AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, VIA EDGAR,
ON APRIL 29, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------------
RCM TECHNOLOGIES, INC.
(Exact Name of Registrant as specified in its charter)
NEVADA 95-1480559
(State or Other jurisdiction of (I.R.S. Employer
incorporation or organization) (Identification Number)
2500 MCCLELLAN AVENUE
SUITE 350
PENNSAUKEN, NEW JERSEY 08109-4613
(609) 486-1777
Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
---------------------------
LEON KOPYT
2500 MCCLELLAN AVENUE
SUITE 350
PENNSAUKEN, NEW JERSEY 08109-4613
(609) 486-1777
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------------------
Please send a copy of all correspondence to:
MARK K. KESSLER MICHAEL J. SILVER
RICHARD A. SILFEN WALTER G. LOHR, JR.
WOLF, BLOCK, SCHORR AND SOLIS-COHEN LLP HOGAN & HARTSON L.L.P.
TWELFTH FLOOR PACKARD BUILDING 111 SOUTH CALVERT STREET
111 SOUTH 15TH STREET SUITE 1600
PHILADELPHIA, PENNSYLVANIA 19102 BALTIMORE, MARYLAND 21202
(215) 977-2000 (410) 659-2700
---------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable following effectiveness of this Registration Statement.
---------------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act, please check the following box. / /
---------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
| PROPOSED | PROPOSED |
AMOUNT | MAXIMUM | MAXIMUM | AMOUNT OF
TITLE OF EACH CLASS OF TO BE | OFFERING PRICE | AGGREGATE | REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED (1) | PER SHARE (2) | OFFERING PRICE | FEE (2)
Common Stock, | | |
$0.05 par value.................. 3,105,000 | $23.8125 | $73,937,813 | $21,812
</TABLE>
(1) Includes 405,000 shares subject to the Underwriters' over-allotment option.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933, as amended, on the
basis of the average of the high and low prices reported on the Nasdaq National
Market on April 27, 1998.
---------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
SUBJECT TO COMPLETION
APRIL 29, 1998
2,700,000 SHARES
RCM TECHNOLOGIES, INC.
COMMON STOCK
------------------------
Of the 2,700,000 shares of Common Stock offered hereby (the "Offering"),
2,509,980 shares are being sold by RCM Technologies, Inc. (the "Company") and
190,020 shares are being sold by certain stockholders of the Company (the
"Selling Stockholders"). The Company will not receive any proceeds from the sale
of shares by the Selling Stockholders. See "Principal and Selling Stockholders."
The Company's Common Stock is traded on the Nasdaq National Market under the
symbol "RCMT." On April 28, 1998, the last reported sale price of the Common
Stock was $23.00 per share. See "Price Range of Common Stock and Dividend
Policy."
------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 7.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<S> <C> <C> <C> <C>
| PRICE | UNDERWRITING | | PROCEEDS TO
| TO | DISCOUNTS AND | PROCEEDS TO | SELLING
| PUBLIC | COMMISSIONS | COMPANY (1) | STOCKHOLDERS
Per Share....................... | $ | $ | $ | $
Total(2)........................ | $ | $ | $ | $
</TABLE>
(1) Before deducting expenses of the Offering, all of which will be payable by
the Company, estimated at $600,000.
(2) The Company has granted the Underwriters a 30-day option to purchase up to
405,000 additional shares of Common Stock solely to cover over-allotments,
if any. To the extent that the option is exercised, the Underwriters will
offer the additional shares at the Price to Public shown above. If the
option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $ , $
and $ , respectively. See "Underwriting."
------------------------
The shares of Common Stock are offered by the several Underwriters, subject to
prior sale, when, as and if delivered to and accepted by them, and subject to
the right of the Underwriters to reject any order in whole or in part. It is
expected that the delivery of the shares of Common Stock offered hereby will be
made at the offices of BT Alex. Brown Incorporated, Baltimore, Maryland on or
about , 1998.
BT ALEX. BROWN
BANCAMERICA ROBERTSON STEPHENS
LEGG MASON WOOD WALKER
INCORPORATED
THE DATE OF THIS PROSPECTUS IS , 1998
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK. SUCH
TRANSACTIONS MAY INCLUDE THE PURCHASE OF SHARES OF COMMON STOCK FOLLOWING THE
OFFERING TO COVER A SYNDICATE SHORT POSITION IN THE COMMON STOCK OR MAINTAIN THE
PRICE OF THE COMMON STOCK, AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION
OF THESE ACTIVITIES SEE "UNDERWRITING."
IN CONNECTION WITH THE OFFERING, CERTAIN UNDERWRITERS AND CERTAIN SELLING
GROUP MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON
STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M
UNDER THE SECURITIES EXCHANGE ACT OF 1934 (THE "EXCHANGE ACT"). SEE
"UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the detailed
information and financial statements (including the notes thereto) appearing
elsewhere and incorporated by reference in this Prospectus. Unless otherwise
indicated, the information in this Prospectus does not give effect to the
exercise of the Underwriters' over-allotment option. Investors should carefully
consider the information set forth under the caption "Risk Factors." Unless the
context otherwise requires, the "Company" or "RCM" refers to RCM Technologies,
Inc. and its wholly owned subsidiaries. References to fiscal years are to the
respective fiscal years of the Company which end October 31.
THE COMPANY
The Company is a multi-regional provider of information technology and
other professional staffing services through its 41 branch offices located in 17
states. The Company's Information Technology Group offers responsive, timely and
comprehensive information technology staffing solutions to support the entire
systems applications development and implementation process. The Company's
information technology professionals have expertise in a variety of technical
disciplines, including enterprise software, network communications, database
design and development and client server migration. The Company also offers
professional engineering staffing and project management services, through its
Professional Engineering Group, for a variety of engineering disciplines, such
as aeronautical, electro-mechanical, nuclear and computer science. As of April
24, 1998, the Company employed approximately 1,000 information technology and
approximately 500 professional engineering personnel. The Company is also
engaged in the specialty healthcare and general support sectors of the staffing
industry. During fiscal 1997, the Company placed employees with approximately
1,150 customers within a variety of industries. Representative customers include
AT&T, Bell Atlantic, Chase Manhattan Bank, Liberty Mutual Insurance, MCI, Merck,
Merrill Lynch, Northeast Utilities and 3M.
Since fiscal 1995, the Company has pursued an aggressive growth strategy
designed to transition the Company's business from general support staffing
services to higher growth, higher margin professional staffing services,
particularly information technology. In fiscal 1995, approximately half of the
Company's revenues were derived from general support staffing and the Company
did not offer information technology services. For the three months ended
January 31, 1998, information technology services contributed 57% of the
Company's revenues. Since the beginning of fiscal 1995, the Company has acquired
13 information technology or professional engineering staffing services
companies, aggregating $126.7 million in revenues for their respective latest
twelve months prior to acquisition. Through these acquisitions, the Company has
achieved substantial revenue growth, improved its operating profitability and
repositioned itself as a provider of information technology and other
professional staffing services. The Company's revenues increased from $26.9
million in fiscal 1995 to $114.0 million in fiscal 1997, a compound annual
growth rate of 106%. For the same period, the Company's operating income
increased from $857,000 to $8.5 million, and its operating margin improved from
3.2% to 7.4%. On a pro forma basis (as if all fiscal 1997 and fiscal 1998
acquisitions occurred at the beginning of fiscal 1997), the Company's fiscal
1997 revenues, operating income and operating margins were $165.5 million, $13.3
million and 8.0%, respectively. As a result of this repositioning, the Company
now operates in the fastest growing sector of the staffing industry and is
experiencing strong internal growth. For the three months ended January 31,
1998, the Company's internal revenue growth was 34% over the comparable
prior-year period.
3
<PAGE>
The staffing industry has experienced rapid growth in recent years.
According to the Staffing Industry Report, revenues in the domestic temporary
staffing industry have grown from $24.6 billion in 1992 to an estimated $53.7
billion in 1997, a five-year compound annual growth rate of 17%. Temporary
staffing is now considered an effective tool for managing a company's investment
in human resources. Temporary staffing allows companies to expand and contract
employee levels based on current needs, thus converting fixed labor costs into
controllable variable costs while still maintaining a high degree of employee
skill level. Within the staffing industry, information technology staffing
services is the fastest growing sector, having increased from approximately $5.1
billion in 1992 to approximately $14.9 billion in 1997, a five-year compound
annual growth rate of 24%. This growth is a result of numerous factors,
including (i) the increasing importance to companies of information technology,
(ii) the need for companies to continually update and integrate hardware
platforms and software applications, (iii) the difficulties companies have in
sustaining the requisite information technology expertise internally, (iv) the
acceptance by companies of outsourcing information technology needs and (v) an
increasing preference by technical professionals to operate independently,
motivated by a desire to increase personal flexibility and work on a variety of
technologies and projects. The temporary staffing industry is highly fragmented,
with over 7,000 staffing companies in the United States, and is undergoing
significant consolidation.
The Company's objective is to become a leading provider of information
technology and other professional staffing services in selected high growth,
high density regional markets throughout the United States. The Company intends
to achieve this objective by (i) focusing on information technology and other
professional staffing services, (ii) strengthening its market presence in
selected regions throughout the country, (iii) making strategic acquisitions in
existing and new regions, (iv) promoting internal growth and (v) migrating its
product offerings to higher value-added services.
The Company typically enters a region by acquiring a profitable, growing
provider of information technology or other professional staffing services,
operated by a management team with an interest in joining the Company after the
acquisition. The Company believes its entrepreneurial and decentralized
operating environment is a key attribute in its ability to attract and close
acquisitions, retain the management of acquired companies and promote internal
growth. The Company builds on the names, reputations and customer relationships
of acquired companies and shares operating policies, procedures and expertise
among its branches to enhance operating efficiencies. The Company also focuses
on quickly integrating the administrative functions of acquired companies in
order to realize administrative savings and synergies, integrate and establish
financial controls and relieve management of administrative burdens so that they
can focus on growing sales.
The Company plans to promote internal growth by continuing to cross-sell
its existing mix of specialty professional services and increasing its revenues
from higher margin project management and consulting services. As an example of
cross-selling, the Company has successfully provided the services of its
Information Technology Group to the utility industry customer base of its
Professional Engineering Group. The Company believes the utilities industry is
in the early stages of a period of deregulation which will increase the
industry's need for information technology services. Additionally, the Company
plans to use the project management expertise of its Professional Engineering
Group to assist its Information Technology Group in expanding its sales of
higher value-added project management and consulting services.
The executive offices of the Company are located at 2500 McClellan Avenue,
Suite 350, Pennsauken, New Jersey 08109, and its telephone number is (609)
486-1777.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company............ 2,509,980 shares
Common Stock offered by the Selling
Stockholders................................. 190,020 shares(1)
Common Stock to be outstanding after the 10,393,868 shares(1)(2)
Offering.....................................
Use of Proceeds................................ For working capital and other general
corporate purposes, primarily to finance
future acquisitions, and repayment of bank
debt. See "Use of Proceeds."
Nasdaq National Market symbol.................. RCMT
</TABLE>
- ------------------
(1) The Common Stock offered by the Selling Stockholders consists of shares to
be issued by the Company upon the exercise of stock options (the "Selling
Stockholder Options") by the Selling Stockholders at a weighted average
exercise price of $3.20 per share.
(2) Does not include an aggregate of 1,959,525 shares of Common Stock reserved
for issuance under the Company's stock option plans. As of April 24, 1998,
options to acquire 1,103,875 shares (including the Selling Stockholder
Options) of Common Stock at exercise prices ranging from $1.09 to $14.50
were outstanding, including options to acquire 403,950 shares which were not
exercisable as of the date of this Prospectus. Also does not include 55,855
shares of Common Stock issuable upon the exercise of 279,274 Class C
Warrants (the "Warrants") of the Company, at an effective price of $15.00
per share, as of the date of this Prospectus. The Warrants are scheduled to
expire on April 30, 1998.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED OCTOBER 31, THREE MONTHS ENDED JANUARY 31,
------------------------------------------ -------------------------------
PRO FORMA PRO FORMA
AS ADJUSTED AS ADJUSTED
1995 1996 1997 1997(1) 1997 1998 1998(2)
------- ------- -------- ----------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues:
Information technology....... $ -- $11,343 $ 50,665 $ 89,597 $ 8,298 $21,325 $26,545
Professional engineering..... 13,846 26,184 33,306 45,876 6,336 9,093 11,231
General support.............. 13,070 18,816 24,793 24,793 5,354 5,458 5,458
Specialty healthcare......... -- 4,696 5,195 5,195 1,163 1,356 1,356
------- ------- -------- -------- ------- ------- -------
Total revenues........... 26,916 61,039 113,959 165,461 21,151 37,232 44,590
Gross profit................... 4,537 12,259 27,127 39,022 5,100 9,152 10,903
Operating income............... 857 3,015 8,486 13,293 1,355 3,087 3,732
Income from continuing
operations(3)................ 849 2,368 4,840 7,737 781 1,777 2,161
Income from continuing
operations per share
(diluted)(3)................. $ 0.28 $ 0.55 $ 0.76 $ 0.92 $ 0.16 $ 0.22 $ 0.25
======= ======= ======== ======== ======= ======= =======
Supplemental income from
continuing operations
per share(4)................. $ 0.18 $ 0.38 $ 0.76 $ 0.92 $ 0.15 $ 0.22 $ 0.25
======= ======= ======== ======== ======= ======= =======
Weighted average number of
shares outstanding........... 3,008 4,321 6,361 8,377 4,962 8,177 8,567
OPERATING AND OTHER DATA:
Gross margin(5)................ 16.9% 20.1% 23.8% 23.6% 24.1% 24.6% 24.5%
Operating margin(6)............ 3.2% 4.9% 7.4% 8.0% 6.4% 8.3% 8.4%
Number of offices at
period-end................... 18 29 36 41 32 39 41
</TABLE>
<TABLE>
<CAPTION>
JANUARY 31, 1998
------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(7) AS ADJUSTED(7)(8)
------- ------------ -----------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 557 $ 557 $ 48,707
Working capital(9).......................................... 18,060 18,060 66,211
Total assets................................................ 58,462 65,282 113,433
Total debt.................................................. 2,000 8,700 2,000
Stockholders' equity........................................ 46,944 47,064 101,914
</TABLE>
- ------------------
(1) Adjusted to give effect to (i) the acquisitions (and related financing
transactions) which occurred during fiscal 1997 and fiscal 1998 and (ii) the
reduction in interest expense resulting from the anticipated use of the
estimated net proceeds from the Offering (assuming a public offering of
539,785 shares at a price of $23.00 per share), as if all such transactions
had occurred as of the beginning of fiscal 1997. See "Use of Proceeds" and
"Unaudited Pro Forma Consolidated Condensed Statements of Operations."
(2) Adjusted to give effect to (i) the acquisitions (and related financing
transactions) which occurred during fiscal 1998 and (ii) the reduction in
interest expense resulting from the anticipated use of the estimated net
proceeds from the Offering (assuming a public offering of 389,792 shares at
a price of $23.00 per share), as if all such transactions had occurred at
the beginning of fiscal 1998. See "Use of Proceeds" and "Unaudited Pro Forma
Consolidated Condensed Statements of Operations."
(3) Income from continuing operations for fiscal 1997 does not include after tax
loss from discontinued operations of $363,000, or $0.06 per share.
(4) Assumes an effective tax rate of 42% for fiscal 1995, fiscal 1996 and the
three months ended January 31, 1997. The Company's effective tax rates for
fiscal 1995, fiscal 1996 and the three months ended January 31, 1997 were
10%, 16% and 39%, respectively, due to the utilization of net operating loss
carryforwards.
(5) Gross margin is gross profit as a percentage of total revenues.
(6) Operating margin is operating income as a percentage of total revenues.
(7) Assumes the acquisitions which occurred subsequent to January 31, 1998 had
occurred on January 31, 1998.
(8) Gives effect to the issuance and sale of 2,509,980 shares of Common Stock
offered by the Company hereby, the issuance of 190,020 shares upon the
exercise of stock options by the Selling Stockholders and the anticipated
application of the estimated net proceeds therefrom (assuming a public
offering price of $23.00 per share). See "Use of Proceeds."
(9) Excludes Note payable-bank.
6
<PAGE>
RISK FACTORS
This Prospectus and other reports and statements filed by the Company
(collectively, "Commission Filings") from time to time with the Securities and
Exchange Commission (the "Commission") contain or may contain certain
forward-looking statements and information that are based on the beliefs of the
Company's management as well as estimates and assumptions made by, and
information currently available to, the Company's management. When used in
Commission Filings, the words "anticipate," "believe," "estimate," "expect,"
"future," "intend," "seek," "plan" and similar expressions, as they relate to
the Company or its management, identify forward-looking statements. Such
statements reflect the current views of the Company with respect to future
events and are subject to certain risks, uncertainties and assumptions relating
to the Company's operations and results of operations, competitive factors,
shifts in market demand and other risks and uncertainties, including, in
addition to any uncertainties specifically identified in the text surrounding
such statements, uncertainties with respect to changes or developments in
social, economic, business, industry, market, legal and regulatory circumstances
and conditions and actions taken or omitted to be taken by third parties,
including the Company's stockholders, customers, competitors and legislative,
regulatory, judicial and other governmental authorities. Should one or more of
these risks or uncertainties materialize, or should the underlying assumptions
prove incorrect, actual results may vary significantly from those anticipated,
believed, estimated, expected, intended, sought or planned. The following risk
factors should be considered carefully in addition to the other information
contained or incorporated by reference in this Prospectus before purchasing the
Common Stock offered hereby.
Ability to Achieve and Manage Growth. The Company has experienced
significant growth since the beginning of fiscal 1995, principally through
acquisitions. Continued growth could place additional demands on its
administrative, operational and financial resources. The Company's ability to
achieve and manage its growth will depend on a number of factors, including the
Company's ability to attract and retain management and other key personnel, its
ability to adapt and grow its management information systems, its ability to
maintain sufficient profit margins and the level of demand for contract and
temporary personnel in the sectors in which the Company operates. There can be
no assurance that the Company will be able to continue to achieve or manage such
growth effectively and the failure to do so could have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Business Strategy."
Risks of Acquisition and Integration of Acquired Businesses. As part of
its business strategy, the Company will continue to evaluate opportunities to
acquire local and regional businesses that expand or complement the Company's
business. There can be no assurance that the Company will find attractive
acquisition candidates or effectively manage the integration of acquired
businesses into its existing business. If the expected operating efficiencies
from such transactions do not materialize, if the Company fails to integrate new
businesses in a timely manner into its existing business or if the costs of such
integration exceed expectations, the Company's operating results and financial
condition would be adversely affected. Future acquisitions by the Company could
result in the incurrence of debt, the potentially dilutive issuance of equity
securities and the incurrence of contingent liabilities and amortization
expenses related to goodwill and other intangible assets, any of which could
adversely affect the Company's operating results and financial condition. The
amount allocable to intangible assets on the Company's balance sheet may
increase in connection with acquisitions, which will increase the Company's
amortization expense. The Company had $29.5 million of intangible assets as of
January 31, 1998. In the event of any sale or liquidation of the Company or a
portion of its assets, there can be no assurance that the value of the Company's
intangible assets will ever be realized. The carrying value of goodwill is
reviewed if the facts and circumstances suggest that it may be impaired. If this
review indicates that goodwill would not be recoverable, as determined based on
the undiscounted cash flows of the entity acquired over the remaining
amortization period, the Company's carrying value of the goodwill will be
reduced by the estimated shortfall of cash flows. Any future determination
requiring the write-off of a significant portion of unamortized intangible
7
<PAGE>
assets could have a material adverse effect on the Company's financial condition
and results of operations.
Dependence on Availability of Qualified Personnel. The Company depends on
its ability to attract, train and retain qualified personnel who possess the
skills and experience necessary to meet the staffing requirements of its
customers. Competition for information technology personnel is particularly
intense and demand for their services has, to date, substantially exceeded their
supply. The Company expects such competition to continue. Factors influencing
such competition include compensation, benefits, variety of assignments, growth
opportunities, relationships with other staffing companies and full-time
employment opportunities. The Company, like others in the information technology
staffing industry, depends to a significant degree on the recruitment of
personnel from outside the United States. The availability of information
technology personnel from countries outside the United States is affected by the
number of visas granted under current United States immigration laws, and these
laws have made and may continue to make the recruitment of international
information technology personnel more difficult. There can be no assurance that
qualified personnel will continue to be available to the Company in sufficient
numbers and on terms of employment acceptable to the Company. The inability to
attract and retain qualified personnel in sufficient numbers, or to upgrade its
base of qualified personnel to keep pace with changing customer needs and
emerging technologies, could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business --
Operations."
Competitive Market. The staffing industry is highly competitive, with
limited barriers to entry. The Company's principal competitors are generally
local or regional independent staffing companies that are located in the
Company's various regional markets. The Company also encounters competition from
international and national companies. Certain of the Company's competitors have
more established operations and greater marketing, financial and other resources
than the Company. In addition, as part of the Company's growth strategy, the
Company competes for suitable acquisition candidates. Increased competition for
such acquisition candidates could have the effect of increasing the price for
acquisitions or reducing the number of suitable candidates for acquisition. The
Company expects that the level of competition will remain high in the future,
which could limit the Company's ability to maintain its market share or maintain
gross margins in the geographic regions or industry sectors in which it
operates, any of which could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business --
Competition."
Reliance on Key Personnel. The Company is highly dependent upon the
continued services and experience of its senior members of management, including
Leon Kopyt, Chairman of the Board and Chief Executive Officer. The loss of the
services of Mr. Kopyt or other senior members of management could have a
material adverse effect on the Company's business. The Company has employment
agreements with Mr. Kopyt and certain other members of management.
Liability for Employee Actions. Providers of staffing services generally
place their employees in the workplace of other companies. The risk of employee
misconduct is attendant to the Company's business. These risks could include
claims relating to errors and omissions, misuse of proprietary information,
misappropriation of funds, discrimination and harassment, theft of customer
property, other criminal activity or torts and other claims. The Company has not
historically experienced any material claims of these types, and has insurance
covering certain of these risks. However, there can be no assurance that the
Company will not experience such claims or incur costs in connection with such
risks in the future. Further, there can be no assurance that insurance coverage
for such risks will continue to be available to the Company or that coverage
will be adequate to cover such liabilities.
Risk of Government Regulations and Legislative Proposals. The Company's
costs of operations could increase if there are any material changes in
government regulations. Recent federal and state legislative proposals have
included provisions seeking to extend health insurance benefits to employees who
do not currently receive such benefits. As a result of the wide variety of
national and state proposals currently under consideration, the impact of such
proposals cannot be predicted. There can be no assurance that the Company will
be able to increase the rates charged to its customers in a timely
8
<PAGE>
manner and in sufficient amounts to cover increased costs related to any new
benefits that may be extended to temporary employees as a result of such
legislation or regulations. It is not possible to predict whether any other
legislation or regulations affecting the Company's operations will be proposed
or enacted at the federal or state level; however, no assurance can be given
that if enacted, such legislation or regulations would not have a material
adverse effect on the Company.
Broad Discretion in Use of Proceeds. The Company intends to use
approximately $6.7 million of the net proceeds of the Offering to repay
indebtedness and will have broad discretion in using the remaining proceeds of
the Offering. The Company intends to use the balance of the net proceeds for
general corporate purposes, primarily to finance future acquisitions. Although
the Company regularly reviews strategic acquisition opportunities, as of the
date of this Prospectus, the Company has no binding agreements with respect to
any material acquisitions. Consequently, there can be no assurance as to when or
how the remaining net proceeds from the Offering will be used. If the Company is
unable to promptly utilize such proceeds in connection with acquisitions, or to
otherwise use such proceeds in the growth of its business, the returns realized
from temporarily investing such proceeds may be substantially less than the
returns which could be realized if such proceeds were successfully invested in
the business. See "Use of Proceeds."
Dependence on Key Customers. Although the Company provides services to a
large number of customers, approximately 21.9% and 18.8% of the Company's
revenues for fiscal 1997 and the three months ended January 31, 1998,
respectively, were derived from the Company's top five customers. One such
customer accounted for approximately 11.5% and 8.4% of the Company's revenues
over the same periods, respectively. The loss of, or a reduction in, business
from any major customer could adversely affect the Company. See "Business --
Sales and Marketing."
Fluctuations in Quarterly Operating Results. The Company has experienced,
and expects to continue experiencing, quarterly variations in revenues and
operating income as a result of many factors, including the timing of
assignments from customers, acquisitions, selling, general and administrative
expenses to support new business and the incurrence of payroll taxes. In
connection with certain engineering projects, the Company could incur costs in
periods prior to recognizing revenues under those contracts. In addition, the
Company must plan its operating expenditures based on revenue forecasts, and a
revenue shortfall below the forecast for any quarter would likely have an
adverse effect on the Company's operating results for the quarter. While the
effects of seasonality of the Company's business have been obscured by its
growth through acquisitions, the Company's branch offices usually experience
lower revenues in the Company's first fiscal quarter due to the slowdown in
business associated with the calendar year-end holiday season.
Shares Eligible for Future Sale. Sales of substantial amounts of Common
Stock in the public market following the Offering could adversely affect the
market price of the Common Stock. Upon the closing of the Offering, there will
be 10,393,868 shares of Common Stock outstanding, all of which will be freely
tradeable without restriction or further registration under the Securities Act,
unless held by an "affiliate" of the Company as that term is defined in Rule 144
under the Securities Act, which shares will be subject to the resale limitations
of Rule 144 and, except for (i) 1,096,936 shares which have been registered for
resale and may be sold subject to certain contractual restrictions limiting
resales by each of Messrs. Meyers and Blaire, to 50,000 shares, each, per week,
(ii) 55,265 shares which have been registered for resale, but are subject to a
90-Day Lock-Up Period (as defined below), and (iii) 312,311 shares which may not
be sold until November 30, 1998 due to contractual restrictions. The sale of
914,425 shares held by the directors and officers of the Company, is limited by
lock-up agreements. Under the terms of the lock-up agreements, these holders
have agreed that they will not, without the prior written consent of BT Alex.
Brown Incorporated, offer, sell, contract to sell or otherwise dispose of their
shares for a period of 90 days from the date of this Prospectus (the "Lock-Up
Period"). Following expiration of the Lock-Up Period, all of the shares subject
to the lock-up agreement will be eligible for public resale. Sales of additional
shares in the public market could also occur upon the exercise of existing stock
options. The Company is unable to predict the effect, if any, that future sales
of shares, or the availability of shares for future sale, will have on the
market price for the Common Stock prevailing from time to time. Sales of
substantial amounts of Common Stock, or
9
<PAGE>
the perception that such influx of shares into the market could occur, could
adversely affect the market price for the Common Stock and could impair the
Company's future ability to obtain capital through offerings of equity
securities. See "Shares Eligible for Future Sale."
Effect of Certain Anti-takeover Provisions. Certain provisions of the
Company's Articles of Incorporation, as amended (the "Articles of
Incorporation") and Amended and Restated Bylaws (the "Bylaws"), the Nevada
Revised Statutes, the Company's Stockholder Rights Plan (the "Rights Plan") and
the Second Amended and Restated Termination Benefits Agreement between the
Company and its Chief Executive Officer (the "Benefits Agreement") could delay
or frustrate the removal of incumbent directors and could make difficult a
change in control transaction including a merger, tender offer or proxy contest
involving the Company, even if such events could be viewed as beneficial by the
Company's stockholders. For example, the Articles of Incorporation provide for a
classified Board of Directors and deny the right of stockholders to amend the
Bylaws without the consent of the Board and require advance notice of
stockholder nominations of directors. The Company is also subject to provisions
of the Nevada Revised Statutes, which prohibit a Nevada corporation that has 200
or more stockholders, at least 100 of whom are stockholders of record and Nevada
residents, from engaging in a broad range of business combinations with a person
who, together with affiliates and associates, owns 10% or more of the
corporation's outstanding voting shares (an "interested stockholder") for three
years after the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. In addition, the Rights Plan
provides for substantial dilution of an "acquiring person" (as defined therein)
in the event a person or group of persons acquires beneficial ownership of 15%
or more of the outstanding Common Stock or in the event of a merger or sale of
assets which is not approved by the "continuing directors," of the Company (as
defined in the Rights Plan). Furthermore, in the event of a "change in control"
(as defined in the Benefits Agreement) which results in the termination of the
Chief Executive Officer, the Company would be required to make substantial
payments and, in certain circumstances, reduce the exercise price of options
issued to the Chief Executive Officer.
10
<PAGE>
ACQUISITION PROGRAM
Since fiscal 1995, the Company has pursued an aggressive growth strategy
designed to transition the Company's business from general support staffing to
higher growth, higher margin professional staffing services, particularly
information technology. The Company has implemented this strategy through the
acquisition of 13 information technology or professional engineering staffing
services companies, aggregating $126.7 million in revenues for their respective
latest twelve months prior to the acquisition. Through these acquisitions, the
Company has achieved substantial revenue growth, improved its operating
profitability and repositioned itself as a provider of information technology
and other professional staffing services. A key element of the Company's growth
strategy is to continue to pursue strategic acquisitions. The Company believes
that its success in completing acquisitions is due to its entrepreneurial and
decentralized operating philosophy, its strong corporate-level support and
resources, its status as a public company and its ability to offer management of
the acquired companies an opportunity to join and participate in the growth of a
rapidly growing provider of information technology and other professional
staffing services. See "Business -- Growth Strategy."
The following table provides a summary of the acquisitions completed by the
Company since fiscal 1995:
<TABLE>
<CAPTION>
NUMBER
DATE ACQUIRED COMPANY OF OFFICES HEADQUARTERS SERVICES (1) REVENUES (2)
- ------------- ------- ---------- ------------ ------------ -------------
(IN MILLIONS)
<S> <S> <C> <C> <C> <C>
12/15/94 Great Lakes Design, Inc. 1 Grand Haven, MI PE $ 3.9
8/30/95 Cataract, Inc. 7 Newtown, PA PE 20.4
3/11/96 The Consortium 5 Fairfield, NJ IT, SH, GS 26.0
5/1/96 The Consortium of Maryland, Inc. 1 Bethesda, MD IT 5.6
9/13/96 Performance Staffing, Inc. 4 Louisville, KY PE 2.3
11/4/96 Programing Alternatives of 2 Minneapolis, MN IT 9.4
Minnesota, Inc.
4/1/97 Programming Resources Unlimited 1 Wayne, PA IT 2.4
8/4/97 Camelot Contractors Limited 1 Manchester, NH IT 16.2
9/29/97 Austin Nichols Technical 1 Kansas City, MO IT, PE 4.9
Temporaries, Inc.
9/29/97 J.D. Karin Consulting Services, 1 Flanders, NJ IT 4.9
Inc.
1/4/98 Northern Technical Services, Inc. 3 Milwaukee, WI IT 12.6
2/2/98 Staffworks, Inc. 2 Stanhope, NJ IT 12.6
2/2/98 Global Technology Solutions, Inc. 1 Sacramento, CA IT 5.5
-- ------
30 $126.7
== ======
</TABLE>
- ------------------
(1) Services provided are abbreviated as follows:
IT - Information Technology
PE - Professional Engineering
SH - Specialty Healthcare
GS - General Support
(2) Represents approximate revenues in the latest 12 months prior to the date of
acquisition.
11
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the 2,509,980 shares of Common Stock
offered by the Company hereby and the issuance of 190,020 shares upon the
exercise of stock options by the Selling Stockholders are estimated to be
approximately $54.9 million ($63.7 million if the Underwriters' over-allotment
option is exercised in full), assuming a public offering price of $23.00 per
share and after deducting estimated underwriting discounts and commissions and
expenses of the Offering. The Company will not receive any proceeds from the
sale of Common Stock offered by the Selling Stockholders hereby.
The Company intends to use the net proceeds, after repayment of $6.7
million of indebtedness, of approximately $48.2 million ($57.0 million if the
Underwriters' over-allotment is exercised in full) for working capital and other
general corporate purposes, primarily to finance future acquisitions. Although
the Company regularly reviews strategic opportunities, as of the date of this
Prospectus, the Company has no binding agreements with respect to any material
acquisition.
Approximately $6.7 million of the net proceeds from the Offering will be
used to repay indebtedness outstanding under the Company's revolving credit
facility with Mellon Bank, N.A. (the "Revolving Credit Facility") which was
obtained for working capital purposes and acquisition financing. The Revolving
Credit Facility provides a revolving line of credit, which permits borrowings of
up to $20.0 million and expires on June 30, 1999. Borrowings under the Revolving
Credit Facility bear interest, at the Company's option, at LIBOR (London
Interbank Offered Rate) or the bank's prime rate, in each case plus applicable
margin. The weighted average interest rate at March 31, 1998, was 8.50% and, as
of such date, $8.7 million was outstanding under such facility. The Revolving
Credit Facility has been used to fund certain of the Company's acquisitions. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
Pending the uses described above, the Company intends to invest the net
proceeds in short-term, investment-grade securities.
