SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report June 12, 1998
(Date of earliest event reported) (January 4, 1998)
RCM TECHNOLOGIES, INC.
(exact name of registrant as specified in its charter)
NEVADA
(State or other jurisdiction of incorporation)
1-10245 95-1480559
(Commission File Number) (IRS Employer
Identification Number)
2500 McClellan Avenue, Pennsauken, NJ 08109-4613
(Address of principal executive offices) (Zip Code)
(609) 486 - 1777
(Registrant's telephone number, including area code)
<PAGE>
ITEM 2. Acquisition or Disposition of Assets
On January 4, 1998, RCM Technologies, Inc. ("Registrant") acquired Northern
Technical Services, Inc. ("NTS"), a Milwaukee, Wisconsin-based provider of
information technology personnel and professional engineering staffing services.
The acquisition was completed through a stock purchase transaction (the "NTS
Purchase") pursuant to which NTS, through an exchange of all of its outstanding
shares of stock with the Registrant became a wholly-owned subsidiary of the
Registrant.
The NTS Purchase consideration paid to the former shareholders of NTS consisted
of $3.1 in million cash and $1.5 million of contingent consideration payable
over two years upon NTS achieving certain base levels of operating income for
each of the two twelve month periods following the NTS Purchase. An additional
earn-out payment shall be made to the former shareholders at the end of each of
the two twelve month periods following the NTS Purchase, to the extent that
operating income exceeds these base levels. The Purchase has been accounted for
under the purchase method of accounting. The source of cash utilized in the NTS
Purchase was from the Registrant's revolving credit facility. The cost in excess
of net assets acquired will be approximately $3.2 million. It is anticipated the
cost in excess of net assets acquired will be amortized over a 40 year period.
The Purchase consideration paid by the Registrant was determined by negotiations
between and among the representatives of the Registrant and NTS.
Following the NTS Purchase, the directors and executive officers of NTS consist
of Leon Kopyt Chief Executive officer, Stanton Remer Chief Financial Officer,
and Merle Cook (Chief Executive Officer of NTS prior to the Purchase).
NTS's assets consist of primarily of contracts and office equipment. These
assets were used in providing information technology and professional
engineering personnel to businesses and institutions. The Registrant plans for
NTS to continue such course of business under the Registrant's control.
Prior to the NTS Purchase, no material relationship existed between NTS and the
Registrant or any of its affiliates, any director or officer of the Registrant,
or any associate of any such director or officer.
On February 2, 1998, the Registrant acquired Global Technology Solutions, Inc.
("GTS"), a Sacramento, California-based provider of information technology
staffing services. The acquisition was completed through a stock purchase
transaction (the "GTS Purchase") pursuant to which GTS, through an exchange of
all of its outstanding shares of stock with the Registrant became a wholly-owned
subsidiary of the Registrant.
The GTS Purchase consideration paid to the former shareholders of GTS consisted
of $3.7 in million cash and $2.0 million of contingent consideration payable
over two years upon GTS achieving certain base levels of operating income for
each of the two twelve month periods following the GTS Purchase. An additional
earn-out payment shall be made to the former shareholders at the end of each of
the two twelve month periods following the GTS Purchase, to the extent that
operating income exceeds these base levels. The GTS Purchase has been accounted
for under the purchase method of accounting. The source of cash utilized in the
GTS Purchase was from the Registrant's revolving credit facility. The cost in
excess of net assets acquired will be approximately $4.5 million. It is
anticipated the cost in excess of net assets acquired will be amortized over a
40 year period.
<PAGE>
The GTS Purchase consideration paid by the Registrant was determined by
negotiations between and among the representatives of the Registrant and GTS.
Following the GTS Purchase, the directors and executive officers of GTS consist
of Leon Kopyt Chief Executive Officer, Stanton Remer Chief Financial Officer,
and Murthy Venkat (General Manager of GTS prior to the GTS Purchase).
GTS's assets consist primarily of contracts and office equipment. These assets
were used in providing information technology and professional engineering
personnel to businesses and institutions. The Registrant plans for GTS to
continue such course of business under the Registrant's control.
Prior to the GTS Purchase, no material relationship existed between GTS and the
Registrant or any of its affiliates, any director or officer of the Registrant,
or any associate of any such director or officer.
ITEM 7. Financial Statements and Exhibits.
(a) Financial statements of businesses acquired
Audited Balance Sheets
November 30, 1997
December 31, 1997
Audited Statements of Income Year ended November 30, 1997 Year ended
December 31, 1997
Audited Statement of Changes in Stockholders' Equity,
Year ended November 30, 1997
Year ended December 31, 1997
Audited Statement of Cash Flows
Year ended November 30, 1997
Year ended December 31, 1997
Notes to Financial Statements
November 30, 1997
December 31, 1997
(b) Pro forma financial information
Unaudited Pro Forma Condensed Combined Balance Sheet, October 31, 1997.
UnauditedPro Forma Condensed Combined Statement of Income for the year
ended October 31, 1997.
(c) Exhibits
(1) Stock Purchase Agreement (Northern Technical Services, Inc.),
dated December 31, 1997
(2) Stock Purchase Agreement (Global Technology Solutions, Inc.),
dated February 4, 1998
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RCM Technologies, Inc.
By: /S/ Stanton Remer
Stanton Remer
Chief Financial Officer
(Principal Accounting Officer),
Treasurer and Director
June 11, 1998
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial
statements give effect to the acquisition of Northern Technical Services ("NTS")
by RCM Technologies, Inc. ("RCM") pursuant to a purchase transaction that was
completed on January 4, 1998 and the acquisition of Global Technology Solutions,
Inc. ("GTS") on February 2, 1998. This pro forma information has been prepared
utilizing the historical financial statements of RCM, NTS and GTS. This
information should be read in conjunction with the historical financial
statements and notes thereto of RCM which are incorporated by reference to RCM's
Form 10-K and the historical financial statements of NTS and GTS which are
incorporated within this Form 8-K. The pro forma financial data are provided for
comparative purposes only and do not purport to be indicative of the results
which actually would have been obtained if the acquisition had been effected on
the dates indicated, or of the results which may be obtained in the future.
The pro forma financial information is based on the purchase method of
accounting for the acquisitions. The pro forma adjustments are described in the
accompanying Notes to Unaudited Pro Forma Condensed Combined Balance Sheet and
Notes to Unaudited Pro Forma Condensed Combined Statement of Income. The
Unaudited Pro Forma condensed combined statement of income for the year ended
October 31, 1997 assumes that the acquisitions of NTS and GTS had occurred on
November 1, 1996 (combining the results for the year ended October 31, 1997 for
RCM, and the twelve months ended November 30, 1997 for NTS and the twelve months
ended December 31, 1997 for GTS). The unaudited pro forma condensed combined
balance sheet at October 31, 1997 assumes that the acquisitions of NTS and GTS
had occurred on October 31, 1997.
Acquisition
The consideration paid to the former shareholders of NTS consisted of $3.1
million in cash and $1.5 million of contingent consideration payable over two
years upon NTS achieving certain base levels of operating income for each of the
two twelve month periods following the NTS Purchase. An additional earn-out
payment shall be made to the former shareholders NTS at the end of each of the
two twelve month periods following the NTS Purchase, to the extent that
operating income exceeds these base levels.
The consideration paid to the former shareholders of GTS consisted of $3.7 in
million cash and $2.0 million of contingent consideration payable over two years
upon GTS achieving certain base levels of operating income for each of the two
twelve month periods following the GTS Purchase. An additional earn-out payment
shall be made to the former shareholders of GTS at the end of each of the two
twelve month periods following the GTS Purchase, to the extent that operating
income exceeds these base levels.
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS- Continued
Assumptions
Purchase Price Allocation
Although neither RCM, NTS nor GTS has complete information at this time
as to the fair value of NTS's or GTS's individual assets and liabilities, an
estimate of the eventual allocation of the purchase price was made on the basis
of available information. The eventual allocation of the purchase price will be
made on the basis of appraisals and valuations which give effect to various
factors including the nature and intended future use of assets acquired in
determining their value. It is not anticipated that any change in the allocation
price will be material from the pro forma adjustments.
For the purpose of pro forma presentations, the excess purchase price
over the net assets acquired is being amortized over an estimated life of forty
(40) years.
<PAGE>
RCM Technologies, Inc.
Unaudited Proforma Condensed Balance Sheet
October 31, 1997
<TABLE>
<CAPTION>
Historical
RCM Northern Technical Global Technology
Technologies, Inc. Services, inc. Solutions, Inc. Adjustments & Proforma
October 31, 1997 November 30, 1997 December 31, 1997 Eliminations Combined
Assets:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $918,028 $1,375,237 $96,755 A & B ($6,825,000) $25,260
G (150,000)
E & F (2,189,760)
H 6,800,000
Accounts and notes receivable 24,850,304 1,281,615 1,256,201 27,388,120
Prepaid expenses & other current assets 673,265 12,357 19,184 704,806
Total current assets 26,441,597 2,669,209 1,372,140 28,118,186
Property and equipment-net 1,135,405 252,883 33,047 1,421,335
Intangible assets 26,411,445 0 0 A & B 6,825,000 33,386,445
G 150,000
Other Assets 94,149 724,089 61,980 880,218
Total $54,082,596 $3,646,181 $1,467,167 $4,610,240 $63,806,184
Liabilities and Shareholders' Equity:
Current Liabilities
Bank- line of credit $2,000,000 $100,000 H $6,800,000 $8,900,000
Other current liabilities 7,162,482 1,028,415 74,908 C & D 3,165,330 9,241,375
E & F (2,189,760)
Total current liabilities 9,162,482 1,028,415 174,908 18,141,375
Long Term Liabilities 308,129 340,215 648,344
Shareholders' equity 44,611,985 2,277,551 1,292,259 C & D (3,165,330) 45,016,465
Total $54,082,596 $3,646,181 $1,467,167 $4,610,240 $63,806,184
ADJUSTMENTS
(A) to record initial cash consideration for purchase Nothern Technical
Services, Inc. ("NTS") $3,125,000 in exchange for all the shares of NTS
(B) to record initial cash consideration for purchase Global Technology
Solutions, Inc.. ("GTS") $3,700,000 in exchange for all the shares of GTS
(C) to record tangible net worth, as defined due selling shareholders of NTS $1,955,449
(D) to record net working capital, as defined due selling shareholders of GTS $1,209,881
(E) to record initial payment of tangible net worth, as defined to selling shareholders of NTS $1,372,666
(F) to record initial payment of net working capital, as defined to selling shareholders of GTS $817,094
(G) to reflect estimated acquisition costs incurred $150,000
(H) to reflect funds borrowed for revolving line of credit to finance transactions $6,800,000
</TABLE>
<PAGE>
RCM TECHNOLOGIES, INC.,
UNAUDITED PROFORMA CONDENSED COMBINED STATEMENT OF INCOME
YEAR ENDED OCTOBER 31, 1997
<TABLE>
<CAPTION>
Historical Historical Pro Forma
------------------------------------------------------------------------------------
RCM Northern Technical Global Technology
Technologies, Inc. Services, Inc. Solutions, Inc. Combined
October 31, 1997 November 30, 1997 December 31, 1997
Adjustments Combined
<S> <C> <C> <C> <C> <C>
Revenues $113,959,093 $12,569,583 $5,750,116 $132,278,792 $132,278,792
Cost and expenses
Cost of services 86,832,348 9,479,033 4,037,818 100,349,199 100,349,199
Selling, general and administrative 18,068,899 2,520,649 684,072 21,273,620 (413,000)A 20,860,620
Interest expense (income) 184,645 (53,514) 251 131,382 544,000 C 675,382
Depreciation and amortization 572,279 104,580 6,127 682,986 174,375 B 857,361
Total 105,658,171 12,050,748 4,728,268 122,437,187 122,742,562
Income before taxes 8,300,922 518,835 1,021,848 9,841,605 9,536,230
Income taxes (benefit) 3,460,989 0 2,718 3,463,707 (128,258)D 3,981,395
645,945 E
Income from continuing operations 4,839,933 518,835 1,019,130 6,377,898 5,554,835
Loss from discontinued operations (362,500) (362,500) (362,500)
Net Income $4,477,433 $518,835 $1,019,130 $6,015,398 $5,192,335
Diluted earnings per share $0.70 $997.76 $10,191.30 $0.82
Shares used in computing earnings
per share 6,361,571 520 100 6,361,571
NOTES TO UNAUDITED PROFORMA CONDENSED COMBINED STATEMENT OF INCOME
(A) to reflect reduction of expenses attributable to
consolidation of administrative overhead 413,000
(B) to provide for amortization on excess purchase price over net assets
acquired based an estimated life of 40 years 174,375
(C) to impute interest expense for acquistion debt 544,000
(D) to tax effect adjustments 128,258
(E) to tax effect S-Corporation earnings previously distributed to former shareholders 645,945
</TABLE>
<PAGE>
STOCK PURCHASE AGREEMENT
AMONG
RCM TECHNOLOGIES, INC.
NORTHERN TECHNICAL SERVICES, INC
AND
THE SHAREHOLDERS OF
NORTHERN TECHNICAL SERVICES, INC
<PAGE>
TABLE OF CONTENTS
Page
1. DEFINITIONS....................................................... 1
2. PURCHASE AND SALE OF SHARES OF ACQUIREE........................... 4
3. REPRESENTATIONS AND WARRANTIES OF ACQUIREE
AND THE ACQUIREE SHAREHOLDERS..................................... 6
4. REPRESENTATIONS AND WARRANTIES OF RCM.............................14
5. COVENANTS OF THE PARTIES...................................... ...16
6. THE CLOSING.......................................................21
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF . . . . . . . . . ........ 24
ACQUIREE AND ACQUIREE SHAREHOLDERS
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF RCM. . . . . . . ........ 25
9. INDEMNIFICATION................................................ ..26
10. TERMINATION. . . . . . . . . . . . . . . . . . . . . . .... .... 29
11. ARBITRATION................................................. .....30
12. NOTICES...........................................................30
13. MISCELLANEOUS.....................................................32
<PAGE>
LIST OF SCHEDULES
2.4 List of persons eligible to receive Additional Purchase
Consideration
3.2(a) Financial Statements for the fiscal years ended November 30,
1996, November 30, 1995 and November 31, 1994
3.2(c) Payroll accruals not reflected in Financial Statements
3.3 Undisclosed Liabilities of Acquiree
3.4 Accounts Receivable of Acquiree as of the Closing Date
3.5 Material adverse changes
3.6 Litigation
3.8 Articles of Incorporation, Bylaws and Amendments thereto
of Acquiree
3.10 All material Contracts and Agreements of Acquiree
3.11 Liens, encumbrances and general description of all real
property in which Acquiree has an ownership interest
3.12 Licenses, trademarks and trade names of Acquiree
3.13 Consents to be obtained by Acquiree
3.14 Capitalization of Acquiree
3.17 Obligations of Messrs. Cook, Lillund, Kust, Ryan and Ms.
Yeko.
3.18 Approvals required to be obtained by Acquiree
Shareholders
3.19 Number and names of employees and compensation of all
directors and officers of Acquiree - identifies all
employee benefit plans
3.20 Compliance with environmental and conservation laws
3.21 List of all insurance policies of Acquiree
3.22 List of all bank accounts maintained or for the benefit
of Acquiree
3.23 List of 10 largest customers of Acquiree, based on dollar
volume of income for the twelve month period ended
November 30, 1997
<PAGE>
4.1 Articles of Incorporation and Bylaws of RCM
4.3 Consents to be obtained by RCM
<PAGE>
LIST OF EXHIBITS
Exhibit "A" Employment Agreement with Merle F. Cook
Exhibit "B" Employment Agreement with Gayle Yeko
Exhibit "C" Employment Agreement with Warren Lillund
Exhibit "D" Employment Agreement with Jerry Kust
Exhibit "E" Employment Agreement with Peter Ryan
Exhibit "F" Escrow Agreement
Exhibit "G" Opinion of counsel for Northern Technical Services,
Inc.
Exhibit "H" Opinion of counsel for RCM Technologies, Inc.
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered
into as of this 31st day of December, 1997, by and among RCM TECHNOLOGIES, INC.,
a Nevada corporation ("RCM"); NORTHERN TECHNICAL SERVICES, INC, a Wisconsin
corporation (the "Acquiree"); and those shareholders of Acquiree identified in
Article 1 of this Agreement (the "Acquiree Shareholders").
RECITALS:
WHEREAS, the Acquiree Shareholders own in the aggregate one hundred
percent (100%) of the issued and outstanding common stock of the Acquiree (the
"Acquiree Shares"); and
WHEREAS, the Acquiree Shareholders desire to sell the Acquiree Shares
and RCM desires to purchase the Acquiree Shares, each upon the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto, intending to be legally bound hereby, agree as follows:
1. DEFINITIONS.
(a) The foregoing RECITALS are true and correct, and are
incorporated herein and made a part hereof.
(b) For purposes of this Agreement, the terms set forth below
shall have the following meanings:
<TABLE>
<CAPTION>
<S> <C>
Acquiree . . . . . . . Northern Technical Services, Inc., a
Wisconsin corporation.
Acquiree Shareholders. Those individuals and entities
consisting of Merle Cook, Gayle
Yeko, Warren Lillund, Jerry Kust and
Peter Ryan who in the aggregate own
100% of the outstanding capital
stock of Northern Technical
Services, Inc.
1
<PAGE>
Code . . . . . . . . . The Internal Revenue Code of 1986,
as amended.
Closing . . . . . . . The transaction of events set forth
in Section 6 hereof.
Closing Date . . . . . The day on which the Closing is held
as set forth in Article 6 hereof.
Closing Date . . . . . Unaudited balance sheet of the
Balance Sheet Acquiree as of the Closing Date
prepared in accordance with
the requirements of GAAP
and in accordance with the
books and records of
Acquiree.
Closing Net. . . . . . Operating income of Acquiree for the
Operating Income period December 1, 1996 to November
30, 1997 as reflected in
Acquiree's financial
statement prepared in
accordance with the
requirements of GAAP and in
accordance with the books
and records of Acquiree
before (i) federal and
state income taxes; (ii)
salary and fringe benefits
for Cook; (iii) all
professional fees; (iv)
non-recurring losses
associated with shut-down
of in-house operations; (v)
charitable contributions
made by Acquiree; and (vi)
accrued severance.
Cook . . . . . . . . . Merle F. Cook
Financial . . . . . . Unaudited financial statements of
Statements the Acquiree for the fiscal years
ended November 30, 1996,
November 30, 1995, and
November 30, 1994 prepared
in accordance with the
requirements of GAAP.
Fiscal Year. . . . . . Unaudited Balance Sheet of Acquiree
Balance Sheet as of November 30, 1997 prepared in
accordance with GAAP and in
accordance with the books and
records of Acquiree
Interim Financial . . Unaudited financial statements of the
Statements Acquiree for the months of December,
1996 through November, 1997 prepared
in accordance with the requirements
2
<PAGE>
of GAAP and in accordance with the
books and records of Acquiree.
GAAP . . . . . . . . Generally accepted accounting
principles, consistently applied.
Net Operating Income Subsequent to the Closing Date and
(NOI) . . . . . . . . with respect to the ongoing business
of the Acquiree gross
revenue (billed services at
invoice value reduced by
customer discounts, returns
and allowances) minus
direct operating expenses,
cost of sales and general
and administrative
expenses, but excluding (a)
RCM Corporate Fees
provided, however, all
costs incurred by RCM for
performance of
administrative functions
for Acquiree (including,
without limitation, costs
associated with accounting
and payroll functions)
which (i) are directly
related to the ongoing
business conducted by
Acquiree and (ii) have the
effect of reducing the NOI
of Acquiree shall be
allocated to Acquiree in
amounts reasonably
consistent with the
historical costs incurred
by Acquiree in connection
with such administrative
functions; (b) Federal and
state income taxes; (c)
acquisition amortization,
interest expenses relating
to the acquisition or
expenses associated with
the acquisition of the
Acquiree by RCM.
RCM . . . . . . . . . RCM Technologies, Inc., a Nevada
corporation.
RCM Corporate Fees. . All costs incurred by RCM not
directly related to the ongoing
business conducted by Acquiree
including but not limited to,
accounting and SEC filing fees and
corporate headquarters personnel
salaries.
SEC . . . . . . . . . The Securities and Exchange
Commission.
3
<PAGE>
S Termination Date. . The
date upon which the
termination of the S
Corporation status of
Acquiree is deemed
effective for federal tax
purposes.
Tangible Net Worth. . The amount by which all assets of
Acquiree, less furniture, fixtures
and equipment net of accumulated
depreciation and any intangible
assets, exceeds all of Acquiree's
liabilities.
