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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1997
Commission file number 0-19600
CORE, INC.
(Exact name of registrant as specified in its charter)
Massachusetts 04-2828817
- --------------------------------------- -----------------------------------
(State of jurisdiction of (IRS employer identification no.)
incorporation or organization)
18881 VON KARMAN AVENUE, SUITE 1750, IRVINE, CALIFORNIA 92612
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (714) 442-2100
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $0.10 PER SHARE
(Title of class)
Indicate by check "X" whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check "X" if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of March 20, 1998 was $82,077,866. On March 20, 1998, there
were 7,319,168 shares of the Registrant's Common Stock outstanding.
Documents incorporated by reference: INFORMATION CALLED FOR IN PART III OF
THIS FORM 10-K IS INCORPORATED BY REFERENCE TO THE REGISTRANT'S DEFINITIVE PROXY
STATEMENT WITH RESPECT TO THE 1998 ANNUAL MEETING OF STOCKHOLDERS, TO BE FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO REGULATION 14A.
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TABLE OF CONTENTS
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PART I Page
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Item 1 Business 3
Item 2 Properties 11
Item 3 Legal Proceedings 11
Item 4 Submission of Matters to a Vote of Security Holders 12
Executive Officers of the Registrant 12
PART II
Item 5 Market for Registrant's Common Equity and Related
Stockholder Matters 14
Item 6 Selected Financial Data 16
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations 16
Item 7A Quantitative and Qualitative Disclosures About Market Risk 16
Item 8 Financial Statements and Supplementary Data 16
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 16
PART III
Item 10 Directors and Executive Officers of the Registrant 17
Item 11 Executive Compensation 17
Item 12 Security Ownership of Certain Beneficial Owners and Management 17
Item 13 Certain Relationships and Related Transactions 17
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 18
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PART I
ITEM 1. BUSINESS.
CORE, INC. ("CORE" or the "Company") 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 (which
consist of the Company's proprietary WorkAbility(R) program, analytic consulting
services, social security disability benefits advocacy, Medicare coordination of
benefits, bill audit services and job analysis and loss prevention services),
specialty physician and behavioral health review services and health care
benefits utilization review and case management services. The Company's services
are designed to assist its clients monitor and control disability and health
care benefits costs without compromising the quality of health care services
provided to the patient.
CORE's managed disability services include monitoring the appropriateness
of disability durations under short and long-term disability plans and workers'
compensation programs in order to reduce unnecessary absenteeism and its related
costs of wage replacement, hiring and training replacement personnel and lost
productivity. These services are based on CORE's WorkAbility program, a
proprietary software program developed over a ten-year period through the
statistical analysis of disability utilization data. CORE's WorkAbility managed
disability program provides an objective, medically based method for
recommending and monitoring employee's return-to-work dates. The WorkAbility
program is designed to obtain and analyze relevant medical and work-related
information with the initial onset of the employee's absence and thus assure
that the employee, attending physician and employer all have reasonable and
consistent expectations as to the projected return-to-work date. The Company's
social security disability benefits advocacy program provides assistance to
disabled employees with obtaining their Social Security Disability Insurance
("SSDI") benefits. CORE's Medicare program assists employees of self-insured
companies (mostly Fortune 500) with acquiring their Medicare entitlement and
securing claims for payments covered under the government funded Medicare
program.
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 300 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.
This Annual Report on Form 10-K contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995 and the
Company's 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. Some important
factors the Company believes could cause such results to differ include the
Company's reliance on its WorkAbility program, the Company's dependence on key
clients, risks associated with the Company's growth strategy, increases or
changes in government regulation and competition. The foregoing list of 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.
HISTORY OF CORE
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 of 1995, PRA completed its merger (the "CMI/PRA Merger")
involving Core Management, Inc., a Delaware corporation ("CMI"). CMI was
incorporated in 1990 to acquire the health and disability cost management
services business (including the WorkAbility program) of Health Data Institute,
Inc., a subsidiary of Baxter International, Inc. The CMI/PRA Merger was treated
as a pooling of interests for accounting purposes. In July 1995, the Company
changed its name
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from Peer Review Analysis, Inc. to CORE, INC. The description herein of the
business of the Company includes the operations of both PRA and CMI from the
inception of both companies.
On October 2, 1995, CORE acquired all the capital stock of Cost Review
Services, Inc., a workers' compensation bill audit firm. In June 1997, CORE
purchased certain of the assets of Social Security Disability Consultants and
Disability Services, Inc. (collectively, "SSDC"), a disability management
services firm which provides social security disability benefits advocacy and
Medicare coordination of benefits. In July 1997, the Company purchased the
assets and certain liabilities of Protocol Work Systems, Inc., a provider of job
analysis, employee physical abilities testing and other loss prevention services
to the workers' compensation market.
The Company's executive offices are located at 18881 Von Karman Avenue,
Suite 1750, Irvine, California 92612, and its telephone number at that address
is (714) 442-2100.
WorkAbility is a registered trademark of the Company.
INDUSTRY OVERVIEW
In recent years, large corporations have begun to recognize the magnitude
of the annual cost of occupational and non-occupational injuries and illnesses,
which according to several 1997 studies exceeded $2,200 per employee, or 8% of
total payroll costs. These expenses present a significant challenge to corporate
productivity. The Company estimates that total U.S. costs due to injury and
illness-related workplace absence are approximately $260 billion per year,
growing to $340 billion by the year 2000.
According to industry sources, workers' compensation expenditures grew
at an average annual rate of over 18% from 1990 through 1996, and the Company
believes this growth is continuing. The Company estimates that workers'
compensation costs were approximately $60 billion in 1994. Despite the general
awareness of this high level of workers' compensation costs, expenditures for
group disability (including short-term disability and long-term disability
plans), sick pay and family leave represent a far larger share of total
expenditures at approximately $200 billion in 1994. Two driving factors behind
the increase in group disability and workers' compensation expenditures are
workplace and legislative changes. Work-related changes that have contributed to
rising benefits costs include the aging of the active workforce, increased
volatility in hiring and layoffs (which often results in increased benefits
utilization) and increased diagnoses of repetitive stress-related injuries. Also
contributing to rising disability benefit costs and awareness are legislative
changes such as the Family Medical Leave Act and the Americans with Disabilities
Act, which mandate accommodation for family circumstances and disabled workers,
which both have a growing impact on accommodation and lost time issues.
In response to these rising costs, a variety of insurance companies,
managed care organizations and self-insured employers have used various cost
reduction techniques, often borrowed from group health managed care, including
securing pricing concessions from providers, using case management tools, and
implementing "gatekeepers" as a means to control utilization. However, these
managed care initiatives focus almost entirely on medical costs generated after
a disability claim is received, not on the more significant productivity (lost
time) impacts of employee ill health. Furthermore, work absence duration, and
consequently disability payments, have traditionally been driven by the decision
of the treating physician. While workers' compensation cases are typically
attended by an occupational specialist, employees with non-occupational
disabilities tend to utilize their own primary care physician who have little or
no interaction with the employer and limited sensitivity to productivity (lost
time) issues.
As traditional managed care tools become standard industry-wide, 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
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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.
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 300 CORE-affiliated board certified
physicians and (iii) utilization review ("UR") and case management services.
For the years ended December 31, 1996 and 1997 managed disability services
accounted for approximately 44% and 56%, respectively, of CORE's revenue,
specialty physician and behavioral health review services represented
approximately 32% and 26%, respectively, of revenue and UR and case management
services represented approximately 24% and 18%, respectively, of revenue.
Managed disability services, which include the Company's WorkAbility program as
well as its analytic consulting services, social security benefits advocacy,
Medicare coordination of benefits, bill audit services, and job analysis and
loss prevention services, accounted for approximately 91% of the Company's
revenue increase for 1997. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
MANAGED DISABILITY SERVICES
The Company estimates that total direct and indirect disability
expenditures are approximately $260 billion annually, of which approximately $60
billion is attributable to workers' compensation costs. CORE's managed
disability services include monitoring of the appropriateness of disability
duration's 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 550,000 disability and
workers' compensation records collected by CORE over ten years. From this
database, the Company has developed protocols with over 10,000 clinical
endpoints. As a result, the WorkAbility protocols and projected
return-to-work dates are in most instances based on an historical
record of similarly situated patients rather than theoretical models.
As the WorkAbility program is utilized, the database is growing.
CLINICAL CREDIBILITY. WorkAbility assists the Company in establishing
clinical credibility with the attending physician by comparing CORE's
database of similar medical episodes with the patient's medical and job
profile. This information can be shared with the attending physician to
assist in the development of an effective treatment plan and in
determining the appropriate return-to-work schedule. The WorkAbility
program, supported by the Company's more than 300 Board certified
physicians, allows a treating physician to talk to a CORE physician
specialist for peer review of complex diagnoses and treatment plans.
CONCURRENT REVIEW. In addition to the initial recommendation of an
appropriate return-to-work date, WorkAbility services include ongoing
review of patient status to assure the expected date remains accurate. At
these intervals,
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new information may be gathered about the treatment or the illness or
injury requiring an adjustment to the return-to-work date.
COMPLETE WORKFORCE COVERAGE. The WorkAbility program is designed to cover
all workplace absences, not just the longer term and more costly absences.
The program also provides consistent return-to-work dates for clinical
conditions whether the condition causing the absence is a result of a
workers' compensation workplace injury or an injury outside of the
workplace covered by a disability plan.
The WorkAbility program is operated primarily by registered nurse
reviewers using an automated review system to assess each disability claim in
the early stages of an employee's absence. Under the WorkAbility program, the
attending physician or office staff (depending on the severity of the case) uses
a toll-free number to contact CORE and speaks to a trained WorkAbility program
nurse reviewer who enters information on the diagnosis and severity of the
condition into CORE's proprietary WorkAbility system. Each case is then reviewed
by the nurse using the WorkAbility program's computerized medical protocols,
which consider such factors as the employee's age and general health, job
requirements, symptoms and severity of the condition, diagnosis of the attending
physician, treatment plan, medical procedure(s) performed and comorbid factors
which may affect the duration of the disability.
Using the WorkAbility program, the nurse reviewer considers these various
factors and recommends an appropriate length of disability duration based on the
specifics of the case. To assure consistency, reviews are guided by program
standards based on both statistical and clinical analysis and, in certain
circumstances, are referred to physicians for further review. The WorkAbility
program can assign specific lengths of disability for more than 10,000 clinical
descriptions, or "endpoints." If CORE and the attending physician agree with
respect to the anticipated disability duration, a letter stating the expected
return-to-work date is sent to the employee and physician on the date the review
is completed. The employer is notified of the return-to-work date
electronically. If the employee's physician disagrees with the suggested length
of disability assigned by CORE's nurse reviewer (as occurs in less than 15% of
the cases), the case is referred to a WorkAbility physician advisor who will
discuss the case with the treating physician. In the event that they cannot
reach agreement, the case is referred to the employer for consultation to
determine whether or not an independent medical examination should be requested.
If the employee's condition or medical treatment changes during the absence or
the employee is not ready to return to work on the expected date, a request for
an extension of the disability leave is reviewed on a case by case basis using
the WorkAbility program and additional information provided by the attending
physician or patient.
The Company's WorkAbility program includes return-to-work case management
for high intensity, potentially high cost disability cases. This service is
focused on returning the patient to work as soon as clinically appropriate
through intensive involvement by a dedicated nurse case manager with the
patient, the health care providers and the workplace. Depending on the client's
benefits structure, the Company's return-to-work case managers can negotiate
services, coordinate on-site activities and channel the patient to appropriate
treatments or providers.
The WorkAbility program has the capability to collect and report
information relating to the ongoing disability claims history of each employee
and documents all case reviews, thus allowing the identification of employee
disability patterns and physician treatment patterns. The WorkAbility program is
also able to identify prospective high cost disability events which can be
monitored in more detail through return-to-work case management. In addition,
the Company believes that the data transfer capabilities of the WorkAbility
program can also substantially improve the efficiency of its clients' claims
administration function. Electronic transfer of data required by the employer or
disability program administrator can minimize errors and reduce paperwork,
allowing faster processing of disability payments to employees.
The WorkAbility On-line Medical Protocols ("WOMP") were developed and are
maintained by CORE and are licensed by the Company to third parties as a
separate product. These WorkAbility protocols are updated annually to, among
other things, reflect recent advancements in medical technology and procedures
and to update the recommended disability durations using the collective
experiential data collected by CORE through its services to clients. The
WorkAbility system automatically provides to the Company's clients monthly and
quarterly management reports which monitor disability benefits utilization
trends and identify potential problem areas.
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In general, CORE's WorkAbility services are advisory only. The attending
physician and the patient remain responsible for determining the work-absence
period and all other aspects of the plan of treatment. Generally, 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. Certain
clients, including Bell Atlantic Corporation, have delegated to CORE the
authority to decide whether an employee is eligible for benefits under the
client's plan.
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 social security disability benefits advocacy program
includes claim file reviews, auditing, designing and implementing Social
Security assistance programs, and representation and assistance with Social
Security claims and appeals. The Company also coordinates overpayment
recoveries, provides in-service training and seminars on Social Security
Disability Insurance ("SSDI"), and assists with Medicare entitlement claims and
appeals. The Company's model is unique in that it integrates all aspects of the
Social Security process, producing a streamlined, efficient and effective
service.
The Company's workers' compensation bill audit services involve auditing
medical bills, pharmacy bills and hospital bills for medical services or
products received by the client which are subject to applicable state fee
schedules. The bills are audited to determine whether the services or products
which are the subject of the medical bill are from legitimate medical providers,
contain the proper procedural codes and are billed accurately based on the
procedure codes. Finally, an audit report is prepared stating the result of such
audit with a recommendation for payment.
The Company's JobSafe program provides on-site job profiling and
functionality assessments in an in-house management program that integrates the
physical abilities of each worker with the actual demands of the job to create a
safer working environment. The JobSafe program is tailored to each client's
specific facility to help ensure compliance with the Americans with Disabilities
Act (ADA), OSHA regulations and quality control requirements of ISO 9000. The
program begins with an on-site tour of the client's facility. The tour is
followed by a meeting with supervisors, interviews with employees, and the
collection of measurement and weight statistics. Job descriptions then are
created, videotapes are produced with descriptive commentary for each job, and
finally, physical ability testing of each employee is conducted. The process
culminates with a compilation of information for the client, along with
instructions on how to operate the program.
SPECIALTY PHYSICIAN AND BEHAVIORAL HEALTH REVIEW
CORE's independent physician review programs provide pre-certification,
concurrent and appellate physician review services for use with existing
utilization management programs of clients, including insurance carriers that
service the group health, disability and workers' compensation markets, and
other managed care companies. The Company believes its more than 300 Board
certified physician reviewers comprise the largest independent physician review
organization in the country. The Company's consulting relationship with this
large base of physicians has positioned the Company to offer an appeal review
service, which is mandated under several state laws and generally requires
specialty-matched reviews. The Company believes that appellate review is one of
the few growing sectors of the otherwise mature utilization management industry.
When a client's nurse reviewer determines that a case does not meet the
client's established criteria, the nurse reviewer will forward a referral to
CORE's physician reviewer. The referral describes the principal diagnosis of the
patient
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and the reason for referral for physician review. In most instances the reason
for referral is based upon a question of medical necessity or therapeutic
benefit of a proposed treatment plan. CORE's independent physician reviews the
case information, which will have been previously entered into CORE's data
processing systems, and then telephones the attending physician to ascertain any
additional clinical data, the attending physician's rationale for the proposed
treatment plan or the proposed length of hospital stay. Based on discussions
with the attending physician, including, when appropriate, discussions of
possible alternative treatment plans, and using clinical judgment as well as
criteria based on national norms, CORE's physician makes a recommendation
concerning the appropriateness of the proposed or revised treatment plan.
CORE then notifies its client of its recommendation regarding the
medical necessity or appropriateness under the client's health care benefit plan
of the proposed treatment plan, hospitalization or length of stay. If the
proposed hospitalization is not certifiable as such under the plan, the payor
typically denies or reduces the payment of benefits for the proposed
hospitalization. The decision of the payor may be appealed by the patient or the
attending physician. In such event a second Company physician of the same
specialty who was not involved in the original decision will review the case on
the merits of the clinical criteria or any additional information.
Reviews under the Company's specialty physician review program are managed
from CORE's offices, and the majority of all review decisions are completed
within 24 hours of referral. In most instances, CORE's services are advisory in
nature. Determinations as to the payment or denial of benefits are typically
made by the third party payor, and the patient and the attending physician make
decisions as to the patient's medical treatment.
CORE's behavioral health review program provides psychiatric review
services similar to the Company's specialty physician review services by
psychiatrists who are supported by a team of multi-specialty physicians. CORE's
independent psychiatrists include specialists in various psychiatric
sub-specialties such as adult psychiatry, child psychiatry and addictionology,
including alcoholism and chemical dependency. CORE believes that its
multi-specialty psychiatrists (including those in its Integrated Behavioral
Health Division) and CORE's emphasis on intensive specialty review distinguish
it from psychiatric review performed by other utilization management firms and
better addresses the more subjective nature of many behavioral health reviews.
The Company is certified by the Utilization Review Accreditation
Commission ("URAC") to perform various utilization review functions. URAC is a
nationally recognized organization that has developed standards to encourage the
availability of effective, efficient and consistent utilization review of health
care services throughout the United States. One of URAC's key objectives is to
establish standards for the procedures used to process appeals of utilization
review determinations. Many of the Company's clients rely on CORE's specialty
physician and behavioral health review services to comply with URAC's appellate
procedures.
UTILIZATION REVIEW AND CASE MANAGEMENT
The Company provides medical and behavioral health utilization review and
case management services to Fortune 500 companies and other self-insured
employers, third-party administrators ("TPAs") and an insurance carrier. The
Company's services are designed to evaluate the medical necessity and
appropriateness of health care services prescribed for participants in health
care benefits plans, including hospital admissions, proposed length of hospital
stay, use of outpatient facilities and other treatment alternatives. In cases of
high cost diseases, conditions or catastrophic illnesses, CORE may also render
case management services of individual cases in order to assure that
cost-effective treatment alternatives are utilized. Clients may elect to
contract for all of the services offered under the programs or, in the
alternative, may elect to contract for only certain portions of services
offered.
