CAPITAL STOCK PURCHASE AGREEMENT
BY AND AMONG
CORE, INC.
DISABILITY REINSURANCE MANAGEMENT SERVICES, INC.
AND
THE STOCKHOLDERS OF
DISABILITY REINSURANCE MANAGEMENT SERVICES, INC.
August 31, 1998
CAPITAL STOCK PURCHASE AGREEMENT
THIS AGREEMENT, made and entered into as of the 31st day of August, 1998 by
and among CORE, INC., a Massachusetts corporation ("CORE"), DISABILITY
REINSURANCE MANAGEMENT SERVICES, INC., a Delaware corporation ("DRMS"), and
XXXXXXX X. XXXXXXXX, XXXXX X. XXXXXX, XXXX X. XXXXXX, XXXXX X. XXXXXXXX and
XXXXX X. XXXX (each a "Stockholder" and collectively the "Stockholders").
W I T N E S S E T H:
WHEREAS, the Stockholders own all of the issued and outstanding capital
stock (the "Stock") of DRMS, consisting of 7,090 shares of Common Stock, par
value $1.00 per share; and
WHEREAS, CORE desires to purchase from the Stockholders all shares of Stock
so owned by the Stockholders, and the Stockholders desire to sell such shares of
Stock to CORE upon the terms and subject to the conditions hereinafter set
forth;
NOW, THEREFORE, in consideration of the covenants hereinafter set forth and
for good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I
PURCHASE OF STOCK; CONSIDERATION; CLOSING
SECTION 1.1 PURCHASE OF STOCK BY CORE
On the basis of the representations, warranties and the other terms and
provisions of this Agreement, the Stockholders agree to sell and transfer to
CORE an aggregate of 7,090 shares of Stock of DRMS, representing all of the
issued and outstanding capital stock of DRMS (the "Shares"), and CORE agrees to
acquire the Shares and pay to the Stockholders the consideration set forth in
Section 1.2 hereof, all as hereinafter provided.
SECTION 1.2 CONSIDERATION
Subject to the terms and conditions set forth in this Agreement, CORE, DRMS
and the Stockholders agree that at the Time of Closing:
(a) CONSIDERATION. Subject to purchase price adjustments set forth in
SECTION 1.2(b) AND 1.4(e) hereof, CORE shall pay to the Stockholders, in
consideration of the transfer of the Shares by the Stockholders to CORE, the
following:
(i) CLOSING PURCHASE PRICE: CORE shall pay to the Stockholders
at the Closing (A) $20,000,000 cash, payable by wire transfer or delivery
of other immediately available funds; and (B) that number of such validly
issued, fully paid, non-assessable shares of CORE Common Stock equal to
$3,000,000 divided by the closing price for one share of CORE Common Stock
for the trading day immediately preceding the Closing Date as reported in
the WALL STREET JOURNAL (such cash and CORE Common Stock together being
referred to as the "Closing Purchase Price").
(ii) ADDITIONAL CONSIDERATION: CORE shall issue to the
Stockholders after the Closing up to an additional Three Hundred Seventy
Five Thousand (375,000) shares of validly issued, fully paid, non-
assessable CORE Common Stock (the "Additional Consideration") subject to
and in accordance with the provisions set forth in EXHIBIT A attached
hereto.
(b) ADJUSTMENTS TO CLOSING PURCHASE PRICE. The Closing Purchase Price
shall be INCREASED by the amount, if any, by which Net Assets of DRMS as of the
Closing Date are greater than $1,167,164 (the "Net Asset Amount") and shall be
DECREASED by the amount, if any, by which Net Assets as of the Closing Date are
less than Net Asset Amount.
(i) Provisional settlement of the adjustments contemplated under
this subsection (b) shall be made at the Closing as far as feasible as an
adjustment to the cash portion of the Closing Purchase Price. For items
not readily subject to ascertainment at the Closing, the following
procedures shall apply. CORE shall prepare and deliver to the Stockholders
within sixty (60) business days following the Closing, or such earlier or
later date as shall be mutually agreed to by Stockholders and CORE, a
detailed calculation (the "Adjustment Statement") of the amount of the
increase or decrease to the Closing Purchase Price (the "Adjustment
Amount"). If the Adjustment Amount is a decrease to the Closing Purchase
Price, Stockholders shall pay such amount to CORE; if the Adjustment Amount
is an increase to the Closing Purchase Price, CORE shall pay such amount to
the Stockholders. Except as provided otherwise in paragraph (ii), payment
of the Adjustment Amount shall be made not later than fifteen (15) business
days following the delivery of the Adjustment Statement.
(ii) Not later than fifteen (15) business days following the
delivery of the Adjustment Statement, Stockholders may furnish CORE with
written notification of any dispute concerning the Adjustment Statement or
any item omitted therefrom together with a detailed explanation in support
of Stockholders' position in respect thereof. The parties shall consult to
resolve any such dispute for a period of fifteen (15) business days
following the notification thereof. In the event of any such dispute, that
portion of the Adjustment Amount that is not in dispute shall be paid to
the party entitled to receive the same on the day for payment provided in
paragraph (i). If such fifteen (15) business day consultation period
expires and the dispute has not been resolved, the matter shall be referred
to an independent public accounting firm agreed upon by the Stockholders,
on one hand, and CORE, on the other (the "Accountants"), which shall
resolve the dispute and shall render its decision (together with a brief
explanation of the basis therefor) to the parties not later than twenty
(20) business days following submission of the dispute to it; provided,
however, if the parties are unable to mutually agree upon an independent
public accounting firm, then the Stockholders, on one hand, and CORE, on
the other, shall each choose an independent public accounting firm and
those firms shall appoint a third independent public accounting
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firm which third firm shall act as the Accountants. The disputed
portion of the Adjustment Amount shall be paid by the party required to
pay the same within five (5) business days after the delivery of a copy
of such decision to the parties. The fees and expenses of the
Accountants shall be shared equally by the Stockholders, on one hand,
and CORE, on the other.
(iii) The Adjustment Statement (to the extent not timely disputed
by Stockholders), any mutually agreed written settlement of any such
dispute concerning the Adjustment Statement and any determination of
disputed items by the Accountants shall be final, conclusive and binding on
the parties hereto absent manifest error.
(c) ALLOCATION OF PURCHASE PRICE AMONG STOCKHOLDERS. The Closing
Purchase Price and any adjustments thereof shall be allocated among the
Stockholders in proportion to their respective holdings of Shares of DRMS Stock
as set forth on SCHEDULE 2.3 hereto (the allocable share so calculated being
with respect to each Stockholder his or her "Stockholder Share"). Where such
allocation of shares of CORE Common Stock result in fractional shares, the
fractional shares shall be eliminated so that each Stockholder is issued whole
shares.
SECTION 1.3 CLOSING DATE
The parties agree that time is of the essence and the closing under this
Agreement (the "Closing") will take place at 10:00 a.m. local time, on August
31, 1998, or at such other time and place as the parties may otherwise agree
(such time on such date being referred to as the "Time of Closing" and such
date being referred to as the "Closing Date"), at the offices of Rich, May,
Xxxxxxxx & Xxxxxxxx, P.C., 000 Xxxxxxxxxx Xxxxxx, Xxxxxx, XX 00000 (or at such
other place as the parties may otherwise agree ).
Notwithstanding the foregoing, either party shall have the right to
postpone the Closing for a reasonable period not exceeding thirty days following
August 31, 1998, in order to satisfy one or more of the conditions to closing
set forth in Articles VII or VIII, in which event such date shall be referred to
as the "Closing Date". In the event that the Closing does not occur on or
before September 30, 1998 and the parties do not otherwise mutually agree,
either party may, if it is not then in material default of its obligations
hereunder, terminate this Agreement, without liability to DRMS, the
Stockholders, or CORE.
SECTION 1.4 ACTIONS TO BE TAKEN AT CLOSING
(a) At the Closing, the Stockholders shall deliver or cause to be
delivered to CORE the following:
(i) certificates representing all of the Shares of the Stock
owned by the Stockholders and to be sold hereunder, with each such
certificate duly endorsed in blank
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or accompanied by stock transfer powers duly executed in blank, with
signatures guaranteed by a bank, with all necessary documentary stamps,
if any, prepaid by the Stockholders;
(ii) copies of UCC-1 financing statement searches conducted by a
reputable firm or company as of a date within three (3) days prior to the
Closing Date showing no financing statements, liens or encumbrances on the
assets of DRMS or the Shares of Stock to be sold to CORE hereunder, or, if
such searches reveal any financing statements, liens or encumbrances on the
assets of DRMS or the Shares of Stock to be sold to CORE hereunder,
original, executed UCC termination statements covering each such financing
statements, liens or encumbrances, in a form acceptable to CORE and
acceptable for filing with the appropriate government offices;
(iii) an opinion of counsel to the Stockholders and DRMS covering
the matters set forth on EXHIBIT B-1 in form reasonably satisfactory to
CORE and its counsel;
(iv) an opinion of counsel in form reasonably satisfactory to CORE and its
counsel concerning approvals, authorizations, certificates, licenses,
permits, authorities and franchises used, and contemplated to be used after
the Closing, by DRMS and/or its employees in the conduct of DRMS' business
such opinion to be substantially in the form set forth in EXHIBIT B-2.
(v) compliance certificates of each Stockholder and DRMS, as
described in SECTION 8.3, dated the Closing Date, as to the fulfillment of
the conditions set forth in SECTIONS 8.1 AND 8.2;
(vi) certified resolutions of the Board of Directors of DRMS duly
and legally authorizing the execution, delivery and performance of this
Agreement by DRMS;
(vii) all such other documents, assignments and other instruments
as, in the reasonable opinion of CORE's counsel, are necessary to vest in
CORE title to the Shares of Stock to be sold to CORE pursuant to this
Agreement; and
(viii) all other documents, certificates, endorsements,
assignments, instruments, writings and other items required to be delivered
by the Stockholders and DRMS at or prior to the Closing pursuant to this
Agreement or otherwise reasonably requested or required in order to
consummate, perfect or otherwise give effect to the transactions expressly
contemplated hereby.
(b) At the Closing, CORE will deliver or cause to be delivered to the
Stockholders the following:
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(i) the Closing Purchase Price, delivered in accordance with the
provisions of SECTION 1.2;
(ii) an opinion of counsel to CORE covering the matters set forth
on EXHIBIT E in form reasonably satisfactory to Stockholders and their
counsel;
(iii) a compliance certificate of CORE as described in SECTION
7.3, dated the Closing Date, as to the fulfillment of the conditions set
forth in SECTIONS 7.1 and 7.2;
(iv) certified resolutions of the Board of Directors of CORE duly
and legally authorizing the execution, delivery and performance of this
Agreement and the ancillary agreements related hereto; and
(v) all other documents, certificates, endorsements,
assignments, instruments, writings and other items required to be delivered
by CORE at or prior to the Closing pursuant to this Agreement or otherwise
reasonably requested or required in order to consummate, perfect or
otherwise give effect to the transactions expressly contemplated hereby.
(c) At the Closing, DRMS and each of the Stockholders shall execute, and
deliver an Employment Agreement, in substantially the form attached hereto as
EXHIBIT D, covering the employment by DRMS of each of the Stockholders following
the Closing.
(d) At the Closing, CORE and the Stockholders shall execute, and deliver
a Registration Rights Agreement, in substantially the form attached hereto as
EXHIBIT C, in order to provide the Stockholders certain registration rights with
respect to the shares of CORE Common Stock received by the Stockholders
hereunder.
(e) At the Closing, such (i) loans to the Stockholders from DRMS, and
(ii) loans to DRMS from banks and other financial institutions as are
outstanding on the Closing Date shall be paid in full and, to the extent any
such loans are paid by CORE on behalf of any of the Stockholders or DRMS, the
cash portion of the Closing Purchase Price shall be reduced on a dollar-for-
dollar basis.
All instruments, agreements, certificates and other documents delivered at
Closing or otherwise delivered pursuant to this Agreement other than this
Agreement shall be referred to as the "Ancillary Documents".
SECTION 1.5 FURTHER ASSURANCES
From time to time after the Closing, at the request of CORE and without
further consideration, each Stockholder shall execute and deliver further
instruments of transfer and
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assignment (in addition to those delivered under Section 1.4) and take such
other action as CORE may reasonably request or require to more effectively
transfer and assign to, and vest in, CORE the Shares of Stock to be sold to
CORE pursuant to this Agreement and the various licenses, permits and
authorities used or useful in the operation of the business of DRMS prior to
the Closing. The Stockholders and DRMS shall use all reasonable efforts
before and after the Closing to obtain any necessary consents or waivers and
to otherwise assure CORE of the benefits expected to be realized as a result
of owning all of the issued and outstanding capital stock of DRMS. From time
to time after the Closing, at the request of any Stockholder and without
further consideration, CORE shall execute and deliver further instruments of
transfer and assignment (in addition to those delivered under SECTION 1.4)
and take such other action as such Stockholder may reasonably require to more
effectively transfer and assign to, and vest in, such Stockholder the shares
of CORE Common Stock received by the Stockholders pursuant to this Agreement
and the related stock rights attendant thereto (provided, however this
sentence shall not be interpreted as granting any Stockholder any additional
registration or other rights not otherwise expressly set forth in writing
pursuant to this Agreement, the Registration Rights Agreement or an Ancillary
Document).
