U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
SEPTEMBER 30, 1996.
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
--- THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION
PERIOD FROM __________ TO __________.
Commission File number: 0-18248
JUDGE IMAGING SYSTEMS, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 06-1184427
-------- ----------
(State or other jurisdiction of (I.R.S. Employer ID)
incorporation or organization)
Two Bala Plaza, Bala Cynwyd, Pennsylvania 19004
(Address of principal executive offices) (Zip Code)
(610) 667-1190
(Issuer's telephone number)
Check whether the issuer (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
--- ---
Applicable only to issuers involved in bankruptcy proceedings during the
preceding five years.
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes No
--- ---
Applicable only to corporate issuers
The number of shares outstanding of the issuer's common stock as of September
30, 1996 was 3,980,141
Transitional small business disclosure format. Yes No X
--- ---
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
FORM 10-QSB INDEX
<TABLE>
<CAPTION>
NUMBER PAGE(s)
- ------ -------
<S> <C>
PART I. FINANCIAL INFORMATION 3
Item 1. Financial Statements:
Condensed Balance Sheets as of September 30, 1996
and December 31, 1995 3
Condensed Statements of Operations
for the nine months ended September 30, 1996 and 1995 4
Condensed Statements of Operations
for the three months ended September 30, 1996 and 1995 5
Condensed Statement of Shareholders' Deficiency
for the nine months ended September 30, 1996 6
Condensed Statements of Cash Flows
for the nine months ended September 30, 1996 and 1995 7
Notes to Condensed Financial Statements 8 - 15
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
PART II. OTHER INFORMATION 18
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports 18
SIGNATURES 19
FINANCIAL DATA SCHEDULE
</TABLE>
2
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
CONDENSED BALANCE SHEETS
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
---- ----
<S> <C> <C>
CURRENT ASSETS
Cash $ 10,964 $ 11,310
Accounts receivable, net of allowance for doubtful accounts
of $29,000 in 1996 and $23,000 in 1995 2,869,086 1,471,916
Other receivables 35,656 50,000
Inventories 832,928 515,099
Prepaid expenses and other 291,246 273,672
---------- ----------
Total current assets 4,039,880 2,321,997
---------- ----------
PROPERTY AND EQUIPMENT, NET 556,299 194,870
---------- ----------
OTHER ASSETS
Security deposits 19,603 14,063
---------- ----------
TOTAL ASSETS $4,615,782 $2,530,930
========== ==========
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Equipment note payable, current portion $ 44,576 $ 15,150
Accounts payable and accrued expenses 1,661,896 891,829
Payroll and sales taxes payable 133,185 112,336
Deferred revenue 274,122 46,111
Advances from shareholders 105,263 139,906
---------- ----------
Total current liabilities 2,219,042 1,205,332
---------- ----------
EQUIPMENT NOTE PAYABLE, NET OF CURRENT PORTION 108,637 53,233
---------- ----------
NOTE PAYABLE, BANK 2,585,558 1,538,425
---------- ----------
DUE TO AFFILIATE -- 1,450,450
---------- ----------
MANDATORILY REDEEMABLE PREFERRED STOCK
$1,000 stated value, 1,500 shares issued and outstanding 1,520,000 --
---------- ----------
SHAREHOLDERS' DEFICIENCY
Common Stock, $0.01 and $0.005 par value,
10,000,000 shares authorized,
3,980,141 and 6,900,577 shares issued and outstanding
for 1996 and 1995, respectively 39,801 34,503
Preferred Stock, $0.10 par value,
3,665,770 shares issued and outstanding, 1995 -- 366,577
Preferred Stock - Series A, $0.01 par value,
5,000,000 shares authorized,
822,628 shares issued and outstanding, 1996 8,226 --
Contributed capital 1,589,576 524,433
Accumulated deficit (3,455,058) (2,642,023)
---------- ----------
Total shareholders' deficiency (1,817,455) (1,716,510)
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIENCY $4,615,782 $2,530,930
========== ==========
</TABLE>
See Notes to Condensed Financial Statements.
3
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
CONDENSED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
NET REVENUES, including related party revenues
of $500,000 in 1996 and $514,000 in 1995 $10,071,274 $6,160,369
COST OF REVENUES 7,565,430 4,680,558
----------- ----------
GROSS PROFIT 2,505,844 1,479,811
OPERATING EXPENSES
Selling, general and administrative 3,170,670 1,390,258
----------- ----------
INCOME (LOSS) FROM OPERATIONS (664,826) 89,553
OTHER EXPENSES, principally interest (148,209) (170,389)
----------- ----------
LOSS BEFORE PREFERRED DIVIDENDS (813,035) (80,836)
PREFERRED DIVIDENDS EARNED (132,300) (13,747)
----------- ----------
NET LOSS ATTRIBUTABLE TO
COMMON SHAREHOLDERS ($945,335) ($94,583)
=========== ==========
NET LOSS PER SHARE AND FULLY DILUTED
NET LOSS PER SHARE ATTRIBUTABLE
TO COMMON SHAREHOLDERS ($0.26) ($0.04)
====== ======
</TABLE>
See Notes to Condensed Financial Statements.
4
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
NET REVENUES, including related party revenues
of $61,000 in 1996 and $150,000 in 1995 $3,916,775 $2,783,022
COST OF REVENUES 2,936,445 2,037,796
---------- ----------
GROSS PROFIT 980,330 745,226
OPERATING EXPENSES
Selling, general and administrative 1,309,855 531,459
---------- ----------
INCOME (LOSS) FROM OPERATIONS (329,525) 213,767
OTHER EXPENSES, principally interest (58,227) (45,005)
---------- ----------
INCOME (LOSS) BEFORE
PREFERRED DIVIDENDS (387,752) 168,762
PREFERRED DIVIDENDS EARNED (56,700) (4,582)
---------- ----------
NET INCOME (LOSS) ATTRIBUTABLE TO
COMMON SHAREHOLDERS ($444,452) $ 164,180
========== ==========
NET INCOME (LOSS) PER SHARE AND
FULLY DILUTED NET INCOME (LOSS) PER SHARE
ATTRIBUTABLE TO COMMON SHAREHOLDERS ($0.11) $0.07
====== =====
</TABLE>
See Notes to Condensed Financial Statements.
5
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
CONDENSED STATEMENT OF SHAREHOLDERS' DEFICIENCY
NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
SERIES A
COMMON STOCK PREFERRED STOCK PREFERRED STOCK
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C> <C> <C>
BALANCE
DECEMBER 31, 1995 6,900,577 $ 34,503 3,665,770 $366,577 -- $--
ISSUANCE OF
SERIES A
PREFERRED STOCK -- -- -- -- 822,628 8,226
CONVERSION OF
PREFERRED
STOCK TO
COMMON STOCK 3,665,770 366,577 (3,665,770) (366,577) -- --
MERGER
TRANSACTIONS
(See Note 1) (6,586,206) (361,279) -- -- -- --
NET LOSS -- -- -- -- -- --
---------- -------- ---------- ---------- ------- -----------
BALANCE,
SEPTEMBER 30, 1996 3,980,141 $ 39,801 -- -- 822,628 $ 8,226
========== ======== ========== ========== ======= ===========
</TABLE>
ADDITIONAL ACCUMULATED
PAID-IN DEFICIT TOTAL
CAPITAL
BALANCE,
DECEMBER 31, 1995 $ 524,433 ($2,642,023) ($1,716,510)
ISSUANCE OF
SERIES A
PREFERRED STOCK 1,088,611 -- 1,096,837
CONVERSION OF
PREFERRED
STOCK TO
COMMON STOCK -- -- --
MERGER
TRANSACTIONS
(See Note 1) (23,468) -- (384,747)
NET LOSS -- (813,035) (813,035)
---------- ----------- -----------
BALANCE,
SEPTEMBER 30, 1996 $1,589,576 ($3,455,058) ($1,817,455)
========== =========== ===========
See Notes to Condensed Financial Statements.
6
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net loss ($813,035) ($80,836)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 81,388 26,987
Provision for doubtful accounts 22,000 --
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts and other receivables (1,350,699) (811,005)
Inventories (278,728) (544,311)
Prepaid expenses and other (12,334) (27,096)
Increase (decrease) in:
Accounts payable and accrued expenses 204,979 184,753
Payroll and sales taxes payable 20,849 (87,824)
Deferred revenue (83,628) (12,187)
Customer deposits (50,398) --
---------- ----------
Net cash used in operating activities (2,259,606) (1,351,519)
---------- ----------
INVESTING ACTIVITIES
Net cash used in investing activities,
purchases of property and equipment (185,866) (56,467)
---------- ----------
FINANCING ACTIVITIES
Cash acquired in business combination 13,786 --
Loan to DataImage, Inc. -- (50,000)
Repayments of advances to shareholders (34,643) (31,170)
Principal payments on equipment note borrowings (22,086) (6,215)
Advances from affiliates 69,550 98,749
Proceeds from notes payable, bank 1,047,133 1,104,400
Bank overdrafts 483,000 290,000
Issuance of Series A Preferred Stock, net 888,386 --
---------- ----------
Net cash provided by financing activities 2,445,126 1,405,764
---------- ----------
DECREASE IN CASH (346) (2,222)
CASH, JANUARY 1, 11,310 3,782
------- ------
CASH, SEPTEMBER 30, $10,964 $1,560
======= ======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the nine months for interest $141,349 $148,000
======== ========
</TABLE>
See Notes to Condensed Financial Statements.
7
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Description of Business
Judge Imaging Systems, Inc. (the "Company" or "JIS") derives
its revenues from computer sales, repairs, maintenance and
providing system integration for document management, imaging
and workflow, principally in the mid-Atlantic and
northeastern region of the United States. The Company also
develops and markets standardized and custom software
products and systems for the mass storage, electronic
management and retrieval of information. As a systems
integrator, the Company designs, assembles, installs and
maintains image-processing systems. The Company's
standardized products are sold both through distribution
channels and directly to end-users.
Financial information with regard to the nine months and the
three months ended September 30, 1996 and 1995, is unaudited
but in the opinion of management contains all adjustments
which are of a normal, recurring nature and necessary to
present fairly the Company's results of operations and cash
flows. Certain information and note disclosure normally
included in annual financial statements have been condensed
or omitted in the financial information for the nine and
three months ended September 30, 1996 and 1995 pursuant to
SEC Rules and Regulations. Management believes that the
disclosures which have been made are adequate.
The results of operations for the nine and three months ended
September 30, 1996 are not necessarily indicative of the
results to be expected for the full year.
The financial information with regard to the statement of
operations for the three and nine months ended September 30,
1995 and the December 31, 1995 balance sheet are that of
Judge Computer Corporation ("Judge") (considered the
acquiring corporation for accounting purposes, as described
in "Business Combination"). The statement of operations for
the nine months ended September 30, 1996 includes nine months
of Judge operations and seven months (from February 29, 1996,
the effective date of merger) of DataImage, Inc.'s
operations. The statement of operations for the three months
ended September 30, 1996 includes three months of Judge
operations and three months of DataImage, Inc.'s operations.
At September 30, 1996, the Company is a 26% owned subsidiary
of The Judge Group, Inc. (formerly Judge, Inc.) a company
who, along with other of its subsidiaries, provides engineers
and other technical professionals on a temporary and
permanent basis. An additional 49% of the Company's voting
stock is owned by individuals who are also shareholders of
The Judge Group, Inc.
Business Combination
On September 13, 1995, DataImage, Inc. ("DataImage") entered
into a Letter of Intent with respect to a proposed merger
transaction between DataImage and Judge.
On December 1, 1995, DataImage and Judge executed the
Agreement and Plan of Merger (the "Merger Agreement") with
respect to the merger transaction (the "Merger") proposed by
the Letter of Intent. The Merger Agreement was amended
effective December 20, 1995 and February 26, 1996.
During 1996 and prior to the consummation of the Merger,
Judge had the following equity transactions:
o 3,665,770 shares of Judge preferred stock were converted
into common stock;
o Judge's Board of Directors resolved to increase the
authorized preferred stock by 1,150,000 shares and divide
such shares into 1,125,000 shares of Series A Convertible
Preferred Stock, par value $.01, and 25,000 shares of
Series B Preferred Stock, par value $.01;
8
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)
o $1,520,000 of advances from Judge, Inc./Judge Technical
Services, Inc. were converted into 1,500 shares of Judge
Series B Preferred Stock;
o Judge raised approximately $888,000 (net of related
costs of approximately $208,000) in a private placement
offering of Series A Convertible Preferred Stock (the
"Preferred A Stock"). 822,628 shares were issued in the
offering at a price per share of $1.33. The Preferred A
Stock is convertible at the holder's option and conversion
is mandatory at the time of a subsequent public offering of
common stock in excess of $5 million dollars. The Preferred
A Stock carries a cumulative dividend of 7% per year and
holders have a liquidation preference over the common stock
shareholders and all other existing classes of
shareholders. In the event the Company has not closed on a
subsequent public offering by the eighth anniversary of the
Merger, then the Company will have the right to redeem the
Preferred A Stock.
The Merger was consummated effective February 29, 1996. A
brief summary of the Merger follows:
o Judge, a privately-owned corporation, was merged with
and into DataImage, with DataImage as the surviving
entity. Following the Merger, the separate existence of
Judge ceased, and DataImage continued as the surviving
corporation under Delaware law and changed its name to
"Judge Imaging Systems, Inc." with all of the rights,
powers, and privileges, and subject to all of the duties
and liabilities of DataImage and Judge combined. Following
the Merger, the Company continued to be a public reporting
company;
o At the effective time of the Merger, the Certificate
of Incorporation of DataImage as the surviving corporation
was amended to change its name to Judge Imaging Systems,
Inc., and to authorize a class of 5,000,000 shares of
preferred stock (the "Preferred Stock") in addition to the
10,000,000 shares of common stock previously authorized
("Common Stock"). The 5,000,000 shares of Preferred Stock
are divided into 1,125,000 shares of Series A Convertible
Preferred Stock and 1,500 shares of Series B Convertible
Stock; the remaining shares of Preferred Stock are "blank
check" shares issuable at the discretion of the Board of
Directors of JIS. The Series A Convertible Preferred Stock
and the Series B Convertible Preferred Stock of JIS have
essentially the same rights and privileges as the Series A
Convertible Preferred Stock and the Series B Preferred
Stock of Judge existing immediately prior to the Merger.
The Series A Convertible Preferred Stock is convertible
into Common Stock at a 1 to 1 ratio, has a preference in
liquidation, and bears a 7% cumulative dividend. The
Series B Preferred Stock is nonvoting, nonconvertible, has
no liquidation preference, and bears a 10% cumulative
dividend;
o At the effective time of the Merger, each DataImage
shareholder automatically received one share of JIS Common
Stock in exchange for every 31.960868 shares of issued and
outstanding DataImage Common Stock owned by such
shareholder as of the effective time of the Merger;
o At the effective time of the Merger, each holder of
Judge Common Stock automatically received shares of JIS
Common Stock. The number of shares received was calculated
as one share of JIS Common Stock for every 2.832693723
shares of Judge Common Stock held;
9
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)
o At the effective time of the Merger, each Judge
shareholder received one share of JIS Series A Convertible
Preferred Stock for each share of Judge Series A
Convertible Preferred Stock held, and one share of JIS
Series B Preferred Stock for each share of Judge Series B
Preferred Stock held;
o The conversion ratios were calculated so that, after
giving effect to certain reserved shares for issuance to
employees following the Merger and assuming the conversion
of all Series A Convertible Preferred Stock to Common
Stock, there are approximately 5,000,000 shares of Common
Stock of JIS outstanding immediately following the Merger,
of which holders of DataImage Common Stock immediately
prior to the Merger would receive in the aggregate
approximately 5% (approximately 250,000 shares) and the
holders of Judge Common Stock and Series A Convertible
Preferred Stock immediately prior to the Merger would
receive in the aggregate approximately 95% (approximately
4,750,000 shares). The Series B Preferred Stock is not
included in the foregoing percentage calculations. As a
result, the Merger was accounted for as a "reverse
acquisition" whereby Judge, in substance, was to acquire
DataImage, allocating the fair value of Judge stock
exchanged over the relative fair value of assets and
liabilities of DataImage (assumed to equal its book value)
prior to Judge being merged into DataImage (surviving
corporation). No value was ascribed to DataImage's net
loss carryforwards as a result of limitations on these
carryforwards subsequent to the change in control.
DataImage, after changing its name to Judge Imaging
Systems, Inc., was to remain a registrant under the
Securities and Exchange Commission Rule.
o As a consequence, a change in control of DataImage has
occurred effective upon the consummation of the Merger.
The consideration given for such change in control is the
exchange of certificates described in the Merger Agreement
and previously described above. The basis of the change in
control includes a change in the directors of DataImage
and change in the share ownership of DataImage.