CORE provides its utilization review services and case management services
through a staff consisting primarily of registered nurses and physicians.
Clients which utilize CORE's utilization review programs advise their
participants of review requirements including the requirement to contact CORE
within a specified period of time. From these contacts, CORE's medical and
behavioral health review staff gathers the necessary personal and medical
information and enters this information into CORE's review system. Based on this
information and using CORE's review criteria, CORE conducts its review.
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CLIENTS AND MARKETING
CORE has over 200 customers across the country, including 70 Fortune 500
companies. Revenues from Fortune 500 companies accounted for approximately 69%
of total revenues in 1997 (versus 48% in 1996). The following is a selected list
of CORE's clients which, the Company believes, is representative of its overall
client base:
BELL ATLANTIC CORPORATION MOTOROLA CORPORATION
CHRYSLER MOTOR CORPORATION HUGHES ELECTRONICS CORPORATION
RELIASTAR FINANCIAL CORP. (OWNED BY GENERAL MOTORS)
CHAMPION INTERNATIONAL CORPORATION CNA INSURANCE COMPANY
MEDICAL MUTUAL OF OHIO DANA CORPORATION
LIBERTY MUTUAL INSURANCE COMPANY, INC. PCS HEALTH SYSTEMS, INC.
GENERAL ELECTRIC CORPORATION
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 also maintains
distribution agreements with Reliastar Financial Corp. and other insurance
companies pursuant to which these companies offer CORE's WorkAbility services to
their customers. For providing WorkAbility services, the Company is paid fees by
the insurance companies. Also, the Company is active in conferences addressing
disability management issues the Company's clients and prospective clients face,
including acting as a host or a co-host to several conferences in 1997.
During 1996 and 1997, Bell Atlantic Corporation represented 13% and 23%,
respectively, of total revenues. No other client represented more than 10% of
total revenues. During the years ended December 31, 1996 and 1997, the Company's
five largest clients represented 36% and 43%, respectively, of total revenue,
and its ten largest clients represented 53% and 58%, respectively, of total
revenue.
CORE typically enters into service agreements with its clients. These
agreements have automatically renewable successive terms of between one and
three years, but are generally terminable upon 60 to 90 days notice. They do not
generally provide for minimum payments and are usually non-exclusive. Subject to
earlier termination provisions set forth therein, CORE's Bell Atlantic
agreements range from 3 to 10 years. 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.
For many of its programs, CORE charges its clients a "capitated fee"
(i.e., a fixed per employee per month ("PEPM") 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, CORE charges fees on an
hourly, per case or percentage of cost recovery (for social security advocacy
and Medicare programs) basis rather than a capitated basis. In most cases,
CORE's services are advisory in nature. Notwithstanding the outcome of CORE's
review, decisions as to the payment or denial of benefits and eligibility or
coverage under the benefit plan are typically made by the administrator of the
participant's health care plan, not by CORE. The patient and the attending
physician always make decisions as to the patient's medical treatment, not by
CORE.
INFORMATION SYSTEMS
CORE's key products and services--the WorkAbility program, physician
review services and utilization review and case management programs--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.
CORE's wide area network (WAN) is designed to support the organization's
rapid growth. A "scalable" architecture has provided flexibility, allowing for
timely deployment of upgraded facilities in response to the business' needs.
CORE recently completed the installation of an alternative WAN capability that
will assure continuous business operations during network outages. Another
ongoing initiative within information systems development is the continual
implementation of available information technology to significantly enhance the
productivity of all CORE's key products and services. This includes,
specifically, the integration of imaging, network fax and computer integrated
telephone technology into the workflow. Additionally, in the near future, CORE's
WorkAbility clients will have access to information via an Internet connection.
9
<PAGE>
The WorkAbility-Plus system, CORE's client/server technology based
application has provided for the ability to migrate rapidly into expanding
business opportunities. CORE recently completed the development of a new module
to support our burgeoning Family Medical Leave ("FML") business. Totally
integrated with other absence management capabilities, the FML module provides
robust capabilities tailored to Federal guidelines as outlined in the Family
Medical Leave Act and other state sponsored legislation. This architecture is
designed to allow for client server operation and rapid feature development. The
WorkAbility-Plus application utilizes software architecture that provides
maximum flexibility in attaching industry-standard databases to support growth
and varying client needs. The Company believes that this architecture will
support the integration of additional absence management capabilities.
Funding for the initial development of CORE's WorkAbility software
(original version) 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 made by CORE through December 31, 1997. 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.
The laws of many states regulate the provision of health care utilization
management services. These regulations generally require the provider of
utilization management services to be reasonably accessible by telephone to
doctors and patients, to have adequately qualified personnel, to provide
physicians and patients a procedure to appeal determinations of
non-reimbursement, and to maintain the confidentiality of patient records. Other
states regulate the provision of claims administration services and preferred
provider organizations which may indirectly affect CORE. CORE believes it is in
compliance with all applicable regulations governing the provision of managed
health care services in the states where CORE is subject to such regulations, as
currently in force and as currently interpreted.
CORE's operations depend upon its continued good standing under applicable
laws and regulations. To date, the cost of compliance has not been material.
Such laws and regulations, however, are subject to amendment or new
interpretation by authorities in each jurisdiction. If amended regulations or
new interpretations of federal or state laws or regulations arise, CORE, may
have difficulty complying without significant expense or changes in operations.
The Company is unable to predict what additional government regulations, if any
directly or indirectly affecting its business may be promulgated. Although the
Company believes that it is currently in compliance with applicable regulations
in those states in which it is subject to regulation, the Company's business
could be adversely affected by a revocation of or failure to obtain required
licenses and governmental approvals, a failure to comply with applicable
regulations or significant changes in regulations applicable to its clients.
In addition to existing government health care regulation, there have been
numerous initiatives at the federal and state levels, as well as by third-party
payors, for comprehensive reforms affecting the payment for and availability of
health care services. The Company believes that such initiatives will continue
during the foreseeable future. The Company is unable to predict what, if any,
reform initiatives may be adopted, or what effect, if any, their adoption may
have on the Company.
COMPETITION
CORE presently competes in two different markets: (i) health care
utilization management and (ii) managed disability and workers' compensation.
The managed health care market is fragmented but is consolidating rapidly as
national health care reform and other forces drive independent utilization
review and cost management firms into niche markets or to consolidation with
large insurance carriers and provider groups.
The health care utilization management market is highly competitive.
Competitors include large established insurance carriers and large managed care
organizations. Some of the competitors are significantly larger and have greater
10
<PAGE>
financial and marketing resources than CORE. CORE competes on the basis of
quality, cost-effectiveness and service.
The managed disability and workers' compensation market is a developing
market which is also competitive. Competitors include both new companies focused
solely on the workers' compensation market and established disability insurance
carriers who have traditionally dealt with disability from an underwriting
rather than an employee productivity perspective. CORE competes on the basis of
quality and cost-effectiveness in this market, and the Company believes that its
proprietary disability management protocols and database of clinically defined
disability episodes give it a significant competitive advantage.
EMPLOYEES AND PHYSICIAN CONSULTANTS
In addition to its available staff of approximately 370 physician
consultants (300 of whom are Board certified) covering the major medical
specialties, CORE has approximately 500 employees. Generally, CORE's physician
consultants are paid by CORE on a per hour or per case review 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.
ITEM 2. PROPERTIES.
The Company occupies its executive headquarters in Irvine, California
pursuant to leases for approximately 16,500 sq. feet, which expire in September
2000. The Company also leases facilities of approximately 18,000 sq. feet in
Boston, Massachusetts under a lease that expires in May 2000, and approximately
22,500 sq. feet in Burlington, Massachusetts under leases that expire in
December 2001 and April 2002. Additionally, the Company leases facilities of
approximately 16,000 sq. feet in Los Angeles, California under a lease that
expires in June 1998, approximately 18,000 sq. feet in Silver Spring, Maryland
under a lease that expires in June 2001, approximately 10,000 sq. feet in Novi,
Michigan under a lease that expires in August 1998, approximately 7,400 sq. feet
in Austin, Texas under a lease that expires in September 1999 and approximately
2,400 sq. feet in Forth Worth, Texas under a lease that expires in July 1998.
ITEM 3. LEGAL PROCEEDINGS.
Generally, the review services provided by the Company are advisory in
nature, and final determination as to payment or nonpayment of benefits is not
made by the Company. Certain clients, including Bell Atlantic Corporation, have
delegated to CORE the authority to decide whether an employee is eligible for
benefits under the client's plan. Determinations as to the medical care provided
to a patient are always made by the patient or the attending physician and are
not made by CORE. 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.
11
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following is a list of CORE's executive officers:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
George C. Carpenter IV 39 Chairman of the Board of Directors
and Chief Executive Officer
Craig C. Horton 43 President and Chief Operating Officer
William E. Nixon 37 Executive Vice President, Chief Financial
Officer, Treasurer and Clerk
Nancy S. Moore 48 Senior Vice President, Operations
Michael Darkoch 54 Senior Vice President, Client Development
R. Gary Dolenga 53 President, SSDC Corp.
Ophelia Galindo 40 Corporate Vice President, Product
Management and Technical Development
</TABLE>
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.
George C. Carpenter IV was re-elected a Class III Director at the June
1997 Annual Stockholders Meeting, and was elected the Chairman of the Board of
Directors and Chief Executive Officer of the Company effective with the
Company's March 24, 1995 merger involving Core Management, Inc. (the "CMI/PRA
Merger"). Mr. Carpenter served as the Chief Executive Officer and a Director of
Core Management, Inc., a Delaware corporation ("CMI") and now 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 ("IBH"), a
California corporation and wholly-owned subsidiary of CMI 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 re-elected a Class III Director at the June 1997
Annual Stockholders Meeting and was elected the President and Chief Operating
Officer of the Company 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 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 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.
Nancy S. Moore was elected Senior Vice President, Operations in September
1997. Ms. Moore served as Vice President, Eastern Operations of the Company
since the March 24, 1995 CMI/PRA merger. Ms. Moore joined the Company in July
1990 as Manager, Case Management. In November 1992 she became Director,
Operations and was promoted to Vice President, Operations in May 1994. Prior to
her employment with the Company, Ms Moore served as Administrator, Behavioral
Health Utilization Review Department of Blue Cross and Blue Shield of
Massachusetts and Director of Nursing Services of Charles River Hospital,
Community Care Systems, Inc.
Michael Darkoch joined the Company in September 1997 and was elected
Senior Vice President, Client Development in December 1997. Mr. Darkoch came to
CORE from Caremark International, where he held senior
12
<PAGE>
management positions, including Vice President of Corporate Account Management
and Vice President of Business Development. His background includes account
management process design and sales development. Mr. Darkoch has over 23 years
of experience in the health care industry.
R. Gary Dolenga joined the Company in June 1997 upon acquisition of
certain of the assets of Social Security Disability Consultants and
Disability Services, Inc. (collectively, "SSDC"). SSDC was formed
by Mr. Dolenga in 1979. For the 18 years prior to the acquisition
of SSDC by CORE, Mr. Dolenga served as the Managing Director and
President of SSDC where he was responsible for the administration,
professional service and sales of the social security disability
benefits advocacy and Medicare coordination of benefits components
of SSDC.
Ophelia Galindo was elected the Corporate Vice President, Product
Management and Technical Development of the Company 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.
13
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the Nasdaq National Market tier
of The Nasdaq Stock Market ("Nasdaq - NNM") under the symbol: "CORE." The
following table shows the range of high and low sales prices per share for
the shares of Common Stock on the Nasdaq - NNM 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
1996
<S> <C> <C>
First quarter $13 3/8 $8 3/8
Second quarter 17 1/4 11
Third quarter 15 1/2 8
Fourth quarter 12 5/8 6 7/8
1997
First quarter 9 5/8 5 7/8
Second quarter 9 6 1/8
Third quarter 11 1/8 8 5/8
Fourth quarter 12 1/2 9 7/8
</TABLE>
On March 20, 1998, the closing sale price of the Company's Common
Stock, as quoted on the Nasdaq - NNM, was $13 per share.
As of March 20, 1998, there were approximately 155 record holders of
the Company's Common Stock and over 1,000 beneficial owners. There are no
outstanding shares of the Company's Preferred Stock and, accordingly, no
market for said shares.
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 Board of Directors will determine future
dividend policy in light of the then prevailing financial condition of the
Company and other relevant factors.
14
<PAGE>
RECENT SALES OF UNREGISTERED SECURITIES
In 1997, the Company sold the following shares of Common Stock which
were not registered under Securities Act at the time of issuance. Except as
otherwise noted, such shares were sold to present and former employees or
consultants upon the exercise of stock options.
These shares of Common Stock were not registered under the Securities
Act at the time of sale issuance and, in reliance upon the exemption
contained in Section 4(2) of the Securities Act for transactions by an issuer
not involving any public offering.
<TABLE>
<CAPTION>
Number of Purchase Price
Date Security Purchaser Shares per Share
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
5/27/97 Common Stock T. Vermilya 95 $6.25
5/29/97 Common Stock J. Pappajohn (1) 26,800 $3.36
5/30/97 Common Stock E. Slater 47 $6.25
5/30/97 Common Stock M. Smotrich 23 $6.25
6/19/97 Common Stock D. Ferrell 26 $6.25
7/29/97 Common Stock K. Kemp 60 $6.25
8/6/97 Common Stock S. Caulfield(2) 7,500 $3.28
8/6/97 Common Stock S. Caulfield(2) 2,500 $6.25
9/16/97 Common Stock D. Vuong 30 $6.25
9/26/97 Common Stock J. Mushtare 68 $6.25
10/20/97 Common Stock S. Bradley 58 $6.25
10/31/97 Common Stock S. Gerson 388 $6.25
10/31/97 Common Stock S. Gerson 1,000 $3.13
11/4/97 Common Stock K. Cullen 30 $6.25
11/21/97 Common Stock R. Sarbanis 31 $6.25
12/31/97 Common Stock E. Dolenga 200 $8.75
</TABLE>
- ----------------
(1) Mr. Pappajohn is a Director of the Company and these shares were sold to
him pursuant to his exercise of a Warrant Agreement granted on June 1,
1994.
(2) Mr. Caulfield is a Director of the Company and the shares were sold to
him pursuant to his exercise of Stock Option Agreements granted on March
24, 1995 and November 2, 1995, with respect to his services as a
Director.
15
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
As set forth in the Company's Form 12b-25 filed on or about April 1,
1998, the Company's financial statements for the year ended
December 31, 1997 are not yet finalized. The Company intends to file
an Amendment to this Form 10-K within the 15 day time period
permitted under Rule 12b-25.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
As set forth in the Company's Form 12b-25 filed on or about April 1,
1998, the Company's financial statements for the year ended
December 31, 1997 are not yet finalized. The Company intends to file
an Amendment to this Form 10-K within the 15 day time period
permitted under Rule 12b-25.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
As set forth in the Company's Form 12b-25 filed on or about April 1,
1998, the Company's financial statements for the year ended
December 31, 1997 are not yet finalized. The Company intends to file
an Amendment to this Form 10-K within the 15 day time period
permitted under Rule 12b-25.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
16
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Pursuant to General Instruction G(3) to Form 10-K, information required
under this item is incorporated by reference from the Registrant's definitive
proxy statement with respect to the 1998 Annual Stockholders Meeting, to be
filed with the Securities and Exchange Commission pursuant to Regulation 14A.
Certain information as it pertains to executive officers, is included
at the end of Part I of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION.
Pursuant to General Instruction G(3) to Form 10-K, information required
under this item is incorporated by reference from the Registrant's definitive
proxy statement with respect to the 1998 Annual Stockholders Meeting, to be
filed with the Securities and Exchange Commission pursuant to Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Pursuant to General Instruction G(3) to Form 10-K, information required
under this item is incorporated by reference from the Registrant's definitive
proxy statement with respect to the 1998 Annual Stockholders Meeting, to be
filed with the Securities and Exchange Commission pursuant to Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Pursuant to General Instruction G(3) to Form 10-K, information required
under this item is incorporated by reference from the Registrant's definitive
proxy statement with respect to the 1998 Annual Stockholders Meeting, to be
filed with the Securities and Exchange Commission pursuant to Regulation 14A.
17
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULE, AND REPORTS ON FORM 8-K.
(a) FINANCIAL STATEMENTS, FINANCIAL STATEMENTS SCHEDULE AND EXHIBITS.
As set forth in the Company's Form 12b-25 filed on or about April 1,
1998, the Company's financial statements for the year ended
December 31, 1997 are not yet finalized. The Company intends to file
an Amendment to this Form 10-K within the 15 day time period
permitted under Rule 12b-25.
3. EXHIBITS.
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
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 Registrant'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 Registrant's
Current Report on Form 8-K, filed October 16, 1995, and incorporated
herein by reference.
2.3 Asset Purchase Agreement dated June 14, 1997, by and among CORE, INC.,
SSDC Corp., Social Security Disability Consultants Limited Partnership,
Disability Services, Inc., DSI Medicare Consultants, Inc., R. Gary
Dolenga and Phylis M. Dolenga, including Amendment No. 1 to Asset
Purchase Agreement, dated June 25, 1997, and Exhibit A - Performance
Criteria (excluding other Exhibits and Schedules). Filed as exhibit 2.1
to Registrant's Current Report on Form 8-K, filed July 15, 1997, and
incorporated herein by reference.
2.4* Asset Purchase Agreement dated March 17, 1998, by and among CORE,
INC., TCM Services, Inc., Transcend Case Management, Inc. and Transcend
Services, Inc. (excluding exhibits and schedules).
3.1 Restated Articles of Organization of the Registrant, dated November 22,
1991, as further amended by Articles of Amendment, dated March 24, 1995,
July 28, 1995 and October 28, 1996. Filed as exhibit no. 4.1 to
Registrant's Quarterly Report on Form 10-Q, filed November 13, 1996, and
incorporated herein by reference.