</TABLE>
2. PURCHASE AND SALE OF SHARES OF ACQUIREE.
2.1 Purchase and Sale of Shares of Acquiree.
Subject to the terms and conditions of this Agreement, on the
Closing Date, the Acquiree Shareholders will sell, convey, assign, transfer and
deliver the Acquiree Shares to RCM, and RCM shall purchase, acquire and accept
from the Acquiree Shareholders the Acquiree Shares, which shall constitute one
hundred percent (100%) of the outstanding capital stock of Acquiree.
2.2 Purchase Consideration.
On the Closing Date, (i) Acquiree Shareholders shall deliver
to RCM certificates representing the Acquiree Shares; and (ii) RCM shall pay to
the Acquiree Shareholders in the percentages set opposite each Acquiree
Shareholder's names on Schedule 2.4 hereof (the "Shareholder Percentage"), the
purchase consideration in the sum of $4,625,000, subject to adjustment as
hereafter set forth, plus an amount equal to the Tangible Net Worth of Acquiree
on the Closing Date as set forth in Section 2.3 hereof, subject to adjustments
as hereafter set forth (the "Purchase Consideration") as follows:
$3,125,000 - by wire transfer of immediately
available funds to bank accounts
designated by Acquiree Shareholders;
$1,500,000 - deferred consideration payable in
two equal annual installments of
$750,000 each in accordance with
Section 2.4 hereof.
2.3 Payment of Tangible Net Worth.
On or before the Closing Date, Acquiree Shareholders shall
deliver to RCM the Fiscal Year Balance Sheet. For the purpose of determining
Acquiree's Tangible Net Worth, within thirty (30) days of the Closing Date, RCM
and Acquiree Shareholders shall cause to be prepared to their mutual
satisfaction the Closing Date
4
<PAGE>
Balance Sheet. Acquiree's Tangible Net Worth as reflected in the Closing Date
Balance Sheet will not differ in any material respect from the Tangible Net
Worth as reflected in the Fiscal Year Balance Sheet. At the Closing RCM will pay
to Acquiree Shareholders by wire transfer of immediately available funds an
amount equal to the the actual cash balance of Acquiree minus all outstanding
checks. Thereafter RCM, as agent for Acquiree, shall use best efforts to
promptly and fully collect all of Acquiree's accounts receivable as they exist
on the Closing Date Balance Sheet and, after deducting an amount sufficient to
pay all of Acquiree's liabilities as reflected in the Closing Date Balance
Sheet, deposit the amount remaining into escrow pursuant to the Escrow Agreement
attached hereto as Exhibit "F".
2.4 Deferred Consideration and Additional Purchase
Consideration.
(a) Report. Prior to February 28, 1999 and 2000,
RCM shall prepare and deliver to Acquiree Shareholders a report ("Report")
setting forth (i) the NOI of Acquiree for the year ended December 31, 1998 or
December 31, 1999, whichever is applicable, and (ii) the amount of Deferred
Consideration required to be paid to Acquiree Shareholders pursuant to Section
2.2. Each Report shall be prepared in accordance with GAAP and in accordance
with the books and records of the Acquiree and fairly present the results of
operations of the Acquiree for such year.
(b) Payment of Deferred Consideration. On the tenth
business day after each Report is delivered to the Acquiree Shareholders (or, if
there is a dispute regarding any aspect of the Report, after such dispute is
finally resolved), RCM shall deliver the applicable portion of the Deferred
Consideration to the Acquiree Shareholders according to the Shareholder
Percentages; provided, however, that in the event the NOI of Acquiree (as
finally determined by agreement of the parties or pursuant to Section 2.4(d)
hereof) is less than $1,000,000 for the applicable year, then the amount of the
Deferred Consideration payable to Acquiree Shareholders for such year shall be
reduced by $5.00 for each $1.00 that the NOI of Acquiree is less than
$1,000,000.
(c) Additional Purchase Consideration. If the NOI
for any year in which an installment of Deferred Consideration is due exceeds
$1,000,000, (as finally determined pursuant to this Section 2.4) then
twenty-five percent (25%) of the amount over and above and in excess of
$1,000,000 shall be accrued as additional consideration and be paid to the
Acquiree Shareholders according to the Shareholder Percentages at the same time
as the payment of the Deferred Consideration under Section 2.4(b) hereof.
(d) Dispute Resolution. In the event of a dispute
or disagreement relating to (i) any Report, (ii) the NOI of
Acquiree for any applicable year, or (iii) the amount of Deferred
5
<PAGE>
Consideration payable to the Acquiree Shareholders in any applicable year that
RCM and the Acquiree Shareholders are unable to mutually resolve within 15 days
after written objections to such Report are delivered to RCM, either party may
elect to have all such disputes or disagreements resolved by an accounting firm
of nationally recognized standing ("Third Accounting Firm") to be mutually
selected by RCM and Acquiree Shareholders or, if no agreement is reached on such
Third Accounting Firm, then by RCM's Accountants and Acquiree Shareholders'
independent accountants. The Third Accounting Firm shall make a final and
binding resolution of the Deferred Consideration earned during the applicable
year. The Third Accounting Firm shall be instructed to use every reasonable
effort to perform its services within 15 days of submission of the Report to it
and, in any case, as soon as practicable after such submission. The fees and
expenses for the services of the Third Accounting Firm shall be paid by RCM
unless the amount of the Deferred Consideration required pursuant to Section 2.2
for the applicable year, as determined by the Third Accounting Firm, is less
than $10,000 greater than the amount set forth in the Report for such year, in
which case the fees and expenses for the services of the Third Accounting Firm
shall be paid equally by RCM and the Acquiree Shareholders.
3. REPRESENTATIONS AND WARRANTIES OF ACQUIREE AND THE ACQUIREE
SHAREHOLDERS. The Acquiree and Acquiree Shareholders as a material inducement to
RCM to enter into this Agreement and consummate the transactions contemplated
hereby, make the following representations and warranties to RCM (except that
Peter Ryan and Jerry Kust make the representations and warranties contained in
Sections 3.1, 3.9, 3.16, 3.17 and 3.18 only, and make no other representations
and warranties contained in this Article 3)which representations and warranties
are true and correct in all material respects on this date and will be true and
correct in all material respects on the Closing Date as though made on and as of
such date. All of the following representations and warranties of Acquiree and
Acquiree Shareholders are qualified by matters which, individually or in the
aggregate with respect to such representation or warranty, would not have a
material adverse effect on the business or financial condition of Acquiree as a
whole. An item contained in any of the Schedules to this Agreement is deemed
disclosed with respect to all representations and warranties. Disclosure of
items that are not strictly called for by the Agreement shall not imply that
such information is material or that the inclusion establishes or implies a
standard of materiality.
3.1 Shareholders of Acquiree. The Acquiree Shareholders are
the sole owners, of record and beneficially, of all the issued and outstanding
shares of the Acquiree's capital stock.
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3.2 Financial Statements.
(a) The Financial Statements for the fiscal years
ended November 30, 1996, November 30, 1995 and November 30, 1994 ("1996, 1995
and 1994 Financial Statements") have been attached as Schedule 3.2(a). The 1996,
1995 and 1994 Financial Statements and the financial information contained
therein present fairly the financial condition of the Acquiree for the periods
covered and have been prepared in accordance with GAAP.
(b) The Interim Financial Statements and the Fiscal
Year Balance Sheet will be prepared on an unaudited basis and delivered to RCM
at or prior to Closing. The Interim Financial Statements and the Fiscal Year
Balance Sheet and the financial information contained therein will present
fairly the financial condition of the Acquiree for the interim periods covered
and will be prepared in accordance with GAAP and in accordance with the books
and records of Acquiree.
(c) The books and records of Acquiree, financial and
other, are in all material respects complete and correct and have been
maintained in accordance with good business and accounting practices, and,
except as disclosed on Schedule 3.2(c), the financial records reflect all
payroll accruals including but not limited to vacations, holidays, sick pay and
bonuses.
3.3 Undisclosed Liabilities. Acquiree does not have any
liabilities or obligations of any nature, fixed or contingent, that will not be
shown or otherwise provided for in the Financial Statements, except (a) as set
forth in Schedule 3.3, and (b) for liabilities and obligations arising
subsequent to the date of the Financial Statements in the ordinary course of
business, none of such liabilities referred to in this clause (b) will
individually or in the aggregate be materially adverse to the business or
financial condition of the Acquiree. There are no material loss contingencies
(as such term is used in Statement of Financial Accounting Standards No. 5 of
the Financial Accounting Standards Board) of the Acquiree that will not be
adequately provided for.
3.4 Accounts Receivable. Attached hereto as Schedule 3.4 is a
list of all accounts receivable of Acquiree as of the Closing Date and aging
schedule pertaining thereto. All of the accounts receivable of Acquiree
reflected on Schedule 3.4 now and on the Closing Date are bona fide accounts
receivable of Acquiree representing the sales price of (or other sums or fees
receivable for or in respect of) goods, merchandise, or services sold or
performed by Acquiree in valid transactions in the regular course of its
business to or for the benefit of its customers. Such accounts receivable,
subject to reserves, if any, established within the Financial Statements, are
collectible in full and are not subject to offset or counterclaim or otherwise
in controversy.
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3.5 Material Adverse Changes. Except as specifically stated in
Schedule 3.5 or as contemplated or required by this Agreement, from November 30,
1997 to the date of this Agreement, the business of the Acquiree has been
operated in the ordinary course and there has not been:
(a) Any materially adverse changes in the business,
condition (financial or otherwise), results of operations, properties, assets,
liabilities, earnings or net worth of the Acquiree for such period or at any
time during such period;
(b) Any material damage, destruction or loss
(whether or not covered by insurance) affecting the Acquiree or its
assets, properties or business;
(c) Any cancellation or material breaches on any
existing contract of which Acquiree is a party that would have a
material adverse effect on the business of Acquiree;
(d) Any statute, rule, regulation or order adopted
by any governmental body, agency or authority that materially and
adversely affects the Acquiree or its business or financial
condition; or
(e) Any payment of bonuses or accrued salaries out
of the ordinary course of business or agreements to materially increase the rate
or terms of compensation payable or to become payable by Acquiree to its
directors, officers or key employees; provided, however, that this subsection
shall not restrict or limit the Acquiree in any way from hiring additional
personnel who are required for its operations.
3.6 Litigation. Except as set forth in Schedule 3.6, there are
no actions, suits, claims, investigations or legal, administrative or
arbitration proceedings pending or, to the actual knowledge of Acquiree
Shareholders, threatened against the Acquiree, whether at law or in equity, or
before or by any federal, state, municipal, local, foreign or other governmental
department, commission, board, bureau, agency or instrumentality, or, to the
actual knowledge of Acquiree Shareholders, any basis for any such action, suit,
claim, investigation or proceeding.
3.7 Compliance: Governmental Authorizations. To the actual
knowledge of Acquiree Shareholders, the Acquiree has complied in all material
respects with all federal, state, local or foreign laws, ordinances, regulations
and orders applicable to its business, including without limitation, federal and
state securities, banking collection and consumer protection laws and
regulations that, if not complied with, would materially and adversely affect
its businesses. The Acquiree has all federal, state, local and foreign
governmental licenses and permits necessary for the conduct of its business.
Such licenses and
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permits are in full force and effect. Neither the Acquiree nor the Acquiree
Shareholders know of any violations of any such licenses or permits. To the
actual knowledge of Acquiree Shareholders no proceedings are pending or
threatened to revoke or limit the use of such licenses or permits that would
have an adverse effect on the business of Acquiree.
3.8 Due Organization. The Acquiree is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Wisconsin; it is qualified to do business and in good standing in each state
where the properties owned, leased or operated, or the business conducted, by it
require such qualification except where failure to so qualify would not have a
material adverse effect on its financial condition, properties, business or
results of operations. The Acquiree has the power to own its properties and
assets and to carry on its business as now presently conducted. True and
complete copies of the Articles of Incorporation and Bylaws of Acquiree,
including any amendments thereto, have been attached as Schedule 3.8.
3.9 Taxes. Except as disclosed on Schedule 3.9, all (a)
federal, state, local or foreign tax returns (collectively, the "Returns")
required to be filed with respect to the properties, assets, operations, income
and net worth of Acquiree have been timely filed or appropriate extensions have
been obtained and such Returns are true, correct and complete in all material
respects; and (b) taxes and governmental charges, including, without limitation,
any interest and penalties (collectively "Taxes") due pursuant to such Returns
have been paid or adequate provision therefor has been made on the Financial
Statements. Except as disclosed on Schedule 3.9, there are no outstanding
agreements or waivers extending the statutory period of limitation concerning
any tax liability of Acquiree, no examination of any Return of Acquiree is
currently in progress and no governmental authority has, within the last three
(3) years, notified Acquiree or Acquiree Shareholders of any tax claim,
investigation or proceeding. To the actual knowledge of Acquiree Shareholders
all monies required to be collected or withheld by the Acquiree for income
taxes, social security or other payroll taxes have been collected or withheld,
and either paid to the appropriate governmental agencies, set aside in accounts
for such purpose, or accrued, reserved against and entered upon the books of the
Acquiree and the Acquiree is not liable for any taxes or penalties for failure
to comply with any of the foregoing. The Acquiree is not and will not be liable
for any taxes imposed under Code Sections 1374 or 1375 and has been an S
Corporation from June 1, 1989 to the S Termination Date. Acquiree Shareholders
will be responsible for filing the short period S return ending on the S
Termination Date, which return shall be reported on the closing of the books
method as set forth in Code Section 1362(e)(3) and the Acquiree shall comply
with any necessary requirements for making such election. The Acquiree has not
made, is not obligated to make, and will not, as a result of the
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transactions contemplated hereby, make or become obligated to make any "excess
parachute payment" within the meaning of Section 280G of the Code (determined
without regard to subsection (b)(4) thereof).
3.10 Agreements. Schedule 3.10 contains a true and complete
list of all material contracts, agreements, mortgages, obligations,
arrangements, restrictions and other instruments to which the Acquiree is a
party or by which the Acquiree or its assets may be bound. True and correct
copies of all items set forth on Schedule 3.10 have been or will have been made
available to RCM prior to the date hereof. No event has occurred that (whether
with or without notice or lapse of time) would constitute a material default by
the Acquiree under any of the contracts or agreements set forth in Schedule
3.10. Neither the Acquiree nor the Acquiree Shareholders have knowledge of any
material default by the other parties to such contracts or agreements.
3.11 Title to Property and Related Matters. The Acquiree has
and at the time of Closing will have good and marketable title to all of its
properties, and assets, real, personal and mixed, owned by it at the date of
this Agreement or acquired by it after the date of this Agreement, of any kind
or character, free and clear of any liens or encumbrances, except (i) those set
forth in Schedule 3.11; (ii) liens for current taxes not yet delinquent; and
(iii) liens or encumbrances which do not materially impair the use, occupancy or
value of the assets and properties of the Acquiree or otherwise materially
impair business operations. Except as set forth in said Schedule 3.11 and except
for matters that may arise in the ordinary course of business, the assets of the
Acquiree are in good operating condition and repair, reasonable wear and tear
excepted. There does not exist any condition that materially interferes with the
use thereof in the ordinary course of the business of the Acquiree.
3.12 Licenses; Trademarks; Trade Names. Except as set forth on
Schedule 3.12, the Acquiree does not have, nor does it own or use in its
business any licenses, trademarks, trade names, service marks, copyrights,
patents or any applications for any of the foregoing that relate to its
business.
3.13 Due Authorization. This Agreement has been duly
authorized, executed and delivered by the Acquiree and constitutes a valid and
binding agreement of the Acquiree, enforceable in accordance with its terms,
except as such enforcement may be limited by applicable bankruptcy, insolvency,
moratorium, and other similar laws relating to, limiting or affecting the
enforcement of creditors rights generally or by the application of equitable
principles. Neither the execution and delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, nor compliance with any of
the provisions hereof, will violate in any material respect any order, writ,
injunction or decree of any court
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or governmental authority, or violate or conflict with in any material respect
or constitute a default under (or give rise to any right of termination,
cancellation or acceleration under), any provisions of the Acquiree's Articles
of Incorporation or Bylaws, the terms or conditions or provisions of any note,
bond, lease, mortgage or agreement of any kind to which the Acquiree is a party
or by which the Acquiree or its properties may be bound, or violate in any
material respect any statute, law, rule or regulation applicable to the
Acquiree, except that the consents disclosed on Schedule 3.13 will be required
pursuant to the terms of those scheduled agreements. No consent or approval by
any governmental authority is required in connection with the execution and
delivery by the Acquiree of this Agreement or the consummation of the
transactions contemplated hereby.
3.14 Capitalization. The authorized capitalization of the
Acquiree consists of 4,000,000 shares of Class A common stock, $.01 par value,
and 1,000,000 shares of Class B common stock, $.01 par value of which 2,732
shares of Class A and 50,000 shares of Class B are issued and outstanding as of
the date of this Agreement; the Acquiree Shares have been duly authorized,
validly issued, and are fully paid and non-assessable, except as provided by
Section 180.0622(2)(b) of the Wisconsin Business Corporation Law, and were
issued in compliance with applicable federal and state securities laws and
regulations. Except as set forth on Schedule 3.14, there are no outstanding or
presently authorized securities, warrants, preemptive rights, subscription
rights, options or related commitments or agreements of any nature to issue any
of the Acquiree's securities. Schedule 3.14 sets forth the share ownership and
respective percentage of each of the Acquiree Shareholders.
3.15. Brokerage Fees. Except for Resource Financial Corp.,
whose fees shall be paid by Acquiree, the Acquiree has not incurred, and will
not incur, any liability for brokerage or finder's fees or similar charges in
connection with the transactions contained within this Agreement.
3.16 Share Ownership. The Acquiree Shares will be owned of
record and beneficially by the Acquiree Shareholders, free and clear of all
liens and encumbrances of any kind and nature. There are no agreements (other
than this Agreement) to sell, pledge, assign or otherwise transfer such
securities.
3.17 Obligation of the Acquiree Shareholders. This Agreement
constitutes the valid and legally binding obligation of the Acquiree
Shareholders. Except as set forth on Schedule 3.17, neither the execution and
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will constitute in any material respect a violation of or
default under, or conflict in any material respect with, any judgment, decree,
statute or regulation of any governmental authority applicable to
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the Acquiree Shareholders or any contract, commitment, agreement or restriction
of any kind to which any of the Acquiree Shareholders is a party or by which any
of the Acquiree Shareholders is bound.
3.18 Approvals Required. Except as set forth on Schedule 3.18
or as contemplated or as required by this Agreement, no approval, authorization,
consent, order or other action of, or filing with, any person, firm or
corporation or any court, administrative agency or other governmental authority
is required in connection with the execution and delivery by the Acquiree
Shareholders of this Agreement or the consummation by them of the transactions
described herein, except to the extent that any of Acquiree Shareholders may be
required to file reports in accordance with relevant regulations under federal
and state securities laws upon execution of this Agreement and/or consummation
of the transactions contemplated hereby.
3.19 Employee; Benefit Plans.
(a) Schedule 3.19 sets forth the number and names of
the employees of Acquiree and the total 1996 compensation to each of the
directors, officers and permanent employees of Acquiree.
(b) Except as disclosed on Schedule 3.19, Acquiree
does not have any "employee benefit plans" (as such term is defined in Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"). Schedule 3.19 identifies all programs, including, without limitation,
any pension plans, health and welfare plans, life, disability, medical, dental
or hospitalization insurance plans, sick-leave, vacation accrual or holiday
plans, bonus, savings, profit-sharing or other similar benefit plans, deferred
compensation, stock option, stock ownership and stock purchase plans covering
employees or former employees of Acquiree. Except as disclosed on Schedule 3.19,
each such plan or program has been operated substantially in accordance with its
terms and, to the extent applicable, ERISA and the Code. Acquiree does not
sponsor or contribute to, nor has it ever sponsored or been required to
contribute to, any "multiemployer plan" as such term is defined in Section 3(37)
of ERISA.
(c) Except as disclosed on Schedule 3.19, to the
actual knowledge of Acquiree Shareholders, Acquiree does not have any written
contracts, or oral contracts, including any employment, management, agency or
consulting contracts, with respect to any of its current or retired employees.
(d) Except as disclosed on Schedule 3.19, Acquiree
is not a party to any collective bargaining agreement and, to the actual
knowledge of Acquiree Shareholders, there are no union organizational activities
or efforts to effect a representation election pending or threatened.
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(e) Except as disclosed on Schedule 3.19, Acquiree
has complied in all material respects with all applicable laws relating to the
employment of labor, including the provisions thereof relating to benefits
required to be provided under Part VI of Subtitle B of Title I of ERISA or
Section 4980B(f) of the Code (collectively, "COBRA"), wages, hours, working
conditions, employee benefit plans and the payment of withholding and social
security taxes.
