<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
Commission file number 0-19600
CORE, INC.
(Exact name of registrant as specified in its charter)
Massachusetts 04-2828817
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
18881 Von Karman Avenue, Suite 1750, Irvine, California 92612
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (949) 442-2100
Indicate by check "X" whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
On May 10, 1999 there were 7,899,151 shares of the Registrant's Common Stock
outstanding.
<PAGE>
CORE, INC.
FORM 10-Q
For the quarter ended March 31, 1999
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION Page
----
Item 1. Financial Statements
Consolidated Condensed Balance Sheets 3
Consolidated Condensed Statements of Operations 5
Consolidated Condensed Statements of Cash Flows 6
Notes to Consolidated Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
PART II OTHER INFORMATION
Item 1. Legal Proceedings N/A
Item 2. Changes in Securities and Use of Proceeds N/A
Item 3. Defaults Upon Senior Securities N/A
Item 4. Submission of Matters to a Vote of Security Holders N/A
Item 5. Other Information N/A
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 15
2
<PAGE>
CORE, INC.
Consolidated Condensed Balance Sheets
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
(Unaudited) (Note 1)
----------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 80,202 $ 2,226,020
Accounts receivable, net of allowance for doubtful accounts of
$405,013 at March 31, 1999 and December 31, 1998 11,218,198 8,280,630
Unbilled receivables 1,790,075 1,395,500
Notes receivable from officers 85,262 90,462
Prepaid expenses and other current assets 1,082,313 1,080,993
----------------------------
Total current assets 14,256,050 13,073,605
Property and equipment, net 8,400,919 7,931,150
Deposits and other assets 891,881 618,487
Goodwill and intangibles, net of accumulated amortization of
$1,229,524 at March 31, 1999 and $863,077 at December 31, 1998
26,756,641 27,108,298
----------------------------
Total assets $50,305,491 $48,731,540
============================
</TABLE>
3
<PAGE>
CORE, INC.
Consolidated Condensed Balance Sheets - Continued
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
(Unaudited) (Note 1)
-------------------------------
<S> <C> <C>
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 2,235,921 $ 1,363,785
Accrued expenses 2,207,932 2,076,933
Advances under revolving credit agreement - 2,750,000
Accrued payroll 380,300 807,124
Accrued vacation 767,500 717,500
Deferred revenue 373,778 -
Notes payable 215,123 259,510
Capital lease obligations - 6,015
-------------------------------
Total current liabilities 6,180,554 7,980,867
Advances under revolving credit agreement, net of current
portion 15,700,000 13,750,000
Notes payable, net of current portion 100,432 123,633
Deferred rent, net of current portion 24,183 50,410
Stockholders' equity:
Preferred stock, no par value, authorized 500,000 shares; no
shares outstanding - -
Common stock, $0.10 par value per share; authorized
30,000,000 shares; issued and outstanding 7,891,577 at March
31, 1999 and 7,824,512 at December 31, 1998 789,158 782,451
Additional paid-in capital 38,363,564 37,778,640
Deferred compensation (6,697) (6,697)
Accumulated deficit (10,845,703) (11,727,764)
-------------------------------
Total stockholders' equity 28,300,322 26,826,630
-------------------------------
Total liabilities and stockholders' equity $ 50,305,491 $ 48,731,540
===============================
</TABLE>
See accompanying notes.
4
<PAGE>
CORE, INC.
Consolidated Condensed Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
1999 1998
------------------------------
<S> <C> <C>
Revenues $14,695,631 $10,170,490
Cost of services 8,519,584 6,620,032
------------------------------
Gross profit 6,176,047 3,550,458
Operating expenses:
General and administrative 2,885,510 2,232,315
Sales and marketing 1,014,971 817,747
Depreciation and amortization 865,434 515,845
------------------------------
Total operating expenses 4,765,915 3,565,907
------------------------------
Income (loss) from operations 1,410,132 (15,449)
Other income (expense):
Interest income 2,320 153,015
Interest expense (362,431) (2,878)
------------------------------
Total other income (expense) (360,111) 150,137
Income before income taxes 1,050,021 134,688
Income tax benefit (provision) (167,960) 75,000
------------------------------
Net income $ 882,061 $ 209,688
==============================
Net income per common share:
Basic $0.11 $0.03
==============================
Diluted $0.11 $0.03
==============================
Weighted average number of common shares and
equivalents outstanding:
Basic 7,853,000 7,310,000
==============================
Diluted 8,301,000 8,359,000
==============================
</TABLE>
See accompanying notes.
5
<PAGE>
CORE, INC.
Consolidated Condensed Statements of Cash Flows (Unaudited)
Three months ended March 31,
<TABLE>
<CAPTION>
1999 1998
-----------------------------------
<S> <C> <C>
Operating activities:
Net income $ 882,061 $ 209,688
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,099,386 727,438
Changes in operating assets and liabilities:
Increase in accounts and unbilled receivables (3,332,143) (529,209)
Increase in prepaid expenses and other current assets (111,062) (86,655)
Increase (decrease) in accounts payable and accrued expenses 973,862 (129,889)
-----------------------------------
Net cash provided by (used in) operating activities (487,896) 191,373
Investing activities:
Additions to property and equipment (1,064,435) (793,711)
Additions to goodwill and intangible assets (14,790) (145,210)
Decrease (increase) in deposits and other assets (30,133) 211
Purchases of investments available-for-sale - (9,456,705)
Sales of investments available-for-sale - 9,445,913
-----------------------------------
Net cash used in investing activities (1,109,358) (949,502)
Financing activities:
Borrowings under credit agreement 1,500,000 -
Repayments under credit agreement (2,300,000) -
Payments for origination and other fees pursuant to credit agreement (86,592) -
Payments on obligation from acquisition - (750,000)
Payments on notes payable (67,588) (10,498)
Payments on capital lease obligations (6,015) (10,104)
Issuance of common stock upon exercise of stock options 411,631 78,165
-----------------------------------
Net cash used in financing activities (548,564) (692,437)
-----------------------------------
Net decrease in cash and cash equivalents (2,145,818) (1,450,566)
Cash and cash equivalents at beginning of period 2,226,020 7,944,595
-----------------------------------
Cash and cash equivalents at end of period $ 80,202 $ 6,494,029
===================================
Supplemental disclosure of cash flow information:
Interest paid $ 334,698 $ 3,750
===================================
Income taxes paid $ 73,000 $ 49,500
===================================
See accompanying notes.
</TABLE>
6
<PAGE>
CORE, INC.
Notes to Consolidated Condensed Financial Statements (Unaudited)
March 31, 1999
Note 1 - Basis of Presentation
The accompanying unaudited consolidated condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission, but do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. The balance sheet at December 31, 1998 has been derived
from the audited financial statements of CORE, INC. ("CORE") at that date.