The persons from whom control of DataImage was acquired upon
the Merger pursuant to the exchange of securities described
above were Canaan Capital Limited Partnership and Canaan
Capital Offshore Limited Partnership C.V. (collectively the
"Partnerships"). The Partnerships acquired control of
DataImage pursuant to an agreement with DataImage dated
November 20, 1995 (the "Agreement"). As a result of the
Agreement, the Partnerships immediately acquired an aggregate
of 1,700,000 shares of DataImage Common Stock in addition to
the 362,499 shares previously held, resulting in the
ownership by the Partnerships as of the record date of the
Special Meeting of Shareholders of approximately 51.4% of the
issued and outstanding shares of DataImage Common Stock, and
effective voting control of DataImage as of such date. As a
further result of the Agreement, immediately prior to the
closing of the Merger, the Partnerships acquired in the
aggregate an additional 3,980,214 shares of DataImage Common
Stock, resulting in the ownership as of the closing of the
Merger by the Partnerships of 6,042,713 of the 7,990,217
shares issued and outstanding at that time, representing
approximately 75.6% of such issued and outstanding shares of
DataImage Common Stock.
Judge and DataImage anticipate that the Merger qualifies as a
"reorganization" pursuant to Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), and that Judge
and DataImage will each be a party to the reorganization
within the meaning of section 368(b) of the Code. Judge and
DataImage further anticipate that no gain or loss will be
recognized by Judge or DataImage by reason of the Merger.
10
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)
At September 30, 1996, the capital structure of the Company
is as follows:
Common Stock -
$.01 par value, 10,000,000 shares authorized,
3,980,141 shares issued and outstanding;
Preferred Stock -
5,000,000 shares authorized divided into 1,125,000
shares of Series A, 1,500 shares of Series B with the
remainder "blank check" shares; 822,628 shares of
Series A issued and outstanding and 1,500 shares of
Series B issued and outstanding.
Revenue Recognition and Deferred Revenues
Revenue from sales of the Company's systems is recognized at
the date of shipment of the system, provided that any work to
complete installation of the systems is routine in nature and
costs are not significant. The system components are
assembled and tested with the developed software in the
Company's facilities prior to delivery. Where installation
and development costs are significant to the completion of
the contract, revenue is recognized by the percentage of
completion method. Deferred revenue on the accompanying
balance sheet as of September 30, 1996, includes
approximately $34,000 of billings in excess of costs and
estimated earnings on contracts-in-progress.
Software incorporated into the systems is licensed under a
perpetual, non-exclusive, non-transferable license, and
revenue is recognized as part of the completed system.
Service contract revenue is recorded ratably over the term of
the contract. At September 30, 1996, substantially all
service contracts are due to expire within the following
twelve months.
Revenues billed in advance for warranties and maintenance
contracts are deferred and recorded as income in the period
in which the services are rendered. At September 30, 1996,
$240,737 of warranty, maintenance and service contract
revenue has been deferred.
Inventories
Inventories consist of computer and related supplies and
equipment held for resale, and are valued at the lower of
cost (first-in, first-out) or market. Inventories include
approximately $56,000 of costs and estimated earnings in
excess of billings on contracts-in-progress.
Management's Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and reported amounts of revenues and
expenses during the reporting period. Actual results could
differ from those estimates.
11
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)
Income Taxes
Deferred taxes are accounted for in accordance with Statement
of Financial Accounting Standards ("Statement") No. 109,
"Accounting for Income Taxes." The Statement requires the use
of the liability method to account for income taxes. Deferred
income taxes are provided for the difference between the tax
basis of an asset or liability and its reported amount in the
financial statements at the currently enacted tax rates that
are expected to be in effect when the taxes are actually paid
or recovered.
Deferred income taxes arise principally from temporary
differences between financial and income tax reporting,
including differences relating to depreciation methods used,
amounts recorded for inventory capitalization, the
availability of net operating loss carryforwards and certain
other differences. Deferred income tax assets are reduced by
a valuation allowance when, based on the weight of evidence
available, it is more likely than not that some portion or
all of the deferred tax assets will not be realized.
Deferred income taxes are primarily the result of net
operating loss carryforwards and are completely reduced by a
valuation allowance at December 31, 1995 and September 30,
1996.
Net Income (Loss) Per Share
Net income (loss) per share and fully diluted net income
(loss) per share attributable to common shareholders is based
on the weighted average number of shares of common stock
outstanding during the periods. The assumed conversion of
certain convertible preferred stock has not been considered
in the calculations of loss per share in 1996, since the
effect of such conversions/exercise would be antidilutive.
The weighted average number of shares outstanding during the
nine months ended September 30, 1996 and 1995 were 3,637,002
and 2,333,204, respectively. The weighted average number of
shares outstanding, primary and fully diluted, during the
three months ended September 30, 1996 and 1995 were 3,980,141
and 2,333,204, respectively.
12
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
NOTE 2. PRO-FORMA RESULTS OF OPERATIONS
The following sets forth the combined results of operations
for both Judge and DataImage for the nine and three months
ended September 30, 1996 and 1995, as if the Merger occurred
at January 1, 1996 and 1995, respectively.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Revenues $3,916,775 $3,226,936 $10,193,966 $7,250,210
Cost of Revenues 2,936,445 2,223,915 7,625,880 5,239,303
---------- ---------- ----------- ----------
Gross Profit 980,330 1,003,021 2,568,086 2,010,907
Operating Expenses:
Selling, general
and administrative 1,309,855 688,160 3,255,816 1,879,082
--------- ------- --------- ---------
Income (Loss) from Operations (329,525) 314,861 (687,730) 131,825
Other Income (Expenses), net (58,227) (36,812) (148,226) (176,868)
---------- ---------- ----------- ----------
Net Income (Loss) ($387,752) $ 278,049 ($835,956) ($45,043)
---------- ---------- ----------- ----------
7% Cumulative Dividend
On Series A Preferred Stock (19,200) (19,200) (57,600) (57,600)
Less 10% Cumulative Dividends
On Series B Preferred Stock (37,500) (37,500) (112,500) (112,500)
---------- ---------- ----------- ----------
Net Income (Loss) Attributable To
Common Shareholders ($444,452) $ 221,349 ($1,006,056) ($215,143)
========== ========== =========== ==========
Weighted Average Number of Shares 3,980,141 3,980,141 3,980,141 3,980,141
========== ========== =========== ==========
Net Income (Loss) Per Share Attributable To
Common Shareholders ($0.11) $0.06 ($0.25) ($0.05)
====== ===== ====== ======
</TABLE>
Notes to Pro-Forma results of Operations:
1 Interest expense adjusted due to the
conversion of DataImage, Inc.'s stockholders'
notes payable to common stock.
2 Primary and fully-diluted net income (loss)
per share of common stock is calculated as
indicated (the assumed conversion of certain
convertible preferred stock has not been
considered in the calculation since the
effect of such conversion would be
antidilutive).
13
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
NOTE 3. NOTE PAYABLE, BANK
The Company and several affiliated entities (collectively the
"Judge Group") have entered into a credit agreement with PNC
Bank, N.A. (successor to Midlantic Bank, N.A.) (the "Bank")
pursuant to which the Bank has agreed to provide Judge Group
and JIS with a $10.0 million revolving advance facility (the
"Line of Credit") and a $1.0 million term loan. The Line of
Credit expires on May 31, 1998 and carries an interest rate
of prime plus 1.0% (9.25% at September 30, 1996). This
facility allows JIS and the Judge Group to borrow in the
aggregate the lesser of 80% of eligible receivables or
$10,000,000. As of September 30, 1996 total borrowings under
the Line of Credit were $2,585,558. The Line of Credit
contains financial covenants certain of which were in
violation at September 30, 1996, but which were waived by the
Bank. The Line of Credit is collateralized by substantially
all of the Company's assets as well as substantially all of
The Judge Group, Inc.'s and Judge Technical Services, Inc.'s
assets and is personally guaranteed by certain shareholders.
In addition, the Company, as well as each of its affiliates,
is jointly and severally responsible for all of the debt
outstanding under the Line of Credit. The term loan, which
carries an interest rate of prime plus 1.5%, is payable in 60
monthly installments. The Company has not received any
proceeds of borrowings under the term loan.
Included in accounts payable and accrued expenses at
September 30, 1996 were approximately $773,000 of bank
overdrafts.
NOTE 4. RELATED PARTY TRANSACTIONS
The Company had advances from The Judge Group, Inc. (formerly
Judge, Inc.) and Judge Technical Services, Inc. amounting to
$1,450,450 at December 31, 1995. These advances increased to
$1,520,000 during the first quarter of 1996. At the effective
time of the Merger, these advances were converted into 1,500
shares of Judge Preferred Stock (the "shares"). The shares
are not convertible, nor do they have any liquidation
preference and carry a 10% cumulative annual dividend.
Dividend payments are permitted, contingent upon certain
profit goals set forth by the Company. Partial and full
redemption of the $1,500,000 face amount is permitted,
contingent upon the dollar value of proceeds raised in a
subsequent public offering. Subsequent to the closing of the
Merger, such shares were converted into 1,500 shares of
Series B Preferred Stock of the surviving corporation from
the Merger. JIS shares have the same rights and privileges as
the predecessor shares, and are mandatorily redeemable upon
the tenth anniversary of issuance or upon a subsequent public
offering of at least $6,000,000.
During the nine months ended September 30, 1996 and 1995, the
Company billed a subsidiary of The Judge Group, Inc. for
consulting and related technical advisory services in the
amount of $45,000 and $360,000, respectively. During the nine
months ended September 30, 1996 and 1995, the Company sold
approximately $455,000 and $154,000, respectively, of
computer-related equipment to The Judge Group, Inc. and/or
its subsidiaries. Such amounts are included in net revenues
in the accompanying statement of operations.
NOTE 5. PREFERRED STOCK
Holders of preferred stock at December 31, 1995 were entitled
to vote as a single class with the holders of the Company's
common stock. In addition, holders of preferred stock were
entitled to receive cumulative dividends at the annual rate
of $.005 per share. Cumulative dividends in arrears at
December 31, 1995 were approximately $74,000. No dividends
were declared or paid in 1995. During 1996, preferred
stockholders waived such dividends due and converted their
preferred stock into common stock (see Note 1).
14
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
NOTE 6. STATEMENT OF CASH FLOWS
Supplemental Disclosure of Noncash Financing Transactions:
During 1996, $1,520,000 of advances from affiliates were
converted to mandatorily redeemable preferred stock.
During 1996, $366,577 of preferred stock was converted to
common stock.
During 1996, a $50,000 note receivable was forgiven due to
the Merger.
Supplemental Disclosure of Noncash Investing Activities:
During 1996, the Company entered into certain financing
arrangements for the purchase of property and equipment in
the amount of approximately $107,000.
During 1995, the Company entered into certain financing
arrangements for the purchase of property and equipment in
the amount of approximately $15,000.
Supplemental Disclosure of Noncash Investing and Financing
Activities:
Effective February 29, 1996, Judge Computer Corporation and
DataImage effected a Merger:
<TABLE>
<S> <C>
Acquisition of Business:
Inventories $ 39,101
Accounts Receivable 104,127
Property and Equipment 150,034
Other Assets 10,780
---------
304,042
---------
Accounts Payable and Accrued Expenses (82,087)
Due to Judge (100,000)
Deferred Revenue and Customer Deposits (362,037)
---------
(544,124)
---------
Net liabilities assumed in Merger ($240,082)
=========
</TABLE>
NOTE 7. PROPOSED MERGER WITH THE JUDGE GROUP, INC.
On September 4, 1996 the Board of Directors for both The Judge
Group, Inc. (formerly Judge, Inc.) and JIS approved the
proposed acquisition of JIS by The Judge Group, Inc. by means
of a merger of JIS into a wholly-owned subsidiary of The Judge
Group, Inc (the "JIS Merger"). On October 1, 1996, The Judge
Group, Inc. filed a Registration Statement on Form S-1 (the
"S-1") with the Securities and Exchange Commission ("SEC")
registering the shares it proposes to sell in an initial
public offering (the "Public Offering"). On October 9, 1996,
The Judge Group, Inc. filed a Registration Statement on Form
S-4 (the "S-4") with the SEC registering the stock to be
issued by The Judge Group, Inc. to the shareholders of JIS in
connection with the JIS Merger. Subject to JIS stockholder
approval, immediately prior to the Public Offering, and as a
condition to the completion of the Public Offering, the
15
<PAGE>
JIS Merger will occur, with JIS merging into a newly
organized, wholly-owned subsidiary of The Judge Group, Inc.
("Judge Acquisition"). Judge Acquisition will be the surviving
corporation in the JIS Merger and will change its name to
"Judge Imaging Systems, Inc." As a result of the JIS Merger,
JIS will become a wholly-owned subsidiary of The Judge Group,
Inc. at the time of the Public Offering. Each share of JIS
common stock or Series A Preferred Stock outstanding at the
time of the JIS Merger will be converted into that number of
Common Shares of The Judge Group, Inc. equal to $2.50 divided
by the initial per share price in the Public Offering.
However, completion of the JIS Merger is subject to (i)
approval of the stockholders of JIS, (ii) the SEC declaring
both the S-1 and the S-4 effective, and (iii) completion of
the Public Offering and certain other conditions related
thereto.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS FOR THE THIRD
QUARTER ENDING AND THE NINE MONTHS ENDING SEPTEMBER 30, 1996
Results of Operation
Net loss. The Company incurred a net loss for the third quarter 1996 before
preferred dividends of $387,752 versus income of $168,762 for the third quarter
1995. This result is principally attributable to a 146% increase in selling,
general and administrative expenses offset by a corresponding
increase in net revenues of 41%.
For the nine months ending September 30, 1996, however, the Company incurred a
loss before preferred dividends of $813,035 versus a loss for the same period in
1995 of $80,836. This $732,199 increase in loss is due primarily to increased
selling, general and administrative expenses of 128% which were primarily due to
increases in staffing necessary to support the revenue growth, the
implementation of the Company's sales plans which included a significant
increase in the sales force, costs of acquiring new office locations and costs
associated with developing and creating new consulting services. Preferred
dividends earned increased by $52,118 for the third quarter of 1996 as compared
to the third quarter of 1995, and increased $118,553 for the nine months ended
September 30, 1996 compared to September 30, 1995. These increases are a result
of the issuance of additional preferred stock to certain investors concurrent
with the merger with DataImage on February 29, 1996.
Net revenues. Revenues for the third quarter of 1996 increased 41% as compared
to revenues for the third quarter of 1995. This increase is attributable to a
28% increase in network service revenues as compared to the network service
revenues for the third quarter of 1995, as well as a 79% increase in the imaging
revenues for the third quarter of 1996 compared to the same period for 1995.
Revenues for the nine months ending September 30, 1996 increased 63% as compared
to the same period for 1995. This increase is mostly attributable to an increase
in network service revenue of 50% and an increase in imaging revenue of 85% for
the nine months ending September 30, 1996 as compared to the nine months ending
September 30, 1995, which increase directly resulted from an increased sales
staff and a more focused marketing effort.
Cost of revenues. Cost of revenues for the third quarter of 1996 increased by
44% or $898,649, as compared to the third quarter of 1995. Cost of revenues as a
percentage of revenues were 75% for the third quarter 1996 as compared to 73%
for the third quarter of 1995. This result was caused by (i) increased revenues
and (ii) higher margins for the imaging revenue for the third quarter of 1995.
Cost of revenues for the nine months ended September 30, 1996 increased
$2,884,872 or 62% as compared to the same period for 1995. Cost of revenues as a
percent of revenue for the nine months ended September 30, 1996 were 75% as
compared to 76% for the same period in 1995. This is a direct result of
increased revenues and in particular increases in imaging revenues which have a
lower cost of revenues/higher profit margin than network services revenue.
Operating expenditures consisting of selling, general and administrative costs
increased approximately 146% for the third quarter of 1996 and 128% for the nine
months ending September 30, 1996 versus the comparable periods in the prior
year. This increase is primarily attributable to the Company's increase in
staffing associated with increased sales, expansion of office locations and
creating new consulting programs to enhance the product line. Staffing levels
increased to 101 employees as of September 30, 1996 versus 59 employees as of
September 30, 1995.
16
<PAGE>
Interest expense. Interest expense for the third quarter of 1996 was $58,227 as
compared to $36,277 for the third quarter of 1995. Interest expense for the nine
months ending September 30, 1996 and 1995 was $148,209 and $144,164,
respectively. The increase was primarily attributable to the increase in bank
borrowings.
Proposed Merger with the Judge Group, Inc. On September 4, 1996 the board of
directors for JIS approved a proposed Merger Agreement with a wholly-owned
subsidiary of The Judge Group, Inc., the details of which are summarized in Note
7 of Notes to Condensed Financial Statements.
Backlog. Backlog of orders as of September 30, 1996 was $1,682,180 compared to
$1,792,815 at September 30, 1995. While the amounts remain approximately the
same there is a larger percent of imaging bookings versus network service
bookings. Imaging revenues historically have generated a higher profit margin
than network service revenues.