3.20 Environmental Matters. Except as set forth in Schedule
3.20 to the actual knowledge of Acquiree Shareholders Acquiree is in compliance
with all laws, rules and regulations relating to environmental protection and
conservation (including, but not limited to, the Comprehensive Environmental
Response, Compensation and Liability Act and the Superfund Amendments and
Reauthorization Act of 1986, as amended and all applicable state laws pertaining
to the environment), and neither Acquiree or Acquiree Shareholders have received
any notification of any asserted present or past failure to so comply with such
laws, rules or regulations. Acquiree has obtained and is in compliance with all
permits, licenses and other authorizations required under federal, state and
local laws relating to emissions, discharges, releases or threatened releases of
pollutants, contaminants, or hazardous or toxic materials or wastes into ambient
air, surface water, ground water, or land, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants or hazardous or toxic
materials or wastes (collectively "Environmental Requirements"). To the actual
knowledge of Acquiree Shareholders there are no circumstances which may
interfere with or prevent continued compliance, or which may give rise to any
liability, or otherwise form the basis of any claim, or investigation under
Environmental Requirements, relating to the operation of Acquiree's business.
For the purpose of this Section, "hazardous substances" shall include (1)
hazardous substances as defined in the Comprehensive Environmental Response,
Compensation and Liability Act, as amended, and regulations thereunder, and (2)
any substance for which state or local laws require the clean-up, removal or
other special handling of such materials or imposing liability based upon
improper handling thereof.
3.21 Insurance. Schedule 3.21 contains a list of all policies
of liability, environmental, crime, fidelity, life, fire, workers' compensation,
health, director and officer liability and all other forms of insurance
currently in effect and owned or held by Acquiree, and identifies for each such
policy, the underwriter, policy number, coverage type, premium, expiration date
and deductible. All of the insurance policies listed on Schedule 3.21 are
outstanding and in full force and effect and all premiums required to be paid
with respect to such policies are currently paid.
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3.22 Bank Accounts. Schedule 3.22 contains a list of all
bank accounts maintained by, or for the benefit of, Acquiree.
3.23 Customers. Set forth on Schedule 3.23 is a list of the
ten (10) largest customers of Acquiree based on the dollar volume of income
generated by that customer for the twelve month period ended November 30, 1997.
No such customer has terminated or, to Acquiree's knowledge, is presently
threatening to terminate its relationship with Acquiree.
3.24 Approval. The shareholders of the Acquiree have
unanimously approved the execution of this Agreement and the transactions
contemplated hereby.
3.25 Contractors. With respect to the Acquiree's contractors,
consultants and other independent personnel (the "Contractors"), the Acquiree
has evaluated and classified the Contractors as independent contractors or
employees in accordance with Internal Revenue Service regulations. Acquiree has
maintained, monitored, continues to maintain and monitor those Contractors who
are independent contractors to assure compliance with Internal Revenue Service
regulations.
3.26 Tax and Accounting Treatment of Acquiree. Acquiree's
election to be treated as an S Corporation pursuant to the Code was filed with
Internal Revenue Service on June 1, 1989 and with the State of Wisconsin on June
1, 1989 and will terminate on the Closing Date.
3.27 Minimum Closing Net Operating Income. The Closing Net
Operating Income of Acquiree shall be not less than $900,000.
4. REPRESENTATIONS AND WARRANTIES OF RCM. As a material inducement to
the Acquiree and the Acquiree Shareholders to enter into this Agreement and
consummate the transactions contemplated hereby, RCM does hereby make the
following representations and warranties to the Acquiree and the Acquiree
Shareholders, which representations and warranties are true and correct in all
material respects at this date and will be true and correct in all material
respects on the Closing Date as though made on and as of such date.
4.1 Due Organization of RCM. RCM is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Nevada; it is qualified to do business and is in good standing in each state
where the properties owned, leased or operated, or the business conducted, by it
require such qualification except where failure to so qualify would not have a
material adverse effect on the financial condition, properties, business or
results of operations of RCM. RCM has the corporate power and authority to own
its property and assets and to carry on its business as now presently conducted.
True, correct and complete copies of the Articles of Incorporation and Bylaws of
RCM,
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including any amendments thereto, are attached hereto as Schedule
4.1.
4.2 Compliance; Governmental Authorizations. To the best of
its knowledge, RCM has complied in all material respects with all federal,
state, local or foreign laws, ordinances, regulations and orders applicable to
its business, including without limitation, federal and state securities,
banking collection and consumer protection laws and regulations that, if not
complied with, would materially and adversely affect its businesses. RCM has all
federal, state, local and foreign governmental licenses and permits necessary
for the conduct of its business. Such licenses and permits are in full force and
effect. RCM does not know of any violations of any such licenses or permits. To
the knowledge of RCM, no proceedings are pending or threatened to revoke or
limit the use of such licenses or permits that would have an adverse effect on
the business of RCM.
4.3 Due Authorization. This Agreement has been duly
authorized, executed, and delivered by RCM, and constitutes a legal, valid, and
binding obligation of RCM, enforceable in accordance with its terms except as
such enforcement may be limited by applicable bankruptcy, insolvency,
moratorium, and other similar laws relating to, limiting or affecting the
enforcement of creditors rights generally or by the application of equitable
principles. Neither the execution and delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, nor compliance with any of
the provisions hereof, will violate in any material respect any order, writ,
injunction or decree of any court or governmental authority, or violate or
conflict with in any material respect or constitute a default under (or give
rise to any right of termination, cancellation or acceleration under), any
provisions of RCM's Articles of Incorporation or Bylaws, the terms or conditions
or provisions of any note, bond, lease, mortgage or agreement of any kind to
which RCM is a party or by which RCM or its properties may be bound, or violate
in any material respect any statute, law, rule or regulation applicable to RCM,
except that the consents disclosed on Schedule 4.3 will be required pursuant to
the terms of those scheduled agreements. No consent or approval by any
governmental authority is required in connection with the execution and delivery
by RCM of this Agreement or the consummation of the transactions contemplated
hereby.
4.4 Brokerage Fees. Except for Resource Financial Corp., whose
fees shall be paid by Acquiree, RCM has not incurred, and will not incur, any
liability for brokerage or finder's fees or similar charges in connection with
the transactions contained within this Agreement.
4.5 Approval. The Board of Directors of RCM has approved the
execution of this Agreement and the transactions contemplated hereby.
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4.6 No Approvals Required. No approval, authorization,
consent, order or other action of, or filing with, any person, firm or
corporation or any court, administrative agency or other governmental authority
is required in connection with the execution and delivery by RCM of this
Agreement or the consummation by it of the transactions described herein, except
to the extent that the parties may be required to file reports in accordance
with relevant regulations under federal and state securities laws.
5. COVENANTS OF THE PARTIES.
Any reference in this Section 5 to RCM shall be deemed a
reference to RCM and each of its subsidiaries.
5.1 Disclosure Documents.
(a) RCM shall supply to Acquiree the necessary
information in writing, or cause the necessary information to be supplied in
writing, relating to RCM for inclusion in any document(s) to be delivered to
Acquiree Shareholders in connection with seeking their approval of the
transactions contemplated by this Agreement.
(b) Acquiree shall supply to RCM the necessary
information in writing, or cause the necessary information to be supplied in
writing, relating to Acquiree for inclusion in any documents or reports to be
filed with the SEC or any regulatory agency in connection with the transactions
contemplated by this Agreement.
5.2 Confidentiality.
(a) Confidentiality of RCM-Related Information.
With respect to information concerning RCM that is made available to Acquiree or
Acquiree Shareholders in connection with the transactions contemplated by this
Agreement, Acquiree and Acquiree Shareholders agree that they shall hold such
information in strict confidence, shall not use such information except for the
sole purpose of evaluating the transactions contemplated by this Agreement and
shall not disseminate or disclose any of such information other than to
representatives who need to know such information for the sole purpose of
evaluating the transactions to be undertaken pursuant to this Agreement (each of
whom shall be informed in writing by Acquiree of the confidential nature of such
information and directed by Acquiree to treat such information confidentially).
If this Agreement is terminated pursuant to the provisions of Article 10,
Acquiree and Acquiree Shareholders shall immediately return all such
information, all copies thereof and all information prepared by Acquiree based
upon the same, upon RCM's request; provided, however, that one copy of all such
material may be retained by Acquiree's outside legal counsel for purposes only
of resolving any disputes under this Agreement. The above
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limitations on use, dissemination and disclosure shall not apply to information
that (i) is learned by Acquiree or the Acquiree Shareholders from a third party
entitled to disclose it; (ii) became known publicly other than through Acquiree
or the Acquiree Shareholders or any party who received the same through Acquiree
or the Acquiree Shareholders; (iii) is required by law or court order to be
disclosed by Acquiree or the Acquiree Shareholders (after notice and opportunity
to oppose such disclosure); or (iv) is disclosed with the express prior written
consent thereto of RCM. Acquiree or the Acquiree Shareholders shall undertake
all necessary steps to ensure that the secrecy and confidentiality of such
information will be maintained in accordance with the provisions of this
subparagraph (a).
(b) Confidentiality of Acquiree-Related Information.
With respect to information concerning Acquiree that is made available to RCM in
connection with the transactions contemplated by this Agreement, RCM agrees that
it shall hold such information in strict confidence, shall not use such
information except for the sole purpose of evaluating the transactions
contemplated by this Agreement and shall not disseminate or disclose any of such
information other than to their directors, officers, employees, shareholders,
affiliates, agents and representatives who need to know such information for the
sole purpose of evaluating the transactions to be undertaken pursuant to this
Agreement (each of whom shall be informed in writing by RCM of the confidential
nature of such information and directed by RCM to treat such information
confidentially). If this Agreement is terminated pursuant to the provisions of
Article 10, RCM shall immediately return all such information, all copies
thereof and all information prepared by it based upon the same, upon Acquiree's
request; provided, however, that one copy of all such material may be retained
by RCM's outside legal counsel for purposes only of resolving any disputes under
this Agreement. The above limitations on use, dissemination and disclosure shall
not apply to information that (i) is learned by RCM from a third party entitled
to disclose it; (ii) became known publicly other than through RCM or any party
who received the same through RCM; (iii) is required by law or court order to be
disclosed by RCM (after notice and opportunity to oppose such disclosure); or
(iv) is disclosed with the express prior written consent thereto of Acquiree.
RCM shall undertake all necessary steps to ensure that the secrecy and
confidentiality of such information will be maintained in accordance with the
provisions of this subparagraph (b);
5.3 Nondisclosure. Neither RCM, nor Acquiree nor Acquiree
Shareholders shall disclose to the public or to any third party any material
non-public information concerning or relating to the other parties hereto, other
than with the express prior written consent of the other parties hereto, except
as may be required by applicable securities laws as they pertain to public
companies, law or court order or to enforce the rights of such disclosing party
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under this Agreement, in which event the contents of any proposed disclosure
shall be discussed with the other party before release.
5.4 Non-Competition.
(a) As a material inducement for RCM to enter into
this Agreement Cook agrees that he will not, for a period of four (4) years
following the Closing Date (the "Restricted Period") within a radius of two
hundred fifty (250) miles of Milwaukee, Wisconsin, directly or indirectly,
whether as employee, owner, partner, agent, director, officer or shareholder,
engage in the business of contract or temporary staffing of technical personnel.
As used herein "technical personnel" means information technology, engineering
and manufacturing professional personnel. Without limiting the generality of the
foregoing Cook shall not do any of the following:
(i) Solicit, divert, accept business of
contract or temporary staffing of technical personnel from any client of
Acquiree who is or was a client during the term of Cook's affiliation with
Acquiree, including all clients directly or indirectly produced or generated by
Cook.
(ii) Solicit, induce or contract with any of the
Acquiree's employees to leave Acquiree or to work for Cook or any company with
which Cook is connected.
(iii) Solicit, divert or take away any of
Acquiree's sources of business of contract or temporary staffing of technical
personnel.
(b) The provisions of this Section shall be
construed as an agreement independent of any other provision of this Agreement
and the existence of any claim or cause of action by Cook against Acquiree
whether arising out of this Agreement or otherwise shall not constitute a
defense to the enforcement by Acquiree of the provisions of this paragraph.
(c) Cook agrees that a violation of any of the
provisions of Section 5.4(a) hereof will cause irreparable damage to Acquiree
the exact amount of which it will be impossible to ascertain and, for that
reason, Cook agrees that Acquiree shall be entitled to injunctive relief
restraining any violation of this Section 5.4(c) hereof by any Acquiree
Shareholder and any person, firm or corporation associated with him, such right
to be cumulative and in addition to all other remedies available to Acquiree by
reason of such violation.
5.5 Consents. RCM and Acquiree shall cooperate and use their
best efforts to obtain all licenses, permits, consents, approvals,
authorizations, qualifications and orders of governmental authorities and
parties to contracts as are necessary
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for the consummation of the transactions contemplated by this
Agreement.
5.6 Filings. RCM and Acquiree shall, as promptly as
practicable, make any required filings, and RCM and Acquiree shall promptly make
any other required submissions, under any law, statute, order, rule or
regulation with respect to the transactions contemplated by this Agreement and
the related transactions and shall cooperate with each other with respect to the
foregoing.
5.7 All Reasonable Efforts. Subject to the terms and
conditions of this Agreement and to the fiduciary duties and obligations of the
board of directors of Acquiree and RCM, each of the parties to this Agreement
shall use all reasonable efforts to take, or cause to be taken, all action and
to do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations, or to remove any injunctions or other
impediments or delays, legal or otherwise, as soon as reasonably practicable, to
consummate the transactions contemplated by this Agreement.
5.8 Notification of Certain Matters. Except with respect to
the actions contemplated by this Agreement, Acquiree shall give prompt notice to
RCM, and RCM shall give prompt notice to Acquiree, of (a) the occurrence or
non-occurrence of any event, the occurrence or non-occurrence of which would
cause any of its representations or warranties in this Agreement to be untrue or
inaccurate in any material respect at, prior to, or following the Closing Date
and through the duration of the survival period of the representations and
warranties under this Agreement, and (b) any material failure of Acquiree, on
the one hand, or RCM, on the other hand, as the case may be, to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it under this Agreement; provided, however, the delivery of any notice pursuant
to this Section shall not limit or otherwise affect the remedies available to
the party receiving such notice under this Agreement.
5.9 Bonuses and Fees. Except as set forth on Schedule 5.9 any
and all accrued bonuses or other compensation over and above historic
compensation levels which may be due and owing to the Acquiree Shareholders and
fees owing to Resource Financial Corp. shall be discharged and Acquiree released
from such obligations on or before the Closing Date.
5.10 Documents at Closing. Each party to this Agreement agrees
to execute and deliver on the Closing Date those documents identified in Section
6.2.
5.11 Loss of "S" Corporation Status. Upon completion of the
transactions contemplated by this Agreement Acquiree Shareholders will be
responsible for the payment and filing of any
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final tax returns or other obligations incurred in connection with the period of
time during which Acquiree was an "S" Corporation.
5.12 Interim Operations of RCM and Acquiree. Except as
contemplated by this Agreement, including any Exhibits and Schedules hereto, or
to the extent that the parties shall otherwise consent in writing or as
otherwise identified in Schedule 3.5 during the period from the date of this
Agreement and continuing until the Closing Date, each of RCM and Acquiree shall
carry on their respective businesses in the usual, regular and ordinary course
in substantially the same manner as heretofore conducted and, to the extent
consistent with such business, use all reasonable efforts to preserve intact
their present organizations of such business, keep available the services of its
present officers and employees and preserve its relationships with customers,
suppliers and others having business dealings with it and they shall not take
any action, or fail to take any action, that is reasonably likely to result in
any of their respective representations and warranties set forth in this
Agreement becoming untrue as though such representations and warranties are made
as of and on the Closing Date.
5.13 Prohibition on Trading in RCM Stock. The Acquiree and
Acquiree Shareholders acknowledge that the United States Securities Laws
prohibit any person who has received material non-public information concerning
the matters which are the subject matter of this Agreement from purchasing or
selling the securities of RCM, or from communicating such information to any
person under circumstances in which it is reasonably foreseeable that such
person is likely to purchase or sell securities of RCM. Accordingly, the
Acquiree Shareholders agree that they will not purchase or sell any securities
of RCM, or communicate such material non-public information to any other person
under circumstances in which it is reasonably foreseeable that such person is
likely to purchase or sell securities of RCM, until no earlier than 72 hours
following the filing of a Current Report on Form 8-K with the SEC announcing the
Closing pursuant to this Agreement.
5.14 Independent Contractors. If, with respect to any period
prior to the Closing, any governmental authority (i) challenges the status as
independent contractors of any of Acquiree's contractors; or (ii) asserts the
applicability to Acquiree's employees or contractors of statutes, ordinances or
regulations regulating the wages, working conditions and hours of employment of
such individuals, then after any final determination (with Acquiree Shareholders
having the right to control and pay the costs and counsel fees in connection
with any agency examination or determination) any payroll or other taxes and any
interest or penalties attributable thereto and any liability for additional
employment compensation and any fines or penalties connected therewith shall be
the obligation of the Acquiree Shareholders, and
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shall be paid to RCM within ten (10) days thereafter or, at the option of RCM,
shall be subject to indemnification provided for in Article 7 hereafter.
5.15 Conduct of Acquiree's Business Following The Closing
Date. RCM agrees that, for a period of two (2) years following the Closing Date,
and provided Acquiree's performance is consistent with the business plan jointly
developed by Acquiree and RCM, it will: (a) not change in any material respect
the business operations of Acquiree, and (b) the Acquiree Shareholders will
continue to run the day-to-day business operations of the Acquiree in accordance
with the business plan and pursuant to the terms of their respective Employment
Agreements.
5.16 Litigation Expenses. Acquiree Shareholders shall
promptly pay all counsel fees and expenses through all appeals and
all adverse awards, judgments or verdicts and all interest and
costs relating thereto arising out of or relating to the pending
litigation entitled Williams and Ward vs. Northern Technical
Services, Inc. and Mueller vs. Northern Technical Services, Inc.
6. THE CLOSING.
6.1. The Closing. The closing ("Closing") of the purchase and
sale and other transactions contemplated by this Agreement shall take place (a)
at the offices of Foley & Lardner, 777 East Wisconsin Avenue, Milwaukee,
Wisconsin, at 1:30 p.m. local time on January 6, 1998 or (b) at such other time
and place and on such other date as RCM and Acquiree or Acquiree Shareholders
shall agree. The date of the Closing is referred to herein as the "Closing
Date".
(a) Notwithstanding the actual date of the Closing
the purchase and sale and other transactions contemplated by this Agreement
shall be deemed to have occurred at the commencement of business on January 5,
1998.
6.2 Transactions at Closing. On the Closing Date, the
following transactions occurred, all of such transactions being deemed to occur
simultaneously:
(a) the Acquiree and the Acquiree Shareholders will
deliver, or cause to be delivered, to RCM the following:
(i) A certificate of Acquiree's Secretary to
the effect that all representations and warranties made by the Acquiree and the
Acquiree Shareholders under this Agreement are true and correct as of the
Closing Date as though originally given to RCM on said date.
