<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, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from __________ to __________
COMMISSION FILE NO. 0-21963
JUDGE.com, INC.
(formerly The Judge Group, Inc.)
(Exact name of registrant as specified in its charter)
Pennsylvania 23-1726661
(State or other jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
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:
Title of Each Class Name of each exchange on which registered
- ------------------- -----------------------------------------
None
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, $0.01 Par Value NASDAQ Stock Market
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 15, 2000, the approximate aggregate market value of the
voting stock held by non-affiliates of the Registrant was $24,064,920 based on
the closing sales price of $3.00 of the Registrant's Common Stock on the NASDAQ
Stock Market.
As of March 15, 2000, 13,940,651 shares of the Registrant's Common
Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions, as expressly described in this Report, of the
Registrant's Proxy Statement for the 2000 Annual Meeting of the stockholders, to
be filed within 120 days of December 31, 1999, are incorporated by reference
into Part III, Items 10 - 13, of this Report.
<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 WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995. ALL FORWARD-LOOKING STATEMENTS 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
Judge.com, Inc. (the "Company") (formerly The Judge Group, Inc.),
incorporated in Pennsylvania in June 1970, services the information technology
("IT") and engineering needs of its clients by providing IT and engineering
personnel on both a temporary contract basis ("technical consultants") and on a
permanent basis, and by providing standard and customized IT training for
established and emerging software applications.
The Company 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. Technical consultants
are provided on a nationwide basis through the Company's National Division, and
on a regional and local level through a network of 11 offices in 10 states. The
Company maintains a database of approximately 170,000 technical consultants, and
in 1999 provided over 1,850 technical consultants to approximately 650 clients.
The Company provides IT and engineering personnel on a permanent basis to
clients nationwide through a network of 8 offices in 7 states, and maintains a
database of approximately 180,000 candidate professionals. In 1999 the Company
placed 995 candidates with more than 480 clients.
The Company 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. It currently offers
licensed diploma courses, certificate courses, and more than 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 training
business assists the Company in identifying emerging technologies and
integrating such technologies into its organization.
In February 2000 the Company announced a new service of on-line recruiting
through a website which contains both on-line resumes and job postings. This
service is intended to provide a regional job board specifically tailored to the
IT industry. Initially the Company is offering the service in its headquarters
region, and plans to expand this targeted service on a regional basis throughout
the United States.
1
<PAGE>
In January 1999 the Company reorganized its four operating units into
two business segments to enable financial analysis that more closely tracks its
lines of business. The Company's Contract Placement, Permanent Placement and IT
Training operating units were consolidated within the IT Staffing segment. The
Information Management Solutions ("IMS") business was the other segment, which
the Company adopted a plan to dispose of in June 1999. The IMS business had
provided computer network and document management system integration,
implementation, maintenance and training. Through sales occurring in June
through August 1999, the Company divested substantially all of the assets of the
IMS business. The results of operations of the IMS business are shown separately
in the accompanying consolidated statements of operations as "loss from
discontinued operations".
CONTINUING OPERATIONS
The Company has provided IT and engineering personnel on a permanent basis
since the Company was founded in 1970. Permanent placements generated revenues
of $8.6 million, $11.2 million, and $12.5 million in 1997, 1998 and 1999
respectively, representing 10.4%, 11.7%, and 11.0% of total Company revenues for
the respective periods. The Company 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 in 1998 sharing office space in the
location where the Company has previously provided contract placements. In early
2000 the Company began providing permanent placement services from its
Jacksonville, Florida office, which was initially opened to provide contract
placements. A significant portion of the Company's engineering placements are in
food related industries and, to a lesser extent, the pharmaceutical industry.
The Company maintains a database of over 180,000 engineering and IT candidate
professionals, and in 1999 it placed 995 professionals with more than 480
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
period (typically thirty days).
In 1986 the Company began to provide technical consultants on a temporary
contract basis, which generated revenue of $70.6 million, $81.6 million and
$98.7 million in fiscal 1997, 1998 and 1999 representing 86.0%, 85.7% and 86.8%
of the Company's consolidated net revenues in those periods, respectively. The
Company provides IT, engineering and other professional consultants on a
contract basis to organizations with complex technology and staffing needs
through its 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. In early 2000 the Company began to provide technical consultants in
its Atlanta, Georgia office, which had previously provided only permanent
placements. The Company maintains a database of approximately 170,000 technical
consultants, and in 1999 placed over 1,850 consultants with approximately 650
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 seven years. The Company's technical
consultants and independent contractors often work jointly with clients'
in-house IT personnel. This aspect of the Company 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 performing billable services.
<PAGE>
The majority of the Company's contract 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.
2
<PAGE>
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 1999 the Company increased 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 are 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 were 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 $11.3
million, $12.4 million, and $13.6 million in 1997, 1998, and 1999, respectively,
representing 13.8%, 13.0% and 12.0% of total Company revenues for the respective
periods.
The Company has provided IT training since September 1996, when it
acquired an IT training business. It provides training in a variety of software
and network applications and generated revenue of $3.2 million, $3.0 million,
and $3.1 million in 1997, 1998, and 1999, respectively, which represented 3.9%,
3.1%, and 2.7% of the Company's consolidated net revenues during such periods,
respectively. The Company provides IT training services at its facility in Bala
Cynwyd, Pennsylvania and at various off-site locations. The Company delivers
certified training for all Microsoft products at its location. It 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 Company 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 veterans' education by the U.S. Veterans Administration. The
Company frequently conducts its courses at the in-house facilities of its
corporate clients and has the ability to provide the necessary computer
equipment at conference centers, hotels and other off-site locations as
requested by its clients.
DISCONTINUED OPERATIONS
In June 1999 the Company adopted a plan to dispose of the IMS business.
Through sales occurring in June through August 1999, the Company divested
substantially all of the assets of the IMS business. As of December 31, 1999
those assets had been sold for total consideration of approximately $4,358,000
consisting of cash, note receivable, and forgiveness of amounts payable to the
buyer. Assets sold consisted primarily of accounts receivable, inventory, and
property and equipment. Liabilities assumed by the buyer consisted primarily of
trade accounts payable, accrued expenses, and equipment leases payable. The
Company incurred a loss on disposal of the IMS business of $6,275,056 (net of
tax effect of $1,994,830). Included in such loss was the write off of
approximately $7,063,000 of goodwill representing the unamortized balance of
goodwill recorded in 1998 when the Company purchased all or substantially all of
the business of three IMS companies. Also included in such loss is an estimated
loss for operations during the phase out period of approximately $134,000 for
the remaining business, which was sold in August 1999.
Operating results of the IMS business for the years ended December 31,
1999, 1998, and 1997 are shown separately in the accompanying consolidated
statements of operations. Net revenues of the IMS business for the years ended
December 31, 1999, 1998, and 1997 were approximately $7,027,000, $19,280,000 and
$16,443,000, respectively.
3
<PAGE>
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 1999, 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 and training services that the Company currently provides. In addition,
many companies offer one or more 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.
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.
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 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.
<PAGE>
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, part 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
Massachusetts 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.
4
<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, 1999, the Company had 302 full-time, non-consultant,
employees. On that date, there were also approximately 775 IT consultants
working on full-time assignments for the Company's clients, of which
approximately 84% were treated as employees of the Company and 16% 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>
SQUARE LEASE SERVICES OFFERED AS OF
OFFICE FEET EXPIRATION DECEMBER 31, 1999
------ ---- ---------- -----------------
<S> <C> <C> <C>
Bala Cynwyd, Pennsylvania 36,200 October 31, 2002 Contract Placement; Permanent Placement;
IT Training
Providence, Rhode Island 7,000 March 30, 2004 Contract Placement
Edison, New Jersey 11,800 February 28, 2006 Contract Placement; Permanent Placement
Alexandria, Virginia 3,900 December 31, 2000 Contract Placement
Tampa, Florida 6,900 May 31, 2003 Permanent Placement
Needham, Massachusetts 7,000 March 31, 2005 Contract Placement, Permanent Placement
Walled Lake, Michigan 4,000 August 31, 2001 Contract Placement
Alpharetta, Georgia 4,800 September 30, 2003 Permanent Placement
Arlington, Texas 1,100 November 30, 2000 Permanent Placement
Downers Grove, Illinois 2,700 October 31, 2001 Permanent Placement
Jacksonville, Florida 2,600 September 30, 2001 Contract Placement
Durham, North Carolina 2,000 September 30, 2001 Contract Placement
Nashville, Tennessee 1,100 December 31, 2000 Contract Placement
Charlotte, North Carolina Shared space April 30, 2001 Contract Placement
</TABLE>
5
<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, 1999.
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 closing quotation for
the Company's Common Shares on March 15, 2000 was $3.00. At March 15, 2000,
there were 202 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 forth the high and
low sales price per share of the Company's Common Shares for the periods
indicated:
Price Range
-----------
High Low
---- ---
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
Fiscal 1999
First Quarter $ 2.313 $ 1.250
Second Quarter $ 1.969 $ 1.344
Third Quarter $ 1.688 $ 0.969
Fourth Quarter $ 1.813 $ 0.938
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 prohibited from doing so under the terms of its
primary credit facility. The Company's ability to pay dividends on its Common
Shares is further dependent on the earnings and cash flow of its operating
subsidiaries and the availability of such cash flow to the Company.
6
<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:
June 3, 1999 OnSite Solutions earnout, 443,071 shares for consideration of
$932,200
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. Operating statement data has
been restated to reflect the discontinued operations. 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 audited Consolidated
Financial Statements. 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
DATA 1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net revenues $113,705 $95,218 $ 82,083 $ 68,157 $ 54,600
Cost of sales (exclusive of items shown
separately below) 75,570 64,316 57,616 49,446 40,838
Selling and operating expenses 20,563 18,874 12,190 11,075 8,237
General and administrative expenses 12,535 10,189 5,931 4,523 3,715
------- ------- -------- -------- --------
Total costs and expenses 108,668 93,379 75,737 65,044 52,790
------- ------- -------- -------- --------
Income before non-recurring charges 5,037 1,839 6,346 3,113 1,810
Non-recurring charges 0 (1,019) 0 0 0
Interest income (expense), net (816) (60) 141 (642) (479)
Other income 0 0 29 0 8
------- ------- -------- -------- --------
Income before income taxes 4,221 760 6,516 2,471 1,339
Income tax expense 1,877 752 2,373 939 588
Minority interest income 0 0 0 (888) (7)
------- ------- -------- -------- --------
Income from continuing operations 2,344 8 4,143 2,420 758
Loss from discontinued operations (2,153) (5,125) (1,431) (1,513) (272)
Loss on disposal of discontinued
operations (6,275) 0 0 0 0
------- ------- -------- -------- --------
Net income (loss) ($6,084) ($5,117) $2,712 $907 $486
======= ======= ======== ======== ========
Income from continuing operations per
Common Share (1)(2) : Basic $ 0.17 $ 0.00 $ 0.32 $ 0.29 $ 0.09
======= ======= ======== ======== ========
Diluted $ 0.17 $ 0.00 $ 0.32 $ 0.27 $ 0.09
======= ======= ======== ======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Loss from discontinued operations:
<S> <C> <C> <C> <C> <C>
Basic ($ 0.15) ($ 0.38) ($ 0.11) ($ 0.19) ($ 0.03)
======== ======== ======== ======== ========
Diluted ($ 0.15) ($ 0.38) ($ 0.11) ($ 0.17) ($ 0.03)
======== ======== ======== ======== ========
Basic and Diluted loss from disposal of
discontinued operations ($ 0.46) $ 0.00 $ 0.00 $ 0.00 $ 0.00
======= ======= ======== ======== ========
Basic and Diluted net income (loss) ($ 0.44) ($ 0.38) $ 0.21 $ 0.10 $ 0.06
======= ======= ======== ======== ========
Basic weighted average shares (1) 13,761 13,458 12,761 8,473 8,416
======= ======= ======== ======== ========
Diluted weighted average shares(2) 13,797 13,458 12,826 9,114 9,114
======= ======= ======== ======== ========
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
BALANCE SHEET DATA: 1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Working capital $ 14,181 $ 12,213 $ 18,525 $ 8,253 $ 5,567
Total assets 35,086 47,885 31,934 21,969 11,632
Notes payable, including current portion(3) 9,689 9,882 0 10,161 5,368
Other long-term obligations, including
current portion 2,135 1,996 355 3,105 1,755
Shareholders' equity 16,006 23,081 26,274 1,122 391
</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.
OVERVIEW
In January 1999 the Company reorganized its four operating units into
two business segments to enable financial analysis that more closely tracks its
lines of business. The Company's Contract Placement, Permanent Placement and IT
Training operating units were consolidated within the IT Staffing segment. The
Information Management Solutions ("IMS") business was the other segment, which
the Company adopted a plan to dispose of in June 1999. Through sales occurring
in June through August 1999, the Company divested substantially all of the
assets of the IMS business. As of December 31, 1999 those assets had been sold
for total consideration of approximately $4,358,000 consisting of cash, note
receivable, and forgiveness of amounts payable to the buyer. Assets sold
consisted primarily of accounts receivable, inventory, and property and
equipment. Liabilities assumed by the buyer consisted primarily of trade
accounts payable, accrued expenses, and equipment leases payable. The Company
incurred a loss on disposition of the IMS business of $6,275,056 (net of tax
effect of $1,994,830). Included in such loss was the write-off of approximately
$7,063,000 of goodwill representing the unamortized balance of goodwill recorded
in 1998 when the Company purchased all or substantially all of the business of
three IMS companies. Also included in such loss is an estimated loss for
operations during the phase out period of approximately $134,000 for the
remaining business, which was sold in August 1999.
Operating results of the IMS business for the years ended December 31,
1999, 1998, and 1997 are shown separately in the accompanying consolidated
statements of operations. Net revenues of the IMS business for the years ended
December 31, 1999, 1998, and 1997 were approximately $7,027,000, $19,280,000 and
$16,443,000, respectively.
As a result of the loss on disposition of the IMS business, and the
operating losses in the discontinued IMS operations, the Company experienced a
net loss of $6.1 million, or $0.44 per common share, in 1999 compared to a net
loss of $5.1 million, or $0.38 per common share, in 1998. Income from continuing
operations was $2.3 million, or $0.17 per common share, in 1999 compared to
$8,000, or $0.00 per common share, in 1998.
8
<PAGE>
ACQUISITIONS
In 1998, the Company implemented a strategy to accelerate its growth
through the addition of new services, geographic expansion and strategic
acquisitions. The Company aggressively pursued that 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. In 1999, as
part of the disposition of the IMS business, the three Information Management
Solutions firms were sold. The table below presents information regarding the
remainder of the Company's acquisitions in 1998:
<TABLE>
<CAPTION>
Description Purchase Price (1) Effective Date Business Segment
----------- ------------------ -------------- ----------------
<S> <C> <C>
Asset purchase of Information Systems $6,790,000 in notes, cash, March 5, 1998 Contract Placement
Inc., an IT contract placement firm in and Company stock
the Detroit, Michigan area
Asset purchase of Cella Associates of $1,529,000 in cash and March 31, 1998 Permanent Placement
Atlanta, Inc., a permanent placement Company stock
firm with offices in Georgia,
Connecticut, Illinois and Texas
Asset purchase of Tech Stars, Inc. an $1,331,000 in cash, notes October 12, 1998 Contract Placement
IT 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.
The Company made no acquisitions in 1999.
NEW OFFICES
In early 1999, upon expiration of the Foxborough, Massachusetts lease, the
Company's Providence regional operation and the National Division moved into new
facilities in Providence, Rhode Island.
REVENUES
The Company's contract placement revenues are derived from professional
service activities, primarily the placement of skilled IT, engineering and
professional personnel whose work is billed at an hourly rate. An engagement of
the Company's technical consultants typically lasts from six to 12 months.
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. For the year ended December 31, 1999, total
hours billed were 1,647,103, with an average billing rate of $55.27, compared to
total hours billed of 1,485,616 with an average billing rate of $50.69 for the
prior year period. 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. 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 primarily of management and
administrative salaries and related fringe benefits, as well as other overhead,
such as rent and depreciation.
<PAGE>
The Company's permanent placement revenues are 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 guarantee period (typically 30 - 90 days). The
permanent placement business placed 995 professionals with an average placement
fee of $12,350 in 1999, compared to 895 professionals placed with an average
placement fee of $12,320 for the prior year period. The increase in placements
was directly attributable to offices acquired or opened in 1998, which provided
205 placements in 1999 compared to 107 placements in 1998. No cost of sales is
recorded in the permanent placement business.
9
<PAGE>
The Company's IT training business provides training in a variety of
software and network applications. 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 facility in Bala Cynwyd, Pennsylvania and at various
off-site locations. The Company frequently conducts its courses at the in-house
facilities of its corporate clients and has the ability to provide the necessary
computer equipment at conference centers, hotels and other off-site locations as
requested by its clients.
BUSINESS STRATEGY
The Company's business objectives are to increase market share in existing
markets by offering additional services, such as its regional website for
on-line recruiting and job posting; to increase cross-selling opportunities by
offering all of its services in each location; and to continue to strengthen its
market position, by expansion through internal growth. The Company continues to
pursue cost controls originally put in place in 1998, by reevaluating its
current operating practices to find ways to improve the productivity of its
personnel. In 1999 the Company continued a focused strategic planning and
budgeting process resulting in a 2000 internal operating plan that attempts to
increase revenues approximately 20%, while controlling costs, and returns 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 a planned expansion of the sales and
recruiting staffs. 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,
and to maintain strict cost controls in all of its operating units, the Company
believes it can achieve earnings before interest and taxes of approximately 5.0%
of its revenues. Failure to achieve the aforementioned assumptions as well as
other factors could prevent the Company from achieving these goals, which are
Forward-Looking statements. See "Forward-Looking Information" herein for
additional factors that could materially alter the Company's ability to meet
this objective and its other operational goals in 2000.
RESULTS OF OPERATIONS
The following table sets forth certain statement of continuing operations
data as a percentage of consolidated net revenues for each of the periods
indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net Revenues 100.0% 100.0% 100.0%
------ ------ ------
Cost of Sales (Exclusive of items shown separately below) 66.5% 67.5% 70.2%
Selling and Operating Expenses 18.1% 19.8% 14.9%
General and Administrative Expenses 11.0% 10.8% 7.2%
------ ------ ------
Total Costs and Expenses 95.6% 98.1% 92.3%
------ ------ ------
Income before Non-recurring Charges and Other Items 4.4% 1.9% 7.7%
Non-recurring Charges 0.0% (1.1%) 0.0%
Other income (expense), net (0.7%) (0.0%) 0.2%
------ ------ ------
Income From Continuing Operations before Income Taxes 3.7% 0.8% 7.9%
====== ====== ======
</TABLE>
<PAGE>
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Net Revenues. Consolidated net revenues from continuing operations increased by
$18.5 million, or 19.4%, for the year ended December 31, 1999 compared to the
prior year period. Of such increase $17.1 million, or 93% of the increase, was
attributable to the Company's contract placement business. The contract
placement business generated revenues of $98.7 million for the year ended
December 31, 1999, a 21% increase over revenues of $81.6 million in the prior
year period. Such increase resulted primarily from increased marketing efforts
in the Company's offices that offer contract placement services, as well as
approximately $2.8 million in increased revenues reflecting a full year of
operations in offices opened or acquired during 1998. The Company's permanent
placement business generated revenues of $12.5 million in 1999, an increase of
$1.3 million, or 11.3%, over 1998 revenues of $11.2 million. Approximately
$500,000 of such increase reflects the full year operations of offices opened or
acquired in 1998, and the remainder is attributable to increased marketing
efforts in the offices that offer permanent placement services. The IT training
business increased revenues approximately $100,000, or 6%, from $3.0 million in
1998 to $3.1 million in 1999.
10
<PAGE>
Revenues from discontinued operations were $7.0 million in 1999 compared
to $19.3 million in 1998. These amounts are not included in consolidated net
revenues from continuing operations. The loss from discontinued operations, net
of tax benefits, was $8.4 million in 1999, consisting of a loss from operations
of $2.1 million and a loss on disposal of $6.3 million, compared to $5.1 million
loss from discontinued operations in the prior year period.
Cost of Sales. Consolidated cost of sales increased by $11.3 million, or 17.5%,
for the year ended December 31, 1999 to $75.6 million from $64.3 million in the
prior year period. Cost of sales as a percentage of consolidated net revenues
decreased to 66.5% from 67.5% in the respective periods. In the Company's
contract placement business cost of sales as a percentage of its net revenues
decreased to 75.4% for the year ended December 31, 1999 from 77.4% for the prior
year period. Such decrease was primarily a result of an increased focus on
higher margin services in all of the Company's offices that offer contract
placement services. The decrease in cost of sales as a percentage of
consolidated net revenues was also attributable to an increase in net revenue
from the permanent placement business, the expenses for which are not included
in cost of sales, but are included in other expense categories. The Company's IT
training business contributed approximately $1.6 million in expenses included in
cost of sales, a decrease of approximately $76,000 from the prior year period.
Selling and Operating. Consolidated selling and operating expenses increased by
approximately $1.7 million, or 9.0%, for the year ended December 31, 1999 to
$20.6 million from $18.9 million in the prior year period. Selling and operating
expenses as a percentage of consolidated net revenues for the year ended
December 31, 1999 decreased to 18.1% from 19.8% in the prior year period. This
decrease was due primarily to management's efforts to control costs in areas
such as office supplies, travel and entertainment, and advertising. In the
Company's contract placement business selling and operating expenses increased
approximately $2.3 million, or 25.2%, over the prior year period of which $1.3
million reflected full year operations of offices opened or acquired in 1998. In
the Company's permanent placement business selling and operating expenses
decreased approximately $0.3 million, or 3.8%, over the prior year period due to
management's efforts to control costs in the areas mentioned above. In the
Company's IT training business selling and operating expenses decreased
approximately $0.2 million, or 16.3% over the prior year period. Such decrease
was attributable to management's efforts to control costs in the areas mentioned
above.
General and Administrative. Consolidated general and administrative expenses
increased by approximately $2.3 million, or 23.0%, for the year ended December
31, 1999 to $12.5 million from $10.2 million in the prior year period. General
and administrative expenses as a percentage of consolidated net revenues for the
year ended December 31, 1999 increased to 11.0% from 10.8% in the prior year
period. General and administrative expenses related to contract placement
increased approximately $1.7 million, or 25.6%, over the prior year period of
which $0.6 million reflected full year operations of offices opened or acquired
in 1998. General and administrative expenses related to permanent placement
increased approximately $0.7 million, or 24.9%, over the prior year period of
which $0.2 million was attributable to the full year operations of offices
opened or acquired in 1998. Amortization of goodwill increased approximately
$0.1 million in the year ended December 31, 1999 compared to the prior year
period, reflecting a full year of amortization of the goodwill incurred from the
businesses acquired in 1998.
11
<PAGE>
Interest. Interest expense increased to approximately $829,000 for the year
ended December 31, 1999 from approximately $154,000 in the prior year period
while interest income decreased to approximately $13,000 from $94,000 in the
respective periods. Such increase in interest expense reflects the Company's
increased usage of its line of credit during the year 1999, primarily to fund
additional accounts receivable from the increased revenues, as well as
additional debt to repay notes payable to former owners of businesses acquired
in 1998. The Company also incurred additional debt through its sale/leaseback of
substantially all of its fixed assets, for which a portion of the repayment
reflects interest costs. Additionally, the interest rate on the Company's line
of credit increased from 7.75% at December 31, 1998 to 8.50% at December 31,
1999, contributing to the increased interest expense. The decrease in interest
income is primarily due to the Company redeeming its short-term investments at
the end of the first quarter of 1998 to finance the acquisition of businesses in
1998.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Net Revenues. Consolidated net revenues from continuing operations increased by
16.0%, or $13.1 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 30.2%, or $2.6 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. The IT training business generated net
revenues of $3.0 million, a decrease of $261,000 from the prior year period.
Revenues from discontinued operations were $19.3 million in 1998
compared to $16.4 million in 1997. These amounts are not included in net revenue
from continuing operations. The loss from discontinued operations, net of tax
benefit, was $5.1 million in 1998 compared to $1.4 million loss from
discontinued operations in the prior year period.
Cost of Sales. Consolidated cost of sales increased by 11.6%, or $6.7 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 67.5% from
70.2%. 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
54.8%, or $6.7 million, for the year ended December 31, 1998 compared to the
prior year period. Of such increase $3.4 million of expenses were 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
19.8% from 14.9% in the prior year. 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.
12
<PAGE>
General and Administrative. Consolidated general and administrative expenses
increased 71.8%, or $4.3 million, for the period ending December 31, 1998
compared to the prior year period, of which $1.8 million was attributable to
acquisitions and new offices. Amortization of goodwill added $.3 million to
general and administrative expenses, an increase of $.2 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 10.8% for the year ended December 31, 1998 compared to 7.2% 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 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.
Interest. Interest expense increased to $154,000, at December 31, 1998 from
$142,000 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 in 1998.
INCOME TAXES
The Company adopted the Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes," as of January 1, 1993. In 1999 the Company's
income tax expense from continuing operations was $1.9 million, or 44.4% of
pre-tax income from continuing operations. This effective tax rate is higher
than the applicable statutory rate of 34% primarily due to the Company's state
tax liabilities and certain expenses that are not deductible for tax purposes.
The effective tax rate was 98.9% and 36.4% of continuing operations for fiscal
years 1998 and 1997, respectively. The effective tax rates for 1998 and 1997 are
higher than the applicable statutory tax rate of 34%, primarily due to the
Company's state tax liabilities and certain expenses, including the write-off of
goodwill as a non-recurring charge, that are not deductible for tax purposes,
partially offset by non-taxable interest income in 1997.
13
<PAGE>
SEASONALITY AND QUARTERLY RESULTS OF OPERATIONS
The following table presents certain unaudited quarterly statements of
data from continuing operations 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.