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF DRMS AND THE STOCKHOLDERS
DRMS hereby represents and warrants to CORE that:
SECTION 2.1 ORGANIZATION
DRMS is duly organized, validly existing and in good standing under the
laws of its state of incorporation, and has the corporate power and authority to
conduct all of the activities conducted by it and to own or lease all of the
assets owned or leased by it. DRMS is qualified as a foreign corporation in all
states and jurisdictions in which such qualification is required, except where
the lack of such qualification would not have a Material Adverse Effect.
Except for equity interests which in each instance represent less than 5%
of the issued and outstanding capital stock or other equity interests issued and
outstanding of publicly held companies, DRMS and each Stockholder do not
directly or indirectly own any shares of stock or any other securities of any
corporation engaged in the business of insurance or reinsurance directly or
indirectly other than as listed in SCHEDULE 2.1 attached hereto.
A complete and correct copy of each of the Certificate of Incorporation and
the Bylaws of DRMS, as each have been amended and are in effect on the date of
this Agreement, have been delivered to CORE on the date hereof.
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SECTION 2.2 AUTHORIZATION OF TRANSACTION
DRMS has the corporate power and authority to execute and deliver this
Agreement, to consummate the transactions hereby contemplated and to take all
other actions required to be taken by it pursuant to the provisions hereof.
The execution, delivery and performance of this Agreement has been authorized
by all necessary corporate action on the part of DRMS. This Agreement is
valid, binding and enforceable against DRMS in accordance with its terms.
Except as set forth in SCHEDULE 2.2 hereto, neither the execution and
delivery of this Agreement nor the consummation of the transactions hereby
contemplated will (a) contravene or conflict with the certificate of
incorporation or Bylaws of DRMS; (b) constitute any violation or breach of
any material provision of any material contract or other instrument to which
DRMS or any Stockholder is a party or by which any of the assets or Stock of
DRMS may be affected or secured; (c) constitute any violation or breach of
any order, writ, judgment, injunction, decree, statute, rule or regulation or
will result in the creation of any lien, charge or encumbrance binding on or
applicable to DRMS or the Stock; or (d) conflict with, or constitute a
default under, or result in the termination or cancellation of, or right to
accelerate, any material agreement, contract or other instrument binding upon
DRMS or any Stockholder or any material license, franchise, permit or other
similar authorization held by DRMS.
Except as set forth on SCHEDULE 2.2 hereto, the execution, delivery and
performance by DRMS and the Stockholders of this Agreement and the
consummation of the transactions contemplated hereby by DRMS and the
Stockholders require no action by or in respect of, or filing with, any
governmental body, agency, official or authority.
SECTION 2.3 CAPITALIZATION, ETC.
(a) The authorized capital stock of DRMS is 20,000 shares of Common
Stock, par value $1.00 per share, of which 7,090 shares are issued and
outstanding and are held as set forth in SCHEDULE 2.3 hereto. There are not
any authorized or outstanding options, warrants or other rights to purchase
any shares of capital stock of DRMS.
There are no outstanding obligations of DRMS to repurchase, redeem or
otherwise acquire any DRMS securities. The Stockholders are the record and
the beneficial owners of all of the issued and outstanding shares of capital
stock of DRMS and there are no other owners, beneficial or of record, of any
capital stock of DRMS.
(b) The Stockholders' Shares are validly issued, fully paid and
non-assessable.
SECTION 2.4 FINANCIAL STATEMENTS
SCHEDULE 2.4 attached hereto consists of the following financial statements
(collectively "Financial Statements"): (i) audited financial statements of
DRMS, which include the balance
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sheets of DRMS, as of fiscal years ended December 31, 1995, 1996 and 1997,
and the related statements of income and retained earnings and cash flows for
such years, with footnotes thereto for the applicable years then ended; (ii)
DRMS' unaudited balance sheet as of June 30, 1998, and the related statements
of income and retained earnings and cash flows for the six months ended June
30, 1998. The balance sheet of DRMS, as of December 31, 1997, is hereinafter
referred to as the "Balance Sheet." The financial statements included in
SCHEDULE 2.4 are in accordance with the books and records of DRMS, are
complete and correct in all material respects and fairly present the
financial position of DRMS as of the dates therein indicated and the results
of the operations of DRMS for the periods so ended, all in conformity with
generally accepted accounting principles and practices applied on a
consistent basis with prior periods ("GAAP"), except that the unaudited
financial statements do not include notes and certain adjustments that would
be required by GAAP.
SECTION 2.5 TITLE TO ASSETS; ENCUMBRANCES; CONDITIONAL SALES
Except for the liens, mortgages, pledges and encumbrances set forth in
SCHEDULE 2.5 hereto and other liens expressly permitted herein (the
"Permitted Encumbrances"), DRMS has and will have on the Closing Date good
and marketable title to all of the material assets and properties used by it,
including the assets reflected in the Balance Sheet (other than assets since
disposed of in the ordinary course of business). As set forth on SCHEDULE 2.5,
at or in connection with the Closing, certain liens, mortgages, pledges
and encumbrances on the material assets and properties used by DRMS in its
business shall be terminated or discharged, as applicable. Without limiting
the generality of the foregoing, no Stockholder nor any affiliate or family
member of any Stockholder owns any asset, tangible or intangible, which is
used in the business of DRMS. None of the assets of DRMS is held by DRMS as
lessee under any lease or as conditional sale vendee under a conditional sale
contract or other title retention agreement, except as set forth in SCHEDULE 2.5
or as otherwise expressly permitted herein.
SECTION 2.6 MACHINERY, EQUIPMENT, FIXTURES
Attached hereto as SCHEDULE 2.6 is a complete and correct list and a
brief description of all machinery, vehicles, equipment and fixtures, office
equipment and furniture and/or other personal property owned by DRMS on June
30, 1998, with a book value or fair market value of more than One Thousand
Dollars ($1,000).
SECTION 2.7 PROPRIETARY RIGHTS; PATENTS; TRADEMARKS; SOFTWARE; ETC.
For the purposes of this Agreement, "Proprietary Rights" means any of
the following which are material to the business of DRMS (i) patents, patent
applications, patent disclosures and inventions (whether or not patentable
and whether or not reduced to practice), (ii) trademarks, service marks,
trade dress, trade names and corporate names and registrations and
applications for registration thereof, (iii) copyrights and registrations and
applications for
8
registration thereof, (iv) mask works and registrations and applications for
registration thereof, (v) computer software, data and documentation, (vi)
trade secrets and other confidential information (including, without
limitation, ideas, formulas, compositions, know-how, manufacturing and
production processes and techniques, research and development information,
drawings, specifications, designs, plans, proposals, technical data,
copyrightable works, financial and marketing plans and customer and supplier
lists and information), (vii) other intellectual property rights, and (viii)
copies and tangible embodiments thereof (in whatever form or medium).
SCHEDULE 2.7 attached hereto contains a complete and accurate list of
(i) all patented and registered Proprietary Rights owned by DRMS, (ii) all
pending patent applications and applications for registrations of other
Proprietary Rights filed by DRMS, (iii) all trade names and corporate names
owned or used by DRMS since its inception, (iv) all trademarks, service
marks, copyrighted works and computer software which are material to the
financial condition, operating results, assets, operations or business
prospects of DRMS, and (v) all licenses and other rights granted by DRMS to
any third party with respect to any Proprietary Rights and all material
licenses and other rights granted by any third party to DRMS with respect to
any Proprietary Right. Except as set forth in SCHEDULE 2.7 and except for
Proprietary Rights the loss of which would not have a Material Adverse
Effect, DRMS owns and possesses all right, title and interest in and to, or
has the right to use pursuant to a valid license, all Proprietary Rights
necessary for the operation of its business as currently conducted. Except as
set forth on SCHEDULE 2.7, the loss or expiration of any Proprietary Right or
related group of Proprietary Rights would not have a Material Adverse Effect,
and no such loss or expiration is, to the knowledge of DRMS, expected or
imminent. DRMS has taken all actions which DRMS, in its reasonable business
judgment, deems necessary and desirable to maintain and protect the
Proprietary Rights which DRMS owns and uses. Except as indicated on SCHEDULE
2.7, (i) there are no currently outstanding claims and to the knowledge of
DRMS there have been no claims which have been made or are threatened against
DRMS asserting the invalidity, misuse, unenforceability, or contesting the
ownership, of any of the Proprietary Rights which DRMS owns or uses, (ii) the
conduct of DRMS's business has not infringed, misappropriated or otherwise
conflicted with, and does not infringe, misappropriate or otherwise conflict
with, any Proprietary Rights of other persons or entities, and DRMS's present
conduct does not materially infringe, misappropriate or conflict with any
Proprietary Rights of other persons or entities, and (iii) the Proprietary
Rights owned or used by DRMS have not been materially infringed or
misappropriated by, or otherwise been in material conflict with, other
persons or entities.
SECTION 2.8 REAL PROPERTY
SCHEDULE 2.8 includes a complete and correct list of all real property
which is presently leased by DRMS. The real estate leases set forth in
SCHEDULE 2.8 are in full force and effect. DRMS owns no real property.
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SECTION 2.9 INSURANCE
DRMS maintains the insurance described in SCHEDULE 2.9 attached hereto,
and all of the policies set forth therein are in full force and effect.
SECTION 2.10 CONTRACTS
Attached hereto as SCHEDULE 2.10 is a list of all contracts and other
agreements, including treaties, whether written or oral, if any, to which
DRMS is a party or which are binding on DRMS with the exception of the
following:
(a) contracts or commitments by DRMS for services, the purchase of
materials, inventory and supplies entered into in the ordinary and usual
course of business which do not individually exceed One Thousand Dollars
($1,000.00); and
(b) contracts or commitments by DRMS for the sale of goods or
products, or the provision of services, entered into in the ordinary and
usual course of business which do not individually involve an amount or value
in excess of One Thousand Dollars ($1,000.00).
SCHEDULE 2.10 also contains a list of all contracts or agreements,
whether written or oral, valid within the past 24 months or in the future
pursuant to which DRMS is a party, on one hand, and any Stockholder
(including family members and affiliates of a Stockholder) is a party, on the
other hand.
SCHEDULE 2.10 also contains a list of all contracts, agreements or
treaties, whether written or oral, related to the Disability Alliance for
Reinsurance Treaties (the "Facility").
DRMS is neither (i) in default under any material provision of any
contracts or agreement listed on SCHEDULE 2.10, (ii) nor to the knowledge of
DRMS is any default or failure to perform by DRMS alleged by any party to any
such contract or agreement, and, (iii) no act or event has occurred which
with notice or lapse of time, or both, would constitute a default by DRMS
under any such contract or agreement or permit modification, cancellation,
acceleration or termination of any such contract or agreement or result in
the creation of any security interest upon, or any person or entity obtaining
any right to acquire, any property, assets or rights of DRMS.
Each contract and agreement listed on SCHEDULE 2.10 is in full force and
effect and is valid and legally binding, and (i) there are no unresolved
disputes involving or with respect to any such contract or agreement to which
DRMS is party and (ii) to the knowledge of DRMS there are no unresolved
disputes involving or with respect to any such contract or agreement to which
the Facility is a party; and no party to any such contract or agreement has
advised any of the Stockholders, or to the knowledge of DRMS, any other
employee or agent of DRMS that such party intends either to terminate a
material contract or agreement or to refuse to renew a material
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contract or agreement upon the expiration of the term thereof.
SECTION 2.11 OTHER MATERIAL CONTRACTS
DRMS does not have any contract not specified in this Agreement or the
Schedules hereto which is binding on DRMS or on any other party and which
might have a Material Adverse Effect.
SECTION 2.12 EMPLOYEES; BENEFIT PLANS
(a) SCHEDULE 2.12 attached hereto contains (a) a true and correct
list of the names of each employee and consultant of DRMS and the current
annual rate of regular compensation and all bonuses or anticipated bonuses
paid or payable by DRMS not otherwise described in item (b) below (including
payments which are not reflected on the records of DRMS to each such employee
and consultant), exclusive of employees or consultants that in an individual
case were paid $1,000 or less in the preceding twelve months; and (b) a list
and/or description of all pension, retirement, incentive, bonus, deferred
compensation, stock purchase, profit sharing, vacation, holiday, health
insurance, life insurance or other plans or policies for the benefit of any
employees or consultants of DRMS.
(b) Except as shown on SCHEDULE 2.12, there are no currently effective
employment or consulting or other material agreements with individual
employees or consultants to which DRMS is a party. To the knowledge of DRMS,
no executive, key employee, or group of employees has any plans to terminate
employment with DRMS. DRMS is neither a party to nor bound by any collective
bargaining agreement, and there are no pending or threatened material
disputes between DRMS and any of its employees.
(c) In connection with any of the benefit plans listed in SCHEDULE
2.12, there have not been any "prohibited transactions" within the meaning of
Section 406(a) of the Employee Retirement Income Security Act of 1974
("ERISA") and there have not been any "reportable events" within the meaning
of Section 4043(b) of ERISA. All reports and filings with respect to such
benefit plans required to be made pursuant to state or federal law have been
timely filed.
(d) No officer, director, employee or consultant of DRMS has any
claims of any kind against DRMS except for his or her unpaid salary with
respect to the month in which the Closing occurs accrued to the Time of
Closing, normal expense reimbursement pursuant to DRMS policies and benefits
as set forth on SCHEDULE 2.12.
