0000700841-95-000016.txt : 19950914 0000700841-95-000016.hdr.sgml : 19950914 ACCESSION NUMBER: 0000700841-95-000016 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19951031 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19950911 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: RCM TECHNOLOGIES INC CENTRAL INDEX KEY: 0000700841 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-HELP SUPPLY SERVICES [7363] IRS NUMBER: 951480559 STATE OF INCORPORATION: NV FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-10245 FILM NUMBER: 95572671 BUSINESS ADDRESS: STREET 1: 2500 MCCLELLAN AVE STE 350 CITY: PENNSAUKEN STATE: NJ ZIP: 08109 BUSINESS PHONE: 6094861777 MAIL ADDRESS: STREET 1: 2500 MCCLELLAN AVENUE STREET 2: STE 350 CITY: PENNSAUKEN STATE: NJ ZIP: 08109-4613 8-K 1 8-K CURRENT REPORT SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ____________________ FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report August 30, 1995 (Date of earliest event reported) RCM TECHNOLOGIES, INC. (exact name of registrant as specified in its charter) NEVADA (State or other jurisdiction of incorporation) 1-10245 95-1480559 (Commission File Number) (IRS Employer ` Identification Number) 2500 McClellan Avenue, Pennsauken, NJ 08109-4613 (Address of principal executive offices) (Zip Code) (609) 486 - 1777 Registrant's telephone number, including area code) ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS. --------------------------------------------- On August 30, 1995, RCM Technologies, Inc. ("Registrant") acquired Cataract, Inc., a Newtown, Pennsylvania-based 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 (the "Merger") pursuant to which Cataract, Inc. was merged with and into a newly-created subsidiary of the Registrant, which then concurrently changed its name to "Cataract, Inc." Following the Merger, the directors and executive officers of Cataract, Inc. consist of Leon Kopyt and Stanton Remer. The Merger consideration payable to the former shareholders of Cataract, Inc. consisted of $2,000,000 cash and 1,561,553 restricted shares of the Registrant's common stock (the "Shares") valued at $1,200,000 (based upon the average closing bid price of the Registrant's common stock for the 30 calendar days immediately preceding the closing date). The source of cash utilized in the merger was $1,145,000 from the internal sources and $855,000 from the Registrants' line of credit facility. The Registrant used an additional $1,747,000 of the line of credit facility to satisfy certain loan obligations of Cataract, Inc. at the closing. The acquisition has been accounted for under the purchase method of accounting. The cost in excess of net assets acquired will be approximately $3,000,000. It is anticipated the cost in excess of net assets acquired will be amortized over a 15 to 20 year period. The shares issued to the former Cataract, Inc. shareholders have been pledged to the Company for a period of three years to secure the performance of certain conditions subsequent to the Merger relating to the achievement of certain levels of sales revenues that have been warranted by the former Cataract, Inc. shareholders. Following the expiration of the pledge period, the Shares are to be placed in a voting trust until the earlier of: (i) the public or private sale of such Shares in open market transactions to unaffiliated third parties; or (ii) the resignation or removal from office of Leon Kopyt, currently Chief Executive Officer and President of the Registrant. Notwithstanding the above, one-third of the Shares shall be released from trust commencing upon the fifth anniversary of the closing, and thereafter, an additional one-third of the Shares shall be released from trust upon each of the sixth and seventh annual anniversaries of the closing date. During the period in which the Shares are subject to pledge and the voting trust, the Shares are to be voted by the Registrant's Board of Directors on behalf of the former shareholders of Cataract, Inc. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. ------------------------------------------ Cataract, Inc. was incorporated on August 14, 1992 and commenced business in May 1993 when it acquired substantially all of the operating assets of Cataract, Inc. a Delaware corporation ("Cataract-Delaware"). The acquisition of these assets was accomplished through a two-step process pursuant to which Cataract, Inc. first purchased the interest of a principal lender in certain debt instruments that had been in default and were secured by substantially all of the assets of Cataract-Delaware; and thereafter through a consenual transfer of such assets in lieu of foreclosure. By virture of certain common ownership and the continuation of its historic business, Cataract, Inc. may be viewed as the successor to the business of Cataract-Delaware for financial accounting purposes. According, the financial statements presented include those periods prior to May 1993 when the business was operated by Cataract-Delaware. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (Continued) (a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED Audited Balance Sheets, October 2, 1994 and October 1, 1993 Audited Statement of Income, Years ended October 2,1994, October 1, 1993 and September 25, 1992 Audited Statement of Changes in Stockholders' Equity, Years ended October 2, 1994, October 1, 1993 and September 25, 1992 Audited Statements of Cash Flows, Years ended October 2, 1994, October 1, 1993 and September 25, 1992 Unaudited Balance Sheet, April 2, 1995 Unaudited Statements of Income for the Three Month Periods Ended July 2, 1995 and July, 3, 1995 Unaudited Statements of Income for the Nine Month Periods Ended July 2, 1995 and July 3, 1994 Unaudited Statement of Changes in Shareholders' Equity for the Nine Month Period Ended July 2, 1995 Unaudited Statements of Cash Flows for the Nine Month Periods Ended July 2, 1995 and July 3, 1994 (b) PRO FORMA FINANCIAL INFORMATION Unaudited Pro Forma Condensed Combined Balance Sheets, October 31, 1994 and July 31, 1995 Unaudited Pro Forma Condensed Combined Statements of Income for the year ended October 31, 1994 and the nine months ended July 31, 1995. (c) EXHIBITS (1) Merger Agreement, dated July 31, 1995 (2) Registration Rights Agreement, dated August 30, 1995 (3) Voting Trust Agreement, dated August 30, 1995 (4) Investor Representation Certificate,dated August 30, 1995 (5) Stock Pledge Agreement, dated August 30, 1995 ITEM 7. (a) FINANCIAL STATEMNETS OF BUSINESS ACQUIRED CATARACT, INC. (a Pennsylvania corporation) and CATARACT, INC. (a Delaware corporation) Financial Statements for the Fiscal Years (Fifty-Two Weeks) Ended September 25, 1992, October 1, 1993 and October 2, 1994 and Independent Accountants' Audit Report CATARACT, INC. (a Pennsylvania corporation) and CATARACT, INC. (a Delaware corporation) Contents Page Accountants' report ........................................... 1-2 Financial statements Balance sheets ........................... ............ 3 Statements of operations .............................. 4 Statements of retained earnings ....................... 5 Statements of cash flows ............................. 6-7 Notes to financial statements ....................... 8-13 Board of Directors and Stockholders Cataract, Inc.(a Pennsylvania corporation) and Cataract, Inc. (a Delaware corporation) Newtown, Pennsylvania INDEPENDENT ACCOUNTANTS' AUDIT REPORT We have audited the accompanying balance sheets of Cataract, Inc. (a Pennsylvania corporation), as of October 1, 1993 and October 2, 1994, and the related statements of operations, retained earnings, and cash flows for the year ended October 2, 1994. We have also audited the statement of operations for Cataract, Inc. (a Delaware corporation) for the year ended September 25, 1992 and the related statements of retained earnings and cash flow. We have also audited the combined statement of operations for Cataract, Inc. (a Pennsylvania corporation) and Cataract, Inc. (a Delaware corporation) for the year ended October 1, 1993 and the related statements of retained earnings and cash flow. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements and combined financial statements referred to above present fairly, in all material respects, the financial position of Cataract, Inc. (a Pennsylvania corporation) as of October 1, 1993 and October 2, 1994, and the results of Cataract, Inc.'s (a Pennsylvania corporation) and Cataract, Inc.'s (a Delaware corporation) operations and their cash flows for the years ended September 25, 1992, and October 1, 1993 and in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that Cataract, Inc. (a Delaware corporation) will continue as a going concern. As described in Note 2 to the financial statements, Cataract, Inc.'s (a Delaware corporation) recurring losses from operations, negative working capital, stockholders' deficit and noncompliance with provisions of certain loan agreements raise substantial doubt about its ability to continue as a going concern. Management's plan concerning these matters are described in Note 2. In May of 1993 substantially all of Cataract, Inc.'s ( a Delaware corporation) assets were disposed of, see note 13. The operations of Cataract, Inc. ( a Delaware corporation) ceased as of May 31, 1993. Burns, Boyle and Company, CPAs PC August 22, 1995 CATARACT, INC. (a Pennsylvania corporation) BALANCE SHEETS OCTOBER 1, 1993 and OCTOBER 2, 1994
ASSETS 1994 1993 CURRENT ASSETS: Cash $ 1, 983 $ 135,817 Accounts receivable: Trade (net of allowance of $10,800 and $10,000) 3,096,587 2,722,308 Other 20,340 10,422 Work in progress 220,563 327,956 Note receivable 2,806 6,058 Prepaid expenses and other current assets 71,505 79,914 ------ ------ Total current assets 3,413,784 3,282,475 --------- --------- FURNITURE AND EQUIPMENT - At cost, less accumulated depreciation of $34,753 and $7,083 158,625 116,525 ------- ------ ------- ------- OTHER ASSETS Organization cost (net of amortization) 40,660 43,653 Purchased contracts (net of amortization) 149,426 491,707 Goodwill (net of amortization) 25,762 27,659 ------ ------ Total other assets 215,848 563,019 ------- ------- TOTAL $3,788,257 $3,962,019 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Shareholders loans $ 0 $ 200,000 Line of credit 1,127,170 0 Accounts payable and accrued expenses 613,278 639,899 Accrued payroll, bonuses, and taxes 981,737 1,000,765 Accrued corporation taxes 40,985 4,375 Current maturities of long-term debt 0 597,561 - ------- Total current liabilities 2,763,170 2,442,600 --------- --------- LONG -TERM DEBT, less current maturities 1,000,000 1,500,000 --------- --------- STOCKHOLDERS' EQUITY Common stock 1,000 1,000 Additional paid-in capital 1,000 1,000 Retained earnings (deficit) 23,087 17,419 ------ ------ 25,087 19,419 ------ ------ TOTAL $3,788,257 $3,962,019 ========== ==========
See Independent Accountants' Audit Report and Notes to the Financial statements. -3- CATARACT, INC. (a Pennsylvania corporation) and CATARACT, INC. (a Delaware corporation) STATEMENTS OF OPERATIONS FISCAL YEARS (FIFTY-TWO WEEKS) ENDED SEPTEMBER 25, 1992, OCTOBER 1, 1993 AND OCTOBER 2, 1994
Cataract, Inc. Cataract Cataract, Inc. (Pennsylvania) (Combined) (Delaware) 10/2/94 10/1/93 9/25/92 SERVICE REVENUE $20,027,006 $21,097,210 $19,636,632 COST OF SERVICES RENDERED 17,356,535 17,966,214 16,570,183 ---------- ---------- ---------- GROSS MARGIN 2,670,471 3,130,996 3,066,449 --------- --------- --------- GENERAL AND ADMINISTRATIVE EXPENSES 1,567,846 2,383,340 2,608,932 INTEREST EXPENSE 313,098 860,231 1,116,920 DEPRECIATION & AMORTIZATION EXPENSE 374,841 191,526 57,351 OTHER INCOME (62,150) (17,180) (12,430) ------- ------- ------- TOTAL 2,193,635 3,417,917 3,770,773 NET INCOME (LOSS) BEFORE TAXES 476,836 (286,921) (704,324) ------- -------- -------- INCOME TAXES 31,168 4,375 0 ------ ----- - NET INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 445,668 (291,296) (704,324) EXTRAORDINARY ITEM - termination of business 0 (6,121,815) 0 - ---------- - NET INCOME (LOSS) $ 445,668 $(6,413,111) $ (704,324) ========== =========== ==========
See Independent Accountants' Audit Report and Notes to the Financial Statements. -4- CATARACT, INC. (a Pennsylvania corporation) and CATARACT, INC. (a Delaware corporation) STATEMENT OF RETAINED EARNINGS FISCAL YEARS (FIFTY-TWO WEEKS) ENDED OCTOBER 1, 1993 AND OCTOBER 2, 1994
Cataract Cataract Pennsylvania Delaware BALANCE September 30, 1991 ........................ $ 0 $ (6,226,940) Net Loss ........................................... 0 (704,324) - -------- BALANCE September 25, 1992 .......................... 0 (6,931,264) Net Profit(Loss) ................................... 17,419 (6,430,530) Disposal of Unearned Compensation ................. 0 10,000,000 - ---------- BALANCE October 1, 1993 ........................... 17,419 $ (3,361,794) == ==== ============ Net Profit ...................................... 445,668 Dividend ........................................ (440,000) -------- BALANCE October 2, 1994 ......................... $ 23,087 ============
See Independent Accountants' Audit Report and Notes to the Financial Statements -5- CATARACT, INC. (a Pennsylvania corporation) and CATARACT, INC. (a Delaware corporation) STATEMENTS OF CASH FLOWS FISCAL YEARS (FIFTY-TWO WEEKS) ENDED SEPTEMBER 25, 1992 OCTOBER 1, 1993 AND OCTOBER 2, 1994
Cataract, Inc. Cataract Cataract, Inc Pennsylvania Combined Delaware 10/2/94 10/1/93 9/25/92 OPERATING ACTIVITIES: Net income $ 445,668 $(291,296) $(704,324) Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 374,841 191,526 57,351 Bad debt expense 800 10,000 11,000 Changes in assets and liabilities which provided (used) cash: Accounts receivable: Trade (375,079) (2,200,818) (947,162) Other (9,918) (5,883) 14,648 Work in progress 107,393 (327,956) 0 Note receivable 3,252 (3,967) 2,753 Prepaid expenses and other current assets 8,409 (74,388) (139,633) Accounts payable and accrued expenses (26,621) 277,146 13,220 Accrued corporation taxes 36,610 4,375 0 Accrued interest 0 437,066 902,320 Accrued payroll, bonuses, and taxes (19,028) 731,221 299,102 ------- ------- ------- Net cash used in operating activities 546,327 (1,104,198) (493,725) ------- ---------- -------- INVESTING ACTIVITIES: Additions to furniture and equipment (69,770) (123,608) (3,880) Addition to other assets 0 (730,964) 0 - -------- - Net cash used in investing activities (69,770) (854,572) (3,880) ------- -------- ------ FINANCING ACTIVITIES: Dividends paid (440,000) 0 0 Additional paid in capital 0 1,000 0 Proceeds from (repayment of ) shareholder loans (200,000) 200,000 0 Borrowing from (repayment of) line of credit (net) 1,127,170 0 480,000 Borrowing of long term debt 0 2,347,561 0 Repayments of long term debt (1,097,561) (340,680) (26,372) ---------- -------- ------- Net cash provided by financing activities (610,391) 2,307,881 453,628 -------- --------- -------
See Independent Accountants' Audit Report and Notes to the Financial Statements -6- CATARACT, INC. (a Pennsylvania corporation) and CATARACT, INC. (a Delaware corporation) STATEMENTS OF CASH FLOWS FISCAL YEARS (FIFTY-TWO WEEKS) ENDED SEPTEMBER 25, 1992 OCTOBER 1, 1993 AND OCTOBER 2, 1994 Continued
Pennsylvania Combined Delaware 10/2/94 10/1/93 9/25/92 NET INCREASE (DECREASE) IN CASH DUE TO OPERATIONS (133,834) 349,111 (40,977) NET DECREASE IN CASH DUE TO EXTRAORDINARY ITEM 0 (222,249) 0 CASH, BEGINNING OF YEAR 135,817 8,955 48,932 ------- ----- ------ CASH, END OF YEAR $ 1,983 $ 135,817 $ 7,955 ======== ========= ========
See Independent Accountants' Audit Report and Notes to the Financial Statements. -7- CATARACT, INC. (a Pennsylvania corporation) and CATARACT, INC. (a Delaware corporation) NOTES TO FINANCIAL STATEMENTS FISCAL YEARS (FIFTY-TWO WEEKS) ENDED SEPTEMBER 25, 1992, OCTOBER 1, 1993 AND OCTOBER 2, 1994 NOTE 1 - BUSINESS Cataract, Inc., (a Pennsylvania corporation)("Cataract PA") was incorporated in Pennsylvania on August 14, 1992, under the name ENTE, Inc. In May of 1993, the Company purchased from Prudential Insurance Company of America (Prudential) warrants and notes payable to Prudential by Cataract, Inc. (a Delaware corporation) ("Cataract DE"). At the time of the purchase, the notes were in default. Cataract PA then entered into a collateral surrender agreement with Cataract DE. As part of this agreement, Cataract DE transferred title to the majority of its assets to Cataract PA. Cataract PA agreed to assume some of Cataract DE's liabilities and made a conditional agreement not to sue. Both Cataract PA and Cataract DE furnishes engineering, technical and administrative support personnel services on a contract basis primarily to the nuclear power industry, fossil fuel electric utilities and the process industry. NOTE 2 - GOING CONCERN CONSIDERATIONS The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. However, on May 31, 1993, Cataract DE surrendered most of its assets to Cataract PA to avoid a foreclosure. The gain and losses from this surrender are included in the extraordinary item. Cataract DE ceased operations in May of 1993. NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Method of Combining - The activity of both Cataract DE and Cataract PA have been combined by adding together there respective results of operations, cash flows and changes in retained earnings. No adjustments were made for the transaction between the companies. The activity for Cataract DE is for the period September 26, 1992 to May 30, 1993, the activity for Cataract PA is for the period June 1, 1993 to October 1, 1993. See Independent Accountants' Audit Report -8- CATARACT, INC. (a Pennsylvania corporation) and CATARACT, INC. (a Delaware corporation) NOTES TO FINANCIAL STATEMENTS FISCAL YEARS (FIFTY-TWO WEEKS) ENDED SEPTEMBER 25, 1992, OCTOBER 1, 1993 AND OCTOBER 2, 1994 NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Method of Accounting - The Companies uses the accrual method of accounting for financial statement presentations. Revenue Recognition - Revenues are recognized when earned in accordance with project agreements. Work in Progress - Work in progress is the value of work performed as of the balance sheet date, but not yet billed. Furniture and Equipment - Furniture and equipment is stated at cost. Depreciation is calculated using the straight-line method based on the estimated useful lives of the related assets. Organization Costs - Organization costs are the costs involved in forming the Company and the cost to enter into the collateral surrender agreement with Cataract DE. These costs are being amortized over 15 years. Purchased Contracts - Purchased contract is the cost assigned to the value of contracts entered into by Cataract DE, but to be completed by the Cataract PA. These costs are being amortized over their estimated useful life. Estimated useful life was based on the projected revenue flow of the contracts purchased. Goodwill - Goodwill is the unallocated cost of the Cataract DE transaction. The net purchase price of the assets of Cataract DE was assigned to fixed assets and purchased contracts. The balance is Goodwill. Goodwill is being amortized over 15 years. See Independent Accountants' Audit Report -9- CATARACT, INC. (a Pennsylvania corporation) and CATARACT, INC. (a Delaware corporation) NOTES TO FINANCIAL STATEMENTS FISCAL YEARS (FIFTY-TWO WEEKS) ENDED SEPTEMBER 25, 1992, OCTOBER 1, 1993 AND OCTOBER 2, 1994 NOTE 4 - SHAREHOLDER LOANS Shareholder loans as of October 1, 1993 and October 2, 1994 consisted of the following:
1994 1993 15% Demand loan from Mr. & Mrs. Robert Starer, 45% shareholder ........... $ 0 $ 90,000 15% Demand loan from Mr. & Mrs. James Affleck, 10% shareholder .......... 0 20,000 15% Demand loan from Mr. & Mrs. Joseph Marubbio, 45% shareholder ......... 0 90,000 -- - ------ $ 0 $200,000 ======== ========
NOTE 5 - LONG TERM DEBT On May 25, 1993, Cataract PA borrowed $2,250,000 from a group of lenders composed of Riverside Capital Advisers, Inc., Riverside Income Fund Trust, Siemens Master Pension Trust the Blackstone Family Investment Partnership, L.P., and the Hoechst Celanese Corporation Employee Benefit Master Trust (Riverside). The proceeds from this loan, plus other funds, were used to purchase a package of securities and obligations of Cataract DE owned by Prudential. There are a number of restrictive covenants under Cataract PA's borrowing arrangements with Riverside, including prohibitions against payment of some dividends and redemption, purchase or acquisition of any shares of Cataract PA's stock and repayment of shareholder loans. The agreement also contains prohibitions against incurring additional debt and selling significant assets of the Cataract PA. As of October 2, 1994, Cataract PA was in violation of the prohibition on payment of dividends in excess of the tax liability of the shareholders that was attributable to the "S" corporation earning of the Company. See Independent Accountants' Audit Report -10- CATARACT, INC. (a Pennsylvania corporation) and CATARACT, INC. (a Delaware corporation) NOTES TO FINANCIAL STATEMENTS FISCAL YEARS (FIFTY-TWO WEEKS) ENDED SEPTEMBER 25, 1992, OCTOBER 1, 1993 AND OCTOBER 2, 1994 NOTE 5 - LONG TERM DEBT (continued) Substantially all assets of Cataract PA are pledged as collateral for its outstanding borrowings, including the revolving credit facility. As of October 1, 1993 and October 2, 1994, the long term debt is made up of the following:
1994 1993 15% Note Payable Riverside due December 5, 1995 $1,000,000 $2,000,000 15% Note Payable St. Peters College leveraged asset trust - 1989(A) - due May 5, 1994 0 97,561 - ------ 1,000,000 2,097,561 Current portion 0 597,561 - ------- Long term $1,000,000 $1,500,000 ========== ========== Maturities of long term debt are as follows: Year Ending 1995 0 0 1996 $1,000,000 $1,500,000
NOTE 6 - LINE OF CREDIT Cataract PA established a $4,000,000 revolving credit facility with Textron Financial Corporation in March of 1994. Borrowing on this line of credit is based on a percentage of qualified outstanding trade accounts receivable. Interest is paid on the outstanding balance at a rate of 2% over prime. As of October 2, 1994 the balance payable on this line was $1,127,170. See Independent Accountants' Audit Report -11- CATARACT, INC. (a Pennsylvania corporation) and CATARACT, INC. (a Delaware corporation) NOTES TO FINANCIAL STATEMENTS FISCAL YEARS (FIFTY-TWO WEEKS) ENDED SEPTEMBER 25, 1992, OCTOBER 1, 1993 AND OCTOBER 2, 1994 NOTE 7 - STOCK PURCHASE OPTIONS As part of the transaction when Cataract PA purchased Cataract DE's notes from Prudential, Cataract PA granted options to purchase 15% of the Cataract PA's stock to a number of trusts controlled by Prudential. There are a number of events which can trigger the right to exercise the options. These events are as follows: 1. Sale of substantially all of the assets of the Cataract PA. 2. The filing of a public offering for the sale of Cataract PA stock. 3. The merger of the Cataract PA into another entity. 4. The dissolution and liquidation of the Cataract PA. NOTE 8 - INCOME TAXES The provisions for income taxes consist of the following components:
1994 1993 1992 ---- ---- ---- Federal tax provision $ 0 $3,075 $ 0 State tax provision 25,430 1,300 0 ------ ----- - Total $25,430 $4,375 $ 0 ======= ====== =========
