<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from __________ to __________
COMMISSION FILE NO. 0-21963
THE JUDGE GROUP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
PENNSYLVANIA 23-1726661
(State or other jurisdiction of Incorporation or Organization) (IRS Employer Identification No.)
</TABLE>
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)
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
<S> <C>
Title of Each Class Name of each exchange on which registered
------------------- -----------------------------------------
None
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
<TABLE>
<CAPTION>
<S> <C>
Title of Each Class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, $0.01 Par Value NASDAQ Stock Market
</TABLE>
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of March 31, 1999, the approximate aggregate market value of the
voting stock held by non-affiliates of the Registrant was $9,404,108 based on
the closing sales price of $1.75 of the Registrant's Common Stock on the NASDAQ
Stock Market.
As of March 31, 1999, 13,497,576 shares of the Registrant's Common
Stock were outstanding.
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington. D.C. 20549
PART I
IN ADDITION TO HISTORICAL INFORMATION, THIS ANNUAL REPORT ON FORM 10-K
CONTAINS FORWARD-LOOKING STATEMENTS AND CIRCUMSTANCES THAT ARE SUBJECT TO RISKS
AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY. FACTORS
THAT MIGHT CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED
TO, THOSE DISCUSSED IN THE SECTION ENTITLED "MANAGEMENT'S DISCUSSION AND
ANALYSIS - FORWARD LOOKING INFORMATION." READERS SHOULD CAREFULLY REVIEW THE
RISKS DESCRIBED IN THIS AND OTHER DOCUMENTS THAT THE COMPANY FILES FROM TIME TO
TIME WITH THE SECURITIES AND EXCHANGE COMMISSION. READERS ARE CAUTIONED NOT TO
PLACE UNDUE RELIANCE ON THE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY TO THE
DATE OF THIS ANNUAL REPORT ON FORM 10-K. THE COMPANY UNDERTAKES NO OBLIGATION TO
PUBLICLY RELEASE ANY REVISIONS TO THE FORWARD-LOOKING STATEMENTS OR REFLECT
EVENTS OR CIRCUMSTANCES AFTER THE DATE OF THIS DOCUMENT.
ITEM 1. BUSINESS.
GENERAL
The Judge Group, Inc. (the "Company"), incorporated in Pennsylvania in June
1970, services the information technology ("IT") and engineering needs of its
clients through the following four complementary operating units:
Contract Placement - Provides IT and engineering personnel ("technical
consultants") on a contract basis;
Permanent Placement - Provides IT and engineering personnel on a permanent
basis;
IT Training - Provides standard and customized IT training on established and
emerging software applications; and
Information Management Solutions - Provides document management, document
conversion, computer networking, imaging, workflow and related consulting
services.
The Company's Contract Placement business provides technical consultants
skilled in a variety of fields, such as software applications programming and
development, client/server technology, legacy systems conversion, software
architecture and design, data communications, systems engineering,
Internet/Web-Site design, project consulting, project management, and Help Desk
management. The Contract Placement business provides technical consultants on a
nationwide basis through its National Division, and on a regional and local
level through its network of 10 offices in 9 states. The Contract Placement
business maintains a database of over 170,000 technical consultants, and in 1998
provided over 1,800 technical consultants to approximately 525 clients.
The Company's Permanent Placement business provides IT and engineering
personnel on a permanent basis to clients nationwide through its network of 7
offices in 7 states. The Permanent Placement business maintains a database of
approximately 150,000 professionals, and in 1998 placed 895 candidates with more
than 490 clients.
The Company's IT Training business provides training on a range of software
and network applications to the Company's technical consultants and in-house
personnel , as well as to corporate, governmental, and individual clients. The
IT Training business currently offers licensed diploma courses, certificate
courses, and in excess of 130 open-enrollment courses, either in its own
computer labs or at client locations. In addition to expanding the Company's
range of technical service offerings, the IT Training business will assist the
Company in identifying emerging technologies and integrating such technologies
into its organization.
1
<PAGE>
The Company's Information Management Solutions business offers advanced
technical solutions to increase the efficiency of business processes, such as
business process analysis and redesign, work automation, document management
systems design, integration, implementation, maintenance, Internet development
and training, project management, and advanced applications development. The
Company is a value-added reseller of Optika, Filenet, PCDOCS, Saros(C),
Greenbar, Watermark, Keyfile, OTG and Lotus Notes, and integrates its imaging
solutions on a variety of operating systems, including Banyan(R), Unix and
Windows NT. The Company provides technical solutions through it network of 8
offices in 8 states.
Since completing its initial public offering in February 1997, the Company
has pursued an aggressive expansion program through acquisitions as well as
opening of new office locations. In 1998 the Company acquired two Contract
Placement businesses, one Permanent Placement business, and three Information
Management Solutions businesses. During 1998 the Company also established or
expanded service offerings in six locations, two of which were subsequently
closed by year end.
In 1999 the Company expects to restructure its operating units around two
basic business segments. Therefore, segment reporting will follow the new
business configuration and also enable financial analysis that more closely
tracks its lines of business. The Company will evaluate its operations by the
Staffing segment, which will include Contract Placement, Permanent Placement,
and IT Training, and by the Information Management Solutions segment for which
the Company's goal is to separate from its operations in the future.
OPERATIONS
Permanent Placement. The Permanent Placement business, founded in 1970,
generated revenues of $5.9 million, $8.6 million, and $11.0 million in 1996,
1997 and 1998 respectively, representing 7.1%, 8.7%, and 9.6% of total Company
revenues for the respective periods. The Company's Permanent Placement business
provides IT and engineering personnel on a permanent basis nationwide through
its regional offices in Bala Cynwyd, Pennsylvania; Edison, New Jersey; Tampa,
Florida; Needham, Massachusetts; Dallas, Texas; Atlanta, Georgia; and Chicago,
Illinois. The Texas, Georgia, and Illinois locations were added through an
acquisition in 1998, while the Massachusetts location was a new operation
sharing office space with the Company's Contract Placement business. A
significant portion of the Company's engineering placements are in food related
industries and, to a lesser extent, the pharmaceutical industry. The Permanent
Placement business maintains a database of over 150,000 engineering and IT
professionals, and in 1998 it placed 895 professionals with more than 490
clients. As compensation for its service, the Company receives a fee based on a
percentage of each placed professional's first year salary, subject to
forfeitures if the placed professional leaves such position during a standard
guarantee period of thirty days.
Contract Placement. The Company's Contract Placement business, founded in
1986, generated revenue of $61.7 million, $70.4 million and $81.3 million in
fiscal 1996, 1997 and 1998 representing 75.0%, 71.4% and 70.9% of the Company's
consolidated net revenues in those periods, respectively. The Company's Contract
Placement business provides IT, engineering and other professional consultants
on a contract basis to organizations with complex technology and staffing needs
through regional offices in Bala Cynwyd, Pennsylvania; Edison, New Jersey;
Alexandria, Virginia; Needham, Massachusetts; Providence, Rhode Island; Walled
Lake, Michigan; Raleigh and Charlotte, North Carolina; Nashville, Tennessee;
Jacksonville, Florida; and nationally through its National Division based in
Providence. The Contract Placement business maintains a database of over 170,000
technical consultants, and in 1998 placed over 1,800 consultants with
approximately 525 clients. Typical engagements range in duration from six to
twelve months, though some of the Company's technical consultants have been
performing services for its clients for a period of more than six years. The
Company's technical consultants and independent contractors often work jointly
with clients' in-house IT personnel. This segment periodically experiences
diminished revenue growth in the fourth quarter due to the effect of the
Thanksgiving and Christmas holidays. Further, revenues can be depressed in the
first quarter due to the effect of winter weather which can prevent contractors
from billing hours.
2
<PAGE>
The majority of the Company's Contract Placement business is derived from
providing technical consultants skilled in IT and software engineering. In
addition to staff augmentation, the Company provides project consulting
services, which can include project management, workflow analysis, database
design, custom software applications and system integration. In a project
management engagement, which can be on either a fixed fee or a time and material
basis, the Company will typically oversee an entire IT project from inception to
completion, utilizing technical consultants with specialty skills in the
relevant technologies.
The Company seeks to develop new service offerings. The Company has expanded
the type of skilled personnel its Contract Placement business is capable of
providing to such diverse areas as finance, life sciences, desktop publishing,
PC support and help desk, and human resources. During 1998 the Company began to
increase the hiring of technical consultants as bench employees, which are full
time Company employees that receive lower hourly rates than technical
consultants that are retained on a per job basis. Bench employees will be paid
their hourly rate even if they are not billed to a client. The use of bench
employees increases the Company's profit margin due to the lower hourly rate
paid the employee. However, there would be an adverse effect on net income if
bench employees are not fully occupied for clients. In the past the Company has
focused its efforts on attracting and placing contractors with more specialized
skills thereby enabling the Company to achieve higher margin placements.
Originally established in 1991, the National Division provides both
engineering and IT personnel on a contract basis nationwide, primarily to larger
national corporations. Revenue attributable to the National Division was $10.8
million, $11.3 million, and $12.4 million in 1996, 1997, and 1998, respectively.
IT Training. The Company's IT Training business was acquired in September
1996. It provides training in a variety of software and network applications and
generated revenue of $608,000 in the fourth quarter of 1996, $3.2 million, and
$3.0 million in 1997 and 1998 respectively, which represented .7%, 3.2%, and
2.6% of the Company's consolidated net revenues during such periods,
respectively. The IT Training business provides its services at its facilities
in Bala Cynwyd, Pennsylvania and Alexandria, Virginia and at various off-site
locations. The IT Training business delivers certified training for all
Microsoft products at its locations. The IT Training business provides custom IT
training for clients across all hardware and software platforms, dependent on
the needs and requirements of the client. The IT Training business is an
authorized training center for many major software manufacturers, including
Microsoft Corporation, Adobe Systems Incorporated, Quark, Inc., Core
Corporation, and Claris Corporation, and is also an approved Apple Training
Alliance Center. The IT Training business is a Microsoft Solutions Provider and
Certified Technical Education Center. The Company's diploma programs in Desktop
Publishing, Business Software, Multimedia and Internet are licensed and
accredited by the Pennsylvania Board of Private Licensed Schools and are
approved for veteran's education by the U.S. Veteran's Administration. The IT
Training business frequently conducts its courses at the in-house facilities of
its corporate clients and has the ability to provide the necessary computer
equipment at conference centers, hotels and other off-site locations as
requested by its clients.
Information Management Solutions. The Company intends to separate this
business by year end 1999 or as soon as possible in a way that will maximize
shareholder value. The Company's Information Management Solutions business
offers advanced technical solutions to increase the efficiency of business
processes, such as business process analysis and redesign, work automation,
document management systems design, integration, implementation, maintenance,
Internet development and training, project management and advanced application
development. The Company is a value-added reseller of Optika, Filenet, PCDOCS,
Saros, Greenbar, Watermark, Keyfile, OTG and Lotus Notes, and integrates its
imaging solutions on a variety of operating systems, including Banyan, Unix and
Windows NT. As part of the Information Management Solutions it offers, the
Company is a value-added reseller for PC and network hardware, software and
related peripherals manufactured by Compaq Computer Corp., ACER America Corp.,
International Business Machines, Apple Computer, Inc., Hewlett Packard Co. and
others.
3
<PAGE>
The Company provides various document management, document conversion,
networking, imaging, workflow and related consulting services through its
acquisitions in 1998 of Onsite Solutions, Irvine, California; Systems Solutions,
Redmond, WA; and AOP Solutions, Buffalo, New York and through its regional
offices in Bala Cynwyd, Pennsylvania; Moorestown and Edison, New Jersey;
Hartford, Connecticut; Fort Wayne, Indiana; and Wakefield, Massachusetts. The
Information Management Solutions business which began operations in 1988,
generated revenue of $14.2 million, 16.4 million, and $19.3 million in fiscal
1996, 1997 and 1998, respectively, which represented 17.2%, 16.7% and 16.9% of
the Company's consolidated net revenues, respectively.
The Company sells and installs high-end, mid-range and low-end imaging
systems, complementary software and database products and the technical
engineering services necessary to deliver a "turn key" imaging system. The
Company offers its customers hardware and software maintenance, support and
training. The Company implements Filenet and Optika software in Banyan, and
Windows NT environments and is currently a value-added reseller of a variety of
other imaging software systems. In addition, certain Company personnel have been
certified by the Document Imaging Association, the only certification available
in the document management industry. The Company integrates its imaging software
solutions on hardware manufactured by International Business Machines, Compaq
Computer Corp., Hewlett-Packard Co. and Sun Microsystems, Inc. operating under
Windows NT and Unix operating systems.
The Company is also a value-added reseller for PC and network hardware,
software and related peripherals for a variety of manufacturers and provides a
full range of installation, training, maintenance, repair and network
integration services.
The Information Management Solution's Consulting Services Group seeks to
provide its clients with due diligence, analysis, planning and design services
for IT projects through process analysis, redesign and enabling technology
implementation. The Company believes that a thorough understanding of a client's
existing IT system and work processes is necessary to the design of an optimal
information management system. In 1998, the Company introduced its System
Development Methodology ("SDM") incorporating Joint Application Development
("JAD") to provide clients with a framework for implementing such a system.
Under the Company's SDM program, the Company assigns multiple disciplinary study
teams to evaluate the client's operations from technology, financial and overall
business perspectives. This analysis includes a review of the architecture of
the client's current IT System as well as the client's work processes, personnel
and culture. Upon completion of this analysis, the Company presents the client
with a detailed set of technological and work automation recommendations.
Additional segment information can be found in Note 12 in the accompanying
financial statements.
INTELLECTUAL PROPERTY
While the Company does not own any patents, or registered copyrights or
trademarks, it routinely enters into non-disclosure and confidentiality
agreements with employees, contractors, consultants and customers. Licenses for
a number of software products have been granted to the Company for its own use
or for remarketing to its customers. In the aggregate, these licenses are
material to the business of the Company, but the Company believes that the loss
of any one of these licenses would not materially affect the Company's results
of operations or financial position.
CUSTOMERS
The primary industries served by the Company include financial services,
manufacturing, software/computers, government, and pharmaceutical. In 1998, no
customer accounted for more than 10% of the Company's consolidated revenues.
COMPETITION
The IT professional services industry is highly competitive and fragmented on
the local, regional and national levels. The Company believes that some of its
competitors are, or will soon be, offering the full range of technical staffing,
imaging, document management, consulting and training services that the Company
currently provides. In addition, many companies offer one or two of the
Company's services in all of the geographical markets in which the Company
currently operates. Many of the Company's competitors have significantly greater
name recognition and financial, technical and other resources and generate
greater revenues and profits than the Company.
4
<PAGE>
Contract and Permanent Placement. Within any given geographical or technical
specialty market, the Company competes for clients with other IT, engineering
and professional service providers, outsourcing and consulting companies,
systems integrators and, to a lesser extent, temporary personnel agencies. The
majority of the competition is made up of smaller local and regional firms with
a strong presence in their local markets and occasionally with a nationally
franchised firm. The principal competitive factors for obtaining and retaining
clients include: the ability to match technical consultant skills and
personality with the client's requirements and culture; expertise of its
technical consultants; price; client satisfaction; and overall responsiveness to
client needs. The Company competes for technical consultants with other
professional services providers, outsourcing and consulting companies, systems
integrators, temporary personnel agencies and client companies. The principal
competitive factors for recruiting and retaining technical consultants include
compensation, availability and quality of benefits, consistent flow of high
quality, varied assignments and an understanding of consultant skills and work
preferences.
IT Training. Within the IT training industry, there is competition among the
available training methods, such as instructor-led training versus
computer-based training. With the instructor-led training methods, some of the
major software and equipment manufacturers maintain their own training programs
for both internal training and public training. The Company believes its
established library of courses and proprietary course materials that can be
updated (or customized for a particular customer) provide it with a competitive
advantage. Moreover, the Company believes that the diversity of its course
offerings, the quality of its personnel, its multiple training locations, its
flexibility in the locations at which it provides its services and its ability
to recognize emerging technologies and develop the requisite courses responsive
thereto, permit it to remain competitive with others in the marketplace. The
Company competes in the IT training business on the basis of its pricing,
perceived quality and breadth of course offerings.
Information Management Solutions. The information management services market
is intensely competitive and subject to rapid technological change. In order to
compete effectively, the Company needs to continually enhance its current
product and service offerings and expand its professional services capabilities.
The Company currently competes principally on the basis of its reputation, the
breadth of its product line and services, including the ability to sell document
management solutions responsive to each client's applications needs and
budgetary constraints, provide consulting and conversion services, and the
quality, ease of use, reliability and performance of the systems it offers. As
there are relatively low barriers to entering the imaging marketplace, the
Company expects additional competition from emerging companies as the market
expands. In addition, the market includes participants in a variety of market
segments, including systems consulting and integration firms such as F.Y.I. Inc.
and Lanier Worldwide Inc., professional services companies, applications
software firms, temporary employment agencies, the professional service groups
of companies such as International Business Machines and Digital Equipment
Corporation, facilities management and MIS outsourcing companies, certain
multi-national accounting firms, and general management consulting firms.
REGULATION
The Company's operations, as currently conducted, are subject to governmental
regulation in the State of New Jersey, where the Company's Permanent Placement
business is a licensed employment agency, and its Contract Placement business
has registered with the Temporary Help Service Section of the Bureau of
Employment and Personnel Services, a component of the Division of Consumer
Affairs of the Department of Law and Public Safety and in Massachusetts where
its Contract Placement business is registered as a service firm with the
Department of Labor and Workforce Development. Compliance with such New Jersey
and Massachusetts regulations has not and is not expected to have a material
effect on the Company's business. The Company is unaware of any other
jurisdictions in which its operations are subject to material governmental
regulation.
5
<PAGE>
All the jurisdictions in which the Company operates its training centers
regulate and license certain kinds of vocational, trade, technical or other
post-secondary education. The Company believes that employer-funded or
reimbursed IT training is exempt from such requirements in many of these states.
The Company is licensed in each jurisdiction in which it operates training
centers.
If the Company were found to be in violation of a state's licensing or other
regulatory requirements, it could be subject to civil or criminal sanctions,
including monetary penalties. No state educational or regulatory authority has
cited the Company or commenced any proceeding against it for the violation of
any licensing or other vocational educational requirement.
EMPLOYEES
As of December 31, 1998, the Company had 467 full-time employees. On that
date, there were also approximately 865 IT consultants working on full-time
assignments for the Company's clients, of which approximately 86% were treated
as employees of the Company and 14% were treated as independent contractors for
federal and state tax purposes. The Company is not a party to any collective
bargaining agreements and considers its relationships with its employees to be
good.
ITEM 2. PROPERTIES
The Company does not own any real property. The Company has leased offices in
the following locations:
<TABLE>
<CAPTION>
LEASE SERVICES OFFERED AS OF
OFFICE SQUARE FEET EXPIRATION DECEMBER 31, 1998
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bala Cynwyd, Pennsylvania 36,200 October 31, 2002 Contract Placement; Information
Management Services; Permanent
Placement; IT Training
- -------------------------------------------------------------------------------------------------------------------------
Providence, Rhode Island 7,000 September 13, 2003 Contract Placement
- -------------------------------------------------------------------------------------------------------------------------
Moorestown, New Jersey 12,800 October 31, 2000 Information Management Solutions
6,400 October 31, 2003
- -------------------------------------------------------------------------------------------------------------------------
Edison, New Jersey 11,800 February 28, 2006 Contract Placement; Permanent Placement;
Information Management Services
- -------------------------------------------------------------------------------------------------------------------------
Alexandria, Virginia 3,900 December 31, 2000 Contract Placement, IT Training
- -------------------------------------------------------------------------------------------------------------------------
Wakefield, Massachusetts 3,500 Month to Month Information Management Solutions
- -------------------------------------------------------------------------------------------------------------------------
Hartford, Connecticut 3,200 June 15, 2000 Information Management Solutions
- -------------------------------------------------------------------------------------------------------------------------
Tampa, Florida 6,900 May 31, 2003 Permanent Placement
- -------------------------------------------------------------------------------------------------------------------------
Needham, Massachusetts 7,900 March 31, 2005 Contract Placement, Permanent Placement
- -------------------------------------------------------------------------------------------------------------------------
Walled Lake, Michigan 4,000 August 31, 2001 Contract Placement ****
- -------------------------------------------------------------------------------------------------------------------------
Alpharetta, Georgia 4,500 September 30, 2003 Permanent Placement ****
- -------------------------------------------------------------------------------------------------------------------------
Arlington, Texas 1,100 November 30, 2000 Permanent Placement ****
- -------------------------------------------------------------------------------------------------------------------------
Downers Grove, Illinois 2,700 October 31, 2001 Permanent Placement ****
- -------------------------------------------------------------------------------------------------------------------------
Buffalo, New York 4,300 May 31, 2000 Information Management Solutions ****
- -------------------------------------------------------------------------------------------------------------------------
Irvine, California 6,200 September 3, 2001 Information Management Solutions ****
- -------------------------------------------------------------------------------------------------------------------------
Redmond, Washington 1,400 October 31, 2003 Information Management Solutions ****
- -------------------------------------------------------------------------------------------------------------------------
Fort Wayne, Indiana 100 November 15, 1999 Information Management Solutions ****
- -------------------------------------------------------------------------------------------------------------------------
Jacksonville, Florida 2,600 September 30, 2001 Contract Placement
- -------------------------------------------------------------------------------------------------------------------------
Durham, North Carolina 2,100 September 30, 2001 Contract Placement
- -------------------------------------------------------------------------------------------------------------------------
Nashville, Tennessee 1,100 December 31, 2000 Contract Placement ****
- -------------------------------------------------------------------------------------------------------------------------
Charlotte, North Carolina Shared space Month to Month Contract Placement ****
- -------------------------------------------------------------------------------------------------------------------------
**** Acquired in 1998.
</TABLE>
6
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in legal proceedings from time to time in the
ordinary course of business. As of the date of this Report, there are no legal
proceedings pending against the Company which management believes will have a
material adverse effect on the Company's financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders of the Company,
through the solicitation of proxies or otherwise, during the fourth quarter of
the fiscal year ended December 31, 1998.
For the purposes of calculating the aggregate market value of the shares
of common stock of the Company held by nonaffiliates, as shown on the cover page
of this Report, it has been assumed that all the outstanding shares were held by
nonaffiliates except for the shares beneficially owned by directors and
executive officers of the Company. However, this should not be deemed to
constitute an admission that all directors and executive officers of the Company
are, in fact, affiliates of the Company, or that there are not other persons who
may be deemed to be affiliates of the Company. Further information concerning
shareholdings of officers, directors and principal shareholders is included in
the Company's definitive proxy statement filed or to be filed with the
Securities and Exchange Commission.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.
The Company's Common Shares, $0.01 par value per share, are traded on The
NASDAQ National Stock Market under the symbol JUDG. The Company's Common Shares
began trading on February 14, 1997. Prior to that date, there was no market for
the Company's Common Shares. The closing quotation for the Company's Common
Shares on March 31, 1999 was $1.75. At March 31, 1999, there were 172
shareholders of record of the Company's Common Shares. Because many of such
shares are held by brokers and other institutions on behalf of shareholders, the
Company is unable to estimate the total number of shareholders represented by
these record holders. The following table sets for the high and low sales price
per share of the Company's Common Shares for the periods indicated:
Price Range
-----------
High Low
---- ---
Fiscal 1997
First Quarter (since February 14) $ 7.625 $ 3.250
Second Quarter $ 5.750 $ 3.000
Third Quarter $ 7.125 $ 5.000
Fourth Quarter $ 7.250 $ 4.750
Fiscal 1998
First Quarter $ 5.750 $ 3.938
Second Quarter $ 6.875 $ 4.375
Third Quarter $ 5.188 $ 2.000
Fourth Quarter $ 3.438 $ 1.750
The Company has never paid any cash dividends on its Common Shares and
does not anticipate paying cash dividends on its Common Shares in the
foreseeable future and is restricted from doing so under the terms of its
primary credit facility. The Company is a holding company, and the operations of
the Company are conducted through its subsidiaries. Accordingly, the ability of
the Company to pay dividends on its Common Shares is dependent on the earnings
and cash flow of its subsidiaries and the availability of such cash flow to the
Company.
7
<PAGE>
The Company issued the following unregistered shares of its $0.01 par
value common stock in separate transactions related to its acquisitions pursuant
to Section 4(2) of the Securities Act:
March 5, 1998 ISI acquisition, 100,000 shares for consideration of
$1,500,000
March 31, 1998 Cella acquisition, 50,000 shares for consideration of
$750,000
May 31, 1998 AOP acquisition, 33,333 shares for consideration of $499,995
October 12, 1998 Tech Stars acquisition, 10,000 shares for consideration
of $150,000
ITEM 6. SELECTED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated operating statement
and balance sheet data for the periods indicated. The selected consolidated
operating statement and balance sheet data at and for each of the five fiscal
years presented below are derived from the Company's Consolidated Financial
Statements, of which the years ended December 31, 1998, 1997, 1996, 1995 and
1994 have been audited by Rudolph, Palitz LLP, independent accountants. This
data should be read in conjunction with management's discussion and analysis of
financial condition and results of operations and the Company's Consolidated
Financial Statements included herein.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
STATEMENTS OF OPERATIONS 1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(In Thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net revenues $114,498 $ 98,526 $ 82,371 $ 63,299 $ 45,253
Cost of sales (exclusive of items
shown separately below) 78,771 69,164 60,121 47,550 34,146
Selling and operating 23,438 16,256 14,344 9,798 6,509
General and administrative 13,931 8,575 6,047 4,187 3,155
-------- -------- -------- -------- --------
Total costs and expenses 116,140 93,995 80,512 61,535 43,810
-------- -------- -------- -------- --------
Income(loss) before non-recurring
charges (1,642) 4,531 1,859 1,764 1,443
Non-recurring charges (4,021) 0 0 0 0
Interest income (expense), net (252) 72 (876) (670) (427)
Other income (expense) 0 29 4 (27) 7
-------- -------- -------- -------- --------
Income (loss) before income taxes (5,915) 4,632 987 1,067 1,023
Income tax expense (benefit) (798) 1,920 968 588 680
Minority interest income 0 0 (888) (7) 0
-------- -------- -------- -------- --------
Net income (loss) ($ 5,117) $ 2,712 $ 907 $ 486 $ 343
======== ======== ======== ======== ========
Basic and Diluted net income (loss)
per Common Share (1)(2) ($ 0.38) $ 0.21 $ 0.10 $ 0.06 $ 0.04
======== ======== ======== ======== ========
Basic Weighted Average Shares (1) 13,458 12,761 8,473 8,416 8,416
======== ======== ======== ======== ========
Diluted weighted average shares(2) 13,458 12,826 9,114 9,114 8,851
======== ======== ======== ======== ========
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
BALANCE SHEET DATA: 1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Working capital $ 12,213 $ 18,525 $ 8,253 $ 5,567 $ 329
Total assets 47,885 31,934 21,969 11,632 8,017
Notes payable, including current portion(3) 9,882 0 10,161 5,368 2,749
Other long-term obligations, including
current portion 1,996 355 3,105 1,755 2,030
Shareholders' equity (deficiency) 23,081 26,274 1,122 391 (95)
</TABLE>
(1) All per share and share amounts reflect a 52.6 for 1.0 stock split which
occurred in September 1996.
(2) Diluted shares include common stock equivalents and 526,000 Common Shares
issued upon conversion of the Company's Convertible Notes.
(3) Includes line of credit and term loan.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements of the Company and related notes thereto
appearing elsewhere in this Report.
IN ADDITION TO HISTORICAL INFORMATION, THIS ANNUAL REPORT ON FORM 10-K
CONTAINS FORWARD-LOOKING STATEMENTS CONCERNING EVENTS AND CIRCUMSTANCES THAT ARE
SUBJECT TO RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY. FACTORS THAT MIGHT CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE,
BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN THE SECTION ENTITLED "MANAGEMENT'S
DISCUSSION AND ANALYSIS -- FORWARD LOOKING INFORMATION." READERS SHOULD
CAREFULLY REVIEW THE RISKS DESCRIBED IN THIS AND OTHER DOCUMENTS THAT THE
COMPANY FILES FROM TIME TO TIME WITH THE SECURITIES AND EXCHANGE COMMISSION,
INCLUDING THE QUARTERLY REPORTS ON FORM 10-Q TO BE FILED BY THE COMPANY IN 1999.
READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THE FORWARD-LOOKING
STATEMENTS, WHICH SPEAK ONLY TO THE DATE OF THIS ANNUAL REPORT ON FORM 10-K. THE
COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY RELEASE ANY REVISIONS TO THE
FORWARD-LOOKING STATEMENTS OR REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE OF
THIS DOCUMENT.
OVERVIEW
The Company has historically been organized into four operating units: the
Contract Placement business which provides IT and engineering professionals on a
contract basis; the Permanent Placement business which provides IT and
engineering professionals on a permanent basis; the IT Training business which
provides IT training both internally and to clients; and the Information
Management Solutions business which provides document management, document
conversion, networking, imaging and workflow consulting. In 1999 the Company
expects to restructure its operating units into two business segments.
Therefore, segment reporting will follow the new business segments and also
enable financial analysis that more closely tracks its lines of business. The
Company will evaluate its operations by the Staffing business, which will
include Contract Placement, Permanent Placement and IT Training, and by the
Information Management Solutions business for which the Company's goal is to
separate from its operations in the future.
9
<PAGE>
ACQUISITIONS
In 1998, the Company began to implement a strategy to accelerate its
growth through the addition of new services, geographic expansion and strategic
acquisitions. The Company has aggressively pursued this strategy by acquiring
all or substantially all of the business of two Contract Placement firms, one
Permanent Placement firm, and three Information Management Solutions firms. The
table below presents information regarding each of the Company's acquisitions in
1998:
<TABLE>
<CAPTION>
Description Purchase Price (1) Effective Date Business Segment
----------- ------------------ -------------- ----------------
<S> <C> <C> <C>
Asset purchase of Information Systems $6,790,000 in notes, cash, March 5, 1998 Contract Placement
Inc., an IT placement firm in the and Company stock
Detroit, Michigan area
Asset purchase of Cella Associates of $1,529,000 in cash and March 31, 1998 Permanent Placement
Atlanta, Inc., a placement firm with Company stock
offices in Georgia, Connecticut,
Illinois and Texas
Stock purchase of On-Site Solutions, Assumption of $709,000 in May 11, 1998 Information Management
Inc., a company engaged in systems liabilities and $2,170,000 Solutions
integration in Irvine, California area. in cash and Company stock
Asset purchase of AOP Solutions, a $4,543,000 in cash and May 29, 1998 Information Management
company engaged in information Company stock Solutions
management services in Buffalo, New York
Stock purchase of Systems Solutions, $155,000 in cash June 8, 1998 Information Management
Inc. a systems integration company in Solutions
Seattle, Washington area
Asset purchase of Tech Stars, Inc. an IT $1,331,000 in cash, notes October 12, 1998 Contract Placement
placement business with offices in and Company stock
Tennessee and North Carolina
</TABLE>
(1) Includes amounts paid in 1999 based on the business attaining certain
pre-tax income amounts in the period ended December 31, 1998. In the case of one
acquisition the amount of the earnout at December 31, 1998 has been recorded to
reflect management's best estimates as of this date which are subject to change.
Additional payments could occur contingent on certain of the businesses
attaining certain pre-tax income amounts in the year ended December 31, 1999.
See Note 3 in the accompanying financial statements.
NEW OFFICES
In 1998 the Company also opened Contract Placement branch offices in
Raleigh, North Carolina, Jacksonville and Tampa, Florida. Further, the Company
split its Boston Contract Placement office into two regional operations, Boston
and Providence. The Boston regional operation moved into a new facility in
Needham, Massachusetts in 1998. In early 1999, upon expiration of the
Foxborough, Massachusetts lease, the Providence regional operation and the
National Division moved into new facilities in Providence, Rhode Island. The
Company's Permanent Placement business opened an operation in shared space in
the Needham facility of the Contract Placement business. By year end 1998 the
Company had discontinued all services in the New York facility and the Contract
Placement business had ceased its operation in Tampa.
The Company's aggressive expansion in 1998 resulted in additional costs
related to a corresponding increase in the infrastructure to adequately manage
and service the expanded business. Such increase resulted in higher selling and
operating expenses and general and administrative expenses which contributed to
the loss incurred by the Company in 1998. In 1998 the Company incurred a net
loss of $5.1 million, or approximately $0.38 per common share. The primary cause
of the Company's net loss for 1998 was non-recurring charges incurred in
connection with a review of its long-lived assets in accordance with Statement
of Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of".
The Company determined that, due to continuing losses in its Information
Management Solutions and IT Training businesses, the goodwill associated with
the acquisition of those businesses was impaired and the Company wrote the
related assets down accordingly. The Company wrote down $2,914,000 and $707,000
of goodwill in the Information Management Solutions and IT Training businesses,
respectively. In addition, the Company established a reserve of $400,000 for
future lease losses incurred when it discontinued operations in its New York
facility primarily related to the sub-lease of its office space.
10
<PAGE>
CONTRACT PLACEMENT
Revenue in the Company's Contract Placement business is derived from
professional service activities, primarily the placement of skilled IT,
engineering and professional personnel whose work is billed at an hourly rate.
Engagements of the Company's technical consultants typically last from six to
twelve months and the Company bills clients and recognizes revenue on a weekly
basis. Revenues are directly related to the total number of hours billed to
clients and the associated hourly billing rates. Hourly billing rates are
established for each technical consultant based on the technical consultant's
skills, experience and the type of work performed. Revenues in the Company's
Contract Placement business increased from $61.7 million in 1996 to $81.3
million in 1998. Revenues for the year ended December 31, 1998 were $81.3
million, compared to $70.4 million for the prior year period, an increase of
15.5%. Revenue growth has been primarily due to the acquisitions of ISI and Tech
Stars and new offices, which together added $8.9 million, or 82%, of the
increased revenues. Revenues also increased due to higher average billing rates.