In the opinion of management, all adjustments (consisting of only normal
recurring adjustments) considered necessary for a fair presentation have been
included. Operating results for the three-month period ended March 31, 1999 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1999. For further information, refer to the consolidated
financial statements for the year ended December 31, 1998 contained in CORE's
annual report filed on Form 10-K filed on April 1, 1999, as amended by CORE's
10-K/A filed with the Securities and Exchange Commission on April 29, 1999.
Note 2 - Business Acquisitions
On September 1, 1998, CORE acquired all shares of stock of Disability
Reinsurance Management Services, Inc. ("DRMS"), a Delaware corporation, pursuant
to a Capital Stock Purchase Agreement dated as of August 31, 1998 (the "Stock
Purchase Agreement") in a transaction accounted for as a purchase. Pursuant to
the Stock Purchase Agreement, all shares of stock of DRMS were acquired in
exchange for a $20,000,000 cash payment, the issuance of 480,000 shares of
CORE's common stock and the future issuance of up to an additional $7,000,000 of
CORE's common stock after September 30, 2001, based upon the future performance
of DRMS. The purchase price is subject to certain adjustments as set forth in
the Stock Purchase Agreement. The excess of the purchase price over the
estimated fair market value of the net assets acquired, representing goodwill
and certain identifiable intangibles amounting to approximately $22,777,000, is
being amortized on a straight-line basis over periods of three to thirty-five
years. DRMS is 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.
On March 17, 1998, a wholly-owned subsidiary of CORE, TCM Services, Inc. ("TCM")
purchased the operating assets and certain liabilities of Transcend Case
Management, Inc. ("Transcend") pursuant to an Asset Purchase Agreement (the
"Asset Purchase Agreement") in a transaction accounted for as a purchase.
Transcend is a provider of workers' compensation case management services.
Pursuant to the Asset Purchase Agreement, the assets of Transcend were acquired
in exchange for the assumption of certain liabilities and a contingent issuance
of shares of common stock of CORE, the number of which was to be equal to a
valuation based upon the future performance of the acquired operations. On
December 23, 1998, TCM transferred substantially all its assets and certain
liabilities to Transcend following the exercise by Transcend of its option to
reacquire the assets, as described in the Asset Purchase Agreement.
The unaudited consolidated condensed financial statements include the operating
results of DRMS and TCM from the dates of acquisition. The following unaudited
pro forma results of operations for the three months ended March 31, 1999 and
1998 has been prepared as if the acquisition of DRMS had occurred on January 1,
1998 and the TCM acquisition and subsequent disposition had not occurred at all.
The pro forma financial information also includes adjustments related to the
DRMS acquisition for amortization of intangibles arising from the transaction,
interest expense incurred on funds borrowed to finance the transaction,
reductions in interest income from the use of short-term investments to fund the
transaction and for additional shares of common stock and stock options issued
in the transaction.
7
<PAGE>
CORE, INC.
Notes to Consolidated Condensed Financial Statements (Unaudited) - Continued
Note 2 - Business Acquisitions (continued)
<TABLE>
<CAPTION>
Three months ended March 31,
1999 1998
---------------------------
<S> <C> <C>
Revenues $14,696,000 $11,397,000
===========================
Net income $882,000 $48,000
===========================
Net income per common share:
Basic $0.11 $0.01
===========================
Diluted $0.11 $0.01
===========================
</TABLE>
The pro forma financial information is presented for informational purposes only
and is not necessarily indicative of what the actual consolidated results of
operations might have been had the transactions occurred on the date indicated.
Note 3 - Credit Agreement
On August 31, 1998, CORE entered into a revolving line of credit agreement (the
"Credit Agreement") with Fleet National Bank ("Fleet"). Under the terms of the
Second Amendment to the Credit Agreement dated February 19, 1999, CORE may
borrow up to specified amounts beginning at $17,000,000, subject to mandatory
commitment reductions, at the prime base rate plus 0.50% or London Interbank
Offered Rate ("LIBOR") plus 3.50%. At March 31, 1999 and December 31, 1998,
CORE had outstanding borrowings of $15,700,000 and $16,500,000, respectively,
under the Credit Agreement which were all tied to the prime base lending rate
(7.75%) plus the applicable margin. The Credit Agreement is secured by
substantially all of CORE's assets and requires CORE to meet certain financial
covenants, including minimum ratios for interest, debt service and fixed charge
coverage along with minimum net worth levels. Additionally, the Credit
Agreement prohibits the payment of dividends by CORE without the Bank's written
consent. CORE was in compliance with the financial covenants contained in the
Credit Agreement at March 31, 1999.
On January 15 1999, CORE entered into an interest rate protection arrangement
with Fleet that limits CORE's exposure to significant increases in the base
lending rate. The arrangement places an effective cap on the prime base lending
rate at 9.75% (or LIBOR at 6.75%) over the life of the Credit Agreement.
A Third Amendment to the Credit Agreement, dated April 28, 1999, increased the
maximum commitment available from $16,000,000 as of March 31, 1999 to
$18,500,000, and revised the schedule of mandatory commitment reductions.
Under the third amendment, which extends the credit facility through June 30,
2004, credit availability is subject to mandatory commitment reductions each
quarter (beginning on March 31, 2000) in amounts ranging from $875,000 to
$1,250,000.
In connection with the Credit Agreement and related amendments, CORE has issued
two Warrants to purchase shares of its Common Stock to Fleet. The original
Warrant granted on August 31, 1998 entitles the holder to purchase up to 156,322
shares of CORE's Common Stock (subject to certain adjustments), at an exercise
price of $6.92 per share. The original Warrant is exercisable beginning August
31, 1999 and expires August 31, 2003. The second Warrant granted in connection
with the Third Amendment to the Credit Agreement, entitles the holder to
purchase up to 187,000 shares of CORE's Common Stock (subject to certain
adjustments), at an exercise price of $12.00 per share. The second Warrant was
exercisable upon the execution of the third amendment and expires June 30, 2004.
8
<PAGE>
Note 4 - Earnings per Common Share
The following table sets forth the computation of basic and diluted earnings per
share for the periods indicated:
<TABLE>
<CAPTION>
Three months ended March 31,
1999 1998
----------------------------
<S> <C> <C>
Numerator:
Net income $882,000 $210,000
============================
Denominator:
Denominator for basic earnings per share: weighted-average
shares 7,853,000 7,310,000
Effect of dilutive stock options and warrants 448,000 1,049,000
----------------------------
Denominator for diluted earnings per share: adjusted
weighted-average shares and assumed conversions 8,301,000 8,359,000
============================
Basic earnings per share $0.11 $0.03
Diluted earnings per share $0.11 $0.03
============================
</TABLE>
Note 5 - Exclusive Option to Sell Assets
On January 7, 1999, CORE granted an exclusive option to sell the assets of one
of its' operating subsidiaries, Integrated Behavioral Health, a California
corporation ("IBH"), to a non-affiliated party. This exclusive option was
granted in exchange for consulting services. On April 1, 1999, the exclusive
option was exercised. The sale of the assets of IBH is expected to close on or
before September 30, 1999, however the sale of the assets of IBH is subject to a
definitive agreement. The purchaser and IBH have not yet completed negotiations
or executed a definitive agreement.
