As filed with the Securities and Exchange Commission on October 9, 1996
Registration No. 333-______
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
Registration Statement
Under The Securities Act of 1933
THE JUDGE GROUP, INC.
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(Exact name of registrant as specified in its charter)
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Pennsylvania 6719 23-1726661
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(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation of Organization) Classification Code Number) Identification Number)
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Two Bala Plaza, Suite 800, Bala Cynwyd, Pennsylvania 19004, (610) 667-7700
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(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
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(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copy to:
Robert H. Strouse, Esq.
Drinker Biddle & Reath
1000 Westlakes Drive, Suite 300
Berwyn, Pennsylvania 19312
(610) 993-2200
Approximate date of commencement of proposed sale to the public: As
soon as practicable after the effective date of this Registration Statement and
concurrent with the Public Offering by Judge Group as described herein.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
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CALCULATION OF REGISTRATION FEE
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Title of
Each Class of Proposed Proposed
Securities Amount Maximum Maximum Amount of
to be to be Offering Price Aggregate Registration
Registered Registered Per Share (1) Offering Price (1) Fee
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Common Shares 1,123,747 $11 $12,361,217 $4,262.48
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(1) Estimated solely for the purpose of calculating the registration fee.
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.
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TABLE OF CONTENTS
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Page
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AVAILABLE INFORMATION.................................................................. 7
SUMMARY .............................................................................. 13
The Parties................................................................... 14
JIS Meeting................................................................... 14
Risk Factors.................................................................. 14
The Merger.................................................................... 15
Effective Time................................................................ 15
Public Offering............................................................... 15
Conversion of Shares; Exchange Ratio.......................................... 15
Recommendation of the JIS Board of Directors.................................. 16
JIS Fairness Opinion.......................................................... 16
The Merger Agreement.......................................................... 16
JIS Treasury Stock............................................................ 17
JIS Stock Options and Warrants................................................ 17
JIS Common Stock Owned by Judge Group......................................... 17
Exchange of Stock Certificates................................................ 17
Fractional Shares............................................................. 18
Interests of Certain Persons in Merger........................................ 18
Operations After the Merger................................................... 18
Management After the Merger................................................... 18
Absence of Regulatory Filings and Approvals................................... 19
Accounting Treatment.......................................................... 19
Material Federal Income Tax Consequences...................................... 19
Agreements of Certain Judge Group Shareholders................................ 20
Dissenters' Rights............................................................ 20
Comparative Per Share Data.................................................... 20
RISK FACTORS........................................................................... 22
Dependence on Availability of Qualified Technical Consultants................. 22
Acquisition Risks............................................................. 22
Ability to Manage Growth...................................................... 22
History of Operating Losses in Imaging and Network Services Business.......... 23
Technological Obsolescense in Imaging and Network Services.................... 23
Integration of Business Units................................................. 23
Competition................................................................... 24
Dependence on Key Customers and Geographic Concentration...................... 24
Employment Liability Risks.................................................... 24
Dependence on Key Personnel................................................... 24
Control of Judge Group........................................................ 24
Fluctuations in Operating Results; Seasonality and General Economic
Conditions.................................................................... 25
Broad Discretion on Use of Proceeds........................................... 25
Risks Related to Tax Status of Technical Consultants.......................... 25
Shares Eligible for Future Sale; Registration Rights.......................... 26
Absence of Public Market; Possible Volatility of Stock Price................. 26
Absence of Dividends.......................................................... 26
Potential Effect of Anti-Takeover Provisions.................................. 26
Certain Anti-Takeover Effects of the Pennsylvania Business Corporation Law.... 26
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INTRODUCTION........................................................................... 27
General ..................................................................... 27
Purpose of the JIS Meeting.................................................... 27
The Merger.................................................................... 27
Voting Rights................................................................. 28
Solicitation and Revocation of Proxies........................................ 28
THE MERGER............................................................................. 29
General ..................................................................... 29
Effective Time................................................................ 29
Conversion of Shares; Exchange Ratio.......................................... 29
Background of the Merger...................................................... 29
Reasons for and Effects of the Merger......................................... 31
JIS Fairness Opinion.......................................................... 32
The Merger Agreement.......................................................... 36
Listing of Merger Shares...................................................... 38
Interests of Certain Persons in the Merger.................................... 38
JIS Treasury Stock............................................................ 38
JIS Series B Preferred Stock..................................................
JIS Stock Options and Warrants................................................ 39
JIS Common Stock owned by Judge Group.........................................
Exchange of Stock Certificates................................................ 39
Fractional Shares............................................................. 40
Charter and Bylaws of Surviving Corporation...................................
Management After the Merger................................................... 40
Absence of Regulatory Filings and Approvals................................... 40
Accounting Treatment.......................................................... 40
Material Federal Income Tax Consequences...................................... 40
Consequences Under Federal Securities Laws.................................... 42
Dissenters' Rights............................................................ 42
DESCRIPTION OF JUDGE GROUP CAPITAL STOCK............................................... 45
General ..................................................................... 45
Common Shares................................................................. 45
Preferred Shares.............................................................. 45
Transfer Agent................................................................ 46
COMPARISON OF SHAREHOLDER RIGHTS....................................................... 47
Removal of Directors; Filling Vacancies on the Board of Directors............. 47
Quorum of Shareholders........................................................ 47
Adjournment and Notice of Shareholder Meetings................................ 47
Call of Special Shareholder Meetings.......................................... 48
Shareholder Consent in Lieu of Meeting........................................ 48
Dissenters' Rights............................................................ 48
Dividends and Distributions................................................... 49
Director Qualifications and Number............................................ 49
Indemnification of Officers and Directors..................................... 50
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Director Liability............................................................ 51
Amendment to Articles of Incorporation and Bylaws............................. 51
Vote Required for Extraordinary Corporate Transactions........................ 51
Interested Shareholder Transactions........................................... 52
Fiduciary Duty................................................................ 52
Provisions with Possible Anti-Takeover Effects................................ 52
MARKET PRICES OF SECURITIES............................................................ 55
SELECTED FINANCIAL DATA OF JUDGE GROUP................................................. 56
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF JUDGE GROUP............................
SELECTED FINANCIAL DATA OF JIS......................................................... 65
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF JIS.......................................................... 58
BUSINESS OF JUDGE GROUP................................................................ 64
Introduction.................................................................. 64
Industry Overview............................................................. 64
Business Strategy............................................................. 65
Services ..................................................................... 66
Customers..................................................................... 68
Technical Personnel ......................................................... 69
Sales and Marketing........................................................... 70
Competition................................................................... 70
Regulation.................................................................... 71
Employees..................................................................... 71
Pre-Offering Transactions:
Corporate Reorganization and Recent Acquisitions..............................
Facilities....................................................................
Legal Proceedings............................................................. 72
MANAGEMENT AND CERTAIN TRANSACTIONS OF JUDGE GROUP .................................... 73
Executive Officers and Directors.............................................. 73
Directors' Compensation....................................................... 74
Executive Compensation........................................................ 74
Summary Compensation Table.................................................... 74
Employment Agreements......................................................... 74
Stock Plans................................................................... 74
Compensation Committee Interlocks and Insider Participation................... 77
Certain Transactions.......................................................... 77
PRINCIPAL SHAREHOLDERS OF JUDGE GROUP.................................................. 78
BUSINESS OF JIS........................................................................ 79
Introduction.................................................................. 79
Industry Overview............................................................. 79
Business Strategy............................................................. 79
Services ..................................................................... 79
Competition................................................................... 81
Customers..................................................................... 81
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Sales and Marketing........................................................... 81
Employees.....................................................................
Facilities.................................................................... 81
MANAGEMENT AND CERTAIN TRANSACTIONS OF JIS............................................. 82
Executive Officers and Directors.............................................. 82
Directors' Compensation....................................................... 83
Executive Compensation........................................................ 83
Summary Compensation Table....................................................
Employment Agreements.........................................................
Stock Options.................................................................
Certain Transactions.......................................................... 83
PRINCIPAL STOCKHOLDERS OF JIS.......................................................... 84
INFORMATION CONCERNING INDEPENDENT PUBLIC ACCOUNTANTS OF JIS........................... 84
OTHER MATTERS.......................................................................... 85
LEGAL OPINION.......................................................................... 85
EXPERTS .............................................................................. 85
STOCKHOLDER PROPOSALS..................................................................
JUDGE, INC. AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS.............................
JUDGE GROUP, INC. PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS..........................
JUDGE IMAGING SYSTEMS, INC. INDEX TO FINANCIAL STATEMENTS..............................
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APPENDIX A AGREEMENT AND PLAN OF MERGER
APPENDIX B JANNEY MONTGOMERY SCOTT FAIRNESS OPINION
APPENDIX C SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
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JUDGE GROUP, INC.
Cross-Reference Sheet
for
Registration Statement on Form S-4 and Prospectus
(Pursuant to Item 501(b) of Regulation S-K showing the location in the
Prospectus of the responses to the Items of Part I of Form S-4)
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Registration Statement Item Location or Caption in Prospectus
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A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of the Registration Statement and Outside Facing Page of Registration Statement; Cross Reference Sheet;
Front Cover Page of Prospectus Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of Inside Front Cover Page; Table of Contents; Available
Prospectus Information
3. Risk Factors, Ratio of Earnings to Fixed Charges and Prospectus Summary; Risk Factors; Selected Consolidated
Other Information Financial Data; Introduction; Pro Forma Financial Information;
Management's Discussion and Analysis of Financial Condition
and Results of Operations of Judge Group; Management's
Discussion and Analysis of Financial Condition and
Results of Operations of JIS
4. Terms of the Transaction Prospectus Summary; Introduction; The Merger; Description of
Judge Group Capital Stock; Comparison of Shareholders Rights
5. Pro Forma Financial Information Pro Forma Condensed
6. Material Contracts with the Company Being Acquired Business of JIS - Certain Transactions; Notes to
Financial Statements and Business of Judge Group
7. Additional Information Required for Reoffering by Not applicable
Persons and Parties Deemed to be Underwriters
8. Interests of Named Experts and Counsel Not applicable
B. INFORMATION ABOUT THE REGISTRANT
9. Disclosure of Commission Position on Indemnification Not applicable
for Securities Act Liabilities
10. Information with Respect to S-3 Registrants Not applicable
11. Incorporation of Certain Information by Reference Not applicable
12. Information with Respect to S-2 or S-3 Registrants Not Applicable
13. Incorporation of Certain Information by Reference Not Applicable
14. Information with Respect to Registrants Other than S-2 Prospectus Summary; Business of Judge Group; Management's
or S-3 Discussion and Analysis of Financial Condition and Results
of Operations of Judge Group; Selected Financial Data of
Judge Group; Market Prices of Securities
C. INFORMATION ABOUT THE COMPANY BEING
ACQUIRED
15. Information with Respect to S-3 Companies Not applicable
16. Information with Respect to S-2 or S-3 Companies Not applicable
17. Information with Respect to Companies other than S-2 Prospectus Summary; Business of JIS; Management's
or S-3 Companies Discussion and Analysis of Financial Condition and Results
of Operations of JIS, Selected Financial Data of JIS;
Market Prices of Securities; Information Concerning
Independent Public Accountants of JIS
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D. VOTING AND MANAGEMENT INFORMATION
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18. Information if Proxies, Consents or Authorizations are Prospectus Summary; Introduction; The Merger;
to be Solicited Business of Judge Group; Business of JIS; Principal
Shareholders of JIS; Comparison of Shareholder Rightz
19. Information if Proxies, Consents or Authorizations are Not Applicable
not to be Solicited or in an Exchange Offer
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Dear Judge Imaging Systems, Inc. Stockholder:
You are cordially invited to attend a special meeting of the stockholders
(the "Special Meeting") of Judge Imaging Systems, Inc. ("JIS") to be held on
__________, ___, 1996, at 10:00 a.m., local time, at Two Bala Plaza, Suite 800,
Bala Cynwyd, Pennsylvania 19004. Official notice of the Special Meeting, a Proxy
Statement/Prospectus and a proxy card are enclosed with this letter. All holders
of Common Stock and Series A Preferred Stock of JIS as of [date] (the "Record
Date") will be entitled to notice of and to vote at the Special Meeting.
At this meeting, you will be asked to consider and vote upon a proposal to
approve and adopt an Agreement and Plan of Merger dated as of October 1, 1996
(the "Merger Agreement"), among JIS, The Judge Group, Inc. ("Judge Group"), and
Judge Group's wholly-owned subsidiary, Judge Acquisition, Inc. ("Acquisition"),
pursuant to which (i) JIS will be merged with and into Acquisition (the
"Merger") (ii) Acquisition will amend its Certificate of Incorporation to change
its name to "Judge Imaging Systems, Inc.;" (iii) each outstanding share of JIS
Common Stock and JIS Series A Preferred Stock, other than shares already owned
by Judge Group, or those to which statutory dissenters' rights of appraisal are
exercised, will be converted into the right to receive that number of common
shares of Judge Group ("Judge Group Common Shares") equal to $2.50 divided by
the offering price to the public of the shares issued and sold by Judge Group in
the initial public offering of Judge Group Common Shares to be completed
concurrently with the Merger; and (iv) each share of JIS Series B Preferred
Stock issued and outstanding immediately prior to the Effective Time shall cease
to be outstanding and shall automatically be cancelled at the Effective Time of
the Merger.
Consummation of the Merger is subject to certain conditions, including the
successful completion by Judge Group of an initial public offering of its common
shares.
Details of the Merger and other important information concerning JIS and
Judge Group are set forth in the accompanying Proxy Statement/Prospectus, which
you are urged to read.
The Board of Directors of JIS has carefully considered the terms and
conditions of the Merger and believes that the Merger is in the best interests
of JIS and its shareholders. ACCORDINGLY, YOUR BOARD OF DIRECTORS RECOMMENDS
THAT YOU VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
The Board of Directors believes that the Merger will provide JIS
stockholders with a continuing equity interest in a combined larger enterprise
which will be better positioned to pursue growth opportunities in a competitive
information technologies environment.
YOUR VOTE IS EXTREMELY IMPORTANT. You are urged to sign, date and mail the
enclosed proxy card promptly in the postage-prepaid envelope provided. If you
attend the Special Meeting, you may vote in person even if you have already
mailed your proxy card.
On behalf of the Board of Directors, we wish to thank you for your support.
Sincerely yours,
----------------------
Katherine Wiercinski
Secretary
Judge Imaging Systems, Inc.
Two Bala Plaza
Suite 800
Bala Cynwyd, PA 19004
(610) - 667-7700
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NOTICE OF
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON _________, 1996
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of Judge
Imaging Systems, Inc. ("JIS") will be held at Two Bala Plaza, Suite 800, Bala
Cynwyd, Pennsylvania 19004, on __________, 1996 at 10:00 a.m. (local time), for
the purpose of considering and voting on the following matters:
o A proposal to approve and adopt the Agreement and Plan of
Merger dated as of October 1, 1996 among JIS, The Judge Group,
Inc. ("Judge Group") and Judge Acquisition, Inc.
("Acquisition"), which agreement provides that: (i) JIS will
be merged with and into Acquisition, a wholly-owned subsidiary
of Judge Group; (ii) Acquisition will amend its Certificate of
Incorporation to change its name to "Judge Imaging Systems,
Inc.;" (iii) each outstanding share of JIS Common Stock and
JIS Series A Preferred Stock, other than shares already owned
by Judge Group, or those to which statutory dissenters' rights
of appraisal are exercised, will be converted into the right
to receive that number of Judge Group Common Shares equal to
$2.50 divided by the offering price to the public of the
shares issued and sold by Judge Group in the initial public
offering of Judge Group Common Shares to be completed
concurrently with the Merger; and (iv) each share of JIS
Series B Preferred Stock issued and outstanding immediately
prior to the Effective Time shall cease to be outstanding and
shall automatically be cancelled at the Effective Time of the
Merger.
o Such other and further business as may properly come before
the meeting or any postponement or adjournment thereof.
A description of the Merger Proposal to be considered is contained in the
Proxy Statement/Prospectus that accompanies this Notice.
Pursuant to the By-Laws of JIS, the Board of Directors has fixed ________,
1996 as the record date for the determination of stockholders entitled to notice
of and to vote at the Special Meeting and any adjournments thereof. Only record
holders of outstanding shares of JIS Common Stock and JIS Series A Preferred
Stock as of the close of business on that date will be entitled to notice of and
to vote at the Special Meeting or any adjournments thereof. A complete
alphabetical list of stockholders entitled to vote at the Special Meeting shall
be open to examination by any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for __ days prior to the meeting, at
the principal office of JIS, as set forth above.
By order of the Board of Directors
-----------------------------------
Katharine Wiercinski
Secretary
Bala Cynwyd, Pennsylvania
November __, 1996
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY, THEREFORE, WHETHER YOU PLAN
TO BE PRESENT IN PERSON AT THE SPECIAL MEETING OR NOT, PLEASE COMPLETE, SIGN AND
DATE THE ENCLOSED PROXY AND RETURN IT IN THE SELF-ADDRESSED POSTAGE-PAID
ENVELOPE.
THE BOARD OF DIRECTORS OF JIS UNANIMOUSLY RECOMMENDS THAT ITS STOCKHOLDERS VOTE
TO APPROVE AND ADOPT THE AGREEMENT AND PLAN OF MERGER.
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JUDGE IMAGING SYSTEMS, INC. THE JUDGE GROUP, INC.
TWO BALA PLAZA TWO BALA PLAZA
SUITE 800 SUITE 800
BALA CYNWYD, PA 19004 BALA CYNWYD, PA 19004
(610) 667-7700 (610) 667-7700
PROXY STATEMENT/PROSPECTUS
Up to 1,123,747 Shares of Common Stock, par value $.01 per share,
Issuable in Connection with the Merger
This Proxy Statement/Prospectus is being furnished to the holders of
outstanding shares of common stock of Judge Imaging Systems, Inc., a Delaware
corporation ("JIS"), par value $.01 per share ("JIS Common Stock") and holders
of outstanding shares of JIS Series A Preferred Stock, par value $.01 per share
("JIS Series A Preferred Stock"), in connection with the solicitation of proxies
by the Board of Directors of JIS (the "JIS Board") for use at the Special
Meeting of Shareholders of JIS (the "JIS Meeting") to be held on _________,
1996, at Two Bala Plaza, Suite 800, Bala Cynwyd, Pennsylvania 19004 at 10:00
a.m., local time, and any adjournment thereof.
The stockholders of JIS will be asked to consider and act upon a
proposal to approve an Agreement and Plan of Merger, dated as of October 1,
1996, among The Judge Group, Inc., a Pennsylvania corporation ("Judge Group"),
Judge Acquisition, Inc., a Delaware corporation and a wholly-owned subsidiary of
Judge Group ("Acquisition"), and JIS (the "Merger Agreement"). Pursuant to the
Merger Agreement, JIS will merge into Acquisition (the "Merger"), the separate
existence of JIS will cease and Acquisition will continue as the surviving
corporation under Delaware law using the corporate name "Judge Imaging Systems,
Inc." (the "Merger Proposal"). The affirmative votes of (i) a majority of the
outstanding shares of JIS Common Stock and JIS Series A Preferred Stock, voting
together as a class and (ii) a majority of the outstanding shares of JIS Series
A Preferred Stock voting as a class, are required to approve the Merger
Proposal. Consummation of the Merger is subject to the satisfaction of various
conditions, including, among other things, the completion by Judge Group of an
initial public offering (the "Public Offering") of shares of its common stock
("Judge Group Common Shares"), pursuant to the Securities Act of 1933, as
amended (the "Securities Act").
Immediately after the Merger and the Public Offering (assuming the sale
by Judge Group of 3,000,000 shares at $10.00 per share, in the Public Offering),
the current holders of shares of JIS Common Stock and JIS Series A Preferred
Stock, in the aggregate, will own approximately 6.9% of the then outstanding
Judge Group Common Shares (approximately 6.9% on a fully-diluted basis,
calculated before the exercise of the underwriters' over-allotment option,
assuming the exercise of then outstanding options and warrants). If Judge Group
sells a greater or lesser number of shares, and/or the offering price of the
shares sold in the Public Offering is greater or less than $10.00 per share, the
percentage ownership of the current holders of shares of JIS Common and Series A
Preferted Stock will also change.
In evaluating the Merger, JIS stockholders should carefully consider
the factors described on page __ under "Risk Factors."
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 PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this Proxy Statement/Prospectus is November __, 1996.
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Holders of shares of JIS Common Stock and JIS Series A Preferred Stock
will have dissenters' rights of appraisal in connection with the Merger. See
"The Merger -- Dissenters' Rights." In order to exercise such dissenters' rights
of appraisal properly, a dissenting JIS stockholder must refrain from voting by
proxy or in person in favor of the Merger Proposal. The shares of any
stockholder of JIS who executes and returns an unmarked proxy will be voted
"for" the Merger Proposal and, as a consequence thereof, such JIS stockholder
will be foreclosed from exercising the rights of a dissenting stockholder.
This Proxy Statement/Prospectus constitutes a prospectus of Judge Group
included as part of a Registration Statement (defined below) filed with the
Securities and Exchange Commission (the "SEC") with respect to the Judge Group
Common Shares to be issued to stockholders of JIS pursuant to the terms of the
Merger Agreement described herein and attached hereto as Appendix A. Under the
terms of the Merger Agreement, (i) JIS will be merged with and into Acquisition,
a wholly-owned subsidiary of Judge Group; (ii) Acquisition will amend its
Certificate of Incorporation to change its name to "Judge Imaging Systems,
Inc.;" (iii) each outstanding share of JIS Common Stock and JIS Series A
Preferred Stock, other than shares already owned by Judge Group, or those to
which statutory dissenters' rights of appraisal are exercised, will be converted
into the right to receive that number of Judge Group Common Shares equal to
$2.50 divided by the offering price to the public of the shares issued and sold
by Judge Group in the initial public offering of Judge Group Common Shares to be
completed concurrently with the Merger; and (iv) each share of JIS Series B
Preferred Stock issued and outstanding immediately prior to the share Effective
Time shall cease to be outstanding and shall automatically be cancelled at the
Effective Time of the Merger.
The shares of JIS Common Stock are not included on the NASDAQ Stock
Market or traded on any stock exchange; its shares are presently very thinly
traded in the over-the-counter market, with quotations appearing in the "pink
sheets." The range of bid and asked prices of JIS Common Stock as of October 3,
1996, the date preceding the public announcement of the Merger, was $1.00 (bid)
and $1.00 (asked). As Judge Group is a privately-held company, there is no
public trading market for its Common Shares.
This Proxy Statement/Prospectus and the accompanying form of proxy are
first being mailed to the stockholders of JIS on or about November __, 1996.
No person is authorized to give any information or to make any
representations other than those contained in this Proxy Statement/Prospectus
and, if given or made, such other information or representations must not be
relied upon as having been authorized by Judge Group or JIS. This Proxy
Statement/Prospectus does not constitute an offer to sell, or a solicitation of
an offer to buy, any security other than the securities covered by this Proxy
Statement/Prospectus, or the solicitation of a proxy to or from any person in
any jurisdiction where it is unlawful to make such offer or solicitation of an
offer or proxy solicitation. Neither the delivery of this Proxy
Statement/Prospectus nor any distribution of securities made hereunder shall,
under any circumstance, create any implication that there has been no change in
the information about Judge Group, Acquisition or JIS contained in this Proxy
Statement/Prospectus since the date hereof.
AVAILABLE INFORMATION
JIS is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, accordingly, files
reports, proxy statements and other information with the SEC. Such reports,
proxy statements and other information filed with the SEC are available for
inspection and copying at the public reference facilities maintained by the SEC
at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the SEC's Regional Offices located at Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661 and at Seven World
Trade Center, New York, New York 10048. Copies of such documents may also be
obtained from the Public Reference Section of the SEC at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, or from the SEC's Web site
(http://www.sec.gov), at prescribed rates. In addition, such materials and other
information concerning JIS can be inspected at the National Association of
Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
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Judge Group has filed with the SEC under the Securities Act a
registration statement on Form S-4 (together with all amendments, schedules and
exhibits thereto, the "Registration Statement") with respect to Judge Group
Common Shares issuable pursuant to the Merger Agreement. This Proxy
Statement/Prospectus does not contain all the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the SEC. The Registration Statement, including any
amendments, schedules and exhibits thereto, is available for inspection and
copying as set forth above. Statements contained in this Proxy
Statement/Prospectus as to the contents of any contract or other document are
not necessarily complete, and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference.
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SUMMARY
The following is a summary of certain significant matters discussed
elsewhere in this Proxy Statement/Prospectus. This summary is qualified in its
entirety by reference to the more detailed information appearing elsewhere in
this Proxy Statement/Prospectus and the Appendices hereto. Shareholders are
urged to read the entire Proxy Statement/Prospectus, including the Appendices
hereto. Certain terms used in this Summary and elsewhere in this Proxy
Statement/Prospectus are used as defined in the Summary or elsewhere in this
Proxy Statement/Prospectus.
Unless otherwise indicated, the information contained in this Proxy
Statement/Prospectus (i) gives effect to the completion of the Public Offering
by Judge Group in which it is assumed that Judge Group will sell 3,000,000
shares at $10.00 per share; (ii) gives effect to the sale by certain selling
shareholders Of Judge Group (the "Selling Shareholders") of 650,000 shares at
$10.00 per share; and (iii) assumes the underwriters' over-allotment option is
not exercised. The terms of the Public Offering could change, and Judge Group
may sell more or less shares in the Public Offering at a price more or less than
$10.00 per share.
Unless otherwise indicated, the information contained in this Proxy
Statement/Prospectus about ownership of the outstanding shares of Common Stock
of JIS as of a given date is calculated on a fully-diluted basis, to give effect
to (i) the conversion of 822,628 shares of JIS Series A Preferred Stock,
presently convertible, into 822,628 shares of JIS Common Stock, and (ii) the
exercise, on a "cashless exercise" basis for 11,700 shares of JIS Common Stock,
of an option held by Raymond Sozzi to purchase 25,000 shares of JIS Common Stock
at $1.33 per share.
The Parties
Introduction
At the date of this Proxy Statement/Prospectus, Judge Group and Martin
E. Judge, Jr., the Chairman, Chief Executive Officer and principal stockholder
of Judge Group, own collectively approximately 56.9% of the fully-diluted
outstanding shares of JIS Common Stock. Because of this common ownership and
control, the historical consolidated financial statements and historical
consolidated selected financial data of the Judge Group appearing elsewhere
herein, include the accounts of JIS, and the Management's Discussion and
Analysis of Financial Condition and Results of Operation of Judge Group
appearing elsewhere herein includes a discussion of the Imaging and Network
Services business of JIS.
For convenience of presentation and to assist the reader in
distinguishing between the business of Judge Group (other than the Imaging and
Network Services business of JIS) and JIS's Imaging and Network Services
business, the description of Judge Group's business appearing under "Business of
Judge Group" describes all of Judge Group's businesses, other than JIS's
Imaging and Network Services business. A separate discussion of JIS's Imaging
and Network Services business may be found in the "Business of JIS" section of
this Proxy Statement/Prospectus.
Judge Group
Judge Group services the information technology ("IT") and engineering
needs of its clients through its four complementary operating units. Judge
Technical Services, Inc. ("Judge Technical") provides IT and engineering
personnel on a contract basis; Judge, Inc. provides IT and engineering personnel
on a permanent basis; and The Berkeley Associates Corporation ("Berkeley")
provides standard and customized IT training on established and emerging
software applications. JIS, which is partially-owned by Judge Group, automates
and increases the efficiency of business processes through computer networking,
imaging, document management, workflow and related consulting services.
JIS
The Imaging and Network Services business of JIS 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(TM)
Consulting Program, project management and advanced application development. JIS
is a value-added reseller and service facility for personal computer ("PC") and
network hardware, software and related peripherals manufactured by Compaq, ACER,
IBM, Apple, Okidata, Tricord, Hewlett-Packard and others. JIS has installed more
than 120 imaging systems, is an authorized value-added reseller of Optika,
Filenet, Saros, 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.
JIS is the surviving entity of a merger, effective February 29, 1996,
by and between Judge Computer Corporation ("Judge Computer"), a former
subsidiary of Judge Group, and DataImage, Inc. ("DataImage"). Following this
merger, the separate existence of Judge Computer ceased and DataImage continued
as the surviving corporation under Delaware law using the name "Judge Imaging
Systems, Inc." As a result of the merger, Judge Group holds, as of the date of
this Proxy Statement/ Prospectus, approximately 25.5% of the shares of JIS's
Common Stock, on a fully-diluted basis, and Martin E. Judge, Jr. owns an
additional 31.4% of the shares fo JIS's Common Stock, on a fully-diluted basis.
Following such merger, JIS continued to be a public reporting company, under the
Securities and Exchange Act of 1934, as amended (the "Exchange Act").
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Acquisition
Acquisition is a Delaware corporation and a wholly-owned subsidiary of
Judge Group organized solely for the purpose of facilitating the Merger. Upon
consummation of the Merger and the transactions associated therewith, JIS will
merge with and into Acquisition, which will continue as the surviving
corporation (the "Surviving Corporation"). The Surviving Corporation will be a
wholly-owned subsidiary of Judge Group. The mailing address of Acquisition's
principal executive office is Two Bala Plaza, Suite 800, Bala Cynwyd, PA 19004.
JIS Meeting
The JIS Meeting will be held on _________, 1996, at 10:00 a.m., local
time, at Two Bala Plaza, Suite 800, Bala Cynwyd, PA 19004. At the JIS Meeting,
stockholders will be asked to consider and act upon a proposal to approve the
Merger Agreement providing for the Merger of JIS with and into Acquisition and
the transactions contemplated thereby. The affirmative votes of (i) a majority
of the outstanding shares of JIS Common Stock and JIS Series A Preferred Stock,
voting together as a class, and (ii) a majority of the outstanding shares of
JIS Series A Preferred Stock voting as a class, are required to approve the
Merger Agreement.
Holders of record of JIS Common Stock as of the close of business on
______, 1996 (the "JIS Record Date"), will be entitled to cast one vote for each
share of JIS Common Stock held as of such date. Holders of record of JIS Series
A Preferred Stock as of the close of business on the JIS Record Date will be
entitled to cast the number of votes equal to the number of shares of JIS Common
Stock into which each such share of JIS Series A Preferred Stock could be
converted on the JIS Record Date. At the JIS Record Date, each outstanding share
of JIS Series A Preferred Stock was convertible into one share of JIS Common
Stock; consequently, each share of JIS Series A Preferred Stock will be entitled
to cast one vote. At the JIS Record Date, there were 4,005,141 shares of JIS
Common Stock outstanding and entitled to vote, and 822,628 shares of JIS Series
A Preferred Stock outstanding and entitled to vote, for a total of 4,827,769
voting shares (the "JIS Voting Shares"). See "The Merger -- Conversion of
Shares; Exchange Ratio."
The directors and executive officers of JIS and its affiliates,
including Martin E. Judge, Jr. and Judge Group, who, in the aggregate, held or
otherwise controlled approximately 75.2% of the outstanding shares of JIS Common
Stock as of the JIS Record Date, and who, in the aggregate, held or otherwise
controlled approximately 13.4% of the outstanding shares of JIS Series A
Preferred Stock, presently exercisable, as of the JIS Record Date, totaling
approximately 64.5% of the outstanding JIS Voting Shares as of the JIS Record
Date, have advised JIS that they presently intend to vote their shares in favor
of the Merger Proposal. The JIS Board recommends a vote "for" the Merger
Proposal.
Risk Factors
Shareholders of JIS should carefully consider certain risk factors in
evaluating the Merger. See "Risk Factors."
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The Merger
Upon consummation of the Merger, Acquisition will be the Surviving
Corporation and will be renamed "Judge Imaging Systems, Inc." The Surviving
Corporation will be a wholly-owned subsidiary of Judge Group. See
"The Merger-General." Since Judge Group is a Pennsylvania corporation, from and
after the Effective Time (defined below) of the Merger, Pennsylvania law will
govern the rights of the former JIS stockholders rather than Delaware law,
except with respect to dissenters' rights, which are governed by Delaware law
even after the Effective Time of the Merger. See "The Merger -- Dissenters'
Rights" and "Comparison of Shareholders Rights."
Effective Time
As soon as practicable following the satisfaction or waiver of all
conditions to the Merger, the Merger will be consummated upon the filing of the
Certificate of Merger and all other necessary documents with the Secretary of
State of the State of Delaware (the "Effective Time"). One of the principal
conditions of the Merger is the successfull completion by Judge Group of its
proposed Public Offering prior to, or simultaneous with, the Merger. See "The
Merger -- Effective Time."
Public Offering
Judge Group intends to make a Public Offering of its Judge Group Common
Shares to the public, underwritten on a firm-commitment basis by an underwriting
syndicate of which Janney Montgomery Scott Inc. will serve as Representative. In
furtherance thereof, Judge Group has filed a Registration Statement on Form S-1,
under the Securities Act, with the SEC, dated October 1, 1996, registering the
shares that it proposes to sell in the Public Offering. It is proposed that
3,000,000 Common Shares will be sold by Judge Group and an additional 650,000
shares will be sold by certain Selling Shareholders in the Public Offering, at a
price estimated to be between $9.00 and $11.00 per share. In the event that the
Public Offering is not consummated prior to, or simultaneously with, the
Effective Time, at a price and on terms that are satisfactory, in its sole
discretion, to Judge Group, the Merger will be abandoned without any action on
the part of Judge Group, Acquisition or JIS, notwithstanding the prior approval
of the Agreement and Plan of Merger by the shareholders of JIS and Judge Group
eligible to vote thereon. See "The Merger -- Public Offering."
Conversion of Shares; Exchange Ratio
Pursuant to the provisions of the Merger Agreement, each issued and
outstanding share of JIS Common Stock and JIS Series A Preferred
Stock, excluding JIS Common Stock and JIS Series A Preferred Stock held by
dissenting shareholders, will be converted into the right to receive that number
of Judge Group Common Shares equal to $2.50 divided by the offering price to the
public of the shares issued and sold by Judge Group in the initial public
offering of Judge Group Common Shares to be completed concurrently with the
Merger (the "Merger Shares"), with cash paid in lieu of any resulting fractional
shares. At the date of this Proxy Statement/Prospectus, Judge Group estimates
that the initial Public Offering price will be between $9.00 and $11.00 per
share. Assuming a Public Offering price of $10.00 per share (the "IPO Offering
Price"), each JIS share would be converted into 0.25 shares of Judge Group
Common Shares in the Merger. The IPO Offering Price will not be known until
immediately before the commencement of the Public Offering and may be within,
above or below the estimated $9.00 to $11.00 range. If the IPO Offering Price is
greater or less than $10.00 per share, each share of JIS Common and Series A
Preferred Stock would receive a greater or lesser number of shares of Judge
Group Common Shares in the Merger than the 0.25 shares assumed in this Proxy
Statement/Prospectus. A vote in favor of the Merger Proposal constitutes
approval of the Merger Proposal even if the IPO Offering Price is priced outside
the $9.00 to $11.00 range.
If all JIS Common and Series A Preferred stockholders waive their
dissenters' rights of appraisal and elect to receive Merger Shares, immediately
after the Merger and Public Offering (assuming the IPO Offering Price is $10.00
and Judge Group sells 3,000,000 shares in the Public Offering)the current
holders of JIS Common Stock and JIS Series A Preferred Stock, will own, in the
aggregate, approximately 6.9% of the then outstanding Judge Group Common Shares
(approximately 6.9% on a fully-diluted basis, calculated before the exercise of
the underwriters' over-allotment option, assuming the exercise of then
outstanding options and warrants). All Judge Group Common Shares outstanding as
of the consummation of the Merger will remain issued and outstanding. See "The
Merger -- Conversion of Shares; Exchange Ratio."
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Recommendation of the JIS Board of Directors
The JIS Board of Directors (the "JIS Board") has approved the Merger
Agreement and determined that the terms of the proposed Merger are fair to and
in the best interests of its stockholders. The JIS Board recommends to its
stockholders that they vote FOR the Merger Proposal. See "The Merger --
Background of the Merger" and "The Merger -- Reasons for and Effects of the
Merger."
The JIS Board has determined that the Merger was the optimal decision
to maximize long-term stockholder value and recommends that its stockholders
vote in favor of the Merger Proposal. In reaching this decision, the JIS Board
considered many factors, including, but not limited to, (i) the ability of a
post-Merger JIS to pursue a more ambitious growth strategy in 1997 than would
otherwise be possible; (ii) the greater probability that the combined entities
could more expeditiously, and at a greater valuation, complete a public
offering; (iii) the decreased cost structure and enhanced operating efficiencies
likely to result from the Merger; (iv) increased sales that may result if each
operating unit were to market all of the services and products of the combined
entities, rather than those of an individual unit; and (v) the ability of the
post-Merger entities to market themselves to large business organizations as a
single-source provider of a full-range of information technology services.
JIS Fairness Opinion
Janney Montgomery Scott Inc. ("Janney") has rendered its opinion to
the JIS Board that the consideration to be received by the JIS shareholders is
fair from a financial point of view. See "The Merger -- JIS Fairness Opinion"
and Appendix B. Pursuant to a letter agreement dated August 16, 1996, JIS
agreed to pay Janney a fee of $40,000, $5,000 payable upon the execution of the
letter agreement, and $35,000 on the date Janney initially rendered its opinion
to the JIS Board. Additionally, JIS agreed to reimburse Janney for expenses,
including attorneys' fees and disbursements in the amount of $10,000, incurred
in connection with the preparation of the opinion. Janney will serve as
Representative for the syndicate which will underwrite the Public Offering of
the Judge Group Common Shares. See "The Merger -- Fairness Opinion."
The Judge Group Board did not seek or obtain a fairness opinion
regarding the Merger.
The Merger Agreement
The Merger Agreement sets forth the principal terms on which the Merger
will be consummated and the rights of holders of JIS Common Stock and JIS Series
A Preferred Stock to receive Judge Group
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Common Shares. The Merger Agreement contains representations, warranties and
agreements of the parties, and provides specific conditions to the consummation
of the Merger and terms under which the Merger may be terminated or abandoned.
See "The Merger -- Merger Agreement."
JIS Treasury Stock
The Merger Agreement provides that each share of JIS Common Stock, JIS
Series A Preferred Stock and JIS Series B Preferred Stock held in the treasury
of JIS prior to the Effective Time, if any, will be cancelled and will cease to
exist at and after the Effective Time of the Merger without the payment of any
consideration therefor. See: "The Merger -- JIS Treasury Stock."
JIS Stock Options and Warrants
Prior to the Effective Time, JIS will accelerate the vesting of any
options that are not yet vested and all holders of outstanding options and
warrants to purchase shares of JIS Common Stock will have the opportunity to
exercise such options or warrants. In addition, Raymond Sozzi will exercise on a
"cashless exercise" basis for 11,700 shares of JIS Common Stock an option to
purchase 25,000 shares of JIS Common Stock at an exercise price of $1.33 per
share. See "The Merger - Conversion of Shares; Exchange Ratio." The Merger
Agreement provides that all options and warrants to purchase JIS Common Stock
which are outstanding immediately prior to the Effective Time (i.e., which have
not been exercised for shares of JIS Common Stock) will be cancelled and will
cease to exist at and after the Effective Time, and no capital stock of Judge
Group or the Surviving Corporation, cash or other consideration will be paid or
delivered in exchange therefor in connection with the Merger. Assuming the
holders of outstanding options and warrants to purchase JIS Common Stock
exercise such options or warrants prior to the Effective Time, they will be
entitled to receive a portion of the Merger Shares based on the exchange ratio
described herein. See "The Merger -- JIS Stock Options and Warrants."
JIS Common Stock Owned by Judge Group
Each share of JIS Common Stock owned by Judge Group immediately prior
to the Effective Time shall be cancelled and shall cease to exist at and after
the Effective Time without payment of any consideration therefor. See "The
Merger -- JIS Common Stock Owned by Judge Group."
Exchange of Stock Certificates
As of the Effective Time of the Merger, each JIS stockholder whose
shares are converted into Merger Shares will be entitled to receive, upon
surrender of the certificate(s) formerly representing shares of JIS Common Stock
or JIS Series A Preferred Stock, certificates representing the Judge Group
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Common Shares to which such holder is entitled in respect of the conversion of
such shares. Instructions with regard to the surrender of certificates, together
with a letter of transmittal to be used for this purpose, will be forwarded to
the former JIS stockholders as promptly as practicable after the Effective Time
of the Merger. Each stockholder should only surrender such certificates with an
accompanying letter of transmittal. See "The Merger -- Exchange of Stock
Certificates."
Fractional Shares
No fractional Judge Group Common Shares will be issued as a result of
the Merger. Each holder of a fractional interest in Judge Group Common Shares
will be entitled to receive a cash amount in lieu of such fractional interest
equal to such fraction multiplied by the IPO Offering Price, per share. See "The
Merger -- Fractional Shares."
Interests of Certain Persons in Merger
Martin E. Judge, Jr. is Chairman of the Board and Chief Executive
Officer of both JIS and the Judge Group. Mr. Judge owns 1,486,021 shares of JIS
Common Stock directly and, as the controlling shareholder of Judge Group, may be
deemed to be a beneficial holder of an additional 1,231,778 shares of JIS owned
directly by Judge Group. Mr. Judge also owns 27,628 shares of JIS Series A
Preferred Stock directly. Mr. Judge's beneficial ownership of the fully-diluted
Common Stock of JIS at the date of this Proxy Statement/Prospectus is
approximately 31.4%.
Michael A. Dunn, a director of JIS and a director and President -
Contract Placement, of Judge Group, owns 176,290 shares of JIS Common Stock. It
is anticipated that Messrs. Judge and Dunn will sell 270,000 and 150,000 shares
of Judge Group Common Shares, respectively, in the Public Offering (300,000 and
170,000 shares, respectively, if the underwriters' over-allotment option is
fully exercised).
Wendy Greenberg-Marcelli is a director and the President of JIS and the
Vice President of Judge Group. Ms. Greenberg owns 73,058 shares of JIS Series A
Preferred Stock directly. In addition, Marvin Demchick and Robert Keith, Jr.,
directors of JIS, own 52,600 and 26,300 shares of Judge Group Common Shares,
respectively. Mr. Keith is also a shareholder of The Gemstone Group, Inc.
