<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 25, 1996
REGISTRATION NO. 333 -03639
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
CORE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MASSACHUSETTS 8099 04-2828817
(STATE OR JURISDICTION (PRIMARY STANDARD (I.R.S. EMPLOYER
OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
18881 VON KARMAN AVENUE, SUITE 1750
IRVINE, CALIFORNIA 92715
(714) 442-2100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
GEORGE C. CARPENTER IV
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
CORE, INC.
18881 VON KARMAN AVENUE, SUITE 1750
IRVINE, CALIFORNIA 92715
(714) 442-2100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES OF ALL COMMUNICATIONS TO:
STEPHEN M. KANE, ESQ. FREDERICK W. KANNER, ESQ.
RICH, MAY, BILODEAU & FLAHERTY, P.C. DEWEY BALLANTINE
294 WASHINGTON STREET 1301 AVENUE OF THE AMERICAS
BOSTON, MASSACHUSETTS 02108 NEW YORK, NEW YORK 10019
(617) 482-1360 (212) 259-8000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JULY 25, 1996
PROSPECTUS
2,000,000 SHARES
[CORE DYNAMO SYMBOL]
COMMON STOCK
--------
All of the shares of Common Stock offered hereby are being sold by CORE, INC.
("CORE" or the "Company").
The Common Stock of the Company is traded on the Nasdaq National Market under
the symbol "CORE." On July 23, 1996, the last sale price of the Common Stock as
reported by Nasdaq was $9 5/8 per share.
SEE "RISK FACTORS" ON PAGE 6 OF THIS PROSPECTUS FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES OF
COMMON STOCK OFFERED HEREBY.
--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- -------------------------------------------------
<S> <C> <C> <C>
Per Share $ $ $
- -------------------------------------------------
Total(3) $ $ $
</TABLE>
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- --------------------------------------------------------------------------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting estimated expenses of the offering of $600,000 payable by
the Company.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
300,000 additional shares of Common Stock on the same terms as set forth
above solely to cover over-allotments, if any. If the Underwriters exercise
such option in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriting."
--------
The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them subject
to certain conditions. It is expected that certificates for the shares of
Common Stock offered hereby will be available for delivery on or about ,
1996 at the offices of Smith Barney Inc., 333 West 34th Street, New York, New
York 10001.
--------
SMITH BARNEY INC. COWEN & COMPANY
, 1996
<PAGE>
[ARTWORK APPEARS HERE INCLUDING FOUR PHOTOGRAPHS OF PERSONS IN OFFICES AND
HEALTHCARE ENVIRONMENTS, AND THE FOLLOWING COPY DISPLAYED IN GRAPHIC FORMS]
CORE's services are focused on the management and measurement
of the clinical events that drive disability costs.
CUSTOMERS
FORTUNE 500 COMPANIES
INSURANCE CARRIERS
SELF INSURED EMPLOYERS
$260 BILLION* (FOOTNOTE)
WORKABILITY(R)
because the most effective disability management begins on Day 1.
CLAIMS
DURATION MEDICAL JOB PAYMENTS PEER BILL ANALYSIS &
MANAGEMENT MANAGEMENT ACCOMMODATION ADVICE REVIEW REVIEW REPORTING
MANAGED DISABILITY SERVICE CONTINUUM
NETWORK SERVICES
PROVIDERS
Primary Care Physicians
Preferred Provider Networks
Independent Medical Exams
Occupational Health Clinics
The foundation of the WorkAbility(R) program is an extensive experience base of
clinical event reviews used to derive duration guidelines and management
protocols. This information technology focus, combined with our peer review
panel of over 230 Board Certified physicians, makes CORE the clinically credible
choice for disability management services.
CORE's comprehensive services position the company to manage workplace absence
for an employer's entire workforce, including sick time, short term disability
(STD), long term disability (LTD), workers' compensation, wage continuance and
Family Medical Leave Act (FMLA) absences.
(FOOTNOTE)
* The company estimates that the total U.S. costs due to injury and illness
related workplace absence are approximately $260 billion per year.
[END OF DESCRIPTION OF ART WORK]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON
NASDAQ IN ACCORDANCE WITH RULE 10b-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934.
SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following information is qualified in its entirety by the more detailed
information and financial statements (including the notes thereto) appearing
elsewhere in this Prospectus. See "Risk Factors" for a discussion of certain
factors to be considered by prospective investors.
THE COMPANY
CORE, INC. is a national provider of managed disability and health care
benefits management services to Fortune 500 companies and other self-insured
employers, third-party administrators and insurance carriers. The Company's
services include managed disability services using CORE's proprietary
WorkAbility(R) disability management software, specialty physician and
behavioral health review services and health care benefits utilization review
and case management services. The Company's services are designed to assist its
clients monitor and control disability and health care benefits costs without
compromising the quality of health care services provided to the patient.
CORE's managed disability services include monitoring the appropriateness of
disability durations under short and long-term disability plans and workers'
compensation programs in order to reduce unnecessary absenteeism and its
related costs of wage replacement, hiring and training replacement personnel
and lost productivity. These services are based on CORE's WorkAbility program,
a proprietary software program developed over a ten-year period through the
statistical analysis of disability utilization data. CORE's WorkAbility managed
disability program provides an objective, medically based method for
recommending and monitoring employee's return-to-work dates. The WorkAbility
program is designed to obtain and analyze relevant medical and work-related
information with the initial onset of the employee's absence and thus assure
that the employee, attending physician and employer all have reasonable and
consistent expectations as to the projected return-to-work date.
CORE's independent physician review programs provide pre-certification,
concurrent and appellate physician review services for use with utilization
management programs of the Company's insurance company and self-insured
corporate clients. The Company believes its more than 230 Board certified
physician reviewers comprise the largest independent physician review service
in the country. CORE's behavioral health review program provides comparable
review services by psychiatric specialists in sub-specialties such as adult and
child psychiatry, alcoholism and chemical dependency. The Company also provides
utilization review services designed to evaluate the medical necessity and
appropriateness of health care services prescribed for participants in health
care and medical plans. In cases of high cost injuries or illness, CORE also
renders case management services for individual cases to assure that cost-
effective treatment alternatives are utilized.
In recent years, large corporations have begun to recognize the magnitude of
the annual cost of occupational and non-occupational injuries and illnesses,
which according to a 1991 publication exceeded $2,200 per employee, or 8% of
total payroll costs. These expenses present a significant challenge to
corporate productivity. The Company estimates that total U.S. costs due to
injury and illness-related workplace absence are approximately $260 billion per
year.
According to an industry source, workers' compensation expenditures grew at
an average annual rate of over 10% from 1982 through 1991, and the Company
believes this growth is continuing. The Company estimates that workers'
compensation costs were approximately $60 billion in 1994. Despite the general
awareness of this high level of workers' compensation costs, expenditures for
group disability (including short-term disability and long-term disability
plans), sick pay and family leave represent a far larger share of total
expenditures at approximately $200 billion in 1994. Two driving factors behind
the increase in group disability and workers' compensation expenditures are
workplace and legislative changes. Work-related changes that have contributed
to rising benefits costs include the aging of the active workforce, increased
volatility in hiring and layoffs (which often results in increased benefits
utilization) and increased diagnoses of repetitive stress-related injuries.
Also contributing to rising disability benefit costs and awareness are
legislative changes such as the Family Medical
3
<PAGE>
Leave Act and the Americans with Disabilities Act, which mandate accommodation
for family circumstances and disabled workers, which both have a growing impact
on accommodation and lost time issues. Until recently, recognition and
management of these productivity costs have been impaired by their difficulty
in measurement, the fragmentation of responsibilities for disability programs
within human resources and risk management departments of most corporations and
the historical focus on group health managed care.
While a small group of companies is emerging that are applying managed care
principles to the workers' compensation industry, historically there have been
few, if any, companies focusing on the provision of managed care techniques to
the broader disabilities market. With the support of its analytic and physician
services, CORE's products provide employers with an integrated and
comprehensive approach to disability benefits management.
CORE intends to expand its position as a leading provider of managed
disability benefits services by utilizing its proprietary WorkAbility program
and related services to assist its clients in reducing the direct costs of
short and long-term disability and workers' compensation benefits and improving
employee productivity. The Company believes that the combination of its health
care and disability management tools and its strong information technology
foundation provide an effective management platform that can be tailored to
meet the needs of self-insured employers and third-party payors. The principal
elements of the Company's strategy for achieving its objectives are (i) to
market aggressively its WorkAbility program in order to achieve greater
penetration into the managed disability market; (ii) to pursue disability
management outsourcing contracts with large employers; (iii) to make selective
acquisitions of businesses that can provide service line extensions and cross-
selling synergies in the managed disability market; (iv) to utilize its
WorkAbility program as a technology platform in developing managed disability
networks in certain geographical markets; and (v) to establish through the
WorkAbility program the capability to enter into capitated or other "at risk"
arrangements with payors in the managed disability market.
THE OFFERING
<TABLE>
<S> <C>
Common Stock being offered......... 2,000,000 shares(1)
Common Stock outstanding after the
offering.......................... 6,842,271 shares(1)(2)
Use of Proceeds.................... To expand operating capacity and for other
working capital and general corporate
purposes
Nasdaq National Market Symbol...... CORE
</TABLE>
- --------
(1) Excludes up to 300,000 shares of Common Stock that may be sold by the
Company pursuant to the Underwriters' over-allotment option. See
"Underwriting."
(2) Based on the number of shares of Common Stock outstanding as of May 31,
1996. Excludes 1,535,979 shares of Common Stock issuable upon exercise of
stock options and warrants outstanding at such date. See "Management."
4
<PAGE>
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------------------- ------------------
1993 1994 1995 1995 1996
------- ------- --------------------- -------- --------
ACTUAL PRO FORMA(2)
------- ------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $16,316 $16,746 $20,769 $24,847 $ 4,729 $6,584
Cost of services........ 10,714 11,305 12,839 14,352 3,117 3,939
------- ------- ------- ------- -------- -------
Gross profit.......... 5,602 5,441 7,930 10,495 1,612 2,645
Total operating ex-
penses................. 9,295 10,151 8,185 10,171 2,791 2,151
------- ------- ------- ------- -------- -------
Income (loss) from
operations(1).......... (3,693) (4,710) (255) 324 (1,179) 494
Other income, net....... 317 11 176 14 27 41
------- ------- ------- ------- -------- -------
Net income (loss)....... $(3,376) $(4,699) $ (79) $ 338 $(1,152) $ 535
======= ======= ======= ======= ======== =======
Net income (loss) per
common share........... $ (0.73) $ (1.01) $ (0.02) $ 0.07 $ (.24) $ .10
======= ======= ======= ======= ======== =======
Weighted average number
of common shares
outstanding............ 4,611 4,668 4,755 5,069 4,740 5,532
======= ======= ======= ======= ======== =======
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
------------------------
ACTUAL AS ADJUSTED(3)
-------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................................ $ 2,850 $ 20,249
Total assets........................................... 12,866 30,264
Long-term obligations.................................. 427 427
Accumulated deficit.................................... (10,329) (10,329)
Stockholders' equity................................... 8,213 25,612
</TABLE>
- --------
(1) Includes the write-off of goodwill in the amount of $2,294,000 and merger
related costs and expenses of $1,114,000 in 1994 and merger related costs
and expenses of $994,000 in 1995. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
(2) Gives effect to the CRS Acquisition (as defined herein) as if such
transaction had been completed as of January 1, 1995. See "Pro Forma
Combined Condensed Statement of Operations (Unaudited)."
(3) Gives effect to the sale of the shares of Common Stock offered hereby
(based on an assumed public offering price of $9.625 per share) and the
receipt of the estimated net proceeds therefrom as if such transaction had
occurred as of March 31, 1996. See "Use of Proceeds."
----------------
Except as otherwise indicated herein, information in this Prospectus assumes
no exercise of the Underwriters' option to purchase from the Company up to an
aggregate of 300,000 shares of Common Stock to cover over-allotments, if any.
See "Underwriting."
5
<PAGE>
RISK FACTORS
An investment in the shares being offered hereby involves a high degree of
risk. Prospective investors should carefully consider the following risk
factors, in addition to the other information contained in this Prospectus, in
evaluating an investment in the shares of Common Stock offered hereby. In
particular, prospective investors are cautioned that this Prospectus contains
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 and that actual results could differ materially
from those contemplated by such statements. Such statements reflect
management's current views, are based on many assumptions and are subject to
risks and uncertainties. The factors listed below represent certain important
factors the Company believes could cause such results to differ. These factors
are not intended to represent a complete list of the general or specific risks
that may affect the Company. It should be recognized that other risks may be
significant, presently or in the future, and the risks set forth below may
affect the Company to a greater extent than indicated.
HISTORY OF LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY
The Company has recorded net losses of $253,000 for 1991, $2,014,000 for
1992, $3,376,000 for 1993, $4,699,000 for 1994 and $79,000 for 1995. The
Company's losses have resulted in an accumulated deficit of approximately
$10.3 million at March 31, 1996. There can be no assurance that the Company
will become profitable, or if profitable, that profitability will be
maintained on a quarterly or annual basis. Moreover, if profitability is
achieved, the level of profitability cannot be accurately predicted. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
RECENT AND PROPOSED ACQUISITIONS; RISKS OF INTEGRATION; NEW BUSINESS LINES
The Company's operations have expanded significantly as a result of the
March 1995 merger with Core Management, Inc. ("CMI") and the October 1995
acquisition of Cost Review Services, Inc. ("CRS"). In addition, the Company
intends to continue to pursue the growth of its business through the
acquisition of other businesses complementary to its existing businesses. See
"Business--Strategy."
The merger with CMI and the acquisition of CRS have resulted in the Company
becoming much larger, more complex and more operationally and geographically
diverse, presenting challenges for the Company's management and potentially
detracting attention of management from the day-to-day operations of CORE. In
light of this recent and potential future growth, the success of the Company's
efforts to integrate acquired operations and streamline overlapping business
and administrative functions will be crucial in order for the Company to be
profitable. The various systems and procedures of the Company's operations
will have to be coordinated and integrated with those of previously acquired
companies as well as any other businesses which may be acquired in the future.
There can be no assurance that the process of integrating the businesses
acquired through the CMI merger and CRS acquisition and to be acquired through
possible future acquisitions will be successful. Furthermore, the successful
integration of acquired operations may require significant expenditures and
involve substantial unanticipated costs.
TERMINATION OF AMHEALTH ACQUISITION AGREEMENT
On May 10, 1996, CORE entered into an Asset Purchase Agreement (the
"AmHealth Agreement") to acquire substantially all of the assets and
operations (excluding accounts receivable) of AmHealth, Inc. ("AmHealth"), a
management services organization that manages occupational health clinics and
on-site industrial medical facilities in California. On July 24, 1996, the
Company terminated the AmHealth Agreement. Although the Company believes that
it was entitled under the terms of the AmHealth Agreement to effect such
termination, there can be no assurance that AmHealth will not institute a
legal proceeding to challenge the Company's right to effect such termination.
Any such legal proceeding could involve significant legal expenses and an
award for damages. AmHealth has suffered recurring losses, has defaulted on
its debt obligations and has a net capital deficiency which raises substantial
doubt about its ability to continue as a going concern. In
6
<PAGE>
connection with the termination of the AmHealth Agreement, the Company expects
to incur during the three months ending September 30, 1996 a one-time charge
to earnings of between $0.5 million and $1.0 million related to transaction
costs. In addition, during the first quarter of 1996 the Company made a $1.0
million loan (the "AmHealth Loan") to AmHealth. Because there is substantial
doubt about AmHealth's ability to repay the AmHealth Loan, the Company intends
to write-off the AmHealth Loan during the three months ending September 30,
1996 which will result in an additional non-recurring charge to earnings of
$1.0 million. See "Recent Developments."
RELIANCE ON WORKABILITY(R) PROGRAM
The Company's strategy involves focusing its growth efforts on, and
consequently committing significant management, marketing and other resources
to expanding, its managed disability services, and in particular its
WorkAbility disability management program. However, revenue derived from this
area of operations represented only 26% of the Company's total revenue for the
year ended December 31, 1995 and 36% for the three months ended March 31,
1996. There can be no assurance that the Company's focus on its managed
disability services will ultimately be profitable for the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Strategy."
The Company's managed disability services are dependent upon the WorkAbility
computer software. The Company's success in deriving revenue from its
WorkAbility software is dependent upon its maintaining the proprietary and
confidential nature of this software. The Company relies on a combination of
database size, trade secret, copyright, trademark and contractual protections
to establish and protect its proprietary rights to the WorkAbility software.
There can be no assurance, however, that the precautions taken by the Company
will be adequate to prevent misappropriation or re-creation of the Company's
database. In addition, these protections and precautions will not prevent
development by independent third parties of competitive technology or
products, and some companies have developed products which, to some extent,
perform functions similar to those performed by the WorkAbility software.
DEPENDENCE ON KEY CLIENTS
The Company has contracts with several key clients which account for a
substantial portion of its revenues. During the years ended December 31, 1994
and 1995 and the three months ended March 31, 1996, the Company's five largest
clients represented 36.5%, 30.1% and 31.2%, respectively, of total revenue,
and its ten largest clients represented 45.0%, 51.0% and 51.0%, respectively,
of total revenue. The majority of the Company's contracts with its clients,
including those with its major clients, permit cancellation by the client upon
60 to 90 days' notice, while certain other of the Company's contracts permit
immediate cancellation under certain circumstances. Additionally, with a few
exceptions, the Company's contracts with its customers do not require minimum
payments or purchase of minimum levels of services. The failure to renew, or
the exercise of cancellation rights contained in the Company's contracts with
its clients, or a significant reduction in the volume of services requested by
the Company's clients, could have a material adverse effect on the Company.
See "Business--Clients and Marketing" and Note 15 to the Audited Consolidated
Financial Statements of the Company.
RISKS RELATED TO GROWTH STRATEGY
The Company's strategy is to continue its internal growth and, as strategic
opportunities arise in the managed disability services market, to pursue
acquisitions of, or relationships with, other companies in related lines of
business. As a result, the Company is subject to certain growth-related risks,
including the risks that it will be unable to retain personnel or acquire
other resources necessary to service such growth adequately. Expenses arising
from the Company's efforts to increase its market penetration may have a
negative impact on operating results. In addition, there can be no assurance
that any suitable opportunities for strategic acquisitions or relationships
will arise or, if they do arise, that the transactions contemplated thereby
could be completed. See "Business--Strategy."
7
<PAGE>
EXPOSURE TO PROFESSIONAL LIABILITY
The Company, through its managed care services, makes recommendations
regarding benefit plan coverage and work absence periods based upon judgments
of the appropriateness of proposed medical treatment plans and length of
absence, and in certain instances CORE has the discretion to determine or deny
such benefit plan coverage and work absence periods. Consequently, the Company
has from time to time and may in the future become subject to claims related
to adverse medical consequences or for the costs of services denied and
claims, such as malpractice, arising from the errors or omissions of health
care professionals. A successful claim against
the Company could have a material adverse effect on the Company's financial
position and results of operations.
Furthermore, claims against the Company, regardless of their merit or eventual
outcome, may involve substantial defense costs. There can be no assurance that
procedures implemented by the Company to limit its liability have been or will
be effective or that litigation to which the Company is or may become subject
will not adversely affect its financial position or results of operations. The
Company maintains professional liability insurance and such other coverages as
the Company believes are reasonable in light of the Company's experience to
date. However, there can be no assurance that such insurance will be
sufficient to protect the Company from liability which might adversely affect
the Company's business, operating results or financial condition or will
continue to be available to the Company at reasonable cost or at all.
GOVERNMENT REGULATION; REIMBURSEMENT; HEALTH CARE REFORM
The health care industry is subject to extensive federal and state
regulation relating to licensure, conduct of operations and prices for
services. A number of states, including several of those in which the Company
transacts business, have extensive licensing and other regulatory requirements
applicable to the Company's business, including utilization review and
workers' compensation. These requirements include compliance with federal and
state prohibitions on the offer or receipt of remuneration for the referral of
patients or other items or services. Additionally, the Company's clients,
including insurance companies, are subject to regulations which indirectly
affect the Company. Regulation in the health care field is constantly
evolving. The Company is unable to predict what additional government
regulations, if any, directly or indirectly affecting its business may be
promulgated. Although the Company believes that it is in material compliance
with applicable statutes, licensing requirements and regulations in those
states in which it is subject to regulation, the Company's business could be
adversely affected by a revocation of or failure to obtain required licenses
and governmental approvals, a failure to comply with applicable statutes or
regulations or significant changes in regulations applicable to its clients.
See "Business--Government Regulation; Reimbursement; Health Care Reform."
In addition to existing government health care regulation, there have been
numerous initiatives at the federal and state levels, as well as by private
third-party payors, for comprehensive reforms affecting the payment for and
availability of health care services. The Company believes that such
initiatives will continue during the foreseeable future. The Company is unable
to predict what, if any, reform initiatives may be adopted, or what effect, if
any, their adoption may have on the Company.
RELIANCE ON DATA PROCESSING CAPABILITIES
The Company's business in general, and its WorkAbility disability management
program in particular, is dependent upon the ability to continuously store,
retrieve, process and manage data. Interruption of data processing
capabilities for any extended length of time, loss of stored data, programming
errors or other computer problems could have a material adverse effect on the
business of the Company.
COMPETITION
The markets in which the Company is engaged are highly competitive. In
addition to other utilization management and disability management companies,
the Company competes with insurance companies, third party administrators and
preferred provider organizations. Many of the Company's competitors are larger
and
8
<PAGE>
have greater financial and other resources than the Company. There can be no
assurance that competitive factors in the Company's markets will not have an
adverse effect on the Company. See "Business--Competition."
DEPENDENCE ON KEY PERSONNEL
The Company's success will depend to a significant extent upon the skills of
a number of key employees, including Mr. George C. Carpenter IV, the Company's
Chairman of the Board and Chief Executive Officer, Craig C. Horton, the
Company's President and Chief Operating Officer and William E. Nixon, the
Company's Executive Vice President and Chief Financial Officer. The Company
does not have employment agreements with Mr. Carpenter or Mr. Horton. See
"Management--Employment Contracts and Termination of Employment and Change in
Control Arrangements." In addition, the Company's success will depend to an
extent on its ability to recruit credentialed physicians for the Company's
peer review activities. The future loss of the services of one or more key
persons could adversely affect the Company.
CONTROL BY OFFICERS AND DIRECTORS
Upon completion of this offering, the Company's executive officers and
directors will beneficially own (including options exercisable as of May 31,
1996) approximately 20.6% of the Common Stock (approximately 23.3% if all
options granted to such officers and directors become vested and are
exercised). As a result, the executive officers and directors of the Company
acting together would be able to exert considerable influence over the
election of the Company's directors and the outcome of most corporate actions
requiring stockholder approval. Such concentration of ownership may have the
effect of delaying or preventing a change in control of the Company, which
could adversely affect the market price for the Common Stock. See "Principal
Stockholders."
DILUTION; OUTSTANDING OPTIONS
Purchasers of shares in this offering will experience an immediate dilution
of $6.185 per share (based on an assumed public offering price of $9.625 per
share and after deducting the estimated offering expenses and underwriting
discounts). On May 31, 1996, there were outstanding options and warrants to
purchase 1,535,979 shares of Common Stock at a weighted average exercise price
of $6.03 per share. The exercise of these options would result in significant
book value and earnings dilution to purchasers of shares of Common Stock in
this offering. See "Dilution" and "Management."
ANTI-TAKEOVER CONSIDERATIONS
Certain provisions of the Company's certificate of incorporation and by-laws
and Massachusetts law could discourage potential acquisition proposals, delay
or prevent a change in control of the Company and, consequently, limit the
price that investors might be willing to pay in the future for shares of
Common Stock. These provisions include a classified board of directors and the
ability to issue, without further stockholder approval, shares of preferred
stock with rights and privileges senior to the Common Stock. The Company is
also subject to Chapters 110F and 110D of the Massachusetts General Laws,
which, in general, prohibit a corporation with sufficient ties to
Massachusetts from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person becomes an interested stockholder, subject to certain
exceptions. For purposes of the statute, an "interested stockholder" is
defined as a person who, together with affiliates and associates, owns (or, if
an affiliate of the Company, owned at any time within the prior three years)
5% or more of the corporation's voting stock. As of May 31, 1996, the
following persons met the statutory definition of an "interested stockholder"
of the Company: Fiduciary Trust Company International, John Pappajohn, Craig
C. Horton, George C. Carpenter IV and James Franklin. See "Management--
Directors and Executive Officers," "Principal Stockholders" and "Description
of Capital Stock."
9
<PAGE>
POTENTIAL VOLATILITY OF STOCK PRICE
The market prices for the Common Stock and the securities of certain other
companies in the health care industry have had a history of significant
volatility. The trading price of the Common Stock could continue to be subject
to significant fluctuations due to uncertainties regarding the consolidation
of the businesses of the Company, announcements or actions by competitors,
developments involving the Company's relationships with key clients,
government regulation, fluctuations in quarterly results and other factors.
These broad market fluctuations, as well as general economic conditions and
the financial performance of the Company, may adversely affect the market
price of the Common Stock. See "Price Range of Common Stock."
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of the Common Stock in the public market
could adversely affect prevailing market prices and could impair the Company's
ability to raise additional capital through the sale of its equity securities.
The Company is unable to make any prediction as to the effect, if any, that
future sales of Common Stock or the availability of Common Stock for sale may
have on the market price of the Common Stock prevailing from time to time. See
"Shares Eligible for Future Sale."
THE COMPANY
The Company was incorporated in Massachusetts in April 1984 under the name
Peer Review Analysis, Inc. ("PRA") to provide physician-intensive utilization
management services to commercial insurance companies and self-insured
employers. PRA became a publicly-held entity in December 1991 with the
completion of an initial public offering.
In March 1995, PRA completed its merger (the "CMI/PRA Merger") involving
Core Management, Inc., a Delaware corporation ("CMI"). CMI offers a broad
range of disability management, health care utilization review and analysis
and consulting services, and CMI's Integrated Behavioral Health Division
("IBH") specializes in utilization review of and case management services with
respect to mental health and substance abuse cases. CMI was incorporated in
1990 to acquire the health and disability cost management services business
(including the WorkAbility program) of Health Data Institute, Inc., a
subsidiary of Baxter International, Inc. IBH became a subsidiary of CMI in a
March 1993 acquisition. The CMI/PRA Merger was treated as a pooling of
interests for accounting purposes. The description herein of the business of
the Company includes the operations of both PRA and CMI from the inception of
both companies.
In July 1995, the Company changed its name from Peer Review Analysis, Inc.
to CORE, INC. On October 2, 1995, CORE acquired all the capital stock of Cost
Review Services, Inc., a workers' compensation bill audit firm. The Company's
executive offices are located at 18881 Von Karman Avenue, Suite 1750, Irvine,
California 92715, and its telephone number at that address is (714) 442-2100.
WorkAbility is a registered trademark of the Company.
10
<PAGE>
RECENT DEVELOPMENTS
For the three months ended June 30, 1996, CORE has announced total revenues
of $6.56 million and net income of $499,000 or $.09 per share on approximately
5.74 million weighted average shares outstanding. The revenues earned for the
quarter ended June 30, 1996 represent an increase of $1.68 million (or 34%) as
compared to revenues reported for the quarter ended June 30, 1995 of $4.88
million. The net income of $499,000 for the quarter ended June 30, 1996 as
compared to net income of $254,000 for the quarter ended June 30, 1995
represents an increase of $245,000 (or 97%). Earnings per share for the
quarter ended June 30, 1996 represents an increase of $.04 from the earnings
per share reported for the quarter ended June 30, 1995 which was $.05 per
share.
On May 10, 1996, CORE entered into an Asset Purchase Agreement to acquire
substantially all of the assets and operations of AmHealth (excluding its
accounts receivable). AmHealth is a management services organization that
manages occupational health clinics and on-site industrial medical facilities
in California. The Company had anticipated using approximately $15.7 million
of the proceeds from this offering to fund the AmHealth Acquisition and to
close such acquisition simultaneously with the closing of this offering. In
connection with the proposed acquisition, in the first quarter of 1996 the
Company made a $1.0 million loan (the "AmHealth Loan") to AmHealth.
On July 24, 1996, the Company terminated the AmHealth Agreement. As a result
of such termination, the Company expects to incur an estimated one-time charge
to earnings of between $0.5 million and $1.0 million during the three months
ending September 30, 1996 in connection with the write-off of transaction
costs related to the proposed AmHealth Acquisition. In addition, because there
is substantial doubt about AmHealth's ability to repay the AmHealth Loan, the
Company intends to write-off the AmHealth Loan during the three months ending
September 30, 1996 which will result in an additional non-recurring charge to
earnings of $1.0 million. See "Risk Factors--Termination of AmHealth
Acquisition Agreement."
On April 8, 1996, CORE announced that it had been selected (subject to
negotiation of a definitive service agreement) by Bell Atlantic Corporation to
provide managed disability services, including utilization of CORE's
WorkAbility program, for approximately 57,000 employees, beginning August 1,
1996. The Company and Bell Atlantic are currently negotiating the agreement.
On April 29, 1996, in connection with the Company's hiring of Peter P.
Greaney, M.D. as the Company's Chief Medical Officer, CORE entered into an
agreement with Dr. Greaney, pursuant to which the Company has been granted an
irrevocable option, exercisable through December 31, 1996, to purchase Greaney
Medical Group. GMG Workcare(TM), a division of Greaney Medical Group, is a
national consulting organization specializing in all aspects of occupational
medicine, including managed occupational health care and outsourcing of
occupational health programs for national employers. The exercise price of the
option is estimated to be approximately $8.1 million payable in shares of
Common Stock. The option exercise price is equal to a multiple of 1996
estimated operating after-tax net income adjusted for certain non-recurring
items but not less than $8 million or more than $10 million. The multiple
represents what the Company believes to be an appropriate discount from price-
earnings multiples of publicly-traded companies in similar businesses to
Greaney Medical Group. The Company will elect whether to exercise its option
to purchase Greaney Medical Group based on several contingencies, including
Greaney Medical Group's financial performance in 1996 and whether the
acquisition will qualify for accounting purposes as a pooling of interests
transaction. Through May 31, 1996 (the most recent month for which Greaney
Medical Group financial statements have been supplied to CORE), Greaney
Medical Group financial results are substantially below projections.
Additionally, the Company has not yet definitively determined that the
transaction will qualify for pooling of interests accounting treatment.
Accordingly, although CORE reserves its right to exercise the option, CORE
presently believes exercise of the option to acquire Greaney Medical Group is
not probable.
On April 30, 1996, the Company announced its negotiations with respect to
the Company's providing long-term administrative and managerial service to
Continental FirstCare, an MSO which is affiliated with an independent practice
association ("IPA") of approximately 75 occupational health facilities in
California. These services are expected to commence during the summer of 1996.
11
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby are estimated to be approximately $17.4 million ($20.1 million
if the Underwriters' over-allotment option is exercised in full), assuming a
public offering price of $9.625 per share and after deducting underwriting
discounts and commissions and estimated offering expenses.
The Company expects to use funds from the offering for investments in its
operating capacity, including costs and expenses in establishing a Maryland
office to service the Company's anticipated contract with Bell Atlantic
Corporation (with respect to which a contract is currently under negotiation)
and significant expansion and upgrades to the Company's information systems.
The remainder of the net proceeds will be used for other working capital and
general corporate purposes. A portion of the net proceeds could also be used
for acquisitions of new products, services or businesses complementary to the
Company's business. However, other than the Company's option to purchase the
occupational health business presently owned by Peter P. Greaney, M.D. and
discussions with Continental FirstCare, the Company has no present definitive
agreements or letters of intent with respect to any such transactions. See
"Recent Developments."
Pending such uses, the Company intends to invest the net proceeds from the
offering in short-term, investment-grade, interest-bearing securities.
PRICE RANGE OF COMMON STOCK
The Common Stock is quoted on the Nasdaq National Market System ("Nasdaq-
NMS") under the symbol "CORE." Prior to July 31, 1995, the Company's Nasdaq-
NMS symbol was "PRAI." The following table shows the range of high and low
sales prices per share for the shares of Common Stock on the Nasdaq-NMS for
the calendar quarters indicated as reported by Nasdaq. Over-the-counter market
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and do not necessarily represent actual transactions.
<TABLE>
<CAPTION>
HIGH LOW
-------- ------
<S> <C> <C>
1994
First quarter........................................... $5 3/8 $3 3/8
Second quarter.......................................... 4 1/8 2 1/4
Third quarter........................................... 3 15/16 2 3/8
Fourth quarter.......................................... 3 13/16 2 1/8
1995
First quarter........................................... 4 1/2 2 7/8
Second quarter.......................................... 4 2 3/8
Third quarter........................................... 8 1/2 2 7/8
Fourth quarter.......................................... 10 3/8 7 3/8
1996
First quarter........................................... 13 3/8 8 3/8
Second quarter.......................................... 17 1/4 11
Third quarter (through July 23)......................... 15 1/2 9 1/2
</TABLE>
On July 23, 1996, the last sale price of the Common Stock as reported by
Nasdaq was $9 5/8 per share. As of May 31, 1996, there were approximately 141
record holders of the Common Stock.
DIVIDEND POLICY
The Company has never paid a cash dividend. Inasmuch as the Company intends
to retain earnings for the operation and expansion of its business, the
Company does not intend to pay dividends on its Common Stock for the
foreseeable future. The Company's bank credit line prohibits the payment of
dividends on the Common Stock. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations." Future dividend policy will be
determined by the Company's Board of Directors in light of the then prevailing
financial condition of the Company and other relevant factors.
12
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March
31, 1996 and as adjusted to give effect to the sale of the shares of Common
Stock offered hereby (at an assumed public offering price of $9.625 per share)
and the application of the net proceeds therefrom as described under "Use of
Proceeds."
<TABLE>
<CAPTION>
MARCH 31, 1996
--------------------------
ACTUAL AS ADJUSTED
------------ ------------
<S> <C> <C>
Current maturities of long-term obligations........ $ 559,373 $ 559,373
============ ============
Long-term obligations, less current maturities..... $ 426,713 $ 426,713
------------ ------------
Stockholders' equity:
Preferred Stock, no par value, 500,000 shares
authorized; no shares issued or outstanding..... -- --
Common Stock, par value $0.10 per share;
10,000,000 shares authorized; 4,815,781 shares
issued and outstanding, actual; and 6,815,781
shares issued and outstanding, as adjusted(1)... 481,578 681,578
Additional paid-in capital....................... 18,104,718 35,303,468
Deferred compensation............................ (51,120) (51,120)
Cumulative unrealized gain on investments
available-for-sale.............................. 6,778 6,778
Accumulated deficit.............................. (10,328,620) (10,328,620)
------------ ------------
Net stockholders' equity....................... 8,213,334 25,612,084
------------ ------------
Total capitalization............................... $ 8,640,047 $ 26,038,797
============ ============
</TABLE>
- --------
(1) Excludes 1,510,475 shares of common stock issuable upon the exercise of
outstanding options and warrants. See "Management."
13
<PAGE>
DILUTION
The net tangible book value of the Company at March 31, 1996 was
approximately $6,028,000, or $1.25 per share. Net tangible book value per
share represents the amount of total tangible assets less total liabilities,
divided by the number of shares of Common Stock outstanding as of such date.
Without taking into account any changes in net tangible book value after March
31, 1996, other than to give effect to the sale of the shares of Common Stock
offered hereby (assuming a public offering price of $9.625 per share) and
after deducting underwriting discounts and commissions and estimated offering
expenses payable by the Company, the net tangible book value of the Company at
March 31, 1996, would have been approximately $23,427,000, or $3.44 per share.
This represents an immediate net increase in net tangible book value of $2.19
per share to existing stockholders and an immediate dilution in net tangible
book value of $6.185 per share to purchasers of Common Stock in this offering.
The following table illustrates this dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price per share.......................... $9.625
Net tangible book value per share as of March 31, 1996......... $1.25
Net increase per share attributable to the offering............ 2.19
-----
Net tangible book value per share after the offering............. 3.44
------
Dilution per share to new investors.............................. $6.185
======
</TABLE>
The foregoing table does not take into account the exercise of outstanding
stock options and warrants after March 31, 1996. As of such date, there were
outstanding stock options and warrants to purchase an aggregate of 1,510,475
additional shares of Common Stock at a weighted average exercise price of
$5.82 per share. To the extent that these options and warrants are exercised,
there will be further dilution to new investors. See "Management."
14
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
The unaudited pro forma combined condensed statement of operations set forth
below is based on the consolidated historical financial statements of the
Company included elsewhere herein after giving effect to the CRS Acquisition,
as if such transaction had occurred on January 1, 1995. The unaudited pro
forma combined condensed statement of operations does not purport to represent
what the Company's results of operations would have been had the transaction
described above occurred on the date indicated, or to project the Company's
results of operations for any future period or date, nor does it give effect
to any matters other than those described in the notes thereto. The unaudited
pro forma combined condensed statement of operations should be read in
conjunction with "Management's Discussion and Analysis of Financial Position
and Results of Operations" and the Consolidated Financial Statements of the
Company appearing elsewhere in this Prospectus.
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
COST PRO FORMA
REVIEW CRS AFTER THE
SERVICES, ACQUISITION CRS
CORE INC. ADJUSTMENTS ACQUISITION
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues................ $20,768,521 $4,078,677 $24,847,198
Cost of services........ 12,838,971 $1,512,798 (1a) 14,351,769
----------- ---------- ---------- -----------
Gross profit........... 7,929,550 4,078,677 (1,512,798) 10,495,429
Operating expenses:
Sales and marketing.... 1,499,120 937,832 (1a) 2,436,952
General and
administrative........ 4,787,238 1,012,624 (69,946)(1a) 5,729,916
Salaries and benefits.. 2,380,684 (2,380,684)(1a)
Corporate relocation
and reorganization
expense............... 993,619 993,619
Depreciation and
amortization.......... 904,900 51,816 54,000 (1b) 1,010,716
----------- ---------- ---------- -----------
Total operating
expenses............... 8,184,877 3,445,124 (1,458,798) 10,171,203
Loss from operations.... (255,327) 633,553 (54,000) 324,226
Other income (expense):
Interest income........ 239,590 13,837 (92,250)(1c) 161,177
Interest expense....... (83,410) (26,883) (57,000)(1d) (167,293)
Other.................. 19,974 19,974
----------- ---------- ---------- -----------
176,154 (13,046) (149,250) 13,858
----------- ---------- ---------- -----------
Income (loss) before in-
come taxes............ (79,173) 620,507 (203,250) 338,084
Provision for income
taxes.................. 138,425 (138,425)(1e)
----------- ---------- ---------- -----------
Net income (loss)....... $ (79,173) $ 482,082 $ (64,825) $ 338,084
=========== ========== ========== ===========
Net loss per common
share.................. $ (0.02) $ 0.07
=========== ===========
Weighted average number
of common shares
outstanding............ 4,755,000 5,069,000
=========== ===========
</TABLE>
See accompanying notes.
