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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the transition period from __________ to __________
COMMISSION FILE NO. 0-21963
THE JUDGE GROUP, INC.
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(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-1726661
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
TWO BALA PLAZA, SUITE 800
BALA CYNWYD, PENNSYLVANIA 19004
------------------------------------------------------------
(Address of principal executive offices, including zip code)
(610) 667-7700
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
As of August 3, 1998, 13,487,576 shares of the Registrant's Common
Stock, $0.01 par value, were outstanding.
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<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington. D.C. 20549
THE JUDGE GROUP, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
NUMBER PAGE(S)
- ------ -------
PART I - FINANCIAL INFORMATION
------------------------------
<S> <C>
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 1998 AND DECEMBER 31, 1997 3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30,
1998 AND 1997 4
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30,
1998 AND 1997 5
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1997 6
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30,
1998 AND 1997 7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 8-12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 13-19
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 19
PART II - OTHER INFORMATION
---------------------------
ITEM 6. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K 20-22
</TABLE>
2
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,566,360 $ 1,684,482
Short-term investments -- 5,500,000
Accounts receivable, net 18,301,552 14,415,926
Inventories 1,554,896 1,468,902
Prepaid income taxes and deferred taxes 286,000 286,000
Other 1,740,527 712,416
----------- -----------
TOTAL CURRENT ASSETS 24,449,335 24,067,726
----------- -----------
PROPERTY AND EQUIPMENT
Property and Equipment 7,007,387 5,007,416
Less: accumulated depreciation and amortization 2,562,578 2,121,034
----------- -----------
NET PROPERTY AND EQUIPMENT 4,444,809 2,886,382
----------- -----------
OTHER ASSETS
Deposits and other 703,033 275,608
Covenant not to compete, net of accumulated amortization of $14,996, 1998 74,980 --
Goodwill, net of accumulated amortization of $681,901, 1998 and $405,944, 1997 15,175,338 4,703,855
----------- -----------
TOTAL OTHER ASSETS 15,953,351 4,979,463
----------- -----------
TOTAL ASSETS $44,847,495 $31,933,571
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 395,000 $ 237,721
Accounts payable and accrued expenses 9,558,361 3,647,048
Payroll and sales taxes 999,486 437,788
Other liabilities 1,882,288 --
Income taxes payable 21,937 291,515
Deferred revenue 1,129,711 928,324
----------- -----------
TOTAL CURRENT LIABILITIES 13,986,783 5,542,396
----------- -----------
LONG-TERM LIABILITIES
Note Payable, Bank 2,500,000 --
Deferred rent obligation 115,601 116,879
Debt obligations, net of current portion 450,462 --
----------- -----------
TOTAL LONG-TERM LIABILITIES 3,066,063 116,879
----------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, $.01 par value, 50,000,000 shares authorized; at June 30, 1998,
13,531,302 shares issued and outstanding; at December 31, 1997, 13,347,969 shares
issued and outstanding 135,312 133,479
Preferred stock, $.01 par value, 10,000,000 shares authorized -- --
Additional paid-in capital 23,624,391 22,758,517
Retained earnings 4,254,946 3,382,300
----------- -----------
28,014,649 26,274,296
Less treasury stock, 40,000 shares at June 30, 1998; at cost 220,000 --
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 27,794,649 26,274,296
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $44,847,495 $31,933,571
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
NET REVENUES $52,865,997 $49,540,975
----------- ------------
COSTS AND EXPENSES
Cost of sales (exclusive of items shown separately below) 35,821,772 35,619,056
Selling and operating 9,811,536 8,503,773
General and administrative 5,786,539 4,050,005
----------- -----------
Total costs and expenses 51,419,847 48,172,834
----------- -----------
INCOME FROM OPERATIONS 1,446,150 1,368,141
OTHER INCOME (EXPENSES), NET 51,180 (52,644)
----------- ------------
INCOME BEFORE INCOME TAX EXPENSE 1,497,330 1,315,497
INCOME TAX EXPENSE 624,684 674,083
----------- -----------
NET INCOME $ 872,646 $ 641,414
=========== ===========
NET INCOME PER SHARE:
BASIC $ 0.07 $ 0.05
====== ======
Weighted Average Shares Outstanding 13,419,350 12,164,486
========== ==========
DILUTED $ 0.07 $ 0.05
====== ======
Weighted Average Shares Outstanding 13,420,390 12,295,260
========== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
NET REVENUES $27,776,181 $26,062,572
----------- -----------
COSTS AND EXPENSES
Cost of sales (exclusive of items shown separately below) 18,401,828 18,472,409
Selling and operating 5,334,084 4,078,228
General and administrative 3,188,461 2,024,793
----------- -----------
Total costs and expenses 26,924,373 24,575,430
----------- -----------
INCOME FROM OPERATIONS 851,808 1,487,142
OTHER INCOME (EXPENSES), NET (10,277) 75,257
----------- -----------
INCOME BEFORE INCOME TAX EXPENSE 841,531 1,562,399
INCOME TAX EXPENSE 332,019 654,532
----------- -----------
NET INCOME $ 509,512 $ 907,867
=========== ===========
NET INCOME PER SHARE:
BASIC $ 0.04 $ 0.07
====== ======
Weighted Average Shares Outstanding 13,468,958 13,347,969
========== ==========
DILUTED $ 0.04 $ 0.07
====== ======
Weighted Average Shares Outstanding 13,491,998 13,347,969
========== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
Common Stock
----------------------- Additional Retained Treasury
Shares Amount Paid-In Capital Earnings Stock Total
------ ------ --------------- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 13,347,969 $133,479 $22,758,517 $3,382,300 $ -- $26,274,296
Acquisition transactions 183,333 1,833 865,874 -- -- 867,707
Purchase treasury stock -- -- -- -- (220,000) (220,000)
Net Income -- -- -- 872,646 -- 872,646
---------- -------- ----------- ---------- --------- -----------
Balance, June 30, 1998 13,531,302 $135,312 $23,624,391 $4,254,946 ($220,000) $27,794,649
========== ======== =========== ========== ========= ===========
</TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
Common Stock
----------------------- Additional Retained
Shares Amount Paid-In Capital Earnings Total
------ ------ --------------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 8,587,739 $ 85,877 $ 365,877 $ 670,360 $ 1,122,114
Merger transactions 1,194,230 11,942 2,416,498 -- 2,428,440
Initial Public Offering 3,000,000 30,000 19,209,991 -- 19,239,991
Conversion of debentures 526,000 5,260 494,740 -- 500,000
Conversion of note payable 40,000 400 299,600 -- 300,000
Net income -- -- -- 641,414 641,414
---------- -------- ----------- ---------- -----------
Balance, June 30, 1997 13,347,969 $133,479 $22,786,706 $1,311,774 $24,231,959
========== ======== =========== ========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
6
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net income for the period $ 872,646 $ 641,414
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation 452,121 299,677
Amortization 290,953 182,612
Deferred rent (1,278) (10,017)
Provision for losses on accounts receivable 47,890 204,936
Stock compensation -- 29,250
Changes in operating assets and liabilities:
(Increase) decrease in:
Short term investments 5,500,000 --
Accounts receivable (2,202,153) (3,092,456)
Inventories 386,026 353,089
Deposits and other (374,133) (76,930)
Prepaid income taxes -- 11,102
Other current assets (965,312) 518,196
Increase (decrease) in:
Accounts payable and accrued expenses 4,099,543 3,762,620
Payroll and sales taxes 483,879 (204,410)
Deferred revenue (68,522) 322,736
Income taxes payable (263,945) (89,978)
----------- -----------
Net cash provided by operating activities 8,257,715 2,851,841
----------- -----------
INVESTING ACTIVITIES
Purchases of property and equipment (1,721,903) (701,343)
(Increase) decrease in notes receivable, officers and employees, net -- 577,287
Purchase/acquisition of companies (6,869,109) --
Covenant not to compete (89,976) --
----------- -----------
Net cash used in investing activities (8,680,988) (124,056)
----------- -----------
FINANCING ACTIVITIES
Cash acquired in business combination 159,068 --
Proceeds from (repayments of) notes payable, bank, net 2,500,000 (9,960,795)
Proceeds (repayments) of bank overdrafts -- (1,858,000)
Principal payments on long-term debt (337,721) (2,113,544)
Repayment of bank note payable related to ISI purchase (476,576) --
Advances receivable related to On-Site purchase (319,620) --
Purchase of Treasury Stock (220,000) --
Proceeds from issuance of stock and exercise of warrants, net -- 19,239,991
Repayments from shareholders -- (95,862)
----------- -----------
Net cash provided by financing activities 1,305,151 5,211,790
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 881,878 7,939,575
CASH AND CASH EQUIVALENTS, BEGINNING 1,684,482 105,069
----------- -----------
CASH AND CASH EQUIVALENTS, ENDING $ 2,566,360 $ 8,044,644
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for Interest $ 25,000 $ 284,000
=========== ===========
Cash paid during the year for Income taxes $ 876,000 $ 721,000
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
7
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
NOTE 1. DESCRIPTION OF BUSINESS
The Judge Group, Inc. (the "Company") (formerly Judge, Inc.), 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 "Information
Management Services" business) and (iii) IT training (through its "IT Training"
business) on a range of software and network applications to corporate,
governmental and individual clients. At June 30, 1998, the Company,
headquartered in Bala Cynwyd, Pennsylvania, operated regional offices in
thirteen states throughout the United States. A substantial portion of the
Company's revenues are derived from customers located in the Mid-Atlantic
corridor of the United States.
The Contract Placement business includes the operations of two of the Company's
wholly-owned subsidiaries, Judge Technical Services, Inc. ("JTS"), and Judge
Technical Services of N.J., Inc. ("JTNJ").
The Permanent Placement business includes the operations of three of the
Company's wholly-owned subsidiaries, Judge, Inc., 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").
The Information Management Services business includes the operations of Judge
Imaging Systems, Inc. ("JIS") which became a wholly owned subsidiary of the
Company at the closing of the Company's initial public offering in 1997. Prior
to that time, JIS was a public company, a majority of whose shares was owned by
the Company and certain officers and directors of the Company, and which was
consolidated for financial reporting purposes.
During 1996, the Company engaged an investment banking firm to assist it in an
initial 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, as amended. The Company
successfully completed its initial public offering of common shares on February
20, 1997. The Company sold 3,000,000 common shares at a price of $7.50 per
share, realizing approximately $20,906,000 in proceeds net of underwriting
discounts and commissions. Immediately prior to the initial public offering, the
holders of $500,000 of convertible notes exchanged them for 526,000 Company
common shares. The Company issued 40,000 common shares in lieu of $300,000 of
notes payable to Berkeley, in accordance with the purchase agreement with
Berkeley. In connection with the initial public offering, the Company incurred
approximately $1,694,000 of accounting, legal, printing and other costs as of
December 31, 1997 and such costs have been charged to additional paid-in capital
as a reduction of the proceeds from the initial public offering.
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, and the Company's wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
The financial statements as of June 30, 1998 and for the three and six months
ended June 30, 1998 and 1997 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, 1997 and the notes
thereto.
The results of operations for the interim periods are not necessarily indicative
of the results that might be expected for future interim periods or for the full
year ended December 31, 1998.
8
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
Risks and Uncertainties
The preparation of the consolidated 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.
Intangible Assets
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 terms ranging from ten years to twenty five years.
Amortization of goodwill is based upon management's estimates for which it is
reasonably possible that such estimates may change in the near term.
Amortization of goodwill for the six months ended June 30, 1998 and 1997 was
approximately $276,000 and $183,000, respectively, and is included in general
and administrative expense in the consolidated statements of operations.
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").
Recently Issued Accounting Standards
In June 1997, the FASB issued Statement No. 131, "Disclosures about Segments of
an Enterprise and Related Information." This Statement establishes standards for
the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. However, this Statement need not be applied to
interim financial statements in the initial year of its application, but
comparative information for interim periods in the initial year of application
is to be reported in financial statements for interim periods in the second year
of application. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. This Statement is
required to be adopted for fiscal years beginning after December 15, 1997.
Earnings Per Share
The Company adopted Statement of Financial Accounting Standards No. 128 ("FAS
128"), Earnings Per Share, beginning in the fourth quarter of 1997. Prior period
earnings per common share were recomputed to conform to the provisions of FAS
128. The recomputations did not result in any restatement in earnings per share
previously reported.
Basic earnings per share amounts are computed based on net income, reduced by
dividends earned on preferred stock outstanding on JIS through February 1997
($6,700), and divided by the weighted average number of shares actually
outstanding reduced by Treasury Shares. The number of shares used in the
computation for the six months ended June 30, 1998 and 1997 were approximately
13,419,000, and 12,164,000, respectively. The number of shares used in the
computation for the three months ended June 30, 1998 and 1997 were approximately
13,469,000 and 13,348,000, respectively.
Diluted earnings per share amounts for the three and six months ended June 30,
1998 and 1997 are based on the weighted average number of shares calculated for
basic earnings per share purposes increased by the number of shares that would
be outstanding assuming exercise of outstanding stock options. The number of
shares used in the computation for the six months ended June 30, 1998 and 1997
were approximately 13,420,000 and 12,295,000, respectively. The number of shares
used in the computation for the three months ended June 30, 1998 and 1997 were
approximately 13,492,000 and 13,348,000, respectively. Options to purchase
1,190,750 common shares in 1998 and 561,500 common shares in 1997 were not
included in the computation of diluted earnings per share because the option
exercise price was greater than the average market price of common stock.
9
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
Earnings Per Share -- (Continued)
On February 26, 1998 the Company repurchased 40,000 shares of its common stock
at a price of $5.50 per share, which shares are held as treasury stock.
Reclassifications
Certain items in the consolidated statement of operations for the three and six
months ended June 30, 1997 have been reclassified to conform to the 1998
presentation.
NOTE 3. BUSINESS COMBINATIONS
In the six months ended June 30, 1998 the Company, through its subsidiaries,
consummated several acquisitions which were accounted for as purchase
transactions, with the results of their operations only included in the
accompanying financial statements since the respective purchase dates. In each
acquisition the excess cost over the fair value of net assets, assumed to equal
their carrying value, is considered goodwill and is being amortized over terms
ranging from fifteen years to twenty-five years beginning with the month
following the acquisition. In some instances a portion of the acquisition cost
is included in other liabilities on the accompanying condensed consolidated
financial statements, the payment terms of which are dependent on the Company's
common stock price on future dates. Following is a list of the acquisitions:
Effective March 5, 1998, JTS purchased substantially all of the assets of
Information Systems, Inc. and ISI Systems, Inc. (together "ISI"), a company
engaged in the IT placement business in the Detroit, Michigan area, for total
original acquisition cost of $6,290,000, payable in cash, notes and Company
stock. An additional amount of up to $500,000 is contingent on ISI attaining
certain pre-tax income amounts in calendar year 1998.
Effective March 31, 1998, Judge, Inc. purchased substantially all of the assets
of Cella Associates of Atlanta, Inc. ("Cella"), a company engaged in the
placement of personnel with offices in Connecticut, Georgia, Texas and Illinois,
for total acquisition cost of $1,529,000, payable in cash and Company stock.
Effective May 11, 1998, JIS purchased all of the outstanding common stock of
On-Site Solutions, Inc. ("On-Site"), a company engaged in the systems
integration business in the Irvine, California area, for total original
acquisition cost of the assumption of approximately $663,000 in liabilities.
Additional amounts are contingent on On-Site attaining certain pre-tax income
amounts in the periods April 1, 1998 through December 31, 1998 and January 1,
1999 through December 31, 1999.
Effective May 29, 1998, JIS purchased substantially all of the assets of AOP
Solutions ("AOP"), a company engaged in the Information Management Solutions
business in the Buffalo, New York area, for total acquisition cost of
$3,240,000, payable in cash and Company stock. Additional amounts are contingent
on AOP attaining certain pre-tax income amounts in the periods January 1, 1998
through December 31, 1998 and January 1, 1999 through December 31, 1999.
Effective June 8, 1998, JIS purchased all of the outstanding common stock of
Systems Solutions, Inc. d/b/a Corebridge Technologies, Inc. ("Corebridge"), a
company engaged in document management, imaging and workflow solutions in the
Seattle, Washington area, for total acquisition cost of $155,000, payable in
cash. Additional amounts are contingent on Corebridge attaining certain pre-tax
income amounts in the periods May 1, 1998 through December 31, 1998 and January
1, 1999 through December 31, 1999.
NOTE 4. NOTE PAYABLE, BANK
Note payable, Bank consists of advances to the Company under a $25,000,000 line
of credit facility. The line of credit bears interest at the prime rate. Maximum
permitted borrowings thereunder is the lesser of $25,000,000 or 85% of qualified
accounts receivable, as defined in the line of credit agreement.
10
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
NOTE 5. INCOME TAXES
The Company files a consolidated Federal income tax return with its wholly-owned
subsidiaries. In prior years, JIS was not included in the Company's consolidated
Federal income tax return, as the Company owned less than 80% of JIS'
outstanding common shares. Under Internal Revenue regulations, JIS was not part
of the consolidated group for tax purposes and filed their own Federal income
tax return. Effective February 20, 1997, JIS began filing as part of the
consolidated group. State income taxes are determined on the basis of filing
separate returns for each company as required by the applicable state
regulations.
In accordance with APB 28 (Interim Financial Reporting), income taxes are
calculated at the estimated effective annual (federal and state) tax rate.
The effective tax rate for 1998 and 1997 is higher than the applicable federal
statutory tax rate of 34% due to the Company's state tax liabilities, certain
expenses that were not deductible for tax purposes, and net operating losses for
JIS, which is consolidated for financial reporting but not tax reporting
purposes (prior to the merger of the Company and JIS in February 1997).
As a result of operating losses, no provision for income taxes was required for
the period prior to February 20, 1997 for JIS. JIS operating losses subsequent
to February 20, 1997 have been used in the consolidated tax accrual. For income
tax reporting purposes, as of December 31, 1997, JIS had an unused operating
loss carryforward of approximately $4,200,000, which may be applied against
future taxable income of JIS, subject to certain Federal income tax limitations.
These carryforwards expire between 2002 and 2012.
NOTE 6. COMMITMENTS AND CONTINGENCIES
The Company is aware of the issues associated with the programming code in
existing computer systems as the year 2000 approaches. The "Year 2000" problem
is pervasive and complex, as many computer systems will be affected in some way
by the rollover of the two-digit year value to 00. Systems that do not properly
recognize such information could generate erroneous data or cause a system to
fail. The "Year 2000" issue creates risk for the Company from unforeseen
problems in its own computer systems and from third parties for whom the Company
implements "Year 2000" solutions on their computer systems.
The Company believes its recently implemented financial information system is
"Year 2000" compliant. Further, the Company is currently in the process of
replacing its candidate and client databases utilized in its Contract Placement
and Permanent Placement business with software systems that are represented to
be "Year 2000" compliant. The Company is analyzing its remaining computer
systems to identify any potential "Year 2000" issues and will take appropriate
corrective action based on the results of such analysis. Management has not yet
determined the cost related to achieving "Year 2000" compliance. Management
believes, based on its available information, that it will be able to manage its
total "Year 2000" transition without any material adverse effects on its
business operations or financial condition.
NOTE 7. SHAREHOLDERS' EQUITY AND EARNINGS PER SHARE
Stock Option Plan
On September 4, 1996 the Company adopted the 1996 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. The options granted are
generally subject to a four year vesting schedule in equal increments annually,
and are exercisable any time after vesting up to 10 years from grant date.
During the six months ended June 30, 1998, the Company granted options to
purchase 818,650 shares at a weighted average exercise price of $5.10. No
options were exercised during the period ended June 30, 1998.
The Company accounts for its Incentive Plan in accordance with Accounting
Principles Board Opinion No. 25 and related interpretations. Accordingly, no
compensation expense has been recognized for the Incentive Plan.
11
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
NOTE 8. STATEMENT OF CASH FLOWS
Supplemental disclosure of non-cash investing and financing transactions:
During the six months ended June 30, 1998, the Company entered into the
following non-cash transactions:
o incurred long-term debt ($890,000) for certain business combinations
(see Note 3);
o incurred goodwill of $2,390,000 in the business combination with ISI
(see Note 3); and
o incurred goodwill of $750,000 in the business combination with Cella
(see Note 3).
o incurred goodwill of $710,000 in the business combination with On-Site.
o incurred goodwill of $998,000 in the business combination with AOP.
During the six months ended June 30, 1997, the Company entered into the
following non-cash transactions:
o incurred goodwill of $2,399,190 in the business combination with JIS;
o converted $300,000 of long-term debt to equity in accordance with the
Berkeley agreement;
o converted $500,000 of convertible debentures into 526,000 shares of
common stock;
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998
COMPARED TO THE THREE AND SIX MONTHS ENDED JUNE 30, 1997
The following discussion should be read in conjunction with the condensed
consolidated financial statements of The Judge Group, Inc. (the "Company") and
related notes thereto appearing elsewhere in this Report.
OVERVIEW
The Company achieved overall revenue growth rates of 6.7% for the six months
ended June 30, 1998, compared to the prior year period, with all four of the
Company's businesses experiencing revenue growth. In the Company's Contract
Placement business, revenues increased by 4.6% in the six months ended June 30,
1998 compared to the prior year period. This growth rate was below Company
expectations due to the effect of sales and recruiting personnel turnover
experienced in the second half of 1997. To date, the Company has increased its
sales and marketing staffs to its 1997 levels and believes it has addressed its
turnover problem, although new hires historically have taken approximately two
quarters to become productive. As a result of the addition of sales and
recruiting staff during the first six months of 1998, operating income in the
Contract Placement business decreased by 12.2% in the six months ended June 30,
1998 compared to the prior year period. During the six months ended June 30,
1998, the Contract Placement business relocated part of its staff from
Foxborough, Massachusetts to Needham, Massachusetts to better serve the
Metropolitan Boston area and incurred certain expenses related to this office
opening. The Company anticipates that this will help it to continue to attract
and retain experienced staff and to better service its clients. The Company also
opened offices in Raleigh, North Carolina, and Tampa and Jacksonville, Florida.
The Contract Placement business is also seeking to leverage the resources of the
current office in Tampa, Florida by the Permanent Placement business unit.
However, due to the addition of new sales and recruiting staff to replace those
that left in the National and Boston offices and the opening of new offices, the
trend of reduced operating income margin will continue for the balance of 1998.
As a result of the reduced operating margin for the Contract Placement business,
management is re-evaluating its current operating expenses with a goal of
reducing overhead.
On March 5, 1998, the Company's Contract Placement business purchased
substantially all of the assets of Information Solutions, Inc. and ISI Systems,
Inc. (together "ISI"), a company engaged in the IT placement business in the
Detroit, Michigan area. Revenues for ISI are included in the accompanying
condensed consolidated financial statements from March 1, 1998 through June 30,
1998. The Company's Permanent Placement business acquired, effective March 31,
1998, substantially all of the assets of Cella Associates of Atlanta, Inc.
("Cella"), a company engaged in the placement of professional and executive
personnel to certain segments of the food industry. Revenues generated from
Cella have been included in the Company's consolidated financial statements
since April 1, 1998. During the first six months of 1998, the Company's
Information Management Services business acquired substantially all of the
assets of three companies. The revenues associated with these acquisitions were
included in the six months ended June 30, 1998 results only from the dates of
their acquisitions. On May 11, 1998, On-Site Solutions of Irvine, California, a
west coast systems integration company specializing in imaging, document
management and workflow solutions, was acquired. As of May 31, 1998, AOP
Solutions, a New York based office and information management solutions company
was acquired. On June 19, 1998, Corebridge Technologies, a west coast FileNet
systems integration company specializing in document management, imaging and
workflow solutions was acquired.
During the first six months of 1998, the Company's Information Management
Services business incurred an operating loss of $860,000 compared to a loss of
$1,283,000 in the prior year period. This decrease in operating loss was
primarily attributable to increased gross profit margins which is a result of
emphasizing service revenue. The Company will continue to adjust its pricing and
cost structure in its Information Management Services business in order to
attempt to achieve profitability. While the Company believes that the
Information Management Services business will ultimately achieve sustained
profitability, it cannot predict the timing of such profitability. Due to the
unpredictability of when this business unit will achieve profitability and the
losses sustained to date, the Company has decided to dispose of this business
unit. This unit will continue to operate as an on-going concern until the
Company adopts a plan of disposition.
13
<PAGE>
The following table presents the net revenue (net of intercompany eliminations)
and the income (loss) from operations attributable to each of the Company's
businesses, in dollars and as a percentage of net revenues, for the periods
indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, THREE MONTHS ENDED JUNE 30,
----------------------------------------- ----------------------------------------
(Dollars in thousands) 1998 1997 1998 1997
-------------------- ----------------- ------------------ ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Revenues:
Permanent Placement $ 5,394 10.2% $ 4,083 8.3% $ 3,159 11.4% $ 2,153 8.3%
Contract Placement 37,715 71.3% 36,068 72.8% 19,680 70.8% 18,232 70.0%
Imaging and Network Services 8,291 15.7% 8,062 16.2% 4,246 15.3% 4,958 19.0%
IT Training 1,466 2.8% 1,328 2.7% 691 2.5% 720 2.7%
------- ------ ------- ------ ------- ------ ------- ------
Consolidated Net Revenues $52,866 100.0% $49,541 100.0% $27,776 100.0% $26,063 100.0%
======= ====== ======= ====== ======= ====== ======= ======
Income (loss) From Operations:
Permanent Placement $ 1,167 21.6% $ 630 15.4% $ 822 26.0% $ 332 15.4%
Contract Placement 2,735 7.3% 3,116 8.6% 1,381 7.0% 1,957 10.7%
Imaging and Network Services (860) (10.4%) (1,283) (15.9%) (492) (11.6%) (332) (6.7%)
IT Training (348) (23.7%) (111) (8.4%) (182) (26.3%) 30 4.2%
Corporate Overhead Expense (1,248) N/A (984) N/A (677) N/A (500) N/A
------- ------- ------- -------
Consolidated Income From Operations $ 1,446 2.7% $ 1,368 2.8% $ 852 3.1% $ 1,487 5.7%
======= ====== ======= ====== ======= ====== ======= ======
</TABLE>
Included in corporate overhead expense are salaries, benefits and related costs
for the Company's founder and chief executive officer, Martin E. Judge, Jr., and
for corporate level financial, legal, human resources, management information
systems and marketing personnel.
RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data as a
percentage of consolidated net revenues for each of the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Revenues 100.0% 100.0% 100.0% 100.0%
Cost of Sales (exclusive of items shown separately 66.2 71.9 67.8 72.9
below)
Selling and Operating 19.2 15.0 18.6 16.4
General and Administrative 11.5 7.4 10.9 7.9
------ ----- ----- -----
Total Costs and Expenses 96.9 94.3 97.3 97.2
Income (Loss) From Operations 3.1 5.7 2.7 2.8
Interest Income (Expense) and Other, Net (0.1) 0.3 0.1 (0.1)
------ ----- ----- -----
Income (Loss) Before Income Taxes 3.0% 6.0% 2.8% 2.7%
====== ===== ===== =====
</TABLE>
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997
Net Revenues. Consolidated net revenues increased by 6.6%, or $1.7 million, for
the three months ended June 30, 1998 compared to the prior year period. Revenue
for the Contract Placement business increased by 7.9%, or $1.4 million, for the
three months ended June 30, 1998 compared to the prior year period. Contributing
to the increase in revenues for the Contract Placement business was an increase
in revenue for the Bala Cynwyd, Pennsylvania and Edison, New Jersey offices of
7.6% and 39.3% respectively. Also contributing to the revenue increase was
revenue from the three new offices in Alexandria, Virginia; New York City, New
York; and Detroit, Michigan (acquired in March of 1998) of $2.2 million. These
revenue increases were offset by a decrease in revenues from the New England and
National offices of 28.5% and 9.1% respectively. This decrease was a direct
result of sales and recruiting staffing turnover and to a reduction in
engineering placements. The Company is seeking to emphasize higher margin IT
placement business to supplant the shortfall. The Contract Placement business
has increased its sales and recruiting staffs to 1997 levels and believes it has
addressed this
14
<PAGE>
issue. Turnover during the first half of 1998 has been reduced substantially,
returning to the levels normally experienced prior to 1997. Revenue for the
Permanent Placement business increased by 46.7%, or approximately $1.0 million,
for the three months ended June 30, 1998 compared to the prior year period, due
primarily to an increase in the number of sales recruiters. Also contributing to
the increase in revenues was revenue related to two new locations: Boston,
Massachusetts and New York City, New York; and additional increases in revenue
of approximately $668,000 for its acquisition of Cella Associates on March 31,
1998. Revenue for the Information Management Services business decreased by
14.4%, or approximately $712,000 for the three months ended June 30, 1998
compared to the prior year period. Three acquisitions made during the quarter
contributed revenues of $1.7 million. This decline in revenues was due to lower
sales in existing offices. The IT Training business generated net revenues of
$691,000 for the three months ended June 30, 1998, a slight decrease of
approximately $29,000, or 4.0%, over the prior year period.