<TABLE>
<CAPTION>
Mar. 31, Jun. 30, Sept. 30, Dec. 31, Mar. 31, Jun. 30, Sept. 30, Dec. 31,
-------- -------- --------- -------- -------- -------- --------- --------
(Dollars in thousands) 1998 1998 1998 1998 1999 1999 1999 1999
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Revenues $ 21,045 $ 23,530 $ 23,971 $ 26,672 $ 28,572 $ 29,757 $ 28,384 $ 26,992
-------- -------- -------- -------- -------- -------- -------- --------
Gross Profit 6,564 8,114 7,643 8,581 9,358 9.993 9,631 9,153
-------- -------- -------- -------- -------- -------- -------- --------
Income (Loss) Before
Non-recurring Charges and
Other Items 962 1,344 (344) (123) 966 1,052 1,526 1,494
-------- -------- -------- -------- -------- -------- -------- --------
Non-recurring Charges 0 0 0 (1,019) 0 0 0 0
-------- -------- -------- -------- -------- -------- -------- --------
Income (Loss) from
Continuing Operations 584 809 (206) (1,179) 501 523 731 590
-------- -------- -------- -------- -------- -------- -------- --------
Loss from Discontinued
Operations (221) (299) (655) (3,950) (1,081) (839) (220) (13)
-------- -------- -------- -------- -------- -------- -------- --------
Loss from Disposal of
Discontinued Operations 0 0 0 0 0 (6,283) 8 0
-------- -------- -------- -------- -------- -------- -------- --------
Net Income (Loss) $ 363 $ 510 $ (861) ($ 5,128) ($ 580) ($ 6,600) $ 519 $ 576
======== ======== ======== ======== ======== ======== ======== ========
Basic and Diluted Income
(Loss) per share from
Continuing Operations $ 0.04 $ 0.06 ($ 0.02) ($ 0.08) $ 0.04 $ 0.04 $ 0.05 $ 0.04
======== ======== ======== ======== ======== ======== ======== ========
Basic and Diluted Net
Income (Loss) per share $ 0.03 $ 0.04 ($ 0.06) ($ 0.38) ($ 0.04) ($ 0.48) $ 0.04 $ 0.04
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
Because the Company derives revenue in its contract placement business
only 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, 1999 and
1998, the number of holidays and vacation days slightly affected revenues in the
contract placement business. In addition, as companies approached the Y2K
turnover they postponed some non-Y2K projects, which was reflected in decreased
revenues for the third and fourth quarters of 1999 above. Overall, however,
revenues in those quarters still exceeded the comparable quarters of 1998.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
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. The Company typically maintains minimal cash balances as reflected in
the balance of $5,000 in cash and cash equivalents as of December 31, 1999. The
Company redeemed its short-term investments of approximately $5.5 million held
at December 31, 1997 and used the proceeds for acquisitions in 1998.
The Company used cash in operations of approximately $200,000, $6,000, and
$2.4 million in 1999, 1998 and 1997, respectively. This reflects the Company's
net losses for 1999 and 1998 offset by non-cash items, including the loss on
disposition of discontinued operations in 1999 and non-recurring charges in
1998. In addition, the redemption of short term investments in 1998 noted above
was offset by a corresponding increase in accounts receivable related to
increased sales.
14
<PAGE>
Cash purchases of fixed assets for the fiscal years ended December 31,
1999, 1998, and 1997 were $1.0 million, $2.8 million, and $1.6 million
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 $1.0 million for capital expenditures in
2000. In 1999 the Company received approximately $2.8 million in cash proceeds
from the disposition of the IMS business. 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.
The Company's borrowings, net of repayments, under its line of credit and
overdraft facilities at December 31, 1999 were approximately $93,000, compared
to $11.5 million net borrowings from those facilities at December 31, 1998. In
the year ended December 31, 1999 the Company paid approximately $2.1 million
related to its guarantee that common shares issued in connection with two of its
acquisitions would equal or exceed a specified price at the anniversary date of
the issuance. One such guarantee remains to be determined in August 2000, which
the Company believes, based on its recent market price per common share, it has
adequately accrued for. The Company also completed a sale/lease back of certain
of its fixed assets with an affiliate of PNC Bank, N.A. The lease obligation was
approximately $1.4 million repayable in 36 equal monthly rental payments. During
1998 the Company repaid the remaining $238,000 balance outstanding on the notes
payable related to the acquisition of the IT training business, and repurchased
40,000 common shares (accounted for as treasury stock), at a price of $5.50 per
share from the sellers of the IT training business.
Since April 24, 1998, the Company has had 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, 1999, the Company had approximately $9.7 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 which from time to time have been reset by the Bank, including
limitations on loans the Company may extend to officers and employees, the
incurrence of additional debt and the payment of dividends on the Company's
common shares. The Line of Credit bears interest at the Bank's prime rate.
The Company anticipates that its primary uses of capital in future periods
will be to fund increases in accounts receivable, to support internal growth by
financing new offices, and to finance additional acquisitions. The Company
believes that its 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 implemented a "Year 2000" compliance program to prepare for
the rollover of the two-digit year value to 00 in its computer systems on
January 1, 2000. The compliance program required the Company to develop and
validate contingency plans in the event a critical system failed, and to form a
rapid response team to address any operational problems during the "Year 2000"
date change period.
The Company experienced no significant "Year 2000" system related problems
and it has continued to operate normally after January 1, 2000. The Company is
unaware of any significant problems in the computer systems of third parties for
whom the Company implemented "Year 2000" solutions on their computer systems.
Total incremental spending on "Year 2000" issues was not material and was
charged to operations in 1999 as it occurred.
15
<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. The Company from time to time evaluates the possible
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.
16
<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. In addition, if the technology sector of the economy
experiences a downturn, the Company could be affected more so than other
businesses.
Dependence on Contract Placement Business. The Company's Contract
Placement business was responsible for 86.0%, 85.7% and 86.8% of total Company
revenues for the years ended December 31, 1997, 1998 and 1999, respectively. In
addition, for the year ended 1999, one customer of the Contract Placement
business, Merck & Company, Inc., accounted for approximately 7.2% of total
Contract Placement revenues, and 6.2% 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
17
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
JUDGE.COM, INC. AND SUBSIDIARIES
(FORMERLY THE JUDGE GROUP, INC.)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C>
INDEPENDENT AUDITORS' REPORT 19
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1999 AND 1998 20
CONSOLIDATED STATEMENTS OF OPERATIONS FOR YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 21
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 22
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 24 - 36
</TABLE>
18
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Judge.com, Inc.
Bala Cynwyd, Pennsylvania
We have audited the accompanying consolidated balance sheets of Judge.com, Inc.
(formerly The Judge Group, Inc.) and Subsidiaries as of December 31, 1999 and
December 31, 1998, 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, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Judge.com, Inc.
(formerly The Judge Group, Inc.) and Subsidiaries as of December 31, 1999 and
December 31, 1998, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended December 31, 1999, in
conformity with generally accepted accounting principles.
RUDOLPH PALITZ, LLC
February 25, 2000
Blue Bell, PA
19
<PAGE>
JUDGE.COM, INC. AND SUBSIDIARIES
(FORMERLY THE JUDGE GROUP, INC.)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 4,571 $ 43,568
Accounts receivable, net 18,584,708 21,767,995
Inventories -- 1,185,302
Prepaid income taxes and deferred taxes 2,801,245 1,909,919
Other 947,823 977,295
----------- ----------
TOTAL CURRENT ASSETS 22,338,347 25,884,079
----------- ----------
PROPERTY AND EQUIPMENT 5,083,530 8,166,048
Less: accumulated depreciation and amortization 2,083,785 3,220,212
----------- ----------
NET PROPERTY AND EQUIPMENT 2,999,745 4,945,836
----------- ----------
OTHER ASSETS
Deposits and other assets 988,981 716,634
Covenant not to compete, net of accumulated amortization of $82,478, 1999 and
$37,490, 1998 7,498 52,486
Goodwill, net of accumulated amortization of $1,595,313, 1999 and $4,731,788, 1998 8,750,950 16,286,392
----------- ----------
TOTAL OTHER ASSETS 9,747,429 17,055,512
----------- ----------
TOTAL ASSETS $35,085,521 $47,885,427
=========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
<S> <C> <C>
Current portion of long-term debt $902,118 $ 743,677
Accounts payable and accrued expenses 6,358,970 8,679,519
Payroll and sales taxes 422,017 576,562
Other liabilities -- 2,634,954
Deferred revenue 474,067 1,035,558
----------- ----------
TOTAL CURRENT LIABILITIES 8,157,172 13,670,270
----------- ----------
LONG-TERM LIABILITIES
Note payable, bank 9,688,925 9,881,595
Deferred rent obligation 399,537 666,879
Debt obligations, net of current portion 833,558 585,490
----------- ----------
TOTAL LONG-TERM LIABILITIES 10,922,020 11,133,964
----------- ----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, $.01 par value, 50,000,000 shares authorized; at December 31,
1999, 13,984,373 shares issued and 13,944,373 shares outstanding; at
December 31, 1998, 13,541,302 shares issued and 13,501,302 shares outstanding 139,843 135,412
Preferred stock, at December 31, 1999 and 1998, $.01 par value, 10,000,000
shares authorized -- --
Additional paid-in capital 23,905,057 24,900,474
Deficit (7,818,571) (1,734,693)
----------- ----------
16,226,329 23,301,193
Less: Treasury Stock, 40,000 shares; at cost 220,000 220,000
----------- ----------
TOTAL SHAREHOLDERS' EQUITY 16,006,329 23,081,193
----------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $35,085,521 $47,885,427
=========== ==========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
20
<PAGE>
JUDGE.COM, INC. AND SUBSIDIARIES
(FORMERLY THE JUDGE GROUP, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
NET REVENUES $113,704,958 $ 95,218,213 $ 82,083,173
------------ ------------ ------------
COSTS AND EXPENSES
Cost of sales (exclusive of items shown separately below) 75,569,731 64,315,716 57,616,429
Selling and operating 20,562,479 18,873,617 12,189,782
General and administrative 12,535,158 10,189,140 5,931,500
------------ ------------ ------------
Total costs and expenses 108,667,368 93,378,473 75,737,711
------------ ------------ ------------
INCOME BEFORE NON-RECURRING CHARGES 5,037,590 1,839,740 6,345,462
NON-RECURRING CHARGES (Note 2) -- (1,019,000) --
OTHER INCOME (EXPENSE), NET, PRINCIPALLY INTEREST (815,925) (59,806) 170,234
------------ ------------ ------------
INCOME BEFORE INCOME TAX EXPENSE 4,221,665 760,934 6,515,696
INCOME TAX EXPENSE 1,877,115 752,382 2,372,781
------------ ------------ ------------
INCOME FROM CONTINUING OPERATIONS 2,344,550 8,552 4,142,915
LOSS FROM DISCONTINUED OPERATIONS (NET OF TAX BENEFIT OF
$1,089,056, $1,550,158, AND $452,963 FOR THE YEARS ENDED
DECEMBER 31, 1999, 1998 AND 1997, RESPECTIVELY) (2,153,372) (5,125,545) (1,430,975)
LOSS ON DISPOSAL OF DISCONTINUED OPERATIONS, INCLUDING
PROVISION OF $134,000 FOR OPERATING LOSSES DURING PHASE-OUT
PERIOD (NET OF TAX EFFECT OF $1,994,830 FOR THE YEAR ENDED
1999) (6,275,056) -- --
------------ ------------ ------------
NET INCOME (LOSS) ($6,083,878) ($5,116,993) $ 2,711,940
============ ============ ============
NET INCOME (LOSS) PER SHARE:
BASIC
INCOME FROM CONTINUING OPERATIONS $ 0.17 $ 0.00 $ 0.32
============ ============ ============
LOSS FROM DISCONTINUED OPERATIONS ($ 0.15) ($ 0.38) ($ 0.11)
============ ============ ============
LOSS FROM DISPOSAL OF DISCONTINUED OPERATIONS ($ 0.46) ($ 0.00) ($ 0.00)
============ ============ ============
NET INCOME (LOSS) ($ 0.44) ($ 0.38) $ 0.21
============ ============ ============
DILUTED
INCOME FROM CONTINUING OPERATIONS $ 0.17 $ 0.00 $ 0.32
============ ============ ============
LOSS FROM DISCONTINUED OPERATIONS ($ 0.15) ($ 0.38) ($ 0.11)
============ ============ ============
LOSS FROM DISPOSAL OF DISCONTINUED OPERATIONS ($ 0.46) ($ 0.00) ($ 0.00)
============ ============ ============
NET INCOME (LOSS) ($ 0.44) ($ 0.38) $ 0.21
============ ============ ============
WEIGHTED AVERAGE SHARES USED IN NET INCOME (LOSS) PER SHARE
CALCULATIONS:
BASIC 13,761,000 13,458,000 12,761,000
============ ============ ============
DILUTED 13,797,000 13,458,000 12,826,000
============ ============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
21
<PAGE>
JUDGE.COM, INC. AND SUBSIDIARIES
(FORMERLY THE JUDGE GROUP, INC.)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<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, 1997 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
Acquisition/Disposition Transactions 443,071 4,431 (995,417) -- -- (990,986)
Net loss -- -- -- (6,083,878) -- (6,083,878)
---------- --------- ------------ ------------ ----------- ------------
Balance December 31, 1999 13,984,373 $ 139,843 $ 23,905,057 ($ 7,818,571) ($ 220,000) $ 16,006,329
========== ========= ============ ============ =========== ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
22
<PAGE>
JUDGE.COM, INC. AND SUBSIDIARIES
(FORMERLY THE JUDGE GROUP, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) ($6,083,878) ($ 5,116,993) $ 2,711,940
Adjustments to reconcile net income (loss) to net cash used
in operating activities:
Depreciation and amortization 1,762,973 1,847,586 996,240
Impairment of goodwill -- 3,621,099 --
Provision for losses on lease -- 400,000 --
Loss on disposal of discontinued operations 6,275,056 -- --
Deferred taxes (9,000) (539,000) 11,000
Deferred rent (342,342) 150,000 (13,523)
Provision for losses (recoveries) on accounts receivable 927,951 439,810 (35,521)
Stock compensation -- -- 29,250
Loss on disposal of equipment 204,393 -- --
Changes in operating assets and liabilities:
(Increase) decrease in:
Short-term investments -- 5,500,000 (5,500,000)
Accounts receivable (1,526,105) (5,603,390) (983,910)
Inventories (144,853) 755,620 (558,581)
Deposits and other (148,008) (387,434) (175,764)
Prepaid income taxes 1,112,504 (1,044,919) 43,603
Other current assets (146,536) (195,841) 707,342
Increase (decrease) in:
Accounts payable and accrued expenses (2,037,307) 558,541 736,779
Payroll and sales taxes (154,545) 63,000 (289,330)
Deferred revenue 108,377 (162,675) (240,010)
Income taxes payable -- (291,515) 164,977
---------- ----------- -----------
Net cash used in operating activities (201,320) (6,111) (2,395,508)
---------- ----------- -----------
INVESTING ACTIVITIES
Purchases of property and equipment (958,286) (2,835,339) (1,616,249)
Purchase/acquisition of companies -- (9,159,407) --
Covenant not to compete -- (89,976) --
Proceeds from disposition of businesses 2,788,000 -- --
Decrease in notes receivable, officers
and employees, net -- -- 577,287
---------- ----------- -----------
Net cash provided by (used in) investing activities 1,829,714 (12,084,722) (1,038,962)
---------- ----------- -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FINANCING ACTIVITIES
<S> <C> <C> <C>
Cash acquired in business combination -- 283,300 --
Proceeds from (repayments of) notes payable, bank, net (192,670) 9,881,595 (9,960,795)
Proceeds (repayments) of bank overdrafts 285,951 1,585,154 (1,858,000)
Principal payments on long-term debt (1,040,672) (1,080,130) (2,283,262)
Proceeds from lease payable, bank 1,425,000 -- --
Contingent amounts paid - acquisitions (2,145,000) -- --
Purchase of treasury stock -- (220,000) --
Proceeds from issuance of stock and exercise of warrants -- -- 19,211,802
Repayments from shareholders -- -- (95,862)
---------- ----------- -----------
Net cash provided by (used in) financing activities (1,667,391) 10,449,919 5,013,883
---------- ----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (38,997) (1,640,914) 1,579,413
CASH AND CASH EQUIVALENTS, BEGINNING 43,568 1,684,482 105,069
---------- ----------- -----------
CASH AND CASH EQUIVALENTS, ENDING $ 4,571 $ 43,568 $ 1,684,482
========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $1,142,000 $ 321,000 $ 306,000
========== =========== ===========
Income taxes $ 768,000 $ 1,140,000 $ 1,784,000
========== =========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
23
<PAGE>
JUDGE.COM, INC. AND SUBSIDIARIES
(FORMERLY THE JUDGE GROUP, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
NOTE 1. DESCRIPTION OF BUSINESS
Judge.com, Inc. (the "Company") (formerly The Judge Group, 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), and (ii) information technology training
(through its "IT Training" business) on a range of software and network
applications to corporate, governmental and individual clients. The Company also
formerly provided computer network and document management system integration,
implementation, maintenance and training (through its "Information Management
Solutions" business ("IMS")). On June 15, 1999 the Company adopted a plan to
dispose of the IMS business through the sale of substantially all of the assets
of that business (See Note 3). At December 31, 1999, the Company, headquartered
in Bala Cynwyd, Pennsylvania, operated regional offices in twelve 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.
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. In connection with the initial public offering, the
Company incurred approximately $1,694,000 of accounting, legal, printing and
other costs 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.
<PAGE>
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.
24
<PAGE>
JUDGE.COM, INC. AND SUBSIDIARIES
(FORMERLY THE JUDGE GROUP, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
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 include approximately $614,000 of costs and
estimated earnings in excess of billings on contracts-in-progress.
Accounts Receivable and Accounts Payable. Accounts receivable at December
31, 1999, 1998, and 1997 were net of allowances for doubtful accounts of
$987,000, $511,000, and $465,000, respectively.
Included in accounts receivable was unbilled work-in-process of
approximately $1,234,000, $1,134,000, and $584,000 at December 31, 1999, 1998
and 1997, respectively. Included in accounts payable and accrued expenses was
approximately $913,000, $867,000, and $442,000 of accrued employee and
contractor payroll principally relating to unbilled work-in-process at December
31, 1999, 1998 and 1997,respectively.
The allowance for doubtful accounts is established through charges to
earnings in the form of a charge to bad debt expense. Accounts that are
determined to be uncollectible are charged against the allowance account.
Management makes periodic assessments of the adequacy of the allowance that
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> <C>
1999 $ 511,000 $ 927,000 ($ 451,000) $ 987,000
========= ========= ========== =========
1998 $ 465,000 $ 440,000 ($ 394,000) $ 511,000
========= ========= ========== =========
1997 $ 661,000 ($ 36,000) ($ 160,000) $ 465,000
========= ========= ========== =========
</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 and office
equipment, and three to five years for computer equipment.
<PAGE>
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 expense charged to continuing operations
related to property and equipment, including property under capital leases,
amounted to $877,849 in 1999, $701,648 in 1998, and $425,997 in 1997.
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, office and computer 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.
25
<PAGE>
JUDGE.COM, INC. AND SUBSIDIARIES
(FORMERLY THE JUDGE GROUP, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
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 charged to continuing operations for the
periods ended December 31, 1999, 1998 and 1997 was approximately $403,000,
$347,000, and $102,000 respectively, and is included in general and
administrative expenses in the consolidated statements of operations. An
additional $7,063,000 of goodwill was written off as part of the disposal of the
IMS business, and is included in the loss on disposal of IMS in the accompanying
consolidated statements of operations for the year ended December 31, 1999.
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 $45,000 for 1999 and $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 respective lease agreements. 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, 1999 also includes a liability of approximately $231,000 with
respect to the closing of the Company's New York City office in 1998 (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 consisted of the following:
Impairment of purchased goodwill:
IT Training $ 707,000
Closing of New York City office 312,000
-----------
Total charges $ 1,019,000
===========
26
<PAGE>
JUDGE.COM, INC. AND SUBSIDIARIES
(FORMERLY THE JUDGE GROUP, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (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 that
business. 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 was 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 ($0.06)
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 charged to continuing operations amounted to approximately
$847,000, $1,119,000, and $658,000 in 1999, 1998, and 1997, respectively.
Earnings (Loss) Per Share. The Company adopted Statement of Financial
Accounting Standards No. 128 ("SFAS 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 SFAS 128. The recomputations did not
result in any restatements in earnings per share previously reported.
Basic earnings (loss) per share amounts are computed based on net income
(loss), and divided by the weighted average number of shares actually issued,
reduced by Treasury Shares. The number of shares used in the computation were
approximately 13,761,000 in 1999, 13,458,000 in 1998, and 12,761,000 in 1997.
Diluted earnings (loss) per share amounts for years 1999, 1998 and 1997
are based on the weighted average number of shares calculated for basic earnings
(loss) per share purposes increased by (when dilutive) the number of shares that
would be outstanding assuming exercise of outstanding stock options, and assumed
conversion of convertible debt (for 1997). The number of shares used in the
computation was approximately 13,797,000 in 1999, 13,458,000 in 1998, and
12,826,000 in 1997. In computing diluted earnings (loss) per share, certain
options to purchase shares of common stock were excluded from the computation
for the years ended December 31, 1999, 1998, and 1997. The options were excluded
from the 1999 computation because the exercise prices of such options were
greater than the average market price of the Company's common stock during that
period. The options were excluded from the 1998 and 1997 computations 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 1998 and 1997 financial statements
have been reclassified to conform to the 1999 financial statement presentation.
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.
27
<PAGE>
JUDGE.COM, INC. AND SUBSIDIARIES
(FORMERLY THE JUDGE GROUP, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
NOTE 3. BUSINESS COMBINATIONS AND DISPOSITIONS
During 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. Following is a description of the
acquisitions:
Effective March 5, 1998, the Company, through a subsidiary, 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 note payable
was issued to the sellers of ISI based on ISI having attained certain pre-tax
income amounts in calendar year 1998.
Effective March 31, 1998, the Company, through a subsidiary, 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 October 12, 1998, the Company, through a subsidiary, 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.
Effective May 11, 1998, the Company, through its now discontinued IMS
subsidiary, 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 $872,000 was paid in
cash and 443,071 shares of Company stock were issued as consideration for
$932,000, based on On-Site having attained certain pre-tax income in the period
April 1,1998 through December 31, 1998. In 1999, as part of the disposal of the
IMS business, substantially all of the assets of this company were sold.
Effective May 29, 1998, the Company, through its now discontinued IMS
subsidiary, 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 $510,000 in cash was paid, based on AOP
having attained certain pre-tax income in calendar 1998. In 1999, as part of the
disposal of the IMS business, substantially all of the assets of this company
were sold.
Effective June 8, 1998, the Company, through its now discontinued IMS
subsidiary, 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. In 1999, as
part of the disposal of the IMS business, substantially all of the assets of
this company were sold.
28
<PAGE>
JUDGE.COM, INC. AND SUBSIDIARIES
(FORMERLY THE JUDGE GROUP, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
NOTE 3. BUSINESS COMBINATIONS AND DISPOSITIONS -- (continued)
The following sets forth the unaudited pro forma consolidated results from
continuing operations for the Company for the year ended December 31, 1998 as
though these business combinations occurred at January 1, 1998.
Year Ended
December 31, 1998
-----------------
Net revenues $ 98,097,000
============
Income before non-recurring charges $ 2,102,000
============
Income from continuing operations $ 148,000
============
Pro-forma adjustments included adjustments to goodwill amortization
expense, interest expense and income tax expense/benefit.
Unaudited pro-forma basic and diluted income from continuing operations
per share of common stock is calculated as follows:
Year Ended
December 31, 1998
-----------------
Income from continuing operations $ 148,000
==========
Weighted average number of shares:
Basic 13,508,000
==========
Diluted 13,508,000
==========
Income from continuing operations per
share, basic and diluted $ 0.01
==========
On June 15, 1999 the Company adopted a formal plan to dispose of the IMS
business. During 1999 substantially all of the net assets of the IMS business
were disposed of for total consideration of $4,357,673 consisting of cash, note
receivable, and forgiveness of amounts payable to the buyer. The December 31,
1998 balance sheet has not been restated. Assets sold consisted primarily of
accounts receivable, inventory, and property and equipment. Liabilities assumed
by the respective purchasers consist primarily of accounts payable, accrued
expenses, and equipment leases payable.
The loss on disposal of the IMS business of $6,275,056 represents the
actual and estimated loss on the disposal of the assets and a provision of
$134,000 for operating losses during the phase-out period.
Operating results of the IMS business for the years ended December 31,
1999, 1998, and 1997 are shown separately in the accompanying consolidated
statements of operations, as "loss from discontinued operations".
Net revenues of the IMS business for the years ended December 31, 1999,
1998, and 1997 were $7,026,611, $19,280,184, and $16,443,294, respectively.
These amounts are not included in net revenues in the accompanying consolidated
statements of operations for the respective periods.
<PAGE>
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 (8.50% at December 31, 1999). 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
29
<PAGE>
JUDGE.COM, INC. AND SUBSIDIARIES
(FORMERLY THE JUDGE GROUP, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
NOTE 4. NOTE PAYABLE, BANK - (continued)
requiring certain levels of net worth, cash flow coverage, and leverage, as well
as limitations on capital expenditures. 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, 1999 and
1998 were approximately $1,871,000 and $1,585,000, respectively, of bank
overdrafts.
NOTE 5. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
Capital lease obligation, pursuant to a sale/leaseback transaction; payable in
monthly installments of $41,992, including interest and taxes, through March
2002; and a final payment of $213,750 in April 2002; collateralized by
substantially all of the Company's property and equipment; the lease transfers
ownership of certain office equipment to
the Company at the end of the lease term $1,150,188 $ --
Note Payable; payable in various monthly installments plus interest at
8%, through March 2000 25,000 175,000
Note Payable; payable in 24 monthly installments of $12,500 plus
interest at 8%, through March 2000 25,000 175,000
Note Payable; payable in 8 quarterly payments of $102,333 including
interest at 8%, through December 2000 389,656 750,000
Note Payable; payable in 36 monthly installments of $6,944 plus
interest at 8%, through October 2001 145,832 229,167
---------- ---------
1,735,676 1,329,167
Less: Current portion (902,118) (743,677)
---------- ---------
Long-term portion $ 833,558 $ 585,490
========== =========
</TABLE>
Maturities of long-term debt are as follows:
Year Ending December 31, Amount
------------------------ ------
2000 $ 902,118
2001 504,713
2002 328,845
----------
$1,735,676
==========
Interest expense charged to continuing operations was approximately
$829,000, $154,000, and $142,000 for the years ended December 31, 1999, 1998 and
1997, respectively.
30
<PAGE>
JUDGE.COM, INC. AND SUBSIDIARIES
(FORMERLY THE JUDGE GROUP, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
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 Company's
1997 initial public offering. 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.
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, the IMS subsidiary was
not included in the Company's consolidated Federal income tax return, as the
Company owned less than 80% of the IMS subsidiary's outstanding common shares.
