<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 SEPTEMBER 30, 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 November 8, 1999 there were 8,020,236 shares of the Registrant's
Common Stock outstanding.
<PAGE>
CORE, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
TABLE OF CONTENTS
<TABLE>
<S> <C>
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 16
Item 3. Defaults Upon Senior Securities N/A
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information N/A
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
</TABLE>
2
<PAGE>
CORE, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
(UNAUDITED) (NOTE 1)
------------- ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ - $ 2,226,020
Accounts receivable, net of allowance for doubtful
accounts of $450,295 at September 30, 1999 and
$405,013 at December 31, 1998 13,887,001 8,280,630
Unbilled receivables 1,940,904 1,395,500
Notes receivable from officers 74,862 90,462
Prepaid expenses and other current assets 752,010 1,080,993
------------- ------------
Total current assets 16,654,777 13,073,605
Property and equipment, net 9,056,314 7,931,150
Deposits and other assets 1,710,468 618,487
Goodwill and intangibles, net of accumulated amortization
of $1,962,418 at September 30, 1999 and $863,077 at
December 31, 1998 26,008,956 27,108,298
------------- ------------
Total assets $ 53,430,515 $ 48,731,540
------------- ------------
------------- ------------
</TABLE>
3
<PAGE>
CORE, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS - CONTINUED
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
(UNAUDITED) (NOTE 1)
------------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,391,788 $ 1,363,785
Accrued expenses 2,366,118 2,076,933
Advances under revolving credit agreement 825,000 2,750,000
Accrued payroll 632,493 807,124
Accrued vacation 822,801 715,500
Notes payable 123,452 259,510
Capital lease obligations 70,448 6,015
------------- ------------
Total current liabilities 6,232,100 7,980,867
Advances under revolving credit agreement, net of current
portion 15,875,000 13,750,000
Notes payable, net of current portion 61,604 123,633
Deferred rent, net of current portion 54,368 50,410
Capital lease obligations, net of current portion 290,029 -
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 8,020,236 at
September 30, 1999 and 7,824,512 at December 31, 1998 802,024 782,451
Additional paid-in capital 38,688,261 37,778,640
Deferred compensation (6,697) (6,697)
Accumulated deficit (8,566,174) (11,727,764)
------------- ------------
Total stockholders' equity 30,917,414 26,826,630
------------- ------------
Total liabilities and stockholders' equity $ 53,430,515 $ 48,731,540
------------- ------------
------------- ------------
</TABLE>
See accompanying notes.
4
<PAGE>
CORE, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -------------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues $ 16,317,604 $ 11,442,913 $ 47,719,699 $ 32,373,654
Cost of services 8,916,925 6,998,044 27,244,620 20,440,617
------------- ------------- ------------- -------------
Gross profit 7,400,679 4,444,869 20,475,079 11,933,037
Operating expenses:
General and administrative 3,385,549 2,441,247 9,257,965 6,904,054
Sales and marketing 1,295,023 931,331 3,401,526 2,648,847
Depreciation and amortization 958,249 612,991 2,797,423 1,624,043
Provision for doubtful accounts 75,000 - 290,000 30,482
Write-off of goodwill and intangibles - - - 4,085,449
Arbitration costs - - - 736,009
Charges in connection with disposal of
subsidiary - 541,410 - 541,410
Other non-recurring charges - 102,441 - 216,718
------------- ------------- ------------- -------------
Total operating expenses 5,713,821 4,629,420 15,746,914 16,787,012
------------- ------------- ------------- -------------
Income (loss) from operations 1,686,858 (184,551) 4,728,165 (4,853,975)
Other income (expenses):
Gain on sale of subsidiary assets, net - - 331,567 -
Interest income 14,554 49,796 18,996 297,695
Interest expense (428,321) (128,422) (1,178,818) (136,858)
------------- ------------- ------------- -------------
Total other income (expense) (413,767) (78,626) (828,255) 160,837
------------- ------------- ------------- -------------
Income (loss) before income taxes 1,273,091 (263,177) 3,899,910 (4,693,138)
Income tax benefit (provision) (255,000) 60,000 (738,320) 195,000
------------- ------------- ------------- -------------
Net income (loss) $ 1,018,091 $ (203,177) $ 3,161,590 $ (4,498,138)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Net income (loss) per common share:
Basic $ 0.13 $ (0.03) $ 0.40 $ (0.61)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Diluted $ 0.12 $ (0.03) $ 0.37 $ (0.61)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Weighted average number of common
shares and equivalents outstanding:
Basic 7,981,000 7,495,000 7,913,000 7,377,000
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Diluted 8,539,000 7,495,000 8,446,000 7,377,000
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
See accompanying notes.
