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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
------------------------
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED MARCH 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
COMMISSION FILE NO. 0-27506
COHR INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C>
DELAWARE 95-4559155
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION)
201 NORTH FIGUEROA STREET, SUITE 400
LOS ANGELES, CALIFORNIA 90012
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (213) 250-5600
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $0.01 PAR VALUE PER SHARE
(TITLE OF CLASS)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO _
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ____
As of June 12, 1996, there were outstanding 4,562,000 shares of the
Registrant's Common Stock, par value $0.01 ("Common Stock"), which is the only
class of Common Stock of the Registrant. As of June 12, the aggregate market
value of the shares of Common Stock held by non-affiliates of the Registrant,
computed based on the closing sale price of $24.25 per share as reported by
Nasdaq, was approximately $83,662,500.
DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III is incorporated by reference to the
definitive Proxy Statement for the 1996 Annual Meeting of Stockholders of the
Registrant which will be filed with the Securities and Exchange Commission not
later than 120 days after .
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<PAGE> 2
PART I
ITEM 1. BUSINESS
GENERAL
COHR Inc. ("COHR" or the "Company") is a national outsourcing service
company, providing equipment servicing, group purchasing and other services such
as electronic data interchange business systems, insurance consultation and
brokerage, security services, clinical information systems and credentials
management services to hospitals, integrated health systems and alternate site
providers.
SERVICES AND PRODUCTS
COHR MASTERPLAN
The market for medical equipment services grows at a rate of over 12%
annually, and will amount to nearly $8 billion by the end of the decade. The
Company believes that cost-containment pressures compel health-care providers to
retain existing equipment longer and to outsource an ever-increasing proportion
of their service needs. Those independent service organizations (ISOs) with a
formidable market presence that are national in scope, possess highly qualified
service personnel and can maintain equipment from many manufacturers will
benefit from this trend. The Company has sought to capitalize upon these trends
with COHR MasterPlan which has gained market share faster than any other
industry competitor.
"One contract, one cost, one call" summarizes the MasterPlan approach. The
ability to maintain any high-technology equipment, anytime, anywhere in the
nation, and to reduce the client's expenditures through a fixed-price contract
that caps the cost of maintenance, makes COHR's capital asset management program
a competitive alternative to other ISO's. In a typical situation, the Company
conducts an extensive audit of a potential client, including a review of
existing service contracts, time-and-materials and expenditure histories for
maintenance of their equipment inventory, and interviews with key operational
managers and vendors. The data generated from the audit is analyzed and compared
to an extensive, 22-year database of equipment maintenance records. The Company
then presents the client with a comprehensive proposal, which includes
guaranteed savings for the first year of the contract and recommendations for
areas of improvement. As an incentive to increase the use of the Company's
maintenance services over those of other vendors, the client receives a share of
the cost savings realized when actual service expenses fall below the contract's
fixed price.
The Company has found that health-care facilities find it increasingly
difficult to maintain out-of-warranty equipment at our price levels because of
overhead and administrative burdens; other ISOs have not matched the pricing or
the wide range of ancillary services (such as refurbished equipment sales, depot
repair and specialized technology consulting offered by the Company); and
equipment manufacturers typically sell and service only their own products,
usually for 25-50% more than COHR. These factors, and a reputation for quality
work, account for MasterPlan's sustained, rapid growth, from approximately 300
clients in 1992 to over 1,300 today, with a contract renewal rate of 98%. Over
450 technicians, customer service and marketing personnel operate from 28
offices nationwide. Revenues increased from $6 million in FY 1991 to over $48
million in FY 1996. In FY 1996, revenues increased 72% over the previous year. A
series of acquisitions -- 12 since July, 1993 -- added customers, qualified
staff and revenues, and extended the program into new areas.
The Company intends to continue COHR MasterPlan's expansion during the year
ahead by acquiring smaller regional ISOs and opening additional sales and
customer service sites. The Company also plans to increase its share in existing
markets by soliciting an increasing proportion of the equipment maintenance in
those facilities where some items are still covered by original equipment
manufacturer (OEM) agreements. The Company will continue to develop its ability
to service high-technology diagnostic and treatment equipment, which typically
generates higher margins than the maintenance of less-sophisticated items. The
Company will seek to enhance its capabilities to participate in the exponential
growth of the refurbished equipment market by purchasing, reconditioning and
reselling used equipment, both domestically and through its subsidiary in Asia.
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PURCHASE CONNECTION
Group purchasing organizations derive their power from a simple principle:
the bigger the group, the larger the purchase, the lower the price. Since its
inception in 1979, COHR's Purchase Connection has successfully implemented this
formula to build one of the industry's strongest business portfolios.
In a continually evolving health-care environment the Company expects
Purchase Connection will continue to prosper because of many factors. A
committed national membership of nearly 1,400 facilities accounts for a
significant annual volume of contract purchases. Members have been
attracted -- and retained -- by the bottom-line savings generated by these
purchases, by the low cost of membership, by the strong support of an
experienced professional staff, by the broad range of product availability, and
by the ease and economy of a state-of-the-art electronic catalog that includes
over 400,000 discounted line items of medical/surgical/laboratory and dietary
supplies, pharmaceuticals and capital equipment. Purchase Connection members
enjoy a unique advantage over members of other GPOs: easy access to the
extensive portfolio of value-added COHR products and services. These include a
full-line insurance brokerage, employee benefits consulting, facility security
services, medical credentials verification services and other information
management consulting.
In FY 1997 management intends to continue growing Purchase Connection by
adding to the Company's revenue base. To do so, the Company will seek to
increase its existing members' purchasing volume by incentivizing greater
compliance with sole-source contracts through offering deeper discounts. The
Company will seek to increase its efficiency through member utilization of our
electronic information systems, and will also solicit joint marketing efforts
with manufacturers and distributors. The Company plans to expand its geographic
penetration of certain regional markets, particularly in the midwest and
southeast, by opening regional sales and customer service sites. Finally, the
Company will introduce a number of new cost-effective products and
services -- some developed internally, and some acquired -- to help its members
meet their constantly changing operating challenges.
The revolution in information management technology that affects every
aspect of business has only begun to penetrate the enormous and complex
health-care market. Most potential customers still accumulate mountains of paper
patient records and operate legacy computer systems that perform limited,
specialized functions. However, change is imminent. A changing regulatory
environment has neccesitated the need to maintain quantifiable data, reduce
recordkeeping costs, speed access to information and expedite insurance
reimbursement. This has created a series of dilemmas for health-care
organizations. The Company has anticipated these changes, and has produced
electronic communications technology to supply optimal solutions to the
problems.
In 1995, the Company introduced its first proprietary software product,
COHR 835 Direct. The software found rapid acceptance in that both Blue Cross of
California and Blue Cross/Blue Shield of New Jersey licensed 835 Direct for
distribution to their affiliates. This year, the Company will answer another
specific market need with the introduction of COHR Order Direct, an interface
between vendors and providers for the transmission of catalogs and purchase
orders. This software automates supply procurement and integrates seamlessly
with other existing materials management and financial systems. Another new
software product, CheckPoint, stores, displays and manages health-care
professionals' credentials information, empowering a system or facility to
administer its own verification and certification process (otherwise a very
labor-intensive, repetitive task). Like all COHR proprietary products,
CheckPoint interfaces with clients' existing systems, greatly expanding our
potential market.
Over 90% of health-care information professionals who responded to a recent
poll viewed clinical systems as their main applications priority for the next
year. The Company foresaw this demand when the Company licensed selected
third-party applications to fill specific high-growth-potential clinical and
administrative niches. These products, in conjunction with our proprietary
software, empower the Company to offer a full range of state-of-the-art
information solutions for both business and clinical environments. COHR also
provides services to help our clients maximize the growing potential of the
Internet for commercial transactions and customer relations.
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SALES AND MARKETING
The Company markets its services and products to hospitals, integrated
health systems and alternative site providers through a field of 56 people in
sales, marketing, and customer service, allocated between COHR MasterPlan and
Purchase Connection. The Company's sales personnel use a comprehensive
consultative sales approach to leverage relationships in order to sell both
programs.
COHR MasterPlan. The Company employs 27 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 complete. 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 29 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. Targeting mailings,
word of mouth, educational programs and cross-marketing are all employed as a
means of promoting these products and services.
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, Siemens Medical
Systems, Inc. and Picker International, Inc., (ii) ISOs, of which two of the
largest are divisions of AMSCO International, Inc. and ServiceMaster, L.P., and
(iii) in-house servicing departments. In the group purchasing markets, the
Company's principal competitors are several major GPOs, including American
Healthcare Systems/Premier Hospitals, Inc., Voluntary Hospitals of America Inc.,
MedEcon Services, Inc., AmeriNet, Inc., Health Services Corporation of America,
SunHealth Alliance, Buy Power and University Hospital Consortium, as well as
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
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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 a purchasing agent for entities who are furnishing services for which
payment may be made under Medicare or a state health care program. The group
purchasing safe harbor provides 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 disclosed 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 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 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 place 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,
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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 assurances that either
governmental regulators or courts may not find that these contracts have an
anti-competitive 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
anti-competitive 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 determination that could adversely
affect the operations of the Company.
Insurance Laws and Regulations. Laws in all states regulate the business of
selling and marketing insurance products, such as life and health insurance,
fire and casualty insurance and variable annuities. The Company believes it is
in compliance with applicable laws in the states in which it conducts such
business as are applicable to the Company's insurance products but there can be
no assurance that future interpretations of insurance laws by regulatory
authorities in these states 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.
The Company believes that it is in substantial compliance with all of the
foregoing federal and state laws and the regulations promulgated thereunder and
possesses all material permits and licenses for the conduct of its business.
EMPLOYEES
As of March 31, 1996, the Company employed a total of 558 persons,
consisting of 56 in sales, marketing and customer service, 272 equipment
technicians, 41 other technical specialists, 96 security guards and 93 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.
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EXECUTIVE OFFICERS
The names, titles and ages of the executive officers of the Company are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Paul Chopra 48 President, Chief Executive Officer and
Director
Umesh Malhotra 37 Chief Financial Officer and Assistant
Secretary
Sandy Morford 41 Executive Vice President
Lisa Sokol 39 Executive Vice President
David Manigault 37 Executive Vice President and Chief Information
Officer
William J. Greenhouse 44 Senior Vice President of Corporate Development
David Langness 46 Senior Vice President of Corporate
Communications
Harold Tiegs 56 Corporate Controller
</TABLE>
Mr. Chopra as served as President and Chief Executive Officer of the
Company since 1993 and has served as a director since 1984. 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 SharePlus, 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."
Mr. 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.
Mr. 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.
Ms. 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.
Mr. 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.
Mr. Greenhouse has served as Senor Vice President, Corporate Development of
the Company since 1992. From 1991 to 1992, he served as Senior Vice President,
Quality Management of the Company. From 1989 to 1992, Mr. Greenhouse served as
Senior Vice President of Management Services for HASC.
Mr. Langness has served as Senior Vice President, Corporate Communications
since February 1996. From April 1986 to January 1996, Mr. Langness served as
Vice President, Communications for HASC.
Mr. Tiegs has served as Corporate Controller since April 1996. From 1978 to
1996 Mr. Tiegs practiced as a certified public accountant as a sole practitioner
and a partner in the accounting firm of Fleming, Reiss and Company. In this
capacity, he provided consulting, personal and corporate tax and accounting
services.
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ITEM 2. PROPERTIES
The Company's principal executive offices are located in Los Angeles,
California and consist of approximately 23,000 square feet of leased office
space in downtown Los Angeles, which houses most of the Company's senior
management, as well as management information systems, finance and human
resources and its Purchase Connection division. The Company's principal services
facility it located in approximately 18,000 square fee of space in Van Nuys,
California. These leases expire in August 1996. The Company has signed a new
lease for approximately 76,000 square feet of space for a combined executive
office and equipment services facility in Chatsworth, California. The Company
estimates that such a move will significantly reduce its lease expenses.
The Company also leases service and sales sites in Brea, Murrieta, Stockton
and Union City, California; Fairlawn, Ohio; Pickerington, Ohio; Erie County,
Pennsylvania; Seattle, Washington; Islandia, New York; Gainesville, Florida; and
Fountain Hills, Arizona.
ITEM 3. 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 alleges that on November 10,
1994, the Company breached an alleged employment agreement by wrongfully
terminating him. Plaintiff also alleges that the Company's action in terminating
his employment constituted a breach of the covenant of good faith and fair
dealing and constituted an intentional and negligent infliction of emotional
distress. In addition, Plaintiff alleges that his termination by the Company was
based on discrimination against him because of his race and in retaliation for
his having taken a medical/disability leave. Plaintiff further alleges that, as
a result of the Company's misrepresentation, he was prevented from obtaining
employment with a prospective employer. The Complaint seeks general damages of
$500,000 and punitive damages of $2,000,000, costs of suit and reasonable
attorney fees. The Company denies all allegations of wrongdoing in the complaint
and believes that such allegations are without merit. The Company intends to
vigorously defend the action.
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's stockholders during
the fourth quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR THE REGISTRANTS COMMON STOCK AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Company's common stock began trading on Nasdaq on February 16, 1996
under the symbol "CHRI". The initial public offering price was $9.00 per share;
and the closing price on February 16, 1996 was $13.50. The high and low closing
sales prices (excluding retail markup, markdowns and commissions) for the period
February 16, 1996 to March 31, 1996 are as follows:
<TABLE>
<CAPTION>
HIGH LOW
---- ----
<S> <C> <C>
Fourth Quarter -- February 16, 1996 to March 31, 1996...... 16 1/4 11 3/4
</TABLE>
As of June 12, 1996, there are approximately 26 stockholders of record and
approximately 1,800 beneficial holders of the Company's common stock. The
Company's stock price may be subject to significant volatility, particularly on
a quarterly basis. Any shortfall in revenue or earnings from levels expected by
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securities analysts could have an immediate and significant adverse effect on
the trading price of the Company's common stock in any given period.
Additionally, the Company may not learn of, or be able to confirm, revenue or
earnings variations from estimates until late in the fiscal quarter which could
result in an even more immediate and adverse effect on the trading price of the
Company's common stock. Finally, the Company participates in a highly dynamic
industry, which often results in significant volatility of the Company's common
stock price.
DIVIDEND POLICY
Although the Company has in the past declared and paid cash dividends on
its Common Stock, 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.
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ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected financial data of the Company which
have been derived from the audited consolidated financial statements of the
Company. 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 in this
report.
SELECTED FINANCIAL AND SUPPLEMENTAL DATA
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31
-----------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
COHR MasterPlan................................ $48,160 $28,042 $12,617 $ 8,203 $ 7,228
Purchase Connection............................ 18,094 15,618 13,026 12,678 10,036
------- ------- ------- ------- -------
Total.................................. 66,254 43,660 25,643 20,881 17,264
Gross margin..................................... 18,059 13,561 8,773 7,732 6,242
Selling, general & administrative expenses....... 14,559 11,523 7,309 6,370 4,946
Loss on real estate investment................... 880
Operating income................................. 3,500 2,038 1,464 1,362 416
Net income....................................... $ 2,142 $ 1,368 $ 946 $ 917 $ 384
======= ======= ======= ======= =======
Net income per common share...................... $ 0.89 $ 0.65 $ 0.45 $ 0.43 $ 0.18
Weighted Average Shares Outstanding.............. 2,402 2,112 2,112 2,112 2,112
BALANCE SHEET DATA:
Working capital.................................. $23,470 $ 4,127 $ 4,626 $ 5,374 $ 5,167
Equipment and improvements, net.................. 3,718 2,727 2,611 2,245 1,871
Intangible assets, net........................... 2,530 1,967 216
Total assets..................................... 44,472 21,613 15,836 13,973 13,078
Total long-term debt............................. 276 528
Total shareholders' equity....................... 29,115 7,270 6,138 5,419 4,597
SUPPLEMENTAL DATA:
Regional service and sales sites:
COHR MasterPlan................................ 18 14 7 5 5
Purchase Connection............................ 7 6 2 1 1
------- ------- ------- ------- -------
Total.................................. 25 20 9 6 6
Total employees.................................. 558 428 339 254 215
Gross margin percentage.......................... 27.3% 31.1% 34.2% 37.0% 36.2%
Selling, general & administrative expenses
margin......................................... 22.0% 26.4% 28.5% 30.5% 28.6%
Operating income margin.......................... 5.3% 4.7% 5.7% 6.5% 2.4%
Days in receivables.............................. 57 54 57 62 74
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company is a national outsourcing service organization providing
equipment servicing, group purchasing and other services to hospitals,
integrated health systems and alternate site providers. The Company operates 19
regional service and sales sites to support its equipment services operations
and seven regional sales and customer service sites to support its group
purchasing activities.
9
<PAGE> 11
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. 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. Accordingly, although gross margin
percentages in each of the Company's segments have remained generally stable,
the Company's gross margin percentages have decreased during this time. Further,
gross margin percentages have fluctuated in each segment as a result of the
timing of acquisitions and the costs incurred to assimilate these acquisitions.
In addition in order to increase market share 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. 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
fiscal year ended March 31, 1996, development expenses on new products continued
but decreased as a percentage of total revenues from prior years.
RESULTS OF OPERATIONS
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 increases in revenues from sites acquired or
opened in previous periods. The Company acquired or opened 14 new service and
sales sites in fiscal 1995 and six new service and sales sites in fiscal 1996.
Direct Operating Expenses -- The Company's direct 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 Margin. The Company's gross margin 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 as a
percentage of revenues 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 percentage 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 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 without a corresponding increase in
10
<PAGE> 12
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 $2.0 million. Operating income as
a percentage of revenues for the fiscal year ended March 31, 1996 increased to
5.3% as compared to 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 $1,483,000, 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.
Net Income. The Company's net income for the fiscal year ended March 31,
1996 totaled $2,142,000, an increase of $774,000 or 56.6% over the fiscal year
ended March 31, 1995 total of $1,368,000. As a percentage of revenues, net
income increased to 3.2% 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 70.3% 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 the 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 the fiscal year 1995, the Company opened
or acquired a total of 14 new sales and customer service sites.
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 78.4% 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 Margin. The Company's gross margin for the year ended March 31, 1995
totaled $13.6 million, an increase of $4.8 million or 54.6% over the year ended
March 31, 1994 total of $8.8 million. Gross margin as a percentage of revenues
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 percentage was a result of a
larger increase in the percentage of the Company's revenues derived from the
lower margin COHR MasterPlan. Gross margin percentages in each of the divisions
increased slightly.
Selling, General and Administrative Expense. 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 57.7% 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
11
<PAGE> 13
administrative costs or head count 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 year ended March
31, 1995 totaled $2.0 million, an increase of $.5 million 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 $.5 million or 44.6% over the year ended
March 31, 1994 total of $.9 million. As a percentage of revenues, net income
decreased from 3.7% in fiscal year 1994 to 3.1% in fiscal 1995, primarily due to
the decline in gross margin as a percentage of sales. This decline as partially
offset by reduced selling, general and administrative expenses as a percentage
of revenues and a lower effective tax rate.