Cost of Sales. Consolidated cost of sales decreased by 0.4%, or approximately
$70,000, for the three months ended June 30, 1998 compared to the prior year
period. Cost of sales as a percentage of consolidated net revenues decreased to
66.2% from 71.9%. In the Company's Contract Placement business, cost of sales as
a percentage of its revenue decreased to 76.8% from 78.3% primarily as a result
of the Contract Placement business focusing its sales efforts on higher margin
services. 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. In the Company's Information
Management Services business, cost of sales as a percentage of its revenue
decreased to 70.3% from 77.6% in the prior year period. The IT Training business
also contributed an additional $400,000 in cost of sales, representing 57.9% of
that business' revenues in the period ended June 30, 1998 compared to $369,000,
or 47.4% of revenues, in the comparable period in 1997. This increase was due
primarily to an increase in IT training laboratories from eight in the first
quarter of 1997 to eleven in the first quarter of 1998, as well as to increased
salary costs for existing trainers and additional trainers to staff the new
laboratories.
Selling and Operating. Consolidated selling and operating expenses increased by
30.8%, or $1.3 million, for the three months ended June 30, 1998 compared to the
prior year period. Of the $1.3 million increase in selling and operating
expense, approximately $729,000, or 52%, represents cost associated with the
acquisition of new offices that did not exist during the three months ending
June 30, 1997. Selling and operating expenses as a percentage of consolidated
net revenues increased to 19.2% from 15.0% for the three months ended June 30,
1998 compared to the prior year period. Selling and operating expenses as a
percentage of revenues for the Contract Placement business increased to 10.6%
from 8.1% for the three months ended June 30, 1998 compared to the prior year
period. This increase was attributable to increased sales and recruiting
personnel expense during the three months ended June 30, 1998 compared to the
three months ended June 30, 1997 as discussed above. The unusually large
turnover in sales and recruiting staff occurred during the second quarter of
1997 in the Boston and National offices and the increase in sales and recruiting
staff of approximately 22.6 %, therefore primarily reflects the restaffing of
those locations. Additional staffing personnel represents the opening of the New
York and Virginia offices as well as the purchase of ISI. Selling and operating
expenses as a percentage of revenues for the Permanent Placement business
decreased to 60.6% from 73.6% for the three months ended June 30, 1998 compared
to the prior year period, which was attributable to management's efforts to
control selling costs. Selling and operating expenses as a percentage of
revenues for the Information Management Services business increased to 23.7%
from 16.3% for the three months ended June 30, 1998 compared to the prior year
period. This is directly related to an increase in sales staff while revenues
decreased by 14.4% from the three months ended June 30, 1998 as compared to the
prior year period. In the IT Training business, selling and operating expenses
increased $31,000, or 17.4%, in the three months ended June 30, 1998 compared to
the prior year period.
General and Administrative. Consolidated general and administrative expenses
increased 57.4%, or $1.2 million, for the three months ended June 30, 1998
compared to the prior year period. Of the $1.2 million increase, approximately
$260,000 relates to acquisitions and the addition of new offices. General and
administrative expenses as a percentage of consolidated net revenues, increased
to 11.5% from 7.4% for the three months ended June 30, 1998 compared to the
prior year period. Contributing to this increase was the expansion of the
Company's corporate staff, specifically management information systems, legal
and human resources personnel hired beginning in the second fiscal quarter of
1997 through the second quarter of 1998 which added to corporate overhead for
the three months ended June 30, 1998 compared to the prior year period. In
addition, the amortization of goodwill increased by $60,000 in the three months
ended June 30, 1998 compared to the prior year period due to a full quarter of
amortization of goodwill from the JIS merger in 1998 which was consummated half
way through 1997's first quarter, and to amortization of goodwill related to
acquisitions starting in March 1998 through the end of the second quarter of
1998. As a result of a new office in New York, the acquisition of ISI, and
additional office space in the Bala Cynwyd, Pennsylvania and Edison, New Jersey
offices, rent expense increased by approximately $167,000 for the three months
ended June 30, 1998 compared to the prior year period. The IT Training business
incurred general and administrative expenses for the three months ended June 30,
1998 of approximately $236,000, or 34.2% of its revenues, compared to $165,000,
or 21.2% of its revenues in the comparable period in 1997 primarily due to
higher administrative salaries during the management transition period from the
first quarter of 1998 as well as to increased rent and depreciation expenses
related to existence of additional training labs.
Interest. Interest expense was $22,000 and $12,000 for the three months ended
June 30, 1998 and 1997, respectively. Interest income was $11,600 and $87,500
for the three months ended June 30, 1998 and 1997, respectively. This lower
interest expense and higher
15
<PAGE>
interest income for the three months ended June 30, 1997 was attributable to the
Company's repayment of its debt following the Offering and the interest earned
on the unused portion of the Offering proceeds. The decrease in interest income
and increase in interest expense for the three months ended June 30, 1998,
compared to the prior year period, reflects the use of the net proceeds from the
Offering to pay for the acquisitions.
Income Taxes. The effective tax rate for the three months ended June 30, 1998 is
higher than the applicable federal statutory tax rate of 34%, primarily due to
the Company's state tax liabilities and certain expenses not deductible for tax
purposes. If the Information Management Services business is able to achieve
profitability, it will be able to utilize approximately $4.2 million (as of
December 31, 1997) in federal tax operating loss carryforwards, which will
expire between 2002 and 2012.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
Net Revenues. Consolidated net revenues increased by 6.7%, or $3.3 million, for
the six months ended June 30, 1998 compared to the prior year period. Revenue
for the Contract Placement business increased by 4.6%, or $1.6 million, for the
six months ended June 30, 1998 compared to the prior year period. Contributing
to the increase in revenues for the Contract Placement business was an increase
in revenue for the Bala Cynwyd, Pennsylvania and Edison, New Jersey offices of
8.6% and 37.4%, respectively. Also contributing to the revenue increase was
revenue from the three new offices in Alexandria, Virginia; New York City, New
York; and Detroit, Michigan (acquired in March of 1998) of $3.1 million. These
revenue increases were offset by a decrease in revenues from the New England and
National offices of 23.8% and 15.4%, respectively. This decrease was a direct
result of sales and recruiting staffing turnover that occurred during the second
quarter of 1997. The Company is seeking to emphasize higher margin IT placement
business to supplant the shortfall. The Contract Placement business has
increased its sales and recruiting staffs to 1997 levels and believes it has
addressed this issue. Turnover during the first half of 1998 has been reduced
substantially, returning to the levels normally experienced prior to 1997.
Revenue for the Permanent Placement business increased by 32.1%, or
approximately $1.3 million, for the six months ended June 30, 1998 compared to
the prior year period due primarily to an increase in the number of sales
recruiters. Also contributing to the increase in revenues was revenue related to
two new locations: Boston, Massachusetts and New York City, New York; and
additional increases in revenue of approximately $668,000 for its acquisition of
Cella Associates on April 1, 1998. Revenue for the Information Management
Services business increased by 2.8%, or approximately $229,000 for the six
months ended June 30, 1998 compared to the prior year period. This increase in
revenues was primarily due to the revenue contributed by the three acquisitions
made during the second quarter of approximately $1.7 million and was
substantially offset by lower revenues in existing offices. The IT Training
business generated net revenues of $1,466,000 for the six months ended June 30,
1998, an increase of approximately $138,000, or 10.4%, over the prior year
period.
Cost of Sales. Consolidated cost of sales increased by 0.6%, or approximately
$200,000, for the six months ended June 30, 1998 compared to the prior year
period. Cost of sales as a percentage of consolidated net revenues decreased to
67.8% from 72.9%. In the Company's Contract Placement business, cost of sales as
a percentage of its revenue decreased to 77.3% from 79.2% primarily as a result
of the Contract Placement business focusing its sales efforts on higher margin
services. 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. In the Company's Information
Management Services business, cost of sales as a percentage of its revenue
decreased to 71.5% from 78.9% in the prior year period. The IT Training business
also contributed an additional $872,000 in cost of sales, representing 59.4% of
that business' revenues in the period ended June 30, 1998 compared to $697,000,
or 50.0% of revenues, in the comparable period in 1997. This increase was due
primarily to an increase in IT training laboratories from eight in the first
quarter of 1997 to eleven in the first quarter of 1998, as well as to increased
salary costs for existing trainers and additional trainers to staff the new
laboratories.
Selling and Operating. Consolidated selling and operating expenses increased by
15.4%, or $1.3 million, for the six months ended June 30, 1998 compared to the
prior year period. Of the $1.3 million increase in consolidated selling and
operating expense, approximately $729,000, or 56.1%, represents cost associated
with the acquisition of new offices that did not exist during the six months
ending June 30, 1997. Selling and operating expenses as a percentage of
consolidated net revenues increased to 18.6% from 16.4% for the six months ended
June 30, 1998 compared to the prior year period. Selling and operating expenses
as a percentage of revenues for the Contract Placement business increased to
10.3% from 9.2% for the six months ended June 30, 1998 compared to the prior
year period. This increase was attributable to increased sales and recruiting
personnel expense during the six months ended June 30, 1998 compared to the six
months ended June 30, 1997 as discussed above. The unusually large turnover in
sales and recruiting staff occurred during the second quarter of 1997 in the
Boston and National offices and the increase in sales and recruiting staff of
approximately 22.6 % therefore primarily reflects the restaffing of those
locations. Additional staffing personnel represents the opening of the New York
and Virginia offices as well as the purchase of ISI. Selling and operating
expenses as a percentage of revenues for the Permanent Placement business
decreased to 64.3% from 73.8% for the six months ended June 30, 1998 compared to
the prior year period, which was attributable to management's efforts to control
selling costs. Selling and operating expenses as a percentage of revenues for
the Information Management Services business increased slightly to 22.5% from
21.5% for the six months ended June 30, 1998 compared to the prior year
16
<PAGE>
period. This is directly related to an increase in revenues. In the IT Training
business, selling and operating expenses increased approximately $28,000, or
7.5%, in the six months ended June 30, 1998 compared to the prior year period.
General and Administrative. Consolidated general and administrative expenses
increased 42.9%, or $1.7 million, for the six months ended June 30, 1998
compared to the prior year period. Of the $1.7 million increase, approximately
$260,000 relates to acquisitions and the addition of new offices. General and
administrative expenses as a percentage of consolidated net revenues, increased
to 10.9% from 7.9% for the six months ended June 30, 1998 compared to the prior
year period. Contributing to this increase was the expansion of the Company's
corporate staff, specifically management information systems, legal and human
resources personnel hired beginning in the second fiscal quarter of 1997 through
the second quarter of 1998 which added to corporate overhead for the six months
ended June 30, 1998 compared to the prior year period. In addition, the
amortization of goodwill increased by $93,000 in the six months ended June 30,
1998 compared to the prior year period due to a full quarter of amortization of
goodwill from the JIS merger in 1998 which was consummated half way through
1997's first quarter, and amortization of goodwill related to acquisitions
starting in March 1998 through the end of the second quarter of 1998. As a
result of new offices in New York, and additional office space in the Bala
Cynwyd, Pennsylvania and Edison, New Jersey offices, and the acquisition, rent
expense increased by approximately $267,000 for the six months ended June 30,
1998 compared to the prior year period. The IT Training business incurred
general and administrative expenses for the six months ended June 30, 1998 of
approximately $544,000, or 37.1% of its revenues, compared to $434,000, or 32.7%
of its revenues in the comparable period in 1997 primarily due to higher
administrative salaries during the management transition period from the first
quarter of 1998 as well as to increased rent and depreciation expenses related
to existence of additional training labs.
Interest. Interest expense was approximately $31,000 and $191,000 for the six
months ended June 30, 1998 and 1997, respectively. Interest income was
approximately $82,000 and $138,000 for the six months ended June 30, 1998 and
1997, respectively. This higher interest expense and interest income for the six
months ended June 30, 1997 was attributable to the Company's repayment of its
debt following the Offering and the interest earned on the unused portion of the
Offering proceeds. The lower interest income and interest expense for the six
months ended June 30, 1998 reflects the use of the net proceeds from the
Offering to pay for the acquisitions.
Income Taxes. The effective tax rate for the three months ended June 30, 1998 is
higher than the applicable federal statutory tax rate of 34%, primarily due to
the Company's state tax liabilities and certain expenses not deductible for tax
purposes. For the six months ended June 30, 1997 the effective tax rate was
higher than the federal statutory tax rate due to the net operating losses for
the Information Management Services business, which was consolidated for
financial but not for tax reporting purposes in the period January 1, 1997
through February 20, 1997, as well as the Company's state tax liabilities.
However, since the Company's merger with JIS (which includes the Information
Management Services business) on February 20, 1997, this business unit is now
consolidated for tax purposes and any losses generated by the Information
Management Services business are used in the calculation of the Company's income
tax expense or benefit. If the Information Management Services business is able
to achieve profitability, it will be able to utilize approximately $4.2 million
(as of December 31, 1997) in federal tax operating loss carryforwards, which
will expire between 2002 and 2012.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's need for working capital has increased as its
revenues have grown and it has used borrowings under its credit facility to fund
working capital. In February 1997, the Company's working capital increased
substantially as a result of the receipt of the proceeds from its initial public
offering. The Company has used the net proceeds from the Offering as well as its
cash flow from operations to fund its working capital needs. In June 1998, the
Company utilized $2,500,000 in borrowings under its line of credit to fund a
portion of the cost of its acquisitions. The Company typically maintains minimal
cash balances, however a portion of the borrowings remained in its account until
the first business day in July 1998 which resulted in cash and cash equivalents
of $2.6 million as of June 30, 1998. The Company redeemed its short term
investments of approximately $5.5 million held at December 31, 1997 and used the
proceeds to acquire substantially all of the assets of ISI and Cella.
The Company generated cash from operations of $8.3 million and $2.9 million for
the six months ended June 30, 1998 and 1997, respectively. This result is
attributable to several factors, including an increase in net income of $230,000
in the six months ended June 30, 1998 compared to the same period in 1997, the
redemption of the short term investments mentioned above, and an increase in
accounts payable and accrued expenses primarily related to the recent
acquisitions. As discussed in Note 3 in the accompanying condensed consolidated
financial statements, the Company has issued common stock as part of the
purchase price of some of its acquisitions with a guarantee that the market
price of such stock will equal or exceed specified prices per share at future
dates. If the determination dates were June 30, 1998, then based on the market
price of the stock at June 30, 1998, the Company would have to make a cash
payment approximately equal to the amount reflected as "Other Liabilities" on
its balance sheet to meet that condition.
Cash purchases of fixed assets for the six months ended June 30, 1998 were $1.7
million compared to purchases of $700,000 in the comparable period in the prior
year. These purchases were related primarily to the purchases of computers,
software, and imaging
17
<PAGE>
equipment to upgrade the Company's technology infrastructure, as well as the
furnishing of new office facilities. The Company used $6.9 million to complete
all of its acquisitions and an additional $477,000 to repay the bank debts
assumed in two of its acquisition. In the first quarter of 1997 the Company
received repayment of its loans to officers and related parties in the aggregate
amount of $577,000.
In the six months ended June 30, 1998 the Company repaid the remaining $238,000
balance outstanding on the notes payable related to the Berkeley acquisition,
and repurchased as treasury stock 40,000 common shares, at a price of $5.50 per
share, which had been issued to the stockholders of Berkeley in lieu of $300,000
notes payable at the completion of the initial public offering.
The Company has available a $25.0 million revolving advance facility (the "Line
of Credit") with PNC Bank, N.A. The Line of Credit expires on May 31, 2003. This
facility allows the Company to borrow the lesser of 85% of eligible accounts
receivable or $25.0 million. As of June 30, 1998 the Company had $2.5 million
outstanding against the Line of Credit. The Line of Credit is secured by
substantially all of the Company's assets and contains customary restrictive
covenants, including limitations on loans the Company may extend to officers and
employees, the incurring of additional debt and the payment of dividends on the
Company's common shares. The Line of Credit bears interest, at the Company's
option, at either the bank's prime rate or 200 basis points over the London
Inter-Bank Offered Rate ("LIBOR").
The Company anticipates that its primary uses of capital in future periods will
be to finance additional acquisitions, fund increases in accounts receivable and
fund internal growth through new office locations. The Company believes that
borrowings under the Line of Credit, or other credit facilities which may be
available to the Company in the future, will be sufficient to meet the Company's
capital needs for at least the next twelve months.
FORWARD LOOKING INFORMATION
This report and other reports and statements filed by the Company from time to
time with the Securities and Exchange Commission (collectively, "SEC Filings")
contain or may contain certain forward-looking statements and information that
are based on beliefs of, and information currently available to, the Company's
management as well as estimates and assumptions made by the Company's
management. When used in SEC Filings, the words "anticipate," "believe,"
"estimate," "expect," "future," "intend," "plan" and similar expressions as they
relate to the Company or the Company's management, identify forward-looking
statements. Such statements reflect the current views of the Company with
respect to future events and are subject to certain risks, uncertainties and
assumptions relating to the Company's operations and results of operations,
competitive factors and pricing pressures, shifts in market demand, the
performance and needs of the industries served by the Company, and other risks
and uncertainties, including, in addition to any uncertainties specifically
identified in the text surrounding such statements and those identified below,
uncertainties with respect to changes or developments in social, economic,
business, industry, market, legal and regulatory circumstances and conditions
and actions taken or omitted to be taken by third parties, including the
Company's stockholders, customers, suppliers, business partners, competitors,
and legislative, regulatory, judicial and other governmental authorities and
officials. Should one or more of these risks or uncertainties materialize, or
should the underlying assumptions prove incorrect, actual results may vary
significantly from those anticipated, believed, estimated, expected, intended or
planned.
Dependence on Availability of Qualified Technical Consultants The Company is
dependent upon its ability to attract and retain technical consultants who
possess the skills and experience necessary to meet the staffing requirements of
its clients. To keep pace with rapidly evolving information technologies and
changing client needs, the Company must continually evaluate and upgrade its
database of available qualified technical consultants. Competition for
individuals with proven technical skills is intense, and, as is currently
customary in the industry, the Company does not have any exclusive contracts
with its consultants. The Company competes for such individuals with other
providers of technical staffing services, systems integrators, providers of
outsourcing services, computer systems consultants, clients and temporary
personnel agencies. Factors influencing such competition include compensation,
benefits, growth opportunities and pre-existing relationships with other
companies, particularly specialty staffing companies. As the Company expands
into new geographic areas, it may experience difficulty attracting qualified
technical consultants who have a prior relationship or familiarity with more
established specialty staffing companies in such areas. There can be no
assurance that qualified technical consultants will continue to be available to
the Company in sufficient numbers to meet the Company's current and anticipated
growth requirements.
Ability to Manage Growth Sustained or significant growth, if achieved, will
subject the Company to risks by placing a substantial strain on the Company's
available managerial, financial and other resources. Specifically, such growth
will require the Company to: (i) hire, integrate and retain qualified managers,
sales personnel and recruiters in existing markets as well as markets in which
the Company has no prior operating experience; (ii) develop and maintain
relationships with an increasingly large number of highly qualified technical
consultants; and (iii) apply its management practices to a significantly larger
organization. Expansion beyond the geographic areas where the Company's offices
are presently located will further increase demands on the Company's management.
The Company's ability to manage its staff and facilities growth effectively will
require it to continue to expand its operational, financial and other internal
systems. There can be no assurance that the Company's systems, procedures and
controls will be successfully implemented or adequate to support the Company's
expanded operations. Furthermore, an element of the Company's business strategy
is to cross-sell the existing services of its
18
<PAGE>
four businesses to new and existing clients. Historically, these businesses have
operated independently, producing only occasional referrals, and there can be no
assurance that the Company will successfully market such services on an
integrated basis.
Acquisition Risks A principal component of the Company's growth strategy is the
acquisition of companies that will complement and expand the Company's existing
businesses, principally in new geographic markets. The successful implementation
of this strategy is dependent on the Company's ability to identify suitable
acquisition candidates, acquire such companies on suitable terms and integrate
their operations with those of the Company. There can be no assurance that the
Company will be able to identify suitable acquisition candidates or that, if
identified, the Company will be able to acquire such companies on suitable
terms. The specialty staffing industry is relatively mature. Acquisitions in
this industry are therefore likely to be at higher relative prices than for
other industries due to competition from other staffing companies for
acquisition candidates. Acquisitions also involve a number of special risks,
including: (i) adverse effects on the Company's reported operating results,
including increased goodwill amortization and interest expense; (ii) diversion
of management attention; (iii) risks associated with unanticipated problems,
liabilities or contingencies; and (iv) difficulties related to the integration
of the acquired business. The occurrence of some or all of the events described
in these risks could have a material adverse effect on the Company's business,
financial condition and results of operations.
History of Operating Losses in Information Management Services Business The
Company's Information Management Services business has had net operating losses
since its commencement in 1988, experienced a loss from operations of
approximately $860,000 for the six month period ended June 30, 1998, and at June
30, 1998 had an accumulated deficit of $5.7 million. The losses have resulted
from high marketing and general and administrative costs associated with
building the company's imaging and document management infrastructure and
capabilities, combined with historically low profit margins related to the
hardware component of the networking business and a slower emergence of the
imaging and document management market than anticipated by the Company.
Specifically, the costs associated with building this division's imaging and
document management capabilities have included the hiring of sales and technical
personnel, and the costs associated with the acquisition and integration of one
imaging and document management company. The Company is currently focusing on
achieving profitability in its Information Management Services business and
expanding it through internal growth, new service offerings and acquisitions,
but cannot provide any assurances as to when it will achieve sustained
profitability, if at all. Typically, the decision by a prospective customer to
install a network or to implement a document management system requires the
Company to engage in a lengthy and complex sales cycle and involves a
significant commitment of resources by the customer over an extended period of
time. For these and other reasons, the sales and implementation cycles are
subject to a number of significant delays over which the Company has little or
no control. Even if it increases sales, there can be no assurance that the
Information Management Services business will achieve a pricing and cost
structure that will generate sustained profits, or that the Company will be able
to identify and acquire appropriate acquisition candidates on favorable terms.
Failure of the Information Management Services business to grow through internal
expansion and favorable acquisitions or to achieve profitability would have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, if the Information Management Services
business is unable to achieve sustained profitability, it will not realize the
federal tax benefit of its $4.2 million operating loss carryforward at December
31, 1997 which will expire between 2002 and 2011. Moreover, the Company has
announced its intention to dispose of the Information Management Services
business. As a result, the Company might not be able to realize the benefit of
its net operating losses, or it may be forced to recognize a loss on the sale or
disposition. The Company has not yet determined the final effect this
disposition may have on its operations or financial condition.
Dependence on Contract Placement Business The Company's Contract Placement
business was responsible for 80.3%, 75.0% and 71.4% of total Company revenues
for the years ended December 31, 1995, 1996 and 1997, respectively. In addition,
for the years ended 1996 and 1997, one customer of the Contract Placement
business, Merck, accounted for approximately 10.0% and 9.8% of total Contract
Placement revenues, respectively, and 7.5% and 7.0% of total Company revenues,
respectively. There can be no assurance that the Company will be able to retain
this level of revenue from this client. The ability of the Company to sustain or
increase revenues in the Contract Placement business is subject to various
factors, including its ability to attract and retain qualified technical
consultants, to hire, integrate and retain qualified managers, recruiters and
sales personnel in existing and new markets and to apply its management
practices to a significantly larger organization. There can be no assurance that
the Company will be able to sustain or increase its Contract Placement revenues.
Furthermore, a decline in the level of Contract Placement revenues would have a
material adverse effect on the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
19
<PAGE>
PART II
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ITEM 6. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as a part of this Quarterly Report
on Form 10-Q.
Exhibit No. Description of Document
2.1 Agreement and Plan of Merger, among the Company, Judge
Acquisition, Inc. and Judge Imaging Systems, Inc. Incorporate by
reference to Exhibit 2.1 to the Registrant's Form S-4 (File No.
333-13753) originally filed on October 9, 1996, as amended.
3.1 Amended and Restated Articles of Incorporation. Incorporated by
reference to Exhibit 3.1 of the Registrant's Form S-1 (File No.
333-13109) originally filed on September 30, 1996, as amended.
3.2 Bylaws. Incorporated by reference to Exhibit 3.2 of the Form S-1.
4.2 Form of common stock certificate for Company Common Shares.
Incorporated by reference to Exhibit 4.2 of the Form S-1.
4.3 First Modification to Fourth Amended and Restated Loan and
Security Agreement, dated April 24, 1998, between the Company and
PNC Bank.
10.1 Employment Agreement between The Judge Group, Inc. and Frank
Barrett
10.2 Asset Purchase Agreement by and between Judge, Inc. and Cella
Associates of Atlanta, Inc.
10.3 Asset Purchase Agreement by and between Judge Imaging Systems,
Inc., Automated Office Products of Western New York, Inc. D/B/A
AOP Solutions, and Paul F. Eckert and Suzanne Eckert
11.1 Statement re Computation of Earnings Per Share.
27.1 Financial Data Schedule.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned,
Dated: August 4, 1998
THE JUDGE GROUP, INC. THE JUDGE GROUP, INC.
By: /s/Frank Michael Barrett By: /s/Martin E. Judge, Jr.
----------------------- -------------------------
Frank Michael Barrett Martin E. Judge, Jr.
Chief Financial Officer Chairman of the Board and
Chief Executive Officer
20
Exhibit 10.1
EMPLOYMENT AGREEMENT dated as of August 3, 1998 (as amended or
supplemented from time to time, this "Agreement"), between The Judge Group,
Inc., a Pennsylvania corporation (the "Company"), and Frank Barrett
("Executive").
SECTION 1. CAPACITY AND DUTIES
1.1 Employment; Acceptance of Employment. Company hereby employs
Executive and Executive hereby accepts employment by Company for a period of two
years upon the terms and conditions hereinafter set forth.
1.2 Capacity and Duties:
(a) Executive shall be principally employed by Company as a
Chief Financial Officer, subject to the supervision of the Chairman of the Board
of Company or his designee, shall perform such duties and shall have such
authority as designated by the Chairman of the Board from time to time.
Executive shall report directly to the Chairman of the Board and shall perform
his duties for Company principally from Company's office located in Bala Cynwyd,
PA, except for periodic travel that may be necessary or appropriate in
connection with the performance of Executive's duties hereunder.
(b) Executive shall devote his full working time, energy,
skill and best efforts to the performance of his duties hereunder, in a manner
which will faithfully and diligently further the business and interests of
Company and its affiliates (as defined below), and shall not be employed by or
participate or engage in or be a part of in any manner the management or
operation of any business enterprise other than Company and its affiliates
without the prior written consent of the Chairman of the Board, which consent
may be granted or withheld in his sole discretion. For the purposes of this
definition, "affiliate" means any person or entity which is a subsidiary of or
controlled by, or under common control with, Company.