12
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "RCMT." Prior to June 10, 1997, the Company's Common Stock was traded
on The Nasdaq SmallCap Market. The following table sets forth approximate high
and low sales prices by fiscal quarters for the periods indicated, as reported
by the market on which it was traded.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
FISCAL 1996
First Quarter........................................... $ 6.25 $ 2.66
Second Quarter.......................................... 13.25 4.22
Third Quarter........................................... 15.38 5.75
Fourth Quarter.......................................... 12.88 7.00
FISCAL 1997
First Quarter........................................... $10.38 $ 7.00
Second Quarter.......................................... 9.75 6.25
Third Quarter........................................... 11.75 6.88
Fourth Quarter.......................................... 16.63 11.88
FISCAL 1998
First Quarter........................................... $18.50 $14.38
Second Quarter (through April 28)....................... 30.13 16.38
</TABLE>
On April 28, 1998, the last reported sale price of the Common Stock on the
Nasdaq National Market was $23.00 per share.
As of April 22, 1998, the approximate number of holders of record of the
Company's Common Stock was 1,736. Based upon the requests for proxy information
in connection with the Company's most recent Annual Meeting of Stockholders, the
Company believes the number of beneficial owners of its Common Stock exceeds
4,450.
The Company has never declared or paid a cash dividend on the Common Stock
and does not anticipate paying any cash dividends in the foreseeable future. It
is the current policy of the Company's Board of Directors to retain all earnings
to finance the development and expansion of the Company's business. Any future
payment of dividends will be at the discretion of the Board of Directors and
will depend upon, among other things, the Company's earnings, financial
condition, capital requirements, level of indebtedness, contractual restrictions
and other factors that the Board of Directors deems relevant. The Revolving
Credit Facility prohibits the payment of dividends or distributions on account
of the capital stock without the prior consent of Mellon Bank, N.A.
13
<PAGE>
CAPITALIZATION
The following table sets forth the cash and cash equivalents, short-term
debt and capitalization of the Company, on a consolidated basis, as of January
31, 1998 (i) on an actual basis, (ii) on a pro forma basis to give effect to
acquisitions completed after January 31, 1998, and (iii) as adjusted to give
effect to the Offering, and the anticipated application of the estimated net
proceeds therefrom as set forth in "Use of Proceeds." The table should be
reviewed in conjunction with the Company's historical and pro forma consolidated
financial statements and related notes appearing elsewhere or incorporated by
reference in this Prospectus.
<TABLE>
<CAPTION>
JANUARY 31, 1998
--------------------------------------------
PRO FORMA
ACTUAL PRO FORMA (1) AS ADJUSTED (1)(2)
------- ------------- ------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents......................... $ 557 $ 557 $ 48,707
======= ======= ========
Short-term debt
Note payable-bank(3)............................ $ 2,000 $ 8,700 $ 2,000
======= ======= ========
Long-term debt.................................... -- -- --
Stockholders' equity:
Preferred stock $1.00 par value; 5,000,000
shares authorized; no shares issued or
outstanding.................................. -- -- --
Common stock, $0.05 par value; 40,000,000 shares
authorized; 7,582,206 shares issued and
outstanding, actual and pro forma and
10,282,206 shares issued and outstanding, pro
forma as adjusted(4)......................... 381 381 516
Additional paid-in capital........................ 41,430 41,550 96,265
Retained earnings................................. 5,133 5,133 5,133
------- ------- --------
Total stockholders' equity........................ 46,944 47,064 101,914
------- ------- --------
Total capitalization.............................. $46,944 $47,064 $101,914
======= ======= ========
</TABLE>
- ------------------
(1) Assumes that the acquisitions which occurred subsequent to January 31, 1998
had occurred on January 31, 1998.
(2) Gives effect to the sale of 2,509,980 shares of Common Stock offered by the
Company hereby, the issuance of 190,020 shares of Common Stock upon exercise
of stock options by the Selling Stockholders, and the application of the
estimated net proceeds therefrom (assuming a public offering price of $23.00
per share). See "Use of Proceeds."
(3) The Note payable-bank reflects amounts outstanding under the Revolving
Credit Facility. Amounts outstanding under the Revolving Credit Facility are
secured, in part, by current assets of the Company and, as a result, are
classified within the Company's Consolidated Financial Statements as current
liabilities. The Revolving Credit Facility requires the Company to maintain
minimum borrowings of $2 million. See Note 6 of Notes to Consolidated
Financial Statements appearing elsewhere in this Prospectus.
(4) Pro forma as adjusted does not include 122,496 shares of Common Stock
issuable upon the exercise of 612,479 Warrants of the Company, at an
effective price of $15.00 per share, as of January 31, 1998. The Warrants
are scheduled to expire on April 30, 1998. Pro forma as adjusted also does
not include 914,425 shares of Common Stock issuable upon the exercise of
outstanding stock options of the Company.
14
<PAGE>
SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected consolidated financial data for, and as of the end of, each of
the years in the five year period ended October 31, 1997 are derived from the
audited consolidated financial statements of the Company included elsewhere or
incorporated by reference in this Prospectus. The selected consolidated
financial data for the three months ended January 31, 1997 and 1998 are derived
from the unaudited consolidated financial statements of the Company, which in
the opinion of management include all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the results of operations and
financial position for such periods. The results of operations for the three
months ended January 31, 1998 are not necessarily indicative of the results of
operations to be expected for the year. The pro forma adjustments are described
in the accompanying notes to the pro forma consolidated financial statements.
The pro forma results of operations are not necessarily indicative of the
results that would have occurred had the acquisitions been consummated as of the
beginning of the period presented or that might be attained in the future. The
following data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the actual and
pro forma consolidated financial statements of the Company included elsewhere or
incorporated by reference in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
FISCAL YEAR ENDED OCTOBER 31, ENDED JANUARY 31,
-------------------------------------------------------------- -------------------------------
PRO FORMA PRO FORMA
AS ADJUSTED AS ADJUSTED
1993 1994 1995 1996 1997 1997(1) 1997 1998 1998(2)
------- ------- ------- ------- -------- ----------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues....................... $28,633 $29,239 $26,916 $61,039 $113,959 $165,461 $21,151 $37,232 $44,590
Cost of services............... 24,387 23,864 22,379 48,780 86,832 126,439 16,051 28,080 33,687
------- ------- ------- ------- -------- -------- ------- ------- -------
Gross profit................... 4,246 5,375 4,537 12,259 27,127 39,022 5,100 9,152 10,903
Selling, general and
administrative............... 3,281 3,674 3,550 8,914 18,069 24,621 3,626 5,814 6,855
Depreciation and
amortization................. 113 93 130 330 572 1,108 119 251 316
------- ------- ------- ------- -------- -------- ------- ------- -------
Operating income............... 852 1,608 857 3,015 8,486 13,293 1,355 3,087 3,732
Other income (expense)......... (41) 5 86 (194) (185) 100 (85) (39) (24)
------- ------- ------- ------- -------- -------- ------- ------- -------
Income before income taxes..... 811 1,613 943 2,821 8,301 13,393 1,270 3,048 3,708
Income taxes................... 78 187 94 453 3,461 5,656 489 1,271 1,547
------- ------- ------- ------- -------- -------- ------- ------- -------
Income from continuing
operations................... 733 1,426 849 2,368 4,840 7,737 781 1,777 2,161
Loss from discontinued
operations................... -- -- -- -- (363) (363) -- -- --
------- ------- ------- ------- -------- -------- ------- ------- -------
Net income..................... $ 733 $ 1,426 $ 849 $ 2,368 $ 4,477 $ 7,374 $ 781 $ 1,777 $ 2,161
======= ======= ======= ======= ======== ======== ======= ======= =======
Earnings per share (diluted):
Income from continuing
operations................. $ 0.28 $ 0.49 $ 0.28 $ 0.55 $ 0.76 $ 0.92 $ 0.16 $ 0.22 $ 0.25
Loss from discontinued
operations................. -- -- -- -- (0.06) (0.04) -- -- --
------- ------- ------- ------- -------- -------- ------- ------- -------
Net income................... $ 0.28 $ 0.49 $ 0.28 $ 0.55 $ 0.70 $ 0.88 $ 0.16 $ 0.22 $ 0.25
======= ======= ======= ======= ======== ======== ======= ======= =======
Supplemental net income per
share (diluted)(3)........... $ 0.18 $ 0.32 $ 0.18 $ 0.38 $ 0.70 $ 0.88 $ 0.15 $ 0.22 $ 0.25
======= ======= ======= ======= ======== ======== ======= ======= =======
Weighted average number of
shares outstanding........... 2,578 2,930 3,008 4,321 6,361 8,377 4,962 8,177 8,567
</TABLE>
<TABLE>
<CAPTION>
JANUARY 31, 1998
---------------------
OCTOBER 31, PRO FORMA
--------------------------------------------- AS
1993 1994 1995 1996 1997 ACTUAL ADJUSTED(4)
------ ------ ------- ------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 914 $2,534 $ 298 $ 6 $ 918 $ 557 $ 48,707
Working capital(5)........................................ 3,741 5,201 4,242 9,518 19,279 18,060 66,211
Total assets.............................................. 5,334 6,666 10,302 24,407 54,083 58,462 113,433
Total debt................................................ 74 35 935 2,747 2,000 2,000 2,000
Stockholders' equity...................................... 4,046 5,477 7,527 16,220 44,612 46,944 101,914
</TABLE>
- ------------------
(1) Adjusted to give effect to (i) the acquisitions (and related financing
transactions) which occurred during fiscal 1997 and fiscal 1998 and (ii) the
reduction in interest expense resulting from the anticipated use of the
estimated net proceeds from the Offering (assuming a public offering of
539,785 shares at a price of $23.00 per share), as if all such transactions
had occurred as of the beginning of fiscal 1997. See "Use of Proceeds" and
"Unaudited Pro Forma Consolidated Condensed Statements of Operations."
(2) Adjusted to give effect to (i) the acquisitions (and related financing
transactions) which occurred during fiscal 1998 and (ii) the reduction in
interest expense resulting from the anticipated use of the estimated net
proceeds from the Offering (assuming a public offering of 389,792 shares at
a price of $23.00 per share), as if all such transactions had occurred at
the beginning of fiscal 1998. See "Use of Proceeds" and "Unauditied Pro
Forma Consolidated Condensed Statements of Operations."
(3) Assumes an effective tax rate of 42% for fiscal 1993, 1994, 1995 and 1996
and the three months ended January 31, 1997. The Company's effective tax
rates for fiscal 1993, 1994, 1995, 1996 and the three months ended January
31, 1997 were 10%, 12%, 10%, 16% and 39%, respectively, due to the
utilization of net operating loss carryforwards.
(4) Assumes that the acquisitions which occurred subsequent to January 31, 1998
had occurred on January 31, 1998 and gives effect to the sale of 2,509,980
shares of Common Stock offered by the Company hereby, the issuance of
190,020 shares upon the exercise of stock options by the Selling
Stockholders and the anticipated application of the estimated net proceeds
therefrom (assuming a public offering price of $23.00 per share). See "Use
of Proceeds."
(5) Excludes Note payable-bank.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company is a multi-regional provider of information technology and
other professional staffing services through its 41 branch offices located in 17
states. Since its inception in 1971, the Company's business and strategy have
evolved substantially. Initially, the Company focused on the development of
environmental technologies and, until 1977, operated an aluminum recovery
facility in California. In 1981, the Company diversified its operations through
the acquisition of Intertec Design, Inc., a temporary staffing company that
provided professional engineering, clerical and light industrial personnel. In
fiscal 1992, at the recommendation of the current President and Chief Executive
Officer, Leon Kopyt, the Company discontinued its environmental business. In
fiscal 1994, the Company embarked on a strategy to position staffing services as
its core business.
Since fiscal 1995, the Company has pursued an aggressive growth strategy
designed to transition the Company's business from general support staffing
services to higher growth, higher margin professional staffing services,
particularly information technology. In fiscal 1995, approximately half of the
Company's revenues were derived from general support staffing and the Company
did not offer information technology services. For the three months ended
January 31, 1998, information technology services contributed 57% of the
Company's revenues. Since the beginning of fiscal 1995, the Company has acquired
13 information technology or professional engineering staffing services
companies, aggregating $126.7 million in revenues for their respective latest
twelve months prior to acquisition. Through these acquisitions, the Company has
achieved substantial revenue growth, improved its operating profitability and
repositioned itself as a provider of information technology and other
professional staffing services.
The following table is presented to illustrate the Company's successful
transition of its business mix and sets forth, for the periods indicated, the
Company's (i) sources of revenues as a percentage of total revenues, (ii) gross
profit margin by sources of revenues, and (iii) gross profit by sources of
revenues as a percentage of total gross profit.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------ THREE MONTHS ENDED
1995 1996 1997 JANUARY 31, 1998
------ ------ ------ ------------------
<S> <C> <C> <C> <C>
REVENUES:
Information technology........................ --% 18.6% 44.4% 57.3%
Professional engineering...................... 51.4 42.9 29.2 24.4
General support............................... 48.6 30.8 21.8 14.7
Specialty healthcare.......................... -- 7.7 4.6 3.6
----- ----- ----- -----
Total................................... 100.0% 100.0% 100.0% 100.0%
GROSS PROFIT MARGIN:
Information technology........................ --% 27.9% 29.8% 29.3%
Professional engineering...................... 17.2 17.7 19.0 18.3
General support............................... 16.5 18.1 18.5 16.2
Specialty healthcare.......................... -- 22.7 21.9 25.8
Gross profit margin..................... 16.9% 20.1% 23.8% 24.6%
GROSS PROFIT AS A PERCENTAGE OF TOTAL GROSS
PROFIT:
Information technology........................ --% 25.8% 55.6% 68.4%
Professional engineering...................... 52.5 37.7 23.3 18.2
General support............................... 47.5 27.8 16.9 9.6
Specialty healthcare.......................... -- 8.7 4.2 3.8
----- ----- ----- -----
Total................................... 100.0% 100.0% 100.0% 100.0%
</TABLE>
16
<PAGE>
The Company realizes revenues from the placement of contract and temporary
staffing personnel. These services are primarily provided to the customer at
hourly rates that are established for each of the Company's staffing personnel,
based upon their skill level and experience and the type of work performed.
Hourly billing rates for staffing services range from $60 to $85 for the
Information Technology Group, $50 to $75 for the Professional Engineering Group,
$8 to $18 for the General Support Group, and $40 to $70 for the Specialty
Healthcare Group. The Company also provides project management and consulting
work, primarily in the Professional Engineering Group, which are billed either
by agreed upon fee or hourly rates, or a combination of both. The billing rates
and profit margins for project management and consulting work are higher than
those received for professional staffing services. Hourly billing rates for
project management work range from $125 to $185 within the Information
Technology Group and $110 to $155 within the Professional Engineering Group. The
Company plans to expand its sales of higher margin consulting and project
management services. See "Business -- Growth Strategy."
The majority of the Company's services are provided under purchase orders.
Contracts are utilized on certain of the more complex assignments where the
engagements are for longer terms or where precise documentation on the nature
and scope of the assignment is necessary. Contracts, although they normally
relate to longer-term and more complex engagements, generally do not obligate
the customer to purchase a minimum level of services and are generally
terminable by the customer on 60 to 90 days notice. Revenues are recognized when
services are provided.
Costs of services consist primarily of salaries and compensation-related
expenses for billable staffing personnel, including payroll taxes, employee
benefits, worker's compensation and other insurance. Principally all of the
billable personnel are treated by the Company as employees. Selling, general and
administrative expenses consist primarily of salaries and benefits of personnel
responsible for operating activities and include corporate overhead expenses.
Corporate overhead expenses relate to salaries and benefits of personnel
responsible for corporate activities, including the Company's acquisition
program and corporate marketing, administrative and reporting responsibilities.
The Company records these expenses when incurred. Depreciation relates primarily
to the fixed assets of the Company. Amortization relates principally to the
goodwill resulting from the Company's acquisitions. These acquisitions have been
accounted for under the purchase method of accounting for financial reporting
purposes and have created goodwill which is being amortized over 40-year
periods.
The Company's net income for fiscal 1995 and 1996 has been determined after
giving effect to the utilization of a net operating loss carryforward. This
effectively reduced federal tax accruals to a minimal amount during those
periods and subjected the Company to composite tax rates of between 9.9% and
16.1%, principally as a result of state income taxes. As of January 31, 1997,
the Company had utilized principally all of its net operating loss carryforward
and, accordingly, expects that for the foreseeable future its net income will be
subject to full federal and state rates of taxation.
17
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain income statement data on a
historical and pro forma as adjusted basis as a percentage of revenue:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED OCTOBER 31, THREE MONTHS ENDED JANUARY 31,
--------------------------------------- -------------------------------
1997 1998
----------------------- -----------------------
PRO FORMA PRO FORMA
1995 1996 ACTUAL AS ADJUSTED(1) 1997 ACTUAL AS ADJUSTED(2)
----- ----- ------ -------------- ----- ------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues............................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of services.................... 83.1 79.9 76.2 76.4 75.9 75.4 75.5
----- ----- ----- ----- ----- ----- -----
Gross profit........................ 16.9 20.1 23.8 23.6 24.1 24.6 24.5
Selling, general and
administrative.................... 13.2 14.7 15.9 14.9 17.1 15.6 15.4
Depreciation and amortization....... 0.5 0.5 0.5 0.7 0.6 0.7 0.7
----- ----- ----- ----- ----- ----- -----
Operating income.................... 3.2 4.9 7.4 8.0 6.4 8.3 8.4
Other income (expense).............. 0.3 (0.3) (0.2) 0.1 (0.4) (0.1) (0.1)
----- ----- ----- ----- ----- ----- -----
Income before income taxes.......... 3.5 4.6 7.2 8.1 6.0 8.2 8.3
Income taxes........................ 0.3 0.7 3.0 3.4 2.3 3.4 3.5
----- ----- ----- ----- ----- ----- -----
Income from continuing operations... 3.2 3.9 4.2 4.7 3.7 4.8 4.8
----- ----- ----- ----- ----- ----- -----
Loss from discontinued operations... -- -- (0.3) (0.2) -- -- --
----- ----- ----- ----- ----- ----- -----
Net income.......................... 3.2% 3.9% 3.9% 4.5% 3.7% 4.8% 4.8%
===== ===== ===== ===== ===== ===== =====
</TABLE>
- ------------------
(1) Adjusted to give effect to (i) the acquisitions (and related financing
transactions) which occurred during fiscal 1997 and fiscal 1998 and (ii) the
reduction in interest expense resulting from the anticipated use of the
estimated net proceeds from the Offering (assuming a public offering of
539,785 shares at a price of $23.00 per share), as if all such transactions
had occurred as of the beginning of fiscal 1997. See "Use of Proceeds" and
"Unaudited Pro Forma Consolidated Condensed Statements of Operations."
(2) Adjusted to give effect to (i) the acquisitions (and related financing
transactions) which occurred during fiscal 1998 and (ii) the reduction in
interest expense resulting from the anticipated use of the estimated net
proceeds from the Offering (assuming a public offering of 389,792 shares at
a price of $23.00 per share), as if all such transactions had occurred at
the beginning of fiscal 1998. See "Use of Proceeds" and "Unauditied Pro
Forma Consolidated Condensed Statements of Operations."
THREE MONTHS ENDED JANUARY 31, 1998 COMPARED TO THREE MONTHS ENDED JANUARY 31,
1997
Revenues. Revenues increased 76.0%, or $16.1 million, for the three months
ended January 31, 1998 as compared to the comparable prior-year period. Of this
increase, approximately $8.8 million was attributable to revenue growth through
acquisitions made during fiscal 1997 and the three months ended January 31,
1998, and approximately $7.3 million was from internal growth. For the three
months ended January 31, 1998 compared to the three months ended January 31,
1997, the Company's internal revenue growth from operations owned during both
periods was 34%. Internal growth was primarily a result of adding new customers
to, and increasing sales to existing customers in, the Company's Information
Technology Group.
Cost of Services. Cost of services increased 74.9%, or $12.0 million, for
the three months ended January 31, 1998 as compared to the equivalent prior-year
period. This increase was primarily due to increased salaries and compensation
associated with the increased revenues experienced during this period. Cost of
services as a percentage of revenues decreased to 75.4% for the three months
ended January 31, 1998 from 75.9% for the comparable prior-year period. This
improvement was primarily due to a greater percentage of the Company's revenues
being derived from specialty staffing services.
Selling, General and Administrative. Selling, general and administrative
expenses increased 60.3%, or $2.2 million, for the three months ended January
31, 1998 as compared to the comparable prior-year period. This increase resulted
from the change in the mix of the business during the three months ended January
31, 1998, which required higher marketing, sales, recruiting and administrative
expenses than the comparable prior-year period. Selling, general and
administrative expenses as a
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<PAGE>
percentage of revenues decreased to 15.6% for the three months ended January 31,
1998 from 17.1% in the comparable prior-year period, primarily attributable to
the sharing of administrative overhead over a larger revenue base.
Depreciation and Amortization. Depreciation and amortization increased
111.8%, or $133,000, for the three months ended January 31, 1998 as compared to
the comparable prior year period. This increase was primarily due to the
amortization of intangible assets acquired in connection with the acquisitions
that occurred after January 31, 1997.
Other Income Expense, Net of Interest Income. Actual interest expense of
$55,000 for three months ended January 31, 1998, was partially offset by $16,000
of interest income, which was earned from the investment in interest-bearing
deposits of the net proceeds of the Company's public offering in June 1997,
after the repayment of bank debt. Interest expense decreased 38.9%, or $35,100,
for three months ended January 31, 1998 as compared to the comparable prior-year
period. This decrease was due to the decreased borrowings necessary to provide
the funds for working capital.
Income Tax. Income tax expense increased 159.7%, or $781,000, for the
three months ended January 31, 1998 as compared to the comparable prior-year
period. This increase was due to increased levels of income and an increase in
the effective tax rate from 38.5% to 41.7%. The increase in the effective tax
rate was primarily due to the non-deductibility of goodwill amortization.
YEAR ENDED OCTOBER 31, 1997 COMPARED TO YEAR ENDED OCTOBER 31, 1996
Revenues. Revenues increased 86.7%, or $52.9 million, for fiscal 1997, as
compared to fiscal 1996. Revenue growth was primarily attributable to
acquisitions. The Company completed five acquisitions in fiscal 1997,
aggregating $37.8 million in revenues for their respective latest twelve months
prior to acquisition.
Cost of Services. Cost of services increased 78.0%, or $38.0 million, for
fiscal 1997 as compared to fiscal 1996. This increase was primarily due to
increased salaries and compensation associated with the increased revenues
experienced during this period. Cost of services as a percentage of revenues
decreased to 76.2% for fiscal 1997 from 79.9% for fiscal 1996. This decline was
primarily attributable to a greater percentage of the Company's revenues being
derived from information technology and other professional staffing services.
Selling, General and Administrative. Selling, general and administrative
expenses increased 102.7%, or $9.2 million, for fiscal 1997 as compared to
fiscal 1996. This increase resulted from the change in the mix of the business
during the period which required higher marketing, sales, recruiting and
administrative expenses than fiscal 1996. Selling, general and administrative
expenses as a percentage of revenues increased to 15.9% for fiscal 1997 from
14.6% in fiscal 1996, primarily attributable to the increased sales, recruiting
and administrative expenses necessary to support the Company's continued growth
within the information technology sector. Corporate overhead expenses as a
percentage of revenues decreased to 3.6% of revenues in fiscal 1997 from 4.0% in
fiscal 1996, as these costs were spread over a larger revenue base.
Depreciation and Amortization. Depreciation and amortization increased
73.6%, or $242,600, for fiscal 1997 as compared to fiscal 1996. This increase
was primarily due to the amortization of intangible assets acquired in
connection with the acquisitions.
Other Income Expense, Net of Interest Income. Actual interest expense of
$444,300 for fiscal 1997 was partially offset by $259,700 of interest income,
which was earned from the investment in interest bearing deposits of the net
proceeds of the Company's public offering in June 1997, after the repayment of
bank debt. Interest expense increased 171.3%, or $280,500, for fiscal 1997 as
compared to fiscal 1996. This increase was due to the increased borrowings
necessary to provide the funds required for certain of the Company's
acquisitions as well as to refinance the working capital debt of some of the
acquired companies.
19
<PAGE>
Income Tax. Income tax expense increased 663.1%, or $3.0 million, for
fiscal 1997 as compared to fiscal 1996. This increase was due to an increase in
the effective tax rate from 16.1% to 41.7% and increased levels of net income.
The increase in the effective tax rate was primarily due to the utilization of
principally all of the remaining net operating loss carryforward which offset
net income in prior periods.
Loss From Discontinued Operations. In fiscal 1997, the Company incurred a
one-time charge of $362,500 in connection with the settlement of a claim
relating to the Company's former operation of a materials recovery facility
prior to 1977. This segment of the Company's business was otherwise discontinued
in fiscal 1992.
YEAR ENDED OCTOBER 31, 1996 COMPARED TO YEAR ENDED OCTOBER 31, 1995
Revenues. Revenues increased 126.8%, or $34.1 million, in fiscal 1996 as
compared to fiscal 1995. Revenue growth was primarily attributable to
acquisitions. Internal growth was experienced in the Information Technology and
Professional Engineering Groups and was offset by discontinued business in the
General Support Group due to unacceptable margins and workers' compensation
rates.
Cost of Services. Cost of services increased 118.0%, or $26.4 million, in
fiscal 1996 as compared to fiscal 1995. This increase was primarily due to
increased salaries and compensation associated with the increased revenues
experienced during this period. Cost of services as a percentage of revenues
decreased to 79.9% for fiscal 1996 from 83.1% for fiscal 1995. This decline was
primarily attributable to a greater percentage of the Company's revenues being
derived from information technology and other professional staffing services.
Selling, General and Administrative. Selling, general and administrative
expenses increased 151.0%, or $5.4 million, in fiscal 1996 as compared to fiscal
1995. This increase resulted from the change in the mix of the business during
fiscal 1996, which required higher marketing, sales, recruiting and
administrative expenses than in fiscal 1995. Selling, general and administrative
expenses as a percentage of revenues increased to 14.6% during fiscal 1996 as
compared to 13.2% for fiscal 1995. This increase was primarily attributable to
higher marketing, sales, recruiting and administrative expenses necessary to
support continued growth within the information technology sector. Corporate
overhead expenses as a percentage of revenues decreased to 4.0% of revenues in
fiscal 1996 from 4.6% of revenues in fiscal 1995, as these costs were spread
over a larger revenue base.
Depreciation and Amortization. Depreciation and amortization increased
152.8%, or $199,000, in fiscal 1996 as compared to fiscal 1995. This increase
was primarily due to the amortization of intangible assets acquired in
connection with the acquisitions that occurred or were fully realized during
fiscal 1996.
Other Income (Expense). Other income (expense) consists primarily of
interest income (expense) which changed by $268,000, from $104,000 in fiscal
1995 to ($164,000) in fiscal 1996. This increase was attributable to increased
borrowings necessary to provide the funds required for the acquisitions during
fiscal 1996.
Income Tax. Income tax expense increased 385.0%, or $360,000, in fiscal
1996 as compared to fiscal 1995. This increase was primarily due to the higher
level of profitability for fiscal 1996. The effective tax rates experienced by
the Company in fiscal 1996 and fiscal 1995 were 16.1% and 9.9%, respectively.
During each of these periods, the Company utilized a net operating loss
carryforward to offset current income.
PRO FORMA COMPARED TO ACTUAL RESULTS OF OPERATIONS
Since the beginning of fiscal 1995 and through the date of this Prospectus,
the Company has acquired 13 staffing companies with combined revenues of
approximately $126.7 million in their respective latest twelve months prior to
acquisition. All of these acquisitions have been accounted for using the
purchase method of accounting, and, accordingly, the Company's statements of
income include the operating results of the acquired businesses from the dates
of acquisition. The Company's
20
<PAGE>
historical consolidated operating results have been significantly affected by
the number, timing and size of these acquisitions. Accordingly, pro forma
financial data are provided within this Prospectus for a more meaningful
representation of the Company's operating results.
Pro forma financial data have been prepared and included herein to give
effect to all acquisitions subsequent to October 31, 1997 as if they occurred as
of the beginning of fiscal 1997. Pro forma adjustments have been made to reflect
the elimination of certain non-recurring expenses that were identified at the
time of these acquisitions, primarily salary adjustments. The pro forma
financial data are not necessarily indicative of results of operations that
would have occurred had these acquisitions been consummated as of the beginning
of the periods presented or that might be attained in the future.
LIQUIDITY AND CAPITAL RESOURCES
To support its acquisition program and related working capital
requirements, the Company has historically used borrowings under its Revolving
Credit Facility and proceeds from offerings of Common Stock. On June 13, 1997,
the Company completed a public offering which raised $23.3 million in proceeds
for the Company. The net offering proceeds through January 31, 1998, have been
used to fund acquisitions (requiring $15.6 million) and retire bank debt. At
January 31, 1998, the Company had approximately $557,000 in cash and
approximately $11.7 million in unused loan availability under the Revolving
Credit Facility. During February 1998, the Company completed the acquisition of
two companies which required the use of $6.7 million of loan availability under
the Revolving Credit Facility and, as of March 31, 1998, the Company had
approximately $8.7 million outstanding under the facility.
Cash provided by operating activities was $2.8 million for the three months
ended January 31, 1998 compared to $1.1 million for the three months ended
January 31, 1997. This increase was the result of the increase of $1.1 million
in net income before depreciation and amortization and other non-cash charges
and the increase by $602,000 from changes in working capital, primarily an
increase in taxes payable which was in turn offset by an increase in accounts
receivable. Cash used in investing activities for the three months ended January
31, 1998 was $3.7 million compared to $5.2 million for the three months ended
January 31, 1997. This was principally the result of a larger acquisition in the
three months ended January 31, 1997 as compared to the acquisition completed in
the three months ended January 31, 1998. Cash provided by financing activities
for the three months ended January 31, 1998 was $554,000 compared to $4.2
million for the three months ended January 31, 1997. The increase in cash for
the three months ended January 31, 1998 was principally the result of proceeds
from the exercise of stock warrants. The increase in cash for the three months
ended January 31, 1997 represented a net increase in borrowings under the
Company's credit facility.
Cash used in operating activities was $3.8 million for fiscal 1997. This
was the result of $5.6 million of net income before depreciation and
amortization and other non-cash charges offset by $9.4 million from changes in
working capital, primarily an increase in accounts receivable and income taxes
payable, which was, in turn, offset by an increase in accrued payroll and
accounts payable. These changes were consistent with the Company's higher volume
of business. Cash used in investing activities for fiscal 1997 was $17.9
million, principally the result of acquiring four staffing companies which
required the use of $17.4 million of cash. Cash provided by financing activities
for fiscal 1997 was $22.5 million, principally the result of $23.3 million in
proceeds from the sale of common stock on June 13, 1997.
Cash used in operating activities was $1.9 million for fiscal 1996. This
was the result of $2.8 million of net income before depreciation and
amortization and other non-cash charges offset by $4.7 million from changes in
working capital, primarily an increase in accounts receivable, offset by an
increase in accrued payroll and income taxes payable. These changes were
consistent with the Company's higher volume of business. Cash used in investing
activities for fiscal 1996 was $1.2 million, principally a result of acquiring
three staffing companies which required the use of $1.0 million in cash. Cash
provided by financing activities for fiscal 1996 was $2.8 million, principally
the
21
<PAGE>
result of a net increase in borrowings of $1.8 million under the Company's
credit facility and proceeds of $1.0 million from the private placement of its
common stock.
Cash provided from operating activities was $1.1 million for fiscal 1995.
This was the result of $980,000 of net income before depreciation and
amortization and other non-cash charges and an increase by $121,000 from changes
in working capital, primarily a decrease in accounts receivable, offset by an
increase in prepaid expenses and other current assets. Cash used in investing
activities for fiscal 1995 was $2.4 million, principally the result of acquiring
two staffing companies which required the use of $2.3 million of cash. Cash used
by financing activities for fiscal 1995 was $916,000, principally the result of
repayments under the Company's credit facility.
On December 19, 1996, the Company and its subsidiaries entered into an
amended and restated loan agreement with Mellon Bank, N.A. to provide the
Revolving Credit Facility. The Revolving Credit Facility is secured by accounts
receivable, contract rights and furniture and fixtures together with unlimited
guarantees from the Company. The Revolving Credit Facility requires the Company
and its subsidiaries to meet certain financial objectives and maintain certain
financial covenants with respect to net income, effective net worth, working
capital, senior indebtedness to effective net worth ratios, capital
expenditures, current assets to current liabilities ratios, consolidated working
capital and consolidated tangible net worth. At October 31, 1997 and January 31,
1998, the Company and its subsidiaries were in compliance with all financial
covenants contained within the Revolving Credit Facility.
Borrowings under the Revolving Credit Facility are to be used to meet cash
flow requirements for the subsidiaries as well as operating expenses for the
Company. Borrowings under the Revolving Credit Facility bear interest, at the
Company's option, at LIBOR (London Interbank Offered Rate) or the bank's prime
rate, plus applicable margin. At October 31, 1997 and January 31, 1998 there was
approximately $14.0 million and $11.7 million, respectively, of unused loan
availability under the Revolving Credit Facility. The Company intends to utilize
approximately $6.7 million of the net proceeds from the Offering to pay down the
Revolving Credit Facility which had a balance of approximately $8.7 million as
of March 31, 1998, although the Company does intend to draw on this line as
needed in the future.