15
<PAGE>
NOTES TO PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
(1.) The Cost Review Services ("CRS") Acquisition adjustments consist of the
following and represent:
(a). The reclassifications of certain of CRS's expenses to be consistent
with CORE's expense classifications. The reclassifications have no
impact on income (loss) from operations. Expenses reclassified include
salaries and benefits and result in the reclassification of a portion
of CRS's general and administrative expenses to cost of services and
sales and marketing.
(b). An increase in amortization to reflect the pro forma effect of the CRS
purchase as of January 1, 1995 of the excess of purchase price over
the estimated fair value of the acquired net tangible and intangible
assets relating to CRS valued at $1,950,000, which is being amortized
on a straight-line basis over 27.5 years.
(c). The decrease in investment income resulting from the reduction of
short-term investments used to fund the purchase of CRS.
(d). The increase in interest expense relating to the long-term obligations
to former shareholders' of CRS incurred in connection with the
purchase of CRS.
(e). Decrease in tax provision as a result of the pro forma adjustments.
The pro forma provision for income taxes has been computed assuming
the Company's pro forma results of operations had been included in a
consolidated federal income tax return. The Company has elected to
file consolidated income tax returns in the future which will include
all subsidiaries.
16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data are derived from the
consolidated financial statements of the Company. The financial statements for
the years ended December 31, 1991, 1992, 1993, 1994 and 1995, have been
audited by Ernst & Young LLP, independent auditors. The financial data for the
three month periods ended March 31, 1995 and 1996 are derived from unaudited
financial statements. The unaudited financial statements include all
adjustments, consisting of normal recurring accruals which the Company
considers necessary for a fair presentation of the financial position and
results of operations for these periods. The data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the consolidated financial statements and related
notes and other financial information included elsewhere herein.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------- ----------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- --------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $14,671 $16,415 $16,316 $16,746 $20,769 $ 4,729 $ 6,584
Cost of services........ 9,374 10,371 10,714 11,305 12,839 3,117 3,939
------- ------- ------- ------- ------- --------- --------
Gross profit........ 5,297 6,044 5,602 5,441 7,930 1,612 2,645
Operating expenses:
General and
administrative....... 3,491 4,875 5,096 4,265 4,787 1,191 1,403
Sales and marketing... 1,604 2,272 1,787 1,563 1,499 382 470
Restructuring costs... 558 558
Merger costs and
expenses............. 215 1,182 1,114 436 428
Corporate relocation.. 394 163
Depreciation and
amortization......... 500 637 1,067 915 905 232 278
Write-off of
goodwill............. 2,294
------- ------- ------- ------- ------- --------- --------
Total operating
expenses........... 5,595 8,393 9,295 10,151 8,185 2,791 2,151
Income (loss) from
operations............. (298) (2,349) (3,693) (4,710) (255) (1,179) 494
Other income (expense):
Interest income
(expense), net....... (41) 337 288 138 157 26 27
Other income
(expense)............ 29 (127) 19 1 14
------- ------- ------- ------- ------- --------- --------
(41) 337 317 11 176 27 41
Income (loss) before
income taxes and
extraordinary item..... (339) (2,012) (3,376) (4,699) (79) (1,152) 535
Provision for income
taxes.................. (33) 2
------- ------- ------- ------- ------- --------- --------
Income (loss) before
extraordinary item..... (306) (2,014) (3,376) (4,699) (79) (1,152) 535
Extraordinary item--
benefit of federal
income tax loss
carryforwards.......... 53
------- ------- ------- ------- ------- --------- --------
Net income (loss)....... $ (253) $(2,014) $(3,376) $(4,699) $ (79) $ (1,152) $ 535
======= ======= ======= ======= ======= ========= ========
Net income (loss) per
common share:
Income (loss) before
extraordinary item... $ (0.12) $ (0.54) $ (0.73) $ (1.01) $ (0.02) $ (0.24) $ 0.10
Extraordinary item.... 0.02
------- ------- ------- ------- ------- --------- --------
Net income (loss)
per common share... $ (0.10) $ (0.54) $ (0.73) $ (1.01) $ (0.02) $ (0.24) $ 0.10
======= ======= ======= ======= ======= ========= ========
Weighted average number
of common shares
outstanding............ 2,577 3,751 4,611 4,668 4,755 4,740 5,532
======= ======= ======= ======= ======= ========= ========
<CAPTION>
DECEMBER 31,
------------------------------------------- MARCH 31,
1991 1992 1993 1994 1995 1996
------- ------- ------- ------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......... $ 9,772 $ 7,659 $ 6,597 $ 4,612 $ 3,152 $ 2,850
Total assets............ 14,033 16,934 15,972 12,504 12,195 12,866
Long-term obligations... 237 270 223 121 817 427
Accumulated deficit..... 695 2,709 6,085 10,784 10,864 10,329
Stockholders' equity.... 11,216 11,481 12,237 7,553 7,648 8,213
</TABLE>
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
CORE is a national provider of managed disability and health care benefits
management services. The Company was incorporated in 1984 under the name Peer
Review Analysis, Inc. to provide physician-intensive utilization management
services to commercial insurance companies and self-insured employers. PRA
became a publicly-held entity in December 1991 with the completion of an
initial public offering. In March 1995 PRA completed the CMI/PRA Merger. CMI
provides managed disability services, including benefits analysis and
consulting services and health care benefits utilization review and case
management services. CMI's utilization review and case management services
with respect to mental health and substance abuse cases were acquired in an
acquisition in March 1993. The CMI/PRA Merger has been accounted for as a
pooling of interests, and consequently the financial statements of the Company
have been retroactively restated to include the financial position and results
of operations of CMI for all periods presented. In July 1995, the Company
changed its name to CORE, INC., and in October 1995, the Company acquired Cost
Review Services, Inc., a provider of bill audit and case management services
in the workers' compensation market.
The Company has entered into an agreement pursuant to which it has been
granted an option (the "Greaney Option") to purchase Greaney Medical Group,
which includes a national consulting organization specializing in all aspects
of occupational health care. The exercise price of the Greaney Option is
approximately $8.1 million payable in shares of Common Stock. See "Risk
Factors--Recent and Proposed Acquisitions; Risks of Integration; New Business
Lines" and "--Risks Related to Growth Strategy" and "Recent Developments."
The Company provides managed disability services (which consist of the
Company's WorkAbility program as well as its bill audit and analytic
consulting services), specialty physician and behavioral health review
services and health care benefits utilization review and case management
services. These services are provided principally to self-insured employers,
third-party administrators and insurance carriers, and the Company is
typically compensated for these services either on a per review (i.e., per
case), hourly or, to a lesser extent, per enrollee basis. In a limited number
of cases, the Company's compensation varies with cost savings realized by the
client as a result of the Company's services. A significant portion of the
Company's revenues have historically been derived from a limited number of key
clients. See "Risk Factors--Dependence on Key Clients" and Note 15 to the
Audited Consolidated Financial Statements of the Company. Also included in
managed disability services revenue is a limited amount (3% of revenue in
1995) of licensing revenue attributable to license grants by the Company of
the medical protocol portion of the WorkAbility software program.
In connection with the termination of the proposed AmHealth Acquisition, the
Company expects to incur one-time charges to earnings during the three months
ending September 30, 1996 of $1.0 million related to the write-off of the
AmHealth Loan and, based on the Company's preliminary estimates, between $0.5
million and $1.0 million related to the write-off of transaction costs. See
"Recent Developments."
CORE's quarterly operating results may vary depending on factors such as the
addition or loss of key clients and the seasonal nature of the demand for
elective medical services (which is lower in the summer months and between
Thanksgiving and New Year's Day). CORE's expenses are based, in part, on its
expectations regarding future demand for its services, insofar as the Company
typically hires and trains additional personnel to service new clients or new
programs in advance of the receipt of revenues from such clients and programs.
18
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data for the
periods indicated expressed as a percentage of revenues:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------- --------------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenue................. 100.0% 100.0% 100.0% 100.0% 100.0%
Costs of services....... 65.7 67.5 61.8 65.9 59.8
Gross profit............ 34.3 32.5 38.2 34.1 40.2
General and
administrative
expense................ 31.2 25.5 23.0 25.2 21.3
Sales and marketing
expense................ 11.0 9.3 7.2 8.1 7.1
</TABLE>
The following table sets forth the contribution to total revenues of each of
the Company's principal service lines for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
----------------------------------------------- -----------------------------
1993 1994 1995 1995 1996
--------------- --------------- --------------- -------------- --------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------- ------- ------- ------- ------- ------- ------ ------- ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Specialty physician and
behavioral health
review................. $ 7,564 46.3% $ 7,425 44.3% $ 8,845 42.6% $2,259 47.8% $2,325 35.3%
Utilization review and
case management........ 5,604 34.3 6,069 36.2 6,448 31.0 1,568 33.1 1,909 29.0
Managed disability
(including WorkAbility,
analytic and bill
audit)................. 3,148 19.4 3,252 19.5 5,476 26.4 902 19.1 2,350 35.7
------- ----- ------- ----- ------- ----- ------ ----- ------ -----
$16,316 100.0% $16,746 100.0% $20,769 100.0% $4,729 100.0% $6,584 100.0%
======= ===== ======= ===== ======= ===== ====== ===== ====== =====
</TABLE>
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
Revenues increased by $1,855,000 (39%) from $4,729,000 in 1995 to $6,584,000
in 1996. This increase can be attributed to continued growth in the volume of
reviews being processed by the Company from existing clients in each of its
principal service lines as well as the addition of new clients. Approximately
$1,448,000 (78%) of the Company's increase in revenues during the first
quarter of 1996 came from managed disability services. The majority of this
increase resulted from the addition in 1995 of Hughes Electronics Corporation
and Champion International as key WorkAbility clients, increased services to
smaller corporate clients under the Company's distribution relationship with
CIGNA Insurance and the acquisition of CRS in October 1995 giving CORE the
ability to service the workers' compensation market with bill audit services.
During the first quarter of 1996, the Company's top five clients represented
31% of revenues compared to 33% during the first quarter of 1995. No single
client represented more than 10% of total revenues in the quarter ended March
31, 1996. Chrysler Corporation accounted for 10% of the Company's total
revenue in the quarter ended March 31, 1995. No other single client
represented more than 10% of total revenues during the quarter ended March 31,
1995.
Cost of services for the Company include direct expenses associated with the
delivery of its review and managed care services, including salaries for
professional, clerical and license support staff, the cost of physician
reviewer consultants and telephone expense. Cost of services increased by
$822,000 (26%) from $3,117,000 for the three months ended March 31, 1995 to
$3,939,000 for the three months ended March 31, 1996. The increase is
primarily the result of additional payroll associated with processing a higher
volume of referrals and increased staffing levels required to service new and
growing WorkAbility clients. Gross profit performance improved from 34% for
the quarter ended March 31, 1995 to 40% for the quarter ended March 31, 1996
due primarily to the
19
<PAGE>
efficiencies obtained from the restructuring of operations following the
CMI/PRA Merger (March 1995), including a consolidation of management staff and
the companies' benefit plans, and greater economies of scale related to higher
revenues.
General and administrative expenses include the cost of executive,
administrative and information services personnel, rent and other overhead
items. General and administrative expenses increased $212,000 (18%) from
$1,191,000 or 25% of revenues for the quarter ended March 31, 1995 to
$1,403,000 or 21% of revenues for the quarter ended March 31, 1996. Expenses
increased due to additional staffing in the accounting and information
services areas to support the growth of the Company's sales. Additionally,
rent and other general and administrative expenses have increased due to the
purchase of CRS. The improvement as a percentage of revenue is generally due
to efficiencies obtained as a result of the CMI/PRA Merger and the greater
economies of scale related to higher revenues.
Sales and marketing expenses include salaries for sales and account
management and travel expense. Sales and marketing expenses also include costs
designed to increase revenues, such as participation in and attendance at
industry trade shows and conferences. Sales and marketing expenses increased
$88,000 (23%) from $382,000 for the quarter ended March 31, 1995 to $470,000
for the quarter ended March 31, 1996. The increase is primarily due to
increased travel expenses. The Company's sales and marketing strategy focuses
the efforts of an industry known senior management team and a smaller sales
and marketing staff on fewer but significantly larger sales prospects.
Years Ended December 31, 1995 and 1994
Revenues increased by $4,023,000 (24%), from $16,746,000 in 1994 to
$20,769,000 in 1995. The volume of reviews processed in each of the Company's
three principal service lines increased. These increases were primarily
attributable to the addition of new clients and an increase in review volume
from existing clients. Approximately $2,224,000 (55%) of the Company's
increase in revenues during 1995 came from growth in managed disability
services, including WorkAbility, analytic and bill audit services. During
1995, CORE added Hughes Electronics Corporation as a key WorkAbility client
and increased its services to smaller corporate clients under the Company's
distribution relationship with CIGNA Insurance. Additionally, with the
acquisition of Cost Review Services, Inc. ("CRS") in October 1995, CORE
expanded its ability to service the workers' compensation market with bill
audit services. CRS revenues represented 21% of the Company's 1995 increase in
revenues. CORE's specialty physician and behavioral health review services
grew by $1,420,000 (19%) in 1995. This growth was due primarily to increased
demand for specialty-matched physician reviews across a broad range of
markets, including but not limited to the group health, workers' compensation
and disability management markets. During 1995 the Company's top five clients
represented 30% of revenues, compared to 37% during 1994. No single client
represented more than 10% of total revenues in 1995.
Cost of services increased by $1,534,000 (14%), from $11,305,000 for 1994 to
$12,839,000 for 1995. This increase is primarily the result of additional
payroll and physician review costs associated with processing a higher volume
of referrals and increased staffing levels required to service new and growing
WorkAbility clients. During 1995, CORE's cost of services increased by only
14% to service a 24% increase in revenue. Accordingly, gross profit
performance improved from 33% in 1994 to 38% in 1995. This improvement is
generally due to efficiencies obtained as the result of the CMI/PRA Merger,
which included a consolidation of facilities and management staff, a
consolidation of the companies' benefit plans and greater economies of scale
related to higher revenues.
General and administrative expenses increased $522,000 (12%), from
$4,265,000 for 1994 to $4,787,000 for 1995, due principally to higher costs
associated with additional staffing in the information services area to
support the growth of the Company. General and administrative expenses as a
percentage of revenue decreased from 25% in 1994 to 23% in 1995. This
improvement is generally due to efficiencies obtained as the result of the
CMI/PRA Merger, which included a consolidation of facilities and management
staff, a consolidation of the previously separate companies' benefit plans and
greater economies of scale related to higher revenues.
20
<PAGE>
Sales and marketing expenses also include costs designed to increase
revenues, such as participation in and attendance at industry trade shows and
conferences. Sales and marketing expenses decreased $64,000 (4%), from
$1,563,000 in 1994 to $1,499,000 in 1995. This decrease was due to the net
effect of a reduction in the Company's sales staff and associated expenses
during 1995 as a result of the CMI/PRA Merger and increased marketing related
expenditures such as hosting and co-hosting a number of conferences across the
country that addressed various market-specific issues that the Company's
clients and prospective clients are facing.
Merger costs and expenses of $436,000 recorded during 1995 consist primarily
of professional fees, investment advisor services and printing expenses
associated with the completed CMI/PRA Merger. This was a $678,000 decrease
from the $1,114,000 recorded during 1994.
Restructuring costs of $558,000 consist of charges for the Company's plan of
termination and exit plan. In conjunction with the CMI/PRA Merger completed on
March 24, 1995, the Company reduced its workforce where overlapping functions
existed. The Company also reduced its sales and marketing workforce to better
address the marketing strategy of the Company. The termination of employees as
a result of these actions caused the recognition of severance and outplacement
costs for the quarter ended March 31, 1995. The Company also abandoned excess
leased space at its Burlington, Massachusetts location, and a charge was
recorded for the cost of future rental expense on the abandoned space.
Other income consists primarily of interest income, which represents amounts
earned by the Company on investments held, as reduced by interest expense,
which primarily relates to borrowings under lines of credit. During 1995,
other income increased $166,000, from $10,000 in 1994 to $176,000 in 1995.
This increase was due primarily to the Company using more of its invested
funds and significantly reducing its use of its lines of credit.
Years Ended December 31, 1994 and 1993
Revenues increased by $430,000 (3%), from $16,316,000 in 1993 to $16,746,000
in 1994. This increase in revenue is primarily attributable to growth in the
Company's managed disability and utilization review and case management
service lines, including WorkAbility revenues from new clients such as General
Electric and Hoechst Celanese Corporation and the initiation of disability
review services to Northwestern National Life (now known as Reliastar
Financial Corp.). Licensing of CORE's software, including WorkAbility On-Line
Medical Protocols ("WOMP"), a product developed in late 1993, increased 1994
licensing revenues to nearly 5% of total revenues, a significant increase over
1993. While revenues in the Company's specialty physician and behavioral
health review service line remained constant during 1994, the Company handled
a decreased volume of reviews. The Company helped sustain revenues in this
service line by enhancing its services and implementing service sensitive
pricing during 1994 which increased the average price charged per review.
These revenue increases were offset in significant part by a decreased number
of referrals in 1994 compared to the prior year and the loss of revenues from
Digital Equipment Corporation ("DEC") effective December 31, 1993. DEC
revenues were $1,202,000 for 1993. In 1994, the Company's top five clients
represented 37% of revenue compared to 39% during 1993. During 1994,
Northwestern National Life represented 12% of revenues. No other client
represented more than 10% of total revenue in 1994.
Cost of services increased by $591,000 (6%), from $10,714,000 in 1993 to
$11,305,000 in 1994. This increase resulted from the creation of a customer
service department in Physician Review Services ("PRS"); the addition of
management personnel to quality assurance efforts; and the hiring of
additional nurse reviewers to better process more clinically and
administratively complex physician reviews. In the fourth quarter of 1993, the
PRS unit implemented a "team" structure approach to processing physician
reviews. Staff reductions attendant with the loss of DEC in December 1993 were
offset in part by increased staffing required to service start-up units for
CIGNA Insurance and General Electric Corporation. The Company also hired and
trained new personnel and implemented a new case management program to service
anticipated new business in advance of the initial receipt of program
revenues. These factors adversely impacted the Company's gross profit
performance, which decreased slightly, from 34% in 1993 to 33% in 1994.
21
<PAGE>
General and administrative expenses decreased $831,000 (16%), from
$5,096,000 in 1993 to $4,265,000 in 1994. This decrease was due primarily to
the Company's ability to reduce its overhead expenses by consolidating the
operations of three Orange County, California offices into a single facility
in Irvine, California and consolidating the executive and operating functions
in anticipation of the CMI/PRA Merger. The Company also reduced its
expenditures for legal and investment banking services during 1994. The
actions taken during 1994 significantly reduced general and administrative
expense as a percentage of revenue from 31% in 1993 to 25% in 1994.
Sales and marketing expenses decreased by $224,000 (13%), from $1,787,000
for 1993 to $1,563,000 for 1994. The Company reduced its sales and marketing
activity during 1993 and 1994 in response to a declining revenue base in some
of its lines of business. The change in strategy, from aggressively pursuing
new client revenue toward better servicing of and increased marketing to its
current client base prompted the Company to move many of its marketing efforts
in-house. The Company also made reductions in certain sales personnel in
California in anticipation of a consolidated sales organization under the
CMI/PRA Merger.
Merger costs and expenses of $1,114,000 consist primarily of professional
fees, investment advisor services and printing expenses associated with the
completed CMI/PRA Merger. Merger costs and expenses decreased by $68,000 for
1994 over 1993, in which expenses incurred were related to both the CMI/PRA
Merger and the March 1993 purchase of Integrated Behavioral Health.
Depreciation and amortization expenses decreased by $153,000 (14%), from
$1,067,000 in 1993 to $914,000 in 1994. This decrease was primarily due to the
write-off of goodwill related to the IBH purchase and to the accelerated
amortization of a portion of the value assigned to customer contracts
associated with the June 1992 acquisition of Interventions, a Chicago
behavioral health plan, during 1993, due to the loss at that time of one of
the unit's larger customers.
Other income decreased by $307,000 (97%), from $317,000 in 1993 to $10,000
in 1994. This decrease was due largely to a realized loss of $158,000 incurred
on the sale of investments, fewer dollars available for investment and a
decline in interest rates.
LIQUIDITY AND CAPITAL RESOURCES
For the year ended December 31, 1995, the Company's cash and cash
equivalents increased by $1,006,000. For this period, operating activities
provided $439,000. The Company's investing activities provided $1,995,000 of
cash, primarily due to the net sale of available-for-sale securities of
$4,406,000 as reduced by $1,510,000 for the purchase of Cost Review Services,
Inc. and $1,279,000 for the funding of equipment and furniture purchases and
for leasehold improvements. The Company's financing activities used $1,428,000
for this period. During the year the Company paid off CMI's line of credit of
$1,200,000 and notes payable to officers of $200,000.
For the three months ended March 31, 1996, the Company's cash and cash
equivalents decreased by $987,000. For this period, operating activities used
$141,000 due primarily to an increase of $1,314,000 in accounts receivable,
offset by income for the quarter of $535,000 and an increase in accounts
payable and accrued expenses of $482,000. The increase in accounts receivable
can be attributed to continued revenue growth while the increase in accounts
payable and accrued expenses relates to the timing of payments. The net cash
used in investing activities of $658,000 is essentially related to the use of
$635,000 of cash to fund software development and leasehold improvements at
the Company's Burlington office. In addition, the Company issued notes
receivable to AmHealth in connection with the proposed AmHealth Acquisition
and to Continental FirstCare in connection with the Company's proposed
relationship with Continental FirstCare in the aggregate amount of $1,041,000,
using cash provided from the sale of investments available-for-sale of
$1,085,000. See "Recent Developments." The Company's financing activities used
$188,000 for payments due on contractual obligations, notes payable and
capital leases.
22
<PAGE>
During the first quarter of 1996, the Company increased its available line
of credit by $1,000,000 up to $2,500,000, subject to certain limitations based
on the Company's accounts receivable. The line of credit prohibits the payment
of dividends on Common Stock without the prior written consent of the banking
institution. Additionally, the Company must obtain the written consent of the
banking institution before entering into certain other transactions, including
any loans to third parties and acquisitions, mergers or other consolidations
which exceed certain size thresholds. The Company expects to utilize this line
of credit to meet short-term demands for cash that fluctuate based on the
timing of collections on accounts receivable.
The Company leases its facilities and certain office equipment. Lease
commitments, which relate substantially to space rental, for the years ended
December 31, 1996 and December 31, 1997 are approximately $1.5 million and
$1.3 million, respectively. All obligations held by the Company under lease
commitments expire on various dates through the end of the year 2001 and total
$5.7 million as of December 31, 1995.
The Company has net operating loss carryforwards for income tax purposes of
approximately $9 million as of December 31, 1995, which can be used to reduce
the cash flow necessary to pay taxes. The amount of net operating loss
carryforwards that can be utilized in any future year may be limited due to
"equity structure shifts" and "owner shifts" involving "5% shareholders" (as
these terms are defined in Section 382 of the Internal Revenue Code), which
resulted in a more than 50 percentage point change in ownership. The
utilization of these NOL carryforwards may be subject to further limitation
provided by the Internal Revenue Code of 1986 and similar state provisions.
See Note 11 of Notes to Consolidated Financial Statements of the Company.
The Company plans to finance its operations and working capital requirements
with the proceeds of this offering, earnings from operations, investments on
hand and other sources of available funds, including the Company's available
line of credit of $2,500,000. The Company presently believes that these
resources will be sufficient to meet its liquidity and funding requirements
through at least the year 1997.
PENDING ACCOUNTING STANDARDS
The Financial Accounting Standards Board has issued SFAS No. 123 "Accounting
for Stock-Based Compensation." SFAS No. 123 is effective for fiscal years
beginning after December 15, 1995 and will not have a material impact on the
Company's statement of operations or financial position.
23
<PAGE>
BUSINESS
CORE is a national provider of managed disability and health care benefits
management services to Fortune 500 companies and other self-insured employers,
third-party administrators and insurance carriers. The Company's services
include managed disability services using CORE's proprietary WorkAbility
disability management software, specialty physician and behavioral health
review services and health care benefits utilization review and case
management services. The Company's services are designed to assist its clients
monitor and control disability and health care benefits costs without
compromising the quality of health care services provided to the patient.
CORE's managed disability services include monitoring the appropriateness of
disability durations under short and long-term disability plans and workers'
compensation programs in order to reduce unnecessary absenteeism and its
related costs of wage replacement, hiring and training replacement personnel
and lost productivity. These services are based on CORE's WorkAbility program,
a proprietary software program developed over a ten-year period through the
statistical analysis of disability utilization data. CORE's WorkAbility
managed disability program provides an objective, medically based method for
recommending and monitoring employee's return-to-work dates. The WorkAbility
program is designed to obtain and analyze relevant medical and work-related
information with the initial onset of the employee's absence and thus assure
that the employee, attending physician and employer all have reasonable and
consistent expectations as to the projected return-to-work date.
CORE's independent physician review programs provide pre-certification,
concurrent and appellate physician review services for use with utilization
management programs of the Company's insurance company and self-insured
corporate clients. The Company believes its more than 230 Board certified
physician reviewers comprise the largest independent physician review service
in the country. CORE's behavioral health review program provides comparable
review service by psychiatric specialists in sub-specialties such as adult and
child psychiatry, alcoholism and chemical dependency. The Company also
provides utilization review services designed to evaluate the medical
necessity and appropriateness of health care services prescribed for
participants in health care and medical plans. In cases of high cost injuries
or illness, CORE also renders case management services for individual cases to
assure that cost-effective treatment alternatives are utilized.
INDUSTRY OVERVIEW
In recent years, large corporations have begun to recognize the magnitude of
the annual cost of occupational and non-occupational injuries and illnesses,
which according to a 1991 publication exceeded $2,200 per employee, or 8% of
total payroll costs. These expenses present a significant challenge to
corporate productivity. The Company estimates that total U.S. costs due to
injury and illness-related workplace absence are approximately $260 billion
per year.
According to an industry source, workers' compensation expenditures grew at
an average annual rate of over 10% from 1982 through 1991, and the Company
believes this growth is continuing. The Company estimates that workers'
compensation costs were approximately $60 billion in 1994. Despite the general
awareness of this high level of workers' compensation costs, expenditures for
group disability (including short-term disability and long-term disability
plans), sick pay and family leave represent a far larger share of total
expenditures at approximately $200 billion in 1994. Two driving factors behind
the increase in group disability and workers' compensation expenditures are
workplace and legislative changes. Work-related changes that have contributed
to rising benefits costs include the aging of the active workforce, increased
volatility in hiring and layoffs (which often results in increased benefits
utilization) and increased diagnoses of repetitive stress-related injuries.
Also contributing to rising disability benefit costs and awareness are
legislative changes such as the Family Medical Leave Act and the Americans
with Disabilities Act, which mandate accommodation for family circumstances
and disabled workers, which both have a growing impact on accommodation and
lost time issues.
24
<PAGE>
In response to these rising costs, a variety of insurance companies, managed
care organizations and self-insured employers have used various cost reduction
techniques, often borrowed from group health managed care, including securing
pricing concessions from providers, using case management tools, and
implementing "gatekeepers" as a means to control utilization. However, these
managed care initiatives focus almost entirely on medical costs generated
after a disability claim is received, not on the more significant productivity
(lost-time) impacts of employee ill health. Furthermore, work absence
duration, and consequently disability payments, have traditionally been driven
by the decision of the treating physician. While workers' compensation cases
are typically attended by an occupational specialist, employees with non-
occupational disabilities tend to utilize their own primary care physician who
have little or no interaction with the employer and limited sensitivity to
productivity (lost time) issues.
As traditional managed care tools become standard industrywide, they are
generating diminishing marginal savings for employers, who must find more
aggressive and sophisticated utilization review mechanisms to yield further
savings. In addition, the new-found awareness of the additional costs
associated with workplace absence has brought with it an increasing demand for
cost saving strategies that address both health care expenditures and the
productivity impact of an employee's ill health. Corporate downsizing and
global competition have focused Corporate America on achieving real
productivity gains. With the importance of each remaining job magnified,
employers are actively looking for new tools to help control workplace
absence. Until recently, recognition and management of these productivity
costs have been impaired by their difficulty in measurement, the fragmentation
of responsibilities for disability programs within human resources and risk
management departments of most corporations and the historical focus on group
health managed care.
While a small group of companies is emerging that are applying managed care
principles to the workers' compensation industry, historically there have been
few, if any, companies focusing on the provision of managed care techniques to
the broader disabilities market. With the support of its analytic and
physician services, CORE's products provide employers with an integrated and
comprehensive approach to disability benefits management.
STRATEGY
CORE intends to expand its position as a leading provider of managed
disability services by utilizing its proprietary WorkAbility program and
related services to reduce the direct costs of group disability and workers'
compensation benefits and to improve employee productivity. The Company
believes that the combination of its health care and disability management
tools and its strong information technology foundation provides an effective
management platform that can be tailored to meet the needs of employers and
managed care organizations. The principal elements of the Company's strategy
for achieving its objective are as follows:
EXPAND WORKABILITY CLIENT BASE. The Company intends to aggressively market
its WorkAbility program to achieve greater penetration into the managed
disability market through direct sales to large employers, sales to small
employers through distribution agreements with insurance companies and
licensing arrangements with selected domestic and international third
parties.
PURSUE OUTSOURCING OPPORTUNITIES. In response to the increasing demand by
large employers for outsourcing their disability management activities,
CORE intends to actively pursue contracts to provide comprehensive managed
disability services on an outsourced basis. In addition to the WorkAbility
program, these services can include development of analytic databases,
management of related vendor contracts, establishment and review of
occupational health networks and provision of onsite occupational health
services. In April 1996, Bell Atlantic Corporation selected the Company to
provide comprehensive disability management services.
ACQUIRE COMPLEMENTARY SERVICES. The managed disability industry is highly
fragmented and in an early stage of development. The evolution of this
marketplace may present opportunities for the Company to complement its
managed disability services by obtaining service line extensions and cross-
selling synergies
25
<PAGE>
through strategic acquisitions. The Company's October 1995 acquisition of
Cost Review Services, Inc., a workers' compensation bill audit firm, is an
example of an acquisition which met the Company's criteria.
DEVELOP DISABILITY MANAGED CARE NETWORKS. CORE intends to use the
WorkAbility program as the technological platform to develop integrated
networks of disability managed care services in certain geographical
markets which support the local needs of CORE's clients.
ESTABLISH CAPABILITY FOR RISK SHARING ARRANGEMENTS. The Company believes
that the disability management market will evolve toward a risk sharing
model similar to other segments of the health care industry, and that the
WorkAbility program and related database will provide CORE with a
significant advantage in assessing and managing risk. The Company
ultimately intends to be in a position to utilize the WorkAbility program
and its regional clinical networks to enter into capitated or other "at
risk" arrangements with payors.
SERVICES AND PRODUCTS
CORE offers services and products designed to assist the Company's clients
control and monitor disability, workers' compensation and health care costs
without compromising the quality of care or services available to patients.
The Company's services include: (i) managed disability services using CORE's
WorkAbility products and services, (ii) specialty physician and behavioral
health review services using more than 230 CORE-affiliated board certified
physicians and (iii) utilization review ("UR") and case management services.
With the proposed AmHealth Acquisition, CORE will also manage a network of
nine occupational health clinics and an employer services division which
render occupational and industrial medical services.
For the year ended December 31, 1995 and the three months ended March 31,
1996, managed disability services accounted for approximately 26% and 36%,
respectively, of CORE's revenue, specialty physician and behavioral health
review services represented 43% and 35%, respectively, of revenue and UR and
case management services represented 31% and 29%, respectively, of revenue.
Managed disability services, which include the Company's WorkAbility program
as well as its bill audit and analytic consulting services, accounted for more
than 50% of the Company's 1995 total revenue increase and more than 75% of the
Company's revenue increase for the first quarter of 1996 as compared to the
first quarter of 1995. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
MANAGED DISABILITY SERVICES
The Company estimates that total direct and indirect disability expenditures
are approximately $260 billion annually, of which approximately $60 billion is
attributable to workers' compensation costs. CORE's managed disability
services include monitoring of the appropriateness of disability durations
under short and long-term disability plans and workers' compensation programs
in order to reduce unnecessary absenteeism and the costs associated with such
absences. The cost of absenteeism includes wage replacement, the costs of
hiring and training replacement personnel and lost productivity. The Company's
managed disability services are based on the WorkAbility program, a
proprietary software program developed and maintained through the statistical
analysis of disability utilization data. CORE's WorkAbility program provides
an objective, medically based method for managing disability and employees'
return-to-work dates. The WorkAbility program is designed to obtain and
analyze relevant medical and work-related information with the initial onset
of the employee's absence and thus assure that the employee, attending
physician and employer all have reasonable and consistent expectations as to
the projected return-to-work date.
Among the characteristics of CORE's WorkAbility program which differentiate
it from other disability review programs are the following:
DAY ONE INTERVENTION. Unlike retrospective disability review which is
triggered only after an extended employee absence or after significant
costs have been incurred, the WorkAbility program is designed to
26
<PAGE>
interact with the treating physician immediately upon occurrence of the
disability event. Early intervention permits establishment of an
appropriate return-to-work date prior to a significant absence.
PROPRIETARY DATABASE. CORE began developing its WorkAbility program in
1986. The program uses a database of more than 265,000 disability and
workers' compensation cases collected by CORE over ten years. From this
data base, the Company has developed protocols with over 10,000 clinical
endpoints. As a result, the WorkAbility protocols and projected return-to-
work dates are in most instances based on an historical record of similarly
situated patients rather than theoretical models. As the WorkAbility
program is utilized, the database is growing.
CLINICAL CREDIBILITY. WorkAbility assists the Company in establishing
clinical credibility with the attending physician by comparing CORE's
database of similar medical episodes with the patient's medical and job
profile. This information can be shared with the attending physician to
assist in the development of an effective treatment plan and in determining
the appropriate return-to-work schedule. The WorkAbility program, supported
by the Company's more than 230 Board certified physicians, allows a
treating physician to talk to a CORE physician specialist for peer review
of complex diagnoses and treatment plans.
CONCURRENT REVIEW. In addition to the initial recommendation of an
appropriate return-to-work date, WorkAbility services include ongoing
review of patient status to assure the expected date remains accurate. At
these intervals, new information may be gathered about the treatment or the
illness or injury requiring an adjustment to the return-to-work date.
COMPLETE WORKFORCE COVERAGE. The WorkAbility program is designed to cover
all workplace absences, not just the longer term and more costly absences.
The program also provides consistent return-to-work dates for clinical
conditions whether the condition causing the absence is a result of a
workers' compensation workplace injury or an injury outside of the
workplace covered by a disability plan.
The WorkAbility program is operated primarily by registered nurse reviewers
using an automated review system to assess each disability claim in the early
stages of an employee's absence. Under the WorkAbility program, the attending
physician or office staff (depending on the severity of the case) uses a toll-
free number to contact CORE and speaks to a trained WorkAbility program nurse
reviewer who enters information on the diagnosis and severity of the condition
into CORE's proprietary WorkAbility system. Each case is then reviewed by the
nurse using the WorkAbility program's computerized medical protocols, which
consider such factors as the employee's age and general health, job
requirements, symptoms and severity of the condition, diagnosis of the
attending physician, treatment plan, medical procedure(s) performed and
comorbid factors which may affect the duration of the disability.
Using the WorkAbility program, the nurse reviewer considers these various
factors and recommends an appropriate length of disability duration based on
the specifics of the case. To assure consistency, reviews are guided by
program standards based on both statistical and clinical analysis and, in
certain circumstances, are referred to physicians for further review. The
WorkAbility program can assign specific lengths of disability for more than
10,000 clinical descriptions, or "endpoints." If CORE and the attending
physician agree with respect to the anticipated disability duration, a letter
stating the expected return-to-work date is sent to the employee and physician
on the date the review is completed. The employer is notified of the return-
to-work date electronically. If the employee's physician disagrees with the
suggested length of disability assigned by CORE's nurse reviewer (as occurs in
less than 15% of the cases), the case is referred to a WorkAbility physician
advisor who will discuss the case with the treating physician. In the event
that they cannot reach agreement, the case is referred to the employer for
consultation to determine whether or not an independent medical examination
should be requested. If the employee's condition or medical treatment changes
during the absence or the employee is not ready to return to work on the
expected date, a request for an extension of the disability leave is reviewed
on a case by case basis using the WorkAbility program and additional
information provided by the attending physician or patient.
27
<PAGE>
The Company's WorkAbility program includes return-to-work case management
for high intensity, potentially high cost disability cases. This service is
focused on returning the patient to work as soon as clinically appropriate
through intensive involvement by a dedicated nurse case manager with the
patient, the health care providers and the workplace. Depending on the
client's benefits structure, the Company's return-to-work case managers can
negotiate services, coordinate on-site activities and channel the patient to
appropriate treatments or providers.
The WorkAbility program has the capability to collect and report information
relating to the ongoing disability claims history of each employee and
documents all case reviews, thus allowing the identification of employee
disability patterns and physician treatment patterns. The WorkAbility program
is also able to identify prospective high cost disability events which can be
monitored in more detail through return-to-work case management. In addition,
the Company believes that the data transfer capabilities of the WorkAbility
program can also substantially improve the efficiency of its clients' claims
administration function. Electronic transfer of data required by the employer
or disability program administrator can minimize errors and reduce paperwork,
allowing faster processing of disability payments to employees.
The WorkAbility On-line Medical Protocols ("WOMP") were developed and are
maintained by CORE and are licensed by the Company to third parties as a
separate product. These WorkAbility protocols are updated annually to, among
other things, reflect recent advancements in medical technology and procedures
and to update the recommended disability durations using the collective
experiential data collected by CORE through its services to clients. The
WorkAbility system automatically provides to the Company's clients monthly and
quarterly management reports which monitor disability benefits utilization
trends and identify potential problem areas.
In general, CORE's WorkAbility services are advisory only. The attending
physician and the patient remain responsible for determining the work-absence
period and all other aspects of the plan of treatment, while the employer or
other payor is responsible for making all decisions with respect to the
payment or denial of benefits under the applicable benefits plan. See "Risk
Factors--Exposure to Professional Liability."
In order to assist employers identify and quantify the direct and indirect
costs associated with disability benefits and, to a lesser extent, health care
benefits, CORE also provides data analysis and consulting services to large
corporate clients. These services include in-depth customized information
concerning their disability and health care costs and utilization experience.
