As filed with the Securities and Exchange Commission on December 11, 1996
Registration No. 333-13109
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1
to
FORM S-1
Registration Statement
Under The Securities Act of 1933
THE JUDGE GROUP, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 6710 23-1726661
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Identification Number)
Incorporation of Classification
Organization) Code Number)
Two Bala Plaza, Suite 800, Bala Cynwyd, Pennsylvania 19004, (610) 667-7700
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Martin E. Judge, Jr., Chief Executive Officer, The Judge Group, Inc.
Two Bala Plaza, Suite 800, Bala Cynwyd, Pennsylvania 19004, (610) 667-7700
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
Robert H. Strouse, Esq. Charles C. Zall, Esq.
Drinker Biddle & Reath Saul, Ewing, Remick & Saul
1000 Westlakes Drive, Suite 300 3800 Centre Square
Berwyn, Pennsylvania 19312 Philadelphia, Pennsylvania 19102
(610) 993-2200 (215) 972-7777
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective and the
Underwriting Agreement is executed.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / _______________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / _______________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED DECEMBER 11, 1996
The Judge Group, Inc.
3,650,000 Common Shares
------------------------
Of the Common Shares being offered hereby, 3,000,000 are being offered by
The Judge Group, Inc. ("The Judge Group" or the "Company") and 650,000 shares
are being offered by the Selling Shareholders. See "Principal and Selling
Shareholders." The Company will not receive any of the proceeds from the sale of
shares by the Selling Shareholders.
Prior to this Offering, there has been no public market for the Common
Shares. It is currently estimated that the initial public offering price will be
between $9.00 and $11.00 per share. See "Underwriting" for a discussion of the
factors to be considered in determining the initial public offering price. The
Company has applied for quotation of the Common Shares on the Nasdaq Stock
Market under the symbol "JUDG."
------------------------
See "Risk Factors," beginning on page 7, for a discussion of certain
factors that should be considered by prospective purchasers of the Common Shares
offered hereby.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
======================================================================================================
Price Underwriting Proceeds to
to Discounts and Proceeds to Selling
Public Commissions (1) Company (2) Shareholders
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share................ $ $ $ $
- ------------------------------------------------------------------------------------------------------
Total(3)................. $ $ $ $
======================================================================================================
</TABLE>
(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."
(2) Before deducting expenses payable by the Company estimated to be $1,100,000.
(3) The Company and the Selling Shareholders have granted to the Underwriters an
option, exercisable for 30 days from the date of the initial public offering
of the Common Shares, to purchase up to an aggregate of 547,500 shares at
the Price to Public, less Underwriting Discounts and Commissions, solely to
cover over-allotments, if any, with the first 250,000 shares being sold by
the Selling Shareholders and the remaining 297,500 shares being sold by the
Company. If the Underwriters exercise this option in full, the Price to
Public will total $_____________, the Underwriting Discounts and Commissions
will total $_________, the Proceeds to Company will total $________ and the
Proceeds to Selling Shareholders will total $_________. See "Underwriting."
------------------------
The Common Shares are offered by the several Underwriters named herein,
subject to receipt and acceptance by them and subject to their right to reject
any order in whole or in part. It is expected that delivery of the certificates
representing such shares will be made at the offices of Janney Montgomery Scott
Inc., Philadelphia, Pennsylvania, on or about , 1996.
------------------------
JANNEY MONTGOMERY SCOTT INC.
The date of this Prospectus is , 1996
<PAGE>
DISCOVER
THE JUDGE GROUP
Business Process Re-engineering
IT & Engineering
Permanent Placement Imaging & Networks
IT-Engineering Document Management & Workflow
Contract Placement IT Training
IT-Engineering Certified Education
JUDGE
Quality Services Since 1970
The Judge Group, Inc. o Suite 405 o Two Bala Plaza
Bala Cynwyd, PA 19004-1510
610 o 667-7700 o http://www.judge.com
OFFICES IN: Bala Cynwyd, PA o Foxborough & Wakefield, MA
Edison & Moorestown, NJ o Hartford, CT o Tampa, FL o Alexandria, VA
Judge(Trademark) and MENTOR(Trademark) are trademarks of the Company. This
Prospectus also contains other product names, trade names, service marks and
trademarks of the Company and of other organizations.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON SHARES
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. SUCH
TRANSACTIONS MAY BE EFFECTED THROUGH THE NASDAQ STOCK MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus. Unless the context otherwise requires, all references herein to
the "Company" or "The Judge Group" include all direct and indirect subsidiaries.
Unless otherwise indicated, the information in this Prospectus (i) assumes the
Underwriters' over-allotment option is not exercised and (ii) gives effect to
the Pre-Offering Transactions. The "Pre-Offering Transactions" consist of
certain corporate reorganization events, including a 52.6 for 1.0 stock split,
the issuance of 526,000 Common Shares upon the conversion of $500,000 principal
amount of the Company's 10% Convertible Senior Subordinated Notes (the
"Convertible Notes"), the acquisition by The Judge Group of all of the issued
and outstanding stock of Judge Imaging Systems, Inc. ("JIS") not presently held
by it, the acquisition of The Berkeley Associates Corp. ("Berkeley") and the
acquisition of Systems Automation, Inc. ("Systems Automation"). The stock split
occurred on September 23, 1996 and the acquisitions of Berkeley and Systems
Automation were effective as of September 26, 1996 and September 30, 1996,
respectively. The remaining Pre-Offering Transactions will occur concurrently
with or prior to the consummation of this Offering. See "Business --
Pre-Offering Transactions: Corporate Reorganization, Merger and Recent
Acquisitions" for a description of the Pre-Offering Transactions.
The Company
The Judge Group services the information technology ("IT") and engineering
needs of its clients through the following four complementary operating units:
o Contract Placement -- Provides IT and engineering personnel on a
contract basis ("technical consultants");
o Permanent Placement -- Provides IT and engineering personnel on a
permanent basis;
o Imaging and Network Services -- Provides computer networking, imaging,
document management, workflow and related
consulting services; and
o IT Training -- Provides standard and customized IT
training on established and emerging
software applications.
The Company's Contract Placement business provides technical consultants
skilled in a variety of fields, such as applications programming and
development, client/server technology, legacy systems conversion, software
architecture and design, data communications, systems engineering,
Internet/Web-Site design, project consulting and Help Desk management. The
Company provides technical consultants in the MidAtlantic and New England
regions of the United States through three branch offices, and on a nationwide
basis through its National Division. The Company maintains a database of over
100,000 technical consultants, and in 1995 provided over 1,700 technical
consultants to more than 800 clients. By relying on contract consultants,
clients with complex technical requirements can reduce the costs associated with
recruiting, training and relocating employees as those requirements change.
According to Staffing Industry Report, revenues from technical/computer
temporary staffing are estimated to have grown from $5.7 billion in 1993 to $9.2
billion in 1995 and are expected to grow to $11.4 billion in 1996, representing
a 26.0% compound annual growth rate. The Company's Contract Placement business
generated revenues of $50.8 million and $44.6 million, which represented 80.3%
and 75.8% of the Company's consolidated net revenues, in 1995 and the nine
months ended September 30, 1996, respectively.
The Company's Permanent Placement business provides medium to high-level IT
and engineering professionals on a permanent basis to clients nationwide. The
Company maintains a database of over 70,000 IT and engineering professionals,
and in 1995 placed 396 candidates with more than 240 clients. According to
Staffing Industry Report, revenues from permanent placement providers are
estimated to have grown from $1.2 billion in 1993 to $1.7 billion in 1995, and
are expected to grow to $1.8 billion in 1996, representing a 14.5% compound
annual growth rate. The Company's Permanent Placement business generated
revenues of $4.3 million and $4.3 million, which represented 6.7% and 7.2% of
the Company's consolidated net revenues, in 1995 and the nine months ended
September 30, 1996, respectively.
3
<PAGE>
The Company's Imaging and Network Services business offers advanced
technical solutions to increase the efficiency of business processes, such as
network and document management systems design, integration, implementation,
maintenance and training, business process re-engineering through its
MENTOR(Trademark) Consulting Program, project management and advanced
applications development. The Company is a value-added reseller and service
facility for personal computer ("PC") and network hardware, software and related
peripherals manufactured by Compaq Computer Corporation ("Compaq"), ACER
Incorporated ("ACER"), IBM Corporation ("IBM"), Apple Computer, Inc. ("Apple"),
Okidata, a division of OKI America, Inc. ("Okidata"), Tricord Systems, Inc.
("Tricord"), Hewlett Packard Company ("HP") and others. The Company has
installed more than 110 imaging systems, is an authorized value-added reseller
of the imaging software of Optika Imaging Systems, Inc. ("Optika"), FileNet
Corporation ("FileNet"), Saros(Copyright), Watermark Corporation ("Watermark"),
Keyfile Corporation ("Keyfile"), Optical Technology Group, Inc. ("OTG") and
Lotus Corporation ("Lotus"), and integrates its imaging solutions on a variety
of operating systems, including Banyan, OS/2 and Windows NT(Trademark).
According to a study prepared for the Association for Information and Image
Management International ("AIIM"), electronic imaging revenues, including
hardware, software, services and support, grew 18.2% in 1995, from $2.2 billion
in 1994 to $2.6 billion in 1995. The Company's Imaging and Network Services
business generated revenues of $8.2 million and $10.0 million, which represented
13.0% and 17.0% of the Company's consolidated net revenues, in 1995 and the nine
months ended September 30, 1996, respectively. While the Company's Imaging and
Network Services business has grown consistently over the last three years, it
has historically experienced operating losses. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
The following table presents the net revenue (net of intercompany
eliminations) and the income (loss) from operations attributable to each of the
Company's businesses, in dollars and as a percentage of consolidated net
revenues, for the periods indicated. Except for consolidated net revenues and
consolidated income (loss) from operations for 1993, 1994, 1995, all of such
financial information is unaudited:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------
1993 1994 1995
-------------------- -------------------- --------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Net revenues:
Permanent Placement....... $ 3,131 8.9% $ 3,294 7.3% $ 4,275 6.7%
Contract Placement........ 27,537 78.5 38,186 84.4 50,804 80.3
Imaging and Network
Services................ 4,401 12.6 3,773 8.3 8,220 13.0
--------- ----- --------- ----- --------- -----
Consolidated net
revenues................ $ 35,069 100.0% $ 45,253 100.0% $ 63,299 100.0%
========= ===== ========= ===== ========= =====
Income (loss) from
operations:
Permanent Placement....... $ 722 2.1% $ 258 0.6% $ 287 0.4%
Contract Placement........ 732 2.1 2,392 5.2 2,939 4.7
Imaging and Network
Services................ (137) (0.4) (466) (1.0) (526) (0.8)
Corporate overhead
expense................. (696) (2.0) (741) (1.6) (936) (1.5)
--------- ----- --------- ----- --------- -----
Consolidated income (loss)
from operations......... $ 621 1.8% $ 1,443 3.2% $ 1,764 2.8%
========= ===== ========= ===== ========= =====
</TABLE>
Nine Months Ended September 30,
-----------------------------------------
1995 1996
-------------------- -------------------
(Unaudited)
(Dollars in Thousands)
Net revenues:
Permanent Placement.......
Contract Placement........ $ 3,187 6.8% $ 4,265 7.2%
Imaging and Network 37,890 80.8 44,622 75.8
Services................
5,800 12.4 10,027 17.0
Consolidated net --------- ----- --------- ---------
revenues................
$ 46,877 100.0% $ 58,914 100.0%
Income (loss) from ========= ===== ========= =========
operations:
Permanent Placement.......
Contract Placement........ $ 376 0.8% $ 499 0.8%
Imaging and Network 2,167 4.6 2,635 4.5
Services................
Corporate overhead (270) (0.6) (709) (1.2)
expense.................
(711) (1.5) (1,076) (1.8)
Consolidated income (loss) --------- ----- --------- ---------
from operations.........
$ 1,562 3.3% $ 1,349 2.3%
========= ===== ========= =========
The Company's IT Training business, acquired in September 1996, provides
training on a range of software and network applications to corporate,
governmental and individual clients. The IT Training business currently offers
three licensed diploma courses, six certificate courses, and over 180
open-enrollment courses, either in its own computer labs or at client locations.
This business generated revenues of $2.3 million and $2.0 million in 1995 and
the nine months ended September 30, 1996, respectively. The Updata Group, Inc.
estimates that revenues from IT training services will grow from $2.9 billion in
1995 to $5.6 billion by the year 2000, representing a 14.8% compound annual
growth rate. Besides expanding the Company's range of technical service
offerings, the IT Training business
4
<PAGE>
will assist the Company in identifying emerging technologies and integrating
such technologies into its organization through the training of its technical
consultants and in-house personnel.
The Company serves its clients through offices located in Bala Cynwyd,
Pennsylvania; Foxborough and Wakefield, Massachusetts; Edison and Moorestown,
New Jersey; Hartford, Connecticut; Tampa, Florida; Baltimore, Maryland; and
Alexandria, Virginia. The Company's client base includes various Fortune 500
companies and governmental agencies, including Merck & Co., Inc. ("Merck"), Bell
Atlantic NYNEX Mobile, Inc., Texas Instruments, Inc. ("Texas Instruments"),
Compaq Computer Corporation ("Compaq"), Intel Corporation ("Intel") and the City
of Philadelphia. The Company believes that its four complementary businesses
afford it a competitive advantage over IT service providers that have fewer
service offerings, and position it to benefit from the anticipated growth in the
technical staffing and IT training industry and the imaging and document
management industry. The Company has recently adopted an integrated marketing
and service approach aimed at both new and existing customers which seeks to
take advantage of its ability to offer a comprehensive, cost-effective and
convenient means to meet a wide variety of technical requirements. Key elements
of the Company's business strategy to become a leading nationwide provider of IT
and engineering professional services include:
o Offering a Single Source of Technical Solutions
o Aggressively Marketing Broad Range of Services
o Developing a National Presence
o Expanding Imaging and Network Services
o Capitalizing on IT Training Resources
o Pursuing Strategic Acquisitions
The executive offices of The Judge Group are located at Two Bala Plaza,
Suite 800, Bala Cynwyd, Pennsylvania 19004, and its telephone number is (610)
667-7700. The Company's website address is http://www.judge.com.
The Offering
Common Shares offered by the
Company............................... 3,000,000 shares
Common Shares offered by the Selling
Shareholders.......................... 650,000 shares
Common Shares to be outstanding after
the Offering.......................... 13,039,412 shares(1)
Use of Proceeds....................... For repayment of certain indebtedness,
payment of portions of the purchase
prices of certain recently completed
acquisitions, and for working capital
and general corporate purposes,
including the establishment of a
corporate level sales force. In
addition, the Company may use portions
of the proceeds for acquisitions,
although the Company is not currently
engaged in any acquisition negotiations.
The Company will not receive any
proceeds from the sale of the Common
Shares offered by the Selling
Shareholders. See "Use of Proceeds."
Nasdaq Stock
Market Symbol......................... "JUDG"
- ----------
(1) Based on the number of shares outstanding as of November 30, 1996 and
assuming the consummation of the Pre-Offering Transactions. Excludes 613,500
Common Shares issuable upon exercise of options outstanding on that date,
none of which were then exercisable.
5
<PAGE>
Summary Consolidated Historical And Pro Forma Financial Information
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Nine Months
Ended
Year Ended December 31, September 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net revenues................................. $ 35,069 $ 45,253 $ 63,299 $ 46,876 $ 58,914
Cost of sales................................ 26,070 34,146 47,550 35,273 43,232
Selling and operating........................ 5,853 6,509 9,798 6,842 10,023
General and administrative................... 2,525 3,155 4,187 3,199 4,310
--------- --------- --------- --------- ---------
Total costs and expenses..................... 34,448 43,811 61,535 45,314 57,565
--------- --------- --------- --------- ---------
Income from operations....................... 621 1,443 1,764 1,562 1,349
========= ========= ========= ========= =========
Interest expense............................. 338 427 670 517 600
========= ========= ========= ========= =========
Net income (loss)............................ $ 101 $ 343 $ 486 $ 519 $ 751
========= ========= ========= ========= =========
Fully-diluted net income
(loss) per Common Share:(1) $ 0.01 $ 0.04 $ 0.05 $ 0.06 $ 0.08
========= ========= ========= ========= =========
Fully-diluted weighted average shares(2)..... 8,500 8,847 9,114 9,114 9,114
--------- --------- --------- --------- ---------
</TABLE>
September 30, 1996
------------------------
Pro Forma
As
Actual Adjusted(4)
--------- -------------
(Unaudited)
Balance Sheet Data:
Working capital.................................... $ 5,957 $ 23,855
Total assets....................................... 21,188 48,808
Notes payable, including current portion(3)........ 8,146 0
Other long-term obligations,
including current portion........................ 3,850 1,008
Shareholders' equity............................... 966 30,965
- ----------
(1) All per share and share amounts reflect a 52.6 for 1.0 stock split which
occurred on September 23, 1996.
(2) Fully-diluted shares includes Common Stock equivalents and 526,000 Common
Shares issuable upon conversion of the Company's Convertible Notes.
(3) Includes line of credit and term loan.
(4) Pro Forma balance sheet data reflects the consummation of the Pre-Offering
Transactions, the sale by the Company of 3,000,000 Common Shares offered
hereby at an assumed offering price of $10.00 per share and the application
of the net proceeds therefrom. See "Business -- Pre-Offering Transactions:
Corporate Reorganization, Merger and Recent Acquisitions," "Use of Proceeds"
and Pro Forma Unaudited Consolidating Financial Statements included in the
Financial Statements.
6
<PAGE>
RISK FACTORS
An investment in Common Shares offered by this Prospectus involves a high
degree of risk. Prospective purchasers of the Common Shares offered hereby
should carefully review the following risk factors as well as the other
information set forth in this Prospectus.
Dependence on Availability of Qualified Technical Consultants
The Company is dependent upon its ability to attract and retain technical
consultants who possess the skills and experience necessary to meet the staffing
requirements of its clients. To keep pace with rapidly evolving information
technologies and changing client needs, the Company must continually evaluate
and upgrade its database of available qualified technical consultants.
Competition for individuals with proven technical skills is intense, and, as is
currently customary in the industry, the Company does not have any exclusive
contracts with its consultants. The Company competes for such individuals with
other providers of technical staffing services, systems integrators, providers
of outsourcing services, computer systems consultants, clients and temporary
personnel agencies. Factors influencing such competition include compensation,
benefits, growth opportunities and pre-existing relationships with other
companies, particularly specialty staffing companies. As the Company expands
into new geographic areas, it may experience difficulty attracting qualified
technical consultants who have a prior relationship or familiarity with more
established specialty staffing companies in such areas. There can be no
assurance that qualified technical consultants will continue to be available to
the Company in sufficient numbers to meet the Company's current and anticipated
growth requirements. See "Business -- Technical Personnel" and "Business --
Competition."
Acquisition Risks
A principal component of the Company's growth strategy is the acquisition
of companies that will complement and expand the Company's existing businesses,
principally in new geographic markets. The successful implementation of this
strategy is dependent on the Company's ability to identify suitable acquisition
candidates, acquire such companies on suitable terms and integrate their
operations with those of the Company. There can be no assurance that the Company
will be able to identify suitable acquisition candidates or that, if identified,
the Company will be able to acquire such companies on suitable terms. The
specialty staffing industry is relatively mature. Acquisitions in this industry
are therefore likely to be at higher relative prices than for other industries
due to competition from other staffing companies for acquisition candidates.
Acquisitions also involve a number of special risks, including: (i) adverse
effects on the Company's reported operating results, including increased
goodwill amortization and interest expense; (ii) diversion of management
attention; (iii) risks associated with unanticipated problems, liabilities or
contingencies; and (iv) difficulties related to the integration of the acquired
business. The occurrence of some or all of the events described in these risks
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and "Business -- Business Strategy."
Ability to Manage Growth
Sustained or significant growth, if achieved, will subject the Company to
risks by placing a substantial strain on the Company's available managerial,
financial and other resources. Specifically, such growth will require the
Company to: (i) hire, integrate and retain qualified managers in existing
markets as well as markets in which the Company has no prior operating
experience; (ii) develop and maintain relationships with an increasingly large
number of highly qualified technical consultants; and (iii) apply its management
practices to a significantly larger organization. Expansion beyond the
geographic areas where the Company's offices are presently located will further
increase demands on the Company's management. The Company's ability to manage
its staff and facilities growth effectively will require it to continue to
expand its operational, financial and other internal systems. There can be no
assurance that the Company's systems, procedures and controls will be
successfully implemented or adequate to support the Company's expanded
operations. Furthermore, an element of the Company's business strategy is to
cross-sell the existing services of its four businesses to new and existing
clients. Historically, these businesses have operated independently, producing
only occasional
7
<PAGE>
referrals, and there can be no assurance that the Company will successfully
market such services on an integrated basis. See "Business -- Business
Strategy," "Sales and Marketing" and "Management."
History of Operating Losses in Imaging and Network Services Business
The Company's Imaging and Network Services business has had net operating
losses since its commencement in 1988, experienced a loss from operations of
approximately $709,000 for the nine months ended September 30, 1996, and at
September 30, 1996 had an accumulated deficit of $3.5 million. The losses have
resulted from high marketing and general and administrative costs associated
with building the division's imaging and document management infrastructure and
capabilities, combined with historically low profit margins related to the
hardware component of the networking business and a slower emergence of the
imaging and document management market than anticipated by the Company.
Specifically, the costs associated with building this division's imaging and
document management capabilities have included the hiring of sales and technical
personnel, the opening of a new office, and the costs associated with the
acquisition and integration of two imaging and document management companies.
The Company is currently focusing on achieving profitability in its Imaging and
Network Services business and expanding it through internal growth, new service
offerings and acquisitions, but cannot provide any assurances as to when it will
achieve profitability, if at all. Typically, the decision by a prospective
customer to install a network or to implement a document management system
requires the Company to engage in a lengthy and complex sales cycle and involves
a significant commitment of resources by the customer over an extended period of
time. For these and other reasons, the sales and implementation cycles are
subject to a number of significant delays over which the Company has little or
no control. Even if it increases sales, there can be no assurance that the
Imaging and Network Services business will achieve a pricing and cost structure
that will generate profits, or that the Company will be able to identify and
acquire appropriate acquisition candidates on favorable terms. Failure of the
Imaging and Network Services business to grow through internal expansion and
favorable acquisitions or to achieve profitability would have a material adverse
effect on the Company's business, financial condition and results of operations.
In addition, if the Imaging and Network Services business is unable to achieve
profitability, it will not realize the federal tax benefit of its $2.4 million
operating loss carryforward which will expire between 2002 and 2010.
Dependence on Contract Placement Business
The Company's Contract Placement business was responsible for 84.4%, 80.3%
and 75.8% of total Company revenues in 1994, 1995 and the nine months ending
September 30, 1996, respectively. In addition, in 1995 and the nine months ended
September 30, 1996, one customer of the Contract Placement business, Merck,
accounted for approximately 8.0% and 8.2% of total Contract Placement revenues,
respectively, and 6.4% and 6.2% of total Company revenues, respectively. There
can be no assurance that the Company will be able to retain this level of
revenue from this client. The ability of the Company to sustain or increase
revenues in the Contract Placement business is subject to various factors,
including its ability to attract and retain qualified technical consultants, to
hire, integrate and retain qualified managers in existing and new markets and to
apply its management practices to a significantly larger organization. There can
be no assurance that the Company will be able to sustain or increase its
Contract Placement revenues. Furthermore, a decline in the level of Contract
Placement revenues would have a material adverse effect on the Company.
Technological Obsolescence
The market for Imaging and Network Services is characterized by rapid
technological change, changes in customer requirements, frequent new product
introductions and enhancements and emerging industry standards. The Company's
future performance will depend in part on its ability to respond effectively to
these developments and to develop expertise in, and form relationships with
vendors of, products that gain market acceptance and popularity. The
introduction of products and services embodying new technologies and the
emergence of new industry standards can render existing products obsolete,
unmarketable or noncompetitive. The Company is unable to predict the future
impact of new products on the Company's services. Furthermore, the life cycles
of the systems and products with respect to which the Company has developed
expertise are difficult to estimate. The Imaging and Network Services business's
future performance will depend on the ability of software and hardware vendors
to develop and introduce new products that respond to evolving customer
8
<PAGE>
requirements and on the Company's ability to stay abreast of and enhance its
expertise with respect to new products and systems. The inability of the Imaging
and Network Services business to enhance its expertise and capabilities in
response to changing customer requirements, technological change or emerging
industry standards would have a material adverse effect on the Company's
business, financial condition and results of operation. Furthermore, to the
extent the vendors of the hardware or software components of document management
systems experience delays in the development and shipments of new products, the
Company's ability to sell document management systems could be materially
adversely affected.
Continuing rapid developments in the IT industry in general also have
substantial impact on the Company's other businesses. The Company must identify
and become proficient in emerging technologies in order to remain competitive
and achieve the higher margin business associated with emerging technologies.
There can be no assurance the Contract and Permanent Placement businesses will
be successful in continually upgrading their databases to contain professionals
proficient in such technologies. Furthermore, there can be no assurance the IT
Training business will recognize the emergence of new technologies or
successfully integrate them into its operations in a timely manner. Failure by
the Company to recognize emerging technologies and to integrate them into its
marketing efforts and service offerings in a timely manner would have a material
adverse impact on the Company's business, financial condition and results of
operations.
Competition
The IT professional services industry is highly competitive. The Company
competes for both clients and qualified technical personnel with a variety of
companies, including other specialty staffing companies, national and regional
consulting firms, systems integrators, IT outsourcing firms and independent
contractors. The Company also competes for technical consultants with the
information technology staffs of its clients and potential clients. In addition,
several traditional staffing companies that historically emphasized the
placement of clerical and other less highly skilled personnel on short-term
assignments, have begun to provide services competitive with those provided by
the Company. Several of the Company's competitors in each of the businesses in
which it provides services are substantially larger than the Company and have
greater financial and other resources. Several of such competitors have also
been in business much longer than the Company and have significantly greater
name recognition throughout the United States, including the geographic areas in
which the Company operates and into which it intends to expand. In addition,
such companies are able to meet a broader range of a client's temporary
personnel needs and serve a broader geographic range than the Company, which
permits such companies to better serve national accounts. There can be no
assurance that the Company will be able to compete successfully with its
existing and future competitors. Also, to the extent that the Company offers
fixed-price contracts to clients in the future, which it may do for competitive
reasons, it will be responsible for cost overruns and may experience revenue
streams that vary from those generated by the provision of time and material
services.
Dependence on Key Customers and Geographic Concentration
The Company's business is dependent in part on the economic strength of its
clients. While the Company serves a large number of clients in a range of
industry groups, approximately 6.4% and 6.2% of the Company's revenues in fiscal
1995 and the nine months ended September 30, 1996, respectively, were derived
from Merck, the only customer responsible for more than 5% of the Company's
revenues in such periods. Similarly, a substantial portion of the Company's
revenues are currently derived from services provided to clients in the
Mid-Atlantic region of the United States. A deterioration in general economic
conditions in that region could adversely affect the Company.
Employment Liability Risks
The Company provides staffing services in the workplaces of other
businesses. Risks inherent in such activity include possible claims of errors
and omissions, misuse of client proprietary information, misappropriation of
funds, discrimination and harassment, theft of client property, other criminal
activity or torts and other claims. While the Company has not historically
experienced any material claims of these types, there can be no assurance that
the Company will not experience such claims in the future.
9
<PAGE>
Dependence on Key Personnel
The Company's future success may depend to a significant extent upon the
performance of a number of the Company's key personnel, including Martin E.
Judge, Jr., Chairman of the Board and Chief Executive Officer of the Company,
Richard T. Furlano, President, and Michael A. Dunn, Executive Vice President.
The loss of any of these key management personnel or the failure to recruit and
retain experienced personnel could have a material adverse effect on the
Company's business. Typically, the Company does not enter into contracts with
these individuals providing for continued employment. See "Management --
Employment Agreements."
Control of the Company
Immediately after the effective date of the Offering, Martin E. Judge, Jr.
and Michael A. Dunn will beneficially own approximately 45.9% and 14.2% of the
outstanding Common Shares, respectively (44.7% and 13.7% if the over-allotment
option is exercised in full). As a result, Mr. Judge and Mr. Dunn will have the
ability to determine the election of all of the Company's directors and control
the outcome of substantially all issues submitted to the Company's shareholders.
While no voting agreement between Mr. Judge and Mr. Dunn exists, such
concentration of ownership could have the effect of making it more difficult for
a third party to acquire control of the Company and may discourage third parties
from attempting to do so. See "Principal and Selling shareholders' and
"Description of Capital Shares."
Fluctuations in Operating Results; Seasonality and General Economic Conditions
Because the Company only derives revenue in its Contract Placement business
when its consultants are actually working, its operating results are adversely
affected when client facilities close due to holidays or inclement weather. In
particular, the Company generally experiences a certain amount of reduction in
revenues in its Contract Placement business in its fourth fiscal quarter due to
the number of holidays in that quarter. Further, the Company's Contract
Placement business generally incurs additional expense in its first fiscal
quarter due in part to the timing of certain payroll and related employment tax
costs.
Demand for IT professional services is significantly affected by the
general level of economic activity. When economic activity slows, clients may
delay or cancel plans that involve the hiring of permanent or contract technical
consultants, and may postpone or cancel plans to implement document management
systems or to implement training programs. The Company is unable to predict the
level of economic activity at any particular time, and fluctuations in the
general economy could adversely affect the Company's business, operating results
and financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Broad Discretion in Use of Proceeds
The Company intends to use approximately $10.5 million of the net proceeds
from the Offering to repay certain outstanding indebtedness and to pay portions
of the purchase prices of recently completed acquisitions, and it will have
broad discretion in using the remaining proceeds from the Offering. The Company
intends to use the approximately $16.3 million in remaining net proceeds
(approximately $19.1 million if the Underwriters' over-allotment is exercised in
full) for working capital and general corporate purposes, including
establishment of a corporate level sales force and possible acquisitions. The
Company currently has no understandings, commitments or agreements with respect
to any possible acquisitions. Consequently, there can be no assurance as to when
or how the remaining net proceeds from the Offering will be used. If the Company
is unable to invest such proceeds in acquisitions or to otherwise use such
proceeds in operating its business, the returns realized from holding such
proceeds may be substantially less than the returns which could be realized if
such proceeds were successfully invested in the business. See "Use of Proceeds."
Risks Related to Tax Status of Technical Consultants
Generally, the Company treats its technical consultants as employees for
federal and state tax purposes and pays all requisite Social Security taxes
(FICA), payroll taxes, unemployment taxes, workers compensation insurance
premiums and other employee taxes and similar costs. In certain cases, however,
technical consultants desire to be treated as independent contractors for
federal and
10
<PAGE>
state tax purposes with respect to their assignments. In such cases, the Company
reviews the relevant facts and the applicable statutes and regulations, and if
appropriate, the consultant is treated as an independent contractor for tax
purposes. Of the technical consultants on assignment as of December 31, 1994 and
1995 and September 30, 1996, approximately 12%, 15% and 10%, respectively, were
treated as independent contractors for federal and state tax purposes. The
determination of whether a technical consultant can be treated as an independent
contractor for tax purposes is dependent on the facts and circumstances of each
case and as a result is subject to some uncertainty. The Internal Revenue
Service recently has announced various worker reclassification compliance
projects designed to ensure that personnel classified as independent contractors
are properly classified. The Company believes that it is in material compliance
with all applicable tax regulations concerning the classification of its
technical consultants, and has not, to date, been the subject of any attempt by
any federal or state authority to reclassify any of the consultants it has
treated as independent contractors. There can be no assurance, however, that
federal and state taxing authorities will not challenge the Company's
classification of technical consultants as independent contractors in the
future. If successful, such a challenge could result in the imposition of back
taxes, interest and penalties, the amount of which could be material to the
Company's financial statements.
Shares Eligible for Future Sale; Registration Rights
Sales of the Company's Common Shares in the public market after the
Offering could adversely affect the market price of the Company's Common Shares
and could impair the Company's future ability to raise capital through the sale
of equity securities. Upon completion of the Offering, the Company will have
13,039,412 Common Shares outstanding (13,336,912 Common Shares if the
Underwriters' over-allotment option is exercised in full). Of these shares, all
of the shares sold in the Offering will be available for resale in the public
markets without restriction, except for any such shares which may be purchased
by affiliates of the Company. Of the remaining shares, 131,739 (71,739 if the
Underwriters' over-allotment option is exercised in full) are subject to a
two-year holding period that commenced on September 6, 1996. Mr. Judge has
agreed not to sell any of his 5,986,462 Common Shares (5,956,462 Common Shares
if the Underwriters' over-allotment option is exercised in full) for a period of
one year after the closing of the Offering. The Selling Shareholders, except for
Martin E. Judge, Jr., the Company's directors, executive officers and certain
other shareholders have agreed, subject to certain limitations, not to sell any
Common Shares for a period of 180 days after the closing of the Offering.
Following the expiration of the 180-day period, the Selling Shareholders,
directors, executive officers (other than Mr. Judge) and certain other
shareholders will hold an aggregate of 3,092,957 Common Shares (2,872,955 Common
Shares if the Underwriters' over-allotment option is exercised in full) which
may be resold subject to certain restrictions under Rule 144. The approximately
8,755,973 remaining Common Shares (8,595,973 Common Shares if the Underwriters'
over-allotment option is exercised in full) are restricted securities under the
Securities Act and may be sold only if they are registered under the Securities
Act or pursuant to an applicable exemption from the registration requirements of
the Securities Act, including Rule 144 thereunder. In addition, the Company
intends, as soon as practicable after the consummation of this Offering, to
register 1,500,000 Common Shares, which are issuable to its employees,
directors, consultants and advisors under the Company's 1996 Incentive Stock
Option and Non-Qualified Stock Option Plan ("the Plan"). As of the closing of
this Offering, options to purchase 613,500 Common Shares at an exercise price
equal to the Offering price were outstanding under the Plan, however none of
these options were exercisable or will become so in the next sixty days. See
"Management -- Stock Plans." "Description of Capital Shares," "Registration
Rights" and "Shares Eligible for Future Sale."
Absence of Public Market; Possible Volatility of Stock Price
There has been no prior public market for the Company's Common Shares.
Although the Common Shares have been approved for inclusion in the Nasdaq Stock
Market, subject to notice of issuance, there can be no assurance that a viable
public market for the Common Shares will develop or be sustained after the
Offering or that purchasers of the Common Shares will be able to resell their
Common Shares at prices equal to or greater than the initial public offering
price. The initial public offering price has been determined by negotiations
among the Company, the Selling Shareholders and the representatives of the
Underwriters and may not be indicative of the prices that may prevail in the
public market after the Offering is completed. Numerous factors, including
announcements of
11
<PAGE>
fluctuations in the Company's or its competitors' operating results and market
conditions for staffing services industry stocks in general, could have a
significant impact on the future price of the Common Shares. In addition, the
stock market in recent years has experienced significant price and volume
fluctuations that often have been unrelated or disproportionate to the operating
performance of companies. These broad fluctuations may adversely affect the
market price of the Common Shares. See "Description of Capital Stock" and
"Underwriting."
Absence of Dividends
The Company has never paid any cash dividends on the Common Shares and does
not anticipate paying any cash dividends on the Common Shares in the foreseeable
future. In addition, the Company is prohibited under the terms of its revolving
line of credit from paying dividends without the consent of the lender. Future
dividends, if any, will depend, among other things, on the Company's results of
operations, capital requirements and financial condition, and on such other
factors as the Company's Board of Directors may, in its discretion, consider
relevant. See "Dividend Policy."
Potential Effect of Anti-Takeover Provisions
Certain provisions of the Company's Amended and Restated Articles of
Incorporation (the "Articles of Incorporation") and By-Laws may have
anti-takeover effects that may delay, deter or prevent a takeover attempt that
shareholders might consider in their best interest. These provisions include (i)
the authority of the Board of Directors to issue up to 10,000,000 preferred
shares in one or more series with such rights, obligations and preferences as
the Board of Directors may determine, (ii) authorization for only the Board of
Directors or the President to call special meetings of the shareholders, and
(iii) certain advance notice procedures for shareholder nomination of candidates
for election as directors and for certain shareholder proposals. See
"Description of Capital Stock."
The Company's Articles of Incorporation permit the Board of Directors to
establish the rights, preferences, privileges and restrictions of, and to issue,
up to 10,000,000 preferred shares without any further vote or action by the
Company's shareholders. The issuance of preferred shares could adversely affect
the holders of Common Shares and could have the effect of delaying, deferring or
preventing a change in control of the Company. The Company has no present plans
to issue any preferred shares. See "Description of Capital Shares."
Certain Anti-Takeover Effects of the Pennsylvania Business Corporation Law
The "business combination" provisions under the Pennsylvania Business
Corporation Law ("BCL") prohibit the Company from engaging in certain "business
combinations" with "interested shareholders" without certain director or
shareholder approval. The "business combination" provisions potentially could
deter certain types of transactions that might be proposed, whether or not such
transactions were favored by the majority of the shareholders, and could enhance
the ability of the Company's officers and directors to retain their positions.
The BCL expressly permits directors of a corporation to consider the interests
of constituencies other than shareholders in discharging their duties, provides
that they need not, in considering the best interests of the corporation,
consider any particular constituency's interests (including the interests of
shareholders) as the dominant or controlling interest, and provides that
directors do not violate their fiduciary duty by relying on shareholders' rights
plans and other anti-takeover provisions of the BCL. See "Description of Capital
Stock."
Dilution
Assuming an initial public offering price of $10.00 per share of Common
Shares, purchasers of the Common Shares offered hereby will realize an immediate
and substantial dilution of approximately $8.04 in net tangible book value per
share of Common Shares of their investment from the initial public offering
price. See "Dilution."
12
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from its sale of 3,000,000 Common Shares at
an estimated public offering price of $10.00 per share, after deducting
underwriting discounts and commissions and estimated Offering expenses (which
expenses include a financial advisory fee of approximately $300,000 payable to
The Gemstone Group, Inc.), are estimated to be approximately $26.8 million
(approximately $29.6 million if the Underwriters' over-allotment option is
exercised in full).
The Company intends to use a portion of the estimated net proceeds to pay
down its working capital line of credit, which bears interest at the prime rate
plus 1% and is due on May 31, 1998, the balance of which was $7.1 million as of
September 30, 1996. The Company intends to maintain this line of credit and may
draw on the line as needed in the future. The Company intends to use
approximately $1.6 million to pay certain portions of the purchase prices
relating to the Berkeley and Systems Automation acquisitions. The Company
anticipates using $1.8 million for the retirement of other short-term and
long-term indebtedness, principally equipment leases.
The remaining net proceeds of approximately $16.3 million will be used for
working capital and general corporate purposes, including establishment of the
corporate level sales force described in "Business -- Sales and Marketing." In
addition, the Company may use portions of the remaining net proceeds for future
acquisitions. As discussed in "Business -- Business Strategy," a significant
element of the Company's strategy is to grow through acquisitions of companies
in existing or complementary lines of business, although the Company is not
currently engaged in any acquisition negotiations.
Pending application of the net proceeds as set forth above, the Company
intends to invest any remaining net proceeds temporarily in short-term,
investment grade securities. The Company will not receive any proceeds from the
sale of the Common Shares offered by the Selling Shareholders.
DIVIDEND POLICY
The Company has not paid any cash dividends on its Common Shares. The
Company currently intends to retain future earnings for use in its business and,
therefore, does not anticipate paying any cash dividends in the foreseeable
future. The payment of future dividends, if any, will depend, among other
things, on the Company's results of operations and financial condition, any
restriction in the Company's loan agreements and on such other factors as the
Company's Board of Directors may, in its discretion, consider relevant. The
Company's ability to pay dividends is dependent in part upon the receipt of
dividends from its direct and indirect subsidiaries. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
13
<PAGE>
DILUTION
The net tangible book value (deficit) per common share represents the
amount of the Company's total tangible assets less its total liabilities,
divided by the number of common shares outstanding. The net tangible book value
(deficit) of the Company on a fully diluted basis at September 30, 1996 was
($2.3) million or ($0.25) per Common Share. The sale of Common Shares by the
Company pursuant to this Offering, at an assumed initial public offering price
of $10.00, would increase net tangible book value to $1.96 per Common Share,
representing an immediate increase in net tangible book value of $2.21 per
Common Share to existing shareholders and an immediate dilution in net tangible
book value of $8.04 per Common Share to purchasers of the Common Shares in this
Offering. The following table illustrates this per share dilution at September
30, 1996:
<TABLE>
<CAPTION>
<S> <C> <C>
Initial public offering price per share..................................... $ 10.00
=======
Net tangible book value per share before Offering......................... (0.25)
Increase per share attributable to sale of shares in Offering............. 2.21
-----
Pro forma net tangible book value per share after this Offering............. 1.96
-------
Dilution per share to new shareholders(1)................................... $ 8.04
=======
</TABLE>
- ----------
(1) Dilution is determined by subtracting pro forma net tangible stock value per
Common Share after completion of this Offering from the price paid by
investors purchasing Common Shares in this Offering.
14
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at
September 30, 1996 and as adjusted to give effect to the sale by the Company of
3,000,000 Common Shares at an assumed offering price of $10.00 per share, the
application of the estimated net proceeds therefrom, and certain business
combinations and other transactions which are more fully described elsewhere in
this Prospectus. This table should be read in conjunction with the Company's
consolidated historical financial statements, the Pro Forma Consolidated
Financial Statements and the Notes thereto, and "Use of Proceeds," all included
elsewhere herein. All dollars are in thousands.
September 30, 1996
----------------------
Pro Forma
Actual As Adjusted
--------- -----------
(Unaudited)
Convertible Notes(1)................................. $ 500 $ 0(2)
--------- ---------
Current portion of long-term debt.................... 941 156
--------- ---------
Long-term debt:
Note payable, bank(3).............................. $ 7,146 0
Other long-term debt............................... 3,409 852
--------- ---------
Total long-term debt............................... 10,555 852
--------- ---------
Minority interest(4)................................. 271 0
--------- ---------
Shareholders' equity:
Preferred shares(5)................................ 0 0
Common shares(6)................................... 86 130
Additional paid in capital......................... 366 30,321
Retained earnings.................................. 514 514
--------- ---------
Total shareholders' equity......................... 966 30,965
--------- ---------
Total capitalization............................ $ 13,233 $ 31,973
========= =========
- ----------
(1) Due July 1997.
(2) Assumes conversion into 526,000 Common Shares.
(3) For a description of the Company's note payable, bank, see Note 5 of Notes
to Consolidated Financial Statements, for the nine months ended September
30, 1996.
(4) Elimination of minority interest due to merger of JIS into a wholly-owned
subsidiary of the Company.
(5) Preferred Shares at September 30, 1996 were $0.01 par value, 10,000,000
shares authorized, none issued.
(6) Common Shares at September 30, 1996 were $0.01 par value, 50,000,000 shares
authorized; 8,587,739 shares issued and outstanding; Common Shares Pro Forma
As Adjusted were $0.01 par value, 50,000,000 shares authorized, 13,039,412
shares issued and outstanding.
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated operating statement
and balance sheet data for the periods indicated. The selected consolidated
operating statement and balance sheet data at and for each of the five fiscal
years presented below are derived from the Company's Consolidated Financial
Statements, of which the years ended December 31, 1995, 1994 and 1993 have been
audited by Rudolph, Palitz LLP, independent accountants. The selected statement
of operations and balance sheet data for the years ended December 31, 1992 and
1991 and the nine month periods ended September 30, 1995 and 1996 are derived
from the unaudited Consolidated Financial Statements of the Company, which
include all adjustments, consisting only of normal recurring adjustments, which
management considers necessary for a fair presentation of the data for such
periods. This data should be read in conjunction with the Consolidated Financial
Statements, related notes, and other financial information included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
----------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net revenues.................. $ 22,438 $ 26,722 $ 35,069 $ 45,253 $ 63,299 $ 46,876 $ 58,914
Cost of sales................. 1,616(1) 20,104 26,070 34,146 47,550 35,273 43,232
Selling and operating......... 18,655 4,950 5,853 6,509 9,798 6,842 10,023
General and administrative.... 1,600 2,171 2,525 3,155 4,187 3,199 4,310
--------- --------- --------- --------- --------- --------- ---------
Total costs and expenses...... 21,871 27,225 34,448 43,810 61,535 45,314 57,565
--------- --------- --------- --------- --------- --------- ---------
Income (loss) from
operations.................. 567 (503) 621 1,443 1,764 1,562 1,349
Interest expense.............. 222 238 338 427 670 517 600
Other income (expense)........ 31 (6) 4 7 (27) (28) 0
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before income
taxes....................... 376 (747) 287 1,023 1,067 1,017 749
Income taxes.................. 294 41 228 680 588 498 615
Minority interest (income).... 161 (126) 0 0 (7) 0 (617)
Cumulative effect change...... 0 0 42 0 0 0 0
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)............. $ (79) $ (662) $ 101 $ 343 $ 486 $ 519 $ 751
========= ========= ========= ========= ========= ========= =========
Fully diluted net income
(loss) per Common
Share(2)(3):
Income before cumulative
effect adjustment........... $ (0.01) $ (0.08) $ 0.01 $ 0.04 $ 0.06 $ 0.06 $ 0.08
Cumulative effect
adjustment.................. 0.00 0.00 0.00 0.00 0.00 0.00 0.00
--------- --------- --------- --------- --------- --------- ---------
$ (0.01) $ (0.08) $ 0.01 $ 0.04 $ 0.06 $ 0.06 $ 0.08
========= ========= ========= ========= ========= ========= =========
Fully-diluted weighted average
shares (2)(3):.............. 8,416 8,416 8,500 8,847 9,114 9,114 9,114
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
December 31, September 30,
----------------------------------------------------- -------------
1991 1992 1993 1994 1995 1996
--------- --------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital (deficiency)................................. $ 367 $ (615) $ (608) $ 329 $ 5,567 $ 5,957
Total assets................................................. 3,398 4,539 5,687 8,017 11,632 21,188
Notes payable, including current portion(4).................. 1,299 1,977 2,499 2,749 5,368 8,146
Other long-term obligations, including current portion....... 412 1,236 961 2,030 1,755 3,850
Shareholders' equity (deficit)............................... 123 (539) (438) (95) 391 966
</TABLE>
- ----------
(1) Does not reflect reclassification between cost of sales and selling and
operating expense principally related to the cost of consultants.
(2) All per share and share amounts reflect a 52.6 for 1.0 stock split which
occurred in September 1996.
(3) Fully-diluted shares include Common Stock equivalents and 526,000 Common
Shares issuable upon conversion of the Company's Convertible Notes.
(4) Includes line of credit and term loan.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements of the Company and related notes thereto
appearing elsewhere in this Prospectus.
Overview
The Company derives its revenues from the provision of contract and
permanent IT and engineering personnel, networking, imaging, document management
and workflow services and IT training. Components of cost of sales differ
depending on the type of service or product supplied, and may include salaries,
as well as hardware and software costs, but do not include depreciation and
amortization expenses. Selling and operating expenses consist primarily of
salaries and fringe benefits for selling representatives, and also include
marketing expenditures and bad debt charges. General and administrative expenses
consist of management and administrative salaries and related fringe benefits,
as well as other overhead, such as rent and depreciation. In the Imaging and
Network Services business, in fiscal years 1993, 1994 and 1995, general and
administrative expenses also included payroll costs for consultants and advanced
development programmers. During fiscal 1996, the Company began including such
payroll costs in cost of sales.
Revenue in the Company's Contract Placement business is derived from
professional service activities, primarily the placement of skilled IT and
engineering personnel whose work is billed at an hourly rate. Engagements of the
Company's technical consultants typically last from six to twelve months and the
Company bills clients and recognizes revenue on a weekly basis. Revenues are
directly related to the total number of hours billed to clients and the
associated hourly billing rates. Hourly billing rates are established for each
technical consultant based on the technical consultant's skills, experience and
the type of work performed. Revenues in the Company's Contract Placement
business have increased from $27.5 million in 1993 to $50.8 million in 1995, or
approximately 35.8% per year on average. Revenues for the nine months ended
September 30, 1996 were $44.6 million, compared to $37.9 million for the prior
year period, an increase of 17.7%. Revenue growth has been derived primarily
from increases in the number of technical consultants placed with existing and
new clients and increases in average billing rates. The Company believes that
the recent increase in the average billing rates for its technical consultants
has resulted from improved economic conditions and increased demand for skilled
and experienced technical consultants. Total hours billed in 1995 were
1,303,412, with an average billing rate of $38.99. For the nine months ended
September 30, 1996, total hours billed were 1,115,488, with an average billing
rate of $40.00, compared to total hours billed of 1,038,516 with an average
billing rate of $36.48 for the prior year period. Cost of sales in the Contract
Placement business consists primarily of the compensation expenses related to
the consultants, such as salaries, fringe benefits and payroll taxes.
Revenue in the Company's Permanent Placement business is generated from one
time fees received upon successful placements of engineering or IT professionals
with clients. The standard fee arrangement is 1% of each thousand dollars of
salary, up to a maximum of 33% of the professional's first year salary. Revenue
is recognized upon commencement of the employment, subject to reversal if
employment terminates during a 30 to 90 day guarantee period. The Permanent
Placement business placed 396 professionals with an average placement fee of
$10,800 in 1995. For the nine months ended September 30, 1996, 436 professionals
were placed with an average placement fee of $9,614 compared to 348
professionals placed with an average placement fee of $9,034 for the prior year
period. No cost of sales is recorded in the Permanent Placement business.
Revenue in the Company's Imaging and Network Services business is derived
from the provision of networking, imaging and document management services and
related sales of hardware and software. Revenues are recorded in the period in
which services are rendered and merchandise is shipped; however, when
installation is significant to the completion of the contract, revenue is
recognized on a percentage of completion basis. Cost of sales consists of
computer hardware, software
17
<PAGE>
and related licensing fees, salaries and fringe benefits for design,
installation and maintenance personnel, and overhead expenditures allocated to
imaging and networking activities.
The Company's Imaging and Network Services business was originally formed
to provide networking services to educational markets, primarily network design,
installation and maintenance utilizing the Company's private-label PC products,
and its networking operations were later expanded to include additional
platforms and peripherals. Due to relatively low operating margins on hardware
and software sales, which has accounted for a substantial portion of networking
revenues, this business historically has generated operating losses. Beginning
in 1988, the Company anticipated the emergence of a market for networking
systems incorporating imaging and document management technology. It entered
this market first as a reseller of Optika software, and later decided to expand
its product line to include both high production, high end systems such as
Filenet and low end workflow imaging systems such as Watermark, Keyfile and
Lotus Notes. More recently, the Company has devoted substantial resources to
expand the infrastructure of its imaging and document management business to
support anticipated sales growth, including the hiring of numerous consulting,
engineering, sales and administrative personnel since the beginning of 1994.
Revenue attributable to imaging and document management systems and
services has grown from $2.3 million in 1995 to $3.9 million in the nine months
ended September 30, 1996, representing approximately 28.0% and 38.9% of the
Imaging and Network Services business total revenue in those periods,
respectively. However, the Company's imaging activities have generated operating
losses to date due to slower than expected market expansion combined with the
substantial investment in infrastructure development. Specifically, imaging and
document management systems and services generated operating losses of $477,000
and $672,000 in 1995 and for the nine months ended September 30, 1996,
respectively, representing 90.6% and 94.7% of the total operating losses
experienced by the Imaging and Network Services business as a whole,
respectively.
The Company currently is focusing on achieving profitability in its Imaging
and Network Services business and expanding it through internal growth and new
service offerings, such as its MENTOR(Trademark) Consulting Program and a help
desk practice. In 1996 the Company increased the number of locations from which
it offers its Imaging and Network Services from three to six, and hired 12 new
salespeople, eight consultants/advanced development personnel and 22
engineers/technical support personnel in this business. As a result, selling,
operating and general and administrative costs for the Imaging and Network
Services business increased by 128.1%, or $1.8 million, for the nine months
ended September 30, 1996 as compared to the prior period, while selling,
operating and general and administrative costs for the Company as a whole
increased 42.8%, or $4.3 million, over this same period. Revenues for the
Imaging and Network Services business increased by 72.9%, or $4.2 million, for
the nine months ended September 30, 1996 as compared to the prior period, and
the Company believes that its investment in infrastructure and personnel should
generate further increases in revenues in this business in the future. Even if
it increases sales, however, there can be no assurance that the Imaging and
Network Services business will achieve a pricing and cost structure that will
generate profits. While the Company expects that the Imaging and Network
Services business will ultimately achieve profitability, it cannot predict the
timing of such profitability, should it occur at all, and expects to continue to
incur operating losses in this business at least through the first fiscal
quarter of 1997.
18
<PAGE>
The following table presents the net revenue (net of intercompany
eliminations) and the income (loss) from operations attributable to each of the
Company's businesses, in dollars and as a percentage of consolidated net
revenues, for the periods indicated. Except for consolidated net revenues and
consolidated income (loss) from operations for 1993, 1994, 1995, all of such
financial information is unaudited:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------
1993 1994 1995
-------------------- -------------------- --------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Net revenues:
Permanent Placement....... $ 3,131 8.9% $ 3,294 7.3% $ 4,275 6.7%
Contract Placement........ 27,537 78.5 38,186 84.4 50,804 80.3
Imaging and Network
Services................ 4,401 12.6 3,773 8.3 8,220 13.0
--------- --------- --------- --------- --------- ---------
Consolidated net
revenues................ $ 35,069 100.0% $ 45,253 100.0% $ 63,299 100.0%
========= ========= ========= ========= ========= =========
Income (loss) from
operations:
Permanent Placement....... $ 722 2.1% $ 258 0.6% $ 287 0.4%
Contract Placement........ 732 2.1 2,392 5.2 2,939 4.7
Imaging and Network
Services................ (137) (0.4) (466) (1.0) (526) (0.8)
Corporate overhead
expense................. (696) (2.0) (741) (1.6) (936) (1.5)
--------- --------- --------- --------- --------- ---------
Consolidated income (loss)
from operations......... $ 621 1.8% $ 1,443 3.2% $ 1,764 2.8%
========= ========= ========= ========= ========= =========
</TABLE>
Nine Months Ended September 30,
------------------------------------------
1995 1996
-------------------- --------------------
(Unaudited)
(Dollars in thousands)
Net revenues:
Permanent Placement....... $ 3,187 6.8% $ 4,265 7.2%
Contract Placement........ 37,890 80.8 44,622 75.8
Imaging and Network
Services................ 5,800 12.4 10,027 17.0
--------- --------- --------- ---------
Consolidated net
revenues................ $ 46,877 100.0% $ 58,914 100.0%
========= ========= ========= =========
Income (loss) from
operations:
Permanent Placement....... $ 376 0.8% $ 499 0.8%
Contract Placement........ 2,167 4.6 2,635 4.5
Imaging and Network
Services................ (270) (0.6) (709) (1.2)
Corporate overhead
expense................. (711) (1.5) (1,076) (1.8)
--------- --------- --------- ---------
Consolidated income (loss)
from operations......... $ 1,562 3.3% $ 1,349 2.3%
========= ========= ========= =========
Included in corporate overhead expense are salaries, benefits and related
costs for the Company's founder and chief executive officer, Martin E. Judge,
Jr., and for corporate level financial, human resources, management information
systems and marketing personnel. The number of personnel included in corporate
overhead has increased from five at December 31, 1993, to 16 at September 30,
1996. Founder's compensation of $357,000, $390,000, $495,000, $453,000 and
$371,000 was charged to the Permanent Placement business in 1993, the Imaging
and Network Services business in 1994, and the Contract Placement business in
1995 and the nine months ended September 30, 1996 and 1995, respectively. Future
corporate overhead expense will be allocated according to the number of
full-time employees in each of the Company's businesses.
Early in 1995 the Company began to implement a strategy to accelerate its
growth through the addition of new services, geographic expansion and strategic
acquisitions. As part of this strategy, the Company added sales, marketing,
engineering and operational personnel in its existing four regional offices and
in its National Division in Foxborough, Massachusetts, and opened a fifth branch
office in Edison, New Jersey. In addition, in September 1996, the Company
completed the acquisitions of Berkeley and Systems Automation.
Berkeley, now the Company's IT Training business, provides training on a
variety of computer network and software applications through offices located in
Bala Cynwyd, Pennsylvania; Alexandria, Virginia; and Baltimore, Maryland.
Besides expanding the Company's range of technical service offerings, the IT
Training business will assist the Company in identifying emerging technologies
and integrating such technologies into its organization through the training of
its technical consultants and in-house personnel. The Company's IT Training
business generated revenues of $2.3 million and $2.0 million for 1995 and the
first nine months of 1996, respectively.
Systems Automation, located in Wakefield, Massachusetts, provides imaging
and document management systems and services, and establishes a presence for the
Imaging and Network Services business in the Boston metropolitan area. Systems
Automation generated revenues of $1.2 million and $867,000 for 1995 and the
first nine months of 1996, respectively.
19
<PAGE>
Results of Operations
The following table sets forth certain statement of operations data as a
percentage of consolidated net revenues for each of the periods indicated:
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
------------------------------- ------------------------
1993 1994 1995 1995 1996
--------- --------- --------- ------------- ---------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net revenues...................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales..................... 74.3 75.4 75.1 75.2 73.4
Selling and operating............. 16.7 14.4 15.5 14.7 17.0
General and administrative........ 7.2 7.0 6.6 6.8 7.3
--------- --------- --------- ------ ---------
Total costs and expenses.......... 98.2 96.8 97.2 96.7 97.7
Income from operations............ 1.8 3.2 2.8 3.3 2.3
Interest and other, net........... 1.0 0.9 1.1 1.2 1.0
--------- --------- --------- ------ ---------
Income before income taxes........ 0.8% 2.3% 1.7% 2.1% 1.3%
========= ========= ========= ====== =========
</TABLE>
Nine Months Ended September 30, 1996 Compared to Nine Months
Ended September 30, 1995
Net Revenues. Consolidated net revenues increased by 25.7%, or $12.0
million, for the nine months ended September 30, 1996 compared to the prior year
period. Revenue for the Contract Placement business increased by 17.8%, or $6.7
million, for the nine months ended September 30, 1996 compared to the prior year
period. Contributing to this increase was revenue of $2.1 million attributable
to the Edison, New Jersey office, which opened in April 1995, and revenue of
$1.6 million attributable to the Company's National Division in Foxborough,
Massachusetts. Revenue for the Permanent Placement business increased by 33.8%,
or $1.1 million, for the nine months ended September 30, 1996 compared to the
prior year period. Contributing to this increase was revenue of $750,000
attributable to the Bala Cynwyd, Pennsylvania office and revenue of $378,000
attributable to the Edison, New Jersey office. Revenue for the Imaging and
Network Services business increased by 72.9%, or $4.2 million, for the nine
months ended September 30, 1996 compared to the prior year period. Of this
increase, $2.1 million was attributable to networking systems and services and
$2.1 million was attributable to imaging and document management systems and
services.
Cost of Sales. Consolidated cost of sales increased by 22.6%, or $8.0
million, for the nine months ended September 30, 1996 compared to the prior year
period. Cost of sales as a percentage of consolidated net revenues decreased to
73.4% from 75.2%. In the Company's Imaging and Network Services business, cost
of sales as a percentage of revenue decreased to 75.5% from 80.7%, primarily as
a result of the realization of economies of scale and an increased focus on
providing services that yield higher margins than traditional hardware and
software sales. In the Company's Contract Placement business, cost of sales as a
percentage of revenue decreased slightly to 80.0% at September 30, 1996 from
80.7% at September 30, 1995. The decline in cost of sales as a percentage of
consolidated net revenues was also attributable to an increase in revenue for
the Permanent Placement business, which has no cost of sales.
Selling and Operating. Consolidated selling and operating expenses
increased by 46.5%, or $3.2 million, for the nine months ended September 30,
1996 compared to the prior year period. Contributing to this increase was an
increase in selling and operating expenses of 113.9%, or $1.1 million, in the
Imaging and Network Services business. Selling and operating expenses as a
percentage of consolidated net revenues for the nine months ended September 30,
1996 increased to 17.0% from 14.7% in the prior year period, due primarily to a
44.3% increase in payroll costs associated with the Company's hiring of sales
and marketing personnel in all of its businesses and a $207,000 increase in bad
debt charges resulting principally from the bankruptcy of one of the Company's
Contract Placement customers.
20
<PAGE>
General and Administrative. Consolidated general and administrative
expenses increased 34.7%, or $1.1 million, for the period ending September 30,
1996 compared to the prior year period. Contributing to this increase was an
increase in general and administrative expenses of 160.1%, or $682,000, in the
Imaging and Network Services business. General and administrative expenses as a
percentage of consolidated net revenues increased to 7.3% for the period ending
September 30, 1996 compared to 6.8% for the prior year period, primarily as a
result of increased payroll costs associated with consulting and engineering
personnel in the Imaging and Network Services business and the expansion of the
Company's corporate staff, specifically the hiring of additional management
information systems personnel, human resources personnel and a financial
analyst. In addition, rent expense increased by $237,000 as a result of the
opening of the Company's Edison, New Jersey office and the expansion of the Bala
Cynwyd, Pennsylvania office.
Interest. Interest expense increased by $60,000, or 11.1%, for the nine
months ended September 30, 1996 compared to the prior year period. This increase
was due to increased borrowing under the Company's line of credit.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Net Revenues. Consolidated net revenues increased by 39.9%, or $18.0
million, in 1995 compared to 1994. Revenue for the Contract Placement business
increased by 33.0%, or $12.6 million, in 1995 compared to 1994. Contributing to
this increase was revenue of $1.6 million attributable to the Edison, New Jersey
office, which opened in April, 1995. Revenue for the Permanent Placement
business increased by 29.8%, or $981,000, in 1995 compared to 1994. Contributing
to this increase was revenue of $81,000 attributable to the Edison, New Jersey
office. Revenue for the Imaging and Network Services business increased by
117.8%, or $4.4 million, in 1995 compared to 1994. Contributing to this increase
was revenue of approximately $2.0 million attributable to the addition of a
major networking systems contract with the State of New Jersey.
Cost of Sales. Consolidated cost of sales increased by 39.3%, or $13.4
million, in 1995 compared to 1994. Cost of sales as a percentage of consolidated
net revenues decreased slightly to 75.1% in 1995 from 75.4% in 1994. This
decrease is attributable to an increase in Permanent Placement revenue which has
no cost of sales, and a decrease in cost of sales as a percentage of revenue for
the Contract Placement business, partially offset by an increase in cost of
sales as a percentage of net revenue for the Imaging and Network Services
business.
Selling and Operating. Consolidated selling and operating expenses
increased by 50.5%, or $3.3 million, in 1995 compared to 1994, and increased to
15.5% of consolidated net revenues in 1995 compared to 14.4% in 1994.
Contributing to this increase was an increase in selling and operating expenses
of 87.6%, or $729,000, in the Imaging and Network Services business. Also
contributing to this increase was an increase in salaries and related fringe
benefits incurred as a result of an increase in sales personnel in each of the
Company's other businesses. In addition, the Company realized a bad debt charge
of $300,000 in 1995 compared to $72,000 in 1994, principally attributable to the
bankruptcy of a Contract Placement customer.
General and Administrative. Consolidated general and administrative
expenses increased 32.7%, or $1.0 million, in 1995 compared to 1994.
Contributing to this increase was an increase in general and administrative
expenses of $13.5%, or $56,000, in the Imaging and Network Services business.
Also contributing to this increase was an increase in administrative staffing
levels in the Edison, New Jersey, Bala Cynwyd, Pennsylvania and Foxborough,
Massachusetts offices and increased rent expense of $168,000 associated with the
new Edison office and the expansion of the Bala Cynwyd office. In addition, in
1995 the Company realized tax penalties of $237,000 pursuant to a settlement
with the IRS. General and administrative expenses as a percentage of
consolidated net revenues decreased marginally from 7.0% in 1994 to 6.6% in
1995.
Interest. Interest expense increased by 56.9%, or $243,000, in 1995
compared to 1994. This increase was attributable to the increased borrowing
under the Company's line of credit.
21
<PAGE>
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
Net Revenues. Consolidated net revenues increased by 29.0%, or $10.2
million, in 1994 compared to 1993. Revenue from the Contract Placement business
increased by 38.7%, or $10.6 million, due to increased marketing efforts in all
of the Company's offices, and a $1.0 million increase in revenue in the
Company's National Division. Revenue for the Permanent Placement business
increased by 5.2%, or $163,000, from 1993 to 1994. Revenue for the Imaging and
Network Services business decreased by 14.3%, or $628,000, in 1993, due
principally to a vacancy in the office of president for all of 1994 and the loss
of a networking systems contract with the State of New Jersey that had generated
$2.0 million in revenue in 1993.
Cost of Sales. Consolidated cost of sales increased by 31.0%, or $8.1
million, in 1994 compared to 1993. Cost of sales as a percentage of consolidated
net revenues increased to 75.4% in 1994 compared to 74.3% in 1993. This increase
is primarily attributable to the cost of sales in the Imaging and Network
Services business, which increased as a percentage of its revenue from 74.8% in
1993 to 80.5% in 1994, due in large part to the loss of the $2.0 million
contract with the State of New Jersey. Cost of sales for the Contract Placement
business decreased slightly as a percentage of its revenue.
Selling and Operating. Consolidated selling and operating expenses
increased by 11.2%, or $656,000, in 1994 compared to 1993. Contributing to this
increase was an increase in selling and operating expenses of $14.6%, or
$85,000, in the Imaging and Network Services business. Selling and operating
expenses decreased as a percentage of consolidated net revenues to 14.4% in 1994
compared to 16.7% in 1993, primarily as a result of the increased volume of
business and a decrease in medical and workmen's compensation insurance expense
in all of the Company's businesses.
General and Administrative. Consolidated general and administrative
expenses increased 25.0%, or $630,000, in 1994 compared to 1993, primarily due
to an increase in salaries and related fringe benefits associated with the
hiring of management information systems and accounting personnel in the
Contract Placement business. General and administrative expenses also increased
as a result of higher rent expense for the Company's Bala Cynwyd office and an
increase in accounting fees. Offsetting this increase was a decrease in general
and administrative expenses of $16.5%, or $82,000, in the Imaging and Network
Services business. General and administrative expenses as a percentage of
consolidated net revenues remained constant at approximately 7.0% in 1994 and
1993.
Interest. Interest expense increased by 26.3%, or $89,000, in 1994,
compared to 1993. This increase was attributable to increased borrowing under
the Company's line of credit.
Income Taxes
The Company adopted the Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes," as of January 1, 1993 by determining the
cumulative effect on prior years of the change in method of accounting for
income taxes. The effective tax rates for 1995, 1994 and 1993 are higher than
the applicable statutory tax rate of 34%, due to certain non-deductible expenses
related to the Company's repurchase of equity interests held in the Company by a
former employee, a Federal and state provision at the maximum rates for the
Contract Placement business and net operating losses for the Imaging and Network
Services business, which are consolidated for financial but not for tax
reporting purposes. In addition, if the Imaging and Network Services business is
unable to achieve profitability, it will not realize the federal tax benefit of
its $2.4 million operating loss carryforward, which will expire between 2002 and
2010. (See Note 10 of Notes to the Consolidated Financial Statements for the
nine months ended September 30, 1996.) The effective tax rate was 79.3%, 66.4%,
55.1%, 49.0% and 82.1% for fiscal years 1993, 1994, 1995, the nine months ended
September 30, 1995 and the nine months ended September 30, 1996, respectively.
22
<PAGE>
Seasonality and Quarterly Results of Operations
The following table presents certain unaudited quarterly statements of
operations data for each of the Company's last seven fiscal quarters. In the
opinion of the Company's management, this quarterly information has been
prepared on the same basis as the audited financial statements appearing
elsewhere in this Prospectus and includes all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the unaudited
quarterly results set forth herein. The Company's quarterly results have in the
past been subject to fluctuations, and thus, the operating results for any
quarter are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------------------------------------
March 31, June 30, Sept. 30, Dec. 31, March 31, June 30, Sept. 30,
1995 1995 1995 1995 1996 1996 1996
--------- --------- --------- --------- --------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues........................... $ 14,131 $ 15,268 $ 17,478 $ 16,422 $ 16,435 $ 20,892 $ 21,588
Cost of sales.......................... 10,859 11,432 12,982 12,277 12,528 15,060 15,645
Selling and operating.................. 2,124 2,439 2,279 2,956 2,654 3,710 3,659
General and administrative............. 976 1,062 1,161 988 1,398 1,450 1,462
--------- --------- --------- --------- --------- --------- ---------
Total costs and expenses............... 13,959 14,933 16,422 16,221 16,580 20,220 20,766
Income from operations................. 172 335 1,056 201 (145) 672 822
Interest expense and other, net........ 131 186 228 152 181 191 228
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before income taxes...... $ 41 $ 149 $ 828 $ 49 $ (326) $ 481 $ 594
========= ========= ========= ========= ========= ========= =========
</TABLE>
Because the Company only derives revenue in its Contract Placement business
when its consultants are actually working, its revenues and operating results
are adversely affected when its clients' facilities close due to holidays or
inclement weather. The Company also incurs additional expenses in its first
fiscal quarter, in part as a result of higher employment and related payroll
taxes. During the quarter ended December 31, 1995, the number of holidays and
vacation days marginally affected revenues in the Contract Placement business.
In the quarter ended March 31, 1996, severe weather negatively affected revenues
in all of the Company's operating businesses, particularly the Contract
Placement business.
Liquidity and Capital Resources
The Company's need for working capital has increased as its sales have
grown over the last three years. In each of the last three fiscal years and in
the nine months ending September 30, 1996, the Company has used cash in
operations. This is primarily attributable to the nature of the Company's
Contract Placement business and to losses in the Imaging and Network Services
business. As is customary in the staffing industry, the Company pays its
technical consultants on a weekly basis for hours billed, but invoices its
clients for those services approximately one week later, with the invoices
payable from 30 to 60 days after issuance. Certain large customers of the
Contract Placement business may receive even more favorable payment terms.
Similarly, as a result of the project-oriented nature of the Company's Imaging
and Network Services business, the Company pays its personnel semi-monthly,
while payment for the services performed are often received over a six to nine
month period, depending on the nature of the installation and the amount of
advanced development and/or consulting services that are requested by the
customer. In addition, the Company has used cash in each of the last three
fiscal years and in the nine months ending September 30, 1996 to fund its
investment in the infrastructure of its Imaging and Network Services business.
The Company expects to continue to use cash in its operations for the
foreseeable future.
The Company has funded its working capital and capital expenditure needs
primarily through borrowings under its credit facility. The Company typically
maintains minimal cash balances, and at September 30, 1996 had approximately
$154,000 in cash.
The Company used approximately $87,000, $896,000, $2.3 million, $2.4
million and $2.2 million of cash in operations in 1993, 1994 and 1995 and the
nine months ended September 30, 1995 and 1996 respectively. The Company's
primary uses of cash have been to fund increases in accounts receivables, to
purchase fixed assets and to repay long-term debt. The Company's net accounts
receivable have increased from $4.3 million at December 31, 1993 to $13.0
million at September 30, 1996, principally
23
<PAGE>
due to the growth in revenue in its Contract Placement business. Purchases of
fixed assets in 1993, 1994, 1995 and the nine months ended September 30, 1995
and 1996 were $91,000, $480,000, $637,000, $331,000 and $874,000, respectively.
Cash provided from financing activities, principally bank borrowings, was
approximately $203,000, $1.3 million, $2.6 million, $2.6 million and $2.6
million in 1993, 1994 and 1995 and the nine months ended September 30, 1995 and
1996, respectively. During 1994, the Company raised $500,000 from a group of
investors through the sale of Convertible Notes. These notes mature in July 1997
and therefore are classified as current in the balance sheet as of September 30,
1996. The Convertible Note holders have agreed to convert their notes into
526,000 Common Shares concurrently with this Offering. Effective September 30,
1996, the Company received waivers from the Convertible Note holders regarding
certain covenant violations relating to limitations on annual capital
expenditures and the issuance of unsecured notes. See Note 7 of Notes to
Consolidated Financial Statements. In addition, in February 1996 the Company
received cash proceeds of $888,000 from a private placement of Series A
preferred shares by its Imaging and Network Services business.
At various times during prior periods, the Company borrowed amounts under
its then existing credit facility in excess of the amounts permitted to be
borrowed under the facility, thus requiring the Bank to waive the lending
limitation. In order to provide the Company with a credit facility more suitable
for its needs, effective September 30, 1996, the Company amended and restated
its credit facility to increase the amounts that it may borrow under the line
and modified various covenants. In addition, the bank amended the loan agreement
to include the transactions related to the Company's reorganization and the
acquisition of Berkeley and Systems Automation, and redefined certain financial
ratios to accommodate the acquisitions.
The Company's bank borrowings currently consist of a $10.0 million
revolving advance facility with PNC Bank, N.A. (sucessor to Midlantic Bank,
N.A.) (the "Line of Credit") and a $1.0 million term loan. The Line of Credit
expires on May 31, 1998 and carries an interest rate of prime plus 1.0%, which
interest rate will revert to prime upon the successful completion of this
Offering. This facility allows the Company to borrow the lesser of 80% of
eligible receivables or $10.0 million. Based on eligible receivables of $10.8
million at September 30, 1996, the maximum amount that the Company can borrow
under the Line of Credit is $8.7 million. The Line of Credit also requires the
Company to meet certain financial ratios and transactional covenants. The
Company intends to use a portion of the estimated net proceeds to pay down the
Line of Credit, the balance of which was $7.1 million as of September 30, 1996,
although the Company does intend to draw on the line as needed in the future.
The Line of Credit is secured by substantially all of the Company's assets and
contains customary restrictive covenants, including limitations on amounts of
loans the Company may extend to officers and employees, the incurrence of
additional debt and the payment of dividends on the Company's common or
preferred shares. The term loan, which carries an interest rate of prime plus
1-1/2%, is payable in 60 monthly installments, with the balance due upon
consummation of this Offering. At September 30, 1996, there was $1.0 million
outstanding under the term loan. In addition, at September 30, 1996, the Company
had approximately $834,000 of additional short-term and long-term debt
outstanding, principally equipment leases, which it intends to repay with a
portion of the proceeds from this Offering. In connection with the acquisitions
of Berkeley and Systems Automation, the Company issued unsecured notes in the
aggregate principal amount of $2.5 million for the stock of Berkeley and the net
assets of Systems Automation, $1.6 million of which will be paid with a portion
of the proceeds of this Offering.
The Company anticipates that its primary uses of capital in future periods
will be for acquisitions, funding of increases in accounts receivables and the
development of its corporate level sales force. See "Use of Proceeds." The
Company believes that the proceeds from this Offering and borrowings under the
Line of Credit, or other credit facilities which may be available to the Company
in the future, will be sufficient to meet the Company's capital needs for at
least the next twelve months.
Inflation
The Company does not believe that the rates of inflation prevailing in the
United States in recent years have had a significant effect on its operations.
24
<PAGE>
BUSINESS
Introduction
The Judge Group services the IT and engineering needs of its clients
through the following four complementary operating units:
o Contract Placement -- Provides IT and engineering personnel
("technical consultants") on a contract
basis;
o Permanent Placement -- Provides IT and engineering personnel on
a permanent basis;
o Imaging and Network Services -- Provides computer networking, imaging,
document management, workflow and related
consulting services; and
o IT Training -- Provides standard and customized IT
training on established and emerging
software applications.
The Company's Contract Placement business provides technical consultants
skilled in a variety of fields, such as applications programming and
development, client/server technology, legacy systems conversion, software
architecture and design, data communications, systems engineering,
Internet/Web-Site design, project consulting and Help Desk management. The
Company provides technical consultants in the MidAtlantic and New England
regions of the United States through three branch offices, and on a nationwide
basis through its National Division. The Company maintains a database of over
100,000 technical consultants, and in 1995 provided over 1,700 technical
consultants to more than 800 clients.
The Company's Permanent Placement business provides medium to high-level IT
and engineering professionals on a permanent basis to clients nationwide. The
Company maintains a database of over 70,000 IT and engineering professionals,
and in 1995 placed 396 candidates with more than 240 clients.
The Company's Imaging and Network Services business offers advanced
technical solutions to increase the efficiency of business processes, such as
network and document management systems design, integration, implementation,
maintenance and training, business process redesign through its
MENTOR(Trademark) Consulting Program, project management, and advanced
applications development. The Company is a value-added reseller and service
facility for PC and network hardware, software and related peripherals
manufactured by Compaq, ACER, IBM, Apple, Okidata, Tricord, HP and others. The
Company has installed more than 110 imaging systems, is an authorized
value-added reseller of Optika, Filenet, Saros(Copyright), Watermark, Keyfile,
OTP and Lotus Notes imaging software, and integrates its imaging solutions on a
variety of operating systems, including Banyan, OS/2 and Windows NT(Trademark).
The Company's IT Training business, acquired in September 1996, provides
training on a range of software and network applications to corporate,
governmental and individual clients. The IT Training business currently offers
three licensed diploma courses, six certificate courses, and over 180
open-enrollment courses, either in its own computer labs or at client locations.
Besides expanding the Company's range of technical service offerings, the IT
Training business will assist the Company in identifying emerging technologies
and integrating such technologies into its organization through the training of
its technical consultants and in-house personnel.
The Company serves its clients through offices located in Bala Cynwyd,
Pennsylvania; Foxborough and Wakefield, Massachusetts; Edison and Moorestown,
New Jersey; Hartford, Connecticut; Tampa, Florida; Baltimore, Maryland; and
Alexandria, Virginia. The Company's client base includes various Fortune 500
companies and governmental agencies, including Merck, Bell Atlantic NYNEX
Mobile, Texas Instruments, Compaq, Intel and the City of Philadelphia. The
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Company believes that its four complementary businesses afford it a competitive
advantage over IT service providers that have fewer service offerings, and
position it to benefit from the anticipated growth in the technical staffing and
IT training industry and the imaging and document management industry. The
Company has recently adopted an integrated marketing and service approach aimed
at both new and existing customers which seeks to take advantage of its ability
to offer a comprehensive, cost-effective and convenient means to meet a wide
variety of technical requirements.
Industry Overview
The Company operates in two interrelated and growing segments within the IT
professional services industry: the Technical Personnel Placement and IT
Training segment and the Imaging, Document Management and Network Services
segment. Both segments are highly fragmented and characterized by a large number
of local and regional service providers.
Technical Personnel Placement and IT Training. To address the demands
created by an increasing shortage of technical personnel and expertise in the
workplace, organizations need to (i) permanently hire qualified personnel, (ii)
temporarily engage qualified personnel, or (iii) train their existing personnel.
In order to more effectively identify and understand technical professional
skills and gain access to a broader range of professionals, many organizations
are turning to permanent placement providers. According to Staffing Industry
Report, revenues from permanent placement services are estimated to have grown
from $1.2 billion in 1993 to $1.7 billion in 1995, and are expected to grow to
$1.8 billion in 1996, representing a 14.5% compound annual growth rate.
Organizations desiring variable cost solutions to their technical staffing
needs are increasingly using contract service providers to supplement or
outsource in-house technical personnel requirements. By relying on technical
consultants, organizations can reduce the costs associated with recruiting,
training and relocating employees as technical needs change. According to
Staffing Industry Report, revenues from technical/computer temporary staffing
are estimated to have grown from $5.7 billion in 1993 to $9.2 billion in 1995,
and are expected to grow to $11.4 billion in 1996, representing a 26.0% compound
annual growth rate. Furthermore, since technical consultants are often able to
maintain compensation levels comparable to or higher than those of similarly
skilled full-time employees, the number of individuals with technical skills who
work independently for one or more contract service providers has increased in
recent years.
In many industries, organizations are training increasing proportions of
their workforces on certain relevant applications in order to achieve maximum
productivity with their IT systems. In addition, many individuals, including
those already employed as technical consultants, seek training to acquire or
improve technical skills in order to advance professionally. The Updata Group,
Inc. estimates that revenues from IT training services will grow from $2.9
billion in 1995 to $5.6 billion by the year 2000, representing a 14.8% compound
annual growth rate.
Imaging, Document Management and Network Services. During the early to
mid-1980's, many organizations began to migrate from mainframe-based computer
operations to platforms based on PC client/server networks utilizing
multi-vendor and multi-protocol technologies. While IT networks provide many
competitive benefits, including increased computing power, ease of use and
flexibility, they also have placed increased pressures on clients' in-house IT
personnel, as well as on software and hardware vendors, to support and manage
the networks in an environment of rapidly changing technology. As a result,
organizations must increasingly rely on independent service providers with the
technical expertise to design and configure complex IT networks, integrate and
support a variety of protocols, applications and equipment, and manage and
upgrade the networks on an ongoing basis.
One type of IT network system that has grown in prevalence in recent years
is the imaging and document management system. Historically, information has
been stored, manipulated and retrieved through the use of paper based filing
systems, microfilm and microfiche. Each of these methods suffer one or more of
the disadvantages of being relatively costly, slow in providing information
exchange, subject to human error and not simultaneously accessible to multiple
users. The document management
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industry has evolved as a result of the need to store, manipulate and retrieve
large quantities of information in an efficient and cost-effective manner.
An imaging system uses software and high speed input scanners to convert
paper documents into digitized images and store them on optical or magnetic
disks. Documents that have been converted to a digital format, as well as other
computerized text and data, can be indexed, stored, retrieved and routed from
one worker or department to another by using a document management system.
Workflow, a feature of a document management system, automates routine work
processes by automatically, rather than manually, routing digital information
(such as invoices or insurance claims) from one workstation to another. For
paper intensive industries, document management systems offer several advantages
over paper or microfilm, including faster, easier and more reliable digital file
access by multiple users in various locations, and a reduction in the overall
cost of document storage, including related time and labor.
The increasing implementation of client/server networks, the decreasing
cost of such systems and the desire of businesses to increase productivity are
sources of growth for the document management and network services markets. In
addition, paper intensive industries, such as health care, insurance, financial
services and retailing, are seeking cost-effective document management solutions
to take advantage of the full capabilities of their existing IT systems.
According to a study prepared for AIIM, electronic imaging revenues, including
hardware, software, services and support, grew approximately 18.2% in 1995, from
$2.2 billion in 1994 to $2.6 billion in 1995. The Company believes that document
management service providers, such as the Company, will benefit from the
anticipated growth in the market to a greater degree than software or hardware
vendors, due to the declining prices of hardware and software and the increasing
number of installations, which are expected to result in the need for new
applications and maintenance.
Business Strategy
The Company's objective is to become a leading nationwide provider of IT
and engineering professional services. Key elements of the Company's business
strategy include:
Offering a Single Source of Technical Solutions. The Company provides its
clients with a wide range of technical staffing, consulting, imaging, document
management, workflow and training services. By integrating multiple IT and
engineering services, the Company is able to provide clients with a
comprehensive, cost-effective and convenient means to meet their technical
requirements, reducing the time and expense associated with selecting multiple,
qualified vendors. The Company intends to continue to develop complementary new
services, such as Help Desk and Asset Management services, and its recently
introduced MENTOR(Trademark) Consulting Program, a methodology for evaluating
new technology and organizational redesign, in order to enhance its capabilities
as a single-source provider of technical solutions.
Aggressively Marketing a Broad Range of Services. The Company's marketing
programs seek to emphasize its competitive advantage over other IT service
providers that have fewer service offerings. The Company has recently
established several incentive sales programs to increase business from existing
clients by encouraging the cross-selling of the services of its four operating
units. Furthermore, the Company plans to establish a corporate-level sales force
to identify opportunities where it can provide integrated solutions to new
clients and then market such solutions in conjunction with the sales
professionals of the relevant operating businesses.
Developing a National Presence. The Company believes that many
organizations with multiple geographic locations prefer to utilize technical
service providers that can offer high quality services on a nationwide basis.
The Company has provided engineering personnel on a contract basis nationwide
through its National Division in Foxborough, Massachusetts since 1991 and has
recently expanded its national efforts to include IT personnel. In addition, the
Company has begun targeting longer-term national projects as well as those
projects utilizing more highly skilled personnel. The Company believes that it
has several national accounts with which it has a large enough base of business
to
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<PAGE>
warrant establishing local Contract Placement offices, and intends to leverage
select national accounts to expand into new geographic areas.
Expanding Imaging and Network Services Business. The Company began
developing its imaging, document management and workflow service capabilities
and infrastructure in 1988. The Company's Imaging and Network Services business
has installed more than 110 imaging and document management systems, and
currently has 101 people committed full-time to imaging projects, including
personnel specializing in high-volume backfile conversion, an Advanced
Development Group, and the MENTOR(Trademark) Consulting Group. The Company
believes that many organizations are evaluating the implementation or expansion
of imaging technologies, and will continue to invest resources to develop this
business in order to benefit from the projected growth in the imaging and
document management market. In addition, the Company will seek to establish
initial client relationships with many organizations through its Imaging and
Network Services business, enabling it to then cross-sell the capabilities of
its other three operating units.
Capitalizing on IT Training Resources. The Company intends to leverage its
recently acquired IT Training business to assist it in identifying emerging
technologies and integrating such technologies into its organization in order to
expand its service offerings and maintain its competitive position. The Company
intends to employ its instructors to train its technical consultants in
leading-edge technologies, and believes this will enhance its ability to
attract, retain and increase the marketability and job satisfaction of such
consultants. By training its in-house personnel, the Company will enhance its
ability to stay current on new technologies and to position itself as a provider
of leading-edge technical solutions.
Pursuing Strategic Acquisitions. The IT professional services industry is
highly fragmented and contains a number of local and regional technical service
providers that market one or more of the Company's four service offerings and
have established customer bases and access to qualified technical personnel. In
order to facilitate its expansion into new geographic markets and strengthen its
position in existing markets, the Company intends to acquire certain of these
providers through which it can then market its full range of complementary
service offerings and expand its databases of technical consultants and
permanent placement professionals. The Company will seek to make such
acquisitions in major metropolitan areas that have a significant concentration
of companies with a need for IT services and in which the Company believes it
can secure a sufficient market share to warrant opening a new office.
Services
Contract Placement
The Company provides IT and engineering technical consultants on a contract
basis regionally through its offices in Bala Cynwyd, Pennsylvania; Foxborough,
Massachusetts; and Edison, New Jersey, and nationally through its National
Division in Foxborough. The Company maintains a database of over 100,000
technical consultants, and in 1995 placed over 1,700 consultants with more than
800 clients. Typical engagements range in duration from six to twelve months,
though some of the Company's technical consultants have been performing services
for its clients for a period of more than five years. The Company's technical
consultants and independent contractors often work jointly with clients'
in-house IT personnel, and are generally placed with clients on an hourly basis
at billing rates ranging from $10 to $150 and averaging $40 as of September 30,
1996. The Company's Contract Placement business, founded in 1986, generated
revenue of $50.8 million in fiscal 1995 and $44.6 million for the nine months
ending September 30, 1996, which represented 80.3% and 75.8% of the Company's
consolidated net revenues in those periods, respectively.
The majority of the Company's Contract Placement business is derived from
providing technical consultants skilled in IT and software engineering. In
addition to staff augmentation, the Company has recently begun to provide
project consulting services, which can include project management, workflow
analysis, database design, custom applications and systems integration. In a
project
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management engagement, which is usually priced on a fixed fee basis, the Company
will typically oversee an entire IT project from inception to completion,
utilizing technical consultants with specialty skills in the relevant
technologies.
The following chart illustrates some of the capabilities of the Company's
technical consultants.