Under Internal Revenue regulations, the IMS subsidiary was not part of the
consolidated group for tax purposes and filed its own Federal income tax
returns. Effective February 20, 1997, the IMS subsidiary 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, 1999 and 1998 included the
following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Deferred tax asset $ 5,437,000 $ 2,743,000
Valuation allowance for deferred tax asset (2,919,000) (1,878,000)
----------- -----------
Net deferred tax asset after valuation allowance. $ 2,518,000 $ 865,000
=========== ===========
</TABLE>
At December 31, 1999 and 1998, the net deferred tax assets of $2,518,000
and $865,000, 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>
1999 1998
---- ----
<S> <C> <C>
Net operating loss carryforwards $ 4,637,000 $1,797,000
Allowance for doubtful accounts 467,000 205,000
Accrued expenses and lease provision 348,000 314,000
Amortization of goodwill and covenant not to compete (114,000) 324,000
Other 99,000 103,000
----------- ----------
$ 5,437,000 $2,743,000
=========== ==========
</TABLE>
<PAGE>
Income tax expense for continuing operations for the years ended December 31,
1999, 1998 and 1997 consisted of the following:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Current tax expense:
Federal $ 1,184,901 $ 647,327 $ 1,845,048
State 701,214 289,055 516,733
Deferred tax expense (benefit) (9,000) (184,000) 11,000
----------- --------- -----------
Income tax expense $ 1,877,115 $ 752,382 $ 2,372,781
=========== ========= ===========
</TABLE>
31
<PAGE>
JUDGE.COM, INC. AND SUBSIDIARIES
(FORMERLY THE JUDGE GROUP, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
NOTE 7. INCOME TAXES -- (continued)
The effective rate of income tax expense from continuing operations for
all periods presented was higher than the applicable statutory tax rate, due to
certain expenses that were not deductible for tax purposes and state tax
provisions. A reconciliation of the Company's effective income tax rate with the
statutory Federal rate follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C> <C>
Tax expense at statutory rate (34%) $1,436,000 $ 258,000 $ 2,215,000
Permanent differences, including non-deductible
goodwill amortization, net 73,000 311,000 (53,000)
Other (3,885) 39,441 (122,000)
State income taxes, net of Federal tax benefit 372,000 143,941 333,000
----------- --------- -----------
$ 1,877,115 $ 752,382 $ 2,373,000
=========== ========= ===========
</TABLE>
As a result of operating losses, no provision for income taxes was
required for all periods prior to February 20, 1997 for the IMS subsidiary. The
IMS subsidiary's operating losses subsequent to February 20, 1997 have been used
in the consolidated tax accrual. For income tax reporting purposes, as of
December 31, 1999, the IMS subsidiary had an unused operating loss carryforward
of approximately $4,200,000, which may be applied against future taxable income
of the IMS subsidiary, subject to certain Federal income tax limitations. These
carryforwards expire between 2002 and 2012.
As a result of a net operating loss incurred in 1999 by the consolidated
group, the Company has a net operating loss carryforward of approximately
$5,000,000, which can be applied against future taxable income of the Company.
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 $2,228,000, $1,899,000 and $986,000 for the years
ended December 31, 1999, 1998 and 1997, respectively. Minimum annual future
rental commitments, net of subleases rents (see Note 2), at December 31, 1999,
and exclusive of common area maintenance costs and utilities, are as follows:
Year Ending December 31, Amount
------------------------ ------
2000 $ 1,837,000
2001 1,738,000
2002 1,489,000
2003 704,000
2004 448,000
Thereafter 322,000
-----------
$ 6,538,000
===========
<PAGE>
The Company is self-insured for workers' compensation purposes and is
liable for aggregate claims up to approximately $249,000 for 1999, $164,000 for
1998, and $164,000 for 1997. In addition, the Company is responsible for certain
fixed costs including underwriting, brokerage, reinsurance and administration
costs.
32
<PAGE>
JUDGE.COM, INC. AND SUBSIDIARIES
(FORMERLY THE JUDGE GROUP, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
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 $1,288,000 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 experienced no significant adverse effects from the rollover
of the two-digit year value to 00 on January 1, 2000. The Company's computer
systems continue to operate normally after the "Year 2000" transition. The
Company is unaware of any significant problems in the computer systems of third
parties for whom the Company implemented "Year 2000" solutions on their computer
systems. Total incremental spending on "Year 2000" issues was not material and
were charged to operations in 1999 as they occurred.
NOTE 9. RETIREMENT PLAN
The Company has a 401(k) retirement plan (the "Plan") covering
substantially all employees. Employees are able to contribute a percentage of
their pre-tax salary to the Plan. The Plan has no Company contribution
provision.
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.
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 generally subject to a four year vesting schedule in equal
increments annually, and are exercisable any time after vesting up to 10 years
from grant date.
During 1999, 1998 and 1997, the Company granted two non-employee Directors
options to purchase 10,000 common shares each at an exercise price of $1.813,
$4.938 and $3.25, respectively, under the Incentive Plan.
33
<PAGE>
JUDGE.COM, INC. AND SUBSIDIARIES
(FORMERLY THE JUDGE GROUP, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
NOTE 10. SHAREHOLDERS' EQUITY AND EARNINGS (LOSS) PER SHARE -- (continued)
A summary of the Company's Incentive Plan activity for common shares for
the years ended December 31, 1999, 1998 and 1997 follows:
<TABLE>
<CAPTION>
Options
Weighted Average Exercisable
Number of Shares Exercise Price at Year End
---------------- --------------- -----------
<S> <C> <C> <C>
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 -0-
===
Granted 1,014,750 $ 4.81
Exercised -0- N/A
Terminated 154,800 $ 5.54
---------
Outstanding 12/31/98 1,460,450 $ 5.70 138,541
=======
Granted 1,059,444 $ 1.55
Exercised -0- N/A
Terminated 690,200 $ 4.24
---------
Outstanding 12/31/99 1,829,694 $ 3.84 362,935
========= =======
</TABLE>
<PAGE>
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ----------------------------------------------------------------------------- ----------------------------------
Range of Number Weighted-Average Weighted-Average Number Weighted-Average
Exercise Outstanding at Remaining Exercise Exercisable at Exercise
Prices 12/31/99 Contractual Life Price 12/31/99 Price
-------- -------------- ---------------- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
$0.83 - $1.65 746,944 9.4 $1.45 0 $0.00
$1.65 - $2.48 137,000 9.2 $1.86 25,375 $1.96
$2.48 - $3.30 20,000 7.3 $3.25 13,332 $3.25
$3.30 - $4.13 5,000 8.7 $3.38 1,250 $3.38
$4.13 - $4.95 77,000 8.3 $4.55 20,916 $4.58
$4.95 - $5.78 514,250 8.0 $5.32 137,312 $5.30
$5.78 - $6.60 2,500 7.6 $6.25 1,250 $6.25
$6.60 - $7.43 5,000 7.8 $6.75 2,500 $6.75
$7.43 - $8.25 322,000 7.0 $7.68 161,000 $7.68
--------- --- ----- ------- -----
1,829,694 8.5 $3.84 362,935 $6.01
========= === ===== ======= =====
</TABLE>
34
<PAGE>
JUDGE.COM, INC. AND SUBSIDIARIES
(FORMERLY THE JUDGE GROUP, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
NOTE 10. SHAREHOLDERS' EQUITY AND EARNINGS (LOSS) PER SHARE -- (continued)
The Company accounts for its Incentive Plan in accordance with Accounting
Principles Board Opinion No. 25 and related interpretations. Accordingly, no
compensation expense has been recognized for the Incentive Plan. Had
compensation cost been determined in accordance with the fair value method of
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation (SFAS 123), the Company's pro forma net income (loss) and net
income (loss) per share for the years ended December 31, 1999, 1998 and 1997
would be as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net Income (loss):
As reported ($ 6,083,878) ($ 5,116,993) $ 2,711,940
Pro forma ($ 8,022,526) ($ 6,898,814) $ 2,117,278
Basic and diluted earnings (loss)
per share:
As reported ($ 0.44) ($ 0.38) $ 0.21
Pro forma ($ 0.58) ($ 0.51) $ 0.17
</TABLE>
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 1999 and 1998, respectively; risk-free
interest rate of 5.50% and 5.10%, expected dividend yields of 0%, expected life
of option of five years from date of grant, and expected price volatility of
125% and 131%. The weighted average fair value of the options granted was $1.12
in 1999 and $3.59 in 1998.
NOTE 11. STATEMENT OF CASH FLOWS
Supplemental disclosure of non-cash investing and financing transactions:
During 1999, the Company entered into the following non-cash transactions:
o entered into certain capital lease arrangements to fund the purchase of
equipment in the amount of approximately $345,700
o recorded the following with respect to the disposition of the IMS
segment:
o reduced contingent stock payables which were forgiven in the amount of
a pproximately $952,000
o reduced earnouts payable which were forgiven in the amount of
approximately $718,000
o wrote off approximately $7,063,000 of goodwill
<PAGE>
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 IT Training
subsidiary;
o reduced goodwill $2,914,099 due to an impairment loss in IMS subsidiary.
35
<PAGE>
JUDGE.COM, INC. AND SUBSIDIARIES
(FORMERLY THE JUDGE GROUP, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
NOTE 11. STATEMENT OF CASH FLOWS - (continued)
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>
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 combinations $ 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 IMS;
o converted $300,000 of long-term debt to equity in accordance with an
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.
NOTE 12. SEGMENT INFORMATION
With the sale of the IMS segment in 1999, substantially all of the Company's
revenues and assets are derived from the IT Staffing business. The Company also
generates minor revenues from its IT training subsidiary which amounted to
approximately $3,100,000 in 1999, $2,950,000 in 1998, and $3,200,000 in 1997.
The IT training subsidiary incurred a loss from continuing operations of
approximately $500,000 in 1999, $1,426,000 in 1998, and $75,000 in 1997.
36
<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 2000 Annual Meeting of
Shareholders under the caption "Nominees for Election as Directors;
Identification of Executive Officers", "Executive Compensation", "Security
Ownership of Certain Beneficial Owners and Management" and "Certain
Relationships and Related Transactions". The 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
(a.) The following documents are filed as a part of this Annual Report on Form
10-K:
1. Consolidated Financial Statements:
Report of Independent Auditors 19
Consolidated Balance Sheets 20
Consolidated Statements of Operations 21
Consolidated Statements of Shareholders' Equity 22
Consolidated Statements of Cash Flows 23
Notes to Consolidated Financial Statements 24-36
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.
37
<PAGE>
3. Exhibits
<TABLE>
<CAPTION>
Exhibit
No. Description of Document
- ------- -----------------------
<S> <C>
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.
4.3 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 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. Incorporated by reference to Exhibit 4.1 to Form
S-8 filed on August 6, 1998.
10.3 Professional Services Agreement between Merck & Company, Inc. and Judge Technical
Services, Inc. Incorporated by reference to Exhibit 10.5 of the Form S-1.
10.4 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.
10.5 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.
10.6 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.
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description of Document
- ------- -----------------------
<S> <C>
10.7 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.
10.8 Stock Option Agreement between the Company and James A. Hahn. Incorporated by
reference to Exhibit 10.11 of Form 10-K for the year ended December 31, 1998 filed on
April 15, 1999.
10.9 Stock Option Agreement between the Company and Randolph J. Angermann. Incorporated by
reference to Exhibit 10.12 of Form 10-K for the year ended December 31, 1998 filed on
April 15, 1999.
10.10 Employment Agreement by and between the Company and Robert G. Alessandrini.
10.11 Asset Purchase Agreement by and among Judge Imaging Systems, Inc., Automated Office
Products of Western New York, Inc. d/b/a AOP Solutions, Paul F. Eckert and Suzanne
Eckert. Incorporated by reference to Exhibit 10.1 to Form 10-Q filed on August 16,
1999.
10.12 Asset Purchase Agreement by and among Systems Solutions, Inc., Judge Imaging Systems,
Inc., AOP Acquisition Corp., Paul F. Eckert and Suzanne Eckert. Incorporated by
reference to Exhibit 10.2 to Form 10-Q filed on August 16, 1999.
10.13 Asset Purchase Agreement by and among Judge Imaging Systems, Inc., The Judge Group,
Inc. and AOP Morristown Corp. Incorporated by reference to Exhibit 10.3 to Form 10-Q
filed on August 16, 1999.
10.14 Master Lease Agreement, dated April 20, 1999, between
the Company and PNC Leasing Corp, a subsidiary of PNC
Bank, N.A.
10.15 Asset Purchase Agreement by and among Filenet Corporation and On Site Solutions, Inc.
dated as of July 31, 1999.
21.1 Subsidiaries of the Registrant.
23.1 Consents of Independent Auditors.
27.1 Financial Data Schedule.
</TABLE>
No reports were filed by the Registrant on Form 8-K during the quarter
ended December 31, 1999.
39
<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: March 27, 2000 JUDGE.COM, INC.
(FORMERLY THE JUDGE GROUP, INC.)
By: /s/ Robert G. Alessandrini By: /s/ Martin E. Judge, Jr.
-------------------------- ------------------------
Robert G. Alessandrini 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, March 27, 2000
- ------------------------ Director, President and Chief
Martin E. Judge, Jr. Executive Officer
(Principal Executive Officer)
/s/ Richard T. Furlano Director March 27, 2000
- ----------------------
Richard T. Furlano
/s/ Michael A. Dunn Director and Executive March 27, 2000
- ------------------- Vice President
Michael A. Dunn
/s/ Randolph J. Angermann Director March 27, 2000
- -------------------------
Randolph J. Angermann
/s/ James C. Hahn Director March 27, 2000
- -----------------
James C. Hahn
40
<PAGE>
Exhibit 10.10
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of January 1, 2000, between THE JUDGE
GROUP, INC. ("JG" or "Company") and Robert G. Alessandrini (the "Executive").
BACKGROUND
The Company is a Pennsylvania corporation engaged in the business of
technical placement and training.
Executive has substantial business experience and talents in the area
of financial controls and managment. JG believes that Executive will contribute
to the future success of JG, and wishes to employ Executive on the terms and
conditions set forth in this Agreement.
Pursuant to the foregoing, Company desires to employ Executive, and
Executive desires to enter into the employ of Company, on the terms and
conditions contained in this Agreement.
NOW THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein and intending, to be legally bound
hereby, the parties hereto agree as follows:
SECTION 1. CAPACITY AND DUTIES
1.1 Employment; Acceptance of Employment. JG hereby employs Executive
and Executive hereby accepts employment by Company for the period and upon the
terms and conditions hereinafter set forth.
1.2 Capacity and Duties.
(a) Executive shall be principally employed by JG as its Chief
Financial Officer, and, subject to the supervision of the Chief Executive
Officer of JG shall perform such duties and have such authority consistent with
his position as may from time to time be specified by the Chief Executive
Officer of JG. Executive shall report directly to the Chief Executive Officer
and shall perform his duties for JG principally from Company's office located in
the Bala Cynwyd, Pennsylvania, except for periodic travel that may be necessary
or appropriate in connection with the performance of Executive's duties
hereunder.
(b) Executive shall devote his full working time, energy, skill and
best efforts to the performance of his duties hereunder, in a manner which will
faithfully and diligently further the business and interests of Company and its
affiliates (as defined below), and shall not be employed by or participate or
engage in or be a part of in any manner the management or operation of any
business enterprise other than Company and its affiliates without the prior
written consent of the Chief Executive Officer, which consent may be granted or
withheld in his sole discretion. For the purposes of this definition "affiliate"
means any person or entity which is a subsidiary of or controlled by, or under
common control with, the Company
(c) Executive, without the express consent of Chief Executive
Officer, shall have no actual, apparent or implied authority to pledge the
credit of JG or JG; bind JG under any contract, note, mortgage or other
agreement outside the ordinary course of Company's business; release or
discharge any debt due JG; or sell, mortgage, transfer or otherwise dispose of
any assets of JG.
SECTION 2. TERM OF EMPLOYMENT
2.1 Term. The initial term of Executive's employment hereunder shall be
one [1) year commencing on the date hereof and shall thereafter automatically be
renewed each year thereafter unless and until either party shall give notice of
his or its election to terminate Executive's employment at least ninety (90)
days prior to the end of the then-current term, or unless earlier terminated as
hereinafter provided.
SECTION 3. COMPENSATION
3.1 Basic Compensation. As compensation for Executive's services
hereunder, Company shall pay to Executive a salary at the annual rate of
$125,000 (the "Base Salary"), payable in bi-weekly installments in accordance
with Company's regular payroll practices in effect from time to time for the
first year during the term of Executive's employment, and for each subsequent
year a salary at such higher annual rate as the Board shall from time to time
determine in its sole discretion.
3.2 Performance Bonus. During the Term of this Agreement, in the sole
discretion of the Board, Executive shall be entitled to receive an annual
performance bonus in accordance with the policies of JG in place from time to
time as administered by the Compensation Committee of the Board, provided that
Executive has met or exceeded net profit or other performance goals established
by such committee.
<PAGE>
3.3 Stock Options.
(a) Company agrees that, subject to the approval of the Board,
during the Term it will present to Executive on or about each Anniversary Date
of this Agreement, a stock option agreement that will enable employee to
purchase shares of the common stock of JG, and subject to the compliance of
Executive with the terms and conditions of this Agreement.
(b) The options referred to in Section 3.3(a) above shall be
granted pursuant to the 1996 Incentive Stock Option and Non-Qualified Plan for
Key Employees and Non-Employee Directors (the "Plan"). All options shall be
subject to the terms and conditions of the Plan, as applicable, and applicable
laws and regulations. To the extent permitted by Plan and applicable law,
options granted to Executive shall be Incentive Stock Options under Section
422(b) of the Internal Revenue Code of 1986, as amended. The exercise price per
share of common stock for options issued to Executive shall be the closing price
of the stock at the close of trading on the date the options are awarded. If the
stock is not traded on the date the options are awarded, the next succeeding day
of trading shall be utilized. Options granted pursuant to this paragraph shall
be fully vested in amounts and on the dates specified in the Stock Option
Agreement issued to the Executive shall at all times be subject to compliance
with the terms and conditions of this Agreement, the Stock Option Agreement and
the Plan. All such options shall become immediately vested upon change of
control, as defined herein, whether or not Executive is terminated or
constructively terminated pursuant to such change of control.
3.4 Executive Benefits. In addition to the compensation provided for in
Sections 3.1, 3.2 and 3.3, Executive shall be entitled during the term of his
employment to participate in Company's medical and 401(k) plans and such other
of Company's employee benefit plans and benefit programs as may from time to
time be provided for other employees of Company whose duties, responsibilities,
and compensation are reasonably comparable to those of Executive.
3.5 Vacation. Executive shall be entitled all legal holidays observed
by JG and to a vacation of four (4) weeks during each calendar year during the
term of his employment, during which time his compensation shall be paid in
full.
3.6 Expense Reimbursement. During the term of his employment, Company
shall reimburse Executive for all reasonable expenses incurred by him in
connection with the performance of his duties hereunder in accordance with its
regular reimbursement policies as in effect from time to time and upon receipt
of itemized vouchers therefor and such other supporting information as Company
may reasonably require.
3.7 Automobile. During the term of his employment, Company shall
provide Executive with a four hunderd dollar ($400) per month car allowance.
3.8 Phase Trip. Executive and his spouse shall be entitled to attend
one Company Phase Trip per year at the Company's expense. Should Executive
and/or his spouse choose not to attend a Phase Trip, he shall not be reimbursed
for the expense.
SECTION 4. TERMINATION OF EMPLOYMENT
4.1 Death of Executive. Executive's employment hereunder shall
immediately terminate upon his death, upon which Company shall not thereafter be
obligated to make any further payments hereunder other than amounts (including
salary, bonuses, expense reimbursement, etc.) accrued as of the date of
Executive's death in accordance with generally accepted accounting principles.
4.2 Disability of Executive. If Executive, in the reasonable opinion of
the Board, is or has been unable, due to his physical, mental or emotional
illness or condition to perform his duties hereunder for a period of forty five
(45) consecutive days or sixty (60) days within twelve consecutive months, then
the Board shall have the right to terminate Executive's employment upon ten (10)
days' prior written notice to Executive at any time during the continuation of
such inability, in which event Company shall not thereafter be obligated to make
any further payments hereunder other than amounts (including salary, bonuses,
expense reimbursement, etc.) accrued under this Agreement as of the date of such
termination in accordance with generally accepted accounting principles.
4.3 Termination for Cause. Executive's employment hereunder shall
terminate immediately upon notice that the Board is terminating Executive for
"cause" (as defined herein), in which event Company shall not thereafter be
obligated to make any further payments hereunder other than amounts (including
salary, bonuses, expense reimbursement, etc.) accrued under this Agreement as of
the date of such termination in accordance with generally accepted accounting
principles. As used herein, "cause" shall include, without limitation, the
following:
(i) dishonesty;
(ii) fraud committed in connection with Executive's employment,
theft or misappropriation or embezzlement of Company's or JG's funds;
<PAGE>
(iii) conviction of any felony, first degree misdemeanor, crime
involving fraud or misrepresentation, or of any other crime (whether or not
connected with his employment) the effect of which is likely to adversely affect
JG, JG or their affiliates;
(iv) material breach of Executive's obligations under this
Agreement not corrected after notice and a period of fifteen (15) days to cure;
(v) repeated and consistent failure of Executive to be present
at work during normal business hours unless the absence is because of one or
more of the disabilities specified in Section 4.2;
(vi) willful violation of any express direction or any rule or
regulation established by the Chief Executive Officer or the Board;
(vii) insubordination, gross incompetence or misconduct in the
performance of, or gross neglect of, Executive's duties hereunder not corrected
after notice and a period of fifteen (15) days to cure;
(viii) conduct contrary to the best interests of Company or JG
not corrected after notice and a period of fifteen (15) days to cure;
(ix) illegal possession or use of any controlled substance; or
(x) use of alcohol or other drugs which interferes with the
performance by Executive of his duties.
4.4 Termination without Cause. In the event Executive's employment is
terminated by Company prior to the expiration of the then current term, for any
reason other than Cause or the death or disability of Executive; then Company
shall pay Executive for the remainder of the contract term. Additionally, all
stock options granted to Executive pursuant to Section 3.3 above shall become
immediately vested and exercisable on the date of such termination. Upon making
such payments, Company shall have no further obligation to Executive hereunder.
4.5 Termination Upon a Change in Control. If following a Change in
Control of Company (as defined herein), Executive's employment is terminated
without Cause or Executive is constructively terminated, then Executive shall be
entitled to the following:
(a) a lump sum payment equal to one (1) times the base annual cash
compensation; and
(b) anything to the contrary contained in Section 3.3 above
notwithstanding, all outstanding stock options granted to Executive pursuant to
Section 3.3 shall become immediately vested and exercisable on the date of such
change of control; and
(c) continuation of Executive's benefits pursuant to Section 3.3
for the lesser of one (1) year or such time as Executive receives benefits from
another employer.
(d) Should Executive desire to terminate his employment at his
discretion upon a change of control, he shall be entitled to a lump sum payment
equal to six (6) months base compensation. The above-listed payments only become
effective upon constructive termination upon a change in control. For purposes
of this Agreement, "Constructively Terminated Upon Change in Control" shall mean
the occurrence of any of the following events without Employee's express
consent:
(i) A substantial and adverse change in the Executive's duties,
control, authority, status or position with JG, or the assignment to the
Executive of any duties or responsibilities that are materially inconsistent
with such status or position, or a material reduction in the duties and
responsibilities previously exercised by the Executive, or a loss of title, loss
of office, relocation, loss of significant authority, power or control, or any
removal of him from or any failure to reappoint or reelect him to such
positions, except in connection with his termination of his employment for Cause
or Disability, or as a result of Employee's death;
(ii) Any reduction by Company in Executive's base compensation
unless such reduction shall also apply to similarly situated Executives of
Company and does not exceed ten percent (10%) per year (unless otherwise agreed
in writing by Executive);
(iii) Any material breach by Company of any provision of this
Agreement;
(iv) A material increase in the amount of travel required by
Company of Executive to perform Executive's duties; or
(v) A required relocation by Company of Executive outside of
the Delaware Valley. It is the intention of the parties that the payments under
this Section 4.5 shall not constitute "excess parachute payments" within the
meaning of Section 280G of the Internal Revenue Code of 1986, as amended.
<PAGE>
Accordingly, notwithstanding anything in this Section 4.5 to the contrary, if
any of the amounts otherwise payable under this Section 4.5 would constitute
"excess parachute payments," or if the independent accountants acting as
auditors for Company on the date of the Change in Control determine that such
payments may constitute "excess parachute payments," then the amounts otherwise
payable under this Section 4.5 shall be reduced to the maximum amounts that may
be paid without any such payments constituting, or potentially constituting,
"excess parachute payments." Upon making the payments described in this Section
4.5, Company shall have no further obligation to Executive hereunder. For
purposes hereof, a "Change in Control" of Company shall be deemed to have
occurred if any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of interest in Company results in fifty percent
(50%) or more of the outstanding voting power of the then outstanding voting
securities of Company entitled to vote generally in the election of directors is
then beneficially owned, directly or indirectly, by a party or parties who were
not the beneficial owners of the common stock of Company immediately prior to
such sale or other disposition; provided that a Change in Control will not be
deemed to have occurred if Company conducts an public offering or enters into a
private equity sale and a majority of the board of directors of the resulting
entity consists of individuals who were members of the Board immediately prior
to such transaction.
SECTION 5. RESTRICTIVE COVENANTS
5.1 Confidentiality.
(a) Executive shall not, either during or after his employment with
Company, directly or indirectly use, publish or otherwise disclose or divulge to
any third party any trade secrets, confidential or proprietary information of
Company other than as required by law or in the ordinary course of Company
business (including, without limitation, any such information concerning
customers, clients, candidates, consultants, vendors, services, products,
processes, pricing policies, business plans or records, any technical or
financial information or data, or any information relating to the history or
prospects of Company, JG, any of JG's affiliates, or any of JG's shareholders).
"Confidential" information includes, without limitation, all unpublished
information and all information and data which is not generally known by the
industry.
(b) Executive shall not, either during or after his employment with
Company, directly or indirectly copy, reproduce or remove from Company's
premises, except in the ordinary course of Company business, trade secrets,
confidential or proprietary information of Company or JG (in any medium) or any
Company or JG documents, files or records (including without limitation any
invoices, customer correspondence, business cards, orders, computer records or
software, or mailing, telephone or customer lists). All such documents, files
and records, and all other memoranda, notes, files, records, lists and other
documents made, compiled or otherwise acquired by Executive in the course of his
employment with Company are and shall remain the sole property of Company and
all originals and copies thereof shall be delivered to JG upon termination of
employment for whatever reason. Executive acknowledges a duty of confidentiality
owed to Company and JG and shall not, at any time during or after his employment
by Company, retain in writing, use, divulge, furnish, or make accessible to
anyone, without the express authorization of the Board, any trade secret,
private or confidential information or knowledge of Company or its parent or any
of its parent's affiliates obtained or acquired by him while so employed. All
computer software, computer data, address books, rolodexes, business cards,
telephone lists, customer lists, price lists, contract forms, catalogs, books,
records, and files and know-how acquired while an employee of Company, are
acknowledged to be the property of Company and shall not be duplicated, removed
from Company's possession or made use of other than in pursuit of Company's
business and, upon termination of employment for any reason, Executive shall
deliver to Company, without further demand, all copies thereof which are then in
his possession or under his control.
5.2 Non-Competition and Non-Solicitation.
(a) Executive further agrees that in the event of termination of
this Agreement for any reason whatsoever, he will not, for a period of eighteen
(18) months from the date of such termination (such period not to include any
period(s) of violation or period(s) of time required for litigation to enforce
the covenants herein), either directly or indirectly, on his own account or as
agent, consultant, advisor, stockholder, employer, employee or otherwise in
conjunction with any other person or entity engage in competition in a business
similar to that of JG or be employed by a business in competition with JG
located within a radius of one hundred (100) miles of any office where JG had or
planned to have an office within the preceding year, nor will he solicit
accounts, clients, personnel, consultants, candidates or engage in any other
competitive activities within said area and/or work for business that is similar
and is in competition with JG. Executive further agrees that regardless of
geographic location, he will not, during such time period, service any customers
that JG has done any business with during the preceding year. Executive
acknowledges that doing so in any manner would interfere with, diminish and
otherwise jeopardize and damage the business and goodwill of JG.
