-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PVGOAgdxcjAoA+vScUWHJyUReE7IH90MrlIJ1Azp9d2uIvH2s2BWyBVTKAnk16jO sEAWQUMj84kH2Dnv0DosmA== 0000916641-96-000156.txt : 19960315 0000916641-96-000156.hdr.sgml : 19960315 ACCESSION NUMBER: 0000916641-96-000156 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19960313 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: OWENS & MINOR INC/VA/ CENTRAL INDEX KEY: 0000075252 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-MEDICAL, DENTAL & HOSPITAL EQUIPMENT & SUPPLIES [5047] IRS NUMBER: 541701843 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3 SEC ACT: 1933 Act SEC FILE NUMBER: 333-01695 FILM NUMBER: 96534513 BUSINESS ADDRESS: STREET 1: 4800 COX RD CITY: GLEN ALLEN STATE: VA ZIP: 23060 BUSINESS PHONE: 8047479794 MAIL ADDRESS: STREET 1: 4800 COX RD CITY: GLEN ALLEN STATE: VA ZIP: 23060 FORMER COMPANY: FORMER CONFORMED NAME: O&M HOLDING INC DATE OF NAME CHANGE: 19940504 FORMER COMPANY: FORMER CONFORMED NAME: OWENS & MINOR INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: OWENS MINOR & BODEKER INC DATE OF NAME CHANGE: 19811124 S-3 1 OWENS & MINOR FORM S-3 As filed with the Securities and Exchange Commission on March 13, 1996 Registration No. 333- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------------- FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------------------- OWENS & MINOR, INC. (Exact name of registrant as specified in its charter) VIRGINIA 54-1701843 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 4800 Cox Road Glen Allen, Virginia 23060 (804) 747-9794 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) Drew St. J. Carneal 4800 Cox Road Glen Allen, Virginia 23060 (804) 747-9794 (Name, address, including zip code, and telephone number, including area code, of agent for service) Copies to: C. Porter Vaughan, III Gerald S. Tanenbaum Hunton & Williams Cahill Gordon & Reindel Riverfront Plaza - East Tower 80 Pine Street 951 East Byrd Street New York, New York 10005 Richmond, Virginia 23219-4074 (212) 701-3000 (804) 788-8200 Approximate date of commencement of proposed sale to the public: As soon as practicable after the Registration Statement becomes effective. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [ ] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]____________________ If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]____________________ If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE ==================================================================================================================================== Title of each class of Proposed maximum Proposed maximum Amount of securities Amount to offering price aggregate offering registration fee to be registered be registered per unit(1)(2) price(1)(2) - ----------------------------------------------------------------------------------------------------------------------------------- ____% Senior Subordinated $150,000,000 100% $150,000,000 $51,725 Notes due 2006 - ----------------------------------------------------------------------------------------------------------------------------------- Guarantees of _____% Senior Subordinated Notes due 2006 --- --- --- (3) by certain subsidiaries of Owens & Minor, Inc. ====================================================================================================================================
(1) Estimated solely for purposes of calculating the registration fee. (2) Plus accrued interest, if any, from the date of issuance. (3) Pursuant to Rule 457(n) under the Securities Act of 1933, no registration fee for the guarantees is payable. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. CO-REGISTRANTS EXACT NAME OF STATE OR OTHER CO-REGISTRANT AS SPECIFIED JURISDICTION OF INCORPORATION I.R.S. EMPLOYER IN ITS CHARTER OR ORGANIZATION IDENTIFICATION NO. Owens & Minor Medical, Inc. Virginia 54-0327460 National Medical Supply Corporation Delaware 52-1539031 Owens & Minor West, Inc. California 95-2032159 Koley's Medical Supply, Inc. Nebraska 47-0274520 Lyons Physician Supply Company Ohio 34-0369760 A. Kuhlman & Company Michigan 38-1967374 Stuart Medical, Inc. Pennsylvania 25-1088734 PROSPECTUS Subject to Completion Dated March 13, 1996 OWENS & MINOR, INC. $150,000,000 [LOGO] % SENIOR SUBORDINATED NOTES DUE 2006 Interest payable and ISSUE PRICE: % The % Senior Subordinated Notes due 2006 (the "Notes") are being offered (the "Offering") by Owens & Minor, Inc., a Virginia corporation ("O&M" or the "Company"). The Notes mature on , 2006, unless previously redeemed. Interest on the Notes is payable semiannually on and , commencing , 1996. The Notes are not redeemable prior to , 2001, except as set forth below. The Notes will be redeemable at the option of the Company, in whole or in part, at any time on or after , 2001, at the redemption prices set forth herein, together with accrued and unpaid interest to the redemption date. In addition, prior to , 1999, the Company may redeem up to 33 1/3% of the principal amount of the Notes with the cash proceeds received by the Company from one or more sales of capital stock of the Company (other than Disqualified Stock (as defined)) at a redemption price of % of the principal amount thereof, plus accrued and unpaid interest to the redemption date; provided, however, that at least $100 million in aggregate principal amount of the Notes remains outstanding immediately after any such redemption. Upon a Change of Control (as defined), the Company will be required to make an offer to purchase all outstanding Notes at 101% of the principal amount thereof plus accrued and unpaid interest to the purchase date. The Notes will be general unsecured obligations of the Company and will rank subordinate in right of payment to all existing and future Senior Indebtedness (as defined) of the Company. The Notes will be guaranteed on a joint and several basis (the "Guarantees") by substantially all of the subsidiaries of the Company (the "Guarantors"). The Guarantees will be general unsecured obligations of the Guarantors and will rank subordinate in right of payment to all existing and future Guarantor Senior Indebtedness (as defined). The Notes and the Guarantees will rank pari passu in right of payment with any other senior subordinated indebtedness of the Company and the Guarantors, respectively. At December 31, 1995, as adjusted to give effect to the transactions described herein under "Use of Proceeds and Refinancing," the Company would have had approximately $77.8 million of Senior Indebtedness outstanding, all of which is guaranteed by the Guarantors on a senior basis. The Company intends to apply to list the Notes on the New York Stock Exchange. SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. - -------------------------------------------------------------------------------- Price to Underwriting Proceeds to Public(1) Compensation(2) Company(1)(3) - -------------------------------------------------------------------------------- Per Note % % % - -------------------------------------------------------------------------------- Total $ $ $ - -------------------------------------------------------------------------------- (1) Plus accrued interest, if any, from the date of issuance. (2) The Company and the Guarantors jointly and severally have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." (3) Before deducting expenses payable by the Company estimated at $400,000. The Notes are being offered by the Underwriters, subject to prior sale, when, as and if delivered to and accepted by the Underwriters, and subject to approval of certain legal matters by Cahill Gordon & Reindel, counsel for the Underwriters, and certain other conditions. The Underwriters withhold the right to withdraw, cancel or modify such offer and to reject orders in whole or in part. It is expected that delivery of the Notes will be made against payment therefor on or about , 1996 at the offices of J.P. Morgan Securities Inc., 60 Wall Street, New York, New York. J.P. MORGAN & CO. DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION NATIONSBANC CAPITAL MARKETS, INC. WHEAT FIRST BUTCHER SINGER , 1996 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. [Map of Facilities] IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. 2 No person has been authorized to give any information or to make any representation not contained in this Prospectus and, if given or made, such information or representation must not be relied upon as having been authorized by the Company, any Guarantor or any Underwriter. This Prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, the Notes in any jurisdiction to any person to whom it is unlawful to make such offer or solicitation. Neither the delivery of this Prospectus nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Company since the date hereof or that information contained herein is correct as of any time subsequent to its date. TABLE OF CONTENTS PAGE Available Information...................................................... 4 Incorporation of Certain Documents by Reference................................................................. 4 Prospectus Summary......................................................... 5 Risk Factors............................................................... 13 Use of Proceeds and Refinancing............................................ 17 Capitalization............................................................. 18 Selected Consolidated Financial Data....................................... 19 Management's Discussion and Analysis of Financial Condition and Results of Operations............................. 20 Business................................................................... 26 Management................................................................. 37 Description of the Notes................................................... 41 Underwriting............................................................... 67 Legal Matters.............................................................. 68 Experts.................................................................... 68 Index to Consolidated Financial Statements.................................F-1 3 AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Such reports, proxy statements and other information can be inspected and copied at the public reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following Regional Offices of the Commission: 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New York 10048. Copies of such material can be obtained from the Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, such information can be inspected at the offices of the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005. This Prospectus does not contain all of the information set forth in the Registration Statement of which this Prospectus is a part, or any amendments thereto, certain portions of which have been omitted pursuant to the Commission's rules and regulations. The information so omitted may be obtained from the Commission's principal office in Washington, D.C. upon payment of the fees prescribed by the Commission. Any statements contained herein concerning the provisions of any document are not necessarily complete, and in each instance reference is made to the copy of such document filed as an exhibit to the Registration Statement or otherwise filed with the Commission. Each such statement is qualified in its entirety by such reference. The Company's principal executive offices are located at 4800 Cox Road, Glen Allen, Virginia 23060, telephone (804) 747-9794. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The Company's Annual Report on Form 10-K for the year ended December 31, 1995 filed by the Company with the Commission (File No. 1-9810) is incorporated herein by reference. All documents filed by the Company with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and prior to the termination of the offering of the Notes offered hereby shall be deemed to be incorporated by reference into this Prospectus and to be a part hereof. Any statement contained in a document incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document which is incorporated by reference herein modifies or supersedes such earlier statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. The Company will furnish without charge upon request to each person to whom a copy of this Prospectus is delivered a copy of any or all of the documents specifically incorporated herein by reference, other than exhibits to such documents (unless such exhibits are specifically incorporated by reference therein). Requests should be addressed to: Drew St. J. Carneal, Owens & Minor, Inc., P.O. Box 27626, Richmond, Virginia 23261-7626 (telephone 804-747-9794). 4 PROSPECTUS SUMMARY The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial statements appearing elsewhere and incorporated by reference in this Prospectus. Unless the context otherwise requires, references in this Prospectus to "O&M" or the "Company" are to Owens & Minor, Inc., a Virginia corporation, and its consolidated subsidiaries. Capitalized terms used in this summary under the caption "The Offering" and not otherwise defined are defined below under the caption "Description of the Notes -- Certain Definitions." References herein to a particular fiscal year of the Company shall mean the year ended December 31 of the stated year. THE COMPANY O&M is one of the two largest distributors of medical/surgical supplies in the United States. The Company distributes approximately 300,000 finished medical/surgical products produced by approximately 3,000 manufacturers to over 4,000 customers from 49 distribution centers nationwide. The Company's customers are primarily hospitals and also include alternate care facilities such as physicians' offices, clinics, nursing homes and surgery centers. The majority of the Company's sales consists of dressings, endoscopic products, intravenous products, needles and syringes, sterile procedure trays, surgical products and gowns, sutures and urological products. The Company has significantly expanded its national presence over the last five years. This expansion resulted from both internal growth and acquisitions, including the acquisition of Stuart Medical, Inc. ("Stuart") in May 1994. Since 1991, the Company has grown from 27 distribution centers serving 37 states to 49 distribution centers serving 50 states. Over the same period, the Company's net sales increased at a 30.7% compound annual rate, from $1.0 billion in 1991 to $3.0 billion in 1995. Similarly, Adjusted EBITDA (as defined) increased at a 39.7% compound annual rate from $24.5 million in 1991 to $66.8 million in 1994, before decreasing to $41.9 million in 1995. Adjusted EBITDA as a percentage of net sales was 2.8% for each of 1992, 1993 and 1994, but declined to 1.4% in 1995. O&M believes that in 1995 sales of medical/surgical supplies in the United States approximated $30.0 billion and that approximately half of these sales were made through distributors, with the balance having been sold directly by manufacturers. In recent years, the medical/surgical supply distribution industry has grown due to the rising consumption of medical supplies and the increasing reliance by manufacturers and customers on distributors. This increasing reliance is driven by customers seeking to take advantage of cost savings achievable through the use of distributors. In addition, the healthcare industry has been characterized by the consolidation of healthcare providers into larger and more sophisticated entities that are increasingly seeking lower delivered product costs and incremental services through a broad distribution network capable of supplying their inventory management needs. These pressures have in turn driven significant and continuing consolidation within the medical/surgical supply distribution industry. The Company is committed to providing its customers and suppliers with the most responsive, efficient and cost effective distribution system for the delivery of medical/surgical supplies and services. In order to meet this commitment, the Company has implemented the following strategy: (i) maintain market leadership and leverage the benefits of its national distribution capabilities; (ii) continue to be a low-cost provider of distribution services; (iii) increase sales to existing customers and obtain new customers by providing responsive customer service and offering a broad range of inventory management services; and (iv) enhance relationships with major medical/surgical supply manufacturers. The Company's strategy is based upon the following competitive strengths: 5 MARKET LEADER WITH NATIONWIDE DISTRIBUTION CAPABILITIES. The Company believes that its net sales in 1995 of $3.0 billion represented approximately 20% of the medical/surgical supply distribution industry. O&M is one of only three companies capable of distributing a broad line of medical/surgical supplies on a nationwide basis. The Company's size and market position enable it to serve large regional and national healthcare providers that wish to negotiate single contracts with their suppliers, establish close business relationships with and obtain incentives from its suppliers and benefit from economies of scale. The Company intends to achieve ongoing sales growth by increasing penetration of existing customer accounts and obtaining additional customers both in existing and new geographic markets. In addition, the Company believes that further distribution opportunities will arise as healthcare providers and manufacturers increasingly turn to third-party distributors. The Company intends to expand selectively into new markets and to strengthen its operations in established markets by acquiring or opening distribution centers and increasing capacity and sales efforts at existing distribution centers. EFFICIENT, LOW-COST DISTRIBUTOR. The Company believes that the efficient manner in which it distributes products, including the use of advanced warehousing, delivery and purchasing techniques, enables its customers to obtain products at a lower overall inventory carrying cost relative to purchases made directly from manufacturers or through many of the Company's competitors. A key aspect of this low-cost strategy is the Company's significant investment in advanced information technology ("IT") which includes automated warehousing technology and electronic data interchange ("EDI"). The Company's warehousing techniques, including the use of radio-frequency hand-held computers and bar-coded labels that identify location, routing and inventory picking and replacement, allow the Company to monitor inventory throughout its distribution system. The Company's focus on the timely exchange of information with its customers and suppliers has driven the introduction of new services, such as EDI, which expedite communications between the Company, its customers and its manufacturers thereby reducing the costs of such transactions as purchasing, invoicing, funds transfer and contract pricing. The Company continually strives to lower its operating costs in order to maintain its position as a low-cost distributor. Over the past two years, the Company has realigned its distribution operations through the closure or consolidation of 12 distribution centers and the opening or expansion of 22 distribution centers. In addition, current initiatives include reconfiguring warehouse layouts and implementing an improved inventory forecasting system as well as converting from a centralized mainframe computer system to a client/server local area network. The Company believes that this realignment and these initiatives will lower inventory levels, reduce operating costs and provide increased levels of customer service. STRONG CUSTOMER RELATIONSHIPS AND BROAD RANGE OF SERVICES. In 1995, the Company distributed medical/surgical products to over 4,000 customers. The Company focuses primarily on the high volume hospital supply market and, in 1995, sales to hospital customers accounted for approximately 90% of O&M's net sales. O&M believes that as a result of the large number of purchases relating to surgical procedures performed in hospitals, hospitals will continue to be the highest volume users of medical/surgical products. However, the Company recognizes that alternate care providers, such as physicians' offices, clinics, nursing homes and surgery centers, represent an important and growing market for medical/surgical supplies, and the Company will continue to serve this segment. The Company believes its decentralized approach to customer relationships and its broad range of services are significant factors in attracting and retaining customers. The Company's decentralized approach is designed to provide individualized services to customers by giving the local management at each distribution center the discretion to set local operating procedures and to respond to customers' needs quickly and efficiently. Distribution center management has fiscal responsibility for its unit and the financial results of a distribution center directly affect its management's compensation. 6 The Company offers a broad array of services ranging from traditional distribution, such as twice a week delivery of bulk goods, to enhanced inventory management services. Such enhanced inventory management services include asset management consulting services and stockless and just-in-time programs designed to fill order requirements with a high degree of accuracy while optimizing inventory levels. The Company's services enable healthcare providers to reduce inventory carrying costs by efficiently and accurately delivering to them a complete line of medical/surgical products. O&M's customer relationships include those with AmeriNet, Inc. ("AmeriNet"), AmHS/Premier/Sun Health ("Premier"), Brigham & Women's Hospital, Columbia/HCA Healthcare Corporation ("Columbia/HCA"), Johns Hopkins Health System, Massachusetts General Hospital, Ohio State University Hospital, Shands Hospital at The University of Florida, Stanford Health Services, The Hospital of the University of Pennsylvania, University Hospital Consortium Services ("UHC"), University of California, Los Angeles Medical Center ("UCLA"), University of Nebraska Medical Center, University of Texas M.D. Anderson Cancer Center, VHA Inc. ("VHA") and Yale-New Haven Hospital. STRONG, LONG-STANDING MANUFACTURER RELATIONSHIPS. The Company is the only national distributor that does not manufacture or sell products under its own label and believes that this independence has enabled it to develop strong and mutually beneficial relationships with its suppliers. The Company believes that its size, strong, long-standing relationships and independence enable it to obtain attractive terms from manufacturers, including discounts for prompt payment, volume incentives and fees for customer sales information. The Company continues to enhance its relationships with major medical/surgical supply manufacturers by developing closer, more efficient and interactive operational connections, such as EDI for purchasing. In addition, over the past two years, the Company has implemented its continuous inventory replenishment process ("CRP") with most of its major manufacturers. This process, which utilizes computer-to-computer interfaces, allows manufacturers to monitor daily sales and inventory levels so that they can automatically and accurately replenish the Company's inventory. In recent years, a significant increase in the number of stock keeping units ("SKUs") has greatly increased the inventory requirements of both distributors and healthcare providers. In response, the Company has recently implemented a joint marketing program with certain major manufacturers, known as FOCUS(SM). FOCUS(SM) will assist the Company's major manufacturers and customers in limiting the number of SKUs carried by standardizing products within their systems, thereby reducing the number of comparable inventory items carried and the related cost. The Company has relationships with virtually all major manufacturers of medical/surgical supplies and has long-standing relationships with manufacturers such as C.R. Bard, Inc., Becton Dickinson and Company ("Becton Dickinson"), Johnson & Johnson Hospital Services, Inc. ("Johnson & Johnson"), Kendall Healthcare Products ("Kendall"), Kimberly Clark Professional Health Care ("Kimberly Clark") and 3M Health Care ("3M"). O&M is the largest distributor of each of these manufacturers' medical/surgical products. RECENT PERFORMANCE In May 1994, the Company acquired Stuart (the "Stuart Acquisition"), then the third largest distributor of medical/surgical supplies in the United States, with 1993 net sales of $890.5 million. In addition to expanding its customer base, the Stuart Acquisition significantly enhanced the Company's distribution capabilities in the Northeastern and Midwestern regions of the United States, thus strengthening the Company's national distribution capabilities. In conjunction with the Stuart Acquisition, the Company implemented a restructuring plan designed to eliminate duplicate costs and increase efficiencies within the combined company. During 1994 and 1995, 7 the Company incurred $42.8 million of nonrecurring restructuring expenses in connection with this restructuring plan. These expenses were comprised primarily of costs associated with eliminating, consolidating, relocating or expanding 12 distribution centers (which were specifically associated with the Stuart Acquisition), eliminating Stuart's headquarters operations, redesigning and implementing processes to adopt the best practices and systems of O&M and Stuart within the combined company and outsourcing the operation of the Company's mainframe computer system. The implementation of this restructuring plan was completed during the fourth quarter of 1995. During 1995, the Company experienced a decline in profitability due to a decrease in the gross margin percentage and an increase in selling, general and administrative ("SG&A") expenses as a percentage of net sales. Gross margin as a percentage of net sales declined to 9.0% in 1995 from 9.7% in 1994. This decline in the gross margin percentage was primarily attributable to increased sales to larger accounts that were offered reduced pricing in return for the expectation of increased volume. To mitigate the decline in the gross margin percentage, the Company implemented price increases in December 1995 and January 1996 that included both direct price increases as well as the introduction of charges for certain enhanced delivery and management services that were previously provided to certain customers at no additional cost. These increases were implemented with the goal of achieving an overall increase in the gross margin percentage equal to at least one percent of net sales. Virtually all of the national healthcare network organizations ("Networks") and group purchasing organizations ("GPOs") representing the majority of the Company's customers have agreed to the new price levels. The Company believes that sales growth from new accounts and penetration of existing accounts will more than offset any business lost as a result of the price increases, but such growth cannot be assured. SG&A expenses as a percentage of net sales increased to 7.6% in 1995 from 6.9% in 1994. This increase in SG&A expenses as a percentage of net sales was primarily a result of increased personnel costs incurred in connection with new contracts providing for enhanced service levels and services not previously provided by the Company, a significant increase in the number of SKUs distributed by the Company, system conversions, opening or expanding 11 distribution centers and reconfiguring warehouse systems. In an effort to reduce SG&A expenses, O&M is reducing overtime and temporary employee costs, further reducing distribution center costs (including through the closure of two and the downsizing of five distribution centers, which resulted in $3.5 million of the Company's nonrecurring restructuring charges in the fourth quarter of 1995) and improving inventory management systems. THE REFINANCING Concurrently with the completion of the Offering, the Company will enter into a $225.0 million revolving credit facility (the "New Senior Credit Facility") with a group of commercial banks and will use borrowings under the New Senior Credit Facility, together with the net proceeds from the Offering, to repay in full outstanding indebtedness under its existing $425.0 million revolving credit facility (the "Senior Credit Facility"). Pursuant to securitization agreements entered into on December 28, 1995 (the "Receivables Financing Facility"), a subsidiary of the Company is entitled to transfer, without recourse, certain of the Company's trade receivables and to receive up to $75.0 million from such transfer for consideration that reflects a cost of funds at commercial paper rates plus a charge for administrative and credit support services. As of December 31, 1995, the Company had received $59.3 million under the Receivables Financing Facility, the proceeds of which were used to reduce amounts outstanding under the Senior Credit Facility. Following the completion of the Offering, the Receivables Financing Facility is expected to be increased to a maximum of $150.0 million. Proceeds of the Receivables Financing Facility, as so increased, will be applied to reduce amounts outstanding under the New Senior Credit Facility. The Offering, the New Senior Credit Facility and the Receivables Financing Facility are collectively referred to as the "Refinancing." 8 THE OFFERING Securities Offered............. $150.0 million aggregate principal amount of % Senior Subordinated Notes due 2006. Maturity Date.................. , 2006. Interest Payment Dates......... and , commencing , 1996. Optional Redemption by the Company..................... The Notes are not redeemable prior to , 2001, except as set forth below. The Notes will be redeemable at the option of the Company, in whole or in part, at any time on or after , 2001, at the redemption prices set forth herein, together with accrued and unpaid interest to the redemption date. In addition, prior to , 1999, the Company may redeem up to 33 1/3% of the principal amount of the Notes with the cash proceeds received by the Company from one or more sales of capital stock of the Company (other than Disqualified Stock) at a redemption price of % of the principal amount thereof, plus accrued and unpaid interest to the redemption date; provided, however, that at least $100.0 million in aggregate principal amount of the Notes remains outstanding immediately after any such redemption. Mandatory Redemption by the Company..................... None. Ranking........................ The Notes will be general unsecured obligations of the Company and will rank subordinate in right of payment to all existing and future Senior Indebtedness of the Company, including indebtedness under the New Senior Credit Facility. The Notes will rank pari passu in right of payment with any other senior subordinated indebtedness of the Company. Guarantees..................... The Notes will be guaranteed on a joint and several basis by substantially all of the subsidiaries of the Company. The Guarantees will be general unsecured obligations of the Guarantors and will rank subordinate in right of payment to all existing and future Guarantor Senior Indebtedness, including the Guarantors' guarantees of the Company's indebtedness under the New Senior Credit Facility. The Guarantees will rank pari passu in right of payment with any other senior subordinated indebtedness of the Guarantors. Change of Control Offer........ Upon a Change of Control, the Company will be required to make an offer to purchase all outstanding Notes at 9 101% of the principal amount thereof plus accrued and unpaid interest to the purchase date. The New Senior Credit Facility will prohibit the purchase of outstanding Notes prior to payment of the borrowings under the New Senior Credit Facility. There can be no assurance that upon a Change of Control the Company will have sufficient funds to repurchase any of the Notes. Certain Covenants.............. The Indenture will contain certain covenants that, among other things, limit the ability of the Company or any of its Subsidiaries to incur additional Indebtedness, make certain Restricted Payments and Investments, create Liens, permit dividend or other payment restrictions to apply to Subsidiaries, enter into certain transactions with Affiliates or Related Persons, incur certain senior subordinated indebtedness or consummate certain merger, consolidation or similar transactions. In addition, in certain circumstances, the Company will be required to offer to purchase Notes at 100% of the principal amount thereof with the net proceeds of certain asset sales. These covenants are subject to a number of significant exceptions and qualifications. See "Description of the Notes." 10 SUMMARY CONSOLIDATED FINANCIAL DATA The following table presents summary consolidated financial data as of and for each of the five years in the period ended December 31, 1995. Such financial data were derived from the Company's audited consolidated financial statements. To conform to the 1995 presentation, certain amounts in prior years' financial data have been reclassified. The data should be read in conjunction with "Capitalization," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's consolidated financial statements and the notes thereto appearing elsewhere and incorporated by reference herein.
------------------------------------------------------------------------ Year Ended December 31,(1) 1995 1994 1993 1992 1991 ------------ ------------ ------------ ------------ ----------- In thousands, except ratios Statements of Operations Data: (Continuing Operations) Net sales $2,976,486 $2,395,803 $1,396,971 $1,177,298 $1,021,014 Cost of sales 2,708,668 2,163,459 1,249,660 1,052,998 918,304 ----------- ---------- ---------- ---------- ---------- Gross margin 267,818 232,344 147,311 124,300 102,710 Selling, general and administrative expenses 225,897 165,564 107,771 91,371 78,191 Depreciation and amortization 15,416 13,034 7,593 5,861 4,977 Interest expense, net(2) 25,538 10,155 1,530 1,128 3,192 Discount on accounts receivable securitization 641 - - - - Nonrecurring restructuring expenses(3) 16,734 29,594 - - - --------- ---------- ----------- ----------- ----------- Income (loss) from continuing operations before income taxes (16,408) 13,997 30,417 25,940 16,350 Income tax provision (benefit) (5,100) 6,078 11,900 10,505 6,681 ----------- ----------- ---------- ---------- ----------- Income (loss) from continuing operations $ (11,308) $ 7,919 $18,517 $15,435 $ 9,669 ========== ========== ========= ========= ========== Balance Sheet Data (end of period): Working capital $ 331,663 $281,788 $139,091 $99,826 $122,675 Total assets 857,803 868,560 334,322 274,540 311,786 Long-term debt 323,308 248,427 50,768 24,986 67,675 Shareholders' equity 235,271 256,176 136,943 116,659 97,091 Other Data: Adjusted EBITDA(4) $ 41,921 $66,780 $39,540 $32,929 $24,519 Capital expenditures 21,272 8,220 9,741 7,549 6,254 Ratio of Adjusted EBITDA to interest expense, net, and discount on accounts receivable securitization(4) 1.60 6.58 25.84 29.19 7.68 Ratio of Adjusted EBITDA minus capital expenditures to interest expense, net, and discount on accounts receivable securitization(4) 0.79 5.77 19.48 22.50 5.72 Ratio of earnings to fixed charges(5) - 1.81 6.23 6.29 3.45
Footnotes on following page. 11 - -------------------- (1) See Note 2 of Notes to Consolidated Financial Statements for a discussion of acquisitions and divestitures that may affect comparability of data. (2) Interest expense, net, consists of interest expense net of finance charges received from customers of $3.8 million, $2.0 million, $1.4 million, $1.3 million and $1.1 million for 1995, 1994, 1993, 1992 and 1991, respectively. (3) In 1995 and 1994, the Company incurred $16.7 million and $29.6 million, respectively, of nonrecurring restructuring expenses related to its restructuring plan developed in conjunction with the Stuart Acquisition and the decision to close or downsize certain facilities in 1996. See Note 3 of Notes to Consolidated Financial Statements. (4) Adjusted EBITDA represents income from continuing operations before income taxes, nonrecurring restructuring expenses, discount on accounts receivable securitization, interest expense, net, and depreciation and amortization. The Company has included Adjusted EBITDA to provide additional information related to the Company's ability to service debt. Adjusted EBITDA should not be considered as an alternative measure of the Company's net income, operating performance, cash flow or liquidity. Adjusted EBITDA minus capital expenditures was inadequate to cover interest expense, net, and discount on accounts receivable securitization by $5.5 million in 1995. After giving effect to the Refinancing (excluding $452,500 of amortization of deferred debt issuance costs), for 1995 the pro forma ratio of Adjusted EBITDA to interest expense, net, and discount on accounts receivable securitization would have been 1.5 to 1.0 and, on a pro forma basis, Adjusted EBITDA minus capital expenditures would have been inadequate to cover interest expense, net, and discount on accounts receivable securitization by $8.2 million. (5) For purposes of computing this ratio, earnings consist of income (loss) from continuing operations before income taxes and fixed charges. Fixed charges consist of interest expense, discount on accounts receivable securitization, amortization of debt issuance costs and one-third of rental expense (the portion considered representative of the interest factor). Earnings were inadequate to cover fixed charges by $16.4 million in 1995. After giving effect to the Offering and the application of the net proceeds therefrom to reduce outstanding indebtedness under the Senior Credit Facility (but not the other aspects of the Refinancing), earnings would have been inadequate to cover fixed charges by $21.0 million in 1995. 12 RISK FACTORS Prospective investors should consider carefully all the information contained and incorporated by reference in this Prospectus, including the following risk factors. ABSENCE OF PROFITABLE OPERATIONS IN RECENT PERIODS While the Company historically has been profitable, in the six months ended December 31, 1995, the Company sustained a pre-tax loss of $27.1 million and a net loss of $17.6 million (prior to payment of the dividend on the Company's outstanding preferred stock). The Company attributes these losses to declining gross margins and increasing SG&A expenses. While the Company has implemented certain measures to improve its operating performance, there can be no assurance that these measures will be successful. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." SUBSTANTIAL LEVERAGE The Company has had and after the consummation of the Refinancing will continue to have substantial indebtedness. As of December 31, 1995, after giving effect to the Refinancing, the Company's total indebtedness would have been $241.9 million. As of such date, the Company's shareholders' equity was $235.3 million, resulting in a pro forma total debt-to-total capitalization ratio of 50.7%. The Indenture will limit but not restrict the ability of the Company and its subsidiaries to incur additional indebtedness. See "Description of the Notes." The level of the Company's indebtedness could have important consequences to holders of the Notes, including: (i) the Company's ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, debt service requirements, general corporate purposes or other purposes may be restricted or limited; (ii) a substantial portion of the Company's cash flow from operations must be dedicated to the payment of the Company's interest expense; (iii) the Company is more highly leveraged than certain of its competitors, which may place the Company at a competitive disadvantage; and (iv) the Company's borrowings under the New Senior Credit Facility will accrue interest at a variable rate and charges under the Receivables Financing Facility reflect a variable rate, which, to the extent the Company has not entered into interest rate swap and cap agreements, could result in increased expense in the event of higher prevailing interest rates. The Company's ability to make interest payments on the Notes will be dependent on the Company's future operating performance, which itself is dependent on a number of factors, many of which are beyond the Company's control. The Company's ability to repay the Notes at maturity will depend upon these same factors and the ability of the Company to raise additional funds. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Financial Condition, Liquidity and Capital Resources." DEPENDENCE ON SALES TO CERTAIN CUSTOMERS For 1995, sales to member hospitals of VHA, a Network, represented approximately 39.6% of the Company's net sales. During such year, Columbia/HCA, the largest investor-owned healthcare organization in the United States, and member hospitals of AmeriNet, a GPO, accounted for approximately 8.4% and 5.6%, respectively, of the Company's net sales. No other Network, GPO or individual customer accounted for as much as 5% of the Company's net sales during such year. Although the termination of the Company's relationship with VHA or AmeriNet would not necessarily result in the loss of all of the member hospitals of such Network or GPO as customers, such termination or the loss of Columbia/HCA as a customer could adversely affect the Company's results of operations. See "Business -- Customers." 13 COMPETITION The medical/surgical supply distribution industry in the United States is highly competitive and consists of (i) three major, nationwide distributors, the Company, Baxter International Inc. ("Baxter") and General Medical Corporation ("General Medical"), (ii) a few smaller, nationwide distributors and (iii) a number of regional and local distributors. The Company is one of the two largest distributors of medical/surgical supplies in the United States. Competition within the medical/surgical supply distribution industry exists with respect to total delivered product cost, product availability and the ability to fill orders accurately, delivery time, efficient computer communication capabilities, services provided, breadth of product line and the ability to meet special requirements of customers. Further consolidation of medical/surgical supply distributors is expected to continue through the purchase of smaller distributors by larger companies as a result of competitive pressures in the marketplace. Increased competition from these and future competitors, including those having greater financial and other resources than the Company, could reduce sales and prices, adversely affecting the Company's results of operations. See "Business -- Industry Overview" and "Business -- Competition." HEALTHCARE REFORM In recent years, there have been a number of government initiatives to reduce healthcare costs. Congress and various state legislatures have proposed changes in law and regulation that could effect major restructuring of the healthcare industry. Changes in governmental support of healthcare services, the methods by which such services are delivered, the prices for such services or other legislation or regulations governing such services or mandated benefits may have a material adverse effect on the Company's results of operations. See "Business - - Regulation." HOLDING COMPANY STRUCTURE The Company conducts business through its direct subsidiaries, Owens & Minor Medical, Inc. ("O&M Medical") and Stuart and its indirect subsidiaries and has no operations of its own. The Company will be dependent on the cash flow from its subsidiaries in order to meet its debt service obligations, including its obligations under the Notes. As a result of the holding company structure of the Company, the holders of the Notes will effectively rank junior to all creditors of each subsidiary of the Company that is not a Guarantor or as to which its Guarantee is not enforceable with respect to the assets of such subsidiaries. In the event of the dissolution, bankruptcy, liquidation or reorganization of any such subsidiary, the holders of the Notes will not receive any amounts in respect of the Notes until after the payment in full of the claims of the creditors of such subsidiary, including trade creditors. RESTRICTIVE COVENANTS IN THE NEW SENIOR CREDIT FACILITY The New Senior Credit Facility will contain material restrictions on the operation of the Company's business, including covenants restricting or limiting, among other things, the ability of the Company and certain subsidiaries to incur indebtedness; create liens on their property; guarantee obligations; alter the character of their business; consolidate, merge or purchase or sell assets; make investments or advance funds; prepay indebtedness; and transact business with affiliates. The New Senior Credit Facility also will contain certain financial covenants, including covenants relating to tangible net worth, cash flow coverage, current ratio, leverage ratio and fixed charges coverage ratio, as well as customary events of default. A breach of one or more covenants under such facility could result in the inability of the Company to borrow additional amounts under the New Senior Credit Facility and possibly an acceleration of the Company's obligations thereunder. In addition, a default under the Notes will constitute a default under the New Senior Credit Facility. During 1995 and early 1996, the Company sought and obtained waivers of violations of, and amendments to, certain financial covenants contained in the instruments relating to the 14 Senior Credit Facility. Prior to the Company's obtaining waivers, such non-compliance also could have prevented further use by the Company of the Receivables Financing Facility and certain interest rate swap and cap agreements entered into by the Company with respect to borrowings under the Senior Credit Facility. There can be no assurance that in the future the Company will not be required to seek waivers of non-compliance or amendments to the New Senior Credit Facility or other credit agreements in effect from time to time, or, if it is required to do so, that it will be able to obtain such waivers. See "Use of Proceeds and Refinancing." SUBORDINATION OF THE NOTES; ASSET ENCUMBRANCES The payment of principal of, premium, if any, and interest on the Notes will be subordinated, to the extent set forth in the Indenture, to the prior payment in full of all existing and future Senior Indebtedness of the Company, which includes the indebtedness under the New Senior Credit Facility, and all payments under the Guarantees will be subordinated, to the extent set forth in the Indenture, to the prior payment in full of all existing and future Guarantor Senior Indebtedness, which will include the Guarantors' guarantee of the indebtedness under the New Senior Credit Facility. Therefore, in the event of the liquidation, dissolution, reorganization or any similar proceeding regarding the Company, the assets of the Company will be available to pay obligations on the Notes only after Senior Indebtedness of the Company has been paid in full, and there may not be sufficient assets to pay amounts due on all or any of the Notes. In addition, the Company may not pay principal of, premium, if any, or interest on or any other amounts owing in respect of the Notes, make any deposit pursuant to defeasance provisions or purchase, redeem or otherwise retire the Notes if any Senior Indebtedness is not paid when due or any other default on Senior Indebtedness occurs and the maturity of such indebtedness is accelerated in accordance with its terms, unless such default has been cured or waived, any such acceleration has been rescinded or such indebtedness has been repaid in full. Moreover, under certain circumstances, if any non-payment default exists with respect to certain Senior Indebtedness, the Company may not make any payments on the Notes for a specified period of time, unless such default is cured or waived or such indebtedness has been repaid in full. Similar provisions apply in the case of the Guarantees. See "Description of the Notes -- Subordination." As of December 31, 1995, after giving effect to the Refinancing, the aggregate amount of Senior Indebtedness of the Company would have been approximately $77.8 million, and the Company would have had, subject to certain restrictions, the ability to draw up to an additional $147.2 million of Senior Indebtedness under the New Senior Credit Facility. The Notes will not be secured by any of the Company's assets. Under the Indenture, subject to certain limitations, the Company is permitted to incur additional Senior Indebtedness that may be secured by assets of the Company. If the Company becomes insolvent or is liquidated, or if payment under any secured indebtedness is accelerated, the lenders under any secured Senior Indebtedness would be entitled to exercise the remedies available to a secured lender under applicable law and pursuant to instruments governing such indebtedness. Accordingly, such lenders would have a prior claim on such of the Company's assets. In any event, because the Notes will not be secured by any of the Company's assets, it is possible that there would be no assets remaining from which claims of the holders of the Notes could be satisfied or, if any such assets remained, such assets might be insufficient to satisfy such claims fully. See "Capitalization," "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Financial Condition, Liquidity and Capital Resources," "Description of the Notes -- Subordination" and Notes to Consolidated Financial Statements. FRAUDULENT CONVEYANCE CONSIDERATIONS Each Guarantor's Guarantee of the obligations of the Company under the Notes may be subject to review under relevant federal and state fraudulent conveyance statutes in a bankruptcy, reorganization or rehabilitation case or similar proceeding or a lawsuit by or on behalf of unpaid creditors of such Guarantor. If a court were to find under relevant fraudulent conveyance statutes that, at the time the Notes were issued, (a) a Guarantor guaranteed the Notes with the intent of hindering, delaying or defrauding current or future 15 creditors or (b)(i) a Guarantor received less than reasonably equivalent value or fair consideration for guaranteeing the Notes and (ii)(A) was insolvent or was rendered insolvent by reason of such Guarantee, (B) was engaged, or about to engage, in a business or transaction for which its assets constituted unreasonably small capital or (C) intended to incur, or believed that it would incur, obligations beyond its ability to pay as such obligations matured (as all of the foregoing terms are defined in or interpreted under such fraudulent conveyance statutes), such court could avoid or subordinate such Guarantee to presently existing and future indebtedness of such Guarantor and take other action detrimental to the holders of the Notes, including, under certain circumstances, invalidating such Guarantee. See "Description of the Notes -- The Guarantees." To the extent any Guarantee was avoided as a fraudulent conveyance, limited as described above or held unenforceable for any other reason, holders of the Notes would, to such extent, cease to have a claim in respect of such Guarantee and, to such extent, would be creditors solely of the Company and any Guarantor whose Guarantee was not avoided, limited or held unenforceable. In such event, the claims of the holders of the Notes against the issuer of an avoided, limited or unenforceable Guarantee would be subject to the prior payment of all liabilities of such Guarantor. There can be no assurance that, after providing for all prior claims, there would be sufficient assets to satisfy the claims of the holders of Notes. NO MARKET FOR THE NOTES Although the Company intends to apply to list the Notes on the New York Stock Exchange, the Notes are a new issue of securities, have no established trading market and may not be widely distributed. Although the Underwriters have informed the Company that they currently intend to make a market in the Notes, they are not obligated to do so, and any such market making may be discontinued at any time without notice. Accordingly, there can be no assurance as to the development or liquidity of any market for the Notes. See "Underwriting." 16 USE OF PROCEEDS AND REFINANCING The net proceeds to the Company from the sale of the Notes offered hereby (after deducting underwriting discounts and commissions and other expenses of the Offering) are expected to be approximately $145.5 million. Such net proceeds will be used to repay a portion of the Company's outstanding indebtedness under the Senior Credit Facility. As of December 31, 1995, borrowings under the Senior Credit Facility totaled approximately $313.3 million and are expected to be approximately $340.0 million at the time of completion of the Offering. The Senior Credit Facility expires in April 1999. Borrowings under the Senior Credit Facility bear a floating rate of interest based on the prime rate of NationsBank, N.A. or the London Interbank Offering Rate ("LIBOR"). As of December 31, 1995, giving effect to the interest rate swap and cap agreements entered into by the Company, the effective interest rate for the Senior Credit Facility was 7.4%. Concurrently with the completion of the Offering, the Company will enter into the New Senior Credit Facility with a group of commercial banks and will use borrowings under the New Senior Credit Facility, together with the net proceeds of the Offering, to repay in full outstanding indebtedness under the Senior Credit Facility. Borrowings under the New Senior Credit Facility will be general unsecured obligations of the Company, will rank senior in right of payment to the Notes and will be guaranteed by the Guarantors, which guarantees will be general unsecured obligations of the Guarantors and will rank senior in right of payment to the Guarantees. The New Senior Credit Facility will be a five-year facility. Borrowings under the New Senior Credit Facility will bear a floating rate of interest based on the prime rate of NationsBank, N.A. or LIBOR, which rate would have been 7.9% as of December 31, 1995, giving effect to the interest rate swap and cap agreements referred to above and the Refinancing. The New Senior Credit Facility will contain customary events of default, including default upon a change of control of the Company. It also will contain covenants limiting, among other things, the ability of the Company and certain subsidiaries to incur indebtedness; create liens on their property; guarantee obligations; alter the character of their business; consolidate, merge or purchase or sell assets; make investments or advance funds; prepay indebtedness; and transact business with affiliates. The New Senior Credit Facility also will contain certain financial covenants, including covenants relating to tangible net worth, cash flow coverage, current ratio, leverage ratio and fixed charges coverage ratio. Under the Receivables Financing Facility, a special-purpose subsidiary of the Company is entitled, through December 1996, to transfer certain of the Company's trade receivables and receive up to $75.0 million from such transfer for consideration that reflects a cost of funds at commercial paper rates plus a charge for administrative and credit support services. As of December 31, 1995, the Company had received $59.3 million under the Receivables Financing Facility, the proceeds of which were used to reduce amounts outstanding under the Senior Credit Facility. Draws under the Receivables Financing Facility result in the absolute transfer, without recourse, of the trade receivables to an unaffiliated entity. Following the completion of the Offering, the Receivables Financing Facility is expected to be increased to a maximum of $150.0 million, with the additional $75.0 million being available through March 1999. Proceeds of the Receivables Financing Facility, as so increased, will be applied to reduce amounts outstanding under the New Senior Credit Facility. The Company intends to seek extensions of the Receivables Financing Facility subsequent to December 1996 and March 1999. In the event funds are not available under the Receivables Financing Facility, it would be necessary for the Company to secure alternative financing from other sources and there can be no assurances as to availability of alternative financing at such time. 17 CAPITALIZATION The following table sets forth the consolidated capitalization of the Company at December 31, 1995, and as adjusted to give effect to the application of the net proceeds from the Offering together with borrowings under the New Senior Credit Facility to repay outstanding indebtedness under the Senior Credit Facility and to the application of additional proceeds from the Receivables Financing Facility to reduce amounts outstanding under the New Senior Credit Facility. See "Use of Proceeds and Refinancing." ------------------------- AS OF DECEMBER 31, 1995 In thousands, except per share amounts ACTUAL AS ADJUSTED(1) SHORT-TERM INDEBTEDNESS: Current maturities of long-term indebtedness $ 4,055 $ 4,055 ---------- ---------- LONG-TERM INDEBTEDNESS, LESS CURRENT MATURITIES: Notes payable to banks (Senior Credit Facility and New Senior Credit Facility) 313,300 77,825 % Senior Subordinated Notes due 2006 -- 150,000 0% Subordinated Note 10,008 10,008 ---------- ---------- Total long-term indebtedness 323,308 237,833 ---------- ---------- Total indebtedness 327,363 241,888 ---------- ---------- SHAREHOLDERS' EQUITY: Preferred Stock, par value $100 per share; authorized - 10,000 shares Series A; Participating Cumulative Preferred Stock; none issued -- -- Series B; Cumulative Preferred Stock; 4.5%, convertible; issued and outstanding 1,150 shares 115,000 115,000 Common Stock, par value $2 per share; authorized - 200,000 shares; issued and outstanding - 30,862 shares 61,724 61,724 Paid-in capital 2,144 2,144 Retained earnings 56,403 56,403 ---------- ---------- Total shareholders' equity 235,271 235,271 ---------- ---------- Total capitalization $562,634 $477,159 ========== ========== - ----------------- (1) The Receivables Financing Facility is not reflected on the balance sheet as indebtedness because the Company transfers, without recourse, the trade receivables. As of December 31, 1995, the Company had received $59.3 million under the Receivables Financing Facility, the proceeds of which were used to reduce amounts outstanding under the Senior Credit Facility. 18 SELECTED CONSOLIDATED FINANCIAL DATA The following table presents summary consolidated financial data as of and for each of the five years in the period ended December 31, 1995. Such financial data were derived from the Company's audited consolidated financial statements. To conform to the 1995 presentation, certain amounts in prior years' financial data have been reclassified. The data should be read in conjunction with "Capitalization," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's consolidated financial statements and the notes thereto appearing elsewhere and incorporated by reference herein.
------------------------------------------------------------------------------- Year Ended December 31,(1) 1995 1994 1993 1992 1991 ------------ ------------ ------------ ------------ ------------ In thousands, except ratios Statements of Operations Data: Net sales $2,976,486 $2,395,803 $1,396,971 $1,177,298 $1,021,014 Cost of sales 2,708,668 2,163,459 1,249,660 1,052,998 918,304 ----------- --------- --------- --------- --------- Gross margin 267,818 232,344 147,311 124,300 102,710 Selling, general and administrative expenses 225,897 165,564 107,771 91,371 78,191 Depreciation and amortization 15,416 13,034 7,593 5,861 4,977 Interest expense, net(2) 25,538 10,155 1,530 1,128 3,192 Discount on accounts receivable securitization 641 -- -- -- -- Nonrecurring restructuring expenses(3) 16,734 29,594 -- -- -- ------------ ---------- ----------- ------------ ---------- Total expenses 284,226 218,347 116,894 98,360 86,360 ------------ --------- --------- --------- -------- Income (loss) before income taxes (16,408) 13,997 30,417 25,940 16,350 Income tax provision (benefit) (5,100) 6,078 11,900 10,505 6,681 ------------ ---------- ---------- ---------- ---------- Income (loss) from continuing operations (11,308) 7,919 18,517 15,435 9,669 Discontinued operations -- -- 911 5,687 2,358 Cumulative effect of change in accounting principles -- -- 706 (730) -- ---------- ---------- ----------- ---------- Net income (loss) (11,308) 7,919 20,134 20,392 12,027 Dividends on preferred stock 5,175 3,309 -- -- -- ----------- ---------- ---------- ------------- ---------- Net income (loss) attributable to common stock $(16,483) $ 4,610 $ 20,134 $ 20,392 $ 12,027 ============ ========== ========== ========== ========= Balance Sheet Data (end of period): Working capital $ 331,663 $ 281,788 $ 139,091 $ 99,826 $ 122,675 Total assets 857,803 868,560 334,322 274,540 311,786 Long-term debt 323,308 248,427 50,768 24,986 67,675 Shareholders' equity 235,271 256,176 136,943 116,659 97,091 Other Data: Adjusted EBITDA(4) $ 41,921 $ 66,780 $ 39,540 $ 32,929 $ 24,519 Capital expenditures 21,272 8,220 9,741 7,549 6,254 Ratio of Adjusted EBITDA to interest expense, net, and discount on accounts receivable securitization(4) 1.60 6.58 25.84 29.19 7.68 Ratio of Adjusted EBITDA minus capital expenditures to interest expense, net, and discount on accounts receivable securitization(4) 0.79 5.77 19.48 22.50 5.72 Ratio of earnings to fixed charges(5) - 1.81 6.23 6.29 3.45
(1) See Note 2 of Notes to Consolidated Financial Statements for a discussion of acquisitions and divestitures that may affect comparability of data. (2) Interest expense, net, consists of interest expense net of finance charges received from customers of $3.8 million, $2.0 million, $1.4 million, $1.3 million and $1.1 million for 1995, 1994, 1993, 1992 and 1991, respectively. (3) In 1995 and 1994, the Company incurred $16.7 million and $29.6 million, respectively, of nonrecurring restructuring expenses related to its restructuring plan developed in conjunction with the Stuart Acquisition and the decision to close or downsize certain facilities in 1996. See Note 3 of Notes to Consolidated Financial Statements. (4) Adjusted EBITDA represents income from continuing operations before income taxes, nonrecurring restructuring expenses, discounts on accounts receivable securitization, interest expense, net, and depreciation and amortization. The Company has included Adjusted EBITDA to provide additional information related to the Company's ability to service debt. Adjusted EBITDA should not be considered as an alternative measure of the Company's net income, operating performance, cash flow or liquidity. Adjusted EBITDA minus capital expenditures was inadequate to cover interest expense, net, and discount on accounts receivable securitization by $5.5 million in 1995. After giving effect to the Refinancing (excluding $452,500 of amortization of deferred debt issuance costs), for 1995 the pro forma ratio of Adjusted EBITDA to interest expense, net, and discount on accounts receivable securitization would have been 1.5 to 1.0 and, on a pro forma basis, Adjusted EBITDA minus capital expenditures would have been inadequate to cover interest expense, net, and discount on accounts receivable securitization by $8.2 million in 1995. (5) For purposes of computing this ratio, earnings consist of income (loss) from continuing operations before income taxes and fixed charges. Fixed charges consist of interest expense, discount on accounts receivable securitization, amortization of debt issuance costs and one-third of rental expense (the portion considered representative of the interest factor). Earnings were inadequate to cover fixed charges by $16.4 million in 1995. After giving effect to the Offering and the application of the net proceeds therefrom to reduce outstanding indebtedness under the Senior Credit Facility (but not the other aspects of the Refinancing), earnings would have been inadequate to cover fixed charges by $21.0 million in 1995. 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL O&M is one of the two largest distributors of medical/surgical supplies in the United States. The Company distributes approximately 300,000 finished medical/surgical products produced by approximately 3,000 manufacturers to over 4,000 customers from 49 distribution centers nationwide. The Company's customers are primarily hospitals and also include alternate care facilities such as physicians' offices, clinics, nursing homes and surgery centers. The majority of the Company's sales consists of dressings, endoscopic products, intravenous products, needles and syringes, sterile procedure trays, surgical products and gowns, sutures and urological products. In May 1994, the Company acquired Stuart, then the third largest distributor of medical/surgical supplies in the United States, with 1993 net sales of $890.5 million. In addition to expanding its customer base, the Stuart Acquisition significantly enhanced the Company's distribution capabilities in the Northeastern and Midwestern regions of the United States, thus strengthening the Company's national distribution capabilities. In conjunction with the Stuart Acquisition, the Company implemented a restructuring plan designed to eliminate duplicate costs and increase efficiencies within the combined company. During 1994 and 1995, the Company incurred approximately $42.8 million of nonrecurring restructuring expenses in connection with this restructuring plan. These expenses were comprised primarily of costs associated with eliminating, consolidating, relocating or expanding 12 distribution centers (which were specifically associated with the Stuart Acquisition), eliminating Stuart's headquarters operations, redesigning and implementing processes to adopt the best practices and systems of O&M and Stuart within the combined company and outsourcing the operation of the Company's mainframe computer system. The implementation of the restructuring plan was completed during the fourth quarter of 1995. During 1995, the Company experienced a decline in profitability due to a decrease in the gross margin percentage and an increase in SG&A expenses as a percentage of net sales. The decline in the gross margin percentage was primarily attributable to increased sales to larger accounts that were offered reduced pricing in return for the expectation of increased volume. To mitigate the decline in the gross margin percentage, the Company implemented price increases in December 1995 and January 1996 that included both direct price increases as well as the introduction of charges for certain enhanced delivery and management services that were previously provided to certain customers at no additional cost. These increases were implemented with the goal of achieving an overall increase in the gross margin percentage equal to at least one percent of net sales. Virtually all of the Networks and GPOs representing the majority of the Company's customers have agreed to the new price levels. The Company believes that sales growth from new accounts and penetration of existing accounts will more than offset any business lost as a result of the price increases, but such growth cannot be assured. The increase in SG&A expenses as a percentage of net sales was primarily a result of increased personnel costs incurred in connection with new contracts providing for enhanced service levels and services not previously provided by the Company, a significant increase in the number of SKUs distributed by the Company, system conversions, opening or expanding 11 distribution centers and reconfiguring warehouse systems. In an effort to reduce SG&A expenses, O&M is reducing overtime and temporary employee costs, further reducing distribution center costs (including through the closure of two and the downsizing of five distribution centers, which resulted in $3.5 million of the Company's nonrecurring restructuring charges in the fourth quarter of 1995) and improving inventory management systems. 20 RESULTS OF OPERATIONS The following table presents the Company's consolidated statements of operations on a percentage of net sales basis.