Information Systems
Position/Title Skills
- -------------- ------
Client/Server Developer Visual Basic; GUI Access; Powerbuilder
Database Developer Foxpro; Paradox Dbase
Database Manager DB2 DBA; Oracle DBA; Maintenance of Database
Software Engineer Unix; C++; Realtime; Embedded Systems; QA; OOP;
OOD; Visual C++; MFC
Internet/Web-Site Designer HTML; Java; Shell Script; Shockwave; CGI Unix;
TCP/IP; Perl
IBM Mainframe Programmer Cobol; CICS; DB2; IMS; DMS
Network Engineer Novell or Windows NT; CNE Certificate; MCSE
Help Desk Consultant Support of MS Office/Lotus Suite; Windows;
Trouble shooting hardware/software
Engineering
Position/Title Skills
- -------------- ------
Engineer ASIC Chip Design; Embedded Microprocessor Design
(Mechanical; Electrical; Engineer; Autolisp Programming; Pharmaceutical
Chemical) Validation
Designer Piping Design; Mechanical Design; Unigraphics
Design; Semiconductor Machine Design; Liquid
Crystal Display Systems; Micro-station Design;
3-D Pro Engineering Design; Chilled Water
Electro-Mechanical Packaging Design
The Company, as part of its strategy of being a single source provider of
technical solutions, seeks to develop new service offerings. Since many IT
systems currently are incapable of recognizing dates subsequent to 1999, the
Company has designed several approaches to assist clients in re-engineering
their IT systems and databases to accommodate the year 2000 and beyond. The
Company is also currently developing a Help Desk practice to assist clients in
staffing and training personnel to implement and maintain their in-house help
desks. Alternatively, clients will be able to outsource this function to the
Company under a monthly fee arrangement. The Company is also developing an Asset
Management service whereby it will monitor and service a client's mobile
computing inventory, such as a network of laptop or notebook computers utilized
by pharmaceutical representatives. In addition, the Company has recently
expanded the type of skilled personnel its Contract Placement business is
capable of providing to such diverse areas as finance, life sciences, desktop
publishing, PC support and help desk, and human resources. Furthermore, as it
has done in the past, the Company will continue to leverage its Contract
Placement capabilities by providing technical consultants to assist in the
implementation and operation of systems installed by its Imaging and Network
Services business.
The Company believes that many organizations with multiple geographic
locations prefer to utilize technical service providers that can offer high
quality services on a nationwide basis. The Company established its National
Division in Foxborough, Massachusetts in 1991 to provide
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engineering personnel on a contract basis nationwide, and the Company currently
serves national clients in such locations as Portland, Oregon and Houston,
Texas. The Company has recently expanded its national efforts to include
placement of IT as well as engineering professionals, and to begin longer term
projects requiring more highly skilled personnel. Revenue attributable to the
National Division was $8.9 million and $8.0 million in 1995 and the first nine
months of 1996, respectively.
Permanent Placement
The Company's Permanent Placement business provides medium to high-level IT
and engineering professionals nationwide through its regional offices in Bala
Cynwyd, Pennsylvania; Tampa, Florida; and Edison, New Jersey. A significant
portion of the Company's engineering placements are in food related industries.
The Company maintains a database of over 70,000 engineering and IT applicants,
and in 1995 it placed 396 professionals with more than 240 clients. Over the
course of the Company's twenty-six year history in the technical permanent
placement industry, it has forged long-term relationships with many individuals
with hiring authority, which have resulted in significant repeat business. Of
the 240 clients serviced in 1995, 16% were clients of the business in 1990. As
compensation for its service, the Company receives a fee based on a percentage
of each placed professional's first year salary, subject to forfeitures if the
placed professional leaves such position during a specified guarantee period of
thirty to ninety days. The Permanent Placement business, founded in 1970,
generated revenues of $4.3 million in 1995 and $4.3 million for the nine months
ending September 30, 1996, representing 6.7% and 7.2% of total Company revenues
for those periods, respectively.
Imaging and Network Services
The Company provides various networking, imaging, document management,
workflow and related consulting services through regional offices in Bala
Cynwyd, Pennsylvania; Moorestown, New Jersey; Hartford, Connecticut; Tampa,
Florida; and Wakefield, Massachusetts. The Imaging and Network Services
business, which began operations in 1988, generated revenue of $8.2 million and
$10.0 million, which represented 13.0% and 17.0% of the Company's consolidated
net revenues, in fiscal 1995 and the nine months ending September 30, 1996,
respectively.
The Company is a value-added reseller and service facility for PC and
network hardware, software and related peripherals for a variety of
manufacturers, including Compaq, ACER, IBM, Apple, Okidata, Tricord and HP, and
provides a full range of installation, training, maintenance, repair and network
integration services. In addition, the Company assembles, sells and services its
own private-label PC products.
The Company sells and installs high-end, mid-range and low-end imaging
systems, complementary software and database products and the technical
engineering services necessary to deliver a "turn key" imaging system. The
Company has installed more than 110 imaging and document management systems, and
offers its customers hardware and software maintenance, support and training.
The Company implements Optika software in Banyan, OS/2 and Windows NT(Trademark)
environments and is currently a value-added reseller of a variety of other
imaging software systems, including FileNet, Saros(Copyright),
Watermark(Trademark), Keyfile, OTG and Lotus Notes. In addition, certain Company
personnel have been certified by the Document Imaging Association, the only
certification available in the document management industry. The Company
integrates its imaging software solutions on hardware manufactured by IBM,
Compaq, HP and Sun Microsystems, Inc. operating under Windows NT(Trademark),
OS/2(Registered) and Unix operating systems.
The Company seeks to provide its clients with networking and document
management solutions to improve their operations through work process
re-engineering and enabling technology implementation. The Company believes that
a thorough understanding of a clients' existing IT system and work processes is
necessary to the design of an optimal network and/or document management system.
In 1996, Company introduced its MENTOR(Trademark) Consulting Program, a
Methodology for Evaluating New Technology and Organizational Redesign
("MENTOR"), to provide clients with a
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framework for selecting such a system. Under the MENTOR program the Company
assigns senior level, multiple disciplinary study teams to evaluate the client's
operations from technology, financial and overall business perspectives. This
analysis includes a review of the architecture, security and limitations of the
client's current IT system as well as the client's personnel and culture. Upon
completion of this analysis, the Company presents the client with a detailed set
of technological and work process recommendations.
The Company assists clients in designing a technology infrastructure that
will support the client's interrelated strategic business objectives and IT
needs. Design services include selection of viable systems components, creation
of migration plans from the existing to the proposed system and integration of
systems, networks, applications and databases. In those instances where the
network or imaging software solution selected by the client does not completely
meet its application requirements, the Company's Advanced Development Group
provides custom application development.
The Company is capable of providing all of the necessary technical
personnel to implement each networking or document management solution, often
drawing on the technical consultant resources of its Contract Placement
business. The Company's internal staff of network engineers is certified by
Novell, Banyan(Registered) and Microsoft to perform installation, maintenance
and training in their network operating system platforms. The Company also can
provide backfile conversion of paper, microfilm and microfiche files as part of
the integrated new document management system or as a stand alone service.
The Company is authorized to service all of the hardware products it sells.
The Company typically enters into maintenance contracts in connection with the
installation of networking and document management systems. The Company also
offers training on all of the networking and imaging products it sells, as well
as on the use and administration of all network operating systems it installs.
Training
The Company's IT Training business, acquired in September 1996, has
provided training to over 3,000 client companies and trainees in a variety of
software and network applications since its founding in 1986. The IT Training
business provides these services at its facilities in Bala Cynwyd, Pennsylvania;
Baltimore, Maryland and Alexandria, Virginia, and at various off-site locations.
The Company is an authorized training center for many major software
manufacturers, including Microsoft, Adobe Systems Incorporated, Quark, Inc.,
Corel Corporation, and Claris Corporation, and is also an approved Apple
Training Alliance Center, Microsoft Solutions Provider and Microsoft Advanced
Technical Education Center. The Company's diploma programs in Desktop
Publishing, Business Software and Multimedia and Internet are licensed and
accredited by the Pennsylvania Board of Private Licensed Schools and are
approved for veteran's education by the U.S. Veteran's Administration. The
Company also offers six certificate programs, often geared toward retraining
mid-career workers in new technology applications, and 180 open-enrollment
courses. The Company's job search assistance program achieved a 92% placement
rate for the Company's graduates in 1995. The Company maintains twelve computer
labs in its Bala Cynwyd, Pennsylvania facility and eight computer labs in its
Alexandria, Virginia facility. In addition, the Company frequently conducts its
courses at the in-house facilities of its corporate clients and has the ability
to provide the necessary computer equipment at conference centers, hotels and
other off-site locations as requested by its clients. Prices for a single,
open-enrollment training course range from $99 to $900, with an average of
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$385, and prices for a diploma course range from $3,900 to $7,400, with an
average of $6,300. The chart below sets forth many of the training programs
offered by the Company:
Subject Applications
- ------- ------------
Operating Systems/Networking Microsoft Windows for Workgroups,
Windows 95, Microsoft Windows
NT(Trademark), Microsoft Windows
NT(Trademark) Server, Macintosh,
Novell
Windows/Advanced Macintosh Lotus 1-2-3, Lotus Notes, Microsoft
Business Software Excel, Microsoft PowerPoint, Microsoft
Project, Microsoft Word, Microsoft
Works, PageMaker, Persuasion, Quattro
Pro, QuickBooks, Quicken, WordPerfect
for Windows, WordPro, ClarisWorks,
Filemaker Pro, Fox Pro
Desktop Publishing Quark XPress, PageMaker, FrameMaker,
Interleaf, Multi-Ad Creator
Electronic Design Prepress/Advanced Photoshop, Presswise, Trapwise,
Publishing Scanning
Multimedia/Presentation Graphics Macromedia Director, PowerPoint,
Authorware, Persuasion
Internet/WorldWide Web HTML, HotMetal Pro, Premiere, Hot Dog,
PageMill, SiteMill, Netscape, Java
Customers
The primary industries served by the Company include financial services,
manufacturing, software/computers, telecommunications, healthcare, government,
and pharmaceutical. In fiscal 1995, approximately 24% of the Company's revenue
was derived from its top 10 customers and Merck accounted for 6.4% of revenues.
The following table sets forth a list of certain of the largest clients, by
revenues, for which each of the Company's four operating units provided services
in 1995:
<TABLE>
<CAPTION>
Telecommunications Pharmaceutical Software/Computers
- ------------------ -------------- ------------------
<S> <C> <C>
Bell Atlantic NYNEX Mobile, Inc. (3)(4) Merck & Co., Inc. (1) Texas Instruments, Inc. (1)
Rhone Poulenc Rorer Pharmaceuticals, Compaq Computer Corporation (1)
Inc.(1) Intel Corporation (1)
Wyeth-Ayerst International Inc.(2)
Hoffman LaRoche, Inc. (3)
Manufacturing Financial Services Governmental
- ------------- ------------------ ------------
Nestle Incorporated (2) The Vanguard Group, Inc.(1) City of Philadelphia (3)(4)
Ciba Corning Diagnostics Corporation(1) Reliance Insurance Company (2) Bordentown (NJ) Board of Education (3)
Tandem Computer, Inc. (1)
</TABLE>
Healthcare
- ----------
Aetna US Healthcare (1)(4)
- ----------
(1) Contract Placement client
(2) Permanent Placement client
(3) Imaging and Network Services client
(4) IT Training client
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Technical Personnel
The Company believes its applicant and technical consultant sourcing and
retention practices are, and will continue to be, a significant factor in its
continued growth and competitiveness. The Company maintains a proprietary
database in each of its Permanent and Contract Placement businesses specifically
designed to identify and match these individuals with clients' needs. The
Company's Permanent and Contract Placement databases currently contain the
resumes of approximately 70,000 and 100,000 technical personnel, respectively.
All of the Company's technical recruiters who place applicants and consultants
have on-line access to the appropriate database.
The Company identifies applicants and recruits technical consultants
through advertisements in local media and trade journals, industry specific job
fairs and referrals by current and past applicants. In addition, the Company has
developed a World Wide Web site on the Internet that provides information about
the Company and enables individuals to submit their resumes. The Company also
actively searches the Internet to identify potential technical consultants,
often downloading resumes and proactively recruiting such individuals. The
resumes of technical professionals are entered into the appropriate database,
thus giving technical recruiters in all offices immediate access to the
professionals. Once a professional is identified for a particular position, the
technical recruiter institutes screening procedures designed to ensure a good
match for the client and professional. These procedures include personal
interviews, reference checks and review of work product. Once a technical
consultant is placed with a client, the Company routinely interviews the client
and technical consultant to make sure a proper fit exists, thereby ensuring both
customer and technical consultant satisfaction.
The Company recognizes the need to differentiate itself from other
technical personnel providers and has adopted a number of policies to enhance
its attractiveness to technical consultants, such as paid vacation,
participation in a 401(k) Plan, access to group medical coverage, and on-going
professional training. In addition, the Company seeks to secure new engagements
for its technical consultants before their current engagements end to keep them
continuously employed and eliminate downtime. The Company believes that its
ability to offer a variety of assignments nationwide through its National
Division is also a factor in retaining technical consultants.
Sales and Marketing
The Company's Contract Placement, Imaging and Network Services and IT
Training businesses each market their respective services through discrete
direct sales forces. In the Permanent Placement business, recruiters are
responsible for both originating and maintaining client contacts, and updating
the database with new applicants.
Account Managers constitute the sales force in the Company's Contract
Placement business, operating out of offices in Bala Cynwyd, Pennsylvania;
Edison, New Jersey; and Foxborough, Massachusetts. The responsibilities of the
Account Managers include identification of new staffing requirements,
coordination of client/consultant interviews, monitoring existing projects,
interaction with technical consultants, expanding services to additional areas
within the client's organization and coordination with the Company's corporate
office to facilitate the billing and purchasing cycle. Account Managers receive
a base salary plus individual incentives tied to gross margins. The Company
generates new business leads through a combination of a telemarketing programs,
media advertising and local trade shows. In addition, the Company receives sales
leads from its other operating units.
The Company has two direct technical sales teams through which it markets
its Imaging and Network Services business, one that concentrates on imaging and
document management systems and services, and one that focuses on more
traditional network systems and services. Technical sales personnel are located
in Bala Cynwyd, Pennsylvania; Moorestown and Edison, New Jersey; Hartford,
Connecticut; Wakefield, Massachusetts; and Tampa, Florida. The Company generates
leads through a combination of telemarketing programs, seminars, local trade
shows and media advertising. The Company also receives sales leads from its
software vendors.
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The Company markets its IT training services through print advertising in
trade publications, telemarketing, trade shows and direct mail and on local
radio. The Company uses media demographics and industry psychographic profiles
to identify potential client firms and individuals who will benefit from
training. Targeted efforts are then concentrated toward these markets by an
executive sales force located in Bala Cynwyd, Pennsylvania. The Company believes
that approximately 45% of its 1995 IT Training sales were generated by either
repeat business or client referrals.
The Company's Bala Cynwyd, Pennsylvania location is the prototype sales
office out of which the full range of its services are offered. The Company
believes that its four complementary businesses afford it a competitive
advantage over other IT service providers that have fewer service offerings and
intends to eventually offer all of its services at each of its locations. The
Edison, New Jersey office, which currently offers Contract Placement, Permanent
Placement and Imaging and Network Services, is scheduled to begin offering IT
Training by the end of 1997, becoming the Company's second full-service
location.
The Company has recently adopted a new marketing and service delivery
approach which seeks to take advantage of its ability to offer comprehensive,
cost-effective and convenient means to meet a wide variety of technical
requirements. In addition, the Company plans to develop a corporate level sales
force which will identify opportunities where it can provide integrated
solutions to new and existing clients and then market such solutions in
conjunction with the existing sales professionals in the Company's four
operating businesses.
Competition
The IT professional services industry is highly competitive and fragmented
on the local, regional and national levels. Although the Company is not aware of
any competitors that offer a full range of technical staffing, imaging, document
management, consulting and training services, many companies offer one or two of
the Company's services in all of the geographical markets in which the Company
currently operates. Many of the Company's competitors have significantly greater
name recognition and financial, technical and other resources and generate
greater revenues than the Company.
Contract and Permanent Placement. Within any given geographical or
technical specialty market, the Company competes for clients with other IT and
engineering professional services providers, outsourcing and consulting
companies, systems integrators and, to a lesser extent, temporary personnel
agencies. The majority of the competition is made up of smaller local and
regional firms with a strong presence in their local markets and occasionally
with a nationally franchised firm. The principal competitive factors for
obtaining and retaining clients include: the ability to match technical
consultant skills and personality with the client's requirements and culture;
expertise of its technical consultants; price; client satisfaction; and overall
responsiveness to client needs. The Company competes for technical consultants
with other professional services providers, outsourcing and consulting
companies, systems integrators, temporary personnel agencies and client
companies. The principal competitive factors for recruiting and retaining
technical consultants include compensation, availability and quality of
benefits, consistent flow of high quality, varied assignments and an
understanding of consultant skills and work preferences. The Company's principal
competitors in the Contract Placement business include a range of companies such
as The Registry, Inc., Techaid Corporation, Volt Information Services, Inc.,
H.L. Yoh & Company, Additional Tech Support, and CDI.
Imaging, Document Management and Network Services. The imaging, document
management and network services market is intensely competitive and subject to
rapid technological change. In order to compete effectively, the Company needs
to continually enhance its current product and service offerings and expand its
professional services capabilities. The Company currently competes principally
on the basis of its reputation, the breadth of its product line and services,
including the ability to sell document management solutions responsive to each
client's applications needs and budgetary constraints, provide consulting and
conversion services, and the quality, ease of use, reliability and performance
of the systems it offers. As there are relatively low barriers to entering the
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imaging marketplace, the Company expects additional competition from emerging
companies as the market expands. In addition, the market includes participants
in a variety of market segments, including systems consulting and integration
firms, professional services companies, applications software firms, temporary
employment agencies, the professional service groups of companies such as Unisys
Corporation and Digital Equipment Corporation, facilities management and MIS
outsourcing companies, certain Big Six accounting firms, and general management
consulting firms. The Company's principal competitors include a range of
companies such as Andersen Consulting, a Division of Arthur Andersen, L.L.P.,
Technology Solutions Corporation, Cambridge Technology Partners, Inc., Universal
Systems, Inc. and ViewStar Corporation.
IT Training. Within the IT training industry, there is competition among
the available training methods, such as instructor-led training versus
computer-based training. Within the instructor-led training segments, some of
the major software and equipment manufacturers maintain their own training
programs for both internal training and public training. The Company believes
its established library of courses and proprietary course materials that can be
updated (or customized for a particular customer) provide it with a competitive
advantage. Moreover, the Company believes that the diversity of its course
offerings, the quality of its personnel, its multiple training locations, its
flexibility in the locations at which it provides its services and its ability
to recognize emerging technologies and develop the requisite courses responsive
thereto, permit it to remain competitive with others in the marketplace. The
Company competes in the IT training business on the basis of its pricing,
perceived quality and breadth of course offerings. The Company's principal
competitors in the IT Training business include Chubb Computer Services, a
division of Chubb Corporation, Computer Learning Centers, ExecuTrain Corporation
and Catapult, Inc., which is owned by IBM.
Regulation
The Company's operations, as currently conducted, are subject to
governmental regulation in the State of New Jersey, where the Company's
Permanent Placement business is a licensed employment agency, and its Contract
Placement business has registered with the Temporary Help Service Section of the
Bureau of Employment and Personnel Services, a component of the Division of
Consumer Affairs of the Department of Law and Public Safety. Compliance with
such New Jersey regulations has not and is not expected to have a material
effect on the Company's business. The Company is unaware of any other
jurisdictions in which its operations are subject to material governmental
regulation.
All the jurisdictions in which the Company operates its training centers
regulate and license certain kinds of vocational, trade, technical or other
post-secondary education. The Company believes that employer-funded or
reimbursed IT training is exempt from such requirements in many of these states.
The Company is licensed in each jurisdiction in which it operates training
centers.
If the Company were found to be in violation of a state's licensing or
other regulatory requirements, it could be subject to civil or criminal
sanctions, including monetary penalties. No state educational or regulatory
authority has cited the Company or commenced any proceeding against it for the
violation of any licensing or other vocational educational requirement.
Employees
As of October 31, 1996, the Company had 325 employees, of which six were
staff IT consultants, 71 were either Technical Recruiters or Recruiting
Coordinators, 66 served in sales or marketing capacities, 81 served in
engineering and technical support capacities and 101 served in managerial and
administrative capacities. On that date, there were also approximately 1,700 IT
consultants (including the six staff IT consultants) working on full-time
assignments for the Company's clients. The Company is not a party to any
collective bargaining agreements and considers its relationships with its
employees to be good.
Approximately 85% of the technical consultants placed by the Company during
1995 were treated as employees of the Company for federal and state tax
purposes. For such employees, the Company
35
<PAGE>
pays Social Security Taxes (FICA), federal and state unemployment taxes,
workers' compensation insurance premiums and other employee costs. The remainder
of the technical consultants were treated as independent contractors for federal
and state tax purposes. The Company believes that these consultants meet the
requirements for such treatment under applicable law. See "Risk Factors -- Risks
Related to Tax Status of Technical Consultants."
Pre-Offering Transactions: Corporate Reorganization, Merger and Recent
Acquisitions
The Company recently completed a corporate reorganization (the
"Reorganization") and acquired Berkeley and Systems Automation. Prior to the
completion of this Offering, JIS will be merged into a wholly-owned subsidiary
of the Company.
Reorganization. In the Reorganization, completed in October 1996, the
Company became a holding company for its operating subsidiaries, effected a 52.6
for 1.0 stock split, and amended and restated its Articles of Incorporation and
by-laws.
JIS Merger. Immediately prior to the Offering, and as a condition to the
completion of the Offering, the Company will acquire JIS in a merger in which
JIS will merge into a newly organized, wholly-owned subsidiary of the Company
("Judge Acquisition"). Judge Acquisition will be the surviving corporation in
the Merger and will change its name to "Judge Imaging Systems, Inc." As a result
of the Merger, JIS will become a wholly-owned subsidiary of the Company at the
time of the Offering.
As consideration, each share of JIS common stock or Series A preferred
stock, other than shares owned by the Company, outstanding at the time of the
Merger will be converted into that number of Common Shares of the Company equal
to $2.50 divided by the initial public offering price. All JIS shares owned by
the Company will be cancelled.
As of the date of this Prospectus, JIS had approximately 3,991,841 and
822,628 shares of common stock and Series A preferred stock outstanding,
respectively. If all JIS shareholders elect to receive the value of their stock
in Common Shares, the Company will issue approximately 895,673 Common Shares in
the Merger, representing approximately 6.9% of the total number Common Shares
that will be outstanding after the Offering (assuming an initial public offering
price of $10.00). Prior to the Merger, the Company owned approximately 25.6% of
JIS's fully-diluted outstanding common stock (calculated after giving effect to
the conversion of the outstanding Series A preferred stock of JIS into its
common stock). Mr. Judge owned an additional 30.9%, and other officers and
directors of the Company owned an additional 5.3% of JIS's fully-diluted
outstanding common stock. See "Certain Transactions."
In accordance with Accounting Principles Board Opinion No. 16 and related
literature, the majority of the shares of JIS, which are owned by the Company,
Martin E. Judge, Jr. or other owners of Company securities, will be accounted
for as a corporate reorganization of entities under common control at historical
cost, similar to pooling accounting. However, the exchange of the remaining JIS
shares (the "minority interest") will be accounted for in accordance with
"purchase accounting" whereby the pro rata portion of JIS's assets and
liabilities as of September 30, 1996 will be recorded at their fair values. The
excess of the value of the Common Shares issued in exchange for the "minority
interest" shares over the fair value of the net assets attributable to the
minority interest will be recorded as goodwill.
Judge Imaging Systems, Inc. Effective February 29, 1996, Judge Computer
Corporation ("Judge Computer"), a subsidiary of the Company, merged into
DataImage, Inc. ("DataImage"), a publicly traded provider of imaging and
document management services, with DataImage as the surviving entity. Following
the merger, DataImage changed its name to Judge Imaging Systems, Inc. (the
"Surviving Corporation"). As a result of this transaction, the Company held
25.6% of the Surviving Corporation's outstanding shares of common stock on a
fully-diluted basis, and affiliates of the Company held an additional 45.7% of
the Surviving Corporation's outstanding common stock on a
36
<PAGE>
fully diluted basis. Following this transaction, the Surviving Corporation
continued to be a public reporting company.
The Berkeley Associates Corp. In September 1996, the Company acquired
Berkeley for cash, notes and stock consideration of approximately $2.2 million.
Berkeley, founded in 1980, is a provider of IT training services to corporate,
governmental and individual clients. The Company intends to expand the IT
training services of Berkeley in its other locations, as well as to use
Berkeley's materials and expertise to train its internal staff and to enhance
the capabilities of the Company's technical consultants.
Systems Automation, Inc. In September 1996, the Company acquired Systems
Automation for consideration consisting of cash and a note totaling
approximately $547,252. This acquisition established a presence for the
Company's Imaging and Network Services business in the metropolitan Boston area.
Facilities
The Company has leased offices in the following locations:
<TABLE>
<CAPTION>
Square Services Offered
Office Feet Lease Expiration As of September 1, 1996
- ------ ---- ---------------- -----------------------
<S> <C> <C> <C>
Bala Cynwyd, Pennsylvania 32,000 June 30, 2000 Contract Placement, Imaging
and Network Services,
Permanent Placement,
IT Training
Foxborough, Massachusetts 7,100 March 1, 2000 Contract Placement
Moorestown, New Jersey 6,400 January 1, 1997 Imaging and Network Services
Edison, New Jersey 4,700 March 1, 2000 Contract Placement,
Permanent Placement and
Imaging and Network Services
Alexandria, Virginia 4,700 December 31, 2000 IT Training
Wakefield, Massachusetts 3,500 Month to Month Imaging and Network Services
Hartford, Connecticut 3,200 June 15, 2000 Imaging and Network Services
Tampa, Florida 2,500 April 30, 1998 Permanent Placement and
Imaging and Network Services
</TABLE>
Legal Proceedings
The Company is involved in legal proceedings from time to time in the
ordinary course of business. As of the date of this Prospectus, there are no
material legal proceedings pending against the Company.
37
<PAGE>
MANAGEMENT
Executive Officers and Directors
Set forth below is certain information concerning the executive officers
and directors of the Company:
Name Age Position
---- --- --------
Martin E. Judge, Jr......... 52 Chairman of the Board and Chief Executive
Officer
Richard T. Furlano.......... 46 President and Director; President --
Contract Placement
Michael A. Dunn............. 48 Executive Vice President and Director;
President -- Permanent Placement
Jeffrey J. Andrews.......... 45 Chief Financial Officer and Treasurer
Katharine A. Wiercinski..... 35 Secretary; Vice President -- Human Resources
Wendy Greenberg-Marcelli.... 30 Vice President; President -- Imaging and
Network Services
- ----------
Martin E. Judge, Jr. founded the Company in 1970 and has been the Chief
Executive Officer and Chairman of the Board since that time. Mr. Judge is the
brother-in-law of Mr. Furlano.
Richard T. Furlano has served as the President of the Company's Contract
Placement business since April 1992. From 1990 to 1992, Mr. Furlano was a
Regional Sales Manager for Yorkship Business Supplies, and from 1980 to 1990 he
was a partner of The Furst Group, a reseller of telecommunications services. He
is the President of the Company and currently serves on its Board of Directors.
Mr. Furlano is the brother-in-law of Mr. Judge.
Michael A. Dunn has served as the President of the Company's Permanent
Placement business since 1990. Mr. Dunn served as Executive Vice President of
the Permanent Placement business from 1980 to 1990, and has also held various
recruiting and managerial positions in that business since joining the Company
in 1973. Mr. Dunn is an Executive Vice President of the Company and serves on
the Company's Board of Directors.
Jeffrey J. Andrews has served as the Company's Chief Financial Officer
since joining the Company in May 1996. Mr. Andrews was an independent financial
advisory consultant from September 1995 until May 1996, and served as Controller
for Godwin Pumps of America (a manufacturer of industrial pumps) from September
1994 to August 1995. From April 1993 to August 1994, Mr. Andrews was a Manager
for Ernst & Young, LLP, and prior to that time, was the President and sole
shareholder of Andrews Associates, an investment banking firm.
Katharine A. Wiercinski has served as the Vice President of Human Resources
for the Company and each of its subsidiaries since 1990 and as Secretary of the
Company since 1990. Ms. Wiercinski has also held various administrative and
managerial positions since joining the Company in 1981.
Wendy Greenberg-Marcelli has been the President of the Company's Imaging
and Network Services business since July 1995 and Vice President of the Company
since July 1993. From July 1994 to July 1995, Ms. Greenberg-Marcelli served as
Executive Vice President of the Imaging and Network Services business, and from
January 1991 to July 1994 served as its Operations Manager.
Ms. Greenberg-Marcelli joined the Company's Customer Support Division in 1989.
In order to comply with the requirements of the Nasdaq Stock Market and the
Company's agreement with the Underwriters, within 90 days after the effective
date of the registration statement of which this Prospectus is a part, the
Company will increase its Board by two directors, both of whom will be
independent.
38
<PAGE>
Directors' Compensation
In fiscal years 1994 and 1995, the Company's directors, and the directors
of each of the Company's subsidiaries, did not receive any compensation for
their services as directors.
Executive Compensation
The following table summarizes the compensation paid for fiscal 1995 to the
Chief Executive Officer and to each of the Company's most highly compensated
officers whose total annual salary and bonus for the fiscal year ended December
31, 1995 exceeded $100,000.
Summary Compensation Table
<TABLE>
<CAPTION>
Fiscal Salary Bonus Other
Name and Principal Position Year ($) ($) Compensation
--------------------------- ------ ------ ----- ------------
<S> <C> <C> <C> <C>
Martin E. Judge, Jr.
Chairman of the Board
and Chief Executive Officer......... 1995 417,000 78,000 11,500
Richard T. Furlano
President........................... 1995 185,133 65,127 2,311
Michael A. Dunn
Executive Vice President............ 1995 190,017 -0- 11,640
Wendy Greenberg-Marcelli
Vice President...................... 1995 100,000 26,971 -0-
</TABLE>
- ----------
Employment Agreements
The Company has employment agreements with Wendy Greenberg-Marcelli and
Jeffrey J. Andrews, and requires that all key employees execute confidentiality
and one-year post-termination non-competition agreements.
Ms. Greenberg-Marcelli's agreement, dated as of October 1, 1995, provides
for a term of four years with automatic renewal periods of one year thereafter,
unless prior written notice is given by the Company. The agreement provides that
Ms. Greenberg-Marcelli may be terminated only for cause. In addition to
providing an annual base salary of $100,000, Ms. Greenberg-Marcelli was granted
70,604 shares of Judge Computer (now JIS) stock.
Mr. Andrews' agreement, dated May 1, 1996, provides for a two-year term of
employment with one year automatic renewals thereafter, unless the Company
provides prior written notice. The agreement provides a base salary of $75,000
and certain other benefits.
Stock Plans
The Judge Group, Inc.'s 1996 Incentive Stock Option and Non-Qualified Stock
Option Plan for Key Employees and Non-Employee Directors (the "Plan") was
adopted in September of 1996, subject to shareholder approval, to provide a
means whereby the Company could, through the grant of incentive stock options
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended ("ISOs") and non-qualified stock options ("NQSOs") to purchase Common
Shares of the Company to officers and other key employees ("Key Employees"),
attract and retain such Key Employees and motivate such Key Employees to
exercise their best efforts on behalf of the Company and of any related
corporation ("Related Corporation"). Moreover, the Company may, through the
grant of NQSOs to non-employee directors ("Non-Employee Directors") under a
formula, attract and retain Non-Employee Directors and motivate such
Non-Employee Directors to exercise their best efforts on behalf of the Company
and any Related Corporation.
ISOs and NQSOs (collectively, "Options") may be granted under the Plan to
purchase up to a maximum of one million five hundred thousand (1,500,000) of the
Company's Common Shares, par value $.01 per share, subject to certain
adjustments and provided that no Key Employee shall receive Options for more
than 50,000 Common Shares over any one (1) year period.
The Plan shall be administered by the Company's Stock Option Committee
("Committee"), which shall consist of two (2) directors of the Company who shall
be appointed by, and shall serve at
39
<PAGE>
the pleasure of, the Company's Board of Directors ("Board") and each of whom
shall be an "outside director", within the meaning of Treasury Regulation
section 1.162-27(e)(3), within the period of time described in Treasury
Regulation section 1.162-27(f)(2). Each member of such Committee, while serving
as such, shall be deemed to be acting in his or her capacity as a director of
the Company.
The exercise price of each Option shall be the fair market value (110% of
fair market value in the case of an ISO granted to a more than 10% shareholders)
of the Common Shares on the date of the grant. The term of each Option shall be
not more than ten (10) years (five (5) years in the case of an ISO granted to
more than ten percent (10%) shareholder) from the date of grant, and the Options
shall be exercisable in such installments and on such dates, not less than six
(6) months from the date of grant, as the Committee may specify. The Option
price shall be payable in cash or its equivalent or, in the Committee's
discretion, in Company Common Shares. In the event the Option price is paid, in
whole or in part, with Common Shares, the portion of the Option price so paid
shall be equal to the "fair market value" of such Shares on the date of exercise
of the Option.
The aggregate fair market value of the Common Shares with respect to which
ISOs are exercisable for the first time by a Key Employee during any calendar
year (under this Plan and any other ISO plan of the Company or a Related
Corporation) shall not exceed one hundred thousand dollars ($100,000). The
annual limit set forth above for ISOs shall not apply to NSQOs.
If a Key Employee's employment by the Company and the Related Corporations
is terminated by either party prior to the expiration date fixed for his or her
Option for any reason other than death or disability, such Option may be
exercised, to the extent of the number of Common Shares that the Key Employee
could have exercised on the date of such termination, or to any greater extent
permitted by the Committee, by the Key Employee at any time prior to the earlier
of (i) the expiration date specified in such Option or (ii) an accelerated
termination date determined by the Committee, which date, in the case of ISOs,
shall not be later than three (3) months after the date of such termination of
employment.
If a Key Employee shall become disabled (within the meaning of section
22(e)(3) of the Code) during his or her employment and, prior to the expiration
date fixed for his or her Option and his or her employment is terminated as a
consequence of such disability, such Option may be exercised, to the extent of
the number of Common Shares that the Key Employee could have exercised on the
date of such termination, or to any greater extent permitted by the Committee,
by the Key Employee at any time prior to the earlier of (i) the expiration date
specified in such Option or (ii) an accelerated termination date determined by
the Committee, which such date, in the case of ISOs, shall not be later than one
(1) year after the date of such termination of employment.
If a Key Employee shall die during his or her employment and prior to the
expiration date fixed for his or her Option, or if a Key Employee shall die
following termination of employment but prior to the earliest of (i) the
expiration date fixed for his or her Option; (ii) the accelerated expiration
date determined by the Committee (as described above); or (iii) in the case of
an ISO, three (3) months following termination of employment; then such Option
may be exercised, to the extent of the number of Common Shares that the Key
Employee could have exercised it on the date of his or her death, or to any
greater extent permitted by the Committee, by the Key Employee's estate,
personal representative or beneficiary, at any time prior to the earlier of (A)
the expiration date specified in such Option or (B) an accelerated termination
date determined by the Committee, which date shall not be earlier than one (1)
year nor later than three (3) years after the date of death.
No ISO and, except as otherwise provided in any Option agreement, no NQSO
granted pursuant to the Plan shall be assignable or transferable by the Key
Employee or Non-Employee Director otherwise than by will or by the laws of
descent and distribution, and, during the lifetime of the Key Employee, the ISO
shall be exercisable only by him or by his or her guardian or legal
representative.
Pursuant to the Plan, each Non-Employee Director will receive an initial
grant of an NQSO to purchase 2,500 Common Shares on the date of this Offering,
and any person subsequently elected as a Non-Employee Director will receive an
initial grant of an NQSO to purchase 2,500 Common Shares on the first business
day immediately following the date he or she is elected a director. In addition,
on the first business day immediately following each of the dates on which an
incumbent Non-Employee Director is re-elected, he will receive an additional
grant of an NQSO to purchase 2,500 additional Common Shares. The grant of NQSOs
to Non-Employee Directors pursuant to the Plan shall be
40
<PAGE>
automatic and neither the Committee or the Board shall have any discretionary
authority with respect thereto.
The exercise price of NQSOs granted pursuant to the Plan will be the fair
market value of the Common Shares at the time of the grant. NQSOs granted on the
date of this Offering will have an exercise price equal to the initial public
offering price set forth on the cover page of this Prospectus. The Option
exercise price may be paid in full in cash or, unless in the opinion of counsel
to the Company that to do so may result in a possible violation of law, in whole
or in part through the transfer of Common Shares previously acquired by the
Non-Employee Director, provided the Common Shares so transferred have been held
by the Non-Employee Director for more than 12 months on the date of exercise at
the time an NQSO is exercised.
An NQSO granted under the Plan to a Non-Employee Director will expire on
the earliest of (i) ten years from the date of grant, (ii) one year from the
date the grantees ceases to be a director by reason of death or disability or
(iii) three months from the date the grantee ceases to be a director for any
reason other than death or disability.
NQSOs granted to Non-Employee Directors shall be exercisable in three equal
annual installments commencing with the first anniversary of the grant date, but
only if the Non-Employee Director has attended at least seventy-five (75)
percent of the Board meetings during the twelve (12) month period immediately
preceding the date the annual installment first becomes exercisable. In the
event the Non-Employee Director fails to attend at least seventy-five (75)
percent of the Board meetings during the twelve (12) month period immediately
preceding the date the annual installment first becomes exercisable, the Options
otherwise exercisable in that installment shall not be exercisable but shall be
cancelled and shall be available for other grants under the Plan.
Notwithstanding the foregoing, the first annual installment of Options granted
on the date of this Offering shall be exercisable as of the earlier of twelve
months from the date of grant or six months after the Plan is approved by the
shareholders of the Company.
Effective upon the completion of this Offering, options to purchase up to
613,500 Common Shares will be granted under the Plan to officers and employees
of the Company. Of these options, Messrs. Dunn and Furlano and Ms.
Greenberg-Marcelli each will be granted options to purchase up to 26,000 Common
Shares; Ms. Wiercinski will be granted options to purchase up to 16,000 Common
Shares and Mr. Andrews will be granted options to purchase up to 15,000 Common
Shares. The remaining options will be awarded to various other employees. The
options to be granted at the time of the completion of this Offering will have
an exercise price equal to the initial public offering price set forth on the
cover page of this Prospectus. The options will become exercisable in equal
annual installments over a four-year period, will have a term of ten years and
will be subject to the other terms and conditions of the Plan.
The Plan provides that certain adjustments will be made to the exercise
price and number of shares subject to options granted thereunder in the event of
a stock split, stock dividend, combination or reclassification. In the event of
certain other corporate transactions, outstanding Options may terminate. Subject
to certain limitations, the Board of Directors may amend or discontinue the Plan
as it deems necessary, but no amendment may adversely affect the rights of a
grantee with respect to an outstanding Option without his or her consent.
Compensation Committee Interlocks and Insider Participation
Currently, the Compensation Committee members are Martin E. Judge, Jr. and
Richard T. Furlano. As soon as practicable these members will be replaced with
outside directors within the meaning of the Code.
Decisions concerning compensation of executive officers were made by the
Board of Directors, which included Mr. Judge, the Chairman of the Board and
Chief Executive Officer of the Company.
41
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Shares as of December 10, 1996, and
as adjusted to reflect the sale of Common Shares offered hereby and the
consummation of the Merger, (1) by each person known by the Company to own
beneficially 5% or more of the outstanding Common Shares, (2) by each director,
executive officer and certain other officers of the Company, (3) by all
directors and executive officers as a group, and (4) by the Selling
Shareholders.
<TABLE>
<CAPTION>
Number of
Beneficial Ownership Shares to Beneficial Ownership
Prior to this be Shares After this
Offering(1) Sold in Received Offering(1)(2)
------------------------ this Pursuant to --------------------------
Name And Address Shares Percentage Offering(2) Merger Shares(3) Percentage
- --------------------------------------- --------- ------------- ----------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Martin E. Judge, Jr.(4)................ 5,878,050(5) 64.5% 270,000 378,412 5,986,462(5) 45.9%
Michael A. Dunn........................ 1,959,350(6) 21.5% 150,000 44,072 1,853,422(6)(7) 14.2%
Richard T. Furlano..................... 52,600 * 0 0 52,600 *
Wendy Greenberg-Marcelli............... 0 * 0 20,139 20,139 *
Katharine A. Wiercinski................ 52,600 * 0 0 52,600 *
Jeffrey J. Andrews..................... 0 * 0 0 0 *
Arthur Kania(4)........................ 420,800 4.6% 30,000 107,469 498,269 3.8%
Lawrence Chimerine(8).................. 26,300 * 8,000 12,442 30,742 *
Marvin N. Demchick(8).................. 52,600(9) * 16,000 12,442 49,042(9) *
DGA Investments(8)(10)................. 26,300 * 8,000 6,221 24,521 *
Edwin T. Johnson(8).................... 26,300 * 8,000 6,221 24,521 *
Robert and Margot Keith(8)............. 198,039(11) 2.4% 8,000 12,442 181,132(12) *
Max H. Kraus(8)........................ 26,300 * 8,000 0 18,300 *
Ira Lubert(8).......................... 224,339(13) 2.5% 16,000 12,442 199,482(12) *
Edward H. and Evelyn B. Rosen(8)....... 105,200 1.2% 32,000 12,442 85,642 *
Trust Under Will of Maurice L. Strauss
for Thomas S. Rosen(8)............... 52,600 * 16,000 12,442 49,042 *
Ernest Scheller, Jr.(8)................ 26,300 * 8,000 6,221 24,521 *
A. Richard Sloane(8)................... 52,600 * 16,000 0 36,600 *
Milton S. Stearns, Jr.(8).............. 36,820 * 11,200 6,221 31,841 *
Milton S. Stearns, Jr. Trustee(8)
U/D/T 12/20/88....................... 15,780 * 4,800 0 10,980 *
The Gemstone Group, Inc................ 171,739(14) 1.9% 40,000 18,651 150,390 1.2%
All Directors and executive officers as
a group (five people)................ 7,942,600 87.1% 420,000 442,622 7,965,222 61.1%
</TABLE>
- ----------
* Less than 1% of the outstanding Common Shares of the Company.
42
<PAGE>
(1) Unless otherwise indicated, each person has sole voting and investment
power with respect to all such shares.
(2) In the event the Underwriters' overallotment option of up to 547,500 shares
is exercised in full, the Selling Shareholders will sell additional shares,
allocated among them as follows: Mr. Judge -- 30,000 shares; Mr. Dunn --
20,000 shares; Mr. Chimerine -- 7,556 shares; Mr. Demchick -- 15,111
shares; DGA Investments -- 7,556 shares; Mr. Johnson -- 7,556 shares; Mr.
Keith -- 7,556 shares; Mr. Kraus -- 7,556 shares; Mr. Lubert -- 15,111
shares; Mr. Rosen -- 30,222 shares; Trust Under Will of Maurice L. Strauss
FBO Thomas S. Rosen -- 4,000 shares; Mr. Scheller -- 7,556 shares; Mr.
Sloane -- 15,111 shares; Mr. Stearns -- 10,578 shares; Milton S. Stearns,
Jr. Trustee U/D/T 12/20/88 -- 4,533 shares; The Gemstone Group, Inc. --
60,000 shares. The remaining 297,500 shares will be sold by the Company.
See "Underwriting."
(3) Includes Common Shares received in exchange for JIS common and Series A
preferred shares pursuant to the Merger.
(4) The mailing address of such beneficial owner is Two Bala Plaza, Suite 800,
Bala Cynwyd, Pennsylvania 19004.
(5) Includes 378,412 shares held by Takema Ltd., L.P., a Delaware limited
partnership ("Takema") of which Mr. Judge is the General Partner.
(6) Includes 202,247 Common Shares held by the Michael A. Dunn Descendants'
Trust. Mr. Dunn has sole dispositive power over the shares held by the
Trust.
(7) Includes 44,072 Common Shares held by the Michael A. Dunn Descendants'
Trust. Mr. Dunn has sole dispositive power over the shares held by the
Trust.
(8) Such Selling Shareholders acquired their Common Shares through the
conversion, immediately prior to the Offering, of their Convertible Notes
purchased from the Company in July 1994.
(9) Mr. Demchick is a director of JIS.
(10) David Kleiman and Gary Kleiman, each a General Partner of DGA Investments,
may each be deemed to own beneficially the 26,300 shares owned by DGA
Investments. David Kleiman will also receive 6,221 Common Shares in
exchange for his JIS common and Series A Preferred stock as a result of the
Merger. See footnote 14.
(11) Includes 171,739 shares held by The Gemstone Group, Inc. ("Gemstone") of
which Mr. Keith is a principal and shareholder. Mr. Keith is a director of
JIS.
(12) Includes 150,390 Common Shares held by Gemstone.
(13) Includes 171,739 shares held by Gemstone, of which Mr. Lubert is a
principal and a shareholder.
(14) Consists entirely of shares acquired through the exercise of a warrant on
September 6, 1996 issued by the Company in July 1993 in connection with
Gemstone's engagement as the Company's financial advisor. Gary Kleiman is a
principal and shareholder of Gemstone and may be considered to own
beneficially the 171,739 shares owned by Gemstone.
43
<PAGE>
SELLING SECURITY HOLDERS
Gemstone, an investment and merchant banking firm, has been engaged as the
Company's and JIS's financial advisor since June 1993. Pursuant to an agreement
dated July 8, 1996 between Gemstone, the Company, JIS and Judge Technical
Services, Inc., a wholly-owned subsidiary of the Company (the "Advisory
Agreement"), Gemstone is entitled to receive a monthly advisory fee of $2,500
during the period beginning July 1, 1996 and ending on the earlier of the
completion of (i) a public offering by the Company, (ii) the date on which all
of the Convertible Notes of the Company in the original aggregate principal
amount of $500,000 have been repaid in full and/or converted into Common Shares,
or (iii) July 31, 1997. The Advisory Agreement also entitles Gemstone to
reasonable out-of-pocket expenses and a fee upon the completion of an initial
public offering in the amount of 1% of the gross proceeds to the Company
therefrom if such offering is consummated on or before July 31, 1997. The
monthly $2,500 fee is an advance against the 1% of gross proceeds fee due upon a
successful offering. In February 1996, Gemstone acted as financial advisor to
JIS in connection with the private placement of Series A Preferred stock of JIS
to several investors for a total purchase price of $1,096,000. In July 1994,
Gemstone acted as a financial advisor in connection with the purchase by certain
investors of the Convertible Notes for which it received an additional financial
advisory fee of $25,000. See Note 8 of Notes to the Consolidated Financial
Statements for the nine months ended September 30, 1996. The holders of the
Convertible Notes will convert the Convertible Notes into Common Shares
immediately prior to this Offering. Common Shares so received are represented in
the table under the caption "Principal and Selling shareholders' which is
footnoted to indicate each noteholder and the amount of Common Shares such
holder is selling in this Offering.
Mr. Kania was a director of the Company from January 1989 to June 1996.
Mr. Keith has been a director of JIS since July 1996. He is also a
principal and shareholder of Gemstone.
Mr. Ira Lubert is a principal and shareholder of Gemstone.
Mr. Demchick has been a director of JIS since July 1996.
CERTAIN TRANSACTIONS
Effective upon the date of this Offering, any transactions between the
Company and related parties will be subject to the review and approval of its
Audit Committee or a comparable committee consisting of a majority of
disinterested parties.
As of September 3, 1996 each of Mr. Judge and Mr. Dunn and his wife
executed personal guaranties of the Company's obligations under the Line of
Credit with Midlantic Bank, N.A., to enable the Company to obtain the Line of
Credit. The amount outstanding under the Line of Credit at October 31, 1996 was
$7,345,623. Upon the completion of this Offering, Mr. Judge and Mr. and Mrs.
Dunn will be released from these guaranties, subject to certain qualifications.
As of October 31, 1996, the Company owed an aggregate of approximately
$73,000 to Martin E. Judge, Jr. These loans are unsecured and due upon demand
and bear interest at various rates (from prime plus 1% to a fixed rate of 12%).
The Company pays the interest related to these loans directly to the commercial
banks from which Mr. Judge borrowed the funds on behalf of the Company. As of
October 31, 1996, Mr. Judge owed the Company $345,884. This loan, which is due
upon demand, unsecured and non-interest bearing, will be repaid at the
completion of this Offering.
As of October 31, 1996, the Company had advanced $133,350 to Judge
Financial Group, a personal financial advisory company, which is owned by Dennis
Judge, Martin E. Judge, Jr.'s brother. This advance does not bear interest, is
unsecured and due upon demand and will be repaid at the completion of this
Offering.
In connection with the Merger, Martin E. Judge, Jr., Michael A. Dunn,
Arthur Kania and Wendy Greenberg-Marcelli will acquire 378,412, 44,072, 107,469
and 20,139 Common Shares of the Company, respectively, in exchange for shares of
common and/or preferred stock they presently hold in JIS. See "Business --
Pre-Offering Transactions: Corporate Reorganization, Merger and Recent
Acquisitions."
Takema, a Delaware limited partnership, has entered into an agreement to
purchase an existing office building in Moorestown, New Jersey. Mr. Judge is the
general partner of Takema and its limited
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<PAGE>
partners are Mr. Judge and three trusts established for the benefit of his
children. Following the acquisition of the office building, the Company has
agreed to enter into a one year, triple net lease with Takema pursuant to which
the Company will lease the office building for use as executive offices and
production and warehouse facilities of its Imaging and Network Services
business. The lease will provide for an annual base rent of $6.50 per square
foot per year. The building has approximately 32,000 square feet of leasable
space and the Company anticipates that it will be able to occupy the building in
March 1997.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of (1) 50,000,000
Common Shares, par value $.01 per share (the "Common Shares"), and (iii)
10,000,000 Preferred Shares, par value $.01 per share (the "Preferred Shares").
Upon the closing of this Offering, 13,039,412 Common Shares will be issued and
outstanding. There are no Preferred Shares outstanding.
The following summary description relating to the Company's capital stock
sets forth the material terms of the capital stock, but does not purport to be
complete. A description of the Company's capital stock is contained in the
Amended and Restated Articles of Incorporation, which is filed as an exhibit to
the registration statement of which this Prospectus forms a part. Reference is
made to such exhibit for a detailed description of the provisions thereof
summarized below.
Common Shares
The holders of the Company's Common Shares are entitled to one vote per
share for each share held of record on all matters submitted to a vote of
shareholders. Holders of Common Shares do not have the right to cumulate their
votes in the election of directors. The Company does not anticipate paying cash
dividends on the Common Shares in the foreseeable future. See "Dividend Policy."
The holders of the Common Shares have no preemptive right or rights to convert
Common Shares into any other securities and are not subject to future calls or
assessments by the Company. All of the outstanding Common Shares are, and, when
issued, the Common Shares offered hereby will be, validly issued, fully paid,
and nonassessable by the Company.
Each share of Common Shares is entitled to receive dividends if, as and
when declared by the Board of Directors of the Company out of funds legally
available therefor.
In the event of a merger or consolidation to which the Company is a party,
each share of Common Shares will be entitled to receive the same consideration.
Shareholders of the Company have no preemptive or other rights to subscribe
for additional shares. Subject to any rights of holders of any preferred shares,
all holders of Common Shares, regardless of class, are entitled to share equally
on a share for share basis in any assets available for distribution to
shareholders on liquidation, dissolution or winding up of the Company. No Common
Shares are subject to redemption or a sinking fund. All Common Shares offered
hereby will be, when so issued or sold, validly issued, fully paid and
nonassessable.
Preferred Shares
The Company has authorized 10,000,000 preferred shares, $.01 par value per
share. No preferred shares have been issued and the Company does not presently
contemplate the issuance of such shares. The Board of Directors is empowered by
the Company's Articles of Incorporation to designate and issue from time to time
one or more classes or series of preferred shares without any action of the
shareholders. The Board of Directors may authorize issuance in one or more
classes or series, and may fix and determine the relative rights, preferences
and limitations of each class or series so authorized. Such action could
adversely affect the voting power of the holders of the Common Shares or could
have the effect of discouraging or making difficult any attempt by a person or
group to obtain control of the Company.
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<PAGE>
Transfer Agent and Registrar
The Transfer Agent and Registrar for the Common Shares is StockTrans, Inc.
Ardmore Pennsylvania. Its telephone number is (610) 649-7300.
Pennsylvania Anti-Takeover Laws, Limitation on Directors' Liability and Certain
Provisions of the Company's Articles of Incorporation and By-laws
Certain provisions of the Pennsylvania Business Corporation Law of 1988
(the "BCL") and the Company's Articles of Incorporation and By-laws may have the
effect of deterring, delaying or preventing an attempt by a third party to
acquire control of the Company.
The "business combination" provisions in Sections 2551 through 2556 of the
BCL prohibit the Company from engaging in any business combination (which is
defined broadly to include mergers, consolidations, share exchanges, divisions
and sales or other dispositions of assets having a value in excess of 10% or
more of the assets, market value or earning power or net income of the
corporation) with an "interested shareholder" or an affiliate thereof unless (A)
the business combination or the acquisition of shares in which a person becomes
an interested shareholder is approved by the Board of Directors before the
shareholder becomes an "interested shareholder," (B) the interested shareholder
owns 80% of the corporation's outstanding voting shares and the business
combination satisfies certain "fair price" criteria and is approved by the
holders of a majority of the remaining shares, or (C) the holders of a majority
of the voting shares (excluding those held by the interested shareholder unless
the fair price criteria are satisfied) approve the business combination at a
meeting held no earlier than five years after the interested shareholder's
acquisition date. An "interested shareholder" is any beneficial owner of 20% or
more of the voting shares of a corporation or an affiliate of the corporation
who was at any time within the five year period prior to the date in question a
beneficial owner of 20% or more of the voting shares of the corporation, but
does not include shareholders who were interested shareholders prior to the date
of the adoption of these provisions by the Company.
The Company has opted out of, and is not subject to, certain anti-takeover
provisions of the BCL, including the "control transactions" provision, which
provides for mandatory shareholder notice of the acquisition of 20% of the
voting power of a Pennsylvania corporation and provides shareholders with the
opportunity to demand "fair value" for their shares upon acquisition of voting
power, the "control share" provision, which limits the voting power of
shareholders owning 20% or more of a corporation's voting stock, and the
"disgorgement" provision, which permits a corporation to recover profits
resulting from the sale of shares in certain situations, including those where
an individual or group attempts to acquire at least 20% of the corporation's
voting shares do not apply to the Company.
Under the BCL, directors of a corporation are not required to regard the
interests of the shareholders as being dominant or controlling when determining
the best interests of the corporation. The directors may consider, to the extent
the directors deem appropriate, a broad range of additional factors in taking
corporate actions. These additional factors include: the effects of any action
upon any group affected by such action (including shareholders, employees,
suppliers, customers and creditors of the corporation); the short term and long
term interests of the corporation (including benefits that may accrue to the
corporation from its long term plans and the possibility that these interests
may be best served by the continued independence of the corporation); and the
resources, intent and conduct of any person seeking to acquire control of the
corporation. These BCL provisions also provide directors with additional
protection from challenges to their decision-making process, particularly with
respect to acquisitions or proposed acquisitions of corporate control.
The Company's Articles of Incorporation and By-Laws provide that special
meetings of the Company's shareholders can be called only by the Board of
Directors or the Company's Chairman of the Board, Chief Executive Officer,
President or Secretary.
The Company's By-laws establish an advance notice procedure that must be
followed by shareholders wishing to propose nominations of professionals for
election as directors, or to bring other business before an annual meeting of
shareholders of the Company. The By-laws provide that only persons who are
nominated by, or at the direction of, the Chairman, the President or the Board
of Directors, or by a shareholder who has given timely written notice to the
secretary of the Company prior to the meeting at which directors are to be
elected, will be eligible for election as directors of the Company. The By-laws
also provide that at an annual meeting only such business may be conducted as
46
<PAGE>
has been brought before the meeting by, or at the direction of, the Chairman,
the President or the Board of Directors or by a shareholder who has given timely
written notice to the secretary of the Company of such shareholder's intention
to bring such business before such meeting. Generally, for notice of shareholder
nominations or business to be brought before an annual meeting to be timely
under the By-laws, such notice must be received by the Company not less than 70
days nor more than 90 days prior to the first anniversary of the previous year's
annual meeting (or, in the case of a special meeting, not earlier than the 90th
day before such meeting and not later than the later of (i) the 70th day prior
to such meeting and (ii) the 10th day after public announcement of the date of
such meeting is first made). Under the By-laws, a shareholder's notice must also
contain certain information specified in the By-laws.
As permitted by the BCL, the Company's Articles of Incorporation provide
that, subject to certain limited exceptions, directors of the Company shall not
be personally liable, as such, for monetary damages for any action taken unless
the director has breached or failed to perform the duties of his office under
the BCL and the breach or failure to perform constitutes self-dealing, willful
misconduct or recklessness. The effect of this provision is to limit the ability
of the Company and its shareholders (through shareholder derivative suits on
behalf of the Company) to recover monetary damages against a director for the
breach of certain fiduciary duties as a director (including breaches resulting
from grossly negligent conduct). In addition, the Company's Articles of
Incorporation and By-Laws provide that the Company shall, to the full extent
permitted by the BCL, indemnify all persons whom it has the power to indemnify
pursuant thereto, including directors and officers of the Company.
The By-Laws of the Company provide that the number of directors will be
fixed from time to time exclusively by the Board of Directors. The By-Laws also
provide that any action required or permitted to be taken at any annual or
special meeting of shareholders may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the actions so
taken, is executed by the holders of outstanding shares having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, assuming an initial public offering price
of $10.00 per share and after giving effect to the issuance of shares
contemplated by the Pre-Offering Transactions, the Company will have outstanding
13,039,412 Common Shares. Of these shares, the 3,650,000 Common Shares sold in
this Offering will be tradeable without restriction unless they are purchased by
affiliates of the Company. All Common Shares received by holders of JIS stock
pursuant to the Merger will be tradeable without restriction, except those
shares held by affiliates. The holders of 131,739 shares (71,739 if the
Underwriters' over-allotment option is exercised in full) are subject to a
two-year holding period which commenced on September 6, 1996. Of the remaining
shares, 8,785,973 (8,595,973 if the Underwriters' over-allotment option is
exercised in full) are "restricted securities" under the Securities Act and may
be sold only if they are registered under the Securities Act or pursuant to an
applicable exemption from the registration requirements of the Securities Act.
The holders of 3,092,957 shares and 5,986,462 shares (2,872,955 and 5,956,462,
respectively, if the Underwriters' over-allotment option is exercised in full)
have agreed not to sell, otherwise dispose of, or pledge any of the Company's
Common Shares for 180 days and one year, respectively, after the date of this
Prospectus without the prior written consent of Janney Montgomery Scott Inc. All
of the Company's directors, executive officers and certain other shareholders
are subject to the 180-day lock-up, other than Mr. Judge, who is subject to the
one (1) year lock-up.
In general, under Rule 144 as currently in effect, a person who has
beneficially owned restricted shares for at least two years, including
affiliates, may sell, within any three-month period, a number of shares that
does not exceed the greater of 1% of the then outstanding Common Shares (130,394
immediately after this Offering) or the average weekly trading volume in the
Common Shares on the Nasdaq during the four calendar weeks preceding such sale.
Sales under Rule 144 are also subject to certain provisions regarding the manner
of sale, notice requirements and the availability of current public information
about the Company. A person who is not deemed an affiliate of the Company and
who has beneficially owned restricted shares for three years from the date of
acquisition of restricted
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<PAGE>
securities from the Company or any affiliate is entitled to sell such shares
under Rule 144(k) freely and without restriction or registration under the
Securities Act. Affiliates continue to be subject to the limitations described
below. As used in Rule 144, affiliates of the Company generally include its
directors, executive officers and persons directly or indirectly owning 10% or
more of the Common Shares.
The Commission has proposed to amend the holding period required by Rule
144 to permit sales of "restricted securities" after one year rather than two
years (and two years rather than three years for affiliates who desire to sell
such shares under Rule 144(k)). If such proposed amendment were enacted, the
"restricted securities" would become freely tradeable (subject to any applicable
contractual restrictions) at correspondingly earlier dates.
Registration Rights
Pursuant to a note purchase Agreement for the Company's Convertible Notes
executed in July 1994 (the "Agreement"), certain existing stockholders of the
Company have certain rights to require the Company, at its expense, to register
Common Shares under the Securities Act. Following completion of this Offering,
an aggregate of 336,000 Common Shares (196,000 Common Shares if the
Underwriters' over-allotment option is exercised in full) will be subject to
registration rights under the Agreement.
Under the terms of the Agreement, holders of 336,000 Common Shares (196,000
Common Shares if the Underwriters' over-allotment option is exercised in full)
are entitled to make request for the Company to register such shares under the
Securities Act, subject to certain limitations and conditions. In addition, if
the Company at any time proposes to register any of its securities under the
Securities Act (other than securities issuable pursuant to employee compensation
plans or for certain other purposes), parties to the Agreement are entitled to
require the Company to include their shares in such registration. The
underwriter of such offering has the right to limit the number of shares
included in such registration for marketing purposes.
Pursuant to an agreement dated October 21, 1996, Gemstone has certain
registration rights in secondary public offerings on terms identical to those
described in the preceding paragraph, pursuant to the consent of the certain
shareholders described above.
In addition, under the terms of a stock purchase agreement, as amended,
(the "Purchase Agreement") between the Company, Berkeley, and Sandra Mayer and
Gregory McCarthy, Ms. Mayer and Mr. McCarthy (the "Sellers") received certain
registration rights relating to the shares issuable pursuant to the Purchase
Agreement. The Purchase Agreement provides the Sellers with demand registration
rights for all of the shares issuable pursuant to the Purchase Agreement
beginning five days after the first anniversary of the closing of this Offering.
Lock-Up Agreement
All of the executive officers, directors and certain other shareholders of
the Company, who will be deemed to beneficially own 9,079,419 Common Shares
(8,829,417 Common Shares if the Underwriters' over-allotment option is exercised
in full) upon consummation of this Offering, have agreed with the Underwriters
not to sell, otherwise dispose of or pledge any of the Common Shares for 180
days after the date of this Prospectus without the prior written consent of
Janney Montgomery Scott Inc. In addition, Mr. Judge has agreed with the
Underwriters not to sell or otherwise dispose of or pledge any of the Common
Shares for one year after the date of this Prospectus without the prior written
consent of Janney Montgomery Scott Inc.
Absence of Prior Market
Prior to this Offering, there has been no public market for the Common
Shares offered hereby, and no prediction can be made about the effect, if any,
that market sales of shares or the availability of shares for sale will have on
the market price from time to time. Nevertheless, sales of substantial amounts
of Common Shares in the public market may have an adverse impact on the market
price.
48
<PAGE>
UNDERWRITING
The Underwriters named below, acting through their Representatives, Janney
Montgomery Scott Inc. and _________ (the "Representatives") have severally
agreed, subject to the terms and conditions of the Underwriting Agreement, to
purchase a total of 3,650,000 Common Shares from the Company and the Selling
Shareholders. The number of Common Shares that each Underwriter has agreed to
purchase is set forth opposite its name below. The Underwriters are committed to
purchase all of such shares if any are purchased. Under certain circumstances
the commitments of non-defaulting Underwriters may be increased. The names of
the several Underwriters and the respective number of shares to be purchased by
each of them are as follows:
Underwriter Number of Shares
----------- ----------------
Janney Montgomery Scott Inc.................... _________
TOTAL.................................... 3,650,000
=========
The Underwriters propose to offer the Common Shares to the public initially
at the offering price per share set forth on the cover page of this Prospectus
and to certain dealers at such price less a concession not in excess of $_____
per share, and the Underwriters may allow, and such dealers may reallow, a
concession not in excess of $_____ per share on sales to other dealers. After
the initial public offering of the Common Shares, the offering price and the
concession may be changed.
The Company has agreed to indemnify the several Underwriters against
certain liabilities which may be incurred in connection with the offering,
including liabilities under the Act.
The Company and the Selling Shareholders have granted an option to the
Underwriters, exercisable during the 30-day period after the date of this
Prospectus, to purchase up to an aggregate of 547,500 Common Shares at the same
price per share as the initial public offering price (with the first 250,000
Common Shares being sold by the Selling Shareholders and the remaining 297,500
Common Shares being sold by the Company). The Underwriters may exercise such
option only to cover over-allotments in the sale of the Common Shares that the
Underwriters have agreed to purchase. To the extent the Underwriters exercise
this option, each of the Underwriters has a firm commitment, subject to certain
conditions, to purchase the same percentage of the option shares as the number
of shares to be purchased and offered by that Underwriter as shown in the above
table bears to the 3,650,000 Common Shares initially offered hereby.
Martin E. Judge, Jr., has agreed with the Representatives not to sell or
dispose of any shares owned by him for a period of one year after the date of
this Prospectus. All of the other directors, executive officers, the Selling
Shareholders and certain other shareholders have agreed with the Representatives
not to sell or dispose of any shares owned by them without the consent of the
Representatives for a period of 180 days after the date of this Prospectus. See
"Shares Eligible for Future Sale."
The Underwriters do not intend to confirm sales of the Common Shares to any
accounts over which they exercise discretionary authority.
The Underwriters have reserved for sale, at the initial public offering
price, up to 5% of the Common Shares offered hereby for employees of the Company
and certain other individuals who have expressed an interest in purchasing such
Common Shares in this offering. The number of Common Shares available for sale
to the general public will be reduced to the extent such persons purchase such
reserved Common Shares. Any reserved Common Shares not so purchased will be
offered by the Underwriters to the general public on the same basis as the other
Common Shares offered hereby.
Prior to this offering, there has been no public market for the Company's
Common Shares. The initial public offering price for the Common Shares was
determined by negotiation between the Company and the Representatives. The
factors considered in determining the initial public offering price include,
among other things, the history of and the prospectus for the industry in which
the Company competes, the capability of the Company's management, the past and
present operations of the Company, the historical results of operations of the
Company and the trend of its earnings, the
49
<PAGE>
prospect for future earnings of the Company, the general condition of the
securities markets at the time of the offering and the prices of similar
securities of generally comparable companies.
Janney Montgomery Scott Inc. ("Janney") has rendered an opinion to the
Board of Directors of JIS as to the fairness, from a financial point of view, of
the consideration to be received by JIS stockholders in connection with the
Merger. JIS agreed to pay Janney a financial advisory fee of $40,000, and JIS
has agreed to reimburse Janney for expenses in the amount of $10,000, including
attorney's fees and disbursements, incurred in connection with the preparation
of this opinion. The obligation of JIS to pay such fees was not contingent on
the opinion expressed by Janney.
LEGAL MATTERS
Drinker Biddle & Reath, Philadelphia, Pennsylvania, has rendered an opinion
that the Common Shares offered hereby by the Company, when issued and paid for
pursuant to the terms of the Underwriting Agreement, will be legally issued,
fully paid and non-assessable. Certain legal matters in connection with this
Offering will be passed upon for the Underwriters by Saul, Ewing, Remick & Saul,
Philadelphia, Pennsylvania.
EXPERTS
The Company's consolidated balance sheets as of June 30, 1996, December 31,
1995 and 1994 and the related consolidated statements of operations and deficit
and statements of cash flows for the six month period ended June 30, 1996 and
each of the three years in the period ended December 31, 1995 included in this
Prospectus have been included herein in reliance on the report of Rudolph,
Palitz LLP, independent accountants, given on the authority of said firm as
experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company is not currently subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The
Company has filed with the Securities and Exchange Commission (the "Commission")
a Registration Statement on Form S-1 under the Securities Act with respect to
the registration of the Common Shares offered hereby. This Prospectus, which
constitutes a part of the Registration Statement, omits certain information
contained in the Registration Statement, and reference is made to the
Registration Statement and the exhibits thereto for further information with
respect to the Company and the Common Shares to which this Prospectus relates.
Statements contained herein concerning the provisions of any contract, agreement
or other document are not necessarily complete, and, in each instance, reference
is made to the copy of such document filed as an exhibit to the Registration
Statement for a more complete description of the matter involved, and each such
statement is qualified in its entirety by such reference. The Registration
Statement, including the exhibits and schedules filed therewith, may be
inspected at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of the
Commission located at 7 World Trade Center, New York, New York 10048 and
Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois 60606.
Copies of such materials may be obtained from the Public Reference Section of
the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates.
As a result of this Offering of the Common Shares, the Company will become
subject to the informational requirements of the Exchange Act. The Company
intends to furnish to its shareholders annual reports containing audited
financial information.
50
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
Page(s)
-------
INDEPENDENT AUDITORS' REPORT AS OF DECEMBER 31, 1995 AND 1994
AND FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER
31, 1995.......................................................... F-2
CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 1996
(UNAUDITED) AND DECEMBER 31, 1995 AND 1994........................ F-3
CONSOLIDATED STATEMENTS OF OPERATIONS FOR NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1995 (UNAUDITED) AND YEARS ENDED
DECEMBER 31, 1995, 1994 AND
1993.............................................................. F-4
CONSOLIDATED STATEMENTS OF shareholders' EQUITY FOR NINE
MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND YEARS ENDED
DECEMBER 31, 1995, 1994 AND
1993.............................................................. F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1995 (UNAUDITED) AND YEARS ENDED
DECEMBER 31, 1995, 1994 AND
1993.............................................................. F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR NINE MONTHS
ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED) AND YEARS
ENDED DECEMBER 31, 1995, 1994 AND
1993.............................................................. F-7 - F-27
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
The Judge Group, Inc.
Bala Cynwyd, Pennsylvania
We have audited the accompanying consolidated balance sheets of The Judge Group,
Inc. (formerly Judge, Inc.) and Subsidiaries as of December 31, 1995 and
December 31, 1994, and the related consolidated statements of operations,
shareholders' equity, and of cash flows for each of the three years in the
period ended December 31, 1995. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The Judge Group,
Inc. (formerly Judge, Inc.) and Subsidiaries as of December 31, 1995 and
December 31, 1994, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
As discussed in Note 10 to the financial statements, the Company adopted
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," as of January 1, 1993.
September 30, 1996
Plymouth Meeting, PA
F-2
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
December 31,
September 30, -----------------------------
1996 1995 1994
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash ................................................... $ 153,942 $ 35,078 $ 82,928
Accounts receivable, net ............................... 12,956,917 8,881,059 6,418,697
Inventories ............................................ 912,303 515,099 232,705
Prepaid income taxes and deferred taxes ................ 334,976 347,352 127,000
Other .................................................. 993,948 508,640 103,997
------------ ------------ ------------
Total current assets ................................. 15,352,086 10,287,228 6,965,327
------------ ------------ ------------
PROPERTY AND EQUIPMENT
Furniture, office and computer equipment ............... 3,570,438 1,732,677 1,545,784
Automotive equipment ................................... 37,936 48,617 40,544
Leasehold improvements ................................. 46,565 28,069 15,158
------------ ------------ ------------
3,654,939 1,809,363 1,601,486
Less: accumulated depreciation and amortization ........ 1,774,499 875,552 1,009,422
------------ ------------ ------------
Net property and equipment ........................... 1,880,440 933,811 592,064
------------ ------------ ------------
OTHER ASSETS
Notes receivable, officers and employees ............... 431,890 222,564 169,738
Other receivable, related party ........................ 155,908 -- --
Deposits ............................................... 108,183 94,317 45,752
Goodwill ............................................... 3,259,202 -- --
Covenant not-to-compete, net of accumulated
amortization of $602,589, 1996, $508,645,
1995 and $358,131, 1994 .............................. -- 93,944 244,458
------------ ------------ ------------
Total other assets ................................... 3,955,183 410,825 459,948
------------ ------------ ------------
Total assets ......................................... $ 21,187,709 $ 11,631,864 $ 8,017,339
============ ============ ============
LIABILITIES AND shareholders' EQUITY (DEFICIT)
CURRENT LIABILITIES
Note payable, bank ..................................... $ -- $ -- $ 2,748,666
Current portion of long-term debt ...................... 940,709 280,420 324,427
Convertible notes ...................................... 500,000 -- --
Current portion of payroll tax obligation .............. -- 321,391 230,427
Accounts payable and accrued expenses .................. 5,669,388 3,277,546 2,344,295
Payroll and sales taxes ................................ 606,438 396,735 463,955
Income taxes payable ................................... 42,981 6,968 252,727
Other notes payable .................................... 196,193 -- --
Deferred revenue ....................................... 1,333,661 297,362 82,151
Advances from shareholders ............................. 105,263 139,906 189,699
------------ ------------ ------------
Total current liabilities ............................ 9,394,633 4,720,328 6,636,347
------------ ------------ ------------
LONG-TERM LIABILITIES
Note payable, bank ..................................... 7,146,185 5,367,516 --
Deferred rent obligation ............................... 137,038 156,943 117,902
Debt obligations, net of current portion ............... 3,272,328 496,012 536,273
Convertible notes ...................................... -- 500,000 500,000
Payroll tax obligation, net of current portion ......... -- -- 321,392
------------ ------------ ------------
Total long-term liabilities .......................... 10,555,551 6,520,471 1,475,567
------------ ------------ ------------
MINORITY INTEREST ........................................ 271,248 -- --
------------ ------------ ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIT)
Common stock, at September 30, 1996, $.01 par
value, 50,000,000 shares authorized, 8,587,739
shares issued and outstanding; December 31, 1995
and 1994, $.005 par value, 10,000,000 shares
authorized, 160,000 shares issued and outstanding .... 85,877 800 800
Additional paid-in capital ............................. 365,877 626,848 626,848
Retained earnings (deficit) ............................ 514,523 (236,583) (722,223)
------------ ------------ ------------
Total shareholders' equity (deficit) ................. 966,277 391,065 (94,575)
------------ ------------ ------------
Total liabilities and shareholders' equity (deficit).. $ 21,187,709 $ 11,631,864 $ 8,017,339
============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
AND YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
September 30, December 31,
--------------------------- ------------------------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
NET REVENUES .............................. $ 58,914,238 $ 46,876,520 $ 63,299,353 $ 45,253,417 $ 35,068,867
------------ ------------ ------------ ------------ ------------
COSTS AND EXPENSES
Cost of sales ........................... 43,232,381 35,273,352 47,550,114 34,146,215 26,069,583
Selling and operating ................... 10,022,739 6,841,426 9,797,875 6,509,549 5,853,608
General and administrative .............. 4,310,467 3,199,229 4,187,485 3,155,012 2,524,824
------------ ------------ ------------ ------------ ------------
Total costs and expenses .............. 57,565,587 45,314,007 61,535,474 43,810,776 34,448,015
------------ ------------ ------------ ------------ ------------
INCOME FROM OPERATIONS .................... 1,348,651 1,562,513 1,763,879 1,442,641 620,852
OTHER EXPENSE, NET, PRINCIPALLY INTEREST
EXPENSE ................................. (599,597) (545,034) (697,339) (419,590) (334,004)
------------ ------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAX EXPENSE, MINORITY
INTEREST IN NET LOSS OF CONSOLIDATED
SUBSIDIARY AND CUMULATIVE EFFECT
ADJUSTMENT .............................. 749,054 1,017,479 1,066,540 1,023,051 286,848
INCOME TAX EXPENSE ........................ 614,700 498,336 587,957 679,800 227,460
------------ ------------ ------------ ------------ ------------
INCOME BEFORE MINORITY INTEREST IN NET LOSS
OF CONSOLIDATED SUBSIDIARY AND CUMULATIVE
EFFECT ADJUSTMENT ....................... 134,354 519,143 478,583 343,251 59,388
MINORITY INTEREST IN NET LOSS OF
CONSOLIDATED SUBSIDIARY ................. 616,752 -- 7,057 -- --
------------ ------------ ------------ ------------ ------------
INCOME BEFORE CUMULATIVE EFFECT
ADJUSTMENT .............................. 751,106 519,143 485,640 343,251 59,388
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE ............................... -- -- -- -- 42,000
------------ ------------ ------------ ------------ ------------
NET INCOME ................................ $ 751,106 $ 519,143 $ 485,640 $ 343,251 $ 101,388
============ ============ ============ ============ ============
NET INCOME PER SHARE:
PRIMARY:
Income before cumulative effect
adjustment ............................ $ 0.08 $ 0.06 $ 0.06 $ 0.04 $ 0.01
Cumulative effect adjustment ............ -- -- -- -- --
------------ ------------ ------------ ------------ ------------
$ 0.08 $ 0.06 $ 0.06 $ 0.04 $ 0.01
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
FULLY DILUTED:
Income before cumulative effect
adjustment ............................ $ 0.08 $ 0.06 $ 0.06 $ 0.04 $ 0.01
Cumulative effect adjustment ............ -- -- -- -- --
------------ ------------ ------------ ------------ ------------
$ 0.08 $ 0.06 $ 0.06 $ 0.04 $ 0.01
============ ============ ============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
Common Stock Additional Retained
------------------------ Paid-In Earnings
Shares Additional Capital (Deficit) Total
------ ---------- ------- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1993 ............ 160,000 $ 800 $ 626,848 ($1,166,862) ($ 539,214)
Net Income .......................... -- -- -- 101,388 101,388
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1993 .......... 160,000 800 626,848 (1,065,474) (437,826)
Net Income .......................... -- -- -- 343,251 343,251
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1994 .......... 160,000 800 626,848 (722,223) (94,575)
Net Income .......................... -- -- -- 485,640 485,640
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1995 .......... 160,000 800 626,848 (236,583) 391,065
Merger transactions (Notes 13 and 17) -- -- (175,910) -- (175,910)
Stock split, 52.6 for 1.0 (Note 13) . 8,256,000 83,360 (83,360) -- --
Exercise of Warrants (Note 13) ...... 171,739 1,717 (1,701) -- 16
Net Income .......................... -- -- -- 751,106 751,106
----------- ----------- ----------- ----------- -----------
Balance, September 30, 1996 ......... 8,587,739 $ 85,877 $ 365,877 $ 514,523 $ 966,277
=========== =========== =========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
AND YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
September 30, December 31,
-------------------------- ------------------------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income....................................... $ 751,106 $ 519,143 $ 485,640 $ 343,251 $ 101,388
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization.................. 396,414 317,835 421,613 340,708 286,273
Deferred taxes................................. -- -- (103,000) (60,000) (67,000)
Deferred rent.................................. (19,905) 45,678 39,041 117,902 --
Provision for losses on accounts receivable.... 369,528 201,080 300,033 71,697 58,655
Stock compensation............................. -- -- 6,000 -- --
Minority interest in net loss of
consolidated subsidiary...................... (616,752) -- (7,057) -- --
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable............................ (3,741,379) (3,161,667) (2,762,395) (2,221,822) (1,145,179)
Inventories.................................... (278,728) (544,311) (282,394) 127,518 (208,551)
Deposits....................................... (2,527) (48,564) (48,565) (16,807) (1,915)
Prepaid taxes.................................. 60,687 (69,712) (117,352) 59,406 96,796
Other current assets........................... (521,312) (67,704) (404,643) (24,796) (50,703)
Other assets................................... (133,350) -- -- --
Increase (decrease) in:
Accounts payable and accrued expenses.......... 1,465,440 932,696 512,251 393,299 131,299
Payroll and sales taxes........................ (150,456) (92,613) (297,648) (168,965) 586,832
Deferred revenue............................... 187,065 (60,187) 215,211 (109,982) 124,882
Income taxes payable........................... 36,013 (322,165) (245,759) 252,727 --
---------- ---------- ---------- ---------- ----------
Net cash used in operating activities........ (2,198,156) (2,350,491) (2,289,024) (895,864) (87,223)
---------- ---------- ---------- ---------- ----------
INVESTING ACTIVITIES
Purchases of property and equipment.............. (442,930) (270,011) (373,051) (252,286) (91,465)
Purchase/acquisition of companies................ (554,448) -- -- -- --
Proceeds from disposals of property and
equipment...................................... -- 18,778 24,461 -- --
(Increase) in notes receivable, officers and
employees, net................................. (209,326) (2,824) (52,826) (56,743) (17,677)
---------- ---------- ---------- ---------- ----------
Net cash used in investing activities........ (1,206,704) (254,057) (401,416) (309,029) (109,142)
---------- ---------- ---------- ---------- ----------
FINANCING ACTIVITIES
Cash acquired in business combination............ 150,701 -- -- -- --
Proceeds from notes payable, bank, net........... 2,778,669 2,447,396 2,618,850 249,431 522,101
Proceeds from bank overdrafts.................... 321,000 408,000 421,000 917,000 --
Proceeds from (repayment of) long-term debt...... (580,019) 38,000 38,000 556,000 --
Principal payments on long-term debt............. -- (276,916) (386,524) (383,756) (275,462)
Proceeds from issuance of stock and exercise of
warrants....................................... 16 -- 1,057 -- --
Repayments from shareholders..................... (34,643) (31,170) (49,793) (64,028) (43,421)
Issuance of Series A Preferred Shares, net of
costs.......................................... 888,000 -- -- -- --
---------- ---------- ---------- ---------- ----------
Net cash provided by financing activities.... 3,523,724 2,585,310 2,642,590 1,274,647 203,218
---------- ---------- ---------- ---------- ----------
INCREASE (DECREASE) IN CASH...................... 118,864 (19,238) (47,850) 69,754 6,853
CASH, BEGINNING.................................. 35,078 82,928 82,928 13,174 6,321
---------- ---------- ---------- ---------- ----------
CASH, ENDING..................................... $ 153,942 $ 63,690 $ 35,078 $ 82,928 $ 13,174
========== ========== ========== ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest......................................... $ 600,000 $ 517,000 $ 657,000 $ 405,000 $ 330,000
========== ========== ========== ========== ==========
Income taxes..................................... $ 300,000 $ 835,000 $1,056,000 $ 496,000 $ 214,000
========== ========== ========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (Unaudited) AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 1. DESCRIPTION OF BUSINESS
On September 4, 1996, a special meeting of the Board of Directors was held
where Judge, Inc. changed its name to The Judge Group, Inc. (the "Company"),
effected certain changes to its capital structure and authorized a stock split.
See Note 13. The Company, a Pennsylvania corporation founded in 1970, provides
(i) information technology ("IT") and engineering professionals to its clients
on both a temporary basis (through its "Contract Placement" business) and a
permanent basis (through its "Permanent Placement" business), (ii) computer
network and document management system integration, implementation, maintenance
and training (through its "Imaging and Network Services' business) and (iii)
information technology training (through its "IT Training" business) on a range
of software and network applications to corporate, governmental and individual
clients. At September 30, 1996, the Company had offices in Bala Cynwyd,
Pennsylvania; Hartford, Connecticut; Foxborough, Massachusetts; Wakefield,
Massachusetts; Tampa, Florida; Moorestown and Edison, New Jersey and Alexandria,
Virginia.
The Contract Placement business includes the operations of three of the
Company's wholly-owned subsidiaries, Judge Technical Services, Inc. ("JTS"),
Judge Professional Services, Inc. ("JPS") and Judge Technical Services of N.J.,
Inc. ("JTNJ").
The Permanent Placement business is comprised of the operations of the
Company and two of its wholly-owned subsidiaries, Judge Electronic Services of
Florida, Inc. ("JESF") and Judge Inc. of New Jersey ("JINJ").
The IT Training business is comprised of the operations of The Berkeley
Associates Corp. ("Berkeley"), a company acquired by the Company in September
1996 (see Note 4).
At December 31, 1995 the Company owned 33%, Martin E. Judge, Jr., the
Company's founder, Chairman and Chief Executive Officer owned 47%, and another
officer and director of the Company owned 5% of the outstanding voting shares,
on a fully diluted basis, of Judge Computer Corporation ("JCC"). On December 1,
1995, JCC entered into an Agreement and Plan of Merger (the "JCC/DI Merger
Agreement") with DataImage, Inc. ("DI" or "Data Image"), a public company, the
common stock of which was traded on the over-the-counter market. Pursuant to the
JCC/DI Merger Agreement, JCC was merged into DI on February 29, 1996 (the
"JCC/DI Merger"), and DI, as the surviving corporation, changed its name to
Judge Imaging Systems, Inc. ("JIS"). As a result of the merger, the former
shareholders of JCC hold, on a fully diluted basis, a majority of the
outstanding common stock of JIS, which remains a public company.
The Imaging and Network Services business of the Company consisted of the
operations of JCC prior to the JCC/DI Merger and JIS subsequent to the merger.
See Notes 14 and 17. In addition, the Company purchased the net assets and
liabilities of Systems Automation, Inc. ("Systems Automation") in September 1996
(see Note 4), a company that provides imaging and document management systems
and services.
During 1996, the Company engaged an investment banking firm to assist it in
a public offering of its common stock. On September 30, 1996, the Company filed
a Registration Statement on Form S-1 with the Securities and Exchange Commission
under the Securities Act of 1933. In connection with this proposed public
offering, the Company has incurred approximately $580,000 of accounting, legal,
printing and other costs as of September 30, 1996 and such costs are included in
other current assets in the accompanying consolidated balance sheet.
On September 4, 1996, The Boards of Directors of the Company and JIS
approved the merger of JIS into a newly-formed, wholly-owned subsidiary of the
Company (the "Merger"). This Merger is subject to approval by the shareholders
of JIS and the successful public offering of the Company's common shares. The
terms of the Merger call for the conversion of each share of JIS common stock
and Series A preferred stock into $2.50 of value based on the public offering
price of The Judge Group,
F-7
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (Unaudited) AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 1. DESCRIPTION OF BUSINESS -- (Continued)
Inc. common stock. Based upon the expected offering price of $10.00 per share,
it is anticipated that approximately 900,000 shares of The Judge Group, Inc.
common stock will be issued to shareholders of JIS.
Unless the context indicates otherwise, references to the Company herein
prior to February 29, 1996 include reference to its wholly-owned subsidiaries
and JCC and such references subsequent to February 29, 1996 include reference to
its wholly-owned subsidiaries and JIS.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company, JIS and the Company's wholly-owned subsidiaries, which include JTS,
JPS, JTNJ, JESF, Berkeley (as of and from the effective date of the acquisition
- -- see Note 4), JINJ (which had no activity in the period ended December 31,
1994 and December 31, 1993) and Judge Hospitality Services, Inc. and Judge
Electronic Services of Boston, Inc., (which had no activity during the nine
months ended September 30, 1996 or 1995, or during the three years in the period
ended December 31, 1995). JCC (prior to the JCC/DI merger) and JIS (subsequent
to the JCC/DI merger) have been consolidated due to certain elements of common
ownership and control being present. All significant intercompany accounts and
transactions have been eliminated.
The financial statements as of September 30, 1996 and for the nine months
ended September 30, 1995 and 1996 are Unaudited; however, in the opinion of
management, such statements include all adjustments, consisting solely of normal
recurring adjustments, necessary for a fair presentation of the results for the
periods presented.
The interim financial statements should be read in conjunction with the
financial statements for the fiscal year ended December 31, 1995 and notes
thereto.
The results of operations for the interim periods are not necessarily
indicative of the results that might be expected for the future interim periods
or for the full year ended December 31, 1996.
Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Revenue Recognition in Contract Placement and Permanent Placement Businesses
The Company recognizes permanent placement revenues at the date employment
of the placed professional commences, subject to reversal and adjustments if
such employment is terminated during a guarantee period. Revenues related to
temporary placement services are recognized on a weekly basis as the services
are performed.
Revenue Recognition in Imaging and Network Services Business
Revenues from the sales of network, imaging and document management systems
is recognized at the date of shipment of the system, provided that any work to
complete installation of the system is routine in nature and costs are not
significant. The system components are assembled and tested in the Company's
facilities prior to delivery. Revenues are recorded in the period in which the
merchandise is shipped or the services are rendered. However, in instances in
which installation and development
F-8
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (Unaudited) AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
costs are significant to the completion of the contract, revenue is recognized
on a percentage of completion basis. Revenues billed in advance for computer
sales, warranties and maintenance contracts are deferred and recorded as income
in the period in which the merchandise is shipped or the services are rendered.
Deferred revenues on the accompanying consolidated balance sheet as of September
30, 1996 includes approximately $34,000 of billings in excess of costs and
estimated earnings on contracts-in-progress.
Revenue Recognition in IT Training Business
Tuition and fee revenues are recognized when the classes are held. Payments
received prior to the class commencing are recorded as deferred revenues.
Cash
The Company maintains cash balances at financial institutions. These
balances are insured by the Federal Deposit Insurance Corporation up to $100,000
at each institution.
