<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 13, 1996
REGISTRATION NO. 333 -
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
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. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF TO BE OFFERING PRICE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT(2) PRICE(1)(2) REGISTRATION FEE
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.10 per
share................. 2,875,000 $15.00 $43,125,000 $14,871
</TABLE>
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(1) Includes shares of Common Stock that may be sold pursuant to the
Underwriters' over-allotment option, if any.
(2) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457 under the Securities Act of 1933.
----------------
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>
CORE, INC.
CROSS-REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS OF
INFORMATION REQUIRED BY ITEMS IN PART I OF FORM S-1
<TABLE>
<CAPTION>
FORM S-
1 ITEM NUMBER AND HEADING CAPTION IN PROSPECTUS
------------------------- ---------------------
<C> <S> <C>
1. Forepart of the Registration
Statement and Outside Front
Cover Page of Prospectus..... Outside Front Cover Page
2. Inside Front and Outside Back Inside Front Cover Page; Outside Back Cover
Cover Pages of Prospectus.... Page
3. Summary Information, Risk
Factors and Ratio of Earnings
to Fixed Charges............. Prospectus Summary; Risk Factors
4. Use of Proceeds.............. Use of Proceeds
5. Determination of Offering Outside Front Cover Page; Price Range of
Price........................ Common Stock
6. Dilution..................... Dilution
7. Selling Security Holders..... Principal and Selling Stockholders
8. Plan of Distribution......... Outside and Inside Front Cover Page;
Underwriting; Outside Back Cover Page
9. Description of Securities to Price Range of Common Stock; Dividend
be Registered................ Policy; Capitalization; Description of
Capital Stock
10. Interests of Named Experts
and Counsel.................. Legal Matters; Experts
11. Information with Respect to Outside Front Cover Page; Prospectus
the Registrant............... Summary; Risk Factors; The Company; Recent
Developments; Price Range of Common Stock;
Dividend Policy; Capitalization; Pro Forma
Combined Condensed Financial Data
(Unaudited); Selected Consolidated
Financial Data; Management's Discussion
and Analysis of Financial Condition and
Results of Operations; Business;
Management; Principal and Selling
Stockholders; Description of Capital
Stock; Shares Eligible for Future Sales;
Financial Statements; Available
Information
12. Disclosure of Commission
Position on Indemnification
for Securities Act
Liabilities.................. Not Applicable
</TABLE>
<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 MAY 13, 1996
PROSPECTUS
2,500,000 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 May 9, 1996, the last sale price of the Common Stock as
reported by Nasdaq was $15 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 and the Selling Stockholders named under "Principal and Selling
Stockholders" have 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 and the Selling Stockholders have granted the Underwriters, a
30-day option to purchase up to 375,000 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, Proceeds to Company and
Proceeds to Selling Stockholders 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>
[ART]
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. With the AmHealth Acquisition discussed below,
CORE will also manage a network of nine occupational health clinics and on-site
medical facilities, which render occupational and industrial medical 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 of 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 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 recognized that per employee costs
for occupational and non-occupational injuries and illness are comparable, at
approximately $2,500 per year. These expenses represent between 8% and 10% of
total payroll costs for the average corporation and present a significant
challenge to corporate productivity. In aggregate, costs due to workplace
absence are estimated at $260 billion per year and have been growing at between
10% and 13% annually since 1970.
Workers' compensation expenditures have been growing at roughly 10% per annum
for the past decade and today amount to roughly $70 billion in annual spending.
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 $190 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
3
<PAGE>
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 are 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 workplace 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.
RECENT DEVELOPMENTS
On May 10, 1996, CORE entered into an Asset Purchase Agreement with AmHealth,
Inc. ("AmHealth"), a management services organization that manages nine
occupational health clinics and additional on-site medical facilities. These
operations offer employers industrial and occupational medical services for
employees, including initial diagnosis and treatment of work-related injuries
and illnesses as well as physical therapy and physical rehabilitation. The
purchase price payable by CORE in this acquisition (the "AmHealth Acquisition")
is $15.7 million payable in cash from the proceeds of this offering. The
closing of the AmHealth Acquisition is contingent upon the closing of this
offering and satisfaction of certain other conditions and the closing of this
offering is conditioned on the closing of the AmHealth Acquisition. See "Use of
Proceeds," "Business--The AmHealth Acquisition" and Consolidated Financial
Statements of AmHealth.
THE OFFERING
<TABLE>
<S> <C>
Common Stock being offered... 2,500,000 shares(1)
Common Stock outstanding af- 7,338,753 shares(1)(2)
ter the offering............
Use of Proceeds.............. To finance the AmHealth Acquisition, to expand
operating capacity and for other working capital
and general corporate purposes
Nasdaq--National Market Sym- CORE
bol.........................
</TABLE>
- --------
(1) Excludes up to 375,000 shares of Common Stock that may be sold by the
Company and the Selling Stockholders pursuant to the Underwriters' over-
allotment option. See "Underwriting."
(2) Based on the number of shares of Common Stock outstanding as of April 30,
1996. Excludes 1,533,447 shares of Common Stock issuable upon exercise of
outstanding stock options and warrants. See "Management" and Note 10 of
Notes to Consolidated Financial Statements of the Company.
4
<PAGE>
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1993 1994 1995
------- ------- ---------------------
ACTUAL PRO FORMA(2)
------- ------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.............................. $16,316 $16,746 $20,769 $39,247
Cost of services...................... 10,714 11,305 12,839 22,683
------- ------- ------- -------
Gross profit........................ 5,602 5,441 7,930 16,564
Total operating expenses.............. 9,295 10,151 8,185 17,831
------- ------- ------- -------
Loss from operations(1)............... (3,693) (4,710) (255) (1,267)
Other income, net..................... 317 11 176 58
------- ------- ------- -------
Net loss.............................. $(3,376) $(4,699) $ (79) $(1,209)
======= ======= ======= =======
Net loss per common share............. $ (0.73) $ (1.01) $ (0.02) $ (.21)
======= ======= ======= =======
Weighted average number of common
shares outstanding................... 4,611 4,668 4,755 5,890
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
------------------------
PRO FORMA
ACTUAL AS ADJUSTED(3)
-------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................................ $ 3,152 $ 22,464
Total assets........................................... 12,195 46,241
Long-term obligations.................................. 817 817
Accumulated deficit.................................... (10,864) (11,390)
Stockholders' equity................................... 7,648 41,585
</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 AmHealth Acquisition, the CRS Acquisition (as defined
herein) and the sale of 1,135,000 shares of Common Stock in this offering
(the number of shares that would need to be sold to generate net proceeds
sufficient to finance the AmHealth Acquisition), assuming a public offering
price of $15.00 per share and after deducting underwriting discounts and
commissions and a pro rata portion of estimated offering expenses, as if
such transactions had been completed as of January 1, 1995. See "Pro Forma
Combined Condensed Financial Data (Unaudited)."
(3) Gives effect to the AmHealth Acquisition and the sale of the shares of
Common Stock offered hereby (based on an assumed public offering price of
$15.00 per share) and the application of the estimated net proceeds
therefrom as described under "Use of Proceeds" as if such transactions had
occurred as of December 31, 1995. See "Pro Forma Combined Condensed
Financial Data (Unaudited)."
----------------
Except as otherwise indicated herein, information in this Prospectus assumes
no exercise of the Underwriters' option to purchase from the Company and the
Selling Stockholders up to an aggregate of 375,000 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
$10.8 million at December 31, 1995. 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 October 1995
acquisition of Cost Review Services, Inc. ("CRS"). The proposed acquisition of
assets of AmHealth, Inc. ("AmHealth") will cause a further major increase in
operations and revenues. See "The Company," "Recent Developments" and
"Business--The AmHealth Acquisition." 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.
These challenges will increase by reason of the proposed AmHealth Acquisition
and other possible future acquisitions. 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 the AmHealth
business and 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 the
proposed AmHealth Acquisition and other possible future acquisitions will be
successful. Furthermore, the successful integration of acquired operations may
require significant expenditures and involve substantial unanticipated costs.
AmHealth provides management services to occupational health clinics and on-
site industrial medical facilities. The Company does not currently provide,
and has no experience providing, these types of services. There can be no
assurance that the Company will be able to manage successfully the operations
to be acquired in the AmHealth Acquisition, utilize these operations in the
implementation of the Company's network strategy or realize any of the
anticipated benefits from this acquisition. See "Business--Strategy."
6
<PAGE>
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(R) 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. 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, 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. Although the Company has entered
into written contracts with clients, the majority of its contracts, 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 of Notes to 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."
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 consequently claims could be made against the Company in the
event of adverse medical consequences. The Company could also become subject
to claims 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
7
<PAGE>
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 the
Company will not become subject to litigation that may 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.
With the proposed AmHealth Acquisition, the Company will provide management
services to a professional corporation rendering medical services in the
occupational health field (the "Medical Group"). The provision of medical
services entails an inherent risk of professional liability and similar
claims. The most significant source of potential liability to which the
Company will be exposed in providing such services will likely be the
negligence of those physicians or the Medical Group to which the Company will
provide its services. The Company will perform only administrative services
for the Medical Group. However, the Company could become subject to claims for
malpractice of physicians under various theories, including theories that a
physician is an employee or agent of the Company or that the Company was
negligent in contracting for such physician's services. There can be no
assurance that a future claim or claims will not be successful or if
successful will not exceed the limits of available insurance coverage or that
such coverage will continue to be available at acceptable costs or at all. See
"Business--The AmHealth Acquisition" and "--Professional Liabilities; Legal
Proceedings."
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, physician
practice management 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 currently in compliance with applicable statutes 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
8
<PAGE>
party administrators and preferred provider organizations. Many of the
Company's competitors are larger and have greater financial and other
resources than the Company. The occupational health care industry in which
AmHealth competes is also highly fragmented and competitive. The AmHealth
operations and the Medical Group compete with sole practitioners, small
medical groups, hospitals and a few larger organizations which may have
greater resources and knowledge of the industrial medical market. 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 all of its executive officers. 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
AmHealth business will also depend on a continuing relationship with its
affiliated Medical Group and on the ability of the Medical Group to recruit
qualified physicians in the occupational health field. The future loss of the
services of one or more key persons, the termination of the relationship with
the Medical Group or the inability to continue to recruit qualified physicians
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 March 31,
1996) approximately 16.9% of the Common Stock (approximately 22% 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
and Selling Stockholders."
DILUTION; OUTSTANDING OPTIONS
Purchasers of shares in this offering will experience an immediate dilution
of $11.47 per share (based on an assumed public offering price of $15.00 per
share and after deducting the estimated offering expenses and underwriting
discounts). On March 31, 1996, there were outstanding options and warrants to
purchase 1,515,195 shares of Common Stock at a weighted average exercise price
of $5.53 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," "Management" and Note 10 of Notes to
Consolidated Financial Statements of the Company.
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. See "Management--Directors and Executive Officers" 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, developments involving the AmHealth Acquisition,
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(R) 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(R) is a registered trademark of the Company.
RECENT DEVELOPMENTS
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 assets and operations to be acquired by the Company relate
to nine occupational health clinics and a medical services division that
provides on-site occupational health and industrial medical services to
approximately 11 employers. These clinics and the on-site medical services
operations provide initial diagnosis and treatment of work-related injuries
and illnesses that traditionally have been provided by hospitals and family
practice and
10
<PAGE>
other primary care physicians. The purchase price for AmHealth's assets is
$15.7 million payable in cash from the proceeds of this offering. The closing
of the AmHealth Acquisition and this offering are mutually dependent. See
"Business--The AmHealth Acquisition."
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 the option,
exercisable through December 31, 1996, to purchase the Greaney Medical Group.
GMG Workcare(TM), a division of the 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 purchase price for the business is
approximately $8.1 million.
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.
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 $34.5 million ($ million if
the Underwriters' over-allotment option is exercised in full), assuming a
public offering price of $15.00 per share and after deducting underwriting
discounts and commissions and estimated offering expenses.
The Company expects to use approximately $15.7 million of the net proceeds of
the offering to finance the AmHealth Acquisition. The Company will also 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
AmHealth Acquisition and 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" and "Business--The AmHealth Acquisition."
Pending such uses, the Company intends to invest the net proceeds from the
offering in short-term, investment-grade, interest-bearing securities. The
Company will not receive any of the proceeds from the sale of shares by the
Selling Stockholders upon exercise of the Underwriters' over-allotment option.
11
<PAGE>
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 (through May 9).......................... 16 1/2 12 5/8
</TABLE>
On May 9, 1996, the last sale price of the Common Stock as reported by
Nasdaq was $15 per share. As of May 3, 1996, there were approximately 142
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
December 31, 1995 and as adjusted to give pro forma effect to the AmHealth
Acquisition and to the sale of the shares of Common Stock offered hereby (at
an assumed public offering price of $15.00 per share) and the application of
the net proceeds therefrom as described under "Use of Proceeds."
<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------------ ------------ ------------
<S> <C> <C> <C>
Current maturities of long-term
obligations......................... $ 545,662 $ 545,662 $ 545,662
============ ============ ============
Long-term obligations, less current
maturities.......................... $ 817,075 $ 817,075 $ 817,075
------------ ------------ ------------
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; 4,794,403 shares
issued and outstanding, actual and
pro forma; and 7,294,403 shares
issued and outstanding, pro forma
as adjusted(1).................... 479,440 479,440 729,440
Additional paid-in capital......... 18,052,547 18,052,547 52,265,047
Deferred compensation.............. (51,120) (51,120) (51,120)
Cumulative unrealized gain on
investments
available-for-sale................ 30,975 30,975 30,975
Accumulated deficit................ (10,863,585) (11,389,585) (11,389,585)
------------ ------------ ------------
Total stockholders' equity....... 7,648,257 7,122,257 41,584,757
------------ ------------ ------------
Total capitalization................. $ 8,465,332 $ 7,939,332 $ 42,401,832
============ ============ ============
</TABLE>
- --------
(1) Excludes 1,267,853 shares of common stock issuable upon the exercise of
outstanding options and warrants. See "Management" and Note 10 of Notes to
Consolidated Financial Statements of the Company.
13
<PAGE>
DILUTION
The net tangible book value of the Company at December 31, 1995, was
approximately $5,290,000, or $1.10 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
December 31, 1995, other than to give pro forma effect to the completion of
the AmHealth Acquisition and the sale of the shares of Common Stock offered
hereby (assuming a public offering price of $15.00 per share) and after
deducting underwriting discounts and commissions and estimated offering
expenses payable by the Company, the pro forma net tangible book value of the
Company at December 31, 1995, would have been approximately $25,736,000, or
$3.53 per share. This represents an immediate net increase in net tangible
book value of $2.43 per share to existing stockholders and an immediate
dilution in net tangible book value of $11.47 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....................... $ 15.00
Net tangible book value per share as of December 31, 1995... 1.10
Net increase per share attributable to the offering and the
AmHealth Acquisition....................................... 2.43
----
Pro forma net tangible book value per share after the offering
and the AmHealth Acquisition................................. 3.53
-------
Dilution per share to new investors........................... $11.47
=======
</TABLE>
The foregoing table does not take into account the exercise of outstanding
stock options and warrants after December 31, 1995. As of such date, there
were outstanding stock options and warrants to purchase an aggregate of
1,267,853 additional shares of Common Stock at a weighted average exercise
price of $4.40 per share. To the extent that these options and warrants are
exercised, there will be further dilution to new investors. See "Management"
and Note 10 of Notes to Consolidated Financial Statements of the Company.
14
<PAGE>
PRO FORMA COMBINED CONDENSED FINANCIAL DATA (UNAUDITED)
The unaudited pro forma combined condensed financial data set forth below
are based on the consolidated historical financial statements of the Company
included elsewhere herein after giving effect to the transactions described
below. The unaudited pro forma combined condensed balance sheet as of
December 31, 1995 gives effect to the AmHealth Acquisition and the sale of the
2,500,000 shares of Common Stock offered hereby, assuming a public offering
price of $15.00 per share and after deducting underwriting discounts and
commissions and estimated offering expenses, as if such transactions had
occurred on that date. The unaudited pro forma combined condensed statement of
operations for the year ended December 31, 1995 gives effect to (i) the
AmHealth Acquisition, (ii) the CRS Acquisition and (iii) the sale of 1,135,000
shares of Common Stock in this offering (the number of shares that would need
to be sold to generate net proceeds sufficient to finance the AmHealth
Acquisition), assuming a public offering price of $15.00 per share and after
deducting underwriting discounts and commissions and a pro rata portion of
estimated offering expenses, as if such transactions had occurred on January
1, 1995. The unaudited pro forma combined condensed financial data set forth
below do not purport to represent what the Company's financial position or
results of operations would have been had the transactions described above
occurred on the dates indicated, or to project the Company's financial
position or 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 financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Position
and Results of Operations," the Consolidated Financial Statements of the
Company and the Consolidated Financial Statements of AmHealth appearing
elsewhere in this Prospectus.
15
<PAGE>
PRO FORMA COMBINED CONDENSED BALANCE SHEET (UNAUDITED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA AFTER
AMHEALTH AFTER THE THE AMHEALTH
ACQUISITION AMHEALTH OFFERING ACQUISITION AND
CORE AMHEALTH ADJUSTMENTS ACQUISITION ADJUSTMENTS THIS OFFERING
------------ ----------- ------------ ------------ ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents........... $ 1,005,807 $ 123,027 $(15,657,500)(1b) $(14,528,666) $15,657,500(2) $ 1,128,834
Cash pledged as
collateral and
customer advances..... 392,550 392,550 392,550
Investments available-
for-sale.............. 1,531,610 1,531,610 18,805,000 20,336,610
Accounts receivable,
net of allowance for
doubtful accounts..... 2,987,356 2,417,884 (2,090,306)(1a) 3,314,934 3,314,934
Prepaid expenses and
other current assets.. 535,428 306,460 (141,000)(1b) 700,888 700,888
------------ ----------- ------------ ------------ ----------- -----------
Total current assets... 6,452,751 2,847,371 (17,888,806) (8,588,684) 34,462,500 25,873,816
Property and equipment,
net.................... 3,155,234 970,176 4,125,410 4,125,410
Cash pledged as
collateral............. 192,000 192,000 192,000
Deposits and other
assets................. 178,402 22,759 201,161 201,161
Goodwill, net of
accumulated
amortization of $17,000
actual and $71,000 pro
forma.................. 1,929,885 (54,000)(1c) 1,875,885 1,875,885
Goodwill, net of
accumulated
amortization of
$472,000 pro forma..... 13,685,500 (1b) 13,685,500 13,685,500
Goodwill, net of
accumulated
amortization of
$1,027,770............. 5,011,488 (5,011,488)(1a)
Intangibles, net of
accumulated
amortization of
$438,626............... 286,927 286,927 286,927
------------ ----------- ------------ ------------ ----------- -----------
Total assets........... $ 12,195,199 $ 8,851,794 $ (9,268,794) $ 11,778,199 $34,462,500 $46,240,699
============ =========== ============ ============ =========== ===========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Cash overdraft......... $ 318,231 $ (318,231)(1a)
Accounts payable and
accrued expenses...... $ 2,360,704 3,167,058 (3,167,058)(1a) $ 2,469,704 $ 2,469,704
109,000 (1b)
Deferred income taxes.. 68,316 68,316 68,316
Claims payable......... 326,368 326,368 326,368
Notes payable to bank.. 222,300 (222,300)(1a)
Notes payable.......... 155,994 5,626,711 (5,626,711)(1a) 155,994 155,994
Current portion of long
term debt............. 3,419,595 (3,419,595)(1a)
Current portion of
obligations to former
shareholders.......... 298,509 298,509 298,509
Current portion of
capital lease
payments.............. 91,159 42,132 (42,132)(1a) 91,159 91,159
------------ ----------- ------------ ------------ ----------- -----------
Total current
liabilities........... 3,301,050 12,796,027 (12,687,027) 3,410,050 3,410,050
Long-term obligations to
former shareholders,
net of current
portion................ 745,106 745,106 745,106
Capital lease
obligations, net of
current portion........ 71,969 71,969 71,969
Deferred rent, net of
current portion........ 279,317 279,317 279,317
Deferred income taxes... 149,500 149,500 149,500
Stockholders' equity
(deficit):
Preferred stock........ 2,500,000 (2,500,000)(1a)
Common stock, $0.10 par
value per share;
authorized 10,000,000
shares; issued and
outstanding 4,794,403
shares actual and
7,794,403 adjusted for
this offering......... 479,440 479,440 $ 250,000 (2) 729,440
Additional paid-in
capital............... 18,052,547 18,052,547 34,212,500 (2) 52,265,047
Deferred compensation.. (51,120) (51,120) (51,120)
Investment by and
advances from
AmHealth, Inc......... (558,874) 558,874 (1a)
Cumulative unrealized
gain on investments
available-for-sale.... 30,975 30,975 30,975
Accumulated deficit.... (10,863,585) (5,885,359) 5,885,359 (1a) (11,389,585) (11,389,585)
(472,000)(1b)
(54,000)(1c)
------------ ----------- ------------ ------------ ----------- -----------
Total stockholders'
equity (deficit)...... 7,648,257 (3,944,233) 3,418,233 7,122,257 34,462,500 41,584,757
------------ ----------- ------------ ------------ ----------- -----------
Total liabilities and
stockholders' equity.. $ 12,195,199 $ 8,851,794 $ (9,268,794) $ 11,778,199 $34,462,500 $46,240,699
============ =========== ============ ============ =========== ===========
</TABLE>
See accompanying notes.
16
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA AFTER THE
CRS AND AFTER THE AMHEALTH
AMHEALTH CRS AND ACQUISITION
COST REVIEW ACQUISITION AMHEALTH OFFERING AND THIS
CORE(3) SERVICES, INC.(3) AMHEALTH(3) ADJUSTMENTS ACQUISITION ADJUSTMENTS OFFERING
----------- ----------------- ----------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues.............. $20,768,521 $4,078,677 $14,399,992 $39,247,190 $39,247,190
Cost of services...... 12,838,971 $ 9,844,391 (1d) 22,683,362 22,683,362
----------- ---------- ----------- ------------ ----------- -----------
Gross profit......... 7,929,550 4,078,677 14,399,992 (9,844,391) 16,563,828 16,563,828
Operating expenses:
Sales and marketing.. 1,499,120 1,365,952 (1d) 2,865,072 2,865,072
General and
administrative...... 4,787,238 1,012,624 3,114,583 3,124,889 (1d) 12,039,334 12,039,334
Salaries and bene-
fits................ 2,380,684 8,374,582 (10,755,266)(1d)
Contract services.... 865,505 (865,505)(1d)
Equipment and
facilities rent..... 887,086 (887,086)(1d)
Advisory fees........
Corporate overhead... 1,827,375 (1,827,375)(1d)
Corporate relocation/
reorganization
expense............. 993,619 993,619 993,619
Disposal of clinic
operations.......... 263,810 263,810 263,810
Depreciation and
amortization........ 904,900 51,816 969,961 (783,780)(1f) 1,668,897 1,668,897
472,000 (1b)
54,000 (1c)
----------- ---------- ----------- ------------ ----------- -----------
Total operating ex-
penses............... 8,184,877 3,445,124 16,302,902 (10,102,171) 17,830,732 17,830,732
Loss from operations.. (255,327) 633,553 (1,902,910) 257,780 (1,266,904) (1,266,904)
Other income (ex-
pense):
Interest income...... 239,590 13,837 (92,250)(1g) 161,177 161,177
Interest expense..... (83,410) (26,883) (1,422,537) 1,422,537 (1e) (167,293) (167,293)
(57,000)(1h)
Other................ 19,974 44,223 64,197 64,197
----------- ---------- ----------- ------------ ----------- -----------
176,154 (13,046) (1,378,314) 1,273,287 58,081 58,081
----------- ---------- ----------- ------------ ----------- -----------
Income (loss) before
income taxes......... (79,173) 620,507 (3,281,224) 1,531,067 (1,208,823) (1,208,823)
Provision for income
taxes................ 138,425 (138,425)(1i)
----------- ---------- ----------- ------------ ----------- -----------
Net income (loss)..... $ (79,173) $ 482,082 $(3,281,224) $ 1,669,492 $(1,208,823) $(1,208,823)
=========== ========== =========== ============ =========== ===========
Net loss per common
share............... $ (0.02) $ (0.25) $ (0.21)
=========== =========== ===========
Weighted average
number of common
shares outstanding... 4,755,000 4,755,000 1,135,000 5,890,000
=========== =========== ========= ===========
</TABLE>
See accompanying notes.
17
<PAGE>
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
(1.) The Cost Review Services ("CRS") and AmHealth Acquisition adjustments
consist of the following and represent:
(a). The elimination of assets and liabilities of AmHealth not acquired as
of the closing date.
(b). Adjustments to account for the acquisition of AmHealth as a purchase
pursuant to APB Opinion No. 16, "Business Combinations." The purchase
cost has been allocated to the assets and liabilities of AmHealth
based on their relative fair values. Such allocations are subject to
final determination based on valuations and other studies. The final
values may differ from those set forth below:
<TABLE>
<S> <C>
Purchase Cost:
Cash........................................................ $15,657,500
Professional fees and other liabilities..................... 250,000
Estimated fair value of net assets to be purchased.......... (1,750,000)
-----------
Excess of purchase cost over fair value..................... $14,157,500
===========
</TABLE>
The pro forma amortization expense of goodwill, valued at $14,157,500,
is being amortized on a straight-line basis over 30 years.
(c). An increase in amortization 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.
(d). The reclassifications of certain of CRS's and AmHealth'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, contract services
and equipment and facilities rent and result in the reclassification
of a portion of AmHealth's general and administrative expenses to cost
of services and sales and marketing.
(e). The elimination of interest expense associated with debt not acquired
as of the closing date.
(f). The elimination of amortization expense related to AmHealth's goodwill
not acquired as of the closing date.
(g). The decrease in investment income resulting from the reduction of
short-term investments used to fund the purchase of CRS.
(h). The increase in interest expense resulting from the long-term
obligations with former shareholders' of CRS in connection with the
purchase of CRS.
(i). 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.
(2.) The offering adjustments represent the issuance of 1,135,000 shares of
CORE stock at an assumed price of $15.00 per share, as reduced by the
underwriter's fees (6.5% of the offering proceeds) and a pro rata portion
of estimated offering expenses. The offering adjustments do not give
effect to the sale of the additional 1,365,000 shares of Common Stock
offered hereby.
(3.) The pro forma combined condensed statement of operations reflects CORE
and CRS results for their years ended December 31, 1995 and AmHealth
results for its six months ended December 31, 1995 and six months ended
June 30, 1995.
18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data are derived from the
consolidated financial statements of the Company which have been audited by
Ernst & Young LLP, independent auditors. 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>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1991 1992 1993 1994 1995
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues.................... $ 14,671 $ 16,415 $ 16,316 $ 16,746 $ 20,769
Cost of services............ 9,374 10,371 10,714 11,305 12,839
-------- -------- -------- -------- --------
Gross profit............ 5,297 6,044 5,602 5,441 7,930
Operating expenses:
General and
administrative........... 3,491 4,875 5,096 4,265 4,787
Sales and marketing....... 1,604 2,272 1,787 1,563 1,499
Restructuring costs....... 558
Merger costs and
expenses................. 215 1,182 1,114 436
Corporate relocation...... 394 163
Depreciation and
amortization............. 500 637 1,067 915 905
Write-off of goodwill..... 2,294
-------- -------- -------- -------- --------
Total operating
expenses............... 5,595 8,393 9,295 10,151 8,185
Loss from operations........ (298) (2,349) (3,693) (4,710) (255)
Other income (expense):
Interest income (expense),
net...................... (41) 337 288 138 157
Other income (expense).... 29 (127) 19
-------- -------- -------- -------- --------
(41) 337 317 11 176
Loss before income taxes and
extraordinary item......... (339) (2,012) (3,376) (4,699) (79)
Provision for income taxes.. (33) 2
-------- -------- -------- -------- --------
Loss before extraordinary
item....................... (306) (2,014) (3,376) (4,699) (79)
Extraordinary item--benefit
of federal income tax loss
carryforwards.............. 53
-------- -------- -------- -------- --------
Net loss.................... $ (253) $ (2,014) $ (3,376) $ (4,699) $ (79)
======== ======== ======== ======== ========
Net loss per common share:
Loss before extraordinary
item..................... $ (0.12) $ (0.54) $ (0.73) $ (1.01) $ (0.02)
Extraordinary item........ 0.02
-------- -------- -------- -------- --------
Net loss per common
share.................. $ (0.10) $ (0.54) $ (0.73) $ (1.01) $ (0.02)
======== ======== ======== ======== ========
Weighted average number of
common shares outstanding.. 2,577 3,751 4,611 4,668 4,755
======== ======== ======== ======== ========
<CAPTION>
DECEMBER 31,
------------------------------------------------
1991 1992 1993 1994 1995
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............. $ 9,772 $ 7,659 $ 6,597 $ 4,612 $ 3,152
Total assets................ 14,033 16,934 15,972 12,504 12,195
Long-term obligations....... 237 270 223 121 817
Accumulated deficit......... 696 2,709 6,085 10,784 10,864
Stockholders' equity........ 11,216 11,481 12,237 7,553 7,648
</TABLE>
19
<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 a definitive agreement to acquire substantially
all of the assets and operations of AmHealth, Inc. (excluding its accounts
receivable). AmHealth is a management services organization that manages
occupational health clinics and on-site industrial medical facilities in
California. The purchase price in the AmHealth Acquisition is $15.7 million
payable in cash from the proceeds of this offering and the assumption of
certain liabilities. The completion of the AmHealth Acquisition is a condition
to completion of this offering. In addition, the Company has entered into an
agreement pursuant to which it has been granted an option (the "Greaney
Option") to purchase the Greaney Medical Group, a national consulting
organization specializing in all aspects of occupational health care. The
exercise price of the Greaney Option is approximately $8.1 million. See "Risk
Factors--Recent and Proposed Acquisitions; Risks of Integration; New Business
Lines," "--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 of Notes to
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 addition, upon
completion of the AmHealth Acquisition, the Company will manage a network of
nine occupational health clinics and on-site industrial medical facilities in
exchange for management fees to be paid by the related Medical Group.
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). 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.
20
<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>
YEAR ENDED DECEMBER 31,
-------------------------
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Revenue........................................... 100.0% 100.0% 100.0%
Costs of services................................. 65.7 67.5 61.8
Gross profit...................................... 34.3 32.5 38.2
General and administrative expense................ 31.2 25.5 23.0
Sales and marketing expense....................... 11.0 9.3 7.2
</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>
1993 1994 1995
--------------- --------------- ---------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Specialty physician and
behavioral health review..... $ 7,564 46.3% $ 7,425 44.3% $ 8,845 42.6%
Utilization review and case
management................... 5,604 34.3 6,069 36.2 6,448 31.0
Managed disability (including
WorkAbility, analytic and
bill audit).................. 3,148 19.4 3,252 19.5 5,476 26.4
------- ----- ------- ----- ------- -----
$16,316 100.0% $16,746 100.0% $20,769 100.0%
======= ===== ======= ===== ======= =====
</TABLE>
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 for the Company includes 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
$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.
21
<PAGE>
General and administrative expenses include, but are not limited to, the
cost of executive, administrative and information services personnel, rent and
other overhead items. 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.
Sales and marketing expenses include, but are not limited to, salaries for
sales and account management, sales commissions 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 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.
22
<PAGE>
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.
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.
During the fourth quarter of 1995, the Company's banking institution agreed
to provide a $1,500,000 line of credit. In the first quarter of 1996 this line
of credit was increased to $2,500,000. 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
23
<PAGE>
other transactions, including any loans to third parties and acquisitions,
mergers or other consolidations which exceed certain size thresholds. The
Company expects to use this line of credit to meet short-term demands for cash
that fluctuate based on the timing of collections on accounts receivable.
During the first quarter of 1996, in conjunction with CORE's proposed
acquisition of AmHealth, the Company loaned $1,000,000 to AmHealth, under
lines of credit agreements. See "Business--The AmHealth Acquisition."
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 and earnings from operations. The Company
presently believes that the net proceeds from this offering, together with
cash from operations and other sources of available funds, 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.
24
<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. With the AmHealth Acquisition discussed below, CORE will
also manage a network of nine occupational health clinics and on-site medical
facilities, which render occupational and industrial medical 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 of 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 review and analysis of actual case histories. 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 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 recognized that per employee costs
for occupational and non-occupational injuries and illness are approximately
$2,500 per year. These expenses represent between 8% and 10% of total payroll
costs for the average corporation and present a significant challenge to
corporate productivity. In aggregate, costs due to workplace absence are
estimated at $260 billion per year and have been growing at between 10% and
13% annually since 1970.
Workers' compensation expenditures have been growing at roughly 10% per
annum for the past decade and today amount to roughly $70 billion in annual
spending. 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 $190
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.
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,
25
<PAGE>
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,
disability payments and work absence duration 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 workplace 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 through strategic acquisitions. The Company's October
1995 acquisition of Cost Review Services, Inc., a workers' compensation
bill audit firm, and the proposed AmHealth Acquisition (see "Business--The
AmHealth Acquisition") are examples of acquisitions which meet the
Company's criteria.
26
<PAGE>
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. With the AmHealth clinics and
on-site operations as a base, the Company plans to continue developing
managed disability networks 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, managed disability services accounted
for approximately 26% of CORE's revenue, specialty physician and behavioral
health review services represented 43% of revenue and UR and case management
services represented 31% 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. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
MANAGED DISABILITY SERVICES
Total direct and indirect disability expenditures in 1994 were approximately
$190 billion, of which $70 billion was 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 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
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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 integrating 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 in all medical
specialties, 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
factor 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.
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
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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 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.
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 worker's 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.
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
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companies. The Company believes its more than 230 Board certified physician
reviewers comprise the largest independent physician review organization in
the country. 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. CORE's services are advisory in nature. All
determinations as to the payment or denial of benefits are made by the third
party payor, and all decisions as to the patient's medical treatment are made
by the patient and the attending physician. See "Risk Factors--Exposure to
Professional Liabilities."
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 based in
California) 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.
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,
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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 resource of 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. 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 made only by the administrator of the participant's health care plan,
not by CORE. All 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.
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
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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 and, 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.
THE AMHEALTH ACQUISITION
On May 10, 1996, CORE entered into an agreement providing for the
acquisition of substantially all the assets and operations of AmHealth
(excluding its accounts receivable) for a purchase price of $15.7 million. The
closing of the AmHealth Acquisition is a condition to the completion of this
offering.
AmHealth is a management services organization ("MSO") that manages
occupational health clinics and on-site industrial medical facilities in
California. The assets and operations to be acquired by the Company relate to
nine occupational health clinics and a medical services division that provides
on-site occupational health and industrial medical services to approximately
11 employers. Of the nine clinics, five are located in the greater Los Angeles
area (and were acquired by AmHealth in September 1994 from Occu-Care, Inc., a
wholly-owned subsidiary of TriCare, Inc.) and four are located in the greater
San Francisco area. These clinics and the on-site medical services operations
provide initial diagnosis and treatment of work-related injuries and illnesses
that traditionally have been provided by hospitals and family practice and
other primary care physicians, as well as physical therapy and rehabilitation.
AmHealth's operations also provide diagnostic services, pre-employment medical
assessment and testing, functional capacity assessment and drug testing.
The occupational health clinics are located in industrial parks centrally
located to large concentrations of employers. The clinics include examination
rooms, X-ray facilities, ancillary testing areas, suites appropriate for minor
surgical procedures, physical rehabilitation equipment and orthopedic
treatment areas. The on-site medical services division manages on-site
occupational health departments for large employers, typically after the
employer has elected to outsource management of first aid and industrial
medicine at its plant or facility. The on-site facilities are typically
smaller than AmHealth's managed occupational health clinics.
The operations to be acquired from AmHealth also include WorkComtrol, a
medical review organization utilizing certified medical officers who assist
employers to comply with employee health requirements of the federal
Occupational Safety and Health Administration, the Environmental Protection
Agency and the Department of Transportation. Services provided by WorkComtrol
include review of test procedures, analysis of test results and assessment of
medical compliance and rehabilitation. WorkComtrol also conducts hearing,
respiratory, asbestos and other workplace surveillance examinations.
AmHealth's clients include large manufacturers, utilities, transportation
companies, distribution centers, cities, schools and correctional
institutions. AmHealth currently provides services to Pacific Gas and
Electric, U.S. Steel, AC Transit, OK Trucking, United Parcel Service, Lucky
Distribution Center, Chevron, Kentfield Hospital, Diablo Canyon Nuclear Power
Plant Medical Facility, Sandia National Laboratory and the U.S. Post Office.
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The physicians, nurses and other medical personnel of the clinics and the
on-site employer services division will be employed by or under contract with
a medical group (the "Medical Group") to which the Company's AmHealth Division
will provide management services. The affiliated Medical Group will provide
all medical services, develop professional standards, policies and procedures
and determine fees for medical services. Pursuant to the management agreement
to be entered into by the Company and the affiliated Medical Group, the
Company will provide the Medical Group with all facilities, non-medical
personnel and administrative services support in return for a management fee
based on cash receipts from all medical services generated by the Medical
Group. The Medical Group's accounts receivables for medical services rendered
are assigned for collection to the Company. The Company advances funds for
payment of the Medical Group's expenses, including physician fees, certain
other expenses, and loans on an as-needed basis for additional working capital
purposes.
The financial success of the AmHealth operations to be acquired by the
Company will depend in part on the continued relationship between the Company
and the Medical Group. The future loss of the services of one or more key
physicians or termination of the relationship with the Medical Group could
adversely affect the Company.
The services of the clinics and employer services division for treatment and
rehabilitation of work-related injuries and illnesses are billed directly to
the client employer or its insurance company. Fees for services such as pre-
employment physical examinations, surveillance exams and drug screening which
do not involve workers' compensation injuries are generally paid by the
employer and are not regulated by workers' compensation regulation or fee
schedules. Reimbursement for medical services related to workers' compensation
injuries or illnesses is governed by the California Official Medical Treatment
Fee Schedule implemented March 1, 1994. There are no assurances as to the
future increases or decreases in reimbursement levels in the State of
California. Historically, California's fee schedule for workers' compensation
has not kept pace with inflation and there can be no assurance that approved
fee schedules will keep pace with inflation and rising health care costs or
that other legislative changes will be enacted that will not adversely affect
the AmHealth business.
The purchase price for acquisition of the AmHealth business is $15,657,500
payable in cash from the proceeds of this offering. AmHealth has agreed to
indemnify the Company in connection with losses or claims arising from certain
acts and omissions of AmHealth occurring prior to the closing of the
acquisition. AmHealth has agreed to place $390,000 in escrow for six months
for the settlement of any claims and certain post-closing adjustments. The
closing of the AmHealth Acquisition is contingent upon the closing of this
offering and satisfaction of certain other conditions. The AmHealth
Acquisition will be accounted for by CORE as an asset purchase under the
purchase method of accounting.
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
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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.
In conjunction with the AmHealth Acquisition and occupational health network
expansion, the WorkAbility system is also being developed as a reference
source and data capture tool designed to operate on the physician's desk top.
The extension of the WorkAbility system to the physician's desk top will
facilitate collection of data and management of the case.
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 December 31, 1995. 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.
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.
Utilization Review/Case Management. 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.
