part hereof) from Borrowers signed on
its behalf by the chief financial officer of Borrower setting forth:
(a) Covenant Compliance - the information (including detailed
calculations) required in order to establish whether Borrower is in compliance
with the requirements of Section 6.9 as of the end of the period covered by the
financial statements then being furnished (and any exhibits appended thereto)
under Section 6.10; and
(b) Event of Default - that the signer in his capacity as an
officer of Borrower has reviewed the relevant terms of this Agreement, and has
made (or caused to be made under his supervision) a review of the transactions
and conditions of Borrower from the beginning of the accounting period covered
by the financial statements being delivered therewith to the date of the
certificate, and that such review has not disclosed the existence during such
period of any condition or event which constitutes an Event of Default or an
Unmatured Event of Default or if any such condition or event existed or exists,
specifying the nature and period of existence thereof and what action Borrower
has taken or proposes to take with respect thereto.
6.12.....Inspection: So long as Borrower is indebted to Lenders,
Borrower will permit any of Agent's officers or other representatives to visit
and inspect any of the locations of Borrower at any time during normal business
hours, provided that prior to the occurrence of any Event of Default or an event
which with the passage of time, the giving of notice or both would become an
Event of Default, Agent shall give Borrower reasonable prior notice of each
visit, to examine and audit all of Borrower's books of account, records, reports
and other papers, to make copies and extracts therefrom and to discuss its
affairs, finances and accounts with its officers, employees and independent
certified public accountants. Borrower hereby irrevocably authorizes and directs
all such accountants and auditors to exhibit and deliver to Agent copies of any
and all of Borrower's financial statements or other accounting records of any
sort in the accountant's or auditor's possession. Normal and customary Expenses
for such activities (plus Agent's reasonable out-of-pocket expenses) associated
with said inspections shall be paid for by the Borrower. Absent an Event of
Default, said inspections shall be limited to four times per year.
<PAGE>
6.13.....Tax Returns and Reports: At Agent's request from time to time,
Borrower shall promptly furnish Agent with copies of its annual federal and
state income tax returns. Borrower further agrees that, if requested by Agent,
it shall promptly furnish Agent with copies of all reports filed by it with any
federal, state or local governmental authority or agency, board or commission.
6.14.....Information to Participant: Each Lender may divulge to any
participant, co-lender or assignee or prospective participant, co-lender or
assignee it is permitted to obtain in the Credit Facility, or any portion
thereof, all information, and furnish to such Person copies of any reports,
financial statements, certificates, and documents obtained under any provision
of this Agreement, or related agreements and documents; provided, however that
Lender and any potential participant, co-lender or assignee agrees to hold in
confidence all confidential or proprietary information not otherwise public (as
indicated by Borrower) provided to them by Borrower, Agent or such Lender except
(a) to the extent that the statute, ordinance, regulation, rule or order or any
subpoena or any governmental inquiry or by reason of any bank regulation in
connection with bank examination, and (b) such potential participant, co-lender
or assignee shall not be prohibited from disclosing any such information to any
of their agents, officers, employees, attorneys, accountants or consultants who
shall be informed of this provision.
6.15.....Material Adverse Developments: Borrower agrees that promptly
after becoming aware of any development or other information which would
reasonably be expected to have or cause a Material Adverse Effect, it shall give
to Agent telephonic or telegraphic notice specifying the nature of such
development or information and such anticipated effect. In addition, such verbal
communication shall be confirmed by written notice thereof to Agent on the next
business day after such verbal notice is given.
6.16.....Name Changes, Places of Business: Borrower shall give thirty
(30) days prior written notice to Agent of any name change or change in the
location of any of its respective places of business, of the places where
records concerning its Accounts are kept, or the establishment of any new, or
the discontinuance of any existing place of business which may require the
filing of new financing statements or other documents in connection with the
perfection of Lenders= Liens on Collateral.
6.17.....Change in Chief Executive Officer: In the event that Leon
Kopyt leaves his position as CEO of RCM Technologies, Inc., Borrower will obtain
within 180 days the written consent of Majority Lenders with respect to any
proposed replacement which consent shall not be unreasonably withheld.
<PAGE>
6.18.....Year 2000 Compliance: As of June 1, 1999 each Borrower will
have taken all action necessary to assure that there will be no Material Adverse
Effect on such Borrower=s business by reason of the advent of the Year 2000,
including, without limitation, that all computer based systems, embedded
microchips and other processing capabilities effectively recognize and process
dates after December 31, 1999. At Agent=s request, each Borrower shall provide
to Agent assurance reasonably acceptable to Agent that such Borrower=s computer
based systems, embedded microchips and other processing capabilities will
function after December 31, 1999 as well as they function prior to January 1,
2000. Each Borrower covenants that it shall cause all Software included in the
general intangibles described in Section 3.1(a)(iv) to remain Century Compliant.
Without limiting the generality of the foregoing, each Borrower covenants that
all such Software can currently and shall, during the Y2K Period, continue to
(a) manage and manipulate data involving all dates within the Y2K Period
(including the fact that the year 2000 is a leap year) without functional or
data abnormality related to such dates; (b) manage and manipulate data involving
all dates within the Y2K Period without inaccurate results related to such
dates; (c) have user interfaces and data fields formatted to distinguish between
dates within the Y2K Period; and (d) store all core application data in a format
that includes indications of the millennium, century, and decade as well as the
actual year.
SECTION 7. NEGATIVE COVENANTS:
Borrower covenants that until all of the Obligations to Lenders are
indefeasibly paid and satisfied in full and the Revolving Credit has been
terminated, that:
7.1......Merger, Consolidation, Dissolution or Liquidation:
(a) Borrower shall not sell, lease, license, transfer or
otherwise dispose of its Property except for equipment in the ordinary course of
Borrower=s business.
(b) Except for Permitted Acquisitions and mergers, Borrower
shall not merge or consolidate with any other Person, or commence a dissolution
or liquidation, except that any subsidiary may merge into Borrower or another
Subsidiary.
7.2......Acquisitions: Except for Permitted Acquisitions, Borrower
shall not acquire all or a material portion of the stock, securities or assets
of any Person in any transaction or in any series of related transactions or
enter into any sale and leaseback transaction.
