AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 26, 1996
REGISTRATION NO. 333-01695
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
AMENDMENT NO. 1
TO
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.)
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EXACT NAME OF STATE OR OTHER
CO-REGISTRANT AS SPECIFIED JURISDICTION OF INCORPORATION I.R.S. EMPLOYER
IN ITS CHARTER OR ORGANIZATION IDENTIFICATION NO.
<S> <C> <C>
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
</TABLE>
4800 COX ROAD
GLEN ALLEN, VIRGINIA 23060
(804) 747-9794
(Address, including zip code, and telephone number,
including area code, of registrant's and co-registrants'
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. [ ]
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.
<PAGE>
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.
PROSPECTUS SUBJECT TO COMPLETION
DATED APRIL 26, 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 fully and unconditionally
guaranteed on a joint and several basis (the "Guarantees") by substantially all
of the subsidiaries of the Company, including Owens & Minor Medical, Inc.,
National Medical Supply Corporation, Owens & Minor West, Inc., Koley's Medical
Supply, Inc., Lyons Physician Supply Company, A. Kuhlman & Company and Stuart
Medical, Inc. (the "Guarantors"). The Notes will not be guaranteed by the
Company's indirect subsidiary O&M Funding Corp., the assets, equity and earnings
of which are inconsequential to 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 (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 March 31, 1996, as adjusted to give effect to the transactions
described herein under "Use of Proceeds and Refinancing," the Company would have
had approximately $77.3 million of Senior Indebtedness outstanding, all of which
is guaranteed by the Guarantors on a senior basis.
The Notes have been approved for listing on the New York Stock Exchange, subject
to official notice of issuance.
SEE "RISK FACTORS" BEGINNING ON PAGE 14 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.
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- -----------------------------------------------------------------------------------------------------------------------
Price to Underwriting Proceeds to
Public(1) Compensation(2) Company(1)(3)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note % % %
- -----------------------------------------------------------------------------------------------------------------------
Total $ $ $
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(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
<PAGE>
[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.
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<PAGE>
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................................................ 14
Use of Proceeds and Refinancing............................. 18
Capitalization.............................................. 19
Selected Consolidated Financial Data........................ 20
Management's Discussion and Analysis of
Financial Condition and Results of Operations............. 22
Business.................................................... 31
Management.................................................. 42
Description of the Notes.................................... 46
Underwriting................................................ 72
Legal Matters............................................... 73
Experts..................................................... 73
Index to Consolidated Financial Statements..................F-1
3
<PAGE>
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).
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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 48 distribution centers nationwide. The Company's customers
are primarily hospitals, which account for approximately 90% of O&M's net sales,
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 48
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. For the first quarter of 1996, the Company generated net
sales of $771.3 million, a 3.3% increase from the fourth quarter of 1995.
The Company's income from continuing operations increased at a 38.4% compound
annual rate from $9.7 million in 1991 to $18.5 million in 1993 before decreasing
to $7.9 million in 1994 and a loss of $11.3 million in 1995. For the first
quarter of 1996, income from continuing operations increased to $1.5 million
from a loss of $9.0 million (which loss included a $3.4 million nonrecurring
restructuring charge, net of taxes) in the fourth quarter of 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. For the first quarter of 1996, Adjusted EBITDA increased to
$13.1 million from $4.0 million in the fourth quarter of 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
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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. 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. In 1994 and 1995, the Company
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 client/server technology. 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
6
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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, Inc. ("AmeriNet"),
AmHS/Premier/Sun Health ("Premier"), Brigham & Women's Hospital, Columbia
Healthcare Corporation ("Columbia"), 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
manufacturers, known as FOCUS(sm). FOCUS(sm) will assist the Company's
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. See
"Business -- Asset Management."
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. ("C.R. Bard"), 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
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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 $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 the first quarter of
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. As a result of
these measures, gross margin as a percentage of net sales increased to 9.6% in
the first quarter of 1996 from 8.7% in the fourth quarter of 1995. Substantially
all of the national healthcare network organizations ("Networks"), group
purchasing organizations ("GPOs") and integrated healthcare systems ("IHSs")
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. As a result of these measures, the
Company's SG&A expenses as a percentage of net sales decreased to 7.9% in the
first quarter of 1996 from 8.2% in the fourth quarter of 1995.
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,
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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
March 31, 1996, the Company had received $69.1 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 will 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."
9
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THE OFFERING
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<S> <C>
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 fully and unconditionally guaranteed on
a joint and several basis by substantially all of the
subsidiaries of the Company, including Owens & Minor
Medical, Inc. ("O&M Medical"), National Medical
Supply Corporation ("National Medical"), Owens &
Minor West, Inc. ("O&M West"), Koley's Medical
Supply, Inc. ("Koley's"), Lyons Physician Supply
Company ("Lyons"), A. Kuhlman & Company
("Kuhlman") and Stuart Medical, Inc. ("Stuart") (the
"Guarantors"). The Notes will not be guaranteed by the
Company's indirect subsidiary O&M Funding Corp., the
assets, equity and earnings of which are inconsequential
to the Company. The Guarantees will be general
10
<PAGE>
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
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."
</TABLE>
11
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table presents summary consolidated financial data as of and for
the three months ended March 31, 1996 and 1995 and as of and for each of the
five years in the period ended December 31, 1995. The financial data of the
Company as of and for each of the five years in the period ended December 31,
1995 were derived from the Company's audited consolidated financial statements.
The financial data as of and for the three months ended March 31, 1996 and 1995
were derived from unaudited consolidated financial statements of the Company for
such periods, which, in the opinion of management of the Company, reflect all
adjustments (which are comprised only of normal recurring accruals and the use
of estimates) necessary to present fairly the financial position and the results
of operations for the unaudited periods. 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.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,(1)
1996 1995 1995 1994 1993 1992 1991
-------- -------- --------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
In thousands, except ratios
STATEMENTS OF OPERATIONS DATA:
Net sales $ 771,312 $ 747,095 $2,976,486 $2,395,803 $1,396,971 $1,177,298 $1,021,014
Cost of goods sold 697,133 674,187 2,708,668 2,163,459 1,249,660 1,052,998 918,304
---------- ---------- ---------- ---------- ---------- --------- ----------
Gross margin 74,179 72,908 267,818 232,344 147,311 124,300 102,710
Selling, general and
administrative expenses 61,040 53,561 225,897 165,564 107,771 91,371 78,191
Depreciation and amortization 3,930 3,516 15,416 13,034 7,593 5,861 4,977
Interest expense, net(2) 5,800 5,391 25,538 10,155 1,530 1,128 3,192
Discount on accounts
receivable securitization 744 - 641 - - - -
Nonrecurring restructuring
expenses(3) - 2,661 16,734 29,594 - - -
---------- ---------- ---------- ---------- ---------- --------- ----------
Income (loss) from
continuing operations
before income taxes 2,665 7,779 (16,408) 13,997 30,417 25,940 16,350
Income tax provision
(benefit) 1,146 3,166 (5,100) 6,078 11,900 10,505 6,681
---------- ---------- ---------- ---------- ---------- --------- ----------
Income (loss) from
continuing operations $ 1,519 $ 4,613 $ (11,308) $ 7,919 $ 18,517 $ 15,435 $ 9,669
========== ========== ========== ========== ========== ========= ==========
Net income (loss) $ 1,519 $ 4,613 $ (11,308) $ 7,919 $ 20,134 $ 20,392 $ 12,027
========== ========== ========== ========== ========== ========= ==========
BALANCE SHEET DATA (END
OF PERIOD):
Working capital $ 325,712 $ 355,216 $ 331,663 $ 281,788 $ 139,091 $ 99,826 $ 122,675
Total assets 848,401 918,343 857,803 868,560 334,322 274,540 311,786
Long-term debt 313,206 323,304 323,308 248,427 50,768 24,986 67,675
Shareholders' equity 237,695 258,621 235,271 256,176 136,943 116,659 97,091
OTHER DATA:
Adjusted EBITDA(4) $ 13,139 $ 19,347 $ 41,921 $ 66,780 $ 39,540 $ 32,929 $ 24,519
Capital expenditures 3,732 4,397 21,272 8,220 9,741 7,549 6,254
HISTORICAL RATIOS:
Adjusted EBITDA to interest
expense, net(4) 2.01 3.59 1.60 6.58 25.84 29.19 7.68
Adjusted EBITDA minus capital
expenditures to interest
expense, net
(deficiency)(4) 1.44 2.77 $ (5,530) 5.77 19.48 22.50 5.72
Earnings to fixed charges
(deficiency)(5) 1.31 2.03 $ (16,408) 1.81 6.23 6.29 3.45
12
<PAGE>
PRO FORMA RATIOS:
Adjusted EBITDA to interest
expense, net(4) 1.79 1.43
Adjusted EBITDA minus capital
expenditures to interest
expense, net (deficiency)(4) 1.28 $ (8,615)
Earnings to fixed charges
(deficiency)(5) 1.16 $ (20,815)
- --------------------
</TABLE>
(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 $1.2 million and $0.5 million for the first
quarters of 1996 and 1995, respectively, and $3.8 million, $2.0 million,
$1.4 million, $1.3 million and $1.1 million for the years ended December 31,
1995, 1994, 1993, 1992 and 1991, respectively.
(3) In the first quarter of 1995 and the years ended December 31, 1995 and 1994,
the Company incurred $2.7 million, $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. For purposes of these ratios,
interest expense, net, consists of interest expense net of finance charges
received from customers and discount on accounts receivable securitization.
The pro forma ratios give effect to the Refinancing (excluding $113,125 and
$452,500 for the first quarter of 1996 and the year ended December 31, 1995,
respectively, of amortization of deferred debt issuance costs).
(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). The pro forma
ratio 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).
13
<PAGE>
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 March 31, 1996, after giving effect to
the Refinancing, the Company's total indebtedness would have been $238.3
million. As of such date, the Company's shareholders' equity was $237.7 million,
resulting in a pro forma total debt-to-total capitalization ratio of 50.1%. 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,
including indebtedness under the New Senior Credit Facility. As of March 31,
1996, after giving effect to the Refinancing, the aggregate amount of Senior
Indebtedness would have been approximately $77.3 million, all of which would
have been borrowings under the New Senior Credit Facility. As of such date, the
Company would have had, subject to certain restrictions, the ability to draw up
to an additional $147.7 million of indebtedness under the New Senior Credit
Facility. The Notes will rank senior in right of payment to the Company's $10.2
million 0% Subordinated Note. The Notes will not be secured by any assets of the
Company or the Guarantors. See "-- Subordination of the Notes; Asset
Encumbrances." The Indenture will limit but not restrict the ability of the
Company and its subsidiaries to incur additional indebtedness, including Senior
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, the largest
investor-owned healthcare organization in
14
<PAGE>
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, IHS 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 as a customer could adversely affect the
Company's results of operations. See "Business -- Customers."