Following the completion of the Offering, the Company expects to enter into
a new revolving credit agreement to replace the Revolving Credit Facility. Based
on proposals for the new revolving credit agreement received by the Company,
management believes that the Company will have availability under the
replacement facility ranging from $50 million to $75 million, an anticipated
increase of $30 million to $55 million from the current facility, and that
pricing under the new facility will be more favorable to the Company than is
offered under the current facility. Management continues to evaluate the
proposals for the new arrangement and, following the completion of the Offering,
will seek a commitment from the lending group proposing the terms management
believes are most favorable to the Company.
The Company anticipates that its primary uses of capital in future periods
will be for acquisitions and the funding of increases in working capital. The
Company has fully utilized the net proceeds made available through the June 1997
public offering. The Company's business strategy is to achieve growth both
internally through operations and externally through strategic acquisitions. The
Company's liquidity and capital resources may be affected in the future as the
Company continues to grow through implementation of this strategy which may
involve acquisitions facilitated through the use of cash and/or debt and equity
securities. Funding for future acquisitions will be obtained from the proceeds
of the Offering, the Revolving Credit Facility, funds generated through
operations and future financing transactions.
The Company does not currently have material commitments for capital
expenditures and does not anticipate entering into any such commitments during
the next twelve months. The Company continues to evaluate acquisitions of
various businesses which are complementary to its current operations. The
Company's current commitments consist primarily of lease obligations for office
22
<PAGE>
space. The Company believes that its capital resources are sufficient to meet
its present obligations and those to be incurred in the normal course of
business for the next twelve months.
The Company may derive up to approximately $2.3 million of proceeds from
the issuance of up to approximately 157,000 shares of Common Stock that may
occur upon the exercise of all of its outstanding Warrants. As of January 31,
1998 and March 31, 1998, there were 612,479 and 377,234 Warrants outstanding,
respectively. Warrants were issued in a public offering undertaken by the
Company during 1989, and after several extensions, are scheduled to expire on
April 30, 1998. As adjusted by a subsequent recapitalization of the Company,
each five Warrants entitle the holder to purchase one share of Common Stock at
an exercise price of $15.00. As of March 31, 1998, the Company had received $1.2
million from the exercise of the Warrants.
YEAR 2000 COMPLIANCE
Many existing computer programs use only two digits to identify a year in
the date field. These programs were designed and developed without considering
the impact of the upcoming change in the century. If not corrected, many
computer applications could fail or create erroneous results by or at the Year
2000. In connection with this problem (the "Year 2000 Issue"), and in order to
continue to deliver quality customer service and centrally manage its
operations, the Company is currently upgrading its internal information system.
The Company anticipates that the upgrade will be completed by the end of 1998;
however, if such upgrade is not completed in a timely manner, the Year 2000
Issue may have a material effect on the operations of the Company. While the
total cost associated with the upgrade of the Company's system is not known at
this time, it is not expected to be material to the Company's financial position
and is being capitalized as incurred. See "Business -- Information Systems."
IMPACT OF INFLATION
The effects of inflation on the Company's operations were not significant
during the periods presented.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which is effective for all periods
beginning after December 15, 1997. SFAS 131 requires that public business
enterprises report certain information about operating segments in complete sets
of financial statements of the enterprise and in condensed financial statements
of interim periods issued to shareholders. It also requires that public business
enterprises report certain information about their products and services, the
geographic areas in which they operate, and their major customers. Management is
currently evaluating the impact of the disclosure requirements of this
statement.
23
<PAGE>
BUSINESS
The Company is a multi-regional provider of information technology and
other professional staffing services through its 41 branch offices located in 17
states. The Company's Information Technology Group offers responsive, timely and
comprehensive information technology staffing solutions to support the entire
systems applications development and implementation process. The Company's
information technology professionals have expertise in a variety of technical
disciplines, including enterprise software, network communications, database
design and development and client server migration. The Company also offers
professional engineering staffing and project management services, through its
Professional Engineering Group, for a variety of engineering disciplines, such
as aeronautical, electro-mechanical, nuclear and computer science. As of April
22, 1998, the Company employed approximately 1,000 information technology and
approximately 500 professional engineering personnel. The Company is also
engaged in the specialty healthcare and general support sectors of the staffing
industry. During fiscal 1997, the Company placed employees with approximately
1,150 customers within a variety of industries. Representative customers include
AT&T, Bell Atlantic, Chase Manhattan Bank, Liberty Mutual Insurance, MCI, Merck,
Merrill Lynch, Northeast Utilities and 3M.
INDUSTRY OVERVIEW
The staffing industry has experienced rapid growth in recent years.
According to Staffing Industry Report, revenues in the domestic temporary
staffing industry have grown from $24.6 billion in 1992 to an estimated $53.7
billion in 1997, a five-year compound annual growth rate of 17%. This growth has
been driven by a change in the role of temporary staffing in corporations.
Initially thought of as a short-term solution for peak production periods and as
a temporary replacement for full-time personnel, the staffing industry is now
considered an effective tool for helping companies manage their investment in
human resources. Companies now use temporary personnel for varying lengths of
time to respond to increasingly complex assignments. The shift towards contract
personnel allows companies to expand and contract employee levels based on
current needs, thus converting fixed labor costs into controllable variable
costs while still maintaining a high degree of employee skill level. Relying on
temporary staffing companies also reduces the costs associated with recruiting,
training and terminating employees. In addition, changing government regulations
concerning such items as employee benefits, health insurance and retirement
plans have significantly increased employment costs related to permanent
employees. In response, an increasing number of companies are turning to
temporary staffing as an effective method of maintaining high employee skill
level while controlling labor costs.
According to Staffing Industry Report, information technology is the
fastest growing sector within the temporary staffing industry, growing at a 24%
five-year compound annual growth rate from 1992 to 1997. In recent years,
businesses have become increasingly dependent on the use of computer systems to
manage operations, automate routine tasks and disseminate information throughout
the company. As companies have increased their investments in technology in
order to remain competitive, the complexity and rapid development of new
technologies have driven the need for increased levels of technical support.
Faced with the challenge of developing and supporting these updated systems,
companies are turning to information technology staffing services to provide
technical support. Utilizing outside information technology personnel allows a
company to focus on core operations, minimize its investment in its internal
information technology workforce and obtain technical support from professionals
with expertise in current technologies. Many companies have become comfortable
with outsourcing and now look outside of their organizations to utilize
individuals with the requisite specialized technical skills for temporary or
project-oriented assignments.
The staffing industry is highly fragmented, with over 7,000 companies in
the United States. The industry is currently experiencing a trend toward
consolidation as large companies seek to reduce the number of vendors and look
to staffing companies that offer a wide range of services over a broad
geographic area. In addition, the demand for employees skilled in new
technologies exceeds the supply of qualified personnel. As employers find it
more difficult to locate full-time candidates with special
24
<PAGE>
skills, they increasingly turn to temporary staffing companies to fill these
needs. The Company believes these industry conditions are making it more
difficult for small staffing companies to compete due to limited recruiting and
placement capabilities, limited working capital and limited management
resources. These factors are expected to accelerate the industry's consolidation
trend.
BUSINESS STRATEGY
RCM is dedicated to providing solutions to meet its customers' information
technology and other professional staffing needs. The Company's objective is to
be a leading provider of these specialty professional staffing services in
selected regions throughout the United States. The Company has developed
interrelated growth and operating strategies to achieve this objective. Key
elements of its growth and operating strategies are as follows:
GROWTH STRATEGY
Focus on Information Technology and Other Professional Staffing
Services. The Company will continue to focus on providing information
technology staffing services, the fastest growing sector of the temporary
staffing industry, as well as other professional staffing services. According to
Staffing Industry Report, revenues from information technology staffing services
grew at a 24% five-year compound annual growth rate from 1992 through 1997. In
addition to high growth rates, the Company believes that information technology
and other professional staffing services offer more attractive profit margins
than traditional staffing services. As the Company has transitioned its business
mix to information technology and other professional staffing services, and away
from general support staffing, it has experienced substantial margin
improvement. The Company's operating profit margin for the three months ended
January 31, 1998 was 8.3% as compared to 3.2% in fiscal 1995, when approximately
half of the Company's revenue was derived from general support staffing and the
Company did not offer information technology staffing services. The Company also
believes that information technology and other professional staffing services
are less cyclical than traditional staffing services.
Strengthen Market Presence in Selected Regions Throughout the Country. The
Company believes that a substantial amount of the total market for information
technology and other professional staffing services is located in certain high
growth regions in the United States. The Company's strategy is to expand into,
and strengthen its existing presence in, such high density, high growth regions.
Once established in a region, the Company concentrates on local and regional
accounts, as opposed to national accounts, and therefore competes primarily
against local and regional staffing companies with limited services, resources
and capabilities. The Company utilizes its mix of information technology and
other professional service offerings, recruiting and placement capabilities and
financial resources to distinguish itself from its competition and to achieve
significant customer penetration and retention. The Company enters new regions
by acquiring strong local or regional companies and improving their ability to
compete through the addition of the Company's resources. In February 1998, the
Company acquired Global Technology Solutions, Inc. of Sacramento, California,
thus establishing its first operations in the Northern California region, an
area characterized by strong demand for information technology and other
professional staffing services.
Continue Strategic Acquisitions. The Company has acquired 13 information
technology and other professional staffing companies since the beginning of
fiscal 1995. The staffing industry continues to be highly fragmented, and the
Company plans to continue its aggressive acquisition program. The Company's
acquisition strategy is designed to strengthen its presence in its existing
markets, expand into new geographic regions and add complementary service
offerings or offer new professional staffing services. In targeting
acquisitions, the Company focuses on companies with (i) annual revenues of $35
million or less, (ii) a history of profitable operations and experienced
management personnel, (iii) substantial growth prospects and (iv) sellers who
desire to join the Company's management team. To retain and provide incentives
for management of its acquired companies, the Company typically structures a
significant portion of the acquisition price in the form of multi-tiered
consideration based on growth of operating profitability of the acquired company
over a
25
<PAGE>
two to three-year period. The Company believes its success in completing
acquisitions is due to its entrepreneurial and decentralized operating
philosophy, its strong corporate-level support and resources, its status as a
public company and its ability to offer management of the acquired companies an
opportunity to join and participate in the growth of a rapidly growing provider
of information technology and other professional staffing services.
Promote Internal Growth. The Company is experiencing strong internal
growth. For the three months ended January 31, 1998, the Company's internal
revenue growth was 34% over the comparable prior-year period. The Company
believes its high levels of internal growth are a result of the Company's
transition to information technology and other professional staffing services,
its location in strong operating regions and its strategy of acquiring companies
with strong growth prospects and integrating their administrative functions to
permit management to focus on increasing sales. The Company plans to maintain
high levels of internal growth by increasing sales to existing customers,
developing new customer relationships and cross-selling its professional
staffing services. The Company believes approximately 50% of its current
customers are users of both outsourced information technology and professional
engineering services. The Company has increased its efforts to cross-sell its
information technology and professional engineering services. As an example of
cross-selling, the Company has successfully provided the services of its
Information Technology Group to the utility industry customer base of its
Professional Engineering Group.
Migrate Product Offerings to Higher Value Added Services. The Company's
strategic transition to a provider of information technology and other
professional staffing services was designed to move the Company into higher
growth and higher margin sectors of the staffing industry. For the three months
ended January 31, 1998, 82% of the Company's revenues were generated by
information technology and professional engineering staffing services. The
Company believes it now has the opportunity to offer higher value-added services
such as project management and consulting services to its professional staffing
services customer base. The Company currently derives a substantial percentage
of its professional engineering services revenues from project management work.
The Company plans to use the project management expertise of its Professional
Engineering Group to assist its Information Technology Group in expanding its
sales of higher margin consulting and project management services. The billing
rates and profit margins for project work and consulting services are higher
than those received for staffing services. The Company intends to achieve this
migration to higher value-added services through the internal sharing of its
engineering project management expertise as well as through acquisitions.
OPERATING STRATEGY
Foster a Decentralized Entrepreneurial Environment. A key element of the
Company's operating strategy is to foster a decentralized, entrepreneurial
environment for its employees. The Company fosters this environment by
continuing to build on the names, reputations and customer relationships of
acquired companies and by sharing their operating policies, procedures and
expertise with other branch locations to develop new ideas to best serve the
prospects of the Company. The Company believes an entrepreneurial business
atmosphere allows its branch offices to quickly and creatively respond to local
market demands and enhances the Company's ability to motivate, attract and
retain managers to maximize growth and profitability.
Develop and Maintain Strong Customer Relationships. The Company seeks to
develop and maintain strong interactive customer relationships by anticipating
and focusing on its customers' needs. The Company emphasizes a
relationship-oriented approach to business, rather than the transaction or
assignment-oriented approach used by many of its competitors. To develop close
customer relationships, the Company's branch managers regularly meet with both
existing and prospective clients to help design solutions for, and identify the
resources needed to execute, their strategies. The Company's branch managers
also maintain close communications with their customers during each project and
on an ongoing basis after its completion. The Company believes that this
relationship-oriented approach results in greater customer satisfaction and
reduced business development expense. Additionally, the Company believes that by
partnering with its customers to
26
<PAGE>
design flexible staffing programs that can be expanded, contracted or redirected
into other specialty areas, it can generate new opportunities to service their
staffing requirements. The Company focuses on providing customers with qualified
individuals compatible with the needs of such customers and makes a concerted
effort to follow the progress of such relationships to ensure their continued
success.
Attract and Retain High Quality Contract and Temporary Personnel. The
Company believes it has been successful in attracting and retaining qualified
contract and temporary personnel by (i) providing stimulating and challenging
work assignments, (ii) offering competitive wages, (iii) effectively
communicating with its candidates, (iv) providing training to maintain and
upgrade skills and (v) aligning the needs of its customers with the
appropriately skilled personnel. The Company has been successful in retaining
qualified contract and temporary personnel due in part to its use of qualified
personnel designated as "ombudsmen" who are dedicated to maintaining contact
with, and monitoring the satisfaction levels of, the Company's contract and
temporary personnel, while they are on assignment.
Centralize Administrative Functions. The Company seeks to maximize its
operational efficiencies by integrating general and administrative functions at
the corporate level, and reducing or eliminating redundant functions and
facilities at acquired companies, typically within three months of an
acquisition. This enables the Company to quickly realize potential savings and
synergies, efficiently control and monitor its operations and allows acquired
companies to focus on growing their sales and operations.
OPERATIONS
The Company provides information technology and other professional staffing
services through the following groups: Information Technology, Professional
Engineering, General Support and Specialty Healthcare.
INFORMATION TECHNOLOGY
The Company's Information Technology Group offers responsive, timely and
comprehensive information technology staffing solutions to support the entire
systems applications development and implementation process. The Company's
information technology professionals have expertise in a variety of technical
disciplines, including enterprise software, network communications, database
design and development and client server migration.
In the course of a customer's systems applications project, the Information
Technology Group may prepare project plans, assist users in defining high level
functional specifications, perform system analysis and detailed design, select
and configure hardware, create custom application programs, develop migration
plans to move to a new operating platform or system, install and test the
system, obtain user acceptance, draft user documentation, train the customer's
employees to use the system and support, maintain and fine-tune the system on an
ongoing basis. In addition, the Information Technology Group supports a wide
variety of operating systems, programming languages, software tools and database
management applications, including UNIX, Windows, Solaris, Novell, Netware,
Sybase, Informix, Lotus Notes, Clipper, Visual Basic, Visual C++, Cobol II, CICS
and Fortran. The Company believes that its ability to provide information
technology staffing for a full range of such services provides an important
competitive advantage. The Company also strives to ensure that its consultants
have the expertise and skills needed to keep pace with rapidly evolving
information technologies.
27
<PAGE>
Customers typically require the Company's services in order to fill gaps in
their range of professional staffing needs or to augment existing personnel in
response to expanded business needs. Engagements average in duration from three
to 12 months. The following are examples of the types of services that have been
provided by the Company's Information Technology Group:
o The Company provided 20 professionals to a large HMO to provide system
development, implementation, support, project management and training for
remote access capability. This system enables the HMO's remote personnel
and customers to access the HMO's main computing systems. The Company is
currently providing eight network engineers to develop and implement a
new high security firewall for the HMO's external network and computing
systems.
o The Company provided five professionals to a major Mid-Atlantic utility
for a project designed to improve internet and intranet connectivity
through site evaluation and design, including security analysis,
installation and support to ensure fully functional transitions. This
relationship was developed through the Company's Professional Engineering
Group.
o The Company provided 20 programming professionals to a multi-national
bank holding company to write custom software for a variety of business
analysis and programming applications. These programs are being developed
to conform to a number of different platforms and environments, including
IBM mainframe, UNIX, AS400, OS2 and Novell.
o The Company provided 25 professionals to a national communications
conglomerate to evaluate the viability and advisability of downsizing an
application to the client/server platform. The engagement entailed
analyzing the system against requirements, surveying system users to
assess satisfaction, assessing the system's suitability for client server
implementation, and preliminary evaluation of off-the-shelf systems.
As of April 22, 1998 approximately 1,000 information technology personnel
were employed by the Company.
PROFESSIONAL ENGINEERING
The Professional Engineering Group provides personnel to perform project
engineering, computer aided design, and other technical services either at the
site of the customer or, less frequently, at the Company's own facilities.
Representative services include utilities process and control, electrical
engineering design, system engineering design and analysis, mechanical
engineering design, procurement engineering, civil structural engineering
design, computer aided design and code compliance. The Professional Engineering
Group has also developed an expertise in providing engineering, design and
technical services to many customers in the aeronautical, paper and paper
products manufacturing industries and the nuclear power, fossil fuel and
electric utility industries.
The Company believes that the deregulation of the utilities industry and
the aging of nuclear power plants offer the Company an opportunity to capture a
significant share of professional staffing and project management requirements
of the utilities industry both in professional engineering services and through
cross-selling of its information technology services. Heightened competition,
deregulation and rapid technological advances are forcing the utilities industry
to make fundamental changes in its business process. These pressures have
compelled the utilities industry to focus on internal operations and maintenance
activities and to increasingly outsource their personnel requirements.
Additionally, the Company believes that increased performance demands from
deregulation should increase the importance of information technology to this
industry. The Company believes that its expertise and strong relationships with
certain customers within the utilities industry position the Company to be a
leading provider of professional services to the utilities industry.
28
<PAGE>
The engagements of the Professional Engineering Group generally vary in
duration from three to 12 months. The following are examples of the types of
services that have been provided by the Company's Professional Engineering
Group:
o The Company is providing 50 contract engineers to a New England utility
involved in the restart of three major electrical generating stations.
The Company's engineers are reviewing platform design documentation,
updating safety analysis reports and establishing and documenting correct
plant configuration to be in accordance with applicable regulatory
requirements.
o The Company is providing 30 engineers to a major Canadian power producer
who recently initiated a long-term organizational and plant improvement
program. The Company's engineers are providing their expertise in the
areas of regulatory compliance, performance assurance and emergency
planning. As a result of this initial engagement, the Company also placed
several information technology professionals with this Canadian power
provider.
o The Company is providing 30 engineers to a large manufacturer of personal
hygiene and tissue products. The Company's engineers are designing mill
equipment used to convert paper into products and assisting with
evaluating configuration of management processes to install, operate and
support production facilities.
o The Company provided five engineers to a major Mid-Atlantic based
telecommunications company to provide telecommunication systems redesign.
This relationship was developed through the Company's Information
Technology Group.
As of April 22, 1998, approximately 500 engineering personnel were employed
by the Company.
GENERAL SUPPORT
The General Support Group provides contract and temporary services, as well
as permanent placement services, for full time and part time personnel in a
variety of functional areas, including office, clerical, data entry,
secretarial, light industrial, shipping and receiving and general warehouse.
Contract and temporary assignments range in length from less than one day to
several weeks or months. The General Support Group has been awarded multi-year
contracts by such customers as AT&T, First National Bank of Chicago, Mellon Bank
and Sears.
SPECIALTY HEALTHCARE
The Specialty Healthcare Group provides skilled, licensed healthcare
professionals, primarily physical therapists, occupational therapists and speech
language pathologists. The Specialty Healthcare Group provides services to
hospitals, nursing homes, pre-schools, sports medicine facilities and private
practices. Services include: in-patient, out-patient, sub-acute and acute care,
rehabilitation, geriatric, pediatric and adult day care. The Specialty
Healthcare Group does not provide nursing or home healthcare services. Typical
engagements range either from three to six months or are on a day-to-day shift
basis.
29
<PAGE>
BRANCH OFFICES
The Company's branch organization consists of four operating regions with
41 offices located in 17 states. The region of, and services provided by, each
branch office are set forth in the table below.
<TABLE>
<CAPTION>
NUMBER OF
REGION OFFICES SERVICES PROVIDED(1)
- ------ --------- --------------------
<S> <C> <C>
NORTHEAST
Connecticut.................. 3 PE, GS
Maryland..................... 1 IT
New Hampshire................ 1 IT
New Jersey................... 8 IT, PE, SH, GS
New York..................... 2 IT, PE, SH
Pennsylvania................. 3 IT, PE, GS
--
18
MIDWEST
Indiana...................... 1 GS
Iowa......................... 1 IT
Kentucky..................... 3 PE, GS
Michigan..................... 2 PE
Minnesota.................... 1 IT
Missouri..................... 1 IT, PE
Wisconsin.................... 3 IT, PE
--
12
SOUTHEAST
Georgia...................... 1 PE
North Carolina............... 1 PE
South Carolina............... 1 PE
--
3
WEST
Northern California.......... 1 IT
Southern California.......... 7 GS
--
8
</TABLE>
- ------------------
(1) Services provided are abbreviated as follows:
IT -- Information Technology
PE -- Professional Engineering
SH -- Specialty Healthcare
GS -- General Support
Branch offices are primarily located in regions which the Company believes
have strong growth prospects for information technology and other professional
staffing services. The Company's branches are operated in a decentralized,
entrepreneurial manner with each branch office as an independent profit center.
The Company's branch managers are given significant autonomy in the daily
operations of their respective offices and, with respect to such offices, are
responsible for overall guidance and supervision, budgeting and forecasting,
sales and marketing strategies, pricing, hiring and training. Branch managers
are paid on a performance-based compensation system designed to motivate the
managers to maximize growth and profitability.
The Company believes that a substantial portion of the buying decisions
made by users of information technology and other professional staffing services
are made on a local or regional basis and that the Company's branch offices most
often compete with local and regional providers. Since the Company's branch
managers are in the best position to understand the local and regional
information technology and other professional staffing markets, and customers
often prefer local providers, the Company believes that a decentralized
operating environment maximizes operating performance and contributes to
employee and customer satisfaction.
30
<PAGE>
From its headquarters in Pennsauken, New Jersey, the Company provides its
branch offices with centralized administrative, marketing, finance and legal
support. Centralized administrative functions minimize the administrative
burdens on branch office managers and allow them to spend more time focusing on
sales and marketing activities. The Company believes that its ability to rapidly
integrate the administrative functions of its acquisitions has greatly enhanced
its internal growth.
Most of the branch offices have one branch manager, one sales manager,
three salespersons and three recruiters. The Company's branch managers report to
product-line general managers. General managers meet with branch managers on a
regular basis to identify "best practices" for the various sales and marketing
and recruiting processes and assist the branch managers in implementing these
best practices. The Company's branch managers meet every three to six months to
discuss "best practices" and ways to increase the Company's cross-selling of its
professional services.
SALES AND MARKETING
Sales and marketing efforts are conducted at the local and regional level
through the Company's network of branch offices. The Company emphasizes
long-term personal relationships with customers which are developed through
regular assessment of customer requirements and proactive monitoring of
personnel performance. The Company's sales personnel make regular visits to
existing and prospective customers. New customers are obtained through active
sales programs and referrals. The Company encourages its employees to
participate in national and regional trade associations, local chambers of
commerce and other civic associations. The Company seeks to develop strategic
partnering relationships with its customers by providing comprehensive staffing
solutions for all aspects of a customer's information technology and other
professional staffing needs. The Company also concentrates on providing
carefully screened professionals with the appropriate skills in a timely manner
and at competitive prices. The Company constantly monitors the quality of the
services provided by its personnel and obtains feedback from its customers as to
their satisfaction with the services provided.
During fiscal 1997, the Company placed employees with approximately 1,150
customers in a variety of industries. Representative customers include AT&T,
Bell Atlantic, Chase Manhattan Bank, Liberty Mutual Insurance, MCI, Merck,
Merrill Lynch, Northeast Utilities and 3M. Although the Company serves numerous
Fortune 500 companies, the Company's relationships with these customers is
typically formed at the local or regional level as the Company does not actively
solicit national contracts, which typically have lower margins.
Northeast Utilities, for whom the Company provides professional engineering
staffing services, accounted for 8.4% of the Company's revenues for the three
months ended January 31, 1998. No other customer accounted for over 5.0% of the
Company's revenues during these periods. The Company's five and ten largest
customers accounted for approximately 21.9% and 30.3%, respectively, of the
Company's revenues for fiscal 1997 and 18.8% and 27.8%, respectively, of the
Company's revenues for the three months ended January 31, 1998.
RECRUITING AND TRAINING
The Company devotes a significant amount of time and resources, primarily
at the branch level, to locating, training and retaining its professional
staffing personnel. Full-time recruiters utilize the Company's proprietary
database of available personnel, which is cross-indexed by skill to match
potential candidates with the specific requirements of the customer. The
qualified personnel in the databases are identified through numerous activities,
including networking, referrals, the internet, job fairs, newspaper and trade
journal advertising, attendance at industry shows and presentations. The Company
also has several recruiters dedicated to recruiting highly skilled, highly
sought-after information technology personnel from international locations such
as Australia, Canada, England, India, Mexico, New Zealand, South Korea and other
European and Southeast Asian countries. International recruits are available to
all branch office locations through the Company's corporate headquarters.
The Company routinely performs verification of education and employment, as
well as personal and professional reference checks. As potential candidates are
identified, each individual participates in an extensive qualification process.
An in-house interview of the candidate is typically conducted by
31
<PAGE>
both the recruiting and sales staff and candidates are evaluated and qualified
by a member of the Company's technical staff. Upon placement with the
appropriate customer, the employee is continually monitored and supervised to
ensure competent, timely and professional performance. Regular on-site visits by
the Company's representatives are made and the employees and their supervisors
are contacted. Professionals complete weekly status reports which are signed by
their supervisors and report regularly on the status of their projects in order
to identify and eliminate potential problems and issues which may arise. Exit
interviews are conducted upon completion of an assignment and the customer is
invited to confirm that all parties are satisfied with the work completed. The
Company also offers educational programs to upgrade the skills of its personnel,
particularly within its Information Technology Group.
The Company believes that a significant element to the Company's success in
retaining qualified contract and temporary personnel is the Company's use of
"ombudsmen." Ombudsmen are qualified Company personnel dedicated to maintaining
contact with, and monitoring the satisfaction levels of the Company's contract
and temporary personnel, while they are on assignment.
INFORMATION SYSTEMS
The Company has invested, and intends to continue to invest, substantial
resources to develop systems that will enable it to deliver quality financial
and operating data to management, provide timely and accurate customer billing
and centrally manage its operations. The Company's internal information system
is linked to all of the Company's offices. This system supports Company-wide
operations such as payroll, billing, accounting and sales and management
reports. Additionally, each of the four service groups has separate databases to
permit efficient tracking of available personnel on a local basis. These
databases facilitate efficient matching of customers' requirements with
available temporary staffing personnel. For acquired companies, administrative
functions are integrated into the Company's information system and personnel
databases are updated accordingly. The Company typically completes this process
within three months of the acquisition.
The Company is currently running a beta version of an upgrade to its
current internal information system and it is expecting that the new system will
be fully operational by the end of 1998. The new system is provided by Applied
Datametrics and is currently used by numerous staffing companies. The new system
is year 2000 compliant and will expand management reporting capabilities and
provide the flexibility necessary for the Company's acquisition strategy.
COMPETITION
The staffing industry is highly competitive and fragmented, consisting of
more than 7,000 companies. There are limited barriers to entry and new
competitors frequently enter the market. The Company's principal competitors are
generally local or regional independent staffing companies that are located in
the Company's various regional markets. The Company also encounters competition
from international and national companies. Certain of the Company's competitors
have more established operations and greater marketing, financial and other
resources than the Company.
Additionally, the Company competes for suitable acquisition candidates
based on its entrepreneurial and decentralized operating philosophy, its strong
corporate-level support and resources, its status as a public company and its
ability to offer management of the acquired companies an opportunity to
participate in the growth of a rapidly growing provider of information
technology and other professional staffing services.
PRIOR BUSINESS OPERATIONS
The Company was previously engaged in the development of environmental
technologies and the operation, until 1977, of an aluminum recovery facility in
California. In fiscal 1992, the Company discontinued its environmental business.
On September 26, 1997, the Company settled a potential environmental claim
relating to the discontinued operations. In connection with such settlement, in
fiscal 1997, the Company incurred a loss from discontinued operations of
approximately $363,000. The Company believes, but cannot assure, that all
matters, environmental or otherwise, relating to the discontinued operations
have been concluded.
32
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The Company's executive officers, directors and key employees are as
follows:
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS AND DIRECTORS AGE OFFICE
- -------------------------------- --- ------
<S> <C> <C>
Leon Kopyt (1)....................... 51 Chairman, Chief Executive Officer, President and
Director
Stanton Remer (1).................... 48 Chief Financial Officer, Treasurer, Secretary and
Director
Brian A. Delle Donne................. 41 Executive Vice President of Operations; General
Manager of Information Technology
Rocco Campanelli..................... 47 Senior Vice President and General Manager of
Professional Engineering
Kevin D. Miller...................... 31 Senior Vice President of Corporate Development
Peter R. Kaminsky.................... 58 Senior Vice President of Information Technology
Norman S. Berson (2)................. 71 Director
Robert B. Kerr (2)(3)................ 55 Director
Woodrow B. Moats, Jr. (3)............ 65 Director
<CAPTION>
KEY EMPLOYEES
- -------------
<S> <C> <C>
Michael Farber....................... 43 Vice President of Information Technology
Frank Lentz.......................... 53 Vice President of Information Technology
Warren Lillund....................... 40 Vice President of Professional Engineering
Michael O'Keefe...................... 48 Vice President of Information Technology
Michael Saks......................... 41 Vice President and General Manager of Specialty
Healthcare and General Support
</TABLE>
- ------------------
(1) Messrs. Kopyt and Remer are Class C directors of the Company and their terms
expire at the annual meeting of stockholders in 1999.
(2) Mr. Berson is a Class A director of the Company and his term expires at the
annual meeting of stockholders in 2000.
(3) Messrs. Kerr and Moats are Class B directors of the Company and their terms
expire at the annual meeting of stockholders in 2001.
Mr. Kopyt was appointed President and Chief Executive Officer in January
1992 and from May 1990 to that date served as Chief Operating Officer of the
Company. Additionally, Mr. Kopyt served as Chief Financial Officer and Treasurer
of the Company from 1992 to 1994. Mr. Kopyt's prior experience includes serving
as President and Chief Executive Officer of Socimi International, a European
transportation and defense products manufacturing company from 1981 to 1990. Mr.
Kopyt holds a B.S. in Electrical Engineering from Drexel University. Mr. Kopyt
has been a director of the Company since 1991 and Chairman of the Board since
1992.
Mr. Remer was appointed Chief Financial Officer and Treasurer in May 1994.
Mr. Remer's prior experience includes serving as an audit manager of a local
accounting firm in 1993, serving as Chief Financial Officer of Sterling Supply
Corporation from 1991 to 1992 and serving as managing partner of a regional
accounting firm from 1983 to 1991. Mr. Remer is a Certified Public Accountant
and holds a M.B.A. in Finance from Temple University and a B.S. in Textile
Engineering from the Philadelphia College of Textiles & Science. Mr. Remer has
been a director of the Company since 1992.
Mr. Delle Donne was appointed Executive Vice President of Operations in
April 1998. Mr. Delle Donne served as President of Knight Facilities Management,
a global planning, engineering and management consulting firm from 1997 to 1998.
Mr. Delle Donne also served as Senior Vice President of Ogden Projects, Inc.,
and President and Chief Operating Officer of Ogden Environmental Services
33
<PAGE>
from 1989 to 1997. Mr. Delle Donne also served in various capacities with
Westinghouse Electric Corp. from 1978 to 1989. Mr. Delle Donne holds a B.A. in
Materials Engineering and Economics from Brown University.
Mr. Campanelli was appointed Senior Vice President and General Manager of
Engineering in September 1995. Previously, he was a Senior Vice President of
Operations and Marketing for Cataract, Inc. (acquired by the Company in August
1995). He also held the position of Northeast Regional Manager and Vice
President of Operations since joining Cataract in 1988. Mr. Campanelli's prior
experience includes serving as a Division Manager of Sales and Marketing and
Section Manager of the Management Services Section of Impell Corporation, a
division of Combustion Engineering, from 1976 to 1988. Mr. Campanelli holds a
B.S. in Nuclear Science and Engineering from Maritime College.
Mr. Miller was appointed Senior Vice President of Corporate Development in
July 1997. Mr. Miller's prior experience includes serving as an Associate in the
corporate finance department of Legg Mason Wood Walker, Incorporated from 1996
to 1997, serving as a business consultant for the Wharton Small Business
Development Center from 1995 to 1996 and serving in various capacities in both
the audit and corporate finance groups at Ernst & Young, LLP. Mr. Miller is a
Certified Public Accountant and holds a M.B.A. in Finance from the Wharton
School of the University of Pennsylvania and a B.S. in Accounting from the
University of Delaware.