Inventories
Inventories of computer and related supplies and equipment held for resale
are valued at the lower of cost (first-in, first-out) or market. Inventories at
September 30, 1996 include approximately $56,000 of costs and estimated earnings
in excess of billings on contracts-in-progress.
Accounts Receivable and Accounts Payable
Accounts receivable at September 30, 1996, December 31, 1995, 1994 and 1993
were net of allowances for doubtful accounts of $389,000, $174,000, $157,000 and
$132,000, respectively.
Included in accounts receivable was unbilled work-in-process of
approximately $1,344,000, $655,000 and $564,000 at September 30, 1996, December
31, 1995 and 1994, respectively. Included in accounts payable and accrued
expenses was approximately $979,000, $510,000 and $436,000 of accrued employee
and contractor payroll principally relating to unbilled work-in-process at
September 30, 1996, December 31, 1995 and 1994, respectively.
An analysis of the allowance for doubtful accounts follows:
Additions
Balance At Charged To Deductions Balance At
Beginning Of Bad Debt (Charge End Of
Year Ended December 31, Period Expense Offs) Period
- ----------------------- ------------ ----------- ------------ -----------
1995...................... $ 157,000 $ 300,000 ($ 283,000) $ 174,000
============ =========== ============ ===========
1994...................... $ 132,000 $ 72,000 ($ 47,000) $ 157,000
============ =========== ============ ===========
1993...................... $ 73,000 $ 59,000 -0- $ 132,000
============ =========== ============ ===========
Nine Months Ended
September 30,
- -----------------
1996...................... $ 174,000 $ 370,000 ($ 155,000) $ 389,000
============ =========== ============ ===========
1995...................... $ 157,000 $ 201,000 ($ 38,000) $ 320,000
============ =========== ============ ===========
Property and Equipment and Depreciation and Amortization
Property and equipment are stated at cost. Depreciation and amortization is
computed on the straight-line and accelerated methods over the estimated useful
lives of the related assets, principally five to ten years for furniture, office
and computer equipment and five years for automotive equipment.
F-9
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (Unaudited) AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
Leasehold improvements are amortized using the straight-line method over the
shorter of the lease term or estimated useful lives of the improvements,
principally five to ten years.
Depreciation and amortization related to property and equipment amounted to
$302,000 and $205,000 for the nine months ended September 30, 1996 and 1995,
respectively, and $271,099 in calendar 1995, $190,192 in calendar 1994 and
$135,758 in calendar 1993.
Property Under Capital Leases and Amortization
Property under capital leases is stated at the lower of fair market value
or net present value of the minimum lease payments at inception of the leases.
Property under capital leases consists of furniture and office equipment and is
included in "property and equipment" in the accompanying consolidated balance
sheets. Amortization is provided over the shorter of the related lease terms or
the estimated useful lives of the related assets.
Income Taxes
Deferred taxes are accounted for in accordance with Statement of Financial
Accounting Standards ("Statement") No. 109, "Accounting for Income Taxes." The
Statement requires the use of the liability method to account for income taxes.
Deferred income taxes are provided for the difference between the tax basis of
an asset or liability and its reported amount in the financial statements and at
the tax rates that are expected to be in effect when the taxes are actually paid
or recovered.
Deferred income taxes arise principally from differences between financial
and income tax reporting, including amounts recorded for workers' compensation
funding, timing differences relating to the restrictive covenant described in
Note 15 (the "Restrictive Covenant"), amounts recorded for inventory
capitalization, the availability of net operating loss carryforwards and certain
other temporary differences.
Deferred income tax assets are reduced by a valuation allowance when, based
on the weight of evidence available, it is more likely than not that some
portion or all of the deferred tax assets will not be realized.
Interim Financial Reporting
For interim financial reporting purposes, costs and expenses are accounted
for in accordance with Accounting Principles Board Opinion No. 28 ("APB 28").
Intangible Assets
The Restrictive Covenant (covenant-not-to-compete) was being amortized on a
straight-line method over the life of the covenant (forty-eight months).
Amortization expense related to the covenant was approximately $94,000 for the
nine months ended September 30, 1996, $113,000 for the nine months ended
September 30, 1995, and approximately $150,000 for each of 1995, 1994 and 1993.
See Note 15.
Goodwill represents the excess of the cost of companies acquired over the
fair value of their net assets at the date of acquisition and is being amortized
on the straight-line method over ten years for Systems Automation and over
fifteen years for Berkeley. Both acquisitions were effective September 30, 1996;
therefore, amortization of goodwill will begin in October 1996. See Note 4.
F-10
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (Unaudited) AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
Deferred Rent Obligation
The Company is party to an operating lease agreement for its principal
office facilities, which contains a provision for free rent for a certain
period, with subsequent rent increases. In accordance with generally accepted
accounting principles, the Company records monthly rent expense equal to the
total of the payments due over the lease term, divided by the number of months
of the lease term. The difference between rent expense recorded and the amount
paid is credited or charged to deferred rent obligation in the accompanying
consolidated balance sheets.
Advertising Costs
The Company participates in various advertising programs. All costs related
to advertising are expensed in the period incurred. Advertising expense amounted
to approximately $403,000 and $345,000 for the nine months ended September 30,
1996 and 1995, respectively, and $464,000, $267,000 and $214,000 in 1995, 1994
and 1993, respectively.
Recently Issued Accounting Standards
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" ("Statement 121"). Statement 121
established accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those assets to be
held and used, and for long-lived assets and certain identifiable intangibles to
be disposed. Statement 121 requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Measurement of an impairment
loss for long-lived assets and identifiable intangibles that an entity expects
to hold and use should be based on the fair value of an asset. Statement 121
became effective January 1, 1996 and did not have a material effect on the
Company's financial condition or results of operations.
In October 1995, FASB issued Statement No. 123 "Accounting for Stock-Based
Compensation," ("Statement 123"), which provides an alternative method of
accounting for stock-based compensation arrangements, based on fair value of the
stock-based compensation utilizing various assumptions regarding the underlying
attributes of the options and the underlying stock, rather than the existing
method of accounting for stock-based compensation which is provided in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees' (APB No. 25). FASB encourages entities to adopt the fair value-based
method but does not require adoption of this method. Statement 123 became
effective January 1, 1996 and, based upon information presently available, is
not expected to have a material impact on the Company's financial position or
its results of operations.
Earnings Per Share
The number of shares used in the earnings per share calculation and
convertible note share conversion (see Note 8) has been adjusted for the 52.6
for 1.0 stock split which occurred in September 1996.
Primary earnings per share amounts were computed based on the weighted
average number of shares actually outstanding. The number of shares used in the
computation were approximately 8,588,000 for both the nine months ended
September 30, 1996 and 1995, 8,588,000 in 1995 and 1994 and 8,500,000 in 1993.
Fully diluted earnings per share amounts for the nine months ended
September 30, 1996 and 1995 and for calendar years 1995, 1994 and 1993 were
based on the weighted average number of shares
F-11
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (Unaudited) AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
calculated for primary earnings per share purposes increased by the number of
shares that would be outstanding assuming conversion of outstanding convertible
notes (see Note 8). The number of shares used in the computation were
approximately 9,114,000 for the nine months ended September 30, 1996 and 1995,
and approximately 9,114,000 in calendar year 1995, 8,851,000 in 1994 and
8,500,000 in 1993.
Fair Value of Financial Instruments
The estimated fair values of substantially all of the Company's financial
instruments (all of which are held for non trading purposes) are approximately
equal to their carrying values at all periods presented.
NOTE 3. NOTE RECEIVABLE (DI)
In connection with the JCC/DI Merger, JCC provided a $50,000 bridge loan,
with interest at 11% per annum, to DI in September 1995 to fund DI's ongoing
operations and working capital requirements through the date of the expected
closing of the JCC/DI Merger. The loan was collateralized by certain assets of
DI. As a result of the JCC/DI Merger, no interest was charged on this loan. This
receivable was included in "other" current assets in the accompanying December
31, 1995 consolidated balance sheet.
NOTE 4. BUSINESS COMBINATIONS AND PRO-FORMA RESULTS OF OPERATIONS
Effective September 30, 1996, the Company purchased 100% of the issued and
outstanding stock of Berkeley. Berkeley, founded in 1980, is a provider of IT
training services to corporate, governmental and individual clients. The total
acquisition cost was $2,232,200 payable principally in cash and notes. In the
event the Company completes an initial public offering of stock before March 31,
1997, $300,000 of the notes payable will be converted into the Company common
stock at the price per share of the public offering. Also within 30 days after
the consummation of a public offering of stock, a portion of the notes payable,
calculated as $1,060,000 less cash payments made to date, will be due and
payable in cash. A portion of the purchase price, $572,200, is contingent on
Berkeley attaining certain pre-tax income amounts in 1996 and/or 1997. The
acquisition was accounted for as a purchase and no results of operations of
Berkeley are included in the earnings of the Company for the nine month period
ended September 30, 1996. The excess of acquisition cost over the fair value of
net assets, assumed to equal its book value, was approximately $2,220,000, which
will be amortized over fifteen years, beginning in October 1996. Operating
results for the Company for the nine months ended September 30, 1996 and year
ended December 31, 1995, on a pro forma basis as though Berkeley had been
acquired as of January 1, 1995 and January 1, 1996, respectively, are shown
below.
Also effective September 30, 1996, the Company purchased substantially all
of the tangible and intangible assets, and assumed all of the liabilities, of
Systems Automation. Systems Automation is a provider of advanced technical
solutions to increase the efficiency of business processes, such as network and
document management systems design, integration, implementation, maintenance and
training, business process redesign, project management and advanced
applications development. The total acquisition cost was $547,252 payable in
cash and notes. In the event that the Company completes an initial public
offering, the remainder of any notes become due and payable in cash within 15
days of the consummation of such public offering. The acquisition was accounted
for as a purchase and no results of operations of Systems Automation are
included in the earnings of the Company for the nine month period ending
September 30, 1996. The excess of acquisition cost over the fair value of net
assets, assumed to equal its book value, was approximately $1,040,000, which
will be amortized over ten years, beginning in October 1996. Operating results
for the Company for the nine months ended
F-12
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (Unaudited) AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 4. BUSINESS COMBINATIONS AND PRO-FORMA RESULTS OF OPERATIONS -- (Continued)
September 30, 1996 and year ended December 31, 1995, on a pro forma basis as
though Systems Automation had been acquired as of January 1, 1995 and January 1,
1996, respectively, are shown below.
The following sets forth the combined results for the Company, DataImage
(see Note 17), Berkeley and Systems Automation for the nine months ended
September 30, 1996 and year ended December 31, 1995, as if the business
combinations occurred at January 1, 1996 and 1995, respectively.
Nine Months Ended Year Ended
September 30, 1996 December 31, 1995
------------------ -----------------
Net revenues.............................. $61,947,988 $68,095,483
Cost of revenues.......................... 45,090,712 50,681,751
----------- -----------
Gross Profit.............................. 16,857,276 17,413,732
Operating Expenses:
Selling, general and administrative..... 15,715,181 15,948,321
----------- -----------
Income from operations.................... 1,142,095 1,465,411
Other expenses, net....................... 625,667 551,542
----------- -----------
Net income before income tax expense
and minority interest................... 516,428 913,869
Income tax expense........................ 532,250 511,082
----------- -----------
Income (loss) before minority interest
in net loss of consolidated subsidiary.. (15,822) 402,787
Minority interest in net loss of
consolidated subsidiary................. 616,752 7,057
----------- -----------
Net Income................................ $ 600,930 $ 409,844
=========== ===========
Notes to pro-forma results of operations:
(1) Interest expense adjusted due to (a) the conversion of DI stockholders
notes payable to JIS common stock, (b) incurring debt/notes payable in
connection with the acquisition of Berkeley and (c) the conversion of the
Company's convertible notes to common stock.
(2) Amortization expense recorded for goodwill created by the business
combinations of Berkeley and Systems Automation.
(3) Adjustment to provide Federal and state income tax expense (benefit)
attributable to income (loss) of Berkeley and Systems Automation as well as the
amortization of goodwill and interest expense recognized in (1) and (2) above,
all at an effective tax rate of 40%.
The interest expense adjustment (see (1)(b) and (1)(c) above) assumes the
successful completion of the Company's public offering of stock as discussed in
Note 1.
F-13
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (Unaudited) AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 4. BUSINESS COMBINATIONS AND PRO-FORMA RESULTS OF OPERATIONS -- (Continued)
Primary and fully diluted net income per share of common stock is
calculated as follows:
Nine Months Ended Year Ended
September 30, 1996 December 31, 1995
------------------ -----------------
Net income............................... $ 600,930 $ 409,844
7% cumulative dividend of Series A
preferred stock of consolidated
subsidiary............................. (43,200) (57,600)
----------- -----------
Net income per share attributable to
common shareholders.................... $ 557,730 $ 352,244
=========== ===========
Weighted average number of shares........ 12,143,739 12,143,739
=========== ===========
Net income per share attributable to
common shareholders.................... $ 0.05 $ 0.03
=========== ===========
Weighted average number of shares includes actual shares outstanding
increased by the number of shares issued in respect to the conversion of Company
convertible notes, the number of shares issued assuming the successful
completion of the Company s public offering of stock, and the number of shares
issued in conjunction with the Berkeley acquisition.
NOTE 5. NOTE PAYABLE, BANK
Note payable, Bank, consists of advances to the Company, JTS and JIS under
a $11,000,000 credit facility at September 30, 1996, of which $10,000,000
represents a line of credit and $1,000,000 represents a term loan (see Note 6).
At September 30, 1996, this line of credit bore interest at the prime rate plus
1% per annum (9.25% at September 30, 1996) and maximum permitted borrowing
thereunder was the lesser of $10,000,000 or 80% of qualified accounts
receivable, as defined in the line of credit agreement. The line of credit is
collateralized by substantially all of the Company's assets, is personally
guaranteed by certain shareholders and the wife of a shareholder, and is subject
to certain financial covenants. In addition, the Company and all of its
subsidiaries are jointly and severally responsible for all of the debt
outstanding under the line.
At September 30, 1996 and December 31, 1995 and 1994 the Company was in
violation of certain financial and transactional covenants, which the Bank has
permanently waived or reset effective through these dates. At September 30,
1996, certain financial ratios were reset or redefined and have been
incorporated into several amended loan agreements. At September 30, 1996, the
Bank redefined tangible net worth enabling the Company to meet certain financial
ratios regarding tangible net worth coverage. The Bank also reset the target
ratio of liabilities service coverage at September 30, 1996. At September 30,
1996, the Bank permanently waived a series of restructuring, acquisition,
merger, liquidation, dissolution and related transactional events specifically
related to the Company's contemplated initial public offering more fully
described in Note 1. At December 31, 1995, the Company was in violation and the
Bank waived or reset as of December 31, 1995, the following financial covenants:
effective net worth; total liabilities to effective net worth; total allowed
capital expenditures by the Company; total allowed additional other liens
besides the Bank; and reporting audited financial results to the Bank within 120
days after the end of the fiscal year. At December 31, 1994, the Company was in
violation of certain financial covenants which the Bank waived or reset and
incorporated these changes in an Amended Loan and Security Agreement. The
financial covenants that where reset were: effective net worth; total
liabilities to effective net worth; and limitation on capital expenditures.
Included in accounts payable and accrued expenses at September 30, 1996,
December 31, 1995 and 1994 were approximately $1,659,000, and $1,338,000 and
$917,000, respectively, of bank overdrafts.
F-14
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (Unaudited) AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 6. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
December 31,
September 30, ------------------------
1996 1995 1994
------------- ----------- -----------
<S> <C> <C> <C>
Equipment notes payable, bank (repaid in 1995)............... $ -- $ -- $ 13,703
Note payable, Restrictive Covenant; payable in monthly
installments of $13,194, including interest imputed at
8.0%, repaid in full in August 1996 (see Note 15).......... -- 376,759 499,386
Note payable, stock; payable in monthly payments of $2,039,
including interest at 5.0%, repaid in full in August 1996
(see Note 15).............................................. -- 60,961 81,810
Capital lease obligations; payable in monthly installments
currently aggregating $6,283, including interest at various
rates, through March 2000; the leases transfer ownership of
certain office equipment to the Company at the end of the
respective lease terms..................................... 176,113 59,207 31,581
Capital lease obligations; payable in monthly installments
currently aggregating $7,369, including interest at various
rates, through December 1999; the leases transfer ownership
of certain office equipment to the Company at the end of
the respective lease terms................................. 147,725 192,050 136,651
Equipment note payable; payable in monthly installments of
$1,247, including interest at 8.85%, through December 1999;
collateralized by certain equipment........................ 41,291 49,418 --
Equipment note payable; payable in monthly installments of
$5,868, including interest at 8.5%, through March 2001;
collateralized by certain equipment and personally
guaranteed by the Company's majority shareholder........... 262,451 -- --
Term note payable; payable in sixty monthly installments of
$16,667, including interest at prime plus 1.5% through
October 2001; collateralized by substantially all the
Company's assets (see Note 5).............................. 1,000,000 -- --
</TABLE>
F-15
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (Unaudited) AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 6. LONG-TERM DEBT -- (Continued)
<TABLE>
<CAPTION>
December 31,
September 30, ------------------------
1996 1995 1994
------------- ----------- -----------
<S> <C> <C> <C>
Note payable, purchase of Berkeley; payable in various
monthly installments plus interest at 8%, through August
2000, in the event the Company completes a public offering,
$300,000 will be converted to an equivalent amount of
common stock, up to $735,000 will be immediately due and
payable, $300,000 will be payable over forty-four months
and $572,200 (contingent upon Berkeley achieving certain
income levels) will be payable over thirty-six months...... 1,907,200 -- --
Note payable, purchase of assets and liabilities of Systems
Automation; payable $100,000 plus accrued interest at 8% on
January 2, 1997 plus thirty-six monthly payments of
$11,665, including interest at 8% commencing February 1,
1997; in the event the Company completes a public offering,
any and all remaining amounts due are immediately payable
in cash.................................................... 472,252 -- --
Capital lease obligations; payable in various monthly
installments including interest at various rates through
July 1997; the leases transfer ownership of certain
computer equipment at the end of the respective lease
terms...................................................... 13,461 -- --
Term notes; payable in various monthly installments including
interest at various rates; collaterized by certain
equipment.................................................. 192,544 -- --
Related Parties
Martin E. Judge, Jr. (Founder, Chairman and Chief Executive
Officer of the Company), non-interest bearing, repaid in
1996.................................................... -- 23,000 15,528
Michael A. Dunn (President of Permanent Placement
Business), payable in variable monthly installments plus
interest at prime plus 2%, repaid in full in 1996....... -- 15,037 82,041
----------- ----------- -----------
4,213,037 776,432 860,700
Less: current portion................................... (940,709) (280,420) (324,427)
----------- ----------- -----------
Long-term portion....................................... $ 3,272,328 $ 496,012 $ 536,273
=========== =========== ===========
</TABLE>
F-16
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (Unaudited) AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 6. LONG-TERM DEBT -- (Continued)
The following is a schedule of debt maturities, as of September 30, 1996:
Twelve Months
Ending September 30, Amount
-------------------- -------------
1997........................................................... $ 940,709
1998........................................................... 1,108,153
1999........................................................... 1,128,943
2000........................................................... 799,949
2001........................................................... 235,283
-------------
$ 4,213,037
=============
The following is a schedule of debt maturities, as of December 31, 1995:
Years Ending
December 31, Amount
------------ -------------
1996........................................................... $ 280,420
1997........................................................... 239,777
1998........................................................... 182,451
1999........................................................... 71,780
2000........................................................... 2,004
-------------
$ 776,432
=============
Interest expense charged to operations was approximately $600,000 and
$514,000 for the nine months ended September 30, 1996 and 1995, respectively,
and $670,000, $427,000 and $338,000 for the years ended December 31, 1995, 1994,
and 1993, respectively.
NOTE 7. ADVANCES FROM SHAREHOLDERS
JIS/JCC had advances from shareholders of $105,263 at September 30, 1996,
$139,906 at December 31, 1995 and $189,699 at December 31, 1994. There are no
formal repayment terms, however, interest is charged monthly at various rates
(from prime plus 1% to a fixed rate of 12%). Interest expense related to these
advances was approximately $11,000 for the nine months ended September 30, 1996,
$14,000 for the nine months ended September 30, 1995, $18,000 in 1995, $22,000
in 1994 and $20,000 in 1993.
NOTE 8. CONVERTIBLE NOTES
In 1994, the Company received $500,000 from a group of investors in the
form of 10% convertible senior subordinated promissory notes. The notes which
bear a 10% interest rate per annum and mature in July 1997, are subject to
certain financial covenants and are convertible into 526,000 common shares
(split adjusted) upon the occurrence of certain events. The notes may be
redeemed at any time, subject to certain contingent interest and other
provisions. In addition, should the Company effect a successful initial public
offering before July 31, 1997, the financial advisor who arranged such financing
is entitled to a fee equal to 1% of the proceeds of the initial public offering
(approximately $300,000). The notes are guaranteed by JTS, JESF and Judge, Inc.
Effective through September 30, 1996, December 31, 1995 and 1994, the Company
was in violation of certain covenants, which were permanently waived by the note
holders. The note holders waived the annual limit on capital expenditures, for
all periods presented, the issuance of unsecured notes for the acquisitions
described in
F-17
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (Unaudited) AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 8. CONVERTIBLE NOTES -- (Continued)
Note 4, as of September 30, 1996, and the delivery of the annual audited
financial statements within 120 days after year end for 1995 and 1994. The
Company expects that the notes will be exchanged for 526,000 Company common
shares immediately prior to the Offering.
NOTE 9. SETTLEMENT OF PAYROLL TAX OBLIGATION
During 1994, the Company entered into an agreement with the Internal
Revenue Service
(the "IRS") regarding the payment of approximately $882,000 of past-due payroll
taxes, relating principally to the second and third quarters of 1993, and
related assessed interest.
The parties agreed to an extended repayment term requiring a $150,000 down
payment and $22,000 per month beginning June 1994 until the total liability,
which had been subordinated to the Company's bank, was paid in full. In
connection with the past due payroll taxes, the Company was disputing certain
related penalty and interest amounts. In July 1996, the Company entered into a
settlement agreement with the IRS and the existing liability at that time,
including penalty and interest, was paid in full.
NOTE 10. INCOME TAXES
In 1991, the Company filed a consolidated Federal income tax return with
its wholly-owned subsidiaries. JTS and JCC were not included in the Company's
consolidated Federal income tax return, as the Company owned less than 80% of
each such Company's outstanding common shares at December 31, 1991. Under
Internal Revenue regulations, JTS and JCC were not part of the consolidated
group for tax purposes and filed their own Federal income tax returns. In 1992,
JTS became a wholly-owned subsidiary of the Company, but continued to file its
own Federal income tax returns. In 1995, JTS filed a consolidated tax return
with its wholly-owned subsidiaries, JPS and JTNJ. State income taxes are
determined on the basis of filing separate returns for each company as required
by the applicable state regulations.
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," as of January 1, 1993 by determining the
cumulative effect on prior years of the change in method of accounting for
income taxes. As of January 1, 1993, the cumulative effect on prior years of
adopting SFAS No. 109 was $42,000.
The net deferred tax asset at December 31, 1995 and 1994 included the
following:
1995 1994
------------- -------------
Deferred tax asset.............................. $ 1,175,000 $ 1,004,000
Valuation allowance for deferred tax asset...... (945,000) (877,000)
------------- -------------
Net deferred tax asset after valuation
allowance..................................... $ 230,000 $ 127,000
============= =============
At December 31, 1995 and 1994, the net deferred assets of $230,000 and
$127,000, respectively, were included in "prepaid income taxes and deferred
taxes' in the accompanying consolidated balance sheets.
F-18
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (Unaudited) AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 10. INCOME TAXES -- (Continued)
The tax effect of major temporary differences that gave rise to the
Company's net deferred tax asset are as follows:
1995 1994
------------- -------------
Net operating loss carryforwards....... $ 952,000 $ 853,000
Restrictive Covenant payments.......... 101,000 75,000
Other.................................. 122,000 76,000
------------- -------------
$ 1,175,000 $ 1,004,000
============= =============
Income tax expense for the years ended December 31, 1995, 1994 and 1993
consisted of the following:
1995 1994 1993
----------- ----------- -----------
Current tax expense:
Federal....................... $ 531,000 $ 520,400 $ 180,000
State......................... 159,957 219,400 72,460
Deferred tax (benefit).......... (103,000) (60,000) (25,000)
----------- ----------- -----------
Provision for income taxes...... $ 587,957 $ 679,800 $ 227,460
=========== =========== ===========
In accordance with APB 28 (interim financial reporting), income taxes for
the nine months ended September 30, 1996 and 1995 are calculated at the
estimated effective annual (Federal and state) rate of approximately 40%.
The effective tax rate for all periods presented was higher than the
applicable statutory tax rate, due to certain expenses that were not deductible
for tax purposes, Federal and state provisions at the maximum rates for JTS and
net operating losses for JCC/JIS, which is consolidated for financial reporting
but not tax reporting purposes. A reconciliation of the Company's effective
income tax rate with the statutory federal rate follows:
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, December 31,
-------------------- -------------------------------
1996 1995 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Tax at statutory rate (34%)....................... $ 255,000 $ 346,000 $ 363,000 $ 348,000 $ 98,000
Effect of losses of subsidiary not consolidated
for tax purposes................................ 276,000 28,000 92,000 227,000 75,000
Non-deductible tax penalties and other permanent
differences..................................... -- 68,000 90,000 -- 6,000
Other............................................. -- (23,000) (31,000) (13,000) --
State income taxes, net of Federal tax benefit.... 84,000 90,000 105,000 143,000 48,000
Federal income tax rate differentials due to
surtax exemptions............................... -- (11,000) (31,000) (25,000) --
--------- --------- --------- --------- ---------
$ 615,000 $ 498,000 $ 588,000 $ 680,000 $ 227,000
========= ========= ========= ========= =========
</TABLE>
As a result of operating losses, no provision for income taxes was required
in all periods presented for JIS. For income tax reporting purposes, as of
December 31, 1995, JIS had an unused operating loss carryforward of
approximately $2,355,000, which may be applied against future taxable income of
JIS. These carryforwards expire between 2002 and 2010.
F-19
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (Unaudited) AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 11. COMMITMENTS
The Company and its subsidiaries lease several office facilities under
operating lease agreements that expire at various times through the year 2000.
Rent expense was approximately $604,000 and $409,000 for the nine months ended
September 30, 1996 and September 30, 1995, and $557,000, $394,000 and $381,000,
for the years ended December 31, 1995, 1994 and 1993, respectively. Minimum
annual future rental commitments, at September 30, 1996, exclusive of common
area maintenance costs and utilities, are as follows:
Twelve Months
Ending September 30, Amount
-------------------- -------------
1997........................................................... $ 1,056,000
1998........................................................... 1,026,000
1999........................................................... 877,000
2000........................................................... 637,000
2001........................................................... 21,000
-------------
$ 3,617,000
=============
Minimum annual future rental commitments at December 31, 1995, exclusive of
common area maintenance costs and utilities, are as follows:
Year Ending
December 31, Amount
------------ -------------
1996........................................................... $ 769,000
1997........................................................... 741,000
1998........................................................... 717,000
1999........................................................... 703,000
2000........................................................... 302,000
-------------
$ 3,232,000
=============
Effective January 1994, the Company became self-insured for workers
compensation purposes and is liable for aggregate claims up to approximately
$185,000 for calendar 1996, $78,000 for calendar 1995 and $116,000 for calendar
1994. In addition, the Company is responsible for certain fixed costs including
underwriting, brokerage, reinsurance and administration costs.
The Company is partially self-insured for health care claims for eligible
active employees. The Company is currently liable for aggregate claims up to
approximately $418,000 annually. Self-insurance costs are accrued based upon the
aggregate of the liability for reported claims and an estimated liability for
claims incurred but not reported.
NOTE 12. RETIREMENT PLANS
The Company had various 401(k) retirement plans (the "Plans") covering
substantially all employees. Employees may contribute a percentage of their
pre-tax salary to the Plans. Company contributions to the Plans were at the
discretion of the Board of Directors. The Company charged $-0-, $-0-, $40,000
and $15,000 to operations related to the Plans in 1996, 1995, 1994 and 1993,
respectively. Effective July 1, 1996, all the Plans were merged into one Plan.
The new Plan has no Company contribution provision.
F-20
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (Unaudited) AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 13. SHAREHOLDERS' EQUITY (DEFICIT) AND EARNINGS PER SHARE
Deficit and Dividends
In accordance with the provisions of its line of credit, the Company is not
permitted to declare or pay any cash dividends on its common stock (see Note 5).
Additional Paid-In Capital
During 1996, additional paid-in capital decreased due to the JCC/DI merger
which was accounted for as a reverse acquisition (Notes 14 and 17).
Capital Structure
On September 4, 1996, the Company s Board of Directors voted to (i) modify
the Company's capital structure to increase the number of authorized common
shares to 50,000,000, (ii) and to adjust the par value per share from $.005 to
$.01, (iii) authorized the issuance of 10,000,000 preferred shares with a par
value of $.01 per share, (iv) authorized a 52.6 for 1.0 split of the outstanding
common shares for shareholders of record on September 23, 1996, (v) authorized a
change in the Company's name from "Judge, Inc." to "The Judge Group, Inc." and
(vi) authorized the formation of a new subsidiary, Judge, Inc., and the
contribution of substantially all the assets related to the Permanent Placement
business to this new subsidiary.
Common Shares -- Warrants
During 1993, the Company issued to a financial advisor warrants to purchase
171,739 (split-adjusted) common shares of the Company. During September 1996,
such warrants were exercised.
Stock Option Plan
On September 4, 1996, the Company adopted an Incentive Stock Option and
Non-Qualified Stock Option Plan (the "Incentive Plan") for key employees and
non-employee directors. Options may be granted under the Incentive Plan to
purchase up to a maximum of 1,500,000 of the Company's common shares, subject to
certain adjustments and restrictions. The price of each option shall be the fair
market value of the shares on the date of the grant. No options have been
granted under the Incentive Plan.
NOTE 14. CAPITAL STRUCTURE OF JIS
Common Stock
In 1993, JCC issued to a financial advisor warrants to purchase common
shares of JCC equal to 2% of its outstanding common shares at a purchase price
of $.005 per share. JCC issued 211,327 common shares to the financial adviser in
1995 upon the exercise of these warrants.
Preferred Shares
During 1991, the capital structure of JCC was modified to authorize
10,000,000 $.10 par value preferred shares. During 1991, $100,000 of debentures
and $266,577 of investor loans payable were converted to 1,000,000 and 2,665,770
preferred shares, respectively. Accrued interest of approximately $97,000
relating to these payables was contributed to capital.
F-21
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (Unaudited) AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 14. CAPITAL STRUCTURE OF JIS -- (Continued)
The JCC preferred shares bore cumulative dividends at an annual rate of
$.005 per share. Cumulative dividends in arrears at December 31, 1995 and 1994
were approximately $74,000 and $55,000, respectively. No dividends were declared
or paid in 1996, 1995, 1994 or 1993. In February 1996, the preferred
shareholders waived receipt of all dividends due them. In February 1996, the
preferred shareholders converted their preferred shares into JCC common shares
on a one-to-one basis.
At December 31, 1995, 1994 and 1993, these preferred shares were eliminated
in consolidation and were presented at no value in minority interest, due to the
extent of JCC's shareholders' deficit at December 31, 1995, 1994 and 1993.
In February 1996, JCC's Board of Directors authorized additional preferred
shares, consisting of 1,125,000 $.01 par value Series A convertible preferred
shares and 25,000 $1,000 stated value Series B preferred shares.
In February 1996, JCC raised approximately $1,097,000 ($888,000, net of
costs) in a private offering of 822,628 Series A convertible preferred shares
("JCC Series A Preferred") at a purchase price per share of $1.33. The JCC
Series A Preferred shares are convertible into JCC common shares at the holder's
option, and conversion is mandatory at the time of a subsequent public offering
of common shares by JCC in excess of $5 million. The JCC Series A Preferred
shares carry a cumulative dividend of 7% per year, and holders have a
liquidation preference prior to the common shareholders and all other existing
classes. At the effective time of the JCC/DI Merger, these preferred shares were
converted into the same number of JIS Series A preferred shares ("JIS Series A
Preferred") with essentially the same rights and privileges. In the event JIS
does not complete a public offering by the eighth anniversary of the JCC/DI
Merger, then JIS will have the right to redeem the outstanding JCC Series A
preferred shares. See Note 17. At September 30, 1996, the JIS Series A Preferred
stock is presented at $271,248 as "minority interest" in the accompanying
consolidated balance sheet. Approximately $617,000 of JIS losses have been
allocated to this minority interest in the accompanying consolidated statements
of operations for the nine months ended September 30, 1996. It is expected that
each outstanding share of JIS Series A Preferred stock will be converted into
one share of JIS common stock pursuant to the Merger.
In February 1996, and at the effective time of the JCC/DI Merger, advances
from the Company to JCC in the aggregate of $1,520,000 were converted into 1,500
Series B preferred shares of JCC, which were immediately converted into the same
number of shares of Series B preferred stock of JIS. The JIS Series B preferred
stock carries a cumulative annual dividend of 10%, are not convertible, do not
have a liquidation preference and are subject to mandatory redemption. These
shares are eliminated in consolidation. These shares are expected to be
cancelled pursuant to the Merger (see Note 1).
F-22
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (Unaudited) AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 15. STOCK REDEMPTION (JTS)
An employee of JTS (the "Minority Shareholder") acquired an aggregate of
400 common shares of JTS over a period of time ending in 1990. The aggregate
purchase price for these shares was paid by the Minority Shareholder in the form
of unsecured promissory notes. At December 31, 1991, the aggregate outstanding
principal amount of these notes was $66,409.
On August 12, 1992, JTS redeemed the Minority Shareholder's shares for
$266,000 (of which $40,000 was paid in cash, $59,405 represented debt
forgiveness, and $126,595 was payable in 72 equal monthly installments). In
connection with this redemption, JTS agreed to pay the Minority Shareholder
$13,527 per month for six years ($950,000 in the aggregate). The restrictive
covenant set forth in the agreement and the related liability were recorded at
the net present value of the payments, at an assumed interest rate of 8% (or
$752,539). During August 1996, JTS reached a settlement agreement with the
minority shareholder. Two outstanding notes were settled at less than face value
for $322,000, which resulted in a gain of approximately $27,000.
NOTE 16. STATEMENT OF CASH FLOWS
Supplemental disclosure of non-cash investing and financing transactions:
During the nine months ended September 30, 1996, the Company entered into
the following non-cash transactions:
o incurring long-term debt ($2,379,452) for certain business combinations
(see Note 4); and
o termed out $1,000,000 of the existing line of credit into long-term debt
(see Notes 5 and 6).
During the nine months ended September 30, 1996 and 1995, the Company
entered into certain financing arrangements for the purchase of property and
equipment in the amounts of approximately $432,000 and $61,000, respectively.
Effective February 29, 1996, JCC and DI effected a Business Combination
(see Note 17) and effective September 1996, the Company and Berkeley and Systems
Automation effected business combinations (see Note 4):
Acquisition of Business:
Systems
DI Berkeley Automation
------------ ----------- ------------
Inventories............................ $ 39,101 $ -- $ 79,375
Accounts receivable.................... 104,127 455,124 144,756
Property and equipment, net............ 150,034 167,876 56,706
Other assets........................... 10,780 51,110 34,314
------------ ----------- ------------
304,042 674,110 315,151
------------ ----------- ------------
Accounts payable and accrued expenses.. (82,087) (254,685) (307,398)
Debt obligations....................... -- (206,005) (196,193)
Due to the Company..................... (100,000) -- --
Deferred revenue and customer deposits. (362,037) (172,079) (315,118)
------------ ----------- ------------
(544,124) (632,769) (818,709)
------------ ----------- ------------
Net assets acquired (liabilities
assumed) in business combination.... ($ 240,082) $ 41,341 ($ 503,558)
============ =========== ============
F-23
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (Unaudited) AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 16. STATEMENT OF CASH FLOWS -- (Continued)
During 1995, the Company entered into certain financing arrangements for
the purchase of property and equipment in the amount of approximately $264,000.
During 1994, the Company entered into certain capital lease arrangements
for the purchase of property and equipment in the amount of approximately
$228,000.
NOTE 17. BUSINESS COMBINATION (THE JCC/DI MERGER)
On September 13, 1995, JCC and DI signed a Letter of Intent relating to the
JCC/DI Merger. On December 1, 1995, JCC and DI executed the JCC/DI Merger
Agreement, which was amended effective December 20, 1995 and February 26, 1996.
The JCC/DI Merger was consummated effective February 29, 1996.
In the JCC/DI Merger, JCC was merged into DI. DI survived the merger and
changed its name to JIS. JIS continued to be a public reporting company. In
connection with the merger, the Certificate of Incorporation of JIS was amended
to increase its authorized capital by 1,125,000 shares of $.01 value JIS Series
A Preferred stock, 1,500 shares of $1,000 stated value Series B preferred stock
(the "JIS Series B Preferred") and 3,873,500 shares of "blank check" preferred
stock (for an aggregate of 5,000,000 shares of new preferred stock). The JIS
Series A Preferred and JIS Series B Preferred stock have essentially the same
rights and privileges as the JCC Series A Preferred shares and JCC Series B
Preferred shares existing immediately prior to the merger.
In the JCC/DI Merger, each stockholder of DI received one share of JIS
common stock for every 31.96 shares of DI common stock held thereby immediately
prior to the merger, and each shareholder of JCC received one share of JIS
common stock for every 2.83 common shares of JCC held thereby immediately prior
to the merger. In addition, the JCC Series A Preferred shares and the JCC Series
B Preferred shares outstanding prior to the JCC/DI Merger were converted into
the same numbers of JIS Series A Preferred and JIS Series B Preferred shares,
respectively.
The conversion ratios were calculated so that, after giving effect to
certain reserved shares for issuance to employees following the merger and
assuming the sale of the maximum of 1,125,000 JCC Series A Preferred shares
offered in JCC's 1995 private offering (822,628 were actually sold) and the
conversion of such maximum number of JCC Series A Preferred shares into JCC
common shares, there would be approximately 5,000,000 shares of common stock of
JIS outstanding immediately following the merger, of which holders of DI common
stock immediately prior to the merger were to receive in the aggregate
approximately 5% (approximately 250,000 shares) and the holders of JCC common
shares and JCC Series A Preferred shares immediately prior to the merger were to
receive in the aggregate approximately 95% (approximately 4,750,000 shares). The
JCC Series B Preferred stock was not included in the foregoing percentage
calculations.
The JCC/DI Merger was accounted for as a "reverse acquisition" whereby JCC,
in substance, acquired DI, allocating the fair value of JCC shares exchanged
over the relative fair value of assets and liabilities of DI (assumed to equal
its book value) prior to the merger. No value was ascribed to DI's net loss
carryforwards as a result of limitations on these carryforwards subsequent to
the change in control. Accordingly, the historical financial statements included
in the consolidation prior to the acquisition are those of the acquirer, JCC,
and are those of DataImage, Inc. (which changed its name to Judge Imaging
Systems, Inc. immediately after the JCC/DI merger) for the period subsequent to
the merger.
F-24
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (Unaudited) AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 18. SEGMENT INFORMATION
The Company's operations cover three industry segments, the Contract and
Permanent Placement segment (consisting of the Company's Contract Placement
business and Permanent Placement business), the Imaging and Network Services
segment, and the Information Technology Training segment. The information
technology training segment was purchased effective September 30, 1996.
Therefore, no results of operation are included below. The following represents
financial information for each of the Company's reportable industry segments:
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1996
-------------------------------------------
Contract And Imaging And Information
Permanent Network Technology
Placement Services Training Eliminations Total
-------------- -------------- ------------ ------------- --------------
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated customers... $ 48,887,484 $ 10,026,754 $ -- $ -- $ 58,914,238
Intersegment sales................ -- 44,520 -- 44,520
-------------- -------------- ------------ ------------- --------------
Total revenues.................. $ 48,887,484 $ 10,071,274 $ -- 44,520 $ 58,914,238
============== ============== ============ ============= ==============
Income (loss) from
operations...................... $ 2,013,477 ($ 664,826) $ -- $ -- $ 1,348,651
============== ============== ============ ============= ==============
Net income (loss)................. $ 947,389 ($ 813,035) $ -- ($ 616,752) $ 751,106
============== ============== ============ ============= ==============
Depreciation and amortization..... $ 315,026 $ 81,388 $ -- $ -- $ 396,414
============== ============== ============ ============= ==============
Identifiable assets............... $ 17,468,731 $ 4,955,134 $ 786,824 $ 2,022,980 $ 21,187,709
============== ============== ============ ============= ==============
Capital expenditures.............. $ 581,702 $ 292,774 $ -- $ -- $ 874,476
============== ============== ============ ============= ==============
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1995
------------------------------------------------------------
Contract And Imaging And
Permanent Network
Placement Services Eliminations Total
-------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Sales to unaffiliated customers... $ 41,076,152 $ 5,800,368 $ -- $ 46,876,520
Intersegment sales................ -- 360,000 360,000 --
-------------- ------------- ------------- --------------
Total revenues.................. $ 41,076,152 $ 6,160,368 $ 360,000 $ 46,876,520
============== ============= ============= ==============
Income from operations............ $ 1,472,960 $ 89,553 $ -- $ 1,562,513
============== ============= ============= ==============
Net income (loss)................. $ 599,979 ($ 80,836) $ -- $ 519,143
============== ============= ============= ==============
Depreciation and amortization..... $ 290,848 $ 26,987 $ -- $ 317,835
============== ============= ============= ==============
Identifiable assets............... $ 10,947,371 $ 2,525,544 $ 1,786,988 $ 11,685,927
============== ============= ============= ==============
Capital expenditures.............. $ 258,848 $ 71,888 $ -- $ 330,736
============== ============= ============= ==============
</TABLE>
F-25
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (Unaudited) AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 18. SEGMENT INFORMATION -- (Continued)
<TABLE>
<CAPTION>
Year Ended December 31, 1995
------------------------------------------------------------
Contract And Imaging And
Permanent Network
Placement Services Eliminations Total
-------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Sales to unaffiliated customers................... $ 55,079,572 $ 8,219,781 $ -- $ 63,299,353
Intersegment sales................................ -- 480,000 480,000 --
-------------- ------------- ------------- --------------
Total revenues.................................. $ 55,079,572 $ 8,699,781 $ 480,000 $ 63,299,353
============== ============= ============= ==============
Income (loss) from operations..................... $ 1,810,035 ($ 46,156) $ -- $ 1,763,879
============== ============= ============= ==============
Net income (loss)................................. $ 751,041 ($ 272,458) ($ 7,057) $ 485,640
============== ============= ============= ==============
Depreciation and amortization..................... $ 384,419 $ 37,194 $ -- $ 421,613
============== ============= ============= ==============
Identifiable assets............................... $ 10,900,309 $ 2,530,930 $ 1,799,375 $ 11,631,864
============== ============= ============= ==============
Capital expenditures.............................. $ 474,100 $ 163,207 $ -- $ 637,307
============== ============= ============= ==============
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1994
------------------------------------------------------------
Contract And Imaging And
Permanent Network
Placement Services Eliminations Total
-------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Sales to unaffiliated customers................... $ 41,480,081 $ 3,773,336 $ -- $ 45,253,417
Intersegment sales................................ -- 402,000 402,000 --
-------------- ------------- ------------- --------------
Total revenues.................................. $ 41,480,081 $ 4,175,336 $ 402,000 $ 45,253,417
============== ============= ============= ==============
Income (loss) from operations..................... $ 1,956,082 ($ 513,441) $ -- $ 1,442,641
============== ============= ============= ==============
Net income (loss)................................. $ 1,009,858 ($ 666,607) $ -- $ 343,251
============== ============= ============= ==============
Depreciation and amortization..................... $ 307,090 $ 33,618 $ -- $ 340,708
============== ============= ============= ==============
Identifiable assets............................... $ 8,655,125 $ 1,050,453 $ 1,688,239 $ 8,017,339
============== ============= ============= ==============
Capital expenditures.............................. $ 457,213 $ 22,756 $ -- $ 479,969
============== ============= ============= ==============
</TABLE>
F-26
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (Unaudited) AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 18. SEGMENT INFORMATION -- (Continued)
<TABLE>
<CAPTION>
Year Ended December 31, 1993
------------------------------------------------------------
Contract And Imaging And
Permanent Network
Placement Services Eliminations Total
-------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Sales to unaffiliated customers................... $ 30,667,821 $ 4,401,046 $ -- $ 35,068,867
Intersegment sales................................ 90,000 -- 90,000 --
-------------- ------------- ------------- --------------
Total revenues.................................. $ 30,757,821 $ 4,401,046 $ 90,000 $ 35,068,867
============== ============= ============= ==============
Income (loss) from operations..................... $ 757,424 ($ 136,572) $ -- $ 620,852
============== ============= ============= ==============
Net income (loss)................................. $ 321,546 ($ 220,158) $ -- $ 101,388
============== ============= ============= ==============
Depreciation and amortization..................... $ 256,748 $ 29,525 $ -- $ 286,273
============== ============= ============= ==============
Identifiable assets............................... $ 6,105,562 $ 1,023,455 $ 1,442,240 $ 5,686,777
============== ============= ============= ==============
Capital expenditures.............................. $ 69,784 $ 21,681 $ -- $ 91,465
============== ============= ============= ==============
</TABLE>
See Note 2 for summary of significant accounting policies.
F-27
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
PAGE(S)
-------
INDEPENDENT AUDITORS' REPORT AS OF AND FOR
SIX MONTHS ENDED JUNE 30, 1996............................... F-29
CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1996.................... F-30
CONSOLIDATED STATEMENTS OF OPERATIONS FOR
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(1995 Unaudited)............................................. F-31
CONSOLIDATED STATEMENT OF SHAREHOLDERS'
EQUITY FOR SIX MONTHS ENDED JUNE 30, 1996.................... F-32
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(DEFICIT) FOR SIX MONTHS ENDED JUNE 30,
1995 (Unaudited)............................................. F-33
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(1995 Unaudited)............................................. F-34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(1995 Unaudited)............................................. F-35 - F-49
F-28
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
The Judge Group, Inc.
Bala Cynwyd, Pennsylvania
We have audited the accompanying consolidated balance sheet of The Judge Group,
Inc. (formerly Judge, Inc.) and Subsidiaries as of June 30, 1996, and the
related consolidated statements of operations, shareholders' equity, and of cash
flows for the six months ended June 30, 1996. 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 referred to above present fairly, in
all material respects, the consolidated financial position of The Judge Group,
Inc. (formerly Judge, Inc.) and Subsidiaries as of June 30, 1996, and the
consolidated results of their operations and their cash flows for the six months
ended June 30, 1996, in conformity with generally accepted accounting
principles.
September 17, 1996, except for Note 17, which is as of September 30, 1996
Plymouth Meeting, PA
F-29
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
CONSOLIDATED BALANCE SHEET
June 30, 1996
June 30,
1996
------------
ASSETS
CURRENT ASSETS
Cash.......................................................... $ 28,433
Accounts receivable, net...................................... 11,368,815
Inventories................................................... 679,366
Prepaid income taxes and deferred taxes....................... 476,076
Other......................................................... 310,676
------------
Total current assets........................................ 12,863,366
------------
PROPERTY AND EQUIPMENT
Furniture, office and computer equipment...................... 2,711,775
Automotive equipment.......................................... 42,224
Leasehold improvements........................................ 33,879
------------
2,787,878
Less: accumulated depreciation and amortization................. 1,236,625
------------
Net property and equipment.................................... 1,551,253
------------
OTHER ASSETS
Notes receivable -- officers and employees.................... 375,774
Other receivable, related party............................... 106,812
Deposits...................................................... 102,384
Covenant not-to-compete, net of accumulated
amortization of $581,293.................................... 21,296
------------
Total other assets............................................ 606,266
------------
Total assets................................................ $ 15,020,885
============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt............................. $ 303,291
Current portion of payroll tax obligation..................... 199,554
Accounts payable and accrued expenses......................... 4,517,019
Payroll and sales taxes....................................... 610,025
Deferred revenue.............................................. 571,414
Advances from shareholders.................................... 115,723
------------
Total current liabilities................................... 6,317,026
------------
LONG-TERM LIABILITIES
Note payable, bank............................................ 6,358,063
Debt obligations, net of current portion...................... 646,425
Convertible notes............................................. 500,000
Deferred rent obligation...................................... 143,672
------------
Total long-term liabilities................................. 7,648,160
------------
MINORITY INTEREST............................................... 659,000
------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, -- $.005 par value, 10,000,000
shares authorized, 160,000 shares issued and
outstanding................................................. 800
Additional paid-in capital.................................... 450,938
Deficit....................................................... (55,039)
------------
Total shareholders' equity.................................. 396,699
------------
Total liabilities and shareholders' equity.................. $ 15,020,885
============
See Notes to Consolidated Financial Statements.
F-30
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
1996 1995
----------- -------------
(Unaudited)
NET REVENUES........................................ $37,327,166 $ 29,398,819
----------- ------------
COSTS AND EXPENSES
Cost of sales..................................... 27,587,582 22,291,180
Selling and operating............................. 6,363,990 4,562,365
General and administrative........................ 2,848,111 2,038,095
----------- ------------
Total costs and expenses....................... 36,799,683 28,891,640
----------- ------------
INCOME FROM OPERATIONS.............................. 527,483 507,179
OTHER EXPENSE, NET, PRINCIPALLY INTEREST
EXPENSE........................................... (371,439) (317,386)
----------- ------------
INCOME BEFORE INCOME TAX EXPENSE AND
MINORITY INTEREST IN NET LOSS OF
CONSOLIDATED SUBSIDIARY........................... 156,044 189,793
INCOME TAX EXPENSE.................................. 203,500 254,911
----------- ------------
LOSS BEFORE MINORITY INTEREST IN NET
LOSS OF CONSOLIDATED SUBSIDIARY................... (47,456) (65,118)
MINORITY INTEREST IN NET LOSS OF
CONSOLIDATED SUBSIDIARY........................... 229,000 --
----------- ------------
NET INCOME (LOSS)................................... $ 181,544 ($ 65,118)
=========== ============
NET INCOME (LOSS) PER SHARE:
PRIMARY........................................... $0.02 ($ 0.01)
=========== ============
FULLY DILUTED..................................... $0.02 ($ 0.01)
=========== ============
See Notes to Consolidated Financial Statements.
F-31
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
Common Stock Additional Retained
---------------------- Paid-in Earnings
Shares Amount Capital (Deficit) Total
--------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995....... 160,000 $ 800 $ 626,848 ($ 236,583) $ 391,065
------- --------- --------- ---------- ----------
Merger transactions
(Notes 10, 11 and 15).......... -- -- (175,910) -- (175,910)
Net income....................... -- -- -- 181,544 181,544
------- --------- --------- ---------- ----------
Balance, June 30, 1996........... 160,000 $ 800 $ 450,938 ($ 55,039) $ 396,699
======= ========= ========= ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-32
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIT
SIX MONTHS ENDED JUNE 30, 1995
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Additional Retained
------------------------ Paid-in Earnings
Shares Amount Capital (Deficit) Total
--------- ------------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994......... 160,000 $ 800 $ 626,848 ($ 722,223) ($ 94,575)
Net loss........................... -- -- -- (65,118) (65,118)
------- --------- --------- ---------- ----------
Balance, June 30, 1995............. 160,000 $ 800 $ 626,848 ($ 787,341) ($ 159,693)
======= ========= ========= ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-33
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
1996 1995
---------- ----------
(Unaudited)
OPERATING ACTIVITIES
Net income (loss)..................................... $ 181,544 ($ 65,118)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization....................... 262,108 199,089
Deferred rent....................................... (13,271) 52,315
Provision for losses on accounts receivable......... 215,040 156,141
Minority interest in net loss of consolidated
subsidiary........................................ (229,000) --
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable................................. (2,598,669) (1,481,556)
Inventories......................................... (125,166) (77,816)
Deposits............................................ (2,527) (14,843)
Prepaid taxes....................................... (135,692) (84,178)
Other current assets................................ 153,204 8,783
Increase (decrease) in:
Accounts payable and accrued expenses............... 740,386 (132,227)
Payroll and sales taxes............................. 91,453 96,049
Deferred revenue.................................... (87,985) (48,234)
Income taxes payable................................ -- (348,316)
---------- ----------
Net cash used in operating activities............. (1,548,575) (1,739,911)
---------- ----------
INVESTING ACTIVITIES
Purchases of property and equipment, net.............. (308,464) (157,024)
(Increase) in notes receivable, officers
and employees, net.................................. (260,022) 17,746
---------- ----------
Net cash used in investing activities............. (568,486) (139,278)
---------- ----------
FINANCING ACTIVITIES
Cash acquired in business combination................. 13,786 --
Proceeds from notes payable, bank, net................ 990,547 1,606,069
Proceeds from bank overdrafts......................... 417,000 453,000
Principal payments on long-term debt.................. (174,734) (207,391)
Repayments from shareholders.......................... (24,183) (19,098)
Issuance of Series A Preferred Shares,
net of costs........................................ 888,000 --
---------- ----------
Net cash provided by financing activities......... 2,110,416 1,832,580
---------- ----------
DECREASE IN CASH...................................... (6,645) (46,609)
CASH, BEGINNING....................................... 35,078 82,928
---------- ----------
CASH, ENDING.......................................... $ 28,433 $ 36,319
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the six month period for:
Interest............................................ $ 371,000 $ 315,000
========== ==========
Income taxes........................................ $ 298,000 $ 685,000
========== ==========
See Notes to Consolidated Financial Statements.
F-34
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (1995 Unaudited)
NOTE 1. DESCRIPTION OF BUSINESS
The Judge Group, Inc. (formerly Judge, Inc.), a Pennsylvania corporation
founded in 1970 (the "Company") provides (i) information technology ("IT") and
engineering professionals to its clients on both a temporary basis (through its
"Contract Placement" business) and a permanent basis (through its "Permanent
Placement" business), and (ii) computer network and document management system
integration, implementation, maintenance and training (through its "Imaging and
Network Services" business). At June 30, 1996, the Company had offices in Bala
Cynwyd, Pennsylvania; Hartford, Connecticut; Foxborough, Massachusetts; Tampa,
Florida; and Moorestown and Edison, New Jersey.
The Contract Placement business includes the operations of three of the
Company's wholly-owned subsidiaries, Judge Technical Services, Inc. ("JTS"),
Judge Professional Services, Inc. ("JPS") and Judge Technical Services of N.J.,
Inc. ("JTNJ").
The Permanent Placement business is comprised of the operations of the
Company and two of its wholly-owned subsidiaries, Judge Electronic Services of
Florida, Inc. ("JESF") and Judge Inc. of New Jersey ("JINJ").
At June 30, 1995, the Company owned 33%, Martin E. Judge, Jr., the
Company's founder, Chairman and Chief Executive Officer owned 47%, and another
officer and director of the Company owned 5% of the outstanding voting shares,
on a fully diluted basis, of Judge Computer Corporation ("JCC"). On December 1,
1995, JCC entered into an Agreement and Plan of Merger (the "JCC/DI Merger
Agreement") with DataImage, Inc. ("DI" or "DataImage"), a public company, the
common stock of which was traded on the over-the-counter market. Pursuant to the
JCC/DI Merger Agreement, JCC was merged into DI on February 29, 1996 (the
"JCC/DI Merger"), and DI, as the surviving corporation, changed its name to
Judge Imaging Systems, Inc. ("JIS"). As a result of the merger, the former
shareholders of JCC hold, on a fully diluted basis, a majority of the
outstanding common stock of JIS, which remains a public company.
The Imaging and Network Services business of the Company consists of the
operations of JCC prior to the JCC/DI Merger and JIS subsequent to the merger.
See Notes 11 and 15.
Unless the context indicates otherwise, references to the Company herein
prior to February 29, 1996 include reference to its wholly-owned subsidiaries
and JCC and such references subsequent to February 29, 1996 include reference to
its wholly-owned subsidiaries and JIS.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Judge, Inc., JIS and the Company's wholly-owned subsidiaries, which include JTS,
JPS, JTNJ, JESF and JINJ, and Judge Hospitality Services, Inc. and Judge
Electronic Services of Boston, Inc. (which had no activity during the six months
ended June 30, 1996 and 1995). JCC (prior to the JCC/DI merger) and JIS
(subsequent to the JCC/DI merger) have been consolidated due to certain elements
of common ownership and control being present. All significant intercompany
accounts and transactions have been eliminated.
Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
F-35
<PAGE>
THE JUDGE, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (1995 Unaudited)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Revenue Recognition in Contract Placement and Permanent Placement Businesses
The Company recognizes permanent placement revenues at the date employment
of the placed professional commences, subject to reversal and adjustments if
such employment is terminated during a guarantee period. Revenues related to
temporary placement services are recognized on a weekly basis as the services
are performed.
Revenue Recognition in Imaging and Network Services Business
Revenues from the sales of network, imaging and document management systems
are recognized at the date of shipment of the system, provided that any work to
complete installation of the system is routine in nature and costs are not
significant. The system components are assembled and tested in the Company's
facilities prior to delivery. Revenues are recorded in the period in which the
merchandise is shipped or the services are rendered. Revenues billed in advance
for computer sales, warranties and maintenance contracts are deferred and
recorded as income in the period in which the merchandise is shipped or the
services are rendered.
Cash
The Company maintains cash balances at financial institutions. These
balances are insured by the Federal Deposit Insurance Corporation up to $100,000
at each institution.
Inventories
Inventories of computer and related supplies and equipment held for resale
are valued at the lower of cost (first-in, first-out) or market.
Accounts Receivable and Accounts Payable
Included in accounts receivable was unbilled work-in-process of
approximately $1,289,000 at June 30, 1996. Included in accounts payable and
accrued expenses was approximately $941,000 of accrued employee and contractor
payroll principally relating to unbilled work-in-process at June 30, 1996.
F-36
<PAGE>
THE JUDGE, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (1995 Unaudited)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
An analysis of allowance for doubtful accounts follows:
Additions
Balance At Charged To Deductions Balance At
Beginning Of Bad Debt (Charge End Of
Six Months Ended June 30, Period Expense Offs) Period
- ------------------------- ------------ ----------- ------------ -----------
1996....................... $ 174,000 $ 215,000 ($ 92,000) $ 297,000
============ =========== ============ ===========
1995....................... $ 157,000 $ 156,000 ($ 47,000) $ 266,000
============ =========== ============ ===========
Property and Equipment and Depreciation and Amortization
Property and equipment are stated at cost. Depreciation and amortization is
computed on the straight-line and accelerated methods over the estimated useful
lives of the related assets, principally five to ten years for furniture, office
and computer equipment and five years for automotive equipment. Leasehold
improvements are amortized using the straight-line method over the shorter of
the lease term or estimated useful lives of the improvements, principally five
to ten years.
Depreciation and amortization related to property and equipment amounted to
$189,460 for the six months ended June 30, 1996 and $126,441 for the six months
ended June 30, 1995.
Property Under Capital Leases and Amortization
Property under capital leases is stated at the lower of fair market value
or net present value of the minimum lease payments at inception of the leases.
Property under capital leases consists of furniture and office equipment and is
included in "property and equipment" in the accompanying consolidated balance
sheets. Amortization is provided over the shorter of the related lease terms or
the estimated useful lives of the related assets.
Income Taxes
Deferred taxes are accounted for in accordance with Statement of Financial
Accounting Standards ("Statement") No. 109, "Accounting for Income Taxes". The
Statement requires the use of the liability method to account for income taxes.
Deferred income taxes are provided for the difference between the tax basis of
an asset or liability and its reported amount in the financial statements and at
the tax rates that are expected to be in effect when the taxes are actually paid
or recovered.
Deferred income taxes arise principally from differences between financial
and income tax reporting, including amounts recorded for workers" compensation
funding, timing differences relating to the restrictive covenant described in
Note 12 (the "Restrictive Covenant"), amounts recorded for inventory
capitalization, the availability of net operating loss carryforwards and certain
other temporary differences.
Deferred income tax assets are reduced by a valuation allowance when, based
on the weight of evidence available, it is more likely than not that some
portion or all of the deferred tax assets will not be realized.
F-37
<PAGE>
THE JUDGE, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (1995 Unaudited)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
Interim Financial Reporting
For interim financial reporting purposes, costs and expenses are accounted
for in accordance with Accounting Principles Board Opinion No. 28 ("APB 28").
Intangible Assets
The Restrictive Covenant (covenant-not-to-compete) is being amortized on a
straight-line method over the life of the covenant (forty-eight months).
Amortization expense related to the covenant was approximately $73,000 for the
six months ended June 30, 1996 and $73,000 for the six months ended June 30,
1995. See Notes 4, 12 and 17.
Deferred Rent Obligation
The Company is party to an operating lease agreement for its principal
office facilities, which contains a provision for free rent for a certain
period, with subsequent rent increases. In accordance with generally accepted
accounting principles, the Company records monthly rent expense equal to the
total of the payments due over the lease term, divided by the number of months
of the lease term. The difference between rent expense recorded and the amount
paid is credited or charged to deferred rent obligation in the accompanying
consolidated balance sheet.
Advertising Costs
The Company participates in various advertising programs. All costs related
to advertising are expensed in the period incurred. Advertising expense amounted
to approximately $295,000 for the six months ended June 30, 1996 and $223,000
for the six months ended June 30, 1995.
Recently Issued Accounting Standards
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" ("Statement 121"). Statement 121
established accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those assets to be
held and used, and for long-lived assets and certain identifiable intangibles to
be disposed of. Statement 121 requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Measurement of an impairment
loss for long-lived assets and identifiable intangibles that an entity expects
to hold and use should be based on the fair value of an asset. Statement 121
became effective January 1, 1996 and did not have a material effect on the
Company's financial condition or results of operations.
In October 1995, FASB issued Statement No. 123 "Accounting for Stock-Based
Compensation," ("Statement 123"), which provides an alternative method of
accounting for stock-based compensation arrangements, based on fair value of the
stock-based compensation utilizing various assumptions regarding the underlying
attributes of the options and the underlying stock, rather than the existing
method of accounting for stock-based compensation which is provided in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB No. 25). FASB encourages entities to adopt the fair value-based
method but does not require adoption of this method. Statement 123 became
effective January 1, 1996 and, based upon information presently available, is
not expected to have a material impact on the Company's financial position or
its results of operations.
F-38
<PAGE>
THE JUDGE, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (1995 Unaudited)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
Earnings (Loss) Per Share
The number of shares used in the earnings (loss) per share calculation and
convertible note share conversion (see Note 6) has been adjusted for the 52.6
for 1.0 stock split which occurred subsequent to June 30, 1996 (see Note 17).
Primary earnings per share amounts were computed based on the weighted
average number of shares actually outstanding plus the shares that would be
outstanding assuming conversion of outstanding common share warrants (for the
six months ended June 30, 1996) which are considered common share equivalents.
See Note 11. The number of shares used in the computation were approximately
8,588,000 and 8,416,000 for the six months ended June 30, 1996 and 1995,
respectively.
Fully diluted earnings (loss) per share amounts for the six months ended
June 30, 1996 and 1995 were based on the weighted average number of shares
calculated for primary earnings (loss) per share purposes increased by the
number of shares that would be outstanding assuming conversion of outstanding
convertible notes (for the six months ended June 30, 1996) (see Note 6). The
number of shares used in the computation were approximately 9,114,000 and
8,416,000 for the six months ended June 30, 1996 and 1995, respectively.
Fair Value of Financial Instruments
The estimated fair values of substantially all of the Company's financial
instruments (all of which are held for non trading purposes) are approximately
equal to their carrying values at all periods presented.
NOTE 3. NOTE PAYABLE, BANK
Note payable, bank, consisted of advances to the Company, JTS and JIS under
a $6,400,000 line of credit at June 30, 1996. At June 30, 1996, this line of
credit bore interest at the prime rate plus 1% per annum (9.25% at June 30,
1996), and maximum permitted borrowing thereunder was the lesser of $6,400,000
or 80% of qualified accounts receivable, as defined in the line of credit
agreement. The line of credit is collateralized by substantially all of the
Company's assets, is personally guaranteed by certain shareholders and the wife
of a shareholder, and is subject to certain financial covenants. In addition,
the Company and all of its subsidiaries are jointly and severally responsible
for all of the debt outstanding under the line. Prior to January 1, 1995, the
line of credit was due on demand. At June 30, 1996, the Company was in violation
of certain financial and transactional covenants on this line. Effective through
June 30, 1996, the Bank waived compliance with the "Liabilities to Tangible Net
Worth" ratio and also allowed the Company to incur additional debt and related
liens be placed on certain property and equipment. In addition, subsequent to
June 30, 1996, the Bank extended the maturity date of the line from May 31, 1997
to May 31, 1998, permanently waived or modified certain financial and
transactional covenants, and increased the maximum permitted borrowings. See
Note 17.
Included in accounts payable and accrued expenses at June 30, 1996, were
approximately $1,755,000 of bank overdrafts.
F-39
<PAGE>
THE JUDGE, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (1995 Unaudited)
NOTE 4. LONG-TERM DEBT
Long-term debt at June 30, 1996 consisted of the following:
<TABLE>
<S> <C>
June 30,
1996
-----------
Note payable, Restrictive Covenant; payable in monthly installments of $13,194, including
interest imputed at 8.0%, through August 1998 (see Note 12); repaid in full subsequent
to June 30, 1996 (see Note 17)......................................................... $ 311,680
Note payable, stock; payable in monthly payments of $2,039, including interest at 5.0%,
through August 1998 (see Note 12); repaid in full subsequent to June 30, 1996 (see Note
17).................................................................................... 50,140
Capital lease obligations; payable in monthly installments currently aggregating $3,471,
including interest at various rates, through March 2000; the leases transfer ownership
of certain office equipment to the Company at the end of the respective lease terms.... 105,994
Capital lease obligations; payable in monthly installments currently aggregating $7,369,
including interest at various rates, through December 1999; the leases transfer
ownership of certain office equipment to the Company at the end of the respective lease
terms.................................................................................. 160,653
Equipment note payable; payable in monthly installments of $1,247, including interest at
8.85%, through December 1999; collateralized by certain equipment...................... 44,058
Equipment note payable; payable in monthly installments of $5,868, including interest at
8.5%, through March 2001; collateralized by certain computer equipment and personally
guaranteed by the Company's majority shareholder....................................... 274,191
Related Parties:
Martin E. Judge, Jr. (Founder, Chairman and Chief Executive Officer of the Company) --
non-interest bearing................................................................... 3,000
-----------
949,716
Less: current portion.................................................................... (303,291)
-----------
Long-term portion........................................................................ $ 646,425
===========
</TABLE>
F-40
<PAGE>
THE JUDGE, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (1995 Unaudited)
NOTE 4. LONG-TERM DEBT -- (Continued)
The following is a schedule of debt maturities:
Twelve Months
Ending June 30, Amount
--------------- -----------
1997............................................... $ 303,291
1998............................................... 309,332
1999............................................... 171,701
2000............................................... 114,577
2001............................................... 50,815
-----------
$ 949,716
===========
Subsequent to June 30, 1996, $201,143 of debt obligations related to the
Company's stock redemption (see Note 12) due during the twelve month periods
ending June 30, 1998 and 1999 were paid in full in satisfaction of all amounts
due related to those obligations. See Note 17.
Interest expense charged to operations was approximately $371,000 in 1996
and $307,000 in 1995.
NOTE 5. ADVANCES FROM SHAREHOLDERS
JCC had advances from shareholders of $115,723 at June 30, 1996. There are
no formal repayment terms, however, interest is charged monthly at various rates
(from prime plus 1% to a fixed rate of 12%). Interest expense related to these
advances was approximately $7,000 and $9,000 for the six months ended June 30,
1996 and 1995, respectively.
NOTE 6. CONVERTIBLE NOTES
In 1994, the Company received $500,000 from a group of investors in the
form of 10% convertible senior subordinated promissory notes. The notes which
bear a 10% interest rate per annum and mature in July 1997, are subject to
certain financial covenants and are convertible into 526,000 common shares
(split adjusted) (see Note 2) upon the occurrence of certain events. The notes
may be redeemed at any time, subject to certain contingent interest and other
provisions. In addition, should the Company effect a successful initial public
offering before July 31, 1997, the financial advisor who arranged such financing
is entitled to receive a fee equal to 1% of the proceeds of the initial public
offering (approximately $300,000). The notes are guaranteed by JTS and JESF.
Effective through June 30, 1996, the Company was in violation of the capital
expenditure limitation for which a permanent waiver was received for 1996. The
Company expects that the notes will be exchanged for 526,000 Company Common
Shares immediately prior to the Offering.
NOTE 7. INCOME TAXES
In 1991, the Company filed a consolidated Federal income tax return with
its wholly-owned subsidiaries. JTS and JCC were not included in the Company s
consolidated Federal income tax return, as the Company owned less than 80% of
each such Company's outstanding common shares at December 31, 1991. Under
Internal Revenue regulations, JTS and JCC were not part of the consolidated
group for tax purposes and filed their own Federal income tax returns. In 1992,
JTS became a wholly owned subsidiary of the Company, but continued to file its
own Federal income tax returns. In 1995, JTS filed a consolidated tax return
with its wholly-owned subsidiaries, JPS and JTNJ.
F-41
<PAGE>
THE JUDGE, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (1995 Unaudited)
NOTE 7. INCOME TAXES -- (Continued)
State income taxes are determined on the basis of filing separate returns for
each Company as required by the applicable state regulations.
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," as of January 1, 1993.
In accordance with APB 28 (interim financial reporting), income taxes are
calculated at the estimated effective annual (Federal and state) rate of
approximately 40% for the six months ended June 30, 1996 and 1995.
The effective tax rate for 1996 and 1995 was higher than the applicable
statutory tax rate, due to certain expenses that were not deductible for tax
purposes and net operating losses for JCC, which is consolidated for financial
reporting but not tax purposes. A reconciliation of the Company's effective
income tax rate with the statutory federal rate follows:
Six Months Ended
June 30,
------------------------
1996 1995
----------- -----------
Tax at statutory rate (34%)...................... $ 53,000 $ 65,000
Effect of losses of subsidiary
not consolidated for tax purposes.............. 144,000 85,000
Non-deductible tax penalties and
other permanent differences.................... -- 64,000
State income taxes, net of
Federal tax benefit............................ 20,500 55,000
Federal income tax rate differentials
due to surtax exemptions....................... (14,000) (14,000)
----------- -----------
$ 203,500 $ 255,000
=========== ===========
As a result of operating losses, no provision for income taxes was required
in 1996 or 1995 for JIS. For income tax reporting purposes, as of December 31,
1995, JIS had an unused operating loss carryforward of approximately $2,355,000,
which may be applied against future taxable income of JIS. These carryforwards
expire between 2002 and 2010.
NOTE 8. COMMITMENTS
The Company and its subsidiaries lease several office facilities under
operating lease agreements that expire at various times through the year 2000.
Rent expense was approximately $392,000 and $251,000 for the six months ended
June 30, 1996 and 1995, respectively. Minimum annual future rental commitments,
exclusive of common area maintenance costs and utilities, are as follows:
Twelve Months
Ending June 30, Amount
--------------- -------------
1997.......................................... $ 846,000
1998.......................................... 828,000
1999.......................................... 798,000
2000.......................................... 749,000
-------------
$ 3,221,000
=============
F-42
<PAGE>
THE JUDGE, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (1995 Unaudited)
NOTE 8. COMMITMENTS -- (Continued)
The Company is self-insured for workers' compensation purposes and is
liable for aggregate claims up to approximately $185,000 for calendar 1996 and
$78,000 for calendar 1995. In addition, the Company is responsible for certain
fixed costs including underwriting, brokerage, reinsurance and administration
costs.
The Company is partially self-insured for health care claims for eligible
active employees. The Company is liable for aggregate claims up to approximately
$418,000 annually at June 30, 1996. Self-insurance costs are accrued based upon
the aggregate of the liability for reported claims and an estimated liability
for claims incurred but not reported.
NOTE 9. RETIREMENT PLANS
The Company has various 401(k) retirement plans (the "Plans") covering
substantially all employees. Employees may contribute a percentage of their
pre-tax salary to the Plans. Company contributions to the Plans are at the
discretion of the Board of Directors. The Company charged $-0- to operations
related to the Plans in 1996 and 1995.
Effective July 1, 1996, all the Plans were merged into one Plan. The new
Plan has no Company contribution provision.
NOTE 10. SHAREHOLDERS' EQUITY (DEFICIT) AND EARNINGS PER SHARE
Deficit and Dividends
In accordance with the provisions of its line of credit, the Company is not
permitted to declare or pay any cash dividends on its common stock (see Note 3).
Additional Paid-In Capital
During 1996, additional paid-in capital decreased due to the JCC/DI merger
which was accounted for as a reverse acquisition (see Notes 11 and 15).
Capital Structure
On September 4, 1996, the Company's Board of Directors voted to (i) modify
the Company's capital structure to increase the number of authorized common
shares to 50,000,000, (ii) adjust the par value per share from $.005 to $.01,
(iii) authorized the issuance of 10,000,000 preferred shares with a par value of
$.01 per share, (iv) authorized a 52.6 to 1.0 split of the outstanding common
shares for shareholders of record on September 23, 1996, (v) authorized a change
of the Company's name from "Judge, Inc." to "The Judge Group, Inc." and (vi)
authorized the formation of a new subsidiary, Judge, Inc., and the contribution
of substantially all the assets related to the Permanent Placement business into
this new subsidiary.
Common Shares -- Warrants
During 1993, the Company issued to a financial advisor warrants to purchase
171,739 (split-adjusted) common shares of the Company. Subsequent to June 30,
1996, such warrants were exercised. See Note 17.
F-43
<PAGE>
THE JUDGE, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (1995 Unaudited)
NOTE 10. SHAREHOLDERS' EQUITY (DEFICIT) AND EARNINGS PER SHARE -- (Continued)
Stock Option Plan
Subsequent to June 30, 1996, the Company adopted an Incentive Stock Option
and Non-Qualified Stock Option Plan (the "Incentive Plan") for key employees and
non-employee directors. Options may be granted under the Incentive Plan to
purchase up to a maximum of 1,500,000 of the Company s common shares, subject to
certain adjustments and restrictions. The price of each option shall be the fair
market value of the shares on the date of the grant. No options have been
granted under the Incentive Plan.
NOTE 11. CAPITAL STRUCTURE OF JIS
Common Stock
In 1993, JCC issued to a financial advisor warrants to purchase common
shares of JCC equal to 2% of its outstanding common shares at a purchase price
of $.005 per share. JCC issued 211,327 common shares to the financial adviser in
1995 upon the exercise of these warrants.
Preferred Shares
During 1991, the capital structure of JCC was modified to authorize
10,000,000 $.10 par value preferred shares. During 1991, $100,000 of debentures
and $266,577 of investor loans payable were converted to 1,000,000 and 2,665,770
preferred shares, respectively. Accrued interest of approximately $97,000
relating to these payables was contributed to capital.
The JCC preferred shares bore cumulative dividends at an annual rate of
$.005 per share. Cumulative dividends in arrears at June 30, 1995 were
approximately $65,000. No dividends were declared or paid in 1995 or 1996. At
June 30, 1995, these preferred shares were eliminated in consolidation and were
presented at no value in minority interest, due to the extent of JCC's
shareholders' deficit at June 30, 1995. In February 1996, the preferred
shareholders waived receipt of all dividends due them. In February 1996, the
preferred shareholders converted their preferred shares into JCC common shares
on a one-to-one basis.
In February 1996, JCC s Board of Directors authorized additional preferred
shares, consisting of 1,125,000 $.01 par value Series A convertible preferred
shares ("JCC Series A Preferred") and 25,000 $1,000 stated value Series B
preferred shares ("JCC Series B Preferred").
In February 1996, JCC raised approximately $1,097,000 ($888,000, net of
costs) in a private offering of 822,628 JCC Series A Preferred shares at a
purchase price per share of $1.33. The JCC Series A Preferred shares were
convertible into JCC common shares at the holder's option, and conversion was
mandatory at the time of a subsequent public offering of common shares by JCC in
excess of $5 million. The JCC Series A Preferred shares carried a cumulative
dividend of 7% per year, and holders had a liquidation preference prior to the
common shareholders and all other existing classes. At the effective time of the
JCC/DI Merger, these preferred shares were converted into the same number of JIS
Series A convertible preferred shares ("JIS Series A Preferred") with
essentially the same rights and privileges. In the event JIS does not complete a
public offering by the eighth anniversary of the JCC/DI Merger, then JIS will
have the right to redeem the outstanding JIS Series A Preferred shares. See Note
15. At June 30, 1996, the JIS Series A Preferred stock is presented at $659,000
as "minority interest" in the accompanying consolidated balance sheet.
Approximately $229,000 of JIS losses have been allocated to this minority
interest in the June 30, 1996 accompanying
F-44
<PAGE>
THE JUDGE, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (1995 Unaudited)
NOTE 11. CAPITAL STRUCTURE OF JIS -- (Continued)
consolidated statement of operations. It is expected that each outstanding share
of JIS Series A Preferred stock will be converted into one share of JIS common
stock in connection with the Merger (see Note 17).
In February 1996 and at the effective time of the JCC/DI Merger, advances
from the Company to JCC in the aggregate of $1,520,000 were converted into 1,500
JCC Series B Preferred shares, which were immediately converted into the same
number of shares of Series B preferred stock of JIS ("JIS Series B Preferred").
The JIS Series B Preferred stock carries a cumulative annual dividend of 10%,
are not convertible, do not have a liquidation preference and are subject to
mandatory redemption. These shares are eliminated in consolidation.
NOTE 12. STOCK REDEMPTION (JTS)
An employee of JTS (the "Minority Shareholder") acquired an aggregate of
400 common shares of JTS over a period of time ending in 1990. The aggregate
purchase price for these shares was paid by the Minority Shareholder in the form
of unsecured promissory notes. At December 31, 1991, the aggregate outstanding
principal amount of these notes was $66,409.
On August 12, 1992, JTS redeemed the Minority Shareholder's shares for
$266,000 (of which $40,000 was paid in cash, $59,405 represented debt
forgiveness, and $126,595 was payable in 72 equal monthly installments). In
connection with this redemption, JTS agreed to pay the Minority Shareholder
$13,527 per month for six years ($950,000 in the aggregate). The restrictive
covenant set forth in the agreement and the related liability were recorded at
the net present value of the payments, at an assumed interest rate of 8% (or
$752,539). The unpaid portions of the above liabilities were satisfied in full
by JTS subsequent to June 30, 1996. See Notes 4 and 17.
NOTE 13. SETTLEMENT OF PAYROLL TAX OBLIGATION
During 1994, the Company entered into an agreement with the Internal
Revenue Service (the "IRS") regarding the payment of approximately $882,000 of
past-due payroll taxes, relating principally to the second and third quarters of
1993, and related assessed interest.
The parties agreed to an extended repayment term requiring a $150,000 down
payment and $22,000 per month beginning June 1994 until the total liability,
which had been subordinated to the Company's bank, was paid in full. In
connection with the past due payroll taxes, the Company was disputing certain
related penalty and interest amounts. Subsequent to June 30, 1996, the Company
entered into a tentative settlement agreement with the IRS, and at June 30,
1996, approximately $280,000 for penalty and interest is included in accounts
payable and accrued expenses in the accompanying consolidated balance sheet,
bringing the total outstanding liability related to the payroll taxes to
approximately $479,000 at June 30, 1996. In July 1996, the remaining liability
existing at that time, including penalty and interest, was paid in full. See
Note 17.
NOTE 14. STATEMENT OF CASH FLOWS
Supplemental disclosure of non-cash investing and financing transactions:
During the six months ended June 30, 1996 and 1995, the Company entered
into certain financing arrangements for the purchase of property and equipment
in the amounts of approximately $348,000 and $88,000, respectively.
F-45
<PAGE>
THE JUDGE, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (1995 Unaudited)
NOTE 14. STATEMENT OF CASH FLOWS -- (Continued)
Effective February 29, 1996, JCC and DI effected a Business Combination
(see Note 15):
Acquisition of Business:
Inventories........................................... $ 39,101
Accounts receivable................................... 104,127
Property and equipment................................ 150,034
Other assets.......................................... 10,780
------------
304,042
------------
Accounts payable and accrued expenses................. (82,087)
Due to the Company.................................... (100,000)
Deferred revenue and customer deposits................ (362,037)
------------
(544,124)
------------
Net assets acquired (liabilities assumed)
in business combination............................. ($ 240,082)
============
NOTE 15. BUSINESS COMBINATION (THE JCC/DI MERGER)
On September 13, 1995, JCC and DI signed a Letter of Intent relating to the
JCC/DI Merger. On December 1, 1995, JCC and DI executed the JCC/DI Merger
Agreement, which was amended effective December 20, 1995 and February 26, 1996.
The JCC/DI Merger was consummated effective February 29, 1996.
In the JCC/DI Merger, JCC was merged into DI. DI survived the merger and
changed its name to JIS. JIS continued to be a public reporting company. In
connection with the merger, the Certificate of Incorporation of JIS was amended
to increase its authorized capital by 1,125,000 shares of $.01 value JIS Series
A Preferred stock, 1,500 shares of $1,000 stated value JIS Series B Preferred
stock and 3,873,500 shares of "blank check" preferred stock (for an aggregate of
5,000,000 shares of new preferred stock). The JIS Series A Preferred and JIS
Series B Preferred stock have essentially the same rights and privileges as the
JCC Series A Preferred shares and JCC Series B Preferred shares existing
immediately prior to the merger.
In the JCC/DI Merger, each stockholder of DI received one share of JIS
common stock for every 31.96 shares of DI common stock held thereby immediately
prior to the merger, and each shareholder of JCC received one share of JIS
common stock for every 2.83 common shares of JCC held thereby immediately prior
to the merger. In addition, the JCC Series A Preferred shares and the JCC Series
B Preferred shares outstanding prior to the JCC/DI Merger were converted into
the same numbers of JIS Series A Preferred and JIS Series B Preferred stock,
respectively.
The conversion ratios were calculated so that, after giving effect to
certain reserved shares for issuance to employees following the merger and
assuming the sale of the maximum of 1,125,000 JCC Series A Preferred shares
offered in JCC's 1995 private offering (822,628 were actually sold) and the
conversion of such maximum number of JCC Series A Preferred shares into JCC
common shares, there would be approximately 5,000,000 shares of common stock of
JIS outstanding immediately following the merger, of which holders of DI common
stock immediately prior to the merger were to receive in the aggregate
approximately 5% (approximately 250,000 shares) and the holders of JCC common
shares and JCC Series A Preferred shares immediately prior to the merger were to
receive in the aggregate approximately 95% (approximately 4,750,000 shares). The
JCC Series B Preferred stock was not included in the foregoing percentage
calculations.
F-46
<PAGE>
THE JUDGE, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (1995 Unaudited)
NOTE 15. BUSINESS COMBINATION (THE JCC/DI MERGER) -- (Continued)
The JCC/DI Merger was accounted for as a "reverse acquisition" whereby JCC,
in substance, acquired DI, allocating the fair value of JCC shares exchanged
over the relative fair value of assets and liabilities of DI (assumed to equal
its book value) prior to the merger. No value was ascribed to DI's net loss
carryforwards as a result of limitations on these carryforwards subsequent to
the change in control. Accordingly, the historical financial statements included
in the consolidation prior to the acquisition are those of the acquirer, JCC,
and are those of DataImage, Inc. (which changed its name to Judge Imaging
Systems, Inc. immediately after the JCC/DI merger) for the period subsequent to
the merger.
NOTE 16. SEGMENT INFORMATION
The Company s operations cover two industry segments, the Contract and
Permanent Placement segment (consisting of the Company's Contract Placement
business and Permanent Placement business) and the Imaging and Network Services
segment. The following represents financial information for each of the
Company's reportable industry segments:
<TABLE>
<CAPTION>
Six Months Ended June 30, 1996
-------------------------------------------------------------
Contract And Imaging And
Permanent Network
Placement Services Eliminations Total
--------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Sales to unaffiliated customers...... $ 31,217,187 $ 6,109,979 $ -- $ 37,327,166
Intersegment sales................... -- 44,520 44,520 --
------------- ------------- ------------- --------------
Total revenues..................... $ 31,217,187 $ 6,154,499 $ 44,520 $ 37,327,166
============= ============= ============= ==============
Income (loss) from operations........ $ 862,784 ($ 335,301) $ -- $ 527,483
============= ============= ============= ==============
Net income (loss).................... $ 377,827 ($ 425,283) ($ 229,000) $ 181,544
============= ============= ============= ==============
Depreciation and amortization........ $ 212,228 $ 49,880 $ -- $ 262,108
============= ============= ============= ==============
Identifiable assets.................. $ 13,412,406 $ 3,477,404 $ 1,868,925 $ 15,020,885
============= ============= ============= ==============
Capital expenditures................. $ 511,935 $ 144,924 $ -- $ 656,859
============= ============= ============= ==============
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30, 1995
-------------------------------------------------------------
Contract And Imaging And
Permanent Network
Placement Services Eliminations Total
--------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Sales to unaffiliated customers...... $ 26,261,472 $ 3,137,347 $ -- $ 29,398,819
Intersegment sales................... -- 240,000 240,000 --
------------- ------------- ------------- --------------
Total revenues..................... $ 26,261,472 $ 3,377,347 $ 240,000 $ 29,398,819
============= ============= ============= ==============
Income (loss) from operations........ $ 631,393 ($ 124,214) $ -- $ 507,179
============= ============= ============= ==============
Net income (loss).................... $ 184,480 ($ 249,598) $ -- ($ 65,118)
============= ============= ============= ==============
Depreciation and amortization........ $ 179,431 $ 19,658 $ -- $ 199,089
============= ============= ============= ==============
Identifiable assets.................. $ 9,979,886 $ 1,295,524 $ 1,783,298 $ 9,492,112
============= ============= ============= ==============
Capital expenditures................. $ 209,581 $ 35,443 $ -- $ 245,024
============= ============= ============= ==============
</TABLE>
See Note 2 for summary of significant accounting policies.
F-47
<PAGE>
THE JUDGE, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (1995 Unaudited)
NOTE 17. SUBSEQUENT EVENTS
Subsequent to June 30, 1996, the following occurred:
o The Company (JTS) reached a settlement agreement with the IRS regarding
past due payroll taxes and related interest and penalties (Note 13);
o The Company (JTS) reached an agreement with a former minority shareholder
(Note 12) to settle at less than face value the remaining balances on
certain notes payable (Note 4);
o The Company increased its Bank credit facility to approximately
$11,000,000 (Note 3);
o The Company engaged an investment banking firm to assist it in a public
offering of its common stock;
o The Company adopted an Incentive Stock Option and Non-Qualified Stock
Option Plan for key employees and non-employee directors (Note 10);
o The Company modified its capital structure, authorized a stock split, and
formed a new subsidiary (Note 10);
o The common stock warrants to purchase 171,739 shares (split-adjusted) of
the Company described in Note 10 have been exercised;
o The Boards of Directors of the Company and JIS approved the merger of JIS
into a newly-formed, wholly-owned subsidiary of the Company. This merger
is subject to approval by the stockholders of JIS and a successful public
offering of the Company s common shares. The terms of the merger call for
the conversion of each share of JIS common stock and JIS Series A
Preferred stock into $2.50 of value based on the public offering price of
the Company's common stock. Based upon the expected offering price of
$10.00 per share, it is anticipated that approximately 900,000 shares of
the Company's common stock will be issued to stockholders of JIS;
o Effective September 30, 1996 the Company purchased 100% of the issued and
outstanding stock of The Berkeley Corp. ("Berkeley"). Berkeley, founded
in 1980, is a provider of IT training services to corporate, governmental
and individual clients. The total acquisition cost was $2,232,200 payable
principally in cash and notes payable. In the event the Company completes
an initial public offering of stock before March 31, 1997, $300,000 of
the notes payable will be converted into the number of shares of the
Company's common stock calculated by using the price per share of the
public offering. Also within 30 days of the consummation of a public
offering of stock, a portion of the notes payable, calculated as
$1,060,000 less cash payments made to date, will be due and payable in
cash. A portion of the purchase price, $572,200, is contingent on
Berkeley attaining certain pre-tax income amounts in 1996 and/or 1997.