As of October 2, 1993, Cataract PA elected to be an "S" Corporation for the federal government, as a result, the net income, or loss, will flow through to the individual shareholders individual federal income tax return. For state tax purposes the company is a "C" corporation, as a result state corporation net income taxes are due on Cataract PA profits. Cataract DE had a net operating loss in 1992, as a result, no income taxes were accrued. NOTE 9 - SELF-FUNDED GROUP MEDICAL INSURANCE The Cataract PA provides group medical insurance to its employees on a self-funded basis up to $45,000 per insured individual to an annual aggregate limitation of $955,000. Amounts in excess of these thresholds are covered by insurance policies. Management believes that adequate reserves have been recorded to cover claims incurred but not reported as of October 1, 1993 and October 2, 1994. See Independent Accountants' Audit Report -12- CATARACT, INC. (a Pennsylvania corporation) and CATARACT, INC. (a Delaware corporation) NOTES TO FINANCIAL STATEMENTS FISCAL YEARS (FIFTY-TWO WEEKS) ENDED SEPTEMBER 25, 1992, OCTOBER 1, 1993 AND OCTOBER 2, 1994 NOTE 10 - EMPLOYEE BENEFIT PLANS Cataract PA maintains a number of health and welfare plans and a 401(K) plan. The health and welfare plans require an employee and employer contribution. The 401(K) plan only requires an employee contribution. NOTE 11 - LEASING ARRANGEMENTS The Companies conducts their operations from a number of leased facilities. All of these leases are on a month by month basis or expire within one year. NOTE 12 - RELATED PARTY TRANSACTIONS The Companies lease some of their office facilities from a stockholder and officer. The lease with the stockholder and officer provides for monthly rentals, on a month-to-month basis, of $6,104 up to October 1, 1994 and $6,697 there after. The Companies charge a number of corporations for administrative services and other costs. Some of these corporations are related to the Company through common shareholders. NOTE 13 - EXTRAORDINARY ITEM On May 31, 1993, Cataract DE surrendered most of its assets to Cataract PA to avoid a foreclosure. The gain and losses from this surrender are included in the extraordinary item. This item includes the abandonment of the deferred compensation and the advanced contributions to the employee stock ownership trust. See Independent Accountants' Audit Report -13- Cataract, Inc Financial Statements July 2, 1995 and July 3, 1994 (Unaudited) CATARACT, INC. FINANCIAL STATEMENTS TABLE OF CONTENTS
Page Balance Sheets as of July 2, 1995 (Unaudited) and October 2, 1994 (Audited) 2-3 Unaudited Statements of Income for the Three Month Periods Ended July 2, 1995 and July 3, 1994 4 Unaudited Statements of Income for the Nine Month Periods Ended July 2, 1995 and July 3, 1994 5 Unaudited Statement of Changes in Shareholders' Equity for the Nine Month Period Ended July 2, 1995 6 Unaudited Statements of Cash Flows for the Nine Month Periods Ended July 2, 1995 and July 3, 1994 7-8 Notes to Unaudited Financial Statements 9-10
2 CATARACT, INC. BALANCE SHEETS July 2, 1995 and October 2, 1994 ASSETS
1995 1994 (Unaudited) (Audited) Current assets Cash $ 1,995 $ 1,983 Accounts receivable, net of allowance for doubtful accounts of $10,800 at each date 3,251,498 3,340,296 Prepaid expenses and other current assets 149,009 71,505 ------- ------ Total current assets 3,402,502 3,413,784 --------- --------- Property and equipment, at cost Equipment and leasehold improvements 211,218 193,378 Less: accumulated depreciation and amortization 58,913 34,753 ------ ------ 152,305 158,625 ------- ------- Other assets Deferred charges 85,429 215,848 ------ ------- Total assets $3,640,236 $3,788,257 ========== ==========
3 CATARACT, INC. BALANCE SHEETS - Continued July 2, 1995 and October 2, 1994 LIABILITIES AND SHAREHOLDERS' EQUITY
1995 1994 (Unaudited) (Audited) Current liabilities Line of Credit $ 1,528,184 $ 1,127,170 Accounts payable and accrued expenses 401,809 613,278 Accrued payroll and payroll taxes payable 695,709 981,737 Income taxes payable 7,022 40,985 ----- ------ Total current liabilities 2,632,724 2,763,170 --------- --------- Long term debt 1,000,000 1,000,000 Shareholders' equity Common stock, $0.002 stated value; 1,000,000 shares authorized; 500,000 issued and outstanding 1,000 1,000 Additional paid-in capital 1,000 1,000 Retained earnings 5,512 23,087 ----- ------ 7,512 25,087 ----- ------ Total liabilities and shareholders' equity $3,640,236 $3,788,257 ========== ==========
4 CATARACT, INC. STATEMENTS OF INCOME Three Months Ended July 2, 1995 and July 3, 1994 (Unaudited)
1995 1994 Revenues Sales of services $ 5,786,997 $ 4,485,506 Other income 8,250 6,400 ----- ----- Total revenues 5,795,247 4,491,906 --------- --------- Cost and expenses Cost of services 5,179,568 3,876,215 Selling, general and administrative 386,968 373,741 Depreciation and amortization 38,035 63,807 Interest expense 84,835 70,096 ------ ------ Total costs and expenses 5,689,406 4,383,859 --------- --------- Income before income taxes 105,842 108,047 Provision for state income taxes 7,400 7,500 ----- ----- Net income $ 98,442 $ 100,547 ============ ========== Net income per share: $ .20 $ .20 ============ ========== Weighted average number of shares outstanding: 500,000 500,000 ======= =======
5 CATARACT, INC. STATEMENTS OF INCOME Nine Months Ended July 2, 1995 and July 3, 1994 (Unaudited)
1995 1994 Revenues Sales of services $16,182,238 $15,388,831 Other income 23,857 18,922 ------ ------ Total revenues 16,206,095 15,407,753 ---------- ---------- Cost and expenses Cost of services 14,303,190 13,331,817 Selling, general and administrative 1,137,896 1,139,584 Depreciation and amortization 154,578 291,917 Interest expense 230,328 244,480 ------- ------- Total costs and expenses 15,825,992 15,007,798 ---------- ---------- Income before income taxes 380,103 399,955 Provision for state income taxes 19,516 32,000 ------ ------ Net income $ 360,587 $ 367,955 ========== ========== Net income per share: $ .72 $ .74 ========== ========== Weighted average number of shares outstanding: 500,000 500,000 ======= =======
6 CATARACT, INC. STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY Nine Months Ended July 2, 1995 (Unaudited)
Additional Common Stock Paid-in Retained Shares Amount Capital Earnings ------ ------ ------- -------- Balance, October 2, 1994 500,000 $ 1,000 $ 1,000 $ 23,087 Net income 360,587 Shareholder distributions ( 377,901) -------- Balance, July 2, 1995 500,000 $ 1,000 $ 1,000 $ 5,512 ======= ======== ========== ========
7 CATARACT, INC. STATEMENTS OF CASH FLOWS Nine Months Ended July 2, 1995 and July 3, 1994 (Unaudited)
1995 1994 ---- ---- Cash flows from operating activities: Net income $ 360,587 $ 367,955 ------------ ----------- Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 154,579 291,917 Provision for losses on accounts receivable 800 Changes in assets and liabilities: Accounts receivable 88,798 34,847 Prepaid expenses and other current assets ( 77,504) ( 16,995) Accounts payable and accrued expenses ( 211,469) ( 211,144) Accrued payroll and payroll taxes payable ( 286,028) ( 97,926) Income taxes payable ( 33,963) 28,594 ------ ------ Total adjustments ( 365,587) ( 30,093) ------- ------ Net cash provided by (used in) operating activities ( 5,000) 398,048 ----- -------
8 CATARACT, INC. STATEMENTS OF CASH FLOWS - Continued Nine Months Ended July 2, 1995 and July 3, 1994 (Unaudited)
1995 1994 ---- ---- Cash flows from investing activities: Property and equipment acquired ( 17,840) ($ 49,702) ------------------------------- ------- ------- Net cash used in investing activities ( 17,840) ( 49,702) ------ ------ Cash flows from financing activities: Shareholder distributions ( 377,901) ( 320,001) Net borrowing (repayments) under short term debt arrangements 400,753 337,738 Repayments of long term debt ( 500,000) ------- ------- Net cash used in financing activities 22,852 ( 482,263) ------ ------- Net increase (decrease) in cash 12 ( 133,917) Cash at beginning of period 1,983 135,817 ----- ------- Cash at end of period $ 1,995 $ 1,900 =========== ========== Supplemental cash flow information: Cash paid for: Interest expense $ 230,328 $ 244,480 Income taxes $ 53,479 $ 3,406
9 CATARACT, INC. NOTES TO UNAUDITED FINANCIAL STATEMENTS 1. General The accompanying financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). This Report on should be read in conjunction with the Company's annual audited financial statements for the year ended October 2, 1994. Certain information and footnote disclosures which are normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to SEC rules and regulations. The information reflects all normal and recurring adjustments which, in the opinion of Management, are necessary for a fair presentation of the financial position of the Company and its results of operations for the interim periods set forth herein. The results for the nine months ended July 2, 1995 are not necessarily indicative of the results to be expected for the full year. 2. Income per Share Income per share is based on the weighted average number of common shares outstanding during the periods. For the nine months ended July 2, 1995 and July 3, 1994, the weighted average number of shares outstanding was 500,000. 3. Income Taxes From inception through August 30, 1995, the Board of Directors, with the consent of the shareholders elected to be taxed as an S Corporation for federal income tax purposes. An S election was made in those states which recognize such status. Accordingly, there are no provisions for federal income taxes and the state income tax expense is disportionate to income before taxes. As of August 30, 1995, concurrent with the merger of Cataract, Inc. into CI Acquisition Corp., the S elections were terminated. All accumulated earnings of Cataract, Inc. to the effective date of the merger were distributed to then existing shareholders. 4. Contingencies There are no material legal proceedings to which the Company or any of its subsidiaries is a party or to which any of their property is subject. 10 ITEM 7 (b) PRO FORMA FINANCIAL INFORMATION ------------------------------------------ UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS The following unaudited pro forma condensed combined financial statements give effect to the acquisition of Cataract, Inc. by RCM Technologies, Inc. (RCM) pursuant to a Merger transaction that was completed on August 30, 1995. This pro forma information has been prepared utilizing the historical financial statements of RCM and Cataract. This information should be read in conjunction with the historical financial statements and notes thereto of RCM which are incorporated by reference to RCM's Form 10-K and the historical financial statements of Cataract which is incorporated within this Form 8-K. The pro forma financial data is provided for comparative purposes only and does not purport to be indicative of the results which actually would have been obtained if the Merger had been effected on the dates indicated or of the results which may be obtained in the future. The pro forma financial information is based on the purchase method of accounting for the Merger. The pro forma adjustments are described in the accompanying Notes to Unaudited Pro Forma Condensed Combined Balance Sheet and Notes to Unaudited Pro Forma Condensed Combined Statement of Income. The Unaudited Pro Forma condensed combined statements of income for the year ended October 31, 1994 and the nine months ended July 31, 1995 assume that the acquisition of Cataract had occurred on November 1, 1993 (combining the results for the year ended October 31, 1994, for RCM and the year ended October 2, 1994, for Cataract and combining the results for the nine months ended July 31, 1995 for RCM and the nine months ended July 2, 1995, for Cataract). The unaudited pro forma condensed combined balance sheets at October 31, 1994 and July 31, 1995 assumes that the acquisition of Cataract had occurred on October 31, 1994 (combining the balance sheets for RCM and Cataract as of October 31, 1994, and October 2, 1994, respectively and combining the balance sheets for RCM and Cataract as of July 31, 1995 and July 2, 1995, respectively). Acquisition The total purchase price for the shares acquired by cash and the issuance of RCM Common Stock was $3,200,000 plus estimated acquisition costs of approximately $100,000. The pro forma condensed combined financial statements have been prepared assuming the acquisition is effectuated as follows: 1. Issuance of 1,561,553 shares of RCM Common Stock based on a market price of RCM Common Stock of $.7685 per share. 2. Payment of cash of $2,000,000 financed by short-term borrowing of $855,000 and the use of internal funds of $1,145,000. Assumptions Purchase Price Allocation Although neither RCM or Cataract has complete information at this time as to the fair values of Cataract's individual assets and liabilities, an estimate of the eventual allocation of the purchase price was made on the basis of available information. The eventual allocation of the purchase price will be made on the basis of appraisals and valuations which give effect to various factors including the nature and intended future use of assets acquired in determining their value. It is not anticipated that any change in the allocation price will be material from the pro forma adjustments. For purpose of pro forma presentations, the excess purchase price over the net assets acquired is being amortized over an estimated life of twenty (20) years. Interest Expense The pro forma financial information reflects the refinancing of $1,000,000 of long-term debt of Cataract bearing interest at 15% per annum from the proceeds of borrowing from the line of credit facility from RCM. Interest on short term borrowing of $855,000 has been reflected at a rate of 8.75% (prime rate), the current effective incremental borrowing rate for RCM. RCM TECHNOLOGIES, INC. AND CATARACT, INC. UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET OCTOBER 31, 1994
Historical Pro Forma ---------- --------- RCM Technologies, Inc Cataract, Inc. October 31, 1994 October 2, 1994 Adjustments Combined ---------------- --------------- ----------- -------- Assets: Cash and cash equivalents .............. $ 2,534,073 $1,983 ($1,145,000)(a) $ 1,391,056 Accounts and notes receivable ........... 3,500,079 3,340,296 6,840,375 Prepaid expenses and other current assets 319,793 71,505 391,298 --------- ---------- ---------- --------- Total current assets .................... 6,353,945 3,413,784 (1,145,000) 8,622,729 --------- --------- --------- --------- Property and equipment-net .............. 133,612 158,625 292,237 Unallocated excess of purchase price over net assets acquired .................. 3,174,913 (d) 3,174,913 Other Assets ............................ 178,755 215,848 394,603 ------- ------- ------- Total ................................... $ 6,666,312 $ 3,788,257 $ 2,029,913 $12,484,482 =========== =========== =========== =========== Liabilities and Shareholders' Equity: Notes payable ........................... 38,901 1,127,170 855,000 (a) $ 3,021,071 1,000,000 (b) --------- Other current liabilities ............... 1,114,435 1,636,000 2,750,435 --------- --------- --------- Total current liabilities ............... 1,153,336 2,763,170 1,855,000 5,771,506 --------- --------- --------- --------- Long term obligations ... .............. 35,496 1,000,000 (1,000,000)(b) 35,496 Shareholders' equity .................... 5,477,480 25,087 1,174,913 (c) 6,677,480 --------- ------ --------- --------- Total ................................... $ 6,666,312 $ 3,788,257 $ 2,029,913 $12,484,482 =========== =========== =========== =========== NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET ------------------------------------------------------------- (a) to record issuance of short-term borrowings and use of internal cash to finance acquisition (b) to record repayment of long-term debt (c) to record issuance of RCM Technologies, Inc. common stock in exchange for all the shares of Cataract, Inc. (d) to record RCM Technologies, Inc. acquisition of the Cataract, Inc. stock and eliminate Cataract, Inc. shareholders' investment as follows: Purchase price .............................................. $3,200,000 Shareholders' investment, as reported ....................... 25,087 ------ Unallocated excess of purchase price over net assets acquired $3,174,913 ==========
RCM TECHNOLOGIES, INC. AND CATARACT, INC. UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME YEAR ENDED OCTOBER 31, 1994
Historical Pro Forma ---------- --------- RCM Technologies, Inc Cataract, Inc. October 31, 1994 October 2, 1994 Adjustments Combined ---------------- --------------- ----------- -------- Revenues ................................ $ 29,297,216 $ 20,089,156 ($ 40,075)(d) $ 49,346,297 ---------- ------------ ------------ ------------ Cost and expenses Cost of services ....................... 23,863,889 17,356,535 41,220,424 Selling, general and administrative .... 3,708,298 1,567,846 5,276,144 Interest expense ....................... 18,840 313,098 76,950 (b) 311,126 (97,762)(c) Depreciation and amortization .......... 93,141 374,841 158,746 (a) 626,728 Total .................................... 27,684,168 19,612,320 137,934 47,434,422 ---------- ---------- ------- ---------- Income before income taxes ............ 1,613,048 476,836 (178,009) 1,911,875 Income taxes .......................... 187,043 31,168 (21,361)(e) 196,850 ------- ------ ------- (162,124)(f) 162,124 (f) ------- Net Income ............................. $ 1,426,005 $445,668 ($156,648) $1,715,025 ========= ======== ======== ========= Net income per common share . $0.10 $0.89 $0.11 ===== ===== ===== Average number of common shares outstanding .................. 14,651,381 500,000 16,212,934 ========== ======= ========== NOTES TO UNAUDITED PROFORMA CONDENSED COMBINED STATEMENT OF INCOME ------------------------------------------------------------------ (a) to provide for amortization on excess purchase price over net assets acquired based on an estimated life of 20 years. (b) to recognize interest expense on debt to be issued in connection with the acquisition. (c) to reflect reduction of interest expense due to a refinancing of the debt of Cataract, Inc. from 15% to 9% per annum. (d) to reduce interest income on internal funds used for cash consideration. (e) to record income tax effect of interest expense, interest income and amortization adjustments at an effective rate of 12% net of utilization of RCM Technologies, Inc. Federal Net Operating Loss Carryfoward. (N.O.L.) (f) to provide Federal Income Taxes on Cataract, Inc. (an S-Corp.) and utilization of RCM's N.O.L.
RCM TECHNOLOGIES, INC. AND CATARACT, INC. UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET JULY 31, 1995
Historical Pro Forma ---------- --------- RCM Technologies, Inc Cataract, Inc. July 31, 1995 July 2, 1995 Adjustments Combined ------------- ------------ ----------- -------- Assets: Cash and cash equivalents ................... $ 3,195,600 $ 1,995 ($ 1,145,000)(a) $ 1,963,289 (89,306)(e) Accounts and notes receivable ............... 2,689,263 3,251,498 5,940,761 Prepaid expenses and other current assets ... 579,459 149,009 728,468 ------- ------- ------- Total current assets ........................ 6,464,322 3,402,502 (1,234,306) 8,632,518 --------- --------- ---------- --------- Property and equipment-net .................. 127,282 152,305 279,587 Unallocated excess of purchase price over net assets acquired ........................... 3,174,913 (d) 3,095,540 (79,373)(e) ------- Other Assets ................................ 310,893 85,429 396,322 ------- ------ ------- Total ....................................... $ 6,902,497 $ 3,640,236 $ 1,861,234 $ 12,403,967 ============ ============ ============ ============ Liabilities and Shareholders' Equity: Notes payable ............................... 116,856 1,528,184 855,000 (a) $ 3,500,040 1,000,000 (b) --------- Other current liabilities ................... 688,259 1,104,540 1,792,799 ------- --------- --------- Total current liabilities ................... 805,115 2,632,724 1,855,000 5,292,839 ------- --------- --------- --------- Long term obligations ....................... 43,447 1,000,000 (1,000,000)(b) 43,447 Shareholders' equity ........................ 6,053,935 7,512 1,174,913 (c) 7,067,681 --------- ----- --------- (168,679)(e) -------- Total ....................................... $ 6,902,497 $ 3,640,236 $ 1,861,234 $ 12,403,967 ============ ============ ============ ============ NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET ------------------------------------------------------------- (a) to record issuance of short-term borrowings and use of internal cash to finance acquisition as of October 31, 1994 (b) to record repayment of long-term debt (c) to record issuance of RCM Technologies, Inc. common stock in exchange for all the shares of Cataract, Inc. (d) to record RCM Technologies, Inc. acquisition of the Cataract, Inc. stock and eliminate Cataract, Inc. shareholders' investment as follows: Purchase price ............................................... $3,200,000 Shareholders' investment, as reported ....................... 25,087 ------ Unallocated excess of purchase price over net assets acquired $3,174,913 ========== (e) to record the effect of Pro Forma adjustments resulting from the statement of operations for the nine months ended July 31, 1995
RCM TECHNOLOGIES, INC. AND CATARACT, INC. UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME NINE MONTHS ENDED JULY 31, 1995
Historical Pro Forma ---------- --------- RCM Technologies, Inc Cataract, Inc. July 31, 1995 July 2, 1995 Adjustments Combined ------------- ------------ ----------- -------- Revenues .............................. $ 18,116,117 $ 16,206,095 ($ 30,056)(d) $ 34,292,156 ------------ ------------ ------------ ------------ Cost and expenses Cost of services .................. . 14,788,433 14,303,190 29,091,623 Selling, general and administrative . 2,542,051 1,137,896 3,679,947 Interest expense .................... 36,954 230,328 74,813 (b) 268,773 (73,321)(c) Depreciation and amortization ....... 97,071 154,578 119,059 (a) 370,708 ------ ------- ------- ------- Total ................................. 17,464,509 15,825,992 120,550 33,411,051 ---------- ---------- ------- ---------- Income before income taxes ............ 651,608 380,103 (150,607) 881,104 Income taxes ....................... 75,133 19,516 (18,073)(e) 76,576 122,600 (f) (122,600)(f) -------- Net Income .............................. $ 576,475 $ 360,587 ($ 168,679) $ 768,383 ============ ============ ============ ============ Net income per common share ..... $ 0.04 $ 0.72 $ 0.05 ============ ============ ============ Average number of common shares outstanding .................. 14,822,366 500,000 16,383,919 ========== ======= ========== NOTES TO UNAUDITED PROFORMA CONDENSED COMBINED STATEMENT OF INCOME (a) to provide for amortization on excess purchase price over net assets acquired based on an estimated life of 20 years. (b) to recognize interest expense on debt to be issued in connection with the acquisition. (c) to reflect reduction of interest expense due to a refinancing of the debt of Cataract, Inc. from 15% to 9% per annum. (d) to reduce interest income on internal funds used for cash consideration. (e) to record income tax effect of interest expense, interest income and amortization adjustments at an effective rate of 12% net of utilization of RCM Technologies, Inc. Federal Net Operating Loss Carryfoward (N.O.L.). (f) to provide Federal Income taxes on Cataract, Inc. (an S-Corp. for federal purposes) and utilization of RCM's Federal N.O.L.