7.3......Liens and Encumbrances: Borrower shall not: (i) execute a
negative pledge agreement with any Person other than Agent and/or Lenders
covering any of its Property except with respect to property assigned pursuant
to a permitted capitalized lease or purchase money financing or (ii) cause or
permit or agree or consent to cause or permit in the future (upon the happening
of a contingency or otherwise), its Property (including, without limitation, the
Collateral), whether now owned or hereafter acquired, to be subject to a Lien or
be subject to any claim except for Permitted Liens. As used herein, "Permitted
Liens" means:
<PAGE>
(a) Liens securing taxes, assessments or governmental charges
or levies or the claims or demands of materialmen, mechanics, carriers,
warehousemen, landlords, and other like persons, provided the payment thereof is
not at the time required by Section 6.1;
(b) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment, insurance,
social security and other like laws;
(c) Liens described in Exhibit 5.4 and replacements thereof;
(d) Liens constituting purchase money security interests in
equipment, capitalized leases or finance leases hereafter created by Borrower to
Persons providing financing for Capital Expenditures permitted under this
Agreement so long as each obligation secured by a Lien permitted by this
subparagraph (d) does not exceed 100% of the total cost (including interest) to
acquire and install such Property and such Lien extends only to the Property
actually acquired with such financing and the proceeds thereof and the aggregate
total of all secured obligations permitted under this subparagraph (d) plus
Capital Expenditures do not exceed the amount permitted in Section 7.9;
(e) Liens or capital leases on assets of any Person acquired pursuant to a
Permitted Acquisition; and
(f) Liens granted hereunder.
7.4......Transactions With Affiliates or Subsidiaries:
(a) Borrower shall not enter into any transaction with any
Affiliate or Subsidiary including, without limitation, the purchase, sale, or
exchange of Property, or the loaning or giving of funds to any Affiliate or any
Subsidiary, unless (i) such Subsidiary or Affiliate is engaged in a business
substantially related to the business conducted by Borrower, and the transaction
is in the ordinary course of and pursuant to the reasonable requirements of
Borrower's business and upon terms substantially the same and no less favorable
to Borrower as it would obtain in a comparable arm's-length transactions with
any Person not an Affiliate or a Subsidiary, and (ii) such transaction is not
otherwise prohibited hereunder.
(b) Borrower shall not create or acquire any Subsidiary,
except as a result of a Permitted Acquisition.
<PAGE>
7.5......Guarantees: Excepting the endorsement in the ordinary course
of business of negotiable instruments for deposit or collection, Borrower shall
not become or be liable, directly or indirectly, primary or secondary, matured
or contingent, in any manner, whether as guarantor, surety, accommodation maker,
or otherwise, for the existing or future indebtedness of any kind of any Person.
7.6......Distributions, Redemptions and Other Indebtedness: Borrower
shall not: (a) declare or pay or make any forms of Distribution to its
shareholders, their successors or assigns; (b) make any prepayments on any
existing or future indebtedness for borrowed money to any Person without the
prior written consent of Agent which consent will not be unreasonably withheld;
or (c) hereafter borrow money other than from Lenders hereunder except in
connection with borrowed money giving rise to a Permitted Lien under Section
7.3(d) and, in connection with Permitted Acquisitions, subordinated Sellers
Notes on terms and conditions reasonably acceptable to Agent.
7.7......Loans and Investments: Borrower shall not make or have
outstanding loans, advances, extensions of credit or capital contributions to,
or investments in, any Person other than advances made to employees for travel,
expenses and other business related activities, in the ordinary course of
Borrower's business, in an aggregate amount not to exceed $500,000 outstanding
at any one time.
7.8......Use of Lenders' Name: Borrower shall not use any Lender's name
(or the name of any of any Lender's affiliates) or Agent's name in connection
with any of its business operations except to identify the existence of the
Credit Facility and the names of the Lenders and Agent in the ordinary course of
Borrower's business. Nothing herein contained is intended to permit or authorize
Borrower to make any commitment or contract on behalf of any Lender or Agent.
Agent and Lenders may, however, publish the existence of the Credit Facility and
prepare "tombstones" to memorialize the transaction.
7.9......Capital Expenditures: Borrower shall not permit, in the
aggregate, capital expenditures and/or purchase money secured financing
(excluding acquisitions) to exceed in the aggregate , $1,500,000 in any rolling
four quarter period. All leases, excluding real estate, operating leases and car
leases, shall be assumed to be capital leases for purposes of CAPEX
calculations.
7.10.....Miscellaneous Covenants:
(a) Borrower shall not become or be a party to any contract or
agreement which at the time of becoming a party to such contract or agreement
materially impairs Borrower's ability to perform under this Agreement, or under
any other instrument, agreement or document to which Borrower is a party or by
which it is or may be bound.
(b) Borrower shall not carry or purchase any "margin stock"
within the meaning of Regulations U, G, T or X of the Board of Governors of the
Federal Reserve System, 12 C.F.R., Chapter II.
<PAGE>
7.11.....Change of Ownership Interests: Borrower shall not change its
ownership or dispose of or -------------------------------
transfer any ownership interest in its wholly owned Subsidiaries.
SECTION 8. DEFAULT
8.1......Events of Default: Each of the following events shall
constitute an event of default ("Event of Default") and the Majority Lenders
shall have the option to cause Agent, to declare the Obligations immediately due
and payable, all without demand, notice, presentment or protest or further
action of any kind (it also being understood that the occurrence of any of the
events or conditions set forth in subparagraphs (j), (k) or (l) shall
automatically cause an acceleration of the Obligations):
(a) Payments - if Borrower fails to make any payment of
principal or interest, or any fees, under the Revolving Credit on the due date
of such payment; or
(b) Other Charges - if Borrower fails to pay any other
charges, Expenses or other monetary obligations owing to any Lender or Agent
arising out of or incurred in connection with this Agreement within five (5)
days after notice that such payment was not made when due or demanded, as
applicable; or
(c) Covenant Defaults - the failure of Borrower to duly
perform or observe any obligation, covenant, or agreement on its part contained
herein or in any other Loan Document or in any other existing or future
agreement, (related or unrelated) between Borrower and Agent or any Lender or
all Lenders not otherwise specifically constituting an Event of Default under
this Section 8 and such failure continues unremedied for a period of thirty (30)
Business Days after the earlier of (i) notice from Bank to Borrower of the
existence of such failure, or (ii) any officer or principal of Borrower knows or
should have known of the existence of such failure, provided that, in the event
such failure is incapable of remedy as determined by Agent or consists of a
default on account of the payment of any sum due hereunder or under the Loan
Documents or of any of the financial covenants in Section 6.9 or was wilfully
caused or permitted by Borrower, Borrower shall not be entitled to any notice or
grace hereunder; or
(d) Financial Information - if any statement, report,
financial statement, or certificate made or delivered at any time by Borrower or
any of its officers, employees or agents, to Agent or any Lender is not true and
correct, in all material respects, when made; or
(e) Uninsured Loss - if there shall occur any uninsured damage
to or loss, theft, or destruction with respect to any portion of any Property of
Borrower which is reasonably likely to result in a Material Adverse Effect; or
<PAGE>
(f) Warranties or Representations - if any warranty,
representation or other statement by or on behalf of Borrower contained in or
pursuant to this Agreement, or in any document, agreement or instrument