<PAGE>
(b) Executive further agrees that during the duration of this
agreement and for a period of eighteen (18) months following termination for any
reason, he will not in any way solicit, divert, take away or attempt to solicit,
divert or take away any employee, temporary personnel, consultants, applicants,
clients, customers, trade, business or goodwill from JG or otherwise compete for
accounts or personnel which became known to him through his employment with JG
and agrees not to influence or attempt to influence any of JG's current or
prospective customers, technical personnel, or employees not to do business with
JG.
5.3 Inventions and Improvements. During the term of his employment,
Executive shall promptly communicate to Company all ideas, discoveries and
inventions which are or may be useful to Company or its business. Executive
acknowledges that all ideas, discoveries, inventions, and improvements which are
made, conceived, or reduced to practice by him and every item of knowledge
relating to Company's business interests (including potential business
interests) gained by him during his employment hereunder are the property of
Company, and Executive hereby irrevocably assigns all such ideas, discoveries,
inventions, improvements, and knowledge to Company for its sole use and benefit,
without additional compensation. The provisions of this Section shall apply
whether such ideas, discoveries, inventions, improvements or knowledge are
conceived, made or gained by him alone or with others, whether during or after
usual working hours, whether on or off the job, whether applicable to matters
directly or indirectly related to Company's business interests (including
potential business interests), and whether or not within the specific realm of
his duties. It shall be conclusively presumed that ideas, inventions, and
improvements relating to Company's business interests or potential business
interests conceived during the two (2) years following termination of employment
are, for the purposes of this Agreement, conceived prior to termination of
employment. Executive shall, upon request of Company, but at no expense to
Executive, at any time during or after his employment with Company, sign all
instruments and documents requested by Company and otherwise cooperate with
Company to protect its right to such ideas, discoveries, inventions,
improvements, and knowledge, including applying for, obtaining, and enforcing
patents and copyrights thereon in any and all countries.
5.3 Injunctive and Other Relief.
(a) Executive acknowledges and agrees that the covenants contained
herein are fair and reasonable in light of the consideration paid hereunder, and
that damages alone shall not be an adequate remedy for any breach by Executive
of his covenants contained herein and accordingly expressly agrees that, in
addition to any other remedies which JG may have, JG shall be entitled o
injunctive relief in any court of competent jurisdiction for any breach or
threatened breach of any such covenants by Executive. Nothing contained herein
shall prevent or delay JG or JG from seeking, in any court of competent
jurisdiction, specific performance or other equitable remedies in the event of
any breach or intended breach by Executive of any of its obligations hereunder.
(b) Notwithstanding the equitable relief available to JG or JG, the
Executive, in the event of a breach of his covenants contained in Section 5
hereof, understands and agrees that the uncertainties and delay inherent in the
legal process would result in a continuing breach for some period of time, and
therefore, continuing injury to JG or JG until and unless JG or JG can obtain
such equitable relief. Therefore, in addition to such equitable relief, JG or JG
shall be entitled to monetary damages for any such period of breach until the
termination of such breach, in an amount deemed reasonable to cover all actual
and consequential losses, plus all monies received by Executive as a result of
said breach and all costs and attorneys' fees incurred by JG or JG in enforcing
this Agreement. If Executive should use or reveal to any other person or entity
any confidential information, this will be considered a continuing violation on
a daily basis for so long a period of time as such confidential information is
made use of by Executive or any such other person or entity.
SECTION 6. MISCELLANEOUS
6.1 Severability. The invalidity or unenforceability of any particular
provision or part of any provision of this Agreement shall not affect the other
provisions or parts hereof. If any provision hereof is determined to be invalid
or unenforceable by a court of competent jurisdiction, by reason of the duration
or geographical scope of the covenants contained therein, such duration or
geographical scope, or both, shall be considered to be reduced to a duration or
geographical scope to the extent necessary to cure such invalidity.
6.2 Assignment. This Agreement shall not be assignable by Executive,
and shall be assignable by Company only to any person or entity which may become
a successor in interest (by purchase of assets or stock, or by merger, or
otherwise) to Company in the business or a portion of the business presently
operated by it. Subject to the foregoing, this Agreement and the rights and
obligations set forth herein shall inure to the benefit of, and be binding upon,
the parties hereto and each of their respective permitted successors, assigns,
heirs, executors and administrators.
<PAGE>
6.3 Notices. All notices hereunder shall be in writing and shall be
sufficiently given if hand-delivered, sent by documented overnight delivery
service or registered or certified mail, postage prepaid, return receipt
requested or by telegram, fax or telecopy (confirmed by U.S. mail), receipt
acknowledged, addressed as set forth below or to such other person and/or at
such other address as may be furnished in writing by any party hereto to the
other. Any such notice shall be deemed to have been given as of the date
received, in the case of personal delivery, or on the date shown on the receipt
or confirmation therefor, in all other cases. Any and all service of process and
any other notice in any such action, suit or proceeding shall be effective
against any party if given as provided in this Agreement; provided that nothing
herein shall be deemed to affect the right of any party to serve process in any
other manner permitted by law.
(a) If to Company:
Judge Technical Services, Inc. & The Judge Group, Inc.
Two Bala Plaza, Suite 800
Bala Cynwyd, PA 19004
Tel: (610) 667-7700
Fax: (610) 664-7090
Attention: Martin E. Judge, Jr.
With a copy to:
Drinker Biddle & Reath
One Logan Square
18th and Cherry Streets
Philadelphia, PA 19103-6996
Tel: (215) 988-2700
Fax: (215) 988-2757
Attention: Douglas Raymond
(b) If to Executive:
Robert Alessandrini
721 Noble Street
Norristown, PA 19401
6.4 Entire Agreement and Modification. This Agreement constitutes the
entire agreement between the parties hereto with respect to the matters
contemplated herein and supersedes all prior agreements and understandings with
respect thereto. Any amendment, modification, or waiver of this Agreement shall
not be effective unless in writing. Neither the failure nor any delay on the
part of any party to exercise any right, remedy, power or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any right, remedy, power or privilege preclude any other or further exercise of
the same or of any other right, remedy, power, or privilege with respect to any
occurrence be construed as a waiver of any right, remedy, power, or privilege
with respect to any other occurrence.
6.5 Governing Law. This Agreement is made pursuant to, and shall be
construed and enforced in accordance with, the internal laws of the Commonwealth
of Pennsylvania (and United States federal law, to the extent applicable),
without giving effect to otherwise applicable principles of conflicts of law.
6.6 Headings; Counterparts. The headings of paragraphs in this
Agreement are for convenience only and shall not affect its interpretation. This
Agreement may be executed in two or more counterparts, each of which shall be
deemed to be an original and all of which, when taken together, shall be deemed
to constitute but one and the same Agreement.
6.7 Further Assurances. Each of the parties hereto shall execute such
further instruments and take such other actions as any other party shall
reasonably request in order to effectuate the purposes of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
THE JUDGE GROUP, INC.
/s/ Martin E. Judge, Jr.
-----------------------------------------------
Chief Executive Officer , The Judge Group, Inc.
Chairman of the Board of Directors
/s/ Robert G. Alessandrini
---------------------------
<PAGE>
PNC LEASING CORP PNCBANK
Master Lease Agreement Lease No. 1447
This Master Lease Agreement ("Lease") is made this 20th day of April, 1999, by
and between PNC LEASING CORP (the "Lessor"), a subsidiary of PNC Bank, National
Association (the "Bank"), with an address at 1000 Westlakes Drive, Suite 200,
Berwyn, PA 19312, and THE JUDGE GROUP, INC. (the "Lessee") with its address at
Two Bala Plaza, Suite 405, Bala Cynwyd, PA 19004.
1. LEASE AGREEMENT. Lessor hereby leases to Lessee, and Lessee hereby rents from
Lessor, all the machinery, equipment a other personal property (individually an
"Item of Equipment" and collectively the "Equipment") described in Schedules of
Leased Equipment which are or may from time to time hereafter be executed by
Lessor and Lessee and attached hereto or incorporated herein by reference
("Schedules") upon the terms and conditions set forth in this Lease. When used
herein the term "Equipment" shall be deemed to refer to the Equipment described
in a specific Schedule, unless the context clearly indicates otherwise. The
invalidation, fulfillment, waiver, termination, or other disposition of any
rights or obligations of either the Lessee or Lessor, or both of them, arising
from the execution of this Lease in conjunction with any Schedule shall not
affect the status of the rights and/or obligations with either or both of the
parties arising from the execution of this Lease in conjunction with any other
Schedule, so long as the Lessee has not defaulted under the terms and conditions
of this Lease or any Schedule. In the event of any such default by Lessee,
Lessor may declare this Lease and any Schedule to be in default hereunder and
the Lessor may proceed with its remedies against the Lessee in accordance with
paragraph 24 herein, with respect to any particular Schedule or all Schedules.
An executed counterpart of this Lease (including any Schedules, supplements,
amendments, addenda or riders thereto) or a photocopy thereof, together with an
executed original of any numbered Schedule marked "Lessor", shall be the
original "lease" for the Equipment described in such Schedule and together they
shall constitute a separate and enforceable lease. All other executed
counterparts of such numbered Schedule shall be marked and considered a
"Duplicate". To the extent this Lease constitutes chattel paper, as that term is
defined in the Uniform Commercial Code as adopted and in effect in the
Commonwealth of Pennsylvania ("UCC"), no security interest in the Lease may be
created through the transfer of possession of any counterpart other than the
Lessor copy of the numbered Schedule.
2. TERM. The obligations of the parties under this Lease commence upon the
written acceptance hereof by Lessor and shall end upon full performance and
observance of each and every term, condition and covenant set forth in this
Lease and any extensions hereof. The rental term for Equipment listed in each
Schedule shall commence on the date indicated on such Schedule and shall
terminate on the last day of the term stated in such Schedule. Any interim
rental term shall also be set forth in any such Schedule as
appropriate.
3. RENT. The rent, including interim rental payments, for the Equipment
described in each Schedule shall be the amount stated in such Schedule. Rent is
an absolute obligation of Lessee due upon the inception of each base or interim
rental term and payable as specified in each applicable Schedule irrespective of
any claims, demands, set-offs, actions, suits or proceedings that Lessee may
have or assert against Lessor or any vendor of Equipment. Rent and interim rent
shall be payable to Lessor at 1000 Westlakes Drive, Suite 200, Berwyn, PA 19312,
or at such other place as Lessor or its assigns may designate in writing to
Lessee from time to time.
4. DELINQUENT RENT PENALTY. If any rent or interim rent installment or other
amount due hereunder is not paid when due, Lessee agrees to pay a delinquent
rent penalty of five percent (5%) on, and in addition to, the amount of such
rent or other amount due hereunder, but not exceeding the lawful maximum, if
any. Such delinquent interest shall be payable upon demand. Interest shall
accrue at said rate whether or not judgment hereon has been entered.
5. ADVANCES. From time to time prior to the commencement date of the base lease
term, and subject to the conditions of this paragraph 5, Lessor shall, upon
request by Lessee, make such advances, deposits and reimbursements as may be
required for payment for, and purchase of, the Equipment. Lessee shall provide
written confirmation to Lessor, as Lessor may request, approving payments as
called for, as well as confirming the receipt of the Equipment by Lessee as it
is delivered to Lessee. Each request for an advance shall constitute, as of the
date made, a certification by Lessee that Lessee shall have performed and
complied with all agreements and conditions required under this Lease, and at
the time of such advance, no condition or event exists which constitutes an
Event of Default hereunder. Notwithstanding the foregoing, under no
circumstances whatsoever shall Lessor be required or obligated to guarantee
payment to any vendor or supplier.
All advances made by Lessor shall bear interest from the date of
funding until the commencement of the base term of the lease in accordance with
the respective Schedule and Supplement thereto.
<PAGE>
Before Lessor shall make any advance hereunder, Lessee agrees to sign
and deliver to Lessor such instruments and documents as Lessor may reasonably
request, including, but not limited to, certified resolutions, incumbency
certificates or other evidence of authority and opinions of counsel in form and
substance reasonably satisfactory to Lessor.
Lessee acknowledges and agrees that in no event will Lessor be under
any obligation to advance funds (i) in an amount higher than that set forth in
any ancillary document hereto, (ii) beyond the date set forth in any ancillary
documents hereto, (iii) if the Equipment is not as represented to Lessor,
including but not limited to, of a make, model and condition as expected, and in
accordance with specifications presented to Lessor by Lessee, (iv) upon the
occurrence of an Event of Default under this Lease, (v) in the event of the
commencement of any foreclosure or forfeiture proceeding, execution or
attachment against any Equipment lease hereunder, (vi) in the event of any
material adverse change in the business, assets, operations, financial condition
or results of operations of Lessee or any Guarantor hereunder, (vii) in the
event that any representation or warranty made by the Lessee or any Guarantor to
Lessor is false, erroneous or misleading in any material respect. Upon the
occurrence of an Event of Default, all advances made together with accrued
interest and other amounts due thereon shall be immediately due and payable
without demand or notice of any kind. The making of any advance by Lessor under
this paragraph 5 shall not constitute a commitment to make any other advance
prior to the commencement date of the base lease term, nor a waiver of any
condition precedent to the making of further advances at the commencement of the
base lease term.
6. DELIVERY AND INSTALLATION. Lessee will select the type, quantity and supplier
of the Equipment, and in reliance thereon, the Equipment will then be ordered by
Lessor from such supplier, or Lessor may at its option elect to accept from
Lessee an assignment of any existing purchase order. Lessor shall not be liable
for loss or damage occasioned by any cause, circumstance or event of whatsoever
nature, including, but not limited to, failure of or delay in delivery, delivery
to wrong location, delivery of improper equipment or property other than the
Equipment, defects in or damage to the Equipment, governmental regulations,
strikes embargoes or other causes, circumstances or events whether of a like or
unlike nature. In the event that the cost of any Item of Equipment differs from
the price set forth in the purchase order therefor, the periodic rental shall be
changed accordingly to fully reflect any such difference.
7. WARRANTY OF LESSEE'S QUIET POSSESSION. Lessor warrants and covenants that so
long as Lessee faithfully performs this Lease, Lessee, subject to the disclaimer
of warranties set forth immediately below, may quietly possess and use the
Equipment without interference by the Lessor, or by any party claiming by or
through the Lessor.
8. DISCLAIMER OF WARRANTIES. THE LESSEE ACKNOWLEDGES AND AGREES THAT (i) THE
EQUIPMENT AND EACH PART THEREOF IS OF A SIZE, DESIGN, CAPACITY, AND MANUFACTURE
SELECTED BY AND ACCEPTABLE THE LESSEE, (ii) THE LESSEE IS SATISFIED THAT THE
EQUIPMENT AND EACH PART THEREOF IS SUITABLE FOR ITS RESPECTIVE PURPOSE, (iii)
THE LESSOR IS NOT A MERCHANT, MANUFACTURER OR A DEALER IN PROPERTY OF SUCH KIND,
(iv) THE EQUIPMENT AND EACH PART THEREOF IS LEASED HEREUNDER SUBJECT TO ALL
APPLICABLE LAWS AND GOVERNMENTAL REGULATIONS NOW IN EFFECT OR HEREAFTER ADOPTED
AND IN THE STATE AND CONDITION WHEN THE SAME FIRST BECAME SUBJECT TO THIS LEASE,
WITHOUT REPRESENTATION OR WARRANTY OF ANY KIND BY THE LESSOR, AND (v) THE LESSOR
LEASES THE EQUIPMENT, AS IS, WITHOUT WARRANTY OR REPRESENTATION EITHER EXPRESS
OR IMPLIED, AS TO (A) THE CONDITION, FITNESS, DESIGN, QUALITY, CAPACITY,
WORKMANSHIP, OPERATION, AND MERCHANTABILITY OF THE EQUIPMENT, (B) THE LESSOR'S
TITLE THERETO, OR (C) THE ABILITY OF ANY EQUIPMENT WHICH CONTAINS OR MAY BE
AFFECTED BY COMPUTER APPLICATIONS OR MICROPROCESSOR CHIPS TO RECOGNIZE AND
PROPERLY PERFORM DATESENSITIVE FUNCTIONS INVOLVING DATES PRIOR TO AND AFTER
DECEMBER 31, 1999, I.E., "YEAR 2000 COMPLIANT," OR (D) ANY OTHER MATTER
WHATSOEVER, IT BEING AGREED THAT ALL SUCH RISK, AS AMONG THE LESSOR AND THE
LESSEE, ARE TO BE BORNE BY THE LESSEE, AND THE BENEFITS OF ANY AND ALL IMPLIED
WARRANTIES AND REPRESENTATIONS OF LESSOR ARE HEREBY WAIVED BY LESSEE. Lessor is
not responsible or liable for any direct, indirect, incidental, or consequential
damage to, or loss resulting from, the installation, operation, or use of the
Equipment or any product manufactured thereby. The Lessee's recourse for breach
of any representation or warranty of the vendor supplier is limited to such
vendor or supplier. Lessee will be subrogated to Lessor's claims, if any,
against the manufacturer or supplier of the Equipment for breach of any warranty
or representation and, upon written request from Lessee, Lessor shall take all
reasonable action requested by Lessee to enforce any such warranty, express or
implied, issued on or applicable to any of the Equipment, which is enforceable
by Lessor in its own name, provided, however, that (a) Lessee is not in default
under this Lease and (b) Lessor shall not be obligated to resort to litigation
to enforce any such warranty unless Lessee shall pay all expenses in connection
therewith. Notwithstanding the foregoing, Lessee's obligations to pay the
rentals or otherwise under this Lease shall be and are absolute and
unconditional. All proceeds of any such warranty recovery from the manufacturer
or supplier of the Equipment shall first be used to repair the affected
Equipment.
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9. NATURE OF EQUIPMENT. The Equipment shall remain personal property,
notwithstanding the manner in which it may be affixed to any real property.
Lessee shall obtain and cause to be recorded, where appropriate, at its own
expense, from each landlord, owner, mortgagee or any person having an
encumbrance or lien upon the real property where the Equipment is located, a
waiver of any lien, encumbrance or interest which such person might have or
hereafter obtain or claim with respect to the Equipment. Lessee, at its expense,
will protect and defend Lessor's title to the Equipment and will otherwise take
all action required to keep the Equipment free and clear of all claims, levies,
liens and encumbrances. Lessor assumes no liability and makes no representation
as to the treatment by Lessee of this Lease, the Equipment, or the rental
payments for financial accounting or tax purposes.
10. LESSOR'S RIGHT OF INSPECTION. Lessor, or its authorized agents, shall have
the right during normal business hours enter upon the premises where the
Equipment is located (to the extent Lessee can permit) for the purpose of
inspection. Provide No Event of Default has occurred and is continuing, Lessor
shall provide Lessee prior notice of such inspection.
11. USE OF EQUIPMENT. Lessee represents that it is leasing the Equipment for a
business or commercial purpose and not for personal, family or household use.
Lessee must use the Equipment in a careful and proper manner in conformity with
(i) all statutes and regulations of each governmental authority having
jurisdiction over the Lessee and/or the Equipment and its use, and (ii) all
policies of insurance relating to the Equipment and/or its use. In addition,
Lessee shall not (i) use the Equipment in any manner that would impair the
applicability of manufacturer's warranties or render the Equipment unfit for its
originally intended use; nor (ii) permit anyone other than authorized and
competent personnel to operate the Equipment.
12. ALTERATIONS. Without the prior written consent of Lessor, Lessee shall make
no alterations, modifications or attachments to the Equipment which impair the
economic value, economic and useful life, or functional utility of the
Equipment. All alterations, modifications and attachments of whatsoever kind or
nature made to the Equipment must be removed without damaging the functional
capabilities or economic value of the affected Equipment upon the termination of
the Lease. Under no circumstances shall any such alteration, modification or
attachment be encumbered by Lessee or result in the creation of a mechanic's or
materialman's lien, excepting as may arise by operation of law pending payment
within ordinary business terms.
13. MAINTENANCE AND REPAIRS. At its expense Lessee shall maintain, operate,
repair and make all modifications to the Equipment in a manner consistent with
Lessee's general practice and in accordance with good industry practice,
manufacturer's warranty requirements and specifications and Lessee's established
operation, maintenance and repair programs, without discrimination as to leased
equipment, so as to keep the Equipment in good working order, and so as to
comply with all applicable laws or applied governmental actions and so as not to
incur liability (whether or not there is a lack of compliance) under any
environmental law or otherwise account for any release of, or exposure to, any
hazardous material. Lessor shall not be required to maintain, repair or replace
the Equipment or part thereto and Lessee hereby waives the right, however
arising, to (i) require Lessor to maintain, repair or replace any of the
Equipment or part thereto, or (ii) make repairs at the expense of the Lessor
pursuant to any applicable law at any time in effect. Lessor may review Lessee's
established operating procedures and maintenance records to assure compliance
with this section. Upon installation, title to replacement parts shall pass to
Lessor, and be deemed part of the Equipment.
14. RISK OF LOSS, DAMAGE AND THEFT.
(a) All risk of loss, damage, theft or destruction, partial or
complete, to the Equipment incurred or occasioned by any cause, circumstance or
event of whatever nature will be borne by Lessee from and after delivery of the
Equipment to a carrier FOB point of origin, whether the terms of shipment
require or authorize the Equipment to be shipped by carrier, to be delivered to
Lessee's place or places of business, or provide that Lessee accept possession
of or title to the Equipment at any other location. Lessee shall promptly notify
Lessor of any theft of or loss or damage to the Equipment.
(b) Neither total nor partial loss of use or possession of the
Equipment shall abate the rent.
(c) The Equipment shall be deemed subjected to total loss (i) if it has
disappeared regardless of the reason for disappearance or (ii) if it has
sustained physical damage and the estimated cost of repair exceeds 75% of its
fair market value on the date of damage Lessee's duty to pay rent for the
Equipment subjected to total loss shall be discharged by paying to Lessor, on
demand, all accrued but unpaid rent for such Equipment as of the date of
disappearance or damage, plus the greater of: (i) Lessor's book value of the
Equipment, which shall be deemed to be the Equipment's cost as set forth in the
applicable Schedule minus straight-line depreciation based on recognized
physical life prorated to the date of disappearance or damage, or (ii) the fair
market value of the Equipment as of the date of disappearance or damage. The
amount of applicable insurance proceeds, if any, actually received by Lessor
shall be subtracted from the amount for which Lessee is liable under this
paragraph 14.
(d) Lessee shall cause the Equipment subjected to partial loss to be
restored to original capability. Lessor shall, upon receiving satisfactory
evidence of restoration, promptly pay to Lessee, or such other party as Lessee
shall direct, the proceeds of any insurance or compensation received by Lessor,
by reason of such partial loss.
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(e) Lessor shall not be obligated to undertake the collection of any
claim against any person for either total or partial loss the Equipment. After
Lessee discharges its obligations to Lessor under either paragraph 14(c) or
14(d) above, Lessee may, for Lessee's own account, proceed to recover from third
parties and shall be entitled to retain any amount recovered. Lessor shall
supply Lessee with any necessary assignment of claim.
15. INDEMNIFICATION.
(a) Non-Tax Liability. Lessee assumes liability for, and hereby agrees
to indemnify, protect and hold harmless, Lessor, its agents, servants,
employees, officers, successors and assigns (an "Indemnified Party") from and
against any and all liabilities, obligations. losses, damages, injuries, claims,
demands, penalties, actions, environmental hazards, incidence or risks, costs
and expenses, including reasonable attorney's fees, of whatsoever kind and
nature, arising out of (i) the manufacture, installation, use, condition
(including, but not limited to, latent and other defects and whether or not
discoverable by Lessee or Lessor), operation, ownership, selection, delivery,
leasing, removal or return of the Equipment, regardless of where, how and by
whom operated, or (ii) any failure on the part of Lessee to perform or comply
with any covenant or condition of this Lease.
(b) Direct Tax Costs. Lessee agrees to indemnify, protect, and hold
harmless each Indemnified Party, from and against any and all taxes, license
fees, assessments and other governmental charges, fees, fines or penalties of
whatsoever kind or character and by whomsoever payable, which are levied,
assessed, imposed or incurred during the lease term, (i) on or relating to the
Equipment, including any tax on the sale, ownership, use, leasing, shipment,
transportation, delivery or operation thereof, (ii) on the exercise of any
option, election or performance of any obligation by the Lessee hereunder, (iii)
of the kind generally referred to in items (i) and (ii) above which may remain
unpaid as of the date of delivery of the Equipment to the Lessee irrespective of
when the same may been levied, assessed, imposed or incurred, and (iv) by reason
of all gross receipts and like taxes on or measured by rents payable hereunder
levied by any state or local taxing authority having jurisdiction where the
Equipment is located. The Lessee agrees to comply with all state and local laws
requiring the filing of ad valorem tax returns relating to the Equipment. Any
statements for such taxes received by the Lessor shall be promptly forwarded to
the Lessee. This subparagraph shall not be deemed to obligate the Lessee to pay
(i) any taxes, fees, assessments and charges which may have been included in the
Lessor's cost of the Equipment as set forth in Schedule(s) hereto, or (ii) any
income or like taxes against the Lessor on or measured by the net income from
the rents payable hereunder. The Lessee shall not be obligated to pay any amount
under this subparagraph so long as it shall, at its expense and in good faith
and by appropriate proceedings, contest the validity or the amount thereof
unless such contest would adversely affect the title of the Lessor to the
Equipment or would subject the Equipment to forfeiture or sale. The Lessee
agrees to indemnify each Indemnified Party against any loss, claim, demand and
expense including legal expense resulting from such nonpayment or contest.
(c) Indemnity Payment. The amount payable pursuant to subparagraphs
15(a) and 15(b) shall be payable upon demand of the Lessor accompanied by a
statement describing in reasonable detail such loss, liability, injury, claim,
expense or tax and setting forth the computation of the amount so payable.
(d) Survival. The indemnities and assumptions of liabilities and
obligations provided for in this paragraph 15 shall continue in full force and
effect notwithstanding the expiration or other termination of this Lease.
16. LESSEE'S ASSIGNMENT. Without the prior written consent of the Lessor, Lessee
shall not assign, bail, sublease, hypothecate, transfer or dispose of the
Equipment or any interest in this Lease nor impair the Lessor's title to the
Equipment. Lessee shall not assign this Lease, nor shall this Lease or any
rights under this Lease or in the Equipment inure to the benefit of any trustee
in bankruptcy, receiver, creditor, or other successor of Lessee whether by
operation of law or otherwise.