5
<PAGE>
CORE, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Net cash provided by (used in) operating activities $ 274,719 $ (352,912)
Investing activities:
Additions to property and equipment (2,737,430) (2,431,545)
Additions to goodwill and intangible assets - (235,394)
Proceeds from sale of subsidiary assets 50,000 -
Payments on notes receivable 35,425 -
Decrease (increase) in deposits and other assets (11,327) 53,348
Payments for acquisitions, net of cash acquired - (20,091,229)
Purchases of investments available-for-sale - (16,579,100)
Sales of investments available-for-sale - 17,767,137
------------- -------------
Net cash used in investing activities (2,663,332) (21,516,783)
Financing activities:
Borrowings under credit agreement 9,400,000 17,000,000
Repayments under credit agreement (9,200,000) -
Payments for origination and other fees pursuant to
credit agreement (472,276) -
Payments on obligation from acquisition - (1,125,000)
Payments on notes payable (198,087) (92,911)
Payments on capital lease obligations (41,238) (23,992)
Issuance of common stock upon exercise of stock options 674,194 159,500
------------- -------------
Net cash provided by financing activities 162,593 15,917,597
------------- -------------
Net decrease in cash and cash equivalents (2,226,020) (5,952,098)
Cash and cash equivalents at beginning of period 2,226,020 7,944,595
------------- -------------
Cash and cash equivalents at end of period $ - $ 1,992,497
------------- -------------
</TABLE>
See accompanying notes.
6
<PAGE>
CORE, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 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 nine-month period ended September 30, 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 on Form 10-K filed April 1, 1999, as amended by CORE's Form 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 $22,762,000, 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 nine months ended September 30, 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>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Revenues $ 47,720,000 $ 35,032,000
------------- -------------
------------- -------------
Net income (loss) $ 3,162,000 $ (4,959,000)
------------- -------------
------------- -------------
Net income (loss) per common share
Basic $ 0.40 $ (0.64)
------------- -------------
------------- -------------
Diluted $ 0.37 $ (0.64)
------------- -------------
------------- -------------
</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 January 1, 1998.
NOTE 3 - SALE OF SUBSIDIARY ASSETS
On June 21, 1999, CORE sold the assets of one of its' operating subsidiaries,
Integrated Behavioral Health, a California corporation ("IBH"), to a
non-affiliated party for $50,000 in cash and a $462,500 promissory note. A net
gain of $332,000 was realized from the sale of assets. IBH provided mental
health case management services.
NOTE 4 - 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
Third Amendment to the Credit Agreement dated April 28, 1999 (the "Third
Amendment"), CORE may borrow up to specified amounts at either (i) the prime
base rate plus 0.50%, or (ii) the London Interbank Offered Rate ("LIBOR") plus
3.50%. The maximum credit availability under the Third Amendment of $18,500,000
is subject to mandatory commitment reductions each quarter (beginning on March
31, 2000) in amounts ranging from $875,000 to $1,250,000. The Third Amendment
extended the credit facility through June 30, 2004.
At September 30, 1999 and December 31, 1998, CORE had outstanding borrowings of
$16,700,000 and $16,500,000, respectively, under the Credit Agreement which were
all tied to the prime base lending rate (8.25% at September 30, 1999) 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
September 30, 1999.
CORE has 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%) for a substantial portion of the outstanding borrowings over the
life of the Credit Agreement.
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 April 1999 execution of the Third Amendment and expires
June 30, 2004.
8
<PAGE>
CORE, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
NOTE 5 - EARNINGS PER COMMON SHARE
The following table sets forth the computation of basic and diluted earnings
(loss) per share for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -------------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) $ 1,018,000 $ (203,000) $ 3,162,000 $ (4,498,000)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Denominator:
Denominator for basic earnings
(loss) per share: weighted-
average shares 7,981,000 7,495,000 7,913,000 7,377,000
Effect of dilutive stock options
and warrants 558,000 - 533,000 -
------------- ------------- ------------- -------------
Denominator for diluted earnings
(loss) per share: adjusted
weighted-average shares and
assumed conversions 8,539,000 7,495,000 8,446,000 7,377,000
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Basic earnings (loss) per share $ 0.13 $ (0.03) $ 0.40 $ (0.61)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Diluted earnings (loss) per share $ 0.12 $ (0.03) $ 0.37 $ (0.61)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
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 (loss) was $1,018,000 and $3,162,000 for the three
and nine months ended September 30, 1999 and $(203,000) and $(4,498,000) for the
three and nine months ended September 30, 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>
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, turnkey 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, 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 nine months ended September 30, 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.
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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
1999 1998 1999 1998
--------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue 100.0% 100.0% 100.0% 100.0%
Cost of services 54.6 61.2 57.1 63.1
Gross profit 45.4 38.8 42.9 36.9
General and administrative expense 20.7 21.3 19.4 21.3
Sales and marketing expense 7.9 8.1 7.1 8.2
</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 SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
1999 1998 1999 1998
------------------- ------------------- ------------------- -------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-------- -------- -------- -------- -------- -------- -------- --------
(Dollars in Thousands) (Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Integrated Disability
Management $ 12,434 76% $ 6,926 61% $ 34,943 73% $ 18,297 57%
Peer Review Analysis 2,327 14 1,992 17 6,798 14 5,941 18
Exiting/exited services - - 931 8 1,008 2 2,715 8
Other service lines 1,557 10 1,594 14 4,971 11 5,421 17
-------- -------- -------- ------- -------- -------- -------- --------
$ 16,318 100% $ 11,443 100% $ 47,720 100% $ 32,374 100%
-------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- --------
</TABLE>
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Revenues increased by $4,875,000 (43%) to $16,318,000 for the three months ended
September 30, 1999 from $11,443,000 for the third quarter of 1998. For the nine
months ended September 30, 1999 revenues increased $15,346,000 (47%) to
$47,720,000 in 1999 from $32,374,000 in 1998. Growth in Integrated Disability
Management contributed $5,508,000 (113%) and $16,646,000 (108%) of CORE's
overall net increase in revenues for the three and nine-month periods ended
September 30, 1999, respectively, as compared to the same periods in 1998.