Physician Practice Management. The laws of most states, including
California, prohibit physicians from splitting fees with non-physicians and
prohibit non-physician entities from practicing medicine. These laws vary from
state to state, have been subject to limited judicial and regulatory
interpretation, and are enforced by the courts and by regulatory authorities
with broad discretion. Pursuant to the management services agreement to be
entered into by the Company and the Medical Group at the closing of the
AmHealth Acquisition, the Company will perform the non-medical functions of
the business and the Medical Group will perform the medical services. Although
the Company believes its proposed operations comply with applicable laws,
there can be no assurance that the Company's future operations will not be
successfully challenged as violating, or determined to have violated, such
laws, or that the enforceability of the provisions of agreements governing
such operations will not be limited. Any such result could have a material
adverse effect on the Company.
Federal law prohibits the offer, payment, solicitation or receipt of any
form of remuneration in return for, or in order to induce, (i) the referral of
a person, (ii) the furnishing or arranging for the furnishing or items or
services reimbursable under Medicare or Medicaid programs or (iii) the
purchase, lease or order or arranging or recommending purchasing, leasing or
ordering of any item or service reimbursable under Medicare or Medicaid. The
applicability of these provisions to many business transactions in the health
care industry has been subject to only limited judicial and regulatory
interpretation. Noncompliance with the federal anti-kickback legislation can
result in exclusion from Medicare and Medicaid programs and civil and criminal
penalties. The Company believes its operations are in compliance with these
statutes.
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California law prohibits payment for patient referrals regardless of the
source of payment. The Company believes that, under California law, fees paid
for the use or management of medical facilities and for providing non-
physician services, such as those to be provided by the Company's AmHealth
Division to the Medical Group, do not constitute remuneration for patient
referrals if the fees, under all the facts and circumstances, will not be
excessive compensation for the facilities, management and services provided.
The Company believes that charges by the Company to the Medical Group will be
reasonable.
Workers' Compensation. The Company's AmHealth business will be subject to
California workers' compensation regulation with respect to pricing, billing
and other aspects of the delivery of medical services to injured covered
workers. The Company and the Medical Group have attempted to structure their
respective operations to comply with these regulations. In California,
reimbursement for medical services related to workers' compensation injuries
or illnesses is governed by a state-established fee schedule. Historically,
California's fee schedule for workers' compensation has not kept pace with
inflation in medical care costs. There can be no assurance that the fee
schedule will in the future keep pace with inflation in medical care costs or
that failure to do so will not adversely affect the AmHealth business.
Other. 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 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.
35
<PAGE>
The occupational health care industry in which CORE and its affiliated
Medical Group will compete following the AmHealth Acquisition is highly
competitive. CORE believes that the competition for AmHealth and its
affiliated managed medical group consists primarily of sole practitioners,
small medical groups and hospitals as well as a few larger organizations, some
of which may have greater resources and knowledge of the industrial medical
market than CORE. The Company's AmHealth Division and its affiliated Medical
Group will compete primarily on the basis of the quality of physicians, its
range of services, network of locations, technical expertise and overall costs
to employers.
EMPLOYEES AND PHYSICIAN CONSULTANTS
In addition to its available staff of approximately 275 physician
consultants (230 of whom are Board certified) covering the major medical
specialties, CORE had approximately 285 employees as of December 31, 1995.
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 5 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.
In connection with the AmHealth Acquisition, CORE will be hiring
approximately 85 employees from AmHealth (exclusive of the 27 physician
employees, 37 part time physicians, and approximately 110 other non-physician
medical personnel of the affiliated Medical Group).
PROPERTIES
The Company occupies its executive headquarters in Irvine, California
pursuant to a lease which expires in September 2000. The Company also leases
office space in Boston, Massachusetts, Los Angeles, California, Burlington,
Massachusetts, Austin, Texas, Fort Worth, Texas and Chicago, Illinois. The
leases cover approximately 70,000 square feet of office space.
In connection with the AmHealth Acquisition, the Company will be assuming
real estate leases for occupational health clinics covering an aggregate of
approximately 60,000 square feet of space. The employer services division of
AmHealth does not lease the space it occupies at the employers' on-site
facilities.
PROFESSIONAL LIABILITIES; LEGAL PROCEEDINGS
The Company is not currently a party to any 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.
With the proposed AmHealth Acquisition, the Company will provide management
services to a professional corporation rendering medical services in the
occupational health fields. The provision of medical services entails an
inherent risk of professional liability and similar claims. The most
significant source of potential liability to
36
<PAGE>
which the Company will be exposed in providing such services will likely be
the negligence of those physicians or the Medical Group. The Company will
perform only administrative services for the Medical Group. However, the
Company could become subject to claims for malpractice of Medical Group
physicians under various theories, including theories that a physician is an
employee or agent of the Company or that the Company was negligent in
contracting for such physicians' services. There can be no assurance that a
future claim or claims will not be successful or if successful will not exceed
the limits of available insurance coverage or that such coverage will continue
to be available at acceptable costs or at all.
37
<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...... 37 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.......... 51 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
38
<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.
39
<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 33,333(4) 89,547(6) -- 1,711
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 33,333(4) -- -- 1,286
William E. Nixon........ 1995(2) 127,000 -- -- 56,750 --
Executive Vice
President, Chief
Financial Officer, and
Treasurer
Alfred B. Lewis(3)...... 1995 31,250 -- -- -- 114,845
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) Prior to fiscal year 1995, Mr. Nixon's total annual compensation was less
than $100,000.
(3) Mr. Lewis joined the Company as its President on May 17, 1993 and became
Chairman of the Board of Directors on December 29, 1993. Mr. Lewis
resigned as a director and as Chairman of the Board effective March 24,
1995. Mr. Lewis' employment with the Company terminated as of March 27,
1995, although Mr. Lewis continued to receive severance payments pursuant
to his employment contract with the Company. Such severance payments
terminated March 26, 1996. The amounts appearing as compensation for
Mr. Lewis in fiscal 1995 include severance payments made by the Company.
(4) Represents compensation income charged (but not paid) to the named
executive officer as a result of a change in the accounting treatment of
certain loans made by the named executive officer to CMI or its
subsidiaries.
(5) Represents interest paid to the named executive officer with respect to
certain loans made by the named executive officer to CMI or its
subsidiaries.
(6) Represents relocation expenses incurred as well as additional amounts paid
to Mr. Carpenter to reimburse him for income taxes payable by him with
respect to such relocation expenses.
40
<PAGE>
OPTION GRANTS IN 1995
The following table presents information regarding 1995 grants of options to
purchase shares of Common Stock for each of the Named Executive Officers:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------
POTENTIAL
REALIZABLE VALUE
NUMBER OF % OF AT ASSUMED ANNUAL
SECURITIES TOTAL RATES OF STOCK
UNDERLYING OPTIONS PRICE APPRECIATION
OPTIONS GRANTED TO EXERCISE FOR OPTION TERM (3)
GRANTED EMPLOYEES IN PRICE EXPIRATION --------------------
NAME (#) FISCAL YEAR(1) ($/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.
41
<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."
42
<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).
43
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of the Common Stock as of March 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% 7.5%
International.....................
Two World Trade Center
New York, N.Y. 10048
John Pappajohn.................... 471,969(3) 9.5 6.3
Craig C. Horton................... 437,264(4) 8.8 5.9
George C. Carpenter IV............ 401,595(5) 8.1 5.4
James Franklin.................... 293,264 6.2 4.0
6 Downing Circle
Downington, Pennsylvania 19335
Richard H. Egdahl, M.D............ 151,826(6) 3.1 2.1
Stephen C. Caulfield.............. 106,276(7) 2.2 1.5
William E. Nixon.................. 81,441(8) 1.6 1.1
Leslie Alexandre.................. 38,575(9) * *
All directors and executive 1,792,836(10) 31.6 22.0
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 (71,000 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
(116,000 of which remain subject to future vesting).
(5) Includes 145,000 shares issuable to Mr. Carpenter pursuant to options
(116,000 of which remain subject to future vesting).
(6) Includes 63,075 shares issuable to Dr. Egdahl pursuant to options (21,000
of which remain subject to future vesting).
(7) Includes 15,000 shares owned by Mr. Caulfield's wife, 4,000 shares held
in a trust for the benefit of Mr. Caulfield's son (Mr. Caulfield
disclaims beneficial ownership of such 4,000 shares) and 72,275 shares
issuable to Mr. Caulfield pursuant to options (21,000 of which remain
subject to future vesting).
(8) Includes 81,250 shares issuable to Mr. Nixon pursuant to options (47,850
of which remain subject to future vesting).
(9) Includes 38,575 shares issuable to Dr. Alexandre pursuant to options
(21,000 of which remain subject to future vesting).
(10) Includes 849,550 shares issuable pursuant to a warrant and options
(493,000 of which remain subject to future vesting).
44
<PAGE>
The Company and the persons listed in the table below (the "Selling
Stockholders") have granted to the Underwriters an option to purchase up to an
aggregate of 375,000 shares of Common Stock solely to cover over-allotments,
if any, incurred in connection with the sale of the shares offered hereby. See
"Underwriting." The following table sets forth certain information regarding
the beneficial ownership of the Common Stock by each of the Selling
Stockholders as of , 1996 and as adjusted to reflect the sale of shares
of Common Stock offered hereby and exercise in full of the Underwriters' over-
allotment option.
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY BENEFICIALLY
OWNED BEFORE NUMBER OF OWNED AFTER
THE OFFERING SHARES THE OFFERING
-------------- SUBJECT --------------
NAME NUMBER PERCENT TO SALE NUMBER PERCENT
- ---- ------ ------- --------- ------ -------
<S> <C> <C> <C> <C> <C>
% %
</TABLE>
45
<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 April 30, 1996, there were 4,838,753 shares of Common Stock
outstanding, held of record by approximately 142 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 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.
46
<PAGE>
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 SALES
Future sales of substantial amounts of Common Stock could adversely affect
market prices. Upon completion of this offering, the Company will have
7,338,753 shares of Common Stock outstanding. Of these shares, the 2,500,000
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 222,614 shares registered on Form S-8 under
the Securities Act which were issued 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, as that term is defined in Rule 144 ("Rule 144") promulgated under
the Securities Act ("Affiliate"), or shares subject to the Lock-Up Agreement.
An additional 314,586 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 executive officers and directors of the Company, collectively holding
943,286 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 996,247 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").
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
47
<PAGE>
Common Stock (approximately 73,387 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.
48
<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........................................................................ 2,500,000
=========
</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 and the Selling Stockholders have granted to the Underwriters an
option, exercisable for 30 days from the date of this Prospectus, to purchase
up to 375,000 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. See "Principal and Selling Stockholders." Of the
375,000 Additional Shares, up to shares are subject to sale by the Company
and up to shares are subject to sale by the Selling Stockholders. In the
event that fewer than all of the Additional Shares are sold, the Additional
Shares will be sold pro rata in accordance with the number of shares subject
to the Underwriters' over-allotment option. 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, the Selling Stockholders and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.
The Company and its directors, officers and certain other stockholders,
holding in the aggregate 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
49
<PAGE>
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.
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 Decmeber 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.
The financial statements of Nine Clinics of AmHealth (a wholly-owned
business of AmHealth, Inc.) as of December 31, 1995, June 30, 1995, and June
30, 1994, and for the six-month period ended December 31, 1995, the year ended
June 30, 1995, and the period ended June 30, 1994, have been included herein
and in the registration statement in reliance upon the reports of KPMG Peat
Marwick LLP, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.
The reports of KPMG Peat Marwick LLP covering the December 31, 1995, June
30, 1995 and June 30, 1994 financial statements contains an explanatory
paragraph that states that AmHealth, Inc.'s recurring losses from operations,
defaults on its debt obligations, and net capital deficiency, all of which
raise substantial doubt about the entity's ability to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of that uncertainty.
The combined financial statements of Occu-Care Inc. and Affiliates included
in this Prospectus and elsewhere in the Registration Statement have been
audited by Arthur Andersen LLP, independent public accountants, as indicated
in their report thereto and are included herein in reliance upon the authority
of said firm as experts in giving said report.
50
<PAGE>
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.
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.
51
<PAGE>
CORE, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 1,005,807
Cash pledged as collateral........................ 106,000 $ 205,247
Customer advances................................. 286,550 173,764
Investments available-for-sale.................... 1,531,610 5,858,518
Accounts receivable, net of allowance for doubtful
accounts of $170,337 in 1995 and $181,629 in
1994............................................. 2,987,356 2,082,217
Notes receivable from officers.................... 35,507 12,000
Claims receivable................................. 44,845 369,100
Prepaid expenses and other current assets......... 455,076 388,892
------------ ------------
Total current assets.............................. 6,452,751 9,089,738
Property and equipment, net........................ 3,155,234 2,526,228
Cash pledged as collateral......................... 192,000 557,637
Deposits and other assets.......................... 178,402 142,927
Goodwill, net of accumulated amortization of
$17,000........................................... 1,929,885
Non-compete contracts net of accumulated amortiza-
tion of $10,000................................... 140,000
Customer contracts net of accumulated amortization
of $331,063 in 1995 and $310,819 in 1994.......... 128,937 149,181
Organization costs, net of accumulated amortization
of $107,563 in 1995 and $87,223 in 1994........... 17,990 38,330
------------ ------------
Total assets...................................... $ 12,195,199 $ 12,504,041
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Advances under revolving line of credit........... $ 1,200,000
Cash overdraft.................................... 301,367
Accounts payable.................................. $ 846,156 778,366
Accrued expenses.................................. 822,694 691,777
Accrued payroll................................... 184,795 223,661
Accrued vacation.................................. 376,561 269,000
Accrued restructuring costs....................... 130,498
Deferred income taxes............................. 68,316
Claims payable.................................... 326,368 542,864
Notes payable to officers......................... 200,000
Current portion of notes payable.................. 155,994 184,082
Current portion of notes payable to former
shareholders..................................... 298,509
Current portion of capital lease payments......... 91,159 86,479
------------ ------------
Total current liabilities......................... 3,301,050 4,477,596
Notes payable to former shareholders, net of cur-
rent portion...................................... 645,106
Amounts due to former shareholders under non-com-
pete agreements................................... 100,000
Capital lease obligations, net of current portion.. 71,969 120,601
Deferred rent, net of current portion.............. 279,317 353,151
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 4,794,403 and 4,739,943 shares at
December 31, 1995 and 1994, respectively......... 479,440 473,994
Additional paid-in capital........................ 18,052,547 17,902,519
Deferred compensation............................. (51,120)
Cumulative unrealized gain (loss) on investments
available-for-sale............................... 30,975 (39,408)
Accumulated deficit............................... (10,863,585) (10,784,412)
------------ ------------
Total stockholders' equity........................ 7,648,257 7,552,693
------------ ------------
Total liabilities and stockholders' equity........ $ 12,195,199 $ 12,504,041
============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE>
CORE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Revenues................................ $20,768,521 $16,746,290 $16,316,016
Cost of services........................ 12,838,971 11,305,323 10,713,523
----------- ----------- -----------
Gross profit............................ 7,929,550 5,440,967 5,602,493
Operating expenses:
General and administrative............ 4,772,863 4,182,206 5,028,868
Sales and marketing................... 1,499,120 1,562,823 1,786,820
Restructuring costs................... 557,515
Merger costs and expenses............. 436,104 1,114,406 1,182,373
Provision for doubtful accounts....... 14,375 83,050 67,245
Depreciation and amortization......... 904,900 914,480 1,066,900
Corporate relocation.................. 163,340
Write-off of goodwill................. 2,294,150
----------- ----------- -----------
Total operating expenses............ 8,184,877 10,151,115 9,295,546
Loss from operations.................... (255,327) (4,710,148) (3,693,053)
Other income (expense):
Interest income....................... 239,590 296,218 396,528
Interest expense...................... (83,410) (158,362) (108,336)
Realized gain (loss) on sale of in-
vestments available-for-sale......... 9,123 (157,774)
Other income.......................... 10,851 30,480 29,284
----------- ----------- -----------
176,154 10,562 317,476
----------- ----------- -----------
Net loss................................ $ (79,173) $(4,699,586) $(3,375,577)
=========== =========== ===========
Net loss per common share............... $ (0.02) $ (1.01) $ (.73)
=========== =========== ===========
Weighted average number of common shares
outstanding............................ 4,755,000 4,668,000 4,611,000
=========== =========== ===========
</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 Dec 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 FLOW
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Operating activities:
Net loss............................... $ (79,173) $(4,699,586) $(3,375,577)
Adjustments to reconcile net loss to
net cash provided by (used in) operat-
ing activities:
Depreciation and amortization........ 986,152 979,627 1,066,900
Write-off of goodwill................ 2,294,150
Provision for doubtful accounts...... 14,375 83,050 67,245
(Gain) loss on sale/disposal of
equipment........................... (29,174) 66,382
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............... 13,280 28,078 409,345
Changes in operating assets and lia-
bilities:
(Increase) decrease in accounts re-
ceivable.......................... 258,269 (446,157) 400,033
(Increase) decrease in prepaid ex-
penses and other current assets... 277,357 (72,045) 185,625
Increase in customer advances...... (112,786) (47,764)
(Decrease) increase in cash over-
draft............................. (301,367) 301,367 (101,384)
Decrease in accounts payable and
accrued expenses.................. (607,675) (514,692) (733,914)
----------- ----------- -----------
Net cash provided by (used in) operat-
ing activities........................ 439,309 (1,917,608) (2,063,109)
Investing activities:
Additions to property and equipment... (1,278,720) (539,521) (2,257,260)
Disposals of property and equipment... 4,688 2,432 6,400
Decrease (increase) in cash pledged as
collateral........................... 464,884 (296,815) (466,069)
Refunds of (additions to) deposits.... (19,056) 23,168 (43,439)
Increase to notes receivable from of-
ficers............................... (23,507) (12,000)
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............................. (3,985,892) (248,204) (317,570)
Sales of investments available-for-
sale................................. 8,392,306 4,204,434
----------- ----------- -----------
Net cash (used in) provided by invest-
ing activities........................ 1,994,679 (1,070,940) 1,406,209
Financing activities:
Net (repayments) borrowings under re-
volving line of credit............... (1,200,000) 1,200,000 (1,210,654)
Proceeds from issuance of officer's
notes................................ 200,000
Payments on officer's notes........... (200,000)
Issuance of notes payable............. 179,997 133,754 59,022
Payments on notes payable............. (208,085) (199,373) (59,022)
Payments on capital lease obliga-
tions................................ (91,167) (56,319) (69,038)
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........ 91,074 26,998 262,177
----------- ----------- -----------
Net cash (used in) provided by financ-
ing activities........................ (1,428,181) 1,305,060 2,292,690
----------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents...................... 1,005,807 (1,683,488) 1,635,790
Cash and cash equivalents at beginning
of year............................... -- 1,683,488 47,698
----------- ----------- -----------
Cash and cash equivalents at end of
year.................................. $ 1,005,807 $ -- $ 1,683,488
=========== =========== ===========
Supplemental disclosure of cash flow
information:
Interest paid.......................... $ 83,322 $ 147,543 $ 72,307
=========== =========== ===========
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
(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. 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 1995, 1994 and 1993.
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Net sales:
CORE............................. $10,401,801 $ 7,959,834 $ 7,627,283
CMI.............................. 10,366,720 8,786,456 8,688,733
----------- ----------- -----------
Total net sales................ $20,768,521 $16,746,290 $16,316,016
=========== =========== ===========
Net income (loss):
CORE............................. $ 1,046,258 $ (691,185) $(1,080,759)
CMI.............................. (131,812) (2,893,995) (1,112,445)
----------- ----------- -----------
Pro forma net income (loss)........ 914,446 (3,585,180) (2,193,204)
Merger cost and expenses........... 993,619 1,114,406 1,182,373
----------- ----------- -----------
Net loss as reported............... $ (79,173) $(4,699,586) $(3,375,577)
=========== =========== ===========
Net income (loss) per share
Pro forma........................ $ 0.19 $(0.77) $(0.48)
=========== =========== ===========
As reported...................... $(0.02) $(1.01) $(0.73)
=========== =========== ===========
</TABLE>
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>
F-7
<PAGE>
CORE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The contingent consideration of $1,150,000 is payable in cash and will be
computed based on agreed upon formulas using net revenue and earnings before
interest and taxes through December 1998. The contingent consideration will be
payable beginning in March 1997. The contingent consideration is not included
in the acquisition cost total above but will be recorded 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
corporate headquarters. 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. At December 31, 1995, $58,000 is remaining in the
restructuring accrual which management believes is adequate to complete the
restructuring plan by April 1996.
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 for interest expense that
would have been incurred to finance the purchase, and the amortization of
intangibles arising from the transaction. 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,
-----------------------
1995 1994
----------- -----------
<S> <C> <C>
Net sales.................... $24,847,000 $20,680,000
Net earnings (loss).......... $ 277,000 $(4,670,000)
Net earnings (loss) per
common share................ $ 0.06 $ (1.00)
</TABLE>
(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.
F-8
<PAGE>
CORE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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>
SOFTWARE DEVELOPMENT COSTS
Certain costs of software, developed for internal use, are capitalized
subsequent to the favorable assessment of technological feasibility. The
Company capitalized software development costs of $180,000 and $130,471 during
the years ended December 31, 1995 and 1994 respectively. The software was
placed in use during 1995 and 1994, and amortization in the amount of $81,252,
and $65,147 is included in cost of services for the years ended December 31,
1995 and 1994 respectively.
F-9
<PAGE>
CORE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 in accordance with the specific terms of each
contract. Typically, revenue is recognized during the contract period as
services are provided. Deferred revenue represents amounts received on
contracts in advance of services being performed.
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.
(4) INVESTMENTS
At December 31, 1995 and 1994, 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, 1995 and 1994:
<TABLE>
<CAPTION>
UNREALIZED REALIZED
AMORTIZED GAIN GAIN ESTIMATED
COST (LOSS) (LOSS) FAIR VALUE
---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
December 31, 1995:
U.S. Treasury Securities
maturing in 1 to 5
years.................... $1,500,635 $ 30,975 $ 9,123 $1,531,610
December 31, 1994:
Fund investing in U.S.
Treasury Securities...... $6,055,700 $(39,408) $(157,774) $5,858,518
</TABLE>
F-10
<PAGE>
CORE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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.
(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, 1995, and 1994, the Company held customer advances of
$286,550 and $173,764, 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>
1995 1994
----------- -----------
<S> <C> <C>
Computer and office equipment................. $ 3,353,569 $ 2,718,929
Software...................................... 1,532,061 1,216,160
Furniture and fixtures........................ 932,619 538,986
Leasehold improvements........................ 1,109,122 905,883
----------- -----------
6,927,371 5,379,958
Less accumulated depreciation and amortiza-
tion......................................... (3,772,137) (2,853,730)
----------- -----------
$ 3,155,234 $ 2,526,228
=========== ===========
</TABLE>
(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 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
F-11
<PAGE>
CORE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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>
1995 1994
---------- ---------
<S> <C> <C>
Capital lease obligations, payable to various leasing
companies, bearing interest rates ranging from 9% to
16.83%, including interest............................ $ 163,128 $ 207,080
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............................. 155,994 139,657
---------- ---------
1,262,737 591,161
Less current maturities................................ (545,662) (470,560)
---------- ---------
$ 717,075 $ 120,601
========== =========
</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 $155,994 and $110,290 at December 31, 1995 and 1994 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, 1995 and 1994.
(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 110,944, 68,000 and 58,000 have been exercised as
of December 31, 1995, 1994 and 1993, 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,
----------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Outstanding at beginning of year..... 377,038 441,315 449,598
Granted............................ 1,004,509 68,552 143,086
Canceled........................... (59,234) (33,531) (27,300)
Exercised.......................... (54,460) (99,298) (124,069)
------------ ------------ ------------
Outstanding at end of year........... 1,267,853 377,038 441,315
============ ============ ============
Price range of outstanding options... $2.10-$12.08 $0.11-$15.24 $0.11-$15.24
============ ============ ============
Price range of options exercised..... $0.11-$ 4.80 $0.11-$ 3.73 $0.11-$ 4.50
============ ============ ============
Exercisable at end of year........... 594,925 307,938 368,565
============ ============ ============
Available for grant at end of year... -- 232,348 246,248
============ ============ ============
</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>
1995 1994
----------- -----------
<S> <C> <C>
Deferred tax assets:
Bad debt reserve............................... $ 69,000 $ 73,000
Expense accruals............................... 264,000 217,000
Unrealized loss on investments................. 63,000
Net operating loss carryforwards............... 2,860,000 3,060,000
Valuation allowance............................ (3,078,000) (3,294,000)
----------- -----------
115,000 119,000
Deferred tax liabilities:
Change in accounting method from cash to accru-
al............................................ (204,000) (40,000)
Depreciation................................... (129,000) (79,000)
----------- -----------
(333,000) (119,000)
----------- -----------
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 ending December 31,
1995.
F-13
<PAGE>
CORE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
State excise taxes have been included in general and administrative expenses
in the consolidated statements of operations.
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
-----------------------------------
1995 1994 1993
--------- ----------- -----------
<S> <C> <C> <C>
Statutory federal tax (benefit)....... $ (27,000) $(1,598,000) $(1,148,000)
State income taxes, net of federal
benefit.............................. (3,000) (296,000) (212,000)
Effect of nondeductible reorganization
costs................................ 404,000 381,000 480,000
Effect of goodwill write-off.......... 780,000
Other................................. (126,000) 23,000
Effect (utilization) of net operating
loss carryforward.................... (248,000) 710,000 880,000
--------- ----------- -----------
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 $1,199,153, $1,039,283 and $1,119,963 for the
years ended December 31, 1995, 1994 and 1993, 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.
F-14
<PAGE>
CORE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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. To date, licensing fees of
$193,000 have been collected, and royalties of $7,720 are accrued and payable
to Chrysler at December 31, 1995.
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, 1995, 1994 and 1993 were $54,017, and $23,229 and $32,525,
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 12% and 13% of total revenues for the years ended December 31,
1994 and 1993, respectively. No other client represented 10% or more of
revenue during these periods or the period ending 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. It is not
practicable to estimate the fair value of the above guarantees, however, the
Company does not expect to incur losses as a result of these guarantees.
In the first quarter of 1996, the Company's line of credit facility was
increased to $2,500,000.
(17) FOURTH QUARTER ADJUSTMENTS (UNAUDITED)
During the fourth quarters of 1994 and 1993, the Company recognized the
following unusual or infrequently occurring items:
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Reorganization costs..................................... $335,423 $385,645
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
-------- --------
$600,327 $385,645
======== ========
</TABLE>
There were no unusual or infrequently occuring items during the fourth
quarter of 1995.
F-15
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors AmHealth, Inc.:
We have audited the accompanying balance sheets of Nine Clinics of AmHealth
(a wholly owned business of AmHealth, Inc.) as of June 30, 1995 and December
31, 1995, and the related statements of loss, owner's deficit, and cash flows
for the year ended June 30, 1995 and six months 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 financial statements referred to above present fairly,
in all material respects, the financial position of Nine Clinics of AmHealth
(a wholly owned business of AmHealth, Inc.) at June 30, 1995 and December 31,
1995, and the results of its combined operations and its cash flows for the
year ended June 30, 1995 and six months ended December 31, 1995 in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that Nine
Clinics of AmHealth's parent will continue as a going concern. As discussed in
note 1 to the financial statements, the Company has suffered recurring losses
from operations, has defaulted on its debt obligations, and has a net capital
deficiency that raises substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are also
described in note 1. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
KPMG Peat Marwick LLP
Atlanta, Georgia
March 1, 1996 except as to note 11 which is as of May 10, 1996
F-16
<PAGE>
NINE CLINICS OF AMHEALTH (A WHOLLY OWNED BUSINESS OF AMHEALTH, INC.)
BALANCE SHEETS JUNE 30, 1995 AND DECEMBER 31, 1995
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1995 1995
ASSETS ----------- ------------
<S> <C> <C>
Current assets:
Cash.......................................... $ 62,307 $ 123,027
Trade receivables, net of allowance for
doubtful accounts of $1,655,271
and $1,405,000, respectively............... 2,648,777 2,417,885
Other receivables............................. 500 2,750
Prepaid expenses and other assets............. 288,522 303,710
----------- -----------
Total current assets........................ 3,000,106 2,847,372
Property and equipment, net (note 4)............ 1,235,501 970,176
Goodwill, net of accumulated amortization of
$735,992 and $1,059,147, respectively.......... 5,313,318 5,011,488
Other assets.................................... 221,475 22,758
----------- -----------
$ 9,770,400 $ 8,851,794
=========== ===========
LIABILITIES AND OWNER'S DEFICIT
Current liabilities:
Bank overdrafts............................... $ 408,080 $ 318,231
Notes payable to banks (notes 5 and 10)....... 58,000 222,300
Notes payable (notes 5 and 10)................ 5,205,666 5,626,711
Accounts payable.............................. 914,814 710,857
Accrued expenses (notes 9 and 10)............. 1,520,904 1,975,662
Accrued salaries.............................. 389,664 465,539
Long-term debt (notes 6 and 10)............... 3,471,600 3,419,595
Capital lease obligation (note 7)............. 57,326 42,132
Other liabilities............................. 79,886 15,000
----------- -----------
Total current liabilities................... 12,105,940 12,796,027
----------- -----------
Redeemable preferred stock--$.01 par value;
authorized 5,000,000 shares; issued and
outstanding 2,500,000 shares (note 9).......... 2,500,000 2,500,000
Owner's deficit:
Investment by and advances to AmHealth, Inc... 262,980 558,873
Accumulated deficit........................... (4,572,560) (5,885,360)
----------- -----------
Total owner's deficit....................... (4,835,540) (6,444,233)
----------- -----------
$ 9,770,400 $ 8,851,794
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-17
<PAGE>
NINE CLINICS OF AMHEALTH (A WHOLLY OWNED BUSINESS OF AMHEALTH, INC.)
STATEMENTS OF LOSS YEAR ENDED JUNE 30, 1995 AND SIX MONTHS ENDED DECEMBER 31,
1995 AND 1994 (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED --------------------------
JUNE 30, DECEMBER 31, DECEMBER 31,
1995 1995 1994
----------- ------------ ------------
(UNAUDITED)
(NOTE 12)
<S> <C> <C> <C>
Net revenues.......................... $12,722,746 $ 7,264,142 $ 5,588,484
Operating expenses:
Clinic salaries and benefits........ 7,553,601 4,203,496 3,389,258
Other clinic services............... 2,098,036 1,168,245 845,163
Equipment and facilities rent....... 1,110,784 550,422 301,692
Depreciation and amortization....... 843,416 460,517 330,309
General and administrative
expenses.............................. 3,093,725 1,517,588 1,353,039
----------- ----------- -----------
Total operating expenses.......... 14,699,562 7,900,268 6,219,461
----------- ----------- -----------
Loss from operations.................. (1,976,816) (636,126) (630,977)
Interest expense...................... 1,206,784 676,673 400,745
----------- ----------- -----------
Net loss.............................. $(3,183,600) $(1,312,799) $(1,031,722)
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-18
<PAGE>
NINE CLINICS OF AMHEALTH (A WHOLLY OWNED BUSINESS OF AMHEALTH, INC.)
STATEMENTS OF OWNER'S DEFICIT YEAR ENDED JUNE 30, 1995 AND SIX MONTHS ENDED
DECEMBER 31, 1995
<TABLE>
<S> <C>
Balance at June 30, 1994.......................................... $(1,192,022)
Net loss........................................................ (3,183,600)
Net transfers from AmHealth, Inc.................................. (459,918)
-----------
Balance at June 30, 1995.......................................... (4,835,540)
Net loss.......................................................... (1,312,799)
Net transfers to AmHealth, Inc.................................... (295,894)
-----------
Balance at December 31, 1995...................................... $(6,444,233)
===========
</TABLE>
See accompanying notes to financial statements.
F-19
<PAGE>
NINE CLINICS OF AMHEALTH (A WHOLLY OWNED BUSINESS OF AMHEALTH, INC.)
STATEMENTS OF CASH FLOWS YEAR ENDED JUNE 30, 1995 AND SIX MONTHS ENDED DECEMBER
31, 1995 AND 1994 (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED --------------------------
JUNE 30, DECEMBER 31, DECEMBER 31,
1995 1995 1994
----------- ------------ ------------
(UNAUDITED)
(NOTE 12)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss from operations............... $(3,183,600) $(1,312,799) $(1,031,722)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization......... 843,416 460,517 330,309
Provision for contractual allowances
and uncollectible accounts.............. 1,241,101 768,760 351,491
(Increase) decrease in:
Accounts receivable.................. (1,121,552) (537,868) (238,677)
Prepaid expenses and other assets.... (39,099) (15,187) (93,890)
Other assets......................... (68,451) 198,715
Increase (decrease) in:
Accounts payable..................... (87,924) (203,957) 791,746
Accrued expenses..................... 768,604 449,383 397,707
Other................................ 111,970 307,753 113,654
----------- ----------- -----------
Net cash provided by (used in) operating
activities.............................. (1,535,535) 115,317 620,618
----------- ----------- -----------
Cash flows from investing activities:
Purchase of equipment.................. (349,862 (30,797) (205,965)
Acquisitions of businesses, net of cash
acquired (note 3)....................... (1,479,441) (1,479,441)
----------- ----------- -----------
Net cash used in investing activities... (1,829,303) (30,797) (1,685,406)
----------- ----------- -----------
Cash flows from financing activities:
Increase (decrease) in bank
overdrafts.............................. 96,473 (89,849) (311,607)
Net transfers to AmHealth, Inc......... (459,918) (295,894) (316,437)
Principal payments on notes payable and
long-term debt.......................... (314,695) (5)
Proceeds from issuance of notes payable
and long-term debt...................... 4,029,947 380,778 1,687,164
Payments of capital lease obligations.. (18,830)
----------- ----------- -----------
Net cash (used in) provided by financing
activities.............................. 3,351,807 (23,800) 1,059,120
----------- ----------- -----------
Increase (decrease) in cash and cash
equivalents............................. (13,031) 60,720 (5,668)
Cash and cash equivalents at beginning
of period............................... 75,338 62,307 75,338
----------- ----------- -----------
Cash and cash equivalents at end of
period.................................. $ 62,307 $ 123,027 $ 69,670
=========== =========== ===========
Supplemental disclosure of cash flow
information--cash paid during the
period for interest.................... $ 986,142 $ 335,628 $ 419,175
=========== =========== ===========
Schedule of noncash investing and
financing activities--acquisitions of
companies:
Fair value of assets acquired......... $ 4,700,000 $ 4,700,000
Liabilities assumed................... (700,000) (700,000)
Notes payable issued.................. (2,500,000) (2,500,000)
----------- ----------- -----------
Total cash paid for net assets
acquired................................ $ 1,500,000 $ -- $ 1,500,000
=========== =========== ===========
Debt converted to redeemable preferred
stock................................... $ 2,500,000 $ -- $ 2,500,000
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-20
<PAGE>
NINE CLINICS OF AMHEALTH
(A WHOLLY OWNED BUSINESS OF AMHEALTH, INC.)
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995
(1) ORGANIZATION
BASIS OF PRESENTATION
AmHealth, Inc. provides occupational health, outpatient physical therapy,
and physical rehabilitation services to individuals who sustain work-related
injuries.
The Company is comprised of eight clinics of AmHealth, Inc., an employer
services division and a business consisting of a management services agreement
with California Pacific Medical Center in San Francisco, California (CPMC
division). The eight clinics were acquired by AmHealth, Inc. (the Parent) in
business combinations accounted for as purchases on various dates as listed
below. The Employer Services Division was formed from the combination of two
occupational health care networks acquired in business combinations. The CPMC
division began operations in June 1995 and operates under a management
services agreement with California Pacific Medical Center in San Francisco,
California. The operations of each of the eight clinics and the employer
services division are included in the accompanying financial statements
subsequent to each acquisition date by AmHealth, Inc. (note 3).
<TABLE>
<CAPTION>
SELLING PARTY OPERATIONS ACQUIRED MONTH ACQUIRED
------------- ------------------- --------------
<C> <S> <C>
Worksite Partners, Inc. Two clinics in Oakland, CA(a) January 1994
Dr. Richard H. Shoop One clinic and an occupational health March 1994
care network both
located in San Francisco, CA
Richmond Occupational One clinic in Richmond, CA March 1994
Medicine Associates
Hallet A. Lewis, MD Occupational health practice in May 1994
Oakland, CA
TriCare, Inc. Five clinics located in Rancho September 1994
Dominique; City of Industry; Ontario,
Pomona, and Riverside, CA
</TABLE>
- --------
(a) One of the clinics was closed immediately after acquisition.
The Parent's operations also included three physical therapy centers in
metropolitan Minneapolis, Minnesota, an exercise and health center located in
Hermantown, Minnesota, and a clinic in Sacramento, California, acquired in
March 1994 from Dr. Shoop, which was sold in February 1996. The Hermantown
operations were closed in late 1993 and the Minneapolis clinics were closed in
August 1995.
The accompanying financial statements include the assets and liabilities,
statements of operations, and cash flows for the eight acquired clinics, the
employer services division, and the CPMC division listed above and excludes
the assets and liabilities, revenues and expenses, and cash flows attributable
to the Minnesota clinics and the Sacramento clinic (the excluded clinics).
The accompanying financial statements have been prepared as if the eight
clinics, the employer services division, and the CPMC division had operated as
a stand-alone entity for all periods presented. Such statements include the
assets, liabilities, revenues, and expenses that are directly related to the
Company's operations. They also include an allocation of certain assets,
liabilities, and general corporate expenses of AmHealth, Inc., such as
executive payroll, interest, and other corporate overhead which are related to
the Company. Amounts were allocated on a specific identification method where
appropriate and on a pro rata basis otherwise. Management believes the
allocation methods used are reasonable.
F-21
<PAGE>
NINE CLINICS OF AMHEALTH
(A WHOLLY OWNED BUSINESS OF AMHEALTH, INC.)
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995
AmHealth, Inc. has experienced recurring losses since inception and has a
net capital deficiency of $8,632,006 as of December 31, 1995. In addition,
AmHealth, Inc. has defaulted on substantially all of its notes payable and on
certain vendor obligations.
AmHealth, Inc. has negotiated various settlement agreements with debt
holders and vendors in which forbearance has been obtained until an
appropriate sale of assets can be consummated to satisfy such obligations.
Management has entered into agreements to sell its operating clinics at an
amount that in its opinion would generate sufficient value to satisfy all of
its outstanding debt obligations in either cash or stock. This sale is
contingent upon certain conditions (note 11). The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) CASH EQUIVALENTS
Highly liquid investments with a maturity of three months or less when
purchased are generally considered to be cash equivalents. Cash equivalents
at each balance sheet date consist of a certificate of deposit.
(B) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated using the
straight-line method over estimated useful lives, ranging from five to ten
years. Equipment purchased under capital leases is stated at the present
value of the minimum lease payments. Equipment under capital leases and
leasehold improvements are amortized on the straight-line basis over the
shorter of the lease term or estimated useful life of the asset.
(C) NET PATIENT REVENUES
Patient service revenue is recorded in the period in which services are
rendered to the patient, at the Company's established rates.
Services relating to workers' compensation claims are subject to fee
schedules mandated by the State of California. Net patient revenues are
reported net of contractual allowances and bad debt expense.