SECTION 2. TERM OF EMPLOYMENT
2.1 Term. The term of Executive's employment hereunder shall commence
on the date hereof and continue for two (2) years, unless earlier terminated as
hereinafter provided (the "Term").
SECTION 3. COMPENSATION
3.1 Basic Compensation. As compensation for Executive's services
hereunder, Company shall pay to Executive a salary at an annual rate of $120,000
(the "Base Salary"), payable in accordance with Company's regular payroll
practices as in effect from time to time during the term of Executive's
employment.
3.2 Stock Options.
(a) Company agrees that, subject to the approval of the Stock
Option Committee of The Judge Group, Inc., it will deliver to Executive a Stock
Option Agreement ("Option Agreement"), to purchase 40,000 common shares of The
Judge Group, Inc. (the "Option") as of the date of this Agreement, and 20,000
common shares on his one year anniversary, which Options shall vest in four
equal increments over four years commencing on the date hereof, as specified in
Executive's Option Agreement.
The options referred to in Section 3.2(a) above shall be
granted pursuant to the Judge 1996 Incentive Stock Option and Non-Qualified Plan
for Key Employees and Non-Employee Directors (the "Plan"). All options shall be
subject to the terms and conditions of the Plan, as applicable, and applicable
laws and regulations. To the extent permitted by the Plan and applicable law,
options granted to Executive shall be Incentive Stock Options under Section
422(b) of the Internal Revenue Code of 1986, as amended. The exercise price per
share of common stock for options issued to Executive shall be the asking price
of the stock at the close of trading on the date the options are awarded. If the
stock is not traded on the date the options are awarded, the next succeeding day
of trading shall be utilized. The duration of the options shall be as provided
the Option Agreement. Options granted pursuant to this Section 3.2 shall be
subject to the terms and conditions of the Option Agreement and the Plan.
Should Executive be terminated other than for "cause" as
described in Section 4.3 infra before two years from the effective date of this
Agreement, Executive's options shall vest immediately upon the date of such
termination, pursuant to the Plan.
3.3 Vacation. Executive shall be entitled all legal holidays observed
by the Company and to a vacation of two (2) weeks during 1998, during which time
his compensation shall be paid in full.
3.4 Expense Reimbursement. During the term of his employment, Company
shall reimburse Executive for all reasonable expenses incurred by him in
connection with the performance of his duties hereunder in accordance with its
regular reimbursement policies as in effect from time to time and upon receipt
of itemized vouchers therefor and such other supporting information as Company
may reasonably require.
3.5 Benefits. During the term of his employment, Executive shall be
offered the same benefits provided to all employees by the Company.
3.6 Automobile. During the term of his employment, company shall
provide Executive with a monthly automobile allowance in the amount of $500.00
to be paid on or about the 15th of each month in accordance with the Company's
payroll practices as in effect from time to time.
3.7 Bonus. An annual bonus of $30,000 per year upon completion of
twelve months of employment with the Company and upon fulfillment of certain
objectives, as mutually agreed, by the Employee and the Chief Executive Officer.
<PAGE>
Exhibit 10.1 (cont.)
SECTION 4. TERMINATION OF EMPLOYMENT
4.1 Death of Executive. Executive's employment hereunder shall
immediately terminate upon his death, upon which Company shall not thereafter be
obligated to make any further payments hereunder other than amounts (including
salary, bonuses, expense reimbursement, etc.) accrued as of the date of
Executive's death in accordance with generally accepted accounting principles.
4.2 Disability of Executive. If Executive, in the reasonable opinion of
a physician mutually agreed upon by Company and Executive, is or has been
unable, due to his physical, mental or emotional illness or condition, to
materially perform his duties hereunder for a period of forty-five (45)
consecutive days or sixty (60) days within twelve consecutive months, inclusive
of his accrued vacation time, then the Board shall have the right to terminate
Executive's employment upon ten (10) days' prior written notice to Executive at
any time during the continuation of such inability, in which event Company shall
not thereafter be obligated to make any further payments hereunder other than
amounts (including salary, bonuses, expense reimbursement, etc.) accrued under
this Agreement as of the date of such termination in accordance with generally
accepted accounting principles.
4.3 Termination for Cause.
(a) Executive's employment hereunder shall terminate
immediately upon notice that the Board is terminating Executive for "cause" (as
defined herein), in which event Company shall not thereafter be obligated to
make any further payments hereunder other than amounts (including salary,
bonuses, expense reimbursement, etc.) accrued under this Agreement as of the
date of such termination in accordance with generally accepted accounting
principles. As used herein, "cause" shall mean and be limited to, the following:
(i) fraud committed in connection with Executive's
employment, dishonesty, theft or misappropriation or embezzlement of Company's
funds or assets;
(ii) conviction of any felony, or any crime involving
fraud or misrepresentation, or of any other crime (whether or not connected with
his employment) the effect of which is likely to adversely affect the Company or
its affiliates;
(iii) material breach of Executive's obligations
under this Agreement; (iv) incompetence or misconduct in the performance of, or
gross neglect of, Executive's duties hereunder; or not corrected after notice
and a period of thirty (30) days to cure;
(v) repeated and consistent failure of Executive to
be present at work during normal business hours unless the absence is because of
a disability as described in Section 4.2;
(vi) willful violation of any express direction or
rule or regulation established by the President or the Board;
(vii) conduct contrary to the best interests of the
Company; and
(viii) abuse of alcohol or other drugs which
interferes with the performance by Executive of his duties.
4.4 Termination without Cause. In the event Company terminates
Executive's employment other than for "cause," Executive shall be entitled to
the benefits and compensation on the same terms and for the duration of this
Agreement. Executive shall not be entitled to damages in excess of this
compensation, nor for a period greater than two years from the date of the
signing of this Agreement.
SECTION 5. RESTRICTIVE COVENANTS
5.1 Confidentiality:
(a) Executive shall not directly or indirectly use, publish or
otherwise disclose or divulge to any third party, Confidential information (as
defined below) in the performance of his duties for the Company, any trade
secrets, Confidential or proprietary information of Company other than as
required by law or in the ordinary course of Company business (including,
without limitation, any such information concerning the Company's technical or
financial information or data, database of information technology and
engineering professionals, customers, employees, consultants, vendors, services,
products, processes, pricing policies, business plans, rolodexes or records, or
any information relating to the history or prospects of Company or any of its
shareholders). "Confidential" information includes, without limitation, all
unpublished information and all information and data which is not generally
known by the industry.
(b) Executive shall not directly or indirectly, copy,
reproduce or remove from Company's premises, except in the ordinary course of
Company business, trade secrets, Confidential or proprietary information of
Company (in any medium) or any Company documents, files or records (including
without limitation any invoices, customer correspondence, business cards,
rolodexes, orders, computer records or software, or mailing, telephone, employee
or customer lists). All such documents, files and records, and all other
memoranda, notes, files, records, lists and other documents made, compiled or
otherwise acquired by Executive prior to and in the course of his employment
with Company, are and shall remain the sole property of Company and all
originals and copies thereof shall be delivered to the Company upon termination
of employment for whatever reason. Executive acknowledges a duty of
confidentiality owed to Company.
5.2 Inventions and Improvements. During the term of his employment,
Executive shall promptly communicate to Company all ideas, discoveries and
inventions which are or may be useful to Company or its business. Executive
acknowledges that all such ideas, discoveries, inventions, and improvements
which are made, conceived, or reduced to practice by him and every item of
knowledge relating to Company's business interests (including potential business
interests) gained by him during his employment hereunder are the property of
Company, and Executive hereby irrevocably assigns all such ideas, discoveries,
inventions, improvements,
<PAGE>
Exhibit 10.1 (cont.)
and knowledge to Company for its sole use and benefit, without additional
compensation. The provisions of this Section 5.3 shall apply whether such ideas,
discoveries, inventions, improvements or knowledge are conceived, made or gained
by him alone or with others, whether during or after usual working hours,
whether on or off the job, and whether or not within the specific realm of his
duties.
5.3 Injunctive and Other Relief. Executive acknowledges and agrees that
the covenants contained herein are fair and reasonable in light of the
consideration paid hereunder, and that damages alone shall not be an adequate
remedy for any breach by Executive of his covenants contained herein and
accordingly expressly agrees that, in addition to any other remedies which
Company may have, Company shall be entitled to injunctive relief in any court of
competent jurisdiction for any breach or threatened breach of any such covenants
by Executive. Nothing contained herein shall prevent or delay Company from
seeking, in any court of competent jurisdiction, specific performance or other
equitable remedies in the event of any breach or intended breach by Executive of
any of its obligations hereunder.
SECTION 6. MISCELLANEOUS
6.1 Severability. The invalidity or unenforceability of any particular
provision or part of any provision of this Agreement shall not affect the other
provisions or parts hereof.
6.2 Assignment. This Agreement shall not be assignable by Executive,
and shall be assignable by Company only to any person or entity which may become
a successor in interest (by purchase of assets or stock, or by merger, or
otherwise) to Company in the business or a portion of the business presently
operated by it. Subject to the foregoing, this Agreement and the rights and
obligations set forth herein shall inure to the benefit of, and be binding upon,
the parties hereto and each of their respective successors, permitted assigns,
heirs, executors and administrators.
6.3 Notices. All notices hereunder shall be in writing and shall be
sufficiently given if hand-delivered, sent by documented overnight delivery
service or registered or certified mail, postage prepaid, return receipt
requested or by telegram, fax or telecopy (confirmed by U.S. mail), receipt
acknowledged, addressed as set forth below or to such other person and/or at
such other address as may be furnished in writing by any party hereto to the
other. Any such notice shall be deemed to have been given as of the date
received, in the case of personal delivery, or on the date shown on the receipt
or confirmation therefor, in all other cases. Any and all service of process and
any other notice in any such action, suit or proceeding shall be effective
against any party if given as provided in this Agreement; provided that nothing
herein shall be deemed to affect the right of any party to serve process in any
other manner permitted by law.
(a) If to Company:
The Judge Group, Inc.
Two Bala Plaza, Suite 405
Bala Cynwyd, PA 19004
Attention: Martin E. Judge, Jr.
(b) If to Executive:
Frank Barrett
901 Florence Lane
Plymouth Township, PA 19401
6.4 Entire Agreement and Modification. This Agreement constitutes the
entire agreement between the parties hereto with respect to the matters
contemplated herein and supersedes all prior agreements and understandings with
respect thereto. Any amendment, modification, or waiver of this Agreement shall
not be effective unless in writing. Neither the failure nor any delay on the
part of any party to exercise any right, remedy, power or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any right, remedy, power or privilege preclude any other or further exercise of
the same or of any other right, remedy, power, or privilege with respect to any
occurrence be construed as a waiver of any right, remedy, power, or privilege
with respect to any other occurrence.
6.5 Arbitration. All controversies arising under or in connection with
or relating to any alleged breach of the Agreement which cannot promptly be
resolved by agreement of the parties shall, within 30 days from the first
written notice by either party of such controversy be submitted to, and resolved
by arbitration in Montgomery County, Pennsylvania. The arbitration shall be in
accordance with Common Law Arbitration, 42 Pa. Cons. Stat. Ann. 7341, to be
determined by a single arbitrator mutually acceptable to both parties. If both
parties cannot agree on a single arbitrator, each party shall select one
arbitrator; the two arbitrators selected by the parties shall agree upon and
appoint a third arbitrator in which case the controversy shall be resolved by a
decision of a majority of the panel of three arbitrators. It is the intent of
the parties that the arbitrator(s) be knowledgeable in the field of financial
accounting. The arbitrator(s) shall assess costs, including legal fees, against
the party which is not the prevailing party in the arbitration, in addition to
appropriate damages and taking into account, among other things, whether the
parties to the arbitration were proceeding in good faith. The decision of the
arbitrator or a majority of the arbitrators, as the case may be, shall be final
and binding upon all the parties and shall be enforceable in a court of
competent jurisdiction, by any appropriate means including injunctive relief.
Such arbitrator(s) shall have the power to enter injunctive relief that shall be
binding on the parties and shall be required to apply the contractual provisions
hereof in deciding any matter submitted to them and shall not have any
authority, by reason of this Agreement or otherwise, to render a decision that
is contrary to the mutual intent of the parties as set forth in this Agreement.
Discovery shall be allowed at least as broadly as would be available under the
<PAGE>
Exhibit 10.1 (cont.)
United States Rules of Civil Procedure and as the arbitrator(s) otherwise
determine(s) to be appropriate under the circumstances.
6.6 Governing Law. This Agreement is made pursuant to, and shall be
construed and enforced in accordance with, the internal laws of the Commonwealth
of Pennsylvania (and United States federal law, to the extent applicable),
without giving effect to otherwise applicable principles of conflicts of law.
6.7 Jurisdiction. Any legal action, suit or proceeding arising out of
or relating to this Agreement must be instituted in federal court in the Eastern
District of Pennsylvania or in state court in the Commonwealth of Pennsylvania,
and each party waives any objection which such party may now or hereafter have
to the laying of the venue of any such action, suit or proceeding, and
irrevocably submits to the jurisdiction of any such court.
6.8 Survival. Anything to the contrary notwithstanding the provisions
of Sections 5.1, 5.2, and 5.3 shall survive the termination or expiration of
this Agreement.
6.9 Headings; Counterparts. The headings of sections in this Agreement
are for convenience only and shall not affect its interpretation. This Agreement
may be executed in two or more counterparts, each of which shall be deemed to be
an original and all of which, when taken together, shall be deemed to constitute
but one and the same Agreement.
6.10 Further Assurances. Each of the parties hereto shall execute such
further instruments and take such other actions as any other party shall
reasonably request in order to effectuate the purposes of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
THE JUDGE GROUP, INC.
By: /s/ Martin E. Judge, Jr.
-------------------------------
Martin E. Judge, Jr.
By: /s/ Frank Barrett
-------------------------------
Frank Barrett
Exhibit 10.2
ASSET PURCHASE AGREEMENT
by and between
JUDGE, INC. and
CELLA ASSOCIATES OF ATLANTA, INC.
THIS ASSET PURCHASE AGREEMENT is dated as of March 31, 1998 by and
between Cella Associates of Atlanta, Inc. ("Seller") and Judge, Inc., a
Pennsylvania corporation ("Buyer").
BACKGROUND
The parties hereto desire to provide for the acquisition by Buyer of
certain assets of Seller relating to, used, or held for use in its permanent and
contract placement businesses (the "Business"), but excluding certain assets and
liabilities, all on the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants and agreements herein contained, the
parties hereto, intending to be legally bound, agree as follows:
SECTION 1. ACQUISITION OF ASSETS.
1.1 Purchased Assets. Subject to the terms and conditions of this
Agreement, at the Closing, Seller shall sell, convey, assign, transfer and
deliver to Buyer all of Seller's right, title and interest in and to all of the
tangible and intangible properties and assets owned or held by Seller and
primarily relating to or used or held for use in connection with the Business,
free and clear of all liens (except as set forth in the Disclosure Statement
pursuant to Section 4.3 hereof), including, without limitation, the following
assets owned or held by Seller and each of the assets listed or required to be
listed on the Disclosure Statement pursuant to Section 4.12 hereof, but
excluding the Excluded Assets (as herein defined) (the "Purchased Assets"):
(a) Cash of $50,000;
(b) Accounts Receivable;
(c) All supplies, machinery, furniture, equipment and other
personal property, including those set forth on Schedule 1.1(c)
hereto;
(d) All inventions, whether or not patented, know-how, domestic
and foreign letters patent, patent applications, patent
licenses, software licenses and know-how licenses (including
but not limited to the names "Cella Associates of Atlanta,
Inc.", and trade secrets (including but not limited to all
results of research and development), trade names, trademarks,
service-marks, copyrights, trademark registrations and
applications, service mark registrations and applications,
copyright registrations and applications and rights-to-use
(including the cella.com website) (collectively "Intellectual
Property") as set forth on Schedule 1.1(d) hereto;
(e) All right, title and interest in, to and under all purchase
orders, sales agreements, equipment leases, distribution
agreements, licensing agreements and other contracts,
agreements and commitments of Seller identified on Schedule
1.1(e), subject in each case to the terms of such contracts
("Contracts")
(f) Copies of all books and records predominantly relating to
the Business and the Purchased Assets (including such books and
records as are contained in computerized storage media),
including all inventory, purchasing, accounting, sales, export,
import, manufacturing, marketing, banking and shipping records
and all files, contractor, consultant, customer/client and
supplier lists, records, literature and correspondence, and
marketing materials excluding tax returns;
(g) The leases (the "Leases") related to the facilities at
Norcross, Georgia; Glastonbury, Connecticut; Arlington, Texas;
and Dekalb, Illinois. (the "Facilities");
(h) Any other assets of Seller's Business including those set
forth on Schedule 1.1(h) which are of a nature not customarily
reflected in the books and records of a business, such as
assets which have been written off for accounting purposes but
which are still used by or of value to Seller;
(i) All Authorizations (as defined in Section 4.5(b))
associated with the Seller's Business and its operations;
(j) All intangible assets and goodwill associated with the
Seller's Business and its operations;
<PAGE>
Exhibit 10.2 (cont.)
(k) Any other assets of Seller which are located at the
Facilities in including those set forth on Schedule 1.1(k); and
(l) Work in process, including placements completed where the
individual has agreed to work but has not yet started
employment.
1.2 Excluded Assets. Notwithstanding anything to the contrary in
Section 1.1 of this Agreement, the following rights, properties and assets shall
not be included in the Purchased Assets (the "Excluded Assets"):
(a) All employee records (excluding employment and non-competition
agreements);
(b) Seller's Benefit Plan(s) and all obligations related thereto;
(c) All ownership interests in real property, in each case together
with all buildings thereon;
(d) Seller's tax returns and records;
(e) Cash to the extent it exceeds $50,000.00;
(f) Marketable securities
(g) Employee advances; and
(h) Car lease
1.3 Liabilities to be Assumed by Buyer. Subject to the terms and
conditions of this Agreement, at the Closing, Buyer shall assume and thereafter
in due course pay and fully satisfy all liabilities, obligations and related
expenses arising after the Closing pursuant to the terms of the Contracts, trade
accounts payables related to the operation of the business prior to Closing in
an amount not exceeding the amount accrued therefor on the Closing Statement,
accrued compensation and accrued expenses recorded on Seller's books as of the
Closing as set forth on Schedule 1.3(a) hereof which includes accrued
compensation and accrued expenses.
Except as otherwise specifically provided for in this Section 1.3,
Buyer shall not assume, or in any way be liable or responsible for, any
liabilities, obligations or debts of Seller of any type or nature, including,
without limitation, any related unfunded pension liabilities, any medical, life,
disability insurance liabilities, unfunded pension liabilities, any workman
compensation claims, any local, state, federal, payroll or other tax
liabilities, liabilities relating to claims for damages based upon the breach by
Seller of any federal, state or local environmental or occupational health and
safety laws or regulations, liabilities related to products liability, tort
claims or other litigation, any undisclosed liabilities, liabilities incurred
for the costs and expenses of negotiating and consummating the transactions
contemplated by this Agreement, liabilities incurred in connection with the
termination of any of the Contracts to be transferred hereunder, any liabilities
related to the classification of independent contractors, and tort claims
asserted against Seller or claims against Seller for breach of contract which
are based on acts or omissions of Seller occurring on, before or after the
Closing.
SECTION 2. PURCHASE PRICE AND PAYMENT.
2.1 Purchase Price.
(a) The total consideration for the assets acquired would be a
minimum of $1,446,402, plus the assumption of the specified liabilities, of
which $696,402 would be paid to Seller at Closing by wire transfer.
(b) Shares of Judge's unregistered common stock in the amount
of 50,000 shares would be delivered to Seller at Closing, bearing the
appropriate restrictive legends. If the 30-day average stock price of Judge's
stock, as reported on the Nasdaq Stock Market, as of the first anniversary of
the Closing is not at least $15.00 per share, Buyer shall pay Seller an amount
equal to the difference between $15.00 and the 30-day average closing price of
the shares for the period ending on the Anniversary Date times 50,000.
Obligation to make payment pursuant to this Section 2.2(b)
shall be evidenced by the Buyer's subordinated promissory note in the form
attached as Exhibit ___ hereof (the "Promissory Note").
(c) It is understood by the parties that the total purchase
price consideration of $1,446,402 was determined on an operating income (plus
certain discretionary spending items) which totals for 1997 $258,286 ("Operating
Income") multiple of 5.6.
2.2 Closing Adjustments.
(a) The following items shall be apportioned and prorated, on
a daily basis, between the Seller and the Buyer as of 12:00 midnight at the
commencement of the Closing Date:
(i) Rent for the Facilities.
(ii) All items for which payment has been received by the
Seller and for which services have not been rendered;
(iii) Supplies and equipment delivered after Closing; and
<PAGE>
Exhibit 10.2 (cont.)
(iv) All commissions payable to staff employees shall be
attributable to the sale to which they relate. The party who receives the
revenue associated with the sale will be responsible to pay the commission.
(b) At the Closing, the Seller shall present to the Buyer a
Schedule of the adjustments in Section 2.2(a) showing the computation thereof
and the purchase price shall be appropriately adjusted.
2.3 Post Closing Purchase Price Adjustment.
(a) Prior to the Closing, Buyer and Seller(and their
respective affiliates) shall promptly prepare or cause to be prepared, in
accordance with United States generally accepted accounting principles ("GAAP")
consistently applied, a balance sheet of Company as of the close of business on
March 31, 1998. Such balance sheet prepared and finally determined as provided
in this Section 2.3 is referred to herein as the "Closing Statement." At
closing, Buyer shall deliver to Seller a final draft of the Closing Statement,
together with its calculation of Net Working Capital (as herein defined) as of
the close of business on March 31, 1998.
(b) If the Net Working Capital as of the Closing Date as
conclusively determined as provided herein (such conclusive determination is
referred to herein as "Certified Net Working Capital"), is less than $65,000.00,
then Seller shall pay, or cause to be paid to Buyer, the amount of such
deficiency. If the Certified Net Working Capital is more than $65,000.00, then
buyer shall pay or cause to be paid to Seller, the amount of such excess. Any
payment pursuant to this Section shall be made within five business days
following receipt by the parties of the final Closing Statement and the
Certified Net Working Capital calculation.
(c) For purposes of this Agreement, "Net Working Capital"
shall mean the accounts receivable, the net fixed assets plus deposits less all
current liabilities, accounts payable, accrued expenses and commissions payable.
2.4 Allocation of Consideration. The Purchase Price shall be allocated
among the Purchased Assets as set forth on Schedule 2.4 hereto. The parties
shall report this transaction for tax purposes consistently with such
allocation.
SECTION 3. CLOSING.
3.1 Time and Place of Closing. The closing of the purchase and sale of
the Purchased Assets (the "Closing") pursuant to this Agreement shall take place
as of March 31, 1998 (the "Closing Date") and shall be held at the offices of
Gomel & Davis, Atlanta, Georgia, commencing at 10:00 A.M., local time or at such
other date, time or place as may be agreed to by Buyer and Seller.
3.2 Deliveries at the Closing. At the Closing, in addition to the other
actions contemplated elsewhere herein:
(a) Seller shall deliver, or shall cause to be delivered, to
Buyer the following:
(i) A bill of sale satisfactory to Buyer transferring
title to all of the Purchased Assets in the form attached as Exhibit ___ hereto;
(ii) Such other instruments of transfer as shall be
necessary or appropriate to vest in Buyer good and marketable title to the
Purchased Assets;
(iii) Assignments satisfactory to Buyer of all Contracts
whenever necessary;
(iv) Opinion letter of Seller's Counsel; and
(v) The Leases
(b) Buyer shall deliver, or shall cause to be delivered, to
Seller the Purchase Price in accordance with Section 2.1 and Employment
Agreement to be executed by Mr. Gorry in substantially the form attached as
Schedule 3.2 (b) hereto.
(c) Buyer shall deliver to Seller an assumption of liabilities
agreement pursuant to which Buyer assumes at Closing those liabilities required
to be assumed by it under Section 1.3.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE SELLER.
Certain representations and warranties made by Seller are modified as
and to the extent set forth in the Disclosure Statement which has previously
been delivered to Buyer at least three (3) business days prior to the date
hereof (the "Disclosure Statement") or as otherwise provided herein. Seller
represents and warrants to Buyer as of the date of this Agreement as follows:
4.1 Organization and Good Standing. The Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Georgia and has all necessary corporate powers to own its properties and to
carry on its business as now owned and operated by it. Seller is duly qualified
to do business and is in good standing in each jurisdiction in which failure to
be so qualified would have an adverse effect on the Business or the Purchased
Assets except Texas and Illinois. The Disclosure Statement set forth a complete
and accurate list with respect to the Seller of all its affiliates, each
jurisdiction where it or an affiliate is authorized to do business, and Seller's
capitalization (including the identity of each stockholder and the number of
shares held by each).
<PAGE>
Exhibit 10.2 (cont.)
4.2 Power and Authorization. Seller has full legal right, power and
authority to enter into and perform its obligations under this Agreement, the
Employment Agreement, and the other agreements and documents required to be
delivered by it prior to or at the Closing (the "Seller Transaction Documents").
The execution, delivery and performance by Seller of this Agreement and the
Seller Transaction Documents have been duly authorized by all necessary action.
This Agreement has been duly and validly executed and delivered by Seller and
constitutes the legal, valid and binding obligation of Seller, enforceable
against it in accordance with its terms. When executed and delivered as
contemplated herein, each of the Seller Transaction Documents shall constitute
the legal, valid and binding obligation of Seller, enforceable against it in
accordance with its terms.
4.3 No Conflicts
(a) Except as described in the Disclosure Statement, the
execution, delivery and performance of this Agreement and the Seller Transaction
Documents do not and will not (with or without the passage of time or the giving
of notice):
(i) Violate or conflict with any law, regulation, permit,
license, certificate, judgment, order, award or other decision or requirement of
any arbitrator, court, government or governmental agency or instrumentality
(domestic or foreign) (collectively, "Laws"), binding upon it that is likely to
have an adverse effect on the Business;
(ii) Violate or conflict with, result in a breach of, or
constitute a default or otherwise cause any loss of benefit under any Contract,
or give to others any rights (including rights of termination, foreclosure,
cancellation or acceleration) in or with respect to any of the Purchased Assets;
(iii) Result in, require or permit the creation or
imposition of any restriction, mortgage, deed of trust, pledge, lien, security
interest or other charge, claim or encumbrance of any nature upon or with
respect to the Purchased Assets that is likely to, either individually or in the
aggregate, have a material adverse effect on the Purchased Assets;
(iv) Cause Buyer to become subject to, or become liable
for the payment of any tax; except for Buyer's prorated portion of accrued ad
valorem taxes; or
(v) Cause any of the Purchased Assets to be reassessed or
revalued by any taxing authority or governmental body.
(b) There are no judicial, administrative or other
governmental actions, proceedings or investigations pending against Seller or,
to the knowledge of Seller, threatened, that question any of the transactions
contemplated by, or the validity of, this Agreement or any of the other
agreements or instruments contemplated hereby or which, if adversely determined,
is likely to have an adverse effect upon the ability of Seller to enter into or
perform its obligations under this Agreement or any such other agreements or
instruments. Seller has not received any request from any governmental agency or
instrumentality for information with respect to the transactions contemplated
hereby.
4.4 Brokers. No person, acting on behalf of Seller or its affiliates or
under the authority of any of the foregoing is or will be entitled to any
brokers' or finders' fee or any other commission or similar fee, directly or
indirectly, from any of such parties in connection with any of the transactions
contemplated by this Agreement.
