As filed with the Securities and Exchange Commission on December 23, 1996
Registration No. 333-13753
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 2
to
FORM S-4
Registration Statement
Under The Securities Act of 1933
THE JUDGE GROUP, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 6710 23-1726661
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Classification Code Number) Identification
Organization) Number)
Two Bala Plaza, Suite 800, Bala Cynwyd, Pennsylvania 19004, (610) 667-7700
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Martin E. Judge, Jr., Chief Executive Officer, The Judge Group, Inc.
Two Bala Plaza, Suite 800, Bala Cynwyd, Pennsylvania 19004, (610) 667-7700
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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. |_|
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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THE 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)
Registration Statement Item Location or Caption in Prospectus
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A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of the Registration Facing Page of Registration Statement;
Statement and Outside Front Cover Cross Reference Sheet; Outside Front
Page of Prospectus Cover Page of Prospectus
2. Inside Front and Outside Back Inside Front Cover Page; Table of
Cover Pages of Prospectus Contents; Available Information
3. Risk Factors, Ratio of Earnings Prospectus Summary; Risk Factors;
to Fixed Charges and Other Selected Consolidated Financial Data;
Information 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 Business of JIS - Certain
Company Being Acquired Transactions; Notes to Financial
Statements and Business of Judge Group
7. Additional Information Required Not applicable
for Reoffering by Persons and
Parties Deemed to be Underwriters
8. Interests of Named Experts and Not applicable
Counsel
B. INFORMATION ABOUT THE REGISTRANT
9. Disclosure of Commission Position Not applicable
on Indemnification for Securities
Act Liabilities
10. Information with Respect to S-3 Not applicable
Registrants
11. Incorporation of Certain Not applicable
Information by Reference
12. Information with Respect to S-2 Not applicable
or S-3 Registrants
13. Incorporation of Certain Not applicable
Information by Reference
14. Information with Respect to Prospectus Summary; Business of Judge
Registrants Other than S-2 or S-3 Group; Management's Discussion and
Analysis of Financial Condition and
Results of Operations of Judge Group;
Selected Financial Data of Judge
Group; Market Prices of Securities
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C. INFORMATION ABOUT THE COMPANY
BEING ACQUIRED
15. Information with Respect to S-3 Not applicable
Companies
16. Information with Respect to S-2 Not applicable
or S-3 Companies
17. Information with Respect to Prospectus Summary; Business of JIS;
Companies other than S-2 or S-3 Management's Discussion and Analysis
Companies 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
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents Prospectus Summary; Introduction; The
or Authorizations are to be Merger; Business of Judge Group;
Solicited Business of JIS; Principal
Shareholders of JIS; Comparison of
Shareholder Rights
19. Information if Proxies, Consents Not applicable
or Authorizations are not to be
Solicited or in an Exchange Offer
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JUDGE IMAGING SYSTEMS, INC.
Two Bala Plaza, Suite 800
Bala Cynwyd, PA 19004
(610) 667-7700
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
January 17, 1997, 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 November 21, 1996 (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 4, 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 as 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, I wish to thank you for your support.
Sincerely yours,
/s/ Katharine A. Wiercinski
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Katharine A. Wiercinski
Secretary
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JUDGE IMAGING SYSTEMS, INC.
Two Bala Plaza, Suite 800
Bala Cynwyd, PA 19004
(610) 667-7700
NOTICE OF
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 17, 1997
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 January 17, 1997 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 November
21, 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 10 days prior to the
meeting, at the principal office of JIS, as set forth above.
By order of the Board of Directors
/s/ Katharine A. Wiercinski
-------------------------------------
Katharine A. Wiercinski
Secretary
Bala Cynwyd, Pennsylvania
December 23, 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 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 the
holders of the outstanding shares of Series A Preferred Stock of JIS, 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 stockholders of JIS (the "JIS Meeting") to be held
on January 17, 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
(the "Merger 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.". After the Effective Time of the Merger, the
stockholders of JIS will be shareholders of Judge Group and their rights as
shareholders of Judge Group will be governed by Pennsylvania law.
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, other than Judge Group, in the aggregate, will own approximately 6.9% of
the then outstanding Judge Group Common Shares (approximately 6.7% 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 Preferred Stock will also change.
In evaluating the Merger, JIS stockholders should carefully consider the
factors described on page 19 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 December 23, 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.
The Merger Agreement provides that the issued and outstanding shares of JIS
Series B Preferred Stock, all of which are held by Judge Technical Services,
Inc. ("Judge Technical"), a wholly-owned subsidiary of Judge Group, will be
cancelled and cease to exist at the effective time of the Merger without the
payment of any consideration therefor.
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 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 December 26, 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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TABLE OF CONTENTS
Page
AVAILABLE INFORMATION...................................................... 2
SUMMARY.................................................................... 4
The Parties................................................................ 4
JIS Meeting................................................................ 5
Risk Factors............................................................... 6
The Merger................................................................. 6
Effective Time............................................................. 6
Public Offering............................................................ 6
Conversion of Shares; Exchange Ratio....................................... 7
Recommendation of the JIS Board of Directors............................... 8
JIS Fairness Opinion....................................................... 8
The Merger Agreement....................................................... 8
JIS Treasury Stock......................................................... 8
JIS Stock Options and Warrants............................................. 9
JIS Common Stock Owned by Judge Group...................................... 9
Exchange of Stock Certificates............................................. 9
Fractional Shares.......................................................... 9
Interests of Certain Persons in Merger..................................... 9
Operations After the Merger................................................ 10
Management After the Merger................................................ 10
Absence of Regulatory Filings and Approvals................................ 11
Accounting Treatment....................................................... 11
Material Federal Income Tax Consequences................................... 11
Agreements of Certain Judge Group Shareholders............................. 11
Dissenters' Rights......................................................... 11
Comparative Per Share Data................................................. 11
RISK FACTORS............................................................... 15
Dependence on Availability of Qualified Technical Consultants.............. 15
Acquisition Risks.......................................................... 15
Ability to Manage Growth................................................... 15
History of Operating Losses in Imaging and Network Services Business....... 16
Dependence on Contract Placement Business.................................. 16
Technological Obsolescence................................................. 17
Competition................................................................ 17
Dependence on Key Customers and Geographic Concentration................... 18
Employment Liability Risks................................................. 18
Dependence on Key Personnel................................................ 18
Control of Judge Group..................................................... 18
Fluctuations in Operating Results; Seasonality and General
Economic Conditions ...................................................... 18
Broad Discretion in Use of Proceeds........................................ 19
Risks Related to Tax Status of Technical Consultants....................... 19
Shares Eligible for Future Sale; Registration Rights....................... 19
Absence of Public Market; Possible Volatility of Stock Price............... 20
Absence of Dividends....................................................... 20
Potential Effect of Anti-Takeover Provisions............................... 20
Certain Anti-Takeover Effects of the Pennsylvania Business
Corporation Law .......................................................... 21
INTRODUCTION............................................................... 22
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General.................................................................... 22
Purpose of the JIS Meeting................................................. 22
The Merger................................................................. 22
Voting Rights.............................................................. 23
Solicitation and Revocation of Proxies..................................... 23
THE MERGER................................................................. 24
General.................................................................... 24
Effective Time............................................................. 24
Conversion of Shares; Exchange Ratio....................................... 24
Background of the Merger................................................... 25
Reasons for and Effects of the Merger...................................... 26
JIS Fairness Opinion....................................................... 27
The Merger Agreement....................................................... 31
Listing of Merger Shares................................................... 33
Interests of Certain Persons in the Merger................................. 33
JIS Treasury Stock......................................................... 33
JIS Series B Preferred Stock............................................... 34
JIS Stock Options and Warrants............................................. 34
JIS Common Stock Owned by Judge Group...................................... 34
Exchange of Stock Certificates............................................. 34
Fractional Shares.......................................................... 35
Charter and By-Laws of Surviving Corporation............................... 35
Management After the Merger................................................ 35
Absence of Regulatory Filings and Approvals................................ 35
Accounting Treatment....................................................... 35
Material Federal Income Tax Consequences................................... 36
Agreements of Certain Judge Group Shareholders............................. 37
Consequences Under Federal Securities Laws................................. 37
Dissenters' Rights......................................................... 38
DESCRIPTION OF JUDGE GROUP CAPITAL STOCK................................... 41
General.................................................................... 41
Common Shares.............................................................. 41
Preferred Shares........................................................... 41
Transfer Agent and Registrar............................................... 41
COMPARISON OF SHAREHOLDER RIGHTS........................................... 42
Removal of Directors; Filling Vacancies on the Board of Directors.......... 42
Quorum of Shareholders..................................................... 42
Adjournment and Notice of Shareholder Meetings............................. 42
Call of Special Shareholder Meetings....................................... 43
Shareholder Consent in Lieu of Meeting..................................... 43
Dissenters' Rights......................................................... 43
Dividends and Distributions................................................ 44
Director Qualifications and Number......................................... 44
Indemnification of Officers and Directors.................................. 44
Director Liability......................................................... 45
Amendment to Articles of Incorporation and Bylaws.......................... 45
Vote Required for Extraordinary Corporate Transactions..................... 46
Interested Shareholder Transactions........................................ 46
Fiduciary Duty............................................................. 47
MARKET PRICES OF SECURITIES................................................ 47
SELECTED CONSOLIDATED FINANCIAL DATA OF JUDGE GROUP........................ 49
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF JUDGE GROUP...................... 51
Overview................................................................... 51
Results Of Operations...................................................... 53
Income Taxes............................................................... 56
Seasonality and Quarterly Results of Operations............................ 57
Liquidity and Capital Resources............................................ 58
Inflation.................................................................. 59
SELECTED CONSOLIDATED FINANCIAL DATA OF JUDGE IMAGING SYSTEMS, INC......... 60
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF JIS.............................. 62
Overview................................................................... 62
Results of Operations...................................................... 63
Liquidity and Capital Resources............................................ 65
Inflation.................................................................. 65
BUSINESS OF JUDGE GROUP.................................................... 66
Introduction............................................................... 66
Industry Overview.......................................................... 66
Business Strategy.......................................................... 67
Services................................................................... 68
Customers.................................................................. 71
Technical Personnel........................................................ 72
Sales and Marketing........................................................ 73
Competition................................................................ 73
Regulation................................................................. 74
Employees.................................................................. 74
Pre-Offering Transactions: Corporate Reorganization and Recent
Acquisitions ............................................................. 75
Facilities................................................................. 75
Legal Proceedings.......................................................... 75
MANAGEMENT AND CERTAIN TRANSACTIONS OF JUDGE GROUP......................... 76
Executive Officers and Directors........................................... 76
Directors' Compensation.................................................... 77
Executive Compensation..................................................... 77
Employment Agreements...................................................... 77
Stock Plans................................................................ 77
Compensation Committee Interlocks and Insider Participation................ 80
Certain Transactions....................................................... 80
PRINCIPAL AND SELLING SHAREHOLDERS OF JUDGE GROUP.......................... 82
BUSINESS OF JIS............................................................ 84
Introduction............................................................... 84
Industry Overview.......................................................... 84
Business Strategy.......................................................... 85
Services................................................................... 85
Competition................................................................ 86
Customers.................................................................. 86
Sales and Marketing........................................................ 87
Employees.................................................................. 87
Facilities................................................................. 87
MANAGEMENT AND CERTAIN TRANSACTIONS OF JIS................................. 88
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Executive Officers and Directors........................................... 88
Compensation of Directors.................................................. 89
Executive Compensation..................................................... 89
Employment Agreements...................................................... 89
Certain Transactions....................................................... 89
PRINCIPAL STOCKHOLDERS OF JIS.............................................. 91
INFORMATION CONCERNING INDEPENDENT PUBLIC ACCOUNTANTS OF JIS............... 92
OTHER MATTERS.............................................................. 93
LEGAL OPINION.............................................................. 93
EXPERTS.................................................................... 93
STOCKHOLDER PROPOSALS...................................................... 93
Appendix A Agreement and Plan of Merger dated as of October 4, 1996, by and
among Judge Imaging Systems, Inc., The Judge Group, Inc. and Judge
Acquisition, Inc.
Appendix B Fairness Opinion of Janney Montgomery Scott Inc.
Appendix C Section 262 Of The Delaware General Corporation Law
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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.
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. Furthermore, unless otherwise
indicated, the information contained in this Proxy Statement/Prospectus relating
to ownership of the outstanding shares of JIS Common Stock 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" 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 shareholder of
Judge Group, own collectively approximately 57.0% 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 Judge Group appearing elsewhere herein
include the accounts of JIS. For the same reason, 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 businesses 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 businesses appearing under "Business of Judge
Group" is limited to a discussion of the personnel placement and information
technology ("IT") training businesses of Judge Group. 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 IT and engineering needs of its clients through
its four complementary operating units. 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 Corp.
("Berkeley") provides standard and customized IT training on established and
emerging software applications. The final operating unit, JIS, which is
partially-owned by Judge Group, provides computer networking, imaging, document
management, workflow and related consulting services.
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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 re-engineering 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
Computer Corporation ("Compaq"), ACER Incorporated ("ACER"), IBM Corporation
("IBM"), Apple Computer, Inc. ("Apple"), Okidata, a division of OKI America,
Inc. ("Okidata"), Tricord Systems, Inc. ("Tricord"), Hewlett-Packard Company
("HP") and others. JIS has installed more than 110 imaging systems, is an
authorized value-added reseller of the imaging software of Optika Imaging
Systems, Inc. ("Optika"), FileNet Corporation ("FileNet"), Saros(C), Watermark
Corporation ("Watermark"), Keyfile Corporation ("Keyfile"), Optical Technology
Group, Inc. ("OTG") and Lotus Corporation ("Lotus"), and integrates its imaging
solutions on a variety of operating systems, including Banyan, OS/2 and Windows
NT(TM).
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 25.6% 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 of JIS's Common Stock, on a fully-diluted basis. Following such
merger, JIS continued to be a public reporting company under the Exchange Act.
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 using the name Judge Imaging Systems,
Inc. 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 January 17, 1997, 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
November 21, 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
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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 3,991,841 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 4,814,469 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 73.4% of the JIS Voting Shares 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, have advised JIS that they presently
intend to vote their shares in favor of the Merger Proposal.
Risk Factors
Stockholders of JIS should carefully consider certain risk factors in
evaluating the Merger. See "Risk Factors."
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 relating to the Merger, which are governed by
Delaware law even after the Effective Time of the Merger. In all transactions
subsequent to the Merger, however, Pennsylvania law will govern the dissenters'
rights of appraisal of the former JIS stockholders. 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 to the Merger is the successful completion by Judge Group of the
Public Offering prior to, or simultaneous with, the Merger. The successful
completion of the Public Offering is a nonwaivable condition to the Merger. See
"The Merger -- Effective Time."
Public Offering
Judge Group intends to make a Public Offering of its Judge Group Common
Shares, underwritten on a firm-commitment basis by an underwriting syndicate of
which Janney Montgomery Scott Inc. will serve as a Representative (the
"Underwriters"). In furtherance thereof, Judge Group filed a Registration
Statement on Form S-1 under the Securities Act with the SEC on September 30,
1996 to register 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
(the "IPO Price"). 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 the sole
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discretion of Judge Group, the Merger will be abandoned without any action on
the part of Judge Group, Acquisition or JIS.
Judge Group and the Selling Shareholders have granted to the Underwriters
an option, exercisable for thirty days from the date of the Public Offering, to
purchase up to an aggregate of 547,500 shares at the IPO Price, less
underwriting discounts and commissions, solely to cover over-allotments, if any,
with the first 250,000 shares being sold by the Selling Shareholders and the
remaining 297,500 shares being sold by Judge Group.
The net proceeds to Judge Group from the sale of 3,000,000 Common Shares
in the Public Offering at an estimated public offering price of $10.00 per
share, after deducting expenses and underwriting discounts and commissions, are
estimated to be approximately $26.8 million (approximately $29.6 million if the
Underwriters' over-allotment option is exercised in full). Judge Group intends
to use a portion of the estimated net proceeds to pay down its working capital
line of credit, which bears interest at the prime rate plus 1% and is due on May
31, 1998, the balance of which was $7.1 million as of September 30, 1996. Judge
Group intends to use approximately $1.6 million to pay certain portions of the
purchase prices relating to the Berkeley and Systems Automation, Inc. ("Systems
Automation") acquisitions. Judge Group intends to use approximately $1.8 million
for the retirement of other short-term and long-term indebtedness, principally
equipment leases. The remaining net proceeds of approximately $16.3 million will
be used for working capital and general corporate purposes, including
establishment of a corporate level sales force, and for possible future
acquisitions. In addition, should any JIS stockholders dissent to the Merger and
perfect their appraisal rights, a portion of the proceeds may be used to pay the
fair value of the shares.
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
stockholders and JIS Common Stock already owned by Judge Group, 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 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, each JIS share would be converted into 0.25 Judge
Group Common Shares in the Merger. The IPO 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 Price were to be
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 Price is 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 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 approximately 6.9% of the
then outstanding Judge Group Common Shares (approximately 6.7% 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 Merger Agreement was approved by
unanimous vote of the directors other than Martin E. Judge, Jr. and Michael A.
Dunn, who abstained from the vote. 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 of Judge Group 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 stockholders 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 a
Representative for the syndicate which will underwrite the Public Offering of
the Judge Group Common Shares. See "The Merger -- JIS 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 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."
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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 have exercised on a
"cashless" 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 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 Price. 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 beneficially owns 1,486,021 shares of
JIS Common Stock indirectly through Takema Ltd., L.P., a Delaware Limited
Partnership ("Takema") of which he is the General Partner 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 beneficially owns 27,628 shares of JIS Series A Preferred Stock
indirectly through Takema. Mr. Judge's beneficial ownership of the fully-diluted
Common Stock of JIS at the date of this Proxy Statement/Prospectus is
approximately 57.0%.
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Michael A. Dunn, a director of JIS and a director and Executive Vice
President of Judge Group and the President of the Permanent Placement business
of Judge Group has a dispositive power over 176,290 shares of JIS Common Stock
held by the Michael A. Dunn Descendants' Trust, established by Mr. Dunn for the
benefit of his family members.
Wendy Greenberg-Marcelli is a director and the President of JIS and a Vice
President of Judge Group. Ms. Greenberg-Marcelli owns 73,058 shares of JIS
Common Stock and 7,500 shares of JIS Series A Preferred Stock directly. Marvin
Demchick and Robert Keith, Jr., directors of JIS, each own 12,268 shares of JIS
Common Stock and 37,500 shares of JIS Series A Preferred Stock. In addition,
Messrs. Demchick and Keith own 52,600 and 26,300 Judge Group Common Shares,
respectively. Mr. Keith is also a principal shareholder of The Gemstone Group,
Inc. ("Gemstone"), which owns 171,739 Judge Group Common Shares.
It is anticipated that Messrs. Judge and Dunn will sell 270,000 and 150,000
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). Messrs. Keith and Demchick currently propose to sell 8,000 and
16,000 of their Judge Group Common Shares, respectively, in the Public Offering
(15,550 and 31,111 Judge Group Common Shares, respectively, if the Underwriters'
over-allotment option is fully exercised).
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. The stockholders of JIS Common and Series A Preferred Stock prior to the
effective time will become shareholders of Judge Group and their rights as
shareholders of Judge Group will be governed by Pennsylvania law.
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.
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 T.
Furlano and Michael A. Dunn. 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.
After the Merger and the Public Offering, the executive officers of Judge
Group will be as follows: Martin E. Judge, Jr. - Chairman of the Board and Chief
Executive Officer; Richard T. Furlano - President and President of Contract
Placement; Michael A. Dunn - Executive Vice President and President of Permanent
Placement; Jeffrey J. Andrews - Chief Financial Officer and Treasurer; Katharine
A. Wiercinski - Secretary and Vice President of Human Resources; and Wendy
Greenberg-Marcelli - Vice President and President of Imaging and Network
Services. Of these individuals, Messrs. Judge and Dunn and Ms. Wiercinski and
Greenberg-Marcelli have served as officers of both JIS and Judge Group prior to
the Merger. See "The Merger -- Management After the Merger."
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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 approvals obtained in
connection with the Merger. See "The Merger -- Absence of Regulatory Filings and
Approvals."
Accounting Treatment
For financial reporting purposes, Judge Group's acquisition in the Merger
of the majority of the shares of JIS, which are owned by Martin E. Judge, Jr.,
Judge Group, or other owners of Judge Group securities, will be accounted for as
a corporate reorganization of entities under common control, similar to pooling
accounting. Judge Group's acquisition in the Merger of the remaining JIS shares
will be accounted for in accordance with "purchase accounting" principles. See
"The Merger -- Accounting Treatment."
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."
Agreements of Certain Judge Group Shareholders
The holders of the Convertible Senior Subordinated Promissory Notes of
Judge Group (the "Convertible Notes"), 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 (the "Noteholders"). Judge
Group has agreed to include 160,000 of the Common Shares owned by the
Noteholders in the Public Offering (300,000 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 Noteholders 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
(Unaudited)
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,
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and is qualified in its entirety by, reference to the historical and pro forma
consolidated financial information of Judge Group and JIS that is included
elsewhere in this Proxy Statement/Prospectus. The historical net income (loss)
per common share of Judge Group includes the results of JIS on a consolidated
basis. The equivalent pro forma consolidated income (loss) per common share for
JIS, as an independent entity, is also provided. 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 the nine
months ended September 30, 1996, reflect certain transactions in addition to the
Merger, including the Public Offering and other equity transactions all as more
fully described in this Proxy Statement/Prospectus. 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.
As of and for
Nine Months
Ended Year Ended
September 30, December 31,
1996 1995
------------- ------------
Judge Group
Historical net income (loss) per common share $0.08 $0.06
Pro forma consolidated income (loss) per common
share ($0.01) $0.02
Historical book value per common share (1) $0.11 $0.04
Pro forma consolidated book value per common share $2.37 n/a
Historical cash dividends per common share n/a n/a
Pro forma consolidated cash dividends per common
share n/a n/a
JIS
Historical net (loss) per common share ($0.26) ($0.12)
Equivalent pro forma consolidated income (loss)
per common share (3) ($0.003) $0.005
Historical book (deficit) per common share (2) ($0.38) ($0.16)
Equivalent pro forma consolidated book value per
common share (3) $0.59 n/a
Historical cash dividends per common share n/a n/a
Equivalent pro forma consolidated cash dividends
per common share n/a n/a
- ----------
(1) Assumes conversion of outstanding warrants and the 10% Convertible Senior
Subordinated Notes (the "Convertible Notes").
(2) Assumes conversion of preferred stock at the end of each period presented
(3) Calculations assume exchange ratio of four JIS shares for each Judge Group
share, equivalent pro forma consolidated net income per common share and
equivalent pro forma consolidated book value per common share are derived
by dividing Judge Group pro forma consolidated book value per share by
four.
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Earnings per share:
Judge Group
Historical net income per common share on a fully diluted basis is computed
based on the weighted average number of shares actually outstanding on a split
adjusted basis (52.6 for 1), assuming the exercise of common stock warrants
(assumed for 1995; occurred in the nine months ended September 30, 1996), which
are considered common stock equivalents, and the conversion of the Convertible
Notes into 526,000 common shares. The number of shares used in the computation
were 9,113,739 for the year ended December 31, 1995 and the nine months ended
September 30, 1996.
Pro forma consolidated income (loss) per common share amounts are computed
based on the weighted average number of shares actually outstanding on a split
adjusted basis plus the shares that would be outstanding assuming the successful
completion of the Public Offering, the conversion of common stock warrants
(assumed for 1995; occurred in the nine months ended September 30, 1996) which
are considered common stock equivalents, the conversion of the Convertible
Notes, the exercise of outstanding stock options, and the completion of the
Merger. The number of shares used in the computation was 13,039,412 in the year
ended December 31, 1995 and the nine months ended September 30, 1996.
JIS
Historical net loss per common share (after deduction for preferred
dividends earned) is computed based on the weighted average number of shares
actually outstanding during the periods presented. The assumed conversion of
certain convertible preferred stock has not been considered in the calculations
of loss per share since such conversion would be anti-dilutive. The number of
shares used in the computation were 2,328,000 in 1995 and 3,637,000 at September
30, 1996.
Equivalent pro forma consolidated income (loss) per common share assumes an
exchange ratio of four JIS shares for each Judge Group share (based on an
assumed IPO Price of $10 per each Judge Group Common Share) and is calculated by
dividing Judge Group pro forma consolidated income per common share by four.
Book deficit per common share:
JIS
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Historical book value (deficit) per common share is computed as follows:
September 30, 1996 December 31, 1995
------------------ -----------------
Common shares outstanding 3,980,141 6,900,577
Convertible preferred shares 822,628 3,665,770
----------- -----------
Total shares outstanding 4,802,769 10,566,347
Stockholders equity (deficit) ($1,817,455) ($1,716,510)
Book deficit per common share ($.38) ($.16)
Note: Preferred stock is convertible into Common Stock on a one for one basis
and will be exchanged for Judge Group Common Shares in the merger.
Equivalent pro forma consolidated book value per common share is computed by
dividing pro forma consolidated book value per common share of Judge Group by
four, representing the exchange ratio of JIS shares for each Judge Group Common
Share.
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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 the 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 "Business of Judge Group Competition."
Acquisition Risks
A principal component of Judge Group's growth strategy is the acquisition
of companies that will complement and expand its 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. As the
specialty staffing industry is relatively mature, acquisitions in this industry
are likely to be at higher relative prices than for other industries, due to
competition from other staffing companies for acquisition candidates.
Acquisitions also involve a number of special risks, including: (i) adverse
effects on 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. Specifically, such growth will require Judge
Group to: (i) hire, integrate and retain qualified managers in existing markets
as well as markets
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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 its
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 sufficiently
adequate to support Judge Group's expanded operations. Furthermore, an element
of Judge Group's business strategy is to cross-sell the existing services of its
four businesses to new and existing clients. Historically, these businesses have
operated independently, producing only occasional referrals, and there can be no
assurance that Judge Group will successfully market such services on an
integrated basis. 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 a loss from
operations since its commencement in 1988, experienced a net operating loss of
approximately $709,000 for the nine months ended September 30, 1996, and at such
date had an accumulated deficit of $3.5 million. The losses have resulted from
high marketing and general and administrative costs associated with building the
division's imaging and document management infrastructure and capabilities,
combined with historically low profit margins related to the hardware component
of the networking business and a slower emergence of the imaging and document
management market than had been anticipated by the Judge Group. Specifically,
the costs associated with this division's imaging and document management
capabilities have included the hiring of sales and technical personnel, the
opening of a new office and the costs associated with the acquisition and
integration of two imaging and document management companies. 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, but cannot provide any assurances as to when it will
achieve profitability, if at all. Typically, the decision by a prospective
customer to install a network or to implement a document management system
requires 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.
In addition, if the Imaging and Network Services business is unable to achieve
profitability, it will not realize the federal tax benefit of its $2.4 million
operating loss carryforward which will expire between 2002 and 2010.
Dependence on Contract Placement Business
Judge Group's Contract Placement business was responsible for 75.8%, 80.3%
and 84.4% of total Judge Group revenues for the nine months ending September 30,
1996 and in 1995 and 1994, respectively. In addition, in the nine months ended
September 30, 1996 and in 1995, one customer of the Contract Placement business,
Merck & Co., Inc. ("Merck"), accounted for approximately 8.2% and 8.0% of total
Contract Placement revenues, respectively, and 6.2% and 6.4% of total Judge
Group revenues, respectively. There can be no assurance that Judge Group will be
able to retain this level of revenue from Merck. The ability of Judge Group to
sustain or increase revenues in the Contract Placement business is subject to
various factors, including its ability to attract and retain qualified technical
consultants, to hire, integrate and retain qualified managers in existing and
new markets, and to apply its management practices to a significantly larger
organization. There can be no assurance that Judge Group will be able to sustain
or increase its current Contract Placement revenues. Furthermore, a decline in
the level of Contract Placement revenues would have a material adverse effect on
Judge Group.
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Technological Obsolescence
The market for Imaging and Network Services is characterized by rapid
technological change, changes in customer requirements, frequent new product
introductions and enhancements and emerging industry standards. 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 operations. 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.
Continuing rapid developments in the IT industry in general also have
substantial impact on Judge Group's other businesses. Judge Group must identify
and become proficient in emerging technologies in order to remain competitive
and achieve the higher margin business associated with emerging technologies.
There can be no assurance the Contract and Permanent Placement businesses will
be successful in continually upgrading their databases to contain professionals
proficient in such technologies. Furthermore, there can be no assurance the IT
training business will recognize the emergence of new technologies or
successfully integrate them into its operations in a timely manner. Failure of
Judge Group to recognize emerging technologies and to integrate them into its
marketing efforts and service offerings in a timely manner would have a material
adverse impact on its business, financial condition and results of operations.
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. Judge Group also competes for technical consultants with the
information technology staffs of its clients and potential clients. In addition,
several traditional staffing companies that historically emphasized the
placement of clerical and other less highly skilled personnel on short-term
assignments have begun to provide services competitive with those provided by
Judge Group. 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 their clients' 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, which it may do for competitive
reasons, Judge Group will be responsible for cost overruns and may experience
revenue streams that vary from those generated by the provision of time and
material services.
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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% and 6.2% of Judge Group's revenues in fiscal
1995 and in the nine months ended September 30, 1996, respectively, were derived
from Merck, the only customer responsible for more than 5% of Judge Group's
revenues in such periods. Similarly, a substantial portion of Judge Group's
revenues are currently derived from services provided to clients in the
Mid-Atlantic region of the United States. A deterioration in general economic
conditions in that region could adversely affect 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
it 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, Richard T.
Furlano, President, and Michael A. Dunn, Executive Vice President. The loss of
any of these key management personnel or the failure to recruit and retain
experienced personnel could have a material adverse effect on 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 effective date of 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 own approximately 45.9%
and 14.2% of the outstanding Common Shares, respectively (44.7% and 3.7% if the
Underwriters' 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
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 and
Selling 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 Contract Placement business in its fourth fiscal quarter due to
the number of holidays in that quarter. Further, Judge Group's Contract
Placement business generally incurs additional expense in its first fiscal
quarter due in part to the timing of certain payroll and related employment tax
costs.
Demand for IT professional services is significantly affected by the
general level of economic activity. When economic activity slows, clients may
delay or cancel plans that involve the hiring of permanent or contract technical
consultants and may postpone or cancel plans to implement document management
systems or to implement training programs. Judge Group is unable to predict the
level of economic activity at any
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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 $10.5 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. It will have
broad discretion in using the remaining proceeds from the Public Offering. Judge
Group presently intends to use the approximately $16.3 million in remaining net
proceeds (approximately $19.1 million if the Underwriters' over-allotment is
exercised in full) for working capital and general corporate purposes, including
establishment of a corporate level sales force and possible acquisitions. 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 September 30, 1996, approximately 12%, 15% and
10%, respectively, were treated as independent contractors for federal and state
tax purposes. The determination of whether a technical consultant can be treated
as an independent contractor for tax purposes is dependent on the facts and
circumstances of each case and as a result is subject to some uncertainty. The
Internal Revenue Service recently has announced various worker reclassification
compliance projects designed to ensure that personnel classified as independent
contractors are properly classified. 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
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
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, assuming an IPO
Price of $10.00 per share, Judge Group will have 13,039,412 Common Shares
outstanding (13,336,912 Common Shares if the Underwriters' over-allotment option
is exercised in full). Of these shares, the 3,650,000 Common Shares sold in the
Public Offering will be tradeable without restriction, unless they are purchased
by affiliates of Judge Group. All Common Shares received by holders of JIS stock
pursuant to the Merger will be tradeable without restriction, except those
shares held by affiliates. The holders of 289,539 shares (229,539 if the
Underwriters' over-allotment option is exercised in full) are subject to a
two-year holding period that commenced in September 1996. Of the remaining
shares, 8,204,200 (7,954,200 if the Underwriters' over-allotment option is
exercised in full) are "restricted securities"
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under the Securities Act and may be sold only if they are registered under the
Securities Act or pursuant to an applicable exemption from the registration
requirements of the Securities Act. The holders of 3,178,482 shares and
5,986,462 shares (2,958,482 and 5,956,462, respectively, if the Underwriters'
over-allotment option is exercised in full) have agreed not to sell, otherwise
dispose of, or pledge any of Judge Group's Common Shares for 180 days and one
year, respectively, after the date of this Proxy Statement/Prospectus without
the prior written consent of Janney Montgomery Scott Inc. All of the Judge Group
directors, executive officers and certain other shareholders are subject to the
180-day lock-up, other than Mr. Judge, who is subject to the one year lock-up.
In addition, Judge Group intends, as soon as practicable after the consummation
of this Public Offering, to register approximately 1,500,000 Common Shares which
are issuable 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 the closing of the Public Offering, options to purchase 613,500
Common Shares at an exercise price equal to the IPO Price will be outstanding
under the Plan. None of these options will have been exercisable, however, or
will become so in the next sixty days thereafter. 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, 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 purchasers of the Common Shares will be
able to resell their Common Shares at prices equal to or greater than the IPO
Price. The IPO 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, 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 Amended and Restated Articles of
Incorporation (the "Articles of Incorporation") and By-Laws may have
anti-takeover effects that may delay, deter or prevent a takeover attempt that
shareholders might consider in their best interest. These provisions include (i)
the authority of the Board of Directors to issue up to 10,000,000 preferred
shares in one or more series with such rights, obligations and preferences as
the Board of Directors may determine, (ii) authorization for only the Board of
Directors, President, Chief Executive Officer or Secretary to call special
meetings of the shareholders and (iii) certain advance notice procedures for
shareholder
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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 permit the Board of Directors to
establish the rights, preferences, privileges and restrictions of, and to issue,
up to 10,000,000 Preferred Shares without any further vote or action by 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 (i) permits directors of a corporation to consider the
interests of constituencies other than shareholders in discharging their duties,
(ii) 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 (iii)
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 and "Comparison of Shareholder
Rights."
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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 January 17, 1997, 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 December 26, 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, will be renamed "Judge Imaging Systems, Inc." and
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 IPO Price will be between $9.00 and $11.00 per
share. Assuming an IPO Price of $10.00 per share, each JIS share would be
converted into 0.25 Judge Group Common Shares in the Merger. The IPO 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 Price is greater or less than $10.00 per share, each share of JIS Common and
Series A Preferred Stock will receive a lesser or greater 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 other
than Judge Group, in the aggregate, will own approximately 6.9% of the then
outstanding Judge Group Common Shares (approximately 6.7% 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 JIS Board.
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THE JIS BOARD RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE MERGER PROPOSAL.
Voting Rights
The JIS Board has fixed November 21, 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 3,991,841 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 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 73.4% of the JIS Voting Shares 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, 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 revoked
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 the 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 engaged by JIS, if any, 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
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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. 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. The stockholders of
JIS immediately prior to the Effective Time will become shareholders of Judge
Group and their rights as shareholders of Judge Group will be governed by
Pennsylvania law.
