<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 19, 1996
REGISTRATION STATEMENT NO. 333-14979
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
COHR INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7389 95-4559155
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR CLASSIFICATION NUMBER) IDENTIFICATION NO.)
ORGANIZATION)
</TABLE>
21540 Plummer Street
Chatsworth, California 91311-4103
(818) 773-2647
ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE)
------------------------
PAUL CHOPRA
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
21540 PLUMMER STREET
CHATSWORTH, CALIFORNIA 91311-4103
(818) 773-2647
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES OF COMMUNICATIONS TO:
<TABLE>
<S> <C>
WILLIE R. BARNES, ESQ. D. BRADLEY PECK, ESQ.
GARY L. WOLLBERG, ESQ. NANCY E. DENYES, ESQ.
MUSICK, PEELER & GARRETT LLP COOLEY GODWARD LLP
624 SOUTH GRAND AVENUE 4365 EXECUTIVE DRIVE, SUITE 1100
LOS ANGELES, CALIFORNIA 90017 SAN DIEGO, CALIFORNIA 92121
TEL: (213) 629-7600 FAX: (213) TEL: (619) 550-6000 FAX: (619)
624-1376 453-3555
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box: [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED NOVEMBER 19, 1996
PROSPECTUS
1,900,000 Shares
LOGO
Common Stock
------------------------
Of the 1,900,000 shares of Common Stock offered hereby, 1,500,000 shares
are being sold by COHR Inc. ("COHR" or the "Company"), and 400,000 shares are
being sold by certain stockholders of the Company (the "Selling Stockholders").
See "Principal and Selling Stockholders." The Company will not receive any
proceeds from the sale of shares by the Selling Stockholders. The Common Stock
is traded on the Nasdaq National Market under the symbol "CHRI." On November 18,
1996 the last reported sales price of the Common Stock was $22.50 per share.
------------------------
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON
PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS(3)
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<S> <C> <C> <C> <C>
Per Share..................... $ $ $ $
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Total(4)...................... $ $ $ $
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</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses of this offering payable by the Company estimated
at $276,500.
(3) Before deducting expenses of this offering payable by the Selling
Stockholders estimated at $73,500.
(4) The Company and certain Selling Stockholders have granted to the
Underwriters a 30-day option to purchase up to 285,000 additional shares of
Common Stock solely to cover over-allotments, if any. If the Underwriters
exercise this option in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
------------------------
The shares of Common Stock offered by this Prospectus are offered by the
several Underwriters, subject to prior sale, when, as and if delivered to and
accepted by them, and subject to the right of the Underwriters to reject orders
in whole or in part. It is expected that delivery of the shares of Common Stock
will be made in New York, New York on or about , 1996.
------------------------
Oppenheimer & Co., Inc.
Needham & Company, Inc.
Crowell, Weedon & Co.
Wedbush Morgan Securities
The date of this Prospectus is , 1996.
<PAGE> 3
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS AND SELLING GROUP
MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON
THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE EXCHANGE
ACT. SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements and
notes thereto appearing elsewhere in this Prospectus. This Prospectus contains
forward-looking statements that involve risks and uncertainties. The Company's
actual results may differ materially from the results discussed in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed in "Risk Factors" and elsewhere in this
Prospectus. Unless otherwise indicated, information in this Prospectus assumes
no exercise of the Underwriters' over-allotment option.
THE COMPANY
COHR Inc. is a leading national outsourcing service organization providing
equipment servicing, group purchasing and other services and products to
hospitals, integrated health systems and alternate site providers. The Company
is committed to offering a wide range of high quality services at prices
generally below those of its major competitors. COHR has developed strong
relationships with its customers allowing it to gain valuable insights into
their operating challenges and to design cost-effective programs.
Cost containment pressures in the health care industry have led providers
to seek innovative methods of reducing the cost of delivering effective health
care. Increasingly, providers have turned to outsourcing various services and to
group purchasing as a means of reducing costs. Outsourcing services allows
providers to reduce overhead costs and ease administrative burdens, and
coordinated group purchasing allows providers to purchase supplies at
significant savings.
COHR MasterPlan, the Company's equipment services division, offers a full
range of equipment maintenance, repair, consulting, refurbishment and sales
services. The Company operates 28 equipment service and sales sites serving
approximately 2,150 equipment services customers in 44 states. Maintenance
MasterPlan, COHR MasterPlan's principal product line, is a comprehensive
equipment management plan that offers equipment services at a fixed cost and, in
the first year of the contract, guarantees savings over the prior year's costs.
The market for equipment servicing is expected to experience rapid growth. An
industry research source estimates that the market for servicing biomedical and
diagnostic imaging equipment will grow from more than $3.7 billion in
expenditures in 1994 to over $7.6 billion in 2000.
Purchase Connection, the Company's group purchasing division, offers access
to volume discount pricing on medical, surgical and laboratory supplies, capital
equipment, pharmaceuticals and dietary supplies. The Company operates nine
regional sales and customer service sites serving approximately 1,500 group
purchasing customers in 48 states. According to a survey conducted by Modern
Healthcare, in 1995 Purchase Connection was the sixth largest group purchasing
organization ("GPO") in the United States based upon reported purchasing volume.
The Company's goal is to become the leading independent provider of
equipment services to health care providers and one of the three largest GPOs in
the United States, and to provide a number of additional cost-effective
outsourced services and products to health care providers. The Company intends
to achieve its goal by several means, including: (i) acquiring and opening
approximately 15 additional sites by the end of fiscal 1998, (ii) increasing
revenues from existing customers and (iii) expanding the range of services and
products offered.
Since its initial public offering in February 1996, COHR has acquired six
equipment service companies, and has opened two regional sales and customer
service sites for its Purchase Connection division. These activities have
enabled the Company to enter new markets and to increase penetration of existing
markets. In addition, these acquisitions allow the Company to provide new
services such as magnetic resonance imaging and other advanced imaging
technology equipment servicing, thereby generating higher equipment servicing
margins and reducing the Company's dependence on subcontracting such services.
In addition, the Company entered into an amended agreement in September 1996
with Blue Cross of California to distribute COHR 835 Direct, an electronic data
interchange software product developed by the Company to facilitate the exchange
of billing information between health care providers and third party payor
systems. In September 1996, the
3
<PAGE> 5
Company moved its corporate offices to a larger facility. The Company believes
this relocation has prepared the Company to accommodate future growth and will
reduce corporate overhead.
COHR(@), Purchase Connection(@) and Maintenance MasterPlan(@) are
registered service marks of the Company. Power Connection(@) is a registered
trademark of the Company and COHR 835 Direct(TM) is a trademark of the Company.
All other brand names or trademarks appearing in this Prospectus are the
property of their respective holders.
The Company was incorporated in California in 1985 and was reincorporated
in Delaware on January 16, 1996. Unless the context otherwise requires, "COHR"
and the "Company" refer to COHR Inc., a Delaware corporation, and the Delaware
corporation's predecessor. The Company's principal executive offices are located
at 21540 Plummer Street, Chatsworth, California 91311-4103, and its telephone
number is (818) 773-2647.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.. 1,500,000 shares
Common Stock offered by the Selling
Stockholders....................... 400,000 shares
Common Stock to be outstanding after
this offering...................... 6,082,000 shares(1)
Use of proceeds...................... For expansion of the Company's business through the
acquisition and opening of additional sites and for
other general corporate purposes, including working
capital and capital expenditures. See "Use of
Proceeds."
Nasdaq National Market symbol........ CHRI
</TABLE>
- ---------------
(1) Does not include (i) 505,000 shares issuable upon exercise of outstanding
options granted pursuant to the 1995 Stock Option Plan of the Company at a
weighted average exercise price of $10.14 per share, (ii) 285,000 shares
issuable upon exercise of the Underwriters' over-allotment option and (iii)
150,000 shares issuable upon the exercise of outstanding warrants at an
exercise price of $10.80 per share. See "Management -- 1995 Stock Option
Plan" and "Description of Capital Stock -- Warrants."
4
<PAGE> 6
SUMMARY FINANCIAL AND SUPPLEMENTAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND SUPPLEMENTAL DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED MARCH 31, SEPTEMBER 30,
------------------------------------------------------- ----------------------------
1992 1993 1994 1995 1996 1995 1996
------- ------- ------- ------- ------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME DATA:
Revenues:
COHR MasterPlan...................... $ 7,228 $ 8,203 $12,617 $$28,042 $48,160 $22,626 $ 30,859
Purchase Connection.................. 10,036 12,678 13,026 15,618 18,094 8,208 10,811
------- ------- ------- ------- ------- ------- -------
Total......................... 17,264 20,881 25,643 43,660 66,254 30,834 41,670
Gross profit........................... 6,242 7,732 8,773 13,561 18,059 8,523 11,678
Selling, general and administrative 4,946 6,370 7,309 11,523 14,559 6,951 8,625
expenses.............................
Loss on real estate investment......... 880 -- -- -- -- -- --
Operating income....................... 416 1,362 1,464 2,038 3,500 1,572 3,053
Net income............................. $ 384 $ 917 $ 946 $ 1,368 $ 2,142 $ 971 $ 1,995
Net income per common share............ $ 0.18 $ 0.43 $ 0.45 $ 0.65 $ 0.88 $ 0.46 $ 0.41
Weighted average shares outstanding.... 2,112 2,112 2,112 2,112 2,428 2,112 4,832
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
----------------------------
ACTUAL AS ADJUSTED(1)
----------- --------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................................. $ 9,498 $ 41,031
Working capital........................................................... 21,639 53,172
Total assets.............................................................. 45,972 77,505
Total long-term debt...................................................... 1,423 1,423
Total stockholders' equity(2)............................................. 31,290 62,823
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED MARCH 31, SEPTEMBER 30,
---------------------------------------- ----------------------------
1992 1993 1994 1995 1996 1995 1996
---- ---- ---- ---- ---- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
SUPPLEMENTAL DATA:
Regional service and sales sites at end
of period:
COHR MasterPlan...................... 5 5 7 14 19 14 27
Purchase Connection.................. 1 1 2 6 7 6 8
---- ---- ---- ---- ---- ---- ----
Total......................... 6 6 9 20 26 20 35
Total employees at end of period....... 215 254 339 428 558 533 638
Days in receivables.................... 74 62 57 54 57 41 59
As a percentage of total revenues:
Selling, general and administrative
expenses........................... 28.6% 30.5% 28.5% 26.4% 22.0% 22.5% 20.7%
Operating income..................... 2.4% 6.5% 5.7% 4.7% 5.3% 5.1% 7.3%
</TABLE>
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(1) "As Adjusted" gives effect to the sale of 1,500,000 shares of Common Stock
by the Company in this offering, at an assumed offering price of $22.50 per
share, and the application of the net proceeds therefrom.
(2) Prior to its initial public offering in February 1996, the Company paid cash
dividends on its Common Stock to Healthcare Association of Southern
California and Hospital Council Coordinated Programs, Inc. The Company does
not expect to declare or pay cash dividends in the foreseeable future. See
"Dividend Policy."
5
<PAGE> 7
RISK FACTORS
Prospective purchasers of the Common Stock offered hereby should consider
carefully, in addition to the other information contained in this Prospectus,
the risk factors set forth below before making a decision to purchase the shares
of Common Stock. This Prospectus contains forward-looking statements that
involve risks and uncertainties. The Company's actual results may differ
materially from the results discussed in the forward-looking statements as a
result of certain factors, including those set forth in the following risk
factors and elsewhere in this Prospectus.
RISKS ASSOCIATED WITH ACQUISITION STRATEGY AND ANTICIPATED EXPANSION
A principal component of the Company's business strategy, particularly in
its equipment services division, is to continue to grow by acquiring or opening
new sites to augment its presence in markets it currently serves and in new
geographic markets. Since the beginning of fiscal 1995, the Company has acquired
16 sites, opened 12 new sites and consolidated five sites. The sites acquired by
the Company to date have typically operated at a break even or small loss basis
prior to acquisition, and there can be no assurance that the Company's efforts
to improve profitability of the acquired businesses by increasing revenues and
eliminating duplicative administrative costs will be successful. Further, there
can be no assurance that, in the future, the Company will be able to sustain the
level of growth through acquisition and opening new sites experienced to date.
The Company's future growth and financial success will be dependent upon a
number of factors including, among others, the Company's ability to identify
acceptable acquisition candidates, consummate the acquisition of such businesses
on terms which are favorable to the Company, promptly and profitably integrate
the acquired operations into the Company, retain key personnel and key vendor
arrangements of the acquired businesses and attain customer retention levels at
acquired businesses that are advantageous to the Company. There can be no
assurance that the Company will be successful with respect to any of these
factors. While the Company, in the ordinary course of its business, regularly
evaluates and enters into negotiations relating to potential acquisition
opportunities, as of the date of this Prospectus there are no existing
commitments or agreements with respect to any acquisition. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Business -- Company
Strategy."
COMPETITION
The marketing of equipment services and group purchasing services to health
care institutions is highly competitive. In the equipment services market, the
Company's principal competitors are original equipment manufacturers ("OEMs"),
independent service organizations ("ISOs") and in-house servicing departments.
In the group purchasing market, the Company's principal competitors are major
GPOs, various manufacturers and distributors and the in-house corporate
purchasing departments of large integrated health systems and multi-hospital
systems. Many of the Company's competitors are larger and have greater financial
and marketing resources than the Company. The Company faces aggressive
competition on price and other factors. Some of the Company's competitors are
nonprofit cooperatives that enjoy tax advantages unavailable to the Company. The
Company could encounter additional competition because many of the services and
products it sells are easily obtainable by others from various sources of supply
and such competitors could consolidate into regional or national networks.
Significant increases in competition encountered by the Company in the future
may limit the Company's ability to expand its operations or maintain its current
competitive position, which would have a material adverse effect on the
Company's business. See "Business -- Industry Background" and "-- Competition."
RISKS OF REDUCED CUSTOMER BASE ASSOCIATED WITH CONSOLIDATION OF THE HEALTH CARE
INDUSTRY
As consolidation among health care institutions, particularly hospitals and
integrated health systems, continues, the Company's customer base may be reduced
either because customers may be consolidated with or acquired by other entities
or because purchasing decisions for products and services may shift to
individuals with whom the Company has not had prior selling relationships. There
can be no assurance that the Company will be able to maintain relationships with
its customers following such an acquisition or consolidation. Any significant
reduction in the Company's customer base would have a material adverse effect on
the Company's business. See "Business -- Industry Background."
6
<PAGE> 8
COSTS ASSOCIATED WITH REGULATION OF THE HEALTH CARE INDUSTRY
The Company focuses its business on providing services to health care
institutions, particularly hospitals. The health care industry is subject to
extensive government regulation, licensure and prescribed operating procedures.
The acceptance of the Company's services and products by its customers will
depend, to a very significant degree, upon whether such services and products
will be in compliance with applicable regulations or will assist health care
institutions in complying with such regulations. While the Company closely
monitors such regulations and designs its services and products accordingly, a
substantial change in the level of regulation or the substance of particular
regulations could have a material adverse effect on the Company's business. See
"Business -- Regulatory Matters."
LIABILITY RISKS ASSOCIATED WITH GOVERNMENTAL REGULATIONS AND ENVIRONMENTAL
HAZARDS
The health care industry is highly regulated and there are numerous federal
and state laws which regulate the relationships between health care providers
and the persons or entities which sell goods or services to health care
providers. These laws include the fraud and abuse provisions of the Medicare and
Medicaid statutes, which prohibit the solicitation, payment, receipt or offering
of any direct or indirect remuneration for the recommending, arranging, ordering
or purchasing of Medicare or Medicaid covered services. Violations of these laws
may result in substantial civil or criminal penalties, including large civil
monetary penalties and exclusion from participation in the Medicare and Medicaid
programs.
Under certain circumstances, the Company's operations may be subject to
certain federal antitrust laws such as the Robinson-Patman Act, the Sherman Act
and the Clayton Act. Both the Sherman Act and the Clayton Act regulate exclusive
dealing arrangements, such as the Company's "sole source" contracts with certain
vendors, if such contracts involve a significant degree of foreclosure of a
relevant market that effectively excludes competitors. The Robinson-Patman Act
also prohibits certain types of discriminatory pricing by vendors and the
payment of "brokerage" by a vendor to an agent of the purchaser. Although the
Company believes its current operations are in material compliance with existing
applicable antitrust laws, there can be no assurance that any of the Company's
existing or future relationships will not be challenged as having an
anticompetitive effect on a relevant market or as an arrangement which includes
discriminatory pricing.
All states regulate the sale and marketing of insurance products, such as
life and health insurance, fire and casualty insurance and variable annuities.
The Company believes that it is in material compliance with applicable laws in
the states in which it conducts an insurance agency business. Recently the
Company became aware that following its reincorporation in Delaware in January
1996 and until October 1996, it had operated its insurance brokerage business in
California without the requisite license. The Company's predecessor was licensed
to conduct the insurance brokerage business in California until January 1996 and
the Company received its own license in October 1996. The Company has disclosed
to the California Department of Insurance that it had operated an insurance
brokerage business in California without the requisite license from January to
October 1996 and the facts relating thereto. Although the Company has been
advised that the Department of Insurance will open an investigation file in
accordance with its standard procedures, the Company believes, based on
discussions with regulatory officials, that no material enforcement action will
be taken against the Company. There can be no assurance that the Company will
not be subject to penalties or sanctions. Following its reincorporation and
prior to receipt of its own license, the Company had received aggregate
brokerage commissions with respect to policy renewals in California totaling
$138,455. Under the California Insurance Code, the Company could be required to
disgorge all of such commissions. In addition, the California Department of
Insurance could fine the Company an amount up to 30 percent of such commissions
or place restrictions or limitations upon the Company's license, such as a
requirement for filing periodic reports on the Company's insurance brokerage
business for a fixed period of time. The disgorgement of commissions or
assessment of penalties, or the imposition of limitations upon its insurance
brokerage license in California, either individually or in the aggregate, could
have a material adverse effect on the Company's business. There can be no
assurance that future interpretations of insurance laws by regulatory
authorities in the states in which it conducts business or in the states in
which the Company may expand will not require licensure or a restructuring of
some or all of the Company's insurance operations.
7
<PAGE> 9
Various state and federal regulatory agencies, such as the Occupational
Safety and Health Administration ("OSHA") and the Environmental Protection
Agency, have jurisdiction over the facilities of the Company and its customers,
including worker safety, community "right to know" laws and laws regarding clean
air and water. Under various federal, state, and local laws, ordinances and
regulations, an owner or lessee of real estate may also be liable for the costs
of removal or remediation of certain hazardous or toxic substances located on or
in, or emanating from, such property, as well as related costs of investigation
and property damage. Such laws often impose such liability without regard to
whether the owner or lessee knew of, or was responsible for the presence of,
such hazardous or toxic substances. Furthermore, legislative or regulatory
changes may cause future increases in the Company's operating costs or otherwise
negatively affect the Company's business. Although the Company believes it has
been and is currently in substantial compliance with the applicable standards
pursuant to such laws and regulations, there can be no assurance that the
Company will not be materially adversely affected by existing or future
requirements or incur materially increased operating costs in complying
therewith. See "Business -- Regulatory Matters."
In 1994, Congress passed the Federal Acquisition Streamlining Act ("FASA")
to improve governmental access to commercial technologies and reduce
administrative overhead costs involved in the governmental acquisition process.
Under FASA's cooperative purchasing program (Section 1555 of FASA), the General
Services Administration is allowed to extend the federal procurement process by
opening all of the Federal Supply Schedules (and the prices contained therein)
to any state and local government and any other public entity. These non-federal
governmental and public entities which, according to an industry source,
constitute over one-third of the market, currently use private sector purchasing
techniques to negotiate discounts with pharmaceutical, medical and surgical
equipment manufacturers. The effective date of FASA has been delayed until April
1, 1997 pending further Congressional review as to the potential effect of the
legislation. If FASA is ultimately implemented and the Federal Supply Schedules
become available to a significantly larger number of hospitals and other health
care providers, the Company believes that FASA might limit the Company's ability
to obtain the pricing discounts currently received by the Company from many of
its vendors. In addition, it is possible that many products now purchased under
group purchasing contracts would be purchased under FASA. If the Company were
unable to obtain such pricing discounts on its purchases, or if its customer
base declined because of FASA, the Company's Purchase Connection business would
be adversely affected.
There can be no assurance that review of the Company's business by courts
or regulatory authorities will not result in a determination that could
adversely affect the Company's business or that the health care regulatory
environment will not change so as to restrict the Company's existing operations
or their expansion.
DEPENDENCE UPON RELATIONSHIPS WITH THIRD PARTY VENDORS
The Company offers equipment servicing and group purchasing services for
over 400,000 different products distributed or manufactured by approximately
5,558 vendors and is dependent on these vendors for the manufacture and supply
of product. Presently, the Company relies on vendors for (i) technical and
selling support, (ii) favorable purchasing and delivery terms, (iii) promotional
materials and (iv) replacement parts. The Company's dependence on third party
suppliers includes several potential risks, including limited control over
pricing, product and service availability and quality, and delivery schedules.
The Company is dependent upon its vendors to have available, and to make timely
deliveries of, sufficient quantities of product. The Company's inability to
maintain good relations with these vendors could have a material adverse effect
on the Company's business. See "Business -- Services and Products."
IMPACT OF INACCURATE REPORTING OF PURCHASING VOLUME
In fiscal 1996, commissions from manufacturers and distributors, together
with access fees from customers, accounted for approximately two-thirds of the
revenues of Purchase Connection. Commissions are received from manufacturers and
distributors in exchange for delivering volume purchases to those manufacturers
and distributors. In the group purchasing industry, it is difficult for GPOs to
determine accurately the volume of purchases made by their customers from
manufacturers and distributors because orders are placed directly by customers
with manufacturers and distributors. Accordingly, it is difficult for GPOs to
verify that the amount of commissions received from manufacturers and
distributors accurately reflects purchases made
8
<PAGE> 10
by the GPOs' customers. In order to verify the amount of commissions to which it
is entitled, the Company currently relies on manufacturers and distributors to
report accurately purchases made by the Company's customers, and the Company's
ability to audit such information based upon customer records. Although the
Company has recently developed Power Connection, an on-line or stand-alone
electronic catalog that will enable the Company to better monitor manufacturer
and distributor reporting, few of the Company's group purchasing customers
currently use Power Connection, and there can be no assurance that the Company
will be successful in making Power Connection available to all of its customers
on a cost-effective basis. Lost commissions to the Company due to inaccurate
reporting of volume purchases made by its customers could have a material
adverse effect on the Company's business. See "Business -- Services and
Products."
MANAGEMENT OF GROWTH
The Company is currently experiencing a period of rapid growth and
expansion which could place a significant strain on the Company's personnel and
resources. The Company's growth has resulted in an increase in the level of
responsibility for both existing and new management. Many of the Company's
management have had limited or no experience in managing companies as large as
the Company. To manage its expansion, the Company continuously evaluates the
adequacy of its existing systems and procedures, including, among others, its
financial reporting and control systems, data processing systems and management
structure. There can be no assurance that the Company will adequately anticipate
all of the changing demands its growth will impose on such systems, procedures
and structure. Any failure to adequately anticipate and respond to such changing
demands could have a material adverse effect on the Company's business. See
"Business -- Company Strategy" and "Management."
NEED FOR ADDITIONAL FINANCING
The Company expects that the net proceeds of this offering, cash flow from
its operations and its ability to borrow from its existing credit facility will
be sufficient to carry out its operations through fiscal 1999. The Company may
accelerate the expenditure of its available funds for acquisitions or other
business opportunities. As a result, the Company may seek to raise additional
funds through the sale of equity securities, the incurrance of additional
indebtedness or other means. However, there can be no assurance that such
financing, if and when required, will be available on terms acceptable to the
Company, or at all. In addition, future issuances of Common Stock, if any, would
dilute the present ownership of all stockholders in the Company, including
investors purchasing shares in this offering. Moreover, for a period of 180 days
following the closing of this offering, any additional issuance of shares of
Common Stock by the Company requires the prior consent of the representatives of
the Underwriters, other than shares issued upon exercise of options granted
under the 1995 Stock Option Plan. There can be no assurance that such consent
can be obtained. See "Use of Proceeds," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Underwriting."
DEPENDENCE ON KEY PERSONNEL
The Company will depend in large part on the performance of a number of key
employees, including Paul Chopra, its Chairman of the Board, President and Chief
Executive Officer. The Company has an employment agreement with Mr. Chopra. Such
agreement does not necessarily ensure the continued employment of Mr. Chopra.
The loss of any key employee, including Mr. Chopra, could have a material
adverse effect on the Company's business. The Company believes that its future
success will depend in part on its ability to attract and retain skilled
technical, financial, managerial and marketing personnel. Competition for such
personnel is intense, and there can be no assurance that the Company will be
successful in attracting and retaining such personnel. See "Management."
RISKS RELATED TO FIXED PRICE CONTRACTS
In the Company's equipment servicing business, the Company offers contracts
for services at a fixed price. In the event that the cost to the Company of
performing services under a fixed price contract exceeds the quoted fixed price,
the Company would bear any such excess cost. In the event that the Company's
costs of performing services exceeds the fixed price it is to receive under a
significant number of fixed price
9
<PAGE> 11
contracts, the Company's business may be materially adversely affected. See
"Business -- Services and Products -- COHR MasterPlan."
LIABILITY RISKS; LIMITED INSURANCE COVERAGE; SELF-INSURANCE
Although the Company is not a manufacturer, the servicing, maintenance and
sale of medical equipment entails risks of product liability. Additionally, the
Company may be subject to lawsuits alleging negligence or related legal theories
in connection with its security services and consulting services, including
environmental, safety and professional consulting services. The Company
maintains liability insurance coverage for certain contracts and such coverage
is expensive, difficult to obtain, and may be unobtainable in the future on
acceptable terms, if at all. The Company has elected to self-insure for all
contracts renewed or obtained on or after April 1, 1996. There can be no
assurance that claims or judgments not covered by the Company's insurance or in
excess of the Company's coverage limits, where applicable, will not have a
material adverse effect upon the Company's business. Claims against the Company,
regardless of their merit or eventual outcome, may also have a material adverse
effect upon the Company's ability to attract customers or expand its business
and would require management to devote time to matters unrelated to the
operation of the Company's business.
DEPENDENCE ON THIRD PARTY REIMBURSEMENT
The cost of a significant portion of medical care in the United States is
funded by government and private insurance programs, such as Medicare, Medicaid
and corporate health insurance plans. In recent years, government-imposed limits
on reimbursement of hospitals and other health care providers have significantly
impacted spending budgets in certain markets within the medical supply and
equipment industry. Private third-party reimbursement plans are also developing
increasingly sophisticated methods of controlling health care costs through
redesign of benefits and exploration of more cost-effective methods of
delivering health care. Accordingly, there can be no assurance that the
Company's customers will continue to have sufficient discretionary funds for
purchase and use of the Company's services and products. A material reduction in
the demand for the Company's services and products could adversely affect the
Company's business.
RELIANCE ON DATA PROCESSING
The Company's business is dependent upon its ongoing ability to obtain,
process, analyze and manage data and to maintain and upgrade its data processing
capabilities. Interruption of data processing capabilities for any extended
length of time, the failure to upgrade data services, difficulties in converting
data and information systems after acquisitions, loss of stored data,
programming errors or other computer programs could have a material adverse
effect on the Company's business.
QUARTERLY FLUCTUATIONS AND OTHER VARIATIONS IN BUSINESS RESULTS
The Company's revenues and operating results have historically varied
substantially from quarter to quarter due to certain factors, and the Company
expects certain of these factors to continue. Among these factors have been the
timing of acquisitions and the promptness with which the Company integrates
acquired businesses. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Quarterly Results of Operations."
POTENTIAL VOLATILITY OF STOCK PRICE
Recent history relating to the market prices of shares of healthcare
related companies, and the historical fluctuations in the market price of the
Company's Common Stock, indicates that the market price of the Company's Common
Stock may be highly volatile. The market price of the Common Stock could be
subject to significant fluctuations due to various factors, including
fluctuations in the Company's operating results, developments relating to the
Company's acquisition of ISOs and opening of new service sites, announcements of
new products by the Company or by its competitors, health care or reimbursement
policy changes by governments or insurance companies or a change in securities
analysts' recommendations. These fluctuations, as well as general economic and
market conditions, may adversely affect the market price of the Company's Common
Stock. Further, the market price for the securities of many companies in the
healthcare industry
10
<PAGE> 12
have experienced wide fluctuations which were not necessarily related to the
operating performance of such companies.
ANTI-TAKEOVER CONSIDERATIONS
Certain provisions of the Company's Certificate of Incorporation, By-laws
and Delaware law could, together or separately, discourage potential acquisition
proposals, delay or prevent a change in control of the Company and limit the
price that certain investors might be willing to pay in the future for the
Company's Common Stock. These provisions include a classified board of directors
and the issuance, without further stockholder approval, of preferred stock with
rights and preferences which could be senior to the Common Stock. The Company is
also subject to Section 203 of the Delaware General Corporation Law which may
also inhibit a change in control of the Company. See "Description of Capital
Stock -- Preferred Stock," "-- Classified Board of Directors and Related
Provisions," and "-- Delaware Anti-Takeover Law."
DILUTION
Purchasers of the shares of Common Stock offered hereby will experience
immediate and substantial dilution in net tangible book value per share.
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Sales of substantial amounts of Common Stock in the public market after
this offering could adversely affect the market price of the Common Stock. Upon
completion of this offering, the Company will have outstanding 6,082,000 shares
of Common Stock. Of such shares (i) 5,370,000 shares (consisting of the
1,900,000 shares offered hereby, the 3,450,000 shares sold in the Company's
initial public offering and 20,000 shares issued upon the exercise of options)
will be freely tradeable in the public market and (ii) 712,000 shares held by
Healthcare Association of Southern California ("HASC") and Hospital Council
Coordinated Programs, Inc. ("HCCP") are "restricted securities" within the
meaning of Rule 144 adopted by the Securities and Exchange Commission pursuant
to the Securities Act of 1933, as amended (the "Securities Act"). HASC and HCCP
have agreed not to sell or otherwise dispose of any shares of Common Stock
without the prior written consent of the representatives of the underwriters in
the Company's initial public offering through February 16, 1998, subject to
certain registration rights. After the expiration of such period, 672,686 shares
held by HASC may be sold in accordance with Rule 144, subject to the applicable
volume, holding period and other limitations of Rule 144 and 39,314 shares held
by HCCP may be sold immediately. If the Company is required to include in a
Company-initiated registration shares held by HASC and HCCP, pursuant to the
exercise of their piggyback registration rights, such sales may have a material
adverse effect on the Company's ability to raise needed capital. The directors
and officers of the Company have agreed not to sell or otherwise dispose of any
shares of Common Stock, including shares issued upon exercise of outstanding
options, without the prior written consent of the representatives of the
Underwriters for a period of 180 days after the date of this Prospectus, subject
to certain exceptions. See "Description of Capital Stock -- Registration
Rights," "Shares Eligible for Future Sale" and "Underwriting."
ABSENCE OF DIVIDENDS
Although the Company had declared and paid cash dividends on its Common
Stock prior to its initial public offering in February 1996, following the
initial public offering the Company has not paid cash dividends and does not
intend to pay cash dividends in the foreseeable future. To the extent the
Company has earnings in the future, the Company intends to reinvest such
earnings in the business operations of the Company. The Company's bank line of
credit places certain limitations on the payment of dividends by the Company.
See "Dividend Policy."
11
<PAGE> 13
USE OF PROCEEDS
The net proceeds to the Company from the sale of 1,500,000 shares of Common
Stock offered by the Company hereby, assuming an offering price of $22.50, are
estimated to be approximately $31.5 million ($37.0 million if the Underwriters'
over-allotment option is exercised in full), after deducting underwriting
discounts and commissions and estimated offering expenses payable by the
Company. The Company will not receive any of the proceeds from the shares sold
by the Selling Stockholders. See "Principal and Selling Stockholders." The
Company intends to use all of its estimated net proceeds of this offering for
expansion of the Company's business through the acquisition and opening of
additional sites and for other general corporate purposes, including working
capital and capital expenditures. The Company in the ordinary course of its
business regularly investigates the acquisition of businesses that fit its
overall strategies. However, the Company has no present commitments or
agreements with respect to any acquisitions. The Company has not determined the
amounts it plans to expend on any of these uses or the timing of the
expenditures. The amounts actually expended for their uses, if any, are at the
discretion of the Company and may vary significantly depending upon a number of
factors, including future revenue growth and the amount of cash generated by the
Company's operations. The Company expects that the net proceeds of this
offering, cash flow from its operations and its ability to borrow from its
existing credit facilities will be sufficient to carry out its operations
through the first half of fiscal 1999.
Pending application of the net proceeds of this offering, the Company
intends to invest the net proceeds of the offering in investment-grade,
interest-bearing securities and bank certificates of deposit.
PRICE RANGE OF COMMON STOCK
The Company's outstanding shares of Common Stock have traded on the Nasdaq
National Market under the symbol CHRI since February 16, 1996. The following
table sets forth the high and low sales prices for the Company's Common Stock,
as reported on the Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
----- -----
<S> <C> <C>
FISCAL YEAR ENDED MARCH 31, 1996
Fourth Quarter (from February 16).......................... $16 1/4 $11 3/4
FISCAL YEAR ENDED MARCH 31, 1997
First Quarter.............................................. 30 1/2 15 1/2
Second Quarter............................................. 28 16 1/2
Third Quarter (to November 18)............................. 29 19 1/4
</TABLE>
As of September 30, 1996, there were 23 holders of record of the Common
Stock. On November 18, 1996 the last sale price of the Common Stock on the
Nasdaq National Market was $22.50 per share.
DIVIDEND POLICY
Although the Company had declared and paid cash dividends on its Common
Stock to HASC and HCCP prior to its initial public offering in February 1996, at
the present time the Company intends to retain all earnings for use in the
operation and development of its business and does not expect to declare or pay
any cash dividends on its Common Stock in the foreseeable future. The Company's
bank line of credit places certain limitations on the payment of dividends by
the Company.