furnished in compliance with, relating to, or in reference to this Agreement, is
false, erroneous, or misleading in any material respect when made or deemed
made; or
(g) Agreements with Others - if there shall be any default by
Borrower beyond any grace period under any agreement with any other creditor for
borrowed money in excess of $100,000, and (i) such default consists of the
failure to pay any principal, premium or interest with respect to such
indebtedness, or (ii) such default consists of the failure to perform any
covenant or agreement with respect to such indebtedness, if the effect of such
default is to cause or to permit the relevant creditor to cause Borrower's
obligations which are the subject thereof to become due prior to their maturity
date or prior to their regularly scheduled date of payment;
(h) Judgments - if any final judgment is entered against
Borrower for the payment of money in excess of $50,000 which shall not be
satisfied, dismissed or bonded pending appeal within 30 days after the entry
thereof; or
(i) Assignment for Benefit of Creditors, etc. - if Borrower
makes or proposes an assignment for the benefit of creditors generally, offers a
composition or extension to creditors, or makes or sends notice of an intended
bulk sale of any business or assets now or hereafter owned or conducted by
Borrower; or
(j) Bankruptcy, Dissolution, etc. - upon the commencement of
any action for the dissolution or liquidation of Borrower, or the commencement
of any case or proceeding for reorganization or liquidation of Borrower's debts
under the Bankruptcy Code or any other state or federal law, now or hereafter
enacted for the relief of debtors, whether instituted by or against Borrower;
provided, however, that Borrower shall have sixty (60) days to obtain the
dismissal or discharge of any involuntary proceeding filed against it, it being
understood that during such sixty (60) day period, no Lender shall be obligated
to make Advances hereunder and Agent may seek adequate protection in any
bankruptcy proceeding; or
(k) Receiver - upon the appointment of a receiver, liquidator,
custodian, trustee or similar official or fiduciary for Borrower or for a
material portion of Borrower's Property; or
(l) Execution Process, Seizure, etc. - if any Property of Borrower, with an
aggregate cost in excess of $250,000 is seized by any governmental entity
(federal, state or local), landlord or other Person without Borrower's consent;
or
<PAGE>
(m) Termination of Business - if Borrower ceases any material
portion of its business operations as presently conducted; or
(n) Pension Benefits, etc. - if Borrower fails to comply with
ERISA, so that grounds exist to permit the appointment of a trustee under ERISA
to administer Borrower's employee plans or to allow the Pension Benefit Guaranty
Corporation to institute proceedings to appoint a trustee to administer such
plan(s), or to permit the entry of a Lien to secure any deficiency or claim; or
(o) Criminal Conduct and Investigations - if Borrower commits
or is indicted for committing any crime or if any proceeding or investigation by
any governmental body is pending an adverse disposition of which would be
reasonably likely to result in the forfeiture of any material Property of
Borrower to any governmental entity, federal, state or local; or
(p) Chief Executive Officer - if Leon Kopyt is no longer
active in his capacity as CEO of RCM, unless a replacement is hired within 180
days that is reasonably satisfactory to Majority Lenders; or
(q) Material Adverse Effect - the happening of any event or occurrence
which results in or ------------------------
causes a Material Adverse Effect.
8.2......Cure - Nothing contained in this Agreement or the Loan Documents
shall be deemed to compel ----
Agent and/or Lenders to accept a cure of any Event of Default hereunder.
8.3......Rights and Remedies on Default:
(a) In addition to all other rights, options and remedies
granted or available to Agent or Lenders under this Agreement or the Loan
Documents, or otherwise available at law or in equity, upon or at any time after
the occurrence and during the continuance of an Event of Default, or any event
which with the giving of notice or the passage of time, or both, would become an
Event of Default, the Majority Lenders shall have the option to instruct Agent
to direct Lenders, to, withhold or cease making Advances under the Revolving
Credit.
(b) In addition to all other rights, options and remedies
granted or available to Agent under this Agreement or the Loan Documents (each
of which is also then exercisable by Agent), Agent may, at the discretion of the
Majority Lenders after the occurrence and during the continuance of an Event of
Default, terminate the Credit Facility.
(c) In addition to all other rights, options and remedies
granted or available to Agent, under this Agreement or the Loan Documents (each
of which is also then exercisable by Agent), upon or at any time after the
occurrence and during the continuance of an Event of Default Borrower shall be
obligated to deliver and pledge to Agent, on behalf of all Lenders.
<PAGE>
(d) In addition to all other rights, options and remedies
granted or available to Agent under this Agreement or the Loan Documents (each
of which is also then exercisable by Agent), Agent may, at the discretion of the
Majority Lenders, upon or at any time following the occurrence of an Event of
Default exercise all rights under the UCC and any other applicable law or in
equity, and under all Loan Documents permitted to be exercised after the
occurrence of an Event of Default, including the following rights and remedies
(which list is given by way of example and is not intended to be an exhaustive
list of all such rights and remedies):
(i)......The right to take possession of, send notices regarding and
collect directly the Collateral, with or without judicial process (including
without limitation the right to notify the United States postal authorities to
redirect mail addressed to Borrower to an address designated by Agent); or
(ii).....By its own means or with judicial assistance, enter Borrower's
premises and take possession of the Collateral, or render it unusable, or
dispose of the Collateral on such premises in compliance with subsection (e)
below, without any liability for rent, storage, utilities or other sums, and
Borrower shall not resist or interfere with such action; or
(iii)....Require Borrower at Borrower's expense to assemble all or any part
of the Collateral and make it available to Agent at any place designated by
Agent;
(iv).....The right to reduce the Revolving Credit Limit or to modify the
terms and conditions upon which Lenders may be willing to consider making
Advances under the Credit Facility.
(e) Borrower hereby agrees that a notice received by it at
least ten (10) days before the time of any intended public sale or of the time
after which any private sale or other disposition of the Collateral is to be
made, shall be deemed to be reasonable notice of such sale or other disposition.
If permitted by applicable law, any perishable inventory or Collateral which
threatens to speedily decline in value or which is sold on a recognized market
may be sold immediately by Agent without prior notice to Borrower. Borrower
covenants and agrees not to interfere with or impose any obstacle to Agent's
exercise of its rights and remedies with respect to the Collateral, after the
occurrence of an Event of Default hereunder.
8.4......Nature of Remedies: All rights and remedies granted Agent or
Lenders hereunder and under the Loan Documents, or otherwise available at law or
in equity, shall be deemed concurrent and cumulative, and not alternative
remedies, and Agent may proceed with any number of remedies at the same time
until all Obligations are satisfied in full. The exercise of any one right or
remedy shall not be deemed a waiver or release of any other right or remedy, and
Agent, at the discretion of the Majority Lenders, upon or at any time after the
occurrence of an Event of Default, may proceed against Borrower or any of the
Collateral, at any time, under any agreement, with any available remedy and in
any order.
8.5......Set-Off: If any bank account of Borrower with Agent, any
Lender or any participant is attached or otherwise liened or levied upon by any
third party, Agent and/or Lender (and such participant) as agent for Lenders
shall have and be deemed to have, without notice to Borrower, the immediate
right of set-off and may apply the funds or amount thus set-off against any of
the Obligations hereunder.