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, 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.
The Company's direct and indirect Guarantor subsidiaries include O&M Medical,
Stuart, National Medical, O&M West, Koley's, Lyons and Kuhlman. The Company's
only non-Guarantor subsidiary is O&M Funding Corp. For a discussion of the
enforceability of such Guarantees, see "-- Fraudulent Conveyance
Considerations."
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
15
<PAGE>
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 charge 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, including covenants regarding consolidated net
worth, fixed charge coverage ratio, leverage ratio and consolidated operating
EBITDA (as defined in the Senior Credit Facility), contained in the instruments
relating to 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
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 March 31, 1996, after giving effect to the Refinancing,
the aggregate amount of Senior Indebtedness of the Company would have been
approximately $77.3 million, and the Company would have had, subject to certain
restrictions, the ability to draw up to an additional $147.7 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
16
<PAGE>
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 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 Notes have been approved for listing 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."
17
<PAGE>
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 March 31, 1996, borrowings under the Senior
Credit Facility totaled approximately $303.0 million and are expected to be
approximately $310.0 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 Offered Rate ("LIBOR"). As of March
31, 1996, 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 7.6%.
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 of approximately $164.5 million under the New Senior Credit Facility,
together with the net proceeds of the Offering of approximately $145.5 million,
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 8.4% as of March 31, 1996, giving effect to the interest rate swap and
cap agreements referred to above and the Refinancing. As of March 31, 1996,
after giving effect to the Refinancing, the aggregate amount outstanding under
the New Senior Credit Facility would have been approximately $77.3 million.
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 charge
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 March 31, 1996, the
Company had received $69.1 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 will be increased to a maximum of $150.0 million and the facility will
be available for use by the Company through May 1999. Proceeds of the
Receivables Financing Facility of approximately $80.9 million, as so increased,
will be applied to reduce amounts outstanding under the New Senior Credit
Facility. The Company expects to receive the additional funds under the
Receivables Financing Facility promptly following consummation of the increase
in the Receivables Financing Facility to $150.0 million. The Company intends to
seek extensions of the Receivables Financing Facility subsequent to May 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.
18
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the Company at
March 31, 1996, 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."
<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
In thousands, except per share amounts ACTUAL AS ADJUSTED(1)
<S> <C> <C>
SHORT-TERM INDEBTEDNESS:
Current maturities of long-term indebtedness $ 722 $ 722
LONG-TERM INDEBTEDNESS, LESS CURRENT MATURITIES:
Notes payable to banks (Senior Credit Facility
and New Senior Credit Facility) 303,000 77,325
% Senior Subordinated Notes due 2006 -- 150,000
0% Subordinated Note 10,206 10,206
-------- --------
Total long-term indebtedness 313,206 237,531
-------- --------
Total indebtedness 313,928 238,253
-------- --------
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 - 31,739 shares 63,478 63,478
Paid-in capital 3,978 3,978
Retained earnings 55,239 55,239
--------- ---------
Total shareholders' equity 237,695 237,695
-------- --------
Total capitalization $551,623 $475,948
======== ========
</TABLE>
- -----------------
(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 March 31, 1996, the Company had received $69.1 million
under the Receivables Financing Facility, the proceeds of which were used
to reduce amounts outstanding under the Senior Credit Facility.
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents summary consolidated financial data as of and for
the three months ended March 31, 1996 and 1995 and as of and for each of the
five years in the period ended December 31, 1995. The financial data of the
Company as of and for each of the five years in the period ended December 31,
1995 were derived from the Company's audited consolidated financial statements.
The financial data as of and for the three months ended March 31, 1996 and 1995
were derived from unaudited consolidated financial statements of the Company for
such periods, which, in the opinion of management of the Company, reflect all
adjustments (which are comprised only of normal recurring accruals and the use
of estimates) necessary to present fairly the financial position and the results
of operations for the unaudited periods. 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.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,(1)
1996 1995 1995 1994 1993 1992 1991
-------- -------- ---------- ---------- ---------- ---------- ---------
In thousands, except ratios
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales $771,312 $747,095 $2,976,486 $2,395,803 $1,396,971 $1,177,298 $1,021,014
Cost of goods sold 697,133 674,187 2,708,668 2,163,459 1,249,660 1,052,998 918,304
-------- ---------- ---------- --------- --------- --------- ---------
Gross margin 74,179 72,908 267,818 232,344 147,311 124,300 102,710
Selling, general and administrative
expenses 61,040 53,561 225,897 165,564 107,771 91,371 78,191
Depreciation and amortization 3,930 3,516 15,416 13,034 7,593 5,861 4,977
Interest expense, net(2) 5,800 5,391 25,538 10,155 1,530 1,128 3,192
Discount on accounts receivable
securitization 744 -- 641 -- -- -- --
Nonrecurring restructuring expenses(3) -- 2,661 16,734 29,594 -- -- --
-------------------- ----------- ---------------------- ------------------------
Total expenses 71,514 65,129 284,226 218,347 116,894 98,360 86,360
------------------- ----------- --------- --------- --------- ---------
Income (loss) before income taxes 2,665 7,779 (16,408) 13,997 30,417 25,940 16,350
Income tax provision (benefit) 1,146 3,166 (5,100) 6,078 11,900 10,505 6,681
------- ----------- ----------------------- ---------- ---------- ----------
Income (loss) from continuing operations 1,519 4,613 (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) 1,519 4,613 (11,308) 7,919 20,134 20,392 12,027
Dividends on preferred stock 1,294 1,294 5,175 3,309 -- -- --
------- ------- ------------ ------------------------------------------------
Net income (loss) attributable to
common stock $ 225 $ 3,319 $ (16,483) $ 4,610 $ 20,134 $ 20,392 $ 12,027
======== ======== =========== ========== ========= ========== ==========
BALANCE SHEET DATA (END OF PERIOD):
Working capital $325,712 $355,216 $ 331,663 $ 281,788 $ 139,091 $ 99,826 $ 122,675
Total assets 848,401 918,343 857,803 868,560 334,322 274,540 311,786
Long-term debt 313,206 323,304 323,308 248,427 50,768 24,986 67,675
Shareholders' equity 237,695 258,621 235,271 256,176 136,943 116,659 97,091
OTHER DATA:
Adjusted EBITDA(4) $ 13,139 $ 19,347 $ 41,921 $ 66,780 $ 39,540 $ 32,929 $ 24,519
Capital expenditures 3,732 4,397 21,272 8,220 9,741 7,549 6,254
HISTORICAL RATIOS:
Adjusted EBITDA to interest
expense, net(4) 2.01 3.59 1.60 6.58 25.84 29.19 7.68
Adjusted EBITDA minus capital
expenditures to interest
expense, net (deficiency)(4) 1.44 2.77 $ (5,530) 5.77 19.48 22.50 5.72
Earnings to fixed charges
(deficiency)(5) 1.31 2.03 $ (16,408) 1.81 6.23 6.29 3.45
PRO FORMA RATIOS:
Adjusted EBITDA to interest
expense, net(4) 1.79 1.43
Adjusted EBITDA minus capital
expenditures to interest expense,
net (deficiency)(4) 1.28 $ (8,615)
Earnings to fixed charges
(deficiency)(5) 1.16 $ (20,815)
</TABLE>
Footnotes on following page.
20
<PAGE>
(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 $1.2 million and $0.5 million for the
first quarters of 1996 and 1995, respectively, and $3.8 million, $2.0
million, $1.4 million, $1.3 million and $1.1 million for the years ended
December 31, 1995, 1994, 1993, 1992 and 1991, respectively.
(3) In the first quarter of 1995 and the years ended December 31, 1995 and 1994,
respectively, the Company incurred $2.7 million, $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. For purposes of these ratios,
interest expense, net, consists of interest expense net of finance charges
received from customers and discount on accounts receivables
securitization. The pro forma ratios give effect to the Refinancing
(excluding $113,125 and $452,500 for the first quarter of 1996 and the year
ended December 31, 1995, respectively, of amortization of deferred debt
issuance costs).
(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). The pro forma
ratio 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).
21
<PAGE>
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 48 distribution centers nationwide. The Company's customers
are primarily hospitals, which account for approximately 90% of O&M's net sales,
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 the first quarter of 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. As a result of these measures, gross
margin as a percentage of net sales increased to 9.6% in the first quarter of
1996 from 8.7% in the fourth quarter of 1995. Substantially all of the Networks,
GPOs and IHSs 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
22
<PAGE>
the fourth quarter of 1995) and improving inventory management systems. As a
result of these measures, the Company's SG&A expenses as a percentage of net
sales decreased to 7.9% in the first quarter of 1996 from 8.2% in the fourth
quarter of 1995.
RESULTS OF OPERATIONS
The following table presents the Company's consolidated statements of operations
on a percentage of net sales basis.
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 90.4 90.2 91.0 90.3 89.5
----- ----- ------ ------- -------
Gross margin 9.6 9.8 9.0 9.7 10.5
Selling, general and administrative expenses 7.9 7.2 7.6 6.9 7.7
Depreciation and amortization 0.5 0.5 0.5 0.6 0.5
Interest expense, net 0.8 0.7 0.9 0.4 0.1
Discount on accounts receivable
securitization 0.1 -- -- -- --
Nonrecurring restructuring expenses -- 0.4 0.6 1.2 --
----- ----- ------ ------- -------
Total expenses 9.3 8.8 9.6 9.1 8.3
---- ---- ----- ------- -------
Income (loss) before income taxes 0.3 1.0 (0.6) 0.6 2.2
Income tax provision (benefit) 0.1 0.4 (0.2) 0.3 0.9
---- ---- ------- ------- -------
Income (loss) from continuing operations 0.2 0.6 (0.4) 0.3 1.3
Discontinued operations and cumulative
effect of change in accounting principle -- -- -- -- 0.1
------ ------ ------ ------ -------
Net income (loss) 0.2% 0.6% (0.4)% 0.3% 1.4%
===== ===== ======== ========== ======
Other Data:
Adjusted EBITDA 1.7% 2.6% 1.4% 2.8% 2.8%
</TABLE>
First quarter of 1996 compared with first quarter of 1995
Net sales. Net sales increased 3.2% to $771.3 million in the first quarter of
1996 from $747.1 million in the first quarter of 1995 and $746.7 million in the
fourth quarter of 1995. Approximately 50% of each of these increases was due to
new accounts and increased penetration of existing accounts. The remainder was
due to price increases from manufacturers passed on to customers and the price
increase implemented by the Company during December 1995 and the first quarter
of 1996. The Company believes that sales growth from new accounts and further
penetration of existing accounts have more than offset, and will continue to
offset, any business lost as a result of the price increases, but such growth
and penetration cannot be assured.