LIQUIDITY AND CAPITAL RESOURCES
On February 16, 1996, the Company sold 2,000,000 shares of its common
stock, $0.01 par value, at $9.00 per share pursuant to an initial public
offering, realizing $16.1 million in net proceeds after fees and other selling
expenses. On March 5, 1996, the Company realized $3.8 million, net of fees, from
certain options exercised by the Underwriters granted under the Underwriting
agreement pursuant to which the initial public offering was effected. Subsequent
to the year end, the Company has utilized $1.9 million to acquire three
companies and $0.3 million to pay off debt assumed through one of the
acquisitions.
The Company had working capital of $23.5 million, $4.1 million and $4.6
million as of March 31, 1996, March 31, 1995 and March 31, 1994 respectively.
The Company had cash and cash equivalents of $19.3 million, $4.5 million and
$5.2 million for the same respective periods.
Net cash provided by (used in) operating activities was $(1.9) million,
$1.5 million and $(.2) million for fiscal years 1996, 1995 and 1994,
respectively. The fluctuations in cash provided or used in operations is due
primarily to changes in accounts receivable, accounts payable and current income
tax liabilities. A significant portion of the Company's growth has been funded
internally through effective working capital management and, in particular,
through its ability to reduce the number of days outstanding in accounts
receivable.
Net cash used in investing activities was $2.8 million, $1.8 million, $1.1
million, for fiscal years 1996, 1995 and 1994, 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 $1.4 million, $.5
million and $.7 million respectively.
Cash flows provided by (used in) financing activities were principally for
the payment of dividends to its stockholders of approximately $.2 million, $.2
million and $.2 million for the years ended March 31, 1996, 1995 and 1994,
respectively, and the repayment of a $.2 million note assumed in an acquisition.
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 company's industry.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information with respect to this item is set forth in the "Index to
Consolidated Financial Statements."
12
<PAGE> 14
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
During the two years prior to the date of the most recent financial
statements, the Company has not had a change in its independent auditors nor
have there been any disagreements between the Company and its independent
auditors.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to this item is incorporated by reference from the
Company's definitive Proxy Statement, under the caption "Election of Directors",
to be filed with the Commission within 120 days after the close of the Company's
fiscal year. Information regarding executive officers of the Company is set
forth under the caption "Executive Officers" in Item 1 hereof.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to this item is incorporated by reference from the
Company's definitive Proxy Statement, under the caption "Remuneration", to be
filed with the Commission within 120 days after the close of the Company's
fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to this item is incorporated by reference from the
Company's definitive Proxy Statement, under the caption "Voting Securities" and
"Election of Directors", to be filed with the Commission within 120 days after
the close of the Company's fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to this item is incorporated by reference from the
Company's definitive Proxy Statement, under the caption "Election of
Directors -- Certain Relationships and Related Transactions", to be filed with
the Commission within 120 days after the close of the Company's fiscal year.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
(a) 1. The documents described in the "Index to Consolidated Financial
Statements and Financial Statement Schedule" are included in this
report starting at page 14.
2. The financial statement schedule described in the "Index to
Consolidated Financial Statements and Financial Statement Schedule"
are included in this report starting on page 29.
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable,
and therefore have been omitted.
3. Exhibits included or incorporated herein:
See Exhibit Index
(b) Reports on Form 8-K
Not applicable
13
<PAGE> 15
COHR INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
INDEPENDENT AUDITORS' REPORT.......................................................... 15
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets at March 31, 1996 and 1995.............................. 16
Consolidated Statements of Income for Each of the Years Ended March 31, 1996, 1995
and 1994......................................................................... 17
Consolidated Statements of Changes in Shareholders' Equity for Each of the Years
Ended March 31, 1996, 1995 and 1994.............................................. 18
Consolidated Statements of Cash Flows for Each of the Years Ended March 31, 1996,
1995 and 1994.................................................................... 19
Notes to Consolidated Financial Statements.......................................... 20
Schedule V.......................................................................... 29
</TABLE>
14
<PAGE> 16
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE AND EXHIBIT
Board of Directors and Shareholders 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, 1996 and 1995, and the related
consolidated statements of income, shareholders' 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 14.
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, 1996 and 1995, 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
15
<PAGE> 17
COHR INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT NUMBER OF SHARES)
ASSETS (Note 10)
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.............................................. $19,314 $ 4,453
Accounts receivable:
Trade, net of allowance for doubtful accounts of $835 (1996) and
$773 (1995)........................................................ 12,644 8,441
Other............................................................... 1,233 751
Inventory.............................................................. 3,486 1,999
Prepaid expenses and other............................................. 620 446
Deferred income tax asset (Note 5)..................................... 806 749
------- -------
Total current assets........................................... 38,103 16,839
EQUIPMENT AND IMPROVEMENTS, Net (Note 3)................................. 3,718 2,727
INTANGIBLE ASSETS, Net of accumulated amortization of $280 (1996) $113
(1995) (Note 4)........................................................ 2,530 1,967
OTHER ASSETS............................................................. 121 80
------- -------
TOTAL.................................................................... $44,472 $21,613
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable -- trade.............................................. $ 2,092 $ 1,365
Accrued expenses (Note 7).............................................. 3,372 1,988
Accrued liabilities -- COHR MasterPlan................................. 4,498 4,636
Deferred revenue (Note 10)............................................. 4,586 4,242
Income tax liability (Note 5).......................................... 360
Current portion of long-term debt (Notes 4 and 6)...................... 85 121
------- -------
Total current liabilities...................................... 14,633 12,712
DEFERRED INCOME TAX LIABILITY, Net (Note 5).............................. 448 342
DEFERRED COMPENSATION (Note 7)........................................... 169
LONG-TERM DEBT (Notes 4 and 6)........................................... 276 528
LONG-TERM DEFERRED RENT (Notes 8 and 10)................................. 592
COMMITMENTS AND CONTINGENCIES (Note 10)
SHAREHOLDERS' 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;
4,562,000 (1996) and 2,112,000 (1995) shares issued and
outstanding......................................................... 869 844
Additional paid-in capital............................................. 22,104 2,179
Retained earnings...................................................... 6,142 4,247
------- -------
Total shareholders' equity..................................... 29,115 7,270
------- -------
TOTAL.................................................................... $44,472 $21,613
======= =======
</TABLE>
See notes to consolidated financial statements.
16
<PAGE> 18
COHR INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR EACH OF THE YEARS ENDED MARCH 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
REVENUES...................................................... $66,254 $43,660 $25,643
DIRECT OPERATING EXPENSES..................................... 48,195 30,099 16,870
------- ------- -------
GROSS MARGIN.................................................. 18,059 13,561 8,773
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (Note 2)......... 14,559 11,523 7,309
------- ------- -------
OPERATING INCOME.............................................. 3,500 2,038 1,464
INTEREST INCOME............................................... 155 137 127
INTEREST EXPENSE.............................................. (30) (42)
------- ------- -------
INCOME BEFORE INCOME TAXES.................................... 3,625 2,133 1,591
PROVISION FOR INCOME TAXES (Note 5)........................... 1,483 765 645
------- ------- -------
NET INCOME.................................................... $ 2,142 $ 1,368 $ 946
======= ======= =======
NET INCOME PER SHARE.......................................... $ 0.89 $ 0.65 $ 0.45
======= ======= =======
WEIGHTED AVERAGE NUMBER OF COMMON STOCK AND COMMON STOCK
EQUIVALENTS OUTSTANDING DURING THE PERIOD................... 2,402 2,112 2,112
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
17
<PAGE> 19
COHR INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR EACH OF THE YEARS ENDED MARCH 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS, EXCEPT NUMBER OF SHARES AND DIVIDENDS PER SHARE)
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK ADDITIONAL SHARE-
------------------ 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
========= ==== ======= ====== =======
</TABLE>
See notes to consolidated financial statements.
18
<PAGE> 20
COHR INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR EACH OF THE YEARS ENDED MARCH 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................................ $ 2,142 $ 1,368 $ 946
------- ------- -------
Adjustments to reconcile net income to net cash (used in) provided by
operating activities:
Depreciation and amortization....................................... 838 691 502
Provision for losses on accounts receivable......................... 62 31 149
Deferred income tax provision (benefit)............................. 49 (181) (1,201)
Long term deferred rent............................................. (592) (369) (329)
Changes in assets and liabilities, net of effect of acquisitions of
certain assets:
Accounts receivable:
Trade............................................................. (4,265) (3,611) (1,200)
Other............................................................. (482) 237 (281)
Inventory......................................................... (1,078) (695) (492)
Prepaid expenses and other........................................ (174) 93 (388)
Other assets...................................................... (41) (20) 4
Accounts payable -- trade......................................... 727 483 101
Accrued expenses.................................................. 1,234 (128) 154
Accrued liabilities -- COHR MasterPlan............................ (138) 797 521
Deferred revenue.................................................. 344 3,465 213
Income taxes liability............................................ (360) (735) 1,046
Deferred compensation............................................. (169) 89 80
------- ------- -------
Total adjustments.............................................. (4,045) 147 (1,121)
------- ------- -------
Net cash (used in) provided by operating activities............ (1,903) 1,515 (175)
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................................................. (1,427) (465) (650)
Payment for acquisition of certain assets............................. (1,387) (1,293) (480)
------- ------- -------
Net cash used in investing activities.......................... (2,814) (1,758) (1,130)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividends to parent company................................ ($ 247) ($ 236) ($ 227)
Repayment of loan payable............................................. (221)
Payments and current maturities on long-term debt, net................ (125) (21)
Net proceeds from sale of common stock................................ 19,950
------- ------- -------
Net cash provided by (used in) financing activities............ 19,578 (478) (227)
------- ------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................... 14,861 (721) (1,532)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.......................... 4,453 5,174 6,706
------- ------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD................................ $19,314 $ 4,453 $ 5,174
======= ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION -- Cash paid during
the period for:
Income taxes.......................................................... $ 1,843 $ 1,680 $ 802
======= ======= =======
Interest.............................................................. $ 37 $ 5
======= =======
DETAILS OF BUSINESSES OR ASSETS ACQUIRED AT FAIR VALUE ARE AS FOLLOWS:
Current assets........................................................ $ 409 $ 475 $ 47
Equipment............................................................. 235 228 218
Goodwill and other intangibles........................................ 893 1,865 215
------- ------- -------
1,537 2,568 480
Liabilities assumed................................................... 600
Debt issued for acquisitions.......................................... 150 675
------- ------- -------
NET CASH PAID FOR ACQUISITIONS........................................ $ 1,387 $ 1,293 $ 480
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
19
<PAGE> 21
COHR INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE YEARS ENDED MARCH 31, 1996, 1995 AND 1994
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
Shorter of lease
term or useful
Leasehold improvements.................... 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 the these contracts for expenses that have been
incurred. When actual repairs or maintenance are paid for, the accrued liability
account is reduced for the actual cost incurred. Losses, if any, on maintenance
contracts are recorded when known.
20
<PAGE> 22
COHR INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR EACH OF THE YEARS ENDED MARCH 31, 1996, 1994 AND 1994
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 $990 (1996), $940 (1995) and $810 (1994).
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.
2. RELATED-PARTY TRANSACTIONS
The Company had related-party transactions resulting from the allocation of
expenses (including rent and insurance) from HASC of $2,427 (1996), $1,975
(1995) and $1,822 (1994), and expenses incurred by
21
<PAGE> 23
COHR INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR EACH OF THE YEARS ENDED MARCH 31, 1996, 1994 AND 1994
the Company (including accounting, payroll and personnel costs) of $2,448
(1996), $2,625 (1995) and $2,217 (1994) 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,
-----------------
1996 1995
------ ------
(IN THOUSANDS)
<S> <C> <C>
Computer equipment and software............................ $2,648 $2,120
Office furniture and equipment............................. 1,395 1,229
Technical equipment........................................ 2,059 1,457
Leasehold improvements..................................... 403 385
Automobiles................................................ 29
Leased equipment........................................... 319
------ ------
6,853 5,191
Less accumulated depreciation and amortization............. 3,135 2,464
------ ------
$3,718 $2,727
====== ======
</TABLE>
4. ACQUISITIONS
During fiscal 1996 and 1995, 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
-----------------
1996 1995
------ ------
(IN THOUSANDS)
<S> <C> <C>
Accounts receivable........................................ $ 283
Inventory.................................................. $ 409 169
Prepaid expenses and other................................. 23
Equipment and improvements................................. 235 228
Goodwill................................................... 893 670
------ ------
1,537 1,373
------ ------
Accounts payable and accrued liabilities................... (303)
Loan payable............................................... (221)
Long-term debt............................................. (76)
------ ------
(600)
------ ------
Net assets of businesses acquired.......................... $1,537 $ 773
====== ======
</TABLE>
During fiscal 1995, the Company also purchased customer lists for approximately
$1.2 million.
22
<PAGE> 24
COHR INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR EACH OF THE YEARS ENDED MARCH 31, 1996, 1994 AND 1994
The purchases of these businesses and intangible assets were made through
the cash payments of approximately $1,387 (1996) and $1,293 (1995), the issuance
of $150 (1996) and $80 (1995) 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
acquisition 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,
------------------------
1996 1995 1994
------ ----- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal............................................ $1,117 $ 717 $ 1,537
State.............................................. 317 229 309
------ ---- ------
1,434 946 1,846
------ ---- ------
Deferred:
Federal............................................ 25 (122) (1,029)
State.............................................. 24 (59) (172)
------ ---- ------
49 (181) (1,201)
------ ---- ------
Total provision for income taxes..................... $1,483 $ 765 $ 645
====== ==== ======
</TABLE>
Deferred income taxes for fiscal 1996 and 1995 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, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
MARCH 31
---------------
1996 1995
----- -----
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets - current:
Compensation - related accruals........................... $ 354 $ 302
Balance sheet reserves.................................... 314 382
State income taxes........................................ 108 65
Deferred compensation..................................... 95
Prepaid expenses.......................................... (65)
----- -----
Gross deferred tax assets................................... 806 749
----- -----
Deferred tax liabilities - noncurrent:
Depreciation.............................................. (448) (415)
Deferred compensation..................................... 73
----- -----
Gross deferred tax liabilities.............................. (448) (342)
----- -----
Net deferred tax assets..................................... $ 358 $ 407
===== =====
</TABLE>
23
<PAGE> 25
COHR INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR EACH OF THE YEARS ENDED MARCH 31, 1996, 1994 AND 1994
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
----------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Provision at statutory rate............................ 34.0% 34.0% 34.0%
State income tax, net of federal benefit............... 6.6 6.2 6.2
Adjustment for prior year provision.................... (4.9)
Permanent differences.................................. .3 .6 .3
---- ---- ----
Effective tax rate..................................... 40.9% 35.9% 40.5%
==== ==== ====
</TABLE>
6. LONG-TERM DEBT
Long-term debt at March 31, 1996 and 1995 consists of (in thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<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............................... $322 $595
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 $5 and $6 (effective
rate of 8.25%) at March 31, 1996 and 1995, respectively
(Note 4).................................................... 39 54
---- ----
361 649
Less current portion.......................................... 85 121
---- ----
$276 $528
==== ====
</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.
24
<PAGE> 26
COHR INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR EACH OF THE YEARS ENDED MARCH 31, 1996, 1994 AND 1994
Deferred compensation expense amounted to $220, $89 and $80 for the years
ended March 31, 1996, 1995 and 1994, 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
$627 (1996), $414 (1995) and $501 (1994).
9. SHAREHOLDERS' EQUITY
Preferred Stock -- On January 16, 1996, the Company was reincorporated in
the state of Delaware and, in connection therewith, the shareholders 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 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 Shareholders"). The Company did
not receive any proceeds from the sale of shares by the Selling Shareholders.
The remaining 1,112,000 shares held by the Selling Shareholders 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
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 shareholders 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 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.
25
<PAGE> 27
COHR INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR EACH OF THE YEARS ENDED MARCH 31, 1996, 1994 AND 1994
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 $1,052 (1996), $1,000 (1995) and
$929 (1994).
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 $2,000,000 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%.
26
<PAGE> 28
COHR INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR EACH OF THE YEARS ENDED MARCH 31, 1996, 1994 AND 1994
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 1996, 1995 and
1994 is as follows:
<TABLE>
<CAPTION>
EQUIPMENT PURCHASING CORPORATE
SERVICES SERVICES AND OTHER TOTAL
--------- ---------- --------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
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
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
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
</TABLE>
13. QUARTERLY INFORMATION 1996 AND 1995 (UNAUDITED)
<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 margin................................. 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 $ 0.20
======= ======= ======= =======
Weighted average number of common stock
outstanding................................ 2,112 2,112 2,112 3,270
</TABLE>
27
<PAGE> 29
COHR INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR EACH OF THE YEARS ENDED MARCH 31, 1996, 1994 AND 1994
<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 margin.................................. 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>
28
<PAGE> 30
SCHEDULE V
COHR INC.
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>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
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.
29
<PAGE> 31
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, who is thereunto duly authorized.
Dated: June 28, 1996
By: /s/ PAUL CHOPRA
------------------------------------
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- - ----------------------------------------------- ------------------------------ --------------
<S> <C> <C>
/s/ PAUL CHOPRA President, Chief Executive June 28, 1996
- - ----------------------------------------------- Officer and Director
Paul Chopra (Principal Executive Officer)
/s/ UMESH MALHOTRA Chief Financial Officer June 28, 1996
- - ----------------------------------------------- (Principal Accounting and
Umesh Malhotra Financial Officer)
/s/ LYNN P. REITNOUER Chairman of the Board of June 28, 1996
- - ----------------------------------------------- Directors and Director
Lynn P. Reitnouer
/s/ STEPHEN W. GAMBLE Vice Chairman of the Board and June 28, 1996
- - ----------------------------------------------- Director
Stephen W. Gamble
/s/ RONNIE J. MESSENGER Treasurer, Secretary and June 28, 1996
- - ----------------------------------------------- Director
Ronnie J. Messenger
/s/ FREDERICK C. MEYER Director June 28, 1996
- - -----------------------------------------------
Frederick C. Meyer
/s/ JAMES D. BARBER Director June 28, 1996
- - -----------------------------------------------
James D. Barber
</TABLE>
30
<PAGE> 32
COHR INC.
INDEX TO EXHIBITS
ITEM 14(A)3
(a) Exhibits
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- - ------ ------------------------------------------------------------------------ ------------
<S> <C> <C>
1.1* Form of Underwriting Agreement..........................................
3.1* Certificate of Incorporation of Registrant..............................
3.2* By-laws of Registrant...................................................
4.1* Form of Warrant to be issued to the Representatives of the
Underwriters............................................................
4.2* Form of Registration Rights Agreement between Registrant, Healthcare
Association of Southern California ("HASC") and Hospital Council
Coordinated Programs, Inc. .............................................
4.3* Specimen Stock Certificate..............................................
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* Form of 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 December 5, 1995, together with Promissory Note, General Security
Agreement and Continuing Guarantee made by HASC.........................
10.6* Office Lease between First and Figueroa, Ltd. and Registrant as
successor to Council Shared Services, dated April 8, 1986...............
10.7* Standard Industrial Lease between 6705 Valjean Associates, Ltd. and
Registrant, dated April 23, 1990, as amended............................
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 ,
1996....................................................................
11 Computation of Per Share Earnings.......................................
21.1* Subsidiaries of Registrant..............................................
27 Financial Data Schedule.................................................
</TABLE>
- - ---------------
* Previously filed as exhibits to Registrant's Registration Statement on Form
S-1, Commission File No. 33-80635.