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. The Merger shall become effective at the time of the filing of
the Certificate of Merger or at such later time as may be specified in the
filing.
One of the principal conditions to the Merger is the successful completion
by Judge Group of its proposed Public Offering prior to, or simultaneously with,
the Merger. The successful completion of the proposed Public Offering is a
non-waivable condition to the Merger. See "The Merger -- The Merger Agreement --
Conditions to the Merger."
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 equals $2.50 divided by the
IPO 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 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 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 895,673
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, other than Judge Group, will own, in the
aggregate,
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approximately 6.9% of the then outstanding Judge Group Common Shares
(approximately 6.7% 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 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 expand 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 being the surviving
corporation 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 approximately 78% 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 25.6% and Mr. Judge
owned an additional 31.4% 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 expand 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 positive 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 both 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.
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o On or about June 12, 1996, Judge Group entered into a letter of intent
with Janney Montgomery Scott Inc. ("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 at the
time of 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.
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 is 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 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 September 30, 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:
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 a public 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
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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.
JIS Fairness Opinion
The JIS Board retained 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, that being
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 JIS 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 "Initial 10-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.
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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.
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 of 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.
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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 shares of the Series A Preferred Stock 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 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, Inc., 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% and, based on the Initial 10-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 Initial 10-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
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
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
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3.1% in 2000; and iv) capital expenditures of approximately $250,000 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 $1.00 and $3.00,
respectively; the bid has ranged from a high of $1.00 to a low of $0.03 over the
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 Judge Group Common Shares. 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 Judge Group
Common Shares 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, $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 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 indemnify 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,
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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) 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 Series A and
Series B 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 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
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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 (as defined
below).
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 Series A 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 "Notes"), issued by Judge pursuant to a 10% Convertible Senior
Subordinated Note Purchase Agreement, dated July 1994, which 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" 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 Stock Market; (n) all approvals and consents
required in connection with the Merger shall have been obtained; and (o) Judge
Group shall have successfully completed an initial public offering of the Judge
Group Common Shares.
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 successful completion of the proposed Public Offering is
a non-waivable condition to the Merger.) The Merger Agreement may be terminated
at any time prior to the Effective Time (a) by mutual
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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 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 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 been approved for listing of the Merger Shares on the
Nasdaq Stock 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 Stock 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 indirectly through Takema Ltd., L.P., a Delaware Limited Partnership
("Takema") of which he is the General Partner 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 indirectly through Takema.
Mr. Judge's beneficial ownership of the fully-diluted Common Stock of JIS at the
date of this Proxy Statement/Prospectus is approximately 57.0%. Michael A. Dunn,
a director of JIS and a director and President - Contract Placement, of Judge
Group, and has disposition authority over 176,290 shares of JIS Common Stock
held by the Michael A. Dunn Descendants' Trust. 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-Marcelli owns 73,058 shares of JIS
Common Stock and 7,500 shares of Series A Preferred Stock directly. Marvin N.
Demchick and Robert E. Keith, Jr., directors of JIS, each own 12,268 shares of
JIS Common Stock and 37,500 shares of JIS Series A Preferred Stock. In addition,
Messrs. Demchick and Keith own 52,600 and 26,300 shares of Judge Group Common
Shares, respectively. Mr. Keith is also a principal shareholder of The Gemstone
Group, Inc. ("Gemstone"), which owns 171,739 Judge Group Common Shares. Messrs.
Keith and Demchick, currently propose to sell 8,000 and 16,000 of their Judge
Group Common Shares, respectively, in the Public Offering (15,550 and 31,111
Judge Group Common Shares, respectively, if the Underwriters' over-allotment
option is exercised in full).
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.
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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 have exercised, on a "cashless" 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. 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. The exchange agent for
the JIS Common and Series A Preferred Stock is Registrar and Transfer Company,
Cranford, New Jersey. Its telephone number is (908) 272-0260 (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.
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Fractional Shares
No fractional Judge Group Common Shares will be issued as a result of the
Merger. Each holder of a fractional interest in a 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 Price.
Charter and By-Laws of Surviving Corporation
After the Effective Time, the holders of JIS Common and Series A Preferred
Stock will be shareholders of Judge Group, a Pennsylvania corporation, and will
be subject to Pennsylvania law. 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."
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.
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, within 90 days after the effective
date of the registration statement, Judge Group will increase its Board by two
directors, both of whom will be independent.
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; Michael A. Dunn - Executive Vice
President; Jeffrey J. Andrews - Chief Financial Officer and Treasurer; Katharine
A. Wiercinski - Secretary and Vice President - Human Resources; and Wendy
Greenberg-Marcelli - Vice President.
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
As a result of the Merger, JIS will become a wholly-owned subsidiary of
Judge Group at the time of the Public Offering. In accordance with Accounting
Principles Board Opinion No. 16 and related literature, Judge Group's
acquisition in the Merger of the majority of the shares of JIS, which are owned
by Judge Group, Martin E. Judge, Jr., or other owners of Judge
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Group securities, will be accounted for as a corporate reorganization of
entities under common control, similar to pooling accounting. However, Judge
Group's acquisition in the Merger of the remaining JIS shares (the "Minority
Interest Shares") will be accounted for in accordance with "purchase accounting"
principles, whereby the pro rata portion of JIS' assets and liabilities as of
September 30, 1996 will be recorded at their fair values. The excess of the
value of the Judge Group shares issued in exchange for the Minority Interest
Shares over the fair value of the net assets attributable to the minority
interest will be recorded as goodwill.
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 Series A Preferred Stock under the Internal Revenue Code of 1986, as amended
(the "Code"), and the tax opinion of Drinker Biddle & Reath, counsel to Judge
Group, which has been rendered in connection with the Merger (the "Tax
Opinion"). 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 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 Group 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 Series A 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);
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(4) Each JIS stockholder's basis in shares of Judge Group Common Stock
received in the Merger will equal his basis in shares of JIS Common Stock
and/or JIS Series A Preferred Stock exchanged therefor; and
(5) 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 Series A 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.
Agreements of Certain Judge Group Shareholders
The holders of the Convertible Notes of Judge Group, 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 160,000 of the Common Shares owned by the
Noteholders in the Public Offering (300,000 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 Noteholders that are not sold in the Public Offering.
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, each Rule 145 Affiliate is required to enter
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 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.
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This Proxy Statement/Prospectus is not intended for use by the Rule 145
Affiliates for resales of shares registered in the Registration Statement.
Dissenters' Rights
Pursuant to the Merger Agreement and the DGCL, the owners of shares of JIS
Common Stock and JIS Series A Preferred Stock as of the Record Date for the JIS
Meeting (collectively, the "Eligible Shares") will have dissenters' rights of
appraisal in connection with the Merger under Section 262 of the DGCL ("Section
262"), 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 any or all 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 entitles a holder of Eligible Shares to exercise his
dissenters' rights of appraisal in connection with 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. Pursuant to Section 262, JIS must, not less than
20 days prior to the JIS Meeting, notify the holders of the Eligible Shares that
appraisal rights are available for the Eligible Shares and include in such
notice a copy of Section 262.
Holders of the Eligible Shares may perfect their appraisal rights as
follows:
o EACH HOLDER OF ELIGIBLE SHARES ELECTING TO DEMAND THE APPRAISAL OF SUCH
SHARES MUST DELIVER TO JIS, BEFORE 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. Failure to present such written demand will
result in the loss of the holder's dissenters' rights. 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 of Eligible Shares 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 his 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
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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 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 holder of Eligible
Shares, 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 the Register 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 thereon 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 as 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 borrow 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 stockholders
entitled to an appraisal. Any stockholder whose name appears on the list filed
by the Surviving Corporation as described above and who has submitted his
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.
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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 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 holder of Eligible
Shares 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 authorized capital stock of Judge Group consists of (i) 50,000,000
shares of common stock par value $.01 per share (the "Common Shares"), and (ii)
10,000,000 preferred shares, par value $.01 per share (the "Preferred Shares").
Upon the closing of the Public Offering, 13,039,412 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 submitted to a vote of 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.
Each Common Share is entitled to receive dividends, if, as and when
declared by the Board of Directors of the Company out of funds legally available
therefor. Judge Group does not anticipate paying cash dividends on the Common
Shares in the foreseeable future.
In the event of a merger or consolidation to which Judge Group is a party,
each Common Share 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 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.
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 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.
Transfer Agent and Registrar
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 relating to the Merger, which are governed by
Delaware law even after the Effective Time. (In all transactions subsequent to
the Merger, however, Pennsylvania law will govern the dissenters' rights of
appraisal of the former JIS stockholders.) See "The Merger -- Dissenters'
Rights." Differences between the Delaware General Corporation Law (the "DGCL")
and the Pennsylvania Business Corporation Law (the "BCL") 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 BCL, 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 BCL, 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 BCL and the DGCL provide that vacancies on the board of directors,
including vacancies resulting from an increase in the number of directors, may
be filed 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 BCL 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
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meeting at which the adjournment is taken. The Judge Group Bylaws contain no
provision regarding adjournment and notice. However, the BCL 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 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 BCL 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 BCL, 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 BCL 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 are present and voted.
The BCL 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 DGCL 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 BCL, 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
BCL, 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
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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 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 BCL 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 BCL 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 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 BCL provide that the number of directors of a corporation
shall be fixed by, or 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 BCL 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
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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
BCL, provide for indemnification against judgments, fines and amounts paid in
settlement incurred by the indemnified person in connection with derivative
actions. The BCL 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 BCL 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 By-laws of Judge Group provide for indemnification of the officers and
directors of Judge Group to the fullest extent permitted by applicable law. The
JIS Certificate provides that directors, officers, agents and employees of JIS
are indemnified to the fullest extent permitted by the DGCL.
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 BCL 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
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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 BCL 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,, 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 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.
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The "business combination" provisions under the BCL 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.
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.
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-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.
1996 HIGH LOW
---- ---
First Quarter................. $0.75 $0.25
Second Quarter................ $2.25 $1.25
Third Quarter
(through September 30, 1996) $1.00 $1.00
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
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
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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
quotation for each share of JIS Common Stock was $1.00 (asked). On December 9,
1996, 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 $0.25.
Judge Group is a privately held corporation with no public trading market
for its securities. As of December 10, 1996, there were eight holders of Common
Shares of Judge Group.
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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 the years ended December 31, 1995, 1994 and 1993 have been
audited by Rudolph, Palitz LLP, independent accountants. The selected statement
of operations and balance sheet data for the years ended December 31, 1992 and
1991 and the nine month periods ended September 30, 1995 and 1996, are derived
from the unaudited Consolidated Financial Statements of 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>
NINE MONTHS
ENDED
SEPT. 30 YEAR ENDED DECEMBER 31,
---------------- ------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues .................... $ 58,914 $ 46,876 $ 63,299 $ 45,253 $ 35,069 $ 26,722 $ 22,438
Cost of sales (Exclusive of items
shown separately below)........ 43,232 35,273 47,550 34,146 26,070 20,104 1,616(1)
Selling and operating ........... 10,023 6,842 9,798 6,509 5,853 4,950 18,655
General and administrative ...... 4,310 3,199 4,187 3,155 2,525 2,171 1,600
-------- -------- -------- -------- -------- -------- --------
Total costs and expenses ........ 57,565 45,314 61,535 43,810 34,448 27,225 21,871
-------- -------- -------- -------- -------- -------- --------
Income (loss) from operations ... 1,349 1,562 1,764 1,443 621 (503) 567
Interest expense ................ 600 517 670 427 338 238 222
Other income (expense) .......... 0 (28) (27) 7 4 (6) 31
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income taxes 749 1,017 1,067 1,023 287 (747) 376
Income taxes .................... 615 498 588 680 228 41 294
Minority interest (income) ...... (617) 0 (7) 0 0 (126) 161
Cumulative effect change ........ 0 0 0 0 42 0 0
-------- -------- -------- -------- -------- -------- --------
Net income (loss) ............... $ 751 $ 519 $ 486 $ 343 $ 101 $ (662) $ (79)
======== ======== ======== ======== ======== ======== ========
Fully diluted net income (loss)
per Common Share(2)(3):
Income before cumulative
effect adjustment ............. $ 0.08 $ 0.06 $ 0.06 $ 0.04 $ 0.01 $ (0.08) $ (0.01)
Cumulative effect adjustment .... 0.00 0.00 0.00 0.00 0.00 0.00 0.00
-------- -------- -------- -------- -------- -------- --------
$ 0.08 $ 0.06 $ 0.06 $ 0.04 $ 0.01 $ (0.08) $ (0.01)
======== ======== ======== ======== ======== ======== ========
Fully-diluted weighted
average shares(2)(3) .......... $ 9,114 9,114 9,114 8,847 8,500 8,416 8,416
-------- -------- -------- -------- -------- -------- --------
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
SEPT. 30, 1996 DECEMBER 31,
-------------- -----------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficiency) $ 5,957 $ 5,567 $ 329 $ (608) $ (615) $ 367
Total assets 21,188 11,632 8,017 5,687 4,539 3,398
Notes payable, including current portion(4) 8,146 5,368 2,749 2,499 1,977 1,299
Other long-term obligations,
including current portion 3,850 1,755 2,030 961 1,236 412
Shareholders' equity (deficit) 966 391 (95) (438) (539) 123
</TABLE>
(1) Does not reflect reclassification between cost of sales and selling and
operating expense principally related to the cost of consultants.
(2) All per share and share amounts reflect a 52.6 for 1.0 stock split which
occurred in September 1996.
(3) Fully-diluted shares include Common Stock equivalents and 526,000 Common
Shares issuable upon conversion of Judge Group's Convertible Notes.
(4) Includes line of credit and term loan.
-50-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF JUDGE GROUP
The following discussion should be read in conjunction with the
consolidated financial statements of Judge Group and related notes thereto
appearing elsewhere in this Proxy Statement/Prospectus. 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.
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, but does not include depreciation and
amortization expenses. Selling and operating expenses consist primarily of
salaries and fringe benefits for selling representatives and also include
marketing expenditures and bad debt charges. General and administrative expenses
consist of management and administrative salaries and related fringe benefits,
as well as other overhead, such as rent and depreciation. In the Imaging and
Network Services business in fiscal years 1995, 1994 and 1993, general and
administrative expenses also included $46,631, $56,915 and 48,255, respectively,
of payroll costs for advanced development programmers. During fiscal 1996, Judge
Group included $215,680 of payroll costs related to consultants and advanced
development programmers in general and administrative expenses.
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 nine months ended
September 30, 1996 were $44.6 million, compared to $37.9 million for the prior
year period, an increase of 17.7%. Revenue growth has been derived primarily
from increases in the number of technical consultants placed with existing and
new clients and increases in average billing rates. 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 nine months
ended September 30, 1996, total hours billed were 1,115,488, with a weighted
average billing rate of $40.00, compared to total hours billed of 1,038,516 with
an average billing rate of $36.48 for the prior year period. Cost of sales in
the Contract Placement business consists primarily of the compensation expenses
related to the consultants, such as salaries, fringe benefits and payroll taxes.
Revenue in 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. For the nine months ended September 30, 1996, 436 professionals
were placed, with an average placement fee of $9,614, compared to 348
professionals placed with an average placement fee of $9,034 for the prior year.
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; however, when
-51-
<PAGE>
installation is significant to the completion of the contract, revenue is
recognized on a percentage of completion basis. Cost of sales consists of
computer hardware, software 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 its networking operations were later expanded to include additional
platforms and peripherals. Due to relatively low operating margins on hardware
and software sales, which has accounted for a substantial portion of networking
revenues, this business has historically generated operating losses. 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 a reseller of Optika software, and later decided to expand
its product line to include both high production, high end systems such as
Filenet and low end workflow imaging systems such as Watermark, Keyfile and
Lotus Notes. More recently, 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 numerous consulting,
engineering, sales and administrative personnel since the beginning of 1994.
Revenue attributable to imaging and document management systems and
services has grown from $2.3 million in 1995 to $3.9 million in the nine months
ended September 30, 1996, representing approximately 28.0% and 38.9% of the
Imaging and Network Services business total revenue in those periods,
respectively. However, 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 $672,000 in 1995 and for the nine months ended September 30, 1996,
respectively, representing 90.6% and 94.7% of the total operating losses
experienced by the Imaging and Network Services business as a whole,
respectively.
Judge Group currently is focusing on achieving profitability in its Imaging
and Network business and expanding it through internal growth and new service
offerings such as its MENTOR(TM) Consulting Program and a help desk practice. In
1996, Judge Group increased the number of locations from which it offers its
Imaging and Network Services from three to six, and hired 12 new salespeople,
eight consultants/advanced development personnel and 22 engineers/technical
support personnel in this business. As a result, selling, operating and general
and administrative costs for the Imaging and Network Services business increased
by 128.1%, or $1.8 million, for the nine months ended September 30, 1996 as
compared to the prior period, while selling, operating and general and
administrative costs for Judge Group as a whole increased 42.8%, or $4.3
million, over this same period. Revenues for the Imaging and Network Services
business increased by 72.9%, or $4.2 million, for the nine months ended
September 30, 1996 as compared to the prior period, and Judge Group believes
that its investment in infrastructure and personnel should generate further
increases in revenues in this business in the future. Even if it increases
sales, however, there can be no assurance that the Imaging and Network Services
business will achieve a pricing and cost structure that will generate profits.
While Judge Group expects that such increases in revenues will ultimately
achieve profitability, it cannot predict the timing of profitability, should it
occur at all, and expects to continue to incur operating losses in this business
at least through the first fiscal quarter of 1997.
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, and 1995, all of such
financial information is unaudited:
-52-
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------------------- -------------------------------------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(UNAUDITED) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues:
Permanent Placement .......... $ 4,265 7.2% $ 3,187 6.8% $ 4,275 6.7% $ 3,294 7.3% $ 3,131 8.9%
Contract Placement ........... 44,622 75.8 37,890 80.8 50,804 80.3 38,186 84.4 27,537 78.5
Imaging and Network Services . 10,027 17.0 5,800 12.4 8,220 13.0 3,773 8.3 4,401 12.6
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Consolidated net revenues .... $ 58,914 100.0 $ 46,877 100.0% $ 63,299 100.0% $ 45,253 100.0% $ 35,069 100.0%
======== ===== ======== ===== ======== ===== ======== ===== ======== =====
Income (loss) from operations:
Permanent Placement .......... $ 499 0.8% $ 376 0.8% $ 287 0.4% $ 258 0.6% $ 722 2.1%
Contract Placement ........... 2,635 4.5 2,167 4.6 2,939 4.7 2,392 5.2 732 2.1
Imaging and Network Services . (709) (1.2) (270) (0.6) (526) (0.8) (466) (1.0) (137) (0.4)
Corporate overhead expense ... (1,076) (1.8) (711) (1.5) (936) (1.5) (741) (1.6) (696) (2.0)
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Consolidated income (loss)
from operations ............ $ 1,349 2.3% $ 1,562 3.3% $ 1,764 2.8% $ 1,443 3.2% $ 621 1.8%
======== ===== ======== ===== ======== ===== ======== ===== ======== =====
</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 5 at December 31, 1993, to 16 at September 30, 1996.
Founder's compensation of $357,000, $390,000, $495,000, 453,000 and $371,000 was
charged to the Permanent Placement business in 1993, the Imaging and Network
Services business in 1994 and the Contract Placement business in 1995 and the
nine months ended September 30, 1996 and 1995, respectively. Future corporate
overhead expense will be allocated according to the number of full-time
employees in each of 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 acquisitions of Berkeley and Systems Automation.
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; Alexandria, Virginia; and Baltimore, Maryland.
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 $2.0 million for 1995 and the
first nine months of 1996, respectively.
Systems Automation, located in Wakefield, Massachusetts, provides imaging
and document management systems and services and establishes a presence for the
Imaging and Network Services business in the Boston metropolitan area. Systems
Automation generated revenues of $1.2 million and $867,000 for 1995 and the
first nine months of 1996, respectively.
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:
-53-
<PAGE>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
----------------- -----------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(Unaudited)
Net revenues ...................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales (Exclusive of items
shown separately below).......... 73.4 75.2 75.1 75.4 74.3
Selling and operating ............. 17.0 14.7 15.5 14.4 16.7
General and administrative ........ 7.3 6.8 6.6 7.0 7.2
----- ----- ----- ----- -----
Total costs and expenses. ......... 97.7 96.7 97.2 96.8 98.2
Income from operations ............ 2.3 3.3 2.8 3.2 1.8
Interest and other, net ........... 1.0 1.2 1.1 0.9 1.0
----- ----- ----- ----- -----
Income before income taxes ........ 1.3% 2.1% 1.7% 2.3% 0.8%
===== ===== ===== ===== =====
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1995
Net Revenues. Consolidated net revenues increased by 25.7%, or $12.0
million, for the nine months ended September 30, 1996, compared to the prior
year period. Revenue for the Contract Placement business increased by 17.8%, or
$6.7 million, for the nine months ended September 30, 1996, compared to the
prior year period. Contributing to this increase was revenue of $2.1 million
attributable to the Edison, New Jersey office, which opened in April 1995, and
revenue of $1.6 million attributable to Judge Group's National Division in
Foxborough, Massachusetts. Revenue for the Permanent Placement business
increased by 33.8%, or $1.1 million, for the nine months ended September 30,
1996 compared to the prior year period. Contributing to this increase was
revenue of $750,000 attributable to the Bala Cynwyd, Pennsylvania office and
revenue of $378,000 attributable to the Edison, New Jersey office. Revenue for
the Imaging and Network Services business increased by 72.9%, or $4.2 million,
for the nine months ended September 30, 1996 compared to the prior year period.
Of this increase, $2.1 million was attributable to networking systems and
services and $2.1 million was attributable to imaging and document management
systems and services.
Cost of Sales. Consolidated cost of sales increased by 22.6%, or $8.0
million, for the nine months ended September 30, 1996 compared to the prior year
period. Cost of sales as a percentage of consolidated net revenues decreased to
73.4% from 75.2%. In to Judge Group's Imaging and Network Services business,
cost of sales as a percentage of revenue decreased to 75.5% from 80.7%,
primarily as a result of the realization of economies of scale and an increased
focus on providing services that yield higher margins than traditional hardware
and software sales. In Judge Group's Contract Placement business, cost of sales
as a percentage of revenue decreased slightly to 80.0% from 80.7% at September
30, 1995. The decline in cost of sales as a percentage of consolidated net
revenues was also attributable to an increase in revenue for the Permanent
Placement business, which has no cost of sales.
Selling and Operating. Consolidated selling and operating expenses
increased by 46.5%, or $3.2 million, for the nine months ended September 30,
1996, compared to the prior year period. Contributing to this increase was an
increase in selling and operating expenses of 113.9%, or $1.1 million, in the
Imaging and Network Services business. Selling and operating expenses as a
percentage of consolidated net revenues for the nine months ended September 30,
1996 increased to 17.0% from 14.7% in the prior year period, due primarily to a
44.3% increase in payroll costs associated with Judge Group's hiring of sales
and marketing personnel in all of its businesses and a $207,000 increase in bad
debt charges resulting principally from the bankruptcy of one of Judge Group's
Contract Placement customers.
General and Administrative. Consolidated general and administrative
expenses increased 34.7%, or $1.1 million, for the period ending September 30,
1996, compared to the prior year period. Contributing to this increase was an
increase in general and administrative expenses of 160.1%, or $682,000, in the
Imaging and Network Services business. General and administrative expenses as a
percentage of consolidated net revenues
-54-
<PAGE>
increased to 7.3% for the period ending September 30, 1996, compared to 6.8% for
the prior year period, primarily as a result of increased payroll costs
associated with consulting and engineering personnel in the Imaging and Network
Services business and the expansion of 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 $237,000 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 $60,000, or 11.1%, for the nine
months ended September 30, 1996, compared to the prior year period. This
increase was due to increased borrowing under 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 sale, and a decrease in cost of sales as a percentage of revenue for
the Contract Placement business, partially offset by an increase in cost of
sales as a percentage of net revenue for the Imaging and Network Services
business.
Selling and Operating. Consolidated selling and operating expenses
increased by 50.5%, or $3.3 million, in 1995 compared to 1994, and increased to
15.5% of consolidated net revenues in 1995 compared to 14.4% in 1994.
Contributing to this increase was an increase in selling and operating expenses
of 87.6% or $729,000 in the Imaging and Network Services business. 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.
General and Administrative. Consolidated general and administrative
expenses increased 32.7%, or $1.0 million, in 1995 compared to 1994.
Contributing to this increase was an increase in general and administrative
expenses of 13.5% or $56,000, in the Imaging and Network Services business. 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.
-55-
<PAGE>
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
Net Revenues. Consolidated net revenues increased by 29.0%, or $10.2
million, in 1994 compared to 1993. Revenue from the Contract Placement business
increased by 38.7%, or $10.6 million, due to increased marketing efforts in all
of 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. Contributing to this
increase was an increase in selling and operating expenses of 14.6%, or $85,000,
in the Imaging and Network Services business. Selling and operating expenses
decreased as a percentage of consolidated net revenues to 14.4% in 1994 compared
to 16.7% in 1993, primarily as a result of the increased volume of business and
a decrease in medical and workmen's compensation insurance expense in all of
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. Offsetting this increase was a decrease in general
and administative expenses of 16.5%, or $82,000, in the Imaging and Network
Services 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
reporting purposes. In addition, if the Imaging and Network Services business is
unable to achieve profitability, it will not realize the federal tax benefit of
its $2.4 million operating loss carryforward which will expire between 2002 and
2010 (See Note 10 of Notes to the Consolidated Financial Statements for the nine
months ended September 30, 1996). The effective tax rate was 79.3%, 66.4%,
55.1%, 49.0% and 82.1% for fiscal years 1993, 1994, 1995, the nine months ended
September 30, 1995 and the nine months ended September 30, 1996, respectively.
-56-
<PAGE>
Seasonality and Quarterly Results of Operations
The following table presents certain unaudited quarterly statements of
operations data for each of Judge Group's last seven 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 Proxy Statement/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
---------------------------------------------------------------------
Mar 31, Jun 30, Sep 30, Dec 31, Mar 31, Jun 30, Sep 30,
1995 1995 1995 1995 1996 1996 1996
---- ---- ---- ---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues $ 14,131 $ 15,268 $ 17,478 $ 16,422 $ 16,435 $ 20,892 $ 21,588
Cost of sales
(Exclusive of
items shown
separately
below) 10,859 11,432 12,982 12,277 12,528 15,060 15,645
Selling and
operating 2,124 2,439 2,279 2,956 2,654 3,710 3,659
General and
administrative 976 1,062 1,161 988 1,398 1,450 1,462
-------- -------- -------- -------- -------- -------- --------
Total costs and
expenses 13,959 14,933 16,422 16,221 16,580 20,220 20,766
Income from
operations 172 335 1,056 201 (145) 672 822
Interest
expense and
other, net 131 186 228 152 181 191 228
-------- -------- -------- -------- -------- -------- --------
Income (loss)
before income
taxes $ 41 $ 149 $ 828 $ 49 $ (326) $ 481 $ 594
======== ======== ======== ======== ======== ======== ========
</TABLE>
Because 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.
-57-
<PAGE>
Liquidity and Capital Resources
Judge Group's need for working capital has increased as its sales have
grown over the last three years. In each of the last three fiscal years and in
the nine months ending September 30, 1996, Judge Group has used cash in
operations. This is primarily attributable to the nature of Judge Group's
Contract Placement business and to losses in the Imaging and Network Services
business. As is customary in the staffing industry, Judge Group pays its
technical consultants on a weekly basis for hours billed, but invoices its
clients for those services approximately one week later, with the invoices
payable from 30 to 60 days after issuance. Certain large customers of the
Contract Placement business may receive even more favorable payment terms.
Similarly, as a result of the project-oriented nature of Judge Group's Imaging
and Network Services business, Judge Group pays its personnel semi-monthly,
while payment for the services performed are often received over a six to nine
month period, depending on the nature of the installation and the amount of
advanced development and/or consulting services that are requested by the
customer. In addition, Judge Group has used cash in each of the last three
fiscal years and in the nine months ending September 30, 1996 to fund its
investment in the infrastructure of its Imaging and Network Services business.
Judge Group expects to continue to use cash in its operations for the
foreseeable future.
Judge Group has funded its working capital and capital expenditure needs
primarily through borrowings under its credit facility. Judge Group typically
maintains minimal cash balances, and at September 30, 1996 had approximately
$154,000 in cash.
Judge Group used approximately $87,000, $896,000, $2.3 million, $2.4
million and $2.2 million of cash in operations in 1993, 1994 and 1995 and the
nine months ended September 30, 1995 and 1996, respectively. Judge Group's
primary uses of cash have been to fund increases in accounts receivable, 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 $13.0
million at September 30, 1996, principally due to the growth in revenue in its
Contract Placement business. Purchases of fixed assets in 1993, 1994, 1995 and
the nine months ended September 30, 1995 and 1996 were $91,000, $480,000,
$637,000, $331,000 and $874,000, respectively.
Cash provided from financing activities, principally bank borrowings, was
approximately $203,000, $1.3 million, $2.6 million, $2.6 million and $2.6
million in 1993, 1994 and 1995 and the nine months ended September 30, 1995 and
1996, respectively. During 1994, Judge Group raised $500,000 from a group of
investors through the sale of Convertible Notes. These notes mature in July 1997
and therefore are classified as current in the balance sheet as of September
30, 1996. The Noteholders have agreed to convert their notes into 526,000 Common
Shares concurrently with the Public Offering. Effective September 30, 1996,
Judge Group received waivers from the Noteholders regarding certain violations
to covenants relating to limitations on annual capital expenditures and the
issuance of unsecured notes. (See Note 7 of Notes to Consolidated Financial
Statements). In addition, in February 1996, Judge Group received cash proceeds
of $888,000 from a private placement of Series A Preferred Shares by its Imaging
and Network Services business.
At various times during prior periods, Judge Group borrowed amounts under
its then existing credit facility in excess of the amounts permitted to be
borrowed under the facility, thus requiring the Bank to waive the lending
limitation. In order to provide Judge Group with a credit facility suitable for
its needs, effective September 30, 1996, Judge Group amended and restated its
credit facility to increase the amounts that Judge Group may borrow under the
line and modified various covenants. In addition, the Bank amended the loan
agreement to include the transactions related to Judge Group's reorganization
and the acquisitions of Berkeley and Systems Automation and redefined certain
financial ratios to accommodate the acquisitions.
Judge Group's bank borrowings currently consist of a $10.0 million
revolving advance facility with PNC Bank, N.A. (successor to Midlantic Bank,
N.A.) ("the Line of Credit") and a $1.0 million term loan. The Line of Credit
expires on May 31, 1998 and carries an interest rate of prime plus 1.0%, which
interest rate will revert to prime upon the successful completion of the Public
Offering. This facility allows Judge Group to borrow the lesser of 80% of
eligible receivables or $10.0 million. Based on eligible receivables of $10.8
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million at September 30, 1996, the maximum amount that Judge Group can borrow
under the Line of Credit is $8.7 million. The Line of Credit also requires Judge
Group to meet certain financial ratios and transactional covenants. Judge Group
intends to use a portion of the estimated net proceeds to pay down the Line of
Credit, the balance of which was $7.1 million as of September 30, 1996, although
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 the Public
Offering. At September 30, 1996, there was $1.0 million outstanding under the
term loan. In addition, at September 30, 1996, Judge Group had approximately
$834,000 of additional short-term and long-term debt outstanding, principally
equipment leases, which it intends to repay with a portion of the proceeds from
the Public Offering. In connection with the acquisitions of Berkeley and Systems
Automation, Judge Group issued unsecured notes in the aggregate principal amount
of $2.5 million for the stock of Berkeley and the net assets of Systems
Automation, $1.6 million of which will be paid with proceeds of the Public
Offering.
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. Judge Group believes that the
proceeds from the Public Offering 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.
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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SELECTED CONSOLIDATED FINANCIAL DATA OF JIS
The following table summarizes certain historical unaudited selected
consolidated financial data with respect to JIS for the five years ended
December 31, 1995 and for the nine months ended September 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"), in which DataImage was the surviving corporation, renamed Judge
Imaging Systems, Inc. This data should be read in conjunction with the
financial statements of Judge Computer (considered the acquiring corporation for
accounting purposes in the business combination), certain of which are included
in the Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
Nine Months
Ended Sept. 30, Year Ended December 31,
------------------- -----------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net revenues $ 10,071 $ 6,160 $ 8,700 $ 3,773 $ 4,401 $ 2,626 $ 2,244
-------- -------- -------- -------- -------- -------- --------
Cost of sales (Exclusive of
items shown separately below) 7,566 4,681 6,713 3,039 3,293 2,215 1,616
Selling and operating 2,063 964 1,561 832 746 561 330
General and administrative 1,107 426 472 416 498 482 324
-------- -------- -------- -------- -------- -------- --------
Total costs and expenses 10,736 6,071 8,746 4,287 4,537 3,258 2,270
-------- -------- -------- -------- -------- -------- --------
Loss from operations (665) 89 (46) (514) (136) (632) (26)
Interest expense (148) (170) (191) (153) (84) (59) (116)
Other income (expense) 0 0 (35) 0 0 0 0
-------- -------- -------- -------- -------- -------- --------
Loss before income taxes (813) (81) (272) (667) (220) (691) (142)
-------- -------- -------- -------- -------- -------- --------
Income tax expense 0 0 0 0 0 0 0
-------- -------- -------- -------- -------- -------- --------
Loss before Preferred dividends $ (813) $ (81) $ (272) $ (667) $ (220) $ (691) $ (142)
-------- -------- -------- -------- -------- -------- --------
Preferred dividends earned (132) (14) (18) (18) (18) (18) 0
-------- -------- -------- -------- -------- -------- --------
Net loss attributable
to common shareholders $ (945) $ (95) $ (290) $ (685) $ (238) $ (709) $ (142)
-------- -------- -------- -------- -------- -------- --------
Fully diluted loss per
Common Share: $ (0.26) $ (0.04) $ (0.12) $ (0.30) $ (0.10) $ (0.31) $ (0.13)
-------- -------- -------- -------- -------- -------- --------
Fully diluted weighted
average shares: 3,637 2,333 2,328 2,305 2,291 2,291 1,059
-------- -------- -------- -------- -------- -------- --------
</TABLE>
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<TABLE>
<CAPTION>
Nine Months
Ended
Sept. 30, Year Ended December 31,
----------- ----------------------------------------------
1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital (deficiency) $ 1,821 $ 1,117 $ 60 $ 225 $ (92) $ 208
Total assets 4,616 2,531 1,050 1,023 640 690
Notes payable, bank 2,586 1,538 249 0 0 0
Other long-term obligations,
including current portion 153 1,519 1,344 1,106 578 175
Shareholders' equity (deficit) (1,817) (1,717) (1,451) (785) (564) 126
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF JIS
The following discussion of JIS's 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 into
DataImage 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 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; however, when installation is significant to the
completion of the contract, revenue is recognized on a percentage of completion
basis. Cost of sales consists of computer hardware, software 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. In the Imaging and Network Services
business in fiscal years 1993, 1994 and 1995, general and administrative
expenses also included payroll costs for consultants and advanced development
programmers. During fiscal 1996, JIS began including such payroll costs in cost
of sales.