<PAGE>
SECTION 9. AGENT
9.1......Appointment and Authorization. Each Lender, and each
subsequent holder of any of the Notes by its acceptance thereof, hereby
irrevocably appoints and authorizes the Agent to take such action on its behalf
and to exercise such powers under this Agreement as are delegated to the Agent
by the terms hereof, together with such powers as are reasonably incidental
thereto. Except as may be otherwise expressly provided herein, Borrower is
hereby authorized by the Lenders to deal solely with the Agent in all
transactions which affect the Lenders under this Agreement and the Loan
Documents. The rights, privileges and remedies accorded to the Agent hereunder
shall be exercised by the Agent on behalf of all of the Lenders.
9.2......General Immunity. Subject to the provisions of this Agreement,
the Agent will handle all transactions relating to the Loans and all other
Obligations, including, without limitation, all transactions with respect to
this Agreement, the Loan Documents and all related documents in accordance with
its usual banking practices. In performing its duties as Agent hereunder, the
Agent will take the same care as it takes in connection with loans in which it
alone is interested. However, neither the Agent nor any of its directors,
officers, agents or employees shall be liable for any action taken or omitted to
be taken by it or them hereunder or in connection herewith except for its or
their own gross negligence or willful misconduct.
9.3......Consultation with Counsel. The Agent may consult with legal
counsel and any other professional advisors or consultants deemed necessary or
appropriate and selected by Agent and shall not be liable for any action taken
or suffered in good faith by it in accordance with the advice of such counsel.
9.4......Documents. The Agent shall not be under a duty to examine into
or pass upon the effectiveness, genuineness or validity of this Agreement or any
of the Revolving Credit Notes or any other instrument or document furnished
pursuant hereto or in connection herewith, and the Agent shall be entitled to
assume that the same are valid, effective and genuine and what they purport to
be. In addition the Agent shall not be liable for failing to make any inquiry
concerning the accuracy, performance or observance of any of the terms,
provisions or conditions of such instrument or document.
9.5......Rights as a Lender. With respect to its applicable Pro Rata
Percentage of the Credit Facility, the Agent shall have the same rights and
powers hereunder as any other Lender and may exercise the same as though it were
not the Agent, and the term "Lender" or "Lenders" shall, unless the context
otherwise indicates, include the Agent in its individual capacity. Subject to
the provisions of this Agreement, the Agent may accept deposits from, lend money
to and generally engage in any kind of banking or trust business with Borrower
and its Affiliates as if it were not the Agent.
<PAGE>
9.6......Responsibility of Agent. It is expressly understood and agreed
that the obligations of the Agent hereunder are only those expressly set forth
in this Agreement and that the Agent shall be entitled to assume that no Event
of Default, and no event which with the passage of time, or the giving of
notice, would constitute an Event of Default, has occurred and is continuing,
unless the Agent has actual knowledge of such fact. Except to the extent Agent
is required by the Lenders pursuant to the express terms hereof to take, or
refrain from taking, a specific action, the Agent shall be entitled to use its
discretion with respect to exercising or refraining from exercising any rights
which may be vested in it by, or with respect to taking or refraining from
taking any action or actions that it may be able to take under or in respect of,
this Agreement and the Loan Documents. Except gross negligence or wilful
misconduct, the Agent shall incur no liability under or in respect of this
Agreement and the Loan Documents by acting upon any notice, consent,
certificate, warranty or other paper or instrument believed by it to be genuine
or authentic or to be signed by the proper party or parties, or with respect to
anything that it may do or refrain from doing in the reasonable exercise of its
judgment, or that may seem to it to be necessary or desirable under the
circumstances. The relationship between the Agent and each Lender is and shall
be that of agent and principal only and nothing herein shall be construed to
constitute the Agent a joint venturer with any Lender, a trustee or fiduciary
for any of the Lenders or for the holder of a participation therein nor impose
on the Agent duties and obligations other than those set forth herein.
9.7......Collections and Disbursements.
(a) The Agent will have the right to collect and receive all
payments of the Obligations, together with all fees, charges or other amounts
due under this Agreement and the Loan Documents. On each Settlement Date, Agent
shall make a determination of the actual outstanding dollar amount of each
Lender's Loans based upon its Pro Rata Percentage (or such lesser percentage if
such Lender has failed to remit a required payment to Agent hereunder) of the
outstanding principal amount of all Loans.
(b) Agent shall pay to each Lender, on each Settlement Date,
from the interest actually received by Agent from Borrowers, a sum equal to the
interest calculated for the actual number of days elapsed on the basis of a year
of 360 days, on each Lender's outstanding balance of its Loans at the rate equal
to the applicable rate of interest chosen by Borrower with respect to such
Lender's Pro Rata Percentage of the Advances outstanding. If Agent should for
any reason receive less than the full amount of the interest or other
compensation due under the Loan Documents, each Lender's share of such interest
or compensation shall decrease in proportion to each Lender's Pro Rata
Percentage.
(c) If any such payment received by the Agent is rescinded,
determined to be unenforceable or invalid or is otherwise required to be
returned for any reason at any time, whether before or after termination of this
Agreement and the Loan Documents, each Lender will, upon written notice from the
Agent, promptly pay over to the Agent its Pro Rata Percentage of the amount so
rescinded, held unenforceable or invalid or required to be returned, together
with interest and other fees thereon if also required to be rescinded or
returned.
<PAGE>
(d) All payments by the Agent and the Lenders to each other
hereunder shall be in immediately available funds. The Agent will at all times
maintain proper books of account and records reflecting the interest of each
Lender in the Credit Facility and the Letters of Credit, in a manner customary
to the Agent's keeping of such records, which books and records shall be
available for inspection by each Lender at reasonable times during normal
business hours, at such Lender's sole expense. In the event that any Lender
shall receive any payments in reduction of the Obligations in an amount greater
than its applicable Pro Rata Percentage in respect of indebtedness to the
Lenders evidenced hereby (including, without limitation amounts obtained by
reason of setoffs), such Lender shall hold such excess in trust (to the extent
such Lender is lawfully able to do so) for Agent (on behalf of all other
Lenders) and shall promptly remit to the Agent such excess amount so that the
amounts received by each Lender hereunder shall at all times be in accordance
with its applicable Pro Rata Percentage. To the extent necessary for each
Lender's actual percentage of all outstanding Loans to equal its applicable Pro
Rata Percentage, the Lender having a greater share of any payment(s) than its
applicable Pro Rata Percentage shall acquire a participation in the applicable
outstanding balances of the Loans of the other Lenders as determined by Agent.
(e) The proceeds from the sale or disposition of any
Collateral shall be applied first to Expenses incurred by Agent, then to accrued
but unpaid interest, then to unpaid fees owing to Lenders and/or Agent, then on
the next Settlement Date to the principal balance of Loans in accordance with
percentage which each Lender's respective outstanding Loans bears to the
aggregate outstanding Loans.