("Gemstone"), which owns 171,739 Judge Group Common Shares. Messrs. Keith and
Demchick currently propose to sell 19,988, and 9,880 of their Judge Group Common
Shares in the Public Offering.
Operations After the Merger
As a result of the Merger, JIS will be merged with and into
Acquisition, Acquisition will be the surviving corporation, which will be
renamed Judge Imaging Systems, Inc., and Judge Group will own all of the
outstanding shares of JIS. Accordingly, after the Merger, Judge Group will own
all of the Imaging and Network Services business of JIS. In addition to JIS,
Judge Group will have three other wholly-owned subsidiaries: the technical IT
contract placement business of Judge Technical, the technical permanent
placement business of Judge, Inc. and the technical training business of
Berkeley. See "The Merger -- Operations After the Merger."
Management After the Merger
After the Merger and the Public Offering, the board of directors of
Judge Group will consist of the following persons: Martin E. Judge, Jr., Richard
Furlano and Michael A. Dunn. In addition, Judge Group expects to expand its
Board of Directors from three to five members, including two new directors who
are not affiliated with Judge Group or its current principal shareholders. Of
these individuals, Messrs. Judge and Dunn have served as directors of both JIS
and Judge Group prior to the Merger.
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After the Merger and the Public Offering, the officers of Judge Group
will be as follows: Martin E. Judge, Jr. - Chairman of the Board and Chief
Executive Officer; Richard T. Furlano - President - Contract Placement; Michael
A. Dunn - Executive Vice President and President - Permanent Placement; Jeffrey
J. Andrews - Chief Financial Officer and Treasurer; Katharine A. Wiercinski -
Secretary and Vice President - Human Resources; Margaret E. Sulpazo - Assistant
Treasurer and Controller and Wendy Greenberg-Marcelli - Vice President and
President - Imaging and Network Services. Of these individuals, Messrs. Judge,
Dunn, Wiercinski, Sulpazo and Greenberg-Marcelli served as officers of both JIS
and Judge Group prior to the Merger.
Absence of Regulatory Filings and Approvals
Other than certain filings and approvals which may be required under
certain state securities or "blue sky" laws, there are no federal or state
regulatory requirements that must be complied with or approval obtained in
connection with the Merger. See "The Merger -- Absence of Regulatory Filings and
Approvals."
Accounting Treatment
For financial reporting purposes, the Merger will be accounted for as
a corporate reorganization of entities under common control.
Under this accounting treatment, it is assumed that the fair value of
the shares of Judge Group to be issued in the Merger equals the fair value of
JIS's assets and liabilities as of the date of consummation of the Merger (which
is assumed to be its book value) and no benefit (asset) has been established for
any of JIS's tax loss carryforwards.
Material Federal Income Tax Consequences
Judge Group and JIS intend that the Merger qualify as a tax-free
reorganization. Drinker Biddle & Reath, counsel to Judge Group, has rendered a
tax opinion to Judge Group in connection with the Merger that, for federal
income tax purposes, (i) the Merger will constitute a "reorganization" within
the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended;
(ii) no gain or loss will be recognized by JIS stockholders upon receipt of
Judge Group Common Shares in exchange for shares of JIS Common Stock and/or JIS
Series A Preferred Stock pursuant to the Merger; and (iii) JIS stockholders in
the Merger will include the holding period for the JIS Common Stock and/or JIS
Series A Preferred Stock in their holding period of Judge Group Common Shares
received in the Merger. The tax opinion is subject to various assumptions and
qualifications and is not binding on the Internal Revenue Service. See "The
Merger -- Material Federal Income Tax Consequences."
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Agreements of Certain Judge Group Shareholders
The holders of the Convertible Senior Subordinated Promissory Notes of
Judge Group (the "Lore Investors"), which are outstanding in the principal
amount of $500,000, have agreed to convert their debt into 526,000 Judge Group
Common Shares at the time of the Public Offering. Judge Group has agreed to
include 200,000 of the Common Shares owned by the Lore Investors in the Public
Offering (400,000 if the underwriters' over-allotment option is exercised in
full). In addition, pursuant to a 10% Convertible Senior Subordinated Note
Purchase Agreement executed in July 1994, Judge Group will, from time-to-time
after the Public Offering, register shares of Judge Group held by the Lore
Investors that are not sold in the Public Offering. See "The Merger --
Agreements of Certain Judge Group Shareholders."
Dissenters' Rights
Holders of shares of JIS Common Stock and JIS Series A Preferred Stock
will have dissenters' rights of appraisal in connection with the Merger. See
"The Merger -- Dissenters' Rights."
COMPARATIVE PER SHARE DATA
The following table sets forth certain unaudited selected financial
information on a pro forma and pro forma equivalent basis per common share
and is derived from, should be read in conjunction with and is qualified in
its entirety by reference to the historical and pro forma consolidated
financial information of Judge Group and Imaging that is included elsewhere
in the Proxy Statement/Prospectus. The historical net income (loss) per common
share of Judge Group includes the results of JIS on a consolidated basis.
Therefore, equivalent pro forma consolidated income (loss) per common share
for JIS is not applicable. The pro forma consolidated income (loss) per common
share and pro forma consolidated book value per common share of Judge Group
as of and for the year ended December 31, 1995 and six months ended June 30,
1996 reflect certain transactions in addition to this merger, including
business combinations with other entities, an initial public offering of stock,
and other equity transactions all as more fully described in the Registration
Statement. The information presented in this table is for informational
purposes only and is not necessarily indicative of future consolidated
earnings or financial position or of consolidated earnings or financial
position that would have been reported had the merger been completed at the
beginning of the period or as of the date for which such unaudited
pro forma information is presented.
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<TABLE>
<CAPTION>
Comparative Per Share Data
---------------------------
As of or for
six months
Year Ended Year Ended Year Ended ended
December 31, December 31, December 31, June 30,
1993 1994 1995 1996
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Judge Group
- -----------
Historical net income per common share $0.01 $0.04 $0.05 $0.02
Pro forma consolidated income (loss) per common share $0.01 $0.04 $0.03 ($0.01)
Historical book value per common share (1) n/a n/a $0.04 $0.04
Pro forma consolidated book value per common share n/a n/a n/a $2.20
Historical cash dividends per common share n/a n/a n/a n/a
Pro forma consolidated cash dividends per common share n/a n/a n/a n/a
JIS
- ---
Historical net (loss) per common share ($0.10) ($0.30) ($0.12) ($0.15)
Equivalent pro forma consolidated income (loss) per
common share n/a n/a $0.008 ($0.003)
Historical book deficit per common share (2) n/a n/a ($0.16) ($0.30)
Equivalent pro forma consolidated book value per common share n/a n/a n/a $0.55
Historical cash dividends per common share n/a n/a n/a n/a
Equivalent pro forma consolidated cash dividends per
common share n/a n/a n/a n/a
</TABLE>
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(1) Assumes conversion of outstanding warrants and convertible debentures
(2) Assumes conversion of preferred stock at the end of each period presented
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RISK FACTORS
If the Merger Proposal is approved, JIS stockholders will receive Judge
Group Common Shares in exchange for their shares of JIS Common and Series A
Preferred Stock. Accordingly, JIS stockholders should consider the risks that
are involved in making an investment in Judge Group. The following are certain
risk factors and other investment considerations that should be carefully
considered by stockholders of JIS in evaluating the Merger, in addition to the
risks and other information described elsewhere in this Proxy
Statement/Prospectus. The risk factors relating to Judge Group's business
discussed below include, where appropriate, a discussion of the risks associated
with the operation of Imaging and Network Services business of JIS.
Dependence on Availability of Qualified Technical Consultants
Judge Group 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, Judge Group 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, Judge Group does not have any exclusive
contract with its consultants. Judge Group 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 Judge Group expands
into new geographical areas, it may experience difficulty in 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 Judge Group in sufficient numbers to meet Judge Group's current and
anticipated growth requirements. See "Business of Judge Group -- Technical
Personnel" and "Competition."
Acquisition Risks
A principal component of Judge Group's growth strategy is the
acquisition of companies which will complement and expand Judge Group's existing
businesses, principally in new geographic markets. The successful implementation
of this strategy is dependent on Judge Group's ability to identify suitable
acquisition candidates, acquire such companies on suitable terms and integrate
their operations with those of Judge Group. There can be no assurance that Judge
Group will be able to identify suitable acquisition candidates or that, if
identified, Judge Group will be able to acquire such companies on suitable
terms. In particular, the specialty staffing industry is more mature and
acquisitions in this industry are likely to be at higher relative prices than
for other industries. Moreover, other staffing companies are competing for
acquisition candidates, which competition could result in an increase in the
price of acquisition targets and a decrease in the number of attractive
companies available for acquisition. Acquisitions also involve a number of
special risks, including: (i) adverse effects on Judge Group'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 Judge Group's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of Judge Group -- Liquidity and Capital Resources" and "Business of
Judge Group -- Strategy."
Ability to Manage Growth
Sustained or significant growth, if achieved, will subject Judge Group
to risks by placing a substantial strain on Judge Group's available managerial,
financial and other resources and require Judge Group to (i) hire, integrate and
retain qualified managers in existing markets as well as markets in which Judge
Group 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 Judge Group's offices are presently
located will further increase demands on Judge Group's
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management. Judge Group'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 Judge Group's systems,
procedures and controls will be successfully implemented or adequate to support
Judge Group's expanded operations. See "Business of Judge Group -- Strategy" and
"Management and Certain Transactions of Judge Group."
History of Operating Losses in Imaging and Network Services Business
Judge Group's Imaging and Network Services business has had net
operating losses since its commencement in 1988, and at June 30, 1996 has an
accumulated deficit of $3.1 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, and
the costs associated with the acquisition and integration of an imaging and
document management company, 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
Judge Group. Judge Group is currently focusing on achieving profitability in its
Imaging and Network Services business and expanding it through internal growth,
new service offerings and acquisitions. Typically, the decision by a prospective
customer to install a network or to implement a document management system
requires Judge Group 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 Judge Group 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 Judge Group 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 Judge Group's business, financial condition and results of operations.
Of course, even if the Merger is not consummated, a JIS stockholder is subject
to the risks described in this paragraph.
Technological Obsolescence in Imaging and Network Services
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. Judge Group'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. Judge Group is unable to predict the future
impact of new products on Judge Group's services. Furthermore, the life cycles
of the systems and products with respect to which Judge Group has developed
expertise are difficult to estimate. The Imaging and Network Services business
future performance will depend on the ability of software and hardware vendors
to develop and introduce new products that respond to evolving customer
requirements and on Judge Group'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 Judge Group'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,
Judge Group's ability to sell document management systems could be materially
adversely affected. As with the preceding factor, this particular risk is
likewise inherent in the ownership of shares of JIS Common and Series A
Preferred Stock.
Integration of Business Units
Judge Group's business plan also contemplates sales of the services of
its four businesses to new and existing clients on an integrated basis.
Historically, these businesses have operated independently, producing occasional
referrals. There can be no assurance that Judge Group will successfully
integrate and market such services.
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Competition
The IT professional services industry is highly competitive. Judge
Group 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. Recently, 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 Judge Group. Judge Group also competes for technical
consultants with the information technology staffs of its clients and potential
clients. Several of Judge Group's competitors in each of the businesses in which
it provides services are substantially larger than Judge Group and have greater
financial and other resources. Several of such competitors have also been in
business much longer than Judge Group and have significantly greater name
recognition throughout the United States, including the geographic areas in
which Judge Group 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 Judge Group, which
permits such companies to better serve national accounts. There can be no
assurance that Judge Group will be able to compete successfully with its
existing and future competitors. Also, to the extent that Judge Group offers
fixed-price contracts to clients in the future, Judge Group will be responsible
for cost overruns. While fixed-rate contracts may offer opportunities for higher
margins, they will result in different revenue streams than Judge Group's
historic provision of time and material services.
Dependence on Key Customers and Geographic Concentration
Judge Group's business is dependent in part on the economic strength of
its clients. While Judge Group serves a large number of clients in a range of
industry groups, approximately 6.4% of Judge Group's revenues in fiscal 1995
were derived from Merck & Co., Inc., the only customer responsible for more than
5% of Judge Group's revenues in 1995. Similarly, a substantial portion of Judge
Group's revenues are currently derived from services provided to clients in the
Mid-Atlantic Region. A substantial deterioration in general economic conditions
in the Mid-Atlantic Region could adversely affect Judge Group.
Employment Liability Risks
Judge Group 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 Judge Group has not historically
experienced any material claims of these types, there can be no assurance that
Judge Group will not experience such claims in the future.
Dependence on Key Personnel
Judge Group's future success may depend to a significant extent upon
the performance of a number of Judge Group's key personnel, including Martin E.
Judge, Jr., Chairman of the Board and Chief Executive Officer of Judge Group.
The loss of Mr. Judge or other key management personnel or the failure to
recruit and retain experienced personnel could have a material adverse effect on
Judge Group's business. Typically, Judge Group does not enter into contracts
with these individuals providing for continued employment. See "Management and
Certain Transactions of Judge Group -- Employment Agreements."
Control of Judge Group
Immediately after the Merger and the Public Offering (assuming Judge
Group sells 3,000,000 shares at $10.00 per share in the Public Offering), Martin
E. Judge, Jr. and Michael A. Dunn will beneficially own approximately 45.8% and
14.2% of the outstanding Common Shares, respectively (45.7% and 14.1% 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 Judge Group's
directors and control the outcome of substantially all issues
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submitted to Judge Group'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 Judge Group
and may discourage third parties from attempting to do so. See "Principal
Shareholders of Judge Group" and "Description of Judge Group Capital Stock."
Fluctuations in Operating Results; Seasonality and General Economic Conditions.
Because Judge Group 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, Judge Group generally experiences a certain amount of
reduction in revenues in its fourth fiscal quarter due to the number of holidays
in that quarter. Further, Judge Group 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. Judge Group is unable to predict the
level of economic activity at any particular time, and fluctuations in the
general economy could adversely affect Judge Group's business, operating results
and financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations of Judge Group."
Broad Discretion in Use of Proceeds
Judge Group intends to use approximately $9.4 million of the net
proceeds from the Public 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 Public
Offering. Judge Group intends to use the approximately $17.4 million in
remaining net proceeds (approximately $20.2 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. Judge Group 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 Public
Offering will be used. If Judge Group 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.
Risks Related to Tax Status of Technical Consultants
Generally, Judge Group 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 state tax purposes with respect to their assignments. In such cases,
Judge Group 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 June 30, 1996, approximately 12%, 15% and 14%,
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. Judge Group 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 Judge Group's
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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 Judge
Group's financial statements.
Shares Eligible for Future Sale; Registration Rights
Sales of Judge Group's Common Shares in the public market after the
Public Offering could adversely affect the market price of Judge Group's Common
Shares and could impair Judge Group's future ability to raise capital through
the sale of equity securities. Upon completion of the Public Offering, Judge
Group will have 13,042,737 Common Shares outstanding (13,340,237 shares if the
underwriters' over-allotment option is exercised in full). Of these shares, all
of the shares sold in the Public Offering will be available for resale in the
public markets without restriction, except for any such shares which may be
purchased by affiliates of Judge Group. Of the remaining shares, 394,820 are
subject to a two year holding period which commenced on February 29, 1996 and
_______ are subject to a two year holding period that commenced on September 27,
1996. The Selling Shareholders (as defined herein), except for Martin E. Judge,
Jr., Judge Group'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 Public Offering. Mr. Judge has
agreed not to sell any of his shares for a period of one year after the closing
of the Public Offering. Following the expiration of this 180-day period, the
Selling Shareholders, directors, executive officers and certain other
shareholders will hold an aggregate of 2,809,716 Common Shares, which may be
resold subject to certain restrictions under Rule 144. The approximately 30,000
remaining Common Shares 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, Judge Group intends, as soon as
practicable after the consummation of the Public Offering, to register
approximately 1,500,000 Common Shares reserved for issuance to its employees,
directors, consultants and advisors under Judge Group's 1996 Incentive Stock
Option and Non-Qualified Stock Option Plan (the "Plan"). As of September 30,
1996, there were no outstanding options to purchase Common Shares under the
Plan. See "Management and Certain Transactions of Judge Group -- 1996 Incentive
Stock Option and Non-Qualified Stock Option Plan for Key Employees and
Non-Employee Directors" and "Description of Judge Group Capital Stock."
Absence of Public Market; Possible Volatility of Stock Price
There has been no prior public market for Judge Group's Common Shares.
Although the Common Shares have been approved for inclusion in the NASDAQ
Stock Market upon completion of the Public Offering, 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 Merger and the Public Offering or
that holders 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 Judge Group, 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 Public
Offering is completed. Numerous factors, including announcements of fluctuations
in Judge Group'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 Judge Group Capital Stock."
Absence of Dividends
Judge Group 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, Judge Group is prohibited under the terms of
its revolving line of credit and subordinated debt agreements from paying
dividends without the consent of the lenders. Future dividends, if any, will
depend, among other things, on Judge Group's results of operations,
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capital requirements and financial condition, and on such other factors as Judge
Group's Board of Directors may, in its discretion, consider relevant. See
"Description of Judge Group Capital Stock -- Dividends."
Potential Effect of Anti-Takeover Provisions
Certain provisions of Judge Group's 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 Judge Group Capital Stock."
Judge Group's Articles of Incorporation permits 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
Judge Group'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 Judge Group. Judge Group has no
present plans to issue any Preferred Shares. See "Description of Judge Group
Capital Stock -- Preferred Stock."
Certain Anti-Takeover Effects of the Pennsylvania Business Corporation Law
The "business combination" provisions under the Pennsylvania Business
Corporation Law ("PBCL") prohibit Judge Group 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 Judge Group's officers and directors to retain their positions.
The PBCL 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 PBCL. See "Description of Judge
Group Capital Stock."
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INTRODUCTION
General
This Proxy Statement/Prospectus is being furnished to holders of shares
of JIS Common Stock and JIS Series A Preferred Stock in connection with the
solicitation of proxies by the JIS Board for use at the JIS Meeting to be held
on _______, 1996, at Two Bala Plaza, Suite 800, Bala Cynwyd, Pennsylvania 19004
at 10:00 a.m., local time, and any adjournment thereof, respectively.
This Proxy Statement/Prospectus, the Notices of Meeting and the
accompanying forms of proxies are first being mailed to shareholders of JIS on
or about November __, 1996.
Purpose of the JIS Meeting
At the JIS Meeting, stockholders of JIS will be asked to consider and
act upon a proposal to approve the Merger Agreement, providing for the Merger of
JIS with and into Acquisition, and the transactions contemplated thereby.
The Merger
From and after the Effective Time of the Merger, Acquisition will
continue as the Surviving Corporation, renamed "Judge Imaging Systems, Inc.,"
which will be a wholly-owned subsidiary of Judge Group. As a result of the
Merger, each outstanding share of JIS Common Stock and JIS Series A Preferred
Stock, other than shares held by Judge Group and dissenting stockholders, will
be converted into the right to receive that number of Judge Group Common Shares
equal to $2.50 divided by the offering price to the public of the shares issued
and sold by Judge Group in the initial public offering of Judge Group Common
Shares to be completed concurrently with the Merger, with cash paid in lieu of
any resulting fractional shares. At the date of this Proxy Statement/Prospectus,
Judge Group estimates that the initial Public Offering price will be between
$9.00 and $11.00 per share. Assuming a Public Offering price of $10.00 per share
(the "IPO Offering Price"), each JIS share would be converted into 0.25 shares
of Judge Group Common Shares in the Merger. The IPO Offering Price will not be
known until immediately before the commencement of the Public Offering and may
be within, above or below the estimated $9.00 to $11.00 range. If the IPO
Offering Price is greater or less than $10.00 per share, each share of JIS
Common and Series A Preferred Stock would receive a greater or lesser number of
shares of Judge Group Common Shares in the Merger than the 0.25 shares assumed
in this Proxy Statement/Prospectus.
None of the currently outstanding Judge Group Common Shares will be
converted or otherwise changed as a result of the Merger. Consummation of the
Merger is subject to the satisfaction of various conditions, including, without
limitation, (1) that the holders of shares of JIS Common Stock and Series A
Preferred Stock who elect to exercise dissenters' rights of appraisal not hold,
in the aggregate, 10% or more of the shares of JIS Common Stock and JIS Series A
Preferred Stock outstanding immediately prior to the Effective Time; and (2)
that the Public Offering by Judge Group be completed prior to or simultaneously
with the Effective Time of the Merger.
Immediately after the Merger and the Public Offering (assuming Judge
Group sells 3,000,000 shares at $10.00 per share in the Public Offering), the
current holders of shares of JIS Common Stock and JIS Series A Preferred Stock,
in the aggregate, will own approximately 6.9% of the then outstanding Judge
Group Common Shares (approximately 6.9% on a fully-diluted basis, calculated
before the exercise of the underwriters' overallotment option, assuming the
exercise of then outstanding options and warrants).
This Proxy Statement/Prospectus and its contents have been approved and
its distribution authorized by the Board of Directors of JIS.
THE JIS BOARD RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE MERGER
PROPOSAL.
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Voting Rights
The JIS Board has fixed ______, 1996 as the record date for the
determination of JIS stockholders entitled to notice of and to vote at the JIS
Meeting. Accordingly, only holders of record of shares of JIS Common Stock and
JIS Series A Preferred Stock at the close of business on the JIS Record Date
will be entitled to vote at the JIS Meeting. At the close of business on the JIS
Record Date, there were 4,005,141 shares of JIS Common Stock outstanding, each
of which is entitled to one vote on (i) the proposal to approve the Merger and
(ii) any other matter properly submitted to vote at the JIS Meeting. At the
close of business on the JIS Record Date, there were 822,628 shares of JIS
Series A Preferred Stock outstanding, each of which, subject to the voting
requirements described below, is entitled to one vote on (i) the proposal to
approve the Merger and (ii) any other matter properly submitted to a vote at the
JIS Meeting. The affirmative vote of (i) a majority of the outstanding shares of
JIS Common Stock and JIS Series A Preferred Stock entitled to vote, voting
together as a class, and (ii) a majority of the votes that holders of the
outstanding shares of JIS Series A Preferred Stock voting as a class, are
required to approve the Merger Agreement. Because the Merger Proposal requires
the approval of a majority of the outstanding shares of JIS Common Stock and JIS
Series A Preferred Stock entitled to vote, voting together as a class, as well
as a majority of the outstanding shares of JIS Series A Preferred Stock, voting
as a class, abstentions and broker non-votes will have the effect of a negative
vote.
The directors and executive officers of JIS and their affiliates,
including Martin E. Judge, Jr. and Judge Group, who, in the aggregate, held or
otherwise controlled approximately 75.2% of the outstanding shares of JIS Common
Stock as of the JIS Record Date and who, in the aggregate, held or otherwise
controlled approximately 13.4% of the outstanding shares of JIS Series A
Preferred Stock, presently exercisable, as of the JIS Record Date, totaling
approximately 64.2% of the outstanding JIS Voting Shares as of the JIS Record
Date, have advised JIS that they presently intend to vote their shares in favor
of the Merger Proposal.
Each stockholder can vote personally or by proxy; a person acting as a
proxy need not be a stockholder.
Solicitation and Revocation of Proxies
The JIS Board is making the solicitation of proxies from its
stockholders hereby. All shares represented by properly executed proxies will be
voted in accordance with the directions on the proxies, unless such proxies are
invoked prior to the vote. PROPERLY EXECUTED PROXIES CONTAINING NO INSTRUCTIONS
REGARDING ANY PARTICULAR MATTER SPECIFIED THEREIN WILL BE VOTED FOR THE APPROVAL
OF SUCH MATTER. The JIS Board does not know of any other matters which may come
before the meeting of its stockholders. If any other matters are properly
presented for action at JIS Meeting, the named proxies will vote in accordance
with their best judgment on such matters. JIS will bear the cost of solicitation
of proxies for the JIS Meeting. In addition to the use of the mails, proxies may
be solicited by telephone by directors, officers and employees of JIS who
will not be specially compensated for such services. Any proxy solicitation firm
or organization, if engaged by JIS, will be reimbursed by JIS for reasonable
expenses and receive customary fees for its services. JIS will request that this
Proxy Statement/Prospectus, the proxy and related materials, if any, be
forwarded to beneficial owners and expects to reimburse banks, brokers and other
persons for their reasonable out-of-pocket expenses in handling such matters.
A stockholder of JIS who executes and returns a proxy has the power to
revoke it at any time before it is voted. The giving of a proxy does not affect
a stockholder's right to attend and vote in person at the JIS Meeting. A
stockholder's presence at a meeting, however, will not in itself revoke the
stockholder's proxy. A JIS stockholder giving a proxy pursuant to this
solicitation may revoke such proxy by delivering a written revocation to the
Secretary of JIS at Two Bala Plaza, Suite 800, Bala Cynwyd, Pennsylvania 19004.
No revocation by written notice, however, will be effective unless and until
such notice is received by the Secretary of JIS prior to the date of the
applicable meeting or by the inspector of election at the applicable meeting
prior to the closing of the polls. The delivery of a later-dated proxy will not
serve to revoke an earlier proxy unless accompanied by written notice of
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such revocation as described in the preceding sentence. Further, a stockholder
who has given a proxy may not revoke such proxy solely by voting in person at
the applicable meeting. In order to vote in person at the meeting, such
stockholder must first comply with the proxy revocation procedure described in
this paragraph.
THE MERGER
General
The following is a brief summary of certain aspects of the Merger. This
summary does not purport to be complete and is qualified in its entirety by
reference to the Merger Agreement, a copy of which is attached to this Proxy
Statement/Prospectus as Appendix A and is incorporated herein by reference.
Stockholders are urged to read the Merger Agreement carefully.
Pursuant to the Merger Agreement, JIS will merge with and into
Acquisition. Following the Merger, Acquisition, as the Surviving Corporation,
will be renamed "Judge Imaging Systems, Inc." and will continue in existence as
a Delaware corporation, all of whose issued and outstanding shares will be owned
by Judge Group. The separate corporate existence of JIS will cease.
Effective Time
Acquisition and JIS anticipate filing a Certificate of Merger and all
other documents required to effect the Merger with the Secretary of State of the
State of Delaware promptly after the adoption of the matters to be considered at
the JIS Meeting and the satisfaction, or waiver, of the conditions contained in
the Merger Agreement. See "The Merger -- The Merger Agreement -- Conditions to
the Merger." The Merger will be consummated at such Effective Time.
Conversion of Shares; Exchange Ratio
The Merger Agreement provides that, upon the Effective Time of the
Merger, other than shares held by Judge Group or dissenting stockholders,
(i) each outstanding share of JIS Common Stock shall be converted into the right
to receive such number of Judge Group Common Shares as equal to $2.50 divided by
the IPO Offering Price and (ii) each share of JIS Series A Preferred Stock shall
be converted into the right to receive such number of Judge Group Common Shares
obtained by (A) dividing $2.50 by the IPO Offering Price, and (B) multiplying
the quotient so obtained by the number of shares of JIS Common Stock issuable
upon the conversion of such shares of JIS Series A Preferred Stock immediately
prior to the Effective Time (as of the date of the Merger Agreement such
conversion ratio was one share of JIS Common Stock per one share of JIS Series A
Preferred Stock), with cash paid in lieu of any resulting fractional shares.
Assuming none of the JIS stockholders duly elects dissenters' rights of
appraisal under Delaware law and 3,000,000 shares are sold in the Public
Offering by Judge Group at $10.00 per share, JIS stockholders will be entitled
to receive in the aggregate 898,998 Merger Shares at the Effective Time of the
Merger. Immediately after the Merger and the Public Offering, the current
holders of shares of JIS Common Stock and JIS Series A Preferred Stock, in the
aggregate, will own approximately 6.9% of the then outstanding Judge Group
Common Shares (approximately 6.9% on a fully-diluted basis).
The Judge Group Common Shares outstanding at the Effective Time will
not be changed as a result of the Merger. All such Judge Group Common Shares
will remain issued and outstanding.
Background of the Merger
Prior to February, 1996, a company called Judge Computer Corporation
("Judge Computer") was engaged in the document management, imaging and workflow
business. Judge Computer, founded in 1984, first entered
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the imaging business in 1988. Judge Computer was approximately 33% owned by
Judge Group and approximately 47% owned by Martin E. Judge, Jr. and,
consequently, was an affiliate of Judge Group under Mr. Judge's control. As part
of Mr. Judge's strategy to grow the imaging business through acquisitions, Judge
Computer entered into a merger agreement, dated December 1, 1995, with
DataImage, Inc., a Delaware corporation ("DataImage"). DataImage was a
publicly-held company engaged in the imaging business which had a history of
unprofitable operations and which needed to either merge with another company or
obtain financing in order to continue operations. Pursuant to the merger
agreement, on February 29, 1996, Judge Computer merged into DataImage, with
DataImage as the surviving company in the merger. In the merger, DataImage's
name was changed to Judge Imaging Systems, Inc. ("JIS") and the officers and
directors of Judge Computer became officers and directors of JIS. Immediately
after the merger, the former stockholders of DataImage owned approximately 5% of
JIS's fully diluted outstanding common stock, certain investors that provided
approximately $888,000 of financing to the combined entity at the time of the
completion of the merger acquired approximately 17% of JIS's fully-diluted
outstanding common stock, and the remaining 77.5% of the fully-diluted
outstanding common stock of JIS was acquired in the merger by the former
stockholders of Judge Computer. As a result of the merger, Judge Group owned
approximately 25.5%, and Mr. Judge owned an additional 30.8%, of JIS's fully
diluted common stock.
At the time of the completion of the merger, management of JIS realized
that additional funding would be needed by the combined company to execute its
plan to grow its imaging business. Consequently, beginning in March 1996, Mr.
Judge, in his capacity as Chairman of JIS, began discussions with the financial
community regarding the feasibility of raising a significant amount of equity
capital for JIS through either a public offering or private placement of its
securities. In the course of those discussions, Mr. Judge also inquired about
the possibility of the Judge Group making its own public offering of shares of
its common stock for the purpose of raising the additional equity capital needed
to pursue its own growth and expansion plans. During this time, Mr. Judge also
discussed with an information technology industry consulting firm retained by
Judge Group the advantages of combining the two companies. In May, 1996, based
on these discussions and inquiries, Mr. Judge concluded that if the Judge Group
were to combine its operations with those of Judge Imaging, the resulting
company might be a more attractive vehicle for a public offering than if JIS and
Judge Group were each to complete an offering on its own. Further, absent such a
combination, it appeared to Mr. Judge that, because of his perception that JIS
would need to report several consecutive quarters of net income before
undertaking a public offering, it would not be possible for JIS to complete a
public offering until at least sometime during the second half of 1997. In
addition, based in part upon his discussions with the industry consultants, Mr.
Judge concluded that the combination of the two companies would better position
them for future growth and expansion and achievement of their business plan.
Pursuant to Mr. Judge's determination to proceed with the combination
of Judge Group and JIS, and a public offering, the following events occurred:
o During May 1996, Mr. Judge formulated the terms of
the Merger to be presented to the Board of Directors of Judge
Group and JIS, including that Judge Group pay $2.00 of value
in Judge Group Common Shares as consideration for each share
of JIS Common Stock or JIS Series A Preferred Stock
outstanding at the time of the Merger.
o On or about June 12, 1996, Judge Group entered into a letter
of intent with Janney Montgomery Scott ("Janney") pursuant to
which Janney expressed its intention to act as the managing
underwriter of a public offering of common stock of Judge
Group that would be completed immediately following Judge
Group's acquisition of JIS.
o During May through August, 1996, Mr. Judge had informal
discussions with the other members of the Board of Directors
of JIS, regarding his proposal that JIS be acquired by Judge
Group, that JIS shares should be valued in the Merger at $2.00
per share, that immediately after the Merger Judge Group
complete a public offering of its common stock, and that the
Merger be conditioned upon the successful completion of the
Public Offering.
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o On August 16, 1996, Janney was retained by JIS to provide an
opinion to JIS's Board of Directors as to whether the
consideration to be received by the stockholders of JIS, other
than Mr. Judge and his affiliates, was fair from a financial
point of view.
o On September 4, 1996, the Board of Directors of JIS met to
consider and vote upon the Merger and Merger Agreement. At the
meeting, the merger consideration was increased from $2.00 to
$2.50 of value, payable in Judge Group Common Shares, valued
at the IPO Offering Price, and Janney rendered its oral
opinion to the Board that the consideration to be paid in the
Merger was fair from a financial point of view to the
stockholders of JIS. The Board of Directors, with Messrs.
Judge and Dunn abstaining, approved the Merger and the Merger
Agreement as being in the best interest of the stockholders of
JIS and directed that the Merger proposal be submitted to the
stockholders of JIS for their approval.
o On September 4, 1996, the Board of Directors of Judge Group
approved Judge Group's acquisition of JIS by its Merger with
Acquisition and approved the terms of the Merger Agreement.
o On October 1, 1996, Judge Group filed a registration statement
with the SEC registering the shares it proposes to sell in the
Public Offering.
* * *
Reasons for and Effects of the Merger
The Board of Directors of JIS approved the combination of JIS with
Judge Group for a number of reasons, including the following:
o The belief that the combination would allow JIS to pursue a
more ambitious growth strategy in 1997 than would otherwise be
possible in view of its limited financial resources and the
possibility that it could not complete an offering for at
least a year.
o The belief that the Merger will increase the probability that
a public offering could be completed, and at a higher
valuation, than if either company were to attempt to complete
a public offering alone.
o The belief that the Merger will eliminate conflicts of
interest that might otherwise arise if the two companies were
to continue to operate under common control, with different
minority stockholder groups.
o The belief that the combination of the two businesses may
result in a lower cost structure and greater operating
efficiencies than would be the case if each company were to
operate independently, by, among other things, reducing
overhead through the elimination of duplicative employee
positions in finance and operations.
o The belief that the combination of the companies, together
with the implementation of appropriate sales incentives, would
result in the sales personnel of each operating unit selling
all of the services and product offerings of the combined
companies to their customers, rather than only those offerings
of their business unit.
o The belief that the combination of the two companies would
position the combined company to market itself as a single
source provider to large business organizations of their
information technology needs in the areas of staffing,
consulting, document management, imaging and workflow, and
training.
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JIS Fairness Opinion
The JIS Board retained Janney Montgomery Scott Inc. ("Janney") as its
financial advisor to review the Merger and to render an opinion as to the
fairness, from a financial point of view, of the consideration to be received by
JIS stockholders in connection with the Merger.
Janney rendered its opinion to the JIS Board on September 4, 1996 and
subsequently confirmed in writing that, as of such date, the consideration to be
received by JIS stockholders in connection with the Merger, taken as a whole, is
fair to such stockholders from a financial point of view. Janney was not
requested to, and did not, make any recommendations to the JIS Board as to the
form or amount of consideration to be received by JIS stockholders, which was
determined by negotiation between JIS and Judge Group. No limitations were
imposed on Janney by the JIS Board with respect to the investigations made or
the procedures followed by it in rendering its opinions.
The description of Janney's opinion, as set forth below, is qualified
in its entirety by reference to the full text of the opinion, which is attached
as Appendix B to this Proxy Statement/Prospectus. JIS stockholders are urged to
read carefully the full text of the opinion for a description of the assumptions
made, factors considered and limitations on the review undertaken by Janney.
Janney's opinion does not constitute a recommendation to any JIS stockholder as
to how such stockholder should vote at the Special Meeting.
Information and Materials Considered. In advising the JIS Board and
rendering its opinion, Janney reviewed, among other things: (a) the draft
Definitive Merger Agreement dated August 27, 1996 between Judge Group and JIS;
(b) Annual Report to Stockholders and Annual Report on Form 10-KSB of DataImage
for the fiscal year ended December 31, 1995; (c) Quarterly Report on Form 10-QSB
of JIS for the quarter ended March 31, 1996 and initial Quarterly Report on Form
10-QSB of JIS for the quarter ended June 30, 1996 (the "I-QSB"); (d) Form 8-K
for JIS dated February 29, 1996; (e) Form 8-K/A for JIS dated March 15, 1996;
(f) closing bible for the merger of Judge Computer Corporation and DataImage,
Inc. dated February 28, 1996; (g) certain internal, unaudited financial
statements, operating data, and other information for JIS furnished by
management of JIS; (h) certain budgets and financial projections for JIS
prepared by the management of JIS; (i) financial reports, operating data and
other information furnished by JIS or which were publicly available; (j) the
reported historical market prices, trading volume and market for the equity
securities of JIS; and (k) certain financial and stock market information for
certain other publicly traded companies in lines of business similar to JIS. In
addition, Janney held discussions with the management of JIS regarding its
business, operating results, financial condition, prospects and the Merger, and
undertook other analyses, studies and investigations as it considered
appropriate. Subsequent to the delivery of its opinion to the Board of JIS, JIS
filed an amended quarterly report on Form 10-QSB for the quarter ended June 30,
1996. The amended report reflected revenues for the three months ended June 30,
1996 of $3,685,156 as opposed to $3,687,180 in the Initial 10-QSB, and a net
loss before preferred dividends of ($128,874) as opposed to net income before
preferred dividends of $1,726 in the Initial 10-QSB. Janney did not update its
analysis to take these differences into account.
In connection with its review, Janney assumed and relied, without
independent verification, upon the accuracy and completeness of the financial
and other information used by it in arriving at its opinion. Janney also relied
upon the assessments of the management of JIS regarding its business, prospects
and the Merger and also assumed that the budgets and financial projections of
JIS were reasonably prepared by its management on bases reflecting the best
currently available estimates and good faith judgements of the future financial
performance of JIS. Janney did not undertake any independent valuations or
appraisals of the real properties, assets or liabilities of JIS, nor was it
furnished with any such valuations or appraisals. In rendering its opinion,
Janney also assumed that regulatory approvals required to complete the Merger
will not include any conditions that will have a material adverse effect on the
operations and prospects of JIS. Janney's opinion was necessarily based upon
economic, market and other conditions as they existed and could have been
evaluated on the date of its opinion.
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Limitations of Analyses. The following summarizes the material analyses
performed by Janney for purposes of rendering its opinion. This summary does not
purport to be a complete description of the analyses performed or the matters
considered by Janney in arriving at its opinion. The preparation of a fairness
opinion involves various determinations as to the most relevant methods of
financial analysis and the applications of those methods to the particular
circumstances and, therefore, is not necessarily susceptible to partial
analysis. Janney believes that its analyses must be considered as a whole and
that selecting portions of such analyses and the factors considered, without
considering all factors and analyses, could lead to inappropriate conclusions.
In performing its analyses, Janney made numerous estimates and assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of JIS, Judge Group or
Janney. Since such estimates are inherently subject to uncertainty, neither
Janney, JIS nor any other person assume any responsibility for their accuracy.
Estimates of values of companies do not purport to be appraisals or necessarily
reflect the prices at which such companies or their securities may actually be
sold.
Overview of Analyses. In rendering its opinion, Janney performed
separate analyses for JIS using several standard valuation methodologies to
derive a range implied equity values of JIS. The analyses performed with respect
to JIS included: (i) comparisons of the financial performance of JIS to the
financial performance and stock trading multiples of publicly traded companies
that Janney considered comparable, for purposes of this analysis and after
discussions with the management of JIS; (ii) discounted cash flow analyses;
(iii) comparisons of mergers, acquisitions and other business combinations of
companies that Janney considered comparable to JIS, for purposes of this
analysis and after discussions with the management of JIS; (iv) a comparison of
the aggregate consideration to be received by JIS stockholders in the Merger to
the historical public market value of the Common Stock of JIS.
Janney prepared two sets of projections for the years 1996 through 2000
for JIS based on 1996, 1997 and 1998 financial projections prepared by, and
after discussions with, the management of JIS. Scenario 1 gave consideration to
potential synergistic benefits that may result in JIS as a result of the merger
with Judge Group, and Scenario 2 did not give consideration to such synergistic
benefits. The major assumptions underlying Scenario 1 included: i) compound
annual revenue growth from 1996 to 2000 of 44.0%; ii) gross margins of 26.2% in
1996, 31.2% in 1997, and 32% in 1998, 1999 and 2000; and iii) operating profit
margins of 1.6% in 1996, 11.5% in 1997, and 12.3% in 1998, 1999 and 2000. The
major assumptions underlying Scenario 2 included: i) compound annual revenue
growth from 1996 to 2000 of 29.4%; ii) gross margins of 26.2% in 1996 and 27.0%
in 1997 through 2000; and iii) operating profit margins of 1.6% in 1996 and 5.0%
in 1997 through 2000.
In performing the discounted cash flow analyses, Janney discounted the
projected unlevered free cash flows and exit terminal value of JIS to their
present value. The projected unlevered free cash flows of JIS from 1997 through
2000 and an estimated range of terminal exit values at the end of 2000 were
discounted to present values using a range of discount rates determined by
Janney. 2000 terminal exit values were derived primarily based on multiples of
projected operating profit and net income.
To calculate implied values on a per share basis, Janney assumed that
the number of shares of JIS Common Stock outstanding was equal to the total of
(i) the 3,980,141 shares of JIS Common Stock currently outstanding; (ii) the
conversion of the preferred shares into 822,628 shares of JIS Common Stock; and
(iii) the issuance of 25,000 shares of JIS Common Stock upon the exercise of
outstanding stock options.
Analysis of JIS. Janney compared the financial performance of JIS to
the financial performance and stock market trading multiples of ten publicly
traded document management hardware, software and service companies: Cornerstone
Imaging, Inc., Excalibur Technologies Corp., Filenet, Inc., F.Y.I., Inc.,
Information Management Technology Corp., Innodate Corp., Optika Imaging Systems,
Scan Optics, Inc., Scan-Graphics, Inc., and Visioneer, Inc.; and eleven publicly
traded information technology systems and service providers: Affiliated Computer
Services Inc., Ameridata Technologies, Inc., Analysis & Technology, Inc.,
Broadway & Seymour, Inc., CACI International, Inc., Cambridge Technology
Partners, Inc., Computer Horizons Corp., Network Imaging Corp., Keane, Inc., MAI
Systems Corp., and Techforce Corp. This analysis revealed that JIS's revenues
grew 130.6%
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and, based on the I-QSB, 31.9%, respectively, from 1994 to 1995 and from 1995 to
the second quarter of 1996, compared to growth rates in revenues of (16.0)% to
60.2% and (29.9)% to 47,4% for the comparable public companies, respectively.