Note 6 - Segment Reporting
CORE reports segment information in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 131 "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 establishes standards for
the way that public companies report information about operating segments and
related disclosures about products and services, geographic areas and major
customers. CORE operates in a single industry segment: employee absence
management services.
Note 7 - Comprehensive Income
Total comprehensive income was $882,000 and $210,000 for the three months ended
March 31, 1999 and 1998, respectively.
Note 8 - Accounting for Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." CORE expects to
adopt the new Statement effective January 1, 2000. SFAS No. 133 will require
CORE to recognize all derivatives on the balance sheet at fair value. CORE does
not anticipate that the adoption of SFAS No. 133 will have a significant effect
on its results of operations or financial position.
9
<PAGE>
CORE, INC.
Notes to Consolidated Condensed Financial Statements (Unaudited) - Continued
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- -------------------------------------------------------------------------------
of Operations.
-------------
Overview
CORE, INC. ("CORE") is a national provider of employee absence management
services to Fortune 500 companies and other self-insured employers, third-party
administrators and insurance carriers. CORE's services include Integrated
Disability Management (which consist of CORE's proprietary WorkAbility(R)
Absence Management program, disability reinsurance management services, social
security disability benefits advocacy, analytic consulting services, onsite job
profiling and analysis and workplace risk management services, and licensing),
Peer Review Analysis (which consist of specialty physician and behavioral health
review services), and other services including Medicare coordination of
benefits, health care benefits utilization review and case management services.
CORE's services are designed to prevent absence, promote early return to work,
improve productivity, and manage disabilities from "day one" through return to
work or retirement, without compromising the quality of health care services
provided to patients.
CORE is typically compensated for these services either on a per employee per
month ("PEPM"), per case, hourly, percentage of risk premium (for full service
reinsurance management services) or percentage of cost recovery (for social
security advocacy and Medicare benefits services) basis. The integrated
disability management services line also includes a limited amount of revenue
(1% for the three months ended March 31, 1999) from licensing fees attributable
to license grants by CORE of the medical protocol portion of the WorkAbility
software program.
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995 and CORE's
actual results could differ materially from those contemplated by such
statements. Such statements reflect management's current views, are based on
many assumptions and are subject to risks and uncertainties. Some important
factors CORE believes could cause such results to differ include CORE's reliance
on its WorkAbility program, CORE's dependence on key clients, risks associated
with CORE's growth strategy, increases or changes in government regulation and
competition. The foregoing list of factors is not intended to represent a
complete list of the general or specific risks that may affect CORE. It should
be recognized that other risks might be significant, presently or in the future.
Current Developments
On January 7, 1999, CORE granted an exclusive option to sell the assets of one
of its' operating subsidiaries, Integrated Behavioral Health, a California
corporation ("IBH"), to a non-affiliated party. This exclusive option was
granted in exchange for consulting services. On April 1, 1999, the exclusive
option was exercised. The sale of the assets of IBH is expected to close on or
before September 30, 1999, however the sale of the assets of IBH is subject to a
definitive agreement. The purchaser and IBH have not yet completed negotiations
or executed a definitive agreement.
Results of Operations
The following table sets forth-certain statement of operations data for the
periods indicated expressed as a percentage of revenues:
<TABLE>
<CAPTION>
Three months ended
March 31,
---------------------------------
1999 1998
---------------------------------
<S> <C> <C>
Revenue 100.0% 100.0%
Cost of services 58.0% 65.1%
Gross profit 42.0% 34.9%
General and administrative expense 19.6% 21.9%
Sales and marketing expense 6.9% 8.0%
</TABLE>
10
<PAGE>
The following table sets forth the contribution to total revenues of each of
CORE's principal service lines for the periods indicated:
<TABLE>
<CAPTION>
Three months ended March 31,
------------------------------------------------------------
1999 1998
------------------------------------------------------------
Amount Percent Amount Percent
------------------------------------------------------------
<S> <C> <C> <C> <C>
(Dollars in thousands)
Integrated Disability Management $10,377 71% $ 5,254 52%
Peer Review Analysis $ 2,229 15% $ 2,040 20%
Exiting/exited services $ 556 4% $ 786 8%
Other service lines $ 1,534 10% $ 2,090 20%
$14,696 100% $10,170 100%
============================================================
</TABLE>
Three Months ended March 31, 1999 and 1998
Revenues increased by $4,526,000 (45%) from $10,170,000 for the three months
ended March 31, 1998 to $14,696,000 for the first quarter of 1999. Growth in
Integrated Disability Management contributed $5,123,000 (113%) of CORE's overall
net increase in revenues. Revenues for this service line now include revenues
from Disability Reinsurance Management Services, Inc. ("DRMS") acquired in
September 1998 which expanded CORE's programs to include disability reinsurance
management services. CORE's WorkAbility Absence Management program contributed
63% to the revenue increase in Integrated Disability Management due to the
addition of new clients and expansion of services to existing clients over the
course of 1998 and into the first three months of 1999. Revenues from DRMS
contributed 33% of the increase in Integrated Disability Management revenues for
the first quarter of 1999.
Revenues from the Peer Review Analysis service line increased $189,000 (9%) for
the three months ended March 31, 1999 as compared to the same period in the
prior year mostly due to an increase in the volume of referrals for specialty
physician review services.
Revenues from services that CORE exited or expects to exit decreased $230,000
(29%) for the three months ended March 31, 1999, as compared to the same period
in the prior year. During the first quarter of 1998, these service lines
consisted of regional workers' compensation case management services of both
Cost Review Services, Inc. ("CRS") and TCM Services, Inc. ("TCM"), regional bill
audit activities of CRS, and the behavioral health programs of Integrated
Behavioral Health ("IBH"). The CRS operations, which contributed $240,000 of
the revenues in the first quarter of 1998 was closed as of October 31, 1998. The
operations of TCM, which was acquired on March 17, 1998 and contributed $103,000
of the first quarter 1998 revenues, was exited in December 1998. IBH contributed
all of the revenue in the exiting/exited services, amounting to $556,000 for the
three months ended March 31, 1999, an increase of $133,000 as compared to
revenue for the same period in 1998. The increase in revenues generated by IBH
primarily relates to expanded services to existing clients. CORE expects
revenues in this service line to decline and eventually cease following the
second quarter with the expected sale of the IBH assets, as disclosed above
under "Current Developments."
Revenues from other service lines (which includes utilization review, Medicare
coordination of benefits and other case management services), decreased 27%
overall for the first quarter ended in 1999, as compared to the same period in
1998. This decrease was primarily attributable to a decline in enrollment in
our clients' indemnity plan based group health business under CORE's utilization
review program. CORE expects revenues from other service lines to further
decline in future periods.
CORE's top five clients represented 44% of revenues for the three-month period
ended March 31, 1999 as compared to 46% for the same period in 1998. Bell
Atlantic accounted for approximately 20% and 23% of revenues for the three-month
periods ended March 31, 1999 and 1998, respectively. No other single client
represented more than 10% of total revenues for these periods.