The merger was accounted for as a purchase. The excess of acquisition
cost over the fair value of net assets, assumed to equal its book value,
was approximately $2,220,000 which will be amortized over fifteen years,
beginning in October 1996; and
F-48
<PAGE>
THE JUDGE, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (1995 Unaudited)
NOTE 17. SUBSEQUENT EVENTS -- (Continued)
o Effective September 30, 1996 the Company purchased substantially all of
the tangible and intangible assets, and assumed significantly all of the
liabilities, of Systems Automation, Inc. ("System Automation"). Systems
Automation is a provider of advanced technical solutions to increase the
efficiency of business processes, such as network and document management
systems design, integration, implementation, maintenance and training,
business process redesign, project management and advanced applications
development. The total acquisition cost was $547,252 payable in cash and
notes payable. In the event that the Company completes an initial public
offering, the remainder of any notes payable become due and payable in
cash within 15 days of the consummation of such public offering. The
acquisition was accounted for as a purchase. The excess of acquisition
cost over the fair value of net assets, assumed to equal its book value,
was approximately $1,040,000 which will be amortized over ten years
beginning in October 1996.
F-49
<PAGE>
THE JUDGE GROUP, INC.
PRO FORMA CONSOLIDATING FINANCIAL STATEMENTS
(Unaudited)
PRO FORMA CONSOLIDATING FINANCIAL STATEMENTS.................... F-51
NOTES TO PRO FORMA CONSOLIDATING BALANCE SHEET,
SEPTEMBER 30, 1996............................................ F-52
PRO FORMA CONSOLIDATING BALANCE SHEET, SEPTEMBER 30, 1996....... F-53 - F-54
NOTES TO PRO FORMA CONSOLIDATING STATEMENTS OF OPERATIONS,
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND YEAR ENDED
DECEMBER 31, 1995............................................. F-55 - F-56
PRO FORMA CONSOLIDATING STATEMENT OF OPERATIONS, YEAR
ENDED DECEMBER 31, 1995....................................... F-57
PRO FORMA CONSOLIDATING STATEMENT OF OPERATIONS, NINE
MONTHS ENDED SEPTEMBER 30, 1996............................... F-58
F-50
<PAGE>
THE JUDGE GROUP, INC.
PRO FORMA CONSOLIDATING FINANCIAL STATEMENTS
(Unaudited)
The following Unaudited pro forma consolidating financial statements give
effect to a public offering of common shares of the Company as described
elsewhere in this Prospectus, certain proposed transactions of the Company,
including, a conversion of the Company's convertible notes in the aggregate
principal amount of $500,000 into 526,000 shares of its Common Stock, and a
certain business combination with JIS (a consolidated subsidiary of the
Company). The pro forma balance sheet gives effect to all of the transactions as
if they occurred on September 30, 1996. The pro forma balance sheet is presented
for informational purposes only and does not purport to be indicative of the
financial condition that actually would have resulted if the business
combinations had been consummated at September 30, 1996. The pro forma
statements of operations for 1995 and for the nine months ended September 30,
1996, give effect to all of the business transactions as if they occurred on
January 1, 1995 and January 1, 1996, respectively. The pro forma statements of
operations are also presented for informational purposes only and do not purport
to be indicative of the results of operations that actually would have been
achieved if the business combinations had been consummated at January 1, 1995
and January 1, 1996, respectively. The pro forma adjustments relate to various
transactions which occurred subsequent to September 30, 1996 and/or which will
occur prior to or on the effective date of the proposed public offering. These
pro forma financial statements should be read in conjunction with the separate
historical financial statements of the Company and JIS, and the notes thereto,
which are included elsewhere in this Prospectus.
The pro forma consolidating statements of operations include the results of
operations of The Berkeley Associates Corp. ("Berkeley") (acquired September 26,
1996) and Systems Automation, Inc. ("Systems Automation") (acquired September
30, 1996) on a pro forma basis as though their business combinations with the
Company occurred on January 1, 1995 and January 1, 1996 respectively. For a
description of those business combinations see Note 4 of Notes to the September
30, 1996 Consolidated Financial Statements of The Judge Group, Inc.
The pro forma consolidating statements of operations include the results of
operations of JIS on a pro forma basis as though the JCC/DI Merger occurred on
January 1, 1995 and January 1, 1996 respectively. For a description of that
business combination see Notes 4 and 17 of Notes to the September 30, 1996 and
June 30, 1996 Consolidated Financial Statements of The Judge Group, Inc.,
respectively. In addition, as more fully described elsewhere in this Prospectus,
immediately prior to the public offering, JIS will be merged into a newly
organized, wholly-owned subsidiary of the Company. The newly organized
subsidiary will be the surviving corporation and change its name to Judge
Imaging Systems, Inc. As a result, JIS will become a wholly-owned subsidiary of
the Company at the time of the offering. In the Merger, each JIS common share
(not already owned by the Company) or Series A preferred share outstanding at
the time of the Merger will be converted in the Merger into $2.50 of value,
payable in the Company Common Shares. In accordance with Accounting Principles
Board Opinion No. 16 and related literature, the majority of the shares of JIS,
which are owned by the Company, Martin E. Judge, Jr. or other owners of the
Company securities, will be accounted for as a corporate reorganization of
entities under common control, at historical cost, similar to pooling
accounting. However, the exchange of the remaining JIS shares (the "minority
interest") will be accounted for in accordance with "purchase accounting"
whereby the pro rata portion of JIS's assets and liabilities as of September 30,
1996 will be recorded at their fair values. The excess of the value of the
Company shares issued in exchange for the "minority interest" shares over the
fair value of the net assets attributable to the minority interest will be
recorded as goodwill.
F-51
<PAGE>
THE JUDGE GROUP, INC.
NOTES TO PRO FORMA CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 1996
(Unaudited)
(1) Adjustment to record $26,800,000 proceeds from the sale of 3,000,000
shares of common stock at $10.00 per share, net of commissions of $2,100,000 and
estimated costs of approximately $1,100,000; record payment of $100,000 for
accounts payable and $735,000 for notes payable to the sellers of Berkeley at
the (assumed) successful completion of the public offering; record payment for
note payable to sellers of Systems Automation of $472,252 cash at the (assumed)
successful completion of the public offering.
(2) Adjustments to record the following equity transactions:
Sale and issuance of 3,000,000 shares of common stock
of the Company, par value $.01 .............................. $ 30,000
Issuance of 30,000 shares of common stock of the Company,
par value $.01 to sellers of Berkeley ($300,000/$10) ........ 300
Merger of JIS into a wholly-owned subsidiary of the
Company; issuance of 892,748 of the Company shares
($.01 par value) in exchange for 2,748,363
common shares and 822,628 preferred shares of JIS ........... 8,927
Conversion of convertible notes (see note 3 below) ............ 5,260
------------
Pro forma adjustments to common stock ......................... $ 44,487
============
Additional paid in capital from sale of 3,000,000
shares of common stock of the Company ($26,800,000
proceeds less $30,000 common stock issued above) ............ 26,770,000
Paid in capital from issuance of 30,000 shares of
common stock to sellers of Berkeley ......................... 299,700
Merger of JIS into a wholly-owned subsidiary of
the Company (see above) ..................................... 2,390,263
Conversion of convertible notes (see note 3 below) ............ 494,740
------------
Pro forma adjustments to additional paid in capital ........... $ 29,954,703
============
Reduction of minority interest due to merger of
JIS into a wholly-owned subsidiary of the
Company (see above) ......................................... ($ 271,248)
============
(3) Adjustment to record conversion of $500,000 of convertible notes into
526,000 of the Company's Common Shares as more fully explained in Note 8 of
Notes to the September 30, 1996 Consolidated Financial Statements of The Judge
Group, Inc.
F-52
<PAGE>
THE JUDGE GROUP, INC.
PRO FORMA CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 1996
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
The Judge Group, Pro Forma
Inc. Pro Forma Consolidated
September 30, 1996 Adjustments September 30, 1996
-------------------- -------------- ------------------
<S> <C> <C> <C>
Current Assets:
Cash............................................... $ 153,942 $ 25,492,748(1) $ 25,646,690
Accounts receivable, net........................... 12,956,917 12,956,917
Inventories........................................ 912,303 912,303
Prepaid taxes and deferred tax benefit............. 334,976 334,976
Other.............................................. 993,948 0 993,948
-------------- -------------- --------------
Total current assets............................... 15,352,086 25,492,748 40,844,834
-------------- -------------- --------------
Property and Equipment:
Furniture and office equipment..................... 3,570,438 3,570,438
Automotive equipment............................... 37,936 37,936
Leasehold improvements............................. 46,565 0 46,565
-------------- -------------- --------------
3,654,939 0 3,654,939
Less: accumulated depreciation and amortization.... 1,774,499 0 1,774,499
-------------- -------------- --------------
Net property and equipment...................... 1,880,440 0 1,880,440
-------------- -------------- --------------
Other Assets:
Due from subsidiaries/affiliate.................... 0 0 0
Receivables -- officers and employees.............. 431,890 0 431,890
Deposits........................................... 108,183 0 108,183
Investment in subsidiaries, at cost................ 0 0 0
Other.............................................. 155,908 0 155,908
Goodwill........................................... 3,259,202 2,127,942(2) 5,387,144
Covenant not to compete, net of accumulated
amortization.................................... 0 0 0
-------------- -------------- --------------
Total other assets.............................. 3,955,183 2,127,942 6,083,125
-------------- -------------- --------------
$ 21,187,709 $ 27,620,690 $ 48,808,399
============== ============== ==============
</TABLE>
F-53
<PAGE>
THE JUDGE GROUP, INC.
PRO FORMA CONSOLIDATING BALANCE SHEET -- (Continued)
SEPTEMBER 30, 1996
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
The Judge Group, Pro Forma
Inc. Pro Forma Consolidated
September 30, 1996 Adjustments September 30, 1996
-------------------- -------------- ------------------
<S> <C> <C> <C>
Current Liabilities:
Current portion of long-term debt................. $ 940,709 ($ 327,285)(1) $ 613,424
Other note payable................................ 196,193 0 196,193
Accounts payable and accrued
expenses....................................... 5,669,388 (100,000)(1) 5,569,388
Payroll and sales taxes........................... 606,438 0 606,438
Income taxes payable.............................. 42,981 0 42,981
Deferred revenue and customer
deposits....................................... 1,333,661 0 1,333,661
Convertible debentures............................ 500,000 (500,000)(3) 0
Advances from shareholders........................ 105,263 0 105,263
-------------- ------------- -------------
Total current liabilities...................... 9,394,633 (927,285) 8,467,348
-------------- ------------- -------------
Long-term Liabilities:
Note payable, bank................................ 7,146,185 0 7,146,185
Deferred rent obligation.......................... 137,038 0 137,038
Due to subsidiaries............................... 0 0 0
Debt obligations, net of current portion.......... 1,376,886 0 1,376,886
Note payable Systems Automation................... 297,014 (297,014)(1) 0
Note payable, Berkeley shareholders............... 1,598,428 (882,953)(2) 715,475
-------------- ------------- -------------
Total long-term liabilities.................... 10,555,551 (1,179,967) 9,375,584
-------------- ------------- -------------
Minority Interest................................... 271,248 (271,248)(2) 0
-------------
Shareholders' Equity:
Common stock...................................... 85,877 44,487(2) 130,364
Preferred stock................................... 0 0 0
Additional paid-in capital........................ 365,877 29,954,703(2) 30,320,580
Retained earnings (deficit)....................... 514,523 0 514,523
-------------- ------------- -------------
966,277 29,999,190 30,965,467
Less: Treasury stock, at cost..................... 0 0 0
-------------- ------------- -------------
Total shareholders' equity (deficit)........... 966,277 29,999,190 30,965,467
-------------- ------------- -------------
$ 21,187,709 $ 27,620,690 $ 48,808,399
============== ============= =============
</TABLE>
F-54
<PAGE>
THE JUDGE GROUP, INC.
NOTES TO PRO FORMA
CONSOLIDATING STATEMENTS OF OPERATIONS
Nine Months Ended September 30, 1996 And
Year Ended December 31, 1995
(Unaudited)
(1) Adjustments to reflect amortization from goodwill. Goodwill is
calculated as follows:
Berkeley acquisition --
<TABLE>
<CAPTION>
<S> <C> <C>
Cash at settlement...................................................... $ 175,000
Cash payments of $50,000 per month from October through
December 1996......................................................... 150,000
Holdback payments, subject to net income tests, payable by issuance of
promissory notes 30 days after net income is finally determined, at 8%
per annum over 36 months.............................................. 572,200
Cash payable within 30 days of consummation of public offering.......... 735,000
30,000 Judge common shares.............................................. 300,000
Notes payable, at 8% per annum interest in 44 equal monthly
installments.......................................................... 300,000
-----------
Purchase price.......................................................... $ 2,232,200
===========
Less: Net asset value................................................... 154,055
Plus: Cost of acquisition............................................... 141,484
-----------
Goodwill................................................................ $ 2,219,629 $ 2,219,629
===========
</TABLE>
Goodwill to be amortized equally over 15 years in equal monthly
installments of $12,331
Systems Automation acquisition --
<TABLE>
<CAPTION>
<S> <C> <C>
Cash at settlement...................................................... $ 75,000
Cash payable within 15 days of consummation of the public offering...... 472,252
-----------
Purchase price.......................................................... $ 547,252
===========
Less: Net asset value................................................... (479,357)
Plus: Cost of acquisition............................................... 12,964
-----------
Goodwill................................................................ $ 1,039,573 1,039,573
=========== -----------
Goodwill to be amortized equally over 10 years in equal monthly
installments of $8,663
Total Goodwill, September 30, 1996............................. $ 3,259,202
===========
</TABLE>
JIS Merger --
<TABLE>
<CAPTION>
<S> <C>
Minority interest shares................................................ 959,676
Value per share to be received in Company common shares................. $ 2.50
-----------
Aggregate value of Company common shares to be received by minority
shareholders.......................................................... 2,399,190
Minority interest recorded at September 30, 1996........................ (271,248)
-----------
Goodwill................................................................ $ 2,127,942
===========
Goodwill to be amortized equally over 15 years in equal monthly
installments of $11,822.
Total goodwill amortization, all transactions is $32,816 per month.
Amortization for year ended December 31, 1995 is $393,795
Amortization for nine months ended September 30, 1996 is $295,347
</TABLE>
F-55
<PAGE>
(2) Adjustments to reflect interest expense on notes payable, resulting
from business combination with Berkeley of $57,783 in the year ended December
31, 1995 and $46,472 in the nine months ended September 30, 1996.
(3) Adjustments to record reduction in interest expense, relating to
conversion of convertible notes into the Company Common Shares, of $50,000 in
the year ended December 31, 1995 and $37,500 in the nine months ended September
30, 1996.
(4) Adjustment to record merger of JIS into a wholly-owned subsidiary of
the Company as though it occurred at the beginning of each of the pro forma
periods presented. The adjustment represents the elimination of the minority
interest for each of the periods presented.
(5) Adjustments to provide for Federal and state income tax expense
(benefit) attributable to income (loss) of Berkeley and Systems Automation as
well as the amortization of goodwill and interest expense recognized in
adjustments (1), (2) and (3) above, all at an effective rate of 40%.
(6) Primary and fully diluted earnings per share amounts are computed based
on the weighted average number of shares actually outstanding after giving
effect to the stock split (8,587,739 shares) plus the shares that would be
outstanding assuming the successful completion of the public offering (3,000,000
shares), the conversion of convertible notes (526,000 shares (which are expected
to be exchanged for common shares -- See Note 8 in the September 30, 1996
consolidated financial statements included in the Registration Statement)), the
acquisition of Berkeley (30,000 shares), the exercise of outstanding stock
options (2,925 shares), and the completion of the Merger (892,748 shares). The
number of shares used in the calculation was approximately 13,039,412 for each
period presented.
F-56
<PAGE>
THE JUDGE GROUP, INC.
PRO FORMA CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
System
DataImage Berkeley Automation
The Judge Pro Forma Pro Forma Pro Forma
Group, Inc. Adjustments Adjustments Adjustments
------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues...................................................... $ 63,299,353 $1,284,333 $2,324,524 $1,187,273
------------ ---------- ---------- ----------
Costs and Expenses
Cost of Sales............................................... 47,550,114 800,841 1,807,348 523,448
Selling and Operating....................................... 9,797,875 437,904 0 659,967
General and Administrative.................................. 4,187,485 0 443,181 169,976
------------ ---------- ---------- ----------
Total Costs and Expenses.................................. 61,535,474 1,238,745 2,250,529 1,353,391
------------ ---------- ---------- ----------
Income (loss) from Operations................................. 1,763,879 45,588 73,995 (166,118)
Interest Expense.............................................. (670,110) (6,070) (16,325) (6,261)
Other Income (expense)........................................ (27,229) 0 1,335 180,901
------------ ---------- ---------- ----------
Income (loss) before Income Tax Expense and Minority
Interest.................................................... 1,066,540 39,518 59,005 8,522
Income Tax Expense (Benefit).................................. 587,957 0 0 0
------------ ---------- ---------- ----------
Income (loss) before Minority Interest........................ 478,583 39,518 59,005 8,522
Minority Interest in net loss of consolidated subsidiary...... 7,057 0 0 0
------------ ---------- ---------- ----------
Net Income (Loss)............................................. $ 485,640 $ 39,518 $ 59,005 $ 8,522
============ ========== ========== ==========
Net Income (Loss) Per Common Share:
Primary.....................................................
Fully Diluted...............................................
Weighted average number of
common shares outstanding...................................
<CAPTION>
Pro Forma
The Judge Consolidated
Group, Inc. Pro Forma Year Ended
Total Adjustments 31-Dec-95
------------ --------- ------------
<S> <C> <C> <C>
Revenues...................................................... $ 68,095,483 $ 0 $ 68,095,483
------------ --------- ------------
Costs and Expenses
Cost of Sales............................................... 50,681,751 $ 50,681,751
Selling and Operating....................................... 10,895,746 10,895,746
General and Administrative.................................. 4,800,642 393,795(1) 5,194,437
------------ --------- ------------
Total Costs and Expenses.................................. 66,378,139 393,795 66,771,934
------------ --------- ------------
Income (loss) from Operations................................. 1,717,344 (393,795) 1,323,549
Interest Expense.............................................. (698,766) (7,783)(2)(3) (706,549)
Other Income (expense)........................................ 155,007 0 155,007
------------ --------- ------------
Income (loss) before Income Tax Expense and Minority
Interest.................................................... 1,173,585 (401,578) 772,007
Income Tax Expense (Benefit).................................. 587,957 (133,620)(5) 454,337
------------ --------- ------------
Income (loss) before Minority Interest........................ 585,628 (267,958) 317,670
Minority Interest in net loss of consolidated subsidiary...... 7,057 (7,057)(4) 0
------------ --------- ------------
Net Income (Loss)............................................. $ 592,685 ($275,015) $ 317,670
============ ========= ============
Net Income (Loss) Per Common Share:
Primary..................................................... $ 0.02(6)
============
Fully Diluted............................................... $ 0.02(6)
============
Weighted average number of
common shares outstanding................................... 13,039,412
============
</TABLE>
F-57
<PAGE>
THE JUDGE GROUP, INC.
PRO FORMA CONSOLIDATING STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
DataImage The Judge
The Judge Pro Forma Berkeley System Group, Inc.
Group Inc. Adjustments Associates Automation Total
------------ --------- ----------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Revenues.................................................... $ 58,914,238 $ 122,692 $ 2,044,279 $ 866,779 $ 61,947,988
------------ --------- ----------- ---------- --------------
Costs & Expenses
Cost of sales............................................... 43,232,381 60,450 1,439,845 358,036 45,090,712
Selling and operating....................................... 10,022,739 77,829 0 547,020 10,647,588
General and administrative.................................. 4,310,467 7,317 389,557 171,303 4,878,644
------------ --------- ----------- ---------- --------------
Total Costs & Expenses.................................... 57,565,587 145,596 1,829,402 1,076,359 60,616,944
------------ --------- ----------- ---------- --------------
Income (loss) from operations............................... 1,348,651 (22,904) 214,877 (209,580) 1,331,044
Interest Expense............................................ (599,597) 0 (13,289) (4,202) (617,088)
Other income (expense)...................................... 0 (3,598) 303 107 (3,188)
------------ --------- ----------- ---------- --------------
Income (loss) before income tax expense (benefit) and
minority interest......................................... 749,054 (26,502) 201,891 (213,675) 710,768
Income Tax Expense (benefit)................................ 614,700 0 0 0 614,700
------------ --------- ----------- ---------- --------------
Income (loss) before minority interest in net income (loss)
of consolidated subsidiary................................ 134,354 (26,502) 201,891 (213,675) 96,068
Minority interest in net income (loss) of consolidated
subsidiary................................................ 616,752 0 0 0 616,752
------------ --------- ----------- ---------- --------------
Net Income (loss)........................................... $ 751,106 ($ 26,502) $ 201,891 ($213,675) $ 712,820
============ ========= =========== ========== ==============
Net Income (loss) per common share:
Primary...................................................
Fully diluted.............................................
Weighted average number of
common shares outstanding.................................
<CAPTION>
Pro Forma
Consolidated
Pro Forma Nine Months Ended
Adjustments 30-Sep-96
----------- ------------------
<S> <C> <C>
Revenues.................................................... $ 0 $ 61,947,988
--------- ------------
Costs & Expenses
Cost of sales............................................... 0 45,090,712
Selling and operating....................................... 0 10,647,588
General and administrative.................................. 295,347(1) 5,173,991
--------- ------------
Total Costs & Expenses.................................... 295,347 60,912,291
--------- ------------
Income (loss) from operations............................... (295,347) 1,035,697
Interest Expense............................................ (8,972)(2)(3) (626,060)
Other income (expense)...................................... 0 (3,188)
--------- ------------
Income (loss) before income tax expense (benefit) and
minority interest......................................... (304,319) 406,449
Income Tax Expense (benefit)................................ (126,441)(5) 488,259
--------- ------------
Income (loss) before minority interest in net income (loss)
of consolidated subsidiary................................ (177,878) (81,810)
Minority interest in net income (loss) of consolidated
subsidiary................................................ (616,752)(4) 0
--------- ------------
Net Income (loss)........................................... ($794,630) ($ 81,810)
========= ============
Net Income (loss) per common share:
Primary................................................... ($ 0.01)(6)
===========
Fully diluted............................................. ($ 0.01)(6)
===========
Weighted average number of
common shares outstanding................................. 13,039,412
===========
</TABLE>
F-58
<PAGE>
================================================================================
No dealer, sales representative or any other person has been authorized to
give any information or to make any representations in connection with this
offering other than those contained in this Prospectus, and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Company, any of the selling shareholders, or any of the
underwriters. this Prospectus does not constitute an offer to sell or a
solicitation of any offer to buy any securities other than the shares of common
shares to which it relates or an offer to, or a solicitation of, any person in
any jurisdiction where such an offer or solicitation would be unlawful. Neither
the delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the company or that information contained herein is correct as of any
time subsequent to the date hereof.
------------------
TABLE OF CONTENTS
Page
----
Prospectus Summary......................................................... 3
Risk Factors............................................................... 7
Use of Proceeds............................................................ 13
Dividend Policy............................................................ 13
Dilution................................................................... 14
Capitalization............................................................. 15
Selected Consolidated Financial Data....................................... 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................................................... 17
Business................................................................... 25
Management................................................................. 38
Principal and Selling Shareholders......................................... 42
Selling Security Holders................................................... 44
Certain Transactions....................................................... 44
Description of Capital Stock............................................... 45
Shares Eligible for Future Sale............................................ 47
Underwriting............................................................... 49
Legal Matters.............................................................. 50
Experts.................................................................... 50
Additional Information..................................................... 50
Index to Financial Statements.............................................. F-1
__________________
Until , 1996, all dealers effecting transactions in the common
shares offered hereby, whether or not participating in this distribution, may be
required to deliver a Prospectus. this is in addition to the obligations of
dealers to deliver a Prospectus when acting as Underwriters and with respect to
their unsold allotments or subscriptions.
================================================================================
================================================================================
3,650,000 Shares
The Judge Group, Inc.
Common Shares
___________
PROSPECTUS
___________
JANNEY MONTGOMERY SCOTT INC.
_____ , 1996
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses payable by the Registrant in
connection with this Registration Statement. All of such expenses are estimates,
other than the filing and listing fees payable to the Securities and Exchange
Commission and the National Association of Securities Dealers, Inc. The Selling
Shareholders will not bear any expenses of this Offering.
Filing Fee -- Securities and Exchange Commission.................... $ 15,922
Filing Fee -- National Association of Securities Dealers, Inc....... 5,117
Listing Fees -- Nasdaq Stock Market................................. 50,000
Fees and Expenses of Accountants.................................... 300,000
Fees and Expenses of Counsel........................................ 250,000
Printing Expenses................................................... 100,000
Blue Sky Fees and Expenses.......................................... 10,000
Investment Advisory Fee............................................. 300,000
Miscellaneous Expenses.............................................. 68,961
----------
Total............................................................. $1,100,000
==========
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Amended and Restated Articles of Incorporation provide that
no director or officer of the Company shall be personally liable for monetary
damages except to the extent that by law a director's liability for monetary
damages may not be limited. The effect of this provision is to prevent the
Company and its shareholders (through shareholder derivative suits on behalf of
the Company) from recovering monetary damages against a director for breach of
certain fiduciary duties as a director (including breaches resulting from
grossly negligent conduct). This provision does not, however, exonerate the
directors from liability (i) pursuant to any criminal statute, (ii) for the
payment of taxes pursuant to federal, state or local law, or (iii) for
self-dealing, willful misconduct or recklessness. The By-laws of the Company
provide for indemnification of the officers and directors of the Company to the
fullest extent permitted by applicable law. Applicable law permits
indemnification for all matters (including those asserted in derivative actions)
except for those determined by a court to have constituted willful misconduct or
recklessness.
The Registrant has obtained directors' and officers' liability insurance.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On September 6, 1996, the Company issued 3,265 Common Shares to The
Gemstone Group, Inc. upon exercise of its warrant issued by the Company on July
8, 1993. This transaction was exempt from the registration requirements of the
Securities Act pursuant to Section 4 (2) thereof.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
EXHIBIT
NO. DESCRIPTION OF DOCUMENT
- --------- ---------------------------------------------------------------------
1.1* Form of Underwriting Agreement.
2.1* Agreement and Plan of Merger, among the Company, Judge Acquisition,
Inc. and Judge Imaging Systems, Inc.
3.1** Amended and Restated Articles of Incorporation of the Company.
3.2** Amended and Restated By-Laws of the Company.
II-1
<PAGE>
4.1** 10% Convertible Senior Subordinated Note Purchase Agreement.
4.2* Form of common stock certificate for Company Common Shares.
4.3* Fourth Amended and Restated Loan and Security Agreement, dated
December 10, 1996, between the Company and PNC Bank, N.A.
5.1* Opinion of Drinker Biddle & Reath.
10.1* Lease of Two Bala Plaza, Bala Cynwyd, Pennsylvania, dated January 21,
1994, between The Prudential Insurance Company of America, as
landlord, and Judge, Inc., as tenant.
10.2* Stock Purchase Agreement by and among the Company, The Berkeley
Associates Corporation, Sandy Mayer and Gregory McCartney, as
amended.
10.3* Asset Purchase Agreement by and among the Company, Systems
Automation, Inc. and Edward Haskell.
10.4** 1996 Incentive Stock Option and Non-Qualified Stock Option Plan for
Key Employees and Non-Employee Directors.
10.5** Professional Services Agreement between Merck & Co., Inc. and
Judge Technical Services, Inc.
10.6** Split-Dollar Agreement by and between Judge, Inc. and Dennis F.
Judge, Trustee of the Irrevocable Agreement of Trust of Martin E.
Judge, Jr., Settlor, dated December 28, 1995.
10.7** Split-Dollar Agreement by and between Judge, Inc. and Kathleen Dunn,
Trustee of the Irrevocable Agreement of Trust of Michael Dunn,
Settlor, date June 19, 1996.
10.8** Split-Dollar Agreement by and between Judge, Inc. and Ann L. Judge,
Trustee of the Irrevocable Agreement of Trust of Martin E. Judge,
Jr., Settlor, dated December 20, 1995.
10.9** Split-Dollar Agreement by and between Judge, Inc. and D. Michael
Carmody, Trustee of the Irrevocable Agreement of Trust of Michael
Dunn, Settlor, dated June 19, 1996.
10.10** Employment Agreement, by and between Judge Computer Corporation and
Wendy Greenberg.
10.11** Employment Agreement, by and between Judge Imaging Systems, Inc. and
Jeff Andrews.
11.1* Computation of Earnings Per Share.
21.1** Subsidiaries of the Company.
23.1* Consent of Drinker Biddle & Reath (included in their opinion filed as
Exhibits 5.1).
23.2* Consent of Rudolph, Palitz LLP.
23.3* Consent of Janney Montgomery Scott Inc.
24.1** Powers of Attorney.
27.1* Financial Data Schedule.
- ----------
* Filed herewith.
** Previously filed.
(B) FINANCIAL STATEMENT SCHEDULES
Schedule II. Valuation and Qualifying Accounts
All other schedules of Judge for which provision is made in the applicable
accounting regulations of the Commission are not required, are inapplicable or
have been disclosed in the Notes to the Consolidated Financial Statements and
therefore have been omitted.
II-2
<PAGE>
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
1. For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
the form of prospectus filed by the registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act shall be deemed to be part of
this Registration Statement as of the time it was declared effective.
2. For the purposes of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
II-3
<PAGE>
SIGNATURES AND POWERS OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned and hereunto duly authorized in the Town of Bala Cynwyd,
Commonwealth of Pennsylvania, on the 10th day of December, 1996.
THE JUDGE GROUP, INC.
By: /s/ Martin E. Judge, Jr.
--------------------------------------
Martin E. Judge, Jr.
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Martin E. Judge, Jr. Chief Executive Officer and December 10, 1996
- ----------------------------- Chairman of the Board
Martin E. Judge, Jr.
(Principal Executive
Officer)
/s/ Jeffrey J. Andrews Chief Financial Officer December 10, 1996
- ----------------------------- and Treasurer
Jeffrey J. Andrews
(Principal Financial and
Accounting Officer)
/s/ Michael A. Dunn Executive Vice President December 10, 1996
- ----------------------------- and Director
Michael A. Dunn
/s/ Richard T. Furlano President and Director December 10, 1996
- -----------------------------
Richard T. Furlano
II-4
THE JUDGE GROUP, INC.
3,650,000 Common Shares
---------------
UNDERWRITING AGREEMENT
--------------
Philadelphia, Pennsylvania
December__, 1996
JANNEY MONTGOMERY SCOTT INC.
- -------------------------
As Representatives of the Several
Underwriters Named in Schedule I
Hereto
c/o Janney Montgomery Scott Inc.
1801 Market Street
Philadelphia, PA 19103
Ladies and Gentlemen:
The Judge Group, Inc., a Pennsylvania corporation (the "Company"),
proposes to sell to Janney Montgomery Scott Inc. and ______________ (the
"Representatives") and the several other underwriters named in Schedule I hereto
(collectively, with the Representatives, the "Underwriters") 3,000,000 shares of
the Company's $.01 par value common stock ("Common Shares"); and the selling
shareholders of the Company named in Table 1 of Schedule II hereto
(collectively, the "Selling Shareholders") propose to sell severally to the
Underwriters an aggregate of 650,000 Common Shares. Such Common Shares to be
sold to the Underwriters by the Company and the Selling Shareholders are
referred to collectively herein as the "Firm Shares." The respective amounts of
the Firm Shares to be purchased by the several Underwriters are set forth
opposite their names in Schedule I hereto. The respective amounts of the Firm
Shares to be sold by Selling Shareholders are set forth opposite their names in
Table 1 of Schedule II hereto. The Firm Shares shall be offered to the public at
an initial public offering price of $________ per Firm Share (the "Offering
Price").
In addition, in order to cover over-allotments in the sale of the Firm
Shares, the Underwriters may purchase for the Underwriters' own accounts,
ratably in proportion to the amounts set forth opposite their respective names
in Schedule I hereto, up to 250,000 additional Common Shares from the Selling
Shareholders and up to 297,500 additional
<PAGE>
Common Shares from the Company. Such 547,500 additional Common Shares are
referred to collectively herein as the "Optional Shares." If any Optional Shares
are purchased: (i) all the Optional Shares of the Selling Shareholders shall be
purchased before any Optional Shares of the Company may be purchased; (ii) all
the Optional Shares of the Selling Shareholders listed in Section A of Table 2
of Schedule II hereto shall be purchased (prorata in proportion to the amounts
set forth opposite their names) before any shares are purchased (prorata in
proportion to the amounts set forth opposite their names) from the Selling
Shareholders listed in Section B of Table 2 of Schedule II; and (iii) the
Optional Shares shall be purchased for offering to the public at the Offering
Price and in accordance with the terms and conditions set forth herein. The Firm
Shares and the Optional Shares are referred to collectively herein as the
"Shares."
The Company and the Selling Shareholders, intending to be legally
bound, hereby confirm their agreement with the Underwriters as follows:
1. Representations and Warranties.
(a) Representations and Warranties of the Company. The Company
and each of the Company's subsidiaries (the "Subsidiaries") set forth on
Schedule III hereto, jointly and severally represent and warrant to, and agree
with, the several Underwriters that (all references to the Company herein shall
be deemed to include reference to the Company and the Subsidiaries collectively,
unless the context indicates otherwise):
(i) the Company has prepared, in conformity with the
requirements of the Securities Act of 1933, as amended (the "Act"), and the
rules and regulations (the "Regulations") of the Securities and Exchange
Commission (the "SEC") under the Act in effect at all applicable times, and has
filed with the SEC a registration statement on Form S-1 (File No. 333-13109) and
one or more amendments thereto for the purpose of registering the Shares (or a
portion of the Shares if a "Rule 462(b) Registration Statement," as defined
below, has been or is to be filed) under the Act. The Company similarly may have
prepared or may prepare an additional registration statement on Form S-1 with
respect to a portion of the Shares pursuant to Rule 462(b) of the Regulations,
and if so prepared or if to be so prepared, such additional registration
statement has been or will be filed pursuant to Rule 462(b) of the Regulations.
The term "Rule 462(b) Registration Statement" means such additional registration
statement, if any, filed pursuant to Rule 462(b) of the Regulations, including,
without limitation, all exhibits thereto, the contents of the earlier
registration statement incorporated therein by reference, and any price-related
information included therein, but omitted from the earlier registration
statement in reliance on Rule 430A of the Regulations. Copies of all such
registration statements (or the form thereof in the case of a Rule 462(b)
Registration Statement that has not yet been filed) and any amendments thereto,
and all forms of the related prospectus contained therein, have been delivered
to the Representatives. Each prospectus included in any such registration
statement before it became effective under the Act and any prospectus filed with
the SEC pursuant to Rule 424(a) of the Regulations is hereinafter called a
"Preliminary Prospectus." The various parts of the first registration statement
referenced in this Section 1(a)(i), including all exhibits thereto and the
information contained in the form of final prospectus filed with the SEC
-2-
<PAGE>
pursuant to Rule 424(b) of the Regulations in accordance with Section
5(a)(ii) of this Agreement and deemed by virtue of Rule 430A(b) of the
Regulations to be part of the registration statement at the time it was declared
effective, each as amended at the time the registration statement became
effective, as well as the information contained in the Rule 462(b) Registration
Statement, if any, deemed to be a part of the registration statement pursuant to
General Instruction V of Form S-1, are hereinafter collectively called the
"Primary Registration Statement." The term "Registration Statements" means both
the Primary Registration Statement and the Rule 462(b) Registration Statement
collectively. The term "Term Sheet" means the term sheet, if any, containing the
information required pursuant to Rule 434(b) or (c), as applicable, of the
Regulations, and filed pursuant to Rule 424(b)(7) of the Regulations. The term
"Prospectus" means the Prospectus relating to the Shares included in the
Registration Statement at the time it became effective (including, if the
Company omitted information from the Primary Registration Statement pursuant to
Rule 430A(a) of the Regulations, the information deemed to be a part of the
Primary Registration Statement at the time it became effective pursuant to Rule
430A(b) of the Regulations); provided, however, that, if with the consent of the
Representatives, the Company provides a Term Sheet prior to the time any
confirmation is sent or given for purposes of Section 2(10)(a) of the Act, the
term "Prospectus" shall mean the "prospectus subject to completion" (as defined
in Rule 434(g) of the Regulations) last provided to the Underwriters by the
Company and circulated by the Underwriters to all prospective purchasers of the
Shares, plus and including the information contained in the Term Sheet.
Notwithstanding the foregoing, if any revised Prospectus shall be provided to
the Underwriters by the Company for use in connection with the offering of the
Shares that differs from the Prospectus referred to in the immediately preceding
sentence (whether or not such revised Prospectus is required to be filed with
the SEC pursuant to Rule 424(b) of the Regulations), the term "Prospectus" shall
refer to such revised Prospectus from and after the time it is first provided to
the Underwriters for such use. If, with the consent of the Representatives, the
Company shall have provided to the Underwriters a Term Sheet prior to the time
any confirmation is sent or given for purposes of Section 2(10)(a) of the Act,
the Prospectus and the Term Sheet together will not be materially different from
the prospectus in the Registration Statements;
(ii) the Primary Registration Statement has become effective
under the Act and the SEC has not issued any stop order suspending the
effectiveness of the Registration Statements or preventing or suspending the use
of any Preliminary Prospectus, nor has the SEC instituted or threatened to
institute proceedings with respect to such an order. No stop order suspending
the sale of the Shares in any jurisdiction designated by the Representatives as
provided for in Section 5(a)(x) hereof has been issued, and no proceedings for
that purpose have been instituted or threatened. The Company has complied in all
material respects with all requests of the SEC, or requests of which the Company
has been advised of any state securities commission in a state designated by the
Representatives as provided for in Section 5(a)(x) hereof, for additional
information to be included in the Registration Statements, any Preliminary
Prospectus or the Prospectus. Each Preliminary Prospectus conformed to all the
requirements of the Act and the Regulations as of its date in all material
respects and did not as of its date contain any untrue statement of material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not
-3-
<PAGE>
misleading, except the foregoing shall not apply to statements in, or omissions
from, any Preliminary Prospectus in reliance upon and in conformity with
information supplied to the Company in writing by or on behalf of any
Underwriter through the Representatives expressly for use therein. The Primary
Registration Statement, on the date on which it was declared effective by the
SEC (the "Effective Date") and when any post-effective amendment thereof shall
become effective, the Rule 462(b) Registration Statement when filed with the
SEC, and the Prospectus, at the time it is filed with the SEC and on the Closing
Date (as defined in Section 3 hereof) and any Option Closing Date (as defined in
Section 4(b) hereof), conformed and will conform in all material respects to all
the requirements of the Act and the Regulations, and did not and will not, on
any of such dates, include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading, except that this representation and warranty
does not apply to statements in or omissions from the Primary Registration
Statement (including the information contained in the rule 462(b) Registration
Statement after it is filed with the SEC) or the Prospectus made in reliance
upon and in conformity with information furnished to the Company in writing by
or on behalf of any Underwriter through the Representatives expressly for use
therein;
(iii) the Company is a corporation duly organized, validly
existing and in good standing under the laws of the Commonwealth of
Pennsylvania, with all necessary corporate power and authority, and all required
licenses, permits, clearances, certifications, registrations, approvals,
consents and franchises, to own or lease and operate its properties and to
conduct its business as described in the Prospectus, and to execute, deliver and
perform this Agreement. Each of the Subsidiaries has been duly organized and is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation (which jurisdiction is set forth in Schedule
III hereto), with all necessary corporate power and authority, and all required
licenses, permits, clearances, certifications, registrations, approvals,
consents and franchises, to own or lease and operate its properties and to
conduct its business as described in the Prospectus. The Company and each of the
Subsidiaries is duly qualified to do business as a foreign corporation, and is
in good standing, in all jurisdictions in which such qualification is required,
except where the failure to so qualify would not have a material adverse effect
on the general affairs, properties, condition (financial or otherwise), results
of operations, stockholders' equity, business or prospects of the Company and
the Subsidiaries taken as a whole (a "Material Adverse Effect"). No proceeding
has been instituted in any jurisdiction revoking, limiting or curtailing, or
seeking to revoke, limit or curtail the Company's or any of the Subsidiaries'
corporate power and authority or qualification or ability to own or lease and
operate its properties and to conduct its business as described in the
Prospectus;
(iv) the outstanding shares of capital stock or other
evidence of ownership of the respective Subsidiaries have been duly authorized
and validly issued, are fully paid and non-assessable and, except for the
securities owned by third parties as described specifically below in this
Section 1(a)(iv), are owned by the Company free and clear of all liens,
encumbrances and security interests. Except for the common stock of the
Subsidiaries owned by the Company and the . . . [describe non-common and
derivative equity owned by Company in each sub, and common, non-common and
derivative equity owned by
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<PAGE>
third parties in each sub] . . ., there are no shares of capital stock of any
Subsidiary outstanding, and no options, warrants or other rights to purchase,
agreements or other obligations to issue, or other rights to convert any
obligations into, shares of capital stock or ownership interests in any
Subsidiary or securities convertible into or exchangeable for capital stock of,
or other ownership interests in, any Subsidiary are outstanding. The Company
owns no stock or other interest whatsoever, whether equity or debt, in any
corporation, partnership or other entity other than the Subsidiaries;
(v) this Agreement has been duly authorized, executed and
delivered by the Company and the Subsidiaries and constitutes, with respect to
each, its legal, valid and binding obligation, enforceable against the Company
and the Subsidiaries in accordance with its terms;
(vi) the execution, delivery and performance of this
Agreement by the Company and each Subsidiary not and will not, with or
without the giving of notice or the lapse of time, or both, (A) conflict with
any term or provision of the Company's Articles of Incorporation or Bylaws or
such Subsidiary's Articles (or Certificate) of Incorporation or Bylaws; (B)
result in a breach of, constitute a default under, result in the termination or
modification of, result in the creation or imposition of any lien, security
interest, charge or encumbrance upon any of the assets of the Company or any
Subsidiary under, or require any payment by the Company or any Subsidiary or
impose any liability on the Company or any Subsidiary pursuant to, any contract,
indenture, mortgage, deed of trust, commitment or other agreement or instrument
to which the Company or any Subsidiary is a party or by which any of the
Company's or any Subsidiary's assets are bound or affected; (C) assuming
compliance with Blue Sky laws and regulations applicable to the offer and sale
of the Shares, violate any law, rule, regulation, judgment, order or decree of
any government or governmental agency, instrumentality or court, domestic or
foreign, having jurisdiction over the Company or any Subsidiary or any of the
Company's or any Subsidiary's properties or business; or (D) result in a breach,
termination or lapse of the Company's or any Subsidiary's corporate power and
authority to own or lease and operate its assets and properties and conduct its
business as described in the Prospectus;
(vii) at the date or dates indicated in the Prospectus, the
Company had the duly authorized and outstanding capitalization set forth in the
Prospectus under the caption "Capitalization" and will have, as of the issuance
of the Firm Shares on the Closing Date, the pro forma adjusted capitalization
set forth therein. The description of the Company's capitalization in the
Prospectus conforms in all material respects with the instruments defining the
same. On the Effective Date, the Closing Date and any Option Closing Date, there
will be no options or warrants for the purchase of, other outstanding rights to
purchase, agreements or obligations to issue or agreements or other rights to
convert or exchange any obligation or security into, capital stock of the
Company or securities convertible into or exchangeable for capital stock of the
Company, except as expressly described in the Prospectus. The information in the
Prospectus insofar as it relates to all outstanding options and other rights to
acquire securities of the Company as of the Effective Date and immediately prior
to the Closing Date and any Option Closing Date is true and correct in all
material respects;
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<PAGE>
(viii) the currently outstanding shares of the Company's
capital stock, including the Shares to be purchased by the Underwriters from the
Selling Shareholders, have been duly authorized and are validly issued, fully
paid and non-assessable, and none of such outstanding shares of the Company's
capital stock has been issued in violation of any preemptive rights of any
security holder of the Company. The holders of the outstanding shares of the
Company's capital stock are not subject to personal liability solely by reason
of being such holders. All previous offers and sales of the outstanding shares
of the Company's capital stock, whether described in the Registration Statement
or otherwise, were made in conformity with applicable federal and state
securities laws;
(ix) when the Shares have been duly delivered against
payment therefor as contemplated by this Agreement, the Shares will be validly
issued, fully paid and non-assessable, and the holders thereof will not be
subject to personal liability solely by reason of being such holders. The
certificates representing the Shares are in proper legal form under, and conform
in all respects to the requirements of, the Pennsylvania Business Corporation
Law, as amended (the "BCL"). Except such rights with which the Company has
complied or which have been waived, neither the filing of the Registration
Statement nor the offering or sale of Shares as contemplated by this Agreement
gives any security holder of the Company any rights for or relating to the
registration of any Common Shares or any other capital stock of the Company;
(x) no consent, approval, authorization, order,
registration, license or permit of, or filing or registration with, any court,
government, governmental agency, instrumentality or other regulatory body or
official is required for the valid and legal execution, delivery and performance
by the Company and each Subsidiary of this Agreement and the consummation of the
transactions contemplated hereby and described in the Prospectus, except such as
may be required for the registration of the Shares under the Act, the
Regulations and the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and for compliance with the applicable state securities or Blue Sky laws
or the Bylaws, rules and other pronouncements of the National Association of
Securities Dealers, Inc. (the "NASD");
(xi) the Common Shares (including the Shares) are registered
pursuant to Section 12(g) of the Exchange Act and are included for quotation in
the Nasdaq Stock Market, and neither the Company nor any Selling Shareholder has
taken any action designed to cause, or likely to result in, the termination of
the registration of the Common Shares under the Exchange Act or the termination
of the inclusion thereof in the Nasdaq Stock Market. Neither the Company nor any
Selling Shareholder has received any notification that the SEC or the Nasdaq
Stock Market is contemplating terminating such registration or inclusion. On the
Effective Date, the Closing Date and any Option Closing Date, the Shares shall
be included for quotation in the Nasdaq Stock Market;
(xii) the statements in the Registration Statements and
Prospectus, insofar as they are descriptions of or references to contracts,
agreements or other documents, are accurate in all material respects and present
or summarize fairly, in all material respects, the information required to be
disclosed under the Act and/or the Regulations, and there are no contracts,
agreements or other documents, instruments or transactions of any character
-6-
<PAGE>
required to be described or referred to in the Registration Statements or
Prospectus or to be filed as exhibits to the Registration Statements that have
not been so described, referred to or filed, as required;
(xiii) each contract or other instrument (however
characterized or described) to which the Company or any Subsidiary is a party or
by which any of its properties or business is bound or affected and which is
material to the conduct of the Company's business as described in the Prospectus
has been duly and validly executed by the Company and each Subsidiary, as
applicable, and, to the knowledge of the Company, by the other parties thereto.
Each such contract or other instrument is in full force and effect and is
enforceable against the parties thereto in accordance with its terms and neither
the Company nor any Subsidiary is, and to the knowledge of the Company, no other
party is, in default thereunder, and no event has occurred that, with the lapse
of time or the giving of notice, or both, would constitute a default under any
such contract or other instrument. All necessary consents under such contracts
or other instruments to disclosure in the Prospectus with respect thereto have
been obtained;
(xiv) the consolidated financial statements of the Company
(including the notes thereto) filed as part of any Preliminary Prospectus, the
Prospectus and the Registration Statements present fairly, in all material
respects, the financial position of the Company and the Subsidiaries as of the
respective dates thereof, and the results of operations and cash flows of the
Company and the Subsidiaries for the periods indicated therein, all in
conformity with generally accepted accounting principles consistently applied
throughout the periods involved, except as may be otherwise stated expressly
therein. The supporting notes and schedules included in the Registration
Statements fairly state in all material respects the information required to be
stated therein in relation to the financial statements taken as a whole. The
selected and summary financial and statistical information in the Prospectus
including, but not limited to, that under the captions "Summary Consolidated
Historical and Pro Forma Financial Information," "Selected Consolidated
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations," and "Pro Forma Consolidating Financial Statements"
presents fairly the information shown therein and has been compiled on a basis
consistent with that of the audited financial statements included in the
Registration Statements. The unaudited pro forma financial statements included
in the Registration Statements comply as to form in all material respects with
the applicable accounting requirements of Rule 11-02 of Regulation S-X under the
Act and the pro forma adjustments have been properly applied to the historical
amounts in the compilation of those statements. No financial statements or
schedules or other information other than that which appears in the Prospectus
is required to be included in the Registration Statement;
(xv) since the respective dates as of which information is
given in the Registration Statements and the Prospectus, except as otherwise
stated therein, there has not been (A) any material adverse change (including,
whether or not insured against, any material loss or damage to any material
assets), or development involving a prospective material adverse change, in the
general affairs, properties, assets, management, condition (financial or
otherwise), results of operations, stockholders' equity, business or prospects
of
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<PAGE>
the Company and the Subsidiaries taken as a whole; (B) any material adverse
change, loss, reduction, termination or non-renewal of any contract to which the
Company or any Subsidiary is a party; (C) any transaction entered into by the
Company or any Subsidiary not in the ordinary course of its business that is
material to the Company and the Subsidiaries taken as a whole, (D) any dividend
or distribution of any kind declared, paid or made by the Company on its capital
stock, (E) any liabilities or obligations, direct or indirect, incurred by the
Company or any Subsidiary that are material to the Company and the Subsidiaries
taken as a whole; (F) any change in the capitalization or stock ownership of the
Company or any Subsidiary; or (G) any change in the indebtedness of the Company
or any Subsidiary that is material to the Company and the Subsidiaries taken as
a whole. Neither the Company nor any Subsidiary has any contingent liabilities
or obligations that are material to the Company and the Subsidiaries taken as a
whole and that are not expressly disclosed in the Prospectus;
(xvi) the Company has not distributed, and will not
distribute, any offering material in connection with the offering and sale of
the Shares other than the Registration Statements, a Preliminary Prospectus, the
Prospectus and other material, if any, permitted by the Act and the Regulations.
Neither the Company nor any of its officers, directors or affiliates has taken,
nor shall the Company or such persons take, any action designed to, or that
might be reasonably expected to, cause or result in stabilization or
manipulation of the price of the Shares;
(xvii) except for . . . [describe IRS problem and
settlement] . . ., and except where the failure to do so would not have a
Material Adverse Effect, the Company has filed with the appropriate federal,
state and local governmental agencies, and all foreign countries and political
subdivisions thereof, all tax returns that are required to be filed or has duly
obtained extensions of time for the filing thereof and has paid all taxes shown
on such returns or otherwise due and all material assessments received by it to
the extent that the same have become due. Except as described above in this
Section 1(a)(xvii), the Company has not executed or filed with any taxing
authority, foreign or domestic, any agreement extending the period for
assessment or collection of any income or other tax and is not a party to any
pending action or proceeding by any foreign or domestic governmental agency for
the assessment or collection of taxes, and no claims for assessment or
collection of taxes have been asserted against the Company that might have a
Material Adverse Effect;
(xviii) Rudolph, Palitz LLP, which has given its reports on
certain financial statements included as part of the Registration Statements, is
a firm of independent certified public accountants as required by the Act and
the Regulations;
(xix) except where the failure to do so would not have a
Material Adverse Effect, neither the Company nor any Subsidiary is in
violation of, or in default under, any of the terms or provisions of (A) its
Articles or Certificate of Incorporation or Bylaws or similar governing
instruments, or (B) any indenture, mortgage, deed of trust, contract, commitment
or other agreement or instrument to which it is a party or by which it or any of
its properties is bound or affected, (C) any law, rule, regulation, judgment,
order or decree of any government or governmental agency, instrumentality or
court, domestic or foreign,
-8-
<PAGE>
having jurisdiction over it or any of its properties or business, or (D) any
license, permit, certification, registration, approval, consent or franchise
referred to in Section l(a)(iii) hereof;
(xx) except as expressly disclosed in the Prospectus, there
are no claims, actions, suits, protests, proceedings, arbitrations,
investigations or inquiries pending before, or to the Company's knowledge
threatened or contemplated by, any governmental agency, instrumentality, court
or tribunal, domestic or foreign, or before any private arbitration tribunal to
which the Company or any Subsidiary is or may be made a party that could
reasonably be expected to affect the validity of any of the outstanding Common
Shares, or that, if determined adversely to the Company or the Subsidiary,
would, in any case or in the aggregate, result in any Material Adverse Effect,
nor is there any reasonable basis for any such claim, action, suit, protest,
proceeding, arbitration, investigation or inquiry. Except as expressly disclosed
in the Prospectus, there are no outstanding orders, judgments or decrees of any
court, governmental agency, instrumentality or other tribunal enjoining the
Company or any Subsidiary from, or requiring the Company or any Subsidiary to
take or refrain from taking, any action, or to which the Company or any
Subsidiary, their properties, assets or business are bound or subject;
(xxi) each of the Company and the Subsidiaries owns, or
possesses adequate rights to use, all patents, patent applications, trademarks,
trademark registrations, applications for trademark registration, trade names,
service marks, licenses, inventions, copyrights, know-how (including trade
secrets and other unpatented and/or unpatentable proprietary or confidential
technology, information, systems, design methodologies and devices or procedures
developed or derived from or for the Company's or the Subsidiaries' business),
trade secrets, confidential information, processes and formulations and other
proprietary information necessary for, used in, or proposed to be used in, the
conduct of its business as described in the Prospectus (collectively, the
"Intellectual Property"). All patents owned by the Company and/or the
Subsidiaries are listed on Schedule IV hereto. The Company and the Subsidiary
have not infringed, are not infringing and, except as expressly and specifically
disclosed in the Prospectus, neither the Company nor any Subsidiary has received
any notice of conflict with, the asserted rights of others with respect to the
Intellectual Property that, individually or in the aggregate, if the subject or
an unfavorable decision, ruling or finding, would have a Material Adverse
Effect, and neither the Company nor any Subsidiary knows of any reasonable basis
therefore. To the knowledge of the Company and the Subsidiaries, no other
parties have infringed upon or are in conflict with the Intellectual Property.
Neither the Company nor any Subsidiary is a party to, or bound by, any agreement
pursuant to which royalties, honorariums or fees are payable by the Company or
any Subsidiary to any person by reason of the ownership or use of any
Intellectual Property that is material to the business of the Company or any
Subsidiary;
(xxii) each of the Company and the Subsidiaries has good and
marketable title to all property described in the Prospectus as being owned by
it, free and clear of all liens, security interests, charges or encumbrances and
the like, except such as are expressly described or referred to in the
Prospectus or such as do not materially affect the value of such property and do
not interfere in any material respect with the use made, or proposed to be made,
of such property by the Company or such Subsidiary. Each of the
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<PAGE>
Company and the Subsidiaries has adequately insured its property against
loss or damage by fire or other casualty and maintains, in amounts reasonably
believed by it to be adequate, insurance against such other risks as management
of the Company deems appropriate. All real and personal property leased by the
Company or any Subsidiary, as described or referred to in the Prospectus, is
held by the Company or the Subsidiary under valid leases. The executive offices
and the other facilities of the Company and the Subsidiaries (the "Premises"),
and all operations presently or formerly conducted thereon by the Company or any
Subsidiary, are now and, since the Company or any such Subsidiary began to use
such Premises, always have been and, to the knowledge of the Company, prior to
when the Company or any such Subsidiary began to use such Premises, always had
been, in compliance with all federal, state and local statutes, ordinances,
regulations, rules, standards and requirements of common law concerning or
relating to industrial hygiene and the protection of health and the environment
(collectively, "the Environmental Laws"), except to the extent that any failure
to be in such compliance would not have a Material Adverse Effect. There are no
conditions on, about, beneath or arising from the Premises or at any other
location that might give rise to liability, the imposition of a statutory lien
or require a "Response," "Removal" or "Remedial Action," as defined herein,
under any of the Environmental Laws, and that would have a Material Adverse
Effect. Except as expressly disclosed in the Prospectus, which disclosed items
will not result in any Material Adverse Effect, (A) neither the Company nor any
Subsidiary has received notice or has knowledge of any claim, demand,
investigation, regulatory action, suit or other action instituted or threatened
against the Company or any Subsidiary or any portion of the Premises relating to
any of the Environmental Laws and (B) neither the Company nor any Subsidiary has
received any notice of material violation, citation, complaint, order,
directive, request for information or response thereto, notice letter, demand
letter or compliance schedule to or from any governmental or regulatory agency
arising out of or in connection with "hazardous substances" (as defined by
applicable Environmental Laws) on, about, beneath, arising from or generated at
the Premises or at any other location. As used in this subsection, the terms
"Response," "Removal" and "Remedial Action" shall have the respective meanings
assigned to such terms under Sections 101(23) - 101(25) of the Comprehensive
Environmental Response, Compensation and Liability Act, as amended by the
Superfund Amendments and Reauthorization Act, 42 U.S.C. 9601(23)-9601(25);
(xxiii) each of the Company and the Subsidiaries maintains a
system of internal accounting controls sufficient to provide reasonable
assurances that: (A) transactions are executed in accordance with management's
general or specific authorization; (B) transactions are recorded as necessary in
order to permit preparation of financial statements in accordance with generally
accepted accounting principles and to maintain accountability for assets; (C)
access to assets is permitted only in accordance with management's general or
specific authorization; and (D) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate action is
taken with respect to any differences;
(xxiv) no unregistered securities of the Company have been
sold by the Company or on behalf of the Company by any person or persons
controlling, controlled by,
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<PAGE>
or under common control with the Company within the three years prior to the
date hereof, except as expressly disclosed in the Registration Statements;
(xxv) except for the disability, health and life insurance
plans and the benefit and such other plans that are expressly disclosed in the
Prospectus, the Company and the Subsidiaries have not had and do not now have
any employee benefit plan, profit sharing plan, employee pension benefit plan or
employee welfare benefit plan or deferred compensation arrangements ("Plans")
that are subject to the provisions of the Employee Retirement Income Security
Act of 1974, as amended, or the rules and regulations thereunder ("ERISA"). All
Plans that are subject to ERISA are in compliance with ERISA, in all material
respects, and, to the extent required by the Internal Revenue Code of 1986, as
amended (the "Code"), in compliance with the Code in all material respects.
Neither the Company nor any Subsidiary has had any employee pension benefit plan
that is subject to Part 3 of Subtitle B of Title I of ERISA or any defined
benefit plan or multi-employer plan. The Company has not maintained retired life
and retired health insurance plans that are employee welfare benefit plans
providing for continuing benefit or coverage for any employee or any beneficiary
of any employee after such employee's termination of employment, except as
required by Section 4980B of the Code. No fiduciary or other party in interest
with respect to any of the Plans has caused any of such Plans to engage in a
prohibited transaction as defined in Section 406 of ERISA. As used in this
subsection, the terms "defined benefit plan," "employee benefit plan," "employee
pension benefit plan," "employee welfare benefit plan," "fiduciary" and
"multiemployer plan" shall have the respective meanings assigned to such terms
in Section 3 of ERISA;
(xxvi) no labor dispute exists with the Company's or any
Subsidiary's employees, and to the Company's knowledge no such labor dispute is
threatened. The Company has no knowledge of any existing or threatened labor
disturbance by the employees of any of its principal suppliers, contractors or
customers that would have a Material Adverse Effect;
(xxvii) neither the Company nor any Subsidiary has incurred
any liability for any finder's fees or similar payments in connection with the
transactions contemplated herein other than as disclosed in the Prospectus;
(xxviii) the Company and the Subsidiaries are familiar with
the Investment Company Act of 1940, as amended (the "1940 Act"), and the rules
and regulations thereunder, and have in the past conducted, and each of the
Company and the Subsidiaries intends to conduct, its affairs in such a manner as
to ensure that it will not be an "investment company" within the meaning of the
1940 Act and the rules and regulations thereunder;
(xxix) no statement, representation, warranty or covenant
made by the Company or any Subsidiary in this Agreement or in any certificate or
document required by this Agreement to be delivered to the Representatives is,
was when made, or as of the Closing Date or any Option Closing Date will be,
inaccurate, untrue or incorrect in any material respect. No transaction has
occurred or is proposed between or among the Company
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<PAGE>
(or any Subsidiary) and any of its (or any of its Subsidiaries') officers,
directors or stockholders or any affiliate of any such officer, director or
stockholder that is required to be described in and is not described in the
Registration Statements and the Prospectus;
(xxx) neither the Company, nor any Subsidiary, nor any
officer, director, employee, agent or other person acting on behalf of the
Company or any Subsidiary has, directly or indirectly, given or agreed to give
any money, property or similar benefit or consideration to any customer or
supplier (including any employee or agent of any customer or supplier) or
official or employee of any agency or instrumentality of any government (foreign
or domestic) or political party or candidate for office (foreign or domestic) or
any other person who was, is or in the future may be in a position to affect the
general affairs, properties, condition (financial or otherwise), results of
operations, stockholders' equity, business or prospects of the Company and/or
any Subsidiary or any actual or proposed business transaction of the Company
and/or any Subsidiary that could (A) subject the Company or any Subsidiary
to any liability (including, but not limited to, the payment of monetary
damages) or penalty in any civil, criminal or governmental action or proceeding
that would have a Material Adverse Effect, or (B) violates any law, rule or
regulation to which the Company or any Subsidiary is subject, which violation if
proven would have a Material Adverse Effect; and
(xxxi) each officer and director of the Company and each of
its Subsidiaries and all other persons listed on Schedule V hereto has executed
an agreement in a form reasonably satisfactory to the Representatives that such
person will not, for the period specified in such agreement (the "Lock-up
Period"), offer to sell, contract to sell, or otherwise sell, dispose of, loan,
pledge or grant any rights with respect to (collectively, a "Disposition") any
Common Shares, any options or warrants to purchase any Common Shares or any
securities convertible into or exchangeable for Common Shares (collectively,
"Securities") now owned or hereafter acquired directly by such person or with
respect to which such person has or hereafter acquires the power of disposition,
otherwise then as specified in such agreement or with the prior written consent
of the Representatives. The Company has provided to counsel for the Underwriters
a complete and accurate list of all securityholders of the Company and the
number and type of securities held by each securityholder. The Company has
provided to counsel for the Underwriters true, accurate and complete copies of
all of the agreements pursuant to which its officers, directors and shareholders
have agreed to such or similar restrictions (the "Lock-Up Agreements").
Any certificate signed by any officer of the Company or any Subsidiary
in such capacity and delivered to the Representatives or to counsel for the
Underwriters pursuant to this Agreement shall be deemed a representation and
warranty by the Company or the Subsidiary to the several Underwriters as to the
matters covered thereby.
[Supplemental representations and warranties may be requested in
connection with completion of the underwriters' due diligence.]
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<PAGE>
(b) Representations and Warranties of the Selling
Shareholders. Each of the Selling Shareholders represents and warrants to, and
agrees with, the several Underwriters that:
(i) each Selling Shareholder has duly executed and delivered
a power of attorney in the form heretofore delivered to the Representatives,
(the "Power of Attorney") appointing __________________ and ___________________
as such Selling Shareholder's attorneys-in-fact (the "Attorneys-in-Fact"). Such
Selling Shareholder also has duly executed and delivered or caused to be
executed and delivered on his, her or its behalf by the Attorneys-in-Fact, a
Custody Agreement (the "Custody Agreement"), in the form heretofore delivered to
the Representatives, with ___________________ as custodian (the "Custodian").
The Attorneys-in-Fact are authorized to execute, deliver and perform (the
Custody Agreement and) this Agreement on behalf of such Selling Shareholder,
including, without limitation, the authority to determine the purchase price to
be paid to each Selling Shareholder by the Underwriters as set forth in Section
2 of this Agreement. Certificates in negotiable form representing the Shares to
be sold by each Selling Shareholder hereunder have been deposited with the
Custodian pursuant to the Custody Agreement for the purpose of delivery pursuant
to this Agreement. Such Selling Shareholder agrees that the Shares represented
by the certificates on deposit with the Custodian are subject to the interests
of the Underwriters hereunder, that the arrangements made for such custody and
the appointment of the Attorneys-in-Fact are to that extent irrevocable, and
that the obligations of such Selling Shareholder hereunder shall not be
terminated, except as provided in this Agreement, by any act of such Selling
Shareholder, by operation of law or otherwise, whether by the dissolution,
reorganization, death or incapacity of such Selling Shareholder or the
occurrence of any other event. If any such dissolution, reorganization, death,
incapacity or other such event should occur before the delivery of the Shares to
be sold by the affected Selling Shareholder hereunder, the certificates for such
Shares shall be delivered by the Custodian in accordance with the terms and
conditions of this Agreement, as if such dissolution, reorganization, death,
incapacity, or other event had not occurred, regardless of whether or not the
Custodian or Attorneys-in-Fact shall have received notice thereof;
(ii) such Selling Shareholder has all requisite right, power
and authority to enter into this Agreement, the Custody Agreement and the Power
of Attorney and to sell, transfer and deliver the Shares to be sold by such
Selling Shareholder hereunder, and this Agreement, the Custody Agreement and the
Power of Attorney have been duly authorized, executed and delivered by such
Selling Shareholder and constitute the legal, valid and binding obligations of
such Selling Shareholder enforceable in accordance with their respective terms;
(iii) the execution, delivery and performance of this
Agreement, and the consummation of the transactions contemplated hereby and by
the Prospectus, the Custody Agreement and the Power of Attorney do not and shall
not, with or without the giving of notice or lapse of time or both, (A)
conflict with any term or provision of such Selling Shareholder's charter,
bylaws or other organic or governing documents, if applicable, (B) conflict with
or result in a breach or a violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage or other agreement or
instrument to
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<PAGE>
which such Selling Shareholder is a party or by which such Selling Shareholder
or any of his, her or its Shares is bound, or (C) violate any existing,
applicable law, rule, regulation, judgment, order or decree of any government,
governmental instrumentality or court, domestic or foreign, having jurisdiction
over such Selling Shareholder or any of his, her or its Shares;
(iv) all authorizations, approvals and consents necessary
for the valid execution and delivery by such Selling Shareholder of the Power of
Attorney, the execution and delivery by or on behalf of such Selling Shareholder
of the Custody Agreement and this Agreement, and the sale and delivery of the
Shares to be sold by such Selling Shareholder hereunder (other than, at the time
of the execution hereof, the issuance of the order of the Commission declaring
the Registration Statement effective and such authorizations, approvals or
consents as may be necessary under the state securities or Blue Sky laws and the
Bylaws, rules and pronouncements of the NASD), have been obtained and are in
full force and effect;
(v) such Selling Shareholder now is, and on the Closing
Date and any Option Closing Date will be, the lawful owner of the Shares to be
sold by such Selling Shareholder pursuant to this Agreement. On the Closing Date
and any option Closing Date, such Selling Shareholder will have good and
marketable title to such Shares, free and clear of all liens, encumbrances,
security interests or other restrictions (other than those created under the
Custody Agreement). Upon proper delivery of, and payment for, such Shares as
provided herein, the Underwriters will acquire good and marketable title
thereto, free and clear of all liens, encumbrances, security interests and other
restrictions and defects whatsoever;
(vi) to the knowledge of such Selling Shareholder, the
representations and warranties of the Company contained in Section l(a) hereof
are true and correct. Such Selling Shareholder has examined the Primary
Registration Statement and the Prospectus and has no knowledge of any fact,
condition or information not disclosed therein that has had or could reasonably
be expected to have a Material Adverse Effect. To the knowledge of such Selling
Shareholder, neither the Primary Registration Statement nor the Prospectus
contains any untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading.
Such Selling Shareholder is not prompted to sell the Shares to be sold by such
Selling Shareholder hereunder by any information concerning the Company or the
Subsidiary that is not set forth in the Prospectus;
(vii) such Selling Shareholder has examined the Primary
Registration Statement and the Prospectus and the information relating to such
Selling Shareholder set forth therein and, as to such information, neither the
Primary Registration Statement nor the Prospectus contains any untrue statement
of a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(viii) such Selling Shareholder has not incurred any
liability for any finder's fee or similar payment in connection with the sale of
such Selling Shareholder's Shares hereunder; and
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(ix) such Selling Shareholder has not distributed and will
not distribute any offering material in connection with the offering and sale of
the Shares other than the Registration Statements, a Preliminary Prospectus, the
Prospectus and other material, if any, permitted by the Act and the Regulations.
Neither such Selling Shareholder nor any affiliate of such Selling Shareholder
has taken or shall take any action designed, or that might be reasonably
expected, to cause or result in stabilization or manipulation of the price of
the Shares.
2. Purchase and Sale of Firm Shares. On the basis of the
representations, warranties, covenants and agreements contained herein, and
subject to the terms and conditions set forth herein, the Company shall sell
3,000,000 of the Firm Shares, and each Selling Shareholder, severally and not
jointly, shall sell the number of Firm Shares set forth opposite his name in
Table 1 of Schedule II hereto, to the several Underwriters, and each of the
Underwriters, severally and not jointly, shall purchase the number of Firm
Shares set forth opposite its name in Schedule I hereto. The purchase price of
the Firm Shares hereunder shall be the Offering Price less the Underwriting
Discounts and Commissions shown on the cover page of the Prospectus. Each
Underwriter shall be obligated to purchase from the Company, and from each
Selling Shareholder, that number of Firm Shares that represents the same
proportion of the number of Firm Shares to be sold by the Company, and by each
Selling Shareholder, as the number of Firm Shares set forth opposite the name of
such Underwriter in Schedule I hereto represents of the total number of Firm
Shares to be purchased by all of the Underwriters pursuant to this Agreement.
The respective purchase obligations of the Underwriters with respect to the Firm
Shares shall be rounded among the Underwriters to avoid fractional shares, as
the Representatives may determine. In making this Agreement, each Underwriter is
contracting severally and not jointly, and except as provided in Sections 4 and
11 hereof, the agreement of each Underwriter is to purchase only that number of
shares specified with respect to that Underwriter in Schedule I hereto. The
several Underwriters intend to offer the Shares to the public as set forth in
the Prospectus; provided, however, that no Shares registered pursuant to the
Rule 462(b) Registration Statement, if any, will be offered prior to the filing
of such registration statement with the SEC. After the initial public offering,
the several Underwriters may, in their discretion, vary the public offering
price.
3. Payment and Delivery.
(a) Delivery of and payment for the Firm Shares shall be made at
the offices of the Janney Montgomery Scott Inc., 1801 Market Street,
Philadelphia, Pennsylvania at 10:00 a.m., Philadelphia, Pennsylvania time (i) on
the third full business day following the first day that the Firm Shares are
traded, (ii) if this Agreement is executed and delivered after 4:30 p.m.,
Philadelphia, Pennsylvania time, the fourth full business day following the day
this Agreement is executed and delivered, or (iii) at such other time and date
not later than seven full business days following the first day the Firm Shares
are traded as the Representatives and the Company may determine (or at such time
and date to which delivery and payment shall have been postponed pursuant to
Section 11 hereof). Such date and time of delivery and payment are referred to
collectively herein as the "Closing Date." Notwithstanding the foregoing, if the
Company has not made available to the Representatives copies of the Prospectus
in the quantities and within the time provided for in Section 5(a)(vii) hereof,
the
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Representatives may, in their sole discretion, postpone the Closing Date until
no later than two full business days following delivery of such copies of the
Prospectus to the Representatives.
(b) On the Closing Date, the Company and the Selling Shareholders
shall deliver or cause to be delivered certificates representing the Firm Shares
to the Representatives for the account of each Underwriter against payment to or
upon the order of the Company (with respect to the Firm Shares sold by it) and
the Custodian (with respect to the Firm Shares sold by the Selling Shareholders)
of the purchase price (i) by certified or official bank check or checks payable
in New York Clearing House (next-day) funds, or (ii) in immediately available
funds wired to such accounts as the Company and/or the Custodian may specify
(with all costs and expenses incurred by the Underwriters in connection with
such settlement in immediately available funds, including, but not limited to,
interest or cost of funds expense, to be borne by the Company and/or the Selling
Shareholders, as the case may be). Time is of the essence, and delivery at the
time and place specified pursuant to this Agreement is a further condition of
each Underwriter's obligation hereunder.
(c) The certificates representing the Firm Shares to be sold and
delivered will be in such denominations and registered in such names as the
Representatives request not less than two full business days prior to the
Closing Date, and will be made available to the Representatives for inspection,
checking and packaging at the Philadelphia correspondent office of the Company's
transfer agent not less than one full business day prior to the Closing Date. If
the Representatives so elect, delivery of the Firm Shares may be made by credit
through full fast transfer to the accounts at The Depository Trust Company
designated by the Representatives.
(d) The Company and the Selling Shareholders shall not be
obligated to deliver any Firm Shares to be delivered on the Closing Date, except
upon payment for all the Firm Shares to be purchased on such date.
4. Option to Purchase Optional Shares.
(a) For the purposes of covering any over-allotments in
connection with the distribution and sale of the Firm Shares as
contemplated by the Prospectus, subject to the terms and conditions herein set
forth, the several Underwriters are hereby granted an option by the Company and
the Selling Shareholders to purchase all or any part of the Optional Shares (the
"Over-allotment Option"). The purchase price to be paid for the Optional Shares
shall be the Offering Price less the Underwriting Discounts and Commissions
shown on the cover page of the Prospectus. The Over-allotment Option granted
hereby may be exercised by the Representatives on behalf of the several
Underwriters as to all or any part of the Optional Shares at any time and from
time to time within 30 days after the date of the Prospectus. No Underwriter
shall be under any obligation to purchase any Optional Shares prior to an
exercise of the Over-allotment Option.
(b) The Over-allotment Option granted hereby may be exercised by
the Representatives on behalf of the several Underwriters by giving notice to
the Company and
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the Selling Shareholders by a letter delivered by hand or sent by registered or
certified mail, postage prepaid, or by courier, telex, telegraph, telegram or
facsimile (such notice to be effective when received), addressed as provided in
Section 13 hereof, setting forth the number of Optional Shares to be purchased,
the date and time for delivery of, and payment for, such Optional Shares and
stating that the Optional Shares referred to therein are to be used for the
purpose of covering over-allotments in connection with the distribution and sale
of the Firm Shares. If such notice is given at least two full business days
prior to the Closing Date, the date set forth therein for such delivery and
payment shall be the Closing Date. If such notice is given less than two full
business days prior to the Closing Date, the date set forth therein for such
delivery and payment shall be a date selected by the Representatives that is not
more than three full business days after the date the notice is effective. The
date and time set forth in such a notice is referred to herein as an "Option
Closing Date," and a closing held pursuant to such a notice is referred to
herein as an "Option Closing." Upon each exercise of the Over-allotment Option,
and on the basis of the representations, warranties, covenants and agreements
herein contained, and subject to the terms and conditions herein set forth, the
several Underwriters shall become severally, but not jointly, obligated to
purchase from the Selling Shareholders and the Company the number of Optional
Shares specified in each notice of exercise of the Over-allotment Option
(allocated among the several Underwriters in accordance with Section 4(c)
hereof).
(c) To the extent any Optional Shares are purchased, then the
Underwriters shall purchase all the Optional Shares of the Selling Shareholders,
as reflected in Table 2 of Schedule II hereto, before they purchase any Optional
Shares of the Company. Further, the Underwriters shall purchase all the Optional
Shares of the Selling Shareholders listed in Section A of Table 2 of Schedule II
hereto before they purchase any Optional Shares from the Selling Shareholders
listed in Section B of Table 2 of Schedule II hereto. To the extent the number
of Optional Shares to be purchased by the Underwriters at any Option Closing
accounts for some but not all of the Optional Shares of the Selling Shareholders
listed in either Section A or Section B of Table 2 of Schedule II hereto, then
the Underwriters shall purchase Optional Shares from such group of Selling
Shareholders prorata in proportion to the amounts set forth opposite their names
in the relevant section of Table 2 of Schedule II hereto. At each Option
Closing, the Selling Shareholders will be obligated, severally and not jointly,
to sell their Optional Shares to the Underwriters in accordance with the
foregoing sentences. Subject to the foregoing, at each Option Closing, each
Underwriter shall be obligated, severally and not jointly, to purchase from each
Selling Shareholder, and from the Company, that number of Optional Shares that
represents the same proportion of the number of Optional Shares to be sold by
each Selling Shareholder, and by the Company, as the number of Firm Shares set
forth opposite the name of such Underwriter in Schedule I hereto represents of
the total number of Firm Shares to be purchased by all of the Underwriters
pursuant to this Agreement. Notwithstanding the foregoing, the number of
Optional Shares purchased and sold pursuant to each exercise of the
Over-allotment Option shall be subject to such adjustment as the Representatives
may approve to eliminate fractional shares and shall be subject to the
provisions for the allocation of Optional Shares purchased for the purpose
of covering over-allotments set forth in the agreement entered into by and among
the Underwriters in connection herewith (the "Agreement Among Underwriters").
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<PAGE>
(d) Delivery of and payment for the Optional Shares to be
purchased by the several Underwriters pursuant to any exercise of the
Over-allotment Option shall be made at the offices of Janney Montgomery Scott
Inc., 1801 Market Street, Philadelphia, Pennsylvania, or such other place as
shall be agreed upon by the Company and the Representatives at 10:00 a.m.,
Philadelphia, Pennsylvania time on the Option Closing Date set forth in the
notice of such exercise. On such Option Closing Date, the Selling Shareholders
(who are obligated to sell Optional Shares pursuant to Section 4(c) hereof) and
the Company, if applicable, shall deliver or cause to be delivered certificates
representing the Optional Shares to the Representatives for the account of each
Underwriter against payment to or upon the order of the Custodian (with respect
to Optional Shares sold by Selling Shareholders) and the Company (with respect
to Optional Shares sold by it, if any), (i) by certified or official bank check
or checks payable in New York Clearing House (next-day) funds, or (ii) in
immediately available funds wired to such accounts as the Custodian and the
Company may specify (with all costs and expenses incurred by the Underwriters in
connection with such settlement in immediately available funds, including, but
not limited to, interest or cost of funds expense, to be borne by the Selling
Shareholders and the Company). Time shall be of the essence, and delivery at the
time and place specified pursuant to this Agreement is a further condition of
the obligation of each Underwriter hereunder.
(e) The certificates representing the Optional Shares to be
issued and delivered will be in such denominations and registered in such names
as the Representatives request not less than two full business days prior to the
Option Closing Date, and will be made available to the Representatives for
inspection, checking and packaging at the Philadelphia correspondent office of
the Company's transfer agent not less than one full business day prior to the
Option Closing Date. If the Representatives so elect, delivery of the Option
Shares may be made by credit through full fast transfer to the accounts at The
Depository Trust Company designated by the Representatives.
5. Certain Covenants and Agreements.
(a) Certain Covenants and Agreements of the Company. The Company
covenants and agrees with the several Underwriters as follows:
(i) if the Rule 462(b) Registration Statement has not been
filed at the time this Agreement is executed and delivered by the parties
hereto, the Company will use its best efforts to cause such registration
statement to be filed and become effective as promptly as possible;
(ii) if the Company omitted information from the Primary
Registration Statement at the time it was declared effective in reliance upon
Rule 430A of the Regulations, the Company will timely file the Prospectus
pursuant to and in compliance with Rule 424(b)(1) or (4) and Rule 430A(a)(3) of
the Regulations and will advise the Representatives of the time and manner of
such filing; provided, however, that if the Representatives shall agree to the
utilization of Rule 434 of the Regulations, the Company will timely file
pursuant to and in compliance with Rule 424(b)(7) and Rule 430A(a)(3) of the
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Regulations the information required to be included in the Term Sheet, and will
advise the Representatives of the time and manner of such filing;
(iii) if for any reason the filing of a form of Prospectus
is required under Rule 424(b)(3) of the Regulations, the Company will timely
file such Prospectus pursuant to and in compliance with such Rule and will
advise the Representatives of the time and manner of such filing;
(iv) the Company will not file or publish any Rule 462(b)
Registration Statement or any amendment or supplement to the Registration
Statement(s), Preliminary Prospectus or Prospectus at any time before the
completion (in the opinion of the Underwriters' counsel) of the distribution of
the Shares by the Underwriters that is not (A) in compliance with the
Regulations and (B) approved by the Representatives (such approval not to be
unreasonably withheld or delayed);
(v) the Company will advise the Representatives immediately,
and confirm such advice in writing, (A) when any Rule 462(b) Registration
Statement or post-effective amendment to the Registration Statements is filed
with the SEC, (B) of the receipt of any comments from the SEC concerning the
Registration Statements, (C) when any post-effective amendment to the
Registration Statements becomes effective, or when any supplement to the
Prospectus or any amended Prospectus has been filed, (D) of any request of the
SEC for amendment or supplementation of the Registration Statements or
Prospectus or for additional information, (E) during the period when the
Prospectus is required to be delivered under the Act and Regulations, of the
happening of any event as a result of which the Registration Statements would
include an untrue statement of a material fact or omit to state a material fact
required therein or necessary to make the statements therein not misleading, or
as a result of which the Prospectus, as then amended or supplemented, would
include any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, (F) during the period
noted in clause (E) above, of the need to amend the Registration Statements or
supplement the Prospectus to comply with the Act, (G) of the issuance by the SEC
of any stop order suspending the effectiveness of the Registration Statements or
of any order preventing or suspending the use of any Preliminary Prospectus or
the Prospectus, and (H) of the suspension of the qualification of any of the
Shares for offering or sale in any jurisdiction in which the Underwriters intend
to make such offers or sales, or of the initiation or threatening of any
proceedings for any of such purposes known to the Company. The Company will use
its best efforts to prevent the issuance of any such stop order or of any order
preventing or suspending such use, and if any such order is issued, to obtain as
soon as possible the lifting thereof;
(vi) in case of any event (occurring at any time within the
period during which, in the opinion of Saul, Ewing, Remick & Saul, counsel for
the Underwriters ("Underwriters' Counsel"), a prospectus is required to be
delivered under the Act and Regulations), as a result of which any Preliminary
Prospectus or the Prospectus, as then amended or supplemented, would contain, in
the opinion of Underwriters' Counsel, an untrue statement of a material fact, or
omit to state any material fact necessary in order to make the
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<PAGE>
statements therein, in light of the circumstances under which they were made,
not misleading, or, if it is necessary at any time to amend any Preliminary
Prospectus or the Prospectus to comply with the Act and Regulations or any
applicable securities or Blue Sky laws, the Company promptly will prepare and
file with the SEC, and any applicable state securities commission, an amendment,
supplement or document that will correct such statement or omission or effect
such compliance and will furnish to the several Underwriters such number of
copies of such amendments, supplements or documents (in form and substance
satisfactory to the Representatives and counsel for the Underwriters) as the
Representatives may reasonably request. For purposes of this Section 5(a)(vi),
the Company will provide such information to the Representatives, the
Underwriters' Counsel and counsel to the Company as shall be necessary to enable
such persons to consult with the Company with respect to the need to amend or
supplement the Registration Statements, Preliminary Prospectus or Prospectus or
file any document, and shall furnish to the Representatives and the
Underwriters' Counsel such further information as each may from time to time
reasonably request;
(vii) from time to time during the nine-month period
following the effective date of the Primary Registration Statement, the
Company will, without charge, deliver to the Representatives, as soon as such
documents are available (but in the case of the Prospectus, including the Term
Sheet, if any, no later than 10:00 a.m., Philadelphia, Pennsylvania time, on the
first full business day following the execution and delivery of this Agreement,
and in the case of any amended or supplemented Prospectus, no later than 10:00
a.m., Philadelphia, Pennsylvania time, on the first full business day following
the date of such amendment or supplement), copies of the following documents in
such quantities as the Representatives shall request (ten copies to be furnished
automatically in the absence of or pending a quantity specification by the
Representatives): (A) the Registration Statements, at least three of each of
which will be manually executed and will include all exhibits, and all
amendments and supplements thereto; (B) each Preliminary Prospectus; (C) if Rule
434 of the Regulations is utilized with the consent of the Representatives, the
Preliminary Prospectus updated in all respects through the date specified by the
Representatives; and (D) the Prospectus and any amendment or supplement thereto,
including any prospectus prepared to comply with Section 10(a)(3) of the Act.
The Company hereby consents to the use of such copies of the Preliminary
Prospectus and the Prospectus for purposes permitted by the Act, the Regulations
and the securities or Blue Sky laws of the states in which the Shares are
offered by the several Underwriters and by all dealers to whom Shares may be
sold, both in connection with the offering and sale of the Shares and for such
period of time thereafter as the Prospectus is required by the Act and
Regulations to be delivered in connection with sales by any Underwriter or
dealer;
(viii) if any Underwriter is required to deliver a
Prospectus nine months or more after the effective date of the Registration
Statements in connection with the sale of the Shares, the Company will prepare
promptly upon request, but at the expense of such Underwriter, such amendment or
amendments to the Registration Statements and such Prospectus or Prospectuses as
may be necessary to permit compliance with the requirements of Section 10(a)(3)
of the Act;
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<PAGE>
(ix) the Company will comply with the Act, the Regulations,
the Exchange Act and the rules and regulations thereunder so as to permit the
continuance of sales of, and dealings in, the Shares for as long as may be
necessary to complete the distribution of the Shares as contemplated hereby;
(x) the Company will furnish such information and pay such
filing fees and other expenses as may be required, and otherwise cooperate in
the registration or qualification of the Shares, or exemption therefrom, for
offering and sale by the several Underwriters and by dealers under the
securities or Blue Sky laws of such jurisdictions in which the Representatives
determine to offer the Shares, after consultation with the Company, and will
file such consents to service of process or other documents necessary or
appropriate in order to effect such registration or qualification; provided,
however, that no such qualification shall be required in any jurisdiction where,
solely as a result thereof, the Company would be subject to taxation or
qualification as a foreign corporation doing business in such jurisdiction where
it is not now so qualified or to take any action that would subject it to
service of process in suits, other than those arising out of the offering or
sale of the Shares, in any jurisdiction where it is not now so subject. The
Company will, from time to time, prepare and file such statements and reports as
are or may be required to continue such qualification in effect for so long a
period as is required under the laws of such jurisdictions for such offering and
sale;
(xi) if at any time during the 90-day period after the
Primary Registration Statement becomes effective, any rumor, publication or
event relating to or affecting the Company shall occur as a result of which in
the opinion of the Representatives the market price of the Common Shares has
been or is likely to be materially affected (regardless of whether such rumor,
publication or event necessitates a supplement to or amendment of the
Prospectus), the Company will, after written notice from you advising the
Company to the effects set forth above, forthwith prepare, consult with the
Representatives concerning the substance of, and disseminate a press release or
other public statement, reasonably satisfactory to the Representatives,
responding to or commenting on such rumor, publication or event;
(xii) the Company will make generally available to its
security holders, as soon as practicable, but not later than 45 days after the
end of the period covered thereby, an earnings statement of the Company (which
need not be audited unless required by the Act or the Regulations) that shall
comply with Section 11(a) of the Act and the Regulations (including, at the
option of the Company, Rule 158) and cover a period of at least 12 consecutive
months beginning not later than the first day of the Company's fiscal quarter
next following the Effective Date;
(xiii) for a period of five years from the Effective Date,
the Company will deliver to the Representatives: (A) a copy of each report or
document, including, without limitation, reports on Forms 8-K, 10-C, 10-K and
10-Q (or such similar forms as may be designated by the SEC), registration
statements and any exhibits thereto, filed with or furnished to the SEC or any
securities exchange or the Nasdaq Stock Market or the NASD, on the date each
such report or document is so filed or furnished; (B) as soon as practicable,
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copies of any reports or communications (financial or other) of the Company
mailed to its security holders; and (C) every material press release in respect
of the Company or its affairs that is released or prepared by the Company.