(b) Financial Schedule
Schedule V -- Valuation and Qualifying Accounts
<PAGE> 1
Exhibit 10.10
STANDARD INDUSTRIAL LEASE AGREEMENT
between
TCEP II PROPERTIES JOINT VENTURE, a Texas joint venture
as Landlord
and
COHR INC., a Delaware corporation
as Tenant
Premises Address: 21540 Plummer Street
Chatsworth, California 91311
<PAGE> 2
STANDARD INDUSTRIAL LEASE AGREEMENT
THIS STANDARD INDUSTRIAL LEASE AGREEMENT (this "Lease"), dated as of
this 8th day of May, 1996, is made and entered into by and between TCEP II
PROPERTIES JOINT VENTURE, a Texas joint venture, hereinafter referred to as
"Landlord", and COHR INC., a Delaware corporation, hereinafter referred to as
"Tenant".
BASIC LEASE PROVISIONS
1. Area of Premises: Approximately 76,306 rentable square feet. (Paragraph 1.1)
2. Building Address: 21540 Plummer Street
Chatsworth, California 91311
(Paragraph 1.1)
3. Commencement Date: The Substantial Completion of the Tenant Improvements,
which is scheduled for August 1, 1996.
(Paragraph 1.3)
4. Term: One Hundred Fifty (150) months. (Paragraph 1.2)
5. The amount of the First Month's Rent is as follows: (Paragraph 2.1)
<TABLE>
<S> <C> <C>
(a) Base Rent (See Paragraph 2.2 for
adjustments thereto) $49,598.90
(b) Taxes $ 4,196.83
(c) Insurance $ 2,289.18
(d) Operating Expenses $ 4,959.89
FIRST MONTH'S RENT TOTAL $61,044.80
</TABLE>
6. Security Deposit: $64,860.10. (Paragraph 2.3)
7. Tenant's Proportionate Share: The Premises comprise fifty-eight and
40/100th, percent (58.40%) of the Building (such percentage shall be
Tenant's Proportionate Share). (Paragraph 2.4)
8. Use of Premises: General Office and other lawful purposes incidental
thereto. (Paragraph 3.1)
9. Parking: 305 automobiles. (Paragraph 3.3)
10. Liability insurance amount: $3,000,000. (Paragraph 12.3.1)
11. Tenant's Address
For Notices Until
Commencement Date: 201 North Figueroa
Suite 400
Los Angeles, California 90012
Attn: Mr. Paul Chopra
(Paragraph 22.21)
12. Landlord's Address For
Payments and Notices: 5801 Southeastern Avenue, Suite 100
Los Angeles, California 90040
(Paragraph 22.21)
13. Tenant's broker: Michael Sokol
(Paragraph 22.24)
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<PAGE> 3
14. Exhibits:
"A" Site Plan of Project
"B" Work Letter and Construction Agreement
"B-1" Space Plan
"C" Additional Provisions
The paragraphs of the Lease identified above in parentheses are those
provisions where references to particular items from the Basic Lease Provisions
appear, and such items are incorporated into the Lease as part thereof. In the
event of any conflict between any Basic Lease Provision and the Lease, the
former shall control.
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<PAGE> 4
1. PREMISES AND TERM.
1.1 LEASE OF PREMISES. Landlord leases to Tenant, and Tenant hires
from Landlord, certain premises (the "Premises") consisting of the rentable
area shown in Item 1 of the Basic Lease Provisions within a building (the
"Building") described in Item 2 of the Basic Lease Provisions. The location of
the Building and Premises are shown on the site plan attached hereto as
"Exhibit A" and incorporated herein. The "Project" shall refer to the land
shown on the site plan (the "Land") together with such additions and deletions
to the Land as Landlord may from time to time designate, plus all buildings and
improvements located thereon.
1.2 TERM. The term of this Lease shall commence on the "Commencement
Date" specified in or established pursuant to Item 3 of the Basic Lease
Provisions, and except as otherwise provided herein, shall continue in full
force and effect through the number of months provided in Item 4 of the Basic
Lease Provisions (the "Term"), provided, however, that if the Commencement Date
is a date other than the first day of a calendar month, the Term shall consist
of the remainder of the calendar month including and following the Commencement
Date, plus said number of full calendar months.
1.3 CONDITION OF PREMISES. The Commencement Date of this Lease shall
be the earlier of (i) the date on which Landlord tenders possession of the
Premises, either physically or by written notice, following the Substantial
Completion (as hereafter defined) of Landlord's building standard Tenant
Improvements, as such construction obligation may be increased or changed as
provided in any Work Letter and Construction Agreement attached hereto as
Exhibit "B" and incorporated herein (the "Tenant Improvements"), or (ii) the
date on which Tenant first takes possession of the Premises. Landlord shall
cause the Tenant Improvements to be constructed in a good and workmanlike
manner, and shall endeavor to accomplish the Substantial Completion of the
Tenant Improvements on or before the date provided in Item 3 of the Basic Lease
Provisions. Landlord shall, to the extent assignable, assign all warranties to
Tenant which pertain to the Tenant Improvements. If Landlord is unable to
deliver possession of the Premises to Tenant on or before such date, this Lease
shall not be void or voidable and Landlord shall not be subject to any
liability to Tenant for any loss or damage directly or indirectly arising out
of or resulting from such delay. Notwithstanding the foregoing, if Landlord is
unable to deliver possession of the Premises to Tenant with the Tenant
Improvements Substantially Completed on or before the 140th day following
Landlord's and Tenant's mutual execution and delivery of this Lease (the
"Target Delivery Date"), and such failure is not due in whole or in part to any
Force Majeure Event (as defined below) or any act or omission of Tenant or
Tenant's Parties, then Tenant shall receive one (1) day of Base Rent credit for
each day of delay beyond the Target Delivery Date that Landlord has failed to
deliver possession of the Premises to Tenant with the Tenant Improvements
Substantially Completed. The term "Force Majeure Event" shall mean fire,
earthquake, or other acts of God, strikes, boycotts, war, riot, insurrection,
embargoes, shortages of equipment, labor or materials, delays in issuance of
governmental permits or approvals, weather delays or any other cause beyond the
reasonable control of Landlord. As used in this Lease, the term "Substantial
Completion" shall mean the completion of the Tenant Improvements, subject only
to punch list items identified by Tenant in a written notice to Landlord
delivered within three (3) days after Landlord tenders possession of the
Premises, such that none of the Tenant Improvements remaining incomplete or
needing adjustment shall materially impair, or prevent the obtaining of permits
for, Tenant's use, occupancy and enjoyment of the Premises. In the event of
any dispute as to whether Substantial Completion has occurred, the sign-off by
the municipal building inspector shall be conclusive, except that any delay in
receipt thereof or in Substantial
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<PAGE> 5
Completion caused by Tenant or Tenant's Parties (as defined in Paragraph 1.4)
including without limitation Tenant Delay, or caused by Tenant's uncompleted
work being contained within the scope of the same building permit as the Tenant
Improvements, shall be charged to Tenant in the amount of the daily Rent
multiplied by the number of days of such delays. Landlord shall promptly
complete or repair any punch list items identified by Tenant, and may inspect
the Premises to verify the need for completion or repair of the items on
Tenant's list. Failure of Tenant to deliver a punch list within three (3) days
after Landlord tenders possession of the Premises shall constitute Tenant's
approval of the Premises as tendered by Landlord. Tenant acknowledges that no
representations as to the repair or condition of the Premises have been made by
Landlord except as may be expressly set forth in this Lease. After the
Commencement Date, Tenant shall, upon demand, execute and deliver to Landlord a
letter of acceptance of the Premises specifying the Commencement Date.
1.4 EARLY ENTRY INTO PREMISES. Tenant may enter into the Premises upon
receipt of Landlord's consent, solely for the purpose of installing furniture,
special flooring or carpeting, trade fixtures, telephones, computers, photocopy
equipment, and other business equipment. Such early entry will not advance the
Commencement Date so long as Tenant does not commence business operations from
any part of the Premises. All of the provisions of this Lease shall apply to
Tenant during any early entry, including the indemnity in Paragraph 12.1, but
excluding the obligation to pay Rent unless and until Tenant has commenced
business operations in the Premises, whereupon Rent shall commence. Landlord
may revoke its permission for Tenant's early entry if Tenant's activities or
workers interfere with the completion of the Tenant Improvements. If Tenant is
granted early entry, Landlord shall not be responsible for any loss, including
theft, damage or destruction to any work or material installed or stored by
Tenant at the Premises or for any injury to Tenant or its agents, employees,
contractors, subcontractors, subtenants, assigns or invitees (collectively,
"Tenant's Parties"). Landlord shall have the right to post appropriate notices
of non-responsibility and to require Tenant to provide Landlord with evidence
that Tenant has fulfilled its obligation to provide insurance pursuant to
paragraphs 7(d) and 12.3 of this Lease.
2. RENT AND SECURITY DEPOSIT.
2.1 RENT. Rent (as defined below) shall accrue hereunder from the
Commencement Date. The amounts per month provided in Item 5(a) of the Basic
Lease Provisions, as adjusted pursuant to Paragraph 2.2 ("Base Rent"), plus the
"Additional Rent" (as defined in Paragraph 2.5 below) shall collectively
constitute the "Rent". The first full calendar month's Rent shall be due and
payable upon execution of this Lease in the total amount shown in Item 5 of the
Basic Lease Provisions. A like monthly installment, subject to the adjustments
described herein, shall be due and payable without demand on or before the first
day of each calendar month succeeding the Commencement Date during the Term,
except that Rent for any fractional calendar month at the commencement or end of
the Term shall be prorated on a daily basis.
2.2 ADJUSTMENT OF BASE RENT. Base Rent shall be increased on the first
day of the thirty-first (31st), sixty-first (61st), ninety-first (91st) and
one hundred twenty-first (121st) months of the Term as follows:
<TABLE>
<CAPTION>
Month of Term Base Rent
------------- ---------
<S> <C>
31-60 $53,414.20 per month
61-90 $57,229.50 per month
91-120 $61,044.80 per month
121-150 $64,860.10 per month
</TABLE>
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<PAGE> 6
2.3 SECURITY DEPOSIT. Tenant shall deposit with Landlord upon
execution of this Lease the sum provided in Item 6 of the Basic Lease
Provisions ("Security Deposit"), which sum shall be held by Landlord in its
general fund, without obligation for interest, as security for the performance
of Tenant's covenants and obligations under this Lease, it being expressly
understood and agreed that the Security Deposit is not an advance rental
deposit or a measure of Landlord's damages in case of Tenant's default. Upon
the occurrence of any event of default by Tenant, Landlord may, without
prejudice to any other remedy provided herein or provided by law, use the
Security Deposit to the extent necessary to make good any arrears of Rent or
other payments due Landlord hereunder, all of which shall be deemed to be Rent,
and any other damage, injury, expense or liability caused by such event of
default; and Tenant shall pay to Landlord on demand the amount so applied in
order to restore the Security Deposit to its original amount. Any remaining
balance of the Security Deposit, together with interest accruing on such sum
from the Commencement Date at the rate of 2.75% per annum, shall be returned by
Landlord to Tenant within fourteen (14) days after termination of this Lease,
provided all of Tenant's obligations under this Lease have been fulfilled.
2.4 TENANT'S PROPORTIONATE SHARE. "Tenant's Proportionate Share",
as used in this Lease, shall mean that portion of the cost of the applicable
item that is obtained by multiplying such cost of the applicable item by a
fraction, the numerator of which is the rentable square footage of the Premises
and the denominator of which is the rentable square footage of the Building,
which fraction is set forth as a percentage figure in Item 7 of the Basic Lease
Provisions.
2.5 ADDITIONAL RENT.
2.5.1 DEFINITION. In addition to the Base Rent set forth
in Paragraph 2.1, Tenant agrees to pay Tenant's Proportionate Share of (a)
"Taxes" as defined in and payable by Landlord pursuant to Paragraph 4.1 below,
(b) Landlord's costs of providing insurance on the Project pursuant to
Paragraph 12.2 below, and (c) "Operating Expenses" as defined in and incurred
pursuant to Paragraph 5.1 below (collectively, "Additional Rent").
2.5.2 MONTHLY PAYMENTS AND ANNUAL RECONCILIATION. On the
first day of each month of the Term, Tenant shall pay Landlord a sum equal to
1/12 of the estimated amount of Additional Rent for that particular year based
on Landlord's reasonable estimate thereof, to be delivered to Tenant on or
about April of each year during the Term. The monthly payments are subject to
increase or decrease as determined by Landlord to reflect revised estimates of
such costs. Tenant shall pay within ten (10) days following demand therefor by
Landlord any increases in estimated Additional Rent upon receipt of any initial
or revised estimate retroactive to January of that calendar year. The payments
made by Tenant shall be reconciled annually. If Tenant's total payments of
Additional Rent are less than the actual Additional Rent due under Paragraph
2.5.1, Tenant shall pay the difference within ten (10) days following demand
therefor by Landlord; if the total payments of Additional Rent made by Tenant
are more than the actual Additional Rent due under Paragraph 2.5.1, Landlord
shall retain such excess and credit it to Tenant's next accruing Additional
Rent payments, except at the end of the Term, when any excess will be refunded.
Any failure or delay by Landlord in delivering any estimate, demand or
reconciliation shall not affect the rights and obligations of the parties
hereunder.
2.6 PAYMENT. Tenant shall pay Landlord all amounts due from
Tenant to Landlord hereunder, whether for Rent or otherwise, in lawful money of
the United States, at the place designated for the delivery of notices to
Landlord pursuant to Paragraph 22.21, without any deduction or offset
whatsoever.
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<PAGE> 7
2.7 LATE CHARGES. Tenant acknowledges that late payment by Tenant
of any sum owed to Landlord under this Lease will cause Landlord to incur costs
not contemplated by this Lease, the exact amounts of which are extremely
difficult and impracticable to fix. Such costs include, without limitation,
processing and accounting charges, time spent addressing the issue with Tenant,
and late charges that may be imposed on Landlord by the terms of any obligation
or note secured by any encumbrance covering the Premises. Therefore, if any
installment of rent or other payment due from Tenant is not received by
Landlord when due, Tenant shall pay to Landlord an additional sum equal to five
percent (5%) of the overdue rent or other payment as a late charge. Late
charges shall be deemed Additional Rent. The parties agree that this late
charge represents a fair and reasonable estimate of the administrative and
other costs that Landlord will incur by reason of a late payment by Tenant.
Acceptance of any late payment charge shall not constitute a waiver of Tenant's
default with respect to the overdue payment, nor prevent Landlord from
exercising any of the other rights and remedies available to Landlord under
this Lease, at law or in equity, including, but not limited to, the interest
charge imposed pursuant to Paragraph 22.2.
3. USE.
3.1 USE OF PREMISES. Subject to any additional uses or
limitations on use contained in Item 8 of the Basic Lease Provisions, the
Premises shall be used only for general office purposes and for such other
lawful purposes as may be directly incidental thereto, and for no other use or
purpose. Tenant acknowledges that Landlord has not made any representations or
warranties with respect to the suitability of the Premises for Tenant's uses.
Tenant and Tenant's Parties shall at all times comply with all rules and
regulations regarding the Premises, the Building and/or the Project as Landlord
may establish from time to time. Landlord shall not be responsible for nor
liable to Tenant for any violation and/or enforcement of such rules and
regulations by any other tenant of the Project.
Tenant shall be responsible for and shall at its own cost and expense
obtain any and all licenses and permits necessary for any such use. Tenant
shall comply with all governmental laws, ordinances and regulations applicable
to the use of the Premises, including, without limitation, the Americans with
Disabilities Act of 1990 triggered subsequent to the Commencement Date as a
result of Tenant's alterations (other than the Tenant Improvements) or use of
the Premises. Without limiting the generality of the foregoing, and subject to
Paragraph 7 below, Tenant shall at its own cost and expense install and
construct all physical improvements to or needed to serve the Premises (i)
required by any federal, state or local building code or other law or
regulation enacted or becoming effective after the Commencement Date,
including, but not limited to, special plumbing, railings, ramps and other
improvements for use by the handicapped, or (ii) made necessary by the nature
of Tenant's use of the Premises; provided, however, that Landlord shall have
the option to install and construct such improvements, in which case the cost
thereof shall be equitably allocated by Landlord in its reasonable discretion
among the benefitted premises, and Tenant, upon demand, shall pay to Landlord,
as Additional Rent, such portion of the cost thereof as may be allocated
equitably, in Landlord's reasonable discretion, to the Premises. Tenant shall
not place a load upon the floor of the Premises which exceeds the load per
square foot which such floor was designed to carry and which is allowed by law.
Tenant shall promptly comply with all governmental orders and directives for
the correction, prevention and abatement of nuisances in or upon, or connected
with, the Premises, all at Tenant's sole expense. Tenant shall not permit any
objectionable or unpleasant odors, smoke, dust, gas, noise or vibrations to
emanate from the Premises, nor take any other action which would constitute a
nuisance or would disturb or endanger any other tenants of the
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<PAGE> 8
Project or unreasonably interfere with their use of their respective premises.
Tenant shall not permit the Premises to be used for any
purpose or in any manner (including without limitation any method of storage)
which would render the insurance thereon void or the insurance risk more
hazardous or cause the state insurance authority to disallow any sprinkler
credits. If any increase in the fire and extended coverage insurance premiums
paid by Landlord or other tenants for the Project is caused by Tenant's use and
occupancy of the Premises, or if Tenant vacates the Premises and causes any
increase in such premiums, then Tenant shall pay as additional Rent the amount
of such increase to Landlord, and, upon demand by Landlord, correct at Tenant's
expense the cause of such disallowance, increased cost, penalty or surcharge to
the satisfaction of the particular insurance provider or authority, as
applicable.
3.2 HAZARDOUS MATERIALS. Except for the incidental use of certain
products for routine cleaning and maintenance of floors, bathrooms, windows,
kitchens, and administrative offices on the Premises or Project, which products
have been disclosed by Tenant to Landlord in the Environmental Questionnaire
(as defined below), Tenant hereby represents, warrants and covenants that
Tenant will not produce, use, store or generate any "Hazardous Materials" (as
defined below) on, under or about the Premises and/or Project. Tenant has
fully and accurately completed Landlord's Pre-Leasing Environmental Exposure
Questionnaire ("Environmental Questionnaire"), which is incorporated herein by
reference. If Tenant's Environmental Questionnaire indicates that Tenant will
be utilizing Hazardous Materials, in addition to all other rights and remedies
Landlord may have under this Lease, including, without limitation, declaring a
default hereunder by Tenant for breach of representation, Landlord may require
Tenant to execute an amendment to this Lease relating to such Hazardous
Materials use and Tenant's failure to execute any such amendment within ten
(10) days of Landlord's delivery thereof to Tenant shall constitute a default
hereunder by Tenant. Tenant shall not cause or permit any Hazardous Material
to be brought upon, placed, stored, manufactured, generated, blended, handled,
recycled, disposed of, used or released on, in, under or about the Premises
and/or Project by Tenant or Tenant's Parties. Tenant shall keep, operate and
maintain the Premises in full compliance with all federal, state and local
environmental, health and/or safety laws, ordinances, rules, regulations,
codes, orders, directives, guidelines, permits or permit conditions currently
existing and as amended, enacted, issued or adopted in the future which are
applicable to the Premises (collectively, "Environmental Laws").
