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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): September 1, 1998
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CORE, INC.
(Exact name of registrant as specified in its charter)
Commission file number 0-19600
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MASSACHUSETTS 04-2828817
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(State or other jurisdiction (IRS employer
of incorporation) identification no.)
18881 Von Karman Avenue, Suite 1750, Irvine, California 92612
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (949) 442-2100
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On September 1, 1998, CORE, INC., a Massachusetts corporation ("CORE"),
acquired all shares of stock of Disability Reinsurance Management Services,
Inc. ("DRMS"), a Delaware corporation, based in Portland, Maine, pursuant to
a Capital Stock Purchase Agreement dated as of August 31, 1998 (the "Purchase
Agreement"). Pursuant to the Purchase Agreement, all of the shares of stock
of DRMS were acquired in exchange for the cash payment of $20 million, the
issuance of 480,000 shares of CORE common stock and the future issuance of up
to an additional $7 million of CORE common stock after September 30, 2001,
based on the future performance of DRMS. The cash purchase price was mostly
funded through a $17 million Credit Agreement entered into with Fleet
National Bank, with the balance of $3 million paid from CORE's liquid assets.
The purchase price is subject to certain adjustments as set forth in the
Purchase Agreement and was the result of arms' length negotiations between
CORE and the stockholders of DRMS.
Prior to the consummation of this transaction, there was no material
relationship between DRMS or their stockholders and officers, James T.
Fallon, Lisa O. Hansen, Michael D. Lachance, David C. Mitchell and David K.
Rich (the "DRMS Stockholders"), and CORE or any of CORE's affiliates,
directors or officers, or any associate of any such director or officer.
DRMS will continue as a full service reinsurance intermediary manager
providing marketing, underwriting advice, claims, actuarial and compliance
services to its insurance company clients and risk management expertise for
reinsurers in a reinsurance facility.
In connection with CORE's acquisition of DRMS, CORE also entered into a
Registration Rights Agreement and employment agreements with the DRMS
Stockholders.
In connection with CORE's execution of the Credit Agreement, dated as of
August 31, 1998, with Fleet National Bank, CORE issued warrants for the
purchase of 156,322 shares of CORE common stock. CORE also entered into a
Registration Rights Agreement, dated as of August 31, 1998, with Fleet
National Bank.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.
As of the date of filing of this Form 8-K, the financial
statements of Disability Reinsurance Management Services, Inc.
that are required by this Item are unavailable. The
Registrant will file such financial statements as soon as they
are available, but in no event later than November 13, 1998.
(b) PRO FORMA FINANCIAL INFORMATION.
As of the date of filing of this Form 8-K, the Registrant has
found it impracticable to complete the preparation of the pro
forma financial information required by this Item. The
Registrant will file such required pro forma financial
information as soon as it is available, but in no event later
November 13, 1998.
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(c) EXHIBITS.
Exhibit
Number Description
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2.1 Capital Stock Purchase Agreement, dated as of August 31, 1998, by
and among CORE, INC., Disability Reinsurance Management Services,
Inc., and the Stockholders of Disability Reinsurance Management
Services, Inc., including Exhibit A-1 (excluding other Exhibits and
Schedules).
4.1 Warrant Agreement, dated as of August 31, 1998, between CORE, INC.
and Fleet National Bank (excluding Exhibits).
10.1 Credit Agreement, dated as of August 31, 1998, between CORE, INC.
and Fleet National Bank, including Exhibit A (excluding Schedules
and other Exhibits).
10.2 Registration Rights Agreement, dated as of August 31, 1998, between
CORE, INC. and James T. Fallon, Lisa O. Hansen, Michael D.
Lachance, David C. Mitchell and David K. Rich.
10.3 Registration Rights Agreement, dated as of August 31, 1998, between
CORE, INC. and Fleet National Bank.
10.4 Employment Agreement by and between DRMS and James T. Fallon
(excluding Attachments).
10.5 Employment Agreement by and between DRMS and Lisa O. Hansen
(excluding Attachments).
10.6 Employment Agreement by and between DRMS and Michael D. Lachance
(excluding Attachments).
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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: September 16, 1998 By: /s/ William E. Nixon
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William E. Nixon
Chief Financial Officer, Executive
Vice President and Treasurer
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CAPITAL STOCK PURCHASE AGREEMENT
BY AND AMONG
CORE, INC.
DISABILITY REINSURANCE MANAGEMENT SERVICES, INC.
AND
THE STOCKHOLDERS OF
DISABILITY REINSURANCE MANAGEMENT SERVICES, INC.
August 31, 1998
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CAPITAL STOCK PURCHASE AGREEMENT
THIS AGREEMENT, made and entered into as of the 31st day of August, 1998 by
and among CORE, INC., a Massachusetts corporation ("CORE"), DISABILITY
REINSURANCE MANAGEMENT SERVICES, INC., a Delaware corporation ("DRMS"), and
MICHAEL D. LACHANCE, JAMES T. FALLON, LISA O. HANSEN, DAVID C. MITCHELL and
DAVID K. RICH (each a "Stockholder" and collectively the "Stockholders").
W I T N E S S E T H:
WHEREAS, the Stockholders own all of the issued and outstanding capital
stock (the "Stock") of DRMS, consisting of 7,090 shares of Common Stock, par
value $1.00 per share; and
WHEREAS, CORE desires to purchase from the Stockholders all shares of Stock
so owned by the Stockholders, and the Stockholders desire to sell such shares of
Stock to CORE upon the terms and subject to the conditions hereinafter set
forth;
NOW, THEREFORE, in consideration of the covenants hereinafter set forth and
for good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I
PURCHASE OF STOCK; CONSIDERATION; CLOSING
SECTION 1.1 PURCHASE OF STOCK BY CORE
On the basis of the representations, warranties and the other terms and
provisions of this Agreement, the Stockholders agree to sell and transfer to
CORE an aggregate of 7,090 shares of Stock of DRMS, representing all of the
issued and outstanding capital stock of DRMS (the "Shares"), and CORE agrees to
acquire the Shares and pay to the Stockholders the consideration set forth in
Section 1.2 hereof, all as hereinafter provided.
SECTION 1.2 CONSIDERATION
Subject to the terms and conditions set forth in this Agreement, CORE, DRMS
and the Stockholders agree that at the Time of Closing:
(a) CONSIDERATION. Subject to purchase price adjustments set forth in
SECTION 1.2(b) AND 1.4(e) hereof, CORE shall pay to the Stockholders, in
consideration of the transfer of the Shares by the Stockholders to CORE, the
following:
(i) CLOSING PURCHASE PRICE: CORE shall pay to the Stockholders
at the Closing (A) $20,000,000 cash, payable by wire transfer or delivery
of other immediately available funds; and (B) that number of such validly
issued, fully paid, non-assessable shares of CORE Common Stock equal to
$3,000,000 divided by the closing price for one share of CORE Common Stock
for the trading day immediately preceding the Closing Date as reported in
the WALL STREET JOURNAL (such cash and CORE Common Stock together being
referred to as the "Closing Purchase Price").
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(ii) ADDITIONAL CONSIDERATION: CORE shall issue to the
Stockholders after the Closing up to an additional Three Hundred Seventy
Five Thousand (375,000) shares of validly issued, fully paid, non-
assessable CORE Common Stock (the "Additional Consideration") subject to
and in accordance with the provisions set forth in EXHIBIT A attached
hereto.
(b) ADJUSTMENTS TO CLOSING PURCHASE PRICE. The Closing Purchase Price
shall be INCREASED by the amount, if any, by which Net Assets of DRMS as of the
Closing Date are greater than $1,167,164 (the "Net Asset Amount") and shall be
DECREASED by the amount, if any, by which Net Assets as of the Closing Date are
less than Net Asset Amount.
(i) Provisional settlement of the adjustments contemplated under
this subsection (b) shall be made at the Closing as far as feasible as an
adjustment to the cash portion of the Closing Purchase Price. For items
not readily subject to ascertainment at the Closing, the following
procedures shall apply. CORE shall prepare and deliver to the Stockholders
within sixty (60) business days following the Closing, or such earlier or
later date as shall be mutually agreed to by Stockholders and CORE, a
detailed calculation (the "Adjustment Statement") of the amount of the
increase or decrease to the Closing Purchase Price (the "Adjustment
Amount"). If the Adjustment Amount is a decrease to the Closing Purchase
Price, Stockholders shall pay such amount to CORE; if the Adjustment Amount
is an increase to the Closing Purchase Price, CORE shall pay such amount to
the Stockholders. Except as provided otherwise in paragraph (ii), payment
of the Adjustment Amount shall be made not later than fifteen (15) business
days following the delivery of the Adjustment Statement.
(ii) Not later than fifteen (15) business days following the
delivery of the Adjustment Statement, Stockholders may furnish CORE with
written notification of any dispute concerning the Adjustment Statement or
any item omitted therefrom together with a detailed explanation in support
of Stockholders' position in respect thereof. The parties shall consult to
resolve any such dispute for a period of fifteen (15) business days
following the notification thereof. In the event of any such dispute, that
portion of the Adjustment Amount that is not in dispute shall be paid to
the party entitled to receive the same on the day for payment provided in
paragraph (i). If such fifteen (15) business day consultation period
expires and the dispute has not been resolved, the matter shall be referred
to an independent public accounting firm agreed upon by the Stockholders,
on one hand, and CORE, on the other (the "Accountants"), which shall
resolve the dispute and shall render its decision (together with a brief
explanation of the basis therefor) to the parties not later than twenty
(20) business days following submission of the dispute to it; provided,
however, if the parties are unable to mutually agree upon an independent
public accounting firm, then the Stockholders, on one hand, and CORE, on
the other, shall each choose an independent public accounting firm and
those firms shall appoint a third independent public accounting
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firm which third firm shall act as the Accountants. The disputed
portion of the Adjustment Amount shall be paid by the party required to
pay the same within five (5) business days after the delivery of a copy
of such decision to the parties. The fees and expenses of the
Accountants shall be shared equally by the Stockholders, on one hand,
and CORE, on the other.
(iii) The Adjustment Statement (to the extent not timely disputed
by Stockholders), any mutually agreed written settlement of any such
dispute concerning the Adjustment Statement and any determination of
disputed items by the Accountants shall be final, conclusive and binding on
the parties hereto absent manifest error.
(c) ALLOCATION OF PURCHASE PRICE AMONG STOCKHOLDERS. The Closing
Purchase Price and any adjustments thereof shall be allocated among the
Stockholders in proportion to their respective holdings of Shares of DRMS Stock
as set forth on SCHEDULE 2.3 hereto (the allocable share so calculated being
with respect to each Stockholder his or her "Stockholder Share"). Where such
allocation of shares of CORE Common Stock result in fractional shares, the
fractional shares shall be eliminated so that each Stockholder is issued whole
shares.
SECTION 1.3 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 August
31, 1998, or at such other time and place as the parties may otherwise agree
(such time on such date being referred to as the "Time of Closing" and such
date being referred to as the "Closing Date"), at the offices of Rich, May,
Bilodeau & Flaherty, P.C., 294 Washington Street, Boston, MA 02108 (or at such
other place as the parties may otherwise agree ).
Notwithstanding the foregoing, either party shall have the right to
postpone the Closing for a reasonable period not exceeding thirty days following
August 31, 1998, in order to satisfy one or more of the conditions to closing
set forth in Articles VII or VIII, in which event such date shall be referred to
as the "Closing Date". In the event that the Closing does not occur on or
before September 30, 1998 and the parties do not otherwise mutually agree,
either party may, if it is not then in material default of its obligations
hereunder, terminate this Agreement, without liability to DRMS, the
Stockholders, or CORE.
SECTION 1.4 ACTIONS TO BE TAKEN AT CLOSING
(a) At the Closing, the Stockholders shall deliver or cause to be
delivered to CORE the following:
(i) certificates representing all of the Shares of the Stock
owned by the Stockholders and to be sold hereunder, with each such
certificate duly endorsed in blank
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or accompanied by stock transfer powers duly executed in blank, with
signatures guaranteed by a bank, with all necessary documentary stamps,
if any, prepaid by the Stockholders;
(ii) copies of UCC-1 financing statement searches conducted by a
reputable firm or company as of a date within three (3) days prior to the
Closing Date showing no financing statements, liens or encumbrances on the
assets of DRMS or the Shares of Stock to be sold to CORE hereunder, or, if
such searches reveal any financing statements, liens or encumbrances on the
assets of DRMS or the Shares of Stock to be sold to CORE hereunder,
original, executed UCC termination statements covering each such financing
statements, liens or encumbrances, in a form acceptable to CORE and
acceptable for filing with the appropriate government offices;
(iii) an opinion of counsel to the Stockholders and DRMS covering
the matters set forth on EXHIBIT B-1 in form reasonably satisfactory to
CORE and its counsel;
(iv) an opinion of counsel in form reasonably satisfactory to CORE and its
counsel concerning approvals, authorizations, certificates, licenses,
permits, authorities and franchises used, and contemplated to be used after
the Closing, by DRMS and/or its employees in the conduct of DRMS' business
such opinion to be substantially in the form set forth in EXHIBIT B-2.
(v) compliance certificates of each Stockholder and DRMS, 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;
(vi) certified resolutions of the Board of Directors of DRMS duly
and legally authorizing the execution, delivery and performance of this
Agreement by DRMS;
(vii) all such other documents, assignments and other instruments
as, in the reasonable opinion of CORE's counsel, are necessary to vest in
CORE title to the Shares of Stock to be sold to CORE pursuant to this
Agreement; and
(viii) all other documents, certificates, endorsements,
assignments, instruments, writings and other items required to be delivered
by the Stockholders and DRMS at or prior to the Closing pursuant to this
Agreement or otherwise reasonably requested or required in order to
consummate, perfect or otherwise give effect to the transactions expressly
contemplated hereby.
(b) At the Closing, CORE will deliver or cause to be delivered to the
Stockholders the following:
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(i) the Closing Purchase Price, delivered in accordance with the
provisions of SECTION 1.2;
(ii) an opinion of counsel to CORE covering the matters set forth
on EXHIBIT E in form reasonably satisfactory to Stockholders and their
counsel;
(iii) a compliance certificate of CORE as described in SECTION
7.3, dated the Closing Date, as to the fulfillment of the conditions set
forth in SECTIONS 7.1 and 7.2;
(iv) certified resolutions of the Board of Directors of CORE duly
and legally authorizing the execution, delivery and performance of this
Agreement and the ancillary agreements related hereto; and
(v) all other documents, certificates, endorsements,
assignments, instruments, writings and other items required to be delivered
by CORE at or prior to the Closing pursuant to this Agreement or otherwise
reasonably requested or required in order to consummate, perfect or
otherwise give effect to the transactions expressly contemplated hereby.
(c) At the Closing, DRMS and each of the Stockholders shall execute, and
deliver an Employment Agreement, in substantially the form attached hereto as
EXHIBIT D, covering the employment by DRMS of each of the Stockholders following
the Closing.
(d) At the Closing, CORE and the Stockholders shall execute, and deliver
a Registration Rights Agreement, in substantially the form attached hereto as
EXHIBIT C, in order to provide the Stockholders certain registration rights with
respect to the shares of CORE Common Stock received by the Stockholders
hereunder.
(e) At the Closing, such (i) loans to the Stockholders from DRMS, and
(ii) loans to DRMS from banks and other financial institutions as are
outstanding on the Closing Date shall be paid in full and, to the extent any
such loans are paid by CORE on behalf of any of the Stockholders or DRMS, the
cash portion of the Closing Purchase Price shall be reduced on a dollar-for-
dollar basis.
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 1.5 FURTHER ASSURANCES
From time to time after the Closing, at the request of CORE and without
further consideration, each Stockholder shall execute and deliver further
instruments of transfer and
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assignment (in addition to those delivered under Section 1.4) and take such
other action as CORE may reasonably request or require to more effectively
transfer and assign to, and vest in, CORE the Shares of Stock to be sold to
CORE pursuant to this Agreement and the various licenses, permits and
authorities used or useful in the operation of the business of DRMS prior to
the Closing. The Stockholders and DRMS shall use all reasonable efforts
before and after the Closing to obtain any necessary consents or waivers and
to otherwise assure CORE of the benefits expected to be realized as a result
of owning all of the issued and outstanding capital stock of DRMS. From time
to time after the Closing, at the request of any Stockholder and without
further consideration, CORE shall execute and deliver further instruments of
transfer and assignment (in addition to those delivered under SECTION 1.4)
and take such other action as such Stockholder may reasonably require to more
effectively transfer and assign to, and vest in, such Stockholder the shares
of CORE Common Stock received by the Stockholders pursuant to this Agreement
and the related stock rights attendant thereto (provided, however this
sentence shall not be interpreted as granting any Stockholder any additional
registration or other rights not otherwise expressly set forth in writing
pursuant to this Agreement, the Registration Rights Agreement or an Ancillary
Document).
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF DRMS AND THE STOCKHOLDERS
DRMS hereby represents and warrants to CORE that:
SECTION 2.1 ORGANIZATION
DRMS is duly organized, validly existing and in good standing under the
laws of its state of incorporation, and has the corporate 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. DRMS 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 have a Material Adverse Effect.
Except for equity interests which in each instance represent less than 5%
of the issued and outstanding capital stock or other equity interests issued and
outstanding of publicly held companies, DRMS and each Stockholder do not
directly or indirectly own any shares of stock or any other securities of any
corporation engaged in the business of insurance or reinsurance directly or
indirectly other than as listed in SCHEDULE 2.1 attached hereto.
A complete and correct copy of each of the Certificate of Incorporation and
the Bylaws of DRMS, as each have been amended and are in effect on the date of
this Agreement, have been delivered to CORE on the date hereof.
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SECTION 2.2 AUTHORIZATION OF TRANSACTION
DRMS has the corporate 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.
The execution, delivery and performance of this Agreement has been authorized
by all necessary corporate action on the part of DRMS. This Agreement is
valid, binding and enforceable against DRMS in accordance with its terms.
Except as set forth in SCHEDULE 2.2 hereto, 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 Bylaws of DRMS; (b) constitute any violation or breach of
any material provision of any material contract or other instrument to which
DRMS or any Stockholder is a party or by which any of the assets or Stock of
DRMS 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 DRMS or the Stock; 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
DRMS or any Stockholder or any material license, franchise, permit or other
similar authorization held by DRMS.
Except as set forth on SCHEDULE 2.2 hereto, the execution, delivery and
performance by DRMS and the Stockholders of this Agreement and the
consummation of the transactions contemplated hereby by DRMS and the
Stockholders require no action by or in respect of, or filing with, any
governmental body, agency, official or authority.
SECTION 2.3 CAPITALIZATION, ETC.
(a) The authorized capital stock of DRMS is 20,000 shares of Common
Stock, par value $1.00 per share, of which 7,090 shares are issued and
outstanding and are held as set forth in SCHEDULE 2.3 hereto. There are not
any authorized or outstanding options, warrants or other rights to purchase
any shares of capital stock of DRMS.
There are no outstanding obligations of DRMS to repurchase, redeem or
otherwise acquire any DRMS securities. The Stockholders are the record and
the beneficial owners of all of the issued and outstanding shares of capital
stock of DRMS and there are no other owners, beneficial or of record, of any
capital stock of DRMS.
(b) The Stockholders' Shares are validly issued, fully paid and
non-assessable.
SECTION 2.4 FINANCIAL STATEMENTS
SCHEDULE 2.4 attached hereto consists of the following financial statements
(collectively "Financial Statements"): (i) audited financial statements of
DRMS, which include the balance
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sheets of DRMS, as of fiscal years ended December 31, 1995, 1996 and 1997,
and the related statements of income and retained earnings and cash flows for
such years, with footnotes thereto for the applicable years then ended; (ii)
DRMS' unaudited balance sheet as of June 30, 1998, and the related statements
of income and retained earnings and cash flows for the six months ended June
30, 1998. The balance sheet of DRMS, as of December 31, 1997, is hereinafter
referred to as the "Balance Sheet." The financial statements included in
SCHEDULE 2.4 are in accordance with the books and records of DRMS, are
complete and correct in all material respects and fairly present the
financial position of DRMS as of the dates therein indicated and the results
of the operations of DRMS 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 that the unaudited
financial statements do not include notes and certain adjustments that would
be required by GAAP.
SECTION 2.5 TITLE TO ASSETS; ENCUMBRANCES; CONDITIONAL SALES
Except for the liens, mortgages, pledges and encumbrances set forth in
SCHEDULE 2.5 hereto and other liens expressly permitted herein (the
"Permitted Encumbrances"), DRMS has and will have on the Closing Date good
and marketable title to all of the material assets and properties used by it,
including the assets reflected in the Balance Sheet (other than assets since
disposed of in the ordinary course of business). As set forth on SCHEDULE 2.5,
at or in connection with the Closing, certain liens, mortgages, pledges
and encumbrances on the material assets and properties used by DRMS in its
business shall be terminated or discharged, as applicable. Without limiting
the generality of the foregoing, no Stockholder nor any affiliate or family
member of any Stockholder owns any asset, tangible or intangible, which is
used in the business of DRMS. None of the assets of DRMS is held by DRMS 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.
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 DRMS on June
30, 1998, with a book value or fair market value of more than One Thousand
Dollars ($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 the business of DRMS (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
applications for registration thereof, (iii) copyrights and registrations and
applications for
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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 DRMS, (ii) all
pending patent applications and applications for registrations of other
Proprietary Rights filed by DRMS, (iii) all trade names and corporate names
owned or used by DRMS since its inception, (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 DRMS, and (v) all licenses and other rights granted by DRMS to
any third party with respect to any Proprietary Rights and all material
licenses and other rights granted by any third party to DRMS with respect to
any Proprietary Right. Except as set forth in SCHEDULE 2.7 and except for
Proprietary Rights the loss of which would not have a Material Adverse
Effect, DRMS 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 its business as currently conducted. 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,
and no such loss or expiration is, to the knowledge of DRMS, expected or
imminent. DRMS has taken all actions which DRMS, in its reasonable business
judgment, deems necessary and desirable to maintain and protect the
Proprietary Rights which DRMS owns and uses. Except as indicated on SCHEDULE
2.7, (i) there are no currently outstanding claims and to the knowledge of
DRMS there have been no claims which have been made or are threatened against
DRMS asserting the invalidity, misuse, unenforceability, or contesting the
ownership, of any of the Proprietary Rights which DRMS owns or uses, (ii) the
conduct of DRMS'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 DRMS's present
conduct does not materially infringe, misappropriate or conflict with any
Proprietary Rights of other persons or entities, and (iii) the Proprietary
Rights owned or used by DRMS have not been materially infringed or
misappropriated by, or otherwise been in material 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 leased by DRMS. The real estate leases set forth in
SCHEDULE 2.8 are in full force and effect. DRMS owns no real property.
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SECTION 2.9 INSURANCE
DRMS maintains the insurance described in SCHEDULE 2.9 attached hereto,
and all of the policies set forth therein are in full force and effect.
SECTION 2.10 CONTRACTS
Attached hereto as SCHEDULE 2.10 is a list of all contracts and other
agreements, including treaties, whether written or oral, if any, to which
DRMS is a party or which are binding on DRMS with the exception of the
following:
(a) contracts or commitments by DRMS for services, the purchase of
materials, inventory and supplies entered into in the ordinary and usual
course of business which do not individually exceed One Thousand Dollars
($1,000.00); and
(b) contracts or commitments by DRMS for the sale of goods or
products, or the provision of services, 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 list of all contracts or agreements,
whether written or oral, valid within the past 24 months or in the future
pursuant to which DRMS is a party, on one hand, and any Stockholder
(including family members and affiliates of a Stockholder) is a party, on the
other hand.
SCHEDULE 2.10 also contains a list of all contracts, agreements or
treaties, whether written or oral, related to the Disability Alliance for
Reinsurance Treaties (the "Facility").
DRMS is neither (i) in default under any material provision of any
contracts or agreement listed on SCHEDULE 2.10, (ii) nor to the knowledge of
DRMS is any default or failure to perform by DRMS alleged by any party to any
such contract or agreement, and, (iii) no act or event has occurred which
with notice or lapse of time, or both, would constitute a default by DRMS
under any such contract or agreement 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 DRMS.
Each contract and agreement listed on SCHEDULE 2.10 is in full force and
effect and is valid and legally binding, and (i) there are no unresolved
disputes involving or with respect to any such contract or agreement to which
DRMS is party and (ii) to the knowledge of DRMS there are no unresolved
disputes involving or with respect to any such contract or agreement to which
the Facility is a party; and no party to any such contract or agreement has
advised any of the Stockholders, or to the knowledge of DRMS, any other
employee or agent of DRMS that such party intends either to terminate a
material contract or agreement or to refuse to renew a material
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contract or agreement upon the expiration of the term thereof.
SECTION 2.11 OTHER MATERIAL CONTRACTS
DRMS does not have any contract not specified in this Agreement or the
Schedules hereto which is binding on DRMS or on any other party and which
might have a Material Adverse Effect.
SECTION 2.12 EMPLOYEES; BENEFIT PLANS
(a) SCHEDULE 2.12 attached hereto contains (a) a true and correct
list of the names of each employee and consultant of DRMS and the current
annual rate of regular compensation and all bonuses or anticipated bonuses
paid or payable by DRMS not otherwise described in item (b) below (including
payments which are not reflected on the records of DRMS to each such employee
and consultant), exclusive of employees or consultants that in an individual
case were paid $1,000 or less in the preceding twelve months; and (b) a list
and/or description of all pension, retirement, incentive, bonus, deferred
compensation, stock purchase, profit sharing, vacation, holiday, health
insurance, life insurance or other plans or policies for the benefit of any
employees or consultants of DRMS.
(b) 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 DRMS is a party. To the knowledge of DRMS,
no executive, key employee, or group of employees has any plans to terminate
employment with DRMS. DRMS is neither a party to nor bound by any collective
bargaining agreement, and there are no pending or threatened material
disputes between DRMS and any of its employees.
(c) In connection with any of the benefit plans listed in SCHEDULE
2.12, there have not 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 any "reportable events" within the meaning
of Section 4043(b) of ERISA. All reports and filings with respect to such
benefit plans required to be made pursuant to state or federal law have been
timely filed.
(d) No officer, director, employee or consultant of DRMS has any
claims of any kind against DRMS except for his or her unpaid salary with
respect to the month in which the Closing occurs accrued to the Time of
Closing, normal expense reimbursement pursuant to DRMS policies and benefits
as set forth on SCHEDULE 2.12.
SECTION 2.13 GOVERNMENTAL PERMITS
Except as set forth on SCHEDULE 2.13, DRMS has been granted all
certificates, licenses, permits, authorities and franchises from any federal,
state, municipal or other governmental
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instrumentality, agency or commission or similar body which are necessary
lawfully to carry on all aspects of the business presently conducted by DRMS.
SCHEDULE 2.13 contains a list of all certificates, licenses, permits,
authorities and franchises as now in effect (collectively, the "Authorities")
as well as other certificates, licenses, permits, authorities and franchises
for which applications are either pending or planned.
All of the Authorities are validly held by DRMS. DRMS has complied in
all respects with all requirements in connection with the Authorities, 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 federal, state, municipal or other governmental instrumentalities,
agencies or commissions or similar bodies which are held in the name of any
employee, officer, director, shareholder, partner, agent or other individual
or entity in connection with, or in order to allow DRMS to conduct, any part
of DRMS's business and which may be necessary lawfully to carry on all
aspects of the business presently conducted by DRMS as presently conducted,
are in force and will not be subject to suspension or revocation as a result
of this Agreement or the consummation of the transactions contemplated hereby.
SECTION 2.14 LIABILITIES
Except as set forth in SCHEDULE 2.14, DRMS does not have any liability,
fixed or contingent, other than (a) liabilities disclosed or provided for on
the Balance Sheet (including the notes thereto); or (b) liabilities (i)
incurred since the date of the Balance Sheet in the ordinary and usual course
of business, or (ii) which do not, individually or in the aggregate, have a
Material Adverse Effect and which are set forth in the monthly balance sheets
delivered to CORE pursuant to SECTION 4.12 hereof; or (c) liabilities under
this Agreement; or (d) liabilities that result from or are related to
circumstances, events, facts or occurrences that directly or indirectly are
the subject of any other representation or warranty hereunder; or (e)
liabilities that are not required to be set forth in or noted on a balance
sheet under generally accepted accounting principles.
SECTION 2.15 TAXES
DRMS has prepared and filed when due (taking into account extensions)
all appropriate federal, state, local and other tax returns of every kind and
nature for all periods on or before the due dates of such returns (as
extended by any valid extensions of time) and has paid all taxes shown to be
due by said returns or on any assessments received by DRMS or has made
adequate provision for the payment thereof. The provisions for taxes
(federal, state, local and other), and interest and penalties, if any, with
respect thereto, reflected on the Balance Sheet are adequate to cover any and
all taxes and any interest and penalties in connection therewith which have
been assessed or may be assessed with respect to the properties, business and
operations of DRMS, 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 DRMS in connection with
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any such taxes except as reflected in the Balance Sheet. The federal income
tax returns of DRMS have never been audited. DRMS is not a consenting
corporation within the meaning of Section 341(f) of the Internal Revenue Code.
All taxes or other assessments and levies which DRMS 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 DRMS 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 DRMS.
SECTION 2.16 LITIGATION; COMPLIANCE WITH LAWS
Except as set forth in SCHEDULE 2.16 attached hereto, there are no
actions, suits, or proceedings pending or, to the knowledge of DRMS,
threatened against DRMS, the property of DRMS or the Facility in any court or
before any federal, state, municipal or other governmental department,
commission, board or other instrumentality or before any arbitrators (all of
which claims are adequately covered by insurance, or are believed to be
adequately reserved for in DRMS's financial statements).
DRMS and the Facility have complied in all material respects with all
applicable laws as in effect from time to time including, without limitation,
environmental laws (including rules, regulations, codes, plans, injunctions,
judgments, orders, decrees, rulings, and charges thereunder) of federal,
state, local, and foreign governments (and all agencies thereof) and there
are no pending or, to the knowledge of DRMS, threatened governmental
investigations involving DRMS or the Facility as parties, including
inquiries, citations, or complaints by any federal, state, local or foreign
government and agencies thereof. Except as set forth on SCHEDULE 2.16 there
are no outstanding orders, decrees or stipulations to which DRMS (or to the
knowledge of DRMS, the Facility) is a party affecting DRMS or any of its
products or services or the Facility, and neither DRMS nor the Facility is 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.
SECTION 2.17 INTENTIONALLY DELETED
SECTION 2.18 POWERS OF ATTORNEY; GUARANTIES
There are no outstanding powers of attorney executed on behalf of DRMS.
DRMS is not a guarantor or otherwise liable for any liability or obligation
(including indebtedness) of any third party.
SECTION 2.19 SERVICE AND PRODUCT WARRANTIES
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Every service provided by DRMS (collectively "DRMS Services") has been in
substantial conformity with all material applicable contractual commitments and
all express and implied warranties.
SECTION 2.20 EVENTS SUBSEQUENT TO DECEMBER 31, 1997
Except as set forth on SCHEDULE 2.20, since December 31, 1997, there has
not been (except as otherwise disclosed in the Schedules hereto or expressly
contemplated herein):
(a) Any material adverse change in assets, liabilities, financial
condition, business, business organization or personnel of DRMS taken as a
whole or in relationships with insurance carriers, suppliers, customers,
landlords, the Facility or others;
(b) Any material adverse change in the financial condition, including,
without limitation, claims experience, business or business organization of
the Facility or in relationships between or among the participants or
constituents therein;
(c) Any sale, mortgage, pledge or other disposition of any material
asset owned by DRMS at the close of business on the date of the Balance
Sheet, or acquired by DRMS since said date other than in the ordinary and
usual course of business;
(d) Any material expenditure or commitment by DRMS for the acquisition
of assets of any kind, other than inventories and supplies acquired in the
ordinary course of business;
(e) Any damage, destruction or loss (whether or not insured) materially
and adversely affecting the property or business of DRMS taken as a whole;
(f) Any general wage or salary increase by DRMS outside the ordinary
course of business;
(g) Any increase in the compensation payable or to become payable by
DRMS to any officer or key employee;
(h) Any loans or advances by or to DRMS other than renewals or
extensions of existing indebtedness or any increase in indebtedness for
borrowed money or capitalized leases of DRMS, except in the ordinary course
of business;
(i) Any cancellation by DRMS of any material indebtedness owing to it or
any cancellation or settlement by DRMS of any material claims against
others;
(j) Any sale, assignment or transfer by DRMS of any material patent,
trademark,
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trade name, copyright, license, franchise, certificate, permit or other
intangible asset;
(k) Any acceleration, termination, modification or cancellation of any
agreement, contract, lease or license involving more than $5,000 to which
DRMS is a party or by which DRMS is bound;
(l) Any delay or postponement of the payment of accounts payable or
other liabilities of DRMS outside the ordinary course of business;
(m) Any loan or other transaction between DRMS, on one hand, and any
director, officer or stockholder of DRMS on the other;
(n) Any material transaction of any kind not in the ordinary and usual
course of business, except as otherwise provided in this Agreement;
(o) Any disposition, sale or issuance by DRMS of any of its capital
stock or grant of any option or right to acquire any of its capital stock;
(p) Any declaration, setting aside or payment by DRMS of any dividend or
other distribution in respect of any shares of capital stock of DRMS;
(q) Any repurchase, redemption or other acquisition by DRMS of any
outstanding shares of capital stock or other securities of, or other
ownership interests in, DRMS;
(r) Any amendment of any term of any outstanding securities of DRMS;
(s) Any material reduction in the amounts of coverages provided by
existing casualty and liability insurance policies with respect to the
business of DRMS;
(t) 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 DRMS
which would result in a material increase in cost to DRMS; or
(u) Any commitment by DRMS to any of the foregoing.
SECTION 2.21 NO BROKER
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Except as set forth in SECTION 9.3 hereof, no agent or broker or other
person acting pursuant to authority of DRMS or the Stockholders is entitled to
any commission or finder's fee in connection with the transactions contemplated
by this Agreement.
SECTION 2.22 OFFICERS AND DIRECTORS
The officers and directors of DRMS are as listed in SCHEDULE 2.22 attached
hereto.
SECTION 2.23 BOARD OF DIRECTORS APPROVAL
The Board of Directors of DRMS has duly authorized the execution, delivery
and performance of this Agreement by DRMS.
SECTION 2.24 TRADE NAMES
SCHEDULE 2.24 attached hereto sets forth all business names and addresses
used by DRMS within the past five (5) years. Except as set forth in SCHEDULE
2.24, DRMS has always conducted its business only under its proper names.
Except as set forth in SCHEDULE 2.24, DRMS has never operated under or used an
assumed or fictitious name. DRMS shall not use any other business name or
address from the date of this Agreement through the Closing Date. SCHEDULE 2.24
also contains all locations (including county and judicial districts) where
assets of DRMS are located and places of business and chief executive offices of
DRMS.
SECTION 2.25 YEAR 2000 COMPLIANCE
DRMS has conducted a review of all computer systems, software and programs
used or useful in the operation of its business to determine their individual
and collective ability to define the year 2000 properly, and DRMS has no
knowledge, as a result of such review or otherwise, that DRMS will be materially
adversely affected by any year 2000 computer system, software, or program
problems.
SECTION 2.26 ARM'S-LENGTH TRANSACTIONS
All material transactions by DRMS with outside parties have been conducted
on an arm's-length basis, and the directors, stockholders and officers of DRMS
(including their immediate family and their affiliates) have not since the
incorporation of DRMS had any material direct or indirect ownership of or a
profit participation in any outside business enterprises with which DRMS had
significant purchases, sales, or business dealings.
SECTION 2.27 DISCLOSURE
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Except as set forth on SCHEDULES 2.27 hereto, no creditor, employee,
consultant, client or other customer or other person having a material business
relationship with DRMS has informed DRMS that such person or entity intends to
change the relationship because of the purchase and sale of the Shares as
contemplated hereby.
ARTICLE II-A
REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS
SECTION 2A.1 REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS CONCERNING THE
TRANSACTION.
Each of the Stockholders represents and warrants to CORE as follows, but
only with respect to himself or herself (and expressly not with respect to any
other Stockholders).
(a) Such Stockholder is an individual whose residential address is set
forth on SCHEDULE 2.28 hereto. None of the Stockholders are corporations,
partnerships or any other type of entity.
(b) Such Stockholder has full power and authority to execute and deliver
this Agreement and to perform his or her obligations hereunder. This Agreement
constitutes the valid and legally binding obligation of such Stockholder,
enforceable in accordance with its terms and conditions. Such Stockholder need
not give any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency in order to
consummate the transactions contemplated by this Agreement.
(c) Neither the execution and the delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, will (i) violate any
constitution, statute, regulation, rule, injunction, judgment, order, decree,
ruling, charge, or other restriction of any government, governmental agency, or
court to which such Stockholder is subject, or (ii) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument, or other
arrangement to which such Stockholder is a party or by which he or she is bound
or to which any of his or her assets is subject.
(d) Such Stockholder (i) understands that the shares of CORE Common
Stock to be issued to him or her as provided in this Agreement have not been,
and will not be, registered under the Securities Act, or under any state
securities laws, and are being offered and sold in reliance upon federal and
state exemptions for transactions not involving any public offering, (ii) is
acquiring such CORE Common Stock solely for his or her own account for
investment purposes, and not with a view to the distribution thereof, (iii) is a
sophisticated investor with
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knowledge and experience in business and financial matters who is capable of
evaluating the merits and risks of owning CORE Common Stock), (iv) has
received certain information concerning CORE, identified in subsection (b)
hereof and has had the opportunity to obtain additional information as
desired, including the opportunity to ask questions of CORE's management in
order to evaluate the merits and the risks inherent in holding CORE Common
Stock, (v) is able to bear the economic risk and lack of liquidity inherent
in holding CORE Common Stock, (vi) understands that no federal or state
agency has passed upon the shares of CORE Common Stock to be issued as
provided in this Agreement or made any finding or determination as to the
fairness of this transaction, (vii) understands that there are substantial
risks incident to an investment in CORE Common Stock, including, without
limitation, those set forth in the document entitled "CORE, Inc. Risk
Factors" , (viii) understands that the holders of CORE Common Stock,
including the Stockholders (as defined in this Agreement) are not assured of
any return on an investment in CORE Common Stock, and (ix) is not relying on
CORE with respect to individual tax or other economic considerations involved
in this transaction.
(e) Such Stockholder has been furnished, has carefully read and has
understood the following documents:
- This Agreement (including the Exhibits and Schedules hereto),
- The document entitled "CORE, Inc. Risk Factors" and
- Other documents made available by CORE to each Stockholder,
described in SECTION 3.5 (collectively the "CORE Documents").
(f) Such Stockholder is an "Accredited Investor" as such term is defined
under the Securities Act or 1933, as amended (the "Securities Act"), and the
rules and regulations promulgated thereunder, as he or she falls within at least
one of the following categories:
(i) a natural person whose individual net worth, or joint net
worth with that person's spouse, at the time of his or her purchase exceeds
$1,000,000; or
(ii) a natural person who had an individual income in excess of
$200,000 in each of the two most recent years or joint income with that
person's spouse in excess of $300,000 in each of those years and who has a
reasonable expectation of reaching the same income level in the current
year.
(g) Such Stockholder holds of record and owns beneficially the number of
shares of DRMS Stock set forth next to his or her name in SCHEDULE 2.3, free and
clear of any restrictions on transfer (other than any restrictions under the
Securities Act and state securities laws), taxes, security interests or other
encumbrances, options, warrants, purchase rights, contracts, commitments,
equities, claims, and demands, except for the pledge of such DRMS Stock to
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KeyBank National Association and to DRMS itself pursuant to documents
described on SCHEDULE 2.28 hereto (all of which pledges are to be released at
Closing). Such Stockholder is not a party to any option, warrant, purchase
right, or other contract or commitment (other than this Agreement) that could
require such Stockholder to sell, transfer, or otherwise dispose of any of
such Stockholder's capital stock of DRMS. Except as listed on SCHEDULE 2.28
hereto, such Stockholder is not a party to any voting trust, proxy, or other
agreement or understanding with respect to the voting of any capital stock of
DRMS, including, without limitation, the election of directors of DRMS; any
and all such trusts, proxies, understandings or agreements have been
terminated (by the execution of formal terminations, according to their
respective terms or to the extent necessary, the execution of this Agreement
shall constitute a termination of any and all such arrangements immediately
prior to the Closing) and are of no force or effect. At the Time of Closing,
the Stockholders shall have full legal right, power, and authority to sell,
assign and transfer such Shares to CORE. Upon the consummation of the
transactions contemplated by this Agreement, good and marketable title to all
of the Stock, free and clear of all claims, liens, restrictions and
encumbrances, shall have been transferred to CORE.
SECTION 2A.2 REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS CONCERNING
DRMS.
Each and all of the representations and warranties set forth in Article II
hereby are made and asserted by each Stockholder individually to the same extent
and purpose as if such representations and warranties were set forth in full in
this Section 2A.2, except that such Stockholder shall have liability for breach
of representation or warranty hereunder only to the extent set forth in Article
VI.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF CORE
CORE hereby represents and warrants to DRMS and the Stockholders that:
SECTION 3.1 ORGANIZATION
CORE is a corporation duly organized, validly existing and in good standing
under the laws of the Commonwealth of Massachusetts; and has the power and
authority to conduct all of the activities conducted by it and to own or lease
all of the assets owned or leased by it. CORE is qualified as a foreign
corporation in all states and jurisdictions in which such qualification is
required, except where the lack of such qualification would not materially and
adversely affect the ability to do business or the financial condition of CORE.
CORE is acquiring all of the outstanding shares of DRMS Stock for its own
account for investment and not with a view to or for sale in connection with any
distribution of such securities.
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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. The execution,
delivery and performance of this Agreement has been authorized by all necessary
corporate action on the part of CORE. This Agreement is valid, binding and
enforceable against CORE in accordance with its terms.
Except as set forth in SCHEDULE 3.2 hereto, 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 Bylaws 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 or by which any of the assets or securities of CORE 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 CORE or its
securities so as to have a Material Adverse Effect with respect to CORE; 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 CORE or any material license, franchise, permit or
other similar authorization held by CORE.
The execution, delivery and performance by CORE of its obligations under
this Agreement and the consummation of the transactions contemplated hereby by
CORE require no action by or in respect of, or filing with, any governmental
body, agency, official or authority the failure to timely obtain which would
have a Material Adverse Effect.
SECTION 3.3 BROKER
Except for Cochran, Caronia & Co., 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.
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SECTION 3.5 CORE SEC FILINGS
CORE has since October 18, 1991 filed all proxy statements, schedules and
reports required to be filed by it with the SEC pursuant to the Securities
Exchange Act of 1934, as amended (collectively the "CORE SEC Filings").
CORE has made available to DRMS and the Stockholders: its annual report on
Form 10-K for its fiscal year ended December 31, 1997 (including amendments
thereto, its quarterly reports on Form 10-Q for its fiscal quarters ended March
30, 1998 and June 30, 1998; its proxy statement and annual report relating to
meeting of the stockholders of CORE held on July 30, 1998 and its Form 8-K
(including amendments thereto) dated March 17, 1998.
SECTION 3.6 HART-SCOTT-RODINO
For purposes of determining that the transactions contemplated hereby do
not require a filing under the provisions of the Hart-Scott-Rodino Act of 1976
with respect to pre-merger notification and the rules, regulations, statements
and interpretations thereunder:
(a) No entity owns directly or indirectly 50% or more of the outstanding
securities presently entitled to vote for the election of directors of CORE or
the power presently to appoint one-half or more of the directors of CORE; and
(b) The total assets of CORE are less than $100,000,000; and
(c) The net sales of CORE for 1997 were less than $100,000,000.