CORE's WorkAbility Absence Management program contributed 69% of the increase in
Integrated Disability Management for the nine-month period ended in 1999 as
compared to the same period in 1998 due to the addition of new clients and
expansion of services to existing clients over the course of 1998 and into the
first nine months of 1999. Revenues for the Integrated Disability Management
service line now include revenues from Disability Reinsurance Management
Services, Inc. ("DRMS") acquired in September 1998 which expanded CORE's
programs to include turnkey disability reinsurance management services. Revenues
from DRMS contributed 38% of the increase in Integrated Disability Management
revenues for the nine month period ended in 1999 as compared to the same period
in 1998.
Revenues from the Peer Review Analysis service line increased $335,000 (17%) and
$857,000 (14%) for the three and nine-month periods ended September 30, 1999 as
compared to the same periods 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 expected to exit decreased $931,000
(100%) and $1,707,000 (63%) for the three and nine-month periods ended September
30, 1999 as compared to the same periods in the prior year. During 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 $516,000 to our revenues for the nine month period ended in 1998 was
closed as of October 31, 1998. The operations of TCM, which was acquired on
March 17, 1998 and contributed $939,000 of the revenues for the nine month
period in 1998, was exited in December 1998. IBH contributed all of the revenue
in our exiting/exited services, amounting to $1,008,000 for the nine months
ended September 30, 1999, a decrease of $252,000 as compared to revenue for the
same period in 1998. As a result of the sale of IBH's assets on June 21, 1999,
operations within the exiting/exited services line ceased.
Revenues from other service lines (which includes utilization review, Medicare
coordination of benefits and other case management services), decreased 2%
overall for the third quarter ended in 1999, as compared to the same period in
1998. For the nine months ended September 30, 1999, revenues from these service
lines decreased 8% compared to the same period in 1998. The decrease for the
nine-month period ended September 30, 1999 as compared to prior year is
primarily due to an overall decline in enrollment in our clients' indemnity plan
based group health business under CORE's utilization review program. This
overall decline was partially offset during the nine months ended September 30,
1999 by an expansion of Medicare coordination of benefits services.
11
<PAGE>
CORE's top five clients represented 43% of revenues for the nine-month period
ended September 30, 1999 as compared to 49% for the same period in 1998. Bell
Atlantic accounted for approximately 18% and 24% of revenues for the nine-month
periods ended September 30, 1999 and 1998, respectively. SBC Communications
represented 10% of revenues for the nine-month period ended September 30, 1999.
No other single client represented more than 10% of total revenues for the
nine-month periods ended September 30, 1999 or 1998.
Cost of services for CORE include direct expenses associated with the delivery
of our 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 $1,919,000 (27%) to $8,917,000
for the three months ended September 30, 1999 from $6,998,000 for the third
quarter of 1998. For the nine months ended September 30, 1999, cost of services
increased $6,804,000 (33%) as compared to the same period in 1998, rising to
$27,245,000 from $20,441,000. 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 nine months ended September 30, 1999
increased to 43% from 37% in 1998. Gross profit performance for each of CORE's
principal service lines for the nine months ended September 30, 1999 and 1998,
respectively, are: 44% and 37% for Integrated Disability Management, 38% and 36%
for Peer Review Analysis, 23% and 14% for exiting/exited services and 49% and
48% 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 within Integrated
Disability Management for the first nine months 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 $945,000 (39%) to
$3,386,000 for the three months ended September 30, 1999 from $2,441,000 for the
third quarter of 1998. For the nine months ended September 30, 1999, general and
administrative expenses increased $2,354,000 (34%) as compared to the same
period in 1998, rising to $9,258,000 from $6,904,000. 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 our computer
network hardware and software as capacity has been expanded to accommodate
growth. General and administrative expenses, as a percentage of revenues,
decreased to 19% for the first nine months of 1999 from 21% for the first nine
months of 1998. 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 our
participation in and attendance at industry trade shows and conferences. Sales
and marketing expenses increased $364,000 (39%) to $1,295,000 for the three
months ended September 30, 1999 from $931,000 for the third quarter of 1998. For
the nine months ended September 30, 1999, sales and marketing expenses increased
$753,000 (28%) as compared to the same period in 1998, rising to $3,402,000 from
$2,649,000. 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 to 7% for the first nine months of 1999 from
8% for the first nine months of 1998. CORE expects to continue to invest an
increased amount of resources in sales and marketing in future periods.
Depreciation and amortization expenses increased $345,000 (56%) to $958,000 for
the three months ended September 30, 1999 from $613,000 for the third quarter of
1998. For the nine months ended September 30, 1999, depreciation and
amortization expenses increased $1,173,000 (72%) as compared to the same period
in 1998, rising to $2,797,000 from $1,624,000. The increase is primarily related
to the amortization of goodwill and intangibles acquired in the purchase of DRMS
in September 1998 which amounted to $879,000 for the nine months ended September
30, 1999.
A provision for doubtful accounts was recorded for the nine months ended
September 30, 1999 in the amount of $290,000 as compared to $30,000 for the same
period in 1998. The 1999 provision primarily relates to termination of an
uncompleted project within the onsite job profiling and analysis and workplace
risk management service's unit.