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 its networking operations were later expanded 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 has historically generated
operating losses. 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
later expanded 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 numerous consulting,
engineering, sales and administrative personnel since the beginning of 1994.
Revenue attributable to imaging and document management systems and
services has grown from $2.3 million in 1995 to $3.9 million in the nine months
ended September 30, 1996, representing approximately 28.0% and 38.9% of JIS
total revenue in those periods, respectively. However, JIS's imaging activities
have generated operating losses to date due to slower than expected market
expansion combined with the substantial
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investment in infrastructure development. Specifically, imaging and document
management systems and services generated operating losses of $477,000 and
$672,000 in 1995 and for the nine months ended September 30, 1996, respectively,
representing 90.6% and 94.7% of the total operating losses experienced by JIS as
a whole, respectively.
JIS is currently focusing on achieving profitability through internal
growth and new service offerings such as the MENTOR(TM) Consulting Program and a
help desk practice. In addition, in 1996 JIS increased the number of locations
from which it offers its services from three to six and hired 12 new
salespeople, 8 consultants/advanced development personnel and 22
engineers/technical support personnel. As a result, selling, operating and
general and administrative costs increased by 128.1%, or $1.8 million, for the
nine months ended September 30, 1996 as compared to the prior period. Revenues
for JIS increased by 72.9%, or $4.2 million, for the nine months ended September
30, 1996 as compared to the prior period; JIS believes that its investment in
infrastructure and personnel should generate further increases in revenues in
this business in the future. Even if it increases sales, however, there can be
no assurance that JIS will achieve a pricing and cost structure that will
generate profits. While JIS expects that such increases in revenues will
ultimately achieve profitability, it cannot predict the timing of profitability,
should it occur at all, and expects to continue to incur operating losses in
this business at least through the first fiscal quarter of 1997.
On September 30, 1996, Judge Group, Inc. acquired Systems Automation,
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 $867,000 for 1995 and the first
nine months of 1996, respectively. At the time of the Merger of JIS into
Acquisition, the Judge Group plans to contribute this business to JIS.
Results of Operations
The following table summarizes JIS' significant operating results as a
percentage of revenue for each of the periods indicated.
Nine Months
Ended September 30, Year Ended December 31,
- --------------------------------------------------------------------------------
1996 1995 1995 1994
- --------------------------------------------------------------------------------
Net revenue 100.0% 100.0% 100.0% 100.0%
Cost of revenues (Exclusive of
items shown separately below) 75.1 76.0 77.2 80.5
Selling and operating 20.5 15.7 17.9 22.1
General and administrative 11.0 6.9 5.4 11.0
----- ----- ----- -----
Total costs and expenses 106.6 98.6 100.5 113.6
(Loss) from operations (6.6) 1.4 (0.5) (13.6)
Interest and other expenses, net 1.5 2.8 2.6 4.1
----- ----- ----- -----
Net loss (8.1%) (1.4%) (3.1%) (17.7%)
===== ===== ===== =====
Nine Months Ended September 30, 1996 Compared to Nine Months Ended September
30, 1995
Net Revenues. Net revenues increased by 63.5%, or $3.9 million, for the
nine months ended September 30, 1996 as compared to the prior year period.
Included in revenues were revenues from related parties (Judge Group) of
$360,000 and $44,500 for the nine months ended September 1996 and 1995
respectively. This increase in revenues was mainly attributable to JIS'
increased marketing efforts. Of this
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increase, $2.1 million was attributable to networking systems and services and
$1.8 million was attributable to imaging and document management systems and
services.
Cost of Revenues. Cost of revenues increased by 62.0% or $2.9 million, for
the nine months ended September 30, 1996 compared to the prior year period. Cost
of sales as a percentage of net revenues decreased to 75.0% from 76.0%. 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
$2,063,387 and $964,478 for the nine months ended September 30, 1996 and 1995
respectively. Selling and operating expenses as a percent of net revenues were
20.5% and 15.7% for the nine months ended September 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 $1,107,283 and $425,779 for the nine months ended September 30, 1996 and
1995, respectively. These expenses increased 155%, or $681,504 for the period
ending September 30, 1996, compared to the prior year period. General and
administrative expenses as a percentage of net revenues increased to 11.0% for
the period ending September 30, 1996, compared to 6.9% 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.
Interest Expense. Interest expense decreased by $22,180 or 13.0%, for the
nine month period ending September 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
Net 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's 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.
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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.
Liquidity and Capital Resources
In each of the last three fiscal years and in the nine months ending
September 30, 1996, JIS has used cash in operations. As a result of the
project-oriented nature of the imaging and network services business, JIS pays
its personnel semi-monthly, while payment for the services performed are often
received over a six to nine month period, depending on the nature of the
installation and the amount of advanced development and/or consulting services
that are requested by the customer. In addition, JIS has used cash in each of
the last three fiscal years and in the nine months ending September 30, 1996 to
fund its investment in infrastructure. JIS expects to continue to use cash in
its operations for the foreseeable future.
JIS experienced negative cash flow from operations of approximately
$402,236, $1,194,392 and $2,259,606 in 1994, 1995, and the nine months ended
September 30, 1996, respectively. JIS's 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's net accounts receivables have
increased from $.7 million at January 1, 1995 to $2.9 million at September 30,
1996, principally due to the growth in revenue. Purchases of fixed assets in
1994 and 1995 and the nine months ended September 30, 1996 were $22,756,
$162,677 and $292,866.
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 $1.5
million in 1994 and 1995 and the nine months ended September 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. ("PNC Bank")(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 September 30, 1996, Judge
Group's borrowings under the Line of Credit were $2.6 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'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. JIS has not received any proceeds of
borrowings under the term loan.
At September 30, 1996, December 31, 1995 and December 31, 1994, Judge Group
was in violation of certain financial and transactional covenants under the Line
of Credit, which PNC Bank permanently waived or reset, effective at such dates.
At September 30, 1996, certain financial ratios were reset or redefined, and
have since been incorporated into the loan agreement. At that date, PNC Bank
redefined tangible net worth, thereby enabling Judge Group to conform to certain
financial ratios regarding tangible net worth coverage, and reset the target
ratio of liabilities coverage. At September 30, 1996, PNC Bank permanently
waived a series of restructuring, acquisition, merger, liquidation, dissolution
and related transactional events specifically related to the Public Offering. At
December 31, 1995, Judge Group was in violation of the following financial
covenants, which PNC Bank waived or reset as of December 31, 1995: tangible net
worth; total liabilities to tangible net worth; total allowable capital
expenditures by Judge Group; allowable liens in addition to that of PNC Bank;
and the requirement to report audited financial results to PNC Bank within 120
days after the end of the fiscal year. At December 31, 1994, Judge Group was in
violation of certain financial covenants which PNC Bank waived or reset and
incorporated into an Amended Loan and Security Agreement. The following
financial covenants were reset: tangible net worth; total liabilities to
tangible net worth; and limitation on capital expenditures.
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 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; and
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 1,700 technical consultants to
more than 800 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 396 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 3
licensed diploma courses, 6 certificate 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;
Baltimore, Maryland; 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, Intel and the City
of Philadelphia. Judge Group believes that its complementary businesses afford
it a competitive advantage over IT service providers that have fewer service
offerings and position it to benefit from the anticipated growth in the
technical staffing and IT training industry. 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 IT Training. To address the demands
created by an increasing shortage of technical personnel and expertise in the
workplace, organizations need to (i) permanently hire qualified personnel, (ii)
temporarily engage qualified 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 who work
independently for one or more contract service providers has increased in recent
years.
In many industries, organizations are training increasing proportions of
their workforces on certain relevant applications in order to achieve maximum
productivity with their IT systems. In addition, many individuals, including
those already employed as technical consultants, seek training to acquire or
improve technical skills in order to advance professionally. The Updata Group,
Inc. estimates that revenues from IT training services will grow from $2.9
billion in 1995 to $5.6 billion by the year 2000, representing a 14.8% compound
annual growth rate.
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 includes:
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 Marketing a Broad Range of Services. Judge Group's marketing
programs seek to emphasize its competitive advantage over IT service providers
which have fewer service offerings. Judge Group has recently established several
incentive sales programs to increase business from existing clients by
encouraging the cross-selling of the services of each of its operating units.
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 businesses.
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
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with which it has a large enough base of business to warrant establishing local
Contract Placement offices and intends to leverage select national accounts to
expand into new geographic areas.
Capitalizing on IT Training Resources. Judge Group intends to leverage its
recently acquired IT Training business to assist it in identifying emerging
technologies and integrating such technologies into its organization in order to
expand its service offerings and maintain its competitive position. Judge Group
intends to employ its instructors to train its technical consultants in
leading-edge technologies and believes this will enhance its ability to attract,
retain and increase the marketability and job satisfaction of such consultants.
By training its in-house personnel, Judge Group will enhance its ability to stay
current on new technologies and to position itself as a provider of leading-edge
technical solutions.
Pursuing Strategic Acquisitions. The IT professional services industry is
highly fragmented and contains a number of local and regional technical service
providers that market one or more of 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 its offices in Bala Cynwyd, Pennsylvania; Foxborough,
Massachusetts; and Edison, New Jersey, and nationally through its National
Division in Foxborough. Judge Group maintains a database of over 100,000
technical consultants and in 1995 placed over 1,700 consultants with more than
800 clients. Typical engagements range in duration from six to twelve months,
though some of Judge Group's technical consultants have been performing services
for several of its clients for a period of more than five years. Judge Group's
technical consultants and independent contractors often work jointly with a
clients' in-house IT personnel and are generally placed with clients on an
hourly basis at billing rates ranging from $10 to $150 and averaging $40 as of
September 30, 1996. Judge Group's Contract Placement business, founded in 1986,
generated revenue of $50.8 million in fiscal 1995 and $44.6 million for the nine
months ending September 30, 1996, representing 80.3% and 75.8% of Judge Group's
consolidated net company revenues in those periods, respectively.
The majority of Judge Group's Contract Placement business is derived from
providing technical consultants skilled in IT and software engineering. 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.
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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
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 Consultant Support of MS Office/Lotus Suite; Windows; Trouble
shooting hardware/software
Engineering
Position/Title Skills
- -------------- ------
Engineer ASIC Chip Design; Embedded Microprocessor 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 has designed several approaches to assist 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 an Asset
Management service whereby it will monitor and service a client's mobile
computing inventory, such as a network of laptop or notebook computers utilized
by pharmaceutical representatives. In addition, 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, as it
has in the past, Judge Group 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
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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 $8.0 million
in 1995 and the first nine months of 1996, respectively.
Permanent Placement
Judge Group's Permanent Placement business provides medium to high-level IT
and engineering professionals nationwide through its regional offices in Bala
Cynwyd, Pennsylvania; Tampa, Florida; and Edison, New Jersey. A significant
portion of 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 396 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. The Permanent Placement business,
founded in 1970, generated revenues of $4.3 million in 1995 and $4.3 million for
the nine months ending September 30, 1996, representing 6.7% and 7.2% of total
Judge Group revenues for those periods, respectively.
Training
Judge Group's IT Training business, acquired in September 1996, has
provided training to over 3,000 client companies and trainees in a variety of
software and network applications since its founding in 1986. The IT Training
business provides these services at its facilities in Bala Cynwyd, Pennsylvania;
Baltimore, Maryland; Alexandria, Virginia, and at various off-site locations.
Judge Group is an authorized training center for many major software
manufacturers, including Microsoft, Adobe Systems Incorporated, Quark, Inc.,
Corel Corporation and Claris Corporation, and is also an approved Apple Training
Alliance Center, Microsoft Solutions Provider and Microsoft Advanced Technical
Education Center. 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 sets forth many of the training programs offered by
Judge Group:
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Subject Applications
- ------- ------------
Operating Systems/Networking Microsoft Windows for Workgroups, Windows
95, Microsoft Windows NT(TM), Microsoft
Windows NT(TM) 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 24% 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 operating units provided services in 1995:
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<TABLE>
<CAPTION>
Telecommunications Pharmaceutical Software/Computers
- ------------------ -------------- ------------------
<S> <C> <C>
Bell Atlantic NYNEX Mobile, Merck & Co., Inc.(1) Texas Instruments, Inc.(1)
Inc.(3)
Rhone Poulenc Rorer Compaq Computer Corporation(1)
Pharmaceuticals, Inc.(1)
Wyeth-Ayerst International Inc.(2) Intel Corporation(1)
Manufacturing Financial Services Governmental
- ------------- ------------------ ------------
Ciba Corning Diagnostics The Vanguard Group, Inc.(1) City of Philadelphia(3)
Corporation(1)
Tandem Computer, Inc.(1) Reliance Insurance Company (2)
Nestle Incorporated(2) Healthcare
----------
Aetna US Healthcare(1)(3)
</TABLE>
(1) Client of Contract Placement unit
(2) Client of Permanent Placement unit
(3) Client of IT Training unit
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 professionals are entered into the appropriate database,
thus giving technical recruiters in all offices immediate access to the
professionals. Once a professional is identified for a particular position, the
technical recruiter institutes screening procedures designed to ensure a good
match for the client and professional. These procedures include personal
interviews, reference checks and review of work product. Once a technical
consultant is placed with a client, 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
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ability to offer a variety of assignments nationwide through its National
Division is also a factor in retaining technical consultants.
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 new business leads through a combination of 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 on 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 located in Bala Cynwyd, Pennsylvania. Judge Group believes that
approximately 45% 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 have fewer service offerings and intends to
eventually offer all of its services at each of its locations. The Edison, New
Jersey office, which currently offers Contract Placement 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 three
operating businesses.
Competition
The IT professional services industry is highly competitive and fragmented
on the local, regional and national levels. Although Judge Group is not aware of
any competitors that offer a full range of technical staffing and training
services, many companies offer one or two of Judge Group's services in all of
the geographical markets in which Judge Group currently operates. Many of Judge
Group's competitors 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
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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
Information Services, Inc., H.L. Yoh & Company, Additional Tech Support and
CompuData, Inc.
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 Services, a
division of Chubb Corporation, Computer Learning Centers, ExecuTrain
Corporation, and Catapult, Inc.
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 employerfunded 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 October 31, 1996, Judge Group had 325 employees, of which 6 were
staff IT consultants, 71 were either Technical Recruiters or Recruiting
Coordinators, 66 served in sales or marketing capacities, 81 were working in
engineering and technical support, and 101 were employed in managerial and
administrative capacities. On that date, there were also approximately 965 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.
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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
Judge Group recently completed a corporate reorganization (the
"Reorganization") and acquired Berkeley and Systems Automation.
Reorganization. In the Reorganization, completed in October 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 Articles of Incorporation and
by-laws.
The Berkeley Associates Corp. In September 1996, Judge Group acquired
Berkeley for cash, notes and stock consideration of approximately $2.2 million.
Berkeley, founded in 1980, is a provider of IT training services to corporate,
governmental and individual clients. 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 Inc. In September 1996, Judge Group acquired Systems
Automation for consideration consisting of cash and a note totaling
approximately $547,252.
Facilities
Judge Group has leased offices in the following locations:
Square Lease Services Offered
Office Feet Expiration as of September 1, 1996
- ------ ---- ---------- -----------------------
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,
Permanent Placement
Tampa, Florida 2,500 April 30, 1998 Permanent Placement
Alexandria, Virginia 4,700 December 31, 2000 IT Training
Legal Proceedings
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.
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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.......... 45 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 a partner of The Furst Group, a reseller of telecommunications services. He
is the President of Judge Group and currently serves on its Board of Directors.
Mr. Furlano is the brother-in-law of Mr. Judge.
Michael A. Dunn has served as the President of 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 in May 1996. Mr. Andrews was an independent financial advisory
consultant from September 1995 until May 1996, and served as Controller for
Godwin Pumps of America (a manufacturer of industrial pumps) from September 1994
to August 1995. From April 1993 to August 1994, Mr. Andrews was a Manager for
Ernst & Young 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
July 1993 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
joined the Judge Group in its Customer Support Division in 1989.
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In order to comply with the requirements of the Nasdaq Stock Market and the
Company's agreement with the Underwriters, within 90 days after the effective
date of the Registration Statement of which this Proxy Statement/Prospectus is a
part, Judge Group will increase its Board by two directors, both of whom will be
independent.
Directors' Compensation
In fiscal years 1994 and 1995, 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 $100,000.
Summary Compensation Table
Fiscal Salary Bonus Other
Name and Principal Position Year ($) ($) Compensation
--------------------------- ------ ----- ----- ------------
Martin E. Judge, Jr.
Chairman of the Board and
Chief Executive Officer 1995 404,000 78,000 11,500
Richard T. Furlano
President..................... 1995 185,133 65,127 2,311
Michael A. Dunn
Executive Vice President...... 1995 190,017 -0- 11,640
Wendy Greenberg-Marcelli
Vice President................ 1995 100,000 26,971 0
Employment Agreements
The Judge Group has employment agreements with Wendy Greenberg-Marcelli and
Jeffrey J. Andrews and requires that all key employees execute confidentiality
and one-year post-termination non-competition agreements.
Ms. Greenberg-Marcelli's agreement, dated as of October 1, 1995, provides
for a term of four years with automatic renewal periods of one year thereafter,
unless prior written notice is given by Judge Group. The agreement provides that
Ms. Greenberg-Marcelli may be terminated only for cause. In addition to
providing an annual base salary of $100,000 and certain other benefits, Ms.
Greenberg-Marcelli was granted 70,604 shares of Judge Computer (now JIS) stock.
Mr. Andrew's 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 Plans
Judge Group'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
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("NQSOs") 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 NQSOs to non-employee directors ("Non-Employee Directors")
under a formula, attract and retain Non-Employee Directors and motivate such
Non-Employee Directors to exercise their best efforts on behalf of 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 (the
"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) and 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 a
shareholder who owns more than ten percent (10%) of the Judge Group's Common
Shares) 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 NQSOs.
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 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 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
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Committee (as described above); or (iii) in the case of an ISO, three (3) months
following termination of employment; then such Option may be exercised, to the
extent of the number of Common Shares that the Key Employee could have exercised
it on the date of his or her death, or to any greater extent permitted by the
Committee, by the Key Employee's estate, personal representative or beneficiary,
at any time prior to the earlier of (A) the expiration date specified in such
Option or (B) an accelerated termination date determined by the Committee, which
date shall not be earlier than one (1) year nor later than three (3) years after
the date of death.
No ISO and, except as otherwise provided in any Option agreement, no NQSO
granted pursuant to the Plan shall be assignable or transferable by the Key
Employee or Non-Employee Director otherwise than by will or by the laws of
descent and distribution, and, during the lifetime of the Key Employee, the ISO
shall be exercisable only by him or by his or her guardian or legal
representative.
Pursuant to the Plan, each Non-Employee Director will receive an initial
grant of an NQSO to purchase 2,500 Common Shares 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 on the
date of this Offering will have an exercise price equal to the initial public
offering price set forth on the cover page of this Prospectus. The Option
exercise price may be paid in full in cash or, unless in the opinion of counsel
to the Company that to do so may result in a possible violation of law, in whole
or in part through the transfer of Common Shares previously acquired by the
Non-Employee Director, provided the Common Shares so transferred have been held
by the Non-Employee Director for more than 12 months on the date of exercise at
the time an NQSO is exercised.
An NQSO granted under the Plan to a Non-Employee Director will expire on
the earliest of (i) ten years from the date of grant, (ii) one year from the
date the grantee ceases to be a director by reason of death or disability or
(iii) three months from the date the grantee ceases to be a director for any
reason other than death or disability.
NQSOs granted to Non-Employee Directors shall be exercisable in three equal
annual installments commencing with the first anniversary of the grant date, but
only if the Non-Employee Director has attended at least seventy-five (75)
percent of the Board meetings during the twelve (12) month period immediately
preceding the date the annual installment first becomes exercisable. In the
event the Non-Employee Director fails to attend at least seventy-five (75)
percent of the Board meetings during the twelve (12) month period immediately
preceding the date the annual installment first becomes exercisable, the Options
otherwise exercisable in that installment shall not be exercisable but shall be
cancelled and shall be available for other grants under the Plan.
Notwithstanding the foregoing, the first annual installment of Options granted
on the date of this Public 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.
Effective, upon the completion of the Public Offering, options to purchase
up to 613,500 Common Shares will be granted under the Plan to officers and
employees of Judge Group. Of these options, Messrs.
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Dunn and Furlano and Ms. Greenberg Marcelli each will be granted options to
purchase up to 26,000 Common Shares; Ms. Wiercinski will be granted options to
purchase up to 16,000 Common Shares and Mr. Andrews will be granted options to
purchase up to 15,000 Common Shares. The remaining options will be awarded to
various other employees. The options to be granted at the time of the completion
of the Public Offering will have an exercise price equal to the IPO Price. The
options will become exercisable in equal annual installments over a four year
period, and the options will have a term of ten years and will be subject to the
other terms and conditions of the Plan.
The Plan provides that certain adjustments will be made to the exercise
price and number of shares subject to options granted thereunder in the event of
a stock split, stock dividend, combination or reclassification. In the event of
certain other corporate transactions, outstanding Options may terminate. Subject
to certain limitations, the Board of Directors may amend or discontinue the Plan
as it deems necessary, but no amendment may adversely affect the rights of a
grantee with respect to an outstanding Option without his or her consent.
Compensation Committee Interlocks and Insider Participation
Currently, the Compensation Committee members are Martin E. Judge, Jr. and
Richard T. Furlano. As soon as practicable these members will be replaced with
outside directors within the meaning of the Code.
Decisions concerning compensation of executive officers were made by the
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 October 31, 1996 was
$7,345,623. 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 October 31, 1996, Judge Group owed an aggregate of approximately
$73,000 to Martin E. Judge, Jr. These loans are unsecured and due upon demand
and bear interest at various rates (from prime plus 1% to a fixed rate of 12%).
Judge Group pays the interest related to these loans directly to commercial
banks from which Mr. Judge borrowed the funds on behalf of Judge Group. As of
October 31, 1996, Mr. Judge owed Judge Group $345,884. This loan, which
represents advances for personal expenditures paid by Judge Group, is due upon
demand, unsecured and non-interest bearing, will be repaid at or prior to the
completion of the Public Offering.
As of October 31, 1996, Judge Group had advanced $133,350 to Judge
Financial Group, a personal financial advisory company, which is owned by Dennis
Judge, Martin E. Judge, Jr.'s brother. This advance, which was made for working
capital purposes, does not bear interest, is unsecured and due upon demand and
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. See
"Business of Judge Group -- Pre-Offering Transaction: Corporate Reorganization,
Merger and Recent Acquisitions."
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Takema, a Delaware limited partnership, has entered into an agreement to
purchase an existing office building in Moorestown, New Jersey. Mr. Judge is the
general partner of Takema and its limited partners are Mr. Judge and three
trusts established for the benefit of his children. Following the acquisition of
the office building, Judge Group has agreed to enter into a one year, triple net
lease with Takema, pursuant to which Judge Group will lease the office building
for use as the executive offices and production and warehouse facilities of its
Imaging and Network Services business. The lease will provide for an annual base
rent of $6.50 per square foot per year. The building has approximately 32,000
square feet of leasable space and Judge Group anticipates that it will be able
to occupy the building in March 1997.
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PRINCIPAL AND SELLING 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 December 10, 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,
and (4) by the Selling Shareholders.
<TABLE>
<CAPTION>
Beneficial Ownership Beneficial Ownership
Prior to the Merger Number of After the Merger and
and the Public Offering Shares to be Public Offering(1)(2)
----------------------- Sole in the ---------------------
Name and Address Shares Percentage Public Offering(2) Shares(3) Percentage
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Martin E. Judge, Jr.(4) 5,878,050(5) 64.5% 270,000 5,986,462(5) 45.9%
Michael A. Dunn 1,959,350(6) 21.5% 150,000 1,853,423(6)(7) 14.2%
Katharine A. Wiercinski 52,600 * 0 52,600 *
Jeffrey J. Andrews 0 * 0 0 *
Richard T. Furlano 52,600 * 0 52,600 *
Wendy Greenberg-Marcelli 0 * 0 20,139 *
Arthur Kania(4) 420,800 4.6% 30,000 498,269 3.8%
Lawrence Chimerine(8) 26,300 * 8,000 30,742 *
Marvin N. Demchick(8) 52,600(9) * 16,000 49,042(9) *
DGA Investments(8)(10) 26,300 * 8,000 24,521 *
Edwin T. Johnson(8) 26,300 * 8,000 24,521 *
Robert and Margot Keith(8) 198,039(11) 2.4% 8,000 181,132(12) *
Max H. Kraus(8) 26,300 * 8,000 18,300 *
Ira Lubert(8) 224,339(13) 2.5% 16,000 199,482(12) *
Edward H. and Evelyn
B. Rosen(8) 105,200 1.2% 32,000 85,642 *
Trust Under Will of
Maurice L. Strauss for
Thomas S. Rosen(8) 52,600 * 16,000 49,042 *
Ernest Scheller, Jr.(8) 26,300 * 8,000 24,521 *
A. Richard Sloane(8) 52,600 * 16,000 36,600 *
Milton S. Stearns, Jr.(8) 36,820 * 11,200 31,841 *
Milton S. Stearns, Jr. Trustee(8)
U/D/T 12/10/88 15,780 * 4,800 10,980 *
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The Gemstone Group, Inc. 171,739(14) 1.9% 40,000 150,390 1.2%
All Directors and Executive
Officers as a group
(five persons) 7,942,600 87.1% 420,000 7,965,222 61.1%
</TABLE>
- ----------
* Less than 1% of the outstanding Common Shares of Judge Group
(1) Unless otherwise indicated, each person has sole voting and investment
power with respect to all such shares.
(2) In the event the Underwriters' overallotment option of up to 547,500 shares
is exercised in full, the Selling Shareholders will sell additional shares,
allocated among them as follows: Mr. Judge - 30,000 shares; Mr. Dunn -
20,000 shares; Mr. Chimerine - 7,556 shares; Mr. Demchick - 15,111 shares;
DGA Investments - 7,554 shares; Mr. Johnson - 7,556 shares; Mr. Keith -
7,556 shares; Mr. Kraus - 7,556 shares; Mr. Lubert - 15,111 shares; Mr.
Rosen - 30,222 shares; Trust Under Will of Maurice L. Strauss FBO Thomas S.
Rosen - 4,000 shares; Mr. Scheller - 7,556 shares; Mr. Sloane - 15,111
shares; Mr. Stearns - 10,578 shares; Milton S. Stearns, Jr. Trustee U/D/T
12/20/88 - 4,533 shares; The Gemstone Group, Inc. - 60,000 shares. The
remaining 297,500 shares will be sold by Judge Group.
(3) Includes Common Shares received in exchange for shares of JIS Common and
Series A Preferred Stock pursuant to the Merger.
(4) The mailing address of such beneficial owner is Two Bala Plaza, Suite 800,
Bala Cynwyd, Pennsylvania 19004.
(5) Includes 378,412 shares held by Takema Ltd., L.P., a Delaware limited
partnership ("Takema") of which Mr. Judge is the General Partner.
(6) Includes 202,247 Common Shares held by the Michael A. Dunn Descendants'
Trust. Mr. Dunn has sole dispositive power over the shares held by the
Trust.
(7) Includes 44,072 Common Shares held by the Michael A. Dunn Descendants'
Trust. Mr. Dunn has sole dispositive power over the shares held by the
Trust.
(8) Such Selling Shareholders acquired their Common Shares through the
conversion, immediately prior to the Public Offering, of their Convertible
Notes purchased from the Company in July 1994.
(9) Mr. Demchick is a director of JIS.
(10) David Kleiman and Gary Kleiman, each a General Partner of DGA Investments,
may each be deemed to own beneficially the 26,300 shares owned by DGA
Investments. David Kleiman will also receive 6,221 Common Shares in
exchange for his shares of JIS Common and Series A Preferred Stock as a
result of the Merger. See footnote 14.
(11) Includes 171,739 shares held by The Gemstone Group, Inc. ("Gemstone") of
which Mr. Keith is a principal and shareholder. Mr. Keith is a director of
JIS.
(12) Includes 150,390 Common Shares held by Gemstone.
(13) Includes 171,739 shares held by Gemstone, of which Mr. Lubert is a
principal and a shareholder.
(14) Consists entirely of shares acquired through the exercise of a warrant on
September 6, 1996 issued by Judge Group in July 1993 in connection with
Gemstone's engagement as Judge Group's financial advisor. Gary Kleiman is
a principal and shareholder of Gemstone and may be considered to own
beneficially the 171,739 shares owned by Gemstone.
Selling Security Holders
The Gemstone Group, Inc. ("Gemstone"), an investment and merchant banking
firm, has been engaged as Judge Group's and JIS's financial advisor since June
1993. Pursuant to an agreement dated July 8, 1996 between Gemstone, Judge Group,
JIS and Judge Technical (the "Advisory Agreement"), Gemstone is entitled to
receive a monthly advisory fee of $2,500 during the period beginning July 1,
1996 and ending on the earlier of the completion of (i) a public offering by
Judge Group, (ii) the date on which all of the Convertible Notes of Judge Group
in the original aggregate principal amount of $500,000 have been repaid in full
and/or converted into Common Shares, or (iii) July 31, 1997. The Advisors
Agreement also entitles Gemstone to reasonable out-of-pocket expenses and a fee
upon the completion of the Public Offering in the amount of 1% of the gross
proceeds to Judge Group therefrom if such offering is consummated on or before
July 31, 1997. The monthly fee of $2,500 is an advance against the 1% of gross
proceeds fee due upon a successful offering. In February 1996, Gemstone acted as
financial advisor to JIS in connection with the private placement of JIS Series
A Preferred Stock to several investors for a total purchase price of $1,096,000.
In July 1994, Gemstone acted as financial advisor in connection with the
purchase by certain investors of the Convertible Notes, for which it received an
additional financial fee of $25,000. See Note 8 of Notes to the Consolidated
Financial Statements
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for the nine months ended September 30, 1996. The holders of these Convertible
Notes will convert their Convertible Notes into Common Shares immediately prior
to the Public Offering. Common Shares so received are represented in the table
under the caption "Principal and Selling Shareholders of Judge Group" which is
footnoted to indicate each Noteholder and the amount of Common Shares such
holder is selling in the Public Offering.
Mr. Kania was a director of Judge Group from January 1989 to June 1996.
Mr. Keith has been a director of JIS since July 1996. He is also a
principal and shareholder of Gemstone.
Mr. Ira Lubert is a principal and shareholder of Gemstone.
Mr. Demchick has been a director of JIS since July 1996.
BUSINESS OF JIS
Introduction
JIS's Imaging and Network Services business offers advanced technical
solutions to increase the efficiency of business processes, such as network and
document management systems design, integration, implementation, maintenance and
training, business process redesign through its MENTOR(TM) 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, HP and
others. JIS has installed more than 110 imaging systems, is an authorized
value-added reseller of Optika, Filenet, Saros(C), 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(TM).
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 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
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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 approximately
18.2% in 1995, 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.
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 since installed more than 110 imaging and document management
systems and currently has more than 110 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 networking, imaging,
document management, workflow and related consulting services through regional
offices in Bala Cynwyd, Pennsylvania; Moorestown, New Jersey; Hartford,
Connecticut; Tampa, Florida; and Wakefield, Massachusetts. The Imaging and
Network Services business, which began operations in 1988, generated revenues of
$8.2 million and $10.0 million in fiscal 1995 and the nine months ended
September 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 HP 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 implements Optika
software in Banyan, OS/2(R) and Windows NT(TM) environments and is currently a
value-added reseller of a variety of imaging software systems, including
Filenet, Saros(C), Watermark, Keyfile, OTG 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, HP and Sun
Microsystems, Inc. operating under Windows NT(TM), OS/2(R) and Unix operating
systems.
JIS seeks to provide its clients with networking and document management
solutions to improve their operations through work process re-engineering and
enabling technology implementation. JIS believes that a
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thorough understanding of a client's 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. Under the MENTOR program, 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 analysis, JIS presents the client with a detailed set of
technological and work process recommendations.
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.
JIS is capable of providing the necessary technical personnel to implement
each networking or document management solution, often drawing on the technical
consultant resources of Judge Group's Contract Placement business. JIS's
internal staff of network engineers is certified by Novell, Banyan(R) and
Microsoft 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.
JIS is also authorized to service all of the hardware products it sells.
JIS typically enters into maintenance contracts in connection with the
installation of networking and document management systems. JIS also offers
training on all of the networking and imaging products it sells, as well as on
the use and administration of all network operating systems it installs.
Competition
The imaging, document management and network services market is intensely
competitive and subject to rapid technological 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, a division of Arthur
Andersen, L.L.P., Technology Solutions Corporation, Cambridge Technology
Partners, Inc., Universal Systems, Inc., and Viewstar Corporation.
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, Inc., Hoffman La Roche, Inc., the
Bordentown (NJ) Board of Education and the City of Philadelphia.
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Sales and Marketing
JIS has two direct technical sales teams through which it markets its
Imaging and Network Services business, one that concentrates on imaging and
document management systems and services, and one that focuses on more
traditional network systems and services. Technical sales personnel are located
in Bala Cynwyd, Pennsylvania; Morrestown and Edison, New Jersey; and Tampa,
Florida. JIS generates leads through a combination of telemarketing programs,
seminars, local trade shows and media advertising. JIS also receives sales leads
from its software vendors.
Employees
As of September 30, 1996, JIS had 85 employees. 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, Massachusetts Month-to-Month
Hartford, Connecticut June 30, 2000
Tampa, Florida April 30, 1988
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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-Marcelli...... 30 President and Director
Michael A. Dunn............... 47 Director
Jeffrey J. Andrews............ 45 Chief Financial Officer
Katharine A. Wiercinski....... 35 Secretary and Controller; Vice President -
Human Resources
Robert E. Keith, Jr........... 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.
Katharine A. 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 E. Keith, Jr. 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. Mr. Keith has been the Chief
Executive Officer 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 serves on the
Board of Directors of Cambridge Technology
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Partners, Gandolph Technologies, Inc. and Wave Technologies. Mr. Keith is also
an officer and director of The Gemstone Group, Inc.
Marvin N. Demchick has served as a Director of Judge Group since August
1996. 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. In addition, the Company has agreed to pay Messrs. Keith and
Demchick, the outside directors of JIS, directors' fees of $5,000 each.
Executive Compensation
Summary Compensation Table
Fiscal Salary Bonus Other
Name and Principal Position(1) Year ($) ($) Compensation ($)
Wendy Greenberg-Marcelli 1995 100,000 26,971 9,640
President
(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 and certain other benefits,
Ms. Greenberg-Marcelli was granted 70,604 shares of Judge Computer (now JIS)
stock.
Mr. Andrews' agreement, dated May 1, 1996, provides for a two year term of
employment with one year automatic renewals thereafter, unless Judge Group
provides prior written notice. The agreement provides a base salary of $75,000
and certain other benefits.