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. (Registrant) RCM Technologies, Inc. By: /S/ Stanton Remer --------------------- Stanton Remer Chief Financial Officer, Treasurer and Director Date: September 12, 1995 EX-2 2 MERGER AGREEMENT \PHILA2\63461_6 MERGER AGREEMENT AMONG RCM TECHNOLOGIES, INC. CI ACQUISITION CORP. AND CATARACT, INC. \PHILA2\63461_6 TABLE OF CONTENTS Page 1. RECITALS AND DEFINITIONS............................................ 1 2. MERGER AND MERGER CONSIDERATION..................................... 3 2.1 The Merger..................................................... ... 3 2.2 Merger Consideration............................................... 5 3. DELIVERY OF ACQUIREE SHARES......................................... 5 4. REPRESENTATIONS AND WARRANTIES OF ACQUIREE AND ACQUIREE SHAREHOLDERS.............................................. 6 5. REPRESENTATIONS AND WARRANTIES OF RCM AND ACQUIR0R................. 16 6. COVENANTS OF THE PARTIES TO THIS AGREEMENT......................... 18 7. CLOSING DATE..................................................... . 26 8. CONDITIONS PRECEDENT TO OBLIGATIONS OF ACQUIREE AND ACQUIREE SHAREHOLDERS............................................. 26 9. CONDITIONS PRECEDENT TO OBLIGATIONS OF RCM AND ACQUIROR. ........................................................ 27 10. CONDITIONS SUBSEQUENT............................................. 30 11. INDEMNIFICATION................................................... 34 12. DOCUMENTS AT CLOSING.............................................. 37 13. TERMINATION.........................................................39 14. NOTICES.............................................................40 15. MISCELLANEOUS.......................................................42 \PHILA2\63461_6 LIST OF SCHEDULES 4(b) Financial Statements 4(d) Accounts Receivable of Acquiree as of July 31, 1995 4(e) Material adverse changes 4(f) Litigation 4(h) Articles of Incorporation, Bylaws and Contracts of Acquiree 4(i) Tax information 4(j) All material Contracts and Agreements 4(k) Liens, encumbrances and general description of all real property in which Acquiree has an ownership interest 4(l) Licenses, trademarks and trade names 4(m) Consents 4(u) Number of employees, names and addresses and total compensation of all directors and officers of Acquiree - identifies all employee benefit plans 4(v) Compliance with environmental and conservative laws 4(y) List of all insurance policies 4(z) List of all bank accounts maintained or for the benefit of Acquiree 4(aa) List of 10 largest customers of Acquiree, based on dollar volume of income as of October 2, 1994 4(ab) Prepayment penalties 5(a) Articles of Incorporation and Bylaws of Acquiror 5(b) Articles of Incorporation and Bylaws of RCM 5(d) Subsidiaries of Acquiror \PHILA2\63461_6 LIST OF EXHIBITS Exhibit "A" Articles of Merger Exhibit "B" Registration Rights Agreement Exhibit "C" Voting Trust Agreement Exhibit "D" Investor Representation Letter Exhibit "E" Stock Pledge Agreement \PHILA2\63461_6 MERGER AGREEMENT THIS MERGER AGREEMENT (the "Agreement") is made and entered into as of this 31st day of July 1995, by and among RCM Technologies, Inc., a Nevada corporation ("RCM"); CI Acquisition Corp., a Pennsylvania corporation (the "Acquiror"); Cataract, Inc., a Pennsylvania corporation (the "Acquiree"); and those shareholders of Acquiree identified at paragraph 1 below (the "Acquiree Shareholders"). RECITALS: A. The Acquiree Shareholders together own 100% of the issued and outstanding shares of common stock of the Acquiree (the "Acquiree Shares"). The Acquiree Shares constitute all of the issued and outstanding capital stock of the Acquiree. B. RCM owns 100% of the issued and outstanding shares of common stock of the Acquiror. C. The Directors of RCM, Acquiror and the Acquiree believe that the merger of the Acquiree with and into the Acquiror would be advantageous and beneficial to the respective shareholders, employees, and customers of those companies. D. It is the intention of the parties hereto that: (i) the Acquiree shall be merged with and into the Acquiror in exchange for certain cash consideration and the issuance to the Acquiree Shareholders of shares of RCM's authorized but unissued common stock to the extent and in the manner set forth below (the "Merger"); and (ii) the issuance of stock in connection with the Merger shall qualify as a transaction exempt from registration or qualification under the Securities Act of 1933, as amended, and under the applicable securities laws of the states or jurisdictions where the Acquiree Shareholders reside. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Recitals and Definitions. (a) The foregoing RECITALS are true and correct, and are incorporated herein and made a part hereof. (b) For purposes of this Agreement, the terms set forth below shall have the following meanings: Acquiree - Cataract, Inc., a Pennsylvania corporation 1 \PHILA2\63461_6 Acquiree Shareholders - Joseph A. Marubbio, Paula Marubbio, Robert L. Starer, Merle A. Starer, James R. Affleck, Jr., Sarah B. Affleck and those other [entities][individuals] that may become a shareholder, and a party to this Agreement, as a result of the exercise of the Prudential Options Acquiror - CI Acquisition Corp., a Pennsylvania corporation Agreement - shall mean this Merger Agreement. Code - the Internal Revenue Code of 1986, as amended Closing - the transaction of events set forth in Section 12 hereof Closing Date - the day on which the Closing is to be held as set forth in Section 7 hereof Exchange Act - the Securities Exchange Act of 1934, as amended Financial Statements - audited financial statements of Cataract, Inc., a Delaware corporation, for the fiscal year ended September 30, 1992 and the eight-month period ended May 31, 1993 and audited financial statements of the Acquiree for the four months ended September 30, 1993 and combined with the eight months ended May 31, 1993, a financial statement for the twelve months ended September 30, 1993 and fiscal year ended September 30, 1994 and the interim (unaudited) financial statements for July 2, 1995, all in such form as is acceptable to RCM to comply with its filing obligations to the SEC Merger - the merger of the Acquiree with and into the Acquiror Merger Consideration - the Merger Shares and cash consideration to be received by the Acquiree Shareholders pursuant to the Merger Merger Shares - shares of RCM Common Stock to be issued to the Acquiree Shareholders pursuant to the terms of this Merger Agreement 2 \PHILA2\63461_6 Permitted Dividends - "Subchapter S" dividends representing earnings of the Acquiree on which the Acquiree Shareholders have been or will be subject to individual taxation, but which have not otherwise been withdrawn from or paid by the Acquiree. Prudential Options - those stock purchase options issued as of May 5, 1993 by the Acquiree (under its previous name, "Ente, Inc.") to Prudential Leveraged Asset Trust - 1990A and to Saint Peters College Leveraged Asset Trust - 1989A, providing for the issuance of an amount of stock equal to no more than 15% of the common stock of the Acquiree in the aggregate RCM - RCM Technologies, Inc., a Nevada corporation RCM Common Stock - common stock, $.05 par value per share, of RCM RCM Statements - RCM's consolidated financial statements (audited) for the fiscal years ended October 31, 1994, 1993 and 1992, and (unaudited) for the six months ended April 30, 1995 SEC - the Securities and Exchange Commission Securities Act - the Securities Act of 1933, as amended 2. Merger and Merger Consideration. 2.1 The Merger (a) Upon the terms and conditions of this Agreement, on the Closing Date (as defined herein), Acquiree shall be merged with and into Acquiror in accordance with the provisions of the Pennsylvania Business Corporation Law of 1988 (the "PBCL") and the separate corporate existence of Acquiree shall cease, and the Acquiror shall continue as the surviving corporation under the laws of the Commonwealth of Pennsylvania with the corporate name, "CATARACT, INC.". (b) The Merger shall become effective upon the filing of the articles of merger, substantially in the form of Exhibit A, attached hereto and made a part hereof (the "Articles of Merger") with the Secretary of State of the Commonwealth of Pennsylvania in accordance with Section 1928 of the PBCL. The Articles of Merger shall be filed by the appropriate parties 3 \PHILA2\63461_6 thereto on the Closing Date. The date and time when the Merger shall become effective is referred to herein, in accordance with Section 7 hereof, as the "Closing Date." (c) On the Closing Date: (i) Acquiror shall continue its existence under the laws of the Commonwealth of Pennsylvania as the surviving corporation; (ii) the separate corporate existence of Acquiree shall cease; (iii) all rights, title and interests to all real estate and other property owned by Acquiree shall be allocated to and vested in Acquiror as the surviving corporation without reversion or impairment, without further act or deed, and without any transfer or assignment having occurred, but subject to any existing liens or other encumbrances thereon, and all liabilities and obligations of Acquiree shall be allocated to Acquiror as the surviving corporation which shall be the primary obligor therefor and, except as otherwise provided by law or contract, no other party to the Merger, other than Acquiror as the surviving corporation, shall be liable therefor; (iv) the Articles of Incorporation of Acquiror as in effect immediately prior to the consummation of the Merger, other than the name of Acquiror which shall be changed to "CATARACT, INC." in connection with the Merger, shall be the Articles of Incorporation of the surviving corporation, until thereafter amended as provided by law and such Articles of Incorporation; (v) Each of Acquiree, the Acquiree Shareholders, Acquiror and RCM shall execute and deliver, and file or caused to be filed with the Secretary of State of the Commonwealth of Pennsylvania the Articles of Merger, with such amendments thereto as the parties hereto shall deem mutually acceptable. (vi) the Bylaws of Acquiror, as in effect immediately prior to the consummation of the Merger, shall be the Bylaws of the Acquiror as the surviving corporation until thereafter amended as provided by law and such Bylaws; and (vii) the officers and directors of the Acquiror as the surviving corporation shall continue to hold office until their respective successors shall have been elected or appointed in accordance with the Bylaws of the Acquiror as the surviving corporation or until they shall have sooner been removed or shall have resigned in accordance with such Bylaws. 2.2 Merger Consideration 4 \PHILA2\63461_6 (a) On the Closing Date, upon tendering to the Acquiror a certificate or certificates representing the Acquiree Shares, and after having taken or caused to be taken all other actions otherwise required in this Agreement to effectuate a closing hereunder, the Acquiree Shareholders thereof shall be entitled to receive immediately therefor, and RCM shall cause to be issued or paid, as the case may be: (i) certificates in the name of each of the Acquiree Shareholders representing, in the aggregate, the number of Merger Shares which as of the Closing Date have an aggregate valuation equal to One Million Two Hundred Thousand Dollars, ($1,200,000), (for this purpose, the "valuation" of the Merger Shares shall be determined based upon the average of the closing bid prices of the RCM Common Stock for the thirty (30) calendar day period immediately preceding the Closing Date); and (ii) the sum of Two Million Dollars ($2,000,000) in immediately available funds. The consideration received pursuant to this subparagraph (a) of this Section 2.2 shall be collectively referred to as the "Merger Consideration." (b) The Merger Consideration received by the Acquiree Shareholders shall be divided among them in the same proportion as they own the Acquiree Shares. No other consideration shall be payable to the Acquiree Shareholders in connection with the Merger. 3. Delivery of Acquiree Shares. On the Closing Date, the Acquiree Shareholders will deliver to the Acquiror for cancellation the certificates representing all of the Acquiree Shares, duly endorsed (or with duly executed stock powers) so as to transfer all of the Acquiree Shares to the Acquiror, free and clear of all liens, claims and encumbrances. The Merger shall not be effected unless certificates representing all of the Acquiree Shares are delivered to the Acquiror on the Closing Date, free and clear of all liens, claims and encumbrances. 4. Representations and Warranties of Acquiree and Acquiree Shareholders. As a material inducement to RCM and the Acquiror to enter into this Agreement and consummate the transactions contemplated hereby, the Acquiree Shareholders do hereby jointly and severally, and the Acquiree does hereby make the following representations and warranties to RCM and Acquiror. The representations and warranties are true and correct in all material respects at this date, and will be true and correct in all material respects on the Closing Date as though made on and as of such date. (a) Shareholders of Acquiree. The Acquiree Shareholders are, and will be on the Closing Date, the sole owners, of record and beneficially, of all the issued and outstanding shares of the Acquiree's capital stock. Acquiree does not now own, or at the Closing Date will own, more than 5% percent of the issued and outstanding capital stock of any other corporation or an equity interest in any other entity. (b) Financial Statements. The Financial Statements have been attached as Schedule [4(b)]. The Financial Statements shall be in a form 5 \PHILA2\63461_6 prepared in all material respects in compliance with the requirements of Regulation S-X promulgated by the SEC under the Exchange Act. (i) The Financial Statements and financial information contained therein will present fairly the financial condition of the Acquiree for the periods covered (subject, in the case of unaudited statements, to normal year-end audit adjustments which will not be material to the Acquiree, taken as a whole, in amount or effect). The Financial Statements have been prepared in accordance with generally accepted accounting principles, consistently applied. The books and records of the Acquiree, financial and other, are in all material respects complete and correct and have been maintained in accordance with good business and accounting practices. (c) Undisclosed Liabilities. The Acquiree does not have any material liabilities or obligations of any nature, fixed or contingent, matured or unmatured, that are not reflected or otherwise provided for in the Financial Statements to the extent such liabilities or obligations are otherwise required to be reflected by generally accepted accounting principles, except for liabilities and obligations arising subsequent to the date of the Financial Statements in the ordinary course of business, none of which individually or in the aggregate will be materially adverse to the business or financial condition of the Acquiree. There are no material loss contingencies (as such term is used in Statement of Financial Accounting Standards No. 5 of the Financial Accounting Standards Board) of the Acquiree that will not be adequately provided for. (d) Accounts Receivable. Attached hereto as Schedule 4(d) is a list of all accounts receivable of Acquiree as of July 2, 1995 and aging schedule pertaining thereto. All of the accounts receivable of Acquiree as of July 2, 1995 and on the Closing Date, are bona fide accounts receivable of Acquiree representing the sales price of (or other sums or fees receivable for or in respect of) goods, merchandise, or services sold or performed by Acquiree in valid transactions in the regular course of its business to or for the benefit of its customers. Such accounts receivable are not uncollectible or subject to offset or counterclaim or otherwise in controversy. (e) Materially Adverse Change. Except as set forth in Schedule [4(e)], or as otherwise specifically stated in this Agreement, since the date of their financial statements as of, and for the period ended, October 2, 1994, or later stub-period financial statements, if provided, the business of the Acquiree has been operated in the ordinary course and there has not been: (i) Any materially adverse change in the business, condition (financial or otherwise), results of operations, prospects, properties, assets, liabilities, earnings or net worth of the Acquiree for such period (other than as a result of Permitted Dividends) or at any time during such period; 6 \PHILA2\63461_6 (ii) Any material damage, destruction or loss (whether or not covered by insurance) affecting the Acquiree or its assets, properties or business; (iii) Any declaration, setting aside or payment of any dividend or other distribution in respect of any shares of the capital stock of the Acquiree, or any direct or indirect redemption, purchase or other acquisition of any such stock or any agreement to do so, except for Permitted Dividends; (iv) Any issuance or sale by the Acquiree, or agreement by the Acquiree, or any of the Acquiree Shareholders, to sell or pledge any of the Acquiree's securities, nor have any irrevocable proxies been given with respect to the Acquiree's securities, except in connection with pledges securing obligations to be repaid from the cash portion of the Merger Consideration concurrently with the Closing of the Merger; (v) Any cancellation, breaches or cost over-runs on any existing contract of which Acquiree is a party; (vi) Any statute, rule, regulation or order adopted by any governmental body, agency or authority (including orders of regulatory authorities with jurisdiction over the Acquiree) that materially and adversely affects the Acquiree or its business or financial condition; (vii) Any material increase in the rate or terms of compensation (including bonus compensation) payable or to become payable by Acquiree to its directors, officers or key employees; provided, however, that this subsection shall not restrict or limit the Acquiree in any way from hiring additional personnel who are required for its operations; or (viii) Any other events or conditions of any character that may reasonably be expected to have a materially adverse effect on the Acquiree or its business or financial condition. (f) Litigation. Except as set forth in Schedule 4(e), there are no actions, suits, claims, investigations or legal, administrative or arbitration proceedings pending or, to the knowledge of the Acquiree or any of the Acquiree Shareholders, threatened against the Acquiree, whether at law or in equity, or before or by any federal, state, municipal, local, foreign or other governmental department, commission, board, bureau, agency or instrumentality, nor does the Acquiree or the Acquiree Shareholders know of any basis for any such action, suit, claim, investigation or proceeding. (g) Compliance: Governmental Authorizations. The Acquiree has complied in all material respects with all federal, state, local or foreign laws, ordinances, regulations and orders applicable to its business, including without limitation, federal and state securities, banking collection and consumer protection laws and regulations that, if not complied with, would 7 \PHILA2\63461_6 materially and adversely affect its businesses. The Acquiree has all federal, state, local and foreign governmental licenses and permits necessary for the conduct of its business. Such licenses and permits are in full force and effect, except as to any licenses and permits, the absence of which would not have a materially adverse effect upon the financial condition of the Acquiree. Neither the Acquiree nor the Acquiree Shareholders knows of any violations of any such licenses or permits. No proceedings are pending or threatened to revoke or limit the use of such licenses or permits. (h) Due Organization. The Acquiree is a corporation duly organized, validly existing and subsisting under the laws of the Commonwealth of Pennsylvania; its status is active; it is qualified to do business and in good standing in each state where its properties are owned, leased or operated, or the business conducted, by them require such qualification and where failure to so qualify would have a material adverse effect on its financial condition, properties, business or results of operations. The Acquiree has the power to own its properties and assets and to carry on its business as now presently conducted. True and complete copies of the Articles of Incorporation and Bylaws of Acquiree have been attached as Schedule [4(h)]. (i) Taxes. Except as disclosed on Schedule [4(i)] all (i) federal, state, local or foreign tax returns (collectively, the "Returns") required to be filed with respect to the properties, assets, operations, income and net worth of Acquiree have been timely filed or appropriate extensions have been obtained and such Returns are true, correct and complete in all material respects; (ii) taxes and governmental charges, including, without limitation, any interest and penalties (collectively, "Taxes") due pursuant to such Returns have been paid or adequate provision therefore has been made on the Financial Statement; and (iii) federal, state, local and foreign withholdings required with respect to the business of Acquiree have been withheld and timely paid over to the appropriate governmental authority. Schedule [4(i)] sets forth for each subsequent taxable year the current status of any examination being conducted by the Internal Revenue Service or any other taxing authority relating to Acquiree. Notwithstanding the foregoing, no representation or warranty is made with respect to Acquiree's entitlement to any claimed tax refund or the amount of any claimed tax refund which Acquiree may ultimately receive. Except as disclosed on Schedule [4(i)], there are no outstanding agreements or waivers extending the statutory period of limitation concerning any tax liability of Acquiree, no examination of any Return of Acquiree is currently in progress and no governmental authority has, within the last three (3) years, notified Acquiree or Acquiree Shareholders of any tax claim, investigation or proceeding, except as scheduled. (j) Agreements. Schedule [4(j)] contains a true and complete list and brief description of all material written or oral contracts, agreements, mortgages, obligations, understandings, arrangements, restrictions and other instruments to which the Acquiree is a party or by which the Acquiree or its assets may be bound. True and correct copies of all items set forth on Schedule [4(j)] have been or will have been made available to the 8 \PHILA2\63461_6 Acquiror prior to the date hereof. No event has occurred that (whether with or without notice, lapse of time or the happening or occurrence of any other event) would constitute a material default by the Acquiree under any of the contracts or agreements set forth in Schedule [4(j)]. Neither the Acquiree nor any of the Acquiree Shareholders have knowledge of any material default by the other parties to such contracts or agreements. In addition, no material violations have occurred pursuant to any loan agreements to which the Acquiree is a party. (k) Title to Property and Related Matters. The Acquiree has, and at the time of the Closing Date will have, good and marketable title to all of its properties, interests in properties and assets, real, personal and mixed, owned by it at the date of this Agreement or acquired by it after the date of this Agreement, of any kind or character, free and clear of any liens or encumbrances, except (i) those set forth in Schedule [4(k)], and (ii) liens for current taxes and other liens arising by operation of law to secure obligations that are not yet delinquent. Schedule [4(k)] also contains a general description of all real property in which Acquiree has an ownership interest. Except as set forth in said Schedule [4(k)] and except for matters that may arise in the ordinary course of business, the assets of the Acquiree are in good operating condition and repair, reasonable wear and tear excepted. There does not exist any condition that materially interferes with the use thereof in the ordinary course of the business of the Acquiree. (l) Licenses; Trademarks: Trade Names. Except as set forth on Schedule [4(l)], the Acquiree does not have nor does it own any licenses, trademarks, trade names, service marks, copyrights, patents or any applications for any of the foregoing that relate to its business. (m) Due Authorization. This Agreement has been duly authorized, executed and delivered by the Acquiree and constitutes a valid and binding agreement of the Acquiree, enforceable in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, moratorium, and other similar laws relating to, limiting or affecting the enforcement of creditors rights generally or by the application of equitable principles. Neither the execution and delivery of this Agreement, nor the consummation of the transactions contemplated hereby, nor compliance with any of the provisions hereof, will violate in any material respect any order, writ, injunction or decree of any court or governmental authority, or violate or conflict with in any material respect or constitute a default under (or give rise to any right of termination, cancellation or acceleration under), any provisions of the Acquiree's Articles of Incorporation or Bylaws, the terms or conditions or provisions of any note, bond, lease, mortgage, obligation, agreement, understanding, arrangement or restriction of any kind to which the Acquiree is a party or by which the Acquiree or its properties may be bound, or violate in any material respect any statute, law, rule or regulation applicable to the Acquiree, except that the consents disclosed on Schedule [4(m)] will be required as to the Merger pursuant to the terms of those scheduled agreements. No consent or approval 9 \PHILA2\63461_6 by any governmental authority is required in connection with the execution and delivery by the Acquiree of this Agreement or the consummation of the transactions contemplated hereby. (n) Capitalization. The authorized capitalization of the Acquiree consists of 1,000,000 shares of no-par value Common Stock of which 500,000 shares are issued and outstanding as of the date of this Agreement. All outstanding securities have been duly authorized, validly issued, and are fully paid and non-assessable, and all such securities were issued in compliance with applicable federal and state securities laws and regulations. There are no outstanding or presently authorized securities, warrants, preemptive rights, subscription rights, options or related commitments or agreements of any nature to issue any of the Acquiree's securities, except for the Prudential Options which, if exercised, will change the amount of issued shares of the stock of Acquiree and upon which exercise the Acquiree will cause the holder(s) of the exercised Prudential Options to become additional Acquiree Shareholders hereunder. (o) Full Disclosure. The Acquiree has, and at the Closing Date will have, disclosed to the Acquiror in the Schedules to this Agreement or independently, or made available to the Acquiror, documents, books and records pertaining to, all events, conditions and facts materially affecting the properties, business and prospects of the Acquiree that are known to the Acquiree and the Acquiree Shareholders. The Acquiree has not and will not have, at the Closing Date, withheld disclosure or availability of any events, conditions and facts of which it may have knowledge and that may materially and adversely affect the properties, business or prospects of the Acquiree. (p) Brokerage Fees. The Acquiree has not incurred, and will not incur, any liability for brokerage or finder's fees or similar charges in connection with the transactions contained within this Agreement. (q) Share Ownership. The Acquiree Shares to be surrendered in the Merger will be owned of record and beneficially, by the Acquiree Shareholders, free and clear of all liens and encumbrances of any kind and nature, and have not been sold, pledged, assigned or otherwise transferred. There are no agreements (other than this Agreement) to sell, pledge, assign or otherwise transfer such securities. (r) Acquiree Shareholders' Obligation. This Agreement constitutes the valid and legally binding obligation of the Acquiree Shareholders. Neither the execution of this Agreement, nor the consummation of the transactions contemplated hereby, will constitute in any material respect a violation of or default under, or conflict in any material respect with, any judgment, decree, statute or regulation of any governmental authority applicable to the Acquiree Shareholders or any contract, commitment, agreement or restriction of any kind to which any of the Acquiree Shareholders are a party or by which any of the Acquiree Shareholders are bound. The execution and delivery of this Agreement does not, and the consummation of the 10 \PHILA2\63461_6 transactions described herein will not, violate in any material respect applicable law, or any mortgage, lien, agreement, indenture, lease or understanding (whether oral or written) of any kind outstanding relative to the Acquiree Shareholders, except for pledges that will be satisfied concurrently with the Closing of the Merger. (s) Acknowledgment of Dissenters Rights. Acquiree Shareholders acknowledge that dissenters rights are available to them under Subchapter D of Chapter 15 of the Pennsylvania Business Corporation Law, however, by virtue of their signature to this Merger Agreement do hereby acknowledge their agreement to forego all such dissenters rights and accept in lieu thereof the Merger Consideration set forth within this Agreement. Accordingly, such Acquiree Shareholders will not have an opportunity to dissent from the actions taken by the Board of Directors of Acquiree or from the transactions contemplated by this Agreement. (t) Approvals Required. No approval, authorization, consent, order or other action of, or filing with, any person, firm or corporation or any court, administrative agency or other governmental authority is required in connection with the execution and delivery by the Acquiree Shareholders of this Agreement or the consummation of the transactions described herein, except to the extent that any of the Acquiree Shareholders may be required to file reports in accordance with relevant regulations under federal and state securities laws upon execution of this Agreement and/or consummation of the transactions contemplated hereby and the satisfaction of existing secured creditors of the Acquiree. (u) Employee; Benefit Plans. (i) Schedule [4(u)] sets forth the number of employees, a list of the names, addresses and total compensation of all directors and officers of Acquiree and each employee of Acquiree. (ii) Schedule [4(u)] identifies all "employee benefit plans" (as such term is defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")) and programs, including, without limitation, any pension plans, health and welfare plans, life, disability, medical, dental or hospitalization insurance plans, sick-leave, vacation accrual or holiday plans, bonus, savings, profit-sharing or other similar benefit plans, deferred compensation, stock option, stock ownership and stock purchase plans covering employees or former employees of Acquiree. Except as disclosed on Schedule [4(u)], each such plan or program has been operated substantially in accordance with its terms and, to the extent applicable, ERISA and the Internal Revenue Code of 1986, as amended (the "Code"). Acquiree does not sponsor or contribute to, nor have they ever sponsored or been required to contribute to, any "multiemployer plan" as such term is defined in Section 3(37) of ERISA. 