12
<PAGE> 14
CAPITALIZATION
The following table sets forth the capitalization of the Company at
September 30, 1996 and as adjusted to give effect to the issuance and sale of
1,500,000 shares of Common Stock offered by the Company in this offering at an
assumed public offering price of $22.50 per share and after deducting
underwriting discounts and commissions and estimated offering expenses payable
by the Company:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Current portion of long-term debt...................................... $ 1,291 $ 1,291
Long-term debt, excluding current portion.............................. 1,423 1,423
Stockholders' equity:
Preferred Stock, $.01 par value per share; 2,000,000 shares
authorized; no shares issued and outstanding...................... -- --
Common Stock, $.01 par value per share; 20,000,000 shares authorized;
4,582,000 shares issued and outstanding; 6,082,000 shares issued
and outstanding as adjusted(1).................................... 869 884
Additional paid-in capital........................................... 22,284 53,802
Retained earnings.................................................... 8,137 8,137
------- -------
Total stockholders' equity........................................ 31,290 62,823
------- -------
Total capitalization......................................... $34,004 $65,537
======= =======
</TABLE>
- ---------------
(1) Does not include (i) 505,000 shares issuable upon exercise of outstanding
options granted pursuant to the 1995 Stock Option Plan of the Company at a
weighted average exercise price of $10.14 per share, (ii) 285,000 shares
issuable upon exercise of the Underwriters' over-allotment option and (iii)
150,000 shares issuable upon exercise of warrants at an exercise price of
$10.80 per share. See "Management -- 1995 Stock Option Plan" and
"Description of Securities -- Warrants."
13
<PAGE> 15
SELECTED FINANCIAL DATA
The following consolidated statement of income and balance sheet data have
been derived from the financial statements of the Company. The balance sheets of
the Company as of March 31, 1995 and 1996 and the results of operations for each
of the years in the three-year period ended March 31, 1996 were audited by
Deloitte & Touche LLP, independent auditors, and are included herein. The
balance sheet of the Company at September 30, 1996 and the statements of income
for the six months ended September 30, 1995 and 1996 are unaudited, but, in the
Company's opinion, reflect all adjustments (consisting of only normal recurring
adjustments) necessary for a fair presentation of the financial position and
results of operations for such periods. The results for the six months ended
September 30, 1996 are not necessarily indicative of the operating results to be
expected for the full year. The selected financial data below should be read in
conjunction with the financial statements and the notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED MARCH 31, SEPTEMBER 30,
----------------------------------------------- -----------------
1992 1993 1994 1995 1996 1995 1996
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME DATA:
Revenues:
COHR MasterPlan....................... $ 7,228 $ 8,203 $12,617 $28,042 $48,160 $22,626 $30,859
Purchase Connection................... 10,036 12,678 13,026 15,618 18,094 8,208 10,811
------ ------ ------- ------- ------- ------- -------
Total.......................... 17,264 20,881 25,643 43,660 66,254 30,834 41,670
Direct operating expenses............... 11,022 13,149 16,870 30,099 48,195 22,311 29,992
------ ------ ------- ------- ------- ------- -------
Gross profit............................ 6,242 7,732 8,773 13,561 18,059 8,523 11,678
Selling, general and administrative 4,946 6,370 7,309 11,523 14,559 6,951 8,625
expenses..............................
Loss on real estate investment.......... 880 -- -- -- -- -- --
------ ------ ------- ------- ------- ------- -------
Operating income........................ 416 1,362 1,464 2,038 3,500 1,572 3,053
Interest income......................... 220 160 127 137 155 79 315
Interest expense........................ 5 -- -- 42 30 34 9
------ ------ ------- ------- ------- ------- -------
Income before income taxes.............. 631 1,522 1,591 2,133 3,625 1,617 3,359
Provision for income taxes.............. 247 605 645 765 1,483 646 1,364
------ ------ ------- ------- ------- ------- -------
Net income.............................. $ 384 $ 917 $ 946 $ 1,368 $ 2,142 $ 971 $ 1,995
====== ====== ======= ======= ======= ======= =======
Net income per common share............. $ 0.18 $ 0.43 $ 0.45 $ 0.65 $ 0.88 $ 0.46 $ 0.41
====== ====== ======= ======= ======= ======= =======
Weighted average shares outstanding..... 2,112 2,112 2,112 2,112 2,428 2,112 4,832
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
----------------------------------------------- SEPTEMBER 30,
1992 1993 1994 1995 1996 1996
------- ------- ------- ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents...................... $ 5,596 $ 6,706 $ 5,174 $ 4,453 $19,314 $ 9,498
Working capital................................ 5,167.. 5,374.. 4,626 4,127 23,470 21,639
Total assets................................... 13,078.. 13,973.. 15,836 21,613 44,472 45,972
Total long-term debt........................... -- -- -- 528 276 1,423
Total stockholders' equity..................... 4,597.. 5,419.. 6,138 7,270 29,115 31,290
</TABLE>
14
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements that involve risks
and uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements as a result of certain
factors, including those set forth under "Risk Factors" and elsewhere in this
Prospectus. The following discussion should be read in conjunction with the
Financial Statements and the notes thereto included elsewhere in this
Prospectus.
GENERAL
The Company is a leading national outsourcing service organization
providing equipment servicing, group purchasing and other services to hospitals,
integrated health systems and alternate site providers. The Company operates 28
regional service and sales sites to support its equipment services operations
and nine regional sales and customer service sites to support its group
purchasing activities.
During the three fiscal years ended March 31, 1996, revenues and net income
grew at compounded annual rates of 46.9% and 32.5%, respectively. For the six
months ended September 30, 1996, revenues and net income increased 35.1% and
105.5%, respectively, as compared to the six months ended September 30, 1995.
This increase primarily reflects rapid growth in COHR MasterPlan, which grew in
revenues at a compounded annual rate of 80.4% over the three-year period ended
March 31, 1996 and 36.4% for the six months ended September 30, 1996 as compared
to the six months ended September 30, 1995. In comparison, Purchase Connection
experienced more moderate growth in revenues at an annual compound rate of 12.6%
for the three-year period ended March 31, 1996 and 31.7% for the six months
ended September 30, 1996 as compared to the six months ended September 30, 1995.
To date, the Company has accomplished this growth primarily by increasing
revenues from existing equipment service customers and customers of acquired
sites, and, to a lesser extent, by acquiring smaller regional equipment service
companies and opening new regional equipment service and sales sites.
The number of COHR Master Plan and Purchase Connection sites has grown from
five at the beginning of fiscal 1992 to 35 at September 30, 1996 as shown in the
following table.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FISCAL YEAR ENDED MARCH 31, SEPTEMBER 30,
---------------------------------------- ---------------
1992 1993 1994 1995 1996 1995 1996
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
DIVISION:
COHR MasterPlan
Sites at beginning of period................ 4 5 5 7 14 14 19
Newly opened sites.......................... 1 - 1 3 3 - 6
Acquired sites.............................. - - 2 7 3 - 8
Consolidation of sites...................... - - (1) (3) (1) - (6)
-- -- -- -- -- -- --
Sites at end of period...................... 5 5 7 14 19 14 27
== == == == == == ==
Purchase Connection
Sites at beginning of period................ 1 1 1 2 6 6 7
Newly opened sites.......................... - - 1 3 1 - 2
Acquired sites(1)........................... - - - 1 - - -
Consideration of sites...................... (1)
-- -- -- -- -- -- --
Sites at end of period...................... 1 1 2 6 7 6 8
== == == == == == ==
Total
Sites at beginning of period................ 5 6 6 9 20 20 26
Newly opened sites.......................... 1 - 2 6 4 - 8
Acquired sites(1)........................... - - 2 8 3 - 8
Consolidation of sites...................... - - (1) (3) (1) - (7)
-- -- -- -- -- -- --
Sites at end of period(2)................... 6 6 9 20 26 20 35
== == == == == == ==
</TABLE>
- ---------------
(1) Excludes acquisition of a customer list.
(2) Of the 35 sites at September 30, 1996, 20 of the sites were the personal
residences of Company employees.
15
<PAGE> 17
ACQUISITIONS. During fiscal 1995, 1996 and 1997 to date, the Company
purchased several small regional companies. Total consideration paid, including
debt issued or assumed, for the businesses and the intangible assets acquired
for fiscal 1995, 1996 and 1997 to date amounted to approximately $2.6 million,
$1.5 million and $3.5 million, respectively. These purchases have enabled the
Company to enter new markets and to increase penetration of existing markets.
During this period, all but one of the Company's acquisitions were in the
equipment services business. Certain of the acquired sites have been
consolidated with other of the Company's sites in order to improve economies of
scale and to increase penetration of regional markets. The historical revenues
of the acquired businesses generally have been small.
Typically, the acquired businesses have had gross margins lower than that
of the Company and have operated on a break even or small loss basis after
selling, general and administrative expenses. Following an acquisition, the
Company typically offers the acquired company's customers new services and
eliminates duplicative administrative costs in order to increase revenues and
improve profitability of the acquired businesses.
During the initial integration phase of an acquisition, the Company incurs
additional selling, general and administrative expenses for training, conversion
of information systems and other costs in connection with the consolidation
process. These transition costs, along with the low margins of the acquired
companies, adversely impact the gross margins of COHR MasterPlan for a period of
time following an acquisition.
START-UP SITES. During fiscal 1995, 1996 and 1997 to date, the Company
opened 19 new service and sales sites. The Company estimates that the
pre-opening costs to establish a new regional site are nominal. The Company
commits varying amounts of working capital to new sites to support inventory,
receivables and capital expenditures. The amount of capital to support a typical
start-up has varied with the customer base and market potential, but is
generally in the range of $150,000 to $250,000 for equipment services businesses
and $75,000 to $150,000 for group purchasing businesses. Similar working capital
requirements have been necessary for acquired entities.
ADDITIONAL REVENUES FROM NEW AND EXISTING CUSTOMERS. The Company
aggressively markets a full range of equipment services in its existing markets,
the highest sales priority being Maintenance MasterPlan (comprehensive equipment
management) sales. Many customers enrolling in Maintenance MasterPlan for the
first time are still obligated under certain OEM service agreements covering
recently purchased high technology equipment. The Company routinely excludes
such obligations from the initial agreement, and with the data from customer
equipment audits at hand, systematically pursues their later inclusion at
advantageous prices prior to the expiration of the OEM agreement. The Company
has also developed the ability to service new, high technology equipment to grow
its business with, and increase revenues from, its existing customer base.
GROSS MARGINS. During the past five years, COHR MasterPlan has grown at a
more rapid rate than Purchase Connection. However, the gross margins for COHR
MasterPlan have been significantly lower than for Purchase Connection.
Accordingly, although gross margins in each of the Company's divisions have
remained generally stable, the Company's gross margins have decreased during
this time. Further, gross margins have fluctuated in each division as a result
of the timing of acquisitions and the costs incurred to assimilate these
acquisitions. In addition, the Company has not increased billing rates to its
COHR MasterPlan customers as its labor costs have increased.
OPERATING INCOME. Operating income has increased in each of the three years
ended March 31, 1996 and has grown significantly during fiscal 1997 to date. As
a percentage of revenues, operating income tends to fluctuate by year. These
fluctuations have been caused by changes in the Company's business mix toward
more equipment service business, the impact of new sites and acquisitions and
the level of selling, general and administrative expenses. While selling,
general and administrative expenses have grown in absolute dollars, they have
declined as a percentage of sales, as the Company has been able to achieve its
growth in revenues without a proportionate increase in corporate overhead.
Development expenses for new products and the COHR 835 Direct software package
increased in fiscal years 1994 through 1996. During the six months ended
September 30, 1996, development expenses on new products continued but decreased
as a percentage of total revenues from prior years.
16
<PAGE> 18
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the information under "Summary Financial and Supplemental Data," "Selected
Financial Data" and the financial statements of the Company and the related
notes thereto, which appear elsewhere in this Prospectus.
The following table sets forth for each of the fiscal years 1994, 1995 and
1996 and the unaudited six month periods ended September 30, 1995 and 1996,
certain financial information shown as a percentage of revenues:
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED MARCH ENDED SEPTEMBER
31, 30,
------------------------- ---------------
1994 1995 1996 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
PERCENTAGE OF REVENUES:
Revenues:
COHR MasterPlan............................ 49.2% 64.2% 72.7% 73.4% 74.1%
Purchase Connection........................ 50.8% 35.8% 27.3% 26.6% 25.9%
----- ----- ----- ----- -----
Total.............................. 100.0% 100.0% 100.0% 100.0% 100.0%
Direct operating expenses.................... 65.8% 68.9% 72.7% 72.4% 72.0%
----- ----- ----- ----- -----
Gross margin................................. 34.2% 31.1% 27.3% 27.6% 28.0%
Selling, general and administrative
expenses................................... 28.5% 26.4% 22.0% 22.5% 20.7%
----- ----- ----- ----- -----
Operating income............................. 5.7% 4.7% 5.3% 5.1% 7.3%
Interest income.............................. 0.5% 0.3% 0.2% 0.2% 0.8%
Interest expense............................. 0.0% 0.1% 0.0% 0.1% 0.0%
----- ----- ----- ----- -----
Income before income taxes................... 6.2% 4.9% 5.5% 5.2% 8.1%
Provision for income taxes................... 2.5% 1.8% 2.2% 2.1% 3.3%
----- ----- ----- ----- -----
Net income................................... 3.7% 3.1% 3.3% 3.1% 4.8%
===== ===== ===== ===== =====
</TABLE>
SIX MONTHS ENDED SEPTEMBER 30, 1996 VERSUS SIX MONTHS ENDED SEPTEMBER 30, 1995
REVENUES. The Company's revenues for the six months ended September 30,
1996 totaled $41.7 million, an increase of $10.9 million or 35.1% over revenues
of $30.8 million for the six months ended September 30, 1995. Of the $10.9
million increase in revenues, $8.3 million resulted from growth in COHR
MasterPlan. The $8.3 million was primarily from increases in revenues from
growth generated internally. The Company acquired or opened six new service and
sales sites (net of consolidations) in fiscal 1996 and nine new service and
sales sites (net of consolidations) in the six months to September 30, 1996.
DIRECT OPERATING EXPENSES. The Company's direct operating expenses for the
six months ended September 30, 1996 totaled $30.0 million which represented an
increase of $7.7 million or 34.4% over the six months ended September 30, 1995
total of $22.3 million. Direct operating expenses as a percentage of revenues
for the six months ended September 30, 1996 decreased to 72.0% from 72.4% for
the six months ended September 30, 1995. This decrease was a result of certain
economies of scale being achieved over the prior period.
GROSS PROFIT. The Company's gross profit for the six months ended September
30, 1996 totaled $11.7 million, an increase of $3.2 million or 37.0% over the
six months ended September 30, 1995 total of $8.5 million. Gross margin
increased to 28.0% for the six months ended September 30, 1996 from 27.6% the
six months ended September 30, 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. The Company's selling,
general and administrative expenses for the six months ended September 30, 1996
totaled $8.6 million, an increase of $1.6 million or 24.1% over the six months
ended September 30, 1995 total of $7.0 million. As a percentage of revenues,
selling, general and administrative expenses decreased during the six months
ended September 30, 1996 to 20.7% from 22.5% during the six months ended
September 30, 1995. The absolute increase in expenses reflected the increase in
costs necessary to support the Company's expanded operations. The decrease in
selling, general and administrative expenses as a percentage of revenues
reflected the growth of revenues
17
<PAGE> 19
without a corresponding increase in administrative costs, as well as other cost
savings achieved through economies of scale.
OPERATING INCOME. The Company's operating income for the six months ended
September 30, 1996 totaled $3.1 million, an increase of $1.5 million or 94.2%
over the six months ended September 30, 1995 total of $1.6 million. Operating
income as a percentage of revenues for the six months ended September 30, 1996
increased to 7.3% as compared to 5.1% for the six months ended September 30,
1995.
INTEREST INCOME. Interest income totaled $315,000 for the six months ended
September 30, 1996, an increase of $236,000 or 298.7% over the six months ended
September 30, 1995 total of $79,000. This was primarily attributable to the
interest earned on increased cash balances resulting from the investment of net
proceeds from the Company's initial public offering in February 1996.
PROVISION FOR INCOME TAXES. The Company's provision for income taxes for
the six months ended September 30, 1996 totaled $1.4 million, an increase of
$0.8 million or 111.1% over the six months ended September 30, 1995 total of
$646,000, due to the increase in pre-tax income for the period. The Company's
effective tax rate for the six months ended September 30, 1996 was 40.6% as
compared to 40.0% for the six months ended September 30, 1995.
NET INCOME. The Company's net income for the six months ended September 30,
1996 totaled $2.0 million, an increase of $1.0 million or 105.5% over the six
months ended September 30, 1995 total of $971,000. As a percentage of revenues,
net income increased to 4.8% in the six months ended September 30, 1996 from
3.1% in the six months ended September 30, 1995.
FISCAL YEAR ENDED MARCH 31, 1996 VERSUS FISCAL YEAR ENDED MARCH 31, 1995
REVENUES. The Company's revenues for the fiscal year ended March 31, 1996
totaled $66.3 million, an increase of $22.6 million or 51.7% over revenues of
$43.7 million for the fiscal year ended March 31, 1995. Of the $22.6 million
increase in revenues, $20.1 million resulted from growth in COHR MasterPlan. The
$20.1 million was primarily from increase in revenues from sites acquired or
opened in previous periods. The Company acquired or opened 11 new service and
sales sites (net of consolidations) in fiscal 1995, and six new service and
sales sites (net of consolidations) in fiscal 1996.
DIRECT OPERATING EXPENSES. The Company's direct operating expenses for the
fiscal year ended March 31, 1996 totaled $48.2 million which is an increase of
$18.1 million or 60.1% over the fiscal year ended March 31, 1995 total of $30.1
million. Direct operating expenses as a percentage of revenues for the fiscal
year ended March 31, 1996 increased to 72.7% from 68.9% for the fiscal year
ended March 31, 1995. This increase resulted primarily from the fact that the
Company derived a greater percentage of revenues from COHR MasterPlan, which has
higher direct operating expenses as a percentage of revenues than Purchase
Connection. COHR MasterPlan is a more labor intensive business than Purchase
Connection which results in lower gross margins than those realized by Purchase
Connection.
GROSS PROFIT. The Company's gross profit for the fiscal year ended March
31, 1996 totaled $18.1 million, an increase of $4.5 million or 33.1% over the
fiscal year ended March 31, 1995 total of $13.6 million. Gross margin decreased
to 27.3% for the fiscal year ended March 31, 1996 from 31.1% for the fiscal year
ended March 31, 1995. The decrease in gross margin was principally the result of
the increase in the percentage of the Company's revenues derived from the lower
margin COHR MasterPlan.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. The Company's selling,
general and administrative expenses for the fiscal year ended March 31, 1996
totaled $14.6 million, an increase of $3.1 million or 27.0% over the fiscal year
ended March 31, 1995 total of $11.5 million. As a percentage of revenues,
selling, general and administrative expenses decreased during the fiscal year
ended March 31, 1996 to 22.0% from 26.4% during the fiscal year ended March 31,
1995. The decrease in selling, general and administrative expenses as a
percentage of revenues reflected the growth of revenues without a corresponding
increase in administrative costs, as well as other cost savings achieved through
the consolidation of regional sales and customer service sites.
OPERATING INCOME. The Company's operating income for the fiscal year ended
March 31, 1996 totaled $3.5 million, an increase of $1.5 million or 75.0%, over
the fiscal year ended March 31, 1995 total of
18
<PAGE> 20
$2.0 million. Operating income for the fiscal year ended March 31, 1996 as a
percentage of revenues increased to 5.3% from 4.7% for the fiscal year ended
March 31, 1995.
PROVISION FOR INCOME TAXES. The Company's provision for income taxes for
the fiscal year ended March 31, 1996 totaled $1.5 million, an increase of
$718,000 or 93.9% over the fiscal year ended March 31, 1995 total of $765,000,
due to the increase in pre-tax income for the fiscal year ended March 31, 1996.
The Company's effective tax rate for the fiscal year ended March 31, 1996 was
40.9% as compared to 35.9% for the fiscal year ended March 31, 1995. The
Company's effective tax rate in the prior year was 35.9% compared to 40.9% in
the current year due to a favorable adjustment from a prior tax matter.
NET INCOME. The Company's net income for the fiscal year ended March 31,
1996 totaled $2.1 million, an increase of $774,000 or 56.6% over the fiscal year
ended March 31, 1995 total of $1.4 million. As a percentage of revenues, net
income increased to 3.3% in the fiscal year ended March 31, 1996 from 3.1% in
the fiscal year ended March 31, 1995.
FISCAL YEAR ENDED MARCH 31, 1995 VERSUS FISCAL YEAR ENDED MARCH 31, 1994
REVENUES. The Company's revenues for the fiscal year ended March 31, 1995
totaled $43.7 million, an increase of $18.1 million or 70.7% over revenues of
$25.6 million for the fiscal year ended March 31, 1994. Of the $18.1 million
increase in revenues, $15.4 million was due to revenue growth related to COHR
MasterPlan. During fiscal year ended March 31, 1995, COHR MasterPlan acquired
seven smaller service maintenance companies and opened three new sites. The
remaining revenue increase was due to internal growth and the opening of new
sites for Purchase Connection. During fiscal year 1995, the Company opened or
acquired a total of 11 new sales and customer service sites (net of
consolidations).
DIRECT OPERATING EXPENSES. The Company's direct operating expenses for the
fiscal year ended March 31, 1995 totaled $30.1 million which was an increase of
$13.2 million or 78.1% over the fiscal year ended March 31, 1994 total of $16.9
million. Direct operating expenses as a percentage of revenues increased to
68.9% in fiscal year ended March 31, 1995 from 65.8%. The increase was primarily
the result of a greater percentage of the Company's total revenues derived from
COHR MasterPlan which has higher direct operating expenses as a percentage of
revenues than Purchase Connection. COHR MasterPlan is a more labor intensive
business than Purchase Connection which results in lower gross margins than
those realized by Purchase Connection. Direct labor unit costs in the COHR
MasterPlan division increased during the year ended March 31, 1995 without a
corresponding increase in hourly labor rates charged to customers. However, COHR
MasterPlan's direct operating expenses as a percentage of revenues decreased
from the previous year as a result of improved profitability from sites acquired
in previous periods.
GROSS PROFIT. The Company's gross profit for the year ended March 31, 1995
totaled $13.6 million, an increase of $4.8 million or 54.5% over the year ended
March 31, 1994 total of $8.8 million. Gross margin decreased to 31.1% for the
year ended March 31, 1995 from 34.2% for the year ended March 31, 1994. The
decrease in gross margin was a result of a larger increase in the percentage of
the Company's revenues derived from the lower margin COHR MasterPlan. Gross
margin in each of the divisions increased slightly.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. The Company's selling,
general and administrative expenses for the year ended March 31, 1995 totaled
$11.5 million, an increase of $4.2 million or 57.5% over the year ended March
31, 1994 total of $7.3 million. As a percentage of revenues, selling, general
and administrative expenses decreased during the year ended March 31, 1995 to
26.4% from 28.5% during the year ended March 31, 1994. The absolute increase in
expenses reflected the increase in costs necessary to support the Company's
rapid growth through its acquisition program. The decrease in selling, general
and administrative expenses as a percentage of revenues reflected the growth of
revenues without a corresponding increase in administrative costs or head count
as well as other cost savings achieved through the consolidation of regional
sales and customer service sites.
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<PAGE> 21
OPERATING INCOME. The Company's operating income for the year ended March
31, 1995 totaled $2.0 million, an increase of $574,000 or 39.2%, over the year
ended March 31, 1994 total of $1.5 million. Operating income for the year ended
March 31, 1995 as a percentage of revenues decreased to 4.7% from 5.7% for the
year ended March 31, 1994. This was primarily the result of lower gross margin
reflecting mostly a change in the business mix offset by a decrease in selling,
general and administrative expenses as a percentage of revenues.
PROVISION FOR INCOME TAXES. The Company's provision for income taxes for
the year ended March 31, 1995 totaled $765,000, an increase of $120,000 or 18.6%
over the year ended March 31, 1994 total of $645,000, due to the increase in
pre-tax income for the year ended March 31, 1995. The Company's effective tax
rate of 35.9% was lower than the prior year's rate of 40.5% due to a favorable
adjustment from a prior tax matter.
NET INCOME. The Company's net income for the year ended March 31, 1995
totaled $1.4 million, an increase of $422,000 or 44.6% over the year ended March
31, 1994 total of $946,000. As a percentage of revenues, net income decreased
from 3.7% in the fiscal year ended March 31, 1994 to 3.1% in the fiscal year
ended March 31, 1995, primarily due to the decline in gross margin as a
percentage of sales. This decline was partially offset by reduced selling,
general and administrative expenses as a percentage of revenues and a lower
effective tax rate.
QUARTERLY RESULTS OF OPERATIONS
The following table presents summarized unaudited quarterly results of
operations of the Company for the eight most recent fiscal quarters ended
September 30, 1996. The Company believes that all necessary adjustments
(consisting only of normal recurring adjustments) have been included in the
amounts stated below to present fairly the following selected information when
read in conjunction with the financial statements and notes thereto included
elsewhere herein. Results of operations for any particular quarter are not
necessarily indicative of future results of operations for a full year or any
other quarter. Future quarterly operating results may fluctuate depending on a
number of factors, including the timing of the opening of startup regional sales
and customer service sites, the timing of acquisitions of regional sales and
customer service sites and changes in buying patterns of the Company's
customers.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------------------------------------------------------------------------------------------
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1994 1995 1995 1995 1995 1996 1996 1996
------------ --------- -------- ------------- ------------ --------- --------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues......... $ 11,592 $13,936 $ 15,369 $15,465 $ 16,667 $18,753 $20,465 $21,205
Gross profit......... 3,408 4,069 4,294 4,229 4,481 5,055 5,745 5,933
Operating income..... 502 612 734 838 815 1,113 1,328 1,725
Net income........... $ 319 $ 457 $ 457 $ 514 $ 478 $ 693 $ 931 $ 1,064
Earnings per share... $ 0.15 $ 0.22 $ 0.22 $ 0.24 $ 0.23 $ 0.19 $ 0.19 $ 0.22
Weighted average
shares
outstanding........ 2,112 2,112 2,112 2,112 2,112 3,650 4,802 4,832
</TABLE>
The Company has experienced quarterly seasonality in its financial results.
The second fiscal quarter generally has lower sales growth as a result of
technicians taking vacations, which affects the time and materials billings. In
addition, the Company's quarterly results have been affected by the timing of
start-up regional sales and customer service sites and acquisitions.
The operating income for the third quarter of fiscal 1996 was reduced by
the costs associated with opening of new sites and an increase in corporate
expenses to support future growth. In addition, the operating income for that
quarter was reduced by the assimilation of three acquisitions in fiscal 1996.
The net income in the fourth quarter of fiscal 1995 was impacted positively
by an adjustment to the Company's tax provision resulting from the resolution of
a prior year tax adjustment. This adjustment reduced the effective rate in the
fourth quarter to 25.7% as compared to the Company's normal effective rate of
approximately 40.0%.
The earnings per share in the fourth quarter of fiscal 1996 and the first
two quarters of fiscal 1997 were reduced by the issuance of 2,450,000 shares of
Common Stock in the Company's initial public offering on February 16, 1996.
20
<PAGE> 22
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $21.6 million, $4.1 million, and $23.5
million as of September 30, 1996, March 31, 1995 and March 31, 1996,
respectively. The Company had cash and cash equivalents of $9.5 million, $4.5
million and $19.3 million for the same respective periods.
Net cash provided by (used in) operating activities was $(6.3) million for
the six months ended September 30, 1996, and $(175,000), $1.5 million, and
$(1.9) million for fiscal years 1994, 1995 and 1996, respectively. The net cash
provided by (used in) operating activities represents primarily the cash flows
from income plus depreciation and amortization offset by changes in working
capital. A significant portion of the Company's growth has been funded
internally through effective working capital management. As a result of the
Company's expansion, it is anticipated that working capital and the trend in
days outstanding in accounts receivable will increase, particularly due to the
Company's expansion in the northeastern United States where the slower payment
of outstanding accounts is a customary business practice.
Net cash used in investing activities was $5.2 million for the six months
ended September 30, 1996 and $1.1 million, $1.8 million, and $2.8 million for
fiscal years 1994, 1995, and 1996, respectively. The principal uses of this cash
were for the purchase of businesses, customer lists and related assets. Capital
expenditures during these periods amounted to $1.3 million, $650,000, $465,000
and $1.4 million, respectively. The Company plans to implement a significant
capital expenditure program, including purchasing additional information systems
capabilities and test equipment. See "Business -- Property." The Company
anticipates that expenditures for capital equipment for fiscal year 1997 will
increase compared to prior years. As of September 30, 1996, the Company had no
material commitments outstanding for capital expenditures.
Cash flows provided by (used in) financing activities were principally from
issuance of stock of $20.0 million in the fiscal year 1996, exercise of stock
options in the amount of $180,000 in the six months to September 30, 1996, and
issuance of long-term debt of $1.5 million in the six months ended September 30,
1996, for the payment of dividends to its stockholders of $227,000, $236,000 and
$247,000 for the fiscal years 1994, 1995 and 1996, respectively, and the
repayment of $61,000 in the six months ended September 30, 1996, and $221,000 in
the 1995 fiscal year upon a note assumed in an acquisition. The Company does not
anticipate declaring or paying cash dividends for the foreseeable future.
The Company has a credit agreement with 1st Business Bank (the "Revolving
Credit Agreement"), pursuant to which the Company may borrow an aggregate of
$2.0 million through June 30, 1997 at the prime interest rate. The Revolving
Credit Agreement provides for monthly payments of interest only until June 30,
1997, at which time all unpaid principal and interest shall become due. No
amounts are currently outstanding under the Revolving Credit Agreement. The
Company intends to use the revolving credit facility for short-term working
capital purposes. As security for the revolving credit loans, the Company has
granted the bank a lien against all of the Company's accounts, equipment,
general intangibles, negotiable collateral, inventory, depository accounts and
proceeds thereof. The bank shall have the right to accelerate the revolving
credit loans upon certain events of default, including failure to pay
installments of principal or interest within five days of being due, failure of
the Company to meet certain net working capital ratios, current asset to current
liability ratios and other periodic financial covenants.
The Company expects that the net proceeds of this offering, cash flow from
operations and its ability to borrow from its existing credit facility will be
sufficient to carry out its operations through the first half of fiscal 1999.
The Company may accelerate the expenditure of its available funds for
acquisitions or other business opportunities. As a result, the Company may seek
to raise additional funds through the sale of equity securities, the incurrence
of additional indebtedness or other means. However, there can be no assurance
that such financing, if and when required, will be available on terms acceptable
to the Company, or at all.
INFLATION
The Company believes that its operations have not been materially adversely
affected by inflation. The Company expects that salary and wage increases for
its skilled staff will continue to be higher than average wage increases, as is
common in the industry.
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<PAGE> 23
BUSINESS
OVERVIEW
COHR is a leading national outsourcing service organization providing
equipment servicing, group purchasing and other services to hospitals,
integrated health systems and alternate site providers. The Company is committed
to offering a wide range of high quality services at prices generally below
those of its major competitors. COHR has developed strong relationships with its
customers, allowing it to gain valuable insights into their operating challenges
and to design cost-effective programs. The Company was founded in 1985 by the
Healthcare Association of Southern California ("HASC"), a regional trade
association comprised of hospitals, integrated health systems, nursing homes and
medical groups. Since its inception, the Company's customer base has
significantly expanded beyond HASC members, which accounted for approximately
one-third of fiscal 1996 revenues.
COHR MasterPlan, the Company's equipment services division, offers a full
range of equipment maintenance, repair, consulting, refurbishment and sales
services. The Company operates 28 equipment service and sales sites serving
approximately 2,150 equipment services customers in 44 states. Maintenance
MasterPlan, COHR MasterPlan's principal product line, is a comprehensive
equipment management plan that offers equipment services at a fixed cost and, in
the first year of the contract, guarantees savings over the prior year's costs.
Purchase Connection, the Company's group purchasing division, offers access
to volume discount pricing on medical, surgical and laboratory supplies, capital
equipment, pharmaceuticals and dietary supplies. The Company operates nine
regional sales and customer service sites serving approximately 1,500 group
purchasing customers in 48 states. According to a survey conducted by Modern
Healthcare, in 1995 Purchase Connection was the sixth largest group purchasing
organization ("GPO") in the United States based upon reported purchasing volume.
The Company's goal is to become the leading independent provider of
equipment services to health care providers and one of the three largest GPOs in
the United States, and to provide a number of additional cost effective
outsourced services and products to health care providers.
INDUSTRY BACKGROUND
The market for the Company's equipment servicing and group purchasing
services consists of hospitals, integrated health systems and alternate site
providers. According to industry sources, there are more than 5,000 hospitals,
300 integrated health systems, 3,600 ambulatory care centers, 2,000 diagnostic
imaging centers, 16,000 home health care agencies, 2,000 dialysis centers, 7,900
large group practices and outpatient surgery centers, and related institutional
closed pharmacies throughout the United States.
Health care providers have traditionally provided health care services on a
fee-for-service basis. The fee-for-service model provides few incentives for the
efficient utilization of resources on the part of providers and has contributed
to increases in total health care costs. The Company believes that cost
containment pressures in the health care industry have led providers to seek
innovative methods of reducing the cost of delivering effective health care.
Increasingly, providers have turned to outsourcing various services and to group
purchasing as a means of reducing costs. Outsourcing services allows providers
to reduce overhead costs and ease administrative burdens, and coordinated group
purchasing allows providers to purchase supplies at significant savings.
EQUIPMENT SERVICES. The Company believes that, as a result of increasing
cost pressures on health care providers, several major trends exist, which have
increased and will continue to increase the demand for the outsourcing of
equipment services. In particular, these trends have increased the demand for
larger, high quality equipment services suppliers with broad service offerings
that can provide equipment management services for health care providers. These
trends include: (i) an increase in the average life of equipment as purchasing
of new equipment is delayed or eliminated in favor of refurbishment or upgrades,
(ii) a desire to utilize a single vendor for servicing in order to lower overall
costs and reduce administrative burdens, (iii) an
22
<PAGE> 24
increased demand for fixed price servicing agreements in order to facilitate
customer budgeting processes, (iv) a need for consulting services designed to
evaluate the overall cost and technical effectiveness of providers' clinical
equipment and service programs, and (v) a desire to ensure full compliance with
the standards and requirements of national and local licensing and accreditation
agencies.
An industry research source estimates that the market for servicing
biomedical and diagnostic imaging equipment will grow from more than $3.7
billion in expenditures in 1994 to more than $7.6 billion in 2000.