Landlord shall have the right (but not the obligation) to
enter upon the Premises and cure any non-compliance by Tenant with the terms of
this Paragraph 3.2 or any Environmental Laws or any release, discharge, spill,
improper use, storage, handling or disposal of Hazardous Materials on, under,
from, or about the Premises or Project, regardless of the quantity of any such
release, discharge, spill, improper use, storage, handling or disposal of
Hazardous Materials on or about the Premises or Project, the full cost of which
shall be deemed to be Rent and shall be due and payable by Tenant to Landlord
immediately upon demand. If Landlord elects to enter upon the Premises and
cure any such non-compliance or release, discharge, spill, improper use,
storage, handling or disposal of Hazardous Materials on, under, from, or about
the Premises or Project, Tenant shall not be entitled to participate in
Landlord's activities on the Premises.
If any information provided to Landlord by Tenant in the
Environmental Questionnaire, or otherwise relating to information concerning
Hazardous Materials is false, incomplete, or misleading in any material
respect, the same shall be deemed an event of default by Tenant under this
Lease.
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<PAGE> 9
Without limiting in any way Tenant's obligations under any
other provision of this Lease, Tenant and its successors and assigns shall
indemnify, protect, defend and hold Landlord, its partners, officers,
directors, shareholders, employees, agents, lenders, contractors and each of
their respective successors and assigns (collectively, the "Indemnified
Parties") harmless from any and all claims, judgments, damages, penalties,
enforcement actions, taxes, fines, remedial actions, liabilities, losses, costs
and expenses (including, without limitation, actual attorneys' fees,
litigation, arbitration and administrative proceeding costs, expert and
consultant fees and laboratory costs) including, without limitation, damages
arising out of the diminution in the value of the Premises or Project or any
portion thereof, damages for the loss of the Premises or Project, damages
arising from any adverse impact on the marketing of space in the Premises or
Project, and sums paid in settlement of claims, which arise during or after the
Term in whole or in part as a result of the presence or suspected presence of
any Hazardous Materials, in, on, under, from or about the Premises or the
Project and/or other adjacent properties due to Tenant's or Tenant's Parties
activities, or failures to act (including, without limitation, Tenant's failure
to report any spill or release to the appropriate regulatory agencies), on or
about the Premises or Project.
For purposes of this Lease, the term "Hazardous Material"
means any chemical, substance, material, controlled substance, object, waste or
any combination thereof, which is or may be hazardous to human health, safety
or to the environment due to its radioactivity, ignitability, corrosiveness,
reactivity, explosiveness, toxicity, carcinogenicity, infectiousness or other
harmful or potentially harmful properties or effects, including, without
limitation, petroleum and petroleum products, benzene, toluene, ethyl benzene,
xylenes, waste oil, asbestos, radon, polychlorinated biphenyls (PCBs),
degreasers, solvents, and any and all of those chemicals, substances,
materials, controlled substances, objects, wastes or combinations thereof which
are now or may become in the future listed, defined or regulated in any manner
as "hazardous substances", "hazardous wastes", "toxic substances", "solid
wastes," or bearing similar or analogous definitions pursuant to any and all
Environmental Laws.
3.3 USE OF COMMON AREAS. Tenant and Tenant's Parties shall have
the non-exclusive right, in common with the other parties occupying the
Project, to use the grounds, sidewalks, parking areas, driveways and alleys of
the Project, subject to such reasonable rules and regulations as Landlord may
from time to time prescribe. Tenant and Tenant's Parties may park only up to
the maximum number of automobiles and trucks shown in Item 9 of the Basic
Lease Provisions near the Premises during normal business hours on a
non-exclusive basis. Outside storage, including without limitation, trucks and
other vehicles, is prohibited without Landlord's prior written consent, which
may be withheld in Landlord's sole and absolute discretion. Tenant shall not
succeed to any of Landlord's easement rights over and relating to the Project,
nor shall Tenant obtain any rights to common areas, as designated by Landlord,
other than those rights specifically granted to Tenant in this Lease. Landlord
shall have the sole right of control over the use, maintenance, configuration,
repair and improvement of the common area. Landlord may make such changes to
the use or configuration of, or improvements comprising, the common area as
Landlord may elect without liability to Tenant (including the right to add or
eliminate buildings from the Project), subject only to Tenant's vehicular
parking rights shown in Item 9 of the Basic Lease Provisions.
4. TAXES.
4.1 PAYMENT OF REAL PROPERTY TAXES. Landlord agrees to pay,
before they become delinquent, all real property taxes;
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<PAGE> 10
current installments of any general or special assessments; license fees,
commercial rental taxes, in lieu taxes, levies, charges, penalties or similar
impositions imposed by any authority having the direct power to tax, and are
paid or incurred by Landlord, including but not limited to, the following: (a)
any tax on or measured by Rent received by Landlord from the Project or as
against Landlord's business of leasing any of the Project; (b) any assessment,
tax, fee, levy or charge imposed by governmental agencies for such services as
fire protection, street, sidewalk and road maintenance, transportation, refuse
removal and for other governmental services formerly provided without charge to
property owners or occupants; (c) assessments due to deed restrictions and/or
owner associations; and (d) costs of determining, filing, contesting and
appealing any such tax, assessment or charge, including accountants',
attorneys' and consultants' fees, but excluding any income, inheritance, estate
or corporate franchise taxes of Landlord (collectively, "Taxes").
Taxes shall also include any assessment, tax, fee, levy or
charge in substitution, partially or totally, of any assessment, tax, fee, levy
or charge previously included within the definition of Taxes. It is hereby
acknowledged by Tenant and Landlord that Proposition 13 was adopted by the
voters of California in June 1978 and that assessments, taxes, fees, levies and
charges may be imposed by governmental agencies for such services as fire
protection, street, sidewalk and road maintenance, transportation, refuse
removal and other governmental services formerly provided without charge to
property owners or occupants. It is the intention of Tenant and Landlord that
all such new and increased assessments, taxes, fees, levies and charges, and
all similar assessments, taxes, fees, levies and charges be included within the
definition of Taxes for purposes of this Lease.
4.2 LIABILITY FOR ALL PERSONAL PROPERTY TAXES. Tenant shall be
liable for all taxes levied or assessed against personal property, furniture,
fixtures, above-standard Tenant Improvements and alterations, additions or
improvements placed by or for Tenant in the Premises. If any such taxes for
which Tenant is liable are levied or assessed against Landlord or Landlord's
property and if Landlord elects to pay the same or if the assessed value of
Landlord's property is increased by inclusion of personal property, furniture,
fixtures, above-standard Tenant Improvements or alterations, additions or
improvements placed by or for Tenant in the Premises, and Landlord elects to
pay the Taxes based on such increase, Tenant shall pay to Landlord upon demand
that portion of the Taxes.
5. LANDLORD'S MAINTENANCE AND REPAIR.
5.1 LANDLORD'S MAINTENANCE. Subject to Tenant's obligation to
reimburse Landlord for all costs and expenses incurred by Landlord, Landlord
shall maintain and repair only the exterior portions of the roof, and the
foundation and the structural soundness of the exterior walls of the Building
and utility facilities on the exterior of the Premises in good condition,
reasonable wear and tear excepted. The term "walls" as used herein shall not
include windows, glass or plate glass, doors, special store fronts or office
entries, unless otherwise specified by Landlord in writing. Landlord shall
also maintain, repair and repaint the exterior walls, overhead doors, canopies,
entries, handrails, gutters and other exposed parts of the Building as deemed
necessary by Landlord to maintain safety and aesthetic standards, and Landlord
shall maintain, repair, and operate the common areas of the Project, including
but not limited to, mowing grass and general landscaping, maintenance of
parking areas, driveways and alleys, parking lot sweeping, paving and
restriping, exterior lighting, painting, pest control and window washing. The
cost of all of the foregoing, including the cost of all supplies, uniforms,
equipment, tools and materials, together with utility costs not otherwise
charged directly to
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<PAGE> 11
Tenant or other tenants, all wages and benefits of employees and independent
contractors engaged in the operation, maintenance and repair of the Project,
all expenses for security and safety services and equipment, any license,
permit and inspection fees required in connection with the operation,
maintenance or repair of the Project (but not related to improvements to tenant
space), management, consulting, legal and accounting fees of independent
contractors engaged by Landlord (but not related to the negotiation or
enforcement of leases), other costs and expenses actually incurred by Landlord
in connection with the ownership operation, leasing and management of the
Project, and other usual costs and expenses which are typically paid by other
landlords to provide on-site operation of industrial, warehouse and service
center projects, are collectively referred to herein as "Operating Expenses".
To the extent that an Operating Expense consists of a maintenance or repair
(including renovation and refurbishment) expense that is not properly fully
deductible as an expense in the year incurred in accordance with generally
accepted accounting principles, such expense shall be amortized over its useful
life. Any amounts which are amortized, together with Landlord's actual cost of
funds, shall result in equal payments being included in Operating Expenses for
the year of expenditure and succeeding years during the amortization period.
5.2 PROCEDURE AND LIABILITY. Tenant shall immediately give
Landlord written notice of any defect or the need for repair of the items for
which Landlord is responsible, after which Landlord shall have reasonable
opportunity to repair the same or cure such defect. Landlord's liability with
respect to any defects, repairs or maintenance for which Landlord is
responsible under any of the provisions of this Lease shall be limited to the
cost of such repairs or maintenance or the curing of such defect. If Tenant or
Tenant's Parties caused any damage necessitating such repair, then Tenant shall
pay the cost thereof, upon demand. Tenant hereby waives the benefit of
California Civil Code Sections 1941 and 1942, and any other statute providing a
right to make repairs and deduct the cost thereof from the Rent. Tenant waives
any right to terminate this Lease or offset or abate Rent by reason of any
failure of Landlord to make repairs to the Premises.
6. TENANT'S MAINTENANCE AND REPAIR.
6.1 TENANT'S MAINTENANCE. Tenant shall, at its own cost and
expense, keep and maintain all parts of the Premises (except those listed as
Landlord's responsibility in Paragraph 5.1 above) in good and sanitary
condition, promptly making all necessary repairs and replacements, including
but not limited to, windows, glass and plate glass, doors, any special store
front or office entry, interior walls, and finish work, floors and floor
covering, heating and air conditioning systems, dock boards, truck doors, dock
bumpers, plumbing work and fixtures, termite and pest extermination, and
regular removal of trash and debris. If Tenant shall fail to make any repair
for which Tenant is responsible within fifteen (15) days following notice from
Landlord requiring the same, Landlord and its agents and contractors shall have
the right, but not the obligation, to enter upon the Premises and perform such
repairs, the full cost of which shall be deemed to be Rent and shall be due and
payable by Tenant to Landlord immediately upon demand. In the case of
emergency, Landlord, its agents and contractors may enter upon the Premises to
perform such repairs without the necessity of prior notice to Tenant. Tenant
shall maintain its trash receptacles within the Premises. Repairs shall be
made in accordance with all applicable laws, including without limitation, the
Americans with Disabilities Act of 1990. The cost of maintenance and repair of
any common party wall (any wall, divider, partition or any other structure
separating the Premises from any adjacent premises occupied by other tenants)
shall be shared equally by Tenant and the tenant(s) occupying such adjacent
premises. Tenant shall not damage any party wall or disturb the integrity and
support provided by any party wall
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and shall, at its sole cost and expense, promptly repair any damage or injury
to any party wall caused by Tenant or Tenant's Parties.
6.2 MAINTENANCE/SERVICE CONTRACTS. Tenant shall, at its own cost
and expense, enter into a regularly scheduled preventive maintenance/service
contract with a maintenance contractor for servicing all hot water, heating and
air conditioning systems and equipment within the Premises. The maintenance
contractor and the contract must be approved in writing by Landlord in advance.
The service contract shall include all services recommended by the equipment
manufacturer within the operation/maintenance manual and shall become effective
(and a copy thereof delivered to Landlord) within thirty (30) days following
the date Tenant takes possession of the Premises. Landlord shall to the extent
assignable, assign all warranties to tenant which pertain to the heating and
air conditioning systems and equipment.
7. ALTERATIONS.
Tenant shall make no alterations, additions or improvements to the
Premises (including, without limitation, roof and wall penetrations) or any
part thereof without obtaining the prior written consent of Landlord in each
instance. Such consent may be granted or withheld in Landlord's reasonable
discretion (except if such alterations are of a structural nature or affect the
exterior of the Building, in which event Landlord may withhold its consent in
its sole and absolute discretion); provided, however, Tenant may make
non-mechanical, non-electrical, non-structural alterations to the Premises
without the prior written consent of Landlord (but nevertheless requiring
advance written notice to Landlord) provided that the cost of such alterations
do not exceed $30,000.00 in any one instance or $100,000.00 in the aggregate
over the Term; provided further that such alterations do not affect the
exterior of the Premises or the Building. Landlord may impose as a condition
to such consent such requirements as Landlord may deem necessary, in its sole
and absolute discretion, including, without limitation that: (a) Landlord be
furnished with working drawings before work commences; (b) performance and
labor and material payment bonds in form and amount and issued by a company
satisfactory to Landlord be furnished; (c) Landlord approve the contractor by
whom the work is to be performed; (d) adequate course of construction and
general liability insurance be in place and Landlord be named as an additional
insured under the contractor's liability and property insurance policies; and
(e) Landlord's instructions relating to the manner in which the work is to be
performed and the times during which it is to be accomplished shall be complied
with. All such alterations, additions or improvements must be performed in a
good and workmanlike manner in compliance with all laws, rules and regulations,
including, without limitation, the Americans with Disabilities Act of 1990, and
diligently prosecuted to completion. Tenant shall deliver to Landlord upon
commencement of such work, a copy of the building permit with respect thereto,
and a certificate of occupancy, if applicable, immediately upon completion of
the work. All such work shall be performed so as not to obstruct the access to
the premises of any other tenant in the Building or Project. Should Tenant
make any alterations without Landlord's prior written consent, or without
satisfaction of any of the conditions established by Landlord in conjunction
with granting such consent, Landlord shall have the right, in addition to and
without limitation of any right or remedy Landlord may have under this Lease,
at law or in equity, to require Tenant to remove all or some of the
alterations, additions or improvements at Tenant's sole cost and restore the
Premises to the same condition as existed prior to undertaking the alterations,
or if Tenant shall fail to do so, Landlord may cause such removal or
restoration to be performed at Tenant's expense and the cost thereof shall be
Additional Rent to be paid by Tenant immediately upon demand. Landlord shall
have the right to require Tenant, at Tenant's expense, to remove any and all
alterations, additions or improvements and to restore the Premises to its prior
condition upon the expiration or sooner termination of this Lease. Tenant
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shall notify Landlord in writing at least ten (10) days prior to the
commencement of any such work in or about the Premises, and Landlord shall have
the right at any time and from time to time to post and maintain notices of
nonresponsibility in or about the Premises.
8. LIENS.
Tenant shall have no authority, express or implied, to create or place
any lien or encumbrance of any kind or nature whatsoever upon, or in any manner
to bind, the interest of Landlord or Tenant in the Premises or to charge the
Rent payable hereunder for any claim in favor of any person dealing with Tenant,
including those who may furnish materials or perform labor for any construction
or repairs. Tenant shall pay or cause to be paid all sums legally due and
payable by it on account of any labor performed or materials furnished in
connection with any work performed by Tenant on the Premises. Tenant shall
discharge of record by payment, bonding or otherwise any lien filed against the
Premises on account of any labor performed or materials furnished in connection
with any work performed by Tenant on the Premises immediately upon the filing of
any claim of lien. Tenant shall indemnify, defend and hold Landlord harmless
from any and all liability, loss, cost or expense based on or arising out of
asserted claims or liens against the leasehold estate or against the right,
title and interest of Landlord in the Project or this Lease arising from the act
or agreement of Tenant. Tenant agrees to give Landlord immediate written notice
of the placing of any lien or encumbrance against the Premises. Landlord shall
have the right, at Landlord's option, of paying and discharging the same or any
portion thereof without inquiry as to the validity thereof, and any amounts so
paid, including expenses and applicable late charge, shall be Additional Rent
immediately due and payable by Tenant upon rendition of a bill therefor.
9. SIGNS.
9.1 TENANT'S SIGNAGE PROGRAM. Subject to compliance with all
laws, rules, regulations, ordinances and CC&R's Tenant shall have the
non-exclusive right to install a sign of its name on the Building, the exact
size, location and appearance of which shall be subject to Landlord's approval.
Any and all costs in connection with the fabrication, installation, maintenance
and removal of such sign shall be borne by Tenant at its sole cost and expense.
Tenant's signage rights contained herein are personal to COHR Inc. and may not
be assigned under any circumstances, whether voluntarily or involuntarily,
except with Landlord's prior written consent. Upon vacation of the Premises or
the removal or alteration of its sign for any reason, Tenant shall be
responsible, at its sole cost, for the repair, painting and/or replacement of
the structure to which signs are attached to its original condition. If Tenant
fails to perform such work, Landlord may cause the same to be performed, and
the cost thereof shall be Additional Rent immediately due and payable upon
rendition of a bill therefor.
9.2 CRITERIA FOR CHANGES. Tenant shall not, without Landlord's
prior written consent, which may be withheld in Landlord's sole and absolute
discretion: (a) make any changes to or paint the exterior of the Building; (b)
install any exterior lights, decorations or paintings; or (c) erect or install
any signs, window or door lettering, placards, decorations or advertising media
of any type which can be viewed from the exterior of the Premises. All signs,
decorations, advertising media, blinds, draperies and other window treatment or
bars or other security installations visible from outside the Premises shall be
subject to the prior written approval of Landlord as to construction, method of
attachment, size, shape, height, design, lighting, color and general
appearance. All signs shall be in compliance with all applicable laws and
regulations and all covenants, conditions and restrictions relating to the
Premises.
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All signs shall be kept in good condition and in proper operating order at all
times.
10. UTILITIES.
Tenant shall pay for all separately metered water, gas, heat, light,
telephone, sewer and sprinkler charges and for other utilities and services
used on or from the Premises, together with any taxes, penalties, surcharges or
the like pertaining thereto and any maintenance charges for utilities, and
shall furnish all electric light bulbs and tubes. If any utilities serving the
Premises are not separately metered, Tenant shall pay to Landlord its
proportionate share of the cost thereof as reasonably determined by Landlord.
Landlord shall in no event be liable for any damages directly or indirectly
resulting from or arising out of the interruption or failure of utility
services on the Premises. Tenant shall have no right to terminate this Lease
nor shall Tenant be entitled to any abatement in Rent as a result of any such
interruption or failure of utility services. No such interruption or failure
of utility services shall be deemed to constitute a constructive eviction of
Tenant.
11. FIRE AND CASUALTY DAMAGE.
11.1 NOTICE OF DESTRUCTION. If the Premises are damaged or
destroyed by fire, earthquake or other casualty, Tenant shall give immediate
written notice thereof to Landlord.