17
<PAGE>
Liquidity and Capital Resources
JIS experienced negative cash flow from operations of approximately $2,259,606
and $1,351,519 for the nine months ended September 30, 1996 and 1995,
respectively. JIS' primary uses of cash have been to fund losses from
operations, increases in accounts receivables, purchases of fixed assets and
repayments of long-term debt. JIS' net accounts receivable have increased from
$1.5 million at December 31, 1995 to $2.9 million at September 30, 1996,
principally due to an increased number of imaging and network services
contracts. Purchases of fixed assets for the nine months ended September 30,
1996 and 1995 were $185,866 and $56,467, respectively.
JIS has funded its needs for cash primarily through advances by the Judge Group,
borrowings under the credit facility (as described in Note 3 of Notes to
Condensed Financial Statements) and the proceeds of a private placement. At
February 29, 1996, Judge Group had outstanding advances to JIS of approximately
$1.5 million which were converted into JIS Series B Preferred Stock at the time
of the merger of Judge Computer into DataImage. Cash provided from bank
borrowings including the bank overdraft, was approximately $1.5 million and $1.1
million for the nine months ended September 30, 1996 and 1995, respectively. In
addition, JIS received net cash proceeds of $888,000 from a private placement of
Series A Preferred shares in February 1996 at the time of the Judge
Computer/DataImage merger.
JIS, The Judge Group, Inc. and certain affiliated entities have entered into a
credit agreement with PNC Bank, N.A. (successor to Midlantic Bank, N.A.)
pursuant to which PNC Bank has agreed to provide JIS and The Judge Group, Inc.
with a $10.0 million revolving advance facility (the "Line of Credit") and a
$1.0 million term loan. The Line of Credit expires on May 31, 1998, and carries
an interest rate of prime plus 1.0%. This facility allows JIS and The Judge
Group, Inc. to borrow in the aggregate the lesser of 80% of eligible receivables
or $10.0 million. As of September 30, 1996 total borrowings under the Line of
Credit were $2,585,558. The Judge Group, Inc. and JIS are severally and jointly
liable to repay all sums advanced under the credit facility, which is secured by
a lien on all accounts receivables, inventory and other assets of The Judge
Group, Inc. and JIS. The Line of Credit retains customary restrictive covenants,
including limitations on the incurrence of additional debt and the payment of
dividends on The Judge Group, Inc.'s and JIS' common or preferred shares. The
Line of Credit contains financial covenants, certain of which were in violation
at September 30, 1996, but which were waived by the Bank. The Company is in the
process of amending the Line of Credit to (i) include other Company affiliates
as "Borrowers," (ii) revise the definition of Tangible Net Worth to include the
Series A Preferred Stock as subordinated debt, (iii) to change the Ratio of
Liabilities Service Coverage from 1.3 to 1, and (iv) to amend an event of
default provision to reflect the accurate stockholdings of a certain
shareholder. The term loan, which carries an interest rate of prime plus 1.5%,
is payable in 60 monthly installments. JIS has not received any proceeds of
borrowings under the term loan.
18
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
Effective as of July 31, 1996, the Board of Directors of the Company (the
"Board") increased the size of the Board to five members and Messrs. Robert E.
Keith, Jr. and Marvin N. Demchick were duly appointed by the Board of Directors
to fill the two vacancies created thereby.
Item 6. Exhibits and Reports on Form 8-K.
LIST OF EXHIBITS
Exhibit
Number Exhibit Name
- ------ ------------
2 Agreement and Plan of Merger, dated as of October 1, 1996, by and among
Judge Imaging Systems, Inc., The Judge Group, Inc. and Judge
Acquisition, Inc.
3(i)(a) Second Restated Certificate of Incorporation of the Company, effective
February 29, 1996. Exhibit 3(i)(a) of the Company's Report on Form
10-QSB/A filed June 14, 1996 is herein incorporated by reference.
3(ii)(a) By-laws of the Company, effective April 10, 1996. Exhibit 3(ii)(a) of
the Company's Report on Form 10-QSB/A filed June 14, 1996 is herein
incorporated by reference.
10(l) Employment Agreement between the Company and Jeff Andrews dated
May 1, 1996.
10(m) Sales Agreement between the Company and Putnum.
27 Financial Data Schedule
19
<PAGE>
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
JUDGE IMAGING SYSTEMS, INC.
Date: September 14, 1996 By: /s/ Martin E. Judge, Jr.
----------------------------
Martin E. Judge, Jr.
Chief Executive Officer
Date: September 14, 1996 By: /s/ Jeffrey J. Andrews
--------------------------
Jeffrey J. Andrews
Chief Financial Officer
20
<PAGE>
EXHIBIT INDEX
Exhibit
Number Exhibit Name
- ------- ------------
2 Agreement and Plan of Merger, dated as of October 1, 1996, by and among
Judge Imaging Systems, Inc., The Judge Group, Inc. and Judge
Acquisition, Inc.
3(i)(a) Second Restated Certificate of Incorporation of the Company, effective
February 29, 1996. Exhibit 3(i)(a) of the Company's Report on Form
10-QSB/A filed June 14, 1996 is herein incorporated by reference.
3(ii)(a) By-laws of the Company, effective April 10, 1996. Exhibit 3(ii)(a) of
the Company's Report on Form 10-QSB/A filed June 14, 1996 is herein
incorporated by reference.
10(l) Employment Agreement between the Company and Jeff Andrews dated
May 1, 1996.
10(m) Sales Agreement between the Company and Putnum.
27 Financial Data Schedule
21
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of
October 1, 1996, is by and among JUDGE IMAGING SYSTEMS, INC., a Delaware
corporation ("JIS"), THE JUDGE GROUP, INC., a Pennsylvania corporation ("Judge,"
formerly Judge, Inc.), and JUDGE ACQUISITION, INC., a Delaware corporation and a
wholly-owned subsidiary of Judge ("Acquisition").
BACKGROUND
The respective boards of directors of JIS, Judge and Acquisition have
each approved the acquisition of JIS by Judge through a merger (the "Merger") of
JIS with and into Acquisition (JIS and Acquisition being sometimes hereinafter
together referred to as the "Constituent Corporations"), upon the terms and
subject to the conditions hereinafter set forth, in which outstanding shares of
JIS Common Stock, par value $.01 per share ("JIS Common Shares"), and JIS Series
A Convertible Preferred Stock, par value $.01 per share ("JIS Series A Preferred
Shares") will be converted into and become shares of Judge Common Stock, par
value $.01 per share ("Judge Common Shares").
TERMS
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants, agreements and conditions contained herein, and in order
to set forth the terms and conditions of the Merger and the mode of carrying the
same into effect, the parties hereto, intending to be legally bound, hereby
agree as follows:
SECTION 1
THE MERGER
1.1 The Merger. At the Effective Time (as hereinafter defined), JIS shall be
merged with and into Acquisition pursuant to this Agreement, the separate
corporate existence of JIS shall cease (except as it may be continued by
operation of law) and Acquisition shall continue as the surviving corporation
under the corporate name "Judge Imaging Systems, Inc.," all upon the terms and
subject to the conditions provided for in this Agreement and pursuant to the
Delaware General Corporation Law (the "DGCL"). Acquisition, as it exists from
and after the Effective Time, is sometimes hereinafter referred to as the
"Surviving Corporation."
1.1.1 Effect of the Merger. The Merger shall have the effects specified
in Sections 259, 260 and 261 of the DGCL. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, except as otherwise
provided herein, all the property, rights, privileges, powers and franchises of
Acquisition and JIS shall vest in the Surviving Corporation, and all debts,
liabilities and duties of Acquisition and JIS shall become the debts,
liabilities and duties of the Surviving Corporation.
<PAGE>
1.1.2 Certificate of Incorporation. At the Effective Time, the
Certificate of Incorporation of the Surviving Corporation shall be the
Certificate of Incorporation of Acquisition as in effect immediately prior to
the Effective Time, continuing until thereafter amended in accordance with the
provisions therein and as provided by the DGCL, except that as of the Effective
Time, the following provision of the Certificate of Incorporation of the
Surviving Corporation shall be amended in its entirety to read as follows:
"1. The name of the corporation is Judge Imaging Systems, Inc."
1.1.3 Bylaws. At the Effective Time, the Bylaws of the Surviving
Corporation shall be the Bylaws of Acquisition as in effect immediately prior to
the Effective Time, continuing until thereafter amended in accordance with its
terms and the Certificate of Incorporation of the Surviving Corporation and as
provided by the DGCL.
1.1.4 Directors and Officers. The persons who are the directors and
officers of JIS at the Effective Time shall become the directors and officers of
the Surviving Corporation at the Effective Time. Such persons shall hold such
positions as directors and officers until their successors are elected or
appointed in accordance with the Certificate of Incorporation and the Bylaws of
the Surviving Corporation.
1.1.5 Tax-Free Reorganization. The parties intend that the Merger
qualify as a tax-free reorganization under Section 368(a) of the Internal
Revenue Code of 1986, as amended, and the regulations thereunder (the "Code").
1.2 Closing and Effective Time. Subject to the Merger receiving the Requisite
Stockholder Approval of JIS stockholders pursuant to Section 5.2 and subject to
the provisions of this Agreement, the parties shall hold a closing (the
"Closing") on either (i) the later of (A) the first business day following the
meeting of the stockholders of JIS to consider and vote upon the Merger or (B)
the business day on which the last of the conditions set forth in Section 6 to
be fulfilled prior to the Closing is fulfilled or waived, or (ii) such other
date as the parties hereto may agree (the "Closing Date"), at 10:00 A.M. (local
time) at the offices of Drinker Biddle & Reath, Berwyn, Pennsylvania, or at such
other time or place as the parties hereto may agree. On the Closing Date, the
parties shall effect the Merger by filing a Certificate of Merger (the
"Certificate of Merger") with the Secretary of State of the State of Delaware in
accordance with the provisions of the DGCL. The Merger shall become effective at
the time of the filing of the Certificate of Merger or at such later time on the
Closing Date as may be specified in the filing with the Secretary of State of
the State of Delaware (the "Effective Time"). As a result of the Merger, the
Surviving Corporation shall become a wholly-owned subsidiary of Judge at the
Effective Time.
-2-
<PAGE>
SECTION 2
CONVERSION OF SHARES AND OTHER MATTERS
2.1 Cancellation of Securities. At the Effective Time, by virtue of the Merger
and without any action on the part of Judge, Acquisition, JIS or any holder of
any shares of capital stock of JIS (the "JIS Stock"):
2.1.1 Cancellation of Treasury Stock. Each JIS Common Share and each
share of any class or series of JIS Preferred Shares ("JIS Preferred Shares")
which may be held in the treasury of JIS immediately prior to the Effective Time
shall be canceled and shall cease to exist at and after the Effective Time
without payment of any consideration therefor.
2.1.2 Cancellation of JIS Series B Preferred Shares. Each share of JIS
Series B Preferred Shares, par value $.01 per share ("JIS Series B Preferred
Shares"), issued and outstanding immediately prior to the Effective Time shall
cease to the outstanding and shall automatically be canceled and retired at the
Effective Time of the Merger.
2.1.3 Cancellation of JIS Options; No Convertible Securities. All
options and warrants, if any, to purchase JIS Common Shares that have been
issued by JIS and that are outstanding immediately prior to the Effective Time
shall be canceled and shall cease to exist at and after the Effective Time and
no capital stock of the Surviving Corporation or Judge, cash or other
consideration shall be paid or delivered in exchange therefor or in exercise
thereof in connection with the Merger. At the Effective Time, other than as
described in Section 2.2 with respect to the conversion of JIS capital stock in
the Merger, and Section 2.4 with respect to shares held by Dissenters (as
hereinafter defined), there shall not be any other securities, rights, warrants
or other instruments originally issued by JIS which, after consummation of the
Merger, would be convertible into or exercisable for securities of the Surviving
Corporation or Judge.
2.1.4 Cancellation of JIS Common Shares owned by Judge. Each JIS Common
Share owned by Judge immediately prior to the Effective Time shall be canceled
and shall cease to exist at and after the Effective Time without payment of any
consideration therefor.
2.2 Conversion of JIS Capital Stock. At the Effective Time, by virtue of the
Merger and without any action on the part of Judge, Acquisition, JIS or any
holder of any JIS Stock, except as provided in Sections 2.1 (with respect to
shares held by Judge) and 2.4 (with respect to shares held by Dissenters), each
remaining outstanding JIS Common Share and JIS Series A Preferred Share (and
together with JIS Common Shares, "JIS Shares") shall be converted (subject to
the provisions set forth in Section 2.3 regarding fractional share interests) as
follows:
2.2.1 Each such JIS Common Share shall be converted into that number of
Judge Common Shares equal to $2.50 divided by the offering price to the public
(the "IPO Offering Price") of Judge Common Shares registered under the
Securities Act of 1933, as amended (the "1933 Act"), on a registration statement
(the "IPO Registration Statement") on Form S-1 filed
-3-
<PAGE>
with the Securities and Exchange Commission (the "SEC") and declared effective
by the SEC prior to the Effective Time; and
2.2.2 Each such JIS Series A Preferred Share shall be converted into
that number of Judge Common Shares obtained by (i) dividing $2.50 by the IPO
Offering Price, and (ii) multiplying the quotient so obtained by the number of
JIS Common Shares issuable upon the conversion of such JIS Series A Preferred
Share immediately prior to the Effective Time. On the date hereof, such
conversion ratio is one JIS Common Share per one JIS Series A Preferred Share so
converted.
2.2.3 The Judge Common Shares to be issued in the Merger pursuant to
this Section 2.2 are referred to herein as the "Merger Shares."
2.3 No Fractional Shares. No fractional Judge Common Shares will be issued in
the Merger and each holder of outstanding JIS Shares immediately prior to the
Effective Time excluding Dissenters (the "JIS Holders") will receive cash in
lieu of any fraction of a Judge Common Share otherwise issuable to such person
in an amount equal to such fraction multiplied by the IPO Offering Price of
Judge Common Shares.
2.4 Dissenting Shares. Notwithstanding anything herein to the contrary, JIS
Common Shares and JIS Preferred Shares that are outstanding immediately prior to
the Effective Time and that are held by stockholders, if any, who shall have
performed all such acts as are required to perfect appraisal rights pursuant to
Section 262 of the DGCL (a "Dissenter") shall be converted into the right to
receive the consideration payable in respect thereof in accordance with the
DGCL, unless such holder loses the status and rights of a Dissenter after the
Effective Time. Any such payment shall be made by JIS. If after the Effective
Time such holder loses the status and rights of a Dissenter, the JIS Shares held
by such holder shall be treated as if they had been converted as of the
Effective Time into the right to receive such holder's allocable portion of the
Merger Shares. JIS shall promptly provide Judge with copies of any written
demand for payment received by JIS from a Dissenter, and Judge shall have the
right to participate in all negotiations and proceedings with respect to any
such demand. JIS shall not, except with the prior written consent of Judge, make
any payment with respect to, or settle or offer to settle, any such demand.
2.5 Exchange Procedure.
2.5.1 Exchange Agent. As of the Effective Time, Judge shall deposit
with a bank, trust company, transfer agent or other person designated by Judge,
which may be Judge itself (the "Exchange Agent"), for the benefit of each holder
of an outstanding certificate or certificates (the "JIS Certificates") which
prior thereto represented JIS Shares, for exchange in accordance with this
Section 2.5, certificates representing the Merger Shares.
2.5.2 Surrender of Certificates. As promptly as practicable after the
Effective Time, the Exchange Agent shall mail to each holder of an outstanding
certificate or certificates
-4-
<PAGE>
which prior thereto represented JIS Shares (i) a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title to the
JIS Certificates shall pass, only upon delivery of the JIS Certificates to the
Exchange Agent and shall be in such form and have such other provisions as Judge
and JIS may reasonably specify), and (ii) instructions for use in effecting the
surrender of the JIS Certificates in exchange for certificates representing
Judge Common Shares and any cash in lieu of any fractional Judge Common Shares.
Such holder shall upon such surrender receive in exchange therefor a certificate
or certificates representing the number of whole Judge Common Shares into which
such JIS Shares shall have been converted. Until so surrendered and exchanged,
each outstanding certificate which, prior to the Effective Time, represented JIS
Shares shall, upon and after the Effective Time, be deemed for all purposes
(other than to the extent provided in the following sentence) to evidence
ownership of the number of whole Judge Common Shares into which such JIS Shares
have been converted. Dividends, if any, payable after the Effective Time to
holders of Judge Common Shares shall, at Judge's option, be withheld from
holders of certificates formerly representing JIS Shares until such certificates
(or lost share affidavits reasonably acceptable in form and substance to Judge)
are surrendered for exchange in accordance with this Section 2.5 and, if so
withheld, shall then be paid without interest thereon.