ARTICLE IV
ADDITIONAL AGREEMENTS OF DRMS AND STOCKHOLDERS
DRMS and each Stockholder covenants and agrees as follows:
SECTION 4.1 OPERATION OF BUSINESS
DRMS 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;
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(b) use all reasonable efforts to preserve the good will of its
suppliers and customers and others having business relations with it;
(c) use all reasonable efforts to continue the employment of key
personnel (except as otherwise permitted by CORE in writing);
(d) pay and perform all of its debts, obligations and liabilities as and
when due under all leases, agreements, contracts and other commitments to
which it is a party in accordance with the terms and provisions thereof;
and
(e) comply in all material respects with all laws and/or other
governmental regulations that may be applicable to its business.
SECTION 4.2 NEGATIVE COVENANTS
DRMS will not, from the date of this Agreement through the Time of Closing,
without the express written consent of CORE,
(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 (including but not
limited to the execution of Facility Treaties), in each case entered into
in the ordinary and regular course of such corporation's business and not
of unusual size or duration;
(b) make any change in its corporate charter or its Bylaws;
(c) sell, assign, lease or otherwise transfer or dispose of or encumber
any material portion of its property (real or personal) or equipment,
except for replacement of any worn-out equipment in the ordinary and usual
course of business;
(d) merge or consolidate with or into any other corporation or entity;
(e) grant any options, warrants or other rights to purchase or obtain
any of its capital stock or issue, sell or otherwise dispose of any of its
capital stock (except upon the conversion or exercise of options, warrants,
and other rights currently outstanding);
(f) [INTENTIONALLY OMITTED]
(g) except to the extent permitted pursuant to subsection (k), 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;
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(h) make any capital investment in, make any loan to, or acquire the
securities or assets of any other person or entity except for reasonable
investments made in the ordinary course of managing cash resources;
(i) make any change in employment terms for any of its directors,
officers or employees (except as otherwise permitted by CORE in writing);
(j) conduct its business or take any other action otherwise than in the
ordinary and usual course of business; or
(k) incur any additional indebtedness for borrowed money, except with
the written consent of CORE which consent will not be unreasonably
withheld;
(l) amend or change the period of exercisability or accelerate the
exercisability of any outstanding options or warrants to acquire shares of
capital stock;
(m) agree or commit to any of the foregoing.
SECTION 4.3 NO BREACHES OF REPRESENTATIONS AND WARRANTIES
DRMS and Stockholders will not take any action which the party so acting
reasonably expects 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 DRMS or the Stockholders set
forth in ARTICLE II and ARTICLE II-A hereof. DRMS 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 DRMS set forth in ARTICLE II and
ARTICLE II-A hereof, give detailed notice to CORE. DRMS and the Stockholders
will use all reasonable efforts to prevent or promptly to remedy such breach.
SECTION 4.4 FORM 8-K
DRMS and the Stockholders each agree to provide information to CORE and
otherwise assist CORE with respect to disclosures concerning DRMS 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 4.5 ACCESS TO INFORMATION
From and after the date of execution of this Agreement and subject to the
provisions of SECTION 9.1 hereof, and in connection with CORE's due diligence
investigation of the business of DRMS, each Stockholder and DRMS will make
necessary information available to CORE and
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hereby authorizes reasonable visits to DRMS's premises with such staff,
consultants and experts as CORE deems necessary or desirable. CORE agrees to
coordinate closely all such activities with DRMS and to conduct any such
inquiries with appropriate discretion and sensitivity to DRMS's relationships
with its employees, customers and suppliers.
SECTION 4.6 INTENTIONALLY DELETED
SECTION 4.7 MAINTAIN BUSINESS ORGANIZATION
DRMS will use all reasonable efforts until the Time of Closing to preserve
its business organization intact, and to preserve the relationships of DRMS with
employees, insurance carriers, suppliers, customers, landlords, and others, all
to the end that the going business of DRMS will be unimpaired at the Time of
Closing.
At the Time of Closing, the liabilities of DRMS shall consist only of the
trade liabilities of DRMS as set forth on the Balance Sheet of DRMS and other
specified liabilities incurred in the normal course of DRMS's business between
the date of the Balance Sheet and the Closing Date.
SECTION 4.8 EMPLOYEE DOCUMENTATION
In connection with the execution of Incentive Stock Options for CORE common
stock by employees of DRMS, the Stockholders shall use reasonable, good faith
efforts to have all DRMS employees execute CORE's standard non-disclosure policy
statement.
SECTION 4.9 MAINTAIN INSURANCE AND PROPERTIES
DRMS will use all reasonable efforts to cause the existing liability and
property damage, fire, casualty and other insurance of DRMS described in
SCHEDULE 2.9 to be continued in force until the Time of Closing.
DRMS will maintain its properties and operations in good repair and
operating condition until the Time of Closing.
SECTION 4.10 EXCLUSIVITY
None of the Stockholders will (and the Stockholders will not cause or
permit DRMS to) (i) solicit, initiate, or encourage the submission of any
proposal or offer relating to the acquisition of any capital stock or other
voting securities, or any substantial portion of the assets, of DRMS, or (ii)
participate in any discussions or negotiations regarding, furnish any
information with respect to, assist or participate in, or facilitate in any
other manner, any effort or attempt by any person or entity to do or seek any of
the foregoing. The Stockholders and DRMS will notify
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CORE immediately if any person or entity makes any proposal, offer, inquiry,
or contact with respect to any of the foregoing.
Each of the Stockholders agrees that pending the Closing they will not
directly or indirectly dispose of, transfer, or encumber any of the Shares.
SECTION 4.11 NOTICE OF DEVELOPMENTS
The Stockholders and DRMS will give written notice to CORE of any
development causing a breach or impending breach of any of the representations
and warranties in ARTICLE II or ARTICLE II-A promptly upon such party's
obtaining a conscious awareness that such development constitutes such a breach
or impending breach. No disclosure by Stockholders or DRMS pursuant to this
SECTION 4.11, however, shall be deemed to amend or supplement the Schedules or
to waive any required compliance as a closing condition.
SECTION 4.12 MONTHLY FINANCIAL STATEMENTS
(a) On the 15th day of each month following the date hereof, DRMS will
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. Such financial statements, when delivered to CORE, shall be in
accordance with the books and records of DRMS, will be complete and correct in
all material respects and fairly present the financial position of DRMS as of
dates therein indicated and the results of the operations of DRMS for the
periods so ended (subject to normal year end adjustments in the case of any
interim financial statements for which full year financial statements have not
been delivered), all in conformity with GAAP.
(b) AUDITED FINANCIAL STATEMENTS. On or before August 28, 1998, DRMS
shall deliver to CORE financial statements of DRMS audited by Berry, Dunn,
McNeil & Parker for the period ending June 30, 1998, and any other period deemed
necessary or appropriate by CORE in connection with CORE's disclosure obligation
under the federal securities laws (the "Audited Financial Statements"). Such
Audited Financial Statements shall be substantially similar to the unaudited
financial statements of DRMS set forth in SCHEDULE 2.4 hereof for the same
periods and include DRMS's independent auditors' opinion without qualification
as to "going concern" or other matters. Without limiting the generality of the
foregoing, the Audited Financial Statements shall not be deemed to be
substantially similar to the unaudited financial statements of DRMS if for any
period (i) revenues vary by more than 5% (ii) net income varies by more than 5%;
and (iii) EBIT varies by more than 5%.
SECTION 4.13 NON-COMPETITION; NON-SOLICITATION
Each of the Stockholders hereby agrees that, except in their respective
capacities as officers or employees of DRMS acting solely for the benefit of
DRMS, from and after the
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Closing Date through the Covenant End Date applicable to each Stockholder (as
defined below) he or she will not (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 or as it may be conducted at any time prior to the Covenant
End Date by DRMS or CORE (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 (including CORE's subsidiaries) or
DRMS, or which at any time during the twelve month period prior to the
Closing Date, was a client or customer of CORE (including CORE's
subsidiaries) or DRMS, for the purpose of doing business with such client or
customer (for the purpose of this covenant, the clients and customers of CORE
shall include those entities with which DRMS had made or received formal
proposals or held discussions or negotiations within the twelve month period
prior to the Closing Date), or (c) solicit, attempt to hire, or hire any
employee or consultant of DRMS or CORE (including CORE's subsidiaries), or
assist in such solicitation or hiring by any other person or entity, or
encourage any employee or consultant of DRMS or CORE (including CORE's
subsidiaries) to terminate his or her relationship with CORE.
For purposes of this Agreement, "Covenant End Date" means, for each
Stockholder (other than David C. Mitchell), the later of (i) the date ending one
year after such Stockholder's termination of employment with DRMS (or any of
CORE's or DRMS's affiliated corporations) for any reason; or (ii) September 30,
2001. The Covenant End Date for David C. Mitchell shall be the earlier of (iii)
the date ending one year after his termination of employment or (iv) September
30, 2001.
It is agreed that the remedy at law for any breach of the foregoing
shall be inadequate and that CORE and DRMS shall be entitled to any other
remedy permitted by law. In the event that this SECTION 4.13 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 any of the Stockholders 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 4.13.
SECTION 4.14 REASONABLE EFFORTS
DRMS and each of the Stockholders will use all reasonable efforts to
assure, to the extent such matters are within their control, the performance by
DRMS and the Stockholders of all of the covenants and agreements contained
herein and the satisfaction of all of the conditions to Closing herein set
forth.
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ARTICLE V
ADDITIONAL AGREEMENTS OF CORE
SECTION 5.1 ADDITIONAL POST-CLOSING COVENANTS
(a) It is expected that DRMS will offer employment, commencing as of
the Closing Date, at substantially the same wages, salary, benefits
(including bonus opportunities), hours and conditions in effect immediately
prior to the Closing, to all employees listed on SCHEDULE 2.12, with such
changes in personnel in the ordinary course of business of which DRMS
notifies CORE, provided, however, DRMS, after consultation with CORE, shall
have the right to make changes to such wages, salary, bonus opportunities,
benefits, hours and conditions. Those employees who shall accept said offer
of employment with DRMS and who shall actually continue active employment
with DRMS after the Closing shall collectively be referred to as the
"Continuing Employees."
(b) At Closing, CORE shall grant Incentive Stock Options for 100,000
shares of CORE Common Stock to Continuing Employees (the "DRMS Employee
ISOs"). Allocation of the DRMS Employee ISOs among the Continuing Employees,
including the Stockholders, shall be as mutually agreed between CORE, DRMS
and the Stockholders, with the form of DRMS Employee ISOs to be substantially
similar to the form used for CORE employees.
(c) CORE covenants and agrees that, until September 30, 2001, (i) DRMS
shall be maintained as a distinct corporate subsidiary of CORE; and (ii) DRMS's
principal place of business will remain in the Portland, Maine area.
(d) No provision of this SECTION 5.1 shall create any
third-party-beneficiary rights in any employee or former employee (including
any beneficiary thereof) of DRMS.
SECTION 5.2 NO BREACHES OF REPRESENTATIONS AND WARRANTIES
Between the date hereof and Closing, CORE will not take any action which
CORE reasonably expects would cause or constitute a breach, or would, if it had
been taken immediately prior to the date hereof, have caused or constituted a
breach, of any of the representations and warranties of CORE set forth in
ARTICLE III hereof. CORE will, in the event of, and promptly after the
occurrence of or the impending or threatened occurrence of, any event which
would cause or constitute a breach or would, if it had occurred immediately
prior to the date hereof, have caused or constituted a breach of any of the
representations and warranties of CORE set forth herein, including in ARTICLE
III and ARTICLE V hereof, give detailed notice to DRMS. CORE will use all
reasonable efforts to prevent or promptly to remedy such breach.
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CORE will give written notice to Stockholders and DRMS of any
development causing a breach or impending breach of any of the
representations and warranties in Article III promptly upon CORE's obtaining
a conscious awareness that such development constitutes such a breach or
impending breach. No disclosure by CORE pursuant to this Section 5.2,
however, shall be deemed to amend or supplement the Schedules or to waive any
required compliance as a closing condition.
SECTION 5.3 REASONABLE EFFORTS
CORE will use all reasonable efforts to effectuate the transactions
hereby contemplated and the satisfaction of all of the conditions to Closing
herein set forth.
ARTICLE VI
INDEMNITY; REALIZATION OF DRMS ACCOUNTS RECEIVABLE
SECTION 6.1 INDEMNIFICATION BY STOCKHOLDERS
Each Stockholder agrees to indemnify, defend, save and hold harmless
CORE, its subsidiaries, DRMS, and any person serving as an officer, director,
agent, counsel or employee of CORE, its subsidiaries or DRMS excluding,
however the Stockholders (each an "Indemnified Party" and all, collectively,
the "Indemnified Parties"), but only to the extent and on the terms provided
and set forth in this Article VI. Each Stockholder hereby releases DRMS from
any obligation of contribution, indemnity or the like relating to any claims
under this Article.
(a) Each of the Stockholders shall separately indemnify,
defend and hold CORE and the Indemnified Parties harmless as provided in this
Article VI as to any Loss with respect to, as a result of or involving:
(i) any breach by such Stockholder of any representation or
warranty made by such Stockholder in Section 2A.1 or in any certificate or
notice delivered by any Stockholder pursuant to this Agreement with respect
to such representations and warranties; or
(ii) any breach by such Stockholder of any covenant or obligation
of such Stockholder in this Agreement.
(b) Each Stockholder shall indemnify, defend and hold CORE and the
Indemnified Parties harmless as provided in this Article VI as to such
Stockholder's Share of any Loss with respect to, as a result of or involving
any breach of a representation or warranty made by such Stockholder pursuant
to Section 2A.2 hereof or in any certificate or notice delivered by any
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Stockholder pursuant to this Agreement or in any certificate or notice
delivered by any Stockholder pursuant to this Agreement with respect to such
representations and warranties.
Section 6.2 CORE Indemnity
CORE shall indemnify, defend, save and hold harmless the Stockholders
provided in this Article VI as to any Loss with respect to, as a result of or
involving:
(a) any breach by CORE of any representation or warranty made by CORE
in Article III or in any certificate or notice delivered by CORE pursuant to
this Agreement; or
(b) any breach by CORE of any covenant or obligation of CORE in this
Agreement.
SECTION 6.3 DETERMINATION OF LIABILITY
In the event that at any time, or from time to time, any Indemnified
Party shall determine that such Indemnified Party is entitled to
indemnification under SECTION 6.1 hereof, such Indemnified Party shall give
prompt written notice to the Indemnifying Party specifying the cause and the
amount of such claim. A failure to provide any required notice shall not
prejudice any right to indemnification under this Agreement except to the
extent that the Indemnifying Party is prejudiced by such failure.
The Indemnifying Party may object to the claim by delivering written
notice thereof to such Indemnified Party within thirty (30) days after
receipt of such Indemnified Party's written notice. Failure on the part of
the Indemnifying Party so to object shall constitute an acceptance of the
such Indemnified Party's claim, and the Indemnifying Party shall promptly
pay such claim after such thirty-day period has elapsed.
In the event that the Indemnifying Party shall so object and the
claiming Indemnified Party and the Indemnifying Party shall fail to reach an
agreement as to the entitlement of such Indemnified Party to indemnification
or the amount thereof within sixty (60) days after the written notice by the
Indemnifying Party objecting to the claim, then so much of the matter as may
be in dispute shall be submitted to the American Arbitration Association in
Boston, Massachusetts for settlement in accordance with its rules, and the
award as to the disputed matter rendered by the arbitrator or arbitrators
shall be binding on all parties to this Agreement. The parties hereto shall
act upon such award in like manner as though it constituted an agreement
reached between the parties and judgement on the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof. The
Indemnified Party, on one hand, and the Indemnifying Party, on the other
hand, shall each pay fifty percent (50%) of the arbitrators' charges.
SECTION 6.4 DEFENSE OF THIRD PARTY CLAIMS
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After receipt by any Indemnified Party of notice of the existence of any
claim made or threatened by a third party, to which the indemnification
obligations hereunder apply, such Indemnified Party shall give written notice
thereof to the Indemnifying Party, but the omission to so notify the
Indemnifying Party will not relieve the Indemnifying Party from any
liability except to the extent that the Indemnifying Party shall have been
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, the Indemnifying Party gives written
notice to such Indemnified Party stating that they dispute and intend to
defend against such claim at its own cost and expense (subject to the consent
of such Indemnified Party which consent shall not be unreasonably withheld),
such Indemnified Party shall make no payment on such claim as long as the
Indemnifying Party is conducting a good faith and diligent defense.
Notwithstanding anything herein to the contrary, such Indemnified Party shall
at all times have the right to fully participate in such defense at such
Indemnified Party's own expense directly or through counsel; provided,
however, if the named parties to the action include both (i) any Indemnifying
Party and (ii) such Indemnified Party 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 such
Indemnified Party shall be paid by the Indemnifying Party. If no timely
notice of intent to dispute and defend is given by the Indemnifying Party, or
if such diligent good faith defense is not being or ceases to be conducted,
after written notice to the Indemnifying Party and the failure of the
Indemnifying Party to initiate or conduct such a defense within fifteen (15)
days after such notice, such Indemnified Party, at the expense of the
Stockholders, shall have the right but not the obligation to undertake the
defense of such claim, liability or expense, and shall have the right to
compromise or settle the same (exercising reasonable business judgment). If
such claim, liability or expense is one that by its nature cannot be defended
solely by the Indemnifying Party, then such Indemnified Party shall make
available all information and assistance that the Indemnifying Party may
reasonably request and shall cooperate with the Indemnifying Party in such
defense.
Section 6.5 Limits
(a) No Stockholder or Indemnified Party shall be entitled to assert
any right of indemnification hereunder for any Losses for breaches of
representations and warranties described in Sections 6.1 and 6.2 after
September 30, 2001, except that the representations and warranties related to
tax matters shall survive for the applicable statute of limitations
applicable to such tax. Any period of indemnification liability of a party
hereto with respect to its representations and warranties, under such
Sections, shall not be reduced by any investigation made at any time by or on
behalf of any indemnified party. If written notice of a claim has been given
prior to the expiration of the applicable period of indemnification by a
party hereto, then the relevant underlying representations and warranties
shall survive as to such claim until such claim has been finally resolved.
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(b) Notwithstanding any other provision to the contrary contained in
this Agreement,
(i) the Stockholders shall not be required to indemnify and hold
harmless any Indemnified Party with respect to breaches of the
representations and warranties described in Section 6.1 until the aggregate
amount of the Losses by all Indemnified Parties under Section 6.1 exceeds
One Hundred Thousand Dollars ($100,000), and the obligation of the
Stockholders to indemnify DRMS and/or CORE pursuant to Section 6.1 shall be
limited only to amounts in excess of such One Hundred Thousand Dollar
($100,000) aggregate threshold (provided, however the foregoing $100,000
threshold shall not apply to Losses arising out of Sections 1.2(b), 2A.1,
2.12(d) and 6.6).
(ii) CORE shall not be required to indemnify and hold harmless
the Stockholders with respect to representations and warranties in Section
6.2 until the aggregate amount of the Losses by all Stockholders under
Section 6.2 exceeds One Hundred Thousand Dollars ($100,000), and the
obligation of CORE to indemnify the Stockholders pursuant to Section 6.2
shall be limited only to amounts in excess of such One Hundred Thousand
Dollar ($100,000) aggregate threshold.
(c) (i) In no event shall any Stockholder individually be liable with
respect to breaches of representations and warranties for indemnification
pursuant to Section 6.1 in excess of such Stockholder's Share of Four Million
Dollars ($4,000,000).
(ii) In no event shall CORE be liable with respect to breaches of
representations, warranties, covenants and agreements for indemnification
pursuant to Article VI in excess of Four Million Dollars ($4,000,000).
(d) The parties agree to treat all payments made by any of them to or
for the benefit of an Indemnified Party under this Article VI, as adjustments
to the Purchase Price for tax purposes, and such treatment shall govern for
purposes hereof except to the extent that the Laws of a particular
jurisdiction provide otherwise.
(e) All indemnification payments under Section 6.1 and 6.2 shall (i)
be calculated so as to avoid duplication with the adjustments provided in
Section 1.2(b) and Section 6.6 and the Additional Consideration provided
under Section 1.2(a)(ii) and Exhibit A; and (ii) reduced by the amount of any
net insurance proceeds (after deducting the reasonable costs, including but
not limited to reasonable attorneys' fees and expenses, incurred in
collecting same and the premiums therefor) actually received by the
Indemnified Party with respect to the Loss.
(f) Following the Closing, the remedies provided in this Article VI
constitute the sole and exclusive remedies for recoveries against another
party for breaches of the representations, warranties and covenants in this
Agreement and for the matters specifically
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listed in this Article VI as being indemnified against. Nothing in this
Article VI nor anything else in this Agreement shall limit the right of a
party to enforce the performance of this Agreement or of any contract,
document or other instrument executed and delivered pursuant to this
Agreement by any remedy available to it in equity.
SECTION 6.6 COLLECTION OF MANAGEMENT FEES RECEIVABLE
Not later than 45 days after the end of the Collection Period as defined
below, each Stockholder shall pay to CORE, as a further adjustment to the
Closing Purchase Price, such Stockholder's Share of the amount by which
collections of DRMS management fees receivable that were accrued prior to the
Closing (whether or not reflected in DRMS's books as of the Closing Date)
during the first 270 days following the Closing (the "Collection Period") are
less than 90% of the management fees receivable that are accrued on DRMS's
unaudited balance sheet as of the Closing Date. DRMS shall use reasonable
collection efforts with respect to such management fees receivable (except
that DRMS shall be obligated to institute litigation) during the Collection
Period. Any payments made by the Stockholders pursuant to this paragraph
shall be considered earnings of DRMS for purposes of EXHIBIT A.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF DRMS AND THE STOCKHOLDERS
The obligations of DRMS and the Stockholders 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 DRMS and the Stockholders but only in a writing
signed by DRMS or Stockholders:
SECTION 7.1 REPRESENTATIONS AND WARRANTIES
The representations and warranties of CORE contained in this Agreement
including in ARTICLE III hereof 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 in said ARTICLE III 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 7.2 COMPLIANCE BY CORE
CORE shall have performed and complied in all material respects with all
agreements and conditions on its part required by this Agreement to be
performed or complied with prior to or at
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the Closing Date.
SECTION 7.3 CLOSING CERTIFICATE
DRMS and the Stockholders shall have received a certificate of CORE
executed by the President and Chief Financial Officer of CORE, dated the
Closing Date, certifying to the fulfillment of the conditions specified in
SECTIONS 7.1 and 7.2 of this ARTICLE VII and such other evidence with
respect to the fulfillment of any said conditions as DRMS and the
Stockholders may reasonably request upon reasonable prior notice.
SECTION 7.4 LEGAL OPINION
DRMS and the Stockholders shall have received an opinion of Rich, May,
Bilodeau & Flaherty, P.C., counsel for CORE, dated the Closing Date,
reasonably satisfactory in form and substance to counsel for DRMS and the
Stockholders, substantially to the effect as set forth on EXHIBIT E.
Such opinion shall cover such related matters as DRMS and the
Stockholders may reasonably require, and may contain customary assumptions
and exceptions.
SECTION 7.5 CERTIFIED RESOLUTIONS
CORE shall have furnished to DRMS and the Stockholders certified
resolutions of its Board of Directors duly and legally authorizing the
execution, performance of this Agreement by CORE, and such other
documentation as DRMS and the Stockholders shall reasonably request.
SECTION 7.6 CONSENTS
The parties shall have obtained all consents of third parties required
by any and all agreements or documents on SCHEDULES 2.10 AND 3.2 hereto in
order to give effect to the transactions contemplated hereby.
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF CORE
The obligations of CORE 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 CORE but
only in a writing signed by an authorized officer of CORE:
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SECTION 8.1 REPRESENTATIONS AND WARRANTIES
The representations and warranties of DRMS and the Stockholders
contained in this Agreement and expressly made as of the Closing Date, and
all of the other representations and warranties contained in this Agreement
shall be true and correct in all material respects at and as of the Closing
Date.
SECTION 8.2 COMPLIANCE BY DRMS AND THE STOCKHOLDERS
DRMS and each Stockholder shall have performed and complied in all
material respects 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 8.3 CLOSING CERTIFICATE
(a) CORE shall have received a certificate of DRMS, executed by the
President and Corporate Secretary of DRMS, and dated the Closing Date, and
from each Stockholder, dated the Closing Date, certifying as 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 CORE may reasonably request upon reasonable prior notice.
(b) CORE shall have received a certificate executed by Michael
Lachance, FSA, MAAA, concerning the actuarial analysis of the DART Facility
in the form attached hereto as SCHEDULE 8.3.
SECTION 8.4 LEGAL OPINIONS
CORE shall have received an opinion of Preti, Flaherty, Beliveau &
Pachios, LLC, counsel for DRMS and the Stockholders, dated the Closing Date,
reasonably satisfactory in form and substance to counsel for CORE,
substantially to the effect as set forth on EXHIBIT B.
CORE shall also receive an opinion of Friedman Babcock & Gaythwaite,
special counsel for DRMS, dated the Closing Date, reasonably satisfactory in
form and substance to counsel for CORE, covering the matters described in
SECTION 1.4(a)(iv).
Such opinions shall cover such related matters, as CORE may reasonably
require, and may contain customary assumptions and exceptions.
SECTION 8.5 CERTIFIED RESOLUTIONS
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DRMS shall have furnished counsel for CORE with certified resolutions of
its Board of Directors duly and legally authorizing the execution and
performance of this Agreement by DRMS, and such other documentation as CORE
shall reasonably request.
SECTION 8.6 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 DRMS or any of the Stockholders or
which might materially and adversely affect the financial condition of DRMS
or the conduct of DRMS's business.
SECTION 8.7 NO MATERIAL ADVERSE CHANGE
Between the date of this Agreement and the Closing Date, DRMS and its
business, assets and personnel shall not be subject to changes that in the
aggregate have a Material Adverse Effect.
SECTION 8.8 AUDITED FINANCIAL STATEMENT
CORE shall have received the monthly financial statements and the
Audited Financial Statements of DRMS as described in SECTION 4.13 hereof.
SECTION 8.9 ADDITIONAL DOCUMENTATION
DRMS and the Stockholders shall have provided CORE with such additional
documentation as CORE shall reasonably request.
SECTION 8.10 CORPORATE RECORDS
There shall have been delivered to CORE the corporate minute books,
seals, charter and amendments thereto, Bylaws, stock transfer books and other
records of DRMS.
SECTION 8.11 MAINTENANCE OF ASSETS
At the Closing, DRMS shall have good and marketable title to all of its
assets, including personal property, real estate, intellectual property, free
and clear of all liens, mortgages and pledges except as set forth on SCHEDULE
2.5. The properties, machinery and equipment of DRMS shall have been
maintained in good repair and operating condition, ordinary wear and tear
excepted.
SECTION 8.12 CONSENTS
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The parties shall have obtained all consents of third parties required
by any and all agreements or documents on SCHEDULES 2.10 AND 3.2 hereto in
order to give effect to the transactions contemplated hereby.
SECTION 8.13 PROCEEDINGS
All corporate or other proceedings taken or required to be taken on
behalf of DRMS 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.
ARTICLE IX
OTHER AGREEMENTS
SECTION 9.1 CONFIDENTIALITY
CORE will use all reasonable efforts to keep confidential any and all
information furnished to it by DRMS or the Stockholders or DRMS's independent
public accountants in connection with the transactions contemplated by this
Agreement, and the business and financial review and investigation of DRMS
conducted by CORE, except to the extent any such information may be generally
available to the public; provided, however, that (a) any disclosure of such
information may be made by CORE to the extent required by applicable law or
regulation or judicial or regulatory process, and (b) such information may be
used by CORE as evidence in or in connection with any pending or threatened
litigation relating to this Agreement or any transaction contemplated hereby.
SECTION 9.2 CLOSING DOCUMENTS
The parties will make every good faith effort to reach agreement as to
the form of the documentation to be delivered in connection with the Closing
hereunder.
SECTION 9.3 TRANSACTION FEES
(a) The Stockholders jointly and severally agree that they shall be
responsible and shall indemnify and hold harmless CORE and DRMS for any (i)
brokers' fees or other fees payable to Ernst & Young LLP for services
rendered in connection with this transaction, and (ii) attorneys,
accountants, auditors and other fees and expenses incurred on behalf or for
the benefit of the Stockholders and/or DRMS in connection with this
transaction.
(b) CORE agrees that CORE shall be responsible and shall indemnify and
hold
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harmless Stockholders and DRMS for any (i) brokers' fees or other fees
payable to Cochran, Caronia & Co. for services rendered in connection with
this transaction, and (ii) attorneys, accountants, auditors and other fees
and expenses incurred on behalf or for the benefit of the CORE in connection
with this transaction.
SECTION 9.4 RESERVED
SECTION 9.5 TAX MATTERS
The following provisions shall govern the allocation of responsibility
as between CORE and the Stockholders for certain tax matters following the
Closing Date:
(a) TERMINATION OF THE S CORPORATION STATUS OF DRMS AND TAXABLE YEAR.
The parties acknowledge that the transaction contemplated by this Agreement
will cause DRMS to terminate its status as an S corporation, effective as of
the Closing Date. Pursuant to Section 1362(e)(1) of the Internal Revenue
Code, DRMS shall have two short taxable years during calendar year 1998,
namely: an "S short year" beginning January 1, 1998 and ending on the day
before the Closing Date and a "C short year" beginning on the Closing Date
and ending on December 31, 1998. CORE and the Stockholders shall cause DRMS
to elect and shall consent, pursuant to Section 1362(e)(3) of the Code, to
allocate tax items to the Company's S short year and C short year pursuant to
normal tax accounting rules (the "closing of the book method"). The
allocation of such items shall be done on a basis consistent with DRMS's past
accounting practice and in a manner reasonably satisfactory to CORE.
(b) PREPARATION OF TAX RETURNS. The Stockholders shall at their
expense prepare and file or otherwise furnish to the appropriate party (or
cause to be prepared and filed or so furnished) in a timely manner all tax
returns of DRMS or, if necessary, shall prepare and deliver (or cause to be
prepared and delivered) such tax returns to DRMS for signing or filing, for
all taxable years or periods (including, but not limited to, the Company's S
short year) ending prior to or on the Closing Date that have not been filed
prior to the Closing Date. CORE shall prepare and file (or cause to be
prepared and filed) all tax returns of DRMS for any taxable year or period
that ends after the Closing Date. The Stockholders, DRMS and CORE shall
reasonably cooperate, and shall cause their respective affiliates, officers,
employees, agents, authors and other representatives reasonably cooperate, in
preparing and filing all tax returns, including maintaining and making
available to each other all records necessary in connection with the
reporting of taxes and fees and in resolving all disputes and audits with
respect to all periods relating to taxes and fees. CORE, DRMS and the
Stockholders recognize that the Stockholders and their agents and other
representatives will need access, from time to time, after the Closing Date,
to certain accounting records and information held by DRMS to the extent such
information and records pertain to events occurring on or prior to the
Closing Date; therefore, each of CORE, DRMS and the Stockholders agree (i) to
use their best efforts to properly retain and maintain such records
37
<PAGE>
until such time as the Stockholders agrees that such retention and
maintenance is no longer necessary (but in no event longer than six years
after the Closing Date) and (ii) to allow the Stockholders and their
respective agents and other representatives, at times and dates mutually
acceptable to the parties, to inspect, review and make copies of such records
as the Stockholders and their agents and other representatives may deem
necessary or appropriate from time to time, such activities to be conducted
during normal business hours and at the requesting Stockholder's expense.
(c) COOPERATION ON TAX MATTERS.
(i) CORE, DRMS and the Stockholders shall cooperate fully, as
and to the extent reasonably requested by the other party, in connection
with the filing of Tax Returns pursuant to this Section and any audit,
litigation or other proceeding with respect to Taxes. Such cooperation
shall include the retention and (upon the other party's request) the
provision of records and information which are reasonably relevant to any
such audit, litigation or other proceeding and making employees available
on a mutually convenient basis to provide additional information and
explanation of any material provided hereunder. DRMS and the Stockholders
agree (A) to retain all books and records with respect to Tax matters
pertinent to DRMS relating to any taxable period beginning before the
Closing Date until the expiration of the statute of limitations (and, to
the extent notified by CORE or the Stockholders, any extensions thereof) of
the respective taxable periods, and to abide by all record retention
agreements entered into with any taxing authority, and (B) to give the
other party reasonable written notice prior to transferring, destroying or
discarding any such books and records and, if the other party so requests,
DRMS or the Stockholders, as the case may be, shall allow the other party
to take possession of such books and records.
(ii) CORE, DRMS and the Stockholders further agree, upon request,
to use their best efforts to obtain any certificate or other document from
any governmental authority or any other Person as may be necessary to
mitigate, reduce or eliminate any Tax that could be imposed (including, but
not limited to, with respect to the transactions contemplated hereby).
(iii) CORE, DRMS and the Stockholders further agree, upon request,
to provide the other party with all information that either party may be
required to report pursuant to Section 6043 of the Code and all Treasury
Department Regulations promulgated thereunder.
(d) TAX SHARING AGREEMENTS. All tax sharing agreements or similar
agreements with respect to or involving DRMS shall be terminated as of the
Closing Date and, after the Closing Date, neither DRMS nor CORE shall be
bound thereby or have any liability thereunder.
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<PAGE>
SECTION 9.6 TERMINATION OF SHAREHOLDER AGREEMENT
Each of the Stockholders hereby releases and waives all rights of
approval, consent, dissent and first refusal and all pre-emptive,
anti-dilution or other rights he or she may have, by reason of the
Shareholder Agreement or otherwise, with respect to the transactions
contemplated hereby. Notwithstanding any provision of the Shareholder
Agreement to the contrary, the Shareholder Agreement shall be terminated
effective as of the Closing.
ARTICLE X
GENERAL PROVISIONS
SECTION 10.1 WAIVERS; KNOWLEDGE
DRMS or the Stockholders may extend the time for or waive the
performance of any of the obligations of CORE, waive any inaccuracies in the
representations or warranties of CORE, or waive compliance by CORE with any
of the covenants or conditions contained in this Agreement. Any such
extension or waiver shall be in writing and signed by either a duly
authorized officer of DRMS or all of the Stockholders, themselves or through
powers of attorney.
CORE may extend the time for or waive the performance of any of the
obligations of DRMS or the Stockholders, waive any inaccuracies in the
representations or warranties of DRMS or the Stockholders, or waive
compliance by DRMS or the Stockholders 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 CORE.
As used in this Agreement, the terms "knowledge" and any variations
thereof shall mean the actual knowledge of, as applicable, the individual
Stockholders or the officers and directors of the CORE or DRMS and such
knowledge as reasonable officers and directors would have based on the
execution of their responsibilities consistent with their legal duty of care.
Without limiting the generality of the foregoing the knowledge of DRMS shall
be deemed to include, without limitation, the knowledge of each of the five
Stockholders.
SECTION 10.2 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,
39
<PAGE>
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 to: CORE, INC.
18881 Von Karman Avenue, Suite 1750
Irvine, CA 92612
Attn: George C. Carpenter IV, Chief Executive Officer
with a copy to: Rich, May, Bilodeau & Flaherty, P.C.
294 Washington Street
Boston, Massachusetts 02108-4675
Attention: Stephen M. Kane, Esq.
if to DRMS to: Disability Reinsurance Management Services, Inc.
178 Middle Street, Suite 200
Portland, ME 04101-4075
or at such other address as DRMS may have furnished in writing, and, if prior
to the Closing Date, with a copy to:
Preti, Flaherty, Beliveau & Pachios, LLC
One City Center
P.O. Box 9546
Portland, ME 04112-9546
Attn: Eric P. Stauffer, Esq.
or if after the Closing Date, with a copy to:
Rich, May, Bilodeau & Flaherty, P.C.
294 Washington Street
Boston, Massachusetts 02108
Attention: Stephen M. Kane, Esq.
if to Stockholders to: the addresses set forth on SCHEDULE 2.28
attached hereto or to such other address as may be designated in writing by
either party from time to time in accordance herewith.
40
<PAGE>
SECTION 10.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES
The representations, warranties, covenants and agreements made by the
parties in this Agreement and in the exhibits, schedules and other
attachments to this Agreement, and in any contract, certificate, instrument
or other document executed and delivered by a party pursuant to this
Agreement shall survive the Closing only to the extent provided in Article VI.
SECTION 10.4 SUCCESSORS, ASSIGNS
All covenants and agreements contained in this Agreement by or on behalf
of any of the parties hereto shall bind and inure to the benefit of the
respective successors, heirs, personal representatives and permitted assigns
of the parties hereto.
SECTION 10.5 COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
SECTION 10.6 GOVERNING LAW; AMENDMENTS
This Agreement shall be governed by and construed in accordance with the
law of the State of Maine 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 10.7 EXPENSES
CORE on one hand, and the Stockholders, for themselves and DRMS, on the
other hand, will each bear their own costs and expenses (including legal fees
and expenses) incurred in connection with this Agreement and the transactions
contemplated hereby. Up to $20,000 of the cost of preparing the stub audit
as of June 30, 1998, shall be accrued by DRMS prior to the Closing Date,
shall be paid after the Closing Date, and shall not be considered as an
expense in calculating Net Assets for purposes of Section 1.2(b) hereof.
SECTION 10.8 CONSTRUCTION.
The parties have participated jointly in the negotiation and drafting of
this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted
jointly by the parties and no presumption or burden of proof shall arise
favoring or disfavoring any party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context
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requires otherwise. The word "including" shall mean including without
limitation. This Agreement is not intended to affect the rights and
obligations of the parties respectively under Federal securities laws.
Capitalized terms used herein have the following meanings:
"ACCOUNTANTS" has the meaning set forth in Section 1.2(b).
"ADDITIONAL CONSIDERATION" has the meaning set forth in Section 1.2(a).
"ADJUSTMENT AMOUNT" has the meaning set forth in Section 1.2(b).
"ADJUSTMENT STATEMENT" has the meaning set forth in Section 1.2(b).
"AUTHORITIES" has the meaning set forth in Section 2.13.
"CLOSING" has the meaning set forth in Section 1.3.
"CLOSING DATE" has the meaning set forth in Section 1.3.
"CLOSING PURCHASE PRICE" has the meaning set forth in Section 1.2(a).
"COLLECTION PERIOD" has the meaning set forth in Section 6.6.
"CORE" has the meaning set forth in the Preamble.
"CORE COMMON STOCK" means shares of common stock of CORE, par value $0.10 per
share.
"CORE SEC FILINGS" has the meaning set forth in Section 3.5.
"DRMS" has the meaning set forth in the Preamble.
"DRMS SERVICES" has the meaning set forth in Section 2.19.
"GAAP" has the meaning set forth in Section 2.4.
"INDEMNIFIED PARTY" has the meaning set forth in Section 6.1.
"INDEMNIFYING PARTY" has the meaning set forth in Section 6.1.
"LOSS" means any liability, loss, cost, damage, expense or payment, including
(i) related attorneys', accountants' and other professional advisors' fees and
expenses, (ii) reasonable attorneys' fees incurred in enforcing the
indemnification provisions of this Agreement, (iii)
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amounts paid in settlement of a dispute with the person not a party hereto
that if resolved in favor of such third party would constitute a matter to
which a party is indemnified pursuant to this Agreement, even though such
settlement does not acknowledge that the underlying facts or circumstances
constitute a breach of a representation and warranty or other indemnified
matter, (iv) reasonable costs and expenses necessary (A) to avoid having a
claim for indemnification against another party pursuant to this Agreement,
(B) to mitigate any such claim, or (C) to correct facts and circumstances
that could be reasonably expected to result in its having a claim for
indemnification against another party pursuant to this Agreement, and (v)
interest on each of the foregoing from the date the Loss was incurred at the
prime rate in THE WALL STREET JOURNAL published on the date such Loss was
incurred (or if that was not a publication date, the next following
publication date).
"MATERIAL ADVERSE EFFECT" means any circumstance, change in, or effect on the
business of DRMS, that has, or is reasonably likely to have, a material
adverse effect on the business, assets or the results of operations or
financial condition of DRMS, taken as a whole. Material Adverse Effect does
not include adverse effects resulting from (or, in the case of effects that
have not yet occurred, reasonably likely to result from) either general
economic conditions that have a similar effect on other participants in the
industry.
"NET ASSETS" means the amounts recorded for total stockholder's equity on the
balance sheet of DRMS as of the Closing, in all events using accounting
methods that are consistent with the accounting methods used to generate
total stockholder equity set forth on DRMS' June 30, 1998 unaudited balance
sheet.
"NET ASSET AMOUNT" has the meaning set forth in Section 1.2(b).
"PROPRIETARY RIGHTS" has the meaning set forth in Section 2.7.
"SHARES" has the meaning set forth in Section 1.1.
"STOCK" has the meaning set forth in the Premises.
"STOCKHOLDER" has the meaning set forth in the Preamble.
"STOCKHOLDER SHARE" has the meaning set forth in Section 1.2(c).
"TIME OF CLOSING" has the meaning set forth in Section 1.3.
SECTION 10.9 DISPUTE RESOLUTION.
The parties shall exert all reasonable efforts to resolve all disputes
or controversies concerning the subject matter of this Agreement, including
any question or difference that may
43
<PAGE>
arise concerning the construction, meaning or effect thereof or concerning
the rights and liabilities of the parties hereunder or any other matter
arising out of or in connection therewith (a "dispute") by informal
discussion. Except for determinations by the Accountants pursuant to Section
1.3(b), if such attempt is unsuccessful, then within sixty (60) days
following notice by one party to the other parties of the existence of such
dispute, any of the parties may refer the matter to binding arbitration
according to the procedures specified in SECTION 6.2.
SECTION 10.10 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 10.11 PRESS RELEASES AND PUBLIC ANNOUNCEMENTS
Neither DRMS nor the Stockholders shall issue any press release or make
any public announcement relating to the subject matter of this Agreement
without the prior written approval of CORE; provided, however, that (i) CORE
may make any public disclosure it believes in good faith is required by or
prudent under applicable law or any listing or trading agreement concerning
its publicly-traded securities (in which case CORE will first consult DRMS
and the Stockholders prior to making the disclosure); and (ii) CORE may
respond to inquiries from analysts and others concerning the press release
announcing the proposed transaction;
SECTION 10.12 NO THIRD PARTY BENEFICIARIES
Other than the indemnification rights granted under SECTION 6.1, this
Agreement shall not confer any rights or remedies upon any person or entity
other than the parties hereto.
SECTION 10.13 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 10.14 INCORPORATION OF EXHIBITS AND SCHEDULES
The Exhibits and Schedules identified in this Agreement are incorporated
herein by reference and made a part hereof.
SECTION 10.15 SECURITIES LAWS
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Nothing contained in this Agreement is intended to limit the rights,
liabilities or obligations of the parties under applicable federal or state
securities laws and regulations.
SECTION 10.16 ENTIRE AGREEMENT
This Agreement (including the documents referred to herein) constitutes
the entire agreement among the parties and supersedes any prior
understandings, agreements, or representations by or among the parties,
written or oral (including without limitation the Confidentiality Agreement
executed by CORE on June 17, 1998), to the extent they are related in any
way to the subject matter hereof.
[SIGNATURES ON FOLLOWING PAGE]
45
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
Attest: CORE, INC.