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(ii) stock certificates representing the
Acquiree Shares being surrendered hereunder, duly endorsed with stock powers
attached in blank;
(iii) all corporate records of the Acquiree,
including without limitation corporate minute books (which shall contain copies
of the Articles of Incorporation and Bylaws, as amended to the Closing Date),
stock books, stock transfer books, corporate seals; and such other corporate
books and records as may reasonably be requested by RCM and its counsel;
(iv) a certificate of Status for the Acquiree
from the Department of Financial Institutions of the State of Wisconsin, dated
at or about the Closing Date, to the effect that such corporation is in good
standing under the laws of such state;
(v) an incumbency certificate for the Acquiree
signed by all of the officers thereof dated at or about the Closing
Date;
(vi) certified Articles of Incorporation of the
Acquiree dated at or about the Closing Date and a copy of the Bylaws of the
Acquiree certified by the Secretary of the Acquiree dated at or about the
Closing Date;
(vii) certified resolutions from the Secretary
of the Acquiree dated at or about the Closing Date authorizing the
transactions contemplated under this Agreement;
(viii) an Employment Agreement described in
Exhibit "A" signed by Merle F. Cook and Acquiree;
(ix) an Employment Agreement described in
Exhibit "B" signed by Gayle Yeko and Acquiree;
(x) an Employment Agreement described in
Exhibit "C") signed by Warren Lillund and Acquiree;
(xi) an Employment Agreement in the form of
Exhibit "D" signed by Jerry Kust and Acquiree;
(xii) an Employment Agreement described in
Exhibit "E" signed by Peter Ryan and Acquiree;
(xiii) an Escrow Agreement described in Exhibit
"F" signed by Merle F. Cook, Gayle Yeko and Warren Lillund;
(xiv) resignations of all officers and
directors of Acquiree;
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(xv) such documents as may be needed to
accomplish the Closing under the corporate laws of the states of
incorporation of RCM and Acquiree;
(xvi) such other instruments, documents and
certificates, if any, as are required to be delivered pursuant to the provisions
of this Agreement or that may be reasonably requested in furtherance of the
provisions of this Agreement;
(xvii) an opinion of counsel for Acquiree and
Acquiree Shareholders in the form attached hereto as Exhibit "G";
(xviii) any document associated with the
transactions contemplated by Section 5.12 of this Agreement;
(xix) evidence satisfactory to counsel for RCM
that all agreements affecting the transferability of the stock of Acquiree or
the rights and duties of the Acquiree Shareholders or the employment by Acquiree
of the Acquiree Shareholders have been terminated;
(b) RCM will deliver or cause to be delivered to the
Acquiree and the Acquiree Shareholders:
(i) the cash portion of the Purchase
Consideration in the amount of $3,125,000 delivered pursuant to Section 2.2
hereof plus the actual cash balance of Acquiree pursuant to Section 2.3 hereof;
(ii) a certificate of RCM's Secretary to the
effect that all representations and warranties made by RCM under this Agreement
are true and correct as of the Closing Date as though originally given to the
Acquiree and the Acquiree Shareholders on said date;
(iii) certificate from the Secretary of State
of Nevada dated at or about the Closing Date that RCM is in good
standing under the laws of said state;
(iv) certified resolution of the Secretary of
RCM dated at or about the Closing Date authorizing the transactions
contemplated under this Agreement;
(v) an opinion of counsel for RCM in the form
attached hereto as Exhibit "H";
(vi) an Employment Agreement described in
Exhibit "A" signed by Merle F. Cook and Acquiree;
(vii) an Employment Agreement described in
Exhibit "B" signed by Gayle Yeko and Acquiree;
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(viii) an Employment Agreement described in
Exhibit "C" signed by Warren Lillund and Acquiree;
(ix) an Employment Agreement described in
Exhibit "D" signed by Jerry Kust and Acquiree;
(x) an Employment Agreement described in
Exhibit "E" signed by Peter Ryan and Acquiree;
(xi) an Escrow Agreement described in Exhibit
"F: signed by RCM;
(xii) such documents as may be needed to
accomplish the Closing under the corporate laws of the state of
incorporation of RCM and Acquiree; and
(xiii) such other instruments, documents and
certificates, if any, as are required to be delivered pursuant to the provisions
of this Agreement, or that may be reasonably requested in furtherance of the
provisions of this Agreement.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF ACQUIREE AND THE ACQUIREE
SHAREHOLDERS. All obligations of the Acquiree and the Acquiree Shareholders
under this Agreement are subject to the fulfillment, prior to or on the Closing
Date (unless otherwise stated herein), of each of the following conditions, any
one or all of which may be waived by the Acquiree or the Acquiree Shareholders:
7.1 The Board of Directors of RCM shall have approved the
execution of this Agreement and the transactions contemplated hereby.
7.2 The representations and warranties made by or on behalf of
RCM contained in this Agreement or in any certificate or document delivered to
the Acquiree or the Acquiree Shareholders pursuant to the provisions hereof at
the Closing Date shall be true in all respects at and as of the time of the
Closing Date as though such representations and warranties were made at and as
of such time.
7.3 RCM shall have performed and complied in all material
respects with all covenants, agreements and conditions required by this
Agreement to be performed or complied with by it prior to or at the Closing.
7.4 RCM shall have delivered all of the Schedules required
herein, and copies of the documents referred to therein, to the Acquiree and
such Schedules and documents shall have been reasonably acceptable to Acquiree
and Acquiree Shareholders.
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7.5 There shall be delivered to the Acquiree and the Acquiree
Shareholders an officer's certificate of RCM to the effect that all of the
representations and warranties of RCM set forth herein are true and complete in
all material respects as of the Closing Date, and that RCM has complied in all
material respects with its covenants and agreements set forth herein that are
required to be complied with by the Closing Date.
7.6 No statute, rule, regulation, executive order, decree,
injunction or restraining order shall have been enacted, entered, promulgated or
enforced by any court of competent jurisdiction or governmental authority that
prohibits or restricts the consummation of the Closing and the other
transactions contemplated by this Agreement.
7.7 RCM shall have obtained the approval of its principal
lender of this Agreement and the transactions contemplated hereby.
7.8 RCM or its subsidiary shall have executed Employment
Agreements with Acquiree Shareholders and Tim Harke, Mark Shupe and
Greg Lawler.
7.9 All director, shareholder, lender, lessor and other
parties' consents and approvals, as well as all filing with, and all necessary
consents or approvals of, all federal state and local governmental authorities
and agencies, as are required of RCM under this Agreement, applicable law or any
applicable contract or agreement (all as contemplated by this Agreement) to
complete the Closing shall have been secured.
7.10 There shall have occurred no material adverse change to
the business, operations, assets, management, regulatory environment and
business prospects of RCM.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF RCM. All obligations of RCM
under this Agreement are subject to the fulfillment, prior to or on the Closing
Date, of each of the following conditions, any one or all of which may be waived
in writing by RCM:
8.1 The shareholders of the Acquiree shall have unanimously
approved the execution of this Agreement and the transactions contemplated
hereby.
8.2 The representations and warranties made by the Acquiree
and the Acquiree Shareholders contained in this Agreement or in any certificate
or document delivered to RCM pursuant to the provisions hereof at the Closing
Date shall be true in all respects at and as of the time of the Closing Date as
though such representations and warranties were made at and as of such time.
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8.3 The Acquiree and the Acquiree Shareholders shall have
performed and complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed or complied with by
them prior to or at the Closing.
8.4 The Acquiree shall have delivered all of the Schedules
required herein, and copies of the documents referred to therein, to RCM and
such Schedules and documents shall have been reasonably acceptable to RCM.
8.5 There shall be delivered to RCM an officer's certificate
of the Acquiree to the effect that all of the representations and warranties of
the Acquiree set forth herein are true and complete in all material respects as
of the Closing Date, and that the Acquiree has complied in all material respects
with its covenants and agreements set forth herein that are required to be
complied with by the Closing Date and there shall be delivered to RCM
certificates signed by the Acquiree Shareholders to the effect that the
representations and warranties of each made within this Agreement are true and
correct in all material respects.
8.6 RCM shall have obtained the approval of its principal
lender of this Agreement and the transactions contemplated hereby.
8.7 All director, shareholder, lender, lessor and other
parties' consents and approvals, as well as all filings with, and all necessary
consents or approvals of, all federal state and local governmental authorities
and agencies, as are required to Acquiree or the Acquiree Shareholders under
this Agreement, applicable law or any applicable contract or agreement (all as
contemplated by this Agreement) to complete the Closing shall have been secured.
8.8 No statute, rule, regulation, executive order, decree,
injunction or restraining order shall have been enacted, entered, promulgated or
enforced by any court of competent jurisdiction or governmental authority that
prohibits or restricts the consummation of the Closing and the other
transactions contemplated by this Agreement.
8.9 The Acquiree Shareholders and Tim Harke, Mark Shupe and
Greg Lawler shall each have executed an Employment Agreement with RCM or its
subsidiary.
8.10 Acquiree and the Acquiree Shareholders shall take all
actions necessary to effect the resignation of all of the current directors and
officers of Acquiree in the manner identified in Section 6.2(a)(xiv).
8.11 Except as contemplated or as required by this Agreement,
there shall have occurred no material adverse change to the business,
operations, assets, management, regulatory environment and business prospects of
Acquiree.
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9. INDEMNIFICATION.
9.1 Acquiree Shareholders. Acquiree Shareholders (except Peter
Ryan and Jerry Kust) shall indemnify, defend and hold RCM harmless, each
according to his or her Shareholder Percentages except that, for purposes of
this Article 9, the Shareholder Percentages applicable to Peter Ryan and Jerry
Kust shall instead be applicable to Cook, from and against any and all demands,
claims, actions or causes of action, judgments, assessments, losses,
liabilities, damages or penalties and reasonable attorneys' fees and related
disbursements (collectively, "Claims") incurred by RCM which arise out of or
result from a breach of warranty, or breach of any covenant of Acquiree or the
Acquiree Shareholders pursuant hereto or in connection with the transactions
contemplated hereby or thereby.
9.2 RCM. RCM shall indemnify, defend and hold harmless
Acquiree and Acquiree Shareholders from and against any and all Claims incurred
by the Acquiree and/or any Acquiree Shareholder which arise out of or result
from misrepresentation, breach of warranty or breach of any covenant of RCM
contained herein or in the Schedules annexed hereto or in any other documents or
instruments furnished by RCM pursuant hereto or in connection with the
transactions contemplated hereby or thereby.
9.3 Survival. All covenants, agreements, representations and
warranties contained in this Agreement or in the Schedules annexed hereto or in
any other documents shall survive the Closing for a period of two (2) years
except for covenants, representations and warranties relating to Taxes or made
fraudulently which shall survive indefinitely.
9.4 Methods of Asserting Claims for Indemnification. All
claims for indemnification under this Agreement shall be asserted as follows:
(a) Third Party Claims. In the event that any Claim
for which a party (the "Indemnitee") would be entitled to indemnification under
this Agreement is asserted against or sought to be collected from the Indemnitee
by a third party the Indemnitee shall promptly notify the other party (the
"Indemnitor") of such Claim, specifying the nature thereof, the applicable
provision in this Agreement or other instrument under which the Claim arises,
and the amount or the estimated amount thereof (the "Claim Notice"). The
Indemnitor shall have 30 days (or, if shorter, a period to a date not less than
10 days prior to when a responsive pleading or other document is required to be
filed but in no event less than 10 days from delivery or mailing of the Claim
Notice) (the "Notice Period") to notify the Indemnitee (i) whether or not it
disputes the Claim and (ii) if liability hereunder is not disputed, whether or
not it desires to defend the Indemnitee. If the Indemnitor elects to defend by
appropriate proceedings, such proceedings shall
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be promptly settled or prosecuted to a final conclusion in such a manner as to
minimize any risk of additional damage to the Indemnitee; and all costs and
expenses of such proceedings and the amount of any judgment shall be paid by the
Indemnitor.
If the Indemnitee desires to participate in, but not
control, any such defense or settlement, it may do so at its sole cost and
expense. If the Indemnitor has disputed the Claim, as provided above, and shall
not defend such Claim, the Indemnitee shall have the right to control the
defense or settlement of such Claim, in its sole discretion, and shall be
reimbursed by the Indemnitor for its reasonable costs and expenses of such
defense if it shall thereafter be found that such Claim was subject to
indemnification by the Indemnitor hereunder.
(b) Non-Third Party Claims. In the event that the
Indemnitee should have a Claim for indemnification hereunder which does not
involve a Claim being asserted against it or sought to be collected by a third
party, the Indemnitee shall promptly send a Claim Notice with respect to such
Claim to the Indemnitor. If the Indemnitor does not notify the Indemnitee within
the Notice Period that it disputes such Claim, the Indemnitor shall pay the
amount thereof to the Indemnitee. If the Indemnitor disputes the amount of such
Claim, the controversy in question shall be submitted to arbitration pursuant to
Article 10 hereof.
(c) Cooperation of Parties. If either party chooses
to defend or participate in the defense of any Claim, it shall have the right to
receive from the other party, subject to any restriction of applicable law or
that may be necessary to preserve the privilege of attorney-client
communications, any books, records or other documents within such other party's
control that are necessary or appropriate for such defense.
9.5 Right of Set Off. The amount of any Claims as to which RCM
is entitled to indemnification hereunder may be set off by RCM first against the
escrow fund pursuant to the terms and conditions of the Escrow Agreement then,
to the extent the escrow fund is insufficient to cover such Claims, against
amounts payable as Deferred Consideration, and, to the extent the escrow fund
and the Deferred Consideration is insufficient to cover such Claims then against
amounts payable as Additional Purchase Consideration.
9.6 Minimum for Indemnification. Acquiree Shareholders shall
not be required to make any indemnification payments under Section 9.4 except to
the extent that the cumulative amount of all Claims actually incurred by RCM
exceeds the sum of $25,000 in which case RCM shall be entitled to
indemnification for the entire amount of all claims. Claims relating to Taxes
and for representations and warranties made fraudulently shall be subject to
full indemnification irrespective of the $25,000 minimum.
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9.7 Cumulative Liability. The cumulative liability of the
Acquiree Shareholders (excluding Claims relating to Taxes and representations
and warranties made fraudulently which shall not be subject to any limit) under
this Article 9 shall not exceed the sum of $1,000,000 for Claims made prior to
the first anniversary of the Closing Date and $750,000 for Claims made prior to
the second anniversary of the Closing Date.
9.8 Indemnification For Pending Litigation. In addition to the
foregoing the Acquiree Shareholders shall defend, indemnify and hold RCM
harmless from and against all loss, liabilities, damages, punitive damages,
counsel fees and expenses through all appeals, interest, judgments and verdicts
relating to or arising out of the pending litigation entitled Williams and Ward
vs. Northern Technical Services, Inc. and Mueller vs. Northern Technical
Services, Inc.
The foregoing undertaking shall not be subject to the time
limits contained in Section 9.3 hereof or the minimum or maximum amount of
Claims that may be asserted as contained in Section 9.6 and 9.7. Any amounts for
which RCM is entitled to indemnification under this Section 9.8 shall be subject
to RCM's right of set off as described in Section 9.5 hereof.
Acquiree Shareholders agree that no settlement or other
voluntary termination of the case of Williams and Ward vs. Northern Technical
Services, Inc. shall occur unless as part of such settlement or termination RCM
receives a document in recordable form terminating all outstanding Financing
Statements wherein the plaintiffs are the secured parties and Acquiree is the
debtor.
10. TERMINATION. This Agreement may be terminated and the
transactions contemplated by this Agreement may be abandoned at any
time prior to the Closing Date:
(a) by mutual written consent of RCM and Acquiree;
(b) by either of RCM and Acquiree:
(i) if the Closing shall not have occurred by the
Closing Date unless such date is extended by the mutual written agreement of RCM
and Acquiree, and in such event, only until the date the Closing Date has been
so extended; provided, however, that the right to terminate this Agreement under
this Section 10(b)(i) shall not be available to any party whose failure to
fulfill any obligation under this Agreement has been the cause of, or resulted
in, the failure of the Closing Date to occur on or before that date; or
(ii) if any court of competent jurisdiction, or any
governmental body, regulatory or administrative agency or
commission having appropriate jurisdiction shall have issued an
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order, decree or filing or taken any other action restraining, enjoining or
otherwise prohibiting the transactions contemplated by this Agreement and such
order, decree, ruling or other action shall have become final and
non-appealable.
(c) If any party hereto shall default in the observance or in
the due and timely performance of any of the Covenants of the parties contained
in Section 5 of this Agreement, the non-defaulting party may, upon written
notice, terminate this Agreement and in that event, the defaulting party shall
indemnify, hold harmless and assume full and complete responsibility for any and
all expenses of the non-defaulting party incurred in this transaction, without
prejudice to its or their rights and remedies available under law, including the
right to recover expenses, costs and other damages. Notwithstanding the
foregoing, the non-defaulting party may elect to waive such breach by the
defaulting party and proceed with the Closing, thereby waiving any right to
damages as a result of such breach.
11. ARBITRATION. If a dispute arises as to interpretation of this
Agreement, it shall be decided finally by three arbitrators in an arbitration
proceeding conforming to the Rules of the American Arbitration Association
applicable to commercial arbitration. The arbitrators shall be appointed as
follows: one by RCM, one by the Acquiree Shareholders, and the third by the said
two arbitrators, or, if they cannot agree, then the third arbitrator shall be
appointed by the American Arbitration Association. The third arbitrator shall be
chairman of the panel and shall be impartial. The arbitration shall take place
in Milwaukee, Wisconsin. The decision of a majority of the arbitrators shall be
conclusively binding upon the parties and final, and such decision shall be
enforceable as a judgment in any court of competent jurisdiction. Each party
shall pay the fees and expenses of the arbitrator appointed by it, its counsel
and its witnesses. The losing party in the arbitration shall pay the fees and
expenses of the impartial arbitrator.
12. NOTICES. All notices or other communications required or permitted
hereunder shall be in writing and shall be deemed to have been duly given if
delivered in person or sent by overnight delivery, confirmed telecopy or prepaid
first class registered or certified mail, return receipt requested, to the
following addresses, or such other addresses as are given to the other parties
to this Agreement in the manner set forth herein:
12.1 If to RCM, to:
Mr. Leon Kopyt
Chief Executive Officer
RCM Technologies, Inc.
2500 McClellan Avenue, Suite 350
Pennsauken, New Jersey 08109-4613
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With a copy to:
Norman S. Berson, Esquire
Fineman & Bach, P.C.
1608 Walnut Street, 19th Floor
Philadelphia, PA 19103
Telephone No. (215) 893-8710
Telecopy No. (215) 893-8719
12.2 If to the Acquiree Shareholders, to:
Merle Cook
8899 North 60th Street
Milwaukee, WI 53223-2213
Telephone No. (414) 362-8899
Telecopy No. (414) 362-8880
Gayle Yeko
8899 North 60th Street
Milwaukee, WI 53223-2213
Telephone No. (414) 362-8899
Telecopy No. (414) 362-8880
Warren Lillund
8899 North 60th Street
Milwaukee, WI 53223-2213
Telephone No. (414) 362-8899
Telecopy No. (414) 362-8880
Jerry Kust
8899 North 60th Street
Milwaukee, WI 53223-2213
Telephone No. (414) 362-8899
Telecopy No. (414) 362-8880
Peter Ryan
8899 North 60th Street
Milwaukee, WI 53223-2213
Telephone No. (414) 362-8899
Telecopy No. (414) 362-8880
With a copy to:
Benjamin F. Garmer, III
Foley & Lardner
777 East Wisconsin Avenue
Milwaukee, WI 53202
Telephone No. (414) 297-5675
Telecopy No. (414) 297-4900
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12.3 If to the Acquiree, to:
Northern Technical Services, Inc.
8899 North 60th Street
Milwaukee, WI 53223-2213
Telephone No. (414) 362-8899
Telecopy No. (414) 362-8880
With a copy to:
Benjamin F. Garmer, III
Foley & Lardner
777 East Wisconsin Avenue
Milwaukee, WI 53202
Telephone No. (414) 297-5675
Telecopy No. (414) 297-4900
Any such notices shall be effective when delivered in person or sent by
telecopy, one business day after being sent by overnight delivery or three
business days after being sent by registered or certified mail. Any of the
foregoing addresses may be changed by giving notice of such change in the
foregoing manner, except that notices for changes of address shall be effective
only upon receipt.
13. MISCELLANEOUS.
13.1 Further Assurances. At any time, and from time to time,
after the Closing Date, each party will execute such additional instruments and
take such further action as may be reasonably required by the other party to
confirm or perfect title to any property transferred hereunder or otherwise to
carry out the intent and purposes of this Agreement.
13.2 Nature of Representations and Warranties. All of the
parties hereto are executing and carrying out the provisions of this Agreement
in reliance on the representations, warranties, covenants and agreements
contained in this Agreement or at the Closing of the transactions herein
provided for, and any investigation that they might have made or any other
representations, warranties, covenants, agreements, promises or information,
written or oral, made by the other party or parties or any other person shall
not be deemed a waiver of any breach of any such representation, warranty,
covenant or agreement.
13.3 Survival of Representations. All covenants, agreements,
representations and warranties made herein shall survive the Closing Date for a
period of two (2) years except for covenants, representations and warranties
relating to Taxes or made fraudulently which shall survive indefinitely. All
covenants and agreements by or on behalf of the parties hereto that are
contained or incorporated in this Agreement shall bind and enure to the
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<PAGE>
benefit of the successors and permitted assigns of all parties
hereto.
13.4 Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof.
It supersedes all prior negotiations, letters and understandings relating to the
subject matter hereof.
13.5 Amendment. This Agreement may not be amended,
supplemented or modified in whole or in part except by an instrument in writing
signed by the party or parties against whom enforcement of any such amendment,
supplement or modification is sought.
13.6 Assignment. This Agreement may not be assigned by any
party hereto without the prior written consent of the other parties.
13.7 Choice of Law. This Agreement shall be interpreted,
construed and enforced in accordance with the laws of the State of Wisconsin.
13.8 Headings. The section and subsection headings in this
Agreement are inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.
13.9 Number and Gender, Words used in this Agreement,
regardless of the number and gender specifically used, shall be deemed and
construed to include any other number, singular or plural, and any other gender,
masculine, feminine or neuter, as the context indicated is appropriate.