2.5.3 Unsurrendered Certificates. In the event that any certificates
formerly representing JIS Shares (or lost share affidavits reasonably acceptable
in form and substance to Judge) are not surrendered for exchange by the first
anniversary of the Effective Time (the "Unsurrendered Certificates"), those
certificates representing Judge Common Shares corresponding to such
Unsurrendered Certificates then held by the Exchange Agent shall be delivered to
Judge, upon demand, and any stockholders of JIS who have not previously complied
with this Section 2.5 shall thereafter look only to Judge for payment of their
claim for Judge Common Shares and any cash in lieu of fractional Judge Common
Shares.
SECTION 3
MATTERS PRIOR TO CLOSING
3.1 Conversion Transactions. Prior to the Effective Time, (i) the Convertible
Senior Subordinated Promissory Notes of Judge (the "Lore Notes"), issued by
Judge pursuant to a 10% Convertible Senior Subordinated Note Purchase Agreement
(the "Purchase Agreement"), dated July 1994, which Lore Notes are convertible
into Judge Common Shares, shall be fully converted into Judge Common Shares, and
(ii) an option held by Raymond Sozzi (the "Sozzi Option") to purchase 25,000 JIS
Common Shares at an exercise price of $1.33 per share, shall be exercised on a
"cashless exercise" basis for 11,700 JIS Common Shares. The transactions
contemplated in this Section 3.1 are referred to as the Conversion Transactions.
In the event that the Conversion Transactions are not consummated prior to
Closing, this Agreement shall terminate and the Merger shall be abandoned
without any action on the part of Judge, Acquisition or JIS.
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3.2 Public Offering. Judge intends to make an offering of its Judge Common
Shares to the public, underwritten on a firm commitment basis by a managing
underwriter selected by Judge (the "Public Offering"), pursuant to the IPO
Registration Statement. In the event that the Public Offering is not consummated
at a price and on terms satisfactory to Judge, in its sole discretion, prior to
or simultaneously with the Closing, this Agreement shall terminate and the
Merger shall be abandoned without any action on the part of Judge, Acquisition
or JIS.
SECTION 4
MUTUAL REPRESENTATIONS AND WARRANTIES
Judge and Acquisition hereby represent and warrant to JIS, and JIS
hereby represents and warrants to Judge, that, as of the date hereof and as of
the Closing Date, except as set forth in a Disclosure Schedule delivered by such
party contemporaneously with the execution of this Agreement:
4.1 Organization and Qualification. In the case of Judge and Acquisition, each
of Judge and Acquisition is a corporation duly organized, validly existing and
in good standing under the laws of the state in which it is incorporated, having
full power and authority to carry on its business as it has been and is now
being conducted and to own, lease and operate its assets and properties. In the
case of JIS, JIS is a corporation duly organized, validly subsisting and in good
standing under the laws of the State of Delaware, having full power and
authority to carry on its business as it has been and is now being conducted and
to own, lease and operate its assets and properties. In the case of each party,
as of the Effective Time, it will be duly qualified to do business and will be
in good standing in every jurisdiction in which such qualification is required,
all of which jurisdictions are disclosed in its Disclosure Schedule. Except for
the entities listed in its Disclosure Schedule (its "Subsidiaries"), it has no
subsidiaries and no stock or other equity or ownership interest (whether
controlling or not) in any corporation, association, partnership, joint venture
or other entity. Each of its Subsidiaries is duly organized, validly existing
and in good standing under the laws of such Subsidiary's respective jurisdiction
of incorporation set forth in its Disclosure Schedule and will be duly qualified
and in good standing in every jurisdiction in which such qualification is
required, all of which jurisdictions are disclosed in its Disclosure Schedule.
4.2 Capitalization.
4.2.1 In the case of Judge, its authorized capital stock immediately
prior to the Effective Time shall consist of 50,000,000 Judge Common Shares and
10,000,000 shares of preferred stock ("Judge Preferred Shares"). After the
consummation of the Conversion Transactions and immediately before the Effective
Time of the Merger and the consummation of the Public Offering, there will be
outstanding 9,113,739 Judge Common Shares and no Judge Preferred Shares.
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4.2.2 In the case of JIS, its authorized capital stock consists of
10,000,000 JIS Common Shares and 5,000,000 JIS Preferred Shares, of which
1,125,000 shares are designated as JIS Series A Preferred Shares, 1,500 shares
are designated as JIS Series B Preferred Shares and the remainder are unissued
shares of "blank check" preferred stock. As of the date of this Agreement, there
are outstanding 3,980,141 JIS Common Shares, not including the exercise of the
Sozzi Option as described in Section 3.1, 822,628 JIS Series A Preferred Shares
and 1,500 JIS Series B Preferred Shares.
4.2.3 In the case of either party, all of its outstanding shares of
capital stock have been duly authorized and validly issued, are fully paid and
nonassessable, were not issued in violation of the terms of any contract,
agreement or commitment binding upon it, and were issued in compliance with all
of its applicable charter documents and all applicable federal and state
statutes, laws, regulations and rules (the "Laws"). Except as set forth in its
Disclosure Schedule, there are, and have been, no preemptive rights with respect
to the issuance of its shares of capital stock. Its Disclosure Schedule lists
all agreements, contracts or arrangements to which it is a party or of which it
is aware regarding (i) the registration of transactions in its capital stock
under any securities law, or (ii) any voting or transfer arrangements with
respect to any of its shares of capital stock.
4.3 Options and Additional Rights.
4.3.1 Except for the options and warrants described in Section 3.1 or
in its Disclosure Schedule in response to this Section 4.3.1 and any convertible
securities described in Sections 4.2 or 3.1 of this Agreement, (i) there are not
outstanding any contracts, agreements, subscriptions, options, warrants,
commitments or rights of any character to purchase or otherwise acquire, or any
stock appreciation or similar rights measured by the value of, any shares of its
capital stock or other securities, including without limitation convertible or
exchangeable securities, and (ii) it is not party to any agreement the benefits
of which (including without limitation severance benefits) are contingent, or
the terms of which are materially altered, upon the occurrence of a transaction
involving it of the nature of any of the transactions contemplated by this
Agreement. Its Disclosure Schedule accurately sets forth as of the date of this
Agreement all outstanding warrants, and all outstanding options granted by it,
vested or unvested, together with the identity of the optionees or warrant
holders, the vesting schedule for such options or warrants, if any, the exercise
price and the date on which such options or warrants were granted.
4.3.2 Except as otherwise provided in this Agreement, consummation of
the transactions contemplated hereby will not obligate it to issue any
additional equity interest in it, to declare any dividend or make any
distributions of any property or assets, or to redeem, purchase, acquire or
offer to acquire any shares of its capital stock.
4.4 Subsidiaries. Its Disclosure Schedule sets forth a description of all
of the issued and outstanding equity securities of each of its Subsidiaries. It
owns of record and beneficially all of the issued and outstanding capital stock
of each of its Subsidiaries, free and clear of any
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mortgage, lien, security interest, pledge, encumbrance, restriction on
transferability, defect of title, charge or claim of any nature whatsoever
("Liens"). "Group" with respect to a designated party means the designated party
and each of its Subsidiaries, as a whole and individually with respect to each
of them.
4.5 Authority and Binding Effect. It has all requisite power and authority to
execute and deliver this Agreement and, upon receipt of its Requisite
Stockholder Approval (as hereinafter defined), to perform the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions herein contemplated will not contravene or
violate its Certificate or Articles of Incorporation or Bylaws. This Agreement
has been duly and validly executed and delivered by it and, subject to obtaining
its Requisite Stockholder Approval, constitutes the legal, valid and binding
obligation of it, enforceable against it in accordance with its terms, except to
the extent that enforceability thereof may be limited by applicable bankruptcy,
insolvency, reorganization or other similar laws relating to or affecting the
enforcement of creditors' rights generally and by principles of equity regarding
the availability of remedies. "Requisite Stockholder Approval" means, (i) in the
case of Judge, the approval of this Agreement and the Merger and the issuance of
the Merger Shares by the affirmative vote of a majority of the votes cast by all
Judge stockholders entitled to vote thereat, and, (ii) in the case of JIS, the
approval of this Agreement and the Merger (A) by the holders of a majority of
the outstanding JIS Common Shares and JIS Series A Preferred Shares (with each
JIS Series A Preferred Share being entitled to the number of votes equal to the
number of JIS Common Shares into which each JIS Series A Preferred Share could
be converted on the record date for the vote) voting together as a single class,
and (B) separately by the holders of a majority of the outstanding JIS Series A
Preferred Shares voting together as a class.
4.6 Validity of Contemplated Transactions. Neither the execution and delivery of
this Agreement by it nor the consummation of the transactions contemplated
hereby will (i) contravene or violate, any federal, state or local statute, law,
ordinance, regulation, order or rule ("Regulation") or any judgment, decree,
injunction, order or ruling of any court or governmental or regulatory authority
which is applicable to its Group; (ii) result in a default or loss of a benefit
under, or permit the acceleration of any obligation under, or require the
consent or approval of any party to, any contract, agreement, commitment,
permit, concession, franchise, license or authorization applicable to its Group,
or (iii) require its Group to notify or obtain any license, permit, approval or
authorization from any governmental or regulatory authority or, except as set
forth in its Disclosure Schedule, other person or entity; except for (A) its
Requisite Stockholder Approval, (B) in the case of Judge, the effective
registration under the 1933 Act, and all requisite compliance with state
securities or "blue-sky" laws in connection with the issuance of Judge Common
Shares in the Merger, (C) in the case of JIS, filings pursuant to the 1933 Act
and the Securities Exchange Act of 1934, as amended (the "1934 Act"), (D) the
filing of the Certificate of Merger and (E) in the case of (i) or (ii) above,
for any violation or default which, individually or in the aggregate, would not
have a Material Adverse Effect (as defined below). For purposes of this
Agreement, "Material Adverse Effect" means a material adverse effect on the
business, assets, financial condition or results of operations of its Group.
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4.7 Issuance of Judge Common Shares. In the case of Judge only, upon receipt of
its Requisite Stockholder Approval, the Merger Shares will be duly authorized
and, when issued in accordance with this Agreement, will be validly issued and
outstanding, fully paid and nonassessable Judge Common Shares.
4.8 Corporate Records. The minute books of its Group are current and contain
correct and complete copies of all of the charter documents of its Group,
including all amendments thereto and restatements thereof, and of all minutes of
meetings, resolutions and other actions and proceedings of its stockholders and
board of directors and all committees thereof, duly signed by the Secretary or
an Assistant Secretary, and in the case of written consents, all directors or
all stockholders. The stock record books of its Group are current, correct and
complete and reflect the issuance of all of the issued and outstanding shares of
its capital stock as of the date hereof.
4.9 Financial Statements; Reports.
4.9.1 Financial Statements. In the case of JIS, it has delivered to
Judge, and in the case of Judge, it has delivered to JIS, (i) its consolidated
balance sheets at December 31, 1995 and 1994, (ii) its related statements of
operations, changes in stockholders' equity and cash flows for the three years
then ended, and (iii) all related notes and schedules, all of which (the
"Year-End Financial Statements") have been audited by an independent public
accountant. JIS has also delivered to Judge, and Judge has delivered to JIS, (i)
its consolidated balance sheet at June 30, 1996, and (ii) its related statements
of operations, changes in stockholders' equity and cash flows for the six months
then ended (the "Interim Financial Statements") which have been audited by an
independent public accountant. The Year-End Financial Statements were prepared
in accordance with generally accepted accounting principles consistently applied
("GAAP") and, subject to any qualifications set forth in the applicable notes
and schedules, fairly present the financial position and results of operations
of its Group at December 31, 1995 and 1994 and for each of the years in the
three-year period ended December 31, 1995. The Interim Financial Statements have
been prepared in accordance with GAAP and, subject to any qualifications set
forth in the applicable notes and schedules, and subject to normal recurring
audit adjustments, fairly present the financial position and results of
operations of its Group at June 30, 1996 and for the six months then ended. All
Liabilities (as hereinafter defined) of its Group at December 31, 1995 and June
30, 1996, required to be reflected or reserved for by GAAP are fully reflected
or reserved for in the balance sheet included in the Year-End Financial
Statements and the Interim Financial Statements, respectively.
4.9.2 Reports. JIS has filed on a timely basis (i) all forms, reports,
statements and other documents required to be filed with (A) the SEC, including
without limitation (1) all Annual Reports on Form 10-KSB, (2) all Quarterly
Reports on Form 10-QSB, (3) all proxy statements relating to meetings of
shareholders (whether annual or special), (4) all Current Reports on Form 8-K
and (5) all other reports, schedules, registration statements or other documents
(collectively referred to as the "SEC Reports"), and (B) any applicable state
securities
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authorities and (ii) all forms, reports, statements and other documents required
to be filed with any other Regulatory Body, (all such forms, reports, statements
and other documents in clauses (i) and (ii) of this Section 4.9.2 being referred
to herein, collectively, as the "Reports"). The Reports (i) were prepared in all
material respects in accordance with the requirements of applicable law
(including, with respect to the SEC Reports, the 1933 Act or the 1934 Act, as
the case may be, and the rules and regulations of the SEC thereunder applicable
to such SEC Reports) and (ii) did not at the time they were filed contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
4.10 Books of Account. The books of account of its Group fairly reflect, in
accordance with GAAP, (i) all transactions relating to its Group and (ii) all
items of income and expense, assets and liabilities and accruals relating to its
Group. Its Group has not engaged in any transaction, maintained any bank account
or used any corporate funds except for transactions, bank accounts and funds
which have been and are reflected in the normally maintained books and records
of its Group.
4.11 Taxes. (i) All reports, returns, statements and other similar filings
required to be filed by it (the "Tax Returns") with respect to any Taxes (as
defined below) have been timely filed with the appropriate governmental agencies
in all jurisdictions in which such Tax Returns are required to be filed, and all
such Tax Returns correctly reflect the liability of it for Taxes for the
periods, properties or events covered thereby; (ii) all Taxes payable with
respect to the Tax Returns referred to in the preceding clause have been paid;
(iii) no deficiency in respect of any Taxes which has been assessed against it
remains unpaid and it has no knowledge of any unassessed Tax deficiencies or of
audits or investigations pending or threatened against it with respect to any
Taxes; (iv) no claim has ever been made by any Tax authority in a jurisdiction
in which its Group does not file Tax Returns that it is or may be subject to
taxation by that jurisdiction; and (v) there are no Liens for Taxes upon any
asset of its Group except for Liens for current Taxes not yet due. For purposes
of this Agreement, "Taxes" means any taxes, duties, assessments, fees, levies,
or similar governmental charges, together with any interest, penalties, and
additions to tax, imposed by any taxing authority, wherever located (i.e.
whether federal, state, local, municipal, or foreign), including, without
limitation, all net income, gross income, gross receipts, net receipts, sales,
use, transfer, franchise, privilege, profits, social security, disability,
withholding, payroll, unemployment, employment, excise, severance, property,
windfall profits, value added, ad valorem, occupation, or any other similar
governmental charge or imposition.
4.12 Absence of Undisclosed Liabilities. Its Group has no Liabilities, except as
set forth in its balance sheet at June 30, 1996, or in the case of JIS, its SEC
Reports, or in its Disclosure Schedule and except for those Liabilities arising
and outstanding since June 30, 1996 in the ordinary course of business of its
Group in accordance with past practice or related to the actions and
transactions contemplated hereby or under any contract which is disclosed in its
Disclosure Schedule. "Liability" means any material liability, indebtedness,
obligation, expense, claim,
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deficiency, guaranty or endorsement of or by any person (other than endorsements
of notes, bills and checks presented to banks for collection or deposit in the
ordinary course of business) of any type, whether accrued, absolute, contingent,
matured, unmatured or other.
4.13 Title to Assets. Its Group owns outright and has good and marketable title
to all of the assets of its Group reflected on the balance sheets included in
its Financial Statements disclosed in Section 4.9, free and clear of all Liens,
except liens reflected in its Financial Statements, liens for current taxes not
yet delinquent, liens imposed by law and incurred in the ordinary course of
business for obligations not yet due to carriers, warehousemen, laborers,
materialmen, and the like, liens in respect of pledges or deposits under
workers' compensation laws or similar legislation, and minor defects in title,
none of which, individually or in the aggregate, materially interferes with the
use of such property.
4.14 Intellectual Property. Except as disclosed in its Disclosure Schedule, its
Group has either (i) sufficient title and ownership of all patents, trademarks,
service marks, trade names, copyrights, trade secrets, information, proprietary
rights and processes (collectively, "Intellectual Property"), necessary for its
business and operations (as now conducted and as proposed to be conducted)
without any conflict with or infringement of the right of others, or (ii) where
it does not own the necessary Intellectual Property, it has acquired rights to
use such Intellectual Property under licenses granted to its Group by the owner
of such Intellectual Property.