3.2 By-Laws of the Registrant, as amended. Filed as exhibit no. 3.2 to
Registrant'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
Registrant's Annual Report on Form 10-K, filed April 1, 1996, and
incorporated herein by reference.
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 Registrant'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
Registrant's Registration Statement on Form S-4 (Registration No.
33-73906), filed January 10, 1994, and incorporated herein by reference.
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
10.3 Services Agreement, dated as of August 1, 1996, between CORE, INC.
and Bell Atlantic Corporation (without schedules and appendices).
10.4 Registrant's Amended and Restated 1986 Stock Option Plan. Filed as
exhibit no. 10.11 to the Registrant's Registration Statement on Form S-1
(Registration No. 33-43418), filed October 18, 1991, and incorporated
herein by reference.
10.5 Amendment to Amended and Restated 1986 Stock Option Plan. Filed as
exhibit no. 19.1 to the Registrant's Quarterly Report on Form 10-Q, filed
November 16, 1992, and incorporated herein by reference.
10.6 Registrant's Amended and Restated 1991 Stock Option Plan. Filed as
exhibit no. 4.3 to the Registrant's Registration Statement on Form S-8
(Registration No. 333-15261), filed October 31, 1996, and incorporated
herein by reference.
10.7 Form of Stock Option Agreement, dated as of May 17, 1993, between
Registrant and William E. Nixon. Filed as exhibit no. 10.5 to
Registrant's Quarterly Report on Form 10-Q, filed June 30, 1993, and
incorporated herein by reference.
10.8 Form of Stock Option Agreement, granted January 16, 1994, to non-employee
directors. Filed as exhibit no. 10.45 to the Registrant's Annual Report
on Form 10-K, filed March 31, 1994, and incorporated herein by reference.
10.9 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.
10.10 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.
10.11 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.
10.12 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.
10.13 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.
10.14 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.
10.15 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.
10.16 Form of Stock Option Agreement, granted March 29, 1996, to officers,
including schedule of officer optionees. Filed as exhibit no. 10.31 to
Registrant's Registration Statement on Form S-1 (Registration No.
333-03639), filed May 13, 1996, and incorporated herein by reference.
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
10.17 Form of Stock Option Agreement, granted March 29, 1996, for
consulting services, including schedule of optionees. Filed as exhibit
no. 10.32 to Registrant's Registration Statement on Form S-1
(Registration No. 333-03639), filed May 13, 1996, and incorporated herein
by reference.
10.18 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.
10.19 Forms of Stock Option Agreement under Core Management, Inc. Employee
Stock Option Plan. Filed as exhibit no. 10.66 to the Registrant's
Registration Statement on Form S-4 (Registration No. 33-73906), filed
January 10, 1994, and incorporated herein by reference.
10.20 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.
10.21 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
Registrant's Registration Statement on Form S-4 (Registration No.
33-73906), filed June 8, 1994, and incorporated herein by reference.
10.22* Registration Rights Agreement, dated March 17, 1998, between CORE,
INC. and Transcend Services, Inc.
10.23 Option Agreement, dated June 14, 1997, by and between CORE, INC. and
R. Gary Dolenga. Filed as exhibit 99.1 to Registrant's current Report on
Form 8-K, filed July 15, 1997, and incorporated herein by reference.
10.24 CORE, INC. 1997 Stock Option Plan, including forms of stock option
agreements. Filed as exhibit no. 10.1 to Registrant's Quarterly Report on
Form 10-Q, filed November 14, 1997, and incorporated herein by reference.
10.25 Employment Agreement, dated November 19, 1993, between the
Registrant and William E. Nixon. Filed as exhibit no. 10.49 to
Registrant's Registration Statement on Form S-4 (Registration No.
33-73906), filed January 10, 1994, and incorporated herein by reference.
10.26 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.
10.27 Employment Agreement, dated June 25, 1997, by and between SSDC Corp.
and R. Gary Dolenga. Filed as exhibit 99.2 to Registrant's Current Report
on Form 8-K, filed July 15, 1997, and incorporated herein by reference.
10.28 401(k) Plan. Filed as exhibit no. 10.34 to the Registrant's
Registration Statement on Form S-1 (Registration No. 33-43418), filed
October 18, 1991, and incorporated herein by reference.
10.29 Form of Indemnification Agreement. Filed as exhibit no. 10.35 to the
Registrant's Registration Statement on Form S-1 (Registration No.
33-43418), filed October 18, 1991, and incorporated herein by reference.
10.30 Office Lease, dated December 30, 1992, between Registrant and Copley
Place Associates Nominee Corporation (without exhibits). Filed as exhibit
no. 19.5 to Registrant's Annual Report on Form 10-K, filed March 30,
1993, and incorporated herein by reference.
10.31 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 Registrant's Quarterly Report on Form 10-Q, filed
November 10, 1993, and incorporated herein by reference.
10.32 Agreement of Sublease, dated April 1, 1993, between Eastman Kodak
Company and Core-California. Filed as exhibit no. 10.53 to the
Registrant's Registration Statement on Form S-4 (Registration No.
33-73906), filed January 10, 1994, and incorporated herein by reference.
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
10.33 Second Amendment to Agreement of Sublease, dated May 17, 1995,
between Eastern Kodak Company and Core-California. Filed as exhibit no.
10.45 to Registrant's Annual Report on Form 10-K, filed April 1, 1996,
and incorporated herein by reference.
10.34 Lease, dated January 1, 1991, between Core-California and One
Wheeler Road Associates. Filed as exhibit no. 10.55 to the Registrant's
Registration Statement on Form S-4 (Registration No. 33-73906), filed
January 10, 1994, and incorporated herein by reference.
10.35 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 Registrant's Annual Report on Form 10-K, filed
April 1, 1996, and incorporated herein by reference.
10.36 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
Registrant's Annual Report on Form 10-K, filed April 1, 1996, and
incorporated herein by reference.
10.37 Sublease, dated May 23, 1996, between AT&T Corp., as Sublandlord,
and Registrant, as Subtenant, for premises in Silver Spring, Maryland
(without Exhibits). Filed as exhibit no. 10.63 to Registrant's Amendment
No. 3 to Registration Statement on Form S-1 (Registration No. 333-03639),
filed July 25, 1996, and incorporated herein by reference.
21.1* Subsidiaries of the Registrant.
27.2* Financial Data Schedule for years ended December 31, 1995 and 1996 and
for quarters ended March, June and September of 1996.
27.3* Financial Data Schedule for quarters ended March, June and September
of 1997.
</TABLE>
- ------------------------------------
* Filed herewith
(b) REPORTS ON FORM 8-K.
There were no reports on Form 8-K filed during the last quarter of 1997.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CORE, INC.
Date: March 27, 1998 By: /s/ George C. Carpenter IV
------------------------------------
George C. Carpenter IV
Chairman of the Board and
Chief Executive Officer
Date: March 27, 1998 By: /s/ William E. Nixon
------------------------------------
William E. Nixon
Chief Financial Officer, Executive
Vice President and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ George C. Carpenter IV Chairman of the Board of Directors March 27, 1998
- ---------------------------- and Chief Executive Officer
George C. Carpenter IV
/s/ William E. Nixon Chief Financial Officer, Executive March 27, 1998
- ---------------------------- Vice President and Treasurer
William E. Nixon
/s/ Pamela Ochs-Piasecki Chief Accounting Officer March 27, 1998
- ----------------------------
Pamela Ochs-Piasecki
/s/ Leslie Alexandre Director March 27, 1998
- ----------------------------
Leslie Alexandre
/s/ Stephen C. Caulfield Director March 27, 1998
- ----------------------------
Stephen C. Caulfield
/s/ Richard H. Egdahl, M.D Director March 27, 1998
- ---------------------------
Richard H. Egdahl, M.D.
/s/ Craig C. Horton Director March 27, 1998
- ----------------------------
Craig C. Horton
/s/ John Pappajohn Director March 27, 1998
- ----------------------------
John Pappajohn
</TABLE>
<PAGE>
ASSET PURCHASE AGREEMENT
BY AND AMONG
CORE, INC.
TCM SERVICES, INC.
TRANSCEND CASE MANAGEMENT, INC.
AND
TRANSCEND SERVICES, INC.
March 17, 1998
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is made and entered into as of the ____ day
of March, 1998 by and among CORE, INC., a Massachusetts corporation ("CORE"),
TCM SERVICES INC., a Delaware corporation and wholly-owned subsidiary of CORE
("Purchaser"), TRANSCEND CASE MANAGEMENT, INC., a Georgia corporation
("Seller"), and TRANSCEND SERVICES, INC., a Delaware corporation and owner of
all the capital stock of Seller ("Transcend").
W I T N E S S E T H:
WHEREAS, Seller and Transcend own and operate a workers compensation case
management and bill audit business and related services and businesses
(collectively, as further defined herein, the "Business");
WHEREAS, Purchaser desires to purchase from Seller and Transcend and
Seller and Transcend desire to sell to Purchaser, on the Closing Date (as
hereinafter defined) substantially all assets used in operating the Business;
NOW, THEREFORE, in consideration of the covenants hereinafter set forth
and for good and valuable consideration, the receipt of which is 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
(a) Sale of Assets. Subject to the provisions of this Agreement, Seller
and Transcend agree to sell and Purchaser agrees to purchase, at the Closing (as
defined in Section 1.5 below), all of the properties, assets, rights, claims and
contracts used by Seller in the workers compensation case management and bill
audit business and related services and businesses (collectively, the
"Business"), including, without limitation, the following:
(i) All property, plant, equipment machinery, furniture, fixtures
and other tangible personal property (including supplies and
inventories) used in the Business, including those assets
listed on Schedule 2.6 hereto;
(ii) All computer and similar equipment and software used in the
Business, 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
1
<PAGE>
proprietary or intangible rights and intellectual
properties used in the Business, including the
intellectual property and Proprietary Rights listed on
Schedule 2.7 hereto;
(iv) All rights to the name and marks "Sullivan Health and
Rehabilitation Services" (including derivatives thereof) and
other trade names, service names, trademarks, service marks,
trademark applications and service mark applications used in
the Business, including those names, marks and rights listed
on Schedule 2.7 hereto, excluding, however, the name and mark
"Transcend Services, Inc." (including derivatives thereof) and
the Transcend Services corporate logo;
(v) All files, customer and supplier lists, mailing lists,
accounting records and other business records, all catalogs,
printed materials, telephone numbers (including 800 telephone
numbers), fax numbers and sales aids and all other data
relating to the Business;
(vi) Accounts receivable, refunds, deposits, prepaid expenses,
short and long term assets and instruments of every kind and
description related to the Business;
(vii) All rights of every kind under all contracts and agreements
inuring to Seller's benefit or with respect to the Business
including those rights under contracts listed on Schedule 2.10
hereto (the "Assigned Contracts");
(viii) Rights under real estate leases as listed on Schedule 2.8
hereto (the "Real Estate Leases");
(ix) 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; and
(x) Seller's cash and accounts receivable (net of doubtful
accounts) shown on the books and records of the Seller as of
the Closing Date in an amount at least equal to $220,000; and
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 listed on Schedule 1.1(x) (the "Excluded
Assets").
Seller and Transcend jointly and severally represent and warrant to
Purchaser and CORE that the Subject Assets constitute all the assets utilized in
the Business.
Section 1.2 Limited Assumption of Liabilities
Subject to the provisions of this Agreement, at the Closing, Purchaser
shall assume only
2
<PAGE>
those debts, liabilities, obligations, commitments and contracts of the Seller
which are set forth on Schedule 1.2. The Purchaser is not assuming any other
liabilities, obligations, commitments or contracts whatsoever.
The debts, liabilities, obligations, commitments and contracts specified
above to be assumed by Purchaser under this Agreement are referred to
collectively as the "Assumed Liabilities". The Assumed Liabilities shall,
without limitation, exclude all debts, liabilities, obligations, commitments and
contracts not specifically identified in Schedule 1.2; (i) all tort claims
asserted against Seller or Transcend or the Business or claims against Seller or
Transcend or the Business for breach of contract or breach of warranty, which
are based on acts or omissions occurring before the Closing; (ii) all liability
related to environmental matters which originate prior to the Closing Date;
(iii) any contract or agreement of Seller not expressly listed as an assigned
contract on the Schedule 2.10 to this Agreement; (iv) any liabilities or
obligations under any real property leases for periods prior to the Closing; (v)
any obligations or liabilities to any employee of any Seller unless expressly
set forth on Schedule 1.2 and then only in the amount set forth on said Schedule
1.2; and (vi) any liabilities for taxes of any kind, including, without
limitation, sales, income or withholding taxes resulting from the operation of
the Business prior to Closing.
Section 1.3 Consideration; Calculation of Number of Purchase Price Shares
(a) 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 (i) shares of common stock of CORE, Inc., the number of which
shall be determined pursuant to Section 1.3(b), below (the "Purchase Price
Shares") and (ii) assumption of the liabilities and obligations of Seller and
Transcend listed on Schedule 1.2.
(b) The number of Purchase Price Shares shall be equal to: (i) the
Purchaser's Net Annualized Revenue, divided by (ii) the Market Price of one
share of CORE Common Stock on the Designation Date (as each term is defined
below).
(c) For the purposes of the foregoing calculation,
(i) "Net Annualized Revenue" shall equal four times the Selected Quarterly
Revenue (as defined below) reduced by (A) any unpaid Shortfall amount related to
uncollected accounts receivable described in Section 5.16; and (B) any unpaid
indemnification claims described in Article VII, if any.
(ii) "Selected Quarterly Revenue" shall mean Purchaser's gross revenue
derived from workers compensation case management and workers compensation bill
audit, net of allowance for doubtful accounts, as reported by Purchaser pursuant
to GAAP for a quarter ended March 31, 1999 through December 31, 2000 as selected
in writing by Transcend pursuant to the procedure described below.
For purposes of calculating Purchaser's gross revenue, net of allowance
for doubtful accounts, the following revenue shall be excluded:
3
<PAGE>
(A) revenue related to CORE's wholly-owned subsidiary Cost Review
Services, Inc. ("CRS") which also conducts workers compensation case
management and workers compensation bill audit unless such revenue
originates solely from the efforts of a sales representative who was
formerly an employee of Seller or a replacement thereof (a "Transcend
Sales Representative");
(B) revenue from any present or former customer of CRS (unless such
customer is as of the Closing Date also a customer of Seller, in which
event revenues shall be credited to Purchaser and CRS in the same
proportion as the current allocation);
(C) revenue from sources other than Seller's Business as operated by
Seller as of the Closing Date unless both of the following conditions are
met: (1) such revenue originates solely from the efforts of a Transcend
Sales Representative and (2) is performed by Purchaser or CRS;
(D) revenue which is directly attributable to services or products
purchased from a vendor or any other party other than Purchaser (a
"Rebillable"); provided, the difference between the revenue associated
with such Rebillable and the actual cost of such Rebillable (the "Margin")
shall be included in calculating Purchaser's gross revenue. (For example,
and without limitation, revenue from independent medical examinations
("IMEs"), WorkAbility services, CORE's PRA services and CORE Analytic
services and other products or services for which Purchaser must pay or
credit a vendor or other person or entity shall be excluded from
Purchaser's gross revenue (except that the Margin on such purchases shall
be included in gross revenue)); and
(E) revenue from a client which is directly or indirectly acquired by CORE
to the extent such revenue exceeds the revenue for a quarterly period
prior to a letter of intent or public announcement of such acquisition by
CORE.
Notwithstanding the foregoing, in no event shall excluded revenue be
deducted more than once in calculating Purchaser's gross revenue.
(iii) "Market Price" of a share of CORE common stock means the average of
the closing bid prices of such stock sales as quoted on the NASDAQ - National
Market System ("NASDAQ-NMS") averaged over a period of 21 days consisting of
the day as of which "Market Price" is being determined and the 20 consecutive
business days prior to such day. If CORE common stock is not listed on
NASDAQ-NMS on the Designation Date, the Market Price shall equal the average of
the closing bid prices of such stock sales on all securities exchanges on which
such stock may at the time be listed, or, if there have been no sales on any
such exchange on any day, the average of the highest bid and lowest asked prices
on all such exchanges at the end of such day, or, if on any day such security is
not so listed, the average of the representative bid and asked prices quoted in
the NASDAQ System as of 4:00 P.M., New York time, or, if on any day such stock
is not quoted in the NASDAQ System, the average of the highest bid and lowest
asked prices on such day in the domestic over-the-counter market as reported by
the National Quotation Bureau, Incorporated, or any similar successor
organization, in each such case averaged over a period of 21 days consisting of
the day as of which "Market Price" is being determined and the 20 consecutive
business days prior to such day. If at any time such security
4
<PAGE>
is not listed on any securities exchange or quoted in the NASDAQ System or the
over-the-counter market, the "Market Price" will be the fair value thereof
determined in good faith jointly by CORE and Transcend. If such parties are
unable to reach agreement within a reasonable period of time, such fair value
will be determined by an appraiser jointly selected by CORE and Transcend. The
cost of such appraisal shall be paid fifty percent (50%) by CORE and fifty
percent (50%) by Transcend.
(d) Procedure. Within 5 business days following CORE's public announcement
of financial results for each quarterly period beginning with the quarterly
period ending on June 30, 1998 and ending with the quarterly period ending on
December 31, 2000 (and in no event later than (i) 120 days following the end of
the quarterly periods ending December 31, 1999 and December 31, 2000 or (ii) 45
days following the end of each such quarterly period other than those quarterly
periods ending December 31, 1999 and December 31, 2000). Purchaser shall deliver
to Transcend Purchaser's quarterly gross revenue statement for such preceding
quarter, prepared in accordance with CORE's accounting procedures and GAAP (the
"Quarterly Revenue Statement"). Beginning with the quarter ended March 31, 1999,
within 20 days of CORE's delivery of each Quarterly Revenue Statement,
Transcend, may upon written notice to CORE designate the quarterly revenue for
such period as the Selected Quarterly Revenue, in which event the revenue for
such quarter, net of allowance for doubtful accounts, shall be the Selected
Quarterly Revenue. The date of CORE's receipt of such written designation by
Transcend (provided such receipt is within the 20 day period) shall be the
Designation Date. Time is of the essence with respect to Transcend's selection
of the Selected Quarterly Revenue and Transcend shall not have the right to make
the foregoing selection after said 20 day period has passed. If Transcend does
not designate any period as the Selected Quarterly Revenue, the quarterly
revenue, net of doubtful, as reported on the Quarterly Revenue Statement for the
quarter ended December 31, 2000 shall be the Selected Quarterly Revenue and
April 1, 2001 shall be the Designation Date.