Health care costs, disability costs and workers' compensation costs are often
under separate departments in a large employer (human resources, benefits and
risk management) which has historically impaired corporations' ability to
recognize the magnitude of, and to manage, these costs. The basic objectives
of CORE's analytic services are to help employers and insurers obtain better
value for their disability, workers' compensation and health care expenditures
with a company's specific goals in mind. CORE assists in identifying the best
means to reduce the total costs of these benefits or slow the rate of
increase, enhance the appropriateness and quality of care, predict future
benefit costs and increase the return on investment from managed care
programs. CORE's consulting service can coordinate and analyze information on
a company-wide basis and use the client's information and CORE's proprietary
disability and medical cost data analysis methodologies to simulate changes in
a benefit plan's structure and the resulting impacts on overall benefit
program cost. For example, CORE serves as a data partner to several Fortune
500 companies and provides quarterly "CORE Impact Reports" on integrated
claims experience of the client covering disability, workers' compensation and
group health benefits.
The Company's workers' compensation bill audit services involve auditing
medical bills, pharmacy bills and hospital bills for medical services or
products received by the client which are subject to applicable state fee
schedules. The bills are audited to determine whether the services or products
which are the subject of the medical bill are from legitimate medical
providers, contain the proper procedural codes and are billed accurately based
on the procedure codes. Finally, an audit report is prepared stating the
result of such audit with a recommendation for payment.
28
<PAGE>
SPECIALTY PHYSICIAN AND BEHAVIORAL HEALTH REVIEW
CORE's independent physician review programs provide pre-certification,
concurrent and appellate physician review services for use with existing
utilization management programs of clients, including insurance carriers that
service the group health, disability and workers' compensation markets, and
other managed care companies. The Company believes its more than 230 Board
certified physician reviewers comprise the largest independent physician
review organization in the country. The Company's consulting relationship with
this large base of physicians has positioned the Company to offer an appeal
review service, which is mandated under several state laws and generally
requires specialty-matched reviews. The Company believes that appellate review
is one of the few growing sectors of the otherwise mature utilization
management industry.
When a client's nurse reviewer determines that a case does not meet the
client's established criteria, the nurse reviewer will forward a referral to
CORE's physician reviewer. The referral describes the principal diagnosis of
the patient and the reason for referral for physician review. In most
instances the reason for referral is based upon a question of medical
necessity or therapeutic benefit of a proposed treatment plan. CORE's
independent physician reviews the case information, which will have been
previously entered into CORE's data processing systems, and then telephones
the attending physician to ascertain any additional clinical data, the
attending physician's rationale for the proposed treatment plan or the
proposed length of hospital stay. Based on discussions with the attending
physician, including, when appropriate, discussions of possible alternative
treatment plans, and using clinical judgment as well as criteria based on
national norms, CORE's physician makes a recommendation concerning the
appropriateness of the proposed or revised treatment plan.
CORE then notifies its client of its recommendation regarding the medical
necessity or appropriateness under the client's health care benefit plan of
the proposed treatment plan, hospitalization or length of stay. If the
proposed hospitalization is not certifiable as such under the plan, the payor
typically denies or reduces the payment of benefits for the proposed
hospitalization. The decision of the payor may be appealed by the patient or
the attending physician. In such event a second Company physician of the same
specialty who was not involved in the original decision will review the case
on the merits of the clinical criteria or any additional information.
Reviews under the Company's specialty physician review program are managed
from CORE's offices, and the majority of all review decisions are completed
within 24 hours of referral. In most instances, CORE's services are advisory
in nature. Determinations as to the payment or denial of benefits are
typically made by the third party payor, and decisions as to the patient's
medical treatment are made by the patient and the attending physician. See
"Risk Factors--Exposure to Professional Liability."
CORE's behavioral health review program provides review services similar to
the Company's specialty physician review services by psychiatrists who are
supported by a team of multi-specialty physicians. CORE's independent
psychiatrists include specialists in various psychiatric sub-specialties such
as adult psychiatry, child psychiatry and addictionology, including alcoholism
and chemical dependency. CORE believes that its multi-specialty psychiatrists
(including those in its Integrated Behavioral Health Division) and CORE's
emphasis on intensive specialty review distinguish it from psychiatric review
performed by other utilization management firms and better addresses the more
subjective nature of many behavioral health reviews.
The Company is certified by the Utilization Review Accreditation Commission
("URAC") to perform various utilization review functions. URAC is a nationally
recognized organization that has developed standards to encourage the
availability of effective, efficient and consistent utilization review of
health care services throughout the United States. One of URAC's key
objectives is to establish standards for the procedures used to process
appeals of utilization review determinations. Many of the Company's clients
rely on CORE's specialty physician and behavioral health review services to
comply with URAC's appellate procedures.
29
<PAGE>
UTILIZATION REVIEW AND CASE MANAGEMENT
The Company provides medical and behavioral health utilization review and
case management services to Fortune 500 companies and other self-insured
employers, third-party administrators ("TPAs") and an insurance carrier. The
Company's services are designed to evaluate the medical necessity and
appropriateness of health care services prescribed for participants in health
care benefits plans, including hospital admissions, proposed length of
hospital stay, use of outpatient facilities and other treatment alternatives.
In cases of high cost diseases, conditions or catastrophic illnesses, CORE may
also render case management services of individual cases in order to assure
that cost-effective treatment alternatives are utilized. Clients may elect to
contract for all of the services offered under the programs or, in the
alternative, may elect to contract for only certain portions of services
offered.
CORE provides its utilization review services and case management services
through a staff consisting primarily of registered nurses and physicians.
Clients which utilize CORE's utilization review programs advise their
participants of review requirements including the requirement to contact CORE
within a specified period of time. From these contacts, CORE's medical and
behavioral health review staff gathers the necessary personal and medical
information and enters this information into CORE's review system. Based on
this information and using CORE's review criteria, CORE conducts its review.
CORE's review criteria and procedures are structured so that a nurse
reviewer or nurse case manager can initially review the majority of cases
presented. If a hospital admission or outpatient service fails to meet
established criteria, a CORE employed or retained physician (or other doctoral
level practitioner such as a Doctor of Chiropractic or Doctor of Psychology)
reviews the case and may contact the patient's doctor to obtain additional
information or otherwise discuss the proposed treatment plan. Upon completion
of the medical review, CORE notifies the participant, the attending physician
and other affected providers of the outcome of such review. CORE also notifies
its client as to whether the proposed hospitalization and length of stay or
outpatient service appears to be medically necessary and appropriate under the
terms of the benefit plan. CORE provides both an expedited and standard
appeals process to patients or plan members in instances where a non-
certification determination is made by CORE. CORE's UR appellate process
utilizes the Company's relationships with more than 230 Board certified
physicians to provide specialty matched physician review.
For many of its programs, CORE charges its clients a "capitated fee," i.e.,
a fixed per employee per month fee. The amount of this fee varies depending on
the size of the client and the number and type of review programs selected by
the client. For other services, including case management, CORE charges fees
on an hourly rather than a capitated basis. In most cases, CORE's services are
advisory in nature. Notwithstanding the outcome of CORE's review, decisions as
to the payment or denial of benefits and eligibility or coverage under the
benefit plan are typically made by the administrator of the participant's
health care plan, not by CORE. Decisions as to the patient's medical treatment
are made by the patient and the attending physician, not by CORE. See "Risk
Factors--Exposure to Professional Liability."
CLIENTS AND MARKETING
CORE has over 200 customers across the country, including 36 Fortune 500
companies. Revenues from Fortune 500 companies accounted for approximately 40%
of total revenues in 1995 and 1994. The following is a selected list of CORE's
clients which, the Company believes, is representative of its overall client
base:
Chrysler Motor Corporation Hughes Electronics Corporation
Reliastar Financial Corp. (owned by General Motors)
(formerly known as Northwestern Champion International Corporation
National Life) Blue Cross/Blue Shield of Texas
Lockheed Martin Corporation Liberty Mutual Insurance Company,
Aetna Life Insurance Company Inc.
General Electric Corporation Health Plans, Inc.
30
<PAGE>
CORE markets its services primarily to national, direct accounts, including
self-insured employers, and through group health and disability insurance
carriers and third party administrators. The Company's marketing strategy is
to use its senior management team and a small sales and marketing staff to
focus on potential sales to a limited number of large sales prospects. The
Company has also entered into distribution agreements with Reliastar Financial
Corp., CIGNA and other insurance companies pursuant to which these companies
offer CORE's WorkAbility services to their customers. For providing
WorkAbility services, the Company is paid fees by the insurance companies.
Also, the Company is active in conferences addressing disability management
issues the Company's clients and prospective clients face, including acting as
a host or a co-host to several conferences in 1995.
The Company recognized 50% of its revenues in 1995 from self-insured
employers, as compared to 46% in 1994. Revenues from insurance carriers
represented approximately 37% and 43% of total revenues in 1995 and 1994,
respectively. The remaining 13% and 11% of total revenues in 1995 and 1994,
respectively, were recognized from other clients, including managed care
companies. During 1995, no client represented 10% or more of revenues. During
1994, Northwestern National Life Insurance (now known as Reliastar Financial
Corp.) represented approximately 12% of revenues. During the years ended
December 31, 1994 and 1995, the Company's five largest clients represented
36.5% and 30.1%, respectively, of total revenue, and its ten largest clients
represented 45.0% and 51.0%, respectively, of total revenue.
CORE typically enters into service agreements with its clients. These
agreements have automatically renewable successive terms of between one and
three years, but are generally terminable upon 60 to 90 days notice. They do
not generally provide for minimum payments and are usually non-exclusive.
Certain contracts include provisions that the fees payable to CORE can vary
based upon CORE's performance and the savings achieved by the client under the
contract.
INFORMATION SYSTEMS
CORE's key products and services--the WorkAbility program, utilization
review and case management programs and physician review services--are
supported by administrative software that was developed and is maintained by
in-house staff. Each of these software programs incorporates E-mail and other
external data exchange features for client and remote user communications.
These software programs were developed at different times and, although
designed with similar features and on similar platforms, are not yet fully
integrated.
CORE has begun two major initiatives in its information systems development.
First is the upgrade and expansion of its wide area network (WAN) to expand
capability in multiple office operation of its computer and telephone systems
and to expand direct computer connections with clients and remote users.
Second, is the redesign of the WorkAbility product to allow integration of UR
and physician review services functionality into a single operational
software.
The WorkAbility system has recently undergone significant architecture
redesign to allow for client server operation and rapid feature development.
The enhanced product, "WorkAbility Plus," utilizes software architecture that
provides maximum flexibility in attaching industry-standard databases to
support growth and varying client needs. The Company believes that this new
architecture will support the integration of UR and physician review services
into a single software centered around the WorkAbility system. Concurrent with
this planned integration is the development of new medical necessity protocols
focused on common occupational injuries and disease.
Funding for the development of CORE's WorkAbility software was provided by
Chrysler Motor Corporation ("Chrysler") in exchange for a perpetual, non-
exclusive, non-transferable license to use such software. Ownership of the
WorkAbility software has been retained by CORE, which has the exclusive right
to market the software to others. Pursuant to the terms of its agreement with
Chrysler, CORE is paying Chrysler 25% of certain licensing fees paid to CORE
with respect to the WorkAbility software until the total of such payments
equal 140% of the development costs (approximately $2.8 million). Only limited
payments have been paid by CORE through March 31, 1996. In addition, in the
event that CORE fails to attempt to market the software to third parties,
Chrysler will have certain rights to market and license the software
independently.
31
<PAGE>
GOVERNMENT REGULATION; REIMBURSEMENT; HEALTH CARE REFORM
A number of states, including several of those in which the Company
transacts business, have extensive licensing and other requirements applicable
to the Company's business. Additionally, the Company's clients, including
insurance companies, are subject to regulations that indirectly affect the
Company.
The laws of many states regulate the provision of health care utilization
management services. These regulations generally require the provider of
utilization management services to be reasonably accessible by telephone to
doctors and patients, to have adequately qualified personnel, to provide
physicians and patients a procedure to appeal determinations of non-
reimbursement, and to maintain the confidentiality of patient records. Other
states regulate the provision of claims administration services and preferred
provider organizations which may indirectly affect CORE. CORE believes it is
in compliance with all applicable regulations governing the provision of
managed health care services in the states where CORE is subject to such
regulations, as currently in force and as currently interpreted.
CORE's operations depend upon its continued good standing under applicable
laws and regulations. To date, the cost of compliance has not been material.
Such laws and regulations, however, are subject to amendment or new
interpretation by authorities in each jurisdiction. If amended regulations or
new interpretations of federal or state laws or regulations arise, CORE, may
have difficulty complying without significant expense or changes in
operations. The Company is unable to predict what additional government
regulations, if any, directly or indirectly affecting its business may be
promulgated. Although the Company believes that it is currently in compliance
with applicable regulations in those states in which it is subject to
regulation, the Company's business could be adversely affected by a revocation
of or failure to obtain required licenses and governmental approvals, a
failure to comply with applicable regulations or significant changes in
regulations applicable to its clients.
In addition to existing government health care regulation, there have been
numerous initiatives at the federal and state levels, as well as by third-
party payors, for comprehensive reforms affecting the payment for and
availability of health care services. The Company believes that such
initiatives will continue during the foreseeable future. The Company is unable
to predict what, if any, reform initiatives may be adopted, or what effect, if
any, their adoption may have on the Company.
COMPETITION
CORE presently competes in two different markets: (i) health care
utilization management and (ii) managed disability and workers' compensation.
The managed health care market is fragmented but is consolidating rapidly as
national health care reform and other forces drive independent utilization
review and cost management firms into niche markets or to consolidation with
large insurance carriers and provider groups.
The health care utilization management market is highly competitive.
Competitors include large established insurance carriers and large managed
care organizations. Some of the competitors are significantly larger and have
greater financial and marketing resources than CORE. CORE competes on the
basis of quality, cost effectiveness and service.
The managed disability and workers' compensation market is a developing
market which is also competitive. Competitors include both new companies
focused solely on the workers' compensation market and established disability
insurance carriers who have traditionally dealt with disability from an
underwriting rather than an employee productivity perspective. CORE competes
on the basis of quality and cost-effectiveness in this market, and the Company
believes that its proprietary disability management protocols and database of
clinically defined disability episodes give it a significant competitive
advantage.
EMPLOYEES AND PHYSICIAN CONSULTANTS
In addition to its available staff of approximately 280 physician
consultants (230 of whom are Board certified) covering the major medical
specialties, CORE had approximately 300 employees as of May 31, 1996.
32
<PAGE>
Generally, CORE's physician consultants are paid by CORE on a per case review
or per hour basis. Almost all of CORE's physicians are retained by the Company
as independent contractors and also maintain active practices. The majority of
the Company's physicians work between five and 20 hours per week for the
Company. Compensation to CORE's reviewers is not related to any cost savings
achieved by CORE's clients.
PROPERTIES
The Company occupies its executive headquarters in Irvine, California
pursuant to a lease for approximately 14,000 sq. feet which expires in
September 2000. The Company also leases facilities of approximately 18,000 sq.
feet in Boston, Massachusetts under a lease that expires in May 2000, and
approximately 15,000 sq. feet in Burlington, Massachusetts under a lease that
expires in December 2001. Additionally, the Company leases a facility of
approximately 16,000 sq. feet in Los Angeles, California under a lease that
expires in June 1998, as well as approximately 18,000 sq. feet in Silver
Spring, Maryland under a lease that expires in June 2001, approximately 1,300
sq. feet in Chicago, Illinois under a lease that expires in May 1998,
approximately 10,000 sq. feet in Austin, Texas under leases that expire in
September 1996 and approximately 2,400 sq. feet in Forth Worth, Texas under a
lease that expires in July 1998.
PROFESSIONAL LIABILITIES; LEGAL PROCEEDINGS
The Company is not currently a party to or aware of any material pending
litigation or material legal proceedings.
The review services provided by the Company are advisory in nature, and
final determination as to payment or nonpayment of benefits are not made by
the Company. Determinations as to the medical care provided to a patient are
made by the patient or the attending physician. However, due to the
significant number of claims in the medical malpractice field in general, it
is possible that a patient may assert claims against the Company for damages
due to adverse medical consequences. New or existing legal theories by which
patients or physicians may attempt to assert liability against the Company or
other companies engaged in the industry are developing and are expected to
continue to develop. Although the Company believes that its procedures result
in reasonable and accurate determinations of coverage, there can be no
assurance that claims will not be made or that the Company's procedures for
limiting liability will be effective. The Company maintains professional
liability insurance and such other coverages as the Company believes are
reasonable in light of the Company's experience to date. However, there can be
no assurance that such insurance will be sufficient to protect the Company
from liability which might adversely affect the Company's business, operating
results or financial condition or will continue to be available to the Company
at reasonable cost or at all.
33
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
directors and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
George C. Carpenter IV...... 38 Chairman of the Board of Directors and Chief Executive Officer
Craig C. Horton............. 41 Director, President and Chief Operating Officer
William E. Nixon............ 35 Executive Vice President, Chief Financial Officer,
Treasurer and Clerk
Fredric L. Sattler.......... 52 Executive Vice President
Ophelia Galindo............. 38 Corporate Vice President, Product Management and
Technical Development
Leslie Alexandre,
Dr.P.H.(1)................. 38 Director
Stephen C. Caulfield(1)..... 55 Director
Richard H. Egdahl, M.D.(2).. 69 Director
John Pappajohn(1)(2)........ 67 Director
</TABLE>
- --------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
George C. Carpenter IV was appointed a Class III Director, and was elected
Chairman of the Board of Directors and Chief Executive Officer of the Company
by the Board effective with the Company's March 24, 1995 merger involving Core
Management, Inc. Mr. Carpenter served as the Chief Executive Officer and a
Director of Core Management, Inc., a Delaware corporation ("CMI") and now a
wholly-owned subsidiary of the Company, since its formation in 1990. In
addition, Mr. Carpenter served as the Chairman, Chief Executive Officer,
Secretary and a Director of Core Management, Inc., a California corporation
and wholly-owned subsidiary of CMI ("CMI-California"), from its formation in
1990. As a result of the reorganization of CMI-California and Integrated
Behavioral Health, a California corporation and wholly-owned subsidiary of CMI
("IBH") in March 1993, Mr. Carpenter was appointed as a director of IBH. From
1988 to 1990, Mr. Carpenter served as a Vice President, Operations of The
Health Data Institute, Inc., a provider of utilization review, case management
and analytic services and a developer of related software, a subsidiary of
Baxter International, Inc.
Craig C. Horton was appointed a Class III Director in March 1995 effective
with the CMI/PRA Merger, and was elected President and Chief Operating Officer
of the Company by the Board on March 30, 1995. Mr. Horton served as the
President and a Director of CMI and CMI-California from their respective
formations in 1990, and also served as the acting Chief Financial Officer of
CMI from 1994 to 1995. In December 1994, Mr. Horton was named as a Director
and Chief Executive Officer of IBH. From 1988 to 1990, Mr. Horton was a Vice
President, Operations of The Health Data Institute, Inc., a subsidiary of
Baxter International, Inc.
William E. Nixon is the Executive Vice President, Chief Financial Officer,
Treasurer and Clerk of the Company. Mr. Nixon joined the Company in December
1988 as Controller. In June 1989, Mr. Nixon became Assistant Treasurer; in
September 1990, he was elected Vice President, Finance and Administration; in
September 1991, he assumed his present position as Treasurer. In December
1993, Mr. Nixon was elected Chief Financial Officer of the Company. In
December 1994, Mr. Nixon was elected Executive Vice President and in March
1995, he was elected Clerk. Prior to his employment with the Company, from
1985 to 1988, Mr. Nixon served as a Senior Accountant at Gray, Gray and Gray,
a public accounting firm.
Fredric L. Sattler became an Executive Vice President of the Company in
January 1996. Prior to his employment with the Company, Mr. Sattler was
employed as Vice President of National Benefit Resources of Minneapolis,
Minnesota in 1995 and as Vice President of NovaCare of King of Prussia,
Pennsylvania from 1994
34
<PAGE>
to 1995. From 1981 to 1994 Mr. Sattler held various offices with Northwestern
National Life Insurance Co. (now known as Reliastar Financial Corp.) and its
affiliates, including Vice President of Health Care Management (1987 to 1994)
and President and Chief Executive Officer (1991 to 1994) of NWNL Health
Management Corp., a health management organization (HMO) management company,
wholly-owned by Northwestern National Life Insurance Co.
Ophelia Galindo was elected the Corporate Vice President, Product Management
and Technical Development of the Company by the Board on March 30, 1995.
Formerly, Ms. Galindo was employed by CMI, beginning in February 1986 as a
senior consultant; in June 1994, Ms. Galindo was promoted by CMI to be its
Vice President, Disability Analysis.
Leslie Alexandre, Dr.P.H. was appointed a Class I Director in March 1995,
effective with the CMI/PRA Merger, and was elected a Class I Director by the
Company's stockholders in July 1995. Formerly, Dr. Alexandre served as a
director of CMI from 1993 to 1995. Since February 1995, Dr. Alexandre has been
the Vice President, Corporate Affairs for OncorMed, Inc., a provider of
genetic testing and information services for the early detection and
management of cancer. From 1992 to 1995, Dr. Alexandre was employed as
Government Affairs Representative, Health Policy for EDS, Inc., an information
technology company and subsidiary of General Motors. Prior to joining EDS in
1992, Dr. Alexandre was Senior Health Legislative Assistant for United States
Senator David Durenberger. From January 1990 until the death of U.S. Senator
John Heinz in April 1991, she served as Professional Staff on the Senate
Special Committee on Aging. Prior to 1990, Dr. Alexandre was an independent
health care consultant.
Stephen C. Caulfield was appointed a Class I Director by the Board effective
December 1994, and was elected a Class I Director by the Company's
stockholders in July 1995. Mr. Caulfield is a Managing Director of William M.
Mercer, Incorporated, a management consulting firm, where he has specialized
in health care issues since 1987. Mr. Caulfield has more than 30 years of
experience in the health care field, having previously been employed as a
faculty member and Assistant Dean of the Albert Einstein College of Medicine
in New York, as the Director of Health Affairs and Regional Operations for the
United Mine Workers Multi-Employer Trust, and as the President and Chief
Executive Officer of Government Research Corporation, a consulting firm
previously located in Washington, D.C. (subsequently acquired by Hill and
Knowlton).
Richard H. Egdahl, M.D. has been a director since 1985, and was classified a
Class II Director in 1995 effective with the CMI/PRA Merger. Since 1973, Dr.
Egdahl has been the Director of the Medical Center of Boston University and
Academic Vice President for Health Affairs at Boston University; since 1976,
Dr. Egdahl has been the Director of The Health Policy Institute at Boston
University. Dr. Egdahl was also a practicing surgeon through 1989. Dr. Egdahl
is a trustee of the Pioneer Group of Mutual Funds, a director of HPR, Inc. (a
developer of health care software and database products) and a member of the
Institute of Medicine of the National Academy of Sciences.
John Pappajohn was appointed a Class II Director in March 1995 effective
with the CMI/PRA Merger. Formerly, Mr. Pappajohn was a director of CMI from
its formation in 1990 to 1995; Mr. Pappajohn served on the Board of Directors
of Integrated Behavioral Health, a California corporation ("IBH"), from 1991
to the time of its acquisition by CMI in 1993. Since 1969, Mr. Pappajohn has
been the sole owner of Pappajohn Capital Resources, a venture capital fund,
and President of Equity Dynamics, Inc., a financial consulting firm in
Des Moines, Iowa. Mr. Pappajohn serves as a Director of the following public
companies: BioCryst Pharmaceuticals, Inc., Drug Screening Systems, Inc., Fuisz
Technologies Ltd., GalaGen, Inc., OncorMed, Inc., PACE Health Management
Systems, Inc., and United Systems Technologies, Inc.
----------------
The Company's Board of Directors is divided into three classes, each of
whose members serve for staggered three-year terms. The term of the Class I
Directors (presently Dr. Alexandre and Mr. Caulfield) expires in 1998; the
term of the Class II Directors (presently Dr. Egdahl and Mr. Pappajohn)
expires in 1996; and the term of the Class III Directors (presently Mr.
Carpenter and Mr. Horton) expires in 1997. At each annual meeting of
stockholders, directors are elected for a three-year term to succeed the
directors of the same class whose terms are then expiring.
35
<PAGE>
Executive officers of the Company are elected by the Board of Directors on
an annual basis and serve at the discretion of the Board of Directors.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth information concerning the compensation paid
or accrued by the Company and its subsidiaries to each of its officers who was
either the chief executive officer, or an executive officer whose aggregate
salary and bonus exceeded $100,000 in the most recent fiscal year (the "Named
Executive Officers") during the fiscal years ending December 31, 1995, 1994
and 1993. Although only principal capacities are listed, the compensation
figures include all compensation received in any capacity, for services
rendered during the fiscal years indicated.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------------ ------------
AWARDS
------------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) OPTIONS(#) COMPENSATION($)
- --------------------------- ------- --------- -------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
George C. Carpenter IV.. 1995(1) 146,249 -- -- 95,000 --
Chairman of the Board 1994(1) 112,028 -- 9,433(5) -- 1,541
of Directors and Chief 1993(1) 94,000 -- 89,547(6) -- 35,044(4)
Executive Officer
Craig C. Horton......... 1995(1) 136,342 -- -- 95,000 --
Director, President and 1994(1) 108,821 -- 7,718(5) -- 156
Chief Operating Officer 1993(1) 94,000 -- -- -- 34,619(4)
William E. Nixon........ 1995 127,000 -- -- 56,750 --
Executive Vice 1994 82,271 6,000 -- -- --
President, Chief 1993 76,599 -- -- 5,750 --
Financial Officer, and
Treasurer
Alfred B. Lewis(2)...... 1995 31,250 -- -- -- 114,845(3)
Chairman and President 1994 119,503 -- -- -- --
1993 66,281 -- -- 50,000 --
</TABLE>
- --------
(1) Prior to the March 1995 CMI/PRA Merger, Mr. Carpenter and Mr. Horton were
officers and employees of Core Management, Inc. The compensation amounts
for Mr. Carpenter and Mr. Horton in this table for the periods prior to
the CMI/PRA Merger were paid by Core Management, Inc.
(2) Mr. Lewis joined the Company as its President on May 17, 1993 and became
Chairman of the Board of Directors on December 29, 1993. Mr. Lewis
resigned as a director and as Chairman of the Board effective March 24,
1995.
(3) Mr. Lewis received severance payments of $114,845 in 1995 pursuant to his
employment contract with the Company.
(4) Includes $33,333 of compensation income charged (but not paid) to the
named executive officer as a result of a change in the accounting
treatment of certain loans made by the named executive officer to CMI or
its subsidiaries.
(5) Represents interest paid to the named executive officer with respect to
certain loans made by the named executive officer to CMI or its
subsidiaries.
(6) Represents payments of $68,449 for relocation expenses incurred as well as
$21,098 paid to Mr. Carpenter to reimburse him for income taxes payable by
him with respect to such relocation expenses.
36
<PAGE>
OPTION GRANTS IN 1995
The following table presents information regarding 1995 grants of options to
purchase shares of Common Stock for each of the Named Executive Officers:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------
POTENTIAL
REALIZABLE VALUE
NUMBER OF % OF AT ASSUMED ANNUAL
SECURITIES TOTAL RATES OF STOCK
UNDERLYING OPTIONS PRICE APPRECIATION
OPTIONS GRANTED TO EXERCISE FOR OPTION TERM (3)
GRANTED EMPLOYEES IN PRICE EXPIRATION --------------------
NAME (#) FISCAL YEAR(1) ($/SH) DATE 5%($) 10%($)
---- ---------- -------------- -------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
George C. Carpenter IV............. 95,000 14.1% $3.13 4/27/2000 82,152 181,535
Craig C. Horton.................... 95,000 14.1% $3.13 4/27/2000 82,152 181,535
William E. Nixon................... 50,000 7.4% $3.13 4/27/2000 43,238 95,545
1,000(2) * $2.94 12/31/96 240 486
5,750(2) * $2.94 5/17/99 3,643 7,846
Alfred B. Lewis.................... -- -- -- -- -- --
</TABLE>
- --------
(1) The Company granted a total of 673,684 options to its employees and
consultants in 1995 (including repricing of 18,250 options and excluding
option grants to non-employee directors). See "Compensation of Non-
Employee Directors" and "Certain Transactions."
(2) Repricing of existing options.
(3) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock price appreciation of 5% and 10%
compounded annually from the date the respective options were granted to
their expiration date. These assumptions are not intended to forecast
future appreciation of the Company's stock price. The potential realizable
value computation does not take into account federal or state income tax
consequences of option exercises or sales of appreciated stock. This table
does not take into account any appreciation in the price of the Common
Stock to date.
* Less than one (1%) percent.
AGGREGATED OPTION EXERCISES IN 1995 AND YEAR-END OPTION VALUES
The following table presents information regarding options exercised in 1995
and the value of options outstanding at December 31, 1995 for each of the
Named Executive Officers:
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
YEAR END (#) YEAR END ($)(1)
------------- -----------------
SHARES ACQUIRED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) VALUE REALIZED($) UNEXERCISABLE UNEXERCISABLE
---- --------------- ----------------- ------------- -----------------
<S> <C> <C> <C> <C>
George C. Carpenter IV.......... 0 N/A 19,000/76,000 $102,030/$408,120
Craig C. Horton................. 0 N/A 19,000/76,000 $102,030/$408,120
William E. Nixon................ 0 N/A 28,600/28,650 $154,486/$154,544
Alfred B. Lewis................. 0 N/A 0/0
</TABLE>
- --------
(1) Based upon the closing price of $8.50 per share for the Company's Common
Stock as quoted by Nasdaq--National Market System on December 29, 1995.
37
<PAGE>
COMPENSATION OF NON-EMPLOYEE DIRECTORS
The Company's stockholders voted to amend the 1991 Stock Option Plan with
respect to the compensation of non-employee directors at the March 1995
Special Stockholders Meeting. Effective in March 1995, each non-employee
director is granted, at three-year intervals, 19,500 options to purchase
Common Stock which vest quarterly, over three years, subject to continued
service as a director. Effective in November 1995, the Company's Board of
Directors voted to increase the number of options vesting quarterly over three
years from 1,625 per quarter to 3,000 per quarter.
Mr. Pappajohn and Dr. Egdahl also received options from the Company for
other services rendered in 1995. See "Certain Transactions" below.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
The Company entered into an employment agreement with Alfred B. Lewis,
effective as of May 17, 1993, pursuant to which the Company agreed to employ
Mr. Lewis as the President of the Company. Under the terms of his employment
agreement, Mr. Lewis was entitled to receive compensation and fringe benefits
provided for thereunder for a period of one year should his employment be
terminated by the Company following any change of control of the Company. Mr.
Lewis' employment with the Company was terminated on March 27, 1995. Mr. Lewis
received severance compensation, including certain fringe benefits, from the
Company.
The Company entered into an employment agreement with William E. Nixon, the
Company's Executive Vice President and Chief Financial Officer, effective as
of November 19, 1993, which has an initial one year term and is automatically
renewed on an annual basis unless written notice of non-renewal is delivered
prior to the scheduled renewal date. Pursuant to the agreement, Mr. Nixon is
entitled to receive compensation and fringe benefits for a period of six
months if his employment is terminated without cause by the Company, and for a
period of nine months if his employment is terminated by the Company within
one year of any change of control of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Leslie Alexandre, Stephen C. Caulfield and John Pappajohn were members of
the Board of Directors' Compensation Committee in fiscal 1995. In 1994, Mr.
Pappajohn provided additional security for certain loans made by a financial
institution to a predecessor of the Company, Core Management, Inc., and in
return was granted a warrant to purchase shares of such predecessor's common
stock (now shares of the Company's Common Stock pursuant to the Company's
merger with Core Management, Inc.). The Board of Directors also has granted
Mr. Pappajohn an option to purchase 100,000 shares of the Company's common
stock pursuant to a consulting arrangement between Mr. Pappajohn and the
Company. See "Certain Transactions."
38
<PAGE>
CERTAIN TRANSACTIONS
In February 1994, John Pappajohn, formerly a director and shareholder of
Core Management, Inc., ("CMI") and a current director and stockholder of the
Company, provided a $200,000 letter of credit as additional collateral for
CMI's obligations for loans to CMI by Silicon Valley Bank. In August 1994,
Mr. Pappajohn provided an additional letter of credit in the amount of
$250,000 as further collateral for such loans. In May 1994, Mr. Pappajohn
agreed, upon CMI's written request, to contribute $300,000 to CMI in the form
of an equity contribution or a subordinated loan. Mr. Pappajohn's obligation
for this contribution terminated on March 24, 1995 (the effective date of the
CMI/PRA Merger). In connection with a $500,000 line of credit extended by the
Company to CMI pursuant to the CMI/PRA Merger, in December, 1994, the Company
pledged $210,000 as collateral to Silicon Valley Bank, which replaced the
$250,000 letter of credit previously provided to Silicon Valley Bank by Mr.
Pappajohn, as described above. In exchange for these pledges and his financial
commitment to CMI, the Board of Directors of CMI granted Mr. Pappajohn a
warrant to purchase shares of common stock of CMI. Such warrant expires three
years from the date of the grant. In connection with the CMI/PRA Merger, the
warrant was converted to cover 26,800 shares of Common Stock at an exercise
price of $3.36 per share.
Pursuant to a consulting arrangement between Mr. Pappajohn and the Company,
the Board of Directors granted Mr. Pappajohn an option to purchase 100,000
shares of the Common Stock in April 1995. This option was vested 50% at the
date of grant, and became fully vested in April 1996, based upon Mr.
Pappajohn's provision of consulting services to the Company during such one-
year period. The option has a five-year term and an exercise price of $3.13
per share (the fair market value of the Common Stock as quoted on the Nasdaq
National Market System on the date of grant).
Prior to the CMI/PRA Merger, George Carpenter and Craig Horton loaned CMI a
total of $200,000, which was used as security for CMI's line of credit with
Silicon Valley Bank. The loans from Mr. Carpenter and Mr. Horton were made
pursuant to unsecured promissory notes which bore interest at a rate of 10%
per annum and were paid in full in April 1995.
In April 1995, Richard H. Egdahl, a director of the Company, was granted an
option for the purchase of 5,000 shares of the Common Stock for services to be
rendered with respect to the Company's strategic planning committee. The
option has a five-year term and an exercise price of $3.13 per share (the fair
market value of the Common Stock as quoted on the Nasdaq National Market
System on the date of grant).
In March 1996, Stephen Caulfield and John Pappajohn, directors of the
Company, were each granted an option to purchase 40,000 shares of the Common
Stock for consulting services. The options have a five-year term and an
exercise price of $12.25 per share (the fair market value of the Common Stock
as quoted on the Nasdaq National Market System on the date of grant).
39
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of the Common Stock as of May 31, 1996 and as adjusted to reflect
the sale of shares of Common Stock offered hereby by (i) each person who is
known by the Company to own beneficially more than five percent of the Common
Stock; (ii) each director of the Company; (iii) each Named Executive Officer;
and (iv) all directors and executive officers of the Company as a group.
Unless otherwise indicated, the address of the persons listed below is in care
of CORE, INC., 18881 Von Karman Avenue, Suite 1750, Irvine, California 92715.
<TABLE>
<CAPTION>
PERCENT OWNED
--------------------
SHARES BEFORE THE AFTER THE
NAME BENEFICIALLY OWNED (1) OFFERING OFFERING
- ---- ---------------------- ---------- ---------
<S> <C> <C> <C>
Fiduciary Trust Company 545,500(2) 11.3% 8.0%
International.....................
Two World Trade Center
New York, N.Y. 10048
John Pappajohn.................... 471,969(3) 9.4 6.7
Craig C. Horton................... 437,264(4) 8.8 6.3
George C. Carpenter IV............ 401,595(5) 8.1 5.7
James Franklin.................... 293,264 6.1 4.3
6 Downing Circle
Downington, Pennsylvania 19335
Richard H. Egdahl, M.D............ 151,826(6) 3.1 2.2
Stephen C. Caulfield.............. 104,776(7) 2.2 1.5
William E. Nixon.................. 81,441(8) 1.7 1.2
Leslie Alexandre.................. 38,575(9) * *
All directors and executive 1,792,836(10) 31.6 23.3
officers as a group (9
individuals)......................
</TABLE>
- --------
* Less than one percent.
(1) Except as otherwise indicated, represents sole voting and investment
power.
(2) Based on Schedule 13G, dated March 14, 1996. Includes 379,500 shares with
shared voting power and 15,000 shares with shared disposition power.
(3) Includes 70,200 shares owned by Mr. Pappajohn's wife, 40,200 shares owned
by an entity owned by Mr. Pappajohn's wife (Mr. Pappajohn disclaims
beneficial ownership of such 110,400 shares); also includes 26,800 shares
issuable pursuant to a warrant held by Mr. Pappajohn and 178,575 shares
issuable to Mr. Pappajohn pursuant to options (18,000 of which remain
subject to future vesting).
(4) Includes 1,000 shares held by Mr. Horton as custodian for Mr. Horton's
son and 145,000 shares issuable to Mr. Horton pursuant to options (97,000
of which remain subject to future vesting).
(5) Includes 145,000 shares issuable to Mr. Carpenter pursuant to options
(97,000 of which remain subject to future vesting).
(6) Includes 63,075 shares issuable to Dr. Egdahl pursuant to options (18,000
of which remain subject to future vesting).
(7) Includes 15,000 shares owned by Mr. Caulfield's wife, 2,500 shares held
in a trust for the benefit of Mr. Caulfield's son (Mr. Caulfield
disclaims beneficial ownership of such 2,500 shares) and 72,275 shares
issuable to Mr. Caulfield pursuant to options (18,000 of which remain
subject to future vesting).
(8) Includes 81,250 shares issuable to Mr. Nixon pursuant to options (39,200
of which remain subject to future vesting).
(9) Includes 38,575 shares issuable to Dr. Alexandre pursuant to options
(18,000 of which remain subject to future vesting).
(10) Includes 849,550 shares issuable pursuant to a warrant and options
(382,000 of which remain subject to future vesting).
40
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue 10,000,000 shares of Common Stock, par
value $0.10 per share, and 500,000 shares of Preferred Stock, no par value.
Common Stock. Each holder of Common Stock is entitled to one vote per share
on all matters submitted to a vote of stockholders. The holders of Common
Stock are entitled to share ratably in such dividends as may be declared by
the Board of Directors out of funds legally available therefor, and upon
dissolution or liquidation, to share ratably in the net assets available for
distribution to stockholders, all subject to any rights of holders of
Preferred Stock. Holders of Common Stock have no conversion, preemptive,
cumulative voting or subscription rights, and shares of Common Stock are not
subject to redemption. The shares of Common Stock presently issued and
outstanding are, and the Common Stock to be issued in connection with this
offering will be, fully paid and nonassessable.
As of May 31, 1996, there were 4,842,271 shares of Common Stock outstanding,
held of record by approximately 141 stockholders.