The Company believes that the increase in the average billing rates for its
technical consultants has resulted from an increased demand for skilled and
experienced technical consultants and to its intentional focus on making higher
level IT placements. For the year ended December 31, 1998, total hours billed
were 1,485,616, with an average billing rate of $50.69, compared to total hours
billed of 1,500,469 with an average billing rate of $47.13 for the prior year
period. The decrease in total hours billed in 1998 compared with 1997 was due to
a focus of sales efforts on higher margin placements and to a decrease in the
annual billed hours by the Company's National and Regional offices located in
Providence, Rhode Island, and its Regional office located in Needham,
Massachusetts. Such decrease was related to unexpected turnover of sales and
recruiting personnel in those offices in the second half of 1997. Cost of sales
in the Contract Placement business consists primarily of the compensation
expenses related to the consultants, such as salaries, fringe benefits and
payroll taxes. Selling and operating expenses consist primarily of salaries and
fringe benefits for selling representatives, and also include marketing
expenditures and bad debt charges. General and administrative expenses consist
of management and administrative salaries and related fringe benefits, as well
as other overhead, such as rent and depreciation.
PERMANENT PLACEMENT
Revenue in the Company's Permanent Placement business is generated from
one time fees received upon successful placements of engineering and IT
professionals with clients. The standard fee arrangement is 1% of each thousand
dollars of salary, up to a maximum of 33% of the professional's first year
salary. Revenue is recognized upon commencement of the employment, subject to
reversal if employment terminates during a 30 to 90 day guarantee period. The
Permanent Placement business placed 895 professionals with an average placement
fee of $12,320 in 1998, compared to 679 professionals placed with an average
placement fee of $12,450 for the prior year period. The Company has added
resources through its acquisition and office expansion to continue to increase
its placements. No cost of sales is recorded in the Permanent Placement
business.
INFORMATION MANAGEMENT SOLUTIONS
Revenue in the Company's Information Management Solutions business is
derived from the provision of document management, imaging, networking, workflow
and consulting services and related sales of hardware and software. Revenues are
recorded in the period in which services are rendered and merchandise is
shipped; however, when installation is significant to the completion of the
contract, revenue is recognized on a percentage of completion basis. Cost of
sales consists of computer hardware, software and related licensing fees,
salaries and fringe benefits for design, installation and maintenance personnel,
and overhead expenditures allocated to Information Management Solutions
activities.
The Information Management Solutions business currently consists of three
separate corporations: Judge Information Management Solutions (consisting of
three divisions: Document Management Solutions, Imaging Services and AOP
Solutions); On-Site Solutions, Inc.; and System Solutions, Inc. d/b/a
Corebridge.
11
<PAGE>
Due to low operating margins on hardware and software sales a previously
existing division in Judge Information Management Solutions, NT Client Server
and Network Services, was combined with the existing Judge Information
Management Solutions in the latter part of 1998. Although the Company continues
to perform all remaining existing hardware, software and maintenance contracts,
it is no longer focusing on new sales of hardware and software. Beginning in
1988, the Company anticipated the emergence of a market incorporating imaging
and document management technology. It entered this market first as a reseller
of Optika Imaging Systems, Inc. software, and later expanded its product line to
include both high production, high-end systems such as Filenet and low-end
workflow imaging systems such as Watermark, Keyfile and Lotus Notes. More
recently, the Company has devoted substantial resources to expand the
infrastructure of its Document Management and Imaging Services divisions to
support sales growth, including the hiring of numerous consulting, engineering,
sales and administrative personnel since the beginning of 1994. Revenue
attributable to Document Management and Imaging Services division has grown from
$8.7 million at December 31, 1997 to $15.5 million in 1998, representing
approximately 53.0% and 80.3% of the Information Management Services business
total revenue in those periods, respectively. This increase is primarily the
result of revenue from acquisitions made in 1998. The Company's document
management and imaging activities have generated operating losses to date due to
slower than expected market expansion combined with the substantial investment
in infrastructure development. In addition, this business is subject to long
sales cycles which frequently cause sales to cross into future quarters.
The Company currently is focusing on achieving profitability in its
Information Management Services business. The Company made investments in
acquisitions and personnel in 1998 causing selling, operating costs and general
and administration expenses to increase in 1998 compared to 1997. The Company
believes that its investment in infrastructure and personnel could generate
further increases in revenues in this business in the future. The Company has a
goal to separate the Information Management Solutions business by the end of
1999, or as soon as possible, in an effort to maximize shareholder value.
IT TRAINING
The Company's IT Training business was acquired in September 1996. It
provides training in a variety of software and network applications and
generated revenue of $608,000 in the fourth quarter of 1996, $3.2 million, and
$3.0 million in 1997 and 1998 respectively, which represented .7%, 3.2%, and
2.6% of the Company's consolidated net revenues during such periods,
respectively. Tuition and fee revenues are recognized generally when the classes
are held. Payments received prior to the class commencing are recorded as
deferred revenues. The IT Training business provides its services at its
facilities in Bala Cynwyd, Pennsylvania and Alexandria, Virginia and at various
off-site locations. The IT Training business delivers certified training for all
Microsoft products at its locations. The IT Training business provides custom IT
training for clients across all hardware and software platforms, dependent on
the needs and requirements of the client. The IT Training business is an
authorized training center for many major software manufacturers, including
Microsoft, Adobe Systems Incorporated, Quark, Inc., Core Corporation, and Claris
Corporation, and is also an approved Apple Training Alliance Center. The IT
Training business is a Microsoft Solutions Provider and Certified Technical
Education Center. The Company's diploma programs in Desktop Publishing, Business
Software, Multimedia and Internet are licensed and accredited by the
Pennsylvania Board of Private Licensed Schools and are approved for veteran's
education by the U.S. Veteran's Administration. The IT Training business
frequently conducts its courses at the in-house facilities of its corporate
clients and has the ability to provide the necessary computer equipment at
conference centers, hotels and other off-site locations as requested by its
clients.
BUSINESS STRATEGY
In 1998 the Company implemented a focused strategic planning and budgeting
process resulting in a 1999 internal operating plan that attempts to increase
revenues approximately 50%, while controlling costs, and return the Company to
profitability. However, this plan is subject to many factors and contingencies,
and the Company may not be able to realize this goal. A part of the increase in
revenues includes anticipated full year results of the businesses acquired in
the first and second quarter of 1998, as well as increased revenues generated by
planned expansion of the sales and recruiting staffs in the Contract Placement
and Permanent Placement businesses. The internal operating plan more closely
ties management's compensation to its ability to meet revenue and profit goals.
If the Company is able to achieve its internal operating plan, which relies upon
certain assumptions including, but not limited to, its ability to increase sales
and recruiting staffs in the Contract Placement and Permanent Placement
businesses, to achieve profitability in the Information Management Solutions
business through concentration on higher margin business, and to maintain
stricter cost controls in all of its operating units, the Company believes it
can achieve operating income of approximately 6% of revenues. Failure to achieve
the aforementioned assumptions as well as other factors could prevent the
Company from achieving these goals in 1999. See "Forward Looking Information"
herein for additional factors which could materially alter the Company's ability
to meet its operational goals in 1999.
12
<PAGE>
The following table presents the net revenue (net of intercompany
eliminations) as a percentage of consolidated net revenues and the income (loss)
before non-recurring charges attributable to each of the Company's businesses as
a percentage of each business' respective revenues and in dollars for the
periods indicated.
<TABLE>
<CAPTION>
(UNAUDITED) YEARS ENDED DECEMBER 31,
1998 1997 1996
---- ---- ----
Net Revenues: (Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Permanent Placement $ 10,987 9.6% $ 8,576 8.7% $ 5,871 7.1%
Contract Placement 81,276 70.9% 70,357 71.4% 61,735 75.0%
Information Management Services 19,280 16.9% 16,442 16.7% 14,157 17.2%
IT Training 2,955 2.6% 3,151 3.2% 608 0.7%
-------- ----- -------- ----- -------- -----
Consolidated Net Revenues $114,498 100.0% $ 98,526 100.0% $82,371 100.0%
======== ===== ======== ===== ======== =====
Income (loss) Before Non-recurring Charges:
Permanent Placement $ 834 7.6% $ 1,576 18.4% $ 779 13.3%
===== ===== =====
Contract Placement 4,396 5.4% 6,760 9.6% 4,051 6.6%
===== ===== =====
Information Management Services (3,031) (15.7%) (1,623) (9.9%) (1,394) (9.8)%
===== ===== =====
IT Training (944) (31.9%) 141 4.5% (25) (4.1)%
===== ===== =====
Corporate Overhead Expense (2,897) N/A (2,323) N/A (1,552) N/A
-------- ===== ------- ===== ------- =====
Consolidated Income (loss) Before Non-recurring
Charges ($ 1,642) (1.4%) $ 4,531 4.6% $ 1,859 2.3%
======== ===== ======= ===== ======= =====
</TABLE>
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>
YEARS ENDED DECEMBER 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net Revenues 100.0% 100.0% 100.0%
----- ----- -----
Cost of Sales (Exclusive of items shown separately below) 68.8% 71.4% 73.0%
Selling and Operating 20.5% 15.6% 17.4%
General and Administrative 12.1% 8.4% 7.3%
----- ----- -----
Total Costs and Expenses 101.4% 95.4% 97.7%
----- ----- -----
Income (Loss) before Non-recurring Charges and Other Items (1.4%) 4.6% 2.3%
Non-recurring Charges (3.5%) 0.0% 0.0%
Other income (expense), net (0.2%) 0.1% (1.1%)
----- ----- -----
Income (Loss) Before Income Taxes (5.1%) 4.7% 1.2%
===== ===== =====
</TABLE>
13
<PAGE>
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Net Revenues. Consolidated net revenues increased by 16.2%, or $16.0 million,
for the year ended December 31, 1998 compared to the prior year period. Revenue
for the Contract Placement business increased by 15.5%, or $10.9 million, for
the year ended December 31, 1998 compared to the prior year period. This
increase was primarily due to an increase in revenue of $8.9 million
attributable to acquisitions and new offices. Revenue for the Permanent
Placement business increased by 28.1%, or $2.4 million, for the year ended
December 31, 1998 compared to the prior year period. Of such increase $1.5
million was attributable to its acquisition and new offices, and the remainder
was due to increased marketing efforts in its established offices, primarily the
New Jersey office which contributed $0.9 million in increased revenues, a 64%
increase over the prior year period. Revenue for the Information Management
Solutions business increased by 17.3%, or $2.8 million, for the year ended
December 31, 1998 compared to the prior year period. Businesses acquired in 1998
contributed $7.5 million to revenues, while revenues from established offices
decreased by $4.7 million over the prior year period. Such decrease was due in
part to the Company's decision to exit the hardware resale market which
represent high revenues but low margins, and to a change in the sales management
in the New England area that temporarily depressed revenues. The IT Training
business generated net revenues of $3.0 million, a decrease of $196,000 from the
prior year period.
Cost of Sales. Consolidated cost of sales increased by 13.9%, or $9.6 million,
for the year ended December 31, 1998 compared to the prior year period. Cost of
sales as a percentage of consolidated net revenues decreased to 68.8% from
71.4%. In the Company's Information Management Solutions business, cost of sales
as a percentage of revenue decreased to 75.0% from 77.1%, primarily as a result
of an increased focus on providing services that yield higher margins than
traditional hardware and software sales. In the Company's Contract Placement
business, cost of sales as a percentage of revenue decreased to 77.4% from
78.1%. This decrease was primarily 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, the expenses for which
are not included in cost of sales, but are included in other expense categories.
The IT Training business contributed an additional $1.7 million of expenses
included in cost of sales, an increase of $233,000 over the prior year period.
Selling and Operating. Consolidated selling and operating expenses increased by
44.2%, or $7.2 million, for the year ended December 31, 1998 compared to the
prior year period. Of such increase $4.3 million of expenses is attributable to
acquisitions and new offices. Selling and operating expenses as a percentage of
consolidated net revenues for the year ended December 31, 1998 increased to
20.5% from 15.6% in the prior year. Contributing to this increase was an
increase in selling and operating expenses of 42.3%, or $1.4 million, in the
Information Management Solutions business due primarily to the expansion of its
sales force, $875,000 of which is attributable to the businesses acquired in
1998. In the Contract Placement business selling and operating expenses
increased $3.3 million, or 53.6%, over the prior year period, of which $2.0
million was attributable to acquisitions and new offices. The Permanent
Placement business increased selling and operating expenses $2.2 million, or
38.2%, over the prior year period, of which $1.4 million was attributable to its
acquisition and new offices. The IT Training business contributed $1.0 million
to selling and operating expenses, an increase of $.2 million, or 21.4%, over
the prior year period.
General and Administrative. Consolidated general and administrative expenses
increased 62.5%, or $5.4 million, for the period ending December 31, 1998
compared to the prior year period, of which $2.5 million was attributable to
acquisitions and new offices. Amortization of goodwill added $.7 million to
general and administrative expenses, an increase of $.4 million over the prior
year period, primarily associated with the acquisitions in 1998. General and
administrative expenses as a percentage of consolidated net revenues increased
to 12.1% for the year ended December 31, 1998 compared to 8.4% for the prior
year period. Contributing to this increase was an increase of 76.1%, or $2.0
million, in the Contract Placement business, primarily consisting of a $1.3
million increase in costs associated with acquisitions and new offices. In the
Permanent Placement business general and administrative expenses increased $.9
million, or 77.3%, of which $.5 million was attributable to its acquisition and
new offices. The Information Management Solutions business increased general and
administrative expenses 50.8%, or $1.2 million, of which $.7 million was
attributable to its acquisitions. The IT Training business increased general and
administrative expenses 38.6%, or $.3 million, over the prior year period.
Expansion of the Company's corporate staff, specifically the hiring of
additional management information systems personnel, human resources personnel
and accounting personnel increased payroll costs by $278,000 over the prior year
period. Such expansion was necessary to manage the increased level of business
resulting from the acquisitions and new offices.
14
<PAGE>
Interest. Interest expense increased to $346,000, at December 31, 1998 from
$212,000 at December 31, 1997 while interest income decreased to $94,000 at
December 31, 1998 from $313,000 at December 31, 1997. This increase in interest
expense and decrease in interest income reflects the Company's utilization of
the proceeds from its initial public offering in 1997 for its expanded
operations, and the need to use its line of credit to fund acquisitions and
working capital.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Net Revenues. Consolidated net revenues increased by 19.6%, or $16.2 million,
for the year ended December 31, 1997 compared to the prior year period. Revenue
for the Contract Placement business increased by 14.0%, or $8.6 million, for the
year ended December 31, 1997 compared to the prior year period. The Bala Cynwyd,
Pennsylvania and Edison, New Jersey offices contributed $4.5 million and $2.8
million, respectively, or 85%, of this revenue increase. The Company attributes
revenue growth in its Contract Placement business to a combination of higher
average bill rates and its focus on making higher level IT placements. Revenue
for the Permanent Placement business increased by 46.1%, or $2.7 million, for
the year ended December 31, 1997 compared to the prior year period. Contributing
to this increase was revenue of $1.1 million attributable to the Bala Cynwyd,
Pennsylvania office, $800,000 attributable to the Edison, New Jersey office and
$700,000 attributable to the Tampa, Florida office. The Company attributes this
revenue growth to the strong market demand for IT and engineering professionals,
the quality of its candidates, a 33% increase in the number of recruiters in
1997 compared with 1996 and greater placement productivity per recruiter.
Revenue for the Information Management Services business increased by 16.1%, or
$2.3 million, for the year ended December 31, 1997 compared to the prior year
period. Of this increase, $2.8 million was attributable to the Document
Management and Imaging Systems Division offset by a decrease in revenue of
$500,000 from the NT Client Server and Network Services division. The IT
Training business, acquired in September 1996, generated net revenue of $3.2
million in fiscal 1997, an increase of $2.5 million compared to $608,000 in the
fourth quarter of fiscal 1996.
Cost of Sales. Consolidated cost of sales increased by 16.9%, or $10.2 million,
for the year ended December 31, 1997 compared to the prior year period. Cost of
sales as a percentage of consolidated net revenues decreased to 71.4% from
73.0%. In the Company's Contract Placement business, cost of sales as a
percentage of revenue decreased to 78.1% from 79.4%. This decrease was primarily
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 a significant increase in revenue for the
Permanent Placement business which has no cost of sales. Offsetting this
favorable result was an increase in the cost of sales as a percentage of
revenues to 77.1% as of December 31, 1997 from 75.1% as of December 31, 1996 for
the Company's Information Management Services business. This result was
primarily the result of the two contracts received in the second quarter of 1997
which contributed a 1.2 percentage point increase in costs of sales for fiscal
1997 compared to fiscal 1996. The balance of the increase in costs of sales as a
percentage of revenue for this business unit was due to an increase in costs
related to network services sales, which sales were composed largely of high
cost/low margin hardware and software. The IT Training business contributed an
additional $2.6 million of expenses, compared to $520,000 in 1996 when only its
operations during the fourth quarter were consolidated by the Company in 1996.
Selling and Operating. Consolidated selling and operating expenses increased by
7.3%, or $1.1 million, for the year ended December 31, 1997 compared to the
prior year period. Selling and operating expenses as a percentage of
consolidated net revenues for the year ended December 31, 1997 decreased to
15.6% from 17.4% in the prior year period. Selling and operating expenses as a
percentage of revenues for the Contract Placement business decreased to 8.6%
from 10.5% for fiscal 1997 compared to the prior year period. This decrease was
attributable to a lower number of sales and recruiting personnel in 1997
compared to 1996. It was also attributable to a decrease of approximately
$930,000 in the bad debt expense for the business in fiscal 1997 compared to the
prior year period, which was due to the increased efforts of a credit and
collections manager. Selling and operating expenses as a percentage of revenues
for the Permanent Placement business decreased to 70.2% from 74.6% for fiscal
1997 compared to the prior year period. This decrease occurred even though the
number of sales recruiters increased to 48 at the end of 1997 compared to 36 at
the end of 1996. This favorable result reflects management's efforts to increase
sales while controlling overhead costs. Selling and operating expense as a
percentage of revenue in the Information Management Services business decreased
to 19.5% from 23.0% for fiscal 1997 compared to the prior year period. This
result was primarily due to a reduction of sales personnel in the first quarter
of 1997.
15
<PAGE>
General and Administrative. Consolidated general and administrative expenses
increased 37.2%, or $2.3 million, for the period ending December 31, 1997
compared to the prior year period. General and administrative expenses as a
percentage of consolidated net revenues increased to 8.4% from 7.3% for the
period ending December 31, 1997 compared to the prior year period. Contributing
to this increase was $651,000 of personnel and related administrative expenses
in the Information Management Services business, primarily due to the
acquisition of the imaging and document management company in 1996 and costs
related to opening an office in New York City in August 1997. Expansion of the
Company's corporate staff, specifically management information systems,
accounting, legal and human resources personnel hired in 1997, increased
corporate overhead by $404,000 for the period ending December 31, 1997 compared
to the prior year period. In addition, the amortization of goodwill related to
the two acquisitions in September 1996 and the merger of Judge Imaging Systems
with the Company in February 1997 increased corporate overhead costs by $280,000
in the year ended December 31, 1997 compared to the prior year period. As a
result of the acquisitions and increased office space in the Edison, New Jersey
office, rent and utilities expense increased by approximately $565,000 for the
period ending December 31, 1997 compared to the prior year period. The IT
Training business, which was acquired in September of 1996, incurred general and
administrative expenses for fiscal 1997 of approximately $474,000, or 14.8% of
that business' revenues.
Interest. Interest expense was $212,000 and $876,000 for the year ended December
31, 1997 and 1996, respectively. Interest income was $313,000 and $0 for the
year ended December 31, 1997 and 1996, respectively. This decrease in interest
expense and increase in interest income is attributable to the Company's
repayment of its debt following the Offering and the interest earned on the
unused portion of the Offering proceeds.
INCOME TAXES
The Company adopted the Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes," as of January 1, 1993. In 1998, due to its
operating loss, the Company recorded an income tax benefit of $798,000, or 13.5%
of its pre-tax loss. Such benefit is lower than the statutory tax rate of 34%
due primarily to the Company's inability to record a tax benefit from most of
the non-recurring charges under current tax laws. The effective tax rate was
41.4%, and 98.1% for fiscal years 1997 and 1996, respectively. The effective tax
rates for 1997 and 1996 are higher than the applicable statutory tax rate of
34%, primarily due to the Company's state tax liabilities and the net operating
losses incurred in the Information Management Solutions business, which business
was consolidated for financial but not for tax reporting purposes in 1996 and
for the period January 1, 1997 through February 20, 1997. However, since the
Company's merger with JIS (which includes the Information Management Solutions
business) on February 20, 1997, this business unit is now consolidated for tax
purposes.
SEASONALITY AND QUARTERLY RESULTS OF OPERATIONS
The following table presents certain unaudited quarterly statements of
operations data for each of the Company's last eight fiscal quarters. In the
opinion of the Company's management, this quarterly information has been
prepared on the same basis as the audited financial statements appearing
elsewhere in this Report and includes all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the unaudited quarterly
results set forth herein. The Company's quarterly results have in the past been
subject to fluctuations, and thus, the operating results for any quarter are not
necessarily indicative of results for any future period.
16
<PAGE>
<TABLE>
<CAPTION>
Mar. 31, Jun. 30, Sept. 30, Dec. 31, Mar. 31, Jun. 30, Sept. 30, Dec. 31,
(Dollars in thousands) 1997 1997 1997 1997 1998 1998 1998 1998
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Revenues $ 23,478 $ 26,062 $ 25,319 $ 23,667 $ 25,090 $ 27,776 $ 30,360 $ 31,272
Cost of Sales (exclusive
of items shown separately
below) 17,385 18,736 17,759 16,083 17,420 18,402 21,447 21,502
Selling and Operating 4,230 3,901 3,627 3,879 4,478 5,334 6,375 7,251
General and Administrative 1,982 1,938 2,038 2,436 2,598 3,188 3,884 4,261
-------- -------- -------- -------- -------- -------- -------- --------
Total Costs and Expenses 23,597 24,575 23,424 22,398 24,496 26,924 31,706 33,014
Income (Loss) Before
Non-recurring Charges and
Other Items (119) 1,487 1,895 1,269 594 852 (1,346) (1,741)
Non-recurring Charges 0 0 0 0 0 0 0 (4,021)
Interest Income (Expense)
and Other, Net (128) 75 62 91 62 (10) (132) (172)
-------- -------- -------- -------- -------- -------- -------- --------
Income (Loss) Before
Income Taxes ($ 247) $ 1,562 $ 1,957 $ 1,360 $ 656 $ 842 ($ 1,478) ($ 5,935)
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
Because the Company only derives revenue in its Contract Placement
business when its consultants are actually working, its revenues and operating
results are adversely affected when its clients' facilities close due to
holidays or inclement weather. During the quarters ended December 31, 1997 and
1998, the number of holidays and vacation days slightly affected revenues in the
Contract Placement business. In addition, the Company's Contract Placement
business experienced higher than expected turnover of recruiting and sales
personnel in the third and fourth quarters of 1997. The effect of this turnover,
as well as lower than expected revenues in the Information Management Solutions
business, was the primary cause of the decrease in revenues on a
quarter-to-quarter basis in the second half of 1997.
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, however, the funds available for working
capital purposes 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
acquisitions and working capital. In June 1998 the Company began using its line
of credit to fund the cost of its acquisitions and for working capital, and as
of December 31, 1998, $9.9 million was owing on the line. The Company typically
maintains minimal cash balances as reflected in the balance of $44,000 in cash
and cash equivalents as of December 31, 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 used cash in operations of $6,000, $2.4 million, and $4.0
million in 1998, 1997 and 1996, respectively. This result is primarily
attributable to the Company's net loss for 1998 which was partly offset by
non-cash non-recurring charges and depreciation and amortization. In addition,
the redemption of short term investments noted above was offset by a
corresponding increase in accounts receivable related to increased sales. As
discussed in Note 3 in the accompanying 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 December 31, 1998 the Company would have to make a cash payment at least
equal to the amount reflected as "Other Liabilities" on its balance sheet to
meet that condition. Additionally as discussed in Note 3 in the accompanying
condensed consolidated financial statements the Company is obligated to make
cash payments in 1999 based on certain of the businesses acquired having
attained specified pre-tax income amounts in 1998. The Company has determined
that additional payments under the terms of its various purchase agreements will
total approximately $4.0 million in the first and second quarters of 1999.
However, the Company is still holding discussions with one seller and that
seller's accountants and the amounts may change. The Company intends to use its
line of credit, as well as any other sources of funding that may become
available to it, to fund these payments. The Company is currently negotiating
with its bank for additional credit availability based on the sale of certain of
its fixed assets. However, no assurances can be given that the Company will be
able to successfully negotiate new credit on terms acceptable to the Company.
17
<PAGE>
Cash purchases of fixed assets for the fiscal years ended December 31,
1998, 1997, and 1996 were $2.8 million, $1.6 million, and $600,000,
respectively. These purchases were related primarily to the purchases of
computers, software, and imaging equipment to upgrade the Company's technology
infrastructure, as well as the furnishing of its new office facilities. The
Company plans to use approximately $1.5 million for capital expenditures in
1999. In 1998 the Company used $9.2 million to complete acquisitions and an
additional $495,000 to repay indebtedness assumed in several of its
acquisitions. 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.
During 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 of notes payable
at the completion of the initial public offering.
The Company currently has available a $25.0 million revolving advance
facility (the "Line of Credit") with PNC Bank, N.A. (the "Bank") 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 December
31, 1998 the Company had $9.9 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 Offering Rate ("LIBOR"). At December 31,
1998 the Company was in violation of the following financial covenants: total
allowed capital expenditures by the Company, and fixed charge coverage ratio.
The Bank has agreed to waive these violations and to modify the covenants for
future periods.
The Company anticipates that its primary uses of capital in future periods
will be to fund increases in accounts receivable and fund internal growth
through new office locations. The Company believes that the borrowings under the
Line of Credit, or other credit facilities which may be available to the Company
in the future, will be sufficient to meet the Company's capital needs for at
least the next twelve months.
INFLATION
The Company does not believe that the rates of inflation prevailing in the
United States in recent years have had a significant effect on its operations.
"YEAR 2000" ISSUES
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 with whom the
Company communicates.
The Company has received assurance from its vendor that its recently
implemented financial information system is "Year 2000" compliant. Further, the
Company is currently in the process of replacing its two candidate and client
databases utilized in its Contract Placement and Permanent Placement business
with software systems that are represented by the vendor 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. Although 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.
18
<PAGE>
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, and in oral statements by the
Company 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 shareholders, 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.
Acquisition Risks A 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; (iv) difficulties and higher than expected costs
related to the integration of the acquired business; and (v) dilution of
existing shareholders. 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.
19
<PAGE>
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, sales, recruiting, financial and other
resources. Specifically, such growth will require the Company to: (i) hire,
integrate and retain qualified managers, recruiters and sales personnel 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; (iii) maintain cost controls
in all of the Company's businesses; and (iv) 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
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.
History of Operating Losses in Information Management Services Business
The Company's Information Management Solutions business has had net operating
losses since its commencement in 1988, experienced a loss before non-recurring
charges of approximately $3.0 million for the year ended December 31, 1998, and
at December 31, 1998 had an accumulated deficit of $7.6 million. The losses have
resulted from high marketing and general and administrative costs associated
with building the business' infrastructure and technical service capabilities,
combined with historically low profit margins related to the hardware component
of the former NT Client Server and Network Services division and a slower
emergence of the document management, document conversion and imaging markets
than anticipated by the Company. Specifically, the costs associated with
building this business's Document Management and Imaging Services divisions
service capabilities have included the hiring of sales and technical personnel,
and the costs associated with the acquisition and integration of three imaging
and document management companies. The Company is currently focusing on
achieving profitability in its Information Management Solutions business by
expanding it through internal growth, and new service offerings and
acquisitions, but cannot provide any assurances as to when it will achieve
profitability, if at all. The Company has announced its intention to separate
the Information Management Solutions business by the end of 1999, and as soon as
possible to maximize shareholder value. If the Company is not successful in
separating the Information Management Solutions business before the end of 1999,
or on the terms and conditions that the Company presently anticipates, there may
be additional adverse effects on the Company's results of operations or
financial condition. There can be no assurance that the Information Management
Solutions business can be separated on terms acceptable to the Company, in which
case there could be a material adverse effect on the Company.
Dependence on Contract Placement Business The Company's Contract Placement
business was responsible for 75.0%, 71.4% and 70.9% of total Company revenues
for the years ended December 31, 1996, 1997 and 1998, respectively. In addition,
for the year ended 1998, one customer of the Contract Placement business, Merck
& Company, Inc., accounted for approximately 6.0% of total Contract Placement
revenues, and 4.3% of total Company revenues. 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, to apply
its management practices to a significantly larger organization and to
consummate acquisitions of and to successfully integrate profitable staffing
companies. The inability of the Company to successfully manage these factors
would have a material adverse effect on the revenues of the Contract Placement
business. 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.
20
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
THE JUDGE GROUP, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C>
INDEPENDENT AUDITORS' REPORT 22
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1998 AND 1997 23
CONSOLIDATED STATEMENTS OF OPERATIONS FOR YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 24
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 25
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 27 - 41
</TABLE>
21
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
The Judge Group, Inc.
Bala Cynwyd, Pennsylvania
We have audited the accompanying consolidated balance sheets of The Judge Group,
Inc. and Subsidiaries as of December 31, 1998 and December 31, 1997, and the
related consolidated statements of operations, shareholders' equity, and of cash
flows for each of the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The Judge Group,
Inc. and Subsidiaries as of December 31, 1998 and December 31, 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.
RUDOLPH PALITZ, LLP
February 27, 1999
Blue Bell, PA
22
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 43,568 $ 1,684,482
Short-term investments --- 5,500,000
Accounts receivable, net 21,767,995 14,415,926
Inventories 1,185,302 1,468,902
Prepaid income taxes and deferred taxes 1,909,919 286,000
Other 977,295 712,416
----------- -----------
TOTAL CURRENT ASSETS 25,884,079 24,067,726
----------- -----------
PROPERTY AND EQUIPMENT 8,166,048 5,007,416
Less: accumulated depreciation and amortization 3,220,212 2,121,034
----------- -----------
NET PROPERTY AND EQUIPMENT 4,945,836 2,886,382
----------- -----------
OTHER ASSETS
Deposits and other 716,634 275,608
Covenant not to compete, net of accumulated amortization of $37,490, 1998 52,486 ---
Goodwill, net of accumulated amortization of $4,731,788, 1998 and $405,944, 1997 16,286,392 4,703,855
----------- -----------
TOTAL OTHER ASSETS 17,055,512 4,979,463
----------- -----------
TOTAL ASSETS $47,885,427 $31,933,571
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 743,677 $ 237,721
Accounts payable and accrued expenses 8,679,519 3,647,048
Payroll and sales taxes 576,562 437,788
Income taxes payable --- 291,515
Other liabilities 2,634,954 ---
Deferred revenue 1,035,558 928,324
----------- -----------
TOTAL CURRENT LIABILITIES 13,670,270 5,542,396
----------- -----------
LONG-TERM LIABILITIES
Note payable, bank 9,881,595 ---
Deferred rent obligation 666,879 116,879
Debt obligations, net of current portion 585,490 ---
----------- -----------
TOTAL LONG-TERM LIABILITIES 11,133,964 116,879
----------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, $.01 par value, 50,000,000 shares authorized; at December 31,
1998, 13,541,302 shares issued and 13,501,302 shares outstanding; at
December 31, 1997, 13,347,969 shares issued and outstanding 135,412 133,479
Preferred stock, at December 31, 1998 and 1997, $.01 par value, 10,000,000
shares authorized --- ---
Additional paid-in capital 24,900,474 22,758,517
Retained earnings (deficit) (1,734,693) 3,382,300
----------- -----------
23,301,193 26,274,296
Less: Treasury Stock, 40,000 shares at December 31, 1998; at cost 220,000 ---
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 23,081,193 26,274,296
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $47,885,427 $31,933,571
=========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
23
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
NET REVENUES $ 114,498,397 $ 98,526,467 $ 82,371,065
------------- ------------ ------------
COSTS AND EXPENSES
Cost of sales (exclusive of items shown separately below) 78,770,638 69,164,039 60,121,123
Selling and operating 23,438,309 16,256,445 14,343,682
General and administrative 13,931,394 8,574,811 6,046,841
------------- ------------ ------------
Total costs and expenses 116,140,341 93,995,295 80,511,646
------------- ------------ ------------
INCOME (LOSS) BEFORE NON-RECURRING CHARGES (1,641,944) 4,531,172 1,859,419
NON-RECURRING CHARGES (Note 2) (4,021,099) --- ---
OTHER INCOME (EXPENSE), NET, PRINCIPALLY NET INTEREST (251,726) 100,586 (872,578)
------------- ------------ ------------
INCOME (LOSS) BEFORE INCOME TAX EXPENSE (BENEFIT) AND MINORITY
INTEREST IN NET LOSS OF CONSOLIDATED SUBSIDIARY (5,914,769) 4,631,758 986,841
INCOME TAX EXPENSE (BENEFIT) (797,776) 1,919,818 967,898
------------- ------------ ------------
INCOME (LOSS) BEFORE MINORITY INTEREST IN NET LOSS OF
CONSOLIDATED SUBSIDIARY (5,116,993) 2,711,940 18,943
MINORITY INTEREST IN NET LOSS OF CONSOLIDATED SUBSIDIARY --- --- 888,000
------------- ------------ ------------
NET INCOME (LOSS) ($5,116,993) $ 2,711,940 $ 906,943
============= ============ === =========
NET INCOME (LOSS) PER SHARE:
BASIC ($ 0.38) $ 0.21 $ 0.10
======= ====== ======
DILUTED ($ 0.38) $ 0.21 $ 0.10
======== ====== ======
WEIGHTED AVERAGE SHARES USED IN NET INCOME (LOSS) PER SHARE
CALCULATIONS:
BASIC 13,458,000 12,761,000 8,473,000
========== ========== =========
DILUTED 13,458,000 12,826,000 9,114,000
========== ========== =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
24
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
Common Stock Additional Retained
-------------------- Paid In Earnings Treasury
Shares Amount Capital (Deficit) Stock Total
------ ------ ------- -------- ----- -----
<S> <C> <C> <C> C> <C> <C>
Balance, January 1, 1996 160,000 $ 800 $ 626,848 ($ 236,583) --- $ 391,065
Merger transactions --- --- (175,910) --- --- (175,910)
Stock split, 52.6 for 1.0 8,256,000 83,360 (83,360) --- --- ---
Exercise of Warrants 171,739 1,717 (1,701) --- --- 16
Net Income --- --- --- 906,943 --- 906,943
--------- --------- ----------- ----------- --------- -----------
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 19,181,802 --- --- 19,211,802
Conversion of Debentures 526,000 5,260 494,740 --- --- 500,000
Conversion of Notes Payable 40,000 400 299,600 --- --- 300,000
Net Income --- --- --- 2,711,940 --- 2,711,940
--------- --------- ----------- ----------- --------- -----------
Balance, December 31, 1997 13,347,969 133,479 22,758,517 3,382,300 --- 26,274,296
Acquisition Transactions 193,333 1,933 2,141,957 --- --- 2,143,890
Purchase of Treasury Stock --- --- --- --- (220,000) (220,000)
Net (Loss) --- --- --- (5,116,993) --- (5,116,993)
--------- --------- ----------- ----------- --------- -----------
Balance, December 31, 1998 13,541,302 $ 135,412 $24,900,474 ($ 1,734,693) ($ 220,000) $23,081,193
========== ========= =========== =========== ========= ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
25
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) ($ 5,116,993) $ 2,711,940 $ 906,943
Adjustments to reconcile net income (loss) to net cash used
in operating activities:
Depreciation and amortization 1,847,586 996,240 608,248
Impairment of goodwill 3,621,099 --- ---
Provision for losses on lease 400,000 --- ---
Deferred taxes (539,000) 11,000 (67,000)
Deferred rent 150,000 (13,523) (26,541)
Provision for losses (recoveries) on accounts receivable 439,810 (35,521) 781,327
Stock compensation --- 29,250 ---
Minority interest in net loss of consolidated subsidiary --- --- (888,000)
Changes in operating assets and liabilities:
(Increase) decrease in:
Short-term investments 5,500,000 (5,500,000) ---
Accounts receivable (5,603,390) (983,910) (4,592,756)
Inventories 755,620 (558,581) (276,746)
Deposits and other (387,434) (175,764) (123,826)
Prepaid income taxes (1,044,919) 43,603 122,060
Other current assets (195,841) 707,342 (947,122)
Increase (decrease) in:
Accounts payable and accrued expenses 558,541 736,779 365,321
Payroll and sales taxes 63,000 (289,330) (29,776)
Deferred revenue (162,675) (240,010) 21,738
Income taxes payable (291,515) 164,977 119,570
----------- ----------- ---------
Net cash used in operating activities (6,111) (2,395,508) (4,026,560)
----------- ----------- ---------
INVESTING ACTIVITIES
Purchases of property and equipment (2,835,339) (1,616,249) (638,503)
Purchase/acquisition of companies (9,159,407) --- (554,448)
Proceeds from disposals of property and equipment --- --- 3,750
Covenant not to compete (89,976) --- ---
(Increase) decrease in notes receivable, officers
and employees, net --- 577,287 (202,527)
----------- ----------- ---------
Net cash used in investing activities (12,084,722) (1,038,962) (1,391,728)
----------- ----------- ---------
FINANCING ACTIVITIES
Cash acquired in business combination 283,300 --- 150,701
Proceeds from (repayments of) notes payable, bank, net 9,881,595 (9,960,795) 4,843,279
Proceeds (repayments) of bank overdrafts 1,585,154 (1,858,000) 520,000
Principal payments on long-term debt (1,080,130) (2,283,262) (869,672)
Purchase of treasury stock (220,000) --- ---
Proceeds from issuance of stock and exercise of warrants --- 19,211,802 16
Repayments from shareholders --- (95,862) (44,045)
Issuance of Series A Preferred Shares, net of costs --- --- 888,000
----------- ----------- ---------
Net cash provided by financing activities 10,449,919 5,013,883 5,488,279
----------- ----------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,640,914) 1,579,413 69,991
CASH AND CASH EQUIVALENTS, BEGINNING 1,684,482 105,069 35,078
----------- ----------- ---------
CASH AND CASH EQUIVALENTS, ENDING $ 43,568 $ 1,684,482 $ 105,069
=========== =========== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 321,000 $ 306,000 $ 842,000
=========== =========== =========
Income taxes $ 1,140,000 $ 1,784,000 $ 819,000
=========== =========== =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
26
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
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 Solutions" business (see Note 13) and (iii) information
technology training (through its "IT Training" business) on a range of software
and network applications to corporate, governmental and individual clients. At
December 31, 1998, the Company, headquartered in Bala Cynwyd, Pennsylvania,
operated regional offices in sixteen 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 Solutions business of the Company 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.