17. LESSOR'S ASSIGNMENT. All rights of Lessor hereunder, in the rent and in the
Equipment may be assigned, pledged, mortgaged. transferred, or otherwise
disposed of, either in whole or in part, without notice to Lessee. No such
assignee shall be obligated to perform any duty, covenant, or condition required
to be performed by Lessor under the terms of this Lease unless such assignee
expressly assumes such obligations. Lessor shall remain liable to Lessee
hereunder to perform such duty, covenant, and condition unless such assignee
expressly assumes Lessor's obligations, in which event Lessee hereby releases
Lessor from such obligations. Such assignee shall have all rights, powers and
remedies given to Lessor by this Lease, and shall be named as lender loss payee
or co-insured under all policies of insurance maintained pursuant to paragraph
18 hereof. If Lessor assigns this Lease or the monies due or to become due
hereunder or any other interest herein, Lessee agrees not to assert against
Lessor's assignee any defense, set-off, recoupment, claim or counterclaim which
Lessee may have against Lessor, whether arising under this Lease or any other
transaction between Lessor and Lessee. Subject to paragraph 16 hereof and this
paragraph 17, this Lease inures to the benefit of, and is binding upon, the
heirs, legatees, personal representatives, successors and assigns of the parties
hereto.
18. INSURANCE. Lessee will at its own expense insure the Equipment in compliance
with the terms and conditions of the Schedule. in form and in an amount
satisfactory to Lessor with insurance carriers approved by Lessor. The proceeds
of any insurance claim due to the theft or loss of or damage to the Equipment
shall be applied as provided in paragraph 14 hereof. In addition to the
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compliance with the terms and conditions of the Schedule and the other terms and
conditions of this paragraph 18, the Lessee shall comply with the following
conditions:
(a) Lessee, prior to the inception of the term, shall deliver to
Lessor all required policies of insurance or, in the alternative, other proper
evidence of insurance, which shall be sufficiently detailed to advise Lessor of
all types of coverage and inclusions;
(b) Lessee shall cause each insurer to agree by endorsement to the
policies that each insurer will give at minimum thirty (30) days' written notice
to Lessor before any policy will be altered or cancelled for any reason,
including, without limitation, failure of the Lessee to pay premiums;
(c) All coverage must be in effect upon delivery, or when Lessee
assumes the risk of loss, whichever is earlier, and will provide coverage
without geographic limitation;
(d) All policies must provide that the Lessor is an additional insured
for all aspects of general liability insurance, and is lender loss payee for all
aspects of insurance relating to the theft or loss of or damage to the
Equipment;
(e) Lessee will furnish renewal policies or renewal evidence of
insurance listing Lessor as an additional insured and lender loss payee, as
required by this Lease, no later than thirty (30) days prior to the expiration
of any insurance required hereby.
19. ADDITIONAL DOCUMENTS. If Lessor shall so request, Lessee shall execute and
deliver to Lessor such documents, including UCC financing and continuation
statements, as Lessor shall deem necessary or desirable for purposes of
continuing this Lease or recording or filing to protect the interest of Lessor
in the Equipment. Any such filing or recording shall not be deemed evidence of
any intent to create a security interest. All filing fees and expenses shall be
borne by the Lessee.
20. FURNISHING FINANCIAL INFORMATION. During the term of this Lease and any
extensions or renewals hereof, Lessee will furnish to Lessor:
(a) Within 30 days after the end of each of the first three quarterly
periods of Lessee's fiscal year, a balance sheet, statement of cash flows and a
statement of income of Lessee as of the close of such quarterly period from the
beginning of the fiscal year to the date of such statement, prepared in
accordance with generally accepted accounting principles, consistently applied,
and in such reasonable detail as Lessor may request, certified as true, complete
and correct by an authorized officer of the Lessee.
(b) As soon as practicable, but in any event within 90 days after the
end of each fiscal year, a copy of its annual audit certified without
qualification by a certified public accountant selected by Lessee and
satisfactory to Lessor.
(c) In a timely manner such financial statements, reports and other
information as the Lessee shall send from time to time to its stockholders
and/or file with the Securities and Exchange Commission and/or other materials
which Lessor shall reasonably request.
21. INCORPORATION OF COVENANTS BY REFERENCE. Any and all affirmative, negative
and financial covenants which may be set forth in any credit agreement, loan
agreement, promissory note, guaranty or other agreement, instrument or document
entered into between Lessee (or any of its affiliates) as borrower and any
affiliate of Lessor, as tender (whether directly as a lender to the Lessee or as
one lender in a bank syndicate agreeing to lend to the Lessee, or as holder of a
participation in a loan by another lender to the Lessee) (the "Loan Documents"),
are hereby incorporated herein by this reference as if set forth herein at
length, as any of the foregoing may be amended or supplemented from time to time
(the "Incorporated Provisions"). Any amendments, modifications, waivers or other
changes in the terms of any of the Incorporated Provisions shall automatically
constitute an amendment to this Lease without any need for further action or
documentation. If any Loan Document terminates or otherwise ceases to be in full
force and effect (a "Termination"), all of the Incorporated Provisions of such
Loan Document shall survive the Termination and shall continue in full force and
effect as a part of this Lease. At any time after a Termination, Lessee shall
promptly upon Lessor's request execute and deliver to Lessor an amendment to
this Lease, which amendment will expressly incorporate into this Lease all or
any number of the Incorporated Provisions of the terminated Loan Document as
Lessor in its sole discretion shall select, as such Incorporated Provisions are
in effect immediately prior to the date of Termination.
<PAGE>
22. PERFORMANCE OF OBLIGATIONS OF LESSEE BY LESSOR. If Lessee fails to promptly
perform any of its obligations under this Lease, Lessor may perform the same for
the account of Lessee without waiving Lessee's failure as a default. All sums
paid or expense or liability incurred by Lessor in such performance (including
reasonable legal fees) together with interest thereon at the highest contract
rate enforceable against Lessee, but never at a higher rate than fifteen percent
(15%) per annum simple interest, shall be payable by the Lessee upon demand as
additional rent.
23. EVENTS OF DEFAULT. Any of the following events or conditions shall
constitute an event of default ("Event of Default") hereunder and entitle the
Lessor, at its option, to avail itself of the remedies more fully set forth in
paragraph 24 hereof:
(a) Non-payment by Lessee of any rent or other amount provided for in
this Lease;
(b) Failure of the Lessee to perform any of the non-monetary
covenants, obligations, terms or conditions of this Lease;
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(c) Death or judicial declaration of incompetency of Lessee, if an
individual, or death or judicial declaration of incompetency of an individual
partner, if Lessee is a partnership;
(d) The Lessee shall commence a voluntary case or other proceeding
seeking liquidation. reorganization, or other relief with respect to itself or
its debts under any bankruptcy, insolvency, or other similar law now or
hereafter in effect, or seeking the appointment of a trustee, receiver,
liquidator, custodian, or other similar official of it or any substantial part
of its property, or shall consent to any such relief or to the appointment of or
the taking possession by any official in an involuntary case or other proceeding
commenced against it, or shall make a general assignment for the benefit of its
creditors, or shall fail to pay its debts as they become due, or shall take any
corporate action authorizing any of the foregoing;
(e) An involuntary case or other proceeding should be commenced
against Lessee seeking liquidation, reorganization, or other relief with respect
to it or its debts under any bankruptcy, insolvency, or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian, or other similar official of it or any substantial part
of its property, and such involuntary case or other proceeding shall remain
undismissed and unstayed for a period of thirty (30) days;
(f) A final judgment for the payment of money in excess of $25,000 is
rendered against the Lessee, or any attachment proceedings is instituted with
respect to any significant portion of the Lessee's assets or property, and the
same shall remain undischarged for a period of thirty (30) days during which
execution shall not be effectively stayed:
(g) The Lessee, or any guarantor of the Lease, or any affiliate of the
Lessee, shall default in the payment of principal and/or interest when due
(whether by acceleration or otherwise) or shall default in the performance of
any obligation or indebtedness owed to the Bank or to any subsidiary or
affiliate of the Bank (whether directly as a tender to the Lessee or as one
lender in a bank syndicate agreeing to lend to the Lessee, or as holder of a
participation in a loan by another lender to the Lessee), which obligation shall
remain in default for lack of performance or which indebtedness shall remain
unpaid and unsatisfied following the conclusion of any applicable grace period
in respect to such obligation or indebtedness;
(h) Any event described in subparagraphs 23(c) through 23(g) hereof
shall occur with respect to any guarantor or any other party liable for payment
or performance of this Lease;
(i) Any certificate, statement, representation, warranty or financial
statement heretofore or hereafter furnished pursuant to or in connection with
this Lease by or on behalf of Lessee or any guarantor or other party liable for
payment or performance of this Lease is false in any material respect at the
time as of which the facts therein set forth were stated or certified, or omits
any substantial contingent or unliquidated liability or claim against Lessee or
any such guarantor or other party, or, upon the date of execution of this
document or any Schedule, there shall have been any materially adverse change in
any of the facts disclosed by any such certificate, statement, representation or
warranty, which shall not have been disclosed in writing to Lessor at or prior
to the time of execution this document or such Schedule;
(j) An event of default shall have occurred under any other lease
agreement wherein Lessor is, at the time of such default, the "lessor" and
Lessee is the "lessee".
24. REMEDIES. Upon the happening of any Event of Default hereunder, the rights
and duties of the parties shall be as set forth this paragraph. Lessor may
elect, in its sole discretion, to do one or more of the following upon the
occurrence of an Event of Default, and at any time thereafter:
<PAGE>
(a) Upon written notice to the Lessee terminate this Lease as to any
or all of the Schedules then in effect;
(b) Demand that Lessee return the Equipment to the Lessor whereupon
Lessee shall promptly deliver the Equipment to Lessor at that place or those
places designated by Lessor. If Lessee does not so deliver the Equipment, Lessee
shall make the Equipment available for retaking and authorizes Lessor, its
employees and agents to enter the premises of the Lessee and any other premises
(insofar as Lessee can permit) for the purpose of retaking. In the event of
retaking, Lessee expressly waives all rights to possession and all claims for
injuries to persons or property suffered through or loss caused by retaking. Any
repossession accomplished under this paragraph 24(b) shall not release Lessee
from liability for damages of Lessor sustained by reason of Lessee's default
hereunder.
(c) Lessor may revoke Lessee's privilege of paying rent in
installments causing acceleration of all remaining rents through the remaining
term of the Lease, and, upon Lessor's demand, as liquidated damages, and not as
a penalty, the Lessee shall promptly pay to the Lessor the aggregate of (i) all
rent accrued and unpaid prior to the date of such Event of Default, (ii) all
future rent due through the end of the basic term or through the end of the
current renewal term, as the case may be, (iii) all costs and expenses incurred
by Lessor in the repossession, recovery, storage, repair, inspection, appraisal,
refurbishing, sale, release or other disposition of the Equipment, (iv)
reasonable attorney's fees and costs, including any fees or costs incurred by
Lessor in defending any action relating to this Lease or participating in any
bankruptcy or insolvency proceeding to which Lessee is a party, or otherwise
incurred due to Lessee's default, (v) the estimated residual value of the
Equipment as of the end of the current term of the Lease, and (vi) any claim for
indemnity, if any, in favor of Lessor hereunder. In the event that any court
having jurisdiction shall determine that in calculating damages hereunder as a
result of a default by Lessee that sums payable in the future under the Lease
must be discounted to present value, the discount rate to be applied in such
case shall equal the discount rate of the Federal Reserve Bank of Cleveland then
in effect on the earlier of the date of entry of judgement on such claim or the
date of payment of such sum by Lessee.
6
<PAGE>
(d) In its sole discretion, Lessor may sell or release the Equipment
or and part thereof, at public auction or by private sale or lease at such time
or times and upon such terms as Lessor may determine, free and clear of any
rights of Lessee and, if notice thereof is required by law, any notice in
writing of such sale or lease by Lessor to Lessee given not less than ten (10)
days prior to the date thereof shall constitute reasonable notice thereof to
Lessee. All proceeds of the sale or releasing, or both, less (i) all expenses
incurred in retaking the Equipment, making, necessary repairs to the Equipment
and enforcing this Lease, (ii) all damages that Lessor shall have sustained by
reason of Lessee's default, and (iii) reasonable attorney's fees and expenses
shall be credited against Lessee's liability hereunder as and when received by
Lessor. Sums in excess of Lessee's liability shall belong to Lessor. The Lessee
shall be liable for any deficiency.
(e) The provisions of this paragraph 24 shall not prejudice Lessor's
right to recover or prove damages for unpaid rent accrued prior to default, or
bar an action for a deficiency as herein provided, and the bringing of an action
with an entry of judgment against Lessee shall not bar the Lessor's right to
repossess any or all of the Equipment.
(f) Lessor's remedies shall be available to Lessor's successors and
assigns, shall be in addition to all other remedies provide to it under the UCC
(specifically, the remedies set forth in 13 Pa. C.S.ss.ss.2A523(a), (b) and (c)
or by any other applicable law, and may be exercised concurrently or
consecutively. LESSEE WAIVES ANY AND ALL RIGHTS TO NOTICE AND TO JUDICIAL
HEARING WITH RESPECT TO THE REPOSSESSION OF THE EQUIPMENT BY LESSOR IN THE EVENT
OF A DEFAULT HEREUNDER BY LESSEE. LESSEE HEREBY WAIVES ANY RIGHT TO DEMAND A
JURY TRIAL WITH RESPECT TO ANY ACTION OR PROCEEDING INSTITUTED BY THE LESSOR OR
THE LESSEE IN CONNECTION WITH THIS LEASE.
(g) No express or implied waiver by Lessor of any default(s) by Lessee
shall constitute a waiver of any other default(s) by Lessee or waiver of any of
Lessor's rights.
(h) The Lessee has reviewed the areas within its business and
operations which could be adversely affected by, and has developed or is
developing a program to address on a timely basis the risk that certain computer
applications used by the Lessee may be unable to recognize and perform properly
date-sensitive functions involving dates prior to and after December 31, 1999
(the "Year 2000 Problem"). The Year 2000 Problem will not result, and is not
reasonably expected to result, in any material adverse effect on the business,
properties, assets, financial condition, results of operations or prospects of
the Lessee, or the ability of the Lessee to duly and punctually pay or perform
its obligations hereunder and under the other Lease Documents.
25. LESSEE REPRESENTATIONS AND WARRANTIES. In order to induce Lessor to enter
into this Lease and to lease the Equipment to Lessee, Lessee represents and
warrants, as of the date hereof, and as of the date of execution of each
Schedule hereunder, that:
(a) The Lessee is a corporation duly incorporated, validly existing
and in good standing under the laws of the jurisdiction of its incorporation
with corporate power and authority to conduct its business as such business is
presently being conducted, to own or hold property under lease and to enter into
and perform its obligations under this Lease. The Lessee is duly qualified to do
business and is in good standing as a foreign corporation in all states where
its failure to so qualify would have a material adverse effect on its ability to
perform its obligations under this Lease.
(b) The execution, delivery, and performance by the Lessee of this
Lease and all related instruments and the consummation by the Lessee of the
transactions contemplated hereby: (i) have been duly authorized by all necessary
corporate action on the part of the Lessee, (ii) do not require any stockholder
approval or the consent of any trustee or holder of any indebtedness or
obligation of the Lessee (or, if so required, such approval or consent has been
obtained), (iii) do not and will not result in any material violation of any
term of any agreement, instrument, judgment, decree, franchise, permit, order,
law, statute, rule, or governmental regulation presently applicable to it, (iv)
is not in conflict with and does not constitute a default under any of the terms
or provisions of, or subject the leased Equipment or any part thereof to any
lien of, any indenture, mortgage, lease, contract, or other agreement or
instrument (other than this Lease) to which the Lessee is a party or by which it
or its property is bound or affected, and (v) does not and will not contravene
Lessee's articles of incorporation and by-laws.
(c) The execution, delivery, and performance by the Lessee of this
Lease and all related instruments and documents does not require any consent,
authorization, or approval of, any filing of or registration with, or other
action in respect to any federal, state, governmental authority or agency, or,
if so required, the same have been obtained.
(d) This Lease and all related instruments and documents have been
duly executed and delivered by the Lessee, and assuming the due authorization,
execution, and delivery by the other party thereto, constitute legal, valid, and
binding agreements the Lessee enforceable against the Lessee in accordance with
their terms.
(e) There are no pending actions or proceedings to which Lessee is a
party, and there are no other pending or threatened actions or proceedings of
which Lessee has knowledge, before any court, arbitrator, or administrative
agency, which either individually or in the aggregate, would materially
adversely affect the financial condition of Lessee, or the ability of Lessee to
perform its obligation hereunder. Further, Lessee is not in default under any
material obligations for the payment of borrowed money, for the deferred
purchase price of property or for the payment of any rent which, either
individually or in the aggregate, would have the same such effect.
7
<PAGE>
(f) Under the laws of the state(s) in which the Equipment is to be
located, the Equipment consists solely of personal property.
(g) The financial statements of Lessee (copies of which have been
furnished to Lessor) have been prepared in accordance with generally accepted
accounting principles consistently applied, and accurately and completely
present Lessee's financial condition and the results of its operations as of the
date of and for the period covered by such statements, and since the date of
such statements there has been no material adverse change in such conditions or
operations.
(h) The address stated on page one of this Lease is the chief place of
business and chief executive office of Lessee; and the Lessee does not conduct
business under a trade, assumed, or fictitious name.
26. FINANCE LEASE.
(a) Acknowledgment. The Lease is intended as a "Finance Lease" as that
term is defined in Section 2A103 of the UCC. Lessee acknowledges that Lessor
has not selected, manufactured or supplied the Equipment; that Lessor has
acquired the Equipment at the direction of the Lessee and solely for the purpose
of leasing the Equipment to the Lessee; and that (i) Lessee has selected the
supplier or vendor of the Equipment, (ii) as provided in paragraph 8, Lessee is
entitled to directly enforce against the supplier or vendor of the Equipment,
any and all warranties and promises made to the Lessor by the supplier or
vendor, and (iii) Lessee may communicate directly with the vendor or supplier to
obtain a complete and accurate statement of all such warranties or promises,
including any disclaimers or limitations thereof.
(b) Waiver of Certain of Lessee's Remedies. In recognition that this
is a Finance Lease and that the Lessor has not sold, selected or delivered the
Equipment to the Lessee and has made no warranties or representations in respect
thereto, to the extent permitted by applicable law, Lessee, for itself and for
its successors and assigns, hereby waives any and all rights or remedies
afforded a lessee by Sections 2A503 through 2A522 inclusive, of the UCC,
including, without limitation, Lessee's right to (i) cancel, terminate or
repudiate this Lease or any Schedules hereto; (ii) reject or revoke acceptance
of the Equipment; (iii) recover damages from Lessor for any breach of warranty
or representation in respect to the Equipment; (iv) assert any security interest
in the Equipment in Lessee's possession or control; (v) deduct, recoup or offset
of any claimed damages due to Lessor's default; (vi) accept partial delivery of
the Equipment or to "cover" by purchasing or leasing replacement equipment;
(vii) recover any general, incidental or consequential damages (including
without limitation, expenses and commissions in connection with the inspection,
receipt, caring for, storing, repair or disposal of any Equipment; or (viii)
assert a claim by way of replevin, detinue, sequestration, claim, delivery, or
the like, for an Equipment.
27. GOVERNING LAW AND CONSENT OF JURISDICTION. This Lease has been delivered and
accepted in the Commonwealth of Pennsylvania. The laws and decisions of said
Commonwealth (including, without limitation, as to the statute of limitations)
will govern and control the construction, enforceability, validity and
interpretation of this Lease, and of all agreements, instruments and documents,
heretofore, now or hereafter executed by Lessee and delivered to Lessor
pertaining or relating to this Lease or the transactions contemplated herein.
The parties agree that any action or proceeding arising out of or relating to
this Lease may be commenced in the Court of Common Pleas of Allegheny County,
Pennsylvania, or in the United States District Court for the Western District of
Pennsylvania and Lessee agrees that, in addition to any other manner of service
prescribed by law or rule of court, a summons and complaint commencing an
action or proceeding in either such Court shall be properly served upon Lessee
and shall confer personal jurisdiction if served personally or by United States
registered mail, return receipt requested, to the Lessee at the address
indicated on the first page of the Lease.
28. CONFLICT OF PROVISIONS. In the event of any conflict of provisions between
any Schedule and this document or between any Schedule and any other document,
the provisions of the Schedule shall control.
29. AMENDMENTS AND WAIVERS. This document, the Schedule(s), the Addendum(s),
Supplements(s) and the Acceptance(s) executed by Lessor and Lessee constitute
the entire agreement between Lessor and Lessee with respect to the Equipment and
the subject matter of this Lease. No term or provision of this Lease may be
changed, waived, amended or terminated except by a written agreement signed by
both Lessor and Lessee, except that Lessor may insert on the appropriate
Schedule the serial numbers of the Equipment after delivery thereof. No express
or implied waiver by Lessor of any Event of Default hereunder shall in any way
be, or be construed to be, a waiver of any future and/or subsequent Event of
Default whether similar in kind or otherwise.
30. NOTICES. Except as otherwise provided in paragraph 27 above, service of all
notices under this Lease shall be sufficient if given personally, sent via
facsimile with confirmation of receipt, sent via overnight courier, or sent
certified mail, return receipt requested, to the party involved at its
respective address set forth in the most recent Schedule relating hereto, or at
such address as such party may otherwise provide in writing from time to time.
Any such notice mailed to such address shall be effective when deposited in the
United States mail, duty addressed with first-class postage prepaid.
8
<PAGE>
31. MISCELLANEOUS.
(a) Whenever the context of this Lease requires, the neuter gender
includes the masculine and feminine, and the singular number includes the
plural. Whenever the word Lessor is used herein, it shall include all assignees
of Lessor. If there is more the one Lessee named in this Lease, the liability of
each shall be joint and several.
(b) The titles to the paragraphs of this Lease are solely for the
convenience of the parties, shall not be deemed to constitute a part hereof, and
are not an aid in the interpretation of the document.
(c) Time is of the essence in the performance of this Lease and each
and all of its provisions.
(d) If any provision of this Lease is held invalid or unenforceable,
the remaining provisions will not be affected thereby, and to this end, the
provisions of this Lease are declared severable.
(e) As used herein "Lessee," if there be more than one, shall mean all
Lessees, or each of them, and in such case they are jointly and severally bound.
32. SECURITY INTEREST. If the Lease is deemed at any time to be a lease intended
as security, Lessee hereby grants to the Lessor a security interest in the
Equipment to secure all sums due hereunder, as well as any other obligations or
sums due by Lessee to Lessor, whether now existing or hereafter contracted for
or hereafter arising.
WITNESS the due execution hereof with the intent to be legally bound.
ATTEST/WITNESS: THE JUDGE GROUP, INC. -- LESSEE
By: /s/ S. Rowdon By: /s/ Frank M. Barrett
------------------------------- ----------------------------------
Title: Admin. Asst. Title: CFO
---------------------------- -------------------------------
Accepted at Berwyn, Pennsylvania by:
PNC LEASING CORP - LESSOR
By:
--------------------------------
Title:
-----------------------------
<PAGE>
Cross Collateralization PNC LEASING CORP
Agreement PNCBANK
THIS CROSS COLLATERALIZATION AGREEMENT (this "Agreement") is made this 20th day
of April, 1999, by and among THE JUDGE GROUP, INC. (the "Grantor"), PNC BANK,
NATIONAL ASSOCIATION (the "Bank") and PNC LEASING CORP (the "Lessor").
WITNESSETH THAT:
WHEREAS, the Grantor and the Bank have entered into, or may hereafter
enter into, certain financing arrangements, as evidenced by one or more
promissory notes, loan agreements or other agreements, instruments and documents
(collectively, the "Loan Documents"); and
WHEREAS, the Grantor's obligations to the Bank under the Loan
Documents are secured by one or more mortgage liens, Uniform Commercial Code
security interests, pledges of personal property or other collateral security
arrangements in the Grantor's real or personal property, as set forth in the
Loan Documents (the "Loan Collateral"); and
WHEREAS, the Grantor and the Lessor have entered into, or may
hereafter enter into, one or more equipment leasing transactions pursuant to one
or more Lease Agreements, Equipment Schedules and related agreements,
instruments and documents (collectively, the "Lease Documents"); and
WHEREAS, the Grantor's obligations to the Lessor under the Lease
Documents are secured by the Lessor's ownership interest in, and by a Uniform
Commercial Code security interest granted by the Grantor to the Lessor in, the
equipment that is leased to the Grantor pursuant to the Lease Documents (the
"Lease Collateral"); and
WHEREAS the Bank and the Lessor are affiliates under the common
control of PNC Bank Corp; and
WHEREAS, the parties hereto desire to further secure all obligations
of the Grantor to both the Bank and the Lessor (collectively, the "Secured
Parties") with both the Loan Collateral and the Lease Collateral;
NOW, THEREFORE, in consideration of the mutual undertakings described
herein, and other good and valuable consideration, the receipt of which is
hereby acknowledged, and intending to be legally bound hereby, the parties
hereto covenant and agree as follows:
1. Security for Financing Arrangements. The obligations secured by the
Loan Collateral and by the Lease Collateral shall include all loans, advances,
debts, liabilities, obligations, covenants and duties owing by the Grantor to
the Bank or the Lessor (whether held jointly or severally), of any kind or
nature, present or future, whether or not evidenced by any note, guaranty, lease
or other instrument, whether arising under any agreement, instrument or
document, whether or not for the payment of monies, whether arising by reason of
an extension of credit, opening of a letter of credit, loan, guarantee, lease or
in any other manner, whether arising out of overdrafts on deposits or other
accounts or electronic funds transfers (whether through automatic clearing
houses or otherwise) or out of the non-receipt of or inability to collect funds
or otherwise not being made whole in connection with depository transfer check
or other similar arrangements, whether direct or indirect (including those
acquired by assignment or participation), absolute or contingent, joint or
several, due or to become due, now existing or hereafter arising, and any
amendments, extensions, renewals or increases and all costs and expenses of the
Bank or the Lessor incurred in the documentation, negotiation, modification,
enforcement, collection or otherwise in connection with any of the foregoing,
including reasonable attorney's fees and expenses (collectively, the
"Obligations").
2. Effect on Loan Documents and Lease Documents. This Agreement is
deemed incorporated into each of the Loan Documents and the Lease Documents. To
the extent that any term or provision of this Agreement is or may be deemed
expressly inconsistent with any term or provision in any Loan Document or any
Lease Document, the terms and provisions hereof shall control. The Grantor
hereby confirms and ratifies each of the liens, security interests, mortgages or
pledges granted in the Loan Collateral and the Lease Collateral, all of which
shall continue unimpaired and in full force and effect. Except as modified
hereby, the terms and provisions of the Loan Documents and the Lease Documents
remain unchanged and in full force and effect. Except as expressly provided
herein, this Agreement shall not constitute an amendment, waiver, consent or
release with respect to any provision of the Loan Documents or the Lease
Documents, a waiver of any default or Event of Default thereunder, or a waiver
or release of any of the Secured Parties' rights and remedies (all of which are
hereby reserved). The Grantor hereby ratifies and confirms the confession of
judgment and waiver of jury trial provisions (if applicable) contained in the
Loan Documents or the Lease Documents.
<PAGE>
3. Further Assurances. At any time and from time to time, upon demand
of either Secured Party, the Grantor will give, execute, file and record any
notice, financing statement, continuation statement, instrument, document or
agreement that such Secured Party may consider necessary or desirable to create,
preserve, continue, perfect or validate the cross-collateralized security
interests granted hereunder or to enable such Secured Party to exercise or
enforce its rights hereunder, under the Loan Documents or under the Lease
Documents with respect to such security interests.