Mr. Kaminsky was appointed Senior Vice President in May 1996. Mr. Kaminsky
was the founder of Consortium of Maryland, Inc. ("Consortium MD") (acquired by
the Company in May 1996). Mr. Kaminsky founded Consortium MD in 1980. Mr.
Kaminsky holds a B.S. in Science from American University.
Mr. Berson has been a shareholder in the law firm of Fineman & Bach, P.C.,
of Philadelphia, Pennsylvania, and its predecessors since 1981. The Company has
retained Fineman & Bach, P.C. to represent it on various legal matters. From
1967 to 1982, Mr. Berson was a member of the House of Representatives of the
Commonwealth of Pennsylvania. Mr. Berson has been a director of the Company
since 1987.
Mr. Kerr is founder and partner of Everingham & Kerr, Inc., a merger and
acquisition consulting firm located in Haddon Heights, New Jersey, which
provides professional intermediary services and other consulting services to
small and middle market manufacturing, distribution and service businesses. Mr.
Kerr's prior experience includes serving as Vice President-Sales, for
Shieldalloy Corporation, a specialty metals producer, from 1974 to 1987. Mr.
Kerr holds a B.S. in Mechanical Engineering and a B.A. in Arts and Sciences from
Pennsylvania State University and a M.B.A. in Management from Wayne State
University. Mr. Kerr has been a director of the Company since 1994.
Mr. Moats is President of W.B. Moats & Associates, Berwyn, Pennsylvania, a
marketing communications organization specializing in business-to-business
marketing. Mr. Moats' prior experience includes serving as Senior Vice
President-Corporate Marketing and Public Relations of National Railway
Utilization Corporation from 1975 to 1980. Mr. Moats is a graduate of the
University of Miami, Florida, as a marketing major specializing in advertising.
Mr. Moats has been a director of the Company since 1994.
Mr. Farber was appointed Vice President of Information Technology in March
1998 and has been with the Company since January 1996. Mr. Farber has 20 years
experience within the information technology industry in the service, software
and hardware arenas. For the two years prior to joining the Company, Mr. Farber
was President and owner of Management By Objective, an information technology
placement firm. Mr. Farber has previously held positions with Dun & Bradstreet,
where he was Director of Sales, as well as KDI, a manufacturer of multi-media
products, where he was Director of Business Development.
Mr. Lentz was appointed Vice President of Information Technology in
November 1996. Mr. Lentz was the founder of Programming Alternatives of
Minnesota, Inc. ("PAMI") (acquired by the Company in November 1996). Mr. Lentz
came to the Company with thirty years of experience in
34
<PAGE>
the staffing industry. For seven years, he held several management positions
with General Employment Enterprises. He then spent ten years with Control Data
Corporation as the Vice President of the Cyber Search Division. He purchased
this division from Control Data in 1983 and formed PAMI.
Mr. Lillund was appointed Vice President of Professional Engineering in
January 1998. Previously, he was an owner of Northern Technical Services ("NTS,"
acquired by the Company in January 1998). Prior to joining NTS in 1994, Mr.
Lillund was a District Finance and Contract Marketing Manager for Xerox
Corporation and held various other sales and management positions from 1981 to
1994. Mr. Lillund holds a B.S. in Political Science and Psychology from the
University of Wisconsin-Oshkosh.
Mr. O'Keefe was appointed Vice President of Information Technology in
October 1997. Previously, he was a founder of Camelot Contractors Limited
(acquired by the Company in August 1997) and served as its Chief Executive
Officer. His prior experience includes serving as Vice President of MAS New
Hampshire and as Vice President and Treasurer of Technology Profiles Inc. MAS
New Hampshire and Technology Profiles Inc. are recruiting firms that serve the
information technology market. Mr. O'Keefe holds a B.A. from St. Anselm College
and a Master of Natural Science Degree from Worcester Polytechnic Institute.
Mr. Saks was appointed Vice President and General Manager of Specialty
Healthcare and General Support in March 1998. Mr. Saks previously served as Vice
President of Specialty Healthcare since May 1997 and joined The Consortium
(acquired by the Company in March 1996) in January 1994. Mr. Saks' prior
experience includes serving as Vice President of M.A. Management Associates, a
New York based Executive Search Firm. Mr. Saks holds a B.S. in Accounting from
Fairleigh Dickenson University.
35
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of April 24, 1998 and as adjusted to
reflect the sale of the shares of Common Stock offered hereby by: (i) each
person known by the Company to beneficially own 5% or more of the Company's
outstanding Common Stock; (ii) each of the Company's directors; (iii) the
Company's Chief Executive Officer; (iv) the four most highly compensated
executive officers of the Company (other than the Chief Executive Officer) who
were serving as such on October 31, 1997 and received total annual salary and
bonus in fiscal 1997 of more than $100,000; (v) the Selling Stockholders; and
(vi) all directors and executive officers of the Company as a group. Except as
otherwise indicated, each person set forth below has sole voting and investment
power on the shares reported.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY NUMBER SHARES TO BE
OWNED PRIOR TO OF SHARES BENEFICIALLY OWNED
OFFERING(1) BEING OFFERED(2) AFTER OFFERING
------------------- ---------------- -------------------
NAME AND ADDRESS(3) NUMBER PERCENT NUMBER PERCENT
------------------- --------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Leon Kopyt (4)(5)................................ 1,100,008 13.1% 104,020 995,988 9.1%
Stanton Remer(5)(6).............................. 457,576 5.9 30,000 427,576 4.1
Peter R. Kaminsky (7)............................ 70,265 * -- 70,265 *
Norman S. Berson (5)(8).......................... 437,576 5.6 20,000 417,576 4.0
Robert B. Kerr (5)(9)............................ 435,576 5.6 18,000 417,576 4.0
Woodrow B. Moats, Jr. (5)(9)..................... 435,576 5.6 18,000 417,576 4.0
Wellington Management Company, LLP .............. 745,200 9.7 -- 745,200 7.2
75 State Street, 19th Floor
Boston, MA 02109
Barry S. Meyers (10) ............................ 555,468 7.2 -- 555,468 5.3
384 Highview Terrace
Ridgewood, NJ 07450
Martin Blaire (10) .............................. 541,468 7.0 -- 541,468 5.2
32 Lewis Road
Irvington, NY 10533
All directors and officers as a group
(9 persons)(3)(4)(5)(6)(7)(8).................. 1,443,068 15.8 190,020 1,253,048 10.8
</TABLE>
- ------------------
* Represents less than one percent of the Company's outstanding Common Stock.
(1) The securities "beneficially owned" by an individual are determined in
accordance with the definition of "beneficial ownership" set forth in
regulations promulgated under the Securities Exchange Act of 1934, as
amended. Accordingly, the beneficial ownership of certain persons set forth
in the table above includes securities owned by or for, other persons,
securities as to which such persons share voting or investment power and
securities which such persons have the right to acquire within 60 days
after the date of this Prospectus. The table has been prepared based on
7,693,868 shares of Common Stock outstanding as of April 24, 1998.
(2) The shares of Common Stock being offered by the Selling Stockholders will
be issued by the Company upon the exercise of the Selling Stockholder
Options.
(3) The address of all directors and officers of the Company is c/o RCM
Technologies, Inc., 2500 McClellan Avenue, Suite 350, Pennsauken, New
Jersey 08109.
(4) Includes options to purchase 694,020 shares under the Company's stock
option plans and 38,312 shares with respect to which Mr. Kopyt has sole
voting power in the election of directors and disclaims beneficial
ownership. See "-- Certain Voting Arrangements."
(5) Includes 367,576 shares with respect to which each director is deemed to
have shared voting power as a member of the Board of Directors pursuant to
an arrangement under which the Board of Directors has power to vote the
shares. Each director disclaims beneficial ownership of those shares. See
"-- Certain Voting Arrangements."
(6) Includes options to purchase 90,000 shares under the Company's stock option
plans.
36
<PAGE>
(7) Mr. Kaminsky has agreed to vote 55,265 of his shares in accordance with the
recommendation of the majority of the Board of Directors until the earlier
of: (i) May 2, 1998; or (ii) the termination of his employment agreement
with the Company. Includes options to purchase 15,000 shares under the
Company's stock option plans.
(8) Includes options to purchase 70,000 shares under the Company's stock option
plans.
(9) Includes options to purchase 68,000 shares under the Company's stock option
plans. Does not include options to purchase 2,000 shares under the
Company's stock option plans, which options are not exercisable within 60
days after the date of this Prospectus.
(10) In fiscal 1997, Messrs. Meyers and Blaire were officers and directors of
the Company. Messrs. Meyers and Blaire acquired their shares in March 1996
in connection with their sale of The Consortium to the Company. At the time
of the sale, each of Messrs. Meyers and Blaire entered into a two-year
employment agreement with the Company expiring on March 11, 1998 unless
renewed by the Company. In January 1998, the Company informed each of
Messrs. Meyers and Blaire that his employment agreement would not be
renewed. On February 19, 1998, Mr. Meyers' employment with the Company
ended and, effective March 12, 1998, Mr. Meyers resigned from the Company's
Board of Directors. On March 27, 1998, Mr. Blaire's employment with the
Company ended and, effective April 6, 1998, Mr. Blaire resigned from the
Company's Board of Directors.
CERTAIN VOTING ARRANGEMENTS
On February 5, 1996, the Company issued and sold 276,625 shares of Common
Stock to Limeport Investments, LLC ("Limeport") in a private placement
transaction. In conjunction with this transaction, Limeport granted Mr. Kopyt an
irrevocable proxy entitling him to vote such shares solely in connection with
the election of directors of the Company, at any regular or special meeting of
the stockholders. The number of shares of Common Stock owned by Limeport
Investments at April 22, 1998 was 38,312.
Effective August 31, 1995, the Company completed the acquisition of
Cataract, Inc. ("Cataract") pursuant to a Merger Agreement dated July 31, 1995
(the "Cataract Merger Agreement"). Pursuant to the terms of the Cataract Merger
Agreement, the former Cataract shareholders pledged until November 30, 1998,
approximately 312,311 shares of the Company's common stock ("Cataract Shares")
they received as part of the merger consideration, in order to guarantee certain
performance criteria of Cataract established in the Cataract Merger Agreement.
Following the expiration of the pledge period, the Cataract Shares are to be
placed in a voting trust until the earlier of (i) the public or private sale of
such shares in open market transactions to unaffiliated third parties or (ii)
the resignation or removal from office of Leon Kopyt, currently Chief Executive
Officer and President of the Company. Notwithstanding the above, one-third of
the Cataract Shares shall be released from trust commencing August 31, 2000, and
thereafter an additional one-third of the Cataract Shares shall be released from
trust upon each of August 31, 2001 and August 31, 2002. During the period in
which the Cataract Shares are subject to pledge and the voting trust, the
Cataract Shares are to be voted by the Company's Board of Directors on behalf of
the former shareholders of Cataract.
Effective May 2, 1996, the Company completed the acquisition of Consortium
MD pursuant to a Merger Agreement dated April 23, 1996 (the "Consortium MD
Merger Agreement"). Pursuant to the terms of the Consortium MD Merger Agreement,
Peter Kaminsky, the former sole shareholder of Consortium MD and an executive
officer of the Company, agreed, among other things, to vote the 55,265 shares of
Common Stock received by him in connection with all matters to be voted on by
the stockholders of the Company, in accordance with the recommendation of the
majority of the Board of Directors. These provisions shall remain in effect
until the earlier of (i) May 2, 1998 or (ii) the termination of Mr. Kaminsky's
employment agreement with the Company.
The former shareholders of The Consortium, including Messrs. Meyers and
Blaire, have limited preemptive rights with respect to certain issuances of
voting securities for cash by the Company. The rights are not applicable to the
offering of shares of Common Stock made by the Company pursuant to this
Prospectus or other underwritten public offerings or to issuances of shares of
Common Stock pursuant to stock option plans.
37
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon the closing of the Offering, there will be 10,393,868 shares of Common
Stock outstanding all of which will be freely tradeable without restriction or
further registration under the Securities Act, unless held by an "affiliate" of
the Company as that term is defined in Rule 144 under the Securities Act, which
shares will be subject to the resale limitations of Rule 144 and, except for (i)
1,096,936 shares which have been registered for resale and may be sold subject
to certain contractual restrictions limiting resales by each of Messrs. Meyers
and Blaire to 50,000 shares, each, per week, (ii) 55,265 shares have been
registered for resale, but are subject to a 90-day Lock-Up Period (as defined
below), and (iii) 312,311 shares may not be sold until November 30, 1998 due to
contractual restrictions. All other outstanding shares are subject to the resale
limitations of Rule 144.
In general, under Rule 144 as currently in effect, a stockholder (or
stockholders whose shares are aggregated) who has beneficially owned shares
constituting "restricted securities" (generally defined as securities acquired
from the Company or an affiliate of the Company in a non-public transaction) for
at least one year is entitled to sell within any three-month period a number of
shares that does not exceed the greater of (i) one percent of then outstanding
Common Stock 103,938 shares of Common Stock immediately after the Offering
without giving effect to additional shares issued pursuant to the Underwriters'
over-allotment option) or (ii) the average weekly reported trading volume in the
Common Stock during the four calendar weeks preceding the date on which notice
of such sale is filed pursuant to Rule 144. Sales under Rule 144 are also
subject to certain provisions regarding the manner of sale, notice requirements
and the availability of current public information about the Company. A
stockholder (or stockholders whose shares are aggregated) who is not an
affiliate of the Company for at least 90 days prior to a sale and who has
beneficially owned "restricted securities" for at least two years is entitled to
sell such shares under Rule 144 without regard to the limitations described
above.
The Company and its executive officers and directors have agreed not to
offer, sell, contract to sell or otherwise dispose of any shares of Common Stock
or rights to acquire such shares or securities convertible into or exchangeable
for Common Stock other than sales contemplated hereby or issued or to be issued
pursuant to employee stock option plans or in connection with other employee
incentive compensation arrangements or agreements, in each case in effect on the
date of this Prospectus, for a period of 90 days after the date of this
Prospectus (the "Lock-Up Period"), without the prior written consent of BT Alex.
Brown Incorporated, as representative of the Underwriters.
Sales of additional shares in the public market could also occur upon the
exercise of 52,855 vested and exercisable employee stock options held by persons
not subject to the lock-up, and Class C Warrants to purchase 55,855 shares of
Common Stock. These sales could take place prior to the expiration of the
Lock-Up Period.
No prediction can be made as to the effect, if any, that future sales of
shares of Common Stock, or the availability of shares for future sale, to the
public will have on the market price of the Common Stock prevailing from time to
time. Sales of substantial amounts of Common Stock in the public market, whether
such shares are presently outstanding or subsequently issued, or the perception
that such sales could occur, could adversely affect prevailing market prices for
the Common Stock and could impair the Company's ability to raise capital in the
future through an offering of equity securities. The Company cannot predict when
or how many of such additional shares of Common Stock may be offered for sale or
sold to the public in the future.
38
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their Representatives, BT
Alex. Brown Incorporated, BancAmerica Robertson Stephens and Legg Mason Wood
Walker, Incorporated, have severally agreed to purchase from the Company and the
Selling Stockholders the following respective number of shares of Common Stock
at the public offering price less the underwriting discounts and commissions set
forth on the cover page of this Prospectus:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ -----------
<S> <C>
BT Alex. Brown Incorporated.................................
BancAmerica Robertson Stephens..............................
Legg Mason Wood Walker, Incorporated........................
-----------
Total............................................... 2,700,000
===========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase the total number of shares of Common Stock offered
hereby (other than those subject to the over-allotment described below) if any
of such shares are purchased.
The Company and the Selling Stockholders have been advised by the
Representatives that the Underwriters propose to offer the shares of Common
Stock to the public at the public offering price set forth on the cover page of
this Prospectus and to certain dealers at such price less a concession not in
excess of $ per share. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share to certain other
dealers. After commencement of the Offering, the Offering price and other
selling terms may be changed by the Representatives.
The Company has granted to the Underwriters an option, exercisable not
later than 30 days after the date of this Prospectus, to purchase up to 405,000
additional shares of Common Stock at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage thereof that the number of shares of Common Stock purchased by each
of them as shown in the above table bears to 2,700,000, and the Company will be
obligated, pursuant to the option, to sell such shares to the Underwriters. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of the Common Stock offered hereby. If purchased, the
Underwriters will offer such additional shares on the same terms as those on
which the 2,700,000 shares are being offered.
In connection with the Offering, certain Underwriters may engage in passive
market making transactions in the Common Stock on the Nasdaq National Market
immediately prior to the commencement of sales in the Offering in accordance
with Rule 103 of Regulation M. Passive market making consists of displaying bids
on the Nasdaq National Market limited by the bid prices of independent market
makers and making purchases limited by such prices and effected in response to
order flow. Net purchased by a passive market maker on each day are limited to a
specified percentage of the passive market maker's average daily trading volume
in the Common Stock during a specified period and must be discontinued when such
limit is reached. Passive market making may stabilize the market price of the
Common Stock at a level above that which might otherwise prevail and, if
commenced, may be discontinued at any time.
39
<PAGE>
Subject to applicable limitations, the Underwriters, in connection with the
Offering, may place bids for or make purchases of the Common Stock in the open
market or otherwise, for long or short account, or cover short positions
incurred to stabilize, maintain or otherwise affect the price of the Common
Stock, which may be higher than the price that might otherwise prevail in the
open market. There can be no assurance that the price of the Common Stock will
be stabilized, or that stabilizing, if commenced, will not be discontinued at
any time. Subject to applicable limitations, the Underwriters may also place
bids or make purchases on behalf of the underwriting syndicate to reduce a short
position created in connection with the Offering. The Underwriters are not
required to engage in these activities and may end these activities at any time.
The Underwriting Agreement contains covenants of indemnity and contribution
between the Underwriters and the Company and the Selling Stockholders with
respect to certain civil liabilities, including liabilities under the Securities
Act.
The Company's officers and directors, who following the Offering will
beneficially own an aggregate of 914,425 shares of Common Stock, and the Company
have agreed not to offer, sell or otherwise dispose of any such Common Stock or
any shares of Common Stock issuable upon exercise of any options for Common
Stock for a period of 90 days after the date of this Prospectus without the
prior written consent of BT Alex. Brown Incorporated, except for the Common
Stock offered hereby.
LEGAL MATTERS
Certain legal matters in connection with the Offering will be passed upon
for the Company by Wolf, Block, Schorr and Solis-Cohen LLP, Philadelphia,
Pennsylvania. The validity of the shares of Common Stock offered hereby has been
passed upon for the Company by Schreck Morris, Las Vegas, Nevada. As to matters
of Nevada law, Wolf, Block, Schorr and Solis-Cohen LLP will rely upon the
opinion of Schreck Morris. Certain legal matters in connection with the Offering
will be passed upon for the Underwriters by Hogan & Hartson L.L.P., Baltimore,
Maryland.
EXPERTS
The financial statements as of October 31, 1996 and 1997 and for each of
the three years in the period ended October 31, 1997 included in this Prospectus
have been audited by Grant Thornton LLP, independent certified public
accountants, whose report thereon is included herein, in reliance of said firm
as experts in auditing and accounting.
AVAILABLE INFORMATION
The Company is subject to the informational and reporting requirements of
the Exchange Act and, in accordance therewith, files reports, proxy statements
and other information with the Commission. Such reports, proxy statements and
other information concerning the Company may be inspected without charge, and
copies of all or any part thereof may be obtained from the Commission's
principal office in Washington, D.C. at Room 1024, 450 Fifth Street N.W.,
Washington, D.C. 20549, and at the Commission's regional offices at 7 World
Trade Center, Suite 1300, New York, New York 10048, and at Northwest Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such materials can be obtained upon written request addressed to the Commission,
Public Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The Common Stock is listed for trading on the Nasdaq National
Market, and reports, proxy statements and other information concerning the
Company are on file for inspection at the offices of The Nasdaq Stock Market,
Inc., 1735 K Street, N.W., Washington, D.C. 20006. In addition, the Commission
maintains a Web site at http://www.sec.gov containing reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission, including the Company.
40
<PAGE>
The Company has filed with the Commission a Registration Statement on Form
S-3 under the Securities Act with respect to the shares of Common Stock being
offered by this Prospectus. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto, certain parts of which have been omitted as permitted by the
rules and regulations of the Commission. For further information with respect to
the Company and the shares of Common Stock offered hereby, reference is made to
the Registration Statement, including the exhibits and schedules thereto.
Statements contained in this Prospectus as to the contents of any contract or
other document referred to herein are not necessarily complete and, where such
contract or other document is an exhibit to the Registration Statement, each
such statement is qualified in all respects by the provisions of such exhibit,
to which reference is hereby made.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company (File No. 1-10245)
with the Commission under the Exchange Act are incorporated by reference in this
Prospectus as of their respective dates: (i) the Company's Annual Report on Form
10-K for the fiscal year ended October 31, 1997, (ii) the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended January 31, 1998, (iii) the
Company's Current Reports on Form 8-K dated January 2, 1998 and March 17, 1998
and (iv) the description of the Common Stock contained in the Company's
Registration Statement on Form 10 filed under Section 12 of the Exchange Act on
March 1, 1982.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of the shares of Common Stock offered hereby shall
be deemed to be incorporated by reference in this Prospectus and to be a part
hereof from the respective dates of filing of such documents, except as to any
portion of any future annual or quarterly report to the Company's stockholders
or proxy statement which is not deemed to be filed under those provisions. Any
statement contained in this Prospectus, or in a document, all or a portion of
which is incorporated by reference herein, shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any subsequently dated document, as the case may be,
which also is or is deemed to be incorporated by reference herein, modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as modified or superseded, to constitute a part of this
Prospectus.
The Company undertakes to provide, without charge, to each person to whom a
copy of this Prospectus has been delivered, upon the request of such person, a
copy of any or all of the documents referred to above which have been or may be
incorporated by reference in this Prospectus, other than exhibits to such
documents, unless such exhibits are also specifically incorporated by reference
herein. Written or oral requests for such copies should be directed to the
Company at 2500 McClellan Avenue, Suite 350, Pennsauken, New Jersey 08109-4613,
Attention: Stanton Remer; telephone number (609) 486-1777.
41
<PAGE>
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
PAGE
REFERENCE
---------
Pro Forma Condensed Consolidated Statements of Operations
(Unaudited):
Three Months Ended January 31, 1998......................... F-2
Year Ended October 31, 1997................................. F-3
Notes to Unaudited Pro Forma Condensed Consolidated
Statements of Operations.................................. F-4
Consolidated Financial Statements:
Independent Auditors' Report................................ F-7
Consolidated Balance Sheets, October 31, 1996 and 1997 and
January 31, 1998 (Unaudited).............................. F-8
Consolidated Statements of Income, Years Ended October 31,
1995, 1996 and 1997 and the Three Months Ended January 31,
1997 and 1998
(Unaudited)............................................... F-9
Consolidated Statements of Changes in Shareholders' Equity,
Years Ended October 31, 1995, 1996 and 1997 and the Three
Months Ended January 31, 1998 (Unaudited)................. F-10
Consolidated Statements of Cash Flows, Years Ended October
31, 1995, 1996 and 1997 and the Three Months Ended January
31, 1997 and 1998 (Unaudited)............................. F-11
Notes to Consolidated Financial Statements.................. F-12
F-1
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED JANUARY 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ACQUIRED PRO FORMA OFFERING PRO FORMA
HISTORICAL COMPANIES(A) ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
---------- ------------ ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues.................... $ 37,232 $7,358 $ 44,590 $ 44,590
Cost of services............ 28,080 5,607 33,687 33,687
---------- ------ ---------- ----------
Gross profit................ 9,152 1,751 10,903 10,903
---------- ------ ---------- ----------
Selling, general and
administrative............ 5,814 1,618 (577)(b) 6,855 6,855
Depreciation and
amortization.............. 251 10 55 (c) 316 316
---------- ------ ----- ---------- ----------
Total operating
expenses.............. 6,065 1,628 (522) 7,171 7,171
---------- ------ ----- ---------- ----------
Operating income............ 3,087 123 522 3,732 3,732
Interest expense, net of
interest income........... (39) (9) (176)(d) (224) 200(f) (24)
---------- ------ ----- ---------- -------- ----------
Income before taxes......... 3,048 114 346 3,508 200 3,708
Income taxes................ 1,271 (65) 261 (e) 1,467 80(e) 1,547
---------- ------ ----- ---------- -------- ----------
Net income.................. $ 1,777 $ 179 $ 85 $ 2,041 $ 120 $ 2,161
========== ====== ===== ========== ======== ==========
Earnings per common share... $ 0.22 $ 0.25 $ 0.25
========== ========== ==========
Weighted average number of
shares outstanding........ 8,177,283 0 0 8,177,283 389,792(f) 8,567,075
========== ====== ===== ========== ======== ==========
</TABLE>
See notes to pro forma condensed consolidated financial statement.
F-2
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
YEAR ENDED OCTOBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ACQUIRED PRO FORMA OFFERING PRO FORMA
HISTORICAL COMPANIES(A) ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
---------- ------------ ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues.................... $ 113,959 $51,502 $ 165,461 $ 165,461
Cost of services............ 86,832 39,607 126,439 126,439
---------- ------- ---------- ----------
Gross profit................ 27,127 11,895 39,022 39,022
---------- ------- ---------- ----------
Selling, general
and administrative........ 18,069 9,812 (3,260)(b) 24,621 24,621
Depreciation and
amortization.............. 572 48 488 (c) 1,108 1,108
---------- ------- ------- ---------- ----------
Total operating
expenses.............. 18,641 9,860 (2,772) 25,729 25,729
---------- ------- ------- ---------- ----------
Operating income............ 8,486 2,035 2,772 13,293 13,293
Other expense............... (185) (55) (1,572)(d) (1,812) 1,912(f) 100
---------- ------- ------- ---------- ---------- ----------
Income before taxes......... 8,301 1,980 1,200 11,481 1,912 13,393
Income taxes................ 3,461 764 666 (e) 4,891 765(e) 5,656
---------- ------- ------- ---------- ---------- ----------
Income from continuing
operations................ 4,840 1,216 534 6,590 1,147 7,737
Loss from discontinued
operations................ (363) (363) (363)
---------- ------- ------- ---------- ----------
Net income.................. $ 4,477 $ 1,216 $ 534 $ 6,227 $ 1,147 $ 7,374
========== ======= ======= ========== ========== ==========
Earnings per common share:
Income from continuing
operations.............. $ 0.76 $ 1.03 $ 0.92
Loss from discontinued
operations.............. (0.06) (0.05) (0.04)
---------- ---------- ----------
Net income................ $ 0.70 $ 0.98 $ 0.88
========== ========== ==========
Weighted average number of
shares outstanding........ 6,361,181 20,199 0 6,381,380 1,995,386(f) 8,376,766
========== ======= ======= ========== ========== ==========
</TABLE>
See notes to pro forma condensed consolidated financial statement.
F-3
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
1. BASIS OF PRESENTATION
The accompanying unaudited pro forma condensed consolidated statements of
operations (the "Pro Forma Financial Statements") are based on adjustments to
the historical consolidated statements of operations of RCM Technologies, Inc.
("RCM" or the "Company") to give effect to the acquisitions described in Note 3
(the "Acquired Companies"). The pro forma condensed consolidated statements of
operations assume all acquisitions described in Note 3 were consummated as of
the beginning of the periods presented. The pro forma condensed consolidated
statements of operations are not necessarily indicative of results that would
have occurred had the acquisitions been consummated as of the beginning of the
periods presented or that might be attained in the future. Certain information
normally included in financial statements prepared in accordance with generally
accepted accounting principles has been condensed or omitted pursuant to the
rules and regulations of the Securities and Exchange Commission. The Pro Forma
Financial Statements should be read in conjunction with the historical
consolidated financial statements of RCM, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this Prospectus.
2. FOOTNOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(a) THREE MONTHS ENDED JANUARY 31, 1998. The Acquired Companies statement of
operations represents historical operating data for fiscal 1998
acquisitions (described in Note 3) from November 1, 1997 to the earlier
of their respective dates of acquisition or January 31, 1998. Each of the
acquisitions has been accounted for under the purchase method of
accounting. Accordingly, the results of operations of each of the
Acquired Companies are included in the historical results of operations
of the Company from the date of its acquisition.
YEAR ENDED OCTOBER 31, 1997. The Acquired Companies statement of
operations represents historical operating data for fiscal 1997 and
fiscal 1998 acquisitions (described in Note 3) from November 1, 1996 to
the earlier of their respective dates of acquisition or October 31, 1997.
Each of the acquisitions has been accounted for under the purchase method
of accounting. Accordingly, the results of operations of each of the
Acquired Companies are included in the historical results of operations
of the Company from the date of its acquisition.
(b) The adjustments to reduce selling, general and administrative expenses
reflect redundant operating costs and non-recurring expenses that were
immediately identifiable at the time of the acquisitions. The adjustments
primarily reflect reductions in salaries for the difference between
compensation of certain sellers prior to consummation of the acquisition
and their compensation following the acquisitions as stipulated in their
respective employment agreements.
(c) Reflects additional amortization of goodwill over a 40 year period, as if
the Acquired Companies were acquired as of the beginning of the period
presented.
(d) Reflects additional interest expense that would have been incurred had
the Acquired Companies been acquired as of the beginning of the period
presented and the acquisition consideration was funded with debt. The
interest rate of 8% used to calculate pro forma interest on the assumed
additional debt reflects the Company's approximate borrowing rate.
(e) Reflects income taxes at the Company's effective tax rates.
(f) THREE MONTHS ENDED JANUARY 31, 1998. The Offering Adjustments assume the
issuance of 389,792 shares of Common Stock at $23.00, which, net of
estimated underwriting discounts and
F-4
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS -- (CONTINUED)
2. FOOTNOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS -- (CONTINUED)
offering expenses payable by the Company, would result in sufficient net
proceeds to repay acquisition related debt. These shares are assumed to
have been issued and the debt repaid, as of November 1, 1997, and thus
interest expense attributable to such debt has been eliminated.
YEAR ENDED OCTOBER 31, 1997. The Offering Adjustments assume that the
Company's secondary offering of 2,698,187 shares on June 10, 1997
were issued as of November 1, 1996. The Offering Adjustments also assume
the issuance of 539,785 shares of Common Stock at $23.00, which, net of
estimated underwriting discounts and offering expenses payable by the
Company, would result in sufficient net proceeds to repay acquisition
related debt. These shares are assumed to have been issued and the debt
repaid, as of November 1, 1996 and thus interest expense attributable to
such debt has been eliminated.
3. ACQUISITIONS
FISCAL 1997
PROGRAMMING RESOURCES UNLIMITED ("PRU"). On April 1, 1997, the Company
acquired certain operating assets of PRU, a Wayne, Pennsylvania-based provider
of information technology staffing services, for a purchase price consisting of:
(i) $600,000 in cash; (ii) $300,000 of contingent consideration, payable over
three years upon attaining certain earnings targets; and (iii) additional
consideration to the extent that during the three year period, PRU exceeds the
earnings targets. PRU generated revenue of approximately $2.4 million during the
fiscal year prior to the date of acquisition.
CAMELOT CONTRACTORS LIMITED ("CAMELOT"). On August 4, 1997, the Company
acquired all of the outstanding stock of Camelot, a Manchester, New
Hampshire-based provider of information technology staffing services, for a
purchase price consisting of: (i) $9.0 million in cash and 22,409 shares of
common stock valued at $318,433; (ii) $3.5 million of contingent consideration,
payable over three years upon attaining certain earnings targets; and (iii)
additional consideration to the extent that during the three year period,
Camelot exceeds the earnings targets. Camelot generated revenue of approximately
$16.2 million during the fiscal year prior to the date of acquisition.
AUSTIN NICHOLS TECHNICAL TEMPORARIES, INC. ("AUSTIN"). On September 29,
1997, the Company acquired all of the outstanding stock of Austin, a Kansas
City, Missouri-based provider of information technology and professional
engineering staffing services, for a purchase price consisting of: (i) $2.5
million in cash; (ii) $900,000 of contingent consideration, payable over three
years upon attaining certain earnings targets; and (iii) additional
consideration to the extent that during the three year period, Austin exceeds
the earnings targets. Austin generated revenue of approximately $4.9 million
during the fiscal year prior to the date of acquisition.
J.D. KARIN CONSULTING SERVICES, INC. ("J.D. KARIN"). On September 29, 1997,
the Company acquired all of the outstanding stock of J.D. Karin, a Flanders, New
Jersey-based provider of information technology staffing services, for a
purchase price consisting of: (i) $1.8 million in cash; (ii) $1.2 million of
contingent consideration, payable over three years upon attaining certain
earnings targets; and (iii) additional consideration to the extent that during
the three year period, J.D. Karin exceeds the earnings targets. J.D. Karin
generated revenue of approximately $4.9 million during the fiscal year prior to
the date of acquisition.