4.5 Compliance with Laws.
(a) Except as described in the Disclosure Statement: the
operation of the Business and the Purchased Assets is, and at all times during
the last two (2) years has been, in compliance in all material respects with all
applicable Laws; and Seller has not had any basis to expect, and has not
received, with respect to the Purchased Assets or the operation of the Business,
during the last two (2) years, any notice, order or other communication from any
governmental agency or instrumentality of any alleged, actual, or potential
violation of or failure to comply with any Law.
(b) All federal, foreign, state, local and other governmental
consents, licenses, permits, franchises, grants and authorizations
(collectively, "Authorizations") required for the operation of the Business as
currently conducted and as conducted during the last two years are, except as
otherwise described in the Disclosure Statement, in full force and effect
without any default or violation thereunder by Seller or by any other party
thereto and Seller has not received any notice of any claim or charge that
Seller is or within the last two years had been in violation of or in default
under any such Authorization. Except as described in the Disclosure Statement:
(i) no proceeding is pending or, to the knowledge of Seller, threatened by any
person to revoke or deny the renewal of any Authorization; and (ii) Seller has
not been notified that any such Authorization may not in the ordinary course be
renewed upon its expiration or that by virtue of the transactions contemplated
hereby any such Authorization may not be granted or renewed or transferred to
Buyer.
4.6 Securities Laws Matter
(a) Seller acknowledges that Shares and the monies earned
pursuant to Section 2 (b) through (e) herein, if any, (the "Securities")
hereunder will not be registered under the Securities Act of 1933, as amended
(the "Securities Act"), and must be held indefinitely unless subsequently
registered under the Securities Act or unless an exemption from such
registration becomes or is available.
<PAGE>
Exhibit 10.2 (cont.)
(b) Seller represents and warrants that its primary residence
is located in the State of Georgia
(c) Seller represents and warrants that:
(i) It is well versed in financial matters and has such
knowledge and experience in financial and business matters and that it is fully
capable of understanding the merits and risks of the investment being made in
the Securities and the risks involved in connection therewith;
(ii) It is acting herein for its own account and is
acquiring the Securities for investment without a view to the resale or other
distribution thereof. It is financially able to hold the Securities for
long-term investment, believes that the nature and amount of the Securities to
be acquired hereunder is consistent with its overall investment program and
financial position, and recognizes that there are substantial risks involved in
an investment in the Securities;
(iii) It is an "accredited investor" as defined in Rule
501(a) of Regulation D under the Securities Act; and
(iv) It has received and reviewed the prospectus related
to the initial public offering of Judge Group common shares, its annual report
on Form 10-K for the year ended December 31, 1996 and its quarterly reports on
Form 10-Q for the three months ended March 31, 1997, June 30, 1997, and
September 30, 1997.
(d) Seller acknowledges and agrees that Buyer may, if it so
desires, permit transfers, or authorize its transfer agent to permit transfers,
of the Securities only when such Securities have been registered under the
Securities Act or when the request for transfer is accompanied by satisfactory
assurance (including, if requested, an opinion of counsel acceptable to Buyer)
that the sale or proposed transfer does not require registration under the
Securities Act, and Seller agrees that a legend to such effect will be placed on
the Securities.
4.7 Litigation. Except as described in the Disclosure Statement, there
are no, and during the last two (2) years there have not been any, claims,
actions, suits, proceedings (arbitration or otherwise) or investigations
involving or affecting the Business or the Purchased Assets before or by any
court or governmental agency or instrumentality, or before an arbitrator of any
kind; and no pending claim, action, suit, proceeding or investigation, if
determined adversely, would either individually or in the aggregate have a
material adverse effect on the Business, or would result in a liability in
excess of $5,000 in the case of any single action or $10,000 in the case of all
such actions in the aggregate. To the knowledge of Seller, except as described
in the Disclosure Statement, no such claim, action, suit, proceeding or
investigation is presently threatened or contemplated and there are no facts
which could reasonably serve as a basis for any such claim, action, suit,
proceeding or investigation. There are no unsatisfied judgments, penalties or
awards against or affecting the Business.
4.8 Financial Statements.
(a) The compiled statements of income of the Business for the
12-month periods ended December 31, 1996 and 1997, compiled by Gifford,
Hillegass & Ingwersen, P.C. independent certified public accountant, a correct
and complete copy of which is attached hereto as part of Schedule 4.8, are true
and correct in all material respects and present fairly the financial position
of the Business of the Seller and the results of its operations for the fiscal
periods then ended, in conformity with GAAP consistently applied in accordance
with past practice, and includes all adjustments which are necessary for a fair
presentation of the information shown.
(b) The compiled statements of income of the Business for the
months ended January and February, 1998, compiled by Gifford, Hillegass &
Ingwersen, P.C. independent certified public accountant, a correct and complete
copy of which is attached hereto as part of Schedule 4.8, are true and correct
in all material respects and present fairly the financial position of the
Business of the Seller and the results of its operations for the period then
ended, in conformity with GAAP applied on a consistent basis with prior year
statements of income, and includes all adjustments which are necessary for a
fair presentation of the information shown.
(c) The compiled balance sheet of the Business for months
ended January and February 1998 (the "Balance Sheet"), compiled by Gifford,
Hillegass & Ingwersen, P.C.; independent certified public accountant, a correct
and complete copy of which is attached hereto as part of Schedule 4.8, is true
and complete in all material respects and presents fairly the assets and
liability of the Business of the Seller as of such date, in conformity with GAAP
applied on a consistent basis, and includes all adjustments which are necessary
for a fair presentation of the information shown.
4.9 Accounts Receivable. All accounts receivable reflected on the
Balance Sheet and included in the Purchased Assets have been acquired or have
arisen only in the ordinary course of business, consistent with past practice,
and are not subject to defenses, set-offs or counterclaims. All of such accounts
receivable are generally due within 30 days after being accrued on the books of
the Seller and have been collected, or are collectible within 90 days after
billing, in the full aggregate recorded amounts thereof, less, in the case of
the accounts receivable reflected on the Balance Sheet, the amount of the
allowance for doubtful accounts shown on the Balance Sheet. The allowance for
such doubtful accounts on the Balance Sheet has been determined in conformity
with GAAP consistently applied with past practice. Schedule 4.9 lists the
<PAGE>
Exhibit 10.2 (cont.)
Business's accounts receivable as of both Balance Sheets dated February 28, 1998
and March 31, 1998, in each case specifying the account debtor, the face amount
of the receivable and the age of the receivable.
4.10 Personal Property. Except as described in the Disclosure
Statement: (a) Seller has good and valid title to all of the Purchased Assets
free and clear of any restriction, mortgage, deed of trust, pledge, lien,
security interest or other charge, claim or encumbrance; and (b) all Purchased
Assets owned or leased by Seller are in the possession or under the control of
Seller are suitable for the purposes for which they are currently being used and
are of a condition, nature and quantity sufficient for the conduct of the
Business as it is presently conducted.
4.11 List of Properties, Contracts, etc. The Disclosure Statement lists
or adequately describes the following:
(a) Each vehicle, item of machinery, equipment and other
tangible asset (other than real property) included in the Purchased Assets with
a fair market or book value in excess of $1,000.00 in respect of any item, and
location thereof;
(b) Each Authorization employed in the Business;
(c) Each (i) fictitious business name, tradename, registered
and unregistered trademark, service mark and related application (the "Marks"),
(ii) patent, patent right and patent application (collectively, "Patents"),
(iii) copyright in published and material unpublished works ("Copyrights"),
computer programs and software, including Seller's website ("Software"), (iv)
proprietary formula, trade secret, formulation and invention ("Trade Secrets"),
and (v) license and permit issued or granted by any person relating to any of
the foregoing; in each case included in the Purchased Assets and owned, leased,
used or held by, granted to or licensed by Seller as either licensor or
licensee, together with all other interests therein granted by Seller to any
other person and all agreements with respect to any of the foregoing to which
Seller is a party (including secrecy and non-disclosure agreements with current
or former employees, consultants or contractors);
(d) Each contract, agreement or commitment which restricts or
purports to restrict any business activities or freedom of Seller or Seller's
officers, employees or consultants to engage in the Business or to compete with
any person;
(e) Each Contract involving the performance of services or
delivery of goods or materials by or to Seller;
(f) Each contract, agreement or commitment relating to the
Business to which Seller is a party or is otherwise bound providing for payments
(contingent or otherwise) to or by any person or entity based on sales,
purchases or profits, other than direct payments for goods, and each other
contract, agreement or commitment relating to the Business to which Seller is a
party or by which it or any Purchased Assets are otherwise bound which is
material to its business, operation, financial condition or prospects;
(g) Each form of contract, agreement or commitment used by
Seller as a standard form in the ordinary course of the Business;
(h) A summary of each policy and binder of insurance, owned
by, or maintained in the preceding two (2) years for the benefit of, or
respecting which any premiums are paid directly or indirectly by Seller relating
to the Business;
(i) Each insurance claim made or loss incurred in the
preceding two (2) years pursuant to any workers' compensation, liability or
other insurance policy for a claim in excess of $5,000.00; and
(j) Each outstanding power-of-attorney or similar power
relating to the Business granted by Seller for any purpose whatsoever.
Seller has furnished and will furnish or make available to
Buyer true and complete copies of each agreement, plan and other document
required to be disclosed on the Disclosure Statement.
4.12 Contracts. Except as described in the Disclosure Statement, each
Contract was made in the ordinary course of business, is in full force and
effect and is valid, binding and enforceable against the parties thereto in
accordance with its terms. Except as described in the Disclosure Statement,
Seller has performed all obligations required to be performed by it under each
such Contract, and no condition exists or event has occurred which with notice
or lapse of time would constitute a default or a basis for delay or
non-performance by Seller or, to the best knowledge of Seller, by any other
party thereto. Seller does not have any liabilities, whether fixed or
contingent, relating to or arising out of contracts with the United States
government or any agency thereof or any other customers, including, but not
limited to, claims arising out of pricing provisions therein. There is no
contractual or other requirement for any employee of the Business to obtain or
maintain a security clearance with respect to any governmental agency or
instrumentality. Except as described in the Disclosure Statement, each other
party to each such Contract has consented or been given sufficient notice (where
such consent or notice is necessary) that the same shall remain in full force
and effect following the Closing.
4.13 Intellectual Property. Except as otherwise described in the
Disclosure Statement, Seller is the sole owner or has the exclusive perpetual
right to use without consideration, all Intellectual Property, free and clear of
any lien, security interest, restriction, encumbrance or other adverse claim;
the Seller has not granted or licensed to any person any rights with respect to
any Intellectual Property and no other person has any rights in or to any of the
Intellectual Property (including, without limitation,
<PAGE>
Exhibit 10.2 (cont.)
any rights to market or distribute any of the Intellectual Property); the rights
of Seller in and to any of the Intellectual Property will not be limited or
otherwise affected by reason of any of the transactions contemplated hereby; and
the Intellectual Property is sufficient for the conduct of the Business as it is
presently conducted. The Intellectual Property does not infringe and, to
Seller's knowledge, is not alleged to have infringed any trademark, copyright,
patent or other proprietary right of any person.
4.14 Customers and Suppliers. No present customer or supplier has
terminated or materially reduced, or has given notice that it intends to
terminate or materially reduce, the amount of business done with Seller with
respect to the Business. Seller is not aware of any such intention on the part
of any such customer, supplier or vendor, whether or not in connection with the
transactions contemplated hereunder. There are no and during the last two (2)
years there have not been any disputes or controversies involving, in the
aggregate, more than $5,000 between Seller and any customer, supplier or other
person regarding the quality, merchantability or safety of, or involving a claim
of breach of warranty which has not been fully resolved with respect to
warranties provided by the Business.
4.15 Taxes. All federal, state, local and foreign income, profits,
franchise, sales, use, value added, payroll, premium, occupancy, property,
severance, excise, withholding, customs, unemployment, transfer and other taxes,
including interest, additions to tax and penalties (collectively "Taxes")
relating to the Business due or properly shown to be due on any return filed by
Seller with respect to taxable periods ending on or prior to, and the portion of
any interim period up to, the date hereof have been fully and timely paid; and
there are no levies, liens, or other encumbrances relating to Taxes existing,
threatened or pending with respect to any Purchased Asset.
4.16 Employee Benefits
(a) The Disclosure Statement contains a complete and correct
list of all benefit plans, arrangements, commitments and payroll practices
(whether or not employee benefit plans ("Employee Benefit Plans") as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")), including, without limitation, sick leave, vacation pay, severance
pay, salary continuation for disability, consulting or other compensation
arrangements, retirement, deferred compensation, bonus, incentive compensation,
stock purchase, stock option, health including hospitalization, medical and
dental, life insurance and scholarship programs maintained for the benefit of
any present or former employees of the Business.
(b) With respect to each Employee Benefit Plan required to be
listed on the Disclosure Statement: (i) each Employee Benefit Plan has been
administered in compliance with its terms, and is in compliance in all material
respects with the applicable provisions of ERISA, the Internal Revenue Code of
1986, as amended (the "Code"), and all other applicable Laws (including, without
limitation, the funding and prohibited transaction provisions of ERISA and the
Code, continuation coverage obligations pursuant to Title V of the Consolidated
Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"), and the Family
and Medical Leave Act of 1993 ("FMLA")); (ii) the Seller has made or provided
for all contributions required under the terms of such Plans; (iii) there are
and during the past three years there have been no inquiries, proceedings,
claims or suits pending or threatened by any governmental agency or authority or
by any participant or beneficiary against any of the Employee Benefit Plans, the
assets of any of the trusts under such Plans or the Plan sponsor or the Plan
administrator, or against any fiduciary of any of such Employee Benefit Plans
with respect to the design or operation of the Employee Benefit Plans; (iv) each
Employee Pension Benefit Plan (as defined in Section 3(2) of ERISA) which is
intended to be "qualified" within the meaning of Section 401(a) of the Code is
and has from its inception been so qualified, and any trust created pursuant to
any such Employee Pension Benefit Plan is and has been from its inception exempt
from federal income tax under Section 501(a) of the Code and the IRS has issued
each such Plan a favorable determination letter which is currently applicable or
an application for such a determination letter shall be made prior to the
expiration of the applicable remedial amendment period; (v) neither Seller nor
any ERISA Affiliate is aware of any circumstance or event which would jeopardize
the tax-qualified status of any such Employee Pension Benefit Plan or the
tax-exempt status of any related trust; and (vi) Seller and its ERISA Affiliates
have, prior to the Closing, delivered to Buyer, with respect to all Employee
Benefit Plans listed in the Disclosure Statement, true, complete and correct
copies of the following: all plan documents, handbooks, manuals, collective
bargaining agreements and similar documents governing employment policies,
practices and procedures; all the most recent summary plan descriptions and any
subsequent summaries of material modifications and all other material employee
communications discussing any employee benefit; Forms 5500 (including audit
reports) as filed with the IRS for the most recent four (4) plan years; the most
recent report of the enrolled actuary for all plans requiring actuarial
valuation; all trust agreements with respect to employee benefit plans; plan
contracts with service providers and plan contracts with insurers providing
benefits for participants or liability insurance for fiduciaries and other
parties in interest or bonding; most recent annual audit and accounting of plan
assets for all funded plans; and most recent IRS determination letter for all
plans qualified under Section 401(a) of the Code. As used herein, "ERISA
Affiliate" shall refer to any trade or business, whether or not incorporated,
under common control with the Seller within the meaning of Section 414(b), (c),
(m) or (o) of the Code.
<PAGE>
Exhibit 10.2 (cont.)
(c) Neither Seller nor any ERISA Affiliate maintains or has
ever maintained or been obligated to contribute to a "Multiemployer Plan" (as
such term is defined by Section 4001(a)(3) of ERISA), and Seller is not bound by
any collective bargaining agreement or legally binding arrangement to maintain
or contribute to any Employee Benefit Plan.
(d) Neither Seller nor any ERISA Affiliate maintains or has
ever maintained or been obligated to contribute to a Defined Benefit Plan (as
defined in Section 3(35) of ERISA).
(e) All reports and information required to be filed with the
Department of Labor and IRS or with plan participants and their beneficiaries
with respect to each Employee Benefit Plan required to be listed on the
Disclosure Statement have been filed and all annual reports (including Form 5500
series) of such Plans were certified, if applicable, without qualification by
each Plan's accountants and actuaries. There has been no material change with
regard to any such Employee Benefit Plan since the last annual report.
(f) All Employee Benefit Plans required to be listed on the
Disclosure Statement may, without liability, be amended, terminated or otherwise
discontinued except as specifically prohibited by federal law.
(g) Any bonding required under ERISA with respect to any
Employee Benefit Plan required to be listed on the Disclosure Statement has been
obtained and is in full force and effect and no funds held by or under the
control of the Seller or any ERISA Affiliate are plan assets.
(h) Neither Seller nor any ERISA Affiliate maintains any
retired life and/or retired health insurance plans which provide for continuing
benefits or coverage for any employee or any beneficiary of an employee after
such employee's termination of employment.
(i) Neither Seller nor any ERISA Affiliate is bound by any
collective bargaining agreement of legally binding arrangement to maintain or
contribute to any Employee Benefit Plan.
(j) There has been no material violation of the "continuation
coverage requirements" of "group health plans" of former section 162(k) of the
Code (as in effect for tax years beginning on or before December 31, 1988) and
of section 4980B of the Code (as in effect for tax years beginning on and after
January 1, 1989) and Part 6 of Subtitle B of Title I of ERISA with respect to
any group health plan to which such continuation coverage requirements apply.
(k) There has been no material violation of the health
insurance obligation is imposed by section 9801 of the Code and Part 7 of
Subtitle B of Title I of ERISA ("HIPAA") with respect to any Employee Benefit
Plan which is a group health plan (as defined under Section 5000(b) (1) of the
Code or Part 6 of Subtitle B of Title I of ERISA) to which such insurance
obligations apply.
4.17 Labor Matters
(a) Except as described in the Disclosure Statement: (i) to
the knowledge of Seller, no application or petition for certification of a
collective bargaining agent is pending and none of the employees of Seller
engaged in the Business are, or during the last two (2) years have been,
represented by any union or other bargaining representative; (ii) to the
knowledge of Seller, during the last two (2) years, no union has attempted to
organize any group of the Seller's employees engaged in the Business, and no
group of the Seller's employees engaged in the Business has sought to organize
themselves into a union or similar organization for the purpose of collective
bargaining; (iii) during the last two (2) years there has not been and there is
not currently pending any labor arbitration or proceeding in respect of the
grievance of any employee engaged in the Business, any application, charge or
complaint filed by any employee or union with the National Labor Relations Board
or any comparable state or local agency, any strike, slowdown, picketing or work
stoppage by any employees at the Facility, any lockout of any such employees or
any labor trouble or other labor-related controversy, occurrence or condition;
(iv) no agreement restricts Seller from relocating or closing the Facility or
any portion thereof; and (v) to the knowledge of Seller, no such agreement,
action, proceeding or occurrence is threatened or contemplated by any person.
(b) Except as described in the Disclosure Statement with
respect to the Business and the Facility, Seller has not been cited for
violations of the Occupational Safety and Health Act of 1970, 29 U.S.C. sec. 651
et seq. ("OSHA"), any regulation promulgated pursuant to OSHA, or any other
statute, ordinance, rule, or regulation establishing standards of workplace
safety, or paid any fines or penalties with respect to any such citation. Except
as described in the Disclosure Statement: (i) there have not been any
inspections of the Facility by representatives of the Occupational Safety and
Health Administration or any other government agency vested with authority to
enforce any statute, ordinance, rule or regulation establishing standards of
workplace safety; (ii) to the knowledge of Seller, no representative of any such
government agency has attempted to conduct any such inspection or sought entry
to the Facility for that purpose; (iii) Seller has not been notified of any
complaint or charge filed by any employee or employee representative with any
such government agency which alleges that Seller has violated OSHA or any other
statute, ordinance, rule or regulation establishing standards of workplace
safety; (iv) Seller has not been notified that any employee or employee
representative of the Business has requested that any such government agency
conduct an inspection of the Facility to determine whether violations of OSHA or
any other such statute, ordinance, rule or regulation may exist; and (v)
<PAGE>
Exhibit 10.2 (cont.)
Seller does not maintain any condition, process, practice or procedure at the
Facility which would be deemed a material violation of OSHA or any other
statute, ordinance, regulation or rule establishing standards or workplace
safety.
(c) Attached to the Disclosure Statement are true and correct
copies of each OSHA Form No. 200 completed and maintained by Seller at the
Facility for the last two (2) years.
4.18 Employees. The Disclosure Statement sets forth the following
information for each employee of Seller engaged in the Business (including each
such person on leave or layoff status) (collectively, the "Employees"): employee
name and job title; current annual rate of compensation (identifying bonuses
separately) and any change in compensation since December 31, 1997; vacation
accrued and service credited for purposes of vesting and eligibility to
participate in applicable Employee Benefit Plans; description of any material
pre-existing condition known to Seller with respect to any applicable Employee
Benefit Plan; and any automobile leased or owned by Seller primarily for use by
any of the foregoing persons. Except as described in the Disclosure Statement,
none of Employees is a party to, or is otherwise bound by, any agreement or
arrangement with any person or entity other than Seller which limits or
adversely affects the performance of his or her duties, the ability of Seller to
conduct the Business, or his or her freedom to engage in the Business
(including, without limitation, any confidentiality, non-competition,
non-solicitation or proprietary rights agreement). The Disclosure Statement
lists or describes each employment, severance, change of control, consulting,
commission, agency and representative agreement or arrangement relating to the
Business to which Seller is a party or is otherwise bound, including, without
limitation, all agreements and commitments relating to wages, hours or other
terms or conditions of employment (other than unwritten employment arrangements
terminable at will without payment of any contractual severance or other
amount).
4.19 Full Disclosure.
(a) All documents and other papers delivered by or on behalf
of Seller in connection with the transactions contemplated by this Agreement are
accurate and complete in all material respects and are authentic. No
representation or warranty of Seller contained in this Agreement or the
Disclosure Statement contains any untrue statement of a material fact or omits
to state a fact necessary in order to make the statements herein or therein, in
light of the circumstances under which they were made, not misleading in any
material respect.
(b) Except as described in this Agreement or the Disclosure
Statement, there is no fact known to Seller (other than general economic or
industry conditions) which materially adversely affects or, so far as Seller can
reasonably foresee, materially threatens, the assets, business, prospects,
financial condition or results of operations of the Business or the ability of
Seller to perform this Agreement.
4.20 Absence of Changes or Events. Except as described on the
Disclosure Statement and except for actions taken after the date hereof pursuant
to a specific covenant hereunder, since February 28, 1998 the Seller has not:
(a) Discharged or satisfied any lien or encumbrance, or paid
any liabilities, other than in the ordinary course of business consistent with
past practice, or failed to pay or discharge when due any liabilities which the
failure to pay or discharge has caused or will cause any material damage or risk
of material loss to Purchased Assets or the Business;
(b) Sold, assigned or transferred any of its Assets or
properties except in the ordinary course of business consistent with past
practice;
(c) Created, incurred, assumed or guaranteed any indebtedness
for money borrowed, or mortgaged, pledged or subjected to any Lien, any of its
Purchased Assets, other than the liens, if any, for current taxes not yet due
and payable;
(d) Made or suffered any amendment or termination of any
Contract to which it is a party or by which it is bound or canceled, modified or
waived any debts or claims held by it, other than in the ordinary course of
business consistent with past practice, or waived any right of substantial
value, whether or not in the ordinary course of business;
(e) Suffered any damage, destruction or loss, whether or not
covered by insurance, of any item carried on its books of account at more than
$1,000, or suffered any repeated, recurring or prolonged shortage, cessation or
interruption of supplies or utility services required to conduct its Business;
(f) Suffered any decrease in its retained earnings or working
capital, or any material adverse change in its Business, except as contemplated
in this Agreement
(g) Suffered any adverse change or any threat of an adverse
change in its relation with, or any loss or threat of loss of, any of its
customers other than usual attrition in the ordinary course of customers that
are not individually or in the aggregate material to the Business;
(h) Made any capital expenditure or capital addition or
betterment except such as may be involved in ordinary repair, maintenance and
replacement of its Purchased Assets;
(i) Increased the salaries or other compensation of, or made
any advance (excluding advances for ordinary and necessary business expenses) or
loan to, any of its shareholders, directors, officers, employees or independent
<PAGE>
Exhibit 10.2 (cont.)
contractors, or made any increase in, or any addition to, other benefits to
which any of its shareholders, directors, officers or employees may be entitled;
(j) Changed any of the accounting principles followed by it or
the methods of applying such principles; or
(k) Entered into any material transaction or any transaction
other than in the ordinary course of business consistent with past practice.
4.21 Investments and Subsidiaries. The Business is and has been
conducted at all times during the last two years solely by and through Company
and no other person, and, other than the capital stock of Cella Associates of
Chicago and Search Associates, neither of which has conducted any business
activities in the last two years, except for any marketable securities, Company
does not directly or indirectly own, control or have any investment or other
interest in any corporation, partnership, joint venture, business trust or other
entity and Company has not agreed, contingently or otherwise, to share any
profit, loss, cost or liability, or to indemnify any person or entity or to
guaranty the obligations of any person or entity.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer hereby represents and warrants to Seller as of the date of this
Agreement as follows:
5.1 Organization and Good Standing. Buyer is a Pennsylvania corporation
duly organized and validly existing under the laws of the Commonwealth of
Pennsylvania and has all necessary corporate power and authority to carry on its
business as presently conducted, to own and lease the assets which it owns and
leases and to perform all its obligations under each agreement and instrument by
which it is bound.
5.2 Power and Authorization. Buyer has full legal right, power and
authority to enter into and perform its obligations under this Agreement and
under the other agreements and documents (the "Buyer Transaction Documents")
required to be delivered by it prior to or at the Closing. The execution,
delivery and performance by Buyer of this Agreement and the Buyer Transaction
Documents have been duly authorized by all necessary corporate action. This
Agreement has been duly and validly executed and delivered by Buyer and
constitutes its legal, valid and binding obligation, enforceable against it in
accordance with its terms. When executed and delivered as contemplated herein,
each of the Buyer Transaction Documents shall constitute the legal, valid and
binding obligation of Buyer, enforceable against it in accordance with its
terms.
5.3 No Conflicts.
(a) The execution, delivery and performance of this Agreement
and the Buyer Transaction Documents do not and will not (with or without the
passage of time or the giving of notice):
(i) Violate or conflict with any provision of Buyer's
Articles of Incorporation, by-laws or of any Law binding upon Buyer; or
(ii) Violate or conflict with, result in a breach of, or
constitute a default or otherwise cause any loss of benefit under any material
agreement or other material obligation to which Buyer is a party.
(b) No consents or approvals of, or registrations,
notifications, filings and/or declarations with, any court, government or
governmental agency or instrumentality, creditor, lessor or other person are
required to be given or made by Buyer in connection with the execution, delivery
and performance of this Agreement and the other agreements and instruments
contemplated herein, other than such as have been obtained or made or which the
failure to obtain would not have a material adverse affect on Buyer's ability to
consummate the transactions contemplated herein and therein.
(c) There are no judicial, administrative or other
governmental actions, proceedings or investigations pending or, to the knowledge
of Buyer, threatened, that question any of the transactions contemplated by this
Agreement or the validity of this Agreement or any of the other agreements or
instruments contemplated hereby or which, if adversely determined, would have an
a material adverse effect upon the ability of Buyer to enter into or perform its
obligations under this Agreement or any of the other agreements or instruments
contemplated hereby. Buyer has not received any request from any governmental
agency or instrumentality for information with respect to the transactions
contemplated hereby.
5.4 Brokers. No person acting on behalf of Buyer or any of its
affiliates or under the authority of any of the foregoing is or will be entitled
to any brokers' or finders' fee or any other commission or similar fee, directly
or indirectly, from any of such parties in connection with any of the
transactions contemplated by this Agreement.