On September 4, 1996, The Boards of Directors of the Company and JIS
approved the merger of JIS into a newly-formed, wholly-owned subsidiary of the
Company (the "Merger"). The terms of the Merger called for the conversion of
each share of JIS common stock (not already owned by the Company) and Series A
preferred stock into $2.50 of value based on the public offering price of The
Judge Group, Inc. common stock. Based upon the offering price of $7.50 per
share, the Company issued 1,194,230 shares of The Judge Group, Inc. common stock
to the shareholders of JIS at the closing of its initial public offering in
1997. In accordance with Accounting Principles Board Opinion No. 16 and related
literature, the acquisition by the Company in the Merger of the majority of the
shares of JIS, which were owned by the Company, Martin E. Judge, Jr. or other
owners of the Company securities, was accounted for as a corporate
reorganization of entities under common control, at historical cost, similar to
pooling accounting. However, the acquisition by the Company in the Merger of the
remaining JIS shares (the "Minority Shares") was accounted for in accordance
with "purchase accounting" whereby the pro rata portion of JIS's assets and
liabilities were recorded at their fair values. The excess of the value of the
Company shares issued in exchange for the Minority Shares over the fair value of
the net assets attributable to the minority interest was recorded as goodwill.
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. Effective
February 20, 1997 the Company successfully completed its initial public offering
of common shares. 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
27
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 1. DESCRIPTION OF BUSINESS -- (Continued)
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.
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.
Revenue Recognition in Contract Placement and Permanent Placement
Businesses. The Company recognizes permanent placement revenues at the date
employment of the placed professional commences, subject to reversal and
adjustments if such employment is terminated during a guarantee period. Revenues
related to temporary placement services are recognized on a weekly basis as the
services are performed.
Revenue Recognition in Information Management Services Business. Revenues
from the sales of network, imaging and document management systems is recognized
at the date of shipment of the system, provided that any work to complete
installation of the system is routine in nature and related costs, which are
accrued at the time revenue is recognized, are not significant. However, in
instances in which installation and development costs are significant to the
completion of the contract, revenue is recognized on a percentage-of-completion
basis. Revenues recorded on a percentage-of-completion basis are based upon
management's estimates for which it is reasonably possible that such estimates
may change in the near term. Revenues billed in advance for computer sales,
warranties and maintenance contracts are deferred and recorded as income in the
period in which the merchandise is shipped or the services are rendered.
Deferred revenues in the accompanying consolidated balance sheets as of December
31, 1998 and 1997 includes approximately $190,000 and $184,000, respectively, of
billings in excess of costs and estimated earnings on contracts-in-progress.
Revenue Recognition in IT Training Business. Tuition and fee revenues are
recognized generally when the classes are held. Payments received prior to the
class commencing are recorded as deferred revenues.
Cash and Cash Equivalents. Cash and cash equivalents consist of cash in
bank and other short-term investments with original maturities of three months
or less.
The Company maintains cash balances at financial institutions. These
balances are insured by the Federal Deposit Insurance Corporation up to $100,000
at each institution.
Short-Term Investments. The Company records short-term (trading)
investments at fair market value which generally equals the cost of such
investments. These securities represent investments in municipal mutual funds
($1 par value) and/or investments in municipal bonds with floating interest
rates and which allow the Company to redeem its investment on a weekly basis at
its original cost plus accrued interest. There were no realized gains or losses
on these investments in 1998 or 1997.
28
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
Inventories. Inventories of computer and related supplies and equipment
held for resale are valued at the lower of cost (first-in, first-out) or market.
Inventories at December 31, 1998 and 1997 include approximately $614,000 and
$619,000, respectively, of costs and estimated earnings in excess of billings on
contracts-in-progress.
Accounts Receivable and Accounts Payable. Accounts receivable at December
31, 1998, 1997, and 1996 were net of allowances for doubtful accounts of
$511,000, $465,000, and $661,000, respectively.
Included in accounts receivable was unbilled work-in-process of
approximately $1,134,000, $584,000 and $524,000 at December 31, 1998, 1997 and
1996, respectively. Included in accounts payable and accrued expenses was
approximately $867,000, $442,000 and $283,000 of accrued employee and contractor
payroll principally relating to unbilled work-in-process at December 31, 1998,
1997 and 1996, respectively.
The allowance for doubtful accounts is established through charges to
earnings in the form of a charge to bad debt expense. Accounts which are
determined to be uncollectible are charged against the allowance account.
Management makes periodic assessments of the adequacy of the allowance which
requires the Company to recognize additions or reductions to the allowance. It
is reasonably possible that factors may change significantly and, therefore,
affect management's determination of the allowance for doubtful accounts in the
near term. An analysis of the allowance for doubtful accounts follows:
<TABLE>
<CAPTION>
Additions (Reversals)
Year Ended Balance at Charged (Credited) To Balance At
December 31, Beginning of Period Bad Debt Expense (Charge Offs) End Of Period
- ------------ ------------------- ---------------- ------------- -------------
<S> <C> <C> <C> <C>
1998 $465,000 $440,000 ($394,000) $511,000
======== ======== ========= ========
1997 $661,000 ($ 36,000) ($160,000) $465,000
======== ======== ========= ========
1996 $174,000 $781,000 ($294,000) $661,000
======== ======== ========= ========
</TABLE>
Property and Equipment and Depreciation and Amortization. Property and
equipment are stated at cost. Depreciation and amortization is computed on the
straight-line and accelerated methods over the estimated useful lives of the
related assets, principally five to ten years for furniture, office and computer
equipment and five years for automotive equipment.
Leasehold improvements are amortized using the straight-line method over
the shorter of the lease term or estimated useful lives of the improvements,
principally five to ten years.
Depreciation and amortization related to property and equipment, including
property under capital leases, amounted to $1,105,352 in 1998, $653,278 in 1997,
and $451,322 in 1996.
Property Under Capital Leases and Amortization. Property under capital
leases is stated at the lower of fair market value or net present value of the
minimum lease payments at inception of the leases. Property under capital leases
consists of furniture and office equipment and is included in "property and
equipment" in the accompanying consolidated balance sheets. Amortization is
provided over the shorter of the related lease terms or the estimated useful
lives of the related assets.
29
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
Income Taxes. Deferred taxes are accounted for in accordance with
Statement of Financial Accounting Standards ("Statement") No. 109, "Accounting
for Income Taxes." The Statement requires the use of the liability method to
account for income taxes. Deferred income taxes are provided for the difference
between the tax basis of an asset or liability and its reported amount in the
financial statements and at the tax rates that are expected to be in effect when
the taxes are actually paid or recovered.
Deferred income taxes arise principally from differences between financial
and income tax reporting, including amounts recorded for workers' compensation
funding, amounts recorded for the allowance for doubtful accounts, the
availability of net operating loss carryforwards and certain other temporary
differences.
Deferred income tax assets are reduced by a valuation allowance when,
based on the weight of evidence available, it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The
determination of the requirement for a valuation allowance is an estimate which
is reasonably possible to change in the near term.
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 periods ended December 31, 1998,
1997 and 1996 was approximately $704,744, $343,000 and $63,000 respectively, and
is included in general and administrative expenses in the consolidated
statements of operations.
The covenant not to compete is being amortized on a straight-line method
over the life of the covenant (twenty-four months). Amortization expense related
to the covenant was approximately $37,000 for 1998.
Deferred Rent Obligation. The Company is party to operating lease
agreements for certain of its office facilities, which contain provisions for
free rent for a certain period, with subsequent rent increases. In accordance
with generally accepted accounting principles, the Company records monthly rent
expense equal to the total of the payments due over the lease terms, divided by
the number of months of the lease terms. The difference between rent expense
recorded and the amount paid is credited or charged to deferred rent obligation
in the accompanying consolidated balance sheets. Deferred rent at December 31,
1998 also includes a liability of $400,000 with respect to the closing of the
Company's New York City office (see "Non-recurring Charges" below).
Non-recurring Charges. In 1998 the Company recorded pretax non-recurring
charges related to the impairment of purchased goodwill and an estimated loss
related to its lease commitment on the closing of its New York City office.
These charges are comprised of the following:
Impairment of purchased goodwill:
Information Management Services $2,914,099
IT Training 707,000
Closing of New York City office 400,000
----------
Total charges $4,021,099
==========
30
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
Non-recurring Charges (Continued)
The impairment of purchased goodwill was a non-cash charge determined in
accordance with SFAS 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of", due to continuing losses in those
segments. The SFAS 121 charge had no impact on the Company's 1998 cash flow or
its ability to generate cash flow in the future. As a result of the SFAS 121
charge, amortization expense related to goodwill will decrease in future
periods. During the fourth quarter of 1998 the Company decided to cease
operations in its New York City office and recorded a charge to reserve for
future losses, primarily related to its lease commitment which has been recorded
at the net present value of the difference between the lease obligation and
related sublease income.
The effect of these non-recurring charges, net of tax effect, was ($0.26)
per common share.
Advertising Expenses. The Company participates in various advertising
programs. All costs related to advertising are expensed in the period incurred.
Advertising expense amounted to approximately $1,143,000, $696,000, and $532,000
in 1998, 1997, and 1996, respectively.
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. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. This Statement was
adopted for the year ended December 31, 1998.
Earnings (Loss) Per Share. The Company adopted Statement of Financial
Accounting Standards No. 128 ("FAS 128"), Earnings Per Share, beginning in the
fourth quarter of 1997. All prior period earnings per common share were
recomputed to conform to the provisions of FAS 128. The recomputations did not
result in any restatements in earnings per share previously reported.
The number of shares used in the earnings (loss) per share calculation and
convertible note share conversion (see Note 6) has been adjusted for the 52.6
for 1.0 stock split which occurred in September 1996.
Basic earnings (loss) per share amounts are computed based on net income
(loss), reduced (increased) by dividends earned on preferred stock outstanding
on JIS through February 1997 ($6,700 and $45,000 for 1997 and 1996,
respectively), and divided by the weighted average number of shares actually
outstanding, reduced by Treasury Shares. The number of shares used in the
computation were approximately 13,458,000 in 1998, 12,761,000 in 1997, and
8,473,000 in 1996.
Diluted earnings (loss) per share amounts for years 1998, 1997 and 1996
are based on the weighted average number of shares calculated for basic earnings
(loss) per share purposes increased by the number of shares that would be
outstanding assuming exercise of outstanding stock warrants and assumed
conversion of convertible debt (for 1997 and 1996). The number of shares used in
the computation were approximately 13,458,000 in 1998, 12,826,000 in 1997, and
9,114,000 in 1996. Outstanding options to purchase shares of common stock in
1998 and in 1997 were not included in the computation of diluted earnings (loss)
per share because the assumed exercise of the options would be anti-dilutive.
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 1997 financial statements have
been reclassified to conform to the 1998 financial statement presentation.
31
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
Fair Value of Financial Instruments. The estimated fair values of
substantially all of the Company's financial instruments are approximately equal
to their carrying values for all periods presented.
NOTE 3. BUSINESS COMBINATIONS
In the year ended December 31, 1998 the Company, through its subsidiaries,
consummated several acquisitions which were accounted for as purchase
transactions, with the results of their operations included in the accompanying
financial statements since each of their respective purchase dates. In each
acquisition, the excess cost over the fair value of net assets acquired 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 related acquisition cost is included in other
liabilities in the accompanying consolidated financial statements, the payment
terms of which are dependent on the Company's common stock price on future
dates. Following is a description 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 $500,000 in goodwill and note payable has been recorded
based on ISI having attained 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 a 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 $709,000 in liabilities. An
additional $2,170,000 payable in cash and Company stock has been recorded based
on On-Site having attained certain pre-tax income in the period April 1,1998
through December 31, 1998. Additional amounts are contingent on On-Site
attaining certain pre-tax income amounts in the period 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 Services
business in the Buffalo, New York area, for a total acquisition cost of
$3,240,000, payable in cash and Company stock. An additional $1,303,000 payable
in cash and Company stock has been recorded, as determined by management, based
on AOP having attained certain pre-tax income in calendar 1998. Additional
amounts are contingent on AOP attaining certain pre-tax income amounts in the
period 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 a total acquisition cost of $155,000, payable in
cash. Additional amounts are contingent on Corebridge attaining certain pre-tax
income amounts in the period January 1, 1999 through December 31, 1999.
Effective October 12, 1998, JTS purchased substantially all of the assets
of Tech Stars, Inc. ("Tech Stars"), a company engaged in the IT placement
business with offices in Nashville, Tennessee and Charlotte, North Carolina, for
a total acquisition cost of $1,331,000. Additional amounts are contingent on
Tech Stars attaining certain pre-tax income amounts.
32
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 3. BUSINESS COMBINATIONS -- (Continued)
The following sets forth the pro forma consolidated results for the
Company for the years ended December 31, 1998 and 1997 as though these business
combinations occurred at January 1, 1998 and 1997, respectively.
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
Net revenues $118,973,000 $114,510,000
============ ============
Income (loss) before non-recurring charges ($1,898,000) $4,989,000
=========== ==========
Net Income (loss) ($5,335,000) $2,940,000
=========== ==========
</TABLE>
Pro-forma adjustments included adjustments to goodwill amortization
expense, interest expense and income tax expense/benefit.
Basic and diluted net income (loss) per share of common stock is
calculated as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
Net income (loss) ($5,335,000) $ 2,940,000
=========== ===========
Weighted average number of shares:
Basic 13,458,000 12,954,000
========== ==========
Diluted 13,458,000 13,019,000
========== ==========
Net income (loss) per share, basic and
diluted ($0.40) $0.23
====== =====
</TABLE>
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
bank's prime rate (7.75% at December 31, 1998) or, at the option of the Company,
a portion of the outstanding balance bears interest at 200 basis points over the
London Inter-Bank Offering Rate ("LIBOR"). Maximum permitted borrowings
thereunder are the lesser of $25,000,000 or 85% of qualified accounts
receivable, as defined in the line of credit agreement. The line of credit is
collateralized by substantially all of the Company's assets, expires May 31,
2003 and is subject to certain covenants, including financial covenants
requiring certain levels of net worth, debt service ratios, fixed charge
coverage and limiting capital expenditures. The Company was in violation of the
covenants relating to allowable capital expenditures and the fixed charge
coverage ratio at December 31, 1998. The Company's bank agreed to waive the
violations, and modified the covenants for future periods. In addition, the
Company and all of its subsidiaries are jointly and severally responsible for
all of the debt outstanding under the line.
Included in accounts payable and accrued expenses at December 31, 1998
were approximately $1,585,000 of bank overdrafts.
33
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 5. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
Note Payable, purchase of Berkeley; payable in various monthly
installments plus interest at 8% through August 2000; repaid in 1998 --- $ 237,721
Note Payable, purchase of certain assets and assumption of certain liabilities
of ISI; payable in various monthly installments plus
interest at 8%, through March 2000 $ 175,000 ---
Note Payable, purchase of certain assets and assumption of certain liabilities
of ISI; payable in 24 monthly installments of $12,500 plus
interest at 8%, through March 2000 175,000 ---
Note Payable, additional purchase cost of ISI attaining certain pre-tax income
in 1998; payable in 8 quarterly payments of $102,333 including
interest at 8%, through December 2000 750,000 ---
Note Payable, purchase of certain assets and assumption of certain liabilities
of Tech Stars; payable in 36 monthly installments of $6,944
plus interest at 8%, through October 2001 229,167 ---
--------- ---------
1,329,167 237,721
Less: Current portion (743,677) (237,721)
--------- ---------
Long-term portion $ 585,490 $ ---
========= =========
</TABLE>
Maturities of long-term debt are as follows:
Year Ending December 31, Amount
------------------------ ------
1999 $ 743,677
2000 522,990
2001 62,500
----------
$1,329,167
==========
Interest expense charged to operations was approximately $346,000,
$212,000 and $876,000 for the years ended December 31, 1998, 1997 and 1996,
respectively.
NOTE 6. CONVERTIBLE NOTES
In 1994, the Company received $500,000 from a group of investors in the
form of 10% convertible senior subordinated promissory notes. The notes were
exchanged for 526,000 Company common shares, immediately prior to the offering
(see Note 1). The notes bear 10% interest per annum and were scheduled to mature
in July 1997. Since the Company effected a successful initial public offering
before July 31, 1997, in accordance with the Note Purchase Agreement, the
financial advisor who arranged such financing was paid a fee equal to 1% of the
proceeds of the initial public offering (approximately $225,000) in February
1997.
34
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 7. INCOME TAXES
The Company files a consolidated Federal income tax return with all of its
wholly-owned subsidiaries. Prior to February 20, 1997, JIS was not included in
the Company's consolidated Federal income tax return, as the Company owned less
than 80% of JIS's 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 returns. 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.
The net deferred tax asset at December 31, 1998 and 1997 included the
following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Deferred tax asset $ 2,743,000 $ 1,897,000
Valuation allowance for deferred tax asset (1,878,000) (1,611,000)
----------- -----------
Net deferred tax asset after valuation allowance $ 865,000 $ 286,000
=========== ===========
</TABLE>
At December 31, 1998 and 1997, the net deferred tax assets of $865,000 and
$286,000, respectively, were included in "prepaid income taxes and deferred
taxes" in the accompanying consolidated balance sheets.
The tax effect of major temporary differences that gave rise to the
Company's net deferred tax asset are as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Net operating loss carryforwards $1,797,000 $1,569,000
Allowance for doubtful accounts 205,000 187,000
Accrued expenses and lease provision 314,000 50,000
Amortization of goodwill and covenant not to
compete 324,000 17,000
Other 103,000 74,000
---------- ----------
$2,743,000 $1,897,000
========== ==========
</TABLE>
Income tax expense (benefit) for the years ended December 31, 1998, 1997
and 1996 consisted of the following:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Current tax expense (benefit):
Federal ($ 544,875) $1,392,085 $ 863,313
State 286,099 516,733 171,585
Deferred tax expense (benefit) (539,000) 11,000 (67,000)
---------- ---------- ----------
Income tax expense (benefit) ($ 797,776) $1,919,818 $ 967,898
========== ========== ==========
</TABLE>
35
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 7. INCOME TAXES -- (Continued)
The effective tax rate for all periods presented was higher than the
applicable statutory tax rate, due to certain expenses that were not deductible
for tax purposes, Federal and state provisions at the maximum rates and net
operating losses for JIS, which was consolidated for financial reporting but not
tax reporting purposes (prior to the merger of the Company and JIS in February
1997). A reconciliation of the Company's effective income tax rate with the
statutory federal rate follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Tax expense (benefit) at statutory rate (34%) ($2,011,000) $ 1,575,000 $ 336,000
Effect of losses of subsidiary not consolidated
for tax purposes -- 85,000 529,000
Permanent differences, including non-deductible
goodwill amortization, net 1,108,000 5,000 29,000
Reduction in deferred tax benefit due to increase
in valuation allowance 267,000 -- --
Other 13,624 (78,000) (63,000)
State income taxes, net of Federal tax benefit (175,400) 333,000 137,000
----------- ----------- -----------
($ 797,776) $ 1,920,000 $ 968,000
=========== =========== ===========
</TABLE>
As a result of operating losses, no provision for income taxes was
required for all periods 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, 1998, 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 8. COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries lease office facilities under operating
lease agreements that expire at various times through the year 2008. Certain of
these leases contain optional provisions for additional periods of time. Rent
expense was approximately $2,480,000, $1,437,000 and $897,000 for the years
ended December 31, 1998, 1997 and 1996, respectively. Minimum annual future
rental commitments, net of subleases rents (see Note 2), at December 31, 1998,
and exclusive of common area maintenance costs and utilities, are as follows:
Year Ending December 31, Amount
------------------------ ------
1999 $ 2,507,000
2000 2,291,000
2001 1,974,000
2002 1,670,000
2003 873,000
Thereafter 1,657,000
-----------
$10,972,000
===========
Effective January 1994, the Company became self-insured for workers'
compensation purposes and is liable for aggregate claims up to approximately
$164,000 for 1998, $164,000 for 1997, and $185,000 for 1996. In addition, the
Company is responsible for certain fixed costs including underwriting,
brokerage, reinsurance and administration costs.
36
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 8. COMMITMENTS AND CONTINGENCIES -- (Continued)
The Company is partially self-insured for health care claims for eligible
active employees. The Company is currently liable for aggregate claims up to
approximately $1,009,000 annually. Self-insurance costs are accrued based upon
the aggregate of the liability for reported claims and an estimated liability
for claims incurred but not reported.
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 businesses with software systems that are represeented
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 9. RETIREMENT PLANS
The Company had various 401(k) retirement plans (the "Plans") covering
substantially all employees through June 30, 1996. Employees were able to
contribute a percentage of their pre-tax salary to the Plans. Company
contributions to the Plans were at the discretion of the Board of Directors.
There were no Company contributions charged to operations related to the Plans
in 1996. Effective July 1, 1996, all the Plans were merged into one Plan. The
new Plan has no Company contribution provision, although employees may continue
to contribute a percentage of their pre-tax salary to the Plan.
NOTE 10. SHAREHOLDERS' EQUITY AND EARNINGS (LOSS) PER SHARE
Dividends. In accordance with the provisions of its line of credit, the
Company is not permitted to declare or pay any cash dividends on its common
stock.
Additional Paid-In Capital. During 1996, additional paid-in capital
decreased due to the JCC/DI merger which was accounted for as a reverse
acquisition.
Capital Structure. On September 4, 1996, the Company's Board of Directors
voted to (i) modify the Company's capital structure to increase the number of
authorized common shares to 50,000,000, (ii) adjust the par value per share from
$.005 to $.01, (iii) authorize the issuance of 10,000,000 preferred shares with
a par value of $.01 per share, (iv) authorize a 52.6 for 1.0 split of the
outstanding common shares for shareholders of record on September 23, 1996, (v)
authorize a change in the Company's name from "Judge, Inc." to "The Judge Group,
Inc." and (vi) authorize the formation of a new subsidiary, Judge, Inc., and the
contribution of substantially all the assets related to the Permanent Placement
business to this new subsidiary.
Common Shares -- Warrants. During 1993, the Company issued to a financial
advisor warrants to purchase 171,739 (split-adjusted) common shares of the
Company. During September 1996, such warrants were exercised.
37
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 10. SHAREHOLDERS' EQUITY AND EARNINGS (LOSS) PER SHARE -- (Continued)
Stock Option Plan. On September 4, 1996 the Company adopted an Incentive
Stock Option and Non-Qualified Stock Option Plan (the "Incentive Plan") for key
employees and non-employee directors. Options may be granted under the Incentive
Plan to purchase up to a maximum of 3,500,000 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 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 1998 and 1997, the Company granted two non-employee directors
options to purchase 10,000 common shares each at an exercise price of $4.938 and
$3.25, respectively, under the Non-Qualified Stock Option Plan.
A summary of the Company's Incentive Stock Option Plan activity for common
shares for the year ended December 31, 1998 and 1997 (there were no options
granted in 1996) follows:
Weighted Average
Number of Shares Exercise Price
---------------- --------------
Outstanding 1/1/97 -0- N/A
Granted 695,500 $7.18
Exercised -0- N/A
Terminated 95,000 $7.43
---------
Outstanding 12/31/97 600,500 $7.14
Granted 1,044,750 $4.73
Exercised -0- N/A
Terminated 78,300 $5.73
---------
Outstanding 12/31/98 1,566,950 $5.61
=========
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. Had
compensation cost been determined in accordance with the fair value method of
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation (SFAS 123), the Company's pro forma net income (loss) and net
income (loss) per share for the years ended December 31, 1998 and 1997 would be
as follows:
1998 1997
---- ----
Net Income (loss):
As reported ($5,116,993) $2,711,940
Pro forma ($6,898,814) $2,117,278
Basic earnings (loss) per share:
As reported ($0.38) $0.21
Pro forma ($0.51) $0.17
The resulting pro forma compensation cost may not be representative of
that to be expected in future years.
The fair value of each stock option granted is estimated on the date of
grant using the Black-Scholes option pricing model with the following weighted
average assumptions used for grants in 1998: risk-free interest rate of 5.10%,
expected dividend yields of 0%, expected life of five years from date of grant,
and expected price volatility of 131%. The weighted average fair value of the
options granted in 1998 was $3.59.
38
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 11. STATEMENT OF CASH FLOWS
Supplemental disclosure of non-cash investing and financing transactions:
During 1998, the Company entered into the following non-cash transactions:
o recorded the following with respect to business combinations entered into in
1998 (Note 3):
o goodwill of $15,908,000;
o incurred long-term debt ($1,640,000) and contingent purchase price
($2,635,000) and other liabilities ($1,595,000);
o issued stock (193,333 shares - $1,933) and recorded additional paid-in
capital ($2,141,957);
o reduced goodwill $707,000 due to an impairment loss in Berkeley;
o reduced goodwill $2,914,099 due to an impairment loss in JIS.
During 1998, the Company effected various business combinations:
<TABLE>
<CAPTION>
Acquisition of Businesses - ISI Cella On-Site AOP Corebridge Tech Stars
--- ----- ------- --- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
1998:
Inventories $ 0 $ 0 $ 0 $ 472,020 $ 0 $ 0
Accounts receivable 1,225,151 168,938 106,175 411,581 28,207 248,437
Property and equipment, net 46,051 31,059 143,210 53,325 15,000 40,822
Deferred income taxes 0 0 40,000 0 0 0
Other assets 10,000 600 14,269 90,222 1,000 6,539
---------- ---------- ---------- ---------- ---------- ----------
1,281,202 200,597 303,654 1,027,148 44,207 295,798
---------- ---------- ---------- ---------- ---------- ----------
Accounts payable and accrued
expenses 237,470 90,107 557,993 416,594 6,386 61,029
Debt obligations 418,759 0 112,817 0 0 0
Due to the Company 0 0 319,620 0 0 0
Deferred revenue and customer
deposits 0 0 7,900 262,009 0 0
---------- ---------- ---------- ---------- ---------- ----------
656,229 90,107 988,300 678,603 6,386 61,029
---------- ---------- ---------- ---------- ---------- ----------
Net assets acquired
(liabilities assumed) in
business combination $ 624,973 $ 110,490 ($ 694,676) $ 348,545 $ 37,821 $ 234,768
========== ========== ========== ========== ========== ==========
</TABLE>
During 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;
o reversed $572,200 of goodwill and long-term debt due to a contingent
payment which was not required to be made, relating to the Berkeley
acquisition.
During 1996, the Company entered into the following non-cash transactions:
o incurred long-term debt ($2,379,452) for certain business combinations
(see Notes 3 and 5);
o restructured $1,000,000 of the existing line of credit facility debt
into long-term debt (see Notes 4 and 5).
During the year ended December 31, 1996, the Company entered into certain
financing arrangements for the purchase of property and equipment in the amount
of approximately $432,000.
39
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 11. STATEMENT OF CASH FLOWS -- (Continued)
Effective February 29, 1996, JCC and DI effected a Business Combination
and effective September 1996, the Company, and Berkeley and Systems Automation
effected business combinations.
<TABLE>
<CAPTION>
Acquisition of Businesses - 1996: DI Berkeley Systems Automation
-- -------- ------------------
<S> <C> <C> <C>
Inventories $ 39,101 $ -- $ 79,375
Accounts receivable 104,127 455,124 144,756
Property and equipment, net 150,034 167,876 56,706
Other assets 10,780 51,110 34,314
--------- -------- ---------
304,042 674,110 315,151
--------- -------- ---------
Accounts payable and accrued expenses 82,087 254,685 307,398
Debt obligations -- 206,005 196,193
Due to the Company 100,000 -- --
Deferred revenue and customer deposits 362,037 172,079 315,118
--------- -------- ---------
544,124 632,769 818,709
--------- -------- ---------
Net assets acquired (liabilities assumed) in
business combination ($240,082) $ 41,341 ($503,558)
========= ======== =========
</TABLE>
NOTE 12. SEGMENT INFORMATION
The Company's operations cover three industry segments, the Contract and
Permanent Placement segment (consisting of the Company's Contract Placement
business and Permanent Placement business), the Information Management Solutions
segment, and the Information Technology Training segment. The information
technology training segment was purchased effective September 30, 1996. The
following represents financial information for each of the Company's reportable
industry segments:
<TABLE>
<CAPTION>
Year Ended December 31, 1998
----------------------------
Contract and Information Information Eliminations Total
------------ ----------- ----------- ------------ -----
Permanent Management Technology
--------- ---------- ----------
Placement Solutions Training
--------- --------- --------
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated customers $92,263,310 $19,280,184 $ 2,954,903 $ --- $114,498,397
Intersegment sales 543,161 --- --- 543,161 ---
----------- ------------ ----------- ----------- -------------
Total revenues $92,806,471 $19,280,184 $2,954,903 $ 543,161 $114,498,397
=========== ============ =========== =========== =============
Income (loss) before non-
recurring charges $ 2,532,885 ($ 3,180,689) ($ 994,140) $ --- ($ 1,641,944)
=========== ============= =========== =========== =============
Non-recurring charges $ 312,000 $ 3,002,099 $ 707,000 $ --- $ 4,021,099
=========== =========== =========== =========== =============
Net income (loss) $ 1,456,609 ($ 5,169,578) ($1,404,024) $ --- ($ 5,116,993)
=========== ============ =========== =========== =============
Depreciation and amortization $ 782,010 $ 761,929 $ 303,647 $ --- $ 1,847,586
=========== ============ =========== =========== =============
Identifiable assets $42,830,774 $ 16,998,786 $1,613,504 $13,557,637 $ 47,885,427
=========== ============ =========== =========== =============
Capital expenditures $ 1,918,393 $ 670,365 $ 246,581 $ --- $ 2,835,339
=========== ============ =========== =========== =============
</TABLE>
40
<PAGE>
THE JUDGE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 12. SEGMENT INFORMATION -- (Continued)
<TABLE>
<CAPTION>
Year Ended December 31, 1997
----------------------------
Contract and Information Information Eliminations Total
------------ ----------- ----------- ------------ -----
Permanent Management Technology
--------- ---------- ----------
Placement Solutions Training
--------- --------- --------
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated customers $78,933,050 $16,443,294 $3,150,123 $ -- $98,526,467
Intersegment sales 358,517 -- 65,418 423,935 --
----------- ------------ ---------- ---------- -----------
Total revenues $79,291,567 $16,443,294 $3,215,541 $ 423,935 $98,526,467
=========== ============ ========== ========== ===========
Income (loss) from operations $ 6,425,956 ($1,814,290) ($80,494) -- $ 4,531,172
=========== ============ ========== ========== ===========
Net income (loss) $ 4,217,933 ($1,430,975) ($75,018) -- $ 2,711,940
=========== ============ ========== ========== ===========
Depreciation and amortization $ 318,067 $ 468,591 $ 209,582 -- $ 996,240
=========== ============ ========== ========== ===========
Identifiable assets $33,310,679 $ 5,942,808 $1,157,929 $8,477,845 $31,933,571
=========== ============ ========== ========== ===========
Capital expenditures $ 519,000 $ 676,000 $ 421,000 $ -- $ 1,616,000
=========== ============ ========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1996
----------------------------
Contract and Information Information Eliminations Total
------------ ----------- ----------- ------------ -----
Permanent Management Technology
--------- ---------- ----------
Placement Solutions Training
--------- --------- --------
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated customers $67,605,373 $14,157,565 $ 608,127 $ --- $82,371,065
Intersegment sales 289,198 56,692 --- 345,890 ---
----------- ----------- ----------- ---------- -----------
Total revenues $67,894,571 $14,214,257 $ 608,127 $ 345,890 $82,371,065
=========== ============ =========== ========== ============
Income (loss) from operations $ 3,234,305 ($ 1,349,495) ($25,391) $ --- $ 1,859,419
=========== ============ =========== ========== ===========
Net income (loss) $ 1,647,601 ($1,608,861) ($19,797) ($888,000) $ 906,943
=========== ============ =========== ========== ===========
Depreciation and amortization $ 461,937 $ 125,522 $ 20,789 $ --- $ 608,248
=========== ============ =========== ========== ===========
Identifiable assets $19,386,384 $ 5,638,839 $ 612,188 $3,668,403 $21,969,008
=========== =========== =========== ========== ===========
Capital expenditures $ 665,000 $ 362,000 $ 44,000 $ --- $ 1,071,000
=========== =========== =========== ========== ===========
</TABLE>
See Note 2 for summary of significant accounting policies.
