Item 1.01
Entry into a Material Definitive Agreement.
On November 8, 2018, RCM Technologies (USA), Inc. (the "
Buyer
"), a New Jersey corporation and a wholly-owned subsidiary of RCM Technologies, Inc. (the "
Registrant
"), entered into an Asset Purchase Agreement (the "
Purchase Agreement
"), with Thermal Kinetics Engineering, PLLC, a New York professional limited liability company ("
TKE
"), Thermal Kinetics Systems, LLC, a New York limited liability company (together with TKE, each a "
Seller
" and collectively, "
Sellers
"), the members of Sellers identified in Section 1 of the Purchase Agreement (each, a "
Seller's Member
" and collectively, "
Sellers' Members
"). The Registrant is also a party to the Purchase Agreement solely for purposes of being bound by the Parent Guarantee (as defined therein).
Pursuant to the Purchase Agreement, the Buyer agreed to purchase from Sellers substantially all of the assets of Sellers utilized in connection with the business of supplying equipment and providing engineering, development, and design services (the "
Business
").
The transactions contemplated by the Purchase Agreement closed as of the date of the Purchase Agreement. The purchase price consisted of $1,765,000, inclusive of estimated net assumed liabilities of $700,000, resulting in $1,065,500 being paid at closing in cash, 440,751 shares of the Registrant's Common Stock, $0.10 par value, which shares are subject to a 36-month lock-up agreement, and a series of Earn-out Payments (as defined in the Purchase Agreement) based on the net operating income of the Business (the "
NOI
") over the fiscal years of the Registrant ending on the last day of September in each of 2019, 2020 and 2021 (the "
First Earn-Out Period
," "
Second Earn-Out Period
" and "
Third Earn-Out Period
," respectively). With respect to the Earn-out Payments, Buyer shall pay Sellers, in accordance with the terms and provisions of the Purchase Agreement, an amount equal to $600,000 for each Earn-Out period where the NOI is greater than a hurdle amount of $1,900,000 (for the First Earn-Out Period), $2,000,000 (for the Second Earn-Out Period) and $2,100,000 (for the Third Earn-Out Period), plus, for any such period, an Second-Tier Earn-out Payment amount equal to 50% of the NOI for such period in excess of the applicable hurdle amount;
provided
, that the Second-Tier Earn-out Payment for any given year cannot exceed $2,000,000.
Subject to the provisions of the Agreement, the Registrant absolutely, unconditionally and irrevocably guaranteed to each Seller full and punctual payment and performance by Buyer of Buyer's obligations under Section 3 (Purchase Price; Payment) and Section 9 (Indemnification) of the Purchase Agreement.
The purchase price is subject to certain adjustments including for net working capital. The Purchase Agreement contains customary representations and warranties and indemnifications, as well as non-compete and non-solicit covenants from the Sellers and Sellers' Members.
In connection with the transaction, the Buyer entered into an agreement with Christopher J. Brown, a Seller's Member, to serve as the General Manager of the Business.
There are no material relationships between the Sellers, the Sellers' Members, the Buyer or the Registrant.
The foregoing summary of the Purchase Agreement does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Purchase Agreement, a copy of which is filed herewith as Exhibit 2.1.