(D) GOODWILL
Goodwill, which represents the excess of purchase price over fair value
of net assets acquired, is amortized on a straight-line basis over the
expected periods to be benefited, generally 10 years. The Company assesses
the recoverability of this intangible asset by determining whether the
amortization of the goodwill balance over its remaining life can be
recovered through undiscounted future operating cash flows of the acquired
operation. The amount of goodwill impairment, if any, is measured based on
projected discounted future operating cash flows using a discount rate
reflecting the Company's average cost of funds. The assessment of the
recoverability of goodwill will be impacted if estimated future operating
cash flows are not achieved. In management's estimation, the remaining
amount of goodwill has continuing value.
(E) INCOME TAXES
The Company's income taxes are included in the income tax returns of
AmHealth, Inc. The Company accounts for income taxes under the asset and
liability method. Under the asset and liability method under
F-22
<PAGE>
NINE CLINICS OF AMHEALTH
(A WHOLLY OWNED BUSINESS OF AMHEALTH, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1995
Statement of Financial Accounting Standards No. 109, deferred tax assets
and liabilities are recognized for the future tax consequences attributable
to differences between the financial statement carrying amount of existing
assets and liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using the enacted tax rates expected to apply
to taxable income in the years in which these temporary differences are
expected to be recovered or settled. Under Statement 109, the effect on
deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date. Income taxes have
not been allocated to the Company due to the losses incurred by both
AmHealth, Inc. and the Company.
(F) USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent liabilities to prepare these financial sttements in conformity
with generally accepted accounting principles. Actual results could differ
from those estimates.
(G) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In March 1995, Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets to be Disposed of"
("SFAS 121") was issued. SFAS 121 is effective for fiscal years beginning
January 1, 1996. SFAS 121 establishes accounting standards for the
impairment of long-lived assets, certain identifiable intangibles and
goodwill related to those assets to be held and used and for long-lived
assets and certain identifiable intangibles to be disposed of. The Company
does not believe the adoption of SFAS 121 will have a material impact on
the Company's financial condition or results of operations.
(3) ACQUISITIONS
The following table summarizes each of the clinics and network acquisitions
as described in note 1.
<TABLE>
<CAPTION>
ACQUIREE
---------------------------------------------------------
RICHMOND
WORKSITE DR. OCCUPATIONAL
PARTNERS, RICHARD H. MEDICINE HALLET A.
INC. SHOOP ASSOCIATES LEWIS, MD TRI-CARE
---------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Cash paid............... $ 113,000 $ -- $ 65,000 $125,000 $1,500,000
Acquisition costs 8,000 63,000 3,000 165,000 --
Debt assumed............ 40,000 45,000 28,000 -- --
Other liabilities
assumed................. 7,000 187,000 89,000 -- 700,000
Notes payable issued.... 1,350,000 800,000 935,000 394,000 2,500,000
Fair value of assets
acquired................ (163,000) (403,000) (201,000) (301,000) (2,625,000)
---------- -------- -------- -------- ----------
Excess of cost over
fair value
of assets acquired... $1,355,000 $692,000 $919,000 $383,000 $2,075,000
========== ======== ======== ======== ==========
</TABLE>
One of the two clinics acquired from Worksite Partners, Inc. was closed
immediately upon acquisition.
F-23
<PAGE>
NINE CLINICS OF AMHEALTH
(A WHOLLY OWNED BUSINESS OF AMHEALTH, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1995
(4) PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1995 1995
---------- ------------
<S> <C> <C>
Furniture and equipment................................ $1,207,517 $ 937,471
Leasehold improvements................................. 526,277 423,900
---------- ----------
1,733,794 1,361,371
Accumulated depreciation and amortization.............. (498,293) (391,195)
---------- ----------
$1,235,501 $ 970,176
========== ==========
</TABLE>
The net book value of property and equipment under capitalized leases
amounted to $108,229 and $61,787 at June 30, 1995 and December 31, 1995,
respectively.
(5) NOTES PAYABLE
Notes payable to bank and notes payable consist of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1995 1995
---------- ------------
<S> <C> <C>
Notes payable to bank:
Note payable to bank for the assumption of a prior
officer and stockholder's note guaranteed by the
Company. Interest is payable quarterly beginning March
4, 1996 at 9.75%. Principal and interest is due in
full June 4, 1996..................................... $ -- $ 164,300
Note payable to bank with an interest rate of 1.5%
above the prime rate. Interest is payable monthly
through August 1994, with principal and any unpaid
interest payable August 23, 1994...................... 58,000 58,000
---------- ----------
$ 58,000 $ 222,300
========== ==========
Notes payable:
Revolving line of credit at prime + 3% with a floor
of 10%, plus a monthly service fee of 1%. Note was
secured by a second mortgage on the personal residence
of a prior officer of the Company and an assignment of
note and accounts receivable. In 1995, the line was
renegotiated with an interest rate of 12% and is
secured by a first priority security interest in
certain accounts receivable, contract rights, and
certain equipment..................................... $4,771,871 $5,192,916
Note payable, with an interest rate of 10%. Existing
collateral includes 119,472 shares of Medicode, Inc.
common stock pledged by a Board member................ 300,000 300,000
Convertible notes:
Notes payable with an interest rate of 15%. Interest
is due in quarterly installments through December 31,
1995. Principal was due in full at December 31, 1995.. 915,000 915,000
Notes payable with an interest rate of 12%. Interest
is due in quarterly installments through May 1, 1996.
Principal is due in full at the earlier of the Company
obtaining mezzanine financing or May 1, 1996. The note
holders were issued warrants for which $1.00 of
principal may be converted to one share of stock until
May 1, 1996........................................... 445,000 445,000
</TABLE>
F-24
<PAGE>
NINE CLINICS OF AMHEALTH
(A WHOLLY OWNED BUSINESS OF AMHEALTH, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1995
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1995 1995
----------- ------------
<S> <C> <C>
Note payable with an interest rate of 10%.
Interest and principal are payable on demand of the
holder. Note holder may convert the note to common
stock at a conversion rate of one share for each
$1.00 of principal.................................. $ 50,000 $ 50,000
Less debt allocated to the excluded clinics....... (1,276,205) (1,276,205)
----------- -----------
$ 5,205,666 $ 5,626,711
=========== ===========
</TABLE>
Except for the revolving line of credit, at December 31, 1995 and June 30,
1995, notes payable to banks and notes payable were in default due to the
Company's inability to meet principal and interest payment requirements and
violation of restrictive covenants contained with each note. Accordingly, in
accordance with the terms of the notes, such note payable balances are due on
demand; and therefore, have been classified as current (note 10). There were
$175,000 of available borrowings under the revolving line of credit at
December 31, 1995.
(6) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1995 1995
---------- ------------
<S> <C> <C>
Note payable to bank with an interest rate of 7.05%.
Interest and principal
are due in monthly installments of $1,102 through
April 1, 1999, with any
unpaid interest and principal payable on April 1,
1999................................................... $ 44,303 $ 39,189
Notes payable issued in connection with acquisitions
with interest rates
ranging from 8% to 15% (note 3)....................... 3,341,578 3,339,881
Miscellaneous vendor agreements for outstanding
balances
due in monthly installments........................... 85,719 40,525
---------- ----------
$3,471,600 $3,419,595
========== ==========
</TABLE>
The notes payable contain restrictive covenants requiring, among other
items, periodic principal and interest payments. The Company defaulted on the
periodic principal and interest payments and other covenants during the six
months ended December 31, 1995 and the year ended June 30, 1995. The Company
has also defaulted on payments to miscellaneous vendors relating to notes
outstanding. Under the terms of the respective note agreements, the balances
are due on demand; and therefore, have been reflected as current.
During 1996, the Company entered into letters of consent with various
creditors who were issued notes in connection with acquisitions. Under the
terms of these letters of consent, the note holders agreed to accept, as
settlement on their notes due from the Company, sums significantly less than
the amounts recorded at December 31, 1995. The settlements, however, are
contingent upon the sale of the Company to CORE, INC. Upon the sale to CORE,
INC., under these agreements these obligations of the Company will be reduced
to $3,155,500.
(7) LEASES
The Company has certain facilities under noncancelable lease agreements
expiring through 1999. The Company also leases certain equipment under capital
lease agreements at effective rates ranging from 14% to 21%.
F-25
<PAGE>
NINE CLINICS OF AMHEALTH
(A WHOLLY OWNED BUSINESS OF AMHEALTH, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1995
Future minimum lease commitments as of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING JUNE 30, LEASES LEASES
- -------------------- ------- ----------
<S> <C> <C>
1996...................................................... $51,182 $ 344,045
1997...................................................... 547,078
1998...................................................... 475,487
1999...................................................... 436,916
2000...................................................... 365,550
Thereafter................................................ 165,060
------- ----------
Total minimum lease payments............................ 51,182 2,334,136
Less amounts representing interest........................ 9,050
------- ----------
Net minimum lease payments.............................. $42,132 $2,334,026
======= ==========
</TABLE>
Rent expense was $749,450 for the year ended June 30, 1995 and $440,020 for
the six months ended December 31, 1995.
(8) RETIREMENT PLAN
AmHealth, Inc. sponsors a retirement savings plan (savings plan) pursuant to
Section 401(k) of the Internal Revenue Code. Contributions to the savings plan
may be used to purchase shares in a variety of mutual funds. Employees are
eligible to participate after completing six months of service. Eligible
participants may make a contribution ranging from 1% to 15% of their base pay.
AmHealth, Inc. matches 25% on the first 6% of the participant's contribution.
Participants are immediately 100% vested in their own contributions and vest
at a rate of 20% per year, beginning after one year of participation, up to
100% after six years of participation in the contributions made by the
Company. During the year ended June 30, 1995 and the six months ended December
31, 1995, AmHealth, Inc. contributed $33,975 and $23,834, respectively, to the
savings plan on behalf of the eligible participants.
(9) REDEEMABLE PREFERRED STOCK
In connection with the TriCare acquisition, the Company issued two
promissory notes in the amounts of $1,500,000 and $1,000,000, respectively.
The notes had an interest rate of 8% and interest was to be paid quarterly.
The principal was due in full on the first to occur of December 1, 1995 or the
first day of the month following a mezzanine financing.
On December 31, 1994, the notes were exchanged for $2,500,000 of Series A
Convertible Redeemable Preferred Stock. Cumulative dividends of 6 1/2% per
share are payable quarterly. Each share of preferred stock may be converted at
the option of the holder into common stock at any time from and after either
(i) the entry into an underwriting agreement in connection with a public
offering, or (ii) the registration of the common stock of the Company pursuant
to the Securities Exchange Act of 1934.
All outstanding unconverted shares of Preferred Stock must be redeemed by
the Company at the original price per share, plus any accrued but unpaid
dividends as follows:
(i)1,500,000 shares shall be redeemed on December 1, 1995.
(ii)The balance shall be redeemed in 19 equal quarterly installments
commencing on December 1, 1995.
F-26
<PAGE>
NINE CLINICS OF AMHEALTH
(A WHOLLY OWNED BUSINESS OF AMHEALTH, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1995
In the event the Company fails to make a redemption payment as required, the
Company is required to pay a late charge of 5% of the amount overdue
(including accrued dividends). In the event a redemption payment shall not be
paid within 30 days, the dividend rate will be increased to 14.65% on the
redemption amount plus accrued but unpaid dividends. The Company did not make
the required payment at December 31, 1995 and has accrued $83,125 in penalties
at December 31, 1995.
In the event of any liquidation, dissolution, or winding up of the Company,
either voluntarily or involuntarily, the holders of preferred stock shall be
entitled to receive, prior and in preference to, any distribution of any of
the assets or surplus funds of the Company before the holders of the common
stock.
(10) COMMITMENTS AND CONTINGENCIES
(A) LEGAL
1. During 1995, AmHealth, Inc. defaulted on its obligations to a bank under
a note which the Company carried an outstanding principal balance of
$307,194 plus accrued interest of $46,014 at December 31, 1995. On
August 23, 1995, the bank made a formal demand upon AmHealth, Inc. to
surrender the assets securing its loan, and on August 24, 1995, filed
suit in a Minnesota state court against the Company. The Company has
retained counsel and has filed defensive pleadings asserting that
judgment should not be entered against it until all of the bank's
collateral is liquidated and a correct deficiency can be ascertained.
The Company estimates that the bank may recover a deficiency claim of
$150,000 to $200,000. However, the ultimate resolution of this matter
cannot be determined at this time.
2. December 6, 1995, the landlord of one of the Company's former Minnesota
clinics filed suit against AmHealth, Inc. in a state court in Minnesota
alleging AmHealth owes them $79,324. AmHealth, Inc. has retained counsel
and is defending the suit seeking a settlement that would give AmHealth,
Inc. sufficient time to satisfy its obligation. The ultimate resolution
of this matter cannot be determined at this time.
3. On December 26, 1995, holders of a Convertible Note in the principal
amount of $25,000 filed suit against the Company in a state court in
Richmond, Virginia. AmHealth, Inc. has defaulted on its obligations
under the note. AmHealth, Inc. has retained counsel and is defending the
suit on the grounds of lack of proper jurisdiction and venue. AmHealth,
Inc.'s efforts to effect a successful settlement cannot be determined at
this time.
4. During 1995, AmHealth, Inc. defaulted on a purchase money note payable
relating to the purchase of a company vehicle. In addition, the Company
assumed notes payable to the same bank under a guarantee on behalf of
the Company's former Chairman. AmHealth, Inc. restructured the
indebtedness into a single note for $164,000 which matures June 4, 1996.
(B) INTERNAL REVENUE SERVICE
During the first and second quarter of 1995, AmHealth, Inc. was
delinquent in its filing of payroll tax remittances. The total liability,
including interest, relating to these delinquent remittances was
approximately $600,000 at June 30, 1995.
In November 1995, the IRS filed Federal tax liens against the Company. In
December 1995, the Company paid the IRS $50,000 relating to the liability
and filed an offer in compromise for the settlement
F-27
<PAGE>
NINE CLINICS OF AMHEALTH
(A WHOLLY OWNED BUSINESS OF AMHEALTH, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1995
of the remaining liability. On January 11, 1996, the IRS levied the bank
accounts owned by the Company. On January 25, 1996, the Company settled its
liability with the IRS by paying the IRS $250,000 and executing an
installment note due March 16, 1996 for the remaining $233,993 liability
outstanding.
(C) NOTE HOLDERS
During 1995 and 1994, a portion of the clinic acquisitions was financed
by the sellers. Various promissory notes were issued to these sellers
requiring periodic interest and principal payments as required by the
agreements. During 1995, AmHealth, Inc. defaulted on the required principal
and interest payment for all of the sellers' notes. Each note holder and
AmHealth, Inc. have executed settlement agreements whereby, the note
holders have and agreed to reduce AmHealth, Inc.'s liability to the note
holders. Such agreements are contingent upon a satisfactory sale of assets
to CORE, INC. (note 11(a)).
(D) MISCELLANEOUS VENDOR NOTES
During 1995, AmHealth executed various promissory notes with vendors
relating to outstanding payables balances. During 1995, AmHealth, Inc.
defaulted on its required periodic payments. AmHealth, Inc. has
subsequently satisfied a large portion of the outstanding balance and is
currently negotiating further settlements and extension agreements with
these vendors. As of December 31, 1995, AmHealth, Inc. was current or in
compliance with settlement and extension agreements on substantially all of
its indebtedness owed its vendors.
(E) FORMER EXECUTIVE
A former executive has asserted that AmHealth, Inc. owes him certain sums
relating to contractual agreements. AmHealth, Inc. has vigorously denied
owing the former executive any sums. AmHealth, Inc. and the former
executive have orally agreed to a settlement of their dispute whereby
AmHealth, Inc. and the former executive will exchange mutual releases and
AmHealth, Inc. will assume an obligation to a bank owed by the former
executive (note 10(a)(4)). The ultimate resolution of this matter is not
expected to have a material effect upon the financial position or results
of operations of AmHealth, Inc.
(11) SUBSEQUENT EVENTS
(a) AmHealth, Inc. has signed an agreement dated May 10, 1996 for the sale
of the Company to CORE, INC. ("CORE").
The consideration paid by CORE to AmHealth, Inc. for the assets, as defined
in the Agreement shall be $15,657,500 payable in cash. AmHealth is committed
to deliver to CORE $1,750,000 in assets at closing. If the assets are less
than $1,750,000, the purchase price will be adjusted downward accordingly.
The sale is subject to numerous conditions, including (but not limited to)
the following:
1.Approval of the Board of Directors of CORE and AmHealth, Inc.;
2. That at or immediately prior to closing, CORE shall have completed a
public offering of an additional 2,500,000 shares of its common stock;
and
3.Satisfactory completion of a due diligence investigation with respect to
the Company's business.
F-28
<PAGE>
NINE CLINICS OF AMHEALTH
(A WHOLLY OWNED BUSINESS OF AMHEALTH, INC.)
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995
In the event CORE and AmHealth do not consummate the transaction described
above and before January 9, 1998, AmHealth, Inc. (or AmHealth, Inc.'s
stockholders or creditors) is involved in (i) a bankruptcy or assignment for
benefit of creditors or (ii) a merger, sale, or transfer of a significant
portion of AmHealth's assets or stock, directly or indirectly (a "Significant
Transaction"), and such Significant Transaction involves a valuation of
AmHealth, Inc. of $13,500,000 or more, then in such event, AmHealth, Inc.
shall pay to CORE a fee of $1,000,000; provided, the $1,000,000 fee shall not
be due if failure to consummate the transaction is due solely to CORE's common
stock price being less than $8.50 or CORE's inability to consummate a public
offering of its common stock or CORE's breach of the Agreement.
In the event CORE and AmHealth do not consummate the transactions described
above before January 9, 1998, AmHealth, Inc. (or AmHealth, Inc.'s stockholders
or creditors) is planning to or will be involved in a Significant Transaction
and such Significant Transaction involves a valuation of AmHealth of less than
$13,500,000, then AmHealth must notify CORE 30 days prior to such transaction
and grant CORE a right of first refusal concerning such proposed Significant
Transaction, provided CORE has the option to pay the consideration for the
proposed Significant Transaction in shares of CORE common stock with demand
registration rights.
(12) UNAUDITED NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited interim statements of loss and cash flow have
been prepared in accordance with generally accepted accounting principles
applicable to interim financial statements. Accordingly, they do not include
all of the information and notes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments and reclassifications considered necessary for a fair and
comparable presentation have been included and are of a normal recurring
nature. Operating results for the six month period ended December 31, 1994 are
not necessarily indicative of the results that may be expected for the year
ended June 30, 1995.
F-29
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors AmHealth, Inc.:
We have audited the accompanying balance sheet of Nine Clinics of AmHealth
(a wholly owned business of AmHealth, Inc.) as of June 30, 1994, and the
related statements of loss, owner's deficit, and cash flows for the period
ended June 30, 1994. 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 audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Nine Clinics of AmHealth
(a wholly owned business of AmHealth, Inc.) at June 30, 1994, and the results
of its combined operations and its cash flows for the period ended June 30,
1994 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that Nine
Clinics of AmHealth's parent will continue as a going concern. As discussed in
note 1 to the financial statements, AmHealth, Inc. has suffered recurring
losses from operations, has defaulted on its debt obligations, and has a net
capital deficiency that raises substantial doubt about its ability to continue
as a going concern. Management's plans in regard to these matters are also
described in note 1. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
KPMG Peat Marwick LLP
Atlanta, Georgia
March 1, 1996, except as to note 10 which is as of May 10, 1996
F-30
<PAGE>
NINE CLINICS OF AMHEALTH
(A WHOLLY OWNED BUSINESS OF AMHEALTH, INC.)
BALANCE SHEET
JUNE 30, 1994
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................... $ 75,338
Trade receivables, net of allowance for contractual adjustment
and doubtful accounts of $232,196.............................. 823,615
Other receivables............................................... 11,788
Prepaid expenses and other assets............................... 159,454
-----------
Total current assets.......................................... 1,070,195
Property and equipment, net (note 4).............................. 573,873
Goodwill, net of accumulated amortization of $108,723............. 3,777,816
Other assets...................................................... 153,024
-----------
$ 5,574,908
===========
LIABILITIES AND OWNERS DEFICIT
Current liabilities:
Bank overdrafts................................................. $ 311,607
Notes payable to banks (notes 5 and 10)......................... 84,083
Notes payable (notes 5 and 10).................................. 1,141,449
Accounts payable................................................ 807,192
Accrued expenses (notes 9 and 10)............................... 123,030
Accrued salaries................................................ 504,080
Current portion of long-term debt (notes 6 and 10).............. 1,197,006
Current portion of capital lease obligation (note 7)............ 22,820
Other liabilities............................................... 121,671
-----------
Total current liabilities..................................... 4,312,938
-----------
Long-term debt, less current installment (notes 6 and 10)......... 2,439,887
Capital lease obligation, less current installment (note 7)....... 14,105
Owners deficit:
Investment by and advances from AmHealth, Inc................... 196,938
Accumulated deficit............................................. (1,388,960)
-----------
Total owners deficit.......................................... (1,192,022)
-----------
$ 5,574,908
===========
</TABLE>
See accompanying notes to financial statements.
F-31
<PAGE>
NINE CLINICS OF AMHEALTH
(A WHOLLY OWNED BUSINESS OF AMHEALTH, INC.)
STATEMENT OF LOSS
PERIOD ENDED JUNE 30, 1994 (NOTE 1)
<TABLE>
<S> <C>
Net revenues........................................................ $1,701,037
Operating expenses:
Clinic salaries and benefits...................................... 1,408,232
Other clinic services............................................. 232,244
Equipment and facilities rent..................................... 523,734
Depreciation and amortization..................................... 238,641
General and administrative expenses............................... 513,308
----------
Total operating expenses........................................ 2,916,159
----------
Loss from operations................................................ 1,215,122
Interest expense.................................................... 173,838
----------
Net loss............................................................ $1,388,960
==========
</TABLE>
See accompanying notes to financial statements.
F-32
<PAGE>
NINE CLINICS OF AMHEALTH
(A WHOLLY OWNED BUSINESS OF AMHEALTH, INC.)
STATEMENT OF OWNER'S DEFICIT
PERIOD ENDED JUNE 30, 1994 (NOTE 1)
<TABLE>
<S> <C>
Balance at beginning of period....................................
Net loss.......................................................... $(1,388,960)
Net transfers from AmHealth, Inc.................................. 196,938
-----------
Balance at June 30, 1994.......................................... $(1,192,022)
===========
</TABLE>
See accompanying notes to financial statements.
F-33
<PAGE>
NINE CLINICS OF AMHEALTH
(A WHOLLY OWNED BUSINESS OF AMHEALTH, INC.)
STATEMENT OF CASH FLOWS
PERIOD ENDED JUNE 30, 1994
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss from operations....................................... $(1,388,960)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization................................ 199,483
Provision for contractual adjustments and uncollectible
accounts.................................................... 125,260
(Increase) decrease in:
Accounts receivable........................................ (141,928)
Prepaid expenses and other assets.......................... (126,059)
Increase (decrease) in:
Accounts payable........................................... 498,469
Accrued expenses........................................... 498,583
Other...................................................... (79,382)
-----------
Net cash used in operating activities............................ (414,534)
-----------
Cash flows from investing activites:
Purchase of equipment.......................................... (112,364)
Acquisitions of businesses, net of cash acquired (note 3)...... (220,872)
-----------
Net cash used in investing activities............................ (333,236)
-----------
Cash flows from financing activities:
Increase in bank overdraft..................................... 311,607
Net transfers from AmHealth, Inc. ............................. 196,938
Principal payments on notes payable and long-term debt......... (325,000)
Proceeds from issuance of long-term debt....................... (642,975)
Payments of capital lease obligations.......................... (3,412)
-----------
Net cash provided by financing activities........................ 823,108
-----------
Increase in cash and cash equivalents............................ 75,338
Cash and cash equivalents at beginning of period.................
-----------
Cash and cash equivalents at end of period....................... $ 75,338
===========
Supplemental disclosure of cash flow information:
Cash paid for interest expense................................... $ 86,538
===========
Schedule of noncash investing and financing activities--
acquisitions of companies:
Fair value of assets acquired.................................. $ 4,584,000
Liabilities assumed............................................ (327,000)
Debt assumed................................................... (151,000)
Notes payable issued........................................... (3,803,000)
-----------
Total cash paid for net assets acquired.......................... $ 303,000
===========
</TABLE>
See accompanying notes to financial statements.
F-34
<PAGE>
NINE CLINICS OF AMHEALTH
(A WHOLLY OWNED BUSINESS OF AMHEALTH, INC.)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1994
(1) ORGANIZATION
Basis of Presentation
Nine Clinics of AmHealth (The Company) provides occupational health,
outpatient physical therapy, and physical rehabilitation services to
individuals who sustain work-related injuries. The accompanying statement of
loss and cash flow present the combined operations and cash flows from the
respective date of acquisition by AmHealth, Inc.
The Company, at June 30, 1994, is comprised of four clinics of AmHealth,
Inc. and an employer services division. The four clinics were acquired by
AmHealth, Inc. (the Parent) in business combinations accounted for as
purchases on various dates as listed below. The Employer Services Division was
formed from the combination of two occupational health care networks acquired
in business combinations. The operations of each of the four clinics and the
Employer Services Division are included in the accompanying financial
statements subsequent to each acquisition date by AmHealth, Inc. (note 3).
<TABLE>
<CAPTION>
SELLING PARTY OPERATIONS ACQUIRED MONTH ACQUIRED
- ------------- ------------------- --------------
<S> <C> <C>
Worksite Two clinics in Oakland, CA(a) January 1994
Partners,
Inc.
Dr. Richard One clinic and an occupational health care network March 1994
H. Shoop both located in San Francisco, CA
Richmond Oc- One clinic in Richmond, CA March 1994
cupational
Medicine As-
sociates
Hallet A. Occupational health practice in Oakland, CA May 1994
Lewis, MD
</TABLE>
- --------
(a)One of the clinics was closed immediately after acquisition.
The Parent's operations also included three physical therapy centers in
metropolitan Minneapolis, Minnesota, an exercise and health center located in
Hermantown, Minnesota, and a clinic in Sacramento, California, acquired in
March 1994 from Dr. Shoop, which was sold in February 1996. The Hermantown
operations were closed in late 1993 and the Minneapolis clinics were closed in
August 1995.
The accompanying financial statements include the assets and liabilities,
statements of operations, and cash flows for the four acquired clinics and the
Employer Services Division listed above and excludes the assets and
liabilities, revenues and expenses, and cash flows attributable to the
Minnesota clinics and the Sacramento clinic (the excluded clinics).
The accompanying financial statements have been prepared as if the four
clinics and the employer services division had operated as a stand-alone
entity from the date acquired. Such statements include the assets,
liabilities, revenues, and expenses that are directly related to the Company's
operations. They also include an allocation of certain assets, liabilities,
and general corporate expenses of AmHealth, Inc., such as executive payroll,
interest, and other corporate overhead which are related to the Company.
Amounts were allocated on a specific identification method where appropriate
and on a pro rata basis otherwise. Management believes the allocation methods
used are reasonable.
AmHealth, Inc. has experienced recurring losses since inception and has a
net capital deficiency of $8,632,006 as of December 31, 1995. In addition,
AmHealth, Inc. has defaulted on substantially all of its notes payable and on
certain vendor obligations.
F-35
<PAGE>
NINE CLINICS OF AMHEALTH
(A WHOLLY OWNED BUSINESS OF AMHEALTH, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
AmHealth, Inc. has negotiated various settlement agreements with debt
holders and vendors in which forbearance has been obtained until an
appropriate sale of assets can be consummated to satisfy such obligations.
Management has entered into agreements to sell its operating clinics at an
amount that in its opinion would generate sufficient value to satisfy all of
its outstanding debt obligations in either cash or stock. This sale is
contingent upon certain conditions (note 10). The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Cash Equivalents
Highly liquid investments with a maturity of three months or less when
purchased are generally considered to be cash equivalents. Cash equivalents at
each balance sheet date consist of a certificate of deposit.
(b) Property and Equipment
Property and equipment are stated at cost and depreciated using the
straight-line method over estimated useful lives, ranging from five to ten
years. Equipment purchased under capital leases is stated at the present value
of the minimum lease payments. Equipment under capital leases and leasehold
improvements are amortized on the straight-line basis over the shorter of the
lease term or estimated useful life of the asset.
(c) Net Patient Revenues
Patient service revenue is recorded in the period in which services are
rendered to the patient, at the Company's established rates.
Services relating to workers' compensation claims are subject to fee
schedules mandated by the State of California. Net patient revenues are
reported net of contractual allowances and bad debt expense.
(d) Goodwill
Goodwill, which represents the excess of purchase price over fair value of
net assets acquired, is amortized on a straight-line basis over the expected
periods to be benefited, generally 10 years. The Company assesses the
recoverability of this intangible asset by determining whether the
amortization of the goodwill balance over its remaining life can be recovered
through undiscounted future operating cash flows of the acquired operation.
The amount of goodwill impairment, if any, is measured based on projected
discounted future operating cash flows using a discount rate reflecting the
Company's average cost of funds. The assessment of the recoverability of
goodwill will be impacted if estimated future operating cash flows are not
achieved. In management's estimation, the remaining amount of goodwill has
continuing value.
(e) Income Taxes
The Company's income taxes are included in the income tax returns of
AmHealth, Inc. The Company accounts for income taxes under the asset and
liability method. Under the asset and liability method under Statement of
Financial Accounting Standards No. 109, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amount of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using the enacted tax rates expected to apply to
taxable income in the years in which these temporary differences are expected
to be recovered or settled. Under Statement 109, the effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. Income taxes have not been allocated
to the Company due to the losses incurred by both AmHealth, Inc. and the
Company.
F-36
<PAGE>
NINE CLINICS OF AMHEALTH
(A WHOLLY OWNED BUSINESS OF AMHEALTH, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(f) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent liabilities to prepare these financial statements in conformity
with generally accepted accounting principles. Actual results could differ
from those estimates.
(g) Recently Issued Accounting Pronouncements
In March 1995, Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets to be Disposed of (SFAS
121) was issued. SFAS 121 is effective for fiscal years beginning January 1,
1996. SFAS 121 establishes accounting standards for the impairment of long-
lived assets, certain identifiable intangibles and goodwill related to those
assets to be held and used and for long-lived assets and certain identifiable
intangibles to be disposed of. The Company does not believe the adoption of
SFAS 121 will have a material impact on the Company's financial condition or
results of operations.
(3) ACQUISITIONS
The following table summarizes each of the clinics and network acquisitions
as described in note 1.
<TABLE>
<CAPTION>
ACQUIREE
----------------------------------------------
RICHMOND
WORKSITE DR. OCCUPATIONAL
PARTNERS, RICHARD H. MEDICINE HALLET A.
INC. SHOOP ASSOCIATES LEWIS, MD
----------- ---------- ------------ ---------
<S> <C> <C> <C> <C>
Cash paid.................. $ 113,000 $ 65,000 $125,000
Acquisition costs.......... 8,000 $ 63,000 3,000 165,000
Debt assumed............... 40,000 45,000 28,000
Other liabilities assumed.. 7,000 187,000 89,000
Notes payable issued....... 1,350,000 800,000 935,000 394,000
Fair value of assets
acquired.................. (163,000) (403,000) (201,000) (301,000)
----------- -------- -------- --------
Excess of cost over fair
value of assets
acquired................ $ 1,355,000 $692,000 $919,000 $383,000
=========== ======== ======== ========
</TABLE>
One of the two clinics acquired from Worksite Partners, Inc. was closed
immediately upon acquisition.
(4) PROPERTY AND EQUIPMENT
Property and equipment consists of the following at June 30, 1994:
<TABLE>
<S> <C>
Furniture and equipment......................................... $ 373,994
Leasehold improvements.......................................... 227,440
---------
601,434
Accumulated depreciation and amortization....................... (27,561)
---------
$ 573,873
=========
</TABLE>
The net book value of property and equipment under capitalized leases
amounted to $73,000 at June 30, 1994.
F-37
<PAGE>
NINE CLINICS OF AMHEALTH
(A WHOLLY OWNED BUSINESS OF AMHEALTH, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(5) NOTES PAYABLE
Note payable to bank and notes payable consist of the following at June 30,
1994:
<TABLE>
<S> <C>
Note payable to bank with an interest rate of 1.5% above the
prime rate. Interest is payable monthly through August 1994,
with principal and any unpaid interest payable August 23,
1994.......................................................... $ 84,083
===========
Notes payable:
$1,000,000 revolving line of credit at prime + 3% with a
floor of 10%, plus a monthly service fee of 1%. Note was
secured by a second mortgage on the personal residence of a
prior officer of the Company and an assignment of note and
accounts receivable......................................... $ 664,815
Note payable, with an interest rate of 10%. Existing
collateral includes 119,472 shares of Medicode, Inc. common
stock pledged by a Board member............................. 300,000
Note payable with an interest rate of 19.8%.................. 2,839
Convertible notes:
Notes payable with an interest rate of 15%. Interest is due
in quarterly installments through December 31, 1995.
Principal was due in full at December 31, 1995............ 915,000
Notes payable with an interest rate of 12%. Interest is due
in quarterly installments through May 1, 1996. Principal
is due in full at the earlier of the Company obtaining
mezzanine financing or May 1, 1996. The note holders were
issued warrants for which converted to one share of stock
until May 1, 1996......................................... 435,000
Note payable with an interest rate of 10%. Interest and
principal are payable on demand of the holder. Note holder
may convert the note to common stock at a conversion of
one share for each $1.00 of principal..................... 50,000
Note payable with an interest rate of 12%. Interest is
payable quarterly through December 31, 1994............... 50,000
-----------
2,417,654
Less debt allocated to the excluded clinics................ 1,276,205
-----------
$ 1,141,449
===========
</TABLE>
Except for the revolving line of credit, notes payable to banks and notes
payable were either in default or subsequently placed in default during 1995
due to the Company's inability to meet principal and interest payment
requirements and violation of restrictive covenants contained with each note.
Accordingly, in accordance with the terms of the notes, such note payable
balances are due on demand; and therefore, have been classified as current
(note 9). There were $335,185 of available borrowings under the revolving line
of credit at June 30, 1994.
F-38
<PAGE>
NINE CLINICS OF AMHEALTH
(A WHOLLY OWNED BUSINESS OF AMHEALTH, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(6) LONG-TERM DEBT
Long-term debt consists of the following at June 30, 1994:
<TABLE>
<S> <C>
Note payable to bank with an interest rate of 7.05%. Interest
and principal are due in monthly installments of $1,102
through April 1, 1999, with any unpaid interest and
principal payable on April 1, 1999.......................... $ 54,029
Notes payable issued in connection with acquisitions with
interest rates ranging from 8% to 15% (note 3).............. 3,582,864
----------
3,636,893
Less current portion......................................... 1,197,006
----------
$2,439,887
==========
</TABLE>
The notes payable contain restrictive covenants requiring, among other
items, periodic principal and interest payments. The Company subsequently
defaulted on the periodic principal and interest payments and other covenants.
The Company has also defaulted on payments to miscellaneous vendors relating
to notes outstanding. Under the terms of the respective note agreements, the
balances are currently due on demand (note 9).
During 1996, the Company entered into letters of consent with various
creditors who were issued notes in connection with acquisitions. Under the
terms of these letters of consent, the note holders agreed to accept, as
settlement on their notes due from the Company, sums significantly less than
the amounts recorded at December 31, 1995. The settlements, however, are
contingent upon the sale of the Company to CORE, INC. Upon the sale to CORE,
INC., under these agreements these obligations of the Company will be reduced
to $3,155,500.
(7) LEASES
The Company has certain facilities under noncancelable lease agreements
expiring through 1999. The Company also leases certain equipment under capital
lease agreements at effective rates ranging from 14% to 21%.
Future minimum lease commitments as of June 30, 1994 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING JUNE 30, LEASES LEASES
-------------------- ------- ----------
<S> <C> <C>
1995................................................. $30,839 $ 682,000
1996................................................. 13,662 479,000
1997................................................. 452,000
1998................................................. 244,000
1999................................................. 199,000
Thereafter........................................... 215,000
------- ----------
Total minimum lease payments....................... 44,501 2,271,000
Less amounts representing interest................... 7,576
------- ----------
Net minimum lease payments......................... 36,925 $2,271,000
==========
Less current portion of capital lease obligation..... 22,820
-------
Long-term portion of capital lease obligation...... $14,105
=======
</TABLE>
Rent expense was $269,000 for the period ended June 30, 1994.
F-39
<PAGE>
NINE CLINICS OF AMHEALTH
(A WHOLLY OWNED BUSINESS OF AMHEALTH, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(8) RETIREMENT PLAN
AmHealth, Inc. sponsors a retirement savings plan (savings plan) pursuant to
Section 401(k) of the Internal Revenue Code. Contributions to the savings plan
may be used to purchase shares in a variety of mutual funds. Employees are
eligible to participate after completing six months of service. Eligible
participants may make a contribution ranging from 1% to 15% of their base pay.
AmHealth, Inc. matches 25% on the first 6% of the participant's contribution.
Participants are immediately 100% vested in their own contributions and vest
at a rate of 20% per year, beginning after one year of participation, up to
100% after six years of participation in the contributions made by the
Company. During the period ended June 30, 1994, AmHealth, Inc. contributed
$10,142 to the savings plan on behalf of the eligible participants.
(9) COMMITMENTS AND CONTINGENCIES
(a) Legal
1. During 1995, AmHealth, Inc. defaulted on its obligations to a bank
under a note which the Company carried an outstanding principal balance of
$307,194 plus accrued interest of $46,014 at December 31, 1995. On August
23, 1995, the bank made a formal demand upon AmHealth, Inc. to surrender
the assets securing its loan, and on August 24, 1995, filed suit in a
Minnesota state court against the Company. The Company has retained counsel
and has filed defensive pleadings asserting that judgment should not be
entered against it until all of the bank's collateral is liquidated and a
correct deficiency can be ascertained. The Company estimates that the bank
may recover a deficiency claim of $150,000 to $200,000. However, the
ultimate resolution of this matter cannot be determined at this time.
2. On December 6, 1995, the landlord of one of the Company's former
Minnesota clinics filed suit against AmHealth, Inc. in a state court in
Minnesota alleging AmHealth owes them $79,324. AmHealth, Inc. has retained
counsel and is defending the suit seeking a settlement that would give
AmHealth, Inc. sufficient time to satisfy its obligation. The ultimate
resolution of this matter cannot be determined at this time.
3. On December 26, 1995, holders of a Convertible Note in the principal
amount of $25,000 filed suit against the Company in a state court in
Richmond, Virginia. AmHealth, Inc. has defaulted on its obligations under
the note. AmHealth, Inc. has retained counsel and is defending the suit on
the grounds of lack of proper jurisdiction and venue. AmHealth, Inc.'s
efforts to effect a successful settlement cannot be determined at this
time.
4. During 1995, AmHealth, Inc. defaulted on a purchase money note payable
relating to the purchase of a company vehicle. In addition, the Company
assumed notes payable to the same bank under a guarantee on behalf of the
Company's former Chairman. AmHealth, Inc. restructured the indebtedness
into a single note for $164,000 which matures June 4, 1996.
(b) Internal Revenue Service
During the first and second quarter of 1995, AmHealth, Inc. was delinquent
in its filing of payroll tax remittances. The total liability, including
interest, relating to these delinquent remittances was approximately $600,000
at June 30, 1995.