12
<PAGE>
During the second quarter of 1998, CORE recorded write-offs of goodwill and
intangibles totaling $4,085,000 pursuant to its review of long-lived assets.
During June 1998, CRS was informed that its principal client (representing
nearly 70% of CRS revenues) would not be renewing its contract in October 1998.
This information combined with CRS's then present operating losses indicated
that the net book value of the goodwill and intangibles related to the CRS
operations, amounting to $1,935,000, was not recoverable and thus, written-off
effective as of June 30, 1998. CORE also determined during the second quarter of
1998 that an impairment loss existed related to certain identifiable intangibles
acquired from SSDC in June 1997. The impairment loss primarily resulted from a
significant decline in revenues realized under SSDC's Medicare coordination of
benefits program. As it appeared that the decline in revenues would continue,
intangibles in the amount of $2,150,000 were written off as of June 30, 1998.
On June 2, 1998, CORE entered into a settlement agreement with the former
shareholders of CRS. The settlement agreement related to an arbitration dispute
and included the immediate payment by CORE of $425,000 and CORE's issuance of
promissory notes in the amount of $190,000 payable in twelve monthly
installments beginning January 1999. In addition, CORE incurred approximately
$121,000 in other costs related to the arbitration (primarily legal and travel
expenses).
During the third quarter of 1998, CORE recorded non-recurring charges in the
amount of $541,000 for costs related to the Company's plan to discontinue the
operations of CRS. In addition, CORE incurred relocation costs in the amount of
$102,000 related to the relocation of our accounting department from Boston,
Massachusetts to Irvine, California.
Other income and expense, net, consists primarily of interest expense as offset
by interest income. For the nine months ended September 30, 1999, total other
expense also includes as an offset, a gain of $332,000 recognized on the June
21, 1999 sale of IBH assets, net of transaction costs. 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. Interest income
decreased to $19,000 for the nine months ended September 30, 1999 from $298,000
in the same period in 1998 and interest expense increased to $1,179,000 for the
nine months ended September 30, 1999 from $137,000 in the same period in 1998.
The decrease in interest income and the concurrent rise in interest expense
during the first three quarters of 1999 as compared to the similar period in
1998 is primarily due to a decrease in funds available for investment and an
increase in outstanding borrowings pursuant to the acquisition of DRMS.
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
Third Amendment to the Credit Agreement dated April 28, 1999 (the "Third
Amendment"), CORE may borrow up to specified amounts at either (i) the prime
base rate plus 0.50%, or (ii) the London Interbank Offered Rate ("LIBOR") plus
3.50%. The maximum credit availability under the Third Amendment of $18,500,000
is subject to mandatory commitment reductions each quarter (beginning on March
31, 2000) in amounts ranging from $875,000 to $1,250,000. The Third Amendment
extended the credit facility through June 30, 2004.
At September 30, 1999 and December 31, 1998, CORE had outstanding borrowings of
$16,700,000 and $16,500,000, respectively, under the Credit Agreement which were
all tied to the prime base lending rate (8.25% at September 30, 1999) 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
September 30, 1999.
CORE has 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%) for a substantial portion of the outstanding borrowings over the
life of the Credit Agreement.
13
<PAGE>
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 April 1999 execution of the Third Amendment and expires
June 30, 2004.
For the nine months ended September 30, 1999, CORE's cash and cash equivalents
decreased by $2,226,000. For this period, cash provided by operating activities
was $275,000. Although net income for the period amounted to $3,162,000, an
increase in accounts and unbilled receivables of $6,197,000 significantly
reduced the amount of cash provided by operating activities. The increase in
receivables was due to the timing of cash collections on recurring services
provided to certain major customers (for which significant payments were
received in October 1999), the increase in revenues during the nine months ended
September 30, 1999 and the contractual timing of certain client billings. CORE's
investing activities used $2,663,000 of cash mostly to fund additions to
property and equipment (including software development) of $2,737,000. CORE's
financing activities provided $163,000 of cash for this period due primarily to
issuance of common stock upon exercise of stock options.
CORE leases its facilities and certain computer and office equipment. Future
lease commitments as of September 30, 1999, which relate substantially to space
rental, for the three months ended December 31, 1999 and the year ended December
31, 2000 are approximately $0.8 million and $2.6 million, respectively. All
obligations held by CORE under lease commitments expire on various dates through
February 2004 and total approximately $6.6 million as of September 30, 1999.
CORE has net operating loss carry-forwards for income tax purposes of
approximately $4.3 million as of September 30, 1999, which can be used to reduce
future obligations for federal and state income taxes. The amount of net
operating loss carry-forwards 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 carry-forwards may be subject to further limitation
provided by the Internal Revenue Code of 1986 and similar state provisions.
CORE plans to finance its operations and working capital requirements primarily
with future earnings from operations. As of November 8, 1999, outstanding
borrowings under the Credit Agreement were $14,900,000. To the extent that
working capital needs exceed currently available working capital, CORE has the
flexibility to borrow additional 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.
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 would be 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 client information
systems and has modified or replaced portions of its software so that its
computer systems will be designed to function properly with respect to dates in
the year 2000 and thereafter. CORE presently believes that with these
modifications and replacements of existing software, the Year 2000 issue has
been substantially mitigated.
14
<PAGE>
CORE's plan to resolve the Year 2000 issue involved 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 issue. The completed assessment
indicated that most of CORE's major systems are effectively Year 2000 compliant
and required 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.