5.5 Capital Structure. The capital structure of the Buyer is as
presented in its most recent filings with the U.S. Securities and Exchange
Commission (the "SEC") pursuant to the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
<PAGE>
Exhibit 10.2 (cont.)
SECTION 6. EMPLOYEE BENEFITS AND EMPLOYMENT.
6.1 Employment.
(a) Buyer will offer employment to each employee of the
Business listed on Schedule 6.1 attached hereto at a rate of pay at least equal
to such employee's rate of pay (base and bonus) in effect on, and with such
benefits as shall be, in the aggregate, generally comparable to such employee's
benefits immediately prior to, the Closing Date. Employees who accept such
employment shall be referred to as "Transferred Employees" for purposes of this
Agreement. Seller shall be responsible for any severance pay obligations with
respect to individuals employed in the Business who are not Transferred
Employees and whose employment with Seller is terminated. Anything contained in
or implied by the provisions of this Section 6.1 to the contrary
notwithstanding, the provisions of this Section shall not create any third-party
beneficiary rights in any person, including any Transferred Employee.
(b) Each Transferred Employee will be required to sign Buyer's
NonSolicitation and Confidentiality Agreement in order to continue their
employment. Seller agrees to assist Buyer in obtaining such executed agreements
from the Transferred Employees.
6.2 Employee Pension Benefit Plans. The benefits under any Employee
Pension Benefit Plan (as defined in Section 3(2) of ERISA) maintained by Seller
which have accrued to any Transferred Employee as of the Closing Date shall be
frozen as of the Closing Date and no further benefits shall accrue under any
such Employee Pension Benefit Plan with respect to such Transferred Employee.
Buyer assumes no responsibility with respect to any such Employee Pension
Benefit Plan.
6.3 Employee Welfare Benefit Plans. Buyer shall assume and continue the
Employee Welfare Benefit Plans (as defined in Section 3(1) of ERISA) maintained
by Seller as of the Closing Date with respect to the Transferred Employees in
accordance with the terms and conditions of this Section 6.3 and such Employee
Welfare Benefit Plans. However, Buyer reserves the right to modify, amend,
suspend, or terminate such Employee Welfare Benefit Plans at any time after the
Closing Date. Notwithstanding the foregoing, Seller shall remain responsible and
liable for any acts or omissions by Seller with respect to such Employee Welfare
Benefit Plans occurring prior to the Closing date.
In addition, Seller shall remain responsible for any injury sustained
prior to the Closing Date that is related to a worker's compensation claim prior
to the Closing Date.
6.4 Vacation and Holidays. Buyer will allow the same vacations and
holidays as provided by Seller for the period ending December 31, 1998 except
that Buyer will not permit the use of any vacation carried over from 1997 or
prior years.
6.5 Health Continuation Coverage. Seller shall be responsible for all
health continuation coverage requirements of the Code and ERISA for all periods
prior to the Closing Date. Buyer shall be responsible for all health
continuation coverage requirements of the Code and ERISA for Transferred
Employees for all periods subsequent to the Closing Date.
6.6 Health Insurance Portability and Accountability Act. Seller shall
be responsible for all health insurance obligations imposed by HIPAA with
respect to any Employee Welfare Benefit Plan which is a group health plan (as
defined under Section 5000(b)(1) of the Code or Part 6 of Subtitle B of Title I
of ERISA) for all periods prior to the Closing Date. Buyer shall be responsible
for all HIPAA obligations with respect to any Employee Welfare Benefit Plan
which is a group health plan and which is assumed by Buyer for Transferred
Employees for all periods subsequent to the Closing Date.
6.7 Reporting and Disclosure Requirements. Seller shall be responsible
for filing all annual reports and satisfying all other reporting and disclosure
requirements with respect to any Employee Benefit Plan for all Plan Years ending
prior to the Closing date.
6.8 Employee Records. Seller shall grant Buyer full access to all
employee records relating to the Transferred Employees.
SECTION 7. CERTAIN CONDITIONS PRECEDENT TO BUYER'S
The obligation of Buyer to consummate the acquisition of the Purchased
Assets is subject to the fulfillment by or at the Closing of each of the
following conditions:
7.1. Representations and Warranties. Seller's representations and
warranties contained in this Agreement shall be deemed to have been made again
at and as of the Closing and shall then be true and correct.
7.2 Performance of Covenants. Seller shall have performed or complied
with all of the agreements, covenants and conditions required by this Agreement
to be performed or complied with by them prior to or at the Closing.
7.3 Apptovals. The consent or approval of all persons necessary for the
consummation of the transactions contemplated hereby shall have been obtained
and no such consent or approval: (a) shall have been conditioned upon the
modification, cancellation or termination of any lease, commitment, agreement,
easement, right or Authorization included in the Purchased Assets; or (b) shall
impose on the Buyer, any condition, provision or requirement not presently
imposed upon Seller, and which is described in the Disclosure Statement, or any
condition that would be more restrictive after the Closing on Buyer, than the
conditions presently imposed on Seller.
<PAGE>
7.4 Legal Matters. The Closing shall not violate any order or decree of
any court or governmental body of competent jurisdiction and no suit, action,
proceeding or investigation shall have been brought or threatened by any person
(other than the Buyer or an affiliate of Buyer) which questions the validity or
legality of this Agreement or the transactions contemplated hereby.
7.5 No Material Adverse Change. There shall not have been any material
adverse change or threat of material adverse change in the Business or the
Purchased Assets, or in any development of a nature that is, or is likely to be
materially adverse to the Business or the Purchased Assets.
7.6 Opinion of Counsel. Buyer shall have received the opinion
satisfactory to Buyer of Gomel & Davis, counsel for Seller, in the form attached
hereto as Schedule 7.6 dated as of the Closing.
7.7 Closing Certificates. The Buyer shall have received certificates
from the Seller, dated the Closing Date, certifying in such detail as the Buyer
may reasonably request that the conditions specified in Sections 7.1, 7.2 and
7.3 hereof have been fulfilled.
SECTION 8. CERTAIN CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS.
The obligation of Seller to consummate the sale of the Purchased Assets
is subject to the fulfillment by or at the Closing of each of the following
conditions:
8.1. Representations and Warranties. Buyer's representations and
warranties contained in this Agreement shall be deemed to have been made again
at and as at the Closing and shall then be true and correct.
8.2 Performance of Covenants. Buyer shall have performed or complied
with all of the agreements, covenants and conditions required by this Agreement
to be performed or complied with by it prior to or at the Closing.
8.3 Approvals. The consent or approval of all persons described on the
Disclosure Statement pursuant to Sections 4.5(b) and 4.13 shall have been
obtained.
8.4. Legal Mattters. The Closing shall not violate any order or decree
of any court or governmental body of competent jurisdiction and no suit, action,
investigation, or legal or administrative proceeding shall have been brought or
threatened by any person (other than Seller or an affiliate of Seller) which
questions the validity or legality of this Agreement or the transactions
contemplated hereby.
8.5 Closing Certificates. The Seller shall have received certificates
from the Buyer, dated the Closing Date, certifying in such detail as the Seller
may reasonably request that the conditions specified in Sections 8.1 and 8.2
hereof have been fulfilled.
SECTION 9. CERTAIN POST-CLOSING MATTERS; COVENANTS
9.1 Confidential Information. From and after the Closing, unless
expressly consented to in writing by Buyer, Seller shall not, and shall use best
efforts to cause all Transferred Employees and others to, directly or
indirectly, use or disclose to any third person, any trade secret, financial
data, customer list, pricing or marketing policies or plans or other proprietary
or confidential information relating to the Business.
9.2 Covenant Not to Compete. Seller agrees that, unless acting with the
prior written consent of the Buyer, he will not, directly or indirectly,
(a) For a period of two (2) years after the Closing Date,
engage in the business of, or own, manage, operate, finance, join, control or
participate in the ownership, management, operation, financing or control of, or
be connected as an partner, principal, agent, representative, consultant,
advisor or otherwise with, or use or permit his name to be used in connection
with, any business or enterprise engaged in the business of permanent or
contract placement, personnel consulting services or project management services
anywhere in Michigan, Pennsylvania, Connecticut, Massachusetts, New York, New
Jersey, Virginia or Florida (the "Territory");
(b) For a period of two (2) years after the Closing Date, in
any manner induce or attempt to influence any employee of the Buyer or any of
its affiliates to terminate such employment
(c) For a period of two (2) years after the Closing Date, in
any manner contact, induce, solicit or influence any client of the Business or
of the Buyer or any of its affiliates to cause such client to terminate its
relationship with the Business and/or Buyer, or
(d) For a period of two (2) years after the Closing Date,
utilize or disclose any information concerning proprietary or confidential
information in respect to the Purchased Assets.
In the event that the provisions of this Section 9.2 should ever be
deemed to exceed the time or geographic limitations or any other limitations
permitted by applicable law in any jurisdiction, then such provisions shall be
deemed reformed in such jurisdiction to the maximum permitted by applicable law.
Seller specifically acknowledges and agrees that the foregoing
<PAGE>
Exhibit 10.2 (cont.)
restrictions are reasonable and necessary to protect the legitimate interests of
the Buyer, that the Buyer would not have entered into this Agreement in the
absence of such restrictions, that any violation of such restrictions will
result in irreparable injury to the Buyer, that the remedy at law for any breach
of the foregoing restrictions will be inadequate, and that, in the event of any
such breach, the Buyer, in addition to any other relief available to it, shall
be entitled to temporary injunctive relief before trial from any court of
competent jurisdiction as a matter of course and to permanent injunctive relief
without the necessity of quantifying actual damages.
9.3 Pursuit of Authorizations. Seller shall use its best efforts to
take, or cause to be taken, such action, to execute and deliver, or cause to be
executed and delivered, such 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 transfer any Intellectual Property
to the Buyer and, at the expense of Buyer, to permit the Buyer to promptly
obtain all governmental consents, licenses, permits, franchises, grants or other
authorizations which are used in the Business ("Authorizations") and are
required for the Business and operations of the Buyer after the Closing.
9.4 Audited Financial Statements. Upon the request of Buyer, Seller
shall at the expense of Buyer, take, or cause to be taken by their accountants,
such action as is necessary to provide to Buyer audited financial statements of
Seller, and appropriate accountant's consents, that comply with the requirements
of Regulation S-X under the Securities Exchange Act of 1934, as amended.
SECTION 10. INDEMNIFICATION
10.1 Indemnification by Seller.
(a) Seller shall indemnify and hold Buyer and Buyer's
officers, directors and shareholders harmless against and in respect of any and
all losses, costs, expenses, claims, damages, obligations and liabilities,
including interest, penalties and reasonable attorneys fees and disbursements
("Damages"), which Buyer or any such person may suffer, incur or become subject
to arising out of, based upon or otherwise in respect of:
(i) any inaccuracy in or breach of any
representation or warranty of Seller made in or pursuant to this Agreement, or
any Seller Transaction Document;
(ii) any breach or nonfulfillment of any covenant or
obligation of Seller contained in this Agreement or any Seller Transaction
Document;
(iii) any liability or other obligation of Seller
not expressly assumed by Buyer pursuant to Section 1.3. (iv) any liability or
obligation of Seller resulting from Seller not qualified to do business as a
foreign corporation in Texas and Illinois. In the event Buyer makes any
indemnification claim against Seller prior to Buyer's payments which may be
required pursuant to Section 2.1 (b) through (e) herein, then the Buyer shall
have the right, notwithstanding and in addition to any other rights which Buyer
may have with respect to the Seller or against any other person or entity, to
set-off such claim for indemnification against such payments. To the extent the
Buyer does not set-off such indemnification claim against such payment, the
Seller shall pay promptly same to Buyer.
10.2 Indemnification by Buyer. Buyer shall indemnify and hold Seller
and Seller's officers, directors and shareholders harmless against and in
respect of any and all Damages which Seller may suffer, incur or become subject
to arising out of, based upon or otherwise in respect of: (a) any inaccuracy in
or breach of any representation or warranty of Buyer made in or pursuant to this
Agreement or any Buyer Transaction Document; (b) any breach or nonfulfillment of
any covenant or obligation of Buyer contained in this Agreement or any Buyer
Transaction Document; and (c) the operation or failure to perform by Buyer of
the Business and the Purchased Assets after the Closing Date, including any
liability or other obligation of Seller assumed by Buyer pursuant to Section 1.3
herein.
10.3 Inter-Party Claims. Any party seeking indemnification pursuant to
this Section 10 (the "Indemnified Party") shall notify the other party or
parties from whom such indemnification is sought (the "Indemnifying Party") of
the Indemnified Party's assertion of such claim for indemnification, specifying
the basis of such claim. The Indemnified Party shall thereupon give the
Indemnifying Party reasonable access to the books, records and assets of the
Indemnified Party which evidence or support such claim or the act, omission or
occurrence giving rise to such claim and the right, upon prior notice during
normal business hours, to interview any appropriate personnel of the Indemnified
Party related thereto.
10.4 Third Party Claims.
(a) Each Indemnified Party shall promptly notify the
Indemnifying Party of the assertion by any third party of any claim with respect
to which the indemnification set forth in this Section relates (which shall also
constitute the notice required by Section 10.3). The Indemnifying Party shall
have the right, upon notice to the Indemnified Party within twenty (20) business
days after the receipt of any such notice, to undertake the defense of or, with
the consent of the Indemnified Party (which consent shall not unreasonably be
withheld), to settle or compromise such claim. The failure of the Indemnifying
Party to
<PAGE>
Exhibit 10.2 (cont.)
give such notice and to undertake the defense of or to settle or compromise such
a claim shall constitute a waiver of the Indemnifying Party's rights under this
Section 10.4(a) and shall preclude the Indemnifying Party from disputing the
manner in which the Indemnified Party may conduct the defense of such claim or
the reasonableness of any amount paid by the Indemnified Party in satisfaction
of such claim.
(b) The election by the Indemnifying Party, pursuant to
Section 10.4(a), to undertake the defense of a third-party claim shall not
preclude the party against which such claim has been made also from
participating or continuing to participate in such defense, so long as such
party bears its own legal fees and expenses for so doing.
10.5 Limitations. Seller shall have no obligation to indemnify Buyer or
any other person against Damages pursuant to Section 10.1(a)(i) of this
Agreement arising out of or based upon any inaccuracy in or breach of any
representation or warranty made in or pursuant to this Agreement or any
Transaction Document unless and until the aggregate of all such Damages suffered
or incurred by Buyer and such persons exceeds $10,000; in which event Buyer and
such persons shall be entitled to indemnification of the amount of Damages
suffered or incurred in excess of such amount.
SECTION 11. MISCELLANEOUS.
11.1 Knowledge. All references in this Agreement to Seller's knowledge
respecting a particular matter shall conclusively be deemed and presumed to
include, without limitation, all facts, circumstances and conditions known to
Seller regarding such matter.
11.2 Survival of Representations and Warranties.
(a) The representations and warranties made by the parties in
this Agreement and in the certificates, documents, Schedules and Exhibits
delivered pursuant hereto shall survive the consummation of the transactions
herein contemplated for a period of two (2) years, except that the
representations and warranties set forth in Section 4.15 shall remain in force
for a period corresponding to that of the applicable statute of limitations.
Anything in this Agreement to the contrary notwithstanding, the representations
and warranties of Seller hereunder, and the right of Buyer to indemnification
for breach thereof, shall not be affected by any investigation of Seller or its
subsidiaries made by Buyer or its agents or representatives.
(b) In the event of any inconsistency between the statements
made in the body of this Agreement and those contained in the Disclosure
Statement (other than an express exception to a specifically identified
statement), those in this Agreement shall control.
11.3 Further Assurances. Each party hereto shall use best efforts to
comply with all requirements imposed hereby on such party and to cause the
transactions contemplated hereby to be consummated as contemplated hereby, and
shall, from time to time and without further consideration, either before or
after the Closing, execute such further instruments, and take such other
actions, as any other party hereto shall reasonably request in order to fulfill
its obligations under this Agreement and to effectuate the purposes of this
Agreement and to provide for the orderly and efficient transition of the
Business to Buyer. Each party shall promptly notify the other parties of any
event or circumstance known to such party that could prevent or delay the
consummation of the transactions contemplated by this Agreement, or which would
indicate a breach or non-compliance with any of the terms, conditions,
representations, warranties or agreements of any of the parties to this
Agreement.
11.4 Costs and Expenses. Except as otherwise expressly provided herein,
each party shall bear its own expenses in connection herewith. Any and all
transfer, documentary and similar taxes and recording and filing fees (other
than sales and use taxes which shall be borne by Buyer) incurred in connection
with the transactions contemplated herein shall be borne equally by Seller and
by Buyer, except that any filing fees required by the U.S. Patent and Trademark
Office with respect to the assignments of the patents and patent applications
included in the Intellectual Property shall be borne by Buyer.
11.5 Notices. All notices or other communications permitted or required
under this Agreement shall be in writing and shall be sufficiently given if and
when hand delivered to the persons set forth below, or if sent by documented
overnight delivery service or registered or certified mail, postage prepaid,
return receipt requested, or by telegram, telex or telecopy, receipt
acknowledged, addressed as set forth below or to such other person or persons
and/or at such other address or addresses as shall be furnished in writing by
any party hereto to the others. Any such notice or communication shall be deemed
to have been given as of the date received, in the case of personal delivery, or
on the date shown on the receipt or confirmation therefor in all other cases.
<PAGE>
Exhibit 10.2 (cont.)
To Buyer:
Judge, Inc.
Two Bala Plaza, Suite 405
Bala Cynwyd, PA 19004
Attention: Katharine Wiercinski, Vice President
Telecopier: (610) 664-7090
To Seller:
Cella Associates of Atlanta, Inc. Gomel & Davis
c/o 8635 Steeplechase Drive 700 Marquis II Tower
Roswell, GA 30076 285 Peachtree Ctr Ave NE
Attention: John Gorry Atlanta, GA 30303
Attention: Ron Davis
11.6 Assignment and Benefit.
(a) Seller shall not assign this Agreement or any rights
hereunder, or delegate any obligations hereunder, without the prior written
consent of Buyer. Seller may assign the rights of this agreement to the
Shareholder upon dissolution. Subject to the foregoing, this Agreement and the
rights and obligations set forth herein shall inure to the benefit of, and be
binding upon, the parties hereto, and each of their respective successors, heirs
and assigns.
(b) This Agreement shall not be construed as giving any
person, other than the parties hereto and their permitted successors, heirs and
assigns, any legal or equitable right, remedy or claim under or in respect of
this Agreement or any of the provisions herein contained, this Agreement and all
provisions and conditions hereof being intended to be, and being, for the sole
and exclusive benefit of such parties, and permitted successors, heirs and
assigns and for the benefit of no other person or entity
11.7 Settlement of Disputes. The parties will attempt in good faith to
resolve any and all controversies of every kind and nature between the parties
to this Agreement arising out of or in connection with the existence,
construction, validity, interpretation or meaning, performance, non-performance,
enforcement, operation, breach, continuance or termination of this Agreement
(each, a "Dispute") promptly by negotiations between senior executives of the
parties who have authority to settle the Dispute (and who do not have direct
responsibility for administration of this Agreement). The disputing party shall
give the other party written notice of the Dispute. Within twenty days after
receipt of said notice, the receiving party shall submit to the other a written
response. The notice and response shall include (a) a statement of each party's
position and a summary of the evidence and arguments supporting its position,
and (b) the name and title of the executive who will represent that party. The
executives shall meet at a mutually acceptable time and place within thirty days
of the date of the disputing party's notice and thereafter as often as they
reasonably deem necessary to exchange relevant information and to attempt to
resolve the Dispute. If the matter has not been resolved within sixty days of
the disputing party's notice, or if the party receiving said notice will not
meet within thirty days, the Dispute shall be submitted to arbitration in
accordance with the rules of the American Arbitration Association. The parties
further agree that all matters shall be governed by the laws of the Commonwealth
of Pennsylvania. The parties further agree that any arbitration conducted
pursuant to this section, shall be held in Philadelphia, Pennsylvania before a
panel of three (3) arbitrators, one selected by each of the parties and the
third select by the arbitrators selected by the parties. All deadlines specified
in this Section may be extended by mutual agreement.
11.8 Amendment, Modification and Waiver. The parties may, by mutual
agreement, amend or modify this Agreement in any respect, and Buyer and Seller
may: (a) extend the time for the performance of any of the obligations of the
other, (b) waive any inaccuracies in representations and warranties by the
other, (c) waive compliance by the other with any of the obligations contained
in this Agreement, and (d) waive the fulfillment of any condition precedent to
the performance under this Agreement of the waiving party. Any such amendment,
modification, extension or waiver shall be in writing. The waiver by a party of
any breach of any provision of this Agreement shall not constitute or operate as
a waiver of any other breach of such provision or of any other provision hereof,
nor shall any failure to enforce any provision hereof operate as a waiver of
such provision or of any other provision hereof.
11.9 Governing Law; Consent to Jurisdiction. This Agreement is made
pursuant to, and shall be construed and enforced in accordance with, the laws of
the Commonwealth of Pennsylvania (and United States federal law, to the extent
applicable), irrespective of the principal place of business, residence or
domicile of the parties hereto, and without giving effect to otherwise
applicable principles of conflicts of law. Any of the parties, before or during
the arbitration contemplated by Section 11.7, may apply to a court as set forth
below for a temporary restraining order or preliminary injunction or similar
equitable relief to protect its interests pending completion of such arbitration
proceedings and, in particular, to enforce the provisions of Section 11.7 and to
aid the arbitration contemplated thereby. For this purpose, each party agrees
that suit may be instituted in any
<PAGE>
Exhibit 10.2 (cont.)
federal court in the Eastern District of Pennsylvania or in Montgomery County
state court in the Commonwealth of Pennsylvania, and each party waives any
objection which such party may now or hereafter have to the laying of the venue
of any such action, suit or proceeding, and irrevocably submits to the
jurisdiction of any such court. Any and all service of process and any other
notice in any such action, suit or proceeding shall be effective against any
party if given as provided in Section 11.5 herein. Nothing contained in this
Section 11.9, in Section 11.7 or elsewhere herein, shall be deemed to affect the
right of any party to serve process in any other manner permitted by law or to
commence legal proceedings or otherwise proceed against any other party in any
jurisdiction other than Pennsylvania. Nothing contained herein or in any
Transaction Document shall prevent or delay Buyer or Seller from seeking, in any
court of competent jurisdiction, specific performance or other equitable
remedies in the event of any breach or intended breach by Seller or Buyer of any
of its obligations hereunder.
11.10 Section Headings and Defined Terms. The section headings
contained herein are for reference purposes only and shall not in any way affect
the meaning and interpretation of this Agreement. The terms defined herein and
in any agreement executed in connection herewith include the plural as well as
the singular and the singular as well as the plural. Except as otherwise
indicated, all agreements defined herein refer to the same as from time to time
amended or supplemented or the terms thereof waived or modified in accordance
herewith and therewith.
11.11 Severability. The invalidity or unenforceability of any
particular provision, or part of any provision, of this Agreement shall not
affect the other provisions or parts hereof, and this Agreement shall be
construed in all respects as if such invalid or unenforceable provisions or
parts were omitted.
11.12 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original; and any person may
become a party hereto by executing a counterpart hereof, but all of such
counterparts together shall be deemed to be one and the same instrument. It
shall not be necessary in making proof of this Agreement or any counterpart
hereof to produce or account for any of the other counterparts.
11.13 Entire Agreement, etc. This Agreement, together with the
Disclosure Statement and the agreements, Schedules, appendices and certificates
referred to herein or delivered pursuant hereto, constitute the entire agreement
between the parties hereto with respect to the purchase and sale of the
Purchased Assets and supersede all prior agreements and understandings. All
Schedules, exhibits and appendices attached hereto and referred to herein are
hereby incorporated herein and made a part hereof as if fully set forth herein.
The submission of a draft of this Agreement or portions or summaries thereof
does not constitute an offer to purchase or sell the Purchased Assets, it being
understood and agreed that neither Buyer nor Seller shall be legally obligated
with respect to such a purchase or sale or to any other terms or conditions set
forth in such draft or portion or summary unless and until this Agreement has
been duly executed and delivered by all parties.
IN WITNESS WHEREOF, each of the parties hereto has duly executed this
Agreement, all as of the date first above written.
JUDGE, INC.
By: /s/ Michael A. Dunn
----------------------------------
Michael A. Dunn, President
CELLA ASSOCIATES OF ATLANTA, INC.
By: /s/ John Gorry
---------------------------------
John Gorry, President
Exhibit 10.3
ASSET PURCHASE AGREEMENT BY AND AMONG
JUDGE IMAGING SYSTEMS, INC.,
AUTOMATED OFFICE PRODUCTS OF WESTERN NEW YORK, INC.
d/b/a AOP SOLUTIONS AND
PAUL F. ECKERT AND SUZANNE ECKERT
THIS ASSET PURCHASE AGREEMENT is dated as of June 29, 1998 by and among
AUTOMATED OFFICE PRODUCTS OF WESTERN NEW YORK, INC. d/b/a AOP SOLUTIONS, a New
York corporation (the "Seller"), PAUL F. ECKERT and SUZANNE ECKERT
(collectively, the "Shareholders") and JUDGE IMAGING SYSTEMS, INC., a Delaware
corporation (the "Buyer").
BACKGROUND
The parties hereto desire to provide for the acquisition by Buyer of
certain assets of Seller relating to, used or held for use in its document
imaging and document management business (the "Business"), but excluding certain
other assets and liabilities, all on the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the promises and the mutual
representations, warranties, covenants and agreements herein contained, the
parties hereto, intending to be legally bound, agree as follows:
SECTION 1. ACQUISITION OF ASSETS.
1.1 Purchased Assets. Subject to the terms and conditions of this
Agreement, at the Closing, Seller shall, and Shareholders shall cause Seller to,
sell, convey, assign, transfer and deliver to Buyer all of Seller's right, title
and interest in and to all of the tangible and intangible properties and assets
owned or held by Seller and relating to or used or held for use in connection
with the Business, free and clear of all liens (except as set forth in the
Disclosure Statement pursuant to Section 4.3 hereof), including, without
limitation, the following assets owned or held by Seller and each of the assets
listed or required to be listed on the Disclosure Statement pursuant to Section
4.12 hereof, but excluding the Excluded Assets (as herein defined) (the
"Purchased Assets"):
(a) Cash in the amount of $50,000;
(b) Accounts Receivable;
(c) all supplies, machinery, furniture, equipment and other
personal property, including those set forth on Schedule 1.1(c) hereto;
(d) All inventions, whether or not patented, know-how,
domestic and foreign letters patents, patent applications, patent licenses,
software licenses and know-how licenses (including but not limited to the name
"AOP"), trade secrets (including but not limited to all results of research and
development), trade names, trademarks, service-marks, copyrights, trademark
registrations and applications, service mark registrations and applications,
copyright registrations and applications and rights-to-use (collectively
"Intellectual Property") as set forth on Schedule 1.1(d) hereto;
(e) all right, title and interest in, to and under all
purchase orders, sales agreements, equipment leases, distribution agreements,
licensing agreements and other contracts, agreements and commitments of Seller
("Contracts") identified on Schedule 1.1(e);
(f) copies of all books and records predominantly relating to
the Business and the Purchased Assets (including such books and records as are
contained in computerized storage media), including all inventory, purchasing,
accounting, sales, export, import, manufacturing, marketing, banking and
shipping records and all files, contractor, consultant, customer/client and
supplier lists, records, literature and correspondence, and marketing materials
excluding tax returns;
(g) the lease (the "Lease") related to the facility at 105
Brisbane Building, 403 Main Street, Buffalo, New York 14203 (the "Facility");
(h) any other assets of Seller's Business including those set
forth on Schedule 1.1(h) which are of a nature not customarily reflected in the
books and records of a business, such as assets which have been written off for
accounting purposes but which are still used by or of value to Seller;
(i) all Authorizations (as defined in Section 4.5(b))
associated with the Seller's Business and its operations;
(j) all intangible assets and goodwill associated with the
Seller's Business and its operations; and
(k) any other assets of Seller which are located at the
Facility.