23
<PAGE>
Gross margin. Gross margin as a percentage of net sales declined to 9.6% in the
first quarter of 1996 from 9.8% in the first quarter of 1995, but increased from
8.7% in the fourth quarter of 1995. The decrease from the first quarter of 1995
to the first quarter of 1996 was the result of an increase in sales to larger
accounts that were offered reduced pricing in return for the expectation of
increased volume, partially offset by the implementation of price increases
during the fourth quarter of 1995 and the first quarter of 1996. The Company
expects that its gross margin will increase as a percentage of net sales as the
full impact of the price increases are realized in subsequent quarters. The
Company also anticipates growth in gross margin and net sales through increased
utilization of an activity-based cost system that charges incremental fees for
additional distribution and enhanced inventory management services, such as more
frequent deliveries and distribution of products in small units of measure. The
Company believes the activity-based cost system will allow the customer to make
more informed decisions about the services they choose to purchase. There can be
no assurance that the Company's pricing methods will produce increases in net
sales or gross margin as a percentage of net sales in future periods.
Selling, general and administrative expenses. SG&A expenses as a percentage of
net sales increased to 7.9% in the first quarter of 1996 from 7.2% in the first
quarter of 1995, but declined from 8.2% in the fourth quarter of 1995. The
increase in SG&A expenses as a percentage of net sales, as compared to the first
quarter of 1995, 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.
The decline in SG&A expenses as a percentage of net sales in the first quarter
of 1996 as compared to the fourth quarter of 1995 was a result of the completion
of 22 warehouse reconfigurations during 1995 and the continued implementation of
the following SG&A expense reduction initiatives. O&M has reduced overtime and
temporary employee costs by improving productivity through performance tracking
systems and functional best practices training programs. The Company expects to
further reduce distribution center costs through the closure of two and the
downsizing of five distribution centers which will be completed by the second
quarter of 1996 (which resulted in $3.5 million of the Company's nonrecurring
restructuring charges in the fourth quarter of 1995). The distribution center
closures and downsizings should better align distribution center size and
location with customer needs, establish operational efficiencies and reduce
administrative costs. Finally, the Company continues to improve 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. The Company intends to focus on the standardization of SKUs during
1996 and in future periods. Although the Company expects that limiting the
number of equivalent SKUs distributed by the Company will enable it to reduce
the handling costs of inventory, the impact of the Company's standardization
initiatives cannot be assured.
Adjusted EBITDA. Adjusted EBITDA as a percentage of net sales declined to 1.7%
in the first quarter of 1996 from 2.6% in the first quarter of 1995, but
increased from 0.5% in the fourth quarter of 1995.
Depreciation and amortization. Depreciation and amortization increased by 11.8%
in the first quarter of 1996 compared to the first quarter of 1995. This
increase was due primarily to the Company's continued investment in improved IT.
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 $1.2
million and $0.5 million in the first quarter of 1996 and the first quarter of
1995, respectively, increased from $5.4 million in the first quarter of 1995 to
$5.8 million in the first quarter of 1996 primarily due to higher borrowing
levels to fund
24
<PAGE>
increased working capital requirements and higher interest rates. Finance charge
income represents payments from customers for past due balances on their
accounts.
Management has taken, and will continue to take, 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 the Company's effective interest rate through the
off-balance sheet receivables securitization discussed below in the liquidity
section. Total financing costs including the discount on the receivables
securitization has declined from the fourth quarter of 1995 by $1.4 million.
Income taxes. The Company had an income tax provision of $1.1 million in the
first quarter of 1996 (representing an effective tax rate of 43.0%) compared
with an income tax provision of $3.2 million in the first quarter of 1995
(representing an effective tax rate of 40.7%). The increase in effective tax
rate was due to the Company's lower earnings level increasing the impact of
certain nondeductible expenses such as goodwill amortization.
Net income (loss). The Company earned net income of $1.5 million in the first
quarter of 1996 compared to net income of $4.6 million in the first quarter of
1995. As previously discussed, the decline was due to the combination of a
decline in gross margin as a percentage of net sales, an increase in SG&A
expenses and an increase in interest expense. Although the Company has shown
improvement from its fourth quarter 1995 net loss of $9.0 million (which loss
included a $3.4 million nonrecurring restructuring charge, net of taxes) and the
Company continues to pursue the initiatives previously discussed in an effort to
improve the earnings of the Company, the impact of these initiatives on net
income cannot be assured.
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, 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. Gross margin was also negatively impacted in 1995 due to the
increase in inventory levels requiring a LIFO (last in, first out) reserve. The
reserve increased by $3.7 million in 1995 compared to $0.7 million in 1994. 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. Substantially all of the Networks, GPOs and IHSs 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
25
<PAGE>
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 1995 and 1996. These expenses
were comprised primarily of costs associated with a reduction of employees
(approximately $1.7 million), the write-down of non-cash assets (approximately
$0.9 million) and other related exit costs (approximately $0.9 million). At
December 31, 1995, the associated accrued liability balance was approximately
$2.6 million.
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 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
26
<PAGE>
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, 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 $960.0 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 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 (i) duplicate facility costs
(approximately $15.2 million), including the cost of maintaining duplicate
personnel and duplicate locations and the cost of converting Stuart divisions to
O&M systems and processes, (ii) costs associated with redesigning and
implementing operating processes to increase efficiencies within the combined
company (approximately $7.1 million), including the development of both a
client/server strategy and the requirements for forecasting and warehouse
management systems, both necessary to accommodate the needs of the combined
company, and (iii) costs associated with the conversion to an outsourced
mainframe computer (approximately $7.3 million), including the cost of
termination of leases and the incremental cost of transferring software
licenses.
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
27
<PAGE>
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. The Company's liquidity position improved significantly during the
first quarter of 1996. The increase was the result of improved earnings, reduced
working capital requirements and the availability of additional financing
sources. 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 March 31, 1996, the Company had
approximately $122.0 million of unused credit under the Senior Credit Facility.
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 March 31, 1996, the
Company had received approximately $69.1 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
will 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. The Company has no operations separate from its investment in its
subsidiaries and all Guarantors are wholly-owned subsidiaries. Separate
financial statements for the Company and each of its subsidiaries are not
presented as management believes that such financial statements are not material
to investors.
To reduce the potential impact of increases in interest rates in the period
before the issuance of the Notes, in March and April 1996, the Company entered
into five interest rate cap agreements with an aggregate notional value of
$125.0 million. Under the interest rate cap agreements, the Company will receive
from the bank counterparties on the determination dates the amounts by which the
interest rate of the United States Government 10-Year Treasury Note exceeds
various rates ranging from 6.77% to 7.00%. The determination dates of the
transactions are May 30, 1996 and May 31, 1996.
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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. As of March 31, 1996, the Company was in compliance with all of the
financial covenants included in 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."
Working Capital Management. For the first quarter of 1996, the Company's
three-month average working capital turnover improved to 9.4 times from 8.3
times in the fourth quarter of 1995. This improvement was due to increased
inventory turnover. On a three-month average, inventory turnover increased to
8.7 times from 8.2 times. This improvement was due to the continued
implementation of the Company's client/server based forecasting system scheduled
for completion by the middle of 1996 and the limitation of 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. In 1995,
the Company experienced a significant decline in working capital turnover with
average working capital turnover of 8.3 times in the fourth quarter of 1995.
This decline was the result of (i) increased service levels, (ii) increases in
the number of SKUs carried by the Company, (iii) new customers, (iv) activities
associated with rationalization of distribution centers, (v) the development and
implementation of new computer systems, (vi) negotiation of favorable discount
terms with vendors, which provide enhanced gross margin, but shorten payment
terms, and (vii) the timing of purchasing patterns.
Capital Expenditures. Capital expenditures were approximately $3.7 million in
the first quarter of 1996, of which approximately $3.1 million was for computer
systems, including the continued conversion from a mainframe computer system to
client/server technology. The Company expects capital expenditures to be
approximately $25.0 million 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 Pronouncements. The Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards No. 123 ("SFAS
123"), Accounting for Stock-Based Compensation, in October 1995. SFAS 123
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.
In March 1995, FASB issued Statement of Financed Accounting Standards No. 121
("SFAS 121"), Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of, which is effective for fiscal years
beginning after December 31, 1995. SFAS 121 prescribes accounting standards for
(i) the impairment of long-lived assets, certain identifiable intangibles and
goodwill related to those assets to be held and used and (ii) long-lived assets
and certain identifiable intangibles to be disposed of. This
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standard requires that long-lived assets and certain identifiable intangibles to
be held and used by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. The adoption of SFAS 121 in 1996 is not expected to have a
material impact on the financial condition or results of operations of the
Company.
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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 48 distribution centers nationwide. The Company's customers
are primarily hospitals, which account for approximately 90% of O&M's net sales,
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. For a discussion of other
recent acquisitions, see Note 2 to Notes to Consolidated Financial Statements.
Since 1991, the Company has grown from 27 distribution centers serving 37 states
to 48 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. For the first quarter of 1996, the Company
generated net sales of $771.3 million, a 3.3% increase from the fourth quarter
of 1995.
The Company's income from continuing operations increased at a 38.4% compound
annual rate from $9.7 million in 1991 to $18.5 million in 1993 before decreasing
to $7.9 million in 1994 and a loss of $11.3 million in 1995. For the first
quarter of 1996, income from continuing operations increased to $1.5 million
from a loss of $9.0 million (which loss included a $3.4 million nonrecurring
restructuring charge, net of taxes) in the fourth quarter of 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. For
the first quarter of 1996, Adjusted EBITDA increased to $13.1 million from $4.0
million in the fourth quarter of 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. 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.
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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 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. In 1994 and 1995, the Company
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 client/server technology. 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, 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.
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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 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
manufacturers, known as FOCUSSM. FOCUSSM will assist the Company's 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. See "-- Asset Management."