Certain Transactions
During 1995, JIS provided approximately $480,000 of networking and
consulting services 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 nine months ended September 30, 1996, JIS sold $455,000 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 October 31, 1996 was $7,345,623.
Upon the completion of the Public Offering, Mr. Judge and Mr. and Mrs. Dunn will
be released from these guaranties, subject to certain qualifications.
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Takema has entered into an agreement to purchase an existing office
building in Moorestown, New Jersey. Mr. Judge is the general partner of Takema
and its limited partners are Mr. Judge and three trusts established for the
benefit of his children. Following the acquisition of the office building, Judge
Group has agreed to enter into a one year, triple net lease with Takema,
pursuant to which Judge Group will lease the office building for use as the
executive offices and production and warehouse facilities of its Imaging and
Network Services business. The lease will provide for an annual base rent of
$6.50 per square foot per year. The building has approximately 32,000 square
feet of leasable space and Judge Group anticipates that it will be able to
occupy the building in March 1997.
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PRINCIPAL STOCKHOLDERS OF JIS
The affirmative vote of (i) a majority of the JIS Common Stock and Series A
Preferred Stock entitled to vote, 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. The following two tables
present the security ownership of certain beneficial owners and management, the
first of which presents the beneficial ownership of the JIS Common Stock. The
second table presents the beneficial ownership of the second voting class, that
of the Series A Preferred Stock.
The following table sets forth certain information with respect to the
beneficial ownership of JIS Common Stock as of December 10, 1996, (1) by each
person known by JIS to own beneficially 5% or more of the outstanding shares of
JIS 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
Shares of Merger Shares
Name and Address JIS Common Stock Percent of to be Received
of Stockholder Beneficially Held(1) Common Stock in the Merger
- -------------- -------------------- ------------- -------------
<S> <C> <C> <C>
Martin E. Judge, Jr. 2,745,427(2) 68.3% 378,412
Michael A. Dunn 1,408,068(2) 35.3% 44,072
Wendy Greenberg-Marcelli 80,558 2.0% 20,139
Robert E. Keith, Jr. 49,768 1.2% 12,442
Katharine Wiercinski 0 0% 0
Marvin N. Demchick 49,768 1.2% 12,442
Jeffrey Andrews 0 0% 0
All Directors and Executive
Officers as a group 3,101,811 75.6% 467,507
5% Stockholders:
Judge Group 1,231,778 25.5% 0(3)
Arthur Kania 429,877 10.8% 107,469
</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) 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.
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The following table sets forth certain information with respect to the
beneficial ownership of JIS Series A Preferred Stock as of December 10, 1996,
(1) by each director and executive officer of JIS and (2) by all directors and
executive officers as a group. No JIS Series A Preferred Stockholder is a holder
of 5% or more of the outstanding shares of Series A Preferred Stock.
Name and Address Number of Series A Shares Percent of
of Stockholder Beneficially Held Series A Shares
- -------------- -------------------- ---------------
Martin E. Judge, Jr. 27,628 3.4%
Michael A. Dunn -- --
Wendy Greenberg-Marcelli 7,500 0.9
Robert E. Keith, Jr. 37,500 4.6
Katharine Wiercinski -- --
Marvin N. Demchick 37,500 4.6
Jeffrey Andrews -- --
All Directors and Executive
Officers as a group 110,128 13.4
All other Series A Stockholders 712,500 86.6
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.
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
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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
headquarters of JIS, that they are familiar with the books and accounts of the
substantial majority of the post-merger business of JIS and that they are
expected to render cost-effective services to JIS.
OTHER MATTERS
The JIS Board is not aware of any matters not set forth herein that may
come before the meeting. If, however, further business properly comes before the
meeting, 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 certain tax matters.
EXPERTS
Judge Group'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 Annual Meeting of Stockholders of JIS (if the Merger has not
theretofore been consummated) must be received by JIS at Two Bala Plaza, Suite
800, Bala Cynwyd, Pennsylvania 19004 Attn: Secretary, a reasonable time before
the solicitation of proxies thereto.
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APPENDIX A
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of October
4, 1996, is by and among JUDGE IMAGING SYSTEMS, INC., a Delaware corporation
("JIS"), THE JUDGE GROUP, INC., a Pennsylvania corporation ("Judge," formerly
Judge, Inc.), and JUDGE ACQUISITION, INC., a Delaware corporation and a
wholly-owned subsidiary of Judge ("Acquisition").
BACKGROUND
The respective boards of directors of JIS, Judge and Acquisition have each
approved the acquisition of JIS by Judge through a merger (the "Merger") of JIS
with and into Acquisition (JIS and Acquisition being sometimes hereinafter
together referred to as the "Constituent Corporations"), upon the terms and
subject to the conditions hereinafter set forth, in which outstanding shares of
JIS Common Stock, par value $.01 per share ("JIS Common Shares"), and JIS Series
A Convertible Preferred Stock, par value $.01 per share ("JIS Series A Preferred
Shares") will be converted into and become shares of Judge Common Stock, par
value $.01 per share ("Judge Common Shares").
TERMS
NOW, THEREFORE, in consideration of the mutual representations, warranties,
covenants, agreements and conditions contained herein, and in order to set forth
the terms and conditions of the Merger and the mode of carrying the same into
effect, the parties hereto, intending to be legally bound, hereby agree as
follows:
SECTION 1
THE MERGER
1.1 The Merger. At the Effective Time (as hereinafter defined), JIS shall be
merged with and into Acquisition pursuant to this Agreement, the separate
corporate existence of JIS shall cease (except as it may be continued by
operation of law) and Acquisition shall continue as the surviving corporation
under the corporate name "Judge Imaging Systems, Inc.," all upon the terms and
subject to the conditions provided for in this Agreement and pursuant to the
Delaware General Corporation Law (the "DGCL"). Acquisition, as it exists from
and after the Effective Time, is sometimes hereinafter referred to as the
"Surviving Corporation."
1.1.1 Effect of the Merger. The Merger shall have the effects specified in
Sections 259, 260 and 261 of the DGCL. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, except as otherwise
provided herein, all the property, rights, privileges, powers and franchises of
Acquisition and JIS shall vest in the Surviving Corporation, and all debts,
liabilities and duties of Acquisition and JIS shall become the debts,
liabilities and duties of the Surviving Corporation.
1.1.2 Certificate of Incorporation. At the Effective Time, the Certificate
of Incorporation of the Surviving Corporation shall be the Certificate of
Incorporation of Acquisition as in effect immediately prior to the Effective
Time, continuing until thereafter amended in accordance with the provisions
therein and as provided by the DGCL, except that as of the Effective Time, the
following provision of the Certificate of Incorporation of the Surviving
Corporation shall be amended in its entirety to read as follows:
"1. The name of the corporation is Judge Imaging Systems, Inc."
1.1.3 Bylaws. At the Effective Time, the Bylaws of the Surviving
Corporation shall be the Bylaws of Acquisition as in effect immediately prior to
the Effective Time, continuing until thereafter amended in
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accordance with its terms and the Certificate of Incorporation of the Surviving
Corporation and as provided by the DGCL.
1.1.4 Directors and Officers. The persons who are the directors and
officers of JIS at the Effective Time shall become the directors and officers of
the Surviving Corporation at the Effective Time. Such persons shall hold such
positions as directors and officers until their successors are elected or
appointed in accordance with the Certificate of Incorporation and the Bylaws of
the Surviving Corporation.
1.1.5 Tax-Free Reorganization. The parties intend that the Merger qualify
as a tax-free reorganization under Section 368(a) of the Internal Revenue Code
of 1986, as amended, and the regulations thereunder (the "Code").
1.2 Closing and Effective Time. Subject to the Merger receiving the
Requisite Stockholder Approval of JIS stockholders pursuant to Section 5.2 and
subject to the provisions of this Agreement, the parties shall hold a closing
(the "Closing") on either (i) the later of (A) the first business day following
the meeting of the stockholders of JIS to consider and vote upon the Merger or
(B) the business day on which the last of the conditions set forth in Section 6
to be fulfilled prior to the Closing is fulfilled or waived, or (ii) such other
date as the parties hereto may agree (the "Closing Date"), at 10:00 A.M. (local
time) at the offices of Drinker Biddle & Reath, Berwyn, Pennsylvania, or at such
other time or place as the parties hereto may agree. On the Closing Date, the
parties shall effect the Merger by filing a Certificate of Merger (the
"Certificate of Merger") with the Secretary of State of the State of Delaware in
accordance with the provisions of the DGCL. The Merger shall become effective at
the time of the filing of the Certificate of Merger or at such later time on the
Closing Date as may be specified in the filing with the Secretary of State of
the State of Delaware (the "Effective Time"). As a result of the Merger, the
Surviving Corporation shall become a wholly-owned subsidiary of Judge at the
Effective Time.
SECTION 2
CONVERSION OF SHARES AND OTHER MATTERS
2.1 Cancellation of Securities. At the Effective Time, by virtue of the Merger
and without any action on the part of Judge, Acquisition, JIS or any holder of
any shares of capital stock of JIS (the "JIS Stock"):
2.1.1 Cancellation of Treasury Stock. Each JIS Common Share and each share
of any class or series of JIS Preferred Shares ("JIS Preferred Shares") which
may be held in the treasury of JIS immediately prior to the Effective Time shall
be canceled and shall cease to exist at and after the Effective Time without
payment of any consideration therefor.
2.1.2 Cancellation of JIS Series B Preferred Shares. Each share of JIS
Series B Preferred Shares, par value $.01 per share ("JIS Series B Preferred
Shares"), issued and outstanding immediately prior to the Effective Time shall
cease to the outstanding and shall automatically be canceled and retired at the
Effective Time of the Merger.
2.1.3 Cancellation of JIS Options; No Convertible Securities. All options
and warrants, if any, to purchase JIS Common Shares that have been issued by JIS
and that are outstanding immediately prior to the Effective Time shall be
canceled and shall cease to exist at and after the Effective Time and no capital
stock of the Surviving Corporation or Judge, cash or other consideration shall
be paid or delivered in exchange therefor or in exercise thereof in connection
with the Merger. At the Effective Time, other than as described in Section 2.2
with respect to the conversion of JIS capital stock in the Merger, and Section
2.4 with respect to shares held by Dissenters (as hereinafter defined), there
shall not be any other securities, rights, warrants or other instruments
originally issued by JIS which, after consummation of the Merger, would be
convertible into or exercisable for securities of the Surviving Corporation or
Judge.
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2.1.4 Cancellation of JIS Common Shares owned by Judge. Each JIS Common
Share owned by Judge immediately prior to the Effective Time shall be canceled
and shall cease to exist at and after the Effective Time without payment of any
consideration therefor.
2.2 Conversion of JIS Capital Stock. At the Effective Time, by virtue of the
Merger and without any action on the part of Judge, Acquisition, JIS or any
holder of any JIS Stock, except as provided in Sections 2.1 (with respect to
shares held by Judge) and 2.4 (with respect to shares held by Dissenters), each
remaining outstanding JIS Common Share and JIS Series A Preferred Share (and
together with JIS Common Shares, "JIS Shares") shall be converted (subject to
the provisions set forth in Section 2.3 regarding fractional share interests) as
follows:
2.2.1 Each such JIS Common Share shall be converted into that number of
Judge Common Shares equal to $2.50 divided by the offering price to the public
(the "IPO Offering Price") of Judge Common Shares registered under the
Securities Act of 1933, as amended (the "1933 Act"), on a registration statement
(the "IPO Registration Statement") on Form S-1 filed with the Securities and
Exchange Commission (the "SEC") and declared effective by the SEC prior to the
Effective Time; and
2.2.2 Each such JIS Series A Preferred Share shall be converted into that
number of Judge Common Shares obtained by (i) dividing $2.50 by the IPO Offering
Price, and (ii) multiplying the quotient so obtained by the number of JIS Common
Shares issuable upon the conversion of such JIS Series A Preferred Share
immediately prior to the Effective Time. On the date hereof, such conversion
ratio is one JIS Common Share per one JIS Series A Preferred Share so converted.
2.2.3 The Judge Common Shares to be issued in the Merger pursuant to this
Section 2.2 are referred to herein as the "Merger Shares."
2.3 No Fractional Shares. No fractional Judge Common Shares will be issued in
the Merger and each holder of outstanding JIS Shares immediately prior to the
Effective Time excluding Dissenters (the "JIS Holders") will receive cash in
lieu of any fraction of a Judge Common Share otherwise issuable to such person
in an amount equal to such fraction multiplied by the IPO Offering Price of
Judge Common Shares.
2.4 Dissenting Shares. Notwithstanding anything herein to the contrary, JIS
Common Shares and JIS Preferred Shares that are outstanding immediately prior to
the Effective Time and that are held by stockholders, if any, who shall have
performed all such acts as are required to perfect appraisal rights pursuant to
Section 262 of the DGCL (a "Dissenter") shall be converted into the right to
receive the consideration payable in respect thereof in accordance with the
DGCL, unless such holder loses the status and rights of a Dissenter after the
Effective Time. Any such payment shall be made by JIS. If after the Effective
Time such holder loses the status and rights of a Dissenter, the JIS Shares held
by such holder shall be treated as if they had been converted as of the
Effective Time into the right to receive such holder's allocable portion of the
Merger Shares. JIS shall promptly provide Judge with copies of any written
demand for payment received by JIS from a Dissenter, and Judge shall have the
right to participate in all negotiations and proceedings with respect to any
such demand. JIS shall not, except with the prior written consent of Judge, make
any payment with respect to, or settle or offer to settle, any such demand.
2.5 Exchange Procedure.
2.5.1 Exchange Agent. As of the Effective Time, Judge shall deposit with a
bank, trust company, transfer agent or other person designated by Judge, which
may be Judge itself (the "Exchange Agent"), for the benefit of each holder of an
outstanding certificate or certificates (the "JIS Certificates") which prior
thereto represented JIS Shares, for exchange in accordance with this Section
2.5, certificates representing the Merger Shares.
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2.5.2 Surrender of Certificates. As promptly as practicable after the
Effective Time, the Exchange Agent shall mail to each holder of an outstanding
certificate or certificates which prior thereto represented JIS Shares (i) a
letter of transmittal (which shall specify that delivery shall be effected, and
risk of loss and title to the JIS Certificates shall pass, only upon delivery of
the JIS Certificates to the Exchange Agent and shall be in such form and have
such other provisions as Judge and JIS may reasonably specify), and (ii)
instructions for use in effecting the surrender of the JIS Certificates in
exchange for certificates representing Judge Common Shares and any cash in lieu
of any fractional Judge Common Shares. Such holder shall upon such surrender
receive in exchange therefor a certificate or certificates representing the
number of whole Judge Common Shares into which such JIS Shares shall have been
converted. Until so surrendered and exchanged, each outstanding certificate
which, prior to the Effective Time, represented JIS Shares shall, upon and after
the Effective Time, be deemed for all purposes (other than to the extent
provided in the following sentence) to evidence ownership of the number of whole
Judge Common Shares into which such JIS Shares have been converted. Dividends,
if any, payable after the Effective Time to holders of Judge Common Shares
shall, at Judge's option, be withheld from holders of certificates formerly
representing JIS Shares until such certificates (or lost share affidavits
reasonably acceptable in form and substance to Judge) are surrendered for
exchange in accordance with this Section 2.5 and, if so withheld, shall then be
paid without interest thereon.
2.5.3 Unsurrendered Certificates. In the event that any certificates
formerly representing JIS Shares (or lost share affidavits reasonably acceptable
in form and substance to Judge) are not surrendered for exchange by the first
anniversary of the Effective Time (the "Unsurrendered Certificates"), those
certificates representing Judge Common Shares corresponding to such
Unsurrendered Certificates then held by the Exchange Agent shall be delivered to
Judge, upon demand, and any stockholders of JIS who have not previously complied
with this Section 2.5 shall thereafter look only to Judge for payment of their
claim for Judge Common Shares and any cash in lieu of fractional Judge Common
Shares.
SECTION 3
MATTERS PRIOR TO CLOSING
3.1 Conversion Transactions. Prior to the Effective Time, (i) the Convertible
Senior Subordinated Promissory Notes of Judge (the "Investor Notes"), issued by
Judge pursuant to a 10% Convertible Senior Subordinated Note Purchase Agreement
(the "Purchase Agreement"), dated July 1994, which Investor Notes are
convertible into Judge Common Shares, shall be fully converted into Judge Common
Shares, and (ii) an option held by Raymond Sozzi (the "Sozzi Option") to
purchase 25,000 JIS Common Shares at an exercise price of $1.33 per share, shall
be exercised on a "cashless exercise" basis for 11,700 JIS Common Shares. The
transactions contemplated in this Section 3.1 are referred to as the Conversion
Transactions. In the event that the Conversion Transactions are not consummated
prior to Closing, this Agreement shall terminate and the Merger shall be
abandoned without any action on the part of Judge, Acquisition or JIS.
3.2 Public Offering. Judge intends to make an offering of its Judge Common
Shares to the public, underwritten on a firm commitment basis by a managing
underwriter selected by Judge (the "Public Offering"), pursuant to the IPO
Registration Statement. In the event that the Public Offering is not consummated
at a price and on terms satisfactory to Judge, in its sole discretion, prior to
or simultaneously with the Closing, this Agreement shall terminate and the
Merger shall be abandoned without any action on the part of Judge, Acquisition
or JIS.
SECTION 4
MUTUAL REPRESENTATIONS AND WARRANTIES
Judge and Acquisition hereby represent and warrant to JIS, and JIS hereby
represents and warrants to Judge, that, as of the date hereof and as of the
Closing Date, except as set forth in a Disclosure Schedule delivered by such
party contemporaneously with the execution of this Agreement:
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4.1 Organization and Qualification. In the case of Judge and Acquisition, each
of Judge and Acquisition is a corporation duly organized, validly existing and
in good standing under the laws of the state in which it is incorporated, having
full power and authority to carry on its business as it has been and is now
being conducted and to own, lease and operate its assets and properties. In the
case of JIS, JIS is a corporation duly organized, validly subsisting and in good
standing under the laws of the State of Delaware, having full power and
authority to carry on its business as it has been and is now being conducted and
to own, lease and operate its assets and properties. In the case of each party,
as of the Effective Time, it will be duly qualified to do business and will be
in good standing in every jurisdiction in which such qualification is required,
all of which jurisdictions are disclosed in its Disclosure Schedule. Except for
the entities listed in its Disclosure Schedule (its "Subsidiaries"), it has no
subsidiaries and no stock or other equity or ownership interest (whether
controlling or not) in any corporation, association, partnership, joint venture
or other entity. Each of its Subsidiaries is duly organized, validly existing
and in good standing under the laws of such Subsidiary's respective jurisdiction
of incorporation set forth in its Disclosure Schedule and will be duly qualified
and in good standing in every jurisdiction in which such qualification is
required, all of which jurisdictions are disclosed in its Disclosure Schedule.
4.2 Capitalization.
4.2.1 In the case of Judge, its authorized capital stock immediately prior
to the Effective Time shall consist of 50,000,000 Judge Common Shares and
10,000,000 shares of preferred stock ("Judge Preferred Shares"). After the
consummation of the Conversion Transactions and immediately before the Effective
Time of the Merger and the consummation of the Public Offering, there will be
outstanding 9,113,739 Judge Common Shares and no Judge Preferred Shares.
4.2.2 In the case of JIS, its authorized capital stock consists of
10,000,000 JIS Common Shares and 5,000,000 JIS Preferred Shares, of which
1,125,000 shares are designated as JIS Series A Preferred Shares, 1,500 shares
are designated as JIS Series B Preferred Shares and the remainder are unissued
shares of "blank check" preferred stock. As of the date of this Agreement, there
are outstanding 3,980,141 JIS Common Shares, not including the exercise of the
Sozzi Option as described in Section 3.1, 822,628 JIS Series A Preferred Shares
and 1,500 JIS Series B Preferred Shares.
4.2.3 In the case of either party, all of its outstanding shares of capital
stock have been duly authorized and validly issued, are fully paid and
nonassessable, were not issued in violation of the terms of any contract,
agreement or commitment binding upon it, and were issued in compliance with all
of its applicable charter documents and all applicable federal and state
statutes, laws, regulations and rules (the "Laws"). Except as set forth in its
Disclosure Schedule, there are, and have been, no preemptive rights with respect
to the issuance of its shares of capital stock. Its Disclosure Schedule lists
all agreements, contracts or arrangements to which it is a party or of which it
is aware regarding (i) the registration of transactions in its capital stock
under any securities law, or (ii) any voting or transfer arrangements with
respect to any of its shares of capital stock.
4.3 Options and Additional Rights.
4.3.1 Except for the options and warrants described in Section 3.1 or in
its Disclosure Schedule in response to this Section 4.3.1 and any convertible
securities described in Sections 4.2 or 3.1 of this Agreement, (i) there are not
outstanding any contracts, agreements, subscriptions, options, warrants,
commitments or rights of any character to purchase or otherwise acquire, or any
stock appreciation or similar rights measured by the value of, any shares of its
capital stock or other securities, including without limitation convertible or
exchangeable securities, and (ii) it is not party to any agreement the benefits
of which (including without limitation severance benefits) are contingent, or
the terms of which are materially altered, upon the occurrence of a transaction
involving it of the nature of any of the transactions contemplated by this
Agreement. Its Disclosure Schedule accurately sets forth as of the date of this
Agreement all outstanding warrants, and all outstanding options granted by it,
vested or unvested, together with the identity of the optionees or warrant
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holders, the vesting schedule for such options or warrants, if any, the exercise
price and the date on which such options or warrants were granted.
4.3.2 Except as otherwise provided in this Agreement, consummation of the
transactions contemplated hereby will not obligate it to issue any additional
equity interest in it, to declare any dividend or make any distributions of any
property or assets, or to redeem, purchase, acquire or offer to acquire any
shares of its capital stock.
4.4 Subsidiaries. Its Disclosure Schedule sets forth a description of all of the
issued and outstanding equity securities of each of its Subsidiaries. It owns of
record and beneficially all of the issued and outstanding capital stock of each
of its Subsidiaries, free and clear of any mortgage, lien, security interest,
pledge, encumbrance, restriction on transferability, defect of title, charge or
claim of any nature whatsoever ("Liens"). "Group" with respect to a designated
party means the designated party and each of its Subsidiaries, as a whole and
individually with respect to each of them.
4.5 Authority and Binding Effect. It has all requisite power and authority to
execute and deliver this Agreement and, upon receipt of its Requisite
Stockholder Approval (as hereinafter defined), to perform the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions herein contemplated will not contravene or
violate its Certificate or Articles of Incorporation or Bylaws. This Agreement
has been duly and validly executed and delivered by it and, subject to obtaining
its Requisite Stockholder Approval, constitutes the legal, valid and binding
obligation of it, enforceable against it in accordance with its terms, except to
the extent that enforceability thereof may be limited by applicable bankruptcy,
insolvency, reorganization or other similar laws relating to or affecting the
enforcement of creditors' rights generally and by principles of equity regarding
the availability of remedies. "Requisite Stockholder Approval" means, (i) in the
case of Judge, the approval of this Agreement and the Merger and the issuance of
the Merger Shares by the affirmative vote of a majority of the votes cast by all
Judge stockholders entitled to vote thereat, and, (ii) in the case of JIS, the
approval of this Agreement and the Merger (A) by the holders of a majority of
the outstanding JIS Common Shares and JIS Series A Preferred Shares (with each
JIS Series A Preferred Share being entitled to the number of votes equal to the
number of JIS Common Shares into which each JIS Series A Preferred Share could
be converted on the record date for the vote) voting together as a single class,
and (B) separately by the holders of a majority of the outstanding JIS Series A
Preferred Shares voting together as a class.
4.6 Validity of Contemplated Transactions. Neither the execution and delivery of
this Agreement by it nor the consummation of the transactions contemplated
hereby will (i) contravene or violate, any federal, state or local statute, law,
ordinance, regulation, order or rule ("Regulation") or any judgment, decree,
injunction, order or ruling of any court or governmental or regulatory authority
which is applicable to its Group; (ii) result in a default or loss of a benefit
under, or permit the acceleration of any obligation under, or require the
consent or approval of any party to, any contract, agreement, commitment,
permit, concession, franchise, license or authorization applicable to its Group,
or (iii) require its Group to notify or obtain any license, permit, approval or
authorization from any governmental or regulatory authority or, except as set
forth in its Disclosure Schedule, other person or entity; except for (A) its
Requisite Stockholder Approval, (B) in the case of Judge, the effective
registration under the 1933 Act, and all requisite compliance with state
securities or "blue-sky" laws in connection with the issuance of Judge Common
Shares in the Merger, (C) in the case of JIS, filings pursuant to the 1933 Act
and the Securities Exchange Act of 1934, as amended (the "1934 Act"), (D) the
filing of the Certificate of Merger and (E) in the case of (i) or (ii) above,
for any violation or default which, individually or in the aggregate, would not
have a Material Adverse Effect (as defined below). For purposes of this
Agreement, "Material Adverse Effect" means a material adverse effect on the
business, assets, financial condition or results of operations of its Group.
4.7 Issuance of Judge Common Shares. In the case of Judge only, upon receipt of
its Requisite Stockholder Approval, the Merger Shares will be duly authorized
and, when issued in accordance with this Agreement, will be validly issued and
outstanding, fully paid and nonassessable Judge Common Shares.
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4.8 Corporate Records. The minute books of its Group are current and contain
correct and complete copies of all of the charter documents of its Group,
including all amendments thereto and restatements thereof, and of all minutes of
meetings, resolutions and other actions and proceedings of its stockholders and
board of directors and all committees thereof, duly signed by the Secretary or
an Assistant Secretary, and in the case of written consents, all directors or
all stockholders. The stock record books of its Group are current, correct and
complete and reflect the issuance of all of the issued and outstanding shares of
its capital stock as of the date hereof.
4.9 Financial Statements; Reports.
4.9.1 Financial Statements. In the case of JIS, it has delivered to Judge,
and in the case of Judge, it has delivered to JIS, (i) its consolidated balance
sheets at December 31, 1995 and 1994, (ii) its related statements of operations,
changes in stockholders' equity and cash flows for the three years then ended,
and (iii) all related notes and schedules, all of which (the "Year-End Financial
Statements") have been audited by an independent public accountant. JIS has also
delivered to Judge, and Judge has delivered to JIS, (i) its consolidated balance
sheet at June 30, 1996, and (ii) its related statements of operations, changes
in stockholders' equity and cash flows for the six months then ended (the
"Interim Financial Statements") which have been audited by an independent public
accountant. The Year-End Financial Statements were prepared in accordance with
generally accepted accounting principles consistently applied ("GAAP") and,
subject to any qualifications set forth in the applicable notes and schedules,
fairly present the financial position and results of operations of its Group at
December 31, 1995 and 1994 and for each of the years in the three-year period
ended December 31, 1995. The Interim Financial Statements have been prepared in
accordance with GAAP and, subject to any qualifications set forth in the
applicable notes and schedules, and subject to normal recurring audit
adjustments, fairly present the financial position and results of operations of
its Group at June 30, 1996 and for the six months then ended. All Liabilities
(as hereinafter defined) of its Group at December 31, 1995 and June 30, 1996,
required to be reflected or reserved for by GAAP are fully reflected or reserved
for in the balance sheet included in the Year-End Financial Statements and the
Interim Financial Statements, respectively.
4.9.2 Reports. JIS has filed on a timely basis (i) all forms, reports,
statements and other documents required to be filed with (A) the SEC, including
without limitation (1) all Annual Reports on Form 10-KSB, (2) all Quarterly
Reports on Form 10-QSB, (3) all proxy statements relating to meetings of
shareholders (whether annual or special), (4) all Current Reports on Form 8-K
and (5) all other reports, schedules, registration statements or other documents
(collectively referred to as the "SEC Reports"), and (B) any applicable state
securities authorities and (ii) all forms, reports, statements and other
documents required to be filed with any other Regulatory Body, (all such forms,
reports, statements and other documents in clauses (i) and (ii) of this Section
4.9.2 being referred to herein, collectively, as the "Reports"). The Reports (i)
were prepared in all material respects in accordance with the requirements of
applicable law (including, with respect to the SEC Reports, the 1933 Act or the
1934 Act, as the case may be, and the rules and regulations of the SEC
thereunder applicable to such SEC Reports) and (ii) did not at the time they
were filed contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
4.10 Books of Account. The books of account of its Group fairly reflect, in
accordance with GAAP, (i) all transactions relating to its Group and (ii) all
items of income and expense, assets and liabilities and accruals relating to its
Group. Its Group has not engaged in any transaction, maintained any bank account
or used any corporate funds except for transactions, bank accounts and funds
which have been and are reflected in the normally maintained books and records
of its Group.
4.11 Taxes. (i) All reports, returns, statements and other similar filings
required to be filed by it (the "Tax Returns") with respect to any Taxes (as
defined below) have been timely filed with the appropriate governmental agencies
in all jurisdictions in which such Tax Returns are required to be filed, and all
such Tax Returns correctly reflect the liability of it for Taxes for the
periods, properties or events covered thereby; (ii) all Taxes payable with
respect to the Tax Returns referred to in the preceding clause have been paid;
(iii) no deficiency in
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respect of any Taxes which has been assessed against it remains unpaid and it
has no knowledge of any unassessed Tax deficiencies or of audits or
investigations pending or threatened against it with respect to any Taxes; (iv)
no claim has ever been made by any Tax authority in a jurisdiction in which its
Group does not file Tax Returns that it is or may be subject to taxation by that
jurisdiction; and (v) there are no Liens for Taxes upon any asset of its Group
except for Liens for current Taxes not yet due. For purposes of this Agreement,
"Taxes" means any taxes, duties, assessments, fees, levies, or similar
governmental charges, together with any interest, penalties, and additions to
tax, imposed by any taxing authority, wherever located (i.e. whether federal,
state, local, municipal, or foreign), including, without limitation, all net
income, gross income, gross receipts, net receipts, sales, use, transfer,
franchise, privilege, profits, social security, disability, withholding,
payroll, unemployment, employment, excise, severance, property, windfall
profits, value added, ad valorem, occupation, or any other similar governmental
charge or imposition.
4.12 Absence of Undisclosed Liabilities. Its Group has no Liabilities, except as
set forth in its balance sheet at June 30, 1996, or in the case of JIS, its SEC
Reports, or in its Disclosure Schedule and except for those Liabilities arising
and outstanding since June 30, 1996 in the ordinary course of business of its
Group in accordance with past practice or related to the actions and
transactions contemplated hereby or under any contract which is disclosed in its
Disclosure Schedule. "Liability" means any material liability, indebtedness,
obligation, expense, claim, deficiency, guaranty or endorsement of or by any
person (other than endorsements of notes, bills and checks presented to banks
for collection or deposit in the ordinary course of business) of any type,
whether accrued, absolute, contingent, matured, unmatured or other.
4.13 Title to Assets. Its Group owns outright and has good and marketable title
to all of the assets of its Group reflected on the balance sheets included in
its Financial Statements disclosed in Section 4.9, free and clear of all Liens,
except liens reflected in its Financial Statements, liens for current taxes not
yet delinquent, liens imposed by law and incurred in the ordinary course of
business for obligations not yet due to carriers, warehousemen, laborers,
materialmen, and the like, liens in respect of pledges or deposits under
workers' compensation laws or similar legislation, and minor defects in title,
none of which, individually or in the aggregate, materially interferes with the
use of such property.
4.14 Intellectual Property. Except as disclosed in its Disclosure Schedule, its
Group has either (i) sufficient title and ownership of all patents, trademarks,
service marks, trade names, copyrights, trade secrets, information, proprietary
rights and processes (collectively, "Intellectual Property"), necessary for its
business and operations (as now conducted and as proposed to be conducted)
without any conflict with or infringement of the right of others, or (ii) where
it does not own the necessary Intellectual Property, it has acquired rights to
use such Intellectual Property under licenses granted to its Group by the owner
of such Intellectual Property.
4.15 Contracts. Except as disclosed in the Disclosure Schedule, all material
contracts, agreements, commitments, leases, mortgages, instruments or other
documents ("Contracts") to which its Group is a party are valid, binding and
enforceable in accordance with their respective terms, except to the extent that
enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization or other similar laws relating to or affecting the enforcement of
creditors' rights generally and by principles of equity regarding the
availability of remedies. Its Group has fulfilled, or taken all action necessary
to enable it to fulfill when due, all of its obligations under each of such
Contracts.
4.16 Compliance with Regulations and Court Orders. Its Group is not in violation
of, and the assets of its Group have not been used or operated by its Group or
any other person or entity in violation of, any Regulation or Court Order (as
hereinafter defined), except for such violations as do not subject its Group to
significant penalties or the compliance with which would not have a Material
Adverse Effect on its Group. All Court Orders to which its Group is a party or
subject to are listed in its Disclosure Schedule. Its Group has made all filings
or notifications and has obtained all licenses required to be made or obtained
by its Group under any Regulation applicable to its Group or its business or
assets. "Court Order" means any judgment, decree, injunction, order or ruling of
any Regulatory Body that is binding on the designated party, its Subsidiaries or
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their properties under applicable law. "Regulatory Body" means any court or
governmental department, commission, board, bureau, agency, instrumentality, or
body, federal, state or local, domestic or foreign.
4.17 Environmental Matters. Except as set forth on its Disclosure Schedule, to
its knowledge:
4.17.1 Its Group has been and are in material compliance with all
applicable federal, state and local law or regulation concerning or relating to
industrial hygiene or the protection of health and/or the environment (the
"Environmental Laws");
4.17.2 There are no conditions on, about, beneath or arising from any
properties owned or leased by its Group which would give rise to any liability
under any applicable Environmental Law or which would require any Response,
Removal or Remedial Action, as such terms are defined in Section 101 of the
Comprehensive Environmental, Compensation and Liability Act, 42 U.S.C. ss.ss.
9601 et seq. (1995), as amended, by such party;
4.17.3 Its Group has obtained and possesses all permits, licenses,
approvals and other authorizations necessary under any applicable Environmental
Law for the operation of its business except as would not have a Material
Adverse Effect;
4.17.4 Its Group has not received any notification of a release or threat
of a release of any substance regulated under any of the Environmental Laws
("Hazardous Substance") at any site or location owned or operated by that party;
and
4.17.5 Its Group has not disposed of, transported or caused to be
transported any Hazardous Substance on or to any on-site or off-site location
which location currently is the subject of a federal, state or local enforcement
action or other investigation or for which claims have been asserted against
such party for clean-up costs, remedial work or damages to natural resources.
4.18 Litigation. Except as set forth in the Disclosure Schedule, there is no
Litigation (as hereinafter defined) pending or, to its knowledge, threatened
against its Group or its business or assets, and no event known to its Group has
occurred and no claim has been asserted against its Group that might result in
Litigation against its Group or its business or assets; and to, the best of its
Group's knowledge, there is no reasonable basis for any such claim. "Litigation"
means any lawsuit, action, arbitration, administrative or other proceeding,
criminal prosecution or governmental investigation or inquiry involving or
affecting the designated party or any of its Subsidiaries, the business, the
assets or any Contracts to which the designated party or any of its Subsidiaries
is a party or by which they or any of their assets or business may he bound or
affected.