(e) Inspection of Books and Records. At Transcend's or Seller's request
and for the purpose of verifying the information in Purchaser's Quarterly
Revenue Statement, Purchaser will make the work papers and back-up materials
used in preparing the Purchaser's Quarterly Revenue Statement available to the
Seller and Transcend and their accountants and other representatives at
reasonable times and upon reasonable notice.
(f) Corporate Reorganization If (i) CORE is to be consolidated with or
acquired by another entity in a merger, sale of all or substantially all of
CORE's assets or otherwise or (ii) Purchaser or substantially all Purchaser's
assets are acquired by an entity unaffiliated with CORE or Transcend (hereafter
events described in (i) and (ii) shall be referred to as an "Acquisition"), the
board of directors of CORE or any entity assuming the obligations of CORE (the
"Successor Board"), shall, as to obligation to issue Purchase Price Shares
either (i) make appropriate provision for the continuation of such obligation to
issue Purchase Price Shares by substituting on an equitable basis for the CORE
common stock then subject to issuance securities of the successor or acquiring
entity, or (ii) the Selected Quarterly Revenue shall be deemed to be Purchaser's
highest gross revenue, net of allowance for doubtful accounts, (as calculated
pursuant to Section 1.3(b)(ii)) for a calendar quarter beginning with the
calendar quarter ending March 31, 1999 and ending with the most recent complete
calendar quarter immediately preceding such Acquisition, and based upon such
deemed Selected Quarterly Revenue, Purchase
5
<PAGE>
Price Shares in CORE common stock shall be issued to Transcend prior to the
closing or planned closing of the Acquisition.
Section 1.4 Allocation of Purchase Price
Purchaser will 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 thereunder. Subject to
Seller's agreement with such allocation, which will 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.
Section 1.5 Closing Date
The parties agree that time is of the essence and the closing under this
Agreement (the "Closing") will take place at 10:00 a.m. local time, on Tuesday,
March 3, 1998, or at such other time and place as the parties may otherwise
agree upon (such time and such date 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, 18881 Von Karman Avenue, Suite 1750, Irvine, California (or at
such other place as the parties may otherwise agree upon).
Notwithstanding the foregoing, CORE shall have the right in its absolute
discretion to postpone the Closing under this Agreement for a period of not more
than thirty days following the later of (i) March 3, 1998, (ii) the date all
Schedules hereto are delivered by Seller and Transcend to CORE, or (iii) the
date Seller's audited financial statements are delivered to CORE, in which event
such date shall be referred to as the "Closing Date".
Section 1.6 Actions to Be Taken At Closing
(a) At the Closing, Seller and Transcend shall deliver or cause to be
delivered to Purchaser the following:
(i) a Bill of Sale from Seller and Transcend in the form attache
as Exhibit A;
(ii) instruments of assignment of each of the Assigned Contracts in
the form set forth in Exhibit B, with such changes to such
form approved by Purchaser and Seller (the "Contract
Assignments"), pursuant to which Purchaser will assume all
obligations under each such Assigned Contract accruing after
the Closing Date;
(iii) original, executed UCC termination statements in a form
acceptable to Purchaser and acceptable for filing for any
Temporary Encumbrances (as defined in Section 2.5) not yet
terminated;
6
<PAGE>
(iv) an opinion of counsel to Seller covering the matters set forth
on Exhibit C in form reasonably satisfactory to Purchaser;
(v) compliance certificates of Seller and Transcend, as described
in Section 9.3, lated the Closing Date, as to the fulfillment
of the conditions set forth in Sections 9.1 and 9.2;
(vi) 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;
(vii) certified resolutions of the Board of Directors of Seller and
Transcend and certified votes of the stockholder of Seller
duly and legally authorizing the execution and performance of
this Agreement and the Ancillary Documents to which it is a
party;
(viii) certificates of all Continuing Employees in the form of
Exhibit H-1 and as described in Section 5.6;
(ix) acknowledgments of CORE's policies from each Continuing
Employee in the form of Exhibit H-2 and as described in
Section 5.6;
(x) Consent and Amendment of Employment Agreements from certain
persons as described in Section 9.13;
(xi) all such other documents, assignments and other instruments
as, in the opinion of Purchaser's counsel, are necessary to
vest in Purchaser title to the Subject Assets to be
transferred to it pursuant to this Agreement; and
(xii) all other documents, endorsements, assignments, instruments,
writings and other items required to be delivered by Seller
and Transcend at or prior to the Closing pursuant to this
Agreement or otherwise required or reasonably requested in
connection herewith.
(b) At the Closing, Purchaser will deliver or cause to be delivered to
Seller, the following:
(i) an opinion of counsel to Purchaser and CORE covering the
matters set forth on Exhibit D in form reasonably satisfactory
to Seller;
(ii) a compliance certificate of the Purchaser and CORE as
described in Section 8.3, dated the Closing Date, as to the
fulfillment of the conditions set forth in Sections 8.1 and
8.2;
(iii) certified resolutions of the Board of Directors of Purchaser
and CORE duly and legally authorizing the execution and
performance of this Agreement and the Ancillary Documents to
which it is a party; and
7
<PAGE>
(iv) all other documents, endorsements, assignments, instruments,
writings and other items required to be delivered by Purchaser
or CORE at or prior to the Closing pursuant to this Agreement
or otherwise required or reasonably requested in connection
herewith.
(c) At the Closing, CORE, Purchaser, Transcend and Seller shall execute,
and deliver the following to each other
(i) a Registration Rights Agreement between CORE and Transcend in
the form attached as Exhibit E (the "Registration Rights
Agreement").
(ii) a Tradename License Agreement concerning the use of the
tradename "Transcend Case Management" for a period of one
year, in the form attached as Exhibit F (the "Tradename
License Agreement").
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 and Transcend shall execute and deliver
further instruments of transfer and assignment (in addition to those delivered
under Section 1.6) and take such other action as Purchaser may require or
request to more effectively transfer and assign to, and vest in, Purchaser 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; however, Seller and Transcend 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 and Transcend
Seller and Transcend, jointly and severally, hereby represent and warrant
to Purchaser and CORE that:
Section 2.1 Organization
Each of Seller and Transcend is, and on the Closing Date will be, duly
organized, validly existing and in good standing under the laws of their
respective states of incorporation or organization; have, and on the Closing
Date will 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.
Each of Seller and Transcend is qualified as a foreign corporation (or otherwise
qualified to do business) in all states and jurisdictions in which such
qualification is required, except in
8
<PAGE>
the case of Transcend where the lack of such qualification would not have a
material adverse effect on the business, results of operation or financial
condition (a "Material Adverse Effect") of Seller. A complete and correct copy
of the Certificate of Incorporation and all amendments thereto and the Bylaws of
Seller and Transcend have been delivered to CORE and no changes have been made
thereto since the date delivered.
Each of Seller and Transcend do not and will not on the Closing Date
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,
limited liability company association or other entity which, in any way,
directly or indirectly, are related to the Business.
Section 2.2 Authorization of Transaction
Seller and Transcend each 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 each of them pursuant to the
provisions hereof. This Agreement is valid, binding and enforceable against each
of Seller and Transcend 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 or Transcend; (b) constitute
any violation or breach of any material provision of any material contract or
other instrument to which Seller or Transcend is a party or by which any of the
assets of the Business may be affected or secured; (c) constitute any violation
or breach of any order, writ, judgment, injunction, decree, statute, rule or
regulation or will result in the creation of any lien, charge or encumbrance
binding on or applicable to or contravene or conflict with the organizational
documents of Seller or Transcend or the Subject 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 Transcend or any material license, franchise, permit or
other similar authorization held by Seller or Transcend.
The execution, any delivery and performance by Seller and Transcend of
this Agreement and the consummation of the transactions by Seller and Transcend
require no action by or in respect of, or filing with, any governmental body,
agency, official or authority.
Section 2.3 Capitalization
The authorized capital stock of Seller and a complete and accurate list of
stockholders of Seller is set forth in Schedule 2.3 hereto. There are not
authorized or outstanding any options, warrants or other rights to purchase any
shares of capital stock of Seller.
Section 2.4 Financial Statements
Schedule 2.4 attached hereto consists of the following financial
statements (the "Financial Statements"): (i) unaudited financial statements of
Seller, which includes the balance sheets of Seller, as of December 31, 1996 and
1997, and the related statements of income for the years ended December 31,
1995, 1996 and 1997, (the balance sheet of Seller, as of December 31,
9
<PAGE>
1997, is hereinafter referred to as the "Balance Sheet") and (ii) unaudited
financial statement for each month ending after December 1997. The financial
statements included in Schedule 2.4 are in accordance with the books and records
of Seller, are complete and correct in all material respects and fairly present
the financial position of Seller as of the dates therein indicated and the
results of the operations of Seller for the periods so ended, 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) subject to normal year end adjustments and the absence of
footnotes in the case of any interim financial statements. 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"), either Seller or Transcend
have good and marketable title to all of the Subject Assets. All Temporary
Encumbrances shall be terminated at or before Closing and at Closing Seller and
Transcend shall have good and marketable title to the Subject Assets. Without
limiting the generality of the foregoing, no officer, director, stockholder,
partner or affiliate of Seller or Transcend (or any member of their families)
own any asset, tangible or intangible, which is used in the Business. None of
the Subject Assets is held or will be held on the Closing Date by Seller or
Transcend 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.
Seller and Transcend, jointly and severally, represent 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.
Except for the Excluded Assets listed on Schedule 1.1(x), at Closing, the
Subject Assets shall include all the assets which are used by Seller or
Transcend in the operation of 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 used in the
Business on December 31, 1997, each with a book value or fair market value 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: (i) patents, patent
applications, patent disclosures and inventions (whether or not patentable and
whether or not reduced to practice), (ii) trademarks, service marks, trade
dress, trade names and corporate names and registrations and
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applications for registration thereof, (iii) copyrights and registrations and
applications for registration thereof, (iv) mask works and registrations and
applications for registration thereof, (v) computer software, data and
documentation, (vi) 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), (vii) other intellectual property rights, and (viii)
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 owned by
Transcend or a Transcend affiliate and used in the Business), (ii) all pending
patent applications and applications for registrations of other Proprietary
Rights filed by Seller (or filed by Transcend or a Transcend affiliate and used
in the Business), (iii) all trade names and corporate names owned or used by
Seller, (iv) 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 the Business, and (v) all
licenses and other rights granted by Seller to any third party with respect to
any Proprietary Rights and all licenses and other rights granted by any third
party to Seller, with respect to any Proprietary Right. Except as set forth in
Schedule 2.7, Seller owns and possesses all right, title and interest in and to,
or has the right to use pursuant to a valid license, all Proprietary Rights
necessary for the operation of the Business as currently conducted and as
currently proposed to be conducted. All of such Proprietary Rights of Seller or
the Business will remain 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. 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
and no such loss or expiration is threatened, pending or reasonably foreseeable.
Seller and Transcend have taken all actions which Seller and Transcend, in their
reasonable business judgment, have deemed necessary and desirable to maintain
and protect the Proprietary Rights which Seller owns or the Business uses.
Except as indicated on Schedule 2.7, (i) there have been no claims which have
been made or are currently outstanding or are threatened against Seller or
Transcend asserting the invalidity, misuse, unenforceability, or contesting the
ownership, of any of the Proprietary Rights which Seller owns or the Business
uses, and, after reasonable inquiry, there are no grounds for the same, (ii) the
conduct of Seller's Business has not infringed, misappropriated or otherwise
conflicted with, and does not infringe, misappropriate or otherwise conflict
with, any Proprietary Rights of other persons or entities, and present conduct
of the Seller will not infringe, misappropriate or conflict with any Proprietary
Rights of other persons or entities, and (iii) the Proprietary Rights owned or
used by Seller have not been infringed or misappropriated by, or otherwise
conflict with, other persons or entities.
Section 2.8 Real Property
Schedule 2.8 includes a complete and correct list of all real property
which is presently owned or leased by Seller and which will be owned or leased
by Seller on the Closing Date together with a brief description of all plants
and structures thereon. None of such owned real
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property is subject to any liens, encumbrances or restrictions 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.
Section 2.9 Insurance
Seller presently maintains 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 "occurrences" or
"claims made", and all of the policies set forth therein are in full force and
effect. True and complete copies of all insurance policies of Seller have been
provided to CORE.
Section 2.10 Contracts
Attached hereto as Schedule 2.10 is a brief description of all contracts
and other agreements related to the Business, whether written or oral, if any,
to which Seller or Transcend is a party or which are binding on Seller with the
exception of the following:
(a) contracts or commitments for services, the purchase of materials,
inventory and supplies by Seller 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 services, goods or products
by Seller 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).
Schedule 2.10 also contains a separate list of all contracts or agreements
relating to the Business, whether written or oral, valid within the past 36
months or in the future pursuant to which Seller (or Transcend with respect to
the Business) is a party on the one hand, and any affiliate of Seller or
Transcend, including, without limitation, any director, officer, partner or
stockholder of Seller or Transcend (or any member of their respective families)
is a party on the other hand.
Except as set forth in Schedule 2.10, Seller and Transcend are not in
default under any material provision of said contracts and agreements nor is any
default or failure to perform by Seller or Transcend alleged by any party to any
such contracts and agreements, and no act or event has occurred which with
notice or lapse of time, or both, would constitute a default by Seller or
Transcend under any such contracts and agreements or permit modification,
cancellation, acceleration or termination of any such contract or agreement or
result in the creation of any security interest upon, or any person or entity
obtaining any right to acquire any property, assets or rights of Seller or the
Business.
Seller and Transcend have delivered to Purchaser a correct and complete
copy of each written contract listed on Schedule 2.10 (including all
amendments). Each such contract and
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agreement is in full force and effect and is valid and legally binding in
accordance with its terms. To the best knowledge of Seller and Transcend, there
are no unresolved disputes involving or with respect to any such agreement, and
no party to any such agreement has advised Seller or Transcend that it intends
either to terminate a material agreement or to refuse to renew a material
agreement upon the expiration of the term thereof.
Section 2.11 Other Material Contracts
Seller and Transcend do not have any contract not specified in this
Agreement or the Schedules hereto which is binding on Seller or Transcend or on
any other party and which might materially (adversely or favorably) affect the
properties, business or the financial condition of Seller or the Business.
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 the current annual rate of
regular compensation and all bonuses or anticipated bonuses paid or payable by
Seller (or Transcend with respect to the Business) not otherwise described in
item (b) (including payments which are not reflected on the records of Seller 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 plans or policies for the benefit of any
employees or consultants of Seller. Except as shown on Schedule 2.12, there are
no currently effective employment or consulting or other material agreements
with individual employees or consultants to which Seller is a party. Except as
set forth on Schedule 6.1, to the best of Transcend's and Seller's knowledge, no
executive, key employee, or group of employees has any plans to terminate
employment with Seller and no such executive or employee intends to refuse
Purchaser's offer of employment as described in Section 6.1. Seller is not a
party to nor bound by any collective bargaining agreement. There is no pending
or threatened material dispute between Seller and any of its respective
employees. Seller has fully complied with the verification requirements and the
recordkeeping requirements of the Immigration Reform and Control Act of 1986.
The individual licenses of each employee and consultant of Seller or
Transcend performing services for the Business, if so required based upon their
particular employment or service requirements, including, without limitation,
all nursing 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 Date.
No employee or consultant affiliated with Seller 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 expressly set forth on Schedule 2.12 all
employees of the Seller are employees at will.
Section 2.13 Employee Plans
Seller does not have or participate in 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
arrangements described in Schedule 2.12
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attached hereto. In connection with any such plan or arrangement listed in said
Schedule 2.12, there have not been, and on the Closing Date there will not have
been, any "prohibited transactions" within the meaning of Section 406(a) of the
Employee Retirement Income Security Act of 1974 ("ERISA"), and there have not
been, and on the Closing Date there will not have been, 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 to date 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 listed as an Assumed
Liability on Schedule 1.2. All premiums or other payments for all periods ending
on or before the Closing Date have been paid (or will be paid by Seller prior to
Closing) with respect to each such plan or arrangement. All reports and filings
with respect to said fringe benefit plans required to be made pursuant to state
or federal law have been, and on the Closing Date will have been, timely filed.
Seller does 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
those described in Schedule 2.12 attached hereto.
Section 2.14 Governmental Licenses and Permits; Government Relations
Seller has 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
carry on the Business lawfully. Schedule 2.14 contains a list of all such
certificates, permits, licenses and franchises.
All certificates, licenses, permits, authorities and franchises of the
Business are validly held by Seller. Seller has complied with all requirements
in connection therewith and the same will not be subject to suspension or
revocation as a result of this Agreement or the consummation of the transactions
contemplated hereby. 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 Business and which are held in the
name of any employee, officer, director, shareholder, partner, agent or
otherwise of the Business shall be deemed included under this representation and
warranty, and Seller and Transcend warrant that such certificates, licenses,
permits, authorizations and franchises shall be duly and validly transferred to
the Purchaser (to the extent such certificates, licenses, permits, authorities
and franchises are transferable), without additional consideration at Closing.