By: /s/ William E. Nixon By: /s/ George C. Carpenter IV
------------------------------- ----------------------------------
William E. Nixon George C. Carpenter IV
Clerk Chairman and Chief Executive Officer
Attest: DISABILITY REINSURANCE MANAGEMENT, INC.
("DRMS")
By: /s/ Lisa O. Hansen By: /s/ Michael D. Lachance
------------------------------- ----------------------------------
Lisa O. Hansen Michael D. Lachance
Secretary President
Witness:
/s/ [ILLEGIBLE] /s/ Michael D. Lachance
- ------------------------------------ ---------------------------------------
Name: Michael D. Lachance, individually
-------------------------------
Witness:
/s/ [ILLEGIBLE] /s/ James T. Fallon
- ------------------------------------ ---------------------------------------
Name: James T. Fallon , individually
-------------------------------
Witness:
/s/ [ILLEGIBLE] /s/ Lisa O. Hansen
- ------------------------------------ ---------------------------------------
Name: Lisa O. Hansen, individually
-------------------------------
Witness:
/s/ [ILLEGIBLE] /s/ David C. Mitchell
- ------------------------------------ ---------------------------------------
Name: David C. Mitchell, individually
-------------------------------
Witness:
/s/ [ILLEGIBLE] /s/ David K. Rich
- ------------------------------------ ---------------------------------------
Name: David K. Rich, individually
-------------------------------
<PAGE>
LIST OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
<S> <C>
A-1 Additional Consideration Calculation and Payment Terms
A-2 Quarterly EBIT Projections
B-1 Form of Legal Opinion of DRMS's and the Stockholders' counsel
B-2 Form of Legal Opinion of DRMS's counsel concerning state
authorities
C Form of Registration Rights Agreement
D Form of Employment Agreement
E Legal opinion of Rich, May, Bilodeau & Flaherty, P.C.
</TABLE>
LIST OF SCHEDULES
<TABLE>
<CAPTION>
SCHEDULE DESCRIPTION
<S> <C>
Schedule 2.1 Interests of DRMS and the Stockholders in Other Businesses
Schedule 2.2 Affected Contracts
Schedule 2.3 DRMS Capitalization
Schedule 2.4 Financial Statements of DRMS
Schedule 2.5 Permitted Encumbrances
Schedule 2.6 Tangible Property of DRMS with Book or Fair Market Value over
$1,000
Schedule 2.7 Proprietary Rights
Schedule 2.8 Real Property
Schedule 2.9 Insurance
Schedule 2.10 Material Contracts and Agreements with Stockholders
Schedule 2.12 Employees, Consultants, Benefit Plans
Schedule 2.13 Governmental Permits
Schedule 2.14 Liabilities
Schedule 2.16 Litigation; Compliance with Laws
Schedule 2.20 Subsequent Events
Schedule 2.22 DRMS Officers and Directors
Schedule 2.24 Operating/Trade Names and Addresses
Schedule 2.27 Departing Clients, Employees and Others
Schedule 2.28 Residential Addresses of DRMS Stockholders and Stockholders
Agreements
Schedule 3.2 Necessary Consents
Schedule 8.3 Actuarial Certificate
</TABLE>
<PAGE>
EXHIBIT A-1
ADDITIONAL CONSIDERATION
This Exhibit describes the method for calculating and paying Additional
Consideration described in Section 1.2(a) of the Agreement. For these
purposes, certain capitalized terms have the following meanings:
AVERAGE CORE STOCK PRICE means the average closing price for one share
of CORE Common Stock for the 60 trading days immediately preceding the
applicable Valuation Date as reported in the WALL STREET JOURNAL.
EBIT means the earnings before interest and taxes of DRMS as accurately
reflected on the books of DRMS using generally accepted accounting
principles and practices applied on a consistent basis with prior
periods ("GAAP") before interest and taxes over the Measuring Period.
For these purposes, inter-company charges for services delivered to or
received from DRMS will be priced on an arms' length basis without an
allocation of general overhead charges by CORE to DRMS.
EBIT HURDLE means $14,700,000.
MEASURING PERIOD means the period consisting of twelve (12) full
consecutive calendar quarters next following the Closing Date (i.e.
October 1, 1998 through September 30, 2001).
MINIMUM AWARD HURDLE means 80% of the EBIT Hurdle.
VALUATION DATE means (i) if the EBIT Hurdle is achieved on or prior to
December 31, 2000, then December 31, 2000 and (ii) in all other cases,
September 30, 2001.
1. EBIT AT LEAST EQUAL TO EBIT HURDLE. If the aggregate EBIT for DRMS for
the Measuring Period is equal to or greater than the EBIT Hurdle, the
aggregate Additional Consideration shall be Three Hundred Seventy Five
Thousand (375,000) shares of CORE Common Stock, subject to adjustments as set
forth below.
2. EBIT LESS THAN MINIMUM AWARD HURDLE. If the aggregate EBIT attained by
DRMS for the Measuring Period is less than the Minimum Award Hurdle, there
shall be no Additional Consideration.
3. EBIT BETWEEN MINIMUM AWARD HURDLE AND EBIT HURDLE. If the aggregate
EBIT attained by DRMS for the Measuring Period is equal to or greater than
the Minimum Award Hurdle but less than the EBIT Hurdle then the Aggregate
Additional Consideration shall be 375,000 shares of CORE Common Stock
multiplied by the percentage of the EBIT Hurdle so attained, subject to
adjustments as set forth below.
<PAGE>
4. THE MAXIMUM ADDITIONAL CONSIDERATION. If the Average CORE Stock Price
calculated as of the applicable Valuation Date multiplied by Additional
Consideration (a) calculated pursuant to Section 1 exceeds $7,000,000 or (b)
if the EBIT Hurdle is not equaled or exceeded and Section 3 is applicable,
then $7,000,000 multiplied by the percentage of the EBIT Hurdle so attained,
then the number of shares of CORE Common Stock payable to the Stockholders
pursuant to whichever of those Sections is applicable shall be reduced to the
whole number of shares determined by dividing $7,000,000 (if Section 1 is
applicable) or the reduced number described in (b), above (if Section 3 is
applicable) by such Average CORE Stock Price.
5. CALCULATION AND TIMING OF PAYMENTS.
Stockholders who are serving or have served as Managing Directors of DRMS
shall assist CORE and DRMS in calculating the EBIT over the Measuring Period.
Additional Consideration shares of CORE Common Stock shall be issued to the
eligible Stockholders within 60 days after the applicable Valuation Date,
provided if the Valuation Date is September 30, 2001, such shares shall be
issued on January 2, 2002.
6. EMPLOYMENT CONTINGENCIES. In the event one or more Stockholders fail to
remain as employees of DRMS through March 1, 2000 (except as a result of a
Stockholder's permanent disability or death while an employee of DRMS or
termination without cause by DRMS), such Stockholder shall not receive his or
her share of the Additional Consideration and the amount of shares
constituting that Stockholder's Share of the Additional Consideration shall
not be issued. Reference to termination without cause does not constitute an
acknowledgement that any such termination is permitted under a Stockholder's
employment agreement.
7. COMMON STOCK REORGANIZATION.
(a) If CORE shall (i) subdivide or consolidate its outstanding shares
of Common Stock (or any class thereof) into a greater or smaller number of
shares, (ii) pay a dividend or make a distribution on its Common Stock (or
any class thereof) in shares of its capital stock, or (iii) issue by
reclassification of its Common Stock any shares of its capital stock (any
such event described in clauses (i), (ii) or (iii) being called a "COMMON
STOCK REORGANIZATION"), then the number and type of shares constituting
Additional Consideration shall be equitably adjusted to reflect such Common
Stock Reorganization.
(b) If, at any time before the Additional Consideration is paid, CORE
shall be consolidated with, or merged or acquired by, any corporation or
corporations (a "Merger/Acquisition"), lawful provisions shall be made, as
part of the terms of each such consolidation or merger, so that the
Stockholders shall thereafter be entitled to receive, in lieu of each share
of CORE Common Stock otherwise constituting the Additional Consideration, the
kind and amount of securities, assets or other consideration as may be
issuable or payable
2
<PAGE>
upon such Merger/Acquisition with respect to each share of Common Stock, as
if the Additional Consideration had been payable in full immediately prior to
the effective time of such Merger/Acquisition. Notwithstanding the foregoing,
in the event that (i) the consideration payable to stockholders of CORE in
the Merger/Acquisition is all cash and does not include publicly traded stock
of the acquirer or other party to the Merger/Acquisition and (ii) DRMS has
attained at least 80% of the EBIT Projections set forth on EXHIBIT A-2 for
the Measuring Period through the most recently completed calendar quarter
prior to the closing of the proposed Merger/Acquisition; then in such event,
immediately prior to the Closing of the Merger/Acquisition (and subject to
the closing of the Merger/Acquisition) CORE shall issue the Stockholders
375,000 shares of CORE common stock as the Additional Consideration (subject
to pro-rata reductions as set forth in SECTION 3 of this EXHIBIT A (provided
that if such pro-rata reduction is applied, the parties shall enter into an
agreement which states if DRMS attains a percent of the EBIT Hurdle above
that used at the time of the Merger/Acquisition at the end of the full
Measuring Period, then compensation comparable to the consideration
previously pro-rated and not paid shall be payable to Stockholders), and
subject to reductions for the employment contingencies set forth on SECTION 6
of this EXHIBIT A for the Stockholders not employed by DRMS at the time of
the Closing of the Merger/Acquisition and subject to reduction for the
$7,000,000 maximum set forth in SECTION 4 of this EXHIBIT A). Accordingly,
such shares of CORE common stock shall be converted into the consideration
receivable by other CORE common stockholders at the closing of the
Merger/Acquisition.
8. EXAMPLES.
Without limiting the generality of the foregoing, the following examples are
intended to show how Additional Consideration shall be paid.
EXAMPLE 1. EBIT more than EBIT Hurdle. CORE Stock price $20. All
Stockholders are employees through the eighteenth calendar month next
following the Closing.
350,000 shares of CORE Common Stock are paid and allocated to the
Stockholders.
EXAMPLE 2. EBIT more than EBIT Hurdle. CORE Stock price $20. One 27%
Stockholder leaves employment prior to the end of the eighteenth calendar
month next following the Closing (other than as a result of permanent
disability, death, termination without cause or termination without good
reason).
The 27% share of the 350,000 shares payable in Example 1 would not be paid to
such former employee Stockholder and the remaining 255,500 shares would be
paid and allocated to the continuing-employee DRMS Stockholders. Note that
the Stockholders who are still employed as of the end of the first eighteen
calendar months next following the Closing individually would receive the
same number of shares in Examples 1 and 2.
3
<PAGE>
EXAMPLE 3. EBIT is $13 million, CORE Stock price $10. All Stockholders are
employees through the end of the eighteenth calendar month next following the
Closing.
331,633 shares of CORE stock are paid and allocated to the Stockholders.
EXAMPLE 4. EBIT $13 million, CORE Stock price $20. All Stockholders are
employees through the end of the eighteenth calendar month next following the
Closing.
309,524 shares of CORE stock are paid and allocated to the Stockholders
(adjustments are made both for EBIT shortfall and $7,000,000 cap).
EXAMPLE 5. EBIT $13 million, CORE Stock price $20. One 27% Stockholder
leaves employment prior to the end of the eighteenth calendar month next
following the Closing (other than as a result of permanent disability, death,
termination without cause or termination without good reason).
225,952 shares of CORE stock are paid and allocated to the Stockholders
(adjustments are made for EBIT shortfall, $7,000,000 cap and non-employed
Stockholder)
4
<PAGE>
NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON THE EXERCISE OF THIS
WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF UNLESS THEY HAVE BEEN REGISTERED UNDER THE ACT AND
APPLICABLE STATE SECURITIES LAWS OR UNLESS AN EXEMPTION FROM REGISTRATION IS
AVAILABLE.
CORE, INC.
Warrant for Common Stock
No. R-1 August 31, 1998
VOID AFTER AUGUST 31, 2003
THIS CERTIFIES that, for value received, FLEET NATIONAL BANK, or its
registered assigns, is entitled to subscribe for and purchase from CORE,
INC., a Massachusetts corporation (hereinafter called the "Corporation"), at
the price of $6.92 per share (such price, as it may be from time to time
adjusted as hereinafter provided, being hereinafter called the "Warrant
Exercise Price"), at any time after August 31, 1999 and on or prior to August
31, 2003, up to 156,322 (subject to adjustment as hereinafter provided) fully
paid and nonassessable shares of Common Stock, $.10 par value (hereinafter
called the "Common Stock"), of the Corporation, subject, however, to the
provisions and upon the terms and conditions hereinafter set forth. This
Warrant is issued pursuant to the Credit Agreement, dated as of August 31,
1998 (the "Credit Agreement"), between the Corporation and Fleet National
Bank. This Warrant, each such other warrant and any warrant or warrants
subsequently issued upon exchange or transfer hereof or thereof are
hereinafter collectively called the "Warrants".
Section 1. EXERCISE OF WARRANT.
(a) METHOD OF EXERCISE; NET ISSUE EXERCISE. The rights represented
by this Warrant may be exercised by the holder hereof, in whole at any time
or from time to time in part, but not as to a fractional share of Common
Stock, by the surrender of this Warrant, together with a properly completed
notice of exercise in the form of Exhibit A hereto (a "Notice of
Exercise"), at the office of the Corporation specified in or pursuant to
Section 9 hereof. Upon receipt by the Corporation of a Notice of Exercise,
the Warrant Expense Price shall be deemed paid and, subject to paragraph
(d) of this Section 1, the Corporation shall issue to the holder hereof a
number of shares of Common Stock equal to (A) the number of shares of
Common Stock acquirable upon exercise in full of this Warrant (or, if
applicable, the portion hereof being exercised), as at such date,
multiplied by (B) the balance remaining after deducting (x) the Warrant
Exercise Price, as in effect
<PAGE>
on such date, from (y) the fair market value of one share of Common
Stock as at such date and dividing the result by (C) such fair market
value.
(b) DEFINITION OF FAIR MARKET VALUE. For purposes of paragraph
(a) above, the fair market value of the Common Stock shall be determined
as follows: if the Common Stock is listed or admitted to trading on one
or more national securities exchanges, the average of the last reported
sales prices per share regular way or, in case no such reported sales
takes place on any such day, the average of the last reported bid and
asked prices per share regular way, in either case on the principal
national securities exchange on which the Common Stock is listed or
admitted to trading, for the thirty (30) trading days immediately
preceding the date upon which the fair market value is determined (the
"Determination Date"); if the Common Stock is not listed or admitted to
trading on a national securities exchange but is quoted by the NASD
Automated Quotation System ("NASDAQ"), the average of the last reported
sales prices per share regular way or, in case no reported sale takes
place on any such day or the last reported sales prices are not then
quoted by NASDAQ, the average for each such day of the last reported bid
and asked prices per share, for the thirty (30) trading days immediately
preceding the Determination Date as furnished by the National Quotation
Bureau Incorporated or any similar successor organization; and if the
Common Stock is not listed or admitted to trading on a national
securities exchange or quoted by NASDAQ or any other nationally
recognized quotation service, the fair market value shall be the fair
value thereof determined in good faith by the Board of Directors of the
Corporation; PROVIDED, HOWEVER, that if the holders of Warrants
outstanding representing a majority of the shares of Common Stock
acquirable upon exercise of the Warrants object, within a reasonable
time after being given notice thereof, to such determination, the fair
market value shall be determined in good faith by an independent
investment banking firm selected jointly by the Board of Directors of
the Corporation and the holders of Warrants outstanding representing a
majority of the shares of Common Stock acquirable upon exercise of the
Warrants or, if that selection cannot be made within fifteen (15) days,
by an independent investment banking firm selected by the American
Arbitration Association in accordance with its rules. Anything in this
paragraph (b) to the contrary notwithstanding, the fair market value of
this Warrant or any portion thereof as of any Determination Date shall
be equal to (i) the fair market value of the shares of Common Stock
issuable upon exercise of this Warrant (or such portion thereof)
(determined in accordance with the foregoing provisions of this
paragraph (b)) minus (ii) the aggregate Warrant Exercise Price of the
Warrant (or such portion thereof).
(c) DELIVERY OF CERTIFICATES, ETC. In the event of any exercise
of the rights represented by this Warrant, a certificate or
certificates. for the shares of Common Stock so purchased, registered in
the name of the holder, shall be delivered to the holder hereof within a
reasonable time, not exceeding ten (10) days, after the rights
represented by this Warrant shall have been so exercised; and, unless
this Warrant has expired, a new Warrant representing the number of
shares (except a remaining fractional share), if any, with respect to
which this Warrant shall not then have been exercised shall also be
issued
<PAGE>
to the holder hereof within such time. The person in whose name any
certificate for shares of Common Stock is issued upon exercise of this
Warrant shall for all purposes be treated as having become the holder of
record of such shares on the date on which the Warrant was surrendered,
together with a properly completed Notice of Exercise, and payment of
the Warrant Exercise Price and any applicable taxes was made, except
that, if the date of such surrender and payment is a date on which the
stock transfer books of the Corporation are closed, such person shall be
treated as having become the holder of such shares at the close of
business on the next succeeding date on which the stock transfer books
are open.
(d) CASH OUT OPTION. In lieu of issuing shares of Common Stock
upon receipt of a Notice of Exercise pursuant to paragraph (a) above,
the Corporation shall have the option, exercisable within ten (10) days
after receipt of such Notice of Exercise, to repurchase the Warrant (or
portion thereof which is to be exercised) in consideration of the
payment to the holder of the Warrant in U.S. Dollars of an amount equal
to the fair market value of the Warrant (or such portion thereof), such
payment to be made to the holder in equal monthly installments over a
period of either six (6) or nine (9) months, at the Corporations's
election, commencing on the date of receipt of the Notice of Exercise;
PROVIDED , HOWEVER, if the Notice of Exercise is given to the
Corporation during the period from September 1, 1999 to and including
August 31, 2000, the amount of such payment shall not exceed $3.50 per
share. At any time on or after the date of this Warrant the Corporation
may elect to "cap its exposure" under this Warrant by (i) notifying the
holder of this Warrant in writing of its desire to repurchase the
Warrant (in whole and not in part) in consideration of the payment to
such holder of the higher of (A) $7.00 per share for each share issuable
upon the exercise of the Warrant or (B) if the fair market value of this
Warrant (determined on a per share basis) is higher than $7.00 per share
on the date of such notification, the fair market value of this Warrant
and (ii) making the payment described in clause (i) above to the holder
within thirty (30) days after the date of such notification.
Section 2. ADJUSTMENT OF NUMBER OF SHARES. Upon each adjustment of the
Warrant Exercise Price as provided in Section 3, the holder of this Warrant
shall thereafter be entitled to purchase, at the Warrant Exercise Price
resulting from such adjustment and subject to the provisions of Section 1,
the number of shares (calculated to the nearest tenth of a share) obtained by
multiplying the Warrant Exercise Price in effect immediately prior to such
adjustment by the number of shares purchasable pursuant hereto immediately
prior to such adjustment and dividing the product thereof by the Warrant
Exercise Price resulting from such adjustment.
Section 3. ADJUSTMENT OF PRICE UPON ISSUANCE OF COMMON STOCK. The
adjustments provided for in this Section 3 shall be made for any events
occurring on or after August 31, 1998.
(a) SUBDIVISION OR COMBINATION OF STOCK. In case the Corporation
shall at any time subdivide its outstanding shares of Common Stock into
a greater number of shares, the Warrant Exercise Price in effect
immediately prior to such subdivision shall be
<PAGE>
proportionately reduced, and conversely, in case the outstanding shares
of Common Stock of the Corporation shall be combined into a smaller
number of shares, the Warrant Exercise Price in effect immediately prior
to such combination shall be proportionately increased.
(b) STOCK DIVIDENDS. In case the Corporation shall declare a
dividend or make any other distribution upon any stock of the
Corporation payable in Common Stock, or rights to subscribe for or to
purchase, or options for the purchase of, Common Stock or any stock or
securities convertible or exchangeable for Common Stock (such rights or
options being herein called "Options" and such convertible or
exchangeable stock or securities being herein called "Convertible
Securities"), any Common Stock, Options or Convertible Securities, as
the case may be, issuable in payment of such dividend or distribution
shall be treated as having been issued or sold without consideration,
and the Warrant Exercise Price shall be reduced as if the Corporation
had subdivided its outstanding shares of Common Stock into a greater
number of shares, as provided in paragraph (a) above.
(c) REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE.
If any capital reorganization or reclassification of the capital stock of
the Corporation or any consolidation or merger of the Corporation with or
into another corporation, or the sale of all or substantially all of its
assets to another corporation shall be effected in such a way (including,
without limitation, by way of consolidation or merger) that holders of
Common Stock shall be entitled to receive stock, securities or assets with
respect to or in exchange for Common Stock, then, as a condition of such
reorganization, reclassification, consolidation, merger or sale, lawful and
adequate provisions shall be made whereby each holder of Warrants shall
thereafter have the right to receive, upon the basis and upon the terms and
conditions specified herein and in lieu of the shares of Common Stock of
the Corporation immediately theretofore receivable upon the exercise of
such Warrants, such shares of stock, securities or assets as may be issued
or payable with respect to or in exchange for a number of outstanding
shares of such Common Stock equal to the number of shares of such stock
immediately theretofore so receivable had such reorganization,
reclassification, consolidation, merger or sale not taken place, and in any
such case appropriate provision shall be made with respect to the rights
and interests of such holder to the end that the provisions hereof
(including, without limitation, provisions for adjustment of the Warrant
Exercise Price) shall thereafter be applicable, as nearly practicable, in
relation to any shares of stock, securities or assets thereafter
deliverable upon the exercise of such exercise rights (including, if
necessary to effect the adjustments contemplated herein, an immediate
adjustment, by reason of such reorganization, reclassification,
consolidation, merger or sale, of the Warrant Exercise Price to the value
for the Common Stock reflected by the terms of such reorganization,
reclassification, consolidation, merger or sale if the value so reflected
is less than the Warrant Exercise Price in effect immediately prior to such
reorganization, reclassification, consolidation, merger or sale). The
Corporation will not effect any such consolidation or merger, or any sale
of all or substantially all of its assets and properties, unless prior to
the
<PAGE>
consummation thereof the successor corporation (if other than the
Corporation) resulting from such consolidation or merger or the
corporation purchasing such assets shall assume by written instrument,
executed and mailed or delivered to each holder of Warrants at the last
address of such holder appearing on the records of the Corporation, the
obligation to deliver to such holder such shares of stock, securities or
assets as, in accordance with the foregoing provisions, such holder may
be entitled to receive.
(d) NOTICE OF ADJUSTMENT. Upon any adjustment of the Warrant
Exercise Price, then and in each such case the Corporation shall give
written notice thereof, by first class mail postage prepaid, addressed
to each holder of Warrants at the address of such holder as shown on the
records of the Corporation, which notice shall state the Warrant
Exercise Price resulting from such adjustment, setting forth in
reasonable detail the method of calculation and the facts upon which
such calculation is based.
(e) CERTAIN EVENTS. If any event occurs as to which in the
opinion of the Board of Directors of the Corporation the other
provisions of this Section 3 are not strictly applicable or if strictly
applicable would not fairly protect the exercise rights of this Warrant,
in accordance with the essential intent and principles of such
provisions to protect against dilution, then such Board of Directors
shall in good faith make an adjustment in the application of such
provisions, in accordance with such essential intent and principles, so
as to protect such exercise rights as aforesaid.
(f) STOCK TO BE RESERVED. The Corporation will at all times
reserve and keep available out of its authorized Common Stock or its
treasury shares, solely for the purpose of issue upon the exercise of
this Warrant as herein provided, such number of shares of Common Stock
as shall then be issuable upon the exercise of this Warrant. The
Corporation covenants that all shares of Common Stock which shall be so
issued shall be duly and validly issued and fully paid and nonassessable
and free from all taxes, liens and charges with respect to the issue
thereof, and, without limiting the generality of the foregoing, the
Corporation covenants that it will from time to time take all such
action as may be requisite to assure that the par value per share of the
Common Stock is at all times equal to or less than the effective Warrant
Exercise Price. The Corporation will take all such action as may be
necessary to assure that all such shares of Common Stock may be so
issued without violation of any applicable law or regulation, or of any
requirements of any national securities exchange upon which the Common
Stock of the Corporation may be listed; PROVIDED, HOWEVER, that this
sentence shall not obligate the Corporation to register such shares
under the Securities Act of 1933, as amended (the "Securities Act"), or
any applicable state securities laws or to take any action to enable the
sale or transfer of such shares to be made in accordance with Rule 144
under the Securities Act. The Corporation will not take any action
which results in any adjustment of the Warrant Exercise Price if the
total number of shares of Common Stock issued and issuable after such
action upon exercise of this Warrant would exceed the total number of
shares of Common Stock then authorized by the Corporation's Articles of
Organization. The Corporation has not granted and will not grant any
right of first refusal with respect
<PAGE>
to shares issuable upon exercise of this Warrant, and there are no
preemptive rights associated with such shares.
(g) ISSUE TAX. The issuance of certificates for shares of Common
Stock upon exercise of this Warrant shall be made without charge to the
holder hereof for any issuance tax in respect thereof, provided that the
Corporation shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of any
certificate in a name other than that of such holder.
(h) MAINTENANCE OF REGISTER. The Corporation shall keep at its
office specified in or pursuant to Section 9 hereof a register in which
the Corporation shall provide for the registration of this Warrant and
for the registration of transfer and exchange of this Warrant. The
holder of this Warrant may, at its option, and either in person or by
its duly authorized attorney, surrender the same for registration of
transfer or exchange at such office of the Corporation and, without
charge to such holder (except for taxes imposed in connection with any
transfer of this Warrant or, if applicable, any portion hereof in a name
other than that of such holder), receive in exchange therefor a Warrant
or Warrants each exercisable for such number of shares of Common Stock
as such holder may request (and collectively exercisable for the same
aggregate number of shares of Common Stock with respect to which this
Warrant or, if applicable, such portion hereof surrendered for transfer
or exchange shall not then have been exercised) and registered in the
name of such person or persons as may be designated by such holder.
This Warrant, when presented or surrendered for registration of transfer
or exchange, shall be accompanied by a written instrument of transfer,
satisfactory in form to the Corporation, duly executed by the holder of
hereof. Every Warrant so made and delivered in exchange for this
Warrant shall in all other respects be in the same form and have the
same terms as this Warrant. No transfer or exchange of this Warrant
shall be valid (x) unless made in the foregoing manner at such office or
agency and (y) unless registered under the Securities Act and any
applicable state securities laws or unless an exemption from such
registration is available. The Corporation will at no time close its
transfer books against the transfer of this Warrant or the transfer of
the shares of Common Stock issued or issuable upon the exercise of this
Warrant in any manner which interferes with the timely exercise of this
Warrant.
(i) DEFINITION OF COMMON STOCK. As used herein the term "Common
Stock" shall mean and include the Common Stock, $.10 par value, of the
Corporation as authorized on August 31, 1998, and also any capital stock
of any class of the Corporation thereafter authorized which shall not be
limited to a fixed sum or percentage in respect of the rights of the
holders thereof to participate in dividends or in the distribution of
assets upon the voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, but in no event shall include the
Preferred Stock; PROVIDED, HOWEVER, that the shares purchasable pursuant
to this Warrant shall include only shares designated as Common Stock,
$.10 par value, of the Corporation on August 31, 1998, or shares of any
class or classes resulting from any reclassification or
reclassifications thereof which are
<PAGE>
not limited to any such fixed sum or percentage and are not subject to
redemption by the Corporation and, in case at any time there shall be
more than one such resulting class, the shares of each class then so
issuable shall be substantially in the proportion which the total number
of shares of such class resulting from all such reclassifications bears
to the total number of shares of all such classes resulting from all
such reclassifications.
Section 4. NOTICES OF RECORD DATES. In the event of
(1) any taking by the Corporation of a record of the holders of
any class of securities for the purpose of determining the holders
thereof who are entitled to receive any dividend or other distribution
(other than cash dividends out of earned surplus), or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other
right, or
(2) any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the
Corporation or any sale of all or substantially all the assets of the
Corporation to or consolidation or merger of the Corporation with or
into any other corporation, or
(3) any voluntary or involuntary dissolution, liquidation or
winding-up of the Corporation,
then and in each such event the Corporation will give notice to the holder of
this Warrant specifying (i) the date on which any such record is to be taken
for the purpose of such dividend, distribution or right and stating the
amount and character of such dividend, distribution or right, and (ii) the
date on which any such reorganization, reclassification, recapitalization,
sale, consolidation, merger, dissolution, liquidation or winding up is to
take place, and the time, if any is to be fixed, as of which the holders of
record of Common Stock will be entitled to exchange their shares of Common
Stock for securities or other property deliverable upon such reorganization,
reclassification, recapitalization, sale, consolidation, merger, dissolution,
liquidation or winding-up. Such notice shall be given at least twenty (20)
days and not more than ninety (90) days prior to the date therein specified,
and such notice shall state that the action in question or the record date is
subject to the effectiveness of a registration statement under the Securities
Act of 1933, as amended (the "Securities Act") or to a favorable vote of
stockholders, if either is required.
Section 5. REGISTRATION RIGHTS. The rights of the holder hereof with
respect to the registration under the Securities Act of the shares of Common
Stock issuable upon the exercise of this Warrant are set forth in the
Registration Rights Agreement, dated as of August 31, 1998, between the
Corporation and Fleet National Bank, as the same may hereafter be amended,
supplemented, restricted or otherwise modified from time to time.
Section 6. NO STOCKHOLDER RIGHTS OR LIABILITIES. This Warrant shall
not entitle the holder hereof to any voting rights or other rights as a
stockholder of the Corporation. No provision
<PAGE>
hereof, in the absence of affirmative action by the holder hereof to purchase
shares of Common Stock, and no mere enumeration herein of the rights or
privileges of the holder hereof, shall give rise to any liability of such
holder for the Warrant Exercise Price or as a stockholder of the Corporation,
whether such liability is asserted by the Corporation or by creditors of the
Corporation.
Section 7. INVESTMENT REPRESENTATION AND LEGEND. The holder, by
acceptance of the Warrant, represents and warrants to the Corporation that it
is acquiring the Warrant and the shares of Common Stock (or other securities)
issuable upon the exercise hereof for investment purposes only and not with a
view towards the resale or other distribution thereof and agrees that the
Corporation may affix upon this Warrant the following legend:
"NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON THE EXERCISE OF
THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS THEY HAVE BEEN REGISTERED UNDER
THE ACT AND APPLICABLE STATE SECURITIES LAWS OR UNLESS AN EXEMPTION FROM
REGISTRATION IS AVAILABLE."
The holder, by acceptance of this Warrant, further agrees that the
Corporation may affix the following legend to certificates for shares of
Common Stock issued upon exercise of this Warrant:
"THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE
SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
UNLESS THEY HAVE BEEN REGISTERED UNDER THE ACT AND APPLICABLE STATE
SECURITIES LAWS OR UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE."
Section 8. LOST, STOLEN, MUTILATED OR DESTROYED WARRANT. If this
Warrant is lost, stolen, mutilated or destroyed, the Corporation may, upon
delivery of an indemnity agreement reasonably satisfactory to the Corporation
(which in the case of Fleet National Bank shall be Fleet National Bank's own
unsecured agreement of indemnity) and such other terms as the Corporation may
otherwise in its discretion reasonably impose (which shall, in the case of a
mutilated Warrant, include the surrender thereof), issue a new Warrant of
like denomination and tenor as the Warrant so lost, stolen, mutilated or
destroyed. Any such new Warrant shall constitute an original contractual
obligation of the Corporation, whether or not the allegedly lost, stolen,
mutilated or destroyed Warrant shall be at any time enforceable by anyone.
Section 9. NOTICES. All notices, requests, and other communications
required or permitted to be given or delivered hereunder shall be in writing,
and shall be delivered, or shall be sent by certified or registered mail,
postage prepaid and addressed, (i) if to the holder, to such
<PAGE>
holder at the address shown on such holder's Warrant or Warrant Shares or at
such other address as shall have been furnished to the Corporation by notice
from such holder and (ii) if to the Corporation, to it at 18881 Von Karman
Avenue, Suite 1750, Irvine, CA 92612, Attention: Chief Financial Officer or
at such other address as shall have been specified to the holder by notice
from the Corporation.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, CORE, INC. has executed this Warrant on and as of
the day and year first above written.
CORE, INC.
By: /s/ [ILLEGIBLE]
------------------------------------
Name:
Title:
<PAGE>
CREDIT AGREEMENT
DATED AS OF AUGUST 31, 1998
BETWEEN
CORE, INC.
AND
FLEET NATIONAL BANK
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1. DEFINITIONS; ACCOUNTING TERMS. . . . . . . . . . . . . . . . . .1
Section 1.1. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . .1
Section 1.2. ACCOUNTING TERMS . . . . . . . . . . . . . . . . . . . . 12
Section 1.3. ROUNDING.. . . . . . . . . . . . . . . . . . . . . . . . 13
Section 1.4. Exhibits and Schedules.. . . . . . . . . . . . . . . . . 13
Section 1.5. References to "Borrower and its Subsidiaries". . . . . . 13
Section 1.6. Miscellaneous Terms. . . . . . . . . . . . . . . . . . . 13
ARTICLE 2. THE CREDIT . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 2.1. The Revolving Loans. . . . . . . . . . . . . . . . . . . 13
Section 2.2. The Revolving Note . . . . . . . . . . . . . . . . . . . 14
Section 2.3. Procedure for Borrowing. . . . . . . . . . . . . . . . . 14
Section 2.4. Termination or Optional Reduction of Commitment. . . . . 15
Section 2.5. Mandatory Reduction of Commitment. . . . . . . . . . . . 15
Section 2.6. Conversion or Continuation of Revolving Loans. . . . . . 16
Section 2.7. Optional Prepayments . . . . . . . . . . . . . . . . . . 17
Section 2.8. Interest on the Revolving Loans. . . . . . . . . . . . . 18
Section 2.9. FEES . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 2.10. PAYMENTS GENERALLY . . . . . . . . . . . . . . . . . . . 19
Section 2.11. CAPITAL ADEQUACY. . . . . . . . . . . . . . . . . . . . 19
Section 2.12. INCREASED COSTS. . . . . . . . . . . . . . . . . . . . . 20
Section 2.13. ILLEGALITY . . . . . . . . . . . . . . . . . . . . . . . 20
Section 2.14. Payments to be Free of Deductions. . . . . . . . . . . . 21
Section 2.15. COMPUTATIONS . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE 3. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . 22
Section 3.1. Documentary Conditions Precedent . . . . . . . . . . . . 22
Section 3.2. Additional Conditions Precedent to Each Loan.. . . . . . 26
Section 3.3. Deemed Representations . . . . . . . . . . . . . . . . . 26
ARTICLE 4. REPRESENTATIONS AND WARRANTIES.. . . . . . . . . . . . . . . . 27
Section 4.1. Incorporation, Good Standing and Due Qualification . . . 27
Section 4.2. Corporate Power and Authority; No Conflicts. . . . . . . 27
Section 4.3. Legally Enforceable Agreements . . . . . . . . . . . . . 28
Section 4.4. LITIGATION . . . . . . . . . . . . . . . . . . . . . . . 28
Section 4.5. Financial Statements . . . . . . . . . . . . . . . . . . 28
Section 4.6. Ownership and Liens. . . . . . . . . . . . . . . . . . . 29
Section 4.7. TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 4.8. ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . 29
<PAGE>
Section 4.9. Subsidiaries and Ownership of Stock. . . . . . . . . . . 30
Section 4.10. Credit Arrangements. . . . . . . . . . . . . . . . . . . 30
Section 4.11. Operation of Business. . . . . . . . . . . . . . . . . . 30
Section 4.12. No Default on Outstanding Judgments or Orders. . . . . . 31
Section 4.13. No Defaults on Other Agreements. . . . . . . . . . . . . 31
Section 4.14. Governmental Regulation. . . . . . . . . . . . . . . . . 31
Section 4.15. Consents and Approvals.. . . . . . . . . . . . . . . . . 31
Section 4.16. PARTNERSHIPS . . . . . . . . . . . . . . . . . . . . . . 31
Section 4.17. Environmental Protection . . . . . . . . . . . . . . . . 31
Section 4.18. Copyrights, Patents, Trademarks, Etc . . . . . . . . . . 32
Section 4.19. Compliance with Laws . . . . . . . . . . . . . . . . . . 32
Section 4.20. EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . 33
Section 4.21. NO ADVERSE CHANGE. . . . . . . . . . . . . . . . . . . . 33
Section 4.22. USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . 33
Section 4.23. Location of Books and Records. . . . . . . . . . . . . . 33
Section 4.24. SECURITY DOCUMENTS . . . . . . . . . . . . . . . . . . . 33
Section 4.25. SOLVENCY . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 4.26 Year 2000 Compatibility. . . . . . . . . . . . . . . . . 34
Section 4.27 CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . 35
Section 4.28 True and Complete Disclosure . . . . . . . . . . . . . . 35
ARTICLE 5. AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . 36
Section 5.1. Maintenance of Existence . . . . . . . . . . . . . . . . 36
Section 5.2. Conduct of Business. . . . . . . . . . . . . . . . . . . 36
Section 5.3. Maintenance of Properties. . . . . . . . . . . . . . . . 36
Section 5.4. Maintenance of Records . . . . . . . . . . . . . . . . . 36
Section 5.5. Maintenance of Insurance . . . . . . . . . . . . . . . . 36
Section 5.6. Compliance with Laws . . . . . . . . . . . . . . . . . . 37
Section 5.7. Right of Inspection. . . . . . . . . . . . . . . . . . . 37
Section 5.8. Reporting Requirements . . . . . . . . . . . . . . . . . 37
(a) ANNUAL GAAP STATEMENTS.. . . . . . . . . . . . . . . . . 37
(b) QUARTERLY GAAP STATEMENTS. . . . . . . . . . . . . . . . 38
(c) MONTHLY ACCOUNTS RECEIVABLE AGING REPORT . . . . . . . . 38
(d) ACTUAL AND PROJECTED QUARTERLY CAPITAL EXPENDITURES. . . 39
(e) ANNUAL FORECASTS.. . . . . . . . . . . . . . . . . . . . 39
(f) MANAGEMENT LETTERS.. . . . . . . . . . . . . . . . . . . 39
(g) STOCKHOLDER COMMUNICATIONS AND SEC FILINGS.. . . . . . . 39
(h) NOTICE OF LITIGATION.. . . . . . . . . . . . . . . . . . 39
(i) NOTICES OF DEFAULT.. . . . . . . . . . . . . . . . . . . 39
(j) OTHER FILINGS. . . . . . . . . . . . . . . . . . . . . . 40
(k) QUARTERLY INVESTMENT REPORTS . . . . . . . . . . . . . . 40
<PAGE>
(l) ADDITIONAL INFORMATION.. . . . . . . . . . . . . . . . . 40
Section 5.9. CERTIFICATES.. . . . . . . . . . . . . . . . . . . . . . 40
(a) OFFICERS' CERTIFICATE. . . . . . . . . . . . . . . . . . 40
(b) ACCOUNTANT'S CERTIFICATE.. . . . . . . . . . . . . . . . 41
Section 5.10. FURTHER ASSURANCES . . . . . . . . . . . . . . . . . . . 41
Section 5.11. Compliance with Agreements . . . . . . . . . . . . . . . 41
Section 5.12. USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . 41
Section 5.13. Payment of Obligations . . . . . . . . . . . . . . . . . 41
Section 5.14. Interest Rate Protection . . . . . . . . . . . . . . . . 42
ARTICLE 6. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . 42
Section 6.1. DEBT . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 6.2. GUARANTIES, ETC. . . . . . . . . . . . . . . . . . . . . 42
Section 6.3. LIENS. . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 6.4. INVESTMENTS. . . . . . . . . . . . . . . . . . . . . . . 43
Section 6.5. Mergers and Consolidations and Acquisitions of Assets. . 44
Section 6.6. SALE OF ASSETS . . . . . . . . . . . . . . . . . . . . . 44
Section 6.7. Stock of Subsidiaries, Etc.. . . . . . . . . . . . . . . 44
Section 6.8. Transactions with Affiliates . . . . . . . . . . . . . . 44
Section 6.9. Capital Expenditures . . . . . . . . . . . . . . . . . . 44
Section 6.10. Minimum Consolidated GAAP Net Worth. . . . . . . . . . . 45
Section 6.11. Minimum Interest Coverage. . . . . . . . . . . . . . . . 45
Section 6.12. Minimum Debt Service Coverage. . . . . . . . . . . . . . 45
Section 6.13. Minimum Fixed Charge Coverage. . . . . . . . . . . . . . 45
Section 6.14. DISTRIBUTIONS. . . . . . . . . . . . . . . . . . . . . . 45
Section 6.15. No Limit on Upstream Payments by Subsidiaries. . . . . . 46
Section 6.16. EARNINGS . . . . . . . . . . . . . . . . . . . . . . . . 46
ARTICLE 7. EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . . 46
Section 7.1. EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . 46
Section 7.2. REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . 48
ARTICLE 8. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 8.1. Amendments and Waivers . . . . . . . . . . . . . . . . . 49
Section 8.2. USURY. . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 8.3. Expenses; Indemnities. . . . . . . . . . . . . . . . . . 49
Section 8.4. TERM; SURVIVAL . . . . . . . . . . . . . . . . . . . . . 51
Section 8.5. Assignment; Participations . . . . . . . . . . . . . . . 51
Section 8.6. NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 8.7. SETOFF . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 8.8. Jurisdiction; Immunities . . . . . . . . . . . . . . . . 52
<PAGE>
Section 8.9. Table of Contents; Headings. . . . . . . . . . . . . . . 52
Section 8.10. SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . 52
Section 8.11. COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . 53
Section 8.12. INTEGRATION. . . . . . . . . . . . . . . . . . . . . . . 53
Section 8.13. GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . 53
Section 8.14. CONFIDENTIALITY. . . . . . . . . . . . . . . . . . . . . 53
Section 8.15. Authorization of Third Parties to Deliver Opinions, Etc. 53
Section 8.16. BORROWER'S WAIVERS . . . . . . . . . . . . . . . . . . . 54
Section 8.17. Limitation of Liability. . . . . . . . . . . . . . . . . 54
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Schedule 1.1 Commitments and Lending Offices
Schedule 3.1 UCC and Trademark Filings
Schedule 4.4 Litigation
Schedule 4.6 Liens
Schedule 4.9 Subsidiaries
Schedule 4.10 Credit Arrangements
Schedule 4.15 Consents and Approvals
Schedule 4.16 Partnerships
Schedule 4.18 Intellectual Property
Exhibit A Revolving Note
Exhibit B-1 Notice of Borrowing
Exhibit B-2 Notice of Continuation or Conversion
Exhibit C Officer's Certificate
Exhibit D Form of Opinion of Counsel to Borrower
Exhibit E CORE Pledge Agreement
Exhibit F CORE Security Agreement
Exhibit G Subsidiary Security Agreement
Exhibit H Subsidiary Guaranty
Exhibit I Trademark Security Agreement
Exhibit J Warrant
Exhibit K Registration Rights Agreement
</TABLE>
<PAGE>
CREDIT AGREEMENT dated as of August 31, 1998 between CORE, INC., a
Massachusetts corporation (the "Borrower"), and FLEET NATIONAL BANK (the
"Bank").
The Borrower desires that the Bank extend credit as provided herein, and
the Bank is prepared to extend such credit. Accordingly, the Borrower and
the Bank agree as follows:
ARTICLE 1. DEFINITIONS; ACCOUNTING TERMS.