NOTE 13. MANAGEMENT'S PLANS - INFORMATION MANAGEMENT SOLUTIONS BUSINESS
The Company's Information Management Solutions business has had net
operating losses since its commencement in 1988. The Company is currently
focusing on achieving profitability in its Information Management Solutions
business, but cannot provide any assurances as to when it will achieve sustained
profitability, if at all.
The Company has a goal to separate the Information Management Solutions
business. The Company has not yet determined the method or timing of this
separation. In addition, the Company has not determined the effect this
separation may have on its results of operations or financial condition,
although certain material commitments (e.g. lease obligations, severance and
employment arrangements, customer service maintenance agreements, etc.) could
result based upon the method and terms of the separation.
41
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
INCORPORATION BY REFERENCE
The information called for by Item 10 "Directors and Executive Officers of
the Registrant," Item 11 "Executive Compensation," Item 12 "Security Ownership
of Certain Beneficial Owners and Management," and Item 13 "Certain Relationships
and Related Transactions" is incorporated herein by reference to the Company's
definitive proxy statement for its 1999 Annual Meeting of Shareholders which
definitive proxy statement is expected to be filed with the Commission no later
than 120 days after the end of the fiscal year to which this Report relates.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
The following documents are filed as a part of this Annual Report on Form 10-K.
1. Consolidated Financial Statements:
Report of Independent Auditors 22
Consolidated Balance Sheets 23
Consolidated Statements of Operations 24
Consolidated Statements of Shareholders' Equity 25
Consolidated Statements of Cash Flows 26
Notes to Consolidated Financial Statements 27-41
2. Consolidated Financial Statement Schedules:
Included in Part IV of this report:
All such information is included in the Notes to the Consolidated
Financial Statements.
Other Schedules are omitted because of the absence of conditions
under which they are required.
42
<PAGE>
3. Exhibits
Exhibit
No. Description of Document
- ------- -----------------------
3.1 Amended and Restated Articles of Incorporation. Incorporated by
reference to Exhibit 3.1 of the Company's Registration Statement on
Form S-1 (Reg. No. 333-13109).
3.2 Bylaws. Incorporated by reference to Exhibit 3.2 of the Form S-1.
4.1 10% Convertible Senior Subordinated Note Purchase Agreement.
Incorporated by reference to Exhibit 4.1 of the Form S-1.
4.3 Fourth Amended and Restated Loan and Security Agreement, dated
December 10, 1996, between the Company and PNC Bank, N.A. Incorporated
by reference to Exhibit 4.3 to the Form S-1.
10.1 Lease of Two Bala Plaza, Bala Cynwyd, Pennsylvania, dated January 21,
1994, between The Prudential Insurance Company of America, as
landlord, and Judge, Inc., as tenant. Incorporated by reference to
Exhibit 10.1 of the Form S-1.
10.2 Stock Purchase Agreement by and among the Company, The Berkeley
Associates Corporation, Sandy Mayer and Gregory McCarthy, as amended.
Incorporated by reference to Exhibit 10.2 of the Form S-1.
10.3 Asset Purchase Agreement by and among the Company, Systems Automation,
Inc. and Edward Haskell. Incorporated by reference to Exhibit 10.3 of
the Form S-1.
10.4 1996 Incentive Stock Option and Non-Qualified Stock Option Plan for
Key Employees and Non-Employee Directors. Incorporated by reference to
Exhibit 10.4 of the Form S-1.
10.5 Professional Services Agreement between Merck & Company, Inc. and
Judge Technical Services, Inc. Incorporated by reference to Exhibit
10.5 of the Form S-1.
10.6 Split-Dollar Agreement by and between Judge, Inc. and Dennis F. Judge,
Trustee of Irrevocable Agreement of Trust of Martin E. Judge, Jr.,
Settlor, Dated December 28, 1995. Incorporated by reference to Exhibit
10.6 of the Form S-1.
10.7 Split-Dollar Agreement by and between Judge, Inc. and Kathleen Dunn,
Trustee of the Irrevocable Agreement of Trust of Michael Dunn,
Settlor, date June 19, 1996. Incorporated by reference to Exhibit 10.7
of the Form S-1.
10.8 Split-Dollar Agreement by and between Judge, Inc. and Ann L. Judge,
Trustee of the Irrevocable Agreement of Trust of Martin E. Judge, Jr.,
Settlor, dated December 20, 1995. Incorporated by reference to Exhibit
10.8 of the Form S-1.
43
<PAGE>
Exhibit
No. Description of Document
- ------- -----------------------
10.9 Split-Dollar Agreement by and between Judge, Inc. and D. Michael
Carmody, Trustee of the Irrevocable Agreement of Trust of Michael
Dunn, Settlor, dated June 19, 1996. Incorporated by reference to
Exhibit 10.9 of the Form S-1.
10.11 Stock Option Agreement between the Company and James A. Hahn.
10.12 Stock Option Agreement between the Company and Randolph J. Angermann.
10.13 Asset Purchase Agreement dated as of March 5, 1998 among Judge
Technical Services, Inc., Information Solutions, Inc., ISI Systems,
Inc. and John Runyon. Incorporated by reference to Exhibit 2 to Form
8-K filed on March 20, 1998.
10.14 Asset Purchase Agreement dated as of March 31, 1998 among Judge, Inc.,
and Cella Associates of Atlanta, Inc. Incorporated by reference to
Exhibit 10.2 to Form 10-Q filed on August 14, 1998.
10.15 Stock Purchase Agreement dated as of June 5, 1998 among Judge Imaging
Systems, Inc., James Turner, and Systems Solutions, Inc., d/b/a
Corebridge Technologies, Inc.
10.16 Employment Agreement by and between The Judge Group, Inc. and Frank
Barrett incorporated by reference to Exhibit 10.1 to Form 10-Q filed
August 14, 1998.
10.17 Asset Purchase Agreement dated as of October 12, 1998 among Judge
Technical Services, Inc., Tech Stars, Inc., David Hood and Scott Bass.
10.18 Stock Purchase Agreement dated as of May 1, 1998 by and among Judge
Imaging Systems, Inc., Terry Cooper, The Other Security Holders of
On-Site Solutions, Inc. and On-Site Solutions, Inc.
10.19 Asset Purchase Agreement dated June 29, 1998 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.
Incorporated by reference to Exhibit 10.3 to Form 10-Q filed August
14, 1998.
11.1 Computation of Earnings Per Share.
21.1 Subsidiaries of the Registrant. Incorporated by reference to Exhibit
21.1 of the Form S-1.
27.1 Financial Data Schedule.
No reports were filed by the Registrant on Form 8-K during the quarter
ended December 31, 1998.
44
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned,
Dated: April 13, 1999 THE JUDGE GROUP, INC.
By: /s/ Frank M. Barrett By: /s/ Martin E. Judge, Jr.
----------------------- ---------------------------
Frank M. Barrett Martin E. Judge, Jr.
Chief Financial Officer Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Martin E. Judge, Jr. Chairman of the Board, April 13, 1999
- ------------------------ Director, President and Chief
Martin E. Judge, Jr. Executive Officer
(Principal Executive Officer)
/s/ Richard T. Furlano Director April 13, 1999
- ----------------------
Richard T. Furlano
/s/ Michael A. Dunn Director and Executive April 13, 1999
- ------------------- Vice President
Michael A. Dunn
/s/ Randolph J. Angermann Director April 13, 1999
- -------------------------
Randolph J. Angermann
/s/ James C. Hahn Director April 13, 1999
- -----------------
James C. Hahn
45
<PAGE>
Exhibit 10.11
THE JUDGE GROUP, INC.
1996 INCENTIVE STOCK OPTION AND
NON-QUALIFIED STOCK OPTION PLAN
FOR KEY EMPLOYEES AND NON-EMPLOYEE DIRECTORS
(As Amended and Restated Effective June 9, 1998)
NON-QUALIFIED STOCK OPTION AGREEMENT FOR NON-EMPLOYEE DIRECTORS
NON-QUALIFIED STOCK OPTION AGREEMENT made as of the 10th day
of June, 1998 (the "Grant Date"), between The Judge Group, Inc., a Pennsylvania
corporation (the "Company"), and James C. Hahn, a Non-Employee Director of the
Company (the "Non-Employee Director").
WHEREAS, the Company desires to afford the Non-Employee
Director an opportunity to purchase shares of common stock of the Company
("Common Stock") as hereinafter provided, in accordance with the provisions of
THE JUDGE GROUP, INC. 1996 INCENTIVE STOCK OPTION AND NON-QUALIFIED STOCK OPTION
PLAN FOR KEY EMPLOYEES AND NON-EMPLOYEE DIRECTORS (As Amended and Restated
Effective June 9, 1998) (the "Plan"), a copy of which is attached.
NOW THEREFORE, in consideration of the mutual covenants
hereinafter set forth and for other good and valuable consideration, the legal
sufficiency of which is hereby acknowledged, the parties hereto, intending to be
legally bound hereunder, agree as follows:
1. Grant of Option. The Company hereby grants to the
Non-Employee Director the right and option (the "Option") to purchase all or any
part of an aggregate of 10,000 shares of Common Stock. The Option is in all
respects limited and conditioned as hereinafter provided, and is subject to the
terms and conditions of the Plan now in effect and as they may be amended from
time to time (but only to the extent any such amendment applies to outstanding
options). The terms and conditions of the Plan are and automatically shall be
incorporated herein by reference and made a part hereof and shall control in the
event of any conflict with any other terms of this Option Agreement. The Option
granted hereunder is a non-qualified stock option ("NQSO").
2. Purchase Price. The purchase price per share of the shares
of Common Stock covered by the Option shall be $4.938. It is the determination
of the Company's Stock Option Committee (the "Committee") that the Option price
is equal to the greater of one hundred percent of the fair market value of a
share of Common Stock, or the par value thereof, on the Grant Date.
3. Term. Unless earlier terminated pursuant to any provision
of the Plan or of this Option Agreement, this Option shall expire on June 10,
2008 (the "Expiration Date"), which date is ten years from the Grant Date. This
Option shall not be exercisable on or after the Expiration Date.
4. Exercise of Option. Subject to Section 10 of the Plan and
to Paragraphs 3, 8, 9 and 10 of this Option Agreement, this Option may be
exercised in three equal annual installments commencing with the first
anniversary of the Grant Date but only if the Non-Employee Director has attended
at least seventy-five percent of the Board of Director meetings during the
twelve-month period immediately preceding the date the annual installment first
becomes exercisable. In the event the Non-Employee Director fails to attend at
least seventy-five percent of the Board of Director meetings during the
twelve-month period immediately preceding the date the annual installment first
becomes exercisable, the shares with respect to which the Option otherwise would
have become exercisable in that installment shall not be exercisable but shall
be cancelled and shall be available for other grants under the Plan. Options
that become exercisable in accordance with the foregoing shall remain
exercisable, subject to the provisions contained in the Plan and in this Option
Agreement, until the expiration of the term of this Option as set forth in
Paragraph 3 or until other termination of the Option.
5. Method of Exercising Option. Subject to the terms and
conditions of this Option Agreement and the Plan, the Option may be exercised
upon written notice to the Company, at its principal office, which is located at
Two Bala Plaza, Suite 405, Bala Cynwyd, Pennsylvania 19004-1510. Such notice (a
<PAGE>
suggested form of which is attached) shall state the election to exercise the
Option and the number of shares with respect to which it is being exercised;
shall be signed by the person or persons so exercising the Option; shall, if the
Company so requests, be accompanied by the investment certificate referred to in
Paragraph 6 hereof and shall be accompanied by payment of the full Option price
of such shares. Only full shares will be issued. Any fractional shares will be
forfeited.
The Option price shall be paid to the Company:
(a) In cash, or in its equivalent, or
(b) In whole or in part through the transfer of shares of
Common Stock previously acquired by the Non-Employee Director, provided
the shares of Common Stock so transferred have been held by the
Non-Employee Director for more than 12 months on the date of exercise.
In the event the Option price is paid, in whole or in part, with shares
of Common Stock, the portion of the exercise price so paid shall equal the fair
market value (as defined in the Plan) of such shares on the date of exercise.
Upon receipt of such notice and payment, the Company, as promptly as
practicable, shall deliver or cause to be delivered a certificate or
certificates representing the shares with respect to which the Option is so
exercised. The certificate or certificates for the shares as to which the Option
shall have been so exercised shall be registered in the name of the person or
persons so exercising the Option (or, if the Option shall be exercised by the
Non-Employee Director and if the Non-Employee Director shall so request in the
notice exercising the Option, shall be registered in the name of the
Non-Employee Director and the Non-Employee Director's spouse, jointly, with
right of survivorship) and shall be delivered as provided above to or upon the
written order of the person or persons exercising the Option. In the event the
Option shall be exercised by any person or persons after the legal disability or
death of the Non-Employee Director, such notice shall be accompanied by
appropriate proof of the right of such person or persons to exercise the Option.
All shares that shall be purchased upon the exercise of the Option as provided
herein shall be fully paid and non-assessable by the Company.
6. Shares to be Purchased for Investment. Unless the Company
has theretofore notified the Non-Employee Director that a registration statement
covering the shares to be acquired upon the exercise of the Option has become
effective under the Securities Act of 1933 and the Company has not thereafter
notified the Non-Employee Director that such registration is no longer
effective, it shall be a condition to any exercise of this Option that the
shares acquired upon such exercise be acquired for investment and not with a
view to distribution, and the person effecting such exercise shall submit to the
Company a certificate of such investment intent, together with such other
evidence supporting the same as the Company may request. The Company shall be
entitled to restrict the transferability of the shares issued upon any such
exercise to the extent necessary to avoid a risk of violation of the Securities
Act of 1933 (or of any rules or regulations promulgated thereunder) or of any
state laws or regulations. Such restrictions may, at the option of the Company,
be noted or set forth in full on the share certificates.
7. Transferability of Option. Except as otherwise provided in
this Paragraph 7, this Option is not assignable or transferable by the
Non-Employee Director other than by will or by the laws of descent and
distribution, and during the lifetime of the Non-Employee Director, this Option
shall be exercisable only by the Non-Employee Director or by his or her guardian
or legal representative. However, the Non-Employee Director may transfer this
Option for no consideration to (i) a member of his or her immediate family, (ii)
a partnership of which the only partners are members of his or her immediate
family, or (iii) a trust established solely for the benefit of his or her
immediate family members. Any transferee of this Option shall remain subject to
all the terms and conditions applicable to this Option prior to such transfer.
If the Non-Employee Director is married at the time of
exercise and if the Non-Employee Director so requests at the time of exercise,
the certificate or certificates shall be registered in the name of the
Non-Employee Director and the Non-Employee Director's spouse, jointly, with
right of survivorship.
8. Termination of Service as a Director. If the Non-Employee
Director's service as a director of the Company is terminated for any reason
other than death or disability prior to the Expiration Date of this Option as
set forth in Paragraph 3, this Option may be exercised, to the extent of the
number of shares with respect to which the Non-Employee Director could have
exercised it on the date he or she ceased to be a director, at any time prior to
the earlier of:
<PAGE>
(a) The Expiration Date specified in Paragraph 3; or
(b) Three months after the date of such termination of service
as a director.
9. Disability. If the Non-Employee Director becomes disabled,
as defined in the Plan, during his or her term as a director of the Company and,
prior to the Expiration Date of this Option as set forth in Paragraph 3, the
Non-Employee Director's service as a director of the Company is terminated as a
consequence of such disability, this Option may be exercised, to the extent of
the number of shares with respect to which the Non-Employee Director could have
exercised it on the date he or she ceased to be a director, at any time prior to
the earlier of:
(a) The Expiration Date specified in Paragraph 3; or
(b) One year after the date the Non-Employee Director ceases
to be a director by reason of disability.
In the event of the Non-Employee Director's legal disability, this Option may be
exercised by the Non-Employee Director's legal representative.
10. Death. If the Non-Employee Director dies during his or her
term as a director of the Company and prior to the Expiration Date of this
Option as set forth in Paragraph 3, or if the Non-Employee Director's Board
membership ceases for any reason (as described in Paragraphs 8 or 9 above) and
the Non-Employee Director dies following his or her ceasing to be a director but
prior to the earlier of the Expiration Date of this Option as set forth in
Paragraph 3 above, or the expiration of the period determined under Paragraph 8
or 9 above, this Option may be exercised, to the extent of the number of shares
with respect to which the Non-Employee Director could have exercised it on the
date of his or her death, at any time prior to the earlier of:
(a) The Expiration Date specified in Paragraph 3; or
(b) One year after the date of the Non-Employee Director's
death.
This Option may be exercised by the Non-Employee Director's estate, personal
representative or beneficiary who acquired the right to exercise this Option by
bequest or inheritance or by reason of the Non-Employee Director's death.
11. Governing Law. This Option Agreement shall be governed by
applicable Federal law and otherwise by the laws of the Commonwealth of
Pennsylvania.
IN WITNESS WHEREOF, the Company has caused this Non-Qualified
Stock Option Agreement to be duly executed by its officer thereunto duly
authorized, and the Non-Employee Director has hereunto set his or her hand, all
as of the day and year first above written.
THE JUDGE GROUP, INC.
/s/Katharine A. Wiercinski /s/Martin E. Judge, Jr.
-------------------------- -----------------------
Secretary President
NON-EMPLOYEE DIRECTOR
/s/James C. Hahn
----------------
<PAGE>
Exhibit 10.12
THE JUDGE GROUP, INC.
1996 INCENTIVE STOCK OPTION AND
NON-QUALIFIED STOCK OPTION PLAN
FOR KEY EMPLOYEES AND NON-EMPLOYEE DIRECTORS
(As Amended and Restated Effective June 9, 1998)
NON-QUALIFIED STOCK OPTION AGREEMENT FOR NON-EMPLOYEE DIRECTORS
NON-QUALIFIED STOCK OPTION AGREEMENT made as of the 10th day
of June, 1998 (the "Grant Date"), between The Judge Group, Inc., a Pennsylvania
corporation (the "Company"), and Randolph J. Angermann, a Non-Employee Director
of the Company (the "Non-Employee Director").
WHEREAS, the Company desires to afford the Non-Employee
Director an opportunity to purchase shares of common stock of the Company
("Common Stock") as hereinafter provided, in accordance with the provisions of
THE JUDGE GROUP, INC. 1996 INCENTIVE STOCK OPTION AND NON-QUALIFIED STOCK OPTION
PLAN FOR KEY EMPLOYEES AND NON-EMPLOYEE DIRECTORS (As Amended and Restated
Effective June 9, 1998) (the "Plan"), a copy of which is attached.
NOW THEREFORE, in consideration of the mutual covenants
hereinafter set forth and for other good and valuable consideration, the legal
sufficiency of which is hereby acknowledged, the parties hereto, intending to be
legally bound hereunder, agree as follows:
1. Grant of Option. The Company hereby grants to the
Non-Employee Director the right and option (the "Option") to purchase all or any
part of an aggregate of 10,000 shares of Common Stock. The Option is in all
respects limited and conditioned as hereinafter provided, and is subject to the
terms and conditions of the Plan now in effect and as they may be amended from
time to time (but only to the extent any such amendment applies to outstanding
options). The terms and conditions of the Plan are and automatically shall be
incorporated herein by reference and made a part hereof and shall control in the
event of any conflict with any other terms of this Option Agreement. The Option
granted hereunder is a non-qualified stock option ("NQSO").
2. Purchase Price. The purchase price per share of the shares
of Common Stock covered by the Option shall be $4.938. It is the determination
of the Company's Stock Option Committee (the "Committee") that the Option price
is equal to the greater of one hundred percent of the fair market value of a
share of Common Stock, or the par value thereof, on the Grant Date.
3. Term. Unless earlier terminated pursuant to any provision
of the Plan or of this Option Agreement, this Option shall expire on June 10,
2008 (the "Expiration Date"), which date is ten years from the Grant Date. This
Option shall not be exercisable on or after the Expiration Date.
4. Exercise of Option. Subject to Section 10 of the Plan and
to Paragraphs 3, 8, 9 and 10 of this Option Agreement, this Option may be
exercised in three equal annual installments commencing with the first
anniversary of the Grant Date but only if the Non-Employee Director has attended
at least seventy-five percent of the Board of Director meetings during the
twelve-month period immediately preceding the date the annual installment first
becomes exercisable. In the event the Non-Employee Director fails to attend at
least seventy-five percent of the Board of Director meetings during the
twelve-month period immediately preceding the date the annual installment first
becomes exercisable, the shares with respect to which the Option otherwise would
have become exercisable in that installment shall not be exercisable but shall
be cancelled and shall be available for other grants under the Plan. Options
that become exercisable in accordance with the foregoing shall remain
exercisable, subject to the provisions contained in the Plan and in this Option
Agreement, until the expiration of the term of this Option as set forth in
Paragraph 3 or until other termination of the Option.
5. Method of Exercising Option. Subject to the terms and
conditions of this Option Agreement and the Plan, the Option may be exercised
upon written notice to the Company, at its principal office, which is
<PAGE>
located at Two Bala Plaza, Suite 405, Bala Cynwyd, Pennsylvania 19004-1510. Such
notice (a suggested form of which is attached) shall state the election to
exercise the Option and the number of shares with respect to which it is being
exercised; shall be signed by the person or persons so exercising the Option;
shall, if the Company so requests, be accompanied by the investment certificate
referred to in Paragraph 6 hereof and shall be accompanied by payment of the
full Option price of such shares. Only full shares will be issued. Any
fractional shares will be forfeited.
The Option price shall be paid to the Company:
(a) In cash, or in its equivalent, or
(b) In whole or in part through the transfer of shares of
Common Stock previously acquired by the Non-Employee Director, provided
the shares of Common Stock so transferred have been held by the
Non-Employee Director for more than 12 months on the date of exercise.
In the event the Option price is paid, in whole or in part,
with shares of Common Stock, the portion of the exercise price so paid shall
equal the fair market value (as defined in the Plan) of such shares on the date
of exercise.
Upon receipt of such notice and payment, the Company, as
promptly as practicable, shall deliver or cause to be delivered a certificate or
certificates representing the shares with respect to which the Option is so
exercised. The certificate or certificates for the shares as to which the Option
shall have been so exercised shall be registered in the name of the person or
persons so exercising the Option (or, if the Option shall be exercised by the
Non-Employee Director and if the Non-Employee Director shall so request in the
notice exercising the Option, shall be registered in the name of the
Non-Employee Director and the Non-Employee Director's spouse, jointly, with
right of survivorship) and shall be delivered as provided above to or upon the
written order of the person or persons exercising the Option. In the event the
Option shall be exercised by any person or persons after the legal disability or
death of the Non-Employee Director, such notice shall be accompanied by
appropriate proof of the right of such person or persons to exercise the Option.
All shares that shall be purchased upon the exercise of the Option as provided
herein shall be fully paid and non-assessable by the Company.
6. Shares to be Purchased for Investment. Unless the Company
has theretofore notified the Non-Employee Director that a registration statement
covering the shares to be acquired upon the exercise of the Option has become
effective under the Securities Act of 1933 and the Company has not thereafter
notified the Non-Employee Director that such registration is no longer
effective, it shall be a condition to any exercise of this Option that the
shares acquired upon such exercise be acquired for investment and not with a
view to distribution, and the person effecting such exercise shall submit to the
Company a certificate of such investment intent, together with such other
evidence supporting the same as the Company may request. The Company shall be
entitled to restrict the transferability of the shares issued upon any such
exercise to the extent necessary to avoid a risk of violation of the Securities
Act of 1933 (or of any rules or regulations promulgated thereunder) or of any
state laws or regulations. Such restrictions may, at the option of the Company,
be noted or set forth in full on the share certificates.
7. Transferability of Option. Except as otherwise provided in
this Paragraph 7, this Option is not assignable or transferable by the
Non-Employee Director other than by will or by the laws of descent and
distribution, and during the lifetime of the Non-Employee Director, this Option
shall be exercisable only by the Non-Employee Director or by his or her guardian
or legal representative. However, the Non-Employee Director may transfer this
Option for no consideration to (i) a member of his or her immediate family, (ii)
a partnership of which the only partners are members of his or her immediate
family, or (iii) a trust established solely for the benefit of his or her
immediate family members. Any transferee of this Option shall remain subject to
all the terms and conditions applicable to this Option prior to such transfer.
If the Non-Employee Director is married at the time of
exercise and if the Non-Employee Director so requests at the time of exercise,
the certificate or certificates shall be registered in the name of the
Non-Employee Director and the Non-Employee Director's spouse, jointly, with
right of survivorship.
<PAGE>
8. Termination of Service as a Director. If the Non-Employee
Director's service as a director of the Company is terminated for any reason
other than death or disability prior to the Expiration Date of this Option as
set forth in Paragraph 3, this Option may be exercised, to the extent of the
number of shares with respect to which the Non-Employee Director could have
exercised it on the date he or she ceased to be a director, at any time prior to
the earlier of:
(a) The Expiration Date specified in Paragraph 3; or
(b) Three months after the date of such termination of service
as a director.
9. Disability. If the Non-Employee Director becomes disabled,
as defined in the Plan, during his or her term as a director of the Company and,
prior to the Expiration Date of this Option as set forth in Paragraph 3, the
Non-Employee Director's service as a director of the Company is terminated as a
consequence of such disability, this Option may be exercised, to the extent of
the number of shares with respect to which the Non-Employee Director could have
exercised it on the date he or she ceased to be a director, at any time prior to
the earlier of:
(a) The Expiration Date specified in Paragraph 3; or
(b) One year after the date the Non-Employee Director ceases
to be a director by reason of disability.
In the event of the Non-Employee Director's legal disability, this Option may be
exercised by the Non-Employee Director's legal representative.
10. Death. If the Non-Employee Director dies during his or her
term as a director of the Company and prior to the Expiration Date of this
Option as set forth in Paragraph 3, or if the Non-Employee Director's Board
membership ceases for any reason (as described in Paragraphs 8 or 9 above) and
the Non-Employee Director dies following his or her ceasing to be a director but
prior to the earlier of the Expiration Date of this Option as set forth in
Paragraph 3 above, or the expiration of the period determined under Paragraph 8
or 9 above, this Option may be exercised, to the extent of the number of shares
with respect to which the Non-Employee Director could have exercised it on the
date of his or her death, at any time prior to the earlier of:
(a) The Expiration Date specified in Paragraph 3; or
(b) One year after the date of the Non-Employee Director's
death.
This Option may be exercised by the Non-Employee Director's estate, personal
representative or beneficiary who acquired the right to exercise this Option by
bequest or inheritance or by reason of the Non-Employee Director's death.
11. Governing Law. This Option Agreement shall be governed by
applicable Federal law and otherwise by the laws of the Commonwealth of
Pennsylvania.
IN WITNESS WHEREOF, the Company has caused this Non-Qualified
Stock Option Agreement to be duly executed by its officer thereunto duly
authorized, and the Non-Employee Director has hereunto set his or her hand, all
as of the day and year first above written.
THE JUDGE GROUP, INC.
/s/Katharine A. Wiercinski /s/Martin E. Judge, Jr.
-------------------------- -----------------------
Secretary President
NON-EMPLOYEE DIRECTOR
/s/Randolph J. Angermann
------------------------
<PAGE>
Exhibit 10.15
STOCK PURCHASE AGREEMENT
Dated as of June 5, 1998
by and among
JUDGE IMAGING SYSTEMS, INC.,
JAMES TURNER,
and
SYSTEMS SOLUTIONS, INC.,
doing business as
COREBRIDGE TECHNOLOGY, INC.
THIS STOCK PURCHASE AGREEMENT is dated as of June 5, 1998 by
and among SYSTEMS SOLUTIONS, INC., a Washington corporation doing business as
"Corebridge Technology, Inc." (the "Company"), JAMES TURNER ("Seller") and JUDGE
IMAGING SYSTEMS, INC., a Pennsylvania corporation ("Buyer").
BACKGROUND
The parties hereto desire to provide for the acquisition by
Buyer from Seller of all of the Company's outstanding shares of capital stock,
and thereby, the Company's imaging and computer consulting businesses (the
"Business"). The parties have agreed to accomplish the foregoing 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 STOCK.
1.1 Sale and Purchase of Shares. Subject to the terms
and conditions of this Agreement, at the Closing (as herein defined), Seller
shall sell, transfer and deliver to Buyer all the shares of the common stock,
par value $ per share, of the Company in the aggregate constituting all of the
outstanding shares of the Company's capital stock (collectively the "Shares"),
and Buyer shall pay with respect to the Shares the consideration set forth in
Section 2.
1.2 Purchased Assets. Seller represents that
immediately after the Closing Buyer shall own all of the outstanding capital
stock of the Company and the Company shall continue to own and have valid title
in and to all of the tangible and intangible properties and assets owned or held
by the Company immediately prior to the Closing and relating to or used or held
for use in connection with the Business, in each case free and clear of all
Liens (as defined herein), except as set forth in the Disclosure Statement
pursuant to Section 5.3 hereof, including, without limitation, the following
assets and each of the assets listed or required to be listed on the Disclosure
Statement pursuant to Section 5.11 hereof, (the "Purchased Assets"):
(a) all cash;
(b) all accounts receivable;
48
<PAGE>
(c) all supplies, machinery, furniture, equipment
and other personal property, including those set forth on Schedule 1.2(c)
hereto;
(d) all (i) fictitious business names, tradenames
(including, but not limited to the names "Systems Solutions" and "Corebridge
Technology"), registered and unregistered trademarks, service marks and related
applications (the "Marks"), (ii) patents, patent rights and patent applications
(collectively, "Patents"), (iii) copyrights in published and unpublished works
("Copyrights"), computer programs and software, including the Company's website
("Software"), (iv) proprietary formulas, trade secrets, confidential
information, formulations and inventions (whether or not patented) ("Trade
Secrets"), and (v) licenses and permits issued or granted by any person relating
to any of the foregoing (collectively "Intellectual Property") including those
set forth on Schedule 1.2(d) hereto;
(e) all purchase orders, sales agreements,
equipment leases, distribution agreements, licensing agreements and other
contracts, agreements and commitments of Company identified on Schedule 1.2(e)
subject in each case to the terms of such contracts ("Contracts");
(f) all books and records 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;
(g) the lease related to the facility at 7981
168th Avenue NE, Redmond, Warthington (the "Facility") and any deposit related
thereto (the "Lease").
(h) any other assets of the Business, including
those set forth on Schedule 1.2(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
the Company;
(i) all Authorizations (as defined in Section
5.5(b)) associated with the Business and its operations;
(j) all intangible assets and goodwill associated
with the Business and its operations;
(k) any other assets which are located at the
Facility, including those set forth on Schedule 1.2(k);
(l) all employee records (excluding employment
and non-competition agreements); and
(m) corporate records and seals, and tax returns
and tax records.
49
<PAGE>
SECTION 2. PURCHASE PRICE AND PAYMENT.
2.1 Purchase Price.
(a) Subject to adjustment pursuant to Section 2.2
below, the total consideration for the Shares shall be the amount payable under
Section 2.1(b) below plus monies earned under Section 2.1(c), if any (the
"Purchase Price").
(b) At the Closing, Buyer shall pay Seller the
sum of One Hundred Thousand Dollars ($100,000.00) in cash.
(c) A portion of the Purchase Price shall be paid
in the form of an earnout (the "Earnout") with respect to the performance of the
Business as it was conducted by the Company and will be conducted by the Company
from May 1, 1998 to December 31, 1998 and from January 1, 1999 to December 31,
1999. The Earnout shall be computed by Buyer and paid as follows:
(i) Buyer shall pay Seller an amount
calculated based on 400% of the earnings before interest and taxes ("EBIT") of
the Company for the period commencing May 1, 1998 and ending on December 31,
1998, which EBIT amount shall be accounted for under the accrual method of
accounting in accordance with Buyer's accounting policies and procedures and
generally accepted accounting procedures ("GAAP"), less $50,000; and
(ii) Buyer shall pay Seller an amount
calculated based on 200% of EBIT of the Company for the period commencing
January 1, 1999 and ending on December 31, 1999, which EBIT amount shall be
accounted for under the accrual method of accounting in accordance with Buyer's
accounting policies and procedures and GAAP, less $50,000.
(d) Payments required to be made under Section
2.1(c) above for each earnout period, if any, shall be paid within one hundred
and twenty (120) days after the respective year end as follows:
(i) 1/3 of the amount calculated pursuant to
Section 2.1(c) shall be paid in cash;
(ii) 1/3 of the amount calculated pursuant to
Section 2.1(c) shall be paid in shares (the "Judge Shares") of the unregistered
common stock of The Judge Group, Inc. ("Judge Group") bearing the appropriate
restrictive legends and valued at 150% of the 30-calendar day average closing
price of the Judge Shares, as reported on the Nasdaq Stock Market ("Market
Price") for the period ending on the last day of the applicable earnout period,
provided that any Shares issued pursuant to this Section (d) (ii) below shall be
issued 30 days after the number of Shares has been calculated; and
(iii) 1/3 of the amount calculated pursuant
to Section 2(c) shall be paid by delivery to Seller of Buyer's promissory note
in the principal amount of such payment, payable two (2) years after the date of
issuance with interest at the prime rate of interest in effect on the date
issued as reported by the Wall Street Journal.