Neither the Seller nor any director, officer, agent, employee or other
person acting on behalf of the Seller or the Business has used any funds for
improper or unlawful contributions, payments, gifts or entertainment, or made
any improper or unlawful expenditures relating to political activity to domestic
or foreign government officials or others. Neither the Seller nor any current
director, officer, agent, employee or other person acting on behalf of the
Seller or the Business, has accepted or received any improper or unlawful
contributions, payments, gifts or expenditures. The Company has at all times
complied, and is in compliance, in all material respects with the federal
Foreign Corrupt Practices Act and in all material respects with all foreign laws
and regulations relating to prevention of corrupt practices.
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Section 2.15 Liabilities
Except as set forth in Schedule 2.15, Seller (or Transcend with respect to
the Business) has no liabilities or obligations of any nature (whether known or
unknown and whether absolute, accrued, contingent or otherwise) and there is no
basis for any present or future action, suit, claim or demand against Seller (or
Transcend with respect to the Business) giving rise to any liability or
obligation except for (a) liabilities or obligations disclosed or provided for
in the Balance Sheet (including the notes thereto); or (b) liabilities or
obligations incurred since the date of the Balance Sheet in the ordinary and
usual course of business or which would not, individually or in the aggregate,
have a material adverse effect on the financial condition of Seller or on the
conduct of its Business and, to the extent such liabilities or obligations arose
prior to the date thereof, are set forth in the monthly balance sheets delivered
to CORE pursuant to Section 5.12 hereof; or (c) liabilities under this
Agreement.
Section 2.16 Taxes
Seller and Transcend have prepared and filed when due 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 valid
extensions of time) and have paid all taxes shown to be due by said returns or
on any assessments received by Seller (or by Transcend and related to the
Business) or have made adequate provision for the payment thereof. Seller has
delivered to CORE complete and accurate copies of Seller's federal, state and
local tax returns for the years 1995-1996. All such tax returns are materially
correct.
The provisions for taxes (federal, state, local and other), and interest
and penalties, if any, with respect thereto, reflected in the Balance Sheet of
Seller are adequate to cover any and all taxes and any interest and penalties in
connection therewith which have been or may be assessed with respect to the
properties, business and operations of Seller, respectively, 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 in
connection with any such taxes except as reflected in the Balance Sheet.
Seller is not, and on the Closing Date will not be, a consenting
corporation within the meaning of Section 341(f) of the Internal Revenue Code.
All taxes or other assessments and levies which Seller (or Transcend with
respect to the Business) 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 Transcend with respect to the
Business) 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 books of Seller.
Section 2.17 Litigation; Compliance with Laws
Except as set forth in Schedule 2.17 attached hereto, there are no
actions, suits, or proceedings pending or threatened against or affecting
Seller, the Business, the Subject Assets
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or the property of Seller 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 adequately reserved for in Seller's financial statements).
Seller (and Transcend with respect to the Business) has complied in all
material respects with all applicable laws including, without limitation,
environmental laws (including applicable 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 the best knowledge of Seller and Transcend,
threatened governmental investigations involving Seller or the Business,
including inquiries, citations, or complaints by any federal, state, local or
foreign government and agencies thereof. There are no outstanding orders,
decrees or stipulations to which Seller or Transcend is a party affecting
Seller, the Business or the Subject Assets and Seller and Transcend 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 affecting Seller, the Business or the Subject Assets.
Section 2.18 Accounts Receivable; Open Cases
The accounts receivable set forth in the Balance Sheet are and the
accounts receivable set forth in the monthly financial statements delivered to
CORE pursuant to Section 5.12 will be bona fide, collectible in amounts set
forth in Section 5.16 hereof (except to the extent previously collected and
except for any reserves set forth in the Balance Sheet) and arose in the
ordinary course of business.
Attached hereto as Schedule 2.18 is a list of all Seller's clients and
cases in processes (including capitated fee cases), including the status of the
cases.
Seller and Transcend know of no fact or pending or proposed change in
laws, regulations or procedures relating to Seller's Business which would
materially and adversely affect Purchaser's continued services in connection
with the clients or the open cases. Accordingly, to best of Seller's and
Transcend's knowledge, future fees from the open cases (including capitated fee
cases) are expected to be consistent with the Seller's past experience with
similar cases (including capitated fee cases).
Section 2.19 Powers of Attorney; Guaranties
There are no outstanding powers of attorney executed on behalf of Seller
(or on behalf of Transcend with respect to the Business). Seller is not a
guarantor or otherwise liable for any liability or obligation (including
indebtedness) of any third party.
Section 2.20 Service Warranties
Every service provided by Seller or the Business (collectively, "Seller's
Services") has been in substantial conformity with all material applicable
contractual commitments and all express and implied warranties, and Seller and
Transcend have no liability (and there is no basis
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for any present or future action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand against any of them giving rise to any
liability) for warranty work or other additional related services or other
damages in connection therewith. The Seller's Services are not subject to any
guaranty, warranty, or other indemnity beyond the applicable standard terms and
conditions of sale, license or lease. Schedule 2.20 hereto includes copies of
the standard terms and conditions of sale, license or lease for the Seller's
Services.
Section 2.21 Events Subsequent to Balance Sheet Date
Except as set forth on Schedule 2.21, since December 31, 1997, the date of
the Balance Sheet, there has not been (except as otherwise disclosed in the
Schedules hereto or expressly contemplated herein) and will not be on the
Closing Date:
(a) Any material adverse change in assets, liabilities, financial
condition, business, business organization or personnel of Seller or
the Business, taken as a whole, or in relationships with suppliers,
customers, clients, 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 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 used in the Business as of the close of
business on the date of the Balance Sheet, or acquired by Seller or
the Business since said date other than in the ordinary and usual
course of business;
(d) Any material expenditure or commitment by Seller or the Business 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 Business;
(f) Any general wage or salary increase by Seller or to Continuing
Employees (as defined in Section 6.1) outside the ordinary course of
business;
(g) Any increase in the compensation payable or to become payable by
Seller (or Transcend with respect to the Business) to any officer or
key employee;
(h) Any loans or advances by or to Seller other than renewals or
extensions of existing indebtedness or any increase in indebtedness
for borrowed money or capitalized leases of Seller, except in the
ordinary course of business;
(i) Any cancellation by Seller of any material indebtedness owing to it
or any cancellation or settlement by Seller of any material claims
against others;
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(j) Any sale, assignment or transfer by Seller (or Transcend with
respect to the Business) of any material patent, trademark,
tradename, copyright, license, franchise, certificate, permit or
other intangible asset used in connection with the Business;
(k) Any acceleration, termination, modification or cancellation of any
agreement, contract, lease or license involving more than $5,000 to
which Seller (or Transcend with respect to the Business) is a party
or by which Seller is bound;
(l) Any delay or postponement of the payment of accounts payable or
other liabilities of Seller outside the ordinary course of business;
(m) Any loan or other transaction between Seller, on one hand, and any
director, officer, partner or stockholder of Seller on the other
hand;
(n) Any transaction of Seller (or Transcend with respect to the
Business) any kind not in the ordinary and usual course of business,
except as otherwise provided in this Agreement;
(o) Any amendment of any term of any outstanding securities or equity of
Seller;
(p) Any material reduction in the amounts of coverage provided by
existing casualty and liability insurance policies with respect to
the business of Seller;
(q) Any new or 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, pension group insurance, death benefit, or
other fringe benefit plan, arrangement or trust agreement adopted or
implemented by Seller or Transcend which would result in a material
increase in cost to Seller; or
(r) Any commitment by Seller or Transcend to any of the foregoing.
Section 2.22 No Broker
No agent or broker or other person acting pursuant to authority of Seller
or Transcend 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 are as listed in Schedule 2.23
attached hereto.
Section 2.24 Board of Directors and Stockholder Approval
The execution, delivery and performance of this Agreement has been duly
authorized by
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(i) the Board of Directors and the stockholder of Seller; and (ii) the Board of
Directors of Transcend.
Section 2.25 Trade Names
Schedule 2.25 hereto sets forth (a) all business names and addresses used
by Seller or the Business within the past five years and (b) names and addresses
of business entities from which Seller or the Business acquired significant
assets within the past five years. Seller and Transcend have always conducted
the Business only under the names set forth on Schedule 2.25. Except as set
forth in Schedule 2.25, Seller (and Transcend with respect to the Business) has
never operated under or used an assumed or fictitious name. Seller and Transcend
have not received notice that the manner in which they conduct the Business
conflicts with any rights of third parties to trade names, trademarks, trademark
applications, trademark registrations, trademark licenses and sublicenses,
service marks, service mark applications, service mark registrations, service
mark licenses and sublicenses, copyrights, copyright applications, copyright
registrations, copyright licenses and sublicenses, patents, patent applications
and patent licenses and sublicenses. Purchaser's use of the marks "Transcend
Case Management" and "Sullivan Health and Rehabilitation Services" after the
Closing in the manner consistent with Seller's (and Transcend's with respect to
the Business) use of such marks prior to the Closing will not subject Purchaser
to any claim from third parties.
Seller shall not use any other business name or address from the date of
this Agreement through the Closing Date. Schedule 2.25 also contains all
locations of the Subject Assets and Seller's places of business and chief
executive offices.
Section 2.26 Arms Length Transactions
Except as set forth on Schedule 2.26, all transactions by the Seller (and
Transcend with respect to the Business) with outside parties have been conducted
on an arms length basis, and no affiliate, director, stockholder or officer of
Seller or Transcend (or any members of their respective families) has since
January 1, 1995 had any material direct or indirect ownership of or a profit
participation in any outside business enterprises with which the Seller or the
Business had significant purchases, sales or business dealings.
Section 2.27 Other Liabilities of Seller and Transcend
Seller and Transcend shall retain all of their liabilities other than the
Assumed Liabilities (the "Retained Liabilities"). Seller and Transcend shall
make timely payment of all the Retained Liabilities so that all liabilities of
Seller and the Business to the creditors (other than the Assumed Liabilities)
shall have been discharged. Neither Purchaser nor CORE shall have any liability
whatsoever for any of the Retained Liabilities.
Section 2.28 Investment
Seller and Transcend each understand that the Purchase Price Shares have
not been, and, except as otherwise provided in the Registration Rights
Agreement, will not be, registered under the Securities Act, or under any state
securities laws, and are being offered and sold in reliance
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upon federal and state exemptions for transactions not involving any public
offering. Transcend (i) is acquiring the Purchase Price Shares solely for its
own account for investment purposes, and not with a view to the distribution
thereof: (ii) is a sophisticated investor with knowledge and experience in
business and financial matters, (iii) has received certain information
concerning CORE and has had the opportunity to obtain additional information as
desired in order to evaluate the merits and the risks inherent in holding the
Purchase Price Shares, (iv) is able to bear the economic risk and lack of
liquidity inherent in holding the Purchase Price Shares, and (v) is an
Accredited Investor as defined in Regulation D promulgated under the Securities
Act of 1933, as amended. Immediately prior to the issuance of the Purchase Price
Shares, Transcend shall execute certificates and agreements confirming the
foregoing and addressing other matters to assure compliance with or exemption
from federal and other security laws.
Section 2.29 Disclosure; Effect of Transaction
Neither this Agreement nor any statement, list or certificate furnished or
to be furnished by Seller or Transcend or their representatives to Purchaser or
CORE pursuant hereto or in connection with this Agreement or any of the
transactions hereby contemplated, 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. To the best of Seller's
and Transcend's knowledge, there is no fact regarding Seller, the Business or
Transcend or their respective prospects which a reasonable buyer would
reasonably consider material in making a decision with respect to the purchase
of the Subject Assets which has not been disclosed to CORE or Purchaser in this
Agreement including the Schedules hereto.
No creditor, employee, consultant, client or other customer or other
person having a material business relationship with Seller or the Business has
informed Seller or Transcend that such person or entity intends to change the
relationship because of the purchase and sale of the Subject Assets as
contemplated hereby, which change would have a material adverse effect on
Business.
Section 2.30 Supplemental Disclosure
Prior to and through Closing, Seller and Transcend shall have the
continuing obligation promptly to supplement or amend the Schedules 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; 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
and Transcend 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,
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except for changes contemplated or permitted by this Agreement.
Section 2.32 Survival of Representations
The representations and warranties of the Seller and Transcend 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, for a period ending the earlier of (i) three years from the
Closing Date, or (ii) the date CORE delivers the Purchase Price Shares to
Transcend, or (iii) the date Purchaser retransfers assets to Transcend pursuant
to Section 6.3 of this Agreement. Notwithstanding the foregoing limitation to
the representations and warranties of Seller and Transcend in the prior
sentence, without limitation as to time, in no event shall Purchaser's
liabilities assumed from Seller or Transcend exceed the Assumed Liabilities
listed in Schedule 1.2.
ARTICLE III
Representations and Warranties of CORE
CORE and Purchaser, jointly and severally, hereby represent and warrant to
Seller and Transcend that:
Section 3.1 Organization
CORE is, and on the Closing Date will be, a corporation duly organized,
validly existing and in good standing under the laws of the Commonwealth of
Massachusetts; and has, and on the Closing Date will have, 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 financial condition of CORE.
A complete and correct copy of the Articles of Organization and all
amendments thereto and the Bylaws of CORE have been made available to Seller and
Transcend.
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.
Neither the execution and delivery of this Agreement nor the consummation
of the transactions hereby contemplated will (a) contravene or conflict with the
Articles of Organization or By-laws of CORE, (b) constitute any violation or
breach of any material provision of any material contract or other instrument to
which CORE is a party; (c) constitute any violation or breach of any order,
writ, judgment, injunction, decree, statute, rule or regulation, (d) conflict
with, or constitute a default under, or result in the termination or
cancellation of, or right to
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accelerate, any material agreement, contract or other instrument binding upon
CORE.
The execution, any delivery and performance by CORE of this Agreement and
the consummation of the transactions by CORE require no action by or in respect
of, or filing with, any governmental body, agency, official or authority.
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 Disclosure
Neither this Agreement nor any statement, list or certificate furnished or
to be furnished to Transcend or 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 on which they are made, not misleading.
Section 3.6 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 same force and effect as though made at and
as of the Closing Date, except for changes contemplated or permitted by this
Agreement.
Section 3.7 Survival of Representations
The representations and warranties of CORE 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 Seller or Transcend for a
period ending the earlier of (i) of three from the Closing Date, (ii) the date
CORE delivers the Purchase Price Shares to Transcend, or (iii) the date
Purchaser retransfers assets to Transcend pursuant to Section 6.3 of this
Agreement.
ARTICLE IV
Representations and Warranties of Purchaser
Purchaser and CORE, jointly and severally, hereby represent and warrant to
Seller and
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Transcend that:
Section 4.1 Organization
Purchaser is, and on the Closing Date will be, a corporation duly
organized, validly existing and in good standing under the laws of or the state
of Delaware; and has, and on the Closing Date will have, 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 financial condition of Purchaser.
A complete and correct copy of the Certificate of Incorporation and the
Bylaws of Purchaser have been made available to Seller and Transcend.
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.
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 Purchaser, (b) constitute any
violation or breach of any material provision of any material contract or other
instrument to which Purchaser is a party; (c) constitute any violation or breach
of any order, writ, judgment, injunction, decree, statute, rule or regulation,
(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 Purchaser.
The execution, delivery and performance by Purchaser of this Agreement and
the consummation of the transactions by Purchaser require no action by or in
respect of, or filing with, any governmental body, agency, official or
authority.
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
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performance of this Agreement and the ancillary agreements by Purchaser.
Section 4.5 Governmental Licenses and Permits; Government Relations
Purchaser has 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 carry on the Business lawfully.
All certificates, licenses, permits, authorities and franchises of the
Purchaser are validly held by Purchaser. Purchaser has complied with all
requirements in connection therewith and the same will not be subject to
suspension or revocation as a result of this Agreement or the consummation of
the transactions contemplated hereby.
Neither the Purchaser nor any director, officer, agent, employee or other
person acting on behalf of the Purchaser or the Business has used any funds for
improper or unlawful contributions, payments, gifts or entertainment, or made
any improper or unlawful expenditures relating to political activity to domestic
or foreign government officials or others. Neither the Purchaser nor any current
director, officer, agent, employee or other person acting on behalf of the
Purchaser or the Business, has accepted or received any improper or unlawful
contributions, payments, gifts or expenditures. The Purchaser has at all times
complied, and is in compliance, in all material respects with the federal
Foreign Corrupt Practices Act and in all material respects with all foreign laws
and regulations relating to prevention of corrupt practices.
Section 4.6 Litigation; Compliance with Laws
There are no actions, suits, or proceedings pending or threatened against
or affecting Purchaser or the property of Purchaser in any court or before any
federal, state, municipal or other governmental department, commission, board or
other instrumentality or before any arbitrators.
Purchaser has complied in all material respects with all applicable laws
including, without limitation, environmental laws (including applicable 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 the best knowledge of
Purchaser, threatened governmental investigations involving Purchaser including
inquiries, citations, or complaints by any federal, state, local or foreign
government and agencies thereof. There are no outstanding orders, decrees or
stipulations to which Purchaser is a party affecting Purchaser, and Purchaser is
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 affecting Purchaser.
Section 4.7 Disclosure
Neither this Agreement nor any statement, lists or certificate furnished
or to be furnished to Seller by or on behalf of Purchaser pursuant hereto or in
connection with the transactions
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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 on
which they are made, not misleading.
Section 4.8 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.
Section 4.9 Survival of Representations
The representations and warranties of Purchaser 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 Seller or
Transcend for a period ending the earlier of (i) three years from the Closing
Date, or (ii) the date CORE delivers the Purchase Price Shares to Transcend, or
(iii) the date Purchaser retransfers assets to Transcend pursuant to Section 6.3
of this Agreement.
ARTICLE V
Additional Agreements of Seller and Transcend
Seller and Transcend each, jointly and severally, covenants and agrees as
follows:
Section 5.1 Operation of Business
Seller will, 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;
(b) use commercially reasonable efforts to preserve the good will of its
suppliers and customers and others having business relations with
it;
(c) use commercially reasonable efforts to continue the employment of
key personnel (except as otherwise permitted by Purchaser 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 in the ordinary course of business; and
(e) comply in all material respects with all laws and/or other
governmental regulations that may be applicable to its business.