11
<PAGE>
Cost of services for CORE include direct expenses associated with the delivery
of its review and managed care services, including salaries for professional,
clerical and license support staff, the cost of physician reviewer consultants
and telephone expense. Cost of services increased $1,900,000 (29%) from
$6,620,000 for the three months ended March 31, 1998 to $8,520,000 for the first
quarter of 1999. The increase is primarily the result of increased staffing
levels required to service new and growing WorkAbility Absence Management
program clients in addition to the added cost of services associated with DRMS.
CORE's gross profit performance for the three months ended March 31, 1999
increased to 42% from 35% in 1998. Gross profit performance for each of CORE's
principal service lines for the quarters ended March 31, 1999 and 1998,
respectively, are: 44% and 32% for Integrated Disability Management, 39% and 38%
for Peer Review Analysis, 27% and 15% for exiting/exited services and 40% and
46% for other service lines. The gross profit performance realized under
Integrated Disability Management was significantly enhanced by the growth in
CORE's WorkAbility Absence Management program which provided for greater
efficiencies in providing services to a larger client base. The addition of
disability reinsurance management services now provided by CORE pursuant to the
DRMS acquisition also increased the gross profit performance for the first
quarter of 1999, as compared to the same period in the prior year.
General and administrative expenses include the cost of executive,
administrative and information services personnel, rent and other overhead
items. General and administrative expenses increased $654,000 (29%) from
$2,232,000 for the three months ended March 31, 1998 to $2,886,000 for the first
quarter of 1999. Higher personnel and other costs associated with supporting
CORE's expanded growth in operations primarily contributed to the increase in
general and administrative expenses. CORE has also incurred additional costs
associated with the maintenance of its computer network hardware and software as
capacity has been expanded to accommodate growth. General and administrative
expenses, as a percentage of revenues, decreased from 29% for the first quarter
of 1998 to 27% for the first quarter of 1999. This improvement is generally due
to greater economies of scale related to higher revenues.
Sales and marketing expenses include, but are not limited to, salaries for sales
and account management personnel and travel expenses. Sales and marketing
expenses also include costs designed to increase revenues, such as participation
in and attendance at industry trade shows and conferences. Sales and marketing
expenses increased $197,000 (24%) from $818,000 for the three months ended March
31, 1998 to $1,015,000 for the first quarter of 1999. This increase is
primarily due to expanded staffing to support the sales and product development
departments as well as additional travel costs and costs incurred for
participation in tradeshows. Sales and marketing expenses, as a percentage of
revenues, decreased from 8% for the first quarter of 1998 to 7% for the first
quarter of 1999. CORE expects to continue to invest an increased amount of
resources in sales and marketing in future periods.
Depreciation and amortization expenses increased $349,000 (68%) from $516,000
for the three months ended March 31, 1998 to $865,000 for the first quarter of
1999. The increase is primarily related to the amortization of goodwill and
intangibles acquired in the purchase of DRMS in September 1998 which is
approximately $300,000 for the quarter ended March 31, 1999.
Other income and expense, net, consists primarily of interest expense as offset
by interest income. Interest expense represents amounts incurred related to
outstanding borrowings under CORE's August 1998 Credit Agreement, as amended,
with Fleet National Bank. Interest income represents amounts earned by CORE's
investments. Other income and expense, net, decreased $510,000 from a net other
income of $150,000 in the first quarter of 1998 to a net other expense of
$360,000 in the first quarter of 1999. The decrease is due to a decrease in
funds available for investment and an increase in borrowings outstanding used to
complete the acquisition of DRMS in September 1998.
Financial Condition, Liquidity and Capital Resources
On August 31, 1998, CORE entered into a revolving line of credit agreement (the
"Credit Agreement") with Fleet National Bank ("Fleet"). Under the terms of the
Second Amendment to the Credit Agreement dated February 19, 1999, CORE may
borrow up to specified amounts beginning at $17,000,000, subject to mandatory
commitment reductions, at the prime base rate plus 0.50% or London Interbank
Offered Rate ("LIBOR") plus 3.50%. At March 31, 1999 and December 31, 1998,
CORE had outstanding borrowings of $15,700,000 and $16,500,000, respectively,
under the Credit Agreement which were all tied to the prime base lending rate
(7.75%) plus the applicable margin. The Credit Agreement is secured by
substantially all of CORE's assets and requires CORE to meet certain financial
covenants, including minimum ratios for interest, debt service and fixed charge
coverage along with minimum net worth levels. Additionally, the Credit
Agreement prohibits the payment of dividends by CORE without the Bank's written
consent. CORE was in compliance with the financial covenants contained in the
Credit Agreement at March 31, 1999.
12
<PAGE>
On January 15 1999, CORE entered into an interest rate protection arrangement
with Fleet that limits CORE's exposure to significant increases in the base
lending rate. The arrangement places an effective cap on the prime base lending
rate at 9.75% (or LIBOR at 6.75%) over the life of the Credit Agreement.
A Third Amendment to the Credit Agreement, dated April 28, 1999, increased the
maximum commitment available from $16,000,000 as of March 31, 1999 to
$18,500,000, and revised the schedule of mandatory commitment reductions.
Under the third amendment, which extends the credit facility through June 30,
2004, credit availability is subject to mandatory commitment reductions each
quarter (beginning on March 31, 2000) in amounts ranging from $875,000 to
$1,250,000.
In connection with the Credit Agreement and related amendments, CORE has issued
two Warrants to purchase shares of its Common Stock to Fleet. The original
Warrant granted on August 31, 1998 entitles the holder to purchase up to 156,322
shares of CORE's Common Stock (subject to certain adjustments), at an exercise
price of $6.92 per share. The original Warrant is exercisable beginning August
31, 1999 and expires August 31, 2003. The second Warrant granted in connection
with the Third Amendment to the Credit Agreement, entitles the holder to
purchase up to 187,000 shares of CORE's Common Stock (subject to certain
adjustments), at an exercise price of $12.00 per share. The second Warrant was
exercisable upon the execution of the third amendment and expires June 30, 2004.
For the three months ended March 31, 1999, CORE's cash and cash equivalents
decreased by $2,146,000. For this period, operating activities used $488,000 of
cash. Although net income for the period amounted to $822,000, an increase in
accounts and unbilled receivables of $3,332,000 resulted in an overall use of
cash in operating activities. The increase in receivables was due to the timing
of cash collections on recurring services provided to a major customer (for
which significant payment was received in April), the increase in revenues
during the first quarter and the contractual timing of certain client billings.
CORE's investing activities used $1,109,000 of cash mostly to fund additions to
property and equipment (including software development) of $1,064,000. CORE's
financing activities used $549,000 of cash for this period due primarily to net
repayments of $800,000 in borrowings under the Credit Agreement.