11 \PHILA2\63461_6 (iii) Except as disclosed on Schedule [4(u)], Acquiree does not have any written contracts, or oral contracts, including any employment, management, agency or consulting contracts, with respect to any of its current or retired employees. (iv) Except as disclosed on Schedule [4(u)], Acquiree is not a party to any collective bargaining agreement and there are no union organizational activities or efforts to effect a representation election pending or threatened. (v) Acquiree has complied in all material respects with all applicable laws relating to the employment of labor, including the provisions thereof relating to benefits required to be provided under Part VI of Subtitle B of Title I of ERISA or Section 4980B(f) of the Code (collectively, "COBRA"), wages, hours, working additions, employee benefit plans and the payment of withholding and social security taxes. (v) Environmental Matters. Except as set forth in Schedule [4(v)] Acquiree is in compliance with all laws, rules and regulations relating to environmental protection and conservation (including, but not limited to, the Comprehensive Environmental Response, Compensation and Liability Act and the Superfund Amendments and Reauthorization Act of 1986, as amended and all applicable state laws pertaining to the environment), the violation of which would have a materially adverse effect on the financial condition of the Acquiree, and neither Acquiree or Acquiree Shareholders have received any notification of any asserted present or past failure to so comply with such laws, rules or regulations. Acquiree has obtained and is in compliance with all permits, licenses and other authorizations required under federal, state and local laws relating to pollution or protection of the environment, including laws relating to emissions, discharges, releases or threatened releases of pollutants, contaminants, or hazardous or toxic materials or wastes into ambient air, surface water, ground water, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants or hazardous or toxic materials or wastes (collectively "Environmental Requirements"), the violation of which would have a materially adverse effect on the financial condition of the Acquiree. Neither Acquiree or Acquiree Shareholders is aware of, nor have Acquiree or Acquiree Shareholders received notice of, any circumstances which may interfere with or prevent continued compliance, or which may give rise to any liability, or otherwise form the basis of any claim, or investigation under Environmental Requirements, relating to the operation of Acquiree's business. For the purpose of this Section, "hazardous substances" shall include (1) hazardous substances as defined in the Comprehensive Environmental Response, Compensation and Liability Act, as amended, and regulations thereunder and, (2) any substance for which state or local laws require the clean-up, removal or other special handling of such materials or imposing liability based upon improper handling thereof. 12 \PHILA2\63461_6 (w) Not Investment Company. The Acquiree is not an "investment company" as defined in Section 368(a)(2)(F)(iii) of the Code, nor is it an investment company under the Investment Company Act of 1940. (x) Acquiree Documents. All documents relating to the Acquiree and its business that have been previously delivered to RCM in connection with the Merger and this Agreement, do not contain any untrue statement of a material fact or omit to state a material fact required or necessary to be stated therein to make the statements made therein, in light of the circumstances in which they were made, not misleading. (y) Insurance. Schedule [4(y)] contains a list of such policies relating to liability, environmental, crime, fidelity, life, fire, workers' compensation, health, director and officer liability and all other forms of insurance currently owned or held by Acquiree, and identifies for each such policy, to the extent such information is reasonably available to Acquiree, the underwriter, policy number, coverage type, premium, expiration date and deductible. All of the insurance policies listed on Schedule [4(y)] are outstanding and in full force and effect and all premiums with respect to such policies are currently paid. (z) Bank Accounts. Schedule [4(z)] contains a list of all bank accounts maintained by, or for the benefit of, Acquiree. (aa) Customers. Set forth on Schedule [4(aa)] is a list of the ten (10) largest customers of Acquiree based on the dollar volume of income generated by that customer for the fiscal year ended October 2, 1994 and as of July 2, 1995. No such customer has terminated or is presently threatening to terminate its relationship with Acquiree. (bb) Prepayment Penalties. Except as disclosed on Schedule [4(ab)], which reflects a prepayment penalty of twenty-five thousand dollars ($25,000), there are no prepayment penalties or fines associated with the outstanding long-term debt or lines of credit of Acquiree. If any such prepayment penalties or fines occur, RCM and Acquiror shall be liable for the payment of such penalties or fines in any amount not to exceed an amount equal to twenty thousand dollars ($20,000). If such penalty or fine is greater than twenty thousand dollars, then Acquiree Shareholders shall be liable for the amount of penalty or fine which exceeds twenty thousand dollars. (cc) Blue Sky Filings. Acquiree Shareholders acknowledge and agree to the following: (i) Each Acquiree Shareholder who is a pennsylvania resident has the right to cancel and withdraw from this Merger Agreement upon written notice to RCM within two business days of the execution of the Merger Agreement. Any notice of cancellation or withdrawal should be made by telegram or certified or registered mail and will be effective upon delivery to Western Union or deposit in the United States mails, postage or other 13 \PHILA2\63461_6 transmittal fees paid. Upon such cancellation or withdrawal, the Acquiree Shareholder will have no obligation or duty under the Merger Agreement; and (ii) No Acquiree Shareholder who is a Pennsylvania resident may sell or transfer their Merger Shares for twelve months from the Closing Date, as such sale or transfer would violate Section 203(d) of the Pennsylvania Securities Act of 1972 and the regulations thereunder. (dd) Approval. The Board of Directors of the Acquiree and the Acquiree Shareholders shall have approved the execution of this Agreement and the Merger thereby. 5. Representations and Warranties of RCM and Acquiror. RCM and the Acquiror, as a material inducement to the Acquiree and the Acquiree Shareholders to enter into this Agreement and consummate the transactions contemplated hereby, do hereby jointly and severally make the following representations and warranties to the Acquiree and the Acquiree Shareholders, which representations and warranties are true and correct in all material respects at this date, and will be true and correct in all material respects on the Closing Date as though made on and as of such date. (a) Due Organization of Acquiror. The Acquiror is a corporation duly organized, validly existing and subsisting under the laws of the Commonwealth of Pennsylvania, is qualified to do business and in good standing in each state where the properties owned, leased or operated, or the business conducted, by it require such qualification and where failure to so qualify would have a material adverse effect on the financial condition, properties, business or results of operations of the Acquiror. The Acquiror has the corporate power to own its property and to carry on its business as now presently conducted. The Articles of Incorporation and By-Laws of the Acquiror are attached hereto as Schedule [5(a)] and are made a part hereof. (b) Due Organization of RCM. RCM is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada, is qualified to business and in good standing in each state where the properties owned, leased or operated, or the business conducted, by it require such qualification and where failure to so qualify would have a material adverse effect on the financial condition, properties, business or results of operations of RCM. RCM has the corporate power to own its property and to carry on its business as now presently conducted. The Articles of Incorporation and By-Laws of RCM are attached hereto as Schedule [5(b)] and are made a part hereof. (c) Capitalization. The authorized capital stock of RCM consists of 40,000,000 shares of common stock, par value $.05 per-share (the "RCM Common Stock"), of which 14,713,565 shares were outstanding on the date of this Agreement; and. All of the outstanding shares of RCM Common Stock have been validly issued and are fully paid and nonassessable. As of the date of this Agreement, RCM had 786,709 Class C Warrants currently issued and 14 \PHILA2\63461_6 outstanding. The Class C Warrants entitle the holders to purchase 786,709 shares of RCM Common Stock. (d) Subsidiaries. Except as set forth upon Schedule [5(d)], the Acquiror has no subsidiaries, nor does it own any interest in any other corporation, partnership or other entity, nor does it have any right or obligation, whether under any agreement (oral or written) or instrument of any kind, to acquire any such interest. (e) Due Authorization. This Agreement has been duly authorized, executed, and delivered by the Acquiror and RCM, and constitutes a legal, valid, and binding obligation of the Acquiror and RCM, enforceable in accordance with its terms except as such enforcement may be limited by applicable bankruptcy, insolvency, moratorium, and other similar laws relating to, limiting or affecting the enforcement of creditors rights generally or by the application of equitable principles. The execution, delivery and performance of this Agreement by the Acquiror and RCM will not violate or conflict with in any material respect or constitute a default under any provisions of applicable law, the Acquiror's or RCM's Articles of Incorporation or Bylaws, or any agreement or instrument to which the Acquiror or RCM is a party or by which it or its assets are bound. No consent of any federal, state, municipal or other governmental authority is required by Acquiror or RCM for the execution, delivery or performance of this Agreement by the Acquiror and RCM. No consent of any party to any contract or agreement to which the Acquiror is a party or by which any of its property or assets are subject is required for the execution, delivery or performance of this Agreement by the Acquiror that has not been obtained at the date of this Agreement. (f) Merger Shares. The Merger Shares to be delivered to the Acquiree Shareholders will, when issued, be validly and legally issued, free and clear of all liens, encumbrances, transfer fees and preemptive rights, and will be fully paid and non-assessable. (g) Brokerage Fees. RCM and Acquiror have not incurred, and will not incur, any liability for brokerage or finder's fees or similar charges in connection with this Agreement. (h) No Approvals Required. No approval, authorization, consent, order or other action of, or filing with, any person, firm or corporation or any court, administrative agency or other governmental authority is required in connection with the execution and delivery by RCM of this Agreement or the consummation of the transactions described herein, except to the extent that the parties may be required to file reports in accordance with relevant regulations under federal and state securities laws. (i) SEC Reports. RCM has heretofore delivered to Acquiree a copy of its most recent reports filed with the SEC, including its Annual Report on Form 10-K for the fiscal year ended October 31, 1994 and the 15 \PHILA2\63461_6 quarterly report on Form 10-Q for the period ended April 30, 1995 (collectively, the "RCM Reports"). As of their respective dates neither of the RCM Reports contained any untrue statements of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances in which they were made, not misleading. Furthermore, except as otherwise disclosed in such RCM Reports, RCM has experienced no material adverse change in its financial condition, properties, business or prospects since the dates thereof. The RCM Reports have been prepared in material compliance with all applicable securities laws, rules and regulations, and the financial statements included therein had been prepared in accordance with general accepted accounting principles, consistently applied, and represent fairly the financial condition of RCM as of the date and for the periods covered thereby. 6. Covenants of the Parties to this Agreement. (a) Disclosure Documents. (i) Each of RCM and Acquiror shall supply to Acquiree the necessary information in writing, or cause the necessary information to be supplied in writing, relating to RCM and Acquiror for inclusion in any document(s) to be delivered to Acquiree Shareholders in connection with seeking their approval of the transactions contemplated by this Agreement. (ii) Acquiree shall supply to RCM the necessary information in writing, or cause the necessary information to be supplied in writing, relating to Acquiree for inclusion in any documents or reports to be filed with the SEC or any regulatory agency in connection with the transactions contemplated by this Agreement, with the cost of obtaining any such information from third parties to be paid upon the Closing Date by Acquiror or RCM. (b) Access to Information. At all times prior to the Closing Date or the earlier termination of this Agreement in accordance with the provisions of Section [13], each of the parties hereto shall provide to the other parties (and the other parties' authorized representatives) full access during normal business hours to the premises, properties, books, records, assets, liabilities, operations, contracts, personnel, financial information and other data and information of or relating to such party (including without limitation all written proprietary and trade secret information and documents, and other written information and documents relating to intellectual property rights and matters), and will cooperate with the other party in conducting its due diligence investigation of such party. (c) Confidentiality. (i) Confidentiality of RCM-Related Information. With respect to information concerning RCM or Acquiror that is made available to Acquiree or Acquiree Shareholders pursuant to the provisions of Section 16 \PHILA2\63461_6 [6(b)], Acquiree and Acquiree Shareholders agree that they shall hold such information in strict confidence, shall not use such information except for the sole purpose of evaluating the Merger and related transactions and shall not disseminate or disclose any of such information other than to their directors, officers, employees, shareholders, affiliates, agents, lenders and representatives who need to know such information for the sole purpose of evaluating the Merger and the related transactions (each of whom shall be informed in writing by Acquiree of the confidential nature of such information, the prohibition under federal securities laws of trading upon any material non-public information and directed by Acquiree in writing to treat such information confidentially. If this Agreement is terminated pursuant to the provisions of Section [13], Acquiree and Acquiree Shareholders shall immediately return all such information, all copies thereof and all information prepared by Acquiree based upon the same, upon RCM's request; provided, however, that one copy of all such material may be retained by Acquiree's outside legal counsel for purposes only of resolving any disputes under this Agreement. The above limitations on use, dissemination and disclosure shall not apply to information that; (i) is learned by Acquiree or Acquiree Shareholders from a third party entitled to disclose it; (ii) becomes known publicly other than through Acquiree or Acquiree Shareholders or any party who received the same through Acquiree or Acquiree Shareholders; (iii) is required by law or court order to be disclosed by Acquiree or Acquiree Shareholders or; (iv) is disclosed with the express prior written consent thereto of RCM. Acquiree or Acquiree Shareholders shall undertake all necessary steps to ensure that the secrecy and confidentiality of such information will be maintained in accordance with the provisions of this subparagraph (i); (ii) Confidentiality of Acquiree-Related Information. With respect to information concerning Acquiree that is made available to RCM or Acquiror pursuant to the provisions of Section [6(b)], RCM and Acquiror jointly and severally agree that they shall hold such information in strict confidence, shall not use such information except for the sole purpose of evaluating the Merger and the related transactions and shall not disseminate or disclose any of such information other than to their directors, officers, employees, shareholders, affiliates, agents, lenders and representatives who need to know such information for the sole purpose of evaluating the Merger and the related transactions (each of whom shall be informed in writing by RCM or Acquiror, as appropriate, of the confidential nature of such information and directed by such party in writing to treat such information confidentially). If this Agreement is terminated pursuant to the provisions of Section [13], RCM and Acquiror jointly and severally agree to return immediately all such information, all copies thereof and all information prepared by either of them based upon the same, upon Acquiree's request; provided, however, that one copy of all such material may be retained by RCM's outside legal counsel for purposes only of resolving any disputes under this Agreement. The above limitations on use, dissemination and disclosure shall not apply to information that: (i) is learned by RCM or Acquiror from a third party entitled to disclose it; (ii) becomes known publicly other than through 17 \PHILA2\63461_6 RCM or Acquiror or any party who received the same through either of them; (iii) is required by law or court order to be disclosed by RCM or Acquiror; or (iv) is disclosed with the express prior written consent thereto of Acquiree. RCM and Acquiror jointly and severally agree to undertake all necessary steps to ensure that the secrecy and confidentiality of such information will be maintained in accordance with the provisions of this subparagraph (ii). (iii) Nondisclosure. Neither RCM, Acquiror, Acquiree or Acquiree Shareholders shall disclose to the public or to any third party the existence of this Agreement or the transactions contemplated hereby or any other material non-public information concerning or relating to the other party hereto, other than with the express prior written consent of the other party hereto, except as may be required by applicable securities laws as they pertain to public companies, law or court order or to enforce the rights of such disclosing party under this Agreement, in which event the contents of any proposed disclosure shall be discussed with the other party before release; provided, however, that notwithstanding anything to the contrary contained in this Agreement, any party hereto may disclose this Agreement to any of its directors, officers, employees, shareholders, affiliates, agents and representative who need to know such information for the sole purpose of evaluating the Merger, to any party whose consent is required in connection with the Merger or this Agreement; or to any regulatory body where such disclosure is required under federal or state law. (d) Consents. RCM, Acquiror and Acquiree shall cooperate and use their best efforts to obtain, prior to the Closing Date, all licenses, permits, consents, approvals, authorizations, qualifications and orders of governmental authorities and parties to contracts as are necessary for the consummation of the transactions contemplated by this Agreement. (e) Filings. RCM, Acquiror and Acquiree shall, as promptly as practicable, make any required filings, and RCM, Acquiror and Acquiree shall promptly make any other required submissions, under any law, statute, order rule or regulation with respect to the Merger and the related transactions and shall cooperate with each other with respect to the foregoing. (f) All Reasonable Efforts. Subject to the terms and conditions of this Agreement and to the fiduciary duties and obligations of the board of directors of Acquiree and RCM, each of the parties to this Agreement shall use all reasonable efforts to take, or cause to be taken, all action and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations, or to remove any injunctions or other impediments or delays, legal or otherwise, as soon as reasonable practicable, to consummate the Merger and the other transactions contemplated by this Agreement. (g) Notification of Certain Matters. Acquiree shall give prompt notice to RCM, and RCM and Acquiror shall give prompt notice to Acquiree, of (a) the occurrence or non-occurrence of any event, the occurrence or non- occurrence of which would cause any of its representations or warranties in 18 \PHILA2\63461_6 this Agreement to be untrue or inaccurate in any material respect at or prior to the Closing Date and (b) any material failure of Acquiree, on the one hand, or RCM or Acquiror, on the other hand, as the case may be, to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it under this Agreement; provided, however, the delivery of any notice pursuant to this Section shall not limit or otherwise affect the remedies available to the party receiving such notice under this Agreement. (h) Expenses. Except as otherwise expressly provided herein, all costs and expenses incurred in connection with the Agreement and the transactions contemplated hereby shall be paid by the party incurring such expenses whether or not the Merger is consummated. (i) Consent of Auditors. Acquiree Shareholders shall, when necessary, obtain the necessary consents of all auditors who have provided audit reports in connection with any of the Financial Statements which may be required by RCM for the preparation and filing of documents and reports with the SEC in connection with, or that relate to the Merger, and the cost of any such consents shall be paid by Acquiror. (j) Loss of "S" Corporation Status. Upon completion of the Merger as contemplated by this Agreement, Acquiree Shareholders shall be responsible for the payment and filing of any final tax returns or other obligations incurred in connection with the termination of Acquiree's "S" Corporation status. (k) Registration Rights. On or prior to the Closing Date, Acquiree Shareholders shall execute a Registration Rights Agreement substantially in form and substance similar to that attached hereto and made a part hereof as Exhibit "B". (l) Voting Trust. On or prior to the Closing Date, the Acquiree Shareholders shall execute a Voting Trust Agreement substantially in form and substance similar to that attached hereto and made a part hereof as Exhibit "C". (m) Investor Representation Letter. On or prior to the Closing Date, the Acquiree Shareholders shall execute an Investor Representation Letter substantially in form and substance similar to that attached hereto and made a part hereof as Exhibit "D". (n) Pledge Agreement. On or prior to the Closing Date, Acquiree Shareholders shall execute a Pledge Agreement substantially in form and substance similar to that attached hereto and made a part hereof as Exhibit "E". (o) Schedules. The Acquiree shall have delivered all of the Schedules required herein, and copies of the documents referred to therein, including Exhibit "A", to RCM and Acquiror within five (5) days of the execution of this Agreement, and such Schedules and documents shall have been 19 \PHILA2\63461_6 reasonably acceptable to RCM and Acquiror. (p) Officer's Certificate. On or prior to the Closing Date, Acquiree shall deliver an officer's certificate to RCM and Acquiror to the effect that all of the representations and warranties contained in this Agreement are true and complete in all respects as of the Closing Date, and that the Acquiree has complied in all material respects with its covenants and agreements set forth herein required to be complied with by the Closing; and there shall be delivered to RCM and Acquiror a certificate signed by the Acquiree Shareholders to the effect that the representations and warranties of the Acquiree Shareholders set forth herein are true and correct in all material respects. (q) Prudential Options. On or prior to the Closing Date, Acquiree and Acquiree Shareholders shall have caused either (i) the termination of the Prudential Options or (ii) the exercise of the Prudential Options and, in that event, the resulting shareholders that exercised the Prudential Options shall enter into an amendment to this Agreement whereby these shareholders shall become Acquiree Shareholders and become bound by all of the terms of this Agreement as though such shareholder had originally executed this Agreement. (r) Resignations. On or prior to the Closing Date, Acquiree and Acquiree Shareholders shall take all actions necessary to secure and effect the resignation of all of the current directors and officers of Acquiree. (s) Interim Operations of Acquiree. During the period from the date of this Agreement and continuing until the Closing Date, Acquiree agrees (except as expressly contemplated by this Agreement, including any Exhibits and Schedules hereto, or to the extent that RCM shall otherwise consent in writing) that: (i) Ordinary Course. Acquiree shall carry on its business in the usual, regular and ordinary course in substantially the same manner as heretofore conducted and, to the extent consistent with such business, use all reasonable efforts to preserve intact its present business organization, keep available the services of its present officers and employees and preserve its relationships with customers, suppliers and others having business dealings with it; (ii) Dividends; Changes in Stock. Acquiree shall not (a) declare or pay any dividend, on, or make other distributions in respect of, any of its capital stock, (b) split, combine or reclassify any of its capital stock or issue, authorize or propose the issuance of any other securities in respect of, in lieu of or in substitution for shares of capital stock of Acquiree or (c) repurchase or otherwise acquire any shares of capital stock of Acquiree. 