CORE has substantially completed its remediation, software reprogramming,
implementation, testing and certification processes for its internal
applications and licensed operating systems, software tools and utilities
exposures. Although certain minor modifications and certifications remain to be
completed on specific applications, CORE believes that these remaining tasks
will be completed on a timely basis before December 31, 1999.
Because the results to date of the completed assessment have indicated that most
of CORE's major systems are effectively Year 2000 compliant and required 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.
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.
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.
Under the terms of the Credit Agreement, as amended, outstanding borrowings 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%) for a substantial portion of the outstanding
borrowings over the life of the amended Credit Agreement.
15
<PAGE>
PART II
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In the quarter ended September 30, 1999, the Company sold the following shares
of Common Stock, which were not registered under the Securities Act at the time
of issuance. All such shares were sold to former employees upon the exercise of
previously granted stock options.
<TABLE>
<CAPTION>
Date Security Purchaser Number of Shares Purchase Price per Share
- --------------- --------------------------- --------------------------- --------------------------- ---------------------------
<S> <C> <C> <C> <C>
8/19/99 Common Stock M. Harris 48 $8.063
9/15/99 Common Stock M. Kahng 900 $7.000
9/24/99 Common Stock P. Pak 84 $8.063
</TABLE>
These shares of Common Stock were not registered under the Securities Act at the
time of sale and issuance, in reliance upon the exception contained in Section
4(2) of the Securities Act for transactions by an issuer not involving any
public offering.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A Special Meeting in lieu of the Annual Meeting of Stockholders was held on July
16, 1999 in Irvine, California.
The vote to elect two persons as Class II Directors of CORE was as follows:
<TABLE>
<CAPTION>
For Withheld Authority
----------- ------------------
<S> <C> <C>
David M. Tourangeau 7,341,635 252,553
Richard J. Towle 7,341,635 252,553
</TABLE>
Accordingly, Mr. Tourangeau and Mr. Towle were elected as Class II Directors to
serve for a three year term until the 2002 Annual Meeting of Stockholders and
until their successors are elected and qualified. Class I Directors (Leslie
Alexandre, Dr.P.H. and Stephen C. Caulfield) whose terms are scheduled to expire
at the 2001 Annual Meeting of Stockholders and Class III Directors (George C.
Carpenter IV and Craig C. Horton) whose terms are scheduled to expire at the
2000 Annual Meeting of Stockholders have terms as directors that continued after
the July 1999 Special Meeting.
The vote to approve an amendment to CORE's 1997 Stock Option Plan to increase
the number of shares issuable under the Plan from 600,000 to 950,000 was as
follows:
For 5,318,602
Against 2,242,797
Abstain 32,789
Accordingly, the amendment to CORE's 1997 Stock Option Plan was approved.
16
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following exhibits are included:
Exhibit
Number Description
- ------- -----------
10.1* Employment Agreements executed on July 15, 1999 by and between CORE,
INC. and executives George C. Carpenter IV, Craig C. Horton, William E.
Nixon and Nancy S. Moore, respectively. The form of Employment
Agreement is incorporated herein by reference.
27.1* Financial Data Schedule
- ------------------------------------
* Filed herewith
(b) Reports on Form 8-K
-------------------
CORE did not file any reports on Form 8-K during the three months ended
September 30, 1999.
17
<PAGE>
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: November 9, 1999 By: /s/ William E. Nixon
--------------------------------------
William E. Nixon
Chief Financial Officer, Executive
Vice President and Treasurer
(Duly authorized officer and Principal
Financial Officer)
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<PAGE>
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, entered into as of , 1999, between
CORE, INC., a Massachusetts corporation (hereinafter called "CORE" or the
"Company"), and of , California (hereinafter called "Executive").
WHEREAS, Executive is presently an employee and officer of CORE;
WHEREAS, CORE and Executive each desire to enter into this Employment
Agreement concerning Executive's continuing employment with CORE;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and for other good and valuable consideration, the receipt of which
is acknowledged by both parties hereto, the Company and Executive agree as
follows:
1. EMPLOYMENT. The Company will employ Executive and Executive will
serve the Company as the Company's or other officer of the
Corporation, all upon the terms and conditions provided herein.
2. DUTIES. Executive shall report to , and be subject to the
ultimate authority of the Board of Directors of the Company. Executive in
conjunction with other executives of the Company shall be responsible for the
day to day business, operations and affairs of the Company. Executive's
duties shall include .
3. TERM. The term of Executive's employment hereunder shall be for the
period beginning on the date hereof, and ending December 31, 2000 (the
"Term"). Thereafter, this Agreement shall automatically renew for an
additional period of twelve months, unless pursuant to Section 8(e), written
notice of intent not to renew is delivered by either party thirty (30) days
prior to the scheduled end of the initial or subsequent term. Notwithstanding
the scheduled termination dates or renewals thereof, this Employment
Agreement is subject to earlier termination as set forth in Section 8 hereof.
4. COMMITMENT OF EXECUTIVE. During the term of this Agreement,
Executive shall be employed by the Company on a full-time basis, and shall
perform his duties during the normal business hours of the Company. During
the term of this Agreement, Executive shall not perform work for compensation
(except for reimbursement of reasonable expenses approved by the Company)
within the industry in which CORE or any of CORE's subsidiaries are active
for any
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<PAGE>
person or entity other than the Company without first obtaining the prior
written consent of the Board of Directors of the Company.