In November 1995, the IRS filed Federal tax liens against the Company. In
December 1995, the Company paid the IRS $50,000 relating to the liability and
filed an offer in compromise for the settlement of the remaining liability. On
January 11, 1996, the IRS levied the bank accounts owned by the Company. On
January 25, 1996, the Company settled its liability with the IRS by paying the
IRS $250,000 and executing an installment note due March 16, 1996 for the
remaining $233,993 liability outstanding.
F-40
<PAGE>
NINE CLINICS OF AMHEALTH
(A WHOLLY OWNED BUSINESS OF AMHEALTH, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(c) Note Holders
During 1995 and 1994, a portion of the clinic acquisitions was financed by
the sellers. Various promissory notes were issued to these sellers requiring
periodic interest and principal payments as required by the agreements. During
1995, AmHealth, Inc. defaulted on the required principal and interest payment
for all of the sellers notes. Each note holder and AmHealth, Inc. have
executed settlement agreements whereby, the note holders have and agreed to
reduce AmHealth, Inc.'s liability to the note holders. Such agreements are
contingent upon a satisfactory sale of assets to CORE, INC. (note 10)
(d) Miscellaneous Vendor Notes
During 1995, AmHealth executed various promissory notes with vendors
relating to outstanding payables balances. During 1995, AmHealth, Inc.
defaulted on its required periodic payments. AmHealth, Inc. has subsequently
satisfied a large portion of the outstanding balance and is currently
negotiating further settlements and extension agreements with these vendors.
As of December 31, 1995, AmHealth, Inc. was current or in compliance with
settlement and extension agreements on substantially all of its indebtedness
owed its vendors.
(e) Former Executive
A former executive has asserted that AmHealth, Inc. owes him certain sums
relating to contractual agreements. AmHealth, Inc. has vigorously denied owing
the former executive any sums. AmHealth, Inc. and the former executive have
orally agreed to a settlement of their dispute whereby AmHealth, Inc. and the
former executive will exchange mutual releases and AmHealth, Inc. will assume
an obligation to a bank owed by the former executive (note 9(a)4). The
ultimate resolution of this matter is not expected to have a material effect
upon the financial position or results of operations of AmHealth, Inc.
(10) SUBSEQUENT EVENTS
(a) AmHealth, Inc. has signed an agreement dated May 10, 1996 for the sale
of the Company to CORE, INC. ("CORE").
The consideration paid by CORE to AmHealth, Inc. for the assets as defined
in the agreement shall be $15,657,500 payable in cash. AmHealth, Inc. is
committed to deliver CORE, INC. $1,750,000 in assets at closing. If the assets
delivered are less than $1,750,000, the purchase price will be adjusted
downward accordingly.
The sale is subject to numerous conditions, including (but not limited to)
the following:
1. Approval of the Board of Directors of CORE and AmHealth, Inc.;
2. That at or immediately prior to closing, CORE shall have completed a
public offering of an additional 2,500,000 shares of its common stock;
and
3. Satisfactory completion of a due diligence investigation with respect
to the Company's business.
In the event CORE and AmHealth do not consummate the transaction described
above and before January 9, 1998, AmHealth, Inc. (or AmHealth, Inc.'s
stockholders or creditors) is involved in (i) a bankruptcy or assignment for
benefit of creditors or (ii) a merger, sale, or transfer of a significant
portion of AmHealth's assets or stock, directly or indirectly (a "Significant
Transaction"), and such Significant Transaction involves a valuation of
AmHealth, Inc. of $13,500,000 or more, then in such event, AmHealth, Inc.
shall pay to CORE a fee of $1,000,000; provided, the $1,000,000 fee shall not
be due if failure to consummate the transaction is due
F-41
<PAGE>
NINE CLINICS OF AMHEALTH
(A WHOLLY OWNED BUSINESS OF AMHEALTH, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
solely to CORE's common stock price being less than $8.50 or CORE's inability
to consummate a public offering of its common stock or CORE's breach of the
Agreement.
In the event CORE and AmHealth do not consummate the transactions described
above before January 9, 1998, AmHealth, Inc. (or AmHealth, Inc.'s stockholders
or creditors) is planning to or will be involved in a Significant Transaction
and such Significant Transaction involves a valuation of AmHealth of less than
$13,500,000, then AmHealth must notify CORE 30 days prior to such transaction
and grant CORE a right of first refusal concerning such proposed Significant
Transaction, provided CORE has the option to pay the consideration for the
proposed Significant Transaction in shares of CORE common stock with demand
registration rights.
F-42
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
TriCare, Inc.:
We have audited the accompanying combined balance sheets of OCCU-CARE, INC.
AND AFFILIATES (a California corporation) as of September 16, 1994 and May 31,
1994 and the related combined statements of operations, stockholder's deficit,
and cash flows for the period from June 1, 1994 to September 16, 1994 and for
the years ended May 31, 1994 and 1993. 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 combined financial statements referred to above present
fairly, in all material respects, the financial position of Occu-Care, Inc.
and affiliates as of September 16, 1994 and May 31, 1994 and the results of
their operations and their cash flows for the period from June 1, 1994 to
September 16, 1994 and for the years ended May 31, 1994 and 1993 in conformity
with generally accepted accounting principles.
Arthur Andersen LLP
Atlanta, Georgia
February 17, 1995
F-43
<PAGE>
OCCU-CARE, INC. AND AFFILIATES
COMBINED BALANCE SHEETS
SEPTEMBER 16, 1994 AND MAY 31, 1994
<TABLE>
<CAPTION>
SEPTEMBER 16, MAY 31,
1994 1994
------------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash.............................................. $ 1,550 $ 0
Accounts receivable, net of allowance for doubtful
accounts of $1,464,899 and $1,358,089, at Septem-
ber 16, 1994 and May 31, 1994, respectively...... 1,924,659 1,850,802
Inventory......................................... 116,059 116,059
Prepaid expenses.................................. 60,015 36,917
Deposits.......................................... 29,955 29,955
----------- -----------
Total current assets............................ 2,132,238 2,033,733
----------- -----------
Property, plant and equipment:
Property, at cost................................. 1,152,925 1,144,915
Less accumulated depreciation..................... (728,930) (693,345)
----------- -----------
Property, plant, and equipment, net............. 423,995 451,570
----------- -----------
Intangible assets:
Intangible assets, at cost........................ 2,685,336 2,685,336
Less accumulated amortization..................... (475,708) (457,533)
----------- -----------
Total intangible assets......................... 2,209,628 2,227,803
----------- -----------
Total assets.................................... $ 4,765,861 $ 4,713,106
=========== ===========
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Current portion of long term debt................. $ 10,975 $ 10,975
Accounts payable.................................. 1,243,618 1,154,346
Due to Parent..................................... 9,031,102 8,984,423
Physicians and professional fees payable.......... 50,076 366,334
Accrued compensation and benefits................. 274,226 357,137
Other accrued liabilities......................... 545,148 257,729
----------- -----------
Total current liabilities....................... 11,155,145 11,130,944
----------- -----------
Capital lease obligations........................... 40,165 42,771
----------- -----------
Commitments
Stockholder's deficit:
Capital........................................... 200 200
Accumulated deficit............................... (6,429,649) (6,460,809)
----------- -----------
Total stockholder's deficit..................... (6,429,449) (6,460,609)
----------- -----------
Total liabilities and stockholder's deficit..... $ 4,765,861 $ 4,713,106
=========== ===========
</TABLE>
The accompanying notes are an integral part of these combined balance sheets.
F-44
<PAGE>
OCCU-CARE, INC. AND AFFILIATES
COMBINED STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM JUNE 1, 1994 TO SEPTEMBER 16, 1994
AND FOR THE YEARS ENDED MAY 31, 1994 AND 1993
<TABLE>
<CAPTION>
PERIOD ENDED YEARS ENDED MAY 31
SEPTEMBER 16, -----------------------
1994 1994 1993
------------- ---------- -----------
<S> <C> <C> <C>
Net revenues............................ $2,521,655 $8,616,812 $10,596,876
Operating expenses:
Compensation and benefits............. 1,092,060 3,968,989 3,619,305
Physician fees........................ 512,650 2,203,227 2,650,016
General, administrative, and other.... 852,285 3,341,544 3,539,295
Write off of intangible assets........ 7,114,525
---------- ---------- -----------
Total operating expenses............ 2,456,995 9,513,760 16,923,141
---------- ---------- -----------
Income (loss) from operations........... 64,660 (896,948) (6,326,265)
Provision (benefit) for income taxes.... 33,500 (333,899) 135,000
---------- ---------- -----------
Net income (loss)....................... $ 31,160 $ (563,049) $(6,461,265)
========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-45
<PAGE>
OCCU-CARE, INC. AND AFFILIATES
COMBINED STATEMENTS OF STOCKHOLDER'S DEFICIT
FOR THE PERIOD FROM JUNE 1, 1994 TO SEPTEMBER 16, 1994
AND FOR THE YEARS ENDED MAY 31, 1994 AND 1993
<TABLE>
<CAPTION>
ACCUMULATED
CAPITAL DEFICIT TOTAL
------- ----------- -----------
<S> <C> <C> <C>
Balance at May 31, 1992...................... $200 $ 626,505 $ 626,705
Net loss for the year...................... (6,461,265) (6,461,265)
---- ----------- -----------
Balance at May 31, 1993...................... 200 (5,834,760) (5,834,560)
Share repurchase........................... (63,000) (63,000)
Net loss for the year...................... (563,049) (563,049)
---- ----------- -----------
Balance at May 31, 1994...................... 200 (6,460,809) (6,460,609)
Net income for the period.................. 31,160 31,160
---- ----------- -----------
Balance at September 16, 1994................ $200 $(6,429,649) $(6,429,449)
==== =========== ===========
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-46
<PAGE>
OCCU-CARE, INC. AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM JUNE 1, 1994 TO SEPTEMBER 16, 1994
AND FOR THE YEARS ENDED MAY 31, 1994 AND 1993
<TABLE>
<CAPTION>
PERIOD ENDED YEARS ENDED MAY 31
SEPTEMBER 16, ----------------------
1994 1994 1993
------------- --------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)...................... $ 31,160 $(563,049) $(6,461,265)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization........ 75,412 279,312 549,726
Write off of intangible assets....... 7,114,525
Changes in assets and liabilities:
Accounts receivable................ (73,857) 1,452,058 (1,041,059)
Inventory.......................... (1,157) 99,892
Other assets....................... (23,098) 9,682 (154,000)
Accounts payable................... 60,300 (55,326) 28,991
Other liabilities.................. (49,278) (431,324) 172,978
-------- --------- -----------
Total adjustments................ (10,521) 1,253,245 6,771,053
-------- --------- -----------
Net cash provided by operating
activities.............................. 20,639 690,196 309,788
-------- --------- -----------
Cash flows from investing activities:
Capital expenditures................... (29,662) (122,907) (558,221)
-------- --------- -----------
Cash flows from financing activities:
Change in capital lease obligation..... (2,606) 22,548 (91,449)
Change in intercompany balance......... 13,179 (557,391) 273,288
Repurchase of shares................... (63,000)
-------- --------- -----------
Net cash provided by (used in) financing
activities.............................. 10,573 (597,843) 181,839
-------- --------- -----------
Net increase (decrease) in cash.......... 1,550 (30,554) (66,594)
Cash, beginning of period................ 30,554 97,148
-------- --------- -----------
Cash, end of period...................... $ 1,550 $ -- $ 30,554
======== ========= ===========
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-47
<PAGE>
OCCU-CARE, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
SEPTEMBER 16, 1994 AND MAY 31, 1994 AND 1993
(1) BUSINESS AND BASIS OF PRESENTATION
Occu-Care, Inc. and affiliates ("Occu-Care" or the "Company") is a wholly
owned subsidiary of TriCare, Inc. (a Delaware corporation). Occu-Care is a
healthcare services company specializing in the industrial and occupational
medical business. Laws regarding the corporate practices of medicine in
California necessitate the separate operation of the Company, which handles
the nonmedical functions of the business, from the companies whose physicians
provide all medical services. As a result, medical groups were established
(professional corporations wholly owned by the physicians) to provide such
medical services. Occu-Care has management agreements with such medical
groups. The medical groups provide all medical aspects of the Company's
services, develop professional standards, policies and procedures and
determine fees, locations, and marketing policies. The Company provides all
administrative services, support personnel, facilities, and nonmedical
services to these medical groups. The Company provides services primarily to
injured workers through a network of six clinics in the greater Los Angeles
area.
Due to the related business activities and mutual dependence of the Company
and the medical groups, combined financial statements are presented because
they are more meaningful than the presentation of separate financial
statements.
On March 1, 1992, Occu-Care acquired all of the outstanding stock of
Industrial Plus Health Network ("IPHN"). The purchase price was $5,617,000 and
has been accounted for under the purchase method of accounting. IPHN has been
consolidated and all intercompany accounts and transactions have been
eliminated.
As described in Note 8, substantially all of the assets and certain
liabilities of the Company were sold on September 16, 1994.
(2) SIGNIFICANT ACCOUNTING POLICIES
Cash Management System
The Company's parent utilizes a centralized cash management system to
provide financing for its operations, including the Company's operations. The
majority of the Company's cash requirements have been financed by the
Company's Parent.
Net Revenues
The Company derives substantially all of its revenue from medical services
provided to injured workers. The medical groups' charges for services are
billed by the Company and are paid directly to the Company by insurance
carriers or self-insured employers. Net revenues are recorded on the date
service is rendered and are equal to billed charges, less a provision for
administrative discounts. Such discounts arise when fee reductions are
negotiated with the payers.
Supplies
Supplies are stated at cost and are charged to expense as used.
Equipment and Leasehold Improvements
Equipment and leasehold improvements are stated at cost, net of accumulated
depreciation and amortization. Expenditures for renewals and improvements
which increase the useful lives or capacity of equipment are capitalized.
Expenditures for repairs and maintenance are charged directly to operating
expenses as incurred. Cost and related accumulated depreciation and
amortization of equipment and leasehold improvements, old or otherwise
disposed of, are eliminated from the accounts, and any gains or losses
resulting from such dispositions are recognized in the statements of
operations.
F-48
<PAGE>
OCCU-CARE, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 16, 1994 AND MAY 31, 1994 AND 1993
The Company provides depreciation and amortization for financial statement
purposes using the straight-line method over the estimated useful lives as
follows:
<TABLE>
<S> <C>
Equipment................................ 3 to 5 years
Leasehold improvements................... Term of lease
</TABLE>
Intangible Assets
Intangible assets consist primarily of goodwill which is being amortized
over 40 years. The Company periodically evaluates the carrying amount of its
intangibles assets. Due to the discontinuation of certain of the Company's
parent's subsidiaries during fiscal 1993, the recoverability of the intangible
assets was determined to have been impaired. Discontinuing these businesses
has increased the allocation of overhead expenses to Occu-Care and has caused
a decrease in the estimated discounted net income over the remaining life of
its goodwill. The Company determined the net realizable value to be
approximately $2,300,000 as of April 30, 1993, resulting in a write-down of
the intangible assets (primarily goodwill) in the amount of $7,115,000 during
fiscal 1993. Amortization expense was $18,200, $62,800, and $161,800 for the
period ended September 16, 1994 and for the years ended May 31, 1994 and 1993,
respectively.
(3) EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements consist of the following at September
16, 1994 and May 31, 1994:
<TABLE>
<CAPTION>
SEPTEMBER 16, MAY 31,
1994 1994
------------- ---------
<S> <C> <C>
Equipment............... $ 901,270 $ 894,154
Leasehold Improvements.. 251,655 250,761
Less Accumulated Depre-
ciation and Amortiza-
tion................... (728,930) (693,345)
--------- ---------
$ 423,995 $ 451,570
========= =========
</TABLE>
(4) OBLIGATIONS UNDER CAPITAL LEASES
The following is a schedule of minimum lease payments under capital leases
as of September 16, 1994 together with the present value of the future minimum
lease payments:
<TABLE>
<S> <C>
September 16, 1994................................................ $65,136
Less amount representing interest............................... 13,996
Present value of future minimum lease payments.................... 51,140
Less current portion.............................................. 10,975
-------
$40,165
=======
</TABLE>
The accompanying combined balance sheets include the following amounts of
equipment and leasehold improvements which are held under capital leases at
September 16, 1994 and May 31, 1994:
<TABLE>
<CAPTION>
SEPTEMBER 16, MAY 31,
1994 1994
------------- --------
<S> <C> <C>
Cost............................................. $ 81,593 $ 81,593
Less Accumulated Depreciation and Amortization... (33,478) (28,251)
-------- --------
$ 48,115 $ 53,342
======== ========
</TABLE>
F-49
<PAGE>
OCCU-CARE, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 16, 1994 AND MAY 31, 1994 AND 1993
(5) RELATED-PARTY TRANSACTIONS
In March 1994, a stockholder sold his interest back to the medical group for
$63,000. This amount has been treated as an adjustment to stockholder's
deficit.
The Company's Parent financed certain cash flow requirements through
noninterest bearing advances.
(6) COMMITMENTS AND CONTINGENCIES
The Company leases general and medical office space under noncancelable
operating leases which expire at various dates through 1998. The following is a
schedule of future minimum lease payments under noncancelable operating leases:
<TABLE>
<S> <C>
Fiscal years ending May 31:
1995......................................................... $ 334,000
1996......................................................... 452,200
1997......................................................... 240,000
1998......................................................... 84,800
----------
$1,111,000
==========
</TABLE>
Rent expense was $139,483 for the period ended September 16, 1994 and
$525,969 and $547,406 for the years ended May 31, 1994 and 1993, respectively.
(7) INCOME TAXES
The Company is included in the consolidated federal income tax return of its
parent (Note 1). The income tax provision (benefit) is computed on a separate-
company (stand-alone) basis. The Company does not have a formal tax-sharing
arrangement with its parent. The Company settles its total tax obligation (both
current and deferred) on an annual basis with its Parent.
The Company's parent adopted Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes," which requires the use of the liability
method in accounting for income taxes. Deferred taxes are determined based on
the estimated future tax effects of differences between the financial
statements and tax basis of assets and liabilities given the provisions of the
enacted tax laws.
A reconciliation from the federal statutory rate to the total provision
(benefit) for income taxes is as follows:
<TABLE>
<CAPTION>
PERIOD ENDED YEARS ENDED MAY 31,
SEPTEMBER 16, ----------------------
1994 1994 1993
------------- --------- -----------
<S> <C> <C> <C>
Tax at statutory rate............. $21,984 $(304,962) $(2,150,930)
State income taxes, net of federal
taxes............................ 3,879 (53,817) (379,576)
Intangible amortization........... 7,248 25,120 2,665,206
Other, net........................ 389 (240) 300
------- --------- -----------
$33,500 $(333,899) $ 135,000
======= ========= ===========
</TABLE>
The principal differences between financial statement and taxable reporting
bases are due to the medical groups' use of the cash method of accounting for
income tax reporting purposes and the resulting effect of recognizing various
income and expense items in different financial reporting periods.
(8) SALE OF THE COMPANY
On September 16, 1994, substantially all of the assets and certain
liabilities (not including Due to Parent) of the Company were sold by the
Parent to AmHealth, Inc. with no gain or loss recognized.
F-50
<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...................................................... 10
Use of Proceeds.......................................................... 11
Price Range of Common Stock.............................................. 12
Dividend Policy.......................................................... 12
Capitalization........................................................... 13
Dilution................................................................. 14
Pro Forma Combined Condensed Financial Data (Unaudited).................. 15
Selected Consolidated Financial Data..................................... 19
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 20
Business................................................................. 25
Management............................................................... 38
Certain Transactions..................................................... 43
Principal and Selling Stockholders....................................... 44
Description of Capital Stock............................................. 46
Shares Eligible for Future Sale.......................................... 47
Underwriting............................................................. 49
Legal Matters............................................................ 50
Experts.................................................................. 50
Available Information.................................................... 51
Index to Financial Statements............................................ F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2,500,000 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
employees or directors 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
</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, the Selling
Stockholders 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. (without Exhibits and
Schedules).
2.5* Option to Purchase Business Agreement, dated April, 1996, between
Registrant and Peter P. Greaney, M.D.
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>
21.1* Subsidiaries of the Registrant.
23.1* Consent of Ernst & Young LLP, independent auditors.
23.2* Consent of KPMG Peat Marwick, LLP, independent public accountants.
23.3* Consent of Arthur Andersen, LLP, independent public accountants.
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>
- --------
* 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 IRVINE, CALIFORNIA, ON
THIS 13TH DAY OF MAY, 1996.
Core, Inc.
/s/ George C. Carpenter IV
By __________________________________
GEORGE C. CARPENTER IV
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY AND SIGNATURES
EACH PERSON WHOSE SIGNATURE APPEARS BELOW HEREBY CONSTITUTES AND APPOINTS
GEORGE C. CARPENTER, CRAIG C. HORTON AND WILLIAM E. NIXON, AND EACH OF THEM,
AS HIS OR HER ATTORNEYS-IN-FACT AND AGENTS, WITH FULL POWER OF SUBSTITUTION
AND RESUBSTITUTION, FOR HIM OR HER AND IN HIS OR HER NAME, PLACE AND STEAD, IN
ANY AND ALL CAPACITIES, (I) TO SIGN ANY AND ALL AMENDMENTS (INCLUDING POST-
EFFECTIVE AMENDMENTS) TO THIS REGISTRATION STATEMENT, (II) TO SIGN ANY
REGISTRATION STATEMENT TO BE FILED PURSUANT TO RULE 462(B) UNDER THE
SECURITIES ACT OF 1933 FOR THE PURPOSE OF REGISTERING ADDITIONAL SHARES OF
COMMON STOCK FOR THE SAME OFFERING COVERED BY THIS REGISTRATION STATEMENT, AND
(III) TO FILE ANY OF THE SAME, WITH ALL EXHIBITS THERETO, AND OTHER DOCUMENTS
IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE COMMISSION, GRANTING
UNTO SAID ATTORNEYS-IN-FACT AND AGENTS, AND EACH OF THEM, FULL POWER AND
AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND THING REQUISITE AND
NECESSARY TO BE DONE IN AND ABOUT THE PREMISES, AS FULLY TO ALL INTENTS AND
PURPOSES AS HE OR SHE MIGHT OR COULD DO IN PERSON, HEREBY RATIFYING AND
CONFIRMING ALL THAT SAID ATTORNEYS-IN-FACT AND AGENTS OR ANY OF THEM, OR THEIR
OR HIS SUBSTITUTE OR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY
VIRTUE THEREOF.
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 DATES INDICATED.
SIGNATURE TITLE DATE
/s/ George C. Carpenter IV Chairman of the May 13, 1996
- ------------------------------------- Board of Directors
GEORGE C. CARPENTER IV and Chief Executive
Officer
/s/ William E. Nixon Chief Financial May 13, 1996
- ------------------------------------- Officer, Executive
WILLIAM E. NIXON Vice President and
Treasurer
/s/ Pamela Ochs-Piasecki Chief Accounting May 13, 1996
- ------------------------------------- Officer
PAMELA OCHS-PIASECKI
/s/ Craig C. Horton President and May 13, 1996
- ------------------------------------- Director
CRAIG C. HORTON
/s/ Leslie Alexandre Director May 13, 1996
- -------------------------------------
LESLIE ALEXANDRE
/s/ Stephen C. Caulfield Director May 13, 1996
- -------------------------------------
STEPHEN C. CAULFIELD
/s/ Richard H. Egdahl, M.D. Director May 13, 1996
- -------------------------------------
RICHARD H. EGDAHL, M.D.
/s/ John Pappajohn Director May 13, 1996
- -------------------------------------
JOHN PAPPAJOHN
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, the
Selling Stockholders 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. (without
Exhibits and Schedules).
2.5* Option to Purchase Business Agreement, dated April, 1996,
between Registrant and Peter P. Greaney, M.D.
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>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
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>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
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<C> <S> <C>
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>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
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<C> <S> <C>
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>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
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<C> <S> <C>
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>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
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<C> <S> <C>
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.
21.1* Subsidiaries of the Registrant.
23.1* Consent of Ernst & Young LLP, independent auditors.
23.2* Consent of KPMG Peat Marwick, LLP, independent public
accountants.
23.3* Consent of Arthur Andersen, LLP, independent public
accountants.
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>
ASSET PURCHASE AGREEMENT
BY AND AMONG
CORE, INC.
AMHEALTH CLINICS CORP.
AND
AMHEALTH, INC.
MAY 10, 1996
<PAGE>
ASSET PURCHASE AGREEMENT
------------------------
THIS ASSET PURCHASE AGREEMENT (the "Agreement"), made and entered into as
of the 10th day of May, 1996 by and among CORE, INC., a Massachusetts
corporation ("CORE"), AmHealth Clinics Corp., a Delaware corporation and wholly-
owned subsidiary of CORE ("Purchaser"), and AmHealth, Inc., a Delaware
corporation ("Seller").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Seller owns and operates nine (9) occupational health clinics in
California (as further defined herein, the "Clinics") and staffings (as further
defined herein the "Staffings");
WHEREAS, Purchaser desires to purchase from Seller, and Seller desires to
sell to Purchaser, on the Closing Date (as hereinafter defined) the Clinics and
substantially all assets used in operating the Clinics and Staffings;
WHEREAS, pursuant to a Management Services Agreement, dated October 1, 1995
(the "AMG Management Contract"), by and between Seller and AmHealth Medical
Group of California, Professional Corporation, a California medical professional
corporation ("AMG"), Seller provides substantially all management services to
AMG and is fully familiar with AMG operations and business;
WHEREAS, pursuant to a Professional Corporation Asset Purchase Agreement,
dated May 10, 1996 (the "P.C. Agreement"), by and between AMG, Peter P. Greaney,
M.D. on behalf of a professional medical corporation to be incorporated in
California ("New P.C."), and AmHealth AMG has agreed to transfer certain assets
and contracts to New P.C.;
WHEREAS, Purchaser will be providing management services to New P.C. and in
connection with Purchaser's acquisition of assets from Seller, Purchaser desires
Seller to make representations, warranties and guarantees concerning AMG's
business and operations;
NOW, THEREFORE, in consideration of the covenants hereinafter set forth and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I
PURCHASE OF ASSETS; CONSIDERATION; CLOSING
SECTION 1.1 PURCHASE OF ASSETS BY PURCHASER; TRANSFER OF AMG ASSETS
(a) Sale of Assets. Subject to the provisions of this Agreement, Seller
--------------
agrees to sell and Purchaser agrees to purchase at the Closing (as defined in
Section 1.5) all of the following specified properties, assets, rights, claims
and contracts used by Seller in the management of AMG's
<PAGE>
occupational health clinics and employer services business (the "Business"):
(i) All of the assets, tangible and intangible, of the nine (9)
clinics of Seller and staffings which Seller manages
(sometimes referred to as Employer Services Group) all as set
forth on Schedule 1.1 (a) hereto (the "Clinics and
----------------
Staffings");
(ii) All computer and similar equipment and software, including
software used in Seller's business in the Clinics and
Staffings, including the equipment and software listed on
Schedules 2.6 and 2.7 hereto;
---------------------
(iii) All patents, patent applications, trade secrets, processes and
techniques, know-how, designs, inventions, copyrights,
discoveries and other proprietary or intangible rights and
intellectual properties used in Seller's business in the
Clinics and Staffings, including the intellectual property and
proprietary rights listed on Schedule 2.7 hereto;
------------
(iv) All Seller's rights to the name and mark "AmHealth" and other
trade names, trademarks and trademark applications used in
Seller's business in the Clinics and Staffings including those
names, marks and rights listed on Schedule 2.7 hereto;
------------
(v) All files, customer and supplier lists, mailing lists,
accounting records and other business records, catalogs,
printed materials and sales aids and other data relating to
Seller's business in the Clinics and Staffings;
(vi) Prepaid expenses, short and long term assets and instruments
of every kind and description used in the business of Seller
in the Clinics and Staffings;
(vii) All rights of every kind under all contracts and agreements
inuring to Seller's benefit or with respect to the Clinics and
Staffings as listed on Schedule 2.10 hereto (the "Assigned
-------------
Contracts"), but excluding those contracts and agreements
listed on Schedule 1.1 (x) and any and all other contracts and
----------------
agreements not listed on Schedule 2.10;
-------------
(viii) All Seller's rights to compensation under the Management
Services Agreement, dated June 1, 1995, by and among
California Pacific Medical Center ("CPMC") AMG and Seller (the
"CPMC Agreement");
2
<PAGE>
(ix) All property, plant, equipment, machinery, motor vehicles,
furniture, fixtures and other tangible personal property
(including supplies and inventories) used by the Clinics and
Staffings including those assets listed on Schedule 2.6
------------
hereto;
(x) [Reserved]
(xi) All documents and information relating to the Business and the
operations of Seller for the past five (5) years, including,
without limitation, customer lists and all books and records
relating to the operations of the Business, but excluding
Seller's corporate records, minute books, general ledger, bank
statements, cancelled checks, month and year end financial
statements, journal entries, tax returns, tax return work
papers, year end inventory analysis and other similar records
and information not related to the operation of the ongoing
Business as agreed upon between Purchaser and Seller; and
(xii) other assets specified by Purchaser related to Seller's
Business or the Clinics and Staffings.
The assets specified above to be sold to and purchased by Purchaser under
this Agreement are referred to collectively as the "Subject Assets". The
Subject Assets shall not include any assets of the clinic owned and operated by
Seller located in Sacramento, California (the "Sacramento Clinic"), equipment
and furniture used by Seller in its Atlanta offices, Seller's operations in
Minnesota (the "Minnesota Operations"), any confidential patient records which
are the property of AMG and which are discussed in Section 4.7 of the P.C.
Agreement, nor any assets listed on Schedule 1.1(x) (the "Excluded Assets").
---------------
The Subject Assets shall include all cash and bank accounts and the cash
management system, prepaid assets, deposits and fixed assets of the Clinics and
Staffings (excluding goodwill). Purchaser agrees that Seller may maintain its
bank accounts and banking relations with its existing banks provided the amounts
in such bank accounts are transferred to Purchaser as Subject Assets.
3
<PAGE>
(b) Transfer of AMG Assets. Seller acknowledges that simultaneously with
----------------------
its sale of Subject Assets to Purchaser, AMG shall sell and transfer
substantially all its assets, excluding accounts receivable (the "P.C. Assets")
to New P.C. Seller shall fully cooperate and assist AMG in connection with such
sale and transfer.
Seller hereby represents and warrants to CORE and Purchaser that the
Subject Assets and the P.C. Assets constitute all assets owned and used by
Seller or AMG in the Clinics and Staffings excluding accounts receivable.
SECTION 1.2 LIMITED ASSUMPTION OF LIABILITIES
Subject to the provisions of this Agreement, at the Closing, Purchaser
shall assume only those debts, liabilities, obligations, commitments and
contracts of the Business set forth on Schedule 1.2 and for the future
------------
obligations under the Real Estate Leases listed on Schedule 2.8 and the future
------------
obligations under the Assigned Contracts listed on Schedule 2.10. THE PURCHASER
-------------
SHALL NOT ASSUME ANY OTHER LIABILITIES, OBLIGATIONS, COMMITMENTS OR CONTRACTS
WHATSOEVER, WHETHER PURSUANT TO THIS AGREEMENT OR OTHERWISE.
The debts, liabilities, obligations, commitments and contracts to be
assumed by Purchaser under this Agreement are referred to collectively as the
"Assumed Liabilities". The Assumed Liabilities shall, without limitation,
exclude (a) liabilities related to the Sacramento Clinic and the Minnesota
Operations; (b) liabilities associated with Capital South or any other financial
institution; (c) liabilities related to Seller's acquisition of any of the
Clinics or liabilities due Branch Cabell; (d) all debts, liabilities,
obligations, commitments and contracts not specifically identified in Schedule
--------
1.2; (e) all tort claims asserted against Seller or the Business or claims
- ---
against Seller or the Business for breach of contract or breach of warranty
based on acts or omissions occurring before the Closing; (f) all liabilities
related to environmental matters which originate prior to the Closing Date; (g)
any contract or agreement of Seller not expressly listed as an Assigned Contract
on Schedule 2.10 to this Agreement; (h) any liabilities or obligations under any
-------------
real property leases for periods prior to the Closing; (i) any obligations or
liabilities to any of Seller's employees unless expressly set forth on Schedule
--------
1.2 and then only in the amount set forth on said Schedule; and (j) any
- ---
liabilities for taxes of any kind, including, without limitation, sales, income
or withholding taxes.
Within 30 days of the Closing Date, or as soon thereafter as is
reasonably practicable, Purchaser shall prepare and deliver to Seller a balance
sheet of the Subject Assets, the P.C. Assets and Assumed Liabilities and P.C.
Liabilities as of the close of business on the Closing Date (the "Closing
Balance Sheet"). The Closing Balance Sheet shall be prepared in accordance with
GAAP. Seller shall reasonably assist Purchaser in the preparation of the Closing
Balance Sheet. At Closing as set forth on the Closing Balance Sheet, the Subject
Assets and the P.C. Assets minus the Assumed Liabilities and the P.C.
Liabilities shall be $1,750,000. For the purposes of
4
<PAGE>
making the foregoing calculation, the Capital Improvements Loan (as defined in
Section 6.1) shall be included in the Assumed Liabilities and assets purchased
by Seller with the proceeds of the Capital Improvement Loan shall be included in
the Subject Assets. If the Closing Balance Sheet indicates that the Subject
Assets and the P.C. Assets minus the Assumed Liabilities and the P.C.
Liabilities is less than $1,750,000, Purchaser shall be entitled to the amount
of such difference from the Escrow; if the Escrow is insufficient for such
purpose, Seller shall immediately pay to Purchaser an amount equal to the amount
of such difference. If the Closing Balance Sheet indicates that the Subject
Assets and the P.C. Assets minus the Assumed Liabilities and the P.C.
Liabilities is more than $1,750,000, Seller shall be entitled to the amount of
such difference and Purchaser shall immediately pay to Seller an amount equal to
the amount of such difference.
SECTION 1.3 CONSIDERATION
Subject to the terms and conditions set forth in this Agreement, the
consideration to be paid by Purchaser to Seller for the Business and the Subject
Assets shall be $15,657,500 (the "Purchase Price"), payable in cash wire
transfer or delivery of other immediately available funds, provided, however,
Purchaser may offset against such payment all amounts due under the $1,000,000
Financing as defined in Section 6.1 and make immediate payment in full to CORE
or SVB, as the case may be, as creditor of the $1,000,000 Financing; and further
provided that such payment shall be from the proceeds of CORE's public offering
of its Common Stock; and further provided the Purchase Price shall be subject to
adjustment pursuant to Section 9.17.
Additionally, CORE agrees to reduce Seller's obligations under the Capital
Improvements Loan at Closing by paying in full the balance of said loan to the
financial institution that made such loan to Seller, or in the event that CORE
made such loan, then to forgive all of the principal and interest then due under
the Capital Improvements Loan, provided, however, that any such payment or
forgiveness of such loan shall not be deemed a Subject Asset, nor shall any such
payment or forgiveness reduce the Assumed Liabilities for the purpose of
calculating the $1,750,000 difference between the Subject Assets (and P.C.
Assets) and the Assumed Liabilities (and P.C. Liabilities).
SECTION 1.4 ALLOCATION OF PURCHASE PRICE
Purchaser shall propose an allocation of the Purchase Price in accordance
with the allocation method required by Section 1060 of the Internal Revenue Code
of 1986, as amended (the "Code"), and the regulations promulgated thereunder.
Subject to Seller's agreement with such allocation, which shall not be
unreasonably withheld, Seller and Purchaser each agree to report the federal,
state and local income and other tax consequences of the transactions
contemplated herein, and in particular to report the information required by
Code Section 1060(b), in a manner consistent with such allocation.
5
<PAGE>
SECTION 1.5 CLOSING DATE
The parties agree that time is of the essence and that the closing under
this Agreement (the "Closing") will take place simultaneously with the closing
of the Underwritten Public Offering (as described in Sections 6.2 and 9.18) but,
in any event, no later than July 31, 1996, or at such other time and place as
the parties may otherwise agree upon (such time being herein referred to as the
"Time of Closing" and such date being herein referred to as the "Closing Date"),
at the offices of CORE's counsel, Rich, May, Bilodeau & Flaherty, P.C., 294
Washington Street, Boston, Massachusetts (or at such other place as the parties
may otherwise agree upon).
SECTION 1.6 ACTIONS TO BE TAKEN AT CLOSING
(a) At the Closing, Seller shall deliver or cause to be delivered to
Purchaser the following:
(i) A Bill of Sale in the form attached hereto as Exhibit A;
---------
(ii) Evidence of transfer of all the P.C. Assets from AMG to New
P.C. or other designee of CORE;
(iii) [Reserved]
(iv) Instruments of assignment of each of the Assigned Contracts in
the form set forth in Exhibit C, with such changes to such
---------
form as may be approved by Purchaser in its sole discretion,
pursuant to which Purchaser will assume all obligations under
each such Assigned Contract accruing after the Closing Date;
(v) The Escrow Agreement in the form attached hereto as Exhibit D,
---------
duly signed by Seller and the Escrow Agent;
(vi) Copies of UCC-1 financing statement searches conducted by a
firm or company acceptable to Purchaser as of a date within
three (3) days of the Closing Date showing no financing
statements, liens or encumbrances on the Subject Assets except
for Temporary Encumbrances (as defined in Section 2.5); and
original, executed UCC termination statements in a form
acceptable to Purchaser and acceptable for filing for any
Temporary Encumbrances statements not yet terminated (such
executed UCC termination statements may be delivered in escrow
subject to payment of
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specified amounts with the proceeds of the Purchaser Price
otherwise payable to Seller);
(vii) Evidence that there are no outstanding Internal Revenue
Service liens on the Subject Assets or the P.C. Assets;
(viii) Evidence that there are no outstanding state or local
governmental liens on the Subject Assets or the P.C. Assets;
(ix) Evidence of repayment in full of the $1,000,000 Financing (as
defined in Section 6.1);
(x) Evidence of cancellation of the Guaranty (as defined in
Section 6.1);
(xi) An opinion of counsel to Seller covering the matters set forth
on Exhibit E in form reasonably satisfactory to Purchaser;
---------
(xii) Reserved;
(xiii) The certificates of insurance for medical malpractice
described in Section 9.24;
(xiv) Reserved;
(xv) Compliance certificate of Seller, dated the Closing Date, as
to the fulfillment of the conditions set forth in Sections 9.1
and 9.2;
(xvi) Written consents of all third parties required by any and all
agreements or documents to which Seller is a party and by
which the Subject Assets are bound in order to consummate the
transactions contemplated hereby;
(xvii) Certified resolutions of the Board of Directors of Seller and
AMG and certified votes of a majority of the stockholders of
Seller and AMG duly and legally authorizing the execution and
performance of this Agreement (such resolutions or votes may
be pursuant to meetings or written consent actions as
permitted by law);
(xviii) All such other documents, assignments and other instruments as
are reasonably necessary to vest in Purchaser title to the
Subject Assets to be transferred to it pursuant to this
Agreement;
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(xix) Evidence of the closing of the P.C. Agreement and the transfer
of the P.C. Assets from AMG to New P.C.; and
(xx) Assignment of federal trademarks and applications suitable for
filing with the U.S. Patent and Trademark Office;
(xxi) All other documents, endorsements, assignments, instruments,
writings and other items required to be delivered by Seller at
or prior to the Closing pursuant to this Agreement or
otherwise required or reasonably requested by Purchaser or its
counsel in connection herewith.