11.2 LOSS COVERED BY INSURANCE. If at any time prior to the
expiration or termination of this Lease, the Premises or the Project are wholly
or partially damaged or destroyed, the loss to Landlord from which is fully
covered by proceeds of insurance maintained by Landlord or for Landlord's
benefit, which damage renders the Premises totally or partially inaccessible or
unusable by Tenant in the ordinary conduct of Tenant's business, then:
(a) If all repairs to the Premises or Project can, in Landlord's
judgment, be completed within two hundred (200) days following the date of
notice to Landlord of such damage or destruction without the payment of
overtime or other premiums, and if such damage or destruction is not the result
of the negligence or willful misconduct or omission of Tenant or Tenant's
Parties (as contemplated in Paragraph 11.4), Landlord shall, at Landlord's
expense (provided Landlord can obtain all necessary governmental permits and
approvals therefor at reasonable cost and on reasonable conditions), repair the
same, and this Lease shall remain in full force and effect and a proportionate
reduction of Rent shall be allowed Tenant for such portion of the Premises as
shall be rendered inaccessible or unusable to Tenant during the period of time
that such portion is unusable or inaccessible. There shall be no proportionate
reduction of Rent by reason of any portion of the Premises being unusable or
inaccessible for a period equal to five (5) consecutive business days or less.
(b) If such damage or destruction is not the result of the
negligence or willful misconduct or omission of Tenant or Tenant's Parties, and
if all such repairs cannot, in Landlord's judgment, be completed within two
hundred (200) days following the date of notice to Landlord of such damage or
destruction without the payment of overtime or other premiums, Landlord may, at
Landlord's sole and absolute option, upon written notice to Tenant given within
sixty (60) days after notice to Landlord of the occurrence of such damage or
destruction, elect to repair such damage or destruction at Landlord's expense
(provided Landlord can obtain all necessary governmental permits and approvals
therefor at reasonable cost and on reasonable conditions), and in such event,
this Lease shall continue in full force and effect but the Rent shall be
proportionately reduced as provided in Paragraph 11.2(a). If Landlord does not
notify Tenant in writing of Landlord's election
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to make such repairs, then either party may by written notice to the other
given within twenty (20) days following the earlier of (i) the date of delivery
of Landlord's notice to Tenant of its election not to make such repairs, or
(ii) the expiration of the sixty (60) day period for Landlord to provide such
notice, terminate this Lease as of the date of the occurrence of such damage or
destruction.
Tenant shall pay to Landlord, within ten (10) days following
Landlord's demand therefor, the amount of the deductible under Landlord's
insurance policy (Tenant's Proportionate Share of which shall not exceed (i)
$30,000.00 per occurrence for casualties covered under Landlord's all risk
property insurance, and (ii) $125,000.00 per occurrence under Landlord's
earthquake insurance, if any). If the damage involves portions of the Project
other than the Premises, Tenant shall pay only a portion of the deductible
based on the ratio of the cost of repairing the damage in the Premises to the
total cost of repairing all of the damage in the Project.
11.3 LOSS NOT COVERED BY INSURANCE. If, at any time prior to the
expiration or termination of this Lease, the Premises or the Project are
totally or partially damaged or destroyed from a risk, the loss to Landlord
from which is not fully covered by insurance maintained by Landlord or for
Landlord's benefit, which damage renders the Premises inaccessible or unusable
to Tenant in the ordinary course of its business, and if such damage or
destruction is not the result of the negligence or willful misconduct or
omission of Tenant or Tenant's Parties, Landlord may, at its option, upon
written notice to Tenant within thirty (30) days after notice to Landlord of
the occurrence of such damage or destruction, elect to repair or restore such
damage or destruction, or Landlord may elect to terminate this Lease. if
Landlord elects to repair or restore such damage or destruction, this Lease
shall continue in full force and effect, but the Rent shall be proportionately
reduced as provided in Paragraph 11.2(a). If Landlord elects to terminate this
Lease, such termination shall be effective as of the date of the occurrence of
such damage or destruction.
11.4 LOSS CAUSED BY TENANT OR TENANT'S PARTIES. If the Premises or
the Project are wholly or partially damaged or destroyed as a result of the
negligence or willful misconduct or omission of Tenant or Tenant's Parties,
Tenant shall forthwith diligently undertake to repair or restore all such
damage or destruction at Tenant's sole cost and expense, or Landlord may at its
option undertake such repair or restoration at Tenant's sole cost and expense;
provided, however, that Tenant shall be relieved of its repair and payment
obligations pursuant to this Paragraph 11.4 to the extent that insurance
proceeds are collected by Landlord to repair such damage, although Tenant shall
in all such events pay to Landlord the full amount of the deductible under
Landlord's insurance policy and any amounts not insured. This Lease shall
continue in full force and effect without any abatement or reduction in Rent or
other payments owed by Tenant.
11.5 DESTRUCTION NEAR END OF TERM. Notwithstanding the foregoing,
if the Premises or the Project are wholly or partially damaged or destroyed
within the final six (6) months of the Term, Landlord may, at its option, elect
to terminate this Lease upon written notice given to Tenant within thirty (30)
days following such damage or destruction.
11.6 DESTRUCTION OF IMPROVEMENTS AND PERSONAL PROPERTY. In the
event of any damage to or destruction of the Premises or the Project, under no
circumstances (except to the extent resulting from Landlord's gross negligence
or willful misconduct) shall Landlord be required to repair, replace or
compensate Tenant, Tenant's Parties or any other person for the personal
property, trade fixtures, machinery, equipment or furniture of Tenant or any of
Tenant's Parties, or any alterations, additions
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or improvements installed in the Premises by Tenant, and Tenant shall promptly
repair and replace all such personal property and improvements at Tenant's sole
cost and expense.
11.7 EXCLUSIVE REMEDY. The provisions of this Paragraph 11 shall
constitute Tenant's sole and exclusive remedy in the event of damage or
destruction to the Premises or the Project, and Tenant waives and releases all
statutory rights and remedies in favor of Tenant in the event of damage or
destruction, including without limitation those available under California
Civil Code Sections 1932 and 1933(4). No damages, compensation or claim shall
be payable by Landlord for any inconvenience, any interruption or cessation of
Tenant's business, or any annoyance, arising from any damage or destruction of
all or any portion of the Premises or the Project.
11.8 LENDER DISCRETION. Notwithstanding anything herein to the
contrary, in the event the holder of any indebtedness secured by a mortgage or
deed of trust covering the Premises requires that the insurance proceeds from
insurance held by: Landlord be applied to such indebtedness, then Landlord
shall have the right to deliver written notice to Tenant terminating this
Lease.
12. INDEMNITY AND INSURANCE.
12.1 INDEMNITY. Tenant hereby releases all Indemnified Parties,
and shall indemnify, protect, defend and hold the Indemnified Parties harmless
from any and all claims, judgments, damages, liabilities, losses, sums paid in
settlement of claims, costs and expenses (including, but not limited to,
reasonable attorneys' fees and litigation costs), obligations, liens and causes
of action, whether threatened or actual, direct or indirect (collectively,
"Claims"), which arise in any way, directly or indirectly, resulting from or in
connection with, in whole or in part, Tenant's or Tenant's Parties, activities
in, on or about the Premises or Project, including, without limitation,
Tenant's breach or default of any obligation of Tenant to be performed under
the terms of this Lease, the conduct of Tenant's business, the nonobservance or
nonperformance of any law, ordinance or regulation or the negligence or
misconduct of Tenant or Tenant's Parties, the buildings and improvements
located on the Project becoming out of repair, the leakage of gas, oil, water,
steam or electricity emanating from their usual conduits, or due to any cause
whatsoever; except injury to persons or damage to property the sole cause of
which is the active, gross negligence or willful misconduct of Landlord, or the
wrongful failure of Landlord to repair any part of the Project which Landlord
is obligated to repair and maintain hereunder within a reasonable time after
the receipt of written notice from Tenant of needed repairs. Landlord shall
not be liable to Tenant for any damages arising from any act, omission or
neglect of any other tenant in the Project.
12.2 LANDLORD'S INSURANCE. Landlord shall maintain insurance
covering the Project and Landlord's ownership and operation thereof in such
types and amounts as it deems necessary or desirable in its sole discretion,
which may include, without limitation, liability, property damage and/or loss
of rental income coverage. Such insurance shall be for the sole benefit of
Landlord and under its sole control. The premiums for any such insurance shall
be an Operating Expense.
12.3 TENANT'S INSURANCE OBLIGATIONS. Tenant agrees that at all
times from and after the date Tenant is given access to the Premises for any
reason, Tenant shall carry and maintain, at its sole cost and expense, the
following types, amounts and forms of insurance:
12.3.1 GENERAL LIABILITY INSURANCE. A broad form comprehensive
general liability or commercial general liability policy covering property
damage, personal injury, advertising
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injury and bodily injury, and including blanket contractual liability coverage
for obligations under this Lease, covering the Project in an amount of not less
than the amount per occurrence specified in Item 10 of the Basic Lease
Provisions. Such policy shall be in the occurrence form with a per location
general aggregate. Each policy shall name Landlord and any management agent
from time to time designated by Landlord and any lender of Landlord as
additional insureds, and shall provide that any coverage to additional insureds
shall be primary; when any policy issued to Landlord provides duplicate
coverage or is similar in coverage, Landlord's policy will be excess over
Tenant's policies. No deductibles in excess of Twenty-Five Thousand Dollars
($25,000) per occurrence shall be permitted. Tenant shall pay any deductibles.
The amounts of such insurance required hereunder shall be subject to adjustment
from time to time as required by Landlord based upon Landlord's determination
as to (a) the amounts of such insurance generally required at such time for
comparable tenants, premises and buildings in the general geographical location
of the Building; (b) as requested by any lender with an interest in the
Building or Project; (c) Tenant's activities; (d) increases in recovered
liability claims; (e) increased claims consciousness by the public; or (f) any
combination of the foregoing.
12.3.2 PROPERTY INSURANCE. A policy or policies, including the
Boiler and Machinery Perils and the Special Causes of Loss form of coverage
("All Risks"), including vandalism and malicious mischief, theft, sprinkler
leakage (including earthquake sprinkler leakage) and water damage coverage in
an amount equal to the full replacement value, new without deduction for
depreciation, on an agreed amount basis (no co-insurance requirement), of all
trade fixtures, furniture and equipment in the Premises, and all alterations,
additions and improvements to the Premises installed by or for Tenant or
provided to Tenant. Such insurance shall also include business interruption
and extra expense coverage for Tenant's operations and debris removal coverage
for removal of property of Tenant and Tenant's Parties which may be damaged
within the Premises. Such coverage shall name the Landlord as an additional
insured and/or loss payee as its interest may appear. No deductibles in excess
of Twenty-Five Thousand Dollars ($25,000) shall be permitted. Tenant shall pay
any deductibles.
12.3.3 WORKERS' COMPENSATION INSURANCE. Workers' compensation
insurance, including employers, liability coverage, shall comply with
applicable California law. Such insurance shall include a waiver of
subrogation in favor of Landlord, if available.
12.4 EVIDENCE OF COVERAGE. All of the policies required to be
obtained by Tenant pursuant to Paragraph 12.3 shall be with companies and in
form satisfactory to Landlord. Each insurance company providing coverage shall
have a current Best's Rating of "A-XII" or better; provided, however, Landlord
hereby approves Truck Insurance Exchange/Farmer's Insurance Company so long as
its Best's Rating does not fall below B++. Upon notice from Landlord, Tenant
shall add any mortgagee of Landlord as an additional insured or loss payee, as
applicable. Tenant shall provide Landlord with certificates and copies of
endorsements (and upon request, policies) of insurance acceptable to Landlord
issued by each of the insurance companies issuing any of the policies required
pursuant to the provisions of Paragraph 12.3, and said certificates and
endorsements shall provide that the insurance issued thereunder shall not be
altered, cancelled or non-renewed until after thirty (30) days' written notice
to Landlord. "Claims made" policies shall not be permitted. Each policy shall
permit the waiver in Section 12.5 below. Evidence of insurance coverage shall
be furnished to Landlord prior to Tenant's possession of the Premises and
thereafter not fewer than fifteen (15) days prior to the expiration date of any
required policy. Tenant may satisfy its insurance obligations hereunder by
carrying such insurance under a so-called blanket policy or
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policies of insurance which are acceptable to Landlord. If Tenant fails to
obtain any insurance required hereby or provide evidence thereof to Landlord,
Landlord may, but shall not be obligated to, and Tenant hereby appoints
Landlord as its agent to, procure such insurance and bill the cost of the
insurance plus a ten percent (10%) handling charge to Tenant. Tenant shall
pay such costs to Landlord as Additional Rent with the next monthly payment of
Rent.
12.5 WAIVERS OF SUBROGATION. Landlord waives any and all rights of
recovery against Tenant for or arising out of damage to, or destruction of the
Building or the Premises to the extent that Landlord's insurance policies then
in force insure against such damage or destruction and permit such waiver and
only to the extent of insurance proceeds actually received by Landlord for such
damage or destruction. Tenant waives any and all rights of recovery against
Landlord for or arising out of damage to or destruction of any property of
Tenant to the extent that Tenant's insurance policies then in force or the
policies required by this Lease, whichever is broader, insure against such
damage or destruction.
13. LANDLORD'S RIGHT OF ACCESS.
Tenant shall permit Landlord and its employees and agents, at all
reasonable times and at any time in case of emergency, in such manner as to
cause as little disturbance to Tenant as reasonably practicable (a) to enter
into and upon the Premises to inspect them, to protect the Landlord's interest
therein, or to post notices of non-responsibility, (b) to take all necessary
materials and equipment into the Premises, and perform necessary work therein,
and (c) to perform periodic environmental audits, inspections, investigations,
testing and sampling of the Premises and/or the Project, and to review and copy
any documents, materials, data, inventories, financial data, notices or
correspondence to or from private parties or governmental authorities in
connection therewith. No such work shall cause or permit any rebate of Rent to
Tenant for any loss of occupancy or quiet enjoyment of the Premises, or damage,
injury or inconvenience thereby occasioned, or constitute constructive
eviction. Landlord may at any time place on or about the Building any ordinary
"for sale" and "for lease" signs. Tenant shall also permit Landlord and its
employees and agents, upon request, to enter the Premises or any part thereof,
at reasonable times during normal business hours, to show the Premises to any
fee owners, lessors of superior leases, holders of encumbrances on the interest
of Landlord under the Lease, or prospective purchasers, mortgagees or lessees
of the Project or Building as an entirety. During the period of six (6) months
prior to the expiration date of this Lease, Landlord may exhibit the Premises
to prospective tenants.
14. ASSIGNMENT AND SUBLETTING.
14.1 LANDLORD'S CONSENT. Tenant shall not assign all or any
portion of its interest in this Lease, whether voluntarily, by operation of law
or otherwise, and shall not sublet all or any portion of the Premises,
including, but not limited to, sharing them, permitting another party to occupy
them or granting concessions or licenses to another party, except with the
prior written consent of Landlord, which Landlord may withhold for any
reasonable condition, including, but not limited to: (a) Tenant is in default
of this Lease; (b) the assignee or subtenant is unwilling to assume in writing
all of Tenant's obligations hereunder; (c) the assignee or subtenant has a
financial condition which is reasonably unsatisfactory to Landlord or
Landlord's mortgagee; (d) the Premises will be used for different purposes than
those set forth in Paragraph 3 or for a use requiring or generating increased
or different Hazardous Materials; (e) the proposed assignee or subtenant or its
business is subject to compliance with additional requirements of the law
(including related resolutions) commonly known as the Americans
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with Disabilities Act of 1990 beyond those requirements applicable to Tenant;
(f) Tenant proposes to assign less than all of its interest in this Lease or to
sublet the Premises in units that are unusually small for the Project; and (g)
the assignee or subtenant requires extensive alterations to the Premises.
14.2 FEES. Tenant shall pay Landlord's reasonable attorneys' fees
(not to exceed $1,000.00 per request) incurred in evaluating any proposed
assignment or sublease and documenting Landlord's consent.
14.3 PROCEDURE. Whenever Tenant has obtained an offer to assign
any interest in this Lease or to sublease all or any portion of the Premises,
Tenant shall provide to Landlord the name and address of said proposed assignee
or sublessee, the base rent and all other compensation to be paid to Tenant,
the proposed use by the proposed assignee or sublessee, the proposed effective
date of the assignment or subletting, and any other business terms which are
material to the offer and/or which differ from the provisions of this Lease
("Notice of Offer") Tenant shall also provide to Landlord the nature of
business, financial statement and business experience resume for the
immediately preceding five (5) years of the proposed assignee or sublessee and
such other information concerning such proposed assignee or sublessee as
Landlord may require. The foregoing information shall be in writing and shall
be received by Landlord no less than sixty (60) days prior to the effective
date of the proposed assignment or sublease.
Within thirty (30) days following its receipt of a Notice of
Offer for the proposed assignment or subletting, Landlord shall be entitled to
terminate this Lease as to all of the Premises (unless Tenant proposes a
sublease of a portion of the Premises, in which event Landlord may terminate
this Lease as to such portion) by written notice to Tenant ("Termination
Notice"), and such termination shall be effective as of the proposed effective
date of the proposed assignment or sublease. If Landlord does not elect to
terminate this Lease, Landlord shall either notify Tenant that Landlord
consents to the proposed assignment or subletting or withholds its consent for
reasons to be specified in the notice. If Landlord does not provide a
Termination Notice or a notice withholding its consent to Tenant within thirty
(30) days following its receipt of a Notice of Offer, Landlord shall be deemed
to have consented to the proposed assignment or subletting.
14.4 BONUS RENT. If any interest in this Lease is assigned or all
or any portion of the Premises is subleased, Landlord shall receive all of the
"bonus rent" to be realized from such assignment or subletting. The bonus rent
shall mean any lump sum payment or other value received by Tenant, plus any
base rent, percentage rent or periodic compensation received by Tenant from or
for the benefit of an assignee or sublessee in excess of (a) all amounts owed
for Rent and other charges pursuant to this Lease, and (b) all reasonable
commissions and fees paid to any real estate broker or finder who is
unaffiliated with Tenant in connection with the assignment or subletting. If a
portion of the Premises is subleased, the amount in clause (a) shall be
prorated based on the portion of the Premises' rentable area to be subleased.
The bonus rent shall be paid on the first (1st) day of each calendar month next
following tenant's receipt of each payment from its assignee or sublessee,
after reduction for all amounts described in clauses (a) and (b) above,
amortized over the full term of the assignment or sublease.
14.5 CONTINUING TENANT OBLIGATIONS. No subleasing or assignment
shall relieve Tenant from liability for payment of all forms of Rent and other
charges herein provided or from Tenant's obligations to keep and be bound by
the terms, conditions and covenants of this Lease.
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14.6 WAIVER, DEFAULT AND CONSENT. The acceptance of Rent from any
other person shall not be deemed to be a waiver of any of the provisions of
this Lease or a consent to the assignment or subletting of the Premises. Any
assignment or sublease without the Landlord's prior written consent shall be
voidable, at Landlord's election, and shall constitute a noncurable event of
default under this Lease. Consent to any assignment or subletting shall not be
deemed a consent to any future assignment or subletting.
14.7 RESTRUCTURING OF BUSINESS ORGANIZATIONS. Any transfer of
corporate shares or partnership interests of Tenant, so as to result in a
change in the present voting control of Tenant by the person or persons owning
a majority of said corporate shares or partnership interests on the date of
this Lease (except for trading on an exchange), shall constitute an assignment
and shall be subject to the provisions of this Paragraph 14.