4.19 Insurance. Except as set forth in the Disclosure Schedule, it is presently
insured, and has been insured against such risks as companies engaged in a
similar business would, in accordance with good business practice, customarily
be insured. The policies of fire, theft, liability and other insurance
maintained with respect to the assets or business of each Company provide
adequate coverage against loss.
4.20 Employee Benefit Plans. Except as described in the Disclosure Schedule, its
Group does not maintain or contribute to any employee pension benefit plan
("Pension Plan"), as defined in section 3(2) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), any employee welfare benefit plan,
as defined in section 3(1) of ERISA, or any other plan or arrangement providing
compensation or benefits to its employees or former employees (collectively
"Benefit Plans"). To the knowledge of its Group, each Benefit Plan maintained by
its Group has been administered in compliance with its terms and is in
compliance with the applicable provisions of ERISA, the Code and other
applicable Laws. To the knowledge of its Group, its Group knows of no inquiries
or proceedings pending or threatened by any governmental department or agency,
or by any participant or beneficiary, with respect to any Benefit Plan now or
formerly maintained by its Group or to which it has contributed. Its Group has
made or provided for all contributions to Benefit Plans required by the terms of
such Benefit Plans or applicable Laws. Its Group has never contributed or been
required to
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contribute to any multiemployer plan, as defined in section 3(37) of ERISA.
Other than required "COBRA" coverage, its Group has never provided health or
life insurance coverage to former employees. Its Group has never maintained a
Pension Plan which was a defined benefit plan.
4.21 Registration Statement; Etc. None of the information supplied or to be
supplied by its Group for inclusion or incorporation by reference in (i) the
registration statement on Form S-4 to be filed by Judge with the SEC in
connection with the issuance of Judge Common Shares in the Merger will, at the
time it is filed with the Commission or at the time it becomes effective under
the 1933 Act, or at the Effective Time of the Merger, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, or
(ii) the proxy statement forming a part of the Registration Statement used by
JIS to solicit proxies for the purpose of obtaining its Requisite Stockholder
Approval (the "Proxy Statement"), will, when mailed and at all times through the
date of the JIS stockholders' meeting disclosed in Section 5.2 contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein, or necessary to make the statements therein, not
misleading. All documents that each Company is responsible for filing with the
SEC or any Regulatory Body in connection with the transactions contemplated
hereby will comply as to form in all material respects with the provisions of
applicable law, including applicable provisions of the 1933 Act, the 1934 Act
and the rules and regulations thereunder.
4.22 Subsequent Events. Except as set forth in its Disclosure Statement and
except for the transactions contemplated hereby, since June 30, 1996 (i) there
has been no actual or threatened change in the business of its Group or, to the
best of its Group's knowledge, any event, condition or state of facts, in either
case that is material and adverse to its Group or its business or assets, (ii)
it has not declared, set aside or made payment of any dividend or distribution
of assets to the holders of any class or series of capital stock , nor has it
repurchased or redeemed any shares of its capital stock, (iii) its Group has
conducted its business only in the ordinary course consistent with past
practice, and (iv) there has not occurred any of the events described in Section
5.5 hereof.
4.23 Intentionally omitted.
4.24 Fairness Opinion. In the case of JIS only, JIS has been advised in writing
by Janney Montgomery Scott Inc. ("Janney") that the consideration to be received
by the stockholders of JIS in the Merger (the "Merger Consideration") taken as a
whole is fair to such stockholders from a financial point of view.
4.25 Section 203 of the DGCL Not Applicable. In the case of JIS only, the
provisions of Section 203 of the DGCL will not, prior to the termination of this
Agreement, apply to this Agreement or to the transactions contemplated hereby.
4.26 Broker's and Finder's Fee. No person acting on behalf of it or under its
authority is or will be entitled to any broker's or finder's fee or any other
commission or similar fee directly or indirectly in connection with the
completion of the Merger, other than the fees payable to Janney for its services
in issuing its opinion disclosed in Section 4.24.
SECTION 5
ADDITIONAL COVENANTS AND AGREEMENTS
5.1 Registration Statement and Proxy Statement. Judge and JIS shall, in
compliance with the 1934 Act, prepare as promptly as practicable the Proxy
Statement to be used by JIS to solicit the approval of its stockholders of this
Agreement and the Merger. Judge, in cooperation with and with the assistance of
JIS, shall promptly prepare and cause to be filed with the SEC its Registration
Statement on Form S-4 in compliance with the 1933 Act. The Registration
Statement shall register the issuance of the Merger Shares. Judge and JIS shall
use their best efforts to cause such Registration Statement to be declared
effective as promptly as practicable. JIS shall furnish to Judge all information
concerning its Group and the stockholders of JIS as may be reasonably
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requested in connection with such filing. Judge shall take any action required
to be taken under any applicable state securities or "blue-sky" laws in
connection with the issuance of Judge Shares in the Merger. If requested by
Judge, JIS shall use its best efforts to cause to be delivered to Judge a letter
of Rudolph Palitz LLP, JIS's auditors, dated a date within two business days
before the date on which the Registration Statement shall become effective and
addressed to Judge in form and substance reasonably satisfactory to Judge and
customary in scope and in substance for letters delivered by independent public
accountants in connection with registrations statements similar to the
Registration Statement.
5.2 Stockholder Meeting. Each of JIS and Judge shall, as soon as practicable and
in accordance with applicable law, call and hold a stockholders' meeting to
obtain its Requisite Stockholder Approval. Subject to its fiduciary obligations,
the board of directors of each party will unanimously recommend to its
stockholders approval of the Merger and this Agreement and each party shall take
all such actions consistent with the fiduciary obligations of such boards to
obtain such approvals as promptly as practicable, including without limitation
in the case of JIS the solicitation of proxies by means of the Proxy Statement.
5.3 Regulatory and Contract Approvals. Each of Judge and JIS shall use their
best efforts to obtain as soon as practicable all approvals, consents and
permits from all Regulatory Bodies and all consents required under the terms of
any Contract which are required in connection with the consummation of the
Merger.
5.4 Access to Information. From the date of this Agreement to the Closing Date,
each party will give to the other party and its officers, employees, counsel,
accountants and other representatives free and full access to and the right to
inspect, during normal business hours, all of the assets, records, Contracts and
other documents relating to its business as the other party may reasonably
request. Neither party will use such information for purposes other than in
connection with the Merger and each party will otherwise hold such information
in confidence until such time as such information otherwise becomes publicly
available, and in the event of termination of this Agreement for any reason will
promptly return, or cause to be returned, to the other party all nonpublic
documents obtained from the other party, and any copies made of such documents.
5.5 Conduct of Business Pending Closing. Until the Closing Date, except as set
forth in its Disclosure Schedule and except for the proposed acquisition of
Berkeley Associates Corporation and Systems Automation, Inc. by Judge or as may
be approved by the parties in writing or otherwise expressly provided in this
Agreement, each of JIS and Judge shall operate its businesses only in the
ordinary course and in substantially the same manner as it has been operated in
the past.
5.6 Indemnification. If the Merger is completed, all rights to indemnification
(including advancement of expenses) existing on the date hereof in favor of the
present or former officers and directors of JIS with respect to actions taken in
their capacities as directors or officers of JIS prior to the Effective Time as
provided in the Certificate of Incorporation of JIS, the Bylaws of JIS or any
indemnification agreements, prior to the Effective Time, shall survive the
Merger and continue in full force and effect as obligations of the Surviving
Corporation, the performance of which Judge hereby guarantees.
5.7 Public Announcements. JIS and Judge shall cooperate with each other in
releasing information concerning this Agreement and the transactions
contemplated herein. Where practicable each of the parties shall furnish to the
other drafts of all releases prior to publication. Nothing contained herein
shall prevent either party at any time from furnishing any information to any
governmental agency or from issuing any release where it reasonably believes it
is legally required to do so.
5.8 No Solicitation. JIS shall cause its officers, employees, representatives
and agents not to, directly or indirectly, continue, encourage, solicit,
initiate or (except as may be reasonably required to satisfy the fiduciary
duties of its board of directors) participate in discussions or negotiations
with, or provide any nonpublic information to, any person other than the other
party or its affiliates or any group in which the other party or its affiliates
participates, concerning any sale of assets (other than in the ordinary course
of its business consistent with past practice) or shares of capital stock, or
any merger, consolidation, recapitalization, liquidation or
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similar transaction (collectively, an "Acquisition Transaction"). JIS will
promptly communicate to Judge the terms of any inquiry or proposal which it may
receive in respect of an Acquisition Transaction. Judge's notification under
this Section 5.9 shall include the identity of the person making such proposal,
the terms of such proposal and any other information with respect thereto as
Judge may reasonably request.
5.9 Notification of Certain Matters. JIS shall give prompt notice to Judge and
Acquisition, and Judge and Acquisition shall give prompt notice to JIS, of (i)
the occurrence, or failure to occur, of any event which such party believes
would likely cause any of its representations or warranties contained in this
Agreement to be untrue or inaccurate in any material respect at any time from
the date of this Agreement to the Effective Time and (ii) any material failure
of JIS, Judge or Acquisition, as the case may be, or any officer, director,
employee or agent thereof, to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder.
5.10 Rule 145 Affiliates.
5.10.1 Promptly following the execution of this Agreement, JIS shall
identify in a letter to Judge all persons who might, at the time of its
stockholders' meeting at which the Merger is to be voted upon by its
stockholders, be deemed to be an affiliate of JIS within the meaning of Rule 145
("Rule 145 Affiliate").
5.10.2 JIS shall use all reasonable efforts to deliver to Judge as soon as
practicable and in any case prior to the Effective Time an agreement signed by
each such Rule 145 Affiliate of JIS regarding compliance with Rule 145, which
agreement (the "Affiliate Agreements") shall be in substantially the form of
Exhibit 5.10.2.
5.10.3 Judge shall be entitled to place legends on the certificates
evidencing Judge Common Shares to be received by such Rule 145 Affiliates
pursuant to the terms of this Agreement, and to issue appropriate stop transfer
instructions to the transfer agent for Judge Common Shares, consistent with the
terms of such Affiliate Agreements, whether or not such Affiliate Agreements are
actually delivered to Judge.
SECTION 6
CONDITIONS TO THE MERGER
Subject to waiver as set forth in Section 7.7, the obligations of each
party under this Agreement are subject to the fulfillment prior to or at the
Closing of each of the following conditions:
6.1 Stockholder Approval. This Agreement shall have been adopted at or prior to
the Effective Time (i) by the Requisite Stockholder Approval of JIS in
accordance with the DGCL and Dissenters, if any, shall not hold in the aggregate
ten percent (10%) or more of the shares of JIS Common Shares and JIS Series A
Preferred Shares outstanding immediately prior to the Effective Time (assuming
the conversion of the JIS Series A Preferred Shares into JIS Common Shares
immediately prior to the Effective Time), and (ii) by the Requisite Stockholder
Approval of Judge.
6.2 Representations True at Closing. The representations and warranties of the
other party set forth in Section 4 shall be true and correct in all material
respects on the Closing Date with the same effect if made at that time.
6.3 Performance. The other party shall have performed and satisfied all
agreements and conditions which it is required by this Agreement to perform or
satisfy prior to or on the Closing Date.
6.4 Certificates. The other party shall have provided a certificate signed in
its name by its chief executive officer and chief financial officer, dated the
Closing Date, certifying in such detail as may be reasonably requested that each
of its conditions described in Section 6.2 and 6.3 has been fulfilled by the
other party. The other party shall have provided a certificate signed by its
secretary, dated the Closing Date, certifying that its Certificate of
Incorporation, or its Articles of Incorporation, as the case may be, and Bylaws
are true, correct
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and complete as of the Closing Date and further certifying that the resolutions
adopted by its board of directors and stockholders attached thereto in
connection with the transactions contemplated hereby are true, correct and
complete.
6.5 Tax Opinion. Judge and JIS shall have received from Drinker Biddle & Reath a
written opinion, in form and substance reasonably satisfactory to them, to the
effect that the Merger, when effected in accordance with this Agreement, will
qualify as a reorganization under Section 368(a) of the Code and Judge, JIS and
Acquisition will constitute parties to such reorganization.
6.6 Litigation Affecting Closing. No Court Order shall have been issued or
entered which would be violated by the completion of the Merger, and no person
who or which is not a party to this Agreement shall have commenced any
Litigation seeking to restrain or prohibit, or to obtain substantial damages in
connection with, this Agreement or the transactions contemplated by this
Agreement which, in each case, would or is reasonably likely to result in a
Material Adverse Effect to a party.
6.7 Material Adverse Effect. From the date hereof to the Closing Date, no party
hereto shall have suffered a Material Adverse Effect in any way, including,
without limitation, by fire, casualty, act of God or otherwise and there shall
be no conditions existing or threatened that might reasonably be expected to
have a Material Adverse Effect on such party.
6.8 Registration Statement. The Registration Statement shall have been declared
effective by the SEC. No stop order suspending the effectiveness of the
Registration Statement shall have been issued by the SEC and no proceedings for
that purpose shall have been initiated or threatened by the SEC, and all
approvals, consents, permits, licenses or qualifications from authorities
administering the securities or "blue-sky" laws of any state having jurisdiction
required for the consummation of the Merger shall have been obtained and shall
be effective.
6.9 Affiliate Agreements. Judge shall have received from each Rule 145 Affiliate
an executed Affiliate Agreement in form satisfactory to Judge.
6.10 Conversion Transactions. The Conversion Transactions shall have been
consummated.
6.11 Public Offering. The managing underwriter of the Public Offering shall have
advised the parties that the Public Offering will be completed immediately
following the Effective Time of the Merger.
6.12 Regulatory Compliance, Approvals and Consents. Each party shall have
complied with all Regulations applicable to the Merger, and all approvals
required under any Regulations to carry out the Merger and consents required to
be obtained in connection with the Merger in order to avoid a default under any
Contract to or by which the other party is a party or may be bound shall have
been obtained on terms reasonably satisfactory to each party.
6.13 Stock Exchange Listing. Judge shall have applied for the inclusion of the
Merger Shares on The Nasdaq National Market.
SECTION 7
TERMINATION AND ABANDONMENT
7.1 Termination by Mutual Consent. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the filing of the Certificate of
Merger, before or after obtaining the Requisite Stockholder Approvals, by the
mutual consent of JIS, Judge and Acquisition, by action of their respective
boards of directors.
7.2 Termination by JIS, Judge or Acquisition. This Agreement may be terminated
and the Merger may be abandoned by action of either the board of directors of
JIS or the boards of directors of, Judge and Acquisition
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if (i) the Merger shall not have been consummated on or before March 31, 1997,
or such later date as may be mutually agreed to by the parties hereto, provided
that the party seeking to terminate this Agreement is not otherwise in breach in
any material respect of any of its obligations hereunder or (ii) any court of
competent jurisdiction shall have issued an order, decree or ruling or taken any
other action restraining, enjoining or otherwise prohibiting the Merger and such
order, decree, ruling or other action shall have become final and nonappealable.
7.3 Termination by JIS. This Agreement may be terminated and the Merger may be
abandoned by action of the board of directors of JIS if (i) Judge or Acquisition
shall have failed to comply in any material respect with any of the covenants or
agreements contained in this Agreement to be complied with or performed by it at
or prior to the Effective Time and such failure has not been cured within 30
days after receipt of notice thereof, or (ii) the board of directors of Judge
shall not recommend to its stockholders the approval of this Agreement, or shall
withdraw or modify in a manner adverse to JIS its approval or recommendation of
the Merger.
7.4 Termination by Judge and Acquisition. This Agreement may be terminated and
the Merger may be abandoned by action of the boards of directors of Judge and
Acquisition if (i) JIS shall have failed to comply in any material respect with
any of the covenants or agreements contained in this Agreement to be complied
with or performed by it at or prior to the Effective Time and such failure has
not been cured within 30 days after receipt of notice thereof, or (ii) the board
of directors of JIS shall not recommend to its stockholders the approval of this
Agreement, or shall withdraw or modify in a manner adverse to Judge or
Acquisition its approval or recommendation of the Merger.
7.5 Effect of Termination. Except as provided in Section 5.4 hereof with respect
to information obtained in connection with the transactions contemplated hereby,
in the event of the termination of this Agreement, and the abandonment of the
Merger, this Agreement shall thereafter become void and have no effect, and no
party thereto shall have any liability to any other party hereto or its
stockholders or directors or officers in respect thereof, and each party shall
be responsible for its own costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby, except that nothing herein
shall relieve any party from liability for any willful breach hereof.
7.6 Amendment. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto, except as set forth in
Section 7.7.
7.7 Waiver. Any time prior to the Effective Time, any party hereto may (i) in
the case of Judge or Acquisition, extend the time for the performance of any of
the obligations or other acts of JIS or waive compliance with any of the
agreements of JIS or with any conditions to the respective obligations of Judge
or Acquisition, or (ii) in the case of JIS, extend the time for the performance
of any of the obligations or other acts of Judge or Acquisition, or waive
compliance with any conditions to its own obligations. Any agreement on the part
of a party hereto to any such extension or waiver shall be valid if set forth in
an instrument in writing signed on behalf of such party by a duly authorized
officer.
SECTION 8
MISCELLANEOUS
8.1 Notices. Any notices or other communications required or permitted hereunder
shall be sufficiently given if sent by facsimile transmission, registered or
certified mail, postage prepaid, or Federal Express or similar overnight
delivery addressed, in the case of JIS, to it at:
A-14
<PAGE>
Judge Imaging Systems, Inc.
Two Bala Plaza, Suite 800
Bala Cynwyd, PA 19004
Attention: Martin E. Judge, Jr.
Facsimile No. 610-664-7090
or, in the case of Judge and Acquisition, to them at:
The Judge Group, Inc.
Two Bala Plaza, Suite 800
Bala Cynwyd, PA 19004
Attention: Martin E. Judge, Jr.
Facsimile No. 610-664-7090
or such other address as shall be furnished in writing by any party to the
others prior to the giving of the applicable notice or communication.
8.2 Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
8.3 Headings. The headings herein are for convenience of reference only, do not
constitute a part of this Agreement, and shall not be deemed to limit or affect
any of the provisions of this Agreement.
8.4 No Survival of Representations or Warranties. None of the representations
and warranties included or provided for herein or in any schedule or certificate
or other document delivered pursuant to this Agreement shall survive
consummation of the Merger.
8.5 Entire Agreement. This Agreement, which includes the Exhibits and Disclosure
Schedules hereto constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, among the parties, with
respect to the subject matter of this Agreement.
8.6 Cooperation. Subject to the terms and conditions of this Agreement, each of
the parties hereto shall use its reasonable best efforts to take, or cause to be
taken, such action, to execute and deliver, or cause to be executed and
delivered, such governmental notifications and additional documents and
instruments and to do, or cause to be done, all things necessary, proper or
advisable under the provisions of this Agreement and under applicable law to
consummate and make effective the transactions contemplated by this Agreement,
and neither JIS nor Judge shall take any action in conflict with or contrary to
the stated intention of JIS and Judge that the Merger qualify as a tax-free
reorganization pursuant to Section 368(a) of the Code.
8.7 No Third Party Rights. Nothing in this Agreement, express or implied, is
intended to confer upon any other person, other than the persons indemnified
under Section 5.6, any rights or remedies under or by reason of this Agreement.
8.8 No Assignment. This Agreement shall not be assigned, by operation of law or
otherwise.
A-15
<PAGE>
8.9 Governing Law. This Agreement shall be governed in all respects, including
without limitation validity, interpretation and effect, by the laws of the
Commonwealth of Pennsylvania, applicable to contracts made and to be performed
in such Commonwealth.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
JUDGE IMAGING SYSTEMS, INC.
By: /s/ MARTIN E. JUDGE, JR.
------------------------------------
Name: Martin E. Judge, Jr.
Title: President
THE JUDGE GROUP, INC.
By: /s/ MARTIN E. JUDGE, JR.
------------------------------------
Name: Martin E. Judge, Jr.
Title: Chief Executive Officer
JUDGE ACQUISITION, INC.
By: /s/ MARTIN E. JUDGE, JR.
------------------------------------
Name: Martin E. Judge, Jr.
Title: Chief Executive Officer
A-16
<PAGE>
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,
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.
B-1
<PAGE>
Board of Directors/Judge Imaging Systems, Inc.
September 4, 1996
Page 2
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.
B-2
<PAGE>
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 (other than a merger effected pursuant to
subsection (g) of Section 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
as provided in subsection (f) 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:
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.
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<PAGE>
(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 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 ss. 228 or
ss. 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 holder's 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 on the day next preceding the day on
which the notice is given.
C-2
<PAGE>
(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 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 to 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
such 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, 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
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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 deems 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.
(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.
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<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<CAPTION>
PAGE(S)
--------------
<S> <C>
INDEPENDENT AUDITORS' REPORT AS OF DECEMBER 31, 1995 AND 1994 AND FOR EACH OF THE THREE YEARS IN
THE PERIOD ENDED DECEMBER 31, 1995.............................................................. F-2
CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 1996 (UNAUDITED) AND DECEMBER 31, 1995 AND 1994... F-3
CONSOLIDATED STATEMENTS OF OPERATIONS FOR NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED) AND YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993.................................... F-4
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED) AND YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993.................................... F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED) AND YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993.................................... F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED) AND YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993.................................... F-7 - F-27
</TABLE>
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<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
The Judge Group, Inc.
Bala Cynwyd, Pennsylvania
We have audited the accompanying consolidated balance sheets of The Judge Group,
Inc. (formerly Judge, Inc.) and Subsidiaries as of December 31, 1995 and
December 31, 1994, and the related consolidated statements of operations,
shareholders' equity, and of cash flows for each of the three years in the
period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The Judge Group,
Inc. (formerly Judge, Inc.) and Subsidiaries as of December 31, 1995 and
December 31, 1994, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
As discussed in Note 10 to the financial statements, the Company adopted
Statement of Financial Accounting Standards No. 109, 'Accounting for Income
Taxes,' as of January 1, 1993.
/s/ Rudolph, Palitz LLP
September 30, 1996
Plymouth Meeting, PA
F-2
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 (UNAUDITED) AND DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
SEPTEMBER
30, DECEMBER 31,
---------------------
1996
----------- 1995 1994
---------- ---------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash...................................................................... $ 153,942 $ 35,078 $ 82,928
Accounts receivable, net.................................................. 12,956,917 8,881,059 6,418,697
Inventories............................................................... 912,303 515,099 232,705
Prepaid income taxes and deferred taxes................................... 334,976 347,352 127,000
Other..................................................................... 993,948 508,640 103,997
----------- ---------- ---------
Total current assets.................................................... 15,352,086 10,287,228 6,965,327
----------- ---------- ---------
PROPERTY AND EQUIPMENT
Furniture, office and computer equipment.................................. 3,570,438 1,732,677 1,545,784
Automotive equipment...................................................... 37,936 48,617 40,544
Leasehold improvements.................................................... 46,565 28,069 15,158
----------- ---------- ---------
3,654,939 1,809,363 1,601,486
Less: accumulated depreciation and amortization........................... 1,774,499 875,552 1,009,422
----------- ---------- ---------
Net property and equipment.............................................. 1,880,440 933,811 592,064
----------- ---------- ---------
OTHER ASSETS
Notes receivable, officers and employees.................................. 431,890 222,564 169,738
Other receivable, related party........................................... 155,908 -- --
Deposits.................................................................. 108,183 94,317 45,752
Goodwill.................................................................. 3,259,202 -- --
Covenant not-to-compete, net of accumulated amortization of $602,589,
1996, $508,645, 1995 and $358,131, 1994................................. -- 93,944 244,458
----------- ---------- ---------
Total other assets...................................................... 3,955,183 410,825 459,948
----------- ---------- ---------
Total assets............................................................ $21,187,709 $11,631,864 $8,017,339
----------- ---------- ---------
----------- ---------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Note payable, bank........................................................ $ -- $ -- $2,748,666
Current portion of long-term debt......................................... 940,709 280,420 324,427
Convertible notes......................................................... 500,000 -- --
Current portion of payroll tax obligation................................. -- 321,391 230,427
Accounts payable and accrued expenses..................................... 5,669,388 3,277,546 2,344,295
Payroll and sales taxes................................................... 606,438 396,735 463,955
Income taxes payable...................................................... 42,981 6,968 252,727
Other notes payable....................................................... 196,193 -- --
Deferred revenue.......................................................... 1,333,661 297,362 82,151
Advances from shareholders................................................ 105,263 139,906 189,699
----------- ---------- ---------
Total current liabilities............................................... 9,394,633 4,720,328 6,636,347
----------- ---------- ---------
LONG-TERM LIABILITIES
Note payable, bank........................................................ 7,146,185 5,367,516 --
Deferred rent obligation.................................................. 137,038 156,943 117,902
Debt obligations, net of current portion.................................. 3,272,328 496,012 536,273
Convertible notes......................................................... -- 500,000 500,000
Payroll tax obligation, net of current portion............................ -- -- 321,392
----------- ---------- ---------
Total long-term liabilities............................................. 10,555,551 6,520,471 1,475,567
----------- ---------- ---------
MINORITY INTEREST........................................................... 271,248 -- --
----------- ---------- ---------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIT)
Common stock, at September 30, 1996, $.01 par value, 50,000,000 shares
authorized, 8,587,739 shares issued and outstanding; December 31, 1995 and
1994, $.005 par value, 10,000,000 shares authorized, 160,000 shares
issued and outstanding.................................................. 85,877 800 800
Additional paid-in capital................................................ 365,877 626,848 626,848
Retained earnings (deficit)............................................... 514,523 (236,583) (722,223)
----------- ---------- ---------
Total shareholders' equity (deficit).................................... 966,277 391,065 (94,575)
----------- ---------- ---------
Total liabilities and shareholders' equity (deficit).................... $21,187,709 $11,631,864 $8,017,339
----------- ---------- ---------
----------- ---------- ---------
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED)
AND YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
-------------------------- ----------------------------------------
1996 1995 1995 1994 1993
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET REVENUES............................... $ 58,914,238 $ 46,876,520 $ 63,299,353 $ 45,253,417 $ 35,068,867
------------ ------------ ------------ ------------ ------------
COSTS AND EXPENSES
Cost of sales (Exclusive of items shown
separately below)...................... 43,232,381 35,273,352 47,550,114 34,146,215 26,069,583
Selling and operating.................... 10,022,739 6,841,426 9,797,875 6,509,549 5,853,608
General and administrative............... 4,310,467 3,199,229 4,187,485 3,155,012 2,524,824
------------ ------------ ------------ ------------ ------------
Total costs and expenses............... 57,565,587 45,314,007 61,535,474 43,810,776 34,448,015
------------ ------------ ------------ ------------ ------------
INCOME FROM OPERATIONS..................... 1,348,651 1,562,513 1,763,879 1,442,641 620,852
OTHER EXPENSE, NET, PRINCIPALLY INTEREST
EXPENSE.................................. (599,597) (545,034) (697,339) (419,590) (334,004)
------------ ------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAX EXPENSE, MINORITY
INTEREST IN NET LOSS OF CONSOLIDATED
SUBSIDIARY AND CUMULATIVE EFFECT
ADJUSTMENT............................... 749,054 1,017,479 1,066,540 1,023,051 286,848
INCOME TAX EXPENSE......................... 614,700 498,336 587,957 679,800 227,460
------------ ------------ ------------ ------------ ------------
INCOME BEFORE MINORITY INTEREST IN NET LOSS
OF CONSOLIDATED SUBSIDIARY AND CUMULATIVE
EFFECT ADJUSTMENT........................ 134,354 519,143 478,583 343,251 59,388
MINORITY INTEREST IN NET LOSS OF
CONSOLIDATED SUBSIDIARY.................. 616,752 -- 7,057 -- --
------------ ------------ ------------ ------------ ------------
INCOME BEFORE CUMULATIVE EFFECT
ADJUSTMENT............................... 751,106 519,143 485,640 343,251 59,388
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE................................ -- -- -- -- 42,000
------------ ------------ ------------ ------------ ------------
NET INCOME................................. $ 751,106 $ 519,143 $ 485,640 $ 343,251 $ 101,388
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
NET INCOME PER SHARE:
PRIMARY:
Income before cumulative effect
adjustment............................. $0.08 $0.06 $0.06 $0.04 $0.01
Cumulative effect adjustment............. -- -- -- -- --
------------ ------------ ------------ ------------ ------------
$0.08 $0.06 $0.06 $0.04 $0.01
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
FULLY DILUTED:
Income before cumulative effect
adjustment............................. $0.08 $0.06 $0.06 $0.04 $0.01
Cumulative effect adjustment............. -- -- -- -- --
------------ ------------ ------------ ------------ ------------
$0.08 $0.06 $0.06 $0.04 $0.01
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
AND YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED
---------------------- PAID-IN EARNINGS
SHARES ADDITIONAL CAPITAL (DEFICIT) TOTAL
--------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1993............................ 160,000 $ 800 $ 626,848 ($1,166,862) ($ 539,214)
Net Income.......................................... -- -- -- 101,388 101,388
--------- ----------- ----------- ----------- ----------
Balance, December 31, 1993.......................... 160,000 800 626,848 (1,065,474) (437,826)
Net Income.......................................... -- -- -- 343,251 343,251
--------- ----------- ----------- ----------- ----------
Balance, December 31, 1994.......................... 160,000 800 626,848 (722,223) (94,575)
Net Income.......................................... -- -- -- 485,640 485,640
--------- ----------- ----------- ----------- ----------
Balance, December 31, 1995.......................... 160,000 800 626,848 (236,583) 391,065
Merger transactions (Notes 13 and 17)............... -- -- (175,910) -- (175,910)
Stock split, 52.6 for 1.0 (Note 13)................. 8,256,000 83,360 (83,360) -- --
Exercise of Warrants (Note 13)...................... 171,739 1,717 (1,701) -- 16
Net Income.......................................... -- -- -- 751,106 751,106
--------- ----------- ----------- ----------- ----------
Balance, September 30, 1996......................... 8,587,739 $ 85,877 $ 365,877 $ 514,523 $ 966,277
--------- ----------- ----------- ----------- ----------
--------- ----------- ----------- ----------- ----------
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED)
AND YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
---------------------- ----------------------------------
1996 1995 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income....................................... $ 751,106 $ 519,143 $ 485,640 $ 343,251 $ 101,388
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization.................. 396,414 317,835 421,613 340,708 286,273
Deferred taxes................................. -- -- (103,000) (60,000) (67,000)
Deferred rent.................................. (19,905) 45,678 39,041 117,902 --
Provision for losses on accounts receivable.... 369,528 201,080 300,033 71,697 58,655
Stock compensation............................. -- -- 6,000 -- --
Minority interest in net loss of
consolidated subsidiary...................... (616,752) -- (7,057) -- --
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable............................ (3,741,379) (3,161,667) (2,762,395) (2,221,822) (1,145,179)
Inventories.................................... (278,728) (544,311) (282,394) 127,518 (208,551)
Deposits....................................... (2,527) (48,564) (48,565) (16,807) (1,915)
Prepaid taxes.................................. 60,687 (69,712) (117,352) 59,406 96,796
Other current assets........................... (521,312) (67,704) (404,643) (24,796) (50,703)
Other assets................................... (133,350) -- -- --
Increase (decrease) in:
Accounts payable and accrued expenses.......... 1,465,440 932,696 512,251 393,299 131,299
Payroll and sales taxes........................ (150,456) (92,613) (297,648) (168,965) 586,832
Deferred revenue............................... 187,065 (60,187) 215,211 (109,982) 124,882
Income taxes payable........................... 36,013 (322,165) (245,759) 252,727 --
---------- ---------- ---------- ---------- ----------
Net cash used in operating activities........ (2,198,156) (2,350,491) (2,289,024) (895,864) (87,223)
---------- ---------- ---------- ---------- ----------
INVESTING ACTIVITIES
Purchases of property and equipment.............. (442,930) (270,011) (373,051) (252,286) (91,465)
Purchase/acquisition of companies................ (554,448) -- -- -- --
Proceeds from disposals of property and
equipment...................................... -- 18,778 24,461 -- --
(Increase) in notes receivable, officers and
employees, net................................. (209,326) (2,824) (52,826) (56,743) (17,677)
---------- ---------- ---------- ---------- ----------
Net cash used in investing activities........ (1,206,704) (254,057) (401,416) (309,029) (109,142)
---------- ---------- ---------- ---------- ----------
FINANCING ACTIVITIES
Cash acquired in business combination............ 150,701 -- -- -- --
Proceeds from notes payable, bank, net........... 2,778,669 2,447,396 2,618,850 249,431 522,101
Proceeds from bank overdrafts.................... 321,000 408,000 421,000 917,000 --
Proceeds from (repayment of) long-term debt...... (580,019) 38,000 38,000 556,000 --
Principal payments on long-term debt............. -- (276,916) (386,524) (383,756) (275,462)
Proceeds from issuance of stock and exercise of
warrants....................................... 16 -- 1,057 -- --
Repayments from shareholders..................... (34,643) (31,170) (49,793) (64,028) (43,421)
Issuance of Series A Preferred Shares, net of
costs.......................................... 888,000 -- -- -- --
---------- ---------- ---------- ---------- ----------
Net cash provided by financing activities.... 3,523,724 2,585,310 2,642,590 1,274,647 203,218
---------- ---------- ---------- ---------- ----------
INCREASE (DECREASE) IN CASH...................... 118,864 (19,238) (47,850) 69,754 6,853
CASH, BEGINNING.................................. 35,078 82,928 82,928 13,174 6,321
---------- ---------- ---------- ---------- ----------
CASH, ENDING..................................... $ 153,942 $ 63,690 $ 35,078 $ 82,928 $ 13,174
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest......................................... $ 600,000 $ 517,000 $ 657,000 $ 405,000 $ 330,000
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Income taxes..................................... $ 300,000 $ 835,000 $1,056,000 $ 496,000 $ 214,000
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
NOTE 1. DESCRIPTION OF BUSINESS
On September 4, 1996, a special meeting of the Board of Directors was held
where Judge, Inc. changed its name to The Judge Group, Inc. (the 'Company'),
effected certain changes to its capital structure and authorized a stock split.
See Note 13. The Company, a Pennsylvania corporation founded in 1970, provides
(i) information technology ('IT') and engineering professionals to its clients
on both a temporary basis (through its 'Contract Placement' business) and a
permanent basis (through its 'Permanent Placement' business), (ii) computer
network and document management system integration, implementation, maintenance
and training (through its 'Imaging and Network Services' business) and (iii)
information technology training (through its 'IT Training' business) on a range
of software and network applications to corporate, governmental and individual
clients. At September 30, 1996, the Company had offices in Bala Cynwyd,
Pennsylvania; Hartford, Connecticut; Foxborough, Massachusetts; Wakefield,
Massachusetts; Tampa, Florida; Moorestown and Edison, New Jersey and Alexandria,
Virginia.