The equipment services market is served by three categories of providers:
original equipment manufacturers ("OEMs") which represent approximately 65% of
the market, independent service organizations ("ISOs"), which represent
approximately 20% of the market, and in-house servicing departments, which
represent approximately 15% of the market. The Company believes that within each
category of provider numerous companies compete and that the equipment services
market is highly fragmented. The Company believes that the decision from whom to
purchase equipment services depends on several factors, including price, quality
and breadth of service offerings and response time.
The Company believes that COHR MasterPlan compares favorably to OEMs on the
basis of price, its quality reputation, the wide range of manufacturers'
products offered (including new and refurbished equipment), and its ability to
provide the customer with unbiased technology management consulting. In relation
to other ISOs, the Company believes that several factors give it a competitive
advantage including its low pricing, unique fixed cost plans, highly qualified
service personnel and broad range of services. Such services include technology
management consulting, sales of new and refurbished equipment and depot repair
service. The Company believes that it compares favorably to in-house service
organizations because it allows health care providers to reduce fixed overhead
and ease administrative burdens by outsourcing their equipment service
requirements.
GROUP PURCHASING SERVICES. According to industry sources, approximately 70%
of the purchasing of supplies and equipment by the institutional health care
industry is effected through GPOs. Group purchasing services historically have
been delivered through a fragmented system of GPOs, and 60% of all purchases
made by non-federal hospitals are made through the ten largest national GPOs.
Most GPOs are small, regional groups, with overlapping affiliations with larger
groups. According to the most recent Modern Healthcare survey, the larger groups
increasingly dominate the industry. Typically, institutional health care
providers belong to more than one GPO.
GPOs provide their customers (also referred to as members) with access to
discounted prices on a broad range of products and services. GPOs negotiate
discounted prices with manufacturers based primarily on the purchasing volume of
their membership. To increase the purchasing volume of their membership, GPOs
attempt to maximize "compliance" -- the percentage of purchasing volume an
individual facility places through contracts negotiated with the GPOs' vendors.
Compliance is strongly correlated to the depth of discounts provided by GPOs and
the centralization of purchasing decisions. GPOs often negotiate the deepest
discounts through sole-source contracts with manufacturers where a single
manufacturer is selected as the sole source for a particular product in the
GPOs' purchasing program. Typically, sole-source contracts are negotiated on
certain product categories, primarily pharmaceutical and dietary supplies.
Unlike distributors, GPOs do not themselves make purchases, carry an inventory
or physically handle product. GPOs derive a substantial portion of their
revenues from commissions (a percentage of purchasing volume) from manufacturers
and distributors, and also receive from their customers a nominal fee for access
to contract pricing.
GPOs provide a valuable service to manufacturers by assuring access to the
GPOs' customers or negotiating committed volume for the manufacturers' products.
Those manufacturers can participate in the market share represented by the GPOs'
customers at a significant reduction in cost from traditional direct sales and
marketing efforts.
When purchasing a specific item, institutional health care providers have
the option of purchasing it either from manufacturers contracted with one of
their GPO's purchasing programs or directly from non-contracted manufacturers.
Health care providers place their orders either directly with a manufacturer (if
the
23
<PAGE> 25
manufacturer distributes directly) or a distributor. The GPO is entitled to a
commission on all purchases made by its customers of items under contract with
manufacturers.
Typically, distributors are not involved in the pricing negotiations among
health care providers, manufacturers and GPOs. The role of distributors is
primarily to fulfill orders from health care providers at a spread independent
from the pricing obtained from the manufacturer.
In response to increasing pressures to reduce overall costs, many health
care providers are requiring innovative changes in managing their product
purchases, including (i) new pricing arrangements, such as payment per clinical
procedure, (ii) establishment of inventory and delivery procedures, such as
stockless and just-in-time systems and (iii) using procedures to impact
treatment effectiveness, such as standardization of treatment protocols and
pharmaceutical formularies.
In addition to GPOs, health care providers can utilize numerous sources to
obtain goods and services including the direct sales forces of manufacturers,
various wholesalers, and their own in-house purchasing departments. The Company
believes that health care providers choose among these alternatives on the basis
of price, breadth of product line, quality of service and strength of
relationship. As one of only nine GPOs with reported purchasing volume in excess
of $1 billion per year, the Company believes that it compares favorably to
smaller regional GPOs and in-house purchasing departments based on its ability
to negotiate more favorable discounts with manufacturers due to its
significantly larger customer base and corresponding potential purchasing
volume. In relation to other large GPOs, the Company believes that it charges
lower customer access fees and manufacturer commissions thus allowing it to
offer deeper price discounts. Additionally, the Company believes it offers a
wider array of value-added products and services.
While the Company enjoys mutually supportive relationships with
manufacturers, it competes with them when they offer specific product lines that
are not under contract with the Company. The Company believes that it compares
favorably to manufacturers based on its ability to (i) provide one stop shopping
for a wider array of products and (ii) bundle products from multiple
manufacturers at competitive prices.
The Company believes that purchasing decisions may also depend on factors
specific to the decision maker. Pharmacists and food service directors, who
generally make purchasing decisions with respect to pharmaceuticals and dietary
supplies, respectively, often have significant discretion in making purchasing
decisions, and have the ability to increase compliance at their facilities.
Materials managers, who generally make purchasing decisions with respect to
medical, surgical and laboratory supplies, must take into account the supply
needs of their constituencies, which requires more diversity in product mix to
allow for regional and physician preferences and distribution and delivery
concerns. The materials managers, therefore, purchase products through a variety
of sources, which may result in less compliance.
COMPANY STRATEGY
The Company believes that its success has been due to its commitment to
provide its customers a wide range of quality services at prices generally below
those of its major competitors. The Company's goal is to become the leading
independent provider of equipment services to health care providers and one of
the three largest GPOs in the United States, and to provide a number of
additional cost-effective outsourced services and products to health care
providers.
COHR MASTERPLAN. The Company's objectives in its COHR MasterPlan division
are to (i) acquire and open additional equipment service and sales sites in
existing and new markets, (ii) increase share in existing markets and (iii)
expand the range of technical services offered. The following presents an
overview of the Company's efforts in each of these areas:
Acquire and Open Additional Equipment Service and Sales Sites. The Company
has pursued a strategy of growth through acquisitions of smaller regional
service companies and opening new regional sales and customer service sites in
existing and new markets. When evaluating the attractiveness of a new market,
the Company evaluates several factors, including competition, market
fragmentation, availability of key personnel and geographic location.
24
<PAGE> 26
Typically, the acquired businesses have had gross margins lower than that
of the Company and have operated on a break even or small loss basis after
selling, general and administrative expenses. Following an acquisition, the
Company typically offers the acquired company's customers new services and
eliminates duplicative administrative costs in order to increase revenue and
improve profitability of the acquired business. The Company generally expects
the equipment service businesses it acquires to achieve profitability levels
similar to its existing COHR MasterPlan division within one year from
acquisition.
The Company plans to continue to evaluate potential acquisitions and
expects to acquire or open approximately 15 new equipment service and sales
sites by the end of fiscal 1998. The Company's primary focus is on developing
critical mass through acquisitions in attractive markets. The Company plans to
continue its expansion in the Southeastern and Eastern United States and will
consider expansion in other regions on a selected basis. The Company intends to
target for acquisition small to medium sized, high quality, owner-operated
service centers, which increasingly are looking to consolidate with larger
service organizations that can offer skilled management, sophisticated
information systems and capital resources. Also, the Company will continue to
identify organizations that have demonstrated expertise and business success in
the high-technology imaging and diagnostic equipment field, where service
margins are typically higher than in more basic services.
The Company prefers to grow through acquisition, as opposed to the opening
of new sites, because acquisitions provide the Company with the opportunity to
take advantage of a target's existing customer base, trained technicians and
established reputation. The Company opens new equipment service and sales sites
in order to expand into new markets where appropriate acquisition candidates are
not available. The Company estimates that the pre-opening costs necessary to
establish a new regional service and sales site are nominal. Typically, the
Company will not open a new site until the Company has either entered into
servicing contracts within the area or expects the site to break even within 12
months.
Since July 1, 1993, the Company has acquired 15 regional equipment service
businesses and opened 12 new equipment service and sales sites in the locations
noted below. These acquisitions and startups have enabled the Company to enter
new markets and to increase penetration of existing markets. Six of the acquired
sites have been consolidated with other nearby offices to increase operating
efficiency.
- --------------------------------------------------------------------------------
ACQUISITIONS
<TABLE>
<CAPTION>
DATE OF
ACQUISITION COMPANY LOCATION
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
October 1, 1996 Triad Medical Services, Inc. Arlington, WA
August 1, 1996 Anesthesia Plus Elk Grove, CA
July 1, 1996 Mid Atlantic Clinical Engineering Services, Inc. Fredericksburg, VA/Wheeling, WV
May 1, 1996 Vision Medical Services Ontario, CA/Fairfield, CT/
Ft. Lauderdale, FL
April 1, 1996 Gold Coast Imaging Ft. Lauderdale, FL
April 1, 1996 DAL Services Inc. Towaco, NJ
October 31, 1995 Automated Diagnostic Specialists, Inc. Murietta, CA
October 30, 1995 Noel Technologies Company Fountain Hills, AZ
September 29, 1995 Technical Shared Services, Inc. Gainesville, FL
March 3, 1995 Northwest Biomedical Services, Inc. Portland, OR/Seattle, WA
February 1, 1995 Medical Equipment Experts, Inc. Fairlawn, OH
December 30, 1994 Advanced Technology Laboratories, Inc. (customer list for a specific model of
ultrasound machine)
December 5, 1994 Anesthesia Equipment Service Chino, CA
April 1, 1994 Med+Equip Services San Ramon, CA/Modesto, CA
July 22, 1993 Labtronics, Inc. Union City, CA/Costa Mesa, CA
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE> 27
- ----------------------------------------------
NEWLY OPENED SERVICE SITES
- ----------------------------------------------
<TABLE>
<CAPTION>
YEAR
OPENED LOCATION
- ----------------------------------------------
<S> <C>
1996 Boston, MA
1996 Cincinnati, OH
1996 Dallas, TX
1996 Meridian, ID
1996 Nashville, TN
1996 Orlando, FL
1996 Philadelphia, PA
1995 Cranford, NJ
1995 Islandia, NY
1994 Burlington, VT
1994 Erie, PA
1994 Killingworth, CT
- ----------------------------------------------
</TABLE>
Increase Share in Existing Markets. COHR MasterPlan offers a full range of
quality services that respond to its customers' needs at prices generally below
those of its major competitors. The Company aggressively markets its equipment
services in its existing markets, the highest sales priority being Maintenance
MasterPlan sales. Many customers enrolling in Maintenance MasterPlan for the
first time are still obligated under certain OEM service agreements covering
recently purchased high technology equipment. The Company routinely excludes
such obligations from the initial Maintenance MasterPlan agreement, and, with
the data from customer equipment audits at hand, systematically pursues their
later inclusion at advantageous prices upon the expiration of the OEM agreement.
The Company also has acquired the ability to service new high technology
equipment to increase revenues from its existing customer base and attract new
customers.
Expand the Range of Technical Services Offered. A key component of the
Company's strategy is to expand the services it provides to its customers.
Expanded services enable the Company to enter new markets and to increase
penetration of existing markets. In addition, these services allow the Company
to generate higher equipment servicing margins and to reduce the Company's
dependence on subcontracting of these services. The Company is actively
exploring opportunities to offer additional services to make it more competitive
and potentially attract additional customers.
PURCHASE CONNECTION. The Company's objectives in its Purchase Connection
division are to (i) increase purchasing volume by existing customers, (ii)
expand geographic penetration of certain regional markets and (iii) expand the
range of outsourced services and products offered. The following presents an
overview of the Company's efforts in each of these areas:
Increase Purchasing Volume By Existing Customers. The Company intends to
increase the purchasing volume of its existing customers through efforts to
increase customer compliance. These efforts include (i) encouraging customers to
participate in Purchase Connection's sole source contracts with vendors, (ii)
increasing customer utilization of the Company's electronic catalog, known as
Power Connection, linked to manufacturer and distributor pricing and (iii)
engaging in joint marketing efforts with participating manufacturers and
distributors. In addition, the Company plans to upgrade its information systems
to reconcile its records of customer purchases with commissions paid by vendors.
In certain product markets, principally dietary and pharmaceutical, where
decision-makers have more discretion in selecting purchasing services, the
Company contracts with a single vendor of a specific product, whereby all
Purchase Connection volume for such product is directed to the sole source
vendor. The use of a sole source contract enables the Company to negotiate
deeper discounts, which further incentivizes customers to increase compliance.
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<PAGE> 28
Expand Geographic Penetration of Certain Regional Markets. The Company
currently operates nine regional sales and customer service sites to support its
group purchasing activities. The Company expects to open or acquire
approximately three new sites by the end of fiscal 1998, primarily in the
Midwestern and Southeastern United States. In deciding on which locations to
open or acquire new sites, the Company prefers areas with large concentrations
of health care providers and proximity to existing or planned Company
operations.
Expand the Range of Services and Products Offered. The Company believes
that it has developed positive relationships with its customers, thereby gaining
valuable insight into their operating challenges. The Company intends to employ
this knowledge to introduce a number of innovative cost-effective products and
services. The Company has relied and intends to rely primarily on its internal
development capabilities for the introduction of such products and services, but
will consider acquisitions in selected cases. The Company began offering
security services, performance improvement and credentials verification
management to its Purchase Connection customers in 1992, and information
services and insurance brokerage services in 1995. The Company has recently
introduced COHR 835 Direct, a software product facilitating the interface
between hospital and various payor systems. The Company has contracted with two
large insurers, Blue Cross of California and Blue Cross and Blue Shield of New
Jersey, for the distribution rights to COHR 835 Direct. The agreement with Blue
Cross of California provides for exclusive distribution rights in California and
sales minimums covering the software. As of the date of this Prospectus, COHR
835 Direct has been installed in approximately 150 hospital sites. The Company
believes that its Power Connection is the first direct order entry system to be
offered by a GPO and that COHR Order Direct is among the most advanced of such
systems currently available. The Company is committed to aggressively pursue the
introduction of technologically advanced products and services that provide
value-added solutions for its customers.
SERVICES AND PRODUCTS
COHR MASTERPLAN. The Company's COHR MasterPlan division provides a broad
range of services allowing health care providers to manage their equipment
portfolio cost effectively. These services include equipment maintenance and
repair services, consulting services, including technology selection and
purchase, accreditation and licensure, safety planning and the sale of new and
refurbished equipment. The Company operates 28 equipment service and sales sites
in the following locations:
<TABLE>
<S> <C> <C>
Arizona Massachusetts Tennessee
-- Phoenix -- Boston -- Nashville
California New Jersey Texas
-- Brea -- Towaco -- Dallas
-- Chatsworth New York Vermont
-- Murietta -- Islandia -- Burlington
-- Ontario Ohio Virginia
-- Stockton -- Akron -- Fredricksburg
-- Union City -- Cincinnati Washington
Connecticut -- Pickerington -- Arlington
-- Fairfield Oregon -- Seattle
-- Killingworth -- Portland West Virginia
Florida Pennsylvania -- Wheeling
-- Ft. Lauderdale -- Erie
-- Gainesville -- Philadelphia
-- Orlando
</TABLE>
Operations from sites located in Phoenix, Philadelphia, Fairfield, Killingworth,
Orlando, Boston, Nashville, Dallas, Cincinnati, Pickerington, Burlington,
Wheeling and Portland are conducted from the personal residence of a Company
employee. In May 1995, the Company began operations in India where it sells new
and refurbished medical equipment, with comprehensive service support.
27
<PAGE> 29
Maintenance and Repair Services. The Company's maintenance and repair
services are performed by the Company's local technicians who are available on a
24-hour basis to respond to customer calls. Local technicians have access to
technical support specialists. The Company also subcontracts maintenance and
repair contracts locally in markets where the Company has not yet established a
significant presence.
The Company's key product, Maintenance MasterPlan, is a comprehensive
equipment management plan that offers maintenance and repair services at a fixed
cost and, during the first year of the contract, guarantees savings over prior
year's cost. In order to appropriately price a Maintenance MasterPlan contract,
the Company conducts an extensive audit which includes a review of existing
service contracts, time and materials and expenditure histories for maintenance
of the equipment inventory and interviews with key operational managers and
vendors. The data generated from the audit is analyzed and compared with the
Company's 22-year database of equipment maintenance records. The Company then
prepares a comprehensive proposal, which includes guaranteed savings for the
first year of the contract and recommendations for areas of improvement.
Under Maintenance MasterPlan, the Company's customers have the choice of
either using the Company's own technicians or other vendors for equipment
services. The contract's fixed price reflects the anticipated mix between use of
such other vendors. The Company's rates for equipment maintenance and repair
services are in most cases lower than those of other vendors. If the customer
chooses to use other vendors, the Company reviews and pays all invoices from
such vendors and monitors the appropriateness and quality of such services. The
customer is provided an incentive to increase its use of the Company's
maintenance services by receiving a share of the cost savings realized when
actual service costs fall below the contract's fixed price.
Until April 1996 the Company utilized stop loss insurance to limit the
Company's exposure from Maintenance MasterPlan, at which time it began to
self-insure with respect to new and renewed contracts. The Company estimates
that its self-insurance plan will result in substantial savings over past annual
premiums.
The Company also provides repair and refurbishment of certain OEM
discontinued models that continue to be used by customers. In addition to
Maintenance MasterPlan, the Company offers other maintenance contracts on a
fixed price or on a time and material basis. The Company's fixed price contracts
are generally from one to three years, and terminable upon 90 days' notice.
The Company services a broad range of equipment, including radiographic,
cardiac catheterization, ultrasound, computerized tomography, magnetic resonance
imaging, lithotripsy, nuclear medicine, x-ray, biomedical, laboratory, medical
lasers, anesthesia, patient monitoring equipment, sterilizer equipment,
cardiopulmonary equipment and surgical equipment.
Consulting Services. The Company offers various services on a consulting
basis designed to evaluate the overall technical and cost-effectiveness of
customer's clinical equipment and service programs. These services complement
COHR MasterPlan's equipment, repair and maintenance offerings to provide
customers with a full range of their equipment service needs. These services
include technology management, selection and purchase, accreditation surveys,
hazardous materials program development, personal exposure and environmental
surveys, indoor air quality surveys, OSHA regulation compliance, injury and
illness preventions and staff education and safety programs.
Sales of New and Refurbished Equipment. The Company's access to used
medical equipment and its large staff of technical personnel has enabled the
Company to refurbish and sell used medical equipment at competitive prices. In
addition, the Company distributes new mid-range equipment for various OEMs.
PURCHASE CONNECTION. Purchase Connection offers customers access to volume
discount pricing for over 400,000 line items of goods and materials, including
medical, surgical and laboratory supplies, capital equipment, pharmaceuticals
and dietary supplies. It achieves this discount pricing by negotiating contracts
with manufacturers and distributors who are selected through a cyclical bidding
process. Generally, such
28
<PAGE> 30
contracts have three year terms. The Company operates nine regional sales and
customer service sites in the following locations:
California
-- Chatsworth
-- Danville
Florida
-- Loxahatchee
Hawaii
-- Honolulu
Indiana
-- Indianapolis
Missouri
-- St. Louis
New Hampshire
-- Claremont
Oklahoma
-- Tulsa
Pennsylvania
-- Jamison
Except for the site located in Chatsworth, operations are conducted from the
personal residence of a Company employee.
The Company's regional sales representatives meet regularly with customers
in order to identify and update their product needs. The Company's Purchase
Connection product managers, who have extensive experience in the procurement of
products, assess the information obtained from customers and initiate a bidding
process at each bidding cycle, or when a new need is identified. The Company
then submits requests for proposals to manufacturers and distributors and
selects manufacturers and distributors based upon several factors, including
pricing structure, product quality, and inventory and delivery systems.
The Company negotiates commissions with manufacturers and distributors
based upon the purchasing volume placed with such manufacturers and distributors
and also receives a quarterly nominal access fee from its customers. The
commissions from manufacturers and distributors and the access fees from
customers accounted for approximately two-thirds of the revenues of Purchase
Connection in fiscal 1996. In order to verify the amount of commissions to which
it is entitled, the Company currently relies on manufacturers and distributors
to report accurately purchases made by Purchase Connection customers, and the
Company's ability to audit such information based upon customer records.
The customers receive information regarding Purchase Connection's product
offerings through a catalog. The catalog is offered through hard copy and
microfiche and has recently become available through Power Connection, the
Company's electronic catalog. The catalog is updated regularly. Customers place
orders directly with manufacturers and distributors.
Purchase Connection also offers insurance brokerage services and other
employee benefit services, including consultation regarding 401(k) plans,
facility security services, medical credentials verification services, the COHR
835 Direct software program and other information services and performance
improvement consulting.
COHR 835 Direct, the Company's first entry into the electronic
commerce/electronic data interchange ("EDI") market is a software product
designed to facilitate the interface between health care provider and third
party payment systems. The product was developed in response to changes in
federal Health Care Financing Administration's and other payors' claims
processes, which industry sources indicate affect 90% of the institutional
health care provider market. The Company believes that use of the COHR 835
Direct enables users to avoid labor intensive re-keying of data from payor
electronic remittance advices. The Company believes it can make a significant
entry into the specialized institutional health care EDI market by rapid design
and delivery of this and other competitively priced software products for
additional commercial transactions through a national distribution network of
insurance and payor organizations. The Company has contracted with two large
insurers, Blue Cross of California and Blue Cross and Blue Shield of New Jersey,
for the distribution rights to COHR 835 Direct. The agreement with Blue Cross of
California provides for exclusive distribution rights in California and sales
minimums covering the software. The Company is currently engaged in research and
development of additional related software and is in negotiations with other
payors and claims processors for distribution rights. The Company has incurred
research and development costs totalling over $2.5 million since fiscal 1993 for
the development of COHR 835 Direct. Such costs were expensed as incurred.
29
<PAGE> 31
SALES AND MARKETING
As of September 30, 1996, the Company employed 69 people in sales,
marketing and customer service, allocated between COHR MasterPlan and Purchase
Connection. The Company's broad range of products and services for health care
providers allow it to crossmarket its Purchase Connection and COHR MasterPlan
programs. The Company's sales personnel use a comprehensive consultative sales
approach and attempt to leverage relationships in order to sell both programs.
COHR MASTERPLAN. The Company employs 38 sales, marketing and customer
service personnel in its COHR MasterPlan division, who are allocated by region
and specialty.
The Company estimates that the sales cycle for the Maintenance MasterPlan
typically takes six months to consummate. The Company believes that the sales
cycle for contracts other than Maintenance MasterPlan is approximately one
month. Appointments with customers, generated by a combination of print
advertising response, referrals and cold calls, involve a presentation of the
Company's services to the prospective customer.
Many customers enrolling in Maintenance MasterPlan or other service
contracts for the first time are still obligated under certain OEM service
agreements covering recently purchased high technology equipment. The Company
routinely excludes such obligations from the initial Maintenance MasterPlan
agreement, and, with the data from customer equipment audits at hand,
systematically pursues their later inclusion at advantageous prices upon the
expiration of the OEM agreement.
PURCHASE CONNECTION. The Company employs 31 sales, marketing and customer
service personnel in its Purchase Connection division including regionally
located personnel to provide customers with quality service. The Company
generates leads principally through targeted direct mail campaigns to customers
of other GPOs, exhibitions at class-specific trade shows, direct sales efforts
in identified geographic regions, and cross-marketing through other Company
services.
The Company's other services and products are actively promoted through
field sales, by a specialist in the respective discipline. Targeted mailings,
word of mouth, educational programs and cross-marketing are all employed as a
means of promoting these products and services.
EMPLOYEES
As of September 30, 1996, the Company employed a total of 638 persons,
consisting of 69 in sales, marketing and customer service, 293 equipment
technicians, 98 other technical specialists, 106 security guards and 72 in
finance, administrative and research and development. None of its employees is
represented by a labor organization, and the Company considers its relations
with its employees to be good.
The Company believes that it has had much success in attracting and
retaining a high quality equipment technician staff. The Company uses an
in-house training program in order to maintain its high quality service level.
Many of the Company's technicians have been employed by the Company for over
five years.
PROPERTIES
The Company's principal executive offices are located in approximately
76,000 square feet of leased office space in Chatsworth, California, which
houses most of the Company's senior management, as well as management
information systems, finance and human resources, its Purchase Connection
division and the Company's principal equipment services facility. The Company
moved to its present location on September 1, 1996 to consolidate operations,
lower overhead, improve margins and provide future space for operations. The
Company estimates that this move and consolidation will significantly reduce its
lease expenses. The lease for the Chatsworth facility expires in March 2008. The
Company believes that suitable additional and alternative space will be
available in the future on commercially reasonable terms as needed.
The Company also leases service and sales sites in Brea, Murrieta, Ontario,
Stockton and Union City, California; Akron, Ohio; Erie, Pennsylvania; Seattle
and Arlington, Washington; Towaco, New Jersey; Gainesville and Ft. Lauderdale,
Florida; Islandia, New York; and Fredericksburg, Virginia.
COMPETITION
The Company operates in two separate markets, each of which is highly
competitive. In the equipment services market, the Company's principal
competitors are (i) OEMs, including G.E. Medical Systems,
30
<PAGE> 32
Siemens Medical Systems, Inc. and Picker International, Inc., (ii) ISOs, of
which two of the largest are divisions of Steris, Inc. and ServiceMaster, L.P.,
and (iii) in-house servicing departments. In the group purchasing market, the
Company's principal competitors are several major GPOs, including The Premier,
Inc., Voluntary Hospitals of America Inc., MedEcon Services, Inc., AmeriNet,
Inc., Health Services Corporation of America, Inc. and Buy Power, as well as the
in-house corporate purchasing departments of large integrated systems and
multi-hospital systems and various manufacturers and regional GPOs. The
Company's competitors in each of the separate markets have sales representatives
competing directly with the Company, and many are substantially larger and have
substantially greater financial resources than the Company.
The Company believes that the broad mix of products and services and the
favorable pricing structure that it offers its customers enables it to
differentiate itself from many of its competitors. The Company is unaware of any
other company that offers the combination of equipment services, group
purchasing services and other outsourcing services offered by the Company.
REGULATORY MATTERS
The health care industry is highly regulated, and there can be no assurance
that the regulatory environment in which the Company and its customers operate
will not change significantly in the future. The Company is also subject to laws
and regulations relating to business corporations in general. The Company
believes its operations are in material compliance with applicable laws.
Nevertheless, there can be no assurance that a review of the Company's business
or its customers' businesses by courts or regulatory authorities will not result
in a determination that could adversely affect the operations of the Company or
that the health care regulatory environment will not change so as to restrict
the Company's business.
MEDICARE AND MEDICAID FRAUD AND ABUSE. The federal anti-kickback statute
prohibits the offer, payment, solicitation or receipt of any form of
remuneration in return for, or in order to induce, (i) the referral of a person
for the furnishing or arranging for the furnishing of goods, facilities, items
or services reimbursable under Medicare and Medicaid programs or (ii) the
purchase, lease or order or arranging or recommending purchasing, leasing or
ordering of any item or service reimbursable under Medicare or Medicaid
programs. The Company is not a separate provider of Medicare or state health
program reimbursed services; however, if the Company is deemed to be receiving
prohibited remuneration under the group purchasing agreements, the financial
arrangements under these agreements could be subject to scrutiny and prosecution
under the federal anti-kickback statute, resulting in civil and criminal
penalties. Many states have adopted similar prohibitions against payments
intended to induce referrals of Medicaid or other third party payor patients or
covered services.
The federal government has published regulations that provide, among other
things, "safe harbors" from the federal anti-kickback statute relating to GPOs
serving as purchasing agents for entities who are furnishing services for which
payment may be made under Medicare or a state health care program. The group
purchasing safe harbors provide that remuneration prohibited by the
anti-kickback statute does not include any payment by a vendor of goods or
services to entities authorized to act as a GPO, if (i) the GPO has a written
agreement with each entity for which items or services are furnished which
provides that the fee paid by the vendor will be 3% or less of the purchase
price of the goods or services provided by that vendor, and, if the fee is not
fixed at 3% or less, the agreement specifies the amount the GPO will be paid by
each vendor and (ii) the GPO discloses in writing to the health care provider
the amount received from each vendor with respect to purchases made by or on
behalf of the entity. Although the Company does not fall within the safe harbor,
the Company believes that it is not receiving prohibited remuneration because it
discloses in written agreements with its customers that it may collect an
administrative fee (commission) from vendors, its commissions collected from
vendors do not exceed 3% of the purchase price and it makes available upon
request of a provider the amounts it receives from vendors with respect to
purchases made by or on behalf of the entity.
ANTITRUST LAWS. The federal Robinson-Patman Act prohibits both
discriminatory pricing by vendors with respect to the sale of commodities --
i.e., a differential in the net price to customers -- and the payment of
"brokerage" by a vendor to an agent of the purchaser. Many states have adopted
similar prohibitions against
31
<PAGE> 33
discriminatory pricing and payment of brokerage or commissions. Violation of the
Robinson-Patman Act is a crime, punishable with fines up to $5,000 and
imprisonment for a year for each occurrence.
While the Company is not a vendor of commodities, it may be viewed as the
agent for its group purchasing customers authorized to negotiate discounted
pricing with vendors. As a consequence, if the discounts are deemed to be
improper, as a participant in the arrangement, the Company may be subject to
criminal sanctions and civil damages under the statute.
The Company believes that the pricing and commission policies of its
vendors comply with applicable statutory standards, but there can be no
assurance that future interpretations of antitrust laws by regulatory
authorities will not require a restructuring of some or all of the Company's
group purchasing relationships with its vendors or result in a determination
that could adversely affect the Company.
The Company does not believe that the commissions it receives from vendors
are covered by the statutes because it provides services in exchange for
brokerage.
Both the federal Sherman Act and Clayton Act regulate exclusive dealing
agreements, such as the Company's "sole source" contracts with certain vendors.
Such agreements which result in a significant degree of foreclosure of the
market and effectively exclude competitors from a relevant market are unlawful.
However, the Company does not believe that its sole source contracts violate the
Sherman Act or the Clayton Act because the Company is involved in vast
pharmaceutical, medical device and medical products markets, and that it is not
likely that any exclusive contract the Company may enter into would foreclose
sufficient amount of competition, at the national level, to raise any degree of
concern. However, there can be no assurance that either governmental regulators
or courts may not find that these contracts have an anticompetitive effect on a
national or local market, thereby subjecting the Company to possible criminal or
civil litigation. In such event, the Company may be subjected to criminal fines
or sanctions or civil damage awards and, because contracts in violation of these
laws are unenforceable, lose the benefits anticipated to be derived from its
sole source contracts.
Because the Company's group purchasing customers remain separate legal
entities, distinct from each other and from the Company, any concerted action
with vendors through the GPO such as refusal to deal, improper sharing of price
information or other coordinated conduct may lead to allegations of prohibited
anticompetitive conduct, including price fixing, concerted refusals to deal and
agreement to share price information. The Company believes that it complies with
such state and federal laws as may affect group purchasing organizations, but
there is no assurance that the review of the Company's business by courts or
regulatory authorities will not result in a determination that could adversely
affect the operations of the Company.
INSURANCE LAWS AND REGULATIONS. All states regulate the sale and marketing
of insurance products, such as life and health insurance, fire and casualty
insurance and variable annuities. The Company believes it is in material
compliance with applicable laws in the states in which it conducts an insurance
agency business. Recently the Company became aware that following its
reincorporation in Delaware in January 1996 and until October 1996, it had
operated its insurance brokerage business in California without the requisite
license. The Company's predecessor was licensed to conduct the insurance
brokerage business in California until January 1996 and the Company received its
own license in October 1996. The Company has disclosed to the California
Department of Insurance that it had operated an insurance brokerage business in
California without the requisite license from January to October 1996 and the
facts relating thereto. Although the Company has been advised that the
Department of Insurance will open an investigation file in accordance with its
standard procedures, the Company believes, based on discussions with regulatory
officials, that no material enforcement action will be taken against the
Company. There can be no assurance that the Company will not be subject to
penalties or sanctions. Following its reincorporation and prior to receipt of
its own license, the Company had received aggregate brokerage commissions with
respect to policy renewals in California totaling $138,455. Under the California
Insurance Code, the Company could be required to disgorge all of such
commissions. In addition, the California Department of Insurance could fine the
Company an amount up to 30 percent of such commissions or place restrictions or
limitations upon the Company's license, such as a requirement for filing
periodic reports on the Company's insurance brokerage business for a fixed
period of time. The disgorgement of commissions or assessment of penalties, or
the imposition of limitations upon its insurance brokerage
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<PAGE> 34
license in California, either individually or in the aggregate, could have a
material adverse effect on the Company's business. There can be no assurance
that future interpretations of insurance laws by regulatory authorities in the
states in which it conducts business or in the states into which the Company may
expand will not require licensure or a restructuring of some or all of the
Company's insurance operations.
OTHER REGULATIONS. The Company is subject to various federal, state, and
local laws and regulations. Various state and federal regulatory agencies, such
as OSHA and the Environmental Protection Agency, have jurisdiction over the
facilities of the Company and its customers, including worker safety, community
"right to know" laws, and laws regarding clean air and water. Under various
federal, state, and local laws, ordinances and regulations, an owner or lessee
of real estate may also be liable for the costs of removal or remediation of
certain hazardous or toxic substances located on or in, or emanating from, such
property, as well as related costs of investigation and property damage. Such
laws often impose such liability without regard to whether the owner or lessee
knew of, or was responsible for the presence of, such hazardous or toxic
substances. Furthermore, legislative or regulatory changes may cause future
increases in the Company's operating costs or otherwise negatively affect
operations. Although the Company believes it has been and is currently in
substantial compliance with the applicable standards pursuant to such laws and
regulations, there can be no assurance that the Company will not be materially
adversely affected by existing or future requirements or incur materially
increased operating costs in complying therewith.
In 1994, Congress passed the Federal Acquisition Streamlining Act ("FASA")
to improve governmental access to commercial technologies and reduce
administrative overhead costs involved in the governmental acquisition process.