During such five-year period, the foregoing financial statements shall be on a
consolidated basis to the extent that the accounts of the Company and its
subsidiaries are consolidated, and shall be accompanied by similar financial
statements by any significant subsidiary that is not so consolidated.
(xiv) for a period of three years from the Effective Date,
the Company will deliver to the Representatives, subject to execution of an
appropriate confidentiality agreement, such additional information concerning
the business and financial condition of the Company as the Representatives may
from time to time reasonably request in writing, and which can be prepared or
obtained by the Company without unreasonable effort or expense;
(xv) during the course of the distribution of the Shares,
the Company will not take, directly or indirectly, any action designed to, or
that could reasonably be expected to, cause or result in stabilization or
manipulation of the price of the Common Shares;
(xvi) the Company will not engage in any transactions with
affiliates (as defined in the Regulations) without the prior approval of a
majority of the disinterested members of its Board of Directors;
(xvii) the Company will use all reasonable efforts to
maintain the inclusion of the Common Shares (including, without limitation, the
Shares) for quotation on the Nasdaq Stock Market;
(xviii) the Company shall, at its sole cost and expense,
supply and deliver to the Representatives and the Underwriters' Counsel (in the
form they require), within a reasonable period from the Closing Date, six
transaction binders, each of which shall include the Registration Statements, as
amended or supplemented, all exhibits to the Registration Statements, the
Prospectus, as amended or supplemented, the Preliminary Blue Sky Memorandum and
any supplement thereto, all underwriting and closing documents and all other
correspondence, filings and applications with the SEC, the NASD and the Nasdaq
Stock Market;
(xix) the Company will use the net proceeds from the sale of
the Shares to be sold by it hereunder substantially in accordance with the
description set forth under the caption "Use of Proceeds" in the Prospectus and
shall file such reports with the SEC with respect to the sale of such Shares and
the application of the proceeds therefrom as may be required under the
Regulations, including, but not limited to, Rule 463;
(xx) the Company will maintain a transfer agent and, if
necessary under the jurisdiction of incorporation of the Company, a registrar
(which may be the same entity as the transfer agent) for its Common Shares;
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(xxi) the Company will take such steps as shall be necessary
to ensure that neither it nor any subsidiary shall become an "investment
company" within the meaning of such term under the Investment Company Act of
1940, as amended, and the rules and regulations of the SEC thereunder;
(xxii) during the Lock-Up Period, the Company will not,
without the prior written consent of the Representatives, effect the Disposition
of, directly or indirectly, any Securities other than the sale of the Firm
Shares and the Optional Shares hereunder and the Company's issuance of options
or Common Shares under warrants or other rights to purchase outstanding as of
the date hereof and expressly described in the Prospectus and the Company's
stock option and stock purchase plans that are either presently authorized (and
expressly described in the Prospectus) or hereafter approved by the Shareholders
of the Company (the "Stock Plans"); and
(xxiii) the Company will exercise best efforts to consummate
its acquisition of all of the outstanding shares of capital stock of Judge
Imaging Systems, Inc., a publicly held Delaware corporation (the "JIS
Acquisition"), which acquisition is the subject of a registration statement on
Form S-4 (File No. 333-13753) filed with the SEC on October 9, 1996 on or before
the Closing Date.
[Supplemental covenants may be requested in connection with
the completion of the Underwriters' due diligence]
(b) Certain Covenants and Agreements of the Selling Shareholders.
Each Selling Shareholder covenants and agrees with the several Underwriters as
follows:
(i) during the course of the distribution of the Shares,
such Selling Shareholder shall not take, directly or indirectly, any action
designed to, or that could reasonably be expected to, cause or result in
stabilization or manipulation of the market price of the Shares;
(ii) during the Lock-Up Period, such Selling Shareholder
will not, without the prior written consent of the Representatives, effect the
Disposition of, directly or indirectly, any Securities other than such Selling
Shareholder's Firm Shares and Optional Shares hereunder; and
(iii) such Selling Shareholder will deliver to the
Representatives prior to the Closing Date a properly completed and executed
United States Treasury Department Form W-8 (if the Selling Shareholder is a
non-United States person) or Form W-9 (if the Selling Shareholder is a United
States person).
6. Payment of Fees and Expenses.
(a) Whether or not the transactions contemplated by this
Agreement are consummated and regardless of the reason this Agreement is
terminated, the Company will pay or cause to be paid, and bear or cause to be
borne, all costs and expenses incident to the
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performance of the obligations of the Company and the Selling Shareholders under
this Agreement, including:
(i) the fees and expenses of the accountants and counsel for
the Company incurred in the preparation of the Registration Statements and any
post-effective amendments thereto (including financial statements and exhibits),
Preliminary Prospectuses and the Prospectus and any amendments or supplements
thereto;
(ii) printing and mailing expenses associated with the
Registration Statements and any post-effective amendments thereto, Preliminary
Prospectus, the Prospectus, this Agreement, the Agreement Among Underwriters,
the Underwriters' Questionnaire submitted to each of the Underwriters by the
Representatives in connection herewith, the Power of Attorney executed by each
of the Underwriters in favor of the Representatives in connection herewith, the
Selected Dealer Agreement and related documents and the preliminary Blue Sky
memorandum (collectively with any supplement thereto, the "Blue Sky
Memorandum");
(iii) the costs (other than fees and expenses of the
Underwriters' Counsel, except such fees incurred in connection with Blue Sky and
NASD filings or exemptions as provided herein) incident to the authentication,
insurance, sale and delivery of the Shares to the Underwriters;
(iv) the fees, expenses and all other costs of qualifying
the Shares for sale under the securities or Blue Sky laws of those states in
which the Shares are to be offered or sold, including, without limitation, the
reasonable fees and expenses (up to $20,000) of Underwriters' Counsel and such
local counsel as may have been reasonably required and retained for such
purpose;
(v) the fees, expenses and other costs of, or incident to,
securing any review or approvals by or from the NASD, including the reasonable
fees and expenses of the Underwriters' Counsel;
(vi) the filing fees of the SEC;
(vii) the cost of furnishing to the Underwriters copies of
the Registration Statements, Preliminary Prospectuses and Prospectuses as herein
provided;
(viii) the Company's travel expenses in connection with
meetings with the brokerage community and institutional investors;
(ix) the costs and expenses associated with settlement in
same day funds (including, but not limited to, interest or cost of funds
expenses), if desired by the Company;
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(x) any fees or costs payable to the Nasdaq Stock Market as
a result of the offering;
(xi) the cost of printing certificates for the Shares;
(xii) the cost and charges of any transfer agent;
(xiii) the costs (up to $25,000) of advertising the
offering, including, without limitation, with respect to the placement of
"tombstone" advertisements in publications selected by the Representatives;
(xiv) all taxes, if any, on the issuance, delivery and
transfer of the Shares sold by the Company; and
(xv) all other costs and expenses reasonably incident to the
performance of the Company's and the Selling Shareholders' obligations hereunder
that are not otherwise specifically provided for in this Section 6(a); provided,
however, that, except as specifically set forth in Section 6(c) hereof, (A) the
Underwriters shall be responsible for their out-of-pocket expenses, including
those associated with meetings with the brokerage community and institutional
investors, other than the Company's travel expenses, and the fees and expenses
of their counsel for other than Blue Sky and NASD matters, and (B) the Selling
Shareholders shall be responsible for any transfer or income taxes assessed with
respect to the Shares sold by the Selling Shareholders and any fees and expenses
of the Selling Shareholders' counsel and such other expenses as are agreed to by
the Company and the Selling Shareholders or as may be required by law or
regulation.
(b) The Company shall pay as due any state registration,
qualification and filing fees and any accountable out-of-pocket disbursements in
connection with such registration, qualification or filing in the states in
which the Representatives determine to offer or sell the Shares.
(c) If the Underwriters are willing to proceed with the offering,
and the transactions contemplated by this Agreement are not consummated because
the Company or the Selling Shareholders elect not to proceed with the offering
for any reason or if the Representatives terminate this Agreement pursuant to
Section 10(b) hereof, then the Company will reimburse the Representatives for
their out-of-pocket expenses, including, without limitation, fees and
disbursements of Underwriters' Counsel, incurred in connection with
investigating, marketing and proposing to market the Shares or in contemplation
of performing their obligations hereunder, in an amount not to exceed $150,000.
7. Conditions of Underwriters' Obligations. The obligation of each
Underwriter to purchase and pay for the Firm Shares that it has agreed to
purchase hereunder on the Closing Date, and to purchase and pay for any Optional
Shares as to which it exercises its right to purchase under Section 4 on an
Option Closing Date, is subject at the date hereof, the Closing Date and any
option Closing Date, to the continuing accuracy and fulfillment of the
representations and warranties of the Company and the Selling Shareholders, to
the
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performance by the Company and the Selling Shareholders of their covenants and
obligations hereunder, and to the following additional conditions:
(a) if required by the Regulations, the Prospectus shall have
been filed with the SEC pursuant to Rule 424(b) of the Regulations within the
applicable time period prescribed for such filing by the Regulations. On or
prior to the Closing Date or any Option Closing Date, as the case may be, no
stop order or other order preventing or suspending the effectiveness of the
Primary Registration Statement or the Rule 462(b) Registration Statement, if
any, or the sale of any of the Shares shall have been issued under the Act or
any state securities law, and no proceedings for that purpose shall have been
initiated or shall be pending or, to the Representatives' knowledge or the
knowledge of the Company, shall be contemplated by the SEC or by any authority
in any jurisdiction designated by the Representatives pursuant to Section
[5(a)(x)] hereof. Any request on the part of the SEC for additional information
shall have been complied with to the reasonable satisfaction of Underwriters'
Counsel;
(b) all corporate proceedings and other matters incident to the
authorization, form and validity of this Agreement, the Shares and the form of
the Registration Statements and the Prospectus, as amended and supplemented, and
all other legal matters relating to this Agreement and the transactions
contemplated hereby shall be satisfactory in all material respects to
Underwriters' Counsel. The Company and the Selling Shareholders shall have
furnished to such counsel all documents and information that they may have
reasonably requested to enable them to pass upon such matters. The
Representatives shall have received from the Underwriters' Counsel an opinion,
dated as of the Closing Date and any Option Closing Date, as the case may be,
and addressed to the Representatives individually and as representatives of the
several Underwriters, which opinion shall be satisfactory in all respects to the
Representatives;
(c) the NASD shall have indicated it has no objection to the
underwriting arrangements pertaining to the sale of any Shares;
(d) the Representatives shall have received a copy of an executed
Lock-up Agreement from each person described on Schedule IV hereto;
(e) the Representatives shall have received at or prior to the
Closing Date from the Underwriters' counsel a memorandum or summary, in form and
substance satisfactory to the Representatives, with respect to the qualification
for offering and sale by the Underwriters of the Shares under the securities or
Blue Sky laws of such jurisdictions designated by the Representatives pursuant
to Section [5(a)(x)] hereof;
(f) on the Closing Date and any Option closing Date, there shall
have been delivered to the Representatives signed opinions of Drinker, Biddle &
Reath, counsel for the Company, dated as of each such date and addressed to the
Representatives individually and as representatives of the several Underwriters
to the effect set forth in Exhibit "A" hereto or to such effect as is otherwise
reasonably satisfactory to the Representatives;
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<PAGE>
(g) on the Closing Date and any option closing Date, there shall
have been delivered to the Representatives signed opinions of ______________,
counsel for the Selling Shareholders, dated as of each such date and addressed
to the Representatives individually and as representatives of the several
Underwriters to the effect set forth in Exhibit "B" hereto or to such effect as
is otherwise reasonably satisfactory to the Representatives;
(h) at the Closing Date and any Option Closing Date: (i) the
Registration Statements and any post-effective amendment thereto and the
Prospectus and any amendments or supplements thereto shall contain all
statements that are required to be stated therein in accordance with the Act and
the Regulations and in all material respects shall conform to the requirements
of the Act and the Regulations, and the Registration Statements and any
post-effective amendment thereto shall not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and the Prospectus,
as amended or supplemented, shall not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; (ii) since the respective dates as of which information is
given in the Registration Statements and any post-effective amendment thereto
and the Prospectus and any amendments or supplements thereto, except as
otherwise expressly stated therein, there shall have been no material adverse
change in the properties, condition (financial or otherwise), results of
operations, stockholders' equity, business or management of the Company and the
Subsidiary taken as a whole, from that set forth therein, whether or not arising
in the ordinary course of business; (iii) since the respective dates as of which
information is given in the Registration Statements and any post-effective
amendment thereto and the Prospectus or any amendment or supplement thereto,
there shall have been no event or transaction, contract or agreement entered
into by the Company or any Subsidiary, other than in the ordinary course of
business and as set forth in the Registration Statements or Prospectus, that has
not been, but would be required to be, set forth in the Registration Statements
or Prospectus; (iv) since the respective dates as of which information is given
in the Registration Statements and any post-effective amendment thereto and the
Prospectus and any amendments or supplements thereto, there shall have been no
material adverse change, loss, reduction, termination or non-renewal of any
contract to which the Company or any Subsidiary is a party; and (v) no action,
suit or proceeding at law or in equity shall be pending or threatened against
the Company or any Subsidiary that would be required to be set forth in the
Prospectus, other than as set forth therein, and no proceedings shall be pending
or threatened against or directly affecting the Company or any Subsidiary before
or by any federal, state or other commission, board or administrative agency
wherein an unfavorable decision, ruling or finding would have a Material Adverse
Effect other than as set forth in the Prospectus;
(i) the Representatives shall have received at the Closing Date
and any Option Closing Date certificates of the Chief Executive Officer and the
Chief Financial Officer of the Company dated as of the date of the Closing Date
or option Closing Date, as the case may be, and addressed to the
Representatives, individually and as representatives of the several
Underwriters, to the effect that (i) the signers of the certificate have read
this Agreement, and the representations and warranties of the Company in this
Agreement are
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true and correct in all material respects, as if made at and as of the Closing
Date or the Option Closing Date, as the case may be, and the Company has
complied in all material respects with all the agreements, fulfilled in all
material respects all the covenants and satisfied all the conditions on its part
to be performed, fulfilled or satisfied at or prior to the Closing Date or the
Option Closing Date, as the case may be, and (ii) the signers of the
certificate have examined the Registration Statement and the Prospectus and any
amendments or supplements thereto, and the conditions set forth in Section 7(h)
hereof have been satisfied;
(j) the Representatives shall have received at the Closing Date
and any Option Closing Date certificates of or on behalf of the Selling
Shareholders dated as of the date of the Closing Date or Option Closing Date, as
the case may be, and addressed to the Representatives, individually and as
representatives of the several Underwriters, to the effect that (i) the Selling
Shareholders have read this Agreement, and the representations and warranties of
the Selling Shareholders in this Agreement are true and correct in all material
respects, as if made at and as of the Closing Date or the Option Closing Date,
as the case may be, and (ii) the Selling Shareholders have examined the
Registration Statement and the Prospectus and any amendments or supplements
thereto, and the conditions set forth in Section 7(h) hereof have been satisfied
with respect to the Selling Shareholders;
(k) at the time this Agreement is executed and at the Closing
Date and any Option Closing Date, the Representatives shall have received a
letter addressed to the Representatives, individually and as representatives of
the several Underwriters, in form and substance satisfactory to the
Representatives in all respects (including, without limitation, the non-material
nature of the changes or decreases, if any, referred to in clause (iii) below)
from Rudolph, Palitz LLP dated as of the date of this Agreement, the Closing
Date or the Option Closing Date, as the case may be:
(i) confirming they are independent certified public
accountants within the meaning of the Act and the Regulations, and stating that
the section of the Primary Registration Statement under the caption "Experts" is
correct insofar as it relates to them;
(ii) stating that, in their opinion, the consolidated
financial statements, schedules and notes of the Company and the Subsidiary
audited by them and included in the Registration Statements comply in form in
all material respects with the applicable accounting requirements of the Act and
the Regulations;
(iii) stating that, on the basis of specified procedures,
which included the procedures specified by the American Institute of Certified
Public Accountants for a review of interim financial information, as described
in SAS No. 71, Interim Financial Information (with respect to the latest
unaudited consolidated financial statements of the Company included in the
Registration Statement), a reading of the latest available unaudited interim
consolidated financial statements of the Company (with an indication of the date
of the latest available unaudited interim financial statements), a reading of
the minutes of the meetings of the stockholders and the Boards of Directors of
the Company and the Subsidiaries, and audit and compensation committees of such
Boards, if any, and inquiries
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<PAGE>
to certain officers and other employees of the Company and the Subsidiaries
responsible for operational, financial and accounting matters and other
specified procedures and inquiries, nothing has come to their attention that
would cause them to believe that (A) the unaudited consolidated financial
statements of the Company and the Subsidiary included in the Registration
Statements, (1) do not comply in form and all material respects with the
applicable accounting requirements of the Act and the Regulations, or (2) should
be materially modified in order for such unaudited financial statements to be in
conformity with generally accepted accounting principles; (B) at a specified
date not more than five business days prior to the date of such letter, there
was any change in the capital stock or debt of the Company or any decrease in
net current assets, total assets or stockholders' equity of the Company as
compared with the amounts shown in the September 30, 1996 unaudited balance
sheet of the Company included the Registration Statements, or that for the
periods from October 1, 1996 to the date of the latest available unaudited
financial statements of the Company and to a specified date not more than five
days prior to the date of the letter, there were any decreases, as compared to
the corresponding periods in the prior year, in sales, operating income or total
or per share amounts of net income, except in all instances for changes,
decreases or increases that the Registration Statements disclose have occurred
or may occur and except for such other changes, decreases or increases which the
Representatives shall in their sole discretion accept; or (C) the unaudited pro
forma financial statements included in the Registration Statements do not comply
as to form in all material respects with the applicable accounting requirements
of Rule 11-02 of Regulation S-X under the Act and that the pro forma adjustments
have not been properly applied to the historical amounts in the compilation of
those statements; and
(iv) stating that they have compared specific dollar
amounts, numbers of shares and other numerical data and financial information
set forth in the Registration Statement that have been specified by the
Representatives prior to the date of this Agreement (to the extent that such
information is derived from the accounting records subject to the internal
control structure, policies and procedures of the Company's of the Subsidiary's
accounting system, or has been derived directly from such accounting records by
analysis or comparison or has been derived from other records and analyses
maintained or prepared by the Company or the Subsidiary) with the results
obtained from the application of readings, inquiries and other appropriate
procedures (which procedures do not constitute an audit in accordance with
generally accepted auditing standards) set forth in the letter, and found them
to be in agreement;
(l) the Representatives shall have received from Rudolph Palitz
LLP a letter addressed to the Company and made available to the Representatives
for the use of the Underwriters stating that their review of the Company's
system of internal accounting controls, to the extent they deem necessary in
establishing the scope of their audit of the Company's consolidated financial
statements as of June 30, 1996, did not disclose any weaknesses in internal
controls that they considered to be material weaknesses;
(m) there shall have been duly tendered to the Representatives
for the respective accounts of the Underwriters certificates representing all of
the Shares to be
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purchased by the Underwriters on the Closing Date or any Option Closing Date, as
the case may be;
(n) at the Closing Date and any Option Closing Date, the
Representatives shall have been furnished such additional documents, information
and certificates as they shall have reasonably requested;
(o) the issuance and sale of the Shares shall be legally
permitted under applicable Blue Sky or state securities laws so long as such
sales are made in accordance with the Blue Sky Memorandum;
(p) the Representatives shall have received copies of the
executed Custody Agreement and Power of Attorney provided for in Section 1(b)(i)
hereof for each Selling Shareholder, and such documents shall have been approved
in form and substance by the Underwriters' Counsel, such approval not to be
withheld unreasonably;
(q) the JIS Acquisition shall have been consummated or all
actions necessary to be taken and all documents necessary to be delivered (other
than the consummation of the public offering contemplated hereby) in order to
consummate fully the JIS Acquisition shall have been taken or delivered, such
that the only remaining condition to the full consummation of the JIS
Acquisition shall be consummation of the public offering of the Firm Shares as
contemplated hereby, and upon the consummation of such public offering the JIS
Acquisition will be fully consummated automatically; and
(r) all corporate and other proceedings and other matters
incident to the authorization, form and validity of this Agreement and the form
of the Registration Statements and Prospectus and all other legal matters
related to this Agreement and the transactions contemplated hereby shall be
satisfactory in all respects to Underwriters' Counsel. The Company and the
Selling Shareholders shall have furnished to such counsel all documents and
information that they shall have reasonably requested to enable them to pass
upon such matters.
[Additional closing conditions may be requested in connection with the
completion of the Underwriters' due diligence.]
All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are satisfactory in form and
substance to the Representatives and the Underwriters' Counsel. The Company and
the Selling Shareholders shall furnish the Representatives with such conformed
copies of such opinions, certificates, letters and other documents as they shall
reasonably request. If any condition to the Underwriters' obligations hereunder
to be fulfilled prior to or at the Closing Date or any Option Closing Date, as
the case may be, is not fulfilled, the Representatives may on behalf of the
several Underwriters, terminate this Agreement with respect to the Closing Date
or such Option Closing Date, as applicable, or, if they so elect, waive any such
conditions that have not been fulfilled or extend the time for their
fulfillment. Any such termination shall be without liability of the Underwriters
to the Company or the Selling Shareholders.
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8. Indemnification and Contribution.
(a) The Company and each Selling Shareholder, severally and not
jointly, shall indemnify and hold harmless each Underwriter, and each person, if
any, who controls each Underwriter within the meaning of the Act, against any
and all loss, liability, claim, damage and expense whatsoever, including, but
not limited to, any and all reasonable expenses incurred in investigating,
preparing or defending against any litigation, commenced or threatened, or any
claim whatsoever or in connection with any investigation or inquiry of, or
action or proceeding that may be brought against, the respective indemnified
parties, arising out of or based upon any breach of the Company's or such
Selling Shareholder's respective representations and warranties made in this
Agreement or any untrue statements or alleged untrue statements of material fact
contained in any Preliminary Prospectus, the Registration Statements or the
Prospectus, or any amendment or supplement thereto, any application or other
document (in this Section 8 collectively called "application") executed by the
Company and based upon written information furnished by or on behalf of the
Company filed in any jurisdiction in order to qualify all or any part of the
Shares under the securities laws thereof or filed with the SEC or the NASD, or
the omission or alleged omission therefrom of a material fact required to be
stated therein or necessary to make the statements therein not misleading;
provided, however, that the foregoing indemnity:
(i) shall not apply in respect of any statement or omission
made in reliance upon and in conformity with written information furnished to
the Company by any Underwriter through the Representatives expressly for use in
any Preliminary Prospectus, the Registration Statements or Prospectus, or any
amendment or supplement thereto, or in any application or in any communication
to the SEC, as the case may be; and
(ii) with respect to any Preliminary Prospectus, shall not
inure to the benefit of any Underwriter from whom the person asserting any such
losses, claims, damages, liabilities or expenses purchased the Shares if, at or
prior to the written confirmation of the sale of such Shares, a copy of an
amended Preliminary Prospectus or the Prospectus (or the Prospectus as amended
or supplemented) was delivered to such Underwriter, but was not sent, or
delivered to such person and the untrue statement or omission of a material fact
contained in such Preliminary Prospectus was corrected in the amended
Preliminary Prospectus or Prospectus (or the Prospectus as amended or
supplemented), unless such failure on the part of such Underwriter is the result
of noncompliance by the Company with Section 5(a)(vi) hereof.
The obligations of the Company and the Selling Shareholders under this
Section 8(a) will be in addition to any liability the Company and the Selling
Shareholders may otherwise have.
(b) Each Underwriter, severally and not jointly, shall indemnify
and hold harmless the Company, each of the directors of the Company, each of the
officers of the Company who shall have signed the Registration Statement, each
Selling Shareholder, and each other person, if any, who controls the Company or
a Selling Shareholder within the meaning of the Act to the same extent as the
foregoing indemnities from the Company and
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the Selling Shareholders to the several Underwriters, but only with respect to
any loss, liability, claim, damage or expense resulting from statements or
omissions, or alleged statements or omissions, if any, made in any Preliminary
Prospectus, the Registration Statements or Prospectus or any amendment or
supplement thereto, or any application in reliance upon, and in conformity with
written information furnished to the Company by any Underwriter through the
Representatives expressly for use in any Preliminary Prospectus, the
Registration Statements or Prospectus, or any amendment or supplement thereto,
or any application, as the case may be. The obligations of each Underwriter
under this Section 8(a) will be in addition to any liability such Underwriter
may otherwise have.
(c) If any action, inquiry, investigation or proceeding is
brought against any person in respect of which indemnification may be sought
pursuant to Section 8(a) or (b) hereof, such person (hereinafter called the
"indemnified party") shall, promptly after notification of, or receipt of
service of process for, such action, inquiry, investigation or proceeding,
notify in writing the party or parties against whom indemnification is to be
sought (hereinafter called the "indemnifying party") of the institution of such
action, inquiry, investigation or proceeding. The indemnifying party, upon the
request of the indemnified party, shall assume the defense of such action,
inquiry, investigation or proceeding, including, without limitation, the
employment of counsel (reasonably satisfactory to such indemnified party) and
payment of expenses. No indemnification provided for in this Section 8 shall be
available to any indemnified party who shall fail to give such notice if the
indemnifying party does not have knowledge of such action, inquiry,
investigation or proceeding, to the extent that such indemnifying party has been
materially prejudiced by the failure to give such notice, but the omission to so
notify the indemnifying party shall not relieve the indemnifying party otherwise
than under this Section 8. Such indemnified party or controlling person thereof
shall have the right to employ its or their own counsel in any such case, but
the fees and expenses of such counsel shall be at the expense of such
indemnified party unless the employment of such counsel shall have been
authorized in writing by the indemnifying party in connection with the defense
of such action. If such indemnified party or parties shall have been advised by
counsel that there may be a conflict between the positions of the indemnifying
party or parties and of the indemnified party or parties or that there may be
legal defenses available to such indemnified party or parties different from or
in addition to those available to the indemnifying party or parties, the
indemnified party or parties shall be entitled to select counsel to conduct the
defense to the extent determined by such counsel to be necessary to protect the
interests of the indemnified party or parties, and the reasonable fees and
expenses of such counsel shall be borne by the indemnifying party. Expenses
covered by the indemnification in this Section 8 shall be paid by the
indemnifying party as they are incurred by the indemnified party. Anything in
this Section 8 to the contrary notwithstanding, the indemnifying party shall not
be liable for any settlement of any such claim effected without its written
consent.
(d) Each Selling Shareholder's aggregate liability under this
Section 8 shall be limited to an amount equal to the net proceeds (before
deducting expenses) received by such Selling Shareholder from the sale of such
Selling Shareholder's Shares pursuant to this Agreement.
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(e) If the indemnification provided for in this Section 8 is
unavailable or insufficient to hold harmless an indemnified party under Section
8(a) or (b) hereof in respect of any losses, liabilities, claims, damages or
expenses (or actions, inquiries, investigations or proceedings in respect
thereof) referred to herein, except by reason of the provisos set forth in
Section 8(a) hereof or the failure to give notice as required in Section 8(c)
hereof (provided that the indemnifying party does not have knowledge of the
action, inquiry, investigation or proceeding and to the extent such party has
been materially prejudiced by the failure to give such notice), then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, liabilities, claims, damages or
expenses (or actions, inquiries, investigations or proceedings in respect
thereof) in such proportion as is appropriate to reflect the relative benefits
received by the Company or the Selling Shareholders on the one hand and the
Underwriters on the other from the offering of the Shares. If, however, the
allocation provided by the immediately preceding sentence is not permitted by
applicable law, then each indemnifying party shall contribute to such amount
paid or payable by such indemnified party in such proportion as is appropriate
to reflect not only such relative benefits but also the relative fault of the
Company or each Selling Shareholder on the one hand and the Underwriters on the
other in connection with the statements or omissions that resulted in such
losses, liabilities, claims or reasonable expenses (or actions, inquiries,
investigations or proceedings in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company or each
Selling Shareholder on the one hand and the Underwriters on the other shall be
deemed to be in the same proportion as the total net proceeds from the offering
(before deducting expenses) received by the Company or each Selling Shareholder
bears to the total underwriting discount and commissions received by the
Underwriters, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
suppliedor a Selling Shareholder on the one hand or the Underwriters on the
other hand and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
The Company, the Selling Shareholders and the Underwriters
agree that it would not be just and equitable if contributions pursuant to this
Section 8(e) were determined by prorata allocation (even if the Selling
Shareholders or the Underwriters were treated as one entity for such purpose) or
by any other method of allocation that does not take account of the equitable
considerations referred to above in this Section 8(e). The amount paid or
payable by an indemnified party as a result of the losses, liabilities, claims,
damages or reasonable expenses (or actions, inquiries, investigations or
proceedings in respect thereof) referred to above in this Section 8(e) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this Section 8(e), the provisions of
the Agreement Among Underwriters shall govern contribution among Underwriters,
no Underwriter (except as provided in the Agreement Among Underwriters) shall be
required to contribute any amount in excess of the underwriting discounts and
commissions applicable to the Shares purchased by such Underwriter, and no
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall
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be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' and the Selling Shareholders'
obligations in this Section 8(e) to contribute are several in proportion to
their individual underwriting obligations and number of Shares sold,
respectively, and not joint.
9. Representations and Agreements to Survive Delivery. Except as the
context otherwise requires, all representations, warranties and agreements
contained in this Agreement shall be deemed to be representations, warranties
and agreements at the Closing Date and any Option Closing Date. All such
representations, warranties and agreements of the Underwriters, the Company and
the Selling Shareholders, including, without limitation, the indemnity and
contribution agreements contained in Section 8 hereof and the agreements
contained in Sections 6, 9, 10 and 13 hereof, shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of any
Underwriter or any controlling person, and shall survive delivery of the Shares
and termination of this Agreement, whether before or after the Closing Date or
any Option Closing Date.
10. Effective Date of This Agreement and Termination Hereof.
(a) This Agreement shall become effective at the earlier of (i)
10:00 a.m., Philadelphia, Pennsylvania time, on the first business day following
the Effective Date or (ii) at the time of the public offering by the
Underwriters of the Shares, whichever is earlier, except that the provisions of
Sections 6, 8, 9, 10 and 13 hereof shall be effective upon execution hereof. The
time of the public offering, for the purpose of this Section 10, shall mean the
time when any of the Shares are first released by the Underwriters for offering
by dealers. The Representatives may prevent the provisions of this Agreement
(other than those contained in Sections 6, 8, 9, 10 and 13) hereof from becoming
effective without liability of any party to any other party, except as provided
in Sections 6 and 8 hereof, by giving the notice indicated in Section 10(c)
hereof before the time the other provisions of this Agreement become effective.
(b) The Representatives shall have the right to terminate this
Agreement at any time prior to the Closing Date as provided in Sections 7 and 11
hereof or if any of the following have occurred:
(i) since the respective dates as of which information is
given in the Registration Statements and the Prospectus, any material adverse
change or any development involving a prospective material adverse change in or
affecting the condition, financial or otherwise, of the Company, or the
earnings, business affairs, management or business prospects of the Company,
whether or not arising in the ordinary course of business, that would, in the
Representatives' reasonable judgment, make the offering or delivery of the
Shares impracticable;
(ii) any outbreak of hostilities or other national or
international calamity or crisis or change in economic, political or financial
market conditions if the effect on the financial markets of the United States of
such outbreak, calamity, crisis or change
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would, in the Representatives' reasonable judgment, make the offering or
delivery of the Shares impracticable;
(iii) suspension of trading generally in securities on the
New York Stock Exchange, the American Stock Exchange, or the over-the-counter
market (including, without limitation, the Nasdaq Stock Market) or limitation on
prices (other than limitations on hours or numbers of days of trading) for
securities or the promulgation of any federal or state statute, regulation, rule
or order of any court or other governmental authority that in the
Representatives' reasonable opinion materially and adversely affects trading on
such exchange or the over-the-counter market;
(iv) the enactment, publication, decree or other
promulgation of any federal or state statute, regulation, rule or order of any
court or other governmental authority that in the Representatives' reasonable
opinion materially and adversely affects or will materially or adversely affect
the business or operations of the Company;
(v) declaration of a banking moratorium by either federal or
Pennsylvania, Massachusetts or Virginia commonwealth or New Jersey or Florida
state authorities;
(vi) the taking of any action by any federal, state or local
government or agency in respect of its monetary or fiscal affairs that in the
Representatives' reasonable opinion has a material adverse effect on the
securities markets in the United States; or
(vii) trading in any securities of the Company shall have
been suspended or halted by the Nasdaq Stock Market or the SEC.
(c) If the Representatives elect to prevent this Agreement from
becoming effective or to terminate this Agreement as provided in this Section
10, the Representatives shall notify the Company and the Selling Shareholders
thereof promptly by telephone, telex, telegraph, telegram or facsimile,
confirmed by letter.
11. Default by an Underwriter.
(a) If any Underwriter or Underwriters shall default in its or
their obligation to purchase Firm Shares or Optional Shares hereunder, and if
the Firm Shares or Optional Shares with respect to which such default relates do
not exceed in the aggregate 10% of the number of Firm Shares or Optional Shares,
as the case may be, that all Underwriters have agreed to purchase hereunder,
then such Firm Shares or Optional Shares to which the default relates shall be
purchased severally by the non-defaulting Underwriters in proportion to their
respective commitments hereunder.
(b) If such default relates to more than 10% of the Firm Shares
or Optional Shares, as the case may be, the Representatives may in their
discretion arrange for another party or parties (including a non-defaulting
Underwriter) to purchase such Firm Shares or Optional Shares to which such
default relates, on the terms contained herein. In the event
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that the Representatives do not arrange for the purchase of the Firm Shares or
Optional Shares to which a default relates as provided in this Section 11(b),
this Agreement may be terminated by the Representatives or by the Company
without liability on the part of the several Underwriters (except as provided in
Section 8 hereof) or the Company (except as provided in Sections 6 and 8
hereof), but nothing herein shall relieve a defaulting Underwriter of its
liability, if any, to the other several Underwriters and to the Company for
damages occasioned by its default hereunder.
(c) If the Firm Shares or Optional Shares to which the default
relates are to be purchased by the nondefaulting Underwriters, or are to be
purchased by another party or parties, the Representatives or the Company shall
have the right to postpone the Closing Date or any Option Closing Date, as the
case may be, for a reasonable period, but not in any event exceeding seven days,
in order to effect whatever changes may thereby be made necessary in the
Registration Statements or the Prospectus or in any other documents and
arrangements, and the Company agrees to file promptly any amendment to the
Registration Statements or supplement to the Prospectus that in the opinion of
Underwriters' Counsel may thereby be made necessary. The terms "Underwriters"
and "Underwriter" as used in this Agreement shall include any party substituted
under this Section 11 with like effect as if it had originally been a party to
this Agreement with respect to the Firm Shares and/or Optional Shares
purchased by it.
(d) It is understood that the Representatives (or either of
them), individually and not as the representatives of the several Underwriters,
may (but shall not be obligated to) make payment of the purchase price on behalf
of any Underwriter or Underwriters whose check or checks shall not have been
received by them prior to the Closing Date or the Option Closing Date for the
Firm Shares or Optional Shares, as the case may be, to be purchased by such
Underwriter or Underwriters. Any such payment by the Representatives shall not
relieve any such Underwriter or Underwriters of any of its or their obligations
hereunder.
12. Information Furnished by Underwriters. The statement set forth
on the inside cover page regarding stabilization and in the second and eighth
paragraphs under the caption "Underwriting" in any Preliminary Prospectus and
the Prospectus constitute the only written information furnished by or on behalf
of any Underwriter referred to in Sections l(a)(ii) and 8 hereof.
13. Notice. All communications hereunder, except as otherwise
specifically provided herein, shall be in writing and, if sent to any
Underwriter, shall be mailed, delivered, telexed, telegrammed, telegraphed,
telecopied or faxed and confirmed to such Underwriter, c/o Janney Montgomery
Scott Inc., 1801 Market Street, Philadelphia, PA 19103, Attention: Mr. William
L. Rulon-Miller, with a copy to Saul, Ewing, Remick & Saul, 3800 Centre Square
West, Philadelphia, PA 19102, Attention: Charles C. Zall, Esquire; if sent to
the Company, shall be mailed, delivered, telexed, telegrammed, telegraphed,
telecopied or faxed and confirmed to The Judge Group, Inc., Two Bala Plaza,
Suite 800, Bala Cynwyd, PA 19004, Attention: Mr. Martin E. Judge, Jr., Chief
Executive Officer, with a copy to Drinker, Biddle & Reath, 1000 Westlakes Drive,
Suite 300, Philadelphia, PA 19312, Attention: Robert H. Strouse, Esquire; and if
sent to the Selling Shareholders', shall be mailed, delivered,
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telexed, telegrammed, telegraphed, telecopied or faxed and confirmed to
[Attorney-in-Fact], with a copy to [Selling Shareholders' counsel].
14. Parties. This Agreement shall inure solely to the benefit of, and
shall be binding upon, the several Underwriters, the Company, the Selling
Shareholders and the controlling persons, directors and officers thereof, and
their respective successors, assigns, heirs, legatees and legal representatives,
and no other person shall have or be construed to have any legal or equitable
right, remedy or claim under or in respect of or by virtue of this Agreement or
any provision herein contained. The terms "successors" and "assigns" shall not
include any purchaser of the Shares merely because of such purchase.
15. Definition of Business Day. For purposes of this Agreement,
"business day" means any day on which the Nasdaq Stock Market is opened for
trading.
16. Counterparts. This Agreement may be executed in one or more
counterparts, and all such counterparts will constitute one and the same
instrument.
17. Construction. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania applicable to
agreements made and performed entirely within the Commonwealth.
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If the foregoing correctly sets forth your understanding of our
agreement, please sign and return to the Company the enclosed duplicate hereof,
whereupon it will become a binding agreement in accordance with its terms.
Very truly yours,
THE JUDGE GROUP, INC.
By:____________________________________
Martin E. Judge, Jr.
Chief Executive Officer
[List all Subs]
THE SELLING SHAREHOLDERS
By: ____________________________________
Attorney-in-Fact, acting on behalf
of each of the Selling Shareholders
named in Schedule II hereto.
The foregoing Agreement is hereby confirmed
and accepted as of the date first
above written.
JANNEY MONTGOMERY SCOTT INC.
- --------------------------------------------
As Representatives of the Several Underwriters
named in Schedule I hereto
By: JANNEY MONTGOMERY SCOTT INC.
By:_____________________________________
Authorized Representative
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of October
1, 1996, is by and among JUDGE IMAGING SYSTEMS, INC., a Delaware corporation
("JIS"), THE JUDGE GROUP, INC., a Pennsylvania corporation ("Judge," formerly
Judge, Inc.), and JUDGE ACQUISITION, INC., a Delaware corporation and a
wholly-owned subsidiary of Judge ("Acquisition").
BACKGROUND
The respective boards of directors of JIS, Judge and Acquisition have each
approved the acquisition of JIS by Judge through a merger (the "Merger") of JIS
with and into Acquisition (JIS and Acquisition being sometimes hereinafter
together referred to as the "Constituent Corporations"), upon the terms and
subject to the conditions hereinafter set forth, in which outstanding shares of
JIS Common Stock, par value $.01 per share ("JIS Common Shares"), and JIS Series
A Convertible Preferred Stock, par value $.01 per share ("JIS Series A Preferred
Shares") will be converted into and become shares of Judge Common Stock, par
value $.01 per share ("Judge Common Shares").
TERMS
NOW, THEREFORE, in consideration of the mutual representations, warranties,
covenants, agreements and conditions contained herein, and in order to set forth
the terms and conditions of the Merger and the mode of carrying the same into
effect, the parties hereto, intending to be legally bound, hereby agree as
follows:
SECTION 1
THE MERGER
1.1 The Merger. At the Effective Time (as hereinafter defined), JIS shall be
merged with and into Acquisition pursuant to this Agreement, the separate
corporate existence of JIS shall cease (except as it may be continued by
operation of law) and Acquisition shall continue as the surviving corporation
under the corporate name "Judge Imaging Systems, Inc.," all upon the terms and
subject to the conditions provided for in this Agreement and pursuant to the
Delaware General Corporation Law (the "DGCL"). Acquisition, as it exists from
and after the Effective Time, is sometimes hereinafter referred to as the
"Surviving Corporation."
1.1.1 Effect of the Merger. The Merger shall have the effects specified in
Sections 259, 260 and 261 of the DGCL. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, except as otherwise
provided herein, all the property, rights, privileges, powers and franchises of
Acquisition and JIS shall vest in the Surviving Corporation, and all debts,
liabilities and duties of Acquisition and JIS shall become the debts,
liabilities and duties of the Surviving Corporation.
1.1.2 Certificate of Incorporation. At the Effective Time, the Certificate
of Incorporation of the Surviving Corporation shall be the Certificate of
Incorporation of Acquisition as in effect immediately prior to the Effective
Time, continuing until thereafter amended in accordance with the provisions
therein and as provided by the DGCL, except that as of the Effective Time, the
following provision of the Certificate of Incorporation of the Surviving
Corporation shall be amended in its entirety to read as follows:
"1. The name of the corporation is Judge Imaging Systems, Inc."
1.1.3 Bylaws. At the Effective Time, the Bylaws of the Surviving
Corporation shall be the Bylaws of Acquisition as in effect immediately prior to
the Effective Time, continuing until thereafter amended in
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accordance with its terms and the Certificate of Incorporation of the Surviving
Corporation and as provided by the DGCL.
1.1.4 Directors and Officers. The persons who are the directors and
officers of JIS at the Effective Time shall become the directors and officers of
the Surviving Corporation at the Effective Time. Such persons shall hold such
positions as directors and officers until their successors are elected or
appointed in accordance with the Certificate of Incorporation and the Bylaws of
the Surviving Corporation.
1.1.5 Tax-Free Reorganization. The parties intend that the Merger qualify
as a tax-free reorganization under Section 368(a) of the Internal Revenue Code
of 1986, as amended, and the regulations thereunder (the "Code").
1.2 Closing and Effective Time. Subject to the Merger receiving the
Requisite Stockholder Approval of JIS stockholders pursuant to Section 5.2 and
subject to the provisions of this Agreement, the parties shall hold a closing
(the "Closing") on either (i) the later of (A) the first business day following
the meeting of the stockholders of JIS to consider and vote upon the Merger or
(B) the business day on which the last of the conditions set forth in Section 6
to be fulfilled prior to the Closing is fulfilled or waived, or (ii) such other
date as the parties hereto may agree (the "Closing Date"), at 10:00 A.M. (local
time) at the offices of Drinker Biddle & Reath, Berwyn, Pennsylvania, or at such
other time or place as the parties hereto may agree. On the Closing Date, the
parties shall effect the Merger by filing a Certificate of Merger (the
"Certificate of Merger") with the Secretary of State of the State of Delaware in
accordance with the provisions of the DGCL. The Merger shall become effective at
the time of the filing of the Certificate of Merger or at such later time on the
Closing Date as may be specified in the filing with the Secretary of State of
the State of Delaware (the "Effective Time"). As a result of the Merger, the
Surviving Corporation shall become a wholly-owned subsidiary of Judge at the
Effective Time.
SECTION 2
CONVERSION OF SHARES AND OTHER MATTERS
2.1 Cancellation of Securities. At the Effective Time, by virtue of the Merger
and without any action on the part of Judge, Acquisition, JIS or any holder of
any shares of capital stock of JIS (the "JIS Stock"):
2.1.1 Cancellation of Treasury Stock. Each JIS Common Share and each share
of any class or series of JIS Preferred Shares ("JIS Preferred Shares") which
may be held in the treasury of JIS immediately prior to the Effective Time shall
be canceled and shall cease to exist at and after the Effective Time without
payment of any consideration therefor.
2.1.2 Cancellation of JIS Series B Preferred Shares. Each share of JIS
Series B Preferred Shares, par value $.01 per share ("JIS Series B Preferred
Shares"), issued and outstanding immediately prior to the Effective Time shall
cease to the outstanding and shall automatically be canceled and retired at the
Effective Time of the Merger.
2.1.3 Cancellation of JIS Options; No Convertible Securities. All options
and warrants, if any, to purchase JIS Common Shares that have been issued by JIS
and that are outstanding immediately prior to the Effective Time shall be
canceled and shall cease to exist at and after the Effective Time and no capital
stock of the Surviving Corporation or Judge, cash or other consideration shall
be paid or delivered in exchange therefor or in exercise thereof in connection
with the Merger. At the Effective Time, other than as described in Section 2.2
with respect to the conversion of JIS capital stock in the Merger, and Section
2.4 with respect to shares held by Dissenters (as hereinafter defined), there
shall not be any other securities, rights, warrants or other instruments
originally issued by JIS which, after consummation of the Merger, would be
convertible into or exercisable for securities of the Surviving Corporation or
Judge.
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2.1.4 Cancellation of JIS Common Shares owned by Judge. Each JIS Common
Share owned by Judge immediately prior to the Effective Time shall be canceled
and shall cease to exist at and after the Effective Time without payment of any
consideration therefor.
2.2 Conversion of JIS Capital Stock. At the Effective Time, by virtue of the
Merger and without any action on the part of Judge, Acquisition, JIS or any
holder of any JIS Stock, except as provided in Sections 2.1 (with respect to
shares held by Judge) and 2.4 (with respect to shares held by Dissenters), each
remaining outstanding JIS Common Share and JIS Series A Preferred Share (and
together with JIS Common Shares, "JIS Shares") shall be converted (subject to
the provisions set forth in Section 2.3 regarding fractional share interests) as
follows:
2.2.1 Each such JIS Common Share shall be converted into that number of
Judge Common Shares equal to $2.50 divided by the offering price to the public
(the "IPO Offering Price") of Judge Common Shares registered under the
Securities Act of 1933, as amended (the "1933 Act"), on a registration statement
(the "IPO Registration Statement") on Form S-1 filed with the Securities and
Exchange Commission (the "SEC") and declared effective by the SEC prior to the
Effective Time; and
2.2.2 Each such JIS Series A Preferred Share shall be converted into that
number of Judge Common Shares obtained by (i) dividing $2.50 by the IPO Offering
Price, and (ii) multiplying the quotient so obtained by the number of JIS Common
Shares issuable upon the conversion of such JIS Series A Preferred Share
immediately prior to the Effective Time. On the date hereof, such conversion
ratio is one JIS Common Share per one JIS Series A Preferred Share so converted.
2.2.3 The Judge Common Shares to be issued in the Merger pursuant to this
Section 2.2 are referred to herein as the "Merger Shares."
2.3 No Fractional Shares. No fractional Judge Common Shares will be issued in
the Merger and each holder of outstanding JIS Shares immediately prior to the
Effective Time excluding Dissenters (the "JIS Holders") will receive cash in
lieu of any fraction of a Judge Common Share otherwise issuable to such person
in an amount equal to such fraction multiplied by the IPO Offering Price of
Judge Common Shares.
2.4 Dissenting Shares. Notwithstanding anything herein to the contrary, JIS
Common Shares and JIS Preferred Shares that are outstanding immediately prior to
the Effective Time and that are held by stockholders, if any, who shall have
performed all such acts as are required to perfect appraisal rights pursuant to
Section 262 of the DGCL (a "Dissenter") shall be converted into the right to
receive the consideration payable in respect thereof in accordance with the
DGCL, unless such holder loses the status and rights of a Dissenter after the
Effective Time. Any such payment shall be made by JIS. If after the Effective
Time such holder loses the status and rights of a Dissenter, the JIS Shares held
by such holder shall be treated as if they had been converted as of the
Effective Time into the right to receive such holder's allocable portion of the
Merger Shares. JIS shall promptly provide Judge with copies of any written
demand for payment received by JIS from a Dissenter, and Judge shall have the
right to participate in all negotiations and proceedings with respect to any
such demand. JIS shall not, except with the prior written consent of Judge, make
any payment with respect to, or settle or offer to settle, any such demand.
2.5 Exchange Procedure.
2.5.1 Exchange Agent. As of the Effective Time, Judge shall deposit with a
bank, trust company, transfer agent or other person designated by Judge, which
may be Judge itself (the "Exchange Agent"), for the benefit of each holder of an
outstanding certificate or certificates (the "JIS Certificates") which prior
thereto represented JIS Shares, for exchange in accordance with this Section
2.5, certificates representing the Merger Shares.
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2.5.2 Surrender of Certificates. As promptly as practicable after the
Effective Time, the Exchange Agent shall mail to each holder of an outstanding
certificate or certificates which prior thereto represented JIS Shares (i) a
letter of transmittal (which shall specify that delivery shall be effected, and
risk of loss and title to the JIS Certificates shall pass, only upon delivery of
the JIS Certificates to the Exchange Agent and shall be in such form and have
such other provisions as Judge and JIS may reasonably specify), and (ii)
instructions for use in effecting the surrender of the JIS Certificates in
exchange for certificates representing Judge Common Shares and any cash in lieu
of any fractional Judge Common Shares. Such holder shall upon such surrender
receive in exchange therefor a certificate or certificates representing the
number of whole Judge Common Shares into which such JIS Shares shall have been
converted. Until so surrendered and exchanged, each outstanding certificate
which, prior to the Effective Time, represented JIS Shares shall, upon and after
the Effective Time, be deemed for all purposes (other than to the extent
provided in the following sentence) to evidence ownership of the number of whole
Judge Common Shares into which such JIS Shares have been converted. Dividends,
if any, payable after the Effective Time to holders of Judge Common Shares
shall, at Judge's option, be withheld from holders of certificates formerly
representing JIS Shares until such certificates (or lost share affidavits
reasonably acceptable in form and substance to Judge) are surrendered for
exchange in accordance with this Section 2.5 and, if so withheld, shall then be
paid without interest thereon.
2.5.3 Unsurrendered Certificates. In the event that any certificates
formerly representing JIS Shares (or lost share affidavits reasonably acceptable
in form and substance to Judge) are not surrendered for exchange by the first
anniversary of the Effective Time (the "Unsurrendered Certificates"), those
certificates representing Judge Common Shares corresponding to such
Unsurrendered Certificates then held by the Exchange Agent shall be delivered to
Judge, upon demand, and any stockholders of JIS who have not previously complied
with this Section 2.5 shall thereafter look only to Judge for payment of their
claim for Judge Common Shares and any cash in lieu of fractional Judge Common
Shares.
SECTION 3
MATTERS PRIOR TO CLOSING
3.1 Conversion Transactions. Prior to the Effective Time, (i) the Convertible
Senior Subordinated Promissory Notes of Judge (the "Investor Notes"), issued by
Judge pursuant to a 10% Convertible Senior Subordinated Note Purchase Agreement
(the "Purchase Agreement"), dated July 1994, which Investor Notes are
convertible into Judge Common Shares, shall be fully converted into Judge Common
Shares, and (ii) an option held by Raymond Sozzi (the "Sozzi Option") to
purchase 25,000 JIS Common Shares at an exercise price of $1.33 per share, shall
be exercised on a "cashless exercise" basis for 11,700 JIS Common Shares. The
transactions contemplated in this Section 3.1 are referred to as the Conversion
Transactions. In the event that the Conversion Transactions are not consummated
prior to Closing, this Agreement shall terminate and the Merger shall be
abandoned without any action on the part of Judge, Acquisition or JIS.
3.2 Public Offering. Judge intends to make an offering of its Judge Common
Shares to the public, underwritten on a firm commitment basis by a managing
underwriter selected by Judge (the "Public Offering"), pursuant to the IPO
Registration Statement. In the event that the Public Offering is not consummated
at a price and on terms satisfactory to Judge, in its sole discretion, prior to
or simultaneously with the Closing, this Agreement shall terminate and the
Merger shall be abandoned without any action on the part of Judge, Acquisition
or JIS.
SECTION 4
MUTUAL REPRESENTATIONS AND WARRANTIES
Judge and Acquisition hereby represent and warrant to JIS, and JIS hereby
represents and warrants to Judge, that, as of the date hereof and as of the
Closing Date, except as set forth in a Disclosure Schedule delivered by such
party contemporaneously with the execution of this Agreement:
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4.1 Organization and Qualification. In the case of Judge and Acquisition, each
of Judge and Acquisition is a corporation duly organized, validly existing and
in good standing under the laws of the state in which it is incorporated, having
full power and authority to carry on its business as it has been and is now
being conducted and to own, lease and operate its assets and properties. In the
case of JIS, JIS is a corporation duly organized, validly subsisting and in good
standing under the laws of the State of Delaware, having full power and
authority to carry on its business as it has been and is now being conducted and
to own, lease and operate its assets and properties. In the case of each party,
as of the Effective Time, it will be duly qualified to do business and will be
in good standing in every jurisdiction in which such qualification is required,
all of which jurisdictions are disclosed in its Disclosure Schedule. Except for
the entities listed in its Disclosure Schedule (its "Subsidiaries"), it has no
subsidiaries and no stock or other equity or ownership interest (whether
controlling or not) in any corporation, association, partnership, joint venture
or other entity. Each of its Subsidiaries is duly organized, validly existing
and in good standing under the laws of such Subsidiary's respective jurisdiction
of incorporation set forth in its Disclosure Schedule and will be duly qualified
and in good standing in every jurisdiction in which such qualification is
required, all of which jurisdictions are disclosed in its Disclosure Schedule.
4.2 Capitalization.
4.2.1 In the case of Judge, its authorized capital stock immediately prior
to the Effective Time shall consist of 50,000,000 Judge Common Shares and
10,000,000 shares of preferred stock ("Judge Preferred Shares"). After the
consummation of the Conversion Transactions and immediately before the Effective
Time of the Merger and the consummation of the Public Offering, there will be
outstanding 9,113,739 Judge Common Shares and no Judge Preferred Shares.
4.2.2 In the case of JIS, its authorized capital stock consists of
10,000,000 JIS Common Shares and 5,000,000 JIS Preferred Shares, of which
1,125,000 shares are designated as JIS Series A Preferred Shares, 1,500 shares
are designated as JIS Series B Preferred Shares and the remainder are unissued
shares of "blank check" preferred stock. As of the date of this Agreement, there
are outstanding 3,980,141 JIS Common Shares, not including the exercise of the
Sozzi Option as described in Section 3.1, 822,628 JIS Series A Preferred Shares
and 1,500 JIS Series B Preferred Shares.
4.2.3 In the case of either party, all of its outstanding shares of capital
stock have been duly authorized and validly issued, are fully paid and
nonassessable, were not issued in violation of the terms of any contract,
agreement or commitment binding upon it, and were issued in compliance with all
of its applicable charter documents and all applicable federal and state
statutes, laws, regulations and rules (the "Laws"). Except as set forth in its
Disclosure Schedule, there are, and have been, no preemptive rights with respect
to the issuance of its shares of capital stock. Its Disclosure Schedule lists
all agreements, contracts or arrangements to which it is a party or of which it
is aware regarding (i) the registration of transactions in its capital stock
under any securities law, or (ii) any voting or transfer arrangements with
respect to any of its shares of capital stock.
4.3 Options and Additional Rights.
4.3.1 Except for the options and warrants described in Section 3.1 or in
its Disclosure Schedule in response to this Section 4.3.1 and any convertible
securities described in Sections 4.2 or 3.1 of this Agreement, (i) there are not
outstanding any contracts, agreements, subscriptions, options, warrants,
commitments or rights of any character to purchase or otherwise acquire, or any
stock appreciation or similar rights measured by the value of, any shares of its
capital stock or other securities, including without limitation convertible or
exchangeable securities, and (ii) it is not party to any agreement the benefits
of which (including without limitation severance benefits) are contingent, or
the terms of which are materially altered, upon the occurrence of a transaction
involving it of the nature of any of the transactions contemplated by this
Agreement. Its Disclosure Schedule accurately sets forth as of the date of this
Agreement all outstanding warrants, and all outstanding options granted by it,
vested or unvested, together with the identity of the optionees or warrant
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holders, the vesting schedule for such options or warrants, if any, the exercise
price and the date on which such options or warrants were granted.
4.3.2 Except as otherwise provided in this Agreement, consummation of the
transactions contemplated hereby will not obligate it to issue any additional
equity interest in it, to declare any dividend or make any distributions of any
property or assets, or to redeem, purchase, acquire or offer to acquire any
shares of its capital stock.
4.4 Subsidiaries. Its Disclosure Schedule sets forth a description of all of the
issued and outstanding equity securities of each of its Subsidiaries. It owns of
record and beneficially all of the issued and outstanding capital stock of each
of its Subsidiaries, free and clear of any mortgage, lien, security interest,
pledge, encumbrance, restriction on transferability, defect of title, charge or
claim of any nature whatsoever ("Liens"). "Group" with respect to a designated
party means the designated party and each of its Subsidiaries, as a whole and
individually with respect to each of them.
4.5 Authority and Binding Effect. It has all requisite power and authority to
execute and deliver this Agreement and, upon receipt of its Requisite
Stockholder Approval (as hereinafter defined), to perform the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions herein contemplated will not contravene or
violate its Certificate or Articles of Incorporation or Bylaws. This Agreement
has been duly and validly executed and delivered by it and, subject to obtaining
its Requisite Stockholder Approval, constitutes the legal, valid and binding
obligation of it, enforceable against it in accordance with its terms, except to
the extent that enforceability thereof may be limited by applicable bankruptcy,
insolvency, reorganization or other similar laws relating to or affecting the
enforcement of creditors' rights generally and by principles of equity regarding
the availability of remedies. "Requisite Stockholder Approval" means, (i) in the
case of Judge, the approval of this Agreement and the Merger and the issuance of
the Merger Shares by the affirmative vote of a majority of the votes cast by all
Judge stockholders entitled to vote thereat, and, (ii) in the case of JIS, the
approval of this Agreement and the Merger (A) by the holders of a majority of
the outstanding JIS Common Shares and JIS Series A Preferred Shares (with each
JIS Series A Preferred Share being entitled to the number of votes equal to the
number of JIS Common Shares into which each JIS Series A Preferred Share could
be converted on the record date for the vote) voting together as a single class,
and (B) separately by the holders of a majority of the outstanding JIS Series A
Preferred Shares voting together as a class.
4.6 Validity of Contemplated Transactions. Neither the execution and delivery of
this Agreement by it nor the consummation of the transactions contemplated
hereby will (i) contravene or violate, any federal, state or local statute, law,
ordinance, regulation, order or rule ("Regulation") or any judgment, decree,
injunction, order or ruling of any court or governmental or regulatory authority
which is applicable to its Group; (ii) result in a default or loss of a benefit
under, or permit the acceleration of any obligation under, or require the
consent or approval of any party to, any contract, agreement, commitment,
permit, concession, franchise, license or authorization applicable to its Group,
or (iii) require its Group to notify or obtain any license, permit, approval or
authorization from any governmental or regulatory authority or, except as set
forth in its Disclosure Schedule, other person or entity; except for (A) its
Requisite Stockholder Approval, (B) in the case of Judge, the effective
registration under the 1933 Act, and all requisite compliance with state
securities or "blue-sky" laws in connection with the issuance of Judge Common
Shares in the Merger, (C) in the case of JIS, filings pursuant to the 1933 Act
and the Securities Exchange Act of 1934, as amended (the "1934 Act"), (D) the
filing of the Certificate of Merger and (E) in the case of (i) or (ii) above,
for any violation or default which, individually or in the aggregate, would not
have a Material Adverse Effect (as defined below). For purposes of this
Agreement, "Material Adverse Effect" means a material adverse effect on the
business, assets, financial condition or results of operations of its Group.
4.7 Issuance of Judge Common Shares. In the case of Judge only, upon receipt of
its Requisite Stockholder Approval, the Merger Shares will be duly authorized
and, when issued in accordance with this Agreement, will be validly issued and
outstanding, fully paid and nonassessable Judge Common Shares.
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4.8 Corporate Records. The minute books of its Group are current and contain
correct and complete copies of all of the charter documents of its Group,
including all amendments thereto and restatements thereof, and of all minutes of
meetings, resolutions and other actions and proceedings of its stockholders and
board of directors and all committees thereof, duly signed by the Secretary or
an Assistant Secretary, and in the case of written consents, all directors or
all stockholders. The stock record books of its Group are current, correct and
complete and reflect the issuance of all of the issued and outstanding shares of
its capital stock as of the date hereof.
4.9 Financial Statements; Reports.
4.9.1 Financial Statements. In the case of JIS, it has delivered to Judge,
and in the case of Judge, it has delivered to JIS, (i) its consolidated balance
sheets at December 31, 1995 and 1994, (ii) its related statements of operations,
changes in stockholders' equity and cash flows for the three years then ended,
and (iii) all related notes and schedules, all of which (the "Year-End Financial
Statements") have been audited by an independent public accountant. JIS has also
delivered to Judge, and Judge has delivered to JIS, (i) its consolidated balance
sheet at June 30, 1996, and (ii) its related statements of operations, changes
in stockholders' equity and cash flows for the six months then ended (the
"Interim Financial Statements") which have been audited by an independent public
accountant. The Year-End Financial Statements were prepared in accordance with
generally accepted accounting principles consistently applied ("GAAP") and,
subject to any qualifications set forth in the applicable notes and schedules,
fairly present the financial position and results of operations of its Group at
December 31, 1995 and 1994 and for each of the years in the three-year period
ended December 31, 1995. The Interim Financial Statements have been prepared in
accordance with GAAP and, subject to any qualifications set forth in the
applicable notes and schedules, and subject to normal recurring audit
adjustments, fairly present the financial position and results of operations of
its Group at June 30, 1996 and for the six months then ended. All Liabilities
(as hereinafter defined) of its Group at December 31, 1995 and June 30, 1996,
required to be reflected or reserved for by GAAP are fully reflected or reserved
for in the balance sheet included in the Year-End Financial Statements and the
Interim Financial Statements, respectively.
4.9.2 Reports. JIS has filed on a timely basis (i) all forms, reports,
statements and other documents required to be filed with (A) the SEC, including
without limitation (1) all Annual Reports on Form 10-KSB, (2) all Quarterly
Reports on Form 10-QSB, (3) all proxy statements relating to meetings of
shareholders (whether annual or special), (4) all Current Reports on Form 8-K
and (5) all other reports, schedules, registration statements or other documents
(collectively referred to as the "SEC Reports"), and (B) any applicable state
securities authorities and (ii) all forms, reports, statements and other
documents required to be filed with any other Regulatory Body, (all such forms,
reports, statements and other documents in clauses (i) and (ii) of this Section
4.9.2 being referred to herein, collectively, as the "Reports"). The Reports (i)
were prepared in all material respects in accordance with the requirements of
applicable law (including, with respect to the SEC Reports, the 1933 Act or the
1934 Act, as the case may be, and the rules and regulations of the SEC
thereunder applicable to such SEC Reports) and (ii) did not at the time they
were filed contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
4.10 Books of Account. The books of account of its Group fairly reflect, in
accordance with GAAP, (i) all transactions relating to its Group and (ii) all
items of income and expense, assets and liabilities and accruals relating to its
Group. Its Group has not engaged in any transaction, maintained any bank account
or used any corporate funds except for transactions, bank accounts and funds
which have been and are reflected in the normally maintained books and records
of its Group.
4.11 Taxes. (i) All reports, returns, statements and other similar filings
required to be filed by it (the "Tax Returns") with respect to any Taxes (as
defined below) have been timely filed with the appropriate governmental agencies
in all jurisdictions in which such Tax Returns are required to be filed, and all
such Tax Returns correctly reflect the liability of it for Taxes for the
periods, properties or events covered thereby; (ii) all Taxes payable with
respect to the Tax Returns referred to in the preceding clause have been paid;
(iii) no deficiency in
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respect of any Taxes which has been assessed against it remains unpaid and it
has no knowledge of any unassessed Tax deficiencies or of audits or
investigations pending or threatened against it with respect to any Taxes; (iv)
no claim has ever been made by any Tax authority in a jurisdiction in which its
Group does not file Tax Returns that it is or may be subject to taxation by that
jurisdiction; and (v) there are no Liens for Taxes upon any asset of its Group
except for Liens for current Taxes not yet due. For purposes of this Agreement,
"Taxes" means any taxes, duties, assessments, fees, levies, or similar
governmental charges, together with any interest, penalties, and additions to
tax, imposed by any taxing authority, wherever located (i.e. whether federal,
state, local, municipal, or foreign), including, without limitation, all net
income, gross income, gross receipts, net receipts, sales, use, transfer,
franchise, privilege, profits, social security, disability, withholding,
payroll, unemployment, employment, excise, severance, property, windfall
profits, value added, ad valorem, occupation, or any other similar governmental
charge or imposition.
4.12 Absence of Undisclosed Liabilities. Its Group has no Liabilities, except as
set forth in its balance sheet at June 30, 1996, or in the case of JIS, its SEC
Reports, or in its Disclosure Schedule and except for those Liabilities arising
and outstanding since June 30, 1996 in the ordinary course of business of its
Group in accordance with past practice or related to the actions and
transactions contemplated hereby or under any contract which is disclosed in its
Disclosure Schedule. "Liability" means any material liability, indebtedness,
obligation, expense, claim, deficiency, guaranty or endorsement of or by any
person (other than endorsements of notes, bills and checks presented to banks
for collection or deposit in the ordinary course of business) of any type,
whether accrued, absolute, contingent, matured, unmatured or other.
4.13 Title to Assets. Its Group owns outright and has good and marketable title
to all of the assets of its Group reflected on the balance sheets included in
its Financial Statements disclosed in Section 4.9, free and clear of all Liens,
except liens reflected in its Financial Statements, liens for current taxes not
yet delinquent, liens imposed by law and incurred in the ordinary course of
business for obligations not yet due to carriers, warehousemen, laborers,
materialmen, and the like, liens in respect of pledges or deposits under
workers' compensation laws or similar legislation, and minor defects in title,
none of which, individually or in the aggregate, materially interferes with the
use of such property.
4.14 Intellectual Property. Except as disclosed in its Disclosure Schedule, its
Group has either (i) sufficient title and ownership of all patents, trademarks,
service marks, trade names, copyrights, trade secrets, information, proprietary
rights and processes (collectively, "Intellectual Property"), necessary for its
business and operations (as now conducted and as proposed to be conducted)
without any conflict with or infringement of the right of others, or (ii) where
it does not own the necessary Intellectual Property, it has acquired rights to
use such Intellectual Property under licenses granted to its Group by the owner
of such Intellectual Property.
4.15 Contracts. Except as disclosed in the Disclosure Schedule, all material
contracts, agreements, commitments, leases, mortgages, instruments or other
documents ("Contracts") to which its Group is a party are valid, binding and
enforceable in accordance with their respective terms, except to the extent that
enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization or other similar laws relating to or affecting the enforcement of
creditors' rights generally and by principles of equity regarding the
availability of remedies. Its Group has fulfilled, or taken all action necessary
to enable it to fulfill when due, all of its obligations under each of such
Contracts.
4.16 Compliance with Regulations and Court Orders. Its Group is not in violation
of, and the assets of its Group have not been used or operated by its Group or
any other person or entity in violation of, any Regulation or Court Order (as
hereinafter defined), except for such violations as do not subject its Group to
significant penalties or the compliance with which would not have a Material
Adverse Effect on its Group. All Court Orders to which its Group is a party or
subject to are listed in its Disclosure Schedule. Its Group has made all filings
or notifications and has obtained all licenses required to be made or obtained
by its Group under any Regulation applicable to its Group or its business or
assets. "Court Order" means any judgment, decree, injunction, order or ruling of
any Regulatory Body that is binding on the designated party, its Subsidiaries or
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their properties under applicable law. "Regulatory Body" means any court or
governmental department, commission, board, bureau, agency, instrumentality, or
body, federal, state or local, domestic or foreign.
4.17 Environmental Matters. Except as set forth on its Disclosure Schedule, to
its knowledge:
4.17.1 Its Group has been and are in material compliance with all
applicable federal, state and local law or regulation concerning or relating to
industrial hygiene or the protection of health and/or the environment (the
"Environmental Laws");
4.17.2 There are no conditions on, about, beneath or arising from any
properties owned or leased by its Group which would give rise to any liability
under any applicable Environmental Law or which would require any Response,
Removal or Remedial Action, as such terms are defined in Section 101 of the
Comprehensive Environmental, Compensation and Liability Act, 42 U.S.C. ss.ss.
9601 et seq. (1995), as amended, by such party;
4.17.3 Its Group has obtained and possesses all permits, licenses,
approvals and other authorizations necessary under any applicable Environmental
Law for the operation of its business except as would not have a Material
Adverse Effect;
4.17.4 Its Group has not received any notification of a release or threat
of a release of any substance regulated under any of the Environmental Laws
("Hazardous Substance") at any site or location owned or operated by that party;
and
4.17.5 Its Group has not disposed of, transported or caused to be
transported any Hazardous Substance on or to any on-site or off-site location
which location currently is the subject of a federal, state or local enforcement
action or other investigation or for which claims have been asserted against
such party for clean-up costs, remedial work or damages to natural resources.
4.18 Litigation. Except as set forth in the Disclosure Schedule, there is no
Litigation (as hereinafter defined) pending or, to its knowledge, threatened
against its Group or its business or assets, and no event known to its Group has
occurred and no claim has been asserted against its Group that might result in
Litigation against its Group or its business or assets; and to, the best of its
Group's knowledge, there is no reasonable basis for any such claim. "Litigation"
means any lawsuit, action, arbitration, administrative or other proceeding,
criminal prosecution or governmental investigation or inquiry involving or
affecting the designated party or any of its Subsidiaries, the business, the
assets or any Contracts to which the designated party or any of its Subsidiaries
is a party or by which they or any of their assets or business may he bound or
affected.
4.19 Insurance. Except as set forth in the Disclosure Schedule, it is presently
insured, and has been insured against such risks as companies engaged in a
similar business would, in accordance with good business practice, customarily
be insured. The policies of fire, theft, liability and other insurance
maintained with respect to the assets or business of each Company provide
adequate coverage against loss.
4.20 Employee Benefit Plans. Except as described in the Disclosure Schedule, its
Group does not maintain or contribute to any employee pension benefit plan
("Pension Plan"), as defined in section 3(2) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), any employee welfare benefit plan,
as defined in section 3(1) of ERISA, or any other plan or arrangement providing
compensation or benefits to its employees or former employees (collectively
"Benefit Plans"). To the knowledge of its Group, each Benefit Plan maintained by
its Group has been administered in compliance with its terms and is in
compliance with the applicable provisions of ERISA, the Code and other
applicable Laws. To the knowledge of its Group, its Group knows of no inquiries
or proceedings pending or threatened by any governmental department or agency,
or by any participant or beneficiary, with respect to any Benefit Plan now or
formerly maintained by its Group or to which it has contributed. Its Group has
made or provided for all contributions to Benefit Plans required by the terms of
such Benefit Plans or applicable Laws. Its Group has never contributed or been
required to
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contribute to any multiemployer plan, as defined in section 3(37) of ERISA.
Other than required "COBRA" coverage, its Group has never provided health or
life insurance coverage to former employees. Its Group has never maintained a
Pension Plan which was a defined benefit plan.
4.21 Registration Statement; Etc. None of the information supplied or to be
supplied by its Group for inclusion or incorporation by reference in (i) the
registration statement on Form S-4 to be filed by Judge with the SEC in
connection with the issuance of Judge Common Shares in the Merger will, at the
time it is filed with the Commission or at the time it becomes effective under
the 1933 Act, or at the Effective Time of the Merger, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, or
(ii) the proxy statement forming a part of the Registration Statement used by
JIS to solicit proxies for the purpose of obtaining its Requisite Stockholder
Approval (the "Proxy Statement"), will, when mailed and at all times through the
date of the JIS stockholders' meeting disclosed in Section 5.2 contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein, or necessary to make the statements therein, not
misleading. All documents that each Company is responsible for filing with the
SEC or any Regulatory Body in connection with the transactions contemplated
hereby will comply as to form in all material respects with the provisions of
applicable law, including applicable provisions of the 1933 Act, the 1934 Act
and the rules and regulations thereunder.
4.22 Subsequent Events. Except as set forth in its Disclosure Statement and
except for the transactions contemplated hereby, since June 30, 1996 (i) there
has been no actual or threatened change in the business of its Group or, to the
best of its Group's knowledge, any event, condition or state of facts, in either
case that is material and adverse to its Group or its business or assets, (ii)
it has not declared, set aside or made payment of any dividend or distribution
of assets to the holders of any class or series of capital stock , nor has it
repurchased or redeemed any shares of its capital stock, (iii) its Group has
conducted its business only in the ordinary course consistent with past
practice, and (iv) there has not occurred any of the events described in Section
5.5 hereof.
4.23 Intentionally omitted.
4.24 Fairness Opinion. In the case of JIS only, JIS has been advised in writing
by Janney Montgomery Scott Inc. ("Janney") that the consideration to be received
by the stockholders of JIS in the Merger (the "Merger Consideration") taken as a
whole is fair to such stockholders from a financial point of view.
4.25 Section 203 of the DGCL Not Applicable. In the case of JIS only, the
provisions of Section 203 of the DGCL will not, prior to the termination of this
Agreement, apply to this Agreement or to the transactions contemplated hereby.
4.26 Broker's and Finder's Fee. No person acting on behalf of it or under its
authority is or will be entitled to any broker's or finder's fee or any other
commission or similar fee directly or indirectly in connection with the
completion of the Merger, other than the fees payable to Janney for its services
in issuing its opinion disclosed in Section 4.24.
SECTION 5
ADDITIONAL COVENANTS AND AGREEMENTS
5.1 Registration Statement and Proxy Statement. Judge and JIS shall, in
compliance with the 1934 Act, prepare as promptly as practicable the Proxy
Statement to be used by JIS to solicit the approval of its stockholders of this
Agreement and the Merger. Judge, in cooperation with and with the assistance of
JIS, shall promptly prepare and cause to be filed with the SEC its Registration
Statement on Form S-4 in compliance with the 1933 Act. The Registration
Statement shall register the issuance of the Merger Shares. Judge and JIS shall
use their best efforts to cause such Registration Statement to be declared
effective as promptly as practicable. JIS shall furnish to Judge all information
concerning its Group and the stockholders of JIS as may be reasonably
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requested in connection with such filing. Judge shall take any action required
to be taken under any applicable state securities or "blue-sky" laws in
connection with the issuance of Judge Shares in the Merger. If requested by
Judge, JIS shall use its best efforts to cause to be delivered to Judge a letter
of Rudolph Palitz LLP, JIS's auditors, dated a date within two business days
before the date on which the Registration Statement shall become effective and
addressed to Judge in form and substance reasonably satisfactory to Judge and
customary in scope and in substance for letters delivered by independent public
accountants in connection with registrations statements similar to the
Registration Statement.
5.2 Stockholder Meeting. Each of JIS and Judge shall, as soon as practicable and
in accordance with applicable law, call and hold a stockholders' meeting to
obtain its Requisite Stockholder Approval. Subject to its fiduciary obligations,
the board of directors of each party will unanimously recommend to its
stockholders approval of the Merger and this Agreement and each party shall take
all such actions consistent with the fiduciary obligations of such boards to
obtain such approvals as promptly as practicable, including without limitation
in the case of JIS the solicitation of proxies by means of the Proxy Statement.
5.3 Regulatory and Contract Approvals. Each of Judge and JIS shall use their
best efforts to obtain as soon as practicable all approvals, consents and
permits from all Regulatory Bodies and all consents required under the terms of
any Contract which are required in connection with the consummation of the
Merger.
5.4 Access to Information. From the date of this Agreement to the Closing Date,
each party will give to the other party and its officers, employees, counsel,
accountants and other representatives free and full access to and the right to
inspect, during normal business hours, all of the assets, records, Contracts and
other documents relating to its business as the other party may reasonably
request. Neither party will use such information for purposes other than in
connection with the Merger and each party will otherwise hold such information
in confidence until such time as such information otherwise becomes publicly
available, and in the event of termination of this Agreement for any reason will
promptly return, or cause to be returned, to the other party all nonpublic
documents obtained from the other party, and any copies made of such documents.
5.5 Conduct of Business Pending Closing. Until the Closing Date, except as set
forth in its Disclosure Schedule and except for the proposed acquisition of
Berkeley Associates Corporation and Systems Automation, Inc. by Judge or as may
be approved by the parties in writing or otherwise expressly provided in this
Agreement, each of JIS and Judge shall operate its businesses only in the
ordinary course and in substantially the same manner as it has been operated in
the past.
5.6 Indemnification. If the Merger is completed, all rights to indemnification
(including advancement of expenses) existing on the date hereof in favor of the
present or former officers and directors of JIS with respect to actions taken in
their capacities as directors or officers of JIS prior to the Effective Time as
provided in the Certificate of Incorporation of JIS, the Bylaws of JIS or any
indemnification agreements, prior to the Effective Time, shall survive the
Merger and continue in full force and effect as obligations of the Surviving
Corporation, the performance of which Judge hereby guarantees.
5.7 Public Announcements. JIS and Judge shall cooperate with each other in
releasing information concerning this Agreement and the transactions
contemplated herein. Where practicable each of the parties shall furnish to the
other drafts of all releases prior to publication. Nothing contained herein
shall prevent either party at any time from furnishing any information to any
governmental agency or from issuing any release where it reasonably believes it
is legally required to do so.
5.8 No Solicitation. JIS shall cause its officers, employees, representatives
and agents not to, directly or indirectly, continue, encourage, solicit,
initiate or (except as may be reasonably required to satisfy the fiduciary
duties of its board of directors) participate in discussions or negotiations
with, or provide any nonpublic information to, any person other than the other
party or its affiliates or any group in which the other party or its affiliates
participates, concerning any sale of assets (other than in the ordinary course
of its business consistent with past practice) or shares of capital stock, or
any merger, consolidation, recapitalization, liquidation or
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similar transaction (collectively, an "Acquisition Transaction"). JIS will
promptly communicate to Judge the terms of any inquiry or proposal which it may
receive in respect of an Acquisition Transaction. Judge's notification under
this Section 5.9 shall include the identity of the person making such proposal,
the terms of such proposal and any other information with respect thereto as
Judge may reasonably request.
5.9 Notification of Certain Matters. JIS shall give prompt notice to Judge and
Acquisition, and Judge and Acquisition shall give prompt notice to JIS, of (i)
the occurrence, or failure to occur, of any event which such party believes
would likely cause any of its representations or warranties contained in this
Agreement to be untrue or inaccurate in any material respect at any time from
the date of this Agreement to the Effective Time and (ii) any material failure
of JIS, Judge or Acquisition, as the case may be, or any officer, director,
employee or agent thereof, to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder.
5.10 Rule 145 Affiliates.
5.10.1 Promptly following the execution of this Agreement, JIS shall
identify in a letter to Judge all persons who might, at the time of its
stockholders' meeting at which the Merger is to be voted upon by its
stockholders, be deemed to be an affiliate of JIS within the meaning of Rule 145
("Rule 145 Affiliate").
5.10.2 JIS shall use all reasonable efforts to deliver to Judge as soon as
practicable and in any case prior to the Effective Time an agreement signed by
each such Rule 145 Affiliate of JIS regarding compliance with Rule 145, which
agreement (the "Affiliate Agreements") shall be in substantially the form of
Exhibit 5.10.2.
5.10.3 Judge shall be entitled to place legends on the certificates
evidencing Judge Common Shares to be received by such Rule 145 Affiliates
pursuant to the terms of this Agreement, and to issue appropriate stop transfer
instructions to the transfer agent for Judge Common Shares, consistent with the
terms of such Affiliate Agreements, whether or not such Affiliate Agreements are
actually delivered to Judge.
SECTION 6
CONDITIONS TO THE MERGER
Subject to waiver as set forth in Section 7.7, the obligations of each
party under this Agreement are subject to the fulfillment prior to or at the
Closing of each of the following conditions:
6.1 Stockholder Approval. This Agreement shall have been adopted at or prior to
the Effective Time (i) by the Requisite Stockholder Approval of JIS in
accordance with the DGCL and Dissenters, if any, shall not hold in the aggregate
ten percent (10%) or more of the shares of JIS Common Shares and JIS Series A
Preferred Shares outstanding immediately prior to the Effective Time (assuming
the conversion of the JIS Series A Preferred Shares into JIS Common Shares
immediately prior to the Effective Time), and (ii) by the Requisite Stockholder
Approval of Judge.
6.2 Representations True at Closing. The representations and warranties of the
other party set forth in Section 4 shall be true and correct in all material
respects on the Closing Date with the same effect if made at that time.
6.3 Performance. The other party shall have performed and satisfied all
agreements and conditions which it is required by this Agreement to perform or
satisfy prior to or on the Closing Date.
6.4 Certificates. The other party shall have provided a certificate signed in
its name by its chief executive officer and chief financial officer, dated the
Closing Date, certifying in such detail as may be reasonably requested that each
of its conditions described in Section 6.2 and 6.3 has been fulfilled by the
other party. The other party shall have provided a certificate signed by its
secretary, dated the Closing Date, certifying that its Certificate of
Incorporation, or its Articles of Incorporation, as the case may be, and Bylaws
are true, correct
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and complete as of the Closing Date and further certifying that the resolutions
adopted by its board of directors and stockholders attached thereto in
connection with the transactions contemplated hereby are true, correct and
complete.
6.5 Tax Opinion. Judge and JIS shall have received from Drinker Biddle & Reath a
written opinion, in form and substance reasonably satisfactory to them, to the
effect that the Merger, when effected in accordance with this Agreement, will
qualify as a reorganization under Section 368(a) of the Code and Judge, JIS and
Acquisition will constitute parties to such reorganization.
6.6 Litigation Affecting Closing. No Court Order shall have been issued or
entered which would be violated by the completion of the Merger, and no person
who or which is not a party to this Agreement shall have commenced any
Litigation seeking to restrain or prohibit, or to obtain substantial damages in
connection with, this Agreement or the transactions contemplated by this
Agreement which, in each case, would or is reasonably likely to result in a
Material Adverse Effect to a party.
6.7 Material Adverse Effect. From the date hereof to the Closing Date, no party
hereto shall have suffered a Material Adverse Effect in any way, including,
without limitation, by fire, casualty, act of God or otherwise and there shall
be no conditions existing or threatened that might reasonably be expected to
have a Material Adverse Effect on such party.
6.8 Registration Statement. The Registration Statement shall have been declared
effective by the SEC. No stop order suspending the effectiveness of the
Registration Statement shall have been issued by the SEC and no proceedings for
that purpose shall have been initiated or threatened by the SEC, and all
approvals, consents, permits, licenses or qualifications from authorities
administering the securities or "blue-sky" laws of any state having jurisdiction
required for the consummation of the Merger shall have been obtained and shall
be effective.
6.9 Affiliate Agreements. Judge shall have received from each Rule 145 Affiliate
an executed Affiliate Agreement in form satisfactory to Judge.
6.10 Conversion Transactions. The Conversion Transactions shall have been
consummated.
6.11 Public Offering. The managing underwriter of the Public Offering shall have
advised the parties that the Public Offering will be completed immediately
following the Effective Time of the Merger.
6.12 Regulatory Compliance, Approvals and Consents. Each party shall have
complied with all Regulations applicable to the Merger, and all approvals
required under any Regulations to carry out the Merger and consents required to
be obtained in connection with the Merger in order to avoid a default under any
Contract to or by which the other party is a party or may be bound shall have
been obtained on terms reasonably satisfactory to each party.
6.13 Stock Exchange Listing. Judge shall have applied for the inclusion of the
Merger Shares on The Nasdaq National Market.
SECTION 7
TERMINATION AND ABANDONMENT
7.1 Termination by Mutual Consent. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the filing of the Certificate of
Merger, before or after obtaining the Requisite Stockholder Approvals, by the
mutual consent of JIS, Judge and Acquisition, by action of their respective
boards of directors.
7.2 Termination by JIS, Judge or Acquisition. This Agreement may be terminated
and the Merger may be abandoned by action of either the board of directors of
JIS or the boards of directors of, Judge and Acquisition
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if (i) the Merger shall not have been consummated on or before March 31, 1997,
or such later date as may be mutually agreed to by the parties hereto, provided
that the party seeking to terminate this Agreement is not otherwise in breach in
any material respect of any of its obligations hereunder or (ii) any court of
competent jurisdiction shall have issued an order, decree or ruling or taken any
other action restraining, enjoining or otherwise prohibiting the Merger and such
order, decree, ruling or other action shall have become final and nonappealable.
7.3 Termination by JIS. This Agreement may be terminated and the Merger may be
abandoned by action of the board of directors of JIS if (i) Judge or Acquisition
shall have failed to comply in any material respect with any of the covenants or
agreements contained in this Agreement to be complied with or performed by it at
or prior to the Effective Time and such failure has not been cured within 30
days after receipt of notice thereof, or (ii) the board of directors of Judge
shall not recommend to its stockholders the approval of this Agreement, or shall
withdraw or modify in a manner adverse to JIS its approval or recommendation of
the Merger.
7.4 Termination by Judge and Acquisition. This Agreement may be terminated and
the Merger may be abandoned by action of the boards of directors of Judge and
Acquisition if (i) JIS shall have failed to comply in any material respect with
any of the covenants or agreements contained in this Agreement to be complied
with or performed by it at or prior to the Effective Time and such failure has
not been cured within 30 days after receipt of notice thereof, or (ii) the board
of directors of JIS shall not recommend to its stockholders the approval of this
Agreement, or shall withdraw or modify in a manner adverse to Judge or
Acquisition its approval or recommendation of the Merger.
7.5 Effect of Termination. Except as provided in Section 5.4 hereof with respect
to information obtained in connection with the transactions contemplated hereby,
in the event of the termination of this Agreement, and the abandonment of the
Merger, this Agreement shall thereafter become void and have no effect, and no
party thereto shall have any liability to any other party hereto or its
stockholders or directors or officers in respect thereof, and each party shall
be responsible for its own costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby, except that nothing herein
shall relieve any party from liability for any willful breach hereof.
7.6 Amendment. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto, except as set forth in
Section 7.7.
7.7 Waiver. Any time prior to the Effective Time, any party hereto may (i) in
the case of Judge or Acquisition, extend the time for the performance of any of
the obligations or other acts of JIS or waive compliance with any of the
agreements of JIS or with any conditions to the respective obligations of Judge
or Acquisition, or (ii) in the case of JIS, extend the time for the performance
of any of the obligations or other acts of Judge or Acquisition, or waive
compliance with any conditions to its own obligations. Any agreement on the part
of a party hereto to any such extension or waiver shall be valid if set forth in
an instrument in writing signed on behalf of such party by a duly authorized
officer.
SECTION 8
MISCELLANEOUS
8.1 Notices. Any notices or other communications required or permitted hereunder
shall be sufficiently given if sent by facsimile transmission, registered or
certified mail, postage prepaid, or Federal Express or similar overnight
delivery addressed, in the case of JIS, to it at:
A-14
<PAGE>
Judge Imaging Systems, Inc.
Two Bala Plaza, Suite 800
Bala Cynwyd, PA 19004
Attention: Martin E. Judge, Jr.
Facsimile No. 610-664-7090
or, in the case of Judge and Acquisition, to them at:
The Judge Group, Inc.
Two Bala Plaza, Suite 800
Bala Cynwyd, PA 19004
Attention: Martin E. Judge, Jr.
Facsimile No. 610-664-7090
or such other address as shall be furnished in writing by any party to the
others prior to the giving of the applicable notice or communication.
8.2 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.
8.3 Headings. The headings herein are for convenience of reference only, do not
constitute a part of this Agreement, and shall not be deemed to limit or affect
any of the provisions of this Agreement.
8.4 No Survival of Representations or Warranties. None of the representations
and warranties included or provided for herein or in any schedule or certificate
or other document delivered pursuant to this Agreement shall survive
consummation of the Merger.
8.5 Entire Agreement. This Agreement, which includes the Exhibits and Disclosure
Schedules hereto constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, among the parties, with
respect to the subject matter of this Agreement.
8.6 Cooperation. Subject to the terms and conditions of this Agreement, each of
the parties hereto shall use its reasonable best efforts to take, or cause to be
taken, such action, to execute and deliver, or cause to be executed and
delivered, such governmental notifications and additional documents and
instruments and to do, or cause to be done, all things necessary, proper or
advisable under the provisions of this Agreement and under applicable law to
consummate and make effective the transactions contemplated by this Agreement,
and neither JIS nor Judge shall take any action in conflict with or contrary to
the stated intention of JIS and Judge that the Merger qualify as a tax-free
reorganization pursuant to Section 368(a) of the Code.