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, 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, IHSs
and alternate care providers. For a discussion of Networks, GPOs and IHSs and
relevant pricing arrangements with these entities, see "-- Customers" and "--
Contracts and Pricing." 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.
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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.
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. In
1995, sales to hospital customers accounted for approximately 90% of O&M's net
sales, and sales to alternate care providers accounted for approximately 10% of
O&M's net sales. Sales to the Company's top ten Network or GPO customers
represented approximately 60% of its net sales in 1995.
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.
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
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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 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, an investor-owned system
of hospitals and alternate care facilities, as its primary distributor of
medical/surgical supplies. Pursuant to its agreement with Columbia, the Company
provides distribution and other inventory management process services to
Columbia hospitals and other healthcare facilities. Columbia is the Company's
largest customer owning over 300 hospitals and IHSs throughout the United
States. Sales to Columbia represented approximately 8.4% of the Company's net
sales in 1995. Other than VHA, AmeriNet and Columbia, no Network, GPO, IHS 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, which include individual hospitals and alternate care
facilities. Approximately 20% of the Company's net sales in 1995 resulted from
sales to individual 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
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alternate care customers comprised approximately 10% 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.
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, including the Company's contracts with
most Networks, GPOs, IHSs and individual providers, 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. The Company
offers these services at an additional charge to its customers.
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(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.
(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).
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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.
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, 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, FOCUSSM 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 March 31, 1996, 27 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
recently implemented FOCUS(sm), a joint marketing program with certain
manufacturers. FOCUS(sm) will assist the Company's 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. In its initial stage, FOCUS(sm) will target the most commonly
used inventory items. 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.
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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 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 48 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.
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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. During
1994 and 1995, the Company 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
1995 and 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.
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 27 distribution centers utilized
this application as of March 31, 1996. 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.
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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 March 31, 1996, the Company employed approximately 3,150 full and 100
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.
LEGAL AND ADMINISTRATIVE
Stuart has been named as a defendant along with manufacturers, healthcare
providers and others in approximately 130 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.
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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 46 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 President, Distribution and Information Systems. In
February 1995, Mr. Smith was promoted to Chief Operating Officer.
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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 is Superintendent of the Virginia Military Institute,
Lexington, Virginia. 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 advising on
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 & 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 Audit and Executive Committees.
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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, 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, Richmond, Virginia, as Vice Chairman of the U.S. Energy
Association, Washington, D.C. and as a member of the Board of the University of
Virginia Engineering Foundation. He is also Vice Chairman of the Marine Advisory
Council of the Virginia Institute for Marine Sciences.
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 March 31, 1996, the Company had outstanding 31,739,212 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 ("Series B Preferred Stock"), and no
shares of Series A Preferred Stock. As of April 19, 1996, all directors,
executive officers and officers as a group beneficially owned approximately
23.6% of the outstanding shares of Common Stock. In January 1996, the 1,150,000
shares of Series B Preferred Stock,
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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.
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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.
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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 reorganization of the Company,
whether voluntary or involuntary or in bankruptcy, insolvency, receivership
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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, whether at maturity, on
account of mandatory redemption or prepayment, acceleration or otherwise (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 (a "Payment Blockage 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 Blockage Notice in respect thereof was given and (y) in no event will a
Payment Blockage Notice be effective for purposes thereof unless and until 360
days have elapsed since the effectiveness of the immediately prior Payment
Blockage Notice. Not more than one Payment Blockage Period may be commenced with
respect to the Notes during any period of 360 consecutive days. No default or
event of default that existed or was continuing on the date of commencement of
any 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 Period 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 360
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
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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 "-- 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 "-- 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.
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.
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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
or Indebtedness owed by a Subsidiary of the Company to 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 (or accrual amount, if less)
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 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
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(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 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
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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
(other than a Securitization Subsidiary) that has been converted into or
exchanged for Capital Stock of the Company 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 (other than a
Securitization Subsidiary) 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
(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
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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 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
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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
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
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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).
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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.
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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,
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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 "-- Covenants -- Change of Control" and "-- 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 "-- 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 $10
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 unenforceable or found to be
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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 "-- 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 Company may, provided that no Default or Event of Default has
occurred and is continuing or would arise
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therefrom (or, with respect to a Default or Event of Default specified in clause
(h) of "--Events of Default" above, any time on or prior to the 95th calendar
day after the date of such deposit (it being understood that this condition
shall not be deemed satisfied until after such 95th day)) and provided that no
default under any Senior Indebtedness would result therefrom, 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, provided that no Default or
Event of Default has occurred, and is continuing or would arise therefrom (or,
with respect to a Default or Event of Default specified in clause (h) of
"--Events of Default" above, any time on or prior to the 95th calendar day after
the date of such deposit (it being understood that this condition shall not be
deemed satisfied until after such 95th day)) and provided that no default under
any Senior Indebtedness would result therefrom, 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
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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 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
"-- Covenants -- Limitation on Certain Asset Dispositions" or "-- 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.
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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.
"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 "-- Covenants -- Limitation on Liens" above, (f) any Restricted
Payment permitted by "-- 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).
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"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
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
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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 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) so long as the Senior Credit Facility
is outstanding, the Senior Indebtedness incurred under the Senior Credit
Facility and (ii) thereafter, 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).
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"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.
"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;
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<PAGE>
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 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
obligations of the Company or its Subsidiaries in respect 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.
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<PAGE>
"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.
"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 "-- 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;
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<PAGE>
(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");
(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 not
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
68
<PAGE>
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.
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 "-- 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.
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<PAGE>
"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 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.
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"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.
"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.
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<PAGE>
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.
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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.
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<PAGE>
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
Page
<S> <C>
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
Unaudited First Quarter 1996 Financial Statements
Consolidated Balance Sheets as of March 31, 1996 and December 31, 1995............................................... F-18
Consolidated Statements of Operations for the Three Months Ended March 31, 1996 and 1995............................. F-19
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1996 and 1995............................. F-20
Notes to Consolidated Financial Statements........................................................................... F-21
</TABLE>
F-1
<PAGE>
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.
Richmond, Virginia
February 2, 1996 except as to Note 7,
which is as of March 1, 1996
F-2
<PAGE>
Owens & Minor, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31,
1995 1994
-------- --------
<S> <C> <C>
(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
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
Owens & Minor, Inc. and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
(In thousands, except per share data)
Net sales $2,976,486 $2,395,803 $1,396,971
Cost of goods sold 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
Net income (loss) per common share: ========== ========== ==========
Cash dividends per common share $ .18 $ .17 $ .14
Net income (loss) per common share: ========== ========== ==========
Weighted average common shares and common share equivalents 30,820 31,108 31,013
Net income (loss) per common share: ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
Owens & Minor, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
--------- -------- --------
<S> <C> <C> <C>
(In thousands)
Operating Activities
Net income (loss) $ (11,308) $ 7,919 $ 20,134
Adjustments to reconcile net income to cash used for operating activities
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
Change 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
========= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
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 or maturity at acquisition 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
The Company's computer software expenditures are applicable to software for
internal use. Certain software development costs are capitalized when incurred
and only after technological feasibility has been established. Technological
feasibility is determined based upon completion of a detailed program design or
a working model. Amortization of all capitalized software costs begins after the
software is available for use in the Company's operations and 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. Unamortized software at December 31, 1995 and 1994
was $8,600 and $3,500, respectively. Depreciation and amortization expense
includes $2,200, $2,000 and $700, respectively, of software amortization for the
years ended December 31, 1995, 1994 and 1993.
Revenue Recognition
Revenue from product sales is generally recognized at the time the product is
shipped. Service revenue is recognized over the contractual period as the
services are performed.
F-6
<PAGE>
Owens & Minor, Inc. and Subsidiaries
Notes to Consolidated Financial Statements -- Continued
(1) Summary of Significant Accounting Policies -- Continued
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.
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.
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993
<S> <C> <C>
Net sales $2,718,000 $2,331,000
Net income $ 28,100 $ 24,200
Net income per common share $ .74 $ .62
</TABLE>
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
F-7
<PAGE>
Owens & Minor, Inc. and Subsidiaries
Notes to Consolidated Financial Statements -- Continued
(2) Business Acquisitions and Divestitures -- Continued
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.
(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), including the costs of maintaining
duplicate personnel and duplicate locations and the costs of converting Stuart
divisions to the Company's systems and processes; 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), including the development of both a client/server strategy and
the requirements for forecasting and warehouse management systems, both
necessary to accomodate the needs of the combined companies; and costs
associated with the conversion to an outsourced mainframe computer
(approximately $7,300 in1994), including the cost of terminating leases and the
incremental costs of transferring software licenses. 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:
<TABLE>
<CAPTION>
December 31,
1995 1994
-------- --------
<S> <C> <C>
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
======== ========
</TABLE>
Depreciation expense for property and equipment for 1995, 1994 and 1993 was
$8,523, $7,704 and $6,368, respectively.
F-8
<PAGE>
Owens & Minor, Inc. and Subsidiaries
Notes to Consolidated Financial Statements -- Continued
(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.
Drafts payable are checks written in excess of bank balances to be funded upon
clearing the bank.
(7) Long-Term Debt and Refinancing
The Company's long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
1995 1994
-------- --------
<S> <C> <C>
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
======== ========
</TABLE>
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 Offered 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.
F-9
<PAGE>
Owens & Minor, Inc. and Subsidiaries
Notes to Consolidated Financial Statements -- Continued
(7) Long-Term Debt and Refinancing -- Continued
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 transfer, without recourse, certain of the Company's trade
receivables and to receive up to $75,000 from an unrelated third party purchaser
at 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 $59,300 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.
F-10
<PAGE>
Owens & Minor, Inc. and Subsidiaries
Notes to Consolidated Financial Statements -- Continued
(8) Retirement Plans -- Continued
The following table sets forth the plans' financial status and the amounts
recognized in the Company's Consolidated Balance Sheets:
<TABLE>
<CAPTION>
December 31,
Pension Plan Retirement Plan
------------------ ----------------
1995 1994 1995 1994
-------- -------- ------- -------
<S> <C> <C> <C> <C>
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)
======== ======== ======= =======
</TABLE>
The components of net periodic pension cost for both plans are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
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
======= ======= =======
</TABLE>
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.
F-11
<PAGE>
Owens & Minor, Inc. and Subsidiaries
Notes to Consolidated Financial Statements -- Continued
(8) Retirement Plans -- Continued
The following table sets forth the plan's financial status and the amount
recognized in the Company's Consolidated Balance Sheets:
<TABLE>
<CAPTION>
December 31,
1995 1994
------- -------
<S> <C> <C>
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)
======= =======
</TABLE>
The components of net periodic postretirement benefit cost are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
----- ---- ----
<S> <C> <C> <C>
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
===== ==== ====
</TABLE>
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.