The Contract Placement business includes the operations of three of the
Company's wholly-owned subsidiaries, Judge Technical Services, Inc. ('JTS'),
Judge Professional Services, Inc. ('JPS') and Judge Technical Services of N.J.,
Inc. ('JTNJ').
The Permanent Placement business is comprised of the operations of the
Company and two of its wholly-owned subsidiaries, Judge Electronic Services of
Florida, Inc. ('JESF') and Judge Inc. of New Jersey ('JINJ').
The IT Training business is comprised of the operations of The Berkeley
Associates Corp. ('Berkeley'), a company acquired by the Company in September
1996 (see Note 4).
At December 31, 1995 the Company owned 33%, Martin E. Judge, Jr., the
Company's founder, Chairman and Chief Executive Officer owned 47%, and another
officer and director of the Company owned 5% of the outstanding voting shares,
on a fully diluted basis, of Judge Computer Corporation ('JCC'). On December 1,
1995, JCC entered into an Agreement and Plan of Merger (the 'JCC/DI Merger
Agreement') with DataImage, Inc. ('DI' or 'Data Image'), a public company, the
common stock of which was traded on the over-the-counter market. Pursuant to the
JCC/DI Merger Agreement, JCC was merged into DI on February 29, 1996 (the
'JCC/DI Merger'), and DI, as the surviving corporation, changed its name to
Judge Imaging Systems, Inc. ('JIS'). As a result of the merger, the former
shareholders of JCC hold, on a fully diluted basis, a majority of the
outstanding common stock of JIS, which remains a public company.
The Imaging and Network Services business of the Company consisted of the
operations of JCC prior to the JCC/DI Merger and JIS subsequent to the merger.
See Notes 14 and 17. In addition, the Company purchased the net assets and
liabilities of Systems Automation, Inc. ('Systems Automation') in September 1996
(see Note 4), a company that provides imaging and document management systems
and services.
During 1996, the Company engaged an investment banking firm to assist it in
a public offering of its common stock. On September 30, 1996, the Company filed
a Registration Statement on Form S-1 with the Securities and Exchange Commission
under the Securities Act of 1933. In connection with this proposed public
offering, the Company has incurred approximately $580,000 of accounting, legal,
printing and other costs as of September 30, 1996 and such costs are included in
other current assets in the accompanying consolidated balance sheet.
On September 4, 1996, The Boards of Directors of the Company and JIS
approved the merger of JIS into a newly-formed, wholly-owned subsidiary of the
Company (the 'Merger'). This Merger is subject to approval by the shareholders
of JIS and the successful public offering of the Company's common shares. The
terms of the Merger call for the conversion of each share of JIS common stock
and Series A preferred stock into $2.50 of value based on the public offering
price of The Judge Group, Inc. common stock. Based upon the expected offering
price of $10.00 per share, it is anticipated that approximately 900,000 shares
of The Judge Group, Inc. common stock will be issued to shareholders of JIS.
F-7
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 1. DESCRIPTION OF BUSINESS -- (CONTINUED)
Unless the context indicates otherwise, references to the Company herein
prior to February 29, 1996 include reference to its wholly-owned subsidiaries
and JCC and such references subsequent to February 29, 1996 include reference to
its wholly-owned subsidiaries and JIS.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company, JIS and the Company's wholly-owned subsidiaries, which include JTS,
JPS, JTNJ, JESF, Berkeley (as of and from the effective date of the acquisition
- -- see Note 4), JINJ (which had no activity in the period ended December 31,
1994 and December 31, 1993) and Judge Hospitality Services, Inc. and Judge
Electronic Services of Boston, Inc., (which had no activity during the nine
months ended September 30, 1996 or 1995, or during the three years in the period
ended December 31, 1995). JCC (prior to the JCC/DI merger) and JIS (subsequent
to the JCC/DI merger) have been consolidated due to certain elements of common
ownership and control being present. All significant intercompany accounts and
transactions have been eliminated.
The financial statements as of September 30, 1996 and for the nine months
ended September 30, 1995 and 1996 are unaudited; however, in the opinion of
management, such statements include all adjustments, consisting solely of normal
recurring adjustments, necessary for a fair presentation of the results for the
periods presented.
The interim financial statements should be read in conjunction with the
financial statements for the fiscal year ended December 31, 1995 and notes
thereto.
The results of operations for the interim periods are not necessarily
indicative of the results that might be expected for the future interim periods
or for the full year ended December 31, 1996.
Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Revenue Recognition in Contract Placement and Permanent Placement Businesses
The Company recognizes permanent placement revenues at the date employment
of the placed professional commences, subject to reversal and adjustments if
such employment is terminated during a guarantee period. Revenues related to
temporary placement services are recognized on a weekly basis as the services
are performed.
Revenue Recognition in Imaging and Network Services Business
Revenues from the sales of network, imaging and document management systems
is recognized at the date of shipment of the system, provided that any work to
complete installation of the system is routine in nature and costs are not
significant. The system components are assembled and tested in the Company's
facilities prior to delivery. Revenues are recorded in the period in which the
merchandise is shipped or the services are rendered. However, in instances in
which installation and development costs are significant to the completion of
the contract, revenue is recognized on a percentage of completion basis.
Revenues billed in advance for computer sales, warranties and maintenance
contracts are deferred and recorded as income in the period in which the
merchandise is shipped or the services
F-8
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
are rendered. Deferred revenues on the accompanying consolidated balance sheet
as of September 30, 1996 includes approximately $34,000 of billings in excess
of costs and estimated earnings on contracts-in-progress.
Revenue Recognition in IT Training Business
Tuition and fee revenues are recognized when the classes are held. Payments
received prior to the class commencing are recorded as deferred revenues.
Cash
The Company maintains cash balances at financial institutions. These
balances are insured by the Federal Deposit Insurance Corporation up to $100,000
at each institution.
Inventories
Inventories of computer and related supplies and equipment held for resale
are valued at the lower of cost (first-in, first-out) or market. Inventories at
September 30, 1996 include approximately $56,000 of costs and estimated earnings
in excess of billings on contracts-in-progress.
Accounts Receivable and Accounts Payable
Accounts receivable at September 30, 1996, December 31, 1995, 1994 and 1993
were net of allowances for doubtful accounts of $389,000, $174,000, $157,000 and
$132,000, respectively.
Included in accounts receivable was unbilled work-in-process of
approximately $1,344,000, $655,000 and $564,000 at September 30, 1996, December
31, 1995 and 1994, respectively. Included in accounts payable and accrued
expenses was approximately $979,000, $510,000 and $436,000 of accrued employee
and contractor payroll principally relating to unbilled work-in-process at
September 30, 1996, December 31, 1995 and 1994, respectively.
An analysis of the allowance for doubtful accounts follows:
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO DEDUCTIONS BALANCE AT
BEGINNING OF BAD DEBT (CHARGE END OF
YEAR ENDED DECEMBER 31, PERIOD EXPENSE OFFS) PERIOD
- ----------------------------------------------------------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
1995....................................................... $ 157,000 $ 300,000 ($ 283,000) $ 174,000
------------ ----------- ------------ -----------
------------ ----------- ------------ -----------
1994....................................................... $ 132,000 $ 72,000 ($ 47,000) $ 157,000
------------ ----------- ------------ -----------
------------ ----------- ------------ -----------
1993....................................................... $ 73,000 $ 59,000 -0- $ 132,000
------------ ----------- ------------ -----------
------------ ----------- ------------ -----------
NINE MONTHS ENDED SEPTEMBER 30,
- -----------------------------------------------------------
1996....................................................... $ 174,000 $ 370,000 ($ 155,000) $ 389,000
------------ ----------- ------------ -----------
------------ ----------- ------------ -----------
1995....................................................... $ 157,000 $ 201,000 ($ 38,000) $ 320,000
------------ ----------- ------------ -----------
------------ ----------- ------------ -----------
</TABLE>
Property and Equipment and Depreciation and Amortization
Property and equipment are stated at cost. Depreciation and amortization is
computed on the straight-line and accelerated methods over the estimated useful
lives of the related assets, principally five to ten years for furniture, office
and computer equipment and five years for automotive equipment. Leasehold
improvements are amortized using the straight-line method over the shorter of
the lease term or estimated useful lives of the improvements, principally five
to ten years.
F-9
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Depreciation and amortization related to property and equipment amounted to
$302,000 and $205,000 for the nine months ended September 30, 1996 and 1995,
respectively, and $271,099 in calendar 1995, $190,192 in calendar 1994 and
$135,758 in calendar 1993.
Property Under Capital Leases and Amortization
Property under capital leases is stated at the lower of fair market value
or net present value of the minimum lease payments at inception of the leases.
Property under capital leases consists of furniture and office equipment and is
included in 'property and equipment' in the accompanying consolidated balance
sheets. Amortization is provided over the shorter of the related lease terms or
the estimated useful lives of the related assets.
Income Taxes
Deferred taxes are accounted for in accordance with Statement of Financial
Accounting Standards ('Statement') No. 109, 'Accounting for Income Taxes.' The
Statement requires the use of the liability method to account for income taxes.
Deferred income taxes are provided for the difference between the tax basis of
an asset or liability and its reported amount in the financial statements and at
the tax rates that are expected to be in effect when the taxes are actually paid
or recovered.
Deferred income taxes arise principally from differences between financial
and income tax reporting, including amounts recorded for workers' compensation
funding, timing differences relating to the restrictive covenant described in
Note 15 (the 'Restrictive Covenant'), amounts recorded for inventory
capitalization, the availability of net operating loss carryforwards and certain
other temporary differences.
Deferred income tax assets are reduced by a valuation allowance when, based
on the weight of evidence available, it is more likely than not that some
portion or all of the deferred tax assets will not be realized.
Interim Financial Reporting
For interim financial reporting purposes, costs and expenses are accounted
for in accordance with Accounting Principles Board Opinion No. 28 ('APB 28').
Intangible Assets
The Restrictive Covenant (covenant-not-to-compete) was being amortized on a
straight-line method over the life of the covenant (forty-eight months).
Amortization expense related to the covenant was approximately $94,000 for the
nine months ended September 30, 1996, $113,000 for the nine months ended
September 30, 1995, and approximately $150,000 for each of 1995, 1994 and 1993.
See Note 15.
Goodwill represents the excess of the cost of companies acquired over the
fair value of their net assets at the date of acquisition and is being amortized
on the straight-line method over ten years for Systems Automation and over
fifteen years for Berkeley. Both acquisitions were effective September 30, 1996;
therefore, amortization of goodwill will begin in October 1996. See Note 4.
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
F-10
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
difference between rent expense recorded and the amount paid is credited or
charged to deferred rent obligation in the accompanying consolidated balance
sheets.
Advertising Costs
The Company participates in various advertising programs. All costs related
to advertising are expensed in the period incurred. Advertising expense amounted
to approximately $403,000 and $345,000 for the nine months ended September 30,
1996 and 1995, respectively, and $464,000, $267,000 and $214,000 in 1995, 1994
and 1993, respectively.
Recently Issued Accounting Standards
In March 1995, the Financial Accounting Standards Board ('FASB') issued
Statement No. 121, 'Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of' ('Statement 121'). Statement 121
established accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those assets to be
held and used, and for long-lived assets and certain identifiable intangibles to
be disposed. Statement 121 requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Measurement of an impairment
loss for long-lived assets and identifiable intangibles that an entity expects
to hold and use should be based on the fair value of an asset. Statement 121
became effective January 1, 1996 and did not have a material effect on the
Company's financial condition or results of operations.
In October 1995, FASB issued Statement No. 123 'Accounting for Stock-Based
Compensation,' ('Statement 123'), which provides an alternative method of
accounting for stock-based compensation arrangements, based on fair value of the
stock-based compensation utilizing various assumptions regarding the underlying
attributes of the options and the underlying stock, rather than the existing
method of accounting for stock-based compensation which is provided in
Accounting Principles Board Opinion No. 25, 'Accounting for Stock Issued to
Employees' (APB No. 25). FASB encourages entities to adopt the fair value-based
method but does not require adoption of this method. Statement 123 became
effective January 1, 1996 and, based upon information presently available, is
not expected to have a material impact on the Company's financial position or
its results of operations.
Earnings Per Share
The number of shares used in the earnings per share calculation and
convertible note share conversion (see Note 8) has been adjusted for the 52.6
for 1.0 stock split which occurred in September 1996.
Primary earnings per share amounts were computed based on the weighted
average number of shares actually outstanding. The number of shares used in the
computation were approximately 8,588,000 for both the nine months ended
September 30, 1996 and 1995, 8,588,000 in 1995 and 1994 and 8,500,000 in 1993.
Fully diluted earnings per share amounts for the nine months ended
September 30, 1996 and 1995 and for calendar years 1995, 1994 and 1993 were
based on the weighted average number of shares calculated for primary earnings
per share purposes increased by the number of shares that would be outstanding
assuming conversion of outstanding convertible notes (see Note 8). The number of
shares used in the computation were approximately 9,114,000 for the nine months
ended September 30, 1996 and 1995, and approximately 9,114,000 in calendar year
1995, 8,851,000 in 1994 and 8,500,000 in 1993.
F-11
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Fair Value of Financial Instruments
The estimated fair values of substantially all of the Company's financial
instruments (all of which are held for non trading purposes) are approximately
equal to their carrying values at all periods presented.
NOTE 3. NOTE RECEIVABLE (DI)
In connection with the JCC/DI Merger, JCC provided a $50,000 bridge loan,
with interest at 11% per annum, to DI in September 1995 to fund DI's ongoing
operations and working capital requirements through the date of the expected
closing of the JCC/DI Merger. The loan was collateralized by certain assets of
DI. As a result of the JCC/DI Merger, no interest was charged on this loan. This
receivable was included in 'other' current assets in the accompanying December
31, 1995 consolidated balance sheet.
NOTE 4. BUSINESS COMBINATIONS AND PRO-FORMA RESULTS OF OPERATIONS
Effective September 30, 1996, the Company purchased 100% of the issued and
outstanding stock of Berkeley. Berkeley, founded in 1980, is a provider of IT
training services to corporate, governmental and individual clients. The total
acquisition cost was $2,232,200 payable principally in cash and notes. In the
event the Company completes an initial public offering of stock before March 31,
1997, $300,000 of the notes payable will be converted into the Company common
stock at the price per share of the public offering. Also within 30 days after
the consummation of a public offering of stock, a portion of the notes payable,
calculated as $1,060,000 less cash payments made to date, will be due and
payable in cash. A portion of the purchase price, $572,200, is contingent on
Berkeley attaining certain pre-tax income amounts in 1996 and/or 1997. The
acquisition was accounted for as a purchase and no results of operations of
Berkeley are included in the earnings of the Company for the nine month period
ended September 30, 1996. The excess of acquisition cost over the fair value of
net assets, assumed to equal its book value, was approximately $2,220,000, which
will be amortized over fifteen years, beginning in October 1996. Operating
results for the Company for the nine months ended September 30, 1996 and year
ended December 31, 1995, on a pro forma basis as though Berkeley had been
acquired as of January 1, 1995 and January 1, 1996, respectively, are shown
below.
Also effective September 30, 1996, the Company purchased substantially all
of the tangible and intangible assets, and assumed all of the liabilities, of
Systems Automation. Systems Automation is a provider of advanced technical
solutions to increase the efficiency of business processes, such as network and
document management systems design, integration, implementation, maintenance and
training, business process redesign, project management and advanced
applications development. The total acquisition cost was $547,252 payable in
cash and notes. In the event that the Company completes an initial public
offering, the remainder of any notes become due and payable in cash within 15
days of the consummation of such public offering. The acquisition was accounted
for as a purchase and no results of operations of Systems Automation are
included in the earnings of the Company for the nine month period ending
September 30, 1996. The excess of acquisition cost over the fair value of net
assets, assumed to equal its book value, was approximately $1,040,000, which
will be amortized over ten years, beginning in October 1996. Operating results
for the Company for the nine months ended September 30, 1996 and year ended
December 31, 1995, on a pro forma basis as though Systems Automation had been
acquired as of January 1, 1995 and January 1, 1996, respectively, are shown
below.
The following sets forth the combined results for the Company, DataImage
(see Note 17), Berkeley and Systems Automation for the nine months ended
September 30, 1996 and year ended
F-12
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 4. BUSINESS COMBINATIONS AND PRO-FORMA RESULTS OF OPERATIONS -- (CONTINUED)
December 31, 1995, as if the business combinations occurred at January 1, 1996
and 1995, respectively.
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1996 DECEMBER 31, 1995
------------------ -----------------
<S> <C> <C>
Net revenues ............................................................. $ 61,947,988 $ 68,095,483
Cost of revenues (Exclusive of items shown separately below).............. 45,090,712 50,681,751
------------------ -----------------
Gross Profit.............................................................. 16,857,276 17,413,732
Operating Expenses:
Selling, general and administrative..................................... 15,715,181 15,948,321
------------------ -----------------
Income from operations.................................................... 1,142,095 1,465,411
Other expenses, net....................................................... 625,667 551,542
------------------ -----------------
Net income before income tax expense and minority interest................ 516,428 913,869
Income tax expense........................................................ 532,250 511,082
------------------ -----------------
Income (loss) before minority interest in net loss of consolidated
subsidiary.............................................................. (15,822) 402,787
Minority interest in net loss of consolidated subsidiary.................. 616,752 7,057
------------------ -----------------
Net Income................................................................ $ 600,930 $ 409,844
------------------ -----------------
------------------ -----------------
</TABLE>
Notes to pro-forma results of operations:
(1) Interest expense adjusted due to (a) the conversion of DI stockholders
notes payable to JIS common stock by ($49,219) for the year ended December 31,
1995 and ($3,581) for the nine months ended September 30, 1996, (b) incurring
debt/notes payable in connection with the acquisition of Berkeley by $57,783 and
$46,472 for the respective periods and (c) the conversion of the Company's
convertible notes to common stock by ($50,000) and ($37,500) for the respective
periods.
(2) Amortization expense recorded for goodwill created by the business
combinations of Berkeley of $147,975 for the year ended December 31, 1995 and
$110,981 for the nine months ended September 30, 1996, and Systems Automation of
$103,957 and $77,968 for the respective periods.
(3) Adjustment to provide Federal and state income tax expense (benefit)
attributable to income (loss) of Berkeley of $23,602 for the year ended December
31, 1995 and $80,756 for the nine months ended September 30, 1996, and Systems
Automation of $3,409 and ($85,470) for the respective periods as well as the
amortization of goodwill of ($100,773) and ($75,580) for the respective periods,
and interest expense of ($3,113) and ($2,156) for the respective periods
recognized in (1) and (2) above, all at an effective tax rate of 40%.
The interest expense adjustment (see (1)(b) and (1)(c) above) assumes the
successful completion of the Company's public offering of stock as discussed in
Note 1.
F-13
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 4. BUSINESS COMBINATIONS AND PRO-FORMA RESULTS OF OPERATIONS -- (CONTINUED)
Primary and fully diluted net income per share of common stock is
calculated as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1996 DECEMBER 31, 1995
------------------ -----------------
<S> <C> <C>
Net income................................................................ $ 600,930 $ 409,844
7% cumulative dividend of Series A preferred stock of consolidated
subsidiary.............................................................. (43,200) (57,600)
------------------ -----------------
Net income per share attributable to common shareholders.................. $ 557,730 $ 352,244
------------------ -----------------
------------------ -----------------
Weighted average number of shares......................................... 12,143,739 12,143,739
------------------ -----------------
------------------ -----------------
Net income per share attributable to common shareholders.................. $ 0.05 $ 0.03
------------------ -----------------
------------------ -----------------
</TABLE>
Weighted average number of shares includes actual shares outstanding
increased by the number of shares issued in respect to the conversion of Company
convertible notes, the number of shares issued assuming the successful
completion of the Company s public offering of stock, and the number of shares
issued in conjunction with the Berkeley acquisition.
NOTE 5. NOTE PAYABLE, BANK
Note payable, Bank, consists of advances to the Company, JTS and JIS under
a $11,000,000 credit facility at September 30, 1996, of which $10,000,000
represents a line of credit and $1,000,000 represents a term loan (see Note 6).
At September 30, 1996, this line of credit bore interest at the prime rate plus
1% per annum (9.25% at September 30, 1996) and maximum permitted borrowing
thereunder was the lesser of $10,000,000 or 80% of qualified accounts
receivable, as defined in the line of credit agreement. The line of credit is
collateralized by substantially all of the Company's assets, is personally
guaranteed by certain shareholders and the wife of a shareholder, and is subject
to certain financial covenants. In addition, the Company and all of its
subsidiaries are jointly and severally responsible for all of the debt
outstanding under the line.
At September 30, 1996 and December 31, 1995 and 1994 the Company was in
violation of certain financial and transactional covenants, which the Bank has
permanently waived or reset effective through these dates. At September 30,
1996, certain financial ratios were reset or redefined and have been
incorporated into several amended loan agreements. At September 30, 1996, the
Bank redefined tangible net worth enabling the Company to meet certain financial
ratios regarding tangible net worth coverage. The Bank also reset the target
ratio of liabilities service coverage at September 30, 1996. At September 30,
1996, the Bank permanently waived a series of restructuring, acquisition,
merger, liquidation, dissolution and related transactional events specifically
related to the Company's contemplated initial public offering more fully
described in Note 1. At December 31, 1995, the Company was in violation and the
Bank waived or reset as of December 31, 1995, the following financial covenants:
effective net worth; total liabilities to effective net worth; total allowed
capital expenditures by the Company; total allowed additional other liens
besides the Bank; and reporting audited financial results to the Bank within 120
days after the end of the fiscal year. At December 31, 1994, the Company was in
violation of certain financial covenants which the Bank waived or reset and
incorporated these changes in an Amended Loan and Security Agreement. The
financial covenants that where reset were: effective net worth; total
liabilities to effective net worth; and limitation on capital expenditures.
Included in accounts payable and accrued expenses at September 30, 1996,
December 31, 1995 and 1994 were approximately $1,659,000, and $1,338,000 and
$917,000, respectively, of bank overdrafts.
F-14
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 6. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ------------------------
1996 1995 1994
------------- ----------- -----------
<S> <C> <C> <C>
Equipment notes payable, bank (repaid in 1995)............... $ -- $ -- $ 13,703
Note payable, Restrictive Covenant; payable in monthly
installments of $13,194, including interest imputed at
8.0%, repaid in full in August 1996 (see Note 15).......... -- 376,759 499,386
Note payable, stock; payable in monthly payments of $2,039,
including interest at 5.0%, repaid in full in August 1996
(see Note 15).............................................. -- 60,961 81,810
Capital lease obligations; payable in monthly installments
currently aggregating $6,283, including interest at
various rates, through March 2000; the leases transfer
ownership of certain office equipment to the Company at
the end of the respective lease terms...................... 176,113 59,207 31,581
Capital lease obligations; payable in monthly installments
currently aggregating $7,369, including interest at various
rates, through December 1999; the leases transfer ownership
of certain office equipment to the Company at the end of
the respective lease terms................................. 147,725 192,050 136,651
Equipment note payable; payable in monthly installments of
$1,247, including interest at 8.85%, through December 1999;
collateralized by certain equipment........................ 41,291 49,418 --
Equipment note payable; payable in monthly installments of
$5,868, including interest at 8.5%, through March 2001;
collateralized by certain equipment and personally
guaranteed by the Company's majority shareholder........... 262,451 -- --
Term note payable; payable in sixty monthly installments of
$16,667, including interest at prime plus 1.5% through
October 2001; collateralized by substantially all the
Company's assets (see Note 5).............................. 1,000,000 -- --
</TABLE>
F-15
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 6. LONG-TERM DEBT -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ------------------------
1996 1995 1994
------------- ----------- -----------
<S> <C> <C> <C>
Note payable, purchase of Berkeley; payable in various
monthly installments plus interest at 8%, through August
2000, in the event the Company completes a public
offering, $300,000 will be converted to an equivalent
amount of common stock, up to $735,000 will be immediately
due and payable, $300,000 will be payable over forty-four
months and $572,200 (contingent upon Berkeley achieving
certain income levels) will be payable over thirty-six
months................................................... 1,907,200 -- --
Note payable, purchase of assets and liabilities of Systems
Automation; payable $100,000 plus accrued interest at 8%
on January 2, 1997 plus thirty-six monthly payments of
$11,665, including interest at 8% commencing February 1,
1997; in the event the Company completes a public
offering, any and all remaining amounts due are
immediately payable in cash.............................. 472,252 -- --
Capital lease obligations; payable in various monthly
installments including interest at various rates through
July 1997; the leases transfer ownership of certain
computer equipment at the end of the respective lease
terms.................................................... 13,461 -- --
Term notes; payable in various monthly installments
including interest at various rates; collaterized by
certain equipment........................................ 192,544 -- --
Related Parties
Martin E. Judge, Jr. (Founder, Chairman and Chief Executive
Officer of the Company), non-interest bearing, repaid in
1996..................................................... -- 23,000 15,528
Michael A. Dunn (President of Permanent Placement Business),
payable in variable monthly installments plus interest at
prime plus 2%, repaid in full in 1996.................... -- 15,037 82,041
------------- ----------- -----------
4,213,037 776,432 860,700
Less: current portion................................... (940,709) (280,420) (324,427)
------------- ----------- -----------
Long-term portion....................................... $ 3,272,328 $ 496,012 $ 536,273
------------- ----------- -----------
------------- ----------- -----------
</TABLE>
F-16
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 6. LONG-TERM DEBT -- (CONTINUED)
The following is a schedule of debt maturities, as of September 30, 1996:
TWELVE MONTHS
ENDING SEPTEMBER 30, AMOUNT
- --------------------------------------------------------------- -------------
1997........................................................... $ 940,709
1998........................................................... 1,108,153
1999........................................................... 1,128,943
2000........................................................... 799,949
2001........................................................... 235,283
-------------
$ 4,213,037
-------------
-------------
The following is a schedule of debt maturities, as of December 31, 1995:
YEARS ENDING
DECEMBER 31, AMOUNT
- --------------------------------------------------------------- -------------
1996........................................................... $ 280,420
1997........................................................... 239,777
1998........................................................... 182,451
1999........................................................... 71,780
2000........................................................... 2,004
-------------
$ 776,432
-------------
-------------
Interest expense charged to operations was approximately $600,000 and
$514,000 for the nine months ended September 30, 1996 and 1995, respectively,
and $670,000, $427,000 and $338,000 for the years ended December 31, 1995, 1994,
and 1993, respectively.
NOTE 7. ADVANCES FROM SHAREHOLDERS
JIS/JCC had advances from shareholders of $105,263 at September 30, 1996,
$139,906 at December 31, 1995 and $189,699 at December 31, 1994. There are no
formal repayment terms, however, interest is charged monthly at various rates
(from prime plus 1% to a fixed rate of 12%). Interest expense related to these
advances was approximately $11,000 for the nine months ended September 30, 1996,
$14,000 for the nine months ended September 30, 1995, $18,000 in 1995, $22,000
in 1994 and $20,000 in 1993.
NOTE 8. CONVERTIBLE NOTES
In 1994, the Company received $500,000 from a group of investors in the
form of 10% convertible senior subordinated promissory notes. The notes which
bear a 10% interest rate per annum and mature in July 1997, are subject to
certain financial covenants and are convertible into 526,000 common shares
(split adjusted) upon the occurrence of certain events. The notes may be
redeemed at any time, subject to certain contingent interest and other
provisions. In addition, should the Company effect a successful initial public
offering before July 31, 1997, the financial advisor who arranged such financing
is entitled to a fee equal to 1% of the proceeds of the initial public offering
(approximately $300,000). The notes are guaranteed by JTS, JESF and Judge, Inc.
Effective through September 30, 1996, December 31, 1995 and 1994, the Company
was in violation of certain covenants, which were permanently waived by the note
holders. The note holders waived the annual limit on capital expenditures, for
all periods presented, the issuance of unsecured notes for the acquisitions
described in
F-17
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 8. CONVERTIBLE NOTES -- (CONTINUED)
Note 4, as of September 30, 1996, and the delivery of the annual audited
financial statements within 120 days after year end for 1995 and 1994. The
Company expects that the notes will be exchanged for 526,000 Company common
shares immediately prior to the Offering.
NOTE 9. SETTLEMENT OF PAYROLL TAX OBLIGATION
During 1994, the Company entered into an agreement with the Internal
Revenue Service (the 'IRS') regarding the payment of approximately $882,000 of
past-due payroll taxes, relating principally to the second and third quarters of
1993, and
related assessed interest.
The parties agreed to an extended repayment term requiring a $150,000 down
payment and $22,000 per month beginning June 1994 until the total liability,
which had been subordinated to the Company's bank, was paid in full. In
connection with the past due payroll taxes, the Company was disputing certain
related penalty and interest amounts. In July 1996, the Company entered into a
settlement agreement with the IRS and the existing liability at that time,
including penalty and interest, was paid in full.
NOTE 10. INCOME TAXES
In 1991, the Company filed a consolidated Federal income tax return with
its wholly-owned subsidiaries. JTS and JCC were not included in the Company's
consolidated Federal income tax return, as the Company owned less than 80% of
each such Company's outstanding common shares at December 31, 1991. Under
Internal Revenue regulations, JTS and JCC were not part of the consolidated
group for tax purposes and filed their own Federal income tax returns. In 1992,
JTS became a wholly-owned subsidiary of the Company, but continued to file its
own Federal income tax returns. In 1995, JTS filed a consolidated tax return
with its wholly-owned subsidiaries, JPS and JTNJ. State income taxes are
determined on the basis of filing separate returns for each company as required
by the applicable state regulations.
The Company adopted Statement of Financial Accounting Standards No. 109,
'Accounting for Income Taxes,' as of January 1, 1993 by determining the
cumulative effect on prior years of the change in method of accounting for
income taxes. As of January 1, 1993, the cumulative effect on prior years of
adopting SFAS No. 109 was $42,000.
The net deferred tax asset at December 31, 1995 and 1994 included the
following:
1995 1994
------------- -------------
Deferred tax asset................................ $ 1,175,000 $ 1,004,000
Valuation allowance for deferred tax asset........ (945,000) (877,000)
------------- -------------
Net deferred tax asset after valuation allowance.. $ 230,000 $ 127,000
------------- -------------
------------- -------------
At December 31, 1995 and 1994, the net deferred assets of $230,000 and
$127,000, respectively, were included in 'prepaid income taxes and deferred
taxes' in the accompanying consolidated balance sheets.
F-18
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 10. INCOME TAXES -- (CONTINUED)
The tax effect of major temporary differences that gave rise to the
Company's net deferred tax asset are as follows:
1995 1994
------------- -------------
Net operating loss carryforwards............ $ 952,000 $ 853,000
Restrictive Covenant payments............... 101,000 75,000
Other....................................... 122,000 76,000
------------- -------------
$ 1,175,000 $ 1,004,000
------------- -------------
------------- -------------
Income tax expense for the years ended December 31, 1995, 1994 and 1993
consisted of the following:
1995 1994 1993
----------- ----------- -----------
Current tax expense:
Federal...................... $ 531,000 $ 520,400 $ 180,000
State........................ 159,957 219,400 72,460
Deferred tax (benefit)......... (103,000) (60,000) (25,000)
----------- ----------- -----------
Provision for income taxes..... $ 587,957 $ 679,800 $ 227,460
----------- ----------- -----------
----------- ----------- -----------
In accordance with APB 28 (interim financial reporting), income taxes for
the nine months ended September 30, 1996 and 1995 are calculated at the
estimated effective annual (Federal and state) rate of approximately 40%.
The effective tax rate for all periods presented was higher than the
applicable statutory tax rate, due to certain expenses that were not deductible
for tax purposes, Federal and state provisions at the maximum rates for JTS and
net operating losses for JCC/JIS, which is consolidated for financial reporting
but not tax reporting purposes. A reconciliation of the Company's effective
income tax rate with the statutory federal rate follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
-------------------- -------------------------------
1996 1995 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Tax at statutory rate (34%)....................... $ 255,000 $ 346,000 $ 363,000 $ 348,000 $ 98,000
Effect of losses of subsidiary not consolidated
for tax purposes................................ 276,000 28,000 92,000 227,000 75,000
Non-deductible tax penalties and other permanent
differences..................................... -- 68,000 90,000 -- 6,000
Other............................................. -- (23,000) (31,000) (13,000) --
State income taxes, net of Federal tax benefit.... 84,000 90,000 105,000 143,000 48,000
Federal income tax rate differentials due to
surtax exemptions............................... -- (11,000) (31,000) (25,000) --
--------- --------- --------- --------- ---------
$ 615,000 $ 498,000 $ 588,000 $ 680,000 $ 227,000
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
As a result of operating losses, no provision for income taxes was required
in all periods presented for JIS. For income tax reporting purposes, as of
December 31, 1995, JIS had an unused operating loss carryforward of
approximately $2,355,000, which may be applied against future taxable income of
JIS. These carryforwards expire between 2002 and 2010.
F-19
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 11. COMMITMENTS
The Company and its subsidiaries lease several office facilities under
operating lease agreements that expire at various times through the year 2000.
Rent expense was approximately $604,000 and $409,000 for the nine months ended
September 30, 1996 and September 30, 1995, and $557,000, $394,000 and $381,000,
for the years ended December 31, 1995, 1994 and 1993, respectively. Minimum
annual future rental commitments, at September 30, 1996, exclusive of common
area maintenance costs and utilities, are as follows:
TWELVE MONTHS
ENDING SEPTEMBER 30, AMOUNT
- --------------------------------------------------------------- -------------
1997........................................................... $ 1,056,000
1998........................................................... 1,026,000
1999........................................................... 877,000
2000........................................................... 637,000
2001........................................................... 21,000
-------------
$ 3,617,000
-------------
-------------
Minimum annual future rental commitments at December 31, 1995, exclusive of
common area maintenance costs and utilities, are as follows:
YEAR ENDING
DECEMBER 31, AMOUNT
- --------------------------------------------------------------- -------------
1996........................................................... $ 769,000
1997........................................................... 741,000
1998........................................................... 717,000
1999........................................................... 703,000
2000........................................................... 302,000
-------------
$ 3,232,000
-------------
-------------
Effective January 1994, the Company became self-insured for workers
compensation purposes and is liable for aggregate claims up to approximately
$185,000 for calendar 1996, $78,000 for calendar 1995 and $116,000 for calendar
1994. In addition, the Company is responsible for certain fixed costs including
underwriting, brokerage, reinsurance and administration costs.
The Company is partially self-insured for health care claims for eligible
active employees. The Company is currently liable for aggregate claims up to
approximately $418,000 annually. Self-insurance costs are accrued based upon the
aggregate of the liability for reported claims and an estimated liability for
claims incurred but not reported.
NOTE 12. RETIREMENT PLANS
The Company had various 401(k) retirement plans (the 'Plans') covering
substantially all employees. Employees may contribute a percentage of their
pre-tax salary to the Plans. Company contributions to the Plans were at the
discretion of the Board of Directors. The Company charged $-0-, $-0-, $40,000
and $15,000 to operations related to the Plans in 1996, 1995, 1994 and 1993,
respectively. Effective July 1, 1996, all the Plans were merged into one Plan.