-------------------------------------------- Year Ended December 31, 1995 1994 1993 ---- ---- ---- Net sales 100.0% 100.0% 100.0% Cost of sales 91.0 90.3 89.5 ------ ------- ------- Gross margin 9.0 9.7 10.5 Selling, general and administrative expenses 7.6 6.9 7.7 Depreciation and amortization 0.5 0.6 0.5 Interest expense, net 0.9 0.4 0.1 Nonrecurring restructuring expenses 0.6 1.2 -- ----- ------- ------- Total expenses 9.6 9.1 8.3 ----- ------- ------- Income (loss) before income taxes (0.6) 0.6 2.2 Income tax provision (benefit) (0.2) 0.3 0.9 ------- ------- ------- Income (loss) from continuing operations (0.4) 0.3 1.3 Discontinued operations and cumulative effect of change in accounting principle -- -- 0.1 ------ ------ ------- Net income (loss) (0.4)% 0.3% 1.4% ======== ======== ======== Other Data: Adjusted EBITDA 1.4% 2.8% 2.8%
Year ended December 31, 1995 compared with year ended December 31, 1994 Net sales. Net sales increased 24.2% to $3.0 billion in 1995 from $2.4 billion in 1994. Assuming the Stuart Acquisition had occurred January 1, 1994, the increase would have been approximately 8.2% due to the additional sales volume from contracts entered into in 1993 and 1994 with large healthcare providers, such as Columbia/HCA, the United States Department of Defense and Premier, and price increases from manufacturers which are normally passed on to customers. Gross margin. Gross margin as a percentage of net sales declined to 9.0% in 1995 from 9.7% in 1994. The decrease was a result of the increase in sales to larger accounts that were offered reduced pricing in return for the expectation of increased volume. To address this issue, the Company has initiated several plans to offset the decline in the gross margin percentage, including recent price increases and the increasing utilization of an activity-based cost system designed to identify costs associated with certain delivery and management services to ensure that the Company charges its customers appropriately for incremental services, such as more frequent deliveries and distribution of products in small units of measure. Virtually 21 all of the Networks and GPOs representing the majority of the Company's customers have agreed to the new price levels. Selling, general and administrative expenses. SG&A expenses as a percentage of net sales increased to 7.6% in 1995 from 6.9% in 1994. The increase in SG&A expenses as a percentage of net sales was primarily a result of increased personnel costs incurred in connection with new contracts providing for enhanced service levels and services not previously provided by the Company, a significant increase in the number of SKUs distributed by the Company, system conversions, opening or expanding 11 distribution centers and reconfiguring warehouse systems. SG&A expenses as a percentage of net sales also increased as a result of the Company's sales, marketing and operational efforts designed to maintain the VHA customer base and the concentration of management's effort to integrate the operations of Stuart. In an effort to reduce SG&A expenses, O&M is implementing the following measures: (i) reduction of overtime and temporary employee costs by improving productivity through performance tracking systems and functional best practices training programs; (ii) further reduction of distribution center costs through the closure of two and the downsizing of five distribution centers (which resulted in $3.5 million of the Company's nonrecurring restructuring charges in the fourth quarter of 1995); and (iii) improvement of inventory management by completing the implementation of a new inventory forecasting system, reconfiguring warehouse systems and limiting the number of SKUs from multiple manufacturers distributed by the Company through the standardization of products. Adjusted EBITDA. Adjusted EBITDA as a percentage of net sales declined to 1.4% in 1995 from 2.8% in 1994. Management is undertaking the actions discussed above under gross margin and SG&A expenses to improve Adjusted EBITDA as a percentage of net sales. Depreciation and amortization. Depreciation and amortization increased by 18.3% in 1995 compared to 1994. This increase was due primarily to the Company's continued investment in improved IT and the amortization of goodwill and depreciation associated with the Stuart Acquisition. The Company anticipates similar increases in depreciation and amortization in 1996 associated with additional capital investment in IT. Interest expense, net. Interest expense, net of finance charge income of $3.8 million and $2.0 million in 1995 and 1994, respectively, increased from $10.2 million in 1994 to $25.5 million in 1995 primarily due to an increase in debt to finance the Stuart Acquisition, high inventory levels, the Company's restructuring plan and technology initiatives, as well as due to higher interest rates. Finance charge income represents payments from customers for past due balances on their accounts. Management has taken action to reduce interest expense, including (i) completing the implementation of the Company's new inventory forecasting system in all distribution centers by mid-1996, (ii) limiting the number of SKUs from multiple manufacturers distributed by the Company and (iii) reducing its effective interest rate through alternative financing such as the off balance sheet receivables securitization discussed below in the liquidity section. Nonrecurring restructuring expenses. During 1995, the Company incurred $13.2 million of nonrecurring restructuring expenses related to the Company's restructuring plan developed in connection with the Stuart Acquisition and its related decision to outsource the management and operation of its mainframe computer system. The restructuring plan was completed during the fourth quarter of 1995. During the fourth quarter of 1995, the Company incurred additional nonrecurring restructuring charges of $3.5 million associated with its decision to close or downsize seven distribution centers in 1996. Income taxes. The Company had an income tax provision of $6.1 million in 1994 (representing an effective tax rate of 43.4%) compared with an income tax benefit of $5.1 million in 1995. A complete reconciliation 22 of the statutory income tax rate to the Company's effective income tax rate is provided in Note 11 of Notes to Consolidated Financial Statements. Net income (loss). The Company incurred a net loss of $11.3 million in 1995 compared to net income of $7.9 million in 1994. Excluding the nonrecurring restructuring expenses and the related tax benefit, the Company incurred a net loss of $1.0 million in 1995. As previously discussed, the loss incurred during 1995 was due to the combination of a decline in gross margin percentage, an increase in SG&A expenses and an increase in interest expense. Although the initiatives previously discussed have been undertaken in an effort to improve the earnings of the Company, their impact cannot be assured. Year ended December 31, 1994 compared with year ended December 31, 1993 Net sales. Net sales increased 71.5% to $2.4 billion in 1994 from $1.4 billion in 1993. Assuming the Stuart Acquisition occurred January 1, 1993, the increase would have been approximately 16.6%. The 16.6% increase was due primarily to new contracts with large healthcare providers, such as Columbia/HCA, the United States Department of Defense and Premier; a new distribution agreement with VHA, the Company's largest contract, which provided incentives to member hospitals to increase purchases from the Company; and the continued product line expansion by the Company. Sales under the VHA agreement grew to approximately $959.0 million, or 40.0% of net sales, in 1994 from approximately $459.6 million, or 32.9% of net sales, in 1993. Gross margin. Gross margin as a percentage of net sales decreased to 9.7% in 1994 from 10.5% in 1993. The decrease was a result of the sales increases from large lower margin contracts. Selling, general and administrative expenses. SG&A expenses decreased to 6.9% of net sales in 1994 from 7.7% in 1993. This decrease was primarily the result of the initial synergies obtained from the Stuart Acquisition and the sales volume increases from large customers, such as VHA, Columbia/HCA and Premier. Adjusted EBITDA. Adjusted EBITDA as a percentage of net sales for each of 1994 and 1993 was 2.8%. Depreciation and amortization. Depreciation and amortization increased by 71.7% in 1994 as compared to 1993, due primarily to the additional goodwill amortization and depreciation expenses related to the Stuart Acquisition and the depreciation of the Company's continued investment in new and improved IT. Interest expense, net. Interest expense, net of finance charge income of $2.0 million, increased $8.6 million to $10.2 million in 1994. The increase was due primarily to the debt increase related to the Stuart Acquisition and the increase in the Company's average interest rate on the Senior Credit Facility from 3.8% in 1993 to 5.6% in 1994. The rate increase was due to the overall rate increases in the lending markets. During 1994, the Company entered into interest rate swap and cap agreements to fix the interest rate on a portion of the Senior Credit Facility. Nonrecurring restructuring expenses. As a result of the Stuart Acquisition and the Company's related decision to outsource the operation of its mainframe computer system, the Company implemented a restructuring plan. The plan was designed to eliminate duplicate costs within the Company by closing overlapping facilities and redesigning ineffective processes. During 1994, the Company incurred approximately $29.6 million of nonrecurring expenses related to the plan. These expenses were comprised primarily of duplicate facility costs (approximately $15.2 million), costs associated with redesigning and implementing operating processes to increase efficiencies within the combined company (approximately $7.1 million) and costs associated with the contracting out of the Company's mainframe computer operations (approximately $7.3 million). 23 Income taxes. The effective tax rate increased by 4.3 percentage points to 43.4% in 1994, due primarily to the nondeductible goodwill arising out of the Stuart Acquisition. A complete reconciliation of the statutory income tax rate to the Company's effective income tax rate is provided in Note 11 of Notes to Consolidated Financial Statements. Income from continuing operations. Income from continuing operations decreased by $10.6 million due to the nonrecurring restructuring expenses previously discussed. Excluding these expenses, the Company's income from continuing operations increased by $7.3 million or 39.3%. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES Liquidity. During 1995, several factors unfavorably impacted the Company's liquidity, including (i) increased working capital requirements, (ii) decreased earnings, (iii) restructuring expenses and (iv) increased capital expenditures. The Company funded a majority of these cash requirements through bank borrowings under the Senior Credit Facility. At December 31, 1995, the Company had approximately $111.7 million of unused credit under the Senior Credit Facility. The Company's capitalization ratio (excluding current maturities of long-term debt) increased to 57.9% at December 31, 1995 from 49.2% at December 31, 1994. On December 28, 1995, the Company entered into the Receivables Financing Facility to diversify its financing sources and to reduce its cost of funds. Pursuant to the Receivables Financing Facility, O&M Funding Corp. ("OMF"), a special-purpose, wholly owned, non-operating subsidiary of the Company, is entitled to receive up to $75.0 million from an unrelated third party purchaser for consideration that reflects a cost of funds at commercial paper rates plus a charge for administrative and credit support services. As of December 31, 1995, the Company had received approximately $59.3 million under the Receivables Financing Facility, the proceeds of which were used to reduce amounts outstanding under the Senior Credit Facility. Concurrently with the completion of the Offering, the Company will enter into the $225.0 million New Senior Credit Facility and will use borrowings under the New Senior Credit Facility, together with the net proceeds from the Offering, to repay in full outstanding indebtedness under the Senior Credit Facility. Following the completion of the Offering, the Receivables Financing Facility is expected to be increased to a maximum of $150.0 million, the proceeds of which will be used to reduce amounts outstanding under the New Senior Credit Facility. See "Use of Proceeds and Refinancing." The Company expects that borrowings under the New Senior Credit Facility and proceeds from the Receivables Financing Facility will be sufficient to fund its working capital needs and long-term strategic growth plan. The Notes will be general unsecured obligations of the Company and will be guaranteed on a joint and several basis by all of the subsidiaries of the Company except for OMF. Separate financial statements of the Guarantors are not presented herein because the Guarantors will jointly and severally guarantee the Notes and the aggregate net assets, earnings and equity of the Guarantors are substantially equivalent to the net assets, earnings and equity of the Company on a consolidated basis except for the de minimis assets, equity and earnings of OMF. During 1995 and early 1996, the Company sought and obtained waivers of non-compliance with, and amendments to, certain financial covenants included in the Senior Credit Facility. Prior to the Company's obtaining waivers, such non-compliance also could have prevented further use by the Company of the Receivables Financing Facility and certain interest rate swap and cap agreements entered into by the Company with respect to borrowings under the Senior Credit Facility. There can be no assurance that in the future the Company will not be required to seek waivers of non-compliance or amendments to the New 24 Senior Credit Facility or other credit agreements in effect from time to time or, if it is required to do so, that it will be able to obtain such waivers. See "Use of Proceeds and Refinancing." Working Capital Management. The Company's working capital turnover declined to 9.7 times in 1995 from 11.6 in 1994. The increase in days sales outstanding to 37.7 days in 1995 (excluding the impact of the Receivables Financing Facility) from 35.9 in 1994 and decrease in inventory turnover to 8.3 times in 1995 from 8.8 in 1994 were the result of increased service levels, increases in the number of SKUs carried by the Company, new customers, rationalization of distribution centers and the development and implementation of new computer systems. The decrease in accounts payable to $241.0 million in 1995 from $296.9 million in 1994 primarily was due to successfully negotiated favorable discount terms with vendors, which provide enhanced gross margin, but shorten payment terms, and to the timing of purchasing patterns. Subsequent to the completion of the restructuring plan related to the Stuart Acquisition in the fourth quarter of 1995, the Company refocused its efforts on working capital management. In an effort to reduce inventory levels, the Company plans on completing the implementation of its client/server-based forecasting system by the middle of 1996 and limiting the number of SKUs from multiple manufacturers distributed by the Company. In an effort to reduce accounts receivable levels, the Company has strengthened its methods of monitoring and enforcing contract payment terms and has tied a portion of its new sales force incentive program to reducing days sales outstanding. Capital Expenditures. Capital expenditures were approximately $21.3 million in 1995, of which approximately $12.7 million was for computer systems, including the continued conversion from a mainframe computer system to a client/server local area network system, and approximately $5.6 million was for warehousing equipment. The Company expects capital expenditures to continue at this level in 1996 as it continues system conversions. These capital expenditures are expected to be funded through cash flow from operations. Inflation. Inflation has not had a significant effect on the Company's results of operations or financial condition. Recent Accounting Pronouncement. The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 ("SFAS 123"), Accounting for Stock-Based Compensation, in October 1995. SFAS prescribes accounting and reporting standards for all stock-based compensation plans. The new standard allows companies to continue to follow present accounting rules, which often result in no compensation expense being recorded, or to adopt the SFAS 123 fair-value-based method. The fair-value- based method will generally result in higher compensation expense based on the estimated fair value of stock-based awards on the grant date. Companies electing to continue following present accounting rules will be required to provide pro forma disclosures of net income and earnings per share as if the fair-value- based method had been adopted. The Company intends to continue following present accounting rules and to implement the new disclosure requirements in 1996 as required. The adoption of SFAS 123, therefore, will not impact the financial condition or results of operations of the Company. 25 BUSINESS THE COMPANY O&M is one of the two largest distributors of medical/surgical supplies in the United States. The Company distributes approximately 300,000 finished medical/surgical products produced by approximately 3,000 manufacturers to over 4,000 customers from 49 distribution centers nationwide. The Company's customers are primarily hospitals and also include alternate care facilities such as physicians' offices, clinics, nursing homes and surgery centers. The majority of the Company's sales consists of dressings, endoscopic products, intravenous products, needles and syringes, sterile procedure trays, surgical products and gowns, sutures and urological products. The Company has significantly expanded its national presence over the last five years. This expansion resulted from both internal growth and acquisitions, including the acquisition of Stuart in May 1994. Since 1991, the Company has grown from 27 distribution centers serving 37 states to 49 distribution centers serving 50 states currently. Over the same period, the Company's net sales increased at a 30.7% compound annual rate, from $1.0 billion in 1991 to $3.0 billion in 1995. Similarly, Adjusted EBITDA increased at a 39.7% compound annual rate from $24.5 million in 1991 to $66.8 million in 1994, before decreasing to $41.9 million in 1995. Adjusted EBITDA as a percentage of net sales was 2.8% for each of 1992, 1993 and 1994, but declined to 1.4% in 1995. The Company is committed to providing its customers and suppliers with the most responsive, efficient and cost effective distribution system for the delivery of medical/surgical supplies and services. In order to meet this commitment, the Company has implemented the following strategy: (i) maintain market leadership and leverage the benefits of its national distribution capabilities; (ii) continue to be a low-cost provider of distribution services; (iii) increase sales to existing customers and obtain new customers by providing responsive customer service and offering a broad range of inventory management services; and (iv) enhance relationships with major medical/surgical supply manufacturers. The Company's strategy is based upon the following competitive strengths: MARKET LEADER WITH NATIONWIDE DISTRIBUTION CAPABILITIES. The Company believes that its net sales in 1995 of $3.0 billion represented approximately 20% of the medical/surgical supply distribution industry. O&M is one of only three companies capable of distributing a broad line of medical/surgical supplies on a nationwide basis. The Company's size and market position enable it to serve large regional and national healthcare providers that wish to negotiate single contracts with their suppliers, establish close business relationships with and obtain incentives from its suppliers and benefit from economies of scale. The Company intends to achieve ongoing sales growth by increasing penetration of existing customer accounts and obtaining additional customers both in existing and new geographic markets. In addition, the Company believes that further distribution opportunities will arise as healthcare providers and manufacturers increasingly turn to third-party distributors. The Company intends to expand selectively into new markets and to strengthen its operations in established markets by acquiring or opening distribution centers and increasing capacity and sales efforts at existing distribution centers. EFFICIENT, LOW-COST DISTRIBUTOR. The Company believes that the efficient manner in which it distributes products, including the use of advanced warehousing, delivery and purchasing techniques, enables its customers to obtain products at a lower overall inventory carrying cost relative to purchases made directly from manufacturers or through many of the Company's competitors. A key aspect of this low-cost strategy is the Company's significant investment in advanced IT which includes automated warehousing technology 26 and EDI. The Company's warehousing techniques, including the use of radio-frequency hand-held computers and bar-coded labels that identify location, routing and inventory picking and replacement, allow the Company to monitor inventory throughout its distribution system. The Company's focus on the timely exchange of information with its customers and suppliers has driven the introduction of new services, such as EDI, which expedite communications between the Company, its customers and its manufacturers thereby reducing the costs of such transactions as purchasing, invoicing, funds transfer and contract pricing. The Company continually strives to lower its operating costs in order to maintain its position as a low-cost distributor. Over the past two years, the Company has realigned its distribution operations through the closure or consolidation of 12 distribution centers and the opening or expansion of 22 distribution centers. In addition, current initiatives include reconfiguring warehouse layouts and implementing an improved inventory forecasting system as well as converting from a centralized mainframe computer system to a client/server local area network. The Company believes that this realignment and these initiatives will allow lower inventory levels, reduce operating costs and provide increased levels of customer service. Strong Customer Relationships and Broad Range of Services. In 1995, the Company distributed medical/surgical products to over 4,000 customers. The Company focuses primarily on the high volume hospital supply market and, in 1995, sales to hospital customers accounted for approximately 90% of O&M's net sales. O&M believes that as a result of the large number of purchases relating to surgical procedures performed in hospitals, hospitals will continue to be the highest volume users of medical/surgical products. However, the Company recognizes that alternate care providers, such as physicians' offices, clinics, nursing homes and surgery centers, represent an important and growing market for medical/surgical supplies, and the Company will continue to serve this segment. The Company believes its decentralized approach to customer relationships and its broad range of services are significant factors in attracting and retaining customers. The Company's decentralized approach is designed to provide individualized services to customers by giving the local management at each distribution center the discretion to set local operating procedures and to respond to customers' needs quickly and efficiently. Distribution center management has fiscal responsibility for its unit and the financial results of a distribution center directly affect its management's compensation. The Company offers a broad array of services ranging from traditional distribution, such as twice a week delivery of bulk goods, to enhanced inventory management services. Such enhanced inventory management services include asset management consulting services and stockless and just-in-time programs designed to fill order requirements with a high degree of accuracy while optimizing inventory levels. The Company's services enable healthcare providers to reduce inventory carrying costs by efficiently and accurately delivering to them a complete line of medical/surgical products. O&M's customer relationships include those with AmeriNet, Brigham & Women's Hospital, Columbia/HCA, The Hospital of the University of Pennsylvania, Johns Hopkins Health System, Massachusetts General Hospital, Ohio State University Hospital, Premier, Shands Hospital at The University of Florida, Stanford Health Services, UHC, UCLA, University of Nebraska Medical Center, University of Texas - - M.D. Anderson Cancer Center, VHA and Yale-New Haven Hospital. STRONG, LONG-STANDING MANUFACTURER RELATIONSHIPS. The Company is the only national distributor that does not manufacture or sell products under its own label and believes that this independence has enabled it to develop strong and mutually beneficial relationships with its suppliers. The Company believes that its size, strong, long-standing relationships and independence enable it to obtain attractive terms from 27 manufacturers, including discounts for prompt payment, volume incentives and fees for customer sales information. The Company continues to enhance its relationships with major medical/surgical supply manufacturers by developing closer, more efficient and interactive operational connections, such as EDI for purchasing. In addition, over the past two years, the Company has implemented CRP with most of its major manufacturers. This process, which utilizes computer-to-computer interfaces, allows manufacturers to monitor daily sales and inventory levels so that they can automatically and accurately replenish the Company's inventory. In recent years, a significant increase in the number of SKUs has greatly increased the inventory requirements of both distributors and healthcare providers. In response, the Company has recently implemented a joint marketing program with certain major manufacturers, known as FOCUSSM. FOCUSSM will assist the Company's major manufacturers and customers in reducing the number of SKUs carried by standardizing products within their systems, thereby reducing the number of comparable inventory items carried and the related cost. The Company has relationships with virtually all major manufacturers of medical/surgical supplies and has long-standing relationships with manufacturers such as C.R. Bard, Inc., Becton Dickinson, Johnson & Johnson, Kendall, Kimberly Clark and 3M. O&M is the largest distributor of each of these manufacturers' medical/surgical products. INDUSTRY OVERVIEW Distributors of medical/surgical supplies provide a wide variety of disposable medical and surgical products to healthcare providers, including hospitals, integrated healthcare systems ("IHSs") and alternate care providers. Medical/surgical supplies do not include pharmaceuticals. The Company believes that in 1995 sales of medical/surgical supplies in the United States approximated $30.0 billion and that approximately half of these sales were made through distributors, with the balance having been sold directly by manufacturers. In 1995, hospitals and alternate care facilities purchased approximately $23.0 billion and $7.0 billion, respectively, of medical/surgical supplies. Sales of medical/surgical supplies are estimated to have grown at a compound annual growth rate of approximately 7% over the last three years. Factors contributing to this growth include an aging population, the availability of new healthcare procedures and new product introductions. The healthcare industry has been characterized by the consolidation of healthcare providers into larger and more sophisticated entities that are increasingly seeking lower delivered product costs and incremental services through a broad distribution network capable of supplying their inventory management needs. The economies of scale that a distributor can generate by servicing a number of facilities should allow it to perform this service at a lower cost than an individual healthcare provider or manufacturer. Customers also benefit from a complete range of enhanced inventory management services developed by medical/surgical supply distributors that include CRP, asset management consulting and stockless and just-in-time inventory programs. The above trends have driven significant and continuing consolidation in the medical/surgical supply distribution industry since the mid-1980s. The Company believes that large distributors with national geographic capabilities and broad product offerings are capturing market share from regional and local distributors. As the industry continues to consolidate, large distributors are selectively acquiring regional and local distributors whose facilities can provide access to new metropolitan areas or expand geographic coverage to serve existing national accounts more effectively. 28 The traditional role of a distributor involves warehousing and delivering medical/surgical supplies to a customer's loading dock. Increasingly, distributors have assumed the additional roles of asset managers and information managers. Larger distributors are offering a wide array of customized asset management services that many smaller distributors are unable to provide. In addition, as the ability of medical/surgical supply distributors to manage information becomes an increasingly important factor, the larger, national distributors will have a distinct advantage. The quality of information generated by a national distributor, in terms of its ability to discern utilization patterns across a broad spectrum of products, customers and locations, will be more useful to both manufacturers and customers than that of a local or regional distributor. CUSTOMERS The Company currently markets its distribution services to several types of healthcare providers, including hospitals, IHSs and alternate care providers. O&M contracts with these providers directly and through Networks and GPOs. National Healthcare Networks and Group Purchasing Organizations. Networks and GPOs are entities that act on behalf of a group of healthcare providers to obtain pricing and other benefits that the individual members may not be able to obtain. Hospitals, physicians and other types of healthcare providers have joined Networks and GPOs to obtain services from medical/surgical supply distributors ranging from discounted product pricing to logistical and clinical support in exchange for a fee. Networks and GPOs negotiate directly with both medical/surgical supply manufacturers and distributors on behalf of their members, establishing exclusive or multi-vendor relationships. Because the combined purchasing volumes of their member institutions are very large, Networks and GPOs have the buying power to negotiate price discounts for the most commonly used medical/surgical products and logistical services. Accordingly, O&M believes that successful relationships with Networks and GPOs are central to the Company's ability to maintain market share. Sales to the Company's top ten Network or GPO customers represented approximately 70% of its net sales in 1995. Networks and GPOs do not issue purchase orders or collect funds on behalf of their members, and they cannot ensure that members will purchase their supplies from a given vendor. However, the buying power of Networks and GPOs is such that they are able to negotiate price discounts without having to guarantee minimum purchasing volumes. Members may belong to more than one Network or GPO, and they are also free to negotiate directly with distributors and manufacturers. As a result, healthcare providers often select the best pricing and other benefits from among those offered through several Networks and GPOs. Despite the inability of most Networks and GPOs to compel members to use O&M when it is the Network's or the GPO's primary distributor, O&M believes that, in such circumstances, the incentives for Network or GPO members to buy supplies through the Network's or GPO's contract with the Company are strong, and that these contracts yield significant sales volumes. The Company plans to continue to maintain and strengthen its relationships with selected Networks and GPOs as a means of securing its leading market position. The Company's Network or GPO customers include VHA, AmeriNet, Premier and UHC. Since 1985, the Company has been a distributor for VHA, the nation's second largest Network for not-for-profit hospitals, representing over 1,200 healthcare organizations. In November 1994, VHA added Baxter as its fourth authorized VHA distributor and initiated a policy permitting the other three authorized VHA distributors, including the Company, to distribute certain Baxter-manufactured products. During 1995, members of VHA were given the opportunity to select one of four medical/surgical supply distributors as 29 their authorized VHA distributor. The Company retained over 85% of its previous sales volume to VHA members. The loss of volume to VHA members has been partially offset by the gain in distributing Baxter's self-manufactured products to VHA members and by increasing market share within VHA facilities. Sales through VHA and AmeriNet represented approximately 39.6% and 5.6%, respectively, of the Company's net sales in 1995. Integrated Healthcare Systems. An IHS is an organization which is composed of several healthcare providers that jointly offer a variety of healthcare services in a given market. These providers may be individual not-for-profit or investor-owned entities that are joined by a formal business arrangement, or they may all be part of the same legal entity. An IHS is distinguished by the fact that it is typically a network of different types of healthcare providers that are strategically located within a defined service area, and seek to offer a broad spectrum of healthcare services and comprehensive geographic coverage to a particular local market. Although an IHS may include alternate care facilities, hospitals remain the key component of any IHS. O&M believes that IHSs will become increasingly important because of their expanding role in healthcare delivery and cost containment and their reliance upon the hospital, O&M's traditional customer, as a key component of their organizations. Individual healthcare providers within a multiple-entity IHS may be able to contract individually for distribution services; however, O&M believes that the providers' shared economic interests create strong incentives for participation in distribution contracts which are established at the system level. Additionally, single-entity IHSs are usually committed to using the primary distributor designated at the corporate level because they are all part of the same legal entity. Because the IHSs frequently rely on cost containment as a competitive advantage, IHSs have become an important source of demand for O&M's enhanced inventory management and other value-added services. In February 1994, the Company was selected by Columbia/HCA, an investor-owned system of hospitals and alternate care facilities, as its primary distributor of medical/surgical supplies. Pursuant to its agreement with Columbia/HCA, the Company provides distribution and other inventory management process services to Columbia/HCA hospitals and other healthcare facilities. Columbia/HCA is the Company's largest customer owning over 300 hospitals and IHSs throughout the United States. Sales to Columbia/HCA represented approximately 8.4% of the Company's net sales in 1995. Other than VHA, AmeriNet and Columbia/HCA, no Network, GPO or individual customer accounted for as much as 5% of the Company's net sales during such year. Individual Providers. In addition to contracting with healthcare providers at the IHS level and indirectly through Networks and GPOs, O&M contracts directly with healthcare providers. In 1995, hospitals represented approximately 90% of the Company's net sales. Not-for-profit hospitals represented a majority of these facilities. The Company targets high-volume independent hospitals and those which are part of larger healthcare systems such as IHSs. The Company also markets to alternate care providers that are primarily owned by, or members of, an IHS. Sales to such alternate care customers comprised the balance of the Company's net sales in 1995. The Company's hospital customers include, Brigham & Women's Hospital, The Hospital of the University of Pennsylvania, Johns Hopkins Health System, Massachusetts General Hospital, Ohio State University Hospital, Shands Hospital at The University of Florida, Stanford Health Services, UCLA, University of Nebraska Medical Center, University of Texas M.D. Anderson Cancer Center and Yale-New Haven Hospital. 30 CONTRACTS AND PRICING Industry practice is for the healthcare providers to negotiate product pricing directly with manufacturers and then negotiate distribution pricing terms with distributors. Contracts in the medical/surgical supply distribution industry set forth the price at which products will be distributed, but generally do not require minimum volume purchases by customers and are terminable by the customer upon short notice. Accordingly, most of the Company's contracts with customers do not guarantee minimum sales volumes. The majority of the Company's contracts compensate the Company on a fixed cost-plus percentage basis, under which a negotiated percentage distributor fee is added to the product cost agreed to by the customer and the manufacturer. In April 1994, however, the Company began to sell products to VHA-member hospitals and affiliates on a variable cost-plus percentage basis that varies according to the services rendered, the dollar volume of purchases and the percentage of the institution's total purchase volume that is directed to the Company. The Company has since entered into this type of pricing arrangement with other Networks and GPOs. As the Company's sales to a Network or GPO member institution grow, the cost-plus pricing charged to such customers decreases. The Company has recently negotiated contracts that charge incremental fees for additional distribution and enhanced inventory management services, such as frequent deliveries and distribution of products in small units of measure. Although the Company's marketing and sales personnel based in the distribution centers negotiate local contracts and pricing levels with customers, management has established minimum pricing levels. SERVICES The Company's core competency is the timely and accurate delivery of bulk medical/surgical supplies at low cost. In addition to these core distribution services, the Company offers flexible delivery alternatives supported by inventory management services to meet the varying needs of its customers. EDI is an integral component of the Company's business strategy. EDI includes computer-to-computer electronic data interchange for business transactions such as purchasing, invoicing, funds transfer and contract pricing. The Company encourages all customers to use EDI for product orders and, in some cases, imposes additional charges on customers who do not use EDI for purchasing. Approximately 75% of items ordered by the Company's customers are made through EDI. By expediting communication between the Company and its customers and manufacturers and reducing the use of paper for purchasing and invoicing, EDI enhances efficiencies and generates cost savings. EDI and the Company's IT systems enable the Company to offer its customers the following services to minimize their inventory holding requirements: [bullet] PANDAC(R). Since 1968, the Company has offered the PANDAC(R) wound closure management system that provides customers with an accurate evaluation of their current wound closure inventories and usage levels in order to reduce costs for wound closure products. The Company guarantees that PANDAC(R) will generate a minimum of 5% savings in total wound closure inventory expenditures during its first year of use. [bullet] Interactive Value Model(TM). The Interactive Value Model(TM) is a software program that uses an interactive question and answer format to calculate potential cost savings achievable through the use of O&M's distribution services. 31 [bullet] Stockpoint(TM). Stockpoint(TM) is a just-in-time inventory management program designed to provide customers with delivery of products in a cost-efficient combination of bulk and lowest unit of measure. [bullet] Pallet Architecture Location System. The Pallet Architecture Location System provides a customized approach to the delivery of products by expediting the "put-away" functions at customer's stockrooms. [bullet] TracePak(TM). The Company, in partnership with DeRoyal Industries, Inc., packages medical/surgical supplies under the TracePak(TM) name for use by healthcare providers for specific medical/surgical procedures. TracePak(TM) reduces the time spent by healthcare personnel assembling medical/surgical supplies for such procedures. [bullet] Net/GAIN(sm). The Company and Henry Schein, Inc. are developing a program called Net/GAIN(sm) to permit physician practices associated with an IHS to order medical and other supplies from the customized Net/GAIN(sm) product selection or from Henry Schein, Inc.'s extensive catalogue of products. [bullet] Cost Trak(sm). Cost Trak(sm) is an activity-based costing program utilized to price value-added services accurately. By identifying costs associated with activities, Cost Trak(sm) enables customers to select the most cost-effective services. SALES AND MARKETING The Company's sales and marketing force is organized on a decentralized basis in order to provide individualized services to customers by giving the local sales force at each distribution center the discretion to respond to customers' needs quickly and efficiently. The sales and marketing force, which is divided into three tiers, consists of approximately 300 locally based sales personnel. In order to ensure that all of the Company's customers receive high levels of customer service, each tier of the sales force is dedicated to specific functions, including: developing relationships with large hospitals and IHS customers; targeting increased penetration of existing accounts; and providing daily support services. Corporate personnel and IT employees work closely with the local sales force to support the marketing of O&M's inventory management capabilities and the strengthening of customer relationships. All sales and marketing personnel receive performance based compensation aligned with customer satisfaction and O&M's expectations. In addition, the Company, with the support of its suppliers, emphasizes quality and IT in comprehensive training programs for its sales and marketing force to sharpen customer service skills. In order to respond rapidly to its customers needs, all marketing and sales personnel are equipped with laptop computers that provide access to (i) order, inventory and payment status, (ii) customized reporting and data analysis and (iii) computer programs, such as the Interactive Value Model(TM) and PANDAC(R). SUPPLIERS The Company is the only national distributor that does not manufacture or sell products under its own label, and believes that this independence has enabled it to develop strong and mutually beneficial relationships with its suppliers. The Company believes that its size, strong, long-standing relationships and independence enable it to obtain attractive terms from manufacturers, including discounts for prompt payment, volume incentives and fees for customer sales information. These terms contribute significantly to the Company's gross margin. 32 The Company has relationships with virtually all major manufacturers of medical/surgical supplies and has long-standing relationships with manufacturers such as C.R. Bard, Inc., Becton Dickinson, Johnson & Johnson, Kendall, Kimberly Clark and 3M. O&M is the largest distributor of each of these manufacturers' medical/surgical products. Approximately 18.3% and 5.3% of the Company's net sales in 1995 were sales of Johnson & Johnson and Becton Dickinson products, respectively. In 1995, no other manufacturer accounted for more than 5% of the Company's net sales. ASSET MANAGEMENT Inventory Due to the Company's significant investment in inventory to meet the rapid delivery requirements of its customers, efficient asset management is essential to the Company's profitability. O&M maintains inventories of approximately 300,000 finished medical/surgical products (up from less than 100,000 in 1992) produced by approximately 3,000 manufacturers. The significant increase in the number of SKUs has challenged distributors and healthcare providers to create more efficient inventory management systems. The Company has responded to the significant increase in the number of SKUs by improving warehousing techniques, including the use of radio-frequency, hand-held computers and bar-coded labels that identify location, routing and inventory picking and replacement, which allow the Company to monitor inventory throughout its distribution systems. The Company is implementing additional programs to manage inventory including a state-of-the-art inventory forecasting system, warehouse slotting and reconfiguration techniques, CRP, FOCUS(SM) and vendor certification programs. The forecasting system uses historical information for the three prior years to predict the future demand for particular items thereby reducing the cost of carrying unnecessary inventory and increasing inventory turnover. As of December 31, 1995, 20 of the Company's distribution centers utilized the inventory forecasting system and the remaining distribution centers are expected to be utilizing it by mid-1996. The Company has initiated a vendor certification program that will require "preferred manufacturers" to satisfy minimum requirements such as purchasing by EDI, exceeding minimum fill rates and offering a flexible returned goods policy. O&M believes the increased efficiency resulting from vendor certification will reduce SG&A expenses. Accounts Receivable The Company's average days sales outstanding have been significantly less than the industry average as determined by the National Health Care Credit Group. The Company actively manages its accounts receivable to minimize credit risk and does not believe that credit risk associated with accounts receivable poses a risk to its results of operations. As part of the Refinancing, the Company entered into the Receivables Financing Facility. See "Use of Proceeds and Refinancing." COMPETITION The medical/surgical supply distribution industry in the United States is highly competitive and consists of (i) three major, nationwide distributors, the Company, Baxter and General Medical, (ii) a few smaller, nationwide distributors and (iii) a number of regional and local distributors. Competition within the medical/surgical supply distribution industry exists with respect to total delivered product cost, product availability and the ability to fill orders accurately, delivery time, efficient computer communication 33 capabilities, services provided, breadth of product line and the ability to meet special requirements of customers. Regional and local distributors often provide high levels of customer service but are constrained by relatively high operating costs that are passed on to customers. The Company believes that the higher costs associated with purchasing through regional and local distributors will result in opportunities for the Company to augment its market share as customers continue to seek to lower costs. Baxter manufactures medical/surgical supplies and distributes its own products as well as the products of other manufacturers primarily to the hospital and IHS market. General Medical distributes medical/surgical products under its own label as well as the products of other manufacturers. General Medical services alternate care facilities, such as physicians' offices, clinics, nursing homes and surgery centers, in addition to serving hospital customers and the wholesale hospital market. In November 1995, Baxter announced its intention to distribute to its shareholders the stock of its subsidiary that conducts cost management, United States distribution and surgical products operations. The Company does not believe the Baxter restructuring will have a significant effect on the Company's competitive position in the industry. DISTRIBUTION The Company employs a decentralized approach to sales and customer service, operating 49 distribution centers throughout the United States. The Company's distribution centers currently provide products and services to customers in 50 states and the District of Columbia. The range of products and customer and administrative services provided by a particular distribution facility are determined by the characteristics of the market it serves. Most distribution centers are managed as separate profit centers. Most functions, including purchasing, customer service, warehousing, sales, delivery and basic financial tasks, are conducted at the distribution center and are monitored by corporate personnel. The Company believes that the decentralized nature of its distribution system provides customers with flexible and individualized service and contributes to overall cost reductions. The Company delivers most medical/surgical supplies with a leased fleet of trucks. Parcel services are used to transport all other medical/surgical supplies. Distribution centers generally service hospitals and other customers within a 100 to 150 mile radius. The frequency of deliveries from distribution centers to principal accounts varies by customer account. O&M continuously reevaluates the efficiency of its distribution system. Over the past two years, the Company has realigned its distribution operations through the closure or consolidation of 12 distribution centers and the opening or expansion of 22 distribution centers. The Company anticipates further reduction of costs through the closure of two and the downsizing of five distribution centers in 1996. O&M believes that its facilities are adequate to carry on its business as currently conducted. Except for the Greensburg, Pennsylvania and Youngstown, Ohio facilities, which are owned by the Company and held for sale and leaseback, all of the Company's distribution centers are leased from unaffiliated third parties. 34 INFORMATION TECHNOLOGY O&M continuously invests in advanced IT, which includes automated warehousing technology and EDI, to increase efficiencies and facilitate the exchange of information with its customers and suppliers and thereby reduce costs to the Company, its suppliers and customers. Following the Stuart Acquisition, the Company expended significant resources to integrate Stuart's systems with those of the Company, including incorporating certain aspects of Stuart's IT, and to outsource the operation of the Company's mainframe computer system to Integrated Systems Solutions Corporation, an affiliate of International Business Machines Corporation. In 1994, the Company began a major initiative to convert its mainframe computer system to a client/server, local area network system. The conversion to client/server technology will be completed over the next several years. The client/server technology will have several applications, including inventory forecasting, procurement, warehousing, order processing, accounts receivable, accounts payable and contract management. The Company began to implement the first of these applications, the inventory forecasting application, in the fourth quarter of 1995 and 20 distribution centers utilized this application as of December 31, 1995. The remaining distribution centers are expected to be utilizing this inventory forecasting application by mid-1996. Through client/server technology, the Company expects to improve significantly the efficiency of each distribution center. The Company's commitment to IT will enable it to serve profitably larger volumes of business and more complex contracts. REGULATION The medical/surgical supply distribution industry is subject to regulation by federal, state and local governmental agencies. Each of the Company's distribution centers is licensed to distribute medical/surgical supply products as well as certain pharmaceutical and related products. The Company must comply with regulations, including operating and security standards for each of its distribution centers, of the Food and Drug Administration, the Drug Enforcement Agency, the Occupational Safety and Health Administration, state boards of pharmacy and, in certain areas, state boards of health. The Company believes that it is in material compliance with all statutes and regulations applicable to distributors of medical/surgical supply products and pharmaceutical and related products, as well as other general employee health and safety laws and regulations. The current government focus on healthcare reform and the escalating cost of medical care has increased pressures on all participants in the healthcare industry to reduce the costs of products and services. The Company does not believe that the continuation of these trends will have a significant effect on the Company's results of operations or financial condition. EMPLOYEES As of December 31, 1995, the Company employed approximately 3,200 full and 150 part-time employees. Approximately 40 employees are currently covered by a collective bargaining agreement at one of the Company's distribution centers. The Company believes that its relations with its employees are good. O&M believes that on-going employee training is critical to employee performance. The Company emphasizes quality and technology in training programs designed to increase employee efficiency by sharpening overall customer service skills and by focusing on functional best practices. 35 LEGAL AND ADMINISTRATIVE Stuart has been named as a defendant along with manufacturers, healthcare providers and others in a number of lawsuits based on alleged injuries attributable to the implantation of internal spinal fixation devices distributed by a specialty products division of Stuart from the early 1980s to December 1992 and prior to O&M's acquisition of Stuart in 1994. Stuart did not manufacture the devices. The Company believes that Stuart is entitled to indemnification by the manufacturers of the devices with respect to claims alleging defects in the products. The Company and Stuart are also entitled to indemnification by the former shareholders of Stuart for any liabilities and related expenses incurred by the Company or Stuart in connection with the foregoing litigation. Although the Company believes it is unlikely that Stuart will be held liable as a result of such lawsuits, the Company believes that Stuart's available insurance coverage together with the indemnification rights discussed above are adequate to cover any losses should they occur. The Company is not aware of any uncertainty as to the availability and adequacy of such insurance or indemnification. The Company is party to various other legal actions that are ordinary and incidental to its business. While the outcome of legal actions cannot be predicted with certainty, management believes the outcome of these proceedings will not have a material adverse effect on the Company's financial condition or results of operations. 36 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS Set forth below are the names, ages and positions and a brief description of the business experience of the Company's executive officers and directors. NAME AGE POSITION IN THE COMPANY - ---- --- ----------------------- G. Gilmer Minor, III 55 Chairman of the Board, President, Chief Executive Officer Craig R. Smith 44 Executive Vice President and Chief Operating Officer Robert E. Anderson, III 61 Executive Vice President, Planning and Business Development Henry A. Berling 53 Executive Vice President, Partnership Development Drew St. J. Carneal 57 Senior Vice President, General Counsel and Secretary Glenn J. Dozier 45 Senior Vice President, Finance, Chief Financial Officer Josiah Bunting, III 55 Director R. E. Cabell, Jr. 72 Director James B. Farinholt, Jr. 61 Director William F. Fife 74 Director C. G. Grefenstette 68 Director Vernard W. Henley 66 Director E. Morgan Massey 69 Director James E. Rogers 50 Director James E. Ukrop 58 Director Anne Marie Whittemore 50 Director G. GILMER MINOR, III has been employed by the Company for 33 years since 1963 and has served as President since 1981 and Chief Executive Officer since 1984. In May 1994, he was elected Chairman of the Board. Mr. Minor also serves as a member of the Boards of Directors of Crestar Financial Corporation and Richfood Holdings, Inc. CRAIG R. SMITH has been employed by the Company and National Healthcare and Hospital Supply Corporation, which was acquired by the Company in 1989, for 13 years. From 1990 to 1992, Mr. Smith served as Group Vice President for the western region. In January 1993, Mr. Smith assumed responsibilities of Senior Vice President, Distribution. Later in 1993, Mr. Smith assumed the new role of Senior Vice President, Distribution and Information Systems, and, in 1994, he was elected Executive Vice 37 President, Distribution and Information Systems. In February 1995, Mr. Smith was promoted to Chief Operating Officer. ROBERT E. ANDERSON, III has been employed by the Company for 29 years since 1967. Mr. Anderson was employed by the Company in the Medical/Surgical Division in sales and marketing and was elected Vice President in 1981. In October 1987, he was elected Senior Vice President, Corporate Development. In April 1991, Mr. Anderson was elected Senior Vice President, Marketing and Planning. In 1992, Mr. Anderson assumed a new role as Senior Vice President, Planning and Development and in 1994, he was elected Executive Vice President, Planning and Development. In May 1995, Mr. Anderson was elected Executive Vice President, Planning and Business Development. HENRY A. BERLING has been employed by the Company for 30 years since 1966. Mr. Berling was employed by the Company in the Medical/Surgical Division and was elected Vice President in 1981 and Senior Vice President, Sales and Marketing, in 1987. In 1989, he was elected Senior Vice President and Chief Operating Officer. In 1991, Mr. Berling assumed a new role as Senior Vice President, Sales and Distribution. In 1992, Mr. Berling assumed the role of Senior Vice President, Sales and Marketing and in 1994, he was elected Executive Vice President, Sales and Customer Development. In May 1995, Mr. Berling was elected Executive Vice President, Partnership Development. DREW ST. J. CARNEAL has been employed by the Company for seven years since 1989, when he joined the Company as Vice President and Corporate Counsel. From 1985 to 1988, he served as the Richmond City Attorney and, prior to that date, he was a partner in the law firm of Cabell, Moncure and Carneal. In 1989, he was elected Secretary, and in March 1990, Senior Vice President, Corporate Counsel and Secretary. In May 1995, the title Corporate Counsel was changed to General Counsel. GLENN J. DOZIER has been employed by the Company for six years since 1990 in the position of Senior Vice President, Finance, Chief Financial Officer. In April 1991, he assumed the additional responsibility of Senior Vice President, Operations and Systems. In 1992, Mr. Dozier assumed a new role of Senior Vice President, Finance and Information Systems and Chief Financial Officer. In 1993, Mr. Dozier assumed the role of Senior Vice President, Finance, Chief Financial Officer. Prior to joining the Company, Mr. Dozier had been Chief Financial Officer and Vice President of Administration and Control since 1987 for AMF Bowling, Inc. JOSIAH BUNTING, III has been Superintendent of Virginia Military Institute, Lexington, Virginia since August 1995. From 1987 to 1995, he served as Headmaster of The Lawrenceville School. General Bunting has been a director since 1995 and is a member of the Audit and Strategic Planning Committees. R.E. CABELL, JR. is retired (Of Counsel) from the law firm of Williams, Mullen, Christian & Dobbins. Mr. Cabell has been a director since 1962 and is Chairman of the Audit Committee and a member of the Executive Committee. Mr. Cabell also serves on the Board of Directors of the C.F. Sauer Company and is a Trustee of Hampden-Sydney College. JAMES B. FARINHOLT, JR. is Special Assistant to the President for Business Development at Virginia Commonwealth University, including commercialization of scientific discoveries. Additionally, he is Executive Vice President and Executive Director of the Virginia Biotechnology Research Park, which is affiliated with the University. From 1978 to 1995, Mr. Farinholt served as President of Galleher & 38 Company, Inc., an investment company. Mr. Farinholt has been a director since 1974 and is Chairman of the Strategic Planning Committee and a member of the Executive and Audit Committees. WILLIAM F. FIFE served as Executive Vice President of the Company from 1987 until his retirement in 1991. Mr. Fife has been a director of the Company since 1962 and is a member of the Audit and Executive Committees. C. G. GREFENSTETTE is Chairman and Chief Executive Officer of The Hillman Company, which engages in diversified investments and operations. From 1989 to 1993, Mr. Grefenstette served as President and Chief Executive Officer of The Hillman Company. Mr. Grefenstette also serves on the Boards of Directors of The Hillman Company, The Hillman Foundation, The Polk Foundation, Inc., Duquesne University and PNC Bank Corp. Mr. Grefenstette has been a director of the Company since 1994 and is a member of the Audit and Strategic Planning Committees. VERNARD W. HENLEY is Chairman of the Board and Chief Executive Officer of Consolidated Bank and Trust Company, Richmond, Virginia. Mr. Henley has been a director since 1993, and is a member of the Audit and Compensation & Benefits Committees. E. MORGAN MASSEY is Chairman of InterAmerican Coal, N.V. and Chairman Emeritus of A.T. Massey Coal Company, Inc., both coal companies. Mr. Massey served A.T. Massey Coal Company, Inc. as Chairman and Chief Executive Officer in 1991, and as President and Chief Executive Officer from 1972 to 1990. Mr. Massey has been a director since 1988 and is a member of the Compensation & Benefits and Strategic Planning Committees. Mr. Massey also serves on the Massey Cancer Center Advisory Board and as Vice Chairman of the U.S. Energy Association, Vice Chairman of the Marine Advisory Council of the Virginia Institute for Marine Science and a member of the Board of the University of Virginia Engineering Foundation. JAMES E. ROGERS is a Partner of SCI Investors Inc. and Chairman of Custom Papers Group Inc., a paper manufacturing company. From 1991 to 1992, Mr. Rogers served as President and Chief Executive Officer of Specialty Coatings International Inc. Prior to joining Specialty Coatings International in 1991, Mr. Rogers served as Senior Vice President and Group Executive of James River Corporation. Mr. Rogers has been a director since 1991 and is Chairman of the Compensation & Benefits Committee and a member of the Executive and Strategic Planning Committees. Mr. Rogers also serves on the Boards of Directors of Wellman, Inc. and Caraustar Industries, Inc. JAMES E. UKROP is Vice Chairman and Chief Executive Officer of Ukrop's Super Markets, Inc., a retail grocery chain. Mr. Ukrop has been a director since 1987 and is a member of the Compensation & Benefits and Strategic Planning Committees. Mr. Ukrop also serves as a member of the Boards of Directors of Richfood Holdings, Inc. and Legg Mason, Inc. ANNE MARIE WHITTEMORE is a partner in the law firm of McGuire, Woods, Battle & Boothe, L.L.P. Mrs. Whittemore has been a director since 1991 and is a member of the Executive and Compensation & Benefits Committees. Mrs. Whittemore also serves on the Boards of Directors of USF&G Corporation, James River Corporation, T. Rowe Price Associates, Inc. and Albemarle Corporation. As of December 31, 1995, the Company had outstanding 30,862,347 shares of Common Stock, par value $2.00 per share ("Common Stock"), 1,150,000 shares of Series B Preferred Stock, par value $100 per share 39 ("Series B Preferred Stock"), and no shares of Series A Preferred Stock. As of March 5, 1996, all directors, executive officers and officers as a group beneficially owned approximately 24.1% of the outstanding shares of Common Stock. In January 1996, the 1,150,000 shares of Series B Preferred Stock, which originally were issued to the former shareholders of Stuart were acquired by Wilmington Securities, Inc. ("WS"). WS is a private investment company and an indirect, wholly owned subsidiary of The Hillman Company, a firm engaged in diversified investments and operations which is controlled by a trust for the benefit of Henry L. Hillman (the "HLH Trust"). The trustees of the HLH Trust are Henry L. Hillman, Elsie Hilliard Hillman and Mr. Grefenstette (the "HLH Trustees"). The HLH Trustees share voting and investment power with respect to the shares held of record by WS and may be deemed to be the beneficial owners of such shares. Mr. Grefenstette is the director elected by the holders of the Series B Preferred Stock. Mr. Grefenstette disclaims beneficial ownership of the Series B Preferred Stock. 