50
<PAGE>
An example of the Earnout calculation is set forth below:
Example:
5/1/98 through 12/31/98 sales equal $1,000,000
5/1/98 through 12/31/98 EBIT = $120,000
1998 Earnout equals $120,000 *4 = $480,000
12/31/98 Market Value of Judge Shares = $10.00
1/3 cash of $160,000.
13 stock valued at $160,000 / ($10.00 * 150%) = 10,666
Judge Shares
1/3 in a two year $160,000 promissory note
(e) Notwithstanding the foregoing, payments
required to be made under Section 2.1(c) above, if any, shall only be deemed
earned and owing to Seller in full so long as Seller, during the entire earnout
period beginning on May 1, 1998 and ending on December 31, 1999: (i) has not
voluntarily terminated his employment with the Company or (ii) has not been
terminated by the Company for cause (as defined in the Employment Agreement
defined below). If Seller voluntarily terminates his employment or if he is
terminated with cause, the payments required to be made under Section 2.1(c)
above, if any, shall be made pro rata through the date of termination.
(f) If Buyer or Seller shall have any objections
to the calculation of EBIT or the Earnout, Buyer and Seller shall attempt in
good faith to reach an agreement as to the matter in dispute. If Buyer and
Seller shall have failed to resolve such disputed matter within ten (10)
business days after receipt of notice of such objection, then any such disputed
matter may, at the instance of Buyer or Seller, be submitted to and determined
by an accounting firm that is independent from Buyer and Seller and is
reasonably acceptable to Buyer and Seller. The fees and expenses of any such
accounting firm incurred in resolving the disputed matter shall be equitably
apportioned by such accountant based upon the extent to which Buyer or Seller is
determined by such accountant to be the prevailing party. The decision of such
accounting firm shall be final, binding and conclusive on the parties hereto.
(g) Seller acknowledges that the Buyer and the
Company will operate the Business in their discretion, and there is no assurance
that the Business will be operated so as to maximize the Earnout. Accordingly,
Seller hereby waives any claim that the Earnout could have been greater had the
Company or the Business been operated in any particular manner.
2.2 Closing Balance Sheet.
(a) The Buyer shall have the right to verify
prior to the Closing the validity and enforceability of the Company's accounts
receivable by mailing verification letters to any or all of the account debtors.
If the Buyer concludes prior to the Closing, based on the responses to
verification requests, that defenses to the validity and enforceability of any
accounts receivable have been asserted, the Buyer may elect to require that such
accounts receivable be transferred out of the Company to the Seller prior to the
Closing.
(b) Promptly following the Closing, Buyer and
Seller shall use their best efforts to enable Buyer to prepare or cause to be
prepared, in accordance with GAAP consistently applied, a consolidated balance
sheet of Company as of the opening of business on the Closing Date. Such balance
sheet prepared and finally determined as provided in this Section 2.2 is
referred to herein as the "Closing Statement." Within 60 days following the
Closing, Buyer shall deliver to Seller a final draft of the Closing Statement,
together with its calculation of Net Worth (as herein defined) as of the opening
of business on the Closing Date. For the purposes of this Agreement, Net Worth
shall mean the consolidated assets of Company, less its consolidated
liabilities, in each case as determined by GAAP consistently applied, except as
otherwise specified on Schedule 2.2 hereto.
51
<PAGE>
(c) If Seller shall have any objections to the
Closing Statement or to the calculation of Net Worth, Buyer and Seller shall
attempt in good faith to reach an agreement as to the matter in dispute. If
Buyer and Seller shall have failed to resolve such disputed matter within twenty
(20) business days after receipt of notice of such objection, then any such
disputed matter may, at the instance of Buyer or Seller, be submitted to and
determined by an accounting firm that is independent from Buyer and Seller and
is reasonably acceptable to Buyer and Seller. The fees and expenses of any such
accounting firm incurred in resolving the disputed matter shall be equitably
apportioned by such accountant based upon the extent to which Buyer or Seller
are determined by such accountants to be the prevailing party. The definitive
Closing Statement and calculation of Net Worth shall, after resolution of any
disputes pursuant to this Section 2.2, be verified by the Auditors and/or such
accounting firm, as appropriate, as in accordance with the requirements of this
Section 2.2 and shall be final, binding and conclusive on all parties hereto.
1.1 Post Closing Adjustment.
(d) If the Net Worth as of the Closing Date as
conclusively determined as provided herein (such conclusive determination is
referred to herein as "Certified Net Worth"), is less than $75,000, then subject
to Section 2.3(b), Seller shall pay, or cause to be paid to Buyer, the amount of
such deficiency. 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 Worth calculation
(e) Notwithstanding Section 2.3(a), if Buyer and
Seller dispute any portion of the Closing Statement or the calculation of Net
Worth, but nonetheless agree that, following final determination of Certified
Net Worth, a payment will be required to be made pursuant to Section 2.3 (a) by
Seller to Buyer or by Buyer to Seller, the amount of such payment which the
parties do not dispute shall be paid together with interest, as provided
therein.
(f) Payments made pursuant to this Section 2.3
shall be made by wire transfer of immediately available funds to an account
designated by the party receiving such payment.
SECTION 3. CLOSING.
3.1 Time and Place of Closing. The closing of the
purchase and sale of the Shares (the "Closing") pursuant to this Agreement shall
take place on June __, 1998 at the Buyer's offices at Two Bala Plaza, Suite 800,
Bala Cynwyd, Pennsylvania 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 (the "Closing
Date").
3.2 Deliveries at the Closing. At the Closing, in
addition to the other actions contemplated elsewhere herein:
52
<PAGE>
(a) Seller shall deliver, or shall cause to be
delivered, to Buyer the following:
(i) certificates representing all of the
Shares, duly endorsed for transfer or with stock powers affixed thereto executed
in blank in proper form for transfer with signatures;
(ii) assignments and consents as to all
Contracts whenever necessary, provided that if the assignment of a Contract is
subject to the approval of a third party, Buyer and Seller shall use their best
efforts to obtain such approval;
(iii) the opinion letter of Seller's counsel
in the form attached as Exhibit I hereto ("Opinion of Seller's Counsel"); and
(iv) the Employment Agreement executed by
Seller in the form attached as Exhibit II hereto (the "Employment Agreement").
(b) Buyer shall deliver, or shall cause to be
delivered, to Seller the cash portion of the Purchase Price, as adjusted,
pursuant to Section 2.1(a) and the Employment Agreement, executed by the
Company.
SECTION 4. REPRESENTATIONS AND WARRANTIES
REGARDING 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 (the "Disclosure Statement"). Seller hereby
represents and warrants to Buyer as follows:
4.1 Power and Authorization. Seller has full
capacity, legal right, power and authority to enter into and perform his
obligations under this Agreement, the Employment Agreement and under the other
agreements and documents (the "Seller Transaction Documents") required to be
delivered by Seller prior to or at the Closing. 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 his legal, valid
and binding obligation, enforceable against him in accordance with its terms.
When executed and delivered as contemplated herein, each of the Seller
Transaction Documents shall constitute his legal, valid and binding obligation
enforceable against him in accordance with its terms.
4.2 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):
53
<PAGE>
(i) violate or conflict with any law
(including, without limitation, principles of common law), statute, 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
Seller;
(ii) violate or conflict with, result in a
breach of, or constitute a default or otherwise cause any loss of benefit under
any agreement or other obligation to which Seller is a party, or give to others
any rights (including rights of termination, foreclosure, cancellation or
acceleration), in or with respect to Seller or any of Seller's assets including,
without limitation, any of the Shares; or
(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 (a
"Lien") upon or with respect to the Shares, or any other material assets of
Seller.
(b) There are no judicial, administrative or
other governmental actions, proceedings or investigations pending 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,
would have an adverse effect upon the ability of Seller to enter into or perform
his obligations under this Agreement.
4.3 Ownership of the Shares.
(a) Seller owns all of the Shares beneficially
and of record, free and clear of all Liens. There are no shareholder or other
agreements affecting the right of Seller to convey the Shares to Buyer or any
other right of Seller with respect to the Shares and Seller has the absolute
right, authority, power and capacity to sell, assign and transfer the Shares
owned by Seller to Buyer free and clear of any Lien. Upon delivery to Buyer of
the certificates for the Shares at the Closing, Buyer will acquire good, valid
and marketable title to the Shares and will own all of the outstanding capital
stock of the Company, free and clear of any Lien (except for applicable
securities laws restrictions).
SECTION 5. REPRESENTATIONS AND WARRANTIES REGARDING
THE COMPANY.
Certain representations and warranties made by Seller and the
Company are modified as and to the extent set forth in the Disclosure Statement
or as otherwise provided herein. The Seller represents and warrants to Buyer as
follows:
5.1 Organization and Good Standing.
(a) The Disclosure Statement contains a complete
and accurate list with respect to the Company of its subsidiaries, and any other
jurisdictions in which it is authorized to do business. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Washington and has all necessary corporate power to own its
properties and conduct its business as it is now being conducted, to own or use
the properties and assets that it purports to own or use, and to perform all its
obligations under the Contracts. The Company is duly qualified to do business as
a foreign corporation and is in good standing under the laws of each state or
other jurisdiction in which either the ownership or use of the properties owned
or used by it, or the nature of the activities conducted by it, requires such
qualification.
54
<PAGE>
(b) Seller has delivered to Buyer copies of the
Company's organizational documents as currently in effect including a copy of
the Company's Articles of Incorporation and all amendments thereto effected
prior to the date hereof (certified by the Secretary of State of the State of
Washington) and of the Company's By-Laws as amended to the date hereof, and such
documents are complete and correct as of the date hereof.
(c) The Company's authorized, issued and
outstanding capital stock and its other securities are fully and accurately
described in the Disclosure Statement. No person has any preemptive or other
right with respect to any such equity interests or other securities and there
are no offers, options, warrants, rights, agreements or commitments of any kind
(contingent or otherwise) relating to the issuance, conversion, registration,
voting, sale or transfer of any equity interests or other securities of the
Company (including, without limitation, the Shares) or obligating the Company or
any other person to purchase or redeem any such equity interest or other
securities. The Shares constitute all of the issued and outstanding shares of
capital stock of the Company and have been duly authorized and are validly
issued and outstanding, fully paid and nonassessable, and have been issued in
compliance with applicable securities and other Laws.
(d) The Company does not, directly or indirectly,
own, control or have any investment or other interest in any corporation,
partnership, limited liability company, joint venture, business trust or other
entity and has not agreed, contingently or otherwise, to share any revenues,
profits, losses, costs or liabilities or to indemnify any person or entity or to
guaranty the obligations of any person or entity. The Seller does not own or
control any interest in any other business or entity conducting a business
similar to the Business.
5.2 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;
(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) violate or conflict with any provision
of the Company's Articles of Incorporation or by-laws;
55
<PAGE>
(iv) result in, require or permit the
creation or imposition of any Lien of any nature upon or with respect to any
assets of the Company;
(v) cause Buyer or the Company to become
subject to, or become liable for the payment of any tax; or
(vi) 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 the
Company or, to the knowledge of the Company or the 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 the Company to enter into or perform its obligations under this
Agreement or any such other agreements or instruments. The Company has not
received any request from any governmental agency or instrumentality for
information with respect to the transactions contemplated hereby.
(c) Schedule 5.2 of the Disclosure Statement sets
forth each consent or approval of, or registration, notification, filing and/or
declaration with, any court, government or governmental agency or
instrumentality, creditor, lessor or other person required to be given or made
by the Company or Seller in connection with the execution, delivery and
performance of this Agreement and the other agreements and instruments
contemplated herein. There are no such consents, approvals, registrations,
notifications, filings or declarations which involve payment of a premium or
penalty by, or loss of benefit to, the Company. Upon consummation of the
transactions contemplated by this Agreement, the Company will be entitled to
continue to use all of the assets and properties now used by it.
5.3 Brokers. No person, acting on behalf of the
Seller or Company or any of their 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, in connection with any
of the transactions contemplated by this Agreement.
5.4 Compliance with Laws.
(a) Except as described in the Disclosure
Statement, the Company and the Business are, and at all times during the last
two (2) years have been, in compliance in all material respects with all
applicable Laws; and the Company has not had any basis to expect, and has not
received, with respect to the operation of the Business or otherwise, 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 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 default or violation thereunder by the Company or
by any other party thereto and neither the Company nor the Seller has received
any notice of any claim or charge that the Company is or within the last two (2)
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 the Company or the Seller, threatened by any person to
revoke or deny the renewal of any Authorization; and (ii) neither the Seller nor
the Company 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.
56
<PAGE>
5.5 Securities Laws Matters.
(a) Seller acknowledges that the Judge Shares and
the monies earned pursuant to Sections 2.1(c) and (d) hereof, 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 his
primary residence is located in the State of Washington.
(c) Seller represents and warrants that:
(i) Seller is well versed in financial
matters and has such knowledge and experience in financial and business matters
and that he 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) Seller is acting herein for his own
account and is acquiring the Securities for investment without a view to the
resale or other distribution thereof. Seller 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 such his overall
investment program and financial position, and recognizes that there are
substantial risks involved in an investment in the Securities;
(iii) Seller is an "accredited investor" as
defined in Rule 501(a) of Regulation D under the Securities Act; and
(iv) Seller 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, 1997, as amended,
the quarterly report on Form 10-Q for the quarter ended March 31, 1998 and each
report on Form 8-K filed by Judge Group subsequent to its Form 10-K.
(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 each Seller agrees that a legend to
such effect will be placed on the Securities.
57
<PAGE>
5.6 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 Company or the Business, or any
director, officer or shareholder of the Company (in such capacity), 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 the Company or the 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.
5.7 Financial Statements.
(a) The unaudited statements of income of the
Business for the 12-month periods ended December 31, 1996 and 1997, reviewed by
____________, independent certified public accountant, a correct and complete
copy of which is attached hereto as part of Schedule 5.8 of the Disclosure
Statement, are true and correct in all material respects and present fairly the
financial position of the Company and the results of its operations for the
fiscal periods 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.
(b) The unaudited statements of income of the
Company for the months ended January through April, 1998, reviewed by
_______________, independent certified public accountant, a correct and complete
copy of which is attached hereto as part of Schedule 5.8 of the Disclosure
Statement, are true and correct in all material respects and present fairly the
results of the Company's operations for the periods 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 unaudited balance sheet of the Company at
April 30, 1998 (the "Balance Sheet"), reviewed by _______________, independent
certified public accountant, a correct and complete copy of which is attached
hereto as part of Schedule 5.8 of the Disclosure Statement, is true and complete
in all material respects and presents fairly the financial condition and the
assets and liabilities of the Company 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) The Balance Sheet reflects all liabilities of
the Company, whether absolute, accrued or contingent, as of the respective dates
thereof of the type required to be reflected or disclosed in a balance sheet (or
the notes thereto) prepared in accordance with GAAP. Except as identified in the
Disclosure Statement, the Company does not have any liabilities or obligations
of any nature that are not reflected on the Balance Sheet other than current
liabilities (within the meaning of GAAP) incurred since the date thereof in the
ordinary course of business consistent in nature and amount with past practice
and which are neither material in amount nor inconsistent with any of the
representations and warranties contained herein. Except as described in the
Disclosure Statement, there is no basis for the assertion against Company of any
liability (other than current liabilities referred to above) not fully reflected
or reserved against in the Balance Sheet.
58
<PAGE>
(e) The Balance Sheet reflects reserves or other
appropriate provisions at least equal to reasonably anticipated liabilities,
losses and expenses of the Company as of the respective dates thereof whether or
not required to be disclosed by GAAP, including without limitation those with
respect to income and other taxes (including alternative minimum tax), warranty
claims, bad debts, unsalable inventories, salaries, vacation pay, and plans and
programs (including medical and other benefits programs) for the benefit of
present and former employees.
5.8 Accounts Receivable. All accounts receivable of
the Company 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 Company and have been
collected, or are collectible within 90 days after billing, in the full
aggregate recorded amounts thereof, less, the amount of the allowance for
doubtful accounts which as of the date hereof is no greater than as 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 5.9 of the Disclosure Statement lists the Business's accounts
receivable as of the Balance Sheet date and as of a recent date prior to the
date of this Agreement, in each case specifying the account debtor, the face
amount of the receivable and the age of the receivable.
5.9 Personal Property. Except as described in the
Disclosure Statement: (a) the Company has good and valid title to all of its
assets free and clear of any Lien and (b) all assets owned or leased by the
Company are in the possession or under the control of the Company, are in good
condition and repair, ordinary wear and tear excepted, 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.
5.10 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 $500 in respect of any
item, and the location thereof;
(b) Each Authorization employed in the Business;
(c) All Marks, Patents, Copyrights, Trade
Secrets and Software, and all licenses and permits 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 the Company
as either licensor or licensee, together with all other interests therein
granted by the Company to any other person and all agreements with respect to
any of the foregoing to which the Company 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 the
Company or the Company's officers, employees or consultants to engage in the
Business or to compete with any person;
59
<PAGE>
(e) Each contract involving the performance of
services or delivery of goods or materials by or to the Company, or which is not
terminable by the Company on less than 30 days notice without penalty;
(f) Each contract, agreement or commitment
relating to the Business to which the Company 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
the Company 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 the Company 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 years for the benefit
of, or respecting which any premiums are paid directly or indirectly by the
Company relating to the Business;
(i) Each insurance claim made or loss incurred
in the preceding two years pursuant to any workers' compensation, liability or
other insurance policy; and
(j) Each Lien of any nature;
(k) Each outstanding power-of-attorney or
similar power granted by the Company for any purpose whatsoever, and each bank
or other institution in which the Company has an account, including the relevant
account number;
The Company 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.
5.11 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, the Company 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 the Company or, to the best knowledge of the Company and the
Seller, by any other party thereto. The Company 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 Company 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.
5.12 Intellectual Property.
(a) The Disclosure Statement sets forth a true
and complete list or description of all Intellectual Property;
60
<PAGE>
(b) Except as otherwise described in the
Disclosure Statement: (i) the Company owns 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; (ii)
the Company 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 any of the Intellectual Property); (iii) the rights of the Company in
and to any of the Intellectual Property will not be limited or otherwise
affected by reason of any of the transactions contemplated hereby; (iv) the
Intellectual Property is sufficient for the conduct of the Company's Business as
such is presently conducted; and (v) none of the Intellectual Property infringes
or, to the knowledge of the Company or the Seller, is alleged to infringe any
trademark, copyright, patent or other proprietary rights of any person;
(c) All employees of the Company or other
persons or entities involved with the development, implementation, use or
marketing of any Intellectual Property have entered into written agreements
assigning to the Company all rights to any intellectual property related to the
Company's business;
(d) The Company has not, except in the ordinary
course of business consistent with past practices, transferred to any person or
entity any rights to any Intellectual Property.
5.13 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 the
Company with respect to the Business. Neither the Seller nor the Company 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 years there have not been any,
disputes or controversies involving, in the aggregate, more than $5,000 between
the Company 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.
5.14 Taxes.
(a) All federal, state, local and foreign
returns and reports relating to Taxes (as defined herein), or extensions
relating thereto, required to be filed by or with respect to the Company have
been timely and properly filed, and all such returns and reports are correct and
complete.
(b) All federal, state, local and foreign
income, profits, franchise, sales, use, payroll, premium, occupancy, property,
severance, excise, withholding, customs, unemployment, transfer and other taxes,
including interest, additions to tax and penalties (collectively "Taxes") due or
properly shown to be due on any return referred to in Section 5.15(a) by the
Company 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 or,
in the case of Taxes not yet due, fully provided for on the Balance Sheet or, in
the case of Taxes accruing after the date of such financial statement, on the
books of account of the Company; and there are no levies, liens, or other
encumbrances relating to Taxes existing, threatened or pending with respect to
any asset of the Company.
61
<PAGE>
(c) Except as described in the Disclosure
Statement, no issues have been raised with any representative or employee of the
Company (and are currently pending) by the Internal Revenue Service ("IRS") or
any other taxing authority in connection with any of the returns and reports
referred to in subsection (a) above and no waivers of statutes of limitations
have been given or requested with respect to any such returns and reports or
with respect to any Taxes.
(d) The Disclosure Statement identifies all
federal, state, local and foreign income, franchise and sales and use tax
returns of or with respect to the Company which have been examined since 1991,
or which are currently under examination, by the IRS or by other taxing
authorities, or with respect to which the applicable statute of limitations
(including all extensions and tolling periods) has not yet run. Except as and to
the extent shown on such Disclosure Statement, all deficiencies asserted or
assessments made as a result of such examinations have been fully paid, and
there are no other unpaid deficiencies asserted or assessments made by any
taxing authority against the Company.
(e) The Disclosure Statement lists all elections
by or with respect to Company for federal or state income or franchise tax
purposes that are currently applicable. The Company has not: filed any consent
under section 341(f)(1) of the Internal Revenue Code of 1986, as amended (the
"Code") or agreed to have the provisions of Code section 341(f)(2) apply to any
dispositions of "subsection (f) assets" as such term is defined in Code section
341(f)(4); agreed to or been required to make any adjustments under Code section
481(a) by reason of a change in accounting method or otherwise; [employed the
LIFO method of accounting for inventories for federal income tax purposes;] made
a transfer of intangible property on which Code section 367(d) or 482 will
require the recognition of additional income for any period after the date
hereof; or owned stock in a "passive foreign investment company" within the
meaning of Code section 1296(a). The books and records of the Company are
sufficient to prove the correctness of all tax returns for open tax years and to
determine and to prove the adjusted tax basis for federal income tax purposes of
each asset of the Company.
(f) The Company has not incurred any deferred
gain on any intercompany transaction (as described in Treasury regulation
ss.1.1502-13), nor will any deferred income or gain or excess loss account be
required to be taken into account by the Company under the federal consolidated
return regulations (including, but not limited to, Treasury regulations
ss.ss.1.1502-13(f)(1)(iii), 1.1502-13(f)(1)(iv), 1.1502-14(d)(3) and
1.1502-19(b)(2)(i)) by reason of the transactions contemplated in this
Agreement. The Company is not a party to any tax sharing agreement or tax
indemnification agreement.
5.15 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(2) 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 Company or any ERISA Affiliate
(as defined below) or to which the Company or any ERISA Affiliate has
contributed or is or was within the last four years obligated to make payments.
The Company has delivered to Buyer, with respect to all such plans,
arrangements, commitments and practices, 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; the most recent summary plan descriptions and any subsequent
summaries of material modifications and all other material employee
communications discussing any employee benefit; Forms series 5500 as filed with
the IRS for the four most recent plan years; the most recent report of the
enrolled actuary for all defined benefit plans, funded welfare plans or other
plans requiring actuarial valuation; all trust agreements with respect to
employee benefit plans; plan contracts with service providers or 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 Code section 401(a). As used herein, "ERISA Affiliate"
shall refer to any trade or business, whether or not incorporated, under common
control with the Company within the meaning of Section 414(b), (c), (m) or (o)
of the Code.
62
<PAGE>
(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 Code and all
other applicable Laws (including, without limitation, funding, filing,
termination, reporting and disclosure and 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 Company has made or provided for all contributions required
under the terms of such Plans; (iii) no "Employee Pension Benefit Plan" (as
defined in Section 3(2) of ERISA) has been the subject of a "reportable event"
(as defined in Section 4043 of ERISA) and there have been no "prohibited
transactions" (as described in Section 4975 of the Code or in Part 4 of Subtitle
B of Title I of ERISA) with respect to any Employee Benefit Plan; (iv) 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; (v) the
actuarial present value of accumulated benefits (both vested and unvested) of
each of the Employee Pension Benefit Plans which are defined benefit plans, are
fully funded in accordance with the actuarial assumptions used by the Pension
Benefit Guaranty Corporation ("PBGC") to determine the level of funding required
in the event of the termination of such Plan; (vi) each Employee Pension Benefit
Plan 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 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; and (vii) neither Company 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, or which would cause the imposition of any
liability, penalty or tax under ERISA or the Code with respect to any Employee
Benefit Plan.
(c) Neither Company 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 the Company is not bound by any collective bargaining agreement or legally
binding arrangement to maintain or contribute to any Employee Benefit Plan.
63
<PAGE>
(d) Neither the Company 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).
(a) With respect to each Employee Benefit Plan
maintained by Company or any ERISA Affiliate: (i) no unsatisfied liabilities to
participants, the IRS, the United States Department of Labor ("DOL"), the PBGC
or to any other person or entity have been incurred as a result of the
termination of any Employee Benefit Plan; (ii) no Employee Pension Benefit Plan,
which is subject to the minimum funding requirements of Part 3 of subtitle B of
Title I of ERISA or subject to Section 412 of the Code, has incurred any
"accumulated funding deficiency" within the meaning of Section 302 of ERISA or
Section 412 of the Code and there has been no waived funding deficiency within
the meaning of Section 303 of ERISA or Section 412 of the Code; (iii) there has
been no event with respect to an Employee Pension Benefit Plan which would
require disclosure under Sections 4062(c), 4063(a) or 4041(e) of ERISA.]
(e) All reports and information required to be
filed with the DOL, IRS and PBGC 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 Company or any ERISA Affiliate are plan assets.
(h) Neither the Company 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) Except as set forth on the Disclosure
Statement, the consummation of the transactions contemplated by this Agreement
will not, alone or together with any other event, (i) entitle any person to
severance pay, unemployment compensation or any other payment, (ii) accelerate
the time of payment or vesting, or increase the amount of compensation due to
any such employee, or (iii) result in any liability under Title IV of ERISA or
otherwise.
(j) Neither the Company nor any ERISA Affiliate
is bound by any collective bargaining agreement or legally binding arrangement
to maintain or contribute to any Employee Benefit Plan.
(k) 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.
64
<PAGE>
(l) 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 1 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.
5.16 Labor Matters.
(a) Except as described in the Disclosure
Statement: (i) to the knowledge of the Company and the Seller, no application or
petition for certification of a collective bargaining agent is pending and none
of the employees of the Company engaged in the Business are, or during the last
two years have been, represented by any union or other bargaining
representative; (ii) to the knowledge of the Company and the Seller, during the
last two years, no union has attempted to organize any group of the Company's
employees engaged in the Business, and no group of the Company'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 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
the Company from relocating or closing the Facility or any portion thereof; and
(v) to the knowledge of the Company and the Seller, no such agreement, action,
proceeding or occurrence is threatened or contemplated by any person.
(b) Except as described in the Disclosure
Statement, the Company 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 the Company and the 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) neither the Seller nor the Company has
been notified of any complaint or charge filed by any employee or employee
representative with any such government agency which alleges that the Company
has violated OSHA or any other statute, ordinance, rule or regulation
establishing standards of workplace safety; (iv) neither the Seller nor the
Company has been notified that any employee or employee representative of the
Company 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) the Company 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.
65
<PAGE>
(c) Attached to the Disclosure Statement are
true and correct copies of each OSHA Form No. 200 completed and maintained by
the Company at the Facility for the last two years.
5.17 Directors, Officers and Employees. The
Disclosure Statement sets forth the following information for each director,
officer and employee of the Company: 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 or the
Company with respect to any applicable Employee Benefit Plan; and any automobile
leased or owned by the Company primarily for use by any of the foregoing
persons. Except as described in the Disclosure Statement, none of the Company's
employees, directors or officers is a party to, or is otherwise bound by, any
agreement or arrangement with any person or entity other than the Company which
limits or adversely affects the performance of his or her duties, the ability of
the Company to conduct its businesses, or his or her freedom to engage in any of
the businesses conducted by Company (including, without limitation, any
confidentiality, non-competition or proprietary rights agreement). The
Disclosure Statement lists or describes each employment, severance, change of
control, consulting, commission, agency and representative agreement or
arrangement to which the Company 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).
5.18 Full Disclosure.
(a) All documents and other papers delivered by
or on behalf of the 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 the 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 the Seller or the Company (other
than general economic or industry conditions) which materially adversely affects
or, so far as the Seller or the Company can reasonably foresee, materially
threatens, the assets, business, prospects, financial condition or results of
operations of the Business or the ability of the Company to perform this
Agreement.
5.19 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 the
Company has not:
(a) declared or paid any dividend or other
distribution or payment in respect of the shares of capital stock of the Company
or any repurchase or redemption of any such shares of capital stock or other
securities;
(b) discharged or satisfied any Lien, 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 the Company, any of its material assets or the Business;
66
<PAGE>
(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 material 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 other than in the ordinary course of business, consistent
with past practice;
(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.
5.20 Insurance.
(a) The description of the policies and binders
of insurance contained in the Disclosure Statement identifies: (i) the
respective issuers and expiration dates thereof; (ii) deductible amounts and
amounts of coverage available and outstanding thereunder; (iii) whether such
policies and binders are "claims made" or "occurrences" policies, (iv) all
self-insurance programs or arrangements and (v) any retrospective premium
adjustments of which the Company has knowledge. Such policies and binders are
issued by insurance companies reasonably believed by Company to be financially
sound and reputable, are sufficient for compliance with all requirements of Laws
and all agreements to which the Company is a party or by which it or its assets
are bound, are valid and enforceable policies, provide insurance coverage
against all risks normally insured against by a person or entity carrying on the
same or similar business and, except as described in the Disclosure Statement,
will not be affected by, terminate or lapse by reason of the transactions
contemplated by this Agreement.
67
<PAGE>
(b) Except as described in the Disclosure
Statement, the Company has not received (i) any notice of cancellation of any
policy or binder of insurance required to be identified in the Disclosure
Statement or refusal of coverage thereunder; (ii) any notice that any issuer of
such policy or binder has filed for protection under applicable bankruptcy or
insolvency laws or is otherwise in the process of liquidating or has been
liquidated; or (iii) any other indication that any such policy or binder may no
longer be in full force or effect or that the issuer of any such policy or
binder may be unwilling or unable to perform its obligations thereunder. The
Company has not, within the last five years, been refused any insurance nor has
its coverage been limited.
5.21 Affiliate Agreements. Except as described in the
Disclosure Statement, there are no, and during the last three years there have
not been any, agreements, arrangements or understandings between the Company on
the one hand and Seller or any present or former director, shareholder or
officer of the Company or any member of the immediate family of or any person or
entity controlling or controlled by any of such persons (a "Related Party").
Except as described in the Disclosure Statement, no such Related Party has, or
during the last three years has had: any interest in any property (real or
personal, tangible or intangible) sold to, purchased by or otherwise used in or
pertaining to the business of the Company; or any direct or indirect interest in
any person or entity which has had business dealings or a financial interest in
any transaction with the Company or which is in competition with any business of
the Company. Except as described in the Disclosure Statement, all agreements and
arrangements between the Company and all Related Parties are terminable by the
Company, upon less than ten days notice, without payment of penalty or premium
of any kind. Seller has no claim or right against the Company except as
described in the Disclosure Statement.
5.22 Environmental Matters.
(a) Except as described in the Disclosure
Statement:
(i) The Company, including all of its
businesses and operations are and always have been operated in compliance with
all Environmental Laws (as defined below);
(ii) There are no conditions on, about,
beneath or arising from any real property which is now owned, used or leased to
or by the Company ("Current Real Property") which might, under any Environmental
Law, (A) give rise to liability or the imposition of a statutory lien, or (B)
which would or may require any "Response," "Removal" or "Remedial Action" (as
those terms are defined below) or any other action, including without limitation
reporting, monitoring, cleanup or contribution;
(iii) There were no conditions on, about,
beneath or arising from any real property which was, but is no longer, owned,
used or leased to or by the Company ("Former Real Property"), during the period
of such ownership, use, or lease, which might, under any Environmental Law, (A)
give rise to liability or the imposition of a statutory lien, or (B) which would
or may require any "Response," "Removal" or "Remedial Action" or any other
action, including without limitation reporting, monitoring, cleanup or
contribution;
68
<PAGE>
(iv) The Company has not received any
notification of a release or threat of a release of a "Hazardous Substance" (as
defined below) with respect to any Current Real Property or Former Real
Property;
(v) No Hazardous Substances have been used,
handled, generated, processed, treated, stored, transported to or from,
released, discharged or disposed of by the Company or any third party on, about
or beneath any Current Real Property.
(vi) During the Company's ownership, use or
lease of the Former Real Property, no Hazardous Substances were used, handled,
generated, processed, treated, stored, transported to or from, released,
discharged or disposed of by the Company or any third party on, about or beneath
the former Real Property;
(vii) There are no above or underground
storage tanks, asbestos containing materials, or transformers containing or
contaminated with PCB's on, about or beneath the Current Real Property. During
the Company's ownership, use or lease of the Former Real Property, there were no
above or underground storage tanks, asbestos containing materials, or
transformers containing or contaminated with PCB's on, about or beneath the
Former Real Property.
(viii) The Company has not received notice
and does not have actual or constructive knowledge of:
(A) any claim, demand, investigation,
enforcement action, Response, Removal, Remedial Action, statutory lien or other
governmental or regulatory action instituted or threatened against the Company
or the Current Real Property or Former Real Property pursuant to any of the
Environmental Laws;
(B) any claim, demand notice, suit or
action, made or threatened by any person against the Company; the Current Real
Property or the Former Real Property relating to (1) any form of damage, loss or
injury resulting from, or claimed to result from, any Hazardous Substance on,
about, beneath or arising from the Current or Former Real Property or (2) any
alleged violation of the Environmental Laws by the Company; or
(C) any communication to or from any
governmental or regulatory agency arising out of or in connection with Hazardous
Substances on, about, beneath, arising from or generated at the Current Real
Property or Former Real Property, including without limitation, any notice of
violation, citation, complaint, order, directive, request for information or
response thereto, notice letter, demand letter or compliance schedule.
(ix) No wastes generated by the Company have
ever been directly or indirectly sent, transferred, transported to, treated,
stored, or disposed of at any site listed or formally proposed for listing on
the National Priority List promulgated pursuant to "CERCLA" (as defined below)
or to any site listed on any state list of sites requiring or recommended for
investigation or clean-up. None of the Current Real Property or Former Real
Property is listed on the National Priorities List or any state list of sites
requiring or recommended for investigation or clean up.