(b) At the Closing, Purchaser will deliver or cause to be delivered to
Seller the following:
(i) The Purchase Price (subject to offset for repayment of the
$1,000,000 Financing and $390,000 of which shall be delivered
to the Escrow Agent as described in Section 7.5);
(ii) Evidence of cancellation of the Capital Improvements Loan;
(iii) The Escrow Agreement duly signed by Purchaser and CORE;
(iv) An opinion of counsel to Purchaser and CORE covering the
matters set forth on Exhibit F in form reasonably satisfactory
---------
to Seller;
(v) A compliance certificate of the Purchaser, dated the Closing
Date, as to the fulfillment of the conditions set forth in
Section 8.1 and 8.2;
(vi) Written consents of all third parties required by any and all
agreements or documents to which Purchaser is a party in order
to consummate the transactions contemplated hereby, if any;
(vii) Certified resolutions of the Board of Directors of Purchaser
and CORE duly and legally authorizing the execution and
performance of this Agreement; and
(viii) All other documents, endorsements, assignments, instruments,
writings and other items required to be delivered by Purchaser
or CORE at or prior to the
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Closing pursuant to this Agreement or otherwise required or
reasonably requested by Seller or its counsel in connection
herewith.
All instruments, agreements, certificates and other documents delivered at
Closing or otherwise delivered pursuant to this Agreement, other than this
Agreement, shall be referred to as the "Ancillary Documents".
SECTION 1.7 FURTHER ASSURANCES
From time to time after the Closing, at the request of Purchaser and
without further consideration, Seller shall execute and deliver such further
instruments of transfer and assignment (in addition to those delivered under
Section 1.6) and take such other actions as Purchaser may require or request to
more effectively transfer and assign to, and vest in, Purchaser title to each of
the Subject Assets. To the extent that the assignment of any contract or right
shall require the consent of other parties thereto, this Agreement shall not
constitute an assignment thereof until such consent is obtained; however, Seller
shall use all reasonable efforts before and after the Closing to obtain any
necessary consents or waivers and to otherwise assure Purchaser of the benefits
of the Assigned Contracts.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to CORE that:
SECTION 2.1 ORGANIZATION
Seller and AMG are duly organized, validly existing and in good standing
under the laws of their respective states of incorporation; and Seller and AMG
have the power and authority to conduct all of the activities conducted by them
and to own or lease all of the assets owned or leased by them. Seller and AMG
are each qualified to do business and in good standing in the State of
California. Seller and AMG are qualified as foreign corporations in all other
states and jurisdictions in which such qualification is required.
Seller and AMG do not directly or indirectly own any shares of stock or any
other securities of any corporation or have any direct or indirect interest in
any firm, partnership, association or other entity directly or indirectly except
as listed in Schedule 2.1 attached hereto. Complete and correct copies of the
------------
certificate of incorporation and the bylaws, in each case as amended, of Seller
and AMG have been delivered to Purchaser and no changes therein will be made
subsequent to the date hereof and on or prior to the Closing Date, without the
prior written consent of Purchaser.
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SECTION 2.2 AUTHORIZATION OF TRANSACTION
Seller has the power and authority to execute and deliver this Agreement,
to consummate the transactions hereby contemplated and to take all other actions
required to be taken by it pursuant to the provisions hereof. This Agreement is
valid, binding and enforceable against Seller in accordance with its terms.
Neither the execution and delivery of this Agreement nor the consummation of the
transactions hereby contemplated will (a) contravene or conflict with the
certificate of incorporation or by-laws of Seller; (b) constitute any violation
or breach of any material provision of any material contract or other instrument
to which Seller or AMG is a party or by which any of the assets of Seller or AMG
may be affected or secured; (c) constitute any violation or breach of any order,
writ, judgment, injunction, decree, statute, rule or regulation or result in the
creation of any lien, charge or encumbrance binding on or applicable to Seller
or AMG or the Subject Assets or the P.C. Assets; or (d) conflict with, or
constitute a default under, or result in the termination or cancellation of, or
right to accelerate, any material agreement, contract or other instrument
binding upon Seller or AMG or any material license, franchise, permit or other
similar authorization held by Seller or AMG.
The execution, delivery and performance by Seller of this Agreement and the
consummation of the transactions by Seller contemplated herein require no action
by or in respect of, or filing with, any governmental body, agency, official or
authority.
SECTION 2.3 CAPITALIZATION
(a) The authorized capital stock of Seller and amount of outstanding
shares of capital stock are set forth on Schedule 2.3. The list of stockholders
------------
and optionholders of Seller as maintained by Seller is set forth in Schedule 2.3
------------
hereto. Seller represents and warrants that Schedule 2.3 is substantially
------------
complete and accurate and that any incomplete or incorrect information on
Schedule 2.3 shall not directly or indirectly impact CORE, Purchaser or New P.C.
- ------------
in any way. Except as set forth on Schedule 2.3, to Seller's best knowledge
------------
there are neither authorized nor outstanding any options, warrants or other
rights to purchase any shares of any capital stock of Seller.
Except as permitted pursuant to Section 5.4 hereof, subsequent to the date
hereof and prior to the Closing Date, Seller will not issue or acquire any
shares of Seller capital stock.
Except as set forth on Schedule 2.3, there are no outstanding obligations
------------
of Seller or AMG to repurchase, redeem or otherwise acquire any Seller or AMG
securities of any kind.
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SECTION 2.4 FINANCIAL STATEMENTS
Schedule 2.4 attached hereto consists of the following financial statements
------------
(the "Audited Financial Statements"): combined financial statements of the 9
Clinics and Staffings of Seller and AMG audited by KPMG Peat Marwick LLP with
its opinion in a form reasonably satisfactory to Purchaser, including (a) the
combined balance sheets of the 9 Clinics and Staffings of Seller and AMG, as of
December 31, 1995, and the related combined statements of operations, retained
earnings and cash flows for the six months ended December 31, 1995, with
footnotes thereto for the period then ended (the combined balance sheet of the 9
Clinics and Staffings of Seller and AMG, as of December 31, 1995, is hereinafter
referred to as the "Balance Sheet"); (b) the combined balance sheets of the 9
Clinics and Staffings of Seller and AMG as of June 30, 1994 and June 30, 1995;
(c) the combined statements of operations, retained earnings and cash flows of
the 9 Clinics and Staffings of Seller and AMG for the years ended June 30, 1994
and June 30, 1995 and (d) the combined unaudited statements of operations,
retained earnings and cash flows of the 9 Clinics and Staffings of Seller and
AMG for the 6 months ended December 31, 1994. The financial statements included
in Schedule 2.4 are in accordance with the books and records of the 9 Clinics
------------
and Staffings, Seller and AMG, are complete and correct in all material respects
and fairly present the financial position of the 9 Clinics and Staffings of
Seller and AMG as of the dates therein indicated and the results of the
operations of the 9 Clinics and Staffings of Seller and AMG for the periods so
ended (subject to normal year end adjustments in the case of any interim
financial statements, the effect of which will not, individually or in the
aggregate, be materially adverse), all in conformity with generally accepted
accounting principles and practices applied on a consistent basis with prior
periods ("GAAP") (except as may be indicated in the notes thereto). The notes
and accounts receivable reflected in the Balance Sheet, net of reserves therein
reflected, are, except to the extent heretofore collected, fully collectible and
subject to no counterclaims or set-offs.
SECTION 2.5 TITLE TO ASSETS; ENCUMBRANCES; CONDITIONAL SALES
Except for the liens, mortgages, pledges and encumbrances set forth in
Schedule 2.5 hereto (the "Temporary Encumbrances"), Seller has good and
- ------------
marketable title to all of the Subject Assets. All Temporary Encumbrances shall
be terminated at or before Closing and at Closing Seller shall have good and
marketable title to the Subject Assets. Without limiting the generality of the
foregoing, no officer, director or stockholder of Seller or AMG (or any member
of their families or any affiliate) owns any asset, tangible or intangible,
which is used in the business of Seller or AMG. None of the assets of Seller or
AMG is held or will be held on the Closing Date by Seller or AMG as lessee under
any lease or as conditional sale vendee under a conditional sale contract or
other title retention agreement, except as set forth in Schedule 2.5 or as
------------
otherwise expressly permitted herein.
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<PAGE>
Seller represents that the Bill of Sale and other documents and instruments
of transfer delivered to Purchaser at Closing shall effectively vest in
Purchaser good and marketable title to the Subject Assets, free and clear of all
liens, restrictions and encumbrances.
At Closing, the Subject Assets and the P.C. Assets shall include all the
assets which in any way relate to the Business.
SECTION 2.6 MACHINERY, EQUIPMENT, FIXTURES
Attached hereto as Schedule 2.6 is a complete and correct list and a brief
------------
description of all machinery, vehicles, equipment and fixtures, office equipment
and furniture and/or other personal property owned by Seller or AMG on December
31, 1995, with a book value of more than $1,000.
SECTION 2.7 PROPRIETARY RIGHTS; PATENTS; TRADEMARKS; SOFTWARE; ETC.
For the purposes of this Agreement, "Proprietary Rights" means any of the
following which are material to or used in the business of Seller or AMG: (a)
patents, patent applications, patent disclosures and inventions (whether or not
patentable and whether or not reduced to writing or practice), (b) trademarks,
service marks, trade dress, trade names and corporate names and registrations
and applications for registration thereof, (c) copyrights and registrations and
applications for registration thereof, (d) mask works and registrations and
applications for registration thereof, (e) computer software, data and
documentation, (f) trade secrets and other confidential information (including,
without limitation, ideas, formulas, compositions, know-how, manufacturing and
production processes and techniques, research and development information,
drawings, specifications, designs, plans, proposals, technical data,
copyrightable works, financial and marketing plans and customer and supplier
lists and information), (g) other intellectual property rights, and (h) copies
and tangible embodiments thereof (in whatever form or medium).
Schedule 2.7 attached hereto contains a complete and accurate list of (i)
------------
all patented and registered Proprietary Rights owned by Seller or AMG, (j) all
pending patent applications and applications for registrations of other
Proprietary Rights filed by Seller or AMG, (k) all trade names and corporate
names owned or used by Seller or AMG, (l) all trademarks, service marks,
copyrighted works and computer software which are material to the financial
condition, operating results, assets, operations or business prospects of Seller
or AMG, and (m) all licenses and other rights granted by Seller or AMG to any
third party with respect to any Proprietary Rights and all licenses and other
rights granted by any third party to Seller or AMG with respect to any
Proprietary Right. Except as set forth in Schedule 2.7, Seller and AMG own and
------------
possess all right, title and interest in and to, or have the right to use
pursuant to a valid license, all Proprietary Rights necessary for the operation
of the business of Seller and AMG as currently conducted and as currently
proposed to be conducted. All of such Proprietary Rights of Seller and AMG will
remain
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in effect and good standing as and to the extent existing on the date of this
Agreement notwithstanding the consummation of the transactions contemplated by
this Agreement and the P.C. Agreement. Except as set forth on Schedule 2.7, the
------------
loss or expiration of any Proprietary Right or related group of Proprietary
Rights would not have a material adverse effect on the financial condition,
operating results, assets, operations or business prospects of Seller or AMG,
and no such loss or expiration is threatened, pending or reasonably foreseeable.
Seller and AMG have taken all actions which Seller and AMG, in their reasonable
business judgment, deem necessary or desirable to maintain and protect the
Proprietary Rights which Seller or AMG owns and uses. Except as indicated on
Schedule 2.7, (n) there have been no claims which have been made or are
- ------------
currently outstanding or are threatened against Seller or AMG asserting the
invalidity, misuse, unenforceability, or contesting the ownership, of any of the
Proprietary Rights which Seller or AMG owns or uses, and, after reasonable
inquiry, there are no grounds for the same, (o) the conduct of Seller's business
and AMG's business has not infringed, misappropriated or otherwise conflicted
with, and does not infringe, misappropriate or otherwise conflict with, any
Proprietary Right of other persons or entities, and Seller's and AMG's present
conduct will not infringe, misappropriate or conflict with any Proprietary Right
of other persons or entities, and (p) the Proprietary Rights owned or used by
Seller and AMG have not been infringed or misappropriated by, or otherwise
conflict with, other persons or entities.
SECTION 2.8 REAL PROPERTY
Except as described in the final sentence of this Section, Schedule 2.8
------------
includes a complete and correct list of all real property which is presently
owned or leased by Seller or AMG and which will be owned or leased by Seller or
AMG on the Closing Date, together with a brief description of all plants,
structures and improvements thereon or thereto. Seller and AMG have good and
marketable title to such owned real property, free and clear of any lien,
encumbrance or restriction whether of record or otherwise, except as
particularly described in said Schedule 2.8. The real estate leases set forth
------------
in Schedule 2.8 are in full force and effect and will continue to be in full
------------
force and effect on identical terms following consummation of the transactions
contemplated in this Agreement. No lease set forth in Schedule 2.8 requires the
consent of any person or governmental or other entity for the consummation of
the transactions contemplated hereby, except as set forth on Schedule 2.8.
------------
Schedule 2.8 excludes any real estate lease with respect to (a) the
------------
Sacramento Clinic (which is not being transferred to Purchaser), (b) the
Minnesota Operations, and (c) Seller's Atlanta area offices. Such excluded
leases are listed on Schedule 1.1(x).
---------------
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SECTION 2.9 INSURANCE
Seller and AMG presently maintain and shall continue to maintain through
the Closing Date the insurance described in Schedule 2.9 attached hereto,
------------
including the term, premium, policy limits, exclusions and deductibles in each
case applicable thereto, as well as whether such policies are "occurrence" or
"claims made", and all of the policies set forth therein are in full force and
effect.
SECTION 2.10 CONTRACTS
Attached hereto as Schedule 2.10 is a brief description of all contracts
-------------
and other agreements related to the Clinics and Staffings, whether written or
oral, to which either Seller or AMG is a party or which are binding on Seller or
AMG, with the exception of the following:
(a) Contracts or commitments for services, or for the purchase of
materials, inventory or supplies by Seller or AMG entered into in the
ordinary and usual course of business which do not individually exceed
one thousand dollars ($1,000.00);
(b) Contracts or commitments for the sale of goods, products or services
by Seller or AMG entered into in the ordinary and usual course of
business which do not individually involve an amount or value in
excess of one thousand dollars ($1,000.00).
(c) Contracts or agreements relating solely to the Sacramento Clinic, the
Minnesota Operations, the Atlanta offices of Seller or contracts and
agreements not being assigned to and assumed by Purchaser. The
excluded contracts referred to in this subsection (c) are listed on
Schedule 1.1(x).
---------------
Schedule 2.10 or Schedule 1.1(x) also contain a list of all contracts or
------------- ---------------
agreements relating to the Clinics and Staffings, whether written or oral,
executed or in effect within the past 24 months or to be effective in the future
pursuant to which Seller or AMG is a party on the one hand, and any affiliate of
Seller or AMG, including without limitation any director, officer or stockholder
of Seller or AMG (or any member of their respective families) is a party on the
other hand.
Except as set forth in Schedule 2.10 or Schedule 1.1(x), Seller and AMG are
------------- ---------------
neither in default under any material provision of said contracts or agreements
nor is any default or failure to perform by Seller or AMG alleged by any party
to any such contract or agreement, and no act or event has occurred which with
notice or lapse of time, or both, would constitute a default by Seller or AMG
under any such contract or agreement or permit the modification, cancellation,
acceleration or termination of any such contract or agreement or result in the
creation of any
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<PAGE>
security interest upon, or any person or entity obtaining any right to acquire
any property, asset or right of Seller or AMG.
Seller has delivered to Purchaser a correct and complete copy of each
contract and agreement listed on Schedule 2.10 (including all amendments
-------------
thereto). Each such contract or agreement is in full force and effect and is
valid and legally binding on the parties thereto; there are no unresolved
disputes involving or with respect to any such contract or agreement, and no
party to any such contract or agreement has advised Seller or AMG that it
intends either to terminate such contract or agreement or to refuse to renew
such contract or agreement upon the expiration of the term thereof.
SECTION 2.11 OTHER MATERIAL CONTRACTS
Seller and AMG do not have any contract or agreement not specified in this
Agreement or the Schedules hereto which is binding on Seller, AMG or on any
other party and which might materially (adversely or favorably) affect their
properties, businesses or financial conditions.
SECTION 2.12 EMPLOYEES
Schedule 2.12 attached hereto contains (a) a true and correct list of the
-------------
names of each employee and consultant of Seller and AMG (excluding Steven
Miracle and employees and consultants who presently work or have a job situs in
Seller's Atlanta office) and the current annual rate of compensation and all
bonuses or anticipated bonuses paid or payable by Seller or AMG not otherwise
described in item (b) of this Section 2.12 (including any payments which are not
reflected on the records of Seller or AMG to each such employee and consultant);
and (b) a list and/or description of all pension, retirement, incentive, bonus,
profit sharing, vacation, holiday, health, life insurance or other plan or
policy for the benefit of any employee or consultant of Seller or AMG. Except
as shown on Schedule 2.10, there are no currently effective employment or
-------------
consulting or other agreements with employees or consultants to which Seller or
AMG is a party. Except as set forth on Schedule 6.4, to Seller's best knowledge
------------
(as defined in Section 12.5), no executive, key employee, or group of employees
has any plans to terminate employment with Seller or AMG and no such executive
or employee intends to refuse Purchaser's offer of employment as described in
Section 6.4(a). Neither Seller nor AMG is a party to nor bound by any
collective bargaining agreement. Except as set forth in Schedule 2.12, there is
-------------
no pending or threatened material dispute between Seller or AMG and any of their
respective employees or consultants.
The individual licenses of each employee and consultant of Seller or AMG
performing services at any Clinic or Staffing, if so required based upon their
particular employment or service requirements, including, without limitation,
all medical licenses, are current and valid and will be current and valid as of
the Closing Date and for a period of sixty (60) days following the Closing
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Date. No employee or consultant affiliated with any Clinic or Staffing is
presently on suspension or subject to pending suspension or revocation, which
was or may be imposed by any private or governmental body. Except as set forth
on Schedule 2.12, all employees of the Seller and AMG are employees at will.
-------------
SECTION 2.13 EMPLOYEE PLANS
Seller and AMG do not have any pension, retirement, bonus, deferred
compensation, stock purchase, profit sharing, insurance or similar plan or
arrangement for the benefit of employees, oral or written, other than plans or
arrangements described in Schedule 2.13 attached hereto. In connection with any
-------------
such plan or arrangement listed in said Schedule 2.13, there have not been any
-------------
"prohibited transactions" within the meaning of Section 406(a) of the Employee
Retirement Income Security Act of 1974 ("ERISA") nor any "reportable events"
within the meaning of Section 4043(b) of ERISA. All contributions (including all
employer contributions and employee salary reduction contributions) which are
due have been paid to each such plan or arrangement, and all contributions for
any period ending on or before the Closing Date which are not yet due have been
paid to each such plan or arrangement or accrued in accordance with the past
custom and practice of Seller and AMG. All premiums or other payments for all
periods ending on or before the Closing Date have been paid with respect to each
such plan or arrangement. All reports and filings with respect to said plans or
arrangements required to be made pursuant to state or federal law have been, and
on the Closing Date will have been, timely filed, except as otherwise set forth
in Schedule 2.13. Neither Seller nor AMG contributes, ever has contributed, or
-------------
ever has been required to contribute to any Multiemployer Plan (as defined in
ERISA Section 3(37)) or has any liability (including withdrawal liability) under
any Multiemployer Plan.
Seller and AMG do not have any oral or written contract or agreement of
employment with any officer, salesman or other employee, or agency, territorial
franchise, sales representative or other service agreement not terminable
without penalty on notice of one month or less, or with any labor union, except
as described in Schedule 2.13 attached hereto.
-------------
SECTION 2.14 GOVERNMENTAL LICENSES AND PERMITS
Seller and AMG have been granted all certificates, licenses, permits,
authorities and franchises from any federal, state or municipal or other
governmental instrumentality, agency or commission or similar body which may be
necessary to lawfully carry on their businesses. Schedule 2.14 contains a list
-------------
of all such certificates, licenses, permits, authorities and franchises.
All certificates, licenses, permits, authorities and franchises of the
Clinics and Staffings are validly held by the Clinics and Staffings (either by
Seller or AMG), the Clinics and Staffings have complied with all requirements in
connection therewith and the same will not be subject to
16
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suspension or revocation as a result of this Agreement, the P.C. Agreement or
the consummation of the transactions contemplated therein. All certificates,
licenses, permits, authorities and franchises issued or granted by local, state
or federal authorities or agencies which are necessary for the conduct of the
Clinics' business of the Clinics and Staffings and which are held in the name of
any employee, officer, director, shareholder, agent or other entity of the
Clinics and Staffings shall be deemed included under this representation and
warranty, and Seller and AMG warrant that such certificates, licenses, permits,
authorizations and franchises shall be duly and validly transferred to the
Purchaser or the Purchaser's nominee, to the extent legally transferable,
without additional consideration at Closing; provided, however, if the cost of
transfer for any certificate, license, permit authorization or franchise exceeds
$1,000, then Seller and Purchaser shall evenly split the cost of such transfer
fee.
SECTION 2.15 LIABILITIES
Except as set forth in Schedule 2.15, Seller and AMG have no liabilities or
-------------
obligations of any nature (whether known or unknown and whether absolute,
accrued, contingent or otherwise) except for (a) liabilities or obligations
reflected or reserved against in the Balance Sheet, (b) liabilities incurred
since the date of the Balance Sheet in the ordinary course of business and (c)
liabilities under this Agreement and the P.C. Agreement.
SECTION 2.16 TAXES
Except as set forth on Schedule 2.16, Seller and AMG have prepared and
-------------
filed when due (taking into account extensions) all appropriate federal, state,
local and other tax returns of every kind and nature for all periods on or
before the due dates of such returns (as extended by any permitted extensions of
time) and have paid all taxes shown to be due by said returns or on any
assessments received by Seller or AMG or have made adequate provision for the
payment thereof. Seller has delivered to the Purchaser complete and accurate
copies of (i) Seller's federal, state and local tax returns for the fiscal years
ended June 30, 1993, 1994 and 1995 and (ii) AMG's federal, state and local
returns for the years set forth on Schedule 2.16. All such tax returns are
-------------
materially correct.
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The provisions for taxes (federal, state, local and other), and interest
and penalties, if any, with respect thereto, reflected in the Balance Sheet are
adequate to cover any and all taxes and any interest or penalties in connection
therewith which have been or may be assessed with respect to the properties,
businesses and operations of Seller and AMG, for the period ended on the date of
said Balance Sheet and all prior periods. No claim or liability is pending or
has been assessed or threatened against Seller or AMG in connection with any
such taxes except as reflected in the Balance Sheet. The federal and state
income tax returns of Seller and AMG have never been audited.
Seller and AMG are not, and on the Closing Date will not be, consenting
corporations within the meaning of Section 341(f) of the Internal Revenue Code.
Except as set forth on Schedule 2.16, all taxes or other assessments and
-------------
levies which Seller or AMG is or was required by law to withhold or collect have
been duly withheld and collected, and have been paid over to the proper
governmental authorities or are held by Seller or AMG in separate bank accounts
for such payment and all such withholdings and collections and all other
payments due in connection therewith are duly set forth on the Balance Sheet and
financial statements delivered to CORE pursuant to Section 5.12(a).
Seller agrees that any taxes (federal, state, local and other) and any
interest and penalties which are assessed after the Closing Date, that pertain
to periods of time prior to the Closing Date or that result from the Closing,
will be the responsibility of the Seller and AMG. Such taxes and assessments
may include, but not be limited to, assessments for the classification of
"consultants" who are considered "employees" by the Internal Revenue Service.
SECTION 2.17 LITIGATION; COMPLIANCE WITH LAWS AND REGULATORY BODIES
Except as set forth in Schedule 2.17 attached hereto, there are no actions,
-------------
suits or proceedings pending or threatened against or affecting Seller, AMG, the
Subject Assets, the P.C. Assets, or the property of Seller or AMG in any court
or before any federal, state, municipal or other governmental department,
commission, board or other instrumentality or before any arbitrators (all of
which claims are adequately covered by insurance, or are believed to be
adequately reserved for in Seller's Balance Sheet).
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Seller and AMG have complied with all applicable laws including, without
limitation, environmental laws (including rules, regulations, codes, plans,
injunctions, judgments, orders, decrees, rulings and charges thereunder) of
federal, state, local and foreign governments (and all agencies thereof), and
there are no pending or, to Seller's best knowledge, threatened governmental
investigations involving Seller or AMG, including inquiries, citations, or
complaints by any federal, state, local or foreign government or agencies or
instrumentalities thereof. There are no outstanding orders, decrees or
stipulations to which Seller or AMG is a party affecting Seller or AMG or any of
their respective products or services, and Seller and AMG are not in default
with respect to any judgment, order, decree, award, rule or regulation of any
court of any such department, commission, board or other instrumentality or
arbitrators.
Seller and AMG have complied with all applicable regulations and rules of
non-governmental entities (and all sub-divisions thereof) having jurisdiction,
authority or regulatory power over the Seller or AMG, as the case may be, and
there are no pending or, to Seller's best knowledge, threatened investigations
by any such entity involving Seller or AMG, including inquiries, citations or
complaints. There are no outstanding orders, decrees, stipulations, findings,
declarations or similar directives to which Seller or AMG is a party or
affecting Seller or AMG or any of their respective products or services, and
neither Seller nor AMG is in default with respect to any order, decree,
stipulation, finding, declaration or similar directive of any such entity.
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SECTION 2.18 ACCOUNTS RECEIVABLE
The accounts receivable set forth in the Balance Sheet are, and the
accounts receivable set forth in the monthly financial statements delivered to
the Purchaser pursuant to Section 5.12 will be, bona fide, fully collectible
(except to the extent previously collected and except for any reserves set forth
in the Balance Sheet) and attributable to the ordinary course of business.
SECTION 2.19 POWERS OF ATTORNEY; GUARANTIES
There are no outstanding powers of attorney executed on behalf of Seller or
AMG. Neither Seller nor AMG is a guarantor or otherwise liable for any
liability or obligation (including indebtedness) of any third party.
SECTION 2.20 SERVICE WARRANTIES
To Seller's best knowledge each and every service provided by Seller has
been in substantial conformity with all material applicable contractual
commitments and all express and implied warranties, and Seller has no liability
(and there is no basis for any present or future action, suit, proceeding,
hearing, investigation, charge, complaint, claim or demand against either of
them giving rise to any liability) for replacement or repair thereof or other
damages in connection therewith, subject only to the reserve for warranty or
claims set forth on the Balance Sheet.
To Seller's best knowledge the medical services performed by AMG have been
in compliance with all applicable laws, statutes and regulations and conform
with professional standards.
Notwithstanding the limitation of the representation and warranties of this
Section 2.20 to Seller's best knowledge, all parties agree and acknowledge that
Purchaser is not assuming any of Seller's or AMG's liabilities for third party
claims related to events occurring on or prior to the Closing Date.
SECTION 2.21 EVENTS SUBSEQUENT TO BALANCE SHEET DATE
Except as set forth on Schedule 2.21, since the date of the Balance Sheet,
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there has not been (except as otherwise disclosed in the Schedules hereto or
---------
expressly contemplated herein) and will not be on the Closing Date:
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(a) Any material adverse change in assets, liabilities, financial
condition, business, business organization or personnel of Seller or
AMG taken as a whole, or in relationships with suppliers, customers,
landlords or others;
(b) Any disposition, sale or issuance by Seller of any of its capital
stock or grant of any option or right to acquire any of its capital
stock or any acquisition or retirement for a consideration by Seller
of any of its capital stock or any declaration or payment by Seller of
any dividend or other distribution of or with respect to its capital
stock;
(c) Any sale, mortgage, pledge or other disposition of any material asset
owned by Seller or AMG at the close of business on the date of the
Balance Sheet or acquired by Seller or AMG since said date other than
in the ordinary and usual course of business;
(d) Any material expenditure or commitment by Seller or AMG for the
acquisition of assets of any kind, other than inventories and supplies
acquired in the ordinary course of business;
(e) Any damage, destruction or loss (whether or not insured) materially
and adversely affecting the property or business of Seller or AMG;
(f) Any general wage or salary increase by Seller or AMG;
(g) Any increase in the compensation payable or to become payable by
Seller or AMG to any officer or key employee;
(h) Any loan or advance by or to Seller or AMG or any increase in
indebtedness for borrowed money or capitalized leases of Seller or
AMG, except in the ordinary course of business;
(i) Any cancellation by Seller or AMG of any material indebtedness owing
to either of them or any cancellation or settlement by Seller or AMG
of any material claims against others;
(j) Any sale, assignment or transfer by Seller or AMG of any material
patent, trademark, tradename, copyright, license, franchise,
certificate, permit or other intangible asset;
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(k) Any acceleration, termination, modification or cancellation of any
agreement, contract, lease or license involving more than $5,000 to
which Seller or AMG is a party or by which Seller or AMG is bound;
(l) Any delay or postponement of the payment of accounts payable or other
liabilities of Seller or AMG outside the ordinary course of business;
(m) Any loan or other transaction between Seller or AMG, on the one hand,
and any director, officer or stockholder of Seller or AMG on the
other;
(n) Any transaction of any kind involving Seller or AMG not in the
ordinary and usual course of business, except as otherwise provided in
this Agreement;
(o) Any declaration, setting aside or payment of any dividend or other
distribution in respect of any shares of capital stock of Seller or
AMG;
(p) Any repurchase, redemption or other acquisition by Seller or AMG of
any outstanding shares of capital stock or other securities of, or
other ownership interests in, Seller or AMG;
(q) Any amendment of any term of any outstanding securities of Seller or
AMG;
(r) Any material reduction in the amounts of coverages provided by
existing malpractice, casualty and liability insurance policies with
respect to the business of Seller or AMG;
(s) Any new, or any amendment to or alteration of any existing bonus,
incentive compensation, severance, stock option, stock appreciation
right, pension, matching gift, profit-sharing, employee stock
ownership, retirement, group insurance, death benefit or other fringe
benefit plan, arrangement or trust agreement adopted or implemented by
Seller or AMG; or
(t) Any litigation commenced by or against Seller or AMG, including a
voluntary or involuntary petition under the Bankruptcy Code up to 91
days after the Closing Date, nor any assignment nor repossession for
the benefit of any creditor of Seller or AMG.
(u) Any commitment by Seller or AMG to any of the foregoing.
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SECTION 2.22 NO BROKER
Except for fees and expenses payable to Branch Cabell (which are the sole
responsibility of Seller), no agent or broker or other person acting pursuant to
authority of Seller or AMG is entitled to any commission or finder's fee in
connection with the transactions contemplated by this Agreement.
SECTION 2.23 OFFICERS AND DIRECTORS
The officers and directors of Seller and AMG are as listed in Schedule 2.23
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attached hereto.
SECTION 2.24 FAIR CONSIDERATION
In the opinion of the management of Seller, the Purchase Price and other
consideration received by Seller is at least equal to the fair market value of
the Subject Assets and Business of the Clinics being transferred to Purchaser in
this transaction.
SECTION 2.25 TRADE NAMES AND NON-APPLICABILITY OF BULK SALES LAW
To the best of Seller's knowledge, Schedule 2.25 hereto sets forth all
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business names and addresses used by Seller and AMG within the past five (5)
years. Except as set forth in Schedule 2.25, the Seller and AMG have always
-------------
conducted their respective businesses only under their proper corporate names.
Except as set forth in Schedule 2.25, Seller and AMG have never operated under
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or used an assumed or fictitious name. Neither Seller nor AMG has ever received
notice that the manner in which it conducts its business conflicts with any
rights of third parties to trade names, trademarks, trademark applications,
trademark registrations, trademark licenses or sublicenses, service marks,
service mark applications, service mark registrations, service mark licenses or
sublicenses, copyrights, copyright applications, copyright registrations,
copyright licenses or sublicenses, patents, patent applications or patent
licenses or sublicenses. Purchaser's use of the marks "AmHealth" and "AmHealth
Network" will not subject Purchaser to any claim from third parties.
Seller and AMG shall not use any other business name or address from the
date of this Agreement through the Closing Date. Schedule 2.25 also contains
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(i) all locations (including county and judicial districts) of the Subject
Assets and Seller's and AMG's places of business and chief executive offices.
The transaction described in this Agreement and the P.C. Agreement are not
subject to the bulk sales law of California or any other state.
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SECTION 2.26 ARMS LENGTH TRANSACTIONS
All transactions by the Seller and AMG with outside parties have been
conducted on an arms length basis. Except as set forth in Schedule 2.26 the
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directors, stockholders and officers of Seller and AMG (including their
immediate families and affiliates) have not since January 1, 1995 had any
material direct or indirect ownership of, or a profit participation in, any
outside business enterprise with which the Seller or AMG had significant
purchases, sales or business dealings.
SECTION 2.27 OTHER LIABILITIES OF SELLER
Seller shall retain all of its liabilities other than the Assumed
Liabilities (the "Retained Liabilities"). Seller represents and warrants that
Schedule 2.27 attached hereto contains a list of all Retained Liabilities,
- -------------
however, Seller's failure to include on Schedule 2.27 any particular liability
-------------
that is not an Assumed Liability (a) shall not change the nature of such
liability and it shall remain a Retained Liability; and (b) shall not create any
obligation on the part of CORE, Purchaser, or New P.C. for payment of that
Retained Liability. Seller shall apply the Purchase Price to payment of its
Retained Liabilities and Seller shall use its best efforts to enter into binding
agreements with each creditor of Seller, pursuant to which all liabilities of
Seller to its creditors (other than the Assumed Liabilities) shall be discharged
no later than the Closing Date. Purchaser shall have no liability whatsoever
for any of the Retained Liabilities, whether pursuant to this Agreement or
otherwise.
No liabilities of AMG shall be assumed by Purchaser, CORE or New P.C.
except as expressly described in the Professional Corporation Asset Purchase
Agreement among New P.C., AMG and Seller.
SECTION 2.28 BOARD OF DIRECTORS APPROVAL
The Board of Directors of Seller has duly authorized the execution,
delivery and performance of this Agreement by Seller.
The Board of Directors of AMG has duly authorized the execution, delivery
and performance of the P.C. Agreement by AMG.
SECTION 2.29 DISCLOSURE; EFFECT OF TRANSACTION
Neither this Agreement nor any statement, list or certificate furnished or
to be furnished by Seller or AMG or their representatives to Purchaser or CORE
pursuant hereto or in connection with this Agreement, the P.C. Agreement or any
of the transactions contemplated thereby, contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
necessary in order to make the statements contained herein and therein, in light
of the circumstances
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in which they are made, not misleading. There is no fact regarding Seller, AMG
or their respective prospects which CORE, Purchaser or New P.C. would reasonably
consider material in making a decision with respect to the purchase of the
Subject Assets or the P.C. Assets which has not been disclosed to CORE or
Purchaser in this Agreement, including the Schedules and Exhibits hereto.
No creditor, employee, consultant, client or other customer or other person
having a material business relationship with Seller, AMG or any of the Clinics
or Staffings has informed Seller or AMG, and neither Seller nor AMG has
knowledge or is otherwise aware, that such person or entity intends to change
the relationship because of the purchase and sale of the Subject Assets and the
P.C. Assets as contemplated hereby, which change would have a material adverse
effect on the Business or the Clinics or Staffings.
SECTION 2.30 SUPPLEMENTAL DISCLOSURE
Seller shall have the continuing obligation through the Closing to promptly
supplement or amend the Schedules and Exhibits hereto with respect to any
material matter hereafter arising or discovered which, if existing or known at
the date of this Agreement, would have been required to be set forth or
described in such Schedules or Exhibits; provided, however, that for the purpose
of the rights and obligations of the parties hereunder, any such supplemental or
amended disclosure shall not be deemed to have been disclosed as of the date of
this Agreement unless expressly so agreed to in writing by Purchaser and CORE.
SECTION 2.31 REPRESENTATIONS AND WARRANTIES AT CLOSING
On the Closing Date, all of the representations and warranties of Seller
contained in this Agreement will be true and correct in all material respects at
and as of the Closing Date with the same force and effect as though made at and
as of the Closing Date, except for changes contemplated or permitted by this
Agreement.
SECTION 2.32 SURVIVAL OF REPRESENTATIONS
The representations and warranties of the Seller contained in this
Agreement and any Ancillary Documents shall survive the Closing hereunder,
notwithstanding any investigation which may be made by or on behalf of Purchaser
or CORE.
SECTION 2.33 ENVIRONMENTAL MATTERS
Seller and AMG are in compliance with, have not violated and have no
knowledge of any potential future violation of, nor is there any liability or
obligation arising under, any law, ordinance, rule, regulation, order, decree,
notice, plan, demand letter or other mandate or
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prescription, whether past or current, of any federal, state, local or foreign
governmental authority (each an "Environmental Law"), including, without
limitation, the California Occupational Safety and Health Act of 1973, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
the Resource Conservation and Recovery Act of 1976, and the Occupational Safety
and Health Act of 1970, each as amended, relating to any contaminant,
contamination or protection of the environment or environmental health and
safety, including without limitation, any Environmental Law relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transportation or handling of any element, substance, compound or mixture
(including any waste or break-down product thereof), whether solid, liquid or
gaseous, that has been or is subject to any Environmental Law, or the presence,
existence or threat of which shall at any time give rise, under any theory at
law or in equity to liability, whether under any Environmental Law or otherwise.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF CORE
CORE hereby represents and warrants to Seller that:
SECTION 3.1 ORGANIZATION
CORE is a corporation duly organized, validly existing and in good standing
under the laws of the Commonwealth of Massachusetts; and has the power and
authority to conduct all of the activities conducted by it and to own or lease
all of the assets owned or leased by it. CORE is qualified as a foreign
corporation in all states and jurisdictions in which such qualification is
required, except where the lack of such qualification would not materially and
adversely affect the ability to do business or the financial condition of CORE.
Complete and correct copies of the Articles of Organization and Bylaws,
including in each case all amendments thereto, of CORE have been made available
to Seller.
SECTION 3.2 AUTHORIZATION OF TRANSACTION
CORE has the power and authority to execute and deliver this Agreement, to
consummate the transactions hereby contemplated and to take all other actions
required to be taken by it pursuant to the provisions hereof. This Agreement is
valid, binding and enforceable against CORE in accordance with its terms.
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SECTION 3.3 BROKER
No agent or broker or other person acting pursuant to authority of CORE is
entitled to any commission or finder's fee in connection with the transactions
contemplated by this Agreement.
SECTION 3.4 BOARD OF DIRECTORS APPROVAL
The Board of Directors of CORE has duly authorized the execution and
delivery and performance of this Agreement by CORE.
SECTION 3.5 CORE SEC FILINGS
CORE has since October 18, 1991 filed all proxy statements, schedules and
reports required to be filed by it with the Securities and Exchange Commission
(the "SEC") pursuant to the Securities Exchange Act (collectively, the "CORE SEC
Filings").