20 \PHILA2\63461_6 (iii) Issuance of Securities. Acquiree shall not sell, issue, authorize or propose the sale or issuance of, or purchase or propose the purchase of, any shares of its capital stock of any class or securities convertible into, or rights, warrants or options to acquire, any such shares or other convertible securities, except pursuant to the Prudential Options, to the extent they may be exercised. (iv) Governing Documents. Acquiree shall not amend its Certificate of Incorporation or its Bylaws. (v) No Acquisition. Acquiree shall not acquire or agree to acquire by merging or consolidation with, or by purchasing a substantial portion of the assets or securities of, or by any other manner, any business or any corporation, partnership, association or other business organization or division thereof or otherwise acquire or agree to acquire any assets that are material, individual or in the aggregate, to Acquiree. (vi) No Dispositions. Acquiree shall not sell, lease or otherwise dispose of or agree to sell, lease or otherwise dispose of, any of its assets that are material, individually or in the aggregate, to Acquiree, except in the ordinary course of business consistent with prior practice. (vii) Indebtedness. Acquiree shall not incur any indebtedness for borrowed money or guarantee any such indebtedness or issue or sell any debt securities of Acquiree or guarantee any debt securities of others than in the ordinary course of business consistent with prior practice. (viii) Benefit Plans, Etc. Acquiree shall not adopt or amend in any material respect any collective bargaining agreement or employee benefit plan. (ix) Executive Compensation. Acquiree shall not grant to any executive officer or key employee, any increase in compensation or in severance or termination pay, or enter into any employment agreement with any executive officer or key employee. (x) Other Actions. Acquiree shall not enter into any agreement or arrangement to do any of the foregoing. Acquiree shall not take any action, or fail to take any action, that is reasonably likely to result in any of the representations and warranties of Acquiree set forth in this Agreement becoming untrue. (xi) Maintenance of Certain Financial Covenants. (A) The Acquiree shall maintain and remain in compliance with the following financial covenants between the date hereof and through and upon the Closing Date: 21 \PHILA2\63461_6 (1) The total "accounts receivable" of Acquiree (defined as those bona fide accounts receivable representing the sales prices of goods, merchandise or services sold or performed by Acquiree in valid transactions in the normal course of Acquiree's business; which accounts receivable are not uncollectible or subject to offset or counterclaim or otherwise in controversy and which accounts receivable are not unpaid for more than ninety (90) days after the date of original invoice) shall at all times remain not less than 117.5% of the total indebtedness of Acquiree exclusive of accounts payable (trade); (2) Acquiree shall maintain a "tangible net worth" (defined as the sum of capital stock and additional paid-in-capital plus any retained earnings [or minus any accumulated deficit] less the book value attributed to all intangible assets) of no lower than ($65,000); (3) Acquiree shall maintain "working capital" (defined as current assets less current liabilities) of at least $760,000; (4) The ratio of the Acquiree's current assets to its current liabilities shall not be less than 1.25 to 1. (b) For the purposes of subparagraph (a) above, unless the context otherwise requires, the terms utilized therein shall have the respective meanings accorded to them under generally accepted accounting principles applied in a manner consistent with the most recent audited financial statements of Acquiree. 22 \PHILA2\63461_6 7. Closing Date. The closing ("Closing") of the Merger shall take place (a) within thirty (30) days of the execution of this Agreement, unless such Closing cannot be accomplished as a result of either (i) Acquiror being unable to secure financing from its principal lender for a reason a beyond Acquiror's control or (ii) in light of all reasonable efforts by RCM and/or Acquiror the due diligence required under this Agreement has not been completed, and in such event of either of the above, the Closing shall be extended an additional thirty (30) days, (b) at the offices of Clark, Ladner, Fortenbaugh & Young, 2005 Market Street, 22nd Floor, Philadelphia, PA 19103, 10:00 a.m, local time within sixty days from the date of the execution by all parties of this Agreement, or (c) at such other time and place and on such other date as RCM, the Acquiror and Acquiree or Acquiree Shareholders shall agree. The date of the Closing is referred to herein as the "Closing Date." 8. Conditions Precedent to Obligations of Acquiree and Acquiree Shareholders. All obligations of the Acquiree and the Acquiree Shareholders under this Agreement are subject to the fulfillment, prior to or on the Closing Date (unless otherwise stated herein), of each of the following conditions, any one or all of which may be waived by the Acquiree or the Acquiree Shareholders: (a) The Board of Directors of RCM and the Board of Directors and RCM as sole shareholder of the Acquiror shall have approved the execution of this Agreement and the Merger thereby. (b) The representations and warranties made by or on behalf of the Acquiror and RCM contained in this Agreement or in any certificate or document delivered to the Acquiree or the Acquiree Shareholders pursuant to the provisions hereof at the Closing Date shall be true in all material respects at and as of the time of the Closing Date as though such representations and warranties were made at and as of such time. (c) RCM and the Acquiror shall have performed and complied in all material respects with all covenants, agreements and conditions required by this Agreement to be performed or complied with by them prior to or at the Closing. (d) RCM and the Acquiror shall have delivered all of the Schedules required herein, and copies of the documents referred to therein, to the Acquiree and such Schedules and documents shall have been reasonably acceptable to Acquiree. (e) There shall be delivered to the Acquiree and the Acquiree Shareholders an officer's certificate of RCM and the Acquiror to the effect that all of the representations and warranties of RCM and the Acquiror set forth herein are true and complete in all material respects as of the Closing Date, and that RCM and the Acquiror have complied in all material respects with their covenants and agreements set forth herein that are required to be complied with by the Closing Date. 23 \PHILA2\63461_6 (f) No statute, rule, regulation, executive order, decree, injunction or restraining order shall have been enacted, entered, promulgated or enforced by any court of competent jurisdiction or governmental authority that prohibits or restricts the consummation of the Merger or the related transactions. (g) RCM and/or Acquiror and/or a lender to one or both of them shall have confirmed to the satisfaction of the Acquiree and the Acquiree Shareholders that funds are available to refinance in full the indebtedness of the Acquiree now guaranteed by the Acquiree Shareholders, which refinancing shall be accomplished on the Closing Date. (h) Trading in the stock of RCM shall not have been suspended for any reason other than suspension of a market generally, and no materially adverse change, other than as otherwise disclosed in the RCM Reports, shall have occurred in the financial condition, operations or prospects of RCM or Acquiror after the date hereof, but prior to the Closing Date. 9. Conditions Precedent to Obligations of RCM and Acquiror. All obligations of RCM and Acquiror, which obligations shall be undertaken in good faith, under this Agreement are subject to the fulfillment, prior to or on the Closing Date, of each of the following conditions, any one or all of which may be waived in writing by RCM or Acquiror: (a) The Board of Directors of the Acquiree and the Acquiree Shareholders shall have approved the execution of this Agreement and the Merger thereby. (b) The representations and warranties by the Acquiree and the Acquiree Shareholders contained in this Agreement or in any certificate or document delivered to RCM and Acquiror pursuant to the provisions hereof shall be true in all respects at and as of the time of the Closing as though such representations and warranties were made at and as of such time. (c) The Acquiree and the Acquiree Shareholders shall have performed and complied in all material respects with all covenants, agreements, and conditions required by this Agreement to be performed or complied with by them prior to or upon the Closing Date. (d) The Acquiree shall have delivered all of the Schedules required herein, and copies of the documents referred to therein, to RCM and Acquiror and such Schedules and documents shall have been reasonably acceptable to RCM and Acquiror. (e) There shall be delivered to RCM and Acquiror an officer's certificate of the Acquiree to the effect that all of the representations and warranties of the Acquiree set forth herein are true and complete in all respects as of the Closing Date, and that the Acquiree has complied in all material respects with its covenants and agreements set forth herein required 24 \PHILA2\63461_6 to be complied with by the Closing; and there shall be delivered to RCM and Acquiror a certificate signed by the Acquiree Shareholders to the effect that the representations and warranties of the Acquiree Shareholders set forth herein are true and correct in all material respects. (f) RCM and Acquiror shall have completed prior to the Closing Date, to its satisfaction, a due diligence review of the financial condition, results of operations, properties, assets, liabilities, business or prospects of the Acquiree, and which review shall not produce information which is either: (i) in conflict with prior representations of Acquiree Shareholders or management of Acquiree; or (ii) is likely to present facts which, management of Acquiror believes will have an adverse impact upon the expected combined results of operations and financial statement data relative to the Acquiror following the Merger. (g) RCM shall have obtained the approval of its principal lender of this Agreement and the Merger contemplated thereby and to provide refinancing of the existing indebtedness and line of credit reflected within the Financial Statements of Acquiree. (h) Acquiror or RCM shall have entered into a lease on satisfactory terms and conditions with respect to the facilities utilized in the operations of Acquiree. (i) On or before the Closing Date, Acquiree and Acquiree Shareholders shall have caused either (i) the termination of the Prudential Options or (ii) the exercise of the Prudential Options and, in that event, the resulting shareholders that exercised the Prudential Options shall enter into an amendment to this Agreement whereby these shareholders shall become Acquiree Shareholders and be bound by all of the terms of this Agreement as though such shareholder had originally executed this Agreement. (j) Acquiree shall not have any "built-in gains" or other corporate level tax from the termination of its "S"-Corporation status upon completion of the Merger. (k) Acquiree and Acquiree Shareholders shall take all actions necessary to effect the resignation of all of the current directors and officers of Acquiree and execute releases in form and substance reasonably satisfactory to RCM. (l) All director, shareholder, lender, lessor and other parties' consents and approvals, as well as all filings with, and all necessary consents or approvals of, all federal, state and local governmental authorities and agencies, as are required under this Agreement, applicable law or any applicable contract or agreement (other than as contemplated by this Agreement) to complete the Merger shall have been secured, including, without limitation that this Agreement shall have been approved by the affirmative vote of the Acquiree Shareholders. 25 \PHILA2\63461_6 (m) No statute, rule, regulation, executive order, decree, injunction or restraining order shall have been enacted, entered, promulgated or enforced by any court of competent jurisdiction or governmental authority that prohibits or restricts the consummation of the Merger or the related transactions. (n) RCM shall be satisfied that the offer and issuance of the Merger Shares is exempt from the registration provisions of the Securities Act and similar provisions under applicable state securities laws; provided, however, that RCM agrees to use its best efforts to cause such offer and issuance to qualify for an exemption from such registration provisions. (o) RCM and Acquiror shall have secured satisfactory releases on behalf of Acquiree from and against any claims of each of the Acquiree Shareholders relating to matters which arose prior to the Closing Date. (p) Acquiree Shareholders shall execute a Registration Rights Agreement substantially in form and substance similar to that attached hereto and made a part hereof as Exhibit "B". (q) Acquiree Shareholders shall execute a Voting Trust Agreement substantially in form and substance similar to that attached hereto and made a part hereof as Exhibit "C". (s) Acquiree Shareholders shall execute a Pledge Agreement substantially in form and substance similar to that attached hereto and made a part hereof as Exhibit "E". 10. Conditions Subsequent. 10.1 Distribution of "Subchapter S" Dividends. Within 45 days after the Closing Date, RCM, Acquiror and Acquiree Shareholders shall jointly cooperate in connection with the preparation of financial statements which reflect the results of operations of the Acquiree from the beginning of its most recent fiscal year until the Closing Date. RCM, Acquiror and Acquiree Shareholders acknowledge that the Acquiree Shareholders have heretofore withdrawn from the Acquiree that amount representing earnings of the Acquiree from the inception of its most recent fiscal year through a period prior to the Closing Date. Within 10 days after the completion of the aforesaid financial statements, RCM and/or Acquiror shall distribute to the Acquiree Shareholders the "Subchapter S" dividends representing earnings of the Acquiree from the inception of its most recent fiscal year through and including the Closing Date upon which the Acquiree Shareholders have been or will be subject to individual taxation, but which dividends were not otherwise 26 \PHILA2\63461_6 withdrawn from the business or paid by the Acquiree through the Closing Date. To the extent that such financial statements reflect that the Acquiree Shareholders have heretofore withdrawn an amount in excess of the cumulative earnings of the Acquiree from the date of its most recent fiscal year through the Closing Date, then any and all such amounts withdrawn in excess of the earnings of the Acquiree shall be immediately repaid to the Acquiror. 10.2 Obligation to Maintain Cumulative Gross Revenues Following the Closing Date. (a) The cumulative gross revenues of Acquiror (as the successor to the business of Acquiree) for the period of the three consecutive years following the Closing Date (the "Cumulative Gross Revenues") shall be at least two hundred and seventy (270%) percent of those revenues realized by the Acquiree during its fiscal year ended october 2, 1994 (the "Base Period Revenues"). (b) RCM and the Acquiree Shareholders do hereby agree that it may be difficult to accurately determine the actual amount of damages that RCM may incur if Acquiror (as the successor to the business of Acquiree) fails to achieve Cumulative Gross Revenues of at least two hundred and seventy (270%) percent of the Base Period Revenues. Accordingly, it is agreed that to the extent that the Cumulative Gross Revenues of the Acquiror (as the successor to the business of Acquiree) are less than two hundred and seventy (270%) percent of the Base Period Revenues, the Acquiree Shareholders do hereby jointly and severally agree to pay to RCM without demand, within forty- five (45) days of the third anniversary of the Closing Date, liquidated damages in the following amounts. Cumulative Gross Revenues Amount of as Compared to Liquidated Base Period Revenues: Damages : 255% - 269.9% . . . . . . . . . . .$ 300,000 240% - 254.9% . . . . . . . . . . .$ 600,000 225% - 239% . . . . . . . . . . . .$ 900,000 Less than 225% . . . . . . . . . .$1,200,000 It is further agreed to and acknowledged by the Acquiree Shareholders that the amount of liquidated damages set forth above is reasonable and not a punitive amount based upon the facts and circumstances of the parties at the time of this Agreement. (c) The liability to pay liquidated damages, as set forth at subparagraph 10.2(b) above, shall be of recourse limited to the Merger Shares pledged by the Acquiree Shareholders to RCM in the manner and to the extent set forth within the Pledge Agreement attached hereto and made a part hereof as Exhibit "E." 27 \PHILA2\63461_6 (d) For the purposes hereof, the term "Cumulative Gross Revenues" of Acquiror (as the successor to the business of Acquiree) shall in all events include the sales receipts derived from or relating to the operations of the business of Acquiror (as the successor to the business of Acquiree) as such business is presently undertaken by Acquiree by location, industry segment, product or service line and/or customer base. In connection therewith, RCM and Acquiror will utilize their best efforts following the Merger to preserve, protect, expand and develop the historic business, customer base and goodwill of Acquiree and covenants not to directly or indirectly employ any device as a means by which to allocate revenue associated with the historic business of Acquiree to any other affiliate or member of the consolidated group for which RCM serves as a parent. The Acquiror shall further provide to the Acquiree Shareholders, without demand, financial reports detailing the calculation of Cumulative Gross Revenues as used herein (i) for each of the Acquiror's fiscal quarters ending after the Closing Date through and until the date three (3) years after the Closing Date, such reports to be delivered to the Acquiree Shareholders within forty-five (45) days after the end of each applicable fiscal quarter and for each of the Acquiror's fiscal years ending after the Closing Date through and until the date three (3) years after the Closing Date, such reports to be delivered to the Acquiree Shareholders within ninety (90) days after the end of each applicable fiscal year. The Acquiror shall provide such additional information to the Acquiree Shareholders as the Acquiree Shareholders may reasonably request respecting the calculation of Cumulative Gross Revenues as so reported and the efforts of RCM and Acquiror to comply with their obligations under this Agreement. 10.3 Confidentiality. Acquiree Shareholders acknowledge and agree that the operations, methods, customer list, trade secrets and other confidential or proprietary information of Acquiree are valuable, special and unique. Acquiree Shareholders further acknowledge that the Acquiree's confidential trade and other proprietary information was one of the principal assets being acquired by Acquiror pursuant to this Merger. Acquiree Shareholders shall keep confidential any trade secrets, confidential or proprietary information of Acquiree which are now known to Acquiree Shareholders or which hereafter may become known to Acquiree Shareholders and shall not at any time, directly or indirectly, disclose any such information to any person, firm or corporation other than Acquiree except to the extent that such information is requested by a governmental entity, lawyer, accountant, or other advisor on a need to know basis for arbitration, litigation or pursuant to a court order. For purposes of this Section 10.3, "trade secrets or other confidential or proprietary information" shall mean information (i) which is unique to Acquiree or which has a significant business purpose and is not known or available for sources outside the Acquiree or from typical industry practice including, but not limited to, customer information and client list of Acquiree, and (ii) the disclosure of which would have a material adverse effect on Acquiree (herein referred to collectively as the "Proprietary Property"). Acquiree Shareholders shall have no right, title or interest of any kind or nature in the Proprietary Property or any proceeds thereof following the Closing except to the extent such 28 \PHILA2\63461_6 information is necessary to assist Acquiree Shareholders in the preparation of their tax returns as such returns include dividends earned from Acquiror. The Proprietary Property shall thereafter remain the sole and exclusive property of Acquiree. Notwithstanding anything contained in this Section 10.3, no Acquiree Shareholder shall be liable for a breach by another Acquiree Shareholder of this Section 10.3 after the Closing Date. 10.4 Restrictive Covenant. For the purposes of this Section 10.4, "Business" shall mean the business operated by the Acquiree as of the date of this Agreement. Except as specifically permitted elsewhere herein, at any time during the five (5) year period following the Closing Date (the "Restrictive Period"), no Acquiree Shareholder may directly or indirectly: (i) own, manage, operate, control, be employed by, participate in or be connected in any manner with the ownership, management, operation or control of any business, person or entity competitive with Acquiror's Business; (ii) without the expressed written consent of Acquiror, act as an organizer, be employed by or act as an independent contractor to any business, person or entity involved in a business competitive with Acquiror's Business. Moreover, during the Restrictive Period, no Acquiree Shareholder may contact, directly or indirectly, or cause to be contacted directly or indirectly, any client or customers of Acquiror for the purpose of competitively soliciting business in competition with Acquiror's Business. Acquiree Shareholders further agree that during the Restrictive Period no Acquiree Shareholder will directly or indirectly induce employees of Acquiror to either accept employment from, or to engage in any activities with, a business that is in competition with Acquiror. Notwithstanding the restrictions in this Section 10.4, the activities and affiliation of Joseph Marubbio in connection with Energy and Environmental Management Incorporated and National Association of Drug Free Employees, a subchapter "S" corporation ("NADE"), Robert Starer's connection with NADE and James Affleck's connection with NADE, as such activities and affiliations of Messrs. Marubbio, Starer and Affleck are disclosed on Schedule 10.4, shall be permitted under this Section. Additionally, notwithstanding anything contained in this Section 10.4, no Acquiree Shareholder shall be liable for a breach by another Acquiree Shareholder of this Section 10.4 after the Closing Date. 10.5 Remedies. Acknowledging that a breach of any provisions of Sections 10.3 and 10.4 may cause substantial injury to Acquiror which may be irrevocable and/or damages in an amount difficult or impossible to ascertain, Acquiree Shareholders do hereby jointly and severally agree that in the event that of the breach of any of the provisions of Section 10.3 or 10.4 hereof, Acquiror shall have, in addition to all other remedies (including but not limited to recovery of damages at all costs and reasonable fees incurred by Acquiror) available in the event of a breach of this Agreement, the right to injunctive or other equitable relief. Acquiree Shareholders hereby waive the claim or defense that the Acquiror has an adequate remedy at law for any such breach of Sections 10.3 or 10.4 and covenant and agree that Acquiree Shareholders will not assert such claim or defense in any action or proceeding to enforce this provisions. The parties agree and acknowledge that they are 29 \PHILA2\63461_6 familiar with the present and proposed operations of Acquiror and believe that the restrictive covenant set forth in Section 10.4 is reasonable with respect to this subject matter, duration and geographical application. 10.6 Severability. The parties expressly agree and acknowledge that they are familiar with all of the terms and conditions of this Agreement and believe, after consulting with their respective attorneys, that the covenants set forth above are reasonable. If, notwithstanding such agreement and acknowledgement, a final, non-appealable judgment of a court of competent jurisdiction determines that any such covenant is unenforceable, then such covenant shall be reformed by reducing the time period, geographical area, or both, to make the covenant enforceable. 