9.8......Indemnification. To the extent not promptly paid by Borrower,
the Lenders hereby each indemnify the Agent ratably according to their
respective Pro Rata Percentages, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever that may be imposed
on, incurred by or asserted against the Agent in any way relating to or arising
out of this Agreement or any other Loan Document or any action taken or omitted
by the Agent under or related to this Agreement or the other Loan Documents or
the Loans, provided that no Lender shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting solely from the Agent's gross
negligence or wilful misconduct. Agent shall have the right to deduct, from any
amounts to be paid by Agent to any Lender hereunder, any amounts owing to Agent
by such Lender by virtue of this paragraph.
9.9......Expenses.
(a) All reasonable out-of-pocket costs and out-of-pocket
expenses incurred by Agent in connection with the creation, amendment,
administration, termination and enforcement of the Loans (including, without
limitation, audit expenses, counsel fees and expenditures to protect, preserve
and defend Agent's and each Lender's rights and interest under the Loan
Documents) shall be shared and paid on demand by Lenders pro rata based on their
applicable Pro Rata Percentage.
(b) Agent may deduct from payments or distributions to be made
to Lenders such funds as may be necessary to pay or reimburse Agent for such
costs or expenses.
(c) In connection with reimbursement of expenses set forth in
this Section 9.9 and indemnification obligations set forth in Section 9.8, Agent
shall provide a written statement to Lenders describing such expenses or
indemnification obligations.
<PAGE>
9.10.....No Reliance. By execution of or joining in this Agreement,
each Lender acknowledges that it has entered into this Agreement and the Loan
Documents solely upon its own independent investigation and is not relying upon
any information supplied by or any representations made by Agent. Each Lender
shall continue to make its own analysis and evaluation of Borrower. Agent makes
no representation or warranty and assumes no responsibility with respect to the
financial condition or Property of Borrower, any obligor or any account debtor
of Borrower; the accuracy, sufficiency or currency of any information concerning
the financial condition, prospects or results of operations of Borrower; or for
sufficiency, authenticity, legal effect, validity or enforceability of the Loan
Documents. Agent assumes no responsibility or liability with respect to the
collectibility of the Obligations or the performance by Borrower of any
obligation under the Loan Documents.
9.11.....Reporting. During the term of this Agreement, Agent will
promptly furnish each Lender such financial statements, reports and other
materials actually received by Agent. Agent will notify Lenders promptly after
it receives actual knowledge of any Event of Default under the Loan Documents.
9.12.....Removal of Agent. The Agent may resign at any time upon thirty
(30) days prior written notice thereof to Lenders and Borrower and upon receipt
from Borrower of its written consent to such resignation, which consent shall
not be unreasonably withheld. The Agent may be removed as Agent hereunder by the
written direction of Majority Lenders (exclusive of Mellon) upon the following
(i) willful misconduct in the performance of Agent's duties or responsibilities
under this Agreement; or (ii) if a receiver, trustee or conservator is appointed
for Agent or any state or federal regulatory authority assumes management or
control of Agent or, if under applicable law, the administrative discretionary
duties and responsibilities of Agent hereunder become controlled by or subject
to the approval of any state or federal regulatory authority. Upon any such
removal, the Majority Lenders shall have the right to appoint a successor Agent.
Upon the acceptance of the appointment as a successor Agent hereunder by such
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all rights, powers, obligations and duties of the retiring Agent and
the retiring Agent shall be discharged from its duties and obligations
hereunder.
9.13.....Action on Instructions of Lenders. With respect to any
provision of this Agreement, or any issue arising thereunder, concerning which
the Agent is authorized to act or withhold action by direction of Lenders (or as
the case may be under this Agreement, the Majority Lenders), the Agent shall in
all cases be fully protected in so acting, or in so refraining from acting,
hereunder in accordance with written instructions signed by Lenders. Such
instructions and any action taken or failure to act pursuant thereto shall be
binding on all Lenders and on all holders of the Notes.
9.14.....Several Obligations. The obligation of each Lender is several,
and neither the Agent nor any other Lender shall be responsible for any
obligation or commitment hereunder of any other Lender.
<PAGE>
9.15.....Consent of Lenders to Agent's Rights.
(a) Subject to the provisions of this Section 9.15, Agent
shall have the sole and exclusive right to service, administer and monitor the
Loans and the Loan Documents. Agent shall, at the discretion of the Majority
Lenders, have the right to exercise all rights, remedies, privileges and options
under the Loan Documents, including without limitation the determination as to
whether Advances should be made under the Agreement and the determination as to
the basis on which and extent to which Advances may be made.
(b) Notwithstanding anything to the contrary contained in
subparagraph (a) above, Agent shall not, without the prior written consent of
all Lenders: (i) extend the Revolving Credit Term, any payment date under the
Credit Facility or the Revolving Credit Maturity Date, (ii) decrease any
interest rate or any fee or other amount payable for the benefit of the Lenders
hereunder, (iii) compromise or settle all or any material portion of the
Obligations, (iv) release any obligor from the Obligations except in connection
with termination of the Revolving Credit and full payment and satisfaction of
all Obligations, (v) modify Section 9.15(b) or (c) or any other provision of
this Agreement or any other Loan Document expressly providing for consent of all
Lenders, or the definition of Majority Lenders, (vi) release or subordinate
Agent's interest (except with respect to Permitted Liens, to the extent
applicable) in any Collateral except in connection with (A) a sale in the
ordinary course or other permitted disposition or (B) the enforcement of the
Agent's rights and interests in Collateral after the occurrence of an Event of
Default; or (vii) increase the Revolving Credit Limit or the Revolving Credit
Pro Rata Share of any Lender; and, except as expressly provided in this Section
9.15(b) Agent shall not, without the prior written consent of the Majority
Lenders, modify, amend or waive any provision of this Agreement or the other
Loan Documents unless expressly permitted herein.
(c) After an acceleration of the Obligations, Agent shall have
the sole and exclusive right, with communication (to the extent reasonably
practicable under the circumstances) with all Lenders, to exercise or refrain
from exercising any and all right, remedies, privileges and options under the
Loan Documents and available at law or in equity to protect and enforce the
rights of the Lenders and collect the Obligations, including, without
limitation, instituting and pursuing all legal actions against Borrower or to
collect the Obligations, or defending any and all actions brought by Borrower or
other Person; or incurring Expenses or otherwise making expenditures to protect
the Loans, the Collateral or Lenders' rights or remedies.
(d) To the extent Agent is required to obtain or otherwise
elects to seek the consent of Lenders to an action Agent desires to take, if any
Lender fails to notify Agent, in writing, of its consent or dissent to any
request of Agent hereunder within five (5) Business Days of such Lender's
receipt of such request, such Lender shall be deemed not to have given its
consent thereto.
(e) Any amendment to Section 9 of this Agreement shall not
require Borrower's consent.