14.8 ASSIGNMENT OF SUBLEASE RENT. Tenant immediately and
irrevocably assigns to Landlord, as security for Tenant's obligations under
this Lease, all rents from any subletting of all or any part of the Premises,
and Landlord, as assignee and as attorney-in-fact for Tenant for purposes
hereof, or a receiver for Tenant appointed on Landlord's application, may
collect such rents and apply same toward Tenant's obligations under this Lease,
except that, until the occurrence of an event of default by Tenant, Tenant
shall have the right and license to collect such rents.
14.9 ASSIGNMENT IN BANKRUPTCY. If this Lease is assigned to any
person or entity pursuant to the provisions of the United States Bankruptcy
Code, 11 U.S.C. Section 101 et seq., or such similar laws or amendments
thereto which may be enacted from time to time (the "Bankruptcy Code"), any and
all monies or other considerations payable or otherwise to be delivered in
connection with such assignment shall be paid or delivered to Landlord, shall
be and remain the exclusive property of Landlord and shall not constitute
property of Tenant or of the estate of Tenant within the meaning of the
Bankruptcy Code. Any and all monies or other considerations constituting
Landlord's property under the preceding sentence not paid or delivered to
Landlord shall be held in trust for the benefit of Landlord and be promptly
paid or delivered to Landlord.
14.10 ASSUMPTION OF OBLIGATIONS. Any person or entity to which this
Lease is assigned pursuant to the provisions of the Bankruptcy Code shall be
deemed, without further act or deed, to have assumed all of the obligations
arising under this Lease on and after the date of such assignment. Any such
assignee shall upon demand execute and deliver to Landlord an instrument
confirming such assumption.
15. CONDEMNATION.
15.1 TOTAL TAKING. If the whole or any substantial part of the
Premises or the Project shall be taken or damaged because of the exercise of
the power of eminent domain, whether by condemnation proceedings or otherwise,
including acts or omissions constituting inverse condemnation, or any transfer
of the Premises or Project or portion thereof in avoidance of the exercise of
the power of eminent domain (collectively, a "Taking"), and the Taking would
prevent or materially interfere with the use of the Premises for the purpose
for which they are being used, this Lease shall terminate effective when the
physical Taking of the Premises shall occur.
15.2 PARTIAL TAKING. If part of the Premises shall be subject to a
Taking and this Lease is not terminated as provided in the Paragraph 15.1
above, this Lease shall not terminate but the Rent payable hereunder during the
unexpired portion of this
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Lease shall be reduced in proportion to the area of the Premises rendered
unusable by Tenant.
15.3 CONDEMNATION AWARD. The entire award or compensation for any
Taking of the Project and/or the Premises, or any part thereof, or for
diminution in value, shall be the property of Landlord, and Tenant hereby
assigns its interest in any such award to Landlord; provided, however, Landlord
shall have no interest in any separate award made to Tenant for loss of
business, for relocation purposes, or for the taking of Tenant's fixtures and
improvements.
15.4 EXCLUSIVE REMEDY. This Paragraph 15 shall be Tenant's sole
and exclusive remedy in the event of any Taking. Tenant hereby waives the
benefits of California Code of Civil Procedure Section 1265.130 or any other
statute granting Tenant specific rights in the event of a Taking which are
contrary to the provisions of this Paragraph 15.
16. SURRENDER AND HOLDING OVER.
16.1 SURRENDER. Upon the expiration or sooner termination of this
Lease, Tenant shall surrender the Premises in as good condition as when
received, reasonable wear and tear excepted, broom clean and free of trash and
rubbish, and free from all tenancies or occupancies by any person. Subject to
Landlord's rights under Paragraph 19.8, Tenant shall remove all trade fixtures,
furniture, equipment and other personal property installed in the Premises
prior to the expiration or earlier termination of this Lease. Unless otherwise
provided in Paragraph 7 or waived by Landlord in writing prior to the
expiration or earlier termination of this Lease, Tenant shall remove at its
sole cost all alterations, additions and improvements made by Tenant to the
Premises. Alterations, additions and improvements remaining on the Premises at
the expiration or earlier termination of this Lease shall become the property
of Landlord. Tenant shall, at its own cost, completely repair any and all
damage to the Premises and the Building resulting from or caused by such
removal. The provisions of Paragraph 7 shall apply to such removal and repair
work.
16.2 HOLDING OVER. If Landlord agrees in writing that Tenant may
hold over after the expiration or earlier termination of this Lease, unless the
parties hereto otherwise agree in writing as to the terms of such holding over,
the holdover tenancy shall be subject to termination by Landlord or Tenant at
any time upon not less than thirty (30) days, prior written notice. If Tenant
holds over without the consent of Landlord, the same shall be a tenancy at will
terminable at any time, and Tenant shall be liable to Landlord for, and Tenant
shall indemnify, protect, defend and hold Landlord harmless from and against,
any damages, liabilities, losses, costs, expenses or claims suffered or caused
by such holdover, including damages and costs related to any successor tenant
of the Premises to whom Landlord could not deliver possession of the Premises
when promised. All of the other terms and provisions of this Lease shall be
applicable during any holdover period, with or without consent, except that if
Tenant is holding over without Landlord's express written consent to such
holdover, Tenant shall pay to Landlord from time to time upon demand, as Rent
for the period of any holdover, an amount equal to two hundred percent (200%)
of the then applicable Base Rent plus all Additional Rent in effect on the
termination date, computed on a daily basis for each day of the holdover
period. No holding over by Tenant, whether with or without consent of
Landlord, shall operate to extend this Lease. The preceding provisions of this
Paragraph 16.2 shall not be construed as Landlord's consent to any holding over
by Tenant.
16.3 ENTRY AT END OF TERM. If during the last month of the Term,
Tenant shall have removed substantially all of Tenant's property and personnel
from the Premises, Landlord may enter the Premises and repair, alter and
redecorate the same, without
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abatement of Rent and without liability to Tenant, and such acts shall have no
effect on this Lease. Tenant shall give written notice to Landlord at least
thirty (30) days prior to vacating the Premises and shall arrange to meet with
Landlord for a joint inspection of the Premises prior to vacating. In the
event of Tenant's failure to give such notice or arrange such joint inspection,
Landlord's inspection at or after Tenant's vacation of the Premises shall be
conclusively deemed correct for purposes of determining Tenant's responsibility
for repairs and restoration.
17. QUIET ENJOYMENT.
Landlord represents and warrants that it has full rights and authority
to enter into this Lease and that Tenant, upon paying the Rent and performing
its other covenants and agreements herein set forth, shall peaceably and
quietly have, hold and enjoy the Premises for the Term without hindrance or
molestation from Landlord, subject to the terms and provisions of this Lease,
any ground lease, any mortgage or deed of trust now or hereafter encumbering
the Premises or the Project, and all matters of record.
18. EVENTS OF DEFAULT.
The following events shall be deemed to be events of default by Tenant
under this Lease:
18.1 FAILURE TO PAY RENT. Tenant shall fail to pay any installment
of the Rent herein reserved when due, or any other payment or reimbursement to
Landlord required herein when due.
18.2 INSOLVENCY. Tenant or any guarantor of Tenant's obligations
hereunder shall generally not pay its debts as they become due or shall admit
in writing the inability to pay its debts or shall make a general assignment
for the benefit of creditors.
18.3 APPOINTMENT OF RECEIVER. A receiver or trustee (or similar
official) shall be appointed for all or substantially all of the assets of
Tenant.
18.4 BANKRUPTCY. The filing of any voluntary petition by Tenant
under the Bankruptcy Code, or the filing of an involuntary petition by Tenant's
creditors, which involuntary petition remains undischarged for a period of
forty-five (45) days.
18.5 ATTACHMENT. The attachment, execution or other judicial
seizure or non-judicial seizure of all or substantially all of Tenant's assets
located at the Premises or of Tenant's interest in this Lease or the Premises,
if such attachment or other seizure remains undismissed or undischarged for a
period of ten (10) business days after the levy thereof.
18.6 VACATION OF PREMISES. Tenant shall vacate all or a
substantial portion of the Premises, whether or not Tenant is in default of the
Rent or other charges due under this Lease.
18.7 CERTIFICATES. Tenant shall fail to deliver to Landlord any
subordination agreement within the time limit prescribed in Paragraph 21 below,
or a Certificate of Occupancy, all financial statements or an estoppel
certificate within the time limits prescribed in Paragraph 22.7 below.
18.8 FAILURE TO DISCHARGE LIENS. Tenant shall fail to discharge
any lien placed upon the Premises in violation of Paragraph 8 hereof.
18.9 FALSE FINANCIAL STATEMENT. Landlord discovers that any
financial statement given to Landlord by Tenant, any assignee, subtenant or
successor in interest of Tenant, or any
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guarantor of Tenant's obligations hereunder, or any of them, was materially
false when given to Landlord.
18.10 FAILURE TO COMPLY WITH LEASE TERMS. Tenant shall fail to
comply with any other term, provision or covenant of this Lease, and shall not
cure such failure within five (5) days after written notice thereof to Tenant.
19. LANDLORD'S REMEDIES.
Upon the occurrence of any event of default, Landlord may, at its
option without further notice or demand and in addition to any other rights and
remedies hereunder or at law or in equity, do any or all of the following:
19.1 TERMINATION. Terminate Tenant's right to possession of the
Premises by any lawful means upon at least 3 days' written notice (which notice
may be satisfied by any notice which may be given by Landlord pursuant to
Paragraph 18, if applicable), in which case Tenant shall immediately surrender
possession of the Premises to Landlord and, in addition to any rights and
remedies Landlord may have at law or in equity, Landlord shall have the
following rights:
(A) To re-enter the Premises then or at any time
thereafter and remove all persons and property and possess the
Premises, without prejudice to any other remedies Landlord may
have by reason of Tenant's default or of such termination, and
Tenant shall have no further claim hereunder.
(B) To recover all damages incurred by Landlord by reason
of the default, including without limitation (i) the worth at
the time of the award of the payments owed by Tenant to
Landlord under this Lease that were earned but unpaid at the
time of termination; (ii) the worth at the time of the award
of the amount by which the payments owed by Tenant to Landlord
under the Lease that would have been earned after the date of
termination until the time of the award exceeds the amount of
the loss of payments owed by Tenant to Landlord under this
Lease for the same period that Tenant proves could have been
reasonably avoided; (iii) the worth at the time of the award
of the amount by which the payments owed by Tenant to Landlord
for the balance of the Term after the time of the award
exceeds the amount of the loss of payments owed by Tenant for
the same period that Tenant proves could have been reasonably
avoided; (iv) all costs incurred by Landlord in retaking
possession of the Premises and restoring them to good order
and condition; (v) all costs, including without limitation
brokerage commissions, advertising costs and restoration and
remodeling costs, incurred by Landlord in reletting the
Premises; plus (vi) any other amount, including without
limitation attorneys' fees and audit expenses, necessary to
compensate Landlord for all detriment proximately caused by
Tenant's failure to perform its obligations under this Lease
or which in the ordinary course of things would be likely to
result therefrom. "The worth at the time of the award," as
used in clauses (i) and (ii) of this paragraph, is to be
determined by computing interest as to each unpaid payment
owed by Tenant to Landlord under the Lease, at the highest
interest rate permitted by law. "The worth at the time of the
award," as referred to in clause (iii) of this paragraph, is
to be determined by discounting such amount, as of the time of
award, at the discount rate of the San Francisco Federal
Reserve Bank, plus 1%.
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(c) To remove, at Tenant's sole risk, any and all
personal property in the Premises and place such in a public
or private warehouse or elsewhere at the sole cost and expense
and in the name of Tenant. Any such warehouser shall have all
of the rights and remedies provided by law against Tenant as
owner of such property. If Tenant shall not pay the cost of
such storage within thirty (30) days following Landlord's
demand, Landlord may, subject to the provisions of applicable
law, sell any or all such property at a public or private sale
in such manner and at such times and places as Landlord deems
proper, without notice to or demand upon Tenant. Tenant
waives all claims for damages caused by Landlord's removal,
storage or sale of the property and shall indemnify and hold
Landlord free and harmless from and against any and all loss,
cost and damage, including without limitation court costs and
attorneys' fees. Tenant hereby irrevocably appoints Landlord
as Tenant's attorney-in-fact, coupled with an interest, with
all rights and powers necessary to effectuate the provisions
of this subparagraph.
19.2 CONTINUATION OF LEASE. Maintain Tenant's right to possession,
in which case this Lease shall continue in effect whether or not Tenant shall
have abandoned the Premises. In such event, Landlord may enforce all of
Landlord's rights and remedies under this Lease, including the right to recover
rent as it becomes due hereunder, and, at Landlord's election, to re-enter and
relet the Premises on such terms and conditions as Landlord deems appropriate.
Without limiting the generality of the foregoing, Landlord shall have the
remedy described in California Civil Code Section 1951.4 (lessor may continue
lease in effect after lessee's breach and abandonment and recover rent as it
becomes due, if lessee has right to sublet or assign, subject only to
reasonable limitations). If Landlord relets the Premises or any portion
thereof, any rent collected shall be applied against amounts due from Tenant.
Landlord may execute any lease made pursuant hereto in its own name, and Tenant
shall have no right to collect any such rent or other proceeds. Landlord's
reentry and/or reletting of the Premises, or any other acts, shall not be
deemed an acceptance of surrender of the Premises or Tenant's interest therein,
a termination of this Lease or a waiver or release of Tenant's obligations
hereunder. Landlord shall have the same rights with respect to Tenant's
improvements and personal property as under Paragraph 19.1 above, even though
such re-entry and/or reletting do not constitute acceptance of surrender of the
Premises or termination of this Lease.
19.3 APPOINTMENT OF RECEIVER. Cause a receiver to be appointed in
any action against Tenant and to cause such receiver to take possession of the
Premises and to collect the rents or bonus rent derived therefrom. The
foregoing shall not constitute an election by Landlord to terminate this Lease
unless specific notice of such intent is given.
19.4 LATE CHARGE. Charge late charges as provided in Paragraph 2.7.
19.5 INTEREST. Charge interest on any amount not paid when due as
provided in Paragraph 22.2. Interest shall accrue from the date funds are first
due or, if the payment is for funds expended by Landlord on Tenant's behalf,
from the date Landlord expends such funds.
19.6 ATTORNEYS' FEES. Collect, upon demand, all reasonable
attorneys' fees and expenses incurred by Landlord in enforcing its rights and
remedies hereunder.
19.7 INJUNCTION. To restrain by injunction or other equitable
means any breach or anticipated breach of this Lease.
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19.8 RECOURSE TO OTHER COLLATERAL. Foreclose the following
security interests: In addition to any statutory landlord's lien, Tenant grants
to Landlord a continuing security interest in (a) all fixtures, furnishings and
equipment now or hereafter owned by Tenant and used in Tenant's business in the
Premises and all proceeds from the sale or other disposition thereof
(collectively,"Collateral"), and (b) Tenant's interest under any lease of such
Collateral as security for the full and faithful performance of Tenant's
obligations hereunder. Tenant shall provide Landlord with a detailed list of
all Collateral on or before January 31 of each year. Tenant shall keep the
Collateral in good condition and repair and shall not remove such Collateral
from the Premises. However, if Tenant is not in default under the Lease,
Tenant may discard or dispose of broken or inoperable or obsolete items in the
ordinary course of business, provided Tenant replaces such items and keeps the
Premises fully fixtured, furnished and equipped at all times. Tenant shall
comply with the terms of any equipment lease and shall not permit the same to
be modified, amended or terminated without Landlord's prior written consent. A
breach of the foregoing covenants shall constitute an event of default under
this Lease, and Landlord shall have all of the rights and remedies provided for
by law with respect to this security interest. Tenant hereby waives all right
to require Landlord to proceed against Tenant or any other person, firm or
corporation, to apply any Collateral it may hold at any time or in any order or
to pursue any other remedy it may possess whatsoever. Tenant shall execute and
deliver to Landlord any reasonably requested documents in order to perfect and
protect the foregoing security interest.
20. TENANT'S REMEDIES.
20.1 LANDLORD'S DEFAULT. Landlord shall not be in default under
this Lease unless Landlord fails to perform obligations required of Landlord
within forty-five (45) days after written notice is delivered by Tenant to
Landlord and to the holder of any mortgages or deeds of trust (collectively,
"Lender") covering the Premises whose name and address shall have theretofore
been furnished to Tenant in writing, specifying the obligation which Landlord
has failed to perform; provided, however, that if the nature of Landlord's
obligation is such that more than forty-five (45) days are required for
performance, then Landlord shall not be in default if Landlord or Lender
commences performance within such forty-five (45) day period and thereafter
diligently prosecutes the same to completion. All obligations of Landlord
hereunder shall be construed as covenants, not conditions.
20.2 TENANT'S REMEDIES. In the event of any default, breach or
violation of Tenant's rights under this Lease by Landlord, Tenant's exclusive
remedies shall be an action for specific performance or action for actual
damages. Tenant hereby waives the benefit of any laws granting it the right to
perform Landlord's obligation, a lien upon the property of Landlord and/or upon
Rent due Landlord, or the right to terminate this Lease or withhold Rent on
account of any Landlord default. Notwithstanding the foregoing, if Landlord
fails to make any repair required of Landlord under this Lease within the time
period specified in Paragraph 20.1 above, then five (5) business days following
Landlord's receipt of a new written notice from Tenant stating that such
failure remains uncured (and provided such cure has not then been performed),
Tenant may cause such repairs (other than work affecting the structural
integrity of the Building) to be made, and Landlord shall reimburse Tenant for
the reasonable cost thereof within thirty (30) days of Landlord's receipt of
paid invoices for such repairs.
20.3 NON-RECOURSE. Notwithstanding anything to the contrary in
this Lease, any judgment obtained by Tenant or any of Tenant's Parties against
Landlord or any Indemnified Parties shall be satisfied only out of Landlord's
interest in the Building and the legal parcel of land on which it sits.
Neither Landlord nor any Indemnified Parties shall have any personal
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liability for any matter in connection with this Lease or its obligations as
Landlord of the Premises, except as provided above. Tenant shall not
institute, seek or enforce any personal or deficiency judgment against Landlord
or any Indemnified Parties, and none of their property shall be available to
satisfy any judgment hereunder, except as provided in this Paragraph 20.3.
20.4 SALE OF PREMISES. In the event of any sale or transfer of the
Premises (and provided that any security deposit held by the seller, transferor
or assignor (collectively, "Seller") is delivered or credited to the purchaser,
transferee or assignee (collectively, "Purchaser"), the Seller shall be and
hereby is entirely freed and relieved of all agreements, covenants and
obligations of Landlord thereafter to be performed and it shall be deemed and
construed without further agreement between the parties or their successors in
interest or between the Seller and the Purchaser on any such sale, transfer or
assignment that such Purchaser has assumed and agreed to carry out any and all
agreements, covenants and obligations of Landlord hereunder.