13.10 Construction. The parties hereto and their respective
legal counsel participated in the preparation of this Agreement, therefore, this
Agreement shall be construed neither against nor in favor of any of the parties
hereto, but rather in accordance with the fair meaning thereof.
13.11 Effect of Waiver. The failure of any party at any time
or times to require performance of any provision of this Agreement will in no
manner affect the right to enforce the same. The waiver by any party of any
breach of any provision of this Agreement will not be construed to be a waiver
by any such party of any succeeding breach of that provision or a waiver by such
party of any breach of any other provision.
13.12 Severability. The invalidity, illegality or
unenforceability of any provision or provisions of this Agreement will not
affect any other provision of this Agreement, which will remain in full force
and effect, nor will the invalidity, illegality or unenforceability of a portion
of any provision of this Agreement affect the balance of such provision. In the
event
33
<PAGE>
that any one or more of the provisions contained in this Agreement or any
portion thereof shall for any reason be held to be invalid, illegal or
unenforceable in any respect, this Agreement shall be reformed, construed and
enforced as if such invalid, illegal or unenforceable provision had never been
contained herein.
13.13 Binding Nature. This Agreement will be binding upon and
will inure to the benefit of any successor or successors of the parties hereto.
13.14 No Third-Party Beneficiaries. No person shall be deemed
to possess any third-party beneficiary right pursuant to this Agreement. It is
the intent of the parties hereto that no direct benefit to any third party is
intended or implied by the execution of this Agreement.
13.15 Counterparts. This Agreement may be executed in one or
more counterparts, each of which will be deemed an original and all of which
together will constitute one and the same instrument.
13.16 Facsimile Signature. This Agreement may be executed and
accepted by facsimile signature and any such signature shall be of the same
force and effect as an original signature.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
RCM TECHNOLOGIES, INC.
ATTEST:
By: By:
Name:
Title:
NORTHERN TECHNICAL
SERVICES, INC.
ATTEST:
By: By:
Name: Merle F. Cook
Title: President
{Signatures continued on next page]
34
<PAGE>
MERLE COOK
GAYLE YEKO
WARREN LILLUND
JERRY KUST
PETER RYAN
STOCK PURCHASE AGREEMENT
AMONG
RCM TECHNOLOGIES, INC.
GLOBAL TECHNOLOGY SOLUTIONS INC.
AND
THE SHAREHOLDER OF
GLOBAL TECHNOLOGY SOLUTIONS INC.
<PAGE>
TABLE OF CONTENTS
Page
1. DEFINITIONS.................................................. 1
2. PURCHASE AND SALE OF SHARES OF ACQUIREE...................... 3
3. REPRESENTATIONS AND WARRANTIES OF ACQUIREE
AND OTHERS................................................... 5
4. REPRESENTATIONS AND WARRANTIES OF RCM........................13
5. COVENANTS OF THE PARTIES.....................................15
6. THE CLOSING..................................................21
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF ACQUIREE
AND ACQUIREE SHAREHOLDER.....................................23
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF RCM...................24
9. INDEMNIFICATION..............................................26
10. ARBITRATION..................................................28
11. TERMINATION..................................................28
12. NOTICES.................................................. ...29
13. MISCELLANEOUS............................................. ..30
<PAGE>
LIST OF SCHEDULES
2.4 List of persons eligible to receive Additional Purchase
Consideration
3.2(a) Financial Statements for the fiscal years ended December 31,
1997, December 31, 1996 and December 31, 1995
3.2(b) Interim Financial Statements for the period January 1,
1998 through February 28, 1998
3.3 Undisclosed Liabilities of Acquiree
3.4 Accounts Receivable of Acquiree as of __________________
3.5 Material adverse changes
3.5(e) Extraordinary bonuses or salaries
3.6 Litigation
3.8 Articles of Incorporation, Bylaws and Amendments thereto
of Acquiree
3.9 Tax information
3.10 All material Contracts and Agreements of Acquiree
3.11 Liens, encumbrances and general description of all real
property in which Acquiree has an ownership interest
3.12 Licenses, trademarks and trade names of Acquiree
3.13 Consents to be obtained by Acquiree
3.14 Capitalization of Acquiree
3.17 Parandhaman's Obligation
3.18 Approvals required to be obtained by Acquiree Shareholder
3.19 Number and names of employees and compensation of all
directors and officers of Acquiree - identifies all
employee benefit plans
3.20 Compliance with environmental and conservation laws
3.21 List of all insurance policies of Acquiree
3.22 List of all bank accounts maintained or for the benefit
of Acquiree
<PAGE>
3.23 List of 10 largest customers of Acquiree, based on dollar
volume of income for the twelve month period ended
December 31, 1997
3.30 Agreements to be terminated
4.1 Articles of Incorporation and Bylaws of RCM
4.3 Consents to be obtained by RCM
5.10 Bonuses and Fees
<PAGE>
LIST OF EXHIBITS
Exhibit "A" Employment Agreement with _________________
Exhibit "B" Employment Agreement with ____________________
Exhibit "C" Opinion of counsel for Global Technology Solutions
Inc.
Exhibit "D" Opinion of counsel for RCM Technologies, Inc.
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered
into as of this day of , 1998, by and among RCM TECHNOLOGIES, INC., a Nevada
corporation ("RCM"); GLOBAL TECHNOLOGY SOLUTIONS INC, a California corporation,
doing business as GLOBAL SOLUTIONS (the "Acquiree"); and GOPAL PARANDHAMAN (the
"Acquiree Shareholder").
RECITALS:
WHEREAS, the Acquiree Shareholder owns in the aggregate one hundred
percent (100%) of the issued and outstanding common stock of the Acquiree (the
"Acquiree Shares"); and
WHEREAS, the Acquiree Shareholder desires to sell the Acquiree Shares
and RCM desires to purchase the Acquiree Shares, each upon the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto, intending to be legally bound hereby, agree as follows:
1. DEFINITIONS.
(a) The foregoing RECITALS are true and correct, and are
incorporated herein and made a part hereof.
(b) For purposes of this Agreement, the terms set forth below
shall have the following meanings:
<TABLE>
<CAPTION>
<S> <C> <C>
Accounts Receivable. . all of Acquiree's accounts
At Closing receivable as of the Closing Date
not outstanding for more than sixty
(60) days
Acquiree . . . . . . . Global Technology Solutions Inc. a
California corporation.
Cash Balance . . . . . Acquiree's actual cash balance at
1
<PAGE>
At Closing the Closing Date
minus all bank debt and all
outstanding checks.
Code . . . . . . . . . The Internal Revenue Code of 1986,
as amended.
Closing . . . . . . . The transaction of events set forth
in Section 6 hereof.
Closing Date . . . . . The day on which the Closing is held
as set forth in Section 6 hereof.
Net Working Capital. . Unaudited balance sheet of the
Balance Sheet Acquiree as of March 31, 1998
prepared in accordance with
the requirements of GAAP
containing all accruals
including but not limited
to all payroll accruals
(bonuses, commissions,
vacations and sick pay) and
all tax liability resulting
from the change from the
cash to the accrual method
of accounting.
Closing Net. . . . . . Operating income of Acquiree for the
Operating Income period January 1, 1997 to December
1, 1997 as reflected in
Acquiree's financial
statement prepared in
accordance with the
requirements of GAAP before
federal and state taxes or
interest expense or
interest income.
Effective Date . . . . March 2, 1996
Effective Date . . . . Unaudited balance sheet of Acquiree
Balance Sheet as of the Effective Date prepared in
accordance with GAAP
containing all accruals
including but not limited
to all payroll accruals
(bonuses, commissions,
vacations and sick pay) and
all tax liability resulting
from the change from the
cash to the accrual method
of accounting.
Financial . . . . . . Unaudited financial statements of
Statements the Acquiree for the fiscal years
ended December 31, 1997,
December 31, 1996, and
December 31, 1995 prepared
in accordance with the
requirements of GAAP.
Interim Financial . . Unaudited financial statements of the
2
<PAGE>
Statements Acquiree for the interim
period from January 1, 1998
through February 28, 1998
prepared in accordance with
the requirements of GAAP.
GAAP . . . . . . . . Generally accepted accounting
principles, consistently applied.
Net Operating Income Subsequent to the Closing Date and
(NOI) . . . . . . . . with respect to the ongoing business
formerly conducted by
Acquiree gross revenue
(billed services at invoice
value reduced by customer
discounts, returns and
allowances) minus cost of
sales, all operating
expenses directly
attributable to Acquiree
and general and
administrative expenses,
but excluding (a) RCM
Corporate Fees; (b) Federal
and state income taxes; (c)
goodwill amortization; and
(d) acquisition interest
expense.
Net Working Capital . The amount by which all realizable
current assets of Acquiree,
including accounts receivable but
excluding all fixed assets and
intangible assets as those terms are
defined under GAAP, exceeds all of
Acquiree's liabilities.
Parandhaman . . . . . Gopal Parandhaman
RCM . . . . . . . . . RCM Technologies, Inc., a Nevada
corporation.
RCM Corporate Fees. . All costs incurred by RCM not
directly related to the
ongoing business conducted
by Acquiree such as legal,
accounting and SEC filing
fees.
SEC . . . . . . . . . The Securities and Exchange
</TABLE>
Commission.
2. PURCHASE AND SALE OF SHARES OF ACQUIREE.
2.1 Purchase and Sale of Shares of Acquiree.
Subject to the terms and conditions of this Agreement, on the
Closing Date, the Acquiree Shareholder will sell, convey, assign, transfer and
deliver the Acquiree Shares to RCM, and RCM
3
<PAGE>
shall purchase, acquire and accept from the Acquiree Shareholder the Acquiree
Shares, which shall constitute one hundred percent (100%) of the outstanding
capital stock of Acquiree.
2.2 Purchase Consideration.
<TABLE>
<CAPTION>
On the Closing Date, (i) Acquiree Shareholder shall deliver to
RCM certificates representing the Acquiree Shares; and (ii) RCM shall pay to the
Acquiree Shareholder the purchase consideration in the sum of $5,700,000 plus an
amount equal to the Net Working Capital of Acquiree as determined in accordance
with Section 2.3 hereof, subject to adjustments as hereafter set forth (the
"Purchase Consideration") as follows:
<S> <C> <C>
$3,700,000 - by wire transfer of immediately
available funds to bank accounts
designated by Acquiree Shareholder;
$300,000 - post closing consideration payable
within sixty (60) days following the
close of any four (4) month period
occurring during initial two years
following the Closing Date during
which the aggregate NOI of
Acquiree's ongoing operations equals
or exceeds $333,000 (the "Post
Closing Consideration");
$1,700,000 - deferred consideration payable in
two (2) equal annual instalments of
$850,000 each within sixty (60) days
following March 31, 1999 and March
31, 2000 (the "Deferred
Consideration") provided that in the
event the NOI of Acquiree is less
than $1,000,000 for any year in
which a payment is due (the
"Shortfall") then the amount of the
installment payable for the first
year following the Closing shall be
reduced by $4.00 for each $1.00 of
Shortfall, and shall be reduced by
$3.00 for each $1.00 of Shortfall
for the second year following the
Closing Date. As used herein the
term "year" means the years ending
March 31, 1999 and 2000.
Net Working Capital - by wire transfer in accordance with
Section 2.3 hereof.
</TABLE>
4
<PAGE>
2.3 Payment of Net Working Capital. To the extent that the
Cash Balance At Closing is positive, then at the Closing RCM will pay to
Acquiree Shareholder by wire transfer of immediately available funds an amount
equal to the Cash Balance At Closing. Such payment will be deducted from the Net
Working Capital proceeds. Within sixty (60) days of the Closing Date, RCM and
the Acquiree Shareholder will cause to be prepared to their mutual satisfaction
the Net Working Capital Balance Sheet. Thereafter RCM, as agent for Acquiree,
shall use best efforts to promptly and fully collect all of Acquiree's accounts
receivable and other current assets as they are reflected in the Net Working
Capital Balance Sheet. RCM shall cause to be paid to the Acquiree Shareholder as
additional Purchase Consideration by wire transfer to bank accounts designated
by him the amount of the accounts receivable and other current assets actually
collected less Acquiree's liabilities as set forth on the Net Working Capital
Balance Sheet. Subject to RCM's due diligence RCM will advance to Acquiree on
the Closing Date a sum equal to fifty percent (50%) of the Accounts Receivable
At Closing. To the extent the Cash Balance At Closing is negative the advance on
the Accounts Receivable At Closing shall be offset by such amount. In any case
the remaining Accounts Receivable At Closing not advanced must equal or exceed
1.5 times all unpaid liabilities. Such advance shall be deducted from the Net
Working Capital proceeds.
2.4 Additional Purchase Consideration. If the NOI for any year
in which an installment of Deferred Consideration is due exceeds $1,000,000,
then twenty-five percent (25%) of the amount over and above and in excess of
$1,000,000 shall be accrued as additional consideration and, within sixty (60)
days of the end of such year, be paid as additional consideration to those
persons designated in Schedule 2.4 hereof in the proportions described in that
Schedule.
2.5 Deferred Consideration. In any year in which an
installment of Deferred Consideration is due, the Acquiree Shareholder and his
authorized representatives, at his expense, during normal business hours, shall
have the right to audit the financial records of Acquiree to verify the
calculation of NOI and any Shortfall. For each year in which an installment of
Deferred Consideration is due, RCM will furnish the Acquiree Shareholder with
year end financial statements for Acquiree.
3. REPRESENTATIONS AND WARRANTIES OF ACQUIREE AND THE ACQUIREE
Shareholder. The Acquiree and the Acquiree Shareholder, jointly and severally,
as a material inducement to RCM to enter into this Agreement and consummate the
transactions contemplated hereby, make the following representations and
warranties to RCM which representations and warranties are true and correct in
all material respects on this date, and will be true and correct in all material
respects on the Closing Date as though made on and as of such date.
5
<PAGE>
3.1 Shareholder of Acquiree. The Acquiree Shareholder is, and
will be on the Closing Date, the sole owner, of record and beneficially, of all
the issued and outstanding shares of the Acquiree's capital stock.
3.2 Financial Statements.
(a) The Financial Statements for the fiscal years
ended December 31, 1997, December 31, 1996 and December 31, 1995 ("1997, 1996
and 1995 Financial Statements") have been attached as Schedule 3.2(a). The 1997,
1996 and 1995 Financial Statements and the financial information contained
therein present fairly the financial condition of the Acquiree for the periods
covered and have been prepared in accordance with GAAP.
(b) RCM and the Acquiree Shareholder will cause to
be prepared to their mutual satisfaction the Effective Date Balance Sheet and
the Net Working Capital Balance Sheet as defined in Section 1 hereof which will
be prepared on an unaudited basis in accordance with GAAP and delivered to RCM
promptly following the Closing. The Effective Date Balance Sheet and the Net
Working Capital Balance Sheet as defined in Section 1 hereof and the financial
information contained therein will present fairly the financial condition of the
Acquiree for the periods covered.
(c) The books and records of Acquiree, financial and
other, are in all material respects complete and correct and have been
maintained in accordance with good business and accounting practices.
3.3 Undisclosed Liabilities. Acquiree does not have any
liabilities or obligations of any nature, fixed or contingent, that will not be
shown or otherwise provided for in the Financial Statements, except (a) as set
forth in Schedule 3.3, and (b) for liabilities and obligations arising
subsequent to the date of the Financial Statements in the ordinary course of
business, none of such liabilities referred to in this clause (b) will
individually or in the aggregate be materially adverse to the business or
financial condition of the Acquiree. There are no material loss contingencies
(as such term is used in Statement of Financial Accounting Standards No. 5 of
the Financial Accounting Standards Board) of the Acquiree that will not be
adequately provided for.
3.4 Accounts Receivable. Attached hereto as Schedule 3.4 is a
list of all accounts receivable of Acquiree as of _________ __, 1998 and aging
schedule pertaining thereto. All of the accounts receivable of Acquiree now and
on the Closing Date, are bona fide accounts receivable of Acquiree representing
the sales price of (or other sums or fees receivable for or in respect of)
goods, merchandise, or services sold or performed by Acquiree in valid
transactions in the regular course of its business to or for the benefit of its
customers. Such accounts receivable, subject to
6
<PAGE>
reserves, if any, established within the Financial Statements, are collectible
in full and are not subject to offset or counterclaim or otherwise in
controversy.
3.5 Material Adverse Changes. Except as specifically stated in
Schedule 3.5 or as contemplated or required by this Agreement, from January 1,
1997 to the date of this Agreement, the business of the Acquiree has been
operated in the ordinary course and there has not been:
(a) Any materially adverse changes in the business,
condition (financial or otherwise), results of operations, properties, assets,
liabilities, earnings or net worth of the Acquiree for such period or at any
time during such period;
(b) Any material damage, destruction or loss
(whether or not covered by insurance) affecting the Acquiree or its
assets, properties or business;
(c) Any cancellation or material breaches on any
existing contract of which Acquiree is a party that would have a
material adverse effect on the business of Acquiree;
(d) Any statute, rule, regulation or order adopted
by any governmental body, agency or authority that materially and
adversely affects the Acquiree or its business or financial
condition; or
(e) Except as set forth in Schedule 3.5(e) there has
not been any payment of bonuses or accrued salaries out of the ordinary course
of business or agreements to materially increase the rate or terms of
compensation payable or to become payable by Acquiree to its directors, officers
or key employees; provided, however, that this subsection shall not restrict or
limit the Acquiree in any way from hiring additional personnel who are required
for its operations.
3.6 Litigation. Except as set forth in Schedule 3.6, there are
no actions, suits, claims, investigations or legal, administrative or
arbitration proceedings pending or, to the actual knowledge of Acquiree
Shareholder, threatened against the Acquiree, whether at law or in equity, or
before or by any federal, state, municipal, local, foreign or other governmental
department, commission, board, bureau, agency or instrumentality, or, to the
actual knowledge of Acquiree Shareholder, any basis for any such action, suit,
claim, investigation or proceeding.
3.7 Compliance: Governmental Authorizations. The Acquiree has
complied in all material respects with all federal, state, local or foreign
laws, ordinances, regulations and orders applicable to its business, including
without limitation, federal and state securities, banking collection and
consumer protection
7
<PAGE>
laws and regulations that, if not complied with, would materially and adversely
affect its businesses. The Acquiree has all federal, state, local and foreign
governmental licenses and permits necessary for the conduct of its business.
Such licenses and permits are in full force and effect. Neither the Acquiree nor
the Acquiree Shareholder know of any violations of any such licenses or permits.
No proceedings are pending or threatened to revoke or limit the use of such
licenses or permits that would have an adverse effect on the business of
Acquiree.
3.8 Due Organization. The Acquiree is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California; it is qualified to do business and in good standing in each state
where the properties owned, leased or operated, or the business conducted, by it
require such qualification except where failure to so qualify would not have a
material adverse effect on its financial condition, properties, business or
results of operations. The Acquiree has the power to own its properties and
assets and to carry on its business as now presently conducted. True and
complete copies of the Articles of Incorporation and Bylaws of Acquiree,
including any amendments thereto, have been attached as Schedule 3.8.
3.9 (a) Taxes. Except as disclosed on Schedule 3.9, all (a)
federal, state, local or foreign tax returns (collectively, the "Returns")
required to be filed with respect to the properties, assets, operations, income
and net worth of Acquiree have been timely filed or appropriate extensions have
been obtained and such Returns are true, correct and complete in all material
respects; and (b) taxes and governmental charges, including, without limitation,
any interest and penalties (collectively "Taxes") due pursuant to such Returns
have been paid or adequate provision therefor has been made on the Financial
Statements. Except as disclosed on Schedule 3.9, there are no outstanding
agreements or waivers extending the statutory period of limitation concerning
any tax liability of Acquiree, no examination of any Return of Acquiree is
currently in progress and no governmental authority has, within the last three
(3) years, notified Acquiree or Acquiree Shareholder of any tax claim,
investigation or proceeding. All monies required to be collected or withheld by
the Acquiree for income taxes, social security or other payroll taxes have been
collected or withheld, and either paid to the appropriate governmental agencies,
set aside in accounts for such purpose, or accrued, reserved against and entered
upon the books of the Acquiree and the Acquiree is not liable for any taxes or
penalties for failure to comply with any of the foregoing. Set forth on Schedule
3.9 is a list of all actions which have a material effect on the calculation of
Taxes payable or with respect to the income, deductions, credits, allowances or
assets of the Acquiree. The Acquiree has not made, is not obligated to make, and
will not, as a result of the transactions contemplated hereby, make or become
obligated to make any "excess parachute payment" within the meaning of Section
280G
8
<PAGE>
of the Code (determined without regard to subsection (b)(4) thereof). Acquiree
Shareholder will be responsible for filing on behalf of Acquiree the short
period S corporation tax return for the period ended ______________, 1998.