Under FASA's cooperative purchasing program (Section 1555 of FASA), the General
Services Administration is allowed to extend the federal procurement process by
opening all of the Federal Supply Schedules (and the prices contained therein)
to any state and local government and any other public entity. These non-federal
governmental and public entities which, according to an industry source,
constitute over one-third of the market, currently use private sector purchasing
techniques to negotiate discounts with pharmaceutical, medical and surgical
equipment manufacturers. The effective date of FASA has been delayed until April
1, 1997 pending further Congressional review as to the potential effect of the
legislation. If FASA is ultimately implemented and the Federal Supply Schedules
become available to a significantly larger number of hospitals and other health
care providers, the Company believes that FASA might limit the Company's ability
to obtain the pricing discounts currently received by the Company from many of
its vendors. In addition, it is possible that many products now purchased under
group purchasing contracts would be purchased under FASA. If the Company were
unable to obtain such pricing discounts on its purchases, or if its customer
base declined because of FASA, the Company's Purchase Connection business would
be adversely affected.
LEGAL PROCEEDINGS
On November 13, 1995, Steven Hypolite ("Plaintiff") filed a complaint
against the Company in the Superior Court of California, County of Los Angeles
Central District, Case No. HC138977. Plaintiff seeks general damages of $500,000
and punitive damages of $2.0 million, costs of suit and reasonable attorney fees
based upon causes of actions related to Plaintiff's allegation that he was
wrongfully terminated from employment with the Company in November 1994. The
Company denies all allegations of wrongdoing in the complaint and believes that
such allegations are without merit. In October 1996, the Company was granted
summary judgement in its favor on all causes of action. The Company intends to
vigorously defend the action to dismissal and through appeal, if any.
The Company is also involved from time to time in various legal proceedings
incidental to its business. In the opinion of the Company's management, no such
pending litigation is likely to have a material adverse effect on the Company's
business.
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<PAGE> 35
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The names, titles and ages of the executive officers and directors of the
Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------ --- -------------------------------------------
<S> <C> <C>
Paul Chopra 48 Chairman of the Board, President and Chief
Executive Officer
Umesh Malhotra 37 Chief Financial Officer and Assistant
Secretary
Sandy D. Morford 42 Executive Vice President
Lisa Sokol 40 Executive Vice President
David Manigault 38 Executive Vice President
David E. Langness 46 Senior Vice President, Communications
Ronnie J. Messenger(1) 51 Secretary, Treasurer and Director
Stephen W. Gamble(1) 66 Vice Chairman of the Board
James D. Barber(2) 41 Director
Michael I. Matsuura(2) 61 Director
Frederick C. Meyer(2) 56 Director
Lynn P. Reitnouer(1) 63 Director
Louis A. Simpson(1) 59 Director
</TABLE>
- ---------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
Paul Chopra has served as President and Chief Executive Officer of the
Company since 1993, has served as a director since 1984 and has served as
Chairman of the Board since October 1996. Since 1994, Mr. Chopra has served as a
director of HASC. From 1987 to December 31, 1995, he served as the Chief
Financial Officer of HASC. From 1991 to 1993, he served as President and Chief
Operating Officer of the Company and from 1987 to 1991 he served as its
Executive Vice President and Chief Operating Officer. From 1983 to 1987, he
served in various finance related positions with the Company. From 1981 to 1983,
Mr. Chopra served as a management consultant with Cambridge Capital Consultants.
From 1977 to 1980, Mr. Chopra served as Controller for Centronics Data Computer
Corporation and from 1975 to 1977 Financial Planning Manager for Pepsi-Cola,
Inc. Mr. Chopra is a director of SharePlan, a for-profit subsidiary of Hospital
Council of Northern and Central California, which provides fee-for-service
programs for hospitals and health care facilities. Pursuant to Mr. Chopra's
employment agreement with the Company, the Company's Board of Directors will
nominate Mr. Chopra for election to the Board by the Company's stockholders
during the term of the employment agreement. See "-- Employment Agreement."
Umesh Malhotra has served as Chief Financial Officer and Assistant
Secretary of the Company since November 1995. From 1991 to 1995, he served as
the Company's Controller and Vice President of Finance. From 1987 to 1990, Mr.
Malhotra served as an auditor for Deloitte & Touche LLP in Los Angeles and from
1984 to 1986 served as a Chartered Accountant with Price Waterhouse in Great
Britain.
Sandy D. Morford has served as Executive Vice President of the Company
since 1994. From 1979 to 1994, he served as a Senior Vice President of the
Company.
Lisa Sokol has served as Executive Vice President of the Company since
1995. From 1989 to 1995, she served as a Senior Vice President of the Company.
David Manigault has served as Executive Vice President of the Company since
November 1995, and its Chief Information Officer since 1984. He is currently
Chairman of the Healthcare EDI Coalition, a trade group that establishes EDI
pathways based on ANSI X-12 standards.
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<PAGE> 36
David E. Langness has served as Senior Vice President, Communications of
the Company since February 1996. From April 1986 to January 1996, Mr. Langness
served as Vice President, Communications for HASC.
Ronnie J. Messenger has served as a director of the Company since 1984 and
as its Secretary and Treasurer since September 1995. Mr. Messenger has served as
Vice-Chairman and Chief Executive Officer of Paracelsus Healthcare Corporation,
an owner and operator of hospitals and health care systems, since 1992. From
1984 to 1992, he served as its President and Chief Operating Officer. Prior to
joining Paracelsus Healthcare Corporation, he served as Senior Executive Officer
of National Medical Enterprises, which he joined in 1973. Mr. Messenger serves
on the board of numerous health care organizations, including The Federation of
American Health Systems and the California Hospital Association. He also serves
as a member of the Board of Councilors of the University of Southern California.
Stephen W. Gamble has served as a director of the Company since 1984. From
1984 to 1994, Mr. Gamble served as Chairman of the Board of the Company. From
1977 to 1994, Mr. Gamble served as the Chief Executive Officer of HASC. Mr.
Gamble currently serves on the board of, or is a trustee of, numerous charitable
organizations, including the AltaMed Foundation, the Gamble Endowment Fund for
the National Health Foundation and Woodbury University.
James D. Barber has served as a director of the Company since 1990. He has
served as President and Chief Executive Officer of HASC since 1994. From 1989 to
1994, he served as Executive Vice President and Chief Operating Officer of HASC.
Mr. Barber has also served as the Vice Chairman of the National Health
Foundation since 1994.
Michael I. Matsuura has served as a director of the Company since 1993. Mr.
Matsuura has served as Executive Vice President, Treasurer and a Director of
Saint Francis Healthcare System of Hawaii since 1994, and as President of St.
Francis Healthcare Enterprises, Inc., its subsidiary organization, since 1990.
He served in several positions, including Controller, Assistant Administrator,
Administrator and Chief Financial Officer of Saint Francis Medical Center since
1966. Mr. Matsuura has also served as President of Medical Shared Services of
Hawaii, a regional purchasing group, since 1988.
Frederick C. Meyer has served as a director of the Company since 1988. Mr.
Meyer is currently the President and Chief Executive Officer of Southern
California Healthcare Systems, a Southern California nonprofit public benefit
corporation that operates several affiliated hospitals in Southern California.
From 1993 to 1995, he served as the Chief Operating Officer of Southern
California Healthcare Systems. From 1985 to 1993, Mr. Meyer served as President
and Chief Executive Officer of Methodist Hospital of Southern California, a
general acute care hospital affiliated with Southern California Healthcare
Systems. From 1988 to 1992, Mr. Meyer served as a director of HASC. Mr. Meyer
currently serves on the board of Prime Health of Southern California and
Voluntary Hospitals of America West, and also served as a director of several
other nonprofit health care organizations, including California Association of
Hospitals and Health Systems, Blue Cross of California and MetLife of
California.
Lynn P. Reitnouer has served as a director of the Company since 1985, and
as Chairman of the Board from September 1995 to October 1996. Mr. Reitnouer has
been a partner at Crowell, Weedon & Co., an investment firm, since 1969. He also
has served as a director of Hollywood Park, Inc., a Nasdaq National Market
company engaged in horse racing and entertainment, since 1991. Mr. Reitnouer has
served as a director of Forest Lawn Memorial Parks Association since 1975, and
as President since 1986. He has served as a Trustee of the University of
California at Santa Barbara Foundation since 1992. From 1986 to 1988, he served
as a Governor of the National Association of Securities Dealers, Inc.
Louis A. Simpson became a director of the Company in September 1995. He has
served as President and Chief Executive Officer, Capital Operations of GEICO
Corporation since 1993. From 1985 to 1993, he served as Vice Chairman of the
Board of GEICO Corporation. He is a director of Potomac Electric Power Company,
Potomac Capital Investment Corporation, Salomon, Inc., Pacific American Income
Shares, Inc., Western Asset Trust and Thompson PBE. Mr. Simpson also serves as a
Trustee for the Woodrow Wilson National
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<PAGE> 37
Fellowship Foundation, a Regent of Loyola Marymount University and a member of
the Endowment Committee of Ohio Wesleyan University.
CLASSIFIED BOARD OF DIRECTORS
Pursuant to the terms of the Certificate of Incorporation of the Company,
the Board of Directors is divided into three classes. One class holds office for
a term expiring at the annual meeting of stockholders to be held in 1997, a
second class holds office for a term expiring at the annual meeting of
stockholders to be held in 1998 and a third class holds office for a term
expiring at the annual meeting of stockholders to be held in 1999. Each director
holds office for the term to which he is elected and until his successor is duly
elected and qualified. Messrs. Barber, Matsuura and Meyer have terms expiring in
1997, Messrs. Gamble, Messenger and Simpson have terms expiring in 1998 and
Messrs. Chopra and Reitnouer have terms expiring in 1999. At each annual meeting
of the stockholders of the Company, the successors to the class of directors
whose terms expire at such meeting will be elected to hold office for a term
expiring at the annual meeting of stockholders held in the third year following
the year of their election. See "-- Description of Capital Stock -- Classified
Board of Directors and Related Provisions." The Board of Directors elects
officers annually and, subject to the terms of any employment agreement, such
officers serve at the discretion of the Board of Directors. See
"Management -- Employment Agreement."
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors currently has two committees: the Audit Committee
and the Compensation Committee.
The Audit Committee makes recommendations to the Board of Directors of the
Company with respect to the Company's financial statements and the appointment
of independent auditors, reviews significant audit and accounting policies and
practices, meets with the Company's independent public accountants concerning,
among other things, the scope of audits and reports and reviews the performance
of overall accounting and financial controls of the Company.
The Compensation Committee has the responsibility for reviewing the
performance of the chief executive officer of the Company and recommending to
the Board of Directors of the Company annual salary and bonus amounts for the
chief executive officer. The Compensation Committee also administers the
issuance of stock options and other awards under the Company's 1995 Stock Option
Plan.
COMPENSATION OF DIRECTORS
The Company pays an annual fee of $12,000 to its independent directors
(directors who are not employees or officers of the Company). Directors who are
employees or officers of the Company are not paid director's fees. The Company
also reimburses directors for expenses incurred in connection with their
activities on behalf of the Company. In addition, each independent director
receives $1,000 for each meeting of the Board of Directors, or a committee
meeting not held on the day the Board of Directors meets, he or she attends in
person. On October 14, 1996, the Board of Directors instructed management to
prepare a written stock option plan to, in part, substitute the issuance of
options to non-employee directors in lieu of cash compensation.
Directors are also eligible to participate in the Company's 1995 Stock
Option Plan. Concurrently with the closing of the Company's initial public
offering in February 1996, each non-employee director was granted an option to
purchase 5,000 shares of Common Stock, with immediate vesting, and an option to
purchase 2,500 shares of Common Stock on the first and second anniversary date
of the effective date of the initial public offering, vesting as of each
respective anniversary date, provided that each non-employee director continues
to serve on the Board at the time of grant. The exercise price of the foregoing
options was $9.00 per share. Except as stated above, any non-employee director
who serves on the Committee is not eligible to receive grants of options. Mr.
Chopra, a director employed as the Company's Chief Executive Officer and
President, participates in the 1995 Plan as a key employee. See "-- 1995 Stock
Option Plan".
Since August 1994, Stephen W. Gamble, a director of the Company, has
performed consulting services for the Company. Such services included
introductions to potential customers, customer relations and
36
<PAGE> 38
assistance in selecting media placements for the Company's communications
program. The aggregate remuneration paid to Mr. Gamble for such services was
$50,000 in fiscal 1995 and $29,895 in fiscal 1996.
EXECUTIVE OFFICER COMPENSATION
The following table sets forth certain information concerning compensation
paid to the chief executive officer and each of the four other most highly
compensated executive officers of the Company, whose total annual compensation
exceeded $100,000 for services rendered to the Company for the fiscal year ended
March 31, 1996 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------------
ANNUAL COMPENSATION NO. OF LTIP
FISCAL ------------------- OPTIONS PAYOUTS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS GRANTED (1) COMPENSATION(2)
- ---------------------------------- ------ -------- -------- ------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Paul Chopra, 1996 $265,008 $297,227 230,000 $ -- $16,377
Chairman of the Board, President 1995 231,667 68,203 -- 168,645 23,600
and Chief Executive Officer 1994 200,016 58,740 -- -- 23,884
Sandy D. Morford, 1996 181,671 5,000 37,500 -- 91,286
Executive Vice President 1995 147,490 47,758 -- -- 11,696
1994 117,043 -- -- -- 55,802
Lisa Sokol, 1996 150,000 8,000 37,500 -- 74,579
Executive Vice President 1995 125,955 58,692 -- -- 17,351
1994 115,512 526 -- -- 71,141
David Manigault, 1996 118,031 20,000 27,500 -- 35,172
Executive Vice President
and Chief Information Officer 1995 96,912 23,672 -- -- 9,278
1994 92,304 15,871 -- -- 23,693
William J. Greenhouse, 1996 108,720 35,705 15,000 -- 15,555
Senior Vice President of 1995 101,172 18,019 -- -- 14,994
Corporate Development(3) 1994 100,104 19,000 -- -- 14,158
</TABLE>
- ---------------
(1) Pursuant to the Company's Executive Long Term Incentive Plan, $212,254 was
paid to Mr. Chopra in June 1996, at which time the plan terminated.
(2) This amount includes Company contributions to its 401(k) Plan and Money
Purchase Plan on account of such individuals, automobile allowances and
sales commissions.
(3) Mr. Greenhouse resigned from the Company in August 1996.
The following table sets forth information regarding grants of stock
options in the fiscal year ended March 31, 1996 to certain executive officers.
STOCK OPTION GRANTS IN 1996 FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------ VALUE AT
% OF TOTAL ASSUMED ANNUAL RATES OF
OPTIONS STOCK PRICE
GRANTED TO APPRECIATION
NO. OF EMPLOYEES IN EXERCISE FOR OPTION TERM(4)
OPTIONS 1996 FISCAL PRICE EXPIRATION -----------------------
NAME GRANTED(1) YEAR(2) PER SHARE(3) DATE 5% 10%
- -------------------------- ---------- ------------ ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Paul Chopra............... 230,000 49.5% $ 9.00 02/22/06 $1,301,800 $3,298,200
Sandy D. Morford.......... 37,500 8.1 9.00 02/22/06 212,250 537,750
Lisa Sokol................ 37,500 8.1 9.00 02/22/06 212,250 537,750
David Manigault........... 27,500 5.9 9.00 02/22/06 155,650 394,350
William J.
Greenhouse(5)........... 15,000 3.2 9.00 02/22/06 84,900 215,100
</TABLE>
37
<PAGE> 39
- ---------------
(1) Options have a maximum term of 10 years measured from the date of grant,
subject to earlier termination upon the optionee's cessation of service with
the Company. These options vest 25% on the date of grant and on each of the
first through third anniversary dates of grant.
(2) Based on options to purchase 532,500 shares granted to employees in fiscal
1996, including the Named Executive Officers.
(3) The exercise price is equal to 100% of the fair market value of the Common
Stock on the date of grant, as determined by the Board of Directors.
(4) The potential realizable value is calculated based on the term of the option
at its time of grant (10 years). It is calculated assuming that the stock
price on the date of grant appreciates at the indicated annual rate,
compounded annually for the entire term of the option and that the option is
exercised and sold on the last day of its term for the appreciated stock
price. These amounts represent certain assumed rates of appreciation only,
in accordance with the rules of the Securities and Exchange Commission (the
"Commission") and do not reflect the Company's estimate or projection of
future stock price performance. Actual gains, if any, are dependent on the
actual future performance of the Company's Common Stock and no gain to the
optionee is possible unless the stock price increases over the option term,
which will benefit all stockholders.
(5) Mr. Greenhouse resigned from the Company in August 1996. Pursuant to the
terms of the 1995 Plan, the Compensation Committee accelerated the vesting
of the option previously granted to Mr. Greenhouse with respect to an
aggregate of 7,500 shares of Common Stock and his option then terminated
with respect to the remaining shares.
The following table sets forth information regarding the exercise of stock
options by certain executive officers during the fiscal year ended March 31,
1996 and the value of unexercised options at the end of fiscal 1996.
AGGREGATED OPTION EXERCISES IN 1996 FISCAL YEAR AND
OPTION VALUES AT MARCH 31, 1996
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
MARCH 31, 1996 MARCH 31, 1996(1)
NO. OF SHARES -------------- --------------------
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
- ---------------------------------- ------------- -------- -------------- --------------------
<S> <C> <C> <C> <C>
Paul Chopra....................... -- $ -- 57,500/172,500 $445,625/$1,336,875
Sandy D. Morford.................. -- -- 9,375/28,125 72,656/217,969
Lisa Sokol........................ -- -- 9,375/28,125 72,656/217,969
David Manigault................... -- -- 6,875/20,625 53,281/159,844
William J. Greenhouse(2).......... -- -- 3,750/11,250 29,063/87,188
</TABLE>
- ---------------
(1) Based on the fair market value of the Company's Common Stock as of March 31,
1996 ($16.75) minus the exercise price of the options.
(2) Mr. Greenhouse resigned from the Company in August 1996. Pursuant to the
terms of the 1995 Plan, the Compensation Committee accelerated the vesting
of the option previously granted to Mr. Greenhouse with respect to an
aggregate of 7,500 shares of Common Stock and his option then terminated
with respect to the remaining shares.
EMPLOYMENT AGREEMENT
On January 1, 1996 Paul Chopra, the Company's President and Chief Executive
Officer, entered into a five year employment agreement with the Company. The
term of the employment agreement will automatically extend for additional two
year periods on each second anniversary of the effective date, so that at all
times the term of the employment agreement is not less than three nor more than
five years, unless a written
38
<PAGE> 40
notice of non-renewal is delivered by either party. The agreement is subject to
earlier termination by Mr. Chopra or the Company with or without cause. The
agreement provides for a minimum base salary of $265,000, and annual bonuses
conditioned on the Company's achievement of certain performance criteria
established by the Compensation Committee. The agreement also provides that
during the agreement's term the Board will nominate Mr. Chopra for election to
the Board by the Company's shareholders. If Mr. Chopra is terminated by the
Company without cause, or if the agreement is not renewed by the Company, or Mr.
Chopra elects to terminate for cause or following receipt of the Company's
notice of non-renewal, or in the event of a change of control, the agreement
provides that Mr. Chopra will receive as severance (i) a lump sum payment equal
to three years of current base salary and bonuses, and (ii) employee benefits
for the period ending three years following termination. Change of control is
defined in the agreement as any person (other than an employee benefit plan of
the Company or HASC) becoming a 33 1/3 percent or more holder of voting power of
the voting securities of the Company, a merger or consolidation whereby the then
current stockholders hold less than a majority of the voting power of the
surviving entity, a complete liquidation or agreement for sale of all or
substantially all of the assets of the Company or a change in the composition of
the Board of Directors over any consecutive 36-month period which results in a
majority of the Board being comprised of persons who were not nominated by the
Board of Directors of the Company. Mr. Chopra may terminate the agreement for
cause upon a material reduction of his duties, reporting relationships or
authority, a reduction in compensation or benefits, or a relocation of the
principal executive office of the Company outside of the Southern California
area. Should any excise tax payments be due by Mr. Chopra by virtue of Section
4999 of the Internal Revenue Code for "excess parachute payments" due in the
event of certain changes of ownership or control of the Company, the employment
agreement provides that the Company shall pay such additional compensation as is
necessary to put Mr. Chopra in the same after-tax position were no such excise
tax paid or incurred. In the event severance payments are to be paid to Mr.
Chopra, the employment agreement provides for the exchange of complete releases
by each of the Company and Mr. Chopra.
1995 STOCK OPTION PLAN
Pursuant to the Company's 1995 Stock Option Plan (the "1995 Plan"), certain
officers, directors and other key employees of the Company are eligible to
receive non-qualified options to purchase the Company's Common Stock. The 1995
Plan is administered by the Compensation Committee of the Board (the
"Committee"). The maximum number of shares of Common Stock that may be issued
pursuant to options granted under the 1995 Plan is 600,000. As of the date of
this Prospectus, there were outstanding options to purchase 525,000 shares of
Common Stock (net of cancellations).
Under the 1995 Plan, key employees are eligible to be granted options under
the 1995 Plan if so selected by the Committee in its absolute discretion. The
number of shares subject to an option and the term and conditions, including the
purchase price per share of Common Stock subject to each option, shall be set by
the Committee; provided, however, that the exercise price shall not be less than
the fair market value of the Common Stock as of the date the option is granted.
No options granted under the 1995 Plan may be exercised after the expiration of
ten years from the date it was granted. Options granted to non-employee
directors vest immediately. See "-- Compensation of Directors". Options granted
to key employees vest in accordance with the following schedule: (i) 25% upon
the date of grant, (ii) 50% upon the first anniversary of the date of grant,
(iii) 75% upon the second anniversary of the date of the grant, and (iv) 100%
upon the third anniversary of the date of the grant.
Options granted under the 1995 Plan are generally non-transferable. In the
event of any merger, consolidation, sale of all or substantially all of the
assets of the Company or a liquidation involving the Company, all granted or
awarded options will immediately vest in the optionee. Concurrently with the
closing of this offering, each option holder shall automatically become 50%
vested in the nonvested portion of any options previously awarded.
The 1995 Plan may be terminated at any time by the Board.
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<PAGE> 41
1996 STOCK OPTION PLAN
On November 7, 1996 the Board of Directors of the Company has adopted the
1996 Stock Option Plan (the "1996 Plan"), pursuant to which certain officers,
non-employee directors and other key employees of the Company are eligible to
receive non-qualified options to purchase the Company's Common Stock. The 1996
Plan is administered by the Board of Directors; however, either a committee of
the Board composed solely of two or more non-employee directors (the
"Committee") or the Board of Directors may approve the grant of options. The
maximum number of shares of Common Stock that may be issued pursuant to options
granted under the 1996 Plan is 300,000.
The 1996 Plan is subject to approval by the stockholders on or before
November 7, 1997. The Board of Directors will not grant any options under the
1996 Plan unless and until the 1996 Plan is approved by the stockholders.
Under the 1996 Plan, officers and other managerial employees ("Key
Employees") are eligible to be granted options if so selected by the Committee
or the Board of Directors in its absolute discretion. The number of shares
subject to an option and the term and conditions, including the purchase price
per share of Common Stock subject to each option, shall be set by the Committee;
provided, however, that the exercise price shall not be less than the fair
market value of the Common Stock as of the date the option is granted. Options
issued to Key Employees vest 25% upon the date of grant and on each of the
first, second and third anniversary dates of the grant. Options issued to
non-employee directors vest on the date of issuance. No option granted under the
1996 Plan may be exercised after the expiration of ten years from the date it
was granted.
Options granted under the 1996 Plan would be generally non-transferable. In
the event of any merger, consolidation, sale of all or substantially all of the
assets of the Company or a liquidation involving the Company, all granted
options will immediately vest in the optionee.
The 1996 Plan may be terminated at any time by the Board.
401(k) PLAN
In October 1994, the Company adopted a tax-qualified employee savings and
retirement plan (the "401(k) Plan") covering employees of the Company (excluding
certain hourly and commissioned employees) who have completed three months of
service with the Company. Pursuant to the 401(k) Plan, an eligible employee may
elect to defer from 1% to 15% of the total compensation that would otherwise be
paid to such employees, not to exceed the amount allowed by applicable Internal
Revenue Service regulations. The Company makes annual contributions to the
401(k) Plan on behalf of each participating eligible employee to match the first
3% of compensation deferred by such employee. Contributions made by the employee
are fully vested and are not subject to forfeiture at any time. Company
contributions vest over six years of service. The trustee of the 401(k) Plan
invests aggregate contributions in any of several mutual funds directed by the
employee. The 401(k) Plan is intended to qualify under Section 401 of the
Internal Revenue Code so that contributions by employees to the 401(k) Plan, and
income earned on contributions, will not be taxable to employees until
withdrawn, and so that the contributions by employees will be deductible by the
Company when made. During the fiscal year ended March 31, 1996, the Company
contributed an aggregate of $204,999 to the 401(k) Plan including the following
contributions on behalf of the Named Executive Officers: Mr. Chopra, $4,688; Mr.
Morford, $4,800; Ms. Sokol, $4,500; Mr. Manigault, $3,541; and Mr. Greenhouse,
$3,246.
MONEY PURCHASE PLAN
In January 1989, the Company adopted the Money Purchase Plan (the "Money
Purchase Plan"), a retirement plan intended to qualify under Section 401(a) of
the Internal Revenue Code, covering its employees other than certain hourly and
commissioned employees. The Company makes monthly contributions to the Money
Purchase Plan for each participating employee to participate ranging from 2.5%
of total annual compensation for employees with one to ten years of service up
to 10% of total annual compensation for
40
<PAGE> 42
employees of 30 or more years of service, not to exceed $30,000. The
contributions are invested in any of several mutual funds directed by the
employee. No contributions vest for any employee prior to completion of five
years of service; thereafter, contributions are fully vested and not subject to
forfeiture. During fiscal 1996, the Company contributed an aggregate of $208,642
to the Money Purchase Plan including the following contributions on behalf of
the Named Executive Officers: Mr. Chopra, $7,813; Mr. Morford, $8,000; Ms.
Sokol, $7,500; Mr. Manigault, $5,902; and Mr. Greenhouse, $5,410.
EXECUTIVE LONG-TERM INCENTIVE PLAN
The Executive Long-Term Incentive Plan (the "LTIP") was adopted by the
Company in April 1993. Under the terms of the LTIP, Mr. Chopra is the only
employee of the Company authorized to participate. The LTIP is administered
jointly with HASC. The LTIP provides that Mr. Chopra shall be awarded a bonus if
actual cumulative revenues of the Company for the period commencing April 1,
1993 through March 31, 1996 reach or exceed certain scheduled anticipated
cumulative revenues. The bonus may range from $62,008 if actual performance
exceeds the scheduled anticipated performance by not less than 1%, to $380,899
if actual performance exceeds the scheduled anticipated performance by 30% or
more. Under the LTIP, at no time could the sum of all awards paid to all
participants in the LTIP be greater than 6.5% of the Company's earnings before
taxes and dividends. Pursuant to the LTIP, deferred compensation expenses
amounted to $80,000 and $88,645 for fiscal years 1994 and 1995, respectively.
Such amounts were paid to Mr. Chopra in November 1995. Pursuant to the LTIP, an
additional $212,254 was paid to Mr. Chopra in June 1996, at which time the LTIP
terminated.
LIMITATION ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Company's Certificate of Incorporation limits the liability of
directors to the maximum extent permitted by Delaware law. Delaware law provides
that directors of a corporation will not be personally liable for monetary
damages for breach of their fiduciary duties as directors, except for liability
(i) for any breach of their duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) for unlawful
payments of dividends or unlawful stock repurchases or redemptions as provided
in Section 174 of the Delaware Code or (iv) for any transaction from which the
director derived an improper personal benefit.
The Company's By-laws provide that the Company shall indemnify its
directors and executive officers and may indemnify its other officers, employees
and other agents to the fullest extent permitted by law. The Company's By-laws
also permit the Company to enter into indemnification contracts with its
directors and officers and to purchase insurance on behalf of any person it is
required or permitted to indemnify.
The Company has entered into agreements with each of its directors and
executive officers. These agreements, among other things, indemnify the
Company's directors and officers for certain expenses (including attorneys'
fees), judgments, fines and settlement amounts incurred by any such person in
any action or proceeding, including any action by or in the right of the
Company, arising out of such person's services as a director or officer of the
Company, any subsidiary of the Company or any other company or enterprise to
which the person provides services at the request of the Company. The Company
believes that these provisions and agreements are necessary to attract and
retain qualified directors and officers.
At present, there is no pending litigation or proceeding naming any
director or executive officer of the Company where indemnification will be
required or permitted. The Company is not aware of any threatened litigation or
proceeding that is likely to have a material adverse effect on the Company's
business that might result in a claim for such indemnification.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
HASC is a regional trade association comprised of hospitals, integrated
health systems, nursing homes and medical groups. HASC will own approximately
11% of the Company's Common Stock upon completion of this offering. The member
organizations of HASC have been substantial consumers of the Company's
41
<PAGE> 43
products and services, accounting for 33% of the Company's revenues for fiscal
1996. HASC and the Company shared corporate offices and administrative services
from 1976 until September 1, 1996, when the Company moved its corporate offices
to separate facilities. In connection with the Company's relocation, HASC and
the Company entered into a three-year administrative services agreement. This
agreement is terminable on ninety days notice and provides that HASC will pay
the Company a fee for specified administrative services to be provided by the
Company, including accounting and financing, human resources and certain office
services support. This fee is subject to annual adjustment by the cost of living
index. In fiscal 1996, this fee was $299,000.
Mr. Barber, a director of the Company and a member of the Audit Committee,
is the President and Chief Executive Officer and a director of HASC. Mr. Chopra,
the President and Chief Executive Officer of the Company, is also a director of
HASC and, from 1987 to December 31, 1995, served as the Chief Financial Officer
of HASC. Mr. Chopra has received no compensation for his services as a director
or the Chief Financial Officer of HASC. Mr. Malhotra, the Chief Financial
Officer and Assistant Secretary of the Company, has served since January 1, 1996
as the Chief Financial Officer of HASC without compensation.
Three of the Company's directors are also executive officers of entities
which own or control customers of the Company's services. Mr. Meyer is the
president of Southern California Healthcare System, which has three affiliated
hospitals and four skilled nursing facilities. Mr. Matsuura is the executive
vice president of St. Francis Healthcare System of Hawaii. Mr. Messenger is the
president of Paracelsus Healthcare Corporation, which owns and operates 21 acute
care hospitals and four skilled nursing facilities hospitals. The transactions
of the Company with the organizations with which these directors are affiliated
are on the same terms and conditions as those the Company makes available to its
other customers.
On December 5, 1995 the Company entered into a Revolving Credit Agreement
with 1st Business Bank for a credit facility of $2.0 million through June 30,
1996 (subsequently extended to June 30, 1997) at the prime interest rate. HASC
unconditionally guaranteed the payment of the revolving credit loans when due,
whether upon maturity or acceleration. The bank released HASC from such
guarantee upon the consummation of the initial public offering of the Company's
Common Stock whereby HASC's shares of the Company's voting stock fell below 50%.
The Company has entered into an employment agreement with Mr. Chopra, its
President and Chief Executive Officer. See "Management -- Employment Agreement."
On September 11, 1996, Mr. Chopra exercised options granted pursuant to the
1995 Stock Option Plan of the Company for 15,000 shares of Common Stock at a
price of $9.00 per share, or $135,000 in the aggregate.
Since August 1994, Stephen W. Gamble, a director of the Company, has
performed consulting services for the Company. The aggregate remuneration paid
to Mr. Gamble for such services was $50,000 in fiscal 1995 and $29,895 in fiscal
1996. See "Management -- Compensation of Directors."
The Company has entered into indemnification agreements with each of its
directors and executive officers. Such agreements require the Company to
indemnify such individuals to the fullest extent permitted by Delaware law. See
"Management -- Limitation on Liability and Indemnification of Officers and
Directors."
Lynn P. Reitnouer, a director of the Company, is a General Partner of
Crowell, Weedon & Co., which is one of the Representatives of the Underwriters
of this offering. See "Underwriting."
42
<PAGE> 44
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of Common Stock of the Company as of September 30, 1996, and as
adjusted to reflect the sale of Common Stock offered hereby for (i) each person
known by the management of the Company to own beneficially more than five
percent of the outstanding shares of Common Stock, (ii) each director of the
Company, (iii) each of the executive officers, (iv) the Selling Stockholder and
(v) all directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY SHARES
OWNED AFTER BENEFICIALLY
OFFERING IF OWNED AFTER
SHARES BENEFICIALLY OVER-ALLOTMENT OFFERING IF OVER-
OWNED PRIOR TO OPTION NOT ALLOTMENT OPTION
OFFERING(1) NUMBER OF EXERCISED(1)(2) NUMBER OF EXERCISED(1)(2)
--------------------- SHARES ----------------- SHARES -----------------
NAME AND ADDRESS NUMBER PERCENT BEING OFFERED NUMBER PERCENT BEING OFFERED NUMBER PERCENT
- -------------------------------- --------- ------- ------------- ------- ------- ------------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Healthcare Association of
Southern California........... 1,053,030(4) 23.0% 380,344 672,686 11.1% -- 672,686 10.6%
201 N. Figueroa Street, Suite
400
Los Angeles, California 90012
LGT Asset Management, Inc.(3)... 524,400 11.4 -- 524,400 8.6 -- 524,400 8.3
50 California Street, 27th
Floor
San Francisco, CA 94111-4624
Hospital Council Coordinated
Programs, Inc................. 58,970 1.3 19,656 39,314 * -- 39,314 *
2333 Camino Del Rio South,
Suite 200
San Diego, CA 92108-3607
Louis A. Simpson(2)............. 50,000 1.1 -- 50,000 * -- 50,000 *
Paul Chopra(2).................. 42,500 * -- 128,750 2.1 20,000 108,750 1.7
Ronnie J. Messenger(2).......... 20,000 * -- 20,000 * -- 20,000 *
James D. Barber(2).............. 12,000 * -- 12,000 * -- 12,000 *
Sandy D. Morford(2)............. 9,375 * -- 23,438 * -- 23,438 *
Lisa Sokol(2)................... 9,375 * -- 23,438 * -- 23,438 *
Stephen W. Gamble(2)............ 9,000 * -- 9,000 * -- 9,000 *
Umesh Malhotra(2)............... 6,875 * -- 17,188 * 3,000 14,188 *
Lynn P. Reitnouer(2)............ 5,000 * -- 5,000 * -- 5,000 *
Michael I. Matsuura(2).......... 5,000 * -- 5,000 * -- 5,000 *
Frederick C. Meyer(2)........... 5,000 * -- 5,000 * -- 5,000 *
David E. Langness(2)............ 3,750 * -- 9,375 * -- 9,375 *
David Manigault(2).............. 1,875 * -- 12,188 * 2,000 10,188 *
All directors and executive
officers as a group (13
persons)(2)................... 179,750 3.8 -- 320,377 5.0 -- 295,377 4.5
</TABLE>
- ---------------
* Represents beneficial ownership of less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of Common Stock subject to options held by that person that are
currently exercisable, or become exercisable within 60 days following the
anticipated closing date of this offering, are deemed outstanding. However,
such shares are not deemed outstanding for purposes of computing the
percentage ownership of any other person. Unless otherwise indicated in the
footnotes to this table, the persons and entities named in the table have
sole voting and sole investment power with respect to all shares
beneficially owned, subject to community property laws where applicable.