F-5
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS -- (CONTINUED)
3. ACQUISITIONS -- (CONTINUED)
FISCAL 1998
NORTHERN TECHNICAL SERVICES, INC. ("NTS"). On January 4, 1998, the Company
purchased of the outstanding stock of NTS, a Milwaukee, Wisconsin-based,
provider of information technology and professional engineering staffing
services, for a purchase price consisting of: (i) $3.1 million in cash; (ii)
$1.5 million of contingent consideration, payable over two years upon attaining
certain earnings targets; and (iii) additional consideration to the extent that
during the two year period, NTS exceeds the earnings targets. NTS generated
revenue of approximately $12.6 million during the fiscal year prior to the date
of acquisition.
STAFFWORKS, INC. ("STAFFWORKS"). On February 2, 1998, the Company purchased
all of the outstanding stock of Staffworks, a Stanhope, New Jersey-based
provider of information technology staffing services, for a purchase price
consisting of: (i) $3.0 million in cash; (ii) $2.0 million of contingent
consideration, payable over three years upon attaining certain earnings targets;
and (iii) additional consideration to the extent that during the three year
period, Staffworks exceeds the earnings targets. Any additional consideration
paid will be recorded as additional purchase price. Staffworks generated revenue
of approximately $12.6 million during the fiscal year prior to the date of
acquisition.
GLOBAL TECHNOLOGY SOLUTIONS ("GLOBAL"). On February 2, 1998, the Company
acquired all of the outstanding stock of Global, a Sacramento, California-based
provider of information technology staffing services, for a purchase price
consisting of: (i) $3.7 million in cash; (ii) $2.0 million of contingent
consideration payable over two years upon attaining certain earnings targets;
and (iii) additional consideration to the extent that during the two year
period, Global exceeds the earnings targets. Global generated revenues of
approximately $5.5 million during the fiscal year prior to the date of
acquisition.
4. EARNINGS PER SHARE
Pro forma earnings per share were computed by dividing net income
applicable to common stock by the average number of shares of common stock and
common stock equivalents outstanding during the period and the dilutive effect
of common stock issued in connection with the acquisition of the Acquired
Companies.
F-6
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
RCM Technologies, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of RCM
Technologies, Inc. (a Nevada corporation) and Subsidiaries as of October 31,
1997 and 1996 and the related consolidated statements of income, changes in
shareholders' equity and cash flows for each of the three years in the period
ended October 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
RCM Technologies, Inc. and Subsidiaries as of October 31, 1997 and 1996 and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended October 31, 1997 in conformity with
generally accepted accounting principles.
We have also audited Schedules I and II of RCM Technologies, Inc. and
Subsidiaries as of and for each of the three years in the period ended October
31, 1997. In our opinion, these schedules present fairly, in all material
respects, the information required to be set forth therein.
/s/_ Grant Thornton LLP_______________
Grant Thornton LLP
Philadelphia, Pennsylvania
December 12, 1997
(Except for Note 4 regarding the
acquisition
of Northern Technical Services, Inc.
as to
which the date is January 5, 1998)
F-7
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 31, JANUARY 31,
------------------------- -----------
1996 1997 1998
---- ---- ----
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents.................... $ 5,989 $ 918,028 $ 557,089
Accounts receivable, net of allowance for
doubtful accounts of $76,000; $315,748 and
$331,000 in 1996, 1997 and 1998,
respectively.............................. 13,985,445 24,850,304 26,476,435
Prepaid expenses and other current assets.... 404,198 673,265 347,479
----------- ----------- -----------
Total current assets...................... 14,395,632 26,441,597 27,381,003
----------- ----------- -----------
Property and equipment, at cost
Equipment and leasehold improvements......... 1,644,831 2,508,680 3,390,018
Less: accumulated depreciation and
amortization.............................. 1,142,740 1,373,275 1,904,668
----------- ----------- -----------
502,091 1,135,405 1,485,350
----------- ----------- -----------
Other assets
Deposits..................................... 88,039 94,149 102,847
Intangible assets (net of accumulated
amortization
of $366,337; $804,640 and $989,797 in
1996, 1997 and 1998, respectively)........ 9,420,858 26,411,445 29,493,114
----------- ----------- -----------
9,508,897 26,505,594 29,595,961
----------- ----------- -----------
Total assets.............................. $24,406,620 $54,082,596 $58,462,314
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Note payable - bank.......................... $ 2,746,636 $ 2,000,000 $ 2,000,000
Accounts payable and accrued expenses........ 734,791 1,315,937 1,619,559
Accrued payroll.............................. 2,789,725 4,501,502 4,193,615
Taxes other than income taxes................ 432,607 665,106 2,110,627
Income taxes payable......................... 920,439 679,937 1,396,852
----------- ----------- -----------
Total current liabilities................. 7,624,198 9,162,482 11,320,653
----------- ----------- -----------
Income taxes payable........................... 562,312 308,129 198,047
Shareholders' equity
Preferred stock, $1.00 par value; 5,000,000
shares authorized; no shares issued
or outstanding............................
Common stock, $0.05 par value; 40,000,000
shares authorized; 4,878,476; 7,582,206
and 7,624,152 shares issued in 1996, 1997
and 1998, respectively.................... 243,924 379,110 381,208
Additional paid-in capital................... 17,161,105 40,877,540 41,429,670
Treasury stock, at cost 62,800 shares........ (62,821)
Retained earnings (accumulated deficit)...... (1,122,098) 3,355,335 5,132,736
----------- ----------- -----------
16,220,110 44,611,985 46,943,614
----------- ----------- -----------
Total liabilities and shareholders'
equity................................. $24,406,620 $54,082,596 $58,462,314
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED OCTOBER 31, JANUARY 31,
---------------------------------------- -------------------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues............................. $26,915,737 $61,039,173 $113,959,093 $21,150,721 $37,232,243
Cost of services..................... 22,378,817 48,779,886 86,832,348 16,051,317 28,080,004
----------- ----------- ------------ ----------- -----------
Gross profit..................... 4,536,920 12,259,287 27,126,745 5,099,404 9,152,239
----------- ----------- ------------ ----------- -----------
Operating costs and expenses
Selling, general and
administrative................... 3,549,810 8,914,102 18,068,899 3,625,653 5,813,557
Depreciation and amortization...... 130,397 329,680 572,279 118,629 251,256
----------- ----------- ------------ ----------- -----------
3,680,207 9,243,782 18,641,178 3,744,282 6,064,813
----------- ----------- ------------ ----------- -----------
Operating income..................... 856,713 3,015,505 8,485,567 1,355,122 3,087,426
----------- ----------- ------------ ----------- -----------
Other income (expense)
Interest expense, net of interest
income........................... 104,652 (163,695) (184,645) (84,801) (39,332)
Other, net......................... (18,760) (30,332)
----------- ----------- ------------ ----------- -----------
85,892 (194,027) (184,645) (84,801) (39,332)
----------- ----------- ------------ ----------- -----------
Income before income taxes........... 942,605 2,821,478 8,300,922 1,270,321 3,048,094
Income taxes......................... 93,500 453,539 3,460,989 489,334 1,270,693
----------- ----------- ------------ ----------- -----------
Income from continuing operations.... 849,105 2,367,939 4,839,933 780,987 1,777,401
Loss from discontinued operations,
net of income tax benefit of
$262,500 (Note 2).................. (362,500)
----------- ----------- ------------ ----------- -----------
Net income....................... $ 849,105 $ 2,367,939 $ 4,477,433 $ 780,987 $ 1,777,401
=========== =========== ============ =========== ===========
Basic earnings per share
Continuing operations.............. $ 0.29 $ 0.56 $ 0.80 $ 0.16 $ 0.23
Discontinued operations............ (0.06)
----------- ----------- ------------ ----------- -----------
Net income....................... $ 0.29 $ 0.56 $ 0.74 $ 0.16 $ 0.23
=========== =========== ============ =========== ===========
Diluted earnings per share
Continuing operations.............. $ 0.28 $ 0.55 $ 0.76 $ 0.16 $ 0.22
Discontinued operations............ (0.06)
----------- ----------- ------------ ----------- -----------
Net income....................... $ 0.28 $ 0.55 $ 0.70 $ 0.16 $ 0.22
=========== =========== ============ =========== ===========
Shares used in computing earnings per
share
Basic earnings per share........... 2,933,819 4,247,907 6,068,713 4,815,676 7,593,447
Diluted earnings per share......... 3,007,969 4,320,571 6,361,181 4,962,541 8,177,283
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED OCTOBER 31, 1995, 1996 AND 1997
AND THREE MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK EARNINGS
-------------------- ADDITIONAL (ACCUMULATED TREASURY
SHARES AMOUNT PAID-IN CAPITAL DEFICIT) STOCK
------ ------ --------------- ------------ --------
<S> <C> <C> <C> <C> <C>
Balance, October 31, 1994..... 2,942,713 $147,135 $ 9,732,308 ($4,339,142) ($62,821)
Issuance of common stock in
connection with
acquisitions............. 312,311 15,616 1,184,384
Net income.................. 849,105
--------- -------- ----------- ----------- --------
Balance, October 31, 1995..... 3,255,024 162,751 10,916,692 (3,490,037) (62,821)
Exercise of stock options... 10,000 500 15,438
Issuance of common stock in
connection with
acquisitions............. 1,336,827 66,841 5,242,807
Sale of common stock........ 276,625 13,832 986,168
Net income.................. 2,367,939
--------- -------- ----------- ----------- --------
Balance, October 31, 1996..... 4,878,476 243,924 17,161,105 (1,122,098) (62,821)
Retirement of Treasury
Stock.................... (62,800) (3,140) (59,681) 62,821
Exercise of stock options... 4,171 209 23,031
Sale of common stock........ 2,698,187 134,909 23,136,814
Issuance of common stock in
connection with
acquisitions............. 43,347 2,167 317,312
Issuance of common stock in
connection with legal
settlement............... 20,825 1,041 298,959
Net income.................. 4,477,433
--------- -------- ----------- ----------- --------
Balance, October 31, 1997..... 7,582,206 379,110 40,877,540 3,355,335
Exercise of Stock Options
(Unaudited).............. 7,100 356 49,931
Exercise of Warrants
(Unaudited).............. 34,846 1,742 502,199
Net Income (Unaudited)...... 1,777,401
--------- -------- ----------- ----------- --------
Balance, January 31, 1998
(Unaudited)................. 7,624,152 $381,208 $41,429,670 $ 5,132,736 $
========= ======== =========== =========== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED OCTOBER 31, JANUARY 31,
------------------------------------------ ---------------------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income................................ $ 849,105 $ 2,367,939 $ 4,477,433 $ 780,987 $ 1,777,401
------------ ------------ ------------ ------------ ------------
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization............. 130,397 329,680 572,279 118,629 251,256
Non cash portion of legal settlement...... 300,000
Provision for losses on accounts
receivable.............................. 61,000 239,748 81,000 15,000
Changes in assets and liabilities:
Accounts receivable..................... 854,552 (8,522,460) (11,104,607) 278,442 (1,641,131)
Prepaid expenses and other current
assets................................ (405,116) 267,464 (137,067) (246,776) 325,786
Accounts payable and accrued expenses... (10,064) 262,684 581,146 (76,269) 303,622
Accrued payroll......................... (151,348) 1,606,791 1,711,777 (215,376) (307,887)
Billings in excess of costs and
estimated earnings.................... (148,229)
Taxes other than income taxes........... (18,938) 227,113 232,499 227,921 1,445,521
Income taxes payable.................... 1,482,751 (626,685) 162,914 606,833
------------ ------------ ------------ ------------ ------------
251,254 (4,284,977) (8,230,910) 330,485 999,000
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in) operating
activities................................ 1,100,359 (1,917,038) (3,753,477) 1,111,472 2,776,401
------------ ------------ ------------ ------------ ------------
Cash flows from investing activities:
Increase in intangible assets............. (137,272) (141,826)
Property and equipment acquired........... (68,189) (128,264) (450,350) (80,546) (416,044)
(Increase) decrease in deposits........... (6,643) (44,965) (6,110) 4,333 (8,698)
Cash paid for acquisitions, net of cash
acquired................................ (2,345,966) (1,049,433) (17,426,351) (5,012,394) (3,125,000)
------------ ------------ ------------ ------------ ------------
Net cash used in investing activities..... (2,420,798) (1,222,662) (17,882,811) (5,225,879) (3,691,568)
------------ ------------ ------------ ------------ ------------
Cash flows from financing activities:
Net borrowing (repayments) under short
term debt arrangements.................. 176,278 1,832,201 (746,636) 4,253,364
Repayments of long term debt.............. (1,092,362) (20,090)
Sale of common stock...................... 1,000,000 23,271,723
Exercise of stock options and warrants.... 15,938 23,240 554,228
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in) financing
activities................................ (916,084) 2,848,139 22,548,327 4,233,274 554,228
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents............................... (2,236,523) (291,561) 912,039 118,867 (360,939)
Cash and cash equivalents, beginning of
period.................................... 2,534,073 297,550 5,989 5,989 918,028
------------ ------------ ------------ ------------ ------------
Cash and cash equivalents, end of period.... $ 297,550 $ 5,989 $ 918,028 $ 124,856 $ 557,089
============ ============ ============ ============ ============
Supplemental cash flow information:
Cash paid for:
Interest expense........................ $ 36,738 $ 163,811 $ 444,347 $ 90,189 $ 55,114
Income taxes............................ $ 220,498 $ 726,332 $ 3,825,174 $ 197,438 $ 663,860
Acquisitions:
Fair value of assets acquired........... $ 5,218,694 $ 7,302,476 $ 20,929,663 $ 5,641,380 $ 4,440,881
Liabilities assumed..................... 2,872,728 6,253,043 3,503,312 628,986 1,315,881
------------ ------------ ------------ ------------ ------------
Cash paid, net of cash acquired......... $ 2,345,966 $ 1,049,433 $ 17,426,351 $ 5,012,394 $ 3,125,000
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS AND DISCLOSURES AT AND FOR THE
THREE MONTHS ENDED JANUARY 31, 1997 AND 1998 ARE UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
RCM Technologies, Inc. (the "Company"), through its wholly-owned
subsidiaries, is a multi-regional provider of professional staffing services.
The Company provides contract and temporary personnel in the Information
Technology, Professional Engineering, Specialty Healthcare and General Support
sectors of the staffing industry to a diversified base of national, regional and
local customers.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All intercompany accounts and transactions
have been eliminated.
INTERIM UNAUDITED FINANCIAL INFORMATION
The accompanying interim unaudited consolidated financial statements have
been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission (SEC). Certain information and footnote
disclosures which are normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to SEC rules and regulations, although management believes that
the disclosures are adequate to make the information presented not misleading.
The information reflects all normal and recurring adjustments which, in the
opinion of Management, are necessary for a fair presentation of the financial
position of the Company and its results of operations for the interim periods
set forth herein. The results for the three months ended January 31, 1998 are
not necessarily indicative of the results to be expected for the full year.
GROSS PROFIT
The Company has realigned its Statement of Income presentation format to be
consistent with industry practices. Under the new format, gross profit
represents the difference between revenues and direct costs. The principal
components of direct costs are the wages and employee payroll taxes and benefits
associated with employees directly providing services to customers. Operating
and administrative costs, both variable and fixed, are shown below the gross
profit line. Prior period Statements of Income have been reclassified to be
consistent with the new format.
PROPERTY AND EQUIPMENT
Depreciation of equipment is provided for in amounts sufficient to relate
the cost of depreciable assets to operations over their estimated useful lives
on the straight-line basis. Estimated useful lives range from five to ten years.
Leasehold improvements are amortized over the lives of the respective leases or
the service lives of the improvements, whichever is shorter.
INCOME TAXES
The Company and its wholly-owned subsidiaries file a consolidated federal
income tax return. The Company follows the liability method of accounting for
income taxes. Under this method, deferred income tax assets and liabilities are
determined based on differences between the financial statement and income tax
bases of assets and liabilities using enacted tax rates in effect for the year
in which the differences are expected to reverse. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount
expected to be realized. Income tax expense is the tax payable for the period
and the change during the period in deferred tax assets and liabilities.
F-12
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS AND DISCLOSURES AT AND FOR THE
THREE MONTHS ENDED JANUARY 31, 1997 AND 1998 ARE UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
REVENUE RECOGNITION
Revenue is recognized concurrently with the performance of services. When
the Company enters into long-term contracts for the supply of temporary
personnel, billings are rendered for employee hours worked according to
contractual billing rates.
PROFIT SHARING PLAN
The Company maintains 401(k) plans as of October 31, 1997, for the benefit
of eligible employees. The plans are profit-sharing plans, including a cash or
deferred arrangement pursuant to Section 401(k) of the Internal Revenue Code of
1986, as amended (the"Code"), sponsored by the Company to provide eligible
employees an opportunity to defer compensation and have such deferred amounts
contributed to the 401(k) plan on a pre-tax basis, subject to certain
limitations. The Company may, at the discretion of the Board of Directors, make
contributions of cash to match deferrals of compensation by participants.
Contributions charged to operations by the Company for fiscal years ended
October 31, 1995, 1996 and 1997 were $0, $0 and $6,246, respectively.
Contributions charged to operations by the Company for the three months ended
January 31, 1997 and 1998 were $3,267 and $8,516, respectively.
CASH EQUIVALENTS
For purposes of presenting the consolidated statement of cash flows, the
Company considers all highly liquid debt instruments purchased with a maturity
of three months or less to be cash equivalents.
EARNINGS PER SHARE
The Company adopted Financial Accounting Standard No. 128 "Earnings per
Share" (SFAS 128) in November 1997. SFAS revised standards for the computation
and presentation of earnings per share (EPS) requiring the presentation of both
basic and diluted earnings per share.
Basic EPS is computed by dividing net income by the weighted-average number
of common shares outstanding during each period. Diluted EPS is computed by
dividing net income by the weighted-average number of common shares outstanding
during the period after giving effect to potential dilution that could occur if
existing stock options were exercised.
A reconciliation of the basic and diluted earnings per share computations
for the year ended October 31, 1995, 1996 and 1997, and the three months ended
January 31, 1997 and 1998 is as follows (in millions except for per share
amounts):
<TABLE>
<CAPTION>
WEIGHTED PER SHARE
YEAR ENDED OCTOBER 31, 1995 INCOME AVERAGE SHARES AMOUNT
- --------------------------- ------ -------------- ---------
<S> <C> <C> <C>
Income from continuing operations............... $.8
Loss from discontinued operations...............
---
Basic earnings per share........................ .8 2.9 $.29
====
Effect of dilutive securities options........... .1
--- ----
Diluted earnings per share...................... $.8 3.0 $.28
=== ==== ====
</TABLE>
Options to purchase 53,000 shares of common stock at prices ranging from
$3.44 to $19.85 per share, and warrants to purchase 157,342 shares of common
stock at $15 per share were outstanding
F-13
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS AND DISCLOSURES AT AND FOR THE
THREE MONTHS ENDED JANUARY 31, 1997 AND 1998 ARE UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
during the year ended October 31, 1995 but were not included in the computation
of diluted EPS because their exercise prices were greater than the average
market price of the common shares.
<TABLE>
<CAPTION>
WEIGHTED PER SHARE
YEAR ENDED OCTOBER 31, 1996 INCOME AVERAGE SHARES AMOUNT
- --------------------------- ------ -------------- ---------
<S> <C> <C> <C>
Income from continuing operations............... $2.4
Loss from discontinued operations...............
----
Basic earnings per share........................ 2.4 4.2 $.56
====
Effect of dilutive securities options........... .1
---- ----
Diluted earnings per share...................... $2.4 4.3 $.55
==== ==== ====
</TABLE>
Warrants to purchase 157,342 shares of common stock at $15 per share were
outstanding during the year ended October 31, 1996, but were not included in the
computation of diluted EPS because the exercise price was greater than the
average market price of the common shares.
<TABLE>
<CAPTION>
WEIGHTED PER SHARE
YEAR ENDED OCTOBER 31, 1997 INCOME AVERAGE SHARES AMOUNT
- --------------------------- ------ -------------- ---------
<S> <C> <C> <C>
Income from continuing operations............... $4.8 $.80
Loss from discontinued operations............... .3 (.06)
----
Basic earnings per share........................ 4.5 6.1 $.74
====
Effect of dilutive securities options........... .3
---- ----
Diluted earnings per share...................... $4.5 6.4 $.70
==== ==== ====
</TABLE>
Options to purchase 10,000 shares of common stock at $10.63 per share and
warrants to purchase 157,342 shares of common stock at $15 per share were
outstanding during the year ended October 31, 1997, but were not included in the
computation of diluted EPS because their exercise prices were greater than the
average market price of the common shares.
The net income for the years ended October 31, 1995 and 1996 has been
calculated after taking into account the effect of the then available net
operating loss carryforward (NOL). Without giving effect to the NOL, the
Company's earnings per share, on a fully taxed basis would have been $.18 and
$.38, respectively.
<TABLE>
<CAPTION>
WEIGHTED PER SHARE
THREE MONTHS ENDED JANUARY 31, 1997 INCOME AVERAGE SHARES AMOUNT
- ----------------------------------- ------ -------------- ---------
<S> <C> <C> <C>
Income from continuing operations............... $ .8
Loss from discontinued operations...............
----
Basic earnings per share........................ .8 4.8 $.16
====
Effect of dilutive securities options........... .2
---- ----
Diluted earnings per share...................... $ .8 5.0 $.16
==== ==== ====
</TABLE>
F-14
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS AND DISCLOSURES AT AND FOR THE
THREE MONTHS ENDED JANUARY 31, 1997 AND 1998 ARE UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Warrants to purchase 157,342 shares of common stock at $15.00 per share
were outstanding during the three months ended January 31, 1997, but were not
included in the computation of diluted EPS because the exercise prices were
greater than the average market price of the common shares.
<TABLE>
<CAPTION>
WEIGHTED PER SHARE
THREE MONTHS ENDED JANUARY 31, 1998 INCOME AVERAGE SHARES AMOUNT
- ----------------------------------- ------ -------------- ---------
<S> <C> <C> <C>
Income from continuing operations............... $1.7
Loss from discontinued operations...............
----
Basic earnings per share........................ 1.7 7.6 $.23
====
Effect of dilutive securities options........... .6
---- ----
Diluted earnings per share...................... $1.7 8.2 $.22
==== ==== ====
</TABLE>
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INTANGIBLE ASSETS
Intangible assets primarily consist of goodwill associated with the
acquired businesses. Goodwill is amortized on a straight-line basis over 40
years. The carrying value of goodwill is reviewed if the facts and circumstances
suggest that it may be impaired. If this review indicates that goodwill will not
be recoverable, as determined based on the undiscounted cash flows of the entity
acquired over the remaining amortization period, the Company's carrying value of
the goodwill is reduced by the estimated shortfall of cash flows.
Other intangible assets consist primarily of non-compete agreements, which
are amortized over the term of the respective agreements. Amortization expense
for intangible assets for fiscal years 1995, 1996 and 1997 was $48,928, $211,337
and $411,213, respectively. Amortization expense for the three months ended
January 31, 1997 and 1998 was $87,107 and $185,307, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of financial instruments approximates fair value. The
Company's financial instruments are accounts receivable, accounts payable and
long-term debt. The Company does not have any off-balance sheet financial
instruments or derivatives.
2. DISCONTINUED OPERATIONS
In Fiscal 1992, the Company discontinued the operations of an environmental
technology development business. In connection with the discontinued operations,
on September 26, 1997, the Company and Alumax, Inc. entered into a Settlement
Agreement, whereby the Company agreed to settle the potential controversy by
paying $300,000 and issuing 20,825 restricted shares of its common stock, valued
at $300,000 to Alumax, Inc. Professional fees associated with the settlement
were
F-15
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS AND DISCLOSURES AT AND FOR THE
THREE MONTHS ENDED JANUARY 31, 1997 AND 1998 ARE UNAUDITED)
2. DISCONTINUED OPERATIONS -- (CONTINUED)
approximately $25,000. The charge to operations was $625,000 and the tax
effected result was $362,500, or $.06 per share.
3. SALE OF COMMON STOCK
On February 5, 1996, the Company issued and sold 276,625 shares of common
stock to Limeport Investments, LLC in a Private Placement transaction for
$1,000,000 ($3.615 per share). The purchase price was based on a twenty percent
discount to the twenty day average closing price prior to the purchase of the
shares. The shares are restricted securities. The President of the Company, Leon
Kopyt, has been granted certain voting rights over the remaining 138,313 shares
as long as they remain owned by Limeport Investments, LLC.
On June 13, 1997, the Company completed a public offering of 2,875,000
shares of Common Stock, of which 2,698,187 shares were offered and sold by the
Company and 176,813 shares were offered by certain selling stockholders. The net
proceeds to the Company after offering costs was $23,271,723. The Company did
not receive any of the proceeds from the sale of the shares by the selling
stockholders.
4. ACQUISITIONS
THREE YEARS ENDED OCTOBER 31, 1997
During the three year period ended October 31, 1997, the Company acquired
ten businesses providing information technology and other professional staffing
services. These acquisitions, which are described below, have been accounted for
as purchases and, accordingly, the results of operations of the acquired
companies have been included in the consolidated results of operations of the
Company from the dates of acquisition.
On December 15, 1994, the Company purchased certain operating assets of
Great Lakes Design, Inc. for $200,000 in the form of a $150,000 note payable
over a period of two years, $50,000 in cash and certain earnout provisions.
Costs in excess of assets acquired of $52,800 are being amortized over a period
of forty years. A non-compete covenant of $107,100 is being amortized over a
five year period. The note payable had a final maturity date of December 1,
1996.
On August 30, 1995, the Company acquired Cataract, Inc., a supplier of
management, engineering, design and technical services to the nuclear power,
fossil fuel, electric utilities and process industries. The acquisition was
completed through a merger transaction pursuant to which Cataract, Inc. was
merged with and into a newly-created subsidiary of the Company, which then
concurrently changed its name to "Cataract, Inc."
The consideration payable to the former shareholders of Cataract, Inc.
consisted of $2,000,000 cash and 312,311 restricted shares of the Company's
common stock, valued at $1,200,000. The cost in excess of net assets acquired
was $3,385,966. The cost in excess of net assets acquired is being amortized
over a 40 year period. The shares issued to the former Cataract, Inc.
shareholders have been pledged to the Company for a period of three years to
secure the performance of certain conditions subsequent to the merger relating
to the achievement of certain levels of sales revenues that have been warranted
by the former Cataract, Inc. shareholders.
Following the expiration of the pledge period, the shares are to be placed
in a voting trust until the earlier of: (i) the public or private sale of such
shares in open market transactions to unaffiliated third
F-16
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS AND DISCLOSURES AT AND FOR THE
THREE MONTHS ENDED JANUARY 31, 1997 AND 1998 ARE UNAUDITED)
4. ACQUISITIONS -- (CONTINUED)
parties; or (ii) the resignation or removal from office of Leon Kopyt, currently
Chief Executive Officer and President of the Company. Notwithstanding the above,
one-third of the shares shall be released from trust commencing upon the fifth
anniversary of the closing, and thereafter an additional one-third of the shares
shall be released from trust upon each of the sixth and seventh annual
anniversaries of the closing date.
During the period in which the shares are subject to pledge and the voting
trust, the shares are to be voted by the Company's Board of Directors on behalf
of the former shareholders of Cataract, Inc.
On March 11, 1996, the Company acquired all of the outstanding shares of
The Consortium, a provider of information technology and health care staffing
servicing private sector and government clients in the greater metropolitan New
York region.
The consideration paid to the former shareholders of The Consortium
consisted of 1.3 million restricted shares of the Company's common stock, valued
at $5,000,000, in exchange for all of the outstanding capital stock of The
Consortium. In connection with the public offering of common stock (note 3),
36,000 shares of restricted stock having a value of $342,000, were sold by a
selling shareholder of The Consortium. The Company filed a registration
statement on October 29, 1997, permitting the sale of $258,000 in value of
securities through March 1998. Thereafter, the remainder of these shares are
subject to significant restrictions on resale through March 11, 1999. The cost
in excess of net assets acquired of $4,940,700 is included in the Company's
Consolidated Balance Sheet as "Intangible Assets" and is being amortized over a
40 year period.
On May 1, 1996, the Company acquired The Consortium of Maryland, Inc.
("Consort MD"), a specialty provider of information technology personnel
services to major U.S. corporations in the greater metropolitan Washington, D.C.
region. Consort MD was not related or affiliated with The Consortium. The
acquisition was completed through a merger transaction pursuant to which Consort
MD was merged with and into a newly-created subsidiary of the Company, which
then concurrently changed its name to "The Consortium of Maryland, Inc."
The merger consideration paid to the former shareholder of Consort MD
consisted of $621,500 in cash and 55,265 restricted shares of the Company's
common stock valued at $378,638. The Company filed a registration statement on
October 29, 1997, permitting the sale of the restricted shares on or after May
1, 1998.
On September 13, 1996, the Company acquired all of the assets and assumed
all of the liabilities of Performance Staffing, Inc. ("PSI"). The consideration
paid to the former shareholders of PSI consisted of 2,500 shares of restricted
shares of the Company's common stock valued at $21,000. The restricted shares
were sold in the public offering referred to in note 3.
On January 7, 1997, the Company acquired Programming Alternatives of
Minnesota, Inc. ("PAMI"), a Minneapolis, Minnesota- based provider of
information technology personnel, particularly those with high demand
client-server skills. The acquisition was completed effective as of November 4,
1996 through a stock purchase transaction pursuant to which PAMI became a
wholly-owned subsidiary of the Company.
The purchase consideration paid to the former shareholders of PAMI
consisted of $4,500,000 cash and $1,625,000 contingent consideration payable
upon attaining certain earnings targets over a three year period. Additional
consideration may be made to the former shareholders of PAMI at the end of the
third anniversary of the purchase to the extent that operating income during
this period exceeds certain earnings targets. The purchase has been accounted
for under the purchase method of
F-17
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS AND DISCLOSURES AT AND FOR THE
THREE MONTHS ENDED JANUARY 31, 1997 AND 1998 ARE UNAUDITED)
4. ACQUISITIONS -- (CONTINUED)
accounting. The cost in excess of net assets acquired of $5,045,486 is included
in the Company's Consolidated Balance Sheet as "Intangible Assets" and is being
amortized over a 40 year period.
On April 1, 1997, the Company acquired certain operating assets of
Programming Resources Unlimited ("PRU"), a provider of information technology
staffing services, for $600,000 cash plus $300,000 of contingent consideration
payable upon attaining certain earnings targets within a three-year period. The
Company also agreed to pay additional consideration to the shareholders of PRU
in the event that during the three-year period the performance of PRU exceeds
the established earnings targets. The cost in excess of net assets acquired of
$621,800 is included in the Company's Consolidated Balance Sheet as "Intangible
Assets" and is being amortized over a 40 year period.
On September 25, 1997, the Company acquired Camelot Contractors Limited
("Camelot"), a Manchester, New Hampshire-based provider of information
technology staffing services. The acquisition was completed effective as of
August 4, 1997, through a stock purchase transaction pursuant to which Camelot,
through an exchange of all of its outstanding shares of stock with the Company,
became a wholly-owned subsidiary of the Company.
The purchase consideration paid to the former shareholders of Camelot
consisted of $9,000,000 cash, 22,409 shares of common stock of the Company
valued at $318,433 and $3,500,000 contingent consideration payable upon Camelot
achieving certain earnings targets within a three-year period. An additional
earn-out payment may be made to the former shareholders at the end of each of
the three twelve month periods following the purchase, to the extent that
operating income exceeds earnings targets. The purchase has been accounted for
under the purchase method of accounting. The cost in excess of net assets
acquired of $7,451,600 is included in the Company's Consolidated Balance Sheet
as "Intangible Assets" and is being amortized over a 40 year period.
As part of the purchase, all of the 22,409 shares of common stock issued to
the former shareholders of Camelot were delivered into escrow as collateral to
secure the performance of certain financial conditions. The shares held in
escrow are subject to certain restrictions on resale, however, the Company filed
a registration statement on October 29, 1997 permitting the resale of such
shares after January 21, 1998.
On September 29, 1997, the Company acquired Austin Nichols Technical
Temporaries, Inc. ("Austin"), a Kansas City, Missouri-based provider of
information technology and professional engineering staffing services. The
acquisition was completed through a stock purchase transaction pursuant to which
Austin, through an exchange of all of its outstanding shares of stock with the
Company, became a wholly-owned subsidiary of the Company.
The purchase consideration paid to the former shareholders of Austin
consisted of $2,500,000 cash, and $900,000 contingent consideration payable upon
Austin achieving certain earnings targets within a three-year period. An
additional earn-out payment may be made to the former shareholders at the end of
each of the three twelve month periods following the Purchase, to the extent
that operating income exceeds these earnings targets. The purchase has been
accounted for under the purchase method of accounting. The cost in excess of net
assets acquired of $2,520,400 is included in the Company's consolidated Balance
Sheet as "Intangible Assets" and is being amortized over a 40 year period.
On September 29, 1997, the Company acquired J.D. Karin Consulting Services,
Inc. ("J.D. Karin"), a Flanders, New Jersey-based provider of information
technology staffing services. The acquisition was completed through a stock
purchase transaction pursuant to which J.D. Karin, through
F-18
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS AND DISCLOSURES AT AND FOR THE
THREE MONTHS ENDED JANUARY 31, 1997 AND 1998 ARE UNAUDITED)
4. ACQUISITIONS -- (CONTINUED)
an exchange of all of its outstanding shares of stock with the Company, became a
wholly-owned subsidiary of the Company.