Section 1.1. DEFINITIONS. As used in this Agreement, the following
terms have the following meanings (terms defined in the singular to have a
correlative meaning when used in the plural and vice versa):
"Acquisition" means the acquisition to be effected contemporaneously with
the initial Borrowing in accordance with the terms and conditions of the
Acquisition Agreement pursuant to which the Borrower will acquire 100% of the
capital stock of DRMS.
"Acquisition Agreement" means the Capital Stock Purchase Agreement dated as
of August 31, 1998 by and among the Borrower, DRMS and the stockholders of DRMS.
"Acquisition Pro-Formas" means financial projections, prepared by the
Borrower on a GAAP basis, showing the consolidated and consolidating balance
sheets and statements of operations of the Borrower and its Subsidiaries after
giving effect to the Acquisition.
"Affiliate" means, as to any Person, any other Person which directly or
indirectly controls, or is under common control with, or is controlled by,
such Person. As used in this definition, "control" (including, with its
correlative meanings, "controlled by" and "under common control with") shall
mean possession, directly or indirectly, of power to direct or cause the
direction of management or policies (whether through ownership of securities
or partnership or other ownership interests, by contract or otherwise),
PROVIDED THAT, in any event: (i) any Person which owns directly or
indirectly 20% or more of the securities having ordinary voting power for the
election of directors or other governing body of a corporation or 20% or more
of the partnership or other ownership interests of any other Person (other
than as a limited partner of such other Person) will be deemed to
<PAGE>
control such corporation or other Person; and (ii) each director and officer
of the Borrower shall be deemed to be an Affiliate of the Borrower.
"Agreement" means this Credit Agreement, as amended or supplemented from
time to time. References to Articles, Sections, Exhibits, Schedules and the
like refer to the Articles, Sections, Exhibits, Schedules and the like of this
Agreement unless otherwise indicated.
<PAGE>
2
"Anniversary Date" means August 31 of each calendar year, commencing
August 31, 1999.
"Applicable Interest Rate" means for any Revolving Loan, the Base Rate,
or Eurodollar Rate for such Revolving Loan, plus in each case the Applicable
Margin.
"Applicable Margin" means, with respect to Base Rate Loans, .50 % and,
with respect to Eurodollar Rate Loans, 3.50%.
"Base Rate" means, for any Interest Period or any other period, a
fluctuating interest rate per annum as shall be in effect from time to time,
which rate per annum shall at all times be equal to the higher of (a) the
Federal Funds Rate plus one-half (1/2) of one percent (1%), or (b) the rate
of interest announced publicly by the Bank, from time to time, as the Bank's
base rate or prime rate. The interest rate of each Base Rate Loan shall
change on the date of any change in the Base Rate.
"Base Rate Loan" means a Revolving Loan which bears interest at the Base
Rate, plus the Applicable Margin.
"Borrowing" means a borrowing consisting of a Revolving Loan from the
Bank under this Agreement.
"Business Day" means any day (other than a Saturday, Sunday or legal
holiday) on which commercial banks are not authorized or required to close in
Connecticut, except that with respect to Borrowings, notices, determinations
and payments with respect to Eurodollar Rate Loans, such day shall be a
"Business Day" only if it is also a day for trading by and between banks in
the London interbank Eurodollar market.
"Capital Expenditures" means, for any period, the Dollar amount of gross
expenditures (including the principal portion of rental payments in respect
of Capital Lease Obligations) made for fixed assets, real property, plant and
equipment, and all renewals, improvements and replacements thereto (but not
repairs thereof) incurred during such period, all as determined in accordance
with GAAP.
"Capital Lease" means any lease which has been or should be capitalized
on the books of the lessee in accordance with GAAP.
"Capital Lease Obligation" means the obligation of the lessee under a
Capital Lease. The amount of a Capital Lease Obligation at any date is the
amount at which the
<PAGE>
3
lessee's liability under the related Capital Lease would be required to be
shown on its balance sheet at such date in accordance with GAAP.
"Closing Date" means the date of this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Commitment" means the commitment of the Bank to make Revolving Loans
hereunder as set forth in SCHEDULE 1.1, as the same may be reduced from time
to time pursuant to Sections 2.4 and 2.5.
"Commitment Period" means the period from and including the date hereof
to but not including the Revolving Loan Termination Date or such earlier date
as the Commitment shall terminate as provided herein.
"Consolidated GAAP Net Worth" means, with respect to any Person, the sum
of (a) the capital stock and additional paid-in capital of such Person and
its Subsidiaries on a consolidated basis, plus (without duplication) (b) the
amount of retained earnings (or, in the case of a deficit, minus the
deficit), minus (c) treasury stock, plus or minus (d) any other account which
is customarily added or deducted in determining stockholders' equity, all of
which shall be determined on a consolidated basis in accordance with GAAP.
"Continue", "Continuation", and "Continued" shall refer to the
continuation pursuant to Section 2.6 hereof of a Eurodollar Rate Loan from
one Interest Period to the next Interest Period.
"Convert", "Conversion", and "Converted" shall refer to a conversion
pursuant to Section 2.6 hereof of Base Rate Loans into Eurodollar Rate Loans
or of Eurodollar Rate Loans into Base Rate Loans.
"CORE Pledge Agreement" means the CORE Pledge Agreement, in the form of
EXHIBIT E hereto, duly executed by the Borrower, as the same may be amended,
supplemented, restated or otherwise modified and in effect from time to time.
"CORE Security Agreement" means the CORE Security Agreement, in the form
of EXHIBIT F hereto, duly executed by the Borrower, as the same may be
amended, supplemented, restated or otherwise modified and in effect from time
to time.
"Debt" means, with respect to any Person: (a) indebtedness of such
Person for borrowed money; (b) indebtedness for the deferred purchase price
of Property or services (except trade payables in the ordinary course of
business); (c) Unfunded Vested Liabilities
<PAGE>
4
of such Person (if such Person is not the Borrower, determined in a manner
analogous to that of determining Unfunded Vested Liabilities of the
Borrower); (d) the face amount of any outstanding letters of credit issued
for the account of such Person; (e) obligations arising under acceptance
facilities; (f) guaranties, endorsements (other than for collection in the
ordinary course of business) and other contingent obligations to purchase or
to provide funds for payment of the obligations of another Person, to supply
funds to invest in any Person to cause such Person to maintain a minimum
working capital or net worth or otherwise assure the creditors of such Person
against loss; (g) obligations secured by any Lien on Property of such Person;
(h) Capital Lease Obligations; and (i) redeemable preferred stock of such
Person.
"Debt Service Coverage Ratio" at the end of any fiscal quarter means the
ratio of (A) the consolidated EBITDA of the Borrower and its Subsidiaries for
the immediately preceding four fiscal quarters (ending on such date) to (B)
the sum of (i) total Interest Expense of the Borrower and its Subsidiaries on
a consolidated basis for the immediately succeeding four fiscal quarters
(beginning on such date), plus (ii) scheduled reductions of the Commitment
for the immediately succeeding four fiscal quarters (beginning on such date).
For purposes of clause (B)(i) above, Interest Expense shall be calculated on
the assumption that, at the Borrower's election, either Base Rate Loans or
Eurodollar Rate Loans having an Interest Period of six (6) months for the
full amount of the Commitment will be outstanding for the succeeding four
fiscal quarters and that the Base Rate or Eurodollar Rate, as the case may
be, in effect on such date will remain in effect during such period.
"Default" means any event which with the giving of notice or lapse of
time, or both, would become an Event of Default.
"Default Rate" means a rate per annum equal at all times to the lesser
of 2% per annum above the Applicable Interest Rate in effect from time to
time or the highest rate permitted by law.
"Distributions" means (a) dividends or other distributions in respect of
capital stock of a Person (except distributions in such stock) and (b) the
redemption or acquisition of such stock or of warrants, rights or other
options to purchase such stock (except when solely in exchange for such
stock) unless made, contemporaneously, from the net proceeds of a sale of
such stock; in either case valued at the greater of book or fair market value
of the Property being dividend, distributed or otherwise transferred as a
Distribution.
"Dollars" and the sign "$" mean lawful money of the United States of
America.
<PAGE>
5
"DRMS" means Disability Reinsurance Management Services, Inc., a
Delaware corporation.
"EBITDA" means, with respect to any Person, for any period, an amount
equal to Net Income for such period, plus (without duplication to the extent
deducted in determining Net Income) the sum of (a) Interest Expense for such
period, plus (b) income tax expense deducted in determining Net Income for
such period, plus (c) depreciation for such period, plus (d) amortization for
such period, all of which shall be determined in accordance with GAAP minus
(e) the amount of the following with respect to the fiscal quarter ended June
30, 1998: write-off of goodwill in the amount of $4,085,449, arbitration
costs in the amount of $736,009 and certain non-recurring charges in the
amount of $114,277 and any Restructuring Charges.
"Effective Date" means the date upon which the conditions precedent to
the Bank's obligations to make Revolving Loans hereunder specified in Section
3.1 shall have been satisfied or waived by the Bank.
"Equity Rights" shall mean, with respect to any Person, any outstanding
subscriptions, options, warrants, commitments, preemptive rights or
agreements of any kind (including, without limitation, any stockholders' or
voting trust agreements) for the issuance, sale, registration or voting of,
or outstanding securities convertible into, any additional shares of capital
stock of any class, or partnership or other ownership interests of any type
in, such Person.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, including any rules and regulations promulgated
thereunder.
"ERISA Affiliate" means any corporation or trade or business which is a
member of the same controlled group of corporations (within the meaning of
Section 414(b) of the Code) as the Borrower or is under common control
(within the meaning of Section 414(c) of the Code) with the Borrower.
"Eurodollar Rate" means, for the Interest Period for each Eurodollar
Rate Loan comprising part of the same Borrowing, an interest rate per annum
equal to (x) the rate quoted by the Bank at which deposits in Dollars are
offered by prime commercial banks to prime commercial banks in the London
interbank Eurodollar market two (2) Business Days before the first day of
such Interest Period for a period equal to such Interest Period and in an
amount equal to the Borrowing, divided by (y) one (1) minus the Reserve
Requirement for each such Eurodollar Rate Loan for such Interest Period.
<PAGE>
6
"Eurodollar Rate Loan" means a Revolving Loan which bears interest at
the Eurodollar Rate, plus the Applicable Margin.
"Event of Default" has the meaning given such term in Section 7.1.
"Federal Funds Rate" means, for any Interest Period or any other period,
the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of
1%) equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers on such day, as published by the Federal Reserve Bank of New
York on the Business Day next succeeding such day, PROVIDED that (a) if the
day for which such rate is to be determined is not a Business Day, the
Federal Funds Rate for such day shall be such rate on such transactions on
the next preceding Business Day as so published on the next succeeding
Business Day, and (b) if such rate is not so published for any Business Day,
the Federal Funds Rate for such Business Day shall be the average rate
charged to the Bank on such Business Day on such transactions as determined
by the Bank.
"Financing Statements" means the UCC-1 financing statements signed by
the Borrower or its Subsidiaries in connection with the security interests
granted to the Bank pursuant to the Security Documents.
"Fixed Charge Coverage Ratio" at the end of any fiscal quarter means the
ratio of (a) the sum of (i) the consolidated EBITDA of the Borrower and all
Subsidiaries for the immediately preceding four fiscal quarters (ending on
such date) and (ii) rental payments (other than the interest component of
rental payments under Capital Leases included in Interest Expense) under all
leases of the Borrower and its Subsidiaries for the immediately preceding
four fiscal quarters (ending on such date) to (b) total Fixed Charges of the
Borrower and its Subsidiaries on a consolidated basis for the immediately
succeeding four fiscal quarters (beginning on such date). For purposes of
clause (b) above, the Interest Expense component of Fixed Charges shall be
calculated on the assumption that, at the Borrower's election, either Base
Rate Loans or Eurodollar Rate Loans having an Interest Period of six (6)
months for the full amount of the Commitment will be outstanding for the
succeeding four fiscal quarters and that the Base Rate or Eurodollar Rate, as
the case may be, in effect on such date will remain in effect during such
period.
"Fixed Charges" means, for any period, the sum of (a) the Interest
Expense, plus (b) rental payments (other than the interest component of
rental payments under Capital Leases included in Interest Expense) under all
leases of the Borrower and its Subsidiaries, plus (c) the quotient of (i) the
principal payments of Debt owed by the Borrower during such period divided by
(ii) 1 minus the federal income tax rate applicable to the Borrower and its
Subsidiaries for such period.
<PAGE>
7
"GAAP" means generally accepted accounting principles in the United
States of America as in effect from time to time, applied on a basis
consistent with those used in the preparation of the financial statements
referred to in Section 4.5 (except for changes concurred in by the Borrower's
independent public accountants).
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Interest Coverage Ratio" at the end of any fiscal quarter means the
ratio of (A) the consolidated EBITDA of the Borrower and its Subsidiaries for
the immediately preceding four fiscal quarters (ending on such date) to (B)
total Interest Expense of the Borrower and its Subsidiaries on a consolidated
basis for the immediately succeeding four fiscal quarters (beginning on such
date). For purposes of clause (B) above, Interest Expense shall be calculated
on the assumption that, at the Borrower's election, either Base Rate Loans or
Eurodollar Rate Loans having an Interest Period of six (6) months for the
full amount of the Commitment will be outstanding for the succeeding four
fiscal quarters and that the Base Rate or Eurodollar Rate, as the case may
be, in effect on such date will remain in effect during such period.
"Interest Expense" means, with respect to any Person for any period, the
consolidated interest expense, including the interest portion of rental
payments under Capital Leases, as determined on a consolidated basis in
accordance with GAAP.
"Interest Period" means (a) for each Eurodollar Rate Loan comprising
part of the same Borrowing, the period commencing on the date of such
Eurodollar Rate Loan or on the last day of the preceding Interest Period, as
the case may be, and ending on the numerically corresponding day of the last
month of the period selected by the Borrower pursuant to the following
provisions: the duration of each Eurodollar Rate Loan Interest Period shall
be one (1), three (3) or six (6) months, in each case as the Borrower may
select, and (b) for each Base Rate Loan comprising part of the same
Borrowing, the period commencing on the date of such Base Rate Loan or on the
last day of the preceding Interest Period, as the case may be, and ending on
the ninetieth (90th) day after the date of such Base Rate Loan or the last
day of the preceding Interest Period, as the case may be; PROVIDED, HOWEVER,
that:
(i) all Eurodollar Rate Loans or comprising part of the same Borrowing
shall be of the same duration;
<PAGE>
8
(ii) whenever the last day of any Interest Period would otherwise
occur on a day other than a Business Day, the last day of such
Interest Period shall be extended to occur on the next succeeding
Business Day; PROVIDED that, if such extension would cause the
last day of such Interest Period to occur in the next following
calendar month, the last day of such Interest Period shall occur
on the next preceding Business Day;
(iii) each Interest Period that commences on the last Business Day of a
calendar month (or on any day for which there is no numerically
corresponding day in the applicable subsequent calendar month)
shall end on the last Business Day of the applicable subsequent
month; and
(iv) no Interest Period for any Revolving Loan shall extend beyond the
Revolving Loan Termination Date.
"Investment" means, with respect to any Person, any investment by or of
such Person, whether by means of purchase or other acquisition of capital
stock or other Securities of any other Person or by means of loan, advance
(other than advances to employees for moving and travel expenses, drawing
accounts and similar expenditures made in the ordinary course of business),
capital contribution or other debt or equity participation or interest, in
any other Person, including any partnership and joint venture interests of
such Person in any other Person.
"Lending Office" means, for each type of Revolving Loan, the lending
office of the Bank (or of an affiliate of the Bank) designated as such for
such type of Revolving Loan on SCHEDULE 1.1 or such other office of the Bank
(or of an affiliate of the Bank) as the Bank may from time to time specify to
the Borrower as the office through which its Revolving Loans of such type are
to be made and maintained.
"Lien" means any lien (statutory or otherwise), security interest,
mortgage, deed of trust, priority, pledge, charge, conditional sale, title
retention agreement, financing lease or other encumbrance or similar right of
others, or any agreement to give any of the foregoing.
"Loan Documents" mean, collectively, this Agreement, the Revolving Note,
the CORE Pledge Agreement, the CORE Security Agreement, the Subsidiary
Guaranty, the Subsidiary Security Agreement, the Trademark Security
Agreement, the Warrant and the Registration Rights Agreement and any other
documents, agreements and instruments now or hereafter executed in connection
herewith or contemplated hereby.
<PAGE>
9
"Materially Adverse Effect" means any material adverse effect upon the
business, assets, liabilities, financial condition, results of operations or,
as far as the Borrower can reasonably foresee, prospects of the Borrower and
its Subsidiaries taken as a whole, or upon the ability of the Borrower or any
of its Subsidiaries to perform in all material respects its obligations under
this Agreement or any other Loan Document.
"Multiemployer Plan" means a Plan defined as such in Section 3(37) of
ERISA to which contributions have been made by the Borrower or any ERISA
Affiliate and which is covered by Title IV of ERISA.
"Net Income" means, with respect to any Person for any period, the
aggregate amount of net income of such Person, after taxes, for such period,
as determined in accordance with GAAP.
"Notice of Borrowing" means the certificate, in the form of EXHIBIT B-1
hereto, to be delivered by the Borrower to the Bank pursuant to Sections 2.3
and 3.2(d) and shall include any accompanying certifications or documents.
"Notice of Continuation or Conversion" means the certificate, in the
form of EXHIBIT B-2, to be delivered by the Borrower to the Bank pursuant to
Section 2.6.
"Obligations" means all indebtedness, obligations and liabilities of the
Borrower and its Subsidiaries, if any, to the Bank under this Agreement and
the other Loan Documents.
"PBGC" means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
"Person" means an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust, unincorporated
association, joint venture, governmental authority or other entity of
whatever nature.
"Plan" means any employee benefit or other plan established or
maintained, or to which contributions have been made, by the Borrower or any
ERISA Affiliate and which is covered by ERISA.
"Prohibited Transaction" means any transaction set forth in Section 406
of ERISA or Section 4975 of the Code for which there is no applicable
statutory or regulatory exemption (including a class exemption or an
individual exemption).
<PAGE>
10
"Property" means any interest of any kind in property or assets, whether
real, personal or mixed, and whether tangible or intangible.
"Registration Rights Agreement" means the Registration Rights Agreement,
in the form of EXHIBIT L hereto, duly executed by the Borrower.
"Regulations D, X and U" means Regulations D, X and U of the Board of
Governors of the Federal Reserve System, as amended or supplemented from time
to time.
"Regulatory Change" means any change after the date of this Agreement in
United States federal, state or foreign laws or regulations (including
Regulation D) or the adoption or making after such date of any orders,
rulings, interpretations, directives, guidelines or requests applying to a
class of banks including the Bank, of or under any United States federal,
state, or foreign laws or regulations (whether or not having the force of
law) by any court or governmental or monetary authority charged with the
interpretation or administration thereof.
"Reportable Event" means any of the events set forth in Section 4043(c)
of ERISA as to which events the PBGC by regulation has not waived the
requirement of Section 4043(a) of ERISA that it be notified within thirty
(30) days of the occurrence of such event, PROVIDED that a failure to meet
the minimum funding standard of Section 412 of the Code or Section 302 of
ERISA shall be a Reportable Event regardless of any waivers given under
Section 412(d) of the Code.
"Requirement of Law" means, as to any Person, the Certificate of
Incorporation and By-Laws or other organization or governing documents of
such Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case
applicable to or binding upon such Person or any of its property or to which
such Person or any of its property is subject.
"Reserve Requirement" means for any Eurodollar Rate Loans for any
quarterly period (or, as the case may be, shorter period) as to which
interest is payable hereunder, the average maximum rate at which reserves
(including any marginal, supplemental or emergency reserves) are required to
be maintained during such period under Regulation D by member banks of the
Federal Reserve System in Boston, Massachusetts with deposits exceeding one
billion Dollars against "Eurocurrency liabilities" (as such term is used in
Regulation D). Without limiting the effect of the foregoing, the Reserve
Requirement shall reflect any other reserves required to be maintained by
such member banks by reason of any Regulatory Change against: (i) any
category of liabilities which includes deposits by references to which the
Eurodollar Rate for Eurodollar Rate Loans is to be determined as
<PAGE>
11
provided in the definition of "Eurodollar Rate" in this Article 1, or (ii)
any category of extensions of credit or other assets which include Eurodollar
Rate Loans.
"Restructuring Charges" has the meaning given to such term in Section
6.10.
"Revolving Loans" means any loan made by the Bank pursuant to Section
2.1. Each Revolving Loan shall be a Base Rate Loan or a Eurodollar Rate Loan.
"Revolving Loan Termination Date" means August 31, 2003; PROVIDED,
HOWEVER, if not fewer than sixty (60) days nor more than ninety (90) days
prior to either or both of the first and second Anniversary Date, the
Borrower requests the Bank to extend the Revolving Loan Termination Date for
an additional year and if the Bank, in its sole discretion in writing within
thirty (30) days of such request, grants such request, the Revolving Loan
Termination Date means the date to which the Revolving Loan Termination Date
has been so extended. If such date is not a Business Day, the Revolving Loan
Termination Date shall be the next preceding Business Day.
"Revolving Note" means a promissory note of the Borrower, in the form of
EXHIBIT A hereto, evidencing the Revolving Loans made by the Bank hereunder,
including any partial or total amendment, restatement, replacement, extension
or substitution of or for such Revolving Note.
"Securities" means any capital stock, share, voting trust certificate,
bonds, debentures, notes or other evidences of indebtedness, limited
partnership interests, or any warrant, option or other right to purchase or
acquire any of the foregoing.
"Security Documents" means the CORE Pledge Agreement, the CORE Security
Agreement, the Subsidiary Guaranty, the Subsidiary Security Agreement and the
Trademark Security Agreement.
"Senior Officer" means the (a) chief executive officer, (b) chief
financial officer, or (c) president of the Person designated.
"Subsidiary" means with respect to any Person, any corporation,
partnership, limited liability company or joint venture whether now existing
or hereafter organized or acquired: (i) in the case of a corporation, of
which a majority of the securities having ordinary voting power for the
election of directors (other than securities having such power only by reason
of the happening of a contingency) are at the time owned by such Person
and/or one or more Subsidiaries of such Person or (ii) in the case of a
partnership, limited liability company or joint venture, in which such Person
is a general partner or joint venturer or of which a majority of the
partnership, membership or other ownership interests
<PAGE>
12
are at the time owned by such Person and/or one or more of its Subsidiaries.
Unless the context otherwise requires, references in this Agreement to
"Subsidiary" or "Subsidiaries" shall be deemed to be references to a
Subsidiary or Subsidiaries of the Borrower or of a Subsidiary of the Borrower.
"Subsidiary Guaranty" means the Subsidiary Guaranty, in the form of
EXHIBIT H hereto, duly executed by each Subsidiary to the Bank, as the same
may be amended, supplemented, restated or otherwise modified and in effect
from time to time.
"Subsidiary Security Agreement" means the Subsidiary Security Agreement,
in the form of EXHIBIT G hereto, duly executed by each Subsidiary to the
Bank, as the same may be amended, supplemented, restated or otherwise
modified and in effect from time to time.
"Trademark Security Agreement" means the Trademark Security Agreement,
in the form of EXHIBIT I hereto, duly executed by the Borrower and Core
Management, Inc., a California corporation, to the Bank, as the same may be
amended, supplemented, restated or otherwise modified and in effect from time
to time.
"Unfunded Vested Liabilities" means, with respect to any Plan, the
amount (if any) by which the present value of all vested benefits under the
Plan exceeds the fair market value of all Plan assets allocable to such
benefits, as determined on the most recent valuation date of the Plan and in
accordance with the provisions of ERISA for calculating the potential
liability of the Borrower or any ERISA Affiliate to the PBGC or the Plan
under Title IV of ERISA.
"Warrant" means the Warrant, in the form of EXHIBIT K hereto, duly
executed by the Borrower, pursuant to which the Borrower grants to the Bank
warrants to purchase shares of the Common Stock of the Borrower equal to 2%
of the Borrower's outstanding Common Stock.
Section 1.2. ACCOUNTING TERMS. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP, applied on a
consistent basis, and all financial data required to be delivered hereunder
shall be prepared in accordance with GAAP, applied on a consistent basis;
EXCEPT as otherwise specifically prescribed herein. In the event that GAAP
changes during the term of this Agreement such that the financial covenants
contained in Article 6 would then be calculated in a different manner or with
different components (a) the Borrower and the Bank agree to enter into good
faith negotiations to amend this Agreement in such respects as are necessary
to conform those covenants as criteria for evaluating the Borrower's
financial condition to substantially the same criteria as were effective
prior to such change in GAAP and (b) the Borrower shall be deemed to be in
compliance with the financial covenants contained in such Article during
<PAGE>
13
the sixty (60) days following any such change in GAAP if and to the extent
that the Borrower would have been in compliance therewith under GAAP as in
effect immediately prior to such change; PROVIDED, HOWEVER, if an amendment
shall not be agreed upon within sixty (60) days or such longer period as
shall be agreed to by the Bank, for purposes of determining compliance with
such covenants until such amendment shall be agreed upon, such terms shall be
construed in accordance with GAAP as in effect on the Closing Date applied on
a basis consistent with the application used in preparing the financial
statements for the year ended December 31, 1997.
Section 1.3. ROUNDING. Any financial ratios required to be maintained
by the Borrower pursuant to this Agreement shall be calculated by dividing
the appropriate component by the other component, carrying the result to one
place more than the number of places by which such ratio is expressed in this
Agreement and rounding the result up or down to the nearest number (with a
round-up if there is no nearest number) to the number of places by which such
ratio is expressed in this Agreement.
Section 1.4. EXHIBITS AND SCHEDULES. All Exhibits and Schedules to
this Agreement, either as originally existing or as the same may from time to
time be supplemented, modified or amended, are incorporated herein by this
reference. A matter disclosed on any Schedule shall be deemed disclosed on
all Schedules.
Section 1.5. REFERENCES TO "BORROWER AND ITS SUBSIDIARIES". Any
reference herein to "Borrower and its Subsidiaries" or the like shall refer
solely to the Borrower during such times, if any, as the Borrower shall have
no Subsidiaries.
Section 1.6. MISCELLANEOUS TERMS. The term "or" is disjunctive; the
term "and" is conjunctive. The term "shall" is mandatory, the term "may" is
permissive. Masculine terms also apply to females; feminine terms also apply
to males. The term "including" is by way of example and not limitation.
ARTICLE 2. THE CREDIT.
Section 2.1. THE REVOLVING LOANS. Subject to the terms and conditions
of this Agreement, the Bank agrees to make revolving loans to the Borrower
(hereinafter collectively referred to as the "Revolving Loan" or "Revolving
Loans") from time to time from and including the date hereof until the
earlier of the Revolving Loan Termination Date or the termination of the
Commitment of the Bank, up to, but not exceeding in the aggregate principal
amount at any one time outstanding, the amount of SEVENTEEN MILLION DOLLARS
($17,000,000). Each Borrowing under this Section 2.1 of (i) a Base Rate Loan
shall be in the principal amount of not less than $250,000 or any greater
amount which is an integral multiple thereof or (ii) a Eurodollar Rate Loan
shall be in the principal
<PAGE>
14
amount of not less than $250,000 or any greater amount which is an integral
multiple thereof. During the Commitment Period and subject to the foregoing
limitations, the Borrower may borrow, repay and reborrow Revolving Loans, all
in accordance with the terms and conditions of this Agreement.
Section 2.2. THE REVOLVING NOTE.
(a) The Revolving Loans of the Bank shall be evidenced by a single
promissory note in favor of the Bank in the form of EXHIBIT A, dated the date
of this Agreement, and duly completed and executed by the Borrower.
(b) The Bank is authorized to record and, prior to any transfer of the
Revolving Note, endorse on a schedule forming a part thereof appropriate
notations evidencing the date, the type, the amount and the maturity of each
Revolving Loan made by it which is evidenced by such Revolving Note and the
date and amount of each payment of principal made by the Borrower with
respect thereto; PROVIDED, that failure to make any such endorsement or
notation shall not affect the Obligations of the Borrower hereunder or under
the Revolving Note. The Bank is hereby irrevocably authorized by the
Borrower to so endorse the Revolving Note and to attach to and make a part of
the Revolving Note a continuation of any such schedule as and when required.
The Bank may, at its option, record and maintain such information in its
internal records rather than on such schedule.
Section 2.3. PROCEDURE FOR BORROWING.
(a) The Borrower shall give the Bank a Notice of Borrowing, in the form
of EXHIBIT B-1 hereto, prior to 11:00 a.m. (California time), on the date at
least one (1) Business Day before a Borrowing of a Base Rate Loan or at least
three (3) Business Days before a Borrowing of a Eurodollar Rate Loan
specifying.
(i) the date of such Borrowing, which shall be a Business Day,
(ii) the principal amount of such Borrowing,
(iii) whether the Revolving Loan comprising such Borrowing is to
be a Base Rate Loan or a Eurodollar Rate Loan, and
(iv) if a Eurodollar Rate Loan, the Interest Period with respect to
such Borrowing.
(b) No Notice of Borrowing shall be revocable by the Borrower.
<PAGE>
15
(c) There shall be no more than four (4) Interest Periods relating to
Eurodollar Rate Loans outstanding at any time.
Section 2.4. TERMINATION OR OPTIONAL REDUCTION OF COMMITMENT. The
Commitment shall terminate on the Revolving Loan Termination Date and any
Revolving Loans then outstanding (together with accrued interest thereon)
shall be due and payable on such date. No termination of the Commitment
hereunder shall relieve the Borrower of any of its outstanding Obligations to
the Bank hereunder or otherwise. The Borrower shall have the right, upon
prior written notice of at least five (5) Business Days to the Bank, to
terminate or, from time to time, reduce the Commitment, PROVIDED that (i) any
such reduction of the Commitment shall be accompanied by the prepayment of
the Revolving Note, together with accrued interest thereon to the date of
such prepayment and any amount due pursuant to Section 2.7, to the extent, if
any, that the aggregate unpaid principal amount thereof then outstanding
exceeds the Commitment as then reduced and (ii) any such termination of the
Commitment shall be accompanied by prepayment in full of the unpaid principal
amount of the Revolving Note together with accrued interest thereon to the
date of such prepayment and any amount due pursuant to Section 2.7. Any such
partial reduction of the Commitment shall be in an aggregate principal amount
of $250,000 or any whole multiple thereof and shall reduce permanently the
Commitment then in effect hereunder.
Section 2.5. MANDATORY REDUCTION OF COMMITMENT.
(a) On each of the dates indicated below, commencing on December 31, 1998,
the Commitment of the Bank shall be reduced automatically in the following
amounts:
<TABLE>
<CAPTION>
Mandatory
Commitment Amount Available
Date Reduction After Reduction
- ---- --------- ---------------
<S> <C> <C>
December 31, 1998 $1,000,000 $16,000,000
March 31, 1999 $1,000,000 $15,000,000
June 30, 1999 $250,000 $14,750,000
September 30, 1999 $250,000 $14,500,000
December 31, 1999 $750,000 $13,750,000
March 31, 2000 $750,000 $13,000,000
June 30, 2000 $750,000 $12,250,000
September 30, 2000 $750,000 $11,500,000
December 31, 2000 $875,000 $10,625,000
March 31, 2001 $875,000 $9,750,000
June 30, 2001 $875,000 $8,875,000
<PAGE>
16
<S> <C> <C>
September 30, 2001 $875,000 $8,000,000
December 31, 2001 $1,000,000 $7,000,000
March 31, 2002 $1,000,000 $6,000,000
June 30, 2002 $1,000,000 $5,000,000
September 30, 2002 $1,000,000 $4,000,000
December 31, 2002 $1,000,000 $3,000,000
March 31, 2003 $1,000,000 $2,000,000
June 30, 2003 $1,000,000 $1,000,000
August 31, 2003 $1,000,000 $0
</TABLE>
(b) On the effective date of each reduction of the Commitment of the
Bank pursuant to Section 2.5(a), the Borrower shall repay such principal
amount (together with accrued interest thereon and any amount due pursuant to
Section 2.7(b)) of outstanding Revolving Loans, if any, as may be necessary
so that after such repayment, the aggregate unpaid principal amount of the
Revolving Loans does not exceed the Commitment as then reduced.
Section 2.6. CONVERSION OR CONTINUATION OF REVOLVING LOANS. The
Borrower shall have the right to Convert Revolving Loans of one type into
Revolving Loans of another type or to Continue Eurodollar Rate Loans, at any
time or from time to time, PROVIDED that: (a) the Borrower shall give the
Bank a Notice of Continuation or Conversion in the form of EXHIBIT B-2, as
applicable, prior to 11:00 a.m. (California time) on the date at least three
(3) Business Days prior to the last day of the Interest Period of any
Revolving Loan to be Converted into or Continued as a Eurodollar Rate Loan;
(b) Eurodollar Rate Loans may be Converted or Continued only on the last day
of an Interest Period for such Revolving Loans; (c) each Conversion or
Continuation of a Eurodollar Rate Loan shall be in an amount at least equal
to $250,000 or in any greater amount which is an integral multiple thereof;
(d) no Event of Default shall have occurred and be continuing at the time of
any Conversion to a Eurodollar Rate Loan or Continuation of any such
Eurodollar Rate Loan into a subsequent Interest Period; (e) accrued interest
on the Revolving Loan (or portion thereof) being Converted or Continued shall
be paid by the Borrower at the time of Continuation or Conversion; and (f)
each request for a Continuation as or Conversion to a Eurodollar Rate Loan
which fails to state an applicable Interest Period shall be deemed to be a
request for an Interest Period of one (1) month.
Notwithstanding anything to the contrary herein contained, if, upon the
expiration of any Interest Period applicable to any Eurodollar Rate Loan, the
Borrower shall fail to give a Notice of Continuation or Conversion as set
forth in this Section 2.6, the Borrower shall be deemed to have given a
Notice of Continuation of such Eurodollar Rate Loan in principal amount equal
to the outstanding principal amount of such Eurodollar Rate Loan and having
an Interest Period of one (1) month.
<PAGE>
17
Section 2.7. OPTIONAL PREPAYMENTS.
(a) The Borrower may, upon at least one (1) Business Day's notice to
the Bank, prepay the Base Rate Loans, without premium or penalty, in whole at
any time or from time to time in part by paying the principal amount being
prepaid together with accrued interest thereon to the date of prepayment.
(b) The Borrower may, upon at least three (3) Business Days' notice to
the Bank, prepay the Eurodollar Rate Loans, in whole at any time or from time
to time in part, by paying the principal amount being prepaid together with
(i) accrued interest thereon to the date of prepayment and (ii) if such
prepayment occurs on a date that is not the last day of the Interest Period
applicable to such Eurodollar Rate Loan, any amounts as shall be sufficient
(in the reasonable Opinion of the Bank) to compensate the Bank for any
reasonable losses, costs or expenses (excluding any losses of anticipated
profit), as certified by the Bank (such certification setting forth the basis
for such compensation), which the Bank may reasonably incur as a result of
such prepayment, including without limitation, any loss, cost or expense
incurred by reason of funds liquidation or reemployment of deposits or other
funds acquired by the Bank to fund or maintain such Eurodollar Rate Loan and
any administrative costs, expenses or charges of the Bank as a result thereof.
Without limiting the effect of the preceding sentence, compensation
shall include an amount equal to the excess, if any, of (i) the amount of
interest that otherwise would have accrued on the principal amount so prepaid
for the period from the date of such prepayment to the last day of the then
current Interest Period for such Eurodollar Rate Loan at the applicable rate
of interest for such Eurodollar Rate Loan provided for herein over (ii) the
amount of interest that otherwise would have accrued on such principal amount
at a rate per annum equal to the interest component of the amount the Bank
would have bid in the London interbank market for Dollar deposits of leading
banks in amounts comparable to such principal amount and with maturities
comparable to such period (as reasonably determined by the Bank), if the Bank
has match-funded such Eurodollar Rate Loan, or the Bank's cost of funds, if
the Bank has not match-funded. The Bank will furnish to the Borrower a
certificate setting forth the basis and amount of each request by the Bank
for compensation under this Section 2.7.
<PAGE>
18
Section 2.8. INTEREST ON THE REVOLVING LOANS.
(a) Each Base Rate Loan shall bear interest on the outstanding
principal amount thereof, for each day from the date such Base Rate Loan is
made until it becomes due, at a rate per annum equal to the Base Rate for
such day, plus the Applicable Margin. Interest shall be payable on the last
day of the Interest Period applicable thereto. Such interest shall accrue
from and including the date of such Borrowing to but excluding the date of
any repayment thereof and shall be computed on the basis of a fraction, the
numerator of which is the actual number of days elapsed from the date of
Borrowing and the denominator of which is three hundred sixty (360).
(b) Each Eurodollar Rate Loan shall bear interest on the unpaid
principal amount thereof, for each day from the date such Eurodollar Rate
Loan is made until it becomes due, at a rate per annum equal to the
Eurodollar Rate for the relevant Interest Period, plus the Applicable Margin.
Interest shall be payable on the last day of the Interest Period applicable
thereto; PROVIDED, that if such Interest Period is longer than ninety (90)
days, interest shall be payable every ninety (90) days and on the last day of
such Interest Period. Such interest shall accrue from and including the date
of such Borrowing to but excluding the date of any repayment thereof and
shall be computed on the basis of a fraction, the numerator of which is the
actual number of days elapsed from the date of Borrowing and the denominator
of which is three hundred sixty (360).
(c) Overdue principal of, and to the extent permitted by law, interest
on each Revolving Loan shall bear interest for each day until paid at a rate
per annum equal to the Default Rate.
Section 2.9. FEES.
(a) The Borrower shall pay a $187,500 upfront fee to the Bank on or
before the Effective Date.
(b) The Borrower shall pay to the Bank a stand-by commitment fee for
the Commitment Period, payable in arrears at the rate of one-half (1/2) of
one percent (1%) per annum, on the average daily unused portion of the Bank's
Commitment with respect to the Revolving Loan, which stand-by commitment fee
shall be payable quarterly on the first Business Day of January, April, July,
and October of each year beginning October 1, 1998. Such fee shall be
computed on the basis of a year of three hundred sixty (360) days and actual
days elapsed.
(c) The fees required by paragraphs (a) and (b) of this Section shall
not be refundable.
<PAGE>
19
Section 2.10. PAYMENTS GENERALLY. All payments under this Agreement
shall be made in Dollars in immediately available funds not later than 1:00
p.m. (Connecticut time) on the due date (each such payment made after such
time on such due date to be deemed to have been made on the next succeeding
Business Day) to the Bank at its address set forth on the signature pages
hereof or at such other address as it may hereafter designate by notice to
the Borrower for the account of the Lending Office of the Bank specified by
the Bank on SCHEDULE 1.1 HERETO. The Borrower shall, at the time of making
each payment under this Agreement, specify to the Bank the principal or other
amount payable by the Borrower under this Agreement to which such payment is
to be applied (and in the event that it fails to so specify, or if a Default
or Event of Default has occurred and is continuing, the Bank may apply such
payment as it may elect in its sole discretion). The Borrower authorizes the
Bank to charge any account maintained by the Borrower at the Bank to satisfy
the Borrower's payment obligations hereunder. If any account is so charged
on the due date, the payment shall be deemed to have been timely made. If
the due date of any payment under this Agreement would otherwise fall on a
day which is not a Business Day, such date shall be extended to the next
succeeding Business Day and such extension of time shall in such case be
included in the computation of such payment; PROVIDED that, if such extension
would cause the last day of an Interest Period to occur in the next following
calendar month, the last day of such Interest Period shall occur on the next
preceding Business Day.
Section 2.11. CAPITAL ADEQUACY. If after the date hereof, either (i)
the introduction of, or any change in, or in the interpretation or
enforcement of, any law, regulation, order, ruling, interpretation,
directive, guideline or request or (ii) the compliance with any order,
ruling, interpretation, directive, guideline or request from any central bank
or other governmental authority (whether or not having the force of law)
issued, announced, published, promulgated or made after the date hereof
(including, in any event, any law, regulation, order, ruling, interpretation,
directive, guideline or request contemplated by the report dated July, 1988
entitled "International Convergence of Capital Measurement and Capital
Standards" issued by the Basle Committee on Banking Regulation and
Supervisory Practices) affects or would affect the amount of capital required
or expected to be maintained by the Bank or any corporation controlling the
Bank and the Bank reasonably determines that the amount of such required or
expected capital is increased by or based upon the existence of the Bank's
Revolving Loans hereunder or the Bank's
<PAGE>
20
commitment to lend hereunder, then, upon demand by the Bank, the Borrower
shall be liable for, and shall pay to the Bank, within thirty (30) days
following demand from time to time by the Bank, additional amounts sufficient
to compensate the Bank in the light of such circumstances for the effects of
such law, regulation, order, ruling, interpretation, directive, guideline or
request, to the extent that the Bank reasonably determines such increase in
capital to be allocable to the existence of the Bank's Revolving Loans
hereunder or of the Bank's commitment to lend hereunder. A certificate
substantiating such amounts and identifying the event giving rise thereto,
which shall be submitted to the Borrower by the Bank at the time of its
demand for such compensation, shall be conclusive, absent demonstrable error.
The Bank shall promptly notify the Borrower of any event of which it has
knowledge occurring after the date of this Agreement which will entitle the
Bank to compensation pursuant to this Section, and the Bank shall take any
reasonable action available to it consistent with its internal policy and
legal and regulatory restrictions (including the designation of a different
Lending Office, if any) that will avoid the need for, or reduce the amount
of, such compensation and will not in the reasonable judgment of the Bank be
otherwise disadvantageous to the Bank.
Section 2.12. INCREASED COSTS. If after the date hereof, due to either
(i) the introduction of or any change in or in the interpretation or
enforcement of, any law, regulation, order, ruling, directive, guideline or
request, or (ii) the compliance with any order, ruling, directive, guideline
or request from any central bank or other governmental authority (whether or
not having the force of law) issued, announced, published, promulgated or
made after the date hereof, there shall be any increase in the cost to the
Bank of agreeing to make or making, funding or maintaining Eurodollar Rate
Loans, then the Borrower shall be liable for, and shall from time to time,
within thirty (30) days following a demand by the Bank, pay to the Bank for
the account of the Bank additional amounts sufficient to compensate the Bank
for such increased cost; PROVIDED, HOWEVER, that before making any such
demand, the Bank agrees to use reasonable efforts (consistent with its
internal policy and legal and regulatory restrictions) to designate a
different Lending Office if the making of such a designation would allow the
Bank or its Lending Office to continue to perform its obligations to make
Eurodollar Rate Loans or to continue to fund or maintain Eurodollar Rate
Loans and would not, in the reasonable judgment of the Bank, be otherwise
disadvantageous to the Bank. A certificate substantiating the amount of such
increased cost, which shall be submitted to the Borrower by the Bank at the
time of its demand for such compensation, shall be conclusive, absent
demonstrable error.