21. MORTGAGES.
Tenant accepts this Lease subject and subordinate to any ground lease,
mortgage and/or deed of trust now or at any time hereafter constituting a lien
or encumbrance upon the Premises. Notwithstanding any such subordination,
Tenant's right to quiet possession of the Premises shall not be disturbed if
Tenant is not in default and so long as Tenant shall pay the Rent and observe
and perform all of its obligations hereunder, unless this Lease is otherwise
terminated pursuant to its terms. If any ground lessor, mortgagee or
beneficiary under a deed of trust elects to have Tenant's interest in this
Lease superior to any such instrument, then by notice to Tenant from such
ground lessor, mortgagee or beneficiary, this Lease shall be deemed superior to
such ground lease or lien, whether this Lease was executed before or after said
ground lease, mortgage or deed of trust. Tenant shall at any time hereafter on
demand execute any instruments, releases or other documents which may be
required by any ground lessor or mortgagee for the purpose of attornment or
subjecting and subordinating this Lease to any ground lease or the lien of any
such mortgage. Tenant's failure to execute each instrument, release or
document within ten (10) days after written demand shall constitute an event of
default by Tenant hereunder without further notice to Tenant, or at Landlord's
option Landlord shall execute such instrument, release or document on behalf of
Tenant as Tenant's attorney-in-fact. Tenant does hereby make, constitute and
irrevocably appoint Landlord as Tenant's attorney-in-fact, coupled with an
interest, and in Tenant's name, place and stead, to execute such documents in
accordance with this Paragraph 21.
22. GENERAL PROVISIONS.
22.1 SINGULAR AND PLURAL. Words of any gender used in this Lease
shall be held and construed to include any other gender, and words in the
singular number shall be held to include the plural, unless the context
otherwise requires.
22.2 INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein
provided to the contrary, any amount due to Landlord not paid when due shall
bear interest at the maximum rate then allowable by law from the date due.
Payment of such interest shall not excuse or cure any default by Tenant under
this Lease, provided, however, that interest shall not be payable on late
charges incurred by Tenant.
22.3 TIME OF ESSENCE. Time is of the essence.
22.4 BINDING EFFECT. The terms, provisions and covenants and
conditions contained in this Lease shall apply to, inure to
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the benefit of, and be binding upon, the parties hereto and upon their
respective heirs, legal representatives, successors and permitted assigns,
except as otherwise herein expressly provided.
22.5 CHOICE OF LAW. This Lease shall be governed by the laws of
the State of California applicable to contracts made and to be performed in
such state.
22.6 CAPTIONS. The captions inserted in this Lease are for
convenience only and in no way define, limit or otherwise describe the scope or
intent of this Lease, or any provision hereof, or in any way affect the
interpretation of this Lease.
22.7 CERTIFICATES. Tenant agrees from time to time within ten (10)
days after request of Landlord, to deliver to Landlord, or Landlord's designee,
a Certificate of Occupancy for work performed by Tenant or Tenant's Parties in
the Premises, annual financial statements for each of the previous three (3)
fiscal years of Tenant, and an estoppel certificate stating that this Lease is
unmodified and in full force and effect (or, if modified, stating the nature of
such modification and certifying that this Lease, as so modified, is in full
force and effect), the date to which Rent has been paid, the unexpired Term of
this Lease and such other matters pertaining to this Lease as may be requested
by Landlord or Landlord's designee. Any such certificate may be conclusively
relied upon by Landlord or Landlord's designee. At Landlord's option, Tenant's
failure to timely deliver such certificate shall be an event of default by
Tenant, without further notice to Tenant, or it shall be conclusive upon Tenant
that this Lease is in full force and effect, without modification except as may
be represented by Landlord, that there are no uncured defaults in Landlord's
performance, and that not more than one (1) month's rent has been paid in
advance.
22.8 AMENDMENTS. This Lease may not be altered, changed or amended
except by an instrument in writing signed and dated by both parties hereto.
Tenant agrees to make such reasonable modifications to this Lease as may be
required by any lender in connection with the obtaining of financing or
refinancing of the Project or any portion thereof.
22.9 ENTIRE AGREEMENT. This Lease constitutes the entire
understanding and agreement of Landlord and Tenant with respect to the subject
matter of this Lease, and contains all of the covenants and agreements of
Landlord and Tenant with respect thereto, and supersedes all prior agreements
or understandings. Landlord and Tenant each acknowledge that no
representations, inducements, promises or agreements, oral or written, have
been made by Landlord or Tenant, or anyone acting on behalf of Landlord or
Tenant, which are not contained herein, and any prior agreements, promises,
negotiations, or representations not expressly set forth in this Lease are of
no force or effect.
22.10 WAIVERS. The waiver by Landlord of any term, covenant,
agreement or condition herein contained shall not be deemed to be a waiver of
any subsequent breach of the same or any other term, covenant, agreement or
condition herein contained, nor shall any custom or practice which may arise
between the parties in the administration of this Lease be construed to waive
or lessen the right of Landlord to insist upon the performance by Tenant in
strict accordance with all of the provisions of this Lease. The subsequent
acceptance of Rent hereunder by Landlord shall not be deemed to be a waiver of
any preceding breach by Tenant of any provisions, covenant, agreement or
condition of this Lease, other than the failure of Tenant to pay the particular
Rent so accepted, regardless of Landlord's knowledge of such preceding breach
at the time of acceptance of such Rent.
22.11 ATTORNEYS' FEES. If either Landlord or Tenant commences or
engages in, or threatens to commence or engage in, an action by or against the
other party arising out of or in
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connection with this Lease or the Premises, including but not limited to any
action for recovery of Rent due and unpaid, to recover possession or for
damages for breach of this Lease, the prevailing party shall be entitled to
have and recover from the losing party reasonable attorneys' fees and other
costs incurred in connection with the action, preparation for such action, any
appeals relating thereto and enforcing any judgments rendered in connection
therewith. If Landlord becomes involved in any action, threatened or actual,
by or against anyone not a party to this Lease, but arising by reason of or
related to any act or omission of Tenant or Tenant's Parties, Tenant agrees to
pay Landlord's reasonable attorneys, fees and other costs incurred in
connection with the action, preparation for such action, any appeals relating
thereto and enforcing any judgments rendered in connection therewith.
22.12 MERGER. The voluntary or other surrender of this Lease by
Tenant or a mutual cancellation hereof shall not constitute a merger. Such
event shall, at the option of Landlord, either terminate all or any existing
subtenancies or operate as an assignment to Landlord of any or all of such
subtenancies.
22.13 SURVIVAL OF OBLIGATIONS. Paragraphs 2, 3.2, 4.2, 5.2, 8,
12.1, 12.5, 15.3, 16, 19, 20 and 22 and all obligations of Tenant hereunder not
fully performed as of the expiration or earlier termination of the Term shall
survive the expiration or earlier termination of the Term, including without
limitation, all payment obligations with respect to Rent and all obligations
concerning the condition of the Premises. Upon the expiration or earlier
termination of the Term, and prior to Tenant vacating the Premises, Tenant
shall pay to Landlord any amount reasonably estimated by Landlord (i) as
necessary to perform Tenant's duties under paragraphs 6.1 and 16.1 and put the
Premises, including without limitation, all heating and air conditioning
systems and equipment therein, in good condition and repair, and (ii) as
sufficient to meet Tenant's obligation hereunder for prorated Additional Rent
for the year in which the Lease expires or terminates. All such amounts shall
be used and held by Landlord for payment of such obligations, with Tenant being
liable for any additional costs therefor upon demand by Landlord, or with any
excess to be returned to Tenant after all such obligations have been determined
and satisfied as the case may be. Any Security Deposit held by Landlord shall
be credited against the amounts payable by Tenant under this Paragraph 22.13.
22.14 SEVERABILITY. If any clause or provision of this Lease is
illegal, invalid or unenforceable under present or future laws effective during
the Term, the remainder of this Lease shall not be affected thereby, and in
lieu of each clause or provision of this Lease that is illegal, invalid or
unenforceable, there shall be added as a part of this Lease a clause or
provision as similar in terms to such illegal, invalid or unenforceable clause
or provision as may be possible and be legal, valid and enforceable.
22.15 SECURITY MEASURES. Tenant hereby acknowledges that the Rent
payable to Landlord hereunder does not include the cost of guard service or
other security measures, and that Landlord shall have no obligation whatsoever
to provide same. Tenant assumes all responsibility for the protection of
Tenant, Tenants' Parties and their property from acts of third parties.
22.16 EASEMENTS. Landlord reserves to itself the right, from time
to time, to grant such easements, rights and dedications that Landlord deems
necessary or desirable, and to cause the recordation of parcel maps, easement
agreements and covenants, conditions and restrictions, so long as such
easements, rights, dedications, maps and covenants, conditions and restrictions
do not unreasonably interfere with the permitted use of the Premises by Tenant.
Tenant shall sign any of the,
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<PAGE> 29
aforementioned documents upon request of Landlord and failure to do so shall
constitute a material breach of this Lease.
22.17 MULTIPLE PARTIES. If more than one person or entity is named
as Tenant herein, the obligations of Tenant hereunder shall be the joint and
several responsibility of all persons or entities so named.
22.18 CONFLICT. Any conflict between the printed provisions of this
Lease and any typewritten or handwritten provisions shall be controlled by the
typewritten or handwritten provisions.
22.19 NO THIRD PARTY BENEFICIARIES. This Lease is not intended by
either party to confer any benefit on any third party, including without
limitations any broker, finder, or brokerage firm.
22.20 EFFECTIVE DATE/NONBINDING OFFER. Submission of this Lease for
examination or signature by Tenant does not constitute an offer or option for
lease, and it is not effective as a lease or otherwise until executed and
delivered by both Landlord and Tenant.
22.21 NOTICES. Each provision of this Lease or of any applicable
governmental laws, ordinances, regulations and other requirements with
reference to the sending, mailing or delivery of any notice or the making of
any payment by one party to the other shall be deemed to be complied with when
and if the following steps are taken:
(a) All Rent and other payments required to be made
hereunder shall be payable to the applicable party hereto as follows: to
Landlord at the address set forth in Item 12 of the Basic Lease Provisions, and
to Tenant at the Premises, or at such other addresses as the parties may have
hereafter specified by written notice. All obligations to pay Rent and/or any
other amounts under the terms of this Lease shall not be deemed satisfied until
such Rent and other amounts have been actually received by the respective
party.
(b) Wherever any notice is required or permitted
hereunder, such notice shall be in writing. Any notice or document required or
permitted to be delivered hereunder shall be deemed to be delivered (i) upon
personal delivery; (ii) seventy-two (72) hours after deposit thereof in the
United States mail, postage prepaid, certified or registered mail, return
receipt requested; (iii) upon confirmation of delivery by Federal Express or
other reputable overnight delivery service; or (iv) upon written confirmation
of delivery by telegraph, telecopy or other electronic written transmission
device; correctly addressed to the parties hereto as follows: if to Tenant
before the Commencement Date, then at the address specified in Item 11 of the
Basic Lease Provisions; if to Tenant after the Commencement Date, then at the
Premises; and if to Landlord, then at the address specified in Item 12 of the
Basic Lease Provisions; or at such other address (but no more than one (1)
address at a time, except as provided in Paragraph 20.1) as the recipient may
theretofore have specified by written notice.
22.22 WATER, OIL AND MINERAL RIGHTS. Landlord reserves all right,
title or interest in water, oil, gas or other hydrocarbons, other mineral
rights and air and development rights, together with the sole and exclusive
right of Landlord to sell, lease, assign or otherwise transfer the same, but
without any right of Landlord or any such transferee to enter upon the Premises
during the Term except as otherwise provided herein.
22.23 CONFIDENTIALITY. Tenant agrees to keep the Lease and its
terms, covenants, obligations and conditions strictly confidential and not to
disclose such matters to any other landlord, tenant, prospective tenant, or
broker; provided,
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<PAGE> 30
however, Tenant may provide a copy of this Lease to its attorneys, accountants
and bankers, and to a non-party solely in conjunction with Tenant's reasonable
and good faith effort to secure an assignee or sublessee for the Premises.
22.24 BROKER'S FEES. Tenant represents and warrants that it has
deal with no broker, agent or other person in connection with this transaction
and that no broker, agent or other person brought about this transaction, other
than the broker specified in Item 13 of the Basic Lease Provisions, if any, and
Tenant shall indemnify, defend, protect and hold Landlord harmless from and
against any claims, losses, liabilities, demands, costs, expenses or causes of
action by any other broker, agent or other person claiming a commission or
other form of compensation by virtue of having dealt with Tenant with regard to
this leasing transaction. Landlord shall be responsible for payment of the
commission owed to the broker identified in Item 13 of the Basic Lease
Provisions.
22.25 REMEDIES CUMULATIVE. All rights, privileges and remedies of
the parties are cumulative and not alternative or exclusive to the extent
permitted by law, except as otherwise provided herein.
22.26 RETURN OF CHECK. If Tenant's check, given to Landlord in
payment of any sum, is returned by the bank for nonpayment, Tenant shall pay to
Landlord immediately on demand, as Additional Rent, all expenses incurred by
Landlord as a result thereof.
22.27 NO RECORDATION OF LEASE. Neither this Lease nor any
memorandum hereof may be recorded.
22.28 AUTHORITY. If Tenant is a corporation or partnership, each
individual executing this Lease on behalf of such entity represents and
warrants that he or she is duly authorized to execute and deliver this Lease.
Tenant shall, within thirty (30) days following execution of this Lease,
deliver to Landlord evidence of such authority satisfactory to Landlord.
22.29 INTERPRETATION. This Lease shall be construed fairly
according to its terms without regard to which party, or which party's
attorneys, prepared its form.
22.30 LANDLORD'S APPROVALS. Except where the provisions of this
Lease expressly provide that Landlord's consent or approval must be reasonably
given, all consents or approvals of Landlord sought or required pursuant to the
terms of this Lease may be given or withheld in Landlord's sole and absolute
discretion.
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<PAGE> 31
22.31 ADDITIONAL PROVISIONS. Those additional provisions set forth
in Exhibit "C", if any, are hereby incorporated by this reference as if fully
set forth herein.
LANDLORD:
TCEP II PROPERTIES JOINT VENTURE, a Texas joint venture
By: TCEP II Properties/First Plaza
Limited Partnership, a Texas limited
partnership, Co-Venturer
By: TCV/TCEP II Properties
Limited Partnership, a Texas limited
partnership, General Partner
By: Trammell Crow Ventures
#3, Ltd., a Texas limited
partnership, General Partner
By: Trammell Crow Ventures
Management Company, Inc., a
Texas Corporation, General
Partner
By: [SIG]
------------------------
Name:
------------------------
Title:
------------------------
By: Trammell Crow Equity Partners
II, Ltd., a Texas limited partnership,
Co-Venturer
By: Trammell Crow Ventures #2, Ltd., a Texas
limited partnership, General Partner
By: Trammell Crow Ventures #3, Ltd., a
Texas limited partnership,
General Partner
By: Trammell Crow Ventures
Management Company, Inc.,
a Texas corporation,
By: [SIG]
------------------------
Name:
------------------------
Title:
------------------------
TENANT:
COHR Inc., a Delaware corporation
By: /s/ PAUL CHOPRA
------------------------------
Name: Paul Chopra
------------------------------
Title: President
------------------------------
By: /s/ UMESH MALHOTRA
------------------------------
Name: Umesh Malhotra
------------------------------
Title: CFO
------------------------------
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<PAGE> 32
EXHIBIT A
CHATSWORTH CA
[DIAGRAM]
(COHR, Inc.)
Premises
Approximately 76,306 rsf
Two (2) story
<PAGE> 33
EXHIBIT "B"
WORK LETTER AND CONSTRUCTION AGREEMENT
(Landlord to Construct Improvements)
1. TENANT'S IMPROVEMENTS.
Except as set forth herein, Tenant accepts the Premises and existing
improvements therein in their "as is" condition. Landlord shall furnish and
install within the Premises those items of general construction, but not
personal property or trade fixtures (the "Tenant Improvements"), set forth in
the space plan dated March 28, 1996, prepared by Sonnenleiter Associates
("Space Plan"), which Space Plan is attached hereto as Exhibit "B-1" and
incorporated herein. All Tenant Improvements shall be constructed pursuant to
this Work Letter and shall be performed by Landlord's general contractor
utilizing those subcontractors selected by Landlord in accordance with this
Work Letter.
2. PLANS AND SPECIFICATIONS FOR IMPROVEMENTS.
2.1 Tenant shall cause its architect to prepare from the Space
Plan, complete architectural plans, drawings and specifications within ten (10)
days after the mutual execution and delivery of this Lease. Such complete
plans, drawings and specifications are referred to herein as the "Plans".
Tenant's Plans shall (i) be substantially in accordance with the Space Plan and
compatible with the Building shell and with the design, construction and
equipment of the Building; (ii) comply with all applicable laws and ordinances,
and the rules and regulations of all governmental authorities having
Jurisdiction; (iii) comply with all applicable insurance regulations; and (iv)
be consistent with the Space Plan. Tenant shall submit the Plans for the
approval of Landlord in the following manner: If Landlord fails to disapprove
the Plans within the ten (10) day period following its receipt of the Plans,
the Plans shall be deemed approved. If Landlord shall disapprove of any
portion of the Plans within such ten (10) day period, Landlord shall advise
Tenant of the reasons therefor and shall notify Tenant of the revisions to the
Plans that are reasonably required by Landlord for the purpose of obtaining
approval. Tenant shall within seven (7) days submit to Landlord, for
Landlord's approval, a redesign of the Plans, incorporating the revisions
required by Landlord. If the redesign of the Plans is not approved by Landlord
within ten (10) days following Landlord's receipt of same, then at Landlord's
election the period from the date of Landlord's receipt of such redesign until
the date Landlord approves a subsequent redesign shall be deemed "Tenant Delay"
(as hereinafter defined).
2.2 Tenant shall cause its architect to provide documentation for
all changes to the Plans at the time each change is authorized for
construction, pursuant to the requirements of Paragraph 6. At the conclusion of
construction, Tenant shall cause its architect to update Tenant's plans and
specifications as necessary to reflect all changes to the Plans during the
course of construction and to issue a set of sepias to the contractor for its
review and mark up. Tenant shall cause its architect to review and certify the
contractor's marked up plans and provide to Landlord's designated construction
representative a "record set" of as-built sepias within thirty (30) days
following completion of the Tenant Improvements. Landlord shall have no
liability to Tenant or to any other person for errors or omissions in the
Plans, Landlord's review being for Landlord's own purposes. Tenant shall rely
solely on the advice and experience of Tenant's architect in assuring the
accuracy and sufficiency of the Plans for Tenant's purposes.
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<PAGE> 34
3. NON-STANDARD TENANT IMPROVEMENTS.
3.1 Subject to obtaining Landlord's prior written consent, which
consent shall not be unreasonably withheld or delayed, Tenant may specify
non-standard floor covering and wall finishes. Such non-standard floor
covering and wall finish deviations shall not be of a lesser quality than
Landlord's standard such improvements.
3.2 Landlord shall not be required to approve any nonstandard
finishes that: (1) do not conform to applicable government regulations or are
disapproved by any governmental agency; or (2) are, in Landlord's reasonable
opinion, of a nature or quality that are inconsistent with the objectives of
Landlord.
4. BUILDING SHELL CHANGES.
If the Plans or any amendment thereof or supplement thereto shall
require changes in the Building shell, the cost of the Building shell work
caused by such Plans, amendment or supplement, shall be charged against Tenant.