40 DESCRIPTION OF THE NOTES As used below in this "Description of the Notes" section, the "Company" means Owens & Minor, Inc., but not any of its subsidiaries, unless otherwise specified. The Notes are to be issued under an Indenture, to be dated as of ____________, 1996 (the "Indenture"), among the Company, the Guarantors and Crestar Bank, as Trustee (the "Trustee"). The Indenture is subject to and governed by the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The statements under this caption relating to the Notes, the Guarantees and the Indenture are summaries and do not purport to be complete, and where reference is made to particular provisions of the Indenture, such provisions, including the definitions of certain terms, are incorporated by reference as a part of such summaries or terms, which are qualified in their entirety by such reference. A copy of the proposed form of Indenture has been filed with the Commission as an exhibit to the Registration Statement of which this Prospectus is a part. GENERAL The Notes will be general unsecured senior subordinated obligations of the Company, will be limited to $150 million aggregate principal amount and will rank subordinate in right of payment to all existing and future Senior Indebtedness of the Company and will be effectively subordinated to all existing and future indebtedness and other liabilities of subsidiaries of the Company which are not Guarantors. The Notes will rank pari passu in right of payment with all other senior subordinated indebtedness of the Company. The Notes will be guaranteed on a joint and several basis by each of the Guarantors pursuant to the Guarantees described below. The Guarantees will be general unsecured senior subordinated obligations of the Guarantors and will rank subordinate in right of payment to all existing and future Guarantor Senior Indebtedness. The Guarantees will rank pari passu in right of payment with all other existing and future senior subordinated indebtedness of the Guarantors. At December 31, 1995, as adjusted to give effect to the transactions described herein under "Use of Proceeds and Refinancing," the Company would have had approximately $___ million of Senior Indebtedness outstanding, including $___ million under the Senior Credit Facility which is guaranteed by the Guarantors on a senior basis. Secured creditors of the Company or any Guarantor will have a claim on the assets which secure such obligations prior to claims of the Holders of the Notes against those assets. The Notes will mature on _____________, 2006 and will bear interest at the rate per annum shown on the front cover of this Prospectus from the date of issuance or from the most recent interest payment date to which interest has been paid or provided for. Interest will be payable semi-annually on ___________ and ___________ of each year, commencing _______________, 1996, to the Person in whose name a Note is registered at the close of business on the preceding __________ or __________ (each, a "Record Date"), as the case may be. Interest on the Notes will be computed on the basis of a 360-day year of twelve 30-day months. Holders must surrender the Notes to the paying agent for the Notes to collect principal payments. The Company will pay principal and interest by check and may mail interest checks to a Holder's registered address. The Notes will be issued only in fully registered form, without coupons, in denominations of $1,000 and any integral multiple thereof. No service charge will be made for any registration of transfer or exchange of Notes, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Initially, the Trustee will act as paying agent and registrar for the Notes. The Notes may be presented for registration of transfer and exchange at the offices of the registrar for the Notes. 41 OPTIONAL REDEMPTION The Notes will be subject to redemption, at the option of the Company, in whole or in part, at any time on or after ______________, 2001 and prior to maturity, upon not less than 30 nor more than 60 days' notice mailed to each Holder of Notes to be redeemed at his address appearing in the register for the Notes, in amounts of $1,000 or an integral multiple of $1,000, at the following redemption prices (expressed as percentages of principal amount) plus accrued interest to but excluding the date fixed for redemption (subject to the right of Holders of record on the relevant Record Date to receive interest due on an interest payment date that is on or prior to the date fixed for redemption), if redeemed during the 12-month period beginning _____________ of the years indicated: YEAR PERCENTAGE 2001 % 2002 % 2003 % 2004 and thereafter 100.0% In addition, prior to _____________, 1999, the Company may redeem up to 33 1/3% of the principal amount of the Notes with the net cash proceeds received by the Company from a public offering of Capital Stock of the Company (other than Disqualified Stock), at a redemption price (expressed as a percentage of the principal amount) of ___% of the principal amount thereof, plus accrued and unpaid interest to the date fixed for redemption; provided, however, that at least $100 million in aggregate principal amount of the Notes remains outstanding immediately after any such redemption (excluding any Notes owned by the Company or any of its Affiliates). Notice of redemption pursuant to this paragraph must be mailed to holders of Notes not later than 60 days following the consummation of such public offering. Selection of Notes for any partial redemption shall be made by the Trustee, in accordance with the rules of any national securities exchange on which the Notes may be listed or, if the Notes are not so listed, pro rata or by lot or in such other manner as the Trustee shall deem appropriate and fair. Notes in denominations larger than $1,000 may be redeemed in part but only in integral multiples of $1,000. Notice of redemption will be mailed before the date fixed for redemption to each holder of Notes to be redeemed at his or her registered address. On and after the date fixed for redemption, interest will cease to accrue on Notes or portions thereof called for redemption. The Notes will not have the benefit of any sinking fund. SUBORDINATION The payment of the principal of, premium, if any, and interest on the Notes is subordinated in right of payment, to the extent and in the manner provided in the Indenture, to the prior payment in full of all Senior Indebtedness. Upon any payment or distribution of assets or securities of the Company of any kind or character, whether in cash, property or securities, upon any dissolution or winding-up or total or partial liquidation or 42 reorganization of the Company, whether voluntary or involuntary or in bankruptcy, insolvency, receivership or other proceedings, all amounts due or to become due with respect to Senior Indebtedness (including any interest accruing subsequent to an event of bankruptcy to the extent that such interest is an allowed claim enforceable against the debtor under the Bankruptcy Law) shall first be paid in full, or payment provided for, before the Holders of the Notes or the Trustee on behalf of such Holders shall be entitled to receive any payment by the Company of the principal of, premium, if any, or interest on the Notes, or any payment to acquire any of the Notes for cash, property or securities, or any distribution with respect to the Notes of any cash, property or securities. Before any payment may be made by, or on behalf of, the Company of the principal of, premium, if any, or interest on the Notes upon any such dissolution or winding-up or liquidation or reorganization, any payment or distribution of assets or securities of the Company of any kind or character, whether in cash, property or securities, to which the Holders of the Notes or the Trustee on their behalf would be entitled, but for the subordination provisions of the Indenture, shall be made by the Company or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other Person making such payment or distribution, directly to the holders of the Senior Indebtedness (pro rata to such holders on the basis of the respective amounts of Senior Indebtedness held by such holders) or their representatives or to the trustee or trustees under any indenture pursuant to which any of such Senior Indebtedness may have been issued, as their respective interests may appear, to the extent necessary to pay all such Senior Indebtedness in full after giving effect to any concurrent payment, distribution or provision therefor to or for the holders of such Senior Indebtedness. No direct or indirect payment by or on behalf of the Company of principal of, premium, if any, or interest on the Notes, whether pursuant to the terms of the Notes, upon acceleration or otherwise, will be made if, at the time of such payment, there exists a default in the payment of all or any portion of the obligations on any Designated Senior Indebtedness (and the Trustee has received written notice thereof), and such default shall not have been cured or waived or the benefits of this sentence waived by or on behalf of the holders of such Designated Senior Indebtedness. In addition, during the continuance of any non-payment default or non-payment event of default with respect to any Designated Senior Indebtedness pursuant to which the maturity thereof may be accelerated, and upon receipt by the Trustee of written notice from the holder or holders of such Designated Senior Indebtedness or the trustee or agent acting on behalf of such Designated Senior Indebtedness, then, unless and until such default or event of default has been cured or waived or has ceased to exist or such Designated Senior Indebtedness has been discharged or repaid in full, no direct or indirect payment will be made by or on behalf of the Company of principal of, premium, if any, or interest on the Notes, except from those funds held in trust for the benefit of the Holders of any Notes to such Holders, during a period (a "Payment Blockage Period") commencing on the date of receipt of such notice by the Trustee and ending 179 days thereafter. Notwithstanding anything in the subordination provisions of the Indenture or the Notes to the contrary, (x) in no event will a Payment Blockage Period extend beyond 179 days from the date the payment on the Notes was due and (y) there must be a consecutive 180 day period in each 365 consecutive day period during which no Payment Blockage Period is in effect. Not more than one Payment Blockage Period may be commenced with respect to the Notes during any period of 365 consecutive days. No default or event of default that existed or was continuing on the date of commencement of any other Payment Blockage Period with respect to the Designated Senior Indebtedness initiating such Payment Blockage Period may be, or be made, the basis for the commencement of any other Payment Blockage by the holder or holders of such Designated Senior Indebtedness or the trustee or agent acting on behalf of such Designated Senior Indebtedness, whether or not within a period of 365 consecutive days, unless such default or event of default has been cured or waived for a period of not less than 90 consecutive days. The failure to make any payment or distribution for or on account of the Notes by reason of the provisions of the Indenture described under this "Subordination" heading will not be construed as preventing the 43 occurrence of an Event of Default described in clause (a), (b) or (c) of the first paragraph under "-- Events of Default." By reason of the subordination provisions described above, in the event of insolvency of the Company, funds which would otherwise be payable to Holders of the Notes will be paid to the holders of Senior Indebtedness to the extent necessary to pay the Senior Indebtedness in full, and the Company may be unable to fully meet its obligations with respect to the Notes. Subject to the restrictions set forth in the Indenture, in the future the Company may issue additional Senior Indebtedness. THE GUARANTEES The Indenture will provide that each of the Guarantors will unconditionally guarantee on a joint and several basis all of the Company's obligations under the Notes, including its obligations to pay principal, premium, if any, and interest with respect to the Notes. The obligations of each Guarantor are limited to the maximum amount which, after giving effect to all other contingent and fixed liabilities of such Guarantor and after giving effect to any collections from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under its Guarantee or pursuant to its contribution obligations under the Indenture, will result in the obligations of such Guarantor under the Guarantee not constituting a fraudulent conveyance or fraudulent transfer under federal or state law. Each Guarantor that makes a payment or distribution under a Guarantee shall be entitled to a contribution from each other Guarantor in an amount pro rata, based on the net assets of each Guarantor determined in accordance with GAAP. Except as provided in "-- Covenants" below, the Company is not restricted from selling or otherwise disposing of any of the Guarantors. The Indenture will provide that each Subsidiary of the Company in existence on the Issue Date (other than any Securitization Subsidiary) and each Material Subsidiary whether organized or acquired after the Issue Date (other than any Securitization Subsidiary) will become a Guarantor; provided, however, that any Material Subsidiary acquired after the Issue Date which is prohibited from entering into a Guarantee pursuant to restrictions contained in any debt instrument or other agreement in existence at the time such Material Subsidiary was so acquired and not entered into in anticipation or contemplation of such acquisition shall not be required to become a Guarantor so long as any such restriction is in existence and to the extent of any such restriction. The Indenture will provide that if the Notes are defeased in accordance with the terms of the Indenture, or if all or substantially all of the assets of any Guarantor or all of the Capital Stock of any Guarantor is sold (including by issuance or otherwise) by the Company or any of its Subsidiaries in a transaction constituting an Asset Disposition, and if (x) the Net Available Proceeds from such Asset Disposition are used in accordance with the covenant described under "-- Certain Covenants -- Limitation on Certain Asset Dispositions" or (y) the Company delivers to the Trustee an Officers' Certificate to the effect that the Net Available Proceeds from such Asset Disposition shall be used in accordance with the covenant described under "-- Certain Covenants -- Limitation on Certain Asset Dispositions" and within the time limits specified by such covenant, then such Guarantor (in the event of a sale or other disposition of all of the Capital Stock of such Guarantor) or the corporation acquiring such assets (in the event of a sale or other disposition of all or substantially all of the assets of such Guarantor) shall be released and discharged of its Guarantee obligations. 44 The obligations of each Guarantor under its Guarantee are subordinated to the prior payment in full of all Guarantor Senior Indebtedness of such Guarantor to substantially the same extent as the Notes are subordinated to Senior Indebtedness. COVENANTS The Indenture contains, among others, the following covenants: Limitation on Indebtedness The Indenture will provide that the Company will not, and will not permit any of its Subsidiaries to, Incur, directly or indirectly, any Indebtedness, except: (i) Indebtedness of the Company or its Subsidiaries, if immediately after giving effect to the Incurrence of such Indebtedness and the receipt and application of the net proceeds thereof, the Consolidated Cash Flow Ratio of the Company for the four full fiscal quarters for which quarterly or annual financial statements are available next preceding the Incurrence of such Indebtedness, calculated on a pro forma basis as if such Indebtedness had been Incurred on the first day of such four full fiscal quarters, would be greater than 2.00 to 1.00 if such Indebtedness is Incurred on or before December 31, 1997 and 2.25 to 1.00 if such Indebtedness is Incurred after December 31, 1997; (ii) Indebtedness of the Company, and guarantees of such Indebtedness by any Guarantor, Incurred under the Senior Credit Facility in an aggregate principal amount outstanding at any one time not to exceed the greater of (x) $225 million or (y) the sum of (A) 85% of Eligible Accounts Receivable and (B) 50% of Eligible Inventory; (iii) Indebtedness owed by the Company to any Wholly Owned Subsidiary of the Company (provided that such Indebtedness is at all times held by the Company or a Wholly Owned Subsidiary of the Company (other than a Securitization Subsidiary)) or Indebtedness owed by a Subsidiary of the Company to the Company or a Wholly Owned Subsidiary of the Company (provided that such Indebtedness is at all times held by the Company or a Wholly Owned Subsidiary of the Company (other than a Securitization Subsidiary)); provided, however, upon either (I) the transfer or other disposition by such Wholly Owned Subsidiary or the Company of any Indebtedness so permitted under this clause (iii) to a Person other than the Company or another Wholly Owned Subsidiary of the Company (other than a Securitization Subsidiary) or (II) the issuance (other than directors' qualifying shares), sale, transfer or other disposition of shares of Capital Stock or other ownership interests (including by consolidation or merger) of such Wholly Owned Subsidiary to a Person other than the Company or another such Wholly Owned Subsidiary of the Company (other than a Securitization Subsidiary), the provisions of this clause (iii) shall no longer be applicable to such Indebtedness and such Indebtedness shall be deemed to have been Incurred at the time of any such issuance, sale, transfer or other disposition, as the case may be; (iv) Indebtedness of the Company or its Subsidiaries under any interest rate or currency swap agreement to the extent entered into to hedge any other Indebtedness permitted under the Indenture and any interest rate swap agreement entered into in connection with any Qualified Securitization Transaction; (v) Indebtedness Incurred to renew, extend, refinance or refund (collectively for purposes of this clause (v) to "refund") any Indebtedness outstanding on the Issue Date and Indebtedness Incurred under the prior clause (i) above or the Notes; provided, however, that (I) such Indebtedness does not exceed the principal amount of Indebtedness so refunded plus the amount of any premium required to be paid in connection with such refunding pursuant to the terms of the Indebtedness refunded or the amount of any premium reasonably determined by the Company as necessary to accomplish such refunding by means of a tender offer, exchange offer, or privately negotiated repurchase, plus the expenses of the Company or such Subsidiary incurred in connection therewith and (II)(A) in the case of any refunding of Indebtedness that is pari passu with the Notes, such refunding Indebtedness is made pari passu with or subordinate in right of payment to the Notes, and, in the case of any refunding of Indebtedness that is subordinate in right of payment to the Notes, such refunding Indebtedness is subordinate in right of payment to the Notes on terms no less favorable to the Holders than those contained in the Indebtedness 45 being refunded, (B) in either case, the refunding Indebtedness by its terms, or by the terms of any agreement or instrument pursuant to which such Indebtedness is issued, does not have an Average Life that is less than the remaining Average Life of the Indebtedness being refunded and does not permit redemption or other retirement (including pursuant to any required offer to purchase to be made by the Company or a Subsidiary of the Company) of such Indebtedness at the option of the holder thereof prior to the final stated maturity of the Indebtedness being refunded, other than a redemption or other retirement at the option of the holder of such Indebtedness (including pursuant to a required offer to purchase made by the Company or a Subsidiary of the Company) which is conditioned upon a change of control of the Company pursuant to provisions substantially similar to those contained in the Indenture described under "-- Change of Control" below and (C) any Indebtedness Incurred to refund any other Indebtedness is Incurred by the obligor on the Indebtedness being refunded or by the Company; (vi) Indebtedness of the Company or its Subsidiaries, not otherwise permitted to be Incurred pursuant to clauses (i) through (v) above, which, together with any other outstanding Indebtedness Incurred pursuant to this clause (vi), has an aggregate principal amount not in excess of $15 million at any time outstanding; and (vii) Indebtedness of the Company under the Notes and Indebtedness of the Guarantors under the Guarantees. Notwithstanding anything in the Indenture to the contrary, the consummation of any Qualified Securitization Transaction shall not be deemed to be the Incurrence of Indebtedness by the Company or by any Subsidiary of the Company. Limitation on Senior Subordinated Indebtedness The Indenture will provide that (i) the Company will not directly or indirectly Incur any Indebtedness that by its terms would expressly rank senior in right of payment to the Notes and expressly rank subordinate in right of payment to any Senior Indebtedness and (ii) the Company will not permit any Guarantor to and no Guarantor will directly or indirectly Incur any Indebtedness that by its terms would expressly rank senior in right of payment to the Guarantee of such Guarantor and expressly rank subordinate in right of payment to any Guarantor Senior Indebtedness. Limitation on Restricted Payments The Indenture will provide that the Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, (i) declare or pay any dividend, or make any distribution of any kind or character (whether in cash, property or securities), in respect of any class of its Capital Stock or to the holders thereof, excluding any (x) dividends or distributions payable solely in shares of its Capital Stock (other than Disqualified Stock) or in options, warrants or other rights to acquire its Capital Stock (other than Disqualified Stock), or (y) in the case of any Subsidiary of the Company, dividends or distributions payable to the Company or a Subsidiary of the Company (other than a Securitization Subsidiary), (ii) purchase, redeem, or otherwise acquire or retire for value shares of Capital Stock of the Company or any of its Subsidiaries, any options, warrants or rights to purchase or acquire shares of Capital Stock of the Company or any of its Subsidiaries or any securities convertible or exchangeable into shares of Capital Stock of the Company or any of its Subsidiaries, excluding any such shares of Capital Stock, options, warrants, rights or securities which are owned by the Company or a Subsidiary of the Company (other than a Securitization Subsidiary), (iii) make any Investment in (other than a Permitted Investment), or payment on a guarantee of any obligation of, any Person, other than the Company or a Wholly Owned Subsidiary of the Company (other than a Securitization Subsidiary), or (iv) redeem, defease, repurchase, retire or otherwise acquire or retire for value, prior to any scheduled maturity, repayment or sinking fund payment, Indebtedness which is subordinate in right of payment to the Notes (each of the transactions described in clauses (i) through (iv) (other than any exception 46 to any such clause) being a "Restricted Payment") if at the time thereof: (1) an Event of Default, or an event that with the passing of time or giving of notice, or both, would constitute an Event of Default, shall have occurred and be continuing, or (2) upon giving effect to such Restricted Payment, the Company could not Incur at least $1.00 of additional Indebtedness pursuant to the terms of the Indenture described in clause (i) of "-- Limitation on Indebtedness" above, or (3) upon giving effect to such Restricted Payment, the aggregate of all Restricted Payments made on or after the Issue Date exceeds the sum of: (a) 50% of cumulative Consolidated Net Income of the Company (or, in the case cumulative Consolidated Net Income of the Company shall be negative, less 100% of such deficit) since the end of the fiscal quarter in which the Issue Date occurs through the last day of the fiscal quarter for which financial statements are available; plus (b) 100% of the aggregate net proceeds received after the Issue Date, including the fair market value of property other than cash (determined in good faith by the Board of Directors of the Company as evidenced by a resolution of such Board of Directors filed with the Trustee), from the issuance of Capital Stock (other than Disqualified Stock) of the Company and warrants, rights or options on Capital Stock (other than Disqualified Stock) of the Company (other than in respect of any such issuance to a Subsidiary of the Company) and the principal amount of Indebtedness of the Company or any of its Subsidiaries that has been converted into or exchanged for Capital Stock which Indebtedness was Incurred after the Issue Date; plus (c) in the case of the disposition or repayment of any Investment constituting a Restricted Payment made after the Issue Date, an amount equal to the lesser of the return of capital with respect to such Investment and the cost of such Investment, in either case, less the cost of the disposition of such Investment; provided, however, that at the time any such Investment is made the Company delivers to the Trustee a resolution of its Board of Directors to the effect that, for purposes of this "-- Limitation on Restricted Payments" covenant, such Investment constitutes a Restricted Payment made after the Issue Date; plus (d) $4 million. The foregoing provision will not be violated by (i) any dividend on any class of Capital Stock of the Company or any Subsidiary of the Company paid within 60 days after the declaration thereof if, on the date when the dividend was declared, the Company or such Subsidiary, as the case may be, could have paid such dividend in accordance with the provisions of the Indenture, (ii) the renewal, extension, refunding or refinancing of any Indebtedness otherwise permitted pursuant to the terms of the Indenture described in clause (v) of "-- Limitation on Indebtedness" above, (iii) the exchange or conversion of any Indebtedness of the Company or any Subsidiary of the Company for or into Capital Stock of the Company (other than Disqualified Stock of the Company), (iv) any payments, loans or other advances made pursuant to any employee benefit plans (including plans for the benefit of directors) or employment agreements or other compensation arrangements, in each case as approved by the Board of Directors of the Company in its good faith judgment, (v) the redemption of the Company's rights issued pursuant to the Amended and Restated Rights Agreement dated as of May 10, 1994, between the Company and Wachovia Bank of North Carolina, N.A., as Rights Agent, in an amount per right issued thereunder not to exceed that in effect on the Issue Date, (vi) so long as no Default or Event of Default has occurred and is continuing, any Investment made with the proceeds of a substantially concurrent sale of Capital Stock of the Company (other than Disqualified Stock); provided, however, that the proceeds of such sale of Capital Stock shall not be (and have not been) included in subclause (b) of clause (3) of the preceding paragraph, (vii) so long as no Default or Event of Default has occurred and is continuing, additional Investments constituting Restricted Payments in Persons or entities in the same line of business as the Company as of the Issue Date in an aggregate outstanding amount (valued at the cost thereof) not to exceed at any time $4 million, (viii) the redemption, repurchase, retirement or other acquisition of any Capital Stock of the Company in exchange for or out of the net cash proceeds of the substantially concurrent sale (other than to a Subsidiary of the Company) of Capital Stock of the Company (other than Disqualified Stock); provided, however, that the proceeds of such sale of Capital Stock shall not be (and have not been) included in subclause (b) of clause (3) of the preceding paragraph or (ix) so long as no Default or Event of Default has occurred and is continuing, the payment of cash dividends on (A) the Company's 4 1/2% Series B Cumulative Preferred Stock outstanding on the Issue Date in accordance with the terms of the Articles of Incorporation of the Company as in effect on the Issue Date and 47 (B) the Company's Common Stock not to exceed $1.5 million in any fiscal quarter of the Company plus 4.5(cent) per quarter per share of Common Stock of the Company issued on conversion of the outstanding shares of the Company's 4 1/2% Series B Cumulative Preferred Stock (subject to adjustment). Each Restricted Payment described in clauses (i), (iii), (iv), (v), (vii) and (ix) of the previous sentence shall be taken into account for purposes of computing the aggregate amount of all Restricted Payments pursuant to clause (3) of the preceding paragraph. Limitations Concerning Distributions and Transfers by Subsidiaries The Indenture will provide that the Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist any consensual encumbrance or restriction on the ability of any Subsidiary of the Company to (i) pay, directly or indirectly, dividends or make any other distributions in respect of its Capital Stock or pay any Indebtedness or other obligation owed to the Company or any Subsidiary of the Company, (ii) make loans or advances to the Company or any Subsidiary of the Company or guarantee any Indebtedness of the Company or any of its Subsidiaries or (iii) transfer any of its property or assets to the Company or any Subsidiary of the Company, except for such encumbrances or restrictions existing under or by reason of (a) any agreement in effect on the Issue Date (including pursuant to the Senior Credit Facility and agreements entered into in connection therewith) as any such agreement is in effect on such date, (b) any agreement relating to any Indebtedness Incurred by such Subsidiary prior to the date on which such Subsidiary was acquired by the Company and outstanding on such date and not Incurred in anticipation or contemplation of becoming a Subsidiary and provided such encumbrance or restriction shall not apply to any assets of the Company or its Subsidiaries other than such Subsidiary, (c) customary provisions contained in an agreement which has been entered into for the sale or disposition of all or substantially all of the Capital Stock or assets of such Subsidiary; provided, however, that such encumbrance or restriction is applicable only to such Subsidiary or assets, (d) an agreement effecting a renewal, exchange, refunding, amendment or extension of Indebtedness Incurred pursuant to an agreement referred to in clause (a) or (b) above; provided, however, that the provisions contained in such renewal, exchange, refunding, amendment or extension agreement relating to such encumbrance or restriction are no more restrictive in any material respect than the provisions contained in the agreement that is the subject thereof in the reasonable judgment of the Board of Directors of the Company as evidenced by a resolution of such Board of Directors filed with the Trustee, (e) the Indenture, (f) applicable law, (g) customary provisions restricting subletting or assignment of any lease governing any leasehold interest of any Subsidiary of the Company, (h) Indebtedness or any other contractual requirements (including pursuant to any corporate governance documents in the nature of a charter or by-laws) of a Securitization Subsidiary arising in connection with a Qualified Securitization Transaction; provided, however, that any such encumbrance or restriction applies only to such Securitization Subsidiary, (i) purchase money obligations for property acquired in the ordinary course of business that impose restrictions of the type referred to in clause (iii) of this covenant or (j) restrictions of the type referred to in clause (iii) of this covenant contained in security agreements securing Indebtedness of a Subsidiary of the Company to the extent that such Liens were otherwise incurred in accordance with "-- Limitation on Liens" below and restrict the transfer of property subject to such agreements. Limitation on Liens The Indenture will provide that the Company will not, and will not permit any of its Subsidiaries to, Incur any Lien on or with respect to any property or assets of the Company or any Subsidiary of the Company owned on the Issue Date or thereafter acquired or on the income or profits thereof to secure Indebtedness without making, or causing such Subsidiary to make, effective provision for securing the Notes (and, if the Company shall so determine, any other Indebtedness of the Company or such Subsidiary, including 48 Indebtedness which is subordinate in right of payment to the Notes; provided, however, that Liens securing the Notes and any Indebtedness pari passu with the Notes are senior to such Liens securing such subordinated Indebtedness) equally and ratably with such Indebtedness or, in the event such Indebtedness is subordinate in right of payment to the Notes or the Guarantees, prior to such Indebtedness, as to such property or assets for so long as such Indebtedness shall be so secured. The foregoing restrictions shall not apply to (i) Liens securing Senior Indebtedness of the Company or Guarantor Senior Indebtedness; (ii) Liens securing only the Notes; (iii) Liens in favor of the Company; (iv) Liens to secure Indebtedness Incurred for the purpose of financing all or any part of the purchase price or the cost of construction or improvement of the property subject to such Liens; provided, however, that (a) the aggregate principal amount of any Indebtedness secured by such a Lien does not exceed 100% of such purchase price or cost, (b) such Lien does not extend to or cover any other property other than such item of property and any improvements on such item, (c) the Indebtedness secured by such Lien is Incurred by the Company or its Subsidiary within 180 days of the acquisition, construction or improvement of such property and (d) the Incurrence of such Indebtedness is permitted by the provisions of the Indenture described under "-- Limitation on Indebtedness" above; (v) Liens on property existing immediately prior to the time of acquisition thereof (and not created in anticipation or contemplation of the financing of such acquisition); (vi) Liens on property of a Person existing at the time such Person is merged with or into or consolidated with the Company or any Subsidiary of the Company (and not created in anticipation or contemplation thereof); (vii) Liens on property of the Company or any Subsidiary of the Company in favor of the United States of America, any state thereof, or any instrumentality of either to secure payments pursuant to any contract or statute; (viii) Liens granted in connection with any Qualified Securitization Transaction; (ix) Liens existing on the Issue Date securing Indebtedness existing on the Issue Date; (x) Liens to secure Indebtedness Incurred to extend, renew, refinance or refund (or successive extensions, renewals, refinancings or refundings), in whole or in part, any Indebtedness secured by Liens referred to in the foregoing clauses (i)-(ix) so long as such Liens do not extend to any other property and the principal amount of Indebtedness so secured is not increased except for the amount of any premium required to be paid in connection with such renewal, refinancing or refunding pursuant to the terms of the Indebtedness renewed, refinanced or refunded or the amount of any premium reasonably determined by the Company as necessary to accomplish such renewal, refinancing or refunding by means of a tender offer, exchange offer or privately negotiated repurchase, plus the expenses of the Company or such Subsidiary incurred in connection with such renewal, refinancing or refunding; and (xi) Liens in favor of the Trustee as provided for in the Indenture on money or property held or collected by the Trustee in its capacity as Trustee. Limitation on Certain Asset Dispositions The Indenture will provide that the Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, make one or more Asset Dispositions for aggregate consideration of, or in respect of assets having an aggregate fair market value of, $5 million or more in any 12-month period, unless: (i) the Company or the Subsidiary, as the case may be, receives consideration for such Asset Disposition at least equal to the fair market value of the assets sold or disposed of as determined by the Board of Directors of the Company in good faith and evidenced by a resolution of such Board of Directors filed with the Trustee; (ii) not less than 75% of the consideration for the disposition consists of cash or readily marketable cash equivalents or the assumption of Indebtedness (other than non-recourse Indebtedness or any Indebtedness subordinated to the Notes) of the Company or such Subsidiary or other obligations relating to such assets (and release of the Company or such Subsidiary from all liability on the Indebtedness or other obligations assumed); and (iii) all Net Available Proceeds, less any amounts invested within 360 days of such Asset Disposition in assets related to the business of the Company (including the Capital Stock of another Person (other than the Company or any Person that is a Subsidiary of the Company immediately prior to such investment); provided, however, that immediately after giving effect to any such investment (and not prior thereto) such Person shall be a Subsidiary of the Company (other than a Securitization Subsidiary), are 49 applied, on or prior to the 360th day after such Asset Disposition, unless and to the extent that the Company shall determine to make an Offer to Purchase, either to (A) the permanent reduction and prepayment of any Senior Indebtedness then outstanding (including a permanent reduction of commitments in respect thereof) or (B) the permanent reduction and repayment of any Guarantor Senior Indebtedness then outstanding of any Subsidiary of the Company (including a permanent reduction of commitments in respect thereof). Any Net Available Proceeds from any Asset Disposition which is subject to the immediately preceding sentence that is not applied as provided in the immediately preceding sentence shall be used promptly after the expiration of the 360th day after such Asset Disposition, or promptly after the Company shall have earlier determined to not apply any Net Available Proceeds therefrom as provided in subclauses (A) or (B) of clause (iii) of the immediately preceding sentence, to make an Offer to Purchase outstanding Notes at a purchase price in cash equal to 100% of their principal amount plus accrued interest to the Purchase Date. Notwithstanding the foregoing, the Company may defer making any Offer to Purchase outstanding Notes until there are aggregate unutilized Net Available Proceeds from Asset Dispositions otherwise subject to the two immediately preceding sentences equal to or in excess of $5 million (at which time, the entire unutilized Net Available Proceeds from Asset Dispositions otherwise subject to the two immediately preceding sentences, and not just the amount in excess of $5 million, shall be applied as required pursuant to this paragraph). If any Indebtedness of the Company ranking pari passu with the Notes requires that prepayment of, or an offer to prepay, such Indebtedness be made with any Net Available Proceeds, the Company may apply such Net Available Proceeds pro rata (based on the aggregate principal amount of the Notes then outstanding and the aggregate principal amount (or accreted value, if less) of all such other Indebtedness then outstanding) to the making of an Offer to Purchase the Notes in accordance with the foregoing provisions and the prepayment or the offer to prepay such pari passu Indebtedness. The Company shall make a further Offer to Purchase Notes in an amount equal to any such Net Available Proceeds not utilized to actually prepay such other Indebtedness at a purchase price in cash equal to 100% of the principal amount of the Notes plus accrued interest to the Purchase Date. Any remaining Net Available Proceeds following the completion of the Offer to Purchase may be used by the Company for any other purpose (subject to the other provisions of the Indenture) and the amount of Net Available Proceeds then required to be otherwise applied in accordance with this covenant shall be reset to zero, subject to any subsequent Asset Disposition. These provisions will not apply to a transaction consummated in compliance with the provisions of the Indenture described under "-- Mergers, Consolidations and Certain Sales of Assets" below. In the event that the Company makes an Offer to Purchase the Notes, the Company shall comply with any applicable securities laws and regulations, including any applicable requirements of Section 14(e) of, and Rule 14e-1 under, the Exchange Act and any violation of the provisions of the Indenture relating to such Offer to Purchase occurring as a result of such compliance shall not be deemed an Event of Default or an event that with the passing of time or giving of notice, or both, would constitute an Event of Default. Limitation on Issuance and Sale of Capital Stock of Subsidiaries The Indenture will provide that the Company (a) will not, and will not permit any Subsidiary of the Company to, transfer, convey, sell or otherwise dispose of any shares of Capital Stock of such Subsidiary or any other Subsidiary (other than to the Company or a Wholly Owned Subsidiary of the Company (other than a Securitization Subsidiary)), except that the Company and any Subsidiary may, in any single transaction, sell all, but not less than all, of the issued and outstanding Capital Stock of any Subsidiary to any Person, subject to complying with the provisions of the Indenture described under "-- Limitation on Certain Asset Dispositions" above and (b) will not permit any Subsidiary of the Company to issue shares of its Capital Stock (other than directors' qualifying shares), or securities convertible into, or warrants, rights or options to subscribe for or purchase shares of, its Capital Stock to any Person other than to the Company or a Wholly Owned Subsidiary of the Company (other than a Securitization Subsidiary). 50 Limitation on Transactions with Affiliates and Related Persons The Indenture will provide that the Company will not, and will not permit any of its Subsidiaries to enter into directly or indirectly any transaction with an Affiliate or Related Person of the Company (other than the Company or a Subsidiary of the Company), including, without limitation, the purchase, sale, lease or exchange of property, the rendering of any service, or the making of any guarantee, loan, advance or Investment, either directly or indirectly, involving aggregate consideration in excess of $500,000 unless (i) a majority of the disinterested directors of the Board of Directors of the Company determines, in its good faith judgment evidenced by a resolution of such Board of Directors filed with the Trustee, that such transaction is in the best interests of the Company or such Subsidiary, as the case may be; and (ii) such transaction is, in the opinion of a majority of the disinterested directors of the Board of Directors of the Company evidenced by a resolution of such Board of Directors filed with the Trustee, on terms no less favorable to the Company or such Subsidiary, as the case may be, than those that could be obtained in a comparable arm's-length transaction with an entity that is not an Affiliate or a Related Person. The provisions of this covenant shall not apply to (i) any Qualified Securitization Transaction, (ii) any employment agreement entered into by the Company or any of its Subsidiaries in the ordinary course of business, (iii) transactions permitted by the provisions of the Indenture described above under the caption "-- Limitation on Restricted Payments" above, (iv) the payment of reasonable fees to directors of the Company or its Subsidiaries and (v) Investments in employees in the ordinary course of business. Change of Control Within 30 days following the date of the consummation of a transaction resulting in a Change of Control, the Company will commence an Offer to Purchase all outstanding Notes at a purchase price in cash equal to 101% of their principal amount plus accrued interest to the Purchase Date. Such Offer to Purchase will be consummated not earlier than 30 days and not later than 60 days after the commencement thereof. Each Holder shall be entitled to tender all or any portion of the Notes owned by such Holder pursuant to the Offer to Purchase, subject to the requirement that any portion of a Note tendered must bear an integral multiple of $1,000 principal amount. A "Change of Control" will be deemed to have occurred in the event that (whether or not otherwise permitted by the Indenture), after the Issue Date (a) any Person or any Persons acting together that would constitute a group (for purposes of Section 13(d) of the Exchange Act, or any successor provision thereto) (a "Group"), together with any Affiliates or Related Persons thereof, shall "beneficially own" (as defined in Rule 13d-3 under the Exchange Act, or any successor provision thereto) at least 35% of the voting power of the outstanding Voting Stock of the Company; (b) any sale, lease or other transfer (in one transaction or a series of related transactions) is made by the Company or any of its Subsidiaries of all or substantially all of the consolidated assets of the Company to any Person (other than a Wholly Owned Subsidiary of the Company which is a Guarantor (other than a Securitization Subsidiary)); (c) Continuing Directors cease to constitute at least a majority of the Board of Directors of the Company; or (d) the stockholders of the Company approve any plan or proposal for the liquidation or dissolution of the Company. In the event that the Company makes an Offer to Purchase the Notes, the Company shall comply with any applicable securities laws and regulations, including any applicable requirements of Section 14(e) of, and Rule 14e-1 under, the Exchange Act and any violation of the provisions of the Indenture relating to such Offer to Purchase occurring as a result of such compliance shall not be deemed an Event of Default or an event that with the passing of time or giving of notice, or both, would constitute an Event of Default. 51 With respect to the sale of assets referred to in the definition of "Change of Control," the phrase "all or substantially all" of the assets of the Company will likely be interpreted under applicable state law and will be dependent upon particular facts and circumstances. As a result, there may be a degree of uncertainty in ascertaining whether a sale or transfer of "all or substantially all" of the assets of the Company has occurred. In addition, no assurances can be given that the Company will be able to acquire Notes tendered upon the occurrence of a Change of Control. The ability of the Company to pay cash to the Holders of Notes upon a Change of Control may be limited by its then existing financial resources. The Senior Credit Facility will contain certain covenants prohibiting, or requiring waiver or consent of the lenders thereunder prior to, the repurchase of the Notes upon a Change of Control and future debt agreements of the Company may provide the same. If the Company does not obtain such waiver or consent or repay such Indebtedness, the Company will remain prohibited from repurchasing the Notes. In such event, the Company's failure to purchase tendered Notes would constitute an Event of Default under the Indenture which would in turn constitute a default under the Senior Credit Facility and possibly other Senior Indebtedness. In such circumstances, the subordination provisions of the Indenture would likely restrict payments to the Holders of the Notes. None of the provisions relating to a repurchase upon a Change of Control are waivable by the Board of Directors of the Company or the Trustee. The foregoing provisions will not prevent the Company from entering into a transaction of the types described above with management or their affiliates. In addition, such provisions may not necessarily afford the Holders of the Notes protection in the event of a highly leveraged transaction, including a reorganization, restructuring, merger or similar transaction involving the Company that may adversely affect the Holders because such transactions may not involve a shift in voting power or beneficial ownership, or even if they do, may not involve a shift of the magnitude required under the definition of Change of Control to trigger the provisions. Provision of Financial Information Whether or not the Company is subject to Section 13(a) or 15(d) of the Exchange Act, or any successor provision thereto, the Company shall file with the Commission the annual reports, quarterly reports and other documents which the Company would have been required to file with the Commission pursuant to such Section 13(a) or 15(d) or any successor provision thereto if the Company were so required, such documents to be filed with the Commission on or prior to the respective dates (the "Required Filing Dates") by which the Company would have been required so to file such documents if the Company were so required. The Company shall also in any event (a) within 15 days of each Required Filing Date (i) transmit by mail to all Holders, as their names and addresses appear in the Note Register, without cost to such Holders, and (ii) file with the Trustee, copies of the annual reports, quarterly reports and other documents which the Company is required to file with the Commission pursuant to the preceding sentence, and (b) if, notwithstanding the preceding sentence, filing such documents by the Company with the Commission is not permitted under the Exchange Act, promptly upon written request supply copies of such documents to any prospective Holder. Mergers, Consolidations and Certain Sales of Assets Neither the Company nor any Subsidiary will consolidate or merge with or into any Person, and the Company will not, and will not permit any of its Subsidiaries to, sell, assign, lease, convey or otherwise dispose of all or substantially all of the Company's consolidated assets (as an entirety or substantially an entirety in one transaction or a series of related transactions, including by way of liquidation or dissolution) to, any Person unless, in each such case: (i) the entity formed by or surviving any such consolidation or merger (if other than the Company or such Subsidiary, as the case may be), or to which such sale, 52 assignment, lease, conveyance or other disposition shall have been made (the "Surviving Entity"), is a corporation organized and existing under the laws of the United States, any state thereof or the District of Columbia; (ii) the Surviving Entity assumes by supplemental indenture all of the obligations of the Company or such Subsidiary, as the case may be, on the Notes or such Subsidiary's Guarantee, as the case may be, and under the Indenture; (iii) immediately after giving effect to such transaction and the use of any net proceeds therefrom on a pro forma basis, the Consolidated Net Worth of the Company or the Surviving Entity (in the case of any transaction involving the Company), as the case may be, would be at least equal to the Consolidated Net Worth of the Company immediately prior to such transaction; (iv) immediately after giving effect to such transaction and the use of any net proceeds therefrom on a pro forma basis, the Company or the Surviving Entity (in the case of any transaction involving the Company), as the case may be, could Incur at least $1.00 of Indebtedness pursuant to clause (i) of the provisions of the Indenture described under "-- Limitation on Indebtedness" above; (v) immediately before and after giving effect to such transaction and treating any Indebtedness which becomes an obligation of the Company or any of its Subsidiaries as a result of such transaction as having been incurred by the Company or such Subsidiary, as the case may be, at the time of the transaction, no Event of Default or event that with the passing of time or the giving of notice, or both, would constitute an Event of Default shall have occurred and be continuing; and (vi) if, as a result of any such transaction, property or assets of the Company or a Subsidiary would become subject to a Lien not excepted from the provisions of the Indenture described under "-- Limitation on Liens" above, the Company, any such Subsidiary or the Surviving Entity, as the case may be, shall have secured the Notes as required by said covenant. The provisions of this paragraph shall not apply to any merger of a Subsidiary of the Company with or into the Company or a Wholly Owned Subsidiary of the Company (other than a Securitization Subsidiary) or any transaction pursuant to which a Guarantor's Guarantee is to be released in accordance with the terms of the Guarantee and the Indenture in connection with any transaction complying with the provisions of the Indenture described under "-- Limitation on Certain Asset Dispositions" above. EVENTS OF DEFAULT The following will be Events of Default under the Indenture: (a) failure to pay principal of (or premium, if any, on) any Note when due (whether or not prohibited by the provisions of the Indenture described under "-- Subordination" above); (b) failure to pay any interest on any Note when due, continued for 30 days (whether or not prohibited by the provisions of the Indenture described under "-- Subordination" above); (c) default in the payment of principal of and interest on Notes required to be purchased pursuant to an Offer to Purchase as described under "-- Certain Covenants -- Change of Control" and "-- Certain Covenants -Limitation on Certain Asset Dispositions" above when due and payable (whether or not prohibited by the provisions of the Indenture described under "-- Subordination" above); (d) failure to perform or comply with any of the provisions described under "-- Certain Covenants -- Mergers, Consolidations and Certain Sales of Assets" above; (e) failure to perform any other covenant or agreement of the Company under the Indenture or the Notes continued for 30 days after written notice to the Company by the Trustee or Holders of at least 25% in aggregate principal amount of outstanding Notes; (f) default under the terms of one or more instruments evidencing or securing Indebtedness of the Company or any Subsidiary of the Company having an outstanding principal amount of $5 million or more individually or in the aggregate that has resulted in the acceleration of the payment of such Indebtedness or failure to pay principal when due at the stated maturity of any such Indebtedness; (g) the rendering of a final judgment or judgments (not subject to appeal) against the Company or any Subsidiary of the Company in an amount of $5 million or more (net of any amounts covered by reputable and creditworthy insurance companies) which remains undischarged or unstayed for a period of 60 days after the date on which the right to appeal has expired; (h) certain events of bankruptcy, insolvency or reorganization affecting the Company or any Material Subsidiary; and (i) the Guarantee of any Guarantor which is a Material Subsidiary ceases to be in full force and effect (other than in accordance with the terms of such Guarantee and the Indenture) or is declared null and void and 53 unenforceable or found to be invalid or any Guarantor which is a Material Subsidiary denies its liability under its Guarantee (other than by reason of a release of such Guarantor from its Guarantee in accordance with the terms of the Indenture and such Guarantee). Subject to the provisions of the Indenture relating to the duties of the Trustee, in case an Event of Default (as defined) shall occur and be continuing, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request or direction of any of the Holders, unless such Holders shall have offered to the Trustee reasonable indemnity. Subject to such provisions for the indemnification of the Trustee, the Holders of a majority in aggregate principal amount of the outstanding Notes will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee. If an Event of Default (other than an Event of Default with respect to the Company described in clause (h) of the preceding paragraph) shall occur and be continuing, either the Trustee or the Holders of at least 25% in aggregate principal amount of the outstanding Notes may accelerate the maturity of all Notes; provided, however, that after such acceleration, but before a judgment or decree based on acceleration, the Holders of a majority in aggregate principal amount of outstanding Notes may, under certain circumstances, rescind and annul such acceleration if all Events of Default, other than the non-payment of accelerated principal, have been cured or waived as provided in the Indenture. If an Event of Default specified in clause (h) of the preceding paragraph with respect to the Company occurs, the outstanding Notes will ipso facto become immediately due and payable without any declaration or other act on the part of the Trustee or any Holder. For information as to waiver of defaults, see "-- Modification and Waiver." The Indenture provides that the Trustee shall, within 30 days after the occurrence of any Default or Event of Default with respect to the Notes, give the Holders thereof notice of all uncured Defaults or Events of Default known to it; provided, however, that, except in the case of an Event of Default or a Default in payment with respect to the Notes or a Default or Event of Default in complying with "-- Certain Covenants -- Mergers, Consolidations and Certain Sales of Assets," the Trustee shall be protected in withholding such notice if and so long as the Board of Directors or responsible officers of the Trustee in good faith determine that the withholding of such notice is in the interest of the Holders of the Notes. No Holder of any Note will have any right to institute any proceeding with respect to the Indenture or for any remedy thereunder, unless such Holder shall have previously given to the Trustee written notice of a continuing Event of Default and unless the Holders of at least 25% in aggregate principal amount of the outstanding Notes shall have made written request, and offered reasonable indemnity, to the Trustee to institute such proceeding as Trustee, and the Trustee shall not have received from the Holders of a majority in aggregate principal amount of the outstanding Notes a direction inconsistent with such request and shall have failed to institute such proceeding within 60 days. However, such limitations do not apply to a suit instituted by a Holder of a Note for enforcement of payment of the principal of and premium, if any, or interest on such Note on or after the respective due dates expressed in such Note. The Company will be required to furnish to the Trustee annually a statement as to the performance by it of certain of its obligations under the Indenture and as to any default in such performance. SATISFACTION AND DISCHARGE OF INDENTURE; DEFEASANCE The Company may terminate its and the Guarantors' substantive obligations in respect of the Notes by delivering all outstanding Notes to the Trustee for cancellation and paying all sums payable by it on account of principal of, premium, if any, and interest on all Notes or otherwise. In addition to the foregoing, the 54 Company may terminate its and the Guarantors' substantive obligations in respect of the Notes (except for its obligations to pay the principal of (and premium, if any, on) and the interest on the Notes and the Guarantors' guarantee thereof) by (i) depositing with the Trustee, under the terms of an irrevocable trust agreement, money or United States Government Obligations sufficient (without reinvestment) to pay all remaining indebtedness on the Notes, (ii) delivering to the Trustee either an Opinion of Counsel or a ruling directed to the Trustee from the Internal Revenue Service to the effect that the Holders of the Notes will not recognize income, gain or loss for federal income tax purposes as a result of such deposit and termination of obligations, (iii) delivering to the Trustee an Opinion of Counsel to the effect that the Company's exercise of its option under this paragraph will not result in any of the Company, the Trustee or the trust created by the Company's deposit of funds pursuant to this provision becoming or being deemed to be an "investment company" under the Investment Company Act of 1940, as amended, and (iv) complying with certain other requirements set forth in the Indenture. In addition, the Company may terminate all of its and the Guarantors' substantive obligations in respect of the Notes (including its obligations to pay the principal of (and premium, if any, on) and interest on the Notes and the Guarantors' guarantee thereof) by (i) depositing with the Trustee, under the terms of an irrevocable trust agreement, money or United States Government Obligations sufficient (without reinvestment) to pay all remaining indebtedness on the Notes, (ii) delivering to the Trustee either a ruling directed to the Trustee from the Internal Revenue Service to the effect that the Holders of the Notes will not recognize income, gain or loss for federal income tax purposes as a result of such deposit and termination of obligations or an Opinion of Counsel based upon such a ruling addressed to the Trustee or a change in the applicable Federal tax law since the date of the Indenture, to such effect, (iii) delivering to the Trustee an Opinion of Counsel to the effect that the Company's exercise of its option under this paragraph will not result in any of the Company, the Trustee or the trust created by the Company's deposit of funds pursuant to this provision becoming or being deemed to be an "investment company" under the Investment Company Act of 1940, as amended, and (iv) complying with certain other requirements set forth in the Indenture. The Company may make an irrevocable deposit pursuant to this provision only if at such time it is not prohibited from doing so under the subordination provisions of the Indenture or certain covenants in the Senior Indebtedness and the Company has delivered to the Trustee and any Paying Agent an Officers' Certificate to that effect. GOVERNING LAW The Indenture, the Notes and the Guarantees will be governed by the laws of the State of New York without regard to principles of conflicts of laws. MODIFICATION AND WAIVER Modifications and amendments of the Indenture may be made by the Company and the Trustee with the consent of the Holders of a majority in aggregate principal amount of the outstanding Notes; provided, however, that no such modification or amendment may, without the consent of the Holder of each Note affected thereby, (a) change the Stated Maturity of the principal of or any installment of interest on any Note or alter the optional redemption or repurchase provisions of any Note or the Indenture in a manner adverse to the holders of the Notes, (b) reduce the principal amount of (or the premium) of any Note, (c) reduce the rate of or extend the time for payment of interest on any Note, (d) change the place or currency of payment of principal of (or premium) or interest on any Note, (e) modify any provisions of the Indenture relating to the waiver of past defaults (other than to add sections of the Indenture subject thereto) or the right of the holders to institute suit for the enforcement of any payment on or with respect to any Note or Guarantee or 55 the modification and amendment of the Indenture and the Notes (other than to add sections of the Indenture or the Notes which may not be amended, supplemented or waived without the consent of each holder affected), (f) reduce the percentage of the principal amount of outstanding Notes necessary for amendment to or waiver of compliance with any provision of the Indenture or the Notes or for waiver of any Default, (g) waive a default in the payment of principal of, interest on, or redemption payment with respect to, any Note (except a recision of acceleration of the Notes by the Holders as provided in the Indenture and a waiver of the payment default that resulted from such acceleration), (h) modify the ranking or priority of the Notes or the Guarantee of any Guarantor which is a Material Subsidiary or modify the definition of Senior Indebtedness or Guarantor Senior Indebtedness or amend or modify the subordination provisions of the Indenture in any manner adverse to the Holders, (i) release any Guarantor which is a Material Subsidiary from any of its obligations under its Guarantee or the Indenture otherwise than in accordance with the Indenture, or (j) modify the provisions relating to any Offer to Purchase required under the covenants described under "-- Certain Covenants -- Limitation on Certain Asset Dispositions" or "-- Certain Covenants -- Change of Control" in a manner materially adverse to the Holders. The Holders of a majority in aggregate principal amount of the outstanding Notes, on behalf of all Holders of Notes, may waive compliance by the Company with certain restrictive provisions of the Indenture. Subject to certain rights of the Trustee, as provided in the Indenture, the Holders of a majority in aggregate principal amount of the outstanding Notes, on behalf of all Holders of Notes, may waive any past default under the Indenture, except a default in the payment of principal, premium or interest or a default arising from failure to purchase any Note tendered pursuant to an Offer to Purchase, or a default in respect of a provision that under the Indenture cannot be modified or amended without the consent of the Holder of each outstanding Note affected. THE TRUSTEE The Indenture provides that, except during the continuance of a Default, the Trustee will perform only such duties as are specifically set forth in the Indenture. During the existence of a Default, the Trustee will exercise such rights and powers vested in it under the Indenture and use the same degree of care and skill in their exercise as a prudent person would exercise under the circumstances in the conduct of such person's own affairs. The Indenture and provisions of the Trust Indenture Act incorporated by reference therein contain limitations on the rights of the Trustee, should it become a creditor of the Company, any Guarantor or any other obligor upon the Notes, to obtain payment of claims in certain cases or to realize on certain property received by it in respect of any such claim as security or otherwise. The Trustee is permitted to engage in other transactions with the Company or an Affiliate of the Company; provided, however, that if it acquires any conflicting interest (as defined in the Indenture or in the Trust Indenture Act), it must eliminate such conflict or resign. CERTAIN DEFINITIONS Set forth below is a summary of certain of the defined terms used in the Indenture. Reference is made to the Indenture for the full definition of all such terms, as well as any other terms used herein for which no definition is provided. 