JIS's latest twelve month operating profit margin was, based on the I-QSB,
(1.0)%, compared to low, mean and high operating margins of (28.9)%, (1.1)%, and
16.3%, respectively, for the comparable public companies. JIS's earnings were
projected to grow between 1,500% (Scenario 2) to 4,200% (Scenario 1) in 1997,
compared to average earnings growth for the comparable public companies of 133%,
based on consensus earnings estimates from Zacks Wall Street Forecasts. Janney
noted that stock price multiples for the public comparables ranged from 0.2 to
9.4 times latest twelve month revenues, 4.9 to 54.1 times latest twelve month
operating profit, 6.8 to 111.4 times 1996 estimated earnings and 4.6 to 49.6
times 1997 estimated earnings. Enterprise value multiples (total stock market
capitalization adjusted for debt and cash) ranged from 0.3 to 8.7 times latest
twelve months revenues, 3.4 to 44.7 times latest twelve months operating cash
flow and 4.2 to 53.2 latest twelve months operating profits. The range of stock
price and enterprise value multiples to operating performance are quite broad
and, therefore, subject to interpretation. Janney concluded that the appropriate
range of implied equity values was between $2.42 and $3.70.
Janney also compared the financial performance of JIS to the financial
performance and valuation multiples of mergers, acquisitions and other business
combinations within the last 24 months of 37 public and 17 private companies
with latest twelve month revenues of less than $200 million and engaged in one
or more of the following businesses: computer service programming, prepackaged
software, data preparation services, information retrieval services, computer
repair, computer related services and engineering services. With respect to the
public companies, this analysis revealed purchase price multiples ranging from
0.2 to 19.6 times latest twelve months revenues, 1.8 to 144.9 times latest
twelve months operating cash flow, (230.1) to 215.1 latest twelve months
operating profits, (0.6) to (201.2) times latest twelve month earnings per share
and 0.1 to 121.0 times book value. In addition, this analysis revealed four-week
purchase price premiums (purchase price per share premium over market price of
common stock of target four weeks prior to announcement of the merger or
acquisition) ranging from (69.7)% to 125.9%, and one week purchase price
premiums ranging from (21.3)% to 80.0%. Data with respect to the transactions
involving private companies was generally less available than those involving
public companies; however, this analysis revealed purchase price multiples
ranging from 1.0 to 2.6 times latest twelve months revenues. The range purchase
price multiples to operating performance are quite broad and, therefore, subject
to interpretation. Janney concluded that the appropriate range of implied equity
values was between $1.44 and $2.89.
Janney also performed a discounted cash flow analysis for JIS. The
unlevered free cash flows of JIS in Scenario 1 were derived from: i) compound
annual revenue growth of 44.0% from 1996 to 2000; ii) operating profit margin of
12.3% in 1998 through 2000; iii) net income margin of 7.7% in 1998, 7.9% in 1999
and 8.0% in 2000; and iv) capital expenditures of approximately $500,000
thousand annually. The unlevered free cash flows of JIS in Scenario 2 were
derived from: i) compound annual revenue growth of 29.4% from 1996 to 2000; ii)
operating profit margin of 5.0% in 1998 through 2000; iii) net income margin of
3.0% in 1998 and 1999 and 3.1% in 2000; and iv) capital expenditures of
approximately $250,000 thousand annually. Unlevered free cash flows for JIS were
not significant in any year in either Scenario due to the expectation that
significant increases in working capital would be necessary to fund anticipated
revenue growth. Janney considered a range of terminal exit values from $57
million to $113 million in Scenario 1, which represented enterprise values of
0.7 to 1.5 and 5.3 to 11.6 times 2000 projected revenues and operating cash
flows, respectively, and 10.0 to 20.0 times 2000 projected net income. Janney
considered a range of terminal exit values of $15 million to $29 million in
Scenario 2, which represented enterprise values of 0.3 to 0.6 and 5.4 to 11.2
times 2000 projected revenues and operating cash flows, respectively, and 10.0
to 20.0 times 2000 projected net income. Janney discounted the unlevered free
cash flows for the four year period and terminal exit values to a present value
using a range of discount rates from 20.0% to 30.0%, which Janney estimated to
be JIS's weighted average cost of capital, to derive a range of implied equity
values per share of $2.35 and $5.23.
Janney also compared the consideration to be received by JIS
stockholders in the Merger to historical market values of JIS Common Stock. The
bid and ask price on August 30, 1996 for JIS's Common Stock was
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$1.00 and $3.00, respectively, The bid has ranged from a high of $1.00 to a low
of $0.03 past 25 week period, while the ask has ranged from a high of $3.00 to a
low of $0.03 over the same period.
Based on the above analyses, Janney concluded that the range of implied
values per share of JIS was between $2.42 and $3.70.
Comparison of Merger Consideration to Implied Value of JIS. Janney
compared the consideration to be received by JIS stockholders in the Merger (the
fraction of a Judge Group Common Share equal to $2.50 per share of JIS Common
Stock) with the range of implied equity values of JIS, which represented a
premium of 3.3% at the low end of the implied valuation range to a discount of
32.4% at the high end of the implied valuation range.
Qualitative Considerations. In rendering its opinion, Janney noted that
Judge Group has become a significant provider of IT professional services in the
last three years and that industry analysts believe the IT professional services
industry, especially technical temporary staffing, is experiencing a period of
rapid growth and expect the trend to continue for several years. Janney also
noted the stock price trading history and liquidity of JIS Common Stock,
compared to the anticipated liquidity of Common Shares of Judge Group. JIS has
approximately 4.8 million fully-diluted shares of Common Stock outstanding, of
which 250,000 are in the public float, and has a nominal average daily trading
volume. It is anticipated that Judge Group will offer to the public
approximately 3.65 million shares, not including the underwriters over-allotment
option, and that shareholders of JIS will own approximately 900,000 shares of
Judge Group after the Merger.
The JIS Board selected Janney based upon its experience, expertise and
reputation as investment bankers and professionals in the securities industry.
Janney is a nationally recognized investment banking firm and, as part of its
investment banking activities, is regularly engaged in the valuation of
businesses and securities in connection with mergers and acquisitions,
negotiated underwritings, secondary distributions of securities, private
placements and valuations for corporate and other purposes. Janney has not
provided investment banking or financial advisory services to JIS in the past.
Pursuant to a letter agreement dated August 16, 1996 between Janney and
JIS, JIS agreed to pay Janney a financial advisory fee of $40,000, payable
$5,000 upon the execution of the letter agreement and $35,000 on the date Janney
initially rendered its opinion to the JIS Board. Additionally, JIS has agreed to
reimburse Janney for expenses in the amount of $10,000, including attorneys'
fees and disbursements, incurred in connection with preparation of this opinion.
The obligation of JIS to pay such fees was not contingent on the opinion
expressed by Janney.
JIS also agreed to reimburse Janney for expenses reasonably incurred by
it in connection with its engagement, including the fees of its legal counsel,
and to indemnify Janney and its affiliates and their respective partners,
directors, officers, employees, agents and controlling persons against certain
claims, liabilities, losses, damages and expenses, including liabilities that
may arise under federal securities laws, related to or arising from its
engagement.
Pursuant to a letter agreement dated June 12, 1996 between Janney and
Judge Group, Judge Group retained Janney to serve as a manager in an initial
public offering of Common Stock by Judge Group, the anticipated occurrence of
which would be contingent upon the successful merger of JIS into Acquisition.
The Merger Agreement
Representations and Warranties. The Merger Agreement contains
representations and warranties by each of Judge Group, Acquisition and JIS,
relating to, among other things, (a) the proper organization of each corporation
and of their respective subsidiaries and similar matters; (b) the respective
capital of each corporation; (c)
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other than specified agreements, the absence of options, warrants or similar
agreements relating to securities, equity interests and dividends of each
corporation; (d) the issued and outstanding securities of their respective
subsidiaries and the absence of liens or agreements relating thereto; (e) the
authorization, performance and enforceability of the Merger Agreement; (f) the
validity of the Merger and the transactions contemplated thereby, including no
contravention of applicable laws, the absence of governmental authorizations or
permits required to effect the Merger and the identification of required third
party approvals; (g) corporate records; (h) financial statements and reports;
(i) books of account; (j) tax returns and taxes; (k) absence of undisclosed
liabilities; (l) title to assets; (m) intellectual property; (n) contracts;
(o) compliance with applicable laws and court orders; (p) environmental matters;
(q) absence of litigation and claims; (r) insurance coverage; (s) employee
benefit plans; (t) absence of false or misleading statements in the Registration
Statement and compliance thereof with applicable provisions of the securities
laws; (u) absence of certain events subsequent to June 30, 1996; and (v) absence
of any broker's or finder's fees arising from the Merger Agreement.
The Merger Agreement contains further representations and warranties of
Judge Group concerning the due authorization, valid issuance, full payment and
nonassessability of the Merger Shares at the time of issuance.
The Merger Agreement contains further representations and warranties of
JIS concerning (a) ownership of shares of JIS Common Stock and JIS Preferred
Stock (the "JIS Preferred Stock"); (b) receipt of a fairness opinion from
Janney; and (c) non-applicability of Section 203 of the DGCL.
The Merger Agreement provides that the representations and warranties
set forth therein will not survive the consummation of the Merger.
Conduct of Business Prior to Merger. Judge Group and JIS have each
agreed, except as otherwise approved by the parties in writing or provided in
the Merger Agreement and except for the acquisition of Berkeley and Systems
Automation, Inc. by Judge Group, prior to the Merger, it will operate its
business only in the ordinary course and in substantially the same manner as it
has been operated in the past.
Certain Covenants. Pursuant to the Merger Agreement, Judge Group and
JIS have each agreed that it will, among other things, (a) prepare and file the
Registration Statement and the Proxy Statement/Prospectus with the SEC;
(b) cause a meeting of its stockholders to be duly called and held; (c) obtain
all approvals, consents and permits required in connection with the consummation
of the Merger; (d) give the other party full access to all of its assets,
records, contracts and other documents relating to its business as the other
party may reasonably request, subject to the parties holding such information in
confidence as specified in the Merger Agreement; (e) cooperate with each other
in releasing information concerning the Merger Agreement and the actions
contemplated thereby, including press releases; and (f) notify the other party
of certain events related to the Merger Agreement and the transactions
contemplated thereby.
The Merger Agreement contains further covenants by JIS that it shall
(i) not solicit or participate in discussions with, or provide nonpublic
information to, any third person concerning the sale of assets (other than in
the ordinary course of business consistent with past practice) or shares of
capital stock, or any merger, consolidation, recapitalization, liquidation or
similar transaction, except as may be reasonably required to satisfy the
fiduciary duties of its board of directors; (ii) identify all persons who may be
deemed to be an affiliate of JIS within the meaning of the Securities Act at the
time of the JIS Meeting; and (iii) obtain executed Affiliate Agreements, as
provided in the Merger Agreement, from all Rule 145 Affiliates.
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Conditions to the Merger. The obligations of each of Judge Group,
Acquisition and JIS to consummate the Merger are subject to, among other
matters, satisfaction of the following conditions (unless waived when
permissible); (a) approval of the Merger by the stockholders of JIS, with
dissenters holding, in the aggregate, not more than ten percent of the
outstanding shares of JIS Common Stock and JIS Preferred Stock immediately prior
to the Effective Time; (b) the representations and warranties of the other party
shall be true and correct in all material respects on the closing date of the
Merger Agreement; (c) performance and satisfaction of all agreements and
conditions required by the Merger Agreement to be performed or satisfied by it
prior to the closing date; (d) provision by each party of the certificate of its
chief executive and chief financial officer, as of the closing date, certifying
that the conditions specified in (b) and (c) of this paragraph have been
satisfied; (e) a tax opinion in form and substance satisfactory to each party
that the Merger will qualify as a reorganization under Section 368(a) of the
Code; (f) 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 the Merger Agreement shall have commenced any litigation seeking to
restrain or prohibit, or to obtain substantial damages in connection with, the
Merger Agreement or the transactions contemplated thereby, which, in each case,
would or is reasonably likely to result in a material adverse effect to a party;
(g) no party to the Merger Agreement shall have suffered a material adverse
effect and there shall be no conditions existing or that might reasonably be
expected to have an adverse effect on such party; (h) the Registration
Statement shall have been declared effective, the information contained therein
shall be true and correct in all material respects as of the date that the
approval of the stockholders of JIS is obtained as provided in (a) of this
paragraph and no stop order shall have been issued suspending such
effectiveness, and all approvals, consents, permits, licenses or qualifications
from state securities authorities shall have been obtained and be effective; (i)
Judge Group shall have received from each Rule 145 Affiliate an executed
Affiliate Agreement; (j) the Convertible Senior Subordinated Promissory Notes of
Judge (the "Lore Notes"), issued by Judge pursuant to a 10% Convertible Senior
Subordinated Note Purchase Agreement, dated July 1994, which Lore Notes are
convertible into Judge Group Common Shares, shall be converted into Judge Group
Common Shares; (k) an option held by Raymond Sozzi (the "Sozzi Option") to
purchase 25,000 shares of JIS Common Stock at an exercise price of $1.33 per
share, shall be exercised on a "cashless exercise" basis for 11,700 shares of
JIS Common Stock; (l) 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; (m) Judge Group shall have applied
for the listing of the Merger Shares on the NASDAQ National Market; (n) all
approvals and consents required in connection with the Merger shall have been
obtained; and (o) JIS shall have received an updated opinion of Janney, dated on
or about the mailing date of the Proxy Statement, to the effect that the Merger
Consideration to be received by the JIS stockholders in fair from a financial
point of view.
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 Group guarantees.
Amendments; Waiver; Termination. The Merger Agreement may be amended by
written agreement of each of the parties. In addition, each party may at any
time in writing (signed on behalf of such party by a duly authorized officer)
waive the other party's compliance with certain terms and conditions of the
Merger Agreement. The Merger Agreement may be terminated at any time prior to
the Effective Time (a) by mutual agreement of the Judge Group Board and the JIS
Board; (b) by action of the Judge Group Board or the JIS Board if (i) the Merger
is not consummated on or before March 31, 1997, or such later date as has been
mutually agreed to by the parties, provided that the party seeking to terminate
the Merger Agreement is not otherwise in breach in any material respect of any
of its obligations thereunder; or (ii) any court of competent jurisdiction has
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 has become final and nonappealable; or (c) by action of either the
Judge Group Board or the JIS Board if (i) the other party has failed to comply
in any material respect with any of the covenants or agreements contained in the
Merger 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 respective board of directors
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does not recommend to its stockholders the approval of the Merger or withdraws
or modifies, in a manner adverse to the other party, its approval or
recommendation of the Merger, or takes any other action to facilitate a similar
transaction with any third party.
Listing of Merger Shares
Judge Group has applied to have the Merger Shares included for listing
on the NASDAQ National Market upon consummation of the Merger and the Public
Offering. The NASD By-Laws require Judge Group to maintain certain quantitative
standards for continued listing on the NASDAQ National Market. There can be no
assurance, however, that Judge Group will continue to meet the NASD's
maintenance criteria.
Interests of Certain Persons in the Merger
In considering the recommendations of the Judge Group and JIS Boards
with respect to the Merger, stockholders should be aware that certain directors,
officers and employees of Judge Group and JIS have an interest in the
consummation of the Merger, as described below.
Martin E. Judge, Jr. is Chairman of the Board and Chief Executive
Officer of both JIS and the Judge Group. Mr. Judge owns 1,486,021 shares of JIS
Common Stock directly and, as the controlling shareholder of Judge Group, may be
deemed to be a beneficial holder of an additional 1,231,778 shares of JIS owned
directly by Judge Group. Mr. Judge also owns 27,628 shares of JIS Series A
Preferred Stock directly. Mr. Judge's beneficial ownership of the fully-diluted
Common Stock of JIS at the date of this Proxy Statement/Prospectus is
approximately 31.4%.
Michael A. Dunn, a director of JIS and a director and President -
Contract Placement, of Judge Group, owns 176,290 shares of JIS Common Stock. It
is anticipated that Messrs. Judge and Dunn will sell 270,000 and 150,000 shares
of Judge Group Common Shares, respectively, in the Public Offering (300,000 and
170,000 shares, respectively, if the underwriters' over-allotment option is
fully exercised).
Wendy Greenberg-Marcelli is a director and the President of JIS and the
Vice President of Judge Group. Ms. Greenberg owns 73,058 shares of JIS Series A
Preferred Stock directly. In addition, Marvin Demchick and Robert Keith, Jr.,
directors of JIS, own 52,600 and 26,300 shares of Judge Group Common Shares,
respectively. Mr. Keith is also a shareholder of The Gemstone Group, Inc.
("Gemstone"), which owns 171,739 Judge Group Common Shares. Messrs. Keith and
Demchick, currently propose to sell 19,988, and 9,880 of their Judge Group
Common Shares in the Public Offering.
JIS Treasury Stock
The Merger Agreement provides that each share of JIS Common Stock and
each share of any class or series of JIS Preferred Stock held in the treasury of
JIS prior to the Effective Time, if any, will be cancelled and will cease to
exist at and after the Effective Time of the Merger without the payment of any
consideration therefor.
JIS Series B Preferred Stock
The Merger Agreement provides that each share of JIS Series B Preferred
Stock will be cancelled and will cease to exist at and after the Effective Time
of the Merger without the payment of any consideration therefor. All such shares
currently outstanding are owned by Judge Technical, a wholly-owned subsidiary of
Judge Group.
JIS Stock Options and Warrants
Prior to the Effective Time, JIS will accelerate the vesting of any
options that are not yet vested and all holders of outstanding options and
warrants to purchase shares of JIS Common Stock will have the opportunity to
exercise such options or warrants prior to the Effective Time of the Merger. In
addition, Raymond Sozzi will exercise, on a "cashless exercise" basis for 11,700
shares of JIS Common Stock an option to purchase 25,000 shares of JIS Common
Stock at an exercise price of $1.33 per share. The Merger Agreement provides
that all options and warrants to purchase JIS Common Shares which are
outstanding immediately prior to the Effective Time (i.e., which have not been
exercised for shares of JIS Common Stock) will be cancelled and will cease to
exist at and after the Effective Time, and no capital stock of Judge Group or
the Surviving Corporation, cash or other consideration will be paid or delivered
in exchange therefor in connection with the Merger.
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Assuming the holders of outstanding options and warrants to purchase
shares of JIS Common Stock exercise such options or warrants prior to
the Effective Time, they will be entitled to receive a portion of the Merger
Shares based on the exchange ratio described above. See "The Merger - Conversion
of Shares; Exchange Ratio."
JIS Common Stock Owned by Judge Group
The Merger Agreement provides that each share of JIS Common Stock owned
by Judge Group immediately prior to the Effective Time shall be cancelled and
shall cease to exist at and after the Effective Time without payment of any
consideration therefor.
Exchange of Stock Certificates
As of the Effective Time, each certificate formerly representing shares
of JIS Common Stock or JIS Series A Preferred Stock (the "JIS Certificates")
shall be deemed for all purposes to evidence ownership of the right to receive
the Merger Shares until surrendered to the exchange agent, a bank, trust
company, transfer agent or other person designated by Judge Group, which may be
Judge Group (the "Exchange Agent").
As promptly as practicable after the Effective Time, the Exchange Agent
will mail a letter of transmittal and instructions to each holder of record of
JIS Certificates to be used by such holder in forwarding JIS Certificates to the
Exchange Agent. Each stockholder will be required to return a properly completed
transmittal letter, together with any JIS Certificates listed on the transmittal
letter, to the Exchange Agent in order to receive such whole number of Judge
Group Common Shares. STOCKHOLDERS OF JIS SHOULD NOT SEND JIS CERTIFICATES TO THE
EXCHANGE AGENT UNTIL THEY RECEIVE A TRANSMITTAL LETTER. Any JIS Certificate
which prior to the Effective Time represented shares of outstanding JIS Common
Stock or JIS Series A Preferred Stock (other than shares with respect to which
dissenters' rights of appraisal have been duly exercised) will, after the
Effective Time and prior to surrender, be deemed to evidence ownership of the
right to receive the Merger Shares which the holder of such JIS Certificate
would be entitled to receive (subject to the provisions governing fractional
shares) upon surrender of the JIS Certificate.
Fractional Shares
No fractional Judge Group Common Shares will be issued as a result of
the Merger. Each holder of a fractional interest in Judge Group Common Share
will be entitled to receive a cash amount in lieu of such fractional interest
equal to such fractional interest multiplied by the IPO Offering Price.
Charter and By-Laws of Surviving Corporation
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 Delaware General Corporation Law,
as amended (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."
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The By-Laws of the Surviving Corporation shall be the By-Laws of
Acquisition as in effect immediately prior to the Effective Time, continuing
until thereafter amended in accordance with the provisions therein and the
Certificate of Incorporation and as provided by the DGCL.
Management After the Merger
The Merger Agreement provides that the directors and officers of JIS
immediately prior to the Effective Time shall become the directors and officers,
respectively, of the Surviving Corporation.
Absence of Regulatory Filings and Approvals
The Merger is not subject to the requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the rules and regulations
thereunder, which provide that certain merger transactions may not be
consummated until required information and material have been furnished to the
Antitrust Division of the Department of Justice and the Federal Trade Commission
and certain waiting periods have expired or been terminated. Other than certain
filings and approvals which may be required under certain state securities or
"blue sky" laws, there are no federal or state regulatory requirements that must
be complied with or approval obtained in connection with the Merger.
Accounting Treatment
For financial reporting purposes, the Merger will be accounted for as a
corporate reorganization of entities under common control.
Under this accounting treatment, it is assumed that the fair value of
the shares of Judge Group to be issued in the Merger equals the fair value of
JIS's assets and liabilities as of the date of consummation of the Merger (which
is assumed to be its book value) and no benefit (asset) has been established for
any of JIS's tax loss carryforwards.
Material Federal Income Tax Consequences
Set forth below is a discussion which summarizes the intended material
federal income tax consequences of the Merger to holders of JIS Common Stock and
JIS Preferred Stock under the Internal Revenue Code of 1986, as amended (the
"Code"), and the tax opinion (the "Tax Opinion") of Drinker Biddle & Reath,
counsel to Judge Group, which has been rendered in connection with the Merger.
Neither the discussion nor the Tax Opinion deals with (i) all federal income tax
considerations of the Merger, such as the tax consequences to Judge Group or
JIS, (ii) all of the tax considerations that may be relevant to particular
stockholders of JIS such as stockholders who are dealers in securities, foreign
persons, tax-exempt entities or stockholders who received their stock in JIS in
connection with JIS stock option plans, (iii) the impact of the alternative
minimum tax (except to the limited discussion herein presented regarding
alternative minimum tax) or (iv) the impact of any "parachute payments." In
addition, neither the discussion nor the Tax Opinion addresses any state, local
or foreign tax considerations or any federal estate, gift, employment, excise or
other non-income tax considerations. The following discussion and the Tax
Opinion are based upon provisions of the Code, regulations, administrative
filings and judicial decisions presently in effect, all of which are subject to
change (possibly with retroactive effect) or to different interpretations.
ALL JIS STOCKHOLDERS ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS AS TO THE
PARTICULAR TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE APPLICABILITY
OF FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS.
No ruling from the Internal Revenue Service ("IRS") has been or will be
sought with respect to the tax consequences of the Merger. Drinker Biddle &
Reath, counsel to Judge Group, has rendered a Tax Opinion to
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Judge Group, summarized below, with respect to certain federal income tax
consequences of the Merger to the holders of JIS Common Stock and JIS Preferred
Stock in connection with the Merger. In rendering the tax opinion, Drinker
Biddle & Reath relied on the representations of officers of Judge and JIS as to
certain relevant matters. The Tax Opinion is not binding on the IRS, and it will
not preclude the IRS from taking a contrary position. In the Tax Opinion,
Drinker Biddle & Reath has opined as follows:
(1) The Merger will constitute a "reorganization" within the
meaning of Section 368(a) of the Code;
(2) No gain or loss will be recognized to JIS stockholders
upon receipt of Judge Group Common Shares in exchange for their shares
of JIS Common Stock and/or JIS Series A Preferred Stock pursuant to the
Merger;
(3) To the extent that they hold their shares of JIS Common
Stock and/or JIS Preferred Stock as capital assets, JIS stockholders
receiving cash (i) as a result of the exercise of dissenters' rights or
(ii) in lieu of fractional shares of JIS Common Stock and/or JIS Series
A Preferred Stock will recognize capital gain, if any, on the exchange
to the extent that the cash so received exceeds the basis allocable to
such shares (provided that the receipt of cash is not "substantially
equivalent to a dividend" by reason of such stockholders' pre-existing
direct or constructive ownership of Judge Group Common Shares, if any);
and
(4) To the extent that they hold their shares of JIS Common
Stock and/or JIS Series A Preferred Stock as capital assets, JIS
stockholders will include the holding period for the shares of JIS
Common Stock and/or JIS Series A Preferred Stock surrendered in the
Merger in their holding period of Judge Group Common Shares received in
the Merger.
Regardless of the qualification of the Merger as a "reorganization," a
recipient of the Judge Group Common Shares would recognize income to the extent
such shares were considered to be received in exchange for services or property
(other than solely JIS Common Stock or JIS Series A Preferred Stock). All or a
portion of such income may be taxable as ordinary income. Gain would also be
recognized to the extent a JIS stockholder was treated as receiving (directly or
indirectly) consideration other than Judge Group Common Shares in exchange for
such stockholder's shares of JIS Common Stock and/or JIS Preferred Stock.
A stockholder of JIS who receives cash pursuant to the Merger in lieu
of fractional share interests will be treated as having received such fractional
Judge Group Common Shares pursuant to the Merger and then as having received
such cash in redemption of such fractional share interests subject to the
provisions of Section 302 of the Code. The circumstances under which cash is
being issued pursuant to the Merger in lieu of a fractional share interest
appear to satisfy the guidelines under which the IRS will generally issue a
ruling that the receipt of such cash will qualify for capital gain or loss
treatment (provided such fractional interest is held as a capital asset at the
time of such exchange). No such advance ruling will be sought from the IRS, nor
is the receipt of such a ruling a condition to the consummation of the Merger.
Consequences Under Federal Securities Laws
The Judge Group Common Shares issuable in connection with the Merger
have been registered under the Securities Act. Accordingly, there will be no
federal securities law restrictions upon the resale or transfer of such shares
by JIS stockholders except for those stockholders who are deemed "affiliates" of
JIS, as that term is defined in Rule 144 and Rule 145 adopted under the
Securities Act (the "Rule 145 Affiliates").
Under the Merger Agreement, the Rule 145 Affiliates have entered into
an Affiliate Agreement pursuant to which such Rule 145 Affiliate agrees to abide
by Rule 145. Accordingly, a Rule 145 Affiliate may resell his or her Merger
Shares: (i) in restricted amounts in accordance with the provisions of
paragraphs (c), (e), (f) and (g) of Rule 144, if the Rule 145 Affiliate is an
affiliate of Judge Group; (ii) without restriction as to amount, if the Rule
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145 Affiliate is not an affiliate of Judge Group, a period of at least two years
(as determined in accordance with paragraph (d) of Rule 144) has elapsed since
the date the Merger Shares were acquired from Judge Group, and Judge Group meets
the Current Public Information requirements of paragraph (c) of Rule 144; or
(iii) without restriction as to amount, if the Rule 145 Affiliate is not, and
has not been for at least three months, an affiliate of Judge Group, and a
period of at least three years (as determined in accordance with paragraph
(d) of Rule 144) has elapsed since the date the Merger Shares were acquired from
Judge Group.
Dissenters' Rights
Pursuant to the Merger Agreement and the DGCL, the owners of shares of
JIS Common Stock and JIS Preferred Stock (collectively, the "Eligible Shares")
will have dissenters' rights of appraisal in connection with the Merger under
Section 262 of the DGCL, a copy of which is attached to this Proxy
Statement/Prospectus as Appendix C, and may object to the Merger Agreement and
demand of JIS in writing an appraisal of such Eligible Shares. The Merger is
conditioned upon the holders of not more than 10% of the Eligible Shares
electing dissenters' rights of appraisal.
FAILURE BY ANY DISSENTING STOCKHOLDER TO COMPLY WITH ANY PROCEDURE
REQUIRED BY SECTION 262 MAY CAUSE A TERMINATION OF SUCH STOCKHOLDER'S
DISSENTERS' RIGHTS OF APPRAISAL. JIS WILL NOT GIVE ANY NOTICE OF THE FOLLOWING
REQUIREMENTS OTHER THAN AS DESCRIBED IN THIS PROXY STATEMENT/PROSPECTUS AND AS
REQUIRED BY THE DGCL.
Section 262 of the DGCL entitles a holder of Eligible Shares to
exercise rights upon the Merger only if the holder complies with the
requirements of Section 262. A holder of Eligible Shares wishing to exercise
appraisal rights must (1) make a written demand for appraisal of such Eligible
Shares, (2) hold such Eligible Shares continuously through the Effective Time of
the Merger, (3) not vote in favor of the Merger, and (4) comply with any other
applicable provisions of Section 262. A holder of Eligible Shares who complies
with these requirements will be entitled to an appraisal by the Delaware Court
of Chancery (the "Chancery Court") of the fair value of such Eligible Shares.
EACH HOLDER OF ELIGIBLE SHARES ELECTING TO DEMAND THE APPRAISAL OF SUCH
SHARES MUST DELIVER TO JIS, BEFORE THE JIS MEETING AND THE TAKING OF THE VOTE ON
THE MERGER AT THE JIS MEETING, A WRITTEN DEMAND FOR APPRAISAL OF SUCH
SHARES. Such demand will be sufficient if it reasonably informs JIS of the
identity of the holder of the Eligible Shares and that the holder intends
thereby to demand the appraisal of such shares. A PROXY OR VOTE AGAINST THE
MERGER WILL NOT CONSTITUTE SUCH A DEMAND. A holder of Eligible Shares electing
appraisal rights must do so by a separate written demand as described above. A
holder electing to demand the appraisal of such Eligible Shares must not vote in
favor of the Merger in order to perfect such appraisal rights.
Within 10 days after the Effective Time of the Merger, the Surviving
Corporation will notify each holder of Eligible Shares who has complied with the
procedures for a written demand for appraisal and who has not voted in favor of
the Merger that the Merger has become effective.
Within 120 days after the Effective Time of the Merger, the Surviving
Corporation or any holder who has complied with the provisions of Section 262
described above and who is otherwise entitled to appraisal rights may file a
petition in the Chancery Court demanding a determination of the value of the
Eligible Shares of all such stockholders. Notwithstanding the foregoing, at any
time within 60 days after the Effective Time, any stockholder may withdraw a
demand for appraisal and may accept the terms offered pursuant to the Merger
Agreement. Within 120 days after the Effective Time, any stockholder who has
perfected appraisal rights, upon written request, will be entitled to receive
from the Surviving Corporation a statement setting forth the aggregate number of
shares not voted in favor of the Merger and with respect to which demands for
appraisal have been received and the aggregate
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number of holders of such shares. Such written statement will be mailed to the
stockholder within 10 days after such written request for such a statement is
received by the Surviving Corporation or within 10 days after expiration of the
period for delivery of demands for appraisal, whichever is later.
Upon filing of any petition in the Chancery Court by a stockholder,
service of a copy thereof must be made upon the Surviving Corporation, which
shall within 20 days after such service file in the office of the Register in
the Chancery Court in which the petition was filed a duly verified list
containing the names and addresses of all stockholders who have demanded payment
for their Eligible Shares and with whom agreements as to the value of their
shares have not been reached by the Surviving Corporation. If the petition is
filed by the Surviving Corporation, it will be accompanied by such a duly
verified list. The Chancery Court may order that notice of the time and place
fixed for the hearing of the petition be given by registered or certified mail
to the Surviving Corporation and to the stockholders shown on the list at the
addresses therein stated. Notice of the hearing will also be given by one or
more publications at least one week before the day of the hearing, in a
newspaper of general circulation published in the City of Wilmington, Delaware
or such publication as the Chancery Court deems advisable. The forms of the
notices by mail and by publication will be approved by the Chancery Court and
the costs will be borne by the Surviving Corporation.
At the hearing on the petition, the Chancery Court will determine the
stockholders who have complied with the provisions of Section 262 and who have
become entitled to appraisal rights. The Chancery Court may require the
stockholders who have demanded an appraisal for their Eligible Shares and who
hold stock represented by certificates to submit their certificates to the
Register of the Chancery Court for notation therein of the pendency of the
appraisal proceedings, and if any stockholder fails to comply with such
direction, the Chancery Court may dismiss the appraisal proceedings to such
stockholder.
After determining the stockholders entitled to an appraisal, the
Chancery Court will appraise their Eligible Shares, determining their fair value
exclusive of any element of value arising from the accomplishment or expectation
of the Merger, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Chancery Court may consider all relevant factors, including the rate of interest
which the Surviving Corporation would have had to pay to borrower money during
the pendency of the proceeding.
In Weinberger v. UPO, Inc., et al. (decided February 1, 1993), the
Delaware Supreme Court stated, among other things, that "proof of value by any
techniques or methods which are generally considered acceptable in the financial
community and otherwise admissible in court" should be considered in an
appraisal proceeding, and that "fair price obviously requires consideration of
all relevant factors involving the value of a company . . . ." The Delaware
Supreme Court stated that in making this determination of fair value the court
must consider market value, asset value, dividends, earnings prospects, the
nature of the enterprise and any other factors which could be ascertained as of
the date of the merger that throw any light on future prospects of the merged
corporation. The Delaware Supreme Court also held that "elements of future
value, including the nature of the enterprise, which are known or susceptible of
proof as of the date of the merger and not the product of speculation, may be
considered."
Upon application by the Surviving Corporation or by any stockholder
entitled to participate in the appraisal proceeding, the Chancery Court may, in
its discretion, permit discovery or other pretrial proceedings and may proceed
to trial upon the appraisal prior to the final determination of the stockholder
entitled to an appraisal. Any stockholder whose name appears on the list filed
by the Surviving Corporation as described above and who has submitted
certificates of stock to the Register of the Chancery Court, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under
Section 262.
The Chancery Court will direct the payment of the fair value of the
Eligible Shares, together with interest, if any, by the Surviving Corporation to
the stockholders entitled thereto. Interest may be simple or compound, as
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the Chancery Court may direct. Payment must be made by the Surviving Corporation
to each such stockholder upon the surrender to the Surviving Corporation of the
certificates representing such Eligible Shares.
The Chancery Court may determine the costs of the appraisal proceeding,
and may allocate the costs upon the parties as the Chancery Court deems
equitable in the circumstances. Upon application of a stockholder, the Chancery
Court may order all or a portion of the expenses incurred by any stockholder in
connection with the appraisal proceeding, including, without limitation,
reasonable attorneys' fees and the fees and expenses of experts, to be charged
pro rata against the value of all the Eligible Shares entitled to an appraisal.
From and after the Effective Time of the Merger, no stockholder who has
demanded appraisal rights under Section 262 will be entitled to vote such stock
for any purpose or to receive payment of dividends or other distributions on the
stock (except dividends or other distributions payable to stockholders of record
at a date which is prior to the Effective Time), provided, however, that if no
petition for an appraisal is filed within the time period specified in Section
262 or if such stockholder has delivered to the Surviving Corporation a written
withdrawal of the demand for an appraisal and an acceptance of the Merger,
either within 60 days after the Effective Time or thereafter with the written
approval of the Surviving Corporation, then the right of such stockholder to an
appraisal will cease.
The foregoing description of the rights of appraisal under Section 262
of the DGCL should be read in conjunction with Appendix C to this Proxy
Statement/Prospectus and is qualified in its entirety by the provisions of
Section 262.
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DESCRIPTION OF JUDGE GROUP CAPITAL STOCK
General
The capital stock of Judge Group consists of (i) 50,000,000 shares of
common stock, $.01 par value per share (the "Common Shares"), and
(ii) 10,000,000 shares of preferred stock, $.01 par value per share (the
"Preferred Shares"). After the merger and the Public Offering, 13,042,737 Common
Shares will be outstanding (assuming 3,000,000 Judge Group Common Shares are
sold in the Public Offering at $10.00 per share). There are no Preferred Shares
outstanding.
The following summary description relating to Judge Group's capital
stock sets forth the material terms of the capital stock, but does not purport
to be complete. A description of Judge Group'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 Proxy Statement/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 Common Shares are entitled to one vote for each
share held of record on all matters to be voted on by shareholders. Holders of
the Common Shares do not have the right to cumulate their votes in the election
of directors. 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 Judge Group. All of the outstanding Common Shares
are, and, when issued, the Merger Shares will be, validly issued, fully paid and
nonassessable by Judge Group.
In the event of a merger or consolidation to which Judge Group is a
party, each of the Common Shares will be entitled to receive the same
consideration.
Shareholders of Judge Group 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 stockholders on liquidation, dissolution or winding up of Judge
Group. No Common Shares are subject to redemption or a sinking fund.
Each of the Common Shares is entitled to receive dividends if, as and
when declared by the Judge Group Board of Directors out of funds legally
available therefor. Judge Group has not to date paid any cash dividends on its
Common Shares and does not anticipate paying any cash dividends in the
foreseeable future.
Preferred Shares
Judge Group has authorized 10,000,000 Preferred Shares, par value $.01
per share. No Preferred Shares have been issued and Judge Group does not
presently contemplate the issuance of such shares. The Board of Directors is
empowered by the Judge Group 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 Judge Group.
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Transfer Agent
The Transfer Agent and Registrar for the Judge Group Common Shares is
StockTrans, Inc., Ardmore, Pennsylvania. Its telephone number is (610) 649-7300.
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COMPARISON OF SHAREHOLDER RIGHTS
At the Effective Time, the stockholders of JIS, a Delaware corporation,
will become shareholders of Judge Group, a Pennsylvania corporation, and
Pennsylvania law will govern shareholder rights after the Merger, except with
respect to dissenters' rights, which are governed by Delaware law even after the
Effective Time. See "The Merger -- Dissenters' Rights." Differences between the
DGCL and the Pennsylvania Business Corporation Law (the "PBCL") and between
JIS's existing Second Restated Certificate of Incorporation, as amended, and
Bylaws, as amended (respectively, the "JIS Certificate" and "JIS Bylaws"), and
Judge Group's Amended and Restated Articles of Incorporation and Amended and
Restated Bylaws (respectively, the "Judge Group Articles" and "Judge Group
Bylaws") will result in various changes in the rights of shareholders of JIS.
The following is a summary of certain material differences between the
rights of Judge Group shareholders under the Pennsylvania law and the Judge
Group Articles and Judge Group Bylaws, as compared with those of JIS
stockholders under Delaware law and the JIS Certificate and JIS Bylaws. This
summary does not purport to be a complete description of the provisions
discussed and is qualified in its entirety by the PBCL, DGCL, JIS Certificate,
JIS Bylaws, Judge Group Articles and Judge Group Bylaws, to which JIS
stockholders are referred.
Removal of Directors; Filling Vacancies on the Board of Directors
Under the PBCL, unless otherwise provided in a bylaw adopted by the
shareholders, the entire board of directors, or any individual director, may be
removed from office without assigning any cause by a vote of shareholders
entitled to elect directors. The shareholders of Judge Group have not adopted
any bylaw that would limit their ability to remove the company's directors.
Under the DGCL, directors generally may be removed, with or without cause, by a
vote of the holders of a majority of the shares then entitled to vote at an
election of directors. The JIS Bylaws provide that any director may be removed
with or without cause, by the vote of at least 85% of the shares entitled to
vote at an election of directors, or by a unanimous vote of the other directors
then in office.
The PBCL and the DGCL provide that vacancies on the board of directors,
including vacancies resulting from an increase in the number of directors, may
be filled by a majority of the remaining directors, although less than a quorum,
or by a sole remaining director, and each person so selected shall serve until
the next election of the class for which such director has been chosen, and
until a successor has been selected and qualified. The JIS Bylaws and the Judge
Group Bylaws contain similar provisions with respect to the filling of vacancies
generally.
Quorum of Shareholders
The PBCL provides that a quorum for a meeting of shareholders consists
of the presence of shareholders, in person or represented by proxy, entitled to
cast at least a majority of the votes that all shareholders are entitled to cast
on a particular matter to be acted upon at the meeting.
Under the DGCL, a quorum consists of a majority of the shares entitled
to vote, present in person or represented by proxy, unless otherwise provided in
the charter or bylaws, but in no event can the quorum be less than one-third of
the outstanding shares entitled to vote. A quorum for a meeting of JIS
stockholders under the JIS Bylaws consists of the holders of a majority of the
stock issued and outstanding which are entitled to vote thereat, present in
person or represented by proxy.
Adjournment and Notice of Shareholder Meetings
The DGCL and the JIS Bylaws provide that a meeting of shareholders may
be adjourned for up to 30 days without giving notice of the adjourned meeting
other than by announcement at the time and place of the adjourned meeting at the
meeting at which the adjournment is taken. The Judge Group Bylaws contain no
provision regarding adjournment and notice. However, the PBCL provides that if a
quorum is not represented at a shareholder meeting, those shareholders present
may adjourn the meeting to such time and place as they may
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determine, but any meeting at which directors are to be elected shall be
adjourned only from day to day, or for such longer periods not to exceed fifteen
days each. The PBCL further provides that those shareholders entitled to vote
who attend a meeting of shareholders at which directors are to be elected that
has been previously adjourned for lack of a quorum, although less than a quorum,
shall nevertheless constitute a quorum for the purpose of electing directors.
The Judge Group Bylaws require written notice of every meeting of
shareholders be given to each shareholder of record entitled to receipt thereof,
at least five days prior to the day named for the meeting; unless a greater
period of notice is required by law in a particular case. Under the PBCL, notice
of shareholder meetings must be given ten days prior to any meeting called to
consider a fundamental corporate change or five days prior to the meeting in any
other case. Under the DGCL and the JIS Bylaws, notice of shareholder meetings
must be given not less than ten nor more than sixty days before the meeting.