SECTION 2.13 GOVERNMENTAL PERMITS
Except as set forth on SCHEDULE 2.13, DRMS has been granted all
certificates, licenses, permits, authorities and franchises from any federal,
state, municipal or other governmental
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instrumentality, agency or commission or similar body which are necessary
lawfully to carry on all aspects of the business presently conducted by DRMS.
SCHEDULE 2.13 contains a list of all certificates, licenses, permits,
authorities and franchises as now in effect (collectively, the "Authorities")
as well as other certificates, licenses, permits, authorities and franchises
for which applications are either pending or planned.
All of the Authorities are validly held by DRMS. DRMS has complied in
all respects with all requirements in connection with the Authorities, and
the same will not be subject to suspension or revocation as a result of this
Agreement or the consummation of the transactions contemplated hereby. All
certificates, licenses, permits, authorities and franchises issued or granted
by federal, state, municipal or other governmental instrumentalities,
agencies or commissions or similar bodies which are held in the name of any
employee, officer, director, shareholder, partner, agent or other individual
or entity in connection with, or in order to allow DRMS to conduct, any part
of DRMS's business and which may be necessary lawfully to carry on all
aspects of the business presently conducted by DRMS as presently conducted,
are in force and will not be subject to suspension or revocation as a result
of this Agreement or the consummation of the transactions contemplated hereby.
SECTION 2.14 LIABILITIES
Except as set forth in SCHEDULE 2.14, DRMS does not have any liability,
fixed or contingent, other than (a) liabilities disclosed or provided for on
the Balance Sheet (including the notes thereto); or (b) liabilities (i)
incurred since the date of the Balance Sheet in the ordinary and usual course
of business, or (ii) which do not, individually or in the aggregate, have a
Material Adverse Effect and which are set forth in the monthly balance sheets
delivered to CORE pursuant to SECTION 4.12 hereof; or (c) liabilities under
this Agreement; or (d) liabilities that result from or are related to
circumstances, events, facts or occurrences that directly or indirectly are
the subject of any other representation or warranty hereunder; or (e)
liabilities that are not required to be set forth in or noted on a balance
sheet under generally accepted accounting principles.
SECTION 2.15 TAXES
DRMS has prepared and filed when due (taking into account extensions)
all appropriate federal, state, local and other tax returns of every kind and
nature for all periods on or before the due dates of such returns (as
extended by any valid extensions of time) and has paid all taxes shown to be
due by said returns or on any assessments received by DRMS or has made
adequate provision for the payment thereof. The provisions for taxes
(federal, state, local and other), and interest and penalties, if any, with
respect thereto, reflected on the Balance Sheet are adequate to cover any and
all taxes and any interest and penalties in connection therewith which have
been assessed or may be assessed with respect to the properties, business and
operations of DRMS, respectively, for the period ended on the date of said
Balance Sheet and all prior periods. No claim or liability is pending or has
been assessed or threatened against DRMS in connection with
12
any such taxes except as reflected in the Balance Sheet. The federal income
tax returns of DRMS have never been audited. DRMS is not a consenting
corporation within the meaning of Section 341(f) of the Internal Revenue Code.
All taxes or other assessments and levies which DRMS is or was required
by law to withhold or collect have been duly withheld and collected, and have
been paid over to the proper governmental authorities or are held by DRMS in
separate bank accounts for such payment and all such withholdings and
collections and all other payments due in connection therewith are duly set
forth on the books of DRMS.
SECTION 2.16 LITIGATION; COMPLIANCE WITH LAWS
Except as set forth in SCHEDULE 2.16 attached hereto, there are no
actions, suits, or proceedings pending or, to the knowledge of DRMS,
threatened against DRMS, the property of DRMS or the Facility in any court or
before any federal, state, municipal or other governmental department,
commission, board or other instrumentality or before any arbitrators (all of
which claims are adequately covered by insurance, or are believed to be
adequately reserved for in DRMS's financial statements).
DRMS and the Facility have complied in all material respects with all
applicable laws as in effect from time to time including, without limitation,
environmental laws (including rules, regulations, codes, plans, injunctions,
judgments, orders, decrees, rulings, and charges thereunder) of federal,
state, local, and foreign governments (and all agencies thereof) and there
are no pending or, to the knowledge of DRMS, threatened governmental
investigations involving DRMS or the Facility as parties, including
inquiries, citations, or complaints by any federal, state, local or foreign
government and agencies thereof. Except as set forth on SCHEDULE 2.16 there
are no outstanding orders, decrees or stipulations to which DRMS (or to the
knowledge of DRMS, the Facility) is a party affecting DRMS or any of its
products or services or the Facility, and neither DRMS nor the Facility is in
default with respect to any judgment, order, decree, award, rule or
regulation of any court of any such department, commission, board or other
instrumentality or arbitrators.
SECTION 2.17 INTENTIONALLY DELETED
SECTION 2.18 POWERS OF ATTORNEY; GUARANTIES
There are no outstanding powers of attorney executed on behalf of DRMS.
DRMS is not a guarantor or otherwise liable for any liability or obligation
(including indebtedness) of any third party.
SECTION 2.19 SERVICE AND PRODUCT WARRANTIES
13
Every service provided by DRMS (collectively "DRMS Services") has been in
substantial conformity with all material applicable contractual commitments and
all express and implied warranties.
SECTION 2.20 EVENTS SUBSEQUENT TO DECEMBER 31, 1997
Except as set forth on SCHEDULE 2.20, since December 31, 1997, there has
not been (except as otherwise disclosed in the Schedules hereto or expressly
contemplated herein):
(a) Any material adverse change in assets, liabilities, financial
condition, business, business organization or personnel of DRMS taken as a
whole or in relationships with insurance carriers, suppliers, customers,
landlords, the Facility or others;
(b) Any material adverse change in the financial condition, including,
without limitation, claims experience, business or business organization of
the Facility or in relationships between or among the participants or
constituents therein;
(c) Any sale, mortgage, pledge or other disposition of any material
asset owned by DRMS at the close of business on the date of the Balance
Sheet, or acquired by DRMS since said date other than in the ordinary and
usual course of business;
(d) Any material expenditure or commitment by DRMS for the acquisition
of assets of any kind, other than inventories and supplies acquired in the
ordinary course of business;
(e) Any damage, destruction or loss (whether or not insured) materially
and adversely affecting the property or business of DRMS taken as a whole;
(f) Any general wage or salary increase by DRMS outside the ordinary
course of business;
(g) Any increase in the compensation payable or to become payable by
DRMS to any officer or key employee;
(h) Any loans or advances by or to DRMS other than renewals or
extensions of existing indebtedness or any increase in indebtedness for
borrowed money or capitalized leases of DRMS, except in the ordinary course
of business;
(i) Any cancellation by DRMS of any material indebtedness owing to it or
any cancellation or settlement by DRMS of any material claims against
others;
(j) Any sale, assignment or transfer by DRMS of any material patent,
trademark,
14
trade name, copyright, license, franchise, certificate, permit or other
intangible asset;
(k) Any acceleration, termination, modification or cancellation of any
agreement, contract, lease or license involving more than $5,000 to which
DRMS is a party or by which DRMS is bound;
(l) Any delay or postponement of the payment of accounts payable or
other liabilities of DRMS outside the ordinary course of business;
(m) Any loan or other transaction between DRMS, on one hand, and any
director, officer or stockholder of DRMS on the other;
(n) Any material transaction of any kind not in the ordinary and usual
course of business, except as otherwise provided in this Agreement;
(o) Any disposition, sale or issuance by DRMS of any of its capital
stock or grant of any option or right to acquire any of its capital stock;
(p) Any declaration, setting aside or payment by DRMS of any dividend or
other distribution in respect of any shares of capital stock of DRMS;
(q) Any repurchase, redemption or other acquisition by DRMS of any
outstanding shares of capital stock or other securities of, or other
ownership interests in, DRMS;
(r) Any amendment of any term of any outstanding securities of DRMS;
(s) Any material reduction in the amounts of coverages provided by
existing casualty and liability insurance policies with respect to the
business of DRMS;
(t) Any new or amendment to or alteration of any existing bonus,
incentive compensation, severance, stock option, stock appreciation right,
pension, matching gift, profit-sharing, employee stock ownership,
retirement, pension, group insurance, death benefit, or other fringe
benefit plan, arrangement or trust agreement adopted or implemented by DRMS
which would result in a material increase in cost to DRMS; or
(u) Any commitment by DRMS to any of the foregoing.
SECTION 2.21 NO BROKER
15
Except as set forth in SECTION 9.3 hereof, no agent or broker or other
person acting pursuant to authority of DRMS or the Stockholders is entitled to
any commission or finder's fee in connection with the transactions contemplated
by this Agreement.
SECTION 2.22 OFFICERS AND DIRECTORS
The officers and directors of DRMS are as listed in SCHEDULE 2.22 attached
hereto.
SECTION 2.23 BOARD OF DIRECTORS APPROVAL
The Board of Directors of DRMS has duly authorized the execution, delivery
and performance of this Agreement by DRMS.
SECTION 2.24 TRADE NAMES
SCHEDULE 2.24 attached hereto sets forth all business names and addresses
used by DRMS within the past five (5) years. Except as set forth in SCHEDULE
2.24, DRMS has always conducted its business only under its proper names.
Except as set forth in SCHEDULE 2.24, DRMS has never operated under or used an
assumed or fictitious name. DRMS shall not use any other business name or
address from the date of this Agreement through the Closing Date. SCHEDULE 2.24
also contains all locations (including county and judicial districts) where
assets of DRMS are located and places of business and chief executive offices of
DRMS.
SECTION 2.25 YEAR 2000 COMPLIANCE
DRMS has conducted a review of all computer systems, software and programs
used or useful in the operation of its business to determine their individual
and collective ability to define the year 2000 properly, and DRMS has no
knowledge, as a result of such review or otherwise, that DRMS will be materially
adversely affected by any year 2000 computer system, software, or program
problems.
SECTION 2.26 ARM'S-LENGTH TRANSACTIONS
All material transactions by DRMS with outside parties have been conducted
on an arm's-length basis, and the directors, stockholders and officers of DRMS
(including their immediate family and their affiliates) have not since the
incorporation of DRMS had any material direct or indirect ownership of or a
profit participation in any outside business enterprises with which DRMS had
significant purchases, sales, or business dealings.
SECTION 2.27 DISCLOSURE
16
Except as set forth on SCHEDULES 2.27 hereto, no creditor, employee,
consultant, client or other customer or other person having a material business
relationship with DRMS has informed DRMS that such person or entity intends to
change the relationship because of the purchase and sale of the Shares as
contemplated hereby.
ARTICLE II-A
REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS
SECTION 2A.1 REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS CONCERNING THE
TRANSACTION.
Each of the Stockholders represents and warrants to CORE as follows, but
only with respect to himself or herself (and expressly not with respect to any
other Stockholders).
(a) Such Stockholder is an individual whose residential address is set
forth on SCHEDULE 2.28 hereto. None of the Stockholders are corporations,
partnerships or any other type of entity.
(b) Such Stockholder has full power and authority to execute and deliver
this Agreement and to perform his or her obligations hereunder. This Agreement
constitutes the valid and legally binding obligation of such Stockholder,
enforceable in accordance with its terms and conditions. Such Stockholder need
not give any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency in order to
consummate the transactions contemplated by this Agreement.
(c) Neither the execution and the delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, will (i) violate any
constitution, statute, regulation, rule, injunction, judgment, order, decree,
ruling, charge, or other restriction of any government, governmental agency, or
court to which such Stockholder is subject, or (ii) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument, or other
arrangement to which such Stockholder is a party or by which he or she is bound
or to which any of his or her assets is subject.
(d) Such Stockholder (i) understands that the shares of CORE Common
Stock to be issued to him or her as provided in this Agreement have not been,
and will not be, registered under the Securities Act, or under any state
securities laws, and are being offered and sold in reliance upon federal and
state exemptions for transactions not involving any public offering, (ii) is
acquiring such CORE Common Stock solely for his or her own account for
investment purposes, and not with a view to the distribution thereof, (iii) is a
sophisticated investor with
17
knowledge and experience in business and financial matters who is capable of
evaluating the merits and risks of owning CORE Common Stock), (iv) has
received certain information concerning CORE, identified in subsection (b)
hereof and has had the opportunity to obtain additional information as
desired, including the opportunity to ask questions of CORE's management in
order to evaluate the merits and the risks inherent in holding CORE Common
Stock, (v) is able to bear the economic risk and lack of liquidity inherent
in holding CORE Common Stock, (vi) understands that no federal or state
agency has passed upon the shares of CORE Common Stock to be issued as
provided in this Agreement or made any finding or determination as to the
fairness of this transaction, (vii) understands that there are substantial
risks incident to an investment in CORE Common Stock, including, without
limitation, those set forth in the document entitled "CORE, Inc. Risk
Factors" , (viii) understands that the holders of CORE Common Stock,
including the Stockholders (as defined in this Agreement) are not assured of
any return on an investment in CORE Common Stock, and (ix) is not relying on
CORE with respect to individual tax or other economic considerations involved
in this transaction.
(e) Such Stockholder has been furnished, has carefully read and has
understood the following documents:
- This Agreement (including the Exhibits and Schedules hereto),
- The document entitled "CORE, Inc. Risk Factors" and
- Other documents made available by CORE to each Stockholder,
described in SECTION 3.5 (collectively the "CORE Documents").