The preceding sentence shall not be construed as requiring that Landlord must
approve any Plans which specify changes in the Building shell. If Building
shell work is permitted by Landlord, the cost thereof shall include all
architectural and/or engineering fees and expenses in connection therewith, as
well as compensation to Landlord for the costs of any delays which arise from
such changes (which delays shall also constitute Tenant Delay).
5. LEASEHOLD IMPROVEMENT APPROVAL AND COST.
5.1 Landlord's general contractor will be entitled to a
contractor's fee and general conditions fee (not to exceed the current market
rate for such fees. Upon receipt of the general contractor's cost of
construction, Landlord shall provide Tenant with a detailed breakdown of the
cost of furnishing and installing the Tenant Improvements, including, without
limitation: the cost of constructing standard and non-standard improvements;
the cost of preparing engineering plans; governmental agency plan check, permit
and other fees; sales and use taxes; Title 24 fees; all other costs to be
expended by Tenant in the construction of the Tenant Improvements; and a
Landlord's administration fee of ten percent (100%) of the cost of the Tenant
Improvements (collectively, the "Cost of Tenant Improvements"). The Cost of
Tenant Improvements may include expenses and "soft costs" incurred by Tenant,
such as the fees of Tenant's architect. Tenant shall approve in writing the
estimated cost of Tenant Improvements within five (5) days following its
receipt of same. No construction of Tenant Improvements shall commence until
such approval is received by Landlord. At Landlord's election, any delay by
Tenant in giving such approval shall constitute Tenant Delay.
5.2 Landlord shall establish an allowance (the "Tenant Improvement
Allowance") of One Million Seven Hundred Twenty-Five Thousand Dollars and
00/100 ($1,725,000.00), which Tenant Improvement Allowance shall be used by
Landlord solely for the design and installation of the Tenant Improvements.
Tenant shall have the right to use the Tenant Improvement Allowance for any
improvements described in the approved Plans. In no event shall the Tenant
Improvement Allowance be used to pay for costs of Tenant's furniture or other
personal property, which shall be paid for by Tenant at its sole cost and
expense. If the Cost of Tenant Improvements exceeds the Tenant Improvement
Allowance ("Excess Cost of Tenant Improvements"), prior to commencement of
construction, Tenant shall deposit with Landlord, in cash, the amount of such
Excess Cost of Tenant Improvements to be disbursed by Landlord following full
disbursement of the Tenant Improvement Allowance, and the balance, if any, to
be returned to Tenant, without interest, following completion of the Tenant
Improvements. If the Cost of Tenant Improvements is less than the Tenant
Improvement Allowance, Tenant shall be entitled to a
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<PAGE> 35
credit for such excess amount to be applied against subsequent Base Rent
obligations due and payable by Tenant under the Lease. Notwithstanding the
foregoing, Tenant shall not be entitled to any portion of the foregoing credit,
if any, until all of the Tenant Improvements for the entire Premises have been
constructed in accordance with the Plans.
5.3 If the Cost of Tenant Improvements increases due to the
requirements of any governmental agency subsequent to Landlord's approval of
the bids pursuant to Paragraph 5.1, or for any other reason, Tenant shall pay
to Landlord the amount of any such increase within twenty (20) days after
receipt of notice of such cost increases; provided, however, that Landlord
shall absorb its pro-rata share, if any, of any increase to the extent of any
remaining balance in the Tenant Improvement Allowance.
5.4 Subject to the terms of Paragraph 16.1 of the Lease, all of
the Tenant Improvements, whether or not the cost thereof is covered by the
Tenant Improvement Allowance, shall become the property of Landlord upon
expiration or earlier termination of the Lease and shall remain on the Premises
at all times during the Term.
6. TENANT CHANGES.
Tenant may request a change, addition or alteration in the Tenant
Improvements as shown by the Plans after Landlord's final approval of such
Plans (a "Change Order") by delivery of a written request to Landlord for its
approval and for the general contractor's determination of (i) the increase in
the cost of work to implement the Change Order, and (ii) the estimated delay,
if any, in the construction of the Tenant Improvements occasioned by the Change
Order. Tenant's architect shall complete all working drawings necessary to
show the change, addition or alteration, and a Change Order in form
satisfactory to Landlord. Following its approval of the Change Order and any
delays in construction occasioned by the Change Order, Landlord shall deliver
to Tenant its written approval of the Change Order and authorization to proceed
with the work as shown by the Change order, conditioned upon payment by Tenant
to Landlord, in advance and in full, of any cost increase occasioned thereby.
Landlord may decline any proposed Change Order if the change is inconsistent
with the provisions of any of paragraphs 1 through 5 above. Any delay caused
by work stoppage pending Landlord's approval of a Change Order or payment by
Tenant of any cost increase shall constitute Tenant Delay.
7. CONSTRUCTION OF TENANT IMPROVEMENTS.
7.1 Upon approval by Landlord of the Plans and Cost of the Tenant
Improvements, the general contractor shall proceed to secure a building permit
and commence construction.
7.2 The construction of Tenant Improvements shall be subject to
the following:
(i) As part of the Cost of the Tenant Improvements to be
paid by Tenant (subject to Landlord's contribution of
the Tenant Improvement Allowance), Tenant shall
reimburse Landlord for all costs directly or
indirectly related to the Tenant Improvements,
including, without limitation: costs of site
services, facilities and utilities (such as trash
removal, use of vertical transportation, electrical
service, etc.); costs of remedying deficient or
faulty work or inadequate clean-up done by Tenant or
its contractors); and costs incurred by reason of
delays caused by such work.
(ii) All Tenant Improvements shall be installed only under
the supervision of Landlord or its designated agent,
and Tenant shall pay to Landlord
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<PAGE> 36
an administration fee in the amount of ten percent
(10%) as described in Paragraph 5 above, which cost
may he paid out of the Tenant Improvement Allowance.
7.3 "Tenant Delay" shall include, without limitation, any delay in
the completion of construction of Tenant Improvements resulting from (i)
Tenant's failure to comply with the provisions of this Work Letter and
Construction Agreement or the Lease, including without limitation Tenant's
failure to meet any time deadlines established herein, (ii) any additional time
as reasonably determined by Landlord required for ordering, receiving,
fabricating and/or installing items of materials or other components of the
construction of Tenant Improvements, including, without limitation, mill work,
which are not used in the construction of Tenant Improvements in accordance
with Landlord's building standards and which causes a delay in the Substantial
Completion of the Tenant Improvements beyond the time when such improvements
would otherwise be completed if constructed in accordance with the standards
used in the remainder of the Building, (iii) delay in work caused by submission
by Tenant of a request for any Change Order following Landlord's approval of
the Plans, (iv) any additional time, as reasonably determined by Landlord,
required for implementation of any Change order with respect to the Tenant
Improvements, (v) any changes in the Building Shell, or (vi) any other delay
arising from the act or omission of Tenant or Tenant's Parties. If there shall
be any Tenant Delay, then Landlord may require Tenant to commence the payment
of Rent under the Lease based upon when Substantial Completion would have
occurred but for the Tenant Delay, or if not previously required by Landlord,
Tenant shall pay such Rent to Landlord prior to Tenant occupying the Premises.
Landlord shall not be liable for, and Tenant waives all claims against Landlord
for, any defaults of the general contractor and all subcontractors and
suppliers relating to construction of the Tenant Improvements. In the event of
any such default, Tenant shall look solely to the general contractor or the
subcontractors or suppliers.
8. MISCELLANEOUS.
8.1 Any default of Tenant in this Work Letter and Construction
Agreement shall constitute a default of Tenant under the Lease, and Landlord's
remedies shall be as set forth therein. All provisions of the Lease are fully
incorporated in this Exhibit "B" as though set forth herein at length.
8.2 Tenant shall designate one (1) construction representative
authorized to act for Tenant upon whom Landlord can rely, and who shall consult
with Landlord and Landlord's contractors, employees and agents in connection
with the construction of the Tenant Improvements.
8.3 Tenant shall indemnify, defend, protect and hold the
Indemnified Parties (as defined in the Lease) harmless from all Claims (as
defined in the Lease) which arise in any way, directly or indirectly from or in
connection with the design of the Tenant Improvements, including without
limitation arising from the work of Tenant's architect, engineer, employees or
agents.
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<PAGE> 37
EXHIBIT "B-1"
SPACE PLAN
[to be attached]
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<PAGE> 38
EXHIBIT "C"
ADDITIONAL LEASE PROVISIONS
A. Option to Extend Term. Landlord grants to Tenant two (2)
option(s) to extend the Term of this Lease for consecutive periods of sixty
(60) months each (each of which, an "Option")] commencing upon the expiration
of the initial Term (or upon the expiration of the preceding option if any),
upon each of the following conditions and terms:
1. Tenant shall give to Landlord, and Landlord shall
actually receive, on a date which is at least six (6) months and not more than
twelve (12) months prior to the then scheduled expiration date of the Term, a
written notice of Tenant's exercise of such Option (the "Option Notice"), time
being of the essence. If the Option Notice is not timely so given and received,
such Option shall automatically expire.
2. Tenant shall have no right to exercise an Option,
notwithstanding any provision hereof to the contrary, (a) during the time
commencing from the date Landlord gives to Tenant a notice of default pursuant
to Paragraph 18.10 of this Lease and continuing until the noncompliance alleged
in said notice of default is cured, or (b) during the period of time commencing
on the day after a monetary obligation to Landlord is due from Tenant and
unpaid (without any necessity for notice thereof to Tenant) and continuing
until the obligation is paid, or (c) if Landlord has given to Tenant three or
more notices of default under Paragraph 18.10 of this Lease, whether or not the
defaults are cured, or Tenant has been late on three or more occasions in the
payment of a monetary obligation to Landlord (without any necessity for notice
thereof to Tenant), during the 12 month period of time immediately prior to the
time that Tenant attempts to exercise the Option, or (d) if Tenant has
committed any noncurable breach, or is otherwise in default of any of the
terms, covenants or conditions of this Lease.
3. The period of time within which the option may be
exercised shall not be extended or enlarged by reason of Tenant's inability to
exercise an Option because of the provisions of Paragraph A.2 above.
4. All Option rights of Tenant under this Paragraph A.
shall terminate and be of no further force or effect, notwithstanding Tenant's
due and timely exercise of the option, if, after such exercise and during the
initial Term of this Lease (as and if previously extended), (a) Tenant fails to
pay to Landlord a monetary obligation of Tenant for a period of ten (10) days
after such obligation becomes due (without any necessity of Landlord to give
notice thereof to Tenant), or (b) Tenant fails to commence to cure a default
specified in Paragraph 18.10 of this Lease within ten (10) days after the date
that Landlord gives notice to Tenant of such default and/or Tenant fails
thereafter to diligently prosecute said cure to completion within thirty (30)
days after the date of such notice, or (c) Landlord gives to Tenant one (1) or
more notices of default under Paragraph 18.10 of this Lease, or Tenant is late
on one (1) or more occasions in the payment of a monetary obligation to
Landlord (without any necessity of notice thereof to Tenant), whether or not
the defaults are cured, or (d) Tenant has committed any incurable breach, or is
otherwise in default of any of the terms, covenants and conditions of this
Lease.
5. The Options granted to Tenant in this Lease are
personal to the original Tenant and may be exercised only by the original
Tenant while occupying the Premises who does so without the intent of
thereafter assigning this Lease or subletting the Premises or any portion
thereof, and may not be exercised or be assigned, voluntarily or involuntarily,
by or to any person or entity other than Tenant. The Options herein granted to
Tenant are not assignable separate and apart from this Lease, nor may
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<PAGE> 39
the option be separated from this Lease in any manner, either by reservation or
otherwise.
6. All of the terms and conditions of this Lease except
where specifically modified by this Paragraph A shall apply during the extended
Term.
7. The monthly Base Rent payable during the first year
of any extended Term (each of which such extended Terms is herein referred to
as an "Option Period") shall be equal to the then current fair market value for
the highest and best use of the Premises (whether or not such is the use to
which the Premises are then put) determined as of the beginning of such option
Period, as follows:
(i) Promptly following receipt by Landlord of
Tenant's Option Notice, Landlord and Tenant shall attempt to reach agreement on
the initial Base Rent for the Option Period, which Base Rent shall be set at
the then current fair market monthly rental value for the highest and best use
of the Premises. If Landlord and Tenant are able to agree on the initial Base
Rent for the Option Period, Landlord and Tenant shall immediately execute an
amendment to this Lease stating the initial Base Rent for such Option Period.
(ii) If the parties are unable to agree on the
initial Base Rent for the Option Period within forty-five (45) days following
Landlord's receipt of the Option Notice, then each party, at its cost and by
giving notice to the other party, shall have ten (10) days within which to
appoint an MAI full-time commercial appraiser experienced in the area in which
the Premises are located, to appraise and set the initial Base Rent for such
Option Period at the then current fair market monthly rental value of the
Premises for a term equal to the Option Period. If a party does not appoint an
appraiser within such ten (10) day period, the single appraiser appointed shall
be the sole appraiser and shall set the initial Base Rent for such Option
Period. If two appraisers are appointed by the parties as stated in this
paragraph, they shall meet promptly and attempt to set the initial Base Rent
for such Option Period. If they are unable to agree within forty five (45)
days after the second appraiser has been appointed, they shall attempt to
select a third appraiser meeting the qualifications stated in this paragraph
within ten (10) days after the last day the two appraisers are given to set the
initial Base Rent for such Option Period. If they are unable to agree on the
third appraiser, either of the parties to this Lease, by giving ten (10) days
notice to the other party, may apply to the presiding judge of the Superior
Court of the County in which the Premises are located, for the selection of a
third appraiser who meets the qualifications stated in this paragraph. Each of
the parties shall bear the cost of its own appraiser and one-half (1/2) of the
cost of appointing the third appraiser and of paying the third appraiser's fee.
The third appraiser, however selected, shall be a person who has not previously
acted in any capacity for either party.
(iii) Within twenty (20) days after the selection
of the third appraiser, a majority of the appraisers shall set the initial Base
Rent for the Option Period. If a majority of the appraisers are unable to
agree upon the initial Base Rent within the stipulated period of time, the two
closest appraisals shall be added together and their total divided by two, and
the resulting quotient shall be the initial Base Rent for the Premises during
such Option Period. In no event, however, shall the initial Base Rent for such
Option Period be less than the Base Rent payable during the immediately
preceding period.
8. If Tenant has been granted more than one Option to
extend the Term of this Lease, a later Option may not be exercised until the
prior Option has been so exercised.
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<PAGE> 40
9. If the Base Rent for the initial year of an option
Period has not been determined by the commencement date of the Option Period,
then until such Base Rent is determined, Tenant shall pay Base Rent to Landlord
at the rate in effect immediately preceding the Option Period, and if the
actual Base Rent for the initial year of the Option Period is determined to be
higher, then within ten (10) days after the determination of such higher Base
Rent, Tenant shall pay to Landlord the difference for each month of the Option
Period for which Base Rent has already become due.
10. The term "fair market value" means the rent
(including additional rent), including all escalations, at which non-renewal
tenants as of the commencement of the Option Period, are leasing non-sublease,
non-encumbered space comparable in size, location and quality to the Premises
for a term of five (5) years, taking into consideration (a) tenant improvements
or allowances provided or to be provided for such comparable space, taking into
account and deducting the value of the existing: improvements in the Premises
based upon the age, quality and layout of the improvements and the extent to
which the same could be utilized by Tenant in light of the fact that the
precise tenant improvements existing in the Premises are specifically suitable
to Tenant, and (b) other monetary concessions, if any, being granted in
connection with comparable space; provided, however, no consideration shall be
given to any period of rent abatement given in connection with the construction
of tenant improvements in such comparable space, nor shall consideration be
given to moving costs or the presence or absence of a brokerage commission.
B. Right of First Offer. Prior to leasing or offering to lease
any space located in the Building (the "Offered Space") to any third party
during the Lease Term, but subject to any rights of other existing tenants of
the Building or the Project created prior to the date of this Lease relating to
the Offered Space, Landlord shall notify Tenant of the availability of the
Offered Space ("Offer") and Tenant shall have a right for a period of five (5)
business days after delivery of Landlord's Offer, to elect to lease all (but
not less than all) of that portion of the Offered Space set forth in the Offer
on the terms and conditions contained in the Offer. If Tenant does not timely
accept the offer, then (a) Landlord shall be free to lease the Offered Space to
a third party on such terms and conditions as Landlord and such third party
shall agree, which may differ from the terms offered to Tenant, (b) Tenant's
right to lease the Offered Space under the terms of this Paragraph 3 shall
terminate, and (c) Tenant's right of first offer provided under this Paragraph
3 shall terminate and be of no further effect. If Tenant timely accepts the
offer, then Landlord shall prepare and submit to Tenant an amendment to this
Lease containing the terms of the Offer and otherwise on the form of amendment
then in use by Landlord for the Building. Tenant shall execute and deliver
such an amendment to Landlord within ten (10) days after delivery of same to
Tenant for execution. If Tenant fails to timely execute and deliver the
amendment with respect to the Offered Space, then (i) Tenant's right to lease
the Offered Space shall terminate, and (ii) Tenant's right of first offer
provided under this Paragraph 3 shall terminate and be of no further effect.
This right of first offer is personal to COHR, INC. and shall automatically
terminate with the expiration or earlier termination of this Lease, or upon the
assignment of this Lease or subletting of all or any portion of the Premises.
In addition, this right of first offer is not assignable separate and apart
from this Lease. If Landlord defaults under this Paragraph 3 after notice to
Landlord as provided for elsewhere in this Lease, Tenant's sole remedy shall be
an action against Landlord for actual damages caused by Landlord's default, and
Tenant shall not have the right to terminate this Lease, offset against rent or
to injunctive relief.
-3-
<PAGE> 1
EXHIBIT 11
COHR INC.
COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
NET INCOME ATTRIBUTABLE TO COMMON STOCK.......................... $2,142 $1,368 $ 946
====== ====== ======
PRIMARY EARNINGS PER SHARE:
Weighted average number of common shares outstanding........... 2,391 2,112 2,112
Dilutive effect of stock options and warrants after application
of treasury stock method.................................... 11
------ ------ ------
Number of shares used to compute primary earnings per share.... 2,402 2,112 2,112
Primary earnings per share....................................... $ 0.89 $ 0.65 $ 0.45
====== ====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 19,314
<SECURITIES> 0
<RECEIVABLES> 13,479
<ALLOWANCES> 835
<INVENTORY> 3,486
<CURRENT-ASSETS> 38,103
<PP&E> 6,853
<DEPRECIATION> 3,135
<TOTAL-ASSETS> 44,472
<CURRENT-LIABILITIES> 14,633
<BONDS> 0
0
0
<COMMON> 869
<OTHER-SE> 28,246
<TOTAL-LIABILITY-AND-EQUITY> 44,472
<SALES> 0
<TOTAL-REVENUES> 66,254
<CGS> 0
<TOTAL-COSTS> 48,195
<OTHER-EXPENSES> 14,559
<LOSS-PROVISION> 205
<INTEREST-EXPENSE> 30
<INCOME-PRETAX> 3,625
<INCOME-TAX> 1,483
<INCOME-CONTINUING> 2,142
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,142
<EPS-PRIMARY> 0.89
<EPS-DILUTED> 0.89
</TABLE>