56 "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with any specified Person. For purposes of this definition, "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Asset Disposition" means any sale, transfer or other disposition (including, without limitation, by merger, consolidation or sale-and-leaseback transaction) of (i) shares of Capital Stock of a Subsidiary of the Company (other than directors' qualifying shares) or (ii) property or assets of the Company or any Subsidiary of the Company; provided, however, that an Asset Disposition shall not include (a) any sale, transfer or other disposition of shares of Capital Stock, property or assets by a Subsidiary of the Company to the Company or to any Wholly Owned Subsidiary of the Company (other than a Securitization Subsidiary), (b) any sale, transfer or other disposition of defaulted receivables for collection or any sale, transfer or other disposition of property or assets in the ordinary course of business, (c) any isolated sale, transfer or other disposition that does not involve aggregate consideration in excess of $250,000 individually, (d) the grant in the ordinary course of business of any non-exclusive license of patents, trademarks, registrations therefor and other similar intellectual property, (e) any Lien (or foreclosure thereon) securing Indebtedness to the extent that such Lien is granted in compliance with "-- Certain Covenants -- Limitation on Liens" above, (f) any Restricted Payment permitted by "-- Certain Covenants -- Limitation on Restricted Payments" above, (g) any disposition of assets or property in the ordinary course of business to the extent such property or assets are obsolete, worn-out or no longer useful in the Company's or any of its Subsidiaries' business or (h) any Qualified Securitization Transaction. "Average Life" means, as of the date of determination, with respect to any Indebtedness for borrowed money or Preferred Stock, the quotient obtained by dividing (i) the sum of the products of the number of years from the date of determination to the dates of each successive scheduled principal or liquidation value payments of such Indebtedness or Preferred Stock, respectively, and the amount of such principal or liquidation value payments, by (ii) the sum of all such principal or liquidation value payments. "Capital Lease Obligations" of any Person means the obligations to pay rent or other amounts under a lease of (or other Indebtedness arrangements conveying the right to use) real or personal property of such Person which are required to be classified and accounted for as a capital lease or liability on the face of a balance sheet of such Person in accordance with GAAP. The amount of such obligations shall be the capitalized amount thereof in accordance with GAAP and the stated maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without payment of a penalty. "Capital Stock" of any Person means any and all shares, interests, participations or other equivalents (however designated) of corporate stock of such Person (including any Preferred Stock outstanding on the Issue Date). "Common Stock" of any Person means Capital Stock of such Person that does not rank prior, as to the payment of dividends or as to the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding up of such Person, to shares of Capital Stock of any other class of such Person. "Consolidated Cash Flow Available for Fixed Charges" of any Person means for any period the Consolidated Net Income of such Person for such period increased (to the extent Consolidated Net Income for such period has been reduced thereby) by the sum of (without duplication) (i) Consolidated Interest Expense of such 57 Person for such period, plus (ii) Consolidated Income Tax Expense of such Person for such period, plus (iii) the consolidated depreciation and amortization expense included in the income statement of such Person for such period, plus (iv) any other non-cash charges to the extent deducted from or reflected in Consolidated Net Income except for any non-cash charges that represent accruals of, or reserves for, cash disbursements to be made in any future accounting period. "Consolidated Cash Flow Ratio" of any Person means for any period the ratio of (i) Consolidated Cash Flow Available for Fixed Charges of such Person for such period to (ii) the sum of (A) Consolidated Interest Expense of such Person for such period, plus (B) the annual interest expense with respect to any Indebtedness proposed to be Incurred by such Person or its Subsidiaries, minus (C) Consolidated Interest Expense of such Person to the extent included in clause (ii)(A) with respect to any Indebtedness that will no longer be outstanding as a result of the Incurrence of the Indebtedness proposed to be Incurred, plus (D) the annual interest expense with respect to any other Indebtedness Incurred by such Person or its Subsidiaries since the end of such period to the extent not included in clause (ii)(A), minus (E) Consolidated Interest Expense of such Person to the extent included in clause (ii)(A) with respect to any Indebtedness that no longer is outstanding as a result of the Incurrence of the Indebtedness referred to in clause (ii)(D); provided, however, that in making such computation, the Consolidated Interest Expense of such Person attributable to interest on any Indebtedness bearing a floating interest rate shall be computed on a pro forma basis as if the rate in effect on the date of computation (after giving effect to any hedge in respect of such Indebtedness that will, by its terms, remain in effect until the earlier of the maturity of such Indebtedness or the date one year after the date of such determination) had been the applicable rate for the entire period; provided, further, however, that, in the event such Person or any of its Subsidiaries has made any Asset Dispositions or acquisitions of assets not in the ordinary course of business (including acquisitions of other Persons by merger, consolidation or purchase of Capital Stock) during or after such period and on or prior to the date of measurement, such computation shall be made on a pro forma basis as if the Asset Dispositions or acquisitions had taken place on the first day of such period. Calculations of pro forma amounts in accordance with this definition shall be done in accordance with Rule 11-02 of Regulation S-X under the Securities Act of 1933 or any successor provision. "Consolidated Income Tax Expense" of any Person means for any period the consolidated provision for income taxes of such Person for such period calculated on a consolidated basis in accordance with GAAP. "Consolidated Interest Expense" for any Person means for any period the consolidated interest expense included in a consolidated income statement (without deduction of interest or finance charge income) of such Person for such period calculated on a consolidated basis in accordance with GAAP, plus discount on receivables sold or other discount related to any receivables securitization transaction (including any Qualified Securitization Transaction). "Consolidated Net Income" of any Person means for any period the consolidated net income (or loss) of such Person for such period determined on a consolidated basis in accordance with GAAP; provided, however, that there shall be excluded therefrom (a) the net income (or loss) of any Person acquired by such Person or a Subsidiary of such Person in a pooling-of-interests transaction for any period prior to the date of such transaction, (b) the net income (but not net loss) of any Subsidiary of such Person which is subject to restrictions which prevent or limit the payment of dividends or the making of distributions to such Person to the extent of such restrictions (regardless of any waiver thereof), (c) the net income of any Person that is not a Subsidiary of such Person, except to the extent of the amount of dividends or other distributions representing such Person's proportionate share of such other Person's net income for such period actually paid in cash to such Person by such other Person during such period, (d) gains or losses on Asset Dispositions by such Person or its Subsidiaries, (e) all extraordinary gains and extraordinary losses 58 determined in accordance with GAAP and (f) in the case of a successor to the referent Person by consolidation or merger or as a transferee of the referent Person's assets, any earnings (or losses) of the successor corporation prior to such consolidation, merger or transfer of assets. "Consolidated Net Worth" of any Person means the consolidated stockholders' equity of such Person, determined on a consolidated basis in accordance with GAAP, less (without duplication) amounts attributable to Disqualified Stock of such Person. "Continuing Director" means a director who either was a member of the Board of Directors of the Company on the Issue Date or who became a director of the Company subsequent to the Issue Date and whose election, or nomination for election by the Company's stockholders, was duly approved by a majority of the Continuing Directors then on the Board of Directors of the Company, either by a specific vote or by approval of the proxy statement issued by the Company on behalf of the entire Board of Directors of the Company in which such individual is named as nominee for director. "Default" means any event that is, or after notice or lapse of time or both would become, an Event of Default. "Designated Senior Indebtedness" means (i) the Senior Indebtedness incurred under the Senior Credit Facility and (ii) any other Senior Indebtedness which has at the time of initial issuance an aggregate outstanding principal amount in excess of $15 million which has been designated as Designated Senior Indebtedness by the Board of Directors of the Company at the time of initial issuance in a resolution delivered to the Trustee. "Disqualified Stock" of any Person means any Capital Stock of such Person which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the option of the holder thereof, in whole or in part, on or prior to the final maturity of the Notes. "Eligible Accounts Receivable" means the face value of all "eligible receivables" of the Company and its Subsidiaries party to any credit agreement constituting the Senior Credit Facility (as such term is defined for purposes of such credit agreement). "Eligible Inventory" means the face value of all "eligible inventory" of the Company and its Subsidiaries party to any credit agreement constituting the Senior Credit Facility (as such term is defined for purposes of such credit agreement). "Exchange Act" means the Securities Exchange Act of 1934, as amended and the rules and regulations promulgated by the Commission thereunder. "GAAP" means generally accepted accounting principles, consistently applied, as in effect on the Issue Date in the United States of America, as set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as is approved by a significant segment of the accounting profession. 59 "guarantee" by any Person means any obligation, contingent or otherwise, of such Person guaranteeing any Indebtedness of any other Person (the "primary obligor") in any manner, whether directly or indirectly, and including, without limitation, any obligation of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or to purchase (or to advance or supply funds for the purchase of) any security for the payment of such Indebtedness, (ii) to purchase property, securities or services for the purpose of assuring the holder of such Indebtedness of the payment of such Indebtedness, or (iii) to maintain working capital, equity capital or other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness (and "guaranteed," "guaranteeing" and "guarantor" shall have meanings correlative to the foregoing); provided, however, that the guarantee by any Person shall not include endorsements by such Person for collection or deposit, in either case, in the ordinary course of business. "Guarantee" means the guarantee of the Notes by each Guarantor under the Indenture. "Guarantor Senior Indebtedness" means, with respect to any Guarantor, at any date, (i) all Indebtedness of such Guarantor under the Senior Credit Facility, including principal, premium, if any, and interest on such Indebtedness and all other amounts due on or in connection with such Indebtedness including all charges, fees and expenses, (ii) all other Indebtedness of such Guarantor for borrowed money, including principal, premium, if any, and interest on such Indebtedness, unless the instrument under which such Indebtedness of such Guarantor for borrowed money is created, incurred, assumed or guaranteed expressly provides that such Indebtedness for borrowed money is not senior or superior in right of payment to the Guarantee of such Guarantor, and all renewals, extensions, modifications, amendments or refinancings thereof and (iii) all interest on any Indebtedness referred to in clauses (i) and (ii) during the pendency of any bankruptcy or insolvency proceeding, whether or not allowed thereunder. Notwithstanding the foregoing, Guarantor Senior Indebtedness shall not include (a) Indebtedness which is pursuant to its terms or any agreement relating thereto or by operation of law subordinated or junior in right of payment or otherwise to any other Indebtedness of such Guarantor; provided, however, that no Indebtedness of such Guarantor shall be deemed to be subordinated or junior in right of payment or otherwise to any other Indebtedness of such Guarantor solely by reason of such other Indebtedness being secured and such Indebtedness not being secured, (b) the Guarantees, (c) any Indebtedness of such Guarantor to any of its Subsidiaries, (d) any Indebtedness which, when incurred and without respect to any election under Section 1111(b) of the Bankruptcy Code, is without recourse to such Guarantor, and (e) any Indebtedness or other obligation of such Guarantor pursuant to or in connection with any Qualified Securitization Transaction (whether entered into before or after the Issue Date). "Guarantors" means (i) each of Owens & Minor Medical, Inc., a Virginia corporation; National Medical Supply Corporation, a Delaware corporation; Owens & Minor West, Inc., a California corporation; Koley's Medical Supply, Inc., a Nebraska corporation; Lyons Physician Supply Company, an Ohio corporation; A. Kuhlman & Company, a Michigan corporation; and Stuart Medical, Inc., a Pennsylvania corporation; and (ii) each Material Subsidiary (other than a Securitization Subsidiary), whether formed or acquired after the Issue Date; provided, however, that any Material Subsidiary acquired after the Issue Date which is prohibited from entering into a Guarantee pursuant to restrictions contained in any debt instrument in existence at the time such Material Subsidiary was so acquired and not entered into in anticipation or contemplation of such acquisition shall not be required to become a Guarantor so long as any such restriction is in existence and to the extent of any such restriction. "Incur" means, with respect to any Indebtedness or other obligation of any Person, to create, issue, incur (including by conversion, exchange or otherwise), assume, guarantee or otherwise become liable in respect of such Indebtedness or other obligation or the recording, as required pursuant to GAAP or otherwise, of 60 any such Indebtedness or other obligation on the balance sheet of such Person (and "Incurrence," "Incurred" and "Incurring" shall have meanings correlative to the foregoing). Indebtedness of any Person or any of its Subsidiaries existing at the time such Person becomes a Subsidiary of the Company (or is merged into or consolidates with the Company or any of its Subsidiaries), whether or not such Indebtedness was incurred in connection with, or in contemplation of, such Person becoming a Subsidiary of the Company (or being merged into or consolidated with the Company or any of its Subsidiaries), shall be deemed Incurred at the time any such Person becomes a Subsidiary of the Company or merges into or consolidates with the Company or any of its Subsidiaries. "Indebtedness" means (without duplication), with respect to any Person, whether recourse is to all or a portion of the assets of such Person and whether or not contingent, (i) every obligation of such Person for money borrowed, (ii) every obligation of such Person evidenced by bonds, debentures, notes or other similar instruments, including obligations incurred in connection with the acquisition of property, assets or businesses, (iii) every reimbursement obligation of such Person with respect to letters of credit, bankers' acceptances or similar facilities issued for the account of such Person, (iv) every obligation of such Person issued or assumed as the deferred purchase price of property or services (but excluding trade accounts payable or accrued liabilities arising in the ordinary course of business which are not overdue or which are being contested in good faith), (v) every Capital Lease Obligation of such Person, (vi) every net obligation under interest rate swap or similar agreements or foreign currency hedge, exchange or similar agreements of such Person and (vii) every obligation of the type referred to in clauses (i) through (vi) of another Person and all dividends of another Person the payment of which, in either case, such Person has guaranteed or is responsible or liable for, directly or indirectly, as obligor, guarantor or otherwise. Indebtedness shall include the liquidation preference and any mandatory redemption payment obligations in respect of any Disqualified Stock of the Company, and any Preferred Stock of a Subsidiary of the Company. Indebtedness shall never be calculated taking into account any cash and cash equivalents held by such Person. Indebtedness shall not include (A) obligations of the Company or its Subsidiaries in respect of loans against life insurance policies of which any of them is the owner not in excess of the aggregate cash values thereof, (B) guarantees entered into prior to the Issue Date by the Company or its Subsidiaries in respect of Indebtedness of their customers in an aggregate amount of not more than $1 million or (C) the consummation of any Qualified Securitization Transaction. "Investment" by any Person means any direct or indirect loan, advance, guarantee or other extension of credit or capital contribution to (by means of transfers of cash or other property to others or payments for property or services for the account or use of others, or otherwise), or purchase or acquisition of Capital Stock, bonds, notes, debentures or other securities or evidence of Indebtedness issued by any other Person. "Issue Date" means the original issue date of the Notes. "Lien" means, with respect to any property or assets, any mortgage or deed of trust, pledge, hypothecation, assignment, security interest, lien, charge, easement (other than any easement not materially impairing usefulness or marketability), encumbrance, preference, priority or other security agreement with respect to such property or assets (including, without limitation, any conditional sale or other title retention agreement having substantially the same economic effect as any of the foregoing). "Material Subsidiary" means any Subsidiary of the Company which would constitute a "significant subsidiary" of the Company as defined in Rule 1.02 of Regulation S-X promulgated by the Commission. 61 "Net Available Proceeds" from any Asset Disposition by any Person means cash or readily marketable cash equivalents received (including by way of sale or discounting of a note, installment receivable or other receivable, but excluding any other consideration received in the form of assumption by the acquiror of Indebtedness or other obligations relating to such properties or assets or received in any other non-cash form) therefrom by such Person, including any cash received by way of deferred payment or upon the monetization or other disposition of any non-cash consideration (including notes or other securities) received in connection with such Asset Disposition, net of (i) all legal, title and recording tax expenses, commissions and other fees and expenses incurred and all federal, state, foreign and local taxes required to be accrued as a liability as a consequence of such Asset Disposition, (ii) all payments made by such Person or its Subsidiaries on any Indebtedness which is secured by such assets in accordance with the terms of any Lien upon or with respect to such assets or which must by the terms of such Lien, or in order to obtain a necessary consent to such Asset Disposition or by applicable law, be repaid out of the proceeds from such Asset Disposition, (iii) all payments made with respect to liabilities associated with the assets which are the subject of the Asset Disposition, including, without limitation, trade payables and other accrued liabilities, (iv) appropriate amounts to be provided by such Person or any Subsidiary thereof, as the case may be, as a reserve in accordance with GAAP against any liabilities associated with such assets and retained by such Person or any Subsidiary thereof, as the case may be, after such Asset Disposition, including, without limitation, liabilities under any indemnification obligations and severance and other employee termination costs associated with such Asset Disposition, until such time as such amounts are no longer reserved or such reserve is no longer necessary (at which time any remaining amounts will become Net Available Proceeds to be allocated in accordance with the provisions of clause (iii) of the covenant of the Indenture described under "-- Certain Covenants -- Limitation on Certain Asset Dispositions") and (v) all distributions and other payments made to minority interest holders in Subsidiaries of such Person or joint ventures as a result of such Asset Disposition. "Offer to Purchase" means a written offer (the "Offer") sent by the Company by first class mail, postage prepaid, to each Holder at his address appearing in the register for the Notes on the date of the Offer offering to purchase up to the principal amount of Notes specified in such Offer at the purchase price specified in such Offer (as determined pursuant to the Indenture). Unless otherwise required by applicable law, the Offer shall specify an expiration date (the "Expiration Date") of the Offer to Purchase which shall be not less than 30 days nor more than 60 days after the date of such Offer and a settlement date (the "Purchase Date") for purchase of Notes within five Business Days after the Expiration Date. The Company shall notify the Trustee at least 15 Business Days (or such shorter period as is acceptable to the Trustee) prior to the mailing of the Offer of the Company's obligation to make an Offer to Purchase, and the Offer shall be mailed by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company. The Offer shall contain all the information required by applicable law to be included therein. The Offer shall contain all instructions and materials necessary to enable such Holders to tender Notes pursuant to the Offer to Purchase. The Offer shall also state: (1) the Section of the Indenture pursuant to which the Offer to Purchase is being made; (2) the Expiration Date and the Purchase Date; (3) the aggregate principal amount of the outstanding Notes offered to be purchased by the Company pursuant to the Offer to Purchase (including, if less than 100%, the manner by which such amount has been determined pursuant to the Section of the Indenture requiring the Offer to Purchase) (the "Purchase Amount"); 62 (4) the purchase price to be paid by the Company for each $1,000 aggregate principal amount of Notes accepted for payment (as specified pursuant to the Indenture) (the "Purchase Price"); (5) that the Holder may tender all or any portion of the Notes registered in the name of such Holder and that any portion of a Note tendered must be tendered in an integral multiple of $1,000 principal amount; (6) the place or places where Notes are to be surrendered for tender pursuant to the Offer to Purchase; (7) that interest on any Note not tendered or tendered but no purchased by the Company pursuant to the Offer to Purchase will continue to accrue; (8) that on the Purchase Date the Purchase Price will become due and payable upon each Note being accepted for payment pursuant to the Offer to Purchase and that interest thereon shall cease to accrue on and after the Purchase Date; (9) that each Holder electing to tender all or any portion of a Note pursuant to the Offer to Purchase will be required to surrender such Note at the place or places specified in the Offer prior to the close of business on the Expiration Date (such Note being, if the Company or the Trustee so requires, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing); (10) that Holders will be entitled to withdraw all or any portion of Notes tendered if the Company (or its Paying Agent) receives, not later than the close of business on the fifth Business Day next preceding the Expiration Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Note the Holder tendered, the certificate number of the Note the Holder tendered and a statement that such Holder is withdrawing all or a portion of his tender; (11) that (a) if Notes in an aggregate principal amount less than or equal to the Purchase Amount are duly tendered and not withdrawn pursuant to the Offer to Purchase, the Company shall purchase all such Notes and (b) if Notes in an aggregate principal amount in excess of the Purchase Amount are tendered and not withdrawn pursuant to the Offer to Purchase, the Company shall purchase Notes having an aggregate principal amount equal to the Purchase Amount on a pro rata basis (with such adjustments as may be deemed appropriate so that only Notes in denominations of $1,000 or integral multiples thereof shall be purchased); and (12) that in the case of any Holder whose Note is purchased only in part, the Company shall execute and the Trustee shall authenticate and deliver to the Holder of such Note without service charge, a new Note or Notes, of any authorized denomination as requested by such Holder, in an aggregate principal amount equal to and in exchange for the unpurchased portion of the Note so tendered. 63 An Offer to Purchase shall be governed by and effected in accordance with the provisions above pertaining to any Offer. "Permitted Investments" means (i) Investments in marketable, direct obligations issued or guaranteed by the United States of America, or any governmental entity or agency or political subdivision thereof (provided, that the good faith and credit of the United States of America is pledged in support thereof), maturing within one year of the date of purchase; (ii) Investments in commercial paper issued by corporations or financial institutions maturing within 180 days from the date of the original issue thereof, and rated "P-1" or better by Moody's Investors Service or "A-1" or better by Standard & Poor's Corporation or an equivalent rating or better by any other nationally recognized securities rating agency; (iii) Investments in certificates of deposit issued or acceptances accepted by or guaranteed by any bank or trust company organized under the laws of the United States of America or any state thereof or the District of Columbia, in each case having capital, surplus and undivided profits totalling more than $500,000,000, maturing within one year of the date of purchase; (iv) Investments representing Capital Stock or obligations issued to the Company or any of its Subsidiaries in the course of the good faith settlement of claims against any other Person or by reason of a composition or readjustment of debt or a reorganization of any debtor of the Company or any of its Subsidiaries; (v) deposits, including interest-bearing deposits, maintained in the ordinary course of business in banks; (vi) any acquisition of the Capital Stock of any Person; provided, however, that after giving effect to any such acquisition such Person shall become a Subsidiary of the Company; (vii) trade receivables and prepaid expenses, in each case arising in the ordinary course of business; provided, however, that such receivables and prepaid expenses would be recorded as assets of such Person in accordance with GAAP; (viii) endorsements for collection or deposit in the ordinary course of business by such Person of bank drafts and similar negotiable instruments of such other Person received as payment for ordinary course of business trade receivables; (ix) any interest swap or hedging obligation with an unaffiliated Person otherwise permitted by the Indenture; (x) Investments received as consideration for an Asset Disposition in compliance with the provisions of the Indenture described under "-- Certain Covenants -- Limitation on Certain Asset Dispositions" above; (xi) Investments for which the sole consideration provided is Capital Stock of the Company (other than Disqualified Stock); (xii) loans and advances to employees made in the ordinary course of business; and (xiii) Investments outstanding on the Issue Date. "Person" means any individual, corporation, limited or general partnership, joint venture, association, joint stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Preferred Stock", as applied to the Capital Stock of any Person, means Capital Stock of such Person of any class or classes (however designated) that ranks prior, as to the payment of dividends or as to the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding up of such Person, to shares of Capital Stock of any other class of such Person. "Purchase Date" has the meaning set forth in the definition of "Offer to Purchase" above. "Qualified Securitization Transaction" means any transaction or series of transactions that has been or may be entered into by the Company or any of its Subsidiaries in connection with or reasonably related to a transaction or series of transactions in which the Company or any of its Subsidiaries may sell, convey or otherwise transfer to (i) a Securitization Subsidiary or (ii) any other Person, or may grant a security interest in, any Receivables or interests therein secured by the merchandise or services financed thereby (whether such Receivables are then existing or arising in the future) of the Company or any of its Subsidiaries, and any assets related thereto including, without limitation, all security interests in merchandise or services 64 financed thereby, the proceeds of such Receivables, and other assets which are customarily sold or in respect of which security interests are customarily granted in connection with securitization transactions involving such assets. "Receivables" means any right of payment from or on behalf of any obligor, whether constituting an account, chattel paper, instrument, general intangible or otherwise, arising from the sale or financing by the Company or any Subsidiary of the Company of merchandise or services, and monies due thereunder, security in the merchandise and services financed thereby, records related thereto, and the right to payment of any interest or finance charges and other obligations with respect thereto, proceeds from claims on insurance policies related thereto, any other proceeds related thereto, and any other related rights. "Related Person" of any Person means any other Person directly or indirectly owning (a) 5% or more of the outstanding Common Stock of such Person (or, in the case of a Person that is not a corporation, 5% or more of the equity interest in such Person) or (b) 5% or more of the combined voting power of the Voting Stock of such Person. "Securitization Subsidiary" means a Wholly Owned Subsidiary of the Company which engages in no activities other than those reasonably related to or in connection with the entering into of securitization transactions and which is designated by the Board of Directors of the Company (as provided below) as a Securitization Subsidiary (a) no portion of the Indebtedness or any other obligations (contingent or otherwise) of which (i) is guaranteed by the Company or any other Subsidiary of the Company, (ii) is recourse to or obligates the Company or any other Subsidiary of the Company in any way other than pursuant to representations, warranties and covenants (including those related to servicing) entered into in the ordinary course of business in connection with a Qualified Securitization Transaction or (iii) subjects any property or asset of the Company or any other Subsidiary of the Company, directly or indirectly, contingently or otherwise, to any Lien or to the satisfaction thereof, other than pursuant to representations, warranties and covenants (including those related to servicing) entered into in the ordinary course of business in connection with a Qualified Securitization Transaction, (b) to or with which neither the Company nor any other Subsidiary of the Company (i) provides any credit support or (ii) has any contract, agreement, arrangement or understanding other than on terms that are fair and reasonable and that are no less favorable to the Company or such Subsidiary than could be obtained from an unrelated Person (other than, in the case of subclauses (i) and (ii) of this clause (b), representations, warranties and covenants (including those relating to servicing) entered into in the ordinary course of business in connection with a Qualified Securitization Transaction and intercompany notes relating to the sale of Receivables to such Securitization Subsidiary) and (c) to which neither the Company nor any Subsidiary of the Company has any obligation to maintain or preserve such Subsidiary's financial condition or to cause such Subsidiary to achieve certain levels of operating results. Any such designation by the Board of Directors of the Company shall be evidenced to the Trustee by filing with the Trustee a certified copy of the resolutions of the Board of Directors of the Company giving effect to such designation. "Senior Credit Facility" means the Credit Agreement, dated as of _____________, 1996, among the Company as borrower thereunder, any Subsidiaries of the Company as guarantors thereunder and NationsBank, N.A., as agent on behalf of itself and the other lenders named therein, including any deferrals, renewals, extensions, replacements, refinancings or refundings thereof, or amendments, modifications or supplements thereto and any agreement providing therefor whether by or with the same or any other lender, creditors, group of lenders or group of creditors and including related notes, guarantee agreements and other instruments and agreements executed in connection therewith. 65 "Senior Indebtedness" means, at any date, (i) all Indebtedness of the Company under the Senior Credit Facility, including principal, premium, if any, and interest on such Indebtedness and all other amounts due on or in connection with such Indebtedness including all charges, fees and expenses, (ii) all other Indebtedness of the Company for borrowed money, including principal, premium, if any, and interest on such Indebtedness, unless the instrument under which such Indebtedness of the Company for money borrowed is created, incurred, assumed or guaranteed expressly provides that such Indebtedness for money borrowed is not senior or superior in right of payment to the Notes, and all renewals, extensions, modifications, amendments or refinancings thereof and (iii) all interest on any Indebtedness referred to in clauses (i) and (ii) accruing during the pendency of any bankruptcy or insolvency proceeding, whether or not allowed thereunder. Notwithstanding the foregoing, Senior Indebtedness shall not include (a) Indebtedness which is pursuant to its terms or any agreement relating thereto or by operation of law subordinated or junior in right of payment or otherwise to any other Indebtedness of the Company; provided, however, that no Indebtedness of the Company shall be deemed to be subordinate or junior in right of payment or otherwise to any other Indebtedness of the Company solely by reason of such other Indebtedness being secured and such Indebtedness not being secured, (b) the Notes, (c) any Indebtedness of the Company to any Subsidiary of the Company, (d) any Indebtedness which, when incurred and without respect to any election under Section 1111(b) of the Bankruptcy Code, is without recourse to the Company, and (e) any Indebtedness or other obligation of the Company pursuant to or in connection with any Qualified Securitization Transaction (whether entered into before or after the Issue Date). "Subsidiary" of any Person means (i) a corporation more than 50% of the outstanding Voting Stock of which is owned, directly or indirectly, by such Person or by one or more other Subsidiaries of such Person or by such Person and one or more other Subsidiaries thereof or (ii) any other Person (other than a corporation) in which such Person, or one or more other Subsidiaries of such Person or such Person and one or more other Subsidiaries thereof, directly or indirectly, has at least a majority ownership and voting power relating to the policies, management and affairs thereof; provided, however, that any trust or other entity formed by a Securitization Subsidiary in connection with a Qualified Securitization Transaction shall not be a Subsidiary of the Company for purposes of the Indenture. "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended. "Voting Stock" of any Person means the Capital Stock of such Person which ordinarily has voting power for the election of directors (or persons performing similar functions) of such Person, whether at all times or only so long as no senior class of securities has such voting power by reason of any contingency. "Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly Owned Subsidiaries of such Person or by such Person and one or more Wholly Owned Subsidiaries of such Person. 66 UNDERWRITING Under the terms and subject to the conditions contained in the Underwriting Agreement dated , 1996 (the "Underwriting Agreement"), J.P. Morgan Securities Inc., Donaldson, Lufkin & Jenrette Securities Corporation, NationsBanc Capital Markets, Inc. and Wheat, First Securities, Inc. (collectively, the "Underwriters") have severally agreed to purchase from the Company, and the Company has agreed to sell to them, severally, the principal amount of Notes set forth opposite their names below. Under the terms and conditions of the Underwriting Agreement, the Underwriters are obligated to take and pay for the entire principal amount of the Notes, if any Notes are purchased. PRINCIPAL AMOUNT J.P. Morgan Securities Inc. $ Donaldson, Lufkin & Jenrette Securities Corporation NationsBanc Capital Markets, Inc. Wheat, First Securities, Inc. Total $150,000,000 The Underwriters propose initially to offer the Notes directly to the public at the price set forth on the cover page of this Prospectus and to certain dealers at such price less a concession not in excess of % of the principal amount of the Notes. The Underwriters may allow, and such dealers may reallow, a concession not in excess of % of the principal amount of the Notes to certain other dealers. After the initial public offering of the Notes, the initial public offering price and such concessions may be changed. The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments that the Underwriters may be required to make in respect thereof. Although the Company intends to list the Notes on the New York Stock Exchange, there is currently no trading market for the Notes. The Company has been advised by the Underwriters that the Underwriters currently intend to make a market in the Notes; however, the Underwriters are not obligated to do so and may discontinue any such market making at any time without notice. No assurance can be given as to the development or liquidity of any trading market for the Notes. Certain of the Underwriters or their affiliates have provided investment banking and other financial services for the Company in the past and may do so in the future. NationsBank, N.A., an affiliate of NationsBanc Capital Markets, Inc., is a lender, the Agent and the Administrative Agent under the Senior Credit Facility and has received customary fees for acting in such capacities. 67 Upon application of the net proceeds of the Offering as described under "Use of Proceeds and Refinancing," NationsBank, N.A. will receive in excess of 10% of the net proceeds of the Offering. Pursuant to paragraph (c)(8) of Article III, Section 44 of the Rules of Fair Practice of the National Association of Securities Dealers, Inc. (the "NASD"), such receipt by NationsBank, N.A. requires that the Offering be made in compliance with certain requirements of Schedule E ("Schedule E") to the Bylaws of the NASD. In this regard, the Offering is being made pursuant to such paragraph (c)(8) and will comply with such requirements of Schedule E, and Wheat, First Securities, Inc. will act as "qualified independent underwriter" within the meaning of Schedule E and is assuming the responsibilities of acting as a qualified independent underwriter in pricing the Offering and conducting due diligence. LEGAL MATTERS The validity of the Notes will be passed upon for the Company by Hunton & Williams, Richmond, Virginia. Certain legal matters in connection with the Notes offered hereby will be passed upon for the Underwriters by Cahill Gordon & Reindel (a partnership including a professional corporation), New York, New York. Cahill Gordon & Reindel will rely as to all matters of Virginia law on the opinion of Hunton & Williams. EXPERTS The consolidated financial statements and schedule of Owens & Minor, Inc. and subsidiaries as of December 31, 1995 and 1994, and for each of the years in the three-year period ended December 31, 1995, have been included and incorporated by reference herein and elsewhere in the Registration Statement in reliance upon the reports of KPMG Peat Marwick LLP, independent auditors, appearing elsewhere and incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing. 68 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PAGE AUDITED FINANCIAL STATEMENTS Independent Auditors' Report F-2 Consolidated Balance Sheets as of December 31, 1995 and 1994 F-3 Consolidated Statements of Operations for the Years Ended December 31, 1995, 1994 and 1993 F-4 Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1994 and 1993 F-5 Notes to Consolidated Financial Statements F-6 F-1 INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders Owens & Minor, Inc.: We have audited the accompanying consolidated balance sheets of Owens & Minor, Inc. and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of operations and cash flows for each of the years in the three-year period ended December 31, 1995. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements 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, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Owens & Minor, Inc. and subsidiaries as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1995, in conformity with generally accepted accounting principles. /s/ KPMG PEAT MARWICK LLP Richmond, Virginia February 2, 1996 except as to Note 7, which is as of March 1, 1996 F-2
OWENS & MINOR, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1995 1994 --------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) ASSETS Current assets: Cash and cash equivalents $ 215 $ 513 Accounts and notes receivable, net of allowance of $6,010 in 1995 and $5,340 in 1994 265,238 290,240 Merchandise inventories 326,380 323,851 Other current assets 32,069 26,222 -------- -------- Total current assets 623,902 640,826 Property and equipment, net 39,049 38,620 Excess of purchase price over net assets acquired, net 171,911 175,956 Other assets, net 22,941 13,158 -------- -------- Total assets $857,803 $868,560 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt $ 4,055 $ 236 Accounts payable 241,048 296,878 Accrued payroll and related liabilities 5,534 11,294 Other accrued liabilities 41,602 50,630 -------- -------- Total current liabilities 292,239 359,038 Long-term debt 323,308 248,427 Accrued pension and retirement plans 6,985 4,919 -------- -------- Total liabilities 622,532 612,384 -------- -------- Shareholders' equity: Preferred stock, par value $100 per share; authorized -- 10,000 shares Series A; Participating Cumulative Preferred Stock; none issued -- -- Series B; Cumulative Preferred Stock; 4.5%, convertible; issued -- 1,150 shares 115,000 115,000 Common stock, par value $2 per share; authorized -- 200,000 shares; issued -- 30,862 shares in 1995 and 30,764 shares in 1994 61,724 61,528 Paid-in capital 2,144 1,207 Retained earnings 56,403 78,441 -------- -------- Total shareholders' equity 235,271 256,176 -------- -------- Total liabilities and shareholders' equity $857,803 $868,560 ======== ========
See accompanying notes to consolidated financial statements. F-3
OWENS & MINOR, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1995 1994 1993 ---------- ---------- ---------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Net sales $2,976,486 $2,395,803 $1,396,971 Cost of sales 2,708,668 2,163,459 1,249,660 ---------- ---------- ---------- Gross margin 267,818 232,344 147,311 ---------- ---------- ---------- Selling, general and administrative expenses 225,897 165,564 107,771 Depreciation and amortization 15,416 13,034 7,593 Interest expense, net 25,538 10,155 1,530 Discount on accounts receivable securitization 641 -- -- Nonrecurring restructuring expenses 16,734 29,594 -- ---------- ---------- ---------- Total expenses 284,226 218,347 116,894 ---------- ---------- ---------- Income (loss) before income taxes (16,408) 13,997 30,417 Income tax provision (benefit) (5,100) 6,078 11,900 ---------- ---------- ---------- Income (loss) from continuing operations (11,308) 7,919 18,517 Discontinued operations -- -- 911 Cumulative effect of change in accounting principle -- -- 706 ---------- ---------- ---------- Net income (loss) (11,308) 7,919 20,134 Dividends on preferred stock 5,175 3,309 -- ---------- ---------- ---------- Net income (loss) attributable to common stock $ (16,483) $ 4,610 $ 20,134 ========== ========== ========== Net income (loss) per common share: Continuing operations $ (.53) $ .15 $ .60 Discontinued operations -- -- .03 Cumulative effect of change in accounting principle -- -- .02 ---------- ---------- ---------- Net income (loss) per common share $ (.53) $ .15 $ .65 ========== ========== ========== Cash dividends per common share $ .18 $ .17 $ .14 ========== ========== ========== Weighted average common shares and common share equivalents 30,820 31,108 31,013 ========== ========== ==========
See accompanying notes to consolidated financial statements. F-4
OWENS & MINOR, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31, 1995 1994 1993 --------- -------- -------- (IN THOUSANDS) OPERATING ACTIVITIES Net income (loss) $ (11,308) $ 7,919 $ 20,134 Noncash charges (credits) to income Depreciation and amortization 15,416 13,034 7,593 Provision for losses on accounts and notes receivable 827 1,149 497 Provision for LIFO reserve 3,700 671 661 Gain on disposals of business segments, net -- -- (911) Cumulative effect of change in accounting principle -- -- (706) Other, net 2,581 1,093 897 --------- -------- -------- Cash provided by net income (loss) and noncash charges 11,216 23,866 28,165 Changes in operating assets and liabilities, net of effects from acquisitions Accounts and notes receivable 24,175 (144,917) (23,424) Merchandise inventories (6,229) (81,318) (28,232) Accounts payable (17,107) 22,375 13,307 Net change in other current assets and current liabilities (18,753) 25,323 (258) Other, net (4,732) 790 431 --------- -------- -------- Cash used for operating activities (11,430) (153,881) (10,011) --------- -------- -------- INVESTING ACTIVITIES Business acquisitions, net of cash acquired -- (40,608) (2,416) Additions to property and equipment (13,876) (6,634) (6,288) Additions to computer software (7,396) (1,586) (3,453) Other, net 3,597 73 76 --------- -------- -------- Cash used for investing activities (17,675) (48,755) (12,081) --------- -------- -------- FINANCING ACTIVITIES Additions to long-term debt 77,970 197,088 37,000 Reductions of long-term debt (242) (55,032) (17,471) Other short-term financing, net (38,723) 65,426 765 Cash dividends paid (10,730) (7,664) (4,222) Exercise of stock options 532 1,283 1,000 --------- -------- -------- Cash provided by financing activities 28,807 201,101 17,072 --------- -------- -------- Net decrease in cash and cash equivalents (298) (1,535) (5,020) Cash and cash equivalents at beginning of year 513 2,048 7,068 --------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 215 $ 513 $ 2,048 ========= ======== ========
See accompanying notes to consolidated financial statements. F-5 OWENS & MINOR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS IN THOUSANDS, EXCEPT PER SHARE DATA (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION Owens & Minor, Inc. is one of the two largest distributors of medical/surgical supplies in the United States. The consolidated financial statements include the accounts of Owens & Minor, Inc. and its wholly owned subsidiaries (the Company). All significant intercompany accounts and transactions have been eliminated. The preparation of the consolidated financial statements in accordance with generally accepted accounting principles requires management assumptions and estimates that affect amounts reported. Actual results may differ from these estimates. CASH AND CASH EQUIVALENTS Cash and cash equivalents include cash and marketable securities with an original maturity of three months or less. Cash and cash equivalents are stated at cost, which approximates market value. MERCHANDISE INVENTORIES As of December 31, 1995, the Company's merchandise inventories were valued on a last-in, first-out (LIFO) basis. At December 31, 1994, 64% of the Company's inventories was valued on a LIFO basis with the remainder valued on a first-in first-out (FIFO) basis. PROPERTY AND EQUIPMENT Property and equipment are stated at cost or, if acquired under capital leases, at the lower of the present value of minimum lease payments or fair market value at the inception of the lease. Normal maintenance and repairs are expensed as incurred, and renovations and betterments are capitalized. Depreciation and amortization are provided for financial reporting purposes on the straight-line method over the estimated useful lives of the assets or, for capital leases and leasehold improvements, over the terms of the lease, if shorter. In general, the estimated useful lives for computing depreciation and amortization are: 40 years for buildings and improvements; 4 to 8 years for warehouse equipment; and 3 to 8 years for computer, office and other equipment. Accelerated methods of depreciation are used for income tax purposes. EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED The excess of purchase price over net assets acquired (goodwill) is amortized on a straight-line basis over 40 years from the dates of acquisition. As of December 31, 1995 and 1994, goodwill was $181,118 and $180,615, respectively, and the related accumulated goodwill amortization was $9,207 and $4,659, respectively. Based upon management's assessment of future cash flows of acquired businesses, the carrying value of goodwill at December 31, 1995 has not been impaired. The assessment of the recoverability of goodwill will be impacted if estimated future cash flows are not achieved. COMPUTER SOFTWARE Computer software purchased in connection with major system development is capitalized. Additionally, certain software development costs are capitalized when incurred and when technological feasibility has been established. Amortization of all capitalized software costs is computed on a product-by-product basis over the estimated economic life of the product from 3 to 5 years. Computer software costs are included in other assets, net, in the Consolidated Balance Sheets. NET INCOME (LOSS) PER COMMON SHARE Net income (loss) per common share is computed by dividing the net income (loss) attributable to common stock by the weighted average number of shares of common stock and common stock equivalents outstanding during the period. The convertible preferred stock is considered a common stock equivalent; however, it has been excluded from the number of weighted average shares due to the dilutive effect of the preferred dividend. The assumed conversion of all convertible debentures has not been included in the computation because the resulting dilution is not material. F-6 OWENS & MINOR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED DERIVATIVE FINANCIAL INSTRUMENTS The Company enters into interest rate swap and cap agreements to manage interest rate risk of variable rate debt and not for trading purposes. The differences paid or received on the interest rate swaps and the amortization of the cap fees are included in interest expense. RECLASSIFICATIONS Certain amounts in prior years' consolidated financial statements and related notes have been reclassified to conform to the 1995 presentation. (2) BUSINESS ACQUISITIONS AND DIVESTITURES On May 10, 1994, the Company paid $40,200 and exchanged 1,150 shares of 4.5%, $100 par value, Series B Cumulative Preferred Stock for all the capital stock of Stuart Medical, Inc. (Stuart), a distributor of medical/surgical supplies. The Series B Cumulative Preferred Stock is convertible into approximately 7,000 shares of common stock. The transaction was accounted for as a purchase and, accordingly, the operating results of Stuart have been included in the Company's consolidated operating results since May 1, 1994. The purchase price exceeded the net assets acquired by approximately $159,000, which is being amortized on a straight-line basis over 40 years. The following unaudited pro forma results of operations for the years ended December 31, 1994 and 1993 assume the Stuart acquisition occurred January 1, 1993. The amounts reflect adjustments, such as increased interest expense on acquisition debt, amortization of the excess of purchase price over net assets acquired, reversal of nonrecurring restructuring expenses and related income tax effects. YEAR ENDED DECEMBER 31, 1994 1993 ---------- ---------- Net sales $2,718,000 $2,331,000 Net income $ 28,100 $ 24,200 Net income per common share $ .74 $ .62 The pro forma results are not necessarily indicative of what actually would have occurred if the Stuart acquisition had been in effect for the entire years presented. In addition, they are not intended to be a projection of future results. As part of the Stuart acquisition, the Company initiated a plan to close certain facilities and terminate certain employees of the former Stuart operations. The costs of this plan were included as a liability assumed from the acquisition and included in the allocation of the purchase price. During 1995, the Company incurred substantially all of the costs of exiting the former Stuart operations and charged approximately $6,500 against established acquisition liabilities. On October 1, 1994, the Company acquired substantially all the assets of Emery Medical Supply, Inc. (Emery) of Denver, Colorado for cash. The acquisition was accounted for as a purchase with the results of Emery included from the acquisition date. Pro forma results of this acquisition, assuming it had been made at the beginning of the year, would not be materially different from the results reported. In 1993, the Company issued shares of its common stock for all the outstanding common stock of Lyons Physician Supply Company (Lyons) of Youngstown, Ohio. This merger has been accounted for as a pooling of interests, and the Company's 1993 consolidated financial statements include the activity of Lyons as of January 1, 1993. Also in 1993, the Company acquired all the outstanding common stock of A. Kuhlman & Co. (Kuhlman) of Detroit, Michigan. The acquisition was accounted for as a purchase with the results of Kuhlman included from the acquisition date. The cost of the acquisition was approximately $2,900 and exceeded the net assets acquired by approximately $1,700. Pro forma results of this acquisition, assuming it had been made at the beginning of the year, would not be materially different from the results reported. The Company periodically re-evaluates the adequacy of its accruals associated with the 1992 discontinued operations related to its wholesale drug and specialty packaging segments. Accordingly, in 1993, the Company decreased its loss provision for discontinued operations by $911, net of taxes, based on settlement of previously established liabilities and changes in prior estimates of expenses. F-7 OWENS & MINOR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED (3) NONRECURRING RESTRUCTURING EXPENSES During 1995 and 1994, the Company incurred $16,734 and $29,594, respectively, of nonrecurring restructuring expenses related to two restructuring plans. Under the first plan, the Company incurred $13,189 and $29,594 in 1995 and 1994, respectively, of nonrecurring restructuring expenses in connection with the Stuart acquisition and the Company's related decision to contract out the management and operation of its mainframe computer system. These expenses were comprised primarily of duplicate facility costs (approximately $9,300 and $15,200 in 1995 and 1994, respectively), costs associated with redesigning and implementing operating processes to increase efficiencies within the combined company (approximately $3,900 and $7,100 in 1995 and 1994, respectively) and costs associated with the contracting out of the Company's mainframe computer operations (approximately $7,300 in 1994). The nonrecurring expenses include non-cash asset write-downs of approximately $3,200 in 1994 and accrued liabilities of $1,418 and $2,100 at December 31, 1995 and 1994, respectively. Under the second plan, which was implemented in December 1995, the Company incurred $3,545 of nonrecurring restructuring expenses in connection with the closing of two distribution centers and the downsizing of five distribution centers. These expenses were comprised primarily of costs associated with a reduction of employees (approximately $1,700), the write-down of non-cash assets (approximately $900) and other related exit costs (approximately $900). At December 31, 1995, the associated accrued liability balance was $2,631. (4) MERCHANDISE INVENTORIES As of December 31, 1995, all of the Company's merchandise inventories were valued on a last-in, first-out (LIFO) basis. If LIFO inventories had been valued on a current cost or first-in, first-out (FIFO) basis, they would have been greater by $21,991, $18,291 and $17,620 in 1995, 1994 and 1993, respectively. (5) PROPERTY AND EQUIPMENT The Company's investment in property and equipment consists of the following: DECEMBER 31, 1995 1994 -------- -------- Warehouse equipment $ 22,489 $ 17,375 Computer equipment 19,056 14,056 Office equipment and other 11,138 10,234 Land and buildings 9,891 13,589 Leasehold improvements 7,100 6,891 -------- -------- 69,674 62,145 Accumulated depreciation and amortization (30,625) (23,525) -------- -------- Property and equipment, net $ 39,049 $ 38,620 ======== ======== Depreciation expense for property and equipment for 1995, 1994 and 1993 was $8,523, $7,704 and $6,368, respectively. (6) ACCOUNTS PAYABLE Accounts payable balances were $241,048 and $296,878 as of December 31, 1995 and 1994, respectively, of which $192,742 and $209,849, respectively, were trade accounts payable and $48,306 and $87,029, respectively, were drafts payable. F-8 OWENS & MINOR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED (7) LONG-TERM DEBT AND REFINANCING The Company's long-term debt consists of the following:
DECEMBER 31, 1995 1994 -------- -------- Revolving credit notes under Senior Credit Agreement $313,300 $235,300 0% Subordinated Note 10,008 9,067 Convertible Subordinated Debenture 3,333 3,333 Other 722 963 -------- -------- 327,363 248,663 Current maturities (4,055) (236) -------- -------- Long-term debt $323,308 $248,427 ======== ========
Concurrently with the Stuart acquisition in 1994, the Company entered into a $350,000 Senior Credit Agreement with interest based on, at the Company's discretion, the London Interbank Offering Rate (LIBOR) or the Prime Rate. The proceeds were used to fund the $40,200 cash paid in the acquisition, repay certain long-term indebtedness of Stuart and fund working capital requirements. On February 28, 1995, the Senior Credit Agreement was amended to provide an increase in principal amount up to $425,000. The proceeds from the increase were used primarily to fund the Company's working capital and capital expenditure needs. Under certain provisions of the Senior Credit Agreement, the Company is required to maintain tangible net worth, liquidity and cash flow at specified levels. The Senior Credit Agreement also limits the amount of indebtedness the Company may incur. The Senior Credit Agreement expires in April 1999. In October 1995 and in the first quarter of 1996, the Company sought and obtained waivers of non-compliance with, and amendments to, certain financial covenants included in the Senior Credit Agreement. During 1995 and 1994, the Company entered into interest rate swap and cap agreements to reduce the potential impact of increases in interest rates under the Senior Credit Agreement. Under the swap agreements, the Company pays the counterparties a fixed interest rate, ranging from 6.35%-7.72%, and the counterparties pay the Company interest at a variable rate based on either the three-month or the six-month LIBOR. The differences paid or received on the interest rate swaps and the amortization of the cap fees are included in interest expense, net. The total notional amount of the interest rate swaps was $105,000 at December 31, 1995 and $55,000 at December 31, 1994, and the term of the agreements ranged from two to three years. Under the interest rate cap agreements, the Company receives from the counterparties amounts by which the three-month LIBOR exceeds 6.5% based on the notional amounts of the cap agreements which totaled $20,000 at December 31, 1995 and 1994. The term of these agreements is two years. The Company is exposed to certain losses in the event of nonperformance by the counterparties to these agreements. However, the Company's exposure is not material and nonperformance is not anticipated. Based on estimates of the prices obtained from a dealer at which the interest rate swap and cap agreements could be settled, the Company had unrealized losses of approximately $2,984 and $48, respectively, as of December 31, 1995, and unrealized gains of approximately $1,547 and $266, respectively, as of December 31, 1994. On May 31, 1989, the Company issued an $11,500, 0% Subordinated Note and a $3,500, 6.5% Convertible Subordinated Debenture to partially finance the acquisition of National Healthcare and Hospital Supply Corporation. The 0% Subordinated Note due May 31, 1997 was discounted for financial reporting purposes at an effective rate of 10.4% to $5,215 on the date of issuance. In 1994, the 6.5% Convertible Subordinated Debenture was exchanged for a $3,333, 9.1% Convertible Subordinated Debenture due May 1996 which is convertible into approximately 867 common shares. The Company can redeem all or any portion of the convertible debenture without penalty. Based on the borrowing rates currently available to the Company for loans with similar terms and average maturities, except for the convertible debenture which is valued at book value because the conversion price was substantially below the current market price, the fair value of long-term debt, including current maturities, was approximately $327,977 as of December 31, 1995. On December 28, 1995, the Company entered into a Receivables Financing Facility (Receivables Financing) pursuant to which a subsidiary of the Company is entitled to receive up to $75,000 from an unrelated third party purchaser at a cost of funds at F-9 OWENS & MINOR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED commercial paper rates plus a charge for administrative and credit support services. As of December 31, 1995, the Company had received approximately $59,300 under the Receivables Financing, the proceeds of which were used to reduce amounts outstanding under the Senior Credit Agreement. Prior to the Company's obtaining waivers in the first quarter of 1996 related to the Company's non-compliance with certain Senior Credit Agreement covenants, such non-compliance could have prevented further use by the Company of the Receivables Financing and certain interest rate swap and cap agreements entered into by the Company with respect to borrowings under the Senior Credit Agreement. Net interest expense includes finance charge income of $3,800, $2,000 and $1,400 in 1995, 1994 and 1993, respectively. Finance charge income represents payments from customers for past due balances on their accounts. Cash payments for interest during 1995, 1994 and 1993 were $28,955, $9,831 and $2,341, respectively. Maturities of long-term debt for the five years subsequent to 1995 are: 1996 -- $4,055; 1997 -- $10,008; 1998 -- $0; 1999 -- $313,300; and 2000 -- $0. (8) RETIREMENT PLANS PENSION AND RETIREMENT PLAN The Company has a noncontributory pension plan covering substantially all employees. Employees become participants in the plan after one year of service and attainment of age 21. Pension benefits are based on years of service and average compensation. The amount funded for this plan is not less than the minimum required under federal law nor more than the amount deductible for federal income tax purposes. Plan assets consist primarily of equity securities, including 34 shares as of December 31, 1995 of the Company's common stock, and U.S. Government securities. The Company also has a noncontributory, unfunded retirement plan for certain officers and other key employees. Benefits are based on a percentage of the employees' compensation. The Company maintains life insurance policies on plan participants to act as a financing source for the plan. The following table sets forth the plans' financial status and the amounts recognized in the Company's Consolidated Balance Sheets:
DECEMBER 31, PENSION PLAN RETIREMENT PLAN ------------ --------------- 1995 1994 1995 1994 -------- -------- ------- ------- Actuarial present value of benefit obligations: Accumulated benefit obligations Vested $(15,092) $(12,302) $(1,256) $(1,195) Non-vested (1,580) (939) (1,384) (1,018) -------- -------- ------- ------- Total accumulated benefit obligations (16,672) (13,241) (2,640) (2,213) Additional amounts related to projected salary increases (2,298) (1,446) (1,937) (1,366) -------- -------- ------- ------- Projected benefit obligations for service rendered to date (18,970) (14,687) (4,577) (3,579) Plan assets at fair market value 14,741 12,696 -- -- -------- -------- ------- ------- Plan assets under projected benefit obligations (4,229) (1,991) (4,577) (3,579) Unrecognized net loss from past experience 1,793 1,058 1,702 1,108 Unrecognized prior service cost (benefit) 334 407 (20) (22) Unrecognized net (asset) obligation being recognized over 11 and 17 years, respectively (107) (214) 287 328 Adjustment required to recognize minimum liability under SFAS 87 -- -- (31) (49) -------- -------- ------- ------- Accrued pension liability $ (2,209) $ (740) $(2,639) $(2,214) ======== ======== ======= =======
F-10 OWENS & MINOR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED The components of net periodic pension cost for both plans are as follows:
YEAR ENDED DECEMBER 31, 1995 1994 1993 ------- ------- ------- Service cost-benefits earned during the year $ 1,865 $ 1,314 $ 1,146 Interest cost on projected benefit obligations 1,425 1,232 1,056 Actual (return) loss on plan assets (2,521) 436 (1,450) Net amortization and deferral 1,470 (1,462) 453 ------- ------- ------- Net periodic pension cost $ 2,239 $ 1,520 $ 1,205 ======= ======= =======
The weighted average discount rate and rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligations were assumed to be 7.5% and 5.5% for 1995, respectively, and 8.0% and 5.5% for 1994, respectively. The expected long-term rate of return on plan assets was 8.5% for both 1995 and 1994. OTHER RETIREMENT BENEFITS Substantially all employees of the Company may become eligible for certain medical benefits if they remain employed until retirement age and fulfill other eligibility requirements specified by the plan. The plan is unfunded and is contributory with retiree contributions adjusted annually. The following table sets forth the plan's financial status and the amount recognized in the Company's Consolidated Balance Sheets:
DECEMBER 31, 1995 1994 ------- ------- Accumulated postretirement benefit obligation: Retirees $ (329) $ (246) Fully eligible active plan participants (837) (590) Other active plan participants (919) (1,391) ------- ------- Accumulated postretirement benefit obligation (2,085) (2,227) Unrecognized net (gain) loss from past experience (52) 262 ------- ------- Accrued postretirement benefit liability $(2,137) $(1,965) ======= =======
The components of net periodic postretirement benefit cost are as follows:
YEAR ENDED DECEMBER 31, 1995 1994 1993 ----- ---- ---- Service cost-benefits earned during the year $ 275 $206 $142 Interest cost on accumulated postretirement benefit obligation 152 160 122 Net amortization (120) 6 -- ----- ---- ---- Net periodic postretirement benefit cost $ 307 $372 $264 ===== ==== ====
For measurement purposes, a 12.0% annual rate of increase in the per capita cost of covered healthcare benefits was assumed for 1995; the rate was assumed to decrease gradually to 6.0% for the year 2001 and remain at that level thereafter. The healthcare cost trend rate assumption has a significant effect on the amounts reported. To illustrate, increasing the assumed healthcare cost trend rate by 1 percentage point in each year would increase the accumulated postretirement benefit obligation as of December 31, 1995 by $139 and the aggregate of the service cost and interest cost components of net periodic postretirement benefit cost for the year then ended by $42. The weighted average discount rate used in determining the accumulated postretirement benefit obligation was 7.5% for 1995 and 8.0% for 1994. F-11 OWENS & MINOR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED The Company maintains a voluntary Savings and Protection Plan covering substantially all full-time employees who have completed six months of service and have attained age 18. The Company matches a certain percentage of each employee's contribution. The Company incurred approximately $1,100 and $700 in 1995 and 1994, respectively, of expenses related to this plan. (9) SHAREHOLDERS' EQUITY On May 10, 1994, the Company issued 1,150 shares of Series B preferred stock as part of the Stuart acquisition. Each share of preferred stock has an annual dividend of $4.50, payable quarterly, has voting rights on items submitted to a vote of the holders of common stock, is convertible into approximately 6.1 shares of common stock at the shareholders' option and is redeemable by the Company after April 1997 at a price of $100. The changes in common stock, paid-in capital and retained earnings are shown as follows:
COMMON SHARES COMMON PAID-IN RETAINED OUTSTANDING STOCK CAPITAL EARNINGS TOTAL ----------- ------- ------- -------- Balance December 31, 1992 19,596 $39,191 $ 8,007 $69,461 $116,659 Common stock issued for incentive plan 31 62 387 -- 449 Proceeds from exercised stock options, including tax benefits realized of $495 119 239 1,256 -- 1,495 Net income -- -- -- 20,134 20,134 Common stock cash dividends ($.14 per share) -- -- -- (4,222) (4,222) Acquisition related payout 63 126 797 -- 923 Pooling of interests with Lyons Physician Supply Co. 476 951 (1,189) 1,743 1,505 --------- ------- ------- ------- -------- Balance December 31, 1993 20,285 40,569 9,258 87,116 136,943 Stock split (three-for-two) 10,203 20,407 (12,343) (8,064) -- Common stock issued for incentive plan 24 48 515 -- 563 Proceeds from exercised stock options, including tax benefits realized of $761 189 379 1,665 -- 2,044 Net income -- -- -- 7,919 7,919 Common stock cash dividends ($.17 per share) -- -- -- (5,221) (5,221) Preferred stock cash dividends ($4.50 per share) -- -- -- (3,309) (3,309) Acquisition related payout 63 125 2,112 -- 2,237 --------- ------- ------- ------- -------- Balance December 31, 1994 30,764 61,528 1,207 78,441 141,176 Common stock issued for incentive plan 34 68 416 -- 484 Proceeds from exercised stock options, including tax benefits realized of $117 64 128 521 -- 649 Net loss -- -- -- (11,308) (11,308) Common stock cash dividends ($.18 per share) -- -- -- (5,555) (5,555) Preferred stock cash dividends ($4.50 per share) -- -- -- (5,175) (5,175) --------- ------- ------- ------- -------- Balance December 31, 1995 30,862 $61,724 $ 2,144 $56,403 $120,271 ========= ======= ======= ======= ========
A 3-for-2 stock split was distributed on June 8, 1994 to shareholders of record as of May 24, 1994. The Company has a shareholder rights agreement under which 8/27ths of a Right is attendant to each outstanding share of common stock of the Company. Each full Right entitles the registered holder to purchase from the Company one one-hundredth of a share of Series A Participating Cumulative Preferred Stock (the Series A Preferred Stock), at an exercise price of $75 (the Purchase Price). The Rights will become exercisable, if not earlier redeemed, only if a person or group acquires 20% or more of the outstanding shares of the common stock or announces a tender offer, the consummation of which would result in ownership by a person or group of 20% or more of such outstanding shares. Each holder of a Right, upon the occurrence of certain events, will become entitled to receive, upon exercise and payment of the Purchase Price, Series A Preferred Stock (or in certain F-12 OWENS & MINOR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED circumstances, cash, property or other securities of the Company or a potential acquirer) having a value equal to twice the amount of the Purchase Price. The Rights will expire on April 30, 2004, if not earlier redeemed. (10) STOCK OPTION PLANS Under the terms of the Company's stock option plans, 3,168 shares of common stock have been reserved for future issuance at December 31, 1995. Options may be designated as either Incentive Stock Options (ISOs) or non-qualified stock options. Options granted under the plans have an exercise price equal to the fair market value of the stock on the date of grant and can be exercised up to ten years from date of grant. As of December 31, 1995, there were 1,745 non-qualified and no ISOs issued and outstanding under the plans. The changes in shares under outstanding options for each of the years in the three-year period ended December 31, 1995 are as follows:
SHARES GRANT PRICE ------ ------------ Year ended December 31, 1995 Outstanding at beginning of year 1,742 $ 3.55-16.50 Granted 221 12.50-13.56 Exercised (64) 3.55- 9.33 Expired/cancelled (154) 8.33-16.50 ------ ------------ Outstanding at end of year 1,745 $ 5.59-16.50 ------ ------------ Exercisable 978 ------ Shares available for additional grants 1,423 ------ Year ended December 31, 1994 Outstanding at beginning of year 1,031 $ 3.55- 9.83 Granted 953 14.92-16.50 Exercised (227) 3.55- 9.83 Expired/cancelled (15) 8.33-15.42 ------ ------------ Outstanding at end of year 1,742 $ 3.55-16.50 ------ ------------ Exercisable 545 ------ Shares available for additional grants 1,605 ------ Year ended December 31, 1993 Outstanding at beginning of year 855 $ 3.53- 9.33 Granted 425 8.59- 9.83 Exercised (181) 3.53- 9.33 Expired/cancelled (68) 3.55- 9.33 ------ ------------ Outstanding at end of year 1,031 $ 3.55- 9.83 ------ ------------ Exercisable 443 ------ Shares available for additional grants 2,545 ------
Stock Appreciation Rights (SARs) may be granted in conjunction with any option granted under the plans, and to the extent either is exercised, the other is cancelled. SARs are payable in cash, common stock or a combination of both, equal to the appreciation of the underlying shares from the date of grant to date of exercise, and may be exercised from one up to ten years from date of grant. As of December 31, 1995, there were no SARs issued and outstanding. F-13 OWENS & MINOR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED (11) INCOME TAXES The Company adopted Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, as of January 1, 1993. The cumulative effect of this change in accounting for income taxes was a favorable adjustment of $706 and is reported separately in the Consolidated Statement of Operations for the year ended December 31, 1993. The income tax provision (benefit) for continuing operations consists of the following:
YEAR ENDED DECEMBER 31, 1995 1994 1993 -------- ------- ------- Current tax provision (benefit) Federal $(13,009) $ 6,663 $10,405 State (172) 1,635 2,123 -------- ------- ------- Total current provision (benefit) (13,181) 8,298 12,528 -------- ------- ------- Deferred tax provision (benefit) Federal 7,731 (1,816) (555) State 350 (404) (73) -------- ------- ------- Total deferred provision (benefit) 8,081 (2,220) (628) -------- ------- ------- Income tax provision (benefit) $ (5,100) $ 6,078 $11,900 ======== ======= =======
A reconciliation of the federal statutory rate to the Company's effective income tax rate for continuing operations follows:
YEAR ENDED DECEMBER 31, 1995 1994 1993 ------ ----- ----- Federal statutory rate (34.0%) 35.0% 35.0% Increases (reductions) in the rate resulting from: State income taxes, net of federal income tax impact (3.3) 4.6 4.4 Nondeductible goodwill amortization 9.5 2.8 .5 Nontaxable income (4.5) -- -- Other, net 1.2 1.0 (.8) ------ ----- ----- Effective rate (31.1%) 43.4% 39.1% ====== ===== =====
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below:
YEAR ENDED DECEMBER 31, 1995 1994 ------- ------- Deferred tax assets: Allowance for doubtful accounts $ 2,794 $ 2,115 Accrued liabilities not currently deductible 6,802 10,912 Employee benefit plans 3,916 4,195 Merchandise inventories 1,836 1,190 Nonrecurring restructuring expenses 1,898 5,011 Property and equipment 318 -- Tax loss carryforward (net of valuation allowance of $650) 1,051 -- Other 612 3,606 ------- ------- Total deferred tax assets 19,227 27,029 ------- ------- Deferred tax liabilities: Property and equipment -- 48 Leased assets -- 165 Other 1,589 1,097 ------- ------- Total deferred tax liabilities 1,589 1,310 ------- ------- Net deferred tax asset (included in other current assets and other assets, net) $17,638 $25,719 ======= =======
F-14 OWENS & MINOR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED As of December 31, 1994, the Company had not recognized a valuation allowance for its gross deferred tax asset. At December 31, 1995, management determined, based on the Company's carryback and carryforward availability and other factors, that it is appropriate to recognize a $650 valuation allowance for state net operating losses. At December 31, 1995, the Company had net operating losses for federal income tax purposes of $21,009, some of which are available to offset federal taxable income as reported for tax years 1994, 1993 and 1992, and the remainder of which will be available to offset federal taxable income for future tax years until such losses expire in 2010. Based on the level of historical taxable income and projections of future taxable income over the periods which the deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the benefits of these deductible differences, net of existing valuation allowances at December 31, 1995. Cash payments for income taxes, including taxes on discontinued operations, for 1995, 1994 and 1993 were $6,058, $8,164 and $12,153, respectively. (12) COMMITMENTS AND CONTINGENCIES The Company has a commitment through September 1998 to outsource the management and operation of its mainframe computer. This committment is cancellable at any time on 180 days prior notice and a minimum payment of $11,515. The Company also has entered into noncancelable agreements to lease certain office and warehouse facilities with remaining terms ranging from one to twelve years. Certain leases include renewal options, generally for five-year increments. At December 31, 1995, future minimum annual payments under noncancelable agreements with original terms in excess of one year are as follows:
TOTAL ------- 1996 $15,909 1997 14,381 1998 13,287 1999 10,520 2000 7,655 Later years 19,388 ------- Total minimum payments $81,140 =======
Minimum lease payments have not been reduced by minimum sublease rentals aggregating $1,817 due in the future under noncancelable subleases. Rent expense for the years ended December 31, 1995, 1994 and 1993 was $26,991, $21,264 and $12,857, respectively. The Company sold transportation equipment with a net book value of approximately $407 in a sale/leaseback transaction in 1994. The gain realized in the sale transaction totaling $1,328 has been deferred and is being credited to income as a rent expense adjustment over the lease terms. The Company has limited concentrations of credit risk with respect to financial instruments. Temporary cash investments are placed with high credit quality institutions and concentrations within accounts and notes receivable are limited due to their geographic dispersion. No single customer accounted for 10% or more of the Company's net sales during 1995. In 1995, sales under contract to member hospitals of VHA Inc. totaled $1,180,000 or approximately 40% of the Company's net sales. As members of a national healthcare network, VHA Inc. hospitals have incentive to purchase from their primary selected distributor; however, they operate independently and are free to negotiate directly with distributors and manufacturers. F-15 OWENS & MINOR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED (13) QUARTERLY FINANCIAL DATA (UNAUDITED) The following table presents the summarized quarterly financial data for 1995 and 1994:
1995 -------- QUARTER 1ST 2ND 3RD 4TH -------- -------- -------- -------- Net sales $747,095 $743,718 $739,021 $746,652 -------- -------- -------- -------- Gross margin 72,908 70,501 59,366 65,043 -------- -------- -------- -------- Net income (loss) 4,613 1,688 (8,601) (9,008) -------- -------- -------- -------- Net income (loss) per common share $ .11 $ .01 $ (.32) $ (.33) ======== ======== ======== ========
1994 -------- QUARTER 1ST 2ND 3RD 4TH -------- -------- -------- -------- Net sales $390,794 $581,763 $693,004 $730,242 -------- -------- -------- -------- Gross margin 39,126 56,809 66,234 70,175 -------- -------- -------- -------- Net income (loss) 4,756 (5,125) 1,486 6,802 -------- -------- -------- -------- Net income (loss) per common share $ .15 $ (.19) $ .01 $ .18 ======== ======== ======== ========
F-16 [LOGO] OWENS & MINOR, INC. PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The estimated expenses, other than underwriting discounts, in connection with the Offering are as follows: Securities and Exchange Commission registration fee............. $ 51,725 NASD filing fee................................................. 15,500 Printing expenses............................................... 30,000 Legal fees and expenses......................................... 150,000 Accounting fees and expenses.................................... 50,000 Blue Sky fees and expenses, including legal fees................ 40,000 Trustee fees.................................................... 15,000 Miscellaneous expenses.......................................... 47,775 -------- Total........................................................... $ 400,000 All of the above items, except the Securities and Exchange Commission registration fee and the NASD filing fee, are estimated. ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Virginia Stock Corporation Act (the "VSCA") permits, and the Company's bylaws require, indemnification of the Company's directors and officers in a variety of circumstances, which may include indemnification for liabilities under the Securities Act of 1933, as amended (the "Securities Act"). Under sections 13.1-697 and 13.1-704 of the VSCA, a Virginia corporation generally is authorized to indemnify its directors and officers in civil or criminal actions if they acted in good faith and believed their conduct to be in the best interests of the corporation and, in the case of criminal actions, had no reasonable cause to believe that the conduct was unlawful. The Company's bylaws require indemnification of directors and officers with respect to certain liabilities, expenses and other amounts imposed upon them by reason of having been a director or officer, except in the case of willful misconduct or a knowing violation of criminal law. In addition, the Company carries insurance on behalf of directors and officers which may cover liabilities under the Securities Act. Also, section 13.1-692.1 of the VSCA permits a Virginia corporation to limit or totally eliminate the liability of a director or officer in a shareholder or derivative proceeding. The Company's bylaws provide that no damages may by assessed against a director or officer of the Company in a shareholder or derivative proceeding except for willful misconduct or a knowing violation of the criminal law or any federal or state securities law. Sections 13.1-692.1 and 13.1-696 to -704 of the VSCA are hereby incorporated herein by reference. ITEM 16. EXHIBITS 1 Form of Underwriting Agreement among Owens & Minor, Inc., the Guarantors and the Underwriters 4.1 Form of Indenture among Owens & Minor, Inc., the Guarantors and Crestar Bank, as Trustee, relating to the Notes* 4.2 Form of Senior Subordinated Note (included in Exhibit 4.1)* II-1 5 Opinion of Hunton & Williams (including consent)* 11 The computation of earnings per share can be clearly determined from the consolidated financial Statements of the Company contained in the Prospectus 12 Computation of ratios of earnings to fixed charges 23.1 Consent of KPMG Peat Marwick LLP 23.2 Consent of Hunton & Williams (included in Exhibit 5)* 24 Powers of attorney (included on the signature pages of this Registration Statement) 25 Statement of Eligibility and Qualification on Form T-1 of Crestar Bank, as the Trustee under the Trust Indenture Act of 1939 - ------------ * To be filed by amendment ITEM 17. UNDERTAKINGS 1. The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange Act that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered herein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. 2. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions described under Item 15 above, or otherwise, the registrant has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. 3. The undersigned registrant hereby undertakes that: a. For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. b. For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-2 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the County of Henrico, Commonwealth of Virginia, on the 13th day of March, 1996. OWENS & MINOR, INC. (Registrant) By: /s/ GILMER MINOR, III G. Gilmer Minor, III Chairman, President and Chief Executive Officer POWERS OF ATTORNEY Each person whose signature appears below hereby constitutes and appoints each of G. Gilmer Minor, III, and Drew St. J. Carneal, his true and lawful attorney-in-fact, for him and in his name, place and stead, to sign any and all amendments (including post-effective amendments) to this Registration Statement and to cause the same to be filed with the Securities and Exchange Commission, hereby granting to said attorneys-in-fact full power and authority to do and perform all and every act and thing whatsoever requisite or desirable to be done in and about the premises as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all acts and things that said attorney-in-fact may do or cause to be done by virtue of these presents. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities indicated on March 13, 1996. Signatures /s/ G. GILMER MINOR, III /s/ CARL G. GREFENSTETTE G. Gilmer Minor, III Carl G. Grefenstette Chairman, President and Chief Executive Director Officer and Director (Principal Executive Officer) /s/ GLENN J. DOZIER /s/ VERNARD W. HENLEY Glenn J. Dozier Vernard W. Henley Senior Vice President, Finance, Chief Director Financial Officer (Principal Financial Officer) /s/ ANN GREER RECTOR /s/ E. MORGAN MASSEY Ann G. Rector E. Morgan Massey Vice President, Controller Director (Principal Accounting Officer) /s/ JOSIAH BUNTING, III /s/ JAMES E. ROGERS Josiah Bunting, III James E. Rogers Director Director /s/ R. E. CABELL, JR. /s/ JAMES E. UKROP R. E. Cabell, Jr. James E. Ukrop Director Director /s/ JAMES B. FARINHOLT, JR. /s/ ANNE MARIE WHITTEMORE James B. Farinholt, Jr. Anne Marie Whittemore Director Director WILLIAM F. FIFE Director SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Co-Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the County of Henrico, Commonwealth of Virginia, on the 13th day of March, 1996. OWENS & MINOR MEDICAL, INC. (Co-Registrant) By: /s/ G. GILMER MINOR, III G. Gilmer Minor, III President and Chief Executive Officer POWERS OF ATTORNEY Each person whose signature appears below hereby constitutes and appoints each of G. Gilmer Minor, III, and Drew St. J. Carneal, his true and lawful attorney-in-fact, for him and in his name, place and stead, to sign any and all amendments (including post-effective amendments) to this Registration Statement and to cause the same to be filed with the Securities and Exchange Commission, hereby granting to said attorneys-in-fact full power and authority to do and perform all and every act and thing whatsoever requisite or desirable to be done in and about the premises as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all acts and things that said attorney-in-fact may do or cause to be done by virtue of these presents. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities indicated on March 13, 1996. Signatures /s/ G. GILMER MINOR, III G. Gilmer Minor, III President and Chief Executive Officer and Director (Principal Executive Officer) /s/ GLENN J. DOZIER Glenn J. Dozier Senior Vice President, Finance, Chief Financial Officer (Principal Financial and Accounting Officer) /s/ ROBERT E. ANDERSON, III Robert E. Anderson, III Director /s/ HENRY A. BERLING Henry A. Berling Director /s/ DREW ST.J. CARNEAL Drew St.J. Carneal Director /s/ CRAIG R. SMITH Craig R. Smith Director SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Co-Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the County of Henrico, Commonwealth of Virginia, on the 13th day of March, 1996. NATIONAL MEDICAL SUPPLY CORPORATION (Co-Registrant) By: /s/ G. GILMER MINOR, III G. Gilmer Minor, III President and Chief Executive Officer POWERS OF ATTORNEY Each person whose signature appears below hereby constitutes and appoints each of G. Gilmer Minor, III, and Drew St. J. Carneal, his true and lawful attorney-in-fact, for him and in his name, place and stead, to sign any and all amendments (including post-effective amendments) to this Registration Statement and to cause the same to be filed with the Securities and Exchange Commission, hereby granting to said attorneys-in-fact full power and authority to do and perform all and every act and thing whatsoever requisite or desirable to be done in and about the premises as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all acts and things that said attorney-in-fact may do or cause to be done by virtue of these presents. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities indicated on March 13, 1996. Signatures /s/ G. GILMER MINOR, III G. Gilmer Minor, III President and Chief Executive Officer and Director (Principal Executive Officer) /s/ GLENN J. DOZIER Glenn J. Dozier Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) /s/ ROBERT E. ANDERSON, III Robert E. Anderson, III Director /s/ HENRY A. BERLING Henry A. Berling Director /s/ DREW ST.J. CARNEAL Drew St.J. Carneal Director /s/ CRAIG R. SMITH Craig R. Smith Director SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Co-Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the County of Henrico, Commonwealth of Virginia, on the 13th day of March, 1996. OWENS & MINOR WEST, INC. (Co-Registrant) By: /s/ G. GILMER MINOR, III G. Gilmer Minor, III President and Chief Executive Officer POWERS OF ATTORNEY Each person whose signature appears below hereby constitutes and appoints each of G. Gilmer Minor, III, and Drew St. J. Carneal, his true and lawful attorney-in-fact, for him and in his name, place and stead, to sign any and all amendments (including post-effective amendments) to this Registration Statement and to cause the same to be filed with the Securities and Exchange Commission, hereby granting to said attorneys-in-fact full power and authority to do and perform all and every act and thing whatsoever requisite or desirable to be done in and about the premises as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all acts and things that said attorney-in-fact may do or cause to be done by virtue of these presents. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities indicated on March 13, 1996. Signatures /s/ G. GILMER MINOR, III G. Gilmer Minor, III President and Chief Executive Officer and Director (Principal Executive Officer) /s/ GLENN J. DOZIER Glenn J. Dozier Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) /s/ ROBERT E. ANDERSON, III Robert E. Anderson, III Director /s/ HENRY A. BERLING Henry A. Berling Director /s/ DREW ST.J. CARNEAL Drew St.J. Carneal Director /s/ CRAIG R. SMITH Craig R. Smith Director SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Co-Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the County of Henrico, Commonwealth of Virginia, on the 13th day of March, 1996. KOLEY'S MEDICAL SUPPLY, INC. (Co-Registrant) By: /s/ G. GILMER MINOR, III G. Gilmer Minor, III President and Chief Executive Officer POWERS OF ATTORNEY Each person whose signature appears below hereby constitutes and appoints each of G. Gilmer Minor, III, and Drew St. J. Carneal, his true and lawful attorney-in-fact, for him and in his name, place and stead, to sign any and all amendments (including post-effective amendments) to this Registration Statement and to cause the same to be filed with the Securities and Exchange Commission, hereby granting to said attorneys-in-fact full power and authority to do and perform all and every act and thing whatsoever requisite or desirable to be done in and about the premises as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all acts and things that said attorney-in-fact may do or cause to be done by virtue of these presents. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities indicated on March 13, 1996. Signatures /s/ G. GILMER MINOR, III G. Gilmer Minor, III President and Chief Executive Officer and Director (Principal Executive Officer) /s/ GLENN J. DOZIER Glenn J. Dozier Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) /s/ ROBERT E. ANDERSON, III Robert E. Anderson, III Director /s/ HENRY A. BERLING Henry A. Berling Director /s/ DREW ST.J. CARNEAL Drew St.J. Carneal Director /s/ CRAIG R. SMITH Craig R. Smith Director SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Co-Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the County of Henrico, Commonwealth of Virginia, on the 13th day of March, 1996. LYONS PHYSICIAN SUPPLY COMPANY (Co-Registrant) By: /s/ G. GILMER MINOR, III G. Gilmer Minor, III President and Chief Executive Officer POWERS OF ATTORNEY Each person whose signature appears below hereby constitutes and appoints each of G. Gilmer Minor, III, and Drew St. J. Carneal, his true and lawful attorney-in-fact, for him and in his name, place and stead, to sign any and all amendments (including post-effective amendments) to this Registration Statement and to cause the same to be filed with the Securities and Exchange Commission, hereby granting to said attorneys-in-fact full power and authority to do and perform all and every act and thing whatsoever requisite or desirable to be done in and about the premises as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all acts and things that said attorney-in-fact may do or cause to be done by virtue of these presents. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities indicated on March 13, 1996. Signatures /s/ G. GILMER MINOR, III G. Gilmer Minor, III President and Chief Executive Officer and Director (Principal Executive Officer) /s/ GLENN J. DOZIER Glenn J. Dozier Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) /s/ ROBERT E. ANDERSON, III Robert E. Anderson, III Director /s/ CRAIG R. SMITH Craig R. Smith Director SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Co-Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the County of Henrico, Commonwealth of Virginia, on the 13th day of March, 1996. A. KUHLMAN & COMPANY (Co-Registrant) By: /s/ G. GILMER MINOR, III G. Gilmer Minor, III President and Chief Executive Officer POWERS OF ATTORNEY Each person whose signature appears below hereby constitutes and appoints each of G. Gilmer Minor, III, and Drew St. J. Carneal, his true and lawful attorney-in-fact, for him and in his name, place and stead, to sign any and all amendments (including post-effective amendments) to this Registration Statement and to cause the same to be filed with the Securities and Exchange Commission, hereby granting to said attorneys-in-fact full power and authority to do and perform all and every act and thing whatsoever requisite or desirable to be done in and about the premises as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all acts and things that said attorney-in-fact may do or cause to be done by virtue of these presents. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities indicated on March 13, 1996. Signatures /s/ G. GILMER MINOR, III G. Gilmer Minor, III President and Chief Executive Officer and Director (Principal Executive Officer) /s/ GLENN J. DOZIER Glenn J. Dozier Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) /s/ ROBERT E. ANDERSON, III Robert E. Anderson, III Director /s/ CRAIG R. SMITH Craig R. Smith Director SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Co-Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the County of Henrico, Commonwealth of Virginia, on the 13th day of March, 1996. STUART MEDICAL, INC. (Co-Registrant) By: /s/ G. GILMER MINOR, III G. Gilmer Minor, III President and Chief Executive Officer POWERS OF ATTORNEY Each person whose signature appears below hereby constitutes and appoints each of G. Gilmer Minor, III, and Drew St. J. Carneal, his true and lawful attorney-in-fact, for him and in his name, place and stead, to sign any and all amendments (including post-effective amendments) to this Registration Statement and to cause the same to be filed with the Securities and Exchange Commission, hereby granting to said attorneys-in-fact full power and authority to do and perform all and every act and thing whatsoever requisite or desirable to be done in and about the premises as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all acts and things that said attorney-in-fact may do or cause to be done by virtue of these presents. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities indicated on March 13, 1996. Signatures /s/ G. GILMER MINOR, III G. Gilmer Minor, III President and Chief Executive Officer and Director (Principal Executive Officer) /s/ GLENN J. DOZIER Glenn J. Dozier Senior Vice President, Finance, Chief Financial Officer (Principal Financial and Accounting Officer) /s/ ROBERT E. ANDERSON, III Robert E. Anderson, III Director /s/ HENRY A. BERLING Henry A. Berling Director /s/ DREW ST.J. CARNEAL Drew St.J. Carneal Director /s/ CRAIG R. SMITH Craig R. Smith Director EXHIBIT INDEX
Exhibit Page 1 Form of Underwriting Agreement among Owens & Minor, Inc., the Guarantors and the Underwriters 4.1 Form of Indenture among Owens & Minor, Inc., the Guarantors and Crestar Bank, as Trustee, relating to the Notes* 4.2 Form of Senior Subordinated Note (included in Exhibit 4.1)* 5 Opinion of Hunton & Williams (including consent)* 11 The computation of earnings per share can be clearly determined from the consolidated financial statements of the Company contained in the Prospectus 12 Computation of ratios of earnings to fixed charges 23.1 Consent of KPMG Peat Marwick LLP 23.2 Consent of Hunton & Williams (included in Exhibit 5)* 24 Powers of attorney (included on the signature pages of this Registration Statement) 25 Statement of Eligibility and Qualification on Form T-1 of Crestar Bank, as the Trustee under the Trust Indenture Act of 1939
- -------------- *To be filed by amendment EX-1 2 UNDERWRITING AGREEMENT EXHIBIT 1 UNDERWRITING AGREEMENT Owens & Minor, Inc. $150,000,000 _______% Senior Subordinated Notes due 2006 __________, 1996 J.P. MORGAN SECURITIES INC. DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION NATIONSBANC CAPITAL MARKETS, INC. WHEAT FIRST BUTCHER SINGER c/o J.P. Morgan Securities Inc. 60 Wall Street New York, New York 10260 Ladies and Gentlemen: Owens & Minor, Inc., a Virginia corporation (the "Company"), proposes to issue and sell to the underwriters listed in Schedule I hereto (collectively, the "Underwriters") $150,000,000 aggregate principal amount of its ________% Senior Subordinated Notes due 2006 (the "Notes"). The Notes will be issued pursuant to the provisions of an Indenture to be dated as of ____________, 1996 (the "Indenture") among the Company, the Guarantors (as hereinafter defined) and Crestar Bank, as Trustee (the "Trustee"). The Notes will be unconditionally guaranteed, jointly and severally, on a senior subordinated unsecured basis by each of Owens & Minor Medical, Inc., a Virginia corporation; National Medical Supply Corporation, a Delaware corporation; Owens & Minor West, Inc., a California corporation; Koley's Medical Supply, Inc., a Nebraska corporation; Lyons Physician Supply Company, an Ohio corporation; A. Kuhlman & Company, a Michigan corporation; and Stuart Medical, Inc., a Pennsylvania corporation (each a "Guarantor" and collectively the "Guarantors"). Such guarantees are hereinafter referred to as the "Guarantees," and the Notes and the Guarantees are hereinafter referred to as the "Securities." The Company and the Guarantors are collectively referred to herein as the "Registrants." The Registrants have prepared and filed with the Securities and Exchange Commission (the "Commission") in accordance with the provisions of the Securities Act of 1933, as -2- amended, and the rules and regulations of the Commission thereunder (collectively, the "Securities Act"), a registration statement on Form S-3 (File No. 33-________), including a prospectus, relating to the Securities. The registration statement as amended at the time when it shall become effective, or, if post-effective amendments are filed with respect thereto, as amended by such post-effective amendments at the time of their effectiveness, including in each case information (if any) deemed to be part of the registration statement at the time of effectiveness pursuant to Rule 430A under the Securities Act, together with any related registration statement filed with the Commission for registration of a portion of the Securities which registration statement becomes effective pursuant to Rule 462(b) under the Securities Act, is hereinafter referred to as the "Registration Statement," and the prospectus in the form first used to confirm sales of Securities is hereinafter referred to as the "Prospectus." Any reference in this Agreement to the Registration Statement, any preliminary prospectus or the Prospectus shall be deemed to refer to and include the documents incorporated by reference therein pursuant to Item 12 of Form S-3 under the Securities Act, as of the effective date of the Registration Statement or the date of such preliminary prospectus or the Prospectus, as the case may be, and any reference to "amend," "amendment" or "supplement" with respect to the Registration Statement, any preliminary prospectus or the Prospectus shall be deemed to refer to and include any documents filed after such date under the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission thereunder (collectively, the "Exchange Act"), that are deemed to be incorporated by reference therein. The Company hereby agrees with each Underwriter as follows: 1. The Company hereby agrees to issue and sell the Securities to the several Underwriters as hereinafter provided, and each Underwriter, upon the basis of the representations and warranties herein contained, but subject to the conditions hereinafter stated, agrees to purchase, severally and not jointly, from the Company the respective principal amount of Securities set forth opposite such Underwriter's name in Schedule I hereto at a price equal to _______% of their principal amount. 2. The Company understands that the Underwriters intend (i) to make a public offering of the Securities as soon as they deem advisable after the Registration Statement and this Agreement have become effective and the Indenture has been qualified under the Trust Indenture Act of 1939, as amended, and the rules and regulations of the Commission thereunder (collectively, the "Trust -3- Indenture Act") and (ii) initially to offer the Securities upon the terms set forth in the Prospectus. 3. Payment for the Securities shall be made to the Company or to its order by certified or official bank check or checks payable in New York Clearing House or other next day funds (unless the Company requests payment in same day funds, in which event such payment shall be made by wire transfer of same day funds net of the Underwriters' costs associated with the payment in same day funds for the Securities) at the office of Cahill Gordon & Reindel, 80 Pine Street, New York, New York at 10:00 A.M., New York City time, on ________, 1996, or at such other time on the same or such other date, not later than the fifth Business Day thereafter, as the Underwriters and the Company may agree upon in writing. The time and date of such payment for the Securities are referred to herein as the "Closing Date." As used herein, the term "Business Day" means any day other than a day on which banks are permitted or required to be closed in New York City. Payment for the Securities to be purchased on the Closing Date shall be made against delivery to the Underwriters of the certificates for the Securities to be purchased on such date registered in such names and in such denominations as the Underwriters shall request in writing not later than two full Business Days prior to the Closing Date, with any transfer taxes payable in connection with the transfer to the Underwriters of the Securities duly paid by the Company. The certificates for the Securities will be made available for inspection and packaging by the Underwriters in New York, New York not later than 1:00 P.M., New York City time, on the Business Day prior to the Closing Date. 4. Each of the Registrants, jointly and severally, represents and warrants to each of the Underwriters that: (a) no order preventing or suspending the use of any preliminary prospectus filed as part of the Registration Statement has been issued by the Commission, and each preliminary prospectus filed as part of the Registration Statement, as originally filed or as part of any amendment thereto, or filed pursuant to Rule 424 under the Securities Act, complied when so filed in all material respects with the Securities Act, and did not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, provided that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information -4- relating to any Underwriter furnished to any Registrant in writing by such Underwriter expressly for use therein; (b) no stop order suspending the effectiveness of the Registration Statement has been issued and no proceeding for that purpose has been instituted or, to the knowledge of any Registrant, threatened by the Commission; and the Registration Statement and the Prospectus (as amended or supplemented if the Registrants shall have furnished any amendments or supplements thereto) comply, or will comply, as the case may be, in all material respects with the Securities Act and the Trust Indenture Act and do not, and will not, as of the applicable effective date as to the Registration Statement and any amendment thereto and as of the date of the Prospectus and any amendment or supplement thereto, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and the Prospectus, as amended or supplemented at the Closing Date, will not, as of the Closing Date, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that the foregoing representations and warranties shall not apply to statements or omissions in the Registration Statement or the Prospectus made in reliance upon and in conformity with information relating to any Underwriter furnished to any Registrant in writing by such Underwriter expressly for use therein or to the Statement of Eligibility on Form T-1 of the Trustee under the Trust Indenture Act filed as an exhibit to the Registration Statement; (c) the documents incorporated by reference in the Prospectus, when they were filed with the Commission, conformed in all material respects to the requirements of the Exchange Act and none of such documents contained an untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein, in the light of the circumstances under which they are made, not misleading; and any further documents so filed and incorporated by reference in the Prospectus, when such documents are filed with the Commission, will conform in all material respects to the requirements of the Exchange Act, and will not contain an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; -5- (d) the audited financial statements, and the related notes thereto, included or incorporated by reference in the Registration Statement and the Prospectus present fairly the consolidated financial position of the Company and its subsidiaries and the results of their operations and the changes in their consolidated cash flows as of the dates and for the periods indicated, and said financial statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis throughout the periods involved, and the financial statement schedules included or incorporated by reference in the Registration Statement include all the information required to be stated therein; the summary and selected financial and statistical data included in the Registration Statement and the Prospectus present fairly the information shown therein and have been prepared and compiled on a basis consistent with the audited financial statements included or incorporated by reference therein, except as otherwise stated therein; and KPMG Peat Marwick LLP, whose report on the audited financial statements included in the Registration Statement and the Prospectus appears in the Prospectus, are independent accountants as required by the Securities Act; (e) the Company has no subsidiaries other than those subsidiaries (the "Subsidiaries") listed on Exhibit 21 to the Registration Statement and all the Subsidiaries, other than O&M Funding Corp., a Virginia corporation, are Guarantors; the Company owns, directly or indirectly, free and clear of any mortgage, pledge, security interest, lien, claim or other encumbrance, all of the outstanding capital stock of the Subsidiaries; all of the outstanding capital stock of the Subsidiaries has been duly authorized and validly issued and is fully paid and nonassessable; (f) since the respective dates as of which information is given in the Registration Statement and the Prospectus, there has not been (A) any change in the Company's issued capital stock, warrants or options, except pursuant to the exercise of such options or warrants or pursuant to the issuance of the Company's common stock under the Company's stock purchase plan, savings plan or dividend reinvestment plan, or (B) any material adverse change, or any development involving a prospective material adverse change, in or affecting the general affairs, management, business, prospects, financial position, shareholder's equity or results of operations of the Company and the Subsidiaries, taken as a whole (a "Material Adverse Change"), otherwise than as set forth or contemplated in the Prospectus; -6- (g) since the respective dates as of which information is given in the Registration Statement and the Prospectus, and except as disclosed or contemplated therein, (i) there have been no transactions entered into by the Company or by any of the Subsidiaries, including those entered into in the ordinary course of business, which are material to the Company and the Subsidiaries taken as a whole; and (ii) there has been no dividend or distribution of any kind declared, paid or made by the Company on any class of its capital stock other than normal quarterly dividends declared or paid on the Company's capital stock consistent with past practice; (h) each of the Company and the Subsidiaries has been duly incorporated under the laws of its jurisdiction of incorporation; each of the Company and the Subsidiaries is a validly existing corporation in good standing under the laws of its jurisdiction of incorporation, with full power and corporate authority to own, lease and operate its properties and conduct its business as described in the Registration Statement and the Prospectus and is duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties, or conducts any business, so as to require such qualification, except where the failure to be so qualified or in good standing would not, individually or in the aggregate, have a material adverse effect on the general affairs, management, business, prospects, financial position, shareholders' equity or results of operations of the Company and the Subsidiaries, taken as a whole (a "Material Adverse Effect"); (i) this Agreement has been duly authorized, executed and delivered by each of the Registrants; (j) the execution and delivery of the Indenture has been duly and validly authorized by the Company and each of the Guarantors and the Indenture has been qualified under the Trust Indenture Act and, when executed and delivered by the Company and each of the Guarantors (assuming due authorization, execution and delivery thereof by the Trustee), the Indenture will constitute a legal, valid and binding agreement of the Company and each of the Guarantors enforceable against the Company and each of the Guarantors in accordance with its terms, except that the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally and (ii) general principles of equity and the discretion of the court before -7- which any proceeding therefor may be brought; and the Securities (including the Guarantees) and the Indenture conform in all material respects to the descriptions thereof in the Prospectus; (k) the Notes have been duly authorized by the Company and the Guarantees have been duly authorized by each of the Guarantors and, when executed and authenticated in accordance with the terms of the Indenture and delivered to and paid for by the Underwriters, the Notes will constitute legal, valid and binding obligations of the Company and the Guarantees will constitute legal, valid and binding obligations of each Guarantor, in each case enforceable in accordance with their terms, except that the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally and (ii) general principles of equity and the discretion of the court before which any proceeding therefor may be brought; (l) the agreements, documents and instruments relating to the New Senior Credit Facility (as defined in the Prospectus), (collectively, the "Credit Documents"), when executed and delivered by the Company and the Subsidiaries party thereto (A) will constitute legal, valid and binding agreements of the Company and such Subsidiaries, enforceable against the Company and each such Subsidiary in accordance with their respective terms, except that the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally and (ii) general principles of equity and the discretion of the court before which any proceeding therefor may be brought and (B) will be in substantially the form thereof provided to the Underwriters prior to the date of the Prospectus; as of the Closing Date the Credit Documents will be in effect on the terms described in the Prospectus; and the description in the Prospectus of the Credit Documents is accurate and complete in all material respects; (m) the agreements, documents and instruments executed and delivered in connection with the Receivables Financing (as defined in the Prospectus), as amended and in effect as of the date of the Prospectus (collectively, the "Receivables Documents"), constitute legal, valid and binding agreements of the Company and each of the Subsidiaries a party thereto enforceable against the Company and each such Subsidiary in accordance with their respective terms, except that the -8- enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally and (ii) general principles of equity and the discretion of the court before which any proceeding therefor may be brought; except as described in the Prospectus, as of the Closing Date the Receivables Documents will be in effect on the terms described in the Prospectus; and the description in the Prospectus of the Receivables Documents is accurate and complete in all material respects; (n) the execution and delivery by the Company and each of the Guarantors of, and the performance by the Company and each of the Guarantors of all of the provisions of their respective obligations under, this Agreement, the Indenture and the Securities (including the Guarantees) and the consummation by the Company and each of the Guarantors of the transactions herein and therein contemplated and as set forth under "Use of Proceeds and Refinancing" in the Prospectus (i) have been duly authorized by all necessary corporate action on the part of the Company and each of the Guarantors, (ii) do not and will not result in any violation of the Articles of Incorporation or the By-laws of the Company or any Subsidiary, (iii) do not and will not result in any right to terminate, or automatic termination of, commitments to purchase receivables under the Receivables Documents and (iv) do not and will not conflict with, or result in a breach or violation of any of the terms or provisions of, or constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default) under, or give rise to any right to accelerate the maturity or require the prepayment of any indebtedness or the purchase of any capital stock under, or result in the creation or imposition of any lien, charge or encumbrance upon any properties or assets of the Company or of any Subsidiary under, (A) any contract, indenture, mortgage, deed of trust, loan agreement, note, lease, partnership agreement or other agreement or instrument to which the Company or any such Subsidiary is a party or by which any of them may be bound or to which any of their respective properties or assets may be subject, except for any breach, violation or default that individually or in the aggregate could not reasonably be expected to have a Material Adverse Effect, (B) any applicable law or statute, rule or regulation (other than the securities or Blue Sky laws of the various states of the United States of America), except for violations that individually or in the aggregate could not reasonably be expected to have a Material Adverse Effect or (C) any judgment, order or decree of any government, governmental -9- instrumentality, agency, body or court, domestic or foreign, having jurisdiction over the Company or any such Subsidiary or any of their respective properties or assets; (o) the Company and each of the Subsidiaries have good and marketable title in fee simple to all items of real property and good and marketable title to all personal property owned by them, in each case free and clear of all liens, encumbrances and defects except such as are described in the Prospectus or such as do not materially affect the value of such property and do not interfere with the use made or proposed to be made of such property by the Company and the Subsidiaries; and any real property and buildings held under lease by the Company and the Subsidiaries are held by them under valid, existing and enforceable leases with such exceptions as are not material and do not interfere with the use made or proposed to be made of such property and buildings by the Company or the Subsidiaries; (p) no authorization, approval, consent, order, registration, qualification or license of, or filing with, any government, governmental instrumentality, agency, body or court, domestic or foreign, or third party (other than as have been or, if the Registration Statement has not been declared effective, will be prior to the Closing Date obtained under the Securities Act or the Trust Indenture Act or as may be required under the securities or Blue Sky laws of the various states of the United States of America) is required for the valid authorization, issuance, sale and delivery of the Securities (including the Guarantees), or the performance by the Company or any Guarantor of all of its obligations under this Agreement, the Indenture and the Securities (including the Guarantees), or the consummation by the Company of the transactions contemplated by this Agreement, the Indenture or the "Use of Proceeds and Refinancing" section of the Prospectus; (q) neither the Company nor any of the Subsidiaries (i) is in violation of its Articles of Incorporation (or other applicable charter document) or By-Laws or (ii) is in breach or violation of any of the terms or provisions of, or with the giving of notice or lapse of time, or both, would be in default under, any contract, indenture, mortgage, deed of trust, loan agreement, note, lease, partnership agreement, or other agreement or instrument to which the Company or any Subsidiary is a party or by which any of them may be bound or to which any of their properties or assets may be subject, except for such violations or defaults that would not, -10- individually or in the aggregate, have a Material Adverse Effect; no event has occurred which gives rise to the right to terminate, or results in the automatic termination of, the commitments to purchase receivables under the Receivables Documents; (r) other than as set forth in the Prospectus, there are no legal or governmental proceedings pending or, to the knowledge of any Registrant, threatened to which the Company or any of the Subsidiaries is or may be a party or to which any property of the Company or any of the Subsidiaries is or may be the subject which, if determined adversely to the Company or any of the Subsidiaries, could individually or in the aggregate be expected to have a Material Adverse Effect and, to the best of the Company's knowledge, no such proceedings are threatened or contemplated by governmental authorities or threatened by others; (s) each of the Company and the Subsidiaries owns, possesses or has obtained all material licenses, permits, certificates, consents, orders, approvals and other authorizations from, and has made all declarations and filings with, all federal, state, local and other governmental authorities (including foreign regulatory agencies) and all courts and other tribunals, domestic or foreign, necessary to own or lease, as the case may be, and to operate its properties and to carry on its business as conducted as of the date hereof and each of them is in full force and effect, except in each case where the failure to obtain licenses, permits, certificates, consents, orders, approvals and other authorizations, or to make all declarations and filings, would not, individually or in the aggregate, have a Material Adverse Effect, and neither the Company nor any of the Subsidiaries has received any notice relating to revocation or modification of any such license, permit, certificate, consent, order, approval or other authorization, except as described in the Registration Statement and the Prospectus and except, in each case, where such revocation or modification would not, individually or in the aggregate, have a Material Adverse Effect; and the Company and each of the Subsidiaries are in compliance with all laws and regulations relating to the conduct of their respective businesses as conducted as of the date hereof, except where noncompliance with such laws or regulations would not, individually or in the aggregate, have a Material Adverse Effect; (t) no person has the right to require the Company to register any securities for offering and sale under the -11- Securities Act by reason of the filing of the Registration Statement with the Commission or the issue and sale of the Securities; (u) all of the outstanding shares of capital stock of the Company have been duly authorized and validly issued and are fully paid and nonassessable; (v) except as disclosed in the Prospectus, there are no labor disputes or negotiations with employees of the Company or any of the Subsidiaries which could have, individually or in the aggregate, a Material Adverse Effect; (w) the Company and the Subsidiaries are in compliance with, and not subject to any liability under, the common law and all applicable federal, state, local and foreign laws, regulations, rules, codes, ordinances, directives, and orders relating to pollution or to protection of public or employee health or safety or to the environment, including, without limitation, those that relate to any Hazardous Material (as hereinafter defined) ("Environmental Laws"), except, in each case, where noncompliance or liability, individually or in the aggregate, would not be reasonably likely to have a Material Adverse Effect. The term "Hazardous Material" means any pollutant, contaminant or waste, or any hazardous, dangerous, or toxic chemical, material, waste, substance or constituent subject to regulation under any Environmental Law; (x) the fair salable value of the assets of each of the Company and the Guarantors (collectively the "Material Registrants") exceeds the amount that will be required to be paid on or in respect of its existing debts and other liabilities (including contingent liabilities) as they mature; the assets of each of the Material Registrants do not constitute unreasonably small capital to carry out its business as conducted or as proposed to be conducted; each Registrant does not intend to, and does not believe that it will, incur debts beyond its ability to pay such debts as they mature; upon the issuance of the Securities, the fair salable value of the assets of each of the Material Registrants will exceed the amount that will be required to be paid on or in respect of its existing debts and other liabilities (including contingent liabilities) as they mature; and upon the issuance of the Securities, the assets of each of the Material Registrants will not constitute unreasonably small capital to carry out its business as now conducted or as proposed to be conducted; -12- (y) the Company and the Subsidiaries have filed all federal, state, local and foreign tax returns which have been required to be filed and have paid all taxes shown thereon and all assessments received by them or any of them to the extent that such taxes have become due and are not being contested in good faith, except where the failure to file individually or in the aggregate could not reasonably be expected to have a Material Adverse Effect; and, except as disclosed in the Registration Statement and the Prospectus, there is no tax deficiency which has been or might reasonably be expected to be asserted or threatened against the Company or any Subsidiary which, individually or in the aggregate, could have a Material Adverse Effect; and (z) the statistical market share data and other information included or incorporated by reference in the Registration Statement and the Prospectus with respect to the size of, and the Company's relative position in, the markets in which it competes have been derived from sources which the Company believes to be reliable, reasonable and accurate. 