(f) Such Stockholder is an "Accredited Investor" as such term is defined
under the Securities Act or 1933, as amended (the "Securities Act"), and the
rules and regulations promulgated thereunder, as he or she falls within at least
one of the following categories:
(i) a natural person whose individual net worth, or joint net
worth with that person's spouse, at the time of his or her purchase exceeds
$1,000,000; or
(ii) a natural person who had an individual income in excess of
$200,000 in each of the two most recent years or joint income with that
person's spouse in excess of $300,000 in each of those years and who has a
reasonable expectation of reaching the same income level in the current
year.
(g) Such Stockholder holds of record and owns beneficially the number of
shares of DRMS Stock set forth next to his or her name in SCHEDULE 2.3, free and
clear of any restrictions on transfer (other than any restrictions under the
Securities Act and state securities laws), taxes, security interests or other
encumbrances, options, warrants, purchase rights, contracts, commitments,
equities, claims, and demands, except for the pledge of such DRMS Stock to
18
KeyBank National Association and to DRMS itself pursuant to documents
described on SCHEDULE 2.28 hereto (all of which pledges are to be released at
Closing). Such Stockholder is not a party to any option, warrant, purchase
right, or other contract or commitment (other than this Agreement) that could
require such Stockholder to sell, transfer, or otherwise dispose of any of
such Stockholder's capital stock of DRMS. Except as listed on SCHEDULE 2.28
hereto, such Stockholder is not a party to any voting trust, proxy, or other
agreement or understanding with respect to the voting of any capital stock of
DRMS, including, without limitation, the election of directors of DRMS; any
and all such trusts, proxies, understandings or agreements have been
terminated (by the execution of formal terminations, according to their
respective terms or to the extent necessary, the execution of this Agreement
shall constitute a termination of any and all such arrangements immediately
prior to the Closing) and are of no force or effect. At the Time of Closing,
the Stockholders shall have full legal right, power, and authority to sell,
assign and transfer such Shares to CORE. Upon the consummation of the
transactions contemplated by this Agreement, good and marketable title to all
of the Stock, free and clear of all claims, liens, restrictions and
encumbrances, shall have been transferred to CORE.
SECTION 2A.2 REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS CONCERNING
DRMS.
Each and all of the representations and warranties set forth in Article II
hereby are made and asserted by each Stockholder individually to the same extent
and purpose as if such representations and warranties were set forth in full in
this Section 2A.2, except that such Stockholder shall have liability for breach
of representation or warranty hereunder only to the extent set forth in Article
VI.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF CORE
CORE hereby represents and warrants to DRMS and the Stockholders that:
SECTION 3.1 ORGANIZATION
CORE is a corporation duly organized, validly existing and in good standing
under the laws of the Commonwealth of Massachusetts; and has the power and
authority to conduct all of the activities conducted by it and to own or lease
all of the assets owned or leased by it. CORE is qualified as a foreign
corporation in all states and jurisdictions in which such qualification is
required, except where the lack of such qualification would not materially and
adversely affect the ability to do business or the financial condition of CORE.
CORE is acquiring all of the outstanding shares of DRMS Stock for its own
account for investment and not with a view to or for sale in connection with any
distribution of such securities.
19
SECTION 3.2 AUTHORIZATION OF TRANSACTION
CORE has the power and authority to execute and deliver this Agreement, to
consummate the transactions hereby contemplated and to take all other actions
required to be taken by it pursuant to the provisions hereof. The execution,
delivery and performance of this Agreement has been authorized by all necessary
corporate action on the part of CORE. This Agreement is valid, binding and
enforceable against CORE in accordance with its terms.
Except as set forth in SCHEDULE 3.2 hereto, neither the execution and
delivery of this Agreement nor the consummation of the transactions hereby
contemplated will (a) contravene or conflict with the certificate of
incorporation or Bylaws of CORE; (b) constitute any violation or breach of any
material provision of any material contract or other instrument to which CORE is
a party or by which any of the assets or securities of CORE may be affected or
secured; (c) constitute any violation or breach of any order, writ, judgment,
injunction, decree, statute, rule or regulation or will result in the creation
of any lien, charge or encumbrance binding on or applicable to CORE or its
securities so as to have a Material Adverse Effect with respect to CORE; or (d)
conflict with, or constitute a default under, or result in the termination or
cancellation of, or right to accelerate, any material agreement, contract or
other instrument binding upon CORE or any material license, franchise, permit or
other similar authorization held by CORE.
The execution, delivery and performance by CORE of its obligations under
this Agreement and the consummation of the transactions contemplated hereby by
CORE require no action by or in respect of, or filing with, any governmental
body, agency, official or authority the failure to timely obtain which would
have a Material Adverse Effect.
SECTION 3.3 BROKER
Except for Xxxxxxx, Xxxxxxx & Co., no agent or broker or other person
acting pursuant to authority of CORE is entitled to any commission or finder's
fee in connection with the transactions contemplated by this Agreement.
SECTION 3.4 BOARD OF DIRECTORS APPROVAL
The Board of Directors of CORE has duly authorized the execution and
delivery and performance of this Agreement by CORE.
20
SECTION 3.5 CORE SEC FILINGS
CORE has since October 18, 1991 filed all proxy statements, schedules and
reports required to be filed by it with the SEC pursuant to the Securities
Exchange Act of 1934, as amended (collectively the "CORE SEC Filings").
CORE has made available to DRMS and the Stockholders: its annual report on
Form 10-K for its fiscal year ended December 31, 1997 (including amendments
thereto, its quarterly reports on Form 10-Q for its fiscal quarters ended March
30, 1998 and June 30, 1998; its proxy statement and annual report relating to
meeting of the stockholders of CORE held on July 30, 1998 and its Form 8-K
(including amendments thereto) dated March 17, 1998.
SECTION 3.6 XXXX-XXXXX-XXXXXX
For purposes of determining that the transactions contemplated hereby do
not require a filing under the provisions of the Xxxx-Xxxxx-Xxxxxx Act of 1976
with respect to pre-merger notification and the rules, regulations, statements
and interpretations thereunder:
(a) No entity owns directly or indirectly 50% or more of the outstanding
securities presently entitled to vote for the election of directors of CORE or
the power presently to appoint one-half or more of the directors of CORE; and
(b) The total assets of CORE are less than $100,000,000; and
(c) The net sales of CORE for 1997 were less than $100,000,000.
ARTICLE IV
ADDITIONAL AGREEMENTS OF DRMS AND STOCKHOLDERS
DRMS and each Stockholder covenants and agrees as follows:
SECTION 4.1 OPERATION OF BUSINESS
DRMS will subsequent to the date hereof and prior to the Closing Date:
(a) continue in all material respects to conduct its business, maintain
its assets, carry on its business practices and keep its books of account,
records and files in the ordinary course;
21
(b) use all reasonable efforts to preserve the good will of its
suppliers and customers and others having business relations with it;
(c) use all reasonable efforts to continue the employment of key
personnel (except as otherwise permitted by CORE in writing);
(d) pay and perform all of its debts, obligations and liabilities as and
when due under all leases, agreements, contracts and other commitments to
which it is a party in accordance with the terms and provisions thereof;
and
(e) comply in all material respects with all laws and/or other
governmental regulations that may be applicable to its business.
SECTION 4.2 NEGATIVE COVENANTS
DRMS will not, from the date of this Agreement through the Time of Closing,
without the express written consent of CORE,
(a) enter into any leases, agreements, contracts or other commitments,
whether written or oral, other than commitments for the purchase of
inventory or supplies or for the furnishing of services (including but not
limited to the execution of Facility Treaties), in each case entered into
in the ordinary and regular course of such corporation's business and not
of unusual size or duration;
(b) make any change in its corporate charter or its Bylaws;
(c) sell, assign, lease or otherwise transfer or dispose of or encumber
any material portion of its property (real or personal) or equipment,
except for replacement of any worn-out equipment in the ordinary and usual
course of business;
(d) merge or consolidate with or into any other corporation or entity;
(e) grant any options, warrants or other rights to purchase or obtain
any of its capital stock or issue, sell or otherwise dispose of any of its
capital stock (except upon the conversion or exercise of options, warrants,
and other rights currently outstanding);
(f) [INTENTIONALLY OMITTED]
(g) except to the extent permitted pursuant to subsection (k), issue any
note, bond, or other debt security or create, incur, assume, or guarantee
any indebtedness for borrowed money or capitalized lease obligation outside
the ordinary course of business;
22
(h) make any capital investment in, make any loan to, or acquire the
securities or assets of any other person or entity except for reasonable
investments made in the ordinary course of managing cash resources;
(i) make any change in employment terms for any of its directors,
officers or employees (except as otherwise permitted by CORE in writing);
(j) conduct its business or take any other action otherwise than in the
ordinary and usual course of business; or
(k) incur any additional indebtedness for borrowed money, except with
the written consent of CORE which consent will not be unreasonably
withheld;
(l) amend or change the period of exercisability or accelerate the
exercisability of any outstanding options or warrants to acquire shares of
capital stock;
(m) agree or commit to any of the foregoing.
SECTION 4.3 NO BREACHES OF REPRESENTATIONS AND WARRANTIES
DRMS and Stockholders will not take any action which the party so acting
reasonably expects would cause or constitute a breach, or would, if it had been
taken immediately prior to the date hereof, have caused or constituted a breach,
of any of the representations and warranties of DRMS or the Stockholders set
forth in ARTICLE II and ARTICLE II-A hereof. DRMS will, in the event of, and
promptly after the occurrence of or the impending or threatened occurrence of,
any event which would cause or constitute a breach or would, if it had occurred
immediately prior to the date hereof, have caused or constituted a breach of any
of the representations and warranties of DRMS set forth in ARTICLE II and
ARTICLE II-A hereof, give detailed notice to CORE. DRMS and the Stockholders
will use all reasonable efforts to prevent or promptly to remedy such breach.
SECTION 4.4 FORM 8-K
DRMS and the Stockholders each agree to provide information to CORE and
otherwise assist CORE with respect to disclosures concerning DRMS to be included
in the Form 8-K to be filed by CORE with the Securities and Exchange Commission
following the Closing of the transaction described in this Agreement.
SECTION 4.5 ACCESS TO INFORMATION
From and after the date of execution of this Agreement and subject to the
provisions of SECTION 9.1 hereof, and in connection with CORE's due diligence
investigation of the business of DRMS, each Stockholder and DRMS will make
necessary information available to CORE and
23
hereby authorizes reasonable visits to DRMS's premises with such staff,
consultants and experts as CORE deems necessary or desirable. CORE agrees to
coordinate closely all such activities with DRMS and to conduct any such
inquiries with appropriate discretion and sensitivity to DRMS's relationships
with its employees, customers and suppliers.
SECTION 4.6 INTENTIONALLY DELETED
SECTION 4.7 MAINTAIN BUSINESS ORGANIZATION
DRMS will use all reasonable efforts until the Time of Closing to preserve
its business organization intact, and to preserve the relationships of DRMS with
employees, insurance carriers, suppliers, customers, landlords, and others, all
to the end that the going business of DRMS will be unimpaired at the Time of
Closing.
At the Time of Closing, the liabilities of DRMS shall consist only of the
trade liabilities of DRMS as set forth on the Balance Sheet of DRMS and other
specified liabilities incurred in the normal course of DRMS's business between
the date of the Balance Sheet and the Closing Date.
SECTION 4.8 EMPLOYEE DOCUMENTATION
In connection with the execution of Incentive Stock Options for CORE common
stock by employees of DRMS, the Stockholders shall use reasonable, good faith
efforts to have all DRMS employees execute CORE's standard non-disclosure policy
statement.
SECTION 4.9 MAINTAIN INSURANCE AND PROPERTIES
DRMS will use all reasonable efforts to cause the existing liability and
property damage, fire, casualty and other insurance of DRMS described in
SCHEDULE 2.9 to be continued in force until the Time of Closing.
DRMS will maintain its properties and operations in good repair and
operating condition until the Time of Closing.
SECTION 4.10 EXCLUSIVITY
None of the Stockholders will (and the Stockholders will not cause or
permit DRMS to) (i) solicit, initiate, or encourage the submission of any
proposal or offer relating to the acquisition of any capital stock or other
voting securities, or any substantial portion of the assets, of DRMS, or (ii)
participate in any discussions or negotiations regarding, furnish any
information with respect to, assist or participate in, or facilitate in any
other manner, any effort or attempt by any person or entity to do or seek any of
the foregoing. The Stockholders and DRMS will notify
24
CORE immediately if any person or entity makes any proposal, offer, inquiry,
or contact with respect to any of the foregoing.
Each of the Stockholders agrees that pending the Closing they will not
directly or indirectly dispose of, transfer, or encumber any of the Shares.
SECTION 4.11 NOTICE OF DEVELOPMENTS
The Stockholders and DRMS will give written notice to CORE of any
development causing a breach or impending breach of any of the representations
and warranties in ARTICLE II or ARTICLE II-A promptly upon such party's
obtaining a conscious awareness that such development constitutes such a breach
or impending breach. No disclosure by Stockholders or DRMS pursuant to this
SECTION 4.11, however, shall be deemed to amend or supplement the Schedules or
to waive any required compliance as a closing condition.