4. Rights and Obligations Absolute. All rights of the Secured Parties
and the security interests hereunder and the obligations of the Grantor
hereunder and under the Loan Documents and the Lease Documents shall be absolute
and unconditional and will not be affected by any amendment, renewal, waiver of
or increase in the Obligations, any surrender, exchange, acceptance, compromise
or release by the Secured Parties of any other party, or any guarantee or any
security held by either of them for any of the Obligations, by any delay or
omission of the Secured Parties in exercising any right or power with respect to
any of the Obligations or any guarantee or collateral held by either of them for
any of the Obligations, by any failure of the Secured Parties to take any steps
to perfect or maintain their lien or security interest in or to preserve their
rights to any security or other collateral for any of the Obligations or any
guarantee, by any irregularity, unenforceability or invalidity of any of the
Obligations or any part thereof or any security or other guarantee thereof, or
by any other circumstance which might otherwise constitute a defense available
to or a discharge of the Grantor or a third party pledgor. Nothing herein shall
prevent or otherwise limit either Secured Party from exercising all remedies
otherwise permitted by applicable law or under the terms of the documents
evidencing the Obligations owed to such Secured Party.
5. Obligations of Secured Parties Regarding Enforcement of Remedies.
Either of the Secured Parties may exercise their remedies against the Loan
Collateral or the Lease Collateral at any time following the occurrence of an
Event of Default (as defined in any Loan Document or any Lease Document),
without the consent of the other Secured Party. All proceeds received upon any
exercise of remedies against the Loan Collateral shall be applied first to the
Obligations owed to the Bank under the Loan Documents and thereafter to the
Obligations owed to the Lessor under the Lease Documents. All proceeds received
upon any exercise of remedies against the Lease Collateral shall be applied
first to the Obligations owed to the Lessor under the Lease Documents and
thereafter to the Obligations owed to the Bank under the Loan Documents. Nothing
herein shall require either Secured Party to declare an Event of Default or to
enforce its remedies under the Loan Documents or the Lease Documents at any
time, but each Secured Party shall notify the other Secured Party when any such
action is taken. Neither of the Secured Parties shall be under any obligation to
marshall any assets in favor of the Grantor or any other person or entity or
against or in payment of any or all of the Obligations due the Secured Parties.
6. Repayments or Recovery from Secured Parties. If any demand is made
at any time upon either Secured Party for the repayment or recovery of any
amount received by it in payment or on account of any of the Obligations and if
such Secured Party repays all or any part of such amount by reason of any
judgment, decree or order of any court or administrative body or any settlement
or compromise of any such demand, then (a) the Grantor will be and remain liable
hereunder for the amount so repaid or recovered to the same extent as if such
amount had never been received originally by such Secured Party and (b) if one
Secured Party realized upon the Loan Collateral or the Lease Collateral and paid
over a portion of the proceeds to the other Secured Party in accordance with
Section 5 hereof, the Secured Party receiving such proceeds from the Secured
Party which originally received such proceeds shall restore to the Secured Party
which originally received such proceeds the amount required to be restored,
without interest. The provisions of this section will be and remain effective
notwithstanding any contrary action which may have been taken by the Grantor in
reliance upon such payment, and any such contrary action so taken will be
without prejudice to the Secured Parties' rights under this Agreement, the Loan
Documents and the Lease Documents, and will be deemed to have been conditioned
upon such payment having become final and irrevocable.
<PAGE>
7. Changes in Writing. No modification, amendment or waiver of any
provision of this Agreement nor consent to any departure by the Grantor
therefrom will be effective unless made in a writing signed by the Secured
Parties, and then such waiver or consent shall be effective only in the specific
instance and for the purpose for which given. No notice to or demand on the
Grantor in any case will entitle the Grantor to any other or further notice or
demand in the same, similar or other circumstance.
8. Entire Agreement. This Agreement (including the documents and
instruments referred to herein) constitutes the entire agreement and supersedes
all other prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter hereof.
9. Counterparts. This Agreement may be signed in any number of
counterpart copies and by the parties hereto on separate counterparts, but all
such copies shall constitute one and the same instrument.
10. Successors and Assigns. This Agreement will be binding upon and
inure to the benefit of the Grantor and the Secured Parties and their respective
heirs, executors, administrators, successors and assigns; provided, however,
that the Grantor may not assign this Agreement in whole or in part without the
Secured Parties' prior written consent and either Secured Party at any time may
assign this Agreement in whole or in part.
11. Interpretation. In this Agreement, unless the parties otherwise
agree in writing, the singular includes the plural and the plural the singular;
the word "or" shall be deemed to include "and/or", the words "including",
"includes" and "include" shall be deemed to be followed by the words "without
limitation"; references to sections or exhibits are to those of this
-2-
<PAGE>
Agreement unless otherwise indicated; and references to agreements and other
contractual instruments shall be deemed to include all subsequent amendments and
other modifications to such instruments, but only to the extent such amendments
and other modifications are not prohibited by the terms of this Agreement.
Section headings in this Agreement are included for convenience of reference
only and shall not constitute a part of this Agreement for any other purpose. If
this Agreement is executed by more than one party as the Grantor, the
obligations of such persons or entities will be joint and several.
WITNESS the due execution hereof as a document under seal, as of the date first
written above.
WITNESS/ATTEST: THE JUDGE GROUP, INC.
By: /s/ S. Rowdon By: /s/ Frank M. Barrett
------------------------------- -----------------------------------
Print Name: Admin. Asst. Print Name: Frank M. Barrett
------------------------ --------------------------
Title: CFO
--------------------------------
PNC BANK, NATIONAL ASSOCIATION
By:
-----------------------------------
(SEAL)
Print Name:
---------------------------
Title:
--------------------------------
PNC LEASING CORP
By:
-----------------------------------
(SEAL)
Print Name:
---------------------------
Title:
--------------------------------
-3-
<PAGE>
CONSENT OF GUARANTOR
The undersigned guarantor hereby consents to the provisions of the
foregoing Cross Collateralization Agreement and confirms and agrees that the
undersigned's obligations under the Guaranty and Suretyship Agreement dated
April 20, 1999 (the "Guaranty"), relating to some or all of the Obligations of
the Grantor mentioned in the foregoing Cross Collateralization Agreement shall
be unimpaired by the Cross Collateralization Agreement and that the undersigned
has no defenses or set offs against the Bank, the Lessor or their respective
officers, directors, employees, agents or attorneys with respect to the Guaranty
and that all of the terms, conditions and covenants in the Guaranty remain
unaltered and in full force and effect and are hereby ratified and confirmed.
The undersigned hereby certifies that the representations and warranties made in
the Guaranty are true and correct. The undersigned hereby ratifies and confirms
the confession of judgment and waiver of jury trial provisions (if applicable)
contained in the Guaranty.
WITNESS the due execution hereof as a document under seal, as of April 20, 1999,
intending to be legally bound hereby.
WITNESS/ATTEST: THE JUDGE GROUP, INC.
By: /s/ S. Rowdon By: /s/ Frank M. Barrett
------------------------------- -----------------------------------
(SEAL)
Print Name: Admin. Asst. Print Name: Frank M. Barrett
------------------------ --------------------------
Title: CFO
--------------------------------
-4-
<PAGE>
PNC LEASING CORP PNCBANK
Berwyn, Pennsylvania
<TABLE>
<CAPTION>
<S> <C> <C>
Schedule of Leased Equipment Schedule Number: 01447-001
(First Amendment Tax Lease) Master Lease Agreement No.: 1447
Master Lease Agreement Date: April 20, 1999
LESSEE: The Judge Group, Inc. SUPPLIER: The Judge Group, Inc.
Two Bala Plaza, Suite 405 Two Bala Plaza, Suite 405
Bala Cynwyd, PA 19004 Bala Cynwyd, PA 19004
</TABLE>
1. SCHEDULE. This Schedule of Lease Equipment ("Schedule") is hereby made a
part of the Lease referenced above between the undersigned Lessor and
between the undersigned Lessee. All terms and conditions of said Lease
are incorporated herein by reference.
2. EQUIPMENT. The Equipment which is subject to the Lease is described on
the supplement attached hereto and incorporated herein ("Supplement"),
and includes all cash and non-cash proceeds and products (including
without limitation insurance proceeds) of the Equipment, and all
additions and accessions thereto, substitutions therefor and replacements
thereto.
3. TITLE OF EQUIPMENT. At Lessee's request, Lessor has purchased the
Equipment as a buyer in the ordinary course of business for value. Title
to the Equipment leased hereunder shall remain with the Lessor at all
times. Lessee shall have no right, title or interest in or to the
Equipment except as expressly set forth in the Lease.
4. EQUIPMENT LOCATION. The Equipment shall be located at the address stated
in Supplement and shall not be removed without Lessor's prior written
consent.
5. INTERIM RENTAL TERM. The interim rental term of the Lease as respects the
Equipment described herein shall commence on the date of Lessor's first
advance of funds for the purchase of the Equipment and shall terminate on
the day before the commencement of the base lease term.
6. INTERIM RENT. Interim rent shall be calculated at the Bank's Prime Rate
of interest on the amount funded by Lessor from time to time, for the
number of days outstanding from each funding date until the lease
commencement date ("Interim Rent"), plus applicable taxes, if any.
Interim Rent shall be due and payable monthly during the interim rental
term, upon receipt by Lessee of Lessor's invoice therefor.
7. LEASE TERM. The base term of the Lease as respects the Equipment is set
forth in the Supplement.
8. RENT. The Lessee agrees to pay basic rent for the Equipment in the amount
and on the dates set forth in Supplement, plus applicable taxes, if any.
9. DEPRECIATION RECOVERY PERIOD. For purposes of Sections 168(e)(3) and
168(c) of the Code (as defined hereafter), the Equipment constitutes five
(5) year recovery property.
10. TAX INDEMNIFICATION.
(a) Tax Assumptions. This Lease has been entered into on the basis that
Lessor is entitled to such federal, state and local income tax
deductions, credits and other benefits (the "Tax Benefits") as are
provided to an owner of property including, without limitation: (A) the
Recovery Deductions (as defined herein); and (B) the interest deduction
under the Internal Revenue Code of 1986, as amended (the "Code") in the
full amount of any interest paid or accrued by Lessor, using Lessor's
method of tax accounting, for any indebtedness incurred by Lessor in
financing its purchase of the Equipment (the "Interest Deductions").
(b) Tax Representations. Lessee represents and warrants to Lessor (the
"Tax Representations") that: (A) for purposes of Sections 168(e)(3) and
168(c) of the Code, each Item of Equipment constitutes an asset described
in the "property class" and applicable recovery period" as designated
herein in paragraph 9; (B) the Lessor shall be entitled to claim federal,
state and local depreciation deductions (the "Recovery Deductions") which
are based upon, and will fully recover, the total cost of each Item of
Equipment, including, for federal income tax purposes, modified
accelerated cost recovery system deductions computed pursuant to Code
Section 168(b)(1)(A) and (B) and 168(e)(3) based upon 100% of Lessor's
original cost of each Item of Equipment; (C) each Item of Equipment is
not "limited use property" within the meaning of Revenue Procedure 76-30
Page 1 of 4
<PAGE>
1976-2 Cum. Bull. 647), and no improvements, changes, additions, or alterations
made by or at the request of Lessee will cause such Item of Equipment to be
"limited use property"; (D) this Lease, including any and all Schedules,
constitutes a "true lease" for federal, state and local income tax purposes and
Lessor will be the "true owner" of each Item of Equipment entitled to claim the
Recovery Deductions and other Tax Benefits anticipated by Lessor hereunder; (E)
each Item of Equipment is reasonably estimated to have an economic useful life
of at least 125% of the initial term of the Lease and have an economic value of
at least 20% of Lessor's original cost of the Item of Equipment at the
expiration of the lease term; (F) each Item of Equipment does not and will not
require any improvements, modifications, alterations or additions in order to
render it complete for its intended use by Lessee; (G) Lessor will not realize
any taxable income as a result of any improvements, modifications, alterations
or additions to the Equipment or any Item of Equipment made by anyone other than
Lessor; (H) all amounts includable in the gross income of Lessor with respect to
each Item of Equipment and all deductions allowable to Lessor with respect to
each Item of Equipment will be treated as derived from, or allocable to, sources
within the United States; and (I) Lessee will maintain sufficient records to
verify such use which records will be furnished to Lessor within 30 days after
receipt of a demand therefor.
(c) Tax Indemnity. If for any reason whatsoever, including, without limitation,
the falsehood or inaccuracy of any Tax Representation (excluding only a failure
of Lessor to claim properly or timely the Recovery Deductions or Interest
Deductions for the appropriate year, or the failure of Lessor to have sufficient
taxable income to benefit from the Recovery Deductions or Interest Deductions):
(A) Lessor shall lose, shall not have or shall lose the right to claim or there
shall be disallowed, eliminated, reduced, or recaptured with respect to Lessor,
for federal, state or local income tax purposes, all or any portion of the Tax
Benefits with respect to an Item of Equipment; or (B) the Lessor's anticipated
net after-tax economic and accounting yields and periodic net after-tax cash
flows over the term of the applicable Schedule (based upon the same assumptions
used by Lessor in originally evaluating the Lease and applicable Schedule at the
commencement of the term of the applicable Schedule) (the Lessor's "Anticipated
Economics") is adversely affected due to (1) any income or deductions with
respect to any Item of Equipment being treated as derived from, or allocable to,
sources without the United States, or (ii) enactments of new income tax
legislation or amendments and other changes to the Code or any other state or
local income tax law, including the promulgation of regulations and judicial or
administrative rulings with respect thereto; or (C) the Lessor shall be required
to include any amount in its taxable income as a result of any improvements,
modifications, alterations or additions to any Item of Equipment made by anyone
other than Lessor (an occurrence of an event under (A), (B) and/or (C) being
referred to individually or collectively as a "Loss"); then, at the option of
the Lessor, (x) the rent over the remainder of the term of the applicable
Schedule shall, on and after the next succeeding rent payment date, after
written notice to Lessee by Lessor that a Loss has occurred, be increased by
such amount which, in the sole opinion of Lessor, after deduction of all taxes
owed by Lessor to any governmental or taxing authority as a result of such
increase in rent, will cause Lessor's actual net after-tax economic and
accounting yields and periodic net after-tax cash flows over the term of the
applicable Schedule (the Lessor's "Actual Economics) to equal the Lessor's
Anticipated Economics that would have been available if such Loss had not
occurred, and Lessee shall forthwith pay to Lessor, on demand, an amount which,
after deduction of all taxes owed by Lessor to any governmental or taxing
authority as a result of the receipt of such amount, shall be equal to the
amount of any penalties, interest or additions to tax which may be assessed by
any governmental or taxing authority against Lessor attributable to the Loss, or
(y) after written notice to Lessee by Lessor that a Loss has occurred, Lessee
shall pay to Lessor, upon demand, in a lump sum, an amount which, after
deduction of all taxes owed to any governmental or taxing authority by Lessor as
a result of the receipt of such lump sum payment, will cause Lessor's Actual
Economics to be equal to the Lessor's Anticipated Economics that would have been
available if such Loss had not occurred plus an amount which, after deduction of
all taxes owed by Lessor to any governmental or taxing authority as a result of
the receipt of such amount, shall be equal to the amount of any penalties,
interest, or additions to tax which may be assessed by any governmental or
taxing authority against Lessor attributable to the Loss.
<PAGE>
(d) Calculations. All calculations of Lessor's Actual Economics with respect to
a Loss shall be determined on the basis of the assumption that Lessor will be
subject to federal, state and local corporate income tax rates at the maximum
statutory rate. Any written notice that any Loss has occurred pursuant to this
paragraph 10 shall be accompanied by a written statement from Lessor describing
in reasonable detail such Loss and the computations of the amounts payable,
either in a lump sum or revised rent payments as set forth above, which
computation shall be binding and conclusive upon Lessee, absent manifest error.
(e) Interest. Upon failure to pay any indemnification amount when due, by demand
or otherwise, such unpaid obligation shall bear interest at a per annum rate
equal to the prime rate of interest as announced, from time to time, by the
Bank.
(f) Consolidated Return. As used in this paragraph 10, the term "Lessor" shall
include any successor or assign of Lessor and any member of an affiliated group
of which Lessor is, or may become, a member if consolidated, joint or combined
returns are filed for such affiliated group for federal, state or local income
tax purposes.
(g) Survival. The indemnities and assumptions of liabilities and obligations
provided for in this paragraph 10 shall continue in full force and effect
notwithstanding the expiration or other termination of this Lease.
Page 2 of 4
<PAGE>
11. END OF TERM OPTIONS.
(a) Provided that no Event of Default will have occurred and is
continuing, on the expiration of the base lease term, at its option,
Lessee may purchase all of the Lessor's right, title and interest in and
to all, but not less than all of the Equipment described in this
Schedule. On the last day of the base lease term, the Lessee shall pay to
the Lessor an amount equal to the greater of (I) the fair market value of
the Equipment determined in accordance with the provisions of paragraph
11(b), or (ii) the percent of the Equipment Cost stated in the Supplement
hereto. In order to exercise its option, Lessee shall notify Lessor in
writing of its intention to exercise such option at least 180 days prior
to the expiration of the base lease term. Lessee will deliver to the
Lessor, on or before the expiration of the base lease term, an appraisal
of the Equipment as described in subparagraph 11(b), together with the
payment of the purchase price in immediately available funds. Thereupon,
the Lessor shall convey the Equipment to the Lessee on an as-is, where-is
basis without representation or warranty whatsoever, except that the
Equipment shall be conveyed free and clear of any liens or encumbrances
created due to or through the acts or omissions of the Lessor.
(b) As used in paragraph 11(a), "fair market value" of the Equipment
shall be the value of the Equipment as of the last day of the base term
of the Lease, as determined by an independent appraiser selected by the
Lessee and retained at Lessee's expense. The report of the appraiser
shall be in writing and delivered to the Lessor on or before the
expiration of the base lease term.
(c) In the event that the Lessee does not purchase the Equipment in
accordance with paragraph 11(a) above, then (I) Lessee shall continue to
pay rent for the remainder of the base lease term in the amount set forth
in the Supplement hereto, and (ii) this Schedule shall automatically be
extended for an additional term (the "Renewal Term") as stated in the
Supplement hereto, without further action on the part of the Lessor or
the Lessee. At the expiration of the Renewal Term and conditioned that no
Event of Default shall have occurred and be continuing, the Lessee may
either (i) purchase the Equipment at the fair market value as of the last
day of the Renewal Term as determined in accordance with paragraph 13
herein, or (ii) return the Equipment to the Lessor in accordance with
paragraph 12 herein.
12. RETURN OF EQUIPMENT. Lessee shall give Lessor written notice a minimum of
six (6) months prior to the expiration of this Lease of its intent to
return the Equipment. Upon the expiration or earlier termination of this
Lease, Lessee shall return each Item of Equipment, freight and insurance
prepaid, to Lessor (or Lessor's nominee) at a location designated by
Lessor. If requested by Lessor, Lessee will provide 180 days free storage
at the Equipment's location at the expiration of the term. During the
storage period, Lessee shall maintain the Equipment in operating
condition for the purpose of on-site inspections by prospective buyers
and shall keep the Equipment insured in accordance with paragraph 18 of
the Lease. The Equipment and all parts thereto shall be free and clear of
all liens (other than Lessor liens), and shall be free of all advertising
or insignia and residual materials, cleaned, painted, complete with no
missing components or attachments, and fully operational and able to
perform its described task effectively, without repair or overhaul,
within the original tolerances and specifications set by the
manufacturer. Any and all costs of dismantling, packing, and removing of
the Equipment shall also be paid by Lessee. If the Equipment is returned
in a condition other than that described, Lessor may commission an
independent appraiser, licensed professional engineer, or manufacturer
technical representative, obtained by Lessor at Lessee's cost and
expense, to determine the extent of costs to return the Equipment to the
condition required herein. Lessee shall promptly advance payment for all
necessary repairs. Lessee's obligations to pay for repairs shall be
reduced by any proceeds of insurance which Lessor has received due to the
damage to the Equipment. If Lessee fails to provide timely notice of
return or fails to return the Equipment at the end of the base lease term
or any renewal thereof to the designated location, and does not exercise
the renewal or purchase options provided for herein (if any), then this
Lease, at Lessor's option, will be deemed extended on a month-to-month
basis for a minimum renewal term of three (3) months, with rent due on
the first of each month at the rate applicable during the base lease or
renewal term just ended.
<PAGE>
13. FAIR MARKET VALUE AND ESTIMATED USEFUL LIFE. In all circumstances, except
where Lessee has elected to purchase the Equipment pursuant to paragraph
11(a), fair market value, fair market rental value and estimated useful
life of the Equipment shall be determined by an appraiser of recognized
standing selected by mutual agreement of the Lessor and Lessee. The
appraiser shall determine the fair market value of the Equipment on its
in place value without reduction or consideration of the cost of
dismantling, preparation for shipping or transportation of the Equipment.
The appraiser's decision shall be binding on the parties. If the Lessor
and Lessee are not able to agree on an appraiser, then each party shall
select an appraiser, and the two appraisers shall select a third
appraiser. The two appraisals which are closest in dollar amount and/or
estimated life, as the case may be, shall be averaged to determine the
fair market value or rental or the estimated useful life, as the case may
be, which determination shall be binding upon the parties. If Lessee has
given Lessor notice of Lessee's intentions to exercise its purchase or
renewal option, and the parties have obtained an appraisal of the
Equipment as provided for herein, Lessee shall be bound by the appraisal
and shall purchase the Equipment, or renew the Lease, as the case may be,
at the value determined by the appraisal. If Lessee fails or refuses to
cooperate in the appointment of an appraiser, the value determined by the
appraiser chosen by the Lessor shall be final and binding. The cost of
the appraisal(s) shall be borne by the Lessee.
Page 3 of 4
<PAGE>
14. MARKING OF EQUIPMENT. At Lessor's request, Lessee shall mark the
Equipment in a distinct and conspicuous manner with the name of the
Lessor followed by the words "Owner and Lessor" or other appropriate
words designated by Lessor. Lessee shall not alter, deface or remove any
of Lessor's ownership identification plates or markings on the Equipment
and, upon Lessor's request, Lessee shall affix or re-affix such
identification.
15. INSURANCE. In addition to the requirements contained in paragraph 18 of
the Lease, the following insurance requirements shall apply:
Liability Coverage:
(a) General liability including/comprehensive form:
premises/operations; products/completed operations; contractual
liability; independent contractors; broad form property damage;
personal injury; and collapse hazard.
(b) Bodily Injury and Property Damage Combined Single Limit Per
Occurrence: $1,000,000.00
(c) Fire-legal liability-custody, care or control, each occurrence:
$100,000.00
Property Coverage:
(a) All risk of physical loss; Equipment must be insured for at least
the total original cost.
16. COVENANTS. By executing and delivering to Lessor, the Lessee Acceptance
Certificate, Lessee warrants, covenants and agrees that (a) Lessee has
received all of the Equipment described in this Schedule at the location
described in paragraph 4 hereof; (b) Lessee has duly inspected and
accepts such Equipment without reservation; (c) Lessee is unconditionally
bound to pay to Lessor the total rent and other payments due under the
Lease, whether or not the Equipment described herein may now or hereafter
become unsatisfactory in any respect; and (d) notwithstanding anything
contained herein, Lessor and Lessee shall continue to have all rights
which either of them might otherwise have with respect to the Equipment
described herein against any manufacturer or seller of the Equipment or
any part thereof.
17. ADDITIONAL PROVISIONS. (a) This Supplement is incorporated herein by
reference; (b) Lessee grants Lessor the right to insert the Equipment
description and payment dates, amounts, and terms in the Supplement at
the time of commencement of the basic lease term.
WITNESS the due execution hereof with the intent to be legally bound this 20th
day of April, 1999.
Lessor: PNC LEASING CORP Lessee: THE JUDGE GROUP, INC.
By: By: /s/ Frank M. Barrett
-------------------------- --------------------------
Title: Title: CFO
------------------------ -----------------------
Page 4 of 4
<PAGE>
Exhibit 10.15
-------------
ASSET PURCHASE AGREEMENT
between
FILENET CORPORATION
as Purchaser
and
ON SITE SOLUTIONS, INC.
as Seller
Dated as of July 31, 1999
ASSET PURCHASE AGREEMENT, dated as of July 31, 1999 (as
hereafter amended, modified or supplemented, this "Agreement"), between FileNET
Corporation, a Delaware corporation ("Purchaser") and On Site Solutions, Inc., a
California corporation ("Seller").
WITNESSETH
----------
WHEREAS, Seller owns and operates a business which conducts
the activities described on Annex A hereto (the "Business"); and
WHEREAS, Seller desires to sell to Purchaser, and Purchaser
desires to purchase from Seller, certain assets relating to the Business and in
connection therewith Purchaser is willing to assume certain liabilities of
Seller relating thereto, all upon the terms and subject to the conditions set
forth herein;
NOW, THEREFORE, in consideration of the premises and the
mutual agreements and covenants hereinafter set forth, and intending to be
legally bound hereby, Purchaser and Seller hereby agree as follows:
Article 1. DEFINITIONS
.1 Certain Defined Terms. Unless the context otherwise requires, the
following terms, when used in this Agreement, shall have the respective meanings
specified below:
"Acquisition Documents" shall mean this Agreement, and any
certificate, Financial Statement, Interim Financial Statement, report or other
document delivered pursuant to this Agreement.
"Action" shall mean any claim, action, suit, arbitration,
inquiry, proceeding or investigation by or before any Governmental Authority.
"Affiliate" shall mean, with respect to any specified Person,
any other Person that directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with,
such specified Person.
"Assets" shall have the meaning specified in Section 2.01.
"Assumed Liabilities" shall have the meaning specified in
Section 2.02(a).
"Bill of Sale" shall mean the Bill of Sale, Assignment and
Assumption Agreement to be executed by Seller on the Closing Date substantially
in the form of Exhibit B.
"Business" shall have the meaning specified in the recitals to
this Agreement.
"Business Day" shall mean any day that is not a Saturday, a
Sunday or other day on which banks are required or authorized by Law to be
closed in The City of New York.
"Closing" shall have the meaning specified in Section 2.04.
"Closing Date" shall have the meaning specified in Section
2.04.
"Code" shall mean the Internal Revenue Code of 1986, as
amended through the date hereof.
"Control" (including the terms "controlled by" and "under
common control with"), with respect to the relationship between or among two or
more Persons, shall mean the possession, directly or indirectly or as trustee,
personal representative or executor, of the power to direct or cause the
direction of the affairs or management of a Person, whether through the
ownership of voting securities, as trustee, personal representative or
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<PAGE>
executor, by contract or otherwise, including, without limitation, the
ownership, directly or indirectly, of securities having the power to elect a
majority of the board of directors or similar body governing the affairs of such
Person.