The new Plan has no Company contribution provision.
F-20
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 13. SHAREHOLDERS' EQUITY (DEFICIT) AND EARNINGS PER SHARE
Deficit and Dividends
In accordance with the provisions of its line of credit, the Company is not
permitted to declare or pay any cash dividends on its common stock (see Note 5).
Additional Paid-In Capital
During 1996, additional paid-in capital decreased due to the JCC/DI merger
which was accounted for as a reverse acquisition (Notes 14 and 17).
Capital Structure
On September 4, 1996, the Company s Board of Directors voted to (i) modify
the Company's capital structure to increase the number of authorized common
shares to 50,000,000, (ii) and to adjust the par value per share from $.005 to
$.01, (iii) authorized the issuance of 10,000,000 preferred shares with a par
value of $.01 per share, (iv) authorized a 52.6 for 1.0 split of the outstanding
common shares for shareholders of record on September 23, 1996, (v) authorized a
change in the Company's name from 'Judge, Inc.' to 'The Judge Group, Inc.' and
(vi) authorized the formation of a new subsidiary, Judge, Inc., and the
contribution of substantially all the assets related to the Permanent Placement
business to this new subsidiary.
Common Shares -- Warrants
During 1993, the Company issued to a financial advisor warrants to purchase
171,739 (split-adjusted) common shares of the Company. During September 1996,
such warrants were exercised.
Stock Option Plan
On September 4, 1996, the Company adopted an Incentive Stock Option and
Non-Qualified Stock Option Plan (the 'Incentive Plan') for key employees and
non-employee directors. Options may be granted under the Incentive Plan to
purchase up to a maximum of 1,500,000 of the Company's common shares, subject to
certain adjustments and restrictions. The price of each option shall be the fair
market value of the shares on the date of the grant. No options have been
granted under the Incentive Plan.
NOTE 14. CAPITAL STRUCTURE OF JIS
Common Stock
In 1993, JCC issued to a financial advisor warrants to purchase common
shares of JCC equal to 2% of its outstanding common shares at a purchase price
of $.005 per share. JCC issued 211,327 common shares to the financial adviser in
1995 upon the exercise of these warrants.
Preferred Shares
During 1991, the capital structure of JCC was modified to authorize
10,000,000 $.10 par value preferred shares. During 1991, $100,000 of debentures
and $266,577 of investor loans payable were converted to 1,000,000 and 2,665,770
preferred shares, respectively. Accrued interest of approximately $97,000
relating to these payables was contributed to capital.
F-21
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 14. CAPITAL STRUCTURE OF JIS -- (CONTINUED)
The JCC preferred shares bore cumulative dividends at an annual rate of
$.005 per share. Cumulative dividends in arrears at December 31, 1995 and 1994
were approximately $74,000 and $55,000, respectively. No dividends were declared
or paid in 1996, 1995, 1994 or 1993. In February 1996, the preferred
shareholders waived receipt of all dividends due them. In February 1996, the
preferred shareholders converted their preferred shares into JCC common shares
on a one-to-one basis.
At December 31, 1995, 1994 and 1993, these preferred shares were eliminated
in consolidation and were presented at no value in minority interest, due to the
extent of JCC's shareholders' deficit at December 31, 1995, 1994 and 1993.
In February 1996, JCC's Board of Directors authorized additional preferred
shares, consisting of 1,125,000 $.01 par value Series A convertible preferred
shares and 25,000 $1,000 stated value Series B preferred shares.
In February 1996, JCC raised approximately $1,097,000 ($888,000, net of
costs) in a private offering of 822,628 Series A convertible preferred shares
('JCC Series A Preferred') at a purchase price per share of $1.33. The JCC
Series A Preferred shares are convertible into JCC common shares at the holder's
option, and conversion is mandatory at the time of a subsequent public offering
of common shares by JCC in excess of $5 million. The JCC Series A Preferred
shares carry a cumulative dividend of 7% per year, and holders have a
liquidation preference prior to the common shareholders and all other existing
classes. At the effective time of the JCC/DI Merger, these preferred shares were
converted into the same number of JIS Series A preferred shares ('JIS Series A
Preferred') with essentially the same rights and privileges. In the event JIS
does not complete a public offering by the eighth anniversary of the JCC/DI
Merger, then JIS will have the right to redeem the outstanding JCC Series A
preferred shares. See Note 17. At September 30, 1996, the JIS Series A Preferred
stock is presented at $271,248 as 'minority interest' in the accompanying
consolidated balance sheet. Approximately $617,000 of JIS losses have been
allocated to this minority interest in the accompanying consolidated statements
of operations for the nine months ended September 30, 1996. It is expected that
each outstanding share of JIS Series A Preferred stock will be converted into
one share of JIS common stock pursuant to the Merger.
In February 1996, and at the effective time of the JCC/DI Merger, advances
from the Company to JCC in the aggregate of $1,520,000 were converted into 1,500
Series B preferred shares of JCC, which were immediately converted into the same
number of shares of Series B preferred stock of JIS. The JIS Series B preferred
stock carries a cumulative annual dividend of 10%, are not convertible, do not
have a liquidation preference and are subject to mandatory redemption. These
shares are eliminated in consolidation. These shares are expected to be
cancelled pursuant to the Merger (see Note 1).
F-22
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 15. STOCK REDEMPTION (JTS)
An employee of JTS (the 'Minority Shareholder') acquired an aggregate of
400 common shares of JTS over a period of time ending in 1990. The aggregate
purchase price for these shares was paid by the Minority Shareholder in the form
of unsecured promissory notes. At December 31, 1991, the aggregate outstanding
principal amount of these notes was $66,409.
On August 12, 1992, JTS redeemed the Minority Shareholder's shares for
$266,000 (of which $40,000 was paid in cash, $59,405 represented debt
forgiveness, and $126,595 was payable in 72 equal monthly installments). In
connection with this redemption, JTS agreed to pay the Minority Shareholder
$13,527 per month for six years ($950,000 in the aggregate). The restrictive
covenant set forth in the agreement and the related liability were recorded at
the net present value of the payments, at an assumed interest rate of 8% (or
$752,539). During August 1996, JTS reached a settlement agreement with the
minority shareholder. Two outstanding notes were settled at less than face value
for $322,000, which resulted in a gain of approximately $27,000.
NOTE 16. STATEMENT OF CASH FLOWS
Supplemental disclosure of non-cash investing and financing transactions:
During the nine months ended September 30, 1996, the Company entered into
the following non-cash transactions:
o incurring long-term debt ($2,379,452) for certain business combinations
(see Note 4); and
o termed out $1,000,000 of the existing line of credit into long-term debt
(see Notes 5 and 6).
During the nine months ended September 30, 1996 and 1995, the Company
entered into certain financing arrangements for the purchase of property and
equipment in the amounts of approximately $432,000 and $61,000, respectively.
Effective February 29, 1996, JCC and DI effected a Business Combination
(see Note 17) and effective September 1996, the Company and Berkeley and Systems
Automation effected business combinations (see Note 4):
Acquisition of Business:
<TABLE>
<CAPTION>
SYSTEMS
DI BERKELEY AUTOMATION
---------- ---------- ----------
<S> <C> <C> <C>
Inventories............................................ $ 39,101 $ -- $ 79,375
Accounts receivable.................................... 104,127 455,124 144,756
Property and equipment, net............................ 150,034 167,876 56,706
Other assets........................................... 10,780 51,110 34,314
---------- --------- ----------
304,042 674,110 315,151
---------- --------- ----------
Accounts payable and accrued expenses.................. (82,087) (254,685) (307,398)
Debt obligations....................................... -- (206,005) (196,193)
Due to the Company..................................... (100,000) -- --
Deferred revenue and customer deposits................. (362,037) (172,079) (315,118)
---------- --------- ----------
(544,124) (632,769) (818,709)
---------- --------- ----------
Net assets acquired (liabilities assumed)
in business combination.............................. ($ 240,082) $ 41,341 ($ 503,558)
========== ========= ==========
</TABLE>
F-23
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 16. STATEMENT OF CASH FLOWS -- (CONTINUED)
During 1995, the Company entered into certain financing arrangements for
the purchase of property and equipment in the amount of approximately $264,000.
During 1994, the Company entered into certain capital lease arrangements
for the purchase of property and equipment in the amount of approximately
$228,000.
NOTE 17. BUSINESS COMBINATION (THE JCC/DI MERGER)
On September 13, 1995, JCC and DI signed a Letter of Intent relating to the
JCC/DI Merger. On December 1, 1995, JCC and DI executed the JCC/DI Merger
Agreement, which was amended effective December 20, 1995 and February 26, 1996.
The JCC/DI Merger was consummated effective February 29, 1996.
In the JCC/DI Merger, JCC was merged into DI. DI survived the merger and
changed its name to JIS. JIS continued to be a public reporting company. In
connection with the merger, the Certificate of Incorporation of JIS was amended
to increase its authorized capital by 1,125,000 shares of $.01 value JIS Series
A Preferred stock, 1,500 shares of $1,000 stated value Series B preferred stock
(the 'JIS Series B Preferred') and 3,873,500 shares of 'blank check' preferred
stock (for an aggregate of 5,000,000 shares of new preferred stock). The JIS
Series A Preferred and JIS Series B Preferred stock have essentially the same
rights and privileges as the JCC Series A Preferred shares and JCC Series B
Preferred shares existing immediately prior to the merger.
In the JCC/DI Merger, each stockholder of DI received one share of JIS
common stock for every 31.96 shares of DI common stock held thereby immediately
prior to the merger, and each shareholder of JCC received one share of JIS
common stock for every 2.83 common shares of JCC held thereby immediately prior
to the merger. In addition, the JCC Series A Preferred shares and the JCC Series
B Preferred shares outstanding prior to the JCC/DI Merger were converted into
the same numbers of JIS Series A Preferred and JIS Series B Preferred shares,
respectively.
The conversion ratios were calculated so that, after giving effect to
certain reserved shares for issuance to employees following the merger and
assuming the sale of the maximum of 1,125,000 JCC Series A Preferred shares
offered in JCC's 1995 private offering (822,628 were actually sold) and the
conversion of such maximum number of JCC Series A Preferred shares into JCC
common shares, there would be approximately 5,000,000 shares of common stock of
JIS outstanding immediately following the merger, of which holders of DI common
stock immediately prior to the merger were to receive in the aggregate
approximately 5% (approximately 250,000 shares) and the holders of JCC common
shares and JCC Series A Preferred shares immediately prior to the merger were to
receive in the aggregate approximately 95% (approximately 4,750,000 shares). The
JCC Series B Preferred stock was not included in the foregoing percentage
calculations.
The JCC/DI Merger was accounted for as a 'reverse acquisition' whereby JCC,
in substance, acquired DI, allocating the fair value of JCC shares exchanged
over the relative fair value of assets and liabilities of DI (assumed to equal
its book value) prior to the merger. No value was ascribed to DI's net loss
carryforwards as a result of limitations on these carryforwards subsequent to
the change in control. Accordingly, the historical financial statements included
in the consolidation prior to the acquisition are those of the acquirer, JCC,
and are those of DataImage, Inc. (which changed its name to Judge Imaging
Systems, Inc. immediately after the JCC/DI merger) for the period subsequent to
the merger.
F-24
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 18. SEGMENT INFORMATION
The Company's operations cover three industry segments, the Contract and
Permanent Placement segment (consisting of the Company's Contract Placement
business and Permanent Placement business), the Imaging and Network Services
segment, and the Information Technology Training segment. The information
technology training segment was purchased effective September 30, 1996.
Therefore, no results of operation are included below. The following represents
financial information for each of the Company's reportable industry segments:
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1996
-------------------------------------------
CONTRACT AND IMAGING AND INFORMATION
PERMANENT NETWORK TECHNOLOGY
PLACEMENT SERVICES TRAINING ELIMINATIONS TOTAL
-------------- -------------- ------------ ------------- --------------
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated customers... $ 48,887,484 $ 10,026,754 $ -- $ -- $ 58,914,238
Intersegment sales................ -- 44,520 -- 44,520
-------------- -------------- ------------ ------------- --------------
Total revenues.................. $ 48,887,484 $ 10,071,274 $ -- 44,520 $ 58,914,238
============== ============== ======== =========== ==============
Income (loss) from
operations...................... $ 2,013,477 ($ 664,826) $ -- $ -- $ 1,348,651
============== ============== ======== =========== ==============
Net income (loss)................. $ 947,389 ($ 813,035) $ -- ($ 616,752) $ 751,106
============== ============== ======== =========== ==============
Depreciation and amortization..... $ 315,026 $ 81,388 $ -- $ -- $ 396,414
============== ============== ======== =========== ==============
Identifiable assets............... $ 17,468,731 $ 4,955,134 $ 786,824 $ 2,022,980 $ 21,187,709
============== ============== ======== =========== ==============
Capital expenditures.............. $ 581,702 $ 292,774 $ -- $ -- $ 874,476
============== ============== ======== =========== ==============
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1995
------------------------------------------------------------
CONTRACT AND IMAGING AND
PERMANENT NETWORK
PLACEMENT SERVICES ELIMINATIONS TOTAL
-------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Sales to unaffiliated customers................... $ 41,076,152 $ 5,800,368 $ -- $ 46,876,520
Intersegment sales................................ -- 360,000 360,000 --
-------------- ------------- ------------- --------------
Total revenues.................................. $ 41,076,152 $ 6,160,368 $ 360,000 $ 46,876,520
============== ============= ============= ==============
Income from operations............................ $ 1,472,960 $ 89,553 $ -- $ 1,562,513
============== ============= ============= ==============
Net income (loss)................................. $ 599,979 ($ 80,836) $ -- $ 519,143
============== ============= ============= ==============
Depreciation and amortization..................... $ 290,848 $ 26,987 $ -- $ 317,835
============== ============= ============= ==============
Identifiable assets............................... $ 10,947,371 $ 2,525,544 $ 1,786,988 $ 11,685,927
============== ============= ============= ==============
Capital expenditures.............................. $ 258,848 $ 71,888 $ -- $ 330,736
============== ============= ============= ==============
</TABLE>
F-25
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 18. SEGMENT INFORMATION -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
------------------------------------------------------------
CONTRACT AND IMAGING AND
PERMANENT NETWORK
PLACEMENT SERVICES ELIMINATIONS TOTAL
-------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Sales to unaffiliated customers................... $ 55,079,572 $ 8,219,781 $ -- $ 63,299,353
Intersegment sales................................ -- 480,000 480,000 --
-------------- ------------- ------------- --------------
Total revenues.................................. $ 55,079,572 $ 8,699,781 $ 480,000 $ 63,299,353
============== ============= ============= ==============
Income (loss) from operations..................... $ 1,810,035 ($ 46,156) $ -- $ 1,763,879
============== ============= ============= ==============
Net income (loss)................................. $ 751,041 ($ 272,458) ($ 7,057) $ 485,640
============== ============= ============= ==============
Depreciation and amortization..................... $ 384,419 $ 37,194 $ -- $ 421,613
============== ============= ============= ==============
Identifiable assets............................... $ 10,900,309 $ 2,530,930 $ 1,799,375 $ 11,631,864
============== ============= ============= ==============
Capital expenditures.............................. $ 474,100 $ 163,207 $ -- $ 637,307
============== ============= ============= ==============
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
------------------------------------------------------------
CONTRACT AND IMAGING AND
PERMANENT NETWORK
PLACEMENT SERVICES ELIMINATIONS TOTAL
-------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Sales to unaffiliated customers................... $ 41,480,081 $ 3,773,336 $ -- $ 45,253,417
Intersegment sales................................ -- 402,000 402,000 --
-------------- ------------- ------------- --------------
Total revenues.................................. $ 41,480,081 $ 4,175,336 $ 402,000 $ 45,253,417
============== ============= ============= ==============
Income (loss) from operations..................... $ 1,956,082 ($ 513,441) $ -- $ 1,442,641
============== ============= ============= ==============
Net income (loss)................................. $ 1,009,858 ($ 666,607) $ -- $ 343,251
============== ============= ============= ==============
Depreciation and amortization..................... $ 307,090 $ 33,618 $ -- $ 340,708
============== ============= ============= ==============
Identifiable assets............................... $ 8,655,125 $ 1,050,453 $ 1,688,239 $ 8,017,339
============== ============= ============= ==============
Capital expenditures.............................. $ 457,213 $ 22,756 $ -- $ 479,969
============== ============= ============= ==============
</TABLE>
F-26
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
(FORMERLY JUDGE, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 18. SEGMENT INFORMATION -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1993
------------------------------------------------------------
CONTRACT AND IMAGING AND
PERMANENT NETWORK
PLACEMENT SERVICES ELIMINATIONS TOTAL
-------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Sales to unaffiliated customers................... $ 30,667,821 $ 4,401,046 $ -- $ 35,068,867
Intersegment sales................................ 90,000 -- 90,000 --
-------------- ------------- ------------- --------------
Total revenues.................................. $ 30,757,821 $ 4,401,046 $ 90,000 $ 35,068,867
============== ============= ============= ==============
Income (loss) from operations..................... $ 757,424 ($ 136,572) $ -- $ 620,852
============== ============= ============= ==============
Net income (loss)................................. $ 321,546 ($ 220,158) $ -- $ 101,388
============== ============= ============= ==============
Depreciation and amortization..................... $ 256,748 $ 29,525 $ -- $ 286,273
============== ============= ============= ==============
Identifiable assets............................... $ 6,105,562 $ 1,023,455 $ 1,442,240 $ 5,686,777
============== ============= ============= ==============
Capital expenditures.............................. $ 69,784 $ 21,681 $ -- $ 91,465
============== ============= ============= ==============
</TABLE>
See Note 2 for summary of significant accounting policies.
F-27
<PAGE>
THE JUDGE GROUP, INC.
PRO FORMA CONSOLIDATING FINANCIAL STATEMENTS
(UNAUDITED)
PRO FORMA CONSOLIDATING FINANCIAL STATEMENTS...................... F-29
NOTES TO PRO FORMA CONSOLIDATING BALANCE SHEET,
SEPTEMBER 30, 1996.............................................. F-30
PRO FORMA CONSOLIDATING BALANCE SHEET, SEPTEMBER 30, 1996......... F-31 - F-32
NOTES TO PRO FORMA CONSOLIDATING STATEMENTS OF OPERATIONS,
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND YEAR ENDED
DECEMBER 31, 1995............................................... F-33 - F-34
PRO FORMA CONSOLIDATING STATEMENT OF OPERATIONS, YEAR
ENDED DECEMBER 31, 1995......................................... F-35
PRO FORMA CONSOLIDATING STATEMENT OF OPERATIONS, NINE
MONTHS ENDED SEPTEMBER 30, 1996................................. F-36
F-28
<PAGE>
THE JUDGE GROUP, INC.
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following unaudited pro forma consolidating financial statements give
effect to a public offering of common shares of Judge Group as described
elsewhere in this Proxy Statement/Prospectus, certain proposed transactions of
Judge Group, including, a conversion of Judge Group's convertible notes in the
aggregate principal amount of $500,000 into 526,000 shares of its Common Stock,
and a certain business combination with JIS (a consolidated subsidiary of Judge
Group). The pro forma balance sheet gives effect to all of the transactions as
if they occurred on September 30, 1996. The pro forma balance sheet is presented
for informational purposes only and does not purport to be indicative of the
financial condition that actually would have resulted if the business
combinations had been consummated at September 30, 1996. The pro forma
statements of operations for 1995 and for the nine months ended September 30,
1996, give effect to all of the business transactions as if they occurred on
January 1, 1995. The pro forma statements of operations are also presented for
informational purposes only and do not purport to be indicative of the results
of operations that actually would have been achieved if the business
combinations had been consummated at January 1, 1995. The pro forma adjustments
relate to various transactions which occurred subsequent to September 30, 1996
and/or which will occur prior to or on the effective date of the proposed public
offering. These pro forma financial statements should be read in conjunction
with the separate historical financial statements of the Company and JIS, and
the notes thereto, which are included elsewhere in this Prospectus.
The pro forma consolidating statements of operations include the results of
operations of The Berkeley Associates Corp. ('Berkeley') (acquired September 26,
1996) and Systems Automation, Inc. ('Systems Automation') (acquired September
30, 1996) on a pro forma basis as though their business combinations with the
Company occurred on January 1, 1995. For a description of those business
combinations see Note 4 of Notes to the September 30, 1996 Consolidated
Financial Statements of The Judge Group, Inc.
The pro forma consolidating statements of operations include the results of
operations of JIS on a pro forma basis as though the JCC/DI Merger (which
actually occurred on February 29, 1996) occurred on January 1, 1995. For a
description of that business combination see Notes 4 and 17 of Notes to the
September 30, 1996 and June 30, 1996 Consolidated Financial Statements of The
Judge Group, Inc., respectively. In addition, as more fully described elsewhere
in this Prospectus, immediately prior to the public offering, JIS will be merged
into a newly organized, wholly-owned subsidiary of Judge Group. The newly
organized subsidiary will be the surviving corporation and change its name to
Judge Imaging Systems, Inc. As a result, JIS will become a wholly-owned
subsidiary of Judge Group at the time of the offering. In the Merger, each JIS
common share (not already owned by Judge Group) 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 Group Common Shares. In accordance with Accounting
Principles Board Opinion No. 16 and related literature, the majority of the
shares of JIS, which are owned by Judge Group, Martin E. Judge, Jr. or other
owners of Judge Group securities, will be accounted for as a corporate
reorganization of entities under common control, at historical cost, similar to
pooling accounting. However, the exchange of the remaining JIS shares (the
'minority interest') will be accounted for in accordance with 'purchase
accounting' whereby the pro rata portion of JIS's assets and liabilities as of
September 30, 1996 will be recorded at their fair values. The excess of the
value of Judge Group shares issued in exchange for the 'minority interest'
shares over the fair value of the net assets attributable to the minority
interest will be recorded as goodwill.
F-29
<PAGE>
THE JUDGE GROUP, INC.
NOTES TO PRO FORMA CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 1996
(UNAUDITED)
(1) Adjustment to record $26,800,000 proceeds from the sale of 3,000,000
shares of common stock at $10.00 per share, net of commissions of $2,100,000 and
estimated costs of approximately $1,100,000; record payment of $100,000 for
accounts payable and $735,000 for notes payable to the sellers of Berkeley at
the (assumed) successful completion of the public offering; record payment for
note payable to sellers of Systems Automation of $472,252 cash at the (assumed)
successful completion of the public offering.
(2) Adjustments to record the following equity transactions:
<TABLE>
<S> <C>
Sale and issuance of 3,000,000 shares of common
stock of Judge Group, par value $.01............................ $ 30,000
Issuance of 30,000 shares of common stock of Judge Group,
par value $.01 to sellers of Berkeley ($300,000/$10)............ 300
Merger of JIS into a wholly-owned subsidiary of
Judge Group; issuance of 892,748 of Judge
Group shares ($.01 par value) in exchange
for 2,748,363 common shares and 822,628
preferred shares of JIS.......................................... 8,927
Conversion of convertible notes (see note 3 below)................ 5,260
-----------
Pro forma adjustments to common stock............................. $ 44,487
-----------
-----------
Additional paid in capital from sale of 3,000,000
shares of common stock of Judge Group ($26,800,000
proceeds less $30,000 common stock issued above)................ 26,770,000
Paid in capital from issuance of 30,000 shares of
common stock to sellers of Berkeley............................. 299,700
Merger of JIS into a wholly-owned subsidiary of
Judge Group (see above)......................................... 2,390,263
Conversion of convertible notes (see note 3 below)................ 494,740
-----------
Pro forma adjustments to additional paid in capital............... $29,954,703
===========
Reduction of minority interest due to merger of JIS
into a wholly-owned subsidiary of Judge
Group (see above).............................................. ($ 271,248)
===========
</TABLE>
(3) Adjustment to record conversion of $500,000 of convertible notes into
526,000 of Judge Group's Common Shares as more fully explained in Note 8 of
Notes to the September 30, 1996 Consolidated Financial Statements of The Judge
Group, Inc.
F-30
<PAGE>
THE JUDGE GROUP, INC.
PRO FORMA CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 1996
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
THE JUDGEGROUP, INC. PRO FORMA CONSOLIDATED
SEPTEMBER 30, 1996 ADJUSTMENTS SEPTEMBER 30, 1996
-------------------- -------------- ------------------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash............................................... $ 153,942 $25,492,748(1) $25,646,690
Accounts receivable, net........................... 12,956,917 12,956,917
Inventories........................................ 912,303 912,303
Prepaid taxes and deferred tax benefit............. 334,976 334,976
Other.............................................. 993,948 0 993,948
----------- ----------- -----------
TOTAL CURRENT ASSETS............................... 15,352,086 25,492,748 40,844,834
----------- ----------- -----------
PROPERTY AND EQUIPMENT:
Furniture and office equipment..................... 3,570,438 3,570,438
Automotive equipment............................... 37,936 37,936
Leasehold improvements............................. 46,565 0 46,565
----------- ----------- -----------
3,654,939 0 3,654,939
Less: accumulated depreciation and amortization.... 1,774,499 0 1,774,499
----------- ----------- -----------
NET PROPERTY AND EQUIPMENT...................... 1,880,440 0 1,880,440
----------- ----------- -----------
OTHER ASSETS:
Due from subsidiaries/affiliate.................... 0 0 0
Receivables -- officers and employees.............. 431,890 0 431,890
Deposits........................................... 108,183 0 108,183
Investment in subsidiaries, at cost................ 0 0 0
Other.............................................. 155,908 0 155,908
Goodwill........................................... 3,259,202 2,127,942(2) 5,387,144
Covenant not to compete, net of accumulated
amortization.................................... 0 0 0
----------- ----------- -----------
TOTAL OTHER ASSETS.............................. 3,955,183 2,127,942 6,083,125
----------- ----------- -----------
$21,187,709 $27,620,690 $48,808,399
=========== =========== ===========
</TABLE>
F-31
<PAGE>
THE JUDGE GROUP, INC.
PRO FORMA CONSOLIDATING BALANCE SHEET -- (CONTINUED)
SEPTEMBER 30, 1996
(UNAUDITED)
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
PRO FORMA
THE JUDGE GROUP, INC. PRO FORMA CONSOLIDATED
SEPTEMBER 30, 1996 ADJUSTMENTS SEPTEMBER 30, 1996
-------------------- -------------- ------------------
<S> <C> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt................. $ 940,709 ($ 327,285)(1) $ 613,424
Other note payable................................ 196,193 0 196,193
Accounts payable and accrued
expenses....................................... 5,669,388 (100,000)(1) 5,569,388
Payroll and sales taxes........................... 606,438 0 606,438
Income taxes payable.............................. 42,981 0 42,981
Deferred revenue and customer
deposits....................................... 1,333,661 0 1,333,661
Convertible debentures............................ 500,000 (500,000)(3) 0
Advances from shareholders........................ 105,263 0 105,263
---------- ---------- ---------
TOTAL CURRENT LIABILITIES...................... 9,394,633 (927,285) 8,467,348
---------- ---------- ---------
LONG-TERM LIABILITIES:
Note payable, bank................................ 7,146,185 0 7,146,185
Deferred rent obligation.......................... 137,038 0 137,038
Due to subsidiaries............................... 0 0 0
Debt obligations, net of current portion.......... 1,376,886 0 1,376,886
Note payable Systems Automation................... 297,014 (297,014)(1) 0
Note payable, Berkeley shareholders............... 1,598,428 (882,953)(1)(2) 715,475
---------- ---------- ---------
TOTAL LONG-TERM LIABILITIES.................... 10,555,551 (1,179,967) 9,375,584
---------- ---------- ---------
MINORITY INTEREST................................... 271,248 (271,248)(2) 0
----------
SHAREHOLDERS' EQUITY:
Common stock...................................... 85,877 44,487 (2) 130,364
Preferred stock................................... 0 0 0
Additional paid-in capital........................ 365,877 29,954,703 (2) 30,320,580
Retained earnings (deficit)....................... 514,523 0 514,523
---------- ---------- ---------
966,277 29,999,190 30,965,467
Less: Treasury stock, at cost..................... 0 0 0
---------- ---------- ---------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT)........... 966,277 29,999,190 30,965,467
---------- ---------- ---------
$21,187,709 $ 27,620,690 $48,808,399
=========== ============ ===========
</TABLE>
F-32
<PAGE>
THE JUDGE GROUP, INC.
NOTES TO PRO FORMA
CONSOLIDATING STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND
YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
(1) Adjustments to reflect amortization from goodwill. Goodwill is
calculated as follows:
Berkeley acquisition --
<TABLE>
<S> <C> <C>
Cash at settlement...................................................... $ 175,000
Cash payments of $50,000 per month from October through
December 1996......................................................... 150,000
Holdback payments, subject to net income tests, payable by issuance of
promissory notes 30 days after net income is finally determined, at 8%
per annum over 36 months.............................................. 572,200
Cash payable within 30 days of consummation of public offering.......... 735,000
30,000 Judge common shares.............................................. 300,000
Notes payable, at 8% per annum interest in 44 equal monthly
installments.......................................................... 300,000
----------
Purchase price.......................................................... $2,232,200
==========
Less: Net asset value................................................... 154,055
Plus: Cost of acquisition............................................... 141,484
----------
Goodwill................................................................ $2,219,629 $2,219,629
==========
</TABLE>
Goodwill to be amortized equally over 15 years in equal monthly
installments of $12,331
Systems Automation acquisition --
<TABLE>
<S> <C> <C>
Cash at settlement ............................................... $ 75,000
Cash payable within 15 days of consummation of the public offering 472,252
-----------
Purchase price ................................................... $ 547,252
===========
Less: Net asset value ............................................ (479,357)
Plus: Cost of acquisition ........................................ 12,964
-----------
Goodwill ......................................................... $ 1,039,573 1,039,573
=========== ---------
Goodwill to be amortized equally over 10 years in equal monthly
installments of $8,663
Total Goodwill, September 30, 1996 ...................... $ 3,259,202
===========
</TABLE>
JIS Merger --
<TABLE>
<S> <C>
Minority interest shares................................................ 959,676
Value per share to be received in Judge Group common shares............. $ 2.50
-----------
Aggregate value of Judge Group common shares to be received by minority
shareholders.......................................................... 2,399,190
Minority interest recorded at September 30, 1996........................ (271,248)
-----------
Goodwill................................................................ $ 2,127,942
===========
Goodwill to be amortized equally over 15 years in equal monthly
installments of $11,822.
Total goodwill amortization, all transactions is $32,816 per month.
Amortization for year ended December 31, 1995 is $393,795
Amortization for nine months ended September 30, 1996 is $295,347
</TABLE>
F-33
<PAGE>
(2) Adjustments to reflect interest expense on notes payable, resulting
from business combination with Berkeley of $57,783 in the year ended December
31, 1995 and $46,472 in the nine months ended September 30, 1996.
(3) Adjustments to record reduction in interest expense, relating to
conversion of convertible notes into Judge Group Common Shares, of $50,000 in
the year ended December 31, 1995 and $37,500 in the nine months ended September
30, 1996.
(4) Adjustment to record merger of JIS into a wholly-owned subsidiary of
Judge Group as though it occurred at the beginning of each of the pro forma
periods presented. The adjustment represents the elimination of the minority
interest for each of the periods presented.
(5) Adjustments to provide for Federal and state income tax expense
(benefit) attributable to income (loss) of Berkeley and Systems Automation as
well as the amortization of goodwill and interest expense recognized in
adjustments (1), (2) and (3) above, all at an effective rate of 40%.
(6) Primary and fully diluted earnings per share amounts are computed based
on the weighted average number of shares actually outstanding after giving
effect to the stock split (8,587,739 shares) plus the shares that would be
outstanding assuming the successful completion of the public offering (3,000,000
shares), the conversion of convertible notes (526,000 shares (which are expected
to be exchanged for common shares -- See Note 8 in the September 30, 1996
consolidated financial statements included in the Registration Statement)), the
acquisition of Berkeley (30,000 shares), the exercise of outstanding stock
options (2,925 shares), and the completion of the Merger (892,748 shares). The
number of shares used in the calculation was approximately 13,039,412 for each
period presented.
(7) Represents two months of DataImage operations which occurred prior to
the JCC/DI merger on February 29, 1996. The remaining seven months of operations
is included in The Judge Group, Inc. consolidated statements of operations.
F-34
<PAGE>
THE JUDGE GROUP, INC.
PRO FORMA CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
THE JUDGE SYSTEM
GROUP, INC. DATAIMAGE BERKELEY AUTOMATION
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES........................................................ $ 63,299,353 $1,284,333 $ 2,324,524 $1,187,273
------------ ----------- ----------- -----------
COSTS AND EXPENSES
Cost of Sales (Exclusive of items shown separately below)..... 47,550,114 800,841 1,807,348 523,448
Selling and Operating......................................... 9,797,875 437,904 0 659,967
General and Administrative.................................... 4,187,485 0 443,181 169,976
------------ ----------- ----------- -----------
Total Costs and Expenses.................................... 61,535,474 1,238,745 2,250,529 1,353,391
------------ ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS................................... 1,763,879 45,588 73,995 (166,118)
Interest Expense................................................ (670,110) (6,070) (16,325) (6,261)
Other Income (expense).......................................... (27,229) 0 1,335 180,901
------------ ----------- ----------- -----------
Income (loss) before Income Tax Expense and Minority Interest... 1,066,540 39,518 59,005 8,522
Income Tax Expense (Benefit).................................... 587,957 0 0 0
------------ ----------- ----------- -----------
INCOME (LOSS) BEFORE MINORITY INTEREST.......................... 478,583 39,518 59,005 8,522
MINORITY INTEREST IN NET LOSS OF CONSOLIDATED SUBSIDIARY........ 7,057 0 0 0
------------ ----------- ----------- -----------
NET INCOME (LOSS)............................................... $ 485,640 $ 39,518 $ 59,005 $ 8,522
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
NET INCOME (LOSS) PER COMMON SHARE:
Primary.......................................................
Fully Diluted.................................................
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING.....................................