Call of Special Shareholder Meetings
Shareholders of a Pennsylvania corporation do not have a right to call
special meetings unless it is conferred in the corporation's articles of
incorporation or bylaws. The Judge Group Bylaws provide that special meetings of
the shareholders may be called at any time by the Board of Directors or by the
Chairman of the Board, if any, the Chief Executive Officer, if any, or by the
President or Secretary of the Corporation. Consequently, the shareholders of
Judge Group cannot call a special meeting.
The DGCL provides that special meetings of stockholders may be called
by the board of directors or by a person authorized by the charter or bylaws.
The JIS bylaws provide that special meetings of stockholders may be called by
the President and shall be called by the President or Secretary upon the written
request of a majority of the Board of Directors or upon the written request of
the majority of the shares of the entire capital stock of the Corporation issued
and outstanding and entitled to vote.
Shareholder Consent in Lieu of Meeting
The PBCL permits and the Judge Group Bylaws provide that any action
which may be taken at a meeting of the shareholders may be taken without a
meeting if there is written consent of shareholders who would have been entitled
to cast the minimum number of votes that would be necessary to authorize the
action at a meeting at which all the shareholders entitled to vote thereon were
present and voted. The PBCL provides further that prompt notice of the action
must be given to those shareholders entitled to vote thereon who have not
consented. The DGCL permits and the JIS Bylaws provide that action by
stockholders may be taken without a meeting if a consent in writing is signed by
the holders of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize such action at a meeting at which all
shares entitled to vote thereon were present and voted. The DBCL also requires
that prompt notice of the action be given to those stockholders entitled to
consent thereon who have not consented.
Dissenters' Rights
Under the PBCL, shareholders may perfect dissenters' rights with regard
to corporate actions involving certain mergers, consolidations, the sale, lease
or exchange of substantially all the assets of the corporation (under limited
circumstances), or the elimination of cumulative voting. However, under the PBCL
dissenters' rights generally are denied when a corporation's shares are listed
on a national securities exchange or held of record by more than 2,000 persons.
The DGCL generally entitles a stockholder to exercise its appraisal
rights upon a merger or consolidation of the corporation effected pursuant to
the DGCL if the holder complies with the requirements of Section 262 thereof.
The DGCL, however, does not provide (unless required by a charter provision),
appraisal rights for shareholders of a corporation that engages in (1) a sale of
substantially all of its assets; (2) an amendment to its
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<PAGE>
certificate of incorporation; or (3) in the event of a merger or consolidation
of the corporation if the stock of the Delaware corporation is listed on a
national securities exchange or held of record by more than 2,000 shareholders.
See "The Merger -- Dissenters' Rights;" and Appendix C.
Dividends and Distributions
Subject to any restrictions in its bylaws, the PBCL generally provides
that a corporation may make distributions to its shareholders unless, after
giving effect thereto, (1) the corporation would not be able to pay its debts as
they become due in the usual course of business or (2) the corporation's total
assets would be less than the sum of its total liabilities plus the amount that
would be needed upon the dissolution of the corporation to satisfy the
preferential rights, if any, of shareholders having superior preferential rights
to those shareholders receiving the distribution.
Subject to any restrictions contained in a corporation's charter, the
DGCL generally provides that a corporation may declare and pay dividends out of
surplus (defined as the excess, if any, of net assets over stated capital) or,
when no surplus exists, out of net profits for the fiscal year in which the
dividend is declared and/or the preceding fiscal year. Dividends may not be paid
out of net profits if the stated capital of the corporation is less than the
amount of stated capital represented by the issued and outstanding stock of all
classes having a preference upon the distribution of assets.
Director Qualifications and Number
The PBCL provides that directors need not be state residents or
shareholders of the corporation to qualify to serve unless the bylaws so
require. Further, the bylaws may prescribe other qualifications for directors.
The Judge Group Articles and the Judge Group Bylaws do not impose more
restrictive qualifications for directors. Under the DGCL, a director need not be
a state resident or
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<PAGE>
a stockholder of the corporation to qualify to serve unless so required by the
charter or bylaws. The JIS Bylaws contain no such requirement. Accordingly,
there is no meaningful difference between Judge Group and JIS regarding director
qualifications.
The DGCL and the PBCL provide that the number of directors of a
corporation shall be fixed by, or both in the manner provided in, the bylaws,
unless the charter or certificate of incorporation fixes the number of
directors. If the charter or the certificate of incorporation fixes the number
of directors, it may only be changed by an amendment of the charter or the
certificate.
The Judge Group Bylaws provide that the board of directors shall
consist of such number of directors as shall be designated from time to time by
the Board of Directors, which number shall initially be three. The JIS
Certificate provides that the JIS Board shall consist of not less than three,
nor more than nine, directors.
Indemnification of Officers and Directors
Both the DGCL and the PBCL permit a corporation to indemnify its
directors and officers against expenses, judgments, fines and amounts paid in
settlement incurred by them in connection with any pending, threatened or
completed or proceeding (other, in the case of a Delaware corporation, than an
action by or in the right of the corporation (a "derivative action")), and
permit such indemnification against expenses incurred in connection with any
pending, threatened or completed derivative action, if the director or officer
has acted in good faith and in a manner he or she reasonably believed to be in
or not opposed to the best interests of the corporation and, with respect to any
criminal proceeding, had no reasonable cause to believe his or her conduct was
unlawful. Furthermore, both states' laws provide that expenses incurred in
defending any action or proceeding may be paid by the corporation in advance of
the final disposition upon receipt of an undertaking by or on behalf of the
director or officer to repay the amount if it is ultimately determined that the
director or officer is not entitled to be indemnified by the corporation.
In both states the statutory provisions for indemnification and
advancement of expenses are non-exclusive with respect to any other rights, such
as contractual rights (or under a bylaw or vote of shareholders or disinterested
directors), to which a person seeking indemnification or advancement of expenses
may be entitled. Such contractual or other rights may, for example, under the
PBCL, provide for indemnification against judgments, fines and amounts paid in
settlement incurred by the indemnified person in connection with derivative
actions. The PBCL permits such derivative action indemnification in any case
except where the act or failure to act giving rise to the claim for
indemnification in any case except where the act or failure to act giving rise
to the claim for indemnification is determined by a court to have constituted
willful misconduct or recklessness.
Both the DGCL and the PBCL permit a corporation to purchase and
maintain insurance on behalf of any director or officer of the corporation
against any liability asserted against the director or officer and incurred in
such capacity, whether or not the corporation would have the power to indemnify
the director or officer against such liability.
The Judge Group Bylaws provide that Judge Group will indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, by reason of the
fact that such person is or was a director or officer of the Corporation, or is
or was serving while a director or officer of the Corporation at the request
of the Corporation as a director, officer, employee, agent or other
representative of another corporation or other entity for all expenses incurred,
unless the act or failure to act giving rise to the claim for indemnification is
determined by a court to have constituted willful misconduct or recklessness.
The JIS Certificate provides that directors and officers, agents and employees
of JIS are entitled to be indemnified in a manner corresponding to the
indemnification provision of the DGCL.
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<PAGE>
Director Liability
The bylaws of a Pennsylvania corporation may include a provision
limiting the personal liability of directors for monetary damages for actions
taken as a director, except to the extent that the director has breached or
failed to perform his or her duties to the corporation and the breach or failure
to perform constitutes self-dealing, willful misconduct or recklessness. The
Judge Group Bylaws state that a director of the Corporation shall not be
personally liable for monetary damages for any action taken, or any failure to
take any action as a director, except to the extent that a director's liability
for monetary damages may not be limited by law. The charter of a Delaware
corporation may include a provision which limits or eliminates the liability of
directors to the corporation or its shareholders for monetary damages for breach
of fiduciary duty as a director, provided such liability does not arise from
certain proscribed conduct, including intentional misconduct and breach of the
duty of loyalty. The JIS Certificate does contain such a provision limiting the
liability of its directors.
Amendment to Articles of Incorporation and Bylaws
The PBCL provides that unless the articles require a greater vote, a
proposed amendment of the articles shall be adopted upon receiving the
affirmative vote of a majority of the votes cast by all shareholders entitled to
vote thereon. Shareholder approval is not required, however, for certain
non-material amendments, such as a change in the corporate name, a provision for
perpetual existence or, if the corporation has only one class of shares
outstanding, to increase the number and par value of the authorized shares to
effect a stock split.
Under Pennsylvania law the power to adopt, amend or repeal bylaws may
be vested by the bylaws in the directors, with certain statutory exceptions for
certain actions and subject to the power of shareholders to change such action.
Pennsylvania law provides that unless the articles of incorporation otherwise
provide, the board of directors does not have the authority to adopt or change a
bylaw on any subject that is committed expressly to the shareholders by statute.
The Judge Group Bylaws provide that, except as provided by law, the authority to
adopt, amend and repeal the bylaw is expressly vested in the Board of Directors,
subject to the power of the shareholders to change such action.
The DGCL requires the approval of the holders of a majority of the
outstanding stock entitled to vote for any amendment to the certificate of
incorporation, unless such level of approval is increased by the certificate of
incorporation. The DGCL provides shareholders with the right to amend the
bylaws, and a corporation is permitted in its charter to give this right to the
directors as well, subject to any director action being amended or repealed by
shareholders. The JIS Certificate gives the board of directors the power to
make, alter or repeal the JIS Bylaws.
Vote Required for Extraordinary Corporate Transactions
Under the PBCL generally, a merger, consolidation, share exchange,
dissolution or sale of substantially all of a corporation's assets other than in
the ordinary course of business must be approved by the affirmative vote of a
majority of the votes cast by all shareholders entitled to vote thereon. Neither
the Judge Group Articles nor the Judge Group Bylaws contains a provision
relating to the approval of mergers, consolidations, share exchanges,
dissolutions or sales of assets.
Under the DGCL, a merger, consolidation, dissolution or sale or other
disposition of substantially all of a corporation's assets must be approved by
the affirmative vote of the holders of a majority of the outstanding stock
entitled to vote thereon. Additionally, the DGCL provides that no vote of the
shareholders of the surviving corporation is required, unless the certificate of
incorporation provides otherwise, to approve a merger if (1) the agreement of
merger does not amend in any respect the corporation's certificate of
incorporation, (2) each share of the corporation's stock outstanding immediately
prior to the merger is to be an identical outstanding or treasury share of the
surviving corporation after the merger and (3) either (i) no shares of common
stock of the surviving corporation and no shares, securities or obligations
convertible into such stock are to be issuable as a result of the
-52-
<PAGE>
merger or (ii) the increase in the outstanding shares as a result of the merger
does not exceed 20% of the shares of common stock of the surviving corporation
outstanding immediately prior to the effective date of the merger.
Interested Shareholder Transactions
The DGCL prohibits a "business combination" between the corporation and
an "interested shareholder" within three years of the shareholder becoming an
"interested shareholder." An "interested shareholder" is one who, directly or
indirectly, controls 15% or more of the outstanding voting stock. A "business
combination" includes a merger, consolidation, sale or, other disposition of
assets having an aggregate value in excess of 10% of the consolidated assets of
the corporation, and certain transactions that would increase the interested
shareholder's proportionate share ownership in the corporation. This provision
does not apply where (1) the business combination is approved by the
corporation's board of directors prior to the date the interested shareholder
acquired its shares, (2) upon consummation of the transaction which resulted in
the stockholder becoming an interested stockholder, the interested shareholder
owned at least 85% of the outstanding voting stock of the corporation at the
time the transaction commenced, excluding, for purposes of determining the
number of shares outstanding, shares held (i) by persons who are directors and
also officers and (ii) by employee stock plans in which participants do not have
the right to determine confidentially whether shares held subject to the plan
will be tendered in a tender or exchange offer; (3) the business combination is
approved by the board of directors and the affirmative vote of two-thirds of the
votes entitled to be cast by disinterested shareholders at an annual or special
meeting. (4) the corporation does not have a class of voting stock that is
listed on a national securities exchange, authorized for quotation on an
inter-dealer quotation system of a registered national securities association,
or held by more than 2,000 shareholders unless any of the foregoing results from
action taken, directly or indirectly, by an interested shareholder, or (5) the
corporation has opted out of this provision. Based on the limitation described
above in number (4), JIS is not governed by the DGCL provisions relating to
interested shareholder transactions.
[Insert from page 25 goes here]
Fiduciary Duty
Under Pennsylvania law a director may, in considering the best
interests of a corporation, consider (1) the effects of any action on
shareholders, employees, suppliers, customers and creditors of the corporation,
and upon communities in which offices or other facilities of the corporation are
located, (2) the short-term and long-term interests of the corporation,
including the possibility that the best interests of the corporation may be
served by the continued independence of the corporation, (3) the resources,
intent and conduct of any person seeking to take control of the corporation, and
(4) all other pertinent factors. Delaware law contains no similar provision.
Provisions with Possible Anti-Takeover Effects
The "business combination" provisions under the Pennsylvania Business
Corporation Law ("PBCL") prohibit Judge Group 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 Judge Group's officers and directors to retain their positions.
The PBCL 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 PBCL. See "Description of Judge
Group Capital Stock."
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<PAGE>
MARKET PRICES OF SECURITIES
The shares of JIS Common Stock are not included on the NASDAQ Stock
Market or traded on any other stock exchange; its shares are presently very
thinly traded in the over-the-counter market, with quotations appearing in the
"pink sheets." As Judge Group is a privately-held company, there is no public
trading market for its Common Shares.
The following table set forth the high and low bid prices for JIS
Common Stock during the first three calendar quarters of 1996 and for DataImage,
Inc., the predecessor to JIS, for the four calendar quarters of 1994 and 1995,
based on the over-
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<PAGE>
the-counter market quotations that reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not represent actual transactions. The
merger between Judge Computer Corporation and DataImage was consummated February
29, 1996.
1994 HIGH LOW
---- ---
First Quarter......................................... $0.50 $0.18
Second Quarter........................................ $0.18 $0.12
Third Quarter......................................... $0.12 $0.06
Fourth Quarter........................................ $0.12 $0.06
1995 HIGH LOW
---- ---
First Quarter......................................... $0.06 $0.03
Second Quarter........................................ $0.03 $0.03
Third Quarter......................................... $0.03 $0.03
Fourth Quarter........................................ $0.03 $0.03
1996 HIGH LOW
---- ---
First Quarter......................................... $0.75 $0.25
Second Quarter........................................ $2.25 $0.125
Third Quarter
(through September 30, 1996)...................... $1.00 $1.00
On October 3, 1996, the last full trading day prior to the public
announcement of the execution and delivery of the Merger Agreement, the closing
bid quotation for each share of JIS Common Stock was $1.00 (asked). On [date],
the most recent date for which it was practicable to obtain market price
information prior to the printing of this Proxy Statement/Prospectus, the
closing bid quotation for each share of JIS Common Stock was $________.
Judge Group is a privately held corporation with no public trading
market for its securities. As of September 30, 1996, there were approximately
eight holders of Common Shares of Judge Group.
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<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA OF JUDGE GROUP
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 Judge Group's Consolidated Financial
Statements, of which as of June 30, 1996, December 31, 1995 and December 31,
1994 and six month period ended June 30, 1996 and for each of the three years in
the period ended December 31, 1995 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 six month period
ended June 30, 1995 are derived from the unaudited Consolidated Financial
Statements of Judge Group, 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 Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 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 $ 29,399 $ 37,327
Cost of sales................. 1,616(1) 20,104 26,070 34,146 47,550 22,292 27,588
Selling and operating......... 18,655 4,950 5,853 6,509 9,798 4,612 6,364
General and administrative.... 1,600 2,171 2,525 3,155 4,187 2,038 2,848
--------- --------- --------- --------- --------- --------- ---------
Total costs and expenses...... 21,871 27,225 34,448 43,810 61,535 28,942 36,800
--------- --------- --------- --------- --------- --------- ---------
Income (loss) from
operations.................. 567 (503) 621 1,443 1,764 457 527
Interest expense.............. 222 238 338 427 670 307 371
Other income (expense)........ 31 (6) 4 7 (27) (10) 0
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before income
taxes....................... 376 (747) 287 1,023 1,067 140 156
Income taxes.................. 294 41 228 680 588 315 203
Minority interest (income).... 161 (126) 0 0 (7) 0 (229)
Cumulative effect change...... 0 0 42 0 0 0 0
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)............. $ (79) $ (662) $ 101 $ 343 $ 486 $ (175) $ 182
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Fully diluted net income
(loss) per Common
Share(2)(3):
Income before cumulative
effect adjustment........... $ (0.01) $ (0.08) $ 0.01 $ 0.04 $ 0.05 $ (0.02) $ 0.02
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 $ 0.05 $ (0.02) $ 0.02
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Fully-diluted weighted average
shares(2)(3)................ 8,416 8,416 8,500 8,847 9,110 9,110 9,110
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
1991 1992 1993 1994 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficiency)...................................... $ 367 $ (615) $ (608) $ 329 $ 5,567
Total assets...................................................... 3,398 4,539 5,687 8,017 11,632
Notes payable, including current portion.......................... 1,299 1,977 2,499 2,749 5,368
Other long-term obligations, including current portion............ 412 1,236 961 2,030 1,433
Shareholders' equity (deficit).................................... 123 (539) (438) (95) 391
<CAPTION>
JUNE 30,
1996
---------
BALANCE SHEET DATA:
Working capital (deficiency)...................................... $ 6,546
Total assets...................................................... 15,021
Notes payable, including current portion.......................... 6,358
Other long-term obligations, including current portion............ 1,593
Shareholders' equity (deficit).................................... 397
</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 subsequent to June 30, 1996.
(3) Fully-diluted shares include Common Stock equivalents and 526,000 Common
Shares issuable upon conversion of the Company's 10% Convertible Senior
Subordinated Notes.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF JUDGE GROUP
As noted elsewhere herein, this discussion and analysis of the
financial condition and results of operations of Judge Group includes all of
the businesses of Judge Group, including the Imaging and Network Services
business of JIS, whose accounts are included in the historical consolidated
financial statements of Judge Group.
INDUSTRY OVERVIEW
Judge Group 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. 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.
Revenue in Judge Group'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
Judge Group's technical consultants typically last from six to twelve months and
Judge Group 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 Judge Group'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 six months ended June
30, 1996 were $28.6 million, compared to $24.2 million for the prior year
period, an increase of 18.2%. 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. Judge Group 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 a weighted average billing rate of $38.99. For the six months ended June
30, 1996, total hours billed were 732,358, with a weighted average billing rate
of $39.08, compared to total hours billed of 660,140 with a weighted average
billing rate of $36.66 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 Judge Group'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, and 254 professionals with an average placement fee of $10,800
for the six months ended June 30, 1996. No cost of sales is recorded in the
Permanent Placement business.
Revenue in Judge Group'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, except where
installation is significant to the completion of the contract, in which case
revenue is not recognized until the installation is completed and accepted by
the customer. Cost of sales consists of computer hardware, software and related
licensing fees, salaries and fringe benefits for design, installation and
maintenance personnel, and overhead expenditures allocated to imaging and
networking activities.
Judge Group's Imaging and Network Services business was originally formed
to provide networking services to educational markets, primarily network design,
installation and maintenance utilizing Judge Group's private-label PC products,
and later expanded its networking operations to
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include additional platforms and peripherals. Due to relatively low operating
margins on hardware and software sales, which accounted for a substantial
portion of networking revenues, this business generated operating losses in its
early years. Beginning in 1988, Judge Group anticipated the emergence of a
market for networking systems incorporating imaging and document management
technology. It entered this market first as an exclusive reseller of Optika
software, and then 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, Judge Group
has devoted substantial resources to expand the infrastructure of its imaging
and document management business to support anticipated sales growth, including
the hiring of 34 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 $2.7 million in the six months
ended June 30, 1996, representing approximately 28% and 44% of the Imaging and
Network Services business total revenue in those periods, respectively. However,
Judge Group'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 $(213,000) in
1995 and for the six months ended June 30, 1996, respectively, representing 91%
and 56% of the total operating losses experienced by the Imaging and Network
Services business as a whole, respectively. Judge Group currently is focusing on
achieving profitability in its Imaging and Network Services business and
expanding it through internal growth, new service offerings such as the
MENTOR(Trademark) Consulting Program and a help desk practice, and through
acquisitions.
The following table presents the net revenue (net of intercompany
eliminations) and the income (loss) from operations attributable to each of
Judge Group'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 and the six
months ended June 30, 1996, which were derived from Judge Group's consolidated
unaudited financial statements, all of such financial information is unaudited:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
---------------------------------------------------------------- -------------------------------
1993 1994 1995 1995 1996
-------------------- -------------------- -------------------- -------------------- ---------
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues:
Permanent Placement....... $ 3,131 8.9% $ 3,294 7.3% $ 4,275 6.7% $ 2,065 7.0% $ 2,614
Contract Placement........ 27,537 78.5 38,186 84.4 50,804 80.3 24,196 82.3 28,603
Imaging and Network
Services................ 4,401 12.6 3,773 8.3 8,220 13.0 3,138 10.7 6,110
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Consolidated net
revenues................ $ 35,069 100.0% $ 45,253 100.0% $ 63,299 100.0% $ 29,399 100.0% $ 37,327
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) from
operations:
Permanent Placement....... $ 722 2.1% $ 258 0.6% $ 287 0.4% $ 123 0.4% $ 200
Contract Placement........ 732 2.1 2,392 5.2 2,939 4.7 1,216 4.1 1,399
Imaging and Network
Services................ (137) (.4) (466) (1.0) (526) (.8) (413) (1.4) (380)
Corporate overhead
expense................. (696) (2.0) (741) (1.6) (936) (1.5) (469) (1.6) (692)
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Consolidated income (loss)
from operations......... $ 621 1.8% $ 1,443 3.2% $ 1,764 2.8% $ 457 1.5% $ 527
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
<CAPTION>
1996
-----------
Net revenues:
Permanent Placement....... 7.0%
Contract Placement........ 76.6
Imaging and Network
Services................ 16.4
---------
Consolidated net
revenues................ 100.0%
---------
---------
Income (loss) from
operations:
Permanent Placement....... 0.5%
Contract Placement........ 3.7
Imaging and Network
Services................ (1.0)
Corporate overhead
expense................. (1.8)
---------
Consolidated income (loss)
from operations......... 1.4%
---------
---------
</TABLE>
Included in corporate overhead expense are salaries, benefits and related
costs for Judge Group'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 June 30, 1996.
Founder's compensation of $357,000, $390,000, $495,000, and $306,000 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 six months
ended June 30, 1996, respectively. Future
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<PAGE>
corporate overhead expense will be allocated according to the number of
full-time employees in each of Judge Group's businesses.
Early in 1995 Judge Group 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, Judge Group 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, Judge Group
completed the acquisition of The Berkeley Associates Corporation and Systems
Automation, Inc.
Berkeley, now Judge Group's IT Training business, provides training on a
variety of computer network and software applications through offices located in
Bala Cynwyd, Pennsylvania and Alexandria, Virginia. Besides expanding Judge
Group's range of technical service offerings, the IT Training business will
assist Judge Group in identifying emerging technologies and integrating such
technologies into its organization through the training of its technical
consultants and in-house personnel. Judge Group's IT Training business generated
revenues of $2.3 million and $1.5 million for 1995 and the first six 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 $467,000 for 1995 and the
first six months of 1996, respectively.
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>
SIX MONTHS ENDED JUNE
YEAR ENDED DECEMBER 31, 30,
------------------------------- ------------------------
1993 1994 1995 1995 1996
--------- --------- --------- ------------- ---------
<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 75.8 73.9
Selling and operating........................................ 16.7 14.4 15.5 15.7 17.0
General and administrative................................... 7.2 7.0 6.6 6.9 7.7
--------- --------- --------- ------ ---------
Total costs and expenses..................................... 98.2 96.8 97.2 98.4 98.6
Income from operations....................................... 1.8 3.2 2.8 1.6 1.4
Interest and other, net...................................... 1.0 0.9 1.1 1.1 1.0
--------- --------- --------- ------ ---------
Income before income taxes................................... 0.8% 2.3% 1.7% 0.5% 0.4%
--------- --------- --------- ------ ---------
--------- --------- --------- ------ ---------
</TABLE>
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
Net Revenues. Consolidated net revenues increased by 27.0%, or $7.9
million, for the six months ended June 30, 1996 compared to the prior year
period. Revenue for the Contract Placement business increased by 18.2%, or $4.4
million, for the six month period ended June 30, 1996 compared to the prior year
period. Contributing to this increase was revenue of $1.8 million attributable
to the Edison, New Jersey office, which opened in April 1995, and revenue of
$1.1 million attributable to Judge Group's National Division in Foxborough,
Massachusetts. Revenue for the Permanent Placement business increased by 26.6%,
or $549,000, for the six months ended June 30, 1996 compared to the prior year
period. Contributing to this increase was revenue of $270,000 in the Tampa,
Florida office, attributable to the hiring of additional sales and marketing
personnel, and revenue of $174,000, attributable to the Edison, New Jersey
office. Revenue for the Imaging and Network Services business increased by
94.7%, or $3.0 million, for the six months ended June 30, 1996 compared to the
prior year period. Of this increase, $1.5 million was attributable to networking
systems and services and $1.5 million was attributable to imaging and document
management systems and services.
Cost of Sales. Consolidated cost of sales increased by 23.8%, or $5.3
million, for the six months ended June 30, 1996 compared to the prior year
period. Cost of sales as a percentage of consolidated net revenues decreased to
73.9% from 75.8%. With respect to Judge Group's Imaging and Network Services
business, cost of sales as a percentage of revenue decreased to 75.2% from
78.2%, 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. With respect to Judge Group's Contract Placement
business, cost of sales as a percentage of revenue remained constant at 80.4%.
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.
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<PAGE>
Selling and Operating. Consolidated selling and operating expenses
increased by 38.0%, or $1.8 million, for the six months ended June 30, 1996
compared to the prior year period. Selling and operating expenses as a
percentage of consolidated net revenues for the six months ended June 30, 1996
increased to 17.0% from 15.7% in the prior year period, due primarily to a 38%
increase in payroll costs associated with Judge Group's hiring of sales and
marketing personnel and a $215,000 bad debt charge resulting principally from
the bankruptcy of one of Judge Group's Contract Placement customers.
General and Administrative. Consolidated general and administrative
expenses increased 39.7%, or $810,000, for the period ending June 30, 1996
compared to the prior year period. General and administrative expenses as a
percentage of consolidated net revenues increased to 7.6% for the period ending
June 30, 1996 compared to 6.9% for the prior year period, primarily as a result
of expansion of Judge Group'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 $156,000 as a
result of the opening of Judge Group's Edison, New Jersey office and the
expansion of the Bala Cynwyd, Pennsylvania office
Interest. Interest expense increased by $64,000, or 20.8%, for the six
months ended June 30, 1996 compared to the prior year period. This increase was
due to increased borrowing under Judge Group'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. This
increase primarily resulted from an increase in salaries and related fringe
benefits incurred as a result of an increase in sales personnel in each of Judge
Group's businesses. In addition, Judge Group 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.
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<PAGE>
General and Administrative. Consolidated general and administrative
expenses increased 32.7%, or $1.0 million, in 1995 compared to 1994. This
increase was primarily attributable to 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. The increase in
general and administrative expenses was also attributable to 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 Judge Group's line of credit.
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 Judge Group's offices, and a $1.0 million increase in revenue in Judge
Group'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 75.5% 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. 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 Judge Group'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 Judge Group's Bala Cynwyd office and an
increase in accounting fees. 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 Judge Group's line of credit.
INCOME TAXES
Judge Group 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 Judge Group's repurchase of equity interests held in Judge
Group 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
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<PAGE>
reporting purposes. The effective tax rate was 79%, 66%, 55%, 225% and 130% for
fiscal year 1993, 1994, 1995, the six months ended June 30, 1995 and the six
months ended June 30, 1996, respectively.
SEASONALITY AND QUARTERLY RESULTS OF OPERATIONS
The following table presents certain unaudited quarterly statements of
operations data for each of Judge Group's last six fiscal quarters. In the
opinion of Judge Group'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. Judge Group'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,
1995 1995 1995 1995 1996 1996
----------- --------- ----------- --------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net revenues..................................... $ 14,131 $ 15,268 $ 17,265 $ 16,635 $ 16,435 $ 20,892
Cost of sales.................................... 10,859 11,432 12,625 12,633 12,528 15,060
Selling and operating............................ 2,124 2,489 2,689 2,497 2,654 3,710
General and administrative....................... 976 1,062 1,191 959 1,398 1,450
----------- --------- ----------- --------- ----------- ---------
Total costs and expenses......................... 13,959 14,983 16,505 16,089 16,580 20,220
Income from operations........................... 172 285 760 546 (145) 672
Interest Expense and other, net.................. 131 186 178 202 181 191
----------- --------- ----------- --------- ----------- ---------
Income (loss) before income taxes................ $ 41 $ 99 $ 582 $ 344 $ (326) $ 481
----------- --------- ----------- --------- ----------- ---------
----------- --------- ----------- --------- ----------- ---------
</TABLE>
Because Judge Group 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. Judge Group 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 Judge Group's operating businesses, particularly the Contract
Placement business.
LIQUIDITY AND CAPITAL RESOURCES
Judge Group has funded its working capital and capital expenditure needs
primarily through borrowings under its credit facility and cash generated from
operations. Judge Group typically maintains minimum cash balances, and at June
30, 1996 had approximately $28,000 in cash.
Judge Group generated cash from operations of approximately ($87,000),
$21,000, ($1.9) million and ($1.1) million in 1993, 1994, 1995 and the six
months ended June 30, 1996, respectively. Judge Group's primary uses of cash
have been to fund increases in accounts receivables to purchase fixed assets
and to repay long-term debt. Judge Group's net accounts receivable have
increased from $4.3 million at December 31, 1993 to $11.4 million at June 30,
1996, principally due to the rapid growth in revenue in its Contract Placement
business. Purchases of fixed assets in 1993, 1994, 1995 and the six months ended
June 30, 1996 were $91,000, $480,000, $637,000 and $657,000, respectively.
Cash provided from financing activities, principally bank borrowings, was
approximately $2.2 million, $358,000, $203,000 and $805,000 in 1993, 1994 and
1995 and the six months ended June 30, 1996, respectively. In addition, Judge
Group received cash proceeds of $888,000 from a private placement of Series A
Preferred shares by its Imaging and Network Services business in February 1996.
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<PAGE>
Judge Group's bank borrowings 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 rate will revert to
prime upon the successful completion of this Offering. This facility allows
Judge Group to borrow the lesser of 80% of eligible receivables or $10.0
million.
Based on eligible receivables of $9.1 million at August 31, 1996, the maximum
amount that Judge Group can borrow under the Line of Credit is $7.8 million.
Judge Group intends to use a portion of the estimated net proceeds to pay down
the Line of Credit, the balance of which was $6.4 million as of June 30, 1996,
although Judge Group does intend to draw on the line as needed in the future.
The Line of Credit is secured by substantially all of Judge Group's assets and
contains customary restrictive covenants, including limitations on amounts of
loans Judge Group may extend to officers and employees, the incurrence of
additional debt and the payment of dividends on Judge Group 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 June 30, 1996, there were no amounts
outstanding under the term loan. In addition, at June 30, 1996, Judge Group had
approximately $1.0 million 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.
Judge Group believes that the proceeds from this Offering, together with
cash generated from operations and borrowings under the Line of Credit, or other
credit facilities which may be available to Judge Group in the future, will be
sufficient to meet Judge Group's capital needs for at least the next twelve
months. Judge Group 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.'
INFLATION
Judge Group does not believe that the rates of inflation prevailing in the
United States in recent years have had a significant effect on its operations.
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<PAGE>
Selected Financial Data of Judge Imaging Systems, Inc.
The following table summarizes certain hsitorical unaudited selected
financial data with respect to Imaging for the five years ended December 31,
1995 and for the six months ended June 30, 1996 and 1995, and give effect to the
business combination (which occurred on February 29, 1996) between DataImage,
Inc. (DataImage) and Judge Computer Corporation (Judge Computer), with DataImage
being the surviving corporation, and which was renamed Judge Imaging Systems,
Inc. (The description of that merger and pro forma statements of operations
pertaining solely to that transaction are included in the Form 10-QSB for
Imaging for the six months ended June 30, 1996, and which is incorporated by
reference in the Registration Statement.) This data should be read in
conjunction with the financial statements of Judge Computer (considered the
acquiring corporation for accounting purposes in the merger) certain of which
are included in the Registration Statement.
-65-
<PAGE>
Selected Financial Data of Judge Imaging Systems, Inc.
<TABLE>
<CAPTION>
Year Ended December 31, Six Months Ended June 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 $2,244 $2,626 $4,401 $3,773 $ 8,700 $ 3,377 $ 6,155
------ ------ ------ ------ ------- ------- -------
Cost of sales 1,616 2,215 3,293 3,039 6,713 2,643 4,629
Selling and operating 330 561 746 832 1,561 595 1,189
General and administrative 324 482 498 416 472 264 672
------ ------ ------ ------ ------- ------- -------
Total costs and expenses 2,270 3,258 4,537 4,287 8,746 3,502 6,490
------ ------ ------ ------ ------- ------- -------
Loss from operations (26) (632) (136) (514) (46) (125) (335)
Interest expense (116) (59) (84) (153) (191) (108) (90)
Other income (expense) 0 0 0 0 (35) (17) 0
------ ------ ------ ------ ------- ------- -------
Loss before income taxes (142) (691) (220) (667) (272) (250) (425)
------ ------ ------ ------ ------- ------- -------
Income tax expense 0 0 0 0 0 0 0
------ ------ ------ ------ ------- ------- -------
Net loss ($142) ($691) ($220) ($667) ($ 272) ($ 250) ($ 425)
------ ------ ------ ------ ------- ------- -------
Preferred dividends earned 0 (18) (18) (18) (18) (9) (76)
------ ------ ------ ------ ------- ------- -------
Net loss attributable to common shareholders ($142) ($709) ($238) ($685) ($ 290) ($ 259) ($ 501)
------ ------ ------ ------ ------- ------- -------
Fully diluted loss per
Common Share: ($0.13) ($0.31) ($0.10) ($0.30) ($0.12) ($0.11) ($0.15)
------ ------ ------ ------ ------- ------- -------
Fully diluted weighted average shares: 1,059 2,291 2,291 2,305 2,328 2,333 3,435
------ ------ ------ ------ ------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, Six Months Ended June 30,
----------------------------------------------- -------------------------
1991 1992 1993 1994 1995 1996
------ ------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital (deficiency) $ 208 ($ 92) $ 225 $ 60 $ 1,117 $1,098
Total assets 690 640 1,023 1,050 2,531 3,477
Notes payable, bank 0 0 0 249 1,538 1,407
Other long-term obligations, including
current portion 175 578 1,106 1,344 1,519 81
Shareholders' equity (deficit) 126 (564) (785) (1,451) (1,717) (1,430)
</TABLE>
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF JIS
The following discussion of JIS' financial condition and results of
operations should be read in conjunction with the financial statements of JIS
and related notes thereto appearing elsewhere in this Proxy
Statement/Prospectus.
Overview
JIS is the surviving corporation of the merger of Judge Computer
Corporation ("Judge Computer") into DataImage, Inc. completed on February 29,
1996. In the merger, DataImage changed its name to Judge Imaging Systems, Inc.
("JIS"), the former directors and officers of Judge Computer became directors
and officers of JIS, and the holders of shares of Judge Computer capital stock
were issued shares of JIS capital stock representing approximately 95% of the
voting stock of JIS outstanding after the merger. At the time of the merger,
Judge Computer was engaged in the network services and imaging business and was
owned approximately 33% by the Judge Group and approximately 47% by Martin E.
Judge. DataImage was a publicly held, SEC reporting company engaged in the
development and marketing of software products and systems for the mass storage,
electronic management and retrieval of information.
The merger of Judge Computer and DataImage was accounted for as a
"reverse acquisition" of DataImage by Judge Computer. Consequently, the
financial statements of JIS for periods prior to February 29, 1996 consist
solely of the operations of Judge Computer; for periods from and after February
29, 1996, the financial statements reflect the combined operations of Judge
Computer and DataImage.
Revenue for JIS 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, except where installation is significant to the
completion of the contract, in which case revenue is not recognized until the
installation is completed and accepted by the customer. Cost of revenues consist
of computer hardware, software and related licensing fees, salaries and fringe
benefits for design, installation and maintenance personnel, and overhead
expenditures allocated to imaging and networking activities. Selling 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 related overhead, such as rent and
depreciation.
JIS was originally formed to provide networking services to
educational markets, primarily network design, installation and maintenance
utilizing JIS's private-label PC products, and later expanded its networking
operations to include additional platforms and peripherals. Due to relatively
low operating margins on hardware and software sales, which accounted for a
substantial portion of networking revenues, this business generated operating
losses in its early years. Beginning in 1988, JIS anticipated the emergence of a
market for networking systems incorporating imaging and document management
technology. It entered this market first as an exclusive reseller of Optika
software, and then 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, JIS has
devoted substantial resources to expand the infrastructure of its imaging and
network service business to support anticipated sales growth, including the
hiring of 34 engineering, sales and administrative personnel since the beginning
of 1994.
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<PAGE>
On September 30, 1996, Judge Group, Inc. acquired Systems Automation,
Inc. located in Wakefield, Massachusetts, which provides imaging and document
management systems and services. This acquisition establishes a presence for the
Imaging and Network Services business in the Boston metropolitan area. Systems
Automation generated revenue of $1.2 million and $467,000 for 1995 and the first
six months of 1996, respectively. At the time of the Merger of JIS into
Acquisition, the Judge Group plans to contribute this business to JIS.
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<PAGE>
Results of Operations
The following table summarizes JIS' significant operating results as a
percentage of revenue for each of the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31, Six Months Ended June 30,
----------------------- -------------------------
1994 1995 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenue 100.0% 100.0% 100.0% 100.0%
Cost of revenues 80.5 77.2 78.3 75.2
Selling and operating 22.1 17.9 17.6 19.3
General and administrative 11.0 5.4 7.8 10.9
---- ----- ----- -----
Total costs and expenses 113.6 100.5 103.7 105.4
(Loss) from operations (13.6) (.5) (3.7) (5.4)
Interest and other expenses, net 4.1 2.6 3.7 1.5
---- ----- ----- -----
Net loss (17.7%) (3.1%) (7.4%) (6.9%)
===== ===== ===== =====
</TABLE>
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995
Net Revenues. Net revenues increased by 82.2%, or $2.8 million, for the
six months ended June 30, 1996 as compared to the prior year period. Included in
revenues was revenues from related parties (the Judge Group) of $240,000 and
$44,500 for the six months ended June 1996 and 1995 respectively. This increase
in revenues was mainly attributable to JIS' increased marketing efforts. Of this
increase, $1.5 million was attributable to networking systems and services and
$1.3 million attributable to imaging and document management systems and
services.
Cost of Revenues. Cost of revenues increased by 75.2% or $2.0 million,
for the six months ended June 30, 1996 compared to the prior year period. Cost
of sales as a percentage of net revenues decreased to 75.2% from 78.3%. This
decrease was primarily the realization of economies of scale and an increased
focus on providing services that yield higher margins than traditional hardware
and software sales at lower margins.
Selling and Operating Expenses. Selling and operating expenses were
$1,189,059 and $595,031 for the six months ended June 30, 1996 and 1995
respectively. Selling and operating expenses as a percent of net revenues were
19.3% and 17.6% for the six months ended June 30, 1996 and 1995, respectively.
This increase was mainly attributable to the hiring of additional marketing and
selling staff, including the consultants for the Mentor(TM) program.
General and Administrative Expenses. General and administrative
expenses were $671,756 and $263,768 for the six months ended June 30, 1996 and
1995, respectively. Expenses increased 155%, or $407,988 for the period ending
June 30, 1996, compared to the prior year period. General and administrative
expenses as a percentage of net revenues increased to 10.9% for the period
ending June 30, 1996, compared to 7.8% for the prior year period, primarily as a
result of increased staffing levels, professional fees and increases in rent
expense associated with the opening of new offices.
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<PAGE>
Interest Expense. Interest expense decreased by $18,002 or 16.7%, for
the six month period ending June 30, 1996, compared to the prior year period.
This decrease was due to lower borrowings.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Total Revenues. Net revenues for JIS increased 130.6%, or $4.9 million,
in 1995 compared to 1994. Included in net revenues are revenues from related
parties (the Judge Group) of $480,000 for 1995. Contributing to this increase
was revenue of approximately $2.0 million attributable to the addition of a
major network systems contract with the State of New Jersey.
Cost of Revenues. Cost of revenues increased by 120.9%, or $3.7
million, for 1995, as compared to 1994. Cost of revenues as a percentage of
revenues was 77.2% for 1995, as compared to 80.5% for 1994. This decrease was
mainly attributable to increased profit margins derived from network and
services revenues. The profit margin increase was attributable to the hiring of
a new sales and marketing manager, who placed more emphasis on network services
rather than hardware sales.
Selling and Operating Expenses. Selling and operating expenses
increased by 87.7%, or $.7 million in 1995, compared to 1994, and decreased to
17.9% of net revenues in 1995 compared to 22.1% in 1994. This decrease in
selling expenses as a percent of sales was the direct result of increased
revenues with approximately the same selling staff levels.
General and Administrative Expenses. General and administrative
expenses increased 13.5% or $56,259 for 1995 as compared to 1994. This increase
was primarily attributable to an increase in administrative staffing levels and
increased rent due to the opening of the new office in Edison, New Jersey and
the expansion of the Bala Cynwyd office. Reducing general and administrative
expenses for 1994 was a management charge of $402,000 (10.6% of net revenue) to
the Judge Group. Consequently, JIS' loss for 1994 has been reduced by $402,000.
Interest. Interest expense increased by 25%, or $38,500 in 1995
compared to 1994. This increase was attributable to the increased borrowing
under the line of credit.
Income Taxes
JIS adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," on January 1, 1993.
As a result of operating losses, no provision for income taxes was
required in 1996, 1995 or 1994.
For income tax reporting purposes, as of December 31, 1995, JIS had an
unused operating loss carryforward of approximately $2,355,000, which will
begin expiring in 2002, and which may be applied against future taxable income
of JIS.