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.
F-12
<PAGE>
Owens & Minor, Inc. and Subsidiaries
Notes to Consolidated Financial Statements -- Continued
(9) Shareholders' Equity -- Continued
The changes in common stock, paid-in capital and retained earnings are shown as
follows:
<TABLE>
<CAPTION>
Common
Shares Common Paid-in Retained
Outstanding Stock Capital Earnings Total
----------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
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
======= ======= ======= ======== ========
</TABLE>
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 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.
F-13
<PAGE>
Owens & Minor, Inc. and Subsidiaries
Notes to Consolidated Financial Statements -- Continued
(10) Stock Option Plans -- Continued
The changes in shares under outstanding options for each of the years in the
three-year period ended December 31, 1995 are as follows. All share and grant
price information is restated as stock splits occur.
<TABLE>
<CAPTION>
Shares Grant Price
------ ------------
<S> <C> <C>
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
------
</TABLE>
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.
(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.
F-14
<PAGE>
Owens & Minor, Inc. and Subsidiaries
Notes to Consolidated Financial Statements -- Continued
(11) Income Taxes -- Continued
The income tax provision (benefit) for continuing operations consists of the
following:
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
-------- ------- -------
<S> <C> <C> <C>
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
======== ======= =======
</TABLE>
A reconciliation of the federal statutory rate to the Company's effective income
tax rate for continuing operations follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
------- ----- -----
<S> <C> <C> <C>
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%
======= ===== =====
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities are presented below:
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994
------- -------
<S> <C> <C>
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
======= =======
</TABLE>
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
F-15
<PAGE>
Owens & Minor, Inc. and Subsidiaries
Notes to Consolidated Financial Statements -- Continued
(11) Income Taxes -- Continued
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:
<TABLE>
<CAPTION>
Total
-------
<S> <C>
1996 $15,909
1997 14,381
1998 13,287
1999 10,520
2000 7,655
Later years 19,388
-------
Total minimum payments $81,140
=======
</TABLE>
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. Sales to member hospitals under contract
with VHA Inc. totaled $1,180,000 or approximately 40% of the Company's net sales
in 1995, $960,000 or approximately 40% of the Company's net sales in 1994 and
$460,000 or approximately 33% of the Company's net sales in 1993. 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-16
<PAGE>
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:
<TABLE>
<CAPTION>
1995
Quarter 1st 2nd 3rd 4th
-------- -------- -------- --------
<S> <C> <C> <C> <C>
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)
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
1994
Quarter 1st 2nd 3rd 4th
-------- -------- -------- --------
<S> <C> <C> <C> <C>
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
======== ======== ======== ========
</TABLE>
F-17
<PAGE>
Owens & Minor, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
-------- ------------
<S> <C> <C>
(In thousands, except per share data)
Assets
Current assets:
Cash and cash equivalents $ 295 $ 215
Accounts and notes receivable, net 269,628 265,238
Merchandise inventories 316,330 326,380
Other current assets 29,058 32,069
-------- ------------
Total current assets 615,311 623,902
Property and equipment, net 38,014 39,049
Excess of purchase price over net assets acquired, net 170,775 171,911
Other assets, net 24,301 22,941
-------- ------------
Total assets $848,401 $857,803
======== ============
Liabilities and shareholders' equity
Current liabilities:
Current maturities of long-term debt $ 722 $ 4,055
Accounts payable 242,678 241,048
Accrued payroll and related liabilities 6,637 5,534
Other accrued liabilities 39,562 41,602
-------- ------------
Total current liabilities 289,599 292,239
Long-term debt 313,206 323,308
Accrued pension and retirement plans 7,901 6,985
-------- ------------
Total liabilities 610,706 622,532
======== ============
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 -- 31,739 shares March
31, 1996 and 30,862 December 31, 1995 63,478 61,724
Paid-in capital 3,978 2,144
Retained earnings 55,239 56,403
-------- ------------
Total shareholders' equity 237,695 235,271
-------- ------------
Total liabilities and shareholders' equity $848,401 $857,803
======== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-18
<PAGE>
Owens & Minor, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
-------- --------
<S> <C> <C>
(In thousands, except per share data)
Net sales $771,312 $747,095
Cost of goods sold 697,133 674,187
-------- --------
Gross margin 74,179 72,908
-------- --------
Selling, general and administrative expenses 61,040 53,561
Depreciation and amortization 3,930 3,516
Interest expense, net 5,800 5,391
Discount on accounts receivable securitization 744 --
Nonrecurring restructuring expenses -- 2,661
-------- --------
Total expenses 71,514 65,129
-------- --------
Income before income taxes 2,665 7,779
Income tax provision 1,146 3,166
-------- --------
Net income 1,519 4,613
Dividends on preferred stock 1,294 1,294
-------- --------
Net income attributable to common stock $ 225 $ 3,319
======== ========
Net income per common share $ 0.01 $ 0.11
======== ========
Cash dividends per common share $ 0.045 $ 0.045
======== ========
Weighted average common shares and common share equivalents 31,140 31,087
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-19
<PAGE>
Owens & Minor, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
-------- --------
<S> <C> <C>
(In thousands)
Operating Activities
Net income $ 1,519 $ 4,613
Adjustments to reconcile net income to cash provided by
(used for) operating activities
Depreciation and amortization 3,930 3,516
Provision for losses on accounts and notes receivable 279 121
Provision for LIFO reserve 2,748 962
Other, net 566 559
Change in operating assets and liabilities
Accounts and notes receivable (4,669) (16,202)
Merchandise inventories 7,302 (30,868)
Accounts payable (2,464) (65,174)
Net change in other current assets and current liabilities 2,423 (4,157)
Other, net 985 (3,935)
-------- --------
Cash provided by (used for) operating activities 12,619 (110,565)
-------- --------
Investing Activities
Additions to property and equipment (1,249) (2,363)
Additions to computer software (2,483) (2,034)
Other, net 27 4
-------- --------
Cash used for investing activities (3,705) (4,393)
-------- --------
Financing Activities
Additions to long-term debt -- 74,696
Reductions of long-term debt (10,362) (59)
Other short-term financing, net 4,094 42,575
Cash dividends paid (2,683) (2,680)
Exercise of stock options 117 174
-------- --------
Cash provided by (used for) financing activities (8,834) 114,706
-------- --------
Net increase (decrease) in cash and cash equivalents 80 (252)
Cash and cash equivalents at beginning of year 215 513
-------- --------
Cash and cash equivalents at end of period $ 295 $ 261
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-20
<PAGE>
Owens & Minor, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(1) Accounting Policies
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments (which are comprised only of normal recurring
accruals and the use of estimates) necessary to present fairly the consolidated
financial position of Owens & Minor, Inc. and subsidiaries (the Company) as of
March 31, 1996 and the results of operations and cash flows for the three months
ended March 31, 1996 and 1995.
(2) Interim Results of Operations
The results of operations for interim periods are not necessarily indicative of
the results to be expected for the full year.
(3) Interim Gross Margin Reporting
In general, the Company uses estimated gross margin rates to determine the cost
of goods sold during interim periods. To improve the accuracy of its estimated
gross margins for interim reporting purposes, the Company takes physical
inventories at selected distribution centers, and reported results of operations
for the quarter reflect the results of such inventories, if materially
different. Management will continue a program of interim physical inventories at
selected distribution centers to the extent it deems appropriate to ensure the
accuracy of interim reporting and to minimize year-end adjustments.
(4) Refinancing Plan
Concurrently with its offering of $150.0 million of senior subordinated notes
(the Notes), the Company will enter into a $225.0 million Senior Credit Facility
(the New Senior Credit Facility) and will use borrowings under the New Senior
Credit Facility, together with the net proceeds from the offering of the Notes,
to repay in full outstanding indebtedness under the Company's current $425.0
million Senior Credit Facility. Following the completion of the offering of the
Notes, the Company's receivables financing facility will 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.
To reduce the potential impact of increases in interest rates in the period
before the issuance of the Notes, the Company entered into five interest rate
cap agreements, with an aggregate notional value of $125.0 million. Under the
interest rate cap agreements, entered into from March 28, 1996 to April 22,
1996, the Company will receive from the bank counterparties on the determination
dates amounts by which the interest rate of the United States Government 10-Year
Treasury Note exceeds various rates ranging from 6.77% to 7.00%. The
determination dates of the transactions are May 30, 1996 and May 31, 1996. 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. During the second quarter of
1996, the Company anticipates entering into further transactions that will
reduce the risk of interest rate increases for all of its financing facilities.
F-21
<PAGE>
[LOGO]
OWENS & MINOR, INC.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 16. EXHIBITS
<TABLE>
<S> <C>
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 Form of 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*
25 Statement of Eligibility and Qualification on Form T-1 of Crestar Bank, as the Trustee under the
Trust Indenture Act of 1939*
</TABLE>
- ------------
* Previously filed
II-1
<PAGE>
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 Amendment to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the County of Henrico, Commonwealth of Virginia, on the 26th
day of April, 1996.
OWENS & MINOR, INC.
(Registrant)
By: /s/ GILMER MINOR, III
G. Gilmer Minor, III
Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following persons in
the capacities indicated on April 26, 1996.
Signatures
<TABLE>
<S> <C>
/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
*By /s/ G. GILMER MINOR, III
G. Gilmer Minor, III
Attorney-in-fact
</TABLE>
<PAGE>
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
Amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the County of Henrico, Commonwealth
of Virginia, on the 26th day of April, 1996.
OWENS & MINOR MEDICAL, INC.
(Co-Registrant)
By: /s/ G. GILMER MINOR, III
G. Gilmer Minor, III
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed below by the following
persons in the capacities indicated on April 26, 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
*By /s/ G. GILMER MINOR, III
G. Gilmer Minor, III
Attorney-in-fact
<PAGE>
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
Amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the County of Henrico, Commonwealth
of Virginia, on the 26th day of April, 1996.
NATIONAL MEDICAL SUPPLY CORPORATION
(Co-Registrant)
By: /s/ G. GILMER MINOR, III
G. Gilmer Minor, III
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed below by the following
persons in the capacities indicated on April 26, 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
*By /s/ G. GILMER MINOR, III
G. Gilmer Minor, III
Attorney-in-fact
<PAGE>
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
Amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the County of Henrico, Commonwealth
of Virginia, on the 26th day of April, 1996.