5. The Registrants, jointly and severally, covenant and agree with each Underwriter as follows: (a) to use their respective best efforts to cause the Registration Statement to become effective (if the Registration Statement shall not have been declared effective prior to the execution hereof) at the earliest possible time and, if required, to file the Prospectus with the Commission in the manner and within the time periods specified by Rule 424(b) and Rule 430A under the Securities Act; (b) to deliver, at the expense of the Registrants, (i) one signed and three conformed copies of the Registration Statement (as originally filed) and each amendment thereto, including exhibits and documents incorporated by reference therein, to the Underwriters, and (ii) during the period mentioned in paragraph (e) below, to each of the Underwriters as many copies of the Prospectus (including all amendments and supplements thereto and documents incorporated by reference therein) as the Underwriters may reasonably request; (c) before filing any amendment or supplement to the Registration Statement or the Prospectus, whether before or after the time the Registration Statement becomes effective, to furnish to the Underwriters and their counsel a copy of the proposed amendment or supplement for review within a reasonable time prior to the proposed filing thereof and not -13- to file any such proposed amendment or supplement to which the Underwriters or their counsel reasonably object by prompt notice to the Company; (d) to advise the Underwriters promptly, and to deliver any written communication from the Commission or any state securities commission, (i) when the Registration Statement shall become effective, (ii) when any amendment to the Registration Statement shall have become effective, (iii) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or for any additional information, (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the initiation or threatening of any proceeding for that purpose and (v) of the receipt by any Registrant of any notification with respect to any suspension of the qualification of the Securities (including any Guarantee) for offer and sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; and to use their respective best efforts to prevent the issuance of any such stop order or notification and, if issued, to obtain promptly the withdrawal thereof; (e) if, during such period of time after the first date of the public offering of the Securities as in the opinion of counsel for the Underwriters a prospectus relating to the Securities is required by law to be delivered in connection with sales by an Underwriter or any dealer, any event shall occur which is known to any of the Registrants or information shall become known to any of the Registrants in any such case as a result of which it is necessary to amend or supplement the Prospectus in order to make the statements therein, in the light of the circumstances at the time the Prospectus is delivered to a purchaser, not misleading, or if it is necessary to amend or supplement the Prospectus to comply with law, forthwith to, at the sole expense of the Registrants, prepare and, subject to Section 5(c) above, file with the Commission, and furnish to the Underwriters and to the dealers (whose names and addresses the Underwriters will furnish to the Registrants) to which Securities may have been sold by the Underwriters and to any other dealers upon request such amendments or supplements to the Prospectus as may be necessary so that the statements in the Prospectus as so amended or supplemented will not, in the light of the circumstances at the time the Prospectus is delivered to a purchaser, be misleading or so that the Prospectus will comply with law; provided that all expenses with respect to any -14- amendment of or supplement to the Prospectus required to correct a misleading statement made therein in reliance upon and in conformity with information relating to an Underwriter furnished to any Registrant in writing by such Underwriter expressly for use therein shall be borne by such Underwriter; (f) (i) to endeavor to qualify the Securities for offer and sale under the securities or Blue Sky laws of such jurisdictions as the Underwriters shall reasonably request and to continue such qualification in effect so long as reasonably required for distribution of the Securities and (ii) to pay all fees and expenses (including fees and disbursements of counsel for the Underwriters) incurred in connection with such qualification and in connection with the determination of the eligibility of the Securities for investment under the laws of such jurisdictions as the Underwriters may designate; provided that no Registrant shall be required to file a general consent to service of process in any jurisdiction in which it would not otherwise be required to do so; (g) to make generally available to the Registrants' security holders, and to the Underwriters as soon as practicable an earnings statement covering a period of at least twelve months beginning with the first fiscal quarter of the Registrants occurring after the effective date of the Registration Statement which shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 of the Commission promulgated thereunder; (h) so long as the Securities are outstanding, to furnish to the Underwriters copies of all reports or other communications (financial or other) required to be furnished to holders of the Securities, and copies of any reports and financial statements required to be furnished to or filed with the Commission or any national securities exchange; (i) to pay all costs and expenses incident to the performance of its obligations hereunder, including without limiting the generality of the foregoing, all costs and expenses (i) incident to the preparation, issuance, execution, authentication and delivery of the Securities (including any expenses of the Trustee and the Trustee's counsel), (ii) incident to the preparation, printing and filing under the Securities Act of the Registration Statement, the Prospectus and any preliminary prospectus (including in each case all exhibits, amendments and supplements thereto), (iii) incurred in connection with the registration or qualification of the Securities and Guarantees under the laws -15- of such jurisdictions as the Underwriters may designate (including fees and disbursements of Cahill Gordon & Reindel, counsel for the Underwriters, in connection with such registration or qualification), (iv) relating to any filing with, and determination of the fairness of the underwriting terms and arrangements by, the National Association of Securities Dealers, Inc. in connection with the offering of the Securities and Guarantees, (v) in connection with the printing (including word processing and duplication costs) and delivery of this Agreement, the Indenture, all other agreements relating to underwriting arrangements, the Preliminary and Supplemental Blue Sky Memorandum and the furnishing to the Underwriters and dealers of copies of the Registration Statement and the Prospectus, including mailing and shipping, as herein provided, and (vi) payable to rating agencies in connection with the rating of the Securities; (j) to use the net proceeds of the offering of Securities as set forth in the Registration Statement and the Prospectus under the caption "Use of Proceeds and Refinancing"; (k) during the period when the Prospectus is required to be delivered under the Securities Act or the Exchange Act in connection with sales (including resales) of the Securities, to file all documents required to be filed with the Commission pursuant to Section 13, 14 or 15 of the Exchange Act within the time period required by the Exchange Act and the Exchange Act Regulations; and (l) The Prospectus shall be furnished to not more than three locations in New York City (A) on or prior to 2:00 P.M., New York time, on the business day following the execution and delivery of this Agreement if the Closing Date is three business days after the date of execution and delivery of this Agreement or (B) on or prior to 6:00 P.M., New York time, on the business day following the execution and delivery of this Agreement if the Closing Date is four business days after the execution and delivery of this Agreement. 6. The several obligations of the Underwriters hereunder to purchase the Securities are subject to the performance by the Registrants of their obligations hereunder and to the following additional conditions: (a) if the Registration Statement has not been declared effective prior to the execution and delivery hereof, the Registration Statement shall have become effective (or if a -16- post-effective amendment is required to be filed under the Securities Act, such post-effective amendment shall have become effective) not later than 5:00 P.M., New York City time, on the date hereof; and no stop order suspending the effectiveness of the Registration Statement shall be in effect, and no proceedings for such purpose shall be pending before or threatened by the Commission; and any requests for additional information shall have been complied with to the satisfaction of the Underwriters; (b) each of the representations and warranties of the Registrants contained herein shall be true and correct on and as of the Closing Date as if made on and as of the Closing Date, and the Registrants shall have complied with all agreements and all conditions on their part to be performed or satisfied hereunder at or prior to the Closing Date; (c) subsequent to the execution and delivery of this Agreement and prior to the Closing Date, there shall not have occurred any downgrading, nor shall any notice have been given of (i) any intended or potential downgrading or (ii) any review or possible change that does not indicate an improvement in the rating accorded any securities of or guaranteed by any of the Registrants by any "nationally recognized statistical rating organization," as such term is defined for purposes of Rule 436(g)(2) under the Securities Act, the effect of which in the sole judgment of the Underwriters makes it impracticable or inadvisable to proceed with the public offering or the delivery of the Securities on the terms and in the manner contemplated in the Prospectus; (d) since the respective dates as of which information is given in the Prospectus, there shall not have been or become known any Material Adverse Change, otherwise than as set forth in the Prospectus, the effect of which in the sole judgment of the Underwriters makes it impracticable or inadvisable to proceed with the public offering or the delivery of the Securities on the terms and in the manner contemplated in the Prospectus; (e) the Underwriters shall have received on and as of the Closing Date a certificate, addressed to the Underwriters and dated the Closing Date, of an executive officer of the Company satisfactory to the Underwriters to the effect set forth in subsections (a) through (c) of this Section 6; (f) the Underwriters shall have received on the Closing Date a signed opinion of Hunton & Williams, counsel for the -17- Company in form and substance satisfactory to Cahill Gordon & Reindel, counsel to the Underwriters, dated the Closing Date and addressed to the Underwriters, to the effect that: (i) the Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the Commonwealth of Virginia with the corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement and the Prospectus; (ii) the authorized capital stock of the Company is as set forth in the Registration Statement and the Prospectus; (iii) other than as set forth in the Prospectus, to such counsel's knowledge there are no legal or governmental proceedings pending or threatened to which the Company or any of the Subsidiaries is or may be a party or to which any property of the Company or the Subsidiaries is or may be the subject which, if determined adversely to the Company or any such Subsidiary, could individually or in the aggregate reasonably be expected to have a Material Adverse Effect; and such counsel does not know of any contracts or other documents of a character required to be filed as an exhibit to the Registration Statement or required to be described or referred to in the Registration Statement or the Prospectus which are not filed, referred to or described as required; (iv) the execution and delivery by the Company and Owens & Minor Medical, Inc. ("O&M Medical", and together with the Company, the "Virginia Companies") and the performance by the Virginia Companies of all of the provisions of their respective obligations under, this Agreement, the Indenture and the Securities (including the Guarantees) and the consummation by the Virginia Companies of the transactions herein and therein contemplated and as set forth under "Use of Proceeds and Refinancing" in the Prospectus (i) have been duly authorized by all necessary corporate action on the part of the Virginia Companies and (ii) do not and will not conflict with, or result in a breach or violation of any of the terms and provisions of, or constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default) under, or give rise to any right to accelerate the maturity or require the -18- prepayment of any indebtedness or the purchase of any capital stock under, or result in the creation or imposition of any lien, charge or encumbrance upon the properties or assets of either Virginia Company under, any contract, indenture, mortgage, deed of trust, loan agreement, note, lease, partnership agreement or other agreement or instrument known to such counsel to which either of the Virginia Companies is a party or by which either of them may be bound or to which either of their respective assets or properties may be subject, except for any conflict, breach, violation or default that individually or in the aggregate could not reasonably be expected to have a Material Adverse Effect; the execution and delivery by the Company and each of the Guarantors of, and the performance by the Company and each of the Guarantors of all of the provisions of their respective obligations under, this Agreement, the Indenture and the Securities (including the Guarantees) and the consummation by the Company and each of the Guarantors of the transactions herein and therein contemplated and as set forth under "Use of Proceeds and Refinancing" in the Prospectus (i) do not and will not result in any violation of the Articles of Incorporation or the By- laws of the Company or any Subsidiary, (ii) do not and will not result in any right to terminate, or automatic termination of, commitments to purchase receivables under the Receivables Documents and (iii) do not and will not conflict with, or result in a breach or violation of any of the terms or provisions of, or constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default) under, (A) any applicable law or statute, rule or regulation (other than the securities or Blue Sky laws of the various states of the United States of America) or (B) any judgment, order or decree of any government, governmental instrumentality, agency, body or court, domestic or foreign, known to such counsel having jurisdiction over the Company or any such Subsidiary or any of their respective properties or assets, except in each case (A) and (B) for any conflict, breach, violation or default that individually or in the aggregate could not reasonably be expected to have a Material Adverse Effect (it being understood that the opinions set forth in subclauses (A) and (B) of this clause (iii) shall be limited to federal, Virginia and New York law); (v) the Indenture has been duly executed and delivered by the Virginia Companies and qualified under -19- the Trust Indenture Act and, assuming due authorization, execution and delivery thereof by the Trustee, is a legal, valid and binding agreement of the Virginia Companies, enforceable against the Virginia Companies in accordance with its terms, except that the enforcement thereof may be subject to (1) bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or similar laws now or hereafter in effect relating to creditors' rights generally and (2) principles of equity, whether considered at law or in equity, and the discretion of the court before which any proceeding therefor may be brought; (vi) the Notes have been duly authorized by the Company and the Guarantees have been duly authorized by O&M Medical and, when executed and authenticated in accordance with the terms of the Indenture and delivered to and paid for by the Underwriters, the Notes will constitute legal, valid and binding obligations of the Company enforceable in accordance with their terms and (assuming the due authorization, execution and delivery thereof by each Guarantor other than O&M Medical and that the law of the state of incorporation of each Guarantor other than O&M Medical is the same as New York law) the Guarantees, when executed and delivered by the Guarantors in accordance with the terms of the Indenture, will constitute legal, valid and binding obligations of each Guarantor, in each case enforceable in accordance with their terms, except in each case that the enforcement thereof may be subject to (1) bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or similar laws now or hereafter in effect relating to creditors' rights generally and (2) principles of equity, whether considered at law or in equity, and the discretion of the court before which any proceeding therefor may be brought; (vii) the Credit Documents when executed and delivered by each of the Virginia Companies will constitute legal, valid and binding agreements of each of the Virginia Companies, enforceable against each of the Virginia Companies in accordance with their respective terms, except that (A) the enforcement thereof may be subject to (1) bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or similar laws now or hereafter in effect relating to creditors' rights generally and (2) general principles of equity and the discretion of the court before which any proceeding -20- therefor may be brought and (B) the enforceability of the indemnification provisions included in the Credit Documents may be limited by public policy; the Credit Documents are in effect on the terms described in the Prospectus; the description in the Prospectus of the Credit Documents is accurate and complete in all material respects; and the opinion rendered by such counsel set forth in this clause (vii) may be further subject to the following exceptions: (i) certain of the waivers contained in the Credit Documents may be unenforceable in whole or in part, but the inclusion of such provisions does not render the other provisions of the Credit Documents invalid or unenforceable, (ii) such counsel need not express an opinion as to Section 10.02 of the Credit Documents insofar as it provides that any participant in the loans may exercise set-off or similar rights with respect to such participation, and (iii) such counsel may assume that, when exercising rights under any Credit Document, the agents and the banks will act in good faith; (viii) the Receivables Documents constitute legal, valid and binding agreements of the Company and each of the Subsidiaries a party thereto, enforceable against the Company and each such Subsidiary in accordance with its terms, except that the enforcement thereof may be subject to (1) bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or similar laws now or hereafter in effect relating to creditors' rights generally and (2) principles of equity, whether considered at law or in equity, and the discretion of the court before which any proceeding therefor may be brought; the Receivables Documents are in effect on the terms described in the Prospectus; and the description in the Prospectus of the Receivables Documents is accurate and complete in all material respects; provided, however, such counsel need not give an opinion as to the enforceability of (i) any indemnification or contribution provisions contained in the Receivables Documents, (ii) any waiver of statutory rights by the Company or any Subsidiary, including procedural laws governing jurisdiction, venue and service of process and waiver of the right to jury trial, (iii) any provision of the Receivables Documents to the effect that the failure to exercise or delay in exercising rights or remedies will not operate as a waiver of such rights or remedies or to the effect that the provisions thereof may only be waived in writing to the extent that an oral agreement modifying -21- such provisions has been entered into, or (iv) any consent of the Company or any Subsidiary to jurisdiction of the courts of the State of New York or any other consent to jurisdiction; (ix) the Securities (including the Guarantees) and the Indenture conform in all material respects to the descriptions thereof in the Prospectus; (x) this Agreement has been duly authorized, executed and delivered by each of the Virginia Companies; (xi) no authorization, approval, consent, order, registration, qualification or license of, or filing with, any government, governmental instrumentality, agency, body or court, domestic or foreign (other than as have been obtained under the Securities Act or the Trust Indenture Act or as may be required under the securities or Blue Sky laws of the various states of the United States of America) is required under federal, Virginia or New York law for the valid authorization, issuance, sale and delivery of the Securities (including the Guarantees), or the performance by the Company and each of the Guarantors of all of their obligations under this Agreement, the Indenture and the Securities (including the Guarantees), or the consummation by the Company and each of the Guarantors of the transactions contemplated by this Agreement, the Indenture or the "Use of Proceeds and Refinancing" section of the Prospectus; (xii) the Registration Statement has been declared effective under the Securities Act and no stop order suspending the effectiveness of the Registration Statement or any post-effective amendment thereto has been issued and, to such counsel's knowledge, no proceeding for that purpose has been instituted or threatened by the Commission; the Indenture has been duly qualified under the Trust Indenture Act; any required filing of the Prospectus and any supplements thereto pursuant to Rule 424(b) has been made in a manner and within the time period required by Rule 424(b); (xiii) each document incorporated by reference in the Registration Statement and the Prospectus (except for the financial statements and other financial and statistical data included therein as to which such counsel need express no opinion) complied as to form in all material -22- respects, when filed with the Commission, with the requirements of the Exchange Act; (xiv) the Registration Statement and the Prospectus and any amendments and supplements thereto (except for the financial statements and other financial and statistical data included therein as to which such counsel need express no opinion) comply as to form in all material respects with the requirements of the Securities Act and the Trust Indenture Act; and (xv) nothing has come to such counsel's attention that leads it to believe that the Registration Statement and the Prospectus included therein at the time the Registration Statement became effective contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and the Prospectus as of its date and as of the Closing Date, as amended or supplemented, if applicable, contained or contains any untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading (it being understood that such counsel need not express an opinion or belief as to the financial statements and other financial and statistical data included therein or that part of the Registration Statement which constitutes the Statement of Eligibility on Form T-1 of the Trustee under the Trust Indenture Act or any statements or omissions made in reliance upon and in conformity with information relating to any Underwriter furnished to any Registrant in writing by such Underwriter expressly for use in the Registration Statement); (g) the Underwriters shall have received on the Closing Date a signed opinion of Drew St. J. Carneal, Esq., General Counsel to the Company, in form and substance satisfactory to Cahill Gordon & Reindel, counsel to the Underwriters, dated the Closing Date and addressed to the Underwriters, to the effect that: (i) the Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the Commonwealth of Virginia with the corporate power and authority to own, lease and operate -23- its properties and to conduct its business as described in the Registration Statement and the Prospectus; (ii) the Company has been duly qualified as a foreign corporation for the transaction of business and is in good standing in each jurisdiction in which it owns or leases properties or conducts any business so as to require such qualification, except where the failure to be so qualified or in good standing would not have a Material Adverse Effect; (iii) each Subsidiary has been duly incorporated and is validly existing as a corporation under the laws of its jurisdiction of incorporation with the corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement and the Prospectus, and has been duly qualified as a foreign corporation for the transaction of business and is in good standing in each jurisdiction in which it owns or leases properties or conducts any business so as to require such qualification, except where the failure to be so qualified or in good standing would not have a Material Adverse Effect; (iv) the authorized capital stock of the Company is as set forth in the Registration Statement and the Prospectus; (v) all the outstanding shares of capital stock of each Subsidiary have been duly authorized and validly issued and are fully paid and nonassessable, and, except as otherwise set forth in the Prospectus, are directly or indirectly owned by the Company free and clear of any mortgage, pledge, security interest, lien, claim or other encumbrance; (vi) other than as set forth in the Prospectus, there are no legal or governmental proceedings pending or, to such counsel's knowledge, threatened to which the Company or any of the Subsidiaries is or may be a party or to which any property of the Company or the Subsidiaries is or may be the subject which, if determined adversely to the Company or any such Subsidiary, could individually or in the aggregate reasonably be expected to have a Material Adverse Effect; and such counsel does not know of any contracts or other documents of a character required to be filed as -24- an exhibit to the Registration Statement or required to be described or referred to in the Registration Statement or the Prospectus which are not filed, referred to or described as required; (vii) neither the Company nor any of the Subsidiaries (A) is in violation of its Certificate of Incorporation or By-Laws or (B) is in breach or violation of any of the terms or provisions of, or with the giving of notice or lapse of time, or both, would be in default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument known to such counsel to which the Company or any of the Subsidiaries is a party or by which it or any of them or any of their respective properties is bound, or any applicable law or statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company, the Subsidiaries or any of their respective properties, except for violations and defaults which individually or in the aggregate would not have a Material Adverse Effect; and no event has occurred which gives rise to the right to terminate, or results in the automatic termination of, the commitments to purchase receivables under the Receivables Documents; (viii) the execution and delivery by each of National Medical Supply Corporation, Owens & Minor West, Inc., Koley's Medical Supply, Inc., Lyons Physician Supply Company, A. Kuhlman & Company, and Stuart Medical, Inc. (collectively the "Non-Virginia Guarantors") of, and the performance by each of the Non-Virginia Guarantors of all of the provisions of their respective obligations under, this Agreement, the Indenture and the Securities (including the Guarantees) and the consummation by each of the Non-Virginia Guarantors of the transactions herein and therein contemplated and as set forth under "Use of Proceeds and Refinancing" in the Prospectus (i) have been duly authorized by all necessary corporate action on the part of each of the Non-Virginia Guarantors, (ii) do not and will not result in any violation of the Articles of Incorporation or the By-laws of any Non-Virginia Guarantor, (iii) do not and will not result in any right to terminate, or automatic termination of, commitments to purchase receivables under the Receivables Documents and (iv) do not and will not conflict with, or result in a breach or violation of any of the terms or provisions of, or constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default) -25- under, or give rise to any right to accelerate the maturity or require the prepayment of any indebtedness or the purchase of any capital stock under, or result in the creation or imposition of any lien, charge or encumbrance upon any properties or assets of any Non-Virginia Guarantor under, (A) any contract, indenture, mortgage, deed of trust, loan agreement, note, lease, partnership agreement or other agreement or instrument known to such counsel to which any such Non-Virginia Guarantor is a party or by which any of them may be bound or to which any of their respective properties or assets may be subject, except for any conflict, breach, violation or default that individually or in the aggregate could not reasonably be expected to have a Material Adverse Effect, (B) any applicable law or statute, rule or regulation (other than the securities or Blue Sky laws of the various states of the United States of America) or (C) any judgment, order or decree of any government, governmental instrumentality, agency, body or court, domestic or foreign, known to such counsel having jurisdiction over any such Non-Virginia Guarantor or any of their respective properties or assets, except in each case (B) and (C) for any conflict, breach, violation or default that individually or in the aggregate could not reasonably be expected to have a Material Adverse Effect (it being understood that the opinions set forth in subclauses (B) and (C) of this clause (iii) shall be limited to federal and Virginia law); (ix) the Indenture has been duly executed and delivered by each of the Non-Virginia Guarantors and, assuming due authorization, execution and delivery thereof by the Trustee, is a legal, valid and binding agreement of each of the Non-Virginia Guarantors, enforceable against each of the Non-Virginia Guarantors in accordance with its terms, except that the enforcement thereof may be subject to (1) bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or similar laws now or hereafter in effect relating to creditors' rights generally and (2) principles of equity, whether considered at law or in equity, and the discretion of the court before which any proceeding therefor may be brought; (x) the Guarantees have been duly authorized by each of the Non-Virginia Guarantors and, when the Notes are executed and authenticated in accordance with the terms of the Indenture and delivered to and paid for by -26- the Underwriters, the Guarantees, when executed and delivered by the Non-Virginia Guarantors in accordance with the terms of the Indenture, will constitute legal, valid and binding obligations of each Non-Virginia Guarantor, in each case enforceable in accordance with their terms, except that the enforcement thereof may be subject to (1) bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or similar laws now or hereafter in effect relating to creditors' rights generally and (2) principles of equity, whether considered at law or in equity, and the discretion of the court before which any proceeding therefor may be brought; (xi) the Credit Documents when executed and delivered by each of the Non-Virginia Guarantors will constitute legal, valid and binding agreements of each of the Non-Virginia Guarantors, enforceable against each such Non-Virginia Guarantor in accordance with their respective terms, except that (A) the enforcement thereof may be subject to (1) bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or similar laws now or hereafter in effect relating to creditors' rights generally and (2) principles of equity, whether considered at law or in equity, and the discretion of the court before which any proceeding therefor may be brought and (B) the enforceability of the indemnification provisions included in the Credit Documents may be limited by public policy; the Credit Documents are in effect on the terms described in the Prospectus; and the opinion rendered by such counsel set forth in this clause (xi) may be further subject to the following exceptions: (i) certain of the waivers contained in the Credit Documents may be unenforceable in whole or in part, but the inclusion of such provisions does not render the other provisions of the Credit Documents invalid or unenforceable, (ii) such counsel need not express an opinion as to Section 10.02 of the Credit Documents insofar as it provides that any participant in the loans may exercise set-off or similar rights with respect to such participation, and (iii) such counsel may assume that, when exercising rights under any Credit Document, the agents and the banks will act in good faith; (xii) this Agreement has been duly authorized, executed and delivered by the Non-Virginia Guarantors; -27- (xiii) no authorization, approval, consent, order, registration, qualification or license of, or filing with, any government, governmental instrumentality, agency, body or court, domestic or foreign (other than as have been obtained under the Securities Act or the Trust Indenture Act or as may be required under the securities or Blue Sky laws of the various states of the United States of America) is required under federal or Virginia law for the valid authorization, issuance, sale and delivery of the Guarantees, or the performance by each of the Non-Virginia Guarantors of all of their obligations under this Agreement, the Indenture and the Guarantees, or the consummation by each of the Non-Virginia Guarantors of the transactions contemplated by this Agreement, the Indenture or the "Use of Proceeds and Refinancing" section of the Prospectus; and (xiv) nothing has come to such counsel's attention that leads it to believe that the Registration Statement and the Prospectus included therein at the time the Registration Statement became effective contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or that the Prospectus as of its date and as of the Closing Date, as amended or supplemented, if applicable, contained or contains any untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading (it being understood that such counsel need not express an opinion or belief as to the financial statements and other financial and statistical data included therein or that part of the Registration Statement which constitutes the Statement of Eligibility on Form T-1 of the Trustee under the Trust Indenture Act or any statements or omissions made in reliance upon and in conformity with information relating to any Underwriter furnished to any Registrant in writing by such Underwriter expressly for use in the Registration Statement); (h) on the effective date of the Registration Statement and the effective date of the most recently filed post-effective amendment, if any, to the Registration Statement and also on the Closing Date, KPMG Peat Marwick LLP shall have furnished to the Underwriters letters, dated the respective dates of delivery thereof, in form and substance -28- satisfactory to the Underwriters, containing statements and information of the type customarily included in accountants' "comfort letters" to underwriters with respect to the financial statements and certain financial information contained or incorporated by reference in the Registration Statement and the Prospectus; (i) the Underwriters shall have received on and as of the Closing Date an opinion dated the Closing Date of Cahill Gordon & Reindel, counsel to the Underwriters, addressed to the Underwriters and in form and substance satisfactory to the Underwriters with respect to the validity of the Securities, the Indenture, the Registration Statement, the Prospectus and other related matters as the Underwriters may reasonably request, and such counsel shall have received such papers and information as they may reasonably request to enable them to pass upon such matters; (j) on or prior to the Closing Date the Company shall have furnished to the Underwriters such further certificates and documents as the Underwriters or their counsel, Cahill Gordon & Reindel, shall reasonably request; (k) on the Closing Date the Credit Documents shall be in full force and effect on the terms described in the Prospectus and no breach or violation of any of the terms or provisions thereof, or default (or an event which, with notice or lapse of time, or both, would constitute a default) thereunder shall exist; and (l) on the Closing Date the Receivables Documents shall be in full force and effect on the terms described in the Prospectus and no breach or violation of any of the terms or provisions thereof, or default (or an event which, with notice or lapse of time, or both, would constitute a default) thereunder shall exist nor shall any event have occurred or condition exist which gives rise to the right to terminate, or the automatic termination of, commitments to purchase receivables under the Receivables Documents; In rendering the opinions referred to in the foregoing clauses (f) and (g), Hunton & Williams and Drew St. J. Carneal may rely as to matters of fact, to the extent each deems proper, on certificates of responsible officers of the Company, the Subsidiaries and public officials and, as to matters involving the application of laws of any jurisdiction other than the Commonwealth of Virginia, the State of New York (with respect to Hunton & Williams only), the corporate laws of the State of Delaware, and -29- the federal laws of the United States, to the extent such counsel deems proper and specifies in such opinion and to the extent such opinion is satisfactory in form and scope to counsel for the Underwriters, upon the opinion of other counsel qualified in such jurisdictions who they believe are reliable and who are satisfactory to counsel for the Underwriters. Copies of any such opinion shall be delivered to the Underwriters and counsel for the Underwriters. With respect to matters covered in the second clause of paragraph (iii) and paragraphs (xiv) and (xv) of clause (f) and the second clause of paragraph (vi) and paragraph (xiv) of clause (g), Hunton & Williams and Drew St. J. Carneal, respectively, may state that their opinion and belief is based upon their participation in the preparation of the Registration Statement and the Prospectus and any amendment or supplement thereto (other than documents incorporated by reference therein) and review and discussion of the contents thereof (including the documents incorporated by reference therein) but is without independent check or verification, except as provided. 7. The Registrants, jointly and severally, agree to indemnify and hold harmless each Underwriter, its officers and directors, and each person, if any, who controls any Underwriter within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any and all losses, claims, damages and liabilities (including, without limitation, the legal fees and other expenses incurred in connection with any suit, action or proceeding or any claim asserted) caused by any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or the Prospectus (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto) or any preliminary prospectus, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages or liabilities are caused by any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with information relating to any Underwriter furnished to any Registrant in writing by such Underwriter expressly for use therein; provided, however, that the foregoing indemnity with respect to any preliminary prospectus shall not inure to the benefit of any Underwriter (or the benefit of any person controlling such Underwriter) from whom the person asserting any such losses, claims, damages or liabilities purchased Notes if such untrue statement or omission or alleged untrue statement or omission was made in such preliminary prospectus and is eliminated or remedied in the Prospectus and the Company has provided such Prospectus in accordance with paragraph 5(b) hereof (as amended or supplemented -30- if the Company shall have furnished any amendments or supplements thereto) and if it shall be established in the related action or proceeding that a copy of the Prospectus, if required by law (as so amended or supplemented, but exclusive of any documents incorporated therein by reference), shall not have been furnished to such person at or prior to the written confirmation of the sale of such Securities to such person, except to the extent that such Prospectus contains any other untrue statement or omission or alleged untrue statement or omission of a material fact that was the subject matter of the related action or proceeding. For purposes of the proviso to the immediately preceding sentence, the term "Prospectus" shall not be deemed to include the documents incorporated therein by reference, and no Underwriter shall be obligated to send or give any supplement or amendment to any document incorporated by reference in any preliminary prospectus or the Prospectus to any person. Each Underwriter agrees, severally and not jointly, to indemnify and hold harmless each of the Registrants, each of their directors, each of their officers who signed the Registration Statement and each person who controls any of the Registrants within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the foregoing indemnity from the Registrants to each Underwriter, but only with reference to information relating to such Underwriter furnished to any Registrant in writing by such Underwriter expressly for use in the Registration Statement, the Prospectus, any amendment or supplement thereto, or any preliminary prospectus. For purposes of this Section 7 and paragraphs (a) and (b) of Section 4 hereof, the only written information furnished by the Underwriters to any Registrant expressly for use in the Registration Statement and the Prospectus is the information in the last paragraph on the cover page of the Prospectus, and the first paragraph under the table in the "Underwriting" section of the Prospectus. If any suit, action, proceeding (including any governmental or regulatory investigation), claim or demand shall be brought or asserted against any person in respect of which indemnity may be sought pursuant to either of the two preceding paragraphs, such person (the "Indemnified Person") shall promptly notify the person against whom such indemnity may be sought (the "Indemnifying Person") in writing, and the Indemnifying Person, upon request of the Indemnified Person, shall retain counsel reasonably satisfactory to the Indemnified Person to represent the Indemnified Person and any others the Indemnifying Person may designate in such proceeding and shall pay the fees and expenses of such counsel related to such proceeding. In any such proceeding, any Indemnified Person shall have the right to retain its own -31- counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless (i) the Indemnifying Person and the Indemnified Person shall have mutually agreed to the contrary, (ii) the Indemnifying Person has failed within a reasonable time to retain counsel satisfactory to the Indemnified Person or (iii) the named parties in any such proceeding (including any impleaded parties) include both the Indemnifying Person and the Indemnified Person and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that the Indemnifying Person shall not, in connection with any proceeding or related proceeding in the same jurisdiction, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all Indemnified Persons, and that all such fees and expenses shall be reimbursed as they are incurred. Any such separate firm for the Underwriters and such control persons of Underwriters shall be designated in writing by J.P. Morgan Securities Inc. and any such separate firm for any of the Registrants, each director of the Registrants, each officer of the Registrants who signed the Registration Statement and such control persons of the Registrants shall be designated in writing by the Company. The Indemnifying Person shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the Indemnifying Person agrees to indemnify any Indemnified Person from and against any loss or liability by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an Indemnified Person shall have requested an Indemnifying Person to reimburse the Indemnified Person for fees and expenses of counsel as contemplated by the third sentence of this paragraph, the Indemnifying Person agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 30 days after receipt by such Indemnifying Person of the aforesaid request and (ii) such Indemnifying Person shall not have reimbursed the Indemnified Person in accordance with such request prior to the date of such settlement. No Indemnifying Person shall, without the prior written consent of the Indemnified Person, effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party and indemnity could have been sought hereunder by such Indemnified Person, unless such settlement includes an unconditional written release, in form and substance reasonably satisfactory to the Indemnified Person, of such Indemnified Person from all liability on claims that are the subject matter of such proceeding. If the indemnification provided for in the first and second paragraphs of this Section 7 is for any reason unavailable -32- to, or insufficient to hold harmless, an Indemnified Person in respect of any losses, claims, damages or liabilities referred to therein, then each Indemnifying Person under such paragraph, in lieu of indemnifying such Indemnified Person thereunder, shall contribute to the amount paid or payable by such Indemnified Person as a result of such losses, claims, damages or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the Registrants on the one hand and the Underwriters on the other hand from the offering of the Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Registrants on the one hand and the Underwriters on the other in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Registrants on the one hand and the Underwriters on the other shall be deemed to be in the same respective proportions as the net proceeds from the offering (before deducting expenses) received by the Company and the total underwriting discounts and the commissions actually received by the Underwriters, in each case as set forth in the table on the cover of the Prospectus, bear to the aggregate public offering price of the Securities. The relative fault of the Registrants on the one hand and the Underwriters on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Registrants or by the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Registrants and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an Indemnified Person as a result of the losses, claims, damages and liabilities referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses incurred by such Indemnified Person in connection with investigating or defending any such action or claim. Notwithstand- ing the provisions of this Section 7, in no event shall an Underwriter be required to contribute any amount in excess of the amount by which the total price at which the Securities underwritten by it and distributed to the public were offered to -33- the public exceeds the amount of any damages that such Underwriter has otherwise been required to pay or has paid by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations to contribute pursuant to this Section 7 are several in proportion to the respective principal amounts of Securities set forth opposite their names in Schedule I hereto, and not joint. The indemnity and contribution agreements contained in this Section 7 are in addition to any liability which the Indemnifying Persons may otherwise have to the Indemnified Persons referred to above. The indemnity and contribution agreements contained in this Section 7 and the representations and warranties of the Registrants as set forth in this Agreement shall remain operative and in full force and effect regardless of (i) any termination of this Agreement, (ii) any investigation made by or on behalf of any Underwriter or any person controlling any Underwriter or by or on behalf of any Registrant, officer or director of any Registrant or any other person controlling any Registrant and (iii) acceptance of and payment for any of the Securities. 8. Notwithstanding anything herein contained, this Agreement may be terminated in the absolute discretion of the Underwriters, by notice given to the Company, if after the execution and delivery of this Agreement and prior to the Closing Date (i) trading generally shall have been suspended or materially limited on the New York Stock Exchange or the Nasdaq National Market, (ii) trading of any securities of or guaranteed by any of the Registrants shall have been suspended on any exchange or in any over-the-counter market, (iii) a general moratorium on commercial banking activities in New York shall have been declared by either Federal or New York State authorities, or (iv) there shall have occurred any outbreak or escalation of hostilities or any change in financial markets or any calamity or crisis that, in the judgment of the Underwriters, is material and adverse and which, in the judgment of the Underwriters, makes it impracticable to market the Securities on the terms and in the manner contemplated in the Prospectus. 9. If, on the Closing Date, any one or more of the Underwriters shall fail or refuse to purchase the aggregate principal amount of Securities which it or they have agreed to purchase hereunder on such date, and the aggregate principal amount -34- of Securities which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase is not more than one-tenth of the aggregate principal amount of Securities to be purchased on such date, the other Underwriters shall be obligated severally, in the proportions that the aggregate principal amount of Securities set forth opposite their respective names in Schedule I hereto bears to the aggregate principal amount of Securities set forth opposite the names of all such non-defaulting Underwriters, or in such other proportions as the Underwriters may specify, to purchase the aggregate principal amount of Securities which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase on such date; provided, however, that in no event shall the aggregate principal amount of Securities that any Underwriter has agreed to purchase pursuant to Section 1 be increased pursuant to this Section 9 by an amount in excess of one-ninth of such aggregate principal amount of Securities without the written consent of such Underwriter. If, on the Closing Date, any Underwriter or Underwriters shall fail or refuse to purchase the aggregate principal amount of Securities which it or they have agreed to purchase hereunder on such date, and the aggregate principal amount of Securities with respect to which such default occurs is more than one-tenth of the aggregate principal amount of Securities to be purchased on such date, and arrangements satisfactory to the Underwriters and the Company for the purchase of such aggregate principal amount of Securities are not made within 36 hours after such default, this Agreement shall terminate without liability on the part of any non-defaulting Underwriter or the Company. In any such case either the Underwriters or the Company shall have the right to postpone the Closing Date, but in no event for longer than seven days, in order that the required changes, if any, in the Registration Statement and in the Prospectus or in any other documents or arrangements may be effected. Any action taken under this paragraph shall not relieve any defaulting Underwriter from liability in respect of any default of such Underwriter under this Agreement. 10. If this Agreement shall be terminated by the Underwriters because of any failure or refusal on the part of any of the Registrants to comply with the terms or to fulfill any of the conditions of this Agreement, or if for any reason any Registrant shall be unable to perform its obligations under this Agreement or if any condition set forth in Section 6 is not satisfied, the Registrants agree jointly and severally to reimburse the Underwriters for all out-of-pocket expenses (including the fees and expenses of their counsel) reasonably incurred by the Underwriters in connection with this Agreement or the offering contemplated hereunder. -35- 11. Any action by the Underwriters hereunder may be taken by the Underwriters jointly or by J.P. Morgan Securities Inc. alone on behalf of the Underwriters, and any such action taken by J.P. Morgan Securities Inc. alone shall be binding upon the Underwriters. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or telecopied. Notices to the Underwriters shall be given to the Underwriters, c/o J.P. Morgan Securities Inc., 60 Wall Street, New York, New York 10260 (facsimile number (212) 648-5705); Attention: Syndicate Department. Notices to any Registrant shall be given to the Company at 4800 Cox Road, Glen Allen, VA 23060 (facsimile number (804) 965-1907); Attention: Senior Vice President, Corporate Counsel. 12. This Agreement shall inure to the benefit of and be binding upon the Underwriters and the Registrants and any controlling person referred to herein and their respective successors, heirs and legal representatives. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any person, firm or corporation, other than the Underwriters and the Registrants and their respective successors, heirs and legal representatives and the controlling persons and officers and directors referred to in Section 7 and their heirs and legal representatives, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision herein contained. No purchaser of Securities from any Underwriter shall be deemed to be a successor merely by reason of such purchase. 13. This Agreement may be signed in counterparts, each of which shall be an original and all of which together shall constitute one and the same instrument. 14. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAWS PROVISIONS THEREOF. If the foregoing is in accordance with your understanding, please sign and return four counterparts hereof. Very truly yours, OWENS & MINOR, INC. By: Name: Title: OWENS & MINOR MEDICAL, INC. By: Name: Title: NATIONAL MEDICAL SUPPLY CORPORATION By: Name: Title: OWENS & MINOR WEST, INC. By: Name: Title: KOLEY'S MEDICAL SUPPLY, INC. By: Name: Title: LYONS PHYSICIAN SUPPLY COMPANY By: Name: Title: A. KUHLMAN & COMPANY By: Name: Title: STUART MEDICAL, INC. By: Name: Title: Accepted: __________, 1996 J.P. MORGAN SECURITIES INC. DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION NATIONSBANC CAPITAL MARKETS, INC. WHEAT FIRST BUTCHER SINGER By: J.P. MORGAN SECURITIES INC. By: Name: Title: SCHEDULE I
Principal Amounts of Securities Underwriter to be Purchased - ----------- ------------------ J.P. Morgan Securities Inc. ....................................... $ Donaldson, Lufkin & Jenrette Securities Corporation .......................................... NationsBanc Capital Markets, Inc. ................................. Wheat First Butcher Singer ........................................ ____________ Total.......................................... $150,000,000
EX-12 3 RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12 RATIO OF EARNINGS TO FIXED CHARGES (Dollars in thousands)
Year Ended December 31, 1995 Pro Forma(1) 1995 1994 1993 1992 1991 --------- ----------- ----------- ------------ ----------- ----------- Income (loss) from continuing operations before income taxes ($20,985) ($16,408) $13,997 $30,417 $25,940 $16,350 ---------- ---------- -------- -------- -------- -------- Adjustments: Interest expense, net of amortization of deferred debt issuance costs 28,572 24,447 9,996 1,521 1,121 3,147 Discount on accounts receivable securitization 641 641 -- -- -- -- Amortization of deferred debt issuance costs 1,543 1,091 159 9 7 45 One-third of rent expense 8,997 8,997 7,088 4,286 3,776 3,489 --------- --------- --------- --------- --------- --------- Total fixed charges 39,753 35,176 17,243 5,816 4,904 6,681 --------- --------- --------- --------- --------- --------- Total earnings $18,768 $18,768 $31,240 $36,233 $30,844 $23,031 ======== ======== ======== ======== ======== ======== Ratio of earnings to fixed charges --(2) --(2) 1.81 6.23 6.29 3.45 ======== ======== ======== ======== ======== ========
- --------------------------- (1) Gives effect to the Offering and the application of the net proceeds therefrom to reduce outstanding indebtedness under the Senior Credit Facility (but not the other aspects of the Refinancing). (2) Earnings were inadequate to cover fixed charges by $16.4 million in 1995. After giving effect to the Offering and the application of the net proceeds therefrom to reduce outstanding indebtedness under the Senior Credit Facility (but not the other aspects of the Refinancing), earnings would have been inadequate to cover fixed charges by $21.0 million in 1995. EX-23 4 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS The Board of Directors Owens & Minor, Inc.: We consent to the incorporation herein by reference of our reports dated February 2, 1996, except as to Note 7, which is as of March 1, 1996, relating to the consolidated balance sheets of Owens & Minor, Inc. and subsidiaries as of December 31, 1995 and 1994, the related consolidated statements of operations and cash flows, and the related financial statement schedule, for each of the years in the three-year period ended December 31, 1995, which reports are included or incorporated by reference in the December 31, 1995 annual report on Form 10-K of Owens & Minor, Inc. We also consent to the reference to our firm under the heading "Experts" in the prospectus. /s/ KPMG Peat Marwick LLP Richmond, Virginia March 13, 1996 EX-25 5 FORM T-1 REGISTRATION STATEMENT NO. ____________ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM T-1 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2)_____ CRESTAR BANK (EXACT NAME OF TRUSTEE AS SPECIFIED IN ITS CHARTER) VIRGINIA 54-1109779 (STATE OF INCORPORATION, (I.R.S. EMPLOYER IF NOT A NATIONAL BANK) IDENTIFICATION NO.) 919 EAST MAIN STREET RICHMOND, VIRGINIA 23219 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE) JOHN C. CLARK, III 919 E. MAIN STREET, 18TH FLOOR, RICHMOND, VIRGINIA 23219 (804)782-7455 (NAME, ADDRESS AND TELEPHONE FOR AGENT FOR SERVICE) OWENS & MINOR, INC. (EXACT NAME OF OBLIGOR AS SPECIFIED IN ITS CHARTER) VIRGINIA 54-1701843 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION, OR ORGANIZATION) IDENTIFICATION NO.) 4800 COX ROAD GLEN ALLEN, VIRGINIA 23060 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE) ___% SENIOR SUBORDINATED NOTES DUE ____________, 2006 (TITLE OF THE INDENTURE SECURITIES) Item 1. General Information Furnish the following information as to the trustee: (a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH IT IS SUBJECT. Bureau of Financial Institutions, State Corporation Commission of Virginia Richmond, Virginia The Board of Governors of the Federal Reserve System, Washington, D.C. The Federal Reserve Bank, Richmond, Virginia Federal Deposit Insurance Corporation, Washington, D.C. (b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS. The trustee is authorized to exercise corporate trust powers Item 2. Affiliations with Obligor. If the obligor is an affiliate of the trustee, describe such affiliation. Obligor is not an affiliate of the trustee. Item 16. List of Exhibits. List below all exhibits filed as a part of this Statement of Eligibility. *Exhibit 1 - A copy of the articles of incorporation of the trustee as now in effect. (Incorporated by reference from Exhibit 1 filed with T-1 Statement, Registration Statement No. 33-3984.) *Exhibit 2 - A copy of the certificate of authority of the trustee to commence business. (Incorporated by reference from Exhibit 1 filed with T-1 Statement, Registration Statement No. 33-3984.) *Exhibit 3 - A copy of the certificate of the authority of the trustee to exercise corporate trust powers. (Incorporated by reference from Exhibit 1 filed with T-1 Statement, Registration Statement No. 33-3984.) *Exhibit 4 - A copy of the existing by-laws of the trustee. (Incorporated by reference from Exhibit 1 filed with T-1 Statement, Registration Statement No. 33-3984.) Exhibit 5 - Not applicable. Exhibit 6 - The consent of the trustee required by Section 321(b) of the Act. Exhibit 7 - A copy of the latest report of the condition of the trustee published pursuant to law or the requirements of its supervising or examining authority. Exhibit 8 - Not Applicable. Exhibit 9 - Not Applicable. * The Exhibits thus designated are incorporated herein by reference. Following the description of such Exhibits is a reference to the copy of the Exhibits heretofore filed with the Securities and Exchange Commission, to which there have been no amendments or changes. SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939, the trustee, Crestar Bank, a corporation organized and existing under the laws of the Commonwealth of Virginia, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Richmond, and the Commonwealth of Virginia, on the thirteenth day of March, 1996. Crestar Bank By: /s/ KELLY A. PICKEREL (Kelly A. Pickerel, Vice President) EXHIBIT 6 CONSENT OF TRUSTEE Pursuant to the requirements of Section 321(b) of the Trust Indenture of 1939 in connection with the execution of an Indenture among Owens & Minor, Inc. and Crestar Bank, as Trustee, we hereby consent that reports of examinations by federal, state, territorial, or district authorities may be furnished by such authorities to the Securities and Exchange Commission upon request therefor. Crestar Bank By: /s/ KELLY A. PICKEREL (Kelly A. Pickerel, Vice President) Dated: March 13, 1996 EXHIBIT 7 Federal Financial Institutions Examination Council Board of Governors of the Federal Reserve System OMB Number: 7100-0036 Federal Deposit Insurance Corporation OMB Number: 3064-0052 Office of the Comptroller of the Currency OMB Number: 1557-0081 Expires March 31, 1996 Please refer to page I, Table of Contents, for the required disclosure of estimated burden. Consolidated Reports of Condition and Income for A Bank With Domestic and Foreign Offices - FFIEC 031 Report at the close of business December 31, 1995 (951231) (RCRI 9999) This report is required by law: 12 U.S.C. Section 324 (State member banks); 12 U.S.C. Section 1817 (State nonmember banks); and 12 U.S.C. Section 161 (National banks). This report form is to be filed by banks with branches and consolidated subsidiaries in U.S. territories and possessions, Edge of Agreement subsidiaries, foreign branches, consolidated foreign subsidiaries, or International Banking Facilities. NOTE: The Reports of Condition and Income must be signed by an authorized officer and the Report of Condition must be attested to by not less than two directors (trustees) for State nonmember banks and three directors for State member and National banks. I, Richard G. Tilghman, Chairman and Chief Executive Officer Name and Title of Officer Authorized to Sign Report of the named bank do hereby declare that these Reports of Condition and Income (including the supporting schedules) have been prepared in conformance with the instructions issued by the appropriate Federal regulatory authority and are true to the best of my knowledge and belief. /s/ RICHARD G. TILGHMAN Signature of Officer Authorized to Sign Report 1/30/96 Date of Signature The Reports of Condition and Income are to be prepared in accordance with Federal regulatory authority instructions. NOTE: These instructions may in some cases differ from generally accepted accounting principles. We, the undersigned directors (trustees), attest to the correctness of this Report of Condition (including the supporting schedules) and declare that it has been examined by us and to the best of our knowledge and belief has been prepared in conformance with the instructions issued by the appropriate Federal regulatory authority and is true and correct. /s/ JAMES M. WELLS III Director (Trustee) /s/ J. CARTER FOX Director (Trustee) /s/ GORDON F. RAINEY, JR. Director (Trustee) For Banks Submitting Hard Copy Report Forms: State Member Banks: Return the original and one copy to the appropriate Federal Reserve District Bank. State Nonmember Banks: Return the original only in the special return address envelope provided. If express mail is used in lieu of the special return address envelope, return the original only to the FDIC, c/o Quality Data Systems, 2127 Espey Court, Suite 204, Crofton, MD 21114. National Banks: Return the original only in the special return address envelope provided. If express mail is used in lieu of the special return address envelope, return the original only to the FDIC, c/o Quality Data Systems, 2127 Espey Court, Suite 204, Crofton, MD 21114. FDIC Certificate Number (RCRI 9050) Crestar Bank P.O. Box 26665 Richmond, VA 23261 E512430000 55124300000 December 31, 1995 31 Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency Legal Title of Bank: Crestar Bank Address: P.O. Box 26665 City, State Zip: Richmond, VA 23261-6665 FDIC Certificate No.: 00832 Call Date: 12/31/95 ST-BK: 51-2430 FFIEC 031 Page RI-1 Consolidated Report of Income for the period January 1, 1995 - December 31, 1995 All Report of Income schedules are to be reported on a calendar year-to-date basis in thousands of dollars. Schedule RI--Income Statement
1480 Dollar Amounts in Thousands RIAD Bill Mil Thou 1. Interest Income: a. Interest and fee income on loans: (1) In domestic offices: (a) Loans secured by real estate 4011 344,459 1.a.(1)(a) (b) Loans to depository institutions 4019 307 1.a.(1)(b) (c) Loans to finance agricultural production and other loans to farmers 4024 629 1.a.(1)(c) (d) Commercial and industrial loans 4012 127,860 1.a.(1)(d) (e) Acceptances of other banks 4026 0 1.a(1)(e) (f) Loans to individuals for household, family, and other personal expenditures: (1) Credit cards and related plans 4054 196,297 1.a.(1)(f)(1) (2) Other 4055 115,341 1.a.(1)(f)(2) (g) Loans to foreign governments and official institutions 4056 0 1.a.(1)(g) (h) Obligations (other than securities and leases) of states and political subdivisions in the U.S.: (1) Taxable obligations 4503 2,729 1.a.(1)(h)(1) (2) Tax-exempt obligations 4504 10,908 1.a.(1)(h)(2) (i) All other loans in domestic offices 4058 15,170 1.a.(1)(i) (2) In foreign offices, Edge and Agreement subsidiaries, and IBFs 4059 0 1.a.(2) b. Income from lease financing receivables: (1) Taxable leases 4505 173 1.b.(1) (2) Tax-exempt leases 4307 0 1.b.(2) c. Interest income on balances due from depository institutions: (1) (1) In domestic offices 4105 1 1.c.(1) (2) In foreign offices, Edge and Agreement subsidiaries, and IBFs 4106 169 1.c.(2) d. Interest and dividend income on securities: (1) U.S. Treasury securities and U.S. Government agency and corporation obligations 4027 82,990 1.d.(1) (2) Securities issued by states and political subdivisions in the U.S.: (a) Taxable securities 4506 0 1.d.(2)(a) (b) Tax-exempt securities 4507 3,191 1.d.(2)(b) (3) Other domestic debt securities 3657 19,156 1.d.(3) (4) Foreign debt securities 3658 0 1.d.(4) (5) Equity securities (including investments in mutual funds) 3659 881 1.d.(5) e. Interest income from trading assets 4069 0 1.e.