4.15 Contracts. Except as disclosed in the Disclosure Schedule, all material
contracts, agreements, commitments, leases, mortgages, instruments or other
documents ("Contracts") to which its Group is a party are valid, binding and
enforceable in accordance with their respective terms, except to the extent that
enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization or other similar laws relating to or affecting the enforcement of
creditors' rights generally and by principles of equity regarding the
availability of remedies. Its Group has fulfilled, or taken all action necessary
to enable it to fulfill when due, all of its obligations under each of such
Contracts.
4.16 Compliance with Regulations and Court Orders. Its Group is not in violation
of, and the assets of its Group have not been used or operated by its Group or
any other person or entity in violation of, any Regulation or Court Order (as
hereinafter defined), except for such violations as do not subject its Group to
significant penalties or the compliance with which would not have a Material
Adverse Effect on its Group. All Court Orders to which its Group is a party or
subject to are listed in its Disclosure Schedule. Its Group has made all filings
or notifications and has obtained all licenses required to be made or obtained
by its Group under any Regulation applicable to its Group or its business or
assets. "Court Order" means any judgment, decree, injunction, order or ruling of
any Regulatory Body that is binding on the designated party, its Subsidiaries or
their properties under applicable law. "Regulatory Body" means any court or
governmental department, commission, board, bureau, agency, instrumentality, or
body, federal, state or local, domestic or foreign.
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4.17 Environmental Matters. Except as set forth on its Disclosure Schedule,
to its knowledge:
4.17.1 Its Group has been and are in material compliance with all
applicable federal, state and local law or regulation concerning or relating to
industrial hygiene or the protection of health and/or the environment (the
"Environmental Laws");
4.17.2 There are no conditions on, about, beneath or arising from any
properties owned or leased by its Group which would give rise to any liability
under any applicable Environmental Law or which would require any Response,
Removal or Remedial Action, as such terms are defined in Section 101 of the
Comprehensive Environmental, Compensation and Liability Act, 42 U.S.C.
(section) 9601 et seq. (1995), as amended, by such party;
4.17.3 Its Group has obtained and possesses all permits, licenses,
approvals and other authorizations necessary under any applicable Environmental
Law for the operation of its business except as would not have a Material
Adverse Effect;
4.17.4 Its Group has not received any notification of a release or
threat of a release of any substance regulated under any of the Environmental
Laws ("Hazardous Substance") at any site or location owned or operated by that
party; and
4.17.5 Its Group has not disposed of, transported or caused to be
transported any Hazardous Substance on or to any on-site or off-site location
which location currently is the subject of a federal, state or local enforcement
action or other investigation or for which claims have been asserted against
such party for clean-up costs, remedial work or damages to natural resources.
4.18 Litigation. Except as set forth in the Disclosure Schedule, there is no
Litigation (as hereinafter defined) pending or, to its knowledge, threatened
against its Group or its business or assets, and no event known to its Group has
occurred and no claim has been asserted against its Group that might result in
Litigation against its Group or its business or assets; and to, the best of its
Group's knowledge, there is no reasonable basis for any such claim. "Litigation"
means any lawsuit, action, arbitration, administrative or other proceeding,
criminal prosecution or governmental investigation or inquiry involving or
affecting the designated party or any of its Subsidiaries, the business, the
assets or any Contracts to which the designated party or any of its Subsidiaries
is a party or by which they or any of their assets or business may he bound or
affected.
4.19 Insurance. Except as set forth in the Disclosure Schedule, it is presently
insured, and has been insured against such risks as companies engaged in a
similar business would, in accordance with good business practice, customarily
be insured. The policies of fire, theft, liability and other insurance
maintained with respect to the assets or business of each Company provide
adequate coverage against loss.
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4.20 Employee Benefit Plans. Except as described in the Disclosure Schedule, its
Group does not maintain or contribute to any employee pension benefit plan
("Pension Plan"), as defined in section 3(2) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), any employee welfare benefit plan,
as defined in section 3(1) of ERISA, or any other plan or arrangement providing
compensation or benefits to its employees or former employees (collectively
"Benefit Plans"). To the knowledge of its Group, each Benefit Plan maintained by
its Group has been administered in compliance with its terms and is in
compliance with the applicable provisions of ERISA, the Code and other
applicable Laws. To the knowledge of its Group, its Group knows of no inquiries
or proceedings pending or threatened by any governmental department or agency,
or by any participant or beneficiary, with respect to any Benefit Plan now or
formerly maintained by its Group or to which it has contributed. Its Group has
made or provided for all contributions to Benefit Plans required by the terms of
such Benefit Plans or applicable Laws. Its Group has never contributed or been
required to contribute to any multiemployer plan, as defined in section 3(37) of
ERISA. Other than required "COBRA" coverage, its Group has never provided health
or life insurance coverage to former employees. Its Group has never maintained a
Pension Plan which was a defined benefit plan.
4.21 Registration Statement; Etc. None of the information supplied or to be
supplied by its Group for inclusion or incorporation by reference in (i) the
registration statement on Form S-4 to be filed by Judge with the SEC in
connection with the issuance of Judge Common Shares in the Merger will, at the
time it is filed with the Commission or at the time it becomes effective under
the 1933 Act, or at the Effective Time of the Merger, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, or
(ii) the proxy statement forming a part of the Registration Statement used by
JIS to solicit proxies for the purpose of obtaining its Requisite Stockholder
Approval (the "Proxy Statement"), will, when mailed and at all times through the
date of the JIS stockholders' meeting disclosed in Section 5.2 contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein, or necessary to make the statements therein, not
misleading. All documents that each Company is responsible for filing with the
SEC or any Regulatory Body in connection with the transactions contemplated
hereby will comply as to form in all material respects with the provisions of
applicable law, including applicable provisions of the 1933 Act, the 1934 Act
and the rules and regulations thereunder.
4.22 Subsequent Events. Except as set forth in its Disclosure Statement and
except for the transactions contemplated hereby, since June 30, 1996 (i) there
has been no actual or threatened change in the business of its Group or, to the
best of its Group's knowledge, any event, condition or state of facts, in either
case that is material and adverse to its Group or its business or assets, (ii)
it has not declared, set aside or made payment of any dividend or distribution
of assets to the holders of any class or series of capital stock , nor has it
repurchased or redeemed any shares of its capital stock, (iii) its Group has
conducted its business only in the ordinary course consistent with past
practice, and (iv) there has not occurred any of the events described in Section
5.5 hereof.
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4.23 Intentionally omitted.
4.24 Fairness Opinion. In the case of JIS only, JIS has been advised in writing
by Janney Montgomery Scott Inc. ("Janney") that the consideration to be received
by the stockholders of JIS in the Merger (the "Merger Consideration") taken as a
whole is fair to such stockholders from a financial point of view.
4.25 Section 203 of the DGCL Not Applicable. In the case of JIS only, the
provisions of Section 203 of the DGCL will not, prior to the termination of this
Agreement, apply to this Agreement or to the transactions contemplated hereby.
4.26 Broker's and Finder's Fee. No person acting on behalf of it or under its
authority is or will be entitled to any broker's or finder's fee or any other
commission or similar fee directly or indirectly in connection with the
completion of the Merger, other than the fees payable to Janney for its services
in issuing its opinion disclosed in Section 4.24.
SECTION 5
ADDITIONAL COVENANTS AND AGREEMENTS
5.1 Registration Statement and Proxy Statement. Judge and JIS shall, in
compliance with the 1934 Act, prepare as promptly as practicable the Proxy
Statement to be used by JIS to solicit the approval of its stockholders of this
Agreement and the Merger. Judge, in cooperation with and with the assistance of
JIS, shall promptly prepare and cause to be filed with the SEC its Registration
Statement on Form S-4 in compliance with the 1933 Act. The Registration
Statement shall register the issuance of the Merger Shares. Judge and JIS shall
use their best efforts to cause such Registration Statement to be declared
effective as promptly as practicable. JIS shall furnish to Judge all information
concerning its Group and the stockholders of JIS as may be reasonably requested
in connection with such filing. Judge shall take any action required to be taken
under any applicable state securities or "blue-sky" laws in connection with the
issuance of Judge Shares in the Merger. If requested by Judge, JIS shall use its
best efforts to cause to be delivered to Judge a letter of Rudolph Palitz LLP,
JIS's auditors, dated a date within two business days before the date on which
the Registration Statement shall become effective and addressed to Judge in form
and substance reasonably satisfactory to Judge and customary in scope and in
substance for letters delivered by independent public accountants in connection
with registration statements similar to the Registration Statement.
5.2 Stockholder Meeting. Each of JIS and Judge shall, as soon as practicable and
in accordance with applicable law, call and hold a stockholders' meeting to
obtain its Requisite Stockholder Approval. Subject to its fiduciary obligations,
the board of directors of each party will unanimously recommend to its
stockholders approval of the Merger and this Agreement and each party shall take
all such actions consistent with the fiduciary obligations of such boards to
obtain such approvals as promptly as practicable, including without limitation
in the case of JIS the solicitation of proxies by means of the Proxy Statement.
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5.3 Regulatory and Contract Approvals. Each of Judge and JIS shall use their
best efforts to obtain as soon as practicable all approvals, consents and
permits from all Regulatory Bodies and all consents required under the terms of
any Contract which are required in connection with the consummation of the
Merger.
5.4 Access to Information. From the date of this Agreement to the Closing Date,
each party will give to the other party and its officers, employees, counsel,
accountants and other representatives free and full access to and the right to
inspect, during normal business hours, all of the assets, records, Contracts and
other documents relating to its business as the other party may reasonably
request. Neither party will use such information for purposes other than in
connection with the Merger and each party will otherwise hold such information
in confidence until such time as such information otherwise becomes publicly
available, and in the event of termination of this Agreement for any reason will
promptly return, or cause to be returned, to the other party all nonpublic
documents obtained from the other party, and any copies made of such documents.
5.5 Conduct of Business Pending Closing. Until the Closing Date, except as set
forth in its Disclosure Schedule and except for the proposed acquisition of
Berkeley Associates Corporation and Systems Automation, Inc. by Judge or as may
be approved by the parties in writing or otherwise expressly provided in this
Agreement, each of JIS and Judge shall operate its businesses only in the
ordinary course and in substantially the same manner as it has been operated in
the past.
5.6 Indemnification. If the Merger is completed, all rights to indemnification
(including advancement of expenses) existing on the date hereof in favor of the
present or former officers and directors of JIS with respect to actions taken in
their capacities as directors or officers of JIS prior to the Effective Time as
provided in the Certificate of Incorporation of JIS, the Bylaws of JIS or any
indemnification agreements, prior to the Effective Time, shall survive the
Merger and continue in full force and effect as obligations of the Surviving
Corporation, the performance of which Judge hereby guarantees.
5.7 Public Announcements. JIS and Judge shall cooperate with each other in
releasing information concerning this Agreement and the transactions
contemplated herein. Where practicable each of the parties shall furnish to the
other drafts of all releases prior to publication. Nothing contained herein
shall prevent either party at any time from furnishing any information to any
governmental agency or from issuing any release where it reasonably believes it
is legally required to do so.
5.8 No Solicitation. JIS shall cause its officers, employees, representatives
and agents not to, directly or indirectly, continue, encourage, solicit,
initiate or (except as may be reasonably required to satisfy the fiduciary
duties of its board of directors) participate in discussions or negotiations
with, or provide any nonpublic information to, any person other than the other
party or its affiliates or any group in which the other party or its affiliates
participates, concerning any sale of assets (other than in the ordinary course
of its business consistent with past practice) or
-15-
<PAGE>
shares of capital stock, or any merger, consolidation, recapitalization,
liquidation or similar transaction (collectively, an "Acquisition Transaction").
JIS will promptly communicate to Judge the terms of any inquiry or proposal
which it may receive in respect of an Acquisition Transaction. Judge's
notification under this Section 5.9 shall include the identity of the person
making such proposal, the terms of such proposal and any other information with
respect thereto as Judge may reasonably request.
5.9 Notification of Certain Matters. JIS shall give prompt notice to Judge and
Acquisition, and Judge and Acquisition shall give prompt notice to JIS, of (i)
the occurrence, or failure to occur, of any event which such party believes
would likely cause any of its representations or warranties contained in this
Agreement to be untrue or inaccurate in any material respect at any time from
the date of this Agreement to the Effective Time and (ii) any material failure
of JIS, Judge or Acquisition, as the case may be, or any officer, director,
employee or agent thereof, to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder.
5.10 Rule 145 Affiliates.
5.10.1 Promptly following the execution of this Agreement, JIS shall
identify in a letter to Judge all persons who might, at the time of its
stockholders' meeting at which the Merger is to be voted upon by its
stockholders, be deemed to be an affiliate of JIS within the meaning of Rule 145
("Rule 145 Affiliate").
5.10.2 JIS shall use all reasonable efforts to deliver to Judge as soon
as practicable and in any case prior to the Effective Time an agreement signed
by each such Rule 145 Affiliate of JIS regarding compliance with Rule 145, which
agreement (the "Affiliate Agreements") shall be in substantially the form of
Exhibit 5.10.2.
5.10.3 Judge shall be entitled to place legends on the certificates
evidencing Judge Common Shares to be received by such Rule 145 Affiliates
pursuant to the terms of this Agreement, and to issue appropriate stop transfer
instructions to the transfer agent for Judge Common Shares, consistent with the
terms of such Affiliate Agreements, whether or not such Affiliate Agreements are
actually delivered to Judge.
SECTION 6
CONDITIONS TO THE MERGER
Subject to waiver as set forth in Section 7.7, the obligations of each
party under this Agreement are subject to the fulfillment prior to or at the
Closing of each of the following conditions:
6.1 Stockholder Approval. This Agreement shall have been adopted at or
prior to the Effective Time (i) by the Requisite Stockholder Approval of JIS in
accordance with the DGCL
-16-
<PAGE>
and Dissenters, if any, shall not hold in the aggregate ten percent (10%) or
more of the shares of JIS Common Shares and JIS Series A Preferred Shares
outstanding immediately prior to the Effective Time (assuming the conversion of
the JIS Series A Preferred Shares into JIS Common Shares immediately prior to
the Effective Time), and (ii) by the Requisite Stockholder Approval of Judge.
6.2 Representations True at Closing. The representations and warranties of the
other party set forth in Section 4 shall be true and correct in all material
respects on the Closing Date with the same effect if made at that time.
6.3 Performance. The other party shall have performed and satisfied all
agreements and conditions which it is required by this Agreement to perform or
satisfy prior to or on the Closing Date.
6.4 Certificates. The other party shall have provided a certificate signed in
its name by its chief executive officer and chief financial officer, dated the
Closing Date, certifying in such detail as may be reasonably requested that each
of its conditions described in Section 6.2 and 6.3 has been fulfilled by the
other party. The other party shall have provided a certificate signed by its
secretary, dated the Closing Date, certifying that its Certificate of
Incorporation, or its Articles of Incorporation, as the case may be, and Bylaws
are true, correct and complete as of the Closing Date and further certifying
that the resolutions adopted by its board of directors and stockholders attached
thereto in connection with the transactions contemplated hereby are true,
correct and complete.
6.5 Tax Opinion. Judge and JIS shall have received from Drinker Biddle & Reath a
written opinion, in form and substance reasonably satisfactory to them, to the
effect that the Merger, when effected in accordance with this Agreement, will
qualify as a reorganization under Section 368(a) of the Code and Judge, JIS and
Acquisition will constitute parties to such reorganization.
6.6 Litigation Affecting Closing. No Court Order shall have been issued or
entered which would be violated by the completion of the Merger, and no person
who or which is not a party to this Agreement shall have commenced any
Litigation seeking to restrain or prohibit, or to obtain substantial damages in
connection with, this Agreement or the transactions contemplated by this
Agreement which, in each case, would or is reasonably likely to result in a
Material Adverse Effect to a party.
6.7 Material Adverse Effect. From the date hereof to the Closing Date, no party
hereto shall have suffered a Material Adverse Effect in any way, including,
without limitation, by fire, casualty, act of God or otherwise and there shall
be no conditions existing or threatened that might reasonably be expected to
have a Material Adverse Effect on such party.
6.8 Registration Statement. The Registration Statement shall have been
declared effective by the SEC. No stop order suspending the effectiveness of
the Registration Statement shall have been issued by the SEC and no proceedings
for that purpose shall have been initiated or
-17-
<PAGE>
threatened by the SEC, and all approvals, consents, permits, licenses or
qualifications from authorities administering the securities or "blue-sky" laws
of any state having jurisdiction required for the consummation of the Merger
shall have been obtained and shall be effective.
6.9 Affiliate Agreements. Judge shall have received from each Rule 145
Affiliate an executed Affiliate Agreement in form satisfactory to Judge.
6.10 Conversion Transactions. The Conversion Transactions shall have been
consummated.
6.11 Public Offering. The managing underwriter of the Public Offering shall
have advised the parties that the Public Offering will be completed immediately
following the Effective Time of the Merger.
6.12 Regulatory Compliance, Approvals and Consents. Each party shall have
complied with all Regulations applicable to the Merger, and all approvals
required under any Regulations to carry out the Merger and consents required to
be obtained in connection with the Merger in order to avoid a default under any
Contract to or by which the other party is a party or may be bound shall have
been obtained on terms reasonably satisfactory to each party.