CORE has made available to Seller and AMG the following CORE SEC Filings:
its annual report on Form 10-K for its fiscal year ended December 31, 1994 and
December 31, 1995; its quarterly reports on Form 10-Q for its fiscal quarters
ended March 30, 1995, June 30, 1995 and September 30, 1995; its proxy statements
relating to meetings of the stockholders of CORE held in 1995; and its Forms 8-K
dated March 24, 1995 and October 2, 1995.
None of the CORE SEC Filings contained, as of its date, any untrue
statement of material fact or any omission to state a material fact required to
be stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading.
SECTION 3.6 DISCLOSURE
Neither this Agreement nor any statement, list or certificate furnished or
to be furnished to Seller by or on behalf of CORE pursuant hereto or in
connection with the transactions contemplated hereby contains or will contain
any untrue statement of a material fact, or omits or will omit to state a
material fact necessary in order to make the statements contained herein and
therein, in light of the circumstances in which they are made, not misleading.
SECTION 3.7 REPRESENTATIONS AND WARRANTIES AT CLOSING
On the Closing Date, all of the representations and warranties of CORE
contained in this Agreement will be true and correct in all material respects at
and as of the Closing Date with the
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same force and effect as though made at and as of the Closing Date, except for
changes contemplated or permitted by this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Seller that:
SECTION 4.1 ORGANIZATION
Purchaser is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware; and has the power and
authority to conduct all of the activities conducted by it and to own or lease
all of the assets owned or leased by it. Purchaser is qualified as a foreign
corporation in all states and jurisdictions in which such qualification is
required, except where the lack of such qualification would not materially and
adversely affect the ability to do business or the financial condition of
Purchaser.
A complete and correct copy of the Certificate of Incorporation and the
Bylaws of Purchaser has been made available to Seller.
SECTION 4.2 AUTHORIZATION OF TRANSACTION
Purchaser has the power and authority to execute and deliver this
Agreement, to consummate the transactions hereby contemplated and to take all
other actions required to be taken by it pursuant to the provisions hereof, and
this Agreement is valid, binding and enforceable against Purchaser in accordance
with its terms.
SECTION 4.3 BROKER
No agent or broker or other person acting pursuant to authority of
Purchaser is entitled to any commission or finder's fee in connection with the
transactions contemplated by this Agreement.
SECTION 4.4 BOARD OF DIRECTORS APPROVAL
The Board of Directors of Purchaser has duly authorized the execution and
delivery and performance of this Agreement by Purchaser.
SECTION 4.5 DISCLOSURE
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Neither this Agreement nor any statement, list or certificate furnished or
to be furnished to Seller by or on behalf of Purchaser pursuant hereto or in
connection with the transactions contemplated hereby contains or will contain
any untrue statement of a material fact, or omits or will omit to state a
material fact necessary in order to make the statements contained herein and
therein, in light of the circumstances in which they are made, not misleading.
SECTION 4.6 REPRESENTATIONS AND WARRANTIES AT CLOSING
On the Closing Date, all of the representations and warranties of Purchaser
contained in this Agreement will be true and correct in all material respects at
and as of the Closing Date with the same force and effect as though made at and
as of the Closing Date, except for changes contemplated or permitted by this
Agreement.
ARTICLE V
ADDITIONAL AGREEMENTS OF SELLER
Seller covenants and agrees as follows:
SECTION 5.1 OPERATION OF BUSINESS
Seller and AMG will each, subsequent to the date hereof and prior to the
Closing Date:
(a) Continue in all material respects to conduct its business, maintain
its assets, carry on its business practices and keep its books of
account, records and files in the ordinary course of business;
(b) Use its best efforts to preserve the good will of its suppliers and
customers and others having business relations with it;
(c) Use its best efforts to continue the employment of key personnel
(except as otherwise permitted by CORE in writing);
(d) Pay and perform all of its debts, obligations and liabilities as and
when due under all leases, agreements, contracts and other commitments
to which it is a party in accordance with the terms and provisions
thereof; and
(e) Comply in all material respects with all laws and/or other
governmental or other regulations that may be applicable to its
business.
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SECTION 5.2 NEGATIVE COVENANTS
Seller and AMG will not, pending the Closing, without the express written
consent of CORE,
(a) Except as set forth in Section 5.4, enter into any lease, agreement,
contract or other commitment, whether written or oral, other than any
commitment for the purchase of inventory or supplies or for the
furnishing of services, in each case entered into in the ordinary and
regular course of such corporation's business and not of unusual size
or duration;
(b) Make any change in its corporate charter or its bylaws;
(c) Sell, assign, lease or otherwise transfer or dispose of or encumber
any property (real or personal) or equipment constituting the Subject
Assets, except for replacement of any worn-out equipment in the
ordinary and usual course of business;
(d) Merge or consolidate with or into any other corporation or entity;
(e) Except as set forth in Section 5.4, grant any options, warrants or
other rights to purchase or obtain any of its capital stock, or issue,
sell or otherwise dispose of any of its capital stock (except upon the
conversion or exercise of options, warrants and other rights currently
outstanding);
(f) Declare, set aside or pay any dividend or distribution with respect to
its capital stock (whether in cash or in kind), or except as set forth
in Section 5.4, redeem, repurchase or otherwise acquire any of its
capital stock;
(g) Except as set forth in Section 5.4, issue any note, bond or other debt
security or create, incur, assume or guarantee any indebtedness for
borrowed money or capitalized lease obligation outside the ordinary
course of business;
(h) Make any capital investment in, make any loan to, or acquire the
securities or assets of any other person or entity;
(i) Make any change in employment terms for any of its directors, officers
or employees (except as otherwise permitted by CORE in writing);
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(j) Except as set forth in Section 5.4, conduct its business or take any
other action otherwise than in the ordinary and usual course of
business; or
(k) Except as set forth in Section 5.4, incur any additional indebtedness
for borrowed money, except with the written consent of CORE;
(l) Except as set forth in Section 5.4, amend or change the period of
exercisability or accelerate the exercisability of any outstanding
options or warrants to acquire shares of capital stock;
(m) Enter into any transaction that would require the Registration
Statement to be delayed or substantially revised under circumstances
which would in the reasonable judgment of CORE or CORE's underwriter
delay the occurrence of the Closing Date beyond the date specified in
Section 1.5; and
(n) Agree or commit to any of the foregoing.
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SECTION 5.3 NO BREACHES OF REPRESENTATIONS AND WARRANTIES
Seller and AMG will not take any action which would cause or constitute a
breach, or would, if it had been taken immediately prior to the date hereof,
have caused or constituted a breach, of any of the representations and
warranties of Seller set forth herein. Seller and AMG will, in the event of, and
promptly after the occurrence of or the impending or threatened occurrence of,
any event which would cause or constitute a breach or would, if it had occurred
immediately prior to the date hereof, have caused or constituted a breach of any
of the representations and warranties of Seller set forth herein, give detailed
notice to CORE; and Seller will use its best efforts (and cause AMG to use its
best efforts) to prevent or promptly to remedy such breach.
SECTION 5.4 PERMITTED FINANCINGS AND REFINANCINGS
Seller shall be permitted to obtain financing and refinance its existing
debt, including issuing shares of Seller's capital stock or options or warrants
for the purchase of shares of Seller's capital stock, provided (a) such
financing, refinancing and issuances do not hinder, prevent or delay, directly
or indirectly, Seller's and AMG's ability (i) to transfer good and marketable
title to the Subject Assets and P.C. Assets, free and clear of all liens,
restrictions and encumbrances; and (ii) to otherwise fulfill all Seller's
obligations, covenants and agreements under this Agreement; and (b) Seller keeps
CORE and Purchaser fully informed of such financing, refinancing and issuances
and Seller complies with Section 2.30 hereof (Supplemental Disclosure).
SECTION 5.5 ACCESS TO INFORMATION
Seller will give to CORE and its representatives, from and after the date
of execution of this Agreement, full access during normal business hours to all
of the properties, books, contracts, documents and records of Seller and AMG,
and will furnish to CORE and its representatives all additional financial
statements, all information with respect to Seller's and AMG's business affairs
and copies of all relevant contracts and other documents which CORE, Purchaser
or New P.C. may reasonably request.
SECTION 5.6 EMPLOYEE CERTIFICATES
Seller will use its best efforts to obtain and deliver or cause to be
delivered to Purchaser at the Closing the certificate of each officer, director
and employee of Seller and AMG to the effect that he or she has no claims of any
kind against Seller or AMG, except for his or her unpaid salary with respect to
the month in which the Closing occurs as accrued to the Closing, and stating the
amount thereof. A form of Employee Certificate is attached hereto as Exhibit H.
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SECTION 5.7 MAINTENANCE OF BUSINESS ORGANIZATION
Seller will use its best efforts until the Closing to preserve its business
organizations and AMG business organization intact, and to preserve the
relationships of Seller and AMG with employees, suppliers, customers, landlords
and others, all to the end that the going business of Seller and AMG will be
unimpaired at the Time of Closing.
SECTION 5.8 FINANCIAL STATEMENT ITEMS
Seller shall operate the business of Seller so that as of the Closing Date,
the Subject Assets and the P.C. Assets minus the Assumed Liabilities and the
P.C. Liabilities (as each is set forth on a properly prepared Closing Balance
Sheet) is at least $1,750,000. Consistent with Section 1.2, for the purposes of
the foregoing calculation the Capital Improvements Loan shall be included in the
Assumed Liabilities and the assets acquired by Seller with the proceeds from the
Capital Improvements Loan shall be included in the Subject Assets.
SECTION 5.9 MAINTENANCE OF INSURANCE AND PROPERTIES
Seller will cause the existing liability and property damage, fire,
casualty, medical malpractice and other insurance of Seller and AMG described in
Schedule 2.9 to be continued in force up to and through the Time of Closing.
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Seller shall maintain its properties and operations (and shall cause AMG to
maintain its properties and operations) in good repair and operating conditions
until the Time of Closing.
SECTION 5.10 EXCLUSIVITY
Neither Seller, nor any of its respective officers, directors or
stockholders, will (a) solicit, initiate or encourage the submission of any
proposal or offer relating to the acquisition of any capital stock or other
voting securities, or any substantial portion of the assets of, the Seller or
AMG, or (b) participate in any discussions or negotiations regarding, furnish
any information with respect to, assist or participate in, or facilitate in any
other manner any effort or attempt by any person or entity to do or seek any of
the foregoing. In the case of any inquiry or contact from a party or parties as
to the possible acquisition of any stock or assets of Seller or AMG, Seller and
AMG will promptly advise such inquiring party or parties of the existence of
this Agreement and the P.C. Agreement. Additionally, Seller will notify CORE and
Purchaser immediately if any person or entity makes any proposal, offer, inquiry
or contact with respect to any of the foregoing.
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This Section 5.10 shall not obligate Seller or its directors or officers to
breach any fiduciary duties; however, Seller agrees immediately to notify CORE
and Purchaser of any unsolicited offers and to keep CORE and Purchaser fully
informed on a timely basis of Seller's proposed response and actual response to
any unsolicited offers. If, during the term of this Agreement, Seller shall
receive an unsolicited offer to acquire its assets or stock, Seller shall be
permitted hereunder to forward, and no more, such offer to its shareholders,
provided Seller agrees to immediately notify CORE and Purchaser and to keep CORE
and Purchaser fully informed as described in the foregoing sentence. Such
unsolicited offer(s) shall not relieve Seller of its obligations to CORE and
Purchaser, set forth below.
SECTION 5.11 [RESERVED]
SECTION 5.12 MONTHLY FINANCIAL STATEMENTS; AUDITED FINANCIAL STATEMENTS
(a) Monthly Financial Statements. On the 20th day of each month,
----------------------------
beginning May 20, 1996, Seller shall deliver to CORE a balance sheet and related
statements of operations and retained earnings and cash flows for each of Seller
and AMG for the interim period ending at the end of the prior month, which
financial statements shall not reflect any material adverse change in the
financial condition or liabilities of Seller or AMG. Such financial statements,
when delivered to CORE, shall be in accordance with the books and records of
Seller and AMG, will be complete and correct in all material respects and fairly
present the financial position of Seller and AMG as of the dates therein
indicated and the results of the operations of Seller and AMG for the periods so
ended (subject to normal year end adjustments in the case of any interim
financial statements for which full year financial statements have been
delivered), all in conformity with GAAP. Seller has previously delivered to CORE
financial statements for January and February 1996 as described in this Section
5.12(a), Seller shall deliver to CORE financial statements for March 1996 as
described in this Section 5.12(a) on or before May 17, 1996. Notwithstanding the
foregoing, the financial statements for April 1996 shall be delivered to CORE on
or prior to June 4, 1996.
(b) Audited Financial Statements. Seller shall cooperate with CORE in
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making available and including in CORE's Registration Statement Seller's Audited
Financial Statements (as defined in Section 2.4) and any other financial
statements deemed necessary or appropriate by CORE in connection with CORE's
disclosure obligations under the federal securities laws; provided that CORE
shall reimburse Seller for reasonable audit fees related to any audit for any
period after December 31, 1995.
SECTION 5.13 BULK SALES LAW
Seller shall indemnify and hold Purchaser and CORE harmless from any loss,
cost or liability (including reasonable attorney's fees) incurred by Purchaser
or CORE as a result of non-
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compliance with any applicable bulk sales law, preferential transfer law,
fraudulent conveyance law or similar law with respect to the transactions
contemplated herein or with respect to the transactions described in the P.C.
Agreement.
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SECTION 5.14 ARRANGEMENTS WITH CREDITORS
Seller shall negotiate acceptable arrangements with all of its creditors
providing for a discharge of all Seller's Retained Liabilities to such creditors
on or prior to the Closing Date.
SECTION 5.15 NAME CHANGE
At or before Closing, Seller shall change its corporate name from
"AmHealth, Inc." to a name that does not contain any reference to "AmHealth" or
any derivatives thereof.
SECTION 5.16 P.C. ASSETS
At Closing, Seller shall fully cooperate and cause all P.C. Assets of AMG
to be transferred to New P.C. pursuant to the P.C. Agreement.
SECTION 5.17 NON-COMPETITION; NON-SOLICITATION
Seller hereby agrees that, from and after the Closing Date it shall not for
a period of seven (7) years (a) serve, directly or indirectly, as an operator,
owner, partner, consultant, officer, director or employee of any firm or
corporation engaged in the occupational health care business within the State of
California; (b) solicit or attempt to solicit, or accept business from, any
entity which is a client or customer of Purchaser, AMG, New P.C. or CORE
(including CORE's subsidiaries) or which at any time during the twelve-month
period prior to the Closing Date, was a client or customer of any of the Clinics
or Staffings, for the purpose of doing business with such client or customer in
competition with Purchaser, AMG, New P.C. or CORE (including CORE's
subsidiaries) (for the purpose of this covenant, the clients and customers of
Purchaser shall include those entities with which Seller had held discussions or
negotiations concerning the services of the Clinics and Staffings within the
twelve-month period prior to the Closing Date); or (c) solicit, attempt to hire,
or hire any employee or consultant of Purchaser (including Continuing
Employees), New P.C. or CORE (including CORE's subsidiaries), or assist in such
solicitation or hiring by any other person or entity, or encourage any employee
or consultant of Purchaser (including Continuing Employees), New P.C. or CORE
(including CORE's subsidiaries) to terminate his or her relationship with
Purchaser, New P.C. or CORE.
It is agreed that the remedy at law for any breach of the foregoing shall
be inadequate and that CORE and Purchaser shall be entitled to any other remedy
permitted at law or in equity. In the event that this Section 5.17 shall be
determined by arbitrators or by any court of competent jurisdiction to be
unenforceable by reason of its extending for too great a period of time, over
too large a geographic area or over too great a range of activities, this
Section 5.17 shall be interpreted to extend only over the maximum period of
time, geographic area or range of activities as to which it can be enforceable.
Nothing herein contained shall prevent Seller from holding or making an
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investment in securities listed on a national securities exchange or sold in the
over-the-counter market, provided such investments do not exceed in the
aggregate one percent (1%) of the issued and outstanding capital stock of a
corporation which is a competitor within the meaning of this Section 5.17.
Nothing herein is intended to restrict the operations of Seller at the
Sacramento Clinic or the Minnesota Operations, provided such operations do not
materially change or expand into the territory or client base described in this
Section 5.17.
SECTION 5.18 SELLER STOCKHOLDERS MEETING
Seller will take all steps necessary to hold a meeting of its stockholders
as promptly as practicable after the date hereof, but in no event later than
forty-five (45) days thereafter (the "Seller Stockholders Meeting"), for the
purpose of considering approval of the principal terms of this Agreement
(including corporate name change), and the Board of Directors of Seller will,
subject to its fiduciary duties, recommend to such stockholders such approval
and adoption hereof. Seller represents and warrants that the stockholders of
Seller who own in the aggregate at least a majority of Seller stock will vote in
favor of approval and adoption of this Agreement. In connection with the Seller
Stockholders Meeting, Seller will duly solicit, in compliance with all
applicable legal requirements, the vote of the stockholders of Seller approving
the transactions contemplated by this Agreement.
In lieu of the Seller Stockholders Meeting, Seller may, pursuant to
Delaware corporate law, obtain requisite stockholder approval of the principal
terms of this Agreement by written consent of stockholders in lieu of meeting.
SECTION 5.19 REPRESENTATIONS AND AGREEMENT WITH RESPECT TO REGISTRATION
STATEMENT
Seller agrees to provide information to CORE and otherwise to assist CORE
with respect to disclosures concerning Seller and AMG to be included in the
Registration Statement referred to in Section 6.2, below. None of the
information that Seller or AMG will supply specifically for use in the
Registration Statement, whether prior to or after the execution of this
Agreement, will contain any untrue statement of a material fact or omit to state
a material fact necessary in order to make the statements made therein, in the
light of the circumstances under which they are made, not misleading. All
information set forth in the Registration Statement furnished by Seller or AMG
relating to Seller or AMG, (i) to the extent required, will comply with and be
prepared in accordance with the requirements of the Exchange Act and the rules
and regulations promulgated thereunder, and (ii) will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading under
the circumstances under which they are made.
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There will be no fact regarding Seller, AMG or their prospects which any
investor would consider material in making a decision with respect to the
transactions contemplated hereby, which will not be disclosed by Seller and AMG
in the Registration Statement.
Seller agrees that the indemnification provisions of Article VII hereof
shall apply to the information set forth in the Registration Statement.
SECTION 5.20 BEST EFFORTS
Seller will use its best efforts to effectuate the transactions hereby
contemplated, to perform all the covenants and agreements contained herein and
to fulfill the conditions of CORE's and Purchaser's obligations under this
Agreement.
ARTICLE VI
ADDITIONAL AGREEMENTS OF CORE
SECTION 6.1 CORE'S FINANCING TO SELLER
(a) $1,000,000 Financing. CORE shall loan up to $1,000,000 to Seller to
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be used by Seller to effect the terms of this Agreement (the "$1,000,000
Financing"), provided CORE has consented to such uses (which consent shall not
be unreasonably withheld), and further provided that at least $150,000 of the
$1,000,000 Financing shall be used for costs (such as professional fees)
associated with the transactions contemplated by this Agreement.
Seller acknowledges that $1,000,000 of the $1,000,000 Financing was
advanced to Seller on January 11, 1996 ($500,000), February 9, 1996 ($250,000)
and March 15, 1996 ($250,000).
(b) Capital Improvements Loan. CORE, in its discretion, shall loan up to
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$500,000 to Seller prior to Closing to be used only for capital improvements for
expansion of the Clinics in anticipation of Closing (the "Capital Improvements
Loan"). Seller agrees to promptly use the funds from the Capital Improvements
Loan solely in the manner requested by CORE.
(c) General Provisions. At CORE's request, and to evidence Seller's
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borrowings under the Capital Improvements Loan and the $1,000,000 Financing,
Seller shall execute and deliver to CORE secured floating rate promissory
note(s) substantially in the form of the Secured Floating Rate Promissory Note
dated January 11, 1996, previously executed by Seller and delivered to CORE.
Seller's borrowings under the Capital Improvements Loan and the $1,000,000
Financing shall be secured by the assets of Seller pursuant to the Loan and
Security Agreement dated January
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11, 1996 by and between CORE and Seller. Seller shall do, make, execute and
deliver all such additional and further acts, things, deeds, assurances and
instruments as CORE may request to more completely vest in and assure to CORE
its rights under the Capital Improvements Loan and the $1,000,000 Financing or
in any of the related security interests.
(d) Replacement Financing. Notwithstanding any advances of funds by CORE
----------------------
to Seller under the $1,000,000 Financing or the Capital Improvements Loan,
Seller acknowledges and agrees that CORE prefers for such loans and financing to
be from a financial institution. Accordingly, at CORE's request, Seller shall
use its best efforts to obtain loans or lines of credit from Silicon Valley Bank
("SVB") in lieu of CORE's advancing funds to Seller under the Capital
Improvements Loan and the $1,000,000 Financing. Funds obtained by Seller from
SVB shall be used to repay Seller's outstanding obligations to CORE and
thereafter be used for the purposes of the $1,000,000 Financing and the Capital
Improvements Loan. If SVB's financing is on reasonable commercial terms, Seller
agrees to accept the financing from SVB in lieu of or to replace the Capital
Improvements Loan and the $1,000,000 Financing notwithstanding the fact that the
terms and conditions of SVB's financing of the $1,000,000 Financing or the
Capital Improvements Loan may be less favorable to Seller than the terms and
conditions of CORE'S financings.
To assist Seller in obtaining financing from SVB, CORE will guarantee to
SVB repayment of such loans by Seller in amounts up to $1,000,000 and $500,000
(the "Guaranty"), respectively. Terms and conditions of CORE's Guaranty shall
include acceptable security interests in Seller and AMG assets granted to CORE
(or other security or agreements satisfactory to CORE) for the Guaranty and
termination of the Guaranty at Closing or within six months after the
termination of this Agreement (or upon any Significant Transaction involving
Seller (as defined in Section 10.2), if earlier).
Notwithstanding the Guaranty, CORE shall not assume and shall have recourse
to Seller with respect to Seller's liabilities with pursuant to Seller's
borrowings from SVB related to the Guaranty.
SECTION 6.2 REGISTRATION STATEMENT
As soon as reasonably practicable after the date hereof, CORE shall prepare
and file with the Commission, pursuant to the Securities Act, a registration
statement on Form S-1 (the "Registration Statement").
The Registration Statement shall include shares of CORE Common Stock to be
issued and sold pursuant to a proposed underwritten public offering of CORE's
common stock (the "Underwritten Public Offering").
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CORE will advise Seller after it receives notice thereof, of the time when
the Registration Statement has become effective or any supplement or amendment
has been filed, of the issuance of any stop order, of the suspension of the
qualification of the CORE common stock issuable in connection with this
Agreement for offering or sale in any jurisdiction, of the initiation or
threatening of any proceeding for any such purpose, or of any request by the
Commission for the amendment or supplement of the Registration Statement or for
additional information.
CORE may abandon its efforts with respect to the Underwritten Public
Offering, the Registration Statement or the transactions contemplated hereby in
the event that (i) the average closing price of CORE common stock, as quoted on
the NASDAQ-National Market System, is below $8.50 for any ten (10) day period
after the date of this Agreement; or (ii) CORE's underwriter advises CORE that
the price per share of CORE's common stock in the Underwritten Public Offering
may be less than $8.50 per share.
SECTION 6.3 RESERVED
SECTION 6.4 EMPLOYMENT ARRANGEMENTS AND EMPLOYEE BENEFITS
(a) Purchaser shall offer employment, commencing as of the Closing Date,
to all employees listed on Schedule 2.12 with such changes in the ordinary
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course of business of which Seller notifies Purchaser (other than those
employees listed on Schedule 6.4, including Purchaser's revisions thereto at or
------------
prior to Closing); provided, however, Purchaser reserves the right to make
changes to the wages, salary, benefits, hours and conditions of such employees.
Those employees who shall accept said offer of employment with Purchaser and who
shall actually commence active employment with Purchaser shall collectively be
referred to as the "Continuing Employees".
(b) Unless expressly listed on Schedule 1.2 as an Assumed Liability,
------------
Seller shall retain responsibility for any hospital, medical, dental, life
insurance, disability, workers' compensation or other employee welfare benefit
plan premiums accrued for coverage prior to the Closing Date, as well as all
liability under the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended (COBRA), if any. Hospital, medical, dental, life insurance, disability,
workers' compensation and other employee welfare benefit plans listed on
Schedule 2.13 for which premiums will be accrued for coverage of the Continuing
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Employees on or after the Closing Date shall be the responsibility of Purchaser.
Unless expressly listed as an Assumed Liability, Seller shall remain responsible
for paying all unpaid vacation, sick-leave or other time-off pay accrued by all
employees through the Closing Date and any COBRA liabilities or obligations. To
the extent Purchaser elects to continue employee benefits listed on Schedule
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2.13 for the Continuing Employees after the Closing Date, Seller shall and shall
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cause AMG to fully cooperate with Purchaser in the transfer of such plans and
benefits.
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(c) Unless expressly listed as an Assumed Liability, Seller shall pay to
all Continuing Employees all benefits accrued to such employees prior to the
Closing Date (including, without limitation, vacation pay and time-off pay) as
soon as practicable after Closing, but in no event more than fourteen (14) days
after Closing.
(d) No provision of this Section 6.4 shall create any third-party-
beneficiary rights in any employee or former employee (including any beneficiary
thereof) of Seller, Purchaser AMG or New P.C.
SECTION 6.5 NO BREACHES OF REPRESENTATIONS AND WARRANTIES
Between the date hereof and Closing, CORE will not take any action which
would cause or constitute a breach, or would, if it had been taken immediately
prior to the date hereof, have caused or constituted a breach, of any of the
representations and warranties of CORE set forth herein. CORE will, in the event
of, and promptly after the occurrence of or the impending or threatened
occurrence of, any event which would cause or constitute a breach or would, if
it had occurred immediately prior to the date hereof, have caused or constituted
a breach of any of the representations and warranties of CORE set forth herein,
give detailed notice to Seller; and CORE will use its reasonable best efforts to
prevent or promptly to remedy such breach.
SECTION 6.6 BEST EFFORTS
CORE will use its reasonable best efforts to effectuate the transactions
hereby contemplated, to perform all of the covenants and agreements contained
herein, and to fulfill the conditions of Seller's obligations under this
Agreement.
ARTICLE VII
INDEMNITY BY THE SELLER; ESCROW
SECTION 7.1 INDEMNIFICATION
Seller hereby agrees to indemnify, defend, save and hold CORE, Purchaser
and New P.C. and their subsidiaries and affiliates, and any person serving as an
officer, director, employee, independent contractor, agent or counsel (each of
the foregoing being referred to herein as an "Indemnified Party") harmless from
and against, and will reimburse each Indemnified Party for all losses,
liabilities, costs, damages, assessments, taxes, judgments, deficiencies and
expenses of any nature whatsoever (including reasonable attorneys' fees and
other costs and expenses incident to any suit, action or proceeding) incurred by
an Indemnified Party which shall arise out of or result from or constitute any
breach of any representation, warranty, covenant or agreement of Seller or AMG
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in this Agreement, the P.C. Agreement, the Registration Statement, or in any
certificate, schedule or exhibit delivered pursuant hereto or thereto, and for
any undisclosed liabilities of Seller or AMG incurred prior to the Closing Date.
Seller hereby releases AMG from any obligation of contribution, indemnity or the
like relating to any claims under this Article VII.
The amount of the indemnity to which an Indemnified Party shall be entitled
hereunder shall be measured by the sum of (a) the amount of cash required to
restore the circumstances or condition which constitutes the breach of any such
representation, warranty, covenant or agreement or non-fulfillment of any such
obligation to what it would have been on the Closing Date had such breach or
non-fulfillment not occurred, and (b) all reasonable attorneys' fees and other
costs and expenses incident to any suit, action or proceeding relating thereto.
SECTION 7.2 DETERMINATION OF LIABILITY
In the event that at any time or from time to time, CORE shall determine
that an Indemnified Party is entitled to indemnification under Section 7.1
hereof, CORE shall give written notice to Seller specifying the cause and the
amount of such claim. Seller may object to the claim by delivering written
notice thereof to CORE within twenty (20) days after receipt of CORE's written
notice. Failure on the part of Seller so to object shall constitute an
acceptance of CORE's claim and if the amount to which an Indemnified Party is
entitled is not paid by Seller within thirty (30) days of such determination,
then CORE shall have the right to satisfy all or part of such indemnification
obligations of Seller by offset against the Escrow described in Section 7.5. In
the event such claim exceeds the amount then held in Escrow, or the Escrow has
previously been paid, or the Escrow is otherwise insufficient to fully satisfy
such claim, Seller shall be liable to CORE for payment of such claim.
In the event that Seller shall so object and CORE and Seller shall fail to
reach an agreement as to the entitlement of an Indemnified Party to
indemnification or the amount thereof within sixty (60) days after the written
notice by Seller objecting to the claim, then so much of the matter as may be in
dispute shall be submitted to the American Arbitration Association in Boston,
Massachusetts for settlement in accordance with its Rules of Commercial
Arbitration, and the decision as to the disputed matter rendered by the
arbitrator or arbitrators shall be binding on all parties to this Agreement.
CORE, Purchaser and Seller shall act upon such award in like manner as though it
constituted an agreement reached between the parties. The Indemnified Party and
Seller shall each bear the cost of their respective expenses and shall each pay
fifty percent (50%) of the arbitrators' charges.
SECTION 7.3 DEFENSE OF CLAIMS
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After receipt by CORE or Purchaser of notice of the existence of any claim
made or threatened by a third party to which the indemnification obligations
hereunder apply, CORE shall give written notice thereof to Seller, but the
omission to so notify Seller will not relieve Seller from any liability except
to the extent that Seller shall have been materially prejudiced as a result of
the failure in giving timely notice. Such notice shall state the information
then available regarding the amount and nature of such claim and shall specify
the provision or provisions of this Agreement under which the liability or
obligation is asserted. If within ten (10) days after receiving such notice,
Seller gives written notice to CORE stating that it disputes and intends to
defend against such claim at Seller's own cost and expense (subject to the
consent of CORE, which consent shall not be unreasonably withheld), provided
Seller's counsel in such defense is acceptable to CORE, then CORE shall make no
payment on such claim as long as Seller is conducting a good faith and diligent
defense thereof. Notwithstanding anything herein to the contrary, CORE shall at
all times have the right to fully participate in such defense at CORE's own
expense directly or through counsel. If no timely notice of intent to dispute
and defend is given by Seller, or if such diligent good faith defense is not
being or ceases to be conducted, after written notice to Seller and the failure
of Seller to initiate or conduct such a defense within ten (10) days after such
notice, CORE, at the expense of Seller, shall undertake the defense of such
claim, liability or expense, and shall have the right to compromise or settle
the same. If such claim, liability or expense is one that by its nature cannot
be defended solely by Seller, then CORE Purchaser and New P.C. shall make
available all information and assistance that Seller may reasonably request and
shall cooperate with Seller in such defense, provided that Seller shall
reimburse CORE and Purchaser for their costs and expenses in providing such
assistance.
SECTION 7.4 RECOURSE TO SELLER
Any amounts offset against the Escrow shall in no way limit an Indemnified
Party's rights in law or equity to recover from Seller in respect of any claims
of an Indemnified Party not fully satisfied by such offsets.
SECTION 7.5 ESCROW
At Closing, $390,000 of the Purchase Price otherwise payable to Seller
hereunder shall be placed in escrow with Small, White & Marani, as escrow agent
(the "Escrow Agent"), as security for Seller's indemnification obligations
hereunder (the "Escrow"). The Escrow shall not be a limit to Seller's
indemnification obligations and the Escrow, less the amount of any then
outstanding claims asserted by Purchaser, CORE or New P.C. pursuant to Sections
7.2 or 7.3, shall be distributed to Seller six months from the Closing Date. The
Escrow shall be subject to the Escrow Agreement in the form attached hereto as
Exhibit F. During the term of the Escrow Agreement, Purchaser and Seller shall
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give written notice to Escrow Agent when a claim has been asserted.
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ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF SELLER
The obligations of Seller to consummate the transactions contemplated by
this Agreement on the terms and conditions contained herein shall be subject to
the fulfillment at or prior to the Closing Date of each of the following
conditions, any or all of which may be waived in whole or in part by Seller but
only in a writing signed by Seller:
SECTION 8.1 REPRESENTATIONS AND WARRANTIES
The representations and warranties of CORE and Purchaser contained in this
Agreement shall be true and correct as of the date hereof and at and as of the
Closing Date, and all of the representations and warranties of CORE and
Purchaser contained in the Ancillary Documents shall be true in all material
respects at and as of the Closing Date as though such representations and
warranties were made at and as of the Closing Date.
SECTION 8.2 COMPLIANCE BY CORE AND PURCHASER
CORE and Purchaser shall have performed and complied with all agreements
and conditions on their part required by this Agreement to be performed or
complied with prior to or at the Closing Date.
SECTION 8.3 CLOSING CERTIFICATES
Seller shall have received certificates of CORE and Purchaser executed by
the President and Chief Financial Officer of each corporation dated the Closing
Date, certifying to the fulfillment of the conditions specified in Sections 8.1
and 8.2 of this Article VIII and such other evidence with respect to the
fulfillment of any said conditions as Seller may reasonably request upon
reasonable prior notice.
SECTION 8.4 RESERVED
SECTION 8.5 LEGAL OPINION
Seller shall have received an opinion of Rich, May, Bilodeau & Flaherty,
P.C., counsel for CORE and Purchaser, dated the Closing Date, reasonably
satisfactory in form and substance to counsel for Seller, substantially to the
effect as set forth on Exhibit F.
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Such opinion shall cover such related matters as Seller may reasonably
require, and may contain customary assumptions and exceptions.
SECTION 8.6 CERTIFIED RESOLUTIONS
CORE and Purchaser shall have furnished to Seller certified resolutions of
their respective Boards of Directors duly and legally authorizing the execution,
delivery and performance of this Agreement by CORE and by Purchaser, and such
other documentation as Seller shall reasonably request.
ARTICLE IX
CONDITIONS TO OBLIGATIONS OF CORE AND PURCHASER
The obligations of CORE and Purchaser to consummate the transactions
contemplated by this Agreement shall be subject to the fulfillment at or prior
to the Closing Date of each of the following conditions, any or all of which may
be waived in whole or in part by CORE and Purchaser but only in a writing signed
by CORE and Purchaser:
SECTION 9.1 REPRESENTATIONS AND WARRANTIES
The representations and warranties of Seller contained in this Agreement
shall be true and correct as of the date hereof and at and as of the Closing
Date in all material respects, and all of the representations and warranties of
Seller contained in the Ancillary Documents shall be true in all material
respects at and as of the Closing Date as though such representations and
warranties were made at and as of the Closing Date.
SECTION 9.2 COMPLIANCE BY SELLER AND AMG
Seller and AMG shall have performed and complied with all agreements,
covenants and conditions on their part required by this Agreement and the P.C.
Agreement to be performed or complied with prior to or at the Closing Date.
SECTION 9.3 CLOSING CERTIFICATE
CORE and Purchaser shall have received a certificate of Seller, executed by
the President and Chief Financial Officer of Seller, dated the Closing Date,
certifying to the fulfillment of the conditions specified in Sections 9.1 and
9.2 of this Article IX, and such other evidence with respect to the fulfillment
of any said conditions as CORE or Purchaser may reasonably request upon
reasonable prior notice.
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SECTION 9.4 LEGAL OPINION
CORE and Purchaser shall have received an opinion of Small, White & Marani,
counsel for Seller and AMG, dated the Closing Date, reasonably satisfactory in
form and substance to counsel for CORE, substantially to the effect as set forth
on Exhibit E.
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Such opinion shall cover such related matters as CORE or Purchaser may
reasonably require, and may contain customary assumptions and exceptions.
SECTION 9.5 CERTIFIED RESOLUTIONS AND VOTES
Seller shall have furnished CORE and Purchaser with certified resolutions
and votes of their respective Board of Directors and stockholders duly and
legally authorizing the execution, delivery and performance of this Agreement by
Seller, and such other documentation as CORE or Purchaser may reasonably
request.
SECTION 9.6 NO LITIGATION
Except as set forth on Schedule 2.17, between the date of this Agreement
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and the Closing Date, no suit or action or legal, administrative, arbitration or
other proceeding shall have been instituted, or threatened, against Seller or
AMG which could adversely affect the financial condition of Seller or AMG or the
conduct of Seller's or AMG's business, nor shall any suit or action or legal,
administrative, arbitration or other providing have been instituted, or
threatened, against CORE or Purchaser involving any challenge or seeking damages
or other relief in connection with the transactions contemplated hereby;
provided however, claims, suits, actions or other proceedings involving amounts
in the aggregate less than $75,000 shall not be a breach of this closing
condition if Seller agrees to promptly settle such claim, suit, action or other
proceeding with the proceeds of the Purchase Price.
SECTION 9.7 PRESERVATION OF BUSINESS
The going business of Seller and AMG and their business organizations and
personnel shall have been preserved substantially intact and shall not have been
materially impaired. Between the date of this Agreement and the Closing Date,
the key employees and consultants of Seller and AMG shall have continued in the
employ (or service) of Seller and AMG, Seller and AMG shall not have
discontinued any lines of business or changed in any material respect the nature
of their businesses from those existing on the date hereof. There shall have
been no material adverse change in Seller or AMG since September 30, 1995.
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SECTION 9.8 RELATIONSHIPS WITH CUSTOMERS
The relations of Seller and AMG with their customers, patients, suppliers,
employees and consultants, landlords and others shall have been preserved
substantially intact and not materially impaired.
SECTION 9.9 ADDITIONAL DOCUMENTATION; MONTHLY FINANCIAL STATEMENTS
Seller and AMG shall have provided CORE and Purchaser with such additional
documentation as CORE and Purchaser may reasonably request.
CORE and Purchaser shall have received the monthly financial statements and
the Audited Financial Statements of Seller and AMG as described in Section 5.12
hereof.
SECTION 9.10 CORPORATE RECORDS
There shall have been delivered to CORE and Purchaser the books and records
of Seller as described in Section 1.1(a)(xii).
SECTION 9.11 MAINTENANCE OF ASSETS
At the Closing, Seller and AMG shall have good and marketable title to all
of the Subject Assets and the P.C. Assets, including personal property, real
estate and intellectual property, free and clear of all liens, mortgages,
pledges and encumbrances. The properties, machinery and equipment of Seller and
AMG shall have been maintained in good repair and operating condition, ordinary
wear and tear excepted.
SECTION 9.12 EMPLOYMENT AGREEMENTS; AGREEMENTS WITH EMPLOYEES AND CONSULTANTS
Seller and AMG shall have each used its best efforts to assist Purchaser in
entering into employment agreements (or consulting agreements) with certain key
employees and consultants of Seller and AMG, as determined by CORE (including
regional vice presidents, clinic directors and medical directors) including,
without limitation, those employees and consultants set forth in Schedule 9.12.
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In lieu of new employment agreements (or consulting agreements), Seller and AMG
may assign to Purchaser existing employment agreements (or consulting
agreements) between Seller and AMG and certain of its key employees (or
consultants), provided Purchaser approves the terms and conditions of such
agreements.