<PAGE>
9.16.....Participations and Assignments: (a) Subject to subparagraph
(b) below, each Lender may at any time: (i) grant participations of its Pro Rata
Percentage of Loans or in and to its interests under this Agreement
(collectively, "Participations") to any other lending office of such Lender or
to any other bank, lending institution or the Federal Reserve Bank
("Participants"); provided however that: all amounts payable by the Borrower to
such Lender hereunder and voting rights of such Lender hereunder shall be
determined as if such Lender had not granted such Participation (a change in
voting rights requiring written consent of all Lenders); and any agreement
pursuant to which such Lender may grant a Participation (A) shall provide that
such Lender is not delegating and therefor shall retain the sole right and
responsibility to exercise its rights and privileges including, without
limitation, the right to approve any amendment, modification or waiver of any
provisions of this Agreement, provided, however that as between such Lender and
its Participant such Lender may agree to consult with and obtain the approval of
its Participant regarding any amendment, modification or waiver of any provision
set forth in Section 9.15(b); and (B) shall not release or discharge such Lender
from its duties and obligations, which shall remain absolute, to make Advances
hereunder; and (ii) assign all or any portion of its Pro Rata Percentage of
Loans and its right, title and interest therein or in and to this Agreement to a
Lender or any affiliate of a Lender, or to any other bank or financial
institution, with the prior written consent of the Agent and Borrower provided
that Borrower's consent shall not be required after the occurrence and during
the continuance of an Event of Default; and provided further that each Lender's
Revolving Credit Pro Rata Share shall be at least $5,000,000. Notwithstanding
anything to the contrary contained herein, each Lender may at any time
collaterally assign all or any portion of its rights under this Agreement and
its Revolving Credit Notes to any Federal Reserve Bank to secure overnight
deposits, provided that no such assignment shall release the assignor Lender
from its obligations hereunder.
(b) Sales and/or assignments must be in minimum amounts of
$5,000,000 and Agent fees attendant thereto in the amount of $4,000 per
assignment. Borrower will not be responsible for the payment of any fees in
connection with any said sale and/or assignment. Provided further,
transferability of voting rights in connection with transfers of participation
interests shall be limited to changes in principal, decreases in rate, decreases
in fees, changes in term, and release of collateral. Assignments will require
the written consent of Agent and, absent an Event of Default, Borrower, except
for assignments to an affiliate of the assigning Lender, to another Lender or to
the Federal Reserve Bank. Consents to assignments shall not be unreasonably
withheld.
SECTION 10. MISCELLANEOUS
10.1.....GOVERNING LAW: THIS AGREEMENT, AND ALL RELATED AGREEMENTS AND
DOCUMENTS, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE SUBSTANTIVE
LAWS OF THE COMMONWEALTH OF PENNSYLVANIA. THE PROVISIONS OF THIS AGREEMENT, THE
OTHER LOAN DOCUMENTS AND ALL OTHER AGREEMENTS AND DOCUMENTS REFERRED TO HEREIN
ARE TO BE DEEMED SEVERABLE, AND THE INVALIDITY OR UNENFORCEABILITY OF ANY
PROVISION SHALL NOT AFFECT OR IMPAIR THE REMAINING PROVISIONS WHICH SHALL
CONTINUE IN FULL FORCE AND EFFECT.
<PAGE>
10.2.....Integrated Agreement: The Notes, the other Loan Documents, all
related agreements, and this Agreement shall be construed as integrated and
complementary of each other, and as augmenting and not restricting Lenders' and
Agent's rights and remedies. If, after applying the foregoing, an inconsistency
still exists, the provisions of this Agreement shall constitute an amendment
thereto and shall control.
10.3.....Waiver:
(a) No omission or delay by Agent or Lenders in exercising any
right or power under this Agreement or any related agreements and documents will
impair such right or power or be construed to be a waiver of any default, or
Event of Default or an acquiescence therein, and any single or partial exercise
of any such right or power will not preclude other or further exercise thereof
or the exercise of any other right, and as to Borrower no waiver will be valid
unless in writing and signed by Agent and then only to the extent specified.
(b) Borrower releases and shall indemnify, defend and hold
harmless Agent and Lenders, and their respective officers, employees and agents,
of and from any claims, demands, liabilities, obligations, judgments, injuries,
and out-of-pocket losses, damages and costs and expenses (including, without
limitation, reasonable legal fees) resulting from (i) acts or conduct of
Borrower under, pursuant or related to this Agreement and the other Loan
Documents, (ii) Borrower's breach or violation of any representation, warranty,
covenant or undertaking contained in this Agreement or the other Loan Documents,
and (iii) Borrower's failure to comply with any or all laws, statutes,
ordinances, governmental rules, regulations or standards, whether federal, state
or local, or court or administrative orders or decrees, (including without
limitation environmental laws, etc.) and all costs, expenses, fines, penalties
or other damages resulting therefrom, unless resulting from acts or conduct of
Agent or Lenders constituting wilful misconduct or gross negligence. The
obligations of Borrower under this Section 10.3(b) shall survive the occurrence
of any and all events whatsoever, including without limitation, payment of the
Obligations or investigation by or knowledge of Lenders.
10.4.....Time: Whenever Borrower shall be required to make any payment,
or perform any act, on a day which is not a Business Day, such payment may be
made, or such act may be performed, on the next succeeding Business Day except
with respect to the repayment of LIBOR Based Loans as set forth in Section
2.3(b)(ii). Time is of the essence in the performance under all provisions of
this Agreement and all related agreements and documents.
<PAGE>
10.5.....Expenses of Agent and Lenders: At Closing and from time to
time thereafter, Borrower will pay all reasonable expenses of Agent on demand
(including, without limitation, search costs, audit fees, appraisal fees,
environmental fees and the reasonable fees and expenses of legal counsel for
Agent) relating to the closing of this Agreement, and all related agreements and
documents, including, without limitation, closing, enforcement of this Agreement
and the other Loan Documents, the enforcement, protection and defense of the
rights of Agent and Lenders in and to the Loans and Collateral or otherwise
hereunder, and any expenses relating to extensions, amendments, waivers or
consents pursuant to the provisions hereof, or any related agreements and
documents or relating to agreements with other creditors, or termination of this
Agreement. Borrower further agrees to pay, or reimburse Lenders for, all
reasonable out-of-pocket costs and expenses, including without limitation
attorneys' fees (including the allocated costs of in-house counsel), incurred in
connection with the enforcement, protection and defense of their rights in and
to the Loans and the Collateral or otherwise hereunder, following acceleration
of the Obligations after the occurrence of an Event of Default hereunder or
following the failure to repay the Obligations in full upon maturity.
Collectively all of the foregoing are referred to as the "Expenses."
10.6.....Brokerage: This transaction was brought about and entered into
by Agent, Lenders and Borrower acting as principals and without any brokers,
agents or finders being the effective procuring cause hereof. Borrower
represents that it has not committed Agent or any Lender to the payment of any
brokerage fee, commission or charge in connection with this transaction. If any
such claim is made on Agent or any Lender by any broker, finder or agent or
other person as a result of Borrower=s engaging thereof, Borrower hereby
indemnifies, defends and saves such party harmless against such claim and
further will defend, with counsel satisfactory to Agent, any action or actions
to recover on such claim, at Borrower's own cost and expense, including such
party's reasonable counsel fees. Borrower further agrees that until any such
claim or demand is adjudicated in such party's favor, the amount demanded shall
be deemed a liability of Borrower under this Agreement.