1.2 Excluded Assets. Notwithstanding anything to the contrary in
Section 1.1 of this Agreement, the following rights, properties and assets shall
not be included in the Purchased Assets (the "Excluded Assets"):
(a) All employee records (excluding employment and
non-competition agreements);
(b) Seller's Employee Benefit Plan(s) and all obligations
related thereto;
(c) All ownership, leasehold and other interests in real
property (other than the Lease), in each case together with all buildings
thereon;
(d) Seller's tax returns and records; and
<PAGE>
Exhibit 10.3 (cont.)
(e) Cash in excess of $50,000.
1.3 Liabilities to be Assumed by Buyer. Subject to the terms and
conditions of this Agreement, at the Closing, Buyer shall assume and thereafter
in due course pay and fully satisfy all trade liabilities, obligations and
related expenses existing as of the date of the Closing pursuant to the terms of
the Contracts, unearned revenues, and customer deposits recorded on Seller's
books as of the Closing as set forth on Schedule 1.1(e) hereof.
Except as otherwise specifically provided for in this Section
1.3, Buyer shall not assume, or in any way be liable or responsible for, any
liabilities, obligations or debts of Seller of any type or nature, including,
without limitation, liabilities arising under all Contracts not identified on
Schedule 1.1(e), any related unfunded pension liabilities, any medical, life,
disability insurance liabilities, any workman compensation claims, any local,
state, federal, payroll or other tax liabilities except as otherwise
specifically provided herein, liabilities relating to claims for damages based
upon the breach by Seller of any federal, state or local environmental or
occupational health and safety laws or regulations, liabilities related to
products liability, tort claims or other litigation, any undisclosed
liabilities, liabilities incurred for the costs and expenses of negotiating and
consummating the transactions contemplated by this Agreement, liabilities
incurred in connection with the termination of any of the Contracts to be
transferred hereunder for which consent of the other party thereto is required
but not obtained, any liabilities related to the classification of independent
contractors, tort claims asserted against Seller or claims against Seller for
breach of contract which are based on acts or omissions of Seller occurring on,
before or after the Closing.
SECTION 2. PURCHASE PRICE AND PAYMENT.
2.1 Purchase Price.
(a) The total consideration for the Purchased Assets shall be
the cash and stock paid at Closing plus the assumption of the specified
liabilities pursuant to Section 1.3 hereof and monies earned or paid as
described under paragraphs (b), (c), (d), (i), (j), (k) and (l) below, if any,
and subject to adjustment as provided in Section 2.2 hereof (the "Purchase
Price").
(b) At Closing $2,050,000.00 of the Purchase Price shall be
paid to Seller by wire transfer pursuant to instructions previously provided by
Seller to Buyer for that purpose and, in addition, 33,333 shares of the
unregistered common stock (the "Shares") of The Judge Group, Inc., a
Pennsylvania corporation ("Parent") bearing an appropriate restrictive legend
shall be delivered to Seller. If such Shares do not have a per share value of
$15.00 or more on the first anniversary of the Closing Date, Buyer will pay the
shortfall to Seller in cash within ten (10) days thereafter.
(c) An additional portion of the Purchase Price shall be paid
in the form of an earnout (the "First Earnout") with respect to the performance
of the Business as conducted by Seller from January 1, to December 31, 1998 (the
"First Earnout Period"). Buyer shall pay Seller 300% of EBIT (as defined in
paragraph (h)) for calendar year 1998 minus $1,250,000.
(d) An additional portion of the Purchase Price shall be paid
in the form of an earnout (the "Second Earnout") with respect to the performance
of the Business conducted by Seller from January 1, to December 31, 1999 (the
"Second Earnout Period"). Buyer shall pay Seller 300% of EBIT for calendar year
1999 minus $1,250,000.
(e) Payment required to be made under paragraph (c) above, if
any, shall be paid within one hundred (100) days of the calendar year end as
follows:
(i) Buyer shall pay Seller $500,000 in cash on
or before April 10th, 1999.
(ii) Buyer shall pay the balance in Shares of the
common stock of Parent, as valued on the NASDAQ National Market using
150% of the closing price of such Shares on December 31, 1998 (the
"1998 Earnout Share Price"). If, one year after the date such Shares
are received, the per share value of such Shares is less then the 1998
Earnout Share Price, Buyer will pay the difference in cash within 15
days of such date.
(f) Payment required to be made under paragraph (d) above, if
any, shall be paid within one hundred twenty (120) days of the calendar 1999
year end in Shares of the common stock of Parent as valued on the NASDAQ
National Market using 150% of the closing price of such common stock on December
31, 1999 ("the "1999 Earnout Share Price"). If , one year after the date such
Shares are received, the per share value of such Shares is less then the 1999
Earnout Price, Buyer will pay the difference in cash within 15 days of such
date.
(g) Payments required to be made under paragraphs (e) and (f)
above, if any, shall be deemed earned and owing to Seller; provided, however,
that (i) no payment shall be made pursuant to paragraph (e) or (f) if Paul F.
Eckert voluntarily terminates his employment with Buyer or if Buyer terminates
his employment pursuant to Sections 4.3(a)(i) or (ii) of the Employment
Agreement, a form of which is attached hereto as Exhibit I, at any time during
the First Earnout Period, and (ii) no payment will be made pursuant to paragraph
(f) if Paul F. Eckert voluntarily terminates his employment with Buyer or if
Buyer terminates his employment pursuant to Sections 4.3(a)(i) or (ii) of the
Employment Agreement at any time during the Second Earnout Period. If Paul F.
Eckert terminates his employment as a result of death or disability, such
payments shall be deemed earned and owing to Seller as of the date of such
termination and the amount of such payments shall be determined by calculating
the Earnout as if the Earnout Period had ended on the date of such termination.
The immediate foregoing sentence shall not be applicable, however, if Suzanne
Eckert shall continue to remain as an employee of Buyer at the time of such
death or disability.
(h) For purposes of this Agreement, "EBIT" means the earnings
of the Business (as if it were a wholly owned subsidiary corporation of Buyer)
before interest and taxes, which is accounted for under the accrual method of
accounting in accordance
<PAGE>
Exhibit 10.3 (cont.)
with Buyer's regular accounting policies and procedures and GAAP, except that
for calendar year 1998, For purposed hereof, EBIT shall not take into account
any charges made to the Business by Buyer or any affiliate of Buyer except to
the extent such charge relates to an item or service specifically ordered by the
Business.
(i) Buyer shall pay to Seller, as additional consideration for
the Purchased Assets, an amount equal to the difference between Seller's (or
Shareholders') New York State tax liability with respect to the First and Second
Earnout Periods which will result from Buyer's election to structure this
transaction as an "asset purchase" rather than as a "stock purchase". Seller's
accountants will initially compute the amounts payable under this paragraph (i)
and Seller will furnish the computed amounts to Buyer. If Buyer does not deliver
written objections within thirty (30) days thereafter, the amount computed by
Seller's accountants shall be binding. If Buyer delivers written objections
within the 30 day period, the matter shall be finally determined by an
independent accounting firm selected jointly by Seller and Buyer, and the
determination of such independent accounting firm shall be binding and
conclusive on all parties hereto. Buyer shall pay the appropriate amounts to
Seller at least ten (10) days prior to the due date of any return or quarterly
installment of New York tax to which this paragraph applies.
(j) An additional portion of the Purchase Price shall be paid
in the form of an earnout (the "Third Earnout") with respect to the sale of the
DSS Document Solution software product. Buyer shall pay Seller an amount equal
to 20% of the gross profit from sales of the DSS Document Solution software
product sold to Buyer and/or its other divisions and/or its affiliates and/or to
county, state, municipal or other governmental agencies. Payment required to be
made under this Section 2.1(j), if any, shall be made within one hundred (100)
days of each calendar year end.
(k) An additional portion of the Purchase Price shall be paid
in the form of an earnout (the "Fourth Earnout") with respect to the gross
profit generated by the Business for the period beginning on the Closing Date
and ending on June 30, 1998. Buyer shall pay Seller an amount equal to the
amount of profit over $500,000 for said period. Payment required to be made
under this Section 2.1(k), if any, shall be made by July 31, 1998.
(l) An additional portion of the Purchase Price shall be paid
in the form of an earnout (the "Fifth Earnout") with respect to the EBIT
generated by the Business for the years ending December 31, 1998 and December
31, 1999. Buyer shall pay Seller an amount equal to 10% of EBIT of the Business
for each such year. Payment required to be made under this Section 2.1(l), if
any, shall be made within one hundred (100) days of each such calendar year end.
2.2 Closing Adjustments.
(a) Except as otherwise mutually agreed among the parties
hereto, the following items shall be apportioned and prorated, on a daily basis,
between the Seller and Buyer as of 12:00 midnight on the day before the Closing
Date.
(i) all rent and other payments owing pursuant
to the Lease;
(ii) all general real estate taxes and personal
property taxes;
(iii) all utilities;
(iv) all payroll obligations, including
deductions and payments to appropriate state and federal authorities
for income tax withholding, FICA, FUTA and SUI; and
(v) all commissions payable to staff employees
shall be attributable to the sale to which they relate. The party who
receives revenue associated with a sale will be responsible to pay the
related commission.
(b) At or prior to Closing, Seller shall present to Buyer a
Schedule of the adjustments in Section 2.2(a) showing the computation thereof.
2.3 Allocation of Consideration. The Purchase Price shall be
allocated among the Purchased Assets as set forth on Schedule 2.3 hereto. The
parties shall report this transaction for tax purposes consistently with such
allocation.
SECTION 3. CLOSING.
3.1 Time and Place of Closing. The closing of the purchase and
sale of the Purchased Assets (the "Closing") pursuant to this Agreement shall
take place on June 29, 1998 at the offices of Judge Imaging Systems, Inc.,
located at Two Bala Plaza, Suite 800, Bala Cynwyd, Pennsylvania, 19004
commencing at 10:00 A.M., eastern daylight time or at such other date, time or
place as may be jointly agreed to by Buyer and Seller (the "Closing Date").
3.2 Deliveries at the Closing. At the Closing, in addition to the
other actions contemplated elsewhere herein:
(a) Seller shall deliver, or shall cause to be delivered,
to Buyer the following:
(i) a bill of sale satisfactory to Buyer
transferring title to all of the Purchased Assets in the form attached
as Exhibit II hereto;
(ii) such other instruments of transfer as shall
be necessary or appropriate to vest in Buyer good and marketable title
to the Purchased Assets;
(iii) assignments satisfactory to Buyer of all
Contracts identified in Section 4.12 of the Disclosure Statement;
(iv) Opinion letter of Seller's Counsel in the
form attached hereto as Exhibit III; and (v) documents evidencing the
assignment of the Lease.
(b) Buyer shall deliver or cause to be delivered to Seller (i)
the portion of the Purchase Price described in Section 2.1(b) adjusted, if
necessary, in accordance with Section 2.2; and (ii) the Employment Agreements,
executed by Buyer.
(c) Parent shall deliver the Guaranty in the form of Exhibit
IV hereto.
<PAGE>
Exhibit 10.3 (cont.)
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE SELLER AND SHAREHOLDERS.
Certain representations and warranties made by Seller and Shareholders
are modified as and to the extent set forth in the Disclosure Statement which is
being delivered to Buyer on the date hereof (the "Disclosure Statement") or as
otherwise provided herein. Shareholders and Seller represent and warrant to
Buyer as of the date of this Agreement and as of the Closing Date as follows:
4.1 Organization and Good Standing. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State of
New York and has all necessary corporate powers to own its properties and to
carry on its business as now owned and operated by it. Seller is duly qualified
to do business and is in good standing in each jurisdiction in which failure to
be so qualified would have an adverse effect on the Business or the Purchased
Assets. The Disclosure Statement sets forth a complete and accurate list with
respect to Seller of all its affiliates, each jurisdiction where it or an
affiliate is authorized to do business, and Seller's capitalization (including
the identity of Seller's stockholders and the number of shares held by each
stockholder).
4.2 Power and Authorization. Seller has full legal right, power
and authority to enter into and perform its obligations under this Agreement and
the other agreements and documents required to be delivered by it prior to or at
the Closing (the "Seller Transaction Documents"). The execution, delivery and
performance by Seller of this Agreement and the Seller Transaction Documents
have been duly authorized by all necessary action. This Agreement has been duly
and validly executed and delivered by Seller and constitutes the legal, valid
and binding obligation of Seller, enforceable against it in accordance with its
terms. When executed and delivered as contemplated herein, each of the Seller
Transaction Documents shall constitute the legal, valid and binding obligation
of Seller, enforceable against it in accordance with its terms, except as may be
limited by applicable bankruptcy, insolvency or other laws affecting creditors
rights generally, or by legal limitations on the availability of judicial
remedies.
4.3 No Conflict.
(a) Except as described in the Disclosure Statement, the
execution, delivery and performance of this Agreement and the Seller Transaction
Documents do not and will not (with or without the passage of time or the giving
of notice):
(i) violate or conflict with any law, regulation,
permit, license, certificate, judgment, order, award or other decision
or requirement of any arbitrator, court, government or governmental
agency or instrumentality, domestic or foreign, (collectively, "Laws"),
binding upon Shareholders or Seller that may have an adverse effect on
the Business;
(ii) violate or conflict with, result in a breach of,
or constitute a default or otherwise cause any loss of benefit under
any Contract (except that the assignment of certain Contracts to Buyer
may require the consent of third parties), or give to others any rights
(including rights of termination, foreclosure, cancellation or
acceleration) in or with respect to any of the Purchased Assets;
(iii) result in, require or permit the creation or
imposition of any restriction, mortgage, deed of trust, pledge, lien,
security interest or other charge, claim or encumbrance of any nature
upon or with respect to the Purchased Assets that is likely to, either
individually or in the aggregate, have a material adverse effect on the
Purchased Assets;
(iv) cause Buyer to become subject to, or become
liable for the payment of any tax except for Buyer's prorated portion
of accrued taxes described in Section 2.2(a) and accrued sales taxes;
or
(v) cause any of the Purchased Assets to be
reassessed or revalued by any taxing authority or governmental body.
(b) There are no judicial, administrative or other
governmental actions, proceedings or investigations pending against Shareholders
or Seller or, to the knowledge of Shareholders or Seller, threatened, that
question any of the transactions contemplated by, or the validity of, this
Agreement or any of the other agreements or instruments contemplated hereby or
which, if adversely determined, is likely to have an adverse effect upon the
ability of Shareholders or Seller to enter into or perform its obligations under
this Agreement or any such other agreements or instruments. Neither Shareholders
nor Seller have received any request from any governmental agency or
instrumentality for information with respect to the transactions contemplated
hereby.
4.4 Brokers. No person, acting on behalf of Shareholders or Seller
or its affiliates or under the authority of any of the foregoing is or will be
entitled to any brokers' or finders' fee or any other commission or similar fee,
directly or indirectly, from any of such parties in connection with any of the
transactions contemplated by this Agreement.
4.5 Compliance with Laws.
(a) Except as described in the Disclosure Statement, the
operation of the Business and the Purchased Assets is, and at all times during
the last two (2) years has been, in compliance in all material respects with all
applicable Laws; and neither Shareholders nor Seller have had any basis to
expect, and have not received, with respect to the Purchased Assets or the
operation of the Business, during the last two (2) years, any notice, order or
other communication from any governmental, judicial or administrative agency or
instrumentality of any alleged, actual, or potential violation of or failure to
comply with any Law.
(b) All material federal, foreign, state, local and other
governmental consents, licenses, permits, franchises, grants and authorizations
(collectively, "Authorizations") required for the operation of the Business as
currently conducted and as conducted during the last two (2) years are, except
as otherwise described in the Disclosure Statement, in full force and effect
without any
<PAGE>
Exhibit 10.3 (cont.)
default or violation thereunder by Seller or by any other party thereto and
neither Shareholders nor Seller have received any notice of any claim or charge
that Seller is or within the last two (2) years has been in violation of or in
default under any such Authorization. Except as described in the Disclosure
Statement, (i) no proceeding is pending or, to the knowledge of Shareholders or
Seller, threatened by any person to revoke or deny the renewal of any
Authorization; and (ii) neither Shareholders nor Seller has been notified that
any such Authorization may not in the ordinary course be renewed upon its
expiration or that by virtue of the transactions contemplated hereby any such
Authorization may not be granted or renewed or transferred to Buyer.
4.6 Securities Laws Matters
(a) Seller acknowledges that the Shares and the obligations of
Buyer under Sections 2.1(b) through 2.1(e) and 2.1(i) through 2.1(l) herein, if
any (the "Securities"), will not be registered under the Securities Act of 1933,
as amended (the "Securities Act"), and must be held indefinitely unless
subsequently registered under the Securities Act or unless an exemption from
such registration becomes or is available.
(b) Seller represents and warrants that its principal place of
business is located in the State of New York and that Buyer did not communicated
with Seller with respect to the offer or sale of the Securities at any time
while Seller was located in any other state.
(c) Seller represents and warrants that:
(i) It is well versed in financial matters and
has such knowledge and experience in financial and business matters and
that it is fully capable of understanding the merits and risks of the
investment being made in the Securities and the risks involved in
connection therewith;
(ii) It is acting herein for its own account and
is acquiring the Securities for investment without a view to the resale
or other distribution thereof. It is financially able to hold the
Securities for long-term investment, believes that the nature and
amount of the Securities to be acquired hereunder is consistent with
its overall investment program and financial position, and recognizes
that there are substantial risks involved in an investment in the
Securities;
(iii) It has received and reviewed the annual
report on Form 10-K of the Parent for the year ended December 31, 1997.
(d) Seller acknowledges and agrees that Buyer may, if it so
desires, permit transfers, or authorize its transfer agent to permit transfers,
of the Securities only when such Securities have been registered under the
Securities Act or when the request for transfer is accompanied by satisfactory
assurance (including, if requested, an opinion of counsel reasonably acceptable
to Buyer) that the sale or proposed transfer does not require registration under
the Securities Act, and Seller agrees that a legend to such effect will be
placed on the Securities.
4.7 Litigation. Except as described in the Disclosure Statement,
there are no, and during the last two (2) years there have not been any, claims,
actions, suits, proceedings (arbitration or otherwise) or investigations
involving or affecting the Business or the Purchased Assets before or by any
court or governmental agency or instrumentality, or before an arbitrator of any
kind; and no pending claim, action, suit, proceeding or investigation, if
determined adversely, would either individually or in the aggregate have a
material adverse effect on the Business, or would result in a liability in
excess of $5,000 in the case of any single action or $10,000 in the case of all
such actions in the aggregate. To the knowledge of Shareholders and Seller,
except as described in the Disclosure Statement, no such claim, action, suit,
proceeding or investigation is presently threatened or contemplated, and there
are no facts which could reasonably serve as a basis for any such claim, action,
suit, proceeding or investigation. There are no unsatisfied judgments, penalties
or awards against or affecting the Business.
4.8 Financial Statements.
(a) The statements of income of Seller for the 12-month
periods ended December 31, 1996 and December 31, 1997, reviewed by Freed Maxick
Sachs and Murphy, PC, correct and complete copies of which are attached hereto
as part of Schedule 4.8, are true and correct in all material respects and
present fairly the financial position of the Business of the Seller and the
results of its operations for the fiscal periods then ended, in conformity with
GAAP consistently applied in accordance with past practice, and include all
adjustments which are necessary for a fair presentation of the information
shown.
(b) The internal statement of income of Seller for the
five-month period ended May 31, 1998, a correct and complete copy of which is
attached hereto as part of Schedule 4.8, is true and correct in all material
respects and presents fairly the financial position of the Business of the
Seller and the results of its operations for the period then ended, in
conformity with GAAP applied on a consistent basis, and includes all adjustments
which are necessary for a fair presentation of the information shown.
(c) The internal balance sheet of Seller at May 31, 1998 (the
"Balance Sheet"), a correct and complete copy of which is attached hereto as
part of Schedule 4.8, is true and complete in all material respects and presents
fairly the assets and liabilities of the Business of the Sellers as of such
date, in conformity with GAAP applied on a consistent basis, and includes all
adjustments which are necessary for a fair presentation of the information
shown.
(d) Within 15 days after the Closing Date, Seller will deliver
to Buyer the balance sheet of Seller as of the Closing Date, reviewed by Freed
Maxick Sachs and Murphy, PC. Such financial statements, when prepared and
delivered, will be true and correct in all material respects and present fairly
the financial position of Seller as of the Closing Date and the results of its
operations for the period then ended, in conformity with GAAP applied on a
consistent basis.
<PAGE>
Exhibit 10.3 (cont.)
4.9 Accounts Receivable. All accounts receivable reflected on the
Balance Sheet and included in the Purchased Assets have been acquired or have
arisen only in the ordinary course of business, consistent with past practice,
and are not subject to defenses, set-offs or counterclaims. All of such accounts
receivable are generally due within 30 days after being accrued on the books of
the Seller and have been collected, or are collectible within 180 days after
billing, in the full aggregate recorded amounts. Schedule 4.9 lists the
Business's accounts receivable as of May 31, 1998, and specifies, for each
account receivable, the account debtor, the face amount of the receivable and
the age of the receivable.
4.10 Personal Property. Except as described in the Disclosure
Statement: (a) Seller has good and valid title to all of the Purchased Assets
free and clear of any restriction, mortgage, deed of trust, pledge, lien,
security interest or other charge, claim or encumbrance; and (b) all Purchased
Assets owned or leased by Seller are in the possession or under the control of
Seller are suitable for the purposes for which they are currently being used and
are of a condition, nature and quantity sufficient for the conduct of the
Business as it is presently conducted.
4.11 List of Properties, Contracts, etc. The Disclosure Statement
lists or adequately describes the following:
(a) Each vehicle, item of machinery, equipment and other
tangible asset (other than real property) included in the Purchased Assets with
a fair market or book value in excess of $1,000 in respect of any item, and
location thereof;
(b) Each Authorization employed in the Business;
(c) Each (i) fictitious business name, trade name, registered
and unregistered trademark, service mark and related application (the "Marks"),
(ii) patent, patent right and patent application (collectively, "Patents"),
(iii) copyright in published and material unpublished works ("Copyrights"),
computer programs and software, including Seller's website ("Software"), (iv)
proprietary formula, trade secret, formulation and invention ("Trade Secrets"),
and (v) license and permit issued or granted by any person relating to any of
the foregoing; in each case included in the Purchased Assets and owned, leased,
used or held by, granted to or licensed by Seller as either licensor or
licensee, together with all other interests therein granted by Seller to any
other person and all agreements with respect to any of the foregoing to which
Seller is a party. Notwithstanding anything herein to the contrary. Seller makes
no representation or warranty that it has exclusive right to the use of "AOP".
(d) Each contract, agreement or commitment which restricts or
purports to restrict any business activities or freedom of Seller or the
officers, employees or consultants of Seller to engage in the Business or to
compete with any person;
(e) Each Contract involving the performance of services or
delivery of goods or materials by or to Seller providing for purchases or sales
of $5,000 or more per year;
(f) Each contract, agreement or commitment relating to the
Business to which Seller is a party or is otherwise bound providing for payments
(contingent or otherwise) to or by any person or entity based on sales,
purchases or profits, other than direct payments for goods, and each other
contract, agreement or commitment relating to the Business to which Seller is a
party or by which it or any Purchased Assets are otherwise bound which is
material to its business, operation, financial condition or prospects;
(g) Each form of contract, employee non-disclosure and
non-competition agreement or commitment used by Seller as a standard form in the
ordinary course of the Business;
(h) A summary of each policy and binder of insurance, owned
by, or maintained in the preceding two (2) years for the benefit of, or with
respect to which any premiums are paid directly or indirectly by Seller relating
to the Business;
(i) Each insurance claim made or loss incurred in the
preceding two (2) years pursuant to any workmen's compensation, liability or
other insurance policy for a claim in excess of $5,000; and
(j) Each outstanding power-of-attorney or similar power
relating to the Business granted by Seller for any purpose whatsoever.
(k) Seller has furnished or, on request, will furnish or make
available to Buyer true and complete copies of each agreement, plan and other
document required to be disclosed on the Disclosure Statement.
4.12 Contracts. Except as described in the Disclosure Statement,
each Contract was entered into in the ordinary course of business, is in full
force and effect and is valid, binding and enforceable against the parties
thereto in accordance with its terms. Except as described in the Disclosure
Statement, Seller has performed all obligations required to be performed by it
under each such Contract, and no condition exists or event has occurred which
with notice or lapse of time would constitute a default or a basis for delay or
non-performance by Seller or, to the best knowledge of Seller, by any other
party thereto. Seller has no liabilities, whether fixed or contingent (other
than contractual obligations pursuant to the terms of such contracts), relating
to or arising out of contracts with the United States government or any agency
thereof or any other customers, including, but not limited to, claims arising
out of pricing provisions therein. There is no contractual or other requirement
for any employee of the Business to obtain or maintain a security clearance with
respect to any governmental agency or instrumentality. The Disclosure Statement
identifies each each other party to such a Contract who has consented or been
given sufficient notice (where such consent or notice is necessary) that the
same shall remain in full force and effect following the Closing.
4.13 Intellectual Property. Except as otherwise described in the
Disclosure Statement, Seller is the sole owner or has the exclusive perpetual
right to use without consideration, all Intellectual Property, free and clear of
any lien, security interest, restriction, encumbrance or other adverse claim;
Seller has not granted or licensed to any person any rights with respect to any
Intellectual Property, and no other person has any rights in or to any of the
Intellectual Property (including, without limitation, any rights to market or
distribute
<PAGE>
Exhibit 10.3 (cont.)
any of the Intellectual Property); the rights of Seller in and to any of the
Intellectual Property will not be limited or otherwise affected by reason of any
of the transactions contemplated hereby; and the Intellectual Property is
sufficient for the conduct of the Business as it is presently conducted. The
Intellectual Property does not infringe and, to Seller's knowledge, is not
alleged to have infringed any trademark, copyright, patent or other proprietary
right of any person.
4.14 Customers and Suppliers. No present customer or supplier has
terminated or materially reduced, or has given notice that it intends to
terminate or materially reduce, the amount of business done with Seller with
respect to the Business. Neither Shareholders nor Seller is aware of any such
intention on the part of any such customer, supplier or vendor, whether or not
in connection with the transactions contemplated hereunder. There are no, and
during the last two (2) years there have not been, any disputes or controversies
involving, in the aggregate, more than $5,000 between Seller and any customer,
supplier or other person regarding the quality, merchantability or safety of, or
involving a claim of breach of warranty which has not been fully resolved with
respect to, warranties provided by the Business.
4.15 Taxes. All federal, state, local and foreign income, profits,
franchise, sales, use, value added, payroll, premium, occupancy, property,
severance, excise, withholding, customs, unemployment, transfer and other taxes,
including interest, additions to tax and penalties (collectively "Taxes")
relating to the Business due or properly shown to be due on any return filed by
Seller with respect to taxable periods ending on or prior to, and the portion of
any interim period up to, the date hereof have been either fully accrued or
fully and timely paid; and there are no levies, liens or other encumbrances
relating to Taxes existing, threatened or pending with respect to any Purchased
Asset.
4.16 Employee Benefits.
(a) The Disclosure Statement contains a complete and correct
list of all benefit plans, arrangements, commitments and payroll practices
(whether or not employee benefit plans) (collectively, the "Employee Benefit
Plans") as defined in Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA")), including, without limitation, sick leave,
vacation pay, severance pay, salary continuation for disability, consulting or
other compensation arrangements, retirement, deferred compensation, bonus,
incentive compensation, stock purchase, stock option, health, including
hospitalization, medical and dental, life insurance and scholarship programs
maintained for the benefit of any present or former employees of the Business.