"Disclosure Schedule" shall mean the Disclosure Schedules
attached hereto, dated as of the date hereof, and forming a part of this
Agreement.
"Equipment" shall have the meaning specified in Annex A.
"ERISA" shall have the meaning specified in Section 3.13(a).
"Excluded Liabilities" shall have the meaning specified in
Section 2.02(b).
"Financial Statements" shall have the meaning specified in
Section 3.04(a)(i).
"Governmental Authority" shall mean any national, federal,
state, municipal or local or other government, governmental, regulatory or
administrative authority, agency or commission or any court, tribunal, or
judicial or arbitral body.
"Governmental Order" shall mean any order, writ, judgment,
injunction, decree, stipulation, determination or award entered by or with any
Governmental Authority.
"Indemnified Party" shall have the meaning specified in
Section 8.04.
"Indemnifying Party" shall have the meaning specified in
Section 8.04.
"Independent Accounting Firm" shall mean Deloitte & Touche LLP.
"Intellectual Property" shall mean, with respect to the
Business (i) inventions, whether or not patentable, whether or not reduced to
practice, and whether or not yet made the subject of a pending patent
application or applications, (ii) national (including the United States) and
multinational statutory invention registrations, patents, patent registrations
and patent applications (including all reissues, divisions, continuations,
continuations-in-part, extensions and reexaminations) and all rights therein
provided by international treaties or conventions and all improvements to the
inventions disclosed in each such registration, patent or application, (iii)
trademarks, service marks, trade dress, logos, trade names and corporate names,
whether or not registered, including all common law rights, and registrations
and applications for registration thereof, (iv) copyrights (registered or
otherwise) and registrations, applications for registration and licenses
thereof, and all rights therein provided by international treaties or
conventions, (v) trade secrets and confidential, technical and business
information (including ideas, formulas, compositions, inventions, and
conceptions of inventions whether patentable or unpatentable and whether or not
reduced to practice), (vi) copies and tangible embodiments of all the foregoing,
in whatever form or medium, (vii) all rights to obtain and rights to apply for
patents, and to register trademarks and copyrights, and (viii) all rights to sue
or recover and retain damages and costs and attorneys' fees for present and past
infringement of any of the foregoing.
"IRS" shall mean the Internal Revenue Service of the United
States.
<PAGE>
"Law" shall mean any national, federal, state, municipal or
local or other statute, law, ordinance, regulation, rule, code, order, other
requirement or rule of law.
"Liabilities" shall mean any and all debts, liabilities and
obligations, whether accrued or fixed, absolute or contingent, matured or
unmatured or determined or determinable, including, without limitation, those
arising under any Law, Action or Governmental Order and those arising under any
contract, agreement, arrangement, commitment or undertaking.
"Licensed Intellectual Property" shall mean all Intellectual
Property licensed or sublicensed by Seller from a third party which can be used
by Purchaser after the Closing and which is listed on Disclosure Schedule 3.10.
"Loss" shall have the meaning specified in Section 8.02(a).
"Material Adverse Effect" shall mean any circumstance, change
in, or effect on, the Business that, individually or in the aggregate with any
other circumstances, changes in, or effects on, the Business (i) is, or would
reasonably be expected to be, materially adverse to the business, operations,
assets or liabilities (including, without limitation, contingent liabilities) or
the financial condition of the Business or (ii) would reasonably be expected to
materially adversely affect the ability of Purchaser to operate or conduct the
Business in the manner in which it is currently operated or conducted by Seller.
"Material Contracts" shall mean all contracts and agreements
identified on Disclosure Schedule 3.10.
2
<PAGE>
"Owned Intellectual Property" shall mean all Intellectual
Property in and to which Seller has a right to hold, right, title and interest
listed on Disclosure Schedule 2.01(A).
"Person" shall mean any individual, partnership, firm,
corporation, association, trust, unincorporated organization or other entity, as
well as any syndicate or group that would be deemed to be a person under Section
13(d)(3) of the Securities Exchange Act of 1934, as amended.
"Plans" shall have the meaning specified in Section 3.13.
"Purchase Price" shall have the meaning specified in Section
2.03.
"Purchaser" shall have the meaning specified in the recitals
to this Agreement.
"Receivables" shall mean any and all accounts receivable,
notes and other amounts receivable from third parties, including, without
limitation, customers and employees, arising from the conduct of the Business
before the Closing Date, whether or not in the ordinary course, together with
any unpaid financing charges accrued thereon.
"Reference Balance Sheet" shall have the meaning specified in
Section 3.04(a)(ii).
"Reference Balance Sheet Date" shall mean July 31, 1999.
"Regulations" shall mean the Treasury Regulations (including
Temporary Regulations) promulgated by the United States Department of Treasury
with respect to the Code or other federal tax statutes.
"Seller" shall have the meaning specified in the recitals to
this Agreement.
"Tax" or "Taxes" shall mean any and all taxes, fees, levies,
duties, tariffs, imposts and other charges of any kind (together with any and
all interest, penalties, loss, damage, liability, expense, additions to tax and
additional amounts or costs incurred or imposed with respect thereto) imposed by
any government or taxing authority, to the extent Purchaser may be held liable
for any such amount or to the extent any such amount constitutes a lien on the
Assets or the Business.
"Third Party Claims" shall have the meaning specified in
Section 8.04(b).
"Threshold Amount" shall have the meaning specified in Section
8.02(b).
"Transferred Employee" shall have the meaning specified in
Section 6.01.
"U.S. GAAP" shall mean United States generally accepted
accounting principles and practices in effect from time to time applied
consistently throughout the periods involved.
<PAGE>
Article 2. PURCHASE AND SALE
.1 Assets to Be Sold. On the terms and subject to the conditions of
this Agreement, Seller shall, on the Closing Date, sell, convey and assign to
Purchaser, free and clear of all claims, liens and interests except as is
provided for herein, all of Seller's right, title and interest in and to the
Assets set forth on Disclosure Schedule 2.01 and no other assets, other than
those listed on Disclosure Schedule 2.01 ("Assets").
.2 Assumption and Exclusion of Liabilities.
(a) On the terms and subject to the conditions of this
Agreement, Purchaser shall, on the Closing Date, assume the following
liabilities and obligations arising out of ownership, use and operation of the
Business after the Closing Date (the "Assumed Liabilities") set forth on
Disclosure Schedule 2.02(a).
(b) Seller shall retain, and shall be responsible for paying,
performing and discharging when due, and Purchaser shall not assume or have any
responsibility for any liabilities and obligations other than the Assumed
Liabilities (the "Excluded Liabilities") whether or not the Excluded Liabilities
relate to the Business.
.3 Purchase Price. (a) The aggregate purchase price for the Assets
and Assumed Liabilities shall be $420,000 (the "Purchase Price") to be paid in
cash paid by wire transfer from Purchaser to Seller on the Closing Date.
.4 Closing. Subject to the terms and conditions of this Agreement,
the sale and purchase of the Assets and the assumption of the Assumed
Liabilities contemplated by this Agreement shall take place at a closing (the
"Closing") to be held at the offices of FileNET Corporation, 3565 Harbor
Boulevard, Costa Mesa, CA 92626 at 10:00 A.M. California time on August ___,
1999, or at such other place or at such other time or on such other date as
Seller and Purchaser may mutually agree upon in writing (the day on which the
Closing takes place being the "Closing Date").
.5 Closing Deliveries by Seller. At the Closing, Seller shall deliver
or cause to be delivered to Purchaser:
3
<PAGE>
(a) the Bill of Sale substantially in the form of Exhibit A,
and such other instruments, in form and substance satisfactory to Purchaser, as
may be reasonably requested by Purchaser to transfer the Assets to Purchaser or
evidence such transfer on the public records;
(b) Assignment Letters substantially in the form of Exhibit E;
(c) a receipt for the Purchase Price; and
(d) the opinions, certificates and other documents required to
be delivered pursuant to Section 7.01.
.6 Closing Deliveries by Purchaser. At the Closing, Purchaser shall
deliver to Seller:
(a) the net amount equal to $420,000 less cash receipts plus
cash disbursements from July 31, 1999 by wire transfer in immediately available
funds;
(b) Assignment and Assumption Agreement substantially in the
form of Exhibit B;
(c) the opinions, certificates and other documents required to
be delivered pursuant to Section 7.02;
(d) copy of Form 3 filing receipt; and
(e) post-Closing payment.
.7 Effective Date. Notwithstanding anything contained in this
Agreement to the contrary, for accounting purposes, the purchase and sale of the
Assets and the assignment and assumption of the Assumed Liabilities pursuant to
this Agreement shall be deemed to be effective as of the close of business on
July 31, 1999. Any cash received by Seller after July 31, 1999 in payment of
receivables or otherwise related to the Assets shall be paid to Purchaser at the
Closing. Purchaser shall be responsible for all liabilities incurred in the
ordinary course of business of Seller after July 31, 1999, including payroll and
employee benefit expenses.
Article 3. REPRESENTATIONS AND WARRANTIESOF SELLER
As an inducement to Purchaser to enter into this Agreement,
Seller hereby represents and warrants to Purchaser as of the Closing Date, as
follows:
.1 Organization, Authority and Qualification of Seller. Seller is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California and has all necessary corporate power and authority
to enter into the Acquisition Documents, to carry out its obligations hereunder
and thereunder and to consummate the transactions contemplated hereby and
thereby. Seller is duly licensed or qualified to do business and is in good
standing in each jurisdiction in which the properties owned or leased by it or
the operation of its business makes such licensing or qualification necessary.
The execution and delivery of this Agreement and the Ancillary Agreements by
Seller, the performance by Seller of its obligations hereunder and thereunder
and the consummation by Seller of the transactions contemplated hereby and
thereby have been duly authorized by all requisite action on the part of Seller
and its shareholders. This Agreement has been, and upon their execution the
Ancillary Agreements will be, duly executed and delivered by Seller, and
(assuming due authorization, execution and delivery by Purchaser) this Agreement
constitutes, and upon their execution the Ancillary Agreements will constitute,
legal, valid and binding obligations of Seller enforceable against Seller in
accordance with their respective terms.
.2 No Conflict. The execution, delivery and performance of this
Agreement by Seller does not and will not (a) violate, conflict with or result
in the breach of any provision of the charter or by-laws (or similar
organizational documents) of Seller, (b) conflict with or violate (or cause an
event which could have a Material Adverse Effect as a result of) any Law or
Governmental Order applicable to Seller or any of its assets, properties or
businesses, including, without limitation, the Assets and the Business, or (c)
except as set forth in Disclosure Schedule 3.02, conflict with, result in any
breach of, constitute a default (or event which with the giving of notice or
lapse of time, or both, would become a default) under, require any consent
under, or give to others any rights of termination, amendment, acceleration,
suspension, revocation or cancellation of, or result in the creation of any
encumbrance on any of the Assets pursuant to, any note, bond, mortgage or
indenture, contract, agreement, lease, sublease, license, permit, franchise or
other instrument or arrangement to which Seller is a party or by which any of
such Assets is bound or affected and which is included in the Assets.
4
<PAGE>
.3 Governmental Consents and Approvals. The execution, delivery and
performance of this Agreement by Seller do not and will not require any consent,
approval, authorization or other order of, action by, filing with or
notification to, any Governmental Authority, except as described in Disclosure
Schedule 3.03.
.4 Financial Information; Books and Records.
(a) (i) Disclosure Schedule 3.04(a)(i) sets forth true and
complete copies of the unaudited balance sheet of Seller for the fiscal year
ended as of December 31, 1998 of the Business, and the related statements of
income (collectively, the "Financial Statements") and (ii) Disclosure Schedule
3.04(a)(ii) sets forth true and complete copies of the unaudited balance sheet
of the Business as of July 31, 1999 (the "Reference Balance Sheet") has been
delivered by Seller to Purchaser. The Financial Statements and the Reference
Balance Sheet (i) were prepared in accordance with the books of account and
other financial records of Seller, (ii) present fairly the financial condition
and results of operations of Seller related to the Business as of the dates
thereof or for the periods covered thereby, (iii) have been prepared in
accordance with U.S. GAAP applied on a basis consistent with the past practices
of Seller and throughout the periods involved, and (iv) will include all
adjustments (consisting only of normal recurring accruals) that are necessary
for a fair presentation of the financial condition of Seller related to the
Business and the results of the operations of Seller related to the Business as
of the dates thereof for the periods covered thereby other than customary
year-end adjustments.
(b) The books of account and other financial records of Seller
as they relate to the Business: (i) reflect all items of income and expense and
all assets and Liabilities required to be reflected therein in accordance with
U.S. GAAP applied on a basis consistent with the past practices of Seller and
throughout the periods involved, (ii) are in all material respects complete and
correct, and do not contain or reflect any material inaccuracies or
discrepancies, and (iii) have been maintained in accordance with good business
and accounting practices.
.5 No Undisclosed Liabilities. There are no Liabilities of Seller
related to the Business other than Liabilities (i) reflected or reserved against
on the Reference Balance Sheet, (ii) disclosed in Disclosure Schedule 3.05,
(iii) incurred since the Reference Balance Sheet Date in the ordinary course of
business, consistent with past practice, of Seller related to the Business (iv)
of a type that U.S. GAAP does not require to be reported on a balance sheet; or
(v) which do not and could not have a Material Adverse Effect. Reserves are
reflected on the Reference Balance Sheet against all Liabilities of Seller
related to the Business, other than Liabilities relating to the Excluded
Liabilities, in amounts that have been established on a basis consistent with
the past practices of Seller related to the Business and in accordance with U.S.
GAAP.
.6 Receivables. Except to the extent, if any, reserved for on the
Reference Balance Sheet, all Receivables reflected on the Reference Balance
Sheet related to the Assets arose from, and the Receivables existing on the
Closing Date related to the Assets will have arisen from, the sale of Inventory
or services to Persons not affiliated with Seller and in the ordinary course of
the Business consistent with past practice and, except as reserved against on
the Reference Balance Sheet, constitute or will constitute, as the case may be,
only valid, undisputed claims of Seller which are not subject to set-off or
other defenses or counterclaims other than in the ordinary course of the
Business consistent with past practice.
.7 Conduct in the Ordinary Course; Absence of Certain Changes, Events
and Conditions. Since the Reference Balance Sheet Date, except as disclosed in
Disclosure Schedule 3.07, the Business has been conducted in the ordinary course
and consistent with past practice. Since the Reference Balance Sheet date,
Seller has not permitted or suffered any liens or encumbrances on the Assets,
made any unusual payments, purchases, transactions, capital expenditures or
agreements. As amplification and not limitation of the foregoing, since the
Reference Balance Sheet Date, Seller has not:
(i) written down or written up (or failed to write down in
accordance with U.S. GAAP consistent with past practice) the value of any
Receivables or revalued any assets of Seller related to the Business other than
in the ordinary course of business consistent with past practice and in
accordance with U.S. GAAP;
(ii) (A) granted any increase, or announced any increase, in
the wages, salaries, compensation, bonuses, incentives, pension or other
benefits payable by Seller related to the Business to any of its employees,
including, without limitation, any increase or change pursuant to any Plan, or
(B) established or increased or promised to increase any benefits under any
Plan, in either case except as required by Law or any
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collective bargaining agreement and involving ordinary increases consistent with
the past practice of Seller related to the Business; or
(iii) suffered any Material Adverse Effect related to the
Business.
.8 Litigation. Except as set forth in Disclosure Schedule 3.08,
there are no Actions by or against Seller affecting any of the Assets pending
before any Governmental Authority (or, to the best knowledge of Seller after due
inquiry, threatened to be brought by or before any Governmental Authority).
Except as set forth in Disclosure Schedule 3.08, neither Seller nor the Assets,
is subject to any Governmental Order (nor, to the best knowledge of Seller after
due inquiry, are there any such Governmental Orders threatened to be imposed by
any Governmental Authority).
.9 Compliance with Laws. To the best of Seller's knowledge, it has
conducted and continues to conduct the Business in accordance with all Laws and
Governmental Orders applicable to Seller or the Assets and the Business, and
Seller is not in violation of any such Law or Governmental Order, except where
such noncompliance or violation would not reasonably be expected to have a
Material Adverse Effect.
.10 Material Contracts.
(a) Except as disclosed in Disclosure Schedule 3.10(a), each
Material Contract: (i) is legal, valid and binding on the respective parties
thereto and is in full force and effect, (ii) is freely and fully assignable to
Purchaser without penalty or other adverse consequences, (iii) upon consummation
of the transactions contemplated by this Agreement, shall continue in full force
and effect without penalty or other adverse consequence. Seller is not, in any
material respect, in breach of, or default under, any Material Contract; and
(iv) has products and services of Seller which are Year 2000 compliant.
(b) Except as disclosed in Disclosure Schedule 3.10(b), no
other party to any Material Contract is, in any material respect, in breach
thereof or default thereunder.
.11 Intellectual Property. The rights of Seller in or to the Owned
Intellectual Property and Licensed Intellectual Property do not conflict with or
infringe on the rights of any other Person, and Seller has not received any
claim or written notice from any Person to such effect.
(a) Except as disclosed in Disclosure Schedule 3.11(a):
(i) all the Owned Intellectual Property is owned by Seller, free and clear of
any encumbrance and (ii) no Actions have been made or asserted or are pending
(nor, to the best knowledge of Seller has any such Action been threatened)
against Seller either (A) based upon or challenging or seeking to deny or
restrict the use by Seller of any of the Owned Intellectual Property or (B)
alleging that any services provided, or software licensed or sold by Seller are
being provided, licensed or sold in violation of any patents or trademarks, or
any other rights of any Person. To the best knowledge of Seller, no Person is
using any patents, copyrights, trademarks, service marks, trade names, trade
secrets or similar property that are confusingly similar to the Owned
Intellectual Property or that infringe upon the Owned Intellectual Property or
upon the rights of Seller therein.
(b) Except as disclosed in Disclosure Schedule 3.11(b):
(i) no Actions have been made or asserted or are pending (nor, to the knowledge
of Seller has any such Action been threatened) against Seller either (A) based
upon or challenging or seeking to deny or restrict the use by Seller of any of
the Licensed Intellectual Property or (B) alleging that any Licensed
Intellectual Property is being licensed, sublicensed or used in violation of any
patents or trademarks, or any other rights of any Person; and (ii) to the best
knowledge of Seller, no Person is using any patents, copyrights, trademarks,
service marks, trade names, trade secrets or similar property that are
confusingly similar to the Licensed Intellectual Property or that infringe upon
the Licensed Intellectual Property or upon the rights of Seller therein.
.12 Assets. Except as disclosed in Disclosure Schedule 3.12, Seller
owns, leases or has the legal right to use all the Assets and has good and
marketable title to, all the Assets, free and clear of all encumbrances.
(a) Except as set forth in Sections 3.10(b), 3.11(b), 3.12 of
the Disclosure Schedule, Seller has the complete and unrestricted power and
unqualified right to sell, assign, transfer, convey and deliver the Assets to
Purchaser without penalty or other adverse consequences.
.13 Employee Benefit Matters. Plans and Material Documents.
Disclosure Schedule 3.13 lists all employee benefit plans (as defined in Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) and all bonus, stock option, stock purchase, restricted stock,
incentive, deferred
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compensation, retiree medical or life insurance, supplemental retirement,
severance or other benefit plans, programs or arrangements, and all employment,
termination, severance or other contracts or agreements, whether legally
enforceable or not, to which Seller is a party with respect to the Business,
with respect to which Seller has any obligation or which are maintained,
contributed to or sponsored by Seller for the benefit of any current employee,
officer or director of Seller with respect to the Business (collectively,
"Plans").
(a) Absence of Certain Liabilities and Events. There has been
no prohibited transaction (within the meaning of Section 406 of ERISA or Section
4975 of the Code) with respect to any Plan. Seller has not incurred any
liability for any excise tax arising under Section 4971, 4972, 4980 or 4980B of
the Code and to the best of Seller's knowledge no fact or event exists which
could give rise to any such liability. Seller has not incurred any liability
under, arising out of or by operation of Title IV of ERISA (other than liability
for premiums to the Pension Benefit Guaranty Corporation arising in the ordinary
course), including, without limitation, any liability in connection with (i) the
termination or reorganization of any employee benefit plan subject to Title IV
of ERISA, or (ii) the withdrawal from any Multiemployer Plan or Multiple
Employer Plan, and no fact or event exists which could give rise to any such
liability. No complete or partial termination has occurred within the five years
preceding the date hereof with respect to any Plan. No reportable event (within
the meaning of Section 4043 of ERISA) has occurred or is expected to occur with
respect to any Plan subject to Title IV of ERISA. No Plan had an accumulated
funding deficiency (within the meaning of Section 302 of ERISA or Section 412 of
the Code), whether or not waived, as of the most recently ended plan year of
such Plan.
.14 Labor Matters. Except as set forth in Disclosure Schedule 3.14,
(a) Seller is not a party to any collective bargaining agreement or other labor
union contract applicable to persons employed by Seller with respect to the
Business, and currently there are no organizational campaigns, petitions or
other unionization activities known to Seller seeking recognition of a
collective bargaining unit at the Business; (b) there are no controversies,
strikes, slowdowns or work stoppages pending or, to the best knowledge of
Seller, threatened between Seller and any group of employees of the Business,
and Seller has not experienced any such controversy, strike, slowdown or work
stoppage within the past three years; (c) Seller has not breached or otherwise
failed to comply with the provisions of any collective bargaining or union
contract with respect to the Business and there are no grievances outstanding
against Seller under any such agreement or contract; (d) there are no unfair
labor practice complaints pending against Seller with respect to the Business
before the National Labor Relations Board or any other Governmental Authority or
any current union representation questions involving employees of the Business;
(e) Seller is currently in compliance in all material respects with all
applicable Laws relating to the employment of labor, including those related to
wages, hours, collective bargaining, employee benefits and the payment and
withholding of taxes and other sums as required by the appropriate Governmental
Authority with respect to the Business and has withheld and paid to the
appropriate Governmental Authority or is holding for payment not yet due to such
Governmental Authority all amounts required to be withheld from employees of the
Business and is not liable for any arrears of wages, taxes, penalties or other
sums for failure to comply with any of the foregoing; (f) Seller has paid in
full to all employees of the Business or adequately accrued for in accordance
with U.S. GAAP consistently applied all wages, salaries, commissions, bonuses,
benefits and other compensation due to or on behalf of such employees; (g) there
is no claim with respect to payment of wages, salary or overtime pay that has
been asserted or is now pending or threatened before any Governmental Authority
with respect to any Persons currently or formerly employed by Seller in the
Business; (h) Seller is not a party to, or otherwise bound by, any consent
decree with, or citation by, any Governmental Authority relating to employees or
employment practices with respect to the Business; (i) there is no charge or
proceeding with respect to a violation of any occupational safety or health
standards that has been asserted or is now pending or threatened with respect to
the Business; and (j) there is no charge of discrimination in employment or
employment practices, for any reason, including, without limitation, age,
gender, race, religion or other legally protected category, which has been
asserted or is now pending or threatened before the United States Equal
Employment Opportunity Commission, or any other Governmental Authority in any
jurisdiction in which Seller has employed or currently employs any Person with
respect to the Business.
.15 Insurance. All material assets, properties and risks of the
Business are covered by valid and, except for policies that have expired under
their terms in the ordinary course, currently effective insurance policies or
binders of insurance (including, without limitation, general liability
insurance, property insurance and workers'
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compensation insurance) issued in favor of Seller, in each case with responsible
insurance companies, in such types and amounts and covering such risks as are
consistent with customary practices and standards of companies engaged in
businesses and operations similar to those of Seller with respect to the
Business.
(a) At no time subsequent to December 31, 1998 has Seller
(i) been denied any insurance which it has requested with respect to either the
Assets or the Business, (ii) made any material reduction in the scope or amount
of its insurance coverage with respect to either the Assets or the Business, or
received notice from any of its insurance carriers that any insurance premiums
will be subject to increase in an amount materially disproportionate to the
amount of the increases with respect thereto (or with respect to similar
insurance) in prior years or that any insurance coverage listed in Disclosure
Schedule 3.15(a) will not be available in the future substantially on the same
terms as are now in effect or (iii) suffered any extraordinary increase in
premium for renewed coverage with respect to either the Assets or the Business.
Since December 31, 1998, no insurance carrier has cancelled, failed to renew or
materially reduced any insurance coverage for Seller with respect to either the
Assets or the Business or given any notice or other indication of its intention
to cancel, not renew or reduce any such coverage with respect to either the
Assets or the Business.
.16 Full Disclosure. No representation or warranty of Seller in this
Agreement, nor any statement or certificate furnished or to be furnished prior
to or at the Closing to Purchaser pursuant to this Agreement contains or will
contain any untrue statement of a material fact, or omits or will omit to state
a material fact necessary to make the statements contained herein or therein not
misleading.
.17 Brokers. No broker, finder or investment banker is entitled to
any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Seller.
.18 Vote Required. The affirmative vote of Seller is the only vote
necessary to approve this Agreement and the transactions contemplated hereby.
Seller has approved this Agreement and the transactions contemplated hereby.
Article 4. REPRESENTATIONS AND WARRANTIES OF PURCHASER
As an inducement to Seller to enter into this Agreement,
Purchaser hereby represents and warrants to Seller as follows:
.1 Organization and Authority of Purchaser. Purchaser is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California and has all necessary corporate power and authority
to enter into this Agreement, to carry out its obligations hereunder and
thereunder and to consummate the transactions contemplated hereby and thereby.
The execution and delivery of this Agreement by Purchaser, the performance by
Purchaser of its obligations hereunder and thereunder and the consummation by
Purchaser of the transactions contemplated hereby and thereby have been duly
authorized by all requisite action on the part of Purchaser. This Agreement has
been duly executed and delivered by Purchaser, and (assuming due authorization,
execution and delivery by Seller) this Agreement constitutes legal, valid and
binding obligations of Purchaser, enforceable against Purchaser in accordance
with their respective terms.
.2 No Conflict. Assuming the making and obtaining of all filings,
notifications, consents, approvals, authorizations and other actions referred to
in Section 4.03, except as may result from any facts or circumstances relating
solely to Seller, the execution, delivery and performance of this Agreement by
Purchaser, do not and will not (a) violate, conflict with or result in the
breach of any provision of the Articles of Incorporation or by-laws (or other
organizational documents) of Purchaser; or (b) conflict with or violate any Law
or Governmental Order applicable to Purchaser.
.3 Governmental Consents and Approvals. The execution, delivery and
performance of this Agreement to which it is a party by Purchaser do not and
will not require any consent, approval, authorization or other order of, action
by, filing with, or notification to, any Governmental Authority.
.4 Other Actions. There are no actions, proceedings or
investigations pending or, to the knowledge of Purchaser, threatened, that
question any of the transactions contemplated by, or the validity of, this
Agreement or which, if adversely determined, could reasonably be expected to
have a material adverse effect upon the ability of Purchaser or Seller to enter
into or perform its respective obligations under this Agreement. Purchaser has
not, on
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behalf of itself or Seller, received any request from any governmental agency or
instrumentality for information with respect to the transactions contemplated
hereby.
.5 Brokers. No broker, finder or investment banker except Alliant
Partners is entitled to any brokerage, finder's or other fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Purchaser.