(2) Represents shares which may be acquired within 60 days pursuant to options
granted under the 1995 Plan and, with respect to the following individuals,
shares owned directly and beneficially: Mr. Simpson, 45,000 shares; Mr.
Messinger, 15,000 shares; Mr. Barber, 7,000 shares; and Mr. Gamble, 4,000
shares. Concurrently with the closing of this offering, holders of
outstanding options granted pursuant to the 1995 Stock Option Plan of the
Company automatically become 50% vested in the nonvested portion of such
options. Shares issuable upon exercise of such options were included in
computing the number of shares beneficially owned after this offering.
(3) Based on a Schedule 13D filing dated as of October 4, 1996.
(4) Such shares are voted by the Board of Directors of HASC which consists of 17
members, two of whom are also directors of the Company.
43
<PAGE> 45
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 20,000,000 shares
of Common Stock, $0.01 par value, and 2,000,000 shares of Preferred Stock, $0.01
par value (the "Preferred Stock").
COMMON STOCK
As of September 30, 1996, there were 4,582,000 shares of Common Stock
outstanding and held by 23 stockholders of record.
The holders of Common Stock are entitled to one vote for each share held of
record on each matter submitted to a vote of stockholders. The holders of Common
Stock are not entitled to cumulative voting rights with respect to the election
of directors, and as a result, minority stockholders will not be able to elect
directors on the basis of their votes alone. Subject to preferences that may be
applicable to any then outstanding Preferred Stock, holders of Common Stock are
entitled to receive ratably such dividends as may be declared by the Board of
Directors out of funds legally available therefor. See "Dividend Policy." In the
event of the liquidation or dissolution of the Company, holders of Common Stock
are entitled to share ratably in all assets remaining after payment of
liabilities and the liquidation preference, if any, of any then outstanding
Preferred Stock. Holders of Common Stock have no preemptive rights and have no
rights to convert their Common Stock into any other securities. The outstanding
Common Stock is, and the Common Stock to be sold by the Company in this offering
will be, fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors is authorized, without further action by the
stockholders, to issue up to 2,000,000 shares of Preferred Stock in one or more
series, and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences, sinking fund terms and the number of shares
constituting any series or the designation of such series, without any further
vote or action by stockholders. Although it presently has no intention to do so,
the Board of Directors, without stockholder approval, can issue Preferred Stock
with voting and conversion rights which could adversely affect the voting power
of the holders of Common Stock and the likelihood that such holders will receive
dividend payments and payments upon liquidation. The issuance of Preferred Stock
may have the effect of delaying, deferring or preventing a change in control of
the Company. At present, the Company has no plans to issue any of the Preferred
Stock.
WARRANTS
As of September 30, 1996 there were warrants outstanding to purchase
150,000 shares of Common Stock at an exercise price of $10.80 per share (the
"Warrants"). The Warrants were sold to Needham & Company, Inc. and Wedbush
Morgan Securities for $0.01 per share in connection with the Company's initial
public offering. The Warrants are exercisable from February 22, 1997 through
February 22, 2001. The Company has granted certain registration rights to the
holders of the Warrants. See "-- Registration Rights."
REGISTRATION RIGHTS
Pursuant to registration rights agreement with the Company, HASC and HCCP
who will hold an aggregate of 712,000 shares of Common Stock following this
offering, will have certain rights with respect to registration of such shares
of Common Stock under the Securities Act. Under the terms of the agreement, if
the Company proposes to register any of its securities under the Securities Act
for its own account or for the account of others, such stockholders are entitled
to include such shares therein, subject to the right of Needham & Company, Inc.
to exclude some or all of the shares for marketing reasons.
The Warrants provide the holders thereof certain rights with respect to
registration of shares which could be received upon exercise of the Warrants.
Under the terms of the agreements, under certain conditions, the holders of the
Warrants may require the Company to register the shares of Common Stock that
could be issued upon exercise of the Warrants. Moreover, if the Company proposes
to register any of its securities under
44
<PAGE> 46
the Securities Act for its own account or for the account of others, the holders
of the Warrants are entitled to elect to include in such registration the shares
issuable upon exercise of the Warrants.
CLASSIFIED BOARD OF DIRECTORS AND RELATED PROVISIONS
The Company's Certificate of Incorporation provides that the Board of
Directors is divided into three classes, and that the directors serve staggered
terms of three years each. See "Management." The purpose of the classified board
is to promote conditions of continuity and stability in the composition of the
Board of Directors and in the policies formulated by the Board of Directors, by
insuring that in the ordinary course, at least two-thirds of the directors will
at all times have at least one year's experience as directors. The classified
board structure may prevent stockholders who do not approve of the policies of
the Board of Directors from removing a majority of the Board of Directors at a
single annual meeting, because it will normally take two annual meetings of
stockholders to elect a majority of the Board. Directors of the Company may be
removed from office by stockholders prior to the expiration of their terms only
for cause and only by the affirmative vote of 67% of the total voting power of
all outstanding securities of the Company entitled to vote generally in the
election of directors.
DELAWARE ANTI-TAKEOVER LAW
The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203"), an anti-takeover law. In general, the statute prohibits a
publicly held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years from the date the
stockholder becomes an interested stockholder unless the transaction is approved
in a prescribed manner. For purposes of Section 203, a "business combination"
includes a merger, asset sale or other transaction resulting in a financial
benefit to the interested stockholder, and an "interested stockholder" is a
person who, together with affiliates and associates, owns (or within three years
prior, did own) 15% or more of the corporation's voting stock.
SPECIAL VOTING REQUIREMENTS
Delaware law generally requires the approval of a corporation's board of
directors and the subsequent affirmative vote of a majority of the shares
entitled to vote on the subject matter to amend the Certificate of Incorporation
of a Delaware corporation, unless the Certificate of Incorporation requires a
greater percentage. The Company's Certificate of Incorporation requires the
affirmative vote of 67% of the total voting power of all outstanding securities
for certain amendments to the Company's Certificate of Incorporation (e.g.,
power of the Board of Directors to amend the By-laws, 67% stockholder vote
required to amend the By-laws, classified and staggered board, authority of the
board to fill vacancies, right to remove directors only for cause, prohibition
on stockholder action by written consent, limitation on right to call special
stockholder meetings) and for any amendment of or adoption of any bylaw
provisions.
OTHER PROVISIONS RELATING TO STOCKHOLDERS
The Company's By-laws also contain provisions requiring that special
meetings of stockholders may be called only by the Board of Directors. In
addition, any action taken by the stockholders of the Company must be effected
at an annual or special meeting of stockholders and may not be taken by written
consent.
TRANSFER AGENT AND REGISTRAR
Chase Mellon Shareholder Services LLC is the transfer agent and registrar
for the Company's Common Stock.
45
<PAGE> 47
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market could
adversely affect the market price of the Common Stock.
Upon completion of this offering, the Company will have 6,082,000 shares of
Common Stock outstanding. Of such shares, (i) 5,370,000 shares (consisting of
the 1,900,000 shares offered hereby, the 3,450,000 shares sold in the Company's
initial public offering and 20,000 shares issued upon the exercise of options)
will be freely tradeable in the public market and (ii) 712,000 shares held by
HASC and HCCP are "restricted securities" within the meaning of Rule 144 of the
Securities Act (the "Restricted Stock"). HASC and HCCP have agreed not to sell
or otherwise dispose of any Restricted Stock without the prior written consent
of the representatives of the underwriters in the Company's initial public
offering through February 16, 1998, subject to certain registration rights. See
"Description of Capital Stock -- Registration Rights." After the expiration of
such period, 672,686 shares held by HASC may be sold in accordance with Rule
144, subject to the applicable volume, holding period and other limitations of
Rule 144, and 39,314 shares held by HCCP may be sold immediately. The Company's
directors and executive officers have agreed not to sell or otherwise dispose of
any shares of Common Stock for a period of 180 days from the date of this
Prospectus without the prior written consent of the representatives of the
Underwriters. The Company's directors and executive officers currently hold an
aggregate of 71,000 shares of Common Stock and options to purchase 390,000
shares of Common Stock (of which 286,875 will be exercisable and available for
sale upon the expiration of the 180-day lock-up period).
In general, under Rule 144 as currently in effect, an affiliate of the
Company, or stockholder (or stockholders whose shares are aggregated) who has
beneficially owned restricted securities for at least two but less than three
years, will be entitled to sell within any three-month period a number of shares
that does not exceed the greater of (i) 1% of then outstanding shares of Common
Stock (approximately 6,080 shares immediately after this offering) or (ii) the
average weekly trading volume during the four calendar weeks immediately
preceding the date on which notice of the sale is filed with the Securities and
Exchange Commission. Sales pursuant to Rule 144 are also subject to certain
provisions regarding the manner of sale, notice requirements and the
availability of current public information about the Company. A stockholder (or
stockholders whose shares are aggregated) who is not deemed to have been an
affiliate of the Company at any time during the 90 days immediately preceding
the sale and who has beneficially owned his or her shares for at least three
years is entitled to sell such shares under Rule 144(k) without regard to the
limitations described above.
A total of 600,000 shares of Common Stock have been reserved for issuance
pursuant to the 1995 Plan. Options to purchase 525,000 shares of Common Stock
(net of cancellations) have been granted and are outstanding under the 1995
Plan. See "Management -- 1995 Stock Option Plan." Subsequent to the closing of
this offering, the Company intends to file a registration statement under the
Securities Act to register shares of Common Stock reserved for issuance under
the 1995 Plan, thus permitting the resale of such shares by nonaffiliates in the
public market without restriction under the Securities Act. Such registration
statement will become effective immediately upon filing.
46
<PAGE> 48
UNDERWRITING
Under the terms and subject to the conditions of the Underwriting
Agreement, the Underwriters named below, for whom Needham & Company, Inc.,
Oppenheimer & Co., Inc., Crowell, Weedon & Co. and Wedbush Morgan Securities
Inc. are acting as representatives (the "Representatives"), have severally
agreed to purchase from the Company and the Selling Stockholders, and the
Company and the Selling Stockholders have agreed to sell to each Underwriter,
the aggregate number of shares of Common Stock set forth opposite their
respective names in the table below. The Underwriting Agreement provides that
the obligations of the Underwriters to pay for and accept delivery of the shares
of Common Stock are subject to certain conditions precedent, and that the
Underwriters are committed to purchase and pay for all shares if any shares are
purchased.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
------------------------------------------------------------- ----------------
<S> <C>
Needham & Company, Inc. .....................................
Oppenheimer & Co., Inc. .....................................
Crowell, Weedon & Co. .......................................
Wedbush Morgan Securities Inc. ..............................
---------
Total................................................... 1,900,000
=========
</TABLE>
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock to the public at the offering price
set forth on the cover page of this Prospectus and to certain dealers (who may
include the Underwriters) at such price less a concession not in excess of
$ per share. The Underwriters may allow, and such dealers may reallow,
a concession to certain other dealers (who may include the Underwriters) not in
excess of $ per share. After the offering to the public, the offering
price and other selling terms may be changed by the Representatives.
The Company and certain of the Selling Stockholders have granted an option
to the Underwriters, exercisable during the 30-day period after the date of this
Prospectus, to purchase up to a maximum of 285,000 shares of Common Stock at
$ per share, less the underwriting discounts and commissions, set forth on
the cover page of this Prospectus. The Underwriters may exercise such option
only to cover over-allotments made in connection with the sale of the Common
Stock offered hereby. To the extent the Underwriters exercise such option, each
of the Underwriters will be committed, subject to certain conditions, to
purchase approximately the same percentage of such additional shares as the
number of shares of Common Stock to be purchased by such Underwriter as shown in
the above table bears to the total shown.
In the Underwriting Agreement, the Company and the Selling Stockholders
have agreed to indemnify the Underwriters against certain liabilities that may
be incurred in connection with this offering, including liabilities under the
Securities Act, or to contribute payments that the Underwriters may be required
to make in respect thereof.
In connection with this offering, certain Underwriters and selling group
members (if any) may engage in passive market making transactions in the Common
Stock on the Nasdaq National Market immediately prior to the commencement of the
sale of shares in this offering, in accordance with Rule 10b-6A under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Passive market
making consists of displaying bids on Nasdaq limited by the bid prices of market
makers not connected with the offering and purchases limited by such prices and
effected in response to order flow. Net purchases by a passive market maker on
each day are limited in amount to 30% of the passive market maker's average
daily trading volume in the Common Stock during a period of two months prior to
the filing with the Securities and Exchange Commission of the Registration
Statement of which this Prospectus is a part and must be discontinued when such
limit is reached. Passive market making may stabilize the market price of the
Common Stock at a level above that which might otherwise prevail and, if
commenced, may be discontinued at any time.
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.
47
<PAGE> 49
HASC and HCCP have agreed that, without the prior written consent of the
representatives of the underwriters in the Company's initial public offering,
they will not, directly or indirectly, offer, sell, contract to sell or
otherwise dispose of any shares of Common Stock or any securities convertible or
exchangeable therefor for two years after the date of this Prospectus, subject
to certain exceptions upon exercise of such stockholders' registration rights.
See "Description of Capital Stock -- Registration Rights."
The Company's directors and officers have agreed that, without the prior
written consent of the Representatives, they will not, directly or indirectly,
offer, sell, contract to sell or otherwise dispose of any shares of Common Stock
or any securities convertible or exchangeable therefor for 180 days after the
date of this Prospectus.
The Company has agreed that, without the prior written consent of the
Representatives, it will not offer, sell, contract to sell or otherwise dispose
of any shares of Common Stock or any securities convertible or exchangeable
therefor for a period of 180 days following the date of this Prospectus other
than shares or options issued under the 1995 Plan.
Under the Rules of the National Association of Securities Dealers, Inc.
("NASD"), when an NASD member such as Crowell, Weedon & Co. participates in the
distribution of equity securities of an affiliate, the public offering price can
be no higher than that recommended by a "qualified independent underwriter" (as
defined in NASD Rule 2720) (a "QIU") meeting certain standards. Lynn P.
Reitnouer, a director of the Company, is a general partner of Crowell, Weedon &
Co. Based on Mr. Reitnouer's involvement with the Company, the Company may be
considered an affiliate of Crowell, Weedon & Co. Accordingly, Needham & Company,
Inc. has agreed to serve as QIU in this offering and to recommend a price in
compliance with the Rules of the NASD.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company and the Selling Stockholders by Musick, Peeler & Garrett LLP, Los
Angeles, California. Certain legal matters relating to this offering will be
passed upon for the Underwriters by Cooley Godward LLP, San Diego, California.
EXPERTS
The financial statements and related financial statement schedule of the
Company as of March 31, 1995 and 1996 and for each of the three years in the
period ended March 31, 1996, included in this Prospectus and Registration
Statement have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their reports appearing herein and elsewhere in the Registration
Statement, and are included in reliance upon the reports of such firm given upon
their authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (the "Registration
Statement") under the Securities Act with respect to the Common Stock offered
hereby. This Prospectus, which constitutes part of the Registration Statement,
omits certain of the information set forth in the Registration Statement and the
exhibits and schedules filed therewith. For further information with respect to
the Company and the Common Stock offered hereby, reference is hereby made to
such Registration Statement and to the exhibits and schedules filed therewith.
Statements contained in this Prospectus regarding the contents of any contract
or other document are not necessarily complete, and in each instance reference
is made to the copy of such contract or document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. The Registration Statement, including the exhibits and schedules
thereto, may be inspected without charge at the principal office of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, and will also be
available for inspection and copying at the regional offices of the Commission
located at Seven World Trade Center, Suite 1300 New York, New York 10048 and 500
West Madison Street, Suite 1400, Chicago, Illinois
48
<PAGE> 50
60661. Copies of such material can also be obtained from the Public Reference
Section of the Commission upon payment of the prescribed fees.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act and, in accordance therewith, files reports, proxy and information
statements and other information with the Commission. Such reports and other
information can be inspected and copies of such material can be obtained upon
payment of prescribed rates at the public reference facilities maintained by the
Commission at the Public Reference Section, 450 Fifth Street N.W., Judiciary
Plaza, Washington, D.C. 20549, and at the Commission's Regional Offices at Seven
World Trade Center, Suite 1300, New York, New York 10048 and 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. The Commission maintains a Web site
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission; the address
of the Commission's Web site is http://www.sec.gov. The shares of the Company's
Common Stock are included on the Nasdaq National Market under the symbol CHRI;
reports, proxy and information statements and other information concerning the
Company can be inspected at such exchange.
49
<PAGE> 51
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.......................................................... F-2
Consolidated Balance Sheets at March 31, 1995 and 1996 and at June 30, 1996
(unaudited)......................................................................... F-3
Consolidated Statements of Income for the Three Years Ended March 31, 1996 and for the
Three Month Periods Ended June 30, 1995 and 1996 (unaudited)........................ F-4
Consolidated Statements of Stockholders' Equity for the Three Years Ended March 31,
1996 and the Three Month Period Ended June 30, 1996 (unaudited)..................... F-5
Consolidated Statements of Cash Flows for the Three Years Ended March 31, 1996 and the
Three Month Periods Ended June 30, 1995 and 1996 (unaudited)........................ F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE> 52
INDEPENDENT AUDITORS' REPORT
ON FINANCIAL STATEMENT SCHEDULE AND EXHIBIT
Board of Directors and Stockholders of
COHR Inc. and subsidiary
Los Angeles, California:
We have audited the accompanying consolidated balance sheets of COHR Inc.
and subsidiary (the "Company") as of March 31, 1995 and 1996, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended March 31, 1996. Our audits also included
the financial statement schedule and exhibit listed in the Index at Item 16.
These financial statements, financial statement schedule and exhibit are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements, financial statement schedule and exhibit
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
the Company as of March 31, 1995 and 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
March 31, 1996 in conformity with generally accepted accounting principles.
Also, in our opinion, such additional financial statement schedule and exhibit,
when considered in relation to the basic consolidated financial statements taken
as a whole, present fairly in all material respects the information set forth
therein.
Deloitte & Touche LLP
Los Angeles, California
May 24, 1996
F-2
<PAGE> 53
COHR INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1995 AND 1996 AND AT SEPTEMBER 30, 1996 (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT NUMBER OF SHARES)
ASSETS (Note 10)
<TABLE>
<CAPTION>
MARCH 31,
------------------- SEPTEMBER 30,
1995 1996 1996
------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents................................ $ 4,453 $19,314 $ 9,498
Accounts Receivable:
Trade, net of allowance for doubtful accounts of $773
(1995) and $835 (1996).............................. 8,441 12,644 17,988
Other................................................. 751 1,233 218
Inventory................................................ 1,999 3,486 5,080
Prepaid expenses and other............................... 446 620 808
Deferred income tax asset (Note 5)....................... 749 806 904
------- ------- -------
Total current assets............................. 16,839 38,103 34,496
Equipment and improvements, net (Note 3)................... 2,727 3,718 5,389
Intangible assets, net of accumulated amortization of $113
(1995) $280 and (1996) (Note 4).......................... 1,967 2,530 5,827
Other assets............................................... 80 121 260
------- ------- -------
Total...................................................... $21,613 $44,472 $45,972
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable -- trade................................ $ 1,365 $ 2,092 $ 2,072
Accrued expenses (Note 7)................................ 1,988 3,372 3,323
Accrued liabilities -- COHR MasterPlan................... 4,636 4,498 2,285
Deferred revenue (Note 10)............................... 4,242 4,586 3,517
Income tax liability (Note 5)............................ 360 -- 369
Current portion of long-term debt (Notes 4 and 6)........ 121 85 1,291
------- ------- -------
Total current liabilities........................ 12,712 14,633 12,857
Deferred income tax liability, Net (Note 5)................ 342 448 402
Deferred compensation (Note 7)............................. 169 -- --
Long-term debt (Notes 4 and 6)............................. 528 276 1,423
Long-term deferred rent (Note 10).......................... 592 -- --
Commitments and Contingencies (Note 10)
Stockholders' Equity (Note 9):
Preferred stock, $.01 par value; 2,000,000 shares
authorized; no shares issued and outstanding
Common stock, $.01 par value; 20,000,000 shares
authorized; 2,112,000 (1995) and 4,562,000 (1996)
shares issued and outstanding......................... 844 869 869
Additional paid-in capital............................... 2,179 22,104 22,284
Retained earnings........................................ 4,247 6,142 8,137
------- ------- -------
Total stockholders' equity....................... 7,270 29,115 31,290
------- ------- -------
Total...................................................... $21,613 $44,472 $45,972
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 54
COHR INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE YEARS ENDED MARCH 31, 1996
AND FOR THE SIX MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1996 (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
MARCH 31, SEPTEMBER 30,
--------------------------- -----------------
1994 1995 1996 1995 1996
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues......................................... $25,643 $43,660 $66,254 $30,834 $41,670
Direct operating expenses........................ 16,870 30,099 48,195 22,311 29,992
------- ------- ------- ------- -------
Gross profit..................................... 8,773 13,561 18,059 8,523 11,678
Selling, general and administrative expenses
(Note 2)....................................... 7,309 11,523 14,559 6,951 8,625
------- ------- ------- ------- -------
Operating income................................. 1,464 2,038 3,500 1,572 3,053
Interest income.................................. 127 137 155 79 315
Interest expense................................. -- (42) (30) (34) (9)
------- ------- ------- ------- -------
Income before income taxes....................... 1,591 2,133 3,625 1,617 3,359
Provision for income taxes (Note 5).............. 645 765 1,483 646 1,364
------- ------- ------- ------- -------
Net income....................................... $ 946 $ 1,368 $ 2,142 $ 971 $ 1,995
======= ======= ======= ======= =======
Net income per share............................. $ 0.45 $ 0.65 $ 0.88 $ 0.46 $ 0.41
======= ======= ======= ======= =======
Weighted average number of common stock and
common stock equivalents outstanding during
the period..................................... 2,112 2,112 2,428 2,112 4,832
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 55
COHR INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED MARCH 31, 1996
AND THE SIX MONTH PERIOD ENDED SEPTEMBER 30, 1996 (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT NUMBER OF SHARES AND DIVIDENDS PER SHARE)
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK ADDITIONAL STOCK-
------------------ PAID-IN RETAINED HOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
--------- ------ ---------- --------- --------
<S> <C> <C> <C> <C> <C>
Balance, April 1, 1993.......................... 2,112,000 $844 $ 2,179 $2,396 $ 5,419
Dividend paid to parent company -- $2,150 per
share...................................... -- -- -- (227) (227)
Net income.................................... -- -- -- 946 946
--------- ---- ------- ------ -------
Balance, March 1, 1994.......................... 2,112,000 844 2,179 3,115 6,138
Dividend paid to parent company -- $2,225 per
share...................................... -- -- -- (236) (236)
Net income.................................... -- -- -- 1,368 1,368
--------- ---- ------- ------ -------
Balance, March 31, 1995......................... 2,112,000 844 2,179 4,247 7,270
Net proceeds from sale of common stock through
an initial public offering (Note 9)........ 2,450,000 25 19,925 -- 19,950
Dividend paid to parent company -- $2,350 per
share...................................... -- -- -- (247) (247)
Net income.................................... -- -- -- 2,142 2,142
--------- ---- ------- ------ -------
Balance, March 31, 1996......................... 4,562,000 869 22,104 6,142 29,115
Proceeds from exercise of stock options....... 20,000 -- 180 -- 180
Net income.................................... -- -- -- 1,995 1,995
--------- ---- ------- ------ -------
Balance, September 30, 1996 (unaudited)......... 4,582,000 $869 $22,284 $8,137 $31,290
========= ==== ======= ====== =======
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 56
COHR INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED MARCH 31, 1996
AND FOR THE SIX MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1996 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
MARCH 31, SEPTEMBER 30,
------------------------------- -------------------
1994 1995 1996 1995 1996
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net income.................................................. $ 946 $ 1,368 $ 2,142 $ 971 $ 1,995
------- ------- ------- ------- -------
Adjustments to Reconcile Net Income to Net Cash (Used In)
Provided by Operating Activities:
Depreciation and amortization............................. 502 691 838 436 462
Provision for losses on accounts receivable............... 149 31 62 30 140
Deferred income tax (benefit) provision................... (1,201) (181) 49 (31) (79)
Long term deferred rent................................... (329) (369) (592) --
Changes in Assets and Liabilities, Net of Effect of
Acquisitions of Certain Assets:
Accounts Receivable:
Trade................................................ (1,200) (3,611) (4,265) 1,054 (4,475)
Other................................................ (281) 237 (482) (58) 288
Inventory............................................... (492) (695) (1,078) (700) (1,199)
Prepaid expenses and other.............................. (388) 93 (174) 110 (180)
Other assets............................................ 4 (20) (41) (59) (132)
Accounts payable -- trade............................... 101 483 727 (399) 83
Accrued expenses........................................ 154 (128) 1,234 156 74
Accrued liabilities -- COHR MasterPlan.................. 521 797 (138) (11) (2,213)
Deferred revenue........................................ 213 3,465 344 (1,959) (1,343)
Income taxes liability.................................. 1,046 (735) (360) (360) 323
Deferred compensation................................... 80 89 (169)
------- ------- ------- ------- -------
Total adjustments.................................... (1,121) 147 (4,045) (1,791) (8,251)
------- ------- ------- ------- -------
Net cash (used in) provided by operating
activities......................................... (175) 1,515 (1,903) (820) (6,256)
------- ------- ------- ------- -------
Cash Flows From Investing Activities:
Capital expenditures........................................ (650) (465) (1,427) (437) (1,291)
Payment for acquisition of certain assets................... (480) (1,293) (1,387) (3,886)
------- ------- ------- ------- -------
Net cash used in investing activities................ (1,130) (1,758) (2,814) (437) (5,177)
------- ------- ------- ------- -------
Cash Flows From Financing Activities:
Payment of dividends to parent company...................... (227) (236) (247) (247)
Issuance of long term debt.................................. -- -- -- 1,498
Repayment of loan payable................................... -- (221) -- --
Payments and current maturities on long-term debt, net...... -- (21) (125) (16) (61)
Net proceeds from sale of common stock...................... -- -- 19,950
Exercise of stock options................................... -- -- -- -- 180
------- ------- ------- ------- -------
Net cash (used in) provided by financing
activities......................................... (227) (478) 19,578 (263) 1,617
------- ------- ------- ------- -------
Net (decrease) increase in cash and cash equivalents.......... (1,532) (721) 14,861 (1,520) (9,816)
Cash and cash equivalents, beginning of period................ 6,706 5,174 4,453 4,453 19,314
------- ------- ------- ------- -------
Cash and cash equivalents, end of period...................... $ 5,174 $ 4,453 $19,314 $ 2,933 $ 9,498
======= ======= ======= ======= =======
Supplemental Disclosures of Cash Flow Information -- Cash Paid
During the Period for:
Income taxes................................................ $ 802 $ 1,680 $ 1,843 $ 1,047 $ 1,010
======= ======= ======= ======= =======
Interest.................................................... -- $ 5 $ 37 $ 2 $ 9
======= ======= ======= ======= =======
Details of Businesses or Assets Acquired at Fair Value are as
Follows:
Current assets.............................................. $ 47 $ 475 $ 409 $ 1,988
Equipment................................................... 218 228 235 905
Goodwill and other intangibles.............................. 215 1,865 893 3,410
------- ------- ------- ------- -------
480 2,568 1,537 6,303
Liabilities assumed......................................... -- 600 -- 2,417
Debt issued for acquisitions................................ -- 675 150
------- ------- ------- ------- -------
Net cash paid for acquisitions.............................. $ 480 $ 1,293 $ 1,387 $ 3,886
======= ======= ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 57
COHR INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE YEARS ENDED MARCH 31, 1994, 1995 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Description -- COHR Inc. and subsidiary (the "Company") provides
fee-for-service products and services to hospitals and other health care
providers (see Note 12 for information relating to the Company's business
segments).
The Company was formerly a majority owned subsidiary of Healthcare
Association of Southern California ("HASC"). Effective February 16, 1996, the
Company became a publicly held company at which time HASC became a minority
shareholder (see Note 9).
Basis of Presentation -- The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiary, COHR MasterPlan (India)
Private Limited, located in New Delhi, India. The operations of the subsidiary
began in May 1995 and are deemed immaterial to the consolidated financial
statements as a whole. All intercompany accounts and transactions have been
eliminated.
Use of Estimates -- The preparation of the consolidated financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts in the
consolidated financial statements and accompanying notes. Actual results could
differ from the estimates.
Cash Equivalents -- The Company considers all highly liquid investments
purchased with initial maturities of three months or less to be cash
equivalents. The Company actively evaluates the creditworthiness of the
financial institutions with which it invests.
Inventory -- Inventory, consisting primarily of medical equipment repair
parts, is stated at the lower of cost or market, cost being determined on the
first-in, first-out basis.
Equipment and Improvements -- Equipment and improvements are stated at
cost, net of accumulated depreciation and amortization. Depreciation of
furniture and equipment and amortization of improvements is provided for using
the straight-line method over the estimated useful lives of the respective
assets, as follows:
<TABLE>
<S> <C>
Computer equipment and software........... 5 years
Office furniture and equipment,
automobile.............................. 3 to 7 years
Technical equipment....................... 5 to 10 years
Leasehold improvements.................... Shorter of lease
term or useful
life
</TABLE>
Intangible Assets -- Goodwill and other purchased intangible assets are
stated at amortized cost and amortized on a straight-line basis over 15 years.
The projection of undiscounted future cash flows of the operations are evaluated
at each reporting period in assessing the recoverability of goodwill and other
purchased intangibles.
Accrued Liabilities -- COHR MasterPlan and Deferred Revenue -- The COHR
MasterPlan is a program whereby the Company contracts with hospitals on an
annual basis to manage the hospitals' equipment maintenance and repairs. The
Company bills the hospitals in advance, and revenues on those contracts are
recognized over the contract period. On a monthly basis, an accrual is recorded
for the estimated expense on these contracts for expenses that have been
incurred. When actual repairs or maintenance are paid for, the accrued liability
account is reduced to the actual cost incurred. Losses, if any, on maintenance
contracts are recorded when known.
F-7
<PAGE> 58
COHR INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR EACH OF THE YEARS ENDED MARCH 31, 1994, 1995 AND 1996
Income Taxes -- The asset and liability approach is applied in accounting
for income taxes in accordance with Statement of Financial Accounting Standards
("SFAS") No. 109, "Accounting for Income Taxes." Under this method, deferred tax
assets and liabilities are recorded to reflect the future tax consequences of
events that have been recognized in the Company's financial statements but have
not yet been recognized for tax purposes. Such deferred income tax asset and
liability computations are based on enacted tax laws and rates applicable to
years in which the differences are expected to affect taxable income. A
valuation allowance is established, when necessary, to reduce deferred income
tax assets to the amount expected to be realized. The provision for income taxes
is the tax payable or refundable for the year adjusted for the change during the
year in deferred income taxes.
Fair Value of Financial Instruments -- The Company adopted the provisions
of SFAS No. 107, "Fair Value of Financial Instruments." The fair values of cash
and cash equivalents approximate their carrying values due to the short-term
nature of such instruments. The fair values of other financial instruments
including accounts receivable, notes payable, accounts payable, accounts payable
- -COHR MasterPlan and deferred revenue, are deemed not to be materially different
from the carrying values. Such fair values were determined by discounting future
cash flows using the current interest rate at the reporting date.
Impairment of Long-Lived Assets -- In accordance with the provisions of
SFAS No. 121, the Company regularly reviews long-lived assets and intangible
assets for impairment whenever events or changes in circumstances indicate that
the carrying amount to the asset may not be recoverable. No impairment losses
were required for the year ended March 31, 1996.
Current Accounting Pronouncements -- The Financial Accounting Standards
Board has issued SFAS No. 123, "Accounting for Stock-Based Compensation," which
encourages companies to account for stock compensation awards based on their
fair value at the date the awards are granted. This statement does not require
the application of fair value method and allows the continuance of current
accounting method, which requires accounting for stock compensation awards based
on their intrinsic value as of the grant date. However, SFAS No. 123 requires
proforma disclosure of net income and, if presented, earnings per share, as if
the fair value based method of accounting defined in this statement had been
applied. The accounting and disclosure requirements of this statement are
effective for financial statements for fiscal years beginning after December 15,
1995, although earlier adoption is encouraged. The Company has elected not to
adopt the fair value provisions of this statement.
Concentration of Credit Risk -- The Company provides services to hospitals
and other health care providers throughout the United States. The Company's
trade accounts receivable are exposed to credit risk; however, such risk is
limited due to the large numbers and geographic dispersion of the customer base.
The Company monitors the creditworthiness of its customers and provides
allowances for doubtful accounts where appropriate.
Research and Development -- Research and development costs are expensed as
incurred. Such cost amounted to $810 (1994), $940 (1995) and $990 (1996).
Net Income per Share -- Net income per common share is computed using the
weighted average number of common stock and common stock equivalents outstanding
during the year.
Reclassifications -- Certain reclassifications have been made to the prior
periods consolidated financial statements to conform them to the current
period's presentation.
Unaudited Financial Statements -- The balance sheet of the Company at June
30, 1996 and the statements of income for the three months ended June 30, 1995
and 1996 are unaudited, but, in the Company's opinion, reflect all adjustments
(consisting of only normal recurring adjustments) necessary for a fair
presentation of the financial position and results of operations for such
periods. The results for the three
F-8
<PAGE> 59
COHR INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR EACH OF THE YEARS ENDED MARCH 31, 1994, 1995 AND 1996
months ended June 30, 1996 are not necessarily indicative of the operating
results to be expected for the full year.