CORE leases its facilities and certain computer and office equipment. Future
lease commitments as of March 31, 1999, which relate substantially to space
rental, for the nine months ended December 31, 1999 and the year ended December
31, 2000 are approximately $2.0 million and $2.4 million, respectively. All
obligations held by CORE under lease commitments expire on various dates through
February 2004 and total $7.3 million as of March 31, 1999.
CORE has net operating loss carryforwards for income tax purposes of
approximately $5.0 million as of March 31, 1999, which can be used to reduce
future obligations for federal and state income taxes. The amount of net
operating loss carryforwards that can be utilized in any future year are limited
due to "equity structure shifts" in 1995 involving "5% shareholders" (as these
terms are defined in Section 382 of the Internal Revenue Code), which resulted
in a more than 50 percentage point change in ownership. The utilization of the
net operating loss carryforwards may be subject to further limitation provided
by the Internal Revenue Code of 1986 and similar state provisions.
CORE has recently entered into certain client service agreements and is
currently negotiating other client service agreements that may require CORE to
expend working capital ahead of related contractual billing periods. To the
extent that such working capital needs exceed currently available working
capital, CORE has the flexibility to borrow funds up to the maximum commitment
available under the Credit Agreement. CORE believes that this available
financing, along with future earnings from operations and other sources of
available funds will be sufficient to meet its liquidity and funding
requirements through at least the year 2000.
13
<PAGE>
Year 2000 System Compliance
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. As a result, CORE's
computer programs or hardware that have date-sensitive software or embedded
chips may not properly recognize a year that begins with "20" instead of "19."
If not corrected, CORE is at risk of a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities.
CORE's primary computer application platforms were essentially designed to
process and store dates in a four-character format. CORE believes this
substantially reduces the magnitude of the effort required to address the Year
2000 issue. CORE has completed an assessment of internal applications and
licensed operating systems, software tools and utilities. Additionally, CORE
has evaluated third party data feeds, primarily to and from clients information
systems and will have to modify or replace portions of its software so that its
computer systems will function properly with respect to dates in the year 2000
and thereafter. CORE presently believes that with modifications and replacement
of existing software, the Year 2000 issue can be mitigated. However, if such
modifications and replacements are not made, or are not completed timely, the
Year 2000 issue could have an impact on the operations of CORE.
CORE's plan to resolve the Year 2000 issue involves the following five phases:
assessment, remediation, testing, implementation, and certification. To date
CORE has fully completed its assessment of all systems that could be
significantly affected by the year 2000. The completed assessment indicated
that most of CORE's major systems are effectively Year 2000 compliant and will
require only minor modifications. CORE believes that with modifications to
existing software and conversions to new software, the Year 2000 issue will not
pose significant operational problems for its computer systems. CORE has
initiated formal communications with all of its significant vendors and large
customers to determine the extent to which CORE's interface systems are
vulnerable to those third parties' failure to remediate their own Year 2000
issues. There is no guarantee that the systems of other companies on which
CORE's systems rely will be timely converted and would not have an adverse
effect on CORE's systems.
For its internal applications and licensed operating systems, software tools and
utilities exposures, to date CORE is approximately 90% complete on the
remediation phase and expects to complete the software reprogramming and
replacement no later than the third quarter of 1999. Once software is
reprogrammed and replaced for a system, CORE begins testing and implementation.
These phases run concurrently for different systems. To date, CORE has
completed approximately 80% of its testing and has implemented approximately 80%
of its remediated systems. The testing phase for all significant systems is
expected to be completed in the second quarter of 1999, with all remediated
systems fully tested and certified in the third quarter of 1999, which is prior
to any anticipated impact on its operating systems. Also, during the third
quarter of 1999, CORE plans to carry out a certification process to validate the
whole information technology environment, once again, to ensure Year 2000
compliance.
Because the results to date of the completed assessment have indicated that most
of CORE's major systems are effectively Year 2000 compliant and will require
only minor modifications, no contingency plans have been developed at this time.
CORE will develop contingency plans as deemed necessary if a significant risk
related to our Year 2000 compliance or a delay in the anticipated timeline for
compliance occurs. These contingency plans may involve, among other actions,
manual workarounds.
CORE has queried its material clients that do not share information systems with
CORE. To date, CORE is not aware of any external agent Year 2000 issue that
would materially impact CORE's results of operations, liquidity, or capital
resources. However, CORE has no means of ensuring that external agents will be
Year 2000 issue compliant. The inability of external agents to resolve their
Year 2000 issues in a timely manner could materially impact CORE. The effect of
non-compliance by external agents is not determinable.
CORE will utilize both internal and external resources to reprogram, or replace,
test, and implement software for Year 2000 modifications. The dates on which
CORE believes it will complete the Year 2000 modifications are based on
management's best estimates, which were derived utilizing numerous assumptions
of future events, including the continued availability of certain resources, and
other factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but are not
limited to, the availability and cost of personnel trained in this area, the
ability to locate and correct all relevant computer codes, and similar
uncertainties.
14
<PAGE>
Item 3. Quantitative and Qualitative Disclosure of Market Risk.
- ----------------------------------------------------------------
CORE entered into a Credit Agreement with Fleet National Bank on August 31,
1998. The Credit Agreement was entered into for purposes other than trading.
The outstanding borrowings under the Credit Agreement bear interest at variable
rates which reset as prevailing market conditions change. On January 15, 1999,
CORE entered into an interest rate protection arrangement with Fleet that limits
CORE's exposure to significant increases in the base lending rate. The
arrangement places an effective cap on the prime base lending rate at 9.75% (or
LIBOR at 6.75%) over the life of the Credit Agreement.
PART II
Item 6. Exhibits and Reports on Form 8-K.
- -----------------------------------------
(a) Exhibits. The following exhibits are included:
Exhibit
Number Description
- ------ -----------
4.1 Warrant Agreement, dated as of April 27, 1999, between CORE, INC. and
Fleet National Bank (excluding Exhibits).
10.1 Third Amendment to Credit Agreement, dated as of April 27, 1999, between
CORE, INC. and Fleet National Bank (excluding Exhibits and Schedules).
10.2 Registration Rights Agreement, dated as of April 27, 1999, between CORE,
INC. and Fleet National Bank.
27* Financial Data Schedule.
____________________________________
* Filed herewith
(b) Reports on Form 8-K.
-------------------
On January 6, 1999, CORE filed a report on Form 8-K dated December 23, 1998,
concerning the disposition of certain assets of TCM Services, Inc. ("TCM"), a
wholly-owned subsidiary of CORE.
The Form 8-K contained an unaudited pro forma combined condensed balance sheet
of CORE as of September 30, 1998 and an unaudited condensed statement of
operations of CORE for the nine months ended September 30, 1998.
SIGNATURES
Pursuant to the requirements 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.