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Liquidity and Capital Resources
JIS experienced negative cash flow from operations of approximately
$402,236, $1,194,392 and $687,036 in 1994, 1995, and the six months ended June
30, 1996, respectively. JIS' primary uses of cash have been to fund losses
from operations, increases in accounts receivables, to purchase fixed assets and
to repay long-term debt. JIS' net accounts receivables have increased from $.7
million at January 1, 1995 to $2.1 million at June 30, 1996, principally due to
the growth in revenue. Purchases of fixed assets in 1994 and 1995, and the six
months ended June 30, 1996 were $22,756, $162,677 and $144,551.
JIS has funded its needs for cash primarily through advances by the
Judge Group, borrowings under the credit facility described below and the
proceeds of a private placement. At February 29, 1996, Judge Group had
outstanding advances to JIS of approximately $1.5 million which were converted
into JIS Series B Preferred Stock at the time of the merger of Judge Computer
into DataImage. Cash provided from bank borrowings was approximately $249,255,
$1.3 million, and ($131,465) in 1994 and 1995 and the six months ended June 30,
1996, respectively. In addition, JIS received net cash proceeds of $888,000 from
a private placement of Series A Preferred shares in February 1996 at the time of
the Judge Computer/DataImage merger.
Judge Group and JIS have entered into a credit agreement with PNC
Bank, N.A. (successor to Midlantic Bank, N.A.) pursuant to which PNC Bank has
agreed to provide Judge Group and JIS with a $10.0 million revolving advance
facility (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%. This
facility allows JIS and the Judge Group to borrow in the aggregate the lesser of
80% of eligible receivables or $10.0 million. As of June 30, 1996 Judge
Imaging's borrowings under the Line of Credit was $1.4 million. Judge Group and
JIS are severally and jointly liable to repay all sums advanced under the credit
facility, which is secured by a lien on all accounts receivables, inventory and
other assets of Judge Group and JIS. The Line of Credit contains customary
restrictive covenants, including limitations on the incurrence of additional
debt and the payment of dividends on Judge Group's and JIS' common or preferred
shares. The term loan, which carries an interest rate of prime plus 1-1/2%, is
payable in 60 monthly installments. JIS has not received any proceeds of
borrowings under the term loan.
Inflation
JIS does not believe that the rates of inflation prevailing in the
United States in recent years have had a significant effect on its operations.
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BUSINESS OF JUDGE GROUP
Introduction
In addition to the Imaging and Services business of JIS (described
elsewhere herein), Judge Group services the information
technology ("IT") and engineering needs of its clients by offering contract and
permanent IT and engineering personnel and IT training. Judge Group provides
these services through the following 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 IT Training - Provides standard and customized IT training on
established and emerging software applications
Judge Group'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. Judge
Group 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. Judge Group maintains a database of over 100,000
technical consultants, and in 1995 provided over 1,200 technical consultants to
more than 400 clients.
Judge Group's Permanent Placement business provides medium to
high-level IT and engineering professionals on a permanent basis to clients
nationwide. Judge Group maintains a database of over 70,000 IT and engineering
professionals, and in 1995 placed 460 candidates with more than 240 clients.
Judge Group'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 certificates courses, and over 180
open-enrollment courses, either in its own computer labs or at client locations.
Besides expanding Judge Group's range of technical service offerings, the IT
Training business will assist Judge Group in identifying emerging technologies
and integrating such technologies into its organization through the training of
its technical consultants and in-house personnel.
Judge Group serves its clients through offices located in Bala Cynwyd,
Pennsylvania; Foxborough, Massachusetts; Edison, New Jersey; Tampa, Florida; and
Alexandria, Virginia. Judge Group's client base includes various Fortune 500
companies and governmental agencies, including Merck, Bell Atlantic NYNEX
Mobile, Texas Instruments, Compaq Computer Corporation, Intel Corporation and
the City of Philadelphia. Judge Group believes that its complementary business
affords it a competitive advantage over IT service providers that have fewer
service offerings, and positions it to benefit from the anticipated growth in
the technical staffing industry. Judge Group 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
Judge Group operates within the Technical Personnel Placement and
Training segment of the IT professional services industry, which is highly
fragmented and characterized by a large number of local and regional service
providers.
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Technical Personnel Placement and 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 technical 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
provides 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 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 that prefer
to 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% compound
annual growth rate.
Business Strategy
Judge Group's objective is to become a leading nationwide provider of
IT and engineering professional technical services. Key elements of
Judge Group's business strategy include:
Offer a Single Source of Technical Solutions. Judge Group provides its clients
with a wide range of technical staffing and training services. By integrating
multiple IT and engineering services, Judge Group 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. Judge Group intends to continue to develop
complementary new services in order to enhance its capabilities as a
single-source provider of technical solutions.
Aggressively Market a Broad Range of Services. Judge Group has recently
established several incentive sales programs to increase business from existing
clients by encouraging the cross-selling of the services of its operating
units. In addition, Judge Group has implemented a new direct marketing program
that emphasizes its competitive advantage over IT service providers that offer
only one or two of Judge Group's services. Furthermore, Judge Group 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 business.
Developing a National Presence. Judge Group believes that many organizations
with multiple geographic locations prefer to utilize technical service providers
that can offer high quality services on a nationwide basis. Judge Group 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, Judge Group
has begun targeting longer-term national projects as well as those projects
utilizing more highly skilled personnel. Judge Group believes that it has
several national accounts with which it has a large enough base of business to
warrant establishing a local Contract Placement office, and intends to leverage
select national accounts to expand into new geographic areas.
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Capitalize on IT Training Resources. Judge Group intends to leverage its
recently acquired IT Training unit 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. Judge Group
intends to employ its instructors to train its technical consultants in
leading-edge technologic, 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, Judge Group will enhance its ability to stay
current on new technologies and to position itself as a provider of leading-edge
technical solutions.
Pursue 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 Judge Group's 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, Judge Group 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. Judge Group 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 Judge Group believes it
can secure a sufficient market share to warrant opening a new office.
Services
Contract Placement.
Judge Group provides IT and engineering technical consultants on a
contract basis regionally through offices in Bala Cynwyd, Pennsylvania,
Foxborough, Massachusetts, and Edison, New Jersey. Judge Group maintains a
database of over 100,000 technical consultant resumes and in 1995 placed over
1,200 consultants with more than 400 clients. Typical engagements range in
duration from six to twelve months, though Judge Group's technical consultants
have been performing services for several of its clients for a period of more
than 5 years. Judge Group's technical consultants often work jointly with a
client's in-house IT personnel, and are generally placed with clients on a
hourly basis at fees ranging from $10.00 to $150.00 and averaging $39.00. Judge
Group's Contract Placement business, founded in 1986, generated revenue of $50.8
million in fiscal 1995 and $28.6 million for the six months ending June 30,
1996, representing 80.3% and 76.6% of Judge Group's company revenues in those
periods, respectively.
The majority of Judge Group's Contract Placement business is derived
from providing technical consultants skilled in applications programming and
development, client/server technology, legacy systems conversion, software
architecture and design, data communications, systems engineering and
Internet/Web-Site design. In addition to staff augmentation, Judge Group 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 management engagement, which is usually priced on a
fixed fee basis, Judge Group 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 wide range capabilities of
Judge Group'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
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Internet/Web-Site Design 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 Support of MS Office/Lotus Suite; Windows;
Trouble shooting hardware/software
Engineering
Position/Title Skills
- -------------- ------
Engineer ASIC Chip Design; Embedded Microprocessor
(Chemical) Design Engineer; Autolisp
Programming; Pharmaceutical 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 Piping Design; Electro-Mechanical
Packaging Design
Judge Group, 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 recently began assisting clients in re-engineering their IT systems and
databases to accommodate the year 2000 and beyond. Judge Group 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 Judge Group under a monthly
fee arrangement. Judge Group is also developing and 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, Judge Group 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, Judge Group has in the past, and
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.
Judge Group believes that many organizations with multiple geographic
locations prefer to utilize technical service providers that can offer high
quality services on a nationwide basis. Judge Group established its National
Division in Foxborough, Massachusetts in 1991 to provide engineering personnel
on a contract basis nationwide, and Judge Group currently serves national
clients in such locations as Portland, Oregon and Houston, Texas. Judge Group
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 $4.9 million in 1995 and the first six months of 1996, respectively.
Permanent Placement
Judge Group's Permanent Placement business provides medium to
high-level IT engineering professionals nationwide through its regional offices
in Bala Cynwyd, Pennsylvania, Tampa, Forida, and Edison, New Jersey. A
significant portion of Judge Group's engineering placements are in food related
industries. Judge Group maintains a database of over 70,000 engineering and IT,
applicants and in 1995, Judge Group placed 460 professionals with
more than 240 clients. Over the course of Judge Group'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 services, Judge Group
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.
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The Permanent Placement business, founded in 1970, generated revenues of $4.3
million in 1995 and $2.6 million for the six months ending June 30, 1996,
respectively, representing 6.7% and 7.0% of total Judge Group's revenues for
those periods, respectively.
Training
Judge Group's IT Training business acquired in September 1996, has
provided training to approximately 2,500 client companies and over 12,000
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 and Alexandria, Virginia, and at various off-site
locations. Judge Group is an authorized training center for many major software
manufacturers, including Microsoft, Adobe, Quark, Corel and Claris, and is also
an approved Apple Training Alliance Center, Microsoft Solutions Provider and
Microsoft Advanced Technical Education Center. Judge Group'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. Judge
Group also offers six certificate programs, often geared toward retraining
mid-career workers in new technology applications, and 180 open enrollment
courses. Judge Group's job search assistance program achieved a 92% placement
rate for Judge Group's graduates in 1995. Judge Group maintains twelve computer
labs in its Bala Cynwyd, Pennsylvania facility and eight computer labs in its
Alexandria, Virginia facility. In addition, Judge Group 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 $385, and
prices for a diploma course range from $3,900 to $7,400, with an average of
$6,300. The chart below illustrates many of the training programs offered by
Judge Group:
Subject Applications
- ------- ------------
Operating Systems/Networking Microsoft Windows for
Workgroups, Windows 95,
Microsoft Windows NT,
Microsoft Windows NT
Server, Macintosh, Novell
Windows/Advanced Macintosh Business Software Lotus 1-2-3, Lotus Notes,
Microsoft 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
Publishing Photoshop,
Presswise, Trapwise,
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 Judge Group include financial
services, manufacturing, software/computers telecommunications, healthcare,
government and pharmaceutical. In fiscal 1995, approximately 22.6% of Judge
Group's revenue was derived from its top 10 customers, and Merck accounted
for more than 6.4% of revenues.
The following table sets forth a list of the largest clients, by
revenues, for which each of Judge Group's four operating units provided services
in 1995:
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<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Telecommunications Pharmaceutical Software/Computers
- -------------------------------------------------------------------------------------------------
Bell Atlantic (3) Merck & Co., Inc. (1) Texas Instruments (1)
- -------------------------------------------------------------------------------------------------
Rhone Poulenc Rorer (1) Compaq Computer Corporation (1)
- -------------------------------------------------------------------------------------------------
Ciba Corning Diagnostics (1) Wyeth-Ayerst (2) Intel Corporation (1)
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
Manufacturing Financial Services Governmental
- -------------------------------------------------------------------------------------------------
Healthcare
- -------------------------------------------------------------------------------------------------
US Healthcare (1)(4)
- -------------------------------------------------------------------------------------------------
Ciba Corning (1) Vanguard (1)
- -------------------------------------------------------------------------------------------------
Tandem Computer (1) Reliance Insurance Co. (2)
- -------------------------------------------------------------------------------------------------
City of Philadelphia (3)
- -------------------------------------------------------------------------------------------------
Nestle Incorporated (2)
=================================================================================================
</TABLE>
(1) Client of Contract Placement unit
(2) Client of Permanent Placement unit
(3) Client of IT Training unit
(4) IT Training Client
Technical Personnel
Judge Group 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. Judge Group maintains a proprietary
database in each of its Permanent and Contract Placement businesses specifically
designed to identify and match these individuals with clients' needs. Judge
Group's Permanent and Contract Placement databases currently contain the resumes
of approximately 70,000 and 100,000 technical personnel, respectively. All of
Judge Group's technical recruiters who place applicants and consultants have
on-line access to the appropriate database.
Judge Group 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, Judge Group has
developed a World Wide Web site on the Internet that provides information about
Judge Group and enables individuals to submit their resumes. Judge Group also
actively searches the Internet to identify potential technical consultants,
often downloading resumes and proactively recruiting such individuals. The
resumes of technical candidates are entered into the appropriate database, thus
giving technical consultants 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, Judge Group routinely interviews the client
and technical consultant to make sure a proper fit exists, thereby ensuring both
customer and technical consultant satisfaction.
Judge Group 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, Judge Group seeks to secure new engagements
for its technical consultants before their current engagements end to keep them
continuously employed and to eliminate downtime. Judge Group believes that its
ability to offer a variety of assignments nationwide through its National
Division also is a factor in retaining technical consultants.
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Sales and Marketing
Judge Group's Contract Placement and IT Training businesses each market
their respective services through 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 Judge Group'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 Judge Group's corporate
office to facilitate the billing and purchasing cycle. Account Managers receive
a base salary plus individual incentives tied to gross margins. Judge Group
generates leads through a combination of a telemarketing programs, media
advertising and local trade shows. In addition, Judge Group receives sales leads
from its other operating units.
Judge Group markets its IT training services through print advertising
in trade publications, telemarketing, trade shows, direct mail and local radio.
Judge Group utilizes 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. Judge Group has determined that over 60% of its 1995 IT training
sales were generated by either repeat business or client referrals.
Judge Group's Bala Cynwyd, Pennsylvania location is the prototype sales
office out of which the full range of its services are offered. Judge Group
believes that its complementary businesses afford it a competitive advantage
over IT service providers that offer only one or two of the its services and
intends to eventually offer all of its services at each of its locations. The
Edison, New Jersey office, which currently offers Contract Placement and
Permanent Placement Services, is scheduled to begin offering IT Training by the
end of 1997, becoming Judge Group's second full-service location.
Judge Group 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, Judge Group 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 Judge Group's operating
businesses.
Competition
The IT professional services industry is highly competitive and
fragmented on the local, regional and national levels. Many companies offer one
or two of Judge Group's services in all of the geographical markets in which
Judge Group currently operates. In addition, Judge Group's competitors may have
significantly greater name recognition and financial, technical and other
resources and generate greater revenues than Judge Group.
Contract and Permanent Placement. Within any given geographical or
technical specialty market, Judge Group 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 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. Judge Group 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. Judge Group's principal competitors in the Contract Placement
business include a range of companies such as The Registry, Inc., Techaid
Corporation, Volt, H.L. Yoh, Additional Tech Support, and CDI.
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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. Judge Group 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, Judge Group 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. Judge
Group competes in the IT training business on the basis of its pricing,
perceived quality and breadth of course offerings. Judge Group's principal
competitors in the IT Training business include Chubb, Computer Learning
Centers, Executrain and Catapult, which is owned by IBM.
Regulation
Judge Group's operations, as currently conducted, are subject to
governmental regulation in the State of New Jersey, where its 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
Judge Group's business. Judge Group is unaware of any other jurisdictions in
which its operations are subject to material governmental regulation.
All the jurisdictions in which Judge Group operates its training
centers regulate and license certain kinds of vocational, trade, technical or
other post-secondary education. Judge Group believes that employer-funded or
reimbursed IT training is exempt from such requirements in many of these states.
Judge Group is licensed in each jurisdiction in which it operates training
centers.
If Judge Group 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 Judge Group or commenced any proceeding against it for the
violation of any licensing or other vocational educational requirement.
Employees
As of August 31, 1996, Judge Group had 307 employees, of which 5 were
staff IT consultants, 63 were either Technical Recruiters as Recruiting
Coordinators, 59 served in sales or marketing capacities, 95 were working in
engineering and technical support and 85 served in managerial and administrative
capacities. On that date, there were also approximately 1,200 IT consultants
(including the 5 staff IT consultants) working on full-time assignments for
Judge Group's clients. Judge Group 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 Judge Group
during 1995 were treated as employees of Judge Group for federal and state tax
purposes. For such employees, Judge Group 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. Judge
Group 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 and Recent Acquisitions
Prior to the completion of the Public Offering, Judge Group completed a
corporate reorganization (the "Reorganization") and acquired Berkeley and
Systems Automation.
Reorganization. In the Reorganization, completed in September 1996,
Judge Group became a holding company for its operating subsidiaries, effected a
52.6 for 1.0 stock split, and amended and restated its by-laws.
Berkeley Associates Corporation. In September 1996, Judge Group
acquired Berkeley for cash and stock consideration of approximately $2.3
million. Berkeley, founded in 1980, is a provider of IT training services to
corporate, governmental and individual clients. Judge Group 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 Judge Group's technical consultants.
Systems Automation. In September 1996, Judge Group acquired Systems
Automation for consideration consisting of a cash note totaling approximately
$547,252.
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Facilities
Judge Group has leased offices in the following locations:
<TABLE>
<CAPTION>
Square Lease Services Offered
Office Feet Expiration as of September 1, 1996
- ------ ---- ---------- -----------------------
<S> <C> <C> <C>
Bala Cynwyd, Pennsylvania 32,000 June 30, 2000 Contract Placement,
Permanent Placement,
IT Training
Foxborough, Massachusetts 7,100 March 1, 2000 Contract Placement
Edison, New Jersey 4,700 March 1, 2000 Contract Placement,
Technical Permanent
Placement
Tampa, Florida 2,500 April 30, 1998 Permanent Placement
Alexandria, Virginia 4,700 December 31, 2000 IT Training
</TABLE>
Legal Proceedings
The only pending legal proceeding against Judge Group involves a former
employee who has filed a claim with the Department of Labor under the Uniform
Services Employment and Reemployment Rights Act. The former employee has also
filed an identical claim with the Equal Employment Opportunity Commission under
the Americans With Disabilities Act. These claims arise from the same allegation
that Judge, Inc. failed to comply with its obligations to make certain
accommodations on behalf of the employee under the respective Acts. The former
employee seeks reinstatement and back pay.
These claims are presently in the investigation stage before the
respective agencies. While the preliminary status of these matters makes it
difficult to predict an outcome, Judge, Inc. believes that it has fully complied
with its obligations under each Act. It intends to vigorously defend these
matters and does not view either claim as having an adverse material impact on
the operation of Judge Group.
Judge Group is involved in legal proceedings from time to time in the
ordinary course of business. As of the date of this Proxy Statement/Prospectus,
there are no material legal proceedings pending against Judge Group.
-80-
<PAGE>
MANAGEMENT AND CERTAIN TRANSACTIONS OF JUDGE GROUP
Executive Officers and Directors
Set forth below is certain information concerning the executive
officers and directors of Judge Group.
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................ 44 Chief Financial Officer and
Treasurer
Katharine A. Wiercinski........... 35 Secretary; Vice-President -
Human Resources
Wendy Greenberg-Marcelli.......... 30 Vice President
Martin E. Judge, Jr., founded Judge Group 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 President of Judge Group'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 the President of the Furst Group, a reseller of telecommunications services.
He is the President of Judge Group and currently serves on its Board of
Directors.
Michael A. Dunn has served as the President of Judge Group'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 Judge Group
in 1973. Mr. Dunn is an Executive Vice President of Judge Group and serves on
Judge Group's Board of Directors.
Jeffrey J. Andrews has served as JIS's Chief Financial Officer
since joining JIS on May 1, 1996. Mr. Andrews has served as Judge Group's Chief
Financial Officer as of September 4, 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 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 Judge Group and each of its subsidiaries since 1990 and as
Secretary of Judge Group since 1990. Ms. Wiercinski has also held various
administrative and managerial positions since joining Judge Group in 1981.
Wendy Greenberg-Marcelli has been the Vice President of Judge Group
since September 1996 and President at JIS since July 1995. From July 1994 to
July 1995, Ms. Greenberg-Marcelli served as Executive Vice President of JIS, and
from January 1991 to July 1994 served as its Operations Manager. Ms.
Greenberg-Marcelli started with Judge Group in its Customer Support Division in
1989.
Following the completion of the Public Offering, Judge Group expects to
expand its Board of Directors from its present three members to five members,
including two new directors who are not affiliated with Judge Group or its
current principal shareholders.
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<PAGE>
Directors' Compensation
In fiscal years 1994 and 1995, the Judge Group's directors, and the
directors of each of Judge Group's subsidiaries, did not receive any
compensation for their services.
Executive Compensation
The following table summarizes the compensation paid for fiscal year
1995 to the Chief Executive Officer and to each of Judge Group's most highly
compensated officers whose total annual salary and bonus for the fiscal year
ended December 31, 1995 exceeded $100,000.
<TABLE>
<CAPTION>
Summary Compensation Table
=================================================================================================================
<S> <C> <C> <C> <C>
Name and Principal Position Fiscal Salary Bonus Other
Year ($) ($) Compensation ($)
- -----------------------------------------------------------------------------------------------------------------
Martin Judge, Jr. 1995 417,000 68,000 10,000
Chairman of the Board and Chief Executive Officer
- -----------------------------------------------------------------------------------------------------------------
Richard Furlano 1995 192,017 65,127 -0-
President
- -----------------------------------------------------------------------------------------------------------------
Michael A. Dunn 1995 250,260 -0- 2,311
Executive Vice President
=================================================================================================================
</TABLE>
Employment Agreements
Judge Group requires that all key employees execute confidentiality and
one-year post-termination non-competition agreements.
Stock Plan
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 Judge Group 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 ("NRSOs") to purchase Common
Shares of Judge Group 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 Judge Group and of any related
corporation ("Related Corporation"). Moreover, Judge Group may, through the
grant of non-qualified stock options to non-employee directors ("Non-Employee
Directors") under a
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<PAGE>
formula, attract and retain Non-Employee Directors and motivate such
Non-Employee Directors to exercise their best efforts on behalf of Judge Group
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
Judge Group 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 Judge Group's Stock Option Committee
("Committee"), which shall consist of two (2) directors of Judge Group who shall
be appointed by, and shall serve at the pleasure of, Judge Group's Board of
Directors (the "Board") and each of whom shall be an "outside director," within
the meaning of Treasury Regulation ss.1.162-27(e)(3), within the period of time
described in Treasury Regulation ss.1.162-27(f)(2). Each member of the
Committee, while serving as such, shall be deemed to be acting in his or her
capacity as a director of Judge Group.
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%
shareholder) 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%) shareholders) 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 the Judge Group 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 Judge Group 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 Judge Group or a Related Corporation
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 it 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 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
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<PAGE>
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 Option 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 NQSO to purchase 2,500 Common Shares at the time of the grant,
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 or she 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 automatic and neither the Committee or the Board
shall have any discretionary authority with respect thereto. NQSOs granted
pursuant to the Plan to Non-Employee Directors will become exercisable twelve
months after the date of their grant however, NQSOs 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 Judge
Group. The NQSOs to be outstanding 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 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
in the public offering will have an exercise price equal to the initial public
offering. 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 become 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 the Public Offering shall be exercisable as of the earlier of
twelve months from the date of the grant or six months after the Plan is
approved by the Shareholders of Judge Group.
The Plan provides that the Board may make certain adjustments 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 may amend or discontinue
the Plan as it deems necessary, but no amendment will adversely affect the
rights of a grantee with respect to an outstanding option without his or her
consent.
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<PAGE>
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 Judge Group Board of Directors, which included Mr. Judge, the Chairman of
the Board and Chief Executive Officer of Judge Group.
Certain Transactions
Effective upon the date of the Public Offering, any transactions
between Judge Group 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 Judge Group's obligations under the Line of
Credit with Midlantic Bank, N.A., to enable Judge Group to obtain the Line of
Credit. The amount outstanding under the Line of Credit at August 31, 1996 was
$7,781,000. Upon the completion of the Public Offering, Mr. Judge and Mr. and
Mrs. Dunn will be released from these guaranties, subject to certain
qualifications.
As of June 30, 1996, Judge Group owed approximately $115,000 to Martin
E. Judge, Jr. This loan has no formal repayment terms and bears interest at
previous rates (from prime plus 1% to a fixed rate of 12%). Judge Group pays the
interest related to these loans directly to commercial banks from which
Mr. Judge borrowed the amount. As of August 31, 1996, Mr. Judge owed Judge Group
$287,505. This loan will be repaid at or prior to the completion of the Public
Offering.
As of June 30, 1996, Judge Group had advanced $106,000 to Judge
Financial Services, a personal financial advisory company, which is owned by
Dennis Judge, Martin E. Judge, Jr.'s brother. This advance does not bear
interest, does not have formal repayment terms and will be repaid at or prior to
the completion of the Public Offering.
Judge Group has from time to time provided loans to certain employees.
As of August 31, 1996, Mr. Judge owes Judge Group $287,505. This loan will be
repaid at or prior to the completion of the Public Offering.
In connection with 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 Judge Group, respectively, in exchange for shares of
JIS Common Stock and/or JIS Series A Preferred Stock that they presently hold.
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<PAGE>
PRINCIPAL SHAREHOLDERS OF JUDGE GROUP
The following table sets forth certain information with respect to the
beneficial ownership of Judge Group's Common Shares as of October 1, 1996, (1)
by each person known by Judge Group to own beneficially 5% or more of the
outstanding Common Shares, (2) by each director, executive officer and certain
other officers of Judge Group and (3) by all directors and officers as a group.
<TABLE>
<CAPTION>
Beneficial Ownership
Beneficial Ownership After the Merger
Prior to the Merger(2) and Public Offering(3)
----------------------- ----------------------
Name and Address(1) Shares Percentage Shares Percentage
- ------------------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Martin E. Judge, Jr 5,878,050 64.5% 5,986,462(4) 45.8%
Michael A. Dunn 1,959,350 21.5% 1,853,422(5) 14.2%
Katharine Wiercinski 52,600 .6% 52,600 0.4%
Jeffrey Andrews -- --
Richard T. Furlano 52,600 .6% 52,600 0.4%
Wendy Greenberg-Marcelli -- -- 20,139 0.2%
Arthur Kania 420,800 4.6% 488,499 3.8%
All Directors and officers as a group 7,995,200 87.7% 7,997,684(6) 61.4%
(six persons)
</TABLE>
- -----------------
(1) Unless otherwise indicated, the address of each of the beneficial owners
identified is Two Bala Plaza, Suite 800, Bala Cynwyd, Pennsylvania.
(2) Unless otherwise indicated, each person has sole voting and investment power
with respect to all such shares.
(3) Calculated before the underwriters' over-allotment option, assuming Judge
Group sells 3,000,000 shares at the Public Offering at $10.00 per share.
(4) Reflects sales of 270,000 shares in the Public Offering and 378,412 shares
received in the Merger.
(5) Reflects sales of 150,000 shares in the Public Offering and 44,072 shares
received in the Merger.
(6) Reflects sales of 30,000 shares in the Public Offering and 107,469 shares
received in the Merger.
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<PAGE>
BUSINESS OF JIS
Introduction
The Imaging and Network Services business of 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. JIS 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, Hewlett Packard and others. The Company has installed more than 120
imaging systems, is an authorized value-added reseller of Optika, Filenet,
Saros, 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.
Industry Overview
Imaging, Document Management and Network Services. During the early to
mid-1980's, many organizations began to migrate from mainframe-based computer
operations to more cost-effective 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 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 computing systems, 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 healthcare,
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 the Association for the
Information and Image Management International ("AIIM"), electronic imaging
revenues, including hardware, software, services and support, grew from $2.2
billion in 1994 to $2.6 billion in 1995. JIS believes that document management
service providers, such as JIS, 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.
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<PAGE>
Business Strategy
JIS's objective is to become a leading nationwide provider of imaging
and network services. A key element of JIS's business strategy is the expansion
of its Imaging and Network Services business. JIS began developing its imaging,
document management and workflow service capabilities and infrastructure in
1988. JIS has installed more than 120 imaging and document management systems,
and currently has more than 85 people committed to imaging projects, including
personnel specializing in high-volume backfile conversion, an Advanced
Development Group, and the MENTOR(TM) consulting Group. JIS 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.
Services
Imaging and Network Services. JIS provides various imaging, document
management, workflow and related consulting services through regional offices in
Bala Cynwyd, Pennsylvania, Moorestown, New Jersey, Hartford, Connecticut,
Wakefield, Massachusetts and Tampa, Florida. The Imaging and Network Services
business, which began operations in 1988, generated revenues of $8 million and
$6.1 million in fiscal 1995 and the six months ended June 30, 1996,
respectively.
JIS 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 Hewlett Packard, and
provides a full range of installation, training, maintenance, repair and network
integration services. In addition, JIS assembles, sells and services its own
private-label PC products.
JIS 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. JIS has installed
more than 120 imaging and document management systems, and offers its customers
hardware and software maintenance, support and training. JIS was the first to
implement Optika software in Banyan, OS/2 and Windows NT environments and is
currently a value-added reseller of a variety of imaging software systems,
including Filenet, Saros, Watermark, Keyfile, OTP and Lotus Notes. In addition,
certain JIS personnel have been certified by the Document Imaging Association,
the only certification available in the document management industry. JIS
integrates its imaging software solutions on hardware manufactured by IBM,
Compaq, Hewlett Packard and Sun Workstations, operating under either Microsoft
Windows (including Windows NT), OS/2 or Unix operating systems.
JIS seeks to provide its clients with document management solutions to
improve their operations through work process redesign and enabling technology
implementation. JIS believes that a thorough understanding of the clients'
existing IT system and work processes is necessary to the design of an optimal
document management system. In 1996, JIS introduced its MENTOR(TM) Consulting
Program, a methodology for evaluating new technology and organizational redesign
("MENTOR"), to provide clients with a framework for selecting such a system. The
services provided through MENTOR can be categorized into four phases: Business
Process Re-engineering; Systems Design; Systems Implementation; and Support,
Maintenance and Training.
Business Process Re-engineering. JIS 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 phase, JIS presents the client with a detailed set
of technological and work process recommendations. Based on a client's
decision to accept some or all of these recommendations, JIS provides
functional specifications for the new work processes and IT system.
System Design. JIS assists clients in designing a technology
infrastructure that will support the interrelated strategic business
objectives and IT needs identified in the previous stage. 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 imaging
software solution selected by the client does not completely meet its
application requirements, JIS's Advanced Development Group provides custom
application development.
Systems Implementation. JIS provides the necessary technical personnel to
implement each networking or document management solution, often drawing
on the technical consultant resources of its Contract Placement business.
JIS's internal staff of network engineers is certified by Novell, Banyan
and Microsoft (Windows NT) to perform installation, maintenance and
training in their network operating system platforms. JIS 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.
Support, Maintenance and Training. JIS is authorized to service all of the
hardware products it sells. JIS typically enters into maintenance
contracts in connection with the installation of document management
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<PAGE>
systems. JIS also offers training on all of the imaging products it sells,
as well as on the use and administration of all network operating systems
it installs.
Competition
The imaging, document management and network services market is intensely
competitive and subject to rapid change. In order to compete effectively, JIS
needs to continually enhance its current product and service offerings and
expand its professional services capabilities. JIS 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 imaging marketplace, JIS 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. JIS's principal competitors include a range of
companies, such as Andersen Consulting, Technology Solutions Corporation,
Cambridge Technology Partners, Inc., USI, Viewstar.
Customers
The primary industries served by JIS include telecommunications,
pharmaceuticals and city, state and federal governmental divisions, and in 1995
included Bell Atlantic, NYNEX Mobile, Hoffman La Roche, Inc., Bordentown (NJ)
Board of Education and the City of Philadelphia.
Sales and Marketing
JIS markets its imaging, document management and workflow and related
consulting services through a direct technical sales force located in Bala
Cynwyd, Pennsylvania, Moorestown, New Jersey, and Tampa, Florida. JIS also
generates leads through a combination of telemarketing programs, free monthly
seminars, local trade shows, media advertising and on-site seminars. JIS also
receives sales leads from its software vendors and through cooperative channels
such as joint seminars and media advertising.
Employees
As of August 31, 1996, JIS had ___ employees, of which _______. JIS is
not a party to any collective bargaining agreements and considers its
relationships with its employees to be good.
Facilities
JIS has leased offices in the following locations:
Office Lease Expiration
------ -----------------
Bala Cynwyd, Pennsylvania June 30, 2000
Moorestown, New Jersey January 1, 1997
Edison, New Jersey March 1, 2000
Wakefield, Massachusettes Month-to-Month
Hartford, Connecticut June 30, 2000
Tampa, Florida April 30, 1988
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<PAGE>
MANAGEMENT AND CERTAIN TRANSACTIONS OF JIS
Executive Officers and Directors
Set forth below is certain information concerning the executive officers
and directors of JIS.
Name Age Position
- ---- --- --------
Martin E. Judge, Jr.......... 52 Chief Executive Officer and Director
Wendy Greenberg.............. 30 President and Director
Michael A. Dunn.............. 47 Director
Jeffrey J. Andrews........... 44 Chief Financial Officer
Katharine Wiercinski......... 35 Secretary and Controller; Vice
President - Human Resources
Margaret E. Sulpazo.......... 53 Treasurer
Robert E. Keith.............. 54 Director
Marvin N. Demchick........... 72 Director
Martin E. Judge, Jr., the founder of JIS, has served as Chief Executive
Officer and Chairman of the Board of JIS since its formation in 1984. Mr. Judge
is a Director and the Chairman of each company. Mr. Judge received his BS in
Marketing from Villanova University.
Margaret E. Sulpazo is the Treasurer and Controller of JIS. Ms. Sulpazo is
also currently employed as the Controller of the Judge Group and Judge
Technical, positions she has held since 1986. She currently sits on the Board
and is Treasurer for each of Judge, Inc. and Judge Technical. Ms. Sulpazo held
various financial positions with Judge, Inc. from 1972 to 1986. Margaret Sulpazo
is the sister of Martin E. Judge, Jr.
Katharine Wiercinski has been Vice President of Human Resources and
Secretary for JIS since 1992. She currently is also the Vice President of Human
Resources for Judge, Inc., Judge Group and Judge Technical. Ms. Wiercinski also
serves as Secretary for Judge, Inc. and Judge Technical.
Michael A. Dunn is director of Judge Group. He is also currently the
President of Judge, Inc. Prior to becoming President in 1990, Mr. Dunn served as
an Executive Vice President and Divisional Manager for Judge, Inc. Mr. Dunn has
been employed by Judge, Inc. since 1973. Mr. Dunn also currently serves on the
Board of Directors of Judge Technical.
Jeffrey J. Andrews has served as JIS's Chief Financial Officer since May
1, 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 and, prior to that time, was the President and sole shareholder of Andrews
Associates, an investment banking firm.
Robert Keith has served as a Director of Judge Group since August 1996. Mr.
Keith has served as a Managing Director of Radnor Venture Management Company, a
venture capital partnership, since 1989, a Managing Director since 1991 and a
General Partner since 1995 of Technologies Leaders Management, L.P., and a
Managing Director and General Partner of Technology Leaders II Management, L.P.,
since 1994. Mr. Keith is also an Officer and Director of the Gemstone Group,
Inc.
-90-
<PAGE>
Marvin Demchick has served as a Director of Judge Group since August 1996.
Mr. Demchick has been a CPA since 1949. No longer practicing, Mr. Demchick is a
self-employed investor.
Compensation of Directors
Under the JIS Bylaws, each director is entitled to receive such
compensation, if any, as may from time to time be fixed by the Board of
Directors. JIS currently reimburses its directors for reasonable travel and
other out-of-pocket expenses incurred in connection with their services as
directors.
Executive Compensation
<TABLE>
<CAPTION>
Summary Compensation Table
================================================================================================================
Name and Principal Position (1) Fiscal Salary Bonus Other
Year ($) ($) Compensation ($)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Wendy Greenberg-Marcelli 1995 100,000 26,971 9,640
President
================================================================================================================
</TABLE>
(1) The compensation of Martin E. Judge, Jr., the Chairman and Chief Executive
Officer of JIS, was charged to Judge Group.
Employment Agreements
JIS has employment agreements with Wendy Greenberg-Marcelli and
Jeffrey 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 Judge Group. The agreement
provides that Ms. Greenberg-Marcelli may only be terminated for cause. In
addition to providing an annual base salary of $100,000, Ms. Greenberg-Marcelli
was granted 70,604 shares of Judge Computer Corporation (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 Judge
Group provides prior written notice. The agreement provides a base salary of
$75,000 and certain other benefits.
Stock Options
JIS did not grant stock options to any of its executive officers for
the fiscal year ended December 31, 1995. The following table provides
information concerning exercisable and unexercisable stock options held on
December 31, 1995 by the Chief Executive Officer, President and for each
executive officer whose aggregate compensation exceeded $100,000.
Number of Value of Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs
December 31, 1995 at December 31, 1995 ($)
----------------- ------------------------
Name Exercisable/Unexercisable Exercisable/Unexercisable
---- ------------------------- -------------------------
Martin E. Judge, Jr 0 0 0 0
Wendy Greenberg-Marcelli 0 0 0 0
-91-
<PAGE>
CERTAIN TRANSACTIONS
During 1995, JIS provided approximately $480,000 to the Contract
Business and Permanent Placement business of Judge Group. During the same
period, JIS sold approximately $199,400 worth of computer equipment to these
businesses.
During the six months ended June 30, 1996, JIS sold $394,000 worth of
computer equipment to the Contract Business and Permanent Placement businesses
of Judge Group.
As of September 3, 1996, each of Mr. Judge and Mr. Dunn and his wife
executed personal guaranties of JIS's obligations under the Line of Credit with
Midlantic Bank, N.A., to enable Judge Group to obtain the Line of Credit. The
amount outstanding under the Line of Credit at August 31, 1996 was $7,781,000.
Upon the completion of the Public Offering, Mr. Judge and Mr. and Mrs. Dunn will
be released from these guaranties, subject to certain qualifications.
PRINCIPAL STOCKHOLDERS OF JIS
The following table sets forth certain information with respect to the
beneficial ownership of JIS Voting shares (i.e. Common and Series A Preferred
Stock) as of August 31, 1996, (1) by each person known by JIS to own
beneficially 5% or more of the outstanding shares of Common and Series A
Preferred Stock, (2) by each director and executive officer of JIS, and (3) by
all directors and executive officers as a group.
<TABLE>
<CAPTION>
Number of
Merger Shares
Name and Address Number of Voting Shares Percent of to be Received
of Stockholder Beneficially Held(1) Voting Shares in the Merger
- -------------- ----------------------- ------------- --------------
<S> <C> <C> <C>
Martin E. Judge, Jr. 2,745,427(2) 31.4%(3) 378,412
Michael A. Dunn 1,408,068(2) 3.6%(3) 44,072
Wendy Greenberg-Marcelli 80,558 1.7% 20,139
Robert Keith 49,768 1.0% 3,067
Katharine Wiercinski -- -- --
Marvin Demchick 49,768 1.0% 3,067
Jeffrey Andrews -- -- --
5% Stockholders:
Judge Group 1,231,778 25.5% --(4)
Arthur Kania 1,661,655(2) 8.9%(3) 107,469
All Director and Officers
as a group 1,870,033 38.7% 448,757
</TABLE>
- ----------
(1) Totals are inclusive of JIS Common and Series A Preferred Stock.
(2) Includes indirect beneficial ownership of 1,231,778 shares of JIS Common
Stock held by Judge Group.
(3) Percentages are exclusive of the shares owned by Judge Group.
(4) Pursuant to the Merger Agreement, each share of JIS Common Stock owned by
Judge Group will cease to exist, without payment of consideration, at the
Effective Time of the Merger.
INFORMATION CONCERNING INDEPENDENT PUBLIC ACCOUNTANTS OF JIS
On March 12, 1996, the independent accountants of JIS, Riggs Mahoney and Sabol
were dismissed. The report of Messrs. Riggs, Mahoney and Sabol dated December
11, 1995 for the period ended December 31, 1994 stated in part:
"The accompanying financial statements have been prepared assuming the company
will continue as a going concern. As noted in Note 1 to the financial
statements, the company's recurring losses and its stockholders notes payable,
which are currently due on demand, raise substantial doubt about its ability to
continue as a going concern. Management's plans concerning these matters include
terms of a proposed reverse acquisition are discussed in Notes 1 and 12. The
financial statements do not include any adjustments that may result from the
outcome of this uncertainty."
The decision to change accountants was unanimously approved by the board of
directors of JIS. There have not been any disagreements with the former
accountants (whether or not resolved) on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure,
which, if not resolved to the former accountants' satisfaction, would have
caused it to make reference to the subject matter of the disagreement(s) in
connection with its report.
-92-
<PAGE>
Effective on March 12, 1996, Rudolph, Palitz LLP, 620 West Germantown Pike,
Plymouth Meeting, PA 19462, ("Rudolph, Palitz") were engaged as the independent
accountants of JIS. Rudolph, Palitz had acted as independent accountants for
Judge Computer Corporation prior to the merger of Judge Computer Corporation
with DataImage. The reasons for this change of accountants are that Rudolph,
Palitz is located in proximity to the new headquarters of JIS, that they are
familiar with the books and accounts of this substantial majority of the
post-merger business of JIS, and that they are expected to render cost-effective
services to JIS.
OTHER MATTERS
Neither the Judge Group Board nor the JIS Board is aware of any matters not set
forth herein that may come before the meetings. If, however, further business
properly comes before the meetings, the persons named in the proxies will vote
the shares represented herein in accordance with their judgment.
LEGAL OPINION
Drinker Biddle & Reath will render an opinion with respect to the validity of
the Judge Group Common Shares to be issued in connection with the Merger and
with respect to tax matters.
EXPERTS
Judge, Inc.'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
Proxy Statement/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.
JIS's balance sheet as of December 31, 1995, and the related statements of
operations, shareholders' deficiency, and cash flows for the years ended
December 31, 1995 and 1994 included in this Proxy Statement/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.
Stockholder Proposals
Any stockholder proposal to be considered by JIS for inclusion in the
proxy material for the Special Meeting must be received by JIS, addressed to the
Secretary of JIS at Two Bala Plaza, Suite 800, Bala Cynwyd, Pennsylvania 19004,
no later than November ___, 1996, and must comply with the then current rules
of the SEC relating to stockholder proposals.