Simultaneously with the filing of the short period S corporation return Acquiree
Shareholder will cause to be filed an Application For Change In Accounting
Method (IRS Form 3115) to change Acquiree's method of accounting from cash to
accrual. Any tax liability arising from the change in accounting method over and
above the amount shown for this liability on the Closing Date Balance Sheet
shall be the obligation of the Acquiree Shareholder.
(b) Tax Election. Acquiree and RCM shall jointly
make an election under Section 338(h)(10) of the Code (and any corresponding
election under state or local tax law) (collectively a "Section 338(h)(10)
Election"). Acquiree and RCM shall (i) take, and cooperate with each other to
take, all actions necessary and appropriate (including filing such forms,
returns, elections, schedules and other documents as may be required) to effect
and preserve a timely Section 338(h)(10) Election in accordance with Section 338
of the Code and the Temporary Regulations thereunder or any successor
provisions, and execute and deliver all such required documents including IRS
Form 8023 at the Closing); and (ii) Acquiree and RCM shall report the sale of
the Acquiree Shares pursuant to this Agreement consistent with Section
338(h)(10) and shall take no position contrary thereto or inconsistent therewith
in any tax return, and discussion with or proceeding before any taxing
authority, or otherwise. RCM and Acquiree Shareholder shall, within sixty (60)
days after the date on which the Tax Election is filed, jointly prepare an
allocation of the "adjusted grossed-up basis" (as defined in Treasury Regulation
1.338(b)-1 among Acquiree's assets in accordance with Section 338 of the Code
and the Treasure Regulations thereunder (the "Allocation") consistent with the
Effective Date Balance Sheet and providing, if necessary, for adjustments to
take into account the payment of Post Closing Consideration, Deferred
Consideration and Additional Deferred Consideration pursuant to Sections 2.2 and
2.4 hereof. All such adjustments on account of the payment of Post Closing
Consideration, Deferred Consideration and Additional Deferred Consideration
shall increase on a dollar for dollar basis the amount allocated to goodwill.
The parties agree to adopt and abide by the Allocation in all federal and state
tax filings and to take no positions inconsistent therewith. Any tax liability
arising from the filing of the Section 338(h)(10) Election shall be the
obligation of the Acquiree Shareholder.
3.10 Agreements. Schedule 3.10 contains a true and complete
list of all material contracts, agreements, mortgages, obligations,
arrangements, restrictions and other instruments to which the Acquiree is a
party or by which the Acquiree or its assets may be bound. True and correct
copies of all items set forth on Schedule 3.10 have been or will have been made
available
9
<PAGE>
to RCM prior to the date hereof. No event has occurred that (whether with or
without notice or lapse of time) would constitute a material default by the
Acquiree under any of the contracts or agreements set forth in Schedule 3.10.
Neither the Acquiree nor the Acquiree Shareholder have knowledge of any material
default by the other parties to such contracts or agreements.
3.11 Title to Property and Related Matters. The Acquiree has,
and at the time of the Closing will have, good and marketable title to all of
its properties, and assets, real, personal and mixed, owned by it at the date of
this Agreement or acquired by it after the date of this Agreement, of any kind
or character, free and clear of any liens or encumbrances, except (i) those set
forth in Schedule 3.11, and (ii) liens for current taxes not yet delinquent.
Schedule 3.11 also contains a general description of all real property in which
Acquiree has an ownership interest. Except as set forth in said Schedule 3.11
and except for matters that may arise in the ordinary course of business, the
assets of the Acquiree are in good operating condition and repair, reasonable
wear and tear excepted. There does not exist any condition that materially
interferes with the use thereof in the ordinary course of the business of the
Acquiree.
3.12 Licenses; Trademarks; Trade Names. Except as set forth on
Schedule 3.12, the Acquiree does not have, nor does it own or use in its
business any licenses, trademarks, trade names, service marks, copyrights,
patents or any applications for any of the foregoing that relate to its
business.
3.13 Due Authorization. This Agreement has been duly
authorized, executed and delivered by the Acquiree and constitutes a valid and
binding agreement of the Acquiree, enforceable in accordance with its terms,
except as such enforcement may be limited by applicable bankruptcy, insolvency,
moratorium, and other similar laws relating to, limiting or affecting the
enforcement of creditors rights generally or by the application of equitable
principles. Neither the execution and delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, nor compliance with any of
the provisions hereof, will violate in any material respect any order, writ,
injunction or decree of any court or governmental authority, or violate or
conflict with in any material respect or constitute a default under (or give
rise to any right of termination, cancellation or acceleration under), any
provisions of the Acquiree's Articles of Incorporation or Bylaws, the terms or
conditions or provisions of any note, bond, lease, mortgage or agreement of any
kind to which the Acquiree is a party or by which the Acquiree or its properties
may be bound, or violate in any material respect any statute, law, rule or
regulation applicable to the Acquiree, except that the consents disclosed on
Schedule 3.13 will be required pursuant to the terms of those scheduled
agreements. No consent or approval by any governmental authority is required in
connection with the execution and delivery
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by the Acquiree of this Agreement or the consummation of the
transactions contemplated hereby.
3.14 Capitalization. The authorized capitalization of the
Acquiree consists of 1,000 shares of no par value Common Stock of which 1,000
shares are issued and outstanding as of the date of this Agreement; the Acquiree
Shares have been duly authorized, validly issued, and are fully paid and
non-assessable, and were issued in compliance with applicable federal and state
securities laws and regulations. Except as set forth on Schedule 3.14, there are
no outstanding or presently authorized securities, warrants, preemptive rights,
subscription rights, options or related commitments or agreements of any nature
to issue any of the Acquiree's securities. Schedule 3.14 sets forth the share
ownership and respective percentage of each of the Acquiree Shareholder.
3.15. Brokerage Fees. Except for Delhi And Dublin Ventures,
Inc., whose fees shall be paid by Acquiree as disclosed on Schedule 5.10, the
Acquiree has not incurred, and will not incur, any liability for brokerage or
finder's fees or similar charges in connection with the transactions contained
within this Agreement.
3.16 Share Ownership. The Acquiree Shares will be owned of
record and beneficially by the Acquiree Shareholder, free and clear of all liens
and encumbrances of any kind and nature. There are no agreements (other than
this Agreement) to sell, pledge, assign or otherwise transfer such securities.
3.17 Obligation of the Acquiree Shareholder. This Agreement
constitutes the valid and legally binding obligation of the Acquiree
Shareholder. Except as set forth on Schedule 3.17, neither the execution and
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will constitute in any material respect a violation of or
default under, or conflict in any material respect with, any judgment, decree,
statute or regulation of any governmental authority applicable to the Acquiree
Shareholder or any contract, commitment, agreement or restriction of any kind to
which the Acquiree Shareholder is a party or by which the Acquiree Shareholder
is bound.
3.18 Approvals Required. Except as set forth on Schedule 3.18
or as contemplated or as required by this Agreement, no approval, authorization,
consent, order or other action of, or filing with, any person, firm or
corporation or any court, administrative agency or other governmental authority
is required in connection with the execution and delivery by the Acquiree
Shareholder of this Agreement or the consummation by them of the transactions
described herein, except to the extent that Acquiree Shareholder may be required
to file reports in accordance with relevant regulations under federal and state
securities laws upon
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execution of this Agreement and/or consummation of the transactions
contemplated hereby.
3.19 Employee; Benefit Plans.
(a) Schedule 3.19 sets forth the number and names of
the employees of Acquiree and the total 1997 compensation to each of the
directors, officers and employees of Acquiree.
(b) Except as disclosed on Schedule 3.19, Acquiree
does not have any "employee benefit plans" (as such term is defined in Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"). Schedule 3.19 identifies all programs, including, without limitation,
any pension plans, health and welfare plans, life, disability, medical, dental
or hospitalization insurance plans, sick-leave, vacation accrual or holiday
plans, bonus, savings, profit-sharing or other similar benefit plans, deferred
compensation, stock option, stock ownership and stock purchase plans covering
employees or former employees of Acquiree. Except as disclosed on Schedule 3.19,
each such plan or program has been operated substantially in accordance with its
terms and, to the extent applicable, ERISA and the Code. Acquiree does not
sponsor or contribute to, nor has it ever sponsored or been required to
contribute to, any "multiemployer plan" as such term is defined in Section 3(37)
of ERISA.
(c) Except as disclosed on Schedule 3.19 Acquiree
does not have any written contracts, or oral contracts, including any
employment, management, agency or consulting contracts, with respect to any of
its current or retired employees.
(d) Except as disclosed on Schedule 3.19, Acquiree
is not a party to any collective bargaining agreement and there are no union
organizational activities or efforts to effect a representation election pending
or threatened.
(e) Except as disclosed on Schedule 3.19, Acquiree
has complied in all material respects with all applicable laws relating to the
employment of labor, including the provisions thereof relating to benefits
required to be provided under Part VI of Subtitle B of Title I of ERISA or
Section 4980B(f) of the Code (collectively, "COBRA"), wages, hours, working
conditions, employee benefit plans and the payment of withholding and social
security taxes.
3.20 Environmental Matters. Except as set forth in Schedule
3.20 Acquiree is in compliance with all laws, rules and regulations relating to
environmental protection and conservation (including, but not limited to, the
Comprehensive Environmental Response, Compensation and Liability Act and the
Superfund Amendments and Reauthorization Act of 1986, as amended and all
applicable state laws pertaining to the environment), and neither
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Acquiree or Acquiree Shareholder have received any notification of any asserted
present or past failure to so comply with such laws, rules or regulations.
Acquiree has obtained and is in compliance with all permits, licenses and other
authorizations required under federal, state and local laws relating to
emissions, discharges, releases or threatened releases of pollutants,
contaminants, or hazardous or toxic materials or wastes into ambient air,
surface water, ground water, or land, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport, or
handling of pollutants, contaminants or hazardous or toxic materials or wastes
(collectively "Environmental Requirements"). There are no circumstances which
may interfere with or prevent continued compliance, or which may give rise to
any liability, or otherwise form the basis of any claim, or investigation under
Environmental Requirements, relating to the operation of Acquiree's business.
For the purpose of this Section, "hazardous substances" shall include (1)
hazardous substances as defined in the Comprehensive Environmental Response,
Compensation and Liability Act, as amended, and regulations thereunder, and (2)
any substance for which state or local laws require the clean-up, removal or
other special handling of such materials or imposing liability based upon
improper handling thereof.
3.21 Insurance. Schedule 3.21 contains a list of all policies
of liability, environmental, crime, fidelity, life, fire, workers' compensation,
health, director and officer liability and all other forms of insurance
currently in effect and owned or held by Acquiree, and identifies for each such
policy, the underwriter, policy number, coverage type, premium, expiration date
and deductible. All of the insurance policies listed on Schedule 3.21 are
outstanding and in full force and effect and all premiums required to be paid
with respect to such policies are currently paid.
3.22 Bank Accounts. Schedule 3.22 contains a list of all
bank accounts maintained by, or for the benefit of, Acquiree.
3.23 Customers. Set forth on Schedule 3.23 is a list of the
ten (10) largest customers of Acquiree based on the dollar volume of income
generated by that customer for the twelve month period ended December 31, 1997.
No such customer has terminated or, to Acquiree's knowledge, is presently
threatening to terminate its relationship with Acquiree.
3.24 Approval. The Board of Directors of the Acquiree has
approved the execution of this Agreement and the transactions contemplated
hereby.
3.25 Contractors. With respect to the Acquiree's contractors,
consultants and other independent personnel (the "Contractors"), the Acquiree
has evaluated and classified the Contractors as independent contractors or
employees in accordance
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with Internal Revenue Service regulations. Acquiree has maintained, monitored,
continues to maintain and monitor those Contractors who are independent
contractors to assure compliance with Internal Revenue Service regulations.
3.25 Termination of Agreements. Schedule 3.30 contains a list
of all Agreements between the Acquiree on the one hand and its Shareholder on
the other. All such Agreements have been terminated absolutely at or prior to
the Closing Date without any liability on the part of Acquiree.
4. REPRESENTATIONS AND WARRANTIES OF RCM. As a material inducement to
the Acquiree and the Acquiree Shareholder to enter into this Agreement and
consummate the transactions contemplated hereby, RCM does hereby make the
following representations and warranties to the Acquiree and the Acquiree
Shareholder, which representations and warranties are true and correct in all
material respects at this date, and will be true and correct in all material
respects on the Closing Date as though made on and as of such date.
4.1 Due Organization of RCM. RCM is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Nevada; it is qualified to do business and is in good standing in each state
where the properties owned, leased or operated, or the business conducted, by it
require such qualification except where failure to so qualify would not have a
material adverse effect on the financial condition, properties, business or
results of operations of RCM. RCM has the corporate power and authority to own
its property and assets and to carry on its business as now presently conducted.
True, correct and complete copies of the Articles of Incorporation and Bylaws of
RCM, including any amendments thereto, are attached hereto as Schedule 4.1.
4.2 Compliance; Governmental Authorizations. RCM has complied
in all material respects with all federal, state, local or foreign laws,
ordinances, regulations and orders applicable to its business, including without
limitation, federal and state securities, banking collection and consumer
protection laws and regulations that, if not complied with, would materially and
adversely affect its businesses. RCM has all federal, state, local and foreign
governmental licenses and permits necessary for the conduct of its business.
Such licenses and permits are in full force and effect. RCM does not know of any
violations of any such licenses or permits. No proceedings are pending or
threatened to revoke or limit the use of such licenses or permits that would
have an adverse effect on the business of RCM.
4.3 Due Authorization. This Agreement has been duly
authorized, executed, and delivered by RCM, and constitutes a legal, valid, and
binding obligation of RCM, enforceable in accordance with its terms except as
such enforcement may be limited
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by applicable bankruptcy, insolvency, moratorium, and other similar laws
relating to, limiting or affecting the enforcement of creditors rights generally
or by the application of equitable principles. Neither the execution and
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, nor compliance with any of the provisions hereof, will
violate in any material respect any order, writ, injunction or decree of any
court or governmental authority, or violate or conflict with in any material
respect or constitute a default under (or give rise to any right of termination,
cancellation or acceleration under), any provisions of RCM's Articles of
Incorporation or Bylaws, the terms or conditions or provisions of any note,
bond, lease, mortgage or agreement of any kind to which RCM is a party or by
which RCM or its properties may be bound, or violate in any material respect any
statute, law, rule or regulation applicable to RCM, except that the consents
disclosed on Schedule 4.3 will be required pursuant to the terms of those
scheduled agreements. No consent or approval by any governmental authority is
required in connection with the execution and delivery by RCM of this Agreement
or the consummation of the transactions contemplated hereby.
4.4 Brokerage Fees. Except for Delhi And Dublin Ventures, Inc.
whose fees shall be paid by Acquiree, RCM has not incurred, and will not incur,
any liability for brokerage or finder's fees or similar charges in connection
with the transactions contained within this Agreement.
4.5 Approval. The Board of Directors of RCM has approved the
execution of this Agreement and the transactions contemplated hereby.
4.6 No Approvals Required. No approval, authorization,
consent, order or other action of, or filing with, any person, firm or
corporation or any court, administrative agency or other governmental authority
is required in connection with the execution and delivery by RCM of this
Agreement or the consummation by it of the transactions described herein, except
to the extent that the parties may be required to file reports in accordance
with relevant regulations under federal and state securities laws.
5. COVENANTS OF THE PARTIES.
5.1 Disclosure Documents.
(a) RCM shall supply to Acquiree the necessary
information in writing, or cause the necessary information to be supplied in
writing, relating to RCM for inclusion in any document(s) to be delivered to
Acquiree Shareholder in connection with seeking their approval of the
transactions contemplated by this Agreement.
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(b) Acquiree shall supply to RCM the necessary
information in writing, or cause the necessary information to be supplied in
writing, relating to Acquiree for inclusion in any documents or reports to be
filed with the SEC or any regulatory agency in connection with the transactions
contemplated by this Agreement.
5.2 Access to Information. At all times prior to the Closing
Date or the earlier termination of this Agreement in accordance with the
provisions of Section 11, each of the parties hereto shall provide to the other
parties (and the other parties' authorized representatives) full access during
normal business hours to the premises, properties, books, records, assets,
liabilities, operations, contracts, personnel, financial information and other
data and information of or relating to such party (including without limitation
all written proprietary and trade secret information and documents, and other
written information and documents relating to intellectual property rights and
matters), and will cooperate with the other party in conducting its due
diligence investigation of such party.
5.3 Confidentiality.
(a) Confidentiality of RCM-Related Information.
With respect to information concerning RCM that is made available to Acquiree or
Acquiree Shareholder pursuant to the provisions of Section 5.2, Acquiree and
Acquiree Shareholder agree that they shall hold such information in strict
confidence, shall not use such information except for the sole purpose of
evaluating the transactions contemplated by this Agreement and shall not
disseminate or disclose any of such information other than to representatives
who need to know such information for the sole purpose of evaluating the
transactions to be undertaken pursuant to this Agreement (each of whom shall be
informed in writing by Acquiree of the confidential nature of such information
and directed by Acquiree to treat such information confidentially). If this
Agreement is terminated pursuant to the provisions of Section 11, Acquiree and
Acquiree Shareholder shall immediately return all such information, all copies
thereof and all information prepared by Acquiree based upon the same, upon RCM's
request; provided, however, that one copy of all such material may be retained
by Acquiree's outside legal counsel for purposes only of resolving any disputes
under this Agreement. The above limitations on use, dissemination and disclosure
shall not apply to information that (i) is learned by Acquiree or the Acquiree
Shareholder from a third party entitled to disclose it; (ii) became known
publicly other than through Acquiree or the Acquiree Shareholder or any party
who received the same through Acquiree or the Acquiree Shareholder; (iii) is
required by law or court order to be disclosed by Acquiree or the Acquiree
Shareholder (after notice and opportunity to oppose such disclosure); or (iv) is
disclosed with the express prior written consent thereto of RCM. Acquiree or the
Acquiree
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Shareholder shall undertake all necessary steps to ensure that the secrecy and
confidentiality of such information will be maintained in accordance with the
provisions of this subparagraph (a).
(b) Confidentiality of Acquiree-Related Information.
With respect to information concerning Acquiree that is made available to RCM
pursuant to the provisions of Section 5.2, RCM agrees that it shall hold such
information in strict confidence, shall not use such information except for the
sole purpose of evaluating the transactions contemplated by this Agreement and
shall not disseminate or disclose any of such information other than to their
directors, officers, employees, shareholders, affiliates, agents and
representatives who need to know such information for the sole purpose of
evaluating the transactions to be undertaken pursuant to this Agreement (each of
whom shall be informed in writing by RCM of the confidential nature of such
information and directed by RCM to treat such information confidentially). If
this Agreement is terminated pursuant to the provisions of Section 11, RCM shall
immediately return all such information, all copies thereof and all information
prepared by it based upon the same, upon Acquiree's request; provided, however,
that one copy of all such material may be retained by RCM's outside legal
counsel for purposes only of resolving any disputes under this Agreement. The
above limitations on use, dissemination and disclosure shall not apply to
information that (i) is learned by RCM from a third party entitled to disclose
it; (ii) became known publicly other than through RCM or any party who received
the same through RCM; (iii) is required by law or court order to be disclosed by
RCM (after notice and opportunity to oppose such disclosure); or (iv) is
disclosed with the express prior written consent thereto of Acquiree. RCM shall
undertake all necessary steps to ensure that the secrecy and confidentiality of
such information will be maintained in accordance with the provisions of this
subparagraph (b);
5.4 Nondisclosure. Neither RCM, nor Acquiree nor Acquiree
Shareholder shall disclose to the public or to any third party the existence of
this Agreement or the transactions contemplated hereby or any other material
non-public information concerning or relating to the other parties hereto, other
than with the express prior written consent of the other parties hereto, except
as may be required by applicable securities laws as they pertain to public
companies, law or court order or to enforce the rights of such disclosing party
under this Agreement, in which event the contents of any proposed disclosure
shall be discussed with the other party before release; provided, however, that
notwithstanding anything to the contrary contained in this Agreement, any party
hereto may disclose this Agreement to any of its directors, officers, employees,
shareholders, affiliates, agents and representatives who need to know such
information for the sole purpose of evaluating the transactions contemplated by
this Agreement, to any party whose consent is required in
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connection with this Agreement; or any regulatory body where such disclosure is
required under federal or state law.