69
<PAGE>
(b) As used in this Agreement:
(i) the term "Environmental Laws" means all
Laws concerning or relating to industrial hygiene or protection of human health
or the environment.
(ii) the terms "Response," "Removal" and
"Remedial Action" shall have the meanings ascribed to them in Sections
101(23)-101(25) of the Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA"), as amended by the Superfund Amendments and
Reauthorization Act ("SARA"), 42 U.S.C. ss.ss. 9601(23)-9601(25).
(iii) The term "Hazardous Substances" or
"Hazardous Substance" shall mean any substance regulated under any of the
Environmental Laws including, without limitation, any substance which is: (A)
petroleum, asbestos or asbestos-containing material, or polychlorinated
biphenyls; (B) defined, designated or listed as a "Hazardous Substance" pursuant
to Sections 307 and 311 of the Clean Water Act, 33 U.S.C. ss.ss.1317, 1321,
Section 101(14) of CERCLA, 42 U.S.C. ss.9601; (C) listed in the United States
Department of Transportation Hazardous Material Tables, 49 C.F.R. ss.172.101;
(D) defined, designated or listed as a "Hazardous Waste" under Section 1004(5)
of the Resource and Conservation and Recovery Act, 42 U.S.C. 6903(5).
5.23 Books and Records.
(a) The copies of the certificate or articles of
incorporation of the Company, as certified by the Secretary of State of its
jurisdiction of incorporation, and of its bylaws (or of its other comparable
organizational documents), as certified by its secretary, which have been
delivered to Buyer are true, complete and correct and are in full force and
effect as of the date hereof.
(b) The stock records of the Company fairly and
accurately reflect the record ownership of all of its outstanding shares of
capital stock. The minute books of the Company contain complete and accurate
records of all meetings held of, and corporate action taken by, the
shareholders, the board of directors and each committee of the board of
directors of the Company and no meetings of such shareholders or of such board
of directors or committee have been held for which minutes have not been
prepared and included in such minute books. The other books and records of the
Company, including financial records and books of account, are complete and
accurate in all material respects and have been maintained in accordance with
sound business practices. Complete and accurate copies, as of the date hereof,
of all such minute books and stock records have been made available to Buyer.
(c) The books and records of the Company
accurately and fairly reflect its income, expenses, assets and liabilities and
the Company maintains internal accounting controls which provide reasonable
assurance that: (i) transactions are executed in accordance with management's
authorization; (ii) transactions are recorded as necessary to permit preparation
of reliable financial statements and to maintain accountability for earnings and
assets; (iii) access to assets is permitted only in accordance with management's
authorization; (iv) the recorded accountability of all assets is compared with
existing assets at reasonable intervals; and (v) all intercompany transactions,
charges and expenses among or between the Company, and Seller and/or their
affiliates are accurately reflected at fair arms length value in all financial
statements.
70
<PAGE>
SECTION 6. REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer hereby represents and warrants to Seller as of the date
of this Agreement as follows:
6.1 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.
6.2 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.
6.3 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 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 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.
71
<PAGE>
6.4 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.
6.5 Capital Structure. The authorized 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").
SECTION 7. CERTAIN AGREEMENTS.
7.1 Employee Pension Benefit Plans. The benefit under
any Employee Pension Benefit Plan (as defined in Section 3(2) of ERISA)
maintained by the Company which have accrued to any 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.
7.2 [Employee Welfare Benefit Plans. The Buyer shall
cause Company to continue the Employee Welfare Benefit Plans (as defined in
Section 3(1) of ERISA) maintained by the Company as of the Closing Date with
respect to the Transferred Employees in accordance with the terms and conditions
of 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.
7.3 Vacation and Holidays. Buyer will cause the
Company to provide the same vacations and holidays to the Transferred Employees
as provided by Seller through December 31, 1998 except that Buyer will not
permit the use of any vacation carried over from prior years.
SECTION 8. CERTAIN CONDITIONS PRECEDENT TO BUYER'S
OBLIGATIONS.
The obligation of Buyer to consummate the acquisition of the
Shares is subject to the fulfillment by or at the Closing of each of the
following conditions:
72
<PAGE>
8.1 Representations and Warranties. The 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.
8.2 Performance of Covenants. The 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 him prior to or
at the Closing.
8.3 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 Contract,
lease, commitment, agreement, easement, right or Authorization of the Company;
or (b) shall impose on the Buyer or the Company any condition or provision or
requirement not presently imposed upon Seller and which is described on the
Disclosure Statement, or any condition that is more restrictive after the
Closing on Buyer or the Company than the conditions presently imposed on Seller.
8.4 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.
8.5 No Material Adverse Change. There shall not have
been any material adverse change or threat of material adverse change in the
Company or the Business, or any development of a nature that is, or is likely to
be materially adverse to the Company, the Business or the Purchased Assets.
8.6 Opinion of Counsel. Buyer shall have received the
Opinion of Seller's Counsel of _________________, counsel for Seller, in the
form of Exhibit I dated as of the Closing and satisfactory to the Buyer.
8.7 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 8.1 and 8.2 hereof have been fulfilled.
8.8 Employment Agreement. Seller shall have executed
and delivered the Employment Agreement.
8.9 Payment of Affiliated Indebtedness. Except as
expressly provided herein, the Seller shall cause all indebtedness to the
Company from Seller, all Related Parties and all Affiliates of Seller to have
been paid in full prior to Closing [; provided that the following obligations
shall not be required to have been paid prior to Closing and may remain
outstanding thereafter: _____________].
8.10 Resignation of Directors and Officers. Buyer
shall have received resignations from such of the officers and directors of the
Company as Buyer shall have requested.
73
<PAGE>
SECTION 9. CERTAIN CONDITIONS PRECEDENT TO SELLER'S
OBLIGATIONS.
The obligation of Seller to consummate the sale of the Shares
is subject to the fulfillment by or at the Closing of each of the following
conditions:
9.1 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.
9.2 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.
9.3 Approvals. The consent or approval of all persons
described on the Disclosure Statement pursuant to Sections 5.5(b) and 5.12 shall
have been obtained.
9.4 Legal Matters. The Closing shall not violate any
order or decree of any court or governmental body of competent jurisdiction and
no suit, action, investigation, or legal or administrative proceeding shall have
been brought or threatened by any person (other than Seller or an affiliate of
any Seller) which questions the validity or legality of this Agreement or the
transactions contemplated hereby.
9.5 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 9.1 and 9.2 hereof have been fulfilled.
9.6 Employment Agreement. The Company shall have
executed and delivered the Employment Agreement.
SECTION 10. CERTAIN POST-CLOSING MATTERS; COVENANTS
10.1 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 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.
10.2 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 three (3) 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 its or his name to be
used in connection with, any business or enterprise engaged in the business of
permanent or contract placement, personnel consulting services, project
management services or imaging and computer consulting services anywhere in
Georgia, Texas, Illinois, Michigan, Pennsylvania, Connecticut, Massachusetts,
New York, New Jersey, Virginia or Florida (the "Territory");
74
<PAGE>
(b) for a period of three (3) years after the
Closing Date, in any manner induce or attempt to influence any employee of the
Buyer or the Company or any of its affiliates to terminate such employment or
relationship;
(c) for a period of three (3) years after the
Closing Date, in any manner contact, induce, solicit or influence any client of
the Company or of the Buyer or any of their affiliates to cause such client to
terminate its relationship with the Business, the Company and/or Buyer; or
(d) for a period of three (3) years after the
Closing Date, utilize or disclose any information concerning proprietary or
confidential information in respect to the Company or the Purchased Assets.
In the event that the provisions of this Section 10.2 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 extent
permitted by applicable law. Seller specifically acknowledges and agrees that
the foregoing restrictions are reasonable and necessary to protect the
legitimate interests of the Buyer and the Company, 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
and the Company, 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 and the Company, in addition to any other relief available to them, 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.
10.3 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 and, at the expense of
Buyer, to permit the Buyer and/or the Company 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 and/or the Company after
the Closing.
10.4 Accounts Receivable of Company If any accounts
or notes receivable due Company in existence as of the close of business on the
Closing Date remain unpaid and uncollected [60] days following the Closing,
Seller shall, within five (5) business days after receipt of a listing of all
such unpaid accounts and notes receivable, pay to Buyer the amount of such
uncollected receivables. If the amount of such payment shall be in dispute,
Seller shall pay the undisputed portion, if any, and the parties shall attempt
in good faith to resolve the dispute. If the parties are unable to resolve the
dispute within 30 days following receipt by Seller of such listing of unpaid
receivables, such disputed matter may be submitted to and determined by an
accounting firm that is reasonably acceptable to Buyer and Seller. The fees and
expenses of any such accounting firm incurred in resolving the disputed matter
shall be equitably apportioned by such accountant based upon the extent to which
Buyer or Seller are determined by such accountants to be the prevailing party.
The determination of such accountant shall be final, binding and conclusive on
the parties hereto. Buyer shall cause any receivable respecting which Seller
have paid Buyer under this Section to be assigned, at Buyer's sole expense, to
Seller. Any proceeds received thereafter with respect to such assigned
receivables shall be the property of Seller and, if received by Buyer or the
Company, shall be paid to Seller. Prior to their assignment to Seller, Buyer
shall use reasonable efforts to cause the Company to collect, in accordance with
their terms, all accounts and notes receivable subject to this Section and
shall, upon prior notice, provide Seller during normal business hours with
reasonable access to the Company's books and records concerning such accounts
and notes receivable.
75
<PAGE>
10.5 Transition Activites. Seller shall take all
action reasonably requested by Buyer to assist in the prompt and orderly
transition of the Business to Buyer.
10.6 Employee Benefit Plans. Seller shall be
responsible for preparing and filing the Form 5500 (Annual Return/Report of
Employee Benefit Plan) and satisfying all other reporting and disclosure
requirements for the Plan year which ended on or before the Closing Date (if not
already filed) and for all previous Plan years but for no Plan year ending after
the Closing Date.
10.7 Remittance of Payments. From and after the
Closing, Seller shall immediately remit to the Company, in the form received,
any payments which they or any affiliate may receive (such as payments of
accounts receivable) which properly belong to the Company.
SECTION 11. INDEMNIFICATION
11.1 Indemnification by Seller. Seller shall
indemnify, defend and hold harmless Buyer and the Company and Buyer's and the
Company's officers, directors, employees and shareholders and their heirs,
representatives, successors and assigns, 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, the Company or any such person 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 Seller made in or pursuant to this Agreement, or
any Seller Transaction Document;
(b) any breach or nonfulfillment of any covenant
or obligation of Seller contained in this Agreement or any Seller Transaction
Document;
(c) the operations of the Company, the Business
or the Purchased Assets on or prior to the Closing Date except to the extent
included in the Closing Statement under Section 2.2.
[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) and (c) 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 the same
promptly to Buyer.]
76
<PAGE>
11.2 Indemnification by Buyer. Buyer shall indemnify
and hold Seller 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; and
(b) any breach or nonfulfillment of any covenant
or obligation of Buyer contained in this Agreement or any Buyer Transaction
Document.
11.3 Inter-Party Claims. Any party seeking
indemnification pursuant to this Section 11 (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.
11.4 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 11.3). The Indemnifying
Party shall have the right, upon notice to the Indemnified Party within 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 11.4(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 11.4(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.
SECTION 12. MISCELLANEOUS.
12.1 Knowledge. All references in this Agreement
to the Company's 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 Seller or any officer of the Company
regarding such matter.
12.2 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 Sections 5.13 and 5.15 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 the Company or its subsidiaries made by Buyer or its agents or
representatives.
77
<PAGE>
(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.
12.3 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. 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.
12.4 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.
12.5 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.
78
<PAGE>
To Buyer:
Judge Imaging Services, Inc.
Two Bala Plaza, Suite 405
Bala Cynwyd, PA 19004
Attention: President
Telecopier: (610) 664-7090
To Seller:
Corebridge Technology, Inc.
7981 68th Street, NE
Redmond, Washington 98052
Attention: James Turner
Telecopier:
12.6 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; Buyer may assign this Agreement or its rights
hereunder to any affiliate, provided that Buyer remains responsible for any
breach hereof by its assignee. 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.
12.7 Settlement of Disputes. Except for disputes
covered by Section 2.1(f) and 2.2(d), 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 Seller and a senior
executive of the Buyer who has authority to settle the Dispute (and who does 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) in the case of the Buyer, the name and title of the executive
who will represent that party. The Seller and such executive 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 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.
79
<PAGE>
12.8 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.
12.9 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 12.7, 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
12.7 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 any 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
12.5 herein. Nothing contained in this Section 12.9, in Section 12.7 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 Seller Transaction Document or
Buyer 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.
12.10 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.
12.11 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.
80
<PAGE>
12.12 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.
12.13 Entire Agreement, etc. This Agreement, together
with the Disclosure Statement and the agreements, Schedules, Exhibits,
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 Shares 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
Shares, 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 IMAGING SYSTEMS, INC.
/s/James Person
Title: Chief Executive Officer
SYSTEMS SOLUTIONS, INC.
d/b/a/ Corebridge Technology, Inc.
/s/ James Turner
Title:: President
81
<PAGE>
Exhibit 10.17
ASSET PURCHASE AGREEMENT BY AND AMONG
JUDGE TECHNICAL SERVICES, INC.,
THE JUDGE GROUP, INC.,
TECH STARS, INC. AND
DAVID HOOD AND SCOTT BASS
THIS ASSET PURCHASE AGREEMENT is dated as of October 12, 1998
by and among TECH STARS, INC. a Tennessee corporation (the "Seller"), DAVID HOOD
and SCOTT BASS (collectively, the "Shareholders'"), JUDGE TECHNICAL SERVICES,
INC., a Pennsylvania corporation (the "Buyer"), and THE JUDGE GROUP, INC., a
Pennsylvania corporation ("TJG").
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 other 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, and Shareholders' shall cause Seller to, sell,
convey, assign, transfer and deliver to Buyer, and Buyer agrees to purchase,
accept and acquire from Seller, 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 Liens (as defined herein), 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;
(b) Accounts Receivable;
(c) All supplies, machinery, furniture, equipment and other personal
property, including those items 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 name "Tech Stars"),
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 or 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;
(g) The leases (the "Leases") related to the facilities at 3310 West
End Avenue, Suite 490-A, Nashville, Tennessee and 2801 Yorkmont Road, Suite 310,
Charlotte, North Carolina 28208 (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 with respect to the
Business;
(i) All Authorizations (as defined in Section 4.4(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 Facilities and are associated with the
Seller's Business. .
1.2 Excluded Assets. Notwithstanding anything to the contrary in Section 1.1 of
this Agreement, Seller shall, and hereby does, retain the following rights,
properties and assets which shall not be included in the Purchased Assets (the
"Excluded Assets"):
<PAGE>
(a) All employee records (excluding employment and non-competition
agreements);
(b) Seller' Employee Benefit Plan(s) (as defined below) and all
obligations related thereto;
(c) Seller' tax returns and records;
(d) Seller's interest in insurance policies of Seller and proceeds
thereof and rights thereunder;
(e) Claims of Seller for federal state, local and foreign tax refunds
and, tax loss carry forward benefits accruing prior to the Closing Date; and
(f) All corporate books and records of Seller, including all corporate
seals of Seller.
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 Effective Date pursuant to the terms of the Contracts and the Leases
as well as all accrued compensation, accrued expenses and trade payables
incurred in the ordinary course of business consistent with past practice and
recorded on Sellers' books as of the Effective Date (the "Assumed Liabilities")
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 any contracts not identified on
Schedule 1.1(e), any liabilities arising under any Employee Benefit Plan
maintained by Seller or any ERISA Affiliate (as defined below) of Seller, any
liabilities arising under any Employee Benefit Plan to which Seller or any ERISA
Affiliate is or has been obligated to contribute, any medical, life, disability
82
<PAGE>
insurance 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 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 Effective Date. 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.
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 Assumed Liabilities and
monies earned or paid in the form of a note described under paragraphs (c) and
(d) below, if any (the "Purchase Price").
(b) At Closing, $850,000 of the Purchase Price shall be paid to Seller
in cash by wire transfer pursuant to instructions previously provided by Seller
to Buyer for that purpose and, in addition, 10,000 shares of unregistered TJG
common stock (the "Shares") bearing an appropriate restrictive legend shall be
delivered to Tech Stars.
(c) At Closing, Buyer shall issue to Seller its promissory note in the
form attached hereto as Exhibit II in the original principal amount of $250,000
(the "Note"). Payment of the Note shall be guaranteed by TJG pursuant to that
certain Guaranty Agreement in the form attached hereto as Exhibit VIII (the
"Guarantee").
(d) An additional portion of the Purchase Price shall be paid in the
form of an earnout (the "Earnout") with respect to the performance of the
Business for the period from July 1, 1998 to December 31, 1998 (the "Earnout
Period").
(i) no later than April 30, 1999, Buyer shall pay Seller an amount
equal to 100% of the aggregate EBIT for the Business during the Earnout Period,
as calculated by Buyer. For purposes of this Agreement, EBIT is defined as
earnings of the Business before interest and taxes which is accounted for under
the accrual method of accounting consistent with Buyer's regular accounting
policies, procedures and generally accepted accounting principles ("GAAP").
(ii) in connection with the operation of the Business during the
Earnout Period, Buyer agrees that for purposes of determining EBIT it will not
charge any costs incurred by or on behalf of Buyer or TJG in connection with the
transactions contemplated by this Agreement.
(iii) in the event Seller disputes Buyer's calculation of EBIT, the
disputed matters shall be referred to and determined by an independent auditor
reasonably acceptable to both Buyer and Seller. The cost of such auditor shall
be paid by the party which is not the prevailing party in such dispute.
2.2 Purchase Price Adjustment. The purchase price shall be adjusted (up or down)
by any difference between the Net Worth of the Seller as indicated on the
Balance Sheet attached hereto as Exhibit III (the "Initial Net Worth") and such
Net Worth as of the day before the Closing Date (the "Closing Net Worth"). Net
Worth is defined as the Purchased Assets including, without limitation, cash,
accounts receivable, reserve for bad debt of $4430.48) less total liabilities of
the Seller assumed by Buyer.
(a) At Closing, Seller will present Buyer with a balance sheet as of the day
before the Closing Date. At that time, an adjustment will be made to the cash
component of the Purchase Price to reflect any difference between the Initial
Net Worth and the Closing Net Worth. In the event that the Closing Net Worth
exceeds the Initial Net Worth, the amount constituting the difference shall be
added to the cash portion of the Purchase Price to be paid at Closing. In the
event that the Closing Net Worth is less than the Initial Net Worth, the amount
constituting the difference shall be subtracted from the cash portion of the
Purchase Price to be paid at Closing Within thirty (30) days from Closing,
Buyer's independent accountants shall have the right to review such calculation
of the Closing Net Worth, and any disagreements will be resolved in a mutually
acceptable manner. Payment of any agreed upon adjustment shall be made within
forty-five (45) days from the Closing Date.
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.
83
<PAGE>
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
October 13, 1998 via fax commencing at 11:00 A.M., local time or at such other
date, time or place as may be 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 IV 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 in the form attached hereto as
Exhibit V;
(v) documents evidencing the assignment of the Leases; and
(vi) balance Sheet as of the Closing Date;
(b) Buyer shall deliver, or shall cause to be delivered, to Seller the
following:
(i) the cash portion of the Purchase Price;
(ii) the Shares;
(iii) the Note;
(iv) the Guarantee;
(v) the Bill of Sale; and
(vi) an opinion letter of counsel to Buyer and TJG in the form attached
hereto as Exhibit VII.
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 has
previously been delivered to Buyer at least two (2) business days prior to the
Closing Date (the "Disclosure Statement") or as otherwise provided herein.
Shareholders and Seller represent and warrant to Buyer as of the date of this
Agreement 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 Tennessee
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 and all its affiliates, of 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, 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 corporate action on the
party of Seller and Shareholders. This Agreement has been duly and validly
executed and delivered by Seller and constitutes the legal, valid and binding
obligation of Seller and the Shareholders, enforceable against them in
accordance with its terms. When executed and delivered as contemplated herein,
the Transaction Documents shall constitute the legal, valid and binding
obligation of Seller and the Shareholders which are parties thereto, enforceable
against them in accordance with its terms.
<PAGE>
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 Shareholders or Seller
that is likely to have an adverse material 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 (collectively, a "Lien") upon or with
respect to the Purchased Assets that is likely to, individually or in the
aggregate, have a material adverse effect on the Purchased Assets;
84
<PAGE>
(iv) cause Buyer to become subject to, or become liable for the payment
of any tax for events occurring prior to the Closing Date; 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 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 Shareholder 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 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 default or violation thereunder by Seller or to Seller's knowledge
by any other party thereto and neither Shareholder nor Seller have received any
notice of any claim or charge that Seller is or within the last two (2) 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 Shareholders or Seller, threatened by any person to revoke or deny
the renewal of any Authorization; and (ii) neither Shareholder nor Seller have
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.
4.5 Securities Laws Matters
(a) Seller acknowledges that the Shares (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 Tennessee and that Buyer has 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; and
(iii) it has received and reviewed the prospectus related to the initial
public offering of TJG common shares, its annual report on Form 10-K for the
year ended December 31, 1997, and its quarterly reports on Form 10-Q for the
three months ended March 31, 1998 and June 30, 1998.
<PAGE>
(d) Seller acknowledges and agrees that TJG 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 TJG ) 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.
4.6 Litigation. Except as described in the Disclosure Statement, there are not
now 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 individually or in the aggregate have a material adverse effect
on the Business, or would result in a liability in excess of $10,000 in the case
of any single action or $25,000 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.
85
<PAGE>
4.7 Financial Statements.
(a) The unaudited statements of income of the Business for the 12-month
periods ended December 31, 1996 and 1997, compiled by Frazier, Dean &
Howard("FD&H"), independent certified public accountant, a correct and complete
copy of which is attached hereto as part of Schedule 4.8 of the Disclosure
Statement, are true and correct in all material respects and present fairly
results of Seller's 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 unaudited statement of income of the Business for the eight-month
period August 31, 1998, compiled by FD&H independent certified public
accountant, a correct and complete copy of which is attached hereto as part of
Schedule 4.8 of the Disclosure Statement, is true and correct in all material
respects and present the results of Seller's 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 unaudited balance sheet of the Business at August 31, 1998 (the
"Balance Sheet"), compiled by FD&H independent certified public accountant, a
correct and complete copy of which is attached hereto as part of Schedule 4.8 of
the Disclosure Statement, is true and complete in all material respects and
presents fairly the assets and liabilities, and financial position 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.
4.8 Accounts Receivable. All accounts receivable reflected on the Balance Sheet
or 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 thereof, less, in the case of the accounts
receivable reflected on the Balance Sheet, an allowance for doubtful accounts in
the amount of two (2) percent of the Accounts Receivable balance (the "Doubtful
Account Reserve") as shown on the Balance Sheet. The Doubtful Account Reserve
has been mutually agreed to by Seller and Buyer. Schedule 4.9 of the Disclosure
Statement lists the Business's accounts receivable as of the Balance Sheet date,
specifying the account debtor, the face amount of the receivable and the age of
the receivable.
4.9 Personal Property. Except as described in the Disclosure Statement: (a) the
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 the Seller are in the possession or under the control of the 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.
4.10 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, 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 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.
(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;
86
<PAGE>
(e) Each contract, agreement or commitment 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, 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 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; and
(j) Each outstanding power-of-attorney or similar power relating to the
Business granted by Seller for any purpose whatsoever.
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 pursuant to this Agreement.
4.11 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
Lease, 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 and Lease 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.
4.12 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 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.
4.13 Customers and Suppliers. No present customer or supplier has terminated or
materially reduced, or has given written notice that it intends to terminate or
materially reduce, the amount of business done with Seller with respect to the
Business. Neither Shareholder nor Seller are 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 not now 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.
4.14 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 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.
87
<PAGE>
4.15 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 ("Employee Benefit Plans") 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 (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) Seller is not 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 has, 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.
(c) Seller does not maintain and has never 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) Seller does not maintain and has never 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.
<PAGE>
(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) Seller does not maintain 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) Seller is not 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 of Seller to which such continuation coverage requirements apply.
88
<PAGE>
(k) There has been no material violation of the health insurance
obligations 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 of Seller
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.
4.16 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 Facilities,
any lockout of any such employees or any labor trouble or other labor-related
controversy, occurrence or condition; and (iv) no agreement restricts Seller
from relocating or closing the Facilities or any portion thereof.
(b) Except as described in the Disclosure Statement with respect to the
Business and the Facilities, 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 Facilities
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 either Shareholder and Seller, no representative of any such
government agency has attempted to conduct any such inspection or sought entry
to the Facilities 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 Facilities to determine whether violations of OSHA
or any other such statute, ordinance, rule or regulation may exist; and (v) to
Seller's knowledge, 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 Facilities for
the last two (2) years.
<PAGE>
4.17 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 June 30, 1998; 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
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 Internal Revenue
Code of 1986, as amended, and the rules and regulations promulgated thereunder.
4.18 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.
89
<PAGE>
(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.
4.19 Net Worth Guarantee The book value of the tangible Purchased Assets
delivered to Buyer (which Purchased Assets shall include cash or equivalents)
pursuant to Section 1.1 less the liabilities assumed by Buyer pursuant to
Section 1.3 (the "Net Assets") shall be at least $175,000.00.
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 the June 30, 1998 the 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 or made any other
payment to Shareholders;
(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, or other
agreement or commitment 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"). No
such agreements or arrangements between Seller and all Related Parties are
included in the Purchased Assets. Shareholders have no ownership interest in any
supplier or contractor of Seller.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF BUYER AND TJG
Buyer and TJG jointly and severally hereby represents and warrants to
Shareholders and Seller as of the date of this Agreement as follows:
90
<PAGE>
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. TJG 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. TJG 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 "TJG
Transaction Documents") required to be delivered by it prior to or at the
Closing. The execution, delivery and performance by TJG of this Agreement and
the TJG Transaction Documents have been duly authorized by all necessary
corporate action. This Agreement has been duly and validly executed and
delivered by TJG and constitutes its legal, valid and binding obligation,
enforceable against it is accordance with its terms. When executed and delivered
as contemplated herein, each of the TJG Transaction Documents shall constitute
the legal, valid and binding obligation of TJG, 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 or TJG's
respective Articles of Incorporation, by-laws or of any Law binding upon Buyer
or TJG; 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 either Buyer or TJG 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 or TJG 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 or TJG'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 or TJG,
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 or TJG to enter into or perform their
respective obligations under this Agreement or any of the other agreements or
instruments contemplated hereby. Neither Buyer nor TJG has received any request
from any governmental agency or instrumentality for information with respect to
the transactions contemplated hereby.
5.4 Brokers. No agent's, broker's or finder's fee or commission shall be payable
by the Seller or the Shareholders in connection with the transactions
contemplated hereby by virtue of or resulting from any action or agreement by
the Buyer or TJG.
5.5 Capital Structure. The capital structure of the TJG 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"), a true and complete copy of which has been delivered to Seller..
<PAGE>
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.
91
<PAGE>
(b) Each Transferred Employee wishing to be eligible to receive stock option
grants pursuant to The Judge Group, Inc. 1996 Incentive Stock Option and
Non-Qualified Stock Option Plan for Key Employees and Non-Employee Directors
will, after a period of consideration ending on November 13, 1998, be required
to sign Buyer's Non-Solicitation and Confidentiality Agreement in order to
receive options.
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 provide to the Transferred Employees the
same vacations and holidays as provided by Seller through December 31, 1998.
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, ;
provided however that with respect to Employee Benefit Plans assumed under
Section 6.3, Buyer shall be responsible for satisfying disclosure requirements
which arise following Closing and for filing annual reports for plan years
ending after 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.
7.2 Performance of Covenants. 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.
92
<PAGE>
7.3 Net Asset Value. Seller shall have delivered to Buyer at the Closing Net
Worth of at least $175,000.00.
7.4 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 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.
7.5 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.
7.6 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 June 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.
7.7 Opinion of Counsel. Buyer shall have received the opinion satisfactory to
Buyer of Henry, Meier & Jones, .L.L.P. counsel for Shareholders and Seller, in
the form attached hereto as Exhibit V dated as of the Closing Date.
7.8 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.
7.9 Employment Agreement. The Buyer shall have received an executed copy of the
Employment Agreement for Scott Bass.
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 and TJG'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 and TJG shall have performed or complied
with all of the agreements, covenants and conditions required by this Agreement
to be performed or complied with by such party prior to or at the Closing.
8.3 Approvals. All third party consents, novations and governmental approvals,
if any, necessary to permit the consummation of the transactions contemplated by
this Agreement shall have been obtained in a form reasonably satisfactory to the
Seller and the Shareholders.
8.4 Legal Matters. The Closing shall not violate any order or decree of any
court or governmental body of competent jurisdiction and no suit, action,
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 Leases. Buyer shall have assumed the Leases.
8.6 Closing Certificates. The Seller shall have received certificates from the
Buyer and TJG, 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.
8.7 Opinion of Counsel. Seller shall have received the opinion satisfactory to
Seller, of Drinker, Biddle and Reath, counsel for Buyer and TJG, in the form
attached hereto as Exhibit VII, dated as of the Closing Date.
93
<PAGE>
8.8 Grant of Options. The Seller shall have received from TJG copies of stock
option awards which, in the aggregate, evidence the grant to the Transferred
Employees of options to acquire 15,000 share of TJG common stock.
8.9 Employment Agreement. Seller shall have received from Buyer an executed
original of the Employment Agreement by and between Scott Bass and Buyer in the
form attached hereto as Exhibit I.
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 the Seller shall not,
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. Each Shareholder 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, within 100 miles
of any office location for which such Shareholder has 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 (a) placement of technical
personnel or (b) business of providing technical project management 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 such
Shareholder and his 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 the 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 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.
(c) If Buyer shall fail to pay any Seller any amount required to be paid by
Buyer hereunder or under the Note, and such failure shall be continuing for 30
days after written notice from such Seller to Buyer, Seller and the Shareholders
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 the Seller or any Shareholder
from the non-competition provision set forth in this Section 9.2.
9.3 Pursuit of Authorizations. Shareholders and Seller shall use his 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 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.
94
<PAGE>
9.4 Assignment of Purchased Assets; Consents. Prior to the Closing Date and for
a period of one year thereafter, Shareholders and Seller shall 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' only obligations with respect thereto shall be to use their 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 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 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. TJG covenants that it will (i) use its best efforts to comply with
the current public information requirements of Rule 144(c)(1) under the
Securities Act; and (ii) at all such times as Rule 144 is available for use by
the holders of the Securities, the TJG will furnish each such holder upon
request with all information within the possession of the TJG required for the
preparation and filing of Form 144.
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 Securities Exchange Act of 1934, as
amended.
9.7 TJG Stock Price Guarantee. In the event that TJG common stock does not have
a fair market value of Fifteen Dollars ($15.00) or more per share on the one
year anniversary of the Closing Date, then TJG shall promptly, but not later
than ten (10) days thereafter, pay Seller in cash an amount equal to 10,000
times the difference between $15.00 and the average closing price per share of
TJG common stock for the 20 trading days ending on the one year anniversary of
the Closing Date. The above amount shall be adjusted to reflect any stock
splits, recapitalizations, combinations or similar actions with respect to TJG
stock.
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; and (iv) any liability or obligation
with respect to any Employee Benefit Plan maintained by any ERISA Affiliate of
Seller, or to which any ERISA Affiliate of Seller is, or has been, obligated to
contribute.
10.2 Indemnification by Buyer and TJG. Buyer and TJG shall indemnify and hold
Seller and Seller' 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 or TJG made in or pursuant
to this Agreement or any Buyer Transaction Document; (b) any breach or
nonfulfillment of any covenant or obligation of Buyer or TJG 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.
95
<PAGE>
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. 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 amount of all Damages suffered or incurred
in excess of such amount.
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. 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 a
separate escrow account (the "Escrow Account") established with an unaffiliated
financial institution pending resolution of such dispute pursuant to
arbitration, as provided for in Section 11.7 hereof. Such escrow funds,
including all interest accruing thereon, if any, shall be held in the Escrow
Account until such time as the dispute is resolved by the panel of arbitrators,
as provided in Section 11.7 hereof, and shall be released by the escrow agent
only as expressly directed by said arbitrators.
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 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 eighteen (18) months, 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.
96
<PAGE>
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, 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.
To Buyer: Judge Technical Services, Inc.
Two Bala Plaza, Suite 405
Bala Cynwyd, PA 19004
Attention: Richard T. Furlano, President
Facsimile: (610) 664-7090
To Seller and Shareholders: David Hood
With a Copy to:
Henry, Meier & Jones, L.L.P.
1700 Pacific Ave, Suite 2700
Dallas, TX 75201
Attn: William W. Meier, III.
11.6 Assignment and Benefit.
(a) Neither Shareholder 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
<PAGE>
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 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 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.
97
<PAGE>
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, 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, Shareholders 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 Shareholders, Seller or Buyer of any
of his 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.
98
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has duly executed this
Agreement, all as of the date first above written.
BUYER: JUDGE TECHNICAL SERVICES, INC.
By: /s/Richard T. Furlano
-----------------------------
Richard T. Furlano, President
SELLER: TECH STARS, INC.
By: /s/David Hood
-----------------------------
David Hood, President
By: /s/Scott Bass
-----------------------------
Scott Bass, General Manager
TJG: THE JUDGE GROUP, INC.
By: /s/Richard T. Furlano
-----------------------------
Richard T. Furlano, President
SHAREHOLDERS: /s/David Hood
-----------------------------
David Hood, individually
/s/Scott Bass
-----------------------------
Scott Bass, individually
99
<PAGE>
STOCK PURCHASE AGREEMENT
by and among
JUDGE IMAGING SYSTEMS, INC.,
TERRY COOPER,
THE OTHER SECURITY HOLDERS OF
ON-SITE SOLUTIONS, INC.
and
ON-SITE SOLUTIONS, INC.
THIS STOCK PURCHASE AGREEMENT is dated as of May 1, 1998 by and among
ON-SITE SOLUTIONS, INC., a California corporation (the "Company"), TERRY COOPER
("Cooper"), all the other holders of securities issued by the Company as listed
on Schedule 1.1 (with Cooper, the "Sellers"), jointly and severally, and JUDGE
IMAGING SYSTEMS, INC., a Delaware corporation ("Buyer").
BACKGROUND
The parties hereto desire to provide for the acquisition by Buyer from
Sellers of all of the Company's outstanding shares of capital stock, and
thereby, the Company's imaging and computer consulting businesses (the
"Business"). However, Buyer is not to acquire certain assets and liabilities.