(b) With respect to each Employee Benefit Plan required to be
listed on the Disclosure Statement: (i) each Employee Benefit Plan has been
administered in compliance with its terms, and is in compliance in all material
respects with the applicable provisions of ERISA, the Internal Revenue Code of
1986, as amended (the "Code"), and all other applicable Laws (including, without
limitation, the funding and prohibited transaction provisions of ERISA and the
Code, continuation coverage obligations pursuant to Title V of the Consolidated
Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"), and the Family
and Medical Leave Act of 1993 ("FMLA")); (ii) Seller has made or provided for
all contributions required under the terms of such Employment Benefit Plans;
(iii) there are and during the past three (3) years there have been no
inquiries, proceedings, claims or suits pending or threatened by any
governmental agency or authority or by any participant or beneficiary against
any of the Employee Benefit Plans, the assets of any of the trusts under such
Plans or the Plan sponsor or the Plan administrator, or against any fiduciary of
any of such Employee Benefit Plans with respect to the design or operation of
the Employee Benefit Plans; (iv) each Employee Pension Benefit Plan (as defined
in Section 3(2) of ERISA) which is intended to be "qualified" within the meaning
of Section 401(a) of the Code is and has from its inception been so qualified,
and any trust created pursuant to any such Employee Pension Benefit Plan is and
has been from its inception exempt from federal income tax under Section 501(a)
of the Code and the IRS has issued each such Plan a favorable determination
letter which is currently applicable or an application for such a determination
letter shall be made prior to the expiration of the applicable remedial
amendment period; (v) neither Seller nor any ERISA Affiliate is aware of any
circumstance or event which would jeopardize the tax-qualified status of any
such Employee Pension Benefit Plan or the tax-exempt status of any related
trust; and (vi) Seller and its ERISA Affiliates have, prior to the Closing,
delivered to Buyer, with respect to all Employee Benefit Plans listed in the
Disclosure Statement, true, complete and correct copies of the following: all
plan documents, handbooks, manuals, collective bargaining agreements and similar
documents governing employment policies, practices and procedures; all the most
recent summary plan descriptions and any subsequent summaries of material
modifications and all other material employee communications discussing any
employee benefit; Forms 5500 (including audit reports) as filed with the IRS for
the most recent four (4) plan years; the most recent report of the enrolled
actuary for all plans requiring actuarial valuation; all trust agreements with
respect to employee benefit plans; plan contracts with service providers and
plan contracts with insurers providing benefits for participants or liability
insurance for fiduciaries and other parties in interest or bonding; most recent
annual audit and accounting of plan assets for all funded plans; and most recent
IRS determination letter for all plans qualified under Section 401(a) of the
Code. As used herein, "ERISA Affiliate" shall refer to any trade or business,
whether or not incorporated, under common control with the Seller within the
meaning of Section 414(b), (c), (m) or (o) of the Code.
(c) Neither Seller nor any ERISA Affiliate maintains or has
ever maintained or been obligated to contribute to a "Multiemployer Plan" (as
such term is defined by Section 4001(a)(3) of ERISA), and Seller is not bound by
any collective bargaining agreement or legally binding arrangement to maintain
or contribute to any Employee Benefit Plan.
(d) Neither Seller nor any ERISA Affiliate maintains or has
ever maintained or been obligated to contribute to a Defined Benefit Plan (as
defined in Section 3(35) of ERISA).
(e) All reports and information required to be filed with the
United States Department of Labor and IRS or with
<PAGE>
Exhibit 10.3 (cont.)
plan participants and their beneficiaries with respect to each Employee Benefit
Plan required to be listed on the Disclosure Statement have been filed and all
annual reports (including Form 5500 series) of such Plans were certified, if
applicable, without qualification by each Plan's accountants and actuaries.
There has been no material change with regard to any such Employee Benefit Plan
since June 1, 1998.
(f) All Employee Benefit Plans required to be listed on the
Disclosure Statement may, without liability, be amended, terminated or otherwise
discontinued except as specifically prohibited by federal law.
(g) Any bonding required under ERISA with respect to any
Employee Benefit Plan required to be listed on the Disclosure Statement has been
obtained and is in full force and effect and no funds held by or under the
control of Seller or any ERISA Affiliate are plan assets.
(h) Neither Seller nor any ERISA Affiliate maintains any
retired life and/or retired health insurance plans which provide for continuing
benefits or coverage for any employee or any beneficiary of an employee after
such employee's termination of employment.
(i) Neither Seller nor any ERISA Affiliate is bound by any
collective bargaining agreement of legally binding arrangement to maintain or
contribute to any Employee Benefit Plan.
(j) There has been no material violation of the "continuation
coverage requirements" of "group health plans" of former section 162(k) of the
Code (as in effect for tax years beginning on or before December 31, 1988) and
of section 4980B of the Code (as in effect for tax years beginning on and after
January 1, 1989) and Part 6 of Subtitle B of Title I of ERISA with respect to
any group health plan to which such continuation coverage requirements apply.
(k) There has been no material violation of the health
insurance obligation is imposed by section 9801 of the Code and Part 7 of
Subtitle B of Title I of ERISA ("HIPAA") with respect to any Employee Benefit
Plan which is a group health plan (as defined under Section 5000(b) (1) of the
Code or Part 6 of Subtitle B of Title I of ERISA) to which such insurance
obligations apply.
4.17 Labor Matters.
(a) Except as described in the Disclosure Statement: (i) to
the knowledge of Shareholders and Seller, no application or petition for
certification of a collective bargaining agent is pending and none of the
employees of Seller engaged in the Business are, or during the last two (2)
years have been, represented by any union or other bargaining representative;
(ii) to the knowledge of Shareholders and Seller, during the last two (2) years,
no union has attempted to organize any group of the employees of Seller engaged
in the Business, and no group of the employees of Seller engaged in the Business
has sought to organize themselves into a union or similar organization for the
purpose of collective bargaining; (iii) during the last two (2) years there has
not been and there is not currently pending any labor arbitration or proceeding
in respect of the grievance of any employee engaged in the Business, any
application, charge or complaint filed by any employee or union with the
National Labor Relations Board or any comparable state or local agency, any
strike, slowdown, picketing or work stoppage by any employees at the Facility,
any lockout of any such employees or any labor trouble or other labor-related
controversy, occurrence or condition; (iv) no agreement restricts Seller from
relocating or closing the Facility or any portion thereof; and (v) to the
knowledge of Shareholders and Seller, no such agreement, action, proceeding or
occurrence is threatened or contemplated by any person.
(b) Except as described in the Disclosure Statement with
respect to the Business and the Facility, Seller has not been cited for
violations of the Occupational Safety and Health Act of 1970, 29 U.S.C. sec. 651
et seq. ("OSHA"), any regulation promulgated pursuant to OSHA, or any other
statute, ordinance, rule or regulation establishing standards of workplace
safety, or paid any fines or penalties with respect to any such citation. Except
as described in the Disclosure Statement: (i) there have not been any
inspections of the Facility by representatives of the Occupational Safety and
Health Administration or any other government agency vested with authority to
enforce any statute, ordinance, rule or regulation establishing standards of
workplace safety; (ii) to the knowledge of Shareholders and Seller, no
representative of any such government agency has attempted to conduct any such
inspection or sought entry to the Facility for that purpose; (iii) Seller has
been notified of any complaint or charge filed by any employee or employee
representative with any such government agency which alleges that Seller has
violated OSHA or any other statute, ordinance, rule or regulation establishing
standards of workplace safety; (iv) Seller has not been notified that any
employee or employee representative of the Business has requested that any such
government agency conduct an inspection of the Facility to determine whether
violations of OSHA or any other such statute, ordinance, rule or regulation may
exist; and (v) Seller doe not maintain any condition, process, practice or
procedure at the Facility which would be deemed a material violation of OSHA or
any other statute, ordinance, regulation or rule establishing standards on
workplace safety.
(c) Attached to the Disclosure Statement are true and correct
copies of each OSHA Form No. 200 completed and maintained by Seller at the
Facility for the last two (2) years.
4.18 Employees. The Disclosure Statement sets forth the following
information for each employee of Seller engaged in the Business (including each
such person on leave or layoff status) (collectively, the "Employees"): employee
name and job title; current annual rate of compensation (identifying bonuses
separately) and any change in compensation since December 31, 1997; vacation
accrued and service credited for purposes of vesting and eligibility to
participate in applicable Employee Benefit Plans; description of any material
pre-existing condition known to Seller with respect to any applicable Employee
Benefit Plan; and any automobile leased or owned by Seller primarily for use by
any of the foregoing persons. Except as described in the Disclosure Statement,
none of Employees is a party to, or is otherwise bound by, any agreement or
arrangement with any person or entity other than Seller which limits or
adversely affects the
<PAGE>
performance of his or her duties, the ability of Seller to conduct the Business,
or his or her freedom to engage in the Business (including, without limitation,
any confidentiality, non-competition, non-solicitation or proprietary rights
agreement). The Disclosure Statement lists or describes each employment,
severance, change of control, consulting, commission, agency and representative
agreement or arrangement relating to the Business to which Seller is a party or
is otherwise bound, including, without limitation, all agreements and
commitments relating to wages, hours or other terms or conditions of employment
including, but not limited to, any oral or written agreements or promises
relating to the granting of an ownership or profit-sharing interest in the
Business (other than unwritten employment arrangements terminable at will
without payment of any contractual severance or other amount). Seller has
properly classified as "employees," and has paid all required withholding taxes
with respect to, all persons who qualify as employees under the Code and the
rules and regulations promulgated thereunder.
4.19 Full Disclosure.
(a) All documents and other papers delivered by or on behalf
of Shareholders and Seller in connection with the transactions contemplated by
this Agreement are accurate and complete in all material respects and are
authentic. No representation or warranty of Shareholders or Seller contained in
this Agreement or the Disclosure Statement contains any untrue statement of a
material fact or omits to state a fact necessary in order to make the statements
herein or therein, in light of the circumstances under which they were made, not
misleading in any material respect.
(b) Except as described in this Agreement or the Disclosure
Statement, there is no fact known to Shareholders or Seller (other than general
economic or industry conditions) which materially adversely affects or, so far
as Shareholders or Seller can reasonably foresee, materially threatens, the
assets, business, prospects, financial condition or results of operations of the
Business or the ability of Shareholders or Seller to perform this Agreement.
4.20 Absence of Changes or Events. Except as described on the
Disclosure Statement and except for actions taken after the date hereof pursuant
to a specific covenant hereunder, since January 1, 1998, Seller has not:
(a) declared or paid any dividend or other distribution or
payment in respect of the shares of capital stock of Seller or any repurchase or
redemption of any such shares of capital stock or other securities;
(b) discharged or satisfied any lien or encumbrance, or paid
any liabilities, other than in the ordinary course of business consistent with
past practice, or failed to pay or discharge when due any liabilities which the
failure to pay or discharge has caused or will cause any material damage or risk
of material loss to Purchased Assets or the Business;
(c) sold, assigned or transferred any of its Assets or
properties except in the ordinary course of business consistent with past
practice;
(d) created, incurred, assumed or guaranteed any indebtedness
for money borrowed, or mortgaged, pledged or subjected to any Lien, any of its
Purchased Assets, other than the liens, if any, for current taxes not yet due
and payable;
(e) made or suffered any amendment or termination of any
Contract to which it is a party or by which it is bound or canceled, modified or
waived any debts or claims held by it, other than in the ordinary course of
business consistent with past practice, or waived any right of substantial
value, whether or not in the ordinary course of business;
(f) suffered any damage, destruction or loss, whether or not
covered by insurance, of any item carried on its books of account at more than
$1,000, or suffered any repeated, recurring or prolonged shortage, cessation or
interruption of supplies or utility services required to conduct its Business;
(g) suffered any decrease in its retained earnings or working
capital, or any material adverse change in its Business;
(h) suffered any adverse change or any threat of an adverse
change in its relation with, or any loss or threat of loss of, any of its
customers other than usual attrition in the ordinary course of customers that
are not individually or in the aggregate material to the Business;
(i) made any capital expenditure or capital addition or
betterment except such as may be involved in ordinary repair, maintenance and
replacement of its Purchased Assets;
(j) increased the salaries or other compensation of, or made
any advance (excluding advances for ordinary and necessary business expenses) or
loan to, any of its shareholders, directors, officers, employees or independent
contractors, or made any increase in, or any addition to, other benefits to
which any of its shareholders, directors, officers or employees may be entitled;
(k) changed any of the accounting principles followed by it or
the methods of applying such principles; or
(l) entered into any material transaction or any transaction
other than in the ordinary course of business consistent with past practice.
4.21 Affiliate Agreements. Except as described in the Disclosure
Statement, there are no agreements, arrangements or understandings between
Seller on the one hand and Shareholders or any present or former director,
shareholders or officer of Seller or any member of the immediate family of or
any person or entity controlling or controlled by any of such persons (a
"Related Party").
SECTION 5. REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer hereby represents and warrants to Shareholders and Seller as of
the date of this Agreement and as of the Closing Date as follows:
<PAGE>
Exhibit 10.3 (cont.)
5.1 Organization and Good Standing. Buyer is a Delaware
corporation duly organized and validly existing under the laws of the State of
Delaware and has all necessary corporate power and authority to carry on its
business as presently conducted, to own and lease the assets which it owns and
leases and to perform all its obligations under each agreement and instrument by
which it is bound.
5.2 Power and Authorization. Buyer has full legal right, power and
authority to enter into and perform its obligations under this Agreement and
under the other agreements and documents (the "Buyer Transaction Documents")
required to be delivered by it prior to or at the Closing and thereafter as
provided in this agreement. The execution, delivery and performance by Buyer of
this Agreement and the Buyer Transaction Documents have been duly authorized by
all necessary corporate action. This Agreement has been duly and validly
executed and delivered by Buyer and constitutes its legal, valid and binding
obligation, enforceable against it in accordance with its terms, except as may
be limited by applicable bankruptcy, insolvency or other laws affecting
creditors rights generally, or by legal limitations on the availability of
judicial remedies. When executed and delivered as contemplated herein, each of
the Buyer Transaction Documents shall constitute the legal, valid and binding
obligation of Buyer, enforceable against it in accordance with its terms, except
as may be limited by applicable bankruptcy, insolvency or other laws affecting
creditors rights generally, or by legal limitations on the availability of
judicial remedies; and the Guaranty shall constitute the legal, valid and
binding obligation of Parent, enforceable against it in accordance with its
terms, except as may be limited by applicable bankruptcy, insolvency or other
laws affecting creditors rights generally, or by legal limitations on the
availability of judicial remedies.
5.3 No Conflicts.
(a) The execution, delivery and performance of this Agreement
and the Buyer Transaction Documents do not and will not (with or without the
passage of time or the giving of notice):
(i) violate or conflict with any provision of
Buyer's Articles of Incorporation, by-laws or of any Law binding upon
Buyer; or
(ii) violate or conflict with, result in a breach of,
or constitute a default or otherwise cause any loss of benefit under
any material agreement or other material obligation to which Buyer is a
party.
(b) No consents or approvals of, or registrations,
notifications, filings and/or declarations with, any court, government or
administrative agency or instrumentality, creditor, lessor or other person are
required to be given or made by Buyer in connection with the execution, delivery
and performance of this Agreement and the other agreements and instruments
contemplated herein, other than such as have been obtained or made or which the
failure to obtain would not have a material adverse effect on Buyer's ability to
consummate the transactions contemplated herein and therein.
(c) There are no judicial, administrative or other
governmental actions, proceedings or investigations pending or, to the knowledge
of Buyer, threatened, that question any of the transactions contemplated by this
Agreement or the validity of this Agreement or any of the other agreements or
instruments contemplated hereby or which, if adversely determined, would have a
material adverse effect upon the ability of Buyer to enter into or perform its
obligations under this Agreement or any of the other agreements or instruments
contemplated hereby. Buyer has not received any request from any governmental
agency or instrumentality for information with respect to the transactions
contemplated hereby.
(d) All Shares issued in connection with this Agreement and
the Employment Agreements will be, upon issuance, duly authorized, validly
issued, fully paid and non-assessable.
5.4 Brokers. No person acting on behalf of Buyer or any of its
affiliates or under the authority of any of the foregoing is or will be entitled
to any brokers' or finders' fee or any other commission or similar fee, directly
or indirectly, from any of such parties in connection with any of the
transactions contemplated by this Agreement, other than Argentum Partners, whose
fees and expenses shall be paid by Buyer.
5.5 Deliveries to Seller. Buyer has delivered to Seller and
Shareholders a true and correct copy of all of Parent's filings with the United
States Securities and Exchange Commission (the "SEC") pursuant to the Securities
Exchange Act of 1934, as amended (the "Exchange Act") since January 1, 1998.
There has been no material adverse change in the business, financial condition
or results of Parent since the dates of such filings, except as disclosed
therein.
SECTION 6. EMPLOYEE BENEFITS AND EMPLOYMENT.
6.1 Employment.
(a) Buyer will offer employment to each employee of the
Business listed on Schedule 6.1 attached hereto at a rate of pay at least equal
to such employee's rate of pay (base and bonus) in effect on, and with such
benefits as shall be, in the aggregate, generally comparable to such employee's
benefits immediately prior to, the Closing Date. Employees who accept such
employment shall be referred to as "Transferred Employees" for purposes of this
Agreement. Seller shall be responsible for any severance pay obligations with
respect to individuals employed in the Business who are not Transferred
Employees and whose employment with Seller is terminated. Anything contained in
or implied by the provisions of this Section 6.1 to the contrary
notwithstanding, the provisions of this Section shall not create any third-party
beneficiary rights in any person, including any Transferred Employee.
6.2 Employee Pension Benefit Plans. The benefits under any
Employee Pension Benefit Plan (as defined in Section 3(2) of ERISA) maintained
by Seller which have accrued to any Transferred Employee as of the Closing Date
shall be frozen as of a date not later than 15 days after the Closing Date and
no further benefits shall accrue under any such Employee Pension Benefit Plan
with respect to
<PAGE>
Exhibit 10.3 (cont.)
such Transferred Employee. Buyer assumes no responsibility with respect to any
such Employee Pension Benefit Plan.
6.3 Employee Welfare Benefit Plans. Buyer shall assume and
continue the Employee Welfare Benefit Plans (as defined in Section 3(1) of
ERISA) maintained by Seller as of the Closing Date with respect to the
Transferred Employees in accordance with the terms and conditions of this
Section 6.3 and such Employee Welfare Benefit Plans. However, Buyer reserves the
right to modify, amend, suspend or terminate such Employee Welfare Benefit Plans
at any time after the Closing Date. Notwithstanding the foregoing, Seller shall
remain responsible and liable for any acts or omissions by Seller with respect
to such Employee Welfare Benefit Plans occurring prior to the Closing Date.
In addition, Seller shall remain responsible for any injury sustained
prior to the Closing Date that is related to a workman's compensation claim
prior to the Closing Date.
6.4 Vacation and Holidays. Buyer will provide to the Transferred
Employees the same vacations and holidays as provided by Seller through December
31, 1998 except that Buyer will not permit the use of any vacation carried over
from 1997 or prior years.
6.5 Health Continuation Coverage. Seller shall be responsible for
all health continuation coverage requirements of the Code and ERISA for all
periods prior to the Closing Date. Buyer shall be responsible for all health
continuation coverage requirements of the Code and ERISA for Transferred
Employees for all periods subsequent to the Closing Date.
6.6 Health Insurance Portability and Accountability Act. Seller
shall be responsible for all health insurance obligations imposed by HIPAA with
respect to any Employee Welfare Benefit Plan which is a group health plan (as
defined under Section 5000(b)(1) of the Code or Part 6 of Subtitle B of Title I
of ERISA) for all periods prior to the Closing Date. Buyer shall be responsible
for all HIPAA obligations with respect to any Employee Welfare Benefit Plan
which is a group health plan and which is assumed by Buyer for Transferred
Employees for all periods subsequent to the Closing Date.
6.7 Reporting and Disclosure Requirements. Seller shall be
responsible for filing all annual reports and satisfying all other reporting and
disclosure requirements with respect to any Employee Benefit Plan for all Plan
Years ending prior to the Closing Date.
6.8 Employee Records. Seller shall grant Buyer full access to all
employee records relating to the Transferred Employees.
SECTION 7. CERTAIN CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS.
The obligation of Buyer to consummate the acquisition of the Purchased
Assets is subject to the fulfillment by or at the Closing of each of the
following conditions:
7.1 Representations and Warranties. The representations and
warranties of Shareholders and Seller contained in this Agreement shall be
deemed to have been made again at and as of the Closing and shall then be true
and correct in all material respects.
7.2 Shareholders and Seller shall have performed or complied with
all of the agreements, covenants and conditions required by this Agreement to be
performed or complied with by them prior to or at the Closing.
7.3 Approvals. The consent or approval of all persons necessary
for the consummation of the transactions contemplated hereby shall have been
obtained and no such consent or approval: (a) shall have been conditioned upon
the modification, cancellation or termination of any lease, commitment,
agreement, easement, right or Authorization included in the Purchased Assets; or
(b) shall impose on Buyer, any condition, provision or requirement not presently
imposed upon Seller, and which is described in the Disclosure Statement, or any
condition that would be more restrictive after the Closing on Buyer, than the
conditions presently imposed on Seller.
7.4 Legal Matters. The Closing shall not violate any order or
decree of any court or governmental body of competent jurisdiction and no suit,
action, proceeding or investigation shall have been brought or threatened by any
person (other than Buyer or an affiliate of Buyer) which questions the validity
or legality of this Agreement or the transactions contemplated hereby.
7.5 No Material Adverse Change. There shall not have been any
material adverse change or threat of material adverse change in the Business or
the Purchased Assets since April 30, 1998, or in any development of a nature
that is, or is likely to be, materially adverse to the Business or the Purchased
Assets since that date.
7.6 Opinion of Counsel. Buyer shall have received the opinion
satisfactory to Buyer of Cohen Swados Wright Hanifin Bradford & Brett, LLP,
counsel for Shareholders and Seller, in the form attached hereto as Exhibit III
dated as of the Closing.
7.7 Closing Certificates. Buyer shall have received certificates
from Seller, dated the Closing Date, certifying in such detail as Buyer may
reasonably request that the conditions specified in Sections 7.1, 7.2 and 7.3
hereof have been fulfilled.
SECTION 8. CERTAIN CONDITIONS PRECEDENT TO OBLIGATIONS OF SHAREHOLDERS
AND SELLER.
The obligation of Shareholders and Seller to consummate the sale of the
Purchased Assets is subject to the fulfillment by or at the Closing of each of
the following conditions:
8.1 Representations and Warranties. Buyer's representations and
warranties contained in this Agreement shall be deemed to have been made again
at and as at the Closing and shall then be true and correct in all material
respects.
8.2 Performance of Covenants. Buyer and Guarantor shall have
performed or complied with all of the agreements, covenants and conditions
required by this Agreement to be performed or complied with by it prior to or at
the Closing.
8.3 Approvals. The consent or approval of all persons described on
the Disclosure Statement pursuant to Sections 4.5(b) shall have been obtained.
8.4 Legal Matters. The Closing shall not violate any order or
decree of any court or governmental body of competent
<PAGE>
Exhibit 10.3 (cont.)
jurisdiction and no suit, action, investigation, or legal or administrative
proceeding shall have been brought or threatened by any person (other than
Seller or an affiliate of Seller) which questions the validity or legality of
this Agreement or the transactions contemplated hereby.
8.5 Lease. Buyer shall have entered into the Lease.
8.6 Closing Certificates. Seller shall have received certificates
from Buyer, dated the Closing Date, certifying in such detail as Seller may
reasonably request that the conditions specified in Sections 8.1 and 8.2 hereof
have been fulfilled.
SECTION 9. CERTAIN POST-CLOSING MATTERS; COVENANTS.
9.1 Confidential Information. From and after the Closing, unless
expressly consented to in writing by Buyer, Shareholders and Seller shall not,
and shall use best efforts to cause all Transferred Employees and others not to,
directly or indirectly, use or disclose to any third person, any trade secret,
financial data, customer list, pricing or marketing policies or plans or other
proprietary or confidential information relating to the Business.
9.2 Covenant Not to Compete. Shareholders agree that, unless
acting with the prior written consent of Buyer, they will not, directly or
indirectly:
(a) for a period of two (2) years after the Closing Date,
within 100 miles of any office location for which Shareholders have management
responsibility, or for a period of one (1) year after the Closing Date and
within 100 miles of a location in which there is any office or facility of the
Buyer: (i) without the prior written approval of Buyer, which approval may be
granted or denied in the sole discretion of the Buyer, directly or indirectly,
own, manage, operate, control, be employed by, consult with, participate in, or
be connected in any manner with the ownership, management, operation or control
of any business which engages, directly or indirectly, in the document imaging,
document management or business process consulting services in competition with
the Buyer's business as conducted on the date hereof; (ii) be or become a
stockholder, partner, owner, officer, director or employee or agent of, or a
consultant to or give financial or other assistance to, any person or entity
considering engaging in any such activities or so engaged; (iii) seek in
competition with the business of Buyer to procure orders from or do business
with any customer of Buyer for which Buyer has provided services in the
preceding twelve (12) months; (iv) solicit, or contact with a view to the
engagement or employment by, any person or entity of any person who is an
employee or contractor of Buyer; (v) seek to contract with or engage (in such a
way as to adversely affect or interfere with the business of Buyer) any person
or entity who has been contracted with or engaged to manufacture, assemble,
supply or deliver products, goods, materials or services to Buyer; (vi) engage
in or participate in any effort or act to induce any of the customers,
associates, consultants or employees of Buyer or any of its affiliates to take
any action which is materially disadvantageous to Buyer or any of its
affiliates; provided, however, that nothing herein shall prohibit the
Shareholders and their affiliates from owning as passive investors, in the
aggregate not more than 5% of the outstanding publicly traded stock of any
corporation so engaged; and
(b) for a period of two (2) years after the Closing Date, in
any manner contact, induce, solicit or influence any client of the Business or
of Buyer or any of its affiliates to cause such client to terminate its
relationship with the Business and/or Buyer. In the event that the provisions of
this Section 9.2 should ever be deemed to exceed the time or geographic
limitations or any other limitations permitted by applicable law in any
jurisdiction, then such provisions shall be deemed reformed in such jurisdiction
to the maximum permitted by applicable law. Shareholders and Seller specifically
acknowledge and agree that the foregoing restrictions are reasonable and
necessary to protect the legitimate interests of Buyer, that Buyer would not
have entered into this Agreement in the absence of such restrictions, that any
violation of such restrictions will result in irreparable injury to Buyer, that
the remedy at law for any breach of the foregoing restrictions will be
inadequate, and that, in the event of any such breach, Buyer, in addition to any
other relief available to it, shall be entitled to temporary injunctive relief
before trial from any court of competent jurisdiction as a matter of course and
to permanent injunctive relief without the necessity of quantifying actual
damages.
(c) If Buyer shall fail to pay Seller any amount required to
be paid by Buyer hereunder and such failure shall be continuing for 90 days
after written notice from Seller to Buyer, Seller shall be released from the
non-competition provision set forth in this Section 9.2; provided, however, that
the exercise by Buyer of any right of set-off as provided in Section 10.6 hereof
shall not release Seller from the non-competition provision set forth in this
Section 9.2.
9.3 Pursuit of Authorizations. Shareholders and Seller shall use
his, her or its best efforts to take, or cause to be taken, such action, to
execute and deliver, or cause to be executed and delivered, such 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 transfer any Intellectual Property to Buyer and, at the expense of Buyer,
to permit Buyer to obtain promptly all governmental consents, licenses, permits,
franchises, grants or other authorizations which are used in the Business
("Authorizations") and are required for the Business and operations of Buyer
after the Closing.