11. Indemnification. (a) Acquiree Shareholders. Commencing from the execution of this Agreement and continuing until the fourth annual anniversary of the execution of this Agreement, Acquiree Shareholders (except James R. Affleck, Jr. and Sarah B. Affleck (the "Afflecks"), who shall not be liable under this Section 11 or under any other provisions hereof, except to the extent of their Merger Shares pledged under the Pledge Agreement) jointly and severally shall indemnify, defend and hold harmless` RCM and Acquiror from and against any and all demands, claims, actions or causes of action, judgments, assessments, losses, liabilities, damages or penalties and reasonable attorneys' fees and related disbursements (collectively, "Claims"), of which notice of such Claims must be given to Acquiree Shareholders prior to the fourth year anniversary of the execution of this Agreement, incurred by RCM or Acquiror which arise out of or result from a misrepresentation, breach of warranty, or breach of any covenant of Acquiree or Acquiree Shareholders contained herein or in the Schedules annexed hereto or in any deed, exhibit, closing certificate, schedule or any ancillary certificates or other documents or instruments furnished by the Acquiree or Acquiree Shareholders pursuant hereto or in connection with the transactions contemplated hereby or thereby. Notwithstanding the preceding sentence, the liability of the Acquiree Shareholders, excluding the Afflecks, arising from this Agreement, the Merger or transactions related thereto shall be limited to the total amount of Merger Consideration. Except with respect to Sections 4(ab), 10.2, 10.3 and 10.4, (for which the foregoing limitation shall not apply), neither the Acquiree nor the Acquiree Shareholders shall be liable to the Acquiror or to RCM under this indemnity provision or otherwise under this Agreement or any related document in connection with the Merger unless the Claim or Claims outstanding against them exceed specified amounts as described below: (i) Upon the Closing Date and through and until the end of the first annual anniversary of the Closing Date, RCM and/or Acquiror shall be liable for any Claims, singularly or in the aggregate equal an amount up to and including twenty-five thousand dollars ($25,000) ("First Year Amount"). Any amount of the Claims which exceed twenty-five thousand dollars ($25,000) shall be the responsibility of Acquiree Shareholders; 30 \PHILA2\63461_6 (ii) Upon the commencement of the second year following the Closing Date, through and until the end of the second annual anniversary of the Closing Date, RCM and/or Acquiror shall be liable in an amount equal to any unused portion of the First Year Amount, plus an additional twenty-five thousand dollars ($25,000) (collectively, "Second Year Amount"). Any amount of the Claims which exceed the Second Year Amount shall be the responsibility of the Acquiree Shareholders; (iii) Upon the commencement of the third year following the Closing Date, through and until the end of the third annual anniversary of the Closing Date, RCM and/or Acquiror shall be liable in an amount equal to any unused portion of the Second Year Amount plus an additional twenty-five thousand dollars ($25,000) (collectively, "Third Year Amount"). Any amount of the Claims which exceed the Third Year Amount shall be the responsibility of the Acquiree Shareholders; (iv) Upon the commencement of the fourth year following the Closing Date, through and until the end of the fourth annual anniversary of the Closing Date, RCM and/or Acquiror shall be liable in an amount equal to any unused portion of the Third Year Amount plus an additional twenty-five thousand dollars ($25,000) (collectively, "Fourth Year Amount"). Any amount of the Claims which exceed the Fourth Year Amount shall be the responsibility of the Acquiree Shareholders. (b) RCM and Acquiror. RCM and Acquiror shall jointly and severally indemnify, defend and hold harmless Acquiree and Acquiree Shareholder from and against any and all Claims incurred by the Acquiree and/or any Acquiree Shareholder which arise out of or result from a misrepresentation, breach of warranty or breach of any covenant of RCM or Acquiror contained herein or in any ancillary certificates or other documents or instruments furnished by RCM or Acquiror pursuant hereto. (c) Methods of Asserting Claims for Indemnification. All claims for indemnification under this Agreement shall be asserted as follows: (i) Third Party Claims. In the event that any Claim for which a party (the "Indemnitee") would be entitled to indemnification under this Agreement is asserted against or sought to be collected from the Indemnitee by a third party the Indemnitee shall promptly notify the other party (the "Indemnitor") of such Claim, specifying the nature thereof, the applicable provision in this Agreement or other instrument under which the Claim arises, and the amount or the estimated amount thereof (the "Claim Notice"). The Indemnitor shall have thirty (30) days (or, if shorter, a period to a date not less than ten (10) days prior to when a responsive pleading or other document is required to be filed but in no event less than ten (10) days from delivery or mailing of the Claim Notice) (the "Notice Period") to notify the Indemnitee (a) whether or not it disputes the Claim and (b) if liability hereunder is not disputed, whether or not it desires to defend the Indemnitee. If the Indemnitor elects to defend by appropriate 31 \PHILA2\63461_6 proceedings, such proceedings shall be promptly settled or prosecuted to a final conclusion in such a manner as to avoid any risk of damage to the Indemnitee; and all costs and expenses of such proceedings and the amount of any judgment shall be paid by the Indemnitor. If the Indemnitee desires to participate in, but not control, any such defense or settlement, it may do so at its sole cost and expense. If the Indemnitor has disputed the Claim, as provided above, and shall not defend such Claim, the Indemnitee shall have the right to control the defense or settlement of such Claim, in its sole discretion, and shall be reimbursed by the Indemnitor for its reasonable costs and expenses of such defense if it shall thereafter be found that such Claim was subject to indemnification by the Indemnitor hereunder. (ii) Non-Third Party Claims. In the event that the Indemnitee has or may have a Claim for indemnification hereunder which does not involve a Claim being asserted against it or sought to be collected by a third party, the Indemnitee shall promptly send a Claim Notice with respect to such Claim to the Indemnitor. If the Indemnitor does not notify the Indemnitee within the Notice Period that it disputes such Claim, the Indemnitor shall pay the amount thereof to the Indemnitee. If the Indemnitor disputes the amount of such Claim, the liability of the Indemnitor shall be determined under the rules of dispute resolution and arbitration established at paragraph [14(o)] hereafter. 12. Documents at Closing. Upon the Closing Date, the following transactions shall occur, all of such transactions being deemed to occur simultaneously: (a) the Acquiree and Acquiree Shareholders will deliver, or cause to be delivered, to the Acquiror and RCM the following: (i) stock certificates for the Acquiree Shares being surrendered hereunder, duly endorsed with stock powers attached in blank; (ii) all corporate records of the Acquiree, including without limitation corporate minute books (which shall contain copies of the Articles of Incorporation and Bylaws, as amended to the Closing Date), stock books, stock transfer books, corporate seals; and such other corporate books and records as may reasonably be requested by the Acquiror and its counsel; (iii) a certificate executed by the Acquiree and the Acquiree Shareholders to the effect that all representations and warranties made by the Acquiree and Acquiree Shareholders under this Agreement are true and correct in all material respects as of the Closing Date, as though originally given to Acquiror on said date; (iv) a certificate and such related schedules and financial statements prepared and executed by the Chief Financial Officer of 32 \PHILA2\63461_6 Acquiree and executed by Acquiree Shareholders evidencing compliance with the financial covenants set forth at paragraph 6(s)(xi) herein. (v) a certificate of good standing for the Acquiree from the Secretary of the Commonwealth of Pennsylvania, dated at or about the Closing Date, to the effect that such corporation is in good standing under the laws of such state; (vi) an incumbency certificate for the Acquiree signed by all of the officers thereof dated at or about the Closing Date; (vii) certified Articles of Incorporation of the Acquiree dated at or about the Closing Date and a copy of the Bylaws of the Acquiree certified by the Secretary of the Acquiree dated at or about the Closing Date; (viii) certified resolutions from the Secretary of the Acquiree dated at or about the Closing Date authorizing the transactions contemplated under this Agreement; (ix) resignations of all directors and executive officers, including Robert Starer, Joseph Marubbio and James Affleck. (x) the Registration Rights Agreement described in Exhibit "B" signed by each of the Acquiree Shareholders; (xi) the Voting Trust Agreement described in Exhibit "C", signed by each of the Acquiree Shareholders and the voting trustee; (xii) the Investor Representation Letter described in Exhibit "D" signed by each of the Acquiree Shareholders; (xiii) the Pledge Agreement described in Exhibit "E" signed by each of the Acquiree Shareholders; (xiv) such documents as may be needed to accomplish the Merger under the corporate laws of the states of incorporation of the Acquiror and Acquiree; (xv) such other instruments, documents and certificates, if any, as are required to be delivered pursuant to the provisions of this Agreement or that may be reasonably requested in furtherance of the provisions of this Agreement; and (xvi) an opinion of counsel in form and substance satisfactory to RCM and the Acquiror. (b) the Acquiror will deliver or cause to be delivered to the Acquiree Shareholders: 33 \PHILA2\63461_6 (i) cash or separate cashier's check drawn on a bank located in Philadelphia, Pennsylvania in an aggregate amount equal to Two Million Dollars ($2,000,000); (ii) a certificate of the Acquiror's and RCM's President to effect that all representations and warranties of the Acquiror and RCM under this Agreement are reaffirmed on the Closing Date, as though originally given to the Acquiree and the Acquiree Shareholders on said date; (iii) certificates from the Secretary of State of Nevada and the Commonwealth of Pennsylvania dated at or about the Closing Date that RCM and the Acquiror, respectively, are in good standing under the laws of said states; (iv) certified resolutions of the Secretary of the Acquiror dated at or about the Closing Date authorizing the transactions contemplated under this Agreement; (v) an opinion of counsel in form and substance satisfactory to the Acquiree and the Acquiree Shareholders; (vi) such documents as may be needed to accomplish the Merger under the corporate laws of the states of incorporation of the Acquiror and Acquiree; (vii) the Articles of Merger to be filed with the Secretary of State of the Commonwealth of Pennsylvania as required under Section 1926 of the PBCL; and (viii) such other instruments, documents and certificates, if any, as are required to be delivered pursuant to the provisions of this Agreement, or that may be reasonably requested in furtherance of the provisions of this Agreement. (c) The Acquiror shall cause to be filed with the Secretary of State of the Commonwealth of Pennsylvania, on the Closing Date or as soon thereafter as practicable, an Amendment to the Acquiror's Articles of Incorporation to change the name of the Acquiror to "Cataract, Inc." 13. Termination. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Closing Date: (a) by mutual written consent of the board of directors of RCM, Acquiror and Acquiree; (b) by any of RCM, Acquiror and Acquiree: (i) if the Merger shall not have occurred by the Closing Date unless such date is extended by the mutual written agreement of RCM, 34 \PHILA2\63461_6 Acquiror and Acquiree, and in such event, only until the date the Closing Date has been so extended; provided, however, that the right to terminate this Agreement under this Section 12(b)(i) shall not be available to any party whose failure to fulfill any obligation under this Agreement has been the cause of,or resulted in, the failure of the Closing Date to occur on or before that date; or (ii) if any court of competent jurisdiction, or any governmental body, regulatory or administrative agency or commission having appropriate jurisdiction shall have issued an order, decree or filing or taken any other action restraining, enjoining or otherwise prohibiting the transactions contemplated by this Agreement and such order, decree, ruling or other action shall have become final and non-appealable. (c) by either of RCM or Acquiror upon a breach of this Agreement by either Acquiree or Acquiree Shareholders, which breach continues for ten (10) days after written notice thereof is given to all parties, or by either of Acquiree or any Acquiree Shareholder, upon a breach of this Agreement by either of RCM or Acquiror, which breach continues for ten (10) days after written notice thereof is given to all parties, in each case with reservation of rights against the breaching party or parties for indemnification for resulting damages as provided elsewhere herein. 14. Notices. All notices or other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given if delivered in person or sent by overnight delivery, confirmed telecopy or prepaid first class registered or certified mail, return receipt requested, to the following addresses, or such other addresses as are given to the other parties to this Agreement in the manner set forth herein: (a) If to the Acquiror or RCM, to: Mr. Leon Kopyt Chief Executive Officer RCM Technologies, Inc. 2500 McClellan Avenue, Suite 350 Pennsauken, New Jersey 08109-4613 with a courtesy copy to; Stephen M. Cohen, Esq. Clark Ladner Fortenbaugh & Young One Commerce Square 2005 Market Street Philadelphia, Pennsylvania 19103 Telephone Number: (215) 241-1800 Telecopy Number: (215) 241-1857 and 35 \PHILA2\63461_6 Norman Berson, Esquire Fineman & Bach, P.C. 1608 Walnut Street Philadelphia, PA 19103 (b) If to the Acquiree Shareholders, to: Robert L. Starer and Merle A. Starer 660 Newton-Yardley Road Newtown, PA 18940 and 6555 Skyline Drive Delray Beach, FL 33446 Joseph A. Marubbio and Paula Marubbio 12 North Road Northport, NY 11768 James R. Affleck, Jr. and Sarah B. Affleck 948 Stony Lake Gladwyne, PA 19035 36 \PHILA2\63461_6 (c) If to the Acquiree, to: Cataract, Inc. c/o Robert L. Starer 660 Newtown Yardley Road Newtown, PA 18940 Telephone Number: (215) 968-8808 with a courtesy copy to: John E. Murdock III Boult, Cummings, Conners & Berry P.O. Box 198062 414 Union Street, Suite 1600 Nashville, TN 37219 Telephone Number: (615) 252-2359 Telecopier Number: (615) 252-2380 Any such notices shall be effective when delivered in person or sent by telecopy, one business day after being sent by overnight delivery or three business days after being sent by registered or certified mail. Any of the foregoing addresses may be changed by giving notice of such change in the foregoing manner, except that notices for changes of address shall be effective only upon receipt. 15. Miscellaneous. (a) Release and Discharge. By virtue of their execution of this Agreement, as of the Closing Date and thereafter, the Acquiree Shareholders do hereby jointly and severally agree to release, remise and forever discharge Acquiree from and against any and all debts, obligations, liabilities and amounts owing from the Acquiree to the Acquiree Shareholders, except for Permitted Dividends, and the Acquiree is not obligated to take any action or make any payments to third parties on behalf of any such Acquiree Shareholder. Additionally, as of the Closing Date, the Acquiree agrees to release, remise and forever discharge Acquiree Shareholders from and against any and all debts, obligations, liabilities and amounts owing from the Acquiree Shareholders to the Acquiree, only to the extent such release and discharge does not conflict with any of the representations and warranties contained in Section 4 of this Agreement. (b) Further Assurances. At any time, and from time to time, after the Closing Date, each party will execute such additional instruments and take such further action as may be reasonably requested by the other party to confirm or perfect title to any property transferred hereunder or otherwise to carry out the intent and purposes of this Agreement. (c) Nature of Representations and Warranties. All of the parties hereto are executing and carrying out the provisions of this Agreement 37 \PHILA2\63461_6 in reliance on the representations, warranties, covenants and agreements contained in this Agreement or at the Closing of the transactions herein provided for, and any investigation that they might have made or any other representations, warranties, covenants, agreements, promises or information, written or oral, made by the other party or parties or any other person shall not be deemed a waiver of any breach of any such representation, warranty, covenant or agreement. (d) Costs and Expenses. Each party hereto agrees to pay its own costs and expenses incurred in negotiating this Agreement and consummating the transactions described herein. (e) Time. Time is of the essence. (f) Survival of Representations. All covenants, agreements, representations and warranties made herein shall survive the Closing Date through all applicable statutes of limitation. All covenants and agreements by or on behalf of the parties hereto that are contained or incorporated in this Agreement shall bind and inure to the benefit of the successors and assigns of all parties hereto. (g) Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof. It supersedes all prior negotiations, letters and understandings relating to the subject matter hereof. (h) Amendment. This Agreement may not be amended, supplemented or modified in whole or in part except by an instrument in writing signed by the party or parties against whom enforcement of any such amendment, supplement or modification is sought. (i) Assignment. This Agreement may not be assigned by any party hereto without the prior written consent of the other parties. (j) Choice of Law. This Agreement shall be interpreted, construed and enforced in accordance with the laws of the Commonwealth of Pennsylvania. (k) Headings. The section and subsection headings in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this agreement. (l) Pronouns. All pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, neuter, singular or plural as the context may require. (m) Number and Gender. Words used in this Agreement, regardless of the number and gender specifically used, shall be deemed and construed to 38 \PHILA2\63461_6 include any other number, singular or plural, and any other gender, masculine, feminine or neuter, as the context indicates is appropriate. (n) Construction. The parties hereto and their respective legal counsel participated in the preparation of this Agreement; therefore, this Agreement shall be construed neither against nor in favor of any of the parties hereto, but rather in accordance with the fair meaning thereof. (o) Effect of Waiver. The failure of any party at any time or times to require performance of any provision of this Agreement will in no manner affect the right to enforce the same. The waiver by any party of any breach of any provision of this Agreement will not be construed to be a waiver by any such party of any succeeding breach of that provision or a waiver by such party of any breach of any other provision. (p) Severability. The invalidity, illegality or unenforceability of any provision or provisions of this Agreement will not affect any other provision of this Agreement, which will remain in full force and effect, nor will the invalidity, illegality or unenforceability of a portion of any provision of this Agreement affect the balance of such provision. In the event that any one or more of the provisions contained in this Agreement or any portion thereof shall for any reason be held to be invalid, illegal or unenforceable in any respect, this Agreement shall be reformed, construed and enforced as if such invalid, illegal or unenforceable provision had never been contained herein. (q) Arbitration. (i) If a dispute,controversy or claim arises between any of the parties to this Agreement including without limitation any dispute, controversy or claim that arises out of or relates to this Agreement or any other agreement or instrument between the parties, or the breach, termination or invalidity of the Agreement or any such other agreement or instrument, AND including but not limited to a claim based on or arising out of a claim for tortious interference or other tortious or statutory claims arising before, during or after termination, and if said dispute cannot be settled through direct discussions, the parties agree to first endeavor to settle the dispute in an amicable manner by mediation administered by the American Arbitration Association under its Commercial Mediation Rules, before resorting to arbitration; provided, that nothing contained herein shall preclude any party from commencing arbitration if said mediation is not completed within 30 days of such party requesting or agreeing to mediation. Thereafter, any unresolved dispute, controversy or claim arising between the parties, including without limitation any dispute, controversy or claim that arises out of or relates to this Agreement or any other agreement or instrument between the parties, or breach thereof, AND including but not limited to a claim for tortious interference or other tortious or statutory claims arising before, during or after termination, shall be settled by arbitration administered by the American Arbitration Association in accordance with its Commercial Arbitration 39 \PHILA2\63461_6 Rules (the "Rules"), and judgment upon any award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof. Any mediation or arbitration hereunder shall be pursuant to the applicable rules of the American Arbitration Association as set out above except to the extent expressly provided otherwise in this Agreement. (ii) The parties hereto expressly agree that any court with jurisdiction may order the consolidation of any arbitrable dispute,controversy or claim under this Agreement with any related arbitrable dispute, controversy or claim not arising under this Agreement, as the court may deem necessary int he interests of justice or efficiency or on such other grounds as the court may deem appropriate. (iii) The site of the mediation and, if necessary, the arbitration shall be in Philadelphia, Pennsylvania and shall take place in the officers of the American Arbitration Association or such other place as the parties may agree. (iv) The parties agree that the Federal and state courts located in the Commonwealth of Pennsylvania shall have exclusive jurisdiction over an action brought to enforce the rights and obligations created in or arising from this Agreement to arbitrate, and each of the parties hereto irrevocably submits to the jurisdiction of said courts. Notwithstanding the above, application may be made by a party to any court of competent jurisdiction wherever situated for enforcement of any judgment and the entry of whatever orders are necessary for such enforcement. (v) Process in any action arising out of or relating to this Agreement may be served on any party to the Agreement anywhere in the world by delivery in person against receipt or by registered or certified mail, return receipt requested. (vi) Neither party nor the arbitrators may disclose the existence, content, or results of any arbitration hereunder without the prior written consent of both parties. (vii) The parties agree that all questions concerning the arbitrator's jurisdiction shall be decided by the arbitrator. (viii) All fees and expenses of the arbitration (exclusive of filing fees for claims and counterclaims) shall be borne by the parties equally. Each party shall bear the expense of its own counsel, experts, witnesses, and presentation of proofs. (ix) This agreement to arbitrate is intended to be binding upon the signatories hereto, their principals, successors, assigns, subsidiaries or affiliates. 40 \PHILA2\63461_6 (x) The arbitrator shall determine the rights and obligations of the parties according to the substantive laws of the Commonwealth of Pennsylvania (excluding conflicts of laws principles). (xi) The arbitrator is directed to consider any defense that all or part of the claim is not timely by reason of laches or statute of limitations as a preliminary issue and to render an award determining the merits of such claim before considering the substantive merits of the arbitration claim, unless the arbitrator determines that the merits of such claim or laches or statute of limitations is so intertwined with the substantive merits of the arbitration claim as to make impractical the determination of the claim of laches or limitations as a preliminary matter. (xii) The arbitrator shall hear and determine any preliminary issue of law asserted by a party to be dispositive of any claim, in whole or part, in the manner of a court hearing a motion to dismiss for failure to state a claim or for summary judgment, pursuant to such terms and procedures as the arbitrator deems appropriate. (xiii) It is the intent of the parties that, barring extraordinary circumstances, any arbitration shall be concluded within three months of the date the statement of claim is received by the arbitrator. Unless the parties otherwise agree, once commenced, hearings shall be held five days a week, four weeks a month, with each hearing day to begin at 9:00 A.M. and to conclude at 5:00 P.M. These time limits can be extended or altered by an agreement by the parties or by a determination by the arbitrator that such extension or alteration is in the interests of justice. The arbitrator shall use his or her best efforts to issue the final award or awards within a period of thirty days after closure of the proceedings. Failure to do so shall not be a basis for challenging the award. (xiv) The procedures to be followed in any arbitration hereunder shall be as prescribed herein and in such directives that shall be issued by the arbitrator following consultation with the parties. Unless otherwise agreed by the parties, the procedures shall provide for the submission of briefs by the parties the introduction of documents and the oral testimony of witnesses, cross-examination of witnesses, oral arguments, the closure of the proceedings and such other matters as the arbitrator may deem appropriate. Further, the arbitrator shall regulate all matters relating to the conduct of the arbitration not otherwise provided for in this Agreement or in the Rules. (xv) In the event a party, having been given notice and opportunity, shall fail or shall refuse to appear or participate in an arbitration hereunder or in any stage thereof, the proceedings shall nevertheless be conducted to conclusion and final award. Any award rendered under such circumstances shall be as valid and enforceable as if both parties had appeared and participated fully at all stages. 41 \PHILA2\63461_6 (xvi) The parties agree that discovery shall be limited and shall be handled expeditiously. Discovery procedures available in litigation before the courts shall not apply in an arbitration conducted pursuant to this Agreement. However, each party shall produce relevant and non-privileged documents or copies thereof requested by the other parties within the time limits set and to the extent required by order of the arbitrator. All disputes regarding discovery shall be promptly resolved by the arbitrator. (xvii) It is the intent of the parties that the testimony of witnesses be subject to cross-examination. It is agreed that the direct testimony of a witness may be submitted by sworn affidavit, provided that such affiant be subject to cross-examination. (xviii) Strict rules of evidence shall not apply in an arbitration conducted pursuant to this Agreement. The parties may offer such evidence as they desire and the arbitrator shall accept such evidence as the arbitrator deems relevant to the issues and accord it such weight as the arbitrator deems appropriate. (xix) No witness or party may be required to waive any privilege recognized by law. (r) Binding Nature. This Agreement will be binding upon and will inure to the benefit of any successor or successors of the parties hereto. (s) No Third-Party Beneficiaries. No person shall be deemed to possess any third-party beneficiary right pursuant to this Agreement. It is the intent of the parties hereto that no direct benefit to any third party is intended or implied by the execution of this Agreement. (t) Counterparts. This Agreement may be executed in one or more counterparts, each of which will be deemed an original and all of which together will constitute one and the same instrument. (u) Facsimile Signature. This Agreement may be executed and accepted by facsimile signature and any such signature shall be of the same force and effect as an original signature. (v) Prohibition on Trading in RCM Stock. The Acquiree and Acquiree Shareholders acknowledge that the United States Securities Laws prohibit any person who has received material non-public information concerning the matters which are the subject matter of this Agreement from purchasing or selling the securities of the Acquiror, or from communicating such information to any person under circumstances in which it is reasonably foreseeable that such person is likely to purchase or sell securities of the Acquiror. Accordingly, the Acquiree Shareholders agree that they will not purchase or sell any securities of the Acquiror, or communicate such information to any other person under circumstances in which it is reasonably foreseeable that such person is likely to purchase or sell securities of the 42 \PHILA2\63461_6 Acquiror, until no earlier than 72 hours following the dissemination of a Current Report on Form 8-K to the SEC announcing the Closing pursuant to this Agreement. 