10.7.....Notices:
(a) Any notices or consents required or permitted by this
Agreement shall be in writing and shall be deemed given if delivered in person
or if sent by telecopy or by nationally recognized overnight courier, or via
first class, Certified or Registered mail, postage prepaid, as follows, unless
such address is changed by written notice hereunder:
If to Agent to: .........Mellon Bank, N.A.
610 West Germantown Pike
Suite 200
Plymouth Meeting, Pennsylvania 19462
Attn.: Marita McGough Carb, Vice President
Telecopy No.: 610/941-4136
With copies to: Blank Rome Comisky & McCauley LLP
Woodland Falls Corporate Park
210 Lake Drive East
Cherry Hill, New Jersey 08002
Attn: Peter W. Leibundgut, Esquire
Telecopy No.: 609/779-7647
If to Borrower to:.........RCM Technologies, Inc.
2500 McClellan Avenue, Suite 350
Pennsauken, New Jersey 08109
Attn: Leon Kopyt, Chairman, President & CEO
Telecopy No.: 609/488-8833
<PAGE>
With copies to: Wolf, Block, Schorr and Solis-Cohen LLP
Packard Bldg. 12th Floor
15th and Chestnut Streets
Philadelphia, Pennsylvania 19102-2678
Attn: Mark Kessler, Esquire
Richard Silfen, Esquire
Telecopy No.: 215/977-2346
If to Lenders: .........to the addresses set forth on Schedule "B"
(b) Any notice sent by Agent, any Lender or Borrower by any of
the above methods shall be deemed to be given when so received.
(c) Agent shall be fully entitled to rely upon any facsimile
transmission or other writing purported to be sent by any Authorized Officer
(whether requesting an Advance or otherwise) as being genuine and authorized.
10.8.....Headings: The headings of any paragraph or Section of this
Agreement are for convenience only --------
and shall not be used to interpret any provision of this Agreement.
10.9 .... Survival: All warranties, representations, and covenants made
by Borrower herein, or in any agreement referred to herein or on any
certificate, document or other instrument delivered by it or on its behalf under
this Agreement, shall be considered to have been relied upon by Agent and
Lenders, and shall survive the delivery to Lenders of the Revolving Credit
Notes, regardless of any investigation made by Lenders or on their behalf. All
statements in any such certificate or other instrument prepared and/or delivered
for the benefit of Agent and any and all Lenders shall constitute warranties and
representations by Borrower hereunder. Except as otherwise expressly provided
herein, all covenants made by Borrower hereunder or under any other agreement or
instrument shall be deemed continuing until all Obligations are satisfied in
full.
10.10.... Successors and Assigns: This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, subject to the provisions of Section 9.16. Borrower may not transfer,
assign or delegate any of its duties or obligations hereunder.
10.11....Duplicate Originals: Two or more duplicate originals of this
Agreement may be signed by the parties, each of which shall be an original but
all of which together shall constitute one and the same instrument. This
Agreement may be executed in counterparts, all of which counterparts taken
together shall constitute one completed fully executed document.
10.12....Modification: No modification hereof or any agreement referred
to herein shall be binding or enforceable unless in writing and signed by
Borrower, Agent and the Lenders except as provided in Section 9 hereof. Any
modification in accordance with the terms hereof shall be binding on all parties
hereto, whether or not each is a signatory thereto.
<PAGE>
10.13....Third Parties: No rights are intended to be created hereunder,
or under any related agreements or documents for the benefit of any third party
donee, creditor or incidental beneficiary of Borrower. Nothing contained in this
Agreement shall be construed as a delegation to Agent or any Lender of
Borrower's duty of performance, including, without limitation, Borrower's duties
under any account or contract with any other Person.
10.14....Discharge of Taxes, Borrowers' Obligations, Etc.: Agent, in
its sole discretion, shall have the right at any time, and from time to time, if
Borrower fails to timely perform, to: (a) pay for the performance of any of
Borrower's Obligations hereunder, and (b) discharge taxes or Liens, at any time
levied or placed on any of Borrower's Property in violation of this Agreement
unless such entity is in good faith with due diligence by appropriate
proceedings contesting such taxes or Liens and maintaining proper reserves
therefor in accordance with GAAP. Expenses and advances shall be added to the
Revolving Credit, bear interest at the same rate applied to the Revolving
Credit, until reimbursed to Agent. Such payments and advances made by Agent
shall not be construed as a waiver by Agent or Lenders of an Event of Default
under this Agreement.
10.15....Withholding and Other Tax Liabilities: Each Lender shall have
the right to refuse to make any Advances from time to time unless Borrower
shall, at Agent's request, have given to Agent evidence, reasonably satisfactory
to Agent, that they have properly deposited or paid, as required by law, all
withholding taxes and all federal, state, city, county or other taxes due up to
and including the date of the requested Advance. Copies of deposit slips showing
payment shall likewise constitute satisfactory evidence for such purpose. In the
event that any lien, assessment or tax liability against Borrower shall arise in
favor of any taxing authority, whether or not notice thereof shall be filed or
recorded as may be required by law, Agent shall have the right (but shall not be
obligated, nor shall Agent or any Lender hereby assume the duty) to pay any such
lien, assessment or tax liability by virtue of which such charge shall have
arisen; provided, however, that Agent shall not pay any such tax, assessment or
lien if the amount, applicability or validity thereof is being contested in good
faith and by appropriate proceedings by such entity. In order to pay any such
lien, assessment or tax liability, Agent shall not be obliged to wait until said
lien, assessment or tax liability is filed before taking such action as
hereinabove set forth. Any sum or sums which Agent (shared ratably by Lenders)
shall have paid for the discharge of any such lien shall be added to the Credit
Facility and shall be paid by Borrower to Agent with interest thereon, upon
demand, and Agent shall be subrogated to all rights of such taxing authority
against Borrower.
10.16....CONSENT TO JURISDICTION: BORROWER AND EACH LENDER HEREBY
IRREVOCABLY CONSENTS TO THE JURISDICTION OF THE COURTS OF THE COMMONWEALTH OF
PENNSYLVANIA OR THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF
PENNSYLVANIA IN ANY AND ALL ACTIONS AND PROCEEDINGS WHETHER ARISING HEREUNDER OR
UNDER ANY OTHER AGREEMENT OR UNDERTAKING AND IRREVOCABLY AGREE TO SERVICE OF
PROCESS BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED TO THE ADDRESS OF THE
APPROPRIATE PARTY SET FORTH HEREIN.
<PAGE>
10.17 Waiver of Jury Trial: AS AN INDEPENDENT COVENANT, AGENT, EACH
LENDER AND BORROWER HEREBY WAIVES ANY AND ALL RIGHTS IT MAY HAVE TO A JURY TRIAL
IN CONNECTION WITH ANY LITIGATION COMMENCED BY OR AGAINST ANY OF THEM WITH
RESPECT TO RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO OR UNDER THE LOAN
DOCUMENTS WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE.