The purchase consideration paid to the former shareholders of J.D. Karin
consisted of $1,800,000 cash, and $1,225,000 contingent consideration payable
upon J.D. Karin achieving certain earnings targets within a three-year period.
An additional earn-out payment may be made to the former shareholders at the end
of each of the three twelve month periods following the purchase, to the extent
that operating income exceeds these earnings targets. The purchase has been
accounted for under the purchase method of accounting. The cost in excess of net
assets acquired of $1,795,900 is included in the Company's consolidated Balance
Sheet as "Intangible Assets" and is being amortized over a 40 year period.
The following unaudited results of operations have been prepared assuming
all acquisitions made through October 31, 1997 had occurred as of the beginning
of the periods presented. Those results are not necessarily indicative of
results of future operations nor of results that would have occurred had the
acquisitions been consummated as of the beginning of the periods presented.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
---------------------------
1996 1997
---- ----
<S> <C> <C>
Revenues................................. $106,616,000 $136,384,000
Operating income......................... 6,789,000 10,804,000
Income from continuing operations........ 3,475,000 5,609,000
Loss from discontinued operations........ (363,000)
Net income............................... 3,475,000 5,246,000
Diluted earnings per share from
continuing operations.................. .72 .85
Diluted loss per share from discontinued
operations............................. (.05)
Diluted earnings per share............... $ .72 $ .80
</TABLE>
The net income for the year ended October 31, 1996 has been calculated
after taking into account the effect of the then available net operating loss
carryforward (NOL). Without giving effect to the NOL, the Company's earnings per
share pro forma, on a fully taxed basis, would have been $.59.
THREE MONTHS ENDED JANUARY 31, 1998
On January 4, 1998, the Company purchased Northern Technical Services, Inc.
("NTS"), a provider of information technology and professional engineering
staffing services. The purchase price was $3,125,000 plus $1,500,000 contingent
consideration payable upon NTS achieving certain earnings targets within a
two-year period. The agreement provides for additional purchase consideration
upon the attainment of certain earnings targets at the end of each twelve month
period following the closing, for a period of two years. Any additional
consideration paid will be recorded as additional purchase price. Revenues for
the year ended November 30, 1997, provided by the management of NTS, were $12.6
million.
The following unaudited results of operations have been prepared assuming
that all acquisitions made through January 31, 1998 had occurred since November
1, 1997 had occurred at the beginning of the periods presented. Those results
are not necessarily indicative of results of future operations nor of
F-19
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS AND DISCLOSURES AT AND FOR THE
THREE MONTHS ENDED JANUARY 31, 1997 AND 1998 ARE UNAUDITED)
4. ACQUISITIONS -- (CONTINUED)
results that would have occurred had the acquisitions been consummated as of the
beginning of the periods presented.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JANUARY 31,
-------------------------------
1997 1998
---- ----
<S> <C> <C>
Revenues................................... $30,834,000 $39,371,000
Operating income........................... $ 2,210,000 $ 3,250,000
Net income................................. $ 1,050,000 $ 1,848,000
Earnings per common share.................. $ .21 $ .23
</TABLE>
5. PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following:
<TABLE>
<CAPTION>
OCTOBER 31, JANUARY 31,
----------------------- --------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Office equipment.......................... $1,453,711 $2,294,906 $3,165,249
Capitalized lease......................... 174,873 174,873 174,873
Leasehold improvements.................... 16,247 38,901 49,896
---------- ---------- ----------
1,644,831 2,508,680 3,390,018
Less: accumulated depreciation and
amortization............................ 1,142,740 1,373,275 1,904,668
---------- ---------- ----------
$ 502,091 $1,135,405 $1,485,350
========== ========== ==========
</TABLE>
6. NOTE PAYABLE -- BANK
On December 19, 1996, the Company and its subsidiaries entered into an
amended and restated agreement with Mellon Bank, N.A. providing for a credit
facility of up to $20,000,000, increased from $10,000,000 at October 31, 1996,
(the "Revolving Credit Facility") which expires on June 30, 1999. The Revolving
Credit Facility is collateralized by accounts receivable, contract rights and
furniture and fixtures together with unlimited guarantees from the Company. The
Revolving Credit Facility requires the Company and its subsidiaries to meet
certain financial objectives with respect to financial ratios and earnings. At
October 31, 1997 and January 31, 1998, the Company and its subsidiaries were in
compliance with all financial covenants contained within the Revolving Credit
Facility.
Borrowing under the Revolving Credit Facility is based on 85% of accounts
receivable on which not more than ninety days have elapsed since the date of
invoicing. Borrowings under the Revolving Credit Facility bear interest, at the
Company's option, at LIBOR (London Interbank Offered Rate) or the bank's prime
rate, plus the applicable margin. The weighted average interest rate at October
31, 1997 and January 31, 1998 was 9.10% and 9.76%, respectively. The interest
rate charged by the bank at October 31, 1996 was the prime rate of 8.25%. At
October 31, 1997 and January 31, 1998, there was $13,985,000 and $11,679,000,
respectively, available under the Revolving Credit Facility.
F-20
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS AND DISCLOSURES AT AND FOR THE
THREE MONTHS ENDED JANUARY 31, 1997 AND 1998 ARE UNAUDITED)
7. SHAREHOLDERS' EQUITY
COMMON SHARES RESERVED
Shares of unissued common stock were reserved for the following purposes:
<TABLE>
<CAPTION>
OCTOBER 31, JANUARY 31,
--------------------- -----------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Exercise of warrants......................... 157,342 157,342 122,496
Exercise of options outstanding.............. 214,400 1,087,400 1,208,950
Future grants of options..................... 760,300 382,300 253,650
--------- --------- ---------
Total........................................ 1,132,042 1,627,042 1,585,096
========= ========= =========
</TABLE>
WARRANTS
At October 31, 1996 and 1997 and January 31, 1998, the Company had 786,709,
786,709 and 612,479 warrants outstanding to purchase 157,342, 157,342 and
122,496 shares, respectively, of the Company's common stock. As a result of a 1
for 5 reverse stock split in April 1996, each warrant continues to have an
exercise price of $3.00 per share, but five warrants are needed to convert to
one share of common stock. The warrants are scheduled to expire on April 30,
1998 unless otherwise extended by the Board of Directors.
INCENTIVE STOCK OPTION PLANS
On February 27, 1986, the shareholders approved the RCM Technologies, Inc.
1986 Incentive Stock Option Plan ("1986 Plan") which authorizes the issuance not
later than October 30, 1995 of up to 60,000 shares of Common Stock to officers,
directors and key employees of the Company and its subsidiaries.
On April 23, 1992, the shareholders approved the RCM Technologies, Inc.
1992 Incentive Stock Option Plan ("1992 Plan") which authorizes the issuance not
later than February 13, 2002 of options for up to 100,000 shares of Common Stock
to officers, directors and key employees of the Company and its subsidiaries.
The 1986 and 1992 Plans contain substantially the same terms. Options under all
plans are intended to be incentive stock options pursuant to Section 422A of the
Internal Revenue Code. The option terms for all plans cannot exceed ten years
and the exercise price cannot be less than 100% of the fair market value of the
shares at the time of grant.
On May 19, 1994, the shareholders approved the RCM Technologies, Inc. 1994
Nonemployee Directors Stock Option Plan ("1994 Plan") as a means of recruiting
and retaining nonemployee directors of the Company. There are 80,000 shares of
Common Stock reserved under the plan for issuance no later than July 19, 2004.
All director stock options are granted at fair market value at the date of
grant. The exercise of options granted is contingent upon service as a director
for a period of one year. If the optionee ceases to be a director of the
Company, any option granted shall terminate.
On August 15, 1996, (amended on January 15, 1997) the Board of Directors
approved the RCM Technologies, Inc. 1996 Executive Stock Plan ("1996 Plan")
which authorizes the issuance not later than August 15, 2006 of up to 1,250,000
shares of Common Stock to officers and key employees of the Company and its
subsidiaries.
F-21
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS AND DISCLOSURES AT AND FOR THE
THREE MONTHS ENDED JANUARY 31, 1997 AND 1998 ARE UNAUDITED)
7. SHAREHOLDERS' EQUITY -- (CONTINUED)
The Company has adopted only the disclosure provisions of Financial
Accounting Standard No. 123, "Accounting for Stock- Based Compensation" (SFAS
123). It applies APB Opinion No. 25 and related interpretations in accounting
for its plans and does not recognize compensation expense for is stock-based
compensation plans. Had compensation cost been determined based on the fair
value of the options at the grant date consistent with SFAS 123, the Company's
net earnings and earnings per share would have been reduced to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-----------------------
1996 1997
---- ----
<S> <C> <C>
Net income:
As reported.................................. $2,367,939 $4,477,433
Pro forma.................................... $2,235,750 $2,542,196
Earnings per share:
As reported.................................. $ .55 $ .68
Pro forma.................................... $ .52 $ .39
</TABLE>
These pro forma amounts may not be representative of future disclosures
because they do not take into effect proforma compensation expense related to
grants before November 1, 1995. The fair value of these options is estimated on
the date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions for grants in fiscal year 1996 and 1997,
respectively: expected volatility of 30% for both years; risk-free interest
rates of 6.32% and 6.43%; and expected lives of 5 years for both years. The
weighted-average fair value of options granted during fiscal years 1996 and 1997
was $2.16 and $3.46, respectively.
The net income for the year ended October 31, 1996 has been calculated
after taking into account the effect of the then available net operating loss
carryforward (NOL). Without giving effect to the NOL, the Company's earnings per
share as reported and Pro forma, on a fully taxed basis, would have been $.38
and $.35, respectively.
Transactions related to all stock options are as follows:
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31, JANUARY 31,
---------------------------------------------------------------------- ----------------------
WEIGHTED- WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE EXERCISE
1995 PRICE 1996 PRICE 1997 PRICE 1998 PRICE
---- --------- ---- --------- ---- --------- ---- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding options at
beginning of period...... 173,300 $3.11 163,300 $2.63 214,400 $3.54 1,087,400 $7.46
Granted.................... 50,300 2.66 61,100 5.64 883,200 8.40 130,000 14.50
Forfeited.................. (60,300) 4.01 (6,029) 6.68 (1,350) 9.98
Exercised.................. (10,000) 1.59 (4,171) 5.57 (7,100) 7.08
-------- --------- ----------- ----------
Outstanding options at end
of period................ 163,300 $2.63 214,400 $3.54 1,087,400 $7.46 1,208,950 $8.21
======== ========= =========== ==========
Exercisable options at end
of period................ 87,000 141,300 708,900 700,450
======== ========= =========== ==========
Option grant price per
share.................... $1.09 $1.09 $1.09 $1.09
to $8.13 to $8.13 to $10.625 to $14.50
</TABLE>
F-22
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS AND DISCLOSURES AT AND FOR THE
THREE MONTHS ENDED JANUARY 31, 1997 AND 1998 ARE UNAUDITED)
7. SHAREHOLDERS' EQUITY -- (CONTINUED)
The following table summarizes information about stock options outstanding
at October 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
RANGE OF NUMBER OF REMAINING WEIGHTED-AVERAGE
EXERCISE PRICES OUTSTANDING OPTIONS CONTRACTUAL LIFE EXERCISE PRICE
--------------- ------------------- ---------------- ----------------
<S> <C> <C> <C>
$1.09-$ 1.64 22,000 5.3 years $ 1.24
$2.46-$ 3.69 130,300 7.0 years $ 2.96
$3.69-$ 5.54 45,020 8.3 years $ 5.00
$5.54-$ 8.31 516,880 9.0 years $ 7.14
$8.31-$12.46 373,200 9.7 years $10.14
</TABLE>
The following table summarizes information about stock options outstanding
at January 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
RANGE OF NUMBER OF REMAINING WEIGHTED-AVERAGE
EXERCISE PRICES OUTSTANDING OPTIONS CONTRACTUAL LIFE EXERCISE PRICE
--------------- ------------------- ---------------- ----------------
<S> <C> <C> <C>
$ 1.09-$ 1.64 22,000 5.0 years $ 1.24
$ 2.46-$ 3.69 130,300 6.8 years $ 2.96
$ 3.69-$ 5.54 44,720 8.1 years $ 5.00
$ 5.54-$ 8.31 509,980 8.8 years $ 7.14
$ 8.31-$12.46 371,950 9.4 years $10.14
$12.46-$18.69 130,000 9.8 years $14.50
</TABLE>
8. COMMITMENTS
EMPLOYMENT CONTRACT AND TERMINATION BENEFITS AGREEMENT
The Company has employment agreements with its President and certain senior
executives with a latest expiration date of September 30, 2000. The agreement
with the President provides for a bonus based on pre-tax earnings. No maximum
compensation limit exists. The aggregate commitment for future salaries at
October 31, 1997, excluding bonuses, was $2,754,500. In addition, an option plan
is available for all employees to receive stock options resulting from
recommendations by the Compensation Committee of the Board of Directors.
In December 1993, the Company entered into a Termination Benefits Agreement
with Mr. Kopyt that was subsequently amended and restated as of March 18, 1997
(the "Benefits Agreement"). Pursuant to the Benefits Agreement, following a
Change in Control (as defined therein) the remaining term of Mr. Kopyt's
employment is extended for five years (the "Extended Term"). If Mr. Kopyt's
employment is terminated thereafter by the Company other than for cause, or by
Mr. Kopyt for good reason (including, among other things, a material change in
Mr. Kopyt's salary, title, reporting responsibilities or a change in office
location which requires Mr. Kopyt to relocate): the Company is obligated to pay
Mr. Kopyt a lump sum equal to his salary and bonus for the remainder of the
Extended Term; the exercise price of the options to purchase 500,000 shares
granted to Mr. Kopyt under the 1996 Executive Stock Plan will be reduced to 50%
of the average market price of the Common Stock for the 60 days prior to the
date of termination if the resulting exercise price is less than the original
exercise price of $7.125 per share; and the Company shall be obligated to pay to
Mr. Kopyt the amount of any excise tax associated with the benefits provided to
Mr. Kopyt under the Benefits Agreement. If such a termination had taken place as
of October 31, 1997 and January 31, 1998, Mr. Kopyt would have been entitled to
cash payments of approximately $1.6 million and $3.4 million, respectively
(representing salary and excise tax payments).
F-23
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS AND DISCLOSURES AT AND FOR THE
THREE MONTHS ENDED JANUARY 31, 1997 AND 1998 ARE UNAUDITED)
8. COMMITMENTS -- (CONTINUED)
The Company leases office facilities and various equipment under
noncancellable leases expiring at various dates through February 2007. Certain
leases are subject to escalation clauses based upon changes in various factors.
The minimum future annual operating lease commitments for leases with
noncancellable terms in excess of one year, exclusive of escalation, are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING OCTOBER 31, AMOUNT
- ----------------------- ------
<S> <C>
1998.................................... $ 888,700
1999.................................... 635,000
2000.................................... 492,000
2001.................................... 437,500
2002.................................... 405,900
Thereafter.............................. 932,400
----------
Total................................... $3,791,500
==========
</TABLE>
Rent expense for the years ended October 31, 1995, 1996 and 1997 was
$354,000, $498,000 and $814,000, respectively. Rent expense for the three months
ended January 31, 1997 and 1998 was $174,455 and $285,703, respectively.
9. MAJOR CUSTOMERS
Sales to major clients for the years ended October 31, 1995, 1996 and 1997
were as follows:
For the year ended October 31, 1995, three clients contributed $3,300,000,
$2,061,000 and $1,347,000, respectively (an aggregate of $6,708,000 or 24.9% of
total sales). Accounts receivable from these three clients represented 8.1% of
the total trade accounts receivable at October 31, 1995.
For the year ended October 31, 1996, one client contributed $7,776,000 or
12.7% of total sales. Accounts receivable from the client represented 13.3% of
the total trade accounts receivable at October 31, 1996.
For the year ended October 31, 1997, one client contributed $13,069,000 or
11.5% of total sales. Accounts receivable from the client represented 4.4% of
the total trade accounts receivable at October 31, 1997.
Sales to major clients for the three months ended January 31, 1997 and 1998
were as follows:
For the three months ended January 31, 1997, one client contributed
$2,482,000 or 11.7% of the total sales. Accounts receivable from the client
represented 4.0% of the total trade accounts receivable at January 31, 1997.
For the three months ended January 31, 1998, no one client contributed more
than 10% of the total sales.
10. RELATED PARTY TRANSACTIONS
A director of the Company is a shareholder in a law firm that rendered
various legal services to the Company. Fees paid to the law firm have not been
significant.
F-24
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS AND DISCLOSURES AT AND FOR THE
THREE MONTHS ENDED JANUARY 31, 1997 AND 1998 ARE UNAUDITED)
11. INCOME TAXES
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED OCTOBER 31, JANUARY 31,
------------------------------- ---------------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Current
Federal............ $10,000 $ 48,000 $2,282,603 $357,911 $ 973,226
State and local.... 83,500 405,539 915,886 131,423 297,467
------- -------- ---------- -------- ----------
Total income tax
expense--current... $93,500 $453,539 $3,198,489 $489,334 $1,270,693
======= ======== ========== ======== ==========
</TABLE>
The income tax provisions reconciled to the tax computed at the statutory
Federal rate was:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED OCTOBER 31, JANUARY 31,
------------------------ -------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Tax at statutory rate............................... 34.0% 34.0% 34.0% 34.0% 34.0%
State income taxes, net of Federal income tax
benefit........................................... 5.8 9.4 7.9 6.8 6.4
Net operating loss carry-overs...................... (32.3) (32.4) (1.9) (2.3)
Other, net.......................................... 2.4 5.1 1.7 1.3
----- ----- ----- ----- -----
9.9% 16.1% 41.7% 38.5% 41.7%
===== ===== ===== ===== =====
</TABLE>
Significant components of the Company's deferred tax assets at October 31,
1996 and 1997 are as follows:
<TABLE>
<CAPTION>
JANUARY 31,
1996 1997 1998
---- ---- -----------
<S> <C> <C> <C>
Deferred tax assets due to:
Net operating loss carry-over....... $102,000 $ $
Tax credit carry-over............... 73,100
Depreciation of property and
equipment........................ 20,000
Allowance for doubtful accounts..... 132,000 132,000
-------- -------- --------
195,100 132,000 132,000
Less: 100% valuation allowance........ 195,100
-------- -------- --------
Total net deferred tax assets......... $ $132,000 $132,000
======== ======== ========
</TABLE>
The valuation allowance was decreased during 1996 and 1997 by $967,887 and
$195,100, respectively, due to the utilization of net operating loss carry-overs
and the reversal of temporary differences.
F-25
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS AND DISCLOSURES AT AND FOR THE
THREE MONTHS ENDED JANUARY 31, 1997 AND 1998 ARE UNAUDITED)
12. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
YEAR ENDED OCTOBER 31, 1996
<TABLE>
<CAPTION>
GROSS NET INCOME
SALES PROFIT NET INCOME PER SHARE (A)(B)
----- ------ ---------- ----------------
<S> <C> <C> <C> <C>
1st Quarter.......... $ 9,776,507 $ 1,790,629 $ 501,863 $.15
2nd Quarter.......... 13,785,626 2,473,426 386,736 .09
3rd Quarter.......... 17,378,155 3,798,231 684,937 .14
4th Quarter.......... 20,098,885 4,197,002 794,403 .16
----------- ----------- ---------- ----
Total..... $61,039,173 $12,259,288 $2,367,939 $.55
=========== =========== ========== ====
</TABLE>
YEAR ENDED OCTOBER 31, 1997
<TABLE>
<CAPTION>
GROSS NET INCOME
SALES PROFIT NET INCOME PER SHARE (A)
----- ------ ---------- -------------
<S> <C> <C> <C> <C>
1st Quarter.......... $21,150,721 $ 5,099,404 $ 780,987 $.16
2nd Quarter.......... 27,379,979 6,246,111 917,333 .18
3rd Quarter.......... 28,009,367 6,918,940 1,205,928 .19
4th Quarter.......... 37,419,026 8,862,290 1,573,185 .22
------------ ----------- ---------- ----
Total..... $113,959,093 $27,126,745 $4,477,433 $.70
============ =========== ========== ====
</TABLE>
- ------------------
(a) Total of quarterly amounts do not agree to the annual amount due to separate
quarterly calculations of weighted average shares outstanding.
(b) The net income for the year ended October 31, 1996 has been calculated after
taking into account the effect of the then available net operating loss
carryforward (NOL). Without giving effect to the NOL, the Company's earnings per
share, on a fully taxed basis would have been $.38.
13. INTEREST EXPENSE, NET OF INTEREST INCOME
Interest expense, net of interest income consisted of the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JANUARY 31,
-------------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Interest expense.................. $ (38,158) $(163,811) $(444,347) $(90,189) $(55,114)
Interest income................... 142,810 116 259,702 5,388 15,782
--------- --------- --------- -------- --------
$ 104,652 $(163,695) $(184,645) $(84,801) $(39,332)
========= ========= ========= ======== ========
</TABLE>
14. NEW STANDARDS
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information", which is effective for all periods
beginning after December 15, 1997. SFAS 131 requires that public business
enterprises report certain information about operating segments in complete sets
of financial statements of the enterprise and in condensed financial statements
of interim periods issued to shareholders. It also requires that public business
enterprises report certain information about their products and services, the
geographic areas in which they operate, and their
F-26
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS AND DISCLOSURES AT AND FOR THE
THREE MONTHS ENDED JANUARY 31, 1997 AND 1998 ARE UNAUDITED)
14. NEW STANDARDS -- (CONTINUED)
major customers. Management is currently evaluating the impact of the disclosure
requirements of this statement.
15. SUBSEQUENT EVENTS (UNAUDITED)
On February 2, 1998, the Company purchased Staffworks, Inc. ("Staffworks"),
a privately-held, provider of technical professional and information technology
personnel. The purchase price was $3,000,000 plus $2,000,000 of contingent
consideration payable over three years. The agreement provides for additional
purchase consideration upon the attainment of certain earnings targets at the
end of each twelve month period following the closing, for a period of three
years. Any additional consideration paid will be recorded as additional purchase
price. Current annualized revenues provided by the management of Staffworks is
approximately $12.0 million.
On February 2, 1998, the Company acquired all of the outstanding stock of
Global Technology Solutions ("Global") for approximately $3.7 million cash plus
$2.0 million of consideration in the form of a two year promissory note payable
upon attaining certain earnings targets within a two-year period. The Company
also agreed to pay additional consideration to the former Global shareholder in
the event that during the two-year period the performance of Global exceeds the
established earnings targets. Global generated revenues of approximately $5.5
million during its fiscal year ended December 31, 1997. Through this
transaction, the Company acquired one branch office in Sacramento, California
which provides information technology staffing services, primarily to the San
Francisco Bay area.
F-27
<PAGE>
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDERS
OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE ANY SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................... 3
Risk Factors............................... 7
Acquisition Program........................ 11
Use of Proceeds............................ 12
Price Range of Common Stock and Dividend
Policy................................... 13
Capitalization............................. 14
Selected Historical and Pro Forma
Consolidated Financial Data.............. 15
Management's Discussion and Analysis of
Financial Condition and Results
of Operations............................ 16
Business................................... 24
Management................................. 33
Principal and Selling Stockholders......... 36
Shares Eligible for Future Sale............ 38
Underwriting............................... 39
Legal Matters.............................. 40
Experts.................................... 40
Available Information...................... 40
Incorporation of Certain Documents by
Reference................................ 41
Index to Financial Statements.............. F-1
</TABLE>
2,700,000 SHARES
[RCM LOGO]
COMMON STOCK
-----------------------
PROSPECTUS
-----------------------
BT ALEX. BROWN
BANCAMERICA ROBERTSON
STEPHENS
LEGG MASON WOOD WALKER
INCORPORATED
, 1998
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses to be paid by the Company in connection with the
sale of the securities being registered in the Registration Statement are as
follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 21,812
Printing and engraving expenses............................. 80,000
Accounting fees and expenses................................ 40,000
Legal fees and expenses..................................... 190,000
NASD filing fees............................................ 7,894
Nasdaq National Market supplemental listing fee............. 17,500
Miscellaneous expenses...................................... 242,794
--------
Total..................................................... $600,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As permitted by the Nevada Revised Statutes (the "NRS"), the Company's
Articles of Incorporation and Bylaws, provide that a director shall not be
personally liable in such capacity for monetary damages for any action or any
failure to take any action, unless the director breaches or fails to perform the
duties of his or her office under the NRS and the breach or failure to perform
constitutes self-dealing, willful misconduct or recklessness. These provisions,
however, do not apply to the responsibility or liability of a director pursuant
to any criminal statute or to the liability of a director for the payment of
taxes pursuant to local, Nevada or federal law. These provisions offer persons
who serve on the Board of Directors of the Company protection against awards of
monetary damages for negligence in the performance of their duties.
The Bylaws also provide that every person who is or was a director or
officer of the Company or of any corporation which he served as such at the
request of the Company, shall be indemnified by the Company against all expenses
and liabilities reasonably incurred by or imposed upon him, in connection with
any proceeding to which he may be made or threatened to be made, a party or in
which he may become involved by reason of his being or having been a director or
officer of the Company, or such other corporation, whether or not he is a
director or officer of the Company or such other corporation at the time the
expenses or liabilities are incurred. If the action is not by or in the right of
the Company, such person will be indemnified against expenses incurred to the
extent that he has been successful on the merits or otherwise in defense of such
action and against expenses incurred by him in connection therewith if he acted
in good faith and in a manner he reasonably believed to be in the best interests
of the Company, and with respect to any criminal action or proceeding, he had no
reasonable cause to believe his conduct was unlawful. If the action is by or in
the right of the Company, such person shall be indemnified by the Company
against expenses incurred by him to the extent he has been successful on the
merits or otherwise in defense of such action and against expenses incurred by
him if he acted in good faith and in a manner he reasonably believed to be in
the best interests of the Company, except that no indemnification will apply in
respect of any matter as to which such person is adjudged to be liable to the
Company for negligence or misconduct in the performance of his duty to the
Company.
In addition, the Articles of Incorporation authorize the Company to
maintain insurance to cover such liabilities. The Company has purchased
Directors' and Officers' Liability Insurance to protect directors and officers
of the Company from any liability asserted against them for acts taken or
omissions occurring in their capacities as such. The Company policy has an
aggregate liability limit of $10,000,000. The Company is not required to
maintain such insurance and there can be no assurance that the Company will
continue to maintain such insurance or coverage in such amounts.
Insofar as indemnification for liabilities under the Securities Act may be
permitted to directors, officers and controlling persons of the Company pursuant
to the foregoing provisions or otherwise, the Company has been advised that in
the opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim
II-1
<PAGE>
for indemnification against such liabilities (other than the payment by the
Company of expenses incurred or paid by a director, officer or controlling
person of the Company in a successful defense of action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the Company will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issuer.
Reference is made to Item 17 for the undertakings of the Company with
respect to indemnification of liabilities arising under the Securities Act.
ITEM 16. EXHIBITS.
1 Form of Underwriting Agreement.
5 Opinion of Schreck Morris.
23.1 Consent of Grant Thornton LLP.
23.2 Consent of Schreck Morris (contained in Exhibit 5).
24 Power of Attorney (see page II-3).
27.1* Restated Financial Data Schedule for Fiscal Year Ended October 31,
1997
(EDGAR version only).
27.2* Restated Financial Data Schedule for Fiscal Year Ended October 31,
1996
(EDGAR version only).
27.3* Restated Financial Data Schedule for Fiscal Year Ended October 31,
1995
(EDGAR version only).
- ------------------
* To be filed by amendment.
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes that, for the purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d)
of the Exchange Act that is incorporated by reference in this
Registration Statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid
by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such
issue.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant under Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Pennsauken, New Jersey on April 28, 1998.
RCM TECHNOLOGIES INC.
By: /s / LEON KOPYT
------------------------------------
Leon Kopyt
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Leon Kopyt and Stanton Remer, and each of them
jointly and severally, his true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all amendments to this
Registration Statement, and to file the same with all exhibits thereto, and
other documents in connection therewith (including, without limitation, any
related registration statement or amendment thereto filed in accordance with
Rule 462 under the Securities Act of 1933, as amended), with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully as to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or their substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s / LEON KOPYT Chairman of the Board of Directors, April 28, 1998
- ----------------------------------- President, Chief Executive Officer
Leon Kopyt (Principal Executive Officer)
/s / STANTON REMER Chief Financial Officer, Treasurer, April 28, 1998
- ----------------------------------- Secretary and Director (Principal
Stanton Remer Financial and Accounting Officer)
/s / NORMAN BERSON Director April 28, 1998
- -----------------------------------
Norman S. Berson
/s / ROBERT B. KERR Director April 28, 1998
- -----------------------------------
Robert B. Kerr
/s / WOODROW B. MOATS, JR. Director April 28, 1998
- -----------------------------------
Woodrow B. Moats, Jr.
</TABLE>
II-3
<PAGE>
EXHIBIT INDEX
1 Form of Underwriting Agreement.
5 Opinion of Schreck Morris.
23.1 Consent of Grant Thornton LLP.
23.2 Consent of Schreck Morris (contained in Exhibit 5).
24 Power of Attorney (see page II-3).
27.1* Restated Financial Data Schedule for Fiscal Year Ended October 31,
1997 (EDGAR version only).
27.2* Restated Financial Data Schedule for Fiscal Year Ended October 31,
1996 (EDGAR version only).
27.3* Restated Financial Data Schedule for Fiscal Year Ended October 31,
1995 (EDGAR version only).
- ------------------
* To be filed by amendment.
_______________ Shares
RCM Technologies, Inc.
Common Stock
($0.05 Par Value)
UNDERWRITING AGREEMENT
_______________, 19__
BT Alex. Brown Incorporated
BancAmerica Robertson Stephens
Legg Mason Wood Walker, Incorporated
As Representatives of the
Several Underwriters
c/o BT Alex. Brown Incorporated
One South Street
Baltimore, Maryland 21202
Gentlemen:
RCM Technologies, Inc., a Nevada corporation (the "Company"),
and certain stockholders of the Company (the "Selling Stockholders") propose to
sell to the several underwriters (the "Underwriters") named in Schedule I hereto
for whom you are acting as representatives (the "Representatives") an aggregate
of __________ shares of the Company's Common Stock, $0.05 par value (the "Firm
Shares"), of which __________ shares will be sold by the Company and __________
shares will be sold by the Selling Stockholders. The respective amounts of the
Firm Shares to be so purchased by the several Underwriters are set forth
opposite their names in Schedule I hereto, and the respective amounts to be sold
by the Selling Stockholders are set forth opposite their names in Schedule II
hereto. The Company and the Selling Stockholders are sometimes referred to
herein collectively as the "Sellers." The Company also proposes to sell at the
Underwriters' option an aggregate of up to __________ additional shares of the
Company's Common Stock (the "Option Shares") as set forth below.
<PAGE>
As the Representatives, you have advised the Company and the
Selling Stockholders (a) that you are authorized to enter into this Agreement on
behalf of the several Underwriters, and (b) that the several Underwriters are
willing, acting severally and not jointly, to purchase the numbers of Firm
Shares set forth opposite their respective names in Schedule I, plus their pro
rata portion of the Option Shares if you elect to exercise the over-allotment
option in whole or in part for the accounts of the several Underwriters. The
Firm Shares and the Option Shares (to the extent the aforementioned option is
exercised) are herein collectively called the "Shares."
In consideration of the mutual agreements contained herein and
of the interests of the parties in the transactions contemplated hereby, the
parties hereto agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
-----------------------------------------------------
SELLING STOCKHOLDERS.
--------------------
(a) The Company represents and warrants to each of the
Underwriters as follows:
(i) A registration statement on Form S-3 (File No. 333-______)
with respect to the Shares has been carefully prepared by the Company
in conformity with the requirements of the Securities Act of 1933, as
amended (the "Act"), and the Rules and Regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the
"Commission") thereunder and has been filed with the Commission. The
Company has complied with the conditions for the use of Form S-3.
Copies of such registration statement, including any amendments
thereto, the preliminary prospectuses (meeting the requirements of the
Rules and Regulations) contained therein and the exhibits, financial
statements and schedules, as finally amended and revised, have
heretofore been delivered by the Company to you. Such registration
statement, together with any registration statement filed by the
Company pursuant to Rule 462(b) of the Act, herein referred to as the
"Registration Statement," which shall be deemed to include all
information omitted therefrom in reliance upon Rule 430A and contained
in the Prospectus referred to below, has become effective under the Act
and no post-effective amendment to the Registration Statement has been
filed as of the date of this Agreement. "Prospectus" means (a) the form
of prospectus first filed with the Commission pursuant to Rule 424(b)
or (b) the last preliminary prospectus included in the Registration
Statement filed prior to the time it becomes effective or filed
pursuant to Rule 424(a) under the Act that is delivered by the Company
to the Underwriters for delivery to purchasers of the Shares, together
with the term sheet or abbreviated term sheet filed with the Commission
pursuant to Rule 424(b)(7) under the Act. Each preliminary prospectus
included in the Registration Statement prior to the time it becomes
effective is herein referred to as a "Preliminary Prospectus." Any
reference herein to the Registration Statement, any Preliminary
Prospectus or to the Prospectus shall be deemed to refer to and include
any documents incorporated by reference therein, and, in the case of
any reference herein to any Prospectus, also shall be deemed to include
any documents incorporated by reference therein, and any supplements or
amendments thereto, filed with the Commission after the
-2-
<PAGE>
date of filing of the Prospectus under Rules 424(b) or 430A, and prior
to the termination of the offering of the Shares by the Underwriters.