43 \PHILA2\63461_6 IN WITNESS THEREOF, the parties have executed this Agreement on the date first above written. RCM TECHNOLOGIES, INC. ATTEST By:/s/STANTON REMER By: /S/LEON KOPYT Secretary Name:LEON KOPYT Title:PRESIDENT CI ACQUISITION CORP. ATTEST By:/S/STANTON REMER By:/S/ LEON KOPYT Secretary Name:LEON KOPYT Title: PRESIDENT 44 \PHILA2\63461_6 CATARACT, INC. ATTEST By: /S/JAMES R/ AFFLECK, JR By:/S/ ROBERT L.STARER Secretary Name:ROBERT L. STARER Title: CHAIRMAN OF BOARD /S/ JOSEPH A. MARUBBIO Joseph A. Marubbio /S/ PAULA A. MARUBBIO Paula Marubbio /S/ ROBERT L. STARER Robert L. Starer /S/ MERLE A. STARER Merle A. Starer /S/ JAMES R. AFFLECK, JR James R. Affleck, Jr. /S/ SARAH B. AFFLECK Sarah B. Affleck 45 EX-4 3 REGISTRATION RIGHTS AGREEMENT \PHILA2\63539_1 REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement is dated as of _August 30,--------, 1995 by and among RCM Technologies, Inc., a Nevada corporation (the "Company") and the Shareholders of Cataract, Inc., a Pennsylvania corporation, listed on Schedule "A" attached hereto and made a part hereof (the "Holders"). W I T N E S S E T H: WHEREAS, the Company and Holders are parties to a Merger Agreement as of even date herewith pursuant to which Cataract, Inc. has elected to effectuate a merger with a newly formed subsidiary of the Company (the "Merger"); WHEREAS, pursuant to the Merger, the Holders are to receive certain shares of the Company's Common Stock; WHEREAS, the parties hereto desire to set forth their agreement concerning the registration of the Company's common stock under the Securities Act of 1933, as amended. NOW, THEREFORE, the parties hereto agree as follows: AGREEMENT 1. Definitions. (a) "Company" shall mean RCM Technologies, Inc. (b) "Holders" shall mean the former shareholders of Cataract, Inc. who have received shares of the Company's Common Stock pursuant to the Merger. (c) "Merger" shall mean the Merger of Cataract, Inc. into CI Acquisition Corp., a newly formed, wholly-owned subsidiary of the Company pursuant to the terms of a Merger Agreement (the "Merger Agreement") entered into on even date herewith. (d) "Restricted Stock" shall mean the Common Stock of the Company that have been distributed to the Holders pursuant to the Merger. (e) "Securities Act" shall mean the Securities Act of 1933, as amended, or any similar or successor federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at any relevant time. (f) "SEC" shall mean the United States Securities and Exchange Commission. Capitalized terms used through this Registration Rights Agreement shall have the same meaning ascribed thereto in the Merger Agreement. 1 \PHILA2\63539_1 2. Demand Registration. (a) Upon written request from the Holders who own a majority of the Restricted Stock, the Company has agreed, commencing upon the expiration of the three (3) year period of the Merger Agreement, to, as shortly thereafter as is practicable, on one occasion only, prepare and file a Registration Statement with the SEC and use its best efforts to promptly have such Registration Statement declared effective for the purpose of facilitating the public resale of the Restricted Stock. Notwithstanding the above, no request made under this paragraph shall require a Registration Statement requested therein to become effective prior to 180 days after the effective date of a Registration Statement filed by the Company covering an underwritten public offering of Common Stock. (b) Promptly following receipt of any such notice, the Company shall immediately notify any Holders who did not deliver such notice requesting registration and shall register under the Securities Act, for public sale in accordance with the method of disposition specified in such notice from requesting holders making request pursuant to the first sentence of Paragraph 2(a) above, the number of shares of Restricted Stock specified in such notice (and in any notices received from other Holders within 20 days after their receipt of such notice from the Company). If such method of disposition shall be an underwritten public offering, Holders owning a majority of the shares of Restricted Stock to be sold may designate the managing underwriter of such offering, subject to the approval of the Company, which approval shall not be unreasonably withheld. (c) The Company shall be entitled to include in any Registration Statement referred to in subparagraph (a) of this paragraph 2, shares of common stock to be sold by the Company for its own account (or by other holders of common stock, if all shares which the Company wishes to register for its own account have been included), provided, however, that if the registration demanded by the Holders pursuant to paragraph 2(a) is an underwritten registration and the managing underwriter states in writing that the inclusion of shares by the Company or other holders pursuant to this paragraph 2(c) could delay or reduce the price of such offering, then the number of shares that may be included by the Company or the other holders will be cut back to a level deemed satisfactory by the managing underwriter. (d) The Company's obligation in Subparagraphs 2(a) and 2(b) above extends only to the use of the Company's best efforts to register such shares pursuant to a Registration Statement. The Company shall indemnify and hold harmless the Holders and any underwriter or managing underwriter designated by the Holders, to cooperate with such underwriter, pursuant to an underwriting agreement containing usual and customary terms, but shall not be obligated to obtain a commitment from an underwriter relative to the sale of such shares, whether in a public offering or private placement transaction. Furthermore, the Holders so electing to register their shares hereby agree, as a condition precedent to such registration, to provide the Company with a certificate or 2 \PHILA2\63539_1 certificates evidencing compliance with the Securities Act and all applicable rules and regulations thereunder. 3. Registration Procedures. If and whenever the Company is required by the provisions of paragraph (2) hereof to effect the registration of any of the Restricted Stock under the Securities Act, the Company will use its best efforts to: (a) prepare and file with the Commission a Registration Statement with respect to such securities and use its best efforts to cause such Registration Statement to become and remain effective for the period of the distribution contemplated thereby or as required under the Securities Act; (b) prepare and file with the Commission such amendments and supplements to such Registration Statement and the prospectus used in connection therewith as may be necessary to keep such Registration Statement effective for the period specified in Subparagraph 3(a) above and as comply with the provisions of the Securities Act with respect to the disposition of all Restricted Stock covered by such Registration Statement in accordance with the sellers' intended method of disposition set forth in such Registration Statement for such period; (c) furnish to each seller and to each underwriter such number of copies of the Registration Statement and the prospectus included therein (including each preliminary prospectus), as such persons may reasonably request in order to facilitate the public sale or other disposition of the Restricted Stock covered by such Registration Statement; (d) use its best efforts to register or qualify the Restricted Stock covered by such Registration Statement under the securities or blue sky laws of such jurisdictions as the sellers, or, in the case of an underwritten public offering, the managing underwriter shall reasonably request; provided, however, that the Company shall not for any such purpose be required to qualify generally to transact business as a foreign corporation in any jurisdiction where it is not so qualified or to consent to general service of process in any such jurisdiction; (e) immediately notify each seller under such Registration Statement and each underwriter, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus contained in such Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required or necessary to be stated therein in order to make the statements contained there in not misleading in light of the circumstances then existing; (f) make available for inspection by each seller, any underwriter participating in any disposition pursuant to such Registration Statement, and any attorney, accountant or other agent retained by any such 3 \PHILA2\63539_1 seller or underwriter, all financial and other records, pertinent corporate documents and properties of the Company, and cause the Company's officers, directors and employees to supply all information reasonably requested by any such seller, underwriter, attorney, accountant or agent in connection with such Registration Statement; (g) For purposes of Subparagraphs 3(a) and 3(b) above, the period of distribution of Restricted Stock shall be deemed to extend for nine months (120 days in the case of registration on Form S-3) or such earlier date as (A) in an underwritten public offering, each underwriter has completed the distribution of all securities purchased by it; and (B) in any other registration, all shares of Restricted Stock covered thereby shall have been sold; and (h) if the Common Stock of the Company is listed on any securities exchange or automated quotation system, the Company shall use its best efforts to list (with the listing application being made at the time of the filing of such Registration Statement or as soon thereafter as is reasonably practicable) the Restricted Stock covered by such Registration Statement on such exchange or automated quotation system. 4. Expenses. (a) For the purposes of this Paragraph (4), the term "Registration Expenses" shall mean: all expenses incurred by the Company in complying with paragraph (2) of this Agreement, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel and independent public accountants for the Company (other than the expenses of any special audit as described below), fees of the National Association of Securities Dealers, Inc. ("NASD"), fees and expenses of listing shares of Restricted Stock on any securities exchange or automated quotation system on which the Company's shares are listed and fees of transfer agents and registrars. The term "Selling Expenses" shall mean: all underwriting discounts and selling commissions applicable to the sale of Restricted Stock, all accountable or non-accountable expenses paid to any underwriter in respect of the sale of Restricted Stock, the cost of any special (i.e., other than fiscal year-end) audit required by the Securities Act as a result of the Company's obligation to maintain a Registration Statement current for nine months or required by the Securities Act or by the managing underwriter. (b) Except as otherwise provided herein or in subparagraph (c) hereof, the Company will pay all Registration Expenses in connection with the Registration Statement filed pursuant to paragraph (2) of this Agreement. All Selling Expenses in connection with any Registration Statement filed pursuant to paragraph (2) of this Agreement shall be borne by the participating sellers in proportion to the number of shares sold by each, or by such persons other than the Company (except to the extent the Company shall be a seller) as they may agree. 4 \PHILA2\63539_1 (c) Notwithstanding the foregoing provisions of this paragraph (4), in the event that the Company shall receive instructions by the Holders of not less than a majority of the Shares of Restricted Stock as to which registration has been requested pursuant to paragraph (2) of this Agreement that it should not cause such registration to become effective, then unless the Company shall elect to proceed with such registration for the account of the Company and/or other sellers, at the election of such Holders, either: (A) the Registration Expenses that are incurred by and the obligation of the Company in connection with such proposed registration shall be paid by the proposed sellers thereunder, such expenses to be shared pro rata according to the value of the securities requested to be registered, and, in such case, for all purposes of paragraph (2) of this Agreement, such request for registration shall be deemed not to have been made; or (B) the Registration Expenses that are incurred by and the obligation of the Company in connection with such registration shall be paid by the Company and such request for registration shall be deemed to have been effected. (d) In the event that the Company elects to proceed with a registration, which has been subject to an election pursuant to Subparagraph (c) above, for the account of the Company and/or other sellers, the Holders who had requested registration shall only be liable for Registration Expenses specifically attributable to them, such as registration and filing fees in respect of their shares, and, for purposes of paragraph (2) of this Agreement, such holders' request for registration shall be deemed not to have been made. Notwithstanding anything to the contrary set forth herein or in subparagraph (c) above, the Holders will, at all times, be wholly responsible for any and all Selling Expenses relating to such registrations. 5. Obligations of Holder. (a) In connection with each registration hereunder, each selling Holder will furnish to the Company in writing such information with respect to such seller and the securities held by such seller, and the proposed distribution by them as shall be reasonably requested by the Company in order to assure compliance with federal and applicable state securities laws, as a condition precedent to including such seller's Restricted Stock in the Registration Statement. Each selling Holder also shall agree to promptly notify the Company of any changes in such information included in the Registration Statement or prospectus as a result of which there is an untrue statement of material fact or an omission to state any material fact required or necessary to be stated therein in order to make the statements contained there in not misleading in light of the circumstances then existing. (b) In connection with each registration pursuant to paragraph (2) of this Agreement, the Holders included therein will not effect sales thereof until notified by the Company of the effectiveness of the Registration 5 \PHILA2\63539_1 Statement, and thereafter will suspend such sales after receipt of telegraphic or written notice from the Company to suspend sales to permit the Company to correct or update a Registration Statement or prospectus. At the end of any period during which the Company is obligated to keep a Registration Statement current, the Holders included in said Registration Statement shall discontinue sales of shares pursuant to such Registration Statement upon receipt of notice from the Company of its intention to remove from registration the shares covered by such Registration Statement which remain unsold, and such Holders shall notify the Company of the number of shares registered which remain unsold immediately upon receipt of such notice from the Company. 6 \PHILA2\63539_1 6. Miscellaneous Provisions. (a) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania. (b) Counterparts. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. (c) Amendments and Waivers. Except as otherwise provided herein, the provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given without the written consent of the Company and the Holders. (d) Notices. All communications under this Agreement shall be sufficiently given if delivered by hand or by overnight courier or mailed by registered or certified mail, postage prepaid, addressed, (i) if to the Company, to: Mr. Leon Kopyt Chief Executive Officer RCM Technologies, Inc. 2500 McClellan Avenue, Suite 350 Pennsauken, New Jersey 08109-4613 with a copy to: Stephen M. Cohen, Esquire Clark, Ladner, Fortenbaugh & Young One Commerce Square 2005 Market Street, 22nd Floor Philadelphia, PA 19103 or, in the case of the Holders, at such address as each such Holder shall have furnished in writing to the Company; or at such other address as any of the parties shall have furnished in writing to the other parties hereto. (e) Successors and Assigns; Holders as Beneficiaries. This Agreement shall inure to the benefit of and be binding upon the parties and their respective successors and assigns, and the agreements of the Company herein shall inure to the benefit of all Holders and their respective successors and assigns. (f) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. 7 \PHILA2\63539_1 (g) Entire Agreement; Survival; Termination. This Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. Very truly yours, RCM TECHNOLOGIES, INC. By: /s/Leon Kopyt_____ Name:Leon Kopyt Title:President Agreed and accepted this 30th day of August_, 1995: The Holders listed on Schedule A hereto. /s/Joseph A Marubio___________ __/s/Paula A. Marubio_________ Joseph A. Marubbio Paula Marubbio /s/ Robert L. Starer___________ _/s/Merle A. Starer____________ Robert L. Starer Merle A. Starer /s/James R. Affleck, Jr._______ _/s/Sarah A. Affleck___________ James R. Affleck, Jr. Sarah B. Affleck 8 \PHILA2\63539_1 SCHEDULE A List of Shareholders of Cataract, Inc. Joseph A. Marubbio Paula Marubbio Robert L. Starer Merle A. Starer James R. Affleck, Jr. Sarah B. Affleck 9 EX-9 4 VOTING TRUST AGREEMENT \PHILA2\63878_3 VOTING TRUST AGREEMENT This Agreement is entered into as of August 30, 1995, by and among RCM Technologies, Inc., a Nevada corporation (referred to herein as both "Trustee" and "Corporation") and JOSEPH A. MARUBBIO, PAULA MARUBBIO, ROBERT L. STARER, MERLE A. STARER, JAMES R. AFFLECK, JR. and SARAH B. AFFLECK, (the "Shareholders"). WHEREAS, the Shareholders are entitled to shares of the common stock of the Corporation pursuant to a Merger Agreement dated _July 31, __, 1995, among the Corporation, CI Acquisition Corp., Cataract, Inc. and the Shareholders ("Merger Agreement"); and WHEREAS, the Shareholders have agreed to pledge these shares to the Corporation in order to secure the performance of certain obligations under the Merger Agreement; WHEREAS, the terms of this pledge arrangement are covered in a Pledge Agreement dated August 30,___, 1995, among the Shareholders ("Pledge Agreement"); WHEREAS, upon expiration of the Pledge Agreement, the Shareholders have agreed to place the Trust Shares as defined herein, in a Voting Trust upon the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the mutual promises, covenants and conditions set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Shareholders do hereby bind themselves and their heirs, executors, administrators and permitted assigns, and the Trustee does hereby bind itself, and agree as follows: 1. Transfer of Stock to Trustee. Each of the Shareholders hereby agrees to transfer and assign to the Trustee the number of shares of the Corporation's common stock such Shareholder may receive pursuant to the Merger Agreement and upon expiration of the Pledge Agreement (the "Trust Shares"). The Trustee shall hold the Trust Shares for the benefit of the Shareholders under the terms and conditions of this Agreement. 2. Issuance of Voting Trust Certificates. Upon receipt of the certificates representing the Trust Shares, the Trustee shall issue to each of the Shareholders a Voting Trust Certificate, in the form attached hereto as Exhibit "A", for the number of Trust Shares transferred by the Shareholder to the Trustee. The Trustee shall keep a list of all Trust Shares transferred to it hereunder, and a list of all Voting Trust Certificates issued, which records shall include the names and addresses of all Voting Trust Certificate holders and the number of shares represented by each Certificate. 3. Transfer of Voting Trust Certificates. Each Voting Trust Certificate shall be transferable in the same manner as the shares represented by such Certificate would be transferable. However, each Shareholder agrees that during the term of this Agreement they will not sell, transfer or assign any Voting Trust Certificate. 4. Trustee to Vote Stock. The Trustee shall vote the Trust Shares in person or by proxy at all meetings of the Shareholders of the Corporation, and in all proceedings wherein the vote or written consent of Shareholders may be required or authorized by law. The Trustee shall vote the Trust Shares for the election of such directors, and in favor of or against any resolution or proposed action presented at any meeting or requiring the consent of the Corporation's shareholders, in the same manner and in the same proportion as all other votes of the Corporation's common stock which are cast as to that issue. 1 \PHILA2\63878_3 5. Dividends. All cash dividends or other distributions which may accrue as to the Trust Shares shall be paid directly to the Shareholders in proportion to the number of Trust Shares beneficially owned by them as shown on the outstanding Voting Trust Certificates. 6. Term - Release of Trust Shares. The Trust Shares shall be held by the Trust until the earlier of: (i) the public or private sale of such Trust Shares in open market transactions to Unaffiliated Third Parties; or (ii) the resignation, removal from office or if for any other reason Leon Kopyt ceases to serve as Chairman, Chief Executive Officer and President of the Corporation. Notwithstanding the above, one-third of the Trust Shares shall be released from Trust commencing upon the fifth annual anniversary of the date of this Voting Trust Agreement, and thereafter an additional one-third of the Trust Shares shall be released from Trust upon each of the sixth and seventh annual anniversaries of the date of this Voting Trust Agreement. When all of the Trust Shares have been released to the Shareholders in accordance with this Section, this Agreement shall terminate and shall be of no further force or effect. Additionally, this Agreement shall terminate if RCM fails to satisfy its obligations in the manner and to the extent set forth in the Registration Rights Agreement as attached to and made a part of the Merger Agreement. 7. Trustee Not Bound. The Trustee shall not be bound by any waiver, modification, amendment, termination or rescission of this Voting Trust Agreement unless in writing, signed by all of the parties hereto, and further, if the duties or responsibilities of the Trustee hereunder are affected, the Trustee shall not be bound by any waiver, modification or amendment, termination or recision of this Voting Trust Agreement, unless it has given its prior written consent thereto. 8. Cost and Expenses. Any fees, costs or expenses incurred by the Trustee in connection with a dispute arising under this Voting Trust Agreement shall be borne by the prevailing party to such dispute. 9. Filing of Agreement. A copy of this Agreement shall be retained at the registered office of the Corporation in the State of Nevada, and shall be open to the inspection of the Shareholders daily during business hours. A copy of this Agreement shall also be maintained at the principal offices of the Corporation in Pennsauken, New Jersey. 10. Miscellaneous. (a) Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof. It supersedes all prior negotiations, letters and understandings relating to the subject matter hereof. (b) Amendment. This Agreement may not be amended, supplemented or modified in whole or in part except by an instrument in writing signed by the party or parties against whom enforcement of any such amendment, supplement or modification is sought. (c) Governing Law. This Agreement shall be construed in accordance with and governed by the laws of the Commonwealth of Pennsylvania. (d) Counterparts. 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. 2 \PHILA2\63878_3 (e) Binding Effect. The provisions of this Agreement shall be binding upon and inure to the benefit of each of the parties and their respective legal representatives, successors and assigns. (f) Successor Trustee. Upon the death, disability, or resignation of the Trustee, a successor trustee shall be designated and appointed as the successor trustee by the Board of Directors of the Corporation. The parties hereto to this Agreement, agree to take all actions necessary to amend this Voting Trust Agreement in the event that a successor trustee is appointed by the Board of Directors of the Corporation. (g) Dispute Resolution. Any dispute which shall arise hereunder, shall be resolved in accordance and in the manner set forth in Section 15(q) of the Merger Agreement. (h) Definition of Unaffiliated Third Parties. For purposes of the Voting Trust Agreement "Affiliate" means, with respect to any Shareholder, another Person (i) who is an immediate family member of such Shareholder, (ii) in which such Shareholder or any member of the Shareholder's immediate family has an equity interest, in any degree, excepting only that ownership of an aggregate amount of up to five percent (5%) of the equity of a publicly traded Person shall not in itself cause such Person to be an Affiliate of the Shareholder, (iii) of which such Shareholder or any member of the Shareholder's immediate family serves as an executive officer, or (iv) which is Controlled by such Shareholder or by an Affiliate of the Shareholder. A Person is "Controlled by another Person" if the controlling Person has the right to elect a majority of the directors or other members of the governing body of such controlled Person. "Person" means any individual, corporation, partnership, joint venture, association, joint stock company, trust, unincorporated organization, government, any agency or political subdivision thereof, or any other form of entity. "Unaffiliated Third Party" means a Person who is not an Affiliate of the Shareholder. (THIS SPACE LEFT BLANK INTENTIONALLY) 3 \PHILA2\63878_3 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. /s/ Joseph A. Marubbio Joseph A. Marubbio /s/ Paula Marubbio Paula Marubbio /s/ Robert L. Starer Robert L. Starer /s/ Merle A. Starer Merle A. Starer /s/ James R. Affleck, Jr. James R. Affleck, Jr. /s/ Sarah B. Affleck Sarah B. Affleck RCM Technologies, Inc. By:/s/ Leon Kopyt, President (Name, Title) 4 \PHILA2\63878_3 EXHIBIT "A" VOTING TRUST CERTIFICATE RCM TECHNOLOGIES, INC. _______________________________ ______________________________ Voting Trust Certificate Number Number of Shares Represented VOTING TRUST CERTIFICATE THIS CERTIFIES THAT is the legal and beneficial owner of ______ shares of the common stock of RCM Technologies, Inc., a Nevada corporation (the "Corporation"), said shares having been deposited with the undersigned Trustee in accordance with a Voting Trust Agreement entered into by certain Shareholders of the Corporation and the Trustee name hereunder, dated as of __________________ __, 1995, copies of which are filed in the registered office of the Corporation in the State of Nevada and in the Corporation's principal offices in Pennsauken, New Jersey. This Voting Trust Certificate is issued in accordance with the terms of the Voting Trust Agreement and is subject to the provisions thereof. (Trustee) Dated:_________________ By: (Name, Title) 5 EX-99 5 INVESTOR REPRESENTATION CERTIFICATE \PHILA2\63557_1 INVESTOR REPRESENTATION CERTIFICATE [CATARACT SHAREHOLDER] RCM Technologies, Inc. 2500 McClellan Avenue Suite 350 Pennsauken, New Jersey 08109-4613 Gentlemen: This Certificate will acknowledge that in connection with a certain Merger Agreement by and among the undersigned, RCM Technologies, Inc. ("RCM"), CI Acquisition Corp. ("Acquiror") and Cataract, Inc. ("Acquiree") on even date herewith, RCM has agreed to transfer to the undersigned certain shares of its common stock (the "Shares"). This Certificate will further acknowledge that in connection with the transfer of the Shares, the undersigned acknowledges and attests to the following, all of which acknowledgements and attestations have been relied upon by RCM in agreeing to transfer the Shares to the undersigned pursuant to such Merger Agreement: (i) except with respect to the rights granted to the undersigned pursuant to the Registration Rights Agreement also entered into on even date herewith, the Shares are not being registered under the Securities Act of 1933, as amended (the "Act") on the basis of the statutory exemption provided by Section (4)2 thereof, relating to transactions not involving a public offering, and that RCM's reliance on the statutory exemption thereof is based in part on the representations made by the undersigned in this Certificate; (ii) the undersigned acknowledges and represents: (a) that he has reviewed such quarterly, annual and periodic reports of RCM as have been filed with the Securities and Exchange Commission (the "Reports") and that he has such knowledge and experience in financial and business matters that he is capable of utilizing the information set forth therein, concerning RCM to evaluate the risk of investing in RCM; (b) that he has been advised that the Shares to be issued to him by RCM will not be registered under the Act, except as otherwise provided in the Registration Rights Agreement, and accordingly, he may only be able to sell or otherwise dispose of such Shares in accordance with Rule 144 or except as otherwise provided in the Registration Rights Agreement; (c) that the Shares will be held for investment and not with a view to, or for resale in connection with the public offering or distribution thereof; (d) that the Shares so issued will not be sold without registration thereof under the Act (unless the Shares are subject to registration or in the opinion of counsel to the Company an exemption from such registration is available), or in violation of any law; and (e) that Certificate or Certificates representing the Shares to be issued will be imprinted with a legend in form and substance substantially as follows: 1 \PHILA2\63557_1 "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION, OR THE AVAILABILITY OF AN EXEMPTION FROM REGISTRATION, UNDER THE SECURITIES ACT OF 1933, AS AMENDED, BASED ON AN OPINION LETTER OF COUNSEL FOR THE COMPANY OR A NO- ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION. THE CERTIFICATES REPRESENTING THESE SECURITIES ARE SUBJECT TO CERTAIN RESTRICTIONS UPON RESALE AND TO THE TERMS AND PROVISIONS OF A STOCK PLEDGE AGREEMENT DATED August 30___________, 1995. and RCM is hereby authorized to notify its transfer agent of the status of the Shares and to take such other action including, but not limited to, the placing of a "stop-transfer" order on the transfer agent's books and records to assure compliance with the Securities Act of 1933, as amended. (iii) the undersigned has been afforded the opportunity to review and is familiar with the Reports of RCM and has based his decision to invest solely on the information contained therein and has not been furnished with any other literature, prospectus or other information except as included in the Reports; (iv) the undersigned is able to bear the economic risks of an investment in the Shares and he represents and warrants that his overall commitment to his investments which are not readily marketable is not disproportionate to his net worth; (v) (a) he is at least 21 years of age; (b) he has adequate means of providing for his current needs and personal contingencies; (c) he has no need for liquidity in his investment in the Shares; (d) he maintains his domicile and is not a transient or temporary resident at the address shown above; and (e) all of his investments and commitments to non-liquid assets and similar investments are, and after his acquisition of the Shares, will be reasonable in relation to his net worth and current needs; (vi) the undersigned understands that no federal or state agency has approved or disapproved the Shares, passed upon or endorsed the merits of the transfer of the Shares set forth within the Merger Agreement or made any finding or determination as to the fairness of the Shares for investment; and (vii) the undersigned recognizes that the Shares of common stock of RCM are presently eligible for trading on The NASDAQ Stock Market-Small Cap Index, however, that RCM has made no representations, warranties or assurances as to the future trading value of the Shares, whether a public market will continue to exist for the resale of the Shares, or whether the Shares can be sold at a price reflective of past trading history at any time in the future. 