OWENS & MINOR WEST, INC.
(Co-Registrant)
By: /s/ G. GILMER MINOR, III
G. Gilmer Minor, III
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed below by the following
persons in the capacities indicated on April 26, 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
*By /s/ G. GILMER MINOR, III
G. Gilmer Minor, III
Attorney-in-fact
<PAGE>
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
Amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the County of Henrico, Commonwealth
of Virginia, on the 26th day of April, 1996.
KOLEY'S MEDICAL SUPPLY, INC.
(Co-Registrant)
By: /s/ G. GILMER MINOR, III
G. Gilmer Minor, III
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed below by the following
persons in the capacities indicated on April 26, 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
*By /s/ G. GILMER MINOR, III
G. Gilmer Minor, III
Attorney-in-fact
<PAGE>
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
Amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the County of Henrico, Commonwealth
of Virginia, on the 26th day of April, 1996.
LYONS PHYSICIAN SUPPLY COMPANY
(Co-Registrant)
By: /s/ G. GILMER MINOR, III
G. Gilmer Minor, III
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed below by the following
persons in the capacities indicated on April 26, 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
*By /s/ G. GILMER MINOR, III
G. Gilmer Minor, III
Attorney-in-fact
<PAGE>
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
Amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the County of Henrico, Commonwealth
of Virginia, on the 26th day of April, 1996.
A. KUHLMAN & COMPANY
(Co-Registrant)
By: /s/ G. GILMER MINOR, III
G. Gilmer Minor, III
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed below by the following
persons in the capacities indicated on April 26, 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
*By /s/ G. GILMER MINOR, III
G. Gilmer Minor, III
Attorney-in-fact
<PAGE>
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
Amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the County of Henrico, Commonwealth
of Virginia, on the 26th day of April, 1996.
STUART MEDICAL, INC.
(Co-Registrant)
By: /s/ G. GILMER MINOR, III
G. Gilmer Minor, III
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed below by the following
persons in the capacities indicated on April 26, 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
*By /s/ G. GILMER MINOR, III
G. Gilmer Minor, III
Attorney-in-fact
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page
<S> <C>
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 Form of 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*
25 Statement of Eligibility and Qualification on Form T-1 of
Crestar Bank, as the Trustee under the Trust Indenture
Act of 1939*
</TABLE>
- --------------
*Previously filed
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 SECURITIES, INC.
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
<PAGE>
-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
<PAGE>
-3-
qualified under the Trust Indenture Act of 1939, as amended, and the rules and
regulations of the Commission thereunder (collectively, the "Trust 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
<PAGE>
-4-
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 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
<PAGE>
-5-
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;
(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
<PAGE>
-6-
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;
(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
<PAGE>
-7-
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 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
<PAGE>
-8-
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 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,
<PAGE>
-9-
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 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
<PAGE>
-10-
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, 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
<PAGE>
-11-
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 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
<PAGE>
-12-
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;
(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
<PAGE>
-13-
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 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
<PAGE>
-14-
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 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
<PAGE>
-15-
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 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. (the "NASD") 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
<PAGE>
-16-
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 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
<PAGE>
-17-
(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 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
<PAGE>
-18-
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 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
<PAGE>
-19-
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 Bylaws 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 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
<PAGE>
-20-
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 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
<PAGE>
-21-
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 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;
<PAGE>
-22-
(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 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
<PAGE>
-23-
(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 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;
<PAGE>
-24-
(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 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
<PAGE>
-25-
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) 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
<PAGE>
-26-
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 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
<PAGE>
-27-
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;
(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
<PAGE>
-28-
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
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
<PAGE>
-29-
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 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
<PAGE>
-30-
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 (including, without limitation, Wheat, First
Securities, Inc. in its capacity as "qualified independent underwriter" within
the meaning of Schedule E to the By-Laws of the NASD), 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
<PAGE>
-31-
(as amended or supplemented 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
<PAGE>
-32-
of such counsel related to such proceeding. In any such proceeding, any
Indemnified Person shall have the right to retain its own 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
<PAGE>
-33-
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 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
<PAGE>
-34-
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. Notwithstanding 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
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,
<PAGE>
-35-
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 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
<PAGE>
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.
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.
<PAGE>
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:
<PAGE>
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 SECURITIES, INC.
By: J.P. MORGAN SECURITIES INC.
By: ___________________________
Name:
Title:
<PAGE>
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 Securities, Inc.................
============
Total.......................... $150,000,000
EXHIBIT 4.1
INDENTURE
Dated as of _______, 1996
Among
OWENS & MINOR, INC., as Issuer,
OWENS & MINOR MEDICAL, INC.,
NATIONAL MEDICAL SUPPLY CORPORATION,
OWENS & MINOR WEST, INC.,
KOLEY'S MEDICAL SUPPLY, INC.,
LYONS PHYSICIAN SUPPLY COMPANY,
A. KUHLMAN & COMPANY,
STUART MEDICAL, INC.,
as Guarantors,
and
CRESTAR BANK, as Trustee
-----------------
$150,000,000
_____% Senior Subordinated Notes due 2006
<PAGE>
CROSS-REFERENCE TABLE
Indenture
Trust Indenture Act Section Section
(section mark) 310(a)(1).......................... 7.10
(a)(2)............................. 7.10
(a)(3)............................. N.A.
(a)(4)............................. N.A.
(a)(5)............................. N.A.
(b)................................ 7.08; 7.10; 13.02
(c)................................ N.A.
(section mark) 311(a)............................. 7.11
(b)................................ 7.11
(c)................................ N.A.
(section mark) 312(a)............................. 2.05
(b)................................ 13.03
(c)................................ 13.03
(section mark) 313(a)............................. 7.06
(b)(1)............................. N.A.
(b)(2)............................. 7.06
(c)................................ 7.06; 13.02
(d)................................ 7.06
(section mark) 314(a)............................. 4.11; 4.12; 13.02
(b)................................ N.A.
(c)(1)............................. 13.04
(c)(2)............................. 13.04
(c)(3)............................. N.A.
(d)................................ N.A.
(e)................................ 13.05
(f)................................ N.A.
(section mark) 315(a)............................. 7.01(b)
(b)................................ 7.05; 13.02
(c)................................ 7.01(a)
(d)................................ 7.01(c)
(e)................................ 6.11
(section mark) 316(a)(last sentence).............. 2.09
(a)(1)(A).......................... 6.05
(a)(1)(B).......................... 6.04
(a)(2)............................. N.A.
(b)................................ 6.07
(c)................................ 10.04
(section mark) 317(a)(1).......................... 6.08
(a)(2)............................. 6.09
(b)................................ 2.04
(section mark) 318(a)............................. 13.01
- --------------------
N.A. means Not Applicable.
NOTE: This Cross-Reference Table shall not, for any purpose, be
deemed to be a part of the Indenture.
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions...................................
SECTION 1.02. Other Definitions.............................
SECTION 1.03. Incorporation by Reference of Trust
Indenture Act..............................
SECTION 1.04. Rules of Construction.........................
ARTICLE II
THE SECURITIES
SECTION 2.01. Form and Dating...............................
SECTION 2.02. Execution and Authentication..................
SECTION 2.03. Registrar and Paying Agent....................
SECTION 2.04. Paying Agent To Hold Money in Trust...........
SECTION 2.05. Securityholder Lists..........................
SECTION 2.06. Transfer and Exchange.........................
SECTION 2.07. Replacement Securities........................
SECTION 2.08. Outstanding Securities........................
SECTION 2.09. Treasury Securities...........................
SECTION 2.10. Temporary Securities..........................
SECTION 2.11. Cancellation..................................
SECTION 2.12. Defaulted Interest............................
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ARTICLE III
REDEMPTION
SECTION 3.01. Notices to Trustee............................
SECTION 3.02. Selection of Securities To Be Redeemed........
SECTION 3.03. Notice of Redemption..........................
SECTION 3.04. Effect of Notice of Redemption................
SECTION 3.05. Deposit of Redemption Price...................
SECTION 3.06. Securities Redeemed in Part...................
ARTICLE IV
COVENANTS
SECTION 4.01. Payment of Securities.........................
SECTION 4.02. Maintenance of Office or Agency...............
SECTION 4.03. Limitation on Transactions with
Affiliates and Related Persons...............
SECTION 4.04. Limitation on Indebtedness....................
SECTION 4.05. Limitation on Certain Asset Dispositions......
SECTION 4.06. Limitation on Restricted Payments.............
SECTION 4.07. Corporate Existence...........................
SECTION 4.08. Payment of Taxes and Other Claims.............
SECTION 4.09. Notice of Defaults............................
SECTION 4.10. Maintenance of Properties.....................
SECTION 4.11. Compliance Certificate........................
SECTION 4.12. Provision of Financial Information............
SECTION 4.13. Waiver of Stay, Extension or Usury Laws.......
SECTION 4.14. Change of Control.............................
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Page
SECTION 4.15. Limitation on Senior Subordinated
Indebtedness...............................
SECTION 4.16. Limitations Concerning Distributions and
Transfers by Subsidiaries..................
SECTION 4.17. Limitation on Issuance and Sale of Capital
Stock of Subsidiaries......................
SECTION 4.18. Limitation on Liens...........................
ARTICLE V
MERGERS; SUCCESSOR CORPORATION
SECTION 5.01. Restriction on Mergers, Consolidations and
Certain Sales of Assets....................
SECTION 5.02. Successor Corporation Substituted.............
ARTICLE VI
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default.............................
SECTION 6.02. Acceleration..................................
SECTION 6.03. Other Remedies................................
SECTION 6.04. Waiver of Past Default........................
SECTION 6.05. Control by Majority...........................
SECTION 6.06. Limitation on Suits...........................
SECTION 6.07. Rights of Holders To Receive Payment..........
SECTION 6.08. Collection Suit by Trustee....................
SECTION 6.09. Trustee May File Proofs of Claim..............
SECTION 6.10. Priorities....................................
SECTION 6.11. Undertaking for Costs.........................
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ARTICLE VII
TRUSTEE
SECTION 7.01. Duties of Trustee.............................
SECTION 7.02. Rights of Trustee.............................
SECTION 7.03. Individual Rights of Trustee..................
SECTION 7.04. Trustee's Disclaimer..........................
SECTION 7.05. Notice of Defaults............................
SECTION 7.06. Reports by Trustee to Holders.................
SECTION 7.07. Compensation and Indemnity....................
SECTION 7.08. Replacement of Trustee........................