(ii) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the State
of Nevada, with corporate power and authority to own or lease its
properties and conduct its business as described in the Registration
Statement. Each of the subsidiaries of the Company as listed in Exhibit
A hereto (collectively, the "Subsidiaries") has been duly organized and
is validly existing as a corporation in good standing under the laws of
the jurisdiction of its incorporation, with corporate power and
authority to own or lease its properties and conduct its business as
described in the Registration Statement. The Subsidiaries are the only
subsidiaries, direct or indirect, of the Company. The Company and each
of the Subsidiaries are duly qualified to transact business in all
jurisdictions in which the conduct of their business requires such
qualification. The outstanding shares of capital stock of each of the
Subsidiaries have been duly authorized and validly issued, are fully
paid and non-assessable and are owned by the Company or another
Subsidiary free and clear of all liens, encumbrances and equities and
claims; and no options, warrants or other rights to purchase,
agreements or other obligations to issue or other rights to convert any
obligations into shares of capital stock or ownership interests in the
Subsidiaries are outstanding.
(iii) The outstanding shares of Common Stock of the Company,
including all shares to be sold by the Selling Stockholders, have been
duly authorized and validly issued and are fully paid and
non-assessable; the portion of the Shares to be issued and sold by the
Company have been duly authorized and when issued and paid for as
contemplated herein will be validly issued, fully paid and
non-assessable; and no preemptive rights of stockholders exist with
respect to any of the Shares or the issue and sale thereof. Neither the
filing of the Registration Statement nor the offering or sale of the
Shares as contemplated by this Agreement gives rise to any rights,
other than those which have been waived or satisfied, for or relating
to the registration of any shares of Common Stock.
(iv) The information set forth under the caption
"Capitalization" in the Prospectus is true and correct. All of the
Shares conform to the description thereof contained in the Registration
Statement. The form of certificates for the Shares conforms to the
corporate law of the jurisdiction of the Company's incorporation.
(v) The Commission has not issued an order preventing or
suspending the use of any Prospectus relating to the proposed offering
of the Shares nor instituted proceedings for that purpose. The
Registration Statement contains, and the Prospectus and any amendments
or supplements thereto will contain, all statements which are required
to be stated therein by, and will conform, to the requirements of the
Act and the Rules and Regulations. The documents incorporated by
reference in the Prospectus, at the time filed with the Commission
conformed, in all respects to the requirements of the Securities
-3-
<PAGE>
Exchange Act of 1934 or the Act, as applicable, and the rules and
regulations of the Commission thereunder. The Registration Statement
and any amendment thereto do not contain, and will not contain, any
untrue statement of a material fact and do not omit, and will not omit,
to state any material fact required to be stated therein or necessary
to make the statements therein not misleading. The Prospectus and any
amendments and supplements thereto do not contain, and will not
contain, any untrue statement of material fact; and do not omit, and
will not omit, to state any material fact required to be stated therein
or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that the Company makes no representations or warranties as to
information contained in or omitted from the Registration Statement or
the Prospectus, or any such amendment or supplement, in reliance upon,
and in conformity with, written information furnished to the Company by
or on behalf of any Underwriter through the Representatives,
specifically for use in the preparation thereof.
(vi) The consolidated financial statements of the Company and
the Subsidiaries, together with related notes and schedules as set
forth or incorporated by reference in the Registration Statement,
present fairly the financial position and the results of operations and
cash flows of the Company and the consolidated Subsidiaries, at the
indicated dates and for the indicated periods. Such financial
statements and related schedules have been prepared in accordance with
generally accepted principles of accounting, consistently applied
throughout the periods involved, except as disclosed herein, and all
adjustments necessary for a fair presentation of results for such
periods have been made. The summary financial and statistical data
included or incorporated by reference in the Registration Statement
presents fairly the information shown therein and such data has been
compiled on a basis consistent with the financial statements presented
therein and the books and records of the company. The pro forma
financial statements and other pro forma financial information included
in the Registration Statement and the Prospectus present fairly the
information shown therein, have been prepared in accordance with the
Commission's rules and guidelines with respect to pro forma financial
statements, have been properly compiled on the pro forma bases
described therein, and, in the opinion of the Company, the assumptions
used in the preparation thereof are reasonable and the adjustments used
therein are appropriate to give effect to the transactions or
circumstances referred to therein.
(vii) Grant Thornton LLP, who have certified certain of the
financial statements filed with the Commission as part of, or
incorporated by reference in, the Registration Statement, are
independent public accountants as required by the Act and the Rules and
Regulations.
(viii) There is no action, suit, claim or proceeding pending
or, to the knowledge of the Company, threatened against the Company or
any of the Subsidiaries before any court or administrative agency or
otherwise which if determined adversely to the Company or any of its
Subsidiaries might result in any material adverse change in the
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<PAGE>
earnings, business, management, properties, assets, rights, operations,
condition (financial or otherwise) or prospects of the Company and of
the Subsidiaries taken as a whole or to prevent the consummation of the
transactions contemplated hereby, except as set forth in the
Registration Statement.
(ix) The Company and the Subsidiaries have good and marketable
title to all of the properties and assets reflected in the financial
statements (or as described in the Registration Statement) hereinabove
described, subject to no lien, mortgage, pledge, charge or encumbrance
of any kind except those reflected in such financial statements (or as
described in the Registration Statement) or which are not material in
amount. The Company and the Subsidiaries occupy their leased properties
under valid and binding leases conforming in all material respects to
the description thereof set forth in the Registration Statement.
(x) The Company and the Subsidiaries have filed all Federal,
State, local and foreign income tax returns which have been required to
be filed and have paid all taxes indicated by said returns and all
assessments received by them or any of them to the extent that such
taxes have become due. All tax liabilities have been adequately
provided for in the financial statements of the Company.
(xi) Since the respective dates as of which information is
given in the Registration Statement, as it may be amended or
supplemented, there has not been any material adverse change or any
development involving a prospective material adverse change in or
affecting the earnings, business, management, properties, assets,
rights, operations, condition (financial or otherwise), or prospects of
the Company and its Subsidiaries taken as a whole, whether or not
occurring in the ordinary course of business, and there has not been
any material transaction entered into or any material transaction that
is probable of being entered into by the Company or the Subsidiaries,
other than transactions in the ordinary course of business and changes
and transactions described in the Registration Statement, as it may be
amended or supplemented. The Company and the Subsidiaries have no
material contingent obligations which are not disclosed in the
Company's financial statements which are included in the Registration
Statement.
(xii) Neither the Company nor any of the Subsidiaries is or
with the giving of notice or lapse of time or both, will be, in
violation of or in default under its Charter or By-Laws or under any
agreement, lease, contract, indenture or other instrument or obligation
to which it is a party or by which it, or any of its properties, is
bound and which default is of material significance in respect of the
condition, financial or otherwise of the Company and its Subsidiaries
taken as a whole or the business, management, properties, assets,
rights, operations, condition (financial or otherwise) or prospects of
the Company and the Subsidiaries taken as a whole. The execution and
delivery of this Agreement and the consummation of the transactions
herein contemplated and the fulfillment of the terms hereof will not
conflict with or result in a breach of any of the
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<PAGE>
terms or provisions of, or constitute a default under, any indenture,
mortgage, deed of trust or other agreement or instrument to which the
Company or any Subsidiary is a party, or of the Charter or by-laws of
the Company or any order, rule or regulation applicable to the Company
or any Subsidiary of any court or of any regulatory body or
administrative agency or other governmental body having jurisdiction.
(xiii) Each approval, consent, order, authorization,
designation, declaration or filing by or with any regulatory,
administrative or other governmental body necessary in connection with
the execution and delivery by the Company of this Agreement and the
consummation of the transactions herein contemplated (except such
additional steps as may be required by the Commission, the National
Association of Securities Dealers, Inc. (the "NASD") or such additional
steps as may be necessary to qualify the Shares for public offering by
the Underwriters under state securities or Blue Sky laws) has been
obtained or made and is in full force and effect.
(xiv) The Company and each of the Subsidiaries holds all
material licenses, certificates and permits from governmental
authorities which are necessary to the conduct of their businesses; and
neither the Company nor any of the Subsidiaries has infringed any
patents, patent rights, trade names, trademarks or copyrights, which
infringement is material to the business of the Company and the
Subsidiaries taken as a whole. The Company knows of no material
infringement by others of patents, patent rights, trade names,
trademarks or copyrights owned by or licensed to the Company.
(xv) Neither the Company, nor to the Company's best
knowledge, any of its affiliates, has taken or may take, directly or
indirectly, any action designed to cause or result in, or which has
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of the shares of Common
Stock to facilitate the sale or resale of the Shares. The Company
acknowledges that the Underwriters may engage in passive market making
transactions in the Shares on The Nasdaq Stock Market in accordance
with Regulation M under the Exchange Act.
(xvi) Neither the Company nor any Subsidiary is an "investment
company" within the meaning of such term under the Investment Company
Act of 1940 and the rules and regulations of the Commission thereunder.
(xvii) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for
assets; (iii) access to assets is permitted only in accordance with
management's general or specific authorization; and (iv) the recorded
accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to
any differences.
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<PAGE>
(xviii) The Company and each of its Subsidiaries carry, or are
covered by, insurance in such amounts and covering such risks as is
adequate for the conduct of their respective businesses and the value
of their respective properties and as is customary for companies
engaged in similar industries.
(xix) The Company is in compliance in all material respects
with all presently applicable provisions of the Employee Retirement
Income Security Act of 1974, as amended, including the regulations and
published interpretations thereunder ("ERISA"); no "reportable event"
(as defined in ERISA) has occurred with respect to any "pension plan"
(as defined in ERISA) for which the Company would have any liability;
the Company has not incurred and does not expect to incur liability
under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of the
Internal Revenue Code of 1986, as amended, including the regulations
and published interpretations thereunder (the "Code"); and each
"pension plan" for which the Company would have any liability that is
intended to be qualified under Section 401(a) of the Code is so
qualified in all material respects and nothing has occurred, whether by
action or by failure to act, which would cause the loss of such
qualification.
(xx) The Company confirms as of the date hereof that it is
in compliance with all provisions of Section 1 of Laws of Florida,
Chapter 92-198, An Act Relating to Disclosure of doing Business with
Cuba, and the Company further agrees that if it commences engaging in
business with the government of Cuba or with any person or affiliate
located in Cuba after the date the Registration Statement becomes or
has become effective with the Commission or with the Florida Department
of Banking and Finance (the "Department"), whichever date is later, or
if the information reported or incorporated by reference in the
Prospectus, if any, concerning the Company's business with Cuba or with
any person or affiliate located in Cuba changes in any material way,
the Company will provide the Department notice of such business or
change, as appropriate, in a form acceptable to the Department.
(b) Each of the Selling Stockholders severally represents and
warrants as follows:
(i) Such Selling Stockholder now has and at the Closing Date
and the Option Closing Date, as the case may be (as such dates are
hereinafter defined) will have good and marketable title to the Firm
Shares and the Option Shares to be sold by such Selling Stockholder,
free and clear of any liens, encumbrances, equities and claims, and
full right, power and authority to effect the sale and delivery of such
Firm Shares and Option Shares; and upon the delivery of, against
payment for, such Firm Shares and Option Shares pursuant to this
Agreement, the Underwriters will acquire good and marketable title
thereto, free and clear of any liens, encumbrances, equities and
claims.
(ii) Such Selling Stockholder has full right, power and
authority to execute and deliver this Agreement, the Power of Attorney,
and the Custodian Agreement referred to
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<PAGE>
below and to perform its obligations under such Agreements. The
execution and delivery of this Agreement and the consummation by such
Selling Stockholder of the transactions herein contemplated and the
fulfillment by such Selling Stockholder of the terms hereof will not
require any consent, approval, authorization, or other order of any
court, regulatory body, administrative agency or other governmental
body (except as may be required under the Act, state securities laws or
Blue Sky laws) and will not result in a breach of any of the terms and
provisions of, or constitute a default under, organizational documents
of such Selling Stockholder, if not an individual, or any indenture,
mortgage, deed of trust or other agreement or instrument to which such
Selling Stockholder is a party, or of any order, rule or regulation
applicable to such Selling Stockholder of any court or of any
regulatory body or administrative agency or other governmental body
having jurisdiction.
(iii) Such Selling Stockholder has not taken and will not
take, directly or indirectly, any action designed to, or which has
constituted, or which might reasonably be expected to cause or result
in the stabilization or manipulation of the price of the Common Stock
of the Company and, other than as permitted by the Act, the Selling
Stockholder will not distribute any prospectus or other offering
material in connection with the offering of the Shares.
(iv) Without having undertaken to determine independently the
accuracy or completeness of either the representations and warranties
of the Company contained herein or the information contained in the
Registration Statement, such Selling Stockholder has no reason to
believe that the representations and warranties of the Company
contained in this Section 1 are not true and correct, is familiar with
the Registration Statement and has no knowledge of any material fact,
condition or information not disclosed in the Registration Statement
which has adversely affected or may adversely affect the business of
the Company or any of the Subsidiaries; and the sale of the Firm Shares
and the Option Shares by such Selling Stockholder pursuant hereto is
not prompted by any information concerning the Company or any of the
Subsidiaries which is not set forth in the Registration Statement or
the documents incorporated by reference therein. The information
pertaining to such Selling Stockholder under the caption "Principal and
Selling Stockholders" in the Prospectus is complete and accurate in all
material respects.
2. PURCHASE, SALE AND DELIVERY OF THE FIRM SHARES.
----------------------------------------------
(a) On the basis of the representations, warranties and
covenants herein contained, and subject to the conditions herein set
forth, the Sellers agree to sell to the Underwriters and each
Underwriter agrees, severally and not jointly, to purchase, at a price
of $_____ [net price] per share, the number of Firm Shares set forth
opposite the name of each Underwriter in Schedule I hereof, subject to
adjustments in accordance with Section 9 hereof. The number of Firm
Shares to be purchased by each Underwriter from each Seller shall be as
nearly as practicable in the same proportion to the total number of
Firm Shares being sold by each Seller as the number of
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<PAGE>
Firm Shares being purchased by each Underwriter bears to the total
number of Firm Shares to be sold hereunder. The obligations of the
Company and of each of the Selling Stockholders shall be several and
not joint.
(b) Certificates in negotiable form for the total number of
the Shares to be sold hereunder by the Selling Stockholders have been
placed in custody with [American Stock Transfer & Trust Company] as
custodian (the "Custodian") pursuant to the Custodian Agreement
executed by each Selling Stockholder for delivery of all Firm Shares
and any Option Shares to be sold hereunder by the Selling Stockholders.
Each of the Selling Stockholders specifically agrees that the Firm
Shares and any Option Shares represented by the certificates held in
custody for the Selling Stockholders under the Custodian Agreement are
subject to the interests of the Underwriters hereunder, that the
arrangements made by the Selling Stockholders for such custody are to
that extent irrevocable, and that the obligations of the Selling
Stockholders hereunder shall not be terminable by any act or deed of
the Selling Stockholders (or by any other person, firm or corporation
including the Company, the Custodian or the Underwriters) or by
operation of law (including the death of an individual Selling
Stockholder or the dissolution of a corporate Selling Stockholder) or
by the occurrence of any other event or events, except as set forth in
the Custodian Agreement. If any such event should occur prior to the
delivery to the Underwriters of the Firm Shares or the Option Shares
hereunder, certificates for the Firm Shares or the Options Shares, as
the case may be, shall be delivered by the Custodian in accordance with
the terms and conditions of this Agreement as if such event has not
occurred. The Custodian is authorized to receive and acknowledge
receipt of the proceeds of sale of the Shares held by it against
delivery of such Shares.
(c) Payment for the Firm Shares to be sold hereunder is to be
made by wire transfer of immediately available funds to a bank account
designated by the Company for the shares to be sold by it and by wire
transfer of immediately available funds to a bank account designated by
each Selling Stockholder for the shares to be sold by the Selling
Stockholders, in each case against delivery of certificates therefor to
the Representatives for the several accounts of the Underwriters. Such
payment and delivery are to be made at the offices of Alex. Brown &
Sons Incorporated, One South Street, Baltimore, Maryland, at 10:00
a.m., Baltimore time, on the third business day after the date of this
Agreement or at such other time and date not later than five business
days thereafter as you and the Company shall agree upon, such time and
date being herein referred to as the "Closing Date." (As used herein,
"business day" means a day on which the New York Stock Exchange is open
for trading and on which banks in New York are open for business and
not permitted by law or executive order to be closed.) The certificates
for the Firm Shares will be delivered in such denominations and in such
registrations as the Representatives request in writing not later than
the second full business day prior to the Closing Date, and will be
made available for inspection by the Representatives at least one
business day prior to the Closing Date.
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<PAGE>
(d) In addition, on the basis of the representations and
warranties herein contained and subject to the terms and conditions
herein set forth, the Company hereby grants an option to the several
Underwriters to purchase the Option Shares at the price per share as
set forth in the first paragraph of this Section 2. The option granted
hereby may be exercised in whole or in part but only once and at any
time upon written notice given within 30 days after the date of this
Agreement, by you, as Representatives of the several Underwriters, to
the Company, setting forth the number of Option Shares as to which the
several Underwriters are exercising the option, the names and
denominations in which the Option Shares are to be registered and the
time and date at which such certificates are to be delivered. The time
and date at which certificates for Option Shares are to be delivered
shall be determined by the Representatives but shall not be earlier
than three nor later than 10 full business days after the exercise of
such option, nor in any event prior to the Closing Date (such time and
date being herein referred to as the "Option Closing Date"). If the
date of exercise of the option is three or more days before the Closing
Date, the notice of exercise shall set the Closing Date as the Option
Closing Date. The number of Option Shares to be purchased by each
Underwriter shall be in the same proportion to the total number of
Option Shares being purchased as the number of Firm Shares being
purchased by such Underwriter bears to the total number of Firm Shares,
adjusted by you in such manner as to avoid fractional shares. The
option with respect to the Option Shares granted hereunder may be
exercised only to cover over-allotments in the sale of the Firm Shares
by the Underwriters. You, as Representatives of the several
Underwriters, may cancel such option at any time prior to its
expiration by giving written notice of such cancellation to the
Company. To the extent, if any, that the option is exercised, payment
for the Option Shares shall be made on the Option Closing Date by wire
transfer of immediately available funds to a bank account designated by
the Company against delivery of certificates therefor at the offices of
BT Alex. Brown Incorporated, One South Street, Baltimore, Maryland.
(e) If on the Closing Date or Option Closing Date, as the case
may be, any Selling Stockholder fails to sell the Firm Shares or Option
Shares which such Selling Stockholder has agreed to sell on such date
as set forth in Schedule II hereto, the Company agrees that it will
sell or arrange for the sale of that number of shares of Common Stock
to the Underwriters which represents Firm Shares or the Option Shares
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<PAGE>
which such Selling Stockholder has failed to so sell, as set forth in
Schedule II hereto, or such lesser number as may be requested by the
Representatives.
3. OFFERING BY THE UNDERWRITERS.
----------------------------
It is understood that the several Underwriters are to make a
public offering of the Firm Shares as soon as the Representatives deem
it advisable to do so. The Firm Shares are to be initially offered to
the public at the initial public offering price set forth in the
Prospectus. The Representatives may from time to time thereafter change
the public offering price and other selling terms. To the extent, if at
all, that any Option Shares are purchased pursuant to Section 2 hereof,
the Underwriters will offer them to the public on the foregoing terms.
It is further understood that you will act as the
Representatives for the Underwriters in the offering and sale of the
Shares in accordance with a Master Agreement Among Underwriters entered
into by you and the several other Underwriters.
4. COVENANTS OF THE COMPANY AND THE SELLING STOCKHOLDERS.
-----------------------------------------------------
(a) The Company covenants and agrees with the several
Underwriters that:
(i) The Company will (A) use its best efforts to cause the
Registration Statement to become effective or, if the procedure in Rule
430A of the Rules and Regulations is followed, to prepare and timely
file with the Commission under Rule 424(b) of the Rules and Regulations
a Prospectus in a form approved by the Representatives containing
information previously omitted at the time of effectiveness of the
Registration Statement in reliance on Rule 430A of the Rules and
Regulations, (B) not file any amendment to the Registration Statement
or supplement to the Prospectus or document incorporated by reference
therein of which the Representatives shall not previously have been
advised and furnished with a copy or to which the Representatives shall
have reasonably objected in writing or which is not in compliance with
the Rules and Regulations and (C) file on a timely basis all reports
and any definitive proxy or information statements required to be filed
by the Company with the Commission subsequent to the date of the
Prospectus and prior to the termination of the offering of the Shares
by the Underwriters.
(ii) The Company will advise the Representatives promptly (A)
when the Registration Statement or any post-effective amendment thereto
shall have become effective, (B) of receipt of any comments from the
Commission, (C) of any request of the Commission for amendment of the
Registration Statement or for supplement to the Prospectus or for any
additional information, and (D) of the issuance by the Commission of
any stop order suspending the effectiveness of the Registration
Statement or the use of the Prospectus or of the institution of any
proceedings for that purpose. The Company will use its best efforts to
prevent the issuance of any such stop order preventing or
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<PAGE>
suspending the use of the Prospectus and to obtain as soon as possible
the lifting thereof, if issued.
(iii) The Company will cooperate with the Representatives in
endeavoring to qualify the Shares for sale under the securities laws of
such jurisdictions as the Representatives may reasonably have
designated in writing and will make such applications, file such
documents, and furnish such information as may be reasonably required
for that purpose, provided the Company shall not be required to qualify
as a foreign corporation or to file a general consent to service of
process in any jurisdiction where it is not now so qualified or
required to file such a consent. The Company will, from time to time,
prepare and file such statements, reports, and other documents, as are
or may be required to continue such qualifications in effect for so
long a period as the Representatives may reasonably request for
distribution of the Shares.
(iv) The Company will deliver to, or upon the order of, the
Representatives, from time to time, as many copies of any Preliminary
Prospectus as the Representatives may reasonably request. The Company
will deliver to, or upon the order of, the Representatives during the
period when delivery of a Prospectus is required under the Act, as many
copies of the Prospectus in final form, or as thereafter amended or
supplemented, as the Representatives may reasonably request. The
Company will deliver to the Representatives at or before the Closing
Date, four signed copies of the Registration Statement and all
amendments thereto including all exhibits filed therewith, and will
deliver to the Representatives such number of copies of the
Registration Statement (including such number of copies of the exhibits
filed therewith that may reasonably be requested), including documents
incorporated by reference therein, and of all amendments thereto, as
the Representatives may reasonably request.
(v) The Company will comply with the Act and the Rules and
Regulations, and the Securities Exchange Act of 1934 (the "Exchange
Act"), and the rules and regulations of the Commission thereunder, so
as to permit the completion of the distribution of the Shares as
contemplated in this Agreement and the Prospectus. If during the period
in which a prospectus is required by law to be delivered by an
Underwriter or dealer, any event shall occur as a result of which, in
the judgment of the Company or in the reasonable opinion of the
Underwriters, it becomes necessary to amend or supplement the
Prospectus in order to make the statements therein, in the light of the
circumstances existing at the time the Prospectus is delivered to a
purchaser, not misleading, or, if it is necessary at any time to amend
or supplement the Prospectus to comply with any law, the Company
promptly will either (i) prepare and file with the Commission an
appropriate amendment to the Registration Statement or supplement to
the Prospectus or (ii) prepare and file with the Commission an
appropriate filing under the Securities Exchange Act of 1934 which
shall be incorporated by reference in the Prospectus so that the
Prospectus as so amended or supplemented will not, in the light of the
circumstances when it is so delivered, be misleading, or so that the
Prospectus will comply with the law.
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<PAGE>
(vi) The Company will make generally available to its security
holders, as soon as it is practicable to do so, but in any event not
later than 15 months after the effective date of the Registration
Statement, an earning statement (which need not be audited) in
reasonable detail, covering a period of at least 12 consecutive months
beginning after the effective date of the Registration Statement, which
earning statement shall satisfy the requirements of Section 11(a) of
the Act and Rule 158 of the Rules and Regulations and will advise you
in writing when such statement has been so made available.
(vii) The Company will, for a period of five years from the
Closing Date, deliver to the Representatives copies of annual reports
and copies of all other documents, reports and information furnished by
the Company to its stockholders or filed with any securities exchange
pursuant to the requirements of such exchange or with the Commission
pursuant to the Act or the Securities Exchange Act of 1934, as amended.
The Company will deliver to the Representatives similar reports with
respect to significant subsidiaries, as that term is defined in the
Rules and Regulations, which are not consolidated in the Company's
financial statements.
(viii) No offering, sale, short sale or other disposition of
any shares of Common Stock of the Company or other securities
convertible into or exchangeable or exercisable for shares of Common
Stock or derivative of Common Stock (or agreement for such) will be
made for a period of 90 days after the date of this Agreement, directly
or indirectly, by the Company otherwise than hereunder or with the
prior written consent of BT Alex. Brown Incorporated.
(ix) The Company will use its best efforts to list, subject to
notice of issuance, the Shares on The Nasdaq Stock Market.
(x) The Company has caused each officer and director and
specified stockholders of the Company to furnish to you, on or prior to
the date of this agreement, a letter or letters, in form and substance
satisfactory to the Underwriters, pursuant to which each such person
shall agree not to offer, sell, sell short or otherwise dispose of any
shares of Common Stock of the Company or other capital stock of the
Company, or any other securities convertible, exchangeable or
exercisable for Common Shares or derivative of Common Shares owned by
such person or request the registration for the offer or sale of any of
the foregoing (or as to which such person has the right to direct the
disposition of) for a period of 90 days after the date of this
Agreement, directly or indirectly, except with the prior written
consent of BT Alex. Brown Incorporated ("Lockup Agreements").
(xi) The Company shall apply the net proceeds of its sale of
the Shares as set forth in the Prospectus and shall file such reports
with the Commission with respect to the sale of the Shares and the
application of the proceeds therefrom as may be required in accordance
with Rule 463 under the Act.
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<PAGE>
(xii) The Company shall not invest, or otherwise use the
proceeds received by the Company from its sale of the Shares in such a
manner as would require the Company or any of the Subsidiaries to
register as an investment company under the Investment Company Act of
1940, as amended (the "1940 Act").
(xiii) The Company will maintain a transfer agent and, if
necessary under the jurisdiction of incorporation of the Company, a
registrar for the Common Stock.
(xiv) The Company will not take, directly or indirectly, any
action designed to cause or result in, or that has constituted or might
reasonably be expected to constitute, the stabilization or manipulation
of the price of any securities of the Company.
(b) Each of the Selling Stockholders covenants and agrees with
the several Underwriters that:
(i) No offering, sale, short sale or other
disposition of any shares of Common Stock of the Company or
other capital stock of the Company or other securities
convertible, exchangeable or exercisable for Common Stock or
derivative of Common Stock owned by the Selling Stockholder or
request the registration for the offer or sale of any of the
foregoing (or as to which the Selling Stockholder has the
right to direct the disposition of) will be made for a period
of 90 days after the date of this Agreement, directly or
indirectly, by such Selling Stockholder otherwise than
hereunder or with the prior written consent of Alex. Brown &
Sons Incorporated.
(ii) In order to document the Underwriters'
compliance with the reporting and withholding provisions of
the Tax Equity and Fiscal Responsibility Act of 1982 and the
Interest and Dividend Tax Compliance Act of 1983 with respect
to the transactions herein contemplated, each of the Selling
Stockholders agrees to deliver to you prior to or at the
Closing Date a properly completed and executed United States
Treasury Department Form W-9 (or other applicable form or
statement specified by Treasury Department regulations in lieu
thereof).
(iii) Such Selling Stockholder will not take,
directly or indirectly, any action designed to cause or result
in, or that has constituted or might reasonably be expected to
constitute, the stabilization or manipulation of the price of
any securities of the Company .
5. COSTS AND EXPENSES.
-------------------
The Company will pay all costs, expenses and fees incident to
the performance of the obligations of the Sellers under this Agreement,
including, without limiting the generality of the foregoing, the
following: accounting fees of the Company; the fees and disbursements
of counsel for the Company; the cost of printing and delivering to, or
as
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<PAGE>
requested by, the Underwriters copies of the Registration Statement,
Preliminary Prospectuses, the Prospectus, this Agreement, the
Underwriters' Selling Memorandum, the Underwriters' Invitation Letter,
the Listing Application, the Blue Sky Survey and any supplements or
amendments thereto; the filing fees of the Commission; the filing fees
and expenses (including legal fees and disbursements) incident to
securing any required review by the National Association of Securities
Dealers, Inc. (the "NASD") of the terms of the sale of the Shares; the
Listing Fee of The Nasdaq Stock Market; and the expenses, including the
fees and disbursements of counsel for the Underwriters, incurred in
connection with the qualification of the Shares under State securities
or Blue Sky laws. The Selling Stockholders have agreed with the Company
to reimburse the Company for a portion of such expenses. To the extent,
if at all, that any of the Selling Stockholders engage special legal
counsel to represent them in connection with this offering, the fees
and expenses of such counsel shall be borne by such Selling
Stockholder. Any transfer taxes imposed on the sale of the Shares to
the several Underwriters will be paid by the Sellers pro rata. The
Company agrees to pay all costs and expenses of the Underwriters,
including the fees and disbursements of counsel for the Underwriters,
incident to the offer and sale of directed shares of the Common Stock
by the Underwriters to employees and persons having business
relationships with the Company and its Subsidiaries. The Sellers shall
not, however, be required to pay for any of the Underwriters expenses
(other than those related to qualification under NASD regulation and
State securities or Blue Sky laws) except that, if this Agreement shall
not be consummated because the conditions in Section 6 hereof are not
satisfied, or because this Agreement is terminated by the
Representatives pursuant to Section 11 hereof, or by reason of any
failure, refusal or inability on the part of the Company or the Selling
Stockholders to perform any undertaking or satisfy any condition of
this Agreement or to comply with any of the terms hereof on their part
to be performed, unless such failure to satisfy said condition or to
comply with said terms be due to the default or omission of any
Underwriter, then the Company shall reimburse the several Underwriters
for reasonable out-of-pocket expenses, including fees and disbursements
of counsel, reasonably incurred in connection with investigating,
marketing and proposing to market the Shares or in contemplation of
performing their obligations hereunder; but the Company and the Selling
Stockholders shall not in any event be liable to any of the several
Underwriters for damages on account of loss of anticipated profits from
the sale by them of the Shares.
6. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS.
---------------------------------------------
The several obligations of the Underwriters to purchase the
Firm Shares on the Closing Date and the Option Shares, if any, on the
Option Closing Date are subject to the accuracy, as of the Closing Date
or the Option Closing Date, as the case may be, of the representations
and warranties of the Company and the Selling Stockholders contained
herein, and to the performance by the Company and the Selling
Stockholders of their covenants and obligations hereunder and to the
following additional conditions:
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(a) The Registration Statement and all post-effective
amendments thereto shall have become effective and any and all filings
required by Rule 424 and Rule 430A of the Rules and Regulations shall
have been made, and any request of the Commission for additional
information (to be included in the Registration Statement or otherwise)
shall have been disclosed to the Representatives and complied with to
their reasonable satisfaction. No stop order suspending the
effectiveness of the Registration Statement, as amended from time to
time, shall have been issued and no proceedings for that purpose shall
have been taken or, to the knowledge of the Company or the Selling
Stockholders, shall be contemplated by the Commission and no
injunction, restraining order, or order of any nature by a Federal or
state court of competent jurisdiction shall have been issued as of the
Closing Date which would prevent the issuance of the Shares.
(b) The Representatives shall have received on the Closing
Date or the Option Closing Date, as the case may be, the opinion of
Wolf, Block, Schorr and Solis-Cohen LLP, counsel for the Company and
the Selling Stockholders, dated the Closing Date or the Option Closing
Date, as the case may be, addressed to the Underwriters (and stating
that it may be relied upon by counsel to the Underwriters) to the
effect that:
(i) The Company has been duly organized and is
validly existing as a corporation in good standing under the
laws of the State of Nevada, with corporate power and
authority to own or lease its properties and conduct its
business as described in the Registration Statement; each of
the Subsidiaries has been duly organized and is validly
existing as a corporation in good standing under the laws of
the jurisdiction of its incorporation, with corporate power
and authority to own or lease its properties and conduct its
business as described in the Registration Statement; the
Company and each of the Subsidiaries are duly qualified to
transact business in all jurisdictions in which the conduct of
their business requires such qualification, or in which the
failure to qualify would have a materially adverse effect upon
the business of the Company and the Subsidiaries taken as a
whole; and the outstanding shares of capital stock of each of
the Subsidiaries have been duly authorized and validly issued
and are fully paid and non-assessable and are owned by the
Company or a Subsidiary; and, to the best of such counsel's
knowledge, the outstanding shares of capital stock of each of
the Subsidiaries is owned free and clear of all liens,
encumbrances and equities and claims, and no options, warrants
or other rights to purchase, agreements or other obligations
to issue or other rights to convert any obligations into any
shares of capital stock or of ownership interests in the
Subsidiaries are outstanding.