Section 2.13. ILLEGALITY. Notwithstanding any other provision of this
Agreement, if after the date hereof the introduction of, or any change in or
in the interpretation or enforcement of, any law, regulation, order, ruling,
directive, guideline or request shall make it unlawful, or any central bank
or other governmental authority shall assert that it is unlawful, for the
Bank or its Lending Office to perform its obligations hereunder to make
Eurodollar Rate Loans or to continue to fund or maintain Eurodollar Rate
Loans hereunder, then, on notice thereof by the Bank to the Borrower, (i) the
obligation of the Bank to make Eurodollar Rate Loans shall terminate (and the
Bank shall make all of its Revolving Loans as Base Rate Loans notwithstanding
any election by the Borrower to have the Bank make Eurodollar Rate Loans) and
(ii) if legally permissible, at the end of the current Interest Period for
such Eurodollar Rate Loans, otherwise five Business Days after such notice
and
<PAGE>
21
demand, all Eurodollar Rate Loans of the Bank then outstanding will
automatically convert into Base Rate Loans; PROVIDED, HOWEVER, that before
making any such demand, the Bank agrees to use reasonable efforts (consistent
with its internal policy and legal and regulatory restrictions) to designate
a different Lending Office if the making of such a designation would allow
the Bank or its Lending Office to continue to perform its obligations to make
Eurodollar Rate Loans and would not, in the judgment of the Bank, be
otherwise disadvantageous to the Bank. A certificate describing such
introduction or change in or in the interpretation or enforcement of such
law, regulation, order, ruling, directive, guideline or request, which shall
be submitted to the Borrower by the Bank at the time of its demand, shall be
conclusive evidence of such introduction, change, interpretation or
enforcement, absent demonstrable error. The Bank and the Borrower agree to
negotiate in good faith in order to agree upon a mutually acceptable
mechanism to provide that Eurodollar Rate Loans made by the Bank as to which
the foregoing conditions occur shall convert into Base Rate Loans.
Section 2.14. PAYMENTS TO BE FREE OF DEDUCTIONS. All payments by the
Borrower under this Agreement shall be made without setoff or counterclaim
and free and clear of, and without deduction for, any taxes (other than any
taxes imposed on or measured by the gross income or profits of the Bank or
applicable Lending Office thereof), levies, imposts, duties, charges, fees,
deductions, withholdings, compulsory loans, restrictions or conditions of any
nature now or hereafter imposed or levied by any country or any political
subdivision thereof or taxing or other authority therein unless the Borrower
is compelled by law to make such deduction or withholding. If any such
obligation is imposed upon the Borrower with respect to any amount payable by
it hereunder, it will pay to the Bank, on the date on which such amount
becomes due and payable hereunder and in Dollars, such additional amount as
shall be necessary to enable the Bank to receive the same net amount which it
would have received on such due date had no such obligation been imposed upon
the Borrower. If the Bank is at any time, or any permitted assignee of the
Bank hereunder (an "Assignee"), is organized under the laws of any
jurisdiction other than the United States or any state or other political
subdivision thereof, the Bank or the Assignee shall deliver to the Borrower
on the date it becomes a party to this Agreement, and at such other times as
may be necessary in the determination of the Borrower in its reasonable
discretion, such certificates, documents or other evidence, properly
completed and duly executed by the Bank or the Assignee (including, without
limitation, Internal Revenue Service Form 1001 or Form 4224 or any other
certificate or statement of exemption required by Treasury Regulations
Section 1.1441-4(a) or Section 1.1441-6(c) or any successor thereto) to
establish that the Bank or the Assignee is not subject to deduction or
withholding of United States Federal Income Tax under Section 1441 or 1442 of
the Internal Revenue Code or otherwise (or under any comparable provisions of
any successor statute) with respect to any payments to the Bank or the
Assignee of principal, interest, fees or other amounts payable hereunder.
Borrower shall not be required to pay any additional
<PAGE>
22
amount to the Bank or any Assignee under this Section 2.14 if the Bank or
such Assignee shall have failed to satisfy the requirements of the
immediately preceding sentence; PROVIDED that if the Bank or any Assignee
shall have satisfied such requirements on the date it became a party to this
Agreement, nothing in this Section 2.14 shall relieve Borrower of its
obligation to pay any additional amounts pursuant to this Section 2.14 in the
event that, as a result of any change in applicable law, the Bank or such
Assignee is no longer properly entitled to deliver certificates, documents or
other evidence at a subsequent date establishing the fact that the Bank or
the Assignee is not subject to withholding as described in the immediately
preceding sentence.
Section 2.15. COMPUTATIONS. All computations of interest and like
payments hereunder on the Revolving Loans shall, in the absence of clearly
demonstrable error, be considered correct and binding on the Borrower and the
Bank, unless within thirty (30) Business Days after receipt of any notice by
the Bank of such outstanding amount, the Borrower notifies the Bank to the
contrary.
ARTICLE 3. CONDITIONS PRECEDENT.
Section 3.1. DOCUMENTARY CONDITIONS PRECEDENT. The Commitment of the
Bank to make the initial Revolving Loans under this Agreement is subject to
the condition precedent that the Borrower shall have delivered the following,
in form and substance satisfactory to the Bank:
(a) LOAN DOCUMENTS. The Bank shall have received (i) this Agreement,
executed and delivered by a duly authorized officer of the Borrower;
(ii) a Revolving Note for the account of the Bank, completed, executed,
and delivered by a duly authorized officer of the Borrower; (iii) the
CORE Pledge Agreement, executed and delivered by a duly authorized
officer of the Borrower; (iv) the CORE Security Agreement, executed and
delivered by a duly authorized officer of the Borrower; (v) the
Subsidiary Guarantee, executed and delivered by a duly authorized
officer of each Subsidiary; (vi) the Subsidiary Security Agreement,
executed and delivered by a duly authorized officer of each Subsidiary;
(vii) the Trademark Security Agreement, executed and delivered by a duly
authorized officer of the Borrower and Core Management, Inc., a
California corporation, (viii) the Warrant, executed and delivered by a
duly authorized officer of the Borrower and (ix) the Registration Rights
Agreement, executed and delivered by a duly authorized officer of the
Borrower.
(b) PLEDGED STOCK; STOCK POWERS. The Bank shall have received (i)
certificates representing the stock pledged pursuant to the CORE Pledge
Agreement, together
<PAGE>
23
with an undated stock power executed in blank for each such certificate
and (ii) the Issuer's Consent attached to the CORE Pledge Agreement,
executed and delivered by a duly authorized officer of the relevant
issuer.
(c) UCC AND TRADEMARK FILINGS. All documents (including, without
limitation, financing statements) required to be filed in respect of the
Security Documents in order to create in favor of the Bank a perfected,
first priority security interest in the Collateral described therein
with respect to which a security interest may be perfected by filing
under the Uniform Commercial Code or the Lanham Act, as the case may be,
shall have been properly completed and signed for filing in each office
listed on Schedule 3.1. The Bank shall have received evidence that all
necessary filing fees and all taxes or other expenses related to such
filings have been paid in full or otherwise provided for.
(d) CORPORATE PROCEEDINGS. The Bank shall have received a copy of the
resolutions, in form and substance satisfactory to the Bank, of the
Board of Directors of the Borrower and each Subsidiary authorizing (i) the
execution, delivery and performance of the Loan Documents to which it is
a party, (ii) with respect to the Borrower, the grant of the Liens
pursuant to the Security Documents to which it is a party and the
execution, delivery and performance of the Acquisition Agreement, and
(iii) with respect to each Subsidiary, the grant of the Liens pursuant
to the Security Documents to which it is a party, in each case certified
by the Secretary or an Assistant Secretary of the Borrower or such
Subsidiary at the Closing Date, which certificate shall state that the
resolutions thereby certified have not been amended, modified, revoked
or rescinded and shall be in form and substance satisfactory to the Bank.
(e) INCUMBENCY CERTIFICATES. The Bank shall have received a
certificate, dated the Closing Date, of the Secretary or an Assistant
Secretary of the Borrower and each Subsidiary as to the incumbency and
signature of the officer or officers signing the Loan Documents to which
such Person is a party, together with evidence of the incumbency of such
Secretary or Assistant Secretary.
(f) CORPORATE DOCUMENTS. The Bank shall have received true and
complete copies of the certificate of incorporation and by-laws of the
Borrower and each Subsidiary, certified at the Closing Date as complete
and correct copies thereof, by the Secretary or an Assistant Secretary
of the Borrower or each Subsidiary.
(g) GOOD STANDING CERTIFICATES. The Bank shall have received
certificates dated as of a recent date from the Secretary of State or
other appropriate authority of such jurisdiction, evidencing the good
standing of the Borrower and each Subsidiary in
<PAGE>
24
its state of incorporation and in each state where failure to obtain
authority to do business as a foreign corporation would have a
Materially Adverse Effect.
(h) TAX GOOD STANDING CERTIFICATES. The Bank shall have received
certificates dated as of a recent date from the appropriate tax
authority of such jurisdiction, evidencing the payment by the Borrower
and each Subsidiary of all taxes owed in its state of incorporation and,
if different, its principal place of business.
(i) FINANCIAL STATEMENTS. The Bank shall have received copies of the
financial statements referred to in Section 4.5 and all other documents
requested by the Bank in connection with its completion of a testing and
review of the assets and liabilities of the Borrower and its
Subsidiaries.
(j) LIEN SEARCHES. The Bank shall have received the results of a
recent search by a Person satisfactory to the Bank of Uniform Commercial
Code and other filings which may have been filed with respect to the
personal property of the Borrower or any Subsidiaries in those locations
of which the Bank notifies the Borrower prior to the Closing Date.
(k) LITIGATION. No suit, action, investigation, inquiry or other
proceeding (including, without limitation, the enactment or promulgation
of a statute or rule) by or before any arbitrator or any Governmental
Authority shall be formally instituted or threatened and no preliminary
or permanent injunction or restraining order by a state or federal court
shall have been entered or threatened (i) in connection with any Loan
Document or any of the transactions contemplated hereby or thereby or
(ii) which, in the reasonable opinion of the Bank, could have a
Materially Adverse Effect.
(l) NO VIOLATION. The consummation of the transactions contemplated by
this Agreement, the Revolving Note and the other Loan Documents shall
not contravene, violate or conflict with, nor involve the Bank in any
violation of, any Requirement of Law.
(m) CONSENTS, LICENSES AND APPROVALS. The Bank shall have received a
certificate, dated the Closing Date, executed by a duly authorized
officer of the Borrower stating that all consents, licenses, approvals,
authorizations, notices and filings necessary or advisable in connection
with the financings contemplated by this Agreement, the continuing
operations of the Borrower and each Subsidiary, and the consummation of
the Acquisition have been obtained and are in full force and effect.
<PAGE>
25
(n) INSURANCE. The Bank shall have received evidence satisfactory to
it that the Borrower and its Subsidiaries have in place insurance
satisfying the requirements of Section 5.5.
(o) REPRESENTATIVES AND WARRANTIES. The Bank shall have received a
certificate of a Senior Officer of the Borrower, dated the Effective
Date, certifying on behalf of the Borrower that (i) the representations
and warranties in Article 4 are true, complete and correct in all
material respects on such date as though made on and as of such date,
(ii) no event has occurred and is continuing which constitutes a Default
or Event of Default, (iii) the Borrower has performed and complied with
all agreements and conditions contained in this Agreement which are
required to be performed or complied with by the Borrower at or before
the Effective Date, and (iv) there has been no material adverse change
in the financial condition, operations, Properties, business, or as far
as the Borrower can reasonably foresee, prospects of the Borrower and
its Subsidiaries, if any, taken as a whole from that reflected in the
Acquisition Pro-Formas.
(p) COMPLIANCE WITH COVENANTS. The Bank shall have received a
certificate of a Senior Officer of the Borrower, dated the Effective
Date, substantially in the form of EXHIBIT C, which certificate shall
include information required to establish that the Borrower will be in
compliance with the covenants set forth in this Agreement, after giving
effect to the Acquisition and the transactions contemplated herein.
(q) LEGAL OPINIONS. The Bank shall have received a favorable opinion
of Rich, May, Bilodeau & Flaherty, P.C., counsel to the Borrower, dated
the Effective Date, in substantially the form set forth in EXHIBIT D.
(r) SATISFACTION OF BANK. All corporate and legal proceedings and all
instruments and agreements in connection with the transactions
contemplated by this Agreement shall be satisfactory in form and
substance to the Bank and the Bank shall have received any and all other
information and documents with respect to the Borrower which it may
reasonably request.
(s) UPFRONT FEE. Payment to the Bank of the upfront fee in the amount
of $187,500.
(t) TICKING FEE. Payment to the Bank of a ticking fee in the amount of
.25% per annum on the total amount of the Bank's Commitment with respect
to the Revolving Loan, as accrued for the period from August 21, 1998 to
but not including the Closing Date.
<PAGE>
26
(u) PAYMENT OF LEGAL FEES AND DISBURSEMENTS OF COUNSEL TO THE BANK.
Payment to Day, Berry & Howard LLP, special counsel to the Bank of its
legal fees and disbursements.
(v) RECEIPT OF ACQUISITION AGREEMENT. The Bank shall have received a
true and complete copy of the Acquisition Agreement (and any amendments)
as in effect on the Closing Date, certified by a Senior Officer of the
Borrower.
(w) CONSUMMATION OF ACQUISITION. Evidence satisfactory to the Bank
that DRMS has entered into employment agreements with the current owners
of DRMS on terms and conditions satisfactory to the Bank and that the
Acquisition is being consummated contemporaneously with the initial
Borrowing.
(x) DUE DILIGENCE. The Bank shall be satisfied with the results of its
ongoing due diligence of the Borrower and its Subsidiaries.
Section 3.2. ADDITIONAL CONDITIONS PRECEDENT TO EACH LOAN. The
obligation of the Bank to make the Revolving Loans pursuant to a Borrowing
(including the initial Borrowing), unless waived by the Bank, shall be
subject to the further conditions precedent that on the date of such
Revolving Loan:
(a) each of the representations and warranties made by the Borrower and
each Subsidiary in or pursuant to the Loan Documents are true and
correct in all material respects on and as of the date of such Revolving
Loan as though made on and as of such date (or, if such representation
or warranty is expressly stated to have been made as of a specific date,
as of such specific date);
(b) there does not exist any Default or Event of Default under this
Agreement;
(c) there has been no material adverse change in the financial
condition, operations, Properties, business or prospects of the Borrower
and its Subsidiaries, if any, taken as a whole, since the date of the
last Borrowing under this Agreement (or if no Borrowing has occurred,
since the date of this Agreement); and
(d the Bank shall have received a Notice of Borrowing in the form of
EXHIBIT B-1, except to the extent otherwise provided in Section 2.6.
Section 3.3. DEEMED REPRESENTATIONS. Each Notice of Borrowing
hereunder and acceptance by the Borrower of the proceeds of such Borrowing
shall constitute a representation and warranty that the statements contained
in Section 3.2(a) are true and
<PAGE>
27
correct both on the date of such Notice of Borrowing and, unless the Borrower
otherwise notifies the Bank prior to such Borrowing, as of the date of such
Borrowing.
ARTICLE 4. REPRESENTATIONS AND WARRANTIES.
The Borrower hereby represents and warrants the following:
Section 4.1. INCORPORATION, GOOD STANDING AND DUE QUALIFICATION. The
Borrower and each Subsidiary is duly incorporated, validly existing and in
good standing under the laws of the jurisdiction of its incorporation, has
the power and authority to own its assets and to transact the business in
which it is now engaged, and is duly qualified as a foreign corporation and
in good standing under the laws of each other jurisdiction in which such
qualification is required, except where the failure to be so qualified would
not have a Materially Adverse Effect. The Borrower has all requisite power
and authority to execute and deliver and to perform this Agreement, the
Revolving Note, the Acquisition Agreement and the other Loan Documents to
which it is a party, to borrow hereunder and to grant the Liens pursuant to
the Security Documents to which it is a party and has taken all necessary
corporate action to authorize the borrowings on the terms and conditions of
this Agreement and the Revolving Note, the grant of the Liens pursuant to the
Security Documents to which it is a party, the execution, delivery and
performance of the Acquisition Agreement and the execution, delivery and
performance of this Agreement, the Revolving Note and each other Loan
Document to which it is a party. Each Subsidiary has all requisite power and
authority to execute and deliver the Loan Documents to which it is a party
and has taken all necessary corporate action to authorize the grant of the
Liens pursuant to the Security Documents to which it is a party and the
execution, delivery and performance of each Loan Document to which it is a
party.
Section 4.2. CORPORATE POWER AND AUTHORITY; NO CONFLICTS. The
execution, delivery and performance by the Borrower and each Subsidiary of
each of the Loan Documents to which it is a party have been duly authorized
by all necessary corporate action and do not and will not (a) require any
consent or approval of its shareholders; (b) violate any provisions of its
articles of incorporation or by-laws; (c) violate any provision of, or
require any filing, registration, consent or approval under, any law, rule,
regulation (including without limitation, Regulation U and X), order, writ,
judgment, injunction, decree, determination or award presently in effect
having applicability to and binding upon the Borrower or any Subsidiary; (d)
result in a breach of or constitute a default or require any consent under
any indenture, mortgage or loan or credit agreement or any other material
agreement, lease or instrument to which the Borrower or any Subsidiary is a
party or by which it or its Properties may be bound; or (e) result in, or
require, the creation or imposition of any Lien upon or with respect to any
of the Properties now owned or
<PAGE>
28
hereafter acquired by the Borrower or any Subsidiary, except as created by
the Security Documents.
Section 4.3. LEGALLY ENFORCEABLE AGREEMENTS. This Agreement and each
other Loan Document to which the Borrower or a Subsidiary is a party
constitute the legal, valid and binding obligations of the Borrower or such
Subsidiary, as the case may be, enforceable against the Borrower or such
Subsidiary, as the case may be, in accordance with their respective terms,
except to the extent that such enforcement may be limited by applicable
bankruptcy, insolvency and other similar laws affecting creditors' rights
generally and by general principles of equity.
Section 4.4. LITIGATION. Except as disclosed on Schedule 4.4, there
are no actions, suits or proceedings or investigations pending or, as far as
the Borrower can reasonably foresee, threatened against or affecting the
Borrower or any of its Subsidiaries, or any Property of any of them before
any court, governmental agency or arbitrator, which (i) relate to any past
proposed or consummated acquisition by the Borrower or any Subsidiary or (ii)
if determined adversely to the Borrower or any such Subsidiary would in any
one case or in the aggregate have a Materially Adverse Effect.
Section 4.5. FINANCIAL STATEMENTS.
(a) The consolidated balance sheets of the Borrower and its
Subsidiaries as of December 31, 1996 and December 31, 1997 and the related
consolidated statements of operations, stockholders' equity, and cash flows
of the Borrower and its Subsidiaries for the fiscal years then ended, and the
accompanying footnotes, together with the opinion thereon of Ernst & Young
LLP, independent certified public accountants, and the unaudited interim
consolidated balance sheet of the Borrower and its Subsidiaries as at June
30, 1998 and the related consolidated statements of operations, stockholders'
equity and cash flows for the six-month period then ended, copies of which
have been furnished to the Bank, fairly present the financial condition of
the Borrower and its Subsidiaries, taken as a whole, as at such dates and the
results of the operations of the Borrower and its Subsidiaries, taken as a
whole, for the periods covered by such statements, all in accordance with
GAAP consistently applied (subject to year-end accruals and audit adjustments
and the absence of footnotes in the case of the interim financial
statements). There are no liabilities of the Borrower or any Subsidiary,
fixed or contingent, which are material but are not reflected in the
financial statements or in the notes thereto, other than liabilities arising
in the ordinary course of business since June 30, 1998 and other than this
Agreement and the other Loan Documents or contemplated by the Acquisition
Agreement. No written information, exhibit or report furnished by the
Borrower to the Bank in connection with the negotiation of this Agreement
contained any material misstatement of fact or omitted to state any fact
necessary to make the statements contained therein not materially misleading.
Since June
<PAGE>
29
30, 1998 no event or circumstance has occurred that would have a Materially
Adverse Effect.
(b) The Acquisition Pro-Formas have been prepared in good faith and are
based on reasonable assumptions.
(c) The balance sheets of DRMS as of December 31, 1996 and December 31,
1997 and the related consolidated statements of income, retained earnings and
cash flows of DRMS for the fiscal years then ended, and the accompanying
footnotes, the audited interim balance sheet of DRMS as at June 30, 1998 and
the related statement of income, retained earnings and cash flows for the
six-month period then ended and the unaudited interim balance sheet of DRMS
as at July 31, 1998 and the related statement of income for the seven-month
period then ended, copies of which have been furnished to the Bank, fairly
present the financial condition of DRMS as at such dates and the results of
the operations of DRMS for the periods covered by such statements, all in
accordance with GAAP consistently applied (subject to year-end accruals and
audit adjustments and the absence of footnotes in the case of the interim
financial statements). There are no liabilities of DRMS, fixed or
contingent, which are material but are not reflected in the financial
statements or in the notes thereto, other than liabilities arising in the
ordinary course of business since June 30, 1998.
Section 4.6. OWNERSHIP AND LIENS. Each of the Borrower and its
Subsidiaries has good and valid title to, or valid leasehold interests in,
its material Properties and assets, real and personal, including the material
Properties and assets, and leasehold interests reflected in the financial
statements referred to in Section 4.5 (other than any Properties or assets
disposed of in the ordinary course of business of the Borrower and its
Subsidiaries), and none of the material Properties and assets owned by the
Borrower or its Subsidiaries, and none of its leasehold interests is subject
to any Lien other than the Lien created by the Security Documents, except as
disclosed in such financial statements or in SCHEDULE 4.6, or as may be
permitted hereunder.
Section 4.7. TAXES. Each of the Borrower and its Subsidiaries has
filed all federal and state tax returns and all other material local tax
returns required to be filed, has paid all due and payable taxes, assessments
and governmental charges and levies, including interest and penalties,
imposed upon it or upon its Properties, and has made adequate provision for
the payment of such taxes, assessments and other charges accruing but not yet
due and payable, except with respect to taxes which are being contested in
good faith by the Borrower or its Subsidiaries and for which the Borrower or
its Subsidiaries has established and maintains adequate reserves for payment.
To the best knowledge of the Borrower, there is no tax assessment
contemplated or proposed by any governmental
<PAGE>
30
agency against the Borrower or any of its Subsidiaries that would have a
Materially Adverse Effect.
Section 4.8. ERISA. Each of the Borrower and its Subsidiaries is in
compliance in all material respects with all applicable provisions of ERISA.
Within the three-year period prior to the date hereof, neither a Reportable
Event nor a Prohibited Transaction has occurred with respect to any Plan; no
notice of intent to terminate a Plan has been filed nor has any Plan subject
to Title IV of ERISA been terminated; no circumstance exists which
constitutes grounds under Section 4042 of ERISA entitling the PBGC to
institute proceedings to terminate, or appoint a trustee to administer, a
Plan, nor has the PBGC instituted any such proceedings; neither the Borrower
nor any ERISA Affiliate has completely or partially withdrawn under Sections
4201 or 4204 of ERISA from a Multiemployer Plan; each of the Borrower and its
ERISA Affiliates has met its minimum funding requirements under ERISA with
respect to all of its Plans and there are no Unfunded Vested Liabilities and
neither the Borrower nor any ERISA Affiliate has incurred any material
liability to the PBGC under ERISA other than for premium payments incurred in
the normal course of operating the Plans.
Section 4.9. SUBSIDIARIES AND OWNERSHIP OF STOCK. SCHEDULE 4.9
correctly sets forth the names of all Subsidiaries of the Borrower as of the
date of this Agreement. All of the outstanding shares of capital stock, or
all of the units of equity interest, as the case may be, of each Subsidiary
are owned of record and beneficially by the Borrower or a Subsidiary of the
Borrower, as disclosed on said Schedule; there are no outstanding options,
warrants or other rights to purchase capital stock of any such Subsidiary;
and all such shares or equity interests so owned are duly authorized, validly
issued, fully paid, non-assessable, and were issued in compliance with all
applicable state and federal securities and other laws, and are free and
clear of all Liens, except for Liens arising under the CORE Pledge Agreement
or for such Liens which otherwise may be permitted hereunder.
Section 4.10. CREDIT ARRANGEMENTS. SCHEDULE 4.10 is a complete and
correct list of all credit agreements, indentures, guaranties, Capital
Leases, mortgages, and other instruments, agreements and arrangements
presently in effect providing for or relating to extensions of credit
(including agreements and arrangements for the issuance of letters of credit
or for acceptance financing) in respect of which the Borrower or any of its
Subsidiaries is in any manner directly or contingently obligated, other than
trade payables in the ordinary course of business of the Borrower and its
Subsidiaries and the obligations under the Loan Documents; and the maximum
principal or face amounts of the credit in question, which are outstanding
and which can be outstanding, are therein set forth and are correctly stated
as of the date hereof, and all Liens given or agreed to be given as security
therefor are therein set forth and are correctly described or indicated in
such Schedule.
<PAGE>
31
Section 4.11. OPERATION OF BUSINESS. Each of the Borrower and its
Subsidiaries possesses all licenses, permits and franchises, or rights
thereto, necessary to conduct its business as now conducted and as presently
proposed to be conducted, the absence of which would have a Materially
Adverse Effect, and neither the Borrower nor any of its Subsidiaries is in
violation in any material respect of any valid rights of others with respect
to any of the foregoing.
Section 4.12. NO DEFAULT ON OUTSTANDING JUDGMENTS OR ORDERS. Each of
the Borrower and its Subsidiaries has satisfied all material judgments and
neither the Borrower nor any Subsidiary is in default with respect to any
judgment, writ, injunction, decree, rule or regulation of any court,
arbitrator or federal, state, municipal or other governmental authority,
commission, board, bureau, agency or instrumentality, domestic or foreign,
which would, in any one case or in the aggregate, have a Materially Adverse
Effect.
Section 4.13. NO DEFAULTS ON OTHER AGREEMENTS. Neither the Borrower
nor any of its Subsidiaries is a party to any indenture, mortgage or loan or
credit agreement or any lease or other agreement or instrument or subject to
any charter or corporate restriction which would have a Materially Adverse
Effect. Neither the Borrower nor any of its Subsidiaries is in default in any
material respect in the performance, observance or fulfillment of any of the
obligations, covenants or conditions contained in any agreement or
instrument, including prospectuses and investment policies, material to its
business to which it is a party.
Section 4.14. GOVERNMENTAL REGULATION. Neither the Borrower nor any of
its Subsidiaries is subject to regulation under the Investment Company Act of
1940, as amended, or any statute or regulation limiting its ability to incur
indebtedness for money borrowed as contemplated hereby.
Section 4.15. CONSENTS AND APPROVALS. No authorization, consent,
approval, order, license or permit from, or filing, registration or
qualification with, or exemption by, any governmental or public body or
authority, or any subdivision thereof, or any other Person, is required to
authorize, or is required in connection with the execution, delivery and
performance by the Borrower or any of its Subsidiaries of, or the legality,
validity, binding effect or enforceability of, any Loan Document to which the
Borrower or a Subsidiary is a party, or the Acquisition Agreement, except the
consents, approvals or other similar actions listed on SCHEDULE 4.15 attached
hereto. SCHEDULE 4.15 describes those consents, approvals or other similar
actions which have been duly and properly obtained or which may have to be
obtained by the Bank in order to enforce its rights under this Agreement and
the other Loan Documents or the Acquisition Agreement. Except as disclosed
on said Schedule, such consents, approvals or other similar actions have been
<PAGE>
32
obtained and have not been modified, amended, rescinded or revoked, and are
in full force and effect.
Section 4.16. PARTNERSHIPS. Except as set forth in SCHEDULE 4.16,
neither the Borrower nor any of its Subsidiaries is a partner in any
partnership.
Section 4.17. ENVIRONMENTAL PROTECTION. Each of Borrower and its
Subsidiaries has obtained all permits, licenses and other authorizations
which are required under all environmental laws, including laws relating to
emissions, discharges, releases or threatened releases of pollutants,
contaminants, chemicals or industrial, toxic or hazardous substances or
wastes into the environment (including without limitation, ambient air,
surface water, ground water, or land), or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants, chemicals, or industrial,
toxic or hazardous substances or wastes, except to the extent failure to have
any such permit, license or authorization would not reasonably be expected to
have a Materially Adverse Effect. Each of the Borrower and its Subsidiaries
is in compliance with all terms and conditions of the required permits,
licenses and authorizations, and is also in compliance with all other
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules and timetables contained in the environmental laws or
contained in any regulation, code, plan, order, decree, judgment, injunction,
notice or demand letter issued, entered, promulgated or approved thereunder,
except to the extent failure to comply would not reasonably be expected to
have a Materially Adverse Effect. None of the Properties of the Borrower or
its Subsidiaries, either owned or leased, have been included or, as far as
the Borrower can reasonably foresee, proposed for inclusion on the National
Priorities List adopted pursuant to the Comprehensive Environmental Response
Compensation and Liability Act, as amended, or on any similar list or
inventory of sites requiring response or cleanup actions adopted by any other
federal, state or local agency.
Section 4.18. COPYRIGHTS, PATENTS, TRADEMARKS, ETC. Each of the
Borrower and its Subsidiaries is duly licensed or otherwise entitled to use
all patents, trademarks, service marks, trade names, and copyrighted
materials ("Intellectual Property") which are used in the operation of its
business as presently conducted, except where the failure to be so licensed
or entitled would not have a Materially Adverse Effect. SCHEDULE 4.18 sets
forth a listing of all Intellectual Property that is material to the
operation of the business of the Borrower and its Subsidiaries as presently
and proposed to be conducted. No claim is pending or, as far as the Borrower
can reasonably foresee, threatened against the Borrower or any of its
Subsidiaries contesting the use of any such Intellectual Property, nor does
the Borrower know of any valid basis for any such claims, other than claims
which, if adversely determined, would not have a Materially Adverse Effect.
To the best of the Borrower's knowledge, the use of such Intellectual
Property by the Borrower and each
<PAGE>
33
Subsidiary does not infringe on the rights of any Person, except for such
claims and infringements that, in the aggregate, could not have a Materially
Adverse Effect.
Section 4.19. COMPLIANCE WITH LAWS. Neither the Borrower nor any of its
Subsidiaries is in violation of any laws, ordinances, rules or regulations,
applicable to it, of any federal, state or municipal governmental authorities,
instrumentalities or agencies, including without limitation, the United States
Occupational Safety and Health Act of 1970, as amended, except where such
violation would not have a Materially Adverse Effect. The Borrower and each
Subsidiary is in compliance with all laws and other requirements applicable to
its business and has obtained all authorizations, consents, approvals, orders,
licenses, and permits from, and the Borrower and each Subsidiary has
accomplished all filings, registrations, and qualifications with, or obtained
exemptions from any of the foregoing from, any governmental or public agency
that are necessary for the transaction of its business, except where the failure
to be in such compliance, obtain such authorizations, consents, approvals,
orders, licenses, and permits, accomplish such filings, registrations, and
qualifications, or obtain such exemptions, would not have a Materially Adverse
Effect.
Section 4.20. EVENTS OF DEFAULT. No Default or Event of Default has
occurred and is continuing.
Section 4.21. NO ADVERSE CHANGE. Since December 31, 1997, there has
occurred no event which has had or, as far as the Borrower can reasonably
foresee, could have a Materially Adverse Effect, except as is disclosed by the
Borrower's Quarterly Report on Form 10-Q for the quarterly period ended June 30,
1998.
Section 4.22. USE OF PROCEEDS. The Borrower shall use the proceeds of the
initial Revolving Loan to acquire 100% of the shares of capital stock of DRMS
and thereafter for general corporate purposes of the Borrower.
Section 4.23. LOCATION OF BOOKS AND RECORDS. All of the books of account
and records of the Borrower and its Subsidiaries are located at the Borrower's
headquarters at 18881 Von Karman Avenue, Suite 1750, Irvine, California 92612
except that the books of account and records of DRMS are maintained at 178
Middle Street, Portland, Maine 04112-9546.
Section 4.24. SECURITY DOCUMENTS.
(a) The provisions of the CORE Pledge Agreement are effective to create in
favor of the Bank a legal, valid and enforceable security interest in all right,
title and interest of the pledgor in the Collateral as described therein. The
CORE Pledge Agreement
<PAGE>
34
constitutes a lien on and security interest in, all right, title and interest
of the pledgor in the Collateral described therein and upon delivery to the
Bank of the stock certificates evidencing such Collateral, together with
stock powers duly executed by the Borrower, the Bank will have a fully
perfected first priority security interest in such Collateral.
(b) The provisions of the CORE Security Agreement are effective to
create in favor of the Bank a legal, valid and enforceable security interest in
all right, title and interest of the Borrower in the Collateral as described
therein. Except where failure to file would not have a material effect on the
Bank's ability to realize effectively on the Collateral as described therein, as
a whole, the CORE Security Agreement constitutes a lien on and security interest
in, all right, title and interest of the Borrower in such Collateral and upon
filing of the Financing Statements in the locations set forth in the CORE
Security Agreement, the Bank will have a fully perfected first priority security
interest in such Collateral. No Uniform Commercial Code financing statements
have been filed by any other Person with respect to such Collateral other than
as may be filed in connection with this Agreement and except as described in
Schedule 4.24 hereto.
(c) The provisions of the Subsidiary Security Agreement are effective to
create in favor of the Bank a legal, valid and enforceable security interest in
all right, title and interests of each Subsidiary in the Collateral as described
therein. Except where failure to file would not have a material effect on the
Bank's ability to realize effectively on the Collateral described therein, as a
whole, the Subsidiary Security Agreement constitutes a lien on and security
interest in, all right, title and interest of each Subsidiary in such Collateral
and upon filing of the Financing Statements in the locations set forth in the
Subsidiary Security Agreement, the Bank will have a fully perfected first
priority security interest in such Collateral. No Uniform Commercial Code
financing statements have been filed by any other Person with respect to such
Collateral other than as may be filed in connection with this Agreement and
except as described in Schedule 4.24 hereto.
(d) The provisions of the Trademark Security Agreement are effective to
create in favor of the Bank a legal, valid and enforceable security interest in
all right, title and interest of the Borrower and its Subsidiaries in the
Collateral as described therein. Except where failure to file would not have a
material effect on the Bank's ability to realize effectively on the Collateral
as described therein, as a whole, the Trademark Security Agreement constitutes a
lien on and security interest in, all right, title and interest of the Borrower
and its Subsidiaries in such Collateral and upon the filing of the Financing
Statements and the Trademark Security Agreement in the locations set forth in
the Trademark Security Agreement, the Bank will have a fully perfected first
priority security interest in such Collateral. No Uniform Commercial Code
financing statements or filings with the United States Patent and Trademark
Office have been filed by any other Person
<PAGE>
35
with respect to such Collateral other than as may be filed in connection with
this Agreement and except as described in Schedule 4.24 hereto.
Section 4.25. SOLVENCY. The Borrower and each Subsidiary is, and after
giving effect to the Acquisition and the incurrence of all indebtedness and
obligations being incurred in connection herewith will be and will continue to
be, Solvent.
Section 4.26 YEAR 2000 COMPATIBILITY. Substantially all programming
required to handle all material dates and date processing, in and following the
year 2000, of (i) the Borrower's and each of its Subsidiaries' computer systems
and (ii) equipment containing embedded microchips (including systems and
equipment supplied by others or with which the Borrower's or such Subsidiaries'
systems interface) and the testing of all such systems and equipment, as so
reprogrammed, will be substantially completed by March 31, 1999. The expected
cost to the Borrower and its Subsidiaries of such reprogramming and testing and
of the reasonably foreseeable consequences of year 2000 to the Borrower and its
Subsidiaries (including, without limitation, reprogramming errors and the
failure of others' systems or equipment within the control of the Borrower or
its Subsidiaries) is not anticipated to result in a Default or have Material
Adverse Effect.
Section 4.27 CAPITALIZATION. The authorized capital stock of the
Borrower consists, on the Effective Date, of (i) an aggregate of 30,000,000
shares of common stock, par value $0.10 per share, of which 7,816,142 (including
shares issued pursuant to the Acquisition Agreement on the Closing Date) shares
are duly and validly issued and outstanding (and of which no shares are held in
treasury), each of which shares is fully paid and nonassessable and (ii) an
aggregate 500,000 shares of preferred stock, no par value, of which no shares
are issued and outstanding. As of the Effective Date, except for Equity Rights
arising under the Warrant, the Acquisition Agreement and the Asset Purchase
Agreement among the Borrower, TCM Services, Inc., Transcend Case Management,
Inc. and Transcend Services, Inc. dated March 17, 1998 and any stock bonus
awards, restricted stock awards, performance units, stock options or stock
appreciation rights heretofore issued thereunder, (x) there are no outstanding
Equity Rights with respect to the Borrower and (y) there are no outstanding
obligations of the Borrower or any of its Subsidiaries to repurchase, redeem, or
otherwise acquire any shares of capital stock of the Borrower nor are there any
outstanding obligations of the Borrower or any of its Subsidiaries to make
payments to any Person, such as "phantom stock" payments, where the amount
thereof is calculated with reference to the fair market value or equity value of
the Borrower or any of its Subsidiaries.
Section 4.28 TRUE AND COMPLETE DISCLOSURE. The information, reports,
financial statements, exhibits and schedules furnished in writing by or on
behalf of the Borrower or any of its Subsidiaries to the Bank in connection with
the negotiation, preparation or
<PAGE>
36
delivery of this Agreement and the other Loan Documents or included herein or
therein or delivered pursuant hereto or thereto, when taken as a whole, do
not, as of the Effective Date, contain any untrue statement of material fact
or omit to state any material fact necessary to make the statements herein or
therein, in light of the circumstances under which they were made, not
misleading. All written information furnished after the Effective Date by the
Borrower and its Subsidiaries to the Bank in connection with this Agreement
and the other Loan Documents and the transactions contemplated hereby and
thereby will be true, complete and accurate in every material respect, or (in
the case of projections) based on reasonable estimates, on the date as of
which such information is stated or certified. To the Borrower's knowledge,
there is no fact peculiar to the Borrower or any of its Subsidiaries (in
contrast to information of a general economic or industry nature) that could
have a Materially Adverse Effect that has not been disclosed herein, in the
other Loan Documents or in a report, financial statement, exhibit, schedule,
disclosure letter or other writing furnished to the Bank for use in
connection with the transactions contemplated hereby or thereby.
ARTICLE 5. AFFIRMATIVE COVENANTS
During the term of this Agreement, and until performance, payment and/or
satisfaction in full of the Obligations, the Borrower covenants and agrees that
it shall, and shall cause each of its Subsidiaries to, unless the Bank otherwise
consents in writing:
Section 5.1. MAINTENANCE OF EXISTENCE. Preserve and maintain its
corporate existence and good standing in the jurisdiction of its incorporation,
and qualify and remain qualified as a foreign corporation in each jurisdiction
in which such qualification is required from time to time, except where failure
to be so qualified would not have a Materially Adverse Effect; and take all
reasonable action to maintain all rights, privileges and franchises necessary or
desirable in the normal conduct of its business. The Borrower shall not form
any new Subsidiary.
Section 5.2. CONDUCT OF BUSINESS. Continue to engage in a business of
the same general type as conducted by it on the date of this Agreement. Neither
the Borrower nor any Subsidiary shall engage, directly or indirectly, in the
business of underwriting insurance.
Section 5.3. MAINTENANCE OF PROPERTIES. Maintain, keep and preserve all
of its material Properties (tangible and intangible), necessary or useful in the
conduct of its business, in good working order and condition, ordinary wear and
tear excepted, EXCEPT that the failure to maintain, preserve and protect a
particular item of depreciable Property that is not of significant value, either
intrinsically or to the operations of Borrower and its Subsidiaries, taken as a
whole, shall not constitute a violation of this covenant.
<PAGE>
37
Section 5.4. MAINTENANCE OF RECORDS. Keep accurate and complete records
and books of account, in which complete entries will be made in accordance with
GAAP reflecting all financial transactions of the Borrower and its Subsidiaries,
and maintain a fiscal year that ends on December 31.
Section 5.5. MAINTENANCE OF INSURANCE. Maintain insurance (subject to
customary deductibles and retentions) with financially sound and reputable
insurance companies, in such amounts and with such coverages (including without
limitation public liability insurance, fire, hazard and extended coverage
insurance on all of its assets, necessary workers' compensation insurance and
all other coverages as are consistent with industry practice) as are maintained
by companies of established reputation engaged in similar businesses and
similarly situated and furnish to the Bank, upon written request, full
information as to the insurance carried.
Section 5.6. COMPLIANCE WITH LAWS. Comply in all respects with all
applicable laws, rules, regulations and orders, except where the failure to so
comply would not have a Materially Adverse Effect. Such compliance shall
include, without limitation, paying all taxes, assessments and governmental
charges imposed upon it or upon its Property (and all penalties and other costs,
if any, related thereto), unless contested in good faith by appropriate
proceedings and for which adequate reserves have been set aside.
Section 5.7. RIGHT OF INSPECTION. From time to time upon prior notice
and in accordance with customary standards and practices within the banking
industry (including, without limitation, upon any Event of Default or whenever
the Bank may have reasonable cause to believe that an Event of Default has
occurred), the Borrower shall permit the Bank or any agent or representative
thereof, to examine and make copies and abstracts from the records and books of
account of, and visit the Properties of, the Borrower and its Subsidiaries to
discuss the affairs, finances and accounts of the Borrower and any such
Subsidiaries with any of their respective officers and directors and the
Borrower's independent accountants, and to make such verification concerning the
Borrower and its Subsidiaries as may be reasonable under the circumstances, and
furnish promptly to the Bank true copies of all financial information that may
be reasonably requested by the Bank; PROVIDED, that the Bank shall use
reasonable efforts to not materially interfere with the business of the Borrower
and its Subsidiaries and to treat as confidential any and all information
obtained pursuant to this Section 5.7, except to the extent disclosure is
required by any law, regulation, order, ruling, directive, guideline or request
from any central bank or other government authority (whether or not having the
force of law).
Section 5.8. REPORTING REQUIREMENTS. The Borrower shall, and shall cause
each of its Subsidiaries, as applicable, to, furnish to the Bank:
<PAGE>
38
(a ANNUAL GAAP STATEMENTS. Within ninety (90) days following the end of
Borrower's fiscal year (or, if a registered company, such earlier date as
the Borrower's Form 10-K is filed with the Securities and Exchange
Commission) copies of:
(i) the consolidated and consolidating balance sheets of the Borrower
and its Subsidiaries as at the close of such fiscal year, and
(ii) the consolidated and consolidating statements of operations
and consolidated statements of stockholders' equity and cash flows, in each
case of the Borrower and its Subsidiaries for such fiscal year,
in each case setting forth in comparative form the figures for the
preceding fiscal year and prepared in accordance with GAAP, all in
reasonable detail and accompanied by an opinion thereon of Ernst & Young
LLP or other firm of independent public accountants of recognized national
standing selected by the Borrower and reasonably acceptable to the Bank, to
the effect that the financial statements have been prepared in accordance
with GAAP (except for changes in application in which such accountants
concur) and present fairly in all material respects in accordance with GAAP
the financial condition of the Borrower and its Subsidiaries as of the end
of such fiscal year and the results of its operations for the fiscal year
then ended and that the examination of such accountants in connection with
such financial statements has been made in accordance with generally
accepted auditing standards and, accordingly, included such tests of the
accounting records and such other auditing procedures as were considered
necessary under the circumstances.
(b QUARTERLY GAAP STATEMENTS. As soon as available, and in any event
within forty-five (45) days after the end of each quarterly fiscal period
of the Borrower (other than the fourth fiscal quarter of any fiscal year),
copies of:
(i) the consolidated and consolidating balance sheets of Borrower and
its Subsidiaries as at the end of such fiscal quarter, and
(ii) the consolidated and consolidating statements of operations and
consolidated statements of stockholders' equity and cash flows, in each
case of Borrower and its Subsidiaries for such fiscal quarter and the
portion of such fiscal year ended with such fiscal quarter,
<PAGE>
39
in each case setting forth in comparative form the figures for the
preceding fiscal year and prepared in accordance with GAAP all in
reasonable detail and certified as presenting fairly in accordance with
GAAP the financial condition of the Borrower and its Subsidiaries as of the
end of such period and the results of operations for such period by a
Senior Officer of such company, subject only to normal year-end accruals
and audit adjustments and the absence of footnotes.