5. COMPENSATION.
(a) SALARY. During the Term of this Agreement, the Company
agrees to compensate Executive at the rate of not less than Dollars
($ ) per annum. Executive's salary shall not be reduced below the greater
of this amount or the Executive's previous twelve months' total cash
compensation (exclusive of bonuses) without Executive's consent.
(b) PAYROLL POLICIES. Executive's compensation shall be paid
in installments pursuant to the Company's personnel policies, as they may be
amended from time to time, less any applicable federal, state or local payroll
tax deductions incident on Executive.
(c) BONUSES. Executive shall be eligible to receive a bonus or
bonuses as are other CORE executives as determined by the Board of Directors of
CORE or the Compensation Committee of CORE, at its sole discretion, based upon
performance and other factors.
6. ETHICAL CONDUCT. Executive agrees to adhere to all recognized
professional ethics and customs, and to avoid all actions or conduct which
injures, directly or indirectly, the professional standing and reputation of the
Company or any of the Company's affiliated corporations or employees. Executive
represents and warrants he is free to enter into this Employment Agreement and
that there are no employment contracts, restrictive covenants or other
obligations preventing full performance of his duties hereunder.
7. FRINGE BENEFITS.
(a) VACATION. Executive shall be entitled to a vacation period
not to exceed five (5) weeks in any calendar year of his employment without loss
of compensation. In the event that Executive's employment is terminated for any
reason prior to the expiration of a full calendar year, the vacation period to
which he is entitled shall be prorated, and he shall receive compensation on
account of any unused vacation days in addition to his regular compensation for
the period prior to his termination. Executive shall be entitled to carry no
more than one and one half times the annual accrual rate of previously allowed
vacation time except as otherwise permitted by CORE's policies.
2
<PAGE>
(b) HOLIDAYS AND SICK LEAVE. In addition to his vacation time,
Executive shall be entitled without loss of compensation to those holidays to
which employees of the Company are entitled under the personnel policies of the
Company. Sick leave shall be accumulated for Executive in accordance with the
personnel policies of the Company.
(c) HEALTH CARE BENEFITS. Executive shall be furnished with a
health care benefit package consistent with benefits available to other Company
employees as now in effect, and as modified hereafter in accordance with
requirements set forth in the first sentence of this Section.
(d) DISABILITY BENEFITS. The Company agrees to continue
Executive's full salary and fringe benefits for a period of short-term
disability not to exceed one hundred eighty (180) continous days (or such longer
period as may be required to qualify for benefits under the long-term disability
policies sponsored by the Company and then in effect) during which Executive is
unable to work on account of illness or injury. The Company shall provide
Executive at the Company's expense a long-term disability benefit which shall be
substantially similar to long term disability benefits available to other
Company employees as now in effect, and as modified hereafter in accordance with
requirements set forth in the first sentence of this Section.
(e) STOCK OPTIONS. Executive has previously received and shall
continue to be eligible to receive grants of options for the purchase of CORE
common stock pursuant to CORE INC.'s 1997 Stock Option Plan (and any successor
plan) as determined by the Board of Directors of CORE or the Compensation
Committee of CORE, at its sole discretion, based upon performance and other
factors.
(f) OTHER FRINGE BENEFITS. Executive shall be entitled to
additional fringe benefits consistent with the personnel policies of the Company
as determined by the Company's Board of Directors.
8. TERMINATION OF AGREEMENT.
(a) CAUSE. Executive's employment hereunder may be terminated
immediately by the Company for "Cause". For the purpose of this Agreement,
"Cause" means:
(i) willful breach or habitual neglect of the duties
Executive is required to perform hereunder which are
not cured by Executive within 30 days of written
notice from the Company of such breach or neglect;
(ii) any illegal act by Executive injurious to the business
or reputation of
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<PAGE>
the Company;
(iii) Executive's engagement in gross misconduct injurious
to the business or reputation of the Company;
(iv) Executive's conviction of any crime which constitutes
a felony in the jurisdiction committed (whether or
not involving the Company);
(v) a material breach by Executive of any material
provision of this Agreement.
If the Company desires to terminate Executive's employment hereunder
for Cause, the Company shall give Executive written notice of the termination
date and shall specify in said notice the termination provision of the Agreement
and the factual basis upon which the termination action is based.
(b) DISABILITY. Executive's employment hereunder may also be
terminated at the election of the Company in the event that Executive is
disabled from performing his duties hereunder for a period of at least one
hundred eighty (180) continuos days (or such longer period as may be required
to qualify for benefits under the long-term disability policies sponsored by
the Company and then in effect) during the Term. In the event Executive's
employment is terminated by the Company because of such a disability of
Executive, the Company shall give Executive notice of a termination date,
which shall not be less than thirty (30) days subsequent to the date of the
notice, and Executive's employment hereunder shall terminate on the
termination date as so established by the Company.
(c) DEATH. Executive's employment hereunder shall terminate
automatically upon the death of Executive.
(d) EFFECT OF TERMINATION FOR CAUSE, DISABILITY OR DEATH. If
Executive's employment terminates pursuant to Section 8(a), 8(b), or 8(c),
the Company shall pay Executive his full salary and other benefits (including
accrued and unused vacation and sick time for such year) through the date of
termination of Executive's employment at the rate then in effect, and the
Company shall have no further obligations to Executive under this Agreement,
except for benefits expressly provided herein and for continuation of
benefits required by applicable law.