Dated: May 12, 1999 By: /s/ WILLIAM E. NIXON
---------------------
William E. Nixon
Chief Financial Officer, Executive
Vice President and Treasurer
(Duly authorized officer and Principal
Financial Officer)
15
<PAGE>
EXHIBIT 4.1
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-2 April 27, 1999
Void After June 30, 2004
------------------------
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 $12.00 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 the date hereof and on or prior to June 30, 2004, up to 187,000
(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, as amended by the First Amendment to the
Credit Agreement dated as of December 31, 1998, the Second Amendment to the
Credit Agreement dated as of February 19, 1999 and the Third Amendment to the
Credit Agreement dated as of April 27, 1999 (as so amended, 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 Annex A hereto (a "Notice of
Exercise"), at the office of the Corporation specified in or pursuant to
Section 9 hereof. Upon receipt by the
<PAGE>
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 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
-2-
<PAGE>
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 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 on the date the Corporation exercises such option.
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 April 27, 1999.
-3-
<PAGE>
(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 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,
-4-
<PAGE>
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 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
-5-
<PAGE>
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 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
-6-
<PAGE>
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 April 27, 1999 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 April 27, 1999, or shares of any class or
classes resulting from any reclassification or reclassifications thereof
which are 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,
-7-
<PAGE>
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 April 27, 1999, 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 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:
-8-
<PAGE>
"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 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]
-9-
<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/ William E. Nixon
-----------------------
Name: William E. Nixon
Title: EVP & CFO
-10-
<PAGE>
EXHIBIT 10.1
THIRD AMENDMENT
TO THE
CREDIT AGREEMENT
Dated as of April 27, 1999
This THIRD AMENDMENT dated as of April 27, 1999 (this "Third Amendment") is
between CORE, INC., a Massachusetts corporation (the "Borrower"), and FLEET
NATIONAL BANK, a national banking association (the "Bank").
PRELIMINARY STATEMENTS. The Borrower and the Bank entered into a Credit
Agreement dated as of August 31, 1998, which Credit Agreement was amended by a
First Amendment to the Credit Agreement dated as of December 31, 1998 and a
Second Amendment to the Credit Agreement dated as of February 19, 1999 (as so
amended, the "Credit Agreement"). The present maximum Commitment under the
Credit Agreement is $16,000,000 as a result of scheduled Commitment reductions
prior to the date hereof. The Borrower has now requested that the Bank amend
the Credit Agreement to increase the maximum Commitment to $18,500,000, subject
to a revised schedule of mandatory Commitment reductions. The Bank has agreed
to such request upon certain terms and conditions.
NOW, THEREFORE, for valuable consideration, receipt of which is hereby
acknowledged, the Borrower and the Bank agree as follows:
Section 1. Amendments to the Credit Agreement. Effective as of the
----------------------------------
effective date hereof and subject to the satisfaction of the conditions
precedent set forth in Section 2 hereof, the Credit Agreement is amended as
follows:
(a) Section 1.1 (Definitions) is amended as follows:
-------------------------
(i) the defined term "Anniversary Date" is deleted;
(ii) the defined term "Capital Expenditures" is deleted and replaced
with the following:
""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 (including without limitation
expenditures for software development), real property, plant
and equipment, and all renewals, improvements and replacements
thereto (but not repairs thereof)
<PAGE>
incurred during such period, all as determined in accordance
with GAAP;"
(iii) the defined term "Registration Rights Agreement" is deleted and
replaced with the following"
""Registration Rights Agreement" means each of (x) the
Registration Rights Agreement, in the form of Exhibit K hereto,
---------
duly executed by the Borrower, and (y) the Registration
Rights Agreement in the form of Exhibit C to the Third
---------
Amendment to the Credit Agreement dated as of April 27, 1999,
duly executed by the Borrower, in each case as the same may be
amended, supplemented, restated or otherwise modified and in
effect from time to time."
(iv) the defined term "Revolving Loan Termination Date" is deleted
and replaced with the following:
""Revolving Loan Termination Date" means June 30, 2004."
(v) the defined term "Warrant" is deleted and replaced with the
following:
""Warrant" means each of (x) the Warrant, in the form of
Exhibit J hereto, 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, and (y) the Warrant, in the form of Exhibit B to the
---------
Third Amendment to the Credit Agreement dated as of April 27,
1999, pursuant to which the Borrower grants to the Bank
warrants to purchase 187,000 shares of Common Stock of the
Borrower."
(b) Section 2.1 (The Revolving Loans) is amended by deleting the first
---------------------------------
sentence thereof and replacing it with the following:
"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
<PAGE>
-3-
outstanding, the amount of EIGHTEEN MILLION FIVE HUNDRED THOUSAND
DOLLARS ($18,500,000)."
(c) Subsection (a) of Section 2.5 (Mandatory Reduction of Commitment) is
-----------------------------------------------------------------
deleted and replaced with the following:
"(a) On each of the dates indicated below, the Commitment of the Bank
shall be reduced automatically in the following amounts:
- --------------------------------------------------------------------
Mandatory
Date Commitment Amount Available
---- Reduction After Reduction
---------- ----------------
- --------------------------------------------------------------------
March 31, 2000 $875,000 $17,625,000
- --------------------------------------------------------------------
June 30, 2000 $875,000 $16,750,000
- --------------------------------------------------------------------
September 30, 2000 $875,000 $15,875,000
- --------------------------------------------------------------------
December 31, 2000 $875,000 $15,000,000
- --------------------------------------------------------------------
March 31, 2001 $1,125,000 $13,875,000
- --------------------------------------------------------------------
June 30, 2001 $1,125,000 $12,750,000
- --------------------------------------------------------------------
September 30, 2001 $1,125,000 $11,625,000
- --------------------------------------------------------------------
December 31, 2001 $1,125,000 $10,500,000
- --------------------------------------------------------------------
March 31, 2002 $1,000,000 $9,500,000
- --------------------------------------------------------------------
June 30, 2002 $1,000,000 $8,500,000
- --------------------------------------------------------------------
September 30, 2002 $1,000,000 $7,500,000
- --------------------------------------------------------------------
December 31, 2002 $1,000,000 $6,500,000
- --------------------------------------------------------------------
March 31, 2003 $1,000,000 $5,500,000
- --------------------------------------------------------------------
June 30, 2003 $1,000,000 $4,500,000
- --------------------------------------------------------------------
September 30, 2003 $1,000,000 $3,500,000
- --------------------------------------------------------------------
December 31, 2003 $1,000,000 $2,500,000
- --------------------------------------------------------------------
March 31, 2004 $1,250,000 $1,250,000
- --------------------------------------------------------------------
June 30, 2004 $1,250,000 $0
- --------------------------------------------------------------------
<PAGE>
-4-
In addition, if the Borrower raises additional capital through an
equity sale, the Bank shall have the option to require the Borrower to
apply up to 50% of the net sale proceeds from such sale to the
reduction of the Commitment. The proceeds will be applied on the date
of the sale to the scheduled Commitment reductions in inverse order."