8.7 No Third Party Rights. Nothing in this Agreement, express or implied, is
intended to confer upon any other person, other than the persons indemnified
under Section 5.6, any rights or remedies under or by reason of this Agreement.
8.8 No Assignment. This Agreement shall not be assigned, by operation of law or
otherwise.
A-15
<PAGE>
8.9 Governing Law. This Agreement shall be governed in all respects, including
without limitation validity, interpretation and effect, by the laws of the
Commonwealth of Pennsylvania, applicable to contracts made and to be performed
in such Commonwealth.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
JUDGE IMAGING SYSTEMS, INC.
By: /s/ MARTIN E. JUDGE, JR.
------------------------------------
Name: Martin E. Judge, Jr.
Title: President
THE JUDGE GROUP, INC.
By: /s/ MARTIN E. JUDGE, JR.
------------------------------------
Name: Martin E. Judge, Jr.
Title: Chief Executive Officer
JUDGE ACQUISITION, INC.
By: /s/ MARTIN E. JUDGE, JR.
------------------------------------
Name: Martin E. Judge, Jr.
Title: Chief Executive Officer
A-16
Number Shares
C______ _______
[JUDGE LOGO]
THE JUDGE GROUP, INC.
INCORPORATED UNDER THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA
NASDAQ: JUDG COMMON STOCK CUSIP 481271 10 4
This Certifies That
Is The Owner Of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF $.01 PAR VALUE EACH OF
THE JUDGE GROUP, INC.
transferable on the books of the Corporation in person or by attorney upon
surrender of this certificate duly endorsed or assigned. This certificate and
the shares represented hereby are subject to the laws of the Commonwealth of
Pennsylvania, and to the Certificate of Incorporation and Bylaws of the
Corporation, as now or hereafter amended. This certificate is not valid until
countersigned by the Transfer Agent.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
DATED: COUNTERSIGNED:
STOCKTRANS, INC.
7 EAST LANCASTER AVE., ARDMORE, PA 19003
TRANSFER AGENT
BY:
AUTHORIZED SIGNATURE
[CORPORATE SEAL]
SECRETARY CHIEF EXECUTIVE OFFICER
<PAGE>
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian
TEN ENT - as tenants by the entireties -----------------
JT TEN - as joint tenants with right of (Cust) (Minor)
survivorship and not as tenants under Uniform Gifts to Minors
in common
Act________________________
(State)
Additional abbreviations may also be used though not in the above list.
For Value Received _____________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
________________________________________________________________________________
(Please print or typewrite name and address, including zip code, of assignee)
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of the stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint
______________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated __________________
_________________________________________
NOTICE: The signature to this assignment
must correspond with the name as written
upon the face of the certificate in
every particular, without alteration
or enlargement or any change whatsoever.
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE GUARANTEED BY A
COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OR A MEMBER FIRM OF A NATIONAL
OR REGIONAL OR OTHER RECOGNIZED STOCK EXCHANGE IN CONFORMANCE WITH A SIGNATURE
GUARANTEE MEDALLION PROGRAM
________________________________________________________________________________
STOCK MARKET INFORMATION EXCHANGE
http://members.sol/com/cfpco/columbia.htm
COLUMBIA FINANCIAL PRINTING CO., P.O.BOX 219, BETHPAGE, NY 11714
FOURTH AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
THIS FOURTH AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (the
"Agreement") made the 10th day of December, 1996, and effective as of September
30, 1996, by and between PNC BANK, NATIONAL ASSOCIATION, successor by merger to
MIDLANTIC BANK, N.A. ("Lender"), having offices at 1600 Market Street,
Philadelphia, Pennsylvania 19103; THE JUDGE GROUP, INC.. a corporation organized
under the laws of the Commonwealth of Pennsylvania, formerly known as "Judge,
Inc." ("Judge Group") having its principal place of business at Two Bala Plaza,
Suite 800, Bala Cynwyd, Pennsylvania 19006; JUDGE, INC., a corporation organized
on September 27, 1996 under the laws of the Commonwealth of Pennsylvania ("New
Judge, Inc.") having its principal place of business at Two Bala Plaza, Suite
800, Bala Cynwyd, Pennsylvania 19004; JUDGE TECHNICAL SERVICES, INC., a
corporation organized under the laws of the Commonwealth of Pennsylvania ("Judge
Technical") having its principal place of business at Two Bala Plaza, Suite 800,
Bala Cynwyd, Pennsylvania 19004; JUDGE PROFESSIONAL SERVICES, INC., a
corporation organized under the laws of the Commonwealth of Pennsylvania ("Judge
Professional") having its principal place of business at Two Bala Plaza, Suite
800, Bala Cynwyd, Pennsylvania 19004; THE BERKELEY ASSOCIATES CORP., a
corporation organized under the laws of the State of Delaware ("Berkeley
Associates") having its principal place of business at Two Bala Plaza, Suite
504, Bala Cynwyd, Pennsylvania 19004; JUDGE ACQUISITION, INC., a corporation
organized under the laws of the State of Delaware ("Judge Acquisition") having
its principal place of business at Two Bala Plaza, Suite 800, Bala Cynwyd,
Pennsylvania 19004 ("Judge Acquisition also trades under the name Systems
Automation, Inc.") JUDGE IMAGING SYSTEMS, INC., a Delaware corporation ("Judge
Imaging"), successor by merger to JUDGE COMPUTER CORPORATION, a corporation
organized under the laws of the State of New Jersey and to DATAIMAGE, INC., a
Delaware corporation ("DataImage"), having its principal place of business at
Two Bala Plaza, Suite 800, Bala Cynwyd, Pennsylvania 19004; JUDGE ELECTRONICS
SERVICES OF FLORIDA, INC., a Florida corporation ("Judge of Florida") having its
principal place of business at 500 N. Westshore Boulevard, Suite 850, Tampa,
Florida 33609; JUDGE INC. OF NEW JERSEY, a New Jersey corporation ("Judge of New
Jersey") having its principal place of business at 379 Thornall Road, 6th Floor,
Edison, New Jersey 08818 and JUDGE TECHNICAL SERVICES OF N.J., INC. a New Jersey
corporation ("Judge Technical of NJ") having its principal place of business at
379 Thornall Road, 6th Floor, Edison, New Jersey 08818 (hereinafter Judge Group,
New Judge, Inc., Judge Technical, Judge Professional, Berkeley Associates, Judge
Acquisition, Judge Imaging, Judge of Florida, Judge of New Jersey and Judge
Technical of N.J. are collectively called "Borrower or Borrowers"); and Martin
E. Judge, Jr., ("Surety"), residing at 701 Dominion Drive, Moorestown, New
Jersey 08057, Michael A. Dunn ("Surety") and Kathleen A. Dunn ("Surety"),
husband and wife, each residing at 45 Avondale Avenue, Haddonfield, New Jersey
08033 (each of the foregoing three Sureties being collectively called the
"Sureties").
<PAGE>
A. BACKGROUND
Commencing on December 10, 1992, Lender loaned to Judge Group (formerly
known as Judge, Inc.) and Judge Technical a revolving line of credit loan
facility in the maximum principal sum of up to Two Million Dollars ($2,000,000)
pursuant to the terms of a Revolving Security Agreement of even date.
Thereafter, Lender loaned various amounts to the Borrowers or to some of the
Borrowers in the form of a revolving line of credit loan facility, which as of
October 1, 1995, was in the principal sum of Five Million Five Hundred Thousand
Dollars ($5,500,000). On June 2, 1995, pursuant to a Second Amended and Restated
Loan and Security Agreement of that date, all of the Borrowers became
co-borrowers for the amounts due the Lender for the revolving line of credit
loan facilities.
All of the extensions of credit by the Lender to Borrowers were secured
by a first security interest in all of the assets of the Borrowers and by the
surety agreement of the Sureties. All of the extensions of credit by the Lender
to the Borrowers were evidenced by promissory notes, by a Loan and Security
Agreement as restated and amended on October 15, 1993, March 8, 1994, February
16, 1995, June 2, 1995, October 1, 1995 and on March 1, 1996, by financing
statements filed by Lender with the applicable recording offices, and by other
Relevant Documents (hereafter defined) executed and delivered by the Borrowers
and/or Sureties to the Lender.
On September 3, 1996 the Borrowers and the Sureties requested the
Lender to renew and/or increase the principal amount of the Revolving Loan
(hereafter defined in Section 2A) to Eleven Million Dollars ($11,000,000),
subject to the terms and conditions herein and to the Relevant Documents
(hereafter defined), and the Lender, subject to the terms and conditions in the
Relevant Documents, agreed to renew and increase the principal amount of the
Revolving Loan to Eleven Million Dollars ($11,000,000).
Since September 3, 1996, certain events have occurred which added to or
changed the corporate structure or organization of the Borrowers. These
consisted of the following:
(a) On or about September 23, 1996, the then existing Pennsylvania
corporation, Judge, Inc., changed its name to The Judge Group, Inc.;
(b) On or about September 26, 1996, Judge Group acquired the issued and
outstanding capital stock of Berkeley Associates;
(c) On or about September 27, 1996, Judge Group formed the new
Pennsylvania subsidiary corporation now known as Judge, Inc.; and
2
<PAGE>
(d) On or about July 30, 1996, Judge Group formed the new Delaware
subsidiary corporation known as Judge Acquisition, Inc. On or about September
30, 1996, Judge Group acquired the assets of Systems Automation, Inc. a
Massachusetts corporation and contributed same to Judge Acquisition. For
purposes of collecting the receivables of Systems Automation, Judge Acquisition
is using the name "Systems Automation".
On or about September 9, 1996, PNC Bank, National Association, acquired
Midlantic Bank, N.A. by merger. The Lender is now known as PNC Bank, National
Association.
The Borrowers and the Sureties are desirous of participating in the
Revolving Loan under the terms and conditions previously agreed upon by the
parties in the Third Amended and Restated Loan and Security Agreement signed by
the parties on September 3, 1996, and the Lender, subject to the terms and
conditions of the Relevant Documents including this Fourth Amended and Restated
Loan and Security Agreement, has agreed to include all the Borrowers as
borrowers under the Revolving Loan, to make certain modifications to the terms
and conditions thereof, and to memorialize same, hence this Agreement to be
effective as of September 30, 1996.
B. INCORPORATION OF RECITALS
The recitals set forth in the Background section of this Agreement are
hereby incorporated by reference into this Agreement as if same had been fully
set forth at length herein.
C. REAFFIRMATION OF AMOUNT DUE
Borrower and Sureties hereby acknowledge and agree that as of December
9, 1996, there is due and owing to Lender on the Revolving Loan the principal
sum of Eight Million Seven Hundred Forty Six Thousand Four Hundred Ninety Nine
and 52/100 Dollars ($8,746,499.52) and all accrued and unpaid interest thereon.
This Fourth Amended and Restated Loan and Security Agreement restates and amends
the Third Amended and Restated Loan and Security Agreement dated September 3,
1996, and supersedes same only to the extent that this Agreement is inconsistent
with the Third Amended and Restated Loan and Security Agreement.
D. AGGREGATE PRINCIPAL SUM DUE; RENEWAL COMMITTED
LINE OF CREDIT NOTE
At the request of Borrower, the Lender on September 3, 1996, increased
the line of credit due the Lender by the Borrower from Five Million Five Hundred
Thousand Dollars ($5,500,000.00) to Eleven Million Dollars ($11,000,000)
(defined hereinbelow
3
<PAGE>
as the "Revolving Loan"). The Revolving Loan shall be evidenced by the Renewal
Committed Line of Credit Note of the Borrower of even date herewith (the
"Committed Line of Credit Note"). Anything to the contrary contained herein, in
the Committed Line of Credit Note or any other Relevant Documents
notwithstanding, at no time shall the aggregate principal amount of the
Revolving Loan and the Term Loan outstanding and due the Lender by the Borrower
exceed the principal sum of Eleven Million Dollars ($11,000,000).
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises contained herein and intending to be legally bound hereby, the parties
restate their agreements and understandings as follows:
1. DEFINITIONS
"Account" - as defined in Section 2A.1(c)(i).
"Banking Day" - any day other than a Saturday, Sunday or legal
holiday for banks under the laws of the Commonwealth of Pennsylvania.
"Capital Expenditures" as defined in Section 6.19.
"Collateral" - as defined in Section 3.2(b).
"Committed Line of Credit Note" - the Eleven Million Dollar
($11,000,000) Renewal Committed Line of Credit Note evidencing the Revolving
Loan and dated of even date herewith, when not referred to by its full title as
more fully described in Section 2A.1(a).
"Default Rate" - a rate of interest per annum in excess of the
rate otherwise applicable at the time to the Revolving Loan or the Term Loan as
set forth in the Notes.
"Equipment" - as defined in Section 3.2(c).
"ERISA" - as defined in Section 4.17.
"Event of Default" - as defined in Section 8.
"Immediately" - shall mean within three (3) business days.
"Initial Public Offering" - as described in Section 2B.
"Interest Coverage" - as defined in Section 6.18.
4
<PAGE>
"Inventory" - as defined in Section 2A.1(c)(iv).
"Liabilities" - shall mean liabilities as determined in
accordance with generally accepted accounting principles but excludes debt
subordinated to the Obligations due the Lender.
"Limitation on Compensation" - as defined in Section 6.20.
"Loans" - the Revolving Loan and the Term Loan.
"Notes" - The Committed Line of Credit Note and the Term
Loan Note.
"Obligations" - as defined in Section 3.2(a).
"Prime Rate" - the rate of interest announced from time to
time by Lender as its "prime rate" or "prime lending rate," which rate is
determined from time to time by Lender as a means of pricing some loans to its
customers and is neither tied to any external rate of interest or index nor
necessarily reflects the lowest rate of interest actually charged by Lender to
any particular class or category of customers. The prime rate of the Lender may
not necessarily be the same rate of interest as charged by other lenders as
their prime or base rate of interest.
"Qualified Accounts" - as defined in Section 2A.1(c)(ii).
"Ratio of Liabilities" - as defined in Section 5.15.
"Related Entity" - any corporate subsidiary of Borrower, and
any unincorporated association or other entity through which Borrower conducts
any part of its business.
"Relevant Documents" - any and all documents and instruments
delivered to Lender pursuant or incident to this Agreement or the Loans (a) by
Borrower or any Related Entity, (b) by any pledgor or grantor of a lien,
security interest or other right, or (c) by any guarantor of any of the
Obligations, including without limitation the guaranty of the Obligations of
Borrower executed by the Sureties on even date and the prior Relevant Documents
which continue in full force and legal effect not superseded hereby.
"Revolving Loan" - as defined in Section 2A.
"Revolving Loan Limit" - as defined in Section 2A.1(b).
"Sureties" shall mean Martin E. Judge, Jr., individually;
Michael A. Dunn, individually and Kathleen A. Dunn, individually, husband and
wife.
5
<PAGE>
"Tangible Net Worth" - as defined in Section 5.15.
"Term Loan" - as defined in Section 2D.
"Term Loan Note" - the promissory Commercial Term Note dated
September 3, 1996, evidencing the Term Loan of Lender to Borrower.
"UCC" - the Uniform Commercial Code as in effect from time to
time in the Commonwealth of Pennsylvania.
"Unbilled Receivables" shall mean amounts which are due for
services rendered for which an invoice has not as yet been issued to a customer.
"Working Capital" - as defined in Section 6.18.
2A. REVOLVING LOAN; ACCOUNTS; LETTERS OF CREDIT;
INVENTORY
2A.1 Amount and Certain Definitions.
(a) Lender may at its discretion, upon the request of
Borrower, make loans hereunder to Borrower ("Revolving Loan") from time to time
on a revolving loan basis in an aggregate principal amount not in excess at any
time outstanding of the Borrower's Revolving Loan Limit; provided that, if the
outstanding amount of the Revolving Loan should exceed the Revolving Loan Limit
at any time, such excess (i) shall nevertheless be secured by the Collateral and
be subject to the terms of this Agreement, and (ii) shall be payable immediately
upon demand by Lender. No out-of-formula overadvances shall be permitted at any
time. The Revolving Loan shall be payable (i) on the maturity date of the
Revolving Loan as set forth in the Committed Line of Credit Note, or (ii) at
such other time as is provided in Section 9 or elsewhere in this Agreement,
whichever of (i) or (ii) shall first occur. The Revolving Loan shall be
evidenced by the Committed Line of Credit Note; except as may be otherwise
provided in the Committed Line of Credit Note, the Revolving Loan shall be
payable in accordance with the terms of this Agreement.
(b) Definition of Revolving Loan Limit. Borrower's
Revolving Loan Limit shall, subject to Sections 2A.1(d) and 2D hereinbelow, be
the lesser of:
(i) Eleven Million Dollars ($11,000,000) less the
principal balance due by the Borrower on the Term Loan described in Section 2D
below and the outstanding principal balance due by the Borrower on the Letters
of Credit described in Section 2A.1(d) below; or
(ii) The value of the following Collateral determined
as follows:
6
<PAGE>
(A) Eighty (80%) percent of the Qualified Accounts (less
reserves determined by Lender for advertising allowances, warranty claims and
other contingencies) of Judge Group, New Judge, Inc., Judge Technical, Berkeley
Associates, Judge Acquisition, Judge Professional, Judge of Florida, Judge of
New Jersey, Judge Technical of NJ and Judge Imaging; plus
(B) Subject to Section 2B hereinbelow, sixty (60%) percent
of the Unbilled Receivables of Judge Technical, but in no event may advances to
be made by the Lender against said Unbilled Receivables exceed One Million Five
Hundred Thousand Dollars ($1,500,000); less
(C) Fifty percent (50%) of the outstanding principal
balance due Lender at any given time on the Term Loan.
Anything to the contrary contained herein below
notwithstanding, the Lender may increase or decrease the stated advance rates
with respect to Qualified Accounts and Unbilled Receivables of the Borrower as
Lender in its sole and absolute discretion may determine. As provided in Section
2A.1(d) and in Section 2D below, as the Borrower commences making monthly
payments to the Lender on the Term Loan, subject to the terms of this Agreement,
the Borrower's availability under the Revolving Loan Limit shall increase in an
amount equal to the principal reduction made by the Borrower on the Term Loan as
of the date said principal payment is made by the Borrower, but in no event
shall the Revolving Loan Limit exceed Eleven Million Dollars ($11,000,000.00).
Notwithstanding anything herein to the contrary, Borrower
acknowledges that the Revolving Loan matures on May 31, 1998 and that during the
time the Revolving Loan is outstanding, the aforementioned advance rate of
eighty (80%) percent may be reduced by the Lender at its sole discretion and
that the Lender may establish reserves or reduce advance rates with respect to
Qualified Accounts or limit advances in the nature of letters of credit, at its
sole and absolute discretion; provided, however, the Lender agrees to notify the
Borrower in writing at least fifteen (15) days in advance of any decrease in the
advance rate.
Lender, upon fifteen (15) days prior written notice to the
Borrower, shall have the right to increase or decrease the Revolving Loan Limit
from time to time.
(c) Definitions of Account; Qualified Account; Inventory;
Qualified Inventory; Net Value of Qualified Inventory.
(i) The term "Account" shall mean all items described
in the UCC definition thereof and all of the following, whether or not so
described (in all cases whether now existing or hereafter created): all
obligations of any kind at any time due or owing to Borrower and all rights of
Borrower to receive payment or any other
7
<PAGE>
consideration (whether classified under the UCC or the law of any other state as
accounts, accounts receivable, contract rights, chattel paper, general
intangibles, or otherwise) including without limitation invoices, contract
rights, accounts receivable, general intangibles, choses-in-action, notes,
drafts, acceptances, instruments and all other debts, obligations and
liabilities in whatever form owing to Borrower from any person, firm,
corporation, governmental authority or other entity, together with all security
for any thereof, and all of Borrower's rights to goods sold (whether delivered,
undelivered, in transit or returns), represented by any thereof, together with
all proceeds and products of any of the foregoing.
(ii) The term "Qualified Account" shall mean an
account or accounts which have been identified and described to Lender's
satisfaction, are represented by Borrower (by its acceptance of the Revolving
Loan thereon) as meeting all of the following criteria on its origination date
and thereafter until collected, and is in all other respects acceptable to
Lender:
(A) Borrower is the sole owner of the account and
has not sold, assigned or otherwise transferred it, and the Account is not
subject to any claim, lien or security interest;
(B) The Account is bona fide and legally
enforceable and owing to Borrower for the sale of goods or performance of
services in the United States and in the ordinary course of business and the
Account does not require any further act on the part of Borrower to make it
owing by the Account debtor, and Borrower has delivered to Lender (or, at the
time of origination of the Account, if required by Lender, will deliver to
Lender) invoices, billings, shipping documents and other documents evidencing
the obligation to pay the account;
(C) The Account does not represent a conditional
sale, consignment or other sale on a basis other than that of absolute sale, is
not evidenced by any note, instrument, chattel paper or like document, and does
not arise out of a contract with the United States or any of its departments,
agencies or instrumentalities;
(D) The Account is invoiced for payment within
five (5) days of the date services are rendered or Inventory or other goods
represented thereby are shipped to the Account debtor, and the Borrower's
invoice has not been outstanding for more than ninety (90) days, except with
respect to Accounts due Judge Imaging by municipalities or school districts
where the Borrower's invoice has not been outstanding thirty (30) days after the
actual due date up to a maximum of one hundred twenty (120) days;
8
<PAGE>
(E) The amount of the Account included in
calculating the Revolving Loan Limit does not exceed twenty (20%) percent of
Borrower's total Qualified Account at the time outstanding;
(F) The Account is not subject to any defense,
offset, counterclaim, credit, allowance or adjustment except usual and customary
prompt payment discounts, nor has the Account debtor returned the goods or
indicated any dispute or complaint concerning them;
(G) No other Account of the Account debtor is
overdue in payment, the Borrower has not received any notice, nor has it any
knowledge, of any facts which adversely affect the credit of the Account debtor;
(H) The Account debtor is not a Related Entity or
other affiliate of Borrower nor a director or officer of Borrower or an
affiliate of any director or officer; and
(I) Any contracted imaging sale by Borrower
assigned to the Lender must be accompanied by a signed customer acceptance
criteria sheet.
(d) Letters of Credit.
Lender, at its sole discretion, may issue for the account of
Borrower merchandise or stand-by letters of credit in form and content
satisfactory to Lender, at its sole discretion, with a term not to extend beyond
May 31, 1998. Notwithstanding the foregoing, at no time shall the aggregate face
amount of all outstanding letters of credit issued under the Revolving Loan
exceed the amount of One Hundred Thousand Dollars ($100,000). Borrower's ability
to borrow under the Revolving Loan from time to time shall be reduced by an
amount equal to the aggregate face amount of outstanding letters of credit. In
the event the Lender is required to fund any letters of credit, the amount
advanced by the Lender shall bear interest at the Default Rate of interest
applicable in the Committed Line of Credit Note.
In the event the Revolving Loan is terminated for any reason
or demand is made thereunder, Borrower will deposit with Lender an amount equal
to the face amount of all letters of credit then outstanding which have been
issued under the Revolving Loan, plus all fees related thereto or to accrue
thereunder. Such funds will be held by Lender as cash collateral to secure
Borrower's obligations hereunder.
(e) The term "Inventory" shall mean all items
described in the UCC definition thereof and all of the following, whether or not
so described (in all cases whether now owned or hereafter acquired by Borrower
and wherever located): all goods,
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<PAGE>
merchandise or other personal property held by Borrower for sale or lease or to
be furnished under labels and other devices, names or marks affixed thereto for
purposes of selling or identifying the same or the seller or manufacturer
thereof, and all right, title and interest of Borrower therein and thereto; all
raw materials, work or goods in process; and all materials and supplies of any
kind or description used or usable in connection with the manufacture,
packaging, shipping, advertisement, sale or finishing of any of the foregoing,
together with all proceeds and products of any of the foregoing.
2A.2 Interest Rate. Except in the event of the occurrence of
an Event of Default as provided in the Committed Line of Credit Note and subject
to Section 2B.2(b)(iii) below, the Revolving Loan portion of the Loan (i.e.,
excluding any principal balance due by the Borrowers to the Lender on the Term
Loan) shall bear interest at a fluctuating interest rate per annum equal at all
times to one (1%) percent above Lender's Prime Rate in effect from time to time,
each change in such fluctuating rate to take effect simultaneously with the
corresponding change in the Lender's Prime Rate, without notice to Borrower;
provided, however, upon the occurrence of an Event of Default, the Revolving
Loan shall bear interest at the default rate of interest set forth in the
Committed Line of Credit Note.
2A.3 Payment of Interest. Interest on the Revolving Loan shall
be debited, on the due date from any account maintained by Borrower with Lender.
Otherwise, Borrower will be obligated to make such payments directly to Lender.
All payments are to be made in immediately available funds. If Lender accepts
payment in any other form, such payments shall not be deemed to have been made
until the funds comprising such payment have actually been received by or made
available to Lender.
2A.4 Collection and Remittance.
(a) Borrower shall collect its accounts receivable only in
the ordinary course of Business. All accounts receivable collections of Borrower
will be deposited in a non-interest bearing cash collateral account maintained
at Lender (the "Collection Account"). Lender will have sole dominion and control
over all items and funds in the Collection Account and such items and funds may
be withdrawn only by Lender. Lender will have the right to apply all or any part
of such funds towards payment of any of the indebtedness of Borrower to Lender
under the Revolving Loan; provided, however, upon the occurrence of a default or
an event with which the giving of notice or the passage of time or both would be
a default hereunder or under the Loan Documents, Lender may apply all or any
part of such funds towards payment of any indebtedness of Borrower to Lender.
(b) All items deposited into the Collection Account will
be credited by Lender as payments of the principal balance of the Revolving Loan
on the day on which such items are deposited into the Collection Account. As
compensation for the foregoing arrangement, Borrower will pay to Lender a sum
equal to three (3) Banking
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Days interest on all such deposits at the interest rate for the Revolving Loan.
Borrower will reimburse Lender on demand for the amount of any items credited as
provided above and subsequently returned unpaid. Lender may terminate the
foregoing arrangement upon notice to Borrower.
(c) Borrower agrees that all monies, checks, notes,
instruments, drafts or other payments relating to or constituting proceeds of
any accounts receivable of Borrower which come into the possession or under the
control of Borrower or any employees, agents or other persons acting for or in
concert with Borrower, shall be received and held in trust for Lender and such
items shall be the sole and exclusive property of Lender. Immediately upon
receipt thereof, Borrower and such other persons shall remit the same or cause
the same to be remitted, in kind, to Lender. Borrower shall deliver or cause to
be delivered to Lender, with appropriate endorsement and assignment to Lender
with full recourse to Borrower, all instruments, notes and chattel paper
constituting an account receivable. Lender is hereby authorized to open all mail
addressed to Borrower and endorse all checks, drafts or other items for payment
on behalf of Borrower. Lender is granted a power of attorney by Borrower with
full power of substitution to execute on behalf of Borrower and in Borrower's
name or to endorse Borrower's name on any check, draft, instrument, note or
other item of payment or to take any other action or sign any document in order
to effectuate the foregoing. Such power of attorney being coupled with an
interest is irrevocable.
2A.5 Determination of Balance of Revolving Loan.
(a) In determining the outstanding balance of the
Revolving Loan, (i) domestic checks received by Lender's Asset Based Secured
Lending Department before three o'clock p.m. (3:00 p.m.) of a Banking Day will
be credited on that Banking Day, and thereafter on the following Banking Day;
(ii) any other form of funds received by Lender's Asset Based Secured Lending
Department will be credited on the Banking Day when that Department has received
notification of collection if before three o'clock p.m. (3:00 p.m.), and
thereafter on the following Banking Day; and (iii) all credits shall be
conditional upon final payment to Lender in cash or solvent credits of the items
giving rise to them and, if any item is not so paid, the amount of any credit
given for it shall be charged to the balance of the Revolving Loan whether or
not the item is returned.
(b) For the purpose of computing interest on the Revolving
Loan and other Obligations, interest shall continue to accrue on the amount of
any payment received by Lender's Asset Based Secured Lending Department for a
period of three (3) Banking Days after it is credited.
2A.6 Monthly and Interim Statements. Once each month
Lender shall render a statement of account to Borrower showing the current
status of principal, interest and service charges with respect to the Revolving
Loan. If these statements or any interim statements indicate that the
outstanding balance of the Revolving Loan
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exceeds the Revolving Loan Limit, Borrower, at Lender's option, forthwith shall
either furnish additional Collateral satisfactory to Lender or pay the
difference in cash. The statement of account rendered by Lender shall be
considered correct, accepted by Borrower and conclusively binding upon Borrower,
unless Borrower gives Lender written notice to the contrary within ten (10)
Banking Days after the sending of the statement by Lender. If Borrower disputes
the correctness of Lender's statement, Borrower's notice shall specify in detail
the particulars of its basis for contending that Lender's statement is
incorrect.
2A.7 Overdrafts. In the event Lender honors a check of
Borrower resulting in Borrower's checking account being overdrawn, then Lender
shall be deemed to have loaned the amount of such overdraft to Borrower,
pursuant to the terms of this Section 2A, on the Lender's Banking Day
immediately preceding the day on which the Borrower's check is tendered to
Lender for collection. Lender shall not be obligated to honor any overdraft of
Borrower, whether or not it has done so in the past.
2A.8 Audit Fees. There will be an annual audit fee of One
Thousand Five Hundred Dollars ($1,500) due and payable in advance on December
31, 1996, and on December 31 of each calendar year thereafter while the
Revolving Loan remains outstanding.
2A.9 Revolving Loan Facility Fee. The Borrower shall pay to
the Lender a fee equal to one-fourth (1/4%) percent of the unused portion of the
Revolving Loan, which fee shall be due and payable quarterly and in arrears five
(5) business days after the end of each calendar quarter (three (3) months)
commencing with the quarter ended September 30, 1996 and on the fifth (5th)
business day after the end of each December, March, June and September of each
calendar year while the Revolving Loan is outstanding.
2A.10 Prepayment. The Revolving Loan may be prepaid in full
and the Revolving Loan terminated by Borrower at any time; provided, however,
any prepayment and termination of the Revolving Loan by the Borrower shall be
accompanied by the following:
(a) One (1%) percent of the total Revolving Loan credit
facility if prepayment occurs in the first twelve (12) months after September 3,
1996 ("Year 1"); and
(b) One-half of one (.5%) percent of the total Revolving
Loan credit facility if prepayment occurs in the second twelve (12) months after
September 3, 1996 ("Year 2").
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2B. INITIAL PUBLIC OFFERING BY BORROWER
2B.1 Borrowers' Intention To Do An Initial Public Offering.
The Borrower has advised the Lender that it intends to increase shareholders'
equity by at least Twenty Million Dollars ($20,000,000) by means of the sale of
capital stock in an initial public offering (the "Initial Public Offering"). The
Borrower anticipates that the Initial Public Offering will be completed by
January 21, 1997.
2B.2 Modification of Loan Terms Upon Completion of Public
Offering.
(a) The Lender agrees to modify the terms of the Loans as
set forth below in Section 2B.2(b), provided the following conditions precedent
are first fulfilled by the Borrower:
(i) The Borrower receives net proceeds from the
Initial Public Offering of at least Twenty Million Dollars ($20,000,000), such
net proceeds have increased the Tangible Net Worth of Borrower and the ratio of
Liabilities to Tangible Net Worth as described in Section 5.15 hereof does not
exceed 2:1;
(ii) The Term Loan due the Lender described in Section
2D below has been paid in full from the proceeds of the Initial Public Offering;
and
(iii) The Borrower is not in default on the Loans due
the Lender and is otherwise in compliance with all of the terms and conditions
of the Relevant Loan Documents.
(b) Upon receipt from the Borrower of a written request to
modify the terms of the Loans and a certification by the Chief Executive Officer
of the Borrower that the conditions precedent set forth in Section 2B.2(a) above
have been fulfilled, the Lender agrees to modify the terms of the Revolving Loan
as follows:
(i) The Unlimited Surety Agreement of the Sureties
shall be released;
(ii) The Lender shall no longer be required to make
advances for the Revolving Loan based upon the Unbilled Receivables of Judge
Technical as set forth in Section 2A1.b(ii)(B) above;
(iii) The interest rate on the Revolving Loan shall be
reduced to a fluctuating interest rate per annum equal at all times to the
Lender's Prime Rate in effect from time to time, each change in such fluctuating
rate to take effect simultaneously with the corresponding change in the Lender's
Prime Rate, without prior
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notice to Borrower; provided, however, upon the occurrence of an Event of
Default, the Revolving Loan shall bear interest at the default rate of interest
set forth in the Committed Line of Credit Note; and
(iv) The Lender agrees to review and reset, in the
Lender's sole discretion, the financial reporting requirements in Section 5.5.,
the Financial Covenants set forth in Sections 5.15, and the Negative Covenants
in Section 6 hereinbelow.
2C. ADDITIONAL PROVISIONS RE: INTEREST AND PAYMENTS ON ALL THE LOANS
2C.1 Interest Calculation; Lawful Rate. Interest on the Loans
shall be calculated on a daily basis upon the unpaid principal balance, with
each day representing 1/360th of a year. If the interest rate calculated in
accordance with any provision of this Agreement for the Loans would at any time
exceed the maximum permitted by any law then applicable to such Loans, then for
such period as such rate would exceed the maximum permitted by such law (and no
longer), the rate of interest payable on such Loans shall be reduced to the
maximum permitted by such law.
2C.2 Charge Against Borrower. Lender may, at its discretion,
charge the amount of any payment of principal or interest on the Loans to any
checking or loan account of Borrower, deduct such amount from any future Loan to
Borrower, or apply any Collateral proceeds or other funds received by Lender
against payment of such amount.
2C.3 Non-Banking Days. If any payment pursuant to this
Agreement or any of the Relevant Documents shall be stated to be due on a day
other than a Banking Day, such payment may be made on the next succeeding
Banking Day and such extension of time shall be included in computation of the
interest or other payment due.
2C.4 Reimbursement of Increased Cost to Lender. If any law,
regulation or guideline, or change in any law, regulation or guideline or in the
interpretation thereof, or any order or ruling by any regulatory body, court or
other governmental authority, or compliance by the Lender with any request or
directive (whether or not having the force of law) of any such regulatory body,
court or authority, shall impose, modify, or deem applicable to Lender any
reserve, capital, special deposit or other requirement or condition in respect
of this Agreement or any of the Loans, which results in an increased cost or
reduced benefit to Lender in maintaining any of the Loans (as determined by
reasonable allocation of the aggregate of such increased costs or reduced
benefits to Lender resulting from such event), then Borrower shall pay to Lender
from time to time, upon demand, additional amounts sufficient to compensate
Lender for such increased costs or reduced benefits, together with interest on
each such amount from a date ten (10) days after the date demand until payment
in full thereof, at
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the highest rate then applicable to the Loans. A certificate setting forth in
reasonable detail such increased cost incurred or reduced benefit realized by
Lender as a result of any such event shall be conclusive as to the amount
thereof, absent manifest error.
2C.5 Name of Lender. Although some of the Relevant Documents
may bear the name of Lender's predecessor by merger, Midlantic Bank, N.A., the
term "Lender" wherever used is intended to mean PNC Bank, National Association.
2D. TERM LOAN
2D.1 Amount and Terms of Term Loan; Documents;
Collateral.
(a) Subject to Section 2B hereof, Lender loaned to
Borrower on September 3, 1996, as a Term Loan the principal sum of One Million
Dollars ($1,000,000) to refinance, in part, amounts previously borrowed by
Borrower from the Lender on the Revolving Loan. Borrower's ability to borrow
under the Revolving Loan from time to time shall be reduced by an amount equal
to the principal balance outstanding on the Term Loan; provided, however, as the
Term Loan principal is reduced (repaid), the availability for borrowing under
the Revolving Loan shall be correspondingly restored as is provided in Section
2A.1(b)(i) above.
(b) The proceeds of the Term Loan were used, in
part, by the Borrower to satisfy the indebtedness then due by the Borrower to
the Internal Revenue Service for past due withholding taxes, interest and
penalties of approximately Four Hundred Sixty-Five Thousand Dollars
($465,000.00), to repay an indebtedness then due by the Borrower in the
approximate amount of Three Hundred Twenty-Two Thousand Dollars ($322,000.00) to
Paul Hansen, a prior shareholder, and to fund miscellaneous capital
expenditures. The Borrower provided evidence satisfactory to the Bank of the
disbursement of the Term Loan proceeds for such purposes (including proof of
satisfaction of the Internal Revenue Service indebtedness).
(c) Borrower executed and delivered to Lender on
September 3, 1996, the Term Loan Note and such other documents as Lender
required.
(d) The Collateral defined hereinbelow in Section
3.2(b) continues to serve as Collateral for the Term Loan and all other
Borrower's Obligations due the Lender.
2D.2. Interest Rate. Except in the event of a
default as provided in the Term Loan Note, the Term Loan bears interest at a
fluctuating interest rate per annum equal at all times to one and one-half
(1 1/2%) percent above the Lender's Prime Rate in effect from time to time, each
change in such fluctuating rate to take effect simultaneously with the
corresponding change in the Prime Rate, without notice to
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Borrower; provided, however, upon the occurrence of an Event of Default, the
Term Loan shall bear interest at the default rate of interest set forth in the
Term Loan Note.
2D.3. Payment of Principal and Interest. The Borrower
is repaying the Term Loan to the Lender in monthly principal payments plus
interest at the interest rate set forth above and in the amounts as provided in
the Term Loan Note.
2D.4. Term of Term Loan. Subject to Section
2B.2(a)(ii) above, the Term Loan is for a term of the lesser of the remaining
term of the Term Loan Note months, or, (ii) the completion date of the Initial
Public Offering, whichever first occurs.
2D.5. Prepayment. The Term Loan may be prepaid in
full, at any time, without prepayment premium or penalty.
3. SECURITY INTEREST; ADDITIONAL DEFINITIONS
3.1 Reaffirmation of Collateral; Grant of Security Interests.
As security for the due and punctual payment and performance of all of
the Obligations (defined below), whether pursuant to this Agreement or
otherwise, on June 2, 1995 and prior thereto, some of the Borrowers executed and
delivered to the Lender their respective General Security Agreements and forms
UCC-1 or forms UCC-3, financing statements, pursuant to which those Borrowers
pledged, transferred and assigned to Lender, and granted to Lender security
interests in (a) all of the Collateral wherever located and whether now existing
or hereafter created and whether now owned or hereafter acquired by Borrower,
and (b) all accessions and additions thereto, replacements and substitutions
therefor, and proceeds and products thereof. Judge Group, New Judge, Inc.,
Berkeley Associates and Judge Acquisition have on even date herewith executed
and delivered to the Lender their Security Agreement and financing statements
(forms UCC-1) so as to pledge and grant to Lender a first security interest in
all of their assets as collateral security for the Obligations due Lender by
Borrowers (including Judge Group, New Judge, Inc., Berkeley Associates and Judge
Acquisition). All of the Borrowers hereby reaffirm, pledge, transfer grant, and
assign to Lender, and reaffirm their continuing grants to Lender of security
interests in (a) all of the Collateral wherever located and whether now existing
or hereafter created and whether now owned or hereafter acquired by Borrowers,
and (b) all accessions and additions thereto, replacements and substitutions
therefor, and proceeds and products thereof. It is the intent of the Borrowers
that the security interests of the Lender in the Collateral shall continue to
secure the Loans due the Lender by the Borrowers without the necessity on this
date of re-filing additional financing statements with respect to Borrowers
against whom financing statements have already been filed by Lender. The
security interests reaffirmed and granted hereby, and all remedies and other
rights stated or referred to in this Agreement or any of the Relevant Documents,
shall continue in full force and legal effect until full and final payment and
performance of the Loans and all other Obligations under this Agreement and the
Relevant Documents.
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3.2 Definitions of "Obligations," "Collateral" and
"Equipment"
(a) The term "Obligations" shall mean:
(i) all principal of and interest on the Revolving
Loan or the Term Loan, and all other sums payable by Borrower or any Related
Entity under the terms of this Agreement or any of the Relevant Documents,
(ii) all other indebtedness, liabilities,
obligations and agreements of every kind and nature of Borrower or any Related
Entity to or with Lender or any affiliate of Lender,
(iii) all guaranties of any of Borrower's
Obligations, and
(iv) any participation or interest of Lender or
any affiliate of Lender in any indebtedness, liabilities, obligations or
agreements of Borrower, any Related Entity or any such guarantor to or with
others, in each case whether now existing or hereafter created, whether now or
hereafter contemplated, whether pursuant to this Agreement, any of the Relevant
Documents or otherwise, whether in the form of refinancing, letters of credit,
bankers acceptances, guaranties, loans, interest, charges, fees, expenses or
otherwise, whether direct or indirect, whether acquired outright, conditionally
or as collateral security from another, whether absolute or contingent, joint or
several, liquidated or unliquidated, secured or unsecured, and whether arising
by operation of law or otherwise, and including without limitation any future
advances, renewals, extensions, modifications or changes in form of, or
substitutions for, any of the items described in this clause and in the
preceding clauses (i) through (iii).
(b) The term "Collateral" shall mean the following,
wherever located and whether now subject to Section 2B with respect to the
Sureties, existing or hereafter created and whether now owned or hereafter
acquired: (i) the Borrower's Accounts; (ii) the Borrower's Inventory; (iii) the
Borrower's Equipment; (iv) the unlimited continuing guaranty as sureties, of
Martin E. Judge, Jr., individually; Michael A. Dunn, individually and Kathleen
A. Dunn, individually, husband and wife; (v) all guaranties, security and liens
for payment of any of Borrower's Accounts, and all of Borrower's documents of
title, policies or certificates of insurance, insurance proceeds, proceeds of
condemnation or other seizure, securities, chattel paper and other documents and
instruments evidencing or pertaining to any thereof; all claims of Borrower
against third parties for loss of or damage to, or otherwise relating to, any of
the Collateral; and all files, correspondence, customer lists, computer
programs, tapes, discs and related data processing software, owned by Borrower
or in which Borrower has an interest, which contains information identifying any
of the Collateral or identifying an Account debtor or the amount owed by same,
or which would otherwise be necessary or helpful in the
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realization on any of the Collateral; (vi) all of Borrower's moneys, securities,
drafts, notes, items, contract rights, leases, licenses and general intangibles,
and all general or special deposits, balances, sums, proceeds and credits of
Borrower; (vii) all of Borrower's trade names, trademarks, trademark
registrations, copyrights, patents, patent applications and licenses, and other
franchises and licenses in which Borrower has an interest, and all other
tangible personal property similar to any of the foregoing; (viii) all other
property of Borrower; (ix) all rights and remedies which Borrower might exercise
with respect to any of the foregoing but for the execution of this Agreement;
and (x) all accessions and additions to, replacements and substitutions for, and
proceeds and products of, the items described in the preceding clauses (i)
through (ix).
(c) The term "Equipment" shall mean all items
described in the UCC definition thereof and all of the following, whether or not
so described (in all cases whether now owned or hereafter acquired by Borrower
and wherever located): all of Borrower's equipment, machinery, furniture,
fixtures, motor vehicles, parts, supplies and tools, and all other tangible
personal property similar to any of the foregoing, and all repairs,
modifications, alterations, replacements, additions, controls and operating
accessories therefor.
3.3 Reaffirmation of Sureties. Martin E. Judge, Jr., Michael
A. Dunn and Kathleen A. Dunn, husband and wife, who have re-executed Unlimited
Surety Agreements of payment to the Lender, hereby reaffirm their respective
Unlimited Surety Agreements as sureties as to all liabilities due the Lender by
the Borrower and agree that said Unlimited Surety Agreements will remain in full
force and effect as to all said liabilities due the Lender.
3.4 Further Assurances. Borrower shall execute and deliver
such financing statements and other documents (in form and substance
satisfactory to Lender) and take such other actions as Lender may request from
time to time in order to create, perfect or continue the security interests and
other liens provided for by this Agreement under the UCC or other laws of the
Commonwealth of Pennsylvania or under any other state or federal law.
4. REPRESENTATIONS AND WARRANTIES
All of the representations and warranties set forth in the
Relevant Documents are hereby restated and reaffirmed by the Borrowers as of the
date hereof, as if such representations and warranties were set forth at length
herein. The Borrowers hereby acknowledge that such representations and
warranties are being specifically relied upon by the Bank as an inducement to
the Bank to enter into this Agreement and as partial consideration for the terms
and conditions contained herein. In addition to the representations and
warranties already contained in the Relevant Documents, the Borrowers, as a
material inducement to the Bank to enter into this Agreement, hereby
acknowledge, confirm, represent and warrant that:
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4.1 Organization and Qualification.
(a) Each of the entities comprising the Borrower are
corporations duly organized, validly existing and in good standing under the
laws of the respective jurisdictions stated at the beginning of this Agreement.
(b) Borrower has the power and authority, and all
necessary licenses or other authorizations, to own its properties and to carry
on its business as now conducted, and is duly qualified and in good standing in
each jurisdiction wherein the nature of the property owned or used or of the
business conducted requires such qualification.
4.2 Due Authorization; No Default.
(a) The execution, delivery and performance by
Borrower of this Agreement, the Notes and the Relevant Documents are within
Borrower's powers, have been duly authorized by all necessary action on the part
of Borrower, and do not and will not (i) violate Borrower's Certificate or
Articles of Incorporation or ByLaws, or any applicable law or regulation, or any
judgment, order or decree of any judicial or other governmental body, (ii)
constitute a breach of, or default under, any agreement, undertaking or
instrument to which Borrower is a party or by which it may be affected, or (iii)
result in the imposition of any lien, encumbrance or restriction on any assets
of Borrower.
(b) Borrower has delivered to Lender true and complete
copies of Borrower's resolutions necessary to authorize the transactions
contemplated by this Agreement, and of Borrower's Certificate or Articles of
Incorporation and ByLaws, all as in effect on the date hereof and certified by a
duly authorized officer of the Borrower.
(c) This Agreement and the Relevant Documents upon
their execution and delivery, and the Notes upon their issuance, will be legal,
valid and binding obligations of Borrower, enforceable against Borrower in
accordance with their respective terms.
(d) The Borrowers have no defenses, charges, claims,
demands, pleas or offsets whatsoever in law or equity against the Lender or
against the enforcement of the Loan Documents;
4.3 No Governmental Consent Necessary. No authorization,
approval or other action by, and no notice to or filing with, any governmental
authority or regulatory body is required for the due execution, delivery and
performance by Borrower of this Agreement, the Notes or any of the Relevant
Documents.
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4.4 No Proceedings. There are no pending or threatened claims,
actions, proceedings or investigations before any court, arbitrator, or
governmental body or agency that may, singly or in the aggregate, have a
material adverse effect on (a) the validity or enforceability of this Agreement,
the Notes or any of the Relevant Documents, or the ability of Borrower to
perform any of its Obligations, or (b) the financial condition or the properties
or operation of Borrower.
4.5 Financial Statements.
(a) Subject to any limitation stated therein, all
balance sheets, income statements and other financial data which have been or
shall hereafter be furnished to Lender do and will truly and fairly present the
financial condition of Borrower as at the respective dates thereof and the
results of its operations for the respective dates thereof and the results of
its operations for the periods ended on such dates, in accordance with generally
accepted accounting principles consistently applied during all periods. All
other information, reports and other papers and data furnished to Lender are, or
will be at the time the same are so furnished, true, accurate and complete in
all material respects.
(b) Except as shown on the most recent financial
statements set forth on Schedule 1 to this Agreement, Borrower has no
liabilities as of the date hereof which would have an adverse effect on the
Collateral or on the financial condition, operations or other properties of
Borrower.
4.6 No Change in Financial Condition; Solvency.
(a) There has been no material change in Borrower's
financial condition since the date of its last financial statements as set forth
on Schedule 1 to this Agreement.
(b) Borrower's assets, at a fair valuation, exceed
Borrower's liabilities (including, without limitation, contingent liabilities),
Borrower is paying its debts as they become due, and Borrower has capital and
assets sufficient to carry on its business.
4.7 Compliance With Laws. Borrower is in compliance with all
federal, state and local statutes, rules, regulations, orders and other
provisions of law applicable to its ownership or use of properties or the
conduct of its business; Borrower has not received any notice of violation of
any of the foregoing; and Borrower is not in violation of any judgment, order or
decree of any judicial or other governmental body.
4.8 No Other Violation. Borrower is not in violation of any
term of its Certificate or Articles of Incorporation or ByLaws, and no event or
condition has occurred and is continuing which constitutes or results in (or
would constitute or result
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in, with the giving of notice, lapse of time or other condition) (a) breach of,
or a default under, any material agreement, undertaking or instrument to which
Borrower is a party or by which it may be affected, or (b) the imposition of any
lien, encumbrance or restriction on any property of Borrower.
4.9 Taxes and Assessments. Borrower has filed all federal,
state and local tax returns and other reports it required to file to the date
hereof (or has obtained valid, written extensions as to any not so filed), has
paid all taxes, assessments and other governmental charges due and payable to
the date hereof except as has been reported to the Lender in writing, and has
made adequate provision for the payment of such taxes, assessments and charges
accrued but not yet payable. Borrower has no knowledge of any deficiency or
additional assessment in a materially important amount in connection with any
taxes, assessments or other governmental charges not provided for or disclosed
in the financial statements set forth on Schedule 1 to this Agreement.
Borrower's federal income tax returns for the year ended 1990 have been audited
by the Internal Revenue Service, and the tax liability of Borrower for such
periods has been fully determined by the Internal Revenue Service and satisfied.
4.10 Accounts. The list of Accounts delivered to Lender is
complete and contains an accurate aging thereof and, except as otherwise
specified by Borrower to Lender in writing, each of said Accounts meets the
criteria for a Qualified Account stated in Section 2A.1(c)(ii) of this
Agreement.
4.11 Inventory. Borrower's Inventory, as reflected by its most
recent balance sheet included on Schedule 1 to this Agreement, consists of items
of a quality and quantity usable or saleable in the ordinary course of its
business; the values of obsolete items, items below standard quality and items
in the process of repair have been written down to realizable market value, or
adequate reserves have been provided therefore; and the values carried on said
balance sheet are set at the lower cost or market, in accordance with generally
accepted accounting principles consistently applied.
4.12 Books and Records. The location of the books and records
relating to the accounts and inventory of each Borrower is set forth on Schedule
3.
4.13 Location of Tangible Collateral. None of the Inventory,
Equipment or other tangible property constituting part of the Collateral is or
will be, or has been during the six (6) months preceding execution of this
Agreement, located in or on any premises other than those identified in Schedule
2 to this Agreement. Schedule 2 contains an accurate record of all landlords of
premises leased by Borrower and of all mortgagees of premises owned by Borrower.
4.14 Principal Places of Business and Chief Executive Offices.
The principal place of business and chief executive office of each of the
Borrowers is set forth on Schedule 3 to this Agreement.
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4.15 Other Name or Entities. Except as disclosed on Schedule 4
to this Agreement, none of Borrower's business is conducted through any
corporate subsidiary, unincorporated association or other entity and Borrower
has not, within the seven (7) years preceding the date of this Agreement (a)
changed its name, (b) used any name other than the name stated at the beginning
of this Agreement, or (c) merged or consolidated with, or acquired the assets
of, any corporation or other business. Except as set forth in this Agreement,
there are no other entities through or by which the Borrower or any affiliate of
Borrower transacts business.
4.16 Title and Liens. Borrower has good and marketable title
to all of the Collateral as sole owner thereof, free and clear of any mortgage,
security interest, assignment, pledge, hypothecation, or other lien or
encumbrance, except the liens created by this Agreement and any identified on
Schedule 5 to this Agreement. None of the Collateral is subject to any
prohibition against encumbering, pledging, hypothecating or assigning the same
or requires notice or consent in connection therewith.
4.17 ERISA. Borrower is in compliance in all material respects
with the provisions of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and the related provisions of the Internal Revenue Code, and
with all regulations and published interpretations issued thereunder by the
United States Treasury Department, the United States Department of Labor and the
Pension Benefit Guaranty Corporation ("PBGC"). Neither a reportable event as
defined in Section 1343 of ERISA, nor a prohibited transaction as defined in
Section 406 of ERISA or Section 4975 of the Internal Revenue Code, has occurred
and is continuing with respect to any employee benefit plan subject to ERISA
established or maintained or to which contributions have been or may be made, by
Borrower or by any trade or business (whether or not incorporated) which
together with Borrower would be treated as a single employer under Section 4001
of ERISA (any such trade or business being referred to hereinafter as an "ERISA
Affiliate," and any such employee benefit plan being referred to hereinafter as
a "Plan"). No notice of intention to terminate a Plan has been filed nor has any
Plan been terminated; the PBGC has not instituted proceedings to terminate, or
to appoint a trustee to administer, and Plan, nor do circumstances exist that
constitute grounds for any such proceedings; and neither Borrower nor any ERISA
Affiliate has completely or partially withdrawn from any multiemployer Plan
described in Section 4001(a)(3) of ERISA. Borrower and each ERISA Affiliate has
met the minimum funding standards under ERISA with respect to each of its Plans;
no Plan of Borrower or of any ERISA Affiliate has an accumulated funding
deficiency or waived funding deficiency within the meaning of ERISA; and no
material liability to the PBGC under ERISA has been incurred by Borrower or any
ERISA Affiliate.
4.18 O.S.H.A. Borrower has duly complied with, and its
facilities, business, leaseholds, equipment and other property are in compliance
in all material respects with, the provisions of the federal Occupational Safety
and Health Act and all rules and regulations thereunder and all similar state
and local laws, rules and regulations;
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and there are no outstanding citations, notices or orders of non-compliance
issued to Borrower or relating to its facilities, business, leaseholds,
equipment or other property under any such law, rule or regulation.
4.19 Environmental Matters.
(a) Except as disclosed in Schedule 6 to this
Agreement, no property owned or used by Borrower and located in the State of New
Jersey is an "industrial establishment" within the meaning of the New Jersey
Environmental Cleanup Responsibility Act ("ECRA") as superseded by the
Industrial Site Recovery Act ("ISRA") or is or has been used for the generation,
manufacture, refining, transportation, treatment, storage, handling or disposal
of any "hazardous substances" or "hazardous wastes" within the meaning of ECRA
or ISRA. The following are all of the Standard Industrial Classification Codes
applicable to the properties and operations of Borrower:
6710, 7361 and 5734
(b) Except as disclosed in Schedule 6 to this
Agreement, no property owned or used by Borrower and located in the Commonwealth
of Pennsylvania has been used for the generation, manufacture, refining,
transportation, treatment, storage, handling, disposal, transfer, production or
processing of hazardous substances except in compliance with all applicable
federal, state and local laws or regulations. Without limiting the generality of
the foregoing, no property owned or used by Borrower and located in the
Commonwealth of Pennsylvania or any other property owned or operated by the
Borrower, is being used, nor has it ever been used in the past for a landfill,
surface impoundment or other area for the treatment, storage, or disposal of
solid waste (including solid waste such as sludge). For purposes of this
paragraph, "hazardous substances" shall have the meanings ascribed thereto as
set forth in Sections 101(14) and (33) of the Comprehensive Environmental
Response, Compensation and Liability Act (42 USC Section 9601(14) and (33)) or
40 CFR Part 302 of the Federal Water Pollution Control Act Amendments of 1972,
33 U.S.C. 1321, or Section 103 of the Pennsylvania Hazardous Sites Cleanup Act
(35 P.S. Section 6020.101), or Section 103 of the Pennsylvania Hazardous
Materials Emergency Planning and Responsibility Act (35 P.S. Section 6022.103),
or in any amendment thereto or any replacement thereof.
(c) Borrower is in compliance in all material respect
with all applicable federal, state and local statues, rules, regulations, orders
and other provisions of law relating to air emissions, water discharge, noise
emissions, solid and liquid disposal, hazardous waste and substances, and other
environmental, health and safety matters.
4.20 Margin Stock. No part of the proceeds of the Revolving
Loan will be used, directly or indirectly, to purchase or carry any "margin
stock" (as defined in Regulation U issued by the Board of Governors of the
Federal Reserve System), to
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extend credit to others for the purpose of purchasing or carrying any such
margin stock, or for any purpose that violates any provision of Regulations G,
T, U or X issued by the Board of Governors of the Federal Reserve System.
4.21 Representations and Warranties True, Accurate and
Complete; Confirmation With Each Loan; Adequate
Professional Representation.
(a) None of the representations, warranties or
statements to Lender contained in this Agreement, in any of the Relevant
Documents or in any other writing delivered to Lender in connection with the
Collateral, this Agreement or any of the transactions contemplated thereby,
contains any untrue statement of a material fact or omits to state a material
fact necessary to make such representation, warranty or statement not misleading
in light of the circumstances under which it is made. All of such
representations, warranties and statements shall survive until full and final
payment and performance of the Loans and all other Obligations under this
Agreement and the Relevant Documents.
(b) Borrower's acceptance of each advance on the
Revolving Loan under this Agreement shall constitute a confirmation of the
matters set forth in the preceding Sections 4.1 through 4.21(a) as of the date
of such Loans. If requested by Lender, Borrower shall further confirm such
matters by delivery of a certificate dated the day of the Revolving Loan and
signed by a duly authorized officer of Borrower satisfactory to Lender.
(c) The Borrower and the Sureties represent to the
Lender that they have, at all times relevant to this Agreement, been represented
by advisors of their own selection including but not limited to attorneys at law
and certified public accountants; that they have not relied upon any
representation, warranty, agreement or information provided by the Lender, its
employees, agents or attorneys; that they acknowledge that they have been and
are informed of their rights, duties and obligations with respect to the Loans
due the Lender under all applicable laws; that they have no set-offs, defenses,
claims or recoupments against the Lender with respect to the Loans due the
Lender by the Borrower.
(d) The Borrower and the Sureties acknowledge and
agree that the Lender has made no representations, warranties, agreements or
provided information to them in order to induce the execution of this Agreement.
The Borrowers and the Sureties further acknowledge and agree that all agreements
of the parties are set forth in this Agreement and/or in the Relevant Loan
Documents or written documentation evidencing and/or amending the Revolving Loan
or the Term Loan.
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5. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, until full and final
payment and performance of the Loans and all other Obligations under this
Agreement and the Relevant Documents, Borrower shall, unless Lender shall
otherwise consent in writing:
5.1 Maintenance of Existence and Qualifications. Maintain and
preserve in full force and effect its existence and good standing and all other
rights, powers, franchises, licenses and qualifications necessary or desirable
for its ownership or use of properties or the conduct of its business.
5.2 Payment of Taxes and Other Obligations. Pay (a) before
they become delinquent, all taxes, assessments and governmental charges imposed
upon it or any of its property or required to be collected by it, and (b) when
due, all other indebtedness and liabilities of any kind now or hereafter owing
by it.
5.3 Maintenance of Properties. Maintain its properties in good
working order and condition.
5.4 Notice of Adverse Events. Promptly notify Lender in
writing of the occurrence or existence of any of the following: (a) any Event of
Default as defined in this Agreement or any event which, with the giving of
notice, lapse of time or other condition, would become such an Event of Default;
(b) any matter or event which has resulted in, or may result in, a material
adverse change in the financial condition or any property or operations of
Borrower; (c) any material claim, action, proceeding or investigation filed or
instituted against Borrower, or any adverse determination in any material
pending action, proceeding or investigation affecting it; (d) any loss from
casualty or theft in excess of Fifty Thousand Dollars ($50,000), whether or not
insured, affecting property of Borrower; (e) whether or not otherwise reportable
under this Section 5.4, any complaint, citation, order or other notice of a
violation or a claim involving any of the following, if the liability or penalty
therefor may exceed One Hundred Thousand Dollars ($100,000) singly or in the
aggregate: any applicable federal, state or local statute, rule, regulation,
order or other provision of law relating to air emissions, water discharge,
noise emissions, solid or liquid disposal, hazardous waste or substances, or
other environmental, health or safety matters (the notice to Lender to include,
along with other relevant information, the name of the complainant or claimant
and the nature and potential amount of the claim); (f) any event or condition
described in Section 8.15 of this Agreement relating to ERISA; or (g) if any of
the representations and warranties contained in this Agreement, or in any of the
Relevant Documents or any other writing delivered to Lender by Borrower in
connection with this Agreement or any of the transactions contemplated thereby,
ceases to be true, correct and complete.
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5.5 Information and Documents to be Furnished to Lender.
Furnish to Lender in form and substance satisfactory to it:
(a) Financial Statements:
(i) Annual Statements. As soon as available and in
any event within one hundred twenty (120) days after the end of such fiscal year
of each Borrower:
(A) The certified and audited consolidated and
consolidating income and retained earnings statements of each Borrower for each
fiscal year;
(B) The certified and audited consolidated and
consolidating balance sheet of each Borrower as at the end of such fiscal year;
and
(C) The certified and audited consolidated and
consolidating statement of cash flows of each Borrower for such fiscal year;
each setting forth in comparative form the
corresponding figures as at the end of the previous fiscal year, all in
reasonable detail, including all supporting schedules and comments. The
foregoing statements and balance sheets shall be prepared in accordance with
generally accepted accounting principles consistently applied and maintained
("GAAP") and shall be certified and audited by independent certified public
accountants of recognized standing acceptable to Lender in the reasonable
exercise of its discretion with respect to which such accountants shall deliver
their opinion.
(ii) Monthly Financial Statements. As soon as
available but in no event later than thirty (30) days after the end of each
month, a balance sheet of each Borrower as of the end of such month and
statements of income, cash flows and changes in stockholders' equity for such
month and for the period commencing at the end of the previous fiscal year and
ending with the end of such month (all in reasonable detail and with all notes
and supporting schedules), prepared on a consolidated and consolidating basis,
certified by the Chief Executive Officer or the Chief Financial Officer of
Borrower as presenting fairly the financial condition of each Borrower as of the
dates and for the periods indicated and as having been prepared in accordance
with generally accepted accounting principles consistently applied, except as
may be otherwise disclosed in such financial statements or the notes thereto.
(b) Accounts, Inventory and Accounts Payable
Reports. On or before the fifteenth (15th) day of each month as at the close of
the preceding month, and from time to time as Lender may require: certificates
and assignment schedules describing the Qualified Accounts and Inventory in
detail and total, aging reports of
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Accounts, Accounts Payable aging reports, and Collateral and Loan Reconciliation
reports, all in such form as Lender may require.
Borrower shall at least once each week, submit a borrowing
base certificate to Lender in such form and containing such information as may
be required by the Lender.
(c) Change in Status. Immediately, notice
identifying any Inventory or Account that has ceased to be Qualified.
(d) Rejection, Delay, Claims. Immediately, notice
of the rejection of goods, delay in performance, or claims made in regard to
Accounts.
(e) ERISA Documents. As soon as filed or
distributed, all ERISA reports, notices, returns and other documents filed as
required by or in compliance with ERISA, whether to the Internal Revenue
Service, the Department of Labor, the Pension Benefit Guaranty Corporation or
any other appropriate agency.
(f) Violations. Immediately, a copy of any
complaint, citation, order or other notice of a violation or claim required to
be reported pursuant to Section 5.4(e) of this Agreement.
(g) Other Documents.
(i) Within thirty (30) days after the last day
of each calendar quarter, a certificate executed by the Chief Executive Officer
or Chief Financial Officer of Borrower satisfactory to Lender stating that there
then exists no Event of Default hereunder and no event which, with the giving of
notice or lapse of time or other condition, would constitute an Event of
Default;
(ii) Immediately upon demand of the Bank, all
original and other documents evidencing right to payment, including but not
limited to invoices, original orders, and shipping and delivery receipts; and
(iii) Immediately upon demand of the Bank, such
other documents or information as Lender may reasonably request, including
financial projections and cash flow analysis.
5.6 Access to Records and Property. At any time and from time
to time, upon request by Lender (but not in excess of four (4) times annually
unless in the opinion of Lender, the Borrower's financial condition or the
Collateral is deteriorating in which case there shall be no limitation on the
number of reviews by the Lender), give any representative of Lender access
during normal business hours to inspect any of Borrower's properties and to
examine, copy and make extracts from any and all books,
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records and documents in the possession of Borrower or any independent
contractor relating to Borrower's affairs or the Collateral (including without
limitation returns for federal income tax and other taxes).
5.7 Insurance at Borrower's Expense.
(a) Liability and Property Insurance. Maintain at
Borrower's expense (with such insurers, in such amounts and with such
deductibles as is satisfactory to Lender) public liability and third party
property damage insurance and insurance on the Collateral (including without
limitation insurance against fire, explosion, boiler damage, theft, burglary,
spoilage, pilferage, loss in transit and all other hazards and risks ordinarily
insured against by other owners or users of such properties in similar
businesses), which insurance shall be evidenced by policies (i) in form and
substance satisfactory to Lender, (ii) designating Lender and its assigns as
additional co-insureds or loss payees as their interests may appear from time to
time, (iii) containing a "breach of warranty clause" whereby the insurer agrees
that a breach of the insuring conditions or any negligence of Borrower or any
other person shall not invalidate the insurance as to Lender and its assigns,
and (iv) requiring at least thirty (30) days prior written notice to Lender and
its assigns before cancellation or any material change shall be effective.
(b) Copies of Policies. Upon demand, deliver to Lender the
original of each policy evidencing insurance required by this Section 5.7,
together with evidence of payment of all premiums.
(c) Notice and Proof of Loss. In the event of loss or
damage, forthwith notify Lender and file proofs of loss satisfactory to Lender
with the appropriate insurer, but without limiting the rights of Lender pursuant
to Section 7.1(k).
(d) Proceeds. Forthwith upon receipt, endorse and deliver
insurance proceeds to Lender, but without limiting the rights of Lender pursuant
to Section 7.1(k).
In no event shall Lender be required either to (i)
ascertain the existence of or examine any insurance policy, or (ii) advise
Borrower in the event such insurance coverage shall not comply with the
requirements of this Agreement.
5.8 Condition of Collateral; No Liens. Maintain the Collateral
in good condition and repair at all times, preserve the Collateral from loss,
damage, or destruction of any nature whatsoever, and keep the Collateral free
and clear of any mortgage, security interest, assignment, pledge, hypothecation,
or other lien or encumbrance, except the liens created by this Agreement and any
identified on Schedule 5 to this Agreement.
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5.9 Proceeds of Collateral. Forthwith upon receipt, pay to
Lender all proceeds of Collateral, whereupon such proceeds shall become Lender's
sole property.
5.10 Records. Maintain complete and accurate books and records
of all of its operations and properties, including records of the Collateral and
the status of each of the Accounts.
5.11 Delivery of Documents. If any proceeds of Accounts shall
include, or any of the Accounts shall be evidenced by, notes, trade acceptances
or instruments or documents, or if any Inventory is covered by documents of
title or chattel paper, whether or not negotiable, immediately deliver them to
Lender appropriately endorsed. Borrower waives protest regardless of the form of
the endorsement. If Borrower fails to endorse any instrument or document, Lender
is authorized to endorse it on Borrower's behalf.
5.12 United States Contracts. If any of the Accounts arises
out of a contract with the United States or any of its departments, agencies or
instrumentalities, immediately notify Lender and execute any necessary
instruments in order that all money due or to become due under such contract
shall be assigned to Lender and proper notice of the assignment given under the
Federal Assignment of Claims Act.
5.13 Further Assurances.
(a) From time to time, execute and deliver such further
documents and take such further actions as Lender may reasonably request in
order to carry out the purposes of this Agreement, the Relevant Documents and
any other instruments, documents and agreements which shall be executed
concurrently herewith or thereafter with regard to the transactions contemplated
by this Agreement.
(b) In addition, if Judge Hospitality Services, Inc.,
Judge Electronic Services of Boston, Inc., Judge Electronic Services of
Philadelphia, Inc. or Judge Electronic Services, Inc. operate any business
activity after the date hereof, the Borrower shall immediately notify Lender of
such business activity, shall grant to Lender a first lien or security interest
in the assets of said entity, execute and deliver to Lender such further
documents and take such further actions as Lender may reasonably request, and
reimburse Lender for all costs and expenses incurred by Lender in connection
with such transactions including but not limited to reasonable attorneys fees
and costs.
5.14 Related Entities. Cause each Related Entity to comply
with the covenants stated in this Section 5, to the extent relevant to such
Entity, as if stated with reference to such Entity.
5.15 Affirmative Financial Covenants. The Borrowers shall
comply with the following financial covenants, (the "Financial Covenants") at
all times during the term of the Loans. The Financial Covenants shall be tested
by the Lender on a calendar
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quarter basis, i.e. September 30, December 31, March 31 and June 30 of each
calendar year during the term of the Loans. The Borrower shall deliver to the
Lender within forty-five (45) days after the end of each calendar quarter,
schedules setting forth in such detail as may reasonably be required by the
Lender, a computation of the Financial Covenants and certified by the Chief
Executive Officer or the Chief Financial Officer of Borrowers to be true and
correct. The Affirmative Financial Covenants are as follows:
(a) Tangible Net Worth. "Tangible Net Worth" shall mean the
Borrowers' net worth plus subordinated debt plus Series A Preferred Stock plus
subordinated advances from shareholders less officers'/employees' receivables
less amounts due on covenants not to compete, all of the foregoing as set forth
on the Borrowers' consolidated financial statements prepared in accordance with
GAAP. Borrowers' Tangible Net Worth shall not be less than the following amounts
at the dates set forth:
As of Tangible Net Worth
----- -------------------
September 30, 1996 $1,000,000
December 31, 1996 1,021,000
March 31, 1997 1,340,000
June 30, 1997 4,000,000
September 30, 1997 6,000,000
December 31, 1997 8,500,000
March 31, 1998 at least 95% of Tangible
Net Worth as of December 31, 1997
June 30, 1998 at least 105% of Tangible
Net Worth as of December 31, 1997
September 30, 1998 at least 115% of Tangible
Net Worth as of December 31, 1997
December 31, 1998 at least 125% of Tangible
Net Worth as of December 31, 1997
Anything to the contrary contained herein notwithstanding any increase in
goodwill and any other intangibles of the Borrowers over the actual amount of
goodwill and any other intangibles on the September 30, 1996 financial
statements of the Borrowers shall become a reduction of Tangible Net Worth in
testing this covenant as of December 31, 1996 and March 31, 1997.
(b) Ratio of Liabilities to Tangible Net Worth. The ratio of
Borrowers' consolidated Liabilities to Borrowers' Tangible Net Worth shall not
exceed the following ratios at the dates indicated:
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As of Ratio Not to Exceed
----- -------------------
September 30, 1996 15.0 to 1
December 31, 1996 19.0 to 1
March 31, 1997 14.5 to 1
June 30, 1997 4.5 to 1
September 30, 1997 3.0 to 1
December 31, 1997 and thereafter 3.0 to 1
(c) Ratio of Liabilities Service Coverages. During the terms
of the Loans, the Borrowers' Liabilities Service Coverage ratio shall be at
least 1.5 to 1, except for the period ending September 30, 1996 at which time
the Liabilities Service Coverage ratio shall be at least 1.295 to 1 for the
period ending December 31, 1996, at which time the Liabilities Service Coverage
shall be at least 1.34 to 1, and for the period ending March 31, 1997, the
Liabilities Service Coverage shall be at least 0.911 to 1, all measured on a
rolling four (4) calendar quarter basis and shall be determined as follows, all
as set forth in the Borrowers' consolidated financial statements prepared in
accordance with GAAP:
Net profit plus depreciation plus amortization less
unfunded capital expenditures less dividends paid
-------------------------------------------------
Current portion of long term Liabilities
6. NEGATIVE COVENANTS
Borrower covenants and agrees that, until full and final
payment and performance of the Loans and all other Obligations under this
Agreement and the Relevant Documents, Borrower shall not, unless Lender shall
otherwise consent in writing:
6.1 No Consolidation, Merger, Acquisition, Liquidation. Except
as provided on Schedule 6.1, enter into any merger, consolidation,
reorganization or recapitalization; take any steps in contemplation of
dissolution or liquidation; conduct any part of Borrower's business through any
corporate subsidiary, unincorporated association or other entity not disclosed
on Schedule 4 to this Agreement; or acquire the stock or assets of any person,
firm, joint venture, partnership, corporation or other entity, whether by
merger, consolidation, purchase of stock or otherwise.
6.2 Disposition of Assets or Collateral. Sell, lease, or
otherwise transfer or dispose of any or all of the Collateral or other assets of
Borrower, other than the sale of Inventory in the ordinary course of business
and the retirement of other assets in the normal course of operations.
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6.3 Other Liens. Incur, create or permit to exist, any
mortgage, security interest, assignment, pledge, hypothecation, lien,
encumbrance, conditional sale or other title retention agreement, financing
lease having substantially the same effect as any of the foregoing, or other
preferential arrangement of any type, in each case upon or with respect to any
assets of Borrower, whether now owned or hereafter acquired, except (a) liens
for taxes not delinquent, (b) the liens created by this Agreement and the
Relevant Documents, (c) any liens identified on Schedule 5 to this Agreement, or
(d) liens in an aggregate amount at any time outstanding not exceeding Seven
Hundred Thousand Dollars ($700,000) in 1996 and thereafter.
6.4 Other Liabilities. Incur, create, assume or permit to
exist any indebtedness or liability on account of either borrowed money or the
deferred purchase price of property or services, except (a) Obligations to
Lender, (b) indebtedness subordinated to payment of the Obligations on terms
approved by Lender in writing and identified on Schedule 6.4, (c) those
liabilities existing on the date of this Agreement and shown by the financial
statements attached as Schedule 1 to this Agreement, or (d) liabilities secured
by liens permitted under Section 6.3.
6.5 Loans. Makes loans to any person or entity except for (a)
loans to each of the Borrower, inter se, and (b) loans listed on Schedule 6.5.
6.6 Guaranties; Contingent Liabilities. (a) Except as provided
on Schedule 6.6, assume, guarantee, endorse, contingently agree to purchase or
otherwise become liable upon the obligation of any person or entity, except by
the endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business, or (b) agree to maintain the
working capital or net worth of any person or entity or to make investment in
any person or entity (except for short-term investment of excess cash), or (c)
guarantees of liabilities under Section 6.4.
6.7 Dividends and Other Distributions. Declare or pay any cash
dividend or make any distribution on, or redeem, retire or otherwise acquire
directly or indirectly, any share of its stock, or make any distribution of
assets to its stockholders.
6.8 Transactions with Affiliates. Except for transactions
among Borrower, inter se and except as provided in Schedule 6.8, enter into any
transaction with a person or entity directly or indirectly controlling,
controlled by or under the direct or indirect common control of Borrower, on a
basis less favorable in a material respect to Borrower than if such transactions
were not with such a person or entity.
6.9 Sale of Inventory. Sell any of the Inventory or a
bill-and-hold, guaranteed sale, sale-and-return, sale on approval or consignment
basis, or any other basis subject to a repurchase obligation or return right.
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6.10 Removal of Collateral. Remove, or cause or permit to be
removed, any of the Collateral or other assets from the premises listed with the
Lender, except for sales of Inventory in the ordinary course of business.
6.11 Transfer of Notes or Accounts. Sell, assign, transfer,
discount or otherwise dispose of any Accounts or any promissory note or other
instrument payable to it with or without recourse, except for collection without
recourse in the ordinary course of business.
6.12 Settlements. Compromise, settle or adjust any claim in a
material amount relating to any of the Collateral.
6.13 Modification of Governing Documents. Change, alter or
modify, or permit any change, alteration or modification of, its Certificate of
Incorporation or Bylaws or other governing documents in any way that will have
any adverse effect on the Borrower's Obligations to the Lender.
6.14 Change Business. Cause or permit a material change in the
nature of its business as conducted on the date of this Agreement.
6.15 Change of Location or Name. Change any of the following:
(a) the locations stated in Section 4.12 of this Agreement for the maintenance
of the books and records relative to the Accounts and Inventory, (b) the
location of the principal place of business or chief executive office of
Borrower as stated in Section 4.14 of this Agreement, or (c) the name under
which Borrower conducts any of its business operations.
6.16 Change of Accounting Practices. Change its present
accounting principles or practices in any material respect, except as may be
required by changes in generally accepted accounting principles.
6.17 Inconsistent Agreement. Enter into any agreement
containing any provision that would be violated by the performance of Borrower's
obligations under this Agreement or any of the Relevant Documents or under any
document delivered or to be delivered by it in connection therewith.
6.18 Intentionally Omitted.
6.19 Capital Expenditures. During any fiscal year, enter into
any agreement to purchase or pay for, or become obligated to pay for, capital
expenditures, long term leases, capital leases or sale lease backs, in an amount
aggregated in excess of the following amounts:
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As of Not to Exceed
----- -------------
January 1, 1996 to December 31,1996 $1,500,000
January 1, 1997 to December 31, 1997
and in each year thereafter 750,000
Lender shall not unreasonably withhold its consent in the event the Borrowers
request Lender's consent to permit increases in the capital expenditures limits
if necessary to accommodate acquisitions and corresponding asset upgrades.
6.20 Limitation on Compensation. Pay or become obligated to
pay in salaries, bonuses or other compensation to Martin E. Judge, Jr., more
than $540,000 in 1996, or more than $780,000 in any year after the Initial
Public Offering.
6.21 Related Entities. Cause, suffer or permit any Related
Entity to fail to observe any covenant stated in this Section 6. as if stated
with reference to such Entity.
7. ADDITIONAL POWERS OF LENDER
7.1 Powers of Attorney. Borrower hereby constitutes and
appoints Lender (and any employee or agent of Lender, with full power of
substitution) its true and lawful attorney and agent in fact to take any or all
of the actions described below in Lender's or Borrower's name and at Borrower's
expense:
(a) Charges Against Credit Balances. Lender, without
demand, may charge and withdraw from any credit balance that Borrower may have
with Lender, or with any affiliate of Lender, any amount that shall become due
from Borrower to Lender under this Agreement or any of the Relevant Documents.
(b) Evidence of Liens. Lender may execute such financing
statements and other documents and take such other actions as Lender deems
necessary or proper in order to create, perfect or continue the security
interests and other liens provided for by this Agreement or any of the Relevant
Documents, and Lender may file the same (or a photocopy of this Agreement or of
any financing statement signed by Borrower) in any appropriate governmental
office.
(c) Preservation of Collateral. Lender may take any and
all action that it deems necessary or proper to preserve its interest in the
Collateral, including without limitation the payment of debts of Borrower that
might impair the Collateral or Lender's security interest therein, the purchase
of insurance on Collateral, the repair or safeguarding of Collateral, or the
payment of taxes, assessment or other liens thereon. All sums so expended by
Lender shall be added to the Obligations, shall be secured by the Collateral,
and shall be payable on demand with interest at the Default Rate from the
respective dates such sums are expended.
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(d) Lender's Right to Cure. In the event Borrower fails to
perform any of its Obligations, then Lender may perform the same but shall not
be obligated to do so. All sums so expended by Lender shall be added to the
Obligations, shall be secured by the Collateral, and shall be payable on demand
with interest at the Default Rate from the respective dates such sums are
expended.
(e) Verification of Accounts. Lender may make test
verifications of any and all Accounts in any manner and through any medium
Lender considers advisable, and Borrower shall render any necessary assistance.
(f) Collections; Modifications of Terms. Upon the
occurrence and continuance of any Event of Default, Lender may demand, sue for,
collect and give receipts for any money, instruments or property payable or
receivable on account for or in exchange for any of the Collateral, or make any
compromises it deems necessary or proper, including without limitation,
extending the time of payment, permitting payment in installments, or otherwise
modifying the terms or rights relating to any of the Collateral, all of which
may be effected without notice to or consent by Borrower and without otherwise
discharging or affecting the Obligations, the Collateral or the security
interest granted under this Agreement or any of the Relevant Documents.
(g) Notification of Account Debtors. Borrower, at the
request of Lender, shall notify the Account Debtors of Lender's security
interest in its Accounts. Upon the occurrence and continuance of any Event of
Default, Lender may notify the Account debtors on any of the Accounts to make
payment directly to Lender, and Lender may endorse all items of payment received
by it that are payable to Borrower; until such time as Lender elects to exercise
such right of notification, Borrower is authorized to collect and enforce the
Accounts in accordance with Section 2A.4.
(h) Notification as to Inventory. Lender may notify the
bailee of any Inventory of Lender's security interest therein.
(i) Endorsements. Lender may endorse Borrower's name on
checks, notes, acceptances, drafts, invoices, bills of lading and any other
documents or instruments requiring Borrower's endorsement.
(j) Mails. Upon the occurrence and continuance of any
Event of Default, Lender may notify the postal authorities to deliver all mail,
parcels, and other material addressed to Borrower to Lender at such address as
Lender may direct, and Lender may open and deal with same as it deems necessary
or proper.
(k) Insurance. Lender may file proofs of loss and claim
with respect to any of the Collateral with the appropriate insurer, and may
endorse in its own and Borrower's name any checks or drafts constituting
insurance proceeds.
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7.2 Irrevocability; Lender's Discretion. Borrower covenants
and agrees that any action in Section 7.1 may be taken at Lender's sole and
absolute discretion, at any time and from time to time, and (unless stated
specifically to the contrary in Section 7.1 with respect to any power) whether
prior or subsequent to an Event of Default, and Borrower hereby ratifies and
confirms all action so taken. Borrower further covenants and agrees that the
powers of attorney granted by Section 7.1 are coupled with an interest and shall
be irrevocable until full and final payment and performance of the Loans and all
other Obligations under this Agreement and the Relevant Documents; that said
powers are granted solely for the protection of Lender's interest and Lender
shall have no duty to exercise any thereof; that the decision whether to
exercise any of such powers, and the manner of exercise, shall be solely within
Lender's discretion; and that neither Lender nor any of its directors, officers,
employees or agents shall be liable for any act of omission or commission, or
for any mistake or error of judgment, in connection with any such powers.
8. EVENTS OF DEFAULT
The occurrence of any of the following shall constitute an
Event of Default:
8.1 Failure to Pay. Borrower fails to pay when due any
principal of or interest on any Revolving Loan or any other sum owing to Lender,
including without limitation any of the Obligations arising under this Agreement
or any of the Relevant Documents or under any other agreement with Lender;
8.2 Failure to Perform. Borrower fails to perform or observe
(a) any covenant, term or condition of this Agreement or any of the Relevant
Documents, and (b) any of the other Obligations;
8.3 Cross Default; Default on Other Debt. (a) Any other
default on any of the Obligations or under any of the Relevant Documents occurs,
or (b) default occurs under any indebtedness or other obligation of Borrower or
of any guarantor of any of the Obligations, or to any third party that entitles
such third party to declare such indebtedness or other obligation due prior to
its date of maturity;
8.4 False Representation or Warranty. Any representation,
warranty or statement contained in this Agreement, in any of the Relevant
Documents or in any other writing delivered to Lender in connection with the
Collateral, this Agreement or any of the transactions contemplated thereby,
proves to have been incorrect in any material respect when made;
8.5 Cessation of Business. Borrower ceases to do business as
a going concern;
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8.6 Change in Condition. There occurs any change in the
condition or affairs, financing or otherwise, of Borrower or of any endorser,
guarantor or surety for any of the Obligations, which in the opinion of Lender
impairs Lender's security or increases its risks;
8.7 Change in Ownership. Except with respect to shares of
the outstanding voting stock sold by Borrower as part of the Initial Public
Offering and except for 3,000 shares of Judge, Inc. being transferred from
Martin E. Judge, Jr. and Michael Dunn to Katharine A. Wiercinski, Richard
Furlano and Margaret Sulpazo, if at any time less than one hundred (100%)
percent of the issued and outstanding voting stock of Borrower is owned by
persons other than the shareholders holding voting stock of the Borrower on the
date of this Agreement; anything to the contrary in the foregoing sentence
notwithstanding, at any time, Martin E. Judge, Jr., shall own less than forty
percent (40%) of the voting stock of Borrower;
8.8 Insecurity. At any time Lender believes that the
prospect of payment or performance of any of the Obligations is impaired;
8.9 Liquidation or Dissolution. Borrower takes any action to
authorize its liquidation or dissolution;
8.10 Inability to Pay Debts. Borrower (a) becomes unable or
fails to pay its debts generally as they become due, (b) admits in writing its
inability to pay its debts, or (c) proposes or makes a composition agreement
with creditors, a general assignment for the benefit of creditors; or a bulk
sale;
8.11 Bankruptcy; Insolvency. Any proceeding is instituted by
or against Borrower (and such proceeding is not dismissed within sixty (60) days
after it is filed) (a) seeking to adjudicate it bankrupt or insolvent, or
seeking reorganization, arrangement, adjustment or composition of its or its
debts under any law relating to bankruptcy, insolvency or reorganization or
relief of debtors, or (b) seeking appointment of a receiver, trustee, or other
similar official for it or for any substantial part of its property, or Borrower
takes any action to authorize or consent to any action described in this Section
8.11;
8.12 Judgments. One or more judgment or orders for the
payment of money exceeding One Hundred Thousand Dollars ($100,000) in the
aggregate are rendered against Borrower, and such judgment or order continues
unsatisfied and not effectively stayed for a period of thirty (30) consecutive
days;
8.13 Attachment. Any substantial part of the assets of
Borrower becomes subject to attachment, execution, levy or like process which
shall not have been effectively stayed within thirty (30) days after it is
served upon the Borrower;
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8.14 Condemnation. Any governmental agency, or other entity
with power to do so, commences proceedings to condemn, seizes or expropriates
assets of Borrower necessary for the conduct of Borrower's business as conducted
on the date of this Agreement, without material change, or Borrower abandons
such assets or suspends operation thereof for a period of thirty (30)
consecutive days;
8.15 ERISA. With respect to any Plan (as defined in Section
4.17 of this Agreement), there occurs or exists any of the events or conditions
described in the following clauses (a) through (h) and such event or condition,
together with all like events or conditions, could in the opinion of Lender,
subject Borrower to any tax, penalty or other liability that might, singly or in
the aggregate, have a material adverse effect on the financial condition or the
properties or operations of Borrower: (a) a reportable event as defined in
Section 4043 of ERISA, (b) a prohibited transaction as defined in Section 406 of
ERISA or Section 4975 of the Internal Revenue Code, (c) termination of the Plan
or filing of notice of intention to terminate, (d) institution by the Pension
Benefit Guaranty Corporation of proceedings to terminate, or to appoint a
trustee to administer, the Plan, or circumstances that constitute grounds for
any such proceedings, (e) complete or partial withdrawal from a multiemployer
Plan, or the reorganization, insolvency or termination of a multiemployer Plan,
(f) an accumulation funding deficiency within the meaning of ERISA, (g)
violation of the reporting, disclosure or fiduciary responsibility requirements
of ERISA or the Internal Revenue Code, or (h) any act or condition which could
result in direct, indirect or contingent liability to any Plan or the Pension
Benefit Guaranty Corporation; or
8.16 Guaranty. Any guaranty of any of the Obligations ceases
to be effective or any guarantor denies liability thereunder.
9. REMEDIES
9.1 Rights in General. Upon the occurrence of an Event of
Default described in Section 8.11, and at the option of Lender upon the
occurrence of any other Event of Default and upon ten (10) days written notice
of a breach of Sections 8.1, 8.4, 8.5, or 8.10, and upon thirty (30) days
written notice of a breach of Sections 8.2, 8.3, 8.6, 8.7, 8.8, 8.9, 8.11, 8.12,
8.13, 8.14, 8.15 or 8.16, (a) all provisions for additional Loans under this
Agreement shall terminate, (b) the principal and interest of the Revolving Loan
and all other amounts payable under this Agreement and all other Obligations
shall become and be immediately due and payable, without presentment, demand,
protest, or further notice of any kind, all of which are hereby expressly waived
by Borrower, and (c) Lender shall be entitled to exercise forthwith (to the
extent and in such order as Lender may elect, in its sole and absolute
discretion) any or all rights and remedies provided for in this Agreement, any
Notes, or any Relevant Documents, all rights and remedies of a secured party
under the UCC, and all other rights and remedies that may otherwise be available
to Lender by agreement or at law or in equity.