SECTION 4.12 MONTHLY FINANCIAL STATEMENTS
(a) On the 15th day of each month following the date hereof, DRMS will
deliver to CORE a balance sheet and related statements of income and retained
earnings and cash flows for the interim period ending at the end of the prior
month. Such financial statements, when delivered to CORE, shall be in
accordance with the books and records of DRMS, will be complete and correct in
all material respects and fairly present the financial position of DRMS as of
dates therein indicated and the results of the operations of DRMS for the
periods so ended (subject to normal year end adjustments in the case of any
interim financial statements for which full year financial statements have not
been delivered), all in conformity with GAAP.
(b) AUDITED FINANCIAL STATEMENTS. On or before August 28, 1998, DRMS
shall deliver to CORE financial statements of DRMS audited by Berry, Dunn,
XxXxxx & Xxxxxx for the period ending June 30, 1998, and any other period deemed
necessary or appropriate by CORE in connection with CORE's disclosure obligation
under the federal securities laws (the "Audited Financial Statements"). Such
Audited Financial Statements shall be substantially similar to the unaudited
financial statements of DRMS set forth in SCHEDULE 2.4 hereof for the same
periods and include DRMS's independent auditors' opinion without qualification
as to "going concern" or other matters. Without limiting the generality of the
foregoing, the Audited Financial Statements shall not be deemed to be
substantially similar to the unaudited financial statements of DRMS if for any
period (i) revenues vary by more than 5% (ii) net income varies by more than 5%;
and (iii) EBIT varies by more than 5%.
SECTION 4.13 NON-COMPETITION; NON-SOLICITATION
Each of the Stockholders hereby agrees that, except in their respective
capacities as officers or employees of DRMS acting solely for the benefit of
DRMS, from and after the
25
Closing Date through the Covenant End Date applicable to each Stockholder (as
defined below) he or she will not (a) serve, directly or indirectly, as an
operator, owner, partner, consultant, officer, director, or employee of any
firm, entity or business or corporation engaged in the business presently
being conducted or as it may be conducted at any time prior to the Covenant
End Date by DRMS or CORE (or any business related thereto) within the United
States; (b) solicit or attempt to solicit or accept business from any entity
which is a client or customer of CORE (including CORE's subsidiaries) or
DRMS, or which at any time during the twelve month period prior to the
Closing Date, was a client or customer of CORE (including CORE's
subsidiaries) or DRMS, for the purpose of doing business with such client or
customer (for the purpose of this covenant, the clients and customers of CORE
shall include those entities with which DRMS had made or received formal
proposals or held discussions or negotiations within the twelve month period
prior to the Closing Date), or (c) solicit, attempt to hire, or hire any
employee or consultant of DRMS or CORE (including CORE's subsidiaries), or
assist in such solicitation or hiring by any other person or entity, or
encourage any employee or consultant of DRMS or CORE (including CORE's
subsidiaries) to terminate his or her relationship with CORE.
For purposes of this Agreement, "Covenant End Date" means, for each
Stockholder (other than Xxxxx X. Xxxxxxxx), the later of (i) the date ending one
year after such Stockholder's termination of employment with DRMS (or any of
CORE's or DRMS's affiliated corporations) for any reason; or (ii) September 30,
2001. The Covenant End Date for Xxxxx X. Xxxxxxxx shall be the earlier of (iii)
the date ending one year after his termination of employment or (iv) September
30, 2001.
It is agreed that the remedy at law for any breach of the foregoing
shall be inadequate and that CORE and DRMS shall be entitled to any other
remedy permitted by law. In the event that this SECTION 4.13 shall be
determined by arbitrators or by any court of competent jurisdiction to be
unenforceable by reason of its extending for too great a period of time or
over too large a geographic area or over too great a range of activities, it
shall be interpreted to extend only over the maximum period of time,
geographic area or range of activities as to which it may be enforceable.
Nothing herein contained shall prevent any of the Stockholders from holding
or making an investment in securities listed on a national securities
exchange or sold in the over-the-counter market, provided such investments do
not exceed in the aggregate five percent (5%) of the issued and outstanding
capital stock of a corporation which is a competitor within the meaning of
this SECTION 4.13.
SECTION 4.14 REASONABLE EFFORTS
DRMS and each of the Stockholders will use all reasonable efforts to
assure, to the extent such matters are within their control, the performance by
DRMS and the Stockholders of all of the covenants and agreements contained
herein and the satisfaction of all of the conditions to Closing herein set
forth.
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ARTICLE V
ADDITIONAL AGREEMENTS OF CORE
SECTION 5.1 ADDITIONAL POST-CLOSING COVENANTS
(a) It is expected that DRMS will offer employment, commencing as of
the Closing Date, at substantially the same wages, salary, benefits
(including bonus opportunities), hours and conditions in effect immediately
prior to the Closing, to all employees listed on SCHEDULE 2.12, with such
changes in personnel in the ordinary course of business of which DRMS
notifies CORE, provided, however, DRMS, after consultation with CORE, shall
have the right to make changes to such wages, salary, bonus opportunities,
benefits, hours and conditions. Those employees who shall accept said offer
of employment with DRMS and who shall actually continue active employment
with DRMS after the Closing shall collectively be referred to as the
"Continuing Employees."
(b) At Closing, CORE shall grant Incentive Stock Options for 100,000
shares of CORE Common Stock to Continuing Employees (the "DRMS Employee
ISOs"). Allocation of the DRMS Employee ISOs among the Continuing Employees,
including the Stockholders, shall be as mutually agreed between CORE, DRMS
and the Stockholders, with the form of DRMS Employee ISOs to be substantially
similar to the form used for CORE employees.
(c) CORE covenants and agrees that, until September 30, 2001, (i) DRMS
shall be maintained as a distinct corporate subsidiary of CORE; and (ii) DRMS's
principal place of business will remain in the Portland, Maine area.
(d) No provision of this SECTION 5.1 shall create any
third-party-beneficiary rights in any employee or former employee (including
any beneficiary thereof) of DRMS.
SECTION 5.2 NO BREACHES OF REPRESENTATIONS AND WARRANTIES
Between the date hereof and Closing, CORE will not take any action which
CORE reasonably expects would cause or constitute a breach, or would, if it had
been taken immediately prior to the date hereof, have caused or constituted a
breach, of any of the representations and warranties of CORE set forth in
ARTICLE III hereof. CORE will, in the event of, and promptly after the
occurrence of or the impending or threatened occurrence of, any event which
would cause or constitute a breach or would, if it had occurred immediately
prior to the date hereof, have caused or constituted a breach of any of the
representations and warranties of CORE set forth herein, including in ARTICLE
III and ARTICLE V hereof, give detailed notice to DRMS. CORE will use all
reasonable efforts to prevent or promptly to remedy such breach.
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CORE will give written notice to Stockholders and DRMS of any
development causing a breach or impending breach of any of the
representations and warranties in Article III promptly upon CORE's obtaining
a conscious awareness that such development constitutes such a breach or
impending breach. No disclosure by CORE pursuant to this Section 5.2,
however, shall be deemed to amend or supplement the Schedules or to waive any
required compliance as a closing condition.
SECTION 5.3 REASONABLE EFFORTS
CORE will use all reasonable efforts to effectuate the transactions
hereby contemplated and the satisfaction of all of the conditions to Closing
herein set forth.
ARTICLE VI
INDEMNITY; REALIZATION OF DRMS ACCOUNTS RECEIVABLE
SECTION 6.1 INDEMNIFICATION BY STOCKHOLDERS
Each Stockholder agrees to indemnify, defend, save and hold harmless
CORE, its subsidiaries, DRMS, and any person serving as an officer, director,
agent, counsel or employee of CORE, its subsidiaries or DRMS excluding,
however the Stockholders (each an "Indemnified Party" and all, collectively,
the "Indemnified Parties"), but only to the extent and on the terms provided
and set forth in this Article VI. Each Stockholder hereby releases DRMS from
any obligation of contribution, indemnity or the like relating to any claims
under this Article.
(a) Each of the Stockholders shall separately indemnify,
defend and hold CORE and the Indemnified Parties harmless as provided in this
Article VI as to any Loss with respect to, as a result of or involving:
(i) any breach by such Stockholder of any representation or
warranty made by such Stockholder in Section 2A.1 or in any certificate or
notice delivered by any Stockholder pursuant to this Agreement with respect
to such representations and warranties; or
(ii) any breach by such Stockholder of any covenant or obligation
of such Stockholder in this Agreement.
(b) Each Stockholder shall indemnify, defend and hold CORE and the
Indemnified Parties harmless as provided in this Article VI as to such
Stockholder's Share of any Loss with respect to, as a result of or involving
any breach of a representation or warranty made by such Stockholder pursuant
to Section 2A.2 hereof or in any certificate or notice delivered by any
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Stockholder pursuant to this Agreement or in any certificate or notice
delivered by any Stockholder pursuant to this Agreement with respect to such
representations and warranties.
Section 6.2 CORE Indemnity
CORE shall indemnify, defend, save and hold harmless the Stockholders
provided in this Article VI as to any Loss with respect to, as a result of or
involving:
(a) any breach by CORE of any representation or warranty made by CORE
in Article III or in any certificate or notice delivered by CORE pursuant to
this Agreement; or
(b) any breach by CORE of any covenant or obligation of CORE in this
Agreement.
SECTION 6.3 DETERMINATION OF LIABILITY
In the event that at any time, or from time to time, any Indemnified
Party shall determine that such Indemnified Party is entitled to
indemnification under SECTION 6.1 hereof, such Indemnified Party shall give
prompt written notice to the Indemnifying Party specifying the cause and the
amount of such claim. A failure to provide any required notice shall not
prejudice any right to indemnification under this Agreement except to the
extent that the Indemnifying Party is prejudiced by such failure.
The Indemnifying Party may object to the claim by delivering written
notice thereof to such Indemnified Party within thirty (30) days after
receipt of such Indemnified Party's written notice. Failure on the part of
the Indemnifying Party so to object shall constitute an acceptance of the
such Indemnified Party's claim, and the Indemnifying Party shall promptly
pay such claim after such thirty-day period has elapsed.
In the event that the Indemnifying Party shall so object and the
claiming Indemnified Party and the Indemnifying Party shall fail to reach an
agreement as to the entitlement of such Indemnified Party to indemnification
or the amount thereof within sixty (60) days after the written notice by the
Indemnifying Party objecting to the claim, then so much of the matter as may
be in dispute shall be submitted to the American Arbitration Association in
Boston, Massachusetts for settlement in accordance with its rules, and the
award as to the disputed matter rendered by the arbitrator or arbitrators
shall be binding on all parties to this Agreement. The parties hereto shall
act upon such award in like manner as though it constituted an agreement
reached between the parties and judgement on the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof. The
Indemnified Party, on one hand, and the Indemnifying Party, on the other
hand, shall each pay fifty percent (50%) of the arbitrators' charges.
SECTION 6.4 DEFENSE OF THIRD PARTY CLAIMS
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After receipt by any Indemnified Party of notice of the existence of any
claim made or threatened by a third party, to which the indemnification
obligations hereunder apply, such Indemnified Party shall give written notice
thereof to the Indemnifying Party, but the omission to so notify the
Indemnifying Party will not relieve the Indemnifying Party from any
liability except to the extent that the Indemnifying Party shall have been
prejudiced as a result of the failure in giving such notice. Such notice
shall state the information then available regarding the amount and nature of
such claim and shall specify the provision or provisions of this Agreement
under which the liability or obligation is asserted. If within twenty (20)
days after receiving such notice, the Indemnifying Party gives written
notice to such Indemnified Party stating that they dispute and intend to
defend against such claim at its own cost and expense (subject to the consent
of such Indemnified Party which consent shall not be unreasonably withheld),
such Indemnified Party shall make no payment on such claim as long as the
Indemnifying Party is conducting a good faith and diligent defense.
Notwithstanding anything herein to the contrary, such Indemnified Party shall
at all times have the right to fully participate in such defense at such
Indemnified Party's own expense directly or through counsel; provided,
however, if the named parties to the action include both (i) any Indemnifying
Party and (ii) such Indemnified Party and representation of both parties by
the same counsel would be inappropriate under applicable standards of
professional conduct, the expense of one separate counsel for such
Indemnified Party shall be paid by the Indemnifying Party. If no timely
notice of intent to dispute and defend is given by the Indemnifying Party, or
if such diligent good faith defense is not being or ceases to be conducted,
after written notice to the Indemnifying Party and the failure of the
Indemnifying Party to initiate or conduct such a defense within fifteen (15)
days after such notice, such Indemnified Party, at the expense of the
Stockholders, shall have the right but not the obligation to undertake the
defense of such claim, liability or expense, and shall have the right to
compromise or settle the same (exercising reasonable business judgment). If
such claim, liability or expense is one that by its nature cannot be defended
solely by the Indemnifying Party, then such Indemnified Party shall make
available all information and assistance that the Indemnifying Party may
reasonably request and shall cooperate with the Indemnifying Party in such
defense.
Section 6.5 Limits
(a) No Stockholder or Indemnified Party shall be entitled to assert
any right of indemnification hereunder for any Losses for breaches of
representations and warranties described in Sections 6.1 and 6.2 after
September 30, 2001, except that the representations and warranties related to
tax matters shall survive for the applicable statute of limitations
applicable to such tax. Any period of indemnification liability of a party
hereto with respect to its representations and warranties, under such
Sections, shall not be reduced by any investigation made at any time by or on
behalf of any indemnified party. If written notice of a claim has been given
prior to the expiration of the applicable period of indemnification by a
party hereto, then the relevant underlying representations and warranties
shall survive as to such claim until such claim has been finally resolved.