Article 5. ADDITIONAL AGREEMENTS
.1 Retention of Records by Purchaser. In order (a) to facilitate the
resolution of any claims made against or incurred by Seller prior to the
Closing, for a period ending on the close of business on the 120th day following
the expiration of the applicable statute of limitations with respect to Tax
liabilities, Purchaser shall (i) retain the books and records of Seller which
are transferred to Purchaser pursuant to this Agreement relating to periods
prior to the Closing in a manner reasonably consistent with the prior practices
of Seller, and (ii) upon reasonable notice, afford the officers, employees and
authorized agents and representatives of Seller reasonable access (including the
right to make photocopies at Purchaser's expense), during normal business hours,
to such books and records.
.2 Retention of Records by Seller. In order (a) to facilitate the
resolution of any claims made by or against or incurred by Purchaser after the
Closing or for any other reasonable purpose, for a period ending on the close of
business on the 120th day following the expiration of the applicable statute of
limitations with respect to Tax liabilities, Seller shall (i) retain all books
and records of Seller which are not transferred to Purchaser pursuant to this
Agreement and which relate to Seller, its operations or the Business for periods
prior to the Closing and which shall not otherwise have been delivered to
Purchaser, and (ii) upon reasonable notice, afford the officers, employees and
authorized agents and representatives of Purchaser reasonable access (including
the right to make photocopies at Purchaser's expense), during normal business
hours, to such books and records.
.3 Confidentiality. The parties acknowledge that Purchaser and Seller
have previously executed the Confidentiality Agreement, which Confidentiality
Agreement shall continue in full force and effect in accordance with its terms.
.4 Regulatory and Other Authorizations; Notices and Consents.
(a) Seller shall use commercially reasonable efforts to obtain all
authorizations, consents, orders and approvals of all Governmental Authorities
and officials, customers, vendors and other parties who may have or be able to
assert legal rights with respect to this transaction that may be or become
necessary for execution and delivery of this Agreement, and the performance of
Seller's obligations pursuant to this Agreement and will cooperate fully with
Purchaser in promptly seeking to obtain all such authorizations, consents,
orders and approvals.
.5 Notice of Developments. Prior to the Closing, Seller shall
promptly notify Purchaser in writing of (a) all events, circumstances, facts and
occurrences arising subsequent to July 31, 1999 which could have a Material
Adverse Effect on the Business, and (b) all other material developments
affecting the Assets, Liabilities, business, financial condition, operations,
results of operations, customer relations, employee relations or projections of
the Business.
.7 Section 5.06 Use of Intellectual Property. Except as set forth in
Section 5.09, from and after the Closing, Seller shall not use any of the Owned
Intellectual Property or the Licensed Intellectual Property.
.12 Section 5.07 Bulk Transfer Laws. Seller shall not be required to
comply with any applicable bulk sale or bulk transfer laws of any jurisdiction
in connection with the sale of the Assets to Purchaser, which are waived by
Purchaser.
Section 5.08 Further Action. Each of the parties hereto shall use all
reasonable efforts to take, or cause to be taken, all appropriate action, do or
cause to be done all things necessary, proper or advisable under applicable
Laws, including obtaining any necessary consents or approvals from, or making
any necessary filings with any domestic or foreign regulatory agencies, and
execute and deliver such documents and other papers, as may be required to carry
out the provisions of this Agreement and consummate and make effective the
transactions contemplated by this Agreement.
Section 5.09 Use of Software. Notwithstanding anything contained in
this Agreement to the contrary, Seller shall retain, following the Closing, the
right to use the software described on Annex B hereto, including source codes,
in connection with the performance of its obligations under maintenance
agreements with existing
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customers. Seller shall also have the right to allow its former affiliates to
use and exploit the software described on Annex B hereto, including source
codes, in connection with the performance of their obligations under maintenance
agreements with existing customers. All title and ownership rights in and to the
software described on Annex B shall remain vested in Purchaser.
Article 6. EMPLOYEE MATTERS
.1 Offer of Employment. Disclosure Schedule 6.01 contains a true and
complete list of all employees of the Business as of the date hereof and sets
forth their position, current salary and status. As of the Closing Date,
Purchaser shall offer employment to certain current employees of the Business.
Each employee who accepts such offers of employment effective as of the Closing
Date shall be referred to herein as a "Transferred Employees."
.2 Accrued Wages, Salaries and Vacation; Benefits. Seller shall pay
to each Transferred Employee all wages, salaries and compensation for accrued
vacation, insurance benefits and COBRA premiums, if applicable, earned by him or
her prior to the Closing Date. Seller shall retain all liability under, and
responsibility for, the Plan listed (or required to be listed) in Disclosure
Schedule 3.13 and Buyer shall have no obligation under or with respect to any
such plan or arrangement.
Article 7. CONDITIONS TO CLOSING
.1 Conditions to Obligations of Seller. The obligations of Seller to
consummate the transactions contemplated by this Agreement shall be subject to
the fulfillment, at or prior to the Closing, of each of the following
conditions:
(a) Representations, Warranties and Covenants. The
representations and warranties of Purchaser contained in this Agreement shall be
true and correct in all material respects as of the Closing, other than such
representations and warranties as are made as of another date, the covenants and
agreements contained in this Agreement to be complied with by Purchaser on or
before the Closing shall have been complied with in all material respects, and
Seller shall have received a certificate from Purchaser to such effect signed by
a duly authorized officer thereof; and
(b) No Proceeding or Litigation. No Action shall have been
commenced or threatened by or before any Governmental Authority against either
Seller or Purchaser, seeking to restrain or materially and adversely alter the
transactions contemplated hereby which in the reasonable, good faith
determination of Seller is likely to render it impossible or unlawful to
consummate the transactions contemplated by this Agreement; provided, however,
that the provisions of this Section 7.02(b) shall not apply if Seller has
solicited or encouraged any such Action.
.2 Conditions to Obligations of Purchaser. The obligations of
Purchaser to consummate the transactions contemplated by this Agreement shall be
subject to the fulfillment, at or prior to the Closing, of each of the following
conditions:
(a) Representations, Warranties and Covenants. The
representations and warranties of Seller contained in this Agreement shall be
true and correct in all material respects as of the Closing, other than such
representations and warranties as are made as of another date, the covenants and
agreements contained in this Agreement to be complied with by Seller on or
before the Closing shall have been complied with in all material respects, and
Purchaser shall have received a certificate of Seller to such effect signed by a
duly authorized officer thereof;
(b) No Proceeding or Litigation. No Action shall have been
commenced or threatened by or before any Governmental Authority against either
Seller or Purchaser, seeking to restrain or materially and adversely alter the
transactions contemplated hereby which in the reasonable, good faith
determination of Purchaser is likely to render it impossible or unlawful to
consummate the transactions contemplated by this Agreement; provided, however,
that the provisions of this Section 7.02(b) shall not apply if Purchaser has
solicited or encouraged any such Action;
(c) Resolutions of Seller. Purchaser shall have received a
true and complete copy, certified by the Secretary or an Assistant Secretary of
Seller, of the resolutions duly and validly adopted by the Board of
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Directors of Seller evidencing its authorization of the execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby
and thereby;
(d) Legal Opinion. Purchaser shall have received from ________
___________, an opinion, addressed to Purchaser and dated the Closing Date,
substantially in the form of Exhibit B;
(e) Consents and Approvals. Purchaser and Seller shall have
received, each in form and substance reasonably satisfactory to Purchaser in its
sole and absolute discretion, all authorizations, consents, orders and approvals
of all Governmental Authorities and officials and all third party consents and
estoppel certificates which Purchaser reasonably deems necessary or desirable
for the consummation of the transactions contemplated by this Agreement;
(f) Material Contracts. Purchaser shall have received, each in
form and substance reasonably satisfactory to Purchaser, assignments of each
Material Contract identified in Disclosure Schedule 3.10 which Purchaser
reasonably deems necessary or desirable for the consummation of the transactions
contemplated by this Agreement including, without limitation, all third party
consents required under any Material Contracts; and
(g) Transferred Employees. Transferred Employees shall have
accepted employment with Purchaser.
Article 8. INDEMNIFICATION
.1 Survival of Representations and Warranties. The representations
and warranties of Seller contained in this Agreement, and all statements
contained in the Acquisition Documents, shall survive the Closing until April
30, 2000 insofar as any claim is made by Purchaser for (i) the breach of any
representation or warranty of Seller contained herein; (ii) any claim which
arises out of allegations of personal injury or property damage suffered by any
third party on or prior to the Closing Date; (iii) or activities or omissions
that occur, on or prior to the Closing Date, such representations and warranties
shall, for purposes of such claim by Purchaser, survive until April 30, 2000.
Neither the period of survival nor the liability of Seller with respect to
Seller's representations and warranties shall be reduced by any investigation
made at any time by or on behalf of Purchaser. If written notice of a claim has
been given prior to the expiration of the applicable representations and
warranties by Purchaser to Seller, then the relevant representations and
warranties shall survive as to such claim until the claim has been finally
resolved. No claim may be brought after April 30, 2000.
.2 Indemnification by Seller.
(a) Indemnifiable Losses. Subject to Section 8.02(b),
Purchaser and its Affiliates, officers, directors, employees, agents, successors
and assigns shall be indemnified and held harmless by Seller for any and all
Liabilities, losses, damages, claims, costs and expenses, interest, awards,
judgments and penalties actually suffered or incurred by them (including,
without limitation, any Action brought or otherwise initiated by any of them),
but not including any indirect, consequential or punitive damages (such
Liabilities, losses, damages, claims, costs and expenses, interest, awards,
judgments and penalties, including without limitation any such Action, but not
including any indirect, consequential or punitive damages, each a "Loss" and
collectively, "Losses") arising out of or resulting from the following:
(i) the breach of any representation or warranty made by
Seller contained in the Acquisition Documents;
(ii) the breach of any covenant or agreement by Seller
contained in the Acquisition Documents;
(iii) any and all Losses suffered or incurred by Purchaser
by reason of or in connection with any claim or cause of action of any third
party to the extent arising out of any action, inaction, event, condition,
liability or obligation of Seller occurring or existing prior to the Closing;
provided however, that Seller shall be liable for any such Losses arising out of
or related to Year 2000 compliance of products sold by Seller or services
rendered by Seller prior to the Closing including such Losses that arise
following the Closing; and
(iv) liabilities, whether arising before or after the
Closing Date, that are not expressly assumed by Purchaser pursuant to this
Agreement, including, without limitation the Excluded Liabilities, the
Employment Agreement of Terry Cooper and the Purchase Agreement between The
Judge Group and On Site Solutions, Inc. dated May 31, 1998.
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(b) Claims; Threshold Amount. Notwithstanding the foregoing,
Seller shall have no liability with respect to the matters described in
paragraph(i) above unless and until the aggregate amount of Losses thereunder of
which Seller receives written notice exceeds $210,000 (the "Threshold Amount").
At such time as the aggregate Losses with respect to matters described in
paragraph(i) exceed the Threshold Amount, Purchaser shall be indemnified to the
full extent such Losses that exceed the Threshold Amount; provided, however,
that Seller shall be liable for any such Losses arising out of any intentional
or fraudulent breach of any representation or warranty to the fullest extent.
(c) Claims; Aggregate Amount. Notwithstanding any other
provision in this Section 8.02 or elsewhere in this Agreement to the contrary,
the aggregate indemnification obligations of Seller hereunder shall not exceed
the Purchase Price; except with respect to any claims arising out of or related
to Year 2000 compliance of Seller's products or services, the aggregate
indemnification obligations of Seller hereunder shall not exceed twice the
Purchase Price and shall include any indirect, consequential or punitive damages
required to be paid by Purchaser to third parties.
.3 Indemnification by Purchaser. Seller and each of its Affiliates,
officers, directors, employees, agents, successors and assigns shall be
indemnified and held harmless by Purchaser for any and all Losses out of or
resulting from:
(a) a breach of any representation, warranty, covenant or
agreement of Purchaser contained in any of the Acquisition Documents which has
not been expressly waived by Seller in writing;
(b) any claim, suit, action or proceeding to the extent the
same pertains to the ownership, organization, operation or conduct of the
Business on or after the Closing; and
(c) all liabilities, obligations, responsibilities and Losses,
attributable to Assumed Liabilities which were not in existence on the Closing
Date, except claims arising out of or related to Year 2000 compliance of
products sold by Seller or services rendered by Seller prior to the Closing
including such Losses that arise following the Closing.
.4 Indemnification Procedures; Rights of Parties. For purposes of
this Section 8.04, "Indemnified Party" shall mean (i) each of Purchaser and its
Affiliates, officers, directors, employees, agents, successors and assigns, when
being indemnified by Seller pursuant to Section 8.02, and (ii) each of the
Seller and its Affiliates, officers, directors, employees, agents, successors
and assigns, when being indemnified by Purchaser pursuant to Section 8.03, and
"Indemnifying Party" shall mean (x) Seller when indemnifying Purchaser and its
Affiliates, officers, directors, employees, agents, successors and assigns
pursuant to Section 8.02, and (y) Purchaser when indemnifying Seller and its
Affiliates, officers, directors, employers, agents, successors and assigns
pursuant to Section 8.03.
(a) An Indemnified Party shall give the Indemnifying Party
notice of any matter which an Indemnified Party has determined has given or
could give rise to a right of indemnification under this Agreement, within
thirty (30) days of such determination, stating the amount of the Loss, if
known, and method of computation thereof, a brief description of the facts upon
which such claim is based and containing a reference to the provisions of this
Agreement in respect of which such right of indemnification is claimed or
arises. If, after the amount of the claim is specified by the Indemnified
Person, the Indemnifying Party objects to any such claim, it may give written
notice to the Indemnified Person within thirty (30) days of the later of receipt
of the Indemnified Person's notice of claim or the specification by the
Indemnified Person of the amount of the claim, advising the Indemnified Person
of its objection. If no such notice is timely received from the Indemnifying
Party by the Indemnified Person, the Indemnified Person will be entitled to
payment from the Indemnifying Party in the amount of the Loss arising out of the
claim specified in its notice of claim. If the Indemnifying Party advises the
Indemnified Person within such thirty (30) day period that it objects to such
claim, the Indemnified Person and the Indemnifying Party shall promptly meet and
use their best efforts to settle the dispute in writing. If the Indemnified
Person and the Indemnifying Party are unable to reach agreement within thirty
(30) days after the Indemnifying Party objects to the claim, then the disputed
portion of the claim shall be submitted to arbitration in accordance with
Section 10.11. If the arbitrator shall determine that the Indemnified Person is
entitled to indemnification with respect to the dispute submitted, the
Indemnified Person will be entitled to obtain payment from the Indemnifying
Party within thirty (30) days in the amount determined by the arbitrator.
12
<PAGE>
(b) The obligations and Liabilities of the Indemnifying Party
under this Article 8 with respect to Losses arising from claims of any third
party which are subject to the indemnification provided for in this Article 8
("Third Party Claims") shall be governed by and contingent upon the following
additional terms and conditions: if an Indemnified Party shall receive notice of
any Third Party Claim, the Indemnified Party shall give the Indemnifying Party
notice of such Third Party Claim as soon as possible and in any event within
thirty (30) days of the receipt by the Indemnified Party of such notice;
provided, however, that the failure to provide such notice shall not release the
Indemnifying Party from any of its obligations under this Article 8 except to
the extent the Indemnifying Party is prejudiced by such failure and shall not
relieve the Indemnifying Party from any other obligation or Liability that it
may have to any Indemnified Party otherwise than under this Article 8. If the
Indemnifying Party acknowledges in writing its obligation to indemnify the
Indemnified Party hereunder against any Losses that may result from such Third
Party Claim, then the Indemnifying Party shall be entitled to assume and control
the defense of such Third Party Claim at its expense and through counsel of its
choice if it gives notice of its intention to do so to the Indemnified Party
within five days of the receipt of such notice from the Indemnified Party;
provided, however, that if there exists or is reasonably likely to exist a
conflict of interest that would make it inappropriate in the judgment of the
Indemnified Party, in its reasonable discretion, for the same counsel to
represent both the Indemnified Party and the Indemnifying Party, then the
Indemnified Party shall be entitled to retain its own counsel, in each
jurisdiction for which the Indemnified Party determines counsel is required, at
the expense of the Indemnifying Party. In the event the Indemnifying Party
exercises the right to undertake any such defense against any such Third Party
Claim as provided above, the Indemnified Party shall cooperate with the
Indemnifying Party in such defense and make available to the Indemnifying Party
at the Indemnifying Party's expense, all witnesses, pertinent records, materials
and information in the Indemnified Party's possession or under the Indemnified
Party's control relating thereto as is reasonably required by the Indemnifying
Party. Similarly, in the event the Indemnified Party is, directly or indirectly,
conducting the defense against any such Third Party Claim, the Indemnifying
Party shall cooperate with the Indemnified Party in such defense and make
available to the Indemnified Party, at the Indemnifying Party's expense, all
such witnesses, records, materials and information in the Indemnifying Party's
possession or under the Indemnifying Party's control relating thereto as is
reasonably required by the Indemnified Party. No such Third Party Claim may be
settled by the Indemnifying Party without the prior written consent of the
Indemnified Party.
(c) Notwithstanding anything herein to the contrary, in the
absence of fraud, the rights and remedies provided in Article 8 are the
exclusive rights and remedies of the parties.
.5 Disclaimer of Warranties. EXCEPT AS EXPRESSLY SET FORTH IN THE
REPRESENTATIONS AND WARRANTIES CONTAINED IN ARTICLE THREE OF THIS AGREEMENT,
SELLER MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AT LAW OR IN
EQUITY, IN RESPECT OF THE BUSINESS. SELLER MAKES NO IMPLIED REPRESENTATION OR
WARRANTY AS TO MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE AND NO
OTHER IMPLIED WARRANTIES WHATSOEVER.
Article 9. MISCELLANEOUS
.1 Expenses. Except as otherwise specified in this Agreement, all
costs and expenses, including, without limitation, fees and disbursements of
counsel, financial advisors and accountants, incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such costs and expenses, whether or not the Closing shall have
occurred.
.2 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given or made (and
shall be deemed to have been duly given or made upon receipt) by delivery in
person, or by courier service, cable, telecopy, telegram, or registered or
certified mail (postage prepaid, return receipt requested) to the respective
parties hereto at their addresses set forth on the signature pages to this
Agreement (or at such other address for a party hereto as shall be specified in
a notice given in accordance with this Section 9.02).
.3 Public Announcements. No party to this Agreement shall make, or
cause to be made, any press release or public announcement in respect of this
Agreement or the transactions contemplated hereby or otherwise
13
<PAGE>
communicate with any news media without the prior written consent of the other
party and the parties shall cooperate as to the timing and contents of any such
press release or public announcement. No such announcement shall be made at any
time prior to the Closing.
.4 Headings. The descriptive headings contained in this Agreement are
for convenience of reference only and shall not affect in any way the meaning,
construction or interpretation of this Agreement.
.5 Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any Law or public policy, all
other terms and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to any
party. Entire Agreement. This Agreement (including the Annexes, Exhibits and
Disclosure Schedules) constitutes the entire agreement of the parties hereto
with respect to the subject matter hereof and supersedes all prior agreements
(including the Letter of Intent, but excluding the Confidentiality Agreement),
representations, undertakings and understandings, both written and oral, between
Seller and Purchaser with respect to the subject matter hereof.
.7 Section 9.06 Assignment. This Agreement may not be assigned by
operation of Law or otherwise without the express written consent of Seller and
Purchaser (which consent may be granted or withheld in the sole discretion of
Seller and Purchaser); provided, however, that Purchaser may assign its rights
under this Agreement to an Affiliate of Purchaser without the consent of Seller
and without diminishing Purchaser's obligations hereunder.
.8 No Third Party Beneficiaries. This Agreement shall be binding upon
and inure solely to the benefit of the parties hereto and their permitted
assigns and nothing herein, express or implied, is intended to or shall confer
upon any other Person, including, without limitation, any union or any employee
or former employee of Seller, any legal or equitable right, benefit or remedy of
any nature whatsoever, including, without limitation, any rights of employment
for any specified period, under or by reason of this Agreement.
.9 Amendment. This Agreement may not be amended, modified or
supplemented except by an instrument in writing signed by, or on behalf of,
Seller and Purchaser.
.10 Governing Law. IN ALL RESPECTS, INCLUDING ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS AGREEMENT AND THE OBLIGATIONS OF
EACH PARTY ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO CONTRACTS
EXECUTED IN AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD TO
THE PRINCIPLES THEREOF REGARDING CONFLICT OF LAWS, AND ANY APPLICABLE LAWS OF
THE UNITED STATES OF AMERICA.
.11 Arbitration. The parties shall submit any dispute concerning the
interpretation of or the enforcement of rights and duties under this Agreement
to final and binding arbitration pursuant to the American Arbitration
Association. At the request of any party, the arbitrators, attorneys, parties to
the arbitration, witnesses, experts, court reports, or other persons present at
the arbitration shall agree in writing to maintain the strict confidentiality of
the arbitration proceedings. Any dispute concerning the interpretation of or the
enforcement of rights and duties under this Agreement brought by Seller shall be
conducted by a single, neutral arbitrator, appointed in accordance with the
Commercial Arbitration Rules of the American Arbitration Association in the
County of Orange, California. The award of the arbitrator(s) in connection with
such dispute shall be enforceable according to the applicable provisions of the
California Code of Civil Procedure. Any dispute concerning the interpretation or
the enforcement of rights and duties under this Agreement brought by Purchaser
shall be conducted by a single, neutral arbitrator, appointed in accordance with
the Commercial Arbitration Rules of the American Arbitration Association in
Montgomery County, Pennsylvania. The award of the arbitrator(s) in connection
with such dispute shall be enforceable according to the application provisions
of the Pennsylvania Code of Civil Procedure. The arbitrator(s) may award damages
and/or permanent injunctive relief, but in no event shall the arbitrator(s) have
the authority to award punitive or exemplary damages. Notwithstanding the
foregoing, a party may apply to a court of competent jurisdiction for relief in
the form of a temporary restraining order or preliminary injunction, or other
provisional remedy pending final determination of a claim through arbitration in
accordance with the paragraph. If proper notice of any hearing has been given,
the arbitrator(s) will have full power to proceed to take evidence or to perform
any other acts necessary to arbitrate the matter in the absence of any party who
fails to appear.
14
<PAGE>
.12 Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
IN WITNESS WHEREOF, Seller and Purchaser have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
FILENET CORPORATION ON SITE SOLUTIONS, INC.
By: /s/Dave Despard By: /s/Martin E. Judge, Jr.
--------------- -----------------------
Title: Sr. Vice-President Title: Chief Executive Officer
The Judge Group, Inc. (the "undersigned") hereby
unconditionally, absolutely and irrevocably guarantees to Purchaser the
performance by Seller of all of Seller's obligations contained in this Agreement
including without limitation Sections 2.02 and 2.03, subject only to the terms,
conditions and limitations contained herein. The undersigned hereby waives
presentation, demand of payment and protest of any such obligation of Seller,
and further waives any right to require that resort be had by Purchaser to
Seller with respect to any such obligation before demanding performance thereof
by the undersigned.
The undersigned further agrees that this guaranty shall inure
to the benefit of and may be enforced by Purchaser, its successors and permitted
assigns, and shall be binding upon and enforceable against the undersigned and
its permitted successors or assigns and that this guaranty shall remain in full
force and effect as to any and all modifications of the Agreement that may be
effected in accordance with the terms thereof after the date hereof.
THE JUDGE GROUP, INC.
By: /s/Martin E. Judge, Jr.
-----------------------
Title: Chief Executive Officer
ANNEX A
DESCRIPTION OF BUSINESS
On-Site Solutions, Inc. is engaged in the systems integration, document
management, and professional services business.
ANNEX B
INTELLECTUAL PROPERTY
The Intellectual Property is defined to include but not be limited to the
following:
DocShop
ViewShop
Symphony
The following customers of Judge IMS have a right to use the intellectual
property owned by On-Site:
Stone and Webster
Provident
Donaldson, Lufkin & Jenrette
15
<PAGE>
Exhibit 21.1
Subsidiaries of the Registrant
Subsidiary Name State of Incorporation
- --------------------------------------------- ----------------------
JUDGE ELECTRONIC SERVICES OF BOSTON, INC. Massachusetts
JUDGE ELECTRONIC SERVICES OF FLORIDA, INC. Florida
JUDGE HOSPITALITY SERVICES, INC. Pennsylvania
JUDGE IMAGING SYSTEMS, INC. Delaware
JUDGE INC. OF NEW JERSEY New Jersey
JUDGE PROFESSIONAL SERVICES, INC. Pennsylvania
JUDGE TECHNICAL SERVICES OF NEW JERSEY, INC. New Jersey
JUDGE TECHNICAL SERVICES, INC. Pennsylvania
JUDGE, INC. Pennsylvania
ON-SITE SOLUTIONS, Inc. California
SYSTEMS SOLUTIONS, INC. Washington
THE BERKELEY ASSOCIATES CORPORATION Delaware
<PAGE>
Exhibit 23.1
------------
CONSENT OF INDEPENDENT AUDITORS
Board of Directors
The Judge Group, Inc.
Bala Cynwyd, Pennsylvania
We consent to the incorporation by reference in the Registration
Statement on Form S-8 of The Judge Group, Inc. of our report dated February 27,
1999.
RUDOLPH, PALITZ LLC
Blue Bell, Pennsylvania
March 28, 2000
<PAGE>
Exhibit 23.1
------------
CONSENT OF INDEPENDENT AUDITORS
Board of Directors
Judge.com, Inc. (formerly The Judge Group, Inc.)
Bala Cynwyd, Pennsylvania
We consent to the incorporation by reference in the Registration
Statement on Form S-8 of Judge.com, Inc., (formerly The Judge Group, Inc.) of
our report dated February 25, 2000.
RUDOLPH, PALITZ LLC
Blue Bell, Pennsylvania
March 28, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS CONTAINED IN JUDGE.COM, INC. (FORMERLY THE JUDGE GROUP,
INC.) ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<CURRENCY> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 4,571
<SECURITIES> 0
<RECEIVABLES> 19,571,708
<ALLOWANCES> 987,000
<INVENTORY> 0
<CURRENT-ASSETS> 22,338,347
<PP&E> 5,083,530
<DEPRECIATION> 2,083,785
<TOTAL-ASSETS> 35,085,521
<CURRENT-LIABILITIES> 8,157,172
<BONDS> 0
0
0
<COMMON> 139,843
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 35,085,521
<SALES> 0
<TOTAL-REVENUES> 113,704,958
<CGS> 75,569,731
<TOTAL-COSTS> 108,667,368
<OTHER-EXPENSES> 815,925
<LOSS-PROVISION> 927,951
<INTEREST-EXPENSE> 828,722
<INCOME-PRETAX> 4,221,665
<INCOME-TAX> 1,877,115
<INCOME-CONTINUING> 2,344,550
<DISCONTINUED> (2,153,372)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,083,878)
<EPS-BASIC> (0.44)
<EPS-DILUTED> (0.44)
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