Preferred Stock. The Board of Directors is authorized to issue Preferred
Stock in one or more series and to designate the number of shares constituting
any such series and the terms thereof, including dividend, conversion and
voting rights, terms of redemption, liquidation preferences and sinking fund
provisions.
The purpose of authorizing the Board of Directors to issue Preferred Stock
and to determine its rights, terms and preferences is to eliminate delays
associated with a stockholder vote on specific issuances. The issuance of
Preferred Stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire, or of discouraging a
third party from acquiring, a majority of the outstanding voting stock of the
Company.
No shares of the Company's Preferred Stock have been issued and the Company
has no present intention to issue shares of Preferred Stock.
Massachusetts Law and Charter and By-Laws Provisions. The Company is subject
to the provisions of Chapter 110F of the Massachusetts General Law, an anti-
takeover statute. In general, this statute prohibits a publicly-held
Massachusetts corporation with sufficient ties to Massachusetts from engaging
in a "business combination" with an "interested stockholder" for a period of
three years after the date of the transaction in which the person becomes an
interested stockholder, unless either (i) the interested stockholder obtains
the approval of the Board of Directors prior to becoming an interested
stockholder, (ii) the interested stockholder acquires 90% of the outstanding
voting stock of the corporation (excluding shares held by certain affiliates
of the corporation) at the time he or she becomes an interested stockholder,
or (iii) the business combination is approved by both the Board of Directors
and two-thirds of the outstanding voting stock of the corporation (excluding
shares held by the interested stockholder). For purposes of the statute, an
"interested stockholder" is a person who, together with affiliates and
associates, owns (or at any time within the prior three years did own) 5% or
more of the corporation's voting stock. A "business combination" includes
mergers, stock and asset sales and other transactions resulting in a financial
benefit to the stockholder.
The Company is also subject to Massachusetts General Laws Chapter 110D,
entitled "Regulation of Control Share Acquisitions" which provides, in
general, that any stockholder of a corporation subject to this statute who
acquires 20% or more of the outstanding voting stock of a corporation may not
vote such stock unless the stockholders of the corporation so authorize.
The Company's restated Articles of Organization provide for the Board to be
divided into three classes, as nearly equal in number as possible, serving
staggered three-year terms. Under the Company's By-laws, directors may be
removed only for cause by a majority of directors or by a majority of shares
of the Common Stock outstanding and entitled to vote pursuant to Massachusetts
General Law Chapter 156B. Such provisions could
41
<PAGE>
have the effect of discouraging a potential acquirer from making a tender
offer or otherwise attempting to obtain control of the Company and could
increase the likelihood that incumbent directors will retain their positions.
Limitation of Directors' Liability. The Company's Articles of Organization
contain provisions limiting the liability of directors to the fullest extent
permitted by Massachusetts law as currently or hereinafter in effect.
Massachusetts law currently permits the elimination of personal liability of a
director for monetary damages for breach of fiduciary duty as a director,
notwithstanding any provision of law imposing such liability, except for (i)
breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) unauthorized
distributions to stockholders or loans to insiders or (iv) any transaction
from which the director derived an improper personal benefit.
Indemnification of Directors and Officers. The Company's Articles of
Organization also provide for the indemnification of its officers and
directors to the extent legally permissible against all liabilities and
expenses (including judgments, fines, penalties and attorneys' fees and, under
certain circumstances, all amounts paid in compromise and settlement)
reasonably incurred by any officer or director in connection with any action,
suit or proceeding in which any such director or officer is a defendant or
with which he or she may be threatened or otherwise involved, by reason of his
or her being or having been a director or officer of the Company, except in
relation to matters as to which such director or officer shall be finally
adjudged, other than by consent, in such action, suit or proceeding not to
have acted in the best interests of the corporation.
Additionally, the Company has purchased a directors and officers insurance
policy which, subject to a $250,000 deductible for certain claims, provides
$5,000,000 of coverage.
The Company has entered into separate indemnification agreements with each
of its directors and executive officers providing for indemnification of such
persons to the extent permitted by law.
Transfer Agent; Registrar and Exchange Agent. The transfer agent and
registrar for the Common Stock is State Street Bank and Trust Company, Boston,
Massachusetts.
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of Common Stock could adversely affect
market prices. Upon completion of this offering, the Company will have
6,842,271 shares of Common Stock outstanding. Of these shares, the 2,000,000
shares sold in this offering, the 1,150,000 shares sold in the Company's
initial public offering of its Common Stock in 1991, the 1,980,105 shares
issued in the CMI/PRA Merger, and 222,916 shares registered on Form S-8 under
the Securities Act which were issued as of May 31, 1996, upon the exercise of
stock options held by employees, directors or consultants, will be freely
transferable without restriction, except for any shares purchased by an
existing "affiliate" of the Company ("Affiliate"), as that term is defined in
Rule 144 ("Rule 144") promulgated under the Securities Act or shares subject
to the Lock-Up Agreement.
An additional 314,284 shares of Common Stock have been registered on Form S-
8 under the Securities Act for future sale to employees, directors or
consultants upon exercise of stock options.
The officers and directors of the Company, collectively holding 959,774
shares of Common Stock, have agreed (the "Lock-Up Agreement") not to offer,
sell or otherwise dispose of Common Stock during the 120-day period following
the date of this Prospectus, without the prior written consent of Smith Barney
Inc.
In addition to the employee stock option shares which have been registered
on Form S-8, there are 1,221,695 shares subject to outstanding employee or
director stock options and warrants, which have not been registered under the
Securities Act. Unless these shares are subsequently registered for resale
under the Securities Act, they will, upon exercise of the related options, or
warrants, be restricted securities within the meaning of Rule 144 ("Restricted
Shares").
42
<PAGE>
Sales of shares held by Affiliates, regardless of whether they are
Restricted Shares, must be made in compliance with the requirements of Rule
144.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), who has beneficially owned Restricted Shares for
at least two years is entitled to sell within any three-month period a number
of shares that does not exceed the greater of: (i) 1% of the then outstanding
shares of the Company's Common Stock (approximately 73,422 shares immediately
after this offering); or (ii) the average weekly trading volume of the
Company's Common Stock in the Nasdaq National Market during the four calendar
weeks preceding the date on which notice of the sale is filed with the
Commission, or if no notice is required, the date of receipt of the order to
execute the transaction. Sales under Rule 144 are also subject to certain
manner of sale provisions, notice requirements and the availability of current
public information about the Company. Any person (or persons whose shares are
aggregated) who is not deemed to be an Affiliate at any time during the 90
days preceding a sale, and who owns Restricted Shares that were purchased from
the Company (or any Affiliate) at least three years previously, is entitled to
sell such shares under Rule 144(k) (subject to the foregoing Lock-Up
Agreement, if applicable) without regard to the volume limitations, manner of
sale provisions, public information requirements or notice requirements.
The Securities and Exchange Commission has recently proposed amendments to
Rule 144 that would permit resales of Restricted Shares under Rule 144 after a
one-year rather than a two-year holding period, subject to compliance with the
other provisions of Rule 144, and would permit resale of Restricted Shares by
non-Affiliates under Rule 144(k) after a two year, rather than a three year,
holding period. Adoption of such amendments could result in resales of
Restricted Shares sooner than would be the case under Rule 144 as currently in
effect.
Sales of substantial numbers of the Restricted Shares in the public market
could adversely affect the prevailing market price of the Common Stock.
43
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in the Underwriting
Agreement dated the date hereof, each Underwriter named below has severally
agreed to purchase, and the Company has agreed to sell to such Underwriter,
shares of Common Stock which equal the number of shares set forth opposite the
name of such Underwriter named below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ----------- ---------
<S> <C>
Smith Barney Inc.................................................................
Cowen & Company..................................................................
---------
Total........................................................................ 2,000,000
=========
</TABLE>
The Underwriters are obligated to take and pay for all shares of Common
Stock offered hereby (other than those covered by the over-allotment option
described below) if any such shares are taken.
The Underwriters, for whom Smith Barney Inc. and Cowen & Company are acting
as Representatives, propose initially to offer part of the shares of Common
Stock directly to the public at the public offering price set forth on the
cover page hereof and part to certain dealers at a price that represents a
concession not in excess of $ per share under the public offering price. The
Underwriters may allow, and such dealers may reallow, a concession not in
excess of $ per share to other Underwriters or to certain other dealers.
After the public offering, the public offering price and such concessions may
be changed by the Underwriter.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to 300,000 additional
shares of Common Stock (the "Additional Shares") at the public offering price
set forth on the cover page hereof less underwriting discounts and
commissions. The Underwriters may exercise such option solely for the purpose
of covering over-allotments, if any, incurred in connection with the sale of
the shares offered hereby. To the extent such option is exercised, each
Underwriter will become obligated, subject to certain conditions, to purchase
approximately the same percentage of such Additional Shares as the number of
shares set forth next to such Underwriter's name in the preceding table bears
to the total number of shares listed in such table.
The Company and the Underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act.
The Company and its directors and officers, holding in the aggregate 959,774
shares of Common Stock, have agreed that, for a period of 120 days after the
date of this Prospectus, they will not, without the prior written consent of
Smith Barney Inc., offer, sell, contract to sell or otherwise dispose of any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for any shares of Common Stock, except, in the case of the
Company, in certain limited circumstances.
44
<PAGE>
The Underwriters and certain selling group members that currently act as
market makers for the Common Stock in accordance with Rule 10b-6A under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), may engage in
"passive market making" in the Common Stock in accordance with Rule 10b-6A.
Rule 10b-6A permits, upon the satisfaction of certain conditions, underwriters
and selling group members participating in a distribution that are also market
makers in the security being distributed to engage in limited market making
transactions during the period when Rule 10b-6 under the Exchange Act would
otherwise prohibit such activity. In general, under Rule 10b-6A, any
Underwriter or selling group member engaged in passive market making in the
Common Stock (i) may not effect transactions in, or display bids for, the
Common Stock at a price that exceeds the highest bid for the Common Stock
displayed by a market maker that is not participating in the distribution of
the Common Stock, (ii) may not have net daily purchases of the Common Stock
that exceed 30% of its average daily trading volume in such stock for the two
full consecutive calendar months immediately preceding the filing date of the
registration statement of which this Prospectus forms a part and (iii) must
identify its bids as bids made by a passive market maker.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Rich, May, Bilodeau & Flaherty, P.C.,
Boston, Massachusetts. Certain legal matters will be passed upon for the
Underwriters by Dewey Ballantine, New York, New York.
EXPERTS
The consolidated financial statements of CORE, INC. at December 31, 1995 and
1994 and for each of the three years in the period ended December 31, 1995,
appearing in this Prospectus and Registration Statement, have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities maintained by the Commission at its
principal office at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the regional offices of the Commission: located at Seven World
Trade Center, 13th Floor, New York, New York, 10048 and 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of all or any part of such
material may be obtained from the Public Reference Section of the Commission,
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549
upon payment of prescribed fees. The Company's Common Stock is listed on the
Nasdaq Stock Market's National Market, and material filed by the Company can
be inspected at the offices of the National Association of Securities Dealers,
Inc., 1735 K Street, N.W., Washington, D.C. 20006.
45
<PAGE>
The Company has filed with the Commission a Registration Statement on Form
S-1 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended, with respect to the
Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain portions of which
are omitted in accordance with the rules and regulations of the Commission.
Statements contained in this Prospectus as to the contents of any contract or
other document are not necessarily complete, and in each instance reference is
made to the copy of such contract or other document filed or incorporated by
reference as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference and the exhibits and the
schedules thereto. For further information pertaining to the Company and the
Common Stock offered hereby, reference is hereby made to the Registration
Statement and the exhibits and schedules thereto which may be inspected
without charge and copies thereof may be obtained at prescribed rates from,
the Public Reference Branch of the Commission at 450 Fifth Street, N.W.
Washington, D.C. 20549.
The Company furnishes to its stockholders annual reports containing
consolidated financial statements audited by its independent auditors and
makes available copies of quarterly reports for the first three quarters of
each fiscal year containing unaudited financial information.
46
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FINANCIAL STATEMENTS OF CORE, INC.
CORE AUDITED FINANCIAL STATEMENTS
Report of Independent Auditors........................................... F-2
Consolidated Balance Sheets--December 31, 1994 and 1995.................. F-3
Consolidated Statements of Operations--Years ended December 31, 1993,
1994 and 1995........................................................... F-4
Consolidated Statements of Stockholders' Equity--Years ended December 31,
1993, 1994 and 1995..................................................... F-5
Consolidated Statements of Cash Flows--Years ended December 31, 1993,
1994 and 1995........................................................... F-6
Notes to Consolidated Financial Statements............................... F-7
CORE UNAUDITED FINANCIAL STATEMENTS
Consolidated Condensed Balance Sheet--March 31, 1996..................... F-16
Consolidated Condensed Statements of Operations--Three month periods
ended March 31, 1995
and 1996................................................................ F-17
Consolidated Condensed Statements of Cash Flows--Three month periods
ended March 31, 1995
and 1996................................................................ F-18
Notes to Consolidated Condensed Financial Statements (unaudited)......... F-19
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders CORE, INC.
We have audited the accompanying consolidated balance sheets of CORE, INC.
as of December 31, 1994 and 1995, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the three years
in the period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of CORE, INC. at December 31, 1994 and 1995, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Boston, Massachusetts
February 14, 1996,
except for Note 16,
as to which the date is
July 24, 1996
F-2
<PAGE>
CORE, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1994 1995
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 1,005,807
Cash pledged as collateral........................ $ 205,247 106,000
Customer advances................................. 173,764 286,550
Investments available-for-sale.................... 5,858,518 1,531,610
Accounts receivable, net of allowance for doubtful
accounts of $181,629 in 1994 and $170,337 in
1995............................................. 2,082,217 2,987,356
Notes receivable from officers.................... 12,000 35,507
Claims receivable................................. 369,100 44,845
Prepaid expenses and other current assets......... 388,892 455,076
------------ ------------
Total current assets.............................. 9,089,738 6,452,751
Property and equipment, net........................ 2,526,228 3,155,234
Cash pledged as collateral......................... 557,637 192,000
Deposits and other assets.......................... 142,927 178,402
Goodwill, net of accumulated amortization of
$17,000 in 1995................................... 1,929,885
Non-compete contracts, net of accumulated amortiza-
tion of $10,000 in 1995........................... 140,000
Customer contracts, net of accumulated amortization
of $310,819 in 1994 and $331,063 in 1995.......... 149,181 128,937
Organization costs, net of accumulated amortization
of $87,223 in 1994 and $107,563 in 1995........... 38,330 17,990
------------ ------------
Total assets...................................... $ 12,504,041 $ 12,195,199
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Advances under revolving line of credit........... $ 1,200,000
Cash overdraft.................................... 301,367
Accounts payable.................................. 778,366 $ 846,156
Accrued expenses.................................. 691,777 822,694
Accrued payroll................................... 223,661 184,795
Accrued vacation.................................. 269,000 376,561
Accrued restructuring costs....................... 130,498
Deferred income taxes............................. 68,316
Claims payable.................................... 542,864 326,368
Notes payable to officers......................... 200,000
Current portion of notes payable.................. 184,082 155,994
Current portion of obligations to former
shareholders..................................... 298,509
Current portion of capital lease obligations...... 86,479 91,159
------------ ------------
Total current liabilities......................... 4,477,596 3,301,050
Long-term obligations to former shareholders, net
of current portion................................ 645,106
Amounts due to former shareholders under non-com-
pete agreements................................... 100,000
Capital lease obligations, net of current portion.. 120,601 71,969
Deferred rent, net of current portion.............. 353,151 279,317
Deferred income taxes.............................. 149,500
Commitments and contingencies
Stockholders' equity:
Preferred stock, no par value, authorized 500,000
shares; no shares issued and outstanding
Common stock, $0.10 par value per share;
authorized 10,000,000 shares; issued and
outstanding 4,739,943 and 4,794,403 shares at
December 31, 1994 and 1995, respectively......... 473,994 479,440
Additional paid-in capital........................ 17,902,519 18,052,547
Deferred compensation............................. (51,120)
Cumulative unrealized gain (loss) on investments
available-for-sale............................... (39,408) 30,975
Accumulated deficit............................... (10,784,412) (10,863,585)
------------ ------------
Total stockholders' equity........................ 7,552,693 7,648,257
------------ ------------
Total liabilities and stockholders' equity........ $ 12,504,041 $ 12,195,199
============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE>
CORE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Revenues................................ $16,316,016 $16,746,290 $20,768,521
Cost of services........................ 10,713,523 11,305,323 12,838,971
----------- ----------- -----------
Gross profit............................ 5,602,493 5,440,967 7,929,550
Operating expenses:
General and administrative............ 5,028,868 4,182,206 4,772,863
Sales and marketing................... 1,786,820 1,562,823 1,499,120
Restructuring costs................... 557,515
Merger costs and expenses............. 1,182,373 1,114,406 436,104
Provision for doubtful accounts....... 67,245 83,050 14,375
Depreciation and amortization......... 1,066,900 914,480 904,900
Corporate relocation.................. 163,340
Write-off of goodwill................. 2,294,150
----------- ----------- -----------
Total operating expenses............ 9,295,546 10,151,115 8,184,877
Loss from operations.................... (3,693,053) (4,710,148) (255,327)
Other income (expense):
Interest income....................... 396,528 296,218 239,590
Interest expense...................... (108,336) (158,362) (83,410)
Realized gain (loss) on sale of in-
vestments available-for-sale......... (157,774) 9,123
Other income.......................... 29,284 30,480 10,851
----------- ----------- -----------
317,476 10,562 176,154
----------- ----------- -----------
Net loss................................ $(3,375,577) $(4,699,586) $ (79,173)
=========== =========== ===========
Net loss per common share............... $ (.73) $ (1.01) $ (0.02)
=========== =========== ===========
Weighted average number of common shares
outstanding............................ 4,611,000 4,668,000 4,755,000
=========== =========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE>
CORE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL DEFERRED STOCK UNREALIZED TOTAL
------------------- PAID-IN COMPEN- SUBSCRIPTIONS GAIN (LOSS) ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL SATION RECEIVABLE INVESTMENTS DEFICIT EQUITY
--------- -------- ----------- -------- ------------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1992................... 4,517,628 $451,763 $17,214,792 $(3,312,500) $ (2,709,249) $11,644,806
Exercise of stock
options (net of
dissenter's rights for
496 shares)........... 123,573 12,357 313,777 326,134
Stock subscription
paid.................. 3,312,500 3,312,500
Payments to repurchase
common stock.......... (556) (56) (1,196) (1,252)
Stockholders'
contribution.......... 330,000 330,000
Net loss............... (3,375,577) (3,375,577)
--------- -------- ----------- -------- ----------- -------- ------------ -----------
Balance at December 31,
1993................... 4,640,645 464,064 17,857,373 (6,084,826) 12,236,611
Exercise of stock
options............... 99,298 9,930 45,146 55,076
Unrealized loss on
investments available-
for-sale.............. $(39,408) (39,408)
Net loss............... (4,699,586) (4,699,586)
--------- -------- ----------- -------- ----------- -------- ------------ -----------
Balance at December 31,
1994................... 4,739,943 473,994 17,902,519 (39,408) (10,784,412) 7,552,693
Exercise of stock
options............... 54,460 5,446 85,628 91,074
Deferred compensation
related to stock
options issued........ 64,400 $(64,400)
Amortization of
deferred
compensation.......... 13,280 13,280
Unrealized gain on
investments available-
for-sale.............. 70,383 70,383
Net loss............... (79,173) (79,173)
--------- -------- ----------- -------- ----------- -------- ------------ -----------
Balance at December 31,
1995................... 4,794,403 $479,440 $18,052,547 $(51,120) $ -- $ 30,975 $(10,863,585) $ 7,648,257
========= ======== =========== ======== =========== ======== ============ ===========
</TABLE>
See accompanying notes.
F-5
<PAGE>
CORE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Operating activities:
Net loss............................... $(3,375,577) $(4,699,586) $ (79,173)
Adjustments to reconcile net loss to
net cash provided by (used in) operat-
ing activities:
Depreciation and amortization........ 1,066,900 979,627 986,152
Write-off of goodwill................ 2,294,150
Provision for doubtful accounts...... 67,245 83,050 14,375
(Gain) loss on sale/disposal of
equipment........................... 66,382 (29,174)
Realized loss on permanent decline in
fair market value of investments.... 157,774
Realized gain on sale of investments
available-for-sale.................. (9,123)
Compensation expense related to issu-
ance of stock options............... 409,345 28,078 13,280
Changes in operating assets and lia-
bilities:
(Increase) decrease in accounts re-
ceivable.......................... 400,033 (446,157) 258,269
(Increase) decrease in prepaid ex-
penses and other current assets... 185,625 (72,045) 277,357
Increase in customer advances...... (47,764) (112,786)
(Decrease) increase in cash over-
draft............................. (101,384) 301,367 (301,367)
Decrease in accounts payable and
accrued expenses.................. (733,914) (514,692) (607,675)
----------- ----------- -----------
Net cash provided by (used in) operat-
ing activities........................ (2,063,109) (1,917,608) 439,309
Investing activities:
Additions to property and equipment... (2,257,260) (539,521) (1,278,720)
Disposals of property and equipment... 6,400 2,432 4,688
Decrease (increase) in cash pledged as
collateral........................... (466,069) (296,815) 464,884
Refunds of (additions to) deposits.... (43,439) 23,168 (19,056)
Increase to notes receivable from of-
ficers............................... (12,000) (23,507)
Cash received upon business acquisi-
tion, net of cash paid............... 279,713
Non-compete payments.................. (50,000)
Purchase of Cost Review Services,
Inc., net of cash acquired........... (1,510,024)
Purchases of investments available-
for-sale............................. (317,570) (248,204) (3,985,892)
Sales of investments available-for-
sale................................. 4,204,434 8,392,306
----------- ----------- -----------
Net cash provided by (used in) invest-
ing activities........................ 1,406,209 (1,070,940) 1,994,679
Financing activities:
Net (repayments) borrowings under re-
volving line of credit............... (1,210,654) 1,200,000 (1,200,000)
Proceeds from issuance of officer's
notes................................ 200,000
Payments on officer's notes........... (200,000)
Issuance of notes payable............. 59,022 133,754 179,997
Payments on notes payable............. (59,022) (199,373) (208,085)
Payments on capital lease obliga-
tions................................ (69,038) (56,319) (91,167)
Payments to repurchase stock.......... (1,252)
Receipt of stock subscription......... 3,312,500
Exercise of dissenters' rights........ (1,043)
Issuance of common stock upon exercise
of stock options and warrants........ 262,177 26,998 91,074
----------- ----------- -----------
Net cash (used in) provided by financ-
ing activities........................ 2,292,690 1,305,060 (1,428,181)
----------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents...................... 1,635,790 (1,683,488) 1,005,807
Cash and cash equivalents at beginning
of year............................... 47,698 1,683,488 --
----------- ----------- -----------
Cash and cash equivalents at end of
year.................................. $ 1,683,488 $ -- $ 1,005,807
=========== =========== ===========
Supplemental disclosure of cash flow
information:
Interest paid.......................... $ 72,307 $ 147,543 $ 83,322
=========== =========== ===========
Income taxes paid...................... $ 1,900
===========
Noncash investing activities:
Capital lease obligation incurred...... $ 25,266
===========
</TABLE>
See accompanying notes.
F-6
<PAGE>
CORE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(1) ORGANIZATION AND PURPOSE
CORE, INC. ("CORE" or the "Company") is a national provider of disability
and workers' compensation management services, physician-intensive health care
cost containment and health care utilization management services and programs
to large employers, commercial health and accident insurance companies, third-
party administrators of health insurance programs, self-insured employers and
other groups.
On March 24, 1995, the Company issued approximately 1,928,000 shares of its
common stock in exchange for all of the outstanding common stock of Core
Management, Inc. ("CMI"). In addition, outstanding employee stock options to
purchase CMI stock were converted into options to purchase approximately
160,000 shares of CORE. CMI is an independent provider of disability, medical
and behavioral health services which are designed to help its clients monitor
and control health care, workers' compensation and disability costs incurred
both in the aggregate and on a case by case basis without sacrificing the
quality of care or services available to patients. The merger has been
accounted for as a pooling of interests and accordingly, the Company's
consolidated financial statements have been restated to include the accounts
and operations of CMI for all periods prior to the merger. In connection with
the merger, the Company adopted a plan to restructure management to eliminate
redundant positions and to abandon excess lease space. In connection with
certain elements of the restructuring plan, the Company recorded a
restructuring charge of $557,515 which included approximately $438,000 for
severance costs and $120,000 for abandoned lease space. The restructuring
charge was added to an existing accrual for severance costs of approximately
$58,000 as of December 31, 1994. In accordance with Emerging Issues Task Force
Issue No. 94-3, Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring), prior period financials were not restated. The
restructuring plan eliminated 11 employees in the regional operations, general
and administrative, sales and marketing and account management departments.
During 1995, severance payments charged against the liability for 10
terminated employees amounted to approximately $424,000 and lease payments for
abandoned lease space charged against the liability amounted to $120,000. Of
the initial restructuring charges, approximately $72,000 of severance payments
remained in accrued restructuring costs at December 31, 1995. Separate net
sales, net income and related per share amounts of the merged entities are
presented in the following table. In addition, the table includes pro forma
net income and net income per share amounts which reflect the elimination of
the nonrecurring merger costs and expenses in 1993, 1994 and 1995.
<TABLE>
<CAPTION>
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net sales:
CORE............................. $ 7,627,283 $ 7,959,834 $10,401,801
CMI.............................. 8,688,733 8,786,456 10,366,720
----------- ----------- -----------
Total net sales................ $16,316,016 $16,746,290 $20,768,521
=========== =========== ===========
Net income (loss):
CORE............................. $(1,080,759) $ (691,185) $ 1,046,258
CMI.............................. (1,112,445) (2,893,995) (131,812)
----------- ----------- -----------
Pro forma net income (loss)........ (2,193,204) (3,585,180) 914,446
Merger cost and expenses........... 1,182,373 1,114,406 993,619
----------- ----------- -----------
Net loss as reported............... $(3,375,577) $(4,699,586) $ (79,173)
=========== =========== ===========
Net income (loss) per share
Pro forma........................ $(0.48) $(0.77) $ 0.19
=========== =========== ===========
As reported...................... $(0.73) $(1.01) $(0.02)
=========== =========== ===========
</TABLE>
F-7
<PAGE>
CORE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On October 2, 1995, the Company acquired all of the outstanding shares of
Cost Review Services, Inc. ("CRS") for approximately $2,790,000 payable in
cash plus contingent consideration. CRS provides workers' compensation medical
cost containment and case management services and programs to commercial
workers' compensation insurance companies and third-party administrators of
workers' compensation programs. The acquisition was accounted for as a
purchase and the acquisition cost consisted of the following:
<TABLE>
<S> <C>
Cash paid to former CRS shareholders........ $1,640,000
Issuance of notes payable to former CRS
shareholders............................... 1,150,000
Acquisition costs incurred.................. 200,000
----------
$2,990,000
==========
</TABLE>
The contingent consideration of $1,150,000 is payable in cash and will be
computed based on agreed upon net revenue targets from January 1996 through
December 1998, and is subject to downward adjustment based on certain earnings
before interest and taxes percentages. The contingent consideration will be
payable beginning in March 1997. The contingent consideration is not included
in the acquisition cost total above and will be accounted for as period
expense when the future earnings requirements have been met. The purchase
resulted in goodwill of approximately $1,950,000 which is being amortized on a
straight-line basis over 27.5 years. Amortization of goodwill during 1995
amounted to $17,000. The notes due to the CRS shareholders include imputed
interest and are payable on a monthly basis commencing in January 1996 and
continue through 1998. The Company also agreed to pay the former CRS
shareholders $150,000 in installments of $50,000 in 1995, 1997 and 1998 in
exchange for covenants not-to-compete. These payments are being amortized over
the three year term of the agreements.
Acquisition costs include $100,000 pertaining to administrative costs and
$100,000 pertaining to restructure costs. In connection with the purchase, the
Company adopted a plan to restructure the accounting and administrative
departments of CRS and consolidate the functions within the Company's Boston,
Massachusetts office. In connection with certain elements of the restructuring
plan, the Company adjusted its purchase price by $100,000 to reflect an
accrual for facility consolidation costs of $25,000 and severance costs of
$75,000. The restructuring plan eliminated 4 employees in the accounting and
administrative departments. During 1995, severance payments charged against
the liability for the employees amounted to approximately $42,000. Of the
initial restructuring charges, $33,000 of severance payments and $25,000 for
payments on abandoned lease space remained in accrued restructuring costs at
December 31, 1995.
The consolidated financial statements include the operating results of CRS
from the date of acquisition. The following pro forma information has been
prepared assuming that this acquisition had taken place at the beginning of
1994. The proforma information includes adjustments of $57,000 for interest
expense that would have been incurred to finance the purchase, $92,000 to
decrease interest income due to having fewer dollars to invest as a result of
the purchase, $54,000 for the amortization of intangibles arising from the
transaction and $138,000 to eliminate the provision for income taxes due to
the filing of a consolidated tax return. Such pro forma amounts are not
necessarily indicative of what the actual consolidated results of operations
might have been if the acquisition had been effective at the beginning of
fiscal 1994.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1994 1995
----------- -----------
<S> <C> <C>
Net sales.................... $20,680,000 $24,847,000
Net earnings (loss).......... $(4,670,000) $ 338,000
Net earnings (loss) per
common share................ $ (1.00) $ 0.07
</TABLE>
F-8
<PAGE>
CORE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(2) ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany transactions
have been eliminated in consolidation.
RISKS AND UNCERTAINTIES
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk principally consist of cash and cash
equivalents, investments available-for-sale, and trade receivables.
The Company considers all highly liquid investments with a maturity of three
months or less at the date of purchase to be cash equivalents. Investments
available-for-sale represents the investment of excess cash in treasury
securities issued by the United States Government.
The Company provides its services to companies throughout the United States
in various industries, including, but not limited to the healthcare industry.
Management does not believe significant credit risk exists at December 31,
1995.
Significant Estimates and Assumptions
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 the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INVESTMENTS
Effective January 1, 1994, the Company adopted Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." The
adoption of Statement No. 115 had no material effect on the Company's
financial position at January 1, 1994 as all investments at that date were
recorded at cost which approximated market value. Under the new rules, debt
securities that the Company has both the positive intent and ability to hold
to maturity are classified as held-to-maturity securities and are carried at
amortized cost. Debt securities that the Company does not have the positive
intent or ability to hold to maturity and equity securities are classified as
available-for-sale and are carried at fair market value. Increases or declines
in fair market value of available-for-sale securities judged to be other than
temporary are recorded as a component of other income. Temporary declines are
reported as a separate component of shareholder's equity.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Major additions and betterments
are capitalized while repairs and maintenance expenditures which do not
improve or extend the life of the respective assets are expensed when
incurred.
DEPRECIATION AND AMORTIZATION
Leasehold improvements are depreciated using the straight-line method.
Computer equipment is depreciated using the 150% declining balance method. For
office furniture and equipment placed in service prior to fiscal 1993,
depreciation is computed using the 150% declining balance method. Effective
January 1, 1993, the Company began depreciating newly-acquired office
furniture and equipment using the straight-line method. The effect of the
change was not material to the 1993 financial results. The estimated useful
lives of the related assets are as follows:
<TABLE>
<S> <C>
Computer and office
equipment.............. 3-7 years
Software................ 3-5 years
Furniture and fixtures.. 7 years
Leasehold improvements.. Shorter of lease term or estimated useful life
</TABLE>
F-9
<PAGE>
CORE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SOFTWARE DEVELOPMENT COSTS
Certain costs of software, developed for internal use, are capitalized
subsequent to the favorable assessment of technological feasibility. Costs
incurred for maintenance and customer support are charged to expense as
incurred. The Company capitalized software development costs of $130,471 and
$180,000 during the years ended December 31, 1994 and 1995 respectively. The
software was placed in use during 1994 and 1995, and amortization in the
amount of $65,147, and $81,252 is included in cost of services for the years
ended December 31, 1994 and 1995, respectively. Software development costs are
amortized using the straight-line method.
GOODWILL, CUSTOMER CONTRACTS AND ORGANIZATION COSTS
Customer contracts and organization costs are amortized using the straight
line method over ten years and five years, respectively. Recoverability of all
intangible assets, including goodwill arising from business acquisitions, is
reviewed annually or sooner if events or changes in circumstances indicate
that the carrying amount may exceed fair value.
REVENUE RECOGNITION
Revenue is recognized on a capitated (fixed per employee per month), hourly
or per case basis, in accordance with the specific terms of each contract.
Typically, revenue is recognized during the contract period as services are
provided. Licensing fees are primarily based on use by the customer and are
recognized as revenue when they are earned. Deferred revenue represents
amounts received on contracts in advance of services being performed.
The majority of the contracts with clients permit cancellation upon 60 to 90
days' notice.
INCOME TAXES
The Company provides for income taxes under the liability method prescribed
by Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." Under this method, deferred income taxes are recognized for the future
tax consequences of differences between the tax and financial accounting of
assets and liabilities at each year end. Deferred income taxes are based on
enacted tax laws and statutory tax rates applicable to the periods in which
the differences are expected to effect taxable income. Valuation allowances
are established when necessary to reduce deferred tax assets to the amounts
expected to be realized.
LOSS PER COMMON SHARE
Loss per common share data are computed using the weighted average number of
shares of common stock outstanding and dilutive common equivalent shares from
stock options, using the treasury stock method.
(3) CASH MANAGEMENT SYSTEM
Daily, under the Company's cash management system, the bank notifies the
Company of checks presented for payment against imprest operating accounts.
The Company utilizes available funds and, if necessary, transfers funds from
other sources, such as short-term investments or available lines of credit, to
cover the checks presented for payment. At December 31, 1994, the Company
reflects a book cash overdraft as a result of the checks outstanding.
F-10
<PAGE>
CORE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(4) INVESTMENTS
At December 31, 1994 and 1995, the Company had no securities that qualified
as trading or held-to- maturity. The following is a summary of available-for-
sale securities at December 31, 1994 and 1995:
<TABLE>
<CAPTION>
UNREALIZED REALIZED
AMORTIZED GAIN GAIN ESTIMATED
COST (LOSS) (LOSS) FAIR VALUE
---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
December 31, 1994:
Fund investing in U.S.
Treasury Securities...... $6,055,700 $(39,408) $(157,774) $5,858,518
December 31, 1995:
U.S. Treasury Securities
maturing in 1 to 5
years.................... $1,500,635 $ 30,975 $ 9,123 $1,531,610
</TABLE>
For the year ended December 31, 1994, no sales were made of available-for-
sale securities. Subsequent to December 31, 1994, the Company sold available-
for-sale securities with a fair value on the date of sale of $5,750,000. The
realized loss of $157,774 on this sale has been recognized in the financial
statements for the year ended December 31, 1994 as the decline in market value
has been determined to be a permanent decline in value. The net unrealized
loss on available-for-sale securities of $39,408 has been included as a
separate component of stockholders' equity as of December 31, 1994.
During 1994, the Company had purchases and maturities of held-to-maturity
securities of approximately $10.1 million which were considered to be cash
equivalents and thus excluded from the statement of cash flows for the year
ended December 31, 1994.
For the year ended December 31, 1995, the Company sold available-for-sale
securities with a fair value on the date of sale of $8,392,306 (including
securities with a fair market value of $5,750,000 discussed below). The cost
of available-for-sale investments that were sold was based on specific
identification in determining realized gains and losses. The realized gain of
$9,123 on these sales has been recognized in the financial statements for the
year ended December 31, 1995. The net unrealized gain on available-for-sale
securities of $30,975 has been included as a separate component of
stockholders' equity as of December 31, 1995.
(5) CLAIMS RECEIVABLE AND CLAIMS PAYABLE
Claims receivable and claims payable include claims processed by the Company
but not yet billed to the Company's customers and estimated services provided
by the Company's provider network for which claims have not yet been submitted
to the Company or rebilled to the Company's customers. The Company has
estimated provider service costs incurred based upon its provider service cost
experience to date and current rate schedules negotiated with its provider
network.
At December 31, 1994, and 1995, the Company held customer advances of
$173,764 and $286,550, respectively, representing monies received to pay
provider claims on behalf of certain customers.
(6) PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31:
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Computer and office equipment................. $ 2,718,929 $ 3,353,569
Software...................................... 1,216,160 1,532,061
Furniture and fixtures........................ 538,986 932,619
Leasehold improvements........................ 905,883 1,109,122
----------- -----------
5,379,958 6,927,371
Less accumulated depreciation and amortiza-
tion......................................... (2,853,730) (3,772,137)
----------- -----------
$ 2,526,228 $ 3,155,234
=========== ===========
</TABLE>
F-11
<PAGE>
CORE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(7) ADVANCES UNDER REVOLVING LINE OF CREDIT AND LETTERS OF CREDIT
In November 1995, the Company obtained a $1,500,000 revolving line of credit
with a bank, which expires on December 31, 1996. There was no outstanding
balance as of December 31, 1995. Interest is payable at a rate of prime plus
1% (9.5% at December 31, 1995). In the first quarter of 1996, the Company's
line of credit facility was increased to $2,500,000. In May 1995, the Company
entered into an arrangement with a bank whereby the bank would issue letters
of credit amounting to $283,000 on behalf of the Company. These letters of
credit are to be maintained as security for payments under a furniture lease
agreement and an office space lease agreement.
(8) NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS
<TABLE>
<CAPTION>
1994 1995
--------- ----------
<S> <C> <C>
Capital lease obligations, payable to various leasing
companies, bearing interest rates ranging from 9% to
16.83%, including interest............................ $ 207,080 $ 163,128
Notes payable to officers, paid in full during 1995.... 200,000
Note payable to seller pursuant to an asset acquisi-
tion, paid in full during 1995........................ 44,424
Notes payable to former shareholders................... 943,615
Other--insurance financing............................. 139,657 155,994
--------- ----------
591,161 1,262,737
Less current maturities................................ (470,560) (545,662)
--------- ----------
$ 120,601 $ 717,075
========= ==========
</TABLE>
The fair value of notes payable and capital lease obligations approximates
the carrying value. Principal maturities of notes payable, capital lease
obligations, and acquisition price payable are as follows:
<TABLE>
<CAPTION>
<S> <C>
1996.......................................................... $ 641,562
1997.......................................................... 438,006
1998.......................................................... 366,177
1999.......................................................... 4,963
----------
1,450,708
Less imputed interest......................................... (187,971)
----------
Present value of obligations.................................. $1,262,737
==========
</TABLE>
The Company has recorded the balance of the notes payable insurance
financing of $110,290 and $155,994 at December 31, 1994 and 1995,
respectively, as prepaid expenses; therefore, these amounts have been excluded
from the operating and financing activities disclosed in the statement of cash
flows for the year ended December 31, 1994 and 1995.