(c MONTHLY ACCOUNTS RECEIVABLE AGING REPORT. As soon as available, and
in any event within thirty (30) days following the end of each month, a
report in form satisfactory to the Bank of the age of accounts receivable
generated by the Borrower and each of its Subsidiaries, certified by a
Senior Officer of the Borrower.
(d ACTUAL AND PROJECTED QUARTERLY CAPITAL EXPENDITURES. As soon as
available, and in any event within forty-five (45) days after the end of
each quarterly fiscal period of the Borrower, a report in form satisfactory
to the Bank indicating (i) the actual Capital Expenditures of the Borrower
and its Subsidiaries for the immediately preceding fiscal quarter and (ii)
the projected Capital Expenditures for the remainder of the fiscal year.
(e ANNUAL FORECASTS. On or before January 1 of each year, forecasts for
such year of the year-end balance sheet and statement of operations of the
Borrower and its Subsidiaries, on a consolidated and consolidating basis
[AND IN FORM SATISFACTORY TO THE BANK], together with a certificate of a
Senior Officer that such forecasts have been prepared in good faith and on
reasonable assumptions.
(f MANAGEMENT LETTERS. Promptly upon receipt thereof, copies of any
reports or management letters relating to the internal financial controls
and procedures delivered to the Borrower or any of its Subsidiaries by any
independent certified public accountant in connection with examination of
the financial statements of the Borrower or any such Subsidiary.
(g STOCKHOLDER COMMUNICATIONS AND SEC FILINGS. Promptly after the same
are available, copies of each annual report, proxy or financial statement
or other report or communication sent to the stockholders of the Borrower
and, if registered, copies of all annual, regular, periodic and special
reports and registration statements which the Borrower may file or be
required to file with the Securities and Exchange Commission under Sections
13 and 15(d) of the Securities and Exchange Act of 1934.
<PAGE>
40
(h NOTICE OF LITIGATION. Promptly after the commencement thereof, notice
of any action, suit and proceeding before any court or governmental
department, commission, board, bureau, agency or instrumentality, domestic
or foreign, against the Borrower or any of its Subsidiaries commenced by
any creditor or lessor under any written credit agreement with respect to
borrowed money or any material agreement, including any lease, which
asserts a default thereunder on the part of the Borrower or any of its
Subsidiaries.
(i NOTICES OF DEFAULT. As soon as practicable and in any event within
fifteen (15) days after the occurrence of each Default or Event of Default,
a written notice setting forth the details of such Default or Event of
Default and the action which is proposed to be taken by the Borrower with
respect thereto.
(j OTHER FILINGS. At any time upon the reasonable request of the Bank,
permit the Bank the opportunity to review copies of all reports, including
annual reports, and notices which the Borrower or any Subsidiary files with
or receives from the PBGC or the U.S. Department of Labor under ERISA; and
as soon as practicable and in any event within fifteen (15) days after the
Borrower or any if its Subsidiaries knows or has reason to know that any
Reportable Event or Prohibited Transaction has occurred with respect to any
Plan or that the PBGC or the Borrower or any such Subsidiary has instituted
or will institute proceedings under Title IV of ERISA to terminate any
Plan, the Borrower will deliver to the Bank a certificate of a Senior
Officer of the Borrower setting forth details as to such Reportable Event
or Prohibited Transaction or Plan termination and the action the Borrower
proposes to take with respect thereto.
(k QUARTERLY INVESTMENT REPORTS. Within forty-five (45) days after the
end of each quarterly fiscal period of the Borrower, a report from the
Borrower certifying as to the Investments of the Borrower and its
Subsidiaries, including the amount and rating thereof.
(l ADDITIONAL INFORMATION. Such additional information as the Bank may
reasonably request concerning the Borrower and its Subsidiaries and for
that purpose all pertinent books, documents and vouchers relating to its
business, affairs and Properties, including Investments as shall from time
to time be designated by the Bank.
<PAGE>
41
Section 5.9. CERTIFICATES.
(a OFFICERS' CERTIFICATE. Simultaneously with each delivery of financial
statements pursuant to Section 5.8(a) and 5.8(b), the Borrower shall
deliver to the Bank a certificate of its Chief Financial Officer which will
(i) certify on behalf of the Borrower that such officer has reviewed
the Agreement and the condition and transactions of the Borrower and
its Subsidiaries for the period covered by such financial statements,
and state that to the best of his knowledge the Borrower has observed
or performed all of its covenants and other agreements, and satisfied
every condition, contained in this Agreement and the other Loan
Documents, and no Default or Event of Default has occurred and is
continuing or, if a Default or Event of Default has occurred and is
continuing, a statement as to the nature thereof and the action which
is proposed to be taken with respect thereto, and
(ii) include information (with detailed calculations in the form set
out in EXHIBIT C) required to establish whether the Borrower was in
compliance with the covenants set forth in this Agreement during the
period covered by the financial statements then being delivered.
(b) ACCOUNTANT'S CERTIFICATE. Simultaneously with each delivery of
financial statements pursuant to Section 5.8(a), the Borrower will deliver
to the Bank a certificate of the independent certified public accountants
who certify such statements, stating whether, in the course of their audit
of the financial statements, they obtained any knowledge of a condition or
event which constitutes a Default or Event of Default and the nature
thereof.
Section 5.10. FURTHER ASSURANCES. The Borrower shall take or shall cause
its Subsidiaries to take all such further actions and execute and file or
record, at its own cost and expense, all such further documents and instruments
as the Bank may at any time reasonably determine may be necessary or advisable;
and shall do, execute, acknowledge, deliver, record, file, re-file, record,
register and re-register any and all such further acts, deeds, conveyances,
estoppel certificates, transfers, certificates, assurances and other instruments
as the Bank may reasonably require from time to time in order to carry out more
effectively the purposes of this Agreement and the other Loan Documents.
Section 5.11. COMPLIANCE WITH AGREEMENTS. Promptly and fully comply with
all contractual obligations under all agreements, mortgages, indentures, leases
and/or instruments to which any one or more of the Borrower and its Subsidiaries
is a party,
<PAGE>
42
whether such agreements, mortgages, indentures, leases or instruments are
with the Bank or another Person, except where such failure to so comply would
not have a Materially Adverse Effect.
Section 5.12. USE OF PROCEEDS. Use the proceeds of the Revolving Loans
only for the purposes described in Section 4.22.
Section 5.13. PAYMENT OF OBLIGATIONS. Pay, discharge or otherwise satisfy
at or before maturity or before they become delinquent, as the case may be, all
its obligations of whatever nature, including without limitation all payroll and
other tax obligations, except where the amount or validity thereof is currently
being contested in good faith by appropriate proceedings and reserves in
conformity with GAAP with respect thereto have been provided on the books of the
Borrower or its Subsidiaries, as the case may be or except where the failure to
pay, discharge or otherwise satisfy could not have a Materially Adverse Effect.
Section 5.14. INTEREST RATE PROTECTION. Within five (5) days after the
Bank's request, the Borrower shall enter into interest rate protection
arrangements covering, if requested, up to the amount of the Commitment, on
terms and conditions satisfactory to the Bank.
ARTICLE 6. NEGATIVE COVENANTS.
During the term of this Agreement, and until performance, payment and/or
satisfaction in full of the Obligations, the Borrower covenants and agrees that
Borrower shall not, and shall not permit its Subsidiaries to, unless the Bank
otherwise consents in writing:
Section 6.1. DEBT. Create, incur, assume or suffer to exist any Debt,
except:
(a Debt of the Borrower under this Agreement and the Revolving Note;
(b Debt permitted under Section 6.2 hereof;
(c Capital Leases of the Borrower and its Subsidiaries permitted by
Section 6.9; and
(d Debt described in Section 4.10.
Section 6.2. GUARANTIES, ETC. Assume, guarantee, endorse or otherwise be
or become directly or contingently responsible or liable (including, but not
limited to, an
<PAGE>
43
agreement to purchase any obligation, or to supply or advance any
funds, or an agreement to cause such Person to maintain a minimum working
capital or net worth or otherwise to assure the creditors of any Person against
loss) for the obligations of any Person, except guaranties by endorsement of
negotiable instruments for deposit or collection or similar transactions in the
ordinary course of business and the Subsidiary Guaranty.
Section 6.3. LIENS. Create, incur, assume or suffer to exist any Lien,
upon or with respect to any of its Properties, now owned or hereafter acquired,
except:
(a Liens for taxes or assessments or other government charges or levies
if not yet due and payable or if due and payable, if they are being
contested in good faith by appropriate proceedings and for which
appropriate reserves are maintained;
(b Liens imposed by law, such as mechanic's, materialmen's, landlord's,
warehousemen's and carrier's Liens, and other similar Liens, securing
obligations incurred in the ordinary course of business which are not past
due for more than forty-five (45) days, or which are being contested in
good faith by appropriate proceedings and for which appropriate reserves
have been established;
(c Liens under workers' compensation, unemployment insurance, social
security or similar legislation (other than ERISA);
(d judgment and other similar Liens arising in connection with court
proceedings; PROVIDED that the execution or other enforcement of such Liens
is effectively stayed and the claims secured thereby are being actively
contested in good faith and by appropriate proceedings;
(e easements, rights-of-way, restrictions and other similar encumbrances
which, in the aggregate, do not materially interfere with the occupation,
use and enjoyment by the Borrower or any of its Subsidiaries of the
Property or assets encumbered thereby in the normal course of its business
or materially impair the value of the Property subject thereto;
(f Liens referred to in Schedule 4.6;
(g Liens consisting of pledges or deposits of Property to secure
performance in connection with operating leases made in the ordinary course
of business to which Borrower or a Subsidiary is a party as lessee,
PROVIDED the aggregate value of all such pledges and deposits in connection
with any such lease does not at any time exceed 10% of the annual fixed
rentals payable under such lease; and
<PAGE>
44
(h Any interest or title of a lessor under any lease permitted by this
Agreement, including any Lien granted by the lessee under any such lease
and any Lien arising from the filing of UCC financing statements with
respect to any such lease.
Section 6.4. INVESTMENTS. Permit any investment by the Borrower or its
Subsidiaries in an Investment other than
(a) Investments constituting (i) operating deposit accounts with
banks and (ii) accounts receivable arising in the ordinary course of
business on ordinary business terms that are not overdue; or
(b) Investments constituting commercial paper rated at least A-1 by
Standard & Poor's Ratings Group, a Division of McGraw-Hill, Inc., or P-l
by Moody's Investors Service Inc.
Section 6.5. MERGERS AND CONSOLIDATIONS AND ACQUISITIONS OF ASSETS.
Merge or consolidate with any Person (whether or not Borrower or any Subsidiary
is the surviving entity), or acquire all or substantially all of the assets or
any of the capital stock of any Person without the prior written consent of the
Bank, which consent may be withheld or granted in the sole and absolute
discretion of the Bank; PROVIDED that (a) any Subsidiary may merge into the
Borrower or any other Subsidiary and (b) the Borrower may acquire the capital
stock of DRMS pursuant to the terms of the Acquisition Agreement.
Section 6.6. SALE OF ASSETS. Sell, lease or otherwise dispose of any
material portion of its assets without the prior written consent of the Bank,
which consent may be withheld or granted in the sole and absolute discretion of
the Bank.
Section 6.7. STOCK OF SUBSIDIARIES, ETC. Pledge, assign, hypothecate,
transfer, convey, sell or otherwise dispose of, encumber or grant any security
interest in, or deliver to any other Person, any shares of capital stock of its
Subsidiaries, or permit any such Subsidiaries to issue any additional shares of
its capital stock to any Person other than the Borrower or any Subsidiaries,
except directors' qualifying shares and pursuant to the CORE Pledge Agreement.
Section 6.8. TRANSACTIONS WITH AFFILIATES. Enter into any transaction of
any kind with any Affiliate of the Borrower, or any Person that owns or holds
five percent (5%) or more of the outstanding common stock of the Borrower, OTHER
THAN (a) transactions between or among the Borrower and its wholly owned
Subsidiaries or between or among its wholly owned Subsidiaries, (b) transactions
on terms at least as favorable to the Borrower or its Subsidiaries as would be
the case in an arm's-length transaction between
<PAGE>
45
unrelated parties of equal bargaining power or (c) as contemplated by the
Acquisition Agreement.
Section 6.9. CAPITAL EXPENDITURES. Make or permit to be made any Capital
Expenditure in any fiscal year, or commit to make any Capital Expenditure in any
fiscal year, which when added to the aggregate Capital Expenditures of the
Borrower and its Subsidiaries theretofore made or committed to be made in that
fiscal year, would exceed the corresponding amount for such year as set forth
below:
<TABLE>
<CAPTION>
Year Permitted Capital Expenditures
---- ------------------------------
<S> <C>
1998 $1,600,000
1999 $1,750,000
2000 $2,100,000
2001 $2,520,000
2002 $3,350,000
</TABLE>
Section 6.10. MINIMUM CONSOLIDATED GAAP NET WORTH. As of the end of
any fiscal quarter, permit Consolidated GAAP Net Worth of the Borrower and
its Subsidiaries to be less than an amount equal to the sum of (a)
$27,000,000, after eliminating the effects of (i) the write-off of goodwill
in the amount of $4,085,449, arbitration costs in the amount of $736,009, and
certain non-recurring charges in the amount of $114,277 in the fiscal quarter
ended June 30, 1998 and (ii) any restructuring charges, not exceeding
$1,500,000 in the aggregate, incurred in the third or fourth quarter of 1998
in connection with the anticipated disposition of Integrated Behavioral
Health, Cost Review Services, Inc. and TCM Services, Inc. (the "Restructuring
Charges"), plus (b) fifty percent (50%) of any cumulative positive
consolidated Net Income of the Borrower and its Subsidiaries for each fiscal
quarter following the fiscal quarter ended December 31, 1998, plus (c) the
amount of paid-in capital resulting from any issuance by the Borrower of its
capital stock after the Closing Date and the Acquisition.
Section 6.11. MINIMUM INTEREST COVERAGE. As of the end of any fiscal
quarter during the periods set forth below, permit the Interest Coverage Ratio
to be less than 3.5 to 1.
Section 6.12. MINIMUM DEBT SERVICE COVERAGE. As of the end of each fiscal
quarter, permit the Debt Service Coverage Ratio for the immediately preceding
four fiscal quarters (ending on such date) to be less than 1.5 to 1.
Section 6.13. MINIMUM FIXED CHARGE COVERAGE. During any fiscal year,
permit the Fixed Charge Coverage Ratio to be less than the corresponding amount
for such fiscal year as set forth below:
<PAGE>
46
<TABLE>
<CAPTION>
Minimum Permissible
Year Fixed Charge Coverage Ratio
---- ---------------------------
<S> <C>
1998 1.0 to 1
1999 1.25 to 1
2000 1.5 to 1
2001 2.0 to 1
2002 2.0 to 1
</TABLE>
Section 6.14. DISTRIBUTIONS. Make any Distributions from Net Income of
the Borrower without the prior written consent of the Bank, which consent may be
withheld or granted in the sole and absolute discretion of the Bank.
Section 6.15. NO LIMIT ON UPSTREAM PAYMENTS BY SUBSIDIARIES. Permit any
of its Subsidiaries to enter into or agree, or otherwise become subject, to any
agreement, contract or other arrangement with any Person pursuant to the terms
of which (a) such Subsidiary is or would be prohibited from declaring or paying
any cash dividends or Distributions or making any other payment to the Borrower,
or (b) such dividends, distributions or other payments are, or would be, limited
or restricted on an annual or cumulative basis or otherwise. The Borrower shall
cause its Subsidiaries, to the extent permitted by applicable law, to make such
distributions of funds, including dividends, as may be necessary to meet in a
timely manner all of the Borrower's obligations under this Agreement.
Section 6.16. EARNINGS. As of the end of the fiscal quarter ended June
30, 1999 and each fiscal quarter thereafter, permit consolidated Net Income of
the Borrower and its Subsidiaries for the immediately preceding four fiscal
quarters (ending on such date and excluding the effect of the Restructuring
Charges) on a cumulative basis to be less than zero dollars ($0).
ARTICLE 7. EVENTS OF DEFAULT.
Section 7.1. EVENTS OF DEFAULT. Any of the following events shall be an
"Event of Default":
(a) (i) the Borrower shall fail to pay any principal amount of any
Revolving Loan when due, whether at stated maturity, by acceleration, by
notice of prepayment or otherwise, or (ii) the Borrower shall fail to pay
any premium or interest, or any fees or other amounts payable hereunder,
when due whether at stated maturity, by acceleration, by notice of
prepayment or otherwise;
<PAGE>
47
(b) any written statement, representation or warranty made by the Borrower
or any Subsidiary in any Loan Document to which the Borrower or such
Subsidiary is party, or which is contained in any certificate, document,
financial or other written statement furnished at any time under or in
connection with this Agreement or any other Loan Document shall prove to
have been incorrect in any material respect on or as of the date made;
(c) the Borrower shall (i) fail to perform or observe any term, covenant,
or agreement contained in Section 4.21, Section 5.1, Section 5.8(i) or
Article 6; or (ii) fail to perform or observe any term, covenant, or
agreement on its part to be performed or observed (other than the
obligations specifically referred to elsewhere in this Section 7.1) in this
Agreement (including without limitation any such term, covenant or
agreement contained in Article 5 hereof) or any other Loan Document and
such failure shall continue unremedied for thirty (30) consecutive days;
(d) any Subsidiary shall default in the observance or performance of any
agreement contained in any Loan Document to which it is a party, and such
default shall continue unremedied for a period of thirty (30) days after
the earlier of (i) a Senior Officer of such Subsidiary becomes aware of
such default or (ii) notice of such default to such Subsidiary by the Bank;
(e) the Borrower or any Subsidiary shall (i) fail to pay any indebtedness,
including but not limited to Debt (other than the payment Obligations
described in (a) above), of the Borrower or such Subsidiary, as the case
may be, or any interest or premium thereon, when due (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise); or (ii)
fail to perform or observe any term, covenant or condition on its part to
be performed or observed under any agreement or instrument relating to any
such Debt, when required to be performed or observed and such failure
continues after any applicable notice and grace period, if the effect of
such failure to perform or observe is to accelerate, or to permit the
acceleration of the maturity of such Debt, or (iii) any such Debt shall be
declared to be due and payable, or required to be prepaid (other than by a
regularly scheduled required prepayment), prior to the stated maturity
thereof; PROVIDED, HOWEVER, that it shall not be a Default or Event of
Default under this Section 7.1(e) unless the aggregate principal amount of
all such Debt as described in clauses (i) through (iii) above shall exceed
$100,000;
(f) the Borrower or any Subsidiary (i) shall generally not, or be unable
to, or shall admit in writing its inability to, pay its debts as such debts
become due; or (ii) shall make an assignment for the benefit of creditors
or petition or apply to any tribunal for the appointment of a custodian,
receiver or trustee for it or a substantial
<PAGE>
48
part of its assets; or (iii) shall commence any proceeding under any
bankruptcy, reorganization, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, whether
now or hereafter in effect; or (iv) shall have had any such petition or
application filed or any such proceeding shall have been commenced
against it in which an adjudication or appointment is made or order for
relief is entered, or which petition, application or proceeding remains
undismissed for a period of sixty (60) days or more; or (v) shall be the
subject of any proceeding under which its assets may be subject to
seizure, forfeiture or divestiture (other than a proceeding in respect
of a Lien permitted under Section 6.3(a)); or (vi) by any act or
omission shall indicate its consent to, approval of or acquiescence in
any such petition, application or proceeding or order for relief or the
appointment of a custodian, receiver or trustee for all or any
substantial part of its Property; or (vii) shall suffer any such
custodianship, receivership or trusteeship to continue undischarged for
a period of sixty (60) days or more;
(g) one or more judgments, decrees or orders for the payment of money in
excess of $100,000 in the aggregate shall have been rendered against the
Borrower or any of its Subsidiaries (excluding judgments which are covered
by insurance other than self-insurance) and such judgments, decrees or
orders shall continue unsatisfied and in effect for a period of sixty (60)
consecutive days without being vacated, discharged, satisfied or stayed or,
if required, bonded pending appeal;
(h) any of the following events shall occur or exist with respect to the
Borrower or any ERISA Affiliate: (i) any Prohibited Transaction involving
any Plan; (ii) any Reportable Event shall occur with respect to any Plan;
(iii) the filing under Section 4041 of ERISA of a notice of intent to
terminate any Plan or the termination of any Plan subject to Title IV of
ERISA (other than in a "standard termination" referred to in Section 4041
of ERISA); (iv) any event or circumstance exists which would constitute
grounds entitling the PBGC to institute proceedings under Section 4042 of
ERISA for the termination of, or for the appointment of a trustee to
administer any Plan, or the institution by the PBGC of any such
proceedings; (v) complete or partial withdrawal under Section 4201 or 4204
of ERISA from a Multiemployer Plan or the reorganization, insolvency or
termination of any Multiemployer Plan; and in each case above, such event
or condition, together with all other such events or conditions, if any,
would in the reasonable opinion of the Bank subject the Borrower to any
tax, penalty or other liability to a Plan, Multiemployer Plan, the PBGC or
otherwise (or any combination thereof) which in the aggregate exceed or may
exceed $100,000 or;
(i) this Agreement or any of the other Loan Documents shall at any time
after its execution and delivery and for any reason cease to be in full
force and effect or
<PAGE>
49
shall be declared null and void, or the validity or enforceability
thereof shall be contested by the Borrower or the Borrower shall deny it
has any further liability or obligation hereunder.
Section 7.2. REMEDIES. Without limiting any other rights or remedies of
the Bank provided for elsewhere in this Agreement or any other Loan Document, or
by applicable law, or in equity, or otherwise, if any Event of Default shall
occur and be continuing, the Bank may by notice to the Borrower, (i) declare the
Commitment to be terminated, whereupon the same shall forthwith terminate, (ii)
declare all amounts owing under this Agreement and the Revolving Note (whether
or not such Obligations be contingent or unmatured) to be forthwith due and
payable, whereupon all such amounts shall become and be forthwith due and
payable, without presentment, demand, protest or further notice of any kind, all
of which are hereby expressly waived by the Borrower; PROVIDED that, in the case
of an Event of Default referred to in Section 7.1(f) above with respect to the
Borrower, the Commitment shall be immediately terminated, and all such amounts
shall be immediately due and payable without notice, presentment, demand,
protest or other formalities of any kind, all of which are hereby expressly
waived by the Borrower.
ARTICLE 8. MISCELLANEOUS.
Section 8.1. AMENDMENTS AND WAIVERS. No amendment or waiver of any
provision of this Agreement or any other Loan Document nor consent to any
departure by the Borrower or any Subsidiary therefrom, shall in any event be
effective unless the same shall be in writing and signed by the Bank and the
Borrower or the applicable Subsidiary, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given. No failure on the part of the Bank to exercise, and no delay in
exercising, any right hereunder shall operate as a waiver thereof or preclude
any other or further exercise thereof or the exercise of any other right. The
remedies herein provided are cumulative and not exclusive of any remedies
provided by law.
Section 8.2. USURY. Anything herein to the contrary notwithstanding, the
Obligations of the Borrower with respect to this Agreement and the Revolving
Note shall be subject to the limitation that payments of interest shall not be
required to the extent that receipt thereof would be contrary to provisions of
law applicable to the Bank limiting rates of interest which may be charged or
collected by the Bank.
<PAGE>
50
Section 8.3. EXPENSES; INDEMNITIES.
(a) Unless otherwise agreed in writing, the Borrower shall reimburse the
Bank on demand for all reasonable costs, expenses and charges (including without
limitation, reasonable fees and charges of Day, Berry & Howard LLP or any other
external legal counsel for the Bank and costs allocated by the Bank's internal
legal department) incurred by the Bank in connection with the preparation,
filing, recording, modification and amendment of this Agreement and the other
Loan Documents. The Borrower further agrees to pay on demand all reasonable
costs and expenses (including reasonable counsel fees and expenses), if any, in
connection with the enforcement, including without limitation, the enforcement
of judgments (whether through negotiations, legal proceedings or otherwise) of
this Agreement, the other Loan Documents or any other document to be delivered
under this Agreement. Until paid, the amount of any cost, expense or charge
shall constitute, together with all accrued interest thereon, part of the
Obligations.
(b) The Borrower hereby agrees to indemnify the Bank upon demand at any
time, against any and all losses, costs or expenses which the Bank may at any
time or from time to time sustain or incur as a consequence of (i) any failure
by the Borrower to pay, punctually on the due date thereof, any amount payable
by the Borrower to the Bank or (ii) the acceleration, in accordance with the
terms of this Agreement, of the time of payment of any of the Obligations of the
Borrower. Such losses, costs or expenses may include, without limitation, (i)
any costs incurred by the Bank in carrying funds to cover any overdue principal,
overdue interest, or any other overdue sums payable by the Borrower to the Bank
or (ii) any losses incurred or sustained by the Bank in liquidating or
reemploying funds acquired by the Bank from third parties, except to the extent
caused by the Bank's gross negligence or willful misconduct.
(c) The Borrower agrees to indemnify the Bank and its directors, officers,
employees, agents and Affiliates from, and hold each of them harmless against,
any and all losses, liabilities, claims, damages, costs or expenses incurred by
any of them arising out of or by reason of any investigation or litigation or
other proceedings (including any threatened investigation or litigation or other
proceedings) relating to any transaction contemplated by this Agreement or any
other Loan Document, any actions or omissions of the Borrower or any Subsidiary
or any of their respective directors, officers, employees or agents in
connection with this Agreement or any other Loan Document, or any actual or
proposed use by the Borrower or any Subsidiary of the proceeds of the Revolving
Loans, including without limitation, the reasonable fees and disbursements of
counsel incurred in connection with any such investigation or litigation or
other proceedings (but excluding any such losses, liabilities, claims, damages
or expenses incurred by reason of the gross negligence or willful misconduct of
the Person to be indemnified).
<PAGE>
51
(d) The Borrower agrees to indemnify the Bank and its directors, officers,
employees, agents and Affiliates from, and hold each of them harmless against,
any and all losses, liabilities, claims, damages, costs or expenses (including
without limitation, reasonable fees and disbursements of counsel, engineers or
similar professionals) which may be incurred by or asserted against the Bank or
any such party in connection with or arising out of or relating to (i) the
Bank's compliance with any environmental law with respect to the Properties or
operations of the Borrower or its Subsidiaries, (ii) any natural resource
damages, governmental fines or penalties or other amounts mandated by any
governmental authority, court order, demand or decree in connection with the
disposal by the Borrower or its Subsidiaries either on-site or off-site
(including leakage or seepage from any such site including third party treatment
facilities) of pollutants, contaminants or hazardous wastes and (iii) any
personal injury or property damage to third parties resulting from such
pollutants, contaminants or hazardous wastes.
Section 8.4. TERM; SURVIVAL. This Agreement shall continue in full force
and effect as long as any Obligations are owing by the Borrower to the Bank. No
termination of this Agreement shall in any way affect or impair the rights and
obligations of the parties hereto relating to any transactions or events prior
to such termination date, and all warranties and representations of the Borrower
shall survive such termination. All representations and warranties made
hereunder and in any document, certificate, or statement delivered pursuant
hereto or in connection herewith shall survive the execution and delivery of
this Agreement and the other Loan Documents. The obligations of the Borrower
under Sections 2.11, 2.12 and 8.3 shall survive the repayment of the Revolving
Loans and the termination of the Commitment.
Section 8.5. ASSIGNMENT; PARTICIPATIONS. This Agreement shall be binding
upon, and shall inure to the benefit of, the Borrower, the Bank and their
respective successors and assigns, except that the Borrower may not assign or
transfer its rights or obligations hereunder. The Bank may sell Participations
in, or upon ten (10) days' notice to the Borrower may assign all or any part of,
any Revolving Loan to another lender, in which event (a) in the case of an
assignment, the assignee shall have, to the extent of such assignment (unless
otherwise provided therein), the same rights, benefits and obligations as it
would have if it were the Bank hereunder; and (b) in the case of a
participation, the participant shall have no rights under this Agreement, the
Revolving Note or any other Loan Document. The agreement executed by the Bank in
favor of the participant shall not give the participant the right to require the
Bank to take or omit to take any action hereunder except action directly
relating to (i) the extension of a regularly scheduled payment date with respect
to any portion of the principal of or interest on any amount outstanding
hereunder allocated to such participant, (ii) the reduction of the principal
amount allocated to such participant or (iii) the reduction of the rate of
interest payable on such amount or any amount of fees payable hereunder to a
rate or amount, as the case may
<PAGE>
52
be, below that which the participant is entitled to receive under its
agreement with the Bank. The Bank may furnish any information concerning the
Borrower in the possession of the Bank from time to time to assignees and
participants (including prospective assignees and participants); PROVIDED
that the Bank shall require any such prospective assignee or such participant
(prospective or otherwise) to agree in writing to maintain the
confidentiality of such information.
Section 8.6. NOTICES. All notices, requests, demands and other
communications provided for herein shall be in writing and shall be (i) hand
delivered; (ii) sent by certified, registered or express United States mail,
return receipt requested, or reputable next-day courier service; or (iii) given
by telex, telecopy, telegraph or similar means of electronic communication. All
such communications shall be effective upon the receipt thereof. Notices shall
be addressed to the Borrower and the Bank at their respective addresses set
forth on the signature pages of this Agreement, or to such other address as the
Borrower or the Bank shall theretofore have transmitted to the other party in
writing by any of the means specified in this Section.
Section 8.7. SETOFF. The Borrower agrees that, in addition to (and
without limitation of) any right of setoff, banker's lien or counterclaim the
Bank may otherwise have, the Bank shall be entitled, at its option, to offset
balances (general or special, time or demand, provisional or final, and
regardless of whether such balances are then due to the Borrower) held by it for
the account of the Borrower at any of the Bank's offices, in Dollars or in any
other currency, against any amount payable by the Borrower under this Agreement
or any other Loan Document which is not paid when due, taking into account any
applicable grace period, in which case it shall promptly notify the Borrower
thereof; PROVIDED that the Bank's failure to give such notice shall not affect
the validity thereof.
Section 8.8. JURISDICTION; IMMUNITIES.
(a) The Borrower hereby irrevocably submits to the jurisdiction of any
Massachusetts State or United States Federal court sitting in Massachusetts over
any action or proceeding arising out of or relating to this Agreement or any
other Loan Document, and the Borrower hereby irrevocably agrees that all claims
in respect of such action or proceeding may be heard and determined in such
Massachusetts State or Federal court. The Borrower irrevocably consents to the
service of any and all process in any such action or proceeding by the mailing
of copies of such process to the Borrower at its address specified in Section
8.6. The Borrower agrees that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law. The Borrower further waives
any objection to venue in such State and any objection to an action or
<PAGE>
53
proceeding in such State on the basis of forum non conveniens. The Borrower
further agrees that any action or proceeding brought against the Bank shall be
brought only in Massachusetts State or United States Federal courts sitting in
Massachusetts.
(b) Nothing in this Section shall affect the right of the Bank to serve
legal process in any other manner permitted by law or affect the right of the
Bank to bring any action or proceeding against the Borrower or its Property in
the courts of any other jurisdictions.
Section 8.9. TABLE OF CONTENTS; HEADINGS. Any table of contents and the
headings and captions hereunder are for convenience only and shall not affect
the interpretation or construction of this Agreement.
Section 8.10. SEVERABILITY. The provisions of this Agreement are intended
to be severable. If for any reason any provision of this Agreement shall be
held invalid or unenforceable in whole or in part in any jurisdiction, such
provision shall, as to such jurisdiction, be ineffective to the extent of such
invalidity or unenforceability without in any manner affecting the validity or
enforceability thereof in any other jurisdiction or the remaining provisions
hereof in any jurisdiction.
Section 8.11. COUNTERPARTS. This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument, and any party hereto may execute this Agreement by signing any such
counterpart.
Section 8.12. INTEGRATION. This Agreement, the Revolving Note, the CORE
Pledge Agreement, the CORE Security Agreement, the Subsidiary Guaranty, the
Subsidiary Security Agreement, the Trademark Security Agreement, the Warrant and
the Registration Rights Agreement set forth the entire agreement between the
parties hereto relating to the transactions contemplated hereby and thereby and
supersede any prior oral or written statements or agreements with respect to
such transactions.
Section 8.13. GOVERNING LAW. This Agreement shall be governed by, and
interpreted and construed in accordance with, the laws of the Commonwealth of
Massachusetts.
Section 8.14. CONFIDENTIALITY. Subject to the following sentence, the
Bank and any assignee of the Bank becoming a party to this Agreement agrees to
use its best efforts, consistent with its normal operating procedures, to retain
in confidence and not disclose without the prior written consent of the Borrower
any written information about the Borrower and its Subsidiaries obtained
pursuant to the requirements of this Agreement and identified in writing by the
Borrower as "confidential" or "non-public," except as permitted under Section
8.5 of this Agreement. Notwithstanding the foregoing, the Bank (A) may
<PAGE>
54
disclose or otherwise use such information to the extent that such
information is required in any application, report, statement or testimony
submitted to any governmental agency having or claiming to have jurisdiction
over the Bank, (B) may disclose or otherwise use such information to the
extent that such information is required in response to any summons or
subpoena or in connection with any litigation affecting the Bank, (C) may
disclose or otherwise use such information to the extent that such
information is reasonably believed by the Bank (after notification to the
Borrower, unless such notification is prohibited by law) to be required in
order to comply with any law, order, regulation, or ruling applicable to the
Bank, and (D) may disclose or otherwise use such information to the extent
that such information becomes publicly available through no breach of the
Bank's obligations hereunder.
Section 8.15. AUTHORIZATION OF THIRD PARTIES TO DELIVER OPINIONS, ETC.
The Borrower hereby authorizes and directs each Person whose preparation or
delivery to the Bank of any opinion, report or other information is a condition
or covenant under this Agreement (including under Articles 4, 5 and 6) to so
prepare or deliver such opinion, report or other information for the benefit of
the Bank. The Borrower agrees to confirm such authorizations and directions
provided for in this Section 8.15 from time to time as may be requested by the
Bank.
SECTION 8.16. BORROWER'S WAIVERS. THE BORROWER ACKNOWLEDGES THAT IT HAS
BEEN ADVISED BY COUNSEL OF ITS CHOICE WITH RESPECT TO THIS TRANSACTION AND THIS
AGREEMENT AND THAT IT KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVES TRIAL BY
JURY IN ANY COURT AND IN ANY SUIT, ACTION OR PROCEEDING OR ANY MATTER ARISING IN
CONNECTION WITH OR IN ANY WAY RELATED TO THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT, THE REVOLVING NOTE, THE OTHER LOAN DOCUMENTS, OR ANY OF THE
BORROWER'S DOCUMENTS RELATED THERETO AND THE ENFORCEMENT OF ANY OF THE BANK'S
RIGHTS AND REMEDIES.
<PAGE>
55
Section 8.17. LIMITATION OF LIABILITY. NONE OF THE BANK AFFILIATES OR ITS
DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS SHALL HAVE ANY LIABILITY WITH RESPECT
TO, AND THE BORROWER HEREBY WAIVES, RELEASES AND AGREES NOT TO SUE FOR, ANY
SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES SUFFERED BY THE BORROWER IN
CONNECTION WITH ANY CLAIM IN ANY WAY ARISING OUT OF, RELATED TO OR CONNECTED
WITH THE LOAN DOCUMENTS OR THE RELATIONSHIPS ESTABLISHED THEREUNDER OR THE
TRANSACTIONS CONTEMPLATED THEREBY, WHETHER SUCH CLAIM ARISES OR IS ASSERTED
BEFORE OR AFTER THE CLOSING DATE OR BEFORE OR AFTER THE MATURITY DATE.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
S-1
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
CORE, INC.
By: /s/
--------------------------------
Name:
Title:
Address for Notices:
18881 Von Karman Avenue
Suite 1750
Irvine, California 92612
Attn: Chief Financial Officer
Telephone No.: (714) 442-2149
Telecopier No.: (949) 442-2102
With a copy to:
Stephen M. Kane, Esq.
Rich, May, Bilodeau & Flaherty, P.C.
294 Washington Street
Boston, MA 02108-4675
Telecopier No.: (617) 556-3890
FLEET NATIONAL BANK
By: /s/
--------------------------------
Name:
Title:
<PAGE>
Address for Notices:
777 Main Street, CT MO 0250
Hartford, CT 06115
Attn: Financial Institutions Group
Telephone No.: (860) 986-2688
Telecopier No.: (860) 986-1264
With a copy to:
Richard C. MacKenzie, Esq.
Day, Berry & Howard LLP
CityPlace I
Hartford, CT 06103
Telephone No.: (860) 275-0204
Telecopier No.: (860) 275-0343
<PAGE>
EXHIBIT A
REVOLVING NOTE
$17,000,000 Boston, Massachusetts
August 31, 1998
CORE, INC. (the "Borrower"), for value received, hereby unconditionally
promises to pay to the order of FLEET NATIONAL BANK, a national banking
association (the "Bank"), at its office located at 777 Main Street, Hartford,
Connecticut 06115, for the account of the appropriate Lending Office of the
Bank, the principal sum of SEVENTEEN MILLION DOLLARS ($17,000,000) or, if less,
the unpaid principal amount loaned by the Bank to the Borrower pursuant to the
Agreement referred to below, in lawful money of the United States of America and
in immediately available funds, on the date(s) and in the manner provided in
said Agreement. The Borrower also promises to pay interest on the unpaid
principal balance hereof, for the period such balance is outstanding, at said
principal office for the account of said Lending Office, in like money, at the
rates of interest, on the date(s) and in the manner provided in said Agreement;
and to pay interest on any overdue principal and interest at the Default Rate.
The date, type, amount and Interest Period of each Revolving Loan made by
the Bank to the Borrower under the Agreement referred to below, and each payment
of principal thereof, shall be recorded by the Bank on its books and, prior to
any transfer of this Revolving Note (or, at the discretion of the Bank, at any
other time), endorsed by the Bank on the schedule attached hereto or any
continuation thereof or otherwise recorded and maintained in its internal
records.
This is the Revolving Note referred to in that certain Credit Agreement (as
the same may be amended from time to time, the "Agreement") dated as of August
31, 1998 between the Borrower and the Bank and evidences the Revolving Loans
made by the Bank thereunder and is secured by the Security Documents as set
forth in the Agreement and is entitled to the benefits thereof. All terms not
defined herein shall have the meanings given to them in the Agreement.
The Agreement provides for the acceleration of the maturity of this
Revolving Note upon the occurrence of certain Events of Default and for
prepayments on the terms and conditions specified therein.
The Borrower waives presentment, notice of dishonor, protest and any other
notice or formality with respect to this Revolving Note.
<PAGE>
No waiver of any right or remedy under this Revolving Note shall in any
event be effective unless the same shall be in writing and signed by the Bank
and the Borrower, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
The Borrower shall reimburse the Bank on demand for all reasonable costs,
expenses and charges (including without limitation, reasonable fees and charges
of external legal counsel for the Bank and costs allocated by the Bank's
internal legal department) incurred by the Bank in connection with the
preparation, performance or enforcement of this Revolving Note.
This Revolving Note shall be binding on the Borrower and its permitted
successors and assigns and shall inure to the benefit of the Bank and its
successors and assigns, PROVIDED that the Borrower may not delegate any
obligations hereunder without the prior written consent of the Bank.
This Revolving Note shall be governed by, and interpreted and construed in
accordance with, the laws of the Commonwealth of Massachusetts.
THE BORROWER IRREVOCABLY WAIVES TRIAL BY JURY IN ANY COURT AND IN ANY SUIT,
ACTION OR PROCEEDING OR ANY MATTER ARISING IN CONNECTION WITH OR IN ANY WAY
RELATED TO THE TRANSACTIONS CONTEMPLATED BY THE AGREEMENT, THE REVOLVING NOTE,
THE CORE PLEDGE AGREEMENT, THE CORE SECURITY AGREEMENT, THE TRADEMARK SECURITY
AGREEMENT, THE WARRANT OR ANY OF THE BORROWER'S DOCUMENTS RELATED THERETO AND
THE ENFORCEMENT OF ANY OF THE BANK'S RIGHTS AND REMEDIES.
IN WITNESS WHEREOF, the undersigned has caused this Revolving Note to be
duly executed as of the day and year first above written.
CORE, INC.
By: /s/ [ILLEGIBLE]
--------------------------------
Name:
Title:
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS AGREEMENT is made as of August 31, 1998, between CORE, INC., a
Massachusetts corporation (the "Company"), and Michael D. Lachance, James T.
Fallon, Lisa O. Hansen, David C. Mitchell and David K. Rich (each a
"Stockholder" and collectively with their permitted assigns, the
"Stockholders").
The Company and the Stockholders are among the parties to a Stock
Purchase Agreement dated August 31, 1998 (the "Purchase Agreement"), pursuant
to which CORE shall purchase all of the outstanding shares of capital stock
of Disability Reinsurance Management Services, Inc., a Delaware corporation,
("DRMS"). In order to induce the Stockholders 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 paragraph 9 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. DEMAND REGISTRATION.
(a) REQUESTS FOR REGISTRATION. Commencing one year after the
execution of this Agreement and during the term of this Agreement, the
holders of at least 50% of the Registrable Securities may request
registration under the Securities Act of all or part of their Registrable
Securities on Form S-3 or any similar or successor short-form registration
statement (a "Short-Form Registration"), PROVIDED that the Company shall be
eligible to effect a Short-Form Registration at the time such request is
made. Within twenty business days after receipt of any such request, the
Company will give written notice of such requested registration to all other
holders of Registrable Securities and will include in such registration all
Registrable Securities with respect to which the Company has received written
requests for inclusion therein within 15 days after the receipt of the
Company's notice. A registration requested pursuant to this paragraph 1(a) is
referred to herein as a "Demand Registration". Notwithstanding the foregoing,
the Company shall not be required to effect any Demand Registration if the
aggregate number of shares of Registrable Securities to be included therein
(after giving effect the requests of all holders of the Company's securities
to have securities included therein) shall be less than 300,000. Any
Stockholder who does not participate in a Demand Registration shall have no
further rights under paragraph 1 of this Agreement, unless such Demand
Registration does not count as a Short-Form Registration, in which event such
nonparticipating Stockholder shall retain all of such Stockholder's rights
under Section 1 of this Agreement with respect to all subsequent Demand
Registrations. A registration will not count as a Short-Form Registration
until it has become and remained (in accordance with paragraph 4(b) below)
effective, unless such registration has been withdrawn or discontinued at the
request of Stockholders holding more than 50% of the Registrable Securities
to be included, or which have been included but remain unsold, in such
registration.
<PAGE>
(b) DEMAND REGISTRATION EXPENSES. The Company shall pay all
Registration Expenses (as defined in paragraph 5 below) for the Demand
Registration. The Demand Registration shall be an underwritten offering if
the Company or the holders of a majority of the Registrable Securities to be
included therein so request. Subject to paragraph 1(c) below, all costs of
sale and distribution of the registered shares shall be borne by the
Stockholders.
(c) PRIORITY ON DEMAND REGISTRATION. If a Demand Registration is
an underwritten offering, and the managing underwriters advise the Company or
the holders of Registrable Securities included in such offering in writing
that in such managing underwriter's opinion the number of Registrable
Securities and other securities requested to be included exceeds the number
of Registrable Securities and other securities which can be sold in such
offering without adversely affecting the marketability of the offering, the
Company will include in such registration prior to the inclusion of any
securities which are not Registrable Securities the number of Registrable
Securities requested to be included which in the opinion of such underwriters
can be sold, pro rata among the respective holders on the basis of the amount
of Registrable Securities owned.