5.5 Non-Competition.
(a) As a material inducement for RCM to enter into
this Agreement Parandhaman agrees that he will not, for the period during which
Deferred Consideration is payable to Acquiree Shareholder and for a period of
two (2) years following the payment of the last installment of Deferred
Consideration to Acquiree Shareholder (the "Restricted Period") within the
counties of __________________, California, directly or indirectly, whether as
employee, owner, partner, agent, director, officer or shareholder, engage in the
business of contract or temporary staffing of technical personnel. As used
herein "technical personnel" means information technology, engineering and
manufacturing professional personnel. Without limiting the generality of the
foregoing Parandhaman shall not do any of the following:
(i) Solicit, divert, accept business of
contract or temporary staffing of technical personnel from any client of
Acquiree who is or was a client during the term of Parandhaman's employment,
including all clients directly or indirectly produced or generated by
Parandhaman.
(ii) Solicit, induce or contract with any of the
Acquiree's employees to leave Acquiree or to work for Parandhaman or any company
with which Parandhaman is connected.
(iii) Solicit, divert or take away any of
Acquiree's sources of business of contract or temporary staffing of technical
personnel.
(b) Parandhaman will not at any time without the
authorization of RCM disclose to, or make use of for himself or for any person,
corporation, or other entity, any trade secret or other confidential information
concerning the business, clients, methods, operations, financing or services of
RCM or its affiliates. Trade secrets and confidential information shall mean
information disclosed to Parandhaman or known by him as a consequence of his
relationship with Acquiree and not generally known in the industry. Without
limiting the generality of the foregoing, trade secrets and confidential
information shall include market analysis and market expansion plans of RCM and
all technical information relating to products or systems developed or being
developed by RCM and all planned system improvements or changes.
(c) The provisions of this Section shall be
construed as an agreement independent of any other provision of this Agreement
and the existence of any claim or cause of action of Parandhaman against
Acquiree whether arising out of this Agreement
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or otherwise shall not constitute a defense to the enforcement by
Acquiree of the provisions of this paragraph.
(d) Parandhaman agrees that a violation of any of
the provisions of this Section 5.5(a) hereof will cause irreparable damage to
Acquiree the exact amount of which it will be impossible to ascertain and, for
that reason, Parandhaman agrees that Acquiree shall be entitled to injunctive
relief restraining any violation of this Section 5.5(a) hereof by Parandhaman
and any person, firm or corporation associated with him, such right to be
cumulative and in addition to all other remedies available to Acquiree by reason
of such violation.
5.6 Consents. RCM and Acquiree shall cooperate and use their
best efforts to obtain, prior to the Closing Date, all licenses, permits,
consents, approvals, authorizations, qualifications and orders of governmental
authorities and parties to contracts as are necessary for the consummation of
the transactions contemplated by this Agreement.
5.7 Filings. RCM and Acquiree shall, as promptly as
practicable, make any required filings, and RCM and Acquiree shall promptly make
any other required submissions, under any law, statute, order, rule or
regulation with respect to the transactions contemplated by this Agreement and
the related transactions and shall cooperate with each other with respect to the
foregoing.
5.8 All Reasonable Efforts. Subject to the terms and
conditions of this Agreement and to the fiduciary duties and obligations of the
board of directors of Acquiree and RCM, each of the parties to this Agreement
shall use all reasonable efforts to take, or cause to be taken, all action and
to do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations, or to remove any injunctions or other
impediments or delays, legal or otherwise, as soon as reasonably practicable, to
consummate the transactions contemplated by this Agreement.
5.9 Notification of Certain Matters. Except with respect to
the actions contemplated by this Agreement, Acquiree shall give prompt notice to
RCM, and RCM shall give prompt notice to Acquiree, of (a) the occurrence or
non-occurrence of any event, the occurrence or non-occurrence of which would
cause any of its representations or warranties in this Agreement to be untrue or
inaccurate in any material respect at or prior to the Closing Date, and (b) any
material failure of Acquiree, on the one hand, or RCM, on the other hand, as the
case may be, to comply with or satisfy any covenant, condition or agreement to
be complied with or satisfied by it under this Agreement; provided, however, the
delivery of any notice pursuant to this Section shall not limit or otherwise
affect the remedies available to the party receiving such notice under this
Agreement.
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5.10 Bonuses and Fees. Except as set forth on Schedule 5.10
any and all accrued bonuses or other compensation over and above historic
compensation levels which may be due and owing to the Acquiree Shareholder and
fees owing to Delhi And Dublin Ventures, Inc. shall be discharged and Acquiree
released from such obligations on or before the Closing Date.
5.11 Documents at Closing. Each party to this Agreement agrees
to execute and deliver on the Closing Date those documents identified in Section
6.2.
5.12 Interim Operations of RCM and Acquiree. Except as
contemplated by this Agreement, including any Exhibits and Schedules hereto, or
to the extent that the parties shall otherwise consent in writing or as
otherwise identified in Schedule 3.5 during the period from the date of this
Agreement and continuing until the Closing Date, each of RCM and Acquiree shall
carry on their respective businesses in the usual, regular and ordinary course
in substantially the same manner as heretofore conducted and, to the extent
consistent with such business, use all reasonable efforts to preserve intact
their present organizations of such business, keep available the services of its
present officers and employees and preserve its relationships with customers,
suppliers and others having business dealings with it and they shall not take
any action, or fail to take any action, that is reasonably likely to result in
any of their respective representations and warranties set forth in this
Agreement becoming untrue as though such representations and warranties are made
as of and on the Closing Date.
5.13 Prohibition on Trading in RCM Stock. The Acquiree and
Acquiree Shareholder acknowledge that the United States Securities Laws prohibit
any person who has received material non-public information concerning the
matters which are the subject matter of this Agreement from purchasing or
selling the securities of RCM, or from communicating such information to any
person under circumstances in which it is reasonably foreseeable that such
person is likely to purchase or sell securities of RCM. Accordingly, the
Acquiree Shareholder agrees that he will not purchase or sell any securities of
RCM, or communicate such material non-public information to any other person
under circumstances in which it is reasonably foreseeable that such person is
likely to purchase or sell securities of RCM, until no earlier than 72 hours
following the filing of a Current Report on Form 8-K with the SEC announcing the
Closing pursuant to this Agreement.
5.14 Independent Contractors. If, with respect to any period
prior to the Closing, any governmental authority (i) challenges the status as
independent contractors of any of Acquiree's contractors; or (ii) asserts the
applicability to Acquiree's employees or contractors of statutes, ordinances or
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regulations regulating the wages, working conditions and hours of employment of
such individuals, then after any final determination (with Acquiree Shareholder
having the right to control and pay the costs and counsel fees in connection
with any agency examination or determination) any payroll or other taxes and any
interest or penalties attributable thereto and any liability for additional
employment compensation and any fines or penalties connected therewith shall be
the obligation of the Acquiree Shareholder, and shall be paid to RCM within ten
(10) days thereafter or, at the option of RCM, shall be subject to
indemnification provided for in Section 9 hereafter.
5.15 Revocation of S Corporation Election. Prior to the
Closing Acquiree shall take any and all actions necessary to revoke its election
to be treated as an S Corporation pursuant to the Code.
6. THE CLOSING.
6.1. The Closing. The closing ("Closing") of the purchase and
sale and other transactions contemplated by this Agreement shall take place (a)
at the offices of Fineman & Bach, P.C., 1608 Walnut Street, 19th Floor,
Philadelphia, PA 19103, 1:30 p.m. local time on __________, 1998, or (b) at such
other time and place and on such other date as RCM and Acquiree or Acquiree
Shareholder shall agree. The date of the Closing is referred to herein as the
"Closing Date".
(a) Notwithstanding the actual date of the Closing
the purchase and sale and other transactions contemplated by this Agreement
shall be deemed to have occurred on the Effective Date.
6.2 Transactions at Closing. On the Closing Date, the
following transactions shall occur, all of such transactions being deemed to
occur simultaneously:
(a) the Acquiree and the Acquiree Shareholder will
deliver, or cause to be delivered, to RCM the following:
(i) stock certificates representing the
Acquiree Shares being surrendered hereunder, duly endorsed with stock powers
attached in blank;
(ii) all corporate records of the Acquiree,
including without limitation corporate minute books (which shall contain copies
of the Articles of Incorporation and Bylaws, as amended to the Closing Date),
stock books, stock transfer books, corporate seals; and such other corporate
books and records as may reasonably be requested by RCM and its counsel;
(iii) a certificate executed by the Acquiree
and the Acquiree Shareholder to the effect that all representations
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and warranties made by the Acquiree and the Acquiree Shareholder under this
Agreement are true and correct as of the Closing Date, as though originally
given to RCM on said date;
(iv) a certificate of good standing for the
Acquiree from the Secretary of the State of California, dated at or about the
Closing Date, to the effect that such corporation is in good standing under the
laws of such state;
(v) an incumbency certificate for the Acquiree
signed by all of the officers thereof dated at or about the Closing
Date;
(vi) certified Articles of Incorporation of the
Acquiree dated at or about the Closing Date and a copy of the Bylaws of the
Acquiree certified by the Secretary of the Acquiree dated at or about the
Closing Date;
(vii) certified resolutions from the Secretary
of the Acquiree dated at or about the Closing Date authorizing the
transactions contemplated under this Agreement;
(viii) an Employment Agreement described in
Exhibit "A" signed by _______________ and Acquiree;
(ix) an Employment Agreement described in
Exhibit "B) signed by ____________________ and Acquiree;
(x) an Employment Agreement substantially in
the form of Exhibit "A" signed by Acquiree and such Employees of
Acquiree as are selected by RCM;
(xi) resignations of all officers and directors
of Acquiree;
(xii) evidence satisfactory to RCM of the
termination of the Agreements described in Schedule 3.30 hereof.
(xiii) such documents as may be needed to
accomplish the Closing under the corporate laws of the states of
incorporation of RCM and Acquiree;
(xiv) such other instruments, documents and
certificates, if any, as are required to be delivered pursuant to the provisions
of this Agreement or that may be reasonably requested in furtherance of the
provisions of this Agreement;
(xv) an opinion of counsel for Acquiree and
Acquiree Shareholder in the form attached hereto as Exhibit "C";
(xvi) an election under Section 338(h) of the
Internal Revenue Code executed by Acquiree.
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(xvii) any documentation associated with the
transactions contemplated by Section 5.15 of this Agreement.
(b) RCM will deliver or cause to be delivered to the
Acquiree and the Acquiree Shareholder:
(i) a certificate of RCM's Secretary to the
effect that all representations and warranties made by RCM under this Agreement
are true and correct as of the Closing Date, as though originally given to the
Acquiree and the Acquiree Shareholder on said date;
(ii) certificate from the Secretary of State of
Nevada dated at or about the Closing Date that RCM is in good standing under the
laws of said state;
(iii) certified resolution of the Secretary of
RCM dated at or about the Closing Date authorizing the transactions
contemplated under this Agreement;
(iv) an opinion of counsel for RCM in the form
attached hereto as Exhibit "D".
(v) an Employment Agreement described in
Exhibit "A" signed by ______________ and Acquiree;
(vi) an Employment Agreement described in
Exhibit "B" signed by _____________ and Acquiree;
(vii) an Employment Agreement substantially in
the form of Exhibits "A" signed by RCM and such employees of
Acquiree as are selected by RCM;
(viii) such documents as may be needed to
accomplish the Closing under the corporate laws of the state of
incorporation of RCM and Acquiree;
(ix) such other instruments, documents and
certificates, if any, as are required to be delivered pursuant to the provisions
of this Agreement, or that may be reasonably requested in furtherance of the
provisions of this Agreement; and
(x) An election under Section 338(h) of the
Internal Revenue Code executed by RCM.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF ACQUIREE AND THE ACQUIREE
SHAREHOLDER. All obligations of the Acquiree and the Acquiree Shareholder under
this Agreement are subject to the fulfillment, prior to or on the Closing Date
(unless otherwise stated herein), of each of the following conditions, any one
or all of which may be waived by the Acquiree or the Acquiree Shareholder:
23
<PAGE>
7.1 The Board of Directors of RCM shall have approved the
execution of this Agreement and the transactions contemplated hereby.
7.2 The representations and warranties made by or on behalf of
RCM contained in this Agreement or in any certificate or document delivered to
the Acquiree or the Acquiree Shareholder pursuant to the provisions hereof at
the Closing Date shall be true in all respects at and as of the time of the
Closing Date as though such representations and warranties were made at and as
of such time.
7.3 RCM shall have performed and complied in all material
respects with all covenants, agreements and conditions required by this
Agreement to be performed or complied with by it prior to or at the Closing.
7.4 RCM shall have delivered all of the Schedules required
herein, and copies of the documents referred to therein, to the Acquiree and
such Schedules and documents shall have been reasonably acceptable to Acquiree
and Acquiree Shareholder.
7.5 There shall be delivered to the Acquiree and the Acquiree
Shareholder an officer's certificate of RCM to the effect that all of the
representations and warranties of RCM set forth herein are true and complete in
all material respects as of the Closing Date, and that RCM has complied in all
material respects with its covenants and agreements set forth herein that are
required to be complied with by the Closing Date.
7.6 No statute, rule, regulation, executive order, decree,
injunction or restraining order shall have been enacted, entered, promulgated or
enforced by any court of competent jurisdiction or governmental authority that
prohibits or restricts the consummation of the Closing and the other
transactions contemplated by this Agreement.
7.7 RCM shall have obtained the approval of its principal
lender of this Agreement and the transactions contemplated hereby.
7.8 RCM shall have executed an Employment Agreement with
_____________ and such other employees of Acquiree as may be selected by RCM
substantially in form and substance similar to that attached hereto as Exhibit
"A, respectively.
7.9 Acquiree Shareholder shall have completed prior to the
Closing Date, to their satisfaction, a due diligence review of the financial
condition, results of operations, properties, assets, liabilities, business or
prospects of RCM.
7.10 All director, shareholder, lender, lessor and other
parties' consents and approvals, as well as all filings with, and
24
<PAGE>
all necessary consents or approvals of, all federal state and local governmental
authorities and agencies, as are required of RCM under this Agreement,
applicable law or any applicable contract or agreement (all as contemplated by
this Agreement) to complete the Closing shall have been secured.
7.11 There shall have occurred no material adverse change to
the business, operations, assets, management, regulatory environment and
business prospects of RCM.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF RCM. All obligations of RCM
under this Agreement are subject to the fulfillment, prior to or on the Closing
Date, of each of the following conditions, any one or all of which may be waived
in writing by RCM:
8.1 The Board of Directors of the Acquiree shall have approved
the execution of this Agreement and the transactions contemplated hereby.
8.2 The representations and warranties made by the Acquiree
and the Acquiree Shareholder contained in this Agreement or in any certificate
or document delivered to RCM pursuant to the provisions hereof at the Closing
Date shall be true in all respects at and as of the time of the Closing Date as
though such representations and warranties were made at and as of such time.
8.3 The Acquiree and the Acquiree Shareholder shall have
performed and complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed or complied with by
them prior to or at the Closing.
8.4 The Acquiree shall have delivered all of the Schedules
required herein, and copies of the documents referred to therein, to RCM and
such Schedules and documents shall have been reasonably acceptable to RCM.
8.5 There shall be delivered to RCM an officer's certificate
of the Acquiree to the effect that all of the representations and warranties of
the Acquiree set forth herein are true and complete in all material respects as
of the Closing Date, and that the Acquiree has complied in all material respects
with its covenants and agreements set forth herein that are required to be
complied with by the Closing Date and there shall be delivered to RCM
certificates signed by the Acquiree Shareholder to the effect that the
representations and warranties of each made within this Agreement are true and
correct in all material respects.
8.6 RCM shall have completed prior to the Closing Date, to its
satisfaction, a due diligence review of the financial condition, results of
operations, properties, assets, liabilities, business or prospects of the
Acquiree.
25
<PAGE>
8.7 RCM shall have obtained the approval of its principal
lender of this Agreement and the transactions contemplated thereby.
8.8 All director, shareholder, lender, lessor and other
parties' consents and approvals, as well as all filings with, and all necessary
consents or approvals of, all federal state and local governmental authorities
and agencies, as are required of Acquiree or the Acquiree Shareholder under this
Agreement, applicable law or any applicable contract or agreement (all as
contemplated by this Agreement) to complete the Closing shall have been secured.
8.9 No statute, rule, regulation, executive order, decree,
injunction or restraining order shall have been enacted, entered, promulgated or
enforced by any court of competent jurisdiction or governmental authority that
prohibits or restricts the consummation of the Closing and the other
transactions contemplated by this Agreement.
8.10 Acquiree's Closing Net Operating Income shall not be less
than $1,000,000.
8.11 Such employees of Acquiree as may be selected by RCM
shall each have executed an Employment Agreement substantially in form and
substance similar to that attached hereto as Exhibits "A".
8.12 Acquiree and the Acquiree Shareholder shall take all
actions necessary to effect the resignation of all of the current directors and
officers of Acquiree in the manner identified in Section 6.2(a)(xi).
8.13 Except as contemplated or as required by this Agreement,
there shall have occurred no material adverse change to the business,
operations, assets, management, regulatory environment and business prospects of
Acquiree.
9. INDEMNIFICATION.
9.1 Acquiree Shareholder. The Acquiree Shareholder shall
indemnify, defend and hold harmless RCM from and against any and all demands,
claims, actions or causes of action, judgments, assessments, losses,
liabilities, damages or penalties and reasonable attorneys' fees and related
disbursements (collectively, "Claims") incurred by RCM which arise out of or
result from a misrepresentation, breach of warranty, or breach of any covenant
of Acquiree or the Acquiree Shareholder contained herein or in the Schedules
annexed hereto or in any other documents or instruments furnished by the
Acquiree or the Acquiree Shareholder pursuant hereto or in connection with the
transactions contemplated hereby or thereby.
26
<PAGE>
9.2 RCM. RCM shall indemnify, defend and hold harmless
Acquiree and Acquiree Shareholder from and against any and all Claims incurred
by the Acquiree and/or any Acquiree Shareholder which arise out of or result
from misrepresentation, breach of warranty or breach of any covenant of RCM
contained herein or in the Schedules annexed hereto or in any other documents or
instruments furnished by RCM pursuant hereto or in connection with the
transactions contemplated hereby or thereby.
9.3 Methods of Asserting Claims for Indemnification. All
claims for indemnification under this Agreement shall be asserted as follows:
(a) Third Party Claims. In the event that any Claim
for which a party (the "Indemnitee") would be entitled to indemnification under
this Agreement is asserted against or sought to be collected from the Indemnitee
by a third party the Indemnitee shall promptly notify the other party (the
"Indemnitor") of such Claim, specifying the nature thereof, the applicable
provision in this Agreement or other instrument under which the Claim arises,
and the amount or the estimated amount thereof (the "Claim Notice"). The
Indemnitor shall have 30 days (or, if shorter, a period to a date not less than
10 days prior to when a responsive pleading or other document is required to be
filed but in no event less than 10 days from delivery or mailing of the Claim
Notice) (the "Notice Period") to notify the Indemnitee (i) whether or not it
disputes the Claim and (ii) if liability hereunder is not disputed, whether or
not it desires to defend the Indemnitee. If the Indemnitor elects to defend by
appropriate proceedings, such proceedings shall be promptly settled or
prosecuted to a final conclusion in such a manner as to minimize any risk of
additional damage to the Indemnitee; and all costs and expenses of such
proceedings and the amount of any judgment shall be paid by the Indemnitor.
If the Indemnitee desires to participate in, but not
control, any such defense or settlement, it may do so at its sole cost and
expense. If the Indemnitor has disputed the Claim, as provided above, and shall
not defend such Claim, the Indemnitee shall have the right to control the
defense or settlement of such Claim, in its sole discretion, and shall be
reimbursed by the Indemnitor for its reasonable costs and expenses of such
defense if it shall thereafter be found that such Claim was subject to
indemnification by the Indemnitor hereunder.
(b) Non-Third Party Claims. In the event that the
Indemnitee should have a Claim for indemnification hereunder which does not
involve a Claim being asserted against it or sought to be collected by a third
party, the Indemnitee shall promptly send a Claim Notice with respect to such
Claim to the Indemnitor. If the Indemnitor does not notify the Indemnitee within
the Notice Period that it disputes such Claim, the Indemnitor shall pay the
amount
27
<PAGE>
thereof to the Indemnitee. If the Indemnitor disputes the amount of such Claim,
the controversy in question shall be submitted to arbitration pursuant to
Section 10 hereof.
(c) Cooperation of Parties. If either party chooses
to defend or participate in the defense of any liability, it shall have the
right to receive from the other party, subject to any restriction of applicable
law or that may be necessary to preserve the privilege of attorney-client
communications, any books, records or other documents within such other party's
control that are necessary or appropriate for such defense.