(e) TERMINATION WITHOUT CAUSE; SEVERANCE. CORE, may terminate
Executive's employment without cause or elect not to renew the term hereof by
giving written
4
<PAGE>
notice to Executive at least thirty (30) days prior to the
effective date of termination of employment without cause, in which event
Executive's employment hereunder shall terminate and Executive shall be entitled
to the following payments:
(i) all amounts accrued and unpaid to Executive through
the termination date, including unpaid salary,
pro-rated earned bonus (if any), benefits and accrued
and unused vacation and sick time;
(ii) severance payments comprising salary and health care
benefits continuing for 12 months from the date of
termination, such salary continuation payments to be
made bi-weekly, or otherwise consistent with CORE's
payroll policies and shall be subject to applicable
federal, state and local payroll tax deductions and
withholdings;
(iii) CORE shall extend Executive's rights to exercise any
outstanding options for the lesser of one additional
year or the scheduled option expiration date.
Notwithstanding the requisite 30 day notice period, CORE may elect to
have Executive's services to CORE terminate immediately, provided CORE pays
Executive compensation and benefits during the period after written notice has
been delivered and prior to the effective termination date.
(f) CHANGE IN CONTROL. In the event a "Change in Control" (as
defined below) occurs during the term of this Agreement and Executive's
employment is terminated by CORE without cause pursuant to Section 8(e)
hereof (including a non-renewal of the term) within 12 months of such a
"Change in Control" of CORE, then the "12 months from the date of
termination" in Section 8(e)(ii) shall be revised to read "18 months from the
date of termination (provided such payments shall be reduced to reflect any
salary, consulting fees or other compensation received by Executive for
services rendered after 1 year from the termination date and further
provided, Executive shall timely report to CORE any such compensation)."
For purposes of this Section 8(f), "Change in Control" shall mean:
As used herein, a "Change in Control" of the Company shall be
deemed to have occurred if any of the following conditions are met:
5
<PAGE>
(i) there is a merger or consolidation of the Company
in which (A) the Company is not the continuing or surviving
corporation or (B) a majority of the Board of Directors of
the surviving Company were not directors or officers of the
Company prior to such merger or consolidation;
(ii) the Company sells substantially all its assets to a
single purchaser or to a group of associated purchasers;
(iii) at least two-thirds of the outstanding common stock of
the Company is sold, exchanged or otherwise disposed of in
one transaction or in a series of related transactions;
(iv) any person or entity becomes directly or indirectly the
owner or beneficial owner of 50% or more of the Company's
outstanding stock;
(v) individuals who at the date hereof constitute the
Board of Directors of the Company cease to constitute a
majority thereof, provided that such change is the direct or
indirect result of a proxy fight or contested election for
positions on the Board; or
(vi) the Board of Directors of the Company determines in its
sole and absolute discretion that there has been a change
in control of the Company.
9. COVENANT NOT TO COMPETE; NON-SOLICITATION; CONFIDENTIAL INFORMATION.
(a) In consideration of and as an inducement to the Company to
enter into this Employment Agreement, Executive shall not, for a period
commencing on the date hereof and ending on the later of (i) one year after
Executive's termination of employment with the Company and its Affiliates (as
defined in Section 9(h), below), for any reason or (ii) the date through which
severance payments are due pursuant to Section 8(e) and (f) above (such later
date being referred to as the "Covenant End Date"), serve, directly or
indirectly, as an operator, owner, partner, consultant, officer, director, or
employee of any firm, company, corporation or entity (other than the Company or
one of its Affiliates, or CORE or one of CORE's wholly-owned subsidiaries) whose
employing unit or division is engaged within the geographical area of the United
States in direct competition with the business of the Company or its Affiliates,
or any business of CORE or its Affiliates.
(b) Executive agrees that for a period commencing with the
date of this Agreement and ending on the Covenant End Date:
(i) Executive will not directly or indirectly solicit,
hire or attempt to hire for any purpose whatsoever (whether as an employee,
consultant, advisor, independent
6
<PAGE>
contractor or otherwise) any employee or consultant of the Company and its
Affiliates or any person who was an employee or consultant of any such
corporations (and will use best efforts to prevent any subsequent employer of
Executive or related entity or person from taking any such actions);
(ii) Executive will not induce or attempt to induce any
customer, client supplier, licensee or other business relation of the Company
and its Affiliates to cease doing business with the Company and its
Affiliates, or in any way interfere with the relationship or potential
relationship between any such customer, client, supplier, licensee or
business relation and the Company and its Affiliates; and
(iii) Executive shall not solicit or attempt to solicit,
or accept business from, any entity which at any time during the twelve month
period prior to the date of termination of Executive's employment with the
Company and its Affiliates, was a client or customer of the Company and its
Affiliates, for the purpose of doing business with such client or customer in
matters which directly compete with the business of the Company or its
Affiliates. For the purpose of this covenant, the clients and customers of
the Company and its Affiliates shall include those entities with which the
Company and its Affiliates had held discussions or negotiations concerning
services of the Company and its Affiliates.
(c) PUBLICLY-HELD STOCK. Nothing herein contained shall
prevent Executive from holding or making an investment in:
(i) securities listed on a national securities exchange or
sold in the over-the-counter market, provided that such investments do not
exceed in the aggregate five percent (5%) of the issued and outstanding
capital stock of a corporation which is a competitor within the meaning of
this Section; or
(ii) interests in a mutual fund or other pooled investment
vehicle in which Executive has less than a five percent (5%) interest.