Seller and AMG shall have each used its best efforts to assist Purchaser in
receiving from each continuing employee and key consultant of Seller and AMG a
binding agreement, in form
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substantially similar to Exhibit I hereto, which sets forth an acknowledgement
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of CORE's policies concerning non-disclosure and an acknowledgment of
Purchaser's ownership of the intellectual property of Seller and AMG being
transferred to Purchaser pursuant to the transactions contemplated hereby.
SECTION 9.13 NON-COMPETITION AGREEMENTS
Seller and AMG shall have each used its best efforts to assist Purchaser in
obtaining from Seller's and AMG's key employees and affiliates (including
regional vice presidents, clinic directors and medical directors, but excluding
practicing physicians with no management responsibilities and Steven Miracle),
including, without limitation those employees, and affiliates listed on Schedule
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9.13, non-competition agreements with Purchaser and CORE, in a form acceptable
- ----
to Purchaser and CORE, pursuant to which such persons will agree not to engage
in competition with the business of Seller purchased by Purchaser or any
business of CORE and its affiliated corporations within the geographical area of
North America for a period of five (5) years. For physicians, such non-
competition agreements shall permit the physicians to practice medicine outside
a radius of twenty (20) miles from any Clinic or Staffings, provided that such
practice is not in competition with the Clinics or Staffings.
SECTION 9.14 CONSENTS
Seller shall have delivered to CORE and Purchaser all consents of third
parties required by any and all agreements or documents to which Seller or AMG
are parties or are bound in order to give effect to the transactions
contemplated hereby. Without limiting the generality of the foregoing, to the
extent required or requested by CORE and Purchaser, such consents shall include
consents of (a) the parties to the contracts and agreement listed on Schedule
--------
2.10; (b) the employees or consultants with whom Seller has contracts or
- ----
agreements as listed on Schedule 2.10; (c) California Pacific Medical Center and
-------- ----
for (d) creditors. There shall have been delivered to CORE Purchaser and
New P.C. all assignments, deeds, bills of sale, insurance policies, contracts,
leases, franchises, permits and all other documents pertaining to the Subject
Assets and the P.C. Assets.
SECTION 9.15 TRANSFER OF P.C. ASSETS TO NEW P.C. BY AMG
All the P.C. Assets shall have been transferred from AMG to New P.C.
pursuant to the P.C. Agreement.
SECTION 9.16 PROCEEDINGS
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All corporate or other proceedings taken or required to be taken in
connection with the transactions contemplated hereby at or prior to the Closing
Date and all documents incident thereto shall be reasonably satisfactory in form
and substance to CORE and Purchaser and their counsel.
SECTION 9.17 SUBJECT ASSETS AND ASSUMED LIABILITIES
At Closing, the Subject Assets and the P.C. Assets minus the Assumed
Liabilities and the P.C. Liabilities (as each is set forth on a properly
prepared Closing Balance Sheet) shall be $1,750,000, as determined in Section
1.2 hereof. In the event the Subject Assets and P.C. Assets minus the Assumed
Liabilities and the P.C. Liabilities equal less than $1,750,000 as shown on the
most recent properly prepared balance sheet delivered to CORE pursuant to
Section 5.12 hereof, (such amount below $1,750,000 being referred to as the
"Pre-Closing Balance Sheet Shortfall"), then Purchaser shall consummate the
transaction and the Purchase Price shall be reduced by the amount equal to the
Pre-Closing Balance Sheet Shortfall.
SECTION 9.18 UNDERWRITTEN PUBLIC OFFERING
CORE shall have completed and received the proceeds of an underwritten
public offering of at least an additional 2,000,000 shares of its common stock
at a price acceptable to CORE in its sole discretion, provided, however, that
CORE shall have no obligation to consummate such underwritten public offering if
in the judgment of CORE or its underwriter the price per share in such public
offering may be less than $8.50.
SECTION 9.19 REGISTRATION STATEMENT
The Registration Statement shall have become effective, no stop order
suspending the effectiveness of the Registration Statement shall have been
issued and no proceedings for that purpose shall have been initiated or
threatened by the SEC.
SECTION 9.20 "BLUE SKY" PERMITS
CORE shall have received all state securities laws or "blue sky" permits
and other authorizations and exemptions necessary to consummate the Underwritten
Public Offering.
SECTION 9.21 ACCOUNTANTS' COMFORT LETTERS
Each of Ernst & Young of Boston and KPMG Peat Marwick LLP of Atlanta,
Georgia and Arthur Anderson LLP shall have delivered comfort letters to CORE and
Purchaser dated prior to the date of the effectiveness of the Registration
Statement concerning the financial statements of
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CORE and of Seller and AMG, respectively (including pro-forma financial
statements), included in the Registration Statement, in form and content
reasonably acceptable to CORE and Purchaser.
SECTION 9.22 RESERVED
SECTION 9.23 GOVERNMENTAL CONSENT AND APPROVALS; STATUTES, LICENSES, PERMITS,
ETC.
All statutory requirements for the valid consummation of the transactions
contemplated by this Agreement and the P.C. Agreement shall have been complied
with, including the receipt of all required authorizations, consents and
approvals of federal and state governmental agencies and any necessary non-
governmental regulatory entity. No statute, rule, regulation, executive order,
decree, injunction or restraining order shall have been enacted, issued,
promulgated or enforced (or repealed, superseded or otherwise made inapplicable)
by any court or governmental authority or any non-governmental regulatory entity
which prohibits the consummation of the transactions contemplated by this
Agreement or the P.C. Agreement.
Purchaser and New P.C. shall have received or shall have been granted any
and all necessary certificates, licenses, permits, authorities and franchises by
the appropriate local, state and federal government agencies and any applicable
non-governmental entity in order for Purchaser and New P.C. to conduct the
business of the Clinics and Staffings (the "Permits and Licenses"). Seller and
AMG shall cooperate and employ their best efforts to assist Purchaser and New
P.C. in receiving the Permits and Licenses.
SECTION 9.24 MEDICAL MALPRACTICE POLICY
At or before Closing, Seller shall deliver to Purchaser and CORE a
certificate of insurance from an insurance company acceptable to CORE evidencing
the existence of the AMG's medical malpractice policy through the Closing Date
(including "tail" coverage), together with a paid receipt from the insurance
company evidencing payment in full of the insurance premium on the AMG's medical
malpractice policy.
SECTION 9.25 CLOSING DATE PRICE
The Closing Date Price (as defined in Section 1.3(b)) of CORE common stock
shall be $8.50 or greater.
SECTION 9.26 DUE DILIGENCE
Purchaser and CORE shall have completed their due diligence investigation
of the business of Seller and AMG, including, without limitation, their review
of financial statements, assets,
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liabilities, products, services, inventory, methods of accounting, margins and
financial and other business records and investigation of Seller's and AMG's
customers and suppliers. In this connection, Seller and AMG agree to make all
relevant information available and to authorize reasonable visits to Seller's
and AMG's premises with such staff, consultants and experts as Purchaser and
CORE deem necessary or desirable. Purchaser and CORE agree to coordinate closely
all such activities with Seller and AMG and to conduct any such inquiries with
appropriate discretion and sensitivity to Seller's and AMG's relationships with
their employees, customers and suppliers. Such due diligence shall include a
valuation of all of the assets and goodwill of Seller and AMG. A satisfactory
conclusion, in the opinion of CORE, of this due diligence study (including,
without limitation, approval of the Schedules to this Agreement) is a condition
to the obligations of CORE and Purchaser to consummate the transactions
contemplated by this Agreement.
ARTICLE X
TERMINATION OR ABANDONMENT
SECTION 10.1 TERMINATION OR ABANDONMENT
This Agreement and the transactions contemplated hereby may be terminated
and abandoned at any time prior to the Closing Date:
(a) By mutual consent of CORE and Seller notwithstanding the approval of
this Agreement by the stockholders of CORE or Seller;
(b) By CORE if (i) any of the representations or warranties of Seller or
AMG contained herein or in the P.C. Agreement shall have been untrue or
incorrect in any material respect on the date hereof, or (ii) Seller or AMG
shall be in material breach of any of their covenants, agreements or obligations
hereunder or under this Agreement or the P.C. Agreement and such breach shall
continue uncured until the earlier of (x) the Closing Date, (y) the tenth day
following the receipt by the breaching party of notice thereof or (z) August 1,
1996;
(c) By Seller if (i) any of the representations or warranties of CORE or
Purchaser contained herein shall have been untrue or incorrect in any material
respect on the date hereof, or (ii) CORE or Purchaser shall be in material
breach of any of their covenants, agreements or obligations hereunder and such
breach shall continue uncured until the earlier of (x) the Closing Date, (y) the
tenth day following the receipt by the breaching party of notice thereof or (z)
August 1, 1996;
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(d) By either Seller or CORE if, without fault of such terminating party,
the Closing has not become effective by August 1, 1996, or such other date, if
any, as Seller and CORE shall agree upon;
(e) [Reserved]
(f) By CORE if, pursuant to Section 6.2 hereof, CORE has abandoned the
Underwritten Public Offering or has withdrawn the Registration Statement;
(g) By CORE if the conditions set forth in Article IX hereof have not been
satisfied on or prior to the Closing Date; or
(h) By Seller if the conditions set forth in Article VIII hereof have not
been satisfied on or prior to the Closing Date.
SECTION 10.2 EFFECT OF TERMINATION OR ABANDONMENT
In the event of the termination and abandonment of this Agreement by CORE
or Seller pursuant to Section 10.1, written notice thereof shall forthwith be
given to the other party and this Agreement shall become void and have no effect
without liability of any party to any other party except as set forth below,
except that the provisions of Section 12.1 (Confidentiality), Section 12.11
(Expenses), Section 12.13 (Press Releases and Public Announcements) and Section
10.3 (Arbitration re: Termination), shall survive.
In the event CORE and Seller do not consummate the transactions
contemplated by this Agreement and on or before January 9, 1998, Seller (or
Seller's stockholders or creditors) or AMG is involved in (a) a bankruptcy or
assignment for benefit of creditors or (b) a merger, sale or transfer of a
significant portion of Seller's or AMG's assets or stock, directly or indirectly
(a "Significant Transaction"), and such Significant Transaction involves a
valuation of Seller or AMG of $13,500,000 or more, then in such event, Seller
shall pay to CORE a fee of $1,000,000 immediately upon the occurrence of the
Significant Transaction (and such payment shall accrue interest at 15% per annum
if not paid on the date of the Significant Transaction); provided, that the
$1,000,000 fee shall not be due if failure to consummate the transaction is due
solely (i) to CORE's termination of this Agreement pursuant to Section 10.1 (f),
or (ii) to CORE's breach of this Agreement (provided there has been no breach by
Seller or AMG of this Agreement or the P.C. Agreement).
CORE and Seller agree that the $1,000,000 fee is reasonable in light of
potential expenses and exposure of CORE in connection with the transactions
contemplated by this Agreement.
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In the event CORE and Seller do not consummate the transactions
contemplated by this Agreement and on or before January 9, 1998, Seller (or
Seller's stockholders or creditors) or AMG is planning to or will be involved in
a Significant Transaction and such Significant Transaction involves a valuation
of Seller or AMG of less than $13,500,000, then Seller shall notify CORE thirty
(30) days prior to such transaction and grant CORE a right of first refusal
concerning such proposed Significant Transaction, provided, that CORE shall have
the option to pay the consideration for the proposed Significant Transaction in
shares of CORE common stock with demand registration rights.
In the event of the termination or abandonment of this Agreement by Seller
pursuant to Section 10.1(c), (d) or (h), then, in such event, CORE shall pay
down $500,000 of Seller's borrowings under the $1,000,000 Financing or the
Capital Improvements Loan from Silicon Valley Bank (or credit Seller with
$500,000 for Seller's borrowings from CORE). Such payment (or credit) shall be
Seller's and AMG's sole and exclusive remedy for Purchaser's or CORE's breach or
alleged breach of this Agreement. All parties to this Agreement agree that the
foregoing payment (or credit) is reasonable in light of potential expenses of
Seller and Seller's uses of borrowings from Silicon Valley Bank (or CORE) in
anticipation of the Closing. Notwithstanding the foregoing, and without
limitation, the following matters shall not require such payment by (or credit
to) CORE: Purchaser's or CORE's dissatisfaction with their due diligence review
of Seller or AMG; delays in CORE's filings with the SEC caused directly or
indirectly by the unavailability of Seller's or AMG's information or financial
statements deemed necessary or appropriate by CORE; or CORE's stock price being
below $8.50 as described in Section 6.2 or 9.25 of this Agreement.
The parties to this Agreement acknowledge and agree that it may be
difficult, if not impossible, to accurately determine the amount of damages that
may be incurred for a breach of this Agreement. Accordingly, the parties agree
that the amounts payable and other rights granted under the circumstances
described in this Article X are reasonable.
SECTION 10.3 ARBITRATION RE: TERMINATION
If there is a dispute concerning termination pursuant to this Article X,
such dispute shall be immediately submitted to arbitration in Boston,
Massachusetts before a panel of three arbitrators in accordance with the Rules
of Commercial Arbitration of the American Arbitration Association and the party
electing to terminate this Agreement shall have the burden of proving its right
to terminate. The arbitrators shall not have authority to change the amount of
the payments or credits due hereunder; however, the arbitrators may assess
costs, including counsel fees. The decision of the arbitrators shall be final
and binding upon all parties, and judgment upon the decision may be entered in
any court of competent jurisdiction.
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ARTICLE XI
DEFINITIONS; CONSTRUCTION
SECTION 11.1 DEFINITIONS
The terms defined in this section shall, for all purposes of this
Agreement, have the respective meanings set forth opposite such terms.
"Agreement" shall mean this Asset Purchase Agreement, as amended from time
to time.
"AMG" shall mean AmHealth Medical Group of California, Professional
Corporation, a California corporation.
"AMG Management Contract" shall mean that certain Management Services
Agreement by and between AMG and Seller, dated as of October 1, 1995.
"Ancillary Documents" shall have the meaning set forth in Section 1.6.
"Assigned Contracts" shall have the meaning set forth in Section
1.1(a)(vii).
"Assumed Liabilities" shall have the meaning set forth in Section 1.2.
"Audited Financial Statements" shall have the meaning set forth in Section
5.12(b).
"Balance Sheet" shall have the meaning set forth in Section 2.4.
"Best knowledge" shall have the meaning set forth in Section 12.5.
"Business" shall have the meaning set forth in Section 1.1(a).
"Capital Improvements Loan" shall have the meaning set forth in Section
6.1(b).
"Clinics" shall have the meaning set forth in Section 1.1(a)(i).
"Closing" shall have the meaning set forth in Section 1.5.
"Closing Date" shall have the meaning set forth in Section 1.5.
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"Closing Date Balance Sheet" shall have the meaning set forth in Section
1.2.
"Closing Date Price" shall have the meaning set forth in Section 1.3(b).
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Collection Period" shall have the meaning set forth in Section 7.6.
"Continuing Employees" shall have the meaning set forth in Section 6.4.
"CORE" shall mean CORE, INC., a Massachusetts corporation.
"CORE SEC Filings" shall have the meaning set forth in Section 3.5.
"Escrow" shall have the meaning set forth in Section 7.5.
"Escrow Agent" shall have the meaning set forth in Section 7.5.
"Environmental Law" shall have the meaning set forth in Section 2.33.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Excluded Assets" shall have the meaning set forth in Section 1.1(a).
"Financial Statements" shall have the meaning set forth in Section 2.4.
"GAAP" shall mean generally accepted accounting principles and practices
applied on a consistent basis with prior periods.
"Guaranteed Accounts Receivable" shall have the meaning set forth in
Section 7.6.
"Guaranty" shall have the meaning set forth in Section 6.1.
"Indemnified Party" shall have the meaning set forth in Section 7.1.
"Minnesota Operations" shall have the meaning set forth in Section 1.1(a).
"$1,000,000 Financing" shall have the meaning set forth in Section 6.1(a).
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"Permits and Licenses" shall have the meaning set forth in Section 9.23.
"P.C. Agreement" shall mean the Professional Corporate Asset Purchase
Agreement, dated May 10, 1996, by and between AMG, Peter P. Greaney, M.D. on
behalf of New P.C. and AmHealth.
"P.C. Assets" shall have the meaning as defined in the P.C. Agreement.
"P.C. Liabilities" shall mean the P.C. Assumed Liabilities as defined in
the P.C. Agreement.
"Proprietary Rights" shall have the meaning set forth in Section 2.7.
"Purchase Price" shall have the meaning set forth in Section 1.3.
"Purchaser" shall mean AmHealth Clinics Corp., a Delaware corporation and
wholly-owned subsidiary of CORE.
"Real Estate Leases" shall have the meaning set forth in Section
1.1(a)(ix).
"Registration Statement" shall have the meaning set forth in Section 6.2.
"Retained Liabilities" shall have the meaning set forth in Section 2.27.
"Sacramento Clinic" shall have the meaning set forth in Section 1.1(a).
"SEC" shall mean the Securities and Exchange Commission, and any successor
thereto.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Seller" shall mean AmHealth, Inc., a Delaware corporation.
"Seller Stockholders Meeting" shall have the meaning set forth in Section
5.18.
"Seller's best knowledge" shall have the meaning set forth in Section 12.5.
"Shortfall" shall have the meaning set forth in Section 7.6.
"Significant Transaction" shall have the meaning set forth in Section 10.2.
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"Subject Assets" shall have the meaning set forth in Section 1.1(a).
"SVB" shall mean Silicon Valley Bank, and any successor thereto.
"Temporary Encumbrances" shall have the meaning set forth in Section 2.5.
"Time of Closing" shall have the meaning set forth in Section 1.5.
"Underwritten Public Offering" shall have the meaning set forth in Section
6.2.
SECTION 11.2 RULES OF CONSTRUCTION
Unless the context otherwise indicates, words importing the singular number
shall include the plural number and vice versa, and words of the masculine
gender shall include the feminine and neuter genders. The terms "hereby",
"hereof", "hereto", "herein", "hereunder" and any similar terms, as used in this
Agreement, refer to this Agreement as a whole.
ARTICLE XII
GENERAL PROVISIONS
SECTION 12.1 CONFIDENTIALITY
CORE will use its reasonable best efforts to keep confidential any and all
information furnished to it by Seller or its independent public accountants in
connection with the transactions contemplated by this Agreement, and the
business and financial review and investigation conducted by CORE, except to the
extent any such information may be generally available to the public; provided,
however, that (a) any disclosure of such information may be made by CORE to the
extent required by applicable law or regulation or judicial or regulatory
process, and (b) such information may be used by CORE as evidence in or in
connection with any pending or threatened litigation relating to this Agreement
or any transaction contemplated hereby.
SECTION 12.2 CLOSING DOCUMENTS
The parties will make every good faith effort to reach agreement as to the
form of the documentation to be delivered in connection with the Closing
hereunder.
SECTION 12.3 RESERVED
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SECTION 12.4 NO THIRD PARTY BENEFICIARIES
This Agreement shall not confer any rights or remedies upon any person or
entity other than the parties hereto except New P.C. and the Indemnified Parties
shall have the rights and remedies set forth on Article VII.
SECTION 12.5 WAIVERS; BEST KNOWLEDGE
Seller, CORE or Purchaser may extend the time for or waive the performance
of any of the obligations of the other, waive any inaccuracies in the
representations or warranties of the other, or waive compliance by the other
with any of the covenants or conditions contained in this Agreement. Any such
extension or waiver shall be in writing and signed by a duly authorized officer
of the extending or waiving party.
As used in this Agreement, the terms "best knowledge" and any variations
thereof shall mean the actual knowledge of the officers and directors of the
corporation and such knowledge as reasonable officers and directors would have
based on the execution of their responsibilities consistent with their legal
duty of care. For the purpose of this definition, "Seller's best knowledge"
means the actual knowledge of the directors of Seller (Steven Miracle, Charles
Coreth and James Murphy) and the following officers or employees of Seller:
Kathy Stevens, Joanne Cahill, Neville Jacks and Therese Hernandez, and such
knowledge as reasonable officers and directors and employees would have based on
the execution of their responsibilities consistent with their legal duty of
care.
SECTION 12.6 NOTICES
Except as otherwise provided herein, whenever it is provided in this
Agreement that any notice, demand, request, consent, approval, declaration or
other communication shall or may be given to or served upon any of the parties
by another, or whenever any of the parties desires to give or serve upon another
any communication with respect to this Agreement, each such notice, demand,
request, consent, approval, declaration or other communication shall be (a) in
writing and shall be deemed to be given (i) when delivered in person, (ii) on
the third business day after deposit in a regularly maintained receptacle of the
United States mail as registered or certified mail, return receipt requested,
postage prepaid, (iii) one business day after deposit with a recognized national
private courier service, or (iv) on the day on which the party to whom such
notice is addressed refuses delivery by mail or by private courier service, and
(b) addressed as follows:
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if to CORE or
Purchaser to: CORE, INC.
18881 Von Karman Ave. - Suite 1750
Irvine, CA 92715
Attn: George C. Carpenter IV, Chief Executive
Officer
Telephone: (714) 442-2100
Fax: (714) 442-2102
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with a copy to: Rich, May, Bilodeau & Flaherty, P.C.
294 Washington Street
Boston, Massachusetts 02108
Attention: Stephen M. Kane, Esq.
Telephone: (617) 482-1360
Fax: (617) 556-3889
if to Seller or
AMG to: AmHealth, Inc.
3000 Old Alabama Road
Suite 119-250
Alpharetta, Georgia 30202
Attn: Steven Miracle, President and
Chief Operating Officer
Telephone: (770) 569-4938
Fax: (770) 569-4938
with a copy to: Small, White & Marani
3343 Peachtree Road, NE
Suite 750, East Tower
Atlanta, GA 30326
Attn: Gus Small, Esq.
Telephone: (404) 237-0071
Fax: (404) 231-4192
or to such other address as may be designated in writing by any party from time
to time in accordance herewith.
SECTION 12.7 SURVIVAL OF REPRESENTATIONS AND WARRANTIES
The representations and warranties of Seller, CORE and Purchaser set forth
herein shall survive the Closing.
SECTION 12.8 SUCCESSORS, ASSIGNS
All covenants and agreements contained in this Agreement by or on behalf of
any of the parties hereto shall bind and inure to the benefit of the respective
successors, heirs, personal representatives and permitted assigns of the parties
hereto.
SECTION 12.9 COUNTERPARTS
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This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original.
SECTION 12.10 GOVERNING LAW; AMENDMENTS
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE COMMONWEALTH OF MASSACHUSETTS APPLICABLE TO CONTRACTS MADE UNDER
SEAL THEREIN AND TO BE PERFORMED THEREIN AND CANNOT BE CHANGED, AMENDED OR
TERMINATED ORALLY, BUT ONLY IN WRITING DULY SIGNED ON BEHALF OF ALL PARTIES
HERETO.
SECTION 12.11 EXPENSES
The parties shall bear their own expenses with respect to the transactions
contemplated by this Agreement.
SECTION 12.12 HEADINGS AND CAPTIONS
The section headings and captions contained in this Agreement are inserted
for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 12.13 PRESS RELEASES AND PUBLIC ANNOUNCEMENTS
Neither Seller nor AMG shall issue any press release or make any public
announcement relating to the subject matter of this Agreement without the prior
written approval of CORE; provided, however, that CORE may make any public
disclosure it believes in good faith is required by or prudent under applicable
law or any listing or trading agreement concerning its publicly-traded
securities (in which case CORE will consult with Seller prior to making such
disclosure).
SECTION 12.14 SEVERABILITY
Any term or provision of this Agreement that is invalid or unenforceable in
any situation or in any jurisdiction shall not affect the validity of
enforceability of the remaining terms and provisions hereof or the validity or
enforceability of the offending term or provision in any other situation or in
any other jurisdiction.
SECTION 12.15 INCORPORATION OF SCHEDULES AND EXHIBITS
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The Schedules and Exhibits identified in this Agreement are incorporated
herein by reference and made a part hereof.
SECTION 12.16 ENTIRE AGREEMENT
This Agreement (including the documents referred to herein) constitutes the
entire agreement among the parties and supersedes any prior understandings,
agreements or representations by or among the parties, written or oral
(including without limitation that certain letter agreement dated January 9,
1996 from CORE to Seller), to the extent the same relate in any way to the
subject matter hereof provided, however, all parties hereto acknowledge that AMG
and New P.C. have entered into the P.C. Agreement pursuant to which, inter alia,
----- ----
AMG shall transfer certain assets to New P.C. Each of the parties hereto
acknowledges that it has participated in the drafting of this Agreement, and
agrees that no provision of this Agreement shall be construed for or against any
party solely on the basis of its contribution, or lack of contribution, to the
drafting of such provision. The provisions of Section 1654 of the California
Civil Code shall have no application to this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
CORE, INC.
("CORE")
Attest:
By:_________________________________ By:_________________________________
William E. Nixon George C. Carpenter IV
Clerk Chairman and Chief Executive Officer
Attest: AMHEALTH CLINICS CORP.
("Purchaser")
By:_________________________________ By:_________________________________
William E. Nixon George C. Carpenter IV
Secretary Chairman and Chief Executive Officer
Attest: AMHEALTH, INC.
("Seller")
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By:_________________________________
Name:_______________________________ By:_________________________________
Title:______________________________ Steven Miracle
President and Chief Operating Officer
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OPTION TO PURCHASE BUSINESS AGREEMENT
THIS OPTION AGREEMENT, entered into as of April 29, 1996, between CORE,
--------
INC., a Massachusetts corporation ("CORE"), and Peter P. Greaney, M.D.
("Greaney").
WHEREAS, CORE and Greaney have entered into an Employment Agreement of even
date herewith pursuant to which Greaney will work part-time for CORE;
WHEREAS, Greaney intends to continue to render services to the business
known as Greaney Medical Group, Professional Corporation, including GMG Workcare
and their related businesses and activities (collectively, the "Business");
WHEREAS, Greaney is the sole owner of the Business;
WHEREAS, in connection with such Employment Agreement, CORE has requested
and Greaney is willing to grant an option to CORE to purchase the Business;
NOW THEREFORE, in consideration of the foregoing premises and for other
good and valuable consideration, the receipt of which is hereby acknowledged by
both parties, CORE and Greaney hereby agree as follows:
1. Grant of Option. Greaney hereby irrevocably grants CORE the option to
---------------
purchase all the stock and equity in the Business for the Purchase Price (as
defined below).
2. Purchase Price. The Purchase Price shall be based upon a properly
--------------
prepared financial statement of the Business on the Closing Date, and shall
equal seventeen (17) times after-tax pro-forma net income of the Business for
1996 (with certain adjustments as mutually determined between the parties). For
purposes of after tax calculations, a tax rate of forty (40%) shall be applied.
Attached hereto as Exhibit A is a preliminary (non-binding) calculation
---------
which is subject to further changes. In no event shall the Purchase Price be
less than $8,118,000 or greater than $10,000,000.
3. Exercise. CORE may exercise the Option at any time by delivering
--------
written notice thereof to Greaney on or before December 31, 1996 (the "Notice of
Intent"). The date such Notice of Intent is sent to Greaney is hereinafter
referred to as the "Purchase Option Date". In the event of a "Change in
Control" of CORE (as defined in Section 11, below), the date "December 31, 1996"
in this Section 3 shall be changed to "the date 30 days after a Change in
Control of CORE".
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Upon CORE's delivery of the Notice of Intent, the following provisions
shall become operative:
(a) Greaney shall sell the Business to CORE, or its nominee, at the
price and terms set forth herein, and shall convey to CORE, or
its nominee, good and marketable title thereto.
(b) CORE shall pay the Purchase Price in shares of CORE common stock.
At CORE's election, the transaction may be structured as a
pooling of interests for accounting purposes. The CORE common
stock shall be deemed to have a value equal to the average
closing price of CORE common stock as quoted on the NASDAQ -
National Market System for the ten (10) business days immediately
prior to the Closing Date (the "Closing Date Price"). Such
shares of CORE common stock shall be registered on a registration
statement filed with the Securities and Exchange Commission or
CORE shall grant Greaney registration rights with respect to such
shares. Greaney acknowledges that such shares may be subject to
pooling of interests accounting rules and SEC rules.
(c) The date and time of closing shall be established by CORE and
Greaney by mutual consent but shall be not later than ninety (90)
days after the Purchase Option Date.
(d) The transfer shall be pursuant to a Purchase Agreement in form
mutually acceptable to CORE and Greaney which shall include,
among other terms and conditions, appropriate representations and
warranties of Greaney with respect to the assets, property and
operations of the Business, the non-competition agreement of
Greaney and appropriate provisions for indemnification of CORE by
Greaney. Without limitation, the Purchase Agreement shall
contain terms and conditions contained in other acquisition
agreements previously entered into by CORE. CORE has provided
Greaney a copy of its agreement with Cost Review Services, Inc.
and will provide Greaney with a copy of its agreement with
AmHealth, Inc., when final.
4. Due Diligence. Greaney shall fully cooperate and permit CORE to
-------------
conduct due diligence with respect to the Business after CORE's Notice of Intent
to exercise the Option. To the extent CORE's resources permit, CORE may conduct
preliminary due diligence review of the Business prior to the Notice of Intent
in order to expedite the due diligence review process after the Notice of
Intent. Notwithstanding CORE's Notice of Intent to exercise the Option or
2
<PAGE>
a definitive Purchase Agreement, CORE shall not be obligated to purchase the
Business if CORE is not fully satisfied, in CORE's sole discretion, with its due
diligence review of the Business. CORE and Greaney have entered into
Confidentiality Agreements dated January 5, 1996. CORE and Greaney acknowledge
that such Confidentiality Agreements are applicable to CORE's due diligence
under this Agreement.
5. Representations and Warranties of Greaney. Greaney hereby represents
-----------------------------------------
and warrants to CORE that:
(a) Greaney is the sole owner of the Business.
(b) This Option Agreement does not violate or breach any existing
contract, agreement or understanding between Greaney, the
Business or any other party.
(c) Neither Greaney nor the Business shall take any action to deny
CORE the benefits of this Agreement.
(d) Greaney will not negotiate or have contacts with any other
parties as to the sale of all or a portion of the Business. In
the case of any inquiry from a party as to the possible
acquisition of any stock or assets of the Business, Greaney will
promptly advise such inquiring party of the existence of this
Option Agreement. Additionally, Greaney will advise CORE of the
inquiry.
6. Arbitration. Any controversy or claim arising under or relating to
-----------
this Agreement, or breach thereof, shall be settled by arbitration in Los
Angeles, California in accordance with the rules of the American Arbitration
Association as in effect from time to time. Judgment upon the award rendered
may be entered in any court having jurisdiction thereof.
7. Assignability. This Agreement shall be binding upon and inure to the
-------------
benefit of the successors, assigns, personal representatives, heirs and legatees
of the respective parties hereof. Any assignment of this Agreement shall
require the written consent of both parties (which consent shall not be
unreasonably withheld); provided, however, CORE's assignment of this Agreement
to a wholly-owned subsidiary shall not require such written consent.
8. Entire Agreement. This Agreement constitutes the entire Agreement
----------------
between the parties hereto pertaining to the subject matter hereof and
supersedes all prior agreements, understandings, negotiations and discussions,
whether oral or written of the parties, and there
3
<PAGE>
are no warranties, representations or other agreements between the parties in
connection with the subject matter hereof, except as are specifically set forth
herein. Except as otherwise provided by this agreement, no amendment,
supplement, modification, waiver or termination of this Agreement shall be
binding unless executed in writing by the party to be bound thereby. No waiver
of any of the provisions of this Agreement shall be deemed or shall constitute
a waiver of any other provision hereof (whether or not similar), nor shall such
waiver constitute a continuing waiver unless otherwise expressly provided.
Both parties agree to make reasonable accommodations to each other to
change the structure of the proposed transaction set forth in this Agreement due
to the fact that the Business includes a California Professional Corporation.
9. Press Release; Public Announcement. Neither Greaney nor the Business
----------------------------------
shall make any press release, public statement or other announcement with
respect to the transactions described in this Agreement without CORE's prior
express written consent. CORE, as a publicly held company, has certain
disclosure obligations, and shall consult with Greaney prior to issuing any
press release concerning the transactions described in this letter in order to
reduce any potential adverse impact on Greaney or the Business.
10. Notices. Any notice required or permitted under this Agreement shall
-------
be sufficient if in writing and if sent by certified or registered mail, return
receipt requested, to the parties at the following addresses:
To Company at:
CORE, INC.
18881 Von Karman Avenue Suite 1750
Irvine, CA 92715
Attn: Chairman of the Board of Directors
with a copy to:
Rich, May, Bilodeau & Flaherty, P.C.
294 Washington Street
Boston, MA 02108
Attn: Stephen M. Kane, Esq.
4
<PAGE>
To Executive at:
Peter P. Greaney, M.D.
333 South Anita Drive - Suite 630
Orange, CA 92668
11. Rules of Construction; Heading and Validity. This Agreement shall be
-------------------------------------------
construed in accordance with the laws of Massachusetts.
The headings contained in this Agreement are for reference only and shall
not limit or otherwise affect the meaning of any provision of this Agreement.
If any provision of this Agreement or portion of such provision, or the
application thereof under any circumstances, is held invalid, the remainder of
this Agreement (or the remainder of such provision) and the application thereof
under other circumstances shall not be affected by such partial invalidity.
For the purposes of this Agreement, a "Change in Control" of CORE shall be
deemed to have occurred if:
(i) there is a merger or consolidation of CORE in which CORE is not the
continuing or surviving corporation;
(ii) CORE sells substantially all its assets to a single purchaser or to a
group of associated purchasers;
(iii) at least two-thirds of the outstanding common stock of CORE is sold,
exchanged or otherwise disposed of in one transaction or in a series
of related transactions;
(iv) any person or entity becomes directly or indirectly the owner or
beneficial owner of 50% or more of CORE's outstanding common stock;
(v) individuals who at the date hereof constitute the Board of Directors
of CORE cease to constitute a majority thereof, provided that such
-------------
change is the direct or indirect result of a proxy fight and
contested election for positions on the Board;
(vi) the involuntary termination of employment of CORE's Chairman of the
Board and Chief Executive Officer; or
(vii) the Board of Directors of CORE determines in its sole and absolute
discretion that there has been a change in control of the Company.
5
<PAGE>
IN WITNESS WHEREOF, the parties to this Option Agreement have caused the
same to be executed as of the 29th day of April, 1996.
CORE, INC.
By: /s/ GEORGE C. CARPENTER IV
------------------------------
George C. Carpenter IV
Chairman of the Board
of Directors
/s/ PETER P. GREANEY, M.D.
------------------------------
Peter P. Greaney, M.D.
Attachments
- -----------
Exhibit A - Preliminary (Non-Binding) Purchase Price Calculation
6
<PAGE>
GREANEY MEDICAL GROUP
VALUATION FOR CORE, INC.
BASED UPON 1996 FINANCIAL PROTECTION
<TABLE>
<CAPTION>
GREANEY MEDICAL WORKCARE
DESCRIPTION CLINICAL SURV HCO TOTAL
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET REVENUES 2,783,355 1,945,625 0 4,728,979
DIRECT EXPENSE 2,038,242 1,495,479 0 3,533,721
- -------------------------------------------------------------------------
MARGIN CONTRIBUTION 745,112 450,146 0 1,195,258
27% 23%
GENERAL & ADMIN 230,338 169,002 0 399,340
- -------------------------------------------------------------------------
INCOME BEFORE TAXES 514,774 281,144 0 795,918
LESS TAXES (40%) (205,910) (112,458) 0 (318,367)
- -------------------------------------------------------------------------
NET INCOME 308,864 168,687 0 477,551
=========================================================================
VALUATION @17X 5,250,695 2,867,671 0 8,118,366
=========================================================================
</TABLE>
NOTE: WHERE P. P. GREANEY @.2 FTE @ $130,000/YR
NOTE: WHERE HCO IS ELIMINATED AND $50,000 CAPITAL BUDGET.
7
<PAGE>
CORE, INC.
INCENTIVE STOCK OPTION AGREEMENT
--------------------------------
THIS INCENTIVE STOCK OPTION AGREEMENT is entered into by and between
CORE, INC., a Massachusetts corporation (the "Company"), and _____ ("Optionee").
W I T N E S S E T H :
- - - - - - - - - - -
WHEREAS, the Board of Directors and stockholders of the Company have
adopted and approved the 1991 Stock Option Plan (the "1991 Stock Option Plan");
and
WHEREAS, the Company and Optionee desire to enter into this Agreement
concerning the grant by the Company of Incentive Stock Options to Optionee,
pursuant to the 1991 Stock Option Plan and Section 422 of the Internal Revenue
Code of 1986, as amended;
NOW, THEREFORE, in consideration of the covenants herein set forth, the
parties agree as follows:
1. Shares; Price; Term.
-------------------
As of March 29, 1996 (the "Grant Date"), the Company grants Optionee an
option to purchase _____ shares of its Common Stock, par value $0.10 per share
(the "Optin Shares"), at a price of $12.25 per share (which price is equal to
the closing sale price as quoted on NASDAQ-NMS on March 28, 1996) pursuant to
the 1991 Stock Option Plan. Except for earlier termination events set forth in
Sections 4 (concerning termination of employment) and 5, this option shall
terminate entirely at the close of business on March 29, 2001.
2. Vesting.
-------
The Option Shares shall be 20% exercisable at grant and an additional 20%
of the Option Shares shall become exercisable for each additional year of
service Optionee renders to the Company after the Grant Date. No vesting shall
occur after Optionee's termination of employment for any reason. Subject to
earlier termination events and Optionee's continued employment, the Option
Shares shall be exercisable according to the following schedule:
1
<PAGE>
<TABLE>
<CAPTION>
Number First Date Last Date
of Shares of Exercise of Exercise
--------- -------------- --------------
<S> <C> <C> <C>
3(-) 20% March 29, 1996 March 29, 2001
3(-) 20% March 29, 1997 March 29, 2001
3(-) 20% March 29, 1998 March 29, 2001
3(-) 20% March 29, 1999 March 29, 2001
3(-) 20% March 29, 2000 March 29, 2001
---- ---
Total 2(-) 100%
</TABLE>
Notwithstanding the foregoing, this Option shall immediately become
exercisable as to all shares then subject hereto in the event of a "Change in
Control" (as hereinafter defined) of the Company.
As used herein, a "Change in Control" of the Company shall be deemed to
have occurred if:
(i) there is a merger or consolidation of the Company in which the
Company is not the continuing or surviving corporation;
(ii) the Company sells substantially all its assets to a single purchaser
or to a group of associated purchasers;
(iii) at least two-thirds of the outstanding common stock of the Company
is sold, exchanged or otherwise disposed of in one transaction or in
a series of related transactions;
(iv) any person or entity becomes directly or indirectly the owner or
beneficial owner of 50% or more of the Company's outstanding common
stock;
(v) individuals who at the date hereof constitute the Board of Directors
of the Company cease to constitute a majority thereof, provided that
-------------
such change is the direct or indirect result of a proxy fight and
contested election for positions on the Board; or
(vi) the Board of Directors of the Company determines in its sole and
absolute discretion that there has been a change in control of the
Company.