(9) COMMON STOCK WARRANTS
In connection with the Company's initial public offering in 1991, a warrant
to purchase 11,500 shares of common stock was issued to the Company's
underwriter with an exercise price of $12.60 per share and an expiration date
of June 12, 1995. On June 12, 1995, the warrant expired.
(10) STOCK OPTIONS PLANS
The Company has reserved 737,500 shares of common stock for issuance under
stock option plans established in 1986 and 1991. The Company has also granted
524,536 non-plan stock options (including grants for the converted CMI options
discussed in Note 1) of which 58,000, 68,000 and 110,944 have been exercised
as of December 31, 1993, 1994 and 1995, respectively. Other than the remaining
413,592 non-plan stock options
F-12
<PAGE>
CORE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
outstanding at December 31, 1995 no shares have been reserved for non-plan
stock options. Plan and non-plan stock options granted to employees and
directors are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Outstanding at beginning of year..... 449,598 441,315 377,038
Granted............................ 143,086 68,552 1,004,509
Canceled........................... (27,300) (33,531) (59,234)
Exercised.......................... (124,069) (99,298) (54,460)
------------ ------------ ------------
Outstanding at end of year........... 441,315 377,038 1,267,853
============ ============ ============
Price range of outstanding options... $0.11-$15.24 $0.11-$15.24 $2.10-$12.08
============ ============ ============
Price range of options exercised..... $0.11-$ 4.50 $0.11-$ 3.73 $0.11-$ 4.80
============ ============ ============
Exercisable at end of year........... 368,565 307,938 594,925
============ ============ ============
Available for grant at end of year... 246,248 232,348 --
============ ============ ============
</TABLE>
Stock options will expire on various dates through December 2001.
(11) INCOME TAXES
The approximate effect of temporary differences and carryforwards that give
rise to deferred tax assets and liabilities as of December 31 are as follows:
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Deferred tax assets:
Bad debt reserve............................... $ 73,000 $ 69,000
Expense accruals............................... 217,000 264,000
Unrealized loss on investments................. 63,000
Net operating loss carryforwards............... 3,060,000 2,860,000
Valuation allowance............................ (3,294,000) (3,078,000)
----------- -----------
119,000 115,000
Deferred tax liabilities:
Change in accounting method from cash to accru-
al............................................ (40,000) (204,000)
Depreciation................................... (79,000) (129,000)
----------- -----------
(119,000) (333,000)
----------- -----------
Net deferred tax liability....................... $ -- $ (218,000)
=========== ===========
</TABLE>
At December 31, 1995, the Company has available for federal and state income
tax purposes NOL carryforwards of approximately $9 million which expire
through 2010. The amount of NOL carryforwards that can be utilized in any
future year may be limited due to "equity structure shifts" and "owner shifts"
involving "5% shareholders" (as these terms are defined in Section 382 of the
Internal Revenue Code), which resulted in a more than 50 percentage point
change in ownership. The utilization of these NOL carryforwards may be subject
to further limitation provided by the Internal Revenue Code of 1986 and
similar state provisions.
During 1992, the Company changed from the cash receipts and disbursements
method to the accrual method of accounting for federal income taxes. As such,
the excess of accrual basis income over cash basis income earned in prior
years of $400,000 was taxable over the four year period ended December 31,
1995.
State excise taxes have been included in general and administrative expenses
in the consolidated statements of operations.
F-13
<PAGE>
CORE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following is a summary of the items which cause the effective federal
tax expense to differ from the statutory federal tax expense:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1993 1994 1995
----------- ----------- ---------
<S> <C> <C> <C>
Statutory federal tax (benefit)....... $(1,148,000) $(1,598,000) $ (27,000)
State income taxes, net of federal
benefit.............................. (212,000) (296,000) (3,000)
Effect of nondeductible reorganization
costs................................ 480,000 381,000 404,000
Effect of goodwill write-off.......... 780,000
Other................................. 23,000 (126,000)
Effect (utilization) of net operating
loss carryforward.................... 880,000 710,000 (248,000)
----------- ----------- ---------
Effective federal tax................. $ -- $ -- $ --
=========== =========== =========
</TABLE>
(12) LEASES
The Company leases its facilities and certain office equipment under
noncancelable operating leases which expire at various dates through December
2001.
The terms of the lease agreements at the Boston location, scheduled to
expire in May 2000, and the Irvine location, scheduled to expire in September
2000 include base rent increases over the term of the leases and an option to
renew for one five-year term at the then prevailing rental rate. The total
amount of the base rent payments is being charged to expense on the straight-
line method over the term of the lease. The Company has recorded a deferred
credit to reflect the excess of rent expense over cash payments since
inception of the lease.
The Company received free rent concessions under terms of lease agreements
at the Boston, Burlington and Los Angeles locations. Total lease payments
under these agreements are amortized on a straight-line basis over the terms
of the related leases. The excess of the expense incurred over the cash paid
is included as deferred rent in the accompanying balance sheets.
At December 31, 1995, future minimum annual rental commitments under all of
the lease agreements described above are as follows:
<TABLE>
<S> <C>
1996........................................ $1,475,480
1997........................................ 1,274,170
1998........................................ 1,089,953
1999........................................ 935,885
2000........................................ 644,703
Thereafter.................................. 278,712
----------
$5,698,903
==========
</TABLE>
Total rent expense amounted to $1,119,963, $1,039,283 and $1,199,153 for the
years ended December 31, 1993, 1994 and 1995, respectively.
(13) COMMITMENTS AND CONTINGENCIES
Certain of the Company's service agreement contracts have provisions which
allow clients to audit the Company's performance under the contracts.
The funding for CORE's WorkAbility software was provided by Chrysler
Corporation in exchange for a perpetual license to use such software and
repayment of 140% of the development costs (approximately $2.8 million). The
agreement states that repayment of such development costs is contingent upon
CORE's collection of certain licensing fees. During 1994 and 1995, licensing
fees of $156,000 and $37,000, respectively, were collected. No licensing fees
were earned prior to 1994. Royalties of $7,720 are accrued and payable to
Chrysler at December 31, 1995. No payments of royalties were made during 1994
or 1995.
F-14
<PAGE>
CORE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company has several 401(k) profit sharing plans covering all employees
meeting certain service requirements. The Plans provide for discretionary
contributions by the Company. Matching contributions for the years ended
December 31, 1993, 1994 and 1995 were $32,525, and $23,229 and $54,017,
respectively, and are included in general and administrative expenses in the
accompanying statements of operations.
(14) RELATED PARTIES
The notes receivable from officers are due in February and April, 1996 and
accrue interest at current market rates.
(15) SIGNIFICANT CUSTOMERS
The Company has a contract with a major customer which accounted for
approximately 13% and 12% of total revenues for the years ended December 31,
1993 and 1994, respectively. No other client represented 10% or more of
revenue during these periods or the period ended December 31, 1995.
(16) SUBSEQUENT EVENT
In January 1996, CORE signed a letter of intent to acquire a majority of the
assets of AmHealth, Inc. ("AmHealth"), a management services organization that
manages nine occupational health clinics in Southern and Northern California
with a net book value of approximately $1,750,000. The proposed transaction is
subject to satisfactory completion of due diligence, negotiation of a
definitive agreement, and satisfaction of other conditions.
As part of the proposed transaction, CORE has agreed to guarantee or provide
lines of credit to AmHealth totaling up to $1,000,000 for working capital
purposes and additionally up to $500,000 for capital investment purposes.
AmHealth's use of funds under this line of credit agreement is subject to
CORE's approval. In connection with the guarantee of debt and the line of
credit, AmHealth granted CORE acceptable security interests in AmHealth
assets. To date, under this agreement CORE has provided $1,000,000 to
AmHealth. Interest on this line accrues at prime plus 2%. There were no
amounts outstanding under this agreement at December 31, 1995.
On May 10, 1996, the Company entered into an Asset Purchase Agreement (the
"AmHealth Agreement") to acquire substantially all of the assets (excluding
accounts receivable) and operations of AmHealth. On July 24, 1996, the Company
terminated the AmHealth Agreement. As a result of this termination, the
Company expects to incur a charge to earnings during the three months ending
September 30, 1996, which is preliminarily estimated to be between $500,000
and $1,000,000 in connection with transaction costs incurred subsequent to
December 31, 1995. In addition, the Company intends to write-off, during the
three months ending September 30, 1996, a $1,000,000 loan it made to AmHealth
subsequent to December 31, 1995, because there is currently substantial doubt
about AmHealth's ability to repay the loan.
(17) FOURTH QUARTER ADJUSTMENTS (UNAUDITED)
During the fourth quarters of 1993 and 1994, the Company recognized the
following unusual or infrequently occurring items:
<TABLE>
<CAPTION>
1993 1994
-------- --------
<S> <C> <C>
Reorganization costs..................................... $385,645 $335,423
Realized loss on permanent decline in fair market value
of investments.......................................... 157,774
Severance accrual........................................ 57,130
Increase in allowance for doubtful accounts.............. 50,000
-------- --------
$385,645 $600,327
======== ========
</TABLE>
There were no unusual or infrequently occurring items during the fourth
quarter of 1995.
F-15
<PAGE>
CORE, INC.
CONSOLIDATED CONDENSED BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31,
1996
------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................... $ 18,332
Cash pledged as collateral..................................... 45,500
Customer advances.............................................. 286,550
Investments available-for-sale................................. 437,009
Accounts receivable, net of allowance for doubtful accounts of
$170,337...................................................... 4,301,040
Notes receivable from officers................................. 36,169
Notes receivable from affiliates............................... 1,041,450
Prepaid expenses and other current assets...................... 495,743
------------
Total current assets......................................... 6,661,793
Property and equipment, net...................................... 3,527,849
Cash pledged as collateral....................................... 192,000
Deposits and other assets........................................ 298,479
Goodwill, net of accumulated amortization of $34,600............. 1,918,780
Intangibles, net................................................. 266,781
------------
Total assets................................................. $ 12,865,682
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................... $ 1,252,284
Accrued expenses............................................... 1,416,499
Accrued payroll................................................ 455,343
Accrued restructuring costs.................................... 59,698
Deferred income taxes.......................................... 68,316
Current portion of notes payable............................... 91,995
Current portion of obligations to former shareholders.......... 384,484
Current portion of capital lease obligations................... 82,894
------------
Total current liabilities.................................... 3,811,513
Long-term obligations to former shareholders, net of current
portion......................................................... 366,824
Capital lease obligations, net of current portion................ 59,889
Deferred rent, net of current portion............................ 264,622
Deferred income taxes............................................ 149,500
Stockholders' equity:
Preferred stock, no par value, authorized 500,000 shares; no
shares issued and outstanding.................................
Common stock, $0.10 par value per share; authorized 10,000,000
shares; issued and outstanding 4,815,781 shares............... 481,578
Additional paid-in capital..................................... 18,104,718
Deferred compensation.......................................... (51,120)
Cumulative unrealized gain on investments available-for-sale... 6,778
Accumulated deficit............................................ (10,328,620)
------------
Total stockholders' equity................................... 8,213,334
------------
Total liabilities and stockholders' equity................... $ 12,865,682
============
</TABLE>
See accompanying notes.
F-16
<PAGE>
CORE, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
-----------------------
1995 1996
----------- ----------
<S> <C> <C>
Revenues.............................................. $ 4,728,653 $6,583,562
Cost of services...................................... 3,116,938 3,938,910
----------- ----------
Gross profit.......................................... 1,611,715 2,644,652
Operating expenses:
General and administrative.......................... 1,190,608 1,403,074
Sales and marketing................................. 382,033 470,234
Restructuring costs................................. 557,515
Merger costs and expenses........................... 427,950
Depreciation and amortization....................... 232,562 277,911
----------- ----------
Total operating expenses.......................... 2,790,668 2,151,219
Income (loss) from operations......................... (1,178,953) 493,433
Other income (expense):
Interest income..................................... 77,483 45,366
Interest expense.................................... (51,339) (18,451)
Realized gain (loss) on sale of investments
available-for-sale................................. (1,663) 14,617
Other income........................................ 2,760
----------- ----------
27,241 41,532
----------- ----------
Net income (loss)..................................... $(1,151,712) $ 534,965
=========== ==========
Net income (loss) per common share.................... $ (0.24) $ 0.10
=========== ==========
Weighted average number of common shares outstanding.. 4,739,930 5,532,000
=========== ==========
</TABLE>
See accompanying notes.
F-17
<PAGE>
CORE, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
1995 1996
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss)................................... $(1,151,712) $ 534,965
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization..................... 250,963 300,006
Provision for doubtful accounts................... 15,000
Realized gain on sale of investments available-
for-sale......................................... (14,617)
Decrease in obligations to former shareholders.... (134,000)
Changes in operating assets and liabilities:
Increase in accounts receivable................. (187,085) (1,313,684)
Decrease in prepaid expenses and other current
assets......................................... 145,679 4,178
Decrease in cash overdraft...................... (301,367)
Increase in accounts payable and accrued
expenses....................................... 581,843 482,057
----------- -----------
Net cash used in operating activities............... (646,679) (141,095)
INVESTING ACTIVITIES
Additions to property and equipment................. (186,719) (634,875)
Additions to goodwill............................... (6,495)
Decrease (increase) in cash pledged as collateral... (167,098) 60,500
Increase to notes receivable from officers.......... (662)
Advances to affiliates.............................. (1,041,450)
Increase in deposits and other assets............... (120,077)
Purchases of investments available-for-sale......... (3,989,302)
Sales of investments available-for-sale............. 7,879,679 1,085,021
----------- -----------
Net cash provided by (used in) investing
activities......................................... 3,536,560 (658,038)
FINANCING ACTIVITIES
Net repayments under revolving line of credit....... (1,200,000)
Payments on officers' notes payable................. (200,000)
Payments on notes payable........................... (92,454) (63,999)
Payments on capital lease obligations............... (21,175) (20,345)
Payments on obligations to former shareholders...... (158,307)
Issuance of common stock upon exercise of stock
options and warrants............................... 54,309
----------- -----------
Net cash used in financing activities............... (1,513,629) (188,342)
----------- -----------
Net increase (decrease) in cash and cash
equivalents........................................ 1,376,252 (987,475)
Cash and cash equivalents at beginning of period.... -- 1,005,807
----------- -----------
Cash and cash equivalents at end of period.......... $ 1,376,252 $ 18,332
=========== ===========
Supplemental disclosure of cash flow information....
Interest paid....................................... $ 54,354 $ 45,603
=========== ===========
</TABLE>
See accompanying notes.
F-18
<PAGE>
CORE, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1996
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission, but do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements.
In the opinion of management, all adjustments, (consisting of only normal
recurring adjustments) considered necessary for a fair presentation have been
included. Operating results for the three-month period ended March 31, 1996
are not necessarily indicative of the results that may be expected for the
year ended December 31, 1996. For further information, refer to the
consolidated financial statements for the year ended December 31, 1995
contained in the Company's annual report filed on Form 10-K (File #0-19600)
with the Securities and Exchange Commission on April 1, 1996.
(2) INVESTMENTS
At March 31, 1996, the Company had no securities that qualified as trading
or held-to-maturity. The following is a summary of available-for-sale
securities at March 31, 1996:
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED ESTIMATED
COST GAIN FAIR VALUE
--------- ---------- ----------
<S> <C> <C> <C>
U.S. Treasury Securities $430,231 $6,778 $437,009
</TABLE>
For the three months ended March 31, 1996, the Company sold available-for-
sale securities with a fair value on the date of sale of $1,085,021. A
realized gain of $14,617 on these sales was recognized in the three months
ended March 31, 1996. The net unrealized gain of $6,778 on these securities
has been included as a separate component of stockholders' equity as of March
31, 1996.
(3) IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with FASB Statement No. 121, Accounting for the Impairment of
Long-Lived Assets to be Disposed Of, the Company records impairment losses on
long-lived assets used in operations when events and circumstances indicate
that the assets might be impaired and the undiscounted cash flows estimated to
be generated by those assets are less than the carrying amounts of those
assets. During the quarter ended March 31, 1996, events and circumstances
indicated that approximately $120,000 of intangible assets related to the
Integrated Behavioral Health division might be impaired. However, the
Company's estimate of undiscounted cash flows indicated that such carrying
amounts were expected to be recovered. Nonetheless, it is reasonably possible
that the estimate of undiscounted cash flows may change in the near term
resulting in the need to write-down those assets to fair value.
F-19
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPEC-
TUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY
ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY, NOR DOES IT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SE-
CURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAW-
FUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICA-
TION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT
TO THE DATE HEREOF.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
The Company.............................................................. 10
Recent Developments...................................................... 11
Use of Proceeds.......................................................... 12
Price Range of Common Stock.............................................. 12
Dividend Policy.......................................................... 12
Capitalization........................................................... 13
Dilution................................................................. 14
Pro Forma Combined Condensed Statement of Operations (Unaudited)......... 15
Selected Consolidated Financial Data..................................... 17
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 18
Business................................................................. 24
Management............................................................... 34
Certain Transactions..................................................... 39
Principal Stockholders................................................... 40
Description of Capital Stock............................................. 41
Shares Eligible for Future Sale.......................................... 42
Underwriting............................................................. 44
Legal Matters............................................................ 45
Experts.................................................................. 45
Available Information.................................................... 45
Index to Financial Statements............................................ F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2,000,000 SHARES
[CORE DYNAMO LOGO]
COMMON STOCK
--------
PROSPECTUS
, 1996
--------
SMITH BARNEY INC.
COWEN & COMPANY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses payable by the Company
in connection with the sale of the Common Stock being registered hereby. All
the amounts shown are estimated, except the SEC registration fee and the NASD
filing fee.
<TABLE>
<S> <C>
SEC registration fee............................................... $ 14,871
NASD filing........................................................ 4,831
Nasdaq listing fee................................................. 17,500
Blue Sky fee and expenses.......................................... 20,000
Printing and engraving expenses.................................... 125,000
Legal fees and expenses............................................ 250,000
Auditors' accounting fees and expenses............................. 100,000
Transfer Agent and Registrar fees.................................. 3,000
Miscellaneous expenses............................................. 64,798
--------
Total............................................................ $600,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Company's Restated Articles of Organization contain provisions limiting
the liability of directors to the fullest extent permitted by Massachusetts
law as currently or hereinafter in effect. Massachusetts law currently permits
the elimination of personal liability of a director for monetary damages for
breach of fiduciary duty as a director notwithstanding any provision of law
imposing such liability, except for (i) breach of the director's duty of
loyalty to the corporation or its stockholders, (ii) acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) unauthorized distributions to stockholders or loans to insiders, or
(iv) any transactions from which the director derived an improper personal
benefit.
The Company's Restated Articles of Organization also provide for the
indemnification of officers and directors of the Company, to the extent
legally permissible, against all liabilities and expenses (including
judgments, fines, penalties and attorneys' fees and under certain
circumstances, all amounts paid in compromise and settlement) reasonably
incurred by such officer or director in connection with any action, suit or
proceeding in which any such director or officer is a defendant or with which
he or she may be threatened or otherwise involved, by reason of his or her
being or having been a director or officer of the Company, except in relation
to matters as to which such director or officer shall be finally adjudged,
other than by consent, in such action, suit or proceeding, not to have acted
in the best interests of the Company.
The Company has entered into separate indemnification agreements with each
of its directors and executive officers providing for indemnification of such
persons to the extent permitted by law.
Additionally, the Company has purchased a directors and officers insurance
policy which, subject to a $250,000 deductible for certain claims, provides
$5,000,000 of coverage.
Pursuant to the Company's recent merger with Core Management, Inc. ("CMI"),
the Company agreed not to amend its Restated Articles of Organization or By-
Laws to reduce or limit the right of indemnity afforded to present and former
directors and officers of the Company and CMI or otherwise hinder the rights
of indemnity to such persons for a period of four years following such merger.
The Company and CMI also each agreed to indemnify to the fullest extent
possible under their respective charters and by-laws present and former
directors, officers, employees and agents of the Company and CMI and to
maintain all insurance policies in effect on December 19, 1994 (the date of
the Reorganization Agreement between the Company and CMI).
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since May 1, 1993, the Company has sold the following shares of Common Stock
which were not registered under Securities Act. Such shares were sold to
present and former employees or consultants upon the exercise of stock
options.
<TABLE>
<CAPTION>
NUMBER OF PURCHASE PRICE
DATE SECURITY PURCHASER SHARES PER SHARE
------- ------------ ------------- --------- --------------
<S> <C> <C> <C> <C>
6/3/95 Common Stock J.C. Sergeant 4,486 $0.11
10/4/95 Common Stock D. Whalen 13,458 $0.11
4/4/96 Common Stock S. Gerson 1,000 $3.13
5/8/96 Common Stock K. Masters 3,216 $7.46
6/4/96 Common Stock W. Kaczor 6,700 $3.73
6/6/96 Common Stock W. Butler 6,700 $3.73
6/10/96 Common Stock K. Masters 4,824 $3.73
</TABLE>
The foregoing shares of Common Stock were not registered under the
Securities Act in reliance upon the exemption contained in Section 4(2) of the
Securities Act for transactions by an issuer not involving any public
offering.
Pursuant to the terms of the Agreement and Plan of Reorganization dated as
of December 19, 1994, between the Company and Core Management, Inc. ("CMI"),
the Company on March 24, 1995 (the effective date of the CMI/PRA Merger)
assumed (i) a warrant to purchase stock of CMI issued by CMI on June 1, 1994
to John Pappajohn, a director of the Company, and (ii) a warrant to purchase
stock of CMI issued by CMI on February 24, 1994 to Silicon Valley Bank. The
warrant dated June 1, 1994 was issued by CMI to Mr. Pappajohn in consideration
of his furnishing to Silicon Valley Bank, as security for CMI's undebtedness
to that bank, letters of credit aggregating $450,000 and his agreement, made
at the request of CMI, to contribute $300,000 to CMI as an equity investment
or as a subordinated loan. The warrant dated February 24, 1994 was issued to
Silicon Valley Bank in consideration of the bank's entering into a $1,000,000
line of credit agreement with CMI.
Pursuant to the terms of the CMI/PRA Merger, Mr. Pappajohn's CMI warrant was
converted into a warrant, expiring on June 1, 1997, to purchase 26,800 shares
of Common Stock of the Company at a price of $3.36 per share; and the Silicon
Valley Bank's CMI warrant was converted into a warrant, expiring on February
28, 1999, to purchase 8,801 shares of Common Stock of the Company at a price
of $5.68 per share.
The foregoing warrants were not registered under the Securities Act, in
reliance upon the exemption contained in Section 4(2) of the Securities Act
for transactions by an issuer not involving any public offering.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1* Form of Underwriting Agreement by and among the Company and the
Underwriters.
2.1 Second Agreement and Plan or Reorganization by and between Core
Management, Inc., Registrant and PRA Sub, Inc. dated as of December
19, 1994. Filed as Appendix I to Prospectus and Joint Proxy Statement
in Amendment No. 5 to Company's Registration Statement on Form S-4
(Registration No. 33-73906), filed February 14, 1995, and incorporated
herein by reference.
2.2 Capital Stock Purchase Agreement, by and between Registrant, Cost
Review Services, Inc., Larry Bertrand Wallace and Leigh B. Goodwin,
dated October 2, 1995 (without exhibits). Filed as exhibit 2.1 to
Company's Current Report on Form 8-K, filed October 16, 1995, and
incorporated herein by reference.
2.3 Registrant's January 9, 1995 letter to AmHealth, Inc. concerning a
proposed acquisition of assets. Filed as exhibit no. 2.3 to the
Registrant's Annual Report on Form 10-K, filed April 1, 1996, and
incorporated herein by reference.
2.4 Asset Purchase Agreement, dated May 10, 1996, by and among Registrant,
AmHealth Clinics Corp. and AmHealth, Inc. (including Schedules 1.2,
2.8 and 2.10 and excluding other Exhibits and Schedules) (the
"AmHealth Asset Purchase Agreement").
2.5 Option to Purchase Business Agreement, dated April, 1996, between
Registrant and Peter P. Greaney, M.D.
2.6* Notice of termination of AmHealth Asset Purchase Agreement, dated July
24, 1996.
3.1 Restated Articles of Organization of the Registrant, dated November
22, 1991, as further amended by Articles of Amendment, dated March 24,
1995, and as further amended by Articles of Amendment, dated July 28,
1995. Filed as Exhibit No. 3.1 to Registrant's Quarterly Report on
Form 10-Q, filed November 14, 1995, and incorporated herein by
reference.
3.2 By-Laws of the Registrant, as amended. Filed as exhibit no. 3.2 to
Company's Annual Report on Form 10-K, filed March 30, 1993, and
incorporated herein by reference.
4.1 Specimen Common Stock certificate. Filed as exhibit no. 4.1 to the
Registrant's Annual Report on Form 10-K, filed April 1, 1996, and
incorporated herein by reference.
5.1** Opinion of Rich, May, Bilodeau & Flaherty, P.C., as to the legality of
the shares being registered.
10.1 Software License Agreement, dated August 26, 1986, between Chrysler
Corporation ("Chrysler") and The Health Data Institute ("HDI"). Filed
as exhibit no. 10.59 to the Company's Registration Statement on Form
S-4 (Registration No. 33-73906), filed January 10, 1994, and
incorporated herein by reference.
10.2 Amendment No. 1 to Software License Agreement, dated December 23,
1987, between Chrysler and HDI. Filed as exhibit no. 10.60 to the
Company's Registration Statement on Form S-4 (Registration No. 33-
73906), filed January 10, 1994, and incorporated herein by reference.
10.3 Technical Service Agreement, dated April 13, 1987, between Chrysler
and HDI. Filed as exhibit no. 10.61 to the Company's Registration
Statement on Form S-4 (Registration No. 33-73906), filed January 10,
1994, and incorporated herein by reference.
10.4 Technical Service Agreement, dated May 1, 1987, between Blue Cross and
Blue Shield of Michigan and HDI. Filed as exhibit no. 10.62 to the
Company's Registration Statement on Form S-4 (Registration No. 33-
73906), filed January 10, 1994, and incorporated herein by reference.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.5 Medical Care Management Agreement, dated January 1, 1989, between
Hoechst Cleanese Corporation and HDI (without Exhibits) and Addendum
to Managed Care Agreement, effective August 1, 1989, and Amendment to
Agreement, effective December 1, 1991. Filed as exhibit no. 10.5 to
the Registrant's Annual Report on Form 10-K, filed April 1, 1996, and
incorporated herein by reference.
10.6 Amended and Restated Agreement for Utilization Management Services,
dated as of November 1, 1991, between Core Management, Inc., a
California corporation ("Core-California") and Northwestern National
Life Insurance Company (without schedules and exhibits). Filed as
exhibit no. 10.58 to the Company's Registration Statement on Form S-4
(Registration No. 33-73906), filed January 10, 1994, and incorporated
herein by reference.
10.7 Management Services Agreement, dated as of September 1, 1994, between
Integrated Behavioral Health, CMI and Behavioral Care of America, Inc.
(without Exhibits). Filed as exhibit no. 10.90 to Amendment No. 3 to
the Company's Registration Statement on Form S-4 (Registration
No. 33-73906), filed February 2, 1995, and incorporated herein by
reference.
10.8 Registrant's Amended and Restated 1986 Stock Option Plan. Filed as
exhibit no. 10.11 to the Company's Registration Statement on Form S-1
(Registration No. 33-43418), filed October 18, 1991, and incorporated
herein by reference.
10.9 Amendment to Amended and Restated 1986 Stock Option Plan. Filed as
exhibit no. 19.1 to the Company's Quarterly Report on Form 10-Q, filed
November 16, 1992, and incorporated herein by reference.
10.10 Registrant's 1991 Stock Option Plan. Filed as exhibit no. 10.12 to the
Company's Registration Statement on Form S-1 (Registration No. 33-
43418), filed October 18, 1991, and incorporated herein by reference.
10.11 First Amendment to 1991 Stock Option Plan. Filed as exhibit no. 19.2
to the Company's Quarterly Report on Form 10-Q, filed November 16,
1992, and incorporated herein by reference.
10.12 Second Amendment to 1991 Stock Option Plan. Filed as Exhibit No. 10.2
to Registrant's Quarterly Report on Form 10-Q, filed May 16, 1994, and
incorporated herein by reference. [Superseded by Third Amendment to
Stock Option Plan].
10.13 Third Amendment to 1991 Stock Option Plan. Filed as Exhibit No. 10.105
to Amendment No. 2 to Registrant's Registration Statement on Form S-4,
filed December 27, 1994, and incorporated by reference herein.
10.14 Form of Stock Option Agreement, granted February 12, 1990. Filed as
exhibit no. 10.23 to the Company's Registration Statement on Form S-1
(Registration No. 33-43418), filed October 18, 1991, and incorporated
herein by reference.
10.15 Form of Stock Option Agreement, granted May 14, 1990, to non-employee
directors. Filed as exhibit no. 10.24 to the Company's Registration
Statement on Form S-1 (Registration No. 33-43418), filed October 18,
1991, and incorporated herein by reference.
10.16 Form of Amendment, dated January 21, 1991, to Stock Option Agreement
granted May 14, 1990 to non-employee directors. Filed as exhibit no.
10.26 to the Company's Registration Statement on Form S-1
(Registration No. 33-43418), filed October 18, 1991, and incorporated
herein by reference.
10.17 Form of Stock Option Agreement, granted January 21, 1991. Filed as
exhibit no. 10.25 to the Company's Registration Statement on Form S-1
(Registration No. 33-43418), filed October 18, 1991, and incorporated
herein by reference.
10.18 Form of Stock Option Agreement, granted February 11, 1991, to non-
employee directors.Filed as exhibit no. 10.27 to the Company's
Registration Statement on Form S-1 (Registration No. 33-43418), filed
October 18, 1991, and incorporated herein by reference.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.19 Form of Stock Option Agreement, granted January 13, 1992, to non-
employee directors. Filed as exhibit no. 19.1 to the Company's
Quarterly Report on Form 10-Q, filed May 15, 1992, and incorporated
herein by reference.
10.20 Form of Stock Option Agreement, granted March 17, 1992, to certain
employees. Filed as exhibit no. 19.2 to the Company's Quarterly Report
on Form 10-Q, filed May 15, 1992, and incorporated herein by
reference.
10.21 Form of Stock Option Agreement, granted December 14, 1992, to non-
employee directors. Filed as exhibit no. 19.3 to Company's Annual
Report on Form 10-K, filed March 30, 1993, and incorporated herein by
reference.
10.22 Form of Stock Option Agreement, dated as of May 17, 1993, between
Registrant and William E. Nixon. Filed as exhibit no. 10.5 to
Company's Quarterly Report on Form 10-Q, filed June 30, 1993, and
incorporated herein by reference.
10.23 Form of Stock Option Agreement, granted January 16, 1994, to non-
employee directors. Filed as exhibit no. 10.45 to the Company's Annual
Report on Form 10-K, filed March 31, 1994, and incorporated herein by
reference.
10.24 Form of Stock Option Agreement, granted March 23, 1995, to non-
employee directors for services in 1994 and through March 23, 1995,
including schedule of optionees. Filed as Exhibit No. 10.1 to
Registrant's Quarterly Report on Form 10-Q, filed November 14, 1995,
and incorporated herein by reference.
10.25 Form of Stock Option Agreement for 19,500 shares to vest quarterly
over three years granted March 24, 1995, to non-employee directors,
including schedule of optionees. Filed as Exhibit No. 10.2 to
Registrant's Quarterly Report on Form 10-Q, filed November 14, 1995,
and incorporated herein by reference.
10.26 Form of Stock Option Agreement for 4,875 shares, granted March 24,
1995 to non-employee directors, including schedule of optionees. Filed
as Exhibit No. 10.3 to Registrant's Quarterly Report on Form 10-Q,
filed November 14, 1995, and incorporated herein by reference.
10.27 Form of Stock Option Agreement, granted April 27, 1995, to executive
officers, including schedule of executive officer optionees. Filed as
Exhibit No. 10.4 to Registrant's Quarterly Report on Form 10-Q, filed
November 14, 1995, and incorporated herein by reference.
10.28 Form of Stock Option Agreement, granted April 27, 1995, for consulting
and other services, including schedule of optionees. Filed as Exhibit
No. 10.5 to Registrant's Quarterly Report on Form 10-Q, filed November
14, 1995, and incorporated herein by reference.
10.29 Form of Stock Option Agreement for 12,375 shares of Registrant's
common stock granted November 8, 1995 to four non-employee directors.
Filed as exhibit no. 10.58 to the Registrant's Annual Report on Form
10-K, filed April 1, 1996, and incorporated herein by reference.
10.30 Incentive Stock Option Agreement, dated December 8, 1995, between
Registrant and Fredric L. Sattler. Filed as exhibit no. 10.50 to the
Registrant's Annual Report on Form 10-K, filed April 1, 1996, and
incorporated herein by reference.
10.31 Form of Stock Option Agreement, granted March 29, 1996, to officers,
including schedule of officer optionees.
10.32 Form of Stock Option Agreement, granted March 29, 1996, for consulting
services, including schedule of optionees.
10.33 Core Management, Inc. Employee Stock Option Plan. Filed as exhibit no.
10.65 to the Company's Registration Statement on Form S-4
(Registration No. 33-73906), filed January 10, 1994, and incorporated
herein by reference.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.34 Forms of Stock Option Agreement under Core Management, Inc. Employee
Stock Option Plan. Filed as exhibit no. 10.66 to the Company's
Registration Statement on Form S-4 (Registration No. 33-73906), filed
January 10, 1994, and incorporated herein by reference.
10.35 Form of Non-Employee Director Stock Option Agreement of Core
Management, Inc. Filed as exhibit no. 10.67 to the Company's
Registration Statement on Form S-4 (Registration No. 33-73906), filed
January 10, 1994, and incorporated herein by reference.
10.36 Warrant to Purchase Stock of CMI, dated February 23, 1994, in favor of
Silicon Valley Bank. Filed as exhibit no. 10.75 to Amendment No. 1 to
the Company's Registration Statement on Form S-4 (Registration No. 33-
73906), filed June 8, 1994, and incorporated herein by reference.
10.37 Registration Rights Agreement, dated February 23, 1994, between CMI
and Silicon Valley Bank. Filed as exhibit no. 10.81 to Amendment No. 1
to the Company's Registration Statement on Form S-4 (Registration No.
33-73906), filed June 8, 1994, and incorporated herein by reference.
10.38 Form of Warrant Agreement, dated June 1, 1994, between CMI and John
Pappajohn. Filed as exhibit no. 10.83 to Amendment No. 1 to the
Company's Registration Statement on Form S-4 (Registration No. 33-
73906), filed June 8, 1994, and incorporated herein by reference.
10.39 Agreement to Provide Equity or Subordinated Debt, dated May 27, 1994,
between John Pappajohn and CMI. Filed as exhibit no. 10.82 to
Amendment No. 1 to the Company's Registration Statement on Form S-4
(Registration No. 33-73906), filed June 8, 1994, and incorporated
herein by reference.
10.40 Letter Agreement regarding collateral, dated August 26, 1994, to
Silicon Valley Bank from John Pappajohn. Filed as exhibit no. 10.88 to
Amendment No. 2 to the Company's Registration Statement on Form S-4
(Registration No. 33-73906), filed December 27, 1994, and incorporated
herein by reference.
10.41 Modification Letter Agreement regarding collateral, dated December 12,
1994 to Silicon Valley Bank from John Pappajohn. Filed as exhibit no.
10.93 to Amendment No. 2 to the Company's Registration Statement on
Form S-4 (Registration No. 33-73906), filed December 27, 1994, and
incorporated herein by reference.
10.42 Employment Agreement, dated May 17, 1993, between the Registrant and
Alfred B. Lewis. Filed as exhibit no. 10.1 to Company's Quarterly
Report on Form 10-Q, filed June 30, 1993, and incorporated herein by
reference.
10.43 Employment Agreement, dated November 19, 1993, between the Registrant
and William E. Nixon. Filed as exhibit no. 10.49 to Company's
Registration Statement on Form S-4 (Registration No. 33-73906), filed
January 10, 1994, and incorporated herein by reference.
10.44 Employment Agreement, dated December 1, 1995, between Registrant and
Fredric L. Sattler. Filed as exhibit no. 10.49 to the Registrant's
Annual Report on Form 10-K, filed April 1, 1996, and incorporated
herein by reference.
10.45 Employment Agreement, dated April, 1996, between Registrant and Peter
P. Greaney, M.D.
10.46 401(k) Plan. Filed as exhibit no. 10.34 to the Company's Registration
Statement on Form S-1 (Registration No. 33-43418), filed October 18,
1991, and incorporated herein by reference.
10.47 Form of Indemnification Agreement. Filed as exhibit no. 10.35 to the
Company's Registration Statement on Form S-1 (Registration No. 33-
43418), filed October 18, 1991, and incorporated herein by reference.
10.48 Office Lease, dated December 30, 1992, between Registrant and Copley
Place Associates Nominee Corporation (without exhibits). Filed as
exhibit no. 19.5 to Company's Annual Report on Form 10-K, filed March
30, 1993, and incorporated herein by reference.
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.49 First Amendment to Office Lease, dated June 3, 1993, between the
Registrant and Copley Place Associates Nominee Corporation. Filed as
exhibit no. 10.2 to Company's Quarterly Report on Form 10-Q, filed
November 10, 1993, and incorporated herein by reference.
10.50 Agreement of Sublease, dated April 1, 1993, between Eastman Kodak
Company and Core-California. Filed as exhibit no. 10.53 to the
Company's Registration Statement on Form S-4 (Registration No. 33-
73906), filed January 10, 1994, and incorporated herein by reference.
10.51 Second Amendment to Agreement of Sublease, dated May 17, 1995, between
Eastern Kodak Company and Core-California. Filed as exhibit no. 10.45
to the Registrant's Annual Report on Form 10-K, filed April 1, 1996,
and incorporated herein by reference.
10.52 Lease, dated January 1, 1991, between Core-California and One Wheeler
Road Associates. Filed as exhibit no. 10.55 to the Company's
Registration Statement on Form S-4 (Registration No. 33-73906), filed
January 10, 1994, and incorporated herein by reference.
10.53 First Amendment to Lease, dated November 28, 1995, between Core-
California and One Wheeler Road Associates (without Exhibit). Filed as
exhibit no. 10.47 to the Registrant's Annual Report on Form 10-K,
filed April 1, 1996, and incorporated herein by reference.
10.54 Office Building Lease, dated September 21, 1995, by and between
McDonnell Douglas Realty Company and Registrant, including Exhibits
and including Addendum to Lease Agreement. Filed as exhibit no. 10.48
to the Registrant's Annual Report on Form 10-K, filed April 1, 1996,
and incorporated herein by reference.