2 \PHILA2\63557_1 The undersigned agrees to indemnify and hold harmless RCM, Acquiror and both of their officers, directors and employees from and against any and all loss, damage or liability (including attorney's fees), due to, or arising out of, a breach of any representation or warranty made by the undersigned contained in this Investor Representation Certificate. Furthermore, the undersigned acknowledges that this Investor Representation Certificate constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior or contemporaneous agreements. Furthermore, the representations, warranties and agreements contained herein shall survive delivery of the Shares. IN WITNESS WHEREOF, the undersigned has executed this Investor Representation Certificate on this _30th day of _August________, 1995. _________________________ ________________________________ Witness [Cataract Shareholder] 3 EX-10 6 STOCK PLEDGE AGREEMENT \PHILA2\69790_2 STOCK PLEDGE AGREEMENT THIS STOCK PLEDGE AGREEMENT is made as of this day of , 19 , by and between the undersigned Shareholders of Cataract, Inc., a Pennsylvania corporation (in the aggregate, "Pledgors") and RCM Technologies, Inc., a Nevada corporation and CI Acquisition Corp., a Pennsylvania corporation (in the aggregate, "Pledgee"). W I T N E S S E T H: WHEREAS, Pledgors, as the holders of 100% of the common stock of Cataract, Inc. ("Acquiree"), a Pennsylvania corporation, are parties to a Merger Agreement (the "Merger Agreement") pursuant to which Acquiree has agreed to merge with and into CI Acquisition Corp. ("Acquiror"), a wholly-owned subsidiary of RCM Technologies, Inc. ("RCM"); WHEREAS, pursuant to the Merger Agreement, Pledgors shall upon the Closing Date of the Merger ("Closing Date") receive certain shares of the common stock of RCM (the "Merger Shares"); WHEREAS, Pledgors have assumed certain obligations in the Merger Agreement to provide certain indemnification to RCM and Acquiror as well as assume responsibility for the payment of certain liquidated damages in the event of, among other things, a misrepresentation, breach of representation or warranty or breach of any covenant of Acquiree or Acquiree Shareholders; WHEREAS, in order to induce Acquiror and RCM to enter into the Merger Agreement and consummate the transactions necessary to complete the Merger, Pledgors have agreed to pledge all of their Merger Shares as collateral securities for the prompt satisfaction of all of their respective obligations as Acquiree Shareholders under the Merger Agreement; NOW, THEREFORE, in consideration of the foregoing, the premises herein contained, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Definitions. (a) The term "Allocable Share" as used herein shall mean a fraction, the numerator of which is the number of shares of Pledged Stock owned by a Pledgor, and the denominator of which is the total number of shares of the Pledged Stock owned by all Pledgors. Pledgors who jointly own shares of Pledged Stock shall be regarded jointly as a single Pledgor under this Agreement for the purpose of this definition and for all other purposes in this Agreement where such apportionment would be relevant. (b) The Term "Closing Value Compensating Shares" as used herein shall mean Pledged Stock and, if applicable, other shares of the common stock of RCM, which have an aggregate "valuation" equal to or greater than the amount of a Liquidated Damage Obligation. For this purpose, the "valuation" of the Pledged Stock shall be equal to the "valuation" of the Merger Shares established in Paragraph 2(a) of the Merger Agreement. (c) The term "Indemnity Obligation" as used herein shall mean all of the Obligations of the Acquiree and Acquiree Shareholders to RCM, and/or Acquiror under the Merger Agreement, with the exception of Liquidated Damage Obligations. (d) The term "Liquidated Damage Obligation" as used herein shall mean the Obligations of the Acquiree and Acquiree Shareholders to RCM and/or Acquiror under Paragraph 10.2 of the Merger Agreement. 1 (e) The term "Obligations" as used herein shall mean all of the obligations of the Acquiree and Acquiree Shareholders to RCM and/or Acquiror under the Merger Agreement, including but not limited to those specific obligations under paragraph 6, "Covenants of the Parties to this Agreement," paragraph 10, "Conditions Subsequent" and paragraph 11, "Indemnification." (f) The term "Pledged Stock" as used herein shall mean and include all of the Merger Shares together with all certificates, options, rights or other distributions issued as an addition to, in substitution of or in exchange for, or on account of, any such shares and all proceeds thereof, now or hereafter owned or acquired by Pledgors. (g) Unless otherwise defined or indicated, all capitalized terms utilized in the context of this Stock Pledge Agreement shall have the same definition ascribed thereto in the Merger Agreement. 2. Pledge of Pledged Stock. (a) As collateral security for the prompt satisfaction of all Obligations of Acquiree Shareholders under the Merger Agreement, Pledgors hereby pledge, assign, hypothecate, deliver and set over to Pledgee all of the Pledged Stock and hereby grant Pledgee a lien on and security interest in all of the Pledged Stock and the proceeds thereof. (b) Simultaneous with the execution and delivery of this Stock Pledge Agreement, Pledgors shall deliver the certificates representing the Pledged Stock to Pledgee which shall hold said certificates on its own behalf as secured party under this Stock Pledge Agreement. Pledgors by their execution and delivery hereof expressly acknowledge and agree that such possession by Pledgee shall constitute perfection of the security interest in the stock created hereunder. (c) If Pledgors shall become entitled to receive or shall receive any: (i) Stock certificate, including, but without limitation, any certificate representing a stock dividend or a distribution in connection with any increase or reduction of capital, reclassification, merger, consolidation, sale of assets, combination of shares, stock split, spin-off or split-off; (ii) Option or right, whether as an addition to or in substitution of or in exchange for any shares of the Pledged Stock, or otherwise; (iii) Dividends payable in cash or property, including securities issued by a party other than the issuer of the Pledged Stock; or (iv) Dividends of distributions on dissolution, or in partial or total liquidation, or from capital, capital surplus, or paid-in surplus, then, Pledgors shall accept all such funds instruments or distributions as Pledgee's agent, shall receive same in trust for Pledgee and shall deliver same forthwith to Pledgee in the exact form received with, as applicable, Pledgors' endorsement when necessary or appropriate stock powers duly executed in blank, to be held by Pledgee, subject to the terms hereof, as further collateral security for the Obligations. 3. Voting Rights. During the term hereof, Pledgee or its nominee shall have the right to exercise all voting rights with respect to the Pledged Stock and shall likewise have the right to exchange, at its discretion, any or all of the Pledged Stock upon the merger, consolidation, reorganization, recapitalization or other readjustment of the issuer thereof, or upon the exercise by such issuer of any right, privilege or option pertaining to any of the Pledged Stock, and, in connection therewith, to deposit and deliver any and all of the Pledged Stock with any committee, depository, transfer agent, registrar or other designated agency upon such terms and conditions as it may determine, all without liability except to account for property actually received by it; but Pledgee shall have no duty to exercise any of the aforesaid rights, privileges or options and shall not be responsible for any failure to do so or delay in so doing. At all times during the term hereof, any or all of the Pledged Stock held by Pledgee hereunder may, at the option of Pledgee, be registered in Pledgee's name or in the name of its nominee, and Pledgors hereby covenant that, upon demand therefor by Pledgee, Pledgors will cause the issuer of the Pledged Stock to effect such registration. 4. Default in the performance of the Obligations of Pledgors as Acquiree Shareholders. (a) Nonrecourse Obligation to Pay Liquidated Damage Obligations. (i) Should Pledgors, as Acquiree Shareholders, incur a Liquidated Damage Obligation, Pledgee shall give Pledgors written notice of the amount due and the basis of calculating such amount. Within thirty (30) days after receipt of such notice, each Pledgor shall give written notice to Pledgee of an election to satisfy that Pledgor's Allocable Share of this obligation by either (x) payment in cash, or (y) the conveyance to Pledgee of Closing Value Compensating Shares. (ii) If a Pledgor elects to pay the Pledgor's Allocable Share of the Liquidated Damages Obligation in cash, the cash payment shall be made in immediately available funds within the said thirty (30) day period. Concurrently with receipt of such payment by a Pledgor, all of that Pledgor's Pledged Stock shall be released to the Pledgor by the Pledgee. (iii) If a Pledgor elects to pay the Pledgor's Allocable Share of the Liquidated Damages Obligation by the conveyance of Closing Value Compensating Shares, Pledgor shall deliver to Pledgee an executed Absolute Assignment of Shares within the said thirty (30) day period. (iv) If a Pledgor fails to elect and perform under options 4(a)(i)(x) or (y) above within the required time, then and in that event, if such default continues, Pledgee may, as its exclusive remedy, upon ten (10) days prior written notice to Pledgors, but without any further demand of performance or other demand, advertisement or further notice of any kind to or upon Pledgors or any other person (all and each of which demands, advertisements and notices are, to the extent permitted by law, hereby expressly waived), forthwith collect, receive, appropriate and realize upon the Pledged Stock owned by such Pledgor, or any part thereof, and may forthwith sell, assign, give an option or options to purchase, contract to sell or otherwise dispose of and deliver the Pledged Stock, or any part thereof, in one or more parcels at public or private sale or sales, at any exchange, broker's board or at any of Pledgee's offices or elsewhere at such prices and on such terms (including, but without limitation, a requirement that any purchaser of all or any part of the Pledged Stock purchase the shares constituting the Pledged Stock for investment and without any intention to make a distribution thereof) as it may deem best, for cash or on credit, for future delivery without assumption of any credit risk, with the right to Pledgee or any purchaser upon any such sale or sales, public or private, to purchase the whole or any part of the Pledged Stock so sold free of any right or equity of redemption in Pledgors, which right or equity is hereby expressly waived and released. No Pledged Stock belonging to any Pledgor shall be disposed of pursuant to this subparagraph 4(a)(iv) on account of the failure of any other Pledgor to elect and perform under options 4(a)(i)(x) or (y) above. (v) Notwithstanding the provisions of subparagraphs (i), (ii), (iii) or (iv) above, in the event a Liquidated Damages Obligation arises, and to the extent that Pledgee realizes upon the Pledged Stock under subparagraph 4(a)(iv) above in order to secure repayment of such Liquidated Damages Obligation, then, and in that event, to the extent that the number of shares of Pledged Stock being held by Pledgee are less than the number of Closing Value Compensating Shares applicable to that Liquidated Damages Obligation, then, and in that event, Acquiree Shareholders (with the exception of the Afflecks) shall have an obligation to secure, in market transactions or otherwise, and transfer to Pledgee, a sufficient number of shares of common stock of RCM so as to vest in Pledgee sufficient shares of RCM common stock which when added to the Pledged Stock shall be sufficient to equal such number of shares. (vi) Notwithstanding any other provision of this Agreement, of the Merger Agreement, or of any other document, the liability of Pledgors hereunder and as Acquiree Shareholders under the Merger Agreement shall be limited, only as respects any Liquidated Damages Obligation, to the recourse provided in this paragraph 4, and no judgment or decree shall be sought or obtained against any Pledgor for the satisfaction of a Liquidated Damages Obligation, excepting only that Pledgee may seek and obtain a judgment for damages against Pledgors resulting from the breach of an obligation to "cover" shortfalls in the number of shares included in the Pledged Stock under subparagraph 4(a)(vi) hereof. (b) Recourse Obligation to Pay Indemnity Obligations. (i) Should Pledgors, as Acquiree Shareholders, incur an Indemnity Obligation to Pledgee, Pledgee shall give Pledgors written notice of the amount due and the basis of calculating such amount. (ii) If a Pledgor fails to elect and perform under subparagraph (i) above within the required time, then and in that event, if such default continues, Pledgee may, in addition to any other available remedy, upon ten (10) days prior written notice to Pledgors, but without any further demand of performance or other demand, advertisement or further notice of any kind to or upon Pledgors or any other person (all and each of which demands, advertisements and notices are, to the extent permitted by law, hereby expressly waived), forthwith collect, receive, appropriate and realize upon the Pledged Stock or any part thereof and may forthwith sell, assign, give an option or options to purchase, contract to sell or otherwise dispose of and deliver the Pledged Stock or any part thereof, in one or more parcels at public or private sale or sales, at any exchange, broker's board or at any of Pledgee's offices or elsewhere at such prices and on such terms (including, but without limitation, a requirement that any purchaser of all or any part of the Pledged Stock purchase the shares constituting the Pledged Stock for investment and without any intention to make a distribution thereof) as it may deem best, for cash or on credit, for future delivery without assumption of any credit risk, with the right to Pledgee or any purchaser upon any such sale or sales, public or private, to purchase the whole or any part of the Pledged Stock so sold free of any right or equity of redemption in Pledgors, which right or equity is hereby expressly waived and released. Notwithstanding any other provision hereof, in the event of a disposition of Pledged Stock arising from the failure of any Pledgor to otherwise satisfy such Shareholder's Allocable Share of any Obligation, the Pledged Stock of that Pledgor shall be disposed of prior to the disposition of Pledged Stock owned by any other Pledgors. (c) Application of Proceeds. The proceeds of any collection, recovery, receipt, appropriation, realization or sale as aforesaid shall be applied as follows: (i) First, to the costs and expenses of every kind (including without limitation reasonable attorney's fees) incurred in connection therewith or incidental to the care, safekeeping or otherwise of any of the Pledged Stock or in any way relating to the rights of Pledgee hereunder, (ii) Second, to the satisfaction of the Obligations; and (iii) Third, to Pledgors to the extent of the surplus proceeds, if any. In the event that the proceeds of any collection, recovery, receipt, appropriation, realization or sale as aforesaid are insufficient to satisfy all Obligations, Pledgors will be liable for the deficiency, together with interest thereon at 12% per annum and the costs and reasonable expenses (including attorneys' fees) incurred by Pledgee associated with its efforts to collect such deficiency. (d) Notice. Pledgee need not give more than ten (10) days' written notice of the time and place of any public sale or of the time after which a private sale may take place, and such notice shall be deemed to be reasonable notification of such matters. (e) Further Actions Upon Default. Notwithstanding anything to the contrary contained herein, upon the occurrence of a default by the Acquiree Shareholders upon any of their Obligations contained in the Merger Agreement, which default would entitle Pledgee to exercise its rights under subparagraphs 4(a)(iv) or 4(b)(ii) hereof, Pledgee in its sole discretion shall be entitled to, without notice hereunder, cause the Pledged Stock to be transferred into its name, into the name of any purchaser, its nominee, to dispose of the Pledged Stock, to realize upon any and all rights in the Pledged Stock then held by Pledgee, or to otherwise take any actions with respect to the Pledged Stock. Except to the extent otherwise prohibited by applicable law, in addition to any rights or remedies available in law or equity and in addition to the provisions contained in any other agreement relating to the Pledged Stock, Pledgee shall not be required to marshal the Pledged Stock or any other security for or guarantee of the Obligations of Pledgors or to resort to the Pledged Stock or any other security or guaranty in any particular order and all of Pledgee's rights hereunder and under any other agreements directly or indirectly related thereto shall be cumulative. Furthermore, Pledgors do hereby agree to execute and deliver, or cause to be executed and delivered such instruments, documents, assignments, waivers, certificates, and affidavits and supply or cause to be supplied such further information and take such further action as Pledgee shall require in connection with any such transfer or sales of the Pledged Stock. However, failure of Pledgors to cooperate in executing, delivering or causing to be executed and delivered, such instruments, documents, assignments and the like, shall not hereby affect the rights of Pledgee to act upon or otherwise cause the Pledged Stock to be transferred, sold, disposed of hereunder. 5. Representations and Warranties. Pledgors do hereby jointly and severally represent and warrant that: (a) They have all requisite power and authority to enter into this Agreement, to pledge the Pledged Stock for the purposes described herein, and to carry out the transactions contemplated by this Stock Pledge Agreement and in the Merger Agreement; (b) They are the legal and beneficial owners of all of the Pledged Stock; (c) The shares of the Pledged Stock constitute all of the issued and outstanding shares of the issuer thereof owned or record by, beneficially owned by, or owned in trust for Pledgors; (d) All of the shares of the Pledged Stock have been duly and validly issued, are fully paid and nonassessable and are owned by Pledgors free and clear of any pledge, mortgage, hypothecation, lien, charge, encumbrance or any security interest in such shares or the proceeds thereof, except for the security interest granted to Pledgee hereunder and except for any restrictions upon resale that may exist under applicable federal or state securities laws; (e) The execution, delivery and performance by Pledgors of this Stock Pledge Agreement and the Merger Agreement will not result in any violation of Pledgors' certificates of incorporation or by-laws (if any of Pledgors are corporations), or constitute a default under the terms of any agreement, indenture or other instrument, license, judgement, decree, order, law, statute, ordinance or other governmental rule or regulation applicable to Pledgors or any of their property; and (f) Upon delivery of the Pledged Stock to Pledgee or an agent for Pledgee, this Stock Pledge Agreement creates and grants a valid first lien on and perfected security interest in the Pledged Stock and the proceeds thereof, subject to no prior security interest, lien, charge or encumbrance, or to any agreement purporting to grant to any third party security interest in the Property or assets of Pledgors which would include the Pledged Stock. 6. Covenants of Pledgors. (a) Pledgors hereby covenant that, until all Obligations shall be satisfied in full, they will not sell, convey, or otherwise dispose of any of the Pledged Stock or any interest therein; nor will Pledgors create, incur or permit to exist any pledge, mortgage, lien, charge, encumbrance or any security interest whatsoever with respect to any of the Pledged Stock or the proceeds thereof other than that created hereby. (b) Pledgors warrant and will, at their own expense, defend Pledgee's right, title, and security interest in and to the Pledged Stock against the claims of any other person, firm, corporation or other entity. (c) Pledgors acknowledge that a breach of any of the covenants contained in Paragraph 6(a) above may cause irreparable injury to Pledgee; that Pledgee will be so injured and, as a consequence, that Pledgors' covenants in Paragraph 6(a) shall be specially enforceable against Pledgors; and Pledgors hereby waive, to the extent such waiver is enforceable under law, and shall not assert, any defenses against an action for specific performance of such covenants. (e) Pledgors will promptly give or cause to be given written notice to Pledgee of any notices received by it with respect to Pledged Stock registered in the name of the Pledgors and Pledgee will promptly give like notice to Pledgors of any notices received by it with respect to Pledged Stock registered in the name of Pledgee or its nominee, if any. 7. Further Acts. Pledgors shall at all times, and from time to time, upon the written request of Pledgee, execute and deliver such further documents and do such further acts and things as Pledgee may reasonably request to effect the purposes of this Agreement including, but without limitation, delivering to Pledgee upon request irrevocable proxies in respect of the Pledged Stock in form satisfactory to Pledgee. Until receipt thereof, this Agreement shall constitute Pledgors' proxy to Pledgee or its nominee to vote all shares of the Pledged Stock then registered in Pledgors' names. 8. Term. The term of this Pledge Agreement shall be for a period of three years and three months from the Closing Date of the Merger. Upon the expiration of the term hereof, the then remaining shares of Pledged Stock, if any, shall be delivered on behalf of Pledgors to the trustee (the "Trustee") identified in that Voting Trust Agreement attached as Exhibit "C" to the Merger Agreement, whereupon such Pledged Stock shall continue to be held pursuant to the terms of such Voting Trust Agreement. All other funds or distributions heretofore held on behalf of Pledgors shall be returned to them on a pro-rata basis in accordance with their Allocable Shares. By execution of this Stock Pledge Agreement, Pledgors do hereby irrevocably constitute, appoint and direct Pledgee as their Attorney-in- fact to deliver the remaining shares of Pledge Stock to the Trustee upon the expiration of the term hereof. 9. Miscellaneous. (a) Beyond the exercise of reasonable care to assure the safe custody of the Pledged Stock while held hereunder, Pledgee shall have no duty or liability to preserve rights pertaining thereto and shall be relieved of all responsibility for the Pledged Stock upon surrendering it or tendering surrender of it to Pledgors. (b) No course of dealing between Pledgors and Pledgee, nor any failure to exercise, nor any delay in exercising, on the part of Pledgee, any right, power or privilege hereunder or under the Merger Agreement shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or thereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege. (d) The provisions of this Stock Pledge Agreement are severable and if any clause or provisions shall be held invalid or unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall effect only such clause or provision or part thereof in such jurisdiction and shall not in any manner effect such clause or provision in any other jurisdiction or any other clause or provision in this Stock Pledge Agreement in any jurisdiction. (e) This Stock Pledge Agreement may be executed simultaneously 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. 10. Notices. Any notice required or permitted by this Stock Pledge Agreement shall be effective if given in accordance with the provisions of the Merger Agreement. 11. Binding Agreement. This Stock Pledge Agreement shall inure to the benefit of and shall be binding upon the successors and assigns of the parties hereto. 12. Choice of Law. This Stock Pledge Agreement shall be construed in accordance with the laws of the Commonwealth of Pennsylvania with regard to principles of conflicts of laws and is intended to take effect as an instrument under seal. Pledgors acknowledge the jurisdiction of the state and Federal courts located in Pennsylvania. (THIS SPACE LEFT BLANK INTENTIONALLY) 2 \PHILA2\69790_2 IN WITNESS WHEREOF, Pledgors have duly executed this Stock Pledge Agreement to the day and year first above written and has hereunto set hand and seal. PLEDGORS _/s/ Joseph A. Marubbio___________________ Joseph A. Marubbio /s/ Paula Marubbio___________________________ Paula Marubbio /s/ Robert L. Starer_________________________ Robert L. Starer /s/ Merle A. Starer________________________ Merle A. Starer /s/ James R. Affleck, Jr.___________________ James R. Affleck, Jr. /s/ Sarah B. Affleck_________________________ Sarah B. Affleck ATTEST RCM TECHNOLOGIES, INC. BY:/s/Stanton Remer_____________ BY:/s/ Leon Kopyt___________________ ATTEST CI ACQUISITION CORP. BY:/s/ Stanton Remer____________ BY:/s/ Leon Kopyt______________________ 3