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(b) Notwithstanding any other provision to the contrary contained in
this Agreement,
(i) the Stockholders shall not be required to indemnify and hold
harmless any Indemnified Party with respect to breaches of the
representations and warranties described in Section 6.1 until the aggregate
amount of the Losses by all Indemnified Parties under Section 6.1 exceeds
One Hundred Thousand Dollars ($100,000), and the obligation of the
Stockholders to indemnify DRMS and/or CORE pursuant to Section 6.1 shall be
limited only to amounts in excess of such One Hundred Thousand Dollar
($100,000) aggregate threshold (provided, however the foregoing $100,000
threshold shall not apply to Losses arising out of Sections 1.2(b), 2A.1,
2.12(d) and 6.6).
(ii) CORE shall not be required to indemnify and hold harmless
the Stockholders with respect to representations and warranties in Section
6.2 until the aggregate amount of the Losses by all Stockholders under
Section 6.2 exceeds One Hundred Thousand Dollars ($100,000), and the
obligation of CORE to indemnify the Stockholders pursuant to Section 6.2
shall be limited only to amounts in excess of such One Hundred Thousand
Dollar ($100,000) aggregate threshold.
(c) (i) In no event shall any Stockholder individually be liable with
respect to breaches of representations and warranties for indemnification
pursuant to Section 6.1 in excess of such Stockholder's Share of Four Million
Dollars ($4,000,000).
(ii) In no event shall CORE be liable with respect to breaches of
representations, warranties, covenants and agreements for indemnification
pursuant to Article VI in excess of Four Million Dollars ($4,000,000).
(d) The parties agree to treat all payments made by any of them to or
for the benefit of an Indemnified Party under this Article VI, as adjustments
to the Purchase Price for tax purposes, and such treatment shall govern for
purposes hereof except to the extent that the Laws of a particular
jurisdiction provide otherwise.
(e) All indemnification payments under Section 6.1 and 6.2 shall (i)
be calculated so as to avoid duplication with the adjustments provided in
Section 1.2(b) and Section 6.6 and the Additional Consideration provided
under Section 1.2(a)(ii) and Exhibit A; and (ii) reduced by the amount of any
net insurance proceeds (after deducting the reasonable costs, including but
not limited to reasonable attorneys' fees and expenses, incurred in
collecting same and the premiums therefor) actually received by the
Indemnified Party with respect to the Loss.
(f) Following the Closing, the remedies provided in this Article VI
constitute the sole and exclusive remedies for recoveries against another
party for breaches of the representations, warranties and covenants in this
Agreement and for the matters specifically
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listed in this Article VI as being indemnified against. Nothing in this
Article VI nor anything else in this Agreement shall limit the right of a
party to enforce the performance of this Agreement or of any contract,
document or other instrument executed and delivered pursuant to this
Agreement by any remedy available to it in equity.
SECTION 6.6 COLLECTION OF MANAGEMENT FEES RECEIVABLE
Not later than 45 days after the end of the Collection Period as defined
below, each Stockholder shall pay to CORE, as a further adjustment to the
Closing Purchase Price, such Stockholder's Share of the amount by which
collections of DRMS management fees receivable that were accrued prior to the
Closing (whether or not reflected in DRMS's books as of the Closing Date)
during the first 270 days following the Closing (the "Collection Period") are
less than 90% of the management fees receivable that are accrued on DRMS's
unaudited balance sheet as of the Closing Date. DRMS shall use reasonable
collection efforts with respect to such management fees receivable (except
that DRMS shall be obligated to institute litigation) during the Collection
Period. Any payments made by the Stockholders pursuant to this paragraph
shall be considered earnings of DRMS for purposes of EXHIBIT A.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF DRMS AND THE STOCKHOLDERS
The obligations of DRMS and the Stockholders to consummate the
transactions contemplated by this Agreement on the terms and conditions
contained herein shall be subject to the fulfillment at or prior to the
Closing Date of each of the following conditions, any or all of which may be
waived in whole or in part by DRMS and the Stockholders but only in a writing
signed by DRMS or Stockholders:
SECTION 7.1 REPRESENTATIONS AND WARRANTIES
The representations and warranties of CORE contained in this Agreement
including in ARTICLE III hereof expressly made as of the Closing Date shall
be true at and as of the Closing Date in all material respects, and all of
the other representations and warranties contained in said ARTICLE III shall
be true in all material respects at and as of the Closing Date as though such
representations and warranties were made at and as of such time.
SECTION 7.2 COMPLIANCE BY CORE
CORE shall have performed and complied in all material respects with all
agreements and conditions on its part required by this Agreement to be
performed or complied with prior to or at
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the Closing Date.
SECTION 7.3 CLOSING CERTIFICATE
DRMS and the Stockholders shall have received a certificate of CORE
executed by the President and Chief Financial Officer of CORE, dated the
Closing Date, certifying to the fulfillment of the conditions specified in
SECTIONS 7.1 and 7.2 of this ARTICLE VII and such other evidence with
respect to the fulfillment of any said conditions as DRMS and the
Stockholders may reasonably request upon reasonable prior notice.
SECTION 7.4 LEGAL OPINION
DRMS and the Stockholders shall have received an opinion of Rich, May,
Xxxxxxxx & Xxxxxxxx, P.C., counsel for CORE, dated the Closing Date,
reasonably satisfactory in form and substance to counsel for DRMS and the
Stockholders, substantially to the effect as set forth on EXHIBIT E.
Such opinion shall cover such related matters as DRMS and the
Stockholders may reasonably require, and may contain customary assumptions
and exceptions.
SECTION 7.5 CERTIFIED RESOLUTIONS
CORE shall have furnished to DRMS and the Stockholders certified
resolutions of its Board of Directors duly and legally authorizing the
execution, performance of this Agreement by CORE, and such other
documentation as DRMS and the Stockholders shall reasonably request.
SECTION 7.6 CONSENTS
The parties shall have obtained all consents of third parties required
by any and all agreements or documents on SCHEDULES 2.10 AND 3.2 hereto in
order to give effect to the transactions contemplated hereby.
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF CORE
The obligations of CORE to consummate the transactions contemplated by
this Agreement on the terms and conditions contained herein shall be subject
to the fulfillment at or prior to the Closing Date of each of the following
conditions, any or all of which may be waived in whole or in part by CORE but
only in a writing signed by an authorized officer of CORE:
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SECTION 8.1 REPRESENTATIONS AND WARRANTIES
The representations and warranties of DRMS and the Stockholders
contained in this Agreement and expressly made as of the Closing Date, and
all of the other representations and warranties contained in this Agreement
shall be true and correct in all material respects at and as of the Closing
Date.
SECTION 8.2 COMPLIANCE BY DRMS AND THE STOCKHOLDERS
DRMS and each Stockholder shall have performed and complied in all
material respects with all agreements, covenants and conditions on their part
required by this Agreement to be performed or complied with prior to or at
the Closing Date.
SECTION 8.3 CLOSING CERTIFICATE
(a) CORE shall have received a certificate of DRMS, executed by the
President and Corporate Secretary of DRMS, and dated the Closing Date, and
from each Stockholder, dated the Closing Date, certifying as to the
fulfillment of the conditions specified in SECTIONS 8.1 and 8.2 of this
ARTICLE VIII ; and such other evidence with respect to the fulfillment of any
said conditions as CORE may reasonably request upon reasonable prior notice.
(b) CORE shall have received a certificate executed by Xxxxxxx
Xxxxxxxx, FSA, MAAA, concerning the actuarial analysis of the DART Facility
in the form attached hereto as SCHEDULE 8.3.
SECTION 8.4 LEGAL OPINIONS
CORE shall have received an opinion of Preti, Flaherty, Xxxxxxxx &
Pachios, LLC, counsel for DRMS and the Stockholders, dated the Closing Date,
reasonably satisfactory in form and substance to counsel for CORE,
substantially to the effect as set forth on EXHIBIT B.
CORE shall also receive an opinion of Xxxxxxxx Xxxxxxx & Xxxxxxxxxx,
special counsel for DRMS, dated the Closing Date, reasonably satisfactory in
form and substance to counsel for CORE, covering the matters described in
SECTION 1.4(a)(iv).
Such opinions shall cover such related matters, as CORE may reasonably
require, and may contain customary assumptions and exceptions.
SECTION 8.5 CERTIFIED RESOLUTIONS
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DRMS shall have furnished counsel for CORE with certified resolutions of
its Board of Directors duly and legally authorizing the execution and
performance of this Agreement by DRMS, and such other documentation as CORE
shall reasonably request.
SECTION 8.6 NO LITIGATION
Between the date of this Agreement and the Closing Date, no suit or
action or legal, administrative, arbitration or other proceeding shall have
been instituted, or threatened, against DRMS or any of the Stockholders or
which might materially and adversely affect the financial condition of DRMS
or the conduct of DRMS's business.
SECTION 8.7 NO MATERIAL ADVERSE CHANGE
Between the date of this Agreement and the Closing Date, DRMS and its
business, assets and personnel shall not be subject to changes that in the
aggregate have a Material Adverse Effect.
SECTION 8.8 AUDITED FINANCIAL STATEMENT
CORE shall have received the monthly financial statements and the
Audited Financial Statements of DRMS as described in SECTION 4.13 hereof.
SECTION 8.9 ADDITIONAL DOCUMENTATION
DRMS and the Stockholders shall have provided CORE with such additional
documentation as CORE shall reasonably request.
SECTION 8.10 CORPORATE RECORDS
There shall have been delivered to CORE the corporate minute books,
seals, charter and amendments thereto, Bylaws, stock transfer books and other
records of DRMS.
SECTION 8.11 MAINTENANCE OF ASSETS
At the Closing, DRMS shall have good and marketable title to all of its
assets, including personal property, real estate, intellectual property, free
and clear of all liens, mortgages and pledges except as set forth on SCHEDULE
2.5. The properties, machinery and equipment of DRMS shall have been
maintained in good repair and operating condition, ordinary wear and tear
excepted.
SECTION 8.12 CONSENTS
35
The parties shall have obtained all consents of third parties required
by any and all agreements or documents on SCHEDULES 2.10 AND 3.2 hereto in
order to give effect to the transactions contemplated hereby.
SECTION 8.13 PROCEEDINGS
All corporate or other proceedings taken or required to be taken on
behalf of DRMS in connection with the transactions contemplated hereby at or
prior to the Closing and all documents incident thereto shall be reasonably
satisfactory in form and substance to CORE and its counsel.
ARTICLE IX
OTHER AGREEMENTS
SECTION 9.1 CONFIDENTIALITY
CORE will use all reasonable efforts to keep confidential any and all
information furnished to it by DRMS or the Stockholders or DRMS's independent
public accountants in connection with the transactions contemplated by this
Agreement, and the business and financial review and investigation of DRMS
conducted by CORE, except to the extent any such information may be generally
available to the public; provided, however, that (a) any disclosure of such
information may be made by CORE to the extent required by applicable law or
regulation or judicial or regulatory process, and (b) such information may be
used by CORE as evidence in or in connection with any pending or threatened
litigation relating to this Agreement or any transaction contemplated hereby.
SECTION 9.2 CLOSING DOCUMENTS
The parties will make every good faith effort to reach agreement as to
the form of the documentation to be delivered in connection with the Closing
hereunder.
SECTION 9.3 TRANSACTION FEES
(a) The Stockholders jointly and severally agree that they shall be
responsible and shall indemnify and hold harmless CORE and DRMS for any (i)
brokers' fees or other fees payable to Ernst & Young LLP for services
rendered in connection with this transaction, and (ii) attorneys,
accountants, auditors and other fees and expenses incurred on behalf or for
the benefit of the Stockholders and/or DRMS in connection with this
transaction.
(b) CORE agrees that CORE shall be responsible and shall indemnify and
hold
36
harmless Stockholders and DRMS for any (i) brokers' fees or other fees
payable to Xxxxxxx, Xxxxxxx & Co. for services rendered in connection with
this transaction, and (ii) attorneys, accountants, auditors and other fees
and expenses incurred on behalf or for the benefit of the CORE in connection
with this transaction.
SECTION 9.4 RESERVED
SECTION 9.5 TAX MATTERS
The following provisions shall govern the allocation of responsibility
as between CORE and the Stockholders for certain tax matters following the
Closing Date:
(a) TERMINATION OF THE S CORPORATION STATUS OF DRMS AND TAXABLE YEAR.
The parties acknowledge that the transaction contemplated by this Agreement
will cause DRMS to terminate its status as an S corporation, effective as of
the Closing Date. Pursuant to Section 1362(e)(1) of the Internal Revenue
Code, DRMS shall have two short taxable years during calendar year 1998,
namely: an "S short year" beginning January 1, 1998 and ending on the day
before the Closing Date and a "C short year" beginning on the Closing Date
and ending on December 31, 1998. CORE and the Stockholders shall cause DRMS
to elect and shall consent, pursuant to Section 1362(e)(3) of the Code, to
allocate tax items to the Company's S short year and C short year pursuant to
normal tax accounting rules (the "closing of the book method"). The
allocation of such items shall be done on a basis consistent with DRMS's past
accounting practice and in a manner reasonably satisfactory to CORE.