SECTION 7.09. Successor Trustee by Merger, etc..............
SECTION 7.10. Eligibility; Disqualification.................
SECTION 7.11. Preferential Collection of Claims
Against Company............................
ARTICLE VIII
SUBORDINATION OF SECURITIES
SECTION 8.01. Securities Subordinated to Senior
Indebtedness...............................
SECTION 8.02. No Payment on Securities in Certain
Circumstances..............................
SECTION 8.03. Payment Over of Proceeds upon
Dissolution, etc...........................
SECTION 8.04. Subrogation...................................
SECTION 8.05. Obligations of Company Unconditional..........
SECTION 8.06. Notice to Trustee.............................
SECTION 8.07. Reliance on Judicial Order or Certificate
of Liquidating Agent.......................
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Page
SECTION 8.08. Trustee's Relation to Senior
Indebtedness...............................
SECTION 8.09. Subordination Rights Not Impaired by Acts
or Omissions of the Company or Holders
of Senior Indebtedness.....................
SECTION 8.10. Securityholders Authorize Trustee To
Effectuate Subordination of
Securities.................................
SECTION 8.11. This Article Not To Prevent Events of
Default....................................
SECTION 8.12. Trustee's Compensation Not Prejudiced.........
SECTION 8.13. No Waiver of Subordination Provisions.........
SECTION 8.14. Subordination Provisions Not Applicable
to Money Held in Trust for Security-
holders; Payments May Be Paid Prior to
Dissolution................................
SECTION 8.15. Acceleration of Securities....................
ARTICLE IX
DISCHARGE OF INDENTURE
SECTION 9.01. Termination of Company's Obligations..........
SECTION 9.02. Application of Trust Money....................
SECTION 9.03. Repayment to Company..........................
SECTION 9.04. Reinstatement.................................
ARTICLE X
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 10.01. Without Consent of Holders....................
SECTION 10.02. With Consent of Holders.......................
SECTION 10.03. Compliance with Trust Indenture Act...........
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SECTION 10.04. Revocation and Effect of Consents.............
SECTION 10.05. Notation on or Exchange of Securities.........
SECTION 10.06. Trustee To Sign Amendments, etc...............
ARTICLE XI
GUARANTEE
SECTION 11.01. Unconditional Guarantee.......................
SECTION 11.02. Severability..................................
SECTION 11.03. Release of a Guarantor........................
SECTION 11.04. Limitation of Guarantor's Liability...........
SECTION 11.05. Contribution..................................
SECTION 11.06. Execution of Guarantee........................
SECTION 11.07. Additional Guarantors.........................
SECTION 11.08. Subordination of Subrogation and
Other Rights...............................
ARTICLE XII
SUBORDINATION OF GUARANTEE
SECTION 12.01. Guarantee Obligations Subordinated to
Guarantor Senior Indebtedness..............
SECTION 12.02. No Payment on Guarantees in Certain
Circumstances..............................
SECTION 12.03. Payment Over of Proceeds upon Dis-
solution, etc..............................
SECTION 12.04. Subrogation...................................
SECTION 12.05. Obligations of Guarantors Unconditional.......
SECTION 12.06. Notice to Trustee.............................
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Page
SECTION 12.07. Reliance on Judicial Order or Certificate
of Liquidating Agent.......................
SECTION 12.08. Trustee's Relation to Guarantor Senior
Indebtedness...............................
SECTION 12.09. Subordination Rights Not Impaired by Acts
or Omissions of the Guarantors or Holders of
Guarantor Senior Indebtedness..............
SECTION 12.10. Securityholders Authorize Trustee To
Effectuate Subordination of Guarantee......
SECTION 12.11. This Article Not To Prevent Events of
Default....................................
SECTION 12.12. Trustee's Compensation Not Prejudiced.........
SECTION 12.13. No Waiver of Guarantee Subordination
Provisions.................................
SECTION 12.14. Payments May Be Paid Prior to
Dissolution................................
ARTICLE XIII
MISCELLANEOUS
SECTION 13.01. Trust Indenture Act Controls..................
SECTION 13.02. Notices.......................................
SECTION 13.03. Communications by Holders with Other
Holders....................................
SECTION 13.04. Certificate and Opinion as to Conditions
Precedent..................................
SECTION 13.05. Statements Required in Certificate or
Opinion....................................
SECTION 13.06. Rules by Trustee, Paying Agent,
Registrar..................................
SECTION 13.07. Governing Law.................................
SECTION 13.08. No Recourse Against Others....................
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SECTION 13.09. Successors....................................
SECTION 13.10. Counterpart Originals.........................
SECTION 13.11. Severability..................................
SECTION 13.12. No Adverse Interpretation of Other
Agreements.................................
SECTION 13.13. Legal Holidays................................
SIGNATURES...................................................
EXHIBIT A - Form of Security................................. A-1
- --------------------
NOTE: This Table of Contents shall not, for any purpose, be
deemed to be a part of the Indenture.
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<PAGE>
INDENTURE dated as of _______, 1996, among OWENS & MINOR,
INC., a Virginia corporation (the "Company"), 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, STUART MEDICAL, INC.,
a Pennsylvania corporation, and CRESTAR BANK, as trustee.
Each party hereto agrees as follows for the benefit of each
other party and for the equal and ratable benefit of the Holders of the
Company's ______% Senior Subordinated Notes due 2006:
ARTICLE I.
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions.
"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.
"Agent" means any Registrar, Paying Agent or co-
Registrar. See Section 2.03.
"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
<PAGE>
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Lien is granted in compliance with Section 4.18, (f) any Restricted Payment
permitted by Section 4.06, (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.
"Board of Directors" means the Board of Directors of the
Company or any Guarantor, as the case may be, or any authorized committee of
that Board.
"Board Resolution" means, with respect to any Person, a duly
adopted resolution of the Board of Directors of such Person.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday
and Friday that is not a day on which banking institutions in the City of New
York are authorized or obligated by law, resolution or executive order to close.
"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
<PAGE>
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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.
"Company" means the Person named as the "Company" in the first
paragraph of this Indenture until a successor shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor.
"Company Request" or "Company Order" means a written request
or order signed in the name of the Company by its Chairman of the Board, its
Vice Chairman of the Board, its President or a Vice President, and by its
Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary, and
delivered to the Trustee.
"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 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
<PAGE>
-4-
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)
<PAGE>
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gains or losses on Asset Dispositions by such Person or its Subsidiaries, (e)
all extraordinary gains and extraordinary losses 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.
"Corporate Trust Office of the Trustee" shall be at the
address of the Trustee specified in Section 13.02 or such other address as the
Trustee may give notice to the Company.
"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) so long as Senior
Credit Facility is outstanding, the Senior Indebtedness incurred under the
Senior Credit Facility and (ii) thereafter, 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
<PAGE>
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whole or in part, on or prior to the final maturity of the
Securities.
"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 SEC thereunder.
"Expiration Date" has the meaning set forth in the
definition of "Offer to Purchase" below.
"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.
"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.
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"Guarantee" means the guarantee of the Securities by each
Guarantor under this 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 Law, 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
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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.
"Holder" or "Securityholder" means the Person in whose name a
Security is registered on the books of the Registrar or any co-Registrar.
"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 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.
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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 obligations of the Company or its
Subsidiaries in respect of any Qualified Securitization Transaction.
"Indenture" means this Indenture as amended or
supplemented from time to time.
"Interest Payment Date" means the stated maturity of an
installment of interest on the Securities.
"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
Securities.
"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 SEC.
"Maturity Date" means the date, which is set forth on the face
of the Securities, on which the Securities will mature.
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"Moody's" means Moody's Investors Service, Inc. and its
successors.
"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
Section 4.05(a)(iii)) 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.
"Obligations" means any principal, premiums, interest,
penalties, fees and other liabilities payable under the documentation governing
any Indebtedness.
"Offer" has the meaning set forth in the definition of
"Offer to Purchase" below.
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"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 Securities on the date of the Offer
offering to purchase up to the principal amount of Securities specified in such
Offer at the purchase price specified in such Offer (as determined pursuant to
this 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
Securities 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 Securities pursuant to
the Offer to Purchase. The Offer shall also state:
(1) the Section of this 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 Securities
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
this Indenture requiring the Offer to Purchase) (the "Purchase
Amount");
(4) the purchase price to be paid by the Company for each $1,000
aggregate principal amount of Securities accepted for payment
(as specified pursuant to this Indenture) (the "Purchase
Price");
(5) that the Holder may tender all or any portion of the
Securities registered in the name of such Holder and that any
portion of a Security tendered must be tendered in an integral
multiple of $1,000 principal amount;
(6) the place or places where Securities are to be
surrendered for tender pursuant to the Offer to Purchase;
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(7) that interest on any Security not tendered or tendered
but not 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 Security 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 Security pursuant to the Offer to Purchase will be
required to surrender such Security at the place or
places specified in the Offer prior to the close of
business on the Expiration Date (such Security 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 Securities 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 Security the Holder
tendered, the certificate number of the Security the
Holder tendered and a statement that such Holder is
withdrawing all or a portion of his tender;
(11) that (a) if Securities 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 Securities
and (b) if Securities 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 Securities 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 Securities in denominations of $1,000 or
integral multiples thereof shall be purchased); and
(12) that in the case of any Holder whose Security is purchased
only in part, the Company shall execute and the Trustee shall
authenticate and deliver to the Holder of
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such Security without service charge, a new Security or
Securities, 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 Security so
tendered.
An Offer to Purchase shall be governed by and effected in
accordance with the provisions above pertaining to any Offer.
"Officer" means the Chairman, the President, any Vice
President, the Chief Financial Officer, the Treasurer, or the
Secretary of the Company.
"Officers' Certificate" means a certificate signed by two
Officers or by an Officer and an Assistant Treasurer or Assistant Secretary of
the Company complying with Sections 13.04 and 13.05.
"Opinion of Counsel" means a written opinion from legal
counsel who is reasonably acceptable to the Trustee. The counsel may be an
employee of or counsel to the Company or the Trustee.
"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
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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
this Indenture; (x) Investments received as consideration for an Asset
Disposition in compliance with the provisions of Section 4.05; (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.
"principal" of a debt security means the principal of the
security plus, when appropriate, the premium, if any, on the security.
"Purchase Amount" has the meaning set forth in the
definition of "Offer to Purchase" above.
"Purchase Date" has the meaning set forth in the
definition of "Offer to Purchase" above.
"Purchase Price" 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
<PAGE>
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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 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.