6.13 Stock Exchange Listing. Judge shall have applied for the inclusion of
the Merger Shares on The Nasdaq National Market.
SECTION 7
TERMINATION AND ABANDONMENT
7.1 Termination by Mutual Consent. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the filing of the Certificate of
Merger, before or after obtaining the Requisite Stockholder Approvals, by the
mutual consent of JIS, Judge and Acquisition, by action of their respective
boards of directors.
7.2 Termination by JIS, Judge or Acquisition. This Agreement may be terminated
and the Merger may be abandoned by action of either the board of directors of
JIS or the boards of directors of, Judge and Acquisition if (i) the Merger shall
not have been consummated on or before March 31, 1997, or such later date as may
be mutually agreed to by the parties hereto, provided that the party seeking to
terminate this Agreement is not otherwise in breach in any material respect of
any of its obligations hereunder or (ii) any court of competent jurisdiction
shall have issued an order, decree or ruling or taken any other action
restraining, enjoining or otherwise prohibiting the Merger and such order,
decree, ruling or other action shall have become final and nonappealable.
7.3 Termination by JIS. This Agreement may be terminated and the Merger may be
abandoned by action of the board of directors of JIS if (i) Judge or Acquisition
shall have failed to comply in any material respect with any of the covenants or
agreements contained in this
-18-
<PAGE>
Agreement to be complied with or performed by it at or prior to the Effective
Time and such failure has not been cured within 30 days after receipt of notice
thereof, or (ii) the board of directors of Judge shall not recommend to its
stockholders the approval of this Agreement, or shall withdraw or modify in a
manner adverse to JIS its approval or recommendation of the Merger.
7.4 Termination by Judge and Acquisition. This Agreement may be terminated and
the Merger may be abandoned by action of the boards of directors of Judge and
Acquisition if (i) JIS shall have failed to comply in any material respect with
any of the covenants or agreements contained in this Agreement to be complied
with or performed by it at or prior to the Effective Time and such failure has
not been cured within 30 days after receipt of notice thereof, or (ii) the board
of directors of JIS shall not recommend to its stockholders the approval of this
Agreement, or shall withdraw or modify in a manner adverse to Judge or
Acquisition its approval or recommendation of the Merger.
7.5 Effect of Termination. Except as provided in Section 5.4 hereof with respect
to information obtained in connection with the transactions contemplated hereby,
in the event of the termination of this Agreement, and the abandonment of the
Merger, this Agreement shall thereafter become void and have no effect, and no
party thereto shall have any liability to any other party hereto or its
stockholders or directors or officers in respect thereof, and each party shall
be responsible for its own costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby, except that nothing herein
shall relieve any party from liability for any willful breach hereof.
7.6 Amendment. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto, except as set forth in
Section 7.7.
7.7 Waiver. Any time prior to the Effective Time, any party hereto may (i) in
the case of Judge or Acquisition, extend the time for the performance of any of
the obligations or other acts of JIS or waive compliance with any of the
agreements of JIS or with any conditions to the respective obligations of Judge
or Acquisition, or (ii) in the case of JIS, extend the time for the performance
of any of the obligations or other acts of Judge or Acquisition, or waive
compliance with any conditions to its own obligations. Any agreement on the part
of a party hereto to any such extension or waiver shall be valid if set forth in
an instrument in writing signed on behalf of such party by a duly authorized
officer.
-19-
<PAGE>
SECTION 8
MISCELLANEOUS
8.1 Notices. Any notices or other communications required or permitted hereunder
shall be sufficiently given if sent by facsimile transmission, registered or
certified mail, postage prepaid, or Federal Express or similar overnight
delivery addressed, in the case of JIS, to it at
Judge Imaging Systems, Inc.
Two Bala Plaza, Suite 800
Bala Cynwyd, PA 19004
Attention: Martin E. Judge, Jr.
Facsimile No. 610-664-7090
or, in the case of Judge and Acquisition, to them at:
The Judge Group, Inc.
Two Bala Plaza, Suite 800
Bala Cynwyd, PA 19004
Attention: Martin E. Judge, Jr.
Facsimile No. 610-664-7090
or such other address as shall be furnished in writing by any party to the
others prior to the giving of the applicable notice or communication.
8.2 Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
8.3 Headings. The headings herein are for convenience of reference only, do not
constitute a part of this Agreement, and shall not be deemed to limit or affect
any of the provisions of this Agreement.
8.4 No Survival of Representations or Warranties. None of the representations
and warranties included or provided for herein or in any schedule or certificate
or other document delivered pursuant to this Agreement shall survive
consummation of the Merger.
8.5 Entire Agreement. This Agreement, which includes the Exhibits and Disclosure
Schedules hereto constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, among the parties, with
respect to the subject matter of this Agreement.
8.6 Cooperation. Subject to the terms and conditions of this Agreement,
each of the parties hereto shall use its reasonable best efforts to take, or
cause to be taken, such action, to execute
-20-
<PAGE>
and deliver, or cause to be executed and delivered, such governmental
notifications and additional documents and instruments and to do, or cause to be
done, all things necessary, proper or advisable under the provisions of this
Agreement and under applicable law to consummate and make effective the
transactions contemplated by this Agreement, and neither JIS nor Judge shall
take any action in conflict with or contrary to the stated intention of JIS and
Judge that the Merger qualify as a tax-free reorganization pursuant to Section
368(a) of the Code.
8.7 No Third Party Rights. Nothing in this Agreement, express or implied, is
intended to confer upon any other person, other than the persons indemnified
under Section 5.6, any rights or remedies under or by reason of this Agreement.
8.8 No Assignment. This Agreement shall not be assigned, by operation of law
or otherwise.
8.9 Governing Law. This Agreement shall be governed in all respects, including
without limitation, validity, interpretation and effect, by the laws of the
Commonwealth of Pennsylvania, applicable to contracts made and to be performed
in such Commonwealth.
-21-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
JUDGE IMAGING SYSTEMS, INC.
By:_______________________________
Name: Martin E. Judge, Jr.
Title: President
THE JUDGE GROUP, INC.
By:_______________________________
Name: Martin E. Judge, Jr.
Title: Chief Executive Officer
JUDGE ACQUISITION, INC.
By:_______________________________
Name: Martin E. Judge, Jr.
Title: Chief Executive Officer
-22-
<PAGE>
DRAFT 101896
THE JUDGE GROUP, INC.
Disclosure Schedule
-------------------
Schedule 4.1 - Organization and Qualification
<TABLE>
<CAPTION>
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
Corporation State of Shares Par Value Shares Issued States in which
Incorpor- Authorized Per Share and Outstanding It is Qualified
ation to do Business
- -----------------------------------------------------------------------------------------------------------------------------------
Judge Acquisition, Inc.* DE 1,000 $.01 1,000
- -----------------------------------------------------------------------------------------------------------------------------------
Judge Technical Services, PA 10,000,000 $.005 1,000
Inc.*
- -----------------------------------------------------------------------------------------------------------------------------------
Judge Inc. of New Jersey* NJ 1,000 no par 100
value
- -----------------------------------------------------------------------------------------------------------------------------------
Judge Electronic Services FL 1,000 $1.00 1,000
of Florida, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Judge Hospitality, Inc. PA
(inactive)*
- -----------------------------------------------------------------------------------------------------------------------------------
Judge Electronic Services MA
of Boston, Inc. (inactive)*
- -----------------------------------------------------------------------------------------------------------------------------------
Judge, Inc. of Delaware, DE
Inc. (inactive)*
- -----------------------------------------------------------------------------------------------------------------------------------
Berkeley Associates CA 3,000 no par 2,075
Corporation* value
- -----------------------------------------------------------------------------------------------------------------------------------
Judge Technical Services NJ 1,000 no par 500
of New Jersey, Inc.** value
- -----------------------------------------------------------------------------------------------------------------------------------
Judge Professional PA 10,000,000 $.005 160,000
Services, Inc.**
===================================================================================================================================
</TABLE>
* Wholly-owned subsidiaries of Judge.
** Wholly-owned subsidiaries of Judge Technical.
Schedule 4.2 - Capitalization
1. 10% Convertible Senior Subordinated Note Purchase Agreement dated July 1994.
2. Amended Articles and Bylaws of Judge, filed with the Secretary of State
of the Commonwealth of Pennsylvania on September 23, 1996, regarding the
Business Combination Prohibition with an Interested Shareholder or Affiliate.
<PAGE>
3. Stock Purchase Agreement, dated September 26, 1996, by and among Sandy Mayer
and Gregory J. McCarthy, The Berkeley Associates Corporation and Judge, Inc.
4. Transfer of 3,845 Judge Common Shares owned by Michael A. Dunn to Michael
Dunn Descendants' Trust on September 25, 1996.
5. All of the executive officers, directors and certain shareholders of Judge
have agreed not to sell, otherwise dispose of or pledge any Judge Common Shares
for 180 days (1 year for Martin E. Judge, Jr.) after the effective time of the
IPO Registration Statement without the prior written consent of Janney.
Schedule 4.3 - Options and Additional Rights
None.
Schedule 4.4 - Subsidiaries
See Schedule 4.1.
Schedule 4.6 - Validity of Contemplated Transactions.
1. 10% Convertible Senior Subordinated Note Purchase Agreement dated July 1994.
2. Third Amended and Restated Loan and Security Agreement (the "Loan and
Security Agreement"), dated September 3, 1996, among Judge, Inc., Judge
Technical Services, Inc., Judge Professional Services, Inc., Judge Imaging
Systems, Inc., Judge Electronic Services of Florida, Inc., Judge, Inc. of New
Jersey, Judge Technical Services of New Jersey, Inc. and Midlantic Bank, N.A.
3. Business Loan Agreement between Sterling Bank and Judge Technical Services,
Inc.
Schedule 4.12 - Undisclosed Liabilities
1. Judge guarantees the loan of Judge Technical under the Business Loan
Agreement between Sterling Bank and Judge Technical.
2. As of June 30, 1996, Judge owed approximately $115,000 to Martin E. Judge,
Jr. This loan does not have formal repayment terms and bears interest at
various rates (from prime plus 1% to a fixed rate of 12%). Judge pays the
interest related to these loans directly to the commercial banks from which
Mr. Judge borrowed the same amount.
3. As of August 31, 1996, Mr. Judge owed Judge $287,505.
4. As of June 30, 1996, Judge had advanced $106,000 to Judge Financial
Services, a personal financial advisory company, which is owned by Dennis Judge,
Martin E. Judge's brother. This advance does not bear interest, and does not
have formal repayment terms.
[5. As of June 30, 1996, Judge owed approximately $58,000 to Margaret
Sulpazo.]
6. See Schedule 4.18.
Judge - 2
<PAGE>
Schedule 4.14 - Intellectual Property
Judge(TM) is a common law trademark.
Schedule 4.15 - Contracts
None.
Schedule 4.16 - Compliance with Regulations and Court Orders
1. During 1994, Judge Technical entered into an agreement with the IRS
regarding the payment of approximately $882,000 of past-due payroll taxes. Judge
Technical was disputing certain related penalty and interest amounts related to
such past-due payroll taxes. Subsequent to June 30, 1996, Judge Technical
entered into a tentative settlement agreement with the IRS. In July 1996, the
remaining liability existing at that time was paid in full.
Schedule 4.17 - Environmental Matters
None.
Schedule 4.18 - Litigation
See Attachment 4.18.
Schedule 4.19 - Insurance
None.
Schedule 4.20 - Employee Benefit Plans
1. Judge, Inc. 401(k) Profit Sharing Plan and Trust Agreement.
2. The Judge Group, Inc. 1996 Incentive Stock Option and Non-Qualified Stock
Option Plan for Key Employees and Non-Employee Directors.
3. [Pre-Tax Contributions for Medical Expenses.]
Judge - 3
<PAGE>
Schedule 4.22 - Subsequent Events
1. Judge Technical reached a settlement agreement with the IRS regarding past
due payroll taxes and related interest and penalties (see Schedule 4.16).
2. Judge Technical reached an agreement with a former minority shareholder
to settle at less than face value the remaining balances on certain notes
payable.
3. The Judge Group, Inc. 1996 Incentive Stock Option and Non-Qualified Stock
Option Plan for Key Employees and Non-Employee Directors.
4. Judge Initial Public Offering.
a. By a letter dated June 12, 1996, Judge engaged Janney Montgomery
Scott Inc. to assist it in a public offering of its common stock.
b. Part of the proceeds from the IPO may be used for future
acquisitions. Other than as disclosed in the Merger Agreement or in the
Schedules, Judge is not currently engaged in any acquisition negotiations.
5. A Warrant held by The Gemstone Group, Inc. to purchase 3,265 Judge Common
Shares at a purchase price of $.005 per share was exercised on September 27,
1996.
6. Loan and Security Agreement.
a. At June 30, 1996, Judge was in violation of certain covenants
under the Loan and Security Agreement. Midlantic Bank waived compliance by
Judge of such covenants.
b. Midlantic Bank also extended the maturity date of the line from
May 31, 1997 to May 31, 1998, modified certain financial covenants, and the
maximum permitted borrowings were increased.
7. All key employees of Judge have executed confidentiality and one-year
post-termination non-competition agreements.
8. At June 30, 1996, Judge was in violation of certain covenants under the
Lore Notes. The note holders have waived compliance by Judge with such
covenants.
9. Judge Corporate Reorganization (Judge became a holding company for its
operating subsidiaries).
a. As of September 4, 1996, the Judge Board has approved (i) the
statutory short form merger of Judge Inc. of New Jersey and Judge Electronics of
Florida, Inc. with and into Judge and (ii) the dissolution of Judge Hospitality,
Inc., Judge Electronic Services of Boston, Inc. and Judge, Inc. of
Delaware, Inc.
b. As of September 14, 1996, the Judge Technical Board has approved
the merger of Judge Technical Services of New Jersey, Inc. and Judge
Professional Services, Inc. with and into Judge Technical.
c. As filed with the Secretary of State of the Commonwealth of
Pennsylvania on September 23, 1996, (a) Judge, Inc. changed its name to The
Judge Group, Inc., (b) Judge modified its capital structure and effected a 52.6
for 1.0 stock split, and (c) Judge amended and restated its articles of
incorporation and by-laws.
d. As filed with the Secretary of State of the Commonwealth of
Pennsylvania on September 27, 1996, Judge, Inc., a wholly-owned subsidiary of
Judge ("Subsidiary"), was formed to which Judge, pursuant to a Contribution
Agreement, dated as of September 27,
Judge - 4
<PAGE>
1996, between Judge and Subsidiary, contributed, assigned and transferred
substantially all of its assets and certain of its liabilities to Subsidiary.
10. Stock Purchase Agreement, dated September 26, 1996, by and among Sandy
Mayer and Gregory J. McCarthy, The Berkeley Associates Corporation and Judge.
11. Asset Purchase Agreement, dated September 30, 1996, by and among
Systems Automation, Inc. and Judge.
Judge - 5
<PAGE>
JUDGE IMAGING SYSTEMS, INC.
Disclosure Schedule
-------------------
Schedule 4.1 - Organization and Qualification
1. JIS is qualified to do business in New Jersey.
2. JIS has no subsidiaries.
Schedule 4.2 - Capitalization
1. JIS Series A Preferred Shares - registration rights and preemptive rights.
2. Transfer on August 30, 1996 by Martin E. Judge, Jr. of 1,486,021 JIS
Common Shares and 27,628 JIS Series A Preferred Shares to Takema Ltd., L.P.
3. Transfer on August 30, 1996 by Michael A. Dunn of 176,289 JIS Common
Shares to Michael Dunn Descendants' Trust.
Schedule 4.3 - Options and Additional Rights
1. Raymond Sozzi has an option, granted on February 29, 1996, to purchase
25,000 JIS Common Shares at $1.33. Such option is currently exercisable. Such
option terminates on ______________.
Schedule 4.4 - Subsidiaries
None.
Schedule 4.6 - Validity of Contemplated Transactions.
1. Third Amended and Restated Loan and Security Agreement, dated September 3,
1996, among Judge, Inc., Judge Technical Services, Inc., Judge Professional
Services, Inc., Judge Imaging Systems, Inc., Judge Electronic Services of
Florida, Inc., Judge, Inc. of New Jersey, Judge Technical Services of
New Jersey, Inc. and Midlantic Bank, N.A.
2. Business Loan Agreement between Sterling Bank and Judge Technical
Services, Inc.
Schedule 4.12 - Undisclosed Liabilities
See Schedule 4.18.
<PAGE>
Schedule 4.14 - Intellectual Property
MENTOR(TM) is a common law trade mark.
Schedule 4.15 - Contracts
None.
Schedule 4.16 - Compliance with Regulations and Court Orders
None.
Schedule 4.17 - Environmental Matters
None.
Schedule 4.18 - Litigation
See Attachment 4.18.