(b) PREPARATION OF TAX RETURNS. The Stockholders shall at their
expense prepare and file or otherwise furnish to the appropriate party (or
cause to be prepared and filed or so furnished) in a timely manner all tax
returns of DRMS or, if necessary, shall prepare and deliver (or cause to be
prepared and delivered) such tax returns to DRMS for signing or filing, for
all taxable years or periods (including, but not limited to, the Company's S
short year) ending prior to or on the Closing Date that have not been filed
prior to the Closing Date. CORE shall prepare and file (or cause to be
prepared and filed) all tax returns of DRMS for any taxable year or period
that ends after the Closing Date. The Stockholders, DRMS and CORE shall
reasonably cooperate, and shall cause their respective affiliates, officers,
employees, agents, authors and other representatives reasonably cooperate, in
preparing and filing all tax returns, including maintaining and making
available to each other all records necessary in connection with the
reporting of taxes and fees and in resolving all disputes and audits with
respect to all periods relating to taxes and fees. CORE, DRMS and the
Stockholders recognize that the Stockholders and their agents and other
representatives will need access, from time to time, after the Closing Date,
to certain accounting records and information held by DRMS to the extent such
information and records pertain to events occurring on or prior to the
Closing Date; therefore, each of CORE, DRMS and the Stockholders agree (i) to
use their best efforts to properly retain and maintain such records
37
until such time as the Stockholders agrees that such retention and
maintenance is no longer necessary (but in no event longer than six years
after the Closing Date) and (ii) to allow the Stockholders and their
respective agents and other representatives, at times and dates mutually
acceptable to the parties, to inspect, review and make copies of such records
as the Stockholders and their agents and other representatives may deem
necessary or appropriate from time to time, such activities to be conducted
during normal business hours and at the requesting Stockholder's expense.
(c) COOPERATION ON TAX MATTERS.
(i) CORE, DRMS and the Stockholders shall cooperate fully, as
and to the extent reasonably requested by the other party, in connection
with the filing of Tax Returns pursuant to this Section and any audit,
litigation or other proceeding with respect to Taxes. Such cooperation
shall include the retention and (upon the other party's request) the
provision of records and information which are reasonably relevant to any
such audit, litigation or other proceeding and making employees available
on a mutually convenient basis to provide additional information and
explanation of any material provided hereunder. DRMS and the Stockholders
agree (A) to retain all books and records with respect to Tax matters
pertinent to DRMS relating to any taxable period beginning before the
Closing Date until the expiration of the statute of limitations (and, to
the extent notified by CORE or the Stockholders, any extensions thereof) of
the respective taxable periods, and to abide by all record retention
agreements entered into with any taxing authority, and (B) to give the
other party reasonable written notice prior to transferring, destroying or
discarding any such books and records and, if the other party so requests,
DRMS or the Stockholders, as the case may be, shall allow the other party
to take possession of such books and records.
(ii) CORE, DRMS and the Stockholders further agree, upon request,
to use their best efforts to obtain any certificate or other document from
any governmental authority or any other Person as may be necessary to
mitigate, reduce or eliminate any Tax that could be imposed (including, but
not limited to, with respect to the transactions contemplated hereby).
(iii) CORE, DRMS and the Stockholders further agree, upon request,
to provide the other party with all information that either party may be
required to report pursuant to Section 6043 of the Code and all Treasury
Department Regulations promulgated thereunder.
(d) TAX SHARING AGREEMENTS. All tax sharing agreements or similar
agreements with respect to or involving DRMS shall be terminated as of the
Closing Date and, after the Closing Date, neither DRMS nor CORE shall be
bound thereby or have any liability thereunder.
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SECTION 9.6 TERMINATION OF SHAREHOLDER AGREEMENT
Each of the Stockholders hereby releases and waives all rights of
approval, consent, dissent and first refusal and all pre-emptive,
anti-dilution or other rights he or she may have, by reason of the
Shareholder Agreement or otherwise, with respect to the transactions
contemplated hereby. Notwithstanding any provision of the Shareholder
Agreement to the contrary, the Shareholder Agreement shall be terminated
effective as of the Closing.
ARTICLE X
GENERAL PROVISIONS
SECTION 10.1 WAIVERS; KNOWLEDGE
DRMS or the Stockholders may extend the time for or waive the
performance of any of the obligations of CORE, waive any inaccuracies in the
representations or warranties of CORE, or waive compliance by CORE with any
of the covenants or conditions contained in this Agreement. Any such
extension or waiver shall be in writing and signed by either a duly
authorized officer of DRMS or all of the Stockholders, themselves or through
powers of attorney.
CORE may extend the time for or waive the performance of any of the
obligations of DRMS or the Stockholders, waive any inaccuracies in the
representations or warranties of DRMS or the Stockholders, or waive
compliance by DRMS or the Stockholders with any of the covenants or
conditions contained in this Agreement. Any such extension or waiver shall
be in writing and signed by a duly authorized officer of CORE.
As used in this Agreement, the terms "knowledge" and any variations
thereof shall mean the actual knowledge of, as applicable, the individual
Stockholders or the officers and directors of the CORE or DRMS and such
knowledge as reasonable officers and directors would have based on the
execution of their responsibilities consistent with their legal duty of care.
Without limiting the generality of the foregoing the knowledge of DRMS shall
be deemed to include, without limitation, the knowledge of each of the five
Stockholders.
SECTION 10.2 NOTICES
Except as otherwise provided herein, whenever it is provided in this
Agreement that any notice, demand, request, consent, approval, declaration or
other communication shall or may be given to or served upon any of the
parties by another, or whenever any of the parties desires to give or serve
upon another any communication with respect to this Agreement, each such
notice,
39
demand, request, consent, approval, declaration or other communication shall
be (a) in writing and shall be deemed to be given (i) when delivered in
person, (ii) on the third business day after deposit in a regularly
maintained receptacle of the United States mail as registered or certified
mail, return receipt requested, postage prepaid, (iii) one business day after
deposit with a recognized national private courier service, or (iv) on the
day on which the party to whom such notice is addressed refuses delivery by
mail or by private courier service, and (b) addressed as follows:
if to CORE to: CORE, INC.
00000 Xxx Xxxxxx Xxxxxx, Xxxxx 0000
Xxxxxx, XX 00000
Attn: Xxxxxx X. Xxxxxxxxx XX, Chief Executive Officer
with a copy to: Rich, May, Xxxxxxxx & Xxxxxxxx, P.C.
000 Xxxxxxxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000-0000
Attention: Xxxxxxx X. Xxxx, Esq.
if to DRMS to: Disability Reinsurance Management Services, Inc.
000 Xxxxxx Xxxxxx, Xxxxx 000
Xxxxxxxx, XX 00000-0000
or at such other address as DRMS may have furnished in writing, and, if prior
to the Closing Date, with a copy to:
Preti, Flaherty, Xxxxxxxx & Pachios, LLC
Xxx Xxxx Xxxxxx
X.X. Xxx 0000
Xxxxxxxx, XX 00000-0000
Attn: Xxxx X. Xxxxxxxx, Esq.
or if after the Closing Date, with a copy to:
Rich, May, Xxxxxxxx & Xxxxxxxx, P.C.
000 Xxxxxxxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Attention: Xxxxxxx X. Xxxx, Esq.
if to Stockholders to: the addresses set forth on SCHEDULE 2.28
attached hereto or to such other address as may be designated in writing by
either party from time to time in accordance herewith.
40
SECTION 10.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES
The representations, warranties, covenants and agreements made by the
parties in this Agreement and in the exhibits, schedules and other
attachments to this Agreement, and in any contract, certificate, instrument
or other document executed and delivered by a party pursuant to this
Agreement shall survive the Closing only to the extent provided in Article VI.
SECTION 10.4 SUCCESSORS, ASSIGNS
All covenants and agreements contained in this Agreement by or on behalf
of any of the parties hereto shall bind and inure to the benefit of the
respective successors, heirs, personal representatives and permitted assigns
of the parties hereto.
SECTION 10.5 COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
SECTION 10.6 GOVERNING LAW; AMENDMENTS
This Agreement shall be governed by and construed in accordance with the
law of the State of Maine applicable to contracts made and to be performed
therein and cannot be changed, amended or terminated orally, but only in
writing duly signed on behalf of all parties hereto.
SECTION 10.7 EXPENSES
CORE on one hand, and the Stockholders, for themselves and DRMS, on the
other hand, will each bear their own costs and expenses (including legal fees
and expenses) incurred in connection with this Agreement and the transactions
contemplated hereby. Up to $20,000 of the cost of preparing the stub audit
as of June 30, 1998, shall be accrued by DRMS prior to the Closing Date,
shall be paid after the Closing Date, and shall not be considered as an
expense in calculating Net Assets for purposes of Section 1.2(b) hereof.
SECTION 10.8 CONSTRUCTION.
The parties have participated jointly in the negotiation and drafting of
this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted
jointly by the parties and no presumption or burden of proof shall arise
favoring or disfavoring any party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context
41
requires otherwise. The word "including" shall mean including without
limitation. This Agreement is not intended to affect the rights and
obligations of the parties respectively under Federal securities laws.
Capitalized terms used herein have the following meanings:
"ACCOUNTANTS" has the meaning set forth in Section 1.2(b).
"ADDITIONAL CONSIDERATION" has the meaning set forth in Section 1.2(a).
"ADJUSTMENT AMOUNT" has the meaning set forth in Section 1.2(b).
"ADJUSTMENT STATEMENT" has the meaning set forth in Section 1.2(b).
"AUTHORITIES" has the meaning set forth in Section 2.13.
"CLOSING" has the meaning set forth in Section 1.3.
"CLOSING DATE" has the meaning set forth in Section 1.3.
"CLOSING PURCHASE PRICE" has the meaning set forth in Section 1.2(a).
"COLLECTION PERIOD" has the meaning set forth in Section 6.6.
"CORE" has the meaning set forth in the Preamble.
"CORE COMMON STOCK" means shares of common stock of CORE, par value $0.10 per
share.
"CORE SEC FILINGS" has the meaning set forth in Section 3.5.
"DRMS" has the meaning set forth in the Preamble.
"DRMS SERVICES" has the meaning set forth in Section 2.19.
"GAAP" has the meaning set forth in Section 2.4.
"INDEMNIFIED PARTY" has the meaning set forth in Section 6.1.
"INDEMNIFYING PARTY" has the meaning set forth in Section 6.1.
"LOSS" means any liability, loss, cost, damage, expense or payment, including
(i) related attorneys', accountants' and other professional advisors' fees and
expenses, (ii) reasonable attorneys' fees incurred in enforcing the
indemnification provisions of this Agreement, (iii)
42
amounts paid in settlement of a dispute with the person not a party hereto
that if resolved in favor of such third party would constitute a matter to
which a party is indemnified pursuant to this Agreement, even though such
settlement does not acknowledge that the underlying facts or circumstances
constitute a breach of a representation and warranty or other indemnified
matter, (iv) reasonable costs and expenses necessary (A) to avoid having a
claim for indemnification against another party pursuant to this Agreement,
(B) to mitigate any such claim, or (C) to correct facts and circumstances
that could be reasonably expected to result in its having a claim for
indemnification against another party pursuant to this Agreement, and (v)
interest on each of the foregoing from the date the Loss was incurred at the
prime rate in THE WALL STREET JOURNAL published on the date such Loss was
incurred (or if that was not a publication date, the next following
publication date).
"MATERIAL ADVERSE EFFECT" means any circumstance, change in, or effect on the
business of DRMS, that has, or is reasonably likely to have, a material
adverse effect on the business, assets or the results of operations or
financial condition of DRMS, taken as a whole. Material Adverse Effect does
not include adverse effects resulting from (or, in the case of effects that
have not yet occurred, reasonably likely to result from) either general
economic conditions that have a similar effect on other participants in the
industry.
"NET ASSETS" means the amounts recorded for total stockholder's equity on the
balance sheet of DRMS as of the Closing, in all events using accounting
methods that are consistent with the accounting methods used to generate
total stockholder equity set forth on DRMS' June 30, 1998 unaudited balance
sheet.
"NET ASSET AMOUNT" has the meaning set forth in Section 1.2(b).
"PROPRIETARY RIGHTS" has the meaning set forth in Section 2.7.
"SHARES" has the meaning set forth in Section 1.1.
"STOCK" has the meaning set forth in the Premises.
"STOCKHOLDER" has the meaning set forth in the Preamble.
"STOCKHOLDER SHARE" has the meaning set forth in Section 1.2(c).
"TIME OF CLOSING" has the meaning set forth in Section 1.3.
SECTION 10.9 DISPUTE RESOLUTION.
The parties shall exert all reasonable efforts to resolve all disputes
or controversies concerning the subject matter of this Agreement, including
any question or difference that may
43
arise concerning the construction, meaning or effect thereof or concerning
the rights and liabilities of the parties hereunder or any other matter
arising out of or in connection therewith (a "dispute") by informal
discussion. Except for determinations by the Accountants pursuant to Section
1.3(b), if such attempt is unsuccessful, then within sixty (60) days
following notice by one party to the other parties of the existence of such
dispute, any of the parties may refer the matter to binding arbitration
according to the procedures specified in SECTION 6.2.