(d) Subsection (c) of Section 5.8 (Reporting Requirements) is deleted and
------------------------------------------------------
replaced with the following:
"(c) Monthly Accounts Receivable Aging Report and Financial
------------------------------------------------------
Statements. As soon as available, and in any event within thirty (30)
----------
days following the end of each month, copies of the following,
certified by a Senior Officer of the Borrower:
(i) a report in form satisfactory to the Bank of the age of
accounts receivable generated by the Borrower and each of its
Subsidiaries; and
(ii) the consolidated and consolidating balance sheet and statements
of operations of the Borrower and its Subsidiaries as at the end of
and for such month and, with respect to the statements of operations,
the portion of the fiscal year ended with such month, together with a
report in form satisfactory to the Bank showing a comparison of such
results with the Borrower's budget."
(e) Subsection (d) of Section 5.8 (Reporting Requirements) is deleted and
------------------------------------------------------
replaced with the following:
"(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 such fiscal
quarter and (ii) the projected Capital Expenditures for the remainder
of the fiscal year. The report shall also detail for both clauses (i)
and (ii) above that portion of Capital Expenditures which comprises
software development expenditures and shows both actual Capital
Expenditures and software development expenditures compared with the
budgeted amounts for such items."
<PAGE>
-5-
(f) Section 5.8 (Reporting Requirements) is further amended by adding the
------------------------------------
following subsection (m):
"(m) Report of Customer Financings. Within five (5) days after the
-----------------------------
occurrence of such event, a written notice detailing the substantive
terms of each agreement the Borrower or any Subsidiary has entered
into with a customer in which the Borrower or such Subsidiary has
agreed to finance more than $150,000 of the implementation costs of
product sold by the Borrower or such Subsidiary to such customer."
(g) Section 6.9 (Capital Expenditures) is deleted and replaced with the
----------------------------------
following:
"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 make in that fiscal year, would exceed the
corresponding amount for such year as set forth below:
-----------------------------------------------------------
Year Permitted Capital Expenditures
---- ------------------------------
-----------------------------------------------------------
1999 $3,550,000
-----------------------------------------------------------
2000 $4,100,000
-----------------------------------------------------------
2001 $4,720,000
-----------------------------------------------------------
2002 $5,750,000
-----------------------------------------------------------
2003 $5,950,000
-----------------------------------------------------------
2004 $5,950,000"
-----------------------------------------------------------
<PAGE>
-6-
(h) Section 6.10 (Minimum Consolidated GAAP Net Worth is deleted and
-------------------------------------------------
replaced with the following:
"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 (a) for the
period to and including December 31, 1999, $26,000,000, plus 75% of
----
cumulative positive net income for each fiscal quarter following the
fiscal quarter ending December 31, 1998, plus the amount of paid-in-
----
capital resulting from any issuance by the Borrower of its capital
stock after the Closing Date to and including December 31, 1999 and
(b) for all fiscal quarters after December 31, 1999, commencing with
the fiscal quarter ended March 31, 2000, $33,900,000, plus 75% of
----
cumulative positive net income for each fiscal quarter following the
fiscal quarter ending December 31, 1999, plus the amount of paid-in-
----
capital resulting from any issuance by the Borrower of its capital
stock after March 31, 2000."
(i) The number $17,000,000 appearing in Schedule 1.1 to the Credit
------------
Agreement is deleted and replaced with the number "$18,500,000."
(j) Exhibit A to the Credit Agreement is deleted and replaced with Exhibit
--------- -------
A to this Third Amendment.
-
Section 2. Conditions of Effectiveness. This Third Amendment shall become
---------------------------
effective when, and only if, the Bank shall have received on or before April 27,
1999 a counterpart of this Third Amendment executed by the Borrower and an
amendment fee of $250,000 and the following other conditions shall have been
satisfied on or before said date:
(a) the Bank shall have received a duly completed and executed revolving
note of the Borrower in the amount of the Commitment in the form of Exhibit
-------
A hereto;
-
(b) the Bank shall have received a duly completed and executed Warrant, in
the form of Exhibit B hereto, pursuant to which the Borrower grants to the
---------
Bank warrants to purchase 187,000 shares of Common Stock of the Borrower;
(c) the Bank shall have received a duly completed and executed
registration rights agreement, in the form of Exhibit B hereto, relating to
---------
the Warrant to be issued pursuant to clause (b) above;
(d) the Bank shall have received a certificate of a Senior Officer of the
Borrower stating that:
<PAGE>
-7-
(i) the representations and warranties contained in Article 4 of
the Credit Agreement and in the other Loan Documents are correct on
and as of the date of such certificate 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);
(ii) no Event of Default or Default has occurred and is continuing
or would result from the signing of the amendment to the Credit
Agreement or the transactions contemplated thereby; and
(iii) there has been no material adverse change in the financial
conditions, operations, Properties, business or business prospects of
the Borrower and its Subsidiaries, since December 31, 1998, the date
of the last audited financial statements furnished to the Bank;
(e) the Bank shall have received a reaffirmation from the Borrower and its
Subsidiaries, in a form acceptable to the Bank, that the Security Documents
are in full force and effect and apply to the Credit Agreement as amended
by this Third Amendment;
(f) the Bank shall have received the executed legal opinion of Rich, May,
Bilodeau & Flaherty, P.C., counsel to the Borrower, in a form acceptable to
the Bank and its counsel;
(g) the Bank shall have received copies of any amendments to the articles
of incorporation and by-laws of the Borrower and each Subsidiary, which
have been authorized or became effective since August 31, 1998, certified
as complete and correct copies thereof by the Secretary or an Assistant
Secretary of the Borrower or such Subsidiary, as applicable;
(h) 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, authorizing the execution, delivery and performance by the
Borrower of this Third Amendment and the Warrant and Registration Rights
Agreement relating thereto, certified by the Secretary or an Assistant
Secretary of the Borrower, which certificate shall state that the
resolutions thereby certified have not been amended, modified, revoked or
rescinded;
(i) all corporate and legal proceedings and all instruments and agreements
in connection with the transactions contemplated by this Third Amendment
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; and
(j) Day, Berry & Howard LLP, special counsel to the Bank, shall have
received payment of its legal fees and disbursements relating to this Third
Amendment.
<PAGE>
-8-
Section 3. Representations and Warranties of the Borrower. The Borrower
----------------------------------------------
represents as follows:
(a) The execution, delivery and performance by the Borrower of this Third
Amendment has been duly authorized by all necessary corporate action and
does not and will not (a) require any consent or approval of its
shareholders; (b) violate any provisions of its certificate 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 hereafter acquired by the Borrower.
(b) The representations and warranties contained in Article 4 of the
Credit Agreement, as amended by this Third Amendment, are correct in all
material respects on and as of the date hereof as though made on and as of
the date hereof, provided, however, that (a) each of Cost Review Services,
-----------------
Inc. and TCM Services, Inc. have sold all of their assets to unrelated
third parties and are currently inactive; (b) those certain Financing
Statements filed in favor of the Bank and listing Cost Review Services,
Inc. as debtor and TCM Services, Inc. as debtor have been terminated; and
(c) the chief executive office and principal place of business of each of
Cost Review Services, Inc. and TCM Services, Inc. are currently located at
18881 Von Karman Avenue, Suite 1750, Irvine, California 92612.
(c) No Event of Default or Default has occurred and is continuing or would
result from the signing of this Third Amendment or the transactions
contemplated hereby.