Schedule 4.19 - Insurance
None.
Schedule 4.20 - Employee Benefit Plans
1. 401(k) Plan.
Schedule 4.22 - Subsequent Events
1. All key employees of JIS have executed confidentiality and one-year
post-termination non-competition agreements.
2. Loan and Security Agreement.
a. At June 30, 1996, JIS was in violation of certain covenants
under the Loan and Security Agreement. Midlantic Bank waived compliance by JIS
of such covenants.
JIS - 2
<PAGE>
b. Midlantic Bank also extended the maturity date of the line from May
31, 1997 to May 31, 1998, modified certain financial covenants, and the maximum
permitted borrowings were increased.
JIS - 3
<PAGE>
Exhibit 10(l)
EMPLOYMENT AGREEMENT
THIS AGREEMENT is being made effective the 1st day of May, 1996, by and between
JUDGE IMAGING SYSTEMS, INC. (hereinafter referred to as "Employer") and Jeff
Andrews (hereinafter referred to as "Employee"), intending to be legally bound
hereby.
BACKGROUND
A. Employer is a corporation, organized and existing under the laws of the
State of Delaware engaged in the business of the sale of computers, computer
supplies, and parts and services, with its principal place of business located
at 2 Bala Plaza, Suite 800, Bala Cynwyd, PA 19004.
B. Employee is an individual residing at 580 Woodland Drive, Radnor, PA
19087.
C. The parties are desirous of providing for the rights and obligations of
Employer and Employee hereunder and for the growth and future stability of
Employer's business and is setting forth in writing their agreement with respect
hereto.
TERMS
1. Employment and Duties.
(a) Employer has employed Employee as Chief Financial Officer, with such
specific authority and obligations as are assigned to Employee by Employer from
time to time. Generally, Employee's authority and obligations in this capacity
<PAGE>
shall encompass all of the usual and ordinary activities incidental to a Chief
Financial Officer of a well organized business similar to Employer's and such
specific authority and responsibilities as are delegated to him from time to
time by the Employer.
(b) Employee shall devote all of his time, energy, skill and experience to
the performance of his duties during the working hours as established by
regulation or custom of Employer from time to time, and shall not during the
term of this Agreement engage in any other business which would interfere with
the performance of the duties as are assigned to him.
(c) Employee, without the express consent of Employer, shall have no
apparent or implied authority to pledge the credit of Employer; bind the
Employer under any contract, note, mortgage or other agreement outside the
ordinary course of Employer's business; release or discharge any debt due
Employer; or sell, mortgage, transfer or otherwise dispose of any assets of
Employer.
(d) Employee's responsibilities and obligations shall include, but not be
limited to those described in Schedule A.
2. Compensation and Benefits.
Employee shall receive in consideration of the performance of his
obligations under this Agreement, compensation as set forth in Schedule A.
Compensation shall be reviewed and may be adjusted from time to time as
justified by Employee's performance and as permitted or required by Employer's
financial condition. Adjustments in compensation and the award of
-2-
<PAGE>
additional benefits, if any, shall be completely within the discretion of
Employer.
3. Term and Termination.
(a) Employee's employment under this agreement shall extend for a period of
years from the date of this Agreement, subject to Paragraphs 3(b) and 3(c).
(b) Employee's employment hereunder may be terminated by Employer without
prior notice, at any time during the term hereof, but only for cause. "Cause"
shall include any of the following:
(i) Theft, misappropriation, misuse or embezzlement of
Employer's assets;
(ii) Conviction of a first degree misdemeanor or
felony;
(iii) Failure of Employee to render adequate performance of
his duties under this agreement despite written
warning and reasonable opportunity to correct such
deficiencies; or
(iv) Insubordination, failure or refusal to carry out
instructions of supervisors, or the failure of
Employee to conform to accepted business or
professional standards.
(c) Employee's employment hereunder shall also be terminated by his death
or disability which prevents Employee from performing his duties hereunder for a
period in excess of forty-five (45) working days in any given year (not
including permitted leave, vacation, or sick days).
(d) Employee's employment under this Agreement shall not terminate upon the
expiration date in the absence of written notice by either party to the other at
least thirty (30) days
-3-
<PAGE>
prior thereto. In such event, Employee's employment and all the terms and
conditions of this Agreement shall continue for an additional period of one (1)
year and so on from year to year until the giving of such written notice.
4. Inventions and Improvements.
Employee will promptly disclose to Employer all ideas, processes,
trademarks, inventions and improvements coming within the scope of the
Employer's business or relating to any experimental work carried on by the
Employer or to any problems specifically assigned to the Employee, conceived by
him alone or with others during the term of this Agreement, and whether or not
conceived during regular working hours. All such ideas, processes, trademarks,
inventions, and improvements shall be the sole and exclusive property of the
Employer. In the event any such idea, process, invention, or improvement shall
be deemed by the Employer to the patentable, the Employee shall, at the expense
of the Employer, assist the Employer to obtain a patent or patents thereon and
execute all documents and do all things necessary or proper to obtain letters
patent and to vest the Employer with full title thereto. Without diminishing
Employer's rights as set forth in this paragraph, Employee shall be granted due
acknowledgment for the part said Employee plays in these activities.
5. Restrictive Covenant.
(a) Employee, because of the nature of his responsibilities will in the
course of time acquire valuable
-4-
<PAGE>
information and skill with respect to the business operations of Employer and
its trade secrets, including by way of illustration but not limitation:
customer and client lists and information with respect thereto, work
methods, pricing, formulas, forms of agreements and contracts used in business
operations, advertising and marketing methods and techniques, scheduling and
customer relations, financial statements and analysis reports.
(b) It is further recognized that Employer will suffer irreparable injury
if any of its trade secrets, as illustrated but not limited to those referred to
in subparagraph (a) above, are obtained by any competing person or entity or
should employee compete with Employer.
(c) Employee shall not during the term of his employment, directly or
indirectly, become engaged in any business in competition with Employer's
business.
(d) Employee recognizes and acknowledges that Employer's trade secrets as
referred to above together with all written or recorded records applicable
thereto, are valuable, special and unique assets of Employer's business.
Employee will not, during or after the term of his employment, directly or
indirectly divulge or disclose any information with regard to such trade secrets
or the written or recorded material pertinent thereto, to any person, firm,
corporations, associations or other entity for any reason or purpose whatsoever.
Employee further covenants that he will not at any time remove or otherwise
appropriate any
-5-
<PAGE>
written or recorded information containing trade secrets or any written records
pertinent thereto or the contents thereof from Employer's premises unless
specifically approved by Employer in advance, for a specified temporary period.
(e) For a period of one (1) year from the expiration date of this
Agreement, as extended pursuant to Paragraph 4(d), or the termination of
Employee's employment by Employee or Employer, Employee shall not within a 200
mile radius of any office of Employer, directly or indirectly, own, manage,
operate, control, be employed by, consult with, participate in, or be connected
in any manner with the ownership, management, operation, or control of any
business which designs, manufactures, and/or sells computers, their parts,
supplies, or servicing parts or which in any way competes with the business
operations of Employer as conducted at the time of termination or expiration of
Employee's employment. Employee further covenants that subsequent to termination
of his employment he will not at any time contact or solicit any of Employer's
customers for the purpose of inducing them to terminate their relationship with
Employer and/or commence such a relationship with Employee or any business which
employs, directly or indirectly, Employee or which Employee, directly or
indirectly owns, manages, operates, is employed by, consults with, participates
in or is connected with in any manner. Employee may work directly or indirectly
with a distributor, vendor or client so long as the distributor, vendor
-6-
<PAGE>
or client is not directly or indirectly in competition with the Employer.
(f) During or subsequent to the expiration of this Agreement or the
termination of Employee's employment by either party for any reason, Employee
shall not contact, solicit or attempt to contact or solicit any person who is
employed by Employer at the time of the termination of employment for the
purpose of inducing them to terminate their employment with Employer and/or
accept employment with Employee or any business which employs, directly or
indirectly, Employee, or which Employee directly or indirectly, owns, manages,
operates, is employed by, consults with, participates in or is connected with in
any manner.
(g) Both parties agree that the breach of this restrictive covenant by
Employee will cause irreparable harm and injury to Employer and that the only
effective and adequate remedy available to Employer for such breach is by
injunctive relief both preliminary and final and both parties agree to the
jurisdiction of the equitable powers of the appropriate court to obtain such
relief. The parties further agree that the restrictive covenant set forth herein
shall extend for a period of time equal to any period of time during which the
Employee is in violation of its provisions.
(h) Notwithstanding the equitable relief available to Employer, both
parties, in the event of the breach of this covenant, understand and agree that
the uncertainties and delay
-7-
<PAGE>
inherent in legal process would result in a continuing breach for some period of
time, and therefore, continuing injury to Employer until and unless it can
obtain such equitable relief.
Therefore, Employer shall be entitled to monetary damages for any said
period of breach until the termination of such breach, equitable relief or the
expiration of this covenant, in an amount deemed reasonable by the Court to
cover all actual losses, all monies received by Employee as a result of said
breach, and all costs and attorney's fees incurred by Employer in enforcing this
Agreement. In the event Employee should use or reveal to any other person or
entity Employer trade secrets, this will be considered a continuing violation on
a daily basis for so long a period of time as such list or the contents thereof
are made use of by Employee or any other person or entity.
(i) It is agreed by Employer and Employee that if any portion of this
restrictive covenant is held by a court to be unreasonable, arbitrary or against
public policy, the covenant not to compete may be construed to be divisible both
as to time and geographical area; and, each month of the specified period shall
be deemed to be a separate period of time, and each municipality in the
restricted area shall be deemed to be a separate geographical area, so that the
maximum lesser period and area shall remain effective so long as the time or
area is not determined to be unreasonable, arbitrary or against public policy.
-8-
<PAGE>
6. Binding Effect.
This Agreement shall be binding upon and the benefits shall accrue to the
parties hereto, their respective heirs, administrators, successors and assigns.\
7. Waiver.
The waiver by Employer of the breach of any provision of this Agreement by
Employee shall not operate or be construed as a waiver of any subsequent breach
by Employee.
8. Entire Agreement.
This Agreement contains the entire agreement of the parties. It may not be
changed orally but only by an agreement in writing signed by the party against
whom enforcement of any such change, waiver, modifications, construction,
extension or discharge is sought.
9. Provisions Severable.
All of the provisions of this Agreement are distinct and severable, and if
any provisions should, for any reason, be held to be invalid or unenforceable,
then the valid and enforceable provisions hereof shall continue in full force
and effect.
-9-
<PAGE>
10. Headings.
The headings preceding the paragraphs of this Agreement are intended solely
for convenience in reference and form no part of this Agreement.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have set their hands and seals the day and year first above written.
EMPLOYER:
JUDGE IMAGING SYSTEMS, INC.
By: /s/ Martin E. Judge, Jr.
-------------------------------
Martin E. Judge, Jr.
Chairman
Attest /s/ Katharine A. Wiercinski
---------------------------
Katharine A. Wiercinski
Secretary
EMPLOYEE:
/s/ Jeffrey Andrews
-----------------------------------
JEFFREY ANDREWS
-10-
<PAGE>
Schedule A
CORPORATION: JIS
DIVISION: JIS
NAME: Jeffrey Andrews
START DATE: May 1, 1996
EFFECTIVE DATE: May 1, 1996
TITLE: Chief Financial Officer
SALARY: $3,125 per semi-monthly pay period (Based on
annual salary of $75,000)
COMMISSION: N/A
EMPLOYMENT
AGREEMENT: Signed
BENEFITS: Vacation: 2 weeks for 1996
Medical: Eligible on June 1, 1996
401K: Participation after 1 year of service
Additional: Cafeteria Plan
REVIEW: Performance and compensation review six months
from start date (November 1, 1996) then yearly
from that date (November 1, 1997, etc.)
REMARKS: This agreement may be terminated at any time by
either party.
<PAGE>
JIS
Judge Imaging Systems, Inc. Exhibit 10(m)
Sales Agreement
<PAGE>
Table of Contents
Page
----
PROFESSIONAL SERVICES .......................................................1
SOFTWARE LICENSE ............................................................1
HARDWARE ....................................................................2
NETWORK WIRING, CABLE, ETC ..................................................2
PRICE ....................................................................2
DELIVERY ....................................................................2
INSTALLATION ................................................................3
ACCEPTANCE ..................................................................4
TRAINING.....................................................................4
SOFTWARE ASSURANCE...........................................................5
HARDWARE MAINTENANCE ........................................................5
JUDGE'S WARRANTIES...........................................................6
BUYER'S WARRANTIES ..........................................................7
REMEDIES LIMITED ............................................................7
JUDGE'S CONSULTING SERVICES .................................................8
CONFIDENTIALITY..............................................................9
ARBITRATION..................................................................9
GENERAL ....................................................................10
<PAGE>
Exhibit Price Summary
A........................................
Professional Services
Exhibit
B........................................ FileNet Software ... Microsoft
Exhibit Hardware
C........................................
Cold Forms Design ... Programming
Exhibit
D........................................ Delivery And Installation Schedule
Exhibit Acceptance Critera
E........................................
Software License Terms
Exhibit
F........................................ Price And Payments
Exhibit Annual System Maintenance Payment Sch.
G........................................
Software Assurance Agreement
Exhibit
H........................................
Exhibit
I........................................
Exhibit
J........................................
Exhibit
K........................................
<PAGE>
Sales Agreement
This Sales Agreement is made and entered as of this 20th day of August
1996, by and between Judge Imaging Systems, Inc., New Jersey corporation, 379
Thornall Drive, Edison, NJ ("Judge") and The Putnam Berkley Group, Inc.
("Buyer").
WHEREAS, Judge, a system integrator, is in the business of reselling and
adding value to image and information management software from FileNet
Corporation. and providing professional services related thereto, such as engi
neering, programming, integration, training and support.
WHEREAS, Judge also makes available for purchase certain computer and
computer related hardware.
WHEREAS, Buyer wishes to acquire from Judge a license to use certain
software identified herein to enable it to operate the Hardware, Services and
Software defined below (collectively the "System").
NOW, THEREFORE, in consideration of the mutual covenants and promises
hereinafter set forth, the parties agree as follows:
1. PROFESSIONAL SERVICES. Buyer agrees to buy and Judge agrees to furnish
to Buyer the professional services described in Exhibit A attached hereto (the
"Services").
2. SOFTWARE LICENSE.
2.1 Buyer agrees to buy and Judge agrees to grant to Buyer a perpetual
non-exclusive license to use those certain computer software programs and
enhancements and modifications described in Exhibit A (the "Software") to be
installed and utilized with the System, and the documentation associated
therewith as described in Exhibit F (the "Documentation"). Buyer agrees to
utilize the Software for its business purposes only.
2.2 Buyer shall utilize the Software at its business location 390 Murray
Hill Parkway (the "Site"). Buyer shall not copy the Software except to provide
reasonable back-up files for Buyer's own use at the Site. Buyer may copy the
Documentation for its own use and at its own expense.
<PAGE>
3. HARDWARE. Buyer agrees to buy and Judge agrees to make available to
Buyer the computer(s) and computer related hardware described in Exhibit A
attached hereto (the "Hardware").
4. NETWORK WIRING, CABLE, ETC..
4.1 No electric power, network wiring, cable, or conduit is included in
the purchase price. All network wiring, conduit, cable and fittings necessary
for the operation of the Hardware shall be furnished by others and paid for by
Buyer except as specified in Exhibit A.
4.2 Network servers or any hardware or software related to network
operation, PC work stations, voice boards, microphones, speakers or printers are
not included in the Purchase Price except as specified in Exhibit A.
5. PRICE.
5.1 Buyer will pay Judge at its office in Moorestown, NJ the total
purchase price described in Exhibit A for the Services, Software and Hard ware
(the "Purchase Price").
5.2 Payment is due on the date(s) specified in Exhibit B.
5.3 Should Buyer fail to timely pay any payment due exceeding thirty
days to Judge under this Agreement, then Buyer shall pay interest on the unpaid
portion of such payment from the due date thereof until paid at the rate of
twelve percent (12%) per annum or the highest legal rate of interest, whichever
is lower.
5.4 The Purchase Price for the Services, Software and Hardware does not
include any tax that may be levied upon the Services, Software and Hardware or
upon the sale, purchase or use thereof. Buyer shall pay any and all such taxes,
other than taxes on the income of Judge. If by law Judge is chargeable with the
collection and payment of any tax to be paid by Buyer, the amount thereof shall
be added to the Purchase Price.
6. DELIVERY.
6.1 Software. The Software will be delivered by Judge to the Site in
accordance with the delivery and installation schedule set out in Exhibit B.
2
<PAGE>
6.2 Hardware. Judge will use commercially reasonable efforts to deliver
the Hardware to Buyer in accordance with the delivery and installation schedule
set out in Exhibit B. Title to the Hardware sold hereunder and risk of loss
shall pass to the Buyer at the time of delivery to Buyer at the Site.