10.55 Loan and Security Agreement, dated December 29, 1995, by and among
Registrant, Core Management, Inc., a Delaware corporation ("CMI") and
Cost Review Services, Inc., as borrowers, and Silicon Valley Bank
("SVB"), including Schedule to Loan and Security Agreement. Filed as
exhibit no. 10.51 to the Registrant's Annual Report on Form 10-K,
filed April 1, 1996, and incorporated herein by reference.
10.56 Amendment to Loan Agreement, dated March 25, 1996, by and among
Registrant, Core Management, Inc., a Delaware corporation, and Cost
Review Services, Inc., as borrowers, and Silicon Valley Bank.
10.57 Collateral Assignment, Patent Mortgage and Security Agreement, dated
December 29, 1995, by and between Registrant and SVB (without
Exhibits). Filed as exhibit no. 10.52 to the Registrant's Annual
Report on Form 10-K, filed April 1, 1996, and incorporated herein by
reference.
10.58 Cross-Corporate Continuing Guaranty of Registrant, CMI and CRS, dated
December 29, 1995 in favor of SVB. Filed as exhibit no. 10.53 to the
Registrant's Annual Report on Form 10-K, filed April 1, 1996, and
incorporated herein by reference.
10.59 Continuing Guaranty of Integrated Behavioral Health and Core-
California, dated December 29, 1995, in favor of SVB. Filed as exhibit
no. 10.54 to the Registrant's Annual Report on Form 10-K, filed April
1, 1996, and incorporated herein by reference.
10.60 AmHealth, Inc.'s Secured Floating Rate Promissory Note, in the
principal amount of $500,000, dated January 10, 1996, payable to
Registrant. Filed as exhibit no. 10.55 to the Registrant's Annual
Report on Form 10-K, filed April 1, 1996, and incorporated herein by
reference.
10.61 AmHealth, Inc.'s Secured Floating Rate Promissory Note, in the
principal amount of $250,000, dated February 9, 1996, payable to
Registrant. Filed as exhibit no. 10.56 to the Registrant's Annual
Report on Form 10-K, filed April 1, 1996, and incorporated herein by
reference.
10.62 AmHealth, Inc.'s Secured Floating Rate Promissory Note, in the
principal amount of $250,000, dated March 15, 1996, payable to
Registrant. Filed as exhibit no. 10.57 to the Registrant's Annual
Report on Form 10-K, filed April 1, 1996, and incorporated herein by
reference.
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.63* Sublease, dated May 23, 1996, between AT&T Corp., as Sublandlord, and
Registrant, as Subtenant, for premises in Silver Spring, Maryland
(without Exhibits).
11.1 Statement regarding computation of earnings per share.
21.1 Subsidiaries of the Registrant.
23.1* Consent of Ernst & Young LLP, independent auditors.
23.4** Consent of Rich, May, Bilodeau & Flaherty, P.C. (included in Exhibit
5.1).
25.1 Power of Attorney (contained on the signature page of the Registration
Statement on Form S-1 filed on May 13, 1996).
27.1 Financial Data Schedule
99.1 Valuation and Qualifing Accounts of CORE, INC.
</TABLE>
- --------
* Filed herewith
** To be filed by amendment.
(B) FINANCIAL STATEMENT SCHEDULES
Schedule II--Valuation and Qualifying Accounts (See Exhibit 99.1)
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions (described in Item 20, above),
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer, or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.
* * * *
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-8
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW YORK, NEW YORK, ON
THIS 24TH DAY OF JULY, 1996.
Core, Inc.
/s/ George C. Carpenter IV
By __________________________________
GEORGE C. CARPENTER IV
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
24TH DAY OF JULY, 1996.
SIGNATURE TITLE
/s/ George C. Carpenter IV Chairman of the Board of Directors
- ------------------------------------- and Chief Executive Officer
GEORGE C. CARPENTER IV
/s/ William E. Nixon Chief Financial Officer, Executive
- ------------------------------------- Vice President and Treasurer
WILLIAM E. NIXON
/s/ Pamela Ochs-Piasecki Chief Accounting Officer
- -------------------------------------
PAMELA OCHS-PIASECKI
*/s/ Craig C. Horton President and Director
- -------------------------------------
CRAIG C. HORTON
*/s/ Leslie Alexandre Director
- -------------------------------------
LESLIE ALEXANDRE
*/s/ Stephen C. Caulfield Director
- -------------------------------------
STEPHEN C. CAULFIELD
*/s/ Richard H. Egdahl, M.D. Director
- -------------------------------------
RICHARD H. EGDAHL, M.D.
*/s/ John Pappajohn Director
- -------------------------------------
JOHN PAPPAJOHN
/s/ William E. Nixon
*By _________________________________
WILLIAM E. NIXONATTORNEY-IN-FACT
II-9
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
1.1* Form of Underwriting Agreement by and among the Company and the
Underwriters.
2.1 Second Agreement and Plan or Reorganization by and between Core
Management, Inc., Registrant and PRA Sutb, Inc. dated as of
December 19, 1994. Filed as Appendix I to Prospectus and Joint
Proxy Statement in Amendment No. 5 to Company's Registration
Statement on Form S-4 (Registration No. 33-73906), filed
February 14, 1995, and incorporated herein by reference.
2.2 Capital Stock Purchase Agreement, by and between Registrant,
Cost Review Services, Inc., Larry Bertrand Wallace and Leigh B.
Goodwin, dated October 2, 1995 (without exhibits). Filed as
exhibit 2.1 to Company's Current Report on Form 8-K, filed
October 16, 1995, and incorporated herein by reference.
2.3 Registrant's January 9, 1995 letter to AmHealth, Inc.
concerning a proposed acquisition of assets. Filed as exhibit
no. 2.3 to the Registrant's Annual Report on Form 10-K, filed
April 1, 1996, and incorporated herein by reference.
2.4 Asset Purchase Agreement, dated May 10, 1996, by and among
Registrant, AmHealth Clinics Corp. and AmHealth, Inc.
(including Schedules 1.2, 2.8 and 2.10 and excluding other
Exhibits and Schedules) (the "AmHealth Asset Purchase
Agreement").
2.5 Option to Purchase Business Agreement, dated April, 1996,
between Registrant and Peter P. Greaney, M.D.
2.6* Notice of termination of AmHealth Asset Purchase Agreement,
dated July 24, 1996.
3.1 Restated Articles of Organization of the Registrant, dated
November 22, 1991, as further amended by Articles of Amendment,
dated March 24, 1995, and as further amended by Articles of
Amendment, dated July 28, 1995. Filed as Exhibit No. 3.1 to
Registrant's Quarterly Report on Form 10-Q, filed November 14,
1995, and incorporated herein by reference.
3.2 By-Laws of the Registrant, as amended. Filed as exhibit no. 3.2
to Company's Annual Report on Form 10-K, filed March 30, 1993,
and incorporated herein by reference.
4.1 Specimen Common Stock certificate. Filed as exhibit no. 4.1 to
the Registrant's Annual Report on Form 10-K, filed April 1,
1996, and incorporated herein by reference.
5.1** Opinion of Rich, May, Bilodeau & Flaherty, P.C., as to the
legality of the shares being registered.
10.1 Software License Agreement, dated August 26, 1986, between
Chrysler Corporation ("Chrysler") and The Health Data Institute
("HDI"). Filed as exhibit no. 10.59 to the Company's
Registration Statement on Form S-4 (Registration No. 33-73906),
filed January 10, 1994, and incorporated herein by reference.
10.2 Amendment No. 1 to Software License Agreement, dated December
23, 1987, between Chrysler and HDI. Filed as exhibit no. 10.60
to the Company's Registration Statement on Form S-4
(Registration No. 33-73906), filed January 10, 1994, and
incorporated herein by reference.
10.3 Technical Service Agreement, dated April 13, 1987, between
Chrysler and HDI. Filed as exhibit no. 10.61 to the Company's
Registration Statement on Form S-4 (Registration No. 33-73906),
filed January 10, 1994, and incorporated herein by reference.
10.4 Technical Service Agreement, dated May 1, 1987, between Blue
Cross and Blue Shield of Michigan and HDI. Filed as exhibit no.
10.62 to the Company's Registration Statement on Form S-4
(Registration No. 33-73906), filed January 10, 1994, and
incorporated herein by reference.
</TABLE>
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10.5 Medical Care Management Agreement, dated January 1, 1989,
between Hoechst Cleanese Corporation and HDI (without Exhibits)
and Addendum to Managed Care Agreement, effective August 1,
1989, and Amendment to Agreement, effective December 1, 1991.
Filed as exhibit no. 10.5 to the Registrant's Annual Report on
Form 10-K, filed April 1, 1996, and incorporated herein by
reference.
10.6 Amended and Restated Agreement for Utilization Management
Services, dated as of November 1, 1991, between Core
Management, Inc., a California corporation ("Core-California")
and Northwestern National Life Insurance Company (without
schedules and exhibits). Filed as exhibit no. 10.58 to the
Company's Registration Statement on Form S-4 (Registration No.
33-73906), filed January 10, 1994, and incorporated herein by
reference.
10.7 Management Services Agreement, dated as of September 1, 1994,
between Integrated Behavioral Health, CMI and Behavioral Care
of America, Inc. (without Exhibits). Filed as exhibit no. 10.90
to Amendment No. 3 to the Company's Registration Statement on
Form S-4 (Registration No. 33-73906), filed February 2, 1995,
and incorporated herein by reference.
10.8 Registrant's Amended and Restated 1986 Stock Option Plan. Filed
as exhibit no. 10.11 to the Company's Registration Statement on
Form S-1 (Registration No. 33-43418), filed October 18, 1991,
and incorporated herein by reference.
10.9 Amendment to Amended and Restated 1986 Stock Option Plan. Filed
as exhibit no. 19.1 to the Company's Quarterly Report on Form
10-Q, filed November 16, 1992, and incorporated herein by
reference.
10.10 Registrant's 1991 Stock Option Plan. Filed as exhibit no. 10.12
to the Company's Registration Statement on Form S-1
(Registration No. 33-43418), filed October 18, 1991, and
incorporated herein by reference.
10.11 First Amendment to 1991 Stock Option Plan. Filed as exhibit no.
19.2 to the Company's Quarterly Report on Form 10-Q, filed
November 16, 1992, and incorporated herein by reference.
10.12 Second Amendment to 1991 Stock Option Plan. Filed as Exhibit
No. 10.2 to Registrant's Quarterly Report on Form 10-Q, filed
May 16, 1994, and incorporated herein by reference. [Superseded
by Third Amendment to Stock Option Plan].
10.13 Third Amendment to 1991 Stock Option Plan. Filed as Exhibit No.
10.105 to Amendment No. 2 to Registrant's Registration
Statement on Form S-4, filed December 27, 1994, and
incorporated by reference herein.
10.14 Form of Stock Option Agreement, granted February 12, 1990.
Filed as exhibit no. 10.23 to the Company's Registration
Statement on Form S-1 (Registration No. 33-43418), filed
October 18, 1991, and incorporated herein by reference.
10.15 Form of Stock Option Agreement, granted May 14, 1990, to non-
employee directors. Filed as exhibit no. 10.24 to the Company's
Registration Statement on Form S-1 (Registration No. 33-43418),
filed October 18, 1991, and incorporated herein by reference.
10.16 Form of Amendment, dated January 21, 1991, to Stock Option
Agreement granted May 14, 1990 to non-employee directors. Filed
as exhibit no. 10.26 to the Company's Registration Statement on
Form S-1 (Registration No. 33-43418), filed October 18, 1991,
and incorporated herein by reference.
10.17 Form of Stock Option Agreement, granted January 21, 1991. Filed
as exhibit no. 10.25 to the Company's Registration Statement on
Form S-1 (Registration No. 33-43418), filed October 18, 1991,
and incorporated herein by reference.
</TABLE>
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10.18 Form of Stock Option Agreement, granted February 11, 1991, to
non-employee directors. Filed as exhibit no. 10.27 to the
Company's Registration Statement on Form S-1 (Registration No.
33-43418), filed October 18, 1991, and incorporated herein by
reference.
10.19 Form of Stock Option Agreement, granted January 13, 1992, to
non-employee directors. Filed as exhibit no. 19.1 to the
Company's Quarterly Report on Form 10-Q, filed May 15, 1992,
and incorporated herein by reference.
10.20 Form of Stock Option Agreement, granted March 17, 1992, to
certain employees. Filed as exhibit no. 19.2 to the Company's
Quarterly Report on Form 10-Q, filed May 15, 1992, and
incorporated herein by reference.
10.21 Form of Stock Option Agreement, granted December 14, 1992, to
non-employee directors. Filed as exhibit no. 19.3 to Company's
Annual Report on Form 10-K, filed March 30, 1993, and
incorporated herein by reference.
10.22 Form of Stock Option Agreement, dated as of May 17, 1993,
between Registrant and William E. Nixon. Filed as exhibit no.
10.5 to Company's Quarterly Report on Form 10-Q, filed June 30,
1993, and incorporated herein by reference.
10.23 Form of Stock Option Agreement, granted January 16, 1994, to
non-employee directors. Filed as exhibit no. 10.45 to the
Company's Annual Report on Form 10-K, filed March 31, 1994, and
incorporated herein by reference.
10.24 Form of Stock Option Agreement, granted March 23, 1995, to non-
employee directors for services in 1994 and through March 23,
1995, including schedule of optionees. Filed as Exhibit No.
10.1 to Registrant's Quarterly Report on Form 10-Q, filed
November 14, 1995, and incorporated herein by reference.
10.25 Form of Stock Option Agreement for 19,500 shares to vest
quarterly over three years granted March 24, 1995, to non-
employee directors, including schedule of optionees. Filed as
Exhibit No. 10.2 to Registrant's Quarterly Report on Form 10-Q,
filed November 14, 1995, and incorporated herein by reference.
10.26 Form of Stock Option Agreement for 4,875 shares, granted March
24, 1995 to non-employee directors, including schedule of
optionees. Filed as Exhibit No. 10.3 to Registrant's Quarterly
Report on Form 10-Q, filed November 14, 1995, and incorporated
herein by reference.
10.27 Form of Stock Option Agreement, granted April 27, 1995, to
executive officers, including schedule of executive officer
optionees. Filed as Exhibit No. 10.4 to Registrant's Quarterly
Report on Form 10-Q, filed November 14, 1995, and incorporated
herein by reference.
10.28 Form of Stock Option Agreement, granted April 27, 1995, for
consulting and other services, including schedule of optionees.
Filed as Exhibit No. 10.5 to Registrant's Quarterly Report on
Form 10-Q, filed November 14, 1995, and incorporated herein by
reference.
10.29 Form of Stock Option Agreement for 12,375 shares of
Registrant's common stock granted November 8, 1995 to four non-
employee directors. Filed as exhibit no. 10.58 to the
Registrant's Annual Report on Form 10-K, filed April 1, 1996,
and incorporated herein by reference.
10.30 Incentive Stock Option Agreement, dated December 8, 1995,
between Registrant and Fredric L. Sattler. Filed as exhibit no.
10.50 to the Registrant's Annual Report on Form 10-K, filed
April 1, 1996, and incorporated herein by reference.
10.31 Form of Stock Option Agreement, granted March 29, 1996, to
officers, including schedule of officer optionees.
10.32 Form of Stock Option Agreement, granted March 29, 1996, for
consulting services, including schedule of optionees.
</TABLE>
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10.33 Core Management, Inc. Employee Stock Option Plan. Filed as
exhibit no. 10.65 to the Company's Registration Statement on
Form S-4 (Registration No. 33-73906), filed January 10, 1994,
and incorporated herein by reference.
10.34 Forms of Stock Option Agreement under Core Management, Inc.
Employee Stock Option Plan. Filed as exhibit no. 10.66 to the
Company's Registration Statement on Form S-4 (Registration
No. 33-73906), filed January 10, 1994, and incorporated herein
by reference.
10.35 Form of Non-Employee Director Stock Option Agreement of Core
Management, Inc. Filed as exhibit no. 10.67 to the Company's
Registration Statement on Form S-4 (Registration No. 33-73906),
filed January 10, 1994, and incorporated herein by reference.
10.36 Warrant to Purchase Stock of CMI, dated February 23, 1994, in
favor of Silicon Valley Bank. Filed as exhibit no. 10.75 to
Amendment No. 1 to the Company's Registration Statement on Form
S-4 (Registration No. 33-73906), filed June 8, 1994, and
incorporated herein by reference.
10.37 Registration Rights Agreement, dated February 23, 1994, between
CMI and Silicon Valley Bank. Filed as exhibit no. 10.81 to
Amendment No. 1 to the Company's Registration Statement on
Form S-4 (Registration No. 33-73906), filed June 8, 1994, and
incorporated herein by reference.
10.38 Form of Warrant Agreement, dated June 1, 1994, between CMI and
John Pappajohn. Filed as exhibit no. 10.83 to Amendment No. 1
to the Company's Registration Statement on Form S-4
(Registration No. 33-73906), filed June 8, 1994, and
incorporated herein by reference.
10.39 Agreement to Provide Equity or Subordinated Debt, dated May 27,
1994, between John Pappajohn and CMI. Filed as exhibit no.
10.82 to Amendment No. 1 to the Company's Registration
Statement on Form S-4 (Registration No. 33-73906), filed June
8, 1994, and incorporated herein by reference.
10.40 Letter Agreement regarding collateral, dated August 26, 1994,
to Silicon Valley Bank from John Pappajohn. Filed as exhibit
no. 10.88 to Amendment No. 2 to the Company's Registration
Statement on Form S-4 (Registration No. 33-73906), filed
December 27, 1994, and incorporated herein by reference.
10.41 Modification Letter Agreement regarding collateral, dated
December 12, 1994 to Silicon Valley Bank from John Pappajohn.
Filed as exhibit no. 10.93 to Amendment No. 2 to the Company's
Registration Statement on Form S-4 (Registration No. 33-73906),
filed December 27, 1994, and incorporated herein by reference.
10.42 Employment Agreement, dated May 17, 1993, between the
Registrant and Alfred B. Lewis. Filed as exhibit no. 10.1 to
Company's Quarterly Report on Form 10-Q, filed June 30, 1993,
and incorporated herein by reference.
10.43 Employment Agreement, dated November 19, 1993, between the
Registrant and William E. Nixon. Filed as exhibit no. 10.49 to
Company's Registration Statement on Form S-4 (Registration
No. 33-73906), filed January 10, 1994, and incorporated herein
by reference.
10.44 Employment Agreement, dated December 1, 1995, between
Registrant and Fredric L. Sattler. Filed as exhibit no. 10.49
to the Registrant's Annual Report on Form 10-K, filed April 1,
1996, and incorporated herein by reference.
10.45 Employment Agreement, dated April, 1996, between Registrant and
Peter P. Greaney, M.D.
10.46 401(k) Plan. Filed as exhibit no. 10.34 to the Company's
Registration Statement on Form S-1 (Registration No. 33-43418),
filed October 18, 1991, and incorporated herein by reference.
</TABLE>
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10.47 Form of Indemnification Agreement. Filed as exhibit no. 10.35
to the Company's Registration Statement on Form S-1
(Registration No. 33-43418), filed October 18, 1991, and
incorporated herein by reference.
10.48 Office Lease, dated December 30, 1992, between Registrant and
Copley Place Associates Nominee Corporation (without exhibits).
Filed as exhibit no. 19.5 to Company's Annual Report on
Form 10-K, filed March 30, 1993, and incorporated herein by
reference.
10.49 First Amendment to Office Lease, dated June 3, 1993, between
the Registrant and Copley Place Associates Nominee Corporation.
Filed as exhibit no. 10.2 to Company's Quarterly Report on
Form 10-Q, filed November 10, 1993, and incorporated herein by
reference.
10.50 Agreement of Sublease, dated April 1, 1993, between Eastman
Kodak Company and Core-California. Filed as exhibit no. 10.53
to the Company's Registration Statement on Form S-4
(Registration No. 33-73906), filed January 10, 1994, and
incorporated herein by reference.
10.51 Second Amendment to Agreement of Sublease, dated May 17, 1995,
between Eastern Kodak Company and Core-California. Filed as
exhibit no. 10.45 to the Registrant's Annual Report on Form 10-
K, filed April 1, 1996, and incorporated herein by reference.
10.52 Lease, dated January 1, 1991, between Core-California and One
Wheeler Road Associates. Filed as exhibit no. 10.55 to the
Company's Registration Statement on Form S-4 (Registration No.
33-73906), filed January 10, 1994, and incorporated herein by
reference.
10.53 First Amendment to Lease, dated November 28, 1995, between
Core-California and One Wheeler Road Associates (without
Exhibit). Filed as exhibit no. 10.47 to the Registrant's Annual
Report on Form 10-K, filed April 1, 1996, and incorporated
herein by reference.
10.54 Office Building Lease, dated September 21, 1995, by and between
McDonnell Douglas Realty Company and Registrant, including
Exhibits and including Addendum to Lease Agreement. Filed as
exhibit no. 10.48 to the Registrant's Annual Report on Form 10-
K, filed April 1, 1996, and incorporated herein by reference.
10.55 Loan and Security Agreement, dated December 29, 1995, by and
among Registrant, Core Management, Inc., a Delaware corporation
("CMI") and Cost Review Services, Inc., as borrowers, and
Silicon Valley Bank ("SVB"), including Schedule to Loan and
Security Agreement. Filed as exhibit no. 10.51 to the
Registrant's Annual Report on Form 10-K, filed April 1, 1996,
and incorporated herein by reference.
10.56 Amendment to Loan Agreement, dated March 25, 1996, by and among
Registrant, Core Management, Inc., a Delaware corporation, and
Cost Review Services, Inc., as borrowers, and Silicon Valley
Bank.
10.57 Collateral Assignment, Patent Mortgage and Security Agreement,
dated December 29, 1995, by and between Registrant and SVB
(without Exhibits). Filed as exhibit no. 10.52 to the
Registrant's Annual Report on Form 10-K, filed April 1, 1996,
and incorporated herein by reference.
10.58 Cross-Corporate Continuing Guaranty of Registrant, CMI and CRS,
dated December 29, 1995 in favor of SVB. Filed as exhibit no.
10.53 to the Registrant's Annual Report on Form 10-K, filed
April 1, 1996, and incorporated herein by reference.
10.59 Continuing Guaranty of Integrated Behavioral Health and Core-
California, dated December 29, 1995, in favor of SVB. Filed as
exhibit no. 10.54 to the Registrant's Annual Report on Form 10-
K, filed April 1, 1996, and incorporated herein by reference.
10.60 AmHealth, Inc.'s Secured Floating Rate Promissory Note, in the
principal amount of $500,000, dated January 10, 1996, payable
to Registrant. Filed as exhibit no. 10.55 to the Registrant's
Annual Report on Form 10-K, filed April 1, 1996, and
incorporated herein by reference.
</TABLE>
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10.61 AmHealth, Inc.'s Secured Floating Rate Promissory Note, in the
principal amount of $250,000, dated February 9, 1996, payable
to Registrant. Filed as exhibit no. 10.56 to the Registrant's
Annual Report on Form 10-K, filed April 1, 1996, and
incorporated herein by reference.
10.62 AmHealth, Inc.'s Secured Floating Rate Promissory Note, in the
principal amount of $250,000, dated March 15, 1996, payable to
Registrant. Filed as exhibit no. 10.57 to the Registrant's
Annual Report on Form 10-K, filed April 1, 1996, and
incorporated herein by reference.
10.63* Sublease, dated May 23, 1996, between AT&T Corp., as
Sublandlord, and Registrant, as Subtenant, for premises in
Silver Spring, Maryland (without Exhibits).
11.1 Statement regarding computation of earnings per share.
21.1 Subsidiaries of the Registrant.
23.1* Consent of Ernst & Young LLP, independent auditors.
23.4** Consent of Rich, May, Bilodeau & Flaherty, P.C. (included in
Exhibit 5.1).
27.1 Financial Data Schedule.
99.1 Valuation and Qualifing Accounts of CORE, INC.
</TABLE>
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* Filed herewith
** To be filed by amendment.
<PAGE>
Draft of July 24, 1996
2,000,000 Shares
CORE, INC.
Common Stock
UNDERWRITING AGREEMENT
----------------------
, 1996
Smith Barney Inc.
Cowen & Company
As Representatives of the Several Underwriters
c/o Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
Dear Sirs:
CORE, INC., a Massachusetts corporation (the "Company"), proposes to
issue and sell an aggregate of 2,000,000 shares (the "Firm Shares") of its
common stock, par value $0.10 per share (the "Common Stock"), to the several
Underwriters named in Schedule I hereto (the "Underwriters"). In addition,
solely for the purpose of covering over-allotments, the Company proposes to sell
to the Underwriters, upon the terms and conditions set forth in Section 2
hereof, up to an additional 300,000 shares (the "Additional Shares") of Common
Stock. The Firm Shares and the Additional Shares are hereinafter collectively
referred to as the "Shares."
The Company wishes to confirm as follows their agreement with you (the
"Representatives") and the other several Underwriters on whose behalf you are
acting, in connection with the several purchases of the Shares by the
Underwriters.
1. Registration Statement and Prospectus. The Company has prepared
and filed with the Securities and Exchange Commission (the "Commission") in
accordance with the provisions of the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder (collectively, the
"Act"), a registration statement on Form S-1 under the Act (the "registration
statement"), including a prospectus subject to completion, relating to the
Shares. The term "Registration Statement" as used in this Agreement means the
registration statement (including all financial schedules and exhibits) as
amended at the time it becomes effective or, if the registration statement
became effective prior to the execution of this Agreement, as supplemented or
amended prior to the execution of this Agreement. If it is contemplated, at the
time this Agreement is executed, that a post-effective amendment to the
registration statement will be filed and must be declared effective before the
offering of the Shares may commence, the term "Registration Statement" as used
in this Agreement means the registration statement as amended by said post-
<PAGE>
effective amendment. If an abbreviated registration statement is prepared and
filed with the Commission in accordance with Rule 462(b) under the Act (an
"Abbreviated Registration Statement"), the term "Registration Statement" as used
in this Agreement includes the Abbreviated Registration Statement. The term
"Prospectus" as used in this Agreement means the prospectus in the form included
in the Registration Statement, or, if the prospectus included in the
Registration Statement omits information in reliance on Rule 430A under the Act
and such information is included in a prospectus filed with the Commission
pursuant to Rule 424(b) under the Act, the term "Prospectus" as used in this
Agreement means the prospectus in the form included in the Registration
Statement as supplemented by the addition of the Rule 430A information contained
in the prospectus filed with the Commission pursuant to Rule 424(b). The term
"Prepricing Prospectus" as used in this Agreement means the prospectus subject
to completion in the form included in the registration statement at the time of
the initial filing of the registration statement with the Commission and as such
prospectus shall have been amended from time to time prior to the date of the
Prospectus.
2. Agreements to Sell and Purchase. The Company hereby agrees,
subject to all the terms and conditions set forth herein, to issue and sell to
each Underwriter and, upon the basis of the representations, warranties and
agreements of the Company herein contained and subject to all the terms and
conditions set forth herein, each Underwriter agrees, severally and not jointly,
to purchase from the Company, at a purchase price of $ per share (the
"purchase price per share"), the number of Firm Shares set forth opposite the
name of such Underwriter in Schedule I hereto (or such number of Firm Shares
increased as set forth in Section 12 hereof).
The Company also agrees, subject to all the terms and conditions set
forth herein, to sell to the Underwriters, and, upon the basis of the
representations, warranties and agreements of the Company herein contained and
subject to all the terms and conditions set forth herein, the Underwriters shall
have the right to purchase from the Company, at the purchase price per share,
pursuant to an option (the "over-allotment option") which may be exercised at
any time and from time to time prior to 9:00 p.m., New York City time, on the
30th day after the date of the Prospectus (or, if such 30th day shall be a
Saturday or Sunday or a holiday, on the next business day thereafter when the
New York Stock Exchange is open for trading), up to an aggregate of 300,000
Additional Shares solely to cover over-allotments made in connection with the
offering of the Firm Shares. Upon any exercise of the over-allotment option,
each Underwriter, severally and not jointly, agrees to purchase from the Company
the number of Additional Shares (subject to such adjustments as you may
determine in order to avoid fractional shares) which bears the same proportion
to the number of Additional Shares to be purchased by the Underwriters as the
number of Firm Shares set forth opposite the name of such Underwriter in
Schedule I hereto (or such number of Firm Shares increased as set forth in
Section 10 hereof) bears to the aggregate number of Firm Shares.
3. Terms of Public Offering. The Company has been advised by you
that the Underwriters propose to make a public offering of their respective
portions of the Shares as soon after the Registration Statement and this
Agreement have become effective as in your judgment is advisable and initially
to offer the Shares upon the terms set forth in the Prospectus.
4. Delivery of the Shares and Payment Therefor. Delivery to the
Underwriters of and payment for the Firm Shares shall be made at the office of
Smith Barney Inc., 388 Greenwich Street, New York, New York 10013, at 10:00
A.M., New York City time, on , 1996 (the "Closing Date"). The place of
closing for the Firm Shares and the Closing Date may be varied by agreement
between you and the Company.
2
<PAGE>
Delivery to the Underwriters of and payment for any Additional Shares
to be purchased by the Underwriters shall be made at the aforementioned office
of Smith Barney Inc. at such time on such date (the "Option Closing Date"),
which may be the same as the Closing Date but shall in no event be earlier than
the Closing Date nor earlier than two nor later than ten business days after the
giving of the notice hereinafter referred to, as shall be specified in a written
notice from you on behalf of the Underwriters to the Company of the
Underwriters' determination to purchase a number, specified in such notice, of
Additional Shares. The place of closing for any Additional Shares and the
Option Closing Date for such Shares may be varied by agreement among you and the
Company.
Certificates for the Firm Shares and for any Additional Shares to be
purchased hereunder shall be registered in such names and in such denominations
as you shall request by written notice, it being understood that a facsimile
transmission shall be deemed written notice, prior to 9:30 A.M., New York City
time, on the second business day preceding the Closing Date or any Option
Closing Date, as the case may be. Such certificates shall be made available to
you in New York City for inspection and packaging not later than 9:30 A.M., New
York City time, on the business day next preceding the Closing Date or the
Option Closing Date, as the case may be. The certificates evidencing the Firm
Shares and any Additional Shares to be purchased hereunder shall be delivered to
you on the Closing Date or the Option Closing Date, as the case may be, against
payment of the purchase price therefor in immediately available funds.
5. Agreements of the Company. The Company agrees with the several
Underwriters as follows:
(a) If, at the time this Agreement is executed and delivered, it
is necessary for the registration statement or a post-effective amendment
thereto or any Abbreviated Registration Statement to be declared effective
before the offering of the Shares may commence, the Company will endeavor to
cause the Registration Statement or such post-effective amendment to become
effective as soon as possible and will advise you promptly and, if requested by
you, will confirm such advice in writing, when the Registration Statement or
such post-effective amendment has become effective.
(b) The Company will advise you promptly and, if requested by
you, will confirm such advice in writing: (i) of any request by the Commission
for amendment of or a supplement to the Registration Statement, any Prepricing
Prospectus or the Prospectus or for additional information; (ii) of the issuance
by the Commission of any stop order suspending the effectiveness of the
Registration Statement or of the suspension of qualification of the Shares for
offering or sale in any jurisdiction or the initiation of any proceeding for
such purpose; and (iii) within the period of time referred to in paragraph (f)
below, of any change in the Company's condition (financial or other), business,
prospects, properties, net worth or results of operations, or of the happening
of any event, which makes any statement of a material fact made in the
Registration Statement or the Prospectus (as then amended or supplemented)
untrue or which requires the making of any additions to or changes in the
Registration Statement or the Prospectus (as then amended or supplemented) in
order to state a material fact required by the Act or the regulations thereunder
to be stated therein or necessary in order to make the statements therein not
misleading, or of the necessity to amend or supplement the Prospectus (as then
amended or supplemented) to comply with the Act or any other law. If at any time
the Commission shall issue any stop order suspending the effectiveness of the
Registration Statement, the Company will make every reasonable effort to obtain
the withdrawal of such order at the earliest possible time.
3
<PAGE>
(c) The Company will furnish to you, without charge, three signed
copies of the registration statement as originally filed with the Commission and
of each amendment thereto, including financial statements and all exhibits to
the registration statement and will also furnish to you, without charge, such
number of conformed copies of the registration statement as originally filed and
of each amendment thereto, but without exhibits, as you may request.
(d) The Company will not (i) file any amendment to the Registra-
tion Statement or make any amendment or supplement to the Prospectus of which
you shall not previously have been advised or to which you shall object after
being so advised or (ii) so long as, in the opinion of counsel for the
Underwriters, a prospectus is required to be delivered in connection with sales
by any Underwriter or dealer, file any information, documents or reports
pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), without delivering a copy of such information, documents or reports to
you, as Representatives of the several Underwriters, prior to or concurrently
with such filing.
(e) Prior to the execution and delivery of this Agreement, the
Company has delivered or will deliver to you, without charge, in such quantities
as you have requested or may hereafter request, copies of each form of the
Prepricing Prospectus. The Company consents to the use, in accordance with the
provisions of the Act and with the securities or Blue Sky laws of the
jurisdictions in which the Shares are offered by the several Underwriters and by
dealers, prior to the date of the Prospectus, of each Prepricing Prospectus so
furnished by the Company.
(f) As soon after the execution and delivery of this Agreement as
possible and thereafter from time to time for such period as in the opinion of
counsel for the Underwriters a prospectus is required by the Act to be delivered
in connection with sales by any Underwriter or dealer, the Company will
expeditiously deliver to each Underwriter and each dealer, without charge, as
many copies of the Prospectus (and of any amendment or supplement thereto) as
you may request. The Company consents to the use of the Prospectus (and of any
amendment or supplement thereto) in accordance with the provisions of the Act
and with the securities or Blue Sky laws of the jurisdictions in which the
Shares are offered by the several Underwriters and by all dealers to whom Shares
may be sold, both in connection with the offering and sale of the Shares and for
such period of time thereafter as the Prospectus is required by the Act to be
delivered in connection with sales by any Underwriter or dealer. If during such
period of time any event shall occur that in the judgment of the Company or in
the opinion of counsel for the Underwriters is required to be set forth in the
Prospectus (as then amended or supplemented) or should be set forth therein in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, or if it is necessary to supplement or
amend the Prospectus to comply with the Act or any other law, the Company will
forthwith prepare and, subject to the provisions of paragraph (d) above, file
with the Commission an appropriate supplement or amendment thereto and will
expeditiously furnish copies thereof to the Underwriters and dealers in such
quantities as you shall request. In the event that the Company and you, as
Representatives of the several Underwriters, agree that the Prospectus should be
amended or supplemented, the Company, if requested by you, will promptly issue a
press release announcing or disclosing the matters to be covered by the proposed
amendment or supplement.
(g) The Company will cooperate with you and with counsel for the
Underwriters in connection with the registration or qualification of the Shares
for offering and sale by the several Underwriters and by dealers under the
securities or Blue Sky laws of such jurisdictions as you may designate and will
file such consents to service of process or other documents necessary or
appropriate in order to effect such registration or qualification; provided that
in no event shall the Company be obligated to qualify to do business in any
jurisdiction where it is not now so qualified
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or to take any action that would subject it to service of process in suits,
other than those arising out of the offering or sale of the Shares, in any
jurisdiction where it is not now so subject.
(h) The Company will make generally available to its security
holders a consolidated earnings statement, which need not be audited, covering a
twelve-month period commencing after the effective date of the Registration
Statement and ending not later than 15 months thereafter, as soon as practicable
after the end of such period, which consolidated earnings statement shall
satisfy the provisions of Section 11(a) of the Act.
(i) During the period of five years hereafter, the Company will
furnish to you (i) as soon as available, a copy of each report of the Company
mailed to stockholders or filed with the Commission, and (ii) from time to time
such other information concerning the Company as you may reasonably request.
(j) If this Agreement shall terminate or shall be terminated
after execution pursuant to any provisions hereof (otherwise than pursuant to
the second paragraph of Section 10 hereof or by notice given by you terminating
this Agreement pursuant to Section 10 or Section 11 hereof) or if this Agreement
shall be terminated by the Underwriters because of any failure or refusal on the
part of the Company to comply with the terms or fulfill any of the conditions of
this Agreement, the Company agrees to reimburse the Representatives for all out-
of-pocket expenses (including fees and expenses of counsel for the Underwriters)
incurred by you in connection herewith.
(k) The Company will apply the net proceeds from the sale of the
Shares substantially in accordance with the description set forth in the
Prospectus.
(l) If Rule 430A of the Act is employed, the Company will timely
file the Prospectus pursuant to Rule 424(b) under the Act and will advise you of
the time and manner of such filing.
(m) The Company will not offer to sell, contract to sell, sell or
otherwise transfer or dispose of, or grant any option or warrant to purchase,
any shares of Common Stock (or any securities convertible into or exercisable or
exchangeable for Common Stock) for a period of 120 days after the date of the
Prospectus (the "Lock-up Period") without the prior written consent of Smith
Barney Inc except for (i) the sale of Shares to the Underwriters pursuant to
this Agreement, (ii) the issuance of shares of Common Stock upon exercise of
options or warrants disclosed to be outstanding in the Prospectus and (iii) the
grant pursuant to stock option plans described in the Prospectus of stock
options not exercisable during the Lock-up Period.
(n) The Company has furnished or will furnish to you "lock-up"
letters, in form and substance satisfactory to you, signed by each of its
current officers and directors and each of its stockholders designated by you.
(o) Except as stated in this Agreement and in the Prepricing
Prospectus and Prospectus, the Company has not taken, nor will it take, directly
or indirectly, any action designed to or that might reasonably be expected to
cause or result in stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Shares.
(p) The Company will use its best efforts to have the Shares
listed on the Nasdaq National Market prior to or concurrently with the
effectiveness of the registration statement.
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6. Representations and Warranties of the Company. The Company
represents and warrants to each Underwriter that:
(a) Each Prepricing Prospectus included as part of the registra-
tion statement as originally filed or as part of any amendment or supplement
thereto, or filed pursuant to Rule 424 under the Act, complied when so filed in
all material respects with the provisions of the Act. The Commission has not
issued any order preventing or suspending the use of any Prepricing Prospectus.
(b) The registration statement in the form in which it became or
becomes effective and also in such form as it may be when any post-effective
amendment thereto or any Abbreviated Registration Statement shall become
effective, and the Prospectus and any supplement or amendment thereto when filed
with the Commission under Rule 424(b) under the Act, complied or will comply in
all material respects with the provisions of the Act and did not or will not at
any such times contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except that this representation and warranty does not
apply to statements in or omissions from the registration statement or the
Prospectus made in reliance upon and in conformity with information relating to
any Underwriter furnished to the Company in writing by or on behalf of any
Underwriter through you expressly for use therein.