__________ (1) Includes interest income on time certificates of deposit not held for trading. 3 Legal Title of Bank: Crestar Bank Address: P.O. Box 26665 City, State Zip: Richmond, VA 23261-6665 FDIC Certificate No.: 00832 Call Date: 12/31/95 ST-BK: 51-2430 FFIEC 031 Page RI-2 Schedule RI--Continued
Year-to-date Dollar Amounts in Thousands RIAD Bil Mil Thou 1. Interest income (continued) f. Interest income on federal funds sold and securities purchased under agreements to resell in domestic offices of the bank and of its Edge and Agreement subsidiaries, and in IBF's 4020 15,503 1.f. g. Total Interest income (sum of items 1.a. through 1.f.) 4107 935,764 1.g. 2. Interest expense: a. Interest on deposits: (1) Interest on deposits in domestic offices: (a) Transaction accounts (NOW accounts, ATS accounts, and telephone and preauthorized transfer accounts) 4508 30,519 2.a.(1)(a) (b) Nontransaction accounts: (1) Money market deposit accounts (MMDAs) 4509 71,299 2.a.(1)(b)(1) (2) Other savings deposits 4511 24,998 2.a.(1)(b)(2) (3) Time certificates of deposit of $100,000 or more 4174 13,319 2.a.(1)(b)(3) (4) All other time deposits 4512 128,276 2.a.(1)(b)(4) (2) Interest on deposits in foreign offices, Edge and Agreement subsidiaries, and IBFs 4172 7 2.a.(2) b. Expense of federal funds purchased and securities sold under agreements to repurchase in domestic offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs 4180 101,130 2.b. c. Interest on demand notes issued to the U.S. Treasury, trading liabilities, and other borrowed money 4185 2,343 2.c. d. Interest on mortgage indebtedness and obligations under capitalized leases 4072 950 2.d. e. Interest on subordinated notes and debentures 4200 17,965 2.e. f. Total interest expense (sum of items 2.a. through 2.e.) 4073 390,806 2.f. 3. Net interest income (item 1.g. minus 2.f) RIAD 4074 544,958 3. 4. Provisions: a. Provision for loan and lease losses RIAD 4230 49,347 4.a. b. Provision for allocated transfer risk RIAD 4243 0 4.b. 5. Noninterest income: a. Income from fiduciary activities 4070 36,728 5.a. b. Service charges on deposit accounts in domestic offices 4080 70,633 5.b. c. Trading gains (losses) and fees from foreign exchange transactions 4075 1,081 5.c. d. Other foreign transaction gains (losses) 4076 0 5.d. e. Other gains (loses) and fees from trading assets and liabilities 4077 (1,374) 5.e. f. Other noninterest income: (1) Other fee income 5407 138,772 5.f.(1) (2) All other noninterest income* 5408 32,151 5.f.(2) g. Total noninterest income (sum of items 5.a. through 5.f.) RIAD 4079 277,991 5.g. 6. a. Realized gains (losses) on held-to-maturity securities RIAD 3521 0 6.a. b. Realized gains (losses) on available-for-sale securities RIAD 3196 (2,370) 6.b. 7. Noninterest expense: a. Salaries and employee benefits 4135 263,712 7.a. b. Expenses of premises and fixed assets (net or rental income) (excluding salaries and employee benefits and mortgage interest) 4217 60,421 7.b. c. Other noninterest expense* 4092 198,222 7.c. d. Total noninterest expense (sum of items 7.a. through 7.c.) RIAD 4093 522,355 7.d. 8. Income (loss) before income taxes and extraordinary items and other adjustments (Item 3 plus or minus items 4.a., 4.b., 5.g., 6.a., 6.b., and 7.d.) RIAD 4301 248,877 8. 9. Applicable income taxes (on item 8) RIAD 4302 83,494 9. 10. Income (loss) before extraordinary items and other adjustments (item 8 minus 9) RIAD 4300 165,383 10.
__________ *Describe on Schedule RI-E--Explanations. 4 Legal Title of Bank: Crestar Bank Address: P.O. Box 26665 City, State Zip: Richmond, VA 23261-6665 FDIC Certificate No.: 00832 Call Date: 12/31/95 ST-BK: 51-2430 FFIEC 031 Page RI-3 Schedule RI--Continued
Year-to-date Dollar Amounts in Thousands RIAD Bil Mil Thou 11. Extraordinary items and other adjustments: a. Extraordinary items and other adjustments, gross of income taxes * 4310 0 11.a. b. Applicable income taxes (on items 11.a.)* 4315 0 11.b c. Extraordinary items and other adjustments, net of income taxes (item 11.a. minus 11.b.) RIAD 4320 0 11.c. 12. Net income (loss) (sum of items 10 and 11.c.) RIAD 4340 165,383 12.
481 Memoranda Year-to-date Dollar Amounts in Thousands RIAD Bil Mil Thou 1. Interest expense incurred to carry tax-exempt securities, loans, and leases acquired after August 7, 1986, that is not deductible for federal income tax purposes 4513 1,626 M.1. 2. Income from the sale and servicing of mutual funds and annuities in domestic offices (included in Schedule RI, item 8) 8431 330 M.2. 3. Estimated foreign tax credit included in applicable income taxes, items 9 and 11.b. above 4309 0 M.3. 4. To be completed only by banks with $1 billion or more in total assets: Taxable equivalent adjustment to "Income (loss) before income taxes and extraordinary items and other adjustments" (item 8 above) 1244 8,371 M.4. 5. Number of full-time equivalent employees on payroll at end of current period Number (round to nearest whole number) 4150 5,608 M.5. 6. Not applicable 7. If the reporting bank has restated its balance sheet as a result of applying push down accounting this calendar year, report the date of the bank's MM/DD/YY acquisition 9106 00/00/00 M.7. 8. Trading revenue (from cash instruments and off-balance sheet derivative instruments) (included in Schedule RI, items 5.c. and 5.e.): Bill Mil Thou a. Interest rate exposures 8757 0 M.8.a. b. Foreign exchange exposures 8758 261 M.8.b. c. Equity security and index exposures 8759 0 M.8.c. d. Commodity and other exposures 8760 0 M.8.d. 9. Impact on income of off-balance sheet derivatives held for purposes other than trading: a. Net increase (decrease) to interest income 8761 (5,932) M.9.a. b. Net (increase) decrease to interest expense 8762 (574) M.9.b. c. Other (noninterest) allocations 8763 (6,586) M.9.c.
__________ *Describe on Schedule RI-E--Explanations. 5 Legal Title of Bank: Crestar Bank Address: P.O. Box 26665 City, State Zip: Richmond, VA 23261-6665 FDIC Certificate No.: 00832 Call Date: 12/31/95 ST-BK: 51-2430 FFIEC 031 Page RI-4 Schedule RI-A--Changes in Equity Capital Indicate decreases and losses in parentheses.
1483 Dollar Amounts in Thousands RIAD Bil Mil Thou 1. Total equity capital originally reported in the December 31, 1994, Reports of Condition and Income 3215 867,019 1. 2. Equity capital adjustments from amended Reports of Income, net* 3216 0 2. 3. Amended balance end of previous calendar year (sum of items 1 and 2) 3217 867,019 3. 4. Net income (loss)(must equal Schedule RI, item 12) 4340 165,383 4. 5. Sale, conversion, acquisition, or retirement of capital stock, net 4346 (73,762) 5. 6. Changes incident to business combinations, net 4356 0 6. 7. LESS: Cash dividends declared on preferred stock 4470 0 7. 8. LESS: Cash dividends declared on common stock 4460 64,579 8. 9. Cumulative effect of changes in accounting principles from prior years* (see instructions for this schedule) 4411 0 9. 10. Corrections of material accounting errors from prior years* (see instructions for this schedule) 4412 0 10. 11. Change in net unrealized holding gains (losses) on available-for-sale securities 8433 38,735 11. 12. Foreign currency transaction adjustments 4414 0 12. 13. Other transactions with parent holding company* (not included in items 5, 7 or 8 above) 4415 74,500 13. 14. Total equity capital end of current period (sum of items 3 through 13) (must equal Schedule RC, item 28) 3210 1,007,296 14.
__________ *Describe on Schedule RI-E--Explanations. Schedule RI-B--Charge-offs and Recoveries and Changes in Allowance for Loan and Lease Losses Part I. Charge-offs and Recoveries on Loans and Leases Part I excludes charge-offs and recoveries through the allocated transfer risk reserve.
1486 (Column A) (Column B) Charge-offs Recoveries Calendar year-to-date Dollar Amounts in Thousands RIAD Bil Mil Thou RIAD Bil Mil Thou 1. Loans secured by real estate: a. To U.S. addresses (domicile) 4651 4,461 4661 9,700 1.a. b. To non-U.S. addressees (domicile) 4652 0 4462 0 1.b. 2. Loans to depository institutions and acceptance of the banks: a. To U.S. banks and other U.S. depository institutions 4653 0 4663 0 2.a. b. To foreign banks 4654 0 4664 0 2.b. 3. Loans to finance agricultural production and other loans to farmers 4655 12 4665 16 3. 4. Commercial and industrial loans; a. To U.S. addressees (domicile) 4645 2,857 4617 3,384 4.a. b. To non-U.S. addressees (domicile) 4646 0 4618 0 4.b. 5. Loans to individuals for household, family, and other personal expenditures: a. Credit cards and related plans 4656 52,120 4666 4,467 5.a. b. Other (includes single payment, installment, and all student loans) 4657 13,046 4667 5,324 5.b. 6. Loans to foreign governments and official institutions 4643 0 4627 0 6. 7. All other loans 4644 3,140 4628 1,405 7. 8. Lease financing receivables: a. Of U.S. addressees (domicile) 4658 0 4668 0 8.a. b. Of non-U.S. addressees (domicile) 4659 0 4669 0 8.b. 9. Total (sum of items 1 through 8) 4635 75,636 4605 24,497 9.
6 Legal Title of Bank: Crestar Bank Address: P.O. Box 26665 City, State Zip: Richmond, VA 23261-6665 FDIC Certificate No.: 00832 Call Date: 12/31/95 ST-BK: 51-2430 FFIEC 031 Page RI-5 Schedule RI-B--Continued Part I. Continued
1486 (Column A) (Column B) Charge-offs Recoveries Memoranda Calendar year-to-date Dollar Amounts in Thousands RIAD Bil Mil Thou RIAD Bil Mil Thou 1-3. Not applicable 4. Loans to finance commercial real estate, construction, and land development activities (not secured by real estate) included in Schedule RI-B, part I, items 4 and 7, above 5409 0 5410 0 M.4. 5. Loans secured by real estate in domestic offices (included in Schedule RI-B, part I, item 1, above): a. Construction and land development 3582 1,043 3583 3,076 M.5.a. b. Secured by farmland 3584 240 3585 11 M.5.b. c. Secured by 1-4 family residential properties: (1) Revolving, open-end loans secured by 1-4 family residential properties and extended under lines of credit 5411 1 5412 30 M.5.c.(1) (2) All other loans secured by 1-4 family residential properties 5413 991 5414 911 M.5.c.(2) d. Secured by multifamily (5 or more) residential properties 3588 10 3589 759 M.5.d. e. Secured by nonfarm nonresidential properties 3590 2,176 3591 4,913 M.5.e.
Part II. Changes in Allowance for Loan and Lease Losses
Dollar Amounts in Thousands RIAD Bil Mil Thou 1. Balance originally reported in the December 31, 1994, Reports of Condition and Income 3124 192,501 1. 2. Recoveries (must equal part I, item 9, column B above) 4605 24,497 2. 3. LESS: Charge-offs (must equal part I, item 9, column A above) 4635 75,636 3. 4. Provision for loan and lease losses (must equal Schedule RI, item 4.a.) 4230 49,347 4. 5. Adjustments* (see instructions for this schedule) 4815 5,412 5. 6. Balance end of current period (sum of items 1 through 5)(must equal Schedule RC, item 4.b) 3213 196,121 6.
__________ *Describe on Schedule RI-E--Explanations. Schedule RI-C--Applicable Income Taxes by Taxing Authority Schedule RI-C is to be reported with the December Report of Income.
1489 Dollar Amounts in Thousands RIAD Bil Mil Thou 1. Federal 4780 82,094 1. 2. State and local 4790 1,400 2. 3. Foreign 4795 0 3. 4. Total (sum of items 1 through 3) (must equal sum of Schedule RI, items 9 and 11.b) 4770 83,494 4. 5. Deferred portion of item 4 RIAD 4772 (18) 5.
7 Legal Title of Bank: Crestar Bank Address: P.O. Box 26665 City, State Zip: Richmond, VA 23261-6665 FDIC Certificate No.: 00832 Call Date: 12/31/95 ST-BK: 51-2430 FFIEC 031 Page RI-6 Schedule RI-D--Income form International Operations For all banks with foreign offices, Edge or Agreement subsidiaries, or IBFs where international operations account for more than 10 percent of total revenues, total assets, or net income. Part I. Estimated Income from International Operations
1492 Year-to-date Dollar Amounts in Thousands RIAD Bil Mil Thou 1. Interest income and expenses booked at foreign offices, Edge and Agreement subsidiaries, and IBFs: a. Interest income booked 4837 N/A 1.a. b. Interest expenses booked 4838 N/A 1.b. c. Net interest income booked at foreign offices, Edge and Agreement subsidiaries, and IBFs (item 1.a. minus 1.b.) 4839 N/A 1.c. 2. Adjustments for booking location of international operations: a. Net interest income attributable to international operations booked at domestic offices 4840 N/A 2.a. b. Net interest income attributable to domestic business booked at foreign offices 4841 N/A 2.b. c. Net booking location adjustment (item 2.a minus 2.b.) 4842 N/A 2.c. 3. Noninterest income and expense attributable to international operations: a. Noninterest income attributable to international operations 4097 N/A 3.a. b. Provision for loan and lease losses attributable to international operations 4235 N/A 3.b. c. Other noninterest expense attributable to international operations 4239 N/A 3.c. d. Net non-interest income (expense) attributable to international operations (item 3.a. minus 3.b. and 3.c.) 4843 N/A 3.d. 4. Estimated pretax income attributable to international operations before capital allocation adjustment (sum of items 1.c., 2.c., and 3.d.) 4844 N/A 4. 5. Adjustment to pretax income for internal allocations to international operations to reflect the effects of equity capital on overall bank funding costs 4845 N/A 5. 6. Estimated pretax income attributable to international operations after capital allocation adjustment (sum of items 4 and 5) 4846 N/A 6. 7. Income taxes attributable to income from international operations as estimated in item 6 4797 N/A 7. 8. Estimated net income attributable to international operations (item 6 minus 7) 4341 N/A 8. Memoranda Dollar Amounts in Thousands RIAD Bil Mil Thou 1. Intracompany interest income included in item 1.a. above 4847 N/A M.1. 2. Intracompany interest expense included in item 1.b. above 4848 N/A M.2.
Part II. Supplementary Details on Income from International Operations Required by the Departments of Commerce and Treasury for Purposes of the U.S. International Accounts and the U.S. National Income and Product Accounts
Year-to-date Dollar Amounts in Thousands RIAD Bil Mil Thou 1. Interest income booked at IBFs 4849 N/A 1. 2. Interest expense booked at IBFs 4850 N/A 2. 3. Noninterest income attributable to international operations booked at domestic offices (excluding IBFs): a. Gains (losses) and extraordinary items 5491 N/A 3.a. b. Fees and other noninterest income 5492 N/A 3.b. 4. Provision for loan and lease losses attributable to international operations booked at domestic offices (excluding IBFs) 4852 N/A 4. 5. Other noninterest expense attributable to international operations booked at domestic offices (excluding IBFs) 4853 N/A 5.
8 Legal Title of Bank: Crestar Bank Address: P.O. Box 26665 City, State Zip: Richmond, VA 23261-6665 FDIC Certificate No.: 00832 Call Date: 12/31/95 ST-BK: 51-2430 FFIEC 031 Page RI-7 Schedule RI-E--Explanations Schedule RI-E is to be completed each quarter on a calendar year-to-date basis. Detail all adjustments in Schedule RI-A and RI-B, all extraordinary items and other adjustments in Schedule RI, and all significant items of other noninterest income and other noninterest expense in Schedule RI. (See instructions for details.)
1495 Year-to-date Dollar Amounts in Thousands RIAD Bil Mil Thou 1. All other noninterest income (from Schedule RI, item 5.f.(2)) Report amounts that exceed 10% of Schedule RI, item 5.f.(2): a. Net gains on other real estate owned 5415 0 1.a. b. Net gains on sales of loans 5416 0 1.b. c. Net gains on sales of premises and fixed assets 5417 0 1.c. Itemize and describe the three largest other amounts that exceed 10% of Schedule RI, item 5.f.(2): d. Text 4461 Gain on sale of deposits 4461 7,112 1.d. e. Text 4462 Personalized check sales 4462 6,611 1.e. f. Text 4463 Gain/Pension plan annuity 4463 4,340 1.f. 2. Other noninterest expense (from Schedule RI, item 7.c.): a. Amortization expense of intangible assets 4531 13,535 2.a. Report amounts that exceed 10% of Schedule RI, item 7.c.: b. Net losses on other real estate owned 5418 0 2.b. c. Net losses on sales of loans 5419 0 2.c. d. Net losses on sales of premises and fixed assets 5420 0 2.d. Itemize and describe the three largest amounts that exceed 10% of Schedule RI, item 7.c.: e. Text 4464 4464 2.e. f. Text 4467 4467 2.f. g. Text 4468 4468 2.g. 3. Extraordinary items and other adjustments (from Schedule RI, item 11.a.) and applicable income tax effect (from Schedule RI, item 11.b.) (itemize and describe all extraordinary items and other adjustments): a. (1) Text 4469 4469 3.a.(1) (2) Applicable income tax effect RIAD 4486 3.a.(2) b. (1) Text 4487 4487 3.b.(1) (2) Applicable income tax effect RIAD 4488 3.b.(2) c. (1) Text 4489 4489 3.c.(1) (2) Applicable income tax effect RIAD 4491 3.c.(2) 4. Equity capital adjustments from amended Reports of Income (from Schedule RI-A, item 2) (itemize and describe all adjustments): a. Text 4492 4492 4.a. b. Text 4493 4493 4.b. 5. Cumulative effect of changes in accounting principles from prior years (from Schedule RI-A, item 9) (itemize and describe all changes in accounting principles): a. Text 4494 4494 5.a. b. Text 4495 4495 5.b. 6. Corrections of material accounting errors from prior years (from Schedule RI-A, item 10 (itemize and describe all corrections): a. Text 4496 4496 6.a. b. Text 4497 4497 6.b.
9 Legal Title of Bank: Crestar Bank Address: P.O. Box 26665 City, State Zip: Richmond, VA 23261-6665 FDIC Certificate No.: 00832 Call Date: 12/31/95 ST-BK: 51-2430 FFIEC 031 Page RI-8 Schedule RI-E--Continued
Year-to-date Dollar Amounts in Thousands RIAD Bil Mil Thou 7. Other transactions with percent holding company (from Schedule RI-A, item 13) (itemize and describe all such transactions): a. Text 4498 Capital contribution from parent company 4498 74,500 7.a. b. Text 4499 4499 7.b. 8. Adjustments to allowance for loan and lease losses (from Schedule RI-B, part II, item 5) (itemize and describe all adjustments): a. Text 4521 Provision for bank acquisitions 4521 5,456 8.a. b. Text 4522 Sale of leases/purchase of loans 4522 (44) 8.b. 9. Other explanations (the space below is provided for the bank to briefly describe, at its option, any other significant items affecting the Report of Income): 1498 1499 No comment __ (RAID 4769) Other explanations (please type or print clearly): (Text 4769)
10 Legal Title of Bank: Crestar Bank Address: P.O. Box 26665 City, State Zip: Richmond, VA 23261-6665 FDIC Certificate No.: 00832 Call Date: 12/31/95 ST-BK: 51-2430 FFIEC 031 Page RC-1 Consolidated Report of Condition for Insured Commercial and State-Chartered Savings Banks for December 31, 1995 All schedules are to be reported in thousands of dollars. Unless otherwise indicated, report the amount outstanding as of the last business day of the quarter. Schedule RC--Balance Sheet
C400 Dollar Amounts in Thousands RCFD Bil Mil Thou Assets 1. Cash and balances due from depository (from Schedule RC-A): a. Noninterest-bearing balances and currency and coin(1) 0081 964,635 1.a. b. Interest-bearing balances(2) 0071 40,000 1.b. 2. Securities: a. Held-to-maturity securities (from Schedule RC-B, column A) 1754 77,520 2.a. b. Available-for-sale securities (from Schedule RC-B, column D) 1773 2,128,656 2.b. 3. Federal funds sold and securities purchased under agreements to resell in domestic offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs: a. Federal funds sold 0276 229,285 3.a. b. Securities purchased under agreements to resell 0277 173,360 3.b. 4. Loans and lease financing receivables: a. Loans and leases, net of unearned income (from Schedule RC-C) RCFD 2122 9,238,777 4.a. b. LESS: Allowance for loan and lease losses RCFD 3123 196,121 4.b. c. LESS: Allocated transfer risk reserve RCFD 3128 0 4.c. d. Loans and leases, net of unearned income, allowance, and reserve (item 4.a. minus 4.b. and 4.c.) 2125 9,042,656 4.d. 5. Trading assets (from Schedule RC-D) 3545 0 5. 6. Premises and fixed assets (including capitalized leases) 2145 266,015 6. 7. Other real estate owned (from Schedule RC-M) 2150 11,939 7. 8. Investments in unconsolidated subsidiaries and associated companies (from Schedule RC-M) 2130 177 8. 9. Customers' liability to this bank on acceptances outstanding 2155 5,143 9. 10. Intangible assets (from Schedule RC-M) 2143 132,941 10. 11. Other assets (from Schedule RC-F) 2160 485,415 11. 12. Total assets (sum of items 1 through 11) 2170 13,557,742 12.
__________ (1) Includes cash items in process of collection and unposted debits. (2) Includes time certificates of deposit not held for trading. 11 Legal Title of Bank: Crestar Bank Address: P.O. Box 26665 City, State Zip: Richmond, VA 23261-6665 FDIC Certificate No.: 00832 Call Date: 12/31/95 ST-BK: 51-2430 FFIEC 031 Page RC-2 Schedule RC--Continued
Dollar Amounts in Thousands Bil Mil Thou Liabilities 13. Deposits: a. In domestic offices (sum of totals of columns A and C from Schedule RC-E, part I) RCON 2200 9,437,765 13.a. (1) Noninterest-bearing(1) RCON 6631 2,418,287 13.a.(1) (2) Interest-bearing RCON 6636 7,019,478 13.a.(2) b. In foreign offices, Edge and Agreement subsidiaries, and IBFs (from Schedule RC-E, part II) RCFN 2200 0 13.b. (1) Noninterest-bearing RCFN 6631 0 13.b.(1) (2) Interest-bearing RCFN 6636 0 13.b.(2) 14. Federal funds purchased and securities sold under agreements to repurchase in domestic offices of the bank of its Edge and Agreement subsidiaries, and in IBFs: a. Federal funds purchased RCFD 0278 1,980,715 14.a. b. Securities sold under agreements to repurchase RCFD 0279 257,624 14.b. 15. a. Demand notes issued to the U.S. Treasury RCON 2840 0 15.a. b. Trading liabilities (from Schedule RC-D) RCFD 3548 0 15.b. 16. Other borrowed money: a. With original maturity of one year or less RCFD 2332 18,153 16.a. b. With original maturity of more than one year RCFD 2333 11,000 16.b. 17. Mortgage indebtedness and obligations under capitalized leases RCFD 2910 10,487 17. 18. Bank's liability on acceptances executed and outstanding RCFD 2920 5,143 18. 19. Subordinated notes and debentures RCFD 3200 213,000 19. 20. Other liabilities (from Schedule RC-G) RCFD 2930 616,559 20. 21. Total liabilities (sum of items 13 through 20) RCFD 2948 12,550,446 21. 22. Limited-life preferred and related surplus RCFD 3282 0 22. Equity Capital 23. Perpetual preferred stock and related surplus RCFD 3838 0 23. 24. Common Stock RCFD 3230 135,000 24. 25. Surplus (exclude all surplus related to preferred stock) RCFD 3839 211,639 25. 26. a. Undivided profits and capital reserves RCFD 3632 649,603 26.a. b. Net unrealized gains (losses) on available-for-sale securities RCFD 8434 11,054 26.b. 27. Cumulative foreign currency translation adjustments RCFD 3284 0 27. 28. Total equity capital (sum of items 23 through 27) RCFD 3210 1,007,296 28. 29. Total liabilities, limited-life preferred stock, and equity capital (sum of items 21, 22, and 28) RCFD 3300 13,557,742 29. Memorandum To be reported only with the March Report of Condition. 1. Indicate in the box at the right the number of the statement below that best describes the most comprehensive level of auditing work performed for the Number bank by independent external auditors as of any date during 1994 RCFD 6724 N/A M.1.
1 = Independent audit of the bank conducted in accordance with generally accepted auditing standards by a certified public accounting firm which submits a report on the bank 2 = Independent audit of the bank's parent holding company conducted in accordance with generally accepted auditing standards by a certified public accounting firm which submits a report on the consolidated holding company (but not on a bank separately). 3 = Directors' examination of the bank conducted in accordance with generally accepted auditing standards by a certified public accounting firm (may be required by state chartering authority). 4 = Directors' examination of the bank performed by other external auditors (may be required by state chartering authority). 5 = Review of the bank's financial statements by external auditors. 6 = Compilation of the bank's financial statements by external auditors. 7 = Other audit procedures (excluding tax preparation work). 8 = no external audit work. __________ (1) Includes total demand deposits and noninterest-bearing time and savings deposits. 12 Legal Title of Bank: Crestar Bank Address: P.O. Box 26665 City, State Zip: Richmond, VA 23261-6665 FDIC Certificate No.: 00832 Call Date: 12/31/95 ST-BK: 51-2430 FFIEC 031 Page RC-3 Schedule RC-A--Cash and Balances Due From Depository Institutions Exclude assets held for trading.
C405 (Column A) (Column B) Consolidated Domestic Bank Offices Dollar Amounts in Thousands RCFD Bil Mil Thou RCON Bil Mil Thou 1. Cash items in process of collection, unposted debits, and currency and coin 0022 747,256 1. a. Cash items in process of collection and unposted debits 0020 556,309 1.a. b. Currency and coin 0080 190,947 1.b. 2. Balances due from depository institutions in the U.S. 0082 2,839 2. a. U.S. branches and agencies of foreign banks (including their IBFs) 0083 0 2.a. b. Other commercial banks in the U.S. and other depository institutions in the U.S. (including their IBFs) 0085 2,839 2.b. 3. Balances due from banks in foreign countries and foreign central banks 0070 44,307 3. a. Foreign branches of other U.S. banks 0073 40,000 3.a. b. Other banks in foreign countries and foreign central banks 0074 4,307 3.b. 4. Balances due from Federal Reserve Banks 0090 210,233 0090 210,233 4. 5. Total (sum of items 1 through 4) (total of column A must equal Schedule RC, sum of items 1.a. and 1.b.) 0010 1,004,635 0010 1,004,635 5.
Memorandum RCON Bil Mil Thou Dollar Amounts in Thousands 1. Noninterest-bearing balances due from commercial banks in the U.S. (included in items 2, column B above) 0050 2,839 M.1.
Schedule RC-B--Securities Exclude assets held for trading.
C410 Held-to-maturity Available-for-sale (Column A) (Column B) (Column C) (Column D) Amortized Cost Fair Value Amortized Cost Fair Value(1) Dollar Amounts in Thousands RCFD Bil Mil Thou RCFD Bil Mil Thou RCFD Bil Mil Thou RCFD Bil Mil Thou 1. U.S. Treasury securities 0211 0 0213 0 1286 148,253 1287 146,694 1. 2. U.S. Government agency and corporation obligations (exclude mortgage-backed securities): a. Issued by U.S. Government agencies(2) 1289 0 1290 0 1291 0 1293 0 2.a. b. Issued by U.S. Government- sponsored agencies(3) 1294 0 1295 0 1297 72,852 1298 73,485 2.b.
__________ (1) Includes equity securities without readily determinable fair values at historical cost in item 6.c., column D. (2) Includes Small Business Administration "Guaranteed Loan Pool Certificates," U.S. Maritime Administration obligations, and Export-Import Bank participation certificates. (3) Includes obligations (other than mortgage-backed securities) issued by the Farm Credit System, the Federal Home Loan Bank, System, The Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, the Financing Corporation, Resolution Funding Corporation, the Student Loan Marketing Association, and the Tennessee Valley Authority. 13 Legal Title of Bank: Crestar Bank Address: P.O. Box 26665 City, State Zip: Richmond, VA 23261-6665 FDIC Certificate No.: 00832 Call Date: 12/31/95 ST-BK: 51-2430 FFIEC 031 Page RC-4 Schedule RC-B--Continued
Held-to-maturity Available-for-sale (Column A) (Column B) (Column C) (Column D) Amortized Cost Fair Value Amortized Cost Fair Value(1) Dollar Amounts in Thousands RCFD Bil Mil Thou RCFD Bil Mil Thou RCFD Bil Mil Thou RCFD Bil Mil Thou 3. Securities issued by states and political subdivisions in the U.S. a. General obligations 1676 3,670 1677 3,687 1678 0 1679 0 3.a. b. Revenue obligations 1681 44,369 1686 45,333 1690 0 1691 0 3.b. c. Industrial development and similar obligations 1694 385 1695 388 1696 0 1697 0 3.c. 4. Mortgage-backed securities (MBS): a. Pass-through securities: (1) Guaranteed by GNMA 1698 0 1699 0 1701 3,305 1702 3,308 4.a.(1) (2) Issued by FNMA and FHLMC 1703 22,999 1705 24,333 1706 1,332,774 1707 1,345,331 4.a.(2) (3) Other pass-through securities 1709 0 1710 0 1711 0 1713 0 4.a.(3) b. Other mortgage-backed securities (include CMOs, REMICs, and stripped MBS): (1) Issued or guaranteed by FNMA, FHLMC, or GNMA 1714 0 1715 0 1716 66,929 1717 66,933 4.b.(1) (2) Collateralized by MBS issued or guaranteed by FNMA, FHLMC, or GNMA 1718 0 1719 0 1731 52,161 1732 52,950 4.b.(2) (3) All other mortgage-backed securities 1733 4,842 1734 4,842 1735 138,016 1736 138,044 4.b.(3) 5. Other debt securities: a. Other domestic debt securities 1737 0 1738 0 1739 276,322 1741 277,721 5.a. b. Foreign debt securities 1742 1,255 1743 1,255 1744 0 1746 0 5.b. 6. Equity securities: a. Investments in mutual funds 1747 0 1748 0 6.a. b. Other equity securities with readily determinable fair values 1749 6,977 1751 7,191 6.b. c. All other equity securities(1) 1752 13,999 1753 13,999 6.c. 7. Total (sum of items 1 through 6) (total of column A must equal Schedule RC, item 2.a) (total of column D must equal Schedule RC, item 2.b.) 1754 77,520 1771 79,838 1772 2,111,588 1773 2,128,656 7.
__________ (1) Includes equity securities without readily determinable fair values at historical cost in item 6.c., column D. 14 Legal Title of Bank: Crestar Bank Address: P.O. Box 26665 City, State Zip: Richmond, VA 23261-6665 FDIC Certificate No.: 00832 Call Date: 12/31/95 ST-BK: 51-2430 FFIEC 031 Page RC-5 Schedule RC-B--Continued
Memoranda C412 Dollar Amounts in Thousands RCFD Bil Mil Thou 1. Pledged securities(2) 0416 828,542 M.1. 2. Maturity and repricing data for debt securities(2)(3)(4) (excluding those in nonaccrual status): a. Fixed rate debt securities with a remaining maturity of: (1) Three months or less 0343 104,167 M.2.a.(1) (2) Over three months through 12 months 0344 5,515 M.2.a.(2) (3) Over one year through five years 0345 255,203 M.2.a.(3) (4) Over five years 0346 1,592,139 M.2.a.(4) (5) Total fixed rate debt securities (sum of Memorandum items 2.a.(1) through 2.a.(4) 0347 1,957,024 M.2.a.(5) b. Floating rate debt securities with a repricing frequency of: (1) Quarterly or more frequently 4544 223,640 M.2.b.(1) (2) Annually or more frequently, but less frequently than quarterly 4545 4,322 M.2.b.(2) (3) Every five years or more frequently, but less frequently than annually 4551 0 M.2.b.(3) (4) Less frequently than every five years 4552 0 M.2.b.(4) (5) Total floating rate debt securities (sum of Memorandum items 2.b.(1) through 2.b.(4)) 4553 227,962 M.2.b.(5) c. Total debt securities (sum of Memorandum items 2.a.(5) and 2.b.(5)) (must equal total debt securities from Schedule RC-B, sum of items 1 through 5, columns A and D, minus nonaccrual debt securities included in Schedule RC-N, item 9, column C) 0393 2,184,986 M.2.c. 3. Not applicable 4. Held-to-maturity debt securities restructured and in compliance with modified terms (included in Schedule RC-B, items 3 through 5, column A, above) 5365 0 M.4. 5. Not applicable 6. Floating rate debt securities with a remaining maturity of one year or less (2)(5) (to be completed by all banks) 5519 0 M.6. 7. Amortized cost of held-to-maturity securities sold or transferred to available-for-sale or trading securities during the calendar year-to-date (report the amortized cost at date of sale or transfer) 1778 0 M.7. 8. High-risk mortgage securities (included in the held-to-maturity and available-for-sale accounts in Schedule RC-B, item 4.b.): a. Amortized cost 8780 0 M.8.a. b. Fair value 8781 0 M.8.b. 9. Structured notes (included in the held-to-maturity and available-for-sale accounts in Schedule RC-B, items 2, 3, and 5): a. Amortized cost 8782 187 M.9.a. b. Fair value 8783 188 M.9.b.
__________ (2) Includes held-to-maturity securities at amortized cost and available-for-sale securities at fair value. (3) Exclude equity securities, e.g., investments in mutual funds, Federal Reserve stock, common stock, and preferred stock. (4) Memorandum item 2 is not applicable to savings banks that must complete supplemental Schedule RC-J. (5) For commercial banks, the debt securities included in Memorandum item 6 will also have been reported in Memorandum item 2.b above. For savings banks, the debt securities included in Memorandum item 6 will also have been reported in supplemental Schedule RC-J, part I, item 4. Savings banks should note that available-for-sale debt securities are reported at fair value in Memorandum item 6 and at amortized cost in Schedule RC-J. 15 Legal Title of Bank: Crestar Bank Address: P.O. Box 26665 City, State Zip: Richmond, VA 23261-6665 FDIC Certificate No.: 00832 Call Date: 12/31/95 ST-BK: 51-2430 FFIEC 031 Page RC-6 Schedule RC-C--Loans and Lease Financing Receivables Part I. Loans and Leases Do not deduct the allowance for loan and lease losses from amounts reported in this schedule. Report total loans and leases, net of unearned income. Exclude assets held for trading.
C415 (Column A) (Column B) Consolidated Domestic Bank Offices Dollar Amounts in Thousands RCFD Bil Mil Thou RCON Bil Mil Thou 1. Loans secured by real estate 1410 4,076,556 1. a. Construction and land development 1415 164,611 1.a. b. Secured by farmland (including farm residential and other improvements) 1420 15,594 1.b. c. Secured by 1-4 family residential properties: (1) Revolving, open-end loans secured by 1-4 family residential properties and extended under lines of credit 1797 383,937 1.c.(1) (2) All other loans secured by 1-4 family residential properties: (a) Secured by first liens 5367 2,045,599 1.c.(2)(a) (b) Secured by junior liens 5368 206,134 1.c.(2)(b) d. Secured by multifamily (5 or more) residential properties 1460 102,530 1.d. e. Secured by nonfarm nonresidential properties 1480 1,158,151 1.e. 2. Loans to depository institutions: a. To commercial banks in the U.S. 1505 1,395 2.a. (1) To U.S. branches and agencies of foreign banks 1506 0 2.a.(1) (2) To other commercial banks in the U.S. 1507 1,395 2.a.(2) b. To other depository institutions in the U.S. 1517 0 1517 0 2.b. c. To banks in foreign countries 1510 68 2.c. (1) To foreign branches of other U.S. banks 1513 0 2.c.(1) (2) To other banks in foreign countries 1516 68 2.c.(2) 3. Loans to finance agricultural production and other loans to farmers 1590 4,701 1590 4,701 3. 4. Commercial and industrial loans: a. To U.S. addressees (domicile) 1763 1,770,985 1763 1,770,985 4.a. b. To non U.S. addressees (domicile) 1764 0 1764 0 4.b. 5. Acceptances of other banks: a. Of U.S. banks 1756 0 1756 0 5.a. b. Of foreign banks 1757 0 1757 0 5.b. 6. Loans to individuals for household, family, and other personal expenditures (i.e., consumer loans) (includes purchased paper) 1975 2,944,839 6. a. Credit cards and related plans (includes check credit and other revolving credit plans) 2008 1,521,650 6.a. b. Other (includes single payment, installment, and all student loans) 2011 1,423,189 6.b. 7. Loans to foreign governments and official institutions (including foreign central banks) 2081 781 2081 781 7. 8. Obligations (other than securities and leases) of states and political subdivisions in the U.S. (includes nonrated industrial development obligations) 2107 181,826 2107 181,826 8. 9. Other loans 1563 256,166 9. a. Loans for purchasing or carrying securities (secured and unsecured) 1545 81,575 9.a. b. All other loans (exclude consumer loans) 1564 174,591 9.b. 10. Lease financing receivables (not of unearned income) 2165 1,460 10. a. Of U.S. addressees (domicile) 2182 1,460 10.a. b. Of non-U.S. addressees (domicile) 2183 0 10.b. 11. LESS: Any unearned income on loans reflected in items 1-9 above 2123 0 2123 0 11. 12. Total loans and leases, net of unearned income (sum of items 1 through 10 minus item 11) (total of column A must equal Schedule RC, item 4.a.) 2122 9,238,777 2122 9,238,777 12.
16 Legal Title of Bank: Crestar Bank Address: P.O. Box 26665 City, State Zip: Richmond, VA 23261-6665 FDIC Certificate No.: 00832 Call Date: 12/31/95 ST-BK: 51-2430 FFIEC 031 Page RC-7 Schedule RC-C--Continued Part I. Continued
(Column A) (Column B) Memoranda Consolidated Domestic Bank Offices Dollar Amounts in Thousands RCFD Bil Mil Thou RCON Bil Mil Thou 1. Commercial paper included in Schedule RC-C, part I, above 1496 0 1496 0 M.1. 2. Loans and leases restructured and in compliance with modified terms (included in Schedule RC-C, part I, above and not reported as past due or nonaccrual in Schedule RC-N, Memorandum item 1): a. Loans secured by real estate: (1) To U.S. addressees (domicile) 1687 0 M.2.a.(1) (2) To non U.S. addressees (domicile) 1689 0 M.2.a.(2) b. All other loans and all lease financing receivables (exclude loans to individuals for household, family, and other personal expenditures) 8691 0 M.2.b. c. Commercial and industrial loans to and lease financing receivables of non-U.S. addressees (domicile) included in Memorandum item 2.b. above 8692 0 M.2.c. 3. Maturity and repricing data for loans and leases(1) (excluding those in nonaccrual status): a. Fixed rate loans and leases with a remaining maturity of: (1) Three months or less 0348 2,519,883 M.3.a.(1) (2) Over three months through 12 months 0349 471,313 M.3.a.(2) (3) Over one year through five years 0356 1,509,429 M.3.a.(3) (4) Over five years 0357 757,058 M.3.a.(4) (5) Total fixed rate loans and leases (sum of Memorandum items 3.a.(1) through 3.a.(4)) 0358 5,257,683 M.3.a.(5) b. Floating rate loans with a repricing frequency of: (1) Quarterly or more frequently 4554 3,260,759 M.3.b.(1) (2) Annually or more frequently, but less frequently than quarterly 4555 528,884 M.3.b.(2) (3) Every five years or more frequently, but less frequently than annually 4561 130,805 M.3.b.(3) (4) Less frequently than every five years 4564 8,683 M.3.b.(4) (5) Total floating rate (sum of Memorandum items 3.b.(1) through 3.b.(4)) 4567 3,929,131 M.3.b.(5) c. Total loans and leases (sum of Memorandum items 3.a.(5) and 3.b.(5)) (must equal the sum of total loans and leases, net, from Schedule RC-C, part I, item 12, plus unearned income from Schedule RC-C, part I, item 11, minus total nonaccrual loans and leases from Schedule RC-N, sum of items 1 through 8, column C) 1479 9,186,814 M.3.c. 4. Loans to finance commercial real estate, construction, and land development activities (not secured by real estate) included in Schedule RC-C, part I, items 4 and 9, column A, page RC-6(2) 2746 0 M.4. 5. Loans and leases held for sale (included in Schedule RC-C, part I, above) 5369 460,796 M.5. 6. Adjustable rate closed-end loans secured by first liens on 1-4 family residential properties (included in Schedule RC-C, part I, item 1.c.(2)(a), RCON Bil Mil Thou column B, page RC-6) 5370 718,529 M.6.
__________ (1) Memorandum item 3 is not applicable to savings banks that must complete supplemental Schedule RC-J. (2) Exclude loans secured by real estate that are included in Schedule RC-C, part I, item 1, column A. 17 Legal Title of Bank: Crestar Bank Address: P.O. Box 26665 City, State Zip: Richmond, VA 23261-6665 FDIC Certificate No.: 00832 Call Date: 12/31/95 ST-BK: 51-2430 FFIEC 031 Page RC-8 Schedule RC-D--Trading Assets and Liabilities Schedule RC-D is to be completed only by banks with $1 billion or more in total assets or with $2 billion or more in par/notional amount of off-balance sheet derivative contracts (as reported in Schedule RC-L, items 14.a. through 14.e., columns A through D). C420 Dollar Amounts in Thousands Bil Mil Thou Assets 1. U.S. Treasury securities in domestic offices RCON 3531 0 1. 2. U.S. Government agency and corporation obligations in domestic offices (exclude mortgage-backed securities) RCON 3532 0 2. 3. Securities issued by states and political subdivisions in the U.S. in domestic offices RCON 3533 0 3. 4. Mortgage-backed securities (MBS) in domestic offices: a. Pass-through securities issued or guaranteed by FNMA, FHLMC, or GNMA RCON 3534 0 4.a. b. Other mortgage-backed securities issued or guaranteed by FNMA, FHLMC, or GNMA (include CMOs, REMICs, and stripped MBS) RCON 3535 0 4.b. c. All other mortgage-backed securities RCON 3536 0 4.c. 5. Other debt securities in domestic offices RCON 3537 0 5. 6. Certificates of deposit in domestic offices RCON 3538 0 6. 7. Commercial paper in domestic offices RCON 3539 0 7. 8. Bankers acceptances in domestic offices RCON 3540 0 8. 9. Other trading assets in domestic offices RCON 3541 0 9. 10. Trading assets in foreign offices RCFN 3542 0 10. 11. Revaluation gains on interest rate, foreign exchange rate, and other commodity and equity contracts: a. In domestic offices RCON 3543 0 11.a. b. In foreign offices RCFN 3544 0 11.b. 12. Total trading assets ( sum of items 1 through 11) (must equal Schedule RC, item 5) RCFD 3545 0 12.
Liabilities Bil Mil Thou 13. Liability for short positions RCFD 3546 0 13. 14. Revaluation losses on interest rate, foreign exchange rate, and other commodity and equity contracts RCFD 3547 0 14. 15. Total trading liabilities (sum of items 13. and 14.) (must equal Schedule RC, item 15.b.) RCFD 3548 0 15. 18 Legal Title of Bank: Crestar Bank Address: P.O. Box 26665 City, State Zip: Richmond, VA 23261-6665 FDIC Certificate No.: 00832 Call Date: 12/31/95 ST-BK: 51-2430 FFIEC 031 Page RC-9 Schedule RC-E--Deposit Liabilities Part I. Deposits in Domestic Offices
C425 Nontransaction Transaction Accounts Accounts (Column A) (Column B) (Column C) Total transaction Memo: Total Total accounts (including demand deposits nontransaction total demand (included in accounts deposits) column A) (including MMDAs) Dollar Amounts in Thousands RCON BIL Mil Thou RCON Bil Mil Thou RCON Bil Mil Thou Deposits of: 1. Individuals, partnerships, and corporations 2201 3,273,051 2240 1,891,443 2346 5,588,429 1. 2. U.S. Government 2202 31,594 2280 30,572 2520 2,936 2. 3. States and political subdivisions in the U.S. 2203 173,480 2290 143,732 2530 13,525 3. 4. Commercial banks in the U.S. 2206 260,039 2310 260,039 4. a. U.S. branches and agencies of foreign banks 2347 0 4.a. b. Other commercial banks in the U.S. 2348 1,088 4.b. 5. Other depository institutions in the U.S. 2207 57,003 2312 57,003 2349 1,023 5. 6. Banks in foreign countries 2213 3,486 2320 3,486 6. a. Foreign branches of other U.S. banks 2367 0 6.a. b. Other banks in foreign countries 2373 99 6.b. 7. Foreign governments and official institutions (including foreign central banks) 2216 0 2300 0 2377 0 7. 8. Certified and official checks 2330 32,012 2330 32,012 8. 9. Total (sum of items 1 through 8) (sum of columns A and C must equal Schedule RC, item 13.a) 2215 3,830,665 2210 2,418,287 2385 5,607,100 9.