(d) There has been no material adverse change in the financial condition,
operations, Properties, business or business prospects of the Borrower and
its Subsidiaries, if any, since the date of the last financial statements
furnished to the Bank.
(e) No actions, suits or proceedings or investigations are pending or, as
far as the Borrower can reasonably foresee, threatened against or affecting
the Borrower or any Subsidiary, or any Property of any of them before any
court, governmental agency or arbitrator, which if determined adversely to
the Borrower or any Subsidiary would in any one case or in the aggregate
have a Materially Adverse Effect.
(f) No information, exhibit or report furnished in writing by or on behalf
of the Borrower or any officer or director of the Borrower to the Bank in
connection with the negotiation of, or pursuant to the terms of this Third
Amendment, contained when made
<PAGE>
-9-
any material misstatement of fact or omitted to state a material fact
necessary to make the statements contained therein not misleading.
Section 4. Reference to and Effect on the Credit Agreement.
-----------------------------------------------
(a) Upon the effectiveness of this Third Amendment, on and after the date
hereof, each reference in the Credit Agreement to "this Credit Agreement",
"hereunder", "hereof", "herein" or words of the like import shall mean and
be a reference to the Credit Agreement as amended hereby.
(b) Except as specifically amended above, the Credit Agreement shall
remain in full force and effect and is hereby ratified and confirmed.
(c) The execution, delivery and effectiveness of this Third Amendment
shall not, except as expressly provided herein, operate as a waiver of any
right, power or remedy of the Bank under the Credit Agreement, nor
constitute a waiver of any provision of the Credit Agreement.
Section 5. Costs, Expenses and Taxes. The Borrower agrees to pay on
-------------------------
demand all costs and expenses of the Bank in connection with the preparation,
execution and delivery of this Third Amendment including, without limitation,
the reasonable fees and out-of-pocket expenses of counsel for the Bank with
respect thereto.
Section 6. Execution in Counterparts. This Third Amendment may be
-------------------------
executed in any number of counterparts, each of which when so executed and
delivered shall be deemed to be an original and all of which taken together
shall constitute but one and the same instrument.
Section 7. Governing Law. This Third Amendment shall be governed by, and
-------------
construed in accordance with, the laws of the Commonwealth of Massachusetts.
Section 8. Defined Terms. Capitalized terms used herein which are not
-------------
expressly defined herein shall have the meanings ascribed to them in the Credit
Agreement.
Section 9. Interest Rate Protection. Pursuant to Section 5.14 of the
------------------------
Credit Agreement, the Borrower shall enter into interest rate protection
arrangements acceptable to the Bank within 30 days after the date of this Third
Amendment to reflect the increased Commitment.
Section 10. Evidence of Good Standing. Within 60 days after the date of
-------------------------
this Third Amendment, the Borrower shall provide the Bank with written evidence
of (a) the good standing of the Borrower in the Commonwealth of Massachusetts
and the State of Missouri; (b) the good standing of Core Securities Corp. in the
Commonwealth of Massachusetts; (c) the good standing of Protocol Work Systems,
Inc. in the Commonwealth of Massachusetts; and (d) the good standing of Core
Management, Inc. (Delaware) in the Commonwealth of Massachusetts and the State
of Delaware.
<PAGE>
-10-
[Remainder of Page Intentionally Left Blank]
<PAGE>
-11-
IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
CORE, INC.
By /s/ William E. Nixon
--------------------------
Name: William E. Nixon
Title: EVP & CFO
FLEET NATIONAL BANK
By /s/ Jeffrey A. Simpson
--------------------------
Name: Jeffrey A. Simpson
Title: Vice President
<PAGE>
EXHIBIT 10.2
REGISTRATION RIGHTS AGREEMENT
-----------------------------
THIS AGREEMENT is made as of April 27, 1999, 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 Third Amendment to Credit Agreement dated April 27, 1999
between the Company and the Purchaser (the "Third Amendment Agreement"), the
Company hereby covenants and agrees with the Purchaser and with each permitted
transferee of any of the Purchaser's Registrable Securities (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 to 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
2
<PAGE>
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, (A) the
securities, if any, requested to be registered under a Registration Rights
Agreement entered into between the Company and the Purchaser on August 31, 1998
(the "August 1998 Registrable Securities"), and (B) the Registrable Securities
requested to be included in such registration, pro rata among the holders of the
August 1998 Registrable Securities and the 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, (A) the August 1998
Registrable Securities, and (B) the Registrable Securities requested to be
included in such registration, pro rata among the holders of the August 1998
Registrable Securities and the 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.
(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.
3
<PAGE>
4
<PAGE>
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;
5
<PAGE>
(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;
(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
6
<PAGE>
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, 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.
7
<PAGE>
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 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
8
<PAGE>
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.
"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
9
<PAGE>
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 April 27, 1999.
Unless otherwise stated, other capitalized terms contained herein have the
meanings set forth in the Third Amendment Agreement.
10. Term. This Agreement shall terminate upon the earliest of the
----
following events: (i) June 30, 2004 (provided if the holders of Registrable
Securities have given notice of the exercise of their registration rights
hereunder prior to such date, the Company shall honor its obligation hereunder
after such date), (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, has received a copy
of and reviewed the Registration Rights Agreement between the Company and
Transcend Services, Inc. dated March 17, 1998, the Registration Rights Agreement
between the Company and five stockholders dated August 31, 1998 and the
Registration Rights Agreement between the Company and the Purchaser dated August
31, 1998.
10
<PAGE>
(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.
(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.
11
<PAGE>
(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]
12
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
CORE, INC.
By: /s/ William E. Nixon
-----------------------------------------
William E. Nixon, Chief Financial Officer
PURCHASER
FLEET NATIONAL BANK
By: /s/ Jeffrey A. Simpson
-----------------------------------------
Title: Vice President
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 80,202
<SECURITIES> 0
<RECEIVABLES> 11,623,211
<ALLOWANCES> 405,013
<INVENTORY> 0
<CURRENT-ASSETS> 14,256,050
<PP&E> 17,925,686
<DEPRECIATION> 9,524,767
<TOTAL-ASSETS> 50,305,491
<CURRENT-LIABILITIES> 6,180,554
<BONDS> 0
0
0
<COMMON> 789,158
<OTHER-SE> 27,511,164
<TOTAL-LIABILITY-AND-EQUITY> 50,305,491
<SALES> 0
<TOTAL-REVENUES> 14,695,631
<CGS> 0
<TOTAL-COSTS> 8,519,584
<OTHER-EXPENSES> 4,765,915
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 362,431
<INCOME-PRETAX> 1,050,021
<INCOME-TAX> 167,960
<INCOME-CONTINUING> 882,061
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> 882,061
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