[INTENTIONALLY LEFT PARTIALLY BLANK]
<PAGE>
IN WITNESS WHEREOF, the undersigned parties have executed this
Agreement the day and year first above written.
BORROWER:......... ......... RCM TECHNOLOGIES, INC.
By:________________________________
Name: _____________________________
Title: ______________________________
INTERTEC DESIGN, INC.
By:________________________________
Name: _____________________________
Title: ______________________________
CATARACT, INC.
By:________________________________
Name: _____________________________
Title: ______________________________
<PAGE>
THE CONSORTIUM
By:________________________________
Name: _____________________________
Title: ______________________________
THE CONSORTIUM OF MARYLAND, INC.
By:________________________________
Name: _____________________________
Title: ______________________________
AUSTIN NICHOLS TECHNICAL
TEMPORARIES, INC.
By:________________________________
Name: _____________________________
Title: ______________________________
J.D. KARIN CONSULTING SERVICES, INC.
By:________________________________
Name: _____________________________
Title: ______________________________
<PAGE>
PROGRAMMING ALTERNATIVES
OF MINNESOTA, INC.
By:________________________________
Name: _____________________________
Title: ______________________________
NORTHERN TECHNICAL SERVICES, INC.
By:________________________________
Name: _____________________________
Title: ______________________________
CAMELOT CONTRACTORS, LTD.
By:________________________________
Name: _____________________________
Title: ______________________________
STAFFWORKS, INC.
By:________________________________
Name: _____________________________
Title: ______________________________
<PAGE>
GLOBAL TECHNOLOGY SOLUTIONS, INC.
By:________________________________
Name: _____________________________
Title: ______________________________
SOFTWARE ANALYSIS & MANAGEMENT, INC.
By:________________________________
Name: _____________________________
Title: ______________________________
WEST MICHIGAN SOFTWARE
SPECIALISTS, INC.
By:________________________________
Name: _____________________________
Title: ______________________________
<PAGE>
AGENT: ......... ......... MELLON BANK, N.A., as Agent
By:________________________________
Name: _____________________________
Title: ______________________________
LENDERS: ......... ......... MELLON BANK, N.A., as Lender
By:________________________________
Name: _____________________________
Title: ______________________________
SUNTRUST BANK, ATLANTA, as Lender
By:________________________________
Name: _____________________________
Title: ______________________________
By:________________________________
Name: _____________________________
Title: ______________________________
<PAGE>
THE FIRST NATIONAL BANK OF MARYLAND,
as Lender
By:________________________________
Name: _____________________________
Title: ______________________________
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Lender
By:________________________________
Name: _____________________________
Title: ______________________________
FLEET NATIONAL BANK, as Lender
By:________________________________
Name: _____________________________
Title: ______________________________
<PAGE>
SCHEDULE A
Revolving Credit Revolving Credit
Lenders......... ......... Pro Rata Share Pro Rata Percentage
------- ---------------- -------------------
......... .........
Mellon Bank, N.A.. ......... $ 20,000,000 26.68%
Fleet National Bank ......... $ 17,500,000 23.33%
Bank of America... ......... $ 17,500,000 23.33%
The First National Bank of Maryland $ 10,000,000 13.33%
SunTrust Bank, Atlanta ......... $ 10,000,000 13.33%
TOTAL COMMITMENT $ 75,000,000 100%
============ ====
<PAGE>
SCHEDULE B
MELLON BANK, N.A.
610 West Germantown Pike
Suite 200
Plymouth Meeting, Pennsylvania 19462
Attn.: Marita McGough Carb, Vice President
Telecopy No.: 610/941-4136
SUNTRUST BANK, ATLANTA
P.O. Box 4418
25 Park Place, 23rd Floor
Atlanta, GA 30302
Attn: Daniel S. Komitor, V. P.
Telecopy No.: 404-588-8833
THE FIRST NATIONAL BANK OF MARYLAND
25 South Charles Street, 18th Floor
Baltimore, MD 21203
Attn: C. Coney Burgess, Corporate Banking Officer
Telecopy No.: 410-545-2047
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
231 S. LaSalle Street
Chicago, IL 60697
Attn: Jonathan M. Phillips, Banking Associate
Telecopy No.: 312-765-2193
FLEET NATIONAL BANK
1 Federal Street
MAOFD04J
Boston, MA 02110
Attn: Tom Engels, Staffing & Business Ser.
Telecopy No.: 617-346-4667
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS FOR THE NINE MONTHS ENDED JULY 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<CIK> 0000700841
<NAME> RCM TECHNOLOGIES, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> JUL-31-1998
<EXCHANGE-RATE> 1
<CASH> 32,317,407
<SECURITIES> 0
<RECEIVABLES> 36,571,391
<ALLOWANCES> 405,700
<INVENTORY> 0
<CURRENT-ASSETS> 69,545,149
<PP&E> 4,525,423
<DEPRECIATION> 2,278,128
<TOTAL-ASSETS> 117,457,896
<CURRENT-LIABILITIES> 14,023,924
<BONDS> 0
0
0
<COMMON> 522,282
<OTHER-SE> 102,911,690
<TOTAL-LIABILITY-AND-EQUITY> 117,457,896
<SALES> 138,182,996
<TOTAL-REVENUES> 138,182,996
<CGS> 105,099,254
<TOTAL-COSTS> 126,935,081
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,657
<INCOME-PRETAX> 11,255,572
<INCOME-TAX> 4,668,636
<INCOME-CONTINUING> 6,586,936
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,586,936
<EPS-PRIMARY> .80
<EPS-DILUTED> .75
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE SUMMARY FINANCIAL INFORMATION IS EXTRACTED FROM THE FINANCIAL
STATEMENTS FOR THE NINE MONTHS ENDED JULY 31, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<CIK> 0000700841
<NAME> RCM TECHNOLOGIES, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> JUL-31-1997
<EXCHANGE-RATE> 1
<CASH> 14,833,368
<SECURITIES> 0
<RECEIVABLES> 19,553,401
<ALLOWANCES> 300,748
<INVENTORY> 0
<CURRENT-ASSETS> 34,811,160
<PP&E> 2,275,298
<DEPRECIATION> 1,267,695
<TOTAL-ASSETS> 50,151,370
<CURRENT-LIABILITIES> 7,422,714
<BONDS> 0
0
0
<COMMON> 375,743
<OTHER-SE> 42,038,438
<TOTAL-LIABILITY-AND-EQUITY> 50,151,370
<SALES> 76,540,067
<TOTAL-REVENUES> 76,540,067
<CGS> 58,275,612
<TOTAL-COSTS> 71,260,309
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 393,931
<INCOME-PRETAX> 4,997,314
<INCOME-TAX> 2,093,066
<INCOME-CONTINUING> 2,904,248
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,904,248
<EPS-PRIMARY> .55
<EPS-DILUTED> .53
</TABLE>