<CAPTION>
CONSOLIDATED
THE JUDGE PRO FORMA
GROUP, INC. PRO FORMA YEAR ENDED
TOTAL ADJUSTMENTS 31-DEC-95
---------------- ----------- ------------
<S> <C> <C> <C>
REVENUES........................................................ $ 68,095,483 $ 0 $ 68,095,483
---------------- ----------- ------------
COSTS AND EXPENSES
Cost of Sales (Exclusive of items shown separately below)..... 50,681,751 $ 50,681,751
Selling and Operating......................................... 10,895,746 10,895,746
General and Administrative.................................... 4,800,642 393,795(1) 5,194,437
---------------- ----------- ------------
Total Costs and Expenses.................................... 66,378,139 393,795 66,771,934
---------------- ----------- ------------
INCOME (LOSS) FROM OPERATIONS................................... 1,717,344 (393,795) 1,323,549
Interest Expense................................................ (698,766) (7,783)(2)(3) (706,549)
Other Income (expense).......................................... 155,007 0 155,007
---------------- ----------- ------------
Income (loss) before Income Tax Expense and Minority Interest... 1,173,585 (401,578) 772,007
Income Tax Expense (Benefit).................................... 587,957 (133,620)(5) 454,337
---------------- ----------- ------------
INCOME (LOSS) BEFORE MINORITY INTEREST.......................... 585,628 (267,958) 317,670
MINORITY INTEREST IN NET LOSS OF CONSOLIDATED SUBSIDIARY........ 7,057 (7,057)(4) 0
---------------- ----------- ------------
NET INCOME (LOSS)............................................... $ 592,685 ($275,015) $ 317,670
---------------- ----------- ------------
---------------- ----------- ------------
NET INCOME (LOSS) PER COMMON SHARE:
Primary....................................................... $ 0.02(6)
------------
------------
Fully Diluted................................................. $ 0.02(6)
------------
------------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING..................................... 13,039,412
------------
------------
</TABLE>
F-35
<PAGE>
THE JUDGE GROUP, INC.
PRO FORMA CONSOLIDATING STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
THE JUDGE
THE JUDGE BERKELEY SYSTEM GROUP, INC.
GROUP INC. DATAIMAGE(7) ASSOCIATES AUTOMATION TOTAL
------------ ------------ ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
REVENUES................................................... $ 58,914,238 $ 122,692 $ 2,044,279 $ 866,779 $ 61,947,988
------------ ------------ ----------- ----------- ----------------
COSTS & EXPENSES
Cost of sales (Exclusive of items shown separately
below)................................................... 43,232,381 60,450 1,439,845 358,036 45,090,712
Selling and operating...................................... 10,022,739 77,829 0 547,020 10,647,588
General and administrative................................. 4,310,467 7,317 389,557 171,303 4,878,644
------------ ------------ ----------- ----------- ----------------
Total Costs & Expenses................................... 57,565,587 145,596 1,829,402 1,076,359 60,616,944
------------ ------------ ----------- ----------- ----------------
INCOME (LOSS) FROM OPERATIONS.............................. 1,348,651 (22,904) 214,877 (209,580) 1,331,044
Interest Expense........................................... (599,597) 0 (13,289) (4,202) (617,088)
Other income (expense)..................................... 0 (3,598) 303 107 (3,188)
------------ ------------ ----------- ----------- ----------------
Income (loss) before income tax expense (benefit) and
minority interest........................................ 749,054 (26,502) 201,891 (213,675) 710,768
Income Tax Expense (benefit)............................... 614,700 0 0 0 614,700
------------ ------------ ----------- ----------- ----------------
Income (loss) before minority interest in net income (loss)
of consolidated subsidiary............................... 134,354 (26,502) 201,891 (213,675) 96,068
Minority interest in net income (loss) of consolidated
subsidiary............................................... 616,752 0 0 0 616,752
------------ ------------ ----------- ----------- ----------------
NET INCOME (LOSS).......................................... $ 751,106 ($ 26,502) $ 201,891 ($213,675) $ 712,820
------------ ------------ ----------- ----------- ----------------
------------ ------------ ----------- ----------- ----------------
NET INCOME (LOSS) PER COMMON SHARE:
Primary..................................................
Fully diluted............................................
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING................................
<CAPTION>
CONSOLIDATED
PRO FORMA
PRO FORMA NINE MONTHS ENDED
ADJUSTMENTS 30-SEP-96
----------- ------------------
<S> <C> <C>
REVENUES................................................... $ 0 $ 61,947,988
----------- ------------------
COSTS & EXPENSES
Cost of sales (Exclusive of items shown separately
below)................................................... 0 45,090,712
Selling and operating...................................... 0 10,647,588
General and administrative................................. 295,347(1) 5,173,991
----------- ------------------
Total Costs & Expenses................................... 295,347 60,912,291
----------- ------------------
INCOME (LOSS) FROM OPERATIONS.............................. (295,347) 1,035,697
Interest Expense........................................... (8,972)(2)(3) (626,060)
Other income (expense)..................................... 0 (3,188)
----------- ------------------
Income (loss) before income tax expense (benefit) and
minority interest........................................ (304,319) 406,449
Income Tax Expense (benefit)............................... (126,441)(5) 488,259
----------- ------------------
Income (loss) before minority interest in net income (loss)
of consolidated subsidiary............................... (177,878) (81,810)
Minority interest in net income (loss) of consolidated
subsidiary............................................... (616,752)(4) 0
----------- ------------------
NET INCOME (LOSS).......................................... ($794,630) ($ 81,810)
----------- ------------------
----------- ------------------
NET INCOME (LOSS) PER COMMON SHARE:
Primary.................................................. ($ 0.01)(6)
------------------
------------------
Fully diluted............................................ ($ 0.01)(6)
------------------
------------------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING................................ 13,039,412
------------------
------------------
</TABLE>
F-36
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
INDEX TO FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
CONTENTS
NUMBER PAGE(s)
- ------ -------
CONDENSED BALANCE SHEETS AS OF SEPTEMBER 30, 1996
AND DECEMBER 31, 1995.......................................... F-38
CONDENSED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1995.................................... F-39
CONDENSED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 1996 AND 1995.............................. F-40
CONDENSED STATEMENT OF SHAREHOLDERS' DEFICIENCY FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1996................................ F-41
CONDENSED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1995.................................... F-42
NOTES TO CONDENSED FINANCIAL STATEMENTS............................. F-43 - F-51
F-37
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
CONDENSED BALANCE SHEETS
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
---- ----
<S> <C> <C>
CURRENT ASSETS
Cash $ 10,964 $ 11,310
Accounts receivable, net of allowance for doubtful accounts
of $29,000 in 1996 and $23,000 in 1995 2,869,086 1,471,916
Other receivables 35,656 50,000
Inventories 832,928 515,099
Prepaid expenses and other 291,246 273,672
---------- ----------
Total current assets 4,039,880 2,321,997
---------- ----------
PROPERTY AND EQUIPMENT, NET 556,299 194,870
---------- ----------
OTHER ASSETS
Security deposits 19,603 14,063
---------- ----------
TOTAL ASSETS $4,615,782 $2,530,930
========== ==========
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Equipment note payable, current portion $ 44,576 $ 15,150
Accounts payable and accrued expenses 1,661,896 891,829
Payroll and sales taxes payable 133,185 112,336
Deferred revenue 274,122 46,111
Advances from shareholders 105,263 139,906
---------- ----------
Total current liabilities 2,219,042 1,205,332
---------- ----------
EQUIPMENT NOTE PAYABLE, NET OF CURRENT PORTION 108,637 53,233
---------- ----------
NOTE PAYABLE, BANK 2,585,558 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 par value,
10,000,000 shares authorized,
3,980,141 and 3,730,133 shares issued and outstanding
for 1996 and 1995, respectively 39,801 37,301
Preferred Stock - Series A, $0.01 par value,
5,000,000 shares authorized,
822,628 shares issued and outstanding, 1996 8,226 --
Contributed capital 1,589,576 888,212
Accumulated deficit (3,455,058) (2,642,023)
---------- ----------
Total shareholders' deficiency (1,817,455) (1,716,510)
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIENCY $4,615,782 $2,530,930
========== ==========
</TABLE>
See Notes to Condensed Financial Statements.
F-38
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
CONDENSED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
NET REVENUES, including related party revenues
of $500,000 in 1996 and $514,000 in 1995 $10,071,274 $6,160,369
COST OF REVENUES (exclusive of items shown
separately below) 7,565,430 4,680,558
----------- ----------
GROSS PROFIT 2,505,844 1,479,811
OPERATING EXPENSES
Selling, general and administrative 3,170,670 1,390,258
----------- ----------
INCOME (LOSS) FROM OPERATIONS (664,826) 89,553
OTHER EXPENSES, principally interest (148,209) (170,389)
----------- ----------
LOSS BEFORE PREFERRED DIVIDENDS (813,035) (80,836)
PREFERRED DIVIDENDS EARNED (132,300) (13,747)
----------- ----------
NET LOSS ATTRIBUTABLE TO
COMMON SHAREHOLDERS ($945,335) ($94,583)
=========== ==========
NET LOSS PER SHARE AND FULLY DILUTED
NET LOSS PER SHARE ATTRIBUTABLE
TO COMMON SHAREHOLDERS ($0.26) ($0.04)
====== ======
</TABLE>
See Notes to Condensed Financial Statements.
F-39
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
NET REVENUES, including related party revenues
of $61,000 in 1996 and $150,000 in 1995 $3,916,775 $2,783,022
COST OF REVENUES (exclusive of items shown
separately below) 2,936,445 2,037,796
---------- ----------
GROSS PROFIT 980,330 745,226
OPERATING EXPENSES
Selling, general and administrative 1,309,855 531,459
---------- ----------
INCOME (LOSS) FROM OPERATIONS (329,525) 213,767
OTHER EXPENSES, principally interest (58,227) (45,005)
---------- ----------
INCOME (LOSS) BEFORE
PREFERRED DIVIDENDS (387,752) 168,762
PREFERRED DIVIDENDS EARNED (56,700) (4,582)
---------- ----------
NET INCOME (LOSS) ATTRIBUTABLE TO
COMMON SHAREHOLDERS ($444,452) $ 164,180
========== ==========
NET INCOME (LOSS) PER SHARE AND
FULLY DILUTED NET INCOME (LOSS) PER SHARE
ATTRIBUTABLE TO COMMON SHAREHOLDERS ($0.11) $0.07
====== =====
</TABLE>
See Notes to Condensed Financial Statements.
F-40
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
CONDENSED STATEMENT OF SHAREHOLDERS' DEFICIENCY
NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
SERIES A
COMMON STOCK PREFERRED STOCK
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
BALANCE
DECEMBER 31, 1995 3,730,133 $ 37,301 -- $ --
ISSUANCE OF
SERIES A
PREFERRED STOCK, NET -- -- 822,628 8,226
MERGER
TRANSACTIONS 250,008 2,500 -- --
NET LOSS -- -- -- --
---------- -------- ------- -----------
BALANCE,
SEPTEMBER 30, 1996 3,980,141 $ 39,801 822,628 $ 8,226
========== ======== ======= ===========
</TABLE>
ADDITIONAL ACCUMULATED
PAID-IN DEFICIT TOTAL
CAPITAL
BALANCE,
DECEMBER 31, 1995 $ 888,212 ($2,642,023) ($1,716,510)
ISSUANCE OF
SERIES A
PREFERRED STOCK 880,160 -- 888,386
MERGER
TRANSACTIONS (178,796) -- (176,296)
NET LOSS -- (813,035) (813,035)
---------- ----------- -----------
BALANCE,
SEPTEMBER 30, 1996 $1,589,576 ($3,455,058) ($1,817,455)
========== =========== ===========
See Notes to Condensed Financial Statements.
F-41
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net loss ($813,035) ($80,836)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 81,388 26,987
Provision for doubtful accounts 22,000 --
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts and other receivables (1,350,699) (811,005)
Inventories (278,728) (544,311)
Prepaid expenses and other (12,334) (27,096)
Increase (decrease) in:
Accounts payable and accrued expenses 204,979 184,753
Payroll and sales taxes payable 20,849 (87,824)
Deferred revenue (83,628) (12,187)
Customer deposits (50,398) --
---------- ----------
Net cash used in operating activities (2,259,606) (1,351,519)
---------- ----------
INVESTING ACTIVITIES
Net cash used in investing activities,
purchases of property and equipment (185,866) (56,467)
---------- ----------
FINANCING ACTIVITIES
Cash acquired in business combination 13,786 --
Loan to DataImage, Inc. -- (50,000)
Repayments of advances to shareholders (34,643) (31,170)
Principal payments on equipment note borrowings (22,086) (6,215)
Advances from affiliates 69,550 98,749
Proceeds from notes payable, bank 1,047,133 1,104,400
Bank overdrafts 483,000 290,000
Issuance of Series A Preferred Stock, net 888,386 --
---------- ----------
Net cash provided by financing activities 2,445,126 1,405,764
---------- ----------
DECREASE IN CASH (346) (2,222)
CASH, JANUARY 1, 11,310 3,782
------- ------
CASH, SEPTEMBER 30, $10,964 $1,560
======= ======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the nine months for interest $141,349 $148,000
======== ========
</TABLE>
See Notes to Condensed Financial Statements.
F-42
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Description of Business
Judge Imaging Systems, Inc. (the "Company" or "JIS") 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 United States. 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 nine months and the
three months ended September 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 note disclosure normally
included in annual financial statements have been condensed
or omitted in the financial information for the nine and
three months ended September 30, 1996 and 1995 pursuant to
SEC Rules and Regulations. Management believes that the
disclosures which have been made are adequate.
The results of operations for the nine and three months ended
September 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 three and nine months ended September 30,
1995 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 nine months ended September
30, 1996 includes nine months of Judge operations and seven
months (from February 29, 1996, the effective date of merger)
of DataImage, Inc.'s operations. The statement of operations
for the three months ended September 30, 1996 includes three
months of Judge operations and three months of DataImage,
Inc.'s operations. Certain components of shareholders'
deficiency in the December 31, 1995 balance sheet have been
retroactively restated to reflect the terms of the merger
with DataImage, Inc. (the legally surviving entity) which
actually occurred on February 29, 1996.
At September 30, 1996, the Company is a 26% owned subsidiary
of The Judge Group, Inc. (formerly 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
The Judge Group, Inc.
Business Combination
On September 13, 1995, DataImage, Inc. ("DataImage") entered
into a Letter of Intent with respect to a proposed merger
transaction between DataImage and Judge.
On December 1, 1995, DataImage and Judge executed the
Agreement and Plan of Merger (the "Merger Agreement") with
respect to the merger transaction (the "Merger") 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:
o 3,665,770 shares of Judge preferred stock were converted
into common stock;
o Judge'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 Preferred
Stock, par value $.01, and 25,000 shares of Series B
Preferred Stock, par value $.01;
F-43
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)
o $1,520,000 of advances from Judge, Inc./Judge Technical
Services, Inc. were converted into 1,500 shares of Judge
Series B Preferred Stock;
o Judge raised approximately $888,000 (net of related
costs of approximately $208,000) in a private placement
offering of Series A Preferred Stock (the "Preferred A
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
A Stock carries a cumulative dividend of 7% per year and
holders have a liquidation preference over the common stock
shareholders and all other existing classes of
shareholders. In the event the 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
Preferred A Stock.
The Merger was consummated effective February 29, 1996. A
brief summary of the Merger follows:
o Judge, a privately-owned corporation, was merged with
and into DataImage, with DataImage as the surviving
entity. Following the Merger, the separate existence of
Judge ceased, and DataImage continued as the surviving
corporation under Delaware law and changed its name to
"Judge Imaging Systems, Inc." 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 Company continued to be a public reporting
company;
o 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 Systems,
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 Preferred
Stock and 1,500 shares of Series B Stock; the remaining
shares of Preferred Stock are "blank check" shares issuable
at the discretion of the Board of Directors of JIS. The
Series A Preferred Stock and the Series B Preferred Stock
of JIS have essentially the same rights and privileges as
the Series A Preferred Stock and the Series B Preferred
Stock of Judge existing immediately prior to the Merger.
The Series A 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;
o At the effective time of the Merger, each DataImage
shareholder automatically received one share of JIS 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;
o At the effective time of the Merger, each holder of
Judge Common Stock automatically received shares of JIS
Common Stock. The number of shares received was calculated
as one share of JIS Common Stock for every 2.832693723
shares of Judge Common Stock held;
F-44
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)
o At the effective time of the Merger, each Judge
shareholder received one share of JIS Series A Preferred
Stock for each share of Judge Series A Convertible
Preferred Stock held, and one share of JIS Series B
Preferred Stock for each share of Judge Series B Preferred
Stock held;
o 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 Preferred Stock to Common Stock, there are
approximately 5,000,000 shares of Common Stock of JIS
outstanding immediately following the Merger, of which
holders of DataImage Common Stock immediately prior to the
Merger would receive in the aggregate approximately 5%
(approximately 250,000 shares) and the holders of Judge
Common Stock and Series A Preferred Stock immediately prior
to the Merger would 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 Merger 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 ascribed to DataImage's net loss
carryforwards as a result of limitations on these
carryforwards subsequent to the change in control.
DataImage, after changing its name to Judge Imaging
Systems, Inc., was to remain a registrant under the
Securities and Exchange Commission Rule.
o As a consequence, a change in control of DataImage 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 DataImage
and change in the share ownership of DataImage.
The persons from whom control of DataImage 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
DataImage pursuant to an agreement with DataImage 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 DataImage 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
Merger 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 Merger qualifies 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.
F-45
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)
At September 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.
Revenue Recognition and Deferred Revenues
Revenue from sales of the Company's 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
and development costs are significant to the completion of
the contract, revenue is recognized by the percentage of
completion method. Deferred revenue on the accompanying
balance sheet as of September 30, 1996, includes
approximately $34,000 of billings in excess of costs and
estimated earnings on contracts-in-progress.
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. At September 30, 1996, substantially all
service contracts are due to expire within the following
twelve months.
Revenues billed in advance for warranties and maintenance
contracts are deferred and recorded as income in the period
in which the services are rendered. At September 30, 1996,
$240,737 of warranty, maintenance and service contract
revenue has been deferred.
Inventories
Inventories consist of computer and related supplies and
equipment held for resale, and are valued at the lower of
cost (first-in, first-out) or market. Inventories include
approximately $56,000 of costs and estimated earnings in
excess of billings on contracts-in-progress.
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.
F-46
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
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 December 31, 1995 and September 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
nine months ended September 30, 1996 and 1995 were 3,637,002
and 2,333,204, respectively. The weighted average number of
shares outstanding, primary and fully diluted, during the
three months ended September 30, 1996 and 1995 were 3,980,141
and 2,333,204, respectively.
F-47
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
NOTE 2. PRO-FORMA RESULTS OF OPERATIONS
The following sets forth the combined results of operations
for both Judge and DataImage for the nine and three months
ended September 30, 1996 and 1995, as if the Merger occurred
at January 1, 1996 and 1995, respectively.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Revenues $3,916,775 $3,226,936 $10,193,966 $7,250,210
Cost of Revenues (exclusive of items 2,936,445 2,223,915 7,625,880 5,239,303
shown separately below) ---------- ---------- ----------- ----------
Gross Profit 980,330 1,003,021 2,568,086 2,010,907
Operating Expenses:
Selling, general
and administrative 1,309,855 688,160 3,255,816 1,879,082
--------- ------- --------- ---------
Income (Loss) from Operations (329,525) 314,861 (687,730) 131,825
Other Income (Expenses), net(1) (58,227) (36,812) (148,226) (176,868)
---------- ---------- ----------- ----------
Net Income (Loss) ($387,752) $ 278,049 ($835,956) ($45,043)
---------- ---------- ----------- ----------
7% Cumulative Dividend
On Series A Preferred Stock (19,200) (19,200) (57,600) (57,600)
Less 10% Cumulative Dividends
On Series B Preferred Stock (37,500) (37,500) (112,500) (112,500)
---------- ---------- ----------- ----------
Net Income (Loss) Attributable To
Common Shareholders ($444,452) $ 221,349 ($1,006,056) ($215,143)
========== ========== =========== ==========
Weighted Average Number of Shares 3,980,141 3,980,141 3,980,141 3,980,141
========== ========== =========== ==========
Net Income (Loss) Per Share
Attributable To Common Shareholders(2) ($0.11) $0.06 ($0.25) ($0.05)
====== ===== ====== ======
</TABLE>
Notes to Pro-Forma results of Operations:
(1) Interest expense adjusted due to the
conversion of DataImage, Inc.'s stockholders'
notes payable to common stock.
(2) Primary and fully-diluted net income (loss)
per share of common stock is calculated as
indicated (the assumed conversion of certain
convertible preferred stock has not been
considered in the calculation since the
effect of such conversion would be
antidilutive).
F-48
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
NOTE 3. NOTE PAYABLE, BANK
The Company and several affiliated entities (collectively the
"Judge Group") have entered into a credit agreement with PNC
Bank, N.A. (successor to Midlantic Bank, N.A.) (the "Bank")
pursuant to which the 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% (9.25% at September 30, 1996). This
facility allows JIS and the Judge Group to borrow in the
aggregate the lesser of 80% of eligible receivables or
$10,000,000. As of September 30, 1996 total borrowings under
the Line of Credit were $2,585,558. The Line of Credit
contains financial covenants certain of which were in
violation at September 30, 1996, but which were waived by the
Bank. The Line of Credit is collateralized by substantially
all of the Company's assets as well as substantially all of
The Judge Group, Inc.'s and Judge Technical Services, Inc.'s
assets and is personally guaranteed by certain shareholders.
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 of Credit. The term loan, which
carries an interest rate of prime plus 1.5%, is payable in 60
monthly installments. The Company has not received any
proceeds of borrowings under the term loan.
Included in accounts payable and accrued expenses at
September 30, 1996 were approximately $773,000 of bank
overdrafts.
NOTE 4. RELATED PARTY TRANSACTIONS
The Company had advances from The Judge Group, Inc. (formerly
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 Judge 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. JIS shares have the same rights and privileges as
the predecessor shares, and are mandatorily redeemable upon
the tenth anniversary of issuance or upon a subsequent public
offering of at least $6,000,000.
During the nine months ended September 30, 1996 and 1995, the
Company billed a subsidiary of The Judge Group, Inc. for
consulting and related technical advisory services in the
amount of $45,000 and $360,000, respectively. During the nine
months ended September 30, 1996 and 1995, the Company sold
approximately $455,000 and $154,000, respectively, of
computer-related equipment to The Judge Group, Inc. and/or
its subsidiaries. Such amounts are included in net revenues
in the accompanying statement of operations.
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).
F-49
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
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 Merger.
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 $107,000.
During 1995, the Company entered into certain financing
arrangements for the purchase of property and equipment in
the amount of approximately $15,000.
Supplemental Disclosure of Noncash Investing and Financing
Activities:
Effective February 29, 1996, Judge Computer Corporation and
DataImage effected a Merger:
<TABLE>
<S> <C>
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 Merger ($240,082)
=========
</TABLE>
NOTE 7. PROPOSED MERGER WITH THE JUDGE GROUP, INC.
On September 4, 1996 the Board of Directors for both The Judge
Group, Inc. (formerly Judge, Inc.) and JIS approved the
proposed acquisition of JIS by The Judge Group, Inc. by means
of a merger of JIS into a wholly-owned subsidiary of The Judge
Group, Inc (the "JIS Merger"). On October 1, 1996, The Judge
Group, Inc. filed a Registration Statement on Form S-1 (the
"S-1") with the Securities and Exchange Commission ("SEC")
registering the shares it proposes to sell in an initial
public offering (the "Public Offering"). On October 9, 1996,
The Judge Group, Inc. filed a Registration Statement on Form
S-4 (the "S-4") with the SEC registering the stock to be
issued by The Judge Group, Inc. to the shareholders of JIS in
connection with the JIS Merger. Subject to JIS stockholder
approval, immediately prior to the Public Offering, and as a
condition to the completion of the Public Offering, the
F-50
<PAGE>
JIS Merger will occur, with JIS merging into a newly
organized, wholly-owned subsidiary of The Judge Group, Inc.
("Judge Acquisition"). Judge Acquisition will be the surviving
corporation in the JIS Merger and will change its name to
"Judge Imaging Systems, Inc." As a result of the JIS Merger,
JIS will become a wholly-owned subsidiary of The Judge Group,
Inc. at the time of the Public Offering. Each share of JIS
common stock or Series A Preferred Stock outstanding at the
time of the JIS Merger will be converted into that number of
Common Shares of The Judge Group, Inc. equal to $2.50 divided
by the initial per share price in the Public Offering.
However, completion of the JIS Merger is subject to (i)
approval of the stockholders of JIS, (ii) the SEC declaring
both the S-1 and the S-4 effective, and (iii) completion of
the Public Offering and certain other conditions related
thereto.
F-51
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
INDEX TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
C O N T E N T S
PAGE(s)
-------
INDEPENDENT AUDITORS' REPORT F-52
BALANCE SHEET F-53
STATEMENTS OF OPERATIONS F-54
STATEMENTS OF SHAREHOLDERS' DEFICIENCY F-55
STATEMENTS OF CASH FLOWS F-56
NOTES TO FINANCIAL STATEMENTS F-57 - F-66
<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.
/s/ Rudolph, Palitz LLP
March 20, 1996
Plymouth Meeting, PA
F-52
<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, $.01 par value, 10,000,000 shares
authorized, 3,730,133 shares issued and outstanding 37,301
Additional paid-in capital 888,212
Accumulated deficit (2,642,023)
-----------
Total shareholders' deficiency (1,716,510)
-----------
$2,530,930
==========
F-53
<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 (Exclusive of items
shown separately below) 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 ($.12) ($.30)
===== =====
See Notes to Financial Statements.
F-54
<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 ACCUMULATED
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
MERGER TRANSACTIONS (3,170,444) 2,798 (3,665,770) (366,577) 363,779 - 0
NET LOSS - - - - - (272,458) (272,458)
--------- -------- --------- --------- -------- ------------ -----------
BALANCE,
DECEMBER 31, 1995 3,730,133 $ 37,301 0 $ 0 $888,212 ($2,642,023) ($1,716,510)
========= ======== ========= ========= ======== ========== ==========
</TABLE>
See Notes to Financial Statements.
F-55
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
(FORMERLY JUDGE COMPUTER CORPORATION)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
---- ----
OPERATING ACTIVITIES
<S> <C> <C>
Net loss ($ 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
F-56
<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 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.
F-57
<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. Certain components
of shareholders' deficiency in the December 31, 1995 balance sheet
have been retroactively restated to reflect the terms of the merger
with DataImage, the legally surviving entity.
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.
F-58
<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.
F-59
<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.
F-60
<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
========
F-61
<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.
F-62
<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 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 or 1994. Preferred stock were
redeemable 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 had the right to convert their preferred stock
into common stock. Such conversion of the preferred stock into common
stock occurred in 1996, immediately prior to the merger with DataImage
(see Note 1). Shareholders' deficiency at December 31, 1995 reflects
this conversion retroactively.
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
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.
F-63
<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)
-------- -------
$ - $ -
======== ========
F-64
<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 2,328,000 and
2,305,000, respectively.
F-65
<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 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.
F-66
<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 October 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.
4.2 Form of Common Stock Certificate for Judge Group Common Shares.
Exhibit 4.2 of Judge Group's Form S-1 if herein incorporated by
reference.
4.3 Fourth 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.
II-1
<PAGE>
10.2 Stock Purchase Agreement by and among The Judge Group, Inc., Berkeley
Associates Corporation, Sandy Mayer and Gregory McCartney. Exhibit 10.2
of Judge Group's Form S-1 is herein incorporated by reference.
10.3 Asset Purchase Agreement by and among The Judge Group, Inc. and Systems
Automation, Inc. and Edward Haskell. Exhibit 10.3 of Judge Group's
Form S-1 is herein incorporated by reference.
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 (No. 333-13109)
is herein incorporated by reference.
10.12 Form of Underwriting Agreement between The Judge Group, Inc. and Janney
Montgomery Scott, Inc. Exhibit 1.1 of Judge Group's Form S-1 is herein
incorporated by reference.
11.1* Statement re computation of per share earnings for Judge Imaging
Systems, Inc.
11.2* Statement re computation of per share earnings for The Judge Group, 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.
23.3** Consent of Janney Montgomery Scott Inc.
24.1** Powers of Attorney.
27.1** Financial Data Schedule.
II-2
<PAGE>
99.1* Form of Judge Imaging Systems, Inc. Proxy Card.
- ----------
* Filed herewith.
** Previously filed.
(b) Financial Statement Schedules: None
All 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:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
20 percent change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
registration statement.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;"
"(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) If the registrant is a foreign private issuer, to file a
post-effective amendment to the registration statement to include any
financial statements required by Rule 3-19 of this chapter at the start of
any delayed offering or throughout a continuous offering. Financial
statements and information otherwise required by Section 10(a)(3) of the
Act need not be furnished, provided, that the registrant
II-3
<PAGE>
includes in the prospectus, by means of a post-effective amendment,
financial statements required pursuant to this paragraph (a)(4) and other
information necessary to ensure that all other information in the
prospectus is at least as current as the date of those financial
statements. Notwithstanding the foregoing, with respect to registration
statements on Form F-3, a post-effective amendment need not be filed to
include financial statements and information required by Section 10(a)(3)
of the Act or Rule 3-19 of this chapter if such financial statements and
information are contained in periodic reports filed with or furnished to
the Commission by the registrant pursuant to Section 13 or Section 15(d) of
the Securities Exchange Act of 1934 that are incorporated by reference in
the Form F-3."
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 supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it become effective.
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 23rd day of December, 1996.
THE JUDGE GROUP, INC.
By: /s/ Martin E. Judge, Jr.
------------------------------------
Martin E. Judge, Jr.
Chief Executive Officer
II-4
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
/s/ Martin E. Judge, Jr.
- ------------------------------- Chief Executive Officer December 23, 1996
Martin E. Judge, Jr. and Chairman of the Board
(Principal Executive Officer)
/s/ Jeffrey J. Andrews
- ------------------------------- Chief Financial Officer December 23, 1996
Jeffrey J. Andrews and Treasurer
(Principal Financial
and Accounting Officer)
/s/ Michael A. Dunn
- ------------------------------- Executive Vice President December 23, 1996
Michael A. Dunn and Director
/s/ Richard T. Furlano
- ------------------------------- President and Director December 23, 1996
Richard T. Furlano
II-5
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Document
- ------ -----------------------
11.1 Statement re computation of per share earnings for Judge Imaging
Systems, Inc.
11.2 Statement re computation of per share earnings for The Judge Group,
Inc.
23.2 Consent of Rudolph, Palitz LLP
99.1 Form of Judge Imaging Systems, Inc. Proxy Card.
II-6
Judge Imaging Systems, Inc. EXHIBIT 11.1
Computation of Earnings Per Share
on historical and pro forma adjusted basis
<TABLE>
<CAPTION>
Nine Months Ended September 30, Year Ended December 31,
1996 1995 1995 1994
<S> <C> <C> <C> <C>
JIS Historical:
Weighted average common shares
outstanding 3,637,002 2,333,204 2,328,173 2,304,961
=============================================================
Net loss $ (813,035) $ (80,836) $ (272,458) $ (666,607)
=============================================================
Net loss attributable to common
shareholders(3) $ (945,335) $ (94,583) $ (290,787) $ (684,936)
=============================================================
Primary and fully diluted net loss per
common share(4) $ (0.26) $ (0.04) $ (0.12) $ (0.30)
=============================================================
Judge Group Pro forma adjusted:(1)
Weighted average common shares
outstanding(2) 9,113,739 9,113,739
Shares issued assuming successful
public offering 3,000,000 3,000,000
Shares issued in Berkeley acquisition 30,000 30,000
Shares issued in Merger 892,748 N/A 892,748 N/A
Exercise of outstanding stock options 2,925 2,925
----------- -------------
Pro forma weighted average common shares
outstanding 13,039,412 13,039,412
Pro forma net income (loss) $ (81,810) $ 317,670
Fully diluted net income (loss) per common
share $ (0.01) $ 0.02
JIS Equivalent pro-forma:
Exchange of 1 Judge share for every 4 JIS
shares results in Equivalent pro-forma income
(loss) per share $ (0.003) N/A $ 0.005 N/A
=========== ============
</TABLE>
(1) All Judge Group per share and share amounts reflect a 52.6 for 1.0 stock
split which occurred on September 23, 1996.
(2) Fully diluted Judge Group shares includes common stock equivalents and
526,000 common shares issuable upon conversion of Judge Group's 10%
Convertible Senior Subordinated Notes.
(3) Net loss attributable to common shareholders represents net loss increased
by dividends on preferred stock.
(4) Primary and fully diluted net loss per share are identical since there has
been no consideration of the conversion of the JIS's Series A Preferred
Stock, since such conversion would be antidilutive.
EXHIBIT 11.2
The Judge Group, Inc.
Computation of Earnings Per Share
on historical and pro forma adjusted basis
<TABLE>
<CAPTION>
Nine Months
Ended September 30, Year Ended December 31,
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Historical: (1):
Weighted average common shares outstanding 8,587,739 8,587,739 8,587,739 8,587,739 8,500,160
========= ========= ========= ========= =========
Net Income (loss) $751,106 $519,143 $485,640 $343,251 $101.388
======== ======== ======== ======== ========
Primary net income (loss) per common share $0.08 $0.06 $0.06 $0.04 $0.01
===== ===== ===== ===== =====
Weighted average common shares outstanding (2) 9,113,739 9,113,739 9,113,739 8,850,739 8,500,160
========= ========= ========= ========= =========
Net lncome (loss) $751,106 $519,143 $485,640 $343,251 $101,388
======== ======== ======== ======== ========
Net income (loss) after adjustment for interest expense on
convertible debentures and preferred dividends
earned on JIS preferred stock $742,507 $541,643 $515,640 $358,251 $101,388
======== ======== ======== ======== ========
Fully diluted net income (loss) per common share $.008 $0.06 $0.06 $0.04 $0.01
===== ===== ===== ===== =====
Pro forma adjusted: (1)
Weighted average common shares outstanding (2) 9,113,739 9,113,739
Shares issued assuming successful public offering 3,000,000 3,000,000
Shares issued in Berkeley acquisition 30,000 30,000
Shares issued in JIS merger 892,748 N/A 892,748 N/A N/A
Exercise of outstanding stock options 2,925 2,925
----- -----
Pro forma weighted average common shares outstanding 13,039,412 13,039,412
========== ==========
Pro forma net income (loss) ($81,810) $317,670
======== ========
Pro forma net income (loss) after adjustment for
interest expense on convertible debentures ($59,310) $347,670
======== ========
Fully diluted net income (loss) per common share ($0.00) $0.03
====== =====
</TABLE>
(1) All per share and share amounts reflect a 52.6 for 1.0 stock split which
occurred on September 23, 1996.
(2) Fully diluted shares includes common stock equivalents and 526,000 common
shares issuable upon conversion of the Company's 10% Convertible Senior
Subordinated Notes.
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
To the Board of Directors
The Judge Group, Inc.
Bala Cynwyd, Pennsylvania
We consent to the use of our reports included herein and to the references
to our firm under the headings "Experts" and "Selected Consolidated Financial
Data of the Judge Group, Inc." in the Proxy Statement/Prospectus.
/s/ Rudolph, Palitz LLP
-------------------------------
Rudolph, Palitz LLP
Plymouth Meeting, Pennsylvania
December 20, 1996
PROXY CARD Exhibit 99.1
Judge Imaging Systems, Inc.
Special Meeting of Shareholders
January 17, 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 Friday, January 17, 1997, 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/PROSPECTUS DATED DECEMBER 26, 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 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.
|_| 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.
____________________________, 199__
(Please Date)