The parties have agreed to accomplish the foregoing 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 STOCK.
1.1 Sale and Purchase of Shares.1 Sale and Purchase of Shares. Subject to
the terms and conditions of this Agreement, at the Closing (as herein defined),
each Seller shall sell, transfer and deliver to Buyer all the shares of the
common stock of the Company (having exercised all options for such shares), all
as set forth on Schedule 1.1 hereto, in the aggregate constituting all of the
outstanding shares of the Company's capital stock (collectively with respect to
all such shares owned by all Sellers, the "Shares"), and Buyer shall pay with
respect to the Shares the consideration set forth in Section 2.
1.2 Purchased Assets. Sellers represent that immediately after the Closing
Buyer shall own all of the outstanding capital stock of the Company and the
Company shall continue to own and have valid title in and to all of the tangible
and intangible properties and assets owned or held by the Company immediately
prior to the Closing 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 5.3 hereof), including, without limitation, the
following assets and each of the assets listed or required to be listed on the
Disclosure Statement pursuant to Section 5.11 hereof, but excluding the Excluded
Assets (as herein defined) (the "Purchased Assets"):
(a) all cash;
(b) all accounts receivable;
(c) all supplies, machinery, furniture, equipment and other
personal property, including those set forth on
Schedule 1.2(c) hereto;
(d) all (i) fictitious business names, tradenames (including, but not
limited to the name "On-Site Solutions"), registered and unregistered
trademarks, service marks and related applications (the "Marks"), (ii) patents,
patent rights and patent applications (collectively, "Patents"), (iii)
copyrights in published and unpublished works ("Copyrights"), computer programs
and software, including the Company's website ("Software"), (iv) proprietary
formulas, trade secrets, confidential information, formulations and inventions
(whether or not patented) ("Trade Secrets"), and (v) licenses and permits issued
or granted by any person relating to any of the foregoing (collectively
"Intellectual Property") including those set forth on Schedule 1.2(d) hereto;
(e) all purchase orders, sales agreements, equipment leases,
distribution agreements, licensing agreements and other contracts, agreements
and commitments of Seller identified on Schedule 1.2(e) ("Contracts"), which
shall continue to be obligations of the Company;
100
<PAGE>
(f) all books and records 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;
(g) the leases related to the facility at 2355 Main Street, Suite 230,
Irvine, California 92614 (the "Facility") and to the facility at 8 Corporate
Park, Irvine, California 92606 (collectively, the "Leases") and any deposit
related thereto;
(h) any other assets of the Business, including those set forth on
Schedule 1.2(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 5.5(b)) associated with
the Business and its operations;
(j) all intangible assets and goodwill associated with the Business
and its operations;
(k) any other assets which are located at the Facility, including
those set on Schedule 1.2(k);
(l) all employee records (excluding employment and non-competition
agreements);
(m) corporate records and seals, and tax returns and tax records; and
(n) The Company's Benefit Plans.
1.3 Excluded Assets.3 Excluded Assets. Notwithstanding anything to the
contrary in Section 1.1 or 1.2 of this Agreement, the following rights,
properties and assets shall not be included in the Purchased Assets (the
"Excluded Assets"), and the Company shall transfer the Excluded Assets out of
the Company immediately prior to Closing:
(a) except for the Leases and all deposits with respect thereto, all
ownership and other interests in real property, in each case together with all
buildings thereon;
(b) the note receivable from Cooper in the principal amount of $35,000,
which is to be cancelled prior to Closing (as hereinafter defined);
(c) tax refunds, insurance refunds and dividends, including those
related to workman's compensation, relating to the pre-Closing period, except to
the extent used by Buyer or the Company to set off against obligations of the
Sellers under Section 11.1, which Buyer and the Company are hereby authorized to
do;
(d) non-recourse notes receivable from employees executed in connection
with the exercise by such employees of their stock options to purchase stock of
the Company;
(e) assets located at the Facility which are owned by Cooper or other
employees in the nature of pictures, posters, photographs and original art; and
(f) client-owned assets located at the Facility as listed on Schedule
1.3(f). 1.4 Liabilities to be Retained by the Company.4 Liabilities to be
Retained by the Company.
(a) Subject to the terms and conditions of this Agreement, at the
Closing, the Company shall retain and thereafter in due course pay and fully
satisfy those liabilities, obligations and related expenses relating to the
pre-Closing period listed on Schedule 1.4; provided, however, that, to the
extent the aggregate amount of such retained liabilities exceeds $663,000, the
excess amount shall be deducted dollar for dollar from the EBIT of the Business
for 1998, calculated in accordance with and for the purposes of Section 2.1
below (the "Retained Liabilities").
(b) Except as otherwise specifically provided for in this Section 1.4,
whether or not disclosed elsewhere in or in connection with this Agreement,
Buyer shall not assume and the Company shall in accordance with the provisions
of this Agreement, be entitled to indemnification against any liabilities,
obligations or debts of the Company of any type or nature, including, without
limitation, the promissory notes issued to Judge Group by the Company in the
amount of $168,000, any unfunded pension liabilities, any medical, life or
disability insurance 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 the Company of any federal, state or local
environmental or occupational health and safety laws or regulations, liabilities
related to products liability, intellectual property infringement, tort claims
or other litigation, any undisclosed liabilities, liabilities incurred in
connection with the termination of any of the Contracts not transferred
hereunder, any liabilities related to or arising from the classification of
independent contractors, and tort claims asserted against the Company or claims
against the Company for breach of contract which are based on acts or omissions
of the Company occurring on or before the Closing.
SECTION 2. PURCHASE PRICE AND PAYMENT.
2.1 Purchase Price.1 Purchase Price.
101
<PAGE>
(a) The total consideration for the Shares shall be the assumption by
Buyer of the retained liabilities described in Section 1.4(a) plus monies earned
under Section 2.1(b), if any (the "Purchase Price").
(b) A portion of the Purchase Price shall be paid in the form of an
earnout (the "Earnout") with respect to the performance of the Business as it
was conducted by the Company and will be conducted by Buyer from April 1, 1998
to December 31, 1998 and from January 1, 1999 to December 31, 1999. The Earnout
shall be computed and paid as follows:
(i) Buyer shall pay Sellers an amount equal to 400% of
earnings before interest and taxes ("EBIT") of the Business for the period
commencing April 1, 1998 and ending on December 31, 1998, which EBIT amount
shall be accounted for under the accrual method of accounting in accordance with
Buyer's accounting policies and procedures and generally accepted accounting
procedures ("GAAP"); and
(ii) Buyer shall pay Sellers an amount equal to 200% of EBIT
of the Business for the period commencing January 1, 1999 and ending on December
31, 1999, which EBIT amount shall be accounted for under the accrual method of
accounting in accordance with Buyer's accounting policies and procedures and
GAAP.
(c) Payments required to be made under Section 2.1(b) above for each
earnout period, if any, shall be paid within one hundred and twenty (120) days
after the respective year end as follows:
(i) 1/2 of the total payment owed by Buyer to Sellers pursuant
to Section 2.1(b) shall be paid in cash;
(ii) 1/2 of the total payment owed by Buyer to Sellers
pursuant to Section 2.1(b) shall be paid in shares (the "Judge Shares") of the
unregistered common stock of The Judge Group, Inc. ("Judge Group") bearing the
appropriate restrictive legends as valued using the 30-calendar day average
closing price of the Judge Shares, as reported on the Nasdaq Stock Market, for
the period ending on last day of each earnout period specified in Section
2.1(b).
(d) The market price of the Judge Shares issued pursuant to Section
2.1(c)(ii) above, as reported on the Nasdaq Stock Market, are guaranteed to
appreciate by 33% prior to the first anniversary of the date of their issuance
to Sellers. If the market price of the Judge Shares has not so appreciated,
Buyer shall pay, or cause to be paid, to Sellers in cash within 15 days after
the last day of such one year period an amount equal to the difference between
the value of the Judge Shares on the date of issuance to Sellers plus 33% and
the 30 calendar day average closing price of the Judge Shares for the period
ending on the first anniversary of the stock issuance date.
(e) Notwithstanding the foregoing, payments required to be made under
Section 2.1(b) above, if any, shall only be deemed earned and owing to Sellers
in full so long as Cooper, during the entire earnout period beginning on April
1, 1998 and ending on December 31, 1999: (i) has not voluntarily terminated his
employment with the Company or (ii) has not been terminated by the Company for
cause (as defined in the Employment Agreement defined below). If Cooper
voluntarily terminates his employment or if he is terminated with cause, the
payments required to be made under Section 2.1(b) above, if any, shall be made
pro rata through the date of termination.
(f) If EBIT of the Business for the period commencing April 1, 1998 and
ending December 31, 1998 equals or exceeds $350,000, Judge Group shall forgive
the principal outstanding pursuant to the promissory notes issued by the Company
on March 11, March 12 and March 25, 1998, and any additional promissory notes
issued to the Company prior to the Closing (collectively, the "Notes"),
including all related accrued but unpaid interest. If EBIT of the Business for
the period ending December 31, 1998 is less than $350,000, then only a pro rata
portion of such principal and interest amount will be forgiven. Such portion
shall be calculated as follows:
x
---
350,000 = y
Where:
x equals EBIT of the Business for the period
beginning April 1, 1998 and ending December
31, 1998; and
y equals the percent of the Notes which
shall be forgiven.
The principal amount of the Notes, including related accrued
but unpaid interest, which has not been forgiven in accordance with this Section
2.1(f) shall then be subtracted dollar for dollar from earnings of the Business
when determining the 1998 EBIT amount for the purposes of Section 2.1(b) herein.
Any principal amount of the Notes which has been so subtracted from the earnings
of the Business in accordance with the preceding sentence shall be considered
forgiven and shall no longer be due and payable to Buyer or the Judge Group.
102
<PAGE>
(g) Notwithstanding the foregoing, no portion of the principal amount
of the Notes will be forgiven if Cooper's employment with the Company is
terminated for any reason other than death, disability or termination by the
Company without cause.
(h) For purposes of calculating EBIT:
(i) The earn out shall include sales made since March 1, 1998
of FileNet product with profits/commission included, without regard to whether
or not FileNet applies any payments to past due Company indebtedness.
(ii) Buyer will maintain separate books and records for the
On-Site Business so that the earn out can be properly calculated; Buyer intends
that the On-Site Business will continue to be conducted primarily from the
Facility.
(iii) Sellers will receive credit for all revenues from
business opportunities for system integration which are identified by personnel
of the Business, even if such opportunities are worked on by other personnel of
Buyer, but in such case the expense of using Buyer personnel shall be a charge
to EBIT.
(iv) There shall be no deduction from EBIT for capital
provided to the Business by Buyer and the annual charge to the Business for all
accounting, insurance and other general corporate services and overhead shall
not exceed the amount incurred by the Company in its last fiscal year.
(v) The time of Cooper and other Business personnel shall be
billed at rates agreed to by Cooper and Buyer when working on projects of Buyer
that are not part of the Business.
(vi) All charges against EBIT shall be made without
duplication.
(i) Each Seller acknowledges that the Buyer and the Company will
operate the Business in their sole discretion, and there is no assurance that
the Business will be operated so as to maximize the Earnout. Neither Judge Group
nor the Buyer shall have any obligation to make any loan or contribute any
capital to the Company. Accordingly, each Seller hereby waives any claim that
the Earnout could have been greater had the Company or the Business been
operated in any particular manner, except to the extent that the Sellers can
show that Buyer operated the Company with the specific willful intent of
minimizing the Earnout without any other business purpose for its actions.
2.2 Dispute Resolution Procedures.2 Dispute Resolution Procedures. In the
event that the parties are unable to resolve any differences with respect to the
Earnout and/or EBIT amounts calculated pursuant Section 2.1, the Earnout and
EBIT amounts as calculated by Buyer shall be submitted to a firm of certified
public accountants (the "Dispute Auditors"), reasonably acceptable to both
parties, for resolution. If the issues in dispute are submitted to the Dispute
Auditors for resolution, (a) each party will furnish to the Dispute Auditors
such workpapers and other documents and information relating to the disputed
issues as the Dispute Auditors may request and are available to that party or
its subsidiaries (or its independent public accountants), and will be afforded
the opportunity to present to the Dispute Auditors any material relating to the
determination and to discuss the determination with the Dispute Auditors; (b)
the determination of the Earnout or EBIT amount, as applicable, by the Dispute
Auditors, together with a written explanation of how the issues resolved by the
Dispute Auditors impacted the original Earnout or EBIT amount calculated by
Buyer, delivered to both parties by the Dispute Auditors, will be binding and
conclusive on the parties; and (c) with respect to the resolution of disputes
arising pursuant to Section 2.1, Sellers and Buyer agree to share evenly the
fees and expenses of the Dispute Auditors.
SECTION 3. CLOSING.
3.1 Time and Place of Closing.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 May 1, 1998 at the offices of
Drinker Biddle & Reath LLP, at 1000 Westlakes Drive, Suite 300, Berwyn,
Pennsylvania 19312 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 (the "Closing Date").
3.2 Deliveries at the Closing.2 Deliveries at the Closing. At the Closing,
in addition to the other actions contemplated elsewhere herein:
(a) Sellers shall deliver, or shall cause to be delivered, to Buyer the
following:
(i) certificates representing all of the Shares, duly endorsed
for transfer or with stock powers affixed thereto executed in blank in proper
form for transfer either (A) with signature guaranteed by a member bank of the
Federal Reserve System or a member of the New York Stock Exchange; or (B) with
signature guaranteed by a notary public and accompanied by a satisfactory legal
opinion as to execution and effectiveness of the transfer;
(ii) a release and terminations of all options for Shares in
the form attached as Exhibit I hereto;
103
<PAGE>
(iii) such other instruments and documents as shall be
necessary or appropriate to retain in the Company good and marketable title to
the Purchased Assets;
(iv) assignments and consents as to all Contracts whenever
necessary;
(v) the opinion letter of Sellers' counsel in the form
attached as Exhibit II hereto ("Opinion of Seller's Counsel");
(vi) assignments and/or consents as to the Leases;
(vii) the Employment Agreement executed by Cooper in the form
attached as Exhibit III hereto (the "Employment Agreement");
(viii) the instruments and documents under which the Excluded
Assets were transferred out of the Company; and (ix) a waiver signed by the
spouse of each Seller.
(b) Buyer shall deliver, or shall cause to be delivered, to Cooper the
Employment Agreement, executed by the Company.
(c) Cooper shall deliver the Employment Agreement to Buyer.
SECTION 4. REPRESENTATIONS AND WARRANTIES REGARDING SELLERS.
Sellers, jointly and severally, but severally only as to Sections 4.1,
4.2(a) and 4.3(a), hereby represent and warrant to Buyer as of the date of this
Agreement and as of the Closing Date as follows:
4.1 Power and Authorization. Each Seller has full capacity, legal
right, power and authority to enter into and perform its obligations under this
Agreement and under the other agreements and documents (the "Seller Transaction
Documents") required to be delivered by such Seller prior to or at the Closing.
The execution, delivery and performance by each Seller of this Agreement and the
Seller Transaction Documents have been duly authorized by all necessary
corporate action. This Agreement has been duly and validly executed and
delivered by each Seller and constitutes the legal, valid and binding obligation
of each 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 each
Seller which is a party thereto, enforceable against it in accordance with its
terms.
4.2 No Conflicts.
(a) Except as described in the Disclosure Statement previously
delivered to Buyer (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 the certificate or articles of
incorporation or bylaws (or other organizational documents) of any Seller, or
any law (including, without limitation, principles of common law), statute,
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 any Seller;
(ii) violate or conflict with, result in a breach of, or
constitute a default or otherwise cause any loss of benefit under any agreement
or other obligation to which any Seller is a party or by which it or any of its
assets are bound, or give to others any rights (including rights of termination,
foreclosure, cancellation or acceleration), in or with respect to any Seller or
any of such Seller's assets including, without limitation, any of the Shares; or
(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
Shares, or any other material assets of any Seller.
(b) The Disclosure Statement describes each consent or approval of, or
registration, notification, filing and/or declaration with, any court,
government or governmental agency or instrumentality, creditor, lessor or other
person required to be given or made by any Seller in connection with the
execution, delivery and performance of this Agreement and the other agreements
and instruments contemplated herein. Except as described in the Disclosure
Statement, all such consents, approvals, registrations, notifications, filings
and declarations have been obtained or made or will be obtained or made prior to
the Closing without payment of premium or penalty by, or loss of benefit to, the
Company or any Company Subsidiary.
(c) There are no judicial, administrative or other governmental
actions, proceedings or investigations pending or, to the knowledge of any
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, could have an adverse
effect upon the ability of any Seller to enter into or perform its obligations
under this
104
<PAGE>
Agreement or any such other agreements or instruments. No Seller has received
any request from any governmental agency or instrumentality for information with
respect to the transactions contemplated hereby.
4.3 Ownership of the Shares.
(a) Each Seller owns the Shares ascribed to it on Schedule 1.1,
beneficially and of record, free and clear of any restriction, mortgage, deed of
trust, pledge, lien, security interest or other charge, claim or encumbrance
("Lien"). Except as described in the Disclosure Statement, there are no
shareholder or other agreements affecting the right of any Seller to convey the
Shares to Buyer or any other right of any Seller with respect to the Shares, all
of which agreements shall be terminated prior to Closing, and each Seller has
the absolute right, authority, power and capacity to sell, assign and transfer
the Shares owned by such Seller to Buyer free and clear of any Lien (except for
restrictions imposed generally by applicable securities laws). Upon delivery to
Buyer of the certificates for and terminations of options relating to the Shares
at the Closing, Buyer will acquire good, valid and marketable title to the
Shares, and will own all of the outstanding capital stock of the Company, free
and clear of any Lien (except for applicable securities laws restrictions).
(b) Capitalization. The Company's authorized, issued and outstanding
capital stock and its other securities are fully and accurately described in the
Disclosure Statement. All of the options having been exercised as described in
the Disclosure Statement, no person has any preemptive or other similar rights
with respect to any such equity interests or other securities and there are no
offers, options, warrants, rights, agreements or commitments of any kind
(contingent or otherwise) relating to the issuance, conversion, registration,
voting, sale or transfer of any equity interests or other securities of the
Company (including, without limitation, the Shares) or obligating the Company or
any other person to purchase or redeem any such equity interests or other
securities. The Shares constitute all of the issued and outstanding shares of
capital stock of Company, and have been duly authorized and are validly issued
and outstanding, fully paid and nonassessable, and have been issued in
compliance with applicable securities and other Laws.
(c) Except as described in the Disclosure Statement, the Business is
and has been conducted solely by and through the Company and no other person,
and the 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 the Company has not the agreed, contingently
or otherwise, to share any profits, losses, costs or liabilities, or to
indemnify any person or entity or to guaranty the obligations of any person or
entity.
4.4 Brokers. No person acting on behalf of any Seller or any of their
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, except for David Wood, who is due a
fee to be paid by Buyer.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE SELLERS AND THE COMPANY.
Certain representations and warranties made by Sellers and the Company
are modified as and to the extent set forth in the Disclosure Statement or as
otherwise provided herein. Subject to the foregoing, the Company and Sellers
jointly and severally (but severally only as to Section 5.6) represent and
warrant to Buyer as of the date of this Agreement as follows:
5.1 Organization and Good Standing.1 Organization and Good Standing.
The Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of California and has all necessary
corporate powers to own its properties and to carry on its business as now owned
and operated by it. The Company 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 the Company of all its
affiliates, each jurisdiction where it or an affiliate is authorized to do
business, and the Company's capitalization (including the identity of each
stockholders and the number of shares held by each).
5.2 Power and Authorization.2 Power and Authorization. The Company has
full legal right, power and authority to enter into and perform its obligations
under this Agreement and the Seller Transaction Documents). The execution,
delivery and performance by the Company 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 the Company and
constitutes the legal, valid and binding obligation of the Company, 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 the Company, enforceable against it
in accordance with its terms.
105
<PAGE>
5.3 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) violate or conflict with any provision of the Company's
Articles of Incorporation or by-laws;
(iv) 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;
(v) cause Buyer or the Company to become subject to, or become
liable for the payment of any tax, except for the Company's prorated portion of
accrued ad valorem taxes; or (vi) 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 the Company or, to the
knowledge of the Company, 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 the Company to enter
into or perform its obligations under this Agreement or any such other
agreements or instruments. The Company has not received any request from any
governmental agency or instrumentality for information with respect to the
transactions contemplated hereby.
5.4 Brokers.4 Brokers. No person, acting on behalf of the Company 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.
5.5 Compliance with Laws.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 three
years has been, in compliance in all material respects with all applicable Laws;
and the Company 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 three 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 three years are, except as otherwise
described in the Disclosure Statement, in full force and effect without any
default or violation thereunder by the Company or by any other party thereto and
the Company has not received any notice of any claim or charge that the Company
is or within the last three 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 the Company, threatened by any
person to revoke or deny the renewal of any Authorization; and (ii) the Company
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.
5.6 Securities Laws Matters.
(a) Each Seller acknowledges that the Judge Shares and the monies
earned pursuant to Sections 2(b) through (g) hereof, 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.
106
<PAGE>
(b) Each Seller represents and warrants that the residence and
principal place of business of such Seller is located in the states reflected in
Schedule 1.1 and that Buyer has not communicated with such Seller with respect
to the offer or sale of the Securities at any time such Seller was located in
any other State.
(c) Each Seller represents and warrants that:
(i) such Seller 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) such Seller is acting herein for such Seller's own
account and is acquiring the Securities for investment without a view to the
resale or other distribution thereof. Such Seller 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 such Seller's overall
investment program and financial position, and recognizes that there are
substantial risks involved in an investment in the Securities; and
(iii) such Seller 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, 1997 and each report on Form
8-K filed by Judge Group subsequent to its Form 10-K.
(d) Each 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 each Seller agrees that a legend to such effect will be
placed on the Securities.
5.7 Litigation. Except as described in the Disclosure Statement, there are
no, and during the last three 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 $2,000 in
the case of any single action or $5,000 in the case of all such actions in the
aggregate. To the knowledge of the Sellers, 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.
5.8 Financial Statements.
(a) The unaudited statements of income of the Business for the 12-month
periods ended December 31, 1996 and 1997, reviewed for 1996 by Corby & Corby,
independent certified public accountant, a correct and complete copy of which is
attached hereto as part of Schedule 5.8 of the Disclosure Statement, are true
and correct in all material respects and present fairly the financial position
of the Business of the Company and the results of its operations for the fiscal
periods then ended, and includes all adjustments which are necessary for a fair
presentation of the information shown. Except as described in the Disclosure
Statement, such unaudited statements of income are prepared and consistently
applied in accordance with past practice.
(b) The unaudited statements of income of the Business for the months
ended January and February, 1998, a correct and complete copy of which is
attached hereto as part of Schedule 5.8 of the Disclosure Statement, are true
and correct in all material respects and present fairly the financial position
of the Business of the Company and the results of its operations for the period
then ended, and includes all adjustments which are necessary for a fair
presentation of the information shown. Except as described in the Disclosure
Statement, such unaudited statements of income are consistently applied in
accordance with past practice.
(c) The unaudited balance sheet of the Business at January 31, 1998
(the "Balance Sheet"), a correct and complete copy of which is attached hereto
as part of Schedule 5.8 of the Disclosure Statement, is true and complete in all
material respects and presents fairly the assets and liability of the Business
of the Company as of such date, and includes all adjustments which are necessary
for a fair presentation of the information shown. Except as described in the
Disclosure Statement, such balance sheet is consistently applied in accordance
with past practice.
(d) The Balance Sheet reflects all liabilities of the Company, whether
absolute, accrued or contingent, as of the respective dates thereof of the type
required to be reflected or disclosed in a balance sheet (or the notes thereto)
prepared in accordance with GAAP. Except as identified in the Disclosure
Statement or Schedule 1.4, the Company does not have any liabilities or
obligations of any nature that are not reflected on the Balance Sheet other than
current liabilities (within the meaning of GAAP) incurred since the date thereof
in the ordinary course of business consistent in nature and amount with past
practice and which are neither material in
107
<PAGE>
amount nor inconsistent with any of the representations and warranties contained
herein. Except as described in the Disclosure Statement or Schedule 1.4, there
is no basis for the assertion against the Company of any liability (other than
current liabilities referred to above) not fully reflected or reserved against
in the Balance Sheet.
(e) Except as identified in the Disclosure Statement, the Balance Sheet
reflects reserves or other appropriate provisions at least equal to reasonably
anticipated liabilities, losses and expenses of the Company as of the respective
dates thereof whether or not required to be disclosed by GAAP, including without
limitation those with respect to income and other taxes (including alternative
minimum tax), warranty claims, bad debts, unsalable inventories, salaries,
vacation pay, and plans and programs (including medical and other benefits
programs) for the benefit of present and former employees.
5.9 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. Except as described in the
Disclosure Statement, all of such accounts receivable are generally due within
30 days after being accrued on the books of the Company 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 5.9 of the Disclosure Statement lists the Business's accounts
receivable as of the date specified thereon, in each case specifying the account
debtor, the face amount of the receivable and the age of the receivable.
5.10 Personal Property. Except as described in the Disclosure Statement:
(a) the Company 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 the Company are in the possession or under the control of the
Company, 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.
5.11 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 the location
thereof;
(b) Each Authorization employed in the Business;
(c) All Marks, Patents, Copyrights, Trade Secrets and Software, and all
licenses and permits issued or granted by any person relating to any of the
foregoing, owned, leased, used or held by, granted to or licensed by the Company
as either licensor or licensee, together with all other interests therein
granted by the Company to any other person and all agreements with respect to
any of the foregoing to which the Company 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 the Company or the Company'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 the Company;
(f) Each contract, agreement or commitment relating to the Business to
which the Company 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 the Company
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 the Company
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 years for the benefit of, or respecting which
any premiums are paid directly or indirectly by the Company relating to the
Business;
(i) Each insurance claim made or loss incurred in the preceding two
years pursuant to any workers' 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 the Company for any purpose whatsoever.
108
<PAGE>
The Company 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.
5.12 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, the
Company 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 the Company or, to the best knowledge of the Company, by any
other party thereto. The Company 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.
5.13 Intellectual Property.
(a) The Disclosure Statement sets forth a true and complete list or
description of all Intellectual Property;
(b) Except as otherwise described in the Disclosure Statement: (i) the
Company owns or has the exclusive perpetual right to use, without payment to any
other party, all Intellectual Property; (ii) no other person has any rights in
or to any of the Intellectual Property including, without limitation, any rights
to royalties or other payments with respect to, or rights to market or
distribute any of, the Intellectual Property); (iii) the rights of the Company
in and to any of the Intellectual Property will not be limited or otherwise
affected by reason of any of the transactions contemplated hereby; (iv) the
Intellectual Property is sufficient for the conduct of the Company's business as
such is presently conducted and proposed to be conducted; and (v) none of the
Intellectual Property infringes or is alleged to infringe any trademark,
copyright, patent or other proprietary rights of any person;
(c) All employees of the Company or other persons or entities involved
with the development, implementation, use or marketing of any Intellectual
Property have entered into written agreements assigning to the Company all
rights to any intellectual property related to the Company's business;
(d) The Company has not, since December 31, 1997, except in the
ordinary course of business consistent with past practices, transferred to any
person or entity any rights to any Intellectual Property.
5.14 Software.
(a) The Disclosure Statement contains a complete and accurate list of
all computer software that is owned by the Company (the "Owned Software"). The
Company has exclusive rights and title to the Owned Software, free and clear of
all claims, including claims or rights of joint owners and employees, agents,
consultants, customers, licensees or any other parties who may have been
involved in the development, creation, marketing, maintenance, enhancement or
licensing of such computer software. No person or entity is infringing on any
rights of the Company with respect to the Owned Software. None of the Owned
Software infringes any Intellectual Property or other rights of any person.
Except as set forth in the Disclosure Statement, the Owned Software is not so
functionally dependent on any Licensed Software (as defined below) that it
cannot operate independently of such Licensed Software in the manner in which it
is intended. No Owned Software has been published or disclosed by the Company to
any other parties except to customers and consultants of the Company pursuant to
contracts requiring such other parties to keep the Owned Software confidential.
No party has any rights to recreate the Owned Software. All employees of the
Company or other persons or entities involved with the development of the Owned
Software have entered into written agreements assigning to the Company all
rights thereto;
(b) The Disclosure Statement contains a complete and accurate list of
all software, other than generally available software (such as Excel, Microsoft
Word and the like) and generally available system development tools, for which
the Company is a licensee, lessee or otherwise has obtained the right to use
software (the "Licensed Software"). The Disclosure Statement also sets forth (i)
a list of all license fees, rents, royalties or other charges that the Company
is required or obligated to pay with respect to Licensed Software and (ii) a
complete list of all license agreements relating to Licensed Software. The
Company has the right and license to use, sublicense, modify and copy all
Licensed Software, free and clear of any limitations or encumbrances except as
may be set forth in any license agreements listed in Disclosure Statement. There
is no default by the Company of any provision of any such license agreement
pursuant to which it has rights to use the Licensed Software. The Company has
not published or disclosed any Licensed Software to any other party except, in
the case of Licensed Software that the Company leases or markets to others, in
accordance with and as permitted by any license, lease or similar agreement
relating to the Licensed Software and
109
<PAGE>
except pursuant to contracts with customers of the Company requiring such other
customers to keep the Licensed Software confidential.
(c) The Owned Software and Licensed Software constitute all software,
other than generally available software and generally available system
development tools, used by the Company (collectively referred to in this
Agreement as the "Company's Software"). The Company Software operates in
accordance with the warranties contained in the documentation supplied to
customers, except where the failure to so operate can be corrected in the
ordinary course of business. Provided that any necessary consents identified in
the Disclosure Statement are obtained from the licensors thereof, the
transactions contemplated herein will not cause a breach under any licenses or
similar agreements relating to the Company's Software or impair or limit Buyer's
rights in the Company's Software.
(d) Except as set forth in the Disclosure Statement, the Company has
not granted any marketing rights in the Company's Software to any third party.
Other than in the ordinary course of business, the Company has not granted any
licenses or other rights and the Company has no obligation to grant licenses or
other rights with respect to the Company's Software. The Disclosure Statement
lists and separately identifies all agreements pursuant to which the Company has
been granted rights to market software owned by third parties.
(e) No claims with respect to the Company's Software or Intellectual
Property have been asserted or, to the knowledge of the Company, are threatened
by any person nor does the Company know of any valid grounds for any bona fide
claims (i) to the effect that the manufacture, sale or use of any product or
process as now used or offered or proposed for use or sale by the Company
infringes on any copyright, trade secret, patent or other proprietary right of
any person, (ii) against the use by the Company of any Intellectual Property or
the Company's Software used in the business of the Company as currently
conducted or proposed to be conducted, or (iii) challenging the ownership,
validity or effectiveness of any of the Intellectual Property or the Company's
Software.
(f) Except as set forth in Schedule 5.14 of the Disclosure schedule,
the Company's Software is Year 2000 compliant and records, stores, processes and
presents calendar dates falling on or after January 1, 2000 in the same manner
and with the same functionality, completeness and accuracy as calendar dates
falling on or before December 31, 1999.
5.15 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 the Company
with respect to the Business. The Company 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 years there have not been any disputes or controversies involving, in the
aggregate, more than $5,000 between the Company 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.
5.16 Taxes.
(a) All federal, state, local and foreign returns and reports relating
to Taxes (as defined herein), or extensions relating thereto, required to be
filed by or with respect to the Company have been timely and properly filed, and
all such returns and reports are correct and complete.
(b) All federal, state, local and foreign income, profits, franchise,
sales, use, payroll, premium, occupancy, property, severance, excise,
withholding, customs, unemployment, transfer and other taxes, including
interest, additions to tax and penalties (collectively "Taxes") due or properly
shown to be due on any return referred to in Section 5.16(a) 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 or, in the case of Taxes not
yet due, fully provided for on the Interim Balance Sheet or, in the case of
Taxes accruing after the date of such financial statement, on the books of
account of the Company; and there are no levies, liens, or other encumbrances
relating to Taxes existing, threatened or pending with respect to any asset of
the Company.
(c) Except as described in the Disclosure Statement, no issues have
been raised with any representative or employee of the Company (and are
currently pending) by the Internal Revenue Service ("IRS") or any other taxing
authority in connection with any of the returns and reports referred to in
subsection (a) above and no waivers of statutes of limitations have been given
or requested with respect to any such returns and reports or with respect to any
Taxes.
(d) The Disclosure Statement identifies all federal, state, local and
foreign income, franchise and sales and use tax returns of or with respect to
the Company which have been examined since the year stated therein, or which are
currently under examination, by the IRS or by other taxing authorities, or with
respect to which the applicable statute of limitations (including all extensions
and tolling periods) has not yet run. Except as and to the extent shown on such
Disclosure Statement, all deficiencies asserted or assessments made as a result
of such examinations have been fully paid, and there are no other unpaid
deficiencies asserted or assessments made by any taxing authority against the
Company.
110
<PAGE>
(e) The Disclosure Statement lists all elections by or with respect to
Company for federal or state income or franchise tax purposes that are currently
applicable. The Company has not: filed any consent under section 341(f)(1) of
the Internal Revenue Code of 1986, as amended (the "Code") or agreed to have the
provisions of Code section 341(f)(2) apply to any dispositions of "subsection
(f) assets" as such term is defined in Code section 341(f)(4); agreed to or is
required to make any adjustments under Code section 481(a) by reason of a change
in accounting method or otherwise; employed the LIFO method of accounting for
inventories for federal income tax purposes; made a transfer of intangible
property on which Code section 367(d) or 482 will require the recognition of
additional income for any period after the date hereof; or owned stock in a
"passive foreign investment company" within the meaning of Code section 1296(a).
The books and records of the Company are sufficient to prove the correctness of
all tax returns for open tax years and to determine and to prove the adjusted
tax basis for federal income tax purposes of each asset of the Company.
(f) The Company is not a party to any tax sharing agreement or tax
indemnification agreement.
5.17 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 Company or any ERISA Affiliate (as defined
below) or to which the Company or any ERISA Affiliate has contributed or is or
was within the last three years obligated to make payments. The Company has
delivered to Buyer, with respect to all such plans, arrangements, commitments
and practices, 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; the most
recent summary plan descriptions and any subsequent summaries of material
modifications and all other material employee communications discussing any
employee benefit; Forms series 5500 as filed with the IRS for the three most
recent plan years; the most recent report of the enrolled actuary for all
defined benefit plans, funded welfare plans or other plans requiring actuarial
valuation; all trust agreements with respect to employee benefit plans; plan
contracts with service providers or 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 Code section 401(a). As used herein, "ERISA Affiliate" shall
refer to any trade or business, whether or not incorporated, under common
control with the Company within the meaning of Section 414(b), (c), (m) or (o)
of the Code.