9.4 Assignment of Purchased Assets; Consents. Prior to the Closing
Date and for a period of one year thereafter, Shareholders, Seller and Buyer
shall cooperate and use reasonable efforts to obtain all non-governmental
approvals, consents or waivers necessary to assign to Buyer the Purchased Assets
(the "Interests"), as soon as practicable; provided, however, Shareholders and
Seller shall not be obligated to pay any consideration therefor to the third
party from whom such approval, consent or waiver is requested. To the extent any
of the approvals, consents or waivers referred to above have not been obtained
by Shareholders and Seller, Seller's and Shareholders' only obligations with
respect thereto shall be to use its reasonable efforts during the remaining term
of such Interest to: (i) cooperate with Buyer in any reasonable and lawful
arrangements designed to provide the benefits of such Interest to Buyer so long
as
<PAGE>
Exhibit 10.3 (cont.)
Buyer reimburses Seller for all payments, charges or other liabilities made or
suffered by Seller in connection therewith; and (ii) enforce, at the request of
Buyer and for the account and at the expense of Buyer, any rights of Seller
arising from such Interest against such issuer thereof or the other party or
parties thereto (including the right to elect to terminate any such Interest in
accordance with the terms thereof upon the written advice of Buyer).
9.5 Rule 144. Buyer covenants that (i) it will cause Parent to use
its best efforts to comply with the current public information requirements of
Rule 144(c)(1) under the Securities Act; (ii) at all such times as Rule 144 is
available for use by the holders of the Securities, Buyer will furnish each such
holder upon request with all information within the possession of Buyer or
Parent required for the preparation and filing of Form 144; and (iii) Buyer will
furnish each such holder, upon his or her or its request, with a written
statement by Parent as to its compliance with the reporting requirements of Rule
144 under the Securities Act.
9.6 Audited Financial Statements. Upon the request of Buyer,
Shareholders and Seller shall, at the expense of Buyer, take, or cause to be
taken by their accountants, such action as is necessary to provide to Buyer
audited financial statements of Seller, and appropriate accountant's consents,
that comply with the requirements of Regulation S-X under the Exchange Act.
9.7 Notwithstanding anything to the contrary in this Agreement,
the parties agree that all sales by Buyer or its affiliates or licensees of the
"Department of Social Services Document Image Solution", and all associated
proprietary rights, shall be credited to the Business for purposes of SECTION 2
of this Agreement.
SECTION 10. INDEMNIFICATION
10.1 Indemnification by Seller. Seller shall indemnify and hold
Buyer and Buyer's officers, directors, employees and shareholders harmless
against and in respect of any and all losses, costs, expenses, claims, damages,
obligations and liabilities, including interest, penalties and reasonable
attorneys fees and disbursements ("Damages"), which Buyer or any such person may
suffer, incur or become subject to arising out of, based upon or otherwise in
respect of: (i) any inaccuracy in or breach of any representation or warranty of
Shareholders or Seller made in or pursuant to this Agreement, or any Seller
Transaction Document; (ii) any breach or nonfulfillment of any covenant or
obligation of Shareholders or Seller contained in this Agreement or any Seller
Transaction Document; (iii) any liability or other obligation of Seller not
expressly assumed by Buyer pursuant to Section 1.3.
10.2 Indemnification by Buyer. Buyer shall indemnify and hold
Seller and Seller's officers, directors and shareholders harmless against and in
respect of any and all Damages which Seller may suffer, incur or become subject
to arising out of, based upon or otherwise in respect of: (a) any inaccuracy in
or breach of any representation or warranty of Buyer made in or pursuant to this
Agreement or any Buyer Transaction Document; (b) any breach or nonfulfillment of
any covenant or obligation of Buyer contained in this Agreement or any Buyer
Transaction Document; and (c) the operation or failure to perform by Buyer of
the Business and the Purchased Assets after the Closing Date, including any
liability or other obligation of Seller assumed by Buyer pursuant to Section 1.3
herein.
10.3 Inter-Party Claims. Any party seeking indemnification pursuant
to this Section 10 (the "Indemnified Party") shall notify the other party or
parties from whom such indemnification is sought (the "Indemnifying Party") of
the Indemnified Party's assertion of such claim for indemnification, specifying
the basis of such claim. The Indemnified Party shall thereupon give the
Indemnifying Party reasonable access to the books, records and assets of the
Indemnified Party which evidence or support such claim or the act, omission or
occurrence giving rise to such claim and the right, upon prior notice during
normal business hours, to interview any appropriate personnel of the Indemnified
Party related thereto.
10.4 Third Party Claims.
(a) Each Indemnified Party shall promptly notify the
Indemnifying Party of the assertion by any third party of any claim with respect
to which the indemnification set forth in this Section relates (which shall also
constitute the notice required by Section 10.3). The Indemnifying Party shall
have the right, upon notice to the Indemnified Party within twenty (20) business
days after the receipt of any such notice, to undertake the defense of or, with
the consent of the Indemnified Party (which consent shall not unreasonably be
withheld), to settle or compromise such claim. The failure of the Indemnifying
Party to give such notice and to undertake the defense of or to settle or
compromise such a claim shall constitute a waiver of the Indemnifying Party's
rights under this Section 10.4(a) and shall preclude the Indemnifying Party from
disputing the manner in which the Indemnified Party may conduct the defense of
such claim or the reasonableness of any amount paid by the Indemnified Party in
satisfaction of such claim.
(b) The election by the Indemnifying Party, pursuant to
Section 10.4(a), to undertake the defense of a third-party claim shall not
preclude the party against which such claim has been made also from
participating or continuing to participate in such defense, so long as such
party bears its own legal fees and expenses for so doing.
10.5 Limitations.
(a) Seller shall have no obligation to indemnify Buyer or any
other person against Damages pursuant to Section 10.1(a) of this Agreement
arising out of or based upon any inaccuracy in or breach of any representation
or warranty made in or pursuant to this Agreement or any Transaction Document
unless and until the aggregate of all such Damages suffered or incurred by Buyer
and such persons exceeds $10,000; in which event Buyer and such persons shall be
entitled to indemnification for the full amount of all Damages suffered or
incurred.
(b) In no event shall Seller or Shareholders be liable to
Buyer pursuant to or in connection with a claim for indemnity under Section
10.1(a)(i) of this Agreement for an amount in excess of the Purchase Price.
<PAGE>
Exhibit 10.3 (cont.)
(c) No claim for indemnity under Section 10.1(a)(i) or Section
10.1 (a)(ii) hereunder may be made by any party unless notice of such claim, as
provided in Section 10.3 or Section 10.4(a), as the case may be, is delivered
within two (2) years after the Closing Date except that the representations and
warranties set forth in Section 4.15 shall remain in force for a period
corresponding to that of the applicable statute of limitations.
10.6 Right of Set-Off.
(a) Upon the terms and subject to the conditions set forth in
this Section 10.6, Buyer shall have the right to set-off, against any amount
which may be owed by Buyer to Seller pursuant to this Agreement any amount owed
by Seller to Buyer, or any other person pursuant to this Agreement. The exercise
of such right of set-off by Buyer shall not constitute an event of default under
any obligation owed by Buyer to Seller.
(b) In the event that Buyer elects to exercise the right of
set-off provided for herein, Buyer shall provide Seller with at least 14 days
prior written notice of such election. If (i) Seller fails to pay to Buyer the
amount claimed to be owed (and for which Buyer seeks to exercise its right of
set-off pursuant to this Section 10.6), and (ii) prior to the expiration of such
14 day period, Seller notifies Buyer in writing of its disagreement with Buyer's
exercise of the right of set-off provided for herein, Buyer shall be entitled,
upon the expiration of such 14 day period, to exercise its right of set-off
provided for herein by delivering the amount sought to be set-off by Buyer to an
escrow account (the "Escrow Account") pending resolution of such dispute
pursuant to arbitration, as provided for in Section 11.7 hereof. Such escrowed
funds, including all interest accruing thereon, if any, shall be held in the
Escrow Account until such time as the dispute is resolved as provided in Section
11.7 hereof, and shall be released by the escrow agent only as expressly
directed in the order or agreement resolving such dispute.
SECTION 11. MISCELLANEOUS.
11.1 Knowledge. All references in this Agreement to Shareholders'
or Seller's knowledge respecting a particular matter shall conclusively be
deemed and presumed to include, without limitation, all facts, circumstances and
conditions known to Shareholders or Seller regarding such matter.
11.2 Survival of Representations, Warranties and Obligations.
(a) The representations and warranties made by the parties in
this Agreement and in the certificates, documents, Schedules and Exhibits
delivered pursuant hereto as well as all obligations of Buyer and Seller that
cannot be fully performed prior to closing shall survive the consummation of the
transactions herein contemplated for a period of two (2) years, except that the
representations and warranties set forth in Section 4.15 shall remain in force
for a period corresponding to that of the applicable statute of limitations.
Anything in this Agreement to the contrary notwithstanding, the representations
and warranties of Shareholders and Seller hereunder, and the right of Buyer to
indemnification for breach thereof, shall not be affected by any investigation
of Seller or its subsidiaries made by Buyer or its agents or representatives.
(b) The disclosures in the Disclosure Statement shall relate
only to the representations and warranties to which they expressly refer and to
no other representation or warranty in this Agreement. In the event of any
inconsistency between the statements made in the body of this Agreement and
those contained in the Disclosure Statement (other than an express exception to
a specifically identified statement), those in this Agreement shall control.
11.3 Further Assurances. Each party hereto shall use best efforts
to comply with all requirements imposed hereby on such party and to cause the
transactions contemplated hereby to be consummated as contemplated hereby, and
shall, from time to time and without further consideration, either before or
after the Closing, execute such further instruments, and take such other
actions, as any other party hereto shall reasonably request in order to fulfill
its obligations under this Agreement and to effectuate the purposes of this
Agreement and to provide for the orderly and efficient transition of the
Business to Buyer. Each party shall promptly notify the other parties of any
event or circumstance known to such party that could prevent or delay the
consummation of the transactions contemplated by this Agreement, or which would
indicate a breach or non-compliance with any of the terms, conditions,
representations, warranties or agreements of any of the parties to this
Agreement.
11.4 Costs and Expenses. Except as otherwise expressly provided
herein, each party shall bear its own expenses in connection herewith. Any and
all transfer, documentary and similar taxes and recording and filing fees (other
than sales and use taxes which shall be borne by Buyer) incurred in connection
with the transactions contemplated herein shall be borne equally by Seller and
by Buyer, except that any filing fees required by the United States Patent and
Trademark Office with respect to the assignments of the patents and patent
applications included in the Intellectual Property shall be borne by Buyer.
11.5 Notices. All notices or other communications permitted or
required under this Agreement shall be in writing and shall be sufficiently
given if and when hand delivered to the persons set forth below, or if sent by
documented overnight delivery service or registered or certified mail, postage
prepaid, return receipt requested, or by telegram, telex or telecopy, receipt
acknowledged, addressed as set forth below or to such other person or persons
and/or at such other address or addresses as shall be furnished in writing by
any party hereto to the others.
Any such notice or communication shall be deemed to have been given as
of the date received, in the case of personal delivery, or on the date shown on
the receipt or confirmation therefor in all other cases.
<PAGE>
Exhibit 10.3 (cont.)
To Buyer:
Judge Imaging Systems, Inc.
Two Bala Plaza, Suite 405
Bala Cynwyd, PA 19004
Attention: Katharine A. Wiercinski, Vice President
Fax: (610) 664-7090
To Seller and Shareholders:
Automated Office Products of Western New York, Inc.
105 Brisbane Building, 403 Main St.
Buffalo, NY 14203
Attention: Mr. and Mrs. Paul Eckert
Fax: (716) 854-0875
11.6 Assignment and Benefit.
(a) Neither Shareholders nor Seller shall assign this
Agreement or any rights hereunder, or delegate any obligations hereunder,
without the prior written consent of Buyer. The foregoing notwithstanding,
subject to compliance with all applicable federal and state securities laws,
Seller shall have the right to assign, pledge or hypothecate the Securities.
Subject to the foregoing, this Agreement and the rights and obligations set
forth herein shall inure to the benefit of, and be binding upon, the parties
hereto, and each of their respective successors, heirs and assigns.
(b) This Agreement shall not be construed as giving any
person, other than the parties hereto and their permitted successors, heirs and
assigns, any legal or equitable right, remedy or claim under or in respect of
this Agreement or any of the provisions herein contained, this Agreement and all
provisions and conditions hereof being intended to be, and being, for the sole
and exclusive benefit of such parties, and permitted successors, heirs and
assigns and for the benefit of no other person or entity
11.7 Settlement of Disputes. The parties will attempt in good faith
to resolve any and all controversies of every kind and nature between the
parties to this Agreement arising out of or in connection with the existence,
construction, validity, interpretation or meaning, performance, non-performance,
enforcement, operation, breach, continuance or termination of this Agreement
(each, a "Dispute") promptly by negotiations between senior executives of the
parties who have authority to settle the Dispute. The disputing party shall give
the other party written notice of the Dispute. Within twenty (20) days after
receipt of said notice, the receiving party shall submit to the disputing party
a written response. The notice and response shall include (a) a statement of
each position and a summary of the evidence and arguments supporting its
position, and (b) the name and title of the executive who will represent that
party. The executives shall meet at a mutually acceptable time and place within
thirty days of the date of the disputing party's notice and thereafter as often
as they reasonably deem necessary to exchange relevant information and to
attempt to resolve the Dispute. If the matter has not been resolved within sixty
(60) days of the disputing party's notice, or if the party receiving said notice
will not meet within thirty (30) days, the Dispute shall be submitted to
arbitration in accordance with the rules of the American Arbitration
Association. The parties further agree that all matters shall be governed by the
laws of the Commonwealth of Pennsylvania. The parties further agree that any
arbitration conducted pursuant to this section shall be held in Buffalo, New
York before a panel of three (3) arbitrators, one selected each of the parties
and the third select by the arbitrators selected by the parties. All deadlines
specified in this Section may be extended by mutual agreement.
11.8 Amendment, Modification and Waiver. The parties may, by mutual
agreement, amend or modify this Agreement in any respect, and Buyer and Seller
may: (a) extend the time for the performance of any of the obligations of the
other, (b) waive any inaccuracies in representations and warranties by the
other, (c) waive compliance by the other with any of the obligations contained
in this Agreement, and (d) waive the fulfillment of any condition precedent to
the performance under this Agreement of the waiving party. Any such amendment,
modification, extension or waiver shall be in writing. The waiver by a party of
any breach of any provision of this Agreement shall not constitute or operate as
a waiver of any other breach of such provision or of any other provision hereof,
nor shall any failure to enforce any provision hereof operate as a waiver of
such provision or of any other provision hereof.
11.9 Governing Law; Consent to Jurisdiction. This Agreement is made
pursuant to, and shall be construed and enforced in accordance with, the laws of
the Commonwealth of Pennsylvania (and United States federal law, to the extent
applicable), irrespective of the principal place of business, residence or
domicile of the parties hereto, and without giving effect to otherwise
applicable principles of conflicts of law. Any of the parties, before or during
the arbitration contemplated by Section 11.7, may apply to a court as set forth
below for a temporary restraining order or preliminary injunction or similar
equitable relief to protect its interests pending completion of such arbitration
proceedings and, in particular, to enforce the provisions of Section 11.7 and to
aid the arbitration contemplated thereby. For this purpose, each party agrees
that suit may be instituted in any federal court in the Eastern District of
Pennsylvania or in Montgomery County state court in the Commonwealth of
Pennsylvania, and each party waives any objection which such party may now or
hereafter have to the laying of the venue of any such action, suit or proceeding
(except that Seller and Shareholders do not waive their right to argue that
venue should lay in a court in which they have commenced suit instead of such
courts in Pennsylvania), and irrevocably submits to the non-exclusive
jurisdiction of any such court. Any and all service of process and any other
notice in any such action, suit or proceeding shall be effective against any
party if given as provided in Section 11.5 herein. Nothing contained herein or
in any Transaction Document shall prevent or delay Buyer, Shareholders or Seller
from seeking, in any court of competent jurisdiction, specific performance or
other equitable
<PAGE>
Exhibit 10.3 (cont.)
remedies, or damages, in the event of any breach or intended breach by
Shareholders, Seller or Buyer of any of his or her or its obligations hereunder.
11.10 Section Headings and Defined Terms. The section headings
contained herein are for reference purposes only and shall not in any way affect
the meaning and interpretation of this Agreement. The terms defined herein and
in any agreement executed in connection herewith include the plural as well as
the singular and the singular as well as the plural. Except as otherwise
indicated, all agreements defined herein refer to the same as from time to time
amended or supplemented or the terms thereof waived or modified in accordance
herewith and therewith.
11.11 Severability. The invalidity or unenforceability of any
particular provision, or part of any provision, of this Agreement shall not
affect the other provisions or parts hereof, and this Agreement shall be
construed in all respects as if such invalid or unenforceable provisions or
parts were omitted.
11.12 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original; and any person may
become a party hereto by executing a counterpart hereof, but all of such
counterparts together shall be deemed to be one and the same instrument. It
shall not be necessary in making proof of this Agreement or any counterpart
hereof to produce or account for any of the other counterparts.
11.13 Entire Agreement, etc. This Agreement, together with the
Disclosure Statement and the agreements, Exhibits, Schedules, appendices and
certificates referred to herein or delivered pursuant hereto, constitute the
entire agreement between the parties hereto with respect to the purchase and
sale of the Purchased Assets and supersede all prior agreements and
understandings. All Schedules, Exhibits and appendices attached hereto and
referred to herein are hereby incorporated herein and made a part hereof as if
fully set forth herein. The submission of a draft of this Agreement or portions
or summaries thereof does not constitute an offer to purchase or sell the
Purchased Assets, it being understood and agreed that neither Buyer,
Shareholders nor Seller shall be legally obligated with respect to such a
purchase or sale or to any other terms or conditions set forth in such draft or
portion or summary unless and until this Agreement has been duly executed and
delivered by all parties.
IN WITNESS WHEREOF, each of the parties hereto has duly executed this
Agreement, all as of the date first above written.
JUDGE IMAGING SYSTEMS, INC.
By: /s/ Katharine A. Wiercinski
---------------------------
Katharine A. Wiercinski, Secretary
AUTOMATED OFFICE PRODUCTS OF WESTERN NEW YORK, INC.
By: /s/ Paul F. Eckert
---------------------------
Paul F. Eckert, President
By: /s/ Suzanne Eckert
---------------------------
Suzanne Eckert, Vice President
SHAREHOLDERS:
/s/ Paul F. Eckert
---------------------------
Paul F. Eckert
/s/ Suzanne Eckert
---------------------------
Suzanne Eckert
<PAGE>
Exhibit 10.3 (cont.)
AMENDMENT AND SETTLEMENT AGREEMENT
AGREEMENT, dated as of August ___, 1998 by and among AUTOMATED OFFICE
PRODUCTS OF WESTERN NEW YORK, INC. d/b/a AOP SOLUTIONS, a New York corporation
(the "Seller"), PAUL F. ECKERT and SUZANNE ECKERT (collectively, the
"Shareholders") and JUDGE IMAGING SYSTEMS, INC., a Delaware corporation (the
"Buyer").
WITNESSETH
WHEREAS, the parties heretofore entered into an Asset Purchase
Agreement dated as of June 29, 1998 (the "Agreement"), pursuant to which the
Seller agreed to sell to the Buyer a substantial portion of the assets and
liabilities of the Seller; and
WHEREAS, the parties now wish to amend the Agreement so as to change
the effective date of the sale and purchase of such assets and liabilities and
for certain other purposes; and
WHEREAS, certain disputes have arisen under the Agreement concerning
the components of the Purchased Assets and certain other matters, and the
parties wish to finally settle and resolve such disputes;
NOW THEREFORE, in view of the premises and in consideration of the
agreements and mutual covenants hereafter set forth, the parties agree as
follows:
1. Meaning of Terms. As used herein:
(a) The "Effective Date" means May 31, 1998.
(b) All other capitalized terms used herein shall have the meanings
given to them in the Agreement.
2. Sale and Purchase as of the Effective Date.
Notwithstanding the provisions of Section 1 of the Agreement,
the parties hereby agree that the Purchased Assets and the liabilities
assumed by Buyer pursuant to the agreement shall be determined as of
the Effective Date, except as otherwise provided in this Amendment and
Settlement Agreement. Specifically, and without limitation of the
foregoing, the parties agree that:
(a) The trade liabilities, obligations and related expenses
pursuant to the terms of the Contracts, unearned revenues,
customer deposits and payroll expense of the Seller which are
assumed by the Buyer pursuant to Section 1.3 shall be those
existing as of the Effective Date, and that the Buyer shall be
responsible for all liabiliites of the Business on and after
the Effective Date.
(b) The closing adjustments described in Section 2.2 of the
Agreement shall be computed as of 12:00 midnight on the day
before the Effective Date. The Seller will deliver a schedule
of adjustments by August 4, 1998.
(c) Notwithstanding the foregoing, the parties agree that any
accounts receivable of the Seller which existed as of the
Effective Date, but which were paid to the Seller during June
1998 shall remain the property of the Seller, except to the
extent included in the $50,000 of cash which is assigned and
transferred to the Buyer pursuant to Section 1.1(a) of the
Agreement.
3. Assignment of Cash.
The parties agree that Section 1.1(a) of the Agreement shall
be implemented in the manner set forth in Schedule 1.1(a) hereto, and
that (notwithstanding any other provision of the Agreement) neither
party will make any further claim relating to the computation of the
cash of the Seller which is to be assigned to Buyer, but will treat
Schedule 1.1(a) as a final and conclusive resolution of such issue.
4. Earnouts.
(a) The parties agree that the Fourth Earnout shall be in the
amount of $214,204, and that Buyer shall pay such amount to
Seller by August 4, 1998.
(b) The parties agree that Buyer will pay Seller the sum of
$75,000 by August 4, 1998 as part payment of the Fifth
Earnout.
(c) The balance of the Fifth Earnout and all of the First, Second
and Third Earnouts will be paid when due.
5. Additional Payment for Purchased Assets.
The parties agree that Buyer will pay Seller the sum of
$50,322 by August 4, 1998, as an addition to the Purchase Price.
6. Certain Fees and Expenses.
Notwithstanding Section 11.4 of the Agreement, the parties
agree that Buyer will pay the reasonable professional fees and expenses
of Seller's legal counsel and accountants relating to the subject
matter of this
<PAGE>
Exhibit 10.3 (cont.)
Amendment and Settlement Agreement, in amounts not in excess of $10,000
to Seller's legal counsel and $17,500 to Seller's accountants, promptly
after receipt of an appropriate statement or invoice.
7. Allocation of Consideration.
Schedule 2.3 to the Agreement is amended by changing "Closing
Date" to "Effective Date" everywhere such term occurs in Schedule 2.3.
8. Seller Balance Sheet.
Notwithstanding Section 4.8(d) of the Agreement, the parties
hereby agree that the balance sheet of the Seller described therein
shall be as of the Effective Date and shall be prepared and delivered
to the Buyer by August 4, 1998.
9. Disclaimer.
The Buyer acknowledges and agrees that neither the Sellers nor
any Shareholder shall have any liability or obligation whatsoever
arising out of (a) the parties' agreement with respect to the Effective
Date, or (b) the accounting treatment of the sales, expenses, assets
and liabilities of the Business on the books and records of Buyer.
10. Payment of Net Obligation.
The net amount owed by Buyer to Seller under paragraphs 3, 4
and 5, which is set forth in Schedule 2 hereto, shall be paid by Buyer
to Seller not later than August 4, 1998.
11. Disclosure by Seller.
Buyer acknowledges and agrees that Seller has notified Buyer
that one of Seller's customers, National MD, made a duplicate payment
to Seller in June in the approximate amount of $20,000; that such
amount must be repaid to such customer; and that Buyer will not make
any claim with respect to same.
IN WITNESS WHEREOF, the parties have executed this Amendment and
Settlement Agreement as of the date written below.
JUDGE IMAGING SYSTEMS, INC.
By: /s/ James Person
----------------------
James Person, Chief Executive Officer
AUTOMATED OFFICE PRODUCTS OF WESTERN NEW YORK, INC.
By: /s/ Paul F. Eckert
----------------------
Paul F. Eckert, President
By: /s/ Suzanne L. Eckert
----------------------
Suzanne L. Eckert, Vice President
SHAREHOLDERS
/s/ Paul F. Eckert
----------------------
Paul F. Eckert
/s/ Suzanne L. Eckert
----------------------
Suzanne L. Eckert
EXHIBIT 11.1
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended June 30,
---------------------------
1998 1997
---- ----
<S> <C> <C>
Basic
Weighted average common shares outstanding (3) 13,469,000 13,348,000
========== ==========
Net income after adjustment for preferred dividends earned on JIS stock $ 509,512 $ 907,864
========= =========
Basic net income per common share $ 0.04 $ 0.07
====== ======
Diluted
Weighted average common shares outstanding (1) (2) (3) 13,492,000 13,348,000
========== ==========
Net income after adjustment for preferred dividends earned on JIS stock and
interest saved on conversion of debt $ 509,512 $ 907,864
========= =========
Diluted net income per common share $ 0.04 $ 0.07
====== ======
</TABLE>
(1) Options on 1,190,750 shares and 561,500 shares in 1998 and 1997,
respectively, not included in computing diluted earnings per share
because their effects are anti-dilutive.
(2) In 1998 options to purchase 205,000 shares, less 182,000 shares to be
purchased under the Treasury Stock method, are included in weighted
average shares outstanding.
(3) Excludes 40,000 shares of Treasury Stock from its date of purchase on
February 28, 1998.
EXHIBIT 11.2
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1998 1997
---- ----
<S> <C> <C>
Basic
Weighted average common shares outstanding (3) 13,419,000 12,164,000
========== ==========
Net income after adjustment for preferred dividends earned on JIS stock $ 872,646 $ 641,413
========= =========
Basic net income per common share $ 0.07 $ 0.05
====== ======
Diluted
Weighted average common shares outstanding (1) (2) (3) 13,420,000 12,295,000
========== ==========
Net income after adjustment for preferred dividends earned on JIS stock and
interest saved on conversion of debt $ 872,646 $ 641,413
========= =========
Diluted net income per common share $ 0.07 $ 0.05
====== ======
</TABLE>
(1) Options on 1,190,750 shares and 561,500 shares in 1998 and 1997,
respectively, not included in computing diluted earnings per share
because their effects are anti-dilutive.
(2) In 1998 options to purchase 205,000 shares, less 182,000 shares to be
purchased under the Treasury Stock method, are included in weighted
average shares outstanding.
(3) Excludes 40,000 shares of Treasury Stock from its date of purchase on
February 28, 1998.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS CONTAINED IN THE JUDGE GROUP, INC. QUARTERLY REPORT ON FORM
10-Q FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001022893
<NAME> THE JUDGE GROUP, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1.000
<CASH> 2,566,360
<SECURITIES> 0
<RECEIVABLES> 18,842,921
<ALLOWANCES> 541,369
<INVENTORY> 1,554,896
<CURRENT-ASSETS> 24,449,335
<PP&E> 7,007,387
<DEPRECIATION> 2,562,578
<TOTAL-ASSETS> 44,847,495
<CURRENT-LIABILITIES> 13,986,783
<BONDS> 0
0
0
<COMMON> 135,312
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 44,847,495
<SALES> 0
<TOTAL-REVENUES> 52,865,997
<CGS> 35,821,772
<TOTAL-COSTS> 15,598,075
<OTHER-EXPENSES> 31,289
<LOSS-PROVISION> 47,890
<INTEREST-EXPENSE> 31,289
<INCOME-PRETAX> 1,497,330
<INCOME-TAX> 624,684
<INCOME-CONTINUING> 872,646
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 872,646
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