6.3 Delay. If for any reason Buyer requests that shipment of the
Hardware be delayed, Buyer agrees to pay to Judge the unpaid balance of the
purchase price for the Hardware.
6.4 Acceptance. If Buyer requests that Judge delay shipment of the
Hardware, Judge will store the Hardware for a period of sixty days at no charge
to Buyer, provided that Buyer has paid for the Hardware as herein above
provided. After sixty days, Buyer agrees to pay one percent of the total amount
of the purchase price per month for storage and handling charges.
6.5 Force Majeure. Judge in no event shall be liable for delays in
shipment or delivery, failure to manufacture, or other inability to perform this
Agreement caused by acts of God, acts of Buyer, fire, floods, epidemics, war,
riot, accidents at the place of manufacture, strikes, labor disputes,
governmental control, force majeure, or any other contingency, whether or not
similar to the foregoing, beyond Judge's control. Should any act of Buyer delay
Judge's performance under this Agreement, the period of such delay shall be
added to Judge's time for performance.
7. INSTALLATION.
7.1 Software. Unless otherwise specified in writing, the Software will
be installed by Judge at the Site at a mutually convenient time pursuant to the
schedule set out in Exhibit B.
7.2 Hardware. Judge will use commercially reasonable efforts to install
the Hardware pursuant to the schedule set out in Exhibit B. The Hardware will be
installed in accordance with its manufacturer's instructions.
7.3 The Software will be installed during customary working hours at the
Site. Judge shall furnish qualified experienced personnel to complete
installation of the Software; Buyer shall provide qualified experienced
personnel knowledgeable of Buyer's existing computer system to consult with
Judge's personnel to effect the installation. Buyer shall provide reasonable
lighting, heating, ventilation and other working conditions for the installation
and free and easy access to and from
3
<PAGE>
the place where the System is to be installed. Buyer shall prepare the Site
location for installa tion of the System at its own expense and in accordance
with the environmental, electrical, space and other specifications reasonably
necessary to operate the System. If Judge's installation personnel cannot
proceed with the installation upon arrival at the Site due to Buyer's failure to
properly prepare the Site location, the actual expenses incurred by the
installation personnel for such delay will be paid by Buyer. Judge shall
endeavor to minimize any interruption in Buyer's business in the course of
installation.
7.4 Buyer is responsible for the cost, installation and functioning of
all products not provided by Judge (i.e., without limitation, electric power,
electrical wiring, cabling, telephone equipment, computers, modems, printers,
tables, etc..).
Upon request, Judge will provide specifications with respect to the
foregoing items and consultation with respect thereto.
8. ACCEPTANCE.
8.1 Judge will notify Buyer in writing that installation has been
completed and the System is available to Buyer for acceptance testing for a
period of ten (10) business days after the date of notification (the "Testing
Period"). The accep tance test shall consist of a series of documented tasks and
verification procedures designed and approved by Buyer and Judge in writing as
set forth in Exhibit D to determine whether the System performs in accordance
with the description provided by Judge which is outlined in Documentation (the
"Acceptance Test"). The Acceptance Test will be conducted and completed by Buyer
with Judge's assistance within the Testing Period.
8.2 Buyer will notify Judge in writing if the System does not properly
perform the Acceptance Test. Buyer shall be deemed to have accepted the System
upon notification of acceptance or if Judge has not been otherwise notified in
writing of the Systems failure to properly perform the Acceptance Test by the
conclusion of the Testing Period (the "Date of Acceptance").
8.3 Buyer will include a complete list of errors found in the Acceptance
Test in the written notice of the System's failure. Judge shall promptly review
such notice and, within a mutually agreed reasonable time, shall correct the
material errors and defects in the System and shall deliver and install such
corrections or replace or repair such defects, as appropriate, at no charge to
Buyer. Upon notice to
4
<PAGE>
Buyer that corrections to the System have been made, a new Testing Period shall
commence and Buyer shall perform the Acceptance Test in the same manner as
provided above. Thereafter, Buyer shall notify Judge in writing of any further
errors or of its acceptance, as applicable. The parties shall cooperate and
exercise all reasonable efforts for identifying and correcting all errors in the
System.
8.4 In the event that the System shall fail to pass the Acceptance Test
after the reasonable efforts of the parties, Buyer shall have the right to
terminate this Agreement and return all components of the System to Judge. All
hardware must be returned in original packaging. Upon receipt of the complete
System, Judge will refund to Buyer all amounts paid by Buyer to Judge to date,
excluding amounts paid for Project Management Services identified in Exhibit A
and amounts reasonably incurred for travel (and not previously reimbursed).
9. TRAINING. Judge will provide instruction and training to Buyer's
personnel at the Site location, dates and times described in Exhibit E at the
cost set out in Exhibit A. All training and instruction will be given by
qualified Judge personnel. Additional training will be supplied, when requested,
at Judge's then current rates for such services.
10. SOFTWARE ASSURANCE.
10.1 At any time after execution of the Agreement, Buyer and Judge may
enter into a separate Software Assurance Agreement in substantially the form
attached as Exhibit C hereto, which shall be effective upon expiration of the
warranty period described herein or at such other time as the parties may agree.
If no Software Assurance Agreement is in effect between Buyer and Judge after
expiration of the warranty period provided herein, then maintenance of the
Software during that period of time shall be the sole responsibility of Buyer.
If Judge conducts maintenance work on the Software at Buyer's request without a
Software Assurance Agreement, compensation for such work will be on a time and
materials basis at Judge's then current rates for such services.
10.2 Any proposed assignment of the Software Assurance Agreement by
Judge shall be subject to the prior written approval of Buyer. Any such
assignment by Judge shall not limit the delivery to Buyer of any future releases
or updates for the Software originating from Judge.
11. HARDWARE MAINTENANCE.
5
<PAGE>
11.1 Judge will assign to Buyer all Hardware manufacturer warranties
and rights to maintenance agreements which will be the sole and exclusive
warranty(s) relating to the Hardware. It will be solely Buyer's obligation to
determine and enter into such maintenance agreements with the Hardware
manufacturers as Buyer deems appropriate unless covered in Exhibit A.
11.2 Buyer and Judge may enter into a separate maintenance contract(s)
for the Hardware. If, within 30 days after the date hereof, Buyer and Judge do
not execute a maintenance contract satisfactory to Buyer and Judge, then the
main tenance of the Hardware will be the sole responsibility of the Buyer. If
Judge conducts maintenance work on the Hardware without a maintenance contract,
compensation for such work will be based upon time spent, materials furnished
and actual expenses incurred. It is understood that such maintenance contract
with Judge shall not commence until the expiration of the Hardware
manufacturer's warranty period.
12. JUDGE'S WARRANTIES.
12.1 Judge represents, warrants and covenants to Buyer that:
12.1.1 it is a corporation in good standing under the laws of the
State of New Jersey with full authority to execute and perform this Agreement,
the exe cution and performance of which have been duly authorized by Judge and
is enforceable against Judge.
12.1.2 as of the date of execution of this Agreement (a) Judge has
not sought and has no present intention voluntarily to seek the protection of
the Bankruptcy Laws; (b) Judge has no information that if known to creditors of
Judge (i) would cause Judge voluntarily to seek the protection of the Bankruptcy
Laws or (ii) might reasonably cause such creditor to subject Judge to any
proceeding under the Bankruptcy Laws.
12.1.3 it resells Software and has the right to enter into this
Agreement and to sell the Hardware, license the Software and provide the
Services as described herein;
12.1.4 the Software will be developed and, subject to variations
consistent with practical testing, inspection and workmanship, will perform
substantially as described in the Documentation, provided that it is properly
6
<PAGE>
maintained, operated and serviced in accordance with the directions provided in
the documentation.
12.1.5 it has the right to sell the Hardware free of all liens or
encumbrances with clear title.
12.1.6 any applicable manufacturers' warranties for any third
party software and Hardware will be assigned and transferred to Buyer; and
12.1.7 the version of the Software and Documentation delivered to
Buyer will be the complete, current version.
12.2 Judge's warranties do not apply to any software or hardware that
is not provided by Judge pursuant to this Agreement.
12.3 Judge's warranties with respect to the Software shall terminate
one hundred and twenty (120) days from the Date of Acceptance of the System.
Notice of any warranty claim must be presented in writing to Judge within the
warranty period or be barred. Upon receipt of a warranty claim, Judge will
examine the System at the Site and undertake commercially reasonable steps to
cure any warranty claim. THE WAR RANTIES STATED HERE ARE THE SOLE AND EXCLUSIVE
WARRANTIES EXPRESSED OR IMPLIED BY JUDGE. DISCLAIMS ALL IMPLIED WARRANTIES,
INCLUDING IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE. JUDGE DOES NOT PROMISE THAT THE SYSTEM IS ERROR-FREE OR WILL OPERATE
WITHOUT INTER RUPTION. JUDGE IS NOT LIABLE TO BUYER OR ANY OTHER THIRD PAR TY
CLAIMING RIGHTS THROUGH BUYER FOR ANY DAMAGE OR LOSS DUE TO THE INEFFECTIVENESS,
DEFECT, OR FAILURE OF THE SYSTEM, IN CLUDING WITHOUT LIMITATION, ANY BUSINESS
INTERRUPTION, LOST PROFITS, OR CONSEQUENTIAL OR INCIDENTAL DAMAGES. JUDGE'S LIA
BILITY SHALL IN NO EVENT EXCEED THE PURCHASE PRICE SET FORTH IN EXHIBIT A OR
APPROPRIATE PORTION THEREOF. BUYER MAY HAVE OTHER RIGHTS WHICH VARY FROM STATE
TO STATE.
12.4 Judge shall keep the Software free and clear of any claims, liens
or encumbrances that might interfere with Buyer's continuing use of the
Software.
13. BUYER'S WARRANTIES.
7
<PAGE>
13.1 Buyer represents, warrants and covenants to Judge that:
13.1.1 it is a corporation in good standing under the laws of the
State of New York with full authority to execute and perform this Agreement, the
execution and performance of which have been duly authorized by Buyer and is
enforceable against Buyer.
13.1.2 as of the date of execution of this Agreement (a) Buyer has
not sought and has no present intention voluntarily to seek the protection of
the Bankruptcy Laws; (b) Buyer has no information that if known to creditors of
Buyer (i) would cause Buyer voluntarily to seek the protection of the Bankruptcy
Laws or (ii) might reasonably cause such creditor to subject Buyer to any
proceeding under the Bankruptcy Laws.
14. REMEDIES LIMITED. If Judge through FileNet Corporation cannot correct
any System "defect" within thirty (30) days after timely notice, Judge's sole
responsibility will be to pay to Buyer the cost for such "defective" portion of
the System as identified in Exhibit A as liquidated damages and not as a penalty
due on its return to Judge. A "defect" is defined as substantial non-performance
of the System's function(s) described in the Documentation. Without limiting the
generality of the foregoing, JUDGE SHALL IN NO EVENT BE LIABLE FOR LOSS OF
MONEY, PROFITS OR OTHER CONSEQUENTIAL DAMAGES RESULTING FROM THE USE, LOSS OF
USE, OR MALFUNCTION OF THE SYSTEM, OR ANY PORTION THEREOF, WHETHER OR NOT
FORESEEABLE BY JUDGE AND WHETHER OR NOT DUE TO JUDGE'S NEGLIGENCE OR THE
NEGLIGENCE OF THOSE ACTING ON BEHALF OF JUDGE.
15. Judge'S CONSULTING SERVICES.
15.1 If Buyer determines that it wishes to retain Judge to provide
consulting services to modify or customize the Software for Buyer's particular
needs, the parties shall enter a written addendum to this Agreement setting
forth the conditions under which such services shall be provided. Services to be
performed will be documented and agreed to by both parties in writing based on a
Project Proposal Plan developed by Judge. The following sections will be
contained within the plan:
15.1.1 Project Scope
15.1.2 Completion Dates
15.1.3 Responsibilities and Expectations of both parties
15.1.4 Cost of Service
8
<PAGE>
15.2 Buyer acknowledges and agrees that all developed, modified or
customized Software is owned solely and exclusively by Judge.
15.3 Buyer shall not be liable for the payment of any federal, state or
local taxes or contributions imposed or required under unemployed insurance,
social security or income tax laws with respect to Judge's employees engaged in
performance of services for Buyer hereunder. Buyer shall be liable for the
payment of any sales taxes imposed by any federal, state or local agencies with
respect to Judge's services performed for Buyer hereunder.
16. CONFIDENTIALITY. In the course of performance of this Agreement, Judge
may have access to confidential and proprietary information of Buyer relating to
Buyer's business which has been identified as such in writing signed by Judge
(the "Trade Secrets"). Judge agrees to use the Trade Secrets only for the
purposes of this Agreement, and not to otherwise use, copy, disclose or
disseminate the Trade Secrets without the prior written consent of Buyer. Judge
shall deliver all documents or other materials containing or referencing the
Trade Secrets in its posses sion or control to Buyer promptly upon Buyer's
request. The Trade Secrets shall not include any information that is or becomes
generally known through no fault of Judge or was known to Judge prior to
disclosure by or on behalf of Buyer as shown by Judge's written business
records.
17. ARBITRATION. Any dispute arising under this Agreement shall be
submitted to binding arbitration under the rules then prevailing of the American
Arbitration Association, and judgment upon the award rendered may be entered
and en forced in any court of competent jurisdiction. The parties shall each
appoint one arbitrator to be a member of the panel. Should the two arbitrators
not be able to agree on a choice of the third, then the American Arbitration
Association shall make the appointment of a person who is neutral to the parties
in controversy. The arbitration shall be located in Moorestown, NJ. The written
decision of the majority of the three arbitrators shall be binding on both
parties hereto. The prevailing party will be entitled to reimbursement of its
reasonable attorneys' fees and costs as part of the arbitration award plus
reasonable travel and lodging and per diem of $30 if such arbitration was held
in a city more than 75 miles from its corporate headquarters. The fees of the
arbitrator(s) shall be borne equally by the parties.
18. GENERAL.
18.1 This Agreement constitutes the entire agreement between Buyer and
Judge with respect to its subject matter. No oral or other agreement or
9
<PAGE>
understanding conflicting with or in addition to this Agreement shall be of any
force and effect unless signed in writing by both Buyer and Judge.
18.2 Neither party shall be liable for delays or inability to perform
caused by acts of God, fire, floods, epidemics, war, riot, accident at the place
of manufacture, strike, labor disputes, government control, or any other
contingency, whether or not similar to the foregoing, beyond the party's
control.
18.3 This Agreement shall be governed by the laws of the State of New
Jersey without giving effect to choice of law principles.
18.4 In the event of the filing of petition in bankruptcy by or against
Buyer, or the appointment of a receiver for Buyer, or the insolvency of Buyer,
Judge may refuse to make further deliveries.
18.5 This Agreement is not assignable by Buyer except by prior written
agreement of Judge.
18.6 If any part of this Agreement shall be held to be void or
unenforceable, such part will be treated as severable, leaving valid the
remainder of this Agreement notwithstanding the part or parts found to be void
and unenforceable.
18.7 All notices required or permitted to be given under this Agree
ment shall be in writing and shall be deemed to be given when personally
delivered or when received after mailing by certified or registered mail, return
receipt requested, sent by reputable overnight courier, sent by facsimile,
telecommunication or other electronic means with a confirmation copy sent by one
of the other means allowed hereunder, to the other party at the following
address:
to Judge:
Judge Imaging Systems, Inc.
102 Executive Drive., Suite #7
Moorestown, NJ 08057
Phone (609) 866-8700; Fax (609) 866-8817
Attention: Martin Judge
to Buyer:
or at such other address as may be designated from time to time pursuant to the
pro visions of this paragraph.
10
<PAGE>
18.8 The headings in this Agreement are for reference purposes only and
shall not be deemed a part of this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized manager, or officer effective as of the date first set
forth above.
Judge:
Judge Imaging Systems, Inc.
By: /s/ Donald Potts Date: 8/20/96
--------------------------
Name: Donald Potts________________________
Title: Sales Manager________________
Buyer:
By: /s/ Robert J. Badum Date: 8/20/96
---------------------------
Name: Robert J. Badum
Title: Vice President of Information Services
11
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 10,964
<SECURITIES> 0
<RECEIVABLES> 2,869,086
<ALLOWANCES> 29,000
<INVENTORY> 832,428
<CURRENT-ASSETS> 4,039,880
<PP&E> 556,299
<DEPRECIATION> 81,388
<TOTAL-ASSETS> 4,615,782
<CURRENT-LIABILITIES> 2,219,042
<BONDS> 2,694,195
1,520,000
8,266
<COMMON> 39,801
<OTHER-SE> (3,455,058)
<TOTAL-LIABILITY-AND-EQUITY> 4,615,782
<SALES> 10,071,274
<TOTAL-REVENUES> 10,071,274
<CGS> 7,565,430
<TOTAL-COSTS> 3,170,670
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