(d) RESTRICTIONS. If, at the time of any request to register
Registrable Securities pursuant to this paragraph 1, the Company
(i) has filed, or has definite and good faith plans to file
within 90 days after the time of the request, a registered public offering as
to which the holders will be entitled to include Registrable Securities
pursuant to paragraph 2, or
(ii) is engaged in any other activity which, in the good
faith determination of the Company's board of directors, would be adversely
affected by the requested registration to the material detriment of the
Company.
then the Company's board of directors may at its option direct that such
request be delayed for a period not in excess of six (6) months from the
effective date of such offering or the date of commencement of such other
activity, as the case may be.
(e) SELECTION OF UNDERWRITERS. In the Demand Registration, the
Company will have the right to select the investment banker(s) and manager(s)
to administer the offering, subject to the approval of holders of a majority
of the Registrable Securities included in the Demand Registration, which
approval will not be unreasonably withheld.
(f) UNDERWRITING AGREEMENT. If requested by the underwriters for
any underwritten offering by holders of Registrable Securities pursuant to a
registration requested under this paragraph 1, the Company will enter into an
underwriting agreement with such underwriters for such offering, such
agreement to contain such representations and warranties by the Company and
such other terms and provisions as are customarily contained in agreements of
that type, including without limitation indemnities to the effect and to the
extent provided in paragraph 6 hereof.
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2. 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 (each a "Piggyback Registration"), the Company will
give prompt written notice to all holders of Registrable Securities 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 for inclusion therein within 15 days after the receipt of
the Company's notice.
(b) PIGGYBACK EXPENSES. The Registration Expenses of the holders of
Registrable Securities will 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
Company's securities issued to Transcend Services, Inc. in connection with
the Company's acquisition of all of the assets of Transcend Case Management,
Inc. which shares are subject to a Registration Rights Agreement entered into
between the Company and Transcend Services, Inc. on March 17, 1998 (the
"Transcend Registrable Securities") requested to be included in such
registration, (iii) third, the Registrable Securities requested to be
included in such registration, pro rata among the holders of such Registrable
Securities on the basis of the number of shares owned by each such holder,
and (iv) fourth, 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 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) the
Transcend Registrable Securities requested to be included, (iii) third, the
Registrable Securities requested to be included in such registration, pro
rata among the holders of such Registrable Securities on the basis of the
number of securities so requested to be included therein, and (iv) fourth,
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.
(f) UNDERWRITING AGREEMENT. If requested by the underwriters for any
underwritten offering by holders of Registrable Securities pursuant to a
registration requested under this paragraph 2, the holders of Registrable
Securities participating in such registration shall enter into an
underwriting agreement with such underwriters for such offering, such
agreement to
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contain such representations and warranties by the Company and such other
terms and provisions as are customarily contained in agreements of that type,
including without limitation indemnities to the effect and to the extent
provided in paragraph 6 hereof.
3. HOLDBACK.
(a) Each Stockholder 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 a period not exceeding the seven
days prior to and the 180-day period beginning on the effective date of any
underwritten Demand Registration or any underwritten Piggyback Registration
in which Registrable Securities of such Stockholder are included (except as
part of such underwritten registration), unless the underwriters managing the
registered public offering otherwise agree, PROVIDED that the Stockholders
shall not be subject to a longer period than any other seller of securities
included in such offering.
(b) The 180-day period referred to in paragraph 3(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 (i) such period
shall not be extended beyond 270 days and (ii) the Stockholders shall not be
subject to a longer period than any other similarly situated Person.
4. REGISTRATION PROCEDURES. Whenever the Stockholders have 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 (in
the case of a registration pursuant to paragraph 1 hereof, such filing to be
made within 90 days of the initial request therefor) a registration statement
with respect to such Registrable Securities and use its reasonable best
efforts to cause such registration statement to become and remain effective
(provided that not less than 5 business days before filing a registration
statement or prospectus or any amendments or supplements thereto, the Company
will furnish to the counsel selected by the holders of a majority of the
Registrable Securities covered by 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 each seller of Registrable Securities and each
underwriter, if any, of the securities being sold by such seller, such number
of copies of such registration statement, each
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<PAGE>
amendment and supplement thereto, the prospectus included in such
registration statement (including each preliminary prospectus) and such other
documents as such seller may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by such seller;
(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 any seller reasonably requests and do any and all other acts
and things which may be reasonably necessary or advisable to enable such
seller to consummate the disposition in such jurisdictions of the Registrable
Securities owned by such seller (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 each seller of such 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 any such seller,
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) advise each seller of Registrable Securities covered by such
registration statement, promptly after it receives notice thereof, of the
time when such registration statement, or any supplement thereto, or any
amendment to such registration statement have become effective or any related
prospectus or any supplement to such prospectus or any amendment to such
prospectus has been filed, of the issuance by the Securities and Exchange
Commission of any stop order or of any order preventing or suspending the use
of any related preliminary prospectus or prospectus, of the suspension of the
qualification of such Registrable Securities for offering or sale in any
jurisdiction, of the initiation or threatening of any proceeding for any such
purpose, or of any request by the Securities and Exchange Commission for the
amending or supplementing of such registration statement or prospectus or for
additional information; and in the event of the issuance of any stop order or
of any order preventing or suspending the use of any such preliminary
prospectus or prospectus or suspending any such qualification, to use
promptly its best efforts to obtain withdrawal of such order;
(g) file promptly all documents required to be filed with the
Securities and Exchange Commission pursuant to Sections 13, 14 or 15(d) of
the Exchange Act subsequent to the time such registration statement becomes
effective and during any period when any related prospectus is required to be
delivered;
(h) 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;
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(i) provide an independent transfer agent and registrar for all such
Registrable Securities not later than the effective date of such registration
statement;
(j) enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the holders
of a majority of the Registrable Securities being sold or the underwriters,
if any, reasonably request in order to expedite or facilitate the disposition
of such Registrable Securities;
(k) make available for inspection by any seller of Registrable
Securities, any underwriter participating in any disposition pursuant to such
registration statement and any attorney, accountant or other agent retained
by any such seller or 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 any such seller, underwriter, attorney,
accountant or agent in connection with such registration statement; and
(l) 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 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 ll(a) of the Securities Act and Rule 158 thereunder.
In connection with the Demand Registration or any Piggyback
Registration, the holders of Registrable Securities will expeditiously supply
the Company with all reasonably requested 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.
5. 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 for the holders of Registrable
Securities) 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.
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(b) To the extent expenses in connection with a registration hereunder
are not required to be paid by the Company, each holder of securities
included in any registration hereunder will pay those Registration Expenses
allocable to the registration of such holder's 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.
6. INDEMNIFICATION.
(a) The Company agrees to indemnify, to the extent permitted by law,
each Stockholder, such Stockholder's officers, directors, counsel and each
Person who controls such Stockholder (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 such
Stockholder expressly for use therein or by such Stockholder's failure to
deliver a copy of the registration statement or prospectus or any amendments
or supplements thereto after the Company has furnished such Stockholder 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 the Stockholders; 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 the
Stockholders.
(b) In connection with any registration statement in which a
Stockholder is participating, each such Stockholder 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 such Stockholder;
provided that the obligation to indemnify will be individual to each
Stockholder and will be limited to the net amount of proceeds received by
such Stockholder 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
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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. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
The indemnification and contribution required by this paragraph 6 shall
be made by periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or expense, loss,
damage or liability is incurred.
7. 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
all in accordance with the other terms and conditions hereof.
8. RULE 144. The Company covenants that it will timely file the reports
required to be filed by it under the Securities Act or the Securities
Exchange Act of 1934, as from time to time in effect (the "Exchange Act"),
including but not limited to the reports under Sections 13 and 15(d) of the
Exchange Act referred to in subparagraph (c)(1) of Rule 144 adopted by the
Securities and Exchange Commission under the Securities Act, and the rules
and regulations adopted by the Securities and Exchange Commission thereunder,
and will take such further action as any holder of Registrable Securities may
reasonably request, all to the extent required from time to time to enable
such holder to sell Registrable Securities without registration under the
Securities Act within the limitation of the exemptions provided by (i) Rule
144 under the Securities Act, as such Rule may be amended from time to time,
or (ii) any similar rule or regulation hereafter adopted by the Securities
and Exchange Commission. Upon the request of any holder of Registrable
Securities, the Company will deliver to such holder a written statement as to
whether it has complied with such requirements.
9. DEFINITIONS.
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"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 issued to the Stockholders pursuant to the Purchase
Agreement, (ii) any Common Stock issued or issuable with respect to the
securities referred to in clause (i), and (iii) 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 any Stockholder to any other party
except for permitted transferees as described in Section ll(e).
"Registration Expenses" means as defined in paragraph 5(a) hereto.
Unless otherwise stated, other capitalized terms contained herein have
the meanings set forth in the Purchase Agreement.
10. TERM. This Agreement shall terminate upon the earliest of the
following events: (i) five (5) years from the 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 the
Stockholders' Registrable Securities through any combination of methods
including Rule 144 or Rule 144A.
11. 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 the holders of Registrable Securities in
this Agreement. The Stockholders acknowledge that they are aware of, have
received a copy of and reviewed the Registration Rights Agreement between the
Company and Transcend Services, Inc. dated March 17, 1998.
(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 the holders of
Registrable Securities 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).
(c) SPECIFIC PERFORMANCE. Each of the parties hereto acknowledges and
agrees that the other Parties hereto would be damaged irreparably in the
event any of the provisions of this Agreement are not performed in accordance
with their specific terms or otherwise are breached. Accordingly, each of the
parties hereto agrees that each other party hereto shall be entitled to an
injunction or injunctions to prevent breaches of the provisions of this
Agreement and to enforce specifically this Agreement and the terms and
provisions hereof in any action instituted in any court of the United States
or any state thereof having jurisdiction over the parties hereto and the
matter in addition to any other remedy to which it may be entitled, at law or
in equity.
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(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 holders of at least a majority of the
Registrable Securities.
(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. None of the Stockholders shall be permitted to
assign their respective rights under this Agreement to any party without the
Company's prior written consent, which the Company may withhold in its sole
discretion, provided however the Company hereby consents to assignment of
rights hereunder to the following permitted transferees: the spouse or issue
of the existing Stockholder, or the legal representative of any trust or
estate in which the Stockholder or his or her spouse or issue shall have the
principal beneficial interest or to any other Stockholder who is a party
hereto.
(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 Stockholder 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.
(k) ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding of the parties hereto with respect to the subject matter hereof
and supersedes any and all prior understandings and agreements, whether
written or oral, with respect to such subject matter.
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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
STOCKHOLDERS
/s/ Michael D. Lachance
------------------------------------------
Michael D. Lachance
/s/ James T. Fallon
------------------------------------------
James T. Fallon
/s/ Lisa O. Hansen
------------------------------------------
Lisa O. Hansen
/s/ David C. Mitchell
------------------------------------------
David C. Mitchell
/s/ David K. Rich
------------------------------------------
David K. Rich
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REGISTRATION RIGHTS AGREEMENT
THIS AGREEMENT is made as of August 31, 1998, between CORE, Inc., a
Massachusetts corporation (the "Company"), and Fleet National Bank, a
national banking association ("Purchaser").
As an inducement to and in consideration of the execution and delivery
by Purchaser of the Credit Agreement dated August 31, 1998 between the
Company and the Purchaser (the "Credit Agreement"), the Company hereby
covenants and agrees with the Purchaser and with each permitted transferee of
any of the Purchaser's Restricted Stock (as such term is defined herein), as
follows:
1. DEMAND REGISTRATION.
(a) REQUESTS FOR REGISTRATION. Commencing one year after the
execution of this Agreement and during the term of this Agreement, the
holders of at least 50% of the Registrable Securities may request
registration under the Securities Act of all or part of their Registrable
Securities on Form S-3 or any similar or successor short-form registration
statement (a "Short-Form Registration"), PROVIDED that the Company shall be
eligible to effect a Short-Form Registration at the time such request is
made. Within twenty business days after receipt of any such request, the
Company will give written notice of such requested registration to all other
holders of Registrable Securities and will include in such registration all
Registrable Securities with respect to which the Company has received written
requests for inclusion therein within 15 days after the receipt of the
Company's notice. A registration requested pursuant to this paragraph 1(a) is
referred to herein as a "Demand Registration". Notwithstanding the foregoing,
the Company shall not be required to effect any Demand Registration if the
aggregate number of shares of Registrable Securities to be included therein
(after giving effect the requests of all holders of the Company's securities
to have securities included therein) shall be less than 50,000. Any holder of
Registrable Securities who does not participate in a Demand Registration
shall have no further rights under paragraph 1 of this Agreement, unless such
Demand Registration does not count as a Short-Form Registration, in which
event such nonparticipating holder shall retain all of such holder's rights
under Section 1 of this Agreement with respect to all subsequent Demand
Registrations. A registration will not count as a Short-Form Registration
until it has become and remained (in accordance with paragraph 4(b) below)
effective, or if such registration has been withdrawn or discontinued at the
request of holders holding more than 50% of the Registrable Securities to be
included, or which have been included but remain unsold, in such registration.
(b) DEMAND REGISTRATION EXPENSES. The Company shall pay all
Registration Expenses (as defined in paragraph 5 below) for the Demand
Registration. The Demand Registration shall be an underwritten offering if
the Company or the holders of a majority of the Registrable Securities to be
included therein so request. Subject to paragraph 1(c) below, all costs of
sale and distribution of the registered shares shall be borne by the holders
of Registrable Securities participating in the offering.
<PAGE>
(c) PRIORITY ON DEMAND REGISTRATION. If a Demand Registration is
an underwritten offering, and the managing underwriters advise the Company or
the holders of Registrable Securities included in such offering in writing
that in such managing underwriter's opinion the number of Registrable
Securities and other securities requested to be included exceeds the number
of Registrable Securities and other securities which can be sold in such
offering without adversely affecting the marketability of the offering, the
Company will include in such registration prior to the inclusion of any
securities which are not Registrable Securities the number of Registrable
Securities requested to be included which in the opinion of such underwriters
can be sold, pro rata among the respective holders on the basis of the amount
of Registrable Securities owned.
(d) RESTRICTIONS. If, at the time of any request to register
Registrable Securities pursuant to this paragraph 1, the Company
(i) has filed, or has definite and good faith plans to file
within 90 days after the time of the request, a registered public offering as
to which the holders will be entitled to include Registrable Securities
pursuant to paragraph 2, or
(ii) is engaged in any other activity which, in the good
faith determination of the Company's board of directors, would be adversely
affected by the requested registration to the material detriment of the
Company,
then the Company's board of directors may at its option direct that such
request be delayed for a period not in excess of six (6) months from the
effective date of such offering or the date of commencement of such other
activity, as the case may be.
(e) SELECTION OF UNDERWRITERS. In the Demand Registration, the
Company will have the right to select the investment banker(s) and manager(s)
to administer the offering, subject to the approval of holders of a majority
of the Registrable Securities included in the Demand Registration, which
approval will not be unreasonably withheld.
(f) UNDERWRITING AGREEMENT. If requested by the underwriters for
any underwritten offering by holders of Registrable Securities pursuant to a
registration requested under this paragraph 1, the Company will enter into an
underwriting agreement with such underwriters for such offering, such
agreement to contain such representations and warranties by the Company and
such other terms and provisions as are customarily contained in agreements of
that type, including without limitation indemnities to the effect and to the
extent provided in paragraph 6 hereof.
2. 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 (each a "Piggyback Registration"), the Company will
give prompt written notice to all holders of Registrable Securities of its
intention to effect such a registration and will include in such registration
all Registrable Securities with
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respect to which the Company has received written requests for inclusion
therein within 15 days after the receipt of the Company's notice.
(b) PIGGYBACK EXPENSES. The Registration Expenses of the holders of
Registrable Securities will 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
Company's securities issued to Transcend Services, Inc. in connection with
the Company's acquisition of all of the assets of Transcend Case Management,
Inc. which shares are subject to a Registration Rights Agreement entered into
between the Company and Transcend Services, Inc. on March 17, 1998 (the
"Transcend Registrable Securities") requested to be included in such
registration, (iii) third, the Registrable Securities requested to be
included in such registration, pro rata among the holders of such Registrable
Securities on the basis of the number of shares owned by each such holder,
and (iv) fourth, 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 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) the
Transcend Registrable Securities requested to be included, (iii) third, the
Registrable Securities requested to be included in such registration, pro
rata among the holders of such Registrable Securities on the basis of the
number of securities so requested to be included therein, and (iv) fourth,
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.
(f) UNDERWRITING AGREEMENT. If requested by the underwriters for any
underwritten offering by holders of Registrable Securities pursuant to a
registration requested under this paragraph 2, the holders of Registrable
Securities participating in such registration shall enter into an
underwriting agreement with such underwriters for such offering, such
agreement to contain such representations and warranties by the Company and
such other terms and provisions as are customarily contained in agreements of
that type, including without limitation indemnities to the effect and to the
extent provided in paragraph 6 hereof.
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3. HOLDBACK.
(a) Each holder of Registrable Securities participating in a Demand
Registration or Piggyback Registration 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 a period not exceeding the seven
days prior to and the 180-day period beginning on the effective date of any
underwritten Demand Registration or any underwritten Piggyback Registration
in which Registrable Securities of holder are included (except as part of
such underwritten registration), unless the underwriters managing the
registered public offering otherwise agree, PROVIDED that the holders shall
not be subject to a longer period than any other seller of securities
included in such offering.
(b) The 180-day period referred to in paragraph 3(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 (i) such period
shall not be extended beyond 270 days and (ii) the holders shall not be
subject to a longer period than any other similarly situated Person.
4. REGISTRATION PROCEDURES. Whenever the holders of Registrable
Securities have 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 (in
the case of a registration pursuant to paragraph 1 hereof, such filing to be
made within 30 days of the initial request therefor) a registration statement
with respect to such Registrable Securities and use its reasonable best
efforts to cause such registration statement to become and remain effective
(provided that not less than 5 business days before filing a registration
statement or prospectus or any amendments or supplements thereto, the Company
will furnish to the counsel selected by the holders of a majority of the
Registrable Securities covered by 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 each seller of Registrable Securities and each
underwriter, if any, of the securities being sold by such seller, such number
of copies of such registration statement, each amendment and supplement
thereto, the prospectus included in such registration statement (including
each preliminary prospectus) and such other documents as such seller may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by such seller;
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(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 any seller reasonably requests and do any and all other acts
and things which may be reasonably necessary or advisable to enable such
seller to consummate the disposition in such jurisdictions of the Registrable
Securities owned by such seller (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 each seller of such 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 any such seller,
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) advise each seller of Registrable Securities covered by such
registration statement, promptly after it receives notice thereof, of the
time when such registration statement, or any supplement thereto, or any
amendment to such registration statement have become effective or any related
prospectus or any supplement to such prospectus or any amendment to such
prospectus has been filed, of the issuance by the Securities and Exchange
Commission of any stop order or of any order preventing or suspending the use
of any related preliminary prospectus or prospectus, of the suspension of the
qualification of such Registrable Securities for offering or sale in any
jurisdiction, of the initiation or threatening of any proceeding for any such
purpose, or of any request by the Securities and Exchange Commission for the
amending or supplementing of such registration statement or prospectus or for
additional information; and in the event of the issuance of any stop order or
of any order preventing or suspending the use of any such preliminary
prospectus or prospectus or suspending any such qualification, to use
promptly its best efforts to obtain withdrawal of such order;
(g) file promptly all documents required to be filed with the
Securities and Exchange Commission pursuant to Sections 13, 14 or 15(d) of
the Exchange Act subsequent to the time such registration statement becomes
effective and during any period when any related prospectus is required to be
delivered;
(h) 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;
(i) provide an independent transfer agent and registrar for all such
Registrable Securities not later than the effective date of such registration
statement;
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<PAGE>
(j) enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the holders
of a majority of the Registrable Securities being sold or the underwriters,
if any, reasonably request in order to expedite or facilitate the disposition
of such Registrable Securities;
(k) make available for inspection by any seller of Registrable
Securities, any underwriter participating in any disposition pursuant to such
registration statement and any attorney, accountant or other agent retained
by any such seller or 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 any such seller, underwriter, attorney,
accountant or agent in connection with such registration statement; and
(l) 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 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 ll(a) of the Securities Act and Rule 158 thereunder.
In connection with the Demand Registration or any Piggyback
Registration, the holders of Registrable Securities will expeditiously supply
the Company with all reasonably requested 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.
5. 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 for the holders of Registrable
Securities) 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 expenses in connection with a registration hereunder
are not required to be paid by the Company, each holder of securities
included in any registration hereunder will pay those Registration Expenses
allocable to the registration of such holder's securities so included,
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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.
6. INDEMNIFICATION.
(a) The Company agrees to indemnify, to the extent permitted by law,
each holder of Registrable Securities participating in a Demand Registration
or a Piggyback Registration, such holder's officers, directors, counsel and
each Person who controls or is affiliated with such holder (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 such holder expressly for use therein
or by such holder's failure to deliver a copy of the registration statement
or prospectus or any amendments or supplements thereto after the Company has
furnished such holder 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 the holders; 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
the holders.
(b) In connection with any registration statement in which a holder of
Registrable Securities is participating, each such holder 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 such holder; provided
that the obligation to indemnify will be individual to each holder and will
be limited to the net amount of proceeds received by such holder 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
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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. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
The indemnification and contribution required by this paragraph 6 shall
be made by periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or expense, loss,
damage or liability is incurred.
7. 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
all in accordance with the other terms and conditions hereof.
8. RULE 144. The Company covenants that it will timely file the reports
required to be filed by it under the Securities Act or the Securities
Exchange Act of 1934, as from time to time in effect (the "Exchange Act"),
including but not limited to the reports under Sections 13 and 15(d) of the
Exchange Act referred to in subparagraph (c)(1) of Rule 144 adopted by the
Securities and Exchange Commission under the Securities Act, and the rules
and regulations adopted by the Securities and Exchange Commission thereunder,
and will take such further action as any holder of Registrable Securities may
reasonably request, all to the extent required from time to time to enable
such holder to sell Registrable Securities without registration under the
Securities Act within the limitation of the exemptions provided by (i) Rule
144 under the Securities Act, as such Rule may be amended from time to time,
or (ii) any similar rule or regulation hereafter adopted by the Securities
and Exchange Commission. Upon the request of any holder of Registrable
Securities, the Company will deliver to such holder a written statement as to
whether it has complied with such requirements.
9. DEFINITIONS.
"Person" means an individual, a partnership, a corporation, a limited
liability company, 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.
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"Registrable Securities" means any of the shares of the Company's common
stock which are issued upon exercise of the Warrant, including without
limitation any Common Stock issued or issuable pursuant to Section 2 thereof.
As to any particular Registrable Securities, such securities will cease to be
Registrable Securities upon removal of any restrictive legend therefrom upon
shares becoming fully saleable under Rule 144(k).
"Registration Expenses" means as defined in paragraph 5(a) hereto.
"Warrant" means the warrant for common stock issued to Purchaser by
CORE, INC. on August 31, 1998.
Unless otherwise stated, other capitalized terms contained herein have
the meanings set forth in the Purchase Agreement.
10. TERM. This Agreement shall terminate upon the earliest of the
following events: (i) five (5) years from the date of this Agreement
(provided if the holders of Registrable Securities have given notice of the
exercise of their registration rights hereunder prior to the end of such five
year period, the Company shall honor its obligation hereunder after such five
year period), (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 the Registrable Securities through any combination of methods
including Rule 144 or Rule 144A.
11. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to Purchaser as follows:
(a) The execution, delivery and performance of this Registration Rights
Agreement by the Company have been duly authorized by all requisite corporate
action and will not violate any provision of law, any order of any court or
other agency of government, the Articles of Organization or By-laws of the
Company, or any provision of any indenture, agreement or other instrument to
which it or any of its properties or assets is bound, or a default under any
such indenture, agreement or other instrument, or result in the creation or
imposition of any lien, charge or encumbrance of any nature whatsoever upon
any properties or assets of the Company.
(b) This Agreement has been duly executed and delivered by the Company
and constitutes the legal, valid and binding obligation of the Company,
enforceable in accordance with its terms, subject, as to enforcement of
remedies, to applicable bankruptcy, insolvency, moratorium and other similar
laws and to general principles of equity, and except as rights to indemnity
or contribution hereunder may be limited by public policy or by law.
12. 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 the holders of Registrable Securities in
this Agreement. The Purchaser acknowledges that it is aware of, have
received a copy of and reviewed the Registration Rights Agreement between the
Company and
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Transcend Services, Inc. dated March 17, 1998 and the Registration Rights
Agreement between the Company and five stockholders dated August 31, 1998.
(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 the holders of
Registrable Securities 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).
(c) SPECIFIC PERFORMANCE. Each of the parties hereto acknowledges and
agrees that the other Parties hereto would be damaged irreparably in the
event any of the provisions of this Agreement are not performed in accordance
with their specific terms or otherwise are breached. Accordingly, each of the
parties hereto agrees that each other party hereto shall be entitled to an
injunction or injunctions to prevent breaches of the provisions of this
Agreement and to enforce specifically this Agreement and the terms and
provisions hereof in any action instituted in any court of the United States
or any state thereof having jurisdiction over the parties hereto and the
matter in addition to any other remedy to which it may be entitled, at law or
in equity.
(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 holders of at least a majority of the
Registrable Securities.
(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. Purchaser and its assigns shall not be
permitted to assign their respective rights under this Agreement to any party
without the Company's prior written consent, which consent shall not be
unreasonably withheld, provided however the Company hereby consents to
assignment of rights hereunder to the following permitted transferees: any
affiliate of Fleet National Bank or any successor of Fleet National Bank or
affiliates thereof.
(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.
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(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 Purchaser or its assigns at the address
indicated in the Credit 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.
(k) ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding of the parties hereto with respect to the subject matter hereof
and supersedes any and all prior understandings and agreements, whether
written or oral, with respect to such subject matter.
[SIGNATURES ON FOLLOWING PAGE]
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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
PURCHASER
FLEET NATIONAL BANK
By: /s/ [ILLEGIBLE]
--------------------------------------
Title:
------------------------------------
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, entered into as of August 31, 1998,
between DISABILITY REINSURANCE MANAGEMENT SERVICES, INC., a Delaware
corporation (hereinafter called the "Company"), and James T. Fallon of
Yarmouth, Maine (hereinafter called "Executive").
WHEREAS, CORE, INC., a Massachusetts corporation ("CORE"), is acquiring
all the capital stock of the Company pursuant to a Capital Stock Purchase
Agreement of even date herewith among CORE, the Company, Executive and other
former stockholders of the Company (the "Stock Purchase Agreement");
WHEREAS, in connection with the closing of said Stock Purchase Agreement
CORE, the Company and Executive desire the Company and Executive to enter
into an employment agreement;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and for other good and valuable consideration, the receipt of
which is acknowledged by both parties hereto, the Company and Executive agree
as follows:
1. EMPLOYMENT. The Company will employ Executive and Executive will
serve the Company as a member of the Company's Board of Directors and a
Managing Director, all upon the terms and conditions provided herein. During
the term of this Agreement, Executive shall not be assigned to any position
of lesser authority or responsibility than those attending the office or
offices described in this Section.
2. DUTIES. Executive shall report to the Chief Executive Officer of
CORE and the Board of Directors of the Company. The Executive (in
conjunction with the other Managing Directors of the Company) shall be
responsible for the day-to day business, operations and affairs of the
Company. Additionally, Executive (in conjunction with the other Managing
Directors of the Company) shall make recommendations to the CORE Board of
Directors or Compensation Committee concerning grants of incentive stock
options of CORE stock for Company employees (such recommendations to be
consistent with stock options awards for other employees of CORE and its
subsidiaries which shall be considered in good faith by the CORE Board of
Directors and/or Compensation Committee).
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The Executive recognizes the ultimate authority of CORE (the stockholder
of the Company) and CORE management for all material matters involving the
Company, including, without limitation, matters relating to significant
litigation, significant capital expenditures in excess of $250,000, responses
to other Managing Directors leaving the Company for any reason, compliance
with reasonable CORE policies and procedures (including finance and
accounting procedures as a subsidiary of a publicly reporting company) and
responses to disparities of at least 30% between projected EBIT targets and
actual operating results for any calendar year after 1998.
Executive's principal place of employment shall be located in the
Greater Portland area at least until the third anniversary of the date hereof.
3. TERM. The term of Executive's employment hereunder shall be for the
period beginning on the date hereof, and ending September 30, 2000 (the
"Term"). Executive may extend the Term of this Agreement through any
additional period through September 30, 2001 (the "Executive Extension") upon
written notice to the Company provided, during the Executive Extension
Executive shall provide Company with at least 90 days advance written notice
of termination. After the scheduled Term and any Executive Extension, the
employment of Executive hereunder shall continue until terminated by either
party upon giving to the other party 90 days advance prior notice of
termination. This Employment Agreement is subject to earlier termination as
set forth in Section 8 hereof.
4. COMMITMENT OF EXECUTIVE. During the term of this Agreement,
Executive shall be employed by the Company on a full-time basis, and shall
perform his duties during the normal business hours of the Company. During
the term of this Agreement, Executive shall not perform work for compensation
(except for reimbursement of reasonable expenses approved by the Company)
within the industry in which the Company, CORE or any of CORE's subsidiaries
are active for any person or entity other than the Company without first
obtaining the prior written consent of the Board of Directors of the Company.
5. COMPENSATION.
(a) SALARY. During the Term of this Agreement, the Company agrees
to compensate Executive at the rate of not less than $195,950.00 per annum.
Executive's salary shall not be reduced below this amount without his consent.
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(b) PAYROLL POLICIES. Executive's compensation shall be paid in
installments pursuant to the Company's personnel policies, as they may be
amended from time to time, less any applicable federal, state or local
payroll tax deductions incident on Executive.
(c) BONUSES. Executive shall be eligible to receive a bonus or
bonuses on the same merit basis as other CORE executives as determined by the
Board of Directors of CORE or the Compensation Committee of CORE, at its sole
discretion, based upon performance and other factors.
6. ETHICAL CONDUCT. Executive agrees to adhere to all recognized
professional ethics and customs, and to avoid all actions or conduct which
injures in any way, directly or indirectly, the professional standing and
reputation of the Company or any of the Company's affiliated corporations or
employees. Executive represents and warrants he is free to enter into this
Employment Agreement and that there are no employment contracts, restrictive
covenants or other obligations preventing full performance of his duties
hereunder.
7. FRINGE BENEFITS. The Company agrees to maintain employee benefits
set forth on SCHEDULE A attached hereto until at least the first anniversary
of the date hereof, and thereafter such benefits shall be modified upon the
approval of the Company's Board of Directors.
(a) VACATION. Executive shall be entitled to a vacation period not
to exceed five (5) weeks in any calendar year of his employment without loss
of compensation. In the event that Executive's employment is terminated for
any reason prior to the expiration of a full calendar year, the vacation
period to which he is entitled shall be prorated, and he shall receive
compensation on account of any unused vacation days in addition to his
regular compensation for the period prior to his termination. Vacation time
for a given calendar year is earned at a rate of 10% per month of work
completed from July of the prior calendar year through April of the current
year. Executive shall not be entitled to carry previously allowed vacation
time except as otherwise permitted by Company's policies as set forth on
SCHEDULE A attached hereto.
(b) HOLIDAYS AND SICK LEAVE. In addition to his vacation time,
Executive shall be entitled without loss of compensation to those holidays to
which employees of the Company are entitled under the personnel policies of
the Company. Sick leave shall be accumulated for Executive in accordance
with the personnel policies of the Company.
(c) HEALTH CARE BENEFITS. Executive shall be furnished with a
health care benefit
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package consistent with benefits available to other Company employees as now
in effect and set forth on SCHEDULE A attached hereto, and as modified
hereafter in accordance with requirements set forth in the first sentence of
this Section.
(d) DISABILITY BENEFITS. The Company agrees to continue
Executive's full salary and fringe benefits for a period of short-term
disability not to exceed one hundred eighty (180) days (or such longer period
as may be required to qualify for benefits under the long-term disability
policies sponsored by the Company and then in effect) during which Executive
is unable to work on account of illness or injury. The Company shall provide
Executive at the Company's expense a long-term disability benefit which shall
be substantially similar to long term disability benefits available to other
Company employees as now in effect and set forth on SCHEDULE A attached
hereto, and as modified hereafter in accordance with requirements set forth
in the first sentence of this Section.
(e) STOCK OPTIONS. Executive shall be eligible, on the same merit
basis as other CORE executives, to receive grants of options for the purchase
of CORE common stock pursuant to CORE INC.'s 1997 Stock Option Plan (and any
successor plan) as determined by the Board of Directors of CORE or the
Compensation Committee of CORE, at its sole discretion, based upon
performance and other factors.
(f) OTHER FRINGE BENEFITS. Executive shall be entitled to
additional fringe benefits as set forth on SCHEDULE A attached hereto and
consistent with the personnel policies of the Company as determined by the
Company's Board of Directors in accordance with the first sentence of this
Section.
8. TERMINATION OF AGREEMENT.
(a) CAUSE. Executive's employment hereunder may be terminated
immediately by the Company for "Cause". For the purpose of this Agreement,
"Cause" means:
(i) willful breach or habitual neglect of the duties
Executive is required to perform hereunder that is not cured within fifteen
days (15) days after written notice of the breach or neglect;
(ii) any illegal act by Executive injurious to the business
or reputation of the Company;
(iii) Executive's engagement in gross misconduct;
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(iv) Executive's conviction of any crime which constitutes a
felony in the jurisdiction committed (whether or not involving the Company);
(v) the failure of the Company to attain for any of the
calendar years 1999-2000 at least 50% of its annual projected EBIT as set
forth in SCHEDULE B attached hereto; or
(vi) a material breach by Executive of any material provision
of this Agreement.
If the Company desires to terminate Executive's employment hereunder
Cause, the Company shall give Executive written notice of the termination
date and shall specify in said notice the termination provision of the
Agreement and the factual basis upon which the termination action is based.
(b) DISABILITY. Executive's employment hereunder may also be
terminated at the election of the Company in the event that Executive is
disabled from performing his duties hereunder for a period of at least one
hundred eighty (180) days (or such longer period as may be required to
qualify for benefits under the long-term disability policies sponsored by the
Company and then in effect) during the Term. In the event Executive's
employment is terminated by the Company because of such a disability of
Executive, the Company shall give Executive notice of a termination date,
which shall not be less than thirty (30) days subsequent to the date of the
notice, and Executive's employment hereunder shall terminate on the
termination date as so established by the Company.
(c) DEATH. Executive's employment hereunder shall terminate
automatically upon the death of Executive.
(d) EFFECT OF TERMINATION FOR CAUSE, DISABILITY OR DEATH. If
Executive's employment terminates pursuant to Section 8(a), 8(b), or 8(c),
the Company shall pay Executive his full salary and other benefits (including
accrued and unused vacation and sick time for such year) through the date of
termination of Executive's employment at the rate then in effect, and the
Company shall have no further obligations to Executive under this Agreement,
except for salary continuation or disability benefits provided herein and for
continuation of benefits required by applicable law.
9. COVENANT NOT TO COMPETE; NON-SOLICITATION; CONFIDENTIAL INFORMATION.
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(a) In consideration of and as an inducement to the Company to
enter into this Employment Agreement, Executive shall not, for a period
commencing on the date hereof and ending on the later of (i) September 30,
2001 or (ii) one year after Executive's termination of employment with the
Company and its Affiliates (as defined in Section 9(h), below), for any
reason (the later of (i) or (ii) above being referred to as the "Covenant End
Date"), serve, directly or indirectly, as an operator, owner, partner,
consultant, officer, director, or employee of any firm, company, corporation
or entity (other than the Company or one of its Affiliates, or CORE or one of
CORE's wholly-owned subsidiaries) engaged within the geographical area of the
United States in competition with the business of the Company or its
Affiliates, or any business of CORE or its Affiliates.
(b) Executive agrees that for a period commencing with the date of
this Agreement and ending on the Covenant End Date:
(i) Executive will not directly or indirectly solicit, hire
or attempt to hire for any purpose whatsoever (whether as an employee,
consultant, advisor, independent contractor or otherwise) any employee or
consultant of the Company and its Affiliates or any person who was an
employee or consultant of any such corporations (and will not assist any
subsequent employer of Executive or related entity or person in taking any
such actions);
(ii) Executive will not induce or attempt to induce any
customer, client supplier, licensee or other business relation of the Company
and its Affiliates to cease doing business with the Company and its
Affiliates, or in any way interfere with the relationship or potential
relationship between any such customer, client, supplier, licensee or
business relation and the Company and its Affiliates; and
(iii) Executive shall not solicit or attempt to solicit, or
accept business from, any entity which at any time during the twelve month
period prior to the date of termination of Executive's employment with the
Company and its Affiliates, was a client or customer of the Company and its
Affiliates, for the purpose of doing business with such client or customer in
competition with the Company and its Affiliates. For the purpose of this
covenant, the clients and customers of the Company and its Affiliates shall
include those entities with which the Company and its Affiliates had held
discussions or negotiations concerning services of the Company and its
Affiliates which are in competition with Executive's solicited business.
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(c) PUBLICLY-HELD STOCK. Nothing herein contained shall prevent
Executive from holding or making an investment in:
(i) securities listed on a national securities exchange or
sold in the over-the-counter market, provided that 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; or
(ii) interests in a mutual fund or other pooled investment
vehicle in which Executive has less than a one percent (1%) interest.
(d) CONFIDENTIAL INFORMATION. Executive acknowledges that the
Confidential Information (as defined below) relating to the business of the
Company and its Affiliates which Executive has obtained or will obtain during
the course of his association with the Company is the property of the Company
and its Affiliates. Executive agrees that he will not disclose or use at any
time, either during or after his employment with the Company, any
Confidential Information without the written consent of the Board of
Directors of the Company (the "Board") unless such use or disclosure: (A) is
undertaken in the course of performing Executive's duties for the Company and
is reasonably expected to be in the best interests of the Company; (B)
relates to federal or state tax matters for periods ending on or prior to
August 31, 1998 and is disclosed in connection with the preparation or audit
of tax returns for such period or is otherwise necessary for determination of
Executive's proper tax liability; and (C) in connection with confirmation or
determination of the amount of Additional Consideration payable under the
Stock Purchase Agreement. Executive agrees to deliver to the Company upon
termination of his employment with the Company, or at any other time the
Company may request, all memoranda, notes, plans, records, documentation and
other materials (and copies thereof) containing Confidential Information
relating to the business of the Company and its Affiliates no matter where
such material is located and no matter what form the material may be in,
which Executive may then possess or have under his control. If requested by
the Company, Executive shall provide the Company with written confirmation
that all such materials have been delivered to the Company. Executive shall
take all appropriate steps to safeguard Confidential Information and to
protect it against disclosure, misuse, espionage, loss and theft.
Without limiting or reducing Executive's obligations under Sections 9(a)
or (b) hereof,
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nothing in this subsection (d) or in the definition of Confidential
Information shall be construed as depriving Executive from earning a
livelihood from the exercise of personal professional skills and expertise
developed before, during or after his employment with the Company.
(e) DEFINITION OF "CONFIDENTIAL INFORMATION". "Confidential
Information" shall mean:
(i) All proprietary systems, methods, designs, programs, and
procedures that are unique to the operations and practices of the Company
(whether instituted or commenced prior or subsequent to the date of this
Agreement); and
(ii) All plans, books, records, documents, notes, customer
and prospective customer lists and other recorded information concerning the
operations, business activities, strategies, practices, analyses and
personnel of the Company, as they may exist from time to time, which the
Company keeps or has taken reasonable efforts to keep confidential and which
is not or has not become publicly known (other than as a result of
Executive's breach of any confidentiality obligation to the Company).
Confidential Information shall not include any information which (A) is
publicly disclosed by law or in response to an order of a court or
governmental agency, (B) becomes publicly available through no fault of
Executive, or (C) has been published in a form generally available to the
public prior to the date upon which Executive proposes to disclose such
information. Information shall not be deemed to have been published merely
because individual portions of the information have been separately
published, but only if all the material features comprising such information
have been published in combination.
(f) INJUNCTIVE RELIEF. Without intending to limit the remedies
available to the Company and its Affiliates, Executive acknowledges that a
breach of any of the covenants contained in this Agreement could result in
material irreparable injury to the Company and its Affiliates for which there
might be no adequate remedy at law, and that, in the event of such a breach
or threat thereof, the Company shall be entitled to obtain a temporary
restraining order and/or a preliminary and permanent injunction restraining
Executive from engaging in any activities prohibited by this Agreement or
such other equitable relief as may be required to enforce specifically any of
the covenants of this Agreement.
If Executive is requested or required to disclose Confidential
Information
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pursuant to a subpoena or an order of a court or governmental agency,
Executive shall:
(i) Promptly notify the Company of the existence, terms and
circumstances surrounding the request or requirement;
(ii) Consult with the Company on the advisability of taking
steps to resist or narrow the request;
(iii) If disclosure of any information is required, furnish
only that portion of such information as Executive is advised by counsel
which is legally required to be disclosed; and
(iv) Cooperate with the Company in its efforts to obtain an
order or other reliable assurance that Confidential Information treatment
will be accorded to that portion of the Confidential Information that is
required to be disclosed.
(g) REASONABLENESS OF RESTRICTIONS. The parties are of the view
that the restrictions placed on Executive herein, in the light of all the
circumstances (including, without limitation the closing of the Stock
Purchase Agreement (defined in Section 16, below)), are reasonable as to
scope, period of time and geographical area. Nevertheless, it is the intent
of the parties that this Agreement be enforceable and restrict Executive's
activities only to the extent permitted by law. Accordingly, in the event
that any provisions in this Agreement shall be determined by arbitrators or
by any court of competent jurisdiction to be unenforceable by reason of its
extending for too great a period of time over too large a geographic area or
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.
(h) DEFINITION OF "COMPANY AND ITS AFFILIATES". For the purposes
of Sections 9 and 10, "Company and its Affiliates" shall mean the Company,
CORE, INC., and all direct and indirect subsidiaries of CORE, INC. and the
Company.
10. AVAILABILITY OF RECORDS. During the term of this Agreement and
continuing until March 31, 2003, the Company agrees to make available to
Executive, his executors, administrators or heirs, for inspection on the
premises of the Company during normal working hours, copies of any records
relating to activities while employed by the Company and which relate to any
rights or benefits to which Executive was entitled at the time of his
termination of employment. However, upon the termination of this Agreement,
Executive shall not be
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entitled to retain any records or charts of the Company in his possession.
11. ALTERNATIVE DISPUTE RESOLUTION.
(a) With the exception of actions under Section 9 of this
Agreement or termination for Cause under clauses (iv) or (vi) of the
definition thereof (which shall be submitted to arbitration pursuant to
subsection (b) without mediation under this subsection), any controversy,
dispute or questions arising out of, in connection with, or in relation to
this Agreement or its interpretation, performance or non-performance or any
breach thereof shall be resolved through mediation.
(b) Any controversy or claim arising under or relating to this
Agreement, or breach thereof, that is not resolved, or is not required to be
resolved, by mediation under subsection (a), shall be settled by arbitration
in Portland, Maine in accordance with the rules of the American Arbitration
Association as in effect from time to time. Judgment upon the award rendered
may be entered in any court having jurisdiction thereof.