Memoranda Dollar Amounts in Thousands RCON Bil Mil Thou 1. Selected components of total deposits (i.e., sum of item 9, columns A and C): a. Total Individual Retirement Accounts (IRAs) and Keogh Plan accounts 6835 857,531 M.1.a. b. Total brokered deposits 2365 14,941 M.1.b. c. Fully insured brokered deposits (included in Memorandum item 1.b above) (1) Issued in denominations of less than $100,000 2343 0 M.1.c.(1) (2) Issued either in denominations of $100,000 or in denominations greater than $100,000 and participated out by the broker in shares of $100,000 or less 2344 10,941 M.1.c.(2) d. Total deposits denominated in foreign currencies 3776 0 M.1.d. e. Preferred deposits (uninsured deposits of states and political subdivisions in the U.S. reported in item 3 above which are secured or collateralized as required under state law) 5590 185,710 M.1.e. 2. Components of total nontransaction accounts (sum of Memorandum items 2.a through 2.d must equal item 9, column C above): a. Savings deposits: (1) Money market deposit accounts (MMDAs) 6810 1,905,947 M.2.a.(1) (2) Other savings deposits (excludes MMDAs) 0352 850,130 M.2.a.(2) b. Total time deposits of less than $100,000 6648 2,545,513 M.2.b. c. Time certificates of deposit of $100,000 or more 6645 303,810 M.2.c. d. Open-account time deposits of $100,000 or more 6646 1,700 M.2.d. 3. All NOW accounts (included in column A above) 2398 1,412,377 M.3.
19 Legal Title of Bank: Crestar Bank Address: P.O. Box 26665 City, State Zip: Richmond, VA 23261-6665 FDIC Certificate No.: 00832 Call Date: 12/31/95 ST-BK: 51-2430 FFIEC 031 Page RC-10 Schedule RC-E--Continued Part I. Continued Memoranda (continued) Deposit Totals for FDIC Insurance Assessments
Dollar Amounts in Thousands RCON Bil Mil Thou 4. Total deposits in domestic offices (sum of item 9, column A and item 9, column C) (must equal schedule RC, item 13.a) 2200 9,437,765 M.4. a. Total demand deposits (must equal item 9, column B) 2210 2,418,287 M.4.a. b. Total time and savings deposits(1) (must equal item 9, column A plus item 9, column C minus item 9, column B) 2350 7,019,478 M.4.b.
______________ (1) For FDIC insurance assessment purposes, "total time and savings deposits" consists of nontransaction accounts and all transaction accounts other than demand deposits.
Dollar Amounts in Thousands RCON Bil Mil Thou 5. Time deposits of less than $100,000 and open-account time deposits of $100,000 or more (included in Memorandum items 2.b and 2.d above) with a remaining maturity or repricing frequency of: (1) a. Three months or less 0359 610,610 M.5.a. b. Over three months through 12 months (but not over 12 months) 3644 1,116,989 M.5.b. 6. Maturity and repricing data for time certificates of deposit of $1,000 or more: (1) a. Fixed rate time certificates of deposit of $100,000 or more with a remaining maturity of: (1) Three months or less 2761 138,723 M.6.a.(1) (2) Over three months through 12 months 2762 98,093 M.6.a.(2) (3) Over one year through five years 2763 61,168 M.6.a.(3) (4) Over five years 2765 912 M.6.a.(4) (5) Total fixed rate time certificates of deposit of $100,000 or more (sum of Memorandum items 6.a. (1) through 6.a.(4) 2767 298,896 M.6.a.(5) b. Floating rate time certificates of deposit of $100,000 or more with a repricing frequency of: (1) Quarterly or more frequently 4568 4,914 M.6.b.(1) (2) Annually or more frequently, but less frequently than quarterly 4569 0 M.6.b.(2) (3) Every five years or more frequently, but less frequently than annually 4571 0 M.6.b.(3) (4) Less frequently than every five years 4572 0 M.6.b.(4) (5) Total floating rate time certificates of deposit of $100,000 or more (sum of Memorandum items 6.b.(1) through 6.b.(4)) 4573 4,914 M.6.b.(5) c. Total time certificates of deposit of $100,000 or more (sum of Memorandum items 6.a.(5) and 6.b.(5)) (must equal Memorandum item 2.c. above) 6645 303,810 M.6.c.
__________ (1) Memorandum items 5 and 6 are not applicable to savings banks that must complete supplemental Schedule RC-J. 20 Legal Title of Bank: Crestar Bank Address: P.O. Box 26665 City, State Zip: Richmond, VA 23261-6665 FDIC Certificate No.: 00832 Call Date: 12/31/95 ST-BK: 51-2430 FFIEC 031 Page RC-11 Schedule RC-E--Continued Part II. Deposits in Foreign Offices (including Edge and Agreement subsidiaries and IBFs)
Dollar Amounts in Thousands RCFN Bil Mil Thou Deposits of: 1. Individuals, partnerships, and corporations 2621 0 1. 2. U.S. banks (including IBFs and foreign branches of U.S. banks) 2623 0 2. 3. Foreign banks (including U.S. branches and agencies of foreign banks, including their IBFs) 2625 0 3. 4. Foreign governments and official institutions (including foreign central banks) 2650 0 4. 5. Certified and official checks 2330 0 5. 6. All other deposits 2668 0 6. 7. Total (sum of items 1 through 6)(must equal Schedule RC, item 13.b) 2200 0 7.
Schedule RC-F--Other Assets
C430 Dollar Amounts in Thousands Bil Mil Thou 1. Income earned, not collected on loans RCFD 2164 67,718 1. 2. Net deferred tax assets (1) RCFD 2148 50,429 2. 3. Excess residential mortgage servicing fees receivable RCFD 5371 5,769 3. 4. Other (itemize amounts that exceed 25% of this item) RCFD 2168 361,499 4. a. Text 3549 Accounts Receivable - trade date RCFD 3549 130,005 4.a. b. Text 3550 RCFD 3550 4.b. c. Text 3551 RCFD 3551 4.c. 5. Total (sum of items 1 through 4) (must equal schedule RC, item 110 RCFD 2160 485,415 5.
Memorandum Dollar Amounts in Thousands Bil Mil Thou 1. Deferred tax assets disallowed for regulatory capital purposes RCFD 5610 0 M.1.
Schedule RC-G--Other Liabilities
C435 Dollar Amounts in Thousands Bil Mil Thou 1. a. Interest accrued and unpaid on deposits in domestic offices (2) RCFD 3645 18,489 1.a. b. Other expenses accrued and unpaid (includes accrued income taxes payable) RCFD 3646 96,509 1.b. 2. Net deferred tax liabilities (1) RCFD 3049 1,496 2. 3. Minority interest in consolidated subsidiaries RCFD 3000 0 3. 4. Other (itemize amounts that exceed 25% of this item) RCFD 2938 500,065 4. a. Text 3552 Accounts Payable - trade date RCFD 3552 422,230 4.a. b. Text 3553 RCFD 3553 4.b. c. Text 3554 RCFD 3554 4.c. 5. Total (sum of items 1 through 4) (must equal Schedule RC, item 20) RCFD 2930 616,559 5.
__________ (1) See discussion of deferred income taxes in Glossary entry on "income taxes." (2) For savings banks, include "dividends" accrued and unpaid on deposits. 21 Legal Title of Bank: Crestar Bank Address: P.O. Box 26665 City, State Zip: Richmond, VA 23261-6665 FDIC Certificate No.: 00832 Call Date: 12/31/95 ST-BK: 51-2430 FFIEC 031 Page RC-12 Schedule RC-H--Selected Balance Sheet Items for Domestic Offices Domestic Offices C440 Dollar Amounts in Thousands RCON Bil Mil Thou 1. Customers' liability to this bank on acceptances outstanding 2155 5,143 1. 2. Bank's liability on acceptances executed and outstanding 2920 5,143 2. 3. Federal funds sold and securities purchased under agreements to resell 1350 402,645 3. 4. Federal funds purchased and securities sold under agreements to repurchase 2800 2,238,339 4. 5. Other borrowed money 3190 29,153 5. Either 6. Net due from own foreign offices, Edge and Agreement subsidiaries, and IBFs 2163 2 6. Or 7. Net due to own foreign offices, Edge and Agreement subsidiaries, and IBFs 2941 N/A 7. 8. Total assets (excludes net due from foreign offices, Edge and Agreement subsidiaries, and IBFs) 2192 13,557,741 8. 9. Total liabilities (excludes net due to foreign offices, Edge and Agreement subsidiaries, and IBFs) 3129 12,550,446 9.
Items 10-17 include held-to-maturity and available-for-sale securities in domestic offices. RCON Bil Mil Thou 10. U.S. Treasury securities 1779 149,694 10. 11. U.S. Government agency and corporation obligations (exclude mortgage-backed securities) 1785 73,485 11. 12. Securities issued by states and political subdivisions in the U.S. 1786 48,424 12. 13. Mortgage-backed securities (MBS): a. Pass-through securities: (1) Issued or guaranteed by FNMA, FHLMC, or GNMA 1787 1,371,638 13.a.(1) (2) Other pass-through securities 1869 0 13.a.(2) b. Other mortgage-backed securities (include CMOs, RENICs, and stripped MBS): (1) Issued or guaranteed by FNMA, FHLMC, or GNMA 1877 66,933 13.b.(1) (2) All other mortgage-backed securities 2253 195,836 13.b.(2) 14. Other domestic debt securities 3159 277,721 14. 15. Foreign debt securities 3160 1,255 15. 16. Equity securities: a. Investments in mutual funds 3161 0 16.a. b. Other equity securities with readily determinable fair values 3162 7,191 16.b. c. All other equity securities 3169 13,999 16.c. 17. Total held-to-maturity and available-for-sale securities (sum of items 10 through 16) 3170 2,206,176 17.
Memorandum (to be completed only by banks with IBFs and other "foreign" offices) Dollar Amounts in Thousands RCON Bil Mil Thou Either 1. Net due from the IBF of the domestic offices of the reporting bank 3051 N/A M.1. or 2. Net due to the IBF of the domestic offices of the reporting bank 3059 N/A M.2.
22 Legal Title of Bank: Crestar Bank Address: P.O. Box 26665 City, State Zip: Richmond, VA 23261-6665 FDIC Certificate No.: 00832 Call Date: 12/31/95 ST-BK: 51-2430 FFIEC 031 Page RC-13 Schedule RC-I--Selected Assets and Liabilities of IBFs To be completed only by banks with IBFs and other "foreign" offices. C445 Dollar Amounts in Thousands RCFN Bil Mil Thou 1. Total IBF assets of the consolidated bank (component of Schedule RC, item 12) 2133 N/A 1. 2. Total IBF loans and lease financing receivables (component of Schedule RC-C, part I, item 12, column A) 2076 N/A 2. 3. IBF commercial and industrial loans (component of Schedule RC-C, part I, item 4, column A) 2077 N/A 3. 4. Total IBF liabilities (component of Schedule RC, item 21) 2898 N/A 4. 5. IBF deposit liabilities due to banks, including other IBFs (component of Schedule RC-E, part II, items 2 and 3) 2379 N/A 5. 6. Other IBF deposit liabilities (component of Schedule RC-E, part II, items 1, 4, 5, and 6 2381 N/A 6.
Schedule RC-K-Quarterly Averages (1)
C455 Dollar Amounts in Thousands Bil Mil Thou Assets 1. Interest-bearing balances due from depository institutions RCFD 3381 11,413 1. 2. U.S. Treasury securities and U.S. Government agency and corporation obligations(2) RCFD 3382 1,374,438 2. 3. Securities issued by states and political subdivisions in the U.S.(2) RCFD 3383 50,083 3. 4. a. Other debt securities(2) RCFD 3647 392,332 4.a. b. Equity securities(3) (includes investments in mutual funds and Federal Reserve stock) RCFD 3648 20,985 4.b. 5. Federal funds sold and securities purchased under agreements to resell in domestic offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs RCFD 3365 155,600 5. 6. Loans: a. Loans in domestic offices: (1) Total loans RCON 3360 9,137,952 6.a.(1) (2) Loans secured by real estate RCON 3385 4,133,865 6.a.(2) (3) Loans to finance agricultural production and other loans to farmers RCON 3386 5,545 6.a.(3) (4) Commercial and industrial loans RCON 3387 1,708,696 6.a.(4) (5) Loans to individuals for household, family, and other personal expenditures RCON 3388 2,903,915 6.a.(5) b. Total loans in foreign offices, Edge and Agreement subsidiaries, and IBFs RCFN 3360 0 6.b. 7. Trading assets RCFD 3401 0 7. 8. Lease financing receivables (net of unearned income) RCFD 3484 1,568 8. 9. Total assets(4) RCFD 3368 12,382,290 9. Liabilities 10. Interest-bearing transaction accounts in domestic offices (NOW accounts, ATS accounts, and telephone and preauthorized transfer accounts) (exclude demand deposits) RCON 3485 1,359,745 10. 11. Nontransaction accounts in domestic offices: a. Money market deposit accounts (MMDAs) RCON 3486 1,921,021 11.a. b. Other savings deposits RCON 3487 856,750 11.b. c. Time certificates of deposit of $100,000 or more RCON 3345 280,729 11.c. d. All other time deposits RCON 3469 2,558,635 11.d. 12. Interest-bearing deposits in foreign offices, Edge and Agreement subsidiaries, and IBFs RCFN 3404 0 12. 13. Federal funds purchased and securities sold under agreements to repurchase in domestic offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs RCFD 3353 2,014,413 13. 14. Other borrowed money RCFD 3355 20,189 14.
__________ (1) For all items, banks have the option of reporting either (1) an average of daily figures for the quarter, or (2) an average of weekly figures (i.e., the Wednesday of each week of the quarter). (2) Quarterly averages for all debt securities should be based on amortized cost. (3) Quarterly averages for all equity securities should be based on historical cost. (4) The quarterly average for total assets should reflect all debt securities (not held for trading) at amortized cost, equity securities with readily determinable fair values at the lower of cost or fair value, and equity securities without readily determinable fair values at historical cost. 23 Legal Title of Bank: Crestar Bank Address: P.O. Box 26665 City, State Zip: Richmond, VA 23261-6665 FDIC Certificate No.: 00832 Call Date: 12/31/95 ST-BK: 51-2430 FFIEC 031 Page RC-14 Schedule RC-L-Off-Balance Sheet Items Please read carefully the instructions for the preparation of Schedule RC-L. Some of the amounts reported in Schedule RC-L are regarded as volume indicators and not necessarily as measures of risk. C460 Dollar Amounts in Thousands RCFD Bil Mil Thou 1. Unused commitments: a. Revolving, open-end lines secured by 1-4 family residential properties, e.g., home equity lines 3814 445,587 1.a. b. Credit card lines 3815 2,544,092 1.b. c. Commercial real estate, construction, and land development: (1) Commitments to fund loans secured by real estate 3816 228,851 1.c.(1) (2) Commitments to fund loans not secured by real estate 6550 0 1.c.(2) d. Securities underwriting 3817 0 1.d. e. Other unused commitments 3818 3,004,386 1.e. 2. Financial standby letters of credit and foreign office guarantees 3819 265,310 2. a. Amount of financial standby letters of credit conveyed to others RCFD 3820 16,392 2.a. 3. Performance standby letters of credit and foreign office guarantees 3821 92,074 3. a. Amount of performance standby letters of credit conveyed to others RCFD 3822 0 3.a. 4. Commercial and similar letters of credit 3411 44,465 4. 5. Participations in acceptances (as described in the instructions) conveyed to others by the reporting bank 3428 0 5. 6. Participations in acceptances (as described in the instructions) acquired by the reporting (nonaccepting) bank 3429 0 6. 7. Securities borrowed 3432 0 7. 8. Securities lent (including customers' securities lent where the customer is indemnified against loss by the reporting bank) 3433 0 8. 9. Mortgages transferred (i.e., sold or swapped) with recourse that have been treated as sold for Call Report purposes: a. FNMA and FHLMC residential mortgage loan pools: (1) Outstanding principal balance of mortgages transferred as of the report date 3650 0 9.a.(1) (2) Amount of recourse exposure on these mortgages as of the report date 3651 0 9.a.(2) b. Private (nongovernment-issued or -guaranteed) residential mortgage loan pools: (1) Outstanding principal balance of mortgages transferred as of the report date 3652 0 9.b.(1) (2) Amount of recourse exposure on these mortgages as of the report date 3653 0 9.b.(2) c. Farmer Mac agricultural mortgage loan pools: (1) Outstanding principal balance of mortgages transferred as of the report date 3654 0 9.c.(1) (2) Amount of recourse exposure on these mortgages as of the report date 3655 0 9.c.(2) 10. When-issued securities: a. Gross commitments to purchase 3434 0 10.a. b. Gross commitments to sell 3435 0 10.b. 11. Spot foreign exchange contracts 8765 8,299 11. 12. All other off-balance sheet liabilities (exclude off-balance sheet derivatives) (itemize and describe each component of this item over 25% of Schedule RC, item 28, "Total equity capital") 3430 1,027,338 12. a. TEXT 3555 Mortgage servicing with recourse RCFD 3555 1,027,338 12.a. b. TEXT 3556 RCFD 3556 12.b. c. TEXT 3557 RCFD 3557 12.c. d. TEXT 3558 RCFD 3558 12.d. 13. All other off-balance sheet assets (exclude off-balance sheet derivatives) (itemize and describe each component of this item over 25% of Schedule RC, item 28, "Total equity capital") 5591 0 13. a. Text 5592 RCFD 5592 13.a. b. Text 5593 RCFD 5593 13.b. c. Text 5594 RCFD 5594 13.c. d. Text 5595 RCFD 5595 13.d.
24 Legal Title of Bank: Crestar Bank Address: P.O. Box 26665 City, State Zip: Richmond, VA 23261-6665 FDIC Certificate No.: 00832 Call Date: 12/31/95 ST-BK: 51-2430 FFIEC 031 Page RC-15 Schedule RC-L--Continued
C461 (Column A) (Column B) (Column C) (Column D) Dollar Amounts in Thousands Interest Rate Foreign Exchange Equity Derivative Commodity and Off-balance Sheet Derivatives Contracts Contracts Contracts Other Contracts Position Indicators Tril Bil Mil Thou Tril Bil Mil Thou Tril Bil Mil Thou Tril Bil Mil Thou 14. Gross amounts (e.g., notional amounts) (for each column, sum of items 14.a through 14.e must equal sum of items 15,16.a, and 16.b): a. Future contracts 0 0 0 0 14.a. RCFD 8693 RCFD 8694 RCFD 8695 RCFD 8696 b. Forward contracts 547,789 6,748 0 0 14.b. RCFD 8697 RCFD 8698 RCFD 8699 RCFD 8700 c. Exchange-traded option contracts: (1) Written options 0 0 0 0 14.c.(1) RCFD 8701 RCFD 8702 RCFD 8703 RCFD 8704 (2) Purchased options 0 0 0 0 14.c.(2) RCFD 8705 RCFD 8706 RCFD 8707 RCFD 8708 d. Over-the-counter option contracts: (1) Written options 64,697 0 0 0 14.d.(1) RCFD 8709 RCFD 8710 RCFD 8711 RCFD 8712 (2) Purchased options 104,697 0 0 0 14.d.(2) RCFD 8713 RCFD 8714 RCFD 8715 RCFD 8716 e. Swaps 1,298,434 0 0 0 14.e. RCFD 3450 RCFD 3826 RCFD 8719 RCFD 8720 15. Total gross notional amount of derivative contracts held for trading 0 6,748 0 0 15. RCFD A126 RCFD A127 RCFD 8723 RCFD 8724 16. Total gross notional amount of derivative contracts held for purposes other than trading: a. Contracts marked to market 0 0 0 0 16.a. RCFD 8725 RCFD 8726 RCFD 8727 RCFD 8728 b. Contracts not marked to market 2,015,617 0 0 0 16.b. RCFD 8729 RCFD 8730 RCFD 8731 RCFD 8732
25 Legal Title of Bank: Crestar Bank Address: P.O. Box 26665 City, State Zip: Richmond, VA 23261-6665 FDIC Certificate No.: 00832 Call Date: 12/31/95 ST-BK: 51-2430 FFIEC 031 Page RC-16 Schedule RC-L--Continued (Column A) (Column B) (Column C) (Column D) Dollar Amounts in Thousands Interest Rate Foreign Exchange Equity Derivative Commodity and Off-balance Sheet Derivatives Contracts Contracts Contracts Other Contracts Position Indicators RCFD Bil Mil Thou RCFD Bil Mil Thou RCFD Bil Mil Thou RCFD Bil Mil Thou 17. Gross fair values of derivative contracts: a. Contracts held for trading: (1) Gross positive fair value 8733 0 8734 18 8735 0 8736 0 17.a.(1) (2) Gross negative fair value 8737 0 8738 35 8739 0 8740 0 17.a.(2) b. Contracts held for purposes other than trading that are marked to market: (1) Gross positive fair value 8741 0 8742 0 8743 0 8744 0 17.b.(1) (2) Gross negative fair value 8745 0 8746 0 8747 0 8748 0 17.b.(2) c. Contracts held for purposes other than trading that are not marked to market: (1) Gross positive fair value 8749 14,404 8750 0 8751 0 8752 0 17.c.(1) (2) Gross negative fair value 8753 6,649 8754 0 8755 0 8756 0 17.c.(2)
Memoranda Dollar Amounts in Thousands RCFD Bil Mil Thou 1.-2. Not applicable 3. Unused commitments with an original maturity exceeding one year that are reported in Schedule RC-L, items 1.a through 1.e, above (report only the unused portions of commitments that are fee paid or otherwise legally binding) 3833 2,417,497 M.3. a. Participating in commitments with an original maturity exceeding one year conveyed to others RCFD 3834 0 M.3.a. 4. To be completed only by banks with $1 billion or more in total assets: Standby letters of credit and foreign office guarantees (both financial and performance) issued to non-U.S. addresses (domicile) included in Schedule RC-L, items 2 and 3, above 3377 295 M.4. 5. To be completed for the September report only: Instalment loans to individuals for household, family, and other personal expenditures that have been secured and sold without recourse (with servicing retained), amounts outstanding by type of loan: a. Loans to purchase private passenger automobiles 2741 N/A M.5.a. b. Credit cards and related plans 2742 N/A M.5.b. c. All other consumer installment credit (including mobile home loans) 2743 N/A M.5.c.
26 Legal Title of Bank: Crestar Bank Address: P.O. Box 26665 City, State Zip: Richmond, VA 23261-6665 FDIC Certificate No.: 00832 Call Date: 12/31/95 ST-BK: 51-2430 FFIEC 031 Page RC-17 Schedule RC-M--Memoranda
C465 Dollar Amounts in Thousands RCFD Bil Mil Thou 1. Extensions of credit by the reporting bank to its executive officers, directors, principal shareholders, and their related interests as of the report date: a. Aggregate amount of all extensions of credit to all executive officers, directors, principal shareholders, and their related interests. 6164 9,168 1.a. b. Number of executive officers, directors, and principal shareholders to whom the amount of all extensions of credit by the reporting bank (including extensions of credit to related interests) equals or exceeds the lesser of $500,000 or 5 percent number of total capital as defined for this Number purpose in agency regulations. RCFD 6165 3 1.b. 2. Federal funds sold and securities purchased under agreements to resell with U.S. branches and agencies of foreign banks(1) (included in Schedule RC, items 3.a and 3.b) 3405 0 2. 3. Not applicable. 4. Outstanding principal balance of 1-4 family residential mortgage loans serviced for others (include both retained servicing and purchased servicing): a. Mortgages serviced under a GNMA contract 5500 902,235 4.a. b. Mortgages serviced under a FHLMC contract: (1) Serviced with recourse to servicer 5501 5,268 4.b.(1) (2) Serviced without recourse to servicer 5502 528,946 4.b.(2) c. Mortgages serviced under a FNMA contract: (1) Serviced under a regular option contract 5503 119,835 4.c.(1) (2) Serviced under a special option contract 5504 962,573 4.c.(2) d. Mortgages serviced under other servicing contracts 5505 8,056,323 4.d. 5. To be completed only by banks with $1 billion or more in total assets: Customers' liability to this bank on acceptances outstanding (sum of items 5.a and 5.b must equal Schedule RC, item 9): a. U.S. addresses (domicile) 2103 5,143 5.a. b. Non-U.S. addresses (domicile) 2104 0 5.b. 6. Intangible assets: a. Mortgage servicing rights 3164 20,859 6.a. b. Other identifiable intangible assets: (1) Purchased credit card relationships 5506 0 6.b.(1) (2) All other identifiable intangible assets 5507 17 6.b.(2) c. Goodwill 3163 112,065 6.c. d. Total (sum of items 6.a through 6.c) (must equal Schedule RC, item 10) 2143 132,941 6.d. e. Amount of intangible assets (included in item 6.b.(2) above) that have been grandfathered or are otherwise qualifying for regulatory capital purposes 6442 17 6.e. 6442 21 6.e. 7. Mandatory convertible debt, net of common or perpetual preferred stock dedicated to redeem the debt 3295 0 7.
__________ (1) Do not report federal funds sold and securities purchased under agreements to resell with other commercial banks in the U.S. in this item. 27 Legal Title of Bank: Crestar Bank Address: P.O. Box 26665 City, State Zip: Richmond, VA 23261-6665 FDIC Certificate No.: 00832 Call Date: 12/31/95 ST-BK: 51-2430 FFIEC 031 Page RC-18 Schedule RC-M--Continued
Dollar Amounts in Thousands Bil Mil Thou 8. a. Other real estate owned: (1) Direct and indirect investments in real estate ventures RCFD 5372 0 8.a.(1) (2) All other real estate owned: (a) Construction and land development in domestic offices RCON 5508 0 8.a.(2)(a) (b) Farmland in domestic offices RCON 5509 0 8.a.(2)(b) (c) 1-4 family residential properties in domestic offices RCON 5510 6,203 8.a.(2)(c) (d) Multifamily (5 or more) residential properties in domestic offices RCON 5511 404 8.a.(2)(d) (e) Nonfarm nonresidential properties in domestic offices RCON 5512 5,332 8.a.(2)(e) (f) In foreign offices RCFN 5513 0 8.a.(2)(f) (3) Total (sum of items 8.a.(1) and 8.a.(2)) (must equal Schedule RC, item 7) RCFD 2150 11,939 8.a.(3) b. Investments in unconsolidated subsidiaries and associated companies: (1) Direct and indirect investments in real estate ventures RCFD 5374 177 8.b.(1) (2) All other investments in unconsolidated subsidiaries and associated companies RCFD 5375 0 8.b.(2) (3) Total (sum of items 8.b.(1) and 8.b.(2)) (must equal Schedule RC, item 8) RCFD 2130 177 8.b.(3) c. Total assets of unconsolidated subsidiaries and associated companies RCFD 5376 2,962 8.c. 9. Noncumulative perpetual preferred stock and related surplus included in Schedule RC, item 23, "Perpetual preferred stock and related surplus" RCFD 3778 0 9. 10. Mutual fund and annuity sales in domestic offices during the quarter (include proprietary, private label, and third party products): a. Money market funds RCON 6441 566,595 10.a. b. Equity securities funds RCON 8427 8,890 10.b. c. Debt securities funds RCON 8428 6,233 10.c. d. Other mutual funds RCON 8429 4,455 10.d. e. Annuities RCON 8430 17,711 10.e. f. Sales of proprietary mutual funds and annuities (included in items 10.a through 10.e above) RCON 8784 360 10.f.
Dollar Amounts in Thousands Memorandum RCFD Bil Mil Thou 1. Interbank holdings of capital instruments (to be completed for the December report only): a. Reciprocal holdings of banking organizations' capital instruments 3836 N/A M.1.a. b. Nonreciprocal holdings of banking organizations' capital instruments 3837 213,000 M.1.b. 28 Legal Title of Bank: Crestar Bank Address: P.O. Box 26665 City, State Zip: Richmond, VA 23261-6665 FDIC Certificate No.: 00832 Call Date: 12/31/95 ST-BK: 51-2430 FFIEC 031 Page RC-19 Schedule RC-N--Past Due and Nonaccrual Loans, Leases, and Other Assets The FFIEC regards the information reported in all of Memorandum item 1, in items 1 through 10, column A, and in Memorandum items 2 through 4, column A, as confidential.
C470 (Column A) (Column B) (Column C) Past due Past due 90 Nonaccrual 30 through 89 days or more days and still and still accruing accruing Dollar Amounts in Thousands RCFD Bil Mil Thou RCFD Bil Mil Thou RCFD Bil Mil Thou 1. Loans secured by real estate: a. To U.S. addresses (domicile) 1245 60,063 1246 10,831 1247 40,639 1.a. b. To non-U.S. addresses (domicile) 1248 0 1249 0 1250 0 1.b. 2. Loans to depository institutions and acceptances of other banks: a. To U.S. banks and other U.S. depository institutions 5377 0 5378 0 5379 0 2.a. b. To foreign banks 5380 0 5381 0 5382 0 2.b. 3. Loans to finance agricultural production and other loans to farmers 1594 0 1597 0 1583 0 3. 4. Commercial and industrial loans: a. To U.S. addresses (domicile) 1251 30,533 1252 6,495 1253 7,998 4.a. b. To non-U.S. addresses (domicile) 1254 0 1255 0 1256 0 4.b. 5. Loans to individuals for household, family, and other personal expenditures: a. Credit cards and related plans 5383 30,550 5384 18,409 5385 0 5.a. b. Other (includes single payment, installment and all student loans) 5386 55,762 5387 10,463 5388 1,654 5.b. 6. Loans to foreign governments and official institutions 5389 0 5390 0 5391 0 6. 7. All other loans 5459 591 5460 18 5461 1,672 7. 8. Lease financing receivables: a. Of U.S. addresses (domicile) 1257 0 1258 0 1259 0 8.a. b. Of non-U.S. addresses (domicile) 1271 0 1272 0 1791 0 8.b. 9. Debt securities and other assets (exclude other real estate owned and other repossessed assets) 3505 0 3506 0 3507 0 9.
Amounts reported in items 1 through 8 above include guaranteed and unguaranteed portions of past due and nonaccrual loans and leases. Report in item 10 below certain guaranteed loans and leases that have already been included in the amounts reported in items 1 through 8.
RCFD Bil Mil Thou RCFD Bil Mil Thou RCFD Bil Mil Thou 10. Loans and leases reported in items 1 through 8 above which are wholly or partially guaranteed by the U.S. Government. 5612 33,088 5613 8,945 5614 0 10. a. Guaranteed portion of loans and leases included in item 10 above. 5615 33,060 5616 8,945 5617 0 10.a.
29 Legal Title of Bank: Crestar Bank Address: P.O. Box 26665 City, State Zip: Richmond, VA 23261-6665 FDIC Certificate No.: 00832 Call Date: 12/31/95 ST-BK: 51-2430 FFIEC 031 Page RC-20 Schedule RC-N--Continued C473 (Column A) (Column B) (Column C) Past due Past due 90 Nonaccrual 30 through 89 days or more days and still and still accruing accruing Memoranda Dollar Amounts in Thousands RCFD Bil Mil Tho RCFD Bil Mil Thou RCFD Bil Mil Thou 1. Restructured loans and leases included in Schedule RC-N, items 1 through 8, above (and not reported in Schedule RC-C, part I, Memorandum item 2) 1658 0 1659 0 1661 3,564 M.1. 2. Loans to finance commercial real estate, construction, and land development activities (not secured by real estate) included in Schedule RC-N, items 4 and 7, above 6558 0 6559 0 6560 0 M.2. 3. Loans secured by real estate in domestic offices
RCON Bil Mil Thou RCON Bil Mil Thou RCON Bil Mil Thou (included in Schedule RC-N, item 1, above): a. Construction and land development 2759 177 2769 269 3492 3,727 M.3.a. b. Secured by farmland 3493 33 3494 0 3495 640 M.3.b. c. Secured by 1-4 family residential properties: (1) Revolving, open-end loans secured by 1-4 family residential properties and extended under lines of credit 5398 4,467 5399 50 5400 374 M.3.c.(1) (2) All other loans secured by 1-4 family residential properties 5401 40,669 5402 9,778 5403 14,780 M.3.c.(2) d. Secured by multifamily (5 or more) residential properties 3499 474 3500 0 3501 303 M.3.d. e. Secured by nonfarm nonresidential properties 3502 14,243 3503 734 3504 20,815 M.3.e.
(Column A) (Column B) Past due 30 Past due 90 through 89 days days or more RCFD Bil Mil Thou RCFD Bil Mil Thou 4. Interest rate, foreign exchange rate, and other commodity and equity contracts: a. Book value of amounts carried as assets 3522 0 3528 0 M.4.a. b. Replacement cost of contracts with a positive replacement cost 3529 0 3530 0 M.4.b.
30 Legal Title of Bank: Crestar Bank Address: P.O. Box 26665 City, State Zip: Richmond, VA 23261-6665 FDIC Certificate No.: 00832 Call Date: 12/31/95 ST-BK: 51-2430 FFIEC 031 Page RC-21 Schedule RC-O--Other Data for Deposit Insurance Assessments
C475 Dollar Amounts in Thousands RCON Bil Mil Thou 1. Unposted debits (see instructions): a. Actual amount of all unposted debits 0030 N/A 1.a or b. Separate amount of unposted debits: (1) Actual amount of unposted debits to demand deposits 0031 0 1.b.(1) (2) Actual amount of unposted debits to time and savings deposits (1) 0032 0 1.b.(2) 2. Unposted credits (see instructions): A. Actual amount of all unposted credits 3510 N/A 2.a. or B. Separate amount of unposted credits: (1) Actual amount of unposted credits to demand deposits 3512 0 2.b.(1) (2) Actual amount of unposted credits to time and savings deposits (1) 3514 0 2.b.(2) 3. Uninvested trust funds (cash) held in bank's own trust department (not included in total deposits in domestic offices) 3520 0 3. 4. Deposits of consolidated subsidiaries in domestic offices and in insured branches in Puerto Rico and U.S. territories and possessions (not included in total deposits): a. Demand deposits of consolidated subsidiaries 2211 4,898 4.a. b. Time and savings deposits (1) of consolidated subsidiaries 2351 0 4.b. c. Interest accrued and unpaid on deposits of consolidated subsidiaries 5514 0 4.c. 5. Deposits in insured branches in Puerto Rico and U.S. territories and possessions: a. Demand deposits in insured branches (included in Schedule RC-E, Part II) 2229 0 5.a. b. Time and savings deposits (1) in insured branches (included in Schedule RC-E, Part II) 2383 0 5.b. c. Interest accrued and unpaid on deposits in insured branches (included in Schedule RC-G, item 1.b) 5515 0 5.c. Item 6 is not applicable to state nonmember banks that have not been authorized by the Federal Reserve to act as pass-through corespondents. 6. Reserve balances actually passed through to the Federal Reserve by the reporting bank on behalf of its respondent depository institutions that are also reflected as deposit liabilities of the reporting bank: a. Amount reflected in demand deposits (included in Schedule RC-E, Part I, Memorandum item 4.a) 2314 5 6.a. b. Amount reflected in time and savings deposits (1) (included in Schedule RC-E, Part I, Memorandum item 4.b) 2315 0 6.b. 7. Unamortized premiums and discounts on time and savings deposits:(1) a. Unamortized premiums 5516 66 7.a. b. Unamortized discounts 5517 0 7.b. 8. To be completed by banks with "Oakar deposits." Total "Adjusted Attributable Deposits" of all institutions acquired under Section 5(d)(3) of the Federal Deposit Insurance Act (from most recent FDIC Oakar Transaction Worksheet(s)) 5518 3,505,495 8. 9. Deposits in lifeline accounts 5596 9. 10. Benefit-responsive "Depository Institution Investment Contracts" (included in total deposits in domestic offices) 8432 0 10.
__________ (1) For FDIC insurance assessment purposes, "time and savings deposits" consists of nontransaction accounts and all transaction accounts other than demand deposits. 31 Legal Title of Bank: Crestar Bank Address: P.O. Box 26665 City, State Zip: Richmond, VA 23261-6665 FDIC Certificate No.: 00832 Call Date: 12/31/95 ST-BK: 51-2430 FFIEC 031 Page RC-22 Schedule RC-O--Continued
Dollar Amounts in Thousands RCON Bil Mil Thou 11. Adjustments to demand deposits in domestic offices reported in Schedule RC-E for certain reciprocal demand balances: a. Amount by which demand deposits would be reduced if reciprocal demand balances between the reporting bank and savings associations were reported on a net basis rather than a gross basis in Schedule RC-E 8785 0 11.a. b. Amount by which demand deposits would be increased if reciprocal demand balances between the reporting bank and the U.S. branches and agencies of foreign banks were reported on a gross basis rather than a net basis in Schedule RC-E A181 0 11.b. c. Amount by which demand deposits would be reduced if cash items in process of collection were included in the calculation of net reciprocal demand balances between the reporting bank and the domestic offices of U.S. banks and savings associations in Schedule RC-E A182 0 11.c.
Memoranda (to be completed each quarter except as noted)
Dollar Amounts in Thousands RCON Bil Mil Thou 1. Total deposits in domestic offices of the bank (sum of Memorandum items 1a. (1) and 1.b.(1) must equal schedule RC, item 13.a): a. Deposit accounts of $100,000 or less: (1) Amount of deposit accounts of $100,000 or less 2702 6,675,171 M.1.a.(1) (2) Number of deposit accounts of $100,000 or less (to be completed for the June report only) Number RCON 3779 N/A M.1.a.(2) b. Deposit accounts of more than $100,000: (1) Amount of deposit accounts of more than $100,000 2710 2,762,594 M.1.b.(1) Number (2) Number of deposit accounts of more than $100,000 RCON 2722 8,404 M.1.b.(2) 2. Estimated amount of uninsured deposits in domestic offices of the bank: a. An estimate of your bank's uninsured deposits can be determined by multiplying the number of deposit accounts of more than $100,000 reported in Memorandum item 1.b.(2) above by $100,000 and subtracting the result from the amount of deposit accounts of more than $100,000 reported in Memorandum item 1.b.(1) above. Indicate in the appropriate box at the right whether your bank has a method or procedure for determining a better estimate of uninsured deposits than the estimate described above Yes No RCON 6861 X M.2.a. b. If the box marked Yes has been checked, report the estimate of uninsured deposits determined by using your bank's method or procedure RCON Bil Mil Thou 5597 N/A M.2.b. Person to whom questions about the Reports of Condition and Income should be directed: C477
Judy A. Wells, Assistant Vice President (804)782-7320 Name and Title (TEXT 8901) Area code/phone number/extension (TEXT 8902) 32 Legal Title of Bank: Crestar Bank Address: P.O. Box 26665 City, State Zip: Richmond, VA 23261-6665 FDIC Certificate No.: 00832 Call Date: 12/31/95 ST-BK: 51-2430 FFIEC 031 Page RC-23 Schedule RC-R--Risk-Based Capital This schedule must be completed by all banks as follows: Banks that reported total assets of $1 billion or more in Schedule RC, item 12, for June 30, 1994, must complete items 2 through 9 and Memoranda items 1 and 2. Banks with assets of less than $1 billion must complete items 1 and 2 below or Schedule RC-R in its entirety, depending on their response to item 1 below.
1. Test for determining the extent to which Schedule RC-R must be completed. To be completed only by banks with total assets of less than $1 billion. C480 Indicate in the appropriate box at the right whether the bank has total capital Yes No greater than or equal to eight percent of adjusted total assets. RCFD 6056 1.
For purposes of this test, adjusted total assets equals total assets less cash, U.S. Treasuries, U.S. Government agency obligations, and 80 percent of U.S. Government-sponsored agency obligations plus the allowance for loan and lease losses and selected off-balance sheet items as reported on Schedule RC-L (see instructions). If the box market YES has been checked, then the bank only has to complete item 2 below. If the box marked NO has been checked, the bank must complete the remainder of this schedule. A NO response to item 1 does not necessarily mean that the bank's actual risk-based capital ratio is less than eight percent or that the bank is not in compliance with the risk-based capital guidelines. (Column A) (Column B) Subordinated Debt (1) Other and Intermediate Limited- Item 2 is to be completed by all banks. Term Preferred Life Capital Stock Instruments Dollar Amounts in Thousands RCFD Bil Mil Thou RCFD Bil Mil Thou 2. Subordinated debt (1) and other limited-life capital instruments (original weighted average maturity of at least five years) with a remaining maturity of: a. One year or less 3780 0 3786 0 2.a. b. Over one year through two years 3781 70,000 3787 0 2.b. c. Over two years through three years 3782 28,000 3788 0 2.c. d. Over three years through four years 3783 10,000 3789 0 2.d. e. Over four years through five years 3784 0 3790 0 2.e. f. Over five years 3785 105,000 3791 0 2.f. 3. Not applicable
Items 4-9 and Memoranda items 1 and 2 are to be completed by banks that answered NO to item 1 above and by banks with total assets of $1 billion or more.
(Column A) (Column B) Assets Credit Equiv- Recorded alent Amount on the of Off-Balance Balance Sheet Sheet Items(2) RCFD Bil Mil Thou RCFD Bil Mil Thou 4. Assets and credit equivalent amounts of off-balance sheet items assigned to the Zero percent risk category: a. Assets recorded on the balance sheet: (1) Securities issued by, other claims on, and claims unconditionally guaranteed by, the U.S. Government and its agencies and other OCED central governments 3794 339,904 4.a.(1) (2) All other 3795 401,180 4.a.(2) b. Credit equivalent amount of off-balance sheet items 3796 0 4.b.
__________ (1) Exclude mandatory convertible debt reported in Schedule RC-M, item 7. (2) Do not report in column B the risk-weighted amount of assets reported in column A. 33 Legal Title of Bank: Crestar Bank Address: P.O. Box 26665 City, State Zip: Richmond, VA 23261-6665 FDIC Certificate No.: 00832 Call Date: 12/31/95 ST-BK: 51-2430 FFIEC 031 Page RC-24 Schedule RC-R--Continued
(Column A) (Column B) Assets Credit Equiv- Recorded alent Amount on the of Off-Balance Balance Sheet Sheet Items (1) Dollar Amounts in Thousands RCFD Bil Mil Thou RCFD Bil Mil Thou 5. Assets and credit equivalent amounts of off-balance sheet items assigned to the 20 percent risk category: a. Assets recorded on the balance sheet: (1) Claims conditionally guaranteed by the U.S. Government and its agencies and other OECD central governments 3798 395,351 5.a.(1) (2) Claims collateralized by securities issued by the U.S. Government and its agencies and other OECD central governments; by securities issued by U.S. Government-sponsored agencies; and by cash on deposit 3799 0 5.a.(2) (3) All other 3800 2,395,867 5.a.(3) b. Credit equivalent amount of off-balance sheet items 3801 30,462 5.b. 6. Assets and credit equivalent amounts of off-balance sheet items assigned to the 50 percent risk category: a. Assets recorded on the balance sheet 3802 2,266,257 6.a. b. Credit equivalent amount of off-balance sheet items 3803 552,708 6.b. 7. Assets and credit equivalent amounts of off-balance sheet items assigned to the 100 percent risk category: a. Assets recorded on the balance sheet 3804 7,944,304 7.a. b. Credit equivalent amount of off-balance sheet items 3805 1,512,597 7.b. 8. On-balance sheet asset values excluded from the calculation of the risk-based capital ratio (2) 3806 11,000 8. 9. Total assets recorded on the balance sheet (sum of items 4.a, 5.a, 6.a, 7.a, and 8, column A)(must equal Schedule RC, item 12 plus items 4.b and 4.c) 3807 13,753,863 9.
Memoranda
Dollar Amounts in Thousands RCFD Bil Mil Thou 1. Current credit exposure across all off-balance sheet derivative contracts covered by the risk-based capital standards 8764 14,404 M.1.
With a remaining maturity of (Column A) (Column B) (Column C) One year or less Over one year Over five years through five years RCFD Tril Bil Mil Thou RCFD Tril Bil Mil Thou RCFD Tril Bil Mil Thou 2. Notional principal amounts of off-balance sheet derivative contracts (3): a. Interest rate contracts 3809 169,697 8766 1,197,074 8767 36,360 M.2.a. b. Foreign exchange contracts 3812 6,748 8769 0 8700 0 M.2.b. c. Gold contracts 8771 0 8772 0 8773 0 M.2.c. d. Other previous metals contracts 8774 0 8775 0 8776 0 M.2.d. e. Other commodity contracts 8777 0 8778 0 8779 0 M.2.e. f. Equity derivative contracts A000 0 A001 0 A002 0 M.2.f.
__________ (1) Do not report in column B the risk-weighted amount of assets reported in column A. (2) Include the difference between the fair value and the amortized cost of available-for-sale securities in item 8 and report the amortized cost of these securities in items 4 through 7 above. Item 8 also includes on-balance sheet asset values (or portions thereof) of off-balance sheet interest rate, foreign exchange rate, and commodity contracts and those contracts (e.g., futures contracts) not subject to risk-based capital. Exclude from item 8 margin accounts and accrued receivables as well as any portion of the allowance for loan and lease losses in excess of the amount that may be included in Tier 2 capital. (3) Exclude foreign exchange contracts with an original maturity of 14 days or less and all futures contracts. 34 Legal Title of Bank: Crestar Bank Address: P.O. Box 26665 City, State Zip: Richmond, VA 23261-6665 FDIC Certificate No.: 00832 Call Date: 12/31/95 ST-BK: 51-2430 FFIEC 031 Page RC-25 Optional Narrative Statement Concerning the Amounts Reported in the Reports of Condition and Income at close of business on December 31, 1995 Crestar Bank Richmond, Virginia Legal Title of Bank City State The management of the reporting bank may, if it wishes, submit a brief narrative statement on the amounts reported in the Reports of Condition and Income. This optional statement will be made available to the public, along with the publicly available data in the Reports of Condition and Income, in response to any request for individual bank report data. However, the information reported in column A and in all of Memorandum item 1 of Schedule RC-N is regarded as confidential and will not be released to the public. BANKS CHOOSING TO SUBMIT THE NARRATIVE STATEMENT SHOULD ENSURE THAT THE STATEMENT DOES NOT CONTAIN THE NAMES OR OTHER IDENTIFICATIONS OF INDIVIDUAL BANK CUSTOMERS, REFERENCES TO THE AMOUNTS REPORTED IN THE CONFIDENTIAL ITEMS IN SCHEDULE RC-N, OR ANY OTHER INFORMATION THAT THEY ARE NOT WILLING TO HAVE MADE PUBLIC OR THAT WOULD COMPROMISE THE PRIVACY OF THEIR CUSTOMERS. Banks choosing not to make a statement may check the "No comment" box below and should make no entries of any kind in the space provided for the narrative statement; i.e., DO NOT enter in this space such phrases as "No statement," "Not applicable," "N/A," "No comment," and "None." The optional statement must be entered on this sheet. The statement should not exceed 100 words. Further, regardless of the number of words, the statement must not exceed 750 characters, including punctuation, indentation, and standard spacing between words and sentences. If any submission should exceed 750 characters, as defined, it will be truncated at 750 characters with no notice to the submitting bank and the truncated statement will appear as the bank's statement both on agency computerized records and in computer-file releases to the public. All information furnished by the bank in the narrative statement must be accurate and not misleading. Appropriate efforts shall be taken by the submitting bank to ensure the statement's accuracy. The statement must be signed, in the space provided below, by a senior officer of the bank who thereby attests to its accuracy. If, subsequent to the original submission, material changes are submitted for the data reported in the Reports of Condition and Income, the existing narrative statement will be deleted from the files, and from disclosure; the bank, at its option, may replace it with a statement, under signature, appropriate to the amended data. The optional narrative statement will appear in agency records and in release to the public exactly as submitted (or amended as described in the preceding paragraph) by the management of the bank (except for the truncation of statements exceeding the 750-character limit described above). THE STATEMENT WILL NOT BE EDITED OR SCREENED IN ANY WAY BY THE SUPERVISORY AGENCIES FOR ACCURACY OR RELEVANCE. DISCLOSURE OF THE STATEMENT SHALL NOT SIGNIFY THAT ANY FEDERAL SUPERVISORY AGENCY HAS VERIFIED OR CONFIRMED THE ACCURACY OF THE INFORMATION CONTAINED THEREIN. A STATEMENT TO THIS EFFECT WILL APPEAR ON ANY PUBLIC RELEASE OF THE OPTIONAL STATEMENT SUBMITTED BY THE MANAGEMENT OF THE REPORTING BANK. No comment [] (RCON 6979) C471 C472 BANK MANAGEMENT STATEMENT (please type or print clearly): (TEXT 6980) _____________________________________ _________________ Signature of Executive Officer of Bank Date of Signature 35 Legal Title of Bank: Crestar Bank Address: P.O. Box 26665 City, State Zip: Richmond, VA 23261-6665 FDIC Certificate No.: 00832 Call Date: 12/31/95 ST-BK: 51-2430 THIS PAGE IS TO BE COMPLETED BY ALL BANKS Crestar Bank December 31, 1995 P.O. Box 26665 Richmond, VA 23261 E512430000 55124300000 31 OMB No. for OCC: 1557-0081 OMB No. For FDIC: 3064-0052 OMB No. For Federal Reserve: 7100-0036 Expiration Date: 3/31/96 Special Report (Dollar Amounts in Thousands) Close of Business FDIC Certificate Number Date 12/31/95 00832 C-700 LOANS TO EXECUTIVE OFFICERS (Complete as of each Call Report Date) The following information is required by Public Laws 90-44 and 102- 242, but does not constitute a part of the Report of Condition. With each Report of Condition, these Laws require all banks to furnish a report of all loans or other extensions of credit to their executive officers made since the date of the previous Report of Condition. Data regarding individual loans or other extensions of credit are not required. If no such loans or other extensions of credit were made during the period, insert "none" against subitem (a). (Exclude the first $15,000 of indebtedness of each executive officer under bank credit card plan.) See Sections 215.2 and 215.3 of Title 12 of the Code of Federal Regulations (Federal Reserve Board Regulation O) for the definitions of "executive officer" and "extension of credit," respectively. Exclude loans and other extensions of credit to directors and principal shareholders who are not executive officers. a. Number of loans made to executive officers since the previous Call Report date RCFD 3561 0 a. b. Total dollar amount of above loans (in thousands of dollars) RCFD 3562 0 b. c. Range of interest charged on above loans (example: 9 3/4% = 9.75) RCFD 7701 0.00 % to RCFD 7702 0.00% c.
Signature and title of officer authorized to sign report Date (Month, Day, Year) /s/ PETER C. TOMS, SENIOR VICE PRESIDENT 1/26/96
Name and title of person to whom inquiries may be directed (TEXT 8903) AREA CODE/PHONE NUMBER/EXTENSION (TEXT 8904) Judy A. Wells, Assistant Vice President (804)782-7320
FDIC 8040/53 (6/95) 36 -----END PRIVACY-ENHANCED MESSAGE-----