-93-
<PAGE>
JUDGE, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<CAPTION>
PAGE(S)
--------------
<S> <C>
INDEPENDENT AUDITORS' REPORT FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND EACH OF THE THREE YEARS IN
THE PERIOD ENDED DECEMBER 31, 1995.............................................................. F-2
CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 1996 AND DECEMBER 31, 1995 AND 1994.................... F-3
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT FOR SIX MONTHS ENDED JUNE 30, 1996 AND YEARS
ENDED DECEMBER 31, 1995, 1994 AND 1993.......................................................... F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR SIX MONTHS ENDED JUNE 30, 1996 AND YEARS ENDED DECEMBER
31, 1995, 1994 AND 1993......................................................................... F-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR SIX MONTHS ENDED JUNE 30, 1996 AND YEARS ENDED
DECEMBER 31, 1995, 1994 AND 1993................................................................ F-6 - F-21
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Judge, Inc.
Bala Cynwyd, Pennsylvania
We have audited the accompanying consolidated balance sheets of Judge, Inc. and
Subsidiaries as of June 30, 1996, December 31, 1995 and December 31, 1994, and
the related consolidated statements of operations and deficit and of cash flows
for the six months ended June 30, 1996 and 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 Judge, Inc. and
Subsidiaries as of June 30, 1996, December 31, 1995 and December 31, 1994, and
the consolidated results of their operations and their cash flows for the six
months ended June 30, 1996 and for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
As discussed in Note 8 to the financial statements, the Company adopted
Statement of Financial Accounting Standards No. 109, 'Accounting for Income
Taxes,' as of January 1, 1993.
September 17, 1996, except for Note 18, which is as of September 26, 1996
Plymouth Meeting, PA
F-2
<PAGE>
JUDGE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, -------------------------
1996 1995 1994
------------ ------------ -----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash................................................................... $ 28,433 $ 35,078 $ 82,928
Accounts receivable, net............................................... 11,368,815 8,881,059 6,418,697
Inventories............................................................ 679,366 515,099 232,705
Prepaid income taxes and deferred taxes................................ 476,076 347,352 127,000
Other.................................................................. 310,676 508,640 103,997
------------ ------------ -----------
Total current assets................................................. 12,863,366 10,287,228 6,965,327
------------ ------------ -----------
PROPERTY AND EQUIPMENT
Furniture, office and computer equipment............................... 2,711,775 1,732,677 1,545,784
Automotive equipment................................................... 42,224 48,617 40,544
Leasehold improvements................................................. 33,879 28,069 15,158
------------ ------------ -----------
2,787,878 1,809,363 1,601,486
Less: accumulated depreciation and amortization........................ 1,236,625 875,552 1,009,422
------------ ------------ -----------
Net property and equipment........................................... 1,551,253 933,811 592,064
------------ ------------ -----------
OTHER ASSETS
Notes receivable -- officers and employees............................. 375,774 222,564 169,738
Other receivable, related party........................................ 106,812 -- --
Deposits............................................................... 102,384 94,317 45,752
Covenant not-to-compete, net of accumulated amortization of $581,293,
1996, $508,645, 1995 and $358,131, 1994.............................. 21,296 93,944 244,458
------------ ------------ -----------
Total other assets................................................... 606,266 410,825 459,948
------------ ------------ -----------
Total assets......................................................... $ 15,020,885 $ 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...................................... 303,291 280,420 324,427
Current portion of payroll tax obligation.............................. 199,554 321,391 230,427
Accounts payable and accrued expenses.................................. 4,517,019 3,277,546 2,344,295
Payroll and sales taxes................................................ 610,025 396,735 463,955
Income taxes payable................................................... -- 6,968 252,727
Deferred revenue....................................................... 571,414 297,362 82,151
Advances from shareholders............................................. 115,723 139,906 189,699
------------ ------------ -----------
Total current liabilities............................................ 6,317,026 4,720,328 6,636,347
------------ ------------ -----------
LONG-TERM LIABILITIES
Note payable, bank..................................................... 6,358,063 5,367,516 --
Deferred rent obligation............................................... 143,672 156,943 117,902
Debt obligations, net of current portion............................... 646,425 496,012 536,273
Convertible notes...................................................... 500,000 500,000 500,000
Payroll tax obligation, net of current portion......................... -- -- 321,392
------------ ------------ -----------
Total long-term liabilities.......................................... 7,648,160 6,520,471 1,475,567
------------ ------------ -----------
MINORITY INTEREST........................................................ 659,000 -- --
------------ ------------ -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIT)
Common stock, -- $.005 par value,
10,000,000 shares authorized, 160,000 shares issued and
outstanding........................................................ 800 800 800
Additional paid-in capital............................................. 450,938 626,848 626,848
Deficit................................................................ (55,039) (236,583) (722,223)
------------ ------------ -----------
Total shareholders' equity (deficit)................................. 396,699 391,065 (94,575)
------------ ------------ -----------
Total liabilities and shareholders equity (deficit).................. $ 15,020,885 $ 11,631,864 $ 8,017,339
------------ ------------ -----------
------------ ------------ -----------
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
JUDGE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
SIX MONTHS ENDED JUNE 30, 1996 AND YEARS ENDED DECEMBER 31,
1995, 1994 AND 1993
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ----------------------------------------
1996 1995 1994 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET REVENUES............................................. $ 37,327,166 $ 63,299,353 $ 45,253,417 $ 35,068,867
------------ ------------ ------------ ------------
COSTS AND EXPENSES
Cost of sales.......................................... 27,587,582 47,550,114 34,146,215 26,069,583
Selling and operating.................................. 6,363,990 9,797,875 6,509,549 5,853,608
General and administrative............................. 2,848,111 4,187,485 3,155,012 2,524,824
------------ ------------ ------------ ------------
Total costs and expenses............................. 36,799,683 61,535,474 43,810,776 34,448,015
------------ ------------ ------------ ------------
INCOME FROM OPERATIONS................................... 527,483 1,763,879 1,442,641 620,852
OTHER EXPENSE, NET, PRINCIPALLY INTEREST EXPENSE......... (371,439) (697,339) (419,590) (334,004)
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAX EXPENSE, MINORITY INTEREST IN
NET LOSS OF CONSOLIDATED SUBSIDIARY AND CUMULATIVE
EFFECT ADJUSTMENT...................................... 156,044 1,066,540 1,023,051 286,848
INCOME TAX EXPENSE....................................... 203,500 587,957 679,800 227,460
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE MINORITY INTEREST IN NET LOSS OF
CONSOLIDATED SUBSIDIARY AND CUMULATIVE EFFECT
ADJUSTMENT............................................. (47,456) 478,583 343,251 59,388
MINORITY INTEREST IN NET LOSS OF CONSOLIDATED
SUBSIDIARY............................................. 229,000 7,057 -- --
------------ ------------ ------------ ------------
INCOME BEFORE CUMULATIVE EFFECT ADJUSTMENT............... 181,544 485,640 343,251 59,388
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE...... -- -- -- 42,000
------------ ------------ ------------ ------------
NET INCOME............................................... 181,544 485,640 343,251 101,388
DEFICIT, BEGINNING....................................... (236,583) (722,223) (1,065,474) (1,166,862)
------------ ------------ ------------ ------------
DEFICIT, ENDING.......................................... ($ 55,039) ($ 236,583) ($ 722,223) ($ 1,065,474)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
NET INCOME PER SHARE:
PRIMARY:
Income before cumulative effect adjustment........... $ 0.02 $ 0.06 $ 0.04 $ 0.01
Cumulative effect adjustment......................... -- -- -- --
------------ ------------ ------------ ------------
$ 0.02 $ 0.06 $ 0.04 $ 0.01
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
FULLY DILUTED:
Income before cumulative effect adjustment........... $ 0.02 $ 0.05 $ 0.04 $ 0.01
Cumulative effect adjustment......................... -- -- -- --
------------ ------------ ------------ ------------
$ 0.02 $ 0.05 $ 0.04 $ 0.01
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
JUDGE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996 AND YEARS ENDED DECEMBER 31,
1995, 1994 AND 1993
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, -------------------------------------
1996 1995 1994 1993
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 181,544 $ 485,640 $ 343,251 $ 101,388
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization............................. 262,108 421,613 340,708 286,273
Deferred taxes............................................ -- (103,000) (60,000) (67,000)
Deferred rent............................................. (13,271) 39,041 117,902 --
Provision for losses on accounts receivable............... 215,040 300,033 71,697 58,655
Stock compensation........................................ -- 6,000 -- --
Minority interest in net loss of consolidated
subsidiary.............................................. (229,000) (7,057) -- --
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable..................................... (2,598,669) (2,762,395) (2,221,822) (1,145,179)
Inventories............................................. (125,166) (282,394) 127,518 (208,551)
Deposits................................................ (2,527) (48,565) (16,807) (1,915)
Prepaid taxes........................................... (135,692) (117,352) 59,406 96,796
Other current assets.................................... 153,204 (404,643) (24,796) (50,703)
Increase (decrease) in:
Accounts payable and accrued expenses................... 1,157,386 933,251 1,310,299 131,299
Payroll and sales taxes................................. 91,453 (297,648) (168,965) 586,832
Deferred revenue........................................ (87,985) 215,211 (109,982) 124,882
Income taxes payable.................................... -- (245,759) 252,727 --
----------- ----------- ----------- -----------
Net cash provided by (used in) operating
activities......................................... (1,131,575) (1,868,024) 21,136 (87,223)
----------- ----------- ----------- -----------
INVESTING ACTIVITIES
Purchases of property and equipment......................... (308,464) (373,051) (252,286) (91,465)
Proceeds from disposals of property and equipment........... -- 24,461 -- --
(Increase) in notes receivable, officers and employees,
net....................................................... (260,022) (52,826) (56,743) (17,677)
----------- ----------- ----------- -----------
Net cash used in investing activities................ (568,486) (401,416) (309,029) (109,142)
----------- ----------- ----------- -----------
FINANCING ACTIVITIES
Cash acquired in business combination....................... 13,786 -- -- --
Proceeds from notes payable, bank, net...................... 990,547 2,618,850 249,431 522,101
Proceeds from long-term debt................................ -- 38,000 556,000 --
Principal payments on long-term debt........................ (174,734) (386,524) (383,756) (275,462)
Proceeds from issuance of stock............................. -- 1,057 -- --
Repayments from shareholders................................ (24,183) (49,793) (64,028) (43,421)
Issuance of Series A Preferred Shares, net of costs......... 888,000 -- -- --
----------- ----------- ----------- -----------
Net cash provided by financing activities............ 1,693,416 2,221,590 357,647 203,218
----------- ----------- ----------- -----------
INCREASE (DECREASE) IN CASH................................... (6,645) (47,850) 69,754 6,853
CASH, BEGINNING............................................... 35,078 82,928 13,174 6,321
----------- ----------- ----------- -----------
CASH, ENDING.................................................. $ 28,433 $ 35,078 $ 82,928 $ 13,174
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest.................................................. $ 371,000 $ 657,000 $ 405,000 $ 330,000
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Income taxes.............................................. $ 298,000 $ 1,056,000 $ 496,000 $ 214,000
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
JUDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1996 AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 1. DESCRIPTION OF BUSINESS
Judge, Inc., a Pennsylvania corporation founded in 1970 ('Judge' or 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,
Moorestown, New Jersey 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 of New Jersey,
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 December 31, 1995 the Company owned 33%, Martin E. Judge, 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'), a public reporting 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 reporting company.
The Imaging and Network Services business of the Company consisted of the
operations of JCC prior to the JCC/DI Merger, and subsequent to the Merger this
business is comprised of the operations of JIS. See Notes 12 and 16.
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, 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 or during the three years in the period ended December 31, 1995). JINJ
had no activity in the period ended December 31, 1994 and December 31, 1993.
JCC has been consolidated due to certain elements of common ownership and
control being present. All significant intercompany accounts and transactions
have been eliminated.
F-6
<PAGE>
JUDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
SIX MONTHS ENDED JUNE 30, 1996 AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
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
Network, imaging and document management systems 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 is significant to the completion of
the contract, revenue recognition is deferred until the installation is
completed and accepted by the client. Revenues billed in advance for computer
sales, warranties and maintenance contracts are deferred and recorded 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
Accounts receivable at June 30, 1996, December 31, 1995, 1994 and 1993
were net of allowances for doubtful accounts of $297,000, $174,000, $157,000
and $132,000, respectively. During 1996, 1995, 1994 and 1993, the Company
recorded charge-offs of approximately $92,000, $283,000, $47,000 and $0.
Included in accounts receivable was unbilled work-in-process of
approximately $1,289,000, $655,000 and $564,000 at June 30, 1996, December 31,
1995 and 1994, respectively. Included in accounts payable and accrued expenses
was approximately $941,000, $510,000 and $436,000 of accrued employee and
contractor payroll principally relating to unbilled work-in-process at June 30,
1996, December 31, 1995 and 1994, respectively.
F-7
<PAGE>
JUDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
SIX MONTHS ENDED JUNE 30, 1996 AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
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. Leasehold improvements are amortized using the
straight-line method over the shorter of the lease term or estimated useful
lives of the improvements.
Depreciation and amortization related to property and equipment amounted to
$189,460 in 1996, $271,099 in 1995, $190,192 in 1994 and $135,758 in 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 13 (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 $73,000 for the
six months ended June 30, 1996 and $150,000 for each of 1995, 1994 and 1993. See
Notes 5, 13 and 18.
F-8
<PAGE>
JUDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
SIX MONTHS ENDED JUNE 30, 1996 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 $295,000, $464,000, $267,000 and $214,000 in 1996, 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 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.
Earnings Per Share
The number of shares used in the earnings per share calculation and
convertible note share conversion (Note 7) has been adjusted for the 52.6 to 1.0
stock split which occurred subsequent to June 30, 1996 (Note 18).
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, which are
considered common share equivalents. See Note 11. The number of shares used in
the computation were approximately 8,584,000 in 1996, 1995 and 1994 and
8,500,000 in 1993.
F-9
<PAGE>
JUDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
SIX MONTHS ENDED JUNE 30, 1996 AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
Earnings Per Share (Continued)
Fully diluted earnings per share amounts for 1996, 1995, 1994 and 1993 were
based on the weighted average number of shares calculated for primary earnings
per share purposes increased by the number of shares that would be outstanding
assuming conversion of outstanding convertible debentures. See Note 7. The
number of shares used in the calculation were 9,110,000 in 1996 and 1995,
8,847,000 in 1994 and 8,500,000 in 1993.
NOTE 3. NOTE RECEIVABLE (DI)
In connection with the JCC/DI Merger, JCC provided a $50,000 bridge loan,
with interest at 11%, 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. NOTE PAYABLE, BANK
Note payable, bank, consisted of advances to Judge, 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% ( 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,
cross collateralized by certain subsidiaries 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 covenants on this line, which violations
were waived by the Bank. In addition, subsequent to June 30, 1996, the Bank
extended the maturity date of the line from May 31, 1997 to May 31, 1998,
modified certain financial covenants, and the maximum permitted borrowings were
increased. See Note 18.
Included in accounts payable and accrued expenses at June 30, 1996,
December 31, 1995 and 1994 were approximately $1,755,000, $1,338,000 and
$917,000, respectively, of bank overdrafts.
F-10
<PAGE>
JUDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1996 AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 5. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
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%, through August 1998
(see Note 13); repaid in full subsequent to June 30, 1996 (see Note
18)................................................................ 311,680 376,759 499,386
Note payable, stock; payable in monthly payments of $2,039, including
interest at 5.0%, through August 1998 (see Note 13); repaid in full
subsequent to June 30, 1996 (see Note 18).......................... 50,140 60,961 81,810
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 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.............................................................. 160,653 192,050 136,651
Equipment note payable; payable in monthly installments of $1,247,
including interest at 8.85%, through December 1999; collateralized
by certain equipment............................................... 44,058 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............................................... 274,191 -- --
Related Parties
Martin E. Judge, Jr. (Founder, Chairman and Chief Executive Officer
of the Company) -- non-interest bearing.......................... 3,000 23,000 15,528
Michael Dunn (President of Permanent Placement Business) -- payable
in variable monthly installments plus interest at prime plus 2%;
repaid in full prior to June 30, 1996............................ -- 15,037 82,041
--------- --------- ---------
949,716 776,432 860,700
Less: current portion............................................ (303,291) (280,420) (324,427)
--------- --------- ---------
Long-term portion................................................ $ 646,425 $ 496,012 $ 536,273
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-11
<PAGE>
JUDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1996 AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 5. 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
-----------
-----------
YEARS ENDING
DECEMBER 31, AMOUNT
------------ -----------
1996............................................................. $ 280,420
1997............................................................. 239,777
1998............................................................. 182,451
1999............................................................. 71,780
2000............................................................. 2,004
-----------
$ 776,432
-----------
-----------
Subsequent to June 30, 1996, $201,143 of debt obligations related to the
Company's stock redemption 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 Notes 13 and 18.
Interest expense charged to operations was approximately $371,000 in 1996,
$670,000 in 1995, $427,000 in 1994 and $338,000 in 1993.
NOTE 6. ADVANCES FROM SHAREHOLDERS
JCC had advances from shareholders of $115,723 at June 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 $7,000 in 1996, $18,000 in 1995, $22,000 in 1994 and
$20,000 in 1993.
NOTE 7. CONVERTIBLE NOTES
In 1994, Judge received $500,000 from a group of investors in the form of
10% convertible senior subordinated promissory notes. The notes mature in 1997,
are subject to certain financial covenants and are convertible into 526,000
common shares (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, the financial advisor who arranged such financing will
receive certain remuneration should the Company effect a successful initial
public offering. The notes are guaranteed by JTS and JESF. At June 30, 1996,
December 31, 1995 and 1994, the Company was in violation of certain covenants,
which were waived by the note holders.
F-12
<PAGE>
JUDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1996 AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 8. INCOME TAXES
In 1991, Judge filed a consolidated Federal income tax return with its
wholly-owned subsidiaries. JTS and JCC were not included in Judge's consolidated
Federal income tax return, as Judge 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 Judge, 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:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
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
---------- ----------
---------- ----------
</TABLE>
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.
The tax effect of major temporary differences that gave rise to the
Company's net deferred tax asset are as follows:
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
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
---------- ----------
---------- ----------
</TABLE>
Income tax expense for the years ended December 31, 1995, 1994 and 1993
consisted of the following:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- ---------
<S> <C> <C> <C>
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
-------- -------- --------
-------- -------- --------
</TABLE>
In accordance with APB 28 (interim financial reporting), income taxes for
the six months ended June 30, 1996 are calculated at the estimated effective
annual (Federal and state) rate of 40% for JTS and 33% for Judge, Inc. As a
result of operating losses, no provision for income taxes was required in 1996
for JIS.
F-13
<PAGE>
JUDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1996 AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 8. INCOME TAXES -- (CONTINUED)
In accordance with APB 28 (interim financial reporting), income taxes for
the six months ended June 30, 1996 are calculated at the estimated effective
annual (Federal and state) rate of 40% for Judge Technical and 33% for Judge,
Inc. As a result of operating losses, no provision for income taxes was required
in 1996 for JIS.
The effective tax rate for 1996, 1995, 1994 and 1993 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, 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:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1996 1995 1994 1993
-------- --------- --------- --------
<S> <C> <C> <C> <C>
Tax at statutory rate (34%)...................... $ 53,000 $ 363,000 $ 348,000 $ 98,000
Effect of losses of subsidiary not consolidated
for tax purposes............................... 144,000 92,000 227,000 75,000
Non-deductible tax penalties and other permanent
differences.................................... -- 90,000 -- 6,000
Other............................................ -- (31,000) (13,000) --
State income taxes, net of Federal tax benefit... 20,500 105,000 143,000 48,000
Federal income tax rate differentials due to
surtax exemptions.............................. (14,000) (31,000) (25,000) --
-------- -------- -------- --------
$203,500 $588,000 $680,000 $227,000
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
As a result of operating losses, no provision for income taxes was required
in 1996, 1995, 1994 or 1993 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 will begin expiring in 2002, that may be applied
against future taxable income of JIS.
NOTE 9. 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, $557,000, $394,000 and $381,000 for the
six months ended June 30, 1996 and years ended December 31, 1995, 1994 and 1993,
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-14
<PAGE>
JUDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1996 AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 9. COMMITMENTS -- (CONTINUED)
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 was liable for aggregate claims up to approximately
$185,000 for 1996, $78,000 for 1995 and $116,000 for 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 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 10. 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-, $-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.
NOTE 11. 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 4.
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 and a 'pooling of interests.'
(Notes 12 and 16).
Capital Structure
On September 4, 1996, the Company's Board of Directors voted to modify the
Company's capital structure to increase the number of authorized common shares
to 50,000,000 and to adjust par value per share to $.01. In addition, the
Company authorized the issuance of 10,000,000 preferred shares with a par value
of $.01 per share. The Board of Directors also authorized a 52.6 to 1.0 split of
the
F-15
<PAGE>
JUDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1996 AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 11. SHAREHOLDERS' EQUITY (DEFICIT) AND EARNINGS PER SHARE -- (CONTINUED)
Capital Structure -- (Continued)
outstanding common shares for shareholders of record on September 23, 1996.
Common Shares -- Warrants
During 1993, Judge issued to a financial advisor warrants to purchase
171,739 (Note 2) (split-adjusted) common shares of Judge. Subsequent to June 30,
1996, such warrants were exercised. See Note 18.
Stock Option Plan
Subsequent to June 30, 1996, the Company adopted an Incentive Stock Option
and Non-Qualified Stock Option Plan (the 'Plan') for key employees and
non-employee directors. Options may be granted under the 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.
NOTE 12. 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 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.
F-16
<PAGE>
JUDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1996 AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 12. CAPITAL STRUCTURE OF JIS -- (CONTINUED)
In February 1996, JIS raised approximately $1,097,000 ($888,000, net of
costs) in a private offering of 822,628 Series A Convertible Preferred Shares at
a purchase price per share of $1.33. The Preferred A Shares are convertible into
JIS common shares at the holder's option, and conversion is mandatory at the
time of a subsequent public offering of common shares by JIS in excess of $5
million. The 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. 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 Series A Preferred Shares. See Note 16. At June 30, 1996,
this preferred stock is presented at $659,000 as minority interest in the
accompanying consolidated financial statements. $229,000 of JIS losses have been
allocated to this minority interest in the accompanying consolidated financial
Statements.
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.
NOTE 13. 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 $333
per month for six years pursuant to an agreement and $13,194 per month for 72
months ($950,000 in the aggregate) pursuant to the Restrictive Covenant. The
Restrictive Covenant 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 5 and 18.
NOTE 14. 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 ($445,000) was paid in full. See Note 18.
F-17
<PAGE>
JUDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1996 AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 15. STATEMENT OF CASH FLOWS
Supplemental disclosure of non-cash investing and financing transactions:
During 1996, the Company entered into certain financing arrangements for
the purchase of property and equipment in the amount of approximately $348,000.
Effective February 29, 1996, JCC and DI effected a Business Combination
(see Note 16):
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 Judge............................................... ( 100,000)
Deferred revenue and customer deposits..................... ( 362,037)
------------
Net liabilities assumed in business combination............ ( $240,082)
------------
------------
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 16. 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 Series A
Convertible Preferred Stock (the 'Series A Preferred'), 1,500 shares of $1,000
stated value Series B Preferred Stock (the '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 Series A Preferred and Series B Preferred have
essentially the same rights and privileges as the Series A Convertible Preferred
Shares and Series B Preferred Shares of JCC 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 Convertible Preferred Shares and
the Series B Shares outstanding prior to the JCC/DI Merger were converted into
the same numbers of Series A Preferred and Series B Preferred, 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 Series A Convertible Preferred
Shares offered in JCC's 1995 private offering (822,628 were actually
F-18
<PAGE>
JUDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1996 AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 16. BUSINESS COMBINATION (THE JCC/DI MERGER) -- (CONTINUED)
sold) and the conversion of such maximum number of Series A Convertible
Preferred Shares to 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 Series A Convertible Preferred Shares immediately prior
to the merger were to receive in the aggregate approximately 95% (approximately
4,750,000 shares). The 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.
NOTE 17. 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>
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>
F-19
<PAGE>
JUDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1996 AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 17. SEGMENT INFORMATION -- (CONTINUED)
<TABLE>
<CAPTION>
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>
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>
<TABLE>
<CAPTION>
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-20
<PAGE>
JUDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1996 AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 18. 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 14);
o The Company (JTS) reached an agreement with a former minority shareholder
(Note 13) to settle at less than face value the remaining balances on
certain notes payable (Note 5);
o The Company increased its Bank credit facility to approximately
$11,000,000 (Note 4);
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 11);
o The Company modified its capital structure and authorized a stock split
(Note 11);
o The Company acquired 100% of the outstanding stock of an information
technology training organization for a total purchase price of
$2,322,200. The transaction will be accounted for as a purchase and is
expected to result in goodwill of approximately $2,200,000. In the event
the Company is successful in its public offering of its common stock, the
purchase price will be paid in cash, notes and shares of the Company's
stock. In the event the public offering is not completed, consideration
will be in the form of cash and notes;
o The Company acquired substantially all of the assets and assumed
substantially all of the liabilities of an imaging and network services
organization for a total purchase price of $547,252. The transaction will
be accounted for as a purchase and is expected to result in goodwill of
approximately $945,000. In the event the Company is successful in its
public offering of its common stock, the purchase price will be paid
principally in cash at closing. In the event the public offering is not
completed, consideration will be principally in the form of a note
payable;
o The common stock warrants to purchase 171,739 shares (Notes 2 and 7)
of Judge described in Note 11 have been exercised.
o The Boards of Directors of Judge, Inc. and JIS approved the merger of
JIS into a newly-formed, wholly-owned subsidiary of Judge, Inc. This
merger is subject to approval by the shareholders of JIS and a
successful public offering of the Company's common shares.
F-21
<PAGE>
JUDGE GROUP, INC.
PRO FORMA CONSOLIDATING FINANCIAL STATEMENTS
(UNAUDITED)
<TABLE>
<S> <C>
PRO FORMA CONSOLIDATING FINANCIAL STATEMENTS............................................................. F-23
NOTES TO PRO FORMA CONSOLIDATING BALANCE SHEET, JUNE 30, 1996............................................ F-25
PRO FORMA CONSOLIDATING BALANCE SHEET, JUNE 30, 1996..................................................... F-27
NOTE TO PRO FORMA CONSOLIDATING STATEMENTS OF OPERATIONS, SIX MONTHS ENDED JUNE 30, 1996 AND YEAR ENDED
DECEMBER 31, 1995...................................................................................... F-29
PRO FORMA CONSOLIDATING STATEMENT OF OPERATIONS, YEAR ENDED DECEMBER 31, 1995............................ F-30
PRO FORMA CONSOLIDATING STATEMENT OF OPERATIONS, SIX MONTHS ENDED JUNE 30, 1996.......................... F-31
</TABLE>
F-22
<PAGE>
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 Judge Group, Inc. ('Judge')
as described elsewhere in the Registration Statement, certain proposed
transactions of Judge, including a reorganization in which Judge, Inc. changed
its name to the Judge Group, Inc. and transferred all of its business, assets
and liabilities to a new wholly-owned subsidiary (named Judge, Inc.) formed to
conduct that business after the reorganization, in exchange for all of the
issued and outstanding stock of the new subsidiary, a stock split of Judge
common shares (approximately 52.6 to 1), a conversion of Judge convertible
debentures of $500,000 into shares of its common stock, an exercise of 3,265
outstanding warrants to purchase common stock, and certain business combinations
with Judge Imaging Systems, Inc. ('Imaging') (a consolidated subsidiary of
Judge), with The Berkeley Associates Corporation ('Berkeley') and with Systems
Automation, Inc. ('Systems'). The pro forma balance sheet gives effect to all of
the transactions as if they occurred on June 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 June 30, 1996. The pro forma
statements of operations for 1995 and for the six months ended June 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 resulted
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 June 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 Judge, Berkeley, Systems, and Imaging and notes thereto, which are
included elsewhere in this Registration Statement.
The following is a description of the terms of the business combination
between Judge and Berkeley which give rise to certain pro forma adjustments on
the accompanying pro forma consolidating financial statements. On or about
September 26, 1996 Judge purchased 100% of the outstanding stock of Berkeley for
a total purchase price of $2,322,200. In the event that Judge successfully
completes the public offering of stock currently being contemplated herein, then
the following terms apply. (In the event the public offering is not completed, a
revised payment schedule applies.) At settlement a cash payment of $175,000 is
to be made, and payments of $50,000 per month commencing October 1, 1996 through
December 1, 1996 become payable. At consummation of the public offering Judge
will provide to sellers of Berkeley a cash payment of $1,000,000 less cash paid
at settlement, plus the number of shares of stock of Judge that would equate to
$300,000 divided by the public offering price per share, plus a promissory note
in the amount of $300,000 bearing interest at the rate of 8% per annum and
payable in equal monthly installments commencing January 1, 1997 through August
1, 2000, plus $60,000 for a deferred withdrawal of cash. The remainder of the
purchase price, $572,200, is considered a holdback payment, as is an additional
cash withdrawal of $70,000 anticipated to occur prior to the settlement date but
deferred in accordance with the purchase agreement. The $572,200 holdback
payment portion of the above purchase price is to be paid following the
completion of an audit of Berkeley for the 1996 fiscal year end and contingent
on Berkeley reaching certain target pre-tax income amounts. The $70,000 deferred
cash withdrawal represents a withdrawal of cash for income taxes by the
shareholders of Berkeley, and is to be paid to the selling shareholders no later
than April 15, 1997. The base target pre-tax income ('base') for Berkeley for
1996 is $250,000. In the event that Berkeley's pre-tax income exceeds the base
but is less than $350,000, then it is entitled to a payment of a portion of the
holdback payments calculated by multiplying the $572,200 by a fraction
determined as follows. The denominator of the fraction shall be $100,000 (the
difference between $250,000 base and $350,000) and the numerator shall be the
amount by which pre-tax income exceeds $250,000. In the event 1996 pre-tax
income equals or exceeds
F-23
<PAGE>
JUDGE GROUP, INC.
PRO FORMA CONSOLIDATING FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
$350,000 then the full amount of the holdback payments shall be payable in the
form of a promissory note providing for 36 equal monthly payments of principal
plus interest at 8% per annum. In the event that 1996 pre-tax income is less
than $350,000, but greater than the base, payment shall be calculated as above
and any remainder of the $572,200 still unpaid shall remain unpaid pending
completion of an audit of Berkeley's books and records for fiscal year end 1997.
Payment of any such remainder shall be subject to Berkeley attaining a certain
1997 pre-tax income target. The base target pre-tax income for 1997 is $430,000.
In the event pre-tax income for 1997 equals or exceeds the base amount, then
payment of any remainder still unpaid shall be effected in the form of a
promissory note providing for payment over 36 equal monthly installments of
principal plus interest at 8% per annum. In the event 1997 pre-tax income is
less than $430,000 then no additional payments are to be made and any remainder
from 1996 is forfeited. The accompanying pro forma consolidating financial
statements reflect the purchase terms effective in the event of the successful
completion of a public offering of Judge stock and the assumption that
Berkeley's pre-tax income for 1996 is sufficient to require the full payment of
the $572,200 holdback.
The following is a description of the terms of the business combination
between Judge and Systems which give rise to certain pro forma adjustments on
the accompanying pro forma consolidating financial statements. On or about
September 2, 1996 Judge purchased substantially all of the tangible and
intangible assets of Systems for a total purchase price of $547,252. In the
event that Judge successfully completes the public offering of stock currently
being contemplated herein, then the following terms apply. (In the event the
public offering is not completed, a revised payment schedule applies.) At
settlement a cash payment of $75,000 is to be made. Within 15 days of the
consummation of the public offering a cash payment of $472,252 shall be
made. The accompanying pro forma consolidating financial statements reflect the
purchase terms effective in the event of the successful completion of a public
offering of Judge stock.
The pro forma consolidating statements of operations include the results of
operations of Imaging on a pro forma basis, as though its merger with DataImage,
Inc. occurred on January 1, 1995 and January 1, 1996, respectively. (The
description of that merger and pro forma statements of operations pertaining
solely to that transaction are included in the Form 10-Q for Imaging for the six
months ended June 30, 1996, and which is incorporated by reference in the
Registration Statement.) In addition, as more fully described in the
Registration Statement, Judge will, immediately prior to the public offering,
merge with Imaging in a statutory merger in which Imaging will merge into a
newly organized, wholly-owned subsidiary of Judge. The newly organized
subsidiary will be the surviving Corporation and change its name to Judge
Imaging, Inc. As a result, Imaging will become a wholly-owned subsidiary of
Judge at the time of the offering. In the merger each Imaging common share (not
already owned by Judge) 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 Judge
common shares. Since Imaging is effectively controlled by Judge (by virtue of
the combined ownership of Imaging by its parent, Judge, and Martin E. Judge,
Jr., the principal owner of Judge, being in excess of 50%) the transaction will
be accounted for as a corporate reorganization of entities under common control
('as-if pooling'), with no resulting increase recorded in the recorded assets
and liabilities of each company.
F-24
<PAGE>
JUDGE GROUP, INC.
NOTES TO PRO FORMA CONSOLIDATING BALANCE SHEET
(UNAUDITED)
JUNE 30, 1996
(1) Adjustment to record $26,800,000 proceeds of 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 $175,000 cash at
the time of purchase of The Berkeley Associates Corporation ('Berkeley'),
$975,000 additional cash and $60,000 deferred cash withdrawal at the successful
completion of the public offering; record payment of $75,000 cash at the time of
the business combination of Systems Automation, Inc. ('Systems'), and $472,252
additional cash at the successful completion of the public offering.
(2) Adjustment to record the goodwill created by the business combinations
of Berkeley and Systems calculated as follows:
<TABLE>
<CAPTION>
BERKELEY SYSTEMS
-------- -------
<S> <C> <C> <C>
Purchase price............................ $ 2,322,200 Purchase price............................ $ 547,252
Less: Shareholders Equity................. 112,123 Less assets purchased..................... 290,580
-------------
Goodwill.................................. $ 2,210,077 Plus liabilities assumed.................. 688,702
------------- -----------
-------------
Goodwill.................................. $ 945,374
-----------
-----------
</TABLE>
The above calculations of Goodwill assume that the fair values of the
assets and liabilities of Berkeley and Systems as of June 30, 1996 equal their
recorded values at that date. Goodwill will be amortized equally over 180 months
for Berkeley, and 120 months for Systems.
(3) Adjustment to record the liability for the $572,000 holdback payments
to Berkeley.
(4) Adjustments to record the following equity transactions:
<TABLE>
<S> <C>
Split existing shares (52.6 to 1) into 8,416,000 shares of Judge common stock,
par value $.01............................................................... $ 83,360
Sale and issuance of 3,000,000 shares of common stock of Judge, par value
$.01......................................................................... 30,000
Elimination of common stock of Berkeley at June 30, 1996....................... (15,620)
Elimination of common stock of Systems at June 30, 1996........................ (30,000)
Issuance of 30,000 shares of common stock of Judge, par value $.01 to sellers
of Berkeley ($300,000/$10)................................................... 300
Merger of Judge and Imaging; issuance of 892,748 Judge shares ($.01 par value)
in exchange for 2,748,363 minority owned common shares and 822,628 preferred
shares of Imaging............................................................ 8,927
Exercise of 3,265 warrants for 171,739 common shares .......................... 1,717
Conversion of convertible debentures (see note 6 below)........................ 5,260
-----------
Pro forma adjustments to common stock.......................................... $ 83,944
-----------
-----------
</TABLE>
F-25
<PAGE>
JUDGE GROUP, INC.
NOTES TO PRO FORMA CONSOLIDATING BALANCE SHEET -- (CONTINUED)
JUNE 30, 1996
(UNAUDITED)
<TABLE>
<S> <C>
Reduction in paid in capital due to stock split (see above)............... ($ 83,360)
Additional paid in capital from sale of 3,000,000 shares of common stock
of Judge ($26,800,000 proceeds less $30,000 common stock issued
above).................................................................. 26,770,000
Elimination of additional paid in capital of Berkeley..................... (52,670)
Paid in capital from issuance of 30,000 shares of common stock to sellers
of Berkeley............................................................. 299,700
Merger of Judge and Imaging (see above)................................... 650,073
Reduction in paid in capital due to exercise of warrants (see above)...... (1,717)
Conversion of convertible debentures (see note 6 below)................... 494,740
----------------
Pro forma adjustments to additional paid in capital....................... $ 28,076,766
----------------
----------------
Reduction of minority interest due to merger of Judge and Imaging (see
above).................................................................. ($ 659,000)
----------------
----------------
Reduction of retained earnings of Berkeley by deferred cash withdrawals... ($ 130,000)
Elimination of adjusted retained earnings of Berkeley..................... (107,488)
Elimination of deficit of Systems......................................... 428,122
----------------
Pro forma adjustments to retained earnings................................ $ 190,634
----------------
----------------
</TABLE>
(5) Adjustment to record a $70,000 deferred withdrawal by the sellers of
Berkeley, which is payable by April 15, 1997. (See description of the terms of
the business combination between Judge and Berkeley.)
(6) Adjustment to record conversion of $500,000 of convertible notes into
526,000.
(7) Adjustment to record note payable to sellers of Berkeley. (See
description of the terms of the business combination between Judge and
Berkeley.)
F-26
<PAGE>
JUDGE, GROUP, INC.
PRO FORMA CONSOLIDATING BALANCE SHEET
JUNE 30, 1996
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
JUDGE GROUP, INC. SYSTEM PRO FORMA CONSOLIDATED
JUNE 30, 1996 BERKELEY AUTOMATION ADJUSTMENTS JUNE 30, 1996
---------------- --------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash..................................... $ 28,433 $ 89,806 $ 20,882 $ 25,042,748(1) $25,181,869
Accounts receivable, net................. 11,368,815 290,340 168,716 11,827,871
Inventories.............................. 679,366 0 16,629 695,995
Prepaid taxes and deferred tax benefit... 476,076 38,053 0 514,129
Other.................................... 310,676 0 3,975 0 314,651
------------ --------- --------- ------------ -----------
TOTAL CURRENT ASSETS................... 12,863,366 418,199 210,202 25,042,748 38,534,515
------------ --------- --------- ------------ -----------
PROPERTY AND EQUIPMENT:
Furniture and office equipment........... 2,711,775 576,716 55,308 3,343,799
Automotive equipment..................... 42,224 0 0 42,224
Leasehold improvements................... 33,879 6,595 0 0 40,474
------------ --------- --------- ------------ -----------
2,787,878 583,311 55,308 0 3,426,497
Less: accumulated depreciation and
amortization........................... 1,236,625 404,967 0 0 1,641,592
------------ --------- --------- ------------ -----------
NET PROPERTY AND EQUIPMENT............. 1,551,253 178,344 55,308 0 1,784,905
------------ --------- --------- ------------ -----------
OTHER ASSETS:
Due from subsidiaries/affiliate.......... 0 0 20,367 0 20,367
Receivables -- officers and employees.... 375,774 0 0 0 375,774
Deposits................................. 102,384 0 0 0 102,384
Investment in subsidiaries, at cost...... 0 0 0 0 0
Other.................................... 106,812 0 4,703 0 111,515
Goodwill................................. 0 0 0 3,155,451(2) 3,155,451
Covenant not to compete, net of
accumulated amortization............... 21,296 0 0 0 21,296
------------ --------- --------- ------------ -----------
TOTAL OTHER ASSETS..................... 606,266 0 25,070 3,155,451 3,786,787
------------ --------- --------- ------------ -----------
$ 15,020,885 $ 596,543 $ 290,580 $ 28,198,199 $44,106,207
------------ --------- --------- ------------ -----------
------------ --------- --------- ------------ -----------
</TABLE>
F-27
<PAGE>
JUDGE, GROUP, INC.
PRO FORMA CONSOLIDATING BALANCE SHEET
JUNE 30, 1996
(UNAUDITED)
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
PRO FORMA
JUDGE GROUP, INC. SYSTEM PRO FORMA CONSOLIDATED
JUNE 30, 1996 BERKELEY AUTOMATION ADJUSTMENTS JUNE 30, 1996
---------------- --------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt........ $ 303,291 $ 87,013 $ 202,748 $ 0 $ 593,052
Current portion of payroll tax
obligations............................ 199,554 0 0 0 199,554
Accounts payable and accrued expenses.... 4,517,019 80,458 255,865 70,000 (5) 4,923,342
Payroll and sales taxes.................. 610,025 30,927 0 0 640,952
Income taxes payable..................... 0 0 456 0 456
Deferred revenue and customer deposits... 571,414 53,481 229,633 0 854,528
Advances from shareholders............... 115,723 0 0 0 115,723
------------ --------- --------- ------------ -----------
TOTAL CURRENT LIABILITIES.............. 6,317,026 251,879 688,702 70,000 7,327,607
------------ --------- --------- ------------ -----------
LONG-TERM LIABILITIES:
Note payable, bank....................... 6,358,063 0 0 0 6,358,063
Deferred rent obligation................. 143,672 0 0 0 143,672
Due to subsidiaries...................... 0 0 0 0 0
Debt obligations, net of current
portion................................ 646,425 102,541 0 0 748,966
Deferred payments to Berkeley
shareholders........................... 0 0 0 572,200 (3) 572,200
Note payable, Berkeley shareholders...... 0 0 0 300,000 (7) 300,000
Convertible debentures................... 500,000 0 0 (500,000)(6) 0
------------ --------- --------- ------------ -----------
TOTAL LONG-TERM LIABILITIES............ 7,648,160 102,541 0 372,200 8,122,901
------------ --------- --------- ------------ -----------
MINORITY INTEREST.......................... 659,000 (659,000)(4) 0
SHAREHOLDERS' EQUITY:
Common stock............................. 800 15,620 30,000 83,944 (4) 130,364
Preferred stock.......................... 0 0 0 0 (4) 0
Additional paid-in capital............... 450,938 52,670 0 28,076,766 (4) 28,580,374
Retained earnings (deficit).............. (55,039) 237,488 (428,122) 190,634 (4) (55,039)
------------ --------- --------- ------------ -----------
396,699 305,778 (398,122) 28,351,344 28,655,699
Less: Treasury stock, at cost............ 0 (63,655) 0 63,655 (4) 0
------------ --------- --------- ------------ -----------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT)... 396,699 242,123 (398,122) 28,414,999 28,655,699
------------ --------- --------- ------------ -----------
$ 15,020,885 $ 596,543 $ 290,580 $ 28,198,199 $44,106,207
------------ --------- --------- ------------ -----------
------------ --------- --------- ------------ -----------
</TABLE>
F-28
<PAGE>
JUDGE, GROUP, INC.