2. RELATED-PARTY TRANSACTIONS
The Company had related-party transactions resulting from the allocation of
expenses (including rent and insurance) from HASC of $1,822 (1994), $1,975
(1995) and $2,427 (1996), and expenses incurred by the Company (including
accounting, payroll and personnel costs) of $2,217 (1994), $2,625 (1995) and
$2,448 (1996), on behalf of HASC and an affiliate, National Health Foundation.
Expenses allocated to the Company from HSAC are included in selling, general and
administrative expenses in the accompanying statements of income. Occupancy
costs are allocated based upon square footage utilized by the respective
entities. Accounting, payroll and personnel costs are allocated based upon the
identification of tasks performed for the individual companies.
3. EQUIPMENT AND IMPROVEMENTS
Equipment and improvements consist of:
<TABLE>
<CAPTION>
MARCH 31,
-----------------
1995 1996
------ ------
(IN THOUSANDS)
<S> <C> <C>
Computer equipment and software............................ $2,120 $2,648
Office furniture and equipment............................. 1,229 1,395
Technical equipment........................................ 1,457 2,059
Leasehold improvements..................................... 385 403
Automobiles................................................ -- 29
Leased equipment........................................... -- 319
------ ------
5,191 6,853
Less accumulated depreciation and amortization............. 2,464 3,135
------ ------
$2,727 $3,718
====== ======
</TABLE>
4. ACQUISITIONS
During fiscal 1995 and 1996, the Company acquired the businesses of several
small entities similar to that of the Company through a purchase of certain
assets and service contract rights and an assumption of certain liabilities. In
addition, the Company assumed the operating leases on the facilities of some of
these entities. Following is a summary of the assets acquired and liabilities
assumed at estimated fair market value:
<TABLE>
<CAPTION>
MARCH 31,
-----------------
1995 1996
------ ------
(IN THOUSANDS)
<S> <C> <C>
Accounts receivable........................................ $ 283 --
Inventory.................................................. 169 $ 409
Prepaid expenses and other................................. 23 --
Equipment and improvements................................. 228 235
Goodwill................................................... 670 893
------ ------
1,373 1,537
------ ------
Accounts payable and accrued liabilities................... (303) --
Loan payable............................................... (221) --
Long-term debt............................................. (76) --
------ ------
(600) --
------ ------
Net assets of businesses acquired.......................... $ 773 $1,537
====== ======
</TABLE>
F-9
<PAGE> 60
COHR INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR EACH OF THE YEARS ENDED MARCH 31, 1994, 1995 AND 1996
During fiscal 1995, the Company also purchased customer lists for approximately
$1.2 million.
The purchases of these businesses and intangible assets were made through
the cash payments of approximately $1,293 (1995) and $1,387 (1996), the issuance
of $80 (1995) and $150 (1996) short-term promissory notes and a $595 (1995)
long-term note payable, which was net of imputed interest of $155 (1995) (see
Note 6 relating to subsequent year adjustment to such long-term note payable).
The $221 loan payable assumed in one 1995 acquisition was subsequently repaid.
Supplemental pro forma information is not presented because the impact of the
acquisitions on the Company's results of operations would not be material.
5. INCOME TAXES
The provision for income taxes includes the following:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------
1994 1995 1996
------- ----- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal........................................... $ 1,537 $ 717 $ 1,117
State............................................. 309 229 317
------ ---- ------
1,846 946 1,434
------ ---- ------
Deferred:
Federal........................................... (1,029) (122) 25
State............................................. (172) (59) 24
------ ---- ------
(1,201) (181) 49
------ ---- ------
Total provision for income taxes.................... $ 645 $ 765 $ 1,483
====== ==== ======
</TABLE>
Deferred income taxes for fiscal 1995 and 1996 reflect the impact of
temporary differences between the financial statement and tax bases of assets
and liabilities. The tax effects of the temporary differences that create
deferred tax assets and liabilities at March 31, 1995 and 1996 are as follows:
<TABLE>
<CAPTION>
MARCH 31,
---------------
1995 1996
----- -----
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets - current:
Compensation - related accruals........................... $ 302 $ 354
Balance sheet reserves.................................... 382 314
State income taxes........................................ 65 108
Deferred compensation..................................... -- 95
Prepaid expenses.......................................... -- (65)
----- -----
Gross deferred tax assets................................... 749 806
----- -----
Deferred tax liabilities - noncurrent:
Depreciation.............................................. (415) (448)
Deferred compensation..................................... 73 --
----- -----
Gross deferred tax liabilities.............................. (342) (448)
----- -----
Net deferred tax assets..................................... $ 407 $ 358
===== =====
</TABLE>
F-10
<PAGE> 61
COHR INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR EACH OF THE YEARS ENDED MARCH 31, 1994, 1995 AND 1996
The differences between federal income tax computed at the statutory rate
and the actual tax provisions are shown as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Provision at statutory rate............................ 34.0% 34.0% 34.0%
State income tax, net of federal benefit............... 6.2 6.2 6.6
Adjustment for prior year provision.................... -- (4.9) --
Permanent differences.................................. .3 .6 .3
---- ---- ----
Effective tax rate..................................... 40.5% 35.9% 40.9%
==== ==== ====
</TABLE>
6. LONG-TERM DEBT
Long-term debt at March 31, 1995 and 1996 consists of (in thousands):
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Noninterest bearing note payable with original terms of $750
due in five annual installments of $150 each starting in
July 1995. If in any fiscal year the gross annual revenue of
a certain acquired business drops below a specified amount,
the next anniversary payment following the end of such year
shall be reduced by a defined amount. The balance of the
note payable is net of imputed interest of $155 (effective
rate of 8.25%) at March 31, 1995 (Note 4). In 1996, due to
the decrease in the gross annual income of the acquired
business, the projected cash payments for the remaining term
of the note were adjusted to $100 per year. The balance of
the note payable is net of imputed interest of $78
(effective interest rate of 9.25%) at March 31, 1996. The
decrease in the fair value of the note reduced goodwill of
the acquired business by $163............................... $595 $322
Noninterest bearing notes payable of $77 and $11 due in
installments through 1998. The balance of these notes
payable is net of imputed interest of $6 and $5 (effective
rate of 8.25%) at March 31, 1995 and 1996, respectively
(Note 4).................................................... 54 39
---- ----
649 361
Less current portion.......................................... 121 85
---- ----
$528 $276
==== ====
</TABLE>
Principal, plus imputed interest, paid in 1996 was approximately $120.
The expected future installments under the long-term debt (including
imputed interest), for the years ending March 31, are as follows (in thousands):
<TABLE>
<S> <C>
1997.................................. $122
1998.................................. 117
1999.................................. 100
2000.................................. 100
----
$439
====
</TABLE>
7. DEFERRED COMPENSATION
On April 1, 1993, the Company adopted a long-term executive deferred
compensation plan (the "Plan"). The Plan provided compensation to the
participating executive upon meeting certain goals as specified in a formal
agreement between the Company and the participant. The Plan was terminated in
April 1996; therefore, the remaining obligation of $220 is included in accrued
expenses as it will be paid in fiscal 1997.
F-11
<PAGE> 62
COHR INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR EACH OF THE YEARS ENDED MARCH 31, 1994, 1995 AND 1996
Deferred compensation expense amounted to $80, $89 and $220 for the years
ended March 31, 1994, 1995 and 1996, respectively.
8. PENSION AND PROFIT SHARING PLANS
The Company maintains profit sharing and salary deferral plans qualified
under Sections 401(a) and 401(k), respectively, of the Internal Revenue Code. As
of January 1, 1996, the employees of the Company were transferred from the
multi-employer plans to new plans, which are solely for the benefit of the
employees of the Company. The provisions of the new plans are identical to the
prior plans. These plans cover all employees who meet the requirements of the
plans. The total expenses charged to operations relating to these plans were
$501 (1994), $414 (1995) and $627 (1996).
9. STOCKHOLDERS' EQUITY
Preferred Stock -- On January 16, 1996, the Company was reincorporated in
the state of Delaware and, in connection therewith, the stockholders and the
Board of Directors of the Company adopted and approved the authorization of
2,000,000 shares of preferred stock at a par value of $0.01 per share.
Common Stock -- In November 1995, the Company increased the number of
shares of common stock from 1,000 to 20,000,000 and effected a 20,000-for-1
split in the form of a common stock dividend. All share and per share data have
been restated to reflect the stock split.
On February 16, 1996, the Company closed its initial public offering of its
common stock. Of the 3,000,000 shares sold at $9.00 per share in the offering,
2,000,000 were sold by the Company, and 1,000,000 were sold by HASC and Hospital
Council Coordinated Programs, Inc. (the "Selling Stockholders"). The Company did
not receive any proceeds from the sale of shares by the Selling Stockholders.
The remaining 1,112,000 shares held by the Selling Stockholders at the date of
the initial public offering are not eligible for sale until February 16, 1998
without prior written consent of the Company.
On March 6, 1996, the underwriters purchased 450,000 common shares at $9.00
per share to cover over-allotment.
The proceeds to the Company from the sale of 2,450,00 shares amounted to
$19,950,000, which was net of underwriters discounts and offering expenses of
approximately $2,100,000.
Stock Option Plan -- The Board of Directors and stockholders of the Company
have adopted and approved a 1995 Stock Option Plan (the "1995 Plan"), pursuant
to which certain officers, directors and other key employees of the Company are
eligible to receive nonqualified options to purchase the Company's common stock.
The maximum number of shares of common stock that may be issued pursuant to
options granted under the 1995 Plan is 600,000. Options to purchase 465,000
shares of common stock were issued to the officers and directors of the Company.
The exercise price of the foregoing options is at $9.00 per share, which
represented the offering price of the stock at the time of the initial public
offering. Each nonemployee director was granted an option to purchase 5,000
shares of common stock on February 16, 1996 and an option to purchase 2,500
shares of common stock on the first and second anniversary date of the effective
date of the offering, provided that each nonemployee director continues to serve
on the Board at the time of grant. Such options will vest immediately upon the
date of grant. Options granted to key employees vest in accordance with the
following schedule: (i) 25% upon the date of grant, (ii) 50% upon the first
anniversary of the date of grant, (iii) 75% upon the second anniversary of the
date of grant, and (iv) 100% upon the third anniversary of the date of grant. At
March 31, 1996, 142,500 options were exercisable under the 1995 Plan.
F-12
<PAGE> 63
COHR INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR EACH OF THE YEARS ENDED MARCH 31, 1994, 1995 AND 1996
The following table sets forth activity under the 1995 Stock Option Plan
for the year ended March 31, 1996:
<TABLE>
<S> <C>
Balance April 1, 1995
Options Granted at $9 per share.... 465,000
Options Exercised.................. --
Options Expired.................... --
-------
Balance March 31, 1996............. 465,000
=======
</TABLE>
10. COMMITMENTS AND CONTINGENCIES
The Company leases its facilities and certain equipment under noncancelable
operating leases. Certain of these leases include renewal provisions at the
option of the Company. Rent expense amounted to $929 (1994), $1,000 (1995) and
$1,052 (1996).
Aggregate minimum lease commitments under noncancelable operating lease
agreements, exclusive of adjustments for taxes and other expenses, for the years
ending March 31, are as follows (in thousands):
<TABLE>
<S> <C>
1997............................... $ 1,430
1998............................... 863
1999............................... 689
2000............................... 668
2001............................... 668
Thereafter......................... 5,714
-------
$10,032
=======
</TABLE>
The lease for the current corporate office of the Company will expire in
August 1996. As such, the remaining portion of the long-term deferred rent of
$204 is included in deferred revenue as a current liability for the year ended
March 31, 1996. A lease has been signed for the Company's new facility,
commencing August 1996 and expiring in January 2009. The other leases contain
renewal options, and management expects that, in the normal course of business,
such leases will be renewed or replaced by other leases upon expiration.
In December 1995, the Company signed a $2.0 million revolving line of
credit agreement with a bank bearing an initial variable interest rate indexed
at the bank's Reference Rate. This line is collateralized by the Company's
tangible and intangible assets and expires on June 30, 1996. No amounts have
been borrowed against this line of credit during the year ended March 31, 1996.
In the normal course of business, the Company is involved in various
litigation. Based upon communication with legal counsel, in the opinion of
management, the disposition of all pending litigation will not have a material
adverse effect on the Company's financial position, results of its operations or
liquidity.
11. SUBSEQUENT EVENTS
Subsequent to March 31, 1996, the Company acquired the businesses of three
companies similar to that of COHR Inc. Two of the acquisitions included the
purchase of certain assets including inventory, equipment, and other assets, for
a combined purchase price of $590, of which $540 was paid in cash, with a short
term note issued for the remainder. The remaining acquisition was a purchase of
the common stock for a purchase price of $2,300, $1,300 of which was paid in
cash with the remaining $1,000 due May 1997 and 1998, bearing interest of 7%.
F-13
<PAGE> 64
COHR INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR EACH OF THE YEARS ENDED MARCH 31, 1994, 1995 AND 1996
12. BUSINESS SEGMENTS
The Company currently provides services to the health care industry through
two principal business segments. The COHR MasterPlan provides equipment
maintenance and repairs to hospitals and other health care providers. The
Purchase Connection is a group purchasing organization that negotiates pricing
for its membership with manufacturers. General corporate expenses are classified
as "Corporate and Other." Identifiable assets are those used in the Company's
operations in each segment as estimated by management based upon factors such as
revenue generated, number of personnel and space occupied by each segment.
Information concerning the Company's business segments in fiscal 1994, 1995 and
1996 is as follows:
<TABLE>
<CAPTION>
EQUIPMENT PURCHASING CORPORATE
SERVICES SERVICES AND OTHER TOTAL
--------- ---------- --------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1994
Revenues......................................... $12,617 $ 13,026 -- $25,643
Operating income (expense)....................... 178 4,333 ($3,047) 1,464
Identifiable assets.............................. 6,932 2,586 6,318 15,836
Depreciation and amortization.................... 161 174 167 502
Capital expenditures............................. 208 225 217 650
1995
Revenues......................................... $28,042 $ 15,618 -- $43,660
Operating income (expense)....................... 1,498 5,559 ($5,019) 2,038
Identifiable assets.............................. 11,975 3,683 5,955 21,613
Depreciation and amortization.................... 315 215 161 691
Capital expenditures............................. 200 135 130 465
1996
Revenues......................................... $48,160 $ 18,094 -- $66,254
Operating income (expense)....................... 2,409 6,941 ($5,850) 3,500
Identifiable assets.............................. 19,523 3,771 21,178 44,472
Depreciation and amortization.................... 558 214 66 838
Capital expenditures............................. 1,182 193 52 1,427
</TABLE>
13. QUARTERLY INFORMATION 1995 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED FISCAL YEAR 1995
---------------------------------------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1994 1994 1994 1995
-------- ------------- ------------ ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net revenues.................................. $8,367 $ 9,765 $ 11,592 $13,936
Gross profit.................................. 2,921 3,163 3,408 4,069
Operating income.............................. 511 413 502 612
Net income.................................... $ 326 $ 266 $ 319 $ 457
====== ====== ======= =======
Net income per share.......................... $ 0.15 $ 0.13 $ 0.15 $ 0.22
====== ====== ======= =======
Weighted average number of common stock
outstanding................................. 2,112 2,112 2,112 2,112
</TABLE>
F-14
<PAGE> 65
COHR INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR EACH OF THE YEARS ENDED MARCH 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
QUARTER ENDED FISCAL YEAR 1996
---------------------------------------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1995 1995 1995 1996
-------- ------------- ------------ ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net revenues................................. $ 15,369 $15,465 $ 16,667 $18,753
Gross profit................................. 4,294 4,229 4,481 5,055
Operating income............................. 734 838 815 1,113
Net income................................... $ 457 $ 514 $ 478 $ 693
======= ======= ======= =======
Net income per share......................... $ 0.22 $ 0.24 $ 0.23 $ 0.19
======= ======= ======= =======
Weighted average number of common stock
outstanding................................ 2,112 2,112 2,112 3,650
</TABLE>
F-15
<PAGE> 66
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS. IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER OR THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OTHER THAN THE SHARES OF COMMON STOCK TO WHICH THIS
PROSPECTUS RELATES, OR AN OFFER IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
Use of Proceeds....................... 12
Price Range of Common Stock........... 12
Dividend Policy....................... 12
Capitalization........................ 13
Selected Financial Data............... 14
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 15
Business.............................. 22
Management............................ 34
Certain Relationships and Related
Transactions........................ 41
Principal and Selling Stockholders.... 43
Description of Capital Stock.......... 44
Shares Eligible For Future Sale....... 46
Underwriting.......................... 47
Legal Matters......................... 48
Experts............................... 48
Additional Information................ 48
Available Information................. 49
Index to Financial Statements......... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
1,900,000 Shares
LOGO
Common Stock
------------------------
PROSPECTUS
------------------------
Oppenheimer & Co., Inc.
Needham & Company, Inc.
Crowell, Weedon & Co.
Wedbush Morgan Securities
------------------------
, 1996
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 67
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Estimated expenses payable in connection with the proposed sale of Common
Stock covered hereby are as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee............... $ 18,291
National Association of Securities Dealers, Inc. Fee.............. 6,536
Nasdaq National Market............................................ 17,500
Blue Sky Fees and Expenses........................................ 70,000
Printing and Engraving............................................ 60,000
Legal Fees and Expenses........................................... 100,000
Accounting Fees and Expenses...................................... 40,000
Transfer Agent.................................................... 6,000
Miscellaneous..................................................... 31,673
--------
Total........................................................... $350,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The General Corporation Law of Delaware, Section 145, gives Delaware
corporations broad powers to indemnify their present and former directors and
officers and those of affiliated corporations against expenses incurred in the
defense of any lawsuit to which they are made parties by reason of being or
having been such directors or officers. Such provisions also give a director or
officer who successfully defends an action the right to be so indemnified
subject to specified conditions and exclusions and authorizes Delaware
corporations to buy directors' and officers' liability insurance. Such
indemnification is not exclusive of any other rights to which those indemnified
may be entitled under any by-law, agreement, vote of stockholders or otherwise.
The Company's By-Laws require that the Company indemnify its officers and
directors to the full extent authorized under the Delaware General Corporation
Law. The standard for indemnification applicable in all cases (excepting
indemnification in connection with the successful defense of any proceeding or
matter which is mandatory under the Delaware General Corporation Law and the
By-Laws without reference to any such standard) is that the individual shall
have acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful, except that no indemnification is permitted with respect to litigation
brought by or in the right of the Company in respect of any claim, issue or
matter as to which the director or officer is adjudged to be liable for
negligence or misconduct in the performance of his duty to the Company unless
and only to the extent that the Delaware Court of Chancery or the court in which
the action is brought determines that such person is entitled to indemnity for
such expenses as said Court deems to be proper.
The Delaware indemnification statute described above in general, is
nonexclusive and allows a corporation to expand the scope of indemnification,
whether provided by provisions in its bylaws or by agreement. The Bylaws
authorize the Company to contract with directors, officers and other agents of
the Company and to provide such persons with indemnification for breach of duty
to the Company and its stockholders in excess of indemnification otherwise
provided by Delaware law. In accordance with such authorization, the Company has
entered into indemnification agreements with present and certain of its former
directors and certain officers who are not directors (the "Indemnification
Agreements"). The Company believes that these provisions will assist it in
attracting and retaining qualified directors, officers and other agents.
Under the Indemnification Agreements, the Company's directors and officers
who are involved in an action other than an action by or in the right of the
Company will be indemnified by the Company against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement in connection
with specific actions, suits or proceedings, whether civil, criminal,
administrative or investigative. Under current law
II-1
<PAGE> 68
and the Indemnification Agreements, the Company may advance expenses incurred by
an officer, director, employee or agent in defending a proceeding, provided that
the person seeking such advances provides a written undertaking to the Company
to repay all amounts so advanced if it is ultimately determined that such person
is not entitled to indemnification.
The Indemnification Agreements will not provide indemnification for matters
or claims (a) to the extent paid under an insurance policy; (b) initiated by the
officer or director (unless authorized by the Board of Directors); (c) for an
accounting of profits under Section 16(b) of the Securities Exchange Act of 1934
and any similar provisions of statutory or common law; or (d) for any acts or
omissions as to which indemnification is not permitted under applicable law.
Although the enforceability of the provisions of the Indemnification
Agreements has not been tested in court and remains subject to public policy
considerations, the Company believes that such provisions are permitted under
the laws of Delaware. Although the Indemnification Agreements will not expressly
provide for exclusion of liability arising under federal securities laws (except
for a violation of Section 16(b) of the Securities Exchange Act of 1934), the
Company understands that it is the opinion of the Securities and Exchange
Commission that such indemnification is against public policy. The Company may
be required to undertake to submit issues regarding such indemnification to an
appropriate court and be governed by the outcome of such submission.
The Company intends to apply for and purchase liability policies to
indemnify its officers and directors against loss arising from claims by reason
of their legal liability for acts as officers and directors, subject to
limitations and conditions to be set forth in the policies. Such insurance
coverage, however, may be inadequate in certain circumstances; and in those
circumstances the Company will be acting as a self-insurer of amounts that might
be sought pursuant to the Indemnification Agreements in excess of its insurance
coverage. Should the Company be required to pay amounts as a result of the
Indemnification Agreements in excess of the amounts for which it has obtained
insurance, it is possible that such amounts, individually or in the aggregate,
could adversely impact the Company's financial condition and, in turn, the
stockholders' equity in the Company.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The Company granted effective February 22, 1996 to certain officers,
directors and other key employees of the Company options to purchase an
aggregate of 465,000 shares of Common Stock of the Company, of which 142,000
shares were exercisable immediately following the date of grant. The options
were granted in reliance upon the exemption from registration afforded by Rule
701 of the Securities and Exchange Commission of the Securities Act of 1933, as
amended (the "Securities Act") for offers and sales of securities pursuant to
written compensatory benefit plans and the belief that the granting of the
options did not involve a sale of securities within the meaning of the
Securities Act. The Company sold to Paul Chopra, the Company's Chief Executive
Officer and President, on September 3, 1996 and to David Manigault, an Executive
Vice President and Chief Information Officer of the Company, on August 26, 1996,
15,000 and 5,000 shares, respectively, upon exercise of such options in reliance
upon the exemption from registration afforded by Rule 701 under the Securities
Act. Mr. Chopra resold his shares on September 11, 1996, and Mr. Manigault
resold his shares on August 28, 1996 to a market maker, Needham & Company, Inc.,
in reliance upon the exemption from registration afforded by Rules 144 and 701
under the Securities Act. The Company granted on July 26, 1996 to certain key
employees of the Company options to purchase an aggregate of 67,500 shares of
Common Stock of the Company, of which 16,875 shares were exercisable immediately
following the date of grant. The options were granted in reliance on the
exemption from registration afforded by Section 4(2) of the Securities Act.
The Company intends to register the shares issuable upon exercise of the
options described above on a Form S-8 Registration Statement.
II-2
<PAGE> 69
ITEM 16. EXHIBITS AND FINANCIAL SCHEDULE
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- ---------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement.
3.3** Certificate of Incorporation of Registrant.
3.4** By-laws of Registrant.
4.1** Form of Warrant to purchase Common Stock.
4.2** Registration Rights Agreement between Registrant, Healthcare
Association of Southern California ("HASC") and Hospital
Council Coordinated Programs, Inc., dated February 16, 1996.
4.3** Specimen Stock Certificate.
5.1 Opinion of Musick, Peeler & Garrett.
10.1** Form of Indemnity Agreement entered into between Registrant and
each of its executive officers and directors.
10.2** Employment Agreement between Registrant and Paul Chopra,
effective January 1, 1996.
10.3** Executive Long-Term Incentive Plan of Registrant.
10.4** 1995 Stock Option Plan of Registrant and Form of Nonstatutory
Option Grant Under the Plan.
10.5**** Revolving Credit Agreement between Registrant and 1st Business
Bank, dated June 11, 1996, together with Promissory Note and
General Security Agreement.
10.8** Consulting Agreement between Registrant and Stephen W. Gamble
dba Gamble's Victory Marine, dated August 1, 1994.
10.9** Administrative Services Agreement between Registrant and
Healthcare Association of Southern California, dated January 1,
1996.
10.10*** Office Lease between TCEP II Properties and Registrant dated
May 8, 1996.
10.11 1996 Stock Option Plan of Registrant.
11.1* Statement re Computation of Per Share Earnings.
21.1* Subsidiaries of Registrant.
23.1* Consent of Deloitte & Touche LLP.
23.2 Consent of Musick, Peeler & Garrett (included in Exhibit 5.1
hereto).
24.1* Power of Attorney.
</TABLE>
- ---------------
* Previously filed.
** Incorporated by reference to such numbered exhibit included in Item 16(a),
Part II of Registrants' Form S-1 Registration Statement No. 33-80635 as
filed with the Commission on December 18, 1995.
*** Incorporated by reference to such numbered exhibit included in Item 14(a),
Part III of Registrant's Annual Report for the fiscal year ended March 31,
1996 on Form 10-K as filed with the Commission.
**** Incorporated by reference to such numbered exhibit included in Item 6(a),
Part II of Registrant's Quarterly Report for the fiscal quarter ended
September 30, 1996 on Form 10-Q as filed with the Commission.
***** To be filed by amendment.
II-3
<PAGE> 70
(b) FINANCIAL SCHEDULE
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS(1) OF PERIOD
- ------------------------------------------ ---------- ---------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Year Ended March 31, 1994................. $593 $229 $0 $ (80) $742
Year Ended March 31, 1995................. $742 $155 $0 $ (124) $773
Year Ended March 31, 1996................. $773 $205 $0 $ (143) $835
</TABLE>
- ---------------
(1) Represents accounts receivable written off against the allowance for
doubtful accounts.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liability arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
of paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The Registrant hereby undertakes that, for purposes of determining any
liability under the Act, the information omitted from the form of prospectus
filed as part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Act shall be deemed to be part of this
Registration statement as of the time it was declared effective.
The Registrant hereby undertakes that, for the purpose of determining
liability under the Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
The Registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To effect in the prospectus any facts or events arising after the
effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement;
II-4
<PAGE> 71
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
Provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
The Registrant hereby undertakes to remove from registration by means of a
post-effective amendment any of the securities being registered which remain
unsold at the termination of the offering.
II-5
<PAGE> 72
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Pre-Effective Amendment No. 1 to the Registration Statement
to be signed on its behalf by the undersigned, who is thereunto duly authorized,
in the City of Chatsworth, State of California, on November 19, 1996.
By: /s/ PAUL CHOPRA
------------------------------------
Paul Chopra
Chairman of the Board of Directors,
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons on behalf
of the Registrant and in the capacities indicated on November 19, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ---------------------------- ------------------
<S> <C> <C>
/s/ PAUL CHOPRA Chairman of the Board, November 19, 1996
- --------------------------------------------- President, Chief Executive
Paul Chopra Officer (Principal Executive
Officer
* Chief Financial Officer November 19, 1996
- --------------------------------------------- (Principal Accounting and
Umesh Malhotra Financial Officer
* Vice Chairman of the Board November 19, 1996
- --------------------------------------------- and Director
Stephen W. Gamble
* Treasurer, Secretary November 19, 1996
- --------------------------------------------- and Director
Ronald J. Messenger
* Director November 19, 1996
- ---------------------------------------------
James D. Barber
* Director November 19, 1996
- ---------------------------------------------
Michael I. Matsuura
* Director November 19, 1996
- ---------------------------------------------
Frederick S. Meyer
* Director November 19, 1996
- ---------------------------------------------
Lynn P. Reitnouer
* Director November 19, 1996
- ---------------------------------------------
Louis A. Simpson
/s/ PAUL CHOPRA
- ---------------------------------------------
Paul Chopra
Attorney-in-fact
</TABLE>
- ---------------
* Paul Chopra, by signing his name hereto, does hereby sign this document on
behalf of each of the above-named directors and/or officers of the registrant,
pursuant to a power of attorney duly executed by each such person.
II-6
<PAGE> 73
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------ -------------------------------------------------------------------- ------------
<C> <S> <C>
1.1 Form of Underwriting Agreement......................................
3.3** Certificate of Incorporation of Registrant..........................
3.4** By-laws of Registrant...............................................
4.1** Form of Warrant to purchase Common Stock............................
4.2** Registration Rights Agreement between Registrant, Healthcare
Association of Southern California ("HASC") and Hospital Council
Coordinated Programs, Inc., dated February 16, 1996.................
4.3** Specimen Stock Certificate..........................................
5.1 Opinion of Musick, Peeler & Garrett.................................
10.1** Form of Indemnity Agreement entered into between Registrant and each
of its executive officers and directors.............................
10.2** Employment Agreement between Registrant and Paul Chopra, effective
January 1, 1996.....................................................
10.3** Executive Long-Term Incentive Plan of Registrant....................
10.4** 1995 Stock Option Plan of Registrant and Form of Nonstatutory Option
Grant Under the Plan................................................
10.5**** Revolving Credit Agreement between Registrant and 1st Business Bank,
dated June 11, 1996, together with Promissory Note and General
Security Agreement..................................................
10.8** Consulting Agreement between Registrant and Stephen W. Gamble dba
Gamble's Victory Marine, dated August 1, 1994.......................
10.9** Administrative Services Agreement between Registrant and Healthcare
Association of Southern California, dated January 1, 1996...........
10.10*** Office Lease between TCEP II Properties and Registrant dated May 8,
1996................................................................
10.11 1996 Stock Option Plan of Registrant................................
11.1* Statement re Computation of Per Share Earnings......................
21.1* Subsidiaries of Registrant..........................................
23.1* Consent of Deloitte & Touche LLP....................................
23.2 Consent of Musick, Peeler & Garrett (included in Exhibit 5.1
hereto).............................................................
24.1* Power of Attorney...................................................
</TABLE>
- ---------------
* Previously filed.
** Incorporated by reference to such numbered exhibit included in Item 16(a),
Part II of Registrants' Form S-1 Registration Statement No. 33-80635 as
filed with the Commission on December 18, 1995.
*** Incorporated by reference to such numbered exhibit included in Item 14(a),
Part III of Registrant's Annual Report for the fiscal year ended March 31,
1996 on Form 10-K as filed with the Commission.
**** Incorporated by reference to such numbered exhibit included in Item 6(a),
Part II of Registrant's Quarterly Report for the fiscal quarter ended
September 30, 1996 on Form 10-Q as filed with the Commission.
***** To be filed by amendment.
<PAGE> 1
EXHIBIT 1.1
1,900,000 SHARES*
COHR INC.
COMMON STOCK
UNDERWRITING AGREEMENT
_____________, 1996
NEEDHAM & COMPANY, INC.
OPPENHEIMER & CO., INC.
CROWELL, WEEDON & CO.
WEDBUSH MORGAN SECURITIES INC.
As Representatives of the several Underwriters
445 Park Avenue
New York, NY 10022
Ladies and Gentlemen:
COHR Inc., a Delaware corporation (the "Company"), proposes to issue
and sell 1,500,000 shares of the Company's Common Stock, $.01 par value per
share (the "Common Stock"), to you and to the several other Underwriters (as
defined below). The shares of Common Stock sold by the Company are hereinafter
called the "Company Shares." The stockholders of the Company named in Schedule
II (the "Primary Selling Stockholders") propose to sell 400,000 shares of
Common Stock (the "Seller Shares") to you and the several other Underwriters.
The Company Shares and the Seller Shares are hereinafter collectively referred
to as the "Firm Shares." The Company and the stockholders of the Company named
in Schedule III (the "Over-Allotment Selling Stockholders") have also agreed to
grant to you and the other Underwriters an option (the "Option") to purchase up
to an additional 285,000 shares of Common Stock (the "Option Shares") on the
terms and for the purposes set forth in Section 1(b). The Firm Shares and the
Option Shares are referred to collectively
__________________________________
* Plus an option to purchase up to an additional 285,000 shares to cover
over-allotments.
1.
<PAGE> 2
herein as the "Shares." The Primary Selling Stockholders and the
Over-Allotment Selling Stockholders are referred to collectively herein as the
Selling Stockholders. All shares of Common Stock of the Company, including the
Shares, are hereinafter referred to as "Common Stock."
It is understood that, subject to the conditions hereinafter stated,
the Firm Shares will be sold to you and the several other Underwriters named in
Schedule I hereto (collectively, the "Underwriters"), for whom you are acting
as representatives (the "Representatives").
The Company and the Selling Stockholder confirm as follows their
agreement with the Representatives and the several other Underwriters.
1. Agreement to Sell and Purchase.
(a) On the basis of the representations, warranties and
agreements of the Company and the Selling Stockholders herein contained and
subject to all the terms and conditions of this Agreement, (i) the Company
agrees to sell an aggregate of 1,500,000 shares of Common Stock to the several
Underwriters, (ii) the Primary Selling Stockholders agree, severally and not
jointly, to sell an aggregate of 400,000 shares of Common Stock to the several
Underwriters and (iii) each of the Underwriters, severally and not jointly,
agrees to purchase from the Company and the Primary Selling Stockholders the
respective number of Firm Shares set forth opposite that Underwriter's name in
Schedule I hereto, at the purchase price of $______ for each Firm Share. The
number of Firm Shares to be purchased by each Underwriter from the Company and
the Primary Selling Stockholders shall be as nearly as practicable in the same
proportion to the total number of Firm Shares being sold by the Company and the
Primary Selling Stockholders as the number of Firm Shares being purchased by
each Underwriter bears to the total number of Firm Shares to be sold hereunder.
(b) Subject to all the terms and conditions of this
Agreement, the Company and the Over-Allotment Selling Stockholders grant the
Option to the several Underwriters to purchase, severally and not jointly, up
to the maximum number of Option Shares set forth on Schedule III hereto at the
same price per share as the Underwriters shall pay for the Firm Shares. The
Option may be exercised only to cover overallotments in the sale of the Firm
Shares by the Underwriters and may be exercised in whole or in part at any time
(but not more than once) on or before the 30th day after the date of this
Agreement upon written or telegraphic notice (the "Option Shares Notice") by
the Representatives to the Company, no later than 12:00 noon, New York City
time, at least two and no more than five business days before the date
specified for closing in the Option Shares Notice, (the "Option Closing Date"),
setting forth the aggregate number of Option Shares to be purchased and the time
and date for such purchase. On the Option Closing Date, the Company and the
Over-Allotment Selling Stockholders will issue and sell to the Underwriters the
number of Option Shares set forth in the Option Shares
2.
<PAGE> 3
Notice, and each Underwriter will purchase such percentage of the Option Shares
as is equal to the percentage of Firm Shares that such Underwriter is
purchasing, as adjusted by the Representatives in such manner as they deem
advisable to avoid fractional shares.