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9.2 Specific Rights Regarding Collateral. In addition to the
rights as stated generally in Section 9.1, Borrower agrees that, upon the
occurrence of an Event of Default, Lender shall be entitled to the rights and
remedies, and Borrower shall have the obligations, set forth below:
(a) Lender may enter upon the premises where any of the
Collateral is located and take possession thereof and, at Lender's option,
remove or sell in place any or all thereof.
(b) Upon notice from Lender, Borrower shall promptly at
its expense assemble any or all of the Collateral and make it available at a
reasonably convenient place designated by Lender.
(c) Lender may, with or without judicial process, sell,
lease or otherwise dispose of any or all of the Collateral at public or private
sale or proceedings, by one or more contracts, in one or more parcels, at the
same or different times and places, with or without having the Collateral at the
place of sale or other disposition, to such persons or entities, for cash or
credit or for future delivery and upon such other terms, as Lender may in its
discretion deem best in each such matter. The purchaser of any of the Collateral
at any such sale shall hold the same free of any equity or redemption or other
right or claim of Borrower, all of which - together with all rights of stay,
exemption or appraisal under any statute or other law now or hereafter in
effect - Borrower hereby unconditionally waives to the fullest extent permitted
by law. If any of the Collateral is sold on credit or for future delivery,
Lender shall not be liable for the failure of the purchaser to pay for same and,
in the event of such failure, Lender may resell such Collateral.
(d) Borrower hereby further agrees that notice of the
time and place of any public sale, or of the time after which any private sale
or other intended disposition or action relating to any of the Collateral is to
be made or taken, shall be deemed commercially reasonable notice thereof, and
shall satisfy the requirements of any applicable statute or other law, if such
notice (i) is delivered not less than three (3) business days prior to the date
of the sale, disposition or other action to which the notice relates, or (ii) is
mailed (by ordinary first class mail, postage prepaid) not less than five (5)
business days prior thereto. Lender shall not be obligated to make any sale or
other disposition or take other action pursuant to such notice and may, without
other notice or publication, adjourn or postpone any public or private sale or
other disposition or action by announcement at the time and place previously
fixed therefor, and such sale, disposition or action may be held or accomplished
at any times or places to which the same may be so adjourned or postponed.
(e) Lender may purchase any or all of the Collateral at
any public sale and may purchase at private sale any of the Collateral that is
of a type customarily sold in a recognized market or the subject of widely
distributed price quotations or as
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may be further permitted by law. Lender may make payment of the purchase price
for any Collateral by credit against the then outstanding amount of the
Obligations.
(f) Lender may at its discretion retain any or all of
the Collateral and apply the same in satisfaction of part or all of the
Obligations.
(g) Any cash proceeds of sale, lease or other
disposition of Collateral shall be applied as follows:
First: To the expenses of collecting,
enforcing, safeguarding, holding and disposing of
Collateral, and to other expenses of Lender in
connection with the enforcement of this Agreement,
the Notes, any of the Relevant Documents, or any
other agreement relating to any of the Obligations
(including without limitation court costs and the
fees and expenses of attorneys, accountants and
appraisers), together with interest at the Default
Rate from the respective date such sums are expended;
Second: Any surplus then remaining to the
payment of interest and principal of the Loans and
other sums payable as part of the Obligations, in
such order as Bank elects; and
Third: Any surplus then remaining to
Borrower or whomever may be lawfully entitled
thereto.
9.3 Set-Off. Borrower further agrees that:
(a) Upon the occurrence of an Event of Default, Lender
is hereby authorized at any time from time to time, without notice to Borrower
(any such notice being expressly waived by Borrower), to set off and apply (or
cause any affiliate of Lender to set off and apply) any and all deposits
(general or special, time or demand, provisional or final) at any time held and
other indebtedness at any time owing by Lender or such affiliate to or for the
credit or the account of Borrower, against any or all of the Obligations of
Borrower now or hereafter existing under this Agreement, the Notes or otherwise,
irrespective of whether or not Lender shall have made any demand and although
such Obligations may be unmatured.
(b) If any other lender has participated with Lender
with respect to any of the Loans, Borrower hereby authorizes such participating
lender, upon the occurrence of any Event of Default, immediately and without
notice or other action, at request of Lender, to set off against any of
Borrower's Obligations to Lender any deposits held or money owed by such
participating lender in any capacity to Borrower, whether or not due, and to
remit the money set off to Lender.
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(c) The rights stated in this Section 9.3 are in addition
to other rights and remedies (including, without limitation, other rights of
set-off or lien) that Lender or any participating lender may have.
9.4 Cumulative Remedies; No Waiver by Lender. No remedy
referred to in this Agreement is intended to be exclusive, but each shall be
cumulative and in addition to any other remedy referred to in this Agreement or
otherwise available to Lender by agreement or at law or in equity. No express or
implied waiver by Lender of any default or Event of Default shall in any way be,
or be construed to be, a waiver of any future or subsequent default of Event of
Default. The failure or delay of Lender in exercising any rights granted it
hereunder upon any occurrence of any of the contingencies set forth herein shall
not constitute a waiver of any such right upon the continuation or recurrence of
any such contingency or similar contingencies, and any single or partial
exercise of any particular right by Lender shall not exhaust the same or
constitute a waiver of any other right.
9.5 Waivers and Consents Relating to Remedies. In connection
with any action or proceeding arising out of or relating in any way to this
Agreement, the Notes, any of the Loans, any of the Relevant Documents, any other
agreement relating to any of the Obligations, any of the Collateral, or any act
or omission relating to any of the foregoing:
(a) BORROWER AND LENDER WAIVE THE RIGHT TO TRIAL BY JURY
AS MORE FULLY SET FORTH IN SECTION 14.15 BELOW;
(b) Borrower and Lender consent to the jurisdiction of any
court of the Commonwealth of Pennsylvania and of any federal court located in
Pennsylvania, and waive any right to object to such court as an inconvenient
forum;
(c) Borrower agrees that all of the Collateral constitutes
equal security for all of the Obligations, and agrees that Lender shall be
entitled to sell, retain or otherwise deal with any or all of the Collateral, in
any order or simultaneously as Lender shall determine in its sole and absolute
discretion, free of any requirement for the marshalling of assets or other
restriction upon Lender in dealing with the Collateral; and
(d) Borrower agrees that Lender may proceed directly
against Borrower for collection of any or all of the Obligations without first
selling, retaining or otherwise dealing with any of the Collateral.
10. ADDITIONAL WAIVERS AND CONSENTS OF BORROWER.
10.1 Waivers. Borrower waives demand, presentment, notice of
dishonor or protest of any instruments either of Borrower or others which may be
included in the Collateral.
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10.2 Consents. Borrower consents to (a) any extension,
postponement of time of payment or other indulgence, (b) any substitution,
exchange or release of Collateral, (c) any addition to, or release of, any party
or person primarily or secondarily liable, and (d) any acceptance of partial
payment on any Accounts or instruments and the settlement, compromising or
adjustment thereof.
11. RELEASE UPON PAYMENT IN FULL
11.1 Mutual Release. Upon full and final payment and
performance of the Loans and all other Obligations under this Agreement and the
Relevant Documents, Borrower, Lender and any sureties shall thereupon
automatically each be fully, finally and forever released and discharged from
any and all claims, liabilities and obligations, whether in contract or tort,
arising out of or relating in any way to this Agreement, the Notes or Loans, or
any act or omission relating to any of the foregoing or to any of the Collateral
or Relevant Documents.
12. COSTS, EXPENSES AND TAXES
Borrower agrees to pay on demand:
(a) all costs and expenses in connection with the preparation,
execution, delivery and administration of this Agreement, the Notes, the
Relevant Documents, and the other documents to be delivered in connection with
this Agreement, or any amendments to any of the foregoing (including, without
limitation, the reasonable fees and out-of-pocket expenses of counsel for Lender
and the cost of appraisals and reappraisals of Collateral).
(b) all losses, costs and expenses incurred by Lender in
connection with the enforcement of this Agreement, the Notes, any of the
Relevant Documents, or any other agreement relating to any of the Obligations,
or in the preservation of any rights of Lender under any thereof, or in
connection with legal advice relating to the rights or responsibilities of
Lender under any thereof (including without limitation court costs and the
reasonable fees and expenses of attorneys, accountants and appraisers), and any
expenditure made by Lender in accordance with Section 7.1(b) or (c) of this
Agreement; and
(c) any and all stamp and other taxes payable or determined to
be payable in connection with the execution and delivery of this Agreement, the
Notes, or any of the Relevant Documents, and all liabilities to which Lender may
become subject as the result of delay in paying or omission to pay such taxes.
With respect to any amount advanced by Lender and required to
be reimbursed by Borrower pursuant to the foregoing provisions of this Section
12,
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Borrower shall also pay Lender interest on such amount at the Default Rate.
Borrower's obligations under this Section 12 shall survive termination of the
other provisions of this Agreement.
13. INDEMNIFICATION BY BORROWER
Borrower hereby covenants and agrees to indemnify, defend and
hold harmless Lender and its officers, directors, employees and agents from and
against any and all claims, damages, liabilities, costs and expenses (including
without limitation, the fees and out-of-pocket expenses of counsel) which may be
incurred by or asserted against Lender or any such other individual or entity in
connection with:
(a) any investigation, action or proceeding arising out of or
in any way relating to this Agreement, the Notes, the Loans, any of the Relevant
Documents, any other agreement relating to any of the Obligations, any of the
Collateral, or any act or omission relating to any of the foregoing;
(b) any taxes, liabilities, claims or damages relating to the
Collateral or Lender's liens thereon;
(c) the correctness, validity or genuineness of any
instruments or documents that may be released or endorsed to Borrower by Lender
(which shall automatically be deemed to be without recourse to Lender in any
event), or the existence, character, quantity, quality, condition, value or
delivery of any goods purporting to be represented by any such documents; or
(d) the requirement of this Section 13 by the Borrower to
indemnify the Lender shall not apply in any litigation between the Lender and
the Borrower.
14. MISCELLANEOUS
14.1 Opinion of Counsel for Borrower and Sureties. The
Borrower shall cause its attorneys to issue an opinion to the Lender on such
matters as the Lender may require from time to time including but not limited to
the organization and existence of the Borrower and Sureties, the enforceability
and validity of the Loan Documents, the enforceability of the Loans and opinions
on such other matters as Lender may reasonably request.
14.2 Entire Agreement; Amendments; Lender's Consent. This
Agreement (including the Schedules thereto), the Notes, and the Relevant
Documents supersede, with respect to their subject matter, all prior and
contemporaneous agreements, understandings, inducements or conditions between
the respective parties, whether express or implied, oral or written. No
amendment or waiver of any provision of this Agreement, the Notes or any of the
Relevant Documents, nor consent to any
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departure by Borrower therefrom, shall in any event be effective unless the same
shall be in writing and signed by Lender, and then such waiver or consent shall
be effective only in the specific instance and for the specific purpose for
which given.
14.3 Notices. All notices and other communications relating to
this Agreement or the Notes (or to any of the Relevant Documents, unless
otherwise specified therein) shall be in writing and addressed as follows:
If to Lender: PNC Bank, National Association
100 S. Broad Street, 7th Floor
Philadelphia, Pennsylvania 19110
Attention: Commercial Finance Department
If to Borrower: c/o The Judge Group, Inc., et al.
Two Bala Plaza, Suite 800,
Bala Cynwyd, Pennsylvania 19004
Attention: Martin E. Judge, Jr.,
Chief Executive Officer
or to such other address as the respective party or its
successors or assigns may subsequently designate by proper notice.
14.4 Gender. Throughout this Agreement, the masculine shall
include the feminine and vice versa and the singular shall include the plural
and vice versa, unless the context of this Agreement indicates otherwise.
14.5 Joint Borrowers. If more than one party executes this
Agreement as Borrower, then for the purpose of this Agreement the term Borrower
shall mean each such party and each such party shall be jointly and severally
liable as Borrower for the Obligations as defined herein without regard to which
party receives the proceeds of any of the Loans. Each such party hereby
acknowledges that it expects to derive economic advantage from each of the
Loans.
14.6 Cross Default; Cross Collateral. Borrower hereby agrees
that (a) all other agreements between Borrower and Lender or any of its
affiliates is hereby amended so that a default under this Agreement is a default
under all other agreements and a default under any one of the other agreements
is a default under this Agreement, and (b) the Collateral under this Agreement
secures the Obligations now or hereafter outstanding under all other agreements
between Borrower and Lender or any of its affiliates and the collateral pledged
under any other agreement with Lender or any of its affiliates secures the
Obligations under this Agreement.
14.7 Binding Effect; Governing Law. This Agreement shall be
binding upon and inure to the benefit of Borrower and Lender and their
respective
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successors and assigns, except that Borrower shall not have the right to assign
its rights hereunder or any interest herein without the prior written consent of
Lender. This Agreement, the Notes, the Relevant Documents and the other
documents delivered in connection with this Agreement shall be governed by, and
construed in accordance with, the laws of the Commonwealth of Pennsylvania.
Anything to the contrary contained herein notwithstanding, this Agreement and
the Relevant Documents executed by the Borrower and/or the Sureties in
connection herewith, shall not be effective until (i) executed by the Borrower
and delivered to the Bank's offices in Pennsylvania and (ii) duly signed by two
officers of the Bank in Pennsylvania.
14.8 Execution in Counterparts. This Agreement may be executed
in any number of counterparts, each of which when so executed shall be deemed to
be an original and all of which taken together shall constitute but one and the
same agreement.
14.9 Severability of Provisions. Any provision of this
Agreement, the Notes or any of the Relevant Documents that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions of this Agreement, such Notes or such Documents or
affecting the validity or enforceability of such provision in any other
jurisdiction.
14.10 Headings. The heading preceding the text of this
Agreement are inserted solely for convenience of reference and shall not
constitute a part of this Agreement nor affect its meaning, construction or
effect.
14.11 Schedules. All of the Schedules to this Agreement are
hereby incorporated by reference herein and made a part hereof.
14.12 Further Acknowledgements and Agreements of Borrower and
the Lender.
(a) General Acknowledgements.
(1) Borrower and the Lender acknowledge and agree that
they (i) have independently reviewed and approved each and every provision of
this Agreement, including the Exhibits attached hereto and any and all other
documents and items as they or their counsel have deemed appropriate, and (ii)
have entered into this Agreement and have executed the closing documents
voluntarily, without duress or coercion, and have done all of the above with the
advice of their legal counsel.
(2) Borrower and Lender acknowledge and agree that, to
the extent deemed necessary by them or their counsel, they and their counsel
have independently reviewed, investigated and/or have full knowledge of all
aspects of the
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transaction and the basis for the transaction contemplated by this Agreement
and/or have chose not to so review and investigate (in which case, Borrower
acknowledges and agrees that it has knowingly and upon the advice of counsel
waived any claim or defense based on any fact or any aspect of the transaction
that any investigation would have disclosed), including without limitation:
(i) the risks and benefits of the various
waivers of rights contained in this
Agreement, including but not limited to,
the waiver of the right to a jury trial;
(ii) the adequacy of the consideration being
transferred under this Agreement,
including the adequacy of the
consideration for the Mutual Release as
set forth in Section 11.3 hereof;
(3) Borrower has made its own investigation or elected
not to make such investigation as to all matters it deems material to this
transaction and has not relied on any statement of fact or opinion, disclosure
or non-disclosure of the Lender, and has not been induced by the Lender in any
way, except for the consideration recited herein, in entering into this
Agreement and executing the closing documents contemplated hereby, and further
acknowledges that the Lender has not made any warranties or representations of
any kind in connection with this transaction except as specifically set forth
herein or in the documents executed in connection with this Agreement, and
Borrower is not relying on any such representations or warranties.
(4) Borrower acknowledges and agrees that, after
careful consideration, it does not deem any matter not reviewed or investigated
by it to be material to this Agreement and the transaction contemplated hereby.
14.13 Prior Agreements. This Agreement is an amendment and
restatement of the terms and conditions of the lending relationship between
Borrower and Lender as previously set forth in Relevant Documents, and any
amendments or supplements to the aforementioned agreements, and is not a new
loan agreement, and all of the terms and conditions of the aforementioned
agreements shall remain in full force and effect as though set forth herein at
length, to the extent not inconsistent with the terms of this Agreement. To the
extent of any inconsistencies, the terms of this Agreement shall control.
14.14 Liability of Sureties. By executing this Agreement, the
Lender is not releasing any existing Surety with respect to the obligations of
Borrower to the Lender.
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14.15 WAIVER OF JURY TRIAL.
BORROWER, SURETIES AND LENDER, UPON ADVICE FROM THEIR
RESPECTIVE COUNSEL, HEREBY INTENTIONALLY, KNOWINGLY, VOLUNTARILY, EXPRESSLY AND
MUTUALLY WAIVE ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE
OF ACTION (A) ARISING UNDER THIS AGREEMENT OR ANY OTHER DOCUMENTS EVIDENCING THE
LOAN, OR (B) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS
OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THIS AGREEMENT OR ANY OF
THE OTHER DOCUMENTS EVIDENCING THE LOAN, OR THE TRANSACTIONS RELATED HERETO OR
THERETO, OR (C) IN ANY LITIGATION BETWEEN THE PARTIES, IN EACH CASE WHETHER NOW
EXISTING OR HEREAFTER ARISING AND WHETHER IN CONTRACT OR TORT OR OTHERWISE, AND
EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR
CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY
PARTY TO THIS AGREEMENT MAY FILE THIS ORIGINAL AGREEMENT OR A COPY THEREOF WITH
ANY COURT AS WRITTEN EVIDENCE TO THE CONSENT OF THE PARTIES HERETO TO THE WAIVER
OF THEIR RIGHT TO A TRIAL BY JURY.
IN WITNESS WHEREOF, the undersigned have set their hands and
seals or caused these presents to be executed by their proper corporate officers
and sealed with their seal the day and year first above written.
THE JUDGE GROUP, INC. (Borrower)
Attest:
/s/ Katharine A. Wiercinski By: /s/ Martin E. Judge, Jr.
- ------------------------------------ -------------------------------------
Katharine A. Wiercinski, Secretary Martin E. Judge, Jr.,
(Corporate Seal) Chief Executive Officer
JUDGE, INC. (Borrower)
Attest:
/s/ Katharine A. Wiercinski By: /s/ Martin E. Judge, Jr.
- ------------------------------------ ------------------------------------
Katharine A. Wiercinski, Secretary Martin E. Judge, Jr.,
(Corporate Seal) Chief Executive Officer
JUDGE TECHNICAL SERVICES, INC.
(Borrower)
Attest:
/s/ Katharine A. Wiercinski By: /s/ Martin E. Judge, Jr.
- ------------------------------------ -------------------------------------
Katharine A. Wiercinski, Secretary Martin E. Judge, Jr.,
(Corporate Seal) Chief Executive Officer
SIGNATURES CONTINUED ON PAGE 48
47
<PAGE>
SIGNATURES CONTINUED FROM PAGE 47
THE BERKELEY ASSOCIATES CORP.
(Borrower)
Attest:
/s/ Katharine A. Wiercinski By: /s/ Martin E. Judge, Jr.
- ------------------------------------ -----------------------------------
Katharine A. Wiercinski, Secretary Martin E. Judge Jr.,
(Corporate Seal) Chief Executive Officer
JUDGE PROFESSIONAL SERVICES, INC.
(Borrower)
Attest:
/s/ Katharine A. Wiercinski By: /s/ Martin E. Judge, Jr.
- ------------------------------------ ------------------------------------
Katharine A. Wiercinski, Secretary Martin E. Judge, Jr.,
(Corporate Seal) Chief Executive Officer
JUDGE IMAGING SYSTEMS, INC.
(Borrower)
Attest:
/s/ Katharine A. Wiercinski By: /s/ Martin E. Judge, Jr.
- ----------------------------------- -------------------------------------
Katharine A. Wiercinski, Secretary Martin E. Judge, Jr.,
(Corporate Seal) Chief Executive Officer
JUDGE ELECTRONICS SERVICES OF
FLORIDA, INC.
Attest: (Borrower)
/s/ Katharine A. Wiercinski By: /s/ Martin E. Judge, Jr.
- ----------------------------------- -------------------------------------
Katharine A. Wiercinski, Secretary Martin E. Judge, Jr.,
(Corporate Seal) Chief Executive Officer
JUDGE INC. OF NEW JERSEY
Attest: (Borrower)
/s/ Katharine A. Wiercinski By: /s/ Martin E. Judge, Jr.
- ----------------------------------- -------------------------------------
Katharine A. Wiercinski, Secretary Martin E. Judge, Jr.,
(Corporate Seal) Chief Executive Officer
JUDGE TECHNICAL SERVICES OF
N.J., INC.
Attest: (Borrower)
/s/ Katharine A. Wiercinski By: /s/ Martin E. Judge, Jr.
- ----------------------------------- -------------------------------------
Katharine A. Wiercinski, Secretary Martin E. Judge, Jr.,
(Corporate Seal) Chief Executive Officer
48
<PAGE>
SIGNATURES CONTINUED ON PAGE 49
JUDGE ACQUISITION, INC. (Borrower)
Attest:
/s/ Katharine A. Wiercinski By: /s/ Martin E. Judge, Jr.
- ----------------------------------- -------------------------------------
Katharine A. Wiercinski, Secretary Martin E. Judge, Jr.,
(Corporate Seal) Chief Executive Officer
Witness:
/s/ Katharine A. Wiercinski /s/ Martin E. Judge, Jr. (Seal)
- ----------------------------------- --------------------------------------
Martin E. Judge, Jr.,
individually (Surety)
Witness:
/s/ Katharine A. Wiercinski /s/ Michael A. Dunn (Seal)
- ----------------------------------- --------------------------------------
Michael A. Dunn
individually (Surety)
Witness:
/s/ Katharine A. Wiercinski /s/ Kathleen A. Dunn (Seal)
- ----------------------------------- --------------------------------------
Kathleen A. Dunn
individually (Surety)
PNC BANK, NATIONAL ASSOCIATION
(Lender)
By: /s/ Joseph G. Meterchick
-----------------------------------
Joseph G. Meterchick,
Vice President
49
[DRINKER BIDDLE & REATH LETTERHEAD]
December 10, 1996
The Judge Group, Inc.
Two Bala Plaza, Suite 800
Bala Cynwyd, PA 19004
Ladies and Gentlemen:
We have acted as counsel to The Judge Group, Inc., a Pennsylvania
corporation (the "Company"), in connection with the preparation and filing with
the Securities and Exchange Commission of a registration statement on Form S-1
(No. 333-13109) under the Securities Act of 1933 (the "Registration Statement")
relating to the initial public offering of up to 3,000,000 common shares, par
value $.01 per share, of the Company, plus up to an additional 297,500 shares to
cover over-allotments, to be issued and sold by the Company (collectively, the
"Company Common Shares") and 600,000 common shares, plus up to an additional
250,000 common shares to cover over allotments, to be sold by the Selling
Shareholders (collectively, the "Selling Shareholder Common Shares") as provided
in the Registration Statement (the Company Common Shares and the Selling
Shareholder Common Shares being collectively referred to herein as the "Offered
Shares").
In this connection, we have examined the originals or copies, certified
or otherwise identified to our satisfaction, of the Amended and Restated
Articles of Incorporation and Amended and Restated By-laws of the Company,
resolutions of the Company's Board of Directors and shareholders, and such other
documents and corporate records relating to the Company and the issuance of the
Offered Shares as we have deemed appropriate. This opinion is based exclusively
on the laws of the Commonwealth of Pennsylvania.
On the basis of the foregoing, we are of the opinion that the Selling
Shareholder Common Shares have been duly and validly issued and are fully paid
and non-assessable by the Company under the laws of the Commonwealth of
Pennsylvania, and the Company Common Shares have been duly and validly
authorized for issuance and, when issued and paid for in the manner as described
in the Registration Statement, will have been duly and validly issued,
<PAGE>
The Judge Group, Inc.
December 10, 1996
Page 2
fully paid and non-assessable by the Company under the laws of
the Commonwealth of Pennsylvania.
We hereby consent to the reference to our firm under the caption "Legal
Matters" in the prospectus included in the Registration Statement and to the
filing of this opinion as an exhibit to the Registration Statement. This does
not constitute a consent under Section 7 of the Securities Act of 1933 since we
have not certified any part of the Registration Statement and do not otherwise
come within the categories of persons whose consent is required under Section 7
or the rules and regulations of the Securities and Exchange Commission.
Very truly yours,
/s/ Drinker Biddle & Reath
-----------------------------------
DRINKER BIDDLE & REATH
STOCK PURCHASE AGREEMENT
THIS AGREEMENT ("Agreement") is being made this 26th day of September
1996, by and among SANDY MAYER and GREGORY J. McCARTHY (collectively "Sellers"),
THE BERKELEY ASSOCIATES CORPORATION and JUDGE, INC.
B A C K G R O U N D
A. The Berkeley Associates Corporation ("Corporation") is a corporation
organized and existing under the laws of the State of Delaware, and currently
has authorized capitalization of 3,000 shares of common stock with no par value.
2,075 shares of the Corporation's stock are issued and outstanding (the
"Shares"), 1150 of which are held by Sandy Mayer ("Mayer") and 925 shares of
which are held by Gregory J. McCarthy ("McCarthy").
B. Judge, Inc. ("Buyer") is a corporation organized and existing under the
laws of the Commonwealth of Pennsylvania.
C. It is anticipated that Buyer will change its name to The Judge Group,
Inc. subsequent to the Closing. It is currently anticipated that The Judge
Group, Inc. will complete closing on an initial public offering prior to
December 31, 1996.
D. Sellers desire to dispose of all Shares of their stock in Corporation.
The Buyer desires to purchase the Shares from Sellers subject to the terms and
conditions of this Agreement.
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<PAGE>
T E R M S
NOW THEREFORE, the parties hereto, in consideration of the mutual covenants
set forth herein and other good and valuable consideration, and intending to be
legally bound hereby, agree as set forth below.
1. Purchase and Sale of Shares.
1.1 (a) For and in consideration of the consideration described below Mayer
hereby agrees to sell to Buyer, which agrees to purchase from Mayer, all of her
Shares of Corporation's stock.
(b) For and in consideration of the consideration described below,
McCarthy hereby agrees to sell to Buyer, which agrees to purchase from McCarthy,
all of his Shares of Corporation's stock.
1.2 Payment Terms. The purchase price for the Shares shall be paid as
follows:
(a) Provided the Buyer successfully closes on an initial public
offering by December 31, 1996 (the "IPO"):
(i) Upon Closing on this Agreement, each Seller shall receive
$87,500.00. Thereafter, on each monthly anniversary of the Closing date, each
Seller shall receive $25,000.00. Such payments shall be made only through
December, 1996.
(ii) The parties have made a portion of the purchase price
contingent on the future financial performance of the Corporation (the
"Purchase Holdback Payments"). The parties have also made the reimbursement of
certain funds provided to Corporation by Sellers contingent on the future
financial performance of the Corporation (the "Contingent Loan Holdback
Payments"). For
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<PAGE>
purposes of this section, payments based on the future financial performance of
the Corporation shall be calculated pursuant to the formula in subsection (E)
below.
(A) 1996 Purchase Holdback Payment. Buyer shall deliver to each
Seller an executed promissory note, provided the variable X calculated in
subsection (E) utilizing 1996 Net Income is a positive amount. The principal
amount of each of the promissory notes executed under this subsection shall be
one-half of the calculated value of the variable X under this subsection. If
1996 Net Income exceeds $350,000, the aggregate principal amount of promissory
notes issued under this subsection shall not exceed $572,200 and Sellers shall
not receive any Purchase Holdback Payment under subsection (B).
(B) 1997 Purchase Holdback Payment. Sellers may qualify for an
additional Purchase Holdback Payment, if 1996 Net Income is less than $350,000.
If 1997 Net Income equals or exceeds $430,000, Buyer shall deliver to each
Seller an executed promissory note the principal amount of which shall be
one-half of the remainder of $572,200 less the sum of the principal amounts of
the promissory notes executed under subsection (A).
(C) Calculation of Holdback Payments. Sellers shall receive
payment for holdbacks utilizing the following formula:
X = Net Income - $250,000 x $572,200
---------------------
$100,000
Examples of the application of the foregoing formula are set forth in
Schedule 1.2(a)(ii)(C).
(D) Definition of Net Income. For purposes of the foregoing, Net
Income shall be the net income of the Corporation, determined by an audit for
the relevant calendar
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<PAGE>
year, performed in accordance with generally accepted accounting principles and
utilizing the same methodology used in calculating the financial statements
attached in Exhibit "D". In making the computation, Net Income shall not be
reduced by (1) state and federal income taxes, (2) any management fees paid or
payable to Buyer or its affiliates, (3) accounting fees incurred in 1996 in
excess of $9,000.00 and in 1997 in excess of $10,000.00, (4) legal fees or
expenses paid by the Corporation due to the investigation, negotiations and
purchase of the Corporation by Buyer in excess of $4,000.00, and (5)
extraordinary expenses incurred outside the ordinary course of business, in the
aggregate of $15,000.00 in the relevant calendar year. Expenses incurred in
opening or expanding of offices in Lancaster, Pennsylvania or Baltimore,
Maryland shall not be considered extraordinary expenses for purpose of the
foregoing. Net Income shall be reduced by (1) all items of capital gain and
non-recurring profit(including the forgiveness of debt pursuant to
(section)1.6), less expenses attributable to that gain or profit, (2) the full
amount of Sellers' salaries, excluding any bonus payments under Sections 3.2,
3.3 and 3.4 of Sellers' Employment Agreement, regardless of whether any payments
are deferred or services are volunteered. Notwithstanding the foregoing, in 1996
Net Income shall not be reduced by any amount of salary earned in excess of
$152,000.00 for services rendered by Sellers in the aggregate and for which they
waive and forgive the actual receipt of such salary.
(E) Promissory Notes. The promissory notes referred to in
subsections (A) and (B), if any, shall be delivered to each Seller within thirty
(30) days after the acceptance by both Buyer and Sellers of the determination of
Net Income as provided in (section)1.2(a)(ii)(F). Each promissory note shall be
in the form attached hereto as Exhibit "A", in the principal amount required by
subsections (A) and (B) and shall accrue interest at the rate of eight percent
(8%) per annum. The promissory notes shall provide for thirty-six (36) equal
monthly payments of principal and interest commencing the first of the month
following execution of the promissory note.
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<PAGE>
(F) Calculation of Net Income.
(1) Seller shall provide to Buyer an audited statement of Net
Income ("Statement") calculated in accordance with (section)1.2(a)(ii)(D) to
permit Buyer to determine if any amounts are due Sellers under
(section)1.2(a)(ii) or (b)(i) as it pertains to the notes provided for in
(section)1.2(a)(ii). Seller shall be solely responsible for all expenses and
costs incurred in preparing the Statement and neither Buyer nor Corporation
shall have any obligation to pay Sellers or any third party for use of the
Statement. If Sellers do not deliver the Statement to Buyer within one hundred
and twenty (120) days after the end of the year to which the statement pertains,
then Buyer may utilize the audit prepared by the certified public accountants
then servicing Buyer to determine if any amounts are due Sellers under
(section)1.2(a)(ii) or (b)(i) and the remaining provision of
(section)1.2(a)(ii)(F) shall not be applicable.
(2) Buyer shall have thirty (30) days from its receipt of the
Statement to accept, modify or reject the determination of Net Income. Buyer
shall notify each Seller in writing, within the aforesaid period, whether it has
accepted, modified or rejected the determination of Net Income. Failure of Buyer
to provide written notice of modification or rejection within the aforesaid
period shall constitute a waiver of Buyer's objection, modification or rejection
of the Statement. If the determination of Net Income is accepted by Buyer, Buyer
shall deliver the necessary promissory notes in accordance with
(section)1.2(a)(ii)(E). If the Buyer modifies the determination of Net Income,
each Seller shall provide Buyer with written notice of their acceptance or
rejection of the determination of Net Income as modified by the Buyer within
thirty (30) days of their receipt of notice of the modification. If the
modification is accepted by the Seller, the Buyer shall deliver the necessary
promissory notes in accordance with (section)1.2(a)(ii)(E). If either Seller
rejects the modification of the Net
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<PAGE>
Income determination by Buyer or Buyer rejects the Seller's initial
determination of Net Income, the dispute shall be resolved as set forth in
(section)1.2(a)(ii)(F)(4).
(3) Sellers and their agents, contractors and employees shall
be given reasonable access to the records of Corporation to prepare the
Statement required by (section)1.2(a)(ii)(F)(1).
(4) In the event that a dispute exists with respect to the
determination of Net Income, such dispute shall be submitted for resolution to a
Big 6 accounting firm (the "Firm"). The Firm shall be selected jointly by the
Buyer and Sellers. In the event a Firm cannot be mutually agreed upon by the
Buyer and Sellers within ten (10) days after written notice from either party to
the other invoking this paragraph, then Sellers (as one party) and Buyer shall
each select a Big 6 accounting firm, which shall in turn jointly select a third
Big 6 accounting firm to serve as the Firm. The Firm shall determine any dispute
with respect to Net Income as required by (section)1.2(a)(ii)(D), based upon the
above definition and the work papers submitted by the parties. The decision of
the Firm shall be in writing and shall specify the actual bases for the
determination. Each party shall be bound by the determination of the Firm. Each
party shall bear its own costs and expenses and an equal share of the cost of so
employing the Firm. This dispute resolution provision shall not extend to any
other aspect of the Agreement or the Related Agreements.
(iii) Subsequent to the Closing on the IPO (the "IPO Closing"),
on January 2, 1997, each Seller shall receive a number of unregistered shares of
Buyer equivalent to $150,000.00 divided by the offer price per share in the IPO.
The shares issued pursuant to this Section shall be subject to the demand
registration rights set forth in Schedule 1.2(a)(iii). No fractional shares
shall be issued and each Seller shall receive the cash value of any fractional
share they would have received pursuant to this Section.
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<PAGE>
(iv) Within thirty (30) days after the IPO Closing, each Seller
shall receive an amount equal to $530,000.00 in immediately available funds,
less any amounts paid to each of them pursuant to Section 1.2(a)(i).
(v) In addition, at the time of the IPO Closing, Buyer shall
deliver to each Seller an executed promissory note in the same form as that
attached as Exhibit "A" in the principal amount of $150,000.00 and shall accrue
interest at the rate of eight percent (8%) per annum. Equal payments of
principal and accrued interest amortized from January 1, 1997 through August 1,
2000 shall commence January 1, 1997 and shall be paid monthly thereafter until
the notes are fully satisfied.
(b) Provided Buyer does not successfully close on an IPO by December
31, 1996:
(i) The payments set forth in Section 1.2(a)(i) shall still be
made and the notes provided for in (section)1.2(a)(ii)(E) shall be delivered and
shall continue in effect, however no stock shall be issued by Buyer as provided
in (section)1.2(a)(iii) and the payments required by (section)1.2(a)(iv) and
1.2(a)(v) shall not be made and the promissory notes required by
(section)1.2(a)(v) shall not be delivered.
(ii) At Closing, Buyer shall deliver to Wisler, Pearlstine,
Talone, Craig, Garrity & Potash, LLP as escrow agent for the parties ("Escrow
Agent") an executed promissory note, distinct from those issued under
(section)1.2(a)(ii)(E), for each Seller in the form attached hereto as Exhibit
"B". Each promissory note shall be in the principal amount of $830,000.00 less
any amounts paid or scheduled to be paid to each Seller pursuant to Section
1.2(a)(i) and shall accrue interest at the rate of eight percent (8%) per annum
commencing as of the date of Closing. The note shall provide for equal monthly
payments of principal and interest commencing January 1, 1997 and through
December 1, 1997 in the amount of $11,856.00 per month; commencing January 1,
1998 and through July 1, 2000 in the amount of $16,644.00 per month; and a final
payment in the amount of $9,264.00 plus any accrued but
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<PAGE>
unpaid interest on August 1, 2000. On January 2, 1997, Escrow Agent shall
deliver to each respective Seller the promissory notes delivered by Buyer under
this Subsection.
(c) Provided the Judge Group, Inc. ("JGI") successfully closes on an
IPO subsequent to December 31, 1996, but before all obligations under Section
1.2(b) (ii) are fully paid and satisfied, then the payment obligations under the
promissory notes delivered pursuant to Section 1.2(b)(ii), may be accelerated as
then presently due and payable at the option of Sellers. This option shall be
exercised in a writing delivered to Buyer by either or both Sellers within five
(5) days following written notification to Sellers by Buyer of the proposed
closing of the IPO, notwithstanding anything stated herein to the contrary. The
exercise of the foregoing option by the parties hereto is subject to the
successful closing of the IPO and to any limitation or condition imposed by the
underwriters of the IPO, including complete cancellation of the option.
1.3 Manner of Payment. All payments made hereunder shall be by cash or
check, by hand delivery or at the address set forth in Section 11.5.
1.4 Closing. The purchase and sale provided for in this Agreement shall
take place on or before September 26, 1996 at 10:00 a.m. at the offices of Buyer
or at such other time and place as the parties may agree in writing (the
"Closing"). The Agreement shall be effective as of the time and date of Closing.
1.5 Buyer agrees that it shall appoint Sellers and Sellers agree to
serve upon its Board of Directors for a term of one year.
1.6 Pre-closing Transactions.
(a) Prior to Closing, Buyer had made a loan to the Corporation in
the amount of One Hundred Seventy-Five Thousand Dollars ($175,000.00). Buyer
shall forgive the full amount of
-8-
<PAGE>
the loan at a time to be determined by Buyer, subsequent to the Closing. Sellers
shall credit the amount of the loan to the payments owed by Buyer under
(section)1.2(a)(i) and (b)(i).
(b) Prior to the Closing, Sellers shall each withdraw from
Corporation's accumulated adjustment account the amount of Eighty-Seven Thousand
Five Hundred Dollars ($87,500.00). Sellers shall indemnify Corporation and
Buyer from any tax liability, interest or penalty resulting from the forgiveness
of debt or withdrawal of such sums pursuant to this section.
2. Representations and Warranties of Sellers and Corporation. Sellers
and Corporation make the following representations and warranties to Buyer:
2.1 Organization, Good Standing and Valid Authorization. Corporation is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware, has the corporate power and authority to own all
of its properties and assets and to carry on its business, and is duly qualified
to do business as a foreign corporation and is in good standing in each
jurisdiction in which the nature of its business or the ownership of its
properties or both, makes such qualification necessary. Corporation has the
corporate power to enter into this Agreement and to carry out its obligations
hereunder. The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly and validly authorized by
the Board of Directors of Corporation and its stockholders and no other
corporate proceedings on the part of Corporation are necessary to authorize this
Agreement and the transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by Corporation and Sellers and, this
Agreement constitutes the valid and binding agreement of Corporation and
Sellers, enforceable against them in accordance with its terms. Copies of the
Articles and Certificate of Incorporation and By-Laws of Corporation certified
to be correct by its Secretary are attached hereto as Exhibit "C" and are
complete and correct as at the date hereof. The minute book of Corporation, true
copies of the contents of which, authenticated by its
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<PAGE>
Secretary, will be promptly delivered to Buyer, contains a complete and accurate
record of all meetings and other corporate actions of its shareholders and Board
of Directors.
2.2 Compliance. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby by Corporation and Sellers
will not: (a) violate any provision of the Articles of Incorporation or By-Laws
of Corporation; (b) violate any material provision, result in the breach or
acceleration, or entitle any party to accelerate (whether after the giving of
notice or lapse of time or both) any material obligation under any mortgage,
lien, lease, agreement, contract, license, instrument, order, award, judgment or
decree to which Corporation or Sellers are a party or by which any of them are
bound; (c) result in the creation or imposition of any material lien, charge,
pledge, security interest or other encumbrance upon any property of Corporation
or Sellers; or (d) violate or conflict with any other material restriction or
any law, ordinance or regulation to which Corporation, Sellers or the property
of Corporation or Sellers is subject.
2.3 Approvals. No consent, approval, order or authorization of, or
registration, declaration or filing with, any governmental authority is required
in connection with the execution and delivery of this Agreement by Corporation
and Sellers or the consummation by Corporation and Sellers of the transactions
contemplated hereby.
2.4 Capital Stock. At the Closing Date, the authorized capital stock of
Corporation shall consist of 3,000 shares of common voting stock, with no par
value, of which 2,075 shares shall be issued and outstanding. All outstanding
shares of stock of Corporation are and at the date of Closing shall be duly
authorized, validly issued, fully paid and nonassessable. At the date of
Closing, there shall be no treasury stock and no outstanding offers,
subscriptions, options, warrants, rights or other agreements or commitments
obligating Corporation to issue or sell, or cause to be issued or sold, any
shares of the capital stock of Corporation or any securities or obligations
convertible into or exchangeable
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<PAGE>
for or giving any person any right to acquire any shares of such capital stock,
or obligating Corporation to enter into any such agreement or commitment.
2.5 Financial Statements of Corporation. The audited balance
sheets for the fiscal year ending December 31, 1995 of Corporation and the
related statements of operations, stockholders' equity and changes in financial
position (statement of cash flow) of Corporation examined and reported upon by
Thomas Havey & Company, LLP, certified public accountants and previously
delivered to Buyer the audited balance sheet as of June 30, 1996, and the
related audited statements of operations, stockholders' equity and changes in
financial position for the six (6) months ended June 30, 1996, complete copies
of which are attached hereto as Exhibit "D" (collectively the "Corporation
Financials") have been prepared in conformity with generally accepted accounting
principles applied on a consistent basis and fairly present the financial
position of Corporation at such dates and the results of its operations and
changes in its financial positions for such periods. Except with respect to
matters referred to in Exhibit "D", Corporation did not have as of July 1, 1996,
through the date of the execution of this Agreement, any liabilities or
obligations, secured or unsecured (whether accrued, absolute, contingent, or
otherwise), of a nature that would be reflected or reserved against in a
corporate balance sheet or disclosed in the notes thereto, prepared in
accordance with the generally accepted accounting principles applied in the
preparation of such financial statements, that are not reflected or reserved
against in the June 30, 1996 balance sheet or disclosed in the notes thereto.
2.6 Absence of Certain Changes. Except as otherwise disclosed in
Exhibit "D", since December 31, 1995, there has been no material adverse change
in the financial condition, assets, liabilities, properties, operations,
business or prospects of Corporation taken as a whole, and Corporation has not:
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<PAGE>
(a) authorized, issued or sold any stock, notes, bonds or other
securities, or any options to purchase the same, or entered into any agreement
with respect thereto, except to or with Buyer;
(b) declared, set aside or made any dividend or other distribution
on capital stock or redeemed, purchased or acquired any shares thereof or
entered into any agreement in respect of the foregoing;
(c) amended its Articles of Incorporation or By-Laws;
(d) other than inventory in the ordinary course of business: (i)
purchased, sold, assigned, granted or transferred any tangible assets or any
patent, trademark, trade name, copyright, license, franchise, design or other
intangible assets or property; (ii) mortgaged, pledged or granted or permitted
to exist any lien or other encumbrance or charge on any assets or properties,
tangible or intangible, except for liens for taxes not yet delinquent; or (iii)
waived any rights of material value or canceled any material debts or claims;
(e) incurred any obligation or liability (absolute or contingent),
except current liabilities and obligations incurred in the ordinary course of
business, or paid any liability or obligation (absolute or contingent) other
than current liabilities and obligations incurred in the ordinary course of
business;
(f) incurred any material damage by casualty or otherwise to its
properties, real or personal; or
(g) entered into or amended any employment or consulting agreement
or instituted or amended any bonus, stock option, profit sharing, pension,
retirement incentive, incentive or similar arrangement or plan.
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<PAGE>
2.7 Tax Matters. Corporation has duly filed all federal, state, county,
local and foreign income, excise, sales, customs, property, withholding, social
security and other tax and information returns and reports required to have been
filed by them to the date hereof and paid (or, in the case of withholding taxes
and obligations, withheld and paid over as required) all taxes, assessments,
duties and other governmental charges (collectively, the "Taxes") (including
interest and penalties) shown on such returns or reports to be due or claimed to
be due prior to the date hereof to any federal, state, county, local or foreign
or other governmental authority. Corporation has paid or made adequate
provisions in the most recent balance sheet included in the Corporation
Financials (the "Corporation Balance Sheet") for all Taxes (including interest
and penalties) payable by Corporation with respect to all periods to and
including June 30, 1996. Corporation has no liability for any Taxes (including
interest or penalties) of any nature whatsoever other than as shown on the
Corporation Balance Sheet and, to the best knowledge of Corporation, there is no
basis for any additional material claims or assessments for the Taxes other than
with respect to liabilities for taxes that may have accrued since June 30, 1996,
in the ordinary course of business. Corporation has never been audited by the
Internal Revenue Service or Pennsylvania Department of Revenue for any period.
True copies of the federal, state and local income tax returns of Corporation
for the year ended December 31, 1995, and for each of the two immediately
preceding years have been, or will promptly hereafter be delivered to Buyer.
There are no agreements, waivers or other arrangements (oral or written)
providing for extensions of time with respect to the assessment or collection of
unpaid taxes nor are there any actions, suits, proceedings, investigations or
claims of any nature or kind whatsoever now pending or overtly threatened
against Corporation with respect to any such returns or reports, or any such
income taxes or any matters under discussion with any federal, state, county or
local authority relating to taxes.
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2.8. Material Contracts. Attached hereto as Schedule 2.8, and certified
by Sellers, is a complete and correct description as of the date hereof of all
agreements, contracts and commitments, written or oral, to which Corporation is
a party or by which it or any of its properties is bound as of the date hereof
including: (a) mortgages, indentures, notes, letters of credit, surety
agreements, security agreements and other agreements and instruments relating to
the borrowing of money or extension of credit to, or any guarantee by,
Corporation or a subsidiary; (b) employment and consulting agreements; (c) stock
option, incentive, employee benefit, profit sharing, pension and retirement or
other compensation plans or agreements; (d) collective bargaining agreements;
(e) the names and annual compensation, as of the date hereof, of directors,
officers, and other employees, consultants or agents of the Corporation; (f)
sales, technical rep, dealer, distributor, VAR, VAD agreements; (g) agreements,
orders or commitments for the purchase by Corporation of materials, supplies or
finished products; (h) agreements, orders or commitments for the sale by
Corporation of products or involving the furnishing of services to customers,
agencies and the like; (i) licenses of software and any patent, trademark,
copyright and other industrial property rights; (j) agreements or commitments
for capital expenditures; (k) brokerage or finders' agreements; (l) agreements,
contracts, leases, payables and commitments of a type other than those described
in the foregoing clauses which, in any case, involve aggregate payments or
receipts of more than $5,000.00 and/or which extend for a period of ninety (90)
days from the date hereof. Corporation has, or will promptly hereafter deliver
to Buyer complete and correct copies of all written agreements, contracts and
commitments, together with all amendments thereto, and accurate descriptions of
all oral agreements set forth in Schedule 2.8. All such agreements, contracts
and commitments are in full force and effect. All parties to such agreements,
contracts and commitments have performed all material obligations required to be
performed by them to date. None of such agreements, contracts or commitments is
in default, and there has been no material violation of any
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representation or warranty, explicit or implied, contained therein. No claim of
default by any party has been made or is now pending under any such agreement,
contract or commitment, and no event has occurred or continues to occur that
with notice or the passing of time or both would constitute a default thereunder
or would excuse performance by any party thereto. No such agreement, contract or
commitment materially affects or in the future may (so far as Sellers or
Corporation can now reasonably foresee) materially adversely affect the
business, financial condition, properties, assets, liabilities or operations of
Corporation taken as a whole. No such agreement was executed or continues in
effect on the basis that the Corporation is or was certified as a minority or
woman-owned enterprise and to the best of Seller's knowledge on the basis that
the Corporation is or was female owned.
2.9 Properties. Sellers have listed and described in Schedule 2.9 all
properties and assets of Corporation not fully described in the Corporation
Financials including accounts receivable, inventory, tangible fixed assets,
leasehold improvements, machinery, equipment, furniture, fixtures, bank accounts
and vehicles. Corporation owns and has good and marketable title in fee to all
of its assets and properties, tangible or intangible, reflected on the Balance
Sheet dated December 31, 1995 and June 30, 1996, or listed in Schedule 2.9 in
each case free and clear of any mortgage, lien, pledge, charge, claim,
conditional sales or other agreement, right, easement or encumbrance except: (i)
to the extent stated or reserved against in the Corporation Balance Sheet; (ii)
for liens for taxes not yet delinquent; and (iii) such other matters as have
been described in another exhibit attached hereto. Also described in Schedule
2.9 are all leases for real or personal property and material currently in force
involving Corporation. A true copy of all such leases have been, or will
promptly hereafter be, delivered to Buyer. All such leases are valid, subsisting
and effective in accordance with their terms and in good standing, and there
does not exist thereunder any default or event or condition which, after notice
or lapse of time or both, would constitute a default thereunder. All physical
properties owned or used by Corporation and all equipment
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necessary for the operation of its business are in good operating condition and
in a reasonable state of maintenance and repair. Corporation has received no
notice of violation of any applicable zoning regulation, ordinance or other law,
order, regulation, or requirement relating to its operations or its properties,
and there is no such violation, and all buildings and structures used by
Corporation substantially conform with applicable ordinances, codes and
regulations.
2.10 Litigation. Except as set forth in Schedule 2.10, there are no
actions, suits or proceedings or investigations pending or, to the knowledge of
Corporation, threatened against or affecting the business, operations or
financial condition of Sellers or Corporation at law or in equity in any court
or before or by any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality. Neither Corporation nor
Sellers are in default in respect of any judgment, order, writ, injunction or
decree of any court or any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality.
2.11 Permits. Corporation has secured a license from the Pennsylvania
Department of Education as a school and has all other permits, licenses, orders
and approvals of all federal, state or local governmental or regulatory bodies
required for them to conduct its businesses as presently conducted. All such
permits, licenses, orders and approvals are in full force and effect and, to the
knowledge of Sellers and Corporation, no suspension or cancellation of any of
them is threatened. None of such permits, licenses, orders or approvals will be
adversely affected by the consummation of the transactions contemplated by this
Agreement. Corporation has complied in all material respects with the rules and
regulations of all governmental agencies having authority over it, including,
without limitation, agencies concerned with occupational safety, environmental
protection and employment practices, and Corporation has received no notice of
violation of any such rules or regulations, whether corrected or not, within the
last three (3) years.
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2.12 Patents, Trademarks, Copyrights, etc. Corporation owns or
possesses full legal rights to use all material patents, trade names,
trademarks, copyrights, inventions, processes, designs, formulae, trade secrets
and other property rights necessary for the conduct of its business as it is now
being conducted and is not aware of any conflict with or infringement of the
rights of others. Sellers and Corporation do not know of any infringement by any
third party upon any patent, trade name, trademark or copyright owned by
Corporation and Corporation has not taken or omitted to take any action which
would have the effect of waiving any of its rights under any such patent, trade
name, trademark or copyright. No director, officer or stockholder of Corporation
owns or has any interest in any of the Corporation products or in any software
or hardware or other proprietary information or trade secret used in
Corporation's business.
2.13 Insurance. Sellers shall promptly furnish to Buyer a complete and
correct list as of the date hereof of all insurance policies maintained by
Corporation with respect to Corporation liability for operations, casualty,
damage or destruction of properties, buildings, machinery, equipment, furniture,
fixtures, injury to persons or the lives of its key employees. All such policies
are in full force and effect and all premiums due thereon have been paid or
fully accrued as finally audited or determined on the Corporation Financials.
Corporation has complied in all material respects with the provisions of all
such policies. The insurance provided under such policies is, and has been,
adequate to protect Corporation and its assets and properties.
2.14 Accounting Controls. Neither Corporation nor any director,
officer, agent, employee, consultant or other person associated with or
acting on behalf of Corporation has: (a) used any corporate funds for any
unlawful contributions, gifts, entertainment or any other unlawful expenses
relating to political activity; or (b) made any direct or indirect unlawful
payments to government officials or others from corporate funds or established
or maintained any unlawful or unrecorded funds.
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Corporation makes and keeps accurate books and records reflecting its assets and
maintains internal accounting controls which provide reasonable assurance that
transactions are executed in accordance with management's authorization and
transactions are recorded as necessary to permit preparation of Corporation's
consolidated financial statements and to maintain accountability for the
earnings and consolidated assets of Corporation.
2.15 Transactions with Affiliates. Except as disclosed in Corporation
Financials or in some other exhibit or schedule hereto, no officer or director,
or a shareholder owning 5% or more of Corporation's Common Stock, nor any
spouse, decedent or ancestor of such a person nor any corporation, partnership,
proprietorship, firm, association or trust in which such person has a direct or
indirect interest, has any existing contractual relationship with Corporation,
or has engaged in any material transaction with Corporation, nor has engaged in
competition, direct or indirect, with Corporation.
2.16 No Brokers. All negotiations relating to this Agreement and the
transactions contemplated hereby have been carried on without the intervention
of any person acting on behalf of Sellers or Corporation in such manner as to
give rise to any valid claim against Sellers, Corporation or Buyer for any
broker's or finder's fee or similar compensation.
2.17 Directors, Officers and Stockholders. Attached herewith as
Schedule 2.17 is a complete and correct listing as of the date hereof of the
directors and officers of Corporation and the beneficial owners of the issued
and outstanding shares of Corporation Common Stock and the number of shares of
each class owned by them.
2.18 Non-Disclosure of Confidential Information. All persons and
entities (including, without limitation, employees of Corporation) who have or
had access to Corporation's trade secrets, confidential information, software
documentation, source codes, know-how and all other non-
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public information used or useful in Corporation's business have entered into
agreements with Corporation, which contain provisions to the general effect that
the recipients of such information agree to hold such information in confidence
and not disclose the same, directly or indirectly, to any person not having
Corporation-authorized access to such information, without the express
authorization of Corporation; and Sellers and Corporation are not aware of any
violation of any of such agreements. Corporation has, or will promptly hereafter
deliver to Buyer complete and correct copies of all such agreements, together
with all amendments thereto.
2.19 Foreign Assets. Corporation has no material interest in any
assets, real or personal, tangible or intangible, located outside of the
continental limits of the United States, including, but not limited to, stock,
securities or investments in, claims against or receivables from, any entities
or persons so located.
2.20 Accounts Receivable. The accounts and notes receivable reflected
in the Corporation Financials are collectable in the amounts there shown, and
the accounts and notes receivable acquired by Corporation subsequent to the date
of such Corporation Financials through the Closing Date are and shall be
collectable in the aggregate amounts shown upon Corporation's books after
application of the reserves for returns and bad debts set in such Financials and
maintained upon the books in accordance with generally accepted accounting
principles consistently applied by Corporation.
2.21 Inventories. The inventories set forth in the Corporation
Financials and reflected since then upon the books of Corporation are items
of a quality and quantity useable or saleable in the normal course of its
business and that market value is not less than the book value thereof; the
value of any obsolete materials and of materials below standard quality has been
written down to realizable market value or adequate reserves provided therefor;
the value at which such inventories are carried reflect an inventory evaluation
policy of stating inventory at the lower of first in, first out cost or market
and of
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valuing finished goods and work in process at standard cost developed for
individual items using current materials, labor, and overhead cost at normal
production levels; and an obsolescence formula based on historical sales and
backlog orders is applied to inventories of finished goods in order to determine
the maximum quantities to be valued through each inventory date.
2.22 Disclosure. This Agreement and the certificates, statements and
other information furnished to Buyer in writing by or on behalf of Corporation
or Sellers in connection with the transactions contemplated herein, taken as a
whole, do not contain any untrue statements of a material fact or omit to state
a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Neither Sellers nor
Corporation know of any fact or condition which is peculiar to Corporation and
does not affect similarly situated businesses and which materially adversely
affects, or in the future may (so far as Sellers or Corporation can now
reasonably foresee) materially adversely affect the financial condition,
properties, assets, liabilities, business, operations or prospects of
Corporation taken as a whole which has not been set forth herein or in an
exhibit hereto.
2.23 Hazardous Substances.
(a) Except as disclosed on Schedule 2.23 hereto, to the knowledge of
Sellers or Corporation, there has been no Release (as defined below), actual or
threatened, of any Hazardous Substance (as defined below) by Corporation (or its
predecessor in interest) at or from any Facility (as defined below) currently or
previously owned or operated by Corporation (or its predecessor in interest). To
the knowledge of Corporation, there has been no Release of any Hazardous
Substance for which Corporation (or its predecessor in interest) is or may be
liable. For purposes of this Agreement, each of the terms "Release", "Hazardous
Substance" and "Facility" shall be defined as it is now, or shall in the future
be, defined under the Comprehensive Environmental Response, Compensation and
Liability
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Act of 1980, as amended 42 U.S.C. (section)(section) 9601 et seq. or
any other applicable federal, state or local law, statute, rule, regulation or
ordinance.
(b) Corporation has notified or reported to all federal, state or
local officials and agencies all Releases of Hazardous Substances subject to any
such notification or reporting requirements.
(c) Schedule 2.23 hereto sets forth a complete list of all
aboveground and underground storage tanks, vessels and related equipment and
containers located on any currently or previously (to the extent known) owned or
operated facility that are subject to federal, state or local laws, statutes,
rules, regulations or ordinances, and sets forth their present contents and, to
the knowledge of Corporation, what the contents have been at any time in the
past.
(d) There have been no discharges to surface waters or groundwaters
occurring prior to the date hereof other than permitted discharges.
(e) There have been no air emissions occurring prior to the date
hereof other than permitted discharges.
2.24 ERISA.
(a) Except as set forth on Schedule 2.24, Corporation does not
maintain, administer or contribute to, nor at any time during the past six years
has maintained, administered or contributed to, any (1) employee pension benefit
plan (as defined in Section 3(2) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), whether or not excluded from coverage under
specific Title or Subtitles of ERISA) (the employee pension benefit plans
disclosed on Schedule 2.24 are hereinafter referred to as the "Pension Plans");
(2) employee welfare benefit plan (as defined in Section 3(1) of ERISA, whether
or not excluded from coverage under specific Titles or Subtitles of ERISA) (the
employee welfare benefit plans disclosed on Schedule 2.24 are hereinafter
referred to as
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the "Welfare Plans"); or (3) bonus, deferred compensation, stock purchase, stock
option, severance plan, insurance or similar arrangement (the plans, insurance
or similar arrangements so disclosed on Schedule 2.24 are hereinafter referred
to as the "Employee Benefit Plans").
(b) Except as explained in Schedule 2.24, all Pension Plans, Welfare
Plans and Employee Benefit Plans and any related trust agreements or annuity
contracts (or any related trust instruments) comply with and are and have been
operated in accordance with ERISA, the Internal Revenue Code of 1986, as amended
(the "Code"), other federal statutes, state law and the regulations and rules
promulgated pursuant thereto. Except as explained in Schedule 2.24, all
necessary governmental approvals for the Pension Plans, the Welfare Plans and
the Employee Benefit Plans have been obtained, a favorable determination as to
the qualification under the Code of each of the Pension Plans and each amendment
thereto has been made by the Internal Revenue Service, and all of the Pension
Plans remain qualified under the Code.
(c) Neither any Pension Plan nor any Welfare Plan has engaged in any
transaction in violation of Section 406 of ERISA or any "prohibited transaction"
(as defined in section 4974(c)(1) of the Code) other than any such transaction
which is exempt under Section 408 of ERISA or Section 4974(d) of the Code.
(d) Corporation has not incurred any liability to the Pension
Benefit Guaranty Corporation ("PBGC") as a result of the voluntary or
involuntary termination of any Pension Plan subject to Title IV of ERISA; there
is currently no active filing by Corporation with the PBGC (and no proceeding
has been commenced by the PBGC) to terminate any Pension Plan subject to Title
IV of ERISA maintained or funded, in whole or in part, by Company or any of the
Subsidiaries; and Corporation has not made a complete or partial withdrawal from
a multi-employer plan, as such term is defined in Section 3(37) of ERISA,
resulting in "withdrawal liability", as such term is defined in Section
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4201 of ERISA (without regard to subsequent reduction or waiver of such
liability under either Section 4207 or 4208 of ERISA).
2.25 Employees.
(a) Schedule 2.25 contains a complete and accurate list of each
employee, officer or director of the Corporation, including each employee on
leave of absence or lay-off status: name; job title; current compensation paid
or payable and any change in compensation since January 1, 1994; vacation
accrued; and service credited for purposes of vesting eligibility to participate
under any pension, retirement, profit-sharing, thrift type and savings, deferred
compensation, stock bonus, stock option, cash bonus, employee stock ownership
(including investment credit or payroll stock ownership), severance pay,
insurance, medical, welfare, or vacation plan, other employee pension benefit
plan or employee welfare benefit plan, or any other employee benefit plan or any
director plan of Corporation.
(b) No employee, officer or director of Corporation is a party to,
or is otherwise bound by, any agreement or arrangement, including any
confidentiality, non-competition, or proprietary rights agreement, between such
employee, officer or director and any other person or entity that in any way
adversely affects or will affect (i) the performance of his or her duties as an
employee, officer or director of the Corporation, or (ii) the ability of
Corporation to conduct its business. To Sellers' knowledge, no director,
officer, or other key employee of Corporation intends to terminate his or her
employment with Corporation.
(c) Schedule 2.25 also contains a complete and accurate list of the
following information for each retired employee, officer or director of the
Corporation, or their dependents receiving benefits or scheduled to receive
benefits in the future: name; pension benefit; pension option election; retiree
medical insurance coverage; retiree life insurance coverage; and other benefits.
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(d) No union or collective bargaining unit represents any of
Corporation's employees.
3. Representations and Warranties of Buyer. The Buyer represents and
warrants to Sellers:
3.1 Valid Authorization and Compliance. That it has all requisite power
and authority to execute and deliver this Agreement and to carry out the
transactions contemplated hereby; the execution, delivery and performance of
this Agreement has been duly authorized by all requisite corporate action; this
Agreement has been duly executed and delivered by it and constitutes its valid
and binding obligation, fully enforceable against it in accordance with its
terms; and the execution of this Agreement and performance of the obligations
hereunder do not and will not render it insolvent or render it unable to pay its
obligations as they arise. Further, that the issuance of the Notes called for in
this Agreement are valid acts of the Buyer, have been approved by Buyer's Board
of Directors and are duly authorized and valid obligations of the Buyer pursuant
to the terms of this Agreement.
4. Access To and Information Concerning Properties, Records, Etc.
4.1 Access. Corporation and Sellers shall give to Buyer, its counsel,
accountants, financial advisors and other representatives full access, at
reasonable times and upon reasonable notice (so as not to interfere unreasonably
with the ordinary course and conduct of business of Corporation), throughout the
period prior to the Closing, to all of their respective properties, books,
contracts, commitments and records, including, but not limited to, minute books,
charters and by-laws, and shall furnish to Buyer all such information concerning
Corporation and Corporation's subsidiaries and Corporation's respective affairs
as the Buyer may reasonably request. In addition, Corporation shall make its
officers available at reasonable times and upon reasonable notice to discuss
with the Buyer's designated, appropriate representatives the substance of all
documents, financial statements and other
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information provided by Corporation, and such other matters as the respective
parties shall reasonably deem pertinent to the transactions contemplated under
this Agreement. All information disclosed by any party hereto, to another party
pursuant to this Section shall be subject to Article 8 hereof (regarding
confidential treatment of confidential or non-public information). No
investigation pursuant to this Section shall affect any representations or
warranties made herein.
5. Covenants of Corporation.
5.1 Affirmative Covenants of Corporation. Corporation covenants that,
throughout the period commencing on the date hereof and ending at the Closing,
except for specific proposed actions or inaction as shall otherwise be consented
to by Buyer in writing, Corporation will for its own part:
(a) Conduct of Business. Conduct its business in a manner that will
not adversely affect Corporation's ability to obtain all necessary regulatory
approvals for the transactions contemplated hereby or Corporation's ability to
perform its obligations under this Agreement and conduct its business in the
ordinary course;
(b) Preservation of Business. Use its best efforts to maintain and
preserve its businesses, its good will and its relationships with its customers;
(c) Assets. Maintain and keep its assets in as good repair and
condition in all material respects as they presently exist, except for
depreciation due to ordinary wear and tear and damage due to casualty;
(d) Insurance. Maintain in full force and effect the policies of
insurance set forth in Section 2.13;
(e) Contracts, Etc. Perform all its material obligations under
material contracts, leases and documents relating to or affecting its material
assets, properties and businesses;
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(f) Financial Statements. Furnish to Buyer:
(i) Promptly upon receipt thereof, copies of all audit reports
submitted to Corporation by independent auditors in connection with each annual,
interim or special audit of the books of Corporation made by such accountants;
(ii) As soon as practicable, copies of all financial statements
and reports as it or its accounting firm shall generate;
(iii) Promptly upon any executive officer of Corporation
obtaining knowledge of any condition or event which would constitute a material
violation of the terms and conditions of this Agreement or which would
constitute a material default under any material indenture, mortgage, agreement
or other instrument securing or relating to any indebtedness of Corporation for
borrowed money, a certificate of the President of Corporation specifying the
nature of such material violation or default and what action Corporation has
taken or is taking or proposes to take with respect thereto;
(iv) Promptly upon becoming aware that any person has given
notice to Corporation or taken any other action with respect to a claimed
violation or default of the type referred to in subsection (iii) of this
Subsection, a written notice describing the notice given or action taken by such
person, the nature of such violation or default and what action Corporation has
taken or is taking or proposes to take with respect thereto; and
(v) With reasonable promptness, such additional financial data as
Buyer may reasonably request;
(g) Laws, Rules, Etc. Corporation shall comply with and perform all
material obligations and duties imposed upon it by all federal and state laws
and all rules, regulations and orders imposed by federal or state governmental
authorities, except in respects not materially adverse to
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the financial condition, business, prospects or results of operations of
Corporation taken as a whole, or which would not materially impair the ability
of Corporation to consummate the transactions contemplated hereby;
(h) Corporate Existence. Maintain its existence, in the case of
Corporation, as a corporation validly existing in good standing under the laws
of the State of Delaware.
(i) Notices. Notify Buyer of (i) any fact or circumstance of which
the executive officers of Corporation have knowledge which would, absent
disclosure by Corporation to Buyer and Buyer's subsequent consent to such fact
or circumstance, not permit Corporation to satisfy the condition set forth in
Section 5.1(a) of this Agreement, (ii) any material breach of any of its
covenants contained herein, and (iii) any material adverse change in its
financial condition, business, prospects or operating results;
(j) Best Efforts. Use its best efforts to assure, to the extent
reasonably within its control, and subject to its fiduciary duties, as soon as
it is reasonably practicable, the satisfaction of the conditions to the
effectiveness of the transactions contemplated by this Agreement;
(k) Taxes. Withhold and pay over as they become due all withholding
taxes and provide for and pay any other taxes as they become due; or
(l) Accounts Receivable, Accounts Payable and Inventory. Maintain
accounts receivable, accounts payable and inventory at substantially the same
level as they exist as of the date of execution hereof.
5.2 Negative Covenants of Corporation. Corporation covenants that,
throughout the period commencing on the date hereof and ending on the date of
Closing, except for proposed specific actions as shall otherwise be consented to
by Buyer, Corporation will not:
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(a) Liabilities. Create, incur, assume, guarantee or otherwise
become directly or indirectly obligated with respect to any liabilities or
obligations outside the ordinary course of business nor become obligated under
any agreement to lend or borrow funds or purchase or supply goods or services
other than agreements that are not material and which are in the ordinary course
of business;
(b) Corporate Status. Merge into, consolidate with, affiliate with,
or be purchased or acquired by, any other corporation, entity or person (or
agree to any such merger, consolidation, affiliation, purchase or acquisition)
provided, however, that Buyer shall consent to such a transaction or agreement
upon receipt of a legal opinion satisfactory to Buyer and its counsel to the
effect that such a transaction or agreement is necessary to satisfy the
fiduciary duties of the Board of Directors of Corporation;
(c) Governing Documents. Amend its charter or by-laws, except that
Corporation shall amend the foregoing to the extent necessary to effect the
transactions contemplated hereby;
(d) Stock. Purchase, redeem, retire or otherwise acquire, or
hypothecate, pledge or otherwise encumber, any shares of capital stock;
(e) Dividends and Distributions. Make, declare or pay any dividend
on Common Stock, or declare or make any distribution on any shares of its
capital stock;
(f) Liability. Except for indebtedness and contingent liabilities
incurred in the ordinary course of business of Corporation, incur any
indebtedness or liability for borrowed money evidenced by notes, bonds,
debentures or other similar obligations;
(g) Assets. Solicit or encourage inquiries or proposals with respect
to, or, furnish any information relating to or participate in any negotiations
or discussions concerning, any acquisition or purchase or all or a material
portion of its assets whether owned by it directly or of a
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substantial equity interest in, it or any business combination with it and
Corporation shall notify Buyer immediately if any such inquiries or proposals
are received by, any such information is requested from, or any such
negotiations or discussions are sought to be initiated with, Corporation shall
instruct its officers, directors, agents, advisors and affiliates to comply with
the above;
(h) Cash, Accounts Payable and Accounts Receivable. Except in the
ordinary course of business, incur accounts payable, forgive or write off
accounts receivable or deplete or expend cash-on-hand;
(i) Bank Debt. Increase the corporate line of credit or term loans
with Corestates or any other bank beyond Two Hundred Thousand Dollars
($200,000.00);
(j) Plant, Property and Equipment. Incur expenditures in excess of
Forty Thousand Dollars ($40,000.00) for the purchase or lease of plant, property
or equipment;
(k) Corporation Stock. Issue any additional shares of capital stock
or any options, warrants or other securities or instruments convertible into
shares of capital stock ;
(l) Dividends and Other Distributions. Declare or pay any dividends
or otherwise make distributions on any shares of its capital stock or sell,
transfer or otherwise dispose of, or enter into any agreement to sell, transfer
or otherwise dispose of, any of its assets other than in the ordinary course of
business; or
(m) Other Actions. Directly or indirectly agree to take any of the
foregoing actions specified in Section 5.2.
6. Conditions.
6.1 Conditions to the Obligations of Buyer, Sellers and Corporation.
The Closing shall be expressly conditioned upon the following:
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(a) Approval of Stockholders. Approval of this Agreement by the
affirmative vote of such number of the stockholders of Buyer, as is required by
applicable law, shall have been obtained.
(b) Approval of Regulatory Agencies. All required consents and
approvals of all regulatory agencies and other authorities having jurisdiction
over the transactions contemplated by this Agreement, including without
limitation the SEC if required, shall have been obtained, and all applicable
waiting periods shall have expired.
(c) Suits, Actions. No party hereto shall be subject to any order,
decree or injunction of a court or agency of competent jurisdiction which
enjoins or prohibits the consummation of the purchase.
(d) Statutes, Orders. No statute, rule, regulation, order,
injunction or decree shall have been enacted, entered, promulgated or enforced
by any governmental authority which prohibits, restricts or makes illegal the
consummation of the purchase.
6.2 Conditions to the Obligations of Buyer. Consummation by Buyer of
the transactions contemplated hereby is subject to the following conditions
precedent, any of which, however, may be waived, to the extent permitted by
applicable law or regulation, by the consent in writing of Buyer:
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(a) Representations, Warranties and Covenants.
(i) The representations and warranties of Corporation and Sellers
contained herein (A) shall have been true and correct in all material respects
on the date hereof, and (B) other than as disclosed by Corporation and Sellers
to, and approved by, Buyer in writing prior to or at the Closing, shall be true
and correct in all material respects as of the Closing, except as otherwise
provided or permitted by this Agreement.
(ii) Corporation and Sellers shall have duly performed in all
material respects all covenants, not otherwise waived by Buyer in writing,
required by this Agreement to be performed by Corporation and Sellers prior to
or at the Closing.
(iii) Buyer shall have received a certificate of Corporation
dated as of the Closing, signed by the Chairman and the President of Corporation
and certifying in such detail as Buyer may reasonably request the fulfillment of
the conditions set forth in Section 6.2(a).
(b) Material Adverse Changes.
(i) Since the date of this Agreement there shall have been no
material adverse change in the overall financial condition, asset value,
earnings, businesses, prospects or results of operations of Corporation.
(ii) Buyer shall have received a certificate of Corporation dated
as of the date of the Closing, signed by the Chairman and the President of
Corporation and certifying in such detail as Buyer may reasonably request the
fulfillment of the conditions set forth in Section 6.2(b).
(c) Opinion of Counsel. All proceedings and legal details incident
to this Agreement shall be satisfactory to Wisler, Pearlstine, Talone, Craig,
Garrity & Potash, LLP as counsel for Buyer, and Buyer shall have received an
opinion reasonably satisfactory to them from Swartz,
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Campbell & Detweiler, as counsel for Corporation, dated as of the date of the
Closing and addressed to Buyer, to the effect that:
(i) Corporation is a Delaware corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
the power and authority to execute, deliver and perform all transactions
contemplated by this Agreement.
(ii) The authorized capital stock of Corporation consists of
3,000 shares of common stock, with no par value, of which the number of shares
of Corporation Common Stock specified in the opinion are issued and outstanding
on the Closing Date. Each of such outstanding Shares of Corporation has been
validly issued and is fully paid and non-assessable. None of such outstanding
Shares of Corporation have been issued in violation of any preemptive rights. To
such counsel's knowledge, no unissued shares of Corporation Shares or any other
securities of Corporation are subject to any warrants, options, commitments,
preemptive or other rights of any kind or nature, and Corporation is not
obligated to issue any additional shares of capital stock or any other
securities of any kind or nature as of the date of this Agreement.
(iii) The execution, delivery and performance as of the date of
such opinion of all transactions contemplated by this Agreement have been duly
authorized by the board of directors and shareholders of Corporation and do not
and will not violate any of the provisions of, or constitute a default under or
give any person or party the right to accelerate payment or performance under
the certificate of incorporation or by-laws of Corporation or to such counsel's
knowledge any other material agreement or instrument to which Corporation is a
party or by which it or any of its properties or assets is bound other than (1)
violations, defaults or accelerations which in the aggregate would not have a
material adverse effect on the financial condition, business, prospects or
operating results of
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Corporation taken as a whole or (2) violations, defaults or accelerations that
in the aggregate would not materially impair the ability of Corporation to
consummate the transactions contemplated hereby.
(iv) This Agreement has been duly authorized, executed and
delivered by Corporation and constitutes valid and binding obligations of
Corporation, enforceable against Corporation in accordance with its terms except
as may be limited by bankruptcy, insolvency, reorganization, moratorium or other
laws affecting creditors' rights and except as may be limited by the exercise of
judicial discretion in applying general principles of equity (regardless of
whether such agreements or documents are considered in a proceeding in equity or
at law).
(v) To the actual knowledge of such counsel, the execution,
delivery and performance of the Agreement by Corporation will not violate any
provision of law or regulation applicable to Corporation other than (1)
violations which in the aggregate would not have a material adverse effect on
the financial condition, business, prospects or operating results of Corporation
taken as a whole, or (2) violations which in the aggregate would not materially
impair the ability of Corporation to consummate the transactions contemplated by
the Agreement.
(vi) All consents and approvals of (and filings with) all federal
or state regulatory agencies or other authorities having jurisdiction over the
transactions contemplated by this Agreement required by law for Corporation to
have been obtained or accomplished have been obtained or accomplished; such
opinion to express those agencies or authorities whose approvals have been
obtained or accomplished and to be given on a knowledge basis as to all others.
(d) Suit, Action, Etc. No suit, action or other proceeding shall be
pending or directly threatened by any federal, state or other governmental
agency, commission or authority having jurisdiction or authority over
Corporation or Buyer or by any other person, in which it is sought to restrain
or prohibit consummation of the transactions contemplated by this Agreement and
which in the
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reasonable judgment of the management of Buyer is meritorious and materially
adversely affects the prospects of such consummation.
(e) Accountants' Letter. Buyer shall have received a "comfort"
letter from Corporation's independent certified public accountants dated (i) as
of the date of Closing substantially to the effect that:
(i) It is a firm of independent public accountants with respect
to Corporation; and
(ii) On the basis of generally accepted auditing standards,
nothing has come to its attention which causes it to believe:
(A) that the audited financial statements of Corporation are
not fairly presented in conformity with generally accepted accounting principles
applied on a basis consistent with that of audited financial statements; and
(B) that from July 1, 1996 through the date of Closing, there
are any liabilities or obligations, secured or unsecured (whether accrued,
absolute, contingent, or otherwise), of a nature that would be reflected or
reserved against in a corporate balance sheet or disclosed in the notes thereto,
prepared in accordance with the generally accepted accounting principles applied
in the preparation of such financial statements, that are not reflected or
reserved against in the June 30, 1996 balance sheet or disclosed in the notes
thereto, except as set forth in Exhibit "D" to the Agreement.
(f) Corporation Customer Base. As of Closing, there shall have been
no material adverse change in the current customer base of Corporation.
(g) Approval by Lenders. Corporation shall have obtained, prior to
Closing, the approval of the transactions required by this Agreement by the
lenders of Corporation.
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(h) Retirement Plans. Except as set forth in Schedule 2.24,
Corporation shall have fully funded all retirement plans for its officers and
other employees prior to Closing and there shall be no existing or potential
violation of applicable laws or regulations with regard to said retirement
plans.
(i) Due Diligence. The satisfactory completion by Buyer of its due
diligence review of Corporation prior to Closing.
(j) Delivery of Documents. All documents required to be delivered to
Buyer from Sellers or Corporation have been delivered.
6.3 Conditions to the Obligations of Sellers and Corporation.
Consummation by Sellers and Corporation of the transactions contemplated hereby
is subject to the following conditions precedent, any of which, however, may be
waived, to the extent permitted by applicable law or regulation, by the consent
in writing of Sellers and Corporation:
(a) Representations and Warranties.
(i) The representations and warranties of Buyer contained herein
(A) shall have been true and correct in all material respects on the date made,
and (B) other than as disclosed by Buyer to, and approved by, Sellers and
Corporation in writing prior to or at the Closing, shall be true and correct in
all material respects as of the Closing, except as otherwise permitted by this
Agreement.
(ii) Buyer shall have duly performed in all material respects all
covenants, not otherwise waived by Sellers and Corporation in writing, required
by this Agreement to be performed by Buyer prior to or at the Closing.
(iii) Sellers and Corporation shall have received a certificate
of Buyer dated as of the Closing, signed by the President and the Chief
Financial Officer of Buyer and certifying in such detail as Corporation may
reasonably request the fulfillment of the conditions set forth in Section
6.3(a).
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(b) Suit, Action, Etc. No suit, action or other proceeding shall be
pending or directly threatened by any federal, state or other governmental
agency, commission or authority having jurisdiction or authority over Sellers
and Corporation or Buyer or by any other person, in which it is sought to
restrain or prohibit consummation of the transactions contemplated by this
Agreement and which in the reasonable judgment of Sellers and of the management
of Corporation is meritorious and materially adversely affects the prospects of
such consummation.
(c) Opinion of Counsel. All proceedings and legal details incident
to this Agreement shall be satisfactory to Swartz, Campbell and Detweiler as
counsel for Sellers, and Sellers shall have received an opinion reasonably
satisfactory to them from Wisler, Pearlstine, Talone, Craig, Garrity & Potash,
LLP, as counsel for Buyer, dated as of the date of the Closing and addressed to
Seller, to the effect that:
(i) Buyer is a Pennsylvania corporation duly organized, validly
existing and in good standing under the laws of the Commonwealth of Pennsylvania
and has the power and authority to execute, deliver and perform all transactions
contemplated by this Agreement.
(ii) The execution, delivery and performance as of the date of
such opinion of all transactions contemplated by this Agreement have been duly
authorized by the board of directors and shareholders of Buyer and do not and
will not violate any of the provisions of, or constitute a default under or give
any person or party the right to accelerate payment or performance under the
certificate of incorporation or by-laws of Buyer or to such counsel's knowledge
any other material agreement or instrument to which Buyer is a party or by which
it or any of its properties or assets is bound other than (1) violations,
defaults or accelerations which in the aggregate would not have a material
adverse effect on the financial condition, business, prospects or operating
results of Buyer taken as a
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whole or (2) violations, defaults or accelerations that in the aggregate would
not materially impair the ability of Buyer to consummate the transactions
contemplated hereby.
(iii) This Agreement has been duly authorized, executed and
delivered by Buyer and constitutes valid and binding obligations of Buyer,
enforceable against Buyer in accordance with its terms except as may be limited
by bankruptcy, insolvency, reorganization, moratorium or other laws affecting
creditors' rights and except as may be limited by the exercise of judicial
discretion in applying general principles of equity (regardless of whether such
agreements or documents are considered in a proceeding in equity or at law).
(iv) To the actual knowledge of such counsel, the execution,
delivery and performance of the Agreement by Buyer will not violate any
provision of law or regulation applicable to Buyer other than (1) violations
which in the aggregate would not have a material adverse effect on the financial
condition, business, prospects or operating results of Buyer taken as a whole,
or (2) violations which in the aggregate would not materially impair the ability
of Buyer to consummate the transactions contemplated by the Agreement.
(v) All consents and approvals of (and filings with) all federal
or state regulatory agencies or other authorities having jurisdiction over the
transactions contemplated by this Agreement required by law for Buyer to have
been obtained or accomplished have been obtained or accomplished; such opinion
to express those agencies or authorities whose approvals have been obtained or
accomplished and to be given on a knowledge basis as to all others.
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6.4 Documents to be Delivered at Closing:
(a) At Closing, Sellers shall deliver the following documents to
Buyer:
(i) Mayer shall deliver an executed copy of the Employment
Agreement attached hereto as Exhibit "E";
(ii) McCarthy shall deliver an executed copy of the Employment
Agreement attached hereto as Exhibit "F";
(iii) Mayer shall deliver Certificate(s) representing all of her
shares in Corporation, properly endorsed, for transfer to Buyer;
(iv) McCarthy shall deliver Certificate(s) representing all of
his shares in Corporation, properly endorsed, for transfer to Buyer;
(v) Mayer shall submit her written resignation from her position
as director and an officer of the Corporation;
(vi) McCarthy shall submit his written resignation from his
position as director and an officer of the Corporation;
(vii) Mayer and McCarthy shall each deliver an executed copy of
the Subscription Agreement attached hereto as Exhibit "G";
(viii) Mayer and McCarthy shall each deliver a completed and
executed Investors Questionnaire attached hereto as Exhibit "H".
(b) At Closing, Buyer shall deliver the following documents to
Seller:
(i) An executed copy of the Subscription Agreement to Mayer and
McCarthy in the form attached hereto as Exhibit "G".
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7. Expenses.
7.1 Each party hereto will bear all expenses incurred by it in
connection with this Agreement and the transactions contemplated hereby.
Provided however, Buyer shall pay the reasonable costs of the audit of
Corporation's financial statement for the period ending June 30, 1996 and the
cost of the bringdown audit for the period between June 30th and the date of
Closing. In addition, Buyer will pay Sellers' and Corporation's reasonable
attorney's fees incurred in connection with this transaction, to the extent such
fees exceed Four Thousand Dollars ($4,000.00). Sellers' and Corporation shall
pay the first Four Thousand Dollars ($4,000.00) of their attorney's fees.
8. Confidentiality.
8.1 Confidentiality. Any non-public or confidential information
disclosed by either party to the other pursuant to this Agreement or as a result
of the discussions and negotiations leading to this Agreement, or otherwise
disclosed, or to which any other party has acquired or may acquire access, and
indicated (either expressly, in writing or orally, or by the context of the
disclosure or access) by the disclosing party to be non-public or confidential,
or which by the content thereof reasonably appears to be non-public or
confidential, shall be kept strictly confidential and shall not be used in any
manner by the recipient except in connection with the transactions contemplated
by this Agreement. To that end, the parties hereto will each, to the maximum
extent practicable, restrict knowledge of and access to non-public or
confidential information of the other party to its officers, directors,
employees and professional advisors who are directly involved in the
transactions contemplated hereby and reasonably need to know such information.
Further to that end, all non-public or confidential documents (including all
copies thereof) obtained hereunder by any party shall be returned as soon as
practicable after any termination of this Agreement and all electronic data that
constitutes non-public confidential information
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which is not physically returned shall be destroyed. The obligation of the
parties to maintain the confidentiality of such information shall survive the
termination of this Agreement.
9. Post-Closing Transactions.
9.1 S Corporation Status. If applicable, the parties agree that upon
completion of the transfer of the stock, they shall file an election to close
books under Section 1377(a)(1) of the Internal Revenue Code effective as of the
date the shares are transferred to reflect that the Corporation's tax year shall
end, for the purposes of Sellers' tax treatment, on such date.
9.2 Audit. Subsequent to Closing, Sellers shall fully cooperate, and
secure the cooperation of Corporation's current CPA firm, in completing an
audited financial statement for the Corporation for the period extending from
June 30, 1996 through the Closing.
9.3 Taxes. If Sellers incur and pay any personal tax liability
resulting from income earned by the Corporation in its business operations due
to its status as an S Corporation between January 1, 1996 and Closing (the "Tax
Period") and the filing of any tax return by Sellers for the Tax Period,
Corporation shall reimburse Sellers for such payments (the "Tax Liability"). The
Tax Liability shall exclude any tax liability imposed on Sellers for any amount
received by Sellers pursuant to (section)1.6. The amount of reimbursement shall
be limited to the Tax Liability less the amount of all taxes imposed on Sellers
on the income paid to Sellers by the Corporation from January 1, 1996 through
the date of Closing. Sellers shall provide Corporation and Buyer with written
notice of the Tax Liability within ten (10) days of paying the Tax Liability,
including copies of any tax returns, assessments or related documents
demonstrating such liability. Buyer shall pay Sellers the amount calculated
pursuant to this section within thirty (30) days of receipt of such written
notice.
10. Indemnification; Remedies.
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10.1 Survival. All representations, warranties, covenants and
obligations in this Agreement and any certificate of document delivered pursuant
to this Agreement will survive the Closing. The right to indemnification and any
other remedy based on the representations, warranties, covenants and obligations
will not be affected by any investigation conducted with respect to, or any
knowledge acquired (or capable of being acquired) at any time, whether it be
before or after the execution and delivery of this Agreement or the Closing
Date, with respect to the accuracy or inaccuracy of or compliance with, any such
representation, warranty, covenant or obligation. The waiver of any condition
based on the accuracy of any representation or warranty, or on the performance
of or compliance with any covenant or obligation, will not affect the right to
indemnification, recovery of damages, or other remedy based on such
representations, warranties, covenants and obligations.
10.2 Indemnification.
(a) Sellers agree to indemnify and hold harmless Buyer against any
and all losses, costs, expenses, claims, damages or liabilities (including the
amount of any settlement approved by such Sellers and expenses of enforcing this
Agreement), which Buyer may suffer, incur or become subject to, and to reimburse
Buyer for any legal or other expenses incurred by it in connection with
investigating any claims and defending any actions, insofar as such losses,
costs, expenses, claims, damages, liabilities or actions arise out of or are
based upon (i) any false, misleading or untrue representation, intentional or
unintentional, or the breach of any warranty made by either or both of the
Sellers, (ii) any breach or default in performance by the Sellers of any of its
covenants or agreements with Buyer contained herein, (iii) the assessment of any
claim for additional premium for any insurance policy not fully accrued on the
Corporate Financials; or (iv) any tax liability of Corporation or Sellers
imposed upon Buyer or Corporation based on a failure of Corporation or Sellers
to file all tax returns and pay all taxes due, or assessed after IRS audit,
based upon the operations of Corporation prior to the
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Closing or thereafter including any tax liability based upon this transaction
(transferee liability), but excluding the tax to be paid by Buyer pursuant to
(section)9.3. The indemnity and hold harmless obligations in this Section shall
not apply to the extent that said losses, costs, expenses, claims, damages or
liabilities arise from actions which constitute misrepresentation, malfeasance,
nonfeasance or a violation of law by Buyer which actions are the material cause
of Seller's obligation to indemnify or hold harmless Buyer under this Section.
(b) As a condition precedent to indemnification and set off, Buyer
agrees to promptly notify the Sellers in writing upon becoming aware of the
existence of any claim, demand, or other matter to which the Sellers'
indemnification obligation would apply and shall give Sellers a reasonable
opportunity to defend or remedy the same at Sellers' own expense and with
counsel of the Sellers' selection; provided, that Buyer shall be given the
option at all times to fully participate in the defense at Buyer's own expense.