SECTION 10.10 HEADINGS AND CAPTIONS
The section headings and captions contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 10.11 PRESS RELEASES AND PUBLIC ANNOUNCEMENTS
Neither DRMS nor the Stockholders shall issue any press release or make
any public announcement relating to the subject matter of this Agreement
without the prior written approval of CORE; provided, however, that (i) CORE
may make any public disclosure it believes in good faith is required by or
prudent under applicable law or any listing or trading agreement concerning
its publicly-traded securities (in which case CORE will first consult DRMS
and the Stockholders prior to making the disclosure); and (ii) CORE may
respond to inquiries from analysts and others concerning the press release
announcing the proposed transaction;
SECTION 10.12 NO THIRD PARTY BENEFICIARIES
Other than the indemnification rights granted under SECTION 6.1, this
Agreement shall not confer any rights or remedies upon any person or entity
other than the parties hereto.
SECTION 10.13 SEVERABILITY
Any term or provision of this Agreement that is invalid or unenforceable
in any situation in any jurisdiction shall not affect the validity of
enforceability of the remaining terms and provisions hereof or the validity
or enforceability of the offending term or provision in any other situation
or in any other jurisdiction.
SECTION 10.14 INCORPORATION OF EXHIBITS AND SCHEDULES
The Exhibits and Schedules identified in this Agreement are incorporated
herein by reference and made a part hereof.
SECTION 10.15 SECURITIES LAWS
44
Nothing contained in this Agreement is intended to limit the rights,
liabilities or obligations of the parties under applicable federal or state
securities laws and regulations.
SECTION 10.16 ENTIRE AGREEMENT
This Agreement (including the documents referred to herein) constitutes
the entire agreement among the parties and supersedes any prior
understandings, agreements, or representations by or among the parties,
written or oral (including without limitation the Confidentiality Agreement
executed by CORE on June 17, 1998), to the extent they are related in any
way to the subject matter hereof.
[SIGNATURES ON FOLLOWING PAGE]
45
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
Attest: CORE, INC.
By: /s/ Xxxxxxx X. Xxxxx By: /s/ Xxxxxx X. Xxxxxxxxx XX
------------------------------- ----------------------------------
Xxxxxxx X. Xxxxx Xxxxxx X. Xxxxxxxxx XX
Clerk Chairman and Chief Executive Officer
Attest: DISABILITY REINSURANCE MANAGEMENT, INC.
("DRMS")
By: /s/ Xxxx X. Xxxxxx By: /s/ Xxxxxxx X. Xxxxxxxx
------------------------------- ----------------------------------
Xxxx X. Xxxxxx Xxxxxxx X. Xxxxxxxx
Secretary President
Witness:
/s/ [ILLEGIBLE] /s/ Xxxxxxx X. Xxxxxxxx
------------------------------------ ---------------------------------------
Name: Xxxxxxx X. Xxxxxxxx, individually
-------------------------------
Witness:
/s/ [ILLEGIBLE] /s/ Xxxxx X. Xxxxxx
------------------------------------ ---------------------------------------
Name: Xxxxx X. Xxxxxx , individually
-------------------------------
Witness:
/s/ [ILLEGIBLE] /s/ Xxxx X. Xxxxxx
------------------------------------ ---------------------------------------
Name: Xxxx X. Xxxxxx, individually
-------------------------------
Witness:
/s/ [ILLEGIBLE] /s/ Xxxxx X. Xxxxxxxx
------------------------------------ ---------------------------------------
Name: Xxxxx X. Xxxxxxxx, individually
-------------------------------
Witness:
/s/ [ILLEGIBLE] /s/ Xxxxx X. Xxxx
------------------------------------ ---------------------------------------
Name: Xxxxx X. Xxxx, individually
-------------------------------
LIST OF EXHIBITS
EXHIBITS DESCRIPTION
A-1 Additional Consideration Calculation and Payment Terms
A-2 Quarterly EBIT Projections
B-1 Form of Legal Opinion of DRMS's and the Stockholders' counsel
B-2 Form of Legal Opinion of DRMS's counsel concerning state
authorities
C Form of Registration Rights Agreement
D Form of Employment Agreement
E Legal opinion of Rich, May, Xxxxxxxx & Xxxxxxxx, P.C.
LIST OF SCHEDULES
SCHEDULE DESCRIPTION
Schedule 2.1 Interests of DRMS and the Stockholders in Other Businesses
Schedule 2.2 Affected Contracts
Schedule 2.3 DRMS Capitalization
Schedule 2.4 Financial Statements of DRMS
Schedule 2.5 Permitted Encumbrances
Schedule 2.6 Tangible Property of DRMS with Book or Fair Market Value over
$1,000
Schedule 2.7 Proprietary Rights
Schedule 2.8 Real Property
Schedule 2.9 Insurance
Schedule 2.10 Material Contracts and Agreements with Stockholders
Schedule 2.12 Employees, Consultants, Benefit Plans
Schedule 2.13 Governmental Permits
Schedule 2.14 Liabilities
Schedule 2.16 Litigation; Compliance with Laws
Schedule 2.20 Subsequent Events
Schedule 2.22 DRMS Officers and Directors
Schedule 2.24 Operating/Trade Names and Addresses
Schedule 2.27 Departing Clients, Employees and Others
Schedule 2.28 Residential Addresses of DRMS Stockholders and Stockholders
Agreements
Schedule 3.2 Necessary Consents
Schedule 8.3 Actuarial Certificate
EXHIBIT A-1
ADDITIONAL CONSIDERATION
This Exhibit describes the method for calculating and paying Additional
Consideration described in Section 1.2(a) of the Agreement. For these
purposes, certain capitalized terms have the following meanings:
AVERAGE CORE STOCK PRICE means the average closing price for one share
of CORE Common Stock for the 60 trading days immediately preceding the
applicable Valuation Date as reported in the WALL STREET JOURNAL.
EBIT means the earnings before interest and taxes of DRMS as accurately
reflected on the books of DRMS using generally accepted accounting
principles and practices applied on a consistent basis with prior
periods ("GAAP") before interest and taxes over the Measuring Period.
For these purposes, inter-company charges for services delivered to or
received from DRMS will be priced on an arms' length basis without an
allocation of general overhead charges by CORE to DRMS.
EBIT HURDLE means $14,700,000.
MEASURING PERIOD means the period consisting of twelve (12) full
consecutive calendar quarters next following the Closing Date (i.e.
October 1, 1998 through September 30, 2001).
MINIMUM AWARD HURDLE means 80% of the EBIT Hurdle.
VALUATION DATE means (i) if the EBIT Hurdle is achieved on or prior to
December 31, 2000, then December 31, 2000 and (ii) in all other cases,
September 30, 2001.
1. EBIT AT LEAST EQUAL TO EBIT HURDLE. If the aggregate EBIT for DRMS for
the Measuring Period is equal to or greater than the EBIT Hurdle, the
aggregate Additional Consideration shall be Three Hundred Seventy Five
Thousand (375,000) shares of CORE Common Stock, subject to adjustments as set
forth below.
2. EBIT LESS THAN MINIMUM AWARD HURDLE. If the aggregate EBIT attained by
DRMS for the Measuring Period is less than the Minimum Award Hurdle, there
shall be no Additional Consideration.
3. EBIT BETWEEN MINIMUM AWARD HURDLE AND EBIT HURDLE. If the aggregate
EBIT attained by DRMS for the Measuring Period is equal to or greater than
the Minimum Award Hurdle but less than the EBIT Hurdle then the Aggregate
Additional Consideration shall be 375,000 shares of CORE Common Stock
multiplied by the percentage of the EBIT Hurdle so attained, subject to
adjustments as set forth below.
4. THE MAXIMUM ADDITIONAL CONSIDERATION. If the Average CORE Stock Price
calculated as of the applicable Valuation Date multiplied by Additional
Consideration (a) calculated pursuant to Section 1 exceeds $7,000,000 or (b)
if the EBIT Hurdle is not equaled or exceeded and Section 3 is applicable,
then $7,000,000 multiplied by the percentage of the EBIT Hurdle so attained,
then the number of shares of CORE Common Stock payable to the Stockholders
pursuant to whichever of those Sections is applicable shall be reduced to the
whole number of shares determined by dividing $7,000,000 (if Section 1 is
applicable) or the reduced number described in (b), above (if Section 3 is
applicable) by such Average CORE Stock Price.
5. CALCULATION AND TIMING OF PAYMENTS.
Stockholders who are serving or have served as Managing Directors of DRMS
shall assist CORE and DRMS in calculating the EBIT over the Measuring Period.
Additional Consideration shares of CORE Common Stock shall be issued to the
eligible Stockholders within 60 days after the applicable Valuation Date,
provided if the Valuation Date is September 30, 2001, such shares shall be
issued on January 2, 2002.
6. EMPLOYMENT CONTINGENCIES. In the event one or more Stockholders fail to
remain as employees of DRMS through March 1, 2000 (except as a result of a
Stockholder's permanent disability or death while an employee of DRMS or
termination without cause by DRMS), such Stockholder shall not receive his or
her share of the Additional Consideration and the amount of shares
constituting that Stockholder's Share of the Additional Consideration shall
not be issued. Reference to termination without cause does not constitute an
acknowledgement that any such termination is permitted under a Stockholder's
employment agreement.
7. COMMON STOCK REORGANIZATION.
(a) If CORE shall (i) subdivide or consolidate its outstanding shares
of Common Stock (or any class thereof) into a greater or smaller number of
shares, (ii) pay a dividend or make a distribution on its Common Stock (or
any class thereof) in shares of its capital stock, or (iii) issue by
reclassification of its Common Stock any shares of its capital stock (any
such event described in clauses (i), (ii) or (iii) being called a "COMMON
STOCK REORGANIZATION"), then the number and type of shares constituting
Additional Consideration shall be equitably adjusted to reflect such Common
Stock Reorganization.
(b) If, at any time before the Additional Consideration is paid, CORE
shall be consolidated with, or merged or acquired by, any corporation or
corporations (a "Merger/Acquisition"), lawful provisions shall be made, as
part of the terms of each such consolidation or merger, so that the
Stockholders shall thereafter be entitled to receive, in lieu of each share
of CORE Common Stock otherwise constituting the Additional Consideration, the
kind and amount of securities, assets or other consideration as may be
issuable or payable
2
upon such Merger/Acquisition with respect to each share of Common Stock, as
if the Additional Consideration had been payable in full immediately prior to
the effective time of such Merger/Acquisition. Notwithstanding the foregoing,
in the event that (i) the consideration payable to stockholders of CORE in
the Merger/Acquisition is all cash and does not include publicly traded stock
of the acquirer or other party to the Merger/Acquisition and (ii) DRMS has
attained at least 80% of the EBIT Projections set forth on EXHIBIT A-2 for
the Measuring Period through the most recently completed calendar quarter
prior to the closing of the proposed Merger/Acquisition; then in such event,
immediately prior to the Closing of the Merger/Acquisition (and subject to
the closing of the Merger/Acquisition) CORE shall issue the Stockholders
375,000 shares of CORE common stock as the Additional Consideration (subject
to pro-rata reductions as set forth in SECTION 3 of this EXHIBIT A (provided
that if such pro-rata reduction is applied, the parties shall enter into an
agreement which states if DRMS attains a percent of the EBIT Hurdle above
that used at the time of the Merger/Acquisition at the end of the full
Measuring Period, then compensation comparable to the consideration
previously pro-rated and not paid shall be payable to Stockholders), and
subject to reductions for the employment contingencies set forth on SECTION 6
of this EXHIBIT A for the Stockholders not employed by DRMS at the time of
the Closing of the Merger/Acquisition and subject to reduction for the
$7,000,000 maximum set forth in SECTION 4 of this EXHIBIT A). Accordingly,
such shares of CORE common stock shall be converted into the consideration
receivable by other CORE common stockholders at the closing of the
Merger/Acquisition.
8. EXAMPLES.
Without limiting the generality of the foregoing, the following examples are
intended to show how Additional Consideration shall be paid.
EXAMPLE 1. EBIT more than EBIT Hurdle. CORE Stock price $20. All
Stockholders are employees through the eighteenth calendar month next
following the Closing.
350,000 shares of CORE Common Stock are paid and allocated to the
Stockholders.
EXAMPLE 2. EBIT more than EBIT Hurdle. CORE Stock price $20. One 27%
Stockholder leaves employment prior to the end of the eighteenth calendar
month next following the Closing (other than as a result of permanent
disability, death, termination without cause or termination without good
reason).
The 27% share of the 350,000 shares payable in Example 1 would not be paid to
such former employee Stockholder and the remaining 255,500 shares would be
paid and allocated to the continuing-employee DRMS Stockholders. Note that
the Stockholders who are still employed as of the end of the first eighteen
calendar months next following the Closing individually would receive the
same number of shares in Examples 1 and 2.
3
EXAMPLE 3. EBIT is $13 million, CORE Stock price $10. All Stockholders are
employees through the end of the eighteenth calendar month next following the
Closing.
331,633 shares of CORE stock are paid and allocated to the Stockholders.
EXAMPLE 4. EBIT $13 million, CORE Stock price $20. All Stockholders are
employees through the end of the eighteenth calendar month next following the
Closing.
309,524 shares of CORE stock are paid and allocated to the Stockholders
(adjustments are made both for EBIT shortfall and $7,000,000 cap).
EXAMPLE 5. EBIT $13 million, CORE Stock price $20. One 27% Stockholder
leaves employment prior to the end of the eighteenth calendar month next
following the Closing (other than as a result of permanent disability, death,
termination without cause or termination without good reason).
225,952 shares of CORE stock are paid and allocated to the Stockholders
(adjustments are made for EBIT shortfall, $7,000,000 cap and non-employed
Stockholder)
4