(ii) The Company has authorized and outstanding
capital stock as set forth under the caption "Capitalization"
in the Prospectus; the authorized shares of the Company's
Common Stock have been duly authorized; the outstanding shares
of the Company's Common Stock, including the Shares to be sold
by the Selling Stockholders, have been duly authorized and
validly issued and are fully paid and non-assessable; all of
the Shares conform to the description thereof contained in
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the Prospectus; the certificates for the Shares, assuming they
are in the form filed with the Commission, are in due and
proper form; the shares of Common Stock, including the Option
Shares, if any, to be sold by the Company pursuant to this
Agreement have been duly authorized and will be validly
issued, fully paid and non-assessable when issued and paid for
as contemplated by this Agreement; and no preemptive rights of
stockholders exist with respect to any of the Shares or the
issue or sale thereof.
(iii) Except as described in or contemplated by the
Prospectus, to the knowledge of such counsel, there are no
outstanding securities of the Company convertible or
exchangeable into or evidencing the right to purchase or
subscribe for any shares of capital stock of the Company and
there are no outstanding or authorized options, warrants or
rights of any character obligating the Company to issue any
shares of its capital stock or any securities convertible or
exchangeable into or evidencing the right to purchase or
subscribe for any shares of such stock; and except as
described in the Prospectus, to the knowledge of such counsel,
no holder of any securities of the Company or any other person
has the right, contractual or otherwise, which has not been
satisfied or effectively waived, to cause the Company to sell
or otherwise issue to them, or to permit them to underwrite
the sale of, any of the Shares or the right to have any Common
Shares or other securities of the Company included in the
Registration Statement or the right, as a result of the filing
of the Registration Statement, to require registration under
the Act of any shares of Common Stock or other securities of
the Company.
(iv) The Registration Statement has become effective
under the Act and, to the best of the knowledge of such
counsel, no stop order proceedings with respect thereto have
been instituted or are pending or threatened under the Act.
(v) The Registration Statement, the Prospectus and
each amendment or supplement thereto and document incorporated
by reference therein comply as to form in all material
respects with the requirements of the Act or the Securities
Exchange Act of 1934, as applicable and the applicable rules
and regulations thereunder (except that such counsel need
express no opinion as to the financial statements and related
schedules included or incorporated by reference therein). The
conditions for the use of Form S-3, set forth in the General
Instructions thereto, have been satisfied.
(vi) The statements under the captions "Description
of Capital Stock" and "Shares Eligible for Future Sale" in the
Prospectus, insofar as such statements constitute a summary of
documents referred to therein or matters of law, fairly
summarize in all material respects the information called for
with respect to such documents and matters.
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(vii) Such counsel does not know of any contracts or
documents required to be filed as exhibits to or incorporated
by reference in the Registration Statement or described in the
Registration Statement or the Prospectus which are no so
filed, incorporated by reference or described as required, and
such contracts and documents as are summarized in the
Registration Statement or the Prospectus are fairly summarized
in all material respects.
(viii) Such counsel knows of no material legal or
governmental proceedings pending or threatened against the
Company or any of the Subsidiaries except as set forth in the
Prospectus.
(ix) The execution and delivery of this Agreement and
the consummation of the transactions herein contemplated do
not and will not conflict with or result in a breach of any of
the terms or provisions of, or constitute a default under, the
Charter or by-laws of the Company, or any agreement or
instrument known to such counsel to which the Company or any
of the Subsidiaries is a party or by which the Company or any
of the Subsidiaries may be bound.
(x) This Agreement has been duly authorized, executed
and delivered by the Company.
(xi) No approval, consent, order, authorization,
designation, declaration or filing by or with any regulatory,
administrative or other governmental body is necessary in
connection with the execution and delivery of this Agreement
and the consummation of the transactions herein contemplated
(other than as may be required by the NASD or as required by
State securities and Blue Sky laws as to which such counsel
need express no opinion) except such as have been obtained or
made, specifying the same.
(xii) The Company is not, and will not become, as a
result of the consummation of the transactions contemplated by
this Agreement, and application of the net proceeds therefrom
as described in the Prospectus, required to register as an
investment company under the 1940 Act.
(xiii) This Agreement has been duly authorized,
executed and delivered on behalf of the Selling Stockholders.
(xiv) Each Selling Stockholder has full legal right,
power and authority, and any approval required by law (other
than as required by State securities and Blue Sky laws as to
which such counsel need express no opinion), to sell, assign,
transfer and deliver the portion of the Shares to be sold by
such Selling Stockholder.
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(xv) The Custodian Agreement and the Power of
Attorney executed and delivered by each Selling Stockholder is
valid and binding.
(xvi) The Underwriters (assuming that they are bona
fide purchasers within the meaning of the Uniform Commercial
Code) have acquired good and marketable title to the Shares
being sold by each Selling Stockholder on the Closing Date,
and the Option Closing Date, as the case may be, free and
clear of all liens, encumbrances, equities and claims.
In rendering such opinion Wolf, Block, Schorr and Solis-Cohen
LLP may rely as to matters governed by the laws of states other than
Pennsylvania or Federal laws on local counsel in such jurisdictions and
as to the matters set forth in subparagraphs (xiii), (xiv) and (xv) on
opinions of other counsel representing the respective Selling
Stockholders, provided that in each case Wolf, Block, Schorr and
Solis-Cohen LLP shall state that they believe that they and the
Underwriters are justified in relying on such other counsel. In
addition to the matters set forth above, such opinion shall also
include a statement to the effect that nothing has come to the
attention of such counsel which leads them to believe that (i) the
Registration Statement, at the time it became effective under the Act
(but after giving effect to any modifications incorporated therein
pursuant to Rule 430A under the Act) and as of the Closing Date or the
Option Closing Date, as the case may be, contained an untrue statement
of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading, and (ii) the Prospectus, or any supplement thereto, on the
date it was filed pursuant to the Rules and Regulations and as of the
Closing Date or the Option Closing Date, as the case may be, contained
an untrue statement of a material fact or omitted to state a material
fact necessary in order to make the statements, in the light of the
circumstances under which they are made, not misleading (except that
such counsel need express no view as to financial statements, schedules
and statistical information therein). With respect to such statement,
Wolf, Block, Schorr and Solis-Cohen LLP may state that their belief is
based upon the procedures set forth therein, but is without independent
check and verification.
(c) The Representatives shall have received from Hogan &
Hartson L.L.P., counsel for the Underwriters, an opinion dated the
Closing Date or the Option Closing Date, as the case may be,
substantially to the effect specified in subparagraphs (ii), (iii),
(iv) and (x) of Paragraph (b) of this Section 6, and that the Company
is a duly organized and validly existing corporation under the laws of
the State of Nevada. In rendering such opinion Hogan & Hartson L.L.P.
may rely as to all matters governed other than by the laws of the State
of Nevada or Federal laws on the opinion of counsel referred to in
Paragraph (b) of this Section 6. In addition to the matters set forth
above, such opinion shall also include a statement to the effect that
nothing has come to the attention of such counsel which leads them to
believe that (i) the Registration Statement, or any amendment thereto,
as of the time it became effective under the Act (but after giving
effect to any modifications incorporated therein pursuant to Rule 430A
under the Act) as of the Closing Date or the Option Closing Date, as
the case may be, contained an untrue
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statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading, and (ii) the Prospectus, or any supplement
thereto, on the date it was filed pursuant to the Rules and Regulations
and as of the Closing Date or the Option Closing Date, as the case may
be, contained an untrue statement of a material fact or omitted to
state a material fact, necessary in order to make the statements, in
the light of the circumstances under which they are made, not
misleading (except that such counsel need express no view as to
financial statements, schedules and statistical information therein).
With respect to such statement, Hogan & Hartson L.L.P. may state that
their belief is based upon the procedures set forth therein, but is
without independent check and verification.
(d) The Representatives shall have received at or prior to the
Closing Date from Hogan & Hartson L.L.P. a memorandum or summary, in
form and substance satisfactory to the Representatives, with respect to
the qualification for offering and sale by the Underwriters of the
Shares under the State securities or Blue Sky laws of such
jurisdictions as the Representatives may reasonably have designated to
the Company.
(e) You shall have received, on each of the dates hereof, the
Closing Date and the Option Closing Date, as the case may be, a letter
dated the date hereof, the Closing Date or the Option Closing Date, as
the case may be, in form and substance satisfactory to you, of Grant
Thornton LLP confirming that they are independent public accountants
within the meaning of the Act and the applicable published Rules and
Regulations thereunder and stating that in their opinion the financial
statements and schedules examined by them and included in the
Registration Statement comply in form in all material respects with the
applicable accounting requirements of the Act and the related published
Rules and Regulations; and containing such other statements and
information as is ordinarily included in accountants' "comfort letters"
to Underwriters with respect to the financial statements and certain
financial and statistical information contained in the Registration
Statement and Prospectus.
(f) The Representatives shall have received on the Closing
Date or the Option Closing Date, as the case may be, a certificate or
certificates of the Chief Executive Officer and the Chief Financial
Officer of the Company to the effect that, as of the Closing Date or
the Option Closing Date, as the case may be, each of them severally
represents as follows:
(i) The Registration Statement has become effective
under the Act and no stop order suspending the effectiveness
of the Registrations Statement has been issued, and no
proceedings for such purpose have been taken or are, to his
knowledge, contemplated by the Commission;
(ii) The representations and warranties of the
Company contained in Section 1 hereof are true and correct as
of the Closing Date or the Option Closing Date, as the case
may be;
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(iii) All filings required to have been made pursuant
to Rules 424 or 430A under the Act have been made;
(iv) He or she has carefully examined the
Registration Statement and the Prospectus and, in his or her
opinion, as of the effective date of the Registration
Statement, the statements contained in the Registration
Statement were true and correct, and such Registration
Statement and Prospectus did not omit to state a material fact
required to be stated therein or necessary in order to make
the statements therein not misleading, and since the effective
date of the Registration Statement, no event has occurred
which should have been set forth in a supplement to or an
amendment of the Prospectus which has not been so set forth in
such supplement or amendment; and
(v) Since the respective dates as of which
information is given in the Registration Statement and
Prospectus, there has not been any material adverse change or
any development involving a prospective material adverse
change in or affecting the condition, financial or otherwise,
of the Company and its Subsidiaries taken as a whole or the
earnings, business, management, properties, assets, rights,
operations, condition (financial or otherwise) or prospects of
the Company and the Subsidiaries taken as a whole, whether or
not arising in the ordinary course of business.
(g) The Company and the Selling Stockholders shall have
furnished to the Representatives such further certificates and
documents confirming the representations and warranties, covenants and
conditions contained herein and related matters as the Representatives
may reasonably have requested.
(h) The Firm Shares and Option Shares, if any, have been
approved for designation upon notice of issuance on the Nasdaq Stock
Market.
(i) The Lockup Agreements described in Section 4 (a)(x) are in
full force and effect.
The opinions and certificates mentioned in this Agreement
shall be deemed to be in compliance with the provisions hereof only if
they are in all material respects satisfactory to the Representatives
and to Hogan & Hartson L.L.P., counsel for the Underwriters.
If any of the conditions hereinabove provided for in this
Section 6 shall not have been fulfilled when and as required by this
Agreement to be fulfilled, the obligations of the Underwriters
hereunder may be terminated by the Representatives by notifying the
Company and the Selling Stockholders of such termination in writing or
by telegram at or prior to the Closing Date or the Option Closing Date,
as the case may be.
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In such event, the Selling Stockholders, the Company and the
Underwriters shall not be under any obligation to each other (except to
the extent provided in Sections 5 and 8 hereof).
7. CONDITIONS OF THE OBLIGATIONS OF THE SELLERS.
--------------------------------------------
The obligations of the Sellers to sell and deliver the portion
of the Shares required to be delivered as and when specified in this
Agreement are subject to the conditions that at the Closing Date or the
Option Closing Date, as the case may be, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and
in effect or proceedings therefor initiated or threatened.
8. INDEMNIFICATION.
---------------
(a) The Company and the Selling Stockholders, jointly and
severally, agree to indemnify and hold harmless each Underwriter and
each person, if any, who controls any Underwriter within the meaning of
the Act, against any losses, claims, damages or liabilities to which
such Underwriter or any such controlling person may become subject
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) arise out of
or are based upon (i) any untrue statement or alleged untrue statement
of any material fact contained in the Registration Statement, any
Preliminary Prospectus, the Prospectus or any amendment or supplement
thereto, or (ii) the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, in the light of the circumstances
under which they were made; and will reimburse each Underwriter and
each such controlling person upon demand for any legal or other
expenses reasonably incurred by such Underwriter or such controlling
person in connection with investigating or defending any such loss,
claim, damage or liability, action or proceeding or in responding to a
subpoena or governmental inquiry related to the offering of the Shares,
whether or not such Underwriter or controlling person is a party to any
action or proceeding; provided, however, that the Company and the
Selling Stockholders will not be liable (i) in any such case to the
extent that any such loss, claim, damage or liability arises out of or
is based upon an untrue statement or alleged untrue statement, or
omission or alleged omission made in the Registration Statement, any
Preliminary Prospectus, the Prospectus, or such amendment or
supplement, in reliance upon and in conformity with written information
furnished to the Company by or through the Representatives specifically
for use in the preparation thereof or (ii) with respect to any untrue
statement contained in or any omission from a Preliminary Prospectus of
the untrue statement or omission from a Preliminary Prospectus was
corrected in the applicable Prospectus and the person asserting any
loss, liability, claim or damage was not given or sent a copy of the
applicable Prospectus in the manner and at such time as required by the
Act, provided the Company has furnished you with copies of the
applicable Prospectus. In no event, however, shall the liability of any
Selling Stockholder for indemnification under this Section 8(a) exceed
the proceeds received by
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such Selling Stockholder from the Underwriters in the offering. This
indemnity agreement will be in addition to any liability which the
Company or the Selling Stockholders may otherwise have.
(b) Each Underwriter severally and not jointly will indemnify
and hold harmless the Company, each of its directors, each of its
officers who have signed the Registration Statement, the Selling
Stockholders, and each person, if any, who controls the Company or the
Selling Stockholders within the meaning of the Act, against any losses,
claims, damages or liabilities to which the Company or any such
director, officer, Selling Stockholder or controlling person may become
subject under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions or proceedings in respect thereof)
arise out of or are based upon (i) any untrue statement or alleged
untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus or any amendment
or supplement thereto, or (ii) the omission or the alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of
the circumstances under which they were made; and will reimburse any
legal or other expenses reasonably incurred by the Company or any such
director, officer, Selling Stockholder or controlling person in
connection with investigating or defending any such loss, claim,
damage, liability, action or proceeding; provided, however, that each
Underwriter will be liable in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or
omission or alleged omission has been made in the Registration
Statement, any Preliminary Prospectus, the Prospectus or such amendment
or supplement, in reliance upon and in conformity with written
information furnished to the Company by or through the Representatives
specifically for use in the preparation thereof. This indemnity
agreement will be in addition to any liability which such Underwriter
may otherwise have.
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of
which indemnity may be sought pursuant to this Section 8, such person
(the "indemnified party") shall promptly notify the person against whom
such indemnity may be sought (the "indemnifying party") in writing. No
indemnification provided for in Section 8(a) or (b) shall be available
to any party who shall fail to give notice as provided in this Section
8(c) if the party to whom notice was not given was unaware of the
proceeding to which such notice would have related and was materially
prejudiced by the failure to give such notice, but the failure to give
such notice shall not relieve the indemnifying party or parties from
any liability which it or they may have to the indemnified party for
contribution or otherwise than on account of the provisions of Section
8(a) or (b). In case any such proceeding shall be brought against any
indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, jointly with
any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party and shall
pay as incurred (or within 30 days of presentation) the fees and
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disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its
own counsel at its own expense. Notwithstanding the foregoing, the
indemnifying party shall pay as incurred the fees and expenses of the
counsel retained by the indemnified party in the event (i) the
indemnifying party and the indemnified party shall have mutually agreed
to the retention of such counsel, (ii) the named parties to any such
proceeding (including any impleaded parties) include both the
indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or
potential differing interests between them or (iii) the indemnifying
party shall have failed to assume the defense and employ counsel
acceptable to the indemnified party within a reasonable period of time
after notice of commencement of the action. It is understood that the
indemnifying party shall not, in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the
reasonable fees and expenses of more than one separate firm for all
such indemnified parties. Such firm shall be designated in writing by
you in the case of parties indemnified pursuant to Section 8(a) and by
the Company and the Selling Stockholders in the case of parties
indemnified pursuant to Section 8(b). The indemnifying party shall not
be liable for any settlement of any proceeding effected without its
written consent but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to indemnify
the indemnified party from and against any loss or liability by reason
of such settlement or judgment. In addition, the indemnifying party
will not, without the prior written consent of the indemnified party,
settle or compromise or consent to the entry of any judgment in any
pending or threatened claim, action or proceeding of which
indemnification may be sought hereunder (whether or not any indemnified
party is an actual or potential party to such claim, action or
proceeding) unless such settlement, compromise or consent includes an
unconditional release of each indemnified party from all liability
arising out of such claim, action or proceeding.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party
under Section 8(a) or (b) above in respect of any losses, claims,
damages or liabilities (or actions or proceedings in respect thereof)
referred to therein, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of
such losses, claims, damages or liabilities (or actions or proceedings
in respect thereof) in such proportion as is appropriate to reflect the
relative benefits received by the Company and the Selling Stockholders
on the one hand and the Underwriters on the other from the offering of
the Shares. If, however, the allocation provided by the immediately
preceding sentence is not permitted by applicable law then each
indemnifying party shall contribute to such amount paid or payable by
such indemnified party in such proportion as is appropriate to reflect
not only such relative benefits but also the relative fault of the
Company and the Selling Stockholders on the one hand and the
Underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or
liabilities, (or actions or proceedings in respect thereof), as well as
any other relevant equitable considerations. The relative benefits
received by the Company and the Selling
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Stockholders on the one hand and the Underwriters on the other shall be
deemed to be in the same proportion as the total net proceeds from the
offering (before deducting expenses) received by the Company and the
Selling Stockholders bear to the total underwriting discounts and
commissions received by the Underwriters, in each case as set forth in
the table on the cover page of the Prospectus. The relative fault shall
be determined by reference to, among other things, whether the untrue
or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information
supplied by the Company or the Selling Stockholders on the one hand or
the Underwriters on the other and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The Company, the Selling Stockholders and the Underwriters
agree that it would not be just and equitable if contributions pursuant
to this Section 8(d) were determined by pro rata allocation (even if
the Underwriters were treated as one entity for such purpose) or by any
other method of allocation which does not take account of the equitable
considerations referred to above in this Section 8(d). The amount paid
or payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions or proceedings in respect thereof)
referred to above in this Section 8(d) shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (d), (i) no
Underwriter shall be required to contribute any amount in excess of the
underwriting discounts and commissions applicable to the Shares
purchased by such Underwriter, (ii) no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation, and (iii) no Selling Stockholder
shall be required to contribute any amount in excess of the lesser of
(A) that proportion of the total of such losses, claims, damages or
liabilities indemnified or contributed against equal to the proportion
of the total Shares sold hereunder which is being sold by such Selling
Stockholder, or (B) the proceeds received by such Selling Stockholder
from the Underwriters in the offering. The Underwriters' obligations in
this Section 8(d) to contribute are several in proportion to their
respective underwriting obligations and not joint.
(e) In any proceeding relating to the Registration Statement,
any Preliminary Prospectus, the Prospectus or any supplement or
amendment thereto, each party against whom contribution may be sought
under this Section 8 hereby consents to the jurisdiction of any court
having jurisdiction over any other contributing party, agrees that
process issuing from such court may be served upon him or it by any
other contributing party and consents to the service of such process
and agrees that any other contributing party may join him or it as an
additional defendant in any such proceeding in which such other
contributing party is a party.
(f) Any losses, claims, damages, liabilities or expenses for
which an indemnified party is entitled to indemnification or
contribution under this Section 8 shall be paid by
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the indemnifying party to the indemnified party as such losses, claims,
damages, liabilities or expenses are incurred. The indemnity and
contribution agreements contained in this Section 8 and the
representations and warranties of the Company set forth in this
Agreement shall remain operative and in full force and effect,
regardless of (i) any investigation made by or on behalf of any
Underwriter or any person controlling any Underwriter, the Company, its
directors or officers or any persons controlling the Company, (ii)
acceptance of any Shares and payment therefor hereunder, and (iii) any
termination of this Agreement. A successor to any Underwriter, or to
the Company, its directors or officers, or any person controlling the
Company, shall be entitled to the benefits of the indemnity,
contribution and reimbursement agreements contained in this Section 8.
9. DEFAULT BY UNDERWRITERS.
-----------------------
If on the Closing Date or the Option Closing Date, as the case
may be, any Underwriter shall fail to purchase and pay for the portion
of the Shares which such Underwriter has agreed to purchase and pay for
on such date (otherwise than by reason of any default on the part of
the Company or a Selling Stockholder), you, as Representatives of the
Underwriters, shall use your reasonable efforts to procure within 36
hours thereafter one or more of the other Underwriters, or any others,
to purchase from the Company and the Selling Stockholders such amounts
as may be agreed upon and upon the terms set forth herein, the Firm
Shares or Option Shares, as the case may be, which the defaulting
Underwriter or Underwriters failed to purchase. If during such 36 hours
you, as such Representatives, shall not have procured such other
Underwriters, or any others, to purchase the Firm Shares or Option
Shares, as the case may be, agreed to be purchased by the defaulting
Underwriter or Underwriters, then (a) if the aggregate number of shares
with respect to which such default shall occur does not exceed 10% of
the Firm Shares or Option Shares, as the case may be, covered hereby,
the other Underwriters shall be obligated, severally, in proportion to
the respective numbers of Firm Shares or Option Shares, as the case may
be, which they are obligated to purchase hereunder, to purchase the
Firm Shares or Option Shares, as the case may be, which such defaulting
Underwriter or Underwriters failed to purchase, or (b) if the aggregate
number of shares of Firm Shares or Option Shares, as the case may be,
with respect to which such default shall occur exceeds 10% of the Firm
Shares or Option Shares, as the case may be, covered hereby, the
Company and the Selling Stockholders or you as the Representatives of
the Underwriters will have the right, by written notice given within
the next 36-hour period to the parties to this Agreement, to terminate
this Agreement without liability on the part of the non-defaulting
Underwriters or of the Company or of the Selling Stockholders except to
the extent provided in Section 8 hereof. In the event of a default by
any Underwriter or Underwriters, as set forth in this Section 9, the
Closing Date or Option Closing Date, as the case may be, may be
postponed for such period, not exceeding seven days, as you, as
Representatives, may determine in order that the required changes in
the Registration Statement or in the Prospectus or in any other
documents or arrangements may be effected. The term "Underwriter"
includes any
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<PAGE>
person substituted for a defaulting Underwriter. Any action taken under
this Section 9 shall not relieve any defaulting Underwriter from
liability in respect of any default of such Underwriter under this
Agreement.
10. NOTICES.
-------
All communications hereunder shall be in writing and, except
as otherwise provided herein, will be mailed, delivered, telecopied or
telegraphed and confirmed as follows: if to the Underwriters, to BT
Alex. Brown Incorporated, One South Street, Baltimore, Maryland 21202,
Attention: David B. Hartzell; with a copy to BT Alex. Brown
Incorporated, One South Street, Baltimore, Maryland 21202, Attention:
General Counsel; if to the Company or the Selling Stockholders, to RCM
Technologies, Inc., 2500 McClellan Avenue, Suite 350, Pennsauken, New
Jersey 08109-4613, Attention: Leon Kopyt, Chairman, President and Chief
Executive Officer with a copy to Wolf, Block, Schorr and Solis-Cohen
LLP, 12th Floor, Packard Building, Southeast Corner 15th & Chestnut
Streets, Philadelphia, Pennsylvania 19102, Attention: Mark K. Kessler.
11. TERMINATION.
-----------
This Agreement may be terminated by you by notice to the
Sellers as follows:
(a) at any time prior to the earlier of (i) the time the
Shares are released by you for sale by notice to the Underwriters, or
(ii) 11:30 a.m. on the first business day following the date of this
Agreement;
(b) at any time prior to the Closing Date if any of the
following has occurred: (i) since the respective dates as of which
information is given in the Registration Statement and the Prospectus,
any material adverse change or any development involving a prospective
material adverse change in or affecting the condition, financial or
otherwise, of the Company and its Subsidiaries taken as a whole or the
earnings, business, management, properties, assets, rights, operations,
condition (financial or otherwise) or prospects of the Company and its
Subsidiaries taken as a whole, whether or not arising in the ordinary
course of business, (ii) any outbreak or escalation of hostilities or
declaration of war or national emergency or other national or
international calamity or crisis or change in economic or political
conditions if the effect of such outbreak, escalation, declaration,
emergency, calamity, crisis or change on the financial markets of the
United States would, in your reasonable judgment, make it impracticable
to market the Shares or to enforce contracts for the sale of the
Shares, or (iii) suspension of trading in securities generally on the
New York Stock Exchange or the American Stock Exchange or limitation on
prices (other than limitations on hours or numbers of days of trading)
for securities on either such Exchange, (iv) the enactment,
publication, decree or other promulgation of any statute, regulation,
rule or order of any court or other governmental authority which in
your opinion materially and adversely affects or may materially and
adversely affect the business or operations of the Company, (v)
declaration of a banking
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<PAGE>
moratorium by United States or New York State authorities, (vi) any
downgrading in the rating of the Company's debt securities by any
"nationally recognized statistical rating organization" (as defined for
purposes of Rule 436(g) under the Exchange Act); (vii) the suspension
of trading of the Company's common stock by the Commission on the
Nasdaq Stock Market or (viii) the taking of any action by any
governmental body or agency in respect of its monetary or fiscal
affairs which in your reasonable opinion has a material adverse effect
on the securities markets in the United States; or
(c) as provided in Sections 6 and 9 of this Agreement.
12. SUCCESSORS.
----------
This Agreement has been and is made solely for the benefit of
the Underwriters, the Company and the Selling Stockholders and their
respective successors, executors, administrators, heirs and assigns,
and the officers, directors and controlling persons referred to herein,
and no other person will have any right or obligation hereunder. No
purchaser of any of the Shares from any Underwriter shall be deemed a
successor or assign merely because of such purchase.
13. INFORMATION PROVIDED BY UNDERWRITERS.
------------------------------------
The Company, the Selling Stockholders and the Underwriters
acknowledge and agree that the only information furnished or to be
furnished by any Underwriter to the Company for inclusion in any
Prospectus or the Registration Statement consists of the information
set forth in the last paragraph on the front cover page (insofar as
such information relates to the Underwriters), legends required by Item
502(d) of Regulation S-K under the Act and the information under the
caption "Underwriting" in the Prospectus.
14. MISCELLANEOUS.
-------------
The reimbursement, indemnification and contribution agreements
contained in this Agreement and the representations, warranties and
covenants in this Agreement shall remain in full force and effect
regardless of (a) any termination of this Agreement, (b) any
investigation made by or on behalf of any Underwriter or controlling
person thereof, or by or on behalf of the Company or its directors or
officers and (c) delivery of and payment for the Shares under this
Agreement.
This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together
shall constitute one and the same instrument.
This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Maryland.
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<PAGE>
If the foregoing letter is in accordance with your
understanding of our agreement, please sign and return to us the enclosed
duplicates hereof, whereupon it will become a binding agreement among the
Selling Stockholders, the Company and the several Underwriters in accordance
with its terms.
Any person executing and delivering this Agreement as
Attorney-in-Fact for a Selling Stockholder represents by so doing that he has
been duly appointed as Attorney-in-Fact by such Selling Stockholder pursuant to
a validly existing and binding Power of Attorney which authorizes such
Attorney-in-Fact to take such action.
Very truly yours,
RCM TECHNOLOGIES, INC.
By________________________________________
Leon Kopyt
Chairman, President and CEO
Selling Stockholders listed on Schedule II
By________________________________________
Attorney-in-Fact
The foregoing Underwriting Agreement
is hereby confirmed and accepted as
of the date first above written.
BT ALEX. BROWN INCORPORATED
BANCAMERICA ROBERTSON STEPHENS
LEGG MASON WOOD WALKER, INCORPORATED
As Representatives of the several
Underwriters listed on Schedule I
By BT Alex. Brown Incorporated
By__________________________________
Authorized Officer
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<PAGE>
SCHEDULE I
SCHEDULE OF UNDERWRITERS
Underwriter Number of Firm Shares to be Purchased
----------- -------------------------------------
BT Alex. Brown Incorporated
BancAmerica Robertson Stephens
Legg Mason Wood Walker, Incorporated
----------
Total ----------
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<PAGE>
SCHEDULE II
SCHEDULE OF SELLING STOCKHOLDERS
Selling Stockholder Number of Firm Shares to be Sold
------------------- --------------------------------
----------
Total ----------
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<PAGE>
EXHIBIT A
SUBSIDIARIES OF THE COMPANY
Intertec Design, Inc.
Cataract, Inc.
The Consortium
The Consortium of Maryland, Inc.
Programming Alternatives of Minnesota, Inc.
Camelot Contractors, Limited
Austin Nichols Technical Temporaries, Inc.
J.D. Karin Consulting Services, Inc.
-32-
Exhibit 5
SCHRECK MORRIS
Attorneys at Law
1200 Bank of America Plaza
300 South Fourth Street
Las Vegas, Nevada 89101
(702) 382-2101 FAX (702) 382-8135
April 29, 1998
RCM Technologies, Inc.
2500 McClellan Avenue
Suite 350
Pennsauken, New Jersey 08109
Ladies and Gentlemen:
In connection with that certain Registration Statement on Form S-3
(the "Registration Statement") filed by RCM Technologies, Inc., a Nevada
corporation (the "Company"), on April 29, 1998 under the Securities Act of 1933,
as amended (the "Act"), relating to the public offering (the "Offering") of an
aggregate of up to 3,105,000 shares of the Company's common stock, par value
$0.05 per share, of which (a) up to 2,914,980 shares may be issued and sold by
the Company (the "Primary Shares") and (b) 190,020 shares will be sold by
certain stockholders of the Company upon the exercise of stock options held by
such selling stockholders (the "Secondary Shares" and, together with the Primary
Shares, the "Shares"), you have requested our opinion with respect to the
matters set forth below. In our capacity as special Nevada counsel to the
Company, we are familiar with the proceedings taken and proposed to be taken by
the Company and, for purposes of this opinion, have assumed such proceedings
will be timely completed in the manner presently proposed. In addition, we have
made such legal and factual examinations and inquiries, including an examination
of originals or copies certified or otherwise identified to our satisfaction as
being true reproductions of originals of such documents, corporate records, and
other instruments, and have obtained and relied upon such certificates,
representations and assurances from the Company and public officials, as we have
considered necessary or appropriate for the purposes of this opinion.
<PAGE>
RCM Technologies, Inc.
April 29, 1998
Page 2
Without limiting the generality of the foregoing, in our examination,
we have assumed without independent verification, that (i) each natural person
executing a document we examined has sufficient legal capacity to do so, (ii)
all documents submitted to us as originals are authentic, the signatures on all
documents that we examined are genuine, and all documents submitted to us as
certified, conformed, photostatic or facsimile copies conform to the original
document, and (iii) all corporate records made available to us by the Company
and all public records reviewed are accurate and complete.
Based upon the foregoing, and having regard to legal considerations
and other information that we deem relevant, we are of the opinion that:
(i) the Primary Shares have been duly authorized and, when issued and
sold in the manner contemplated in the Registration Statement, will be validly
issued, fully paid and non-assessable; and
(ii) assuming the due and proper exercise of the related stock options
in accordance with the terms thereof, the Secondary Shares will be, when issued,
duly authorized, validly issued, fully paid and non-assessable.
We are qualified to practice law in the State of Nevada. The opinions
set forth herein are expressly limited to the laws of the State of Nevada and we
do not purport to be experts on, or to express any opinion herein concerning, or
to assume any responsibility as to the applicability to or the effect on any of
the matters covered herein of, the laws of any other jurisdiction. We express no
opinion concerning, and we assume no responsibility as to laws or judicial
decisions related to, any federal law, including any federal securities law, or
any state securities or Blue Sky laws.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and the reference to this firm under the caption "Legal
Matters" therein. In giving this consent, we do not admit that we are in the
category of persons whose consent is required under Section 7 of the Act or the
rules and regulations promulgated thereunder.
Yours very truly,
/s/ Schreck Morris
----------------------------------
SCHRECK MORRIS
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have issued our report dated December 12, 1997 (except for Note 15, to
which the date is January 5, 1998), accompanying the financial statements and
schedules of RCM Technologies, Inc., and Subsidiaries included in the Company's
Annual Report on Form 10-K for the fiscal year ended October 31, 1997 which is
incorporated by reference in this Registration Statement and Prospectus. We
hereby consent to this incorporation by reference in this Registration Statement
and Prospectus, and to the use of our name as it appears under the caption
"Experts."
/s/ Grant Thornton LLP
GRANT THORNTON LLP
Philadelphia, Pennsylvania
April 29, 1998