If Sellers shall, within a reasonable time after notice, fail to defend, Buyer
shall have the right, but not the obligation, to undertake the defense of, and
to compromise or settle (exercising reasonable business judgment) the claim or
other matter on behalf of, for the account and at the risk of Sellers.
10.3 Related Agreements.
(a) Concurrent with the Closing, Sellers and Corporation are
executing an Employment Agreement for Mayer and an Employment Agreement for
McCarthy (this Agreement and the Employment Agreements are collectively referred
to as the "Related Agreements"). Any obligation under one agreement shall be
considered to be an obligation under every other Related Agreement.
(b) In the event of a voluntary quit by either Seller under their
respective Employment Agreements (a "Breach Event"), Buyer shall not be
obligated to make any payments to either Seller under the promissory notes
delivered pursuant to (section)1.2(a)(ii) and (b)(i) (the "Contingent Notes").
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However, if (i) the Net Income goal set forth in Schedule 10.3(b) Column I is
achieved by the Corporation in both the year in which the Breach Event occurs
and all years remaining on Schedule 10.3(b); and (ii) the Sellers are not in
violation of the covenants contained in sections 6.1, 6.2 and 6.3 of their
respective Employment Agreements with the Corporation, then the Seller who is
not subject to the Breach Event shall receive payment under the Contingent Notes
pursuant to the terms of the Contingent Notes commencing upon the satisfaction
of the foregoing conditions. Payments shall be suspended until such
determination can be made. In the event (i) the Net Income goal set forth in
Schedule 10.3(b) Column II is achieved by the Corporation in both the year the
Breach Event occurs and all years remaining on Schedule 10.3(b); and (ii) the
Sellers are not in violation of the covenants contained in sections 6.1, 6.2 and
6.3 of their respective Employment Agreements with the Corporation, then both
Sellers shall receive payment under the Contingent Notes pursuant to the terms
of the Contingent Notes commencing upon the satisfaction of the foregoing
conditions. Payments shall be suspended until such determination can be made.
(c) Any default shall not automatically constitute a basis for Buyer
to recoup monies previously paid to Sellers, but Buyer shall still be entitled
to exercise its right of set-off on any prospective monies owed to Sellers, its
right of indemnification, and any remedies at law or equity.
(d) In the event Employer materially defaults on its payment
obligations under sections 1.2(a)(i), (a)(ii), 1.2(b)(i), (b)(ii) and 1.2(c) and
has not cured said default within ninety (90) days of the written notice of the
default, exclusive of any grace periods, and is not otherwise justified in
withholding such payments under the Agreement, then the negative Covenants set
forth in sections 6.1, 6.2 and 6.3 of the Employment Agreement(s) shall be void
ab initio. This provision shall not apply to any payments not made to Sellers
because Buyer is exercising any rights of set off indemnification,
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common law right of off set or is otherwise justified in withholding any such
payments under the Related Agreements.
10.4 Set Off. Buyer and/or Corporation may set off any amount to
which it in good faith believes it is entitled under this Section or any of the
Related Agreements against amounts otherwise payable under Section 1.2 of this
Agreement or the Employment Agreements. Without limitation of the foregoing,
Buyer or Corporation may set off any amount which Corporation or Buyer is
obligated to pay as a fine, penalty, funding, or distribution from Profit
Sharing Plan (#001). The exercise of such right of set off by Buyer and/or
Corporation in good faith, whether or not ultimately determined to be justified,
will not constitute an Event of Default under the Promissory Notes executed
pursuant to this Agreement or the Related Agreements. Neither the exercise of
nor the failure to exercise such right of set off will constitute an election of
remedies or limit Buyer and/or Corporation in any manner in the enforcement of
any other remedies that may be available to either Buyer or Corporation.
10.5 Remedies. In the event any party shall default in its
obligations hereunder, any non-defaulting party may pursue any remedy available
at law or in equity to enforce its rights and shall be paid by the defaulting
party for all damages, costs and expenses, including legal and accounting
expenses, incurred or suffered by the non-defaulting party in connection
herewith or in the enforcement of its rights hereunder. Any negligent
misrepresentation or negligent omission of information which is not material to
this Agreement is not grounds for default or rescission of this Agreement.
11. Miscellaneous Provisions.
11.1 Entire Agreement. This Agreement, and all Exhibits and
Schedules attached hereto, as well as any other document if signed or initialed
by the parties hereto and specifically providing that it is an exception to the
limitations contained in this Section, embody the entire agreement between the
parties hereto with respect to the matters agreed to herein, and, except as
expressly provided
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herein, this Agreement shall not be affected by reference to any other document
except for any such document signed or initialed by the duly authorized
representatives of the parties hereto and specifically providing that it is an
exception to the limitations contained in this Section. All prior negotiations,
discussions agreements by and between the parties hereto with respect of such
matters agreed to herein which are not reflected or set forth in this Agreement,
or in the Exhibits or Schedules, or in such other document, shall have no
further force or effect. Each representation, warranty, covenant or agreement
contained in this Agreement made by any of the parties hereto shall have
independent force and effect and shall not be affected by any other
representation except by specific reference.
11.2 Publicity. The content and timing of all publicity and
announcements concerning this Agreement, and all transactions contemplated by
this Agreement, shall be subject to joint consultation and approval of the
parties hereto, subject, however, to the legal obligations applicable to public
companies.
11.3 Amendment and Waiver. Neither this Agreement nor any term,
covenant, condition or other provision hereof may be amended, modified,
supplemented, waived, discharged or terminated except by an instrument in
writing signed by responsible officers duly authorized by the respective boards
of directors of the parties hereto.
11.4 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania except
to the extent that federal law may be applicable.
11.5 Communications. All notices, requests, demands, consents and
other communications hereunder shall be in writing and shall be deemed to have
been duly given if hand delivered, sent by recognized overnight delivery
service, sent by certified or registered mail, postage prepaid, return receipt
requested, or by confirmed telecopy as follows:
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(a) If to Judge, to:
Two Bala Plaza
Suite 400
Bala Cynwyd, PA 19004
Attention: Martin E. Judge, Jr.
With a copy to:
Wisler, Pearlstine, Talone, Craig, Garrity & Potash, LLP
484 Norristown Road
Blue Bell, PA 19422
Attention: Michael J. O'Donoghue
(b) If to Corporation, to:
Two Bala Plaza
Suite 500
Bala Cynwyd, PA 19004
Attention: Sandy Mayer
With a copy to:
Swartz, Campbell & Detweiler
1601 Market Street
34th Floor
Philadelphia, PA 19103
Attention: William T. Salzer
(c) If to Sellers, to:
Two Bala Plaza
Suite 500
Bala Cynwyd, PA 19004
Attention: Sandy Mayer
With a copy to:
Swartz, Campbell & Detweiler
1601 Market Street
34th Floor
Philadelphia, PA 19103
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Attention: William T. Salzer
Any such notice or other communication so addressed shall be deemed to have been
received by the addressee (i) if hand-delivered or sent by overnight delivery,
on the next business day following the date so delivered or sent, (ii) if sent
by registered or certified mail, five (5) business days following the date sent,
or (iii) if sent by telecopy, upon verbal telephone confirmation of receipt
thereof by an individual authorized to accept telecopy communications at the
above-specified telecopy number as of the date of such receipt of confirmation.
11.6 Successors and Assigns. The rights and obligations of the
parties hereto shall inure to the benefit of and shall be binding upon the
successors, assigns and heirs of each of them; provided, however, that neither
this Agreement nor any of the rights, interest or obligations hereunder shall be
assigned by any party hereto without the prior written consent of the other
party.
11.7 Headings, Etc. The headings of the Sections and Subsections of
this Agreement have been inserted for convenience only and shall not be deemed
to be a part of this Agreement.
11.8 Severability. In the event that any one or more provisions of
this Agreement shall for any reason be held invalid, illegal or unenforceable in
any respect, by any court of competent jurisdiction, such invalidity, illegality
or unenforceability shall not affect any other provisions of this Agreement and
the parties shall use their best efforts to substitute a valid, legal and
enforceable provision which, insofar as practicable, implements the purposes and
intents of this Agreement.
11.9 No Third Party Beneficiary. Except as expressly provided for
herein, nothing in this Agreement is intended to confer upon any person who is
not a party hereto any rights or remedies of any nature whatsoever under or by
reason of this Agreement.
11.10 Counterparts. To facilitate execution, this Agreement may be
executed in as many counterparts as may be required; and it shall not be
necessary that the signatures of, or on behalf
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of, each party, or that the signatures of all persons required to bind any
party, appear on each counterpart; but it shall be sufficient that the signature
of, or on behalf of, each party, or that the signatures of the persons required
to bind any party, appear on one or more of the counterparts. All counterparts
shall collectively constitute a single agreement. It shall not be necessary in
making proof of this Agreement to produce or account for more than a number of
counterparts containing the respective signatures of, or on behalf of, all of
the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the date set forth above.
[SIGNATURE PAGE FOLLOWS]
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JUDGE, INC.
By: /s/ Martin E. Judge, Jr.
------------------------------------------
Martin E. Judge, Jr., CEO
THE BERKELEY ASSOCIATES CORPORATION
By: /s/ Sandy Mayer
------------------------------------------
Sandy Mayer, President
/s/ Sandy Mayer
------------------------------------------
Sandy Mayer
/s/ Gregory J. McCarthy
------------------------------------------
Gregory J. McCarthy
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FIRST AMENDMENT AGREEMENT
THIS AMENDMENT AGREEMENT being made effective this 10th day of December
1996, by and among THE JUDGE GROUP, INC. ("Judge"), THE BERKELEY ASSOCIATES
CORPORATION ("Berkeley") and GREGORY J. McCARTHY and SANDRA MAYER (collectively
"Sellers").
BACKGROUND
A. Judge, Berkeley and Sellers entered into a Stock Purchase Agreement
dated September 26, 1996 (the "Agreement") providing for the sale of all
outstanding shares of Berkeley to Judge pursuant to the terms and conditions set
forth in that Agreement;
B. Pursuant to Section 11.3 of the Agreement, the parties may amend the
Agreement by a writing signed by the parties;
C. The closing date of the Initial Public Offering, as defined in the
Agreement, originally anticipated to close prior to December 31, 1996 is now
anticipated to close on or before March 31, 1997;
D. Judge, Inc. has changed its corporate name effective September 23, 1996
to The Judge Group, Inc.;
E. The parties have agreed to amend the Agreement to take into
consideration the above.
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth, and of other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, and intending to be legally bound hereby, the
parties agree as follows:
<PAGE>
TERMS
1. Section 1.2(a) of the Agreement shall be deleted in its entirety and
replaced by the following:
(a) Provided the Buyer successfully closes on an initial public
offering by March 31, 1997 (the "IPO"):
2. Section 1.2(a)(i) of the Agreement shall be deleted in its entirety
and replaced by the following:
(i) Upon Closing on this Agreement, each Seller shall receive
$87,500.00. Thereafter, on each monthly anniversary of the Closing
date, each Seller shall receive $25,000.00. Such payments shall be
made only through March, 1997 .
3. Section 1.2(2)(E) of the Agreement shall be deleted in its entirety
and replaced by the following:
(E) Promissory Notes. The promissory notes referred to in
subsections (A) and (B), if any, shall be delivered to each Seller
within thirty (30) days after the acceptance by both Buyer and Sellers
of the determination of Net Income as provided in
(section)1.2(a)(ii)(F), but in no event earlier than March 31, 1997.
Each promissory note shall be in the form attached hereto as Exhibit
"A", in the principal amount required by subsections (A) and (B) and
shall accrue interest at the rate of eight percent (8%) per annum. The
promissory notes shall provide for thirty-six (36) equal monthly
payments of principal and interest commencing the first of the month
following execution of the promissory note.
4. Section 1.2(a)(iii) of the Agreement shall be deleted in its
entirety and replaced by the following:
(iii) Subsequent to the Closing on the IPO (the "IPO Closing"),
on April 1, 1997, each Seller shall receive a number of unregistered
shares of Buyer
-2-
<PAGE>
equivalent to $150,000.00 divided by the offer price per share in the
IPO. The shares issued pursuant to this Section shall be subject to
the demand registration rights set forth in Schedule 1.2(a)(iii). No
fractional shares shall be issued and each Seller shall receive the
cash value of any fractional share they would have received pursuant
to this Section.
5. Section 1.2(a)(v) of the Agreement shall be deleted in its entirety
and replaced by the following:
(v) In addition, at the time of the IPO Closing, Buyer shall
deliver to each Seller an executed promissory note in the same form as
that attached as Exhibit "A" in the principal amount of $150,000.00
and shall accrue interest at the rate of eight percent (8%) per annum.
Equal payments of principal and accrued interest amortized from April
1, 1997 through November 1, 2000 shall commence April 1, 1997 and
shall be paid monthly thereafter until the notes are fully satisfied.
6. Section 1.2(b) of the Agreement shall be deleted in its entirety and
replaced by the following:
(b) Provided Buyer does not successfully close on an IPO by March
31, 1997:
7. (a) Section 1.2(b)(ii) of the Agreement shall be deleted in its
entirety and replaced by the following:
(ii) No later than December 31, 1996, Buyer shall deliver to
Wisler, Pearlstine, Talone, Craig, Garrity & Potash, LLP as escrow
agent for the parties ("Escrow Agent") an executed promissory note,
distinct from those issued under (section)1.2(a)(ii)(E), for each
Seller in the form attached hereto as Exhibit "B". Each promissory
note shall be in the principal amount of $830,000.00 less any amounts
paid or scheduled to be paid to each Seller pursuant to Section
1.2(a)(i) and shall
-3-
<PAGE>
accrue interest at the rate of eight percent (8%) per annum commencing
as of the date of Closing. The note shall provide for equal monthly
payments of principal and interest commencing April 1, 1997 and
through March 1, 1998 in the amount of $10,524.00 per month;
commencing April 1, 1998 and through October 1, 2000 in the amount of
$14,774.00 per month; and a final payment in the amount of $8,218.00
plus any accrued but unpaid interest on November 1, 2000. On April 1,
1997, Escrow Agent shall deliver to each respective Seller the
promissory notes delivered by Buyer under this Subsection.
(b) Exhibit "B" to the Agreement shall be deleted in its entirety and
replaced with Exhibit "B" attached hereto and incorporated herein.
(c) The Promissory Notes which Escrow Agent had previously held
pursuant to Section 1.2(b)(ii) of the Agreement shall be marked cancelled and
returned to Judge.
8. Section 1.2(c) of the Agreement shall be deleted in its entirety and
replaced by the following:
(c) Provided The Judge Group, Inc. ("JGI") successfully closes on
an IPO subsequent to March 31, 1997, but before all obligations under
Section 1.2(b) (ii) are fully paid and satisfied, then the payment
obligations under the promissory notes delivered pursuant to Section
1.2(b)(ii), may be accelerated as then presently due and payable at
the option of Sellers. This option shall be exercised in a writing
delivered to Buyer by either or both Sellers within five (5) days
following written notification to Sellers by Buyer of the proposed
closing of the IPO, notwithstanding anything stated herein to the
contrary. The exercise of the foregoing option by the parties hereto
is subject to the successful closing of the IPO and to any limitation
or condition imposed by the underwriters of the IPO, including
complete cancellation of the option.
-4-
<PAGE>
9. Section 1.5 of the Agreement shall be deleted in its entirety and
replaced by the following:
1.5 Buyer agrees that Sellers shall be appointed to serve upon
the Board of Directors of the Corporation for a term of one year.
10. All references to Judge, Inc. in the Agreement, the Schedules and
Exhibits thereto, and all documents delivered thereunder, shall be amended to
refer to The Judge Group, Inc.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the date set forth above.
THE JUDGE GROUP, INC.
By: /s/ Martin E. Judge, Jr.
-----------------------------------------
THE BERKELEY ASSOCIATES CORPORATION
By: /s/ Sandy Mayer
-----------------------------------------
/s/ Gregory J. McCarthy
-----------------------------------------
Gregory J. McCarthy
/s/ Sandy Mayer
-----------------------------------------
Sandy Mayer
-5-
<PAGE>
Exhibit 10.3
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is being made this 30th day of September,
1996, by and between SYSTEMS AUTOMATION, INC. ("Seller"), EDWARD HASKELL
("Shareholder") and THE JUDGE GROUP, INC., ("Buyer").
BACKGROUND
A. Seller is a corporation organized and existing under the
laws of the Commonwealth of Massachusetts with its principal place of business
at 15 Lakeside Office Park, Route 128, Wakefield, Massachusetts.
B. Buyer is a corporation organized and existing under the
laws of the Commonwealth of Pennsylvania with its principal place of business at
Two Bala Plaza, Bala Cynwyd, Pennsylvania.
C. Seller is engaged in the business of document imaging and
in conjunction therewith owns certain assets utilized in the operation of its
business.
D. Seller desires to sell, transfer and assign, and Buyer
desires to purchase certain of these assets of Seller in accordance with the
terms and conditions set forth herein.
E. It is currently anticipated that Buyer will complete
closing on an initial public offering prior to December 31, 1996.
NOW, THEREFORE, for and in consideration of the respective
representations, warranties, covenants and agreements set forth herein, and
intending to be legally bound hereby, the parties agree as follows:
<PAGE>
1. PURCHASE AND SALE OF ASSETS.
1.1 Seller hereby agrees to sell, convey, transfer and assign
to Buyer, and Buyer hereby agrees to purchase certain tangible personal property
including cash accounts, accounts receivable, inventory, office equipment,
furniture and other assets including customers' purchase orders unfilled prior
to the Closing and certain customer contracts, all of which are utilized by
Seller in the conduct and operation of its business (hereinafter "Tangible
Assets"), a complete listing which is attached hereto as Schedule 1.1 and made a
part hereof.
1.2 Seller hereby agrees to sell, convey, transfer and assign
to Buyer, and Buyer hereby agrees to purchase upon the terms and conditions of
this Agreement, Seller's intangible assets including its name, customer list,
trademarks, and other proprietary property (hereinafter Intangible Assets"), a
complete listing which is attached hereto as Schedule 1.2 and made a part
hereof. Intangible Assets and Tangible Assets are hereinafter collectively
referred to as "Assets".
1.3 Except as otherwise specifically and expressly provided in
Schedule 1.3, Buyer shall not assume nor be responsible for any of Seller's
obligations arising from Seller's operation of the business or ownership of the
Assets including, but not limited to, accounts payable, debts, dues, accounts,
contracts, taxes, claims, or demands of any nature whatsoever.
1.4 The parties agree that the values for the Assets being
conveyed are the result of arms-length bargaining, are fair and reasonable and
shall be binding upon the parties for all purposes including, without
limitation, federal income tax purposes.
<PAGE>
2. PURCHASE PRICE.
2.1 In consideration of the sale, conveyance, transfer and
assignment to Buyer of the Assets set forth in Section 1, Buyer shall pay to
Seller the sum of $547,252.00 as set forth below.
2.2 At the time of the Closing (as hereinafter defined), Buyer
shall pay Seller $75,000.00.
2.3 At Closing, Buyer shall deliver to Seller an executed
Promissory Note in the form attached hereto as Exhibit "A". The Promissory Note
shall be in the principal amount of $472,252.00 and shall accrue interest at the
rate of 8% per annum. The Note shall provide for a principal payment in the
amount of $100,000.00 plus accrued interest on January 2, 1997. The balance of
the note shall be paid in 36 equal monthly installments of principal and
interest in the amount of $11,664.76 commencing February 1, 1997. Prepayment
shall be permitted.
2.4 Provided Buyer closes on an initial public offering (the
"IPO Closing") on or prior to December 31, 1996, in lieu of the payment
provisions set forth above, Buyer shall pay to Seller the full principal amount
of the Note, $472,252.00 plus any accrued interest by wire transfer no later
than fifteen (15) days after the IPO Closing. If the IPO Closing occurs
subsequent to December 31, 1996, but prior to the payoff of the Promissory Note,
the Promissory Note's principal balance and any accrued interest shall be paid
in full within thirty (30) days thereafter.
<PAGE>
3. CLOSING.
3.1 The Closing on the transactions provided for in this
Agreement shall take place on or before September 26, 1996, at 10:00 a.m. or
such other date as the parties otherwise shall mutually agree in writing
("Closing") at the office of Buyer or at such other place agreed to by the
parties.
3.2 (a) At Closing, Seller shall deliver to Buyer: (a) a Bill
of Sale in the form attached hereto as Exhibit "B" for all the Assets listed in
Schedules 1.1 and 1.2;
(b) The Employment Agreement described below executed by
Robert Haskell;
(c) The Employment Agreement described below executed by
Edward Haskell; and
(d) All other documents required by this Agreement.
3.3 (a) At Closing, Buyer shall deliver to Seller the payment
described in Section 2.2; and
(b) All other documents required by this Agreement
including such name assignment documents as are required.
3.4 At the time of Closing, Buyer shall have the right to
immediate physical possession of the Assets.
4. REPRESENTATIONS AND WARRANTIES OF SELLER AND SHAREHOLDER.
Seller and Shareholder make the following representations and warranties to
Buyer:
<PAGE>
4.1 Organization, Good Standing and Valid Authorization.
Seller is a corporation duly organized, validly existing and in good standing
under the laws of the Commonwealth of Massachusetts, has the corporate power and
authority to own all of its properties and assets and to carry on its business,
and is duly qualified to do business as a foreign corporation and is in good
standing in each jurisdiction in which the nature of its business or the
ownership of its properties or both, makes such qualification necessary. Seller
has the corporate power to enter into this Agreement and to carry out its
obligations hereunder. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by the Board of Directors of Seller and its stockholders and no other
corporate proceedings on the part of Seller are necessary to authorize this
Agreement and the transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by Seller and constitutes the valid and
binding obligation of Seller, enforceable against Seller in accordance with its
terms. Copies of the Articles and Certificate of Incorporation and By-Laws of
Seller certified to be correct by its Secretary are attached hereto as Exhibit
"C" and are complete and correct as at the date hereof. The minute book of
Seller, true copies of the contents of which, authenticated by its Secretary,
will be delivered to Buyer within ten (10) days after execution of the
Agreement, contains a complete and accurate record of all meetings and other
corporate actions of its shareholders and Board of Directors.
4.2 Compliance. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby by Seller will not:
(a) violate any provision of the Articles of Incorporation or By-Laws of Seller;
(b) except as provided in Section 7.2(j) herein, violate any material provision,
result in the breach or acceleration, or entitle any party to accelerate
(whether after the giving of notice or lapse of time or both) any material
obligation under any mortgage, lien, lease, agreement,
<PAGE>
contract, license, instrument, order, award, judgment or decree to which Seller
are a party or by which any of them are bound; (c) result in the creation or
imposition of any material lien, charge, pledge, security interest or other
encumbrance upon any property of Seller; or (d) violate or conflict with any
other material restriction or any law, ordinance or regulation to which Seller
or the property of Seller is subject.
4.3 Approvals. No consent, approval, order or authorization
of, or registration, declaration or filing with, any governmental authority is
required in connection with the execution and delivery of this Agreement by
Seller or the consummation by Seller of the transactions contemplated hereby.
4.4 Capital Stock. At the Closing, the authorized capital
stock of Seller shall consist of _____ shares of common voting stock, no par
value, of which 1,532 shares shall be issued and outstanding.
4.5 Financial Statements of Seller. The reviewed balance
sheets for the fiscal year ending December 31, 1995 of Seller and the related
statements of operations, stockholders' equity and changes in financial position
(statement of cash flow) of Seller reviewed by Creelman & Smith, certified
public accountants and previously delivered to Buyer the reviewed balance sheet
as of June 30, 1996, and the related statements of operations, stockholders'
equity and changes in financial position for the six (6) months ended June 30,
1996, complete copies of which are attached hereto as Exhibit "D" (collectively
the "Seller Financials") have been prepared in conformity with generally
accepted accounting principles applied on a consistent basis and fairly present
the financial position of Seller at such dates and the results of its operations
and changes in its financial positions for such periods. Except with respect to
matters referred to in Exhibit "D", Seller did not have as of July 1, 1996,
through the date of the execution of this
<PAGE>
Agreement, any liabilities or obligations, secured or unsecured (whether
accrued, absolute, contingent, or otherwise), of a nature that would be
reflected or reserved against in a corporate balance sheet or disclosed in the
notes thereto, prepared in accordance with the generally accepted accounting
principles applied in the preparation of such financial statements, that are not
reflected or reserved against in the June 30, 1996 balance sheet or disclosed in
the notes thereto.
4.6 Absence of Certain Changes. Since December 31, 1995,
except as set forth on Schedule 4.6 hereto, there has been (a) no material
adverse change in the financial condition, business or results of operations of
Seller taken as a whole; (b) no declaration, setting aside or payment of any
dividend or other distribution with respect to Seller's Stock; (c) no material
loss, destruction or damage to the properties of Seller taken as a whole, which
loss, destruction, or damage is not adequately covered by insurance; (d) no
agreement, contract or commitment entered into or agreed to be entered into
except for those in the ordinary course of business (none of which individually
or in the aggregate, materially adversely affects the Assets of Seller taken as
a whole or its businesses, financial condition, prospects or results of
operations taken as a whole); (e) no amendment or termination of any contract,
lease, license, or other agreement to which Seller is a party except in the
ordinary course of business (none of which, individually or in the aggregate,
materially adversely affects the Assets, businesses, financial condition,
prospects or results of operations of Seller taken as a whole); and (f) no
change in any of the accounting methods or practices or revaluation of any of
the Assets of Seller, except as provided for herein or as required by changes in
generally accepted accounting principles; since such date, Seller has conducted
its business only in the ordinary course and is in compliance in all material
respects with all laws which govern the ownership of its property and the
conduct of its business.
<PAGE>
4.7 Tax Matters. Seller has duly filed all federal, state,
county, local and foreign income, excise, sales, customs, property, withholding,
social security and other tax and information returns and reports required to
have been filed by it to the date hereof and paid (or, in the case of
withholding taxes and obligations, withheld and paid over as required) all
taxes, assessments, duties and other governmental charges (collectively, the
"Taxes") (including interest and penalties) shown on such returns or reports to
be due or claimed to be due prior to the date hereof to any federal, state,
county, local or foreign or other governmental authority. Seller has paid or
made adequate provisions in the most recent balance sheet included in the Seller
Financials (the "Seller Balance Sheet") for all Taxes (including interest and
penalties) payable by Seller with respect to all periods to and including June
30, 1996. Seller has no liability for any Taxes (including interest or
penalties) of any nature whatsoever other than as shown on the Seller Balance
Sheet and, to the best knowledge of Seller, there is no basis for any additional
material claims or assessments for the Taxes other than with respect to
liabilities for taxes that may have accrued since June 30, 1996, in the ordinary
course of business for which Seller shall remain responsible subsequent to
Closing. Seller has never been audited by the Internal Revenue Service or
Massachusetts Department of Revenue for any period. True copies of the federal,
state and local income tax returns of Seller for the year ended December 31,
1995, and for each of the two immediately preceding years have been, or will
promptly after execution hereof be delivered to Buyer. There are no agreements,
waivers or other arrangements (oral or written) providing for extensions of time
with respect to the assessment or collection of unpaid taxes nor are there any
actions, suits, proceedings, investigations or claims of any nature or kind
whatsoever now pending or overtly threatened against Seller with respect to any
such returns or reports, or any such income taxes or any matters under
discussion with any federal, state, county or local authority relating to taxes.
<PAGE>
4.8. Material Contracts. Attached hereto as Schedule 4.8, and
certified by Seller, is a complete and correct description as of the date hereof
of all agreements, contracts and commitments, written or oral, to which Seller
is a party or by which it or any of its properties is bound as of the date
hereof including: (a) mortgages, indentures, notes, letters of credit, surety
agreements, security agreements and other agreements and instruments relating to
the borrowing of money or extension of credit to, or any guarantee by, Seller or
a subsidiary; (b) employment and consulting agreements; (c) stock option,
incentive, employee benefit, profit sharing, pension and retirement or other
compensation plans or agreements; (d) collective bargaining agreements; (e) the
names and annual compensation, as of the date hereof, of directors, officers,
and other employees, consultants or agents of the Seller; (f) sales, technical
rep, dealer, distributor, VAR, VAD agreements; (g) agreements, orders or
commitments for the purchase by Seller of materials, supplies or finished
products; (h) agreements, orders or commitments for the sale by Seller of
products or involving the furnishing of services to customers, agencies and the
like; (i) licenses of software and any patent, trademark, copyright and other
industrial property rights; (j) agreements or commitments for capital
expenditures; (k) brokerage or finders' agreements; (l) agreements, contracts,
leases, payables and commitments of a type other than those described in the
foregoing clauses which, in any case, involve aggregate payments or receipts of
more than $2,000 and/or which extend for a period of ninety (90) days from the
date hereof. Seller has, or will promptly hereafter deliver to Buyer complete
and correct copies of all written agreements, contracts and commitments,
together with all amendments thereto, and accurate descriptions of all oral
agreements set forth in Schedule 4.8. All such agreements, contracts and
commitments are in full force and effect. All parties to such agreements,
contracts and commitments have performed all material obligations required to be
performed by them to date. None of such agreements, contracts or commitments are
in default, and there has been no material
<PAGE>
violation of any representation or warranty, explicit or implied, contained
therein. No claim of default by any party has been made or is now pending under
any such agreement, contract or commitment, and no event has occurred or
continues to occur that with notice or the passing of time or both would
constitute a default thereunder or would excuse performance by any party
thereto. No such agreement, contract or commitment materially affects or in the
future may (so far as Seller can now reasonably foresee) materially adversely
affect the business, financial condition, properties, assets, liabilities or
operations of Seller taken as a whole.
4.9 Properties. Seller has listed and described in Schedule
4.9 all properties and assets of Seller not fully described in the Seller
Financials or Schedules 1.1 or 1.2, including accounts receivable, inventory,
tangible fixed assets, leasehold improvements, machinery, equipment, furniture,
fixtures, bank accounts and vehicles. Seller owns and has good and marketable
title in fee to all of its assets and properties, tangible or intangible,
reflected on the Seller Financials, or listed in Schedule 4.9 in each case free
and clear of any mortgage, lien, pledge, charge, claim, conditional sales or
other agreement, right, easement or encumbrance except: (i) to the extent stated
or reserved against in the Seller Balance Sheet; (ii) for liens for taxes not
yet delinquent; and (iii) such other matters as have been described in another
exhibit attached hereto. Also described in Schedule 4.9 are all leases for real
or personal property and material currently in force involving Seller. A true
copy of all such leases have been, or will promptly after execution hereof be,
delivered to Buyer. All such leases are valid, subsisting and effective in
accordance with their terms and in good standing, and there does not exist
thereunder any default or event or condition which, after notice or lapse of
time or both, would constitute a default thereunder. All physical properties
owned or used by Seller and all equipment necessary for the operation of its
business are being sold in "as is" good operating condition and in a reasonable
state of maintenance
<PAGE>
and repair. Seller has received no notice of violation of any applicable zoning
regulation, ordinance or other law, order, regulation, or requirement relating
to its operations or its properties, and there is no such violation, and all
buildings and structures used by Seller substantially conform with applicable
ordinances, codes and regulations.
4.10 Litigation. Except as set forth in Schedule 4.10, there
are no actions, suits or proceedings or investigations pending or, to the
knowledge of Seller, threatened against or affecting the business, operations or
financial condition of Seller at law or in equity in any court or before or by
any federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality. Seller is not in default with respect
to any judgment, order, writ, injunction or decree of any court or any federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality.
4.11 Permits. Seller has all permits, licenses, orders and
approvals of all federal, state or local governmental or regulatory bodies
required for it to conduct its businesses as presently conducted. All such
permits, licenses, orders and approvals are in full force and effect and, to the
knowledge of Seller, no suspension or cancellation of any of them is threatened.
None of such permits, licenses, orders or approvals will be adversely affected
by the consummation of the transactions contemplated by this Agreement. Seller
has complied in all material respects with the rules and regulations of all
governmental agencies having authority over it, including, without limitation,
agencies concerned with occupational safety, environmental protection and
employment practices, and Seller has received no notice of violation of any such
rules or regulations, whether corrected or not, within the last three (3) years.
4.12 Patents, Trademarks, Copyrights, etc. Seller owns or
possesses full legal rights to use all material patents, trade names,
trademarks, copyrights, inventions, processes, designs, formulae,
<PAGE>
trade secrets and other property rights necessary for the conduct of its
business as it is now being conducted and is not aware of any conflict with or
infringement of the rights of others. Seller does not know of any infringement
by any third party upon any patent, trade name, trademark or copyright owned by
Seller and Seller has not taken or omitted to take any action which would have
the effect of waiving any of its rights under any such patent, trade name,
trademark or copyright. No director, officer or stockholder of Seller owns or
has any interest in any of the Seller products or in any software or hardware or
other proprietary information or trade secret used in Seller's business.
4.13 Insurance. Seller shall promptly, after execution hereof,
furnish to Buyer a complete and correct list as of the date hereof of all
insurance policies maintained by Seller with respect to Seller liability for
operations, casualty, damage or destruction of properties, buildings, machinery,
equipment, furniture, fixtures, injury to persons or the lives of its key
employees. All such policies are in full force and effect and all premiums due
thereon have been paid or fully accrued as finally audited or determined on the
Seller Financials. Seller has complied in all material respects with the
provisions of all such policies.
4.14 Accounting Controls. Neither Seller nor any director,
officer, agent, employee, consultant or other person associated with or acting
on behalf of Seller has: (a) used any corporate funds for any unlawful
contributions, gifts, entertainment or any other unlawful expenses relating to
political activity; or (b) made any direct or indirect unlawful payments to
government officials or others from corporate funds or established or maintained
any unlawful or unrecorded funds. Seller makes and keeps accurate books and
records reflecting its assets and maintains internal accounting controls which
provide reasonable assurance that transactions are executed in accordance with
management's authorization and
<PAGE>
transactions are recorded as necessary to permit preparation of Seller
Financials and to maintain accountability for the earnings and consolidated
assets of Seller.
4.15 Transactions with Affiliates. Except as disclosed in
Seller Financials or in some other exhibit or schedule hereto, no officer or
director, or a shareholder owning 5% or more of Seller's Stock, nor any spouse,
decedent or ancestor of such a person nor any corporation, partnership,
proprietorship, firm, association or trust in which such person has a direct or
indirect interest, has any existing contractual relationship with Seller, or has
engaged in any material transaction with Seller, nor has engaged in competition,
direct or indirect, with Seller.
4.16 No Brokers. All negotiations relating to this Agreement
and the transactions contemplated hereby have been carried on without the
intervention of any person acting on behalf of Seller in such manner as to give
rise to any valid claim against Seller or Buyer for any broker's or finder's fee
or similar compensation.
<PAGE>
4.17 Directors, Officers and Stockholders. Attached herewith
as Schedule 4.17 is a complete and correct listing as of the date hereof of the
directors and officers of Seller and the beneficial owners of the issued and
outstanding shares of Seller Stock and the number of shares of each class owned
by them.
4.18 Non-Disclosure of Confidential Information. All persons
and entities (including, without limitation, employees and customers of Seller)
who have or had access to Seller's trade secrets, confidential information,
software documentation, source codes, know-how and all other non-public
information used or useful in Seller's business have entered into agreements
with Seller, which contain provisions to the general effect that the recipients
of such information agree to hold such information in confidence and not
disclose the same, directly or indirectly, to any person not having
Seller-authorized access to such information, without the express authorization
of Seller and Seller is not aware of any violation of any of such agreements.
Seller has, or will promptly after execution hereof deliver to Buyer complete
and correct copies of all such agreements, together with all amendments thereto.
4.19 Foreign Assets. Seller has no material interest in any
assets, real or personal, tangible or intangible, located outside of the
continental limits of the United States, including, but not limited to, stock,
securities or investments in, claims against or receivables from, any entities
or persons so located.
4.20 Accounts Receivable. The accounts and notes receivable
reflected in the Seller Financials are collectable in the amounts there shown,
and the accounts and notes receivable acquired by Seller subsequent to the date
of such Seller Financials through the Closing are and shall be collectable in
the aggregate amounts shown upon Seller's books after application of the
reserves for returns and bad
<PAGE>
debts set in Seller Financials and maintained upon the books in accordance with
generally accepted accounting principles consistently applied by Seller.
4.21 Inventories. The inventories set forth in the Seller
Financials and reflected since then upon the books of Seller are items of a
quality and quantity useable or saleable in the normal course of its business
and that market value is not less than the book value thereof; the value of any
obsolete materials and of materials below standard quality has been written down
to realizable market value or adequate reserves provided therefor; the value at
which such inventories are carried reflect an inventory evaluation policy of
stating inventory at the lower of first in, first out cost or market and of
valuing finished goods and work in process at standard cost developed for
individual items using current materials, labor, and overhead cost at normal
production levels; and an obsolescence formula based on historical sales and
backlog orders is applied to inventories of finished goods in order to determine
the maximum quantities to be valued through each inventory date.
4.22 Disclosure. This Agreement and the certificates,
statements and other information furnished to Buyer in writing by or on behalf
of Seller in connection with the transactions contemplated herein, taken as a
whole, do not contain any untrue statements of a material fact or omit to state
a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Seller does not know
of any fact or condition which is peculiar to Seller and does not affect
similarly situated businesses and which materially adversely affects, or in the
future may (so far as Seller can now reasonably foresee) materially adversely
affect the financial condition, properties, assets, liabilities, business,
operations or prospects of Seller taken as a whole which has not been set forth
herein or in an exhibit or schedule hereto.
4.23 Hazardous Substances.
<PAGE>
(a) Except as disclosed on Schedule 4.23 hereto, to the
knowledge of Seller there has been no Release (as defined below), actual or
threatened, of any Hazardous Substance (as defined below) by Seller (or its
predecessor in interest) at or from any Facility (as defined below) currently or
previously owned or operated by Seller (or its predecessor in interest). To the
knowledge of Seller, there has been no Release of any Hazardous Substance for
which Seller (or its predecessor in interest) is or may be liable. For purposes
of this Agreement, each of the terms "Release", "Hazardous Substance" and
"Facility" shall be defined as it is now, or shall in the future be, defined
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended 42 U.S.C. (section)9601 et seq. or any other applicable
federal, state or local law, statute, rule, regulation or ordinance.
(b) Seller has notified or reported to all federal, state
or local officials and agencies all Releases of Hazardous Substances subject to
any such notification or reporting requirements.
(c) Schedule 4.23 hereto sets forth a complete list of
all aboveground and underground storage tanks, vessels and related equipment and
containers located on any currently or previously (to the extent known) owned or
operated facility that are subject to federal, state or local laws, statutes,
rules, regulations or ordinances, and sets forth their present contents and, to
the knowledge of Seller, what the contents have been at any time in the past.
(d) There have been no discharges to surface waters or
groundwaters occurring prior to the date hereof other than permitted discharges.
(e) There have been no air emissions occurring prior to
the date hereof other than permitted discharges.
4.24 ERISA.
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(a) Except as set forth on Schedule 4.24, Seller does not
maintain, administer or contribute to, nor at any time during the past six years
has maintained, administered or contributed to, any (1) employee pension benefit
plan (as defined in Section 3(2) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), whether or not excluded from coverage under
specific Title or Subtitles of ERISA) (the employee pension benefit plans
disclosed on Schedule 4.24 are hereinafter referred to as the "Pension Plans");
(2) employee welfare benefit plan (as defined in Section 3(1) of ERISA, whether
or not excluded from coverage under specific Titles or Subtitles of ERISA) (the
employee welfare benefit plans disclosed on Schedule 4.24 are hereinafter
referred to as the "Welfare Plans"); or (3) bonus, deferred compensation, stock
purchase, stock option, severance plan, insurance or similar arrangement (the
plans, insurance or similar arrangements so disclosed on Schedule 4.24 are
hereinafter referred to as the "Employee Benefit Plans").
(b) All Pension Plans, Welfare Plans and Employee Benefit
Plans and any related trust agreements or annuity contracts (or any related
trust instruments) comply with and are and have been operated in accordance with
ERISA, the Internal Revenue Code of 1986, as amended (the "Code"), other federal
statutes, state law and the regulations and rules promulgated pursuant thereto.
All necessary governmental approvals for the Pension Plans, the Welfare Plans
and the Employee Benefit Plans have been obtained, a favorable determination as
to the qualification under the Code of each of the Pension Plans and each
amendment thereto has been made by the Internal Revenue Service, and all of the
Pension Plans remain qualified under the Code.
(c) Neither any Pension Plan nor any Welfare Plan has
engaged in any transaction in violation of Section 406 of ERISA or any
"prohibited transaction" (as defined in section
<PAGE>
4974(c)(1) of the Code) other than any such transaction which is exempt under
Section 408 of ERISA or Section 4974(d) of the Code.
(d) Seller has not incurred any liability to the Pension
Benefit Guaranty Seller ("PBGC") as a result of the voluntary or involuntary
termination of any Pension Plan subject to Title IV of ERISA; there is currently
no active filing by Seller with the PBGC (and no proceeding has been commenced
by the PBGC) to terminate any Pension Plan subject to Title IV of ERISA
maintained or funded, in whole or in part, by Company or any of the
Subsidiaries; and Seller has not made a complete or partial withdrawal from a
multi-employer plan, as such term is defined in Section 3(37) of ERISA,
resulting in "withdrawal liability", as such term is defined in Section 4201 of
ERISA (without regard to subsequent reduction or waiver of such liability under
either Section 4207 or 4208 of ERISA).
4.25 Employees.
(a) Schedule 4.25 contains a complete and accurate list
of each employee, officer or director of the Seller, including each employee on
leave of absence or lay-off status: name; job title; current compensation paid
or payable and any change in compensation since January 1, 1994; vacation
accrued; and service credited for purposes of vesting eligibility to participate
under any pension, retirement, profit-sharing, thrift type and savings, deferred
compensation, stock bonus, stock option, cash bonus, employee stock ownership
(including investment credit or payroll stock ownership), severance pay,
insurance, medical, welfare, or vacation plan, other employee pension benefit
plan or employee welfare benefit plan, or any other employee benefit plan or any
director plan of Seller.
(b) No employee, officer or director of Seller is a party
to, or is otherwise bound by, any agreement or arrangement, including any
confidentiality, non-competition, or proprietary rights agreement, between such
employee, officer or director and any other person or entity that in any
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way adversely affects or will affect (i) the performance of his or her duties as
an employee, officer or director of the Seller, or (ii) the ability of Seller to
conduct its business.
(c) Schedule 4.25 also contains a complete and accurate
list of the following information for each retired employee, officer or director
of the Seller, or their dependents receiving benefits or scheduled to receive
benefits in the future: name; pension benefit; pension option election; retiree
medical insurance coverage; retiree life insurance coverage; and other benefits.
(d) No union or collective bargaining unit represents any
of Seller's employees.
5. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer hereby
represents and warrants the following to Seller, the truth and accuracy of which
shall constitute a condition precedent to the obligations of Seller hereunder:
5.1 Organization. Buyer is a corporation organized and in good
standing under the laws of the Commonwealth of Pennsylvania and has all
requisite authority purchase the Assets, to execute and deliver this Agreement,
and to perform the provisions hereof. The Buyer has taken all necessary
corporate action in connection with the authorization, execution and delivery of
this Agreement, documents executed in connection therewith and the transactions
provided for herein. Buyer's documents have been duly executed and delivered by
and are the legal and binding obligations of Buyer and are enforceable in
accordance with their respective terms. By resolutions duly, validly and
unanimously adopted, the board of directors of the Buyer shall have approved the
form, substance, execution and delivery of this Agreement, the documents
executed in connection therewith, and the transactions provided for herein. The
resolutions so adopted shall remain in full force and effect and shall not be
amended, altered, or rescinded in whole or in part. The execution and delivery
of this Agreement by Buyer does
<PAGE>
not, and the consummation of the transactions contemplated hereby and the
performance by Buyer of this Agreement will not, result in the acceleration of
any obligation under any mortgage, lien, contract, judgment or decree,
instrument, order of arbitration award, to which Buyer is a party or by which it
is bound or which affects the Assets or Customer List.
5.2 Other Agreements. The execution and delivery of this
Agreement and the consummation of the transactions provided for herein will not
result in a breach of any terms or provisions of, or constitute a default or
permit acceleration of maturity under, any indenture, mortgage, deed of trust,
loan agreement or other agreement to which Buyer is a party or is bound.
6. COVENANTS OF SELLER AND SHAREHOLDER.
6.1 Affirmative Covenants of Seller and Shareholder. Seller
and Shareholder covenant that, throughout the period commencing on the date
hereof and ending at the Closing, except for specific proposed actions or
inaction as shall otherwise be consented to by Buyer in writing, Seller will and
Shareholder agrees to cause Seller to:
(a) Conduct of Business. Conduct its business in a manner
that will not adversely affect Seller's ability to obtain all necessary
regulatory approvals for the transactions contemplated hereby or Seller's
ability to perform its obligations under this Agreement and conduct its business
in the ordinary course;
(b) Preservation of Business. Use its best efforts to
maintain and preserve its businesses, its good will and its relationships with
its customers;
(c) Assets. Maintain and keep its assets in as good repair
and condition in all material respects as they presently exist, except for
depreciation due to ordinary wear and tear and damage due to casualty;
<PAGE>
(d) Insurance. Maintain in full force and effect the
policies of insurance set forth in Section 4.13;
(e) Contracts, Etc. Perform all its material obligations
under material contracts, leases and documents relating to or affecting its
material assets, properties and businesses;
(f) Financial Statements. Furnish to Buyer:
i. Promptly upon receipt thereof, copies of all
financial reports submitted to Seller by independent auditors in connection with
each annual, interim or special audit or review of the books of Seller made by
such accountants;
ii. Promptly upon any executive officer of Seller
obtaining knowledge of any condition or event which would constitute a material
violation of the terms and conditions of this Agreement or which would
constitute a material default under any material indenture, mortgage, agreement
or other instrument securing or relating to any indebtedness of Seller for
borrowed money, a certificate of the President of Seller specifying the nature
of such material violation or default and what action Seller has taken or is
taking or proposes to take with respect thereto;
iii. Promptly upon becoming aware that any person has
given notice to Seller or taken any other action with respect to a claimed
violation or default of the type referred to in subsection (ii) of this
Subsection, a written notice describing the notice given or action taken by such
person, the nature of such violation or default and what action Seller has taken
or is taking or proposes to take with respect thereto; and
iv. With reasonable promptness, such additional
financial data as Buyer may reasonably request;
<PAGE>
(g) Laws, Rules, Etc. Comply with and perform all material
obligations and duties imposed upon it by all federal and state laws and all
rules, regulations and orders imposed by federal or state governmental
authorities, except in respects not materially adverse to the financial
condition, business, prospects or results of operations of Seller taken as a
whole, or which would not materially impair the ability of Seller to consummate
the transactions contemplated hereby;
(h) Corporate Existence. Maintain its existence, in the
case of Seller, as a corporation validly existing in good standing under the
laws of the Commonwealth of Massachusetts.
(i) Notices. Notify Buyer of (i) any fact or circumstance
of which the executive officers of Seller have knowledge which would, absent
disclosure by Seller to Buyer and Buyer's subsequent consent to such fact or
circumstance, not permit Seller to satisfy the condition set forth in Section
6.1(a) of this Agreement, (ii) any material breach of any of its covenants
contained herein, and (iii) any material adverse change in its financial
condition, business, prospects or operating results;
(j) Best Efforts. Use their best efforts to assure, to the
extent reasonably within their control, as soon as it is reasonably practicable,
the satisfaction of the conditions to the effectiveness of the transactions
contemplated by this Agreement.
6.2 Negative Covenants of Seller and Shareholder. Seller and
Shareholder covenant that, throughout the period commencing on the date hereof
and ending on the date of Closing, except for proposed specific actions as shall
otherwise be consented to by Buyer, Seller will not:
(a) Liabilities. Create, incur, assume, guarantee or
otherwise become directly or indirectly obligated with respect to any
liabilities or obligations outside the ordinary course of business nor become
obligated under any agreement to lend or borrow funds or purchase or supply
goods or services other than agreements that are not material and which are in
the ordinary course of business;
<PAGE>
(b) Corporate Status. Merge into, consolidate with,
affiliate with, or be purchased or acquired by, any other corporation, entity or
person (or agree to any such merger, consolidation, affiliation, purchase or
acquisition;
(c) Governing Documents. Amend its charter or by-laws,
except that Seller shall amend the foregoing to the extent necessary to effect
the transactions contemplated hereby;
(d) Stock. Purchase, redeem, retire or otherwise acquire,
or hypothecate, pledge or otherwise encumber, any shares of capital stock;
(e) Dividends and Distributions. Make, declare or pay any
dividend, or declare or make any distribution on any shares of its capital
stock;
(f) Liability. Except for indebtedness and contingent
liabilities incurred in the ordinary course of business of Seller, incur any
indebtedness or liability for borrowed money evidenced by notes, bonds,
debentures or other similar obligations;
(g) Assets. Solicit or encourage inquiries or proposals
with respect to, or, furnish any information relating to or participate in any
negotiations or discussions concerning, any acquisition or purchase or all or a
material portion of its assets whether owned by it directly or of a substantial
equity interest in, it or any business combination with it and Seller shall
notify Buyer immediately if any such inquiries or proposals are received by, any
such information is requested from, or any such negotiations or discussions are
sought to be initiated with, Seller shall instruct its officers, directors,
agents, advisors and affiliates to comply with the above;
(h) Cash, Accounts Payable and Accounts Receivable. Except
in the ordinary course of business, incur accounts payable, forgive or write off
accounts receivable or deplete or expend cash-on-hand;
<PAGE>
(i) Seller Stock. Issue any additional shares of capital
stock or any options, warrants or other securities or instrument convertible
into shares of capital stock without the prior consent of Buyer;
(j) Dividends and Other Distributions. Declare or pay any
dividends or otherwise make distributions on any shares of its capital stock or
sell, transfer or otherwise dispose of, or enter into any agreement to sell,
transfer or otherwise dispose of, any of its assets other than in the ordinary
course of business; or
(k) Other Actions. Directly or indirectly agree to take
any of the foregoing actions specified in Section 6.2.
7. Conditions.
7.1 Conditions to the Obligations of Buyer and Seller. The
Closing shall be expressly conditioned upon the following:
(a) Approval of Regulatory Agencies. All required consents
and approvals of all regulatory agencies and other authorities having
jurisdiction over the transactions contemplated by this Agreement, including
without limitation the SEC if required, shall have been obtained, and all
applicable waiting periods shall have expired.
(b) Suits, Actions. No party hereto shall be subject to
any order, decree or injunction of a court or agency of competent jurisdiction
which enjoins or prohibits the consummation of the purchase.
(c) Statutes, Orders. No statute, rule, regulation, order,
injunction or decree shall have been enacted, entered, promulgated or enforced
by any governmental authority which prohibits, restricts or makes illegal the
consummation of the purchase.
<PAGE>
7.2 Conditions to the Obligations of Buyer. Consummation by
Buyer of the transactions contemplated hereby is subject to the following
conditions precedent, any of which, however, may be waived, to the extent
permitted by applicable law or regulation, by the consent in writing of Buyer:
(a) Representations, Warranties and Covenants.
i. The representations and warranties of Seller
contained herein (A) shall have been true and correct in all material respects
on the date hereof, and (B) other than as disclosed by Seller to, and approved
by, Buyer in writing prior to or at the Closing, shall be true and correct in
all material respects as of the Closing.
ii. Seller shall have duly performed in all material
respects all covenants, not otherwise waived by Buyer in writing, required by
this Agreement to be performed by Seller prior to or at the Closing.
iii. Buyer shall have received a certificate of Seller
dated as of the Closing, signed by both the Chairman and the President of Seller
and certifying in such detail as Buyer may reasonably request the fulfillment of
the conditions set forth in Section 7.2(a)
(b) Material Adverse Changes.
i. Since the date of this Agreement there shall have
been no material adverse change in the overall financial condition, asset value,
earnings, businesses, prospects or results of operations of Seller.
ii. Buyer shall have received a certificate of Seller
dated as of the date of the Closing, signed by the Chairman and the President of
Seller and certifying in such detail as Buyer may reasonably request the
fulfillment of the conditions set forth in Section 7.2(b).
<PAGE>
(c) Opinion of Counsel. All proceedings and legal details
incident to this Agreement shall be satisfactory to Wisler, Pearlstine, Talone,
Craig, Garrity & Potash, LLP as counsel for Buyer, and Buyer shall have received
an opinion reasonably satisfactory to them from Peabody & Arnold, as counsel for
Seller, dated as of the date of the Closing and addressed to Buyer, to the
effect that:
i. Seller is a Massachusetts corporation duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Massachusetts and has the power and authority to execute,
deliver and perform all transactions contemplated by this Agreement.
ii. The authorized capital stock of Seller consists of
__________ shares of common stock, no par value, of which the number of shares
specified in the opinion are issued and outstanding on the Closing. Each of such
outstanding shares of Seller's stock has been validly issued and is fully paid
and non-assessable. None of such outstanding shares of Seller's stock have been
issued in violation of any preemptive rights. To such counsel's knowledge, no
unissued shares of Seller's stock or any other securities of Seller are subject
to any warrants, options, commitments, preemptive or other rights of any kind or
nature, and Seller is not obligated to issue any additional shares of capital
stock or any other securities of any kind or nature.
iii. The execution, delivery and performance as of the
date of such opinion of all transactions contemplated by this Agreement have
been duly authorized by the board of directors and shareholders of Seller and do
not and will not violate any of the provisions of, or constitute a default under
or give any person or party the right to accelerate payment or performance under
the certificate of incorporation or by-laws of Seller or to such counsel's
knowledge any other material agreement or instrument to which Seller is a party
or by which it or any of its properties or assets is
<PAGE>
bound other than (i) violations, defaults or accelerations which in the
aggregate would not have a material adverse effect on the financial condition,
business, prospects or operating results of Seller taken as a whole or (ii)
violations, defaults or accelerations that in the aggregate would not materially
impair the ability of Seller to consummate the transactions contemplated hereby.
iv. This Agreement has been duly authorized, executed and
delivered by Seller and constitutes valid and binding obligations of Seller,
enforceable against Seller in accordance with its terms except as may be limited
by bankruptcy, insolvency, reorganization, moratorium or other laws affecting
creditors' rights and except as may be limited by the exercise of judicial
discretion in applying general principles of equity (regardless of whether such
agreements or documents are considered in a proceeding in equity or at law).
v. To the actual knowledge of such counsel, the execution,
delivery and performance of the Agreement by Seller will not violate any
provision of law or regulation applicable to Seller other than (1) violations
which in the aggregate would not have a material adverse effect on the financial
condition, business, prospects or operating results of Seller taken as a whole,
or (2) violations which in the aggregate would not materially impair the ability
of Seller to consummate the transactions contemplated by the Agreement.
vi. All consents and approvals of (and filings with) all
federal or state regulatory agencies or other authorities having jurisdiction
over the transactions contemplated by this Agreement required by law for Seller
to have been obtained or accomplished have been obtained or accomplished; such
opinion to express those agencies or authorities whose approvals have been
obtained or accomplished and to be given on a knowledge basis as to all others.
<PAGE>
(d) Suit, Action, Etc. No suit, action or other proceeding
shall be pending or directly threatened by any federal, state or other
governmental agency, commission or authority having jurisdiction or authority
over Seller or Buyer or by any other person, in which it is sought to restrain
or prohibit consummation of the transactions contemplated by this Agreement and
which in the reasonable judgment of the management of Buyer is meritorious and
materially adversely affects the prospects of such consummation.
(e) Accountants' Letters. Buyer shall have received a
reviewed report from Seller's independent certified public accountants dated
June 30, 1996 and as of Closing substantially to the effect that:
i. it is a firm of independent public accountants with
respect to Seller; and
ii. on the basis of generally accepted accounting
standards, nothing has come to its attention which causes it to believe that the
Seller Financials are not fairly presented in conformity with generally accepted
accounting principles applied on a basis consistent with that of the financial
statements and as of Closing, except as specified in such letter, there has been
any change in the Seller Financials.
(f) Seller Customer Base. As of the Closing, there shall
have been no material adverse change in the current customer base of Seller.
(g) Approval by Lenders. Seller shall have obtained, prior
to Closing, the approval of the transactions required by this Agreement by the
lenders of Seller or all obligations to such lenders shall be satisfied and
released at Closing.
<PAGE>
(h) Retirement Plans. Seller shall have fully funded all
retirement plans for its officers and other employees prior to Closing and there
shall be no existing or potential violation of applicable laws or regulations
with regard to said retirement plans.
(i) Free and Clear. All Assets shall be conveyed to Buyer
at Closing free and clear of all liens, encumbrances, pledges, mortgages,
security interests, restrictions or charges of any nature whatsoever.
(j) Assignment of Leases, Contracts, Etc. Seller shall
have used its best efforts to obtain and deliver to Buyer prior to Closing, and
to the extent not so assigned, subsequent to Closing, assignments to Buyer of
all of the leases and contracts set forth in Schedule 1.1 and Schedule 4.8,
together with any required consents for such assignments, in such form as is
reasonably acceptable to counsel for Buyer.
(k) Delivery of Documents. All documents required to be
delivered to Buyer from Sellers or Seller have been delivered.
7.3 Conditions to the Obligations of Seller. Consummation by
Seller of the transactions contemplated hereby is subject to the following
conditions precedent, any of which, however, may be waived, to the extent
permitted by applicable law or regulation, by the consent in writing of Seller:
(a) Representations and Warranties.
i. The representations and warranties of Buyer
contained herein (A) shall have been true and correct in all material respects
on the date made, and (B) other than as disclosed by Buyer to, and approved by,
Seller in writing prior to or at the Closing, shall be true and correct in all
material respects as of the Closing, except as otherwise permitted by this
Agreement.
<PAGE>
ii. Buyer shall have duly performed in all material
respects all covenants, not otherwise waived by Seller in writing, required by
this Agreement to be performed by Buyer prior to or at the Closing.
(b) Suit, Action, Etc. No suit, action or other proceeding
shall be pending or directly threatened by any federal, state or other
governmental agency, commission or authority having jurisdiction or authority
over Seller or Buyer or by any other person, in which it is sought to restrain
or prohibit consummation of the transactions contemplated by this Agreement and
which in the reasonable judgment of Sellers and of the management of Seller is
meritorious and materially adversely affects the prospects of such consummation.
8. EXPENSES.
8.1 Each party hereto will bear all expenses incurred by it in
connection with this Agreement and the transactions contemplated hereby.
9. CONFIDENTIALITY.
9.1 Confidentiality. Any non-public or confidential
information disclosed by either party to the other pursuant to this Agreement or
as a result of the discussions and negotiations leading to this Agreement, or
otherwise disclosed, or to which any other party has acquired or may acquire
access, and indicated (either expressly, in writing or orally, or by the context
of the disclosure or access) by the disclosing party to be non-public or
confidential, or which by the content thereof reasonably appears to be
non-public or confidential, shall be kept strictly confidential and shall not be
used in any manner by the recipient except in connection with the transactions
contemplated by this Agreement. To that end, the parties hereto will each, to
the maximum extent practicable, restrict knowledge of and access to non-public
or confidential information of the other party to its officers, directors,
employees and professional advisors
<PAGE>
who are directly involved in the transactions contemplated hereby and reasonably
need to know such information. Further to that end, all non-public or
confidential documents (including all copies thereof) obtained hereunder by any
party shall be returned as soon as practicable after any termination of this
Agreement and all electronic data that constitutes non-public confidential
information which is not physically returned shall be destroyed. The obligation
of the parties to maintain the confidentiality of such information shall survive
the termination of this Agreement.
10. INDEMNIFICATION; REMEDIES.
10.1 Survival. All representations, warranties, covenants and
obligations in this Agreement and any certificate of document delivered pursuant
to this Agreement will survive the Closing. The waiver of any condition based on
the accuracy of any representation or warranty, or on the performance of or
compliance with any covenant or obligation, will not affect the right to
indemnification, recovery of damages, or other remedy based on such
representations, warranties, covenants and obligations.
10.2 Indemnification by Seller and Shareholders. Seller and
Shareholders agree to indemnify and hold harmless Buyer against any and all
losses, costs, expenses, claims, damages or liabilities (including the amount of
any settlement approved by such Seller and expenses of enforcing this
Agreement), which Buyer may suffer, incur or become subject to, and to reimburse
Buyer for any legal or other expenses incurred by it in connection with
investigating any claims and defending any actions, insofar as such losses,
costs, expenses, claims, damages, liabilities or actions arise out of or are
based upon (i) any false, misleading or untrue representation, or the breach of
any warranty made by either or both of the Seller or Shareholders, (ii) any
breach or default in performance by the Seller of any of its covenants or
agreements with Buyer contained herein, (iii) the assessment of any claim for
additional
<PAGE>
premium for any insurance policy not fully accrued on the Seller Financials; or
(iv) any tax liability of Seller imposed upon Buyer or Seller based on a failure
of Seller to file all tax returns and pay all taxes due, or assessed after IRS
audit, based upon the operations of Seller prior to the Closing or thereafter
including any tax liability based upon this transaction (transferee liability).
10.3 Set Off. Buyer may set off any amount to which it
believes in good faith it may be entitled under this Section or any of the
Related Agreements against amounts otherwise payable under Section 2 of this
Agreement or under the Related Agreements. The exercise of such right of set off
by Buyer in good faith, whether or not ultimately determined to be justified,
will not constitute an Event of Default under the promissory note executed
pursuant to this Agreement or under the Related Agreements. Neither the exercise
of nor the failure to exercise such right of set off will constitute an election
of remedies or limit Buyer in any manner in the enforcement of any other
remedies that may be available. Seller may dispute Buyer's right to set off and
submit the right to set off to arbitration as follows. Seller shall give written
notice to Buyer that Buyer is revoking this paragraph. The notice shall state
the name, address and telephone number of Seller's arbitrator. Within fifteen
(15) days, Buyer shall send written notice to Seller naming Buyer's arbitrator.
The two arbitrators shall jointly select a third arbitrator and the panel of
three shall determine the issue. Each party may make a written and oral
presentation of its position to the arbitrator together with documentation and
witnesses. The arbitrator's decision shall be limited to a determination that
the set off by Buyer is being made in good faith and with reasonably sufficient
justification. It shall not be necessary for Buyer to establish the ultimate
liability of Seller or Shareholder with respect to any claim being made by the
Buyer nor the extent of damages attributable thereto.
<PAGE>
10.4 Related Agreements. Concurrent with the Closing, Judge
Imaging Systems, Inc. is executing an Employment Agreement with Robert Haskell
and an Employment Agreement with Edward Haskell (this Agreement and the
Employment Agreements are collectively referred to as the "Related Agreements").
Any breach or default by either of the Haskells under any of the Related
Agreements shall be construed to be a breach of all of the Related Agreements
and any obligation under one agreement shall be considered to be an obligation
under every other Related Agreement.
10.5 Indemnification by Buyer. Buyer agrees to indemnify and
hold harmless Seller and Shareholders against any and all losses, costs,
expenses, claims, damages or liabilities which Seller or Shareholder may suffer,
incur or become subject to, and to reimburse Seller or Shareholder for any legal
or other expenses incurred by it in connection with defending any actions
brought by third parties which are based upon the unjustifiable failure of Buyer
to perform its obligations under any contract assigned by Seller to Buyer
pursuant to this Agreement.
10.6 Remedies. In the event any party shall default in its
obligations hereunder, any non-defaulting party may pursue any remedy available
at law or in equity to enforce its rights and shall be paid by the defaulting
party for all damages, costs and expenses, including legal and accounting
expenses, incurred or suffered by the non-defaulting party in connection
herewith or in the enforcement of its rights hereunder. Any negligent
misrepresentation or negligent omission of information which is not material to
this Agreement is not grounds for default or rescission of this Agreement.
11. Miscellaneous Provisions.
11.1 Entire Agreement. This Agreement, and all Exhibits and
Schedules attached hereto, as well as any other document if signed or initialed
by the parties hereto and specifically providing that it is an exception to the
limitations contained in this Section, embody the entire agreement between
<PAGE>
the parties hereto with respect to the matters agreed to herein, and, except as
expressly provided herein, this Agreement shall not be affected by reference to
any other document except for any such document signed or initialed by the duly
authorized representatives of the parties hereto and specifically providing that
it is an exception to the limitations contained in this Section. All prior
negotiations, discussions agreements by and between the parties hereto with
respect of such matters agreed to herein which are not reflected or set forth in
this Agreement, or in the Exhibits or Schedules, or in such other document,
shall have no further force or effect. Each representation, warranty, covenant
or agreement contained in this Agreement made by any of the parties hereto shall
have independent force and effect and shall not be affected by any other
representation except by specific reference.
11.2 Publicity. The content and timing of all publicity and
announcements concerning this Agreement, and all transactions contemplated by
this Agreement, shall be subject to Buyer's approval.
11.3 Amendment and Waiver. Neither this Agreement nor any
term, covenant, condition or other provision hereof may be amended, modified,
supplemented, waived, discharged or terminated except by an instrument in
writing signed by responsible officers duly authorized by the respective boards
of directors of the parties hereto.
11.4 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania except
to the extent that federal law may be applicable.
11.5 Communications. All notices, requests, demands, consents
and other communications hereunder shall be in writing and shall be deemed to
have been duly given if hand delivered, sent by recognized overnight delivery
service, or certified or registered mail, postage prepaid, return receipt
requested.
<PAGE>
(a) If to Buyer, to:
Two Bala Plaza
Suite 400
Bala Cynwyd, PA 19004
Attention: Martin E. Judge, Jr.
With a copy to:
Wisler, Pearlstine, Talone, Craig, Garrity & Potash, LLP
484 Norristown Road
Blue Bell, PA 19422
Attention: Michael J. O'Donoghue
(b) If to Seller, to:
Systems Automation, Inc.
15 Lakeside Office Park, Rt. 128
Wakefield, MA
Attention: Robert Haskell
With a copy to:
Peabody & Arnold
50 Rowes Wharf
Boston, MA 02110
Attention: John Dineen
11.6 Successors and Assigns. The rights and obligations of the
parties hereto shall inure to the benefit of and shall be binding upon the
successors and assigns of each of them; provided, however, that neither this
Agreement nor any of the rights, interest or obligations hereunder shall be
assigned by any party hereto without the prior written consent of the other
party.
11.7 Headings, Etc. The headings of the Sections and
Subsections of this Agreement have been inserted for convenience only and shall
not be deemed to be a part of this Agreement.
<PAGE>
11.8 Severability. In the event that any one or more
provisions of this Agreement shall for any reason be held invalid, illegal or
unenforceable in any respect, by any court of competent jurisdiction, such
invalidity, illegality or unenforceability shall not affect any other provisions
of this Agreement and the parties shall use their best efforts to substitute a
valid, legal and enforceable provision which, insofar as practicable, implements
the purposes and intents of this Agreement.
11.9 No Third Party Beneficiary. Except as expressly provided
for herein, nothing in this Agreement is intended to confer upon any person who
is not a party hereto any rights or remedies of any nature whatsoever under or
by reason of this Agreement.
11.10 Counterparts. To facilitate execution, this Agreement
may be executed in as many counterparts as may be required; and it shall not be
necessary that the signatures of, or on behalf of, each party, or that the
signatures of all persons required to bind any party, appear on each
counterpart; but it shall be sufficient that the signature of, or on behalf of,
each party, or that the signatures of the persons required to bind any party,
appear on one or more of the counterparts. All counterparts shall collectively
constitute a single agreement. It shall not be necessary in making proof of this
Agreement to produce or account for more than a number of counterparts
containing the respective signatures of, or on behalf of, all of the parties
hereto.
11.11 ISN
(a) Robert Haskell owns all issued and outstanding
shares of Integrated Systems Networks, Inc. ("ISN"), a corporation organized
under the laws of the Commonwealth of Massachusetts with its principal place of
business at Lakeside Office Park, Route 128, Wakefield, Massachusetts.
<PAGE>
(b) On or before December 1, 1996 Buyer shall select and
immediately implement one of the following options with regard to ISN:
(i) All issued and outstanding stock of ISN and its
tangible and intangible assets as they exist now shall be transferred to Buyer
by Robert Haskell for no additional consideration; or
(ii) ISN shall be dissolved.
(c) Pending the implementation of one of the above
options all net profits of ISN will be credited to Buyer and no assets tangible
or intangible shall be assigned or transferred.
(d) In the event that Buyer is in default under the
promissory note provided for in section 1.2 as of December 1, 1996, Robert
Haskell shall have no obligation to implement Buyer's exercise of any option
set forth above until and unless such default has been cured.
[SIGNATURE PAGE FOLLOWS ON NEXT PAGE]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the date set forth above.
SELLER:
SYSTEMS AUTOMATION, INC.
Attest: /s/ Robert R. Haskell By: /s/ Edward Haskell
------------------------------- -------------------------------
Robert R. Haskell, Secretary Edward Haskell, President
/s/ Edward Haskell
-------------------------------
Edward Haskell
BUYER:
THE JUDGE GROUP, INC.
By: /s/ Martin E. Judge, Jr.
-------------------------------
Martin E. Judge, Jr., CEO
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT is being made effective the 1st day of May, 1996, by and between
JUDGE IMAGING SYSTEMS, INC. (hereinafter referred to as "Employer") and Jeff
Andrews (hereinafter referred to as "Employee"), intending to be legally bound
hereby.
BACKGROUND
A. Employer is a corporation, organized and existing under the laws of
the State of Delaware engaged in the business of the sale of computers, computer
supplies, and parts and services, with its principal place of business located
at 2 Bala Plaza, Suite 800, Bala Cynwyd, PA 19004.
B. Employee is an individual residing at 580 Woodland Drive, Radnor, PA
19087.
C. The parties are desirous of providing for the rights and obligations
of Employer and Employee hereunder and for the growth and future stability of
Employer's business and is setting forth in writing their agreement with respect
hereto.
TERMS
1. Employment and Duties.
(a) Employer has employed Employee as Chief Financial Officer, with such
specific authority and obligations as are assigned to Employee by Employer from
time to time. Generally, Employee's authority and obligations in this capacity
shall encompass all of the usual and ordinary activities incidental to
BE:28699_1.WP5
<PAGE>
a Chief Financial Officer of a well organized business similar to Employer's and
such specific authority and responsibilities as are delegated to
him from time to time by the Employer.
(b) Employee shall devote all of his time, energy, skill and experience to
the performance of his duties during the working hours as established by
regulation or custom of Employer from time to time, and shall not during the
term of this Agreement engage in any other business which would interfere with
the performance of the duties as are assigned to him.
(c) Employee, without the express consent of Employer, shall have no apparent
or implied authority to pledge the credit of Employer; bind the Employer under
any contract, note, mortgage or other agreement outside the ordinary course of
Employer's business; release or discharge any debt due Employer; or sell,
mortgage, transfer or otherwise dispose of any assets of Employer.
(d) Employee's responsibilities and obligations shall include, but not be
limited to those described in Schedule A.
2. Compensation and Benefits.
Employee shall receive in consideration of the performance of his obligations
under this Agreement, compensation as set forth in Schedule A. Compensation
shall be reviewed and may be adjusted from time to time as justified by
Employee's performance and as permitted or required by Employer's financial
condition. Adjustments in compensation and the award of
-2-
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<PAGE>
additional benefits, if any, shall be completely within the discretion of
Employer.
3. Term and Termination.
(a) Employee's employment under this agreement shall extend for a period
of two(2) years from the date of this Agreement, subject to Paragraphs 3(b) and
3(c).
(b) Employee's employment hereunder may be terminated by Employer without
prior notice, at any time during the term hereof, but only for cause. "Cause"
shall include any of the following:
(i) Theft, misappropriation, misuse or embezzlement of
Employer's assets;
(ii) Conviction of a first degree misdemeanor or felony;
(iii) Failure of Employee to render adequate performance of his duties
under this agreement despite written warning and reasonable
opportunity to correct such deficiencies; or
(iv) Insubordination, failure or refusal to carry out instructions of
supervisors, or the failure of Employee to conform to accepted
business or professional standards.
(c) Employee's employment hereunder shall also be terminated by his death
or disability which prevents Employee from performing his duties hereunder for a
period in excess of forty-five (45) working days in any given year (not
including permitted leave, vacation, or sick days).
(d) Employee's employment under this Agreement shall not terminate upon
the expiration date in the absence
of written notice by either party to the other at least thirty (30) days
-3-
BE:28699_1.WP5
<PAGE>
prior thereto. In such event, Employee's employment and all the terms and
conditions of this Agreement shall continue for an additional period of one (1)
year and so on from year to year until the giving of such written notice.
4. Inventions and Improvements.
Employee will promptly disclose to Employer all ideas, processes, trademarks,
inventions and improvements coming within the scope of the Employer's business
or relating to any experimental work carried on by the Employer or to any
problems specifically assigned to the Employee, conceived by him alone or with
others during the term of this Agreement, and whether or not conceived during
regular working hours. All such ideas, processes, trademarks, inventions, and
improvements shall be the sole and exclusive property of the Employer. In the
event any such idea, process, invention, or improvement shall be deemed by the
Employer to the patentable, the Employee shall, at the expense of the Employer,
assist the Employer to obtain a patent or patents thereon and execute all
documents and do all things necessary or proper to obtain letters patent and to
vest the Employer with full title thereto. Without diminishing Employer's rights
as set forth in this paragraph, Employee shall be granted due acknowledgment for
the part said Employee plays in these activities.
5. Restrictive Covenant.
(a) Employee, because of the nature of his responsibilities will in the
course of time acquire valuable
-4-
BE:28699_1.WP5
<PAGE>
information and skill with respect to the business operations of Employer and
its trade secrets, including by way of illustration but not limitation:
customer and client lists and information with respect thereto, work
methods, pricing, formulas, forms of agreements and contracts used in business
operations, advertising and marketing methods and techniques, scheduling and
customer relations, financial statements and analysis reports.
(b) It is further recognized that Employer will suffer irreparable injury
if any of its trade secrets, as illustrated but not limited to those referred to
in subparagraph (a) above, are obtained by any competing person or entity or
should employee compete with Employer.
(c) Employee shall not during the term of his employment, directly or
indirectly, become engaged in any business in competition with Employer's
business.
(d) Employee recognizes and acknowledges that Employer's trade secrets as
referred to above together with all written or recorded records applicable
thereto, are valuable, special and unique assets of Employer's business.
Employee will not, during or after the term of his employment, directly or
indirectly divulge or disclose any information with regard to such trade secrets
or the written or recorded material pertinent thereto, to any person, firm,
corporations, associations or other entity for any reason or purpose whatsoever.
Employee further covenants that he will not at any time remove or otherwise
appropriate any
-5-
BE:28699_1.WP5
<PAGE>
written or recorded information containing trade secrets or any written records
pertinent thereto or the contents thereof from Employer's premises unless
specifically approved by Employer in advance, for a specified temporary period.
(e) For a period of one (1) year from the expiration date of this
Agreement, as extended pursuant to Paragraph 4(d), or the termination of
Employee's employment by Employee or Employer, Employee shall not within a 200
mile radius of any office of Employer, directly or indirectly, own, manage,
operate, control, be employed by, consult with, participate in, or be connected
in any manner with the ownership, management, operation, or control of any
business which designs, manufactures, and/or sells computers, their parts,
supplies, or servicing parts or which in any way competes with the business
operations of Employer as conducted at the time of termination or expiration of
Employee's employment. Employee further covenants that subsequent to termination
of his employment he will not at any time contact or solicit any of Employer's
customers for the purpose of inducing them to terminate their relationship with
Employer and/or commence such a relationship with Employee or any business which
employs, directly or indirectly, Employee or which Employee, directly or
indirectly owns, manages, operates, is employed by, consults with, participates
in or is connected with in any manner. Employee may work directly or indirectly
with a distributor, vendor or client so long as the distributor, vendor
-6-
BE:28699_1.WP5
<PAGE>
or client is not directly or indirectly in competition with the
Employer.
(f) During or subsequent to the expiration of this Agreement or the
termination of Employee's employment by either party for any reason, Employee
shall not contact, solicit or attempt to contact or solicit any person who is
employed by Employer at the time of the termination of employment for the
purpose of inducing them to terminate their employment with Employer and/or
accept employment with Employee or any business which employs, directly or
indirectly, Employee, or which Employee directly or indirectly, owns, manages,
operates, is employed by, consults with, participates in or is connected with in
any manner.
(g) Both parties agree that the breach of this restrictive covenant by
Employee will cause irreparable harm and injury to Employer and that the only
effective and adequate remedy available to Employer for such breach is by
injunctive relief both preliminary and final and both parties agree to the
jurisdiction of the equitable powers of the appropriate court to obtain such
relief. The parties further agree that the restrictive covenant set forth herein
shall extend for a period of time equal to any period of time during which the
Employee is in violation of its provisions.
(h) Notwithstanding the equitable relief available to Employer, both
parties, in the event of the breach of this covenant, understand and agree that
the uncertainties and delay
-7-
BE:28699_1.WP5
<PAGE>
inherent in legal process would result in a continuing breach for some period of
time, and therefore, continuing injury to Employer until and unless it can
obtain such equitable relief.
Therefore, Employer shall be entitled to monetary damages for any said
period of breach until the termination of such breach, equitable relief or the
expiration of this covenant, in an amount deemed reasonable by the Court to
cover all actual losses, all monies received by Employee as a result of said
breach, and all costs and attorney's fees incurred by Employer in enforcing this
Agreement. In the event Employee should use or reveal to any other person or
entity Employer trade secrets, this will be considered a continuing violation on
a daily basis for so long a period of time as such list or the contents thereof
are made use of by Employee or any other person or entity.
(i) It is agreed by Employer and Employee that if any portion of this
restrictive covenant is held by a court to be unreasonable, arbitrary or against
public policy, the covenant not to compete may be construed to be divisible both
as to time and geographical area; and, each month of the specified period shall
be deemed to be a separate period of time, and each municipality in the
restricted area shall be deemed to be a separate geographical area, so that the
maximum lesser period and area shall remain effective so long as the time or
area is not determined to be unreasonable, arbitrary or against public policy.
-8-
BE:28699_1.WP5
<PAGE>
6. Binding Effect.
This Agreement shall be binding upon and the benefits shall accrue to the
parties hereto, their respective heirs, administrators, successors and assigns.
7. Waiver.
The waiver by Employer of the breach of any provision of this Agreement by
Employee shall not operate or be construed as a waiver of any subsequent breach
by Employee.
8. Entire Agreement.
This Agreement contains the entire agreement of the parties. It may not be
changed orally but only by an agreement in writing signed by the party against
whom enforcement of any such change, waiver, modifications, construction,
extension or discharge is sought.
9. Provisions Severable.
All of the provisions of this Agreement are distinct and severable, and if
any provisions should, for any reason, be held to be invalid or unenforceable,
then the valid and enforceable provisions hereof shall continue in full force
and effect.
-9-
BE:28699_1.WP5
<PAGE>
10. Headings.
The headings preceding the paragraphs of this Agreement are intended solely
for convenience in reference and form no part of this Agreement.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have set their hands and seals the day and year first above written.
EMPLOYER:
JUDGE IMAGING SYSTEMS, INC.
Attest: /s/ Katherine A. Wiercinski By: /s/ Martin E. Judy, Jr.
--------------------------- ----------------------------
Katherine A. Wiercinski,
Secretary
EMPLOYEE:
/s/ Jeffrey Andrews
----------------------------------
JEFF ANDREWS
-10-
BE:28699_1.WP5
<PAGE>
Schedule A
CORPORATION: JIS
DIVISION: JIS
NAME: Jeffrey Andrews
START DATE: May 1, 1996
EFFECTIVE DATE: May 1, 1996
TITLE: Chief Financial Officer
SALARY: $3,125 per semi-monthly pay period (Based on
annual salary of $75,000)
COMMISSION: N/A
EMPLOYMENT
AGREEMENT: Signed
BENEFITS: Vacation: 2 weeks for 1996
Medical: Eligible on June 1, 1996
401K: Participation after 1 year of
service
Additional: Cafeteria Plan
REVIEW: Performance and compensation review six months
from start date (November 1, 1996) then yearly
from that date (November 1, 1997, etc.)
REMARKS: This agreement may be terminated at any time by
either party.
BE:28699_1.WP5
Exhibit 11.1
THE JUDGE GROUP, INC.
Computation of Earnings Per Share
on Historical and pro forma adjusted basis
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1993 1994 1995
--------- --------- -----------
<S> <C> <C> <C>
Historical(1):
Weighted average common shares outstanding..................................... 8,500,160 8,587,739 8,587,739
========= ========= =========
Net Income (loss).............................................................. $ 101,388 $ 343,251 $ 485,640
========= ========= =========
Primary net income (loss) per common share..................................... $ 0.01 $ 0.04 $ 0.06
========= ========= =========
Weighted average common shares outstanding (2)................................. 8,500,160 8,850,739 9,113,739
========= ========= =========
Net Income (loss).............................................................. $ 101,388 $ 343,251 $ 485,640
========= ========= =========
Net income (loss) after adjustment for interest expense on convertible
debentures and preferred dividends earned on JIS preferred stock............. $ 101,388 $ 358,251 $ 515,640
========= ========= =========
Fully diluted net income (loss) per common share............................... $ 0.01 $ 0.04 $ 0.06
========= ========= =========
Pro forma adjusted(1):
Weighted average common shares outstanding (2)................................. 9,113,739
Shares issued assuming successful public offering.............................. 3,000,000
Shares issued in Berkeley acquisition.......................................... 30,000
Shares issued in JIS merger.................................................... N/A N/A 892,748
Exercise of outstanding stock options.......................................... 2,925
----------
Pro forma weighted average common shares outstanding........................... 13,039,412
==========
Pro forma net income (loss).................................................... $ 317,670
==========
Pro forma net income (loss) after adjustment for interest expense on
convertible debentures....................................................... $ 347,670
==========
Fully diluted net income (loss) per common share............................... $ 0.03
==========
<CAPTION>
Nine Months Ended Six Months Ended
September 30, June 30,
------------------------- --------------------
1996 1995 1996 1995
----------- --------- --------- ---------
<S> <C> <C> <C> <C>
Historical(1):
Weighted average common shares outstanding..................................... 8,587,739 8,587,739 8,587,739 8,416,000
========= ========= ========= =========
Net Income (loss).............................................................. $ 751,106 $ 519,143 $ 181,544 ($ 65,118)
========= ========= ========= =========
Primary net income (loss) per common share..................................... $ 0.08 $ 0.06 $ 0.02 ($ 0.01)
========= ========= ========= =========
Weighted average common shares outstanding (2)................................. 9,113,739 9,113,739 9,113,739 8,416,000
========= ========= ========= =========
Net Income (loss).............................................................. $ 751,106 $ 519,143 $ 181,544 ($ 65,118)
========= ========= ========= =========
Net income (loss) after adjustment for interest expense on convertible
debentures and preferred dividends earned on JIS preferred stock............. $ 742,507 $ 541,643 $ 178,544 ($ 65,118)
========= ========= ========= =========
Fully diluted net income (loss) per common share............................... $ 0.08 $ 0.06 $ 0.02 ($ 0.01)
========= ========= ========= =========
Pro forma adjusted(1):
Weighted average common shares outstanding (2)................................. 9,113,739
Shares issued assuming successful public offering.............................. 3,000,000
Shares issued in Berkeley acquisition.......................................... 30,000
Shares issued in JIS merger.................................................... 892,748 N/A N/A N/A
Exercise of outstanding stock options.......................................... 2,925
----------
Pro forma weighted average common shares outstanding........................... 13,039,412
==========
Pro forma net income (loss).................................................... ($ 81,810)
==========
Pro forma net income (loss) after adjustment for interest expense on
convertible debentures....................................................... ($ 59,310)
==========
Fully diluted net income (loss) per common share............................... ($ 0.00)
==========
</TABLE>
- ----------
(1) All per share and share amounts reflect a 52.6 for 1.0 stock split which
occurred on September 23, 1996.
(2) Fully diluted shares includes common stock equivalents and 526,000 Common
Shares issuable upon conversion of the Company's 10% Convertible Senior
Subordinated Notes (except for the six months ended June 30, 1995 for which
the consideration of common stock equivalents and the convertible notes
would be anti-dilutive).
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
To the Board of Directors
The Judge Group, Inc.
Bala Cynwyd, Pennsylvania
We consent to the use of our reports included herein and to the references to
our Firm under the headings "Selected Consolidated Financial Data" and "Experts"
in the prospectus.
/s/ Rudolph, Palitz LLP
-----------------------
Rudolph, Palitz LLP
Plymouth Meeting, Pennsylvania
December 10, 1996
Exhibit 23.3
JANNEY MONTGOMERY SCOTT
INVESTMENT BANKING
Established 1832
CONSENT OF JANNEY MONTGOMERY SCOTT INC.
We hereby consent to the use of our opinion letter dated September 4, 1996 to
the Board of Directors of Judge Imaging Systems, Inc. and to the references to
our firm in the Proxy Statement/Prospectus which forms a part of the
Registration Statement on Forms S-1 and S-4 relating to the proposed merger of
Judge Imaging Systems, Inc. with and into The Judge Group, Inc.
In giving this consent, we do not admit that we come within the category of
persons whose consent is required under Section 7 of the Securities Act of 1933,
as amended, or the rules and regulations of the Securities and Exchange
Commission promulgated thereunder.
/s/ Janney Montgomery Scott Inc.
----------------------------
JANNEY MONTGOMERY SCOTT INC.
1801 Market Street
Philadelphia, PA 19103-1675
Tel 215.665.6180
Fax 215.665.6197
Members New York Stock Exchange, Inc.
Other Principal Exchanges
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS CONTAINED IN THE JUDGE GROUP, INC. REGISTRATION
STATEMENT ON FORM S-1 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CURRENCY> 1
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 6-MOS 12-MOS 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1995 DEC-31-1994 DEC-31-1993
<PERIOD-END> SEP-30-1996 DEC-31-1995 DEC-31-1994 DEC-31-1993
<EXCHANGE-RATE> 1 1 1 1
<CASH> 153,942 35,078 82,928 0
<SECURITIES> 0 0 0 0
<RECEIVABLES> 13,276,917 9,055,056 6,575,697 0
<ALLOWANCES> 320,000 174,000 157,000 0
<INVENTORY> 912,303 515,099 232,705 0
<CURRENT-ASSETS> 15,352,086 10,287,228 6,965,327 0
<PP&E> 3,654,939 1,809,363 1,601,486 0
<DEPRECIATION> 1,774,499 875,552 1,009,422 0
<TOTAL-ASSETS> 21,187,709 11,631,864 8,017,339 0
<CURRENT-LIABILITIES> 9,394,633 4,720,328 6,636,347 0
<BONDS> 0 0 0 0
0 0 0 0
0 0 0 0
<COMMON> 85,877 800 800 0
<OTHER-SE> 0 0 0 0
<TOTAL-LIABILITY-AND-EQUITY> 21,187,709 11,631,864 8,017,339 0
<SALES> 0 0 0 0
<TOTAL-REVENUES> 58,914,238 63,299,353 45,253,417 35,068,867
<CGS> 43,232,381 47,550,114 34,146,215 26,069,583
<TOTAL-COSTS> 57,565,587 61,535,474 43,810,776 34,448,015
<OTHER-EXPENSES> (599,597) (697,339) (419,590) (334,004)
<LOSS-PROVISION> 369,528 300,033 71,697 58,655
<INTEREST-EXPENSE> (599,597) (697,339) (419,590) (334,004)
<INCOME-PRETAX> 749,054 1,066,540 1,023,051 286,848
<INCOME-TAX> 614,700 587,957 679,800 227,460
<INCOME-CONTINUING> 751,106 485,640 343,251 59,388
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 42,000
<NET-INCOME> 751,106 485,640 343,251 101,388
<EPS-PRIMARY> $.08 $.06 $.04 $.01
<EPS-DILUTED> $.08 $.06 $.04 $.01
</TABLE>