2. Delivery and Payment. Delivery of the Firm Shares shall be
made to the Representatives for the accounts of the Underwriters against
payment of the purchase price by certified or official bank checks payable in
New York Clearing House (next-day) funds to the order of the Company at the
offices of Musick, Peeler & Garrett LLP, One Wilshire Boulevard, Los Angeles,
California, at 7:00 a.m., Los Angeles time, on _________, 1996, or at such time
on such other date, not later than seven (7) business days after the date of
this Agreement, as may be agreed upon by the Company and the Representatives
(such date is hereinafter referred to as the "Closing Date").
To the extent the Option is exercised, delivery of the Option Shares
against payment by the Underwriters (in the manner specified above) will take
place at the offices specified above for the delivery of the Firm Shares at the
time and on the date (which may be the Closing Date) specified in the Option
Shares Notice.
Certificates evidencing the Shares shall be in definitive form and
shall be registered in such names and in such denominations as the
Representatives shall request at least two (2) business days prior to the
Closing Date, by written notice to the Company. For the purpose of expediting
the checking and packaging of certificates for the Shares, the Company agrees
to make such certificates available for inspection at least twenty-four (24)
hours prior to the Closing Date.
The cost of original issue tax stamps, if any, in connection with the
issuance and delivery of the Shares by the Company to the respective
Underwriters shall be borne by the Company. The Company will pay and save each
Underwriter and any subsequent holder of the Shares harmless from any and all
liabilities with respect to or resulting from any failure or delay in paying
Federal and state stamp and other transfer taxes, if any, which may be payable
or determined to be payable in connection with the original issuance or sale to
such Underwriter of the Shares.
3. Representations and Warranties of the Company. The Company
represents, warrants and covenants to each Underwriter that:
(a) A registration statement (Registration No. 333-14979)
on Form S-1 relating to the Shares, including a preliminary prospectus and such
amendments to such registration statement as may have been required to the date
of this Agreement, has been prepared by the Company under the provisions of the
Securities Act of 1933, as amended (the "Act"), and the rules and regulations
(collectively referred to as the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission")
3.
<PAGE> 4
thereunder, and has been filed with the Commission. The term "Preliminary
Prospectus" as used herein means a preliminary prospectus as contemplated by
Rule 430 or Rule 430A of the Rules and Regulations included at any time as part
of the registration statement. Copies of such registration statement and
amendments and of each related preliminary prospectus have been delivered to
the Representatives. If such registration statement has not become effective,
a further amendment to such registration statement, including a form of final
prospectus, or, if the Representatives shall agree to the use of Rule 434 of
the Rules and Regulations, the information required to be included in any term
sheet filed pursuant to Rule 434(b) or (c), as applicable, of the Rules and
Regulations necessary to permit such registration statement to become effective
will be filed promptly by the Company with the Commission. If such
registration statement has become effective, a final prospectus, or, if the
Representatives shall agree to the use of Rule 434 of the Rules and
Regulations, the information required to be included in any term sheet filed
pursuant to Rule 434(b) or (c) of the Rules and Regulations, as applicable,
containing information permitted to be omitted at the time of effectiveness by
Rule 430A of the Rules and Regulations, or, if the Representatives shall agree
to the use of Rule 434 of the Rules and Regulations, the information required
to be included in any term sheet filed pursuant to Rule 434(b) or (c), as
applicable, of the Rules and Regulations will be filed promptly by the Company
with the Commission in accordance with Rule 424(b) of the Rules and
Regulations. The term "Registration Statement" means the registration
statement as amended at the time it becomes or became effective (the "Effective
Date"), and any registration statement filed pursuant to Rule 424(b) of the
Rules and Regulations with respect to the offering, including financial
statements and all exhibits and any information deemed to be included by Rule
430A and includes any registration statement relating to the offering
contemplated by this Agreement and filed pursuant to Rule 462(b) of the Rules
and Regulations. The term "Prospectus" means (i) if the Company does not rely
on Rule 434 of the Rules and Regulations, the prospectus as first filed with
the Commission pursuant to Rule 424(b) of the Rules and Regulations, (ii) if
the Company does not rely on Rule 434 of the Rules and Regulations and if no
prospectus is required to be filed pursuant to Rule 424(b), the form of final
prospectus included in the Registration Statement at the Effective Date, or
(iii) if the Company relies on Rule 434 of the Rules and Regulations, the term
sheet relating to the Shares and satisfying the requirements of Rule 434 that
is first filed pursuant to Rule 434(b)(7) of the Rules and Regulations,
together with the preliminary prospectus identified therein that such term
sheet supplements.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus, or instituted proceedings for
that purpose, and each such Preliminary Prospectus, has conformed in all
material respects to the requirements of the Act and the Rules and Regulations
and, as of its date, has not included any untrue statement of a material fact
or omitted to state a material fact
4.
<PAGE> 5
required to be stated therein or necessary to make the statements therein in
light of the circumstances under which they were made not misleading and at the
time the Registration Statement became or becomes, as the case may be,
effective and at all times subsequent thereto up to and on the Closing Date and
on any later date on which Option Shares are to be purchased, (i) the
Registration Statement and Prospectus, and any amendments or supplements
thereto, contained and will contain all material information required to be
included therein by the Act and the Rules and Regulations and will in all
material respects conform to the requirements of the Act and the Rules and
Regulations, and (ii) neither the Registration Statement nor the Prospectus,
nor any amendment or supplement thereto, will include any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading; provided, however,
that none of the representations and warranties contained in this subparagraph
shall apply to information contained in or omitted from the Registration
Statement or the Prospectus or any such amendment or supplement in reliance
upon, and in conformity with, written information furnished to the Company by
any Underwriter through you specifically for inclusion therein.
(c) Each of the Company and the Subsidiaries (as defined
below) has been duly incorporated and is validly existing as a corporation in
good standing under the laws of its jurisdiction of incorporation with full
power and authority (corporate and other) to own, lease and operate its
properties and conduct its business as described in the Registration Statement;
the Company owns all of the outstanding capital stock of the Subsidiaries free
and clear of any pledge, lien, security interest, encumbrance, claim or
equitable interest; each of the Company and the Subsidiaries is duly qualified
to do business as a foreign corporation and is in good standing in each
jurisdiction in which the ownership or leasing of properties or the conduct of
its business requires such qualification except where the failure to be so
qualified would not have a material adverse effect on the condition (financial
or otherwise), earnings, operations, business or business prospects of the
Company and the Subsidiaries considered as one enterprise; each of the Company
and the Subsidiaries is not in violation of its respective charter or bylaws or
in material violation of any law, order, rule, regulation, writ, injunction or
decree of any government, government instrumentality or court, domestic or
foreign which violation is likely to have a material adverse effect on the
condition of the Company. The Company does not own or control, directly or
indirectly, any corporation, association or other entity, other than
_____________________, ______________________, and _______________ (the
"Subsidiaries).
(d) All of the outstanding shares of Common Stock of the
Company have been duly authorized, validly issued and are fully paid and
nonassessable; the Company has no shares of capital stock outstanding other
than the Common Stock; the Shares to be issued and sold by the Company have
been duly authorized and when issued
5.
<PAGE> 6
and paid for as contemplated herein will be validly issued, fully paid and
nonassessable; no preemptive or similar rights exist with respect to any of the
Shares or the issue and sale thereof. The description of the capital stock of
the Company in the Registration Statement and the Prospectus is, and at the
Closing Date will be, complete and accurate in all respects. Except as set
forth in the Prospectus, the Company does not have outstanding, and at the
Closing Date will not have outstanding, any options to purchase, or any rights
or warrants to subscribe for, or any securities or obligations convertible
into, or any contracts or commitments to issue or sell, any shares of Common
Stock, or any such options, warrants, convertible securities or obligations.
(e) The consolidated financial statements included in the
Registration Statement or the Prospectus present fairly the financial condition
of the Company as of the respective dates thereof and the results of operations
and cash flows of the Company and its Subsidiaries for the respective periods
covered thereby, all in conformity with generally accepted accounting
principles applied on a consistent basis throughout the entire period involved,
except as otherwise disclosed in the Prospectus. No other financial statements
or schedules of the Company are required by the Act or the Rules and
Regulations to be included in the Registration Statement or the Prospectus.
Deloitte & Touche LLP (the "Accountants"), who have reported on such financial
statements and schedules, are independent accountants with respect to the
Company as required by the Act and the Rules and Regulations. The summary
financial and statistical data included in the Registration Statement present
fairly the information shown therein and have been compiled on a basis
consistent with the financial statements presented therein.
(f) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus and prior
to the Closing Date, except as set forth in or contemplated by the Registration
Statement and the Prospectus, (i) there has not been and will not have been any
change in the capitalization of the Company, or any material adverse change in
the business, properties, business prospects, condition (financial or
otherwise) or results of operations of the Company, arising for any reason
whatsoever, (ii) neither the Company nor any of its Subsidiaries has incurred
nor will any of them incur any material liabilities or obligations, direct or
contingent, nor has the Company or any of its Subsidiaries entered into nor
will they enter into any material transactions other than pursuant to this
Agreement and the transactions referred to herein, and (iii) the Company has
not and will not have paid or declared any dividends or other distributions of
any kind on any class of its capital stock.
(g) The Company is not an "investment company" or an
"affiliated person" of, or "promoter" or "principal underwriter" for, an
"investing company," as such term is defined in the Investment Company Act of
1940, as amended.
6.
<PAGE> 7
(h) There is not any pending or, to the Company's
knowledge, threatened action, suit, claim or proceeding against the Company,
any of its Subsidiaries or any of their respective officers or directors (based
upon information provided by such officers and directors in questionnaires
completed by such persons, copies of which have been provided to counsel to the
Underwriters) or any of their properties, assets or rights before any court or
governmental agency or body or otherwise which (i) might result in any material
adverse change in the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company or any of its Subsidiaries
considered as one enterprise, or might materially and adversely affect their
properties, assets or rights, (ii) might prevent consummation of the
transactions contemplated hereby, or (iii) is required to be, but is not,
disclosed in the Registration Statement; and there are no contracts or
documents of the Company or any of its Subsidiaries that are required to be
described in the Prospectus or be filed as exhibits to the Registration
Statement by the Act or by the Rules and Regulations which have not been
accurately described in all material respects in the Prospectus or filed as
exhibits to the Registration Statement, as the case may be. The contracts so
described in the Prospectus or filed as exhibits to the Registration Statement
have been duly authorized, executed and delivered by the Company, constitute
valid and binding agreements of the Company, are enforceable against the
Company in accordance with the terms thereof and are in full force and effect
on the date hereof, except as the enforcement thereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditor's rights generally, or by general equitable principles;
and neither the Company nor any of its subsidiaries, nor to the best of the
Company's knowledge, any other party is in material breach of or default under
any such contracts.
(i) The Company is not, and at the Closing Date will not
be, in default, under any indenture, mortgage, deed of trust, loan agreement,
bond, debenture, note agreement or other evidence of indebtedness, or any
lease, contract or other agreement or instrument to which it is a party or by
which its property is bound or affected, which default might materially and
adversely affect the business, properties, business prospects, condition
(financial or other) or results of operations of the Company or any of its
Subsidiaries considered as one enterprise, to the best knowledge of the
Company, no other party under any indenture, mortgage, deed of trust, loan
agreement, bond, debenture, note agreement or other evidence of indebtedness,
or under any lease, contract or other agreement or instrument to which the
Company or any of its Subsidiaries is a party is in default in any respect
thereunder, which default might materially and adversely affect the business,
properties, business prospects, condition (financial or other) or results of
operations of the Company or its Subsidiaries considered as one enterprise.
(j) No consent, approval, authorization or order of, or
any filing or declaration with, any court or governmental agency or body is
required for the
7.
<PAGE> 8
consummation by the Company of the transactions on its part contemplated
herein, except such as have been obtained under the Act, the Rules and
Regulations or the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and such as may be required under the state securities or Blue Sky laws
or the by-laws and rules of the National Association of Securities Dealers,
Inc. (the "NASD") in connection with the purchase and distribution by the
Underwriters of the Shares.
(k) The Company has full legal right, power and authority
to enter into this Agreement and perform the transactions contemplated hereby
and thereby. Each of this Agreement has been duly authorized, executed and
delivered by the Company and is a valid and binding agreement on the part of
the Company, enforceable in accordance with its terms, except as rights to
indemnity and contribution hereunder may be limited by applicable law and
except as the enforcement of this Agreement may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally, or by general equitable principles; and
the performance of this Agreement and the consummation of the transactions
herein and therein contemplated will not result in (i) a breach or violation of
any of the terms and provisions of or constitute a default under the charter or
bylaws of the Company or any of its Subsidiaries, or (ii) a material breach or
violation of any of the terms and provisions of or constitute a material
default under (A) any indenture, mortgage, deed of trust, loan agreement, bond,
debenture, note agreement or other evidence of indebtedness, or any lease,
contract or other agreement or instrument to which the Company or any of its
Subsidiaries is a party or by which the property of the Company or any of its
Subsidiaries is bound, or (B) any law, order, rule, regulation, writ,
injunction, judgment or decree of any court or governmental agency or body
having jurisdiction over the Company any of its Subsidiaries or over the
properties of the Company or any of its Subsidiaries.
(l) Each of the Company and its Subsidiaries have good
and marketable title to all properties and assets described in the Prospectus,
as the case may be, as owned by it, free and clear of all liens, charges,
encumbrances or restrictions, except such as are described in the Prospectus or
are not material to the business of the Company or any of its Subsidiaries.
Each of the Company or one of its Subsidiaries has valid, subsisting and
enforceable leases for the properties described in the Prospectus as leased by
it, with such exceptions as are not material and do not materially interfere
with the use made and proposed to be made of such properties by the Company or
the Subsidiaries.
(m) No statement, representation, warranty or covenant
made by the Company in this Agreement or made in any certificate or document
required by Section 5 of this Agreement to be delivered to the Representatives
was or will be, when made, inaccurate, untrue or incorrect.
8.
<PAGE> 9
(n) Neither the Company nor any of its Subsidiaries or
any of their respective directors, officers or controlling persons has taken,
directly or indirectly, any action designed, or which might reasonably be
expected, to cause or result, under the Act or otherwise, in, or which has
constituted, stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Shares other than entering into
the lock-up agreements described in the Prospectus.
(o) Except as stated in the Prospectus, no holder of
securities of the Company has rights to the registration of any securities of
the Company because of the filing of the Registration Statement which rights
have not been waived by the holder thereof as of the date hereof.
(p) The Company has not been advised, and has no reason
to believe, that it has infringed any patents, patent rights, tradenames,
trademarks, copyrights, trade secret or other proprietary rights of other
persons which infringement would have a material adverse effect on the Company
or its business, properties, business prospects, condition (financial or
otherwise) or results of operations.
(q) The Company and each of its Subsidiaries have filed
all federal, state and foreign income tax returns which have been required to
be filed and have paid all taxes and assessments received by them or any of
them to the extent that such taxes have become due.
(r) The Company and each of its Subsidiaries own or
possess, and are operating in compliance with, all authorizations, approvals,
orders, licenses, registrations, other certificates and permits of and from all
state, federal and other governmental and regulatory officials and bodies,
necessary to conduct their respective businesses as contemplated in the
Prospectus, except where the failure to own or possess all such authorizations,
approvals, orders, licenses, registrations, other certificates and permits
would not materially and adversely affect the business, properties, business
prospects, condition (financial or otherwise) or results of operations of the
Company or any of its Subsidiaries considered as one enterprise, all of which
are valid and in full force and effect; there is no proceeding pending or
threatened (or any basis therefor known to the Company) which may cause any
such authorization, approval, order, license, registration, certificate or
permit to be revoked, withdrawn, canceled, suspended or not renewed; and the
Company and each of its Subsidiaries are conducting their businesses in
compliance with all laws, rules and regulations applicable thereto except where
such noncompliance would not materially and adversely affect the business,
properties, business prospects, condition (financial or otherwise) or results
of operations of the Company and each of its Subsidiaries considered as one
enterprise.
9.
<PAGE> 10
4. Representations and Warranties of the Selling Stockholders.
Each of the Selling Stockholders, severally and not jointly, represents and
warrants with respect to the Seller Shares or Option Shares set forth opposite
his name on Schedule II or Schedule III hereto that:
(a) This Agreement, the Custody Agreement signed by the
Selling Stockholders and ____________________ as Custodian, relating to the
deposit of the Seller Shares or Option Shares, as appropriate, (the "Custody
Agreement") and the Power of Attorney appointing certain individuals as the
Selling Stockholder's attorneys-in-fact to the extent set forth therein,
relating to the transactions contemplated hereby and by the Registration
Statement (the "Power of Attorney") have been duly authorized, executed and
delivered by or on behalf of the Selling Stockholder and are valid and binding
agreements of the Selling Stockholder enforceable in accordance with their
terms, except as rights to indemnity and contribution hereunder may be limited
by applicable law and except as enforcement hereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditor's rights generally, or by general equitable principles.
(b) The execution and delivery by each of the Selling
Stockholders of, and the performance by each such Selling Stockholder of its
obligations under, this Agreement, the Custody Agreement and the Power of
Attorney do not contravene any provision of applicable law, and will not result
in (a) any violation of the Selling Stockholder's charter or bylaws, (b) the
material breach or violation of any of the terms and provisions, or constitute
a material default under, any indenture, mortgage, deed of trust, loan
agreement, bond, debenture, note agreement or other evidence of indebtedness,
or any lease, contract or other agreement or instrument to which the Selling
Stockholder is a party or by which its properties are bound, (c) the material
breach or violation of any statute, rule or regulation, of any regulatory body
or administrative agency or other governmental agency or body having
jurisdiction over the Selling Stockholder or any of its properties or
operations, or (d) the breach or violation of any judgment, order, writ or
decree of any government, arbitrator, court, regulatory body or administrative
agency, or other governmental agency or body having jurisdiction over the
Selling Stockholder or any of its properties or operations;
(c) No authorization, approval or consent of any
regulatory body or administrative agency or other governmental agency or body
is necessary in connection with the performance of this Agreement and
consummation of the transactions herein contemplated by the Selling
Stockholders except such as have been obtained under the Act or such as may be
required under state or other securities or Blue Sky laws or the by-laws and
rules of the NASD in connection with the purchase and the distribution of the
Shares by the Underwriters;
10.
<PAGE> 11
(d) The Selling Stockholder has, and on the Closing Date
or Option Closing Date, as the case may be, will have, valid marketable title
to such Selling Stockholder's Seller Shares and Option Shares and the legal
right and power, and all authorization and approval required by law, to enter
into this Agreement, the Custody Agreement and the Power-of-Attorney, and to
sell, transfer and deliver such Seller Shares and Option Shares, except that no
representation is made with respect to federal and state securities laws.
(e) Delivery of the Selling Stockholders' Seller Shares
or Option Shares against payment therefor will transfer to the Underwriters
marketable title to such Seller Shares or Option Shares, free and clear of any
security interests, claims, liens, equities and other encumbrances.
(f) All information furnished by or on behalf of the
Selling Stockholder for use in the Registration Statement and Prospectus is,
and on the Closing Date or the Option Closing Date, as the case may be, will
be, true, correct, and complete, and does not, and on the Closing Date will
not, contain any untrue statement of a material fact or omit to state any
material fact necessary to make such information not misleading.
(g) There is not any pending or, to the Selling
Stockholder's knowledge, threatened action, suit, claim or proceeding against
the Selling Stockholder or any of its properties, assets or rights before any
court or governmental agency or body or otherwise which (i) might prevent
consummation of the transactions contemplated hereby, or (ii) is required to
be, but is not, disclosed in the Registration Statement; and there are no
contracts or documents of the Selling Stockholder that are required to be
described in the Prospectus or be filed as exhibits to the Registration
Statement by the Act or by the Rules and Regulations which have not been
accurately described in all material respects in the Prospectus or filed as
exhibits to the Registration Statement, as the case may be. The contracts so
described in the Prospectus or filed as exhibits to the Registration Statement
are in full force and effect as of the date hereof.
(h) Neither the Selling Stockholder nor any of its
respective directors, officers or controlling persons has taken, directly or
indirectly, any action designed, or which might reasonably be expected, to
cause or result, under the Act or otherwise, in, or which has constituted,
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Shares other than entering into the
lock-up agreements described in the Prospectus.
(i) Without taking any action to verify independently the
Company's representations or warranties made in this Agreement, and without
assuming responsibility for the accuracy, completeness or fairness of such
representations and warranties, nothing has come to the attention of such
Selling Stockholder to cause such
11.
<PAGE> 12
Selling Stockholder to believe the Company's representations and warranties
contained in this Agreement are not accurate.
(j) The Selling Stockholder is not aware that any
Preliminary Prospectus, the Registration Statement or the Prospectus includes
any untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading.
5. Further Agreements of the Company. The Company agrees with
the several Underwriters as follows:
(a) The Company will not, either prior to the Effective
Date or thereafter during such period as the Prospectus is required by law to
be delivered in connection with sales of the Shares by an Underwriter or
dealer, file any amendment or supplement to the Registration Statement or the
Prospectus, unless a copy thereof shall first have been submitted to the
Representatives within a reasonable period of time prior to the filing thereof
and the Representatives shall not have objected thereto in good faith.
(b) The Company will use its best efforts to cause the
Registration Statement to become effective, and will notify the Representatives
promptly, and will confirm such advice in writing, (1) when the Registration
Statement has become effective and when any post- effective amendment thereto
becomes effective, (2) of any request by the Commission for amendments or
supplements to the Registration Statement or the Prospectus or for additional
information, (3) of the issuance by the Commission of any stop order suspending
the effectiveness of the Registration Statement or the initiation of any
proceedings for that purpose or the threat thereof, (4) of the happening of any
event during the period mentioned in the second sentence of Section 5(e) that
in the judgment of the Company makes any statement made in the Registration
Statement or the Prospectus untrue or that requires the making of any changes
in the Registration Statement or the Prospectus in order to make the statements
therein, in light of the circumstances in which they are made, not misleading
and (5) of receipt by the Company or any representative or attorney of the
Company of any other communication from the Commission relating to the
Registration Statement, any Preliminary Prospectus or the Prospectus or, if
within nine months of the Effective Date, relating to the Company. If at any
time the Commission shall issue any order suspending the effectiveness of the
Registration Statement, the Company will make every reasonable effort to obtain
the withdrawal of such order at the earliest possible moment. If the Company
has omitted any information from the Registration Statement pursuant to Rule
430A of the Rules and Regulations, the Company will use its best efforts to
comply with the provisions of and make all requisite filings with the
Commission pursuant to said Rule 430A and to notify the Representatives
promptly of all such filings.
12.
<PAGE> 13
(c) The Company will furnish to each of the
Representatives, without charge, two (2) signed copies of the Registration
Statement and of any post-effective amendment thereto and all exhibits thereto
and will furnish to the Representatives, without charge, for transmittal to
each of the other Underwriters, a copy of the Registration Statement and any
post-effective amendment thereto, including financial statements and schedules
but without exhibits.
(d) The Company will comply with all the provisions of
any undertakings contained in the Registration Statement.
(e) On the Effective Date, and thereafter from time to
time, the Company will deliver to each of the Underwriters, without charge, as
many copies of the Prospectus or any amendment or supplement thereto as the
Representatives may reasonably request. The Company consents to the use of the
Prospectus or any amendment or supplement thereto by the several Underwriters
and by all dealers to whom the Shares may be sold, both in connection with the
offering or sale of the Shares and for any period of time thereafter during
which the Prospectus is required by law to be delivered in connection
therewith. If during such period of time any event shall occur which, in the
judgment of the Company or counsel to the Underwriters, should be set forth in
the Prospectus in order to make any statement therein, in the light of the
circumstances under which it was made, not misleading, or if it is necessary to
supplement or amend the Prospectus to comply with law, the Company will
forthwith prepare and duly file with the Commission an appropriate supplement
or amendment thereto, and will deliver to each of the Underwriters, without
charge, such number of copies of such supplement or amendment to the Prospectus
as the Representatives may reasonably request. Neither your consent to, nor
the Underwriters' delivery of, any such supplement or amendment shall
constitute a waiver of any of the conditions set forth in Section 7.
(f) Prior to any public offering of the Shares, the
Company will cooperate with the Representatives and counsel to the Underwriters
in connection with the registration or qualification of the Shares for offer
and sale under the securities or Blue Sky laws of such jurisdictions as the
Representatives may reasonably request; provided that in no event shall the
Company be obligated to qualify to do business in any jurisdiction where it is
not now so qualified or to take any action which would subject it to general
service of process in any jurisdiction where it is not now so subject.
(g) The Company will furnish to its stockholders as soon
as practicable after the end of each fiscal year an annual report (including a
balance sheet and statements of income, shareholders' equity and cash flow of
the Company and its consolidated subsidiaries, if any, audited by the Company's
independent public accounts) so long as the Company is subject to the reporting
requirements of the Exchange Act.
13.
<PAGE> 14
(h) During the period of five years commencing on the
Effective Date, the Company will furnish to the Representatives and each other
Underwriter who may so request copies of such financial statements and other
periodic and special reports as the Company may from time to time distribute
generally to the holders of any class of its capital stock, and will furnish to
the Representatives and each other Underwriter who may so request a copy of
each annual or other report it shall be required to file with the Commission.
(i) The Company will make generally available to holders
of its securities as soon as may be practicable but in no event later than the
last day of the fifteenth (15th) calendar month following the calendar quarter
in which the Effective Date falls, an earnings statement (which need not be
audited but shall be in reasonable detail) for a period of twelve (12) months
after the Effective Date, and satisfying the provisions of Section 11(a) of the
Act (including Rule 158 of the Rules and Regulations).
(j) Whether or not the transactions contemplated by this
Agreement are consummated or this Agreement is terminated, the Company will
pay, or reimburse if paid by the Representatives, all costs and expenses
incident to the performance of the obligations of the Company under this
Agreement, including but not limited to costs and expenses of or relating to
(1) the preparation, printing and filing of the Registration Statement and
exhibits to it, each Preliminary Prospectus, Prospectus and any amendment or
supplement to the Registration Statement or prospectus, (2) the preparation and
delivery of certificates representing the Shares, (3) the printing of this
Agreement, the Agreement Among Underwriters, any Dealer Agreements, any
Underwriters' Questionnaires, (4) furnishing (including costs of shipping and
mailing) such copies of the Registration Statement, the Prospectus and any
Preliminary Prospectus, and all amendments and supplements thereto, as may be
requested for use in connection with the offering and sale of the Shares by the
Underwriters or by dealers to whom Shares may be sold, (5) the listing of the
Shares on the Nasdaq National Market system, (6) any filings required to be
made by the Underwriters with the National Association of Securities Dealers,
Inc. ("NASD"), and the fees and expenses of counsel for the Underwriters in
connection therewith, (7) the registration or qualification of the Shares for
offer and sale under the securities laws or Blue Sky laws of such jurisdictions
designated pursuant to Section 5(f), including the reasonable fees and expenses
of counsel to the Underwriters in connection therewith, and the preparation and
printing of preliminary, supplemental and final Blue Sky memoranda, (8) fees
and expenses of counsel to the Company (but not those of counsel for the
Underwriters, except as otherwise provided herein) and (9) the transfer agent
for the Shares.
(k) If this Agreement shall be terminated by the Company
pursuant to any of the provisions hereof (otherwise than pursuant to Section 9
hereof) or if for any
14.
<PAGE> 15
reason the Company shall be unable to perform its obligations hereunder or
thereunder, the Company will reimburse the several Underwriters for all
out-of-pocket expenses (including the fees and expenses of counsel to the
Underwriters) reasonably incurred by them in connection herewith.
(l) The Company will not at any time, (i) directly or
indirectly, take any action designed, or which might reasonably be expected, to
cause or result in, or which will constitute, stabilization of the price of the
shares of Common Stock to facilitate the sale or resale of any of the Shares,
(ii) sell, bid for, purchase or pay anyone any compensation for soliciting
purchases of, the Shares or (iii) pay or agree to pay to any person any
compensation for soliciting another to purchase any other securities of the
Company.
(m) The Company will apply the net proceeds from the
offering and sale of the Shares to be sold by the Company in the manner set
forth in the Prospectus under "Use of Proceeds."
(n) The Company will not, and will cause each of its
officers, directors and optionholders to enter into agreements with the
Representatives to the effect that they will not for a period of 180 days after
the Effective Date with respect to the Company and all other persons who enter
such agreements, without the prior written consent of the Representatives,
sell, contract to sell or otherwise dispose of any shares of Common Stock or
rights to acquire such shares (other than the sale of the Shares hereunder and
the issuance of shares of Common Stock by the Company upon exercise of stock
options pursuant to employee stock option plans).
6. Agreements of the Selling Stockholders. Each Selling
Stockholder agrees with respect to the Seller Shares or Option Shares set forth
opposite his name on Schedule II or Schedule III hereto to pay or cause to be
paid all taxes, including the cost of original issue tax stamps, if any, on the
transfer and sale of the Seller Shares or Option Shares and the fees and
expenses of counsel and accountants retained by such Selling Stockholder,
except such fees and expenses that are paid by the Company, if any. The
Selling Stockholders will pay and save each Underwriter and any subsequent
holder of the Seller Shares or Option Shares harmless from any and all
liabilities with respect to or resulting from any failure or delay in paying
Federal and state stamp and other transfer taxes, if any, which may be payable
or determined to be payable in connection with the original issuance or sale to
such Underwriter of the Seller Shares. The Company agrees to pay all costs and
expenses incident to the performance of the obligations of the Selling
Stockholders under this Agreement (except as set forth above), including, but
not limited to, all expenses incident to the delivery of the certificates for
the Seller Shares or Option Shares, the costs and expenses incident to the
preparation, printing and filing of the Registration Statement (including all
exhibits thereto) and the Prospectus and any
15.
<PAGE> 16
amendments or supplements thereto, the expenses of qualifying the Seller Shares
and Option Shares under the securities or blue sky laws of various
jurisdictions, all filing fees payable in connection with the review of the
offering of the Shares by the NASD, and the cost of furnishing to the
Underwriters the required copies of the Registration Statement and Prospectus
and any amendments or supplements thereto; provided that the Selling
Stockholders agree to pay or cause to be paid its pro rata share (based on the
percentage which the number of Seller Shares and Option Shares to be sold by
the Over-Allotment Selling Stockholders sold bears to the total number of
Shares sold) of all underwriting discounts and commissions.
7. Conditions of the Obligations of the Underwriters. The
obligations of each Underwriter hereunder are subject to the following
conditions:
(a) Notification that the Registration Statement has
become effective shall be received by the Representatives not later than 5:00
p.m., New York City time, on the date of this Agreement or at such later date
and time as shall be consented to in writing by the Representative and all
filings required by Rule 424 and Rule 430A of the Rules and Regulations shall
have been made.
(b) (i) No stop order suspending the effectiveness of
the Registration Statement shall have been issued and no proceedings for that
purpose shall be pending or threatened by the Commission, (ii) no order
suspending the effectiveness of the Registration Statement or the qualification
or registration of the Shares under the securities or Blue Sky laws of any
jurisdiction shall be in effect and no proceeding for such purpose shall be
pending before or threatened by the Commission or the authorities of any such
jurisdiction, (iii) any request for additional information on the part of the
staff of the Commission or any such authorities shall have been complied with
to the satisfaction of the staff of the Commission or any such authorities and
(iv) after the date hereof, no amendment or supplement to the Registration
Statement or the Prospectus shall have been filed unless a copy thereof was
first submitted to the Representatives and the Representatives do not object
thereto in good faith, and the Representatives shall have received
certificates, dated the Closing Date and signed by the Chief Executive Officer
or the Chairman of the Board of Directors of the Company and the Chief
Financial Officer of the Company (who may, as to proceedings threatened, rely
upon the best of their information and belief) to the effect of clauses (i),
(ii) and (iii).
(c) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, (i) there shall not
have been a material adverse change in the general affairs, business, business
prospects, properties, management, condition (financial or otherwise) or
results of operations of the Company or any of its Subsidiaries, whether or not
arising from transactions in the ordinary course of business, in each case
other than as set forth in or contemplated by the Registration Statement and
16.
<PAGE> 17
the Prospectus and (ii) neither the Company or any of its Subsidiaries shall
have sustained any material loss or interference with its business or
properties from fire, explosion, flood or other casualty, whether or not
covered by insurance, or from any labor dispute or any court or legislative or
other governmental action, order or decree, which is not set forth in the
Registration Statement and the Prospectus, if in the judgment of the
Representatives any such development makes it impracticable or inadvisable to
consummate the sale and delivery of the Shares by the Underwriters at the
public offering price.
(d) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, there shall have been
no litigation or other proceeding instituted against the Company, any of its
Subsidiaries or any of their respective officers or directors in their
capacities as such, before or by any Federal, state or local court, commission,
regulatory body, administrative agency or other governmental body, domestic or
foreign, in which litigation or proceeding an unfavorable ruling, decision or
finding would materially and adversely affect the business, properties,
business prospects, condition (financial or otherwise) or results of operations
of the Company or any of its subsidiaries.
(e) Each of the representations and warranties of the
Company and the Selling Stockholders contained herein shall be true and correct
in all material respects at the Closing Date and, with respect to the Option
Shares, at the Option Closing Date, and all covenants and agreements contained
herein to be performed on the part of the Company and the Selling Stockholders
and all conditions contained herein to be fulfilled or complied with by the
Company and the Selling Stockholdesr at or prior to the Closing Date and, with
respect to the Option Shares, at the Option Closing Date, shall have been duly
performed, fulfilled or complied with.
(f) The Representatives shall have received on the
Closing Date and on any later date on which Option Shares are purchased, as the
case may be, the following opinion of Musick, Peeler & Garrett LLP, counsel to
the Company, dated the Closing Date or such later date, addressed to the
Underwriters and with reproduced copies or signed counterparts thereof for each
of the Underwriters, to the effect that:
(i) Each of the Company and _________ and
________ (the U.S. Subsidiaries") has been duly incorporated and is a validly
existing corporation in good standing under the laws of its jurisdiction of
incorporation;
(ii) Each of the Company and the U.S. Subsidiaries
has the corporate power to own, lease and operate its properties and to conduct
its business as described in the Prospectus;
17.