Anything contained in this Section 11 notwithstanding, Executive agrees
that, in the event of any actual or threatened breach by Executive of his
undertakings in Section 9, the Company shall be entitled to immediate
temporary injunctive and other equitable relief awarded in or in aid of
arbitration as provided herein.
12. ASSIGNABILITY. This Agreement shall inure to the benefit of the
successors and assigns of the Company. However, this Agreement is personal
to Executive, and he may not assign any of his rights or obligations
hereunder.
13. AMENDMENTS. No amendment of or variation in the terms of this
Agreement shall be valid unless made in writing and signed by Executive and a
duly authorized representative of the Company.
14. NOTICES. Any notice required or permitted under this Agreement
shall be sufficient if in writing and if sent by certified or registered
mail, return receipt requested, to the parties at the following addresses:
To the Company at:
George C. Carpenter IV
Disability Reinsurance Management Services, Inc.
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c/o CORE, INC.
18881 Von Karman Avenue, Suite 1750
Irvine, California 92612
with a copy to:
Stephen M. Kane, Esq.
Rich, May, Bilodeau & Flaherty, P.C.
294 Washington Street
Boston, MA 02108-4675
To Executive at:
James T. Fallon
35 Essex Drive
Yarmouth, ME 04096
15. RULES OF CONSTRUCTION; HEADINGS AND VALIDITY. This Agreement shall
be construed in accordance with the laws of Maine.
The headings contained in this Agreement are for reference only and
shall not limit or otherwise affect the meaning of any provision of this
Agreement.
If any provision of this Agreement or portion of such provision, or the
application thereof under any circumstances, is held invalid, the remainder
of this Agreement (or the remainder of such provision) and the application
thereof under other circumstances shall not be affected by such partial
invalidity.
16. ENTIRE AGREEMENT. This Agreement constitutes the entire Agreement
between the parties hereto pertaining to the subject matter hereof and
supersedes all prior agreements, understandings, negotiations and
discussions, whether oral or written of the parties, and there are no
warranties, representations or other agreements between the parties in
connection with the subject matter hereof, except as are specifically set
forth herein. This Agreement has been entered into simultaneously with the
closing of the Stock Purchase Agreement and shall be construed in a manner
that is consistent with the provisions and intent of the Stock Purchase
Agreement. Except as otherwise provided by this Agreement, no supplement,
modification, waiver or termination of this Agreement shall be binding unless
executed in writing by the party to be bound thereby. No waiver of any of
the provisions of this Agreement shall be deemed or
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shall constitute a waiver of any other provision hereof (whether or not
similar), nor shall such waiver constitute a continuing waiver unless
otherwise expressly provided.
IN WITNESS WHEREOF, the parties to this Agreement have caused the same
to be executed as of the 31st day of August, 1998.
DISABILITY REINSURANCE MANAGEMENT
SERVICES, INC.
("Company")
By: /s/ [ILLEGIBLE]
-----------------------------------
/s/ James T. Fallon
-----------------------------------
James T. Fallon
("Executive")
ATTACHMENTS
Schedule A- Fringe Benefits
Schedule B- EBIT Targets
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EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, entered into as of August 31, 1998,
between DISABILITY REINSURANCE MANAGEMENT SERVICES, INC., a Delaware
corporation (hereinafter called the "Company"), and Lisa O. Hansen of Cape
Elizabeth, Maine (hereinafter called "Executive").
WHEREAS, CORE, INC., a Massachusetts corporation ("CORE"), is acquiring
all the capital stock of the Company pursuant to a Capital Stock Purchase
Agreement of even date herewith among CORE, the Company, Executive and other
former stockholders of the Company (the "Stock Purchase Agreement");
WHEREAS, in connection with the closing of said Stock Purchase Agreement
CORE, the Company and Executive desire the Company and Executive to enter
into an employment agreement;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and for other good and valuable consideration, the receipt of
which is acknowledged by both parties hereto, the Company and Executive agree
as follows:
1. EMPLOYMENT. The Company will employ Executive and Executive will
serve the Company as a member of the Company's Board of Directors, a Managing
Director and the Company's Corporate Secretary, all upon the terms and
conditions provided herein. During the term of this Agreement, Executive
shall not be assigned to any position of lesser authority or responsibility
than those attending the office or offices described in this Section.
2. DUTIES. Executive shall report to the Chief Executive Officer of
CORE and the Board of Directors of the Company. The Executive (in conjunction
with the other Managing Directors of the Company) shall be responsible for
the day-to day business, operations and affairs of the Company.
Additionally, Executive (in conjunction with the other Managing Directors of
the Company) shall make recommendations to the CORE Board of Directors or
Compensation Committee concerning grants of incentive stock options of CORE
stock for Company employees (such recommendations to be consistent with stock
options awards for other employees of CORE and its subsidiaries which shall
be considered in good faith by the CORE Board of Directors and/or
Compensation Committee).
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The Executive recognizes the ultimate authority of CORE (the stockholder
of the Company) and CORE management for all material matters involving the
Company, including, without limitation, matters relating to significant
litigation, significant capital expenditures in excess of $250,000, responses
to other Managing Directors leaving the Company for any reason, compliance
with reasonable CORE policies and procedures (including finance and
accounting procedures as a subsidiary of a publicly reporting company) and
responses to disparities of at least 30% between projected EBIT targets and
actual operating results for any calendar year after 1998.
Executive's principal place of employment shall be located in the
Greater Portland area at least until the third anniversary of the date hereof.
3. TERM. The term of Executive's employment hereunder shall be for the
period beginning on the date hereof, and ending September 30, 2000 (the
"Term"). Executive may extend the Term of this Agreement through any
additional period through September 30, 2001 (the "Executive Extension") upon
written notice to the Company provided, during the Executive Extension
Executive shall provide Company with at least 90 days advance written notice
of termination. After the scheduled Term and any Executive Extension, the
employment of Executive hereunder shall continue until terminated by either
party upon giving to the other party 90 days advance prior notice of
termination. This Employment Agreement is subject to earlier termination as
set forth in Section 8 hereof.
4. COMMITMENT OF EXECUTIVE. During the term of this Agreement,
Executive shall be employed by the Company on a full-time basis, and shall
perform her duties during the normal business hours of the Company. During
the term of this Agreement, Executive shall not perform work for compensation
(except for reimbursement of reasonable expenses approved by the Company)
within the industry in which the Company, CORE or any of CORE's subsidiaries
are active for any person or entity other than the Company without first
obtaining the prior written consent of the Board of Directors of the Company.
5. COMPENSATION.
(a) SALARY. During the Term of this Agreement, the Company agrees
to compensate Executive at the rate of not less than $195,950.00 per annum.
Executive's salary shall not be reduced below this amount without her consent.
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(b) PAYROLL POLICIES. Executive's compensation shall be paid in
installments pursuant to the Company's personnel policies, as they may be
amended from time to time, less any applicable federal, state or local
payroll tax deductions incident on Executive.
(c) BONUSES. Executive shall be eligible to receive a bonus or
bonuses on the same merit basis as other CORE executives as determined by
the Board of Directors of CORE or the Compensation Committee of CORE, at its
sole discretion, based upon performance and other factors.
6. ETHICAL CONDUCT. Executive agrees to adhere to all recognized
professional ethics and customs, and to avoid all actions or conduct which
injures in any way, directly or indirectly, the professional standing and
reputation of the Company or any of the Company's affiliated corporations or
employees. Executive represents and warrants she is free to enter into this
Employment Agreement and that there are no employment contracts, restrictive
covenants or other obligations preventing full performance of her duties
hereunder.
7. FRINGE BENEFITS. The Company agrees to maintain employee benefits
set forth on SCHEDULE A attached hereto until at least the first anniversary
of the date hereof, and thereafter such benefits shall be modified upon the
approval of the Company's Board of Directors.
(a) VACATION. Executive shall be entitled to a vacation period
not to exceed five (5) weeks in any calendar year of her employment without
loss of compensation. In the event that Executive's employment is terminated
for any reason prior to the expiration of a full calendar year, the vacation
period to which she is entitled shall be prorated, and he shall receive
compensation on account of any unused vacation days in addition to her
regular compensation for the period prior to her termination. Vacation time
for a given calendar year is earned at a rate of 10% per month of work
completed from July of the prior calendar year through April of the current
year. Executive shall not be entitled to carry previously allowed vacation
time except as otherwise permitted by Company's policies as set forth on
SCHEDULE A attached hereto.
(b) HOLIDAYS AND SICK LEAVE. In addition to her vacation time,
Executive shall be entitled without loss of compensation to those holidays to
which employees of the Company are entitled under the personnel policies of
the Company. Sick leave shall be accumulated for Executive in accordance
with the personnel policies of the Company.
(c) HEALTH CARE BENEFITS. Executive shall be furnished with a health
care benefit
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package consistent with benefits available to other Company employees as now
in effect and set forth on SCHEDULE A attached hereto, and as modified
hereafter in accordance with requirements set forth in the first sentence of
this Section.
(d) DISABILITY BENEFITS. The Company agrees to continue
Executive's full salary and fringe benefits for a period of short-term
disability not to exceed one hundred eighty (180) days (or such longer period
as may be required to qualify for benefits under the long-term disability
policies sponsored by the Company and then in effect) during which Executive
is unable to work on account of illness or injury. The Company shall provide
Executive at the Company's expense a long-term disability benefit which shall
be substantially similar to long term disability benefits available to other
Company employees as now in effect and set forth on SCHEDULE A attached
hereto, and as modified hereafter in accordance with requirements set forth
in the first sentence of this Section.
(e) STOCK OPTIONS. Executive shall be eligible, on the same merit
basis as other CORE executives, to receive grants of options for the purchase
of CORE common stock pursuant to CORE INC.'s 1997 Stock Option Plan (and any
successor plan) as determined by the Board of Directors of CORE or the
Compensation Committee of CORE, at its sole discretion, based upon
performance and other factors.
(f) OTHER FRINGE BENEFITS. Executive shall be entitled to
additional fringe benefits as set forth on SCHEDULE A attached hereto and
consistent with the personnel policies of the Company as determined by the
Company's Board of Directors in accordance with the first sentence of this
Section.
8. TERMINATION OF AGREEMENT.
(a) CAUSE. Executive's employment hereunder may be terminated
immediately by the Company for "Cause". For the purpose of this Agreement,
"Cause" means:
(i) willful breach or habitual neglect of the duties
Executive is required to perform hereunder that is not cured within fifteen
days (15) days after written notice of the breach or neglect;
(ii) any illegal act by Executive injurious to the business
or reputation of the Company;
(iii) Executive's engagement in gross misconduct;
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(iv) Executive's conviction of any crime which constitutes a
felony in the jurisdiction committed (whether or not involving the Company);
(v) the failure of the Company to attain for any of the
calendar years 1999-2000 at least 50% of its annual projected EBIT as set
forth in SCHEDULE B attached hereto; or
(vi) a material breach by Executive of any material provision
of this Agreement.
If the Company desires to terminate Executive's employment hereunder
Cause, the Company shall give Executive written notice of the termination
date and shall specify in said notice the termination provision of the
Agreement and the factual basis upon which the termination action is based.
(b) DISABILITY. Executive's employment hereunder may also be
terminated at the election of the Company in the event that Executive is
disabled from performing her duties hereunder for a period of at least one
hundred eighty (180) days (or such longer period as may be required to
qualify for benefits under the long-term disability policies sponsored by the
Company and then in effect) during the Term. In the event Executive's
employment is terminated by the Company because of such a disability of
Executive, the Company shall give Executive notice of a termination date,
which shall not be less than thirty (30) days subsequent to the date of the
notice, and Executive's employment hereunder shall terminate on the
termination date as so established by the Company.
(c) DEATH. Executive's employment hereunder shall terminate
automatically upon the death of Executive.
(d) EFFECT OF TERMINATION FOR CAUSE, DISABILITY OR DEATH. If
Executive's employment terminates pursuant to Section 8(a), 8(b), or 8(c),
the Company shall pay Executive her full salary and other benefits (including
accrued and unused vacation and sick time for such year) through the date of
termination of Executive's employment at the rate then in effect, and the
Company shall have no further obligations to Executive under this Agreement,
except for salary continuation or disability benefits provided herein and for
continuation of benefits required by applicable law.
9. COVENANT NOT TO COMPETE; NON-SOLICITATION; CONFIDENTIAL INFORMATION.
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(a) In consideration of and as an inducement to the Company to
enter into this Employment Agreement, Executive shall not, for a period
commencing on the date hereof and ending on the later of (i) September 30,
2001 or (ii) one year after Executive's termination of employment with the
Company and its Affiliates (as defined in Section 9(h), below), for any
reason (the later of (i) or (ii) above being referred to as the "Covenant End
Date"), serve, directly or indirectly, as an operator, owner, partner,
consultant, officer, director, or employee of any firm, company, corporation
or entity (other than the Company or one of its Affiliates, or CORE or one of
CORE's wholly-owned subsidiaries) engaged within the geographical area of the
United States in competition with the business of the Company or its
Affiliates, or any business of CORE or its Affiliates.
(b) Executive agrees that for a period commencing with the date of
this Agreement and ending on the Covenant End Date:
(i) Executive will not directly or indirectly solicit, hire
or attempt to hire for any purpose whatsoever (whether as an employee,
consultant, advisor, independent contractor or otherwise) any employee or
consultant of the Company and its Affiliates or any person who was an
employee or consultant of any such corporations (and will not assist any
subsequent employer of Executive or related entity or person in taking any
such actions);
(ii) Executive will not induce or attempt to induce any
customer, client supplier, licensee or other business relation of the Company
and its Affiliates to cease doing business with the Company and its
Affiliates, or in any way interfere with the relationship or potential
relationship between any such customer, client, supplier, licensee or
business relation and the Company and its Affiliates; and
(iii) Executive shall not solicit or attempt to solicit, or
accept business from, any entity which at any time during the twelve month
period prior to the date of termination of Executive's employment with the
Company and its Affiliates, was a client or customer of the Company and its
Affiliates, for the purpose of doing business with such client or customer in
competition with the Company and its Affiliates. For the purpose of this
covenant, the clients and customers of the Company and its Affiliates shall
include those entities with which the Company and its Affiliates had held
discussions or negotiations concerning services of the Company and its
Affiliates which are in competition with Executive's solicited business.
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(c) PUBLICLY-HELD STOCK. Nothing herein contained shall prevent
Executive from holding or making an investment in:
(i) securities listed on a national securities exchange or
sold in the over-the-counter market, provided that 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; or
(ii) interests in a mutual fund or other pooled investment
vehicle in which Executive has less than a one percent (1%) interest.
(d) CONFIDENTIAL INFORMATION. Executive acknowledges that the
Confidential Information (as defined below) relating to the business of the
Company and its Affiliates which Executive has obtained or will obtain during
the course of her association with the Company is the property of the Company
and its Affiliates. Executive agrees that she will not disclose or use at
any time, either during or after her employment with the Company, any
Confidential Information without the written consent of the Board of
Directors of the Company (the "Board") unless such use or disclosure: (A) is
undertaken in the course of performing Executive's duties for the Company and
is reasonably expected to be in the best interests of the Company; (B)
relates to federal or state tax matters for periods ending on or prior to
August 31, 1998 and is disclosed in connection with the preparation or audit
of tax returns for such period or is otherwise necessary for determination of
Executive's proper tax liability; and (C) in connection with confirmation or
determination of the amount of Additional Consideration payable under the
Stock Purchase Agreement. Executive agrees to deliver to the Company upon
termination of her employment with the Company, or at any other time the
Company may request, all memoranda, notes, plans, records, documentation and
other materials (and copies thereof) containing Confidential Information
relating to the business of the Company and its Affiliates no matter where
such material is located and no matter what form the material may be in,
which Executive may then possess or have under her control. If requested by
the Company, Executive shall provide the Company with written confirmation
that all such materials have been delivered to the Company. Executive shall
take all appropriate steps to safeguard Confidential Information and to
protect it against disclosure, misuse, espionage, loss and theft.
Without limiting or reducing Executive's obligations under Sections 9(a)
or (b) hereof,
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nothing in this subsection (d) or in the definition of Confidential
Information shall be construed as depriving Executive from earning a
livelihood from the exercise of personal professional skills and expertise
developed before, during or after her employment with the Company.
(e) DEFINITION OF "CONFIDENTIAL INFORMATION". "Confidential
Information" shall mean:
(i) All proprietary systems, methods, designs, programs, and
procedures that are unique to the operations and practices of the Company
(whether instituted or commenced prior or subsequent to the date of this
Agreement); and
(ii) All plans, books, records, documents, notes, customer
and prospective customer lists and other recorded information concerning the
operations, business activities, strategies, practices, analyses and
personnel of the Company, as they may exist from time to time, which the
Company keeps or has taken reasonable efforts to keep confidential and which
is not or has not become publicly known (other than as a result of
Executive's breach of any confidentiality obligation to the Company).
Confidential Information shall not include any information which (A) is
publicly disclosed by law or in response to an order of a court or
governmental agency, (B) becomes publicly available through no fault of
Executive, or (C) has been published in a form generally available to the
public prior to the date upon which Executive proposes to disclose such
information. Information shall not be deemed to have been published merely
because individual portions of the information have been separately
published, but only if all the material features comprising such information
have been published in combination.
(f) INJUNCTIVE RELIEF. Without intending to limit the remedies
available to the Company and its Affiliates, Executive acknowledges that a
breach of any of the covenants contained in this Agreement could result in
material irreparable injury to the Company and its Affiliates for which there
might be no adequate remedy at law, and that, in the event of such a breach
or threat thereof, the Company shall be entitled to obtain a temporary
restraining order and/or a preliminary and permanent injunction restraining
Executive from engaging in any activities prohibited by this Agreement or
such other equitable relief as may be required to enforce specifically any of
the covenants of this Agreement.
If Executive is requested or required to disclose Confidential
Information
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pursuant to a subpoena or an order of a court or governmental agency,
Executive shall:
(i) Promptly notify the Company of the existence, terms and
circumstances surrounding the request or requirement;
(ii) Consult with the Company on the advisability of taking
steps to resist or narrow the request;
(iii) If disclosure of any information is required, furnish
only that portion of such information as Executive is advised by counsel
which is legally required to be disclosed; and
(iv) Cooperate with the Company in its efforts to obtain an
order or other reliable assurance that Confidential Information treatment
will be accorded to that portion of the Confidential Information that is
required to be disclosed.
(g) REASONABLENESS OF RESTRICTIONS. The parties are of the view
that the restrictions placed on Executive herein, in the light of all the
circumstances (including, without limitation the closing of the Stock
Purchase Agreement (defined in Section 16, below)), are reasonable as to
scope, period of time and geographical area. Nevertheless, it is the intent
of the parties that this Agreement be enforceable and restrict Executive's
activities only to the extent permitted by law. Accordingly, in the event
that any provisions in this Agreement shall be determined by arbitrators or
by any court of competent jurisdiction to be unenforceable by reason of its
extending for too great a period of time over too large a geographic area or
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.
(h) DEFINITION OF "COMPANY AND ITS AFFILIATES". For the purposes
of Sections 9 and 10, "Company and its Affiliates" shall mean the Company,
CORE, INC., and all direct and indirect subsidiaries of CORE, INC. and the
Company.
10. AVAILABILITY OF RECORDS. During the term of this Agreement and
continuing until March 31, 2003, the Company agrees to make available to
Executive, her executors, administrators or heirs, for inspection on the
premises of the Company during normal working hours, copies of any records
relating to activities while employed by the Company and which relate to any
rights or benefits to which Executive was entitled at the time of her
termination of employment. However, upon the termination of this Agreement,
Executive shall not be
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entitled to retain any records or charts of the Company in her possession.
11. ALTERNATIVE DISPUTE RESOLUTION.
(a) With the exception of actions under Section 9 of this
Agreement or termination for Cause under clauses (iv) or (vi) of the
definition thereof (which shall be submitted to arbitration pursuant to
subsection (b) without mediation under this subsection), any controversy,
dispute or questions arising out of, in connection with, or in relation to
this Agreement or its interpretation, performance or non-performance or any
breach thereof shall be resolved through mediation.
(b) Any controversy or claim arising under or relating to this
Agreement, or breach thereof, that is not resolved, or is not required to be
resolved, by mediation under subsection (a), shall be settled by arbitration
in Portland, Maine in accordance with the rules of the American Arbitration
Association as in effect from time to time. Judgment upon the award rendered
may be entered in any court having jurisdiction thereof.
Anything contained in this Section 11 notwithstanding, Executive agrees
that, in the event of any actual or threatened breach by Executive of her
undertakings in Section 9, the Company shall be entitled to immediate
temporary injunctive and other equitable relief awarded in or in aid of
arbitration as provided herein.
12. ASSIGNABILITY. This Agreement shall inure to the benefit of the
successors and assigns of the Company. However, this Agreement is personal
to Executive, and she may not assign any of her rights or obligations
hereunder.
13. AMENDMENTS. No amendment of or variation in the terms of this
Agreement shall be valid unless made in writing and signed by Executive and a
duly authorized representative of the Company.
14. NOTICES. Any notice required or permitted under this Agreement
shall be sufficient if in writing and if sent by certified or registered
mail, return receipt requested, to the parties at the following addresses:
To the Company at:
George C. Carpenter IV
Disability Reinsurance Management Services, Inc.
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c/o CORE, INC.
18881 Von Karman Avenue, Suite 1750
Irvine, California 92612
with a copy to:
Stephen M. Kane, Esq.
Rich, May, Bilodeau & Flaherty, P.C.
294 Washington Street
Boston, MA 02108-4675
To Executive at:
Lisa O. Hansen
429 Old Ocean House Road
Cape Elizabeth, ME 04107
15. RULES OF CONSTRUCTION; HEADINGS AND VALIDITY. This Agreement shall
be construed in accordance with the laws of Maine.
The headings contained in this Agreement are for reference only and
shall not limit or otherwise affect the meaning of any provision of this
Agreement.
If any provision of this Agreement or portion of such provision, or the
application thereof under any circumstances, is held invalid, the remainder
of this Agreement (or the remainder of such provision) and the application
thereof under other circumstances shall not be affected by such partial
invalidity.
16. ENTIRE AGREEMENT. This Agreement constitutes the entire Agreement
between the parties hereto pertaining to the subject matter hereof and
supersedes all prior agreements, understandings, negotiations and
discussions, whether oral or written of the parties, and there are no
warranties, representations or other agreements between the parties in
connection with the subject matter hereof, except as are specifically set
forth herein. This Agreement has been entered into simultaneously with the
closing of the Stock Purchase Agreement and shall be construed in a manner
that is consistent with the provisions and intent of the Stock Purchase
Agreement. Except as otherwise provided by this Agreement, no supplement,
modification, waiver or termination of this Agreement shall be binding unless
executed in writing by the party to be bound thereby. No waiver of any of
the provisions of this Agreement shall be deemed or
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shall constitute a waiver of any other provision hereof (whether or not
similar), nor shall such waiver constitute a continuing waiver unless
otherwise expressly provided.
IN WITNESS WHEREOF, the parties to this Agreement have caused the same
to be executed as of the 31st day of August, 1998.
DISABILITY REINSURANCE MANAGEMENT
SERVICES, INC.
("Company")
By: /s/ [ILLEGIBLE]
------------------------------------
/s/ Lisa O. Hansen
------------------------------------
Lisa O. Hansen
("Executive")
ATTACHMENTS
Schedule A- Fringe Benefits
Schedule B- EBIT Targets
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EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, entered into as of August 31, 1998,
between DISABILITY REINSURANCE MANAGEMENT SERVICES, INC., a Delaware
corporation (hereinafter called the "Company"), and Michael D. Lachance of
Cumberland, Maine (hereinafter called "Executive").
WHEREAS, CORE, INC., a Massachusetts corporation ("CORE"), is acquiring
all the capital stock of the Company pursuant to a Capital Stock Purchase
Agreement of even date herewith among CORE, the Company, Executive and other
former stockholders of the Company (the "Stock Purchase Agreement");
WHEREAS, in connection with the closing of said Stock Purchase Agreement
CORE, the Company and Executive desire the Company and Executive to enter
into an employment agreement;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and for other good and valuable consideration, the receipt of
which is acknowledged by both parties hereto, the Company and Executive agree
as follows:
1. EMPLOYMENT. The Company will employ Executive and Executive will
serve the Company as a member of the Company's Board of Directors, a Managing
Director and the Company's President, all upon the terms and conditions
provided herein. During the term of this Agreement, Executive shall not be
assigned to any position of lesser authority or responsibility than those
attending the office or offices described in this Section.
2. DUTIES. Executive shall report to the Chief Executive Officer of
CORE and the Board of Directors of the Company. The Executive (in conjunction
with the other Managing Directors of the Company) shall be responsible for
the day-to day business, operations and affairs of the Company.
Additionally, Executive (in conjunction with the other Managing Directors of
the Company) shall make recommendations to the CORE Board of Directors or
Compensation Committee concerning grants of incentive stock options of CORE
stock for Company employees (such recommendations to be consistent with stock
options awards for other employees of CORE and its subsidiaries which shall
be considered in good faith by the CORE Board of Directors and/or
Compensation Committee).
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The Executive recognizes the ultimate authority of CORE (the
stockholder of the Company) and CORE management for all material matters
involving the Company, including, without limitation, matters relating to
significant litigation, significant capital expenditures in excess of
$250,000, responses to other Managing Directors leaving the Company for any
reason, compliance with reasonable CORE policies and procedures (including
finance and accounting procedures as a subsidiary of a publicly reporting
company) and responses to disparities of at least 30% between projected EBIT
targets and actual operating results for any calendar year after 1998.
Executive's principal place of employment shall be located in the
Greater Portland area at least until the third anniversary of the date hereof.
3. TERM. The term of Executive's employment hereunder shall be for the
period beginning on the date hereof, and ending September 30, 2000 (the
"Term"). Executive may extend the Term of this Agreement through any
additional period through September 30, 2001 (the "Executive Extension") upon
written notice to the Company provided, during the Executive Extension
Executive shall provide Company with at least 90 days advance written notice
of termination. After the scheduled Term and any Executive Extension, the
employment of Executive hereunder shall continue until terminated by either
party upon giving to the other party 90 days advance prior notice of
termination. This Employment Agreement is subject to earlier termination as
set forth in Section 8 hereof.
4. COMMITMENT OF EXECUTIVE. During the term of this Agreement,
Executive shall be employed by the Company on a full-time basis, and shall
perform his duties during the normal business hours of the Company. During
the term of this Agreement, Executive shall not perform work for compensation
(except for reimbursement of reasonable expenses approved by the Company)
within the industry in which the Company, CORE or any of CORE's subsidiaries
are active for any person or entity other than the Company without first
obtaining the prior written consent of the Board of Directors of the Company.
5. COMPENSATION.
(a) SALARY. During the Term of this Agreement, the Company agrees
to compensate Executive at the rate of not less than $195,950.00 per annum.
Executive's salary shall not be reduced below this amount without his consent.
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(b) PAYROLL POLICIES. Executive's compensation shall be paid in
installments pursuant to the Company's personnel policies, as they may be
amended from time to time, less any applicable federal, state or local
payroll tax deductions incident on Executive.
(c) BONUSES. Executive shall be eligible to receive a bonus or
bonuses on the same merit basis as other CORE executives as determined by
the Board of Directors of CORE or the Compensation Committee of CORE, at its
sole discretion, based upon performance and other factors.
6. ETHICAL CONDUCT. Executive agrees to adhere to all recognized
professional ethics and customs, and to avoid all actions or conduct which
injures in any way, directly or indirectly, the professional standing and
reputation of the Company or any of the Company's affiliated corporations or
employees. Executive represents and warrants he is free to enter into this
Employment Agreement and that there are no employment contracts, restrictive
covenants or other obligations preventing full performance of his duties
hereunder.
7. FRINGE BENEFITS. The Company agrees to maintain employee benefits
set forth on SCHEDULE A attached hereto until at least the first anniversary
of the date hereof, and thereafter such benefits shall be modified upon the
approval of the Company's Board of Directors.
(a) VACATION. Executive shall be entitled to a vacation period
not to exceed five (5) weeks in any calendar year of his employment without
loss of compensation. In the event that Executive's employment is terminated
for any reason prior to the expiration of a full calendar year, the vacation
period to which he is entitled shall be prorated, and he shall receive
compensation on account of any unused vacation days in addition to his
regular compensation for the period prior to his termination. Vacation time
for a given calendar year is earned at a rate of 10% per month of work
completed from July of the prior calendar year through April of the current
year. Executive shall not be entitled to carry previously allowed vacation
time except as otherwise permitted by Company's policies as set forth on
SCHEDULE A attached hereto.
(b) HOLIDAYS AND SICK LEAVE. In addition to his vacation time,
Executive shall be entitled without loss of compensation to those holidays to
which employees of the Company are entitled under the personnel policies of
the Company. Sick leave shall be accumulated for Executive in accordance
with the personnel policies of the Company.
(c) HEALTH CARE BENEFITS. Executive shall be furnished with a
health care benefit
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package consistent with benefits available to other Company employees as now
in effect and set forth on SCHEDULE A attached hereto, and as modified
hereafter in accordance with requirements set forth in the first sentence of
this Section.
(d) DISABILITY BENEFITS. The Company agrees to continue
Executive's full salary and fringe benefits for a period of short-term
disability not to exceed one hundred eighty (180) days (or such longer period
as may be required to qualify for benefits under the long-term disability
policies sponsored by the Company and then in effect) during which Executive
is unable to work on account of illness or injury. The Company shall provide
Executive at the Company's expense a long-term disability benefit which shall
be substantially similar to long term disability benefits available to other
Company employees as now in effect and set forth on SCHEDULE A attached
hereto, and as modified hereafter in accordance with requirements set forth
in the first sentence of this Section.
(e) STOCK OPTIONS. Executive shall be eligible, on the same merit
basis as other CORE executives, to receive grants of options for the purchase
of CORE common stock pursuant to CORE INC.'s 1997 Stock Option Plan (and any
successor plan) as determined by the Board of Directors of CORE or the
Compensation Committee of CORE, at its sole discretion, based upon
performance and other factors.
(f) OTHER FRINGE BENEFITS. Executive shall be entitled to
additional fringe benefits as set forth on SCHEDULE A attached hereto and
consistent with the personnel policies of the Company as determined by the
Company's Board of Directors in accordance with the first sentence of this
Section.
8. TERMINATION OF AGREEMENT.
(a) CAUSE. Executive's employment hereunder may be terminated
immediately by the Company for "Cause". For the purpose of this Agreement,
"Cause" means:
(i) willful breach or habitual neglect of the duties
Executive is required to perform hereunder that is not cured within fifteen
days (15) days after written notice of the breach or neglect;
(ii) any illegal act by Executive injurious to the business
or reputation of the Company;
(iii) Executive's engagement in gross misconduct;
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(iv) Executive's conviction of any crime which constitutes a
felony in the jurisdiction committed (whether or not involving the Company);
(v) the failure of the Company to attain for any of the
calendar years 1999-2000 at least 50% of its annual projected EBIT as set
forth in SCHEDULE B attached hereto; or
(vi) a material breach by Executive of any material provision
of this Agreement.
If the Company desires to terminate Executive's employment hereunder
Cause, the Company shall give Executive written notice of the termination
date and shall specify in said notice the termination provision of the
Agreement and the factual basis upon which the termination action is based.
(b) DISABILITY. Executive's employment hereunder may also be
terminated at the election of the Company in the event that Executive is
disabled from performing his duties hereunder for a period of at least one
hundred eighty (180) days (or such longer period as may be required to
qualify for benefits under the long-term disability policies sponsored by the
Company and then in effect) during the Term. In the event Executive's
employment is terminated by the Company because of such a disability of
Executive, the Company shall give Executive notice of a termination date,
which shall not be less than thirty (30) days subsequent to the date of the
notice, and Executive's employment hereunder shall terminate on the
termination date as so established by the Company.
(c) DEATH. Executive's employment hereunder shall terminate
automatically upon the death of Executive.
(d) EFFECT OF TERMINATION FOR CAUSE, DISABILITY OR DEATH. If
Executive's employment terminates pursuant to Section 8(a), 8(b), or 8(c),
the Company shall pay Executive his full salary and other benefits (including
accrued and unused vacation and sick time for such year) through the date of
termination of Executive's employment at the rate then in effect, and the
Company shall have no further obligations to Executive under this Agreement,
except for salary continuation or disability benefits provided herein and for
continuation of benefits required by applicable law.
9. COVENANT NOT TO COMPETE; NON-SOLICITATION; CONFIDENTIAL INFORMATION.
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(a) In consideration of and as an inducement to the Company to
enter into this Employment Agreement, Executive shall not, for a period
commencing on the date hereof and ending on the later of (i) September 30,
2001 or (ii) one year after Executive's termination of employment with the
Company and its Affiliates (as defined in Section 9(h), below), for any
reason (the later of (i) or (ii) above being referred to as the "Covenant End
Date"), serve, directly or indirectly, as an operator, owner, partner,
consultant, officer, director, or employee of any firm, company, corporation
or entity (other than the Company or one of its Affiliates, or CORE or one of
CORE's wholly-owned subsidiaries) engaged within the geographical area of the
United States in competition with the business of the Company or its
Affiliates, or any business of CORE or its Affiliates.
(b) Executive agrees that for a period commencing with the date of
this Agreement and ending on the Covenant End Date:
(i) Executive will not directly or indirectly solicit, hire
or attempt to hire for any purpose whatsoever (whether as an employee,
consultant, advisor, independent contractor or otherwise) any employee or
consultant of the Company and its Affiliates or any person who was an
employee or consultant of any such corporations (and will not assist any
subsequent employer of Executive or related entity or person in taking any
such actions);
(ii) Executive will not induce or attempt to induce any
customer, client supplier, licensee or other business relation of the Company
and its Affiliates to cease doing business with the Company and its
Affiliates, or in any way interfere with the relationship or potential
relationship between any such customer, client, supplier, licensee or
business relation and the Company and its Affiliates; and
(iii) Executive shall not solicit or attempt to solicit, or
accept business from, any entity which at any time during the twelve month
period prior to the date of termination of Executive's employment with the
Company and its Affiliates, was a client or customer of the Company and its
Affiliates, for the purpose of doing business with such client or customer in
competition with the Company and its Affiliates. For the purpose of this
covenant, the clients and customers of the Company and its Affiliates shall
include those entities with which the Company and its Affiliates had held
discussions or negotiations concerning services of the Company and its
Affiliates which are in competition with Executive's solicited business.
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(c) PUBLICLY-HELD STOCK. Nothing herein contained shall prevent
Executive from holding or making an investment in:
(i) securities listed on a national securities exchange or
sold in the over-the-counter market, provided that 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; or
(ii) interests in a mutual fund or other pooled investment
vehicle in which Executive has less than a one percent (1%) interest.
(d) CONFIDENTIAL INFORMATION. Executive acknowledges that the
Confidential Information (as defined below) relating to the business of the
Company and its Affiliates which Executive has obtained or will obtain during
the course of his association with the Company is the property of the Company
and its Affiliates. Executive agrees that he will not disclose or use at any
time, either during or after his employment with the Company, any
Confidential Information without the written consent of the Board of
Directors of the Company (the "Board") unless such use or disclosure: (A) is
undertaken in the course of performing Executive's duties for the Company and
is reasonably expected to be in the best interests of the Company; (B)
relates to federal or state tax matters for periods ending on or prior to
August 31, 1998 and is disclosed in connection with the preparation or audit
of tax returns for such period or is otherwise necessary for determination of
Executive's proper tax liability; and (C) in connection with confirmation or
determination of the amount of Additional Consideration payable under the
Stock Purchase Agreement. Executive agrees to deliver to the Company upon
termination of his employment with the Company, or at any other time the
Company may request, all memoranda, notes, plans, records, documentation and
other materials (and copies thereof) containing Confidential Information
relating to the business of the Company and its Affiliates no matter where
such material is located and no matter what form the material may be in,
which Executive may then possess or have under his control. If requested by
the Company, Executive shall provide the Company with written confirmation
that all such materials have been delivered to the Company. Executive shall
take all appropriate steps to safeguard Confidential Information and to
protect it against disclosure, misuse, espionage, loss and theft.
Without limiting or reducing Executive's obligations under Sections 9(a)
or (b) hereof,
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nothing in this subsection (d) or in the definition of Confidential
Information shall be construed as depriving Executive from earning a
livelihood from the exercise of personal professional skills and expertise
developed before, during or after his employment with the Company.
(e) DEFINITION OF "CONFIDENTIAL INFORMATION". "Confidential
Information" shall mean:
(i) All proprietary systems, methods, designs, programs, and
procedures that are unique to the operations and practices of the Company
(whether instituted or commenced prior or subsequent to the date of this
Agreement); and
(ii) All plans, books, records, documents, notes, customer
and prospective customer lists and other recorded information concerning the
operations, business activities, strategies, practices, analyses and
personnel of the Company, as they may exist from time to time, which the
Company keeps or has taken reasonable efforts to keep confidential and which
is not or has not become publicly known (other than as a result of
Executive's breach of any confidentiality obligation to the Company).
Confidential Information shall not include any information which (A) is
publicly disclosed by law or in response to an order of a court or
governmental agency, (B) becomes publicly available through no fault of
Executive, or (C) has been published in a form generally available to the
public prior to the date upon which Executive proposes to disclose such
information. Information shall not be deemed to have been published merely
because individual portions of the information have been separately
published, but only if all the material features comprising such information
have been published in combination.
(f) INJUNCTIVE RELIEF. Without intending to limit the remedies
available to the Company and its Affiliates, Executive acknowledges that a
breach of any of the covenants contained in this Agreement could result in
material irreparable injury to the Company and its Affiliates for which there
might be no adequate remedy at law, and that, in the event of such a breach
or threat thereof, the Company shall be entitled to obtain a temporary
restraining order and/or a preliminary and permanent injunction restraining
Executive from engaging in any activities prohibited by this Agreement or
such other equitable relief as may be required to enforce specifically any of
the covenants of this Agreement.
If Executive is requested or required to disclose Confidential
Information
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pursuant to a subpoena or an order of a court or governmental agency,
Executive shall:
(i) Promptly notify the Company of the existence, terms and
circumstances surrounding the request or requirement;
(ii) Consult with the Company on the advisability of taking
steps to resist or narrow the request;
(iii) If disclosure of any information is required, furnish
only that portion of such information as Executive is advised by counsel
which is legally required to be disclosed; and
(iv) Cooperate with the Company in its efforts to obtain an
order or other reliable assurance that Confidential Information treatment
will be accorded to that portion of the Confidential Information that is
required to be disclosed.
(g) REASONABLENESS OF RESTRICTIONS. The parties are of the view
that the restrictions placed on Executive herein, in the light of all the
circumstances (including, without limitation the closing of the Stock
Purchase Agreement (defined in Section 16, below)), are reasonable as to
scope, period of time and geographical area. Nevertheless, it is the intent
of the parties that this Agreement be enforceable and restrict Executive's
activities only to the extent permitted by law. Accordingly, in the event
that any provisions in this Agreement shall be determined by arbitrators or
by any court of competent jurisdiction to be unenforceable by reason of its
extending for too great a period of time over too large a geographic area or
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.
(h) DEFINITION OF "COMPANY AND ITS AFFILIATES". For the purposes
of Sections 9 and 10, "Company and its Affiliates" shall mean the Company,
CORE, INC., and all direct and indirect subsidiaries of CORE, INC. and the
Company.
10. AVAILABILITY OF RECORDS. During the term of this Agreement and
continuing until March 31, 2003, the Company agrees to make available to
Executive, his executors, administrators or heirs, for inspection on the
premises of the Company during normal working hours, copies of any records
relating to activities while employed by the Company and which relate to any
rights or benefits to which Executive was entitled at the time of his
termination of employment. However, upon the termination of this Agreement,
Executive shall not be
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entitled to retain any records or charts of the Company in his possession.
11. ALTERNATIVE DISPUTE RESOLUTION.
(a) With the exception of actions under Section 9 of this
Agreement or termination for Cause under clauses (iv) or (vi) of the
definition thereof (which shall be submitted to arbitration pursuant to
subsection (b) without mediation under this subsection), any controversy,
dispute or questions arising out of, in connection with, or in relation to
this Agreement or its interpretation, performance or non-performance or any
breach thereof shall be resolved through mediation.
(b) Any controversy or claim arising under or relating to this
Agreement, or breach thereof, that is not resolved, or is not required to be
resolved, by mediation under subsection (a), shall be settled by arbitration
in Portland, Maine in accordance with the rules of the American Arbitration
Association as in effect from time to time. Judgment upon the award rendered
may be entered in any court having jurisdiction thereof.
Anything contained in this Section 11 notwithstanding, Executive agrees
that, in the event of any actual or threatened breach by Executive of his
undertakings in Section 9, the Company shall be entitled to immediate
temporary injunctive and other equitable relief awarded in or in aid of
arbitration as provided herein.
12. ASSIGNABILITY. This Agreement shall inure to the benefit of the
successors and assigns of the Company. However, this Agreement is personal
to Executive, and he may not assign any of his rights or obligations
hereunder.
13. AMENDMENTS. No amendment of or variation in the terms of this
Agreement shall be valid unless made in writing and signed by Executive and a
duly authorized representative of the Company.
14. NOTICES. Any notice required or permitted under this Agreement
shall be sufficient if in writing and if sent by certified or registered
mail, return receipt requested, to the parties at the following addresses:
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To the Company at:
George C. Carpenter IV
Disability Reinsurance Management Services, Inc.
c/o CORE, INC.
18881 Von Karman Avenue, Suite 1750
Irvine, California 92612
with a copy to:
Stephen M. Kane, Esq.
Rich, May, Bilodeau & Flaherty, P.C.
294 Washington Street
Boston, MA 02108-4675
To Executive at:
Michael D. Lachance
8 Schooner Ridge Road
Cumberland, ME 04110
15. RULES OF CONSTRUCTION; HEADINGS AND VALIDITY. This Agreement shall
be construed in accordance with the laws of Maine.
The headings contained in this Agreement are for reference only and
shall not limit or otherwise affect the meaning of any provision of this
Agreement.
If any provision of this Agreement or portion of such provision, or the
application thereof under any circumstances, is held invalid, the remainder
of this Agreement (or the remainder of such provision) and the application
thereof under other circumstances shall not be affected by such partial
invalidity.
16. ENTIRE AGREEMENT. This Agreement constitutes the entire Agreement
between the parties hereto pertaining to the subject matter hereof and
supersedes all prior agreements, understandings, negotiations and
discussions, whether oral or written of the parties, and there are no
warranties, representations or other agreements between the parties in
connection with the subject matter hereof, except as are specifically set
forth herein. This Agreement has been entered into simultaneously with the
closing of the Stock Purchase Agreement and shall be construed in a manner
that is consistent with the provisions and intent of the Stock Purchase
Agreement. Except as otherwise provided by this Agreement, no supplement,
modification,
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waiver or termination of this Agreement shall be binding unless executed in
writing by the party to be bound thereby. No waiver of any of the provisions
of this Agreement shall be deemed or shall constitute a waiver of any other
provision hereof (whether or not similar), nor shall such waiver constitute a
continuing waiver unless otherwise expressly provided.
IN WITNESS WHEREOF, the parties to this Agreement have caused the same
to be executed as of the 31st day of August, 1998.
DISABILITY REINSURANCE MANAGEMENT
SERVICES, INC.
("Company")
By: /s/ [ILLEGIBLE]
------------------------------
/s/ Michael D. Lachance
------------------------------
Michael D. Lachance
("Executive")
ATTACHMENTS
Schedule A- Fringe Benefits
Schedule B- EBIT Targets
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