3. Exercise.
--------
Optionee may exercise this Incentive Stock Option from time to time as
hereinabove provided, by delivery to the Company, as to each such exercise, at
its principal office of (a) written notice of exercise of this Incentive Stock
Option, stating the number of
2
<PAGE>
shares then being purchased hereunder; (b) a check or cash in the amount of the
full purchase price of such shares; (c) a check or cash in the amount of
federal, state and local withholding taxes, if any, required to be withheld and
paid by the Company as a result of such exercise; and (d) such other documents
or instruments as may be required by any then applicable federal or state laws
or regulations, or regulatory agencies pertaining to this Incentive Stock
Option, any exercise thereof and/or any offer, issue, sale or purchase of any
shares covered by this Incentive Stock Option. Not less than one share may be
purchased at one time. After the Company shall have received all of the
foregoing, the Company shall proceed with reasonable promptness to issue the
shares so purchased upon such exercise of the Incentive Stock Option; provided,
however, that Optionee or any person or persons entitled to exercise this Option
under Section 5 hereof shall not be or be deemed to be the record or beneficial
owner of any such shares purchased upon any exercise of this Incentive Stock
Option until and unless the stock certificate or certificates evidencing such
shares actually shall have been issued. Except as provided in Sections 4 and 5
hereof, Optionee may exercise this Incentive Stock Option only if, on the date
of exercise, he has been continuously in the employ of the Company since the
Grant Date.
4. Termination of Employment. Notwithstanding the provisions of
-------------------------
Sections 1 and 3 hereof, if Optionee shall cease to be employed by the Company
for any reason other than his death, Optionee may exercise this Incentive Stock
Option (to the extent he was entitled to do so at the termination of his
employment) at any time and from time to time within three (3) months after such
termination, but in no event after the expiration of this Incentive Stock
Option; provided, however, that if the employment of Optionee terminates due to
the permanent and total disability of Optionee, Optionee may exercise this
Incentive Stock Option (to the extent he was entitled to do so at the
termination of his employment) only at any time and from time to time within
twelve (12) months after such termination, but in no event after the expiration
of this Incentive Stock Option. No provision of the 1991 Stock Option Plan or
this Incentive Stock Option shall confer any right to continue in the employ of
the Company or interfere in any way with the right of the Company to terminate
any employment at any time.
3
<PAGE>
5. Death of Optionee; No Assignment. This Incentive Stock Option shall
--------------------------------
not be assignable or transferable except by will or by the laws of descent and
distribution and shall be exercisable during his lifetime only by Optionee. If
Optionee shall die while in the employ of the Company, his personal
representative or the person entitled to succeed to his rights hereunder shall
have the right, at any time and from time to time within three (3) months after
the date of Optionee's death, and prior to the expiration or termination of this
Incentive Stock Option pursuant to Section 1 hereof, to exercise this Incentive
Stock Option to the extent that Optionee was entitled to exercise this Incentive
Stock Option at the date of his death.
6. No Rights as Stockholder.
------------------------
Optionee shall have no rights as a stockholder with respect to the Common
Stock covered by this Incentive Stock Option until the date of the issuance of a
stock certificate or stock certificates to him. No adjustment will be made for
dividends or other rights for which the record date (or if there is no record
date established, then the date established for the distribution of such
dividend or right) is prior to the date such stock certificates are issued.
7. Conditions of Resale.
--------------------
Optionee agrees to comply with all applicable federal and state securities
laws and rules and regulations thereunder in connection with the resale by him
of any shares of Common Stock which shall have been received by him upon
exercise of this Option, and Optionee further agrees to comply with all
requirements of the Company which may be reasonably imposed by the Company as
conditions of such resale. The Company may, in its discretion, place a legend on
stock certificates issued in connection with the exercise of this Incentive
Stock Option in order to insure compliance with the Securities Act of 1933, as
amended.
The Company has no obligation to register the Option Shares on a
registration statement with the Securities and Exchange Commission.
Accordingly, notwithstanding the Company's status as a publicly-held
corporation, the Option Shares may be restricted shares and not subject to
resale without compliance with Rule 144 or other exemption. In general, Rule
144 requires a two-year holding period prior to sale of the shares of Stock.
4
<PAGE>
8. Certain Adjustments Upon Changes in Capitalization.
--------------------------------------------------
In the event of any change in the outstanding Common Stock of the Company
by reason of a stock dividend, consolidation, split-up, combination or exchange
of shares, or the like, the aggregate number and class of shares available under
this Stock Option Agreement shall be appropriately adjusted by the Board of
Directors whose determination shall be conclusive.
9. This Agreement Subject to 1991 Stock Option Plan.
------------------------------------------------
This Agreement is made pursuant to all of the provisions of the 1991
Stock Option Plan (including the Rules and Regulations promulgated thereunder),
and is intended, and shall be interpreted in a manner, to comply therewith. Any
provision hereof inconsistent with the 1991 Stock Option Plan shall be
superseded and governed by the 1991 Stock Option Plan. A copy of the 1991 Stock
Option Plan is available from the Company upon Optionee's written request.
10. Miscellaneous.
-------------
(a) Sections: Headings. Section and other headings are included
------------------
herein for reference purposes only and shall not be construed or interpreted as
part of this Agreement.
(b) Gender; Plural. Wherever and whenever the context of this
--------------
Agreement shall so require, the masculine, feminine and neuter gender of any
noun or pronoun shall include any or all of the other genders and the singular
shall include the plural and the plural shall include the singular.
(c) Counterparts. This Agreement may be executed in several counterparts,
------------
all of which shall constitute one and the same instrument.
(d) Incentive Stock Option Treatment. Optionee understands that in
--------------------------------
order to receive "Incentive Stock Option" treatment pursuant to Section 422 of
the Internal Revenue Code of 1986, as amended, Optionee may not dispose of the
Common Stock which may be purchased hereunder within two years after the Grant
Date, and must hold said Common Stock for at least one year after the date of
exercise of the Incentive Stock Option described herein. For Incentive Stock
Option treatment, the aggregate fair market value of the shares of Common Stock
(determined as of the respective date or dates of grant) for which one or more
options granted to Optionee under the Plan (or any other option Plan of the
Company)
5
<PAGE>
may for the first time become exercisable as Incentive Options during any one
calendar year shall not exceed the sum of One Hundred Thousand Dollars
($100,000). To the extent the Employee holds two or more such options which
become exercisable for the first time in the same calendar year, the foregoing
limitation on the exercisability of such options as Incentive Options shall be
applied on the basis of the order in which such options are granted.
The Incentive Stock Option status of the options described herein is
subject to availability of sufficient shares under the 1991 Stock Option Plan.
The Company, subject to stockholder approval, if necessary, presently intends to
increase the number of shares of its Common Stock available under the 1991 Stock
Option Plan.
(e) Section 16 Rules. It is the intent of this Option Agreement to
----------------
conform with the Section 16 Rules under the Securities and Exchange Act of 1934,
without affecting the exempt status of the 1991 Stock Option Plan. Accordingly,
this Option Agreement shall, to the maximum extent possible, be interpreted so
that options granted under this Agreement shall be exempt from Section 16(b) of
the Act.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
CORE, INC.
By:_____________________________________
George C. Carpenter IV
Chairman and Chief Executive Officer
Optionee
________________________________________
6
<PAGE>
SCHEDULE TO EXHIBIT
LIST OF OFFICER OPTIONEES GRANTED OPTIONS ON MARCH 29, 1996
<TABLE>
<CAPTION>
Optionee Number of Shares
- -------- ----------------
<S> <C>
George C. Carpenter IV 50,000
Craig C. Horton 50,000
William E. Nixon 24,000
Ophelia Galindo 12,000
Becky Auerbach 12,000
Nancy Moore 12,000
Douglas Pollard 12,000
Charlene Brax 12,000
</TABLE>
7
<PAGE>
[CONSULTING]
THIS OPTION IS NOT, AND SHALL NOT BE TREATED AS AN
INCENTIVE STOCK OPTION, AS DEFINED IN SECTION 422A OF THE
INTERNAL REVENUE CODE OF 1986, AS AMENDED.
CORE, INC.
STOCK OPTION AGREEMENT
----------------------
THIS STOCK OPTION AGREEMENT is entered into by and between CORE, INC., a
Massachusetts corporation (the "Company"), and ____________________
("Optionee").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Optionee consulted with and has agreed to be available to consult
with the Company;
WHEREAS, the Company has agreed to compensate Optionee for such services by
the grant of options outside the Company's 1991 Stock Option Plan;
WHEREAS, the Company and Optionee desire to enter into this Agreement
concerning the grant by the Company of stock options to Optionee;
NOW, THEREFORE, in consideration of the covenants herein set forth, the
parties agree as follows:
1. Shares; Price; Term.
-------------------
As of March 29, 1996 (the "Grant Date"), the Company grants Optionee
an option to purchase up to 40,000 shares of its Common Stock, par value $0.10
per share (the "Option Shares"), at a price of $12.25 per share (which price is
equal to the fair market value of the common stock as quoted on NASDAQ). This
option is exercisable immediately and shall terminate entirely at the close of
business on March 29, 2001.
2. Vesting.
--------
The Options Shares shall be 100% vested upon grant.
3. Exercise.
--------
Optionee may exercise this Stock Option from time to time as
hereinabove provided, by delivery to the Company, as to each such exercise, at
its principal office of (a) written notice of exercise of this Stock Option,
stating the number of shares then being purchased hereunder; (b) a check or cash
in the amount of the full purchase price of such shares;
1
<PAGE>
(c) a check or cash in the amount of federal, state and local income taxes, if
any, required to be withheld and paid by the Company as a result of such
exercise; and (d) such other documents or instruments as may be required by any
then applicable federal or state laws or regulations, or regulatory agencies
pertaining to this Stock Option, any exercise thereof and/or any offer, issue,
sale or purchase of any shares covered by this Stock Option. Not less than one
share may be purchased at one time. After the Company shall have received all
of the foregoing, the Company shall proceed with reasonable promptness to issue
the shares so purchased upon such exercise of the Stock Option; provided,
however, that Optionee or any person or persons entitled to exercise this Option
under Section 5 hereof shall not be or be deemed to be the record or beneficial
owner of any such shares purchased upon any exercise of this Stock Option until
and unless the stock certificate or certificates evidencing such shares actually
shall have been issued.
4. Services.
--------
No provision of this Stock Option shall confer any right to continue
in the service of the Company.
5. Death of Optionee; No Assignment.
--------------------------------
This Stock Option shall not be assignable or transferable except by
will or by the laws of descent and distribution and shall be exercisable during
his lifetime only by Optionee. If Optionee shall die prior to the termination
date of this Stock Option, Optionee's personal representative or the person
entitled to succeed to Optionee's rights hereunder shall have the right, at any
time and from time to time within twelve (12) months after the date of
Optionee's death, and prior to the expiration or termination of this Stock
Option pursuant to Section 1 hereof, to exercise this Stock Option to the extent
that Optionee was entitled to exercise this Stock Option at the date of death.
6. No Rights as Stockholder.
------------------------
Optionee shall have no rights as a stockholder with respect to the
Common Stock covered by this Stock Option until the date of the issuance of a
stock certificate or stock certificates to Optionee. No adjustment will be made
for dividends or other rights for which the record date (or if there is no
record date established, then the date established for the distribution of such
dividend or right) is prior to the date such stock certificates are issued.
2
<PAGE>
7. Conditions of Resale.
--------------------
Optionee agrees to comply with all applicable federal and state
securities laws and rules and regulations thereunder in connection with the
resale by Optionee of any shares of Common Stock which shall have been received
by Optionee upon exercise of this Option, and Optionee further agrees to comply
with all requirements of the Company which may be reasonably imposed by the
Company as conditions of such resale. The Company may, in its discretion, place
a legend on stock certificates issued in connection with the exercise of this
Stock Option in order to insure compliance with the Securities Act of 1933, as
amended.
The Company has no obligation to register the Option Shares on a
registration statement with the Securities and Exchange Commission. Accordingly,
notwithstanding the Company's status as a publicly-held corporation, the Option
Shares may be restricted shares and not subject to resale without compliance
with Rule 144 or other exemption. In general, Rule 144 requires a two-year
holding period prior to sale of the shares of Stock.
8. Certain Adjustments Upon Changes in Capitalization.
--------------------------------------------------
In the event of any change in the outstanding Common Stock of the
Company by reason of a stock dividend, consolidation, split-up, combination or
exchange of shares, or the like, the aggregate number and class of shares
available under this Stock Option Agreement shall be appropriately adjusted by
the Board of Directors whose determination shall be conclusive.
9. Option Grant Outside the 1991 Stock Option Plan.
-----------------------------------------------
The Option Shares have been granted outside the Company's 1991 Stock
Option Plan. Accordingly, this Agreement not subject to the provisions of the
1991 Stock Option Plan.
10. Miscellaneous.
-------------
(a) Section; Headings. Section and other headings are included
-----------------
herein for reference purposes only and shall not be construed or interpreted as
part of this Agreement.
(b) Gender; Plural. Wherever and whenever the context of this
--------------
Agreement shall so require, the masculine, feminine and neuter gender of any
noun or pronoun shall include any or all of the other genders and the singular
shall include the plural and the plural shall include the singular.
(c) Counterparts. This Agreement may be executed in several
------------
counterparts, all of which shall constitute one and the same instrument.
3
<PAGE>
(d) Not an Incentive Stock Option. Optionee understands that this
-----------------------------
Stock Option thus will not be treated as an "Incentive Stock Option" pursuant to
Section 422A of the Internal Revenue Code of 1986.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to
be effective as of the 29th day of March, 1996.
CORE, INC.
By:__________________________
George C. Carpenter IV
Chairman and Chief
Executive Officer
Optionee
_____________________________
4
<PAGE>
SCHEDULE TO EXHIBIT
LIST OF OPTIONEES GRANTED OPTIONS FOR 40,000 SHARES ON MARCH 29, 1996
Stephen C. Caulfield
John Pappajohn
5
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT, entered into as of April __, 1996, between CORE,
INC., a Massachusetts corporation (hereinafter called "Company"), and PETER P.
GREANEY, M.D. (hereinafter called "Executive").
In consideration of the mutual covenants herein contained, and for other
good and valuable consideration, the receipt of which is acknowledged by both
parties hereto, Company and Executive agree as follows:
1. Employment. Company will employ Executive and Executive will serve
----------
Company as a Corporate Vice President and Chief Medical Officer of the Company,
upon the terms and conditions provided herein.
2. Duties. The Executive shall, as an officer of Company, subject to the
------
ultimate authority of the Chief Executive Officer and the Board of Directors of
Company, be responsible for and shall have the authority to perform the
following duties on behalf of Company:
(a) supervision of reporting, Quality Assurance and Clinical Affairs;
(b) participation of the design and prototype development of the
Company's Clinic (Internet) Project MIS;
(c) assistance in the Company's proposed network development,
business development, and proposed outsourcing product
development; and
(d) such other duties and responsibilities as may be directed by the
Chief Executive Officer or the Board of Directors of Company
consistent with Executive's titles. Examples of such possible
other duties and responsibilities are set forth on Exhibit A
---------
hereto.
The Executive shall report to the Chairman and Chief Executive Officer of
the Company, in general, and to the Executive Vice President for outsourcing
matters.
3. Term. Greaney will be compensated for services under this
----
Agreement as of April 15, 1996. The term of Executive's employment hereunder
shall be for the period beginning April 29, 1996, and ending December 31, 1996
(the "Term"). Each twelve-month period of the Term commencing on January 1 and
ending on the following December 31 is referred to herein as a "Contract Year."
On December 31, 1996, and on each December 31 thereafter (each such date being
hereinafter referred to as a "Renewal Date"), the term of the Executive's
employment hereunder shall automatically be extended for an additional one (1)
1
<PAGE>
year period unless either party notifies the other in writing at least thirty
(30) days prior to the applicable Renewal Date that such party does not wish to
extend this Agreement beyond the expiration of the term or extended term hereof,
as the case may be, in which event this Agreement shall terminate on the Renewal
Date. The term of this Agreement shall be subject to earlier termination as set
forth in Section 8 hereof.
4. Commitment of Executive. (a) Part-Time Basis. Except as
----------------------- ---------------
provided in Section 4(b), below, during the term of this Agreement, the
Executive shall be employed by the Company in California on a part-time basis,
and shall perform his duties as an officer during the normal business hours of
Company. The Executive shall dedicate approximately one half his working time
to the Company, which shall average 80 hours per month; provided, however, such
80 hour average will vary so that in some months more than 80 hours of services
are rendered to the Company and in some months are less than 80 hours of
services are rendered to the Company. Such variations will accommodate Company
deadlines and commitments, provided, the Company will not require more than 25
hours of work from Executive in any week.
While employed on a part-time basis, the Executive shall be permitted to
perform work for compensation for others persons and entities, including,
without limitation the Greaney Medical Group ("GMG"); provided that such work
does not interfere with the Executive's performance of his duties under this
Agreement and neither Executive's outside work or services or the persons or
entities to whom Executive is rendering such work or services is in competition,
directly or indirectly, with the Company or any of Company's affiliated
corporations. To avoid potential conflicting schedule demands, the Company and
the Executive will prepare, on a monthly basis, a mutually-agreed upon work
schedule. In preparing such monthly work schedules, the Company acknowledges
that the Executive's services to GMG may from time to time take priority over
Executive's services to the Company. Company hereby acknowledges and agrees
that any and all services provided by Executive to or on behalf of GMG shall not
constitute a violation of the provisions of this Section 4, provided, however,
the Executive acknowledges that, as a senior officer of the Company, Executive
has fiduciary duties to the Company. The Company acknowledges that as a
director and officer of GMG, Executive also has fiduciary duties to GMG.
(b) Full-time Basis. In the event Company exercises its option to
---------------
purchase GMG
2
<PAGE>
pursuant to the Option to Purchase Business Agreement of even date herewith,
Executive's hours of services hereunder shall increase to full-time.
5. Compensation. (a) Part-Time Basis. While Executive is employed
------------ ---------------
on a part time basis as described in Section 4(a), Company agrees to compensate
the Executive at the minimum rate of $100,000 per year. After every four full
months of this Agreement while Executive is employed on a part-time basis,
Company agrees to pay Executive a pro-rata adjustment for such four month period
in the event the Company has required Executive to provide more than an average
of 80 hours of service per calendar month.
(b) Full-time Basis. In the event Company exercises its option to
---------------
purchase GMG pursuant to the Option to Purchase Business Agreement of even date
herewith and Executive's hours of services hereunder increase to full-time,
Company agrees to compensate the Executive at the minimum rate of $200,000 per
year.
(c) Company Policies. The Executive's compensation shall be paid in
----------------
installments pursuant to Company's personnel policies, less any applicable
federal, state or local payroll tax deductions incident on the Executive.
(d) Bonuses. The Executive shall be eligible to receive a bonus or
-------
bonuses as determined by the Company's Compensation Committee, at its sole
discretion, based upon performance and other factors.
6. Ethical Conduct. The Executive agrees to adhere to all recognized
---------------
professional ethics and customs, and to avoid all actions or conduct which might
reasonably result in injury, directly or indirectly, to the professional
standing and reputation of Company, any of the Company's affiliated corporations
or any of the Company's employees or agents. Executive represents and warrants
he is free to enter into the Employment Agreement and that there are no
employment contracts, restrictive covenants or other obligations preventing full
performance of his duties hereunder.
7. Fringe Benefits.
---------------
(a) Vacation. The Executive shall be entitled to a vacation period of
--------
four weeks in any Contract Year of his employment without loss of compensation.
In the event that the Executive's employment is terminated for any reason prior
to the expiration of a full Contract Year, the vacation period to which he is
entitled shall be prorated, and he shall receive compensation on account of any
unused vacation days in addition to his regular
3
<PAGE>
compensation for the period prior to his termination. The Executive shall not
be entitled to carry previously allowed vacation time or personal days over to
the following Contract Years.
(b) Holidays and Sick Leave. In addition to his vacation time, the
-----------------------
Executive shall be entitled without loss of compensation to those holidays to
which employees of Company are entitled under the personnel policies of Company.
Sick leave shall be accumulated for the Executive in accordance with the
personnel policies of Company.
(c) Health Care Benefits. The Executive shall be furnished at the
--------------------
expense of Company with a health care benefit package consistent with benefits
available to other Company employees.
(d) Disability Benefits. Company agrees to continue the Executive's
-------------------
full salary and fringe benefits for a period of short-term disability not to
exceed one hundred eighty (180) days during which the Executive is unable to
work on account of illness or injury. Company shall provide the Executive at
Company's expense a long term disability benefit which shall replace two-thirds
of the Executive's salary from Company for the duration of his disability (not
including the first 180 days) to a maximum age of 65. No other fringe benefits
shall be continued during the period of any long-term disability. Any and all
obligations imposed on Company and any and all rights vested in Executive
pursuant to this Section 7(d) shall survive termination of this Agreement.
(e) Stock Options: (i) Upon Executive's commencement of Employment
--------------
with the Company, Company will grant Executive options for the purchase of up to
37,500 shares of Company Common Stock at an exercise price of $13.375 reflecting
the closing price of CORE stock on April 12, 1996.
(ii) In the event Company exercise its option to purchase GMG pursuant to
the Option to Purchase Business Agreement of even date herewith and Executive's
hours of services hereunder increase to full-time, Company agrees to grant
Executive options for the purchase of up to an additional 37,500 shares of
Company Common Stock.
(iii) The stock options will have an exercise price equal to fair market
value on the date of the grant as customarily calculated by Company (which may
vary due to the different dates of grant). Such options shall be 20% vested at
grant and thereafter vest equally over
4
<PAGE>
four years. The options shall be granted under Company's Stock Option Plan,
and be subject to the terms and conditions of a Stock Option Agreement in the
form customarily used by Company.
(f) Other Fringe Benefits. The Executive shall be entitled to
---------------------
additional fringe benefits consistent with the personnel policies of Company.
(g) In the event Executive's part-time status prevents Executive's
inclusion in any of the foregoing benefits, Company shall pay the Executive an
amount equal to the cost Company would have paid to include Executive in such
plan if Executive were eligible therefor.
8. Termination of Agreement.
------------------------
(a) Cause. This Agreement may be terminated immediately by Company
-----
for Cause (as defined below). For the purpose of this Agreement, "Cause" shall
include:
(i) willful breach or habitual neglect of the duties Executive is
required to perform hereunder;
(ii) any illegal, immoral or dishonest act or omission by Executive;
(iii) the Executive's engagement in gross misconduct;
(iv) the Executive's commission of any crime which constitutes a felony
in the jurisdiction committed (whether or not involving Company);
and
(v) a material breach by the Executive of any provision of this
Agreement.
If Company desires to terminate the Agreement for Cause, Company shall give
the Executive written notice of the termination date and shall specify in said
notice the termination provision of the Agreement upon which the termination
action is based and the actions or other matters relied upon by the Company in
electing to terminate this Agreement.
(b) Disability. This Agreement may also be terminated at the election
----------
of Company in the event that the Executive is disabled from performing his
duties hereunder for one hundred eighty (180) days or more. In the event that
this Agreement is terminated by Company because of the disability of the
Executive, Company shall give the Executive notice of a termination date, which
shall not be less than thirty (30) days subsequent to the date of the notice,
and this Agreement shall terminate on the termination date as so established by
Company.
5
<PAGE>
(c) Death. This Agreement shall terminate automatically upon the
-----
death of the Executive.
(d) Effect of Termination for Cause, Disability or Death. If the
----------------------------------------------------
Executive's employment terminates pursuant to Section 8(a), 8(b) or 8(c),
Company shall pay Executive his full salary and other benefits (including
accrued and unused vacation and sick time for such Contract Year) through the
date of termination of Executive's employment at the rate then in effect, and
Company shall have no further obligations to the Executive under this Agreement,
except for continuation of benefits required by applicable law.
(e) Other Termination. This Agreement may be terminated by Company or
-----------------
Executive for any reason or no reason upon six (6) months advance written notice
to the other.
Executive shall be eligible for severance benefits as determined by the
Company's Compensation Committee.
9. Covenant Not to Compete. Executive agrees that, until the
-----------------------
expiration of one year after termination of Executive's employment hereunder:
(i) Executive shall not solicit or attempt to solicit, or accept business
from, any entity which at any time during the twelve month period
prior to the date of termination of Executive's employment with
Company, was a client or customer of Company, for the purpose of doing
business with such client or customer in competition with Company.
For the purpose of this covenant, the clients and customers of Company
shall include those entities with which Company had held discussions
or negotiations concerning Company's services within the twelve month
period prior to the date of termination of Executive's employment with
Company; and
(ii) Executive shall not solicit, attempt to hire, or hire any employee or
consultant of Company, or assist in such solicitation or hiring by any
other person or entity, or encourage any employee or consultant or
Company to terminate his or her relationship with Company.
It is agreed that the remedy at law for breach of the foregoing covenants
shall be inadequate and that Company shall be entitled to injunctive relief in
the enforcement thereof in addition to any other remedy permitted by law. In
the event that this section shall be
6
<PAGE>
determined by arbitrators or by a court of competent jurisdiction to be
unenforceable by reason of its extending for too great a period of time or over
too large a geographic area or over too great a range of activities, it shall be
interpreted to extend only over the maximum period of time, geographic area or
range of activities as to which it may be enforceable.
Nothing herein contained shall prevent Executive from holding or making
investments in securities listed on a National Securities Exchange or sold in
the over-the-counter market, provided such investments do not exceed in the
aggregate one percent of the issued and outstanding capital stock of a
corporation which is a competitor within the meaning of this section.
Executive agrees to enter into the Company's standard non-disclosure
agreement with respect to confidential information.
10. Option to Purchase Greaney Medical Group. Contemporaneously
----------------------------------------
with the execution of the Employment Agreement, Executive and Company have
entered into an Option Agreement pursuant to which Executive has granted Company
an option to purchase all right, title and interest in Executive's business
presently known as Greaney Medical Group, Inc. or GMG WorkCare.
11. Availability of Records. During the term of this Agreement and
-----------------------
for a one-year period after any termination thereof, Company agrees to make
available to the Executive, his executors, administrators or heirs, for
inspection on the premises of Company during normal working hours, copies of any
records relating to activities while employed by Company and which relate to any
rights or benefits to which the Executive was entitled at the time of his death.
However, upon the termination of this Agreement, the Executive shall not be
entitled to retain any records or charts of Company in his possession.
12. Arbitration. Any controversy or claim arising under or relating
-----------
to this Agreement, or breach thereof, shall be settled by arbitration in the Los
Angeles, California area in accordance with the rules of the American
Arbitration Association as in effect from time to time. Judgment upon the award
rendered may be entered in any court having jurisdiction thereof.
13. Assignability. This Agreement shall be binding upon and inure to
-------------
the benefit of the successors, assigns, personal representatives, heirs and
legatees of the respective parties hereof. The foregoing notwithstanding, this
Agreement is personal to
7
<PAGE>
Executive, and he may not assign any of his rights or obligations hereunder
without first obtaining the consent of the Board of Directors of Company.
14. Amendments. No amendment of or variation in the terms of this
----------
Agreement shall be valid unless made in writing and signed by Executive and a
duly authorized representative of Company.
15. Notices. Any notice required or permitted under this Agreement
-------
shall be sufficient if in writing and if sent by certified or registered mail,
return receipt requested, to the parties at the following addresses:
To Company at:
CORE, INC.
18881 Von Karman Avenue
Suite 1750
Irvine, CA 92715
Attn: Chairman of the Board of Directors
With a copy to:
Rich, May, Bilodeau & Flaherty, P.C.
294 Washington Street
Boston, MA 02108
Attn: Stephen M. Kane
To Executive at:
Peter P. Greaney, M.D.
333 South Anita Drive - Suite 630
Orange, CA 92668
16. Rules of Construction; Heading and Validity. This Agreement
-------------------------------------------
shall be construed in accordance with the laws of Massachusetts.
The headings contained in this Agreement are for reference only and shall
not limit or otherwise affect the meaning of any provision of this Agreement.
If any provision of this Agreement or portion of such provision, or the
application thereof under any circumstances, is held invalid, the remainder of
this Agreement (or the remainder of such provision) and the application thereof
under other circumstances shall not be affected by such partial invalidity.
17. Entire Agreement. This Agreement constitutes the entire
----------------
Agreement
8
<PAGE>
between the parties hereto pertaining to the subject matter hereof and
supersedes all prior agreements, understandings, negotiations and discussions,
whether oral or written of the parties, and there are no warranties,
representations or other agreements between the parties in connection with the
subject matter hereof, except as are specifically set forth herein. Except as
otherwise provided by this agreement, no supplement, modification, waiver or
termination of this Agreement shall be binding unless executed in writing by the
party to be bound thereby. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provision hereof
(whether or not similar), nor shall such waiver constitute a continuing waiver
unless otherwise expressly provided.
IN WITNESS WHEREOF, the parties to this Agreement have caused the same
to be executed as of the _____ day of April, 1996.
CORE, INC.
By:_____________________________
George C. Carpenter IV
Chairman of the Board
of Directors
_________________________________
Peter P. Greaney, M.D.
("Executive")
Attachments
- -----------
Exhibit A - Non-Exclusive List of Possible Duties
9
<PAGE>
EXHIBIT A
TO
EMPLOYMENT AGREEMENT
Non-Exclusive List of Possible Duties
. Management and P&L responsibility for Occupational Health outsourcing
business unit (ER Services); reporting to EVP AmHealth Division.
Provide leadership for securing national accounts, pricing and
developing outsource products and services.
. Clinical Affairs: chair and steer Medical Advisory Panel, clinical
assessment projects. Provide clinical leadership in design of new
products, QA assessment of CORE programs, and internal/external
training. Participate in Analytic Impact analyses, presentation of
client results (e.g. GE, Chrysler, Hughes)
. As Corporate Officer, represent CORE before various industry and
clinical groups, publications.
. Business Development: support PMTD group w/marketing, sales and
product development activities, protocol updating and software
enhancements; support CEO w/potential acquisitions & due diligence.
. Network Development: support EVP, Clinic & Network Services in
development and management of Occupational Health Network
10
<PAGE>
----------------------------------------------------------
[LOGO OF SILICON VALLEY BANK]
AMENDMENT TO LOAN AGREEMENT
Borrower: Core, Inc., a Massachusetts corporation
18881 Von Karman Avenue, Suite 1750
Irvine, California 92715
Borrower: Core Management, Inc., A Delaware corporation
18881 Von Karman Avenue, Suite 1750
Irvine, California 92715
Borrower: Cost Review Services, Inc., a Texas corporation
3636 Executive Center Drive, Suite 201
Austin, Texas 78731
Date: March 25, 1996
--
THIS AMENDMENT TO LOAN AGREEMENT is entered into between SILICON VALLEY
BANK ("Silicon") and the borrowers named above (jointly and severally, the
"Borrower").
The Parties agree to amend the Loan and Security Agreement between them
dated December 29, 1995 (as amended from time to time, the "Loan Agreement"), as
follows, effective as of the date hereof. (Capitalized terms used but not
defined in this Amendment, shall have the meanings set forth in the Loan
Agreement.)
1. AMENDED CREDIT LIMIT. The section of the Schedule to the Loan
Agreement entitled "Credit Limit (Section 1.1)" is amended effective to read as
follows:
"CREDIT LIMIT
(Section 1.1): An amount not to exceed the lesser of: (i) $2,500,000* at any
one time outstanding; or (ii) 75% of the Net Amount of
Borrower's accounts, which Silicon in its discretion deems
eligible for borrowing. "Net Amount" of an account means the
gross amount of the account, minus all applicable sales, use,
excise and other similar taxes and minus all discounts,
credits and allowances of any nature granted or claimed.
* ON A JOINT BASIS FOR ALL BORROWERS, PROVIDED, HOWEVER, THAT
-------- -------
$1,000,000 OF THIS AMOUNT SHALL AT ALL TIMES BE RESERVED FROM
AVAILABILITY HEREUNDER IN CONNECTION WITH THE OBLIGATIONS OF
AMHEALTH, INC. AND AMHEALTH MEDICAL GROUP OF CALIFORNIA, P.C.
(COLLECTIVELY, "AMHEALTH") OWING TO SILICON UNDER THE LOAN
AND
-1-
<PAGE>
Silicon Valley Bank Amendment to Loan Agreement
- ------------------------------------------------------------------------------
SECURITY AGREEMENT DATED MARCH __, 1996 BETWEEN AMHEALTH AND
SILICON (THE "AMHEALTH AGREEMENT").
Without limiting the fact that the determination of which
accounts are eligible for borrowing is a matter of Silicon's
discretion, the following will not be deemed eligible for
borrowing: (a) accounts outstanding for more than 90 days
from the invoice date, (b) accounts subject to any
contingencies, or arising from a consignment, guaranteed
sale, bill and hold, sale on approval or other transaction in
which payment by the account debtor is conditional, (c)
accounts owing from the United States or any department,
agency or instrumentality of the United States or any state,
city or municipality; (d) accounts owing from an account
debtor whose chief executive office or principal place of
business is outside the United States (unless the account is
pre-approved by Silicon in its discretion, or backed by a
letter of credit satisfactory to Silicon, or FCIA insured
satisfactory to Silicon, or the account arises from goods
shipped or services rendered to a branch or office of the
account debtor in the United States), (e) accounts owing from
one account debtor to the extent they exceed 25% of the total
eligible accounts outstanding, (f) accounts owing from an
account debtor to whom Borrower is or may be liable for goods
purchased from, or services rendered to, such account debtor
or otherwise (to the extent of the amount owing to such
account debtor). In addition, if more than 50% of the
accounts owing from an account debtor are outstanding more
than 90 days from the invoice date or are otherwise not
eligible for borrowing, then all accounts owing from that
account debtor will be deemed ineligible for borrowing."
2. CROSS DEFAULT. Without limitation of any of the terms or provisions of
this Amendment, any default or event of default under the AmHealth Agreement
shall constitute an immediate "Event of Default" under this Amendment.
3. REPRESENTATIONS TRUE. Borrower represents and warrants to Silicon that
all representations and warranties set forth in the Loan Agreement, as amended
hereby, are true and correct.
4. GENERAL PROVISIONS. This Amendment, the Loan Agreement, any prior
written amendments to the Loan Agreement signed by Silicon and the Borrower, and
the other written documents and agreements between Silicon and the Borrower set
forth in full all of the representations and agreements of the parties with
respect to the subject matter hereof and supersede all prior discussions,
representations, agreements and understandings between the parties with respect
to the subject hereof. Except as herein expressly amended, all of the terms and
provisions of the Loan Agreement, and all other documents and agreements between
Silicon
-2-
<PAGE>
Silicon Valley Bank Amendment to Loan Agreement
- -----------------------------------------------------------------------------
and the Borrower shall continue in full force and effect and the same are hereby
ratified and confirmed.
Borrower: Silicon:
CORE, INC. SILICON VALLEY BANK
By /s/ George C. Carpenter IV By /s/
------------------------------ -------------------------------------
Chairman Title __________________________________
By /s/ William E. Nixon
-----------------------------
Clerk
CORE MANAGEMENT, INC.
By /s/ George C. Carpenter IV
-----------------------------
Chairman
By /s/ William E. Nixon
-----------------------------
Secretary
COST REVIEW SERVICES, INC.
By /s/ George C. Carpenter IV
-----------------------------
Chairman
By /s/ William E. Nixon
-----------------------------
Secretary
CONSENT
Each of Core Management, Inc., a California corporation, and Integrated
Behavioral Health is a guarantor of all present and future indebtedness,
liabilities and obligations of Borrower to Silicon, each such party acknowledges
that its consent to the foregoing Amendment is not required, but each does
hereby nevertheless consent to the foregoing Amendment and to all future
modifications and amendments to the Loan Agreement. Nothing herein shall in any
way limit any of the terms or provisions of the guaranty of such guarantors
relating to the Obligations, all of which are hereby ratified and affirmed and
shall continue in full force and effect.
Integrated Behavioral Health Core Management, Inc., a California
corporation
By /s/ William E. Nixon By /s/ William E. Nixon
----------------------------- -----------------------------
Title CFO Title CFO
-------------------------- --------------------------
-3-
<PAGE>
EXHIBIT 21.1
to Registration Statement on Form S-1 of CORE, INC.
The following corporations are wholly-owned subsidiaries of CORE, INC.:
AmHealth Clinics Corp. (a Delaware corporation)
Core Management, Inc. (a Delaware corporation)
Cost Review Services, Inc. (a Texas corporation)
Peer Review Securities Corp. (a Massachusetts corporation)
The following corporations are wholly-owned subsidiaries of Core Management,
Inc. (a Delaware corporation)
Integrated Behavioral Health (a California corporation)
Core Management, Inc. (a California corporation)
<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 in the Registration Statement on Form S-1 and the related
Prospectus of CORE, INC. for the registration of 2,875,000 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 May 10, 1996
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
AmHealth, Inc.
We consent to the use of our reports included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
Our reports, dated March 1, 1996, except as to note 11 for the December 31,
1995 and June 30, 1995 financial statements, and note 10 for the June 30, 1994
financial statements, which are as of May 10, 1995, contains an explanatory
paragraph that states that the Company's owner, AmHealth, Inc., has suffered
recurring losses from operations, has defaulted on its debt obligations and
has a net capital deficiency, all of which raise substantial doubt about its
ability to continue as a going concern. The financial statements do not
include any adjustments that might result from the outcome of that
uncertainty.
KPMG Peat Marwick LLP
Atlanta, Georgia
May 13, 1996
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated February 17, 1995 on the financial statements of Occu-Care, Inc.
and affiliates and to all references to our firm included in or made a part of
this registration statement.
Arthur Andersen LLP
Atlanta, Georgia
May 10, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1994
<PERIOD-START> JAN-01-1995 JAN-01-1994
<PERIOD-END> DEC-31-1995 DEC-31-1994
<CASH> 1,005,807 0
<SECURITIES> 1,531,610 5,858,518
<RECEIVABLES> 3,157,693 2,263,846
<ALLOWANCES> 170,337 181,629
<INVENTORY> 0 0
<CURRENT-ASSETS> 6,452,751 9,089,738
<PP&E> 6,927,371 5,379,958
<DEPRECIATION> 3,772,137 2,853,730
<TOTAL-ASSETS> 12,195,199 12,504,041
<CURRENT-LIABILITIES> 3,301,050 4,477,596
<BONDS> 0 0
0 0
0 0
<COMMON> 479,440 473,994
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 12,195,199 12,504,041
<SALES> 20,768,521 16,746,290
<TOTAL-REVENUES> 20,768,521 16,746,290
<CGS> 12,838,971 11,305,323
<TOTAL-COSTS> 21,023,848 21,456,438
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 14,375 83,050
<INTEREST-EXPENSE> 83,410 158,362
<INCOME-PRETAX> (79,173) (4,699,586)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (79,173) (4,699,586)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (79,173) (4,699,586)
<EPS-PRIMARY> (0.02) (1.01)
<EPS-DILUTED> 0 0
</TABLE>
<PAGE>
EXHIBIT 99.1
CORE, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE BALANCE
AT CHARGED TO AT END
BEGINNING COSTS AND DEDUCTIONS- OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE PERIOD
- ----------- --------- ---------- ----------- --------
<S> <C> <C> <C> <C>
1995
Allowance for doubtful accounts..... $181,629 $14,375 $ 25,677(a) $170,337
1994
Allowance for doubtful accounts..... $174,798 $83,050 $ 76,219(a) $181,629
1993
Allowance for doubtful accounts..... $268,917 $67,245 $161,364(a) $174,798
</TABLE>
- --------
(a) The allowance for doubtful accounts was reduced by the actual write-off of
receivables which had been reserved for in previous years and deemed
uncollectible.