NOTES TO PRO FORMA
CONSOLIDATING STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 AND YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
(1) Adjustments to reflect amortization of goodwill, as discussed in Note 2
in Notes to Pro Forma Consolidating Balance Sheets.
(2) Adjustments to reflect interest expense on notes payable, resulting
from business combination with Berkeley of $61,849 in the year ended December
31, 1995 and $32,850 in the six months ended June 30, 1996.
(3) Adjustments to record reduction in interest expense, relating to
conversion of convertible debentures into Judge common stock, of $50,000 in the
year ended December 31, 1995 and $25,000 in the six months ended June 30, 1996.
(4) Adjustment to record merger of Judge and Imaging 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 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%.
F-29
<PAGE>
JUDGE, GROUP, INC.
PRO FORMA CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<S> <C> <C> <C> <C>
DATAIMAGE
PRO FORMA JUDGE GROUP, INC. BERKELEY
JUDGE GROUP INC. ADJUSTMENTS TOTAL ASSOCIATES
---------------- ----------- ---------------- -----------
REVENUES.................................................. $ 63,299,353 $1,284,333 $ 64,583,686 $ 2,324,524
------------ ---------- ------------ -----------
COSTS AND EXPENSES
Cost of Sales........................................... 47,550,114 800,841 48,350,955 1,807,348
Selling and Operating................................... 9,797,875 437,904 10,235,779 0
General and Administrative.............................. 4,187,485 0 4,187,485 443,181
------------ ---------- ------------ -----------
Total Costs and Expenses.............................. 61,535,474 1,238,745 62,774,219 2,250,529
------------ ---------- ------------ -----------
INCOME (LOSS) FROM OPERATIONS............................. 1,763,879 45,588 1,809,467 73,995
Interest Expense.......................................... (670,110) (6,070) (676,180) (16,325)
Other Income (expense).................................... (27,229) 0 (27,229) 1,335
------------ ---------- ------------ -----------
Income (loss) before Income
Tax Expense and Minority Interest....................... 1,066,540 39,518 1,106,058 59,005
Income Tax Expense (Benefit).............................. 587,957 0 587,957 0
------------ ---------- ------------ -----------
INCOME (LOSS) BEFORE MINORITY INTEREST.................... $ 478,583 $ 39,518 $ 518,101 $ 59,005
MINORITY INTEREST IN NET LOSS OF CONSOLIDATED
SUBSIDIARY.............................................. 7,057 0 7,057 0
------------ ---------- ------------ -----------
NET INCOME (LOSS)......................................... 485,640 39,518 525,158 59,005
------------ ---------- ------------ -----------
------------ ---------- ------------ -----------
NET INCOME (LOSS) PER COMMON SHARE:
PRIMARY.................................................
FULLY DILUTED...........................................
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING...............................
<CAPTION>
PRO FORMA
CONSOLIDATED
SYSTEM PRO FORMA YEAR ENDED
AUTOMATION ADJUSTMENTS 31-DEC-95
----------- ----------- ------------
REVENUES.................................................. $1,187,273 $ 0 $ 68,095,483
---------- --------- ------------
COSTS AND EXPENSES
Cost of Sales........................................... 523,448 50,681,751
Selling and Operating................................... 659,967 10,895,746
General and Administrative.............................. 169,976 241,876 (1) 5,042,518
---------- --------- ------------
Total Costs and Expenses.............................. 1,353,391 241,876 66,620,015
---------- --------- ------------
INCOME (LOSS) FROM OPERATIONS............................. (166,118) (241,876) 1,475,468
Interest Expense.......................................... (6,261) (7,049)(2)(3) (705,815)
Other Income (expense).................................... 180,901 0 155,007
---------- --------- ------------
Income (loss) before Income
Tax Expense and Minority Interest....................... 8,522 (248,925) 924,660
Income Tax Expense (Benefit).............................. 0 (72,559)(5) 515,398
---------- --------- ------------
INCOME (LOSS) BEFORE MINORITY INTEREST.................... $ 8,522 ($176,366) $ 409,262
MINORITY INTEREST IN NET LOSS OF CONSOLIDATED
SUBSIDIARY.............................................. 0 (7,057)(4) 0
---------- --------- ------------
NET INCOME (LOSS)......................................... 8,522 (183,423) 409,262
---------- --------- ------------
---------- --------- ------------
NET INCOME (LOSS) PER COMMON SHARE:
PRIMARY................................................. $ 0.03
------------
------------
FULLY DILUTED........................................... $ 0.03
------------
------------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING............................... 13,042,737
------------
------------
</TABLE>
F-30
<PAGE>
JUDGE, GROUP, INC.
PRO FORMA CONSOLIDATING STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<S> <C> <C> <C> <C>
DATAIMAGE
PRO FORMA JUDGE GROUP, INC. BERKELEY
JUDGE GROUP INC. ADJUSTMENTS TOTAL ASSOCIATES
---------------- ----------- ---------------- -----------
REVENUES.................................................. $ 37,327,166 $ 122,692 $ 37,449,858 $ 1,479,473
---------------- ----------- ---------------- -----------
COSTS & EXPENSES
Cost of sales............................................. 27,587,582 60,450 27,648,032 976,149
Selling and operating..................................... 6,363,990 77,829 6,441,819 0
General and administrative................................ 2,848,111 7,317 2,855,428 261,962
---------------- ----------- ---------------- -----------
Total Costs & Expenses.................................. 36,799,683 145,596 36,945,279 1,238,111
---------------- ----------- ---------------- -----------
INCOME (LOSS) FROM OPERATIONS............................. 527,483 (22,904) 504,579 241,362
Interest Expense.......................................... (371,439) 0 (371,439) (9,524)
Other income (expense).................................... 0 (3,598) (3,598) 122
---------------- ----------- ---------------- -----------
Income (loss) before income tax expense (benefit) and
minority interest....................................... 156,044 (26,502) 129,542 231,960
Income Tax Expense (benefit).............................. 203,500 0 203,500 0
---------------- ----------- ---------------- -----------
Income (loss) before minority interest in net income
(loss) of consolidated subsidiary....................... (47,456) (26,502) (73,958) 231,960
Minority interest in net income (loss) of consolidated
subsidiary.............................................. 229,000 0 229,000 0
---------------- ----------- ---------------- -----------
NET INCOME (LOSS)......................................... $ 181,544 ($ 26,502) $ 155,042 $ 231,960
---------------- ----------- ---------------- -----------
---------------- ----------- ---------------- -----------
NET INCOME (LOSS) PER COMMON SHARE:
Primary.................................................
Fully diluted...........................................
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING...............................
<CAPTION>
PRO FORMA
CONSOLIDATED
SIX MONTHS
SYSTEM PRO FORMA ENDED
AUTOMATION ADJUSTMENTS 30-JUNE-96
----------- ----------- ------------
REVENUES.................................................. $ 466,683 $ 0 $ 39,396,014
--------- --------- ------------
COSTS & EXPENSES
Cost of sales............................................. 172,998 0 28,797,179
Selling and operating..................................... 354,388 0 6,796,207
General and administrative................................ 95,195 120,938 (1) 3,333,523
--------- --------- ------------
Total Costs & Expenses.................................. 622,581 120,938 38,926,909
--------- --------- ------------
INCOME (LOSS) FROM OPERATIONS............................. (155,898) (120,938) 469,105
Interest Expense.......................................... (2,878) (5,450)(2)(3) (389,291)
Other income (expense).................................... 107 0 (3,369)
--------- --------- ------------
Income (loss) before income tax expense (benefit) and
minority interest....................................... (158,669) (126,388) 76,445
Income Tax Expense (benefit).............................. 0 (21,239)(5) 182,261
--------- --------- ------------
Income (loss) before minority interest in net income
(loss) of consolidated subsidiary....................... (158,669) (105,149) (105,816)
Minority interest in net income (loss) of consolidated
subsidiary.............................................. 0 (229,000)(4) 0
--------- --------- ------------
NET INCOME (LOSS)......................................... ($158,669) ($334,149) ($ 105,816)
--------- --------- ------------
--------- --------- ------------
NET INCOME (LOSS) PER COMMON SHARE:
Primary................................................. ($ 0.01)
------------
Fully diluted........................................... ($ 0.01)
------------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING............................... 13,042,737
-----------
</TABLE>
F-31
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
INDEX TO FINANCIAL STATEMENTS
CONTENTS
PAGE
----
UNAUDITED CONDENSED BALANCE SHEET AS OF JUNE 30, 1996 AND DECEMBER 31, 1995
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX
MONTHS ENDED JUNE 30, 1996 AND 1995
UNAUDITED CONDENSED STATEMENT OF SHAREHOLDERS' DEFICIENCY FOR THE SIX
MONTHS ENDED JANUARY 30, 1996
UNAUDITED CONDENSED STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1995
UNAUDITED NOTES TO CONDENSED FINANCIAL STATEMENTS FOR THE SIX MONTHS
ENDED JUNE 30, 1996 AND 1995
INDEPENDENT AUDITORS' REPORT FOR DECEMBER 31, 1995 AND 1994
BALANCE SHEET AS OF DECEMBER 31, 1995
STATEMENTS OF OPERATIONS FOR YEARS ENDED DECEMBER 31, 1995 AND 1994
STATEMENTS OF SHAREHOLDERS' DEFICIENCY FOR YEARS ENDED DECEMBER 31,
1995 AND 1994
STATEMENTS OF CASH FLOWS FOR YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTES TO FINANCIAL STATEMENTS FOR YEARS ENDED DECEMBER 31, 1995 AND
1994
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
CONDENSED BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995
UNAUDITED
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
---- ----
<S> <C> <C>
CURRENT ASSETS
Cash $ 7,578 $ 11,310
Accounts receivable, net of allowance for doubtful accounts
of $20,000 in 1996 and $23,000 in 1995 2,115,494 1,471,916
Other receivables- -- 50,000
Inventories 679,366 515,099
Prepaid expenses and other 215,406 273,672
----------- -----------
Total current assets 3,017,844 2,321,997
----------- -----------
PROPERTY AND EQUIPMENT, NET 439,957 194,870
----------- -----------
OTHER ASSETS
Security deposits 19,603 14,063
----------- -----------
$ 3,477,404 $ 2,530,930
=========== ===========
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Equipment notes payable, current portion $ 20,055 $ 15,150
Accounts payable and accrued expenses 1,355,877 891,829
Payroll and sales taxes payable 120,566 112,336
Advances from shareholders 115,723 139,906
Deferred revenue 273,690 46,111
Customer deposits 33,745 --
----------- -----------
Total current liabilities 1,919,656 1,205,332
----------- -----------
EQUIPMENT NOTES PAYABLE, NET OF CURRENT PORTION 60,491 53,233
----------- -----------
NOTE PAYABLE, BANK 1,406,960 1,538,425
----------- -----------
DUE TO AFFILIATE -- 1,450,450
----------- -----------
MANDATORILY REDEEMABLE PREFERRED STOCK
$1,000 stated value, 1,500 shares issued and outstanding 1,520,000 --
----------- -----------
SHAREHOLDERS' DEFICIENCY
Common Stock, $0.01 and $0.005 par value,
10,000,000 shares authorized,
3,980,141 and 6,900,577 shares issued and outstanding
for 1996 and 1995, respectively 39,801 34,503
Preferred Stock, $0.01 par value,
3,665,770 shares issued and outstanding, 1995 -- 366,577
Preferred Stock - Series A, $0.01 par value,
5,000,000 shares authorized, 1996
822,628 shares issued and outstanding 8,226 --
Contributed capital 1,589,576 524,433
Accumulated deficit (3,067,306) (2,642,023)
----------- -----------
Total shareholders' deficiency (1,429,703) (1,716,510)
----------- -----------
$ 3,477,404 $ 2,530,930
=========== ===========
</TABLE>
See Notes to Condensed Financial Statements.
- 2 -
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
CONDENSED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
UNAUDITED
1996 1995
---- ----
NET REVENUES, including related party revenues
of $439,000 in 1996 and $364,000 in 1995 $ 6,154,499 $ 3,377,347
COST OF REVENUES 4,628,985 2,642,762
----------- -----------
GROSS PROFIT 1,525,514 734,585
OPERATING EXPENSES
Selling, general and administrative 1,860,815 858,799
----------- -----------
LOSS FROM OPERATIONS (335,301) (124,214)
OTHER EXPENSES, principally interest (89,982) (125,384)
----------- -----------
NET LOSS BEFORE PREFERRED DIVIDENDS (425,283) (249,598)
PREFERRED DIVIDENDS EARNED (75,600) (9,165)
----------- -----------
NET LOSS ATTRIBUTABLE TO
COMMON SHAREHOLDERS ($ 500,883) ($ 258,763)
=========== ===========
NET LOSS PER SHARE AND FULLY DILUTED
NET LOSS PER SHARE ATTRIBUTABLE
TO COMMON SHAREHOLDERS ($ 0.15) ($ 0.11)
=========== ===========
See Notes to Condensed Financial Statements.
- 3 -
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
CONDENSED STATEMENTS OF OPERATIONS -- (Continued)
THREE MONTHS ENDED JUNE 30, 1996 AND 1995
UNAUDITED
1996 1995
---- ----
NET REVENUES, including related party revenues
of $210,000 in 1996 and $159,000 in 1995 $ 3,685,156 $ 1,398,548
COST OF REVENUES 2,663,126 1,244,432
----------- -----------
GROSS PROFIT 1,022,030 154,116
OPERATING EXPENSES
Selling, general and administrative 1,108,272 491,106
----------- -----------
LOSS FROM OPERATIONS (86,242) (336,990)
OTHER EXPENSES, principally interest (42,632) (68,322)
----------- -----------
NET LOSS BEFORE PREFERRED DIVIDENDS (128,874) (405,312)
PREFERRED DIVIDENDS EARNED (56,700) (4,583)
----------- -----------
NET LOSS ATTRIBUTABLE TO
COMMON SHAREHOLDERS ($ 185,574) ($ 409,895)
=========== ===========
NET LOSS PER SHARE AND FULLY
DILUTED NET LOSS PER SHARE
ATTRIBUTABLE TO COMMON
SHAREHOLDERS -- PRIMARY ($ 0.05) ($ 0.18)
=========== ===========
- 4 -
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
CONDENSED STATEMENT OF SHAREHOLDERS' DEFICIENCY
SIX MONTHS ENDED JUNE 30, 1996
UNAUDITED
<TABLE>
<CAPTION>
SERIES A ADDITIONAL
COMMON STOCK PREFERRED STOCK PREFERRED STOCK PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
------ ------ ------ ------ ------ ------ ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
DECEMBER 31, 1995 6,900,577 $ 34,503 3,665,770 $ 366,577 -- $ -- $ 524,433 ($2,642,023) ($1,716,510)
ISSUANCE OF
SERIES A
PREFERRED STOCK- -- -- -- -- 822,628 8,226 1,088,611 -- 1,096,837
CONVERSION OF
PREFERRED
STOCK TO
COMMON STOCK 3,665,770 366,577 (3,665,770) (366,577) -- -- -- -- --
MERGER
TRANSACTIONS
(See Note 1) (6,586,206) (361,279) -- -- -- -- (23,468) -- (384,747)
NET LOSS -- -- -- -- -- -- -- (425,283) (425,283)
----------- --------- ----------- --------- ------- ------ ---------- ----------- -----------
BALANCE,
JUNE 30, 1996 3,980,141 $ 39,801 -- -- 822,628 $8,226 $1,589,576 ($3,067,306) ($1,429,703)
=========== ========= =========== ========= ======= ====== ========== =========== ===========
</TABLE>
See Notes to Condensed Financial Statements.
- 5 -
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
UNAUDITED
1996 1995
---- ----
OPERATING ACTIVITIES
Net loss ($425,283) ($249,598)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation 49,880 19,658
Provision for doubtful accounts 23,000 --
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts and other receivables (562,451) (126,365)
Inventories (125,166) (77,816)
Prepaid expenses and other 63,506 (25,698)
Increase (decrease) in:
Accounts payable and accrued expenses 381,961 80,989
Payroll and sales taxes payable 8,230 (89,473)
Deferred revenue (72,196) (234)
Customer deposits (28,517) --
--------- ---------
Net cash used in operating activities (687,036) (468,537)
--------- ---------
INVESTING ACTIVITIES
Net cash used in investing activities,
purchases of property and equipment (121,551) (20,443)
--------- ---------
FINANCING ACTIVITIES
Cash acquired in business combination 13,786 --
Repayments of advances to shareholders (24,183) (19,098)
Principal payments on equipment note borrowings (11,219) (5,294)
Advances from affiliates 69,550 95,059
Proceeds from (repayments of) notes payable, bank (131,465) 417,299
Issuance of Series A Preferred Stock, net 888,386 --
--------- ---------
Net cash provided by financing activities 804,855 487,966
--------- ---------
DECREASE IN CASH (3,732) (1,014)
CASH, JANUARY 1, 11,310 3,782
--------- ---------
CASH, JUNE 30, $ 7,578 $ 2,768
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the six months for interest $ 90,834 $ 100,123
========= =========
See Notes to Condensed Financial Statements.
- 6 -
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
UNAUDITED
NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Description of Business
Judge Imaging Systems, Inc. (the "Company") derives its
revenues from computer sales, repairs, maintenance and providing
system integration for document management, imaging and workflow,
principally in the mid-Atlantic and northeastern region of the
Country. The Company also develops and markets standardized and
custom software products and systems for the mass storage,
electronic management and retrieval of information. As a systems
integrator, the Company designs, assembles, installs and
maintains image-processing systems. The Company's standardized
products are sold both through distribution channels and directly
to end-users.
Financial information with regard to the six months and
the three months ended June 30, 1996 and 1995, is unaudited but
in the opinion of management contains all adjustments which are
of a normal, recurring nature and necessary to present fairly the
Company's results of operations and cash flows. Certain
information and footnote disclosure normally included in annual
financial statements have been condensed or omitted in the
financial information for the six and three months ended June 30,
1996 and 1995 pursuant to SEC Rules and Regulations. Management
believes that the disclosures which have been made are adequate.
The results of operation for the six and three months
ended June 30, 1996 are not necessarily indicative of the results
to be expected for the full year.
The financial information with regard to the statement of
operations for the six months ended June 30, 1995 and the
December 31, 1995 balance sheet are that of Judge Computer
Corporation ("Judge") (considered the acquiring corporation for
accounting purposes, as described in "business combination"). The
statement of operations for the six months ended June 30, 1996
includes six months of Judge operations and four months (from
February 29, 1996, the effective date of merger) of DataImage,
Inc.'s operations. The statement of operations for the three
months ended June 30, 1996 includes three months of Judge
operations and three months of DataImage, Inc's operations.
At June 30, 1996, the Company is a 26% owned subsidiary of
Judge, Inc., a company who, along with other of its subsidiaries,
provides engineers and other technical professionals on a
temporary and permanent basis. An additional 49% of the Company's
voting stock is owned by individuals who are also shareholders of
Judge, Inc.
- 7 -
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
UNAUDITED
NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)
Business Combination
On September 13, 1995, Judge Imaging Systems, formerly
known as DataImage, Inc. (the "Registrant" and sometimes the
"Surviving Corporation") entered into a Letter of Intent with
respect to a proposed merger transaction between the Registrant
and Judge.
On December 1, 1995, the Registrant and Judge executed the
Agreement and Plan of Merger (the "Merger Agreement") with
respect to the merger transaction proposed by the Letter of
Intent. The Merger Agreement was amended effective December 20,
1995 and February 26, 1996.
During 1996 and prior to the consummation of the Merger,
Judge had the following equity transactions:
* 3,665,770 shares of Company preferred stock were converted
into Company common stock;
* The Company's Board of Directors resolved to increase the
authorized preferred stock by 1,150,000 shares and divide
such shares into 1,125,000 shares of Series A Convertible
Preferred Stock, par value of $.01 and 25,000 shares of
Series B Preferred Stock, par value $.01;
* $1,520,000 of advances from Judge, Inc./Judge Technical
Services, Inc. were converted into 1,500 shares of
Company Series B Preferred Stock;
* The Company raised approximately $888,000 (net of
related costs of approximately $208,000) in a private
placement offering of Series A Convertible Preferred
Stock. 822,628 shares were issued in the offering at a
price per share of $1.33. The Preferred A Stock is
convertible at the holder's option, and conversion is
mandatory at the time of a subsequent public offering
of common stock in excess of $5 million dollars. The
Preferred Stock carries a cumulative dividend of 7% per
year and holders will have a liquidation preference
prior to the common stock shareholders and all other
existing classes. In the event Judge Imaging System,
Inc. (the surviving company) has not closed on a
subsequent public offering by the eighth anniversary of
the merger, then the Company will have the right to
redeem the stock.
- 8 -
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
UNAUDITED
NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)
The merger transaction was consummated effective February
29, 1996. A brief summary of the merger transaction follows:
* In the merger, Judge, a privately-owned corporation, was
merged into DataImage, with DataImage as the surviving
entity in the merger. Following the merger, the separate
existence of Judge ceased, and DataImage continued as the
surviving corporation under Delaware law using the name
"Judge Imaging Systems, Inc." (the "Surviving
Corporation") with all of the rights, powers, and
privileges, and subject to all of the duties and
liabilities of DataImage and Judge combined. Following the
merger, the Surviving Corporation continued to be a public
reporting company;
* At the effective time of the merger, the Certificate of
Incorporation of DataImage as the Surviving Corporation
was amended to: change its name to Judge Imaging
System, Inc., and to authorize a class of 5,000,000
shares of preferred stock (the "Preferred Stock") in
addition to the 10,000,000 shares of common stock
previously authorized ("Common Stock"). The 5,000,000
shares of Preferred Stock are divided into 1,125,000
shares of Series A Convertible Preferred Stocks and
1,500 shares of Series B Convertible Stock; the
remaining shares of Preferred Stock are "blank check"
shares issuable at the discretion of the Board of
Directors of the Surviving Corporation. The Series A
Convertible Preferred Stock and the Series B
Convertible Preferred Stock of the Surviving
Corporation have essentially the same rights and
privileges as the Series A Convertible Preferred Stock
and the Series B Preferred Stock of Judge existing
immediately prior to the merger. The Series A
Convertible Preferred Stock is convertible into Common
Stock at a 1 to 1 ratio, has a preference in
liquidation, and bears a 7% cumulative dividend. The
Series B Preferred Stock is nonvoting, nonconvertible,
has no liquidation preference, and bears a 10%
cumulative dividend;
* At the effective time of the merger, each DataImage
shareholder automatically received one share of Surviving
Corporation Common Stock in exchange for every 31.960868
shares of issued and outstanding DataImage Common Stock
owned by such shareholder as of the effective time of the
merger;
* At the effective time of the merger, each holder of Judge
Common Stock automatically received shares of Surviving
Corporation Common Stock. The number of shares received
was calculated as one share of Surviving Corporation
Common Stock for every 2.832693723 shares of Judge Common
Stock held;
- 9 -
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
UNAUDITED
NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)
* At the effective time of the merger, each Judge
shareholder received one share of Surviving corporation
Series A Convertible Preferred Stock for each share of
Judge Series A Convertible Preferred Stock held, and one
share of Surviving Corporation Series B Preferred Stock
for each share of Judge Series B Preferred Stock held;
* The conversion ratios were calculated so that, after
giving effect to certain Reserved Shares for issuance
to employees following the merger and assuming the
conversion of all Series A Convertible Preferred Stock
to Common Stock, there are approximately 5,000,000
shares of Common Stock of the Surviving Corporation
outstanding immediately following the merger, of which
holder of DataImage Common Stock immediately prior to
the merger will receive in the aggregate approximately
5% (approximately 250,000 shares) and the holder of
Judge Common Stock and Series A Convertible Preferred
Stock immediately prior to the merger will receive in
the aggregate approximately 95% (approximately
4,750,000 shares). The Series B Preferred Stock is not
included in the foregoing percentage calculations. As a
result, the business combination was accounted for as a
"reverse acquisition" whereby Judge, in substance, was
to acquire DataImage, allocating the fair value of
Judge stock exchanged over the relative fair value of
assets and liabilities of DataImage (assumed to equal
its book value) prior to Judge being merged into
DataImage (surviving corporation). No value was to be
ascribed to DataImage's net loss carryforwards as a
result of limitations on these carryforwards subsequent
to the change in control. DataImage was to remain a
Registrant under the Securities and Exchange Commission
Rule.
As a consequence, a change in control of the Registrant
has occurred effective upon the consummation of the merger. The
consideration given for such change in control is the exchange of
certificates described in the Merger Agreement and previously
described above. The basis of the change in control includes a
change in the Directors of the Registrant and change in the share
ownership of the Registrant.
- 10 -
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
UNAUDITED
NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)
The persons from whom control of the Registrant was
acquired upon the merger pursuant to the exchange of securities
described above were Canaan Capital Limited Partnership and
Canaan Capital Offshore Limited Partnership C.V. (collectively
the "Partnerships"). The Partnerships acquired control of the
Registrant pursuant to an agreement with the Registrant dated
November 20, 1995 (the "Agreement"). As a result of the
Agreement, the Partnerships immediately acquired an aggregate of
1,700,000 shares of DataImage Common Stock in addition to the
362,499 shares previously held, resulting in the ownership by the
Partnerships as of the record date of the Special Meeting of
Shareholders of approximately 51.4% of the issued and outstanding
shares of DataImage Common Stock, and effective voting control of
the Registrant as of such date. As a further result of the
Agreement, immediately prior to the closing of the merger, the
Partnerships acquired in the aggregate an additional 3,980,214
shares of DataImage Common Stock, resulting in the ownership as
of the closing of the proposed merger transaction by the
Partnerships of 6,042,713 of the 7,990,217 shares issued and
outstanding at that time, representing approximately 75.6% of
such issued and outstanding shares of DataImage Common Stock.
Judge and DataImage anticipate that the proposed merger
transaction will qualify as a "reorganization" to Section 368(a)
of the Internal Revenue Code of 1986, as amended (the "Code"),
and that Judge and DataImage will each be a party to the
reorganization within the meaning of section 368(b) of the Code.
Judge and DataImage further anticipate that no gain or loss will
be recognized by Judge or DataImage by reason of the merger.
At June 30, 1996, the capital structure of the Company is
as follows:
Common Stock -
$.01 par value, 10,000,000 shares authorized, 3,980,141
shares issued and outstanding;
Preferred Stock -
5,000,000 shares authorized divided into 1,125,000 shares
of Series A, 1,500 shares of Series B with the remainder
"blank check" shares; 822,628 shares of Series A issued
and outstanding and 1,500 shares of Series B issued and
outstanding.
- 11 -
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
UNAUDITED
NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)
Revenue Recognition and Deferred Revenues
Revenues are recorded as income in the period in which the
merchandise is shipped or the services are rendered. Revenues
billed in advance for warranties and maintenance contracts are
deferred and recorded as income in the period in which the
services are rendered.
Revenue from sales of the Company's image-processing
systems is recognized at the date of shipment of the system,
provided that any work to complete installation of the systems is
routine in nature and costs are not significant. The system
components are assembled and tested with the developed software
in the Company's facilities prior to delivery. Where installation
is significant to the completion of the contract revenue is
recognized when the installation is completed and accepted by the
customer.
Software incorporated into the systems is licensed under a
perpetual, non-exclusive, non-transferable license, and revenue
is recognized as part of the completed system. Service contract
revenue is recorded ratably over the term of the contract.
Substantially all service contracts expire within the year ending
December 31, 1996.
At June 30, 1996, $273,690 of warranty, maintenance and
service contract revenue has been deferred.
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.
Management's Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumption 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.
- 12 -
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
UNAUDITED
NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)
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 at the currently enacted tax rates that are
expected to be in effect when the taxes are actually paid or
recovered.
Deferred income taxes arise principally from temporary
differences between financial and income tax reporting, including
differences relating to depreciation methods used, amounts
recorded for inventory capitalization, the availability of net
operating loss carryforwards and certain other 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.
Deferred income taxes are primarily the result of net
operating loss carryforwards and are completely reduced by a
valuation allowance at June 30, 1996.
Net Income (Loss) Per Share
Net income (loss) per share and fully diluted net income
(loss) per share attributable to common shareholders is based on
the weighted average number of shares of common stock outstanding
during the periods. The assumed conversion of certain convertible
preferred stock has not been considered in the calculations of
loss per share in 1996, since the effect of such
conversions/exercise would be antidilutive. The weighted average
number of shares outstanding during the six months ended June 30,
1996 and 1995 were 3,435,436 and 2,333,204, respectively. The
weighted average number of shares outstanding, primary and fully
dilutive, during the three months ended June 30, 1996 and 1995
were 3,980,141 and 2,333,204, respectively.
- 13 -
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
UNAUDITED
NOTE 2. PRO-FORMA RESULTS OF OPERATIONS
The following sets forth the combined results of operation
for both Judge and DataImage for the six months ended June 30,
1996 and 1995, as if the business combination occurred at January
1, 1996 and 1995, respectively.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- -------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenues $ 3,685,156 $ 1,635,565 $ 6,277,191 $ 4,023,274
Cost of Revenues 2,663,126 1,345,172 4,689,435 3,015,388
----------- ----------- ----------- -----------
Gross Profit 1,022,030 290,393 1,587,756 1,007,886
Operating Expenses:
Selling, general
and administrative 1,108,272 633,685 1,945,961 1,190,922
----------- ----------- ----------- -----------
Operating Profit (Loss) (86,242) (343,292) (358,205) (183,036)
Other Income (Expenses), net (42,632) (80,991) (89,999) (140,056)
----------- ----------- ----------- -----------
Net Income (Loss) ($ 128,874) ($ 424,283) ($ 448,204) ($ 323,092)
=========== =========== =========== ===========
</TABLE>
Notes to Pro-Forma results of Operations:
(1) Interest expense adjusted due to the conversion of
DataImage, Inc.'s Canaan Capital stockholders' notes
payable to common stock.
(2) Primary and fully-diluted net income (loss) per share of
common stock is calculated as follows (the assumed
conversion of certain convertible preferred stock has not
been considered in the calculation since the effect of
such conversion would be antidilutive):
- 14 -
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
UNAUDITED
NOTE 2. PRO-FORMA RESULTS OF OPERATIONS (Continued)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- ------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income (Loss) ($ 128,874) ($ 424,283) ($ 448,204) ($ 323,092)
7% Cumulative Dividend On
Series A Preferred Stock (19,200) (19,200) (38,400) (38,400)
Less 10% Cumulative Dividends
On Series B Preferred Stock (37,500) (37,500) (75,000) (75,000)
----------- ----------- ----------- -----------
Net Loss Attributable To
Common Shareholders ($ 185,574) ($ 480,983) ($ 561,604) ($ 436,492)
=========== =========== =========== ===========
Weighted Average Number of
Shares $ 3,980,141 $ 3,980,141 $ 3,980,141 $ 3,980,141
=========== =========== =========== ===========
Net Loss Per Share Attributable To
Common Shareholders ($ 0.05) ($ 0.12) ($ 0.14) ($ 0.11)
=========== =========== =========== ===========
</TABLE>
- 15 -
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
UNAUDITED
NOTE 3. NOTE PAYABLE, BANK
During 1995, the Company consolidated its line of credit
along with certain affiliated entities lines into a $5,500,000
line of credit. During 1996, the Bank line of credit was
increased to $6,400,000. Outstanding borrowings relating to the
Company at June 30, 1996 were $1,406,960. Interest on the line is
prime plus 1% (9.5% at December 31, 1995 and 9.25% at June 30,
1996). Maximum borrowings under the new facility are limited to
80% of qualified accounts receivable, as defined. The line of
credit was originally due in full on May 31, 1997, but was
extended by the Bank until 1998. The line is collateralized by
substantially all of the Company's assets as well as
substantially all of Judge, Inc. and Judge Technical Services,
Inc.'s assets, is personally guaranteed by certain shareholders
and certain affiliated companies. The line contains financial
covenants, certain of which were in violation at June 30, 1996
but which were waived by the Bank. In addition, the Company, as
well a each of its affiliates, is jointly and severally
responsible for all of the debt outstanding under the line.
Included in accounts payable and accrued expenses at June
30, 1996 were approximately $550,000 of bank overdrafts.
NOTE 4. RELATED PARTY TRANSACTIONS
The Company had advances from Judge, Inc. and Judge
Technical Services, Inc. amounting to $1,450,450 at December 31,
1995. These advances increased to $1,520,000 during the first
quarter of 1996. At the effective time of the Merger, these
advances were converted into 1,500 shares of Company Series B
Preferred Stock (the "shares"). The shares are not convertible,
nor do they have any liquidation preference and carry a 10%
cumulative annual dividend. Dividend payments are permitted,
contingent upon certain profit goals set forth by the Company.
Partial and full redemption of the $1,500,000 face amount is
permitted, contingent upon the dollar value of proceeds raised in
a subsequent public offering. Subsequent to the closing of the
Merger, such shares were converted into 1,500 shares of Series B
Preferred Stock of the surviving corporation from the merger. The
Surviving Corporation shares have the same rights and privileges
as the predecessor shares, and is mandatorily redeemable
automatically upon the tenth anniversary of issuance or upon a
subsequent public offering of at least $6,000,000.
During the six months ended June 30, 1996 and 1995, the
Company billed a subsidiary of Judge, Inc. for consulting and
related technical advisory services in the amount of $45,000 and
$240,000, respectively. Such amounts are included in net revenues
in the accompanying statement of operations. During the six
months ended June 30, 1996 and 1995, the Company sold
approximately $394,000 and $124,000, respectively, of
computer-related equipment to Judge, Inc. and/or its
subsidiaries.
- 16 -
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
UNAUDITED
NOTE 5. PREFERRED STOCK
Holders of preferred stock at December 31, 1995 were
entitled to vote as a single class with the holders of the
Company's common stock. In addition, holders of preferred stock
were entitled to receive cumulative dividends at the annual rate
of $.005 per share. Cumulative dividends in arrears at December
31, 1995 were approximately $74,000. No dividends were declared
or paid in 1995. During 1996, preferred stockholders waived such
dividends due and converted their preferred stock into common
stock (see Note 1).
NOTE 6. STATEMENT OF CASH FLOWS
Supplemental Disclosure of Noncash Financing Transactions:
During 1996, $1,520,000 of advances from affiliates were
converted to mandatorily redeemable preferred stock.
During 1996, $366,577 of preferred stock was converted to common
stock.
During 1996, a $50,000 note receivable was forgiven due to the
business combination.
Supplemental Disclosure of Noncash Investing Activities:
During 1996, the Company entered into certain financing
arrangements for the purchase of property and equipment in the
amount of approximately $23,000.
During 1995, the Company entered into certain financing
arrangements for the purchase of property and equipment in the
amount of approximately $15,000.
- 17 -
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
UNAUDITED
NOTE 6. STATEMENT OF CASH FLOWS (Continued)
Supplemental Disclosure of Noncash Investing and Financing
Activities:
Effective February 29, 1996, Judge Computer Corporation and
DataImage effected a business combination:
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 Judge (100,000)
Deferred Revenue and Customer Deposits (362,037)
---------
(544,124)
---------
Net liabilities assumed in business combination ($240,082)
=========
- 18 -
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS FOR THE SECOND
QUARTER ENDING AND THE SIX MONTHS ENDING JUNE 30, 1996
Results of Operation
Second quarter 1996 and six months ending June 30, 1996 compared to second
quarter 1995 and six months ending June 30, 1995.
The Company reflected an improvement in operations for
the second quarter of 1996 versus the first quarter of 1996. The Company
lost $128,874 before preferred dividends for the second quarter of 1996 as
compared to $296,409 for the first quarter of 1996. The loss of $128,874 for the
second quarter of 1996 is still an improvement when compared to the loss of
$405,312 for the second quarter of 1995. This result is attributable to a 164%
increase in net revenue and a corresponding increase in gross profit margin from
11% to 28%, but was also offset by an increase operating expenditures of 101%
compared to the corresponding period in 1995.
For the six months ending June 30, 1996, however, the
Company reflected a loss before preferred dividends of $425,283 versus a
loss for the same period in 1995 of $249,598. This $175,685 increase in loss is
due primary to increased Operating Expenses (selling, general and
administration) which was primarily due to increases in staffing necessary to
support the revenue growth. Preferred dividends earned increased by $52,117 for
the second quarter of 1996 as compared to the second quarter of 1995, and
increased $66,435 for the six months ended June 30, 1996 compared to June 30,
1995. These increases are a result of the issuance of additional preferred stock
to certain investors concurrent with the effectiveness of the merger with
DataImage, Inc. on February 29, 1996.
Backlog of orders as of June 30, 1996 was $1,800,000
compared to $703,000 at June 30, 1995. This 156% increase is primarily
attributable to increased business in the Company's imaging operations.
Revenues for the second quarter of 1996 increased 166%
as compared to revenues for the second quarter of 1995. This increase is
attributable to a 69% increase in network and service revenues as compared to
the network and service revenues for the second quarter of 1995, as well as a
465% increase in the imaging revenues for the second quarter of 1996. Revenues
for the six months ending June 30, 1996 increased 82% as compared to the same
period for 1995. This increase is mostly attributable to the above-referenced
increase in imaging revenues, which was associated with the Company's increased
marketing effort.
Gross profit margin for the second quarter of 1996 was
28% versus 11% for the second quarter of 1995. This increase in margin is a
result of the realization of economies of scales as well as an increase in
imaging revenues, which produce higher margins. For the same reasons, the gross
profit margin for the six months ending June 30, 1996 increased to 25% versus
22% for the same period in 1995.
Operating expenditures increased approximately 147% for
the second quarter of 1996 and 117% for the six months ending June 30, 1996
versus the comparable periods in the prior year. This increase is primarily
attributable to the Company's increase in staffing associated with increased
sales. Staffing levels increased to 85 employees as of June 30, 1996 versus 50
employees as of June 30, 1995.
- 19 -
<PAGE>
Liquidity and Capital Resources
The Company's principal lender has agreed to increase
the Company's credit facility to accommodate its continued growth. The
Company believes that the increase in the bank credit facility as well as cash
generated from operations will be sufficient to support the anticipated level of
operations and capital expenditures through fiscal 1996.
Financial Condition at June 30, 1996 versus December 31, 1995.
Current assets increased to $3,017,000 as of June 30,
1996 from $2,322,000 as of December 31, 1995. This increase was primarily
attributable to an increase in receivables of $644,000 associated with the
increased sales, with the balance of the increase originating from higher
inventory levels. Offsetting the increase in current assets of $696,000 was an
increase in current liabilities of $714,000. These accounts reflect the
increased liabilities attributable to a higher level of business activity,
increased revenues and the merger of DataImage, Inc.
Property, plant and equipment increased from $195,000
as of December 31, 1995 to $440,000 as of June 30, 1996. This increase
reflects the DataImage acquisition as well as the equipment needed to support
the Company's revenue growth.
Notes payable to the Company's principal lender
decreased in the second quarter by $131,000 from December 31, 1995, due to
the utilization of a portion of the private placement proceeds. The line of
credit relating to notes payable contains financial covenants, certain of which
were in violation at June 30, 1996 but which were waived by the lender. The
Company received net cash proceeds from the issuance of Preferred Series "A"
stock on February 29, 1996 of cash of approximately $888,000, which provided
working capital to assist the Company's growth in 1996.
- 20 -
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
(FORMERLY JUDGE COMPUTER CORPORATION)
YEARS ENDED
DECEMBER 31, 1995 AND 1994
C O N T E N T S
PAGE(s)
-------
INDEPENDENT AUDITORS' REPORT 1
BALANCE SHEET 2
STATEMENTS OF OPERATIONS 3
STATEMENTS OF SHAREHOLDERS' DEFICIENCY 4
STATEMENTS OF CASH FLOWS 5
NOTES TO FINANCIAL STATEMENTS 6 - 15
<PAGE>
INDEPENDENT AUDITORS' REPORT
Shareholders and Board of Directors
Judge Imaging Systems, Inc.
(Formerly Judge Computer Corporation)
Moorestown, New Jersey
We have audited the accompanying balance sheet of Judge Imaging Systems,
Inc. (formerly Judge Computer Corporation) as of December 31, 1995, and the
related statements of operations, shareholders' deficiency, and cash flows for
the years ended December 31, 1995 and 1994. 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 financial position of Judge Imaging Systems, Inc.
(formerly Judge Computer Corporation) as of December 31, 1995, and the results
of its operations and its cash flows for the years ended December 31, 1995 and
1994, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, the Company executed
an Agreement and Plan of Merger with DataImage, Inc. on December 1, 1995. The
merger was completed on February 29, 1996.
March 20, 1996
Plymouth Meeting, PA
- 1 -
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
(FORMERLY JUDGE COMPUTER CORPORATION)
BALANCE SHEET
DECEMBER 31, 1995
ASSETS
CURRENT ASSETS
Cash $ 11,310
Accounts receivable, net of allowance for
doubtful accounts of $23,000 1,471,916
Note receivable, DataImage, Inc. 50,000
Inventories 515,099
Prepaid expenses and other 273,672
------------
Total current assets 2,321,997
------------
PROPERTY AND EQUIPMENT
Computer equipment and software 279,363
Furniture and fixtures 80,771
Leasehold improvements 10,899
Vehicles 10,681
------------
381,714
Less: accumulated depreciation and amortization 186,844
------------
Net property and equipment 194,870
------------
OTHER ASSETS
Security deposits 14,063
------------
$2,530,930
============
See Notes to Financial Statements.