9.6 Right of Set Off. The amount of any Claims as to which RCM
is entitled to indemnification hereunder may be set off by RCM first against the
Deferred Consideration and, to the extent the amount of such Deferred
Compensation is insufficient to cover such Claims, then against amounts
remaining payable as Additional Purchase Consideration and/or the Post Closing
Consideration.
10. Arbitration. If a dispute arises as to interpretation of this
Agreement, it shall be decided finally by three arbitrators in an arbitration
proceeding conforming to the Rules of the American Arbitration Association
applicable to commercial arbitration. The arbitrators shall be appointed as
follows: one by RCM, one by the Acquiree Shareholder, and the third by the said
two arbitrators, or, if they cannot agree, then the third arbitrator shall be
appointed by the American Arbitration Association. The third arbitrator shall be
chairman of the panel and shall be impartial. The arbitration shall take place
in Philadelphia, Pennsylvania. The decision of a majority of the arbitrators
shall be conclusively binding upon the parties and final, and such decision
shall be enforceable as a judgment in any court of competent jurisdiction. Each
party shall pay the fees and expenses of the arbitrator appointed by it, its
counsel and its witnesses. The parties shall share equally the fees and expenses
of the impartial arbitrator.
11. Termination. This Agreement may be terminated and the
transactions contemplated by this Agreement may be abandoned at any
time prior to the Closing Date:
(a) by mutual written consent of RCM and Acquiree;
(b) by either of RCM and Acquiree:
(i) if the Closing shall not have occurred by the
Closing Date unless such date is extended by the mutual written agreement of RCM
and Acquiree, and in such event, only until the date the Closing Date has been
so extended; provided, however, that the right to terminate this Agreement under
this Section 11(b)(i) shall not be available to any party whose failure to
fulfill any obligation under this Agreement has been the cause of, or resulted
28
<PAGE>
in, the failure of the Closing Date to occur on or before that
date; or
(ii) if any court of competent jurisdiction, or any
governmental body, regulatory or administrative agency or commission having
appropriate jurisdiction shall have issued an order, decree or filing or taken
any other action restraining, enjoining or otherwise prohibiting the
transactions contemplated by this Agreement and such order, decree, ruling or
other action shall have become final and non-appealable.
(c) If any party hereto shall default in the observance or in
the due and timely performance of any of the Covenants of the parties contained
in Section 5 of this Agreement, the non-defaulting party may, upon written
notice, terminate this Agreement and in that event, the defaulting party shall
indemnify, hold harmless and assume full and complete responsibility for any and
all expenses of the non-defaulting party incurred in this transaction, without
prejudice to its or their rights and remedies available under law, including the
right to recover expenses, costs and other damages. Notwithstanding the
foregoing, the non-defaulting party may elect to waive such breach by the
defaulting party and proceed with the Closing, thereby waiving any right to
damages as a result of such breach.
12. NOTICES. All notices or other communications required or permitted
hereunder shall be in writing and shall be deemed to have been duly given if
delivered in person or sent by overnight delivery, confirmed telecopy or prepaid
first class registered or certified mail, return receipt requested, to the
following addresses, or such other addresses as are given to the other parties
to this Agreement in the manner set forth herein:
12.1 If to RCM, to:
Mr. Leon Kopyt
Chief Executive Officer
RCM Technologies, Inc.
2500 McClellan Avenue, Suite 350
Pennsauken, New Jersey 08109-4613
With a copy to:
Norman S. Berson, Esquire
Fineman & Bach, P.C.
1608 Walnut Street, 19th Floor
Philadelphia, PA 19103
Telephone No. (215) 893-8710
Telecopy No. (215) 893-8719
12.2 If to the Acquiree Shareholder, to:
29
<PAGE>
Gopal Parandhaman
9341 Tenabo Court
Sacramento, CA 95827
12.3 If to the Acquiree, to:
Global Technology Solutions Inc.
9323 Tech Center Drive
Suite 1000
Sacramento, CA 95826
With a copy to:
Any such notices shall be effective when delivered in person or sent by
telecopy, one business day after being sent by overnight delivery or three
business days after being sent by registered or certified mail. Any of the
foregoing addresses may be changed by giving notice of such change in the
foregoing manner, except that notices for changes of address shall be effective
only upon receipt.
13. MISCELLANEOUS.
13.1 Further Assurances. At any time, and from time to time,
after the Closing Date, each party will execute such additional instruments and
take such further action as may be reasonably required by the other party to
confirm or perfect title to any property transferred hereunder or otherwise to
carry out the intent and purposes of this Agreement.
13.2 Nature of Representations and Warranties. All of the
parties hereto are executing and carrying out the provisions of this Agreement
in reliance on the representations, warranties, covenants and agreements
contained in this Agreement or at the Closing of the transactions herein
provided for, and any investigation that they might have made or any other
representations, warranties, covenants, agreements, promises or information,
written or oral, made by the other party or parties or any other person shall
not be deemed a waiver of any breach of any such representation, warranty,
covenant or agreement.
13.3 Survival of Representations. All covenants, agreements,
representations and warranties made herein shall survive the Closing Date. All
covenants and agreements by or on behalf of the parties hereto that are
contained or incorporated in
30
<PAGE>
this Agreement shall bind and inure to the benefit of the successors and assigns
of all parties hereto.
13.4 Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof.
It supersedes all prior negotiations, letters and understandings relating to the
subject matter hereof.
13.5 Amendment. This Agreement may not be amended,
supplemented or modified in whole or in part except by an instrument in writing
signed by the party or parties against whom enforcement of any such amendment,
supplement or modification is sought.
13.6 Assignment. This Agreement may not be assigned by any
party hereto without the prior written consent of the other parties.
13.7 Choice of Law. This Agreement shall be interpreted,
construed and enforced in accordance with the laws of the State of New Jersey.
13.8 Headings. The section and subsection headings in this
Agreement are inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.
13.9 Number and Gender, Words used in this Agreement,
regardless of the number and gender specifically used, shall be deemed and
construed to include any other number, singular or plural, and any other gender,
masculine, feminine or neuter, as the context indicated is appropriate.
13.10 Construction. The parties hereto and their respective
legal counsel participated in the preparation of this Agreement, therefore, this
Agreement shall be construed neither against nor in favor of any of the parties
hereto, but rather in accordance with the fair meaning thereof.
13.11 Effect of Waiver. The failure of any party at any time
or times to require performance of any provision of this Agreement will in no
manner affect the right to enforce the same. The waiver by any party of any
breach of any provision of this Agreement will not be construed to be a waiver
by any such party of any succeeding breach of that provision or a waiver by such
party of any breach of any other provision.
13.12 Severability. The invalidity, illegality or
unenforceability of any provision or provisions of this Agreement will not
affect any other provision of this Agreement, which will remain in full force
and effect, nor will the invalidity, illegality or unenforceability of a portion
of any provision of this Agreement affect the balance of such provision. In the
event
31
<PAGE>
that any one or more of the provisions contained in this Agreement or any
portion thereof shall for any reason be held to be invalid, illegal or
unenforceable in any respect, this Agreement shall be reformed, construed and
enforced as if such invalid, illegal or unenforceable provision had never been
contained herein.
13.13 Binding Nature. This Agreement will be binding upon and
will inure to the benefit of any successor or successors of the parties hereto.
13.14 No Third-Party Beneficiaries. No person shall be deemed
to possess any third-party beneficiary right pursuant to this Agreement. It is
the intent of the parties hereto that no direct benefit to any third party is
intended or implied by the execution of this Agreement.
13.15 Counterparts. This Agreement may be executed in one or
more counterparts, each of which will be deemed an original and all of which
together will constitute one and the same instrument.
13.16 Facsimile Signature. This Agreement may be executed and
accepted by facsimile signature and any such signature shall be of the same
force and effect as an original signature.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
RCM TECHNOLOGIES, INC.
ATTEST:
By: By:
Name:
Title:
GLOBAL TECHNOLOGY SOLUTIONS INC.
ATTEST:
By: By:
Name:
Title:
GOPAL PARANDHAMAN
32
<PAGE>
33
<PAGE>
NORTHERN TECHNICAL SERVICES, INC.
Financial Statements
November 30, 1997
<PAGE>
NORTHERN TECHNICAL SERVICES, INC.
TABLE OF CONTENTS
- -----------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
<S> <C>
AUDITOR'S REPORT 1
FINANCIAL STATEMENTS
YEAR ENDED NOVEMBER 30, 1997
Balance Sheets 2
Statement of Income 3
Statement of Stockholders' Equity 4
Statement of Cash Flows 5
Notes to Financial Statements 6-7
</TABLE>
<PAGE>
Frank B. Morris
Certified Public Accountant
20 Montgomery Ave. Unit F
Bala Cynwyd, PA 19004
Tel: 610-667-6337
Fax: 610-667-3465
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Northern Technical Services, Inc.
I have audited the accompanying balance sheet of Northern Technical Services,
Inc. as of November 30, 1997, and the related statement of income, changes in
stockholders' equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. My responsibility
is to express an opinion on these financial statements based on our audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Northern Technical Services, Inc.
as of November 30, 1997, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
/s/Frank B. Morris, CPA
May 8, 1998
Bala Cynwyd, PA
1
<PAGE>
NORTHERN TECHNICAL SERVICES, INC.
BALANCE SHEET
NOVEMBER 30, 1997
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
CURRENT ASSETS
<S> <C>
Cash and cash equivalents $ 1,375,237
Trade receivables 1,281,615
Prepaid expenses 12,357
------
Total current assets 2,669,209
FURNITURE AND EQUIPMENT, AT COST:
Furniture and equipment 710,194
Less accumulated depreciation 457,311
252,883
OTHER ASSETS:
Deposits 23,268
Cash surrender value of officer's life insurance 700,821
-------
724,089
TOTAL $ 3,646,181
= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable 46,910
Accrued salaries 382,622
Accrued payroll taxes and other withholdings 106,763
Other accrued expenses 123,927
Dividends payable 368,193
-------
Total current liabilities 1,028,415
DEFERRED COMPENSATION 340,215
SHAREHOLDERS' EQUITY:
Common stock:
Class A, $.01 par value; authorized 4,000,000
shares; issued and outstanding 1,968 shares 20
Class B, $.01 par value; authorized 1,000,000
shares; issued and outstanding 50,000 shares 500
Additional paid-in capital 74,296
Retained earnings 2,202,735
---------
2,277,551
TOTAL $ 3,646,181
= =========
</TABLE>
See notes to financial statements.
2
<PAGE>
NORTHERN TECHNICAL SERVICES, INC.
<TABLE>
<CAPTION>
STATEMENT OF INCOME
YEAR ENDED NOVEMBER 30, 1997
- ---------------------------------------------------------------------
<S> <C>
Revenues $ 12,569,583
Direct expense 9,479,033
Gross profit 3,090,550
Operating expense 2,625,229
Income from operations 465,321
Other income - Investment income 53,514
------
Net income $ 518,835
= =======
</TABLE>
See notes to financial statements.
3
<PAGE>
NORTHERN TECHNICAL SERVICES, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
YEAR ENDED NOVEMBER 30, 1997
- -----------------------------------------------------------------------
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Retained
Shares Amount Shares Amount Capital Earnings
<S> <C> <C> <C> <C> <C> <C>
Balance, beginning of year 1,968 $ 20 50,000 $ 500 $ 44,763 $ 2,302,350
Capital contribution 29,533
Dividends declared ( 618,450)
Net Income 518,835
Balance, end of year 1,968 $ 20 50,000 $ 500 $ 74,296 $ 2,202,735
===== ===== ====== ====== ========= ===========
</TABLE>
See notes to financial statements.
4
<PAGE>
NORTHERN TECHNICAL SERVICES, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED NOVEMBER 30, 1997
- -----------------------------------------------------------------------
<TABLE>
<CAPTION>
OPERATING ACTIVITIES:
<S> <C>
Net income $ 518,835
Adjustments to reconcile net income to net cash (used in) provided by
operating activities:
Depreciation 104,580
Changes in assets and liabilities:
Receivables ( 153,064)
Prepaid expenses 28,341
Accounts payable ( 21,990)
Accrued payroll taxes 6,955
Accrued wages and bonus 52,041
Deferred compensation 24,833
Other accrued expenses 87,952
------
Net cash provided by operating activities 648,483
-------
INVESTING ACTIVITIES:
Increase in cash surrender value of life insurance ( 94,894)
Additions to furniture and equipment ( 203,716)
Decrease in deposits 79,895
------
Net cash used in investing activities ( 218,715)
-------
FINANCING ACTIVITIES:
Capital contributions 29,533
Dividends paid ( 304,823)
-------
Net cash used in financing activities ( 275,290)
-------
NET INCREASE IN CASH 154,478
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,220,759
---------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,375,237
= =========
</TABLE>
See notes to financial statements.
5
<PAGE>
NORTHERN TECHNICAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1997
- ----------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Furniture and Equipment - Furniture and equipment are recorded at cost.
Maintenance and repairs are charged to operations as incurred and renewals
and betterments are capitalized. Depreciation is calculated over the
estimated useful lives by accelerated methods.
Cash and Cash Equivalents - The Company considers all highly liquid
investments purchased with maturities of three months or less to be cash
equivalents.
Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
2. DEFERRED COMPENSATION AGREEMENT
The Company has a deferred compensation agreement with a
stockholder/officer. The obligation under this agreement is being accrued
over the remaining working life of the stockholder/officer. Expense related
to this agreement was $24,833 for the year ended November 30, 1997.
3. S CORPORATION ELECTION
The Company and its Stockholders have elected for Federal and State income
tax purposes to be treated as a S Corporation under provisions of the
Internal Revenue Code. Accordingly the Company's taxable income is
includable in the individual tax returns of its stockholders and no
provision for income taxes is included in the accompanying financial
statements.
4. RELATED PARTY TRANSACTIONS
The Company leases it office facility in Milwaukee from its majority
stockholder. The lease calls for monthly payments of $7,800 to January,
1998. Under terms of the lease the Company is responsible for real estate
taxes, insurance, maintenance and utilities related to the facility. The
total for the year ended November 30, 1997 was $93,600.
6
<PAGE>
NORTHERN TECHNICAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOVEMBER 30, 1997
- -----------------------------------------------------------------------------
5. STOCKHOLDERS' EQUITY
The holders of the Class A common stock have the right to vote as a
separate class in electing 25% of the authorized Board of Directors.
The Company has entered into stock repurchase agreements with its Class A
stockholders. Under the terms of the agreements the Company has first right
of refusal to purchase all of the Class A common stock and is obligated to
purchase these shares upon termination or death of the stockholders. The
purchase price of the stock is based on an agreed upon formula.
The Company is obligated to purchase shares tendered to it at the price
determined by the agreement in the event that 50% of the combined voting
power of the then outstanding voting securities is acquired by someone
other than the members of the Control Group (as defined in the agreement).
6. EMPLOYEE BENEFITS
The Company has employment contracts with certain shareholders covering
wages, benefits and severance. Under terms of the agreements the
shareholders are entitled to receive salary continuation after termination
of employment subject to giving notice to the Company.
The Company has a defined contribution retirement plan (401(k)) for all
employees meeting eligibility requirements. The employee may contribute up
to 20% of wages (subject to federal limitations). The Company makes
matching contributions of 25% up to the first 5% of wages contributed. All
participants are 100% vested. Expense related to the plan for the year
ended November 30, 1997 was approximately $34,000.
7. LEASES
The Company leases its office facilities in Green Bay and Mosinee under
operating lease agreements that expire in May, 1999 and December, 2000
respectively. In addition the Company leases computer and transportation
equipment under operating leases expiring January, 1997 to March, 1999.
Aggregate minimum rental commitments at November 30, 1997 are as follows:
1998 - $54,000, 1999 - $59,000, 2000 - $50,242, 2001 - $8,400.
7
<PAGE>
GLOBAL TECHNOLOGY SOLUTIONS, INC.
FINANCIAL STATEMENTS
December 31, 1997
<PAGE>
Frank B. Morris
Certified Public Accountant
20 Montgomery Ave. Unit F
Bala Cynwyd, PA 19004
Tel: 610-667-6337
Fax: 610-667-3465
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Global Technology Solutions, Inc.
I have audited the accompanying balance sheets of Global Technology Solutions,
Inc. as of December 31, 1997, and the related statements of income, changes in
stockholders' equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. My responsibility
is to express an opinion on these financial statements based on our audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Global Technology Solutions, Inc.
as of December 31, 1997, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
/s/Frank B. Morris, CPA
May 6, 1998
Bala Cynwyd, PA
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<TABLE>
<CAPTION>
Global Technology Solutions, Inc.
BALANCE SHEETS
December 31, 1997
ASSETS
Current assets
<S> <C>
Cash and cash equivalents $ 96,755
Trade receivables 1,256,201
Prepaid expenses 19,184
------
Total current assets 1,372,140
Equipment
Equipment 49,397
Furniture and fixtures 16,350
Net equipment 33,047
Other assets
Deposits 7,590
Advances 54,390
61,980
$ 1,467,167
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Note payable - bank $ 100,000
Accounts payable 74,908
------
Total current liabilities 174,908
Shareholders' equity
Common stock of no par value; authorized 1,000 shares,
issued and outstanding 100 shares 42,800
Retained earnings 1,249,459
---------
Total stockholders' equity 1,292,259
$ 1,467,167
</TABLE>
The accompanying notes are an integral part of these
financial statements.
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<PAGE>
<TABLE>
<CAPTION>
GLOBAL TECHNOLOGY SOLUTIONS, INC.
STATEMENTS OF INCOME
Year Ended December 31, 1997
<S> <C>
Net sales $ 5,750,116
Direct costs 4,037,818
Gross profit 1,712,298
Selling, general and administrative 690,199
Income from operations 1,022,099
Other income (expense)
Interest income 4,482
Interest expense ( 4,733 )
-----
( 251 )
---
Income before income taxes 1,021,848
Income taxes 2,718
Net income $ 1,019,130
= =========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
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<PAGE>
<TABLE>
<CAPTION>
GLOBAL TECHNOLOGY SOLUTIONS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Year Ended December 31, 1997
Common Stock Retained
Shares Amount Earnings
<S> <C> <C> <C>
Balance, beginning of year 100 $ 42,800 $ 872,175
Shareholder distributions ( 641,846 )
Net income 1,019,130
Balance, end of year 100 $ 42,800 $ 1,249,459
==================================== =========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
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<PAGE>
GLOBAL TECHNOLOGY SOLUTIONS, INC.
STATEMENT OF CASH FLOWS
Year Ended December 31, 1997
<TABLE>
<CAPTION>
Cash flows from operating activities:
<S> <C>
Net income $ 1,019,130
- ---------
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation 6,127
Increase in trade receivables ( 557,629)
Increase in accounts payable
and accrued expenses 240,280
Net cash provided by operating activities 707,908
Cash flows from investing activities
Increase in deposits ( 4,590)
Increase in advances ( 25,487)
------
Net cash used in investing activities ( 30,077)
------
Cash flows from financing activities
Shareholder distributions ( 641,846)
Principal payments on notes payable ( 23,623)
------
Net cash used by financing activities 665,469
-------
Net increase in cash 12,362
Cash, beginning of year 84,393
Cash, end of year $ 96,755
= ======
</TABLE>
The accompanying notes are an integral part of these
financial statements.
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<PAGE>
GLOBAL TECHNOLOGY SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
1. Summary of Significant Accounting Policies
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Concentration of Credit Risks
The Company maintains its cash in bank deposit accounts which, at times, may
exceed federally insured limits. The Company has not experienced any losses in
such accounts. The Company believes it is not exposed to any significant risk on
cash.
Depreciation
The Company charges to operating expenses annual amounts of depreciation
which allocates the cost of equipment over its estimated useful lives. The
Company uses the modified accelerated cost recovery system method for
determining the annual charge for depreciation. The depreciation expense
for the year ended December 31, 1997 $6,127.
S Corporation Election
The Company and its Stockholders have elected for Federal and State income
tax purposes to be treated as a S Corporation under provisions of the
Internal Revenue Code. Accordingly the Company's taxable income is
includable in the individual tax returns of its stockholders and no
provision for income taxes is included in the accompanying financial
statements.
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<PAGE>
GLOBAL TECHNOLOGY SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
2. Total Rental Expense
The Company rents office space under the terms of an operating lease. The
lease provides for a monthly rental of $2,000 and expires June, 1999. The
total rental expense included in the income statement for the year ended
December 31, 1997 was $25,375.
3. Cash Flow Information
Cash paid for interest and income taxes was as follows:
Interest $ 4,733
= =====
Income taxes $ 2,718
= =====
4. Disclosure About Fair Value of Financial Instruments
The Company's financial instruments consist of cash, short-term trade
receivables and payables. The carrying value of all instruments approximate
their fair value.
5. Subsequent Events
On February 2, 1998, the shareholders of the Company sold all of the
outstanding shares of the Company.
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