(d) CONFIDENTIAL INFORMATION. Executive has previously executed
and delivered to CORE the Company's standard non-disclosure agreement with
respect to confidential information. Executive hereby re-affirms all his
obligations pursuant to the Company's standard non-disclosure agreement in
the form attached hereto as EXHIBIT A.
(e) INJUNCTIVE RELIEF. Without intending to limit the remedies
available to the
7
<PAGE>
Company and its Affiliates, Executive acknowledges that a breach of any of
the covenants contained in this Agreement could result in material
irreparable injury to the Company and its Affiliates for which there might be
no adequate remedy at law, and that, in the event of such a breach or threat
thereof, the Company shall be entitled to obtain a temporary restraining
order and/or a preliminary and permanent injunction restraining Executive
from engaging in any activities prohibited by this Agreement or such other
equitable relief as may be required to enforce specifically any of the
covenants of this Agreement.
(f) REASONABLENESS OF RESTRICTIONS. The parties are of the view
that the restrictions placed on Executive herein, in the light of all the
circumstances are reasonable as to scope, period of time and geographical
area. Nevertheless, it is the intent of the parties that this Agreement be
enforceable and restrict Executive's activities only to the extent permitted
by law. Accordingly, in the event that any provisions in this Agreement shall
be determined by arbitrators or by any court of competent jurisdiction to be
unenforceable by reason of its extending for too great a period of time over
too large a geographic area or range of activities, it shall be interpreted
to extend only over the maximum period of time, geographic area or range of
activities as to which it may be enforceable.
(g) DEFINITION OF "COMPANY AND ITS AFFILIATES". For the
purposes of Section 9, "Company and its Affiliates" shall mean the Company,
CORE, INC., and all direct and indirect subsidiaries of CORE, INC. and the
Company.
10. AVAILABILITY OF RECORDS. During the term of this Agreement and for
a one year period after any termination hereof, the Company agrees to make
available to Executive, his executors, administrators or heirs, for inspection
on the premises of the Company during normal working hours, copies of any
records relating to activities while employed by the Company and which relate to
any rights or benefits to which Executive was entitled at the time of his
termination of employment. However, upon the termination of this Agreement,
Executive shall not be entitled to retain any records or charts of the Company
in his possession.
11. ARBITRATION. Any controversy or claim arising under or relating to
this Agreement, or breach therefor, shall be settled by arbitration in Orange
County, California in accordance with the rules of the American Arbitration
Association as in effect from time to time. Judgement
8
<PAGE>
upon the reward rendered may be entered in any court having jurisdiction
thereof.
Notwithstanding anything contained in this Section 11, Executive agrees
that, in the event of any actual or threatened breach by Executive of his
undertakings in Section 9, the Company shall be entitled to immediate temporary
injunctive and other equitable relief awarded in or in addition to the
arbitration as provided herein.
12. ASSIGNABILITY. This Agreement shall inure to the benefit of the
successors and assigns of the Company. However, this Agreement is personal to
Executive, and he may not assign any of his rights or obligations hereunder.
13. AMENDMENTS. No amendment of or variation in the terms of this
Agreement shall be valid unless made in writing and signed by Executive and a
duly authorized representative of the Company.
14. NOTICES. Any notice required or permitted under this Agreement
shall be sufficient if in writing and if sent by certified or registered mail,
return receipt requested, to the parties at the following addresses:
To the Company at:
CORE, INC.
18881 Von Karman Avenue, Suite 1750
Irvine, California 92612
Attn: Chairman of the Compensation Committee
with a copy to:
Stephen M. Kane, Esq.
Rich, May, Bilodeau & Flaherty, P.C.
294 Washington Street
Boston, MA 02108-4675
To Executive at:
-----------------
-----------------
-----------------
15. RULES OF CONSTRUCTION; HEADINGS AND VALIDITY. This Agreement shall
be construed in accordance with the laws of Massachusetts.
9
<PAGE>
The headings contained in this Agreement are for reference only and
shall not limit or otherwise affect the meaning of any provision of this
Agreement.
If any provision of this Agreement or portion of such provision, or the
application thereof under any circumstances, is held invalid, the remainder of
this Agreement (or the remainder of such provision) and the application thereof
under other circumstances shall not be affected by such partial invalidity.
16. ENTIRE AGREEMENT. This Agreement constitutes the entire Agreement
between the parties hereto pertaining to the subject matter hereof and
supersedes all prior agreements, understandings, negotiations and discussions,
whether oral or written of the parties, and there are no warranties,
representations or other agreements between the parties in connection with the
subject matter hereof, except as are specifically set forth herein. Except as
otherwise provided by this agreement, no supplement, modification, waiver or
termination of this Agreement shall be binding unless executed in writing by the
party to be bound thereby. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provision hereof
(whether or not similar), nor shall such waiver constitute a continuing waiver
unless otherwise expressly provide.
IN WITNESS WHEREOF, the parties to this Agreement have caused the same
to be executed as of the day of , 1999.
CORE, INC.
("Company" or "CORE")
By:
-----------------------------
-----------------------------
-----------------------------
("Executive")
Exhibit A- Company Non-Disclosure Agreement
10
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