<PAGE>
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Equipment notes payable, current portion $ 15,150
Accounts payable and accrued expenses 891,829
Payroll and sales taxes payable 112,336
Advances from shareholders 139,906
Deferred revenue 46,111
-----------
Total current liabilities 1,205,332
-----------
NOTE PAYABLE, BANK 1,538,425
-----------
DUE TO AFFILIATE 1,450,450
-----------
EQUIPMENT NOTES PAYABLE, NET OF CURRENT PORTION 53,233
-----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' DEFICIENCY
Common stock ($.005 par value, 15,000,000 shares
authorized, 6,900,577 shares issued and outstanding 34,503
Preferred stock ($.10 par value, 10,000,000 shares
authorized, 3,665,770 shares issued and outstanding) 366,577
Additional paid-in capital 524,433
Accumulated deficit (2,642,023)
-----------
Total shareholders' deficiency (1,716,510)
-----------
$2,530,930
==========
- 2 -
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
(FORMERLY JUDGE COMPUTER CORPORATION)
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994
---------- ------------
NET REVENUES $8,699,781 $ 3,773,336
COST OF REVENUES 6,712,389 3,039,009
----------- -----------
GROSS PROFIT 1,987,392 734,327
----------- -----------
OPERATING EXPENSES
Selling 1,561,354 831,833
General and administrative 472,194 415,935
----------- -----------
Total operating expenses 2,033,548 1,247,768
----------- -----------
OPERATING LOSS (46,156) (513,441)
----------- -----------
OTHER (EXPENSES):
Interest expense (191,466) (153,166)
Other expenses (34,836) --
----------- -----------
Total other (expenses) (226,302) (153,166)
----------- -----------
NET LOSS BEFORE PREFERRED DIVIDENDS (272,458) (666,607)
PREFERRED DIVIDENDS EARNED (18,329) (18,329)
----------- -----------
NET LOSS ATTRIBUTABLE TO
COMMON SHAREHOLDERS ($290,787) ($ 684,936)
=========== ===========
NET LOSS PER SHARE AND FULLY DILUTED
NET LOSS PER SHARE ATTRIBUTABLE TO
COMMON SHAREHOLDERS ($.04) ($.10)
===== =====
See Notes to Financial Statements.
- 3 -
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
(FORMERLY JUDGE COMPUTER CORPORATION)
STATEMENTS OF SHAREHOLDERS' DEFICIENCY
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK ADDITIONAL
------------------------ -------------------------- PAID-IN ACCUMULATE
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
---------- --------- ---------- --------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
JANUARY 1, 1994 6,489,250 $ 32,446 3,665,770 $ 366,577 $519,433 ($1,702,958) ($ 784,502)
NET LOSS - - - - - (666,607) (666,607)
--------- -------- --------- --------- -------- ------------- ------------
BALANCE,
DECEMBER 31, 1994 6,489,250 32,446 3,665,770 366,577 519,433 (2,369,565) (1,451,109)
ISSUANCE OF
COMMON SHARES 411,327 2,057 - - 5,000 - 7,057
NET LOSS - - - - - (272,458) (272,458)
--------- -------- --------- --------- -------- ------------- ------------
BALANCE,
DECEMBER 31, 1995 6,900,577 $ 34,503 3,665,770 $ 366,577 $524,433 ($2,642,023) ($1,716,510)
========= ======== ========= ========= ======== ========== ==========
</TABLE>
See Notes to Financial Statements.
- 4 -
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
(FORMERLY JUDGE COMPUTER CORPORATION)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
---- ----
OPERATING ACTIVITIES
<S> <C> <C>
Net loss ($ 272,458) ($ 666,607)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 37,194 33,618
Provision for uncollectible accounts 23,000 36,396
Stock compensation 6,000 --
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable (787,875) (203,010)
Inventories (282,394) 127,518
Prepaid expenses and other (249,667) 8
(Decrease) increase in:
Accounts payable and accrued expenses 396,125 194,902
Payroll and sales taxes payable (76,277) 114,485
Deferred revenue 11,960 (39,546)
----------- -----------
Net cash used in operating activities (1,194,392) (402,236)
----------- -----------
INVESTING ACTIVITIES
Net cash used in investing activities,
purchases of property and equipment (91,677) (22,756)
----------- -----------
FINANCING ACTIVITIES
Loan to DataImage, Inc. (50,000) --
Repayments of advances from shareholders (49,793) (64,028)
Principal payments on equipment note borrowings (7,973) (7,462)
Advances from affiliate, net 111,136 245,999
Proceeds from note payable, bank 1,289,170 249,255
Issuance of common stock 1,057 --
----------- -----------
Net cash provided by financing activities 1,293,597 423,764
----------- -----------
INCREASE (DECREASE) IN CASH 7,528 (1,228)
CASH , JANUARY 1, 3,782 5,010
----------- -----------
CASH, DECEMBER 31, $ 11,310 $ 3,782
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 190,000 $ 145,000
=========== ===========
</TABLE>
See Notes to Financial Statements
- 5 -
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
(FORMERLY JUDGE COMPUTER CORPORATION)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 1. CONTINUITY OF BUSINESS AND BUSINESS COMBINATION
On September 13, 1995, Judge Computer Corporation ("Judge") and
DataImage, Inc. ("DataImage") signed a Letter of Intent which
contemplated the merger of Judge into DataImage, Inc. with the current
Judge shareholders acquiring the majority ownership position in
DataImage. DataImage develops and markets standardized and custom
software products and systems for the mass storage, electronic
management and retrieval of information.
On December 1, 1995, Judge Computer Corporation and DataImage,
Inc. executed an Agreement and Plan of Merger ("The Merger
Agreement"). The Merger Agreement provides for each DataImage
shareholder to receive one share of new Common Stock in the surviving
corporation (DataImage) in exchange for every 31.960868 shares of
outstanding DataImage Common Stock. Each holder of Judge Common Stock
was to receive shares of Common Stock of the surviving corporation.
The number of shares of surviving corporation Common Stock to be
received by Judge shareholders was to vary depending upon the number
of shares of Judge Series A Preferred Stock (Notes 9 and 15) to be
acquired by investors in a contemplated private placement to be
conducted by Judge prior to the closing (Note 15). The ratios ranged
from 2.582 shares of Judge Common Stock for one share of surviving
corporation (DataImage, Inc.) Common Stock (if the minimum amount of
$600,000 was to be raised), to 3.074 to one (if the maximum amount of
$1,500,000 was to be raised). Dividends on the Judge Series A
Preferred Stock are to accrue and cumulate at an annual rate of 7% on
the stated value of the Series A Preferred, provided that at least
$1,000,000 of shares were to be sold in the contemplated private
placement. Additionally, each share of Judge Series A Preferred Stock
issued in the Judge private placement was to receive one share of
Series A of the surviving corporation. The shares were to be
convertible into one share of surviving corporation Common at any time
and to require mandatory conversion at time of a public offering in
excess of $5 million. The stock also has specific antidilution, demand
and piggy-back registration rights.
The net effect of the above transactions was to have outstanding
shares of Judge Common Stock and Judge Series A Convertible Preferred
Stock converted into approximately 95% of the voting capital of the
surviving corporation. As a result, the business combination was to be
accounted for as a "reverse acquisition" whereby Judge, in substance,
was to acquire DataImage, allocating the fair value of Judge stock
exchanged over the relative fair value of assets and liabilities of
DataImage (assumed to equal its book value) prior to Judge being
merged into DataImage (surviving corporation). No value was to be
ascribed to DataImage's net loss carryforwards as a result of
limitations on these carryforwards subsequent to the change in
control. DataImage was to remain a registrant under the Securities and
Exchange Commission Rules.
- 6 -
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
(FORMERLY JUDGE COMPUTER CORPORATION)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 1. CONTINUITY OF BUSINESS AND BUSINESS COMBINATION (Continued)
Judge Series B Preferred Stock (issued subsequent to December 31,
1995 and immediately prior to the Merger) (Note 15) was to be
exchanged for shares of the surviving corporations Series B Preferred
Stock. This stock was not considered in the 95% control requirement
for the former Judge shareholders. The Series B Preferred stockholders
were to be entitled to receive a cumulative dividend of 10% per annum;
the stock was to be redeemed in part or in full contingent upon the
dollar value of the proceeds of any secondary offering of the
surviving corporation (Note 15).
On February 29, 1996, the merger was completed on substantially
the same terms and conditions as discussed above.
Judge and DataImage anticipate that the proposed merger
transaction will qualify as a "reorganization" pursuant to Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
and that Judge and DataImage will each be a party to the
reorganization within the meaning of Section 368(b) of the Code. Judge
and DataImage further anticipate that no gain or loss will be
recognized by Judge or DataImage by reason of the merger.
NOTE 2. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
The Company derives its revenues from computer sales, repairs,
maintenance and providing system integration for document management,
imaging and workflow, principally in the mid-atlantic region of the
Country.
The Company is a 34% owned subsidiary of Judge, Inc., a Company
who, along with its 100% owned subsidiaries, provides engineers and
other technical professionals on a temporary and permanent basis. The
remaining 66% is owned by individuals who are also shareholders of
Judge, Inc.
- 7 -
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
(FORMERLY JUDGE COMPUTER CORPORATION)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 2. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Property and Equipment and Depreciation and Amortization
Property and equipment are stated at cost. Depreciation is
computed using the straight-line method over the estimated useful
lives of the related assets, generally three to seven years. Leasehold
improvements are amortized over the shorter of the lives of the
improvements or the term of the lease.
Depreciation and amortization related to property and equipment
amounted to $37,194 in 1995 and $33,618 in 1994.
Revenue Recognition and Deferred Revenues
Revenues are recorded as income in the period in which the
merchandise is shipped or the services are rendered. Revenues billed
in advance for warranties and maintenance contracts are deferred and
recorded as income in the period in which the services are rendered.
Cash
The Company maintains its 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. Included in cost of sales are inventory write-downs of
approximately $52,000 and $40,000 for the years ended December 31,
1995 and 1994, respectively.
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 at the currently enacted
tax rates that are expected to be in effect when the taxes are
actually paid or recovered.
- 8 -
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
(FORMERLY JUDGE COMPUTER CORPORATION)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 2. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Income Taxes (Continued)
Deferred income taxes arise principally from temporary
differences between financial and income tax reporting, including
differences relating to depreciation methods used, amounts recorded
for inventory capitalization, the availability of net operating loss
carryforwards and certain other 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.
Self-Insurance
The Company and certain affiliates are self-insured for health
care claims for eligible active employees. The affiliated group is
liable for aggregate claims up to approximately $310,000 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.
Reclassifications
Certain items in the 1994 financial statements have been
reclassified to conform with the 1995 presentation.
Management's Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
NOTE 3. NOTE RECEIVABLE, DATAIMAGE, INC.
As a condition of the Letter of Intent (Note 1), the Company
provided a $50,000 bridge loan, with interest at 11%, to DataImage to
fund ongoing operations and working capital requirements through the
date of the expected closing. The loan is secured by certain assets of
DataImage. As a result of the merger, no interest was charged on this
loan.
- 9 -
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
(FORMERLY JUDGE COMPUTER CORPORATION)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 4. NOTE PAYABLE, BANK
During 1995, the Company consolidated its line of credit along
with certain affiliated entities' lines into a $5,500,000 line of
credit. Outstanding borrowings relating to Judge Computer Corporation
at December 31, 1995 were $1,538,425. Interest on the line is prime
plus 1% (9.5% at December 31, 1995). Maximum borrowings under the new
facility are limited to 80% of qualified accounts receivable, as
defined. The line of credit is due in full on May 31, 1997, is
collateralized by substantially all of the Company's assets as well as
substantially all of Judge, Inc.'s and Judge Technical Services,
Inc.'s assets, is personally guaranteed by certain shareholders and
certain affiliated companies and is subject to certain financial
covenants. In addition, the Company as well as each of its affiliates
is jointly and severally responsible for all of the debt outstanding
under the line.
Interest expense for all debt obligations, including equipment
notes payable (Note 5), advances from shareholders (Note 6) and
related party transactions (Note 7), totaled approximately $191,500
for 1995 and $153,000 for 1994.
NOTE 5. EQUIPMENT NOTES PAYABLE
Equipment notes payable consist of various equipment notes
payable in monthly installments currently aggregating $1,698,
including interest at various rates, through March 2000.
Annual maturities of equipment notes payable are as follows:
YEARS ENDING
DECEMBER 31, AMOUNT
------------ ------
1996 $ 15,150
1997 16,472
1998 17,947
1999 18,226
2000 588
--------
$ 68,383
========
- 10 -
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
(FORMERLY JUDGE COMPUTER CORPORATION)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 6. ADVANCES FROM SHAREHOLDERS
The Company had advances of $139,906 from individual shareholders
at December 31, 1995. The advances have no formal repayment terms.
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 $18,000 in 1995 and $22,000 in 1994.
NOTE 7. RELATED PARTY TRANSACTIONS
The Company had advances from Judge, Inc. and Judge Technical
Services, Inc. (Note 2) amounting to $1,450,450 at December 31, 1995.
These advances accrue interest at prime plus 1% (which interest
amounted to approximately $84,000 in 1995 and $110,000 in 1994). No
interest was charged on these advances during the second half of 1995.
The advances have no formal repayment terms. Subsequent to December
31, 1995, these advances were converted to preferred stock (Notes 1
and 15).
During 1995, the Company billed a subsidiary of Judge, Inc. for
consulting and related technical advisory services in the amount of
$480,000. Such amount is included in net revenues in the accompanying
statement of operations. During 1995 and 1994, the Company sold
approximately $199,400 and $194,000, respectively, of computer related
equipment to Judge, Inc. and/or its subsidiaries.
During 1994, the Company provided certain management and
administrative services to Judge, Inc. and certain of Judge, Inc.'s
wholly-owned subsidiaries amounting to $402,000. This amount, which
has been recorded as a reduction of the Company's general and
administrative expenses in 1994, represented a reimbursement to the
Company by these affiliates for various general and administrative
expenses, including compensation paid to the Company's President. No
such compensation or reimbursement related to the Company's
President's salary was recorded in the 1995 financial statements.
NOTE 8. COMMON STOCK
During 1993, the Company issued warrants to an investment advisor
of the Company for the purchase of common stock for the amount of
shares necessary to bring such warrant holder's ownership to 2% of the
Company, if the warrants were to be exercised. The exercise price of
the warrants is par value ($.005). During 1995, 211,327 of common
shares were issued relating to such warrants.
- 11 -
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
(FORMERLY JUDGE COMPUTER CORPORATION)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 8. COMMON STOCK (Continued)
Pursuant to an employment agreement dated July 1993 and a
subsequent amendment, the Company issued 200,000 shares of common
stock to an employee in 1995. Although such shares were not issued
until 1995, the calculations of net loss per share for 1995 and 1994
(Note 14) reflect the commitment to issue those shares for those
respective years. The Company recorded compensation expense in the
amount of $6,000 in 1995 and $ - 0 - in 1994 related to the issuance
of such shares.
NOTE 9. PREFERRED STOCK
During 1991, the capital structure of the Company was modified to
authorize the issuance of 10,000,000 shares of $.10 par value
preferred stock. During 1991, $100,000 of debentures and $266,577 of
investor loans were converted to 1,000,000 and 2,665,770 shares of
preferred stock, respectively.
Holders of preferred stock are entitled to vote as a single class
with the holders of the Company's common stock. In addition, holders
of preferred stock are entitled to receive cumulative dividends at the
annual rate of $.005 per share. Cumulative dividends in arrears at
December 31, 1995 were approximately $74,000. No dividends were
declared or paid in 1995 or 1994. Preferred stock may be redeemed by
the Company at any time for face value plus all accrued but unpaid
dividends to the date set for redemption. In addition, preferred
stockholders have the right to convert their preferred stock into
common stock.
Subsequent to December 31, 1995, the Company's Board of Directors
resolved to increase the authorized preferred stock by 1,150,000
shares and divide such shares into 1,125,000 shares of Series A
Convertible Preferred Stock, par value of $.01, and 25,000 shares of
Series B Preferred Stock, par value $.01.
NOTE 10. SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK
During 1995, sales to two customers each exceeded 10% of the
Company's revenues and cumulatively totaled $2,071,000 (24% of total
sales). At December 31, 1995, trade accounts receivable include
$482,000 from these two customers.
At December 31, 1994, trade accounts receivable include $69,000
from a customer. Sales to this customer exceeded 10% of the Company's
1994 revenues.
- 12 -
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
(FORMERLY JUDGE COMPUTER CORPORATION)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 11. COMMITMENTS
During 1990, the Company entered into a five-year non-cancelable
operating lease, expiring February 15, 1995, for the rental of an
office facility. The lease has been extended to February 29, 1997. The
Company also leases office space from an affiliated company on a
month-to-month basis. The Company paid this affiliate $23,500 in 1995.
The future annual minimum lease payments, including common area
charges, are as follows:
YEARS ENDING
DECEMBER 31, AMOUNT
------------ ------
1996 $63,000
1997 10,500
-------
$73,500
=======
Rent expense, including common area charges and utilities, was
approximately $94,000 for the year ended December 31, 1995 and $74,000
for the year ended December 31, 1994.
NOTE 12. INCOME TAXES
The Company adopted Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes," on January 1, 1993.
The net deferred tax asset at December 31, 1995 and 1994,
includes the following:
1995 1994
---- ----
Deferred tax asset $945,000 $877,000
Valuation allowance for
deferred tax asset (945,000) (877,000)
-------- -------
$ - $ -
======== ========
- 13 -
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
(FORMERLY JUDGE COMPUTER CORPORATION)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 12. INCOME TAXES (Continued)
The tax effect of major temporary differences that give rise to
the Company's net deferred tax asset are as follows:
1995 1994
---- ----
Net operating loss carryforwards $934,000 $840,000
Other 11,000 37,000
-------- --------
$945,000 $877,000
======== ========
As a result of operating losses, no provision for income taxes
was required in 1995 and 1994.
For income tax reporting purposes, as of December 31, 1995, the
Company has unused operating loss carryforwards of approximately
$2,335,000, that begin expiring in 2002, and which may be applied
against future taxable income.
NOTE 13. RETIREMENT PLAN
The Company sponsors a 401(k) retirement plan covering
substantially all eligible employees. Employees may contribute a
percentage of their pre-tax salary to the Plan. The Company has the
option to make a discretionary contribution. During 1995, the Company
did not make any discretionary contribution to the Plan. During 1994,
the Company recorded a discretionary contribution of $5,000 to the
Plan.
NOTE 14. NET LOSS PER SHARE AMOUNTS
Net loss per share and fully diluted net loss per share
attributable to common shareholders is based on the weighted average
number of shares of common stock outstanding during the periods. The
assumed conversion of certain convertible preferred stock and certain
common stock warrants have not been considered in the calculations of
loss per share, since the effect of such conversions/exercise would be
antidilutive. The weighted average number of shares outstanding during
the years ended December 31, 1995 and 1994 were 6,595,000 and
6,549,250, respectively.
- 14 -
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
(FORMERLY JUDGE COMPUTER CORPORATION)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 15. SUBSEQUENT EVENTS
As further discussed in Note 1, the Merger transaction with
DataImage, Inc. was consummated effective February 29, 1996.
Subsequent to December 31, 1995, the Company raised approximately
$1,097,000 (exclusive of related costs) in a private placement
offering of Series A Convertible Preferred Stock. 822,628 shares were
issued in the offering at a price per share of $1.33. The Preferred A
Stock is convertible at the holder's option, and conversion is
mandatory at the time of a subsequent public offering of common stock
in excess of $5 million dollars. The Preferred Stock carries a
cumulative dividend of 7% per year and holders will have a liquidation
preference prior to the common stock shareholders and all other
existing classes. In the event Judge Imaging Systems, Inc. (the
surviving company) has not closed on a subsequent public offering by
the eighth anniversary of the merger, then the Company will have the
right to redeem the stock.
Subsequent to December 31, 1995 and at the effective time of the
Merger (Note 1), $1,520,000 of advances from Judge, Inc./Judge
Technical Services, Inc. were converted into 1,500 shares of Company
Series B Preferred Stock (the "shares"). The shares are not
convertible, nor do they have any liquidation preference and carry a
10% cumulative annual dividend. Dividend payments are permitted,
contingent upon certain profit goals set forth by the Company. Partial
and full redemption of the $1,520,000 face amount is permitted,
contingent upon the dollar value of proceeds raised in a subsequent
public offering. Subsequent to the closing of the Merger, such shares
shall be converted into 1,500 shares of Series B Preferred Stock of
the surviving corporation from the merger. The surviving corporation
shares shall have the same rights and privileges as the predecessor
shares, and is mandatorily redeemable.
NOTE 16. STATEMENTS OF CASH FLOWS
Supplemental Disclosure of Noncash Financing Transactions:
During 1995, the Company entered into certain financing
arrangements for the purchase of property and equipment in the amount
of approximately $71,000.
- 15 -
<PAGE>
APPENDIX A
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
A-1
<PAGE>
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 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.
A-2
<PAGE>
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.
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
A-3
<PAGE>
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.
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
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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 "Lore Notes"), issued by
Judge pursuant to a 10% Convertible Senior Subordinated Note Purchase Agreement
(the "Purchase Agreement"), dated July 1994, which Lore 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.
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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:
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
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the laws of such Subsidiary's respective jurisdiction of incorporation set forth
in its Disclosure Schedule and is 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
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this Agreement all outstanding warrants, and all outstanding options granted by
it, vested or unvested, together with the identity of the optionees or warrant
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
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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.
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, its balance sheet at December 31, 1995 and its related statements of
operations, shareholders' deficiency, and cash flows for the years ended
December 31, 1995 and 1994, and (iii) all related notes and schedules, all of
which have been audited by an independent public accountant. Judge has delivered
to JIS,
(i) its consolidated balance sheet at June 30, 1996, and (ii) its related
consolidated statements of operations and deficit and of cash flows for the six
months then ended and as of December 31, 1995 and 1994 and for each of the three
years in the period ended December 31, 1995, which have been audited by an
independent public accountant.
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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 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
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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
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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 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.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
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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 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.
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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 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
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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.
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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 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
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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 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
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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.
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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 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
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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
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.
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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.
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.
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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
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APPENDIX B
September 4, 1996
Board of Directors
Judge Imaging Systems, Inc.
Two Bala Plaza
Suite 800
Bala Cynwyd, PA 19004-1510
Dear Member of the Board:
You have requested our opinion as to the fairness, from a financial
point of view, of the consideration to be received by the shareholders of Judge
Imaging Systems, Inc. ("Imaging" or the "Company") in connection with the
proposed plan to merge its business with and into Judge Group, Inc. ("Judge")
pursuant to the Definitive Agreement and Plan of Merger between Imaging and
Judge (the "Definitive Agreement").
Under the terms of the Definitive Agreement, the Company will be merged
with and into Judge, with Judge surviving the merger (the "Merger"). The
Definitive Agreement will provide for Imaging shareholders to receive per share
consideration of $2.50, to be paid in shares of Common Stock of Judge valued at
the price paid for Judge Common Stock in the IPO described in the next sentence.
Approval of the Merger by Imaging shareholders is intended to take place prior
to the completion of an initial public offering (the "IPO") by Judge, and
closing of the Merger is intended to take place simultaneously with the closing
of the IPO.
In rendering our opinion, we have reviewed, among other things: (a) a
draft Definitive Agreement dated August 27, 1996; (b) Annual Report to
Shareholders and Annual Report on Form 10-KSB of the Company for the fiscal
year ended December 31, 1995; (c) Quarterly Report on Form 10-QSB of the Company
for the quarter ended March 31, 1996 and Draft Quarterly Report on Form 10-QSB
of the Company for the quarter ended June 30, 1996; (d) Form 8-K for Imaging
dated February 29, 1996; (e) Form 8-K/A for Imaging dated March 15, 1996;
(f) closing bible for the merger of Judge Computer Corporation and DataImage,
Inc. dated February 28, 1996; (g) certain internal, unaudited financial
statements,
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Board of Directors/Judge Imaging Systems
September 4, 1996
Page 2
operating data, and other information for the Company furnished by Company
management; (h) certain budgets and financial projections for the Company
prepared by Company management; (i) financial reports, operating data and other
information furnished by the Company or which were publicly available; (j) the
reported historical market prices, trading volume and market for the equity
securities of the Company; and (k) certain financial and stock market
information for certain other publicly traded companies in line of business
similar to the Company. We have also held discussions with the management of the
Company regarding its business, operating results, financial condition,
prospects and the Merger, and undertook other analyses, studies and
investigations as we considered appropriate. Finally, we have become generally
familiar with Judge, its results of operations, prospects and plans as a result
of our work with Judge in anticipation of the IPO.
In connection with our review, we have relied, without independent
verification, upon the accuracy and completeness of the financial and other
information used by us in arriving at our opinion. We have also relied upon the
assessments of the management of the Company regarding its business, prospects
and the Merger and also assumed that the budgets and financial projections of
the Company were reasonably prepared by management on bases reflecting the best
currently available estimates and good faith judgments of the future financial
performance of the Company. We did not undertake any independent valuations or
appraisals of the real properties, assets or liabilities of the Company, nor
were we furnished with any such valuations or appraisals.
In rendering this opinion, we have assumed that regulatory approvals
required to complete the Merger will not impose any conditions that will have a
material adverse effect on the contemplated benefits of the Merger. We have also
assumed, with your consent, that the Merger will qualify as tax-free
reorganizations under the Internal Revenue Code. The opinion we express herein
is necessarily based upon economic, market and other conditions as they exist
and can be reasonably evaluated on the date hereof.
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Board of Directors/Judge Imaging Systems
September 4, 1996
Page 3
We have not served as financial advisor or provided financial advisory
services to the Company or Judge in the past. As you know, however, we have been
working with Judge and expect to be a managing underwriter for the IPO.
We are of the opinion, as of the date hereof and based upon the
foregoing, that the consideration to be received by Imaging shareholders in
connection with the Merger, taken as a whole, is fair to such shareholders from
a financial point of view.
Very truly yours,
/s/ Janney Montgomery Scott, Inc.
-----------------------------------
Janney Montgomery Scott, Inc.
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APPENDIX C
262 APPRAISAL RIGHTS. - (a) Any stockholder of a corporation of this State who
holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to ss.228 of this title shall be entitled to an appraisal by the Court
of Chancery of the fair value of his shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and
the words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to ss.251, 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this
section shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or consolidation,
were either (i) listed on a national securities exchange or designated as a
national market system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc. or (ii) held of record by more
than 2,000 holders; and further provided that no appraisal rights shall be
available for any shares of stock of the constituent corporation surviving a
merger if the merger did not require for its approval the vote of the holders of
the surviving corporation and provided in subsections (f) or (g) of ss.251 of
this title.
(2) Notwithstanding paragraph (1) of this subsection,
appraisal rights under this section shall be available for the shares of any
class or series of stock of a constituent corporation if the holders thereof are
required by the terms of an agreement of merger or consolidation pursuant to
ss.251, 252, 254, 257, 258, 263 and 264 of this title to accept for such
stock anything except:
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a. Shares of stock of the corporation surviving or
resulting from such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or
depository receipts in respect thereof, which shares of stock or depository
receipts at the effective date of the merger or consolidation will be either
listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository
receipts and cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under ss.253 of this title is not owned
by the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation
that appraisal rights under this section shall be available for the shares of
any class or series of its stock as a result of an amendment to its certificate
of incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal
rights are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to the
meeting, shall notify each of its stockholders who was such on the record date
for such meeting with respect to shares for which appraisal rights are available
pursuant to subsections (b) or (c) hereof that appraisal rights are available
for any or all of the shares of the constituent corporations, and shall include
in such notice a copy of this section. Each stockholder electing to demand the
appraisal of his shares shall deliver to the corporation, before
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the taking of the vote on the merger or consolidation, a written demand for
appraisal of his shares. Such demand will be sufficient if it reasonably informs
the corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of his shares. A proxy or vote against
the merger or consolidation shall not constitute such a demand. A stockholder
electing to take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to
Section 228 or Section 253 of this title, each constituent corporation, either
before the effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of stock of
such constituent corporation who are entitled to appraisal rights of the
approval of the merger or consolidation and that appraisal rights are available
for any or all shares of such class or series of stock of such constituent
corporation, and shall include in such notice a copy of this section, provided
that, if the notice is given on or after the effective date of the merger or
consolidation, such notice shall be given by the surviving or resulting
corporation to all such holders of any class or series of stock of a constituent
corporation that are entitled to appraisal rights. Such notice may, and, if
given on or after the effective date of the merger or consolidation, shall, also
notify such stockholders of the effective date of the merger or consolidation.
Any stockholder entitled to appraisal rights may, within twenty days after the
date of mailing of such notice, demand in writing from the surviving or
resulting corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the appraisal of
such holder's shares. If such notice did not notify stockholders of the
effective date of the merger or consolidation, either (i) each such constituent
corporation shall send a second notice before the effective date of the merger
or consolidation notifying each of the holders of any class or series if stock
of such constituent corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the surviving or resulting
corporation shall send such a second notice to all such holders on or within 10
days after such effective date; provided, however, that if such second notice is
sent more than 20 days following the sending of the first notice, such second
notice need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holders shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary or of the
transfer agent of the corporation that is required to give either notice that
such notice has been given shall, in the absence of fraud, be prima facie
evidence of the facts stated therein. For purposes of determining the
stockholders entitled to receive either notice, each constituent corporation may
fix, in advance, a record date that shall be not more than 10 days prior to the
date the notice is given; provided that, if the notice is given on or after the
effective date of the merger or consolidation, the record date shall be such
effective date. If no record date is fixed and the notice is given prior to the
effective date, the record date shall be the close of business the day next
preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such
C-3
<PAGE>
shares. Such written statement shall be mailed to the stockholder within 10 days
after his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery if so ordered
by the Court, shall give notice of the time and place fixed for the hearing of
such petition by registered or certified mail to the surviving or resulting
corporation and to the stockholders shown on the list at the addresses therein
stated. Such notice shall also be given by 1 or more publications at least 1
week before the day of the hearing, in a newspaper of general circulation
published in the City of Wilmington, Delaware or such publication as the Court
deems advisable. The forms of the notices by mail and by publication shall be
approved by the Court, and the costs thereof shall be borne by the surviving or
resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock the Register in Chancery for notation thereon
of the pendency of the appraisal proceedings; and if any stockholder fails to
comply with such direction, the Court may dismiss the proceedings as to the
stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding,
C-4
<PAGE>
the Court may, in its discretion, permit discovery or other pretrial proceedings
and may proceed to trial upon the appraisal prior to the final determination of
the stockholder entitled to an appraisal. Any stockholder whose name appears on
the list filed by the surviving or resulting corporation pursuant to subsection
(f) of this section and who has submitted his certificates of stock to the
Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that he is not entitled to appraisal
rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and
taxed upon the parties as the Court deemed equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation,
no stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
C-5
<PAGE>
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
C-6
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Judge Group's Amended and Restated Articles of Incorporation provide that
no director or officer of Judge Group 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 Judge
Group 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 Judge Group
provide for indemnification of the officers and directors of Judge Group 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 21. Exhibits and Financial Statement Schedules.
(a) Exhibits
Exhibit
Number Description of Document
------ -----------------------
2.1* Agreement and Plan of Merger, dated as of September 4, 1996, among
the Company, Judge Acquisition, Inc. and Judge Imaging Systems,
Inc., included as Appendix A to the Proxy Statement/Prospectus
hereto.
3.1* Amended and Restated Articles of Incorporation of Judge Group.
Exhibit 3.1 of Judge Group's Registration Statement on Form S-1
(No. 333-13109) (the "Form S-1") is herein incorporated by
reference.
3.2* Amended and Restated By-Laws of Judge Group. Exhibit 3.2 of Judge
Group's Form S-1 is herein incorporated by reference.
4.1* 10% Convertible Senior Subordinated Note Purchase Agreement. Exhibit
4.1 of Judge Group's Form S-1 is herein incorporated by reference.
4.3* Third Amended and Restated Loan and Security Agreement, dated
September 3, 1996, between The Judge Group, Inc. and Midlantic Bank,
N.A. Exhibit 4.3 of Judge Group's Form S-1 is herein incorporated
by reference.
5.1** Opinion of Drinker Biddle & Reath.
8.1** Tax 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. Exhibit 10.1 of
Judge Group's Form S-1 is herein incorporated by reference.
10.2** Stock Purchase Agreement by and among The Judge Group, Inc.,
Berkeley Associates Corporation, Sandy Mayer and Gregory
McCartney.
10.3** Asset Purchase Agreement by and among The Judge Group, Inc. and
Systems Automation, Inc.
10.4* 1996 Incentive Stock Option and Non-Qualified Stock Option Plan
for Key Employees and Non-Employee Directors. Exhibit 10.4 of
Judge Group's Form S-1 is herein incorporated by reference.
10.5* Professional Services Agreement between Merck & Co., Inc. and
Judge Technical Services, Inc. Exhibit 10.5 of Judge Group's
Form S-1 is herein incorporated by reference.
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. Exhibit 10.6 of
Judge Group's Form S-1 is herein incorporated by reference.
10.7* Split-dollar Agreement by and between Judge, Inc. and Kathleen
Dunn, Trustee of the Irrevocable Agreement of Trust of Michael
Dunn, Settlor, dated June 19, 1996. Exhibit 10.7 of Judge
Group's Form S-1 is herein incorporated by reference.
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. Exhibit 10.8 of
Judge Group's Form S-1 is herein incorporated by reference.
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. Exhibit 10.9 of
Judge Group's Form S-1 is herein incorporated by reference.
10.10* Employment Agreement, by and between Judge Computer Corporation
and Wendy Greenberg. Exhibit 10.10 of Judge Group's Form S-1 is
herein incorporated by reference.
10.11* Employment Agreement, by and between Judge Imaging Systems, Inc.
and Jeffrey Andrews. Exhibit 10.11 of Judge Group's Form S-1 is
herein incorporated by reference.
10.12** Form of Underwriting Agreement between The Judge Group, Inc. and
Janney Montgomery Scott, Inc.
21.1* Subsidiaries of the Company. Exhibit 21.1 of Judge Group's Form S-1
is hereby incorporated by reference.
23.1** Consent of Drinker Biddle & Reath (included in their opinion filed
as Exhibits 5.1).
23.2* Consent of Rudolph, Palitz LLP.
II-1
<PAGE>
24.1* Powers of Attorney (included on the signature page hereto).
27.1* Financial Data Schedule.
99.1* Form of Judge Imaging Systems, Inc. Proxy Card.
- ----------
* Filed herewith.
** To be filed by amendment.
(b) Financial Statement Schedules
Schedule II. Valuation and Qualifying Accounts
All other schedules of Judge Group 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.
Item 22. Undertakings.
The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreements,
certificates in such denominations and registered in such names as required by
the underwriter to permit prompt delivery to each purchaser.
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 to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
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-2
<PAGE>
SIGNATURES
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, thereunto duly authorized in the Town of Bala Cynwyd,
Commonwealth of Pennsylvania, on the 1st day of October, 1996.
THE JUDGE GROUP, INC.
By: /s/ Martin E. Judge, Jr.
-------------------------
Martin E. Judge, Jr.
Chief Executive Officer
Each person whose signature appears below hereby constitutes and
appoints Martin E. Judge, Jr. and Jeffrey J. Andrews as his attorneys-in-fact
and agents, with full power and substitution for him in any and all capacities,
to sign any or all amendments or post-effective amendments to this Registration
Statement, or any Registration Statement for the same offering that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933,
and to file the same, with exhibits thereto and other documents in connection
therewith or in connection with the registration of the Common Shares under the
Securities Exchange Act of 1934, as amended, with the Securities and Exchange
Commission, granting unto each of such attorneys-in-fact the agents full power
and authority to do and perform each and every act and thing requisite and
necessary in connection with such matters and hereby ratifying and confirming
all that each of such attorneys-in-fact and agents or his substitutes may do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
/s/ Martin E. Judge, Jr. Chief Executive October 1, 1996
- ---------------------------- Officer and Chairman of
Martin E. Judge, Jr. the Board
(Principal Executive Officer)
/s/ Jeffrey J. Andrews Chief Financial Officer October 1, 1996
- ---------------------------- and Treasurer
Jeffrey J. Andrews
(Principal Financial and
Accounting Officer)
/s/ Michael A. Dunn Executive Vice President and October 1, 1996
- ---------------------------- Director
Michael A. Dunn
/s/ Richard T. Furlano President and Director October 1, 1996
- -----------------------------
Richard T. Furlano
II-3
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Document
------ -----------------------
5.1** Opinion of Drinker Biddle & Reath.
8.1** Tax Opinion of Drinker Biddle & Reath.
23.1** Consent of Drinker Biddle & Reath (included in their opinion filed
as Exhibits 5.1).
23.2* Consent of Rudolph, Palitz LLP.
24.1* Powers of Attorney (included on the signature page hereto).
27.1* Financial Data Schedule.
99.1* Form of Judge Imaging Systems, Inc. Proxy Card.
- ----------
* Filed herewith.
** To be filed by amendment.
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 report included herein and to the references to
our firm under the heading 'Experts' in the Prospectus.
/s/ Rudolph, Palitz LLP
Plymouth Meeting, Pennsylvania
October 9, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUDGE
GROUP, INC. 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> JUN-30-1996 DEC-31-1995 DEC-31-1994 DEC-31-1993
<EXCHANGE-RATE> 1 1 1 1
<CASH> 28,433 35,078 82,928 0
<SECURITIES> 0 0 0 0
<RECEIVABLES> 11,368,815 8,881,059 6,418,697 0
<ALLOWANCES> 297,000 174,000 157,000 0
<INVENTORY> 679,366 515,099 232,705 0
<CURRENT-ASSETS> 12,863,366 10,287,228 6,965,327 0
<PP&E> 2,787,878 1,809,363 1,601,486 0
<DEPRECIATION> 1,236,625 875,552 1,009,422 0
<TOTAL-ASSETS> 15,020,885 11,631,864 8,017,339 0
<CURRENT-LIABILITIES> 6,317,026 4,720,328 6,636,347 0
<BONDS> 0 0 0 0
0 0 0 0
0 0 0 0
<COMMON> 800 800 800 0
<OTHER-SE> 0 0 0 0
<TOTAL-LIABILITY-AND-EQUITY> 15,020,885 11,631,864 8,017,339 0
<SALES> 0 0 0 0
<TOTAL-REVENUES> 37,327,166 63,299,353 45,253,417 35,068,867
<CGS> 27,587,582 47,550,114 34,146,215 26,069,583
<TOTAL-COSTS> 36,799,683 61,535,474 43,810,776 34,448,015
<OTHER-EXPENSES> (371,439) (697,339) (419,590) (334,004)
<LOSS-PROVISION> 215,040 300,033 71,697 58,655
<INTEREST-EXPENSE> (371,439) (697,339) (419,590) (334,004)
<INCOME-PRETAX> 156,044 1,066,540 1,023,051 286,848
<INCOME-TAX> 203,500 0 0 0
<INCOME-CONTINUING> 181,544 485,640 343,251 101,388
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 42,000
<NET-INCOME> 181,544 485,640 343,251 101,388
<EPS-PRIMARY> $.02 $.06 $.04 $.01
<EPS-DILUTED> $.02 $.05 $.04 $.01
</TABLE>
PROXY CARD
Judge Imaging Systems, Inc.
Special Meeting of Shareholders
_________________, 1996
The undersigned hereby appoints Martin E. Judge, Jr. and Katharine
Wiercinski (the "Proxies"), and each of them, attorneys and proxies of the
undersigned, each with power of substitution and resubstitution, to attend, vote
and act for the undersigned at the Special Meeting of Stockholders (the
"Meeting") of Judge Imaging Systems, Inc. ("JIS") to be held at the offices of
JIS, Two Bala Plaza, Suite 800, Bala Cynwyd, Pennsylvania 19004 at 10:00 a.m.
(Eastern Standard Time) on ____________, __________________, 1996, and at any
adjournment thereof. The Proxies shall cast votes according to the
number of shares of JIS Common and/or Series A Preferred Stock which the
undersigned may be entitled to vote with respect to the proposal set forth
below, in accordance with the specification indicated, if any, and shall have
all the powers which the undersigned would possess if personally present. The
undersigned hereby revokes any prior proxy to vote at the Meeting, and hereby
ratifies and confirms all that said Proxies, or any of them, may lawfully do by
virtue hereof or thereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
STOCKHOLDERS OF JIS AND THE PROXY STATEMENT DATED ______________________, 1996.
THIS PROXY IS SOLICITED AND PROPOSED BY THE BOARD OF DIRECTORS OF JIS,
WHICH RECOMMENDS THAT YOU VOTE IN FAVOR OF THE PROPOSAL. PLEASE MARK, SIGN,
DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
THIS PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTIONS TO
BE TAKEN ON THE FOLLOWING PROPOSAL IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSAL.
Proposal to approve and adopt an Agreement and Plan of Merger pursuant to
which (i) JIS will be merged with and into Judge Acquisition, Inc., a
wholly-owned subsidiary of The Judge Group, Inc.; (ii) Acquisition will
amend its Certificate of Incorporation to change its name to "Judge Imaging
Systems, Inc.;" (iii) each outstanding share of JIS Common Stock and JIS
Series A Preferred Stock, other than shares already owned by Judge Group,
or those to which statutory dissenters' rights of appraisal are exercised,
will be converted into the right to receive that number of Judge Group
Common Shares equal to $2.50 divided by the offering price to the public of
the shares issued and sold by Judge Group in the initial public offering of
Judge Group Common Shares to be completed currently with the Merger; and
(iv) each share of JIS Series B Preferred Stock issued and outstanding
immediately prior to the Effective Time shall cease to be outstanding and
shall automatically be cancelled at the Effective Time of the Merger.
|_| YES |_| NO |_| ABSTAIN
<PAGE>
In their discretion, the Proxies, and each of them, are authorized to vote
upon any other business that may properly come before the Meeting, or any
adjournment thereof, including any adjournment necessary to obtain
requisite quorums and/or approvals.
--------------------------------------
--------------------------------------
Please sign above exactly as your
name(s) appear(s) hereon. If a
corporation, please sign in full
corporate name by an authorized officer.
If a partnership, please sign in
partnership name by an authorized
person. Each joint owner should sign
personally. Fiduciaries should give full
titles as such.
______________________, 1996
(Please Date)
<PAGE>