<PAGE> 18
(iii) Each of the Company and its U.S. Subsidiaries
is duly qualified to do business as a foreign corporation and is in good
standing in each jurisdiction, if any, in which the ownership or leasing of its
properties or the conduct of its business requires such qualification, except
where the failure so to qualify would not have a material adverse effect on the
financial condition, earnings, operations, business or business prospects of
the Company or its U.S. Subsidiaries considered as one enterprise. To such
counsel's knowledge, the Company does not own or control, directly or
indirectly, any corporation, association or other entity other than the
Subsidiaries.
(iv) The authorized, issued and outstanding
capital stock of the Company was as set forth in the Prospectus under the
caption "Capitalization" as of the dates stated therein, and the issued and
outstanding shares of capital stock of the Company have been duly authorized
and validly issued, are fully paid and nonassessable and have not been issued
in violation of any preemptive right or, to such counsel's knowledge, any
co-sale right, registration right, right of first refusal or other similar
right;
(v) The Shares to be issued by the Company
pursuant to the terms of this Agreement will be, upon issuance and delivery
against payment therefor in accordance with the terms hereof, duly authorized,
validly issued, fully paid and nonassessable, and will not be issued in
violation of any preemptive right or, to such counsel's knowledge, any co-sale
right, registration right, right of first refusal or other similar right, and
to such counsel's knowledge, the stockholders of the Company have no right of
first refusal or other similar rights to purchase any of these Shares;
(vi) The Company has corporate power and authority
to enter into this Agreement and to issue, sell and deliver to the Underwriters
the Shares to be issued and sold by it hereunder;
(vii) This Agreement has been duly authorized by
all necessary corporate action on the part of the Company and has been duly
executed and delivered by the Company and, assuming due authorization,
execution and delivery of this Agreement by you, this Agreement is a valid and
binding agreement of the Company, enforceable in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally or by general equitable principles, and except that no opinion is
expressed as to the enforceability of the indemnification and contribution
provisions contained in Section 8 of this Agreement;
(viii) The Registration Statement has become
effective under the Act and, to such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement have been issued and
no proceedings for that purpose have been instituted or are pending or
threatened under the Act;
18.
<PAGE> 19
(ix) The terms and provisions of the Common Stock
of the Company conform in all material respects to the description thereof
contained in "Description of Capital Stock" in the Registration Statement and
Prospectus;
(x) The information in the Prospectus under the
caption "Description of Capital Stock," to the extent that it constitutes a
summary of the legal matters, documents or proceedings referred to therein
fairly presents the information required to be presented by the Act or the
Rules and Regulations with respect to such legal matters documents and
proceedings; and the forms of certificates evidencing the Common Stock comply
with Delaware law;
(xi) The description in the Registration Statement
and the Prospectus of the charter and bylaws of the Company and of statutes and
contracts described therein fairly presents the information required to be
presented by the Act or the Rules and Regulations;
(xii) To such counsel's knowledge, there are no
agreements, contracts, leases or documents of a character required to be
described or referred to in the Registration Statement or Prospectus or to be
filed as an exhibit to the Registration Statement which are not described or
referred to therein and filed as required;
(xiii) The execution, delivery and performance of
this Agreement by the Company and the consummation by the Company of the
transactions herein and therein contemplated do not result in (a) any violation
of the Company's charter or bylaws, or (b) the breach or violation of any of
the terms and provisions, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement, bond, debenture, note agreement or
other evidence of indebtedness, or any lease, contract or other agreement or
instrument described in the Registration Statement or filed as an exhibit
thereto to which the Company or either of the U.S. Subsidiaries is a party or
by which its properties are bound, (c) the breach or violation of any federal,
California or, to the best of our knowledge, local statute, rule or regulation;
provided however, that no opinion need be rendered concerning state securities
or Blue Sky laws, or (d) to the best of such counsel's knowledge, the breach or
violation of any judgment, order, writ or decree of any government, arbitrator,
court, regulatory body or administrative agency, or other governmental agency
or body having jurisdiction over the Company or any of its properties or
operations;
(xiv) No authorization, approval or consent of any
regulatory body or administrative agency or other governmental agency or body
is necessary in connection with the performance of this Agreement and
consummation of the transactions herein contemplated by the Company, except
such as have been obtained under the Act or
19.
<PAGE> 20
such as may be required under state or other securities or Blue Sky laws in
connection with the purchase and the distribution of the Shares by the
Underwriters;
(xv) To such counsel's knowledge, there are no
legal or governmental proceedings pending or threatened against the Company of a
character which are required to be disclosed in the Registration Statement or
the Prospectus, by the Act or the applicable Rules and Regulations, other than
those described therein;
(xvi) To such counsel's knowledge, except as set
forth in the Registration Statement and Prospectus, no holders of Common Stock
or other securities of the Company have registration rights with respect to
securities of the Company and, except as set forth in the Registration
Statement and Prospectus, all holders of securities of the Company having
rights to registration of such shares of Common Stock, or other securities,
because of the filing of the Registration Statement by the Company have, with
respect to the offering contemplated thereby, waived such rights or such rights
have expired by reason of lapse of time following notification of the Company's
intent to file the Registration Statement, or have included securities in the
Registration Statement pursuant to the exercise of such rights; and
(xvii) The Registration Statement and the Prospectus
(other than the financial statements, including supporting schedules, and
financial data as to which such counsel need express no opinion) as of the
Effective Date complied as to form in all material respects with the
requirements of the Act and the Rules and Regulations with respect to
registration statements on Form S-1.
In addition, such counsel shall state that,
although they have not verified the accuracy or completeness of the statements
contained in the Registration Statement or the Prospectus, nothing has come to
the attention of such counsel that caused them to believe that, at the time the
Registration Statement became effective, the Registration Statement (except as
to financial statements, including supporting schedules, and financial data, as
to which such counsel need express no opinion) contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, or at the
Closing Date or any later date on which the Option Shares are to be purchased,
as the case may be, the Registration Statement or the Prospectus (except as
aforesaid) contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
Counsel rendering the foregoing opinion may
rely as to questions of law not involving the laws of the United States or the
State of California and the State of Delaware upon opinions of local counsel,
and as to questions of fact upon
20.
<PAGE> 21
representations or certificates of officers of the Company and of government
officials, in which case their opinion is to state that they are so relying and
that they have no knowledge of any material misstatement or inaccuracy in such
opinions, representations or certificate. Copies of any opinion,
representation or certificate so relied upon shall be delivered to you, as
Representatives of the Underwriters, and to Underwriters' counsel.
(g) You shall have received on the Closing Date and on
any later date on which Option Shares are purchased, as the case may be, the
following opinions with respect to the Seller Shares, dated the Closing Date,
and with respect to the Option Shares, if any, dated the Option Closing Date,
from Musick, Peeler & Garrett LLP, counsel to the Healthcare Association of
Southern California and the Over-Allotment Selling Stockholders and Weissburg
and Aronson, Inc., counsel to Hospital Council Coordinated Programs, Inc.,
satisfactory in form and substance to the Representatives and counsel for the
Underwriters, covering the following matters:
(i) This Agreement has been duly authorized,
executed and delivered by or on behalf each of the Selling Stockholders;
(ii) The execution and delivery by each of the
Selling Stockholders of, and the performance by each such Selling Stockholder
of its obligations under, this Agreement, the Custody Agreement and the Power
of Attorney will not result in (a) any violation of the Company's charter or
bylaws, (b) the breach or violation of any of the terms and provisions, or
constitute a default under, any indenture, mortgage, deed of trust, loan
agreement, bond, debenture, note agreement or other evidence of indebtedness,
or any lease, contract or other agreement or instrument to which the Selling
Stockholder is a party or by which its properties are bound, (c) the breach or
violation of any federal, California or, to the best of our knowledge, local
statute, rule or regulation; provided however, that no opinion need be rendered
concerning state securities or Blue Sky laws, or (d) to the best of such
counsel's knowledge, the breach or violation of any judgment, order, writ or
decree of any government, arbitrator, court, regulatory body or administrative
agency, or other governmental agency or body having jurisdiction over the
Selling Stockholder or any of its properties or operations;
(iii) No authorization, approval or consent of any
regulatory body or administrative agency or other governmental agency or body
is necessary in connection with the performance of this Agreement and
consummation of the transactions herein contemplated by the Selling
Stockholders, except such as have been obtained under the Act or such as may be
required under state or other securities or Blue Sky laws in connection with
the purchase and the distribution of the Shares by the Underwriters;
(iv) Each of the Underwriters who has purchased
Seller Shares in good faith and without notice of any adverse claim within the
meaning of the applicable
21.
<PAGE> 22
Uniform Commercial Code, upon payment for such Seller Shares, has received good
and valid title to such Seller Shares, free and clear of any security
interests, claims, liens, and encumbrances, except for security interests,
claims, liens, and encumbrances created or imposed by, or in favor of, the
Underwriters; and
(v) Each of the Custody Agreement and the Power
of Attorney has been duly authorized, executed and delivered by or on behalf of
each Selling Stockholder and is a valid and binding agreement of each Selling
Stockholder, enforceable in accordance with its terms except as to (A) rights
to indemnity and contribution hereunder which may be limited by applicable law,
(B) bankruptcy and laws relating to the rights and remedies of creditors
generally, and (C) the availability of equitable remedies.
Counsel rendering the foregoing opinion may rely as
to questions of law not involving the laws of the United States or the State of
California and the State of Delaware upon opinions of local counsel, and as to
questions of fact upon representations or certificates of the Selling
Stockholders or officers of the Selling Stockholders no knowledge of any
material misstatement or inaccuracy in such opinions, representations or
certificate. Representatives of the Underwriters, and to Underwriters'
counsel.
(h) The Representatives shall have received an opinion,
dated the Closing Date and, with respect to the Option Shares, the Option
Closing Date, from Cooley Godward LLP, counsel to the Underwriters, with
respect to the Registration Statement, the Prospectus and this Agreement, which
opinion shall be satisfactory in all respects to the Representatives.
(i) Concurrently with the execution and delivery of this
Agreement, the Accountants shall have furnished to the Representatives a
letter, dated the date of its delivery, addressed to the Representatives and in
form and substance satisfactory to the Representatives, confirming that they
are independent accountants with respect to the Company as required by the Act
and the Rules and Regulations and with respect to certain financial and other
statistical and numerical information contained in the Registration Statement.
At the Closing Date and, with respect to the Option Shares, the Option Closing
Date, the Accountants shall have furnished to the Representatives a letter,
dated the date of its delivery, which shall confirm, on the basis of a review
in accordance with the procedures set forth in the letter from the Accountants,
that nothing has come to their attention during the period from the date of the
letter referred to in the prior sentence to a date (specified in the letter)
not more than five (5) days prior to the Closing Date or the Option Closing
Date, as applicable, which would require any change in their letter dated the
date hereof if it were required to be dated and delivered at the Closing Date
or the Option Closing Date, as applicable.
22.
<PAGE> 23
(j) Concurrently with the execution and delivery of this
Agreement and at the Closing Date and, with respect to the Option Shares, the
Option Closing Date, there shall be furnished to the Representatives an
accurate certificate, dated the date of its delivery, signed by each of the
Chief Executive Officer and the Chief Financial Officer of the Company, in form
and substance satisfactory to the Representative, to the effect that:
(i) Each signer of such certificate has carefully
examined the Registration Statement and the Prospectus and (A) as of the date
of such certificate, such documents are true and correct in all material
respects and do not omit to state a material fact required to be stated therein
or necessary in order to make the statements therein not untrue or misleading,
and (B) in the case of the certificate delivered at the Closing Date or the
Option Closing Date, as applicable, since the Effective Date no event has
occurred as a result of which it is necessary to amend or supplement the
Prospectus in order to make the statements therein not untrue or misleading in
any material respect.
(ii) Each of the representations and warranties of
the Company contained in this Agreement were, when originally made, and are, at
the time such certificate is delivered, true and correct in all material
respects.
(iii) Each of the covenants required to be
performed by the Company herein on or prior to the date of such certificate has
been duly, timely and fully performed and each condition herein required to be
satisfied or fulfilled on or prior to the date of such certificate has been
duly, timely and fully satisfied or fulfilled.
(k) Concurrently with the execution and delivery of this
Agreement and at the Closing Date and, with respect to the Option Shares, the
Option Closing Date, there shall be furnished to the Representatives a
certificate, dated as of the date of delivery, signed by each of the Selling
Stockholders (or its attorney-in-fact on its behalf) to the effect that the
representations and warranties of the Selling Stockholders contained in this
Agreement were, when originally made, and are, at the time such certificate is
delivered, true and correct in all material respects.
(l) On or prior to the Closing Date the Representatives
shall have received the executed agreements referred to in Section 5(n).
(m) The Shares shall be qualified for sale in such
jurisdictions as the Representatives may reasonably request, and each such
qualification shall be in effect and not subject to any stop order or other
proceeding on the Closing Date or the Option Closing Date, as applicable.
(n) Prior to the Closing Date, the Shares to be sold by
the Company hereunder shall have been duly authorized for listing on the Nasdaq
National Market
23.
<PAGE> 24
upon official notice of issuance. The Shares to be sold be the Selling
Stockholders hereunder are listed on the Nasdaq National Market.
(o) The Company shall have furnished to the
Representatives such certificates and documents, in addition to those
specifically mentioned herein, as the Representatives may have reasonably
requested as to thec accuracy and completeness at the Closing Date and the
Option Closing Date of any statement in the Registration Statement or the
Prospectus as to the accuracy at the Closing Date and the Option Closing Date
of the representations and warranties of the Company herein, as to the
performance by the Company of its obligations hereunder, or as to the
fulfillment of the conditions concurrent and precedent to the obligations
hereunder of the Representatives.
(p) The Selling Stockholders shall have furnished to the
Representatives such certificates and documents, in addition to those
specifically mentioned herein, as the Representatives may have reasonably
requested (including certificates of the officers of the Selling Stockholders,
when the Selling Stockholder is not a natural person), at the Closing Date and
the Option Closing Date of the representations and warranties of the Company
herein, as to the performance by the Selling Stockholders of their obligations
hereunder, or as to the fulfillment of the conditions concurrent and precedent
to the obligations hereunder of the Representatives.
8. Indemnification.
(a) The Company will indemnify and hold harmless each
Underwriter, the directors, officers, employees and agents of each Underwriter
and each person, if any, who controls each Underwriter within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act, from and against any
and all losses, claims, liabilities, expenses and damages (including any and
all investigative, legal and other expenses reasonably incurred in connection
with, and any amount paid in settlement of, any action, suit or proceeding or
any claim asserted), to which they, or any of them, may become subject under
the Act, the Exchange Act or other Federal or state statutory law or
regulation, at common law or otherwise, insofar as such losses, claims,
liabilities, expenses or damages (1) arise out of or are based on any untrue
statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus, the Registration Statement or the Prospectus or any
amendment or supplement to the Registration Statement or the Prospectus, or the
omission or alleged omission to state in such document a material fact required
to be stated therein or necessary to make the statements therein not misleading
in light of the circumstances in which they were made, (2) arise out of or are
based in whole or in part on any inaccuracy in the representations and
warranties of the Company contained herein or (3) arise out of or are based
upon any failure of the Company to perform its obligations hereunder or under
laws in connection with the transactions contemplated hereby; provided,
however, that the Company will not be liable (A) to any
24.
<PAGE> 25
Underwriter, the directors, officers, employees of such Underwriter and any
person controlling such Underwriter to the extent that such loss, claim,
liability, expense or damage arises from the sale of the Shares in the public
offering to any person by an Underwriter and is based on an untrue statement or
omission or alleged untrue statement or omission made in reliance on and in
conformity with information relating to any Underwriter furnished in writing to
the Company by the Representatives, on behalf of any Underwriter expressly for
inclusion in the Registration Statement, the Preliminary Prospectus or the
Prospectus, and (B) to any Underwriter, the directors, officers, employees or
agents of such Underwriter or any person controlling such Underwriter with
respect to any loss, claim, liability, expense, charge or damage arising out of
or based on any untrue statement or omission or alleged untrue statement or
omission or alleged omission to state a material fact in the Preliminary
Prospectus which is corrected in the Prospectus if the person asserting any
such loss, claim, liability, charge or damage purchased Shares from such
Underwriter but was not sent or given a copy of the Prospectus at or prior to
the written confirmation of the sale of such Shares to such person. The
Company acknowledges that the statements set forth under the heading
"Underwriting" in the Preliminary Prospectus and the Prospectus constitute the
only information relating to any Underwriter furnished in writing to the
Company by the Representatives on behalf of the Underwriters expressly for
inclusion in the Registration Statement, the Preliminary Prospectus or the
Prospectus. This indemnity agreement will be in addition to any liability that
the Company might otherwise have.
(b) Each Selling Stockholder agrees to indemnify and hold
harmless each Underwriter, the directors, officers, employees and agents of
each Underwriter and each person, if any, who controls each Underwriter within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act, and the Company, its directors, its officers who sign the Registration
Statement and each person, if any, who controls the Company within the meaning
of either such section, from and against any and all losses, claims,
liabilities, expenses and damages (including any and all investigative, legal
and other expenses reasonably incurred in connection with, and any amount paid
in settlement of, any action, suit or proceeding or any claim asserted) to
which they, or any of them, may become subject under the Act, the Exchange Act
or other Federal or state statutory law or regulation, at common law or
otherwise, insofar as such losses, claims liabilities expenses or damages (i)
arise out of or are based on any untrue statement or alleged untrue statement
of a material fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus or any amendment or supplement to the Registration
Statement or the Prospectus, or the omission or alleged omission to state in
such document a material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances under
which they were made, (2) arise out of or are based in whole or in part on any
inaccuracy in the representations and warranties of a Selling Stockholder
contained herein, or (3) arise out
25.
<PAGE> 26
of or are based upon any failure of a Selling Stockholder to perform its
obligations hereunder; provided, however, that the Selling Stockholders will
not be liable (1) to any Underwriter, the directors, officers, employees of
such Underwriter and any person controlling such Underwriter to the extent that
such loss, claim, liability, expense or damage arises from the sale of the
Shares in the public offering to any person by an Underwriter and is based on
an untrue statement or omission or alleged untrue statement or omission made in
reliance on and in conformity with information relating to any Underwriter
furnished in writing to the Company by the Representatives, on behalf of any
Underwriter expressly for inclusion in the Registration Statement, the
Preliminary Prospectus or the Prospectus, and (2) to any Underwriter, the
directors, officers, employees or agents of such Underwriter or any person
controlling such Underwriter with respect to any loss, claim, liability,
expense, charge or damage arising out of or based on any untrue statement or
omission or alleged untrue statement or omission or alleged omission to state a
material fact in the Preliminary Prospectus which is corrected in the
Prospectus if the person asserting any such loss, claim, liability, charge or
damage purchased Shares from such Underwriter but was not sent or given a copy
of the Prospectus at or prior to the written confirmation of the sale of such
Shares to such person. Each Selling Stockholder acknowledges that the
statements set forth under the heading "Underwriting" in the Preliminary
Prospectus and the Prospectus constitute the only information relating to any
Underwriter furnished in writing to the Company by the Representatives on
behalf of the Underwriters expressly for inclusion in the Registration
Statement, the Preliminary Prospectus or the Prospectus. This indemnity
agreement will be in addition to any liability that the Selling Stockholders
might otherwise have.
(c) Each Underwriter will indemnify the Company each the
Selling Stockholder, each person, if any, who controls the Company and each
Selling Stockholder within the meaning of Section 15 of the Act or Section 20
of the Exchange Act, each director of the Company and each officer of the
Company who signs the Registration Statement to the same extent as the
foregoing indemnity from the Company to each Underwriter, as set forth in
Section 8(a) or 8(b) as applicable, but only insofar as losses, claims,
liabilities, expenses or damages arise out of or are based on any untrue
statement or omission or alleged untrue statement or omission made in reliance
on and in conformity with information relating to any Underwriter furnished in
writing to the Company by the Representatives on behalf of such Underwriter
expressly for use in the Registration Statement, the Preliminary Prospectus or
the Prospectus. The Company and the Selling Stockholders acknowledge that the
statements set forth under the heading "Underwriting" in the Preliminary
Prospectus and the Prospectus constitute the only information relating to any
Underwriter furnished in writing to the Company by the Representatives on
behalf of the Underwriters expressly for inclusion in the Registration
Statement, the Preliminary Prospectus or the Prospectus. This indemnity will
be in addition to any liability that such Underwriter might otherwise have.
26.
<PAGE> 27
(d) Any party that proposes to assert the right to be
indemnified under this Section 8 will, promptly after receipt of notice of
commencement of any action against such party in respect of which a claim is to
be made against an indemnifying party or parties under this Section 8, notify
each such indemnifying party of the commencement of such action, enclosing a
copy of all papers served, but the omission so to notify such indemnifying
party will not relieve it from any liability that it may have to any
indemnified party under the foregoing provisions of this Section unless, and
only to the extent that, such omission results in the loss of substantive
rights or defenses by the indemnifying party. If any such action is brought
against any indemnified party and it notifies the indemnifying party of its
commencement, the indemnifying party will be entitled to participate in and, to
the extent that it elects by delivering written notice to the indemnified party
promptly after receiving notice of the commencement of the action from the
indemnified party, jointly with any other indemnifying party similarly
notified, to assume the defense of the action, with counsel satisfactory to the
indemnified party, and after notice from the indemnifying party to the
indemnified party of its election to assume the defense, the indemnifying party
will not be liable to the indemnified party for any legal or other expenses
except as provided below and except for the reasonable costs of investigation
subsequently incurred by the indemnified party in connection with the defense.
The indemnified party will have right to employ its own counsel in any such
action, but the fees, expenses and other charges of such counsel will be at the
expense of such indemnified party unless (1) the employment of counsel by the
indemnified party has been authorized in writing by the indemnifying party, (2)
the indemnified party has reasonably concluded (based on advice of counsel)
that there may be legal defenses available to it or other indemnified parties
that are different from or in addition to those available to the indemnifying
party, (3) a conflict or potential conflict exists (based on advice of counsel
to the indemnified party) between the indemnified party and the indemnifying
party (in which case the indemnifying party will not have the right to direct
the defense of such action on behalf of the indemnified party) or (4) the
indemnifying party has not, in fact, employed counsel to assume the defense of
such action within a reasonable time after receiving notice of the commencement
of the action, in each of which cases the reasonable fees, disbursements and
other charges of counsel will be at the expense of the indemnifying party or
parties. It is understood that the indemnifying party or parties shall not, in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for the reasonable fees, disbursements and other charges of more than
one separate firm admitted to practice in such jurisdiction at any one time for
all such indemnified party or parties. All such fees, disbursements and other
charges will be reimbursed by the indemnifying party promptly as they are
incurred. Any indemnifying party will not be liable for any settlement of any
action or claim effected without its written consent (which consent will not be
unreasonably withheld).
27.
<PAGE> 28
(e) In order to provide for just and equitable
contributions in circumstances in which the indemnification provided for in the
foregoing paragraphs of this Section 8 is applicable in accordance with its
terms but for any reason is held to be unavailable to any indemnified party,
the Company, the Selling Stockholders and the Underwriters will contribute to
the total losses, claims, liabilities, expenses and damages (including any
investigative, legal and other expenses reasonably incurred in connection with,
and any amount paid in settlement of, any action, suit or proceeding or any
claim asserted, but after deducting any contribution received by the Company
from persons other than the Underwriters, such as persons who control the
Company within the meaning of the Act, officers of the Company who signed the
Registration Statement and directors of the Company, who also may be liable for
contribution) to which the Company and any one or more of the Underwriters or
the Selling Stockholders may be subject in such proportion as shall be
appropriate to reflect benefits received by the Company, the Underwriters and
the Selling Stockholders. The relative benefits received by the Company, the
Underwriters and the Selling Stockholders shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company or the Selling Stockholders bear to the total
underwriting discounts and commissions received by the Underwriters, in each
case as set forth in the table on the cover page of the Prospectus. If, but
only if, the allocation provided by the foregoing sentence is not permitted by
applicable law, the allocation of contribution shall be made in such proportion
as is appropriate to reflect not only the relative benefits referred to in the
foregoing sentence but also the relative fault of the Company, the Underwriters
and the Selling Stockholders with respect to the statements or omissions which
resulted in such loss, claim, liability, expenses or damage, or action in
respect thereof, as well as any other relevant equitable considerations with
respect to such offering. Such relative fault shall be determined by reference
to whether the untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact relates to information
supplied by the Company, the Representatives on behalf of the Underwriters or
the Selling Stockholders, the intent of the parties and their relative
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company, the Underwriters and the Selling
Stockholders agree that it would not be just and equitable if contributions
pursuant to this Section 8(e) were to be determined by pro rata allocation
(even if the Underwriters were treated as one entity for such purpose) or by
any other method of allocation which does not take into account the equitable
considerations referred to herein. The amount paid or payable by an
indemnified party as a result of the loss, claim, liability, expense or damage,
or action in respect thereof, referred to above in this Section 8(e) shall be
deemed to include, for purpose of this Section 8(e), any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 8(e), no Underwriter shall be required to contribute
any amount in excess of the underwriting discounts received by it and no
28.
<PAGE> 29
person found guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) will be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations to contribution as provided in this Section 8(e) are several in
proportion to their respective underwriting obligations and not joint. For
purposes of this Section 8(e), any person who controls a party to this
Agreement within the meaning of the Act will have the same rights to
contribution as that party, and each officer of the Company who signed the
Registration Statement will have the same rights to contribution as the
Company, subject in each case to the provisions hereof. Any party entitled to
contribution, promptly after receipt of notice of commencement of any action
against any such party in respect of which a claim for contribution may be made
under this Section 8(e), will notify any such party or parties, from whom
contribution may be sought from any other obligation it or they may have under
this Section 8(e). No party will be liable for contribution with respect to
any action or claim settled without its written consent (which consent will not
be unreasonably withheld).
(f) The indemnity and contribution agreements contained
in this Section 8 and the representations and warranties of the Company and the
Selling Stockholders contained in this Agreement shall remain operative and in
full force and effect regardless of (i) any investigation made by or on behalf
of the Underwriters, (ii) acceptance of any of the Shares and payment therefor
or (iii) any termination of this Agreement.
9. Termination. The obligations of the several Underwriters
under this Agreement may be terminated at any time on or prior to the Closing
Date by notice to the Company and the Attorney-in-Fact for the Selling
Stockholders from the Representatives, without liability on the part of any
Underwriter to the Company or the Selling Stockholders if, prior to delivery
and payment for the Shares as the case may be, in the sole judgment of the
Representatives, (i) trading in any of the equity securities of the Company
shall have been suspended by the Commission, by an exchange that lists the
Shares or by the Nasdaq National Market, (ii) trading in securities generally
on the New York Stock Exchange shall have been suspended or limited or minimum
or maximum prices shall have been generally established on such exchange, or
additional material governmental restrictions, not in force on the date of this
Agreement, shall have been imposed upon trading in securities generally by such
exchange or by order of the Commission or any court or other governmental
authority, (iii) a general banking moratorium shall have been declared by
either Federal or New York State authorities or (iv) any material adverse
change in the financial or securities markets in the United States or in
political, financial or economic conditions in the United States or any
outbreak or material escalation of hostilities or other calamity or crisis
shall have occurred, the effect
29.
<PAGE> 30
of which is such as to make it, in the sole judgment of the Representatives,
impracticable to market the Shares.
10. Substitution of Underwriters. If any one or more of the
Underwriters shall fail or refuse to purchase any of the Firm Shares which it
or they have agreed to purchase hereunder, and the aggregate number of Firm
Shares which such defaulting Underwriter or Underwriters agreed but failed or
refused to purchase is not more than one-tenth of the aggregate number of Firm
Shares, the other Underwriters shall be obligated, severally, to purchase the
Firm Shares which such defaulting Underwriter or Underwriters agreed but failed
or refused to purchase, in the proportions which the number of Firm Shares
which they have respectively agreed to purchase pursuant to Section 1 bears to
the aggregate number of Firm Shares which all such non-defaulting Underwriters
have so agreed to purchase, or in such other proportions as the Representatives
may specify; provided that in no event shall the maximum number of Firm Shares
which any Underwriter has become obligated to purchase pursuant to Section 1 be
increased pursuant to this Section 8 by more than one-ninth of such number of
Firm Shares without the prior written consent of such Underwriter. If any
Underwriter or Underwriters shall fail or refuse to purchase any Firm Shares
and the aggregate number of Firm Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase exceeds one-tenth of the
aggregate number of the Firm Shares and arrangements satisfactory to the
Representative and the Company for the purchase of such Firm Shares are not
made within forty-eight (48) hours after such default, this Agreement will
terminate without liability on the part of any non- defaulting Underwriter or
the Company or the Selling Stockholders for the purchase or sale of any Firm
Shares under this Agreement. In any such case either the Representatives or
the Company shall have the right to postpone the Closing Date, but in no event
for longer than seven (7) days, in order that the required changes, if any, in
the Registration Statement and the Prospectus or in any other documents or
arrangements may be effected. Any action taken pursuant to this Section 8
shall not relieve any defaulting Underwriter from liability in respect of any
default of such Underwriter under this Agreement.
11. Miscellaneous. Notice given pursuant to any of the provisions
of this Agreement shall be in writing and, unless otherwise specified, shall be
mailed or delivered (a) if to the Company, at the office of the Company, 21540
Plummer Street, Chatsworth, CA 91311-4103, Attention: Paul Chopra, Chief
Executive Officer with a copy to Willie R. Barnes, Esq., Musick, Peeler &
Garrett LLP, One Wilshire Boulevard, Los Angeles, CA 90017, (b) if to the
Underwriters, to the Representatives at the offices of Needham & Company, Inc.
445 Park Avenue, New York, NY 10022, Attention: Corporate Finance Department
with a copy to D. Bradley Peck, Esq., Cooley Godward LLP, 4365 Executive Drive,
Suite 1200, San Diego, CA 92121 or (c) if to the Selling Stockholders, to the
Attorney-in-Fact for the Selling Stockholders at COHR Inc., 21540
30.
<PAGE> 31
Plummer Street, Chatsworth, CA 91311-4103. Any such notice shall be effective
only upon receipt. Any notice under such Section 8 or 9 may be made by telex
or telephone, but if so made shall be subsequently confirmed in writing.
This Agreement has been and is made solely for the benefit of the
several Underwriters and the Company and of the controlling persons, directors
and officers referred to in Section 8, and their respective successors and
assigns, and no other person shall acquire or have any right under or by virtue
of this Agreement. The term "successors and assigns" as used in this Agreement
shall not include a purchaser, as such purchaser, of Shares from any of the
several Underwriters.
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York applicable to contracts made and to be
performed entirely within such State.
This Agreement may be signed in two or more counterparts with the same
effect as if the signatures thereto and hereto were upon the same instrument.
In case any provision in this Agreement shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
The Company and the Underwriters each hereby waive any right they may
have to a trial by jury in respect of any claim based upon or arising out of
this Agreement or the transactions contemplated hereby.
31.
<PAGE> 32
Please confirm that the foregoing correctly sets forth the agreement
among the Company and the several Underwriters.
Very truly yours,
COHR INC.
By:
--------------------------------
Title:
-----------------------------
SELLING STOCKHOLDERS
By:
--------------------------------
As Attorney-in-Fact for the Selling
Stockholders
Confirmed as of the date first above
mentioned:
NEEDHAM & COMPANY, INC.
OPPENHEIMER & CO., INC.
CROWELL, WEEDON & CO.
WEDBUSH MORGAN SECURITIES INC.
Acting on behalf of themselves and as
the Representatives of the other
several Underwriters named in
Schedule I hereof.
By: NEEDHAM & COMPANY, INC.
By:
--------------------------
Title:
-----------------------
32.
<PAGE> 33
SCHEDULE I - UNDERWRITERS
<TABLE>
<CAPTION>
Number of
Shares to be
Name of Underwriter Purchased
------------------- ---------------
<S> <C>
Needham & Company, Inc.
Oppenheimer & Co., Inc.
Crowell, Weedon & Co.
Wedbush Morgan Securities Inc.
---------
TOTAL 1,900,000
=========
</TABLE>
<PAGE> 34
SCHEDULE II - PRIMARY SELLING STOCKHOLDERS
SELLER SHARES
<TABLE>
<CAPTION>
Number of
Stockholder Seller Shares
----------- -------------
<S> <C>
Healthcare Association of Southern California
Hospital Council of San Diego and Imperial Counties
-------
TOTAL 400,000
=======
</TABLE>
<PAGE> 35
SCHEDULE III - OVER-ALLOTMENT SELLING STOCKHOLDERS
OPTION SHARES
<TABLE>
<CAPTION>
Number of
Stockholder Option Shares
----------- -------------
<S> <C>
Paul Chopra 20,000
Umesh Malhotra 3,000
David Manigault 2,000
------
TOTAL 25,000
======
</TABLE>
<PAGE> 1
EXHIBIT 5.1
[MUSICK, PEELER & GARRETT LLP LETTERHEAD]
November 18, 1996
COHR Inc.
21540 Plummer Street
Chatsworth, California 91311
Ladies and Gentlemen:
We are acting as counsel for COHR Inc., a Delaware corporation (the
"Company") in connection with the issuance and sale of 1,500,000 shares of
Common Stock by the Company (the "Company Shares"), which, together with
400,000 shares of Common Stock of the Company owned by Healthcare Association
of Southern California and Hospital Council of San Diego and Imperial Counties
(the "Primary Selling Stockholders' Shares"), and if the Over-Allotment Option
is exercised, an additional 260,000 shares of Common Stock by the Company and
25,000 shares of Common Stock of the Company owned by certain officers and a
director of the Company (the "Over-Allotment Selling Stockholders' Shares"),
are being sold by means of that certain Registration Statement on FORM S-1
(Registration No. 333-14979) filed with the Securities and Exchange Commission
on October 29, 1996.
We have examined such documents, records and matters of law as
necessary for purposes of this opinion, and based thereupon we are of the
opinion that the Primary Selling Stockholders' Shares and the Over-Allotment
Selling Stockholders' Shares were duly authorized, legally issued, fully paid
and non-assessable, and that the Company Shares are duly authorized and, when
issued and delivered to the Underwriters pursuant to the Underwriting Agreement
against payment of the consideration therefor, as provided therein, will be
legally issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to
<PAGE> 2
[MUSICK, PEELER & GARRETT LLP LOGO]
COHR Inc.
November 18, 1996
Page 2
this firm under the caption "Legal Matters" in the Prospectus constituting a
part of the Registration Statement.
Respectfully submitted,
/s/ MUSICK, PEELER & GARRETT LLP