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Section 5.2 Negative Covenants
Seller will not, subsequent to the date hereof and prior to the Closing
Date, without the express written consent of Purchaser,
(a) enter into any leases, agreements, contracts or other commitments,
whether written or oral, other than commitments for the purchase of
inventory or supplies or for the furnishing of services, in each
case entered into in the ordinary course of business and not of
unusual size or duration;
(b) make any change in its corporate charter, bylaws, or other
organizational agreements and documents;
(c) sell, assign, lease or otherwise transfer or dispose of or encumber
any property (real or personal) or equipment, except for replacement
of any worn-out equipment in the ordinary course of business;
(d) merge or consolidate with or into any other corporation or entity;
(e) grant any options, warrants or other rights to purchase or obtain
any of its capital stock, or equity interests, or issue, sell or
otherwise dispose of any of its capital stock, or equity interests
(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 redeem,
repurchase, or otherwise acquire any of its capital stock, or equity
interests;
(g) 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, partners and employees;
(j) conduct its business or take any other action other than in the
ordinary course of business;
(k) amend or change the period of exercisability or accelerate the
exercisability of any outstanding options or warrants to acquire
shares of its capital stock, or equity interests; or
(l) agree or commit to any of the foregoing.
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Section 5.3 No Breaches of Representations and Warranties
Seller and Transcend 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 or Transcend set forth herein. Seller and Transcend
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 or
Transcend set forth herein, give detailed notice to CORE; and Seller and
Transcend will use their best efforts to prevent or promptly to remedy such
breach.
Section 5.4 Form 8-K
Seller and Transcend each agree to provide information to CORE and
otherwise assist CORE with respect to disclosures concerning Seller to be
included in the Form 8-K to be filed by CORE with the Securities and Exchange
Commission following the Closing of the transaction described in this Agreement.
Section 5.5 Access to Information
Seller and Transcend 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 the Business, and will furnish to CORE and its representatives all
additional financial statements, all information with respect to its business
affairs, and copies of all relevant contracts and other documents, which CORE
may reasonably request.
Section 5.6 Releases and Acknowledgment of Employees
Seller will deliver or cause to be delivered to Purchaser at the Closing
(i) the certificate of each Continuing Employee (as defined in Section 6.1) that
he or she has no claims of any kind against Seller or Transcend, except for his
or her unpaid salary with respect to the month in which the Closing occurs
accrued to the Closing, and (ii) CORE shall have received from each Continuing
Employee and key consultant of Seller a binding agreement, in form acceptable to
CORE, which sets forth an acknowledgement of CORE's policies concerning
non-disclosure and an acknowledgment of CORE's ownership of the intellectual
property of Seller being transferred to CORE.
Section 5.7 Maintain Business Organization
Seller and Transcend will use their best efforts until the Closing to
preserve the Business's organization intact, and to preserve the relationships
of Seller with employees, suppliers, customers, landlords, and others, all to
the end that the going business of Seller will be unimpaired at the Time of
Closing.
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Section 5.8 Financial Statement Items
(a) Minimum Cash and Accounts Receivable. For the purposes of this
Agreement "Cash and A/R Account" shall consist of cash, cash equivalents and
accounts receivable (net of reserves) of Seller transferred to Purchaser at
Closing. Transcend and Seller agree that the amount of the Cash and A/R Account
transferred to Purchaser at Closing shall be an amount at least equal to
$220,000.
(b) Maximum Assumed Liabilities. Transcend and Seller agree that the
amount of Assumed Liabilities transferred to Purchaser at Closing shall be less
than $68,760.
Section 5.9 Maintain Insurance and Properties
Seller and Transcend will use their best efforts to cause the existing
liability and property damage, fire, casualty and other insurance of Seller
described in Schedule 2.9 to be continued in force up to and through the Closing
Date.
Seller will use all commercially reasonable efforts to maintain its
properties, equipment and operations in good repair and operating condition
through the Time of Closing Date.
Section 5.10 Exclusivity
Until the earlier to occur of the Closing of this Agreement or the
termination of this Agreement pursuant to Article X hereof, neither Transcend
nor Seller nor any of their respective officers, directors, employees, partners,
agents, affiliates or representatives will solicit, initiate, or encourage the
submission of any proposal or offer relating to the acquisition of any capital
stock, equity interest, partnership interest or other voting securities, or any
substantial portion of the assets of Seller or the Business. Additionally,
Seller and Transcend will notify CORE immediately if any person or entity
contacts Seller or Transcend with any proposal, offer, inquiry, or contact with
respect to any of the foregoing.
Section 5.11 Post-Closing Cooperation
To the extent reasonably requested by Purchaser and at Purchaser's
expense, Seller and Transcend will cooperate and use reasonable efforts to have
the present officers, directors and employees of the Seller and Transcend
cooperate with Purchaser on and after the Closing Date in furnishing
information, evidence, testimony and other assistance in connection with any
actions, proceedings, arrangements or disputes of any nature with respect to
matters pertaining to all periods prior to the Closing Date.
Section 5.12 Monthly Financial Statements; Audited Financial Statements
(a) Monthly Financial Statements. On the 10th day of each month prior to
Closing, Seller shall deliver to CORE a balance sheet and related statements of
income and retained earnings and cash flows 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.
Such financial statements, when delivered to CORE, shall be in accordance
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with the books and records of Seller, will be complete and correct in all
material respects and fairly present the financial position of Seller as of
dates therein indicated and the results of the operations of Seller for the
periods so ended all in conformity with GAAP (subject to normal year end
adjustments and the absence of footnotes).
(b) Audited Financial Statements. At least 3 days prior to the Closing,
Seller shall deliver to CORE financial statements of Seller audited by Arthur
Andersen LLP for the one year ended December 31, 1997 and audited statements of
operations and cash flows for the same years and any other period deemed
necessary or appropriate by CORE in connection with CORE's disclosure
obligations under the federal securities laws (the "Audited Financial
Statements"). Such Audited Financial Statements shall be substantially similar
to the unaudited financial statements of Seller set forth in Schedule 2.4 hereof
for the same periods and include Seller's independent auditors' opinion in a
form reasonably satisfactory to CORE. Without limiting the generality of the
foregoing, the Audited Financial Statements shall not be substantially similar
to the unaudited financial statements of Seller if for any period revenues or
net income vary by more than 5%.
Section 5.13 Bulk Sales Law
Seller and Transcend shall, jointly and severally, indemnify and hold
Purchaser and CORE harmless from any loss, cost or liability (including
reasonable attorneys' fees) incurred by Purchaser or CORE as a result of
non-compliance with any applicable bulk sales law, fraudulent conveyance law or
similar law with respect to the transactions contemplated herein.
Section 5.14 Short-term License of Tradenames; Use of Marketing Materials
Transcend, Seller and Purchaser shall at closing enter into a Tradename
License Agreement in the form attached hereto as Exhibit F pursuant to which
Transcend and Seller shall (i) license to Purchaser, for one year, the right to
use the tradename "Transcend Case Management"; and (ii) permit Purchaser to use
all tradenames and trademarks on any marketing or related material delivered to
Purchaser as a Subject Asset.
Section 5.15 Non-Competition; Non-Solicitation
Transcend and Seller each hereby agrees that, from and after the Closing
Date through December 31, 2002 neither of them shall (a) serve, directly or
indirectly, as an operator, owner, partner, consultant, officer, director, or
employee of any firm, entity or business or corporation engaged in the business
presently being conducted by Seller (or any business related thereto) within the
United States; (b) solicit or attempt to solicit, or accept business from, any
entity which is a client or customer of CORE, Purchaser, Seller (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 Business, for the
purpose of doing business with such client or customer in competition with
Purchaser 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 Business
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) or CORE (including CORE's subsidiaries), or assist
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in such solicitation or hiring by any other person or entity, or encourage any
employee or consultant or Purchaser (including Continuing Employees) or CORE
(including CORE's subsidiaries) to terminate his or her relationship with
Purchaser 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 by law. In the event that this Section 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 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 Transcend or Seller from holding or making an 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 five percent (5%) of
the issued and outstanding capital stock of a corporation which is a competitor
within the meaning of this Section.
Section 5.16 Accounts Receivable
(a) Transfer and Guaranty of Accounts Receivable. Seller and Transcend
shall guarantee that at Closing the accounts receivable of Seller transferred to
Purchaser shall in no event be less than $280,000 (the "Guaranteed Receivables
Amount") and that the Guaranteed Receivables Amount will be collected during the
Collection Period. In the event the accounts receivable collected during the
Collection Period are less than 90% of the Guaranteed Receivables Amount, then
either (i) the Net Annualized Revenue set forth in Section 1.3(b) shall be
reduced by an amount equal to the difference between the Guaranteed Receivables
Amount and the amount of the accounts receivable actually collected (the
"Shortfall") or (ii) Seller and Transcend shall pay to Purchaser the Shortfall
amount in cash.
(b) Collection of Accounts Receivable. Purchaser agrees to use reasonable
collection efforts with respect to such Accounts Receivable (except that the
Purchaser shall not be obligated to institute litigation) through December 31,
1998 (the "Collection Period").
Section 5.17 Best Efforts
Seller and Transcend each will use their reasonable 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.
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ARTICLE VI
Additional Agreements of CORE and Purchaser
Section 6.1 Employment Arrangements and Employee Benefits
(a) Purchaser intends to offer employment, commencing as of the Closing
Date, at substantially the same wages, salary, benefits, hours and conditions in
effect immediately prior to the Closing, to all employees listed on Schedule
2.12 with such changes in the ordinary course of business of which Seller
notifies Purchaser (other than those employees listed on Schedule 6.1 (the
"Excluded Employees") including Purchaser's revisions to Schedule 6.1 at or
prior to Closing); provided, however, Purchaser reserves the right to make
changes to such wages, salary, benefits, hours and conditions. 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."
Notwithstanding the foregoing, and without breaching the foregoing,
Purchaser reserves the right to review staffing levels, wages, benefits and
conditions of employment after the Closing, and to make appropriate changes, if
in its judgment such changes are necessary in light of then existing business
conditions.
(b) Unless expressly listed as an Assumed Liability, Seller and Transcend
shall retain responsibility for any hospital, medical, dental, life insurance,
disability, workers' compensation and other employee welfare benefit plan
premiums due and payable for coverage prior to the Closing Date. Hospital,
medical, dental, life insurance, disability, workers' compensation and other
employee welfare benefit plans listed on Schedule 2.12 for which premiums will
be accrued and payable for coverage of the Continuing Employees on or after the
Closing Date shall be the responsibility of Purchaser. Unless expressly listed
as an Assumed Liability on Schedule 1.2, Seller shall remain responsible for
paying all unpaid wages, salaries, vacation, sick-leave or other time-off pay
accrued by all employees through the Closing Date.
(c) Unless expressly listed as an Assumed Liability on Schedule 1.2,
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 14 days after Closing.
(d) No provision of this Section 6.1 shall create any
third-party-beneficiary rights in any employee or former employee (including any
beneficiary thereof) of any Seller or Purchaser.
Section 6.2 Registration Rights Agreement; Current Public Information.
At the Closing, CORE and Transcend will enter into a registration rights
agreement (the "Registration Rights Agreement") in the form attached hereto as
Exhibit E granting to Transcend so-called "piggy-back" registration rights with
respect to the Purchase Price Shares subject to the terms and conditions set
forth therein.
CORE will file all reports required to be filed by it under the Securities
Act and the
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Securities Exchange Act and the rules and regulations adopted by the Securities
and Exchange Commission thereunder, and will take such further action as
Transcend may reasonably request, all to the extent required to enable Transcend
to sell the Purchase Price Shares of CORE stock issued and delivered in
connection with this Agreement pursuant to Rule 144 adopted by the Securities
and Exchange Commission under the Securities Act (as such rule may be amended
from time to time) or any similar rule or regulation hereafter adopted by the
Securities and Exchange Commission.
Section 6.3 Operation of Business of Purchaser
Purchaser will, from the Closing Date until the date upon which the value
of the Purchase Price Shares shall be determined in accordance with this
Agreement:
(a) in all material respects, conduct its business, maintain its assets,
carry on its business practices and keep its books of account, records and files
in the ordinary course, including, without limitation, the following:
(i) cause CRS to have not more than one (1) sales representative
unless Purchaser has at least five (5) sales representatives
employed exclusively in the Business (provided, however, that
this covenant shall not be deemed to require Purchaser to
maintain at least five (5) sales representatives);
(ii) acquire and maintain such insurance as may be commercially
practicable for the Business;
(iii) establish and maintain commercially practicable operating
hours for the Business;
(iv) use, operate, maintain and repair all of the property and
equipment of the Business in a normal business manner; and
(v) preserve, account and maintain adequate books and records for
the Business as a separate revenue center within Purchaser;
(b) use commercially reasonable efforts to preserve the good will of its
suppliers and customers and others having business relations with it;
(c) 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 conditions thereof in the
ordinary course of business;
(d) provide unaudited monthly income statements to Transcend within a
reasonable period of time after the end of each month; and
(e) comply in all material respects with all laws and/or other
governmental regulations that may be applicable to its business.
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The foregoing obligations of Purchaser shall be limited to those times
when Purchaser is operating the Business at a profit.
Notwithstanding the foregoing or any other term or condition in this
Agreement or any Ancillary Agreement or Document, neither CORE nor Purchaser are
obligated to continue the operation of the Business if the Business is
generating a loss (i) in excess of $60,000 in any three month period or (ii) in
excess of $100,000 in any period less than three months as determined by
Purchaser or CORE. In determining losses for this Section 6.3, CORE and
Purchaser shall consider the business net income before taxes calculated in
accordance with generally accepted accounting principles ("GAAP") adjusted to
reflect reasonable corporate allocations (equal to 2% of revenues) and exclusive
of one-time, non-recurring extraordinary expenses.
In the event that Purchaser elects to discontinue the business due to
losses as described above, Purchaser shall provide Transcend 10 working days
advance written notice of the scheduled date of such discontinuance and
Transcend shall have the option to purchase from Purchaser all Subject Assets
still owned by Purchaser and other assets of Purchaser used exclusively by
Purchaser in the Business. If Transcend elects in writing to purchase such
assets of Purchaser by notifying Purchaser in writing of such election within
such 10 business day period: (i) the closing of the purchase and sale shall
occur as soon as practicable after such notice but in no event later than 30
days after Purchaser's scheduled date of discontinuance; (ii) such assets shall
be sold "where is" and "as is" without any representation or warranties by
Purchaser other than representations and warranties concerning Purchaser's title
to the assets being sold; (iii) the book value of the assets transferred to
Transcend shall equal $220,000 (a) minus the amount of all net losses incurred
by Purchaser between the Closing Date of this Agreement and the subsequent
retransfer of such assets to Transcend, if any, or (b) plus 50% of the amount of
all net income earned by Purchaser between the Closing Date of this Agreement
and the subsequent retransfer of such assets to Transcend, if any, (c) minus
Purchaser's current liabilities relating to the Business not assumed by
Transcend in connection with the acquisition of assets; and (v) Purchaser shall
continue to operate the Business for up to said 30 day period in accordance with
this Section 6.3, and Transcend shall promptly reimburse Purchaser for any
losses incurred during such period if for any reason the transfer of assets and
liabilities to Transcend does not occur.
Section 6.4 Form 8-K
CORE and Purchaser each agree to provide information to Transcend and
otherwise assist Transcend with respect to disclosures concerning Seller to be
included in the Form 8-K to be filed by Transcend with the Securities and
Exchange Commission following the Closing of the transaction described in this
Agreement.
Section 6.5 No Breaches of Representations and Warranties
Between the date hereof and Closing, neither CORE nor Purchaser will 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 and Purchaser set forth
herein. CORE or Purchaser, as appropriate, will, in the event
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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 or Purchaser set
forth herein, give detailed notice to Seller; and CORE or Purchaser, as
appropriate, will use their reasonable best efforts to prevent or promptly to
remedy such breach.
Section 6.6 Best Efforts
CORE and Purchaser will use their reasonable 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 VII
Indemnity by the Seller and Transcend
Section 7.1 Indemnification
Seller and Transcend, jointly and severally, hereby agree to indemnify,
defend, save and hold CORE and Purchaser harmless from and against, and will
reimburse CORE and its subsidiaries and Purchaser, and any person serving as
officers, directors, agents, counsel or employees thereof, as the case may be,
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 CORE or Purchaser which shall arise out of or result
from or constitute any breach of any representation, warranty, covenant, or
agreement of Seller or Transcend in this Agreement, or in any certificate,
schedule or exhibit delivered pursuant hereto, and for any undisclosed
liabilities of Seller or Transcend incurred prior to the Closing Date. Seller
and Transcend hereby release each other from any obligation of contribution,
indemnity or the like relating to any claims under this Article.
Subject to the provisions of Section 7.6 hereof, the amount of the
indemnity to which CORE and Purchaser 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 it or Purchaser is entitled to indemnification under Section 7.1 hereof, it
shall give written notice to the Seller and Transcend specifying the cause, the
amount of such claim and the 20 day objection period described in the next
sentence. Seller or Transcend 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 or Transcend so to object shall constitute
an
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acceptance of CORE's claim and if the amount to which CORE or Purchaser is
entitled is not paid by Seller or Transcend within ten (10) days of such
determination, then CORE shall have the right to satisfy all or part of such
indemnification obligations by reducing the Net Annualized Revenue (as
calculated in Section 1.3(b)) by an amount equal to such indemnification claim.
In the event such claim exceeds the amount of the Purchase Price Shares, or the
Purchase Price Shares have previously been delivered, or the Purchase Price
Shares are otherwise insufficient to satisfy fully such claim, Transcend and
Seller shall be jointly and severally liable to CORE and Purchaser for payment
of such claim.
In the event that Seller or Transcend shall so object and CORE and Seller
or Transcend shall fail to reach an agreement as to the entitlement of CORE or
Purchaser to indemnification or the amount thereof within sixty (60) days after
the written notice by Seller or Transcend objecting to the claim, then so much
of the matter as may be in dispute shall be submitted to the American
Arbitration Association in Orange County, California for settlement in
accordance with its rules, 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, Seller and Transcend shall act upon such award in
like manner as though it constituted an agreement reached between the parties.