(c) All the outstanding shares of capital stock of the Company
have been duly authorized and validly issued, are fully paid and nonassessable,
are free of any preemptive or similar rights and have been issued and sold in
compliance with all Federal and state securities laws; the Shares to be issued
and sold by the Company have been duly authorized and, when issued and delivered
to the Underwriters against payment therefor in accordance with the terms
hereof, will be validly issued, fully paid and nonassessable and free of any
preemptive or similar rights. The capital stock of the Company conforms in all
material respects to the description thereof in the Registration Statement and
the Prospectus.
(d) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the Commonwealth of
Massachusetts with full corporate power and authority to own, lease and operate
its properties and to conduct its business as described in the Registration
Statement and the Prospectus, and is duly registered and qualified to conduct
its business and is in good standing in each jurisdiction or place where the
nature of its properties or the conduct of its business requires such
registration or qualification, except where the failure so to register or
qualify would not have a material adverse effect on the condition (financial or
other), business, prospects, properties, net worth or results of operations of
the Company and the Subsidiaries (as hereinafter defined) taken as a whole (a
"Material Adverse Effect").
(e) All the Company's subsidiaries (as defined in the Act) are
listed in an exhibit to the Registration Statement and are referred to herein
individually as a "Subsidiary" and collectively as the "Subsidiaries." Each
Subsidiary is a corporation duly organized, validly existing and in good
standing in the jurisdiction of its incorporation, with full corporate power and
authority to own, lease and operate its properties and to conduct its business
as described in the Registration Statement and the Prospectus and is duly
registered and qualified to conduct its business and is in good standing in each
jurisdiction or place where the nature of its properties or the conduct of its
business requires such registration, except where the failure so to register or
qualify would not have a Material Adverse Effect. All the outstanding shares of
capital stock of each of the Subsidiaries have been duly authorized and validly
issued, are fully paid and nonassessable, and are wholly-owned by the Company
directly or indirectly through one of the other Subsidiaries, free and clear of
any lien,
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adverse claim, security interest, equity or other encumbrance, except as
disclosed in the Registration Statement and the Prospectus (or any amendment or
supplement thereto).
(f) There are no legal or governmental proceedings pending or,
to the knowledge of the Company, threatened, against the Company or any of the
Subsidiaries, or to which the Company or any of the Subsidiaries or any of their
respective properties is subject, that are required to be described in the
Registration Statement or the Prospectus but are not described as required.
There are no agreements, contracts, indentures, leases or other instruments that
are required to be described in the Registration Statement or the Prospectus or
to be filed as an exhibit to the Registration Statement that are not described
or filed as required by the Act. Neither the Company nor any of the Subsidiaries
is involved in any strike, job action or labor dispute, and to the Company's
best knowledge no such action or dispute is threatened.
(g) Neither the Company nor any of the Subsidiaries is (i) in
violation of its certificate of incorporation or by-laws or other organizational
documents, or of any law, ordinance, administrative or governmental rule or
regulation applicable to the Company or any of the Subsidiaries or of any decree
of any court or governmental agency or body having jurisdiction over the Company
or any of the Subsidiaries, or (ii) in default in any material respect in the
performance of any obligation, agreement or condition contained in any bond,
debenture, note or any other evidence of indebtedness or in any material
agreement, indenture, lease or other instrument to which the Company or any of
the Subsidiaries is a party or by which it or any of their respective properties
may be bound.
(h) Neither the issuance and sale of Shares by the Company, the
execution, delivery or performance of this Agreement by the Company nor the
consummation by the Company of the transactions contemplated hereby (i) requires
any consent, approval, authorization or other order of, or registration or
filing with, any court, regulatory body, administrative agency or other
governmental body, agency or official (except such as may be required for the
registration of the Shares under the Act which has been or will be effected in
accordance with this Agreement, and compliance with the securities or Blue Sky
laws of various jurisdictions and the clearance of such offering with the
National Association of Securities Dealers, Inc. ("NASD")) or conflicts or will
conflict with or constitutes or will constitute a breach of, or a default under,
the certificate of incorporation or bylaws or other organizational documents of
the Company or any of the Subsidiaries or (ii) conflicts or will conflict with
or constitutes or will constitute a breach of, or a default under, any
agreement, indenture, lease or other instrument to which the Company or any of
the Subsidiaries is a party or by which the Company or any of the Subsidiaries
or any of their respective properties may be bound, violates or will violate any
statute, law or regulation, filing, judgment, injunction, order or decree appli-
cable to the Company or any of the Subsidiaries or any of their respective
properties or will result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or any of the
Subsidiaries pursuant to the terms of any agreement or instrument to which it is
a party or by which it may be bound or to which any of the property or assets of
it is subject.
(i) The accountants, Ernst & Young LLP, who have certified or
shall certify the financial statements filed or to be filed as part of the
Registration Statement or the Prospectus (or any amendment or supplement
thereto), are independent public accountants as required by the Act.
(j) The financial statements, together with related schedules and
notes forming part of the Registration Statement and the Prospectus (and any
amendment or supplement thereto), comply with the requirements of the Act and
present fairly the consolidated financial position, results
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of operations and changes in stockholders' equity and cash flows of the Company
and the Subsidiaries, as the case may be, on the basis stated in the
Registration Statement at the respective dates or for the respective periods to
which they apply; such statements and related schedules and notes have been
prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved, except as disclosed
therein; the pro forma financial information included in the Registration
Statement and the Prospectus (and any amendment or supplement thereto) has been
prepared in accordance with the applicable published rules and regulations of
the Commission with respect to pro forma financial information, and the
assumptions used in preparing such information are reasonable; and the other
financial and statistical information and data set forth in the Registration
Statement and the Prospectus (and any amendment or supplement thereto) are
accurately presented and prepared on a basis consistent with such financial
statements and the books and records of the Company.
(k) The Company has all requisite power and authority to execute,
deliver and perform its obligations under this Agreement. The execution and
delivery of, and the performance by the Company of its obligations under, this
Agreement have been duly and validly authorized by the Company. This Agreement
has been duly executed and delivered by the Company and constitutes the valid
and legally binding agreement of the Company, enforceable against the Company in
accordance with its terms, except as rights to indemnity and contribution
hereunder may be limited by federal or state securities laws or principles of
public policy and subject to the qualification that the enforceability of the
Company's obligations hereunder may be limited by bankruptcy, fraudulent
conveyance, insolvency, reorganization, moratorium and other laws relating to or
affecting creditors' rights generally and by general equitable principles.
(l) Except as disclosed in the Registration Statement and the
Prospectus (or any amendment or supplement thereto), subsequent to the
respective dates as of which such information is given in the Registration
Statement and the Prospectus (or any amendment or supplement thereto), neither
the Company nor any of the Subsidiaries has incurred any liability or
obligation, direct or contingent, or entered into any transaction that is
material to the Company and the Subsidiaries taken as a whole, and there has not
been any change in the capital stock, or material increase in the short-term or
long-term debt, of the Company, or any material adverse change, or any
development involving or which may reasonably be expected to involve a
prospective material adverse change, in the condition (financial or other),
business, prospects, properties, net worth or results of operations of the
Company and the Subsidiaries taken as a whole.
(m) The Company and each of the Subsidiaries has good and
marketable title to all property (real and personal) described in the Prospectus
as being owned by it, free and clear of all liens, claims, security interests or
other encumbrances, except such as are described in the Registration Statement
and the Prospectus, and all the property described in the Prospectus as being
held under lease by the Company or any of the Subsidiaries is held by it under
valid, subsisting and enforceable leases.
(n) The Company has not distributed and, prior to the later to
occur of the Closing Date and completion of the distribution of the Shares, will
not distribute any offering material in connection with the offering and sale of
the Shares other than the Registration Statement, the Prepricing Prospectus, the
Prospectus or other materials, if any, permitted by the Act.
(o) The Company and each of the Subsidiaries has such permits,
licenses, franchises, authorizations and clearances ("Permits") of governmental
or regulatory authorities as are necessary to own, lease and operate its
properties and to conduct its business in the manner described in the
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Prospectus, subject to such qualifications as may be set forth in the
Prospectus. Subject to such qualifications as may be set forth in the
Prospectus, the Company and each of the Subsidiaries has fulfilled and performed
all its material obligations with respect to the Permits, and no event has
occurred which allows, or after notice or lapse of time would allow, revocation
or termination thereof or results in any other material impairment of the rights
of the holder of any Permit, subject in each case to such qualification as may
be set forth in the Prospectus. Except as described in the Prospectus, none of
the Permits contains any restriction that is materially burdensome to the
Company or any of the Subsidiaries.
(p) The Company has not received nor is it aware of any communi-
cation (written or oral) relating to the termination or modification or
threatened termination or modification of the agreements described or referred
to in the Prospectus nor is it aware of any communication (written or oral)
relating to any determination or threatened determination not to renew or extend
any agreement described or referred to in the Prospectus at the end of the
current term of any such agreement.
(q) The property, assets and operations of the Company and the
Subsidiaries comply in all material respects with all applicable federal, state
and local laws, rules, orders, decrees, judgments, injunctions, licenses,
permits or regulations relating to environmental matters (the "Environmental
Laws"). To the Company's best knowledge, none of the Company's nor any of the
Subsidiaries' property, assets or operations is the subject of any federal,
state or local investigation evaluating whether any remedial action is needed to
respond to a release of any substance regulated by or form the basis of
liability under any Environmental Laws (a "Hazardous Material") into the
environment or is in contravention of any federal, state, local or foreign law,
order or regulation. Neither the Company nor any of the Subsidiaries has
received any notice or claim, nor are there any pending or, to the Company's
best knowledge, threatened or reasonably anticipated lawsuits against it with
respect to violations of an Environmental Law or in connection with the release
of any Hazardous Material into the environment. Neither the Company nor any of
the Subsidiaries has any material contingent liability in connection with any
release of Hazardous Material into the environment.
(r) The Company and the Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as are customary in the businesses in which they are engaged; (ii) all
policies of insurance insuring the Company or any of the Subsidiaries or their
respective businesses, assets, employees, officers and directors are in full
force and effect; (iii) the Company and the Subsidiaries are in compliance with
the terms of such policies and instruments in all material respects; and (iv)
there are no claims by the Company or any of the Subsidiaries under any such
policy or instrument as to which any insurance company is denying liability or
defending under a reservation of rights clause.
(s) The Company maintains a system of internal accounting con-
trols sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(t) Neither the Company nor any of the Subsidiaries nor, to the
Company's best knowledge, any employee or agent of the Company or any of the
Subsidiaries has made any payment
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<PAGE>
of funds of the Company or received or retained any funds in violation of any
law, rule or regulation, which payment, receipt or retention of funds is of a
character required to be disclosed in the Prospectus.
(u) The Company and the Subsidiaries have filed all federal,
state, local and foreign tax returns and tax forms required to be filed; such
returns and forms are complete and correct in all material respects; and all
taxes shown by such returns or otherwise assessed that are due or payable have
been paid, except such taxes as are being contested in good faith and as to
which adequate reserves have been provided. All payroll withholdings required to
be made by the Company with respect to employees have been made. The charges,
accruals and reserves on the books of the Company and the Subsidiaries in
respect of any tax liability for any year not finally determined are adequate to
meet any assessments or reassessments for additional taxes; and there have been
no tax deficiencies asserted and, to the best knowledge of the Company, no tax
deficiency might be reasonably asserted or threatened against the Company or any
of the Subsidiaries that could, singularly or in the aggregate, have a Material
Adverse Effect.
(v) No holder of any security of the Company has any right (other
than rights validly waived) to require registration of shares of Common Stock or
any other security of the Company because of the filing of the registration
statement or the consummation of the transactions contemplated by this Agreement
and, except as disclosed in the Prospectus, no person has the right to require
registration under the Act of any shares of Common Stock or other securities of
the Company. No person has the right, contractual or otherwise, to cause the
Company to permit such person to underwrite the sale of any of the Shares.
Except as described in or contemplated by the Prospectus, there are no
outstanding options, warrants or other rights calling for the issuance of, and
there are no commitments, plans or arrangements to issue, any shares of capital
stock of the Company or any security convertible into or exchangeable or
exercisable for capital stock of the Company or any of the Subsidiaries.
(w) The Company and the Subsidiaries own or possess all patents,
trademarks, trademark registrations, service marks, service mark registrations,
trade names, copyrights, licenses, inventions, trade secrets and rights
described in the Prospectus as being owned by any of them or necessary for the
conduct of their respective businesses, and the Company is not infringing upon
the rights of any other person with respect to the foregoing.
(x) The Company has filed in a timely manner with the Commission
each document required to be filed by it pursuant to the Exchange Act, each such
document at the time it was filed conformed in all material respects to the
requirements of the Exchange Act and none of such documents contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading.
(y) The Company is not, and, upon the sale of the Shares to be
issued and sold by it hereunder and application of the net proceeds from such
sale as described in the Prospectus under the caption "Use of Proceeds," will
not be an "investment company" within the meaning of the Investment Company Act
of 1940, as amended.
(z) The Company and each of the Subsidiaries is in compliance
with all provisions of Florida Statutes (S)517.075 and the regulations
thereunder, relating to issuers doing business with Cuba.
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7. Indemnification and Contribution. (a) The Company agrees to
indemnify and hold harmless each of you and each other Underwriter and each
person, if any, who controls any Underwriter within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act from and against any and all losses,
claims, damages, liabilities and expenses (including reasonable costs of
investigation) arising out of or based upon any untrue statement or alleged
untrue statement of a material fact contained in any Prepricing Prospectus or in
the Registration Statement or the Prospectus or in any amendment or supplement
thereto, or arising out of or based upon any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, except insofar as such losses, claims,
damages, liabilities or expenses arise out of or are based upon any untrue
statement or omission or alleged untrue statement or omission which has been
made therein or omitted therefrom in reliance upon and in conformity with the
information relating to such Underwriter furnished in writing to the Company by
or on behalf of any Underwriter through you expressly for use in connection
therewith; provided, however, that the indemnification contained in this
paragraph (a) with respect to any Prepricing Prospectus shall not inure to the
benefit of any Underwriter (or to the benefit of any person controlling such
Underwriter) on account of any such loss, claim, damage, liability or expense
arising from the sale of Shares by such Underwriter to any person if (i) a copy
of the Prospectus shall not have been delivered or sent to such person within
the time required by the Act and the untrue statement or alleged untrue
statement or omission or alleged omission of a material fact contained in such
Prepricing Prospectus was corrected in the Prospectus and (ii) the Company has
delivered the Prospectus to the several Underwriters in requisite quantity on a
timely basis to permit such delivery or sending. The foregoing indemnity
agreement shall be in addition to any liability which the Company may otherwise
have.
(b) If any action, suit or proceeding shall be brought against
any Underwriter or any person controlling any Underwriter in respect of which
indemnity may be sought against the Company, such Underwriter or such
controlling person shall promptly notify the Company, and the Company shall
assume the defense thereof, including the employment of counsel and payment of
all fees and expenses. Such Underwriter or any such controlling person shall
have the right to employ separate counsel in any such action, suit or proceeding
and to participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of such Underwriter or such controlling person
unless (i) the Company has agreed in writing to pay such fees and expenses, (ii)
the Company has failed to assume the defense and employ counsel or (iii) the
named parties to any such action, suit or proceeding (including any impleaded
parties) include both such Underwriter or such controlling person and the
Company and such Underwriter or such controlling person shall have been advised
by its counsel that representation of such indemnified party and the Company by
the same counsel would be inappropriate under applicable standards of
professional conduct (whether or not such representation by the same counsel has
been proposed) due to actual or potential differing interests between them (in
which case the Company shall not have the right to assume the defense of such
action, suit or proceeding on behalf of such Underwriter or such controlling
person). It is understood, however, that the Company shall, in connection with
any one such action, suit or proceeding or separate but substantially similar or
related actions, suits or proceedings in the same jurisdiction arising out of
the same general allegations or circumstances, be liable for the reasonable fees
and expenses of only one separate firm of attorneys (in addition to any local
counsel) at any time for all such Underwriters and controlling persons not
having actual or potential differing interests with you or among themselves,
which firm shall be designated in writing by Smith Barney Inc., and that all
such fees and expenses shall be reimbursed as they are incurred. The Company
shall not be liable for any settlement of any such action, suit or proceeding
effected without its written consent, but if settled with such written consent,
or if there be a final judgment for the plaintiff in any such action, suit or
proceeding, the Company agrees to indemnify and hold harmless any Underwriter
and any
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such controlling person, to the extent provided in the preceding paragraph, from
and against any loss, claim, damage, liability or expense by reason of such
settlement or judgment.
(c) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers who sign
the Registration Statement, any person who controls the Company within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, to the same
extent as the foregoing indemnity from the Company to each Underwriter, but only
with respect to information relating to such Underwriter furnished in writing to
the Company by or on behalf of such Underwriter through you expressly for use in
the Registration Statement, the Prospectus or any Prepricing Prospectus, or any
amendment or supplement thereto. If any action, suit or proceeding shall be
brought against the Company, any of its directors, any such officer or any such
controlling person based on the Registration Statement, the Prospectus or any
Prepricing Prospectus, or any amendment or supplement thereto, and in respect of
which indemnity may be sought against any Underwriter pursuant to this paragraph
(c), such Underwriter shall have the rights and duties given to the Company by
paragraph (b) above (except that if the Company shall have assumed the defense
thereof such Underwriter shall not be required to do so, but may employ separate
counsel therein and participate in the defense thereof, but the fees and
expenses of such counsel shall be at such Underwriter's expense), and the
Company, its directors, any such officer and any such controlling person shall
have the rights and duties given to the Underwriters by paragraph (b) above. The
foregoing indemnity agreement shall be in addition to any liability which the
Underwriters may otherwise have.
(d) If the indemnification provided for in this Section 7 is
unavailable to an indemnified party under paragraphs (a) or (c) hereof in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then an indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the Underwriters on the other hand from the offering
of the Shares, or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company on the one hand and the Underwriters on the other hand in
connection with the statements or omissions that resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the Underwriters on the other hand shall be deemed to be in the
same proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company bear to the total underwriting discounts and
commissions received by the Underwriters, in each case as set forth in the table
on the cover page of the Prospectus; provided that, in the event that the
Underwriters shall have purchased any Additional Shares hereunder, any
determination of the relative benefits received by the Company and the
Underwriters from the offering of the Shares shall include the net proceeds
(before deducting expenses) received by the Company, and the underwriting
discounts and commissions received by the Underwriters, from the sale of such
Additional Shares, in each case computed on the basis of the respective amounts
set forth in the notes to the table on the cover page of the Prospectus. The
relative fault of the Company on the one hand and the Underwriters on the other
hand shall be determined by reference to, among other things, whether the untrue
or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
on the one hand or by the Underwriters on the other hand and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
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(e) The Company and the Underwriters agree that it would not be
just and equitable if contribution pursuant to this Section 7 were determined by
a pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation that does not take account of
the equitable considerations referred to in paragraph (e) above. The amount paid
or payable by an indemnified party as a result of the losses, claims, damages,
liabilities and expenses referred to in paragraph (d) above shall be deemed to
include, subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
any claim or defending any such action, suit or proceeding. Notwithstanding the
provisions of this Section 7, no Underwriter shall be required to contribute any
amount in excess of the amount by which the total price of the Shares
underwritten by it and distributed to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations to
contribute pursuant to this Section 7 are several in proportion to the
respective numbers of Firm Shares set forth opposite their names in Schedule I
hereto (or such numbers of Firm Shares increased as set forth in Section 10
hereof) and not joint.
(f) No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or
threatened action, suit or proceeding in respect of which any indemnified party
is or could have been a party and indemnity could have been sought hereunder by
such indemnified party, unless such settlement includes an unconditional release
of such indemnified party from all liability on claims that are the subject
matter of such action, suit or proceeding.
(g) Any losses, claims, damages, liabilities or expenses for
which an indemnified party is entitled to indemnification or contribution under
this Section 7 shall be paid by the indemnifying party to the indemnified party
as such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 7 and the
representations and warranties of the Company set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter, the Company, its directors or officers or any person
controlling the Company, (ii) acceptance of any Shares and payment therefor
hereunder and (iii) any termination of this Agreement. A successor to any
Underwriter or any person controlling any Underwriter, or to the Company, its
directors or officers or any person controlling the Company shall be entitled to
the benefits of the indemnity, contribution and reimbursement agreements
contained in this Section 7.
8. Conditions of Underwriters' Obligations. The several obligations
of the Underwriters to purchase the Firm Shares hereunder are subject to the
following conditions:
(a) If, at the time this Agreement is executed and delivered,
it is necessary for the registration statement or a post-effective amendment
thereto or an Abbreviated Registration Statement to be declared effective before
the offering of the Shares may commence, the registration statement or such
post-effective amendment or Abbreviated Registration Statement shall have become
effective not later than 5:30 P.M., New York City time, on the date hereof, or
at such later date and time as shall be consented to in writing by you, and all
filings, if any, required by Rules 424 and 430A under the Act shall have been
timely made.
13
<PAGE>
(b) Subsequent to the effective date of this Agreement, there
shall not have occurred (i) any change, or any development involving a
prospective change, in or affecting the condition (financial or other),
business, prospects, properties, net worth, or results of operations of the
Company and the Subsidiaries not contemplated by the Prospectus, which in your
opinion, as Representatives of the several Underwriters, would materially,
adversely affect the market for the Shares, or (ii) any event or development
relating to or involving the Company and the Subsidiaries, or any officer or
director of the Company or any of the Subsidiaries, which makes any statement
made in the Prospectus untrue or which, in the opinion of the Company and its
counsel or the Underwriters and their counsel, requires the making of any
addition to or change in the Prospectus in order to state a material fact
required by the Act or any other law to be stated therein or necessary in order
to make the statements therein not misleading, if amending or supplementing the
Prospectus to reflect such event or development would, in your opinion, as
Representatives of the several Underwriters, materially, adversely affect the
market for the Shares.
(c) You shall have received on the Closing Date an opinion of
Rich, May, Bilodeau & Flaherty, P.C., counsel for the Company, dated the Closing
Date and addressed to you, as Representatives of the several Underwriters, that:
(i) The Company is a corporation duly incorporated and validly
existing in good standing under the laws of the Commonwealth of
Massachusetts with full corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Registration Statement and the Prospectus (and any amendment or supplement
thereto), and is duly registered and qualified to conduct its business and
is in good standing in each jurisdiction or place where the nature of its
properties or the conduct of its business requires such registration or
qualification, except where the failure so to register or qualify would not
have a Material Adverse Effect;
(ii) Each Subsidiary is a corporation duly incorporated and
validly existing and in good standing under the laws of the jurisdiction of
its organization, with full corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Registration Statement and the Prospectus (and any amendment or supplement
thereto); each Subsidiary is duly registered and qualified to conduct its
business and is in good standing as a foreign corporation in each
jurisdiction or place where the nature of its properties or the conduct of
its business requires such registration or qualification, except where the
failure so to register or qualify or to be in good standing would not have
a Material Adverse Effect; and all the outstanding shares of capital stock
of each of the Subsidiaries have been duly authorized and validly issued,
are fully paid and nonassessable and are owned of record by the Company
directly, or indirectly through one of the other Subsidiaries, free and
clear of any perfected security interest or, to such counsel's knowledge,
any other lien, adverse claim, equity or other encumbrance, except as
disclosed in the Registration Statement and the Prospectus (or any
amendment or supplement thereto);
(iii) The authorized capital stock of the Company is as set forth
under the caption "Capitalization" in the Prospectus, and the authorized
capital stock of the Company conforms in all material respects to the
description contained in the Prospectus under the caption "Description of
Capital Stock";
(iv) All the shares of capital stock of the Company outstanding
prior to the issuance of the Shares have been duly authorized and validly
issued, are fully paid and nonassessable and were issued and sold in
compliance with all applicable federal and state securities laws;
14
<PAGE>
(v) The Shares to be issued and sold by the Company have been
duly authorized and, when issued and delivered to the Underwriters against
payment therefor in accordance with the terms hereof, will be validly
issued, fully paid and nonassessable and free of (A) any preemptive rights
arising under the Company's certificate of incorporation or the
Massachusetts General Law or (B) to the knowledge of such counsel, similar
rights that entitle or will entitle any person to acquire any shares of
capital stock of the Company upon the issuance and sale of the Shares by
the Company;
(vi) The form of certificate for the Shares conforms to the
requirements of the Massachusetts General Laws;
(vii) To the knowledge of such counsel after reasonable inquiry,
the Registration Statement and all post-effective amendments, if any, have
become effective under the Act and no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceedings for that purpose are pending before or contemplated by the
Commission; and any required filing of the Prospectus pursuant to Rule
424(b) has been made in accordance with Rule 424(b);
(viii) The Company has the corporate power and authority to enter
into this Agreement and to issue, sell and deliver to the Underwriters the
Shares to be issued and sold by the Company as provided herein, and this
Agreement has been duly authorized, executed and delivered by the Company
and is a valid, legal and binding agreement of the Company, enforceable
against the Company in accordance with its terms, except as enforcement of
rights to indemnity and contribution hereunder may be limited by federal or
state securities laws or principles of public policy and subject to the
qualification that the enforceability of the Company's obligations
hereunder may be limited by bankruptcy, fraudulent conveyance, insolvency,
reorganization, moratorium and other laws relating to or affecting
creditors' rights generally and by general equitable principles;
(ix) To the knowledge of such counsel, neither the Company nor
any of the Subsidiaries is in violation of its certificate of incorporation
or bylaws, or other organizational documents, or in default in the
performance of any material obligation, agreement or condition contained in
any bond, debenture, note or other evidence of indebtedness made an exhibit
to the Registration Statement;
(x) Neither the offer, sale or delivery of the Shares, the
execution, delivery or performance of this Agreement, compliance by the
Company with the provisions hereof nor consummation by the Company of the
transactions contemplated hereby conflicts or will conflict with or
constitutes or will constitute a breach of, or a default under, the
certificate of incorporation or bylaws, or other organizational documents,
of the Company or any of the Subsidiaries or any agreement, indenture,
lease or other instrument to which the Company or any of the Subsidiaries
is a party or by which the Company or any of the Subsidiaries or any of
their respective properties is bound that is an exhibit to the Registration
Statement, or is known to such counsel after reasonable inquiry, or to the
knowledge of such counsel will result in the creation or imposition of any
lien, charge or encumbrance upon any property or assets of the Company or
any of the Subsidiaries, nor will any such action result in any violation
of any existing law, regulation, ruling (assuming compliance with all
applicable state securities and Blue Sky laws), judgment, injunction, order
or decree known to such counsel and applicable to the Company or any of the
Subsidiaries or any of their respective properties;
15
<PAGE>
(xi) No consent, approval, authorization or other order of, or
registration or filing with, any court, regulatory body, administrative
agency or other governmental body, agency, or official is required on the
part of the Company or any of the Subsidiaries (except as have been
obtained under the Act and the Exchange Act or such as may be required by
the NASD or under state securities or Blue Sky laws governing the purchase
and distribution of the Shares, as to which they express no opinion) for
the valid issuance and sale of the Shares to the Underwriters as
contemplated by this Agreement;
(xii) The Registration Statement and the Prospectus and any
supplements or amendments thereto (except for the financial statements and
the notes thereto and the schedules and other financial and statistical
data included therein, as to which such counsel need not express any
opinion) comply as to form in all material respects with the requirements
of the Act;
(xiii) To the knowledge of such counsel, (A) there are no legal
or governmental proceedings pending or threatened against the Company or
any of the Subsidiaries, or to which the Company or any of the Subsidiaries
or any of their respective properties is subject, which are required to be
described in the Registration Statement or Prospectus (or any amendment or
supplement thereto) that are not described as required and (B) there are no
agreements, contracts, indentures, leases or other instruments that are
required to be described in the Registration Statement or the Prospectus
(or any amendment or supplement thereto) or to be filed as an exhibit to
the Registration Statement that are not described or filed as required, as
the case may be;
(xiv) To the knowledge of such counsel, neither the Company nor
any of the Subsidiaries is in violation of any law, ordinance,
administrative or governmental rule or regulation applicable to the Company
or any such Subsidiary the violation of which would have a Material Adverse
Effect, or of any decree of any court or governmental agency or body having
jurisdiction over the Company or any of the Subsidiaries;
(xv) The Company has full corporate power and authority and, to
such counsel's knowledge, all necessary Permits (except where the failure
to so have any such Permits, individually or in the aggregate, would not
have a Material Adverse Effect);
(xvi) The statements in the Registration Statement and Prospec-
tus, insofar as they are descriptions of contracts, agreements or other
legal documents, or refer to statements of law or legal conclusions, are
accurate in all material respects and present fairly the information
required to be shown;
(xvii) Except as described in the Prospectus, such counsel does
not know of any holder of any securities of the Company or any of the
Subsidiaries or any other person who has the right, contractual or
otherwise, to cause the Company to sell or otherwise issue to them, or to
permit them to underwrite the sale of, any of the Shares or the right to
have any Common Stock or other securities of the Company included in the
Registration Statement or the right, as a result of the filing of the
Registration Statement, to require the Company to register under the Act
any shares of Common Stock or other securities of the Company, and any
registration rights known to such counsel in connection with the offering
contemplated hereby have been validly waived; and
16
<PAGE>
(xviii) The Company is not an "investment company" or a person
"controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
In addition, such counsel shall state that although such counsel
has not undertaken, except as otherwise indicated in their opinion, to determine
independently, and does not assume any responsibility for, the accuracy,
completeness or fairness of the statements in the Registration Statement, such
counsel has participated in the preparation of the Registration Statement and
the Prospectus, including review and discussion of the contents thereof, and
nothing has come to the attention of such counsel that has caused it to believe
that the Registration Statement, at the time the Registration Statement became
effective, contained an untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading, or that the Prospectus, as of its date and as
of the Closing Date or any Option Closing Date, as the case may be, contained an
untrue statement of a material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading, or that any amendment or supplement
to the Prospectus, as of its date, and as of the Closing Date or any Option
Closing Date, as the case may be, contained or contains an untrue statement of a
material fact or omitted or omits to state a material fact necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading (it being understood that such counsel need express no
opinion with respect to the financial statements and the notes thereto and the
schedules and other financial and statistical data included in the Registration
Statement or the Prospectus).
In rendering their opinion as aforesaid, counsel may rely upon an
opinion or opinions, each dated the Closing Date, of other counsel retained by
them or the Company as to laws of any jurisdiction other than the United States
or the Commonwealth of Massachusetts and the State of New York or the
corporation law of the State of Delaware, provided that (1) each such local
counsel is acceptable to the Representatives, (2) such reliance is expressly
authorized by each opinion so relied upon and a copy of each such opinion is
delivered to the Representatives and is, in form and substance, satisfactory to
them and counsel for the Underwriters and (3) counsel shall state in their
opinion that they believe that they and the Underwriters are justified in
relying thereon.
(d) You shall have received on the Closing Date an opinion of
Dewey Ballantine, counsel for the Underwriters, dated the Closing Date and
addressed to you, as Representatives of the several Underwriters, with respect
to the matters referred to in clauses (v) (other than subclause (B) thereof),
(vii), (viii), (xii) and the penultimate paragraph of Section 8(c) hereof and
such other related matters as you may request.
(e) You shall have received letters addressed to you and dated
the date hereof and the Closing Date from Ernst & Young LLP, independent
certified public accountants, substantially in the forms heretofore approved by
you.
(f)(i) No stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been instituted or, to the knowledge of the Company,
contemplated by the Commission at or prior to the Closing Date and any request
of the Commission for additional information (to be included in the registration
statement or the prospectus or otherwise) shall have been complied with; (ii)
there shall not have been any change in the capital stock of the Company nor any
material increase in the short-term or long-term debt of the Company and the
Subsidiaries taken as a whole from that set forth or contemplated in the
Registration Statement or the Prospectus (or any amendment or supplement
thereto); (iii) there shall
17
<PAGE>
not have been, since the respective dates as of which information is given in
the Registration Statement and the Prospectus (or any amendment or supplement
thereto), except as may otherwise be stated in the Registration Statement and
Prospectus (or any amendment or supplement thereto), any material adverse change
in the condition (financial or other), business, prospects, properties, net
worth or results of operations of the Company and the Subsidiaries taken as a
whole; (iv) neither the Company nor any of the Subsidiaries has any liabilities
or obligations, direct or contingent (whether or not in the ordinary course of
business), that are material to the Company and the Subsidiaries, other than
those reflected in or contemplated by the Registration Statement or the
Prospectus (or any amendment or supplement thereto); and (v) all the
representations and warranties of the Company contained in this Agreement shall
be true and correct in all material respects on and as of the date hereof and on
and as of the Closing Date as if made on and as of the Closing Date, and you
shall have received a certificate, dated the Closing Date and signed by the
chief executive officer and the chief financial officer of the Company (or such
other officers as are acceptable to you), as to the matters set forth in this
Section 8(h) and in Section 8(i) hereof.
(g) The Company shall not have failed at or prior to the Closing
Date to have performed or complied with any of its agreements herein contained
and required to be performed or complied with by it hereunder at or prior to the
Closing Date.
(h) The Shares shall have been listed or approved for listing on
the Nasdaq National Market.
(i) The Company shall have furnished or caused to be furnished
to you such further certificates and documents as you shall have reasonably
requested.
(j) The Company shall not have received notices of termination
relating to the Company's contracts with its customers, the termination of
which, individually or in the aggregate, would have a Material Adverse Effect.
All such opinions, certificates, letters and other documents will
be in compliance with the provisions hereof only if they are satisfactory in
form and substance to you, as Representatives of the several Underwriters, and
counsel for the Underwriters.
Any certificate or document signed by any officer of the Company
and delivered to you, as Representatives of the several Underwriters, or to
counsel for the Underwriters, shall be deemed a representation or warranty by
the Company to each Underwriter as to the statements made therein.
The several obligations of the Underwriters to purchase Additional
Shares hereunder are subject to the satisfaction on and as of any Option Closing
Date of the conditions set forth in this Section 8, except that, if any Option
Closing Date is other than the Closing Date, the certificates, opinions and
letters referred to in paragraphs (c) through (f) shall be dated the Option
Closing Date in question and the opinions called for by paragraphs (c) and (d)
shall be revised to reflect the sale of Additional Shares.
9. Expenses. The Company agrees to pay the following costs and
expenses and all other costs and expenses incident to the performance by it of
its obligations hereunder: (i) the preparation, printing or reproduction, and
filing with the Commission of the registration statement (including financial
statements and exhibits thereto), each Prepricing Prospectus, the Prospectus,
and each amendment or supplement to any of them; (ii) the printing (or
reproduction) and delivery
18
<PAGE>
(including postage, air freight charges and charges for counting and packaging)
of such copies of the registration statement, each Prepricing Prospectus, the
Prospectus, and all amendments or supplements to any of them as may be
reasonably requested for use in connection with the offering and sale of the
Shares; (iii) the preparation, printing, authentication, issuance and delivery
of certificates for the Shares, including any stamp taxes in connection with the
offering of the Shares; (iv) the printing (or reproduction) and delivery of this
Agreement, the preliminary and supplemental Blue Sky Memoranda and all other
agreements or documents printed (or reproduced) and delivered in connection with
the offering of the Shares; (v) the listing of the Shares on the Nasdaq National
Market; (vi) the registration or qualification of the Shares for offer and sale
under the securities or Blue Sky laws of the several states as provided in
Section 5(g) hereof (including the reasonable fees, expenses and disbursements
of counsel for the Underwriters relating to the preparation, printing or
reproduction, and delivery of the preliminary and supplemental Blue Sky
Memoranda and such registration and qualification); (vii) the filing fees and
the reasonable fees and expenses of counsel for the Underwriters in connection
with any filings required to be made with the National Association of Securi-
ties Dealers, Inc. in connection with the offering; (viii) the transportation
and other expenses incurred by or on behalf of representatives of the Company in
connection with presentations to prospective purchasers of the Shares; (ix) the
fees and expenses of the Company's accountants and the fees and expenses of
counsel (including local and special counsel) for the Company; and (x) the
performance by the Company of its other obligations under this Agreement.
10. Effective Date of Agreement. This Agreement shall become
effective: (i) upon the execution and delivery hereof by the parties hereto; or
(ii) if, at the time this Agreement is executed and delivered, it is necessary
for the registration statement or a post-effective amendment thereto or an
Abbreviated Registration Statement to be declared or become effective before the
offering of the Shares may commence, when notification of the effectiveness of
the registration statement or such post-effective amendment has been released by
the Commission or such Abbreviated Registration Statement has, pursuant to the
provisions of Rule 462 under the Act, become effective. Until such time as this
Agreement shall have become effective, it may be terminated by the Company, by
notifying you, or by you, as Representatives of the several Underwriters, by
notifying the Company.
If any one or more of the Underwriters shall fail or refuse to
purchase Shares which it or they have agreed to purchase hereunder, and the
aggregate number of Shares which such defaulting Underwriter or Underwriters
agreed but failed or refused to purchase is not more than one-tenth of the
aggregate number of Shares which the Underwriters are obligated to purchase on
the Closing Date, each non-defaulting Underwriter shall be obligated, severally,
in the proportion which the number of Firm Shares set forth opposite its name in
Schedule I hereto bears to the aggregate number of Firm Shares set forth
opposite the names of all non-defaulting Underwriters or in such other
proportion as you may specify in accordance with Section 20 of the Master
Agreement Among Underwriters of Smith Barney, Harris Upham & Co. Incorporated
(predecessor of Smith Barney Inc.), to purchase the Shares which such defaulting
Underwriter or Underwriters agreed, but failed or refused, to purchase. If any
Underwriter or Underwriters shall fail or refuse to purchase Shares which it or
they are obligated to purchase on the Closing Date and the aggregate number of
Shares with respect to which such default occurs is more than one-tenth of the
aggregate number of Shares which the Underwriters are obligated to purchase on
the Closing Date and arrangements satisfactory to you and the Company for the
purchase of such Shares by one or more non-defaulting Underwriters or other
party or parties approved by you and the Company are not made within 36 hours
after such default, this Agreement will terminate without liability on the part
of any non-defaulting Underwriter or the Company. In any such case which does
not result in termination of this Agreement, either you or the Company shall
have the right to postpone the Closing Date, but in no event for longer than
19
<PAGE>
seven days, in order that the required changes, if any, in the Registration
Statement and the Prospectus or any other documents or arrangements may be
effected. Any action taken under this paragraph shall not relieve any
defaulting Underwriter from liability in respect of any such default of any such
Underwriter under this Agreement. The term "Underwriter" as used in this
Agreement includes, for all purposes of this Agreement, any party not listed in
Schedule I hereto who, with your approval and the approval of the Company,
purchases Shares which a defaulting Underwriter agreed, but failed or refused,
to purchase.
Any notice under this Section 10 may be given by telegram, telecopy or
telephone but shall be subsequently confirmed by letter.