(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 Code and all other applicable laws
(including, without limitation, funding, filing, termination, reporting and
disclosure and continuation coverage obligations pursuant to Title V of the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"));
(ii) the Company has made or provided for all contributions required under the
terms of such Plans; (iii) no "Employee Pension Benefit Plan" (as defined in
Section 3(2) of ERISA) has been the subject of a "reportable event" (as defined
in Section 4043 of ERISA) and there have been no "prohibited transactions" (as
described in Section 4975 of the Code or in Part 4 of Subtitle B of Title I of
ERISA) with respect to any Employee Benefit Plan; (iv) 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; (v) the
actuarial present value of accumulated benefits (both vested and unvested) of
each of the Employee Pension Benefit Plans which are defined benefit plans, are
fully funded in accordance with the actuarial assumptions used by the Pension
Benefit Guaranty Corporation ("PBGC") to determine the level of funding required
in the event of the termination of such Plan; (vi) each Employee Pension Benefit
Plan 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 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; and (vii) neither
Company 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, or which would cause the
imposition of any liability, penalty or tax under ERISA or the Code with respect
to any Employee Benefit Plan.
111
<PAGE>
(c) Neither Company 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 3(37) of ERISA).
(d) With respect to each Employee Benefit Plan maintained by Company or
any ERISA Affiliate: (i) no unsatisfied liabilities to participants, the IRS,
the United States Department of Labor ("DOL"), the PBGC or to any other person
or entity have been incurred as a result of the termination of any Employee
Benefit Plan; (ii) no Employee Pension Benefit Plan, which is subject to the
minimum funding requirements of Part 3 of subtitle B of Title I of ERISA or
subject to Section 412 of the Code, has incurred any "accumulated funding
deficiency" within the meaning of Section 302 of ERISA or Section 412 of the
Code and there has been no waived funding deficiency within the meaning of
Section 303 of ERISA or Section 412 of the Code; and (iii) there has been no
event with respect to an Employee Pension Benefit Plan which would require
disclosure under Sections 4062(c), 4063(a) or 4041(e) of ERISA.
(e) All reports, informational returns, and information required to be
filed with the DOL, IRS and PBGC 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 without qualification by each
Plan's accountants and actuaries.
(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
Company or any ERISA Affiliate are plan assets.
(h) Except as described in the Disclosure Statement, neither Company
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) Except as set forth on the Disclosure Statement, the consummation
of the transactions contemplated by this Agreement will not, alone or together
with any other event, (i) entitle any person to severance pay, unemployment
compensation or any other payment, (ii) accelerate the time of payment or
vesting, or increase the amount of compensation due to any such employee, or
(iii) result in any liability under Title IV of ERISA or otherwise.
(j) The Company intends to terminate the Company's stock option plan,
SIMPLE IRA plan, and Code section 125 plan as of the Closing Date.
(k) There has been no violation of the "continuation coverage
requirements" of section 4980B of the Code and part 6 of Subtitle B of Title I
of ERISA with respect to any "Employee Welfare Benefit Plan" (as defined in
section 3(1) of ERISA) to which such continuation coverage requirements apply.
(l) There has been no violation of the health insurance obligations
imposed by section 9801 of the Code and Part 7 of Subtitle B of Title I of ERISA
("HIPAA") with respect to any Employee Welfare Benefit Plan which is a group
health plan (as defined in section 5000(b)(1) of the Code or Part 6 of Subtitle
B of Title I of ERISA) to which such insurance obligations apply.
5.18 Labor Matters.
(a) Except as described in the Disclosure Statement: (i) to the
knowledge of the Company, no application or petition for certification of a
collective bargaining agent is pending and none of the employees of the Company
engaged in the Business are, or during the last two years have been, represented
by any union or other bargaining representative; (ii) to the knowledge of the
Company, during the last two years, no union has attempted to organize any group
of the Company's employees engaged in the Business, and no group of the
Company'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 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 the Company from relocating or closing the Facility or any
portion thereof; and (v) to the knowledge of the Company, no such agreement,
action, proceeding or occurrence is threatened or contemplated by any person.
112
<PAGE>
(b) Except as described in the Disclosure Statement with respect to the
Business and the Facility, the Company 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 the Company, no representative of any such government agency has
attempted to conduct any such inspection or sought entry to the Facility for
that purpose; (iii) the Company has not been notified of any complaint or charge
filed by any employee or employee representative with any such government agency
which alleges that the Company has violated OSHA or any other statute,
ordinance, rule or regulation establishing standards of workplace safety; (iv)
the Company 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) the Company 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 the Company at the Facility
for the last two years.
5.19 Directors, Officers and Employees.19 Directors, Officers and Employees.
The Disclosure Statement sets forth the following information for each director,
officer and employee of the Company and for each consultant and independent
contractor regularly retained, whose aggregate compensation for the fiscal year
ended December 31, 1997 exceeded $40,000 or whose current aggregate annual rate
of compensation exceeds such amount (including each such person on leave or
layoff status): 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; and any
automobile leased or owned by the Company primarily for use by any of the
foregoing persons. Except as described in the Disclosure Statement, none of the
Company's employees, directors or officers is a party to, or is otherwise bound
by, any agreement or arrangement with any person or entity other than the
Company which limits or adversely affects the performance of his or her duties,
the ability of the Company to conduct its businesses, or his or her freedom to
engage in any of the businesses conducted by Company (including, without
limitation, any confidentiality, non-competition or proprietary rights
agreement). The Disclosure Statement describes each employment, severance,
change of control, consulting, commission, agency and representative agreement
or arrangement to which the Company 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).
5.20 Full Disclosure.
(a) All documents and other papers delivered by or on behalf of the
Company 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 the Company 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
and except for material adverse affects directly attributable to the Company's
present insolvent financial condition, there is no fact known to the Company
(other than general economic or industry conditions) which materially adversely
affects or, so far as the Company can reasonably foresee, materially threatens,
the assets, business, prospects, financial condition or results of operations of
the Business or the ability of the Company to perform this Agreement.
5.21 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 10, 1998 the Company has not:
(a) declared or paid any dividend or other distribution or payment in
respect of the shares of capital stock of the Company 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;
113
<PAGE>
(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.
5.22 Insurance.
(a) The description of the policies and binders of insurance contained
in the Disclosure Statement identifies: (i) the respective issuers and
expiration dates thereof; (ii) deductible amounts and amounts of coverage
available and outstanding thereunder; (iii) whether such policies and binders
are "claims made" or "occurrences" policies, (iv) all self-insurance programs or
arrangements and (v) any retrospective premium adjustments of which the Company
has knowledge. Such policies and binders are issued by insurance companies
reasonably believed by Company to be financially sound and reputable, are
sufficient for compliance with all requirements of Laws and all agreements to
which the Company is a party or by which it or its assets are bound, are valid
and enforceable policies, and, except as described in the Disclosure Statement,
will not be affected by, terminate or lapse by reason of the transactions
contemplated by this Agreement.
(b) Except as described in the Disclosure Statement, the Company has
not received (i) any notice of cancellation of any policy or binder of insurance
required to be identified in the Disclosure Statement or refusal of coverage
thereunder; (ii) any notice that any issuer of such policy or binder has filed
for protection under applicable bankruptcy or insolvency laws or is otherwise in
the process of liquidating or has been liquidated; or (iii) any other indication
that any such policy or binder may no longer be in full force or effect or that
the issuer of any such policy or binder may be unwilling or unable to perform
its obligations thereunder. The Company has not, within the last five years,
been refused any insurance nor has its coverage been limited.
5.23 Affiliate Agreements. Except as described in the Disclosure Statement,
there are no, and during the last 3 years there have not been any agreements,
arrangements or understandings between the Company on the one hand and any
Seller or any present or former director, shareholder or officer of any Seller
or the Company or any member of the immediate family of or any person or entity
controlling or controlled by any of such persons (a "Related Party"). Except as
described in the Disclosure Statement, no such Related Party has, or during the
last 3 years has had: any interest in any property (real or personal, tangible
or intangible) sold to, purchased by or otherwise used in or pertaining to the
business of the Company; or any direct or indirect interest in any person or
entity which has had business dealings or a financial interest in any
transaction with the Company or which is in competition with any business of the
Company. Except as described in the Disclosure Statement, all agreements and
arrangements between the Company and all Related Parties are terminable by the
Company, upon less than ten days notice, without payment of penalty or premium
of any kind. None of Sellers has any claim or right against the Company except
as described in the Disclosure Statement.
114
<PAGE>
5.24 Environmental Matters.
(a) Except as described in the Disclosure Statement:
(i) The Company, including all of its businesses and
operations are and always have been operated in compliance
with all Environmental Laws (as defined below);
(ii) There are no conditions on, about, beneath or arising
from any real property which is now owned, used or leased to or by the Company
("Current Real Property") which might, under any Environmental Law, (A) give
rise to liability or the imposition of a statutory lien, or (B) which would or
may require any "Response," "Removal" or "Remedial Action" (as those terms are
defined below) or any other action, including without limitation reporting,
monitoring, cleanup or contribution;
(iii) There were no conditions on, about, beneath or arising
from any real property which was, but is no longer, owned, used or leased to or
by the Company ("Former Real Property"), during the period of such ownership,
use, or lease, which might, under any Environmental Law, (A) give rise to
liability or the imposition of a statutory lien, or (B) which would or may
require any "Response," "Removal" or "Remedial Action" or any other action,
including without limitation reporting, monitoring, cleanup or contribution;
(iv) The Company has not received any notification of a
release or threat of a release of a "Hazardous Substance" (as defined below)
with respect to any Current Real Property or Former Real Property;
(v) No Hazardous Substances have been used, handled,
generated, processed, treated, stored, transported to or from, released,
discharged or disposed of by the Company or any third party on, about or beneath
any Current Real Property.
(vi) During the Company's ownership, use or lease of the
Former Real Property, no Hazardous Substances were used,
handled, generated, processed, treated, stored, transported to or from,
released, discharged or disposed of by the Company or any third party on, about
or beneath the former Real Property;
(vii) There are no above or underground storage tanks,
asbestos containing materials, or transformers containing or contaminated with
PCB's on, about or beneath the Current Real Property. During the Company's
ownership, use or lease of the Former Real Property, there were no above or
underground storage tanks, asbestos containing materials, or transformers
containing or contaminated with PCB's on, about or beneath the Former Real
Property.
(viii) The Company has not received notice and does not have
actual or constructive knowledge of:
(A) any claim, demand, investigation, enforcement
action, Response, Removal, Remedial Action, statutory lien or other governmental
or regulatory action instituted or threatened against the Company or the
Current, or Former Real Property pursuant to any of the Environmental Laws;
(B) any claim, demand notice, suit or action, made or
threatened by any person against the Company;
the Current Real Property or the Former Real Property relating to (1) any form
of damage, loss or injury resulting from, or claimed to result from, any
Hazardous Substance on, about, beneath or arising from the Current or Former
Real Property or (2) any alleged violation of the Environmental Laws by the
Company; or
(C) any communication to or from any governmental or
regulatory agency arising out of or in connection
with Hazardous Substances on, about, beneath, arising from or generated at the
Current Real Property or Former Real Property, including without limitation, any
notice of violation, citation, complaint, order, directive, request for
information or response thereto, notice letter, demand letter or compliance
schedule.
(ix) No wastes generated by the Company have ever been
directly or indirectly sent, transferred, transported to, treated, stored, or
disposed of at any site listed or formally proposed for listing on the National
Priority List promulgated pursuant to "CERCLA" (as defined below) or to any site
listed on any state list of sites requiring or recommended for investigation or
clean-up. None of the Current Real Property or Former Real Property is listed on
the National Priorities List or any state list of sites requiring or recommended
for investigation or clean up.
(b) As used in this Agreement:
(i) the term "Environmental Laws" means all Laws concerning
or relating to industrial hygiene or protection of
human health or the environment.
(ii) the terms "Response," "Removal" and "Remedial Action"
shall have the meanings ascribed to them in Sections 101(23)-101(25) of the
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"),
as amended by the Superfund Amendments and Reauthorization Act ("SARA"), 42
U.S.C. ss.ss. 9601(23)-9601(25).
(iii) The term "Hazardous Substances" or "Hazardous
Substance" shall mean any substance regulated under any of the Environmental
Laws including, without limitation, any substance which is: (A) petroleum,
asbestos or asbestos-containing material, or polychlorinated biphenyls; (B)
defined, designated or listed as a
115
<PAGE>
"Hazardous Substance" pursuant to Sections 307 and 311 of the Clean Water Act,
33 U.S.C. ss.ss.1317, 1321, Section 101(14) of CERCLA, 42 U.S.C. ss.9601; (C)
listed in the United States Department of Transportation Hazardous Material
Tables, 49 C.F.R. ss.172.101; (D) defined, designated or listed as a "Hazardous
Waste" under Section 1004(5) of the Resource and Conservation and Recovery Act,
42 U.S.C. 6903(5).
5.25 Books and Records.
(a) The copies of the certificates or articles of incorporation of the
Company, as certified by the Secretary of State of its jurisdiction of
incorporation, and of its bylaws (or of its other comparable organizational
documents), as certified by its secretary, which have been delivered to Buyer
are true, complete and correct and are in full force and effect as of the date
hereof.
(b) The stock records of the Company fairly and accurately reflect the
record ownership of all of its outstanding shares of capital stock. The minute
books of the Company contain complete and accurate records of all meetings held
of, and corporate action taken by, the shareholders, the board of directors and
each committee of the board of directors of the Company and no meetings of such
shareholders or of such board of directors or committee have been held for which
minutes have not been prepared and included in such minute books. The other
books and records of the Company, including financial records and books of
account, are complete and accurate in all material respects and have been
maintained in accordance with sound business practices. Complete and accurate
copies, as of the date hereof, of all such minute books and stock records have
been made available to Buyer.
(c) The books and records of the Company accurately and fairly reflect
its income, expenses, assets and liabilities and the Company maintains internal
accounting controls which provide reasonable assurance that: (i) transactions
are executed in accordance with management's authorization; (ii) transactions
are recorded as necessary to permit preparation of reliable financial statements
and to maintain accountability for earnings and assets; (iii) access to assets
is permitted only in accordance with management's authorization; (iv) the
recorded accountability of all assets is compared with existing assets at
reasonable intervals; and (v) all intercompany transactions, charges and
expenses among or between the Company, and Seller and/or their affiliates are
accurately reflected at fair arms length value in all financial statements.
SECTION 6. REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer hereby represents and warrants to Sellers as of the date of this
Agreement as follows:
6.1 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.
6.2 Power and Authorization.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.
6.3 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.
116
<PAGE>
(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.
6.4 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 David Wood, whose fees and expenses
shall be paid by Buyer.
6.5 Capital Structure. The capital structure of the Buyer is as presented
in its most recent filings with the U.S. Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934, as amended.
6.6 Judge Group Shares. Upon issuance in accordance with the terms of
Section 2.1 hereof, the Judge Shares will be duly and validly authorized and
issued, fully paid and non-assessable.
6.7 Investment. Buyer is acting herein for Buyer's own account and is
acquiring the Shares for investment without a view to the resale or other
distribution thereof. Buyer is financially able to hold the Shares for long-term
investment, believes that the nature and amount of the Shares to be acquired
hereunder is consistent with Buyer's overall investment program and financial
position, and recognizes that there are substantial risks involved in an
investment in the Shares.
SECTION 7. EMPLOYEE BENEFITS AND EMPLOYMENT.
7.1 Employment. The employees of the Company are listed on Schedule 7.1
attached hereto which also states their rates of pay prior to the Closing.
Employees who continue such employment immediately after the closing shall be
referred to as "Transferred Employees" for purposes of this Agreement. Anything
contained in or implied by the provisions of this Section 7.1 to the contrary
notwithstanding, the provisions of this Section shall not create any third-party
beneficiary rights in any person, including any Transferred Employee.
7.2 Employee Pension Benefit Plans. The benefits under any Employee
Pension Benefit Plan maintained by the Company 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. Except as provided in
Section 1.4 hereof, the Company shall be indemnified against any liability or
responsibility for any such Employee Pension Benefit Plan after the Closing Date
as provided in this Agreement.
7.3 Employee Welfare Benefit Plans. After the Closing Date, the Company
intends to continue the Employee Welfare Benefit Plans maintained by the Company
prior to the Closing for the benefit of the Transferred Employees in accordance
with the terms and conditions of such Employee Welfare Benefit Plans; however,
the Company reserves the right to terminate such Employee Welfare Benefit Plans
at any time. After the Closing Date, the Company intends to terminate the Code
section 125 plan maintained by the Company as soon as possible after the Closing
Date.
In addition, Buyer shall not be liable or responsible for and the
Company shall be indemnified, as provided in this Agreement, against any injury
sustained prior to the Closing Date that is related to a workers' compensation
claim.
7.4 Vacation and Holidays. After the Closing, the Company will provide
the same vacations and holidays to the Transferred Employees as provided by the
Company as of January 1, 1998 except that the Company will not permit the use of
any vacation carried over from 1996 or prior years. In the case of the
Transferred Employees, the Company shall, at the election of each Transferred
Employee, credit such Transferred Employee with said accrued vacation.
7.5 Health Continuation Coverage. The Company shall be responsible for all
health continuation coverage and notice obligations ("COBRA") imposed by section
4980B of the Code and Part 6 of Subtitle B of Title I of ERISA whether such
obligation arose before or after the Closing Date.
Sellers represent that the Company is not liable for any claims
resulting from a COBRA obligation which arose prior to the Closing Date.
7.6 Health Insurance Portability and Accountability Act. The Company shall
be responsible for all health insurance obligations imposed by section 9801 of
the Code and Part 7 of Subtitle B of Title I of ERISA ("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)
whether such obligation arose before or after the Closing Date.
In accordance with this Agreement, Sellers shall indemnify Buyer and
the Company against any claims resulting from a HIPAA obligation which arose
prior to the Closing Date.
117
<PAGE>
7.7 Employee Records. After the Closing the Company shall have full access
to all employee records relating to the Transferred Employees.
SECTION 8. 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:
8.1 Representations and Warranties. The Company's and Sellers'
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.
8.2 Performance of Covenants. The Company and Sellers 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.
8.3 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 the Buyer or the Company any condition or provision or requirement not
imposed upon Sellers or, if imposed on Sellers, that is more restrictive on
Buyer or the Company than on Sellers.
8.4 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.
8.5 No Material Adverse Change. There shall not have been any material
adverse change or threat of material adverse change in the Company, the Business
or the Purchased Assets, or in any development of a nature that is, or is likely
to be materially adverse to the Company, the Business or the Purchased Assets
since February 10, 1998.
8.6 Opinion of Counsel. Buyer shall have received the Opinion of Seller's
Counsel dated as of the Closing.
8.7 Closing Certificates. The Buyer shall have received certificates from
the Seller Representative (as defined in Section 12.14), dated the Closing Date,
certifying in such detail as the Buyer may reasonably request that the
conditions specified in Sections 8.1, 8.2 and 8.3 hereof have been fulfilled.
Seller Representative's liability for such certificates shall be subject to the
last paragraph of Section 11.1.
8.8 Employment Agreement. Cooper shall have executed and delivered the
Employment Agreement.
8.9 Payment of Affiliated Indebtedness; Company Indebtedness.
(a) Except as expressly provided herein, the Sellers shall have caused
all indebtedness to the Company from any Sellers, all Related Parties and all
affiliates of any Seller to have been paid in full prior to Closing.
(b) The Company shall have caused the aggregate amount of all bank
debt, notes payable and other consolidated indebtedness of the Company (other
than trade accounts payable) as of the Closing, and the aggregate amount of all
trade accounts payable of the Company, all of which shall be bona fide
obligations incurred in the ordinary course of business consistent with past
practice, not to exceed the amounts set forth in Schedule 1.4.
(c) The Company shall have caused all liens in favor of Silicon Valley
Bank to be released of record and otherwise, assuming that Buyer satisfies the
condition in Section 9.7. 8.10 Resignation of Directors and Officers. Buyer
shall have received resignations from such of the officers and directors of the
Company as Buyer shall have requested.
SECTION 9. CERTAIN CONDITIONS PRECEDENT TO SELLERS' OBLIGATIONS.
The obligation of Sellers to consummate the sale of the Purchased
Assets is subject to the fulfillment by or at the Closing of each of the
following conditions:
9.1 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.
9.2 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.
9.3 Approvals. The consent or approval of all persons described on the
Disclosure Statement pursuant to Sections 5.5(b) and 5.12 shall have been
obtained.
9.4 Legal Matters. The Closing shall not violate any order or decree of
any court or governmental body of competent jurisdiction and no suit, action,
investigation, or legal or administrative proceeding shall have been brought
118
<PAGE>
or threatened by any person (other than Sellers or an affiliate of any Seller)
which questions the validity or legality of this Agreement or the transactions
contemplated hereby.
9.5 Closing Certificates. The Sellers 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 9.1 and 9.2
hereof have been fulfilled.
9.6 Employment Agreement. The Company shall have executed and delivered
the Employment Agreement.
9.7 Bank Debt. Buyer shall have paid off Silicon Valley Bank in the amount
set forth in Schedule 1.4.
SECTION 10. CERTAIN POST-CLOSING MATTERS; COVENANTS
10.1 Confidential Information. From and after the Closing, unless expressly
consented to in writing by Buyer, Sellers 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.
10.2 Covenant Not to Compete. Cooper agrees that, unless acting with the
prior written consent of the Buyer, neither he will not, directly or indirectly,
(a) 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 its or his name to be
used in connection with, any business or enterprise engaged in the business of
permanent or contract placement, personnel consulting services, project
management services or imaging and computer consulting services anywhere in
Michigan, Pennsylvania, California, Connecticut, Massachusetts, New York, New
Jersey, Virginia or Florida (the "Territory"), from the date hereof until the
earlier of (i) the third anniversary of the Closing Date or (ii) the
Non-Competition Termination Date (as defined in the Employment Agreement);
(b) for a period of three years after the Closing Date, in any manner
induce or attempt to influence any employee of or independent contractor to the
Buyer or the Company or any of its affiliates to terminate such employment or
relationship;
(c) for a period of three years after the Closing Date, in any manner
contact, induce, solicit or influence any client or customer of the Business or
of the Buyer or the Company or any of their affiliates to cause such client or
customer to terminate its relationship with the Business, the Company and/or
Buyer; or
(d) for a period of three 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 10.2 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 extent permitted by
applicable law. Cooper specifically acknowledges and agrees that the foregoing
restrictions are reasonable and necessary to protect the legitimate interests of
the Buyer and the Company, 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 and the Company,
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 and the
Company, 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.
10.3 Employment Agreement Acknowledgment. Cooper acknowledges and agrees
that the non-competition covenants set forth in Section 5.1 of the Employment
Agreement constitute a material part of the consideration given by Cooper, an
officer and shareholder of the Company, as part of the sale of the Business, the
related goodwill and the Purchased Assets to Buyer through the sale of the
Shares.
10.4 Pursuit of Authorizations. Sellers shall use their 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/or the Company and, at the expense of Buyer, to permit the
Buyer and/or the Company 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 and/or the Company after the Closing.
119
<PAGE>
10.5 Remittance of Payments. From and after the Closing, Sellers shall
immediately remit to the Company, in the form received, any payments which they
or any affiliate may receive (such as payments of accounts receivable) which
properly belong to the Company.
SECTION 11. INDEMNIFICATION
11.1 Indemnification by Sellers. Sellers shall jointly and severally
indemnify, defend and hold harmless Buyer and the Company and Buyer's and the
Company's officers, directors, employees and shareholders and their heirs,
representatives, successors and assigns, 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, the Company or any such person 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
Sellers or the Company made in or pursuant to this Agreement, or any Seller
Transaction Document;
(b) any breach or nonfulfillment of any covenant or obligation of
Sellers (including Cooper) contained in this Agreement or any Seller Transaction
Document;
(c) the operations of the Company, the Business or the Purchased Assets
and all acts and omissions of the Company and all facts, events and
circumstances relating to the Company, its financial condition or the business
on or prior to the Closing Date, including without limitation repayment of the
Notes, whether or not described in the Disclosure Statement except to the extent
expressly to be retained by the Company pursuant to Section 1.4; and
(d) the manufacture, distribution and/or use of the Intellectual
Property, including any claim of infringement upon a third-party right in such
Intellectual Property.
In the event Buyer makes any indemnification claim against Sellers
prior to Buyer's payments which may be required pursuant to Section 2.1(b)
through (g) herein, then the Buyer shall have the right, notwithstanding and in
addition to any other rights which Buyer may have with respect to the Sellers 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 Sellers shall pay promptly same
to Buyer, but only to the extent of such payments received by the Sellers and,
as to any breach of Sections 4.1, 4.2(a), 4.3(a) or 5.6, only the Seller or
Sellers responsible for the breach shall have indemnification liability.
11.2 Indemnification by Buyer. Buyer shall indemnify and hold Sellers
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 by Buyer of the Business and the Purchased Assets
after the Closing Date, or the failure to satisfy any liability or other
obligation of the Company to be retained pursuant to Section 1.4 herein.
11.3 Inter-Party Claims. Any party seeking indemnification pursuant to this
Section 11 (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.
11.4 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 11.3). The Indemnifying Party shall have the
right, upon notice to the Indemnified Party within 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 11.4(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.
120
<PAGE>
(b) The election by the Indemnifying Party, pursuant to Section
11.4(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.
11.5 Limitations and Requirements. Sellers shall have no obligation to
indemnify Buyer or any other person against Damages pursuant to Section 11.1(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 in excess of such $10,000 amount; provided,
however, that the above limitation shall not be applicable to any claim for
Damages pursuant to Sections 11.1(b)-(d) or based upon a breach of any
representation or warranty made in or pursuant to Sections 5.6, 5.9 or 5.16
hereof.
11.6 Exclusivity. Buyer shall have no claim against Sellers in connection
with this Agreement except as specifically set forth in this Agreement.
SECTION 12. MISCELLANEOUS.
12.1 Knowledge. All references in this Agreement to Sellers' knowledge
respecting a particular matter shall conclusively be deemed and presumed to
include, without limitation, all facts, circumstances and conditions known to
any Seller or any officer of the Company regarding such matter.
12.2 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 until March 31, 2000, except that the representations and
warranties set forth in Sections 5.13, 5.14 and 5.16 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 Sellers hereunder, and the right of Buyer to indemnification for
breach thereof, shall not be affected by any investigation of the Company 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.
12.3 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. 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.
12.4 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 incurred
in connection with the transactions contemplated herein shall be borne equally
by Sellers and by Buyer.
12.5 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.
121
<PAGE>
To Buyer:
---------
Judge Imaging Services, Inc.
Two Bala Plaza, Suite 405
Bala Cynwyd, PA 19004
Attention: Katharine A. Wiercinski, Vice President
Telecopier: (610) 664-7090
To Sellers:
-----------
c/o Terry Cooper
2355 Main Street, Suite 230
Irvine, CA 92614
Telecopier: (714) 854-3506
12.6 Assignment and Benefit.
(a) Sellers shall not assign this Agreement or any rights hereunder, or
delegate any obligations hereunder, without the prior written consent of Buyer.
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.
12.7 Settlement of Disputes. Except for disputes covered by Section 2.2,
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 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. In any such arbitration proceeding, the
prevailing party, as determined by the arbitrator, shall be entitled to payment
of its cost of arbitration, including attorney's fees, to the extent deemed
equitable by the arbitrator.
12.8 Amendment, Modification and Waiver. The parties may, by mutual
agreement, amend or modify this Agreement in any respect, and Buyer and Seller
Representative 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.
12.9 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 12.7, may apply to a court as set forth
below for a temporary restraining order or
122
<PAGE>
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 12.7 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, 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 12.5 herein. Nothing contained in this
Section 12.9, in Section 12.7 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 Sellers from seeking, in
any court of competent jurisdiction, specific performance or other equitable
remedies in the event of any breach or intended breach by Sellers or Buyer of
any of its obligations hereunder.
12.10 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.
12.11 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.
12.12 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.
12.13 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 Sellers 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.
12.14 Appointment of Seller Representative.
(a) Each of the Sellers hereby irrevocably appoints Terry Cooper to be
the representative of the Sellers (including any successor, the "Seller
Representative") and irrevocably authorizes Seller Representative to take all
actions, exercise all powers and execute all documents as Seller Representative
may deem necessary or desirable in connection with this Agreement and the
transactions contemplated thereby. The Buyer and after the Closing the Company
shall be entitled to rely upon any communication, instrument or document signed
or sent by the Seller Representative. All documents executed and all actions
taken by Seller Representative shall be binding and enforceable upon all of the
Sellers as though each Seller had executed such document and or taken such
action.
(b) In the event of the resignation, death or other inability to serve
of Seller Representative, the Sellers shall appoint a successor Seller
Representative by majority vote (based upon the number of Shares in the Company
held by the Sellers immediately prior to the Closing) and Buyer shall be
entitled to rely upon any notification of a new Seller Representative believed
by Buyer to be genuine. Buyer shall be protected in dealing with the Seller
Representative before receipt of actual notice that the Seller Representative
has been replaced and if the Seller Representative has resigned, died or is
otherwise unable to serve, Buyer may deal with the Seller Representative or his
estate or another Seller of Buyer's choosing, who shall serve as Seller
Representative until replaced in accordance with this Section. Buyer shall not
be deemed to have any knowledge of any replacement of the Seller Representative
until receipt of written notice signed by Seller Representative, his executor or
a majority in interest of the Sellers.
(c) Buyer shall send all payments, certificates evidencing the Judge
Shares and all notices to the Seller Representative at the notice address set
forth in Section 12.5 and Seller Representative shall have complete
responsibility to distribute such payments, certificates and notices among the
Sellers, and each Seller hereby releases Buyer, the Company and all of their
affiliates, shareholders, directors, officers, employees and agents from any
claim or
123
<PAGE>
liability in connection therewith. The relationship and liabilities of
the Sellers and the Seller Representative inter se. shall be governed by such
other agreements as the Sellers and the Seller Representative shall deem
appropriate, but Buyer shall not be affected by or have any liability with
respect to any such agreement. All payments due from Buyer to the Sellers,
hereunder, if any, shall be sent at Buyer's option by check to the address set
forth in Section 12.5 or by wire transfer to an account specified by Seller
Representative.
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.
/s/ James Person
Title: CEO
ON-SITE SOLUTIONS, INC.
/s/ Terry Cooper
Title: President
/s/ Terry Cooper
/s/ Jack Coplen
/s/ Richard Hanson
/s/ Foad Monjazeb
/s/ Dawn Cooper
/s/ Rod Cooper
/s/ Patrice Geasey
/s/ David Lutzky
/s/ Kristin Hawkins
/s/ Jane Sussman
/s/ Shawn Fiedler
/s/ Emily Danielsen
/s/ Steve Sprinz
/s/ Vikki Schanz
/s/ Boris Zhilin
/s/ Manoj Puthenveetil
/s/ Terry Ellis
/s/ Madeleine Espinosa
/s/ Leon White
GUARANTEE
The Judge Group, Inc., a Pennsylvania corporation ("Judge
Group"), hereby guarantees the payment of Buyer's obligations set forth in
Section 2 of this Agreement, including Buyer's obligations to make payments
pursuant to the Earnout, but Judge Group shall otherwise have no liability or
obligation in connection with this Agreement or the transactions contemplated
hereby.
With respect to such obligations of the Buyer guaranteed
hereby, Judge Group hereby waives any right to require Sellers to (a) first
proceed against Buyer or (b) pursue any other remedy in Sellers' power
whatsoever. Judge Group waives any defense arising by reason of any disability,
bankruptcy or other similar defense of Buyer except as expressly provided in
this Agreement.
Judge Group authorizes Buyer or its successors and assigns,
without notice, demand or consent to or from Judge Group and without affecting
Judge Group's liability hereunder, from time to time, to amend, compromise,
extend, accelerate or otherwise change the time of payment of or otherwise
change the terms of such obligations guaranteed hereby.
THE JUDGE GROUP, INC.
By: /s/ Richard T. Furlano
-------------------------------
President
124
<PAGE>
Exhibit 11.1
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997
---- ----
Basic
- -----
<S> <C> <C>
Weighted average common shares outstanding 13,458,000 12,761,000
============ ===========
Net Income (loss) ($ 5,116,993) $ 2,711,940
============ ===========
Net income (loss) after adjustment for preferred dividends earned on
JIS preferred stock ($ 5,116,993) $ 2,705,221
============ ===========
Basic net income (loss) per common share ($ 0.38) $ 0.21
============ ===========
Diluted:
- --------
Weighted average common shares outstanding (1) 13,458,000 12,826,000
============ ===========
Net Income (loss) ($ 5,116,993) $ 2,711,940
============ ===========
Net income (loss) after adjustment for interest expense on convertible
debentures and preferred dividends earned on JIS
preferred stock ($ 5,116,993) $ 2,708,971
============ ===========
Diluted net income (loss) per common share ($ 0.38) $ 0.21
============ ===========
</TABLE>
(1) Options on 584,000 shares of common stock in 1997 and 1,437,950 shares of
common stock in 1998 were not included in computing diluted earnings per
share because its effects are anti-dilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS CONTAINED IN THE JUDGE GROUP, INC. ANNUAL REPORT ON FORM
10-K FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 43,568
<SECURITIES> 0
<RECEIVABLES> 22,278,995
<ALLOWANCES> 511,000
<INVENTORY> 1,185,302
<CURRENT-ASSETS> 25,884,079
<PP&E> 8,166,048
<DEPRECIATION> 3,220,212
<TOTAL-ASSETS> 47,885,427
<CURRENT-LIABILITIES> 13,670,270
<BONDS> 0
0
0
<COMMON> 135,412
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 47,885,427
<SALES> 0
<TOTAL-REVENUES> 114,498,397
<CGS> 78,770,638
<TOTAL-COSTS> 116,140,341
<OTHER-EXPENSES> 251,726
<LOSS-PROVISION> 439,810
<INTEREST-EXPENSE> 251,726
<INCOME-PRETAX> (5,914,769)
<INCOME-TAX> (797,776)
<INCOME-CONTINUING> (5,116,993)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,116,993)
<EPS-PRIMARY> (0.38)
<EPS-DILUTED> (0.38)
</TABLE>