CORE or Purchaser, on one hand, and Seller and Transcend on the other hand,
shall each bear fifty percent (50%) of the arbitrators' fees.
Section 7.3 Defense of Claims
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 and Transcend,
but the omission to so notify Seller and Transcend will not relieve Seller and
Transcend from any liability except to the extent that Seller and Transcend
shall have been materially prejudiced as a result of the failure in giving such
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
twenty (20) days after receiving such notice, Seller or Transcend gives written
notice to CORE stating that it disputes and intends to defend against such claim
at Seller's or Transcend's own cost and expense (subject to the consent of CORE
which consent shall not be unreasonably withheld but which consent may be
conditional upon bonding or other evidence of ability to pay upon a judgment)
provided Seller's or Transcend's counsel in such defense is acceptable to CORE,
then CORE shall make no payment on such claim as long as Seller or Transcend is
conducting a good faith and diligent defense. Notwithstanding anything herein to
the contrary, CORE and Purchaser shall at all times have the right to
participate fully in such defense at CORE's and Purchaser's own expense directly
or through counsel; provided, however, if the named parties to the action
include both (i) either Seller or Transcend and (ii) Purchaser or CORE and
representation of both parties by the same counsel would be inappropriate under
applicable standards of professional conduct, the expense of one separate
counsel for CORE or Purchaser shall be paid by Seller and Transcend. If no
timely notice of intent to dispute and defend is given by Seller or Transcend,
or if such diligent good faith defense is not being or ceases to be conducted,
after written notice to Transcend and Seller and the failure of Seller and
Transcend to initiate or conduct such a defense within twenty (20) days after
such notice, CORE, at the expense of Transcend and Seller, shall undertake the
defense of such claim, liability or expense, and shall have the right to
compromise or settle the
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same. If such claim, liability or expense is one that by its nature cannot be
defended solely by Transcend or Seller then CORE and Purchaser shall make
available all information and assistance that Transcend or Seller may reasonably
request and shall cooperate with Transcend or Seller in such defense; provided,
Transcend or Seller shall reimburse CORE and Purchaser for their costs and
expenses in providing such assistance.
Section 7.4 Recourse to Seller and Transcend
Any amounts offset against the Purchase Price Shares shall in no way limit
CORE's or Purchaser's rights in law or equity to recover from Transcend and
Seller in respect of any claims of CORE or Purchaser not fully satisfied by such
offsets.
Section 7.5 Notification
To simplify notification and communications pursuant to this Article,
Seller hereby appoints Transcend to act as its agent and attorney-in-fact to
receive and deliver notices under this Article VII and to negotiate settlements
on its behalf. Accordingly, a notice by CORE or Purchaser to either Transcend or
to Seller shall be deemed to be a notice to each of Transcend and Seller.
Similarly, an instruction notice, waiver or objection from either Transcend or
Seller shall be deemed to be an instruction, notice, waiver or objection from
each of Transcend and Seller.
Section 7.6 Limitation on Rights of Indemnification
No party shall have the right to indemnification under this Agreement VII
unless the aggregate amount of any and all such indemnification claims made by
such party under this Agreement exceeds $20,000.00 (the "Threshold") and then
the entire amount of such claim(s), shall be subject to indemnification,
provided, however, that the Threshold shall not apply to claims arising out of
Guaranteed Accounts Receivable, Assumed Liabilities, fraud or the intentional
acts of Seller or Transcend.
The aggregate liability of the Seller and Transcend, pursuant to Article
VII of this Agreement shall not exceed an amount equal to the value of the
Purchase Price Shares.
ARTICLE VIII
Conditions to Obligations of Seller and Transcend
The obligations of Seller and Transcend 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 Transcend or Seller but only in a writing signed by Seller and Transcend:
Section 8.1 Representations and Warranties
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The representations and warranties of CORE and Purchaser contained in this
Agreement expressly made as of the Closing Date shall be true at and as of the
Closing Date in all material respects, and all of the other representations and
warranties contained 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 such time.
Section 8.2 Compliance by CORE and Purchaser
CORE and Purchaser shall have performed and complied with all agreements
and conditions on its 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 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 D.
Such opinion shall cover such related matters as Seller may reasonably
require, and may contain customary assumptions and exceptions.
Section 8.5 Certified Resolutions
CORE and Purchaser shall have furnished to Seller certified resolutions
and resolutions of their respective Boards of Directors duly and legally
authorizing the execution, performance of this Agreement by CORE and 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
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The representations and warranties of Seller and Transcend contained in
this Agreement expressly made as of the Closing Date, and all of the other
representations and warranties of Seller and Transcend contained in this
Agreement shall be true and correct in all material respects at and as of the
Closing Date.
Section 9.2 Compliance by Seller and Transcend
Seller and Transcend shall have performed and complied with all
agreements, covenants and conditions on their part required by this Agreement to
be performed or complied with prior to or at the Closing Date.
Section 9.3 Closing Certificate
CORE shall have received a certificate of Seller and Transcend executed by
the President and Chief Financial Officer of Seller and Transcend and 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 may reasonably request upon
reasonable prior notice.
Section 9.4 Legal Opinion
CORE and Purchaser shall have received an opinion of Smith, Gambrell &
Russell, LLP, counsel for Seller and Transcend, dated the Closing Date,
reasonably satisfactory in form and substance to counsel for CORE, substantially
to the effect as set forth on Exhibit C.
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 with certified resolutions and votes of
its Board of Directors and stockholders duly and legally authorizing the
execution and performance of this Agreement, and such other documentation as
CORE shall reasonably request.
Transcend shall have furnished CORE with certified resolutions of its
Board of Directors duly and legally authorizing the execution and performance of
this Agreement, and such other documentation as CORE shall reasonably request.
Section 9.6 No Litigation
Between the date of this Agreement and the Closing Date, no suit or action
or legal, administrative, arbitration or other proceeding shall have been
instituted, or threatened, against Seller or Transcend or which might adversely
affect the financial condition of Seller or the conduct of the Business.
Section 9.7 Preservation of Business
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The going business of Seller and its business organization and personnel
shall have been substantially preserved intact and shall not have been
materially impaired. Between the date of this Agreement and the Closing Date,
the key employees of Seller shall have continued in the employ of Seller, Seller
shall not have discontinued any lines of business or changed in any material
respect the nature of its business from those existing on the date hereof. There
shall have been no material adverse change in Seller since December 31, 1997.
Section 9.8 Relationships with Customers
The relations of Seller with its customers, suppliers, landlords and
others shall have been substantially preserved intact and not materially
impaired.
Section 9.9 Additional Documentation; Monthly Financial Statements
Seller and Transcend shall have provided CORE with such additional
documentation as CORE shall reasonably request.
CORE shall have received the monthly financial statements and the Audited
Financial Statements of Seller as described in Section 5.12 hereof.
Section 9.10 Corporate and Other Records
There shall have been delivered to CORE the books and records of Seller as
described in Section 1.1(e) and (i).
Section 9.11 Maintenance of Assets
At the Closing, Seller shall have good and marketable title to all of the
Subject Assets, including personal property, real estate, intellectual property,
free and clear of all liens, mortgages, pledges and encumbrances. The
properties, machinery and equipment of Seller shall have been maintained in good
repair and operating condition, ordinary wear and tear excepted.
Section 9.12 Releases and Acknowledgments of Employees
CORE shall have received from all Continuing Employees the certificates
and acknowledgements described in Section 5.6, in substantially the forms set
forth in Exhibit H-1 and H-2 hereto.
Section 9.13 Consent and Amendment to Employment Agreements
Each of the persons listed on Schedule 9.13 shall have executed a Consent
and Amendment to Employment Agreement with Purchaser in substantially the form
annexed hereto as Exhibit G.
Section 9.14 Consents
Seller shall have delivered to CORE and Purchaser all consents of third
parties required
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by any and all agreements or documents to which any Seller is a party or 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 (i) the parties to
the contracts and agreement listed on Schedule 2.10; (ii) the employees or
consultants with whom Seller has contracts or agreements; and (iii) landlords of
the Real Estate Leases. There shall have been delivered to CORE all assignments,
deeds, bills of sale, insurance policies, contracts, leases, franchises, permits
and all other documents pertaining to the Subject Assets.
Section 9.15 Proceedings
All corporate or other proceedings taken or required to be taken in
connection with the transactions contemplated hereby at or prior to the Closing
and all documents incident thereto shall be reasonably satisfactory in form and
substance to CORE and its counsel.
Section 9.16 Financial Statement Items; Purchase Price Adjustment
(a) The Business shall be operating at a profit as shown on the most
recent monthly financial statements of Purchaser delivered to CORE pursuant to
Section 5.12 hereof.
(b) On the Closing Date, the financial statement items set forth in
Section 5.8 shall have been maintained and satisfied.
(c) Within 90 days of the Closing Date or as soon thereafter as reasonably
practicable, Purchaser shall prepare and deliver to Transcend and Seller a
balance sheet for the Business as of the Closing Date (the "Closing Balance
Sheet"). The Closing Balance Sheet shall be prepared in accordance with GAAP.
If the Closing Balance Sheet indicates that the financial conditions set
forth in Section 5.8 were not satisfied at Closing, then Transcend and Seller
shall immediately, upon written notice from Purchaser, pay to Purchaser, in
cash, an amount equal to the deficiency in the Minimum Cash and A/R Account.
(d) In no event will any amount, if any, owed to Purchaser or CORE by
Seller or Transcend as a result of the Shortfall amount related to uncollected
accounts receivable described in Section 5.16, any indemnification claim
described in Article VII or any Purchase Price deduction described in this
Section 9.16 be double-counted in connection with such reduction, claim or
deduction.
Section 9.17 Governmental Consent and Approvals; Statutes, Licenses, Permits,
Etc.
All statutory requirements for the valid consummation of the transaction
described in this Agreement shall have been complied with, including the receipt
of all required authorizations, consents and approvals of federal and state
governmental agencies. No statute, rule, regulations, executive order, decree,
injunction or restraining order shall have been enacted, promulgated or enforced
(and not repealed, superseded or otherwise made inapplicable) by any court or
governmental authority which prohibits the consummation of the transaction
described in this
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Agreement.
Purchaser shall have received or have been granted any and all necessary
certificates, licenses, permits authorities and franchises by the appropriate
local, state and federal government agencies in order for Purchaser to conduct
the Business (the "Permits and Licenses") Seller and Transcend shall cooperate
and employ their best effort to assist Purchaser in receiving the Permits and
Licenses.
Section 9.18 Due Diligence
CORE and Purchaser shall have completed its due diligence investigation of
Seller and the Business, including, without limitation, review of financial
statements, assets, liabilities, products, services, inventory, methods of
accounting, margins and financial and other business records and investigation
of Seller's customers and suppliers. In this connection, Seller and Transcend
agree to make necessary information available and to authorize reasonable visits
during normal business hours and upon advance written notice to Seller to
Seller's premises with such staff, consultants and experts as Purchaser deems
necessary or desirable. Purchaser and CORE agree to coordinate closely all such
activities with Seller and to conduct any such inquiries with appropriate
discretion and sensitivity to Seller's relationships with its employees,
customers and suppliers. Such due diligence shall include a valuation of all the
assets and goodwill of Seller and an allocation of the Purchase Price over such
Assets including goodwill. A satisfactory conclusion, in the opinion of CORE (in
its sole discretion), of this due diligence study (including accounting
treatment of the transaction by CORE) is a condition to CORE and Purchaser
consummating the transactions contemplated by this Agreement.
ARTICLE X
Termination or Abandonment
Section 10.1 Termination or Abandonment
This Agreement and the transactions contemplated herein may be terminated
and abandoned at any time prior to the Effective Date:
(a) by mutual consent of CORE, Purchaser, Transcend and Seller;
(b) by CORE if (i) any of the representations or warranties of Seller or
Transcend contained herein shall have been untrue or incorrect in any material
respect on the date hereof or (ii) Seller or Transcend shall be in material
breach of any of its covenants, agreements or obligations hereunder and such
breach shall continue uncured until the earlier of (x) the scheduled Closing
Date, or (y) the third day following the receipt by the breaching party of
notice thereof;
(c) by Transcend or 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
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date hereof or (ii) CORE or Purchaser shall be in material breach of any of its
covenants, agreements or obligations hereunder and such breach shall continue
uncured until the earlier of (x) the scheduled Closing Date, or (y) the third
day following the receipt by the breaching party of notice thereof;
(d) by either Transcend, Seller, Purchaser or CORE if, without fault of
such terminating party, the Closing has not become effective by April 1, 1998,
or such other date, if any, as Seller and CORE shall agree upon in writing;
(e) by CORE if the conditions set forth in Article IX hereof have not been
satisfied on or prior to the Closing Date;
(f) by Transcend or any 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 pursuant
to Section 10.1, written notice thereof shall forthwith be given to the other
parties 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 the
provisions of Section 11.10 (Expenses); and Section 11.6 (Confidentiality; Press
Releases and Public Announcements), shall survive.
The parties hereto acknowledge that the Closing hereunder is subject to
further due diligence and contingencies. Accordingly, the parties agree that no
fee, penalty or other damages shall be due or payable for termination of this
Agreement, with or without cause, by any party hereto.
ARTICLE XI
General Provisions
Section 11.1 Confidentiality
CORE will use its reasonable best efforts to keep confidential any and all
information furnished to it by Seller or Transcend 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 (i) 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 (ii) 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 11.2 Closing Documents
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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, except as provided in 9.18 concerning CORE and Purchaser's acceptance
and review of due diligence matters which remain in CORE's and Purchaser's sole
discretion.
Section 11.3 No Third Party Beneficiaries
This Agreement shall not confer any rights or remedies upon any person or
entity other than the parties hereto.
Section 11.4 Waivers; Best Knowledge
Seller, Transcend, 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.
Section 11.5 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:
if to CORE or
Purchaser to: CORE, INC.
18881 Von Karman Ave. - Suite 1750
Irvine, CA 92612
Attn: William E. Nixon, Executive Vice President and
Chief Financial Officer
Telephone: (714) 442-2100
Fax: (714) 442-2102
with a copy to: Rich, May, Bilodeau & Flaherty, P.C.
294 Washington Street
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Boston, Massachusetts 02108
Attention: Stephen M. Kane, Esq.
Telephone: (617) 482-1360
Fax: (617) 556-3889
if to Seller or
Transcend to:
Transcend Services, Inc.
Transcend Case Management, Inc.
3353 Peachtree Road, NE
Suite 1000
Atlanta, GA 30326
Attn: Doug Shamon, Executive Vice President and Chief
Financial Officer
Telephone: (404) 364-8000
Fax: (404) 364-8009
with a copy to: Smith, Gambrell & Russell LLP
Suite 3100 - Promenade II
1230 Peachtree Street
Atlanta, GA 30309
Attn: Richard Greenstein, Esq.
Telephone: (404) 815-3623
Fax: (404) 685-6923
or to such other address as may be designated in writing by either party from
time to time in accordance herewith.
To simplify notices and communications hereunder, Transcend and Seller
agree that notices or communications addressed, sent to or received by Transcend
or Seller shall be deemed to be addressed, sent or received by Transcend and
Seller.
Section 11.6 Confidentiality; Press Releases and Public Announcements
All parties hereto acknowledge that CORE and Transcend are publicly-traded
corporations and accordingly, disclosure of information and news concerning CORE
and Transcend must be effected in a systematic, controlled manner. Accordingly,
all parties hereto shall keep confidential and not disclose to any person or
entity (except for their respective tax, accounting and legal advisors and any
employee on a "need to know" basis and then only when the confidentiality and
non-disclosure obligations have been fully explained and accepted by such
persons) any information about this Agreement, the proposed transaction or any
related matter, provided, however, that (i) any disclosure of such information
may be made to the extent required by applicable law or regulation or judicial
or regulatory process, and (ii) such information may be used as evidence in or
in connection with any pending or threatened litigation relating to this
Agreement or any transaction contemplated hereby.
Without limiting the generality of the foregoing, no party hereto shall
issue any press
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release or make any public announcement relating to the subject matter of this
Agreement without the prior written approval of both CORE and Transcend;
provided, however, that CORE and Transcend 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 and Transcend will consult the other prior to making the disclosure).
Section 11.7 Successors, Assigns;
This Agreement may not be transferred, assigned or hypothecated by any
party hereto other than by operation of law or with the prior written consent of
the other parties. 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 11.8 Counterparts
This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
Section 11.9 Governing Law; Amendments
This Agreement shall be governed by and construed in accordance with the
laws of Delaware applicable to contracts made 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 11.10 Expenses
Except as provided otherwise herein, the parties shall bear their own
expenses with respect to the transactions contemplated by this Agreement.
Section 11.11 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 11.12 Restrictions on Transferability of the Purchase Price Shares.
The Purchase Price Shares of CORE stock to be issued and delivered in
connection with the transactions contemplated hereby will not have been
registered under the Securities Act or under the securities laws of any state.
Accordingly, those Purchase Price Shares of CORE stock (together with any other
shares received pursuant to conversions, exchanges, stock splits, stock
dividends or other reclassification or changes thereof, or consolidations or
reorganizations of CORE) will not be transferable except pursuant to compliance
with or exemption from federal and state securities laws.
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Each certificate representing Purchase Price Shares of CORE issued to
Transcend hereunder shall bear a legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE ACT), OR UNDER THE SECURITIES LAWS
OF ANY STATE. SUCH SECURITIES MAY NOT BE SOLD OR OFFERED FOR SALE OR OTHERWISE
HYPOTHECATED OR DISTRIBUTED EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT FOR SUCH SECURITIES UNDER THE ACT, OR (B) PURSUANT TO A VALID
EXEMPTION FROM SUCH REGISTRATION UNDER THE ACT AND UNDER THE SECURITIES LAW OF
ANY STATE AND UPON RECEIPT BY CORE INC. OF AN OPINION OF COUNSEL SATISFACTORY IN
FORM AND SUBSTANCE TO IT THAT ANY SUCH SALE IS IN COMPLIANCE WITH, OR NOT
SUBJECT TO, THE ACT AND STATE SECURITIES LAWS."