11. Termination of Agreement. This Agreement shall be subject to
termination in your absolute discretion, without liability on the part of any
Underwriter to the Company, by notice to the Company, if prior to the Closing
Date or any Option Closing Date (if different from the Closing Date and then
only as to the Additional Shares), as the case may be, (i) trading in securities
generally on the New York Stock Exchange, the American Stock Exchange or the
Nasdaq National Market shall have been suspended or materially limited, (ii) a
general moratorium on commercial banking activities in New York shall have been
declared by either federal or state authorities, or (iii) there shall have
occurred any outbreak or escalation of hostilities or other international or
domestic calamity, crisis or change in political, financial or economic
conditions, the effect of which on the financial markets of the United States is
such as to make it, in your judgment, impracticable or inadvisable to commence
or continue the offering of the Shares at the offering price to the public set
forth on the cover page of the Prospectus or to enforce contracts for the resale
of the Shares by the Underwriters. Notice of such termination may be given by
telegram, telecopy or telephone and shall be subsequently confirmed by letter.
12. Information Furnished by the Underwriters. The statements set
forth in the last paragraph on the cover page, the stabilization and passive
market-making legends on the inside front cover page and the statements in the
first, third and seventh paragraphs under the caption "Underwriting" in any
Prepricing Prospectus and in the Prospectus constitute the only information
furnished by or on behalf of the Underwriters through you as such information is
referred to in Sections 6(b) and 7 hereof.
13. Miscellaneous. Except as otherwise provided in Sections 5, 11
and 12 hereof, notice given pursuant to any provision of this Agreement shall be
in writing and shall be delivered (i) if to the Company, at the office of the
Company at 18881 Von Karman Avenue, Suite 1750, Irvine, California 92715,
Attention: George C. Carpenter IV, Chairman of the Board and Chief Executive
Officer, with a copy to Rich, May, Bilodeau & Flaherty, P.C., 294 Washington
Street, Boston, Massachusetts 02108, Attention: Stephen M. Kane, Esq.; or (ii)
if to you, as Representatives of the several Underwriters, care of Smith Barney
Inc., 388 Greenwich Street, New York, New York 10013, Attention: Manager,
Investment Banking Division, with a copy to Dewey Ballantine, 1301 Avenue of the
Americas, New York, New York 10019, Attention: Frederick W. Kanner, Esq.
This Agreement has been and is made solely for the benefit of the
several Underwriters, the Company, its directors, its officers who sign the
Registration Statement and the controlling persons referred to in Section 7
hereof and, to the extent provided herein, their respective successors and
assigns, and no other person shall acquire or have any right under or by virtue
of this Agreement. Neither the term "successor" nor the term "successors and
assigns" as used in this
20
<PAGE>
Agreement shall include a purchaser from any Underwriter of any of the Shares in
his status as such purchaser.
14. Applicable Law; Counterparts. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York applicable
to contracts made and to be performed within the State of New York.
This Agreement may be signed in various counterparts which together
constitute one and the same instrument. If signed in counterparts, this
Agreement shall not become effective unless at least one counterpart hereof
shall have been executed and delivered on behalf of each party hereto.
21
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
between the Company and the several Underwriters.
Very truly yours,
CORE, INC.
By:
--------------------------------
Confirmed as of the date first
above mentioned on behalf of
themselves and the other several
Underwriters named in Schedule I
hereto.
SMITH BARNEY INC.
COWEN & COMPANY
As Representatives of the Several Underwriters
By: SMITH BARNEY INC.
By:
----------------------------------------
Managing Director
22
<PAGE>
SCHEDULE I
CORE, INC.
Number of
Underwriter Firm Shares
----------- -----------
Smith Barney Inc...................................
Cowen & Company....................................
-----------
Total..............................
............................................. 2,000,000
===========
............................................. 0
===
<PAGE>
Exhibit 2.6
July 24, 1996
FEDERAL EXPRESS and FACSIMILE [(770) 569-4938, and (800) 413-7789]
- ------------------------------------------------------------------
AmHealth, Inc.
3000 Old Alabama Road
Suite 119-250
Alpharetta, Georgia
Dear Sirs:
Reference is made to the Asset Purchase Agreement dated May 10, 1996 (the
("Agreement") by and among CORE, INC. ("CORE"), AmHealth Clinics Corp.
("Purchaser"), and AmHealth, Inc. ("Seller").
CORE, INC. hereby terminates the Agreement pursuant to the provisions of
Section 10.1(f), 6.2, 10.1(b)(i), 10.1(b)(ii), and 10.1(g) of the Agreement.
CORE has been advised by the underwriters of its proposed underwritten
public offering of CORE's common stock (the "Underwritten Public Offering") that
the price per share of CORE's common stock in the Underwritten Public Offering
would be less than $8.50 per share.
Such underwriters have also advised CORE that, without fault of CORE and
despite CORE's best efforts, a closing of an Underwritten Public Offering could
not occur by August 1, 1996. Consequently, without fault of CORE, a Closing
under the Agreement cannot become effective by August 1, 1996. Therefore, CORE
also terminates the Agreement pursuant to Section 10.1(d) of the Agreement.
CORE asserts that, without limitation, the representations or warranties of
Seller contained in the following sections of the Agreement were untrue or
incorrect in material respects when made: Sections 2.17, 2.18, 2.21, 2.27, 2.29,
and 2.31.
CORE further asserts that, without limitation, Seller is in material breach
of its covenants, agreements or obligations contained in the following sections
of the Agreement: Sections 2.21, 5.1, 5.3, 5.8, 5.12, 5.14, and 5.20.
<PAGE>
Without limitation, the conditions to the obligations of CORE and Purchaser
as set forth in the following sections of the Agreement will not be satisfied:
Sections 9.1, 9.2, 9.6, 9.7, 9.8, 9.9, 9.14, and 9.18.
CORE and Purchaser reserve all of their rights under the Agreement,
including, without limitation, those set forth in Section 10.2 of the Agreement
and payment in full of the outstanding promissory notes in the aggregate
principal amount of $1,000,000 payable by AmHealth, Inc. to CORE, INC.
Very truly yours,
CORE, INC.
by /s/ George C. Carpenter IV
-------------------------
George C. Carpenter IV
Chairman and Chief Executive Officer
AmHealth Clinics Corp.
by /s/ George C. Carpenter IV
-------------------------
George C. Carpenter IV
Chairman and Chief Executive Officer
cc: Small, White & Marani
Attn: Gus Small, Esq.
FACSIMILE: (404) 231-4192
<PAGE>
EXHIBIT 10.63
SUBLEASE
BETWEEN
AT&T CORP. (successor by merger to AT&T Resource Management
Corporation)
SUBLANDLORD
and
CORE, INC.
SUBTENANT
8403 COLESVILLE ROAD, SILVER SPRING, MARYLAND
Dated: May 23, 1996
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* * * *
The mailing, delivery or negotiation of this Sublease shall not be deemed an
offer to enter into any transaction or to enter into any other relationship,
whether on the terms contained herein or on any other terms. This Sublease
shall not be binding nor shall either party have any obligations or liabilities
or any rights with respect thereto, nor shall Subtenant have any rights with
respect to the Subleased Premises, unless and until both parties have executed
and delivered this Sublease and the Prime Landlord has consented in writing to
this Sublease. Until such execution and delivery of, and consent to this
Sublease, either party may terminate all negotiation and discussion of the
subject matter hereof, without cause and for any reason, without recourse or
liability.
* * * *
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Table of Contents
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Page
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1. SUBLEASE............................................................2
2. PARKING.............................................................2
3. PRIME LEASE.........................................................2
4. DEFINITIONS.........................................................4
5. PRIME LANDLORD......................................................4
6. TERM/USE OF INTERIM SPACE...........................................4
7. RENT................................................................5
8. REFUNDS.............................................................6
9. SECURITY DEPOSIT....................................................7
10. SUBTENANT FITUP.....................................................7
11. ALTERATIONS.........................................................11
12. REPAIRS AND MAINTENANCE.............................................12
13. UTILITIES AND SERVICES..............................................12
14. NON ASSIGNMENT AND SUBLEASING.......................................13
15. INSURANCE...........................................................13
16. NON-BINDING MEDIATION...............................................13
17. USE/COMPLIANCE WITH LAWS............................................14
18. LIMITATIONS ON SUBLANDLORD'S LIABILITY..............................16
19. ESTOPPEL CERTIFICATES...............................................17
20. SUBORDINATION.......................................................18
21. CASUALTY AND CONDEMNATION...........................................18
22. CONSENT OR APPROVAL OF PRIME LANDLORD...............................18
23. RIGHT OF FIRST OFFERING.............................................19
(i)
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<TABLE>
<CAPTION>
Page
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<S> <C>
24. NOTICES.................................................................20
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25. BROKERS.................................................................21
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26. SUBLANDLORD'S AND SUBTENANT'S POWER TO EXECUTE..........................21
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27. CONSENT TO SUBLEASE BY PRIME LANDLORD...................................22
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28. SIGNAGE/BUILDING DIRECTORY..............................................22
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29. STORAGE SPACE...........................................................22
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30. ENTIRE AGREEMENT........................................................23
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EXHIBIT C Prime Lease.......................................................26
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EXHIBIT D Description of Subleased Premises and Subtenant's Plan
</TABLE>
(ii)
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SUBLEASE
--------
This Sublease is entered into as of this 23 day of May, 1996, by and
between AT&T CORP., successor by merger to AT&T Resource Management Corporation,
a New York corporation, with offices at 150 Mt. Airy Road, Basking Ridge, New
Jersey 07920 (hereinafter "Sublandlord") and CORE, INC., a Massachusetts
corporation, with offices at 2 Copley Place, Boston, Massachusetts 02116
(hereinafter "Subtenant").
INTRODUCTORY STATEMENTS
A. By Lease dated August 3, 1990, subsequently amended December 10, 1990,
March 18, 1991 and April 5, 1995 (the "Prime Lease") Silver Spring Metro Plaza
Limited Partnership (the "Prime Landlord") leased to Sublandlord certain space
in the building known as 8403 Colesville Road, Silver Spring, Maryland
(hereinafter called the "Building").
B. Subtenant has agreed to sublet from Sublandlord certain portions of the
Building.
C. The parties desire to enter into this Sublease defining their
respective rights, duties and liabilities relating to the Subleased Premises
(defined below).
WITNESSETH
NOW THEREFORE, Sublandlord and Subtenant, in consideration of the mutual
promises and covenants contained herein and other
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good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, and each with intent to be legally bound, for themselves and their
respective successors and assigns, agree as follows:
1. SUBLEASE
--------
Sublandlord, for and in consideration of the Subtenant's payment of the
rent and performance of the covenants contained in this Sublease, and subject to
the written consent of Prime Landlord does hereby demise and lease to Subtenant
the following portions of the Building: consisting of approximately 18,251
rentable square feet and being that portion of the tenth (10th) floor as shown
on the floor plan which is attached hereto as Exhibit D (the "Subleased
---------
Premises").
2. PARKING
-------
Subtenant shall be entitled to use ten (10) parking spaces upon payment
to the Sublandlord as additional rent of amount charged Sublandlord - subject to
periodic increases. The amount currently charged is $70.00 per space per month.
During the Term, Subtenant shall have the option, subject to availability and
upon six (6) month's prior written notice to the Garage Operator, to lease
additional parking spaces directly from Garage Operator.
3. PRIME LEASE
-----------
A true copy of the Prime Lease (with certain financial provisions
deleted for reasons of confidentiality) is attached
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hereto as Exhibit C. Where not expressly inconsistent with the terms hereof and
except as otherwise stated herein to the contrary, this Sublease shall be
subject and subordinate to all of the terms and conditions contained in the
Prime Lease as said terms and conditions affect the Subleased Premises, and all
of the terms and conditions of the Prime Lease, except as otherwise set forth
herein, are hereby incorporated into this Sublease and shall be binding upon
Subtenant with respect to the Subleased Premises to the same extent as if
Subtenant were named as tenant and Sublandlord as landlord under the Prime
Lease. For purposes of this Sublease, references in the Prime Lease to the
"term" shall mean the Term of this Sublease and references to the "premises" in
the Prime Lease shall mean the Subleased Premises. Except as otherwise provided
herein, when any fraction, factor or formula, which is based on the number of
square feet leased, is expressed in the Prime Lease, such fraction, factor or
formula will be adjusted by substituting the number of square feet of the
Subleased Premises for the number of square feet of the Premises leased in the
Prime Lease. Each party agrees that it shall not do or fail to do anything
which would result in an Event of Default under the Prime Lease, and each party
agrees to indemnify and hold the other harmless from and against all claims,
demands or liabilities resulting from such party's breach, violation or
nonperformance of any of its obligations under the Prime Lease, directly or the
Prime Lease as incorporated herein. With the exceptions set forth herein,
Subtenant shall be entitled to all
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of the rights and privileges of the Sublandlord as tenant under the terms of
the Prime Lease with respect to the Subleased Premises. The following
provisions of the Prime Lease shall not be incorporated into this Sublease:
Sections 1,3,4,5,6,8.1,8.3,23 25,31,32,34,35,36.18,36.19,36.20.
4. DEFINITIONS
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All terms not expressly defined in this Sublease shall have the meanings
given to them in the Prime Lease.
5. PRIME LANDLORD
--------------
Subtenant agrees to look solely to the Prime Landlord, and not to
Sublandlord, for the performance of all services and obligations of the Prime
Landlord under the Prime Lease with respect to the Subleased Premises. At
Subtenant's expense and request, Sublandlord will take all reasonable actions
necessary to enable Subtenant to enforce the Sublandlord's rights as tenant
under the Prime Lease with respect to the Subleased Premises.
6. TERM/USE OF INTERIM SPACE
-------------------------
The term of this Sublease (the "Term") shall commence on the earlier of
(i) substantial completion of Subtenant Fitup (as defined herein) or (ii) July
15, 1996 (the "Commencement Date") and shall end on June 30, 2001 (the
"Termination Date"). Effective June 1, 1996, and subject to all the terms of
this Sublease and of the Prime Lease in the event Subtenant is delayed in taking
occupancy of the Subleased Premises, Sublandlord will permit Subtenant to rent
certain space commencing June 1, 1996 to be designated (approximately 7,500
square feet) on the Tenth
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(10th) floor, (hereinafter "Interim Space") at a rental rate of $12.00 per
square foot until the earlier of (i) completion of the Subtenant Fitup at the
Subleased Premises has occurred, as more fully set forth in Paragraph 10 hereof,
or (ii) July 15, 1996. In the event Subtenant holds over in said Interim Space
Subtenant shall pay full for Rent therefore in addition to full Rent for the
Subleased Premises.
7. RENT
----
a. The basic rent during the Term hereof shall be in the amount of Two
Hundred Nineteen Thousand Twelve and 00/100 Dollars ($219,012.00) payable in
lawful money of the United States of America in advance on the first day of each
calendar month during the Term in installments of Eighteen Thousand Two Hundred
Fifty One and 00/100 Dollars ($18,251.00) each. Anything herein to the contrary
notwithstanding Subtenant shall be entitled to a two week basic rent concession
for the first two weeks of the Term hereof.
b. In addition to the basic rent set forth in section 7.a. above,
Subtenant shall pay Sublandlord, as additional rent, for (i) excess payments
from assignments and subleases, (ii) an amount necessary to reimburse
Sublandlord the full amount which Sublandlord shall have reimbursed Subtenant
for Subtenant Fitup pursuant to subparagraph 10(d) hereof together with interest
at the rate of nine (9%) percent per annum over the Term hereof, and (v)
commencing January 1, 1997, its proportionate share of all operating expenses,
taxes, in excess of the amounts of such items
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which Sublandlord is obligated to pay to Prime Landlord for 1996 under the terms
of the Prime Lease. Subtenant's "Proportionate Share" shall be 4.12% of charges
due under the Prime Lease, which is the number of square feet in the Subleased
Premises divided by the number of square feet in the premises under the Prime
Lease.
c. The terms "basic rent" and "additional rent" are sometimes referred
to herein as "Rent" or "rent" and shall include all sums due from Subtenant to
Sublandlord under the terms of this Sublease. All Rent shall be payable without
notice, abatement, deduction or offset at the office of the Sublandlord at the
following address:
AT&T Corp.
150 Mt. Airy Road
Basking Ridge, New Jersey 07920
Attention: Lease Administration
or at such other address as directed by notice from Sublandlord to Subtenant.
8. REFUNDS
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Provided Subtenant is not in default under this Sublease, Sublandlord
shall pay to Subtenant Subtenant's Proportionate Share of any sums which
Sublandlord actually receives less any sums expended by Sublandlord for
collection thereof from the Prime Landlord under the Prime Lease during the
Term, including, but not limited to, any refunds of basic rent or additional
rent. Payment shall be made by Sublandlord to Subtenant within thirty (30) days
of Sublandlord's receipt thereof.
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9. SECURITY DEPOSIT
----------------
Upon execution of this Sublease, Subtenant shall deposit with Sublandlord
one (1) month's rent, which shall be applied to the first month's rental
payment. In addition, Subtenant will deposit with Sublandlord an irrevocable
letter of credit equivalent to three (3) months' rent as security for the full
and faithful performance of every provision of this Sublease to be performed by
Subtenant. If Subtenant defaults with respect to any provision of this
Sublease, Sublandlord may use, apply or retain all or any portion of this
security deposit to remedy such default. If any portion of said deposit is so
used or applied, Subtenant shall, within ten (10) days after demand therefor,
deposit cash with Sublandlord in an amount sufficient to restore the security
deposit to its original amount, and Subtenant's failure to do so shall be a
material breach of this Sublease. Subtenant shall not be entitled to interest
on such deposit. If Subtenant shall fully and faithfully perform every
provision of this Sublease to be performed by it, the security deposit or any
balance thereof shall be returned to Subtenant within thirty (30) days of
Termination Date.
10. SUBTENANT FITUP
---------------
Except as otherwise expressly set forth herein, Subtenant accepts Subleased
Premises in its current "AS IS" condition. All initial improvements ("Subtenant
Fitup") required by Subtenant including demising partitions in the Subleased
Premises shall be
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completed by Subtenant, at Subtenant's initial cost and expense and subject to
reimbursement as hereinafter provided, in accordance with updated plans prepared
by Subtenant's Architect, Karen Varholak ("Subtenant's Plan") attached hereto as
Exhibit "D" and may be commenced prior to Commencement Date but Subtenant's
occupancy of Subleased Premises for such purposes will be subject to all
applicable terms of this Sublease.
Subtenant's Plan, shall be subject to Sublandlord's prior written approval.
If Subtenant's Plan requires any variance or any modifications of any existing
Building system, Subtenant will be responsible for obtaining all approvals
required at Subtenant's sole cost and expense. Subtenant, at its sole cost and
expense, will prepare an initial space plan and working drawings and
specifications. Subtenant shall be responsible for all costs resulting from any
additional work above Building Standard, including but not limited to
architectural and engineering charges, and any special permits or fees
attributed thereto.
All Subtenant Fitup shall be performed by Subtenant in compliance with the
following:
(a) No such work shall proceed without Sublandlord's prior written
approval of (i) Subtenant's contractor; (ii) detailed plans and specifications
for the Subtenant Fitup and (iii) a certificate of worker's compensation
insurance in an amount, with a company and on a form acceptable to Sublandlord
and a certificate of insurance, showing Subtenant's contractor to have
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in effect comprehensive general public liability and property damage insurance
with limits as provided herein, such certificates (except worker's compensation)
endorsed to show Sublandlord as an additional insured. Such insurance shall be
maintained by Subtenant's contractor at all times during the performance of
Subtenant Fitup.
(b) All Subtenant Fitup shall be done in conformity with applicable
codes and regulations of governmental authorities having jurisdiction over the
Building and Subleased Premises and with valid building permits. Other
authorizations from appropriate governmental agencies, when required, shall be
obtained by Subtenant, at Subtenant's sole expense. Any work not acceptable to
the appropriate governmental agencies or not satisfactory to Sublandlord, shall
be promptly replaced at Subtenant's expense. Notwithstanding any failure by
Sublandlord to object to any such work, Sublandlord shall have no responsibility
therefor.
(c) Subtenant and Subtenant's contractors shall abide by safety and
construction laws, ordinances, rules and regulations. All work and deliveries
shall be scheduled through Prime Landlord. Entry by Subtenant's contractors
shall be deemed to be under all the terms, covenants, provisions and conditions
of the Sublease. All Subtenant's materials, work, installations and decorations
of any nature brought upon or installed in the Subpremises before the
Commencement Date shall be at Subtenant's
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risk, and Sublandlord shall not be responsible for any damage thereto or loss or
destruction thereof.
(d) Subtenant shall promptly provide Sublandlord with copies of bills
and invoices for the cost of Subtenant Fitup and Subtenant shall certify as to
the correctness of such bills and invoices.
Changes: If Subtenant requests any changes after Sublandlord's approval of
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Subtenant's Plan, such changes shall not be made without prior written approval
of Sublandlord. Sublandlord shall not be responsible for delay in occupancy by
Subtenant because of changes. Sublandlord may make periodic inspections of the
Premises during construction and at completion Landlord shall advise Tenant of
any objection to Subtenant Fitup. After Sublandlord's inspection and upon
completion of all Subtenant Fitup and issuance of permanent Certificate of
Occupancy and upon Subtenant's presenting satisfactory evidence to Sublandlord
of actual payments of cost of Subtenant Fitup and upon Sublandlord's receipt of
evidence that Subtenant's financial position is satisfactory to Sublandlord,
Sublandlord will reimburse Subtenant up to a maximum total payment of
$328,518.00. This amount shall be applied toward actual construction costs,
including architectural millwork, (but excluding engineering and architect's
fees associated therewith and space planning), but this amount will not be
applied toward business equipment, communications systems, fixtures, furniture
and any other similar
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items, interior design work or items to be taken by Subtenant at the expiration
of the Term.
Sublandlord agrees to reimburse Subtenant up to Two and 00/100 Dollars
($2.00) per rentable square foot for expenses incurred by Subtenant's architect
for the preparation of construction drawings plus ten cents ($.10) per rentable
square foot for programming test fit upon Sublandlord's receipt and approval of
invoices for these charges. Sublandlord agrees to supply Subtenant's architect
with all "AS BUILT" engineering drawings in its possession, including any
mechanical, electrical and plumbing working drawings (Sublandlord's Drawings").
Subtenant accepts these Sublandlord Drawings without any warranties from
Sublandlord as to the accuracy of such drawings.
Any delay in completing Subtenant Fitup shall not in any manner affect
the Commencement Date or Subtenant's liability for the payment of Rent as set
forth in this Sublease except that payment of basic Rent shall be delayed one
day for each day either Sublandlord or Prime Landlord fails to approve
Subtenant's Plan in a timely manner.
(e) Sublandlord shall (i) promptly construct demising walls and (ii)
within, a reasonable time following completion of Subtenant Fitup, carpet the
tenth (10th) floor elevator vestibule with Building standard carpet.
II. ALTERATIONS
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Subtenant shall not make any alterations, improvements or installations
in or to the Subleased Premises without the prior
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written consent of Sublandlord. All alterations and improvements shall be
subject to the terms and conditions of the Prime Lease, and if required, shall
be subject to the Prime Landlord's approval as provided in the Prime Lease. Any
alterations, improvements or installations consented to by Sublandlord shall be
made by Sublandlord or Sublandlord's contractors at the sole cost and expense of
Subtenant.
12. REPAIRS AND MAINTENANCE
-----------------------
Any repair and maintenance obligations with respect to the Subleased
Premises which are the responsibility of the Sublandlord, as tenant under the
Prime Lease, shall be performed by Subtenant at Subtenant's sole cost and
expense. Subtenant agrees that it will notify Sublandlord promptly of the need
for any repair to the Subleased Premises, even if Sublandlord is not responsible
for any such repair. Notwithstanding anything contained herein to the contrary,
in the event that a condition exists in the Subleased Premises that Prime
Landlord is obligated to repair under the terms of the Prime Lease, Subtenant
shall so advise Sublandlord, and Sublandlord, in turn, shall promptly advise
Prime Landlord thereof. Sublandlord shall have no liability to Subtenant for
Prime Landlord's failure to make any such repair.
13. UTILITIES AND SERVICES
----------------------
Subtenant shall be entitled to all those services and utilities which
Prime Landlord is required to provide under the terms of the Prime Lease.
Subtenant shall look solely to the
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Prime Landlord for the provision of such services and utilities, and
Sublandlord shall not be responsible for Prime Landlord's failure to provide
the same nor shall any such failure constitute an abrogation of any terms or
conditions or this Sublease. In addition to the extent that Prime Landlord
charges Sublandlord for any services or utilities or increases the cost of such
services or utilities and such charge or increase is due to Subtenant's
occupancy of the Subleased Premises or Subtenant's use of such utilities or
services, Subtenant agrees to pay as additional rent the charges therefore
promptly upon receipt of Sublandlord's bill.
14. NON ASSIGNMENT AND SUBLEASING
-----------------------------
Subtenant shall not assign this Sublease nor shall Subtenant sublet the
Subleased Premises, in whole or in part, without the prior written consent of
Sublandlord and Prime Landlord, which consent Prime Landlord may withhold in its
sole discretion.
15. INSURANCE
---------
Subtenant agrees to comply with all of the insurance requirements and
obligations of Sublandlord as set forth in the Prime Lease and to name both
Sublandlord and Prime Landlord as additional insureds on any required insurance
policies except worker's compensation. Subtenant shall not, however, have the
right to self insure with respect to the insurance requirements.
16. NON-BINDING MEDIATION
----------------------
a. If a dispute arises out of or relates to this Sublease, or its
breach, and the parties have not been successful in
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resolving such dispute through negotiation, the parties agree to attempt to
resolve the dispute through non-binding mediation by submitting the dispute to a
sole mediator selected by the parties or, at the option of a party, to mediation
by the American Arbitration Association ("AAA"). If such dispute is not
resolved by such non-binding mediation, the parties shall have the right to
resort to any remedies permitted by law. All defenses based on passage of time
shall be tolled during the mediation.
b. The direct expenses of the mediation, including the compensation and
expenses of the mediator and the fees of the AAA, shall be borne equally by the
parties. All other costs incurred by the parties to this Sublease, including
the parties legal expenses and their witnesses' expenses, shall be borne by the
party incurring the expense. The parties, their representatives, other
participants and the mediator shall hold the existence, content and result of
the mediation in confidence.
17. USE/COMPLIANCE WITH LAWS
------------------------
Subtenant shall use and occupy the Premises as a first class office and
for no other use. In addition to any obligations under the Prime Lease,
Subtenant shall promptly comply with all statutes, ordinances, rules, orders,
regulations and requirements of the Federal, State and municipal Governments and
of any and all their Departments and Bureaus applicable to the use and occupancy
of the Subleased Premises by Subtenant or any subtenant or assignee of
Subtenant, for the correction, prevention and abatement of nuisances,
violations or other grievances, in, upon
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or connected with the Subleased Premises during the Term hereof, including
without limitation all laws relating to environmental matters and the Americans
with Disabilities Act, and Subtenant shall also promptly comply with, and
execute all rules, orders and regulations of the Board of Fire Underwriters for
the prevention of fires (collectively referred to as "Legal Requirements") at
Subtenant's sole cost and expense. Nothing in this paragraph shall be deemed a
consent to the alteration, subletting or assignment of all or any portion of the
Subleased Premises or of all or any of Subtenant's interests in this Sublease.
If Subtenant shall fail or neglect to comply with the aforesaid Legal
Requirements, or if Subtenant shall fail or neglect to make any repairs required
by the terms of this Sublease, and if such breach continues for a period of
twenty (20) days after notice from Prime Landlord or Sublandlord regarding same,
or, if the breach cannot be cured within twenty (20) days, if Subtenant has not
begun to cure the breach within such period and does not thereafter continuously
and diligently prosecute the cure to completion, then Sublandlord or its agents
may (but shall not be obligated to) enter the Subleased Premises and take such
actions as necessary to cure the breach and comply with any and all of the said
Legal Requirements, at the cost and expense of Subtenant; and, in case of
Subtenant's failure to pay therefor, the said cost and expense shall be added to
the next month's Rent and be due and payable as such.
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18. LIMITATIONS ON SUBLANDLORD'S LIABILITY
--------------------------------------
a. Subtenant acknowledges that Sublandlord has made no representations or
warranties with respect to the Building or the Subleased Premises except as
provided in this Sublease and Subtenant accepts the Subleased Premises in its
current "AS IS" condition.
b. If Sublandlord assigns its leasehold estate in the Building,
Sublandlord shall have no obligation to Subtenant that arises after that
assignment. Subtenant shall thereafter recognize Sublandlord's assignee as
Sublandlord of this Sublease. Assignee shall recognize Subtenant and shall
perform under the terms of this Sublease.
c. Sublandlord shall not be required to perform any of the covenants and
obligations of the Prime Landlord under the Prime Lease, and insofar as any of
the obligations of the Sublandlord hereunder are required to be performed under
the Prime Lease by the Prime Landlord thereunder, Subtenant shall rely on and
look solely to the Prime Landlord for the performance thereof. If the Prime
Landlord shall default in the performance of any of its obligations under the
Prime Lease or breach any provision of the Prime Lease pertaining to the
Subleased Premises, Subtenant shall have the right, at Subtenant's expense and
upon prior notice to Sublandlord, but not in the name of Sublandlord to make any
demand or institute any action or proceeding, in accordance with and not
contrary to any provision of the Prime Lease, against the Prime Landlord under
the Prime Lease for the enforcement of the
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Prime Landlord's obligations thereunder. Sublandlord agrees that it shall sign
such demands, pleadings and/or other papers and shall otherwise cooperate with
Subtenant, as may be reasonably required or necessary, to enable Subtenant to
proceed in Subtenant's name to enforce the obligations of Prime Landlord,
provided Subtenant shall defend, indemnify and hold Sublandlord harmless from
and against any suit, action, cost, expense, damage or liability which arises
out of or results from or is alleged to arise out of or result from Subtenant's
exercise of its rights under this paragraph.
19. ESTOPPEL CERTIFICATES
---------------------
Either party hereto (the requested party) agrees that from time to time
upon not less than thirty (30) days prior notice by the other party (requesting
party), the requested party or its duly authorized representative having
knowledge of the following facts will deliver to the requesting party, or to
such person or persons as the requesting party may designate, a statement in
writing certifying (a) that this Sublease is unmodified and in full force and
effect (or if there have been modifications, that the Sublease as modified is in
full force and effect); (b) the date to which the Rent and other charges have
been paid; (c) that to the best of the requested party's knowledge, the
requesting party is not in default under any provision of this Sublease or if in
default, the nature thereof in detail.
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20. SUBORDINATION
-------------
This Sublease shall be subject and subordinate to the Prime Lease, any
ground lease and to any mortgage or deed of trust thereon or on the fee simple
interest in the Building or the land on which the Building is located.
21. CASUALTY AND CONDEMNATION
-------------------------
If the Prime Lease is terminated with respect to the Subleased Premises
pursuant to the provisions of the Prime Lease, this Sublease shall automatically
terminate at the same time and Subtenant shall have no claim against Sublandlord
or Prime Landlord for the loss of its subleasehold interest or any of
Subtenant's property. If the Prime Lease is not terminated with respect to the
Subleased Premises upon the occurrence of a casualty or condemnation, the
provisions of the Prime Lease with respect to casualty or condemnation shall
apply to this Sublease and the Subleased Premises.
22. CONSENT OR APPROVAL OF PRIME LANDLORD
-------------------------------------
If the consent or approval of Prime Landlord is required under the Prime Lease
with respect to any matter relating to the Subleased Premises, Subtenant shall
be required first to obtain the consent or approval of Sublandlord with respect
thereto and, if Sublandlord grants such consent or approval, Sublandlord or
Subtenant may forward a request for consent or approval to the Prime Landlord,
but Sublandlord shall not be responsible for obtaining such consent or approval.
Sublandord shall have no liability to Subtenant for the failure of Prime
Landlord to give
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its consent. Any refusal by Prime Landlord to consent to or to approve any
request or matter, wherever Sublandlord's consent or approval is required reader
this Sublease, shall be deemed to be reasonable if Prime Landlord has refused to
give its consent or approval to such request or matter.
23. RIGHT OF FIRST OFFERING
-----------------------
Provided that Subtenant is not in default under this Sublease, Subtenant
shall be granted a continuous right, to be exercised by written notice given
prior to October 31, 1996, to immediately expand into the balance of the tenth
(10th) floor space (the "Expansion Space") (prior to Sublandlord subleasing said
space to a bona fide third party) which is contiguous with the Subleased
Premises being subleased hereunder (the "Right of First Offering"). If Subtenant
should exercise this Right of First Offering, Subleased Premises would then
comprise Thirty One Thousand Four Hundred Eighty (31,480) rentable square feet.
Should the parties hereto fail to execute a written amendment to this Sublease
incorporating the Expansion Space within thirty (30) days of Subtenant's receipt
of Sublandlord's written notification, then Subtenant shall have no further
rights and Sublandlord shall have no obligations to Subtenant with respect to
the Expansion Space. The rent for the Expansion Space shall be at the same rate
per square that Subtenant is paying at the time of its exercise of its Right of
First Offering, and the term for the Expansion Space shall expire on June 30,
2001. Sublandlord shall reimburse the cost of Subtenant Fitup as
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provided in Paragraph 10 hereof and Subtenant shall re-pay Sublandlord therefor
as provided in Paragraph 7 hereof.
24. NOTICES
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All notices given pursuant to the provisions of this Sublease shall be in
writing, addressed to the party to whom notice is given and sent registered or
certified mail, return receipt requested, in a postpaid envelope or by
nationally recognized overnight delivery service as follow:
To Subtenant:
CORE, INC.
2 Copley Place
Boston, Massachusetts 02116
Attention: William Nixon
To Sublandlord:
AT&T CORP.
150 Mt. Airy Road
Basking Ridge, New Jersey 07920
Attention: Lease Administration
It is understood and agreed that unless specifically modified by this
Sublease, Sublandlord shall be entitled to the length of notice required to be
given Prime Landlord under the Prime Lease plus five (5) days and shall be
entitled to give Subtenant the amount of notice required to be given tenant
under the Prime Lease less ten (10) days. All notices shall be deemed given
upon receipt or rejection.
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<PAGE>
Sublandlord shall provide Subtenant with copy of any notice which
Sublandlord may receive from Prime Landlord and which may concern any action or
event which may adversely affect the rights of Subtenant hereunder, including,
but not limited to any notice of default which Sublandlord may receive from
Prime Landlord.
Either party by notice to the other may change or add persons and places
where notices are to be sent or delivered. In no event shall notice have to be
sent on behalf of either party to more than three (3) persons.
25. BROKERS
-------
The parties warrant that they have had no dealings with any real estate
broker or agent in connection with this Sublease, except Cushman & Wakefield of
Maryland, Inc. and The Rome Group, Inc. (the "Brokers"). Each party covenants to
pay, hold harmless and indemnify the other from and against any and all costs,
expenses or liabilities for any compensation, commissions and charges claimed by
any other broker or agent with respect to this Sublease or the negotiation
thereof, based upon alleged dealings with the indemnifying party. Sublandlord
agrees to pay the commissions of the Brokers in accordance with separate
agreements.
26. SUBLANDLORD'S AND SUBTENANT'S POWER TO EXECUTE
----------------------------------------------
Sublandlord (subject to Prime Landlord's consent) and Subtenant
covenant, warrant and represent that each has full power and proper authority to
execute this Sublease.
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<PAGE>
27. CONSENT TO SUBLEASE BY PRIME LANDLORD
-------------------------------------
This Sublease shall not become operative until and unless the Prime
Landlord has given to Sublandlord its consent hereto. Sublandlord shall not be
responsible for Prime Landlord's failure to consent to this Sublease. Should
Prime Landlord not consent to this Sublease, Sublandlord shall return the
Security Deposit and first month's basic rent, each party shall be released from
all obligations with respect hereto and neither party shall have any further
rights in law or in equity with respect to this Sublease.
28. SIGNAGE/BUILDING DIRECTORY
--------------------------
Sublandlord, at its cost and expense, shall place a building standard
suite sign bearing Subtenant's name at the entrance to the Premises and shall
place Subtenant's name on the building directory located in the lobby of the
Building. Subtenant shall not place any sign on the outside of building. Any
signage other than Building standard desired by Subtenant must first be approved
by Sublandlord, who may withhold approval, and shall be paid for by Subtenant.
29. STORAGE SPACE
-------------
Provided that storage space is available to Sublandlord pursuant to the
Prime Lease in the Building, Subtenant may sublease from Sublandlord up to 250
usable square feet of surplus storage space. Subtenant agrees to pay Sublandlord
the sum of
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<PAGE>
Eight and 00/100 Dollars ($8.00) per square foot on an annual basis for a term
expiring on the Termination Date.
30. ENTIRE AGREEMENT
----------------
This Sublease (which includes each of the Exhibits attached hereto)
contains the entire agreement between the parties and all prior negotiations and
agreements are merged into this Sublease. This Sublease may not be changed,
modified, terminated or discharged, in whole or in part, nor any of its
provisions waived except by a written instrument which (a) shall expressly
refer to this Sublease and (b) shall be executed by the party against whom
enforcement of the change, modification, termination, discharge or waiver shall
be sought.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Sublease to be
properly executed as of the day and year first above written.
ATTEST/WITNESS: SUBLANDLORD
AT&T CORP.
[SIGNATURE APPEARS HERE] By: [SIGNATURE APPEARS HERE] (SEAL)
- -------------------------------- ----------------------------
Name Name
Transaction Specialist District Manager Real Estate
- -------------------------------- ----------------------------------
Title Title
[SEAL APPEARS HERE]
ATTEST/WITNESS: SUBTENANT
CORE, INC.
Sara R. Tague By: [SIGNATURE APPEARS HERE] (SEAL)
- -------------------------------- ----------------------------
Name Name
Manager of Human Resources William E. Nixon E.V.P. & CFO
- -------------------------------- ----------------------------------
Title Title
Prime Landlord executes this Sublease solely as evidence of its consent to
the Sublease. Prime Landlord's consent to this Sublease shall not in any way be
deemed a modification of the Prime Lease. Prime Landlord's consent to this
Sublease shall not relieve Sublandlord of the obligation to obtain Prime
Landlord's consent to any further subleasing.
ATTEST/WITNESS: PRIME LANDLORD
SILVER SPRING METRO PLAZA LIMITED
PARTNERSHIP
By:
- -------------------------------- ---------------------------------
Name Name
- -------------------------------- ---------------------------------
Title General Partner
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<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" and
"Selected Consolidated Financial Data" and to the use of our report dated
February 14, 1996 except for Note 16, as to which the date is July 24, 1996 in
Amendment No. 3 to the Registration Statement on Form S-1 (No. 333-03639) and
the related Prospectus of CORE, INC. for the registration of 2,300,000 shares
of its Common Stock.
Our audits also included the financial statement schedule of CORE, INC.
listed in Exhibit 99.1. This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
Ernst & Young LLP
Boston, Massachusetts
July 24, 1996