Section 11.13 Severability
Any term or provision of this Agreement that is invalid or unenforceable
in any situation 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 11.14 Incorporation of Schedules and Exhibits
The Schedules and Exhibits identified in this Agreement are incorporated
herein by reference and made a part hereof.
Section 11.15 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, to the
extent they have related in any way to the subject matter hereof. Each of the
parties hereto acknowledges that they have 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.
Section 11.16 Arbitration
Except for injunctive relief or other equitable remedies described in
Section 5.15, any dispute arising out of or related to this Agreement, or the
breach thereof, that the parties are unable to resolve shall be submitted to
arbitration in Orange County, California (or another location if mutually
unanimously agreed to by the parties) before a single arbitrator in accordance
with the Commercial Arbitration Rules of the American Arbitration Association.
The decision of the arbitrator shall be rendered in writing and shall state the
reasons on which it is based and shall bear the signature of the arbitrator. The
decision of the arbitrator shall be final and binding upon the parties and
judgment on the award may be entered in any court
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having jurisdiction thereof.
In connection with such arbitration, the arbitrator may, but it is not
required, to award the prevailing party or parties all or a portion of the
costs, including reasonable legal and arbitration fees and other damages,
associated with efforts to enforce this Agreement or recover damages for
violation or breach of this Agreement.
[SIGNATURES ON FOLLOWING PAGE]
47
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
CORE, INC.
("CORE")
Attest:
By: /s/ Stephen M. Kane By: /s/ William E. Nixon
--------------------- ----------------------
Stephen M. Kane William E. Nixon
Assistant Clerk Executive Vice President and Chief
Financial Officer
Attest: TCM SERVICES, INC
("Purchaser")
By: /s/ Stephen M. Kane By: /s/ William E. Nixon
--------------------- ----------------------
Stephen M. Kane William E. Nixon
Assistant Secretary Treasurer
Attest: TRANSCEND CASE MANAGEMENT, INC.
("Seller")
By: /s/ Larry G. Gerdes By: /s/ Todd S. Mann
--------------------- ----------------------
Name: Larry G. Gerdes Name: Todd S. Mann
------------------- ---------------------
Title: Secretary Title: President
------------------ --------------------
Attest: TRANSCEND SERVICES, INC.
("Transcend")
By: /s/ Doug Shamon
---------------------
Name: Doug Shamon
-------------------
Title: Chief Financial Officer By: /s/ Larry G. Gerdes
----------------------- ---------------------
Name: Larry G. Gerdes
-------------------
Title: President and Chief Executive
Officer
------------------
48
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS AGREEMENT is made as of March 17, 1998, between CORE, Inc., a
Massachusetts corporation (the "Company") and Transcend Services, Inc., a
Delaware corporation ("Transcend").
The Company and Transcend are among the parties to an Asset Purchase
Agreement dated March 17, 1998 (the "Purchase Agreement"), pursuant to which a
wholly-owned subsidiary of CORE shall purchase substantially all of the assets
of Transcend's wholly-owned subsidiary, Transcend Case Management, Inc. In order
to induce Transcend to enter into the Purchase Agreement, the Company has agreed
to provide the registration rights set forth in this Agreement. The execution
and delivery of this Agreement is a condition to the Closing under the Purchase
Agreement. Unless otherwise provided in this Agreement, capitalized terms used
herein shall have the meanings set forth in Section 7 hereof or in the Purchase
Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement, the parties hereto agree as follows:
1. Piggyback Registrations.
(a) Right to Piggyback. Whenever the Company proposes to register any of
its securities under the Securities Act of 1933 (the "Securities Act") and the
registration form to be used may be used for the registration of Registrable
Securities (a "Piggyback Registration"), the Company will give prompt written
notice to Transcend of its intention to effect such a registration and will
include in such registration all Registrable Securities with respect to which
the Company has received written requests from Transcend for inclusion therein
within 15 days after the receipt of the Company's notice.
(b) Piggyback Expenses. The Registration Expenses as defined in Section
4(a) of this Agreement shall be paid by the Company in all Piggyback
Registrations.
(c) Priority on Primary Registrations. If a Piggyback Registration is an
underwritten primary registration on behalf of the Company, and the managing
underwriters advise the Company in writing that in their opinion the number of
securities requested to be included in such registration exceeds the number
which can be sold in such offering without adversely affecting the marketability
of the offering, the Company will include in such registration (i) first, the
securities the Company proposes to sell, (ii) second, the Registrable Securities
which Transcend requests to be included in such registration, and (iii) third,
other securities requested to be included in such registration.
(d) Priority on Secondary Registrations. If a Piggyback Registration is an
underwritten secondary registration on behalf of holders of the Company's
securities, and the managing underwriters advise the Company in writing that in
their opinion the number of securities requested to be included in such
registration exceeds the number which can be sold in such
1
<PAGE>
offering without adversely affecting the marketability of the offering, the
Company will include in such registration (i) first, the securities requested to
be included therein by the holders requesting such registration (ii) second, the
Registrable Securities requested by Transcend to be included in such
registration, and (iii) third, other securities requested to be included in such
registration.
(e) Selection of Underwriters. If any Piggyback Registration is an
underwritten offering, the Company in its sole discretion shall select the
investment banker(s) and manager(s) for the offering.
2. Holdback Agreements.
(a) Transcend agrees not to effect any public sale or distribution
(including sales pursuant to Rule 144 or Rule 144A) of equity securities of the
Company, or any securities convertible into or exchangeable or exercisable for
such securities, during the seven days prior to and the 180-day period beginning
on the effective date of any underwritten Piggyback Registration in which
Registrable Securities are included (except as part of such underwritten
registration), unless the underwriters managing the registered public offering
otherwise agree.
(b) The 180-day period referred to in Section 2(a) above may be changed
unilaterally by the Company at the request of its investment banker and/or the
manager of the offering, provided, however that Transcend shall not be subject
to a longer period than any other similarly situated Person.
3. Registration Procedures. Whenever Transcend has requested that any
Registrable Securities be registered pursuant to this Agreement, the Company
will use its best efforts to effect the registration and the sale of such
Registrable Securities in accordance with the intended method of disposition
thereof, and pursuant thereto the Company will as expeditiously as possible:
(a) prepare and file with the Securities and Exchange Commission a
registration statement with respect to such Registrable Securities and use its
reasonable best efforts to cause such registration statement to become effective
(provided that before filing a registration statement or prospectus or any
amendments or supplements thereto, the Company will furnish to the counsel
selected by Transcend such registration statement copies of all such documents
proposed to be filed, which documents will be subject to the reasonable review
of such counsel);
(b) prepare and file with the Securities and Exchange Commission such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such registration
statement effective for a period of not less than six months and comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the sellers thereof set
forth in such registration statement;
(c) furnish to Transcend as a seller of Registrable Securities such number
of copies of such registration statement, each amendment and supplement thereto,
the prospectus included
2
<PAGE>
in such registration statement (including each preliminary prospectus) and such
other documents as Transcend may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by Transcend;
(d) use its reasonable best efforts to register or qualify such
Registrable Securities under such other securities or blue sky laws of such
jurisdictions as Transcend reasonably requests and do any and all other acts and
things which may be reasonably necessary or advisable to enable Transcend to
consummate the disposition in such jurisdictions of the Registrable Securities
owned by Transcend (provided that the Company will not be required to (i)
qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this subparagraph, (ii) subject itself
to taxation in any such jurisdiction, or (iii) consent to general service of
process in any such jurisdiction);
(e) notify Transcend as a seller of Registrable Securities at any time
when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement contains an untrue statement
of a material fact or omits any fact necessary to make the statements therein
not misleading, and, at the request of Transcend as a seller of Registrable
Securities, the Company will prepare a supplement or amendment to such
prospectus so that, as thereafter delivered to the purchasers of such
Registrable Securities, such prospectus will not contain an untrue statement of
a material fact or omit to state any fact necessary to make the statements
therein not misleading;
(f) cause all such Registrable Securities to be listed on each securities
exchange on which similar securities issued by the Company are then listed and,
if not so listed, to be listed on the NASD Automated Quotation System if so
qualified;
(g) provide an independent transfer agent and registrar for all such
Registrable Securities not later than the effective date of such registration
statement;
(h) enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as Transcend, may
reasonably request in order to expedite or facilitate the disposition of such
Registrable Securities by Transcend;
(i) make available for inspection by Transcend as a seller of Registrable
Securities, any underwriter participating in any disposition pursuant to such
registration statement and any attorney, accountant or other agent retained by
Transcend or any underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors, employees and independent accountants to supply all
information reasonably requested by Transcend, and any such underwriter,
attorney, accountant or agent in connection with such registration statement;
and
(j) otherwise use its best efforts to comply with all applicable rules and
regulations of the Securities and Exchange Commission, and make available to its
security holders, as soon as
3
<PAGE>
reasonably practicable, an earnings statement covering the period of at least
twelve months beginning with the first day of the Company's first full calendar
quarter after the effective date of the registration statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the Securities Act
and Rule 158 thereunder.
In connection with any Piggyback Registration, Transcend will
expeditiously supply the Company with all information and copies of all
documents reasonably necessary to effect such registration in compliance with
the Securities Act and the rules and regulations thereunder and shall otherwise
cooperate with the Company and its counsel in expediting the effectiveness of
any such registration.
4. Registration Expenses.
(a) All expenses incident to the Company's performance of or compliance
with this Agreement, including without limitation all registration and filing
fees, fees and expenses of compliance with securities or blue sky laws, printing
expenses, messenger and delivery expenses, and fees and disbursements of counsel
for the Company and all independent certified public accountants, underwriters
(excluding discounts and commissions and excluding legal fees and disbursements
of any counsel used by Transcend) and other Persons retained by the Company (all
such expenses being herein called "Registration Expenses"), will be borne as
provided in this Agreement, except that the Company will, in any event, pay its
internal expenses (including, without limitation, all salaries and expenses of
its officers and employees performing legal or accounting duties), the expense
of any annual audit or quarterly review, the expense of any liability insurance
and the expenses and fees for listing the securities to be registered on each
securities exchange on which similar securities issued by the Company are then
listed or on the NASD Automated Quotation System.
(b) To the extent Registration Expenses are not required to be paid by the
Company, Transcend will pay those Registration Expenses allocable to the
registration of its securities so included, and any Registration Expenses not so
allocable will be borne by all sellers of securities included in such
registration in proportion to the aggregate selling price of the securities to
be so registered.
5. Indemnification.
(a) The Company agrees to indemnify, to the extent permitted by law,
Transcend, its officers, directors, counsel and each Person who controls
Transcend (within the meaning of the Securities Act) against all losses, claims,
damages, liabilities and expenses resulting from any untrue or alleged untrue
statement of material fact contained in any registration statement, prospectus
or preliminary prospectus or any amendment thereof or supplement thereto or any
omission or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as the
same are caused by or contained in any information furnished in writing to the
Company by Transcend expressly for use therein or by Transcend's failure to
deliver a copy of the registration statement or prospectus or any
4
<PAGE>
amendments or supplements thereto after the Company has furnished Transcend with
a sufficient number of copies of the same. In connection with an underwritten
offering, the Company will indemnify such underwriters, their officers and
directors and each Person who controls such underwriters (within the meaning of
the Securities Act) to the same extent as provided above with respect to the
indemnification of Transcend; provided that such underwriters indemnify the
Company to the same extent as provided in subparagraph (b) below with respect to
indemnification of the Company by Transcend.
(b) In connection with any registration statement in which Transcend is
participating, Transcend will furnish to the Company in writing such information
and affidavits as the Company reasonably requests for use in connection with any
such registration statement or prospectus and, to the extent permitted by law,
will indemnify the Company, its directors, officers, counsel and each Person who
controls the Company (within the meaning of the Securities Act) against any
losses, claims, damages, liabilities and expenses resulting from any untrue or
alleged untrue statement of material fact contained in the registration
statement, prospectus or preliminary prospectus or any amendment thereof or
supplement thereto or any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein not
misleading, but only to the extent that such untrue statement or omission is
contained in any information or affidavit so furnished in writing by Transcend;
provided that the obligation to indemnify will be limited to the net amount of
proceeds received by Transcend from the sale of Registrable Securities pursuant
to such registration statement.
(c) Any Person entitled to indemnification hereunder will (i) give prompt
written notice to the indemnifying party of any claim with respect to which it
seeks indemnification and (ii) unless in such indemnified party's reasonable
judgment a conflict of interest between such indemnified and indemnifying
parties may exist with respect to such claim, permit such indemnifying party to
assume the defense of such claim with counsel reasonably satisfactory to the
indemnified party. If such defense is assumed, the indemnifying party will not
be subject to any liability for any settlement made by the indemnified party
without its consent (but such consent will not be unreasonably withheld). An
indemnifying party who is not entitled to, or elects not to, assume the defense
of a claim will not be obligated to pay the fees and expenses of more than one
counsel for all parties indemnified by such indemnifying party with respect to
such claim, unless in the reasonable judgment of any indemnified party a
conflict of interest may exist between such indemnified party and any other of
such indemnified parties with respect to such claim.
(d) The indemnification provided for under this Agreement will remain in
full force and effect regardless of any investigation made by or on behalf of
the indemnified party or any officer, director or controlling Person of such
indemnified party and will survive the transfer of securities. The Company also
agrees to make such provisions, as are reasonably requested by any indemnified
party, for contribution to such party in the event the Company's indemnification
is unavailable for any reason.
5
<PAGE>
6. Participation in Underwritten Registrations. No Person may participate
in any registration hereunder which is underwritten unless such Person (a)
agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Person or Persons entitled hereunder
to approve such arrangements and (b) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
required under the terms of such underwriting arrangements.
7. Definitions.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization and a governmental entity or any department, agency or political
subdivision thereof.
"Registrable Securities" means (i) any of the shares of the Company's
common stock which are Purchase Price Shares acquired by Transcend pursuant to
the Purchase Agreement, (ii) any Common Stock issued or issuable with respect to
the securities referred to in clause (i), and (iii) any Common Stock issued by
way of a stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization. As to
any particular Registrable Securities, such securities will cease to be
Registrable Securities upon transfer of such shares by Transcend to any other
party.
"Registration Expenses" means as defined in Section 4(a) hereto.
Unless otherwise stated, other capitalized terms contained herein have the
meanings set forth in the Purchase Agreement.
8. Term. This Agreement shall terminate upon the earliest of the following
events (i) two years from the effective date of this Agreement, (ii) upon all of
the Registrable Securities being registered and sold pursuant to an effective
registration statement, or (iii) upon the sale of all of Transcend's Registrable
Securities through any combination of methods including Rule 144 or Rule 144A.
9. Miscellaneous.
(a) No Inconsistent Agreements. The Company will not hereafter enter into
any agreement with respect to its securities which is inconsistent with or
violates the rights granted to Transcend in this Agreement.
(b) Adjustments Affecting Registrable Securities. The Company will not
take any action, or permit any change to occur, with respect to its securities
which would adversely affect the ability of Transcend to include such
Registrable Securities in a registration undertaken pursuant to this Agreement
or which would materially adversely affect the marketability of such Registrable
Securities in any such registration (including, without limitation, effecting a
stock split or a combination of shares).
6
<PAGE>
(c) Remedies. Any Person having rights under any provision of this
Agreement will be entitled to enforce such rights specifically to recover
damages caused by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law.
(d) Amendments and Waivers. Except as otherwise provided herein, the
provisions of this Agreement may be amended or waived only upon the prior
written consent of the Company and Transcend.
(e) Successors and Assigns. All covenants and agreements in this Agreement
by or on behalf of any of the parties hereto will bind and inure to the benefit
of the respective successors and assigns of the parties hereto whether so
expressed or not. Transcend shall not be permitted to assign its rights under
this Agreement to any party without the Company's prior written consent, which
the Company may withhold in its sole discretion.
(f) Severability. Whenever possible, each provision of this Agreement will
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be prohibited by or invalid
under applicable law, such provision will be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of this
Agreement.
(g) Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, any one of which need not contain the signatures of more than
one party, but all such counterparts taken together will constitute one and the
same Agreement.
(h) Descriptive Headings. The descriptive headings of this Agreement are
inserted for convenience only and do not constitute a part of this Agreement.
(i) Governing Law. The corporate law of Massachusetts will govern all
issues concerning the relative rights of the Company and its stockholders. All
other questions concerning the construction, validity and interpretation of this
Agreement and the exhibits and schedules hereto will be governed by the internal
law, and not the law of conflicts, of Massachusetts.
(j) Notices. All notices, demands or other communications to be given or
delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given when delivered personally to the
recipient, sent to the recipient by reputable express courier service (charges
prepaid) or mailed to the recipient by certified or registered mail, return
receipt requested and postage prepaid. Such notices, demands and other
communications will be sent to each Transcend at the address indicated in the
Purchase Agreement, or to such other address or to the attention of such other
person as the recipient party has specified by prior written notice to the
sending party.
7
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
CORE, INC.
By: /s/ William Nixon
-------------------------------------------
William Nixon, Chief Financial Officer
TRANSCEND SERVICES, INC.
By: /s/ Doug Shaman
------------------------------------------
Its: Chief Financial Officer
------------------------------------------
8
<PAGE>
Exhibit 21.1
CORE, INC.
SUBSIDIARIES OF THE REGISTRANT
The following corporations are wholly-owned subsidiaries of CORE, INC.:
Core Management, Inc. (a Delaware corporation)
Cost Review Services, Inc. (a Texas corporation)
CORE Securities Corp. (a Massachusetts corporation)
Protocol Work Systems, Inc. (a Delaware corporation)
SSDC Corp. (a Delaware corporation)
TCM Services, Inc. (a Delaware 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)
NOTE: AmHealth Clinics Corp. (a Delaware corporation) was dissolved on
February 2, 1998.
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<PAGE>
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