"redemption date," when used with respect to any Security to
be redeemed, means the date fixed for such redemption pursuant to this
Indenture.
"redemption price," when used with respect to any Security to
be redeemed, means the price fixed for such redemption pursuant to this
Indenture as set forth in the form of Security annexed as Exhibit A.
"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.
"SEC" means the Securities and Exchange Commission.
"Securities" means the % Senior Subordinated Notes due
2006, as amended or supplemented from time to time pursuant to the terms of this
Indenture, that are issued under this Indenture.
"Securitization Subsidiary" means O&M Funding Corp. and any
other 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
<PAGE>
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(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 (other than with respect to O&M Funding Corp.) 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.
<PAGE>
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"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 Securities, 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 Securities, (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 Law, 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).
"Stated Maturity," when used with respect to any Security or
any installment of interest thereon, means the date specified in such Security
as the fixed date on which the principal of such Security or such installment of
interest is due and payable.
"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
<PAGE>
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with a Qualified Securitization Transaction shall not be a Subsidiary of the
Company for purposes of this Indenture.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code
ss.ss. 77aaa-77bbbb) as in effect on the date of this Indenture, except as
provided in Section 10.03.
"Trustee" means the party named as such in this Indenture
until a successor replaces it in accordance with the provisions of this
Indenture and thereafter means such successor.
"Trust Officer" means any officer within the corporate trust
department (or any successor group of the Trustee) including any vice president,
assistant vice president, assistant secretary or any other officer or assistant
officer of the Trustee customarily performing functions similar to those
performed by the persons who at that time shall be such officers, and also
means, with respect to a particular corporate trust matter, any other officer to
whom such trust matter is referred because of his knowledge of and familiarity
with the particular subject.
"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.
1.02.Other Definitions.
Term Defined in Section
"Bankruptcy Law" 6.01
"Change of Control" 4.14
"Custodian" 6.01
"Event of Default" 6.01
"Funding Guarantor" 11.05
"Guarantor Blockage Period" 12.02(a)
"Guarantor Payment Blockage Notice" 12.02(a)
"Paying Agent" 2.03
"Payment Blockage Notice" 8.02(a)
"Payment Blockage Period" 8.02(a)
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"Registrar" 2.03
"Required Filing Date 4.12
"Subordinated Reorganization Securities" 8.03(c)
"United States Government Obligation" 9.01
SECTION 1.03. Incorporation by Reference of Trust
Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture. The
following TIA terms used in this Indenture have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Securities.
"indenture security holder" means a Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the
Trustee.
"obligor" on the indenture securities means the Company or any
other obligor on the Securities.
All other TIA terms used in this Indenture that are defined by
the TIA, defined by TIA reference to another statute or defined by Commission
rule and not otherwise defined herein have the meanings assigned to them
therein.
SECTION 1.04. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted accounting
principles in effect from time to time, and any other reference in this
Indenture to "generally accepted accounting principles" refers to GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and words
in the plural include the singular;
<PAGE>
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(5) provisions apply to successive events and
transactions; and
(6) "herein," "hereof" and other words of similar import refer
to this Indenture as a whole and not to any particular Article, Section
or other subdivision.
ARTICLE II.
THE SECURITIES
SECTION 2.01. Form and Dating.
The Securities and the Trustee's certificates of
authentication shall be substantially in the form of Exhibit A. The Securities
may have notations, legends or endorsements required by law, stock exchange rule
or usage. Any notations, legends or endorsements not contained in the form of
Security contained in Exhibit A shall be delivered in writing to the Trustee.
The Company shall approve the form of the Securities and any notation, legend or
endorsement on them. Each Security shall be dated the date of its
authentication.
The terms and provisions contained in the form of the
Securities, annexed hereto as Exhibit A, shall constitute, and are hereby
expressly made, a part of this Indenture.
SECTION 2.02. Execution and Authentication.
Two Officers shall sign the Securities for the Company by
facsimile signature. The Company's seal shall be reproduced on the Securities.
If an Officer whose signature is on a Security no longer holds
that office at the time the Trustee authenticates the Security, the Security
shall be valid nevertheless.
A Security shall not be valid until the Trustee manually signs
the certificate of authentication on the Security. The signature shall be
conclusive evidence that the Security has been authenticated under this
Indenture.
The Trustee shall authenticate Securities for original issue
in the aggregate principal amount of up to $150,000,000, upon a written order of
the Company signed by two Officers or by an Officer and an Assistant Treasurer
or Assistant Secretary of the Company. The order shall specify the amount of
Securities to be authenticated and the date on which the original issue of
<PAGE>
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Securities is to be authenticated. The aggregate principal amount of Securities
outstanding at any time may not exceed $150,000,000 except as provided in
Section 2.07.
The Trustee may appoint an authenticating agent acceptable to
the Company to authenticate Securities other than upon original issuance. The
Company shall pay all fees payable to the authenticating agent. Any
authenticating agent appointed hereunder shall be entitled to the benefits of
Section 7.07. Unless limited by the terms of such appointment, any
authenticating agent may authenticate Securities whenever the Trustee may do so.
Each reference in this Indenture to authentication by the Trustee includes
authentication by such agent. An authenticating agent has the same rights as an
Agent to deal with the Company or an Affiliate as provided in Section 7.03.
The Securities shall be issuable only in registered form
without coupons and only in denominations of $1,000 and any integral multiple
thereof.
SECTION 2.03. Registrar and Paying Agent.
The Company shall maintain an office or agency where
Securities may be presented for registration of transfer or for exchange
("Registrar") and an office or agency where Securities may be presented for
payment ("Paying Agent"). The Company may have one or more co-Registrars and one
or more additional paying agents. The term "Paying Agent" includes any
additional paying agent.
The Company shall enter into an appropriate agency agreement
with any Agent not a party to this Indenture. The agreement shall implement the
provisions of this Indenture that relate to such Agent and shall, if required,
incorporate the provisions of the TIA. The Company shall notify the Trustee of
the name and address of any such Agent. If the Company fails to maintain a
Registrar or Paying Agent, the Trustee shall act as such and shall be entitled
to appropriate compensation in accordance with the provisions of Section 7.07.
The Company initially appoints the Trustee as Registrar and
Paying Agent. The Company shall give written notice to the Trustee in the event
that the Company decides to act as Registrar or Paying Agent.
<PAGE>
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SECTION 2.04. Paying Agent To Hold Money in Trust.
The Company shall require each Paying Agent to agree in
writing to hold in trust for the benefit of Securityholders or the Trustee all
money held by the Paying Agent for the payment of principal of or interest on
the Securities (whether such money has been paid to it by the Company or any
other obligor on the Securities), and the Company and the Paying Agent shall
each notify the Trustee of any default by the Company (or any other obligor on
the Securities) in making any such payment. If the Company or a Subsidiary acts
as Paying Agent, it shall segregate the money and hold it as a separate trust
fund. The Company at any time may require a Paying Agent to pay all money held
by it to the Trustee and account for any funds disbursed and the Trustee may at
any time during the continuance of any payment default, upon written request to
a Paying Agent, require such Paying Agent to pay all money held by it to the
Trustee and to account for any funds disbursed. Upon making such payment the
Paying Agent shall have no further liability for the money delivered to the
Trustee.
SECTION 2.05. Securityholder Lists.
The Trustee shall preserve in as current a form as is
reasonably practicable the most recent list available to it of the names and
addresses of Securityholders. If the Trustee is not the Registrar, the Company
shall furnish to the Trustee at least five Business Days before each Interest
Payment Date and at such other times as the Trustee may request in writing a
list in such form and as of such date as the Trustee may reasonably require of
the names and addresses of Securityholders.
SECTION 2.06. Transfer and Exchange.
When Securities are presented to the Registrar or a
co-Registrar with a request to register the transfer or to exchange them for an
equal principal amount of Securities of other authorized denominations, the
Registrar shall register the transfer or make the exchange as requested if its
requirements for such transactions are met. To permit registrations of transfers
and exchanges, the Company shall execute and the Trustee shall authenticate
Securities. The date of any Security issued pursuant to this Section 2.06 shall
be the date of such transfer or exchange. No service charge shall be made to the
Securityholder for any registration of transfer or exchange, but the Company may
require from the Securityholder payment of a sum sufficient to cover any
transfer tax or similar governmental charge payable in connection therewith
(other than any such transfer taxes or similar governmental charge payable upon
exchanges pursuant to an Offer to
<PAGE>
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Purchase or Section 2.10, 3.06 or 10.05, in which event the Company shall be
responsible for the payment of such taxes).
SECTION 2.07. Replacement Securities.
If a mutilated Security is surrendered to the Trustee or if
the Holder of a Security claims that the Security has been lost, destroyed or
wrongfully taken, the Company shall issue and the Trustee shall authenticate a
replacement Security if the Trustee's requirements are met. An indemnity bond in
an amount sufficient in the judgment of the Company and the Trustee to protect
the Company, the Trustee or any Agent from any loss which any of them may suffer
if a Security is replaced may be required by the Trustee or the Company. The
Company and the Trustee each may charge such Holder for its expenses in
replacing such Security.
Every replacement Security is an additional obligation of the
Company.
SECTION 2.08. Outstanding Securities.
Securities outstanding at any time are all Securities that
have been authenticated by the Trustee except for those cancelled by it, those
delivered to it for cancellation and those described in this Section as not
outstanding. Except as provided in paragraph 5(b) of the Securities, a Security
does not cease to be outstanding because the Company or one of its Affiliates
holds the Security.
If a Security is replaced pursuant to Section 2.07, it ceases
to be outstanding unless the Trustee receives proof satisfactory to it that the
replaced Security is held by a bona fide purchaser.
If the Paying Agent (other than the Company, a Subsidiary or
an Affiliate of the Company) holds on a redemption date or Maturity Date money
sufficient to pay the principal of, and interest on Securities payable on that
date, then on and after that date such Securities cease to be outstanding and
interest on them ceases to accrue.
SECTION 2.09. Treasury Securities.
In determining whether the Holders of the required principal
amount of Securities have concurred in any direction, waiver or consent,
Securities owned by the Company, any Guarantor or any of their respective
Affiliates shall be disregarded, except that for the purposes of determining
whether the Trustee shall be
<PAGE>
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protected in relying on any such direction, waiver or consent, only Securities
that the Trustee actually knows are so owned shall be so disregarded.
The Trustee may require an Officers' Certificate listing
securities owned by the Company, any Guarantor or any of their respective
Affiliates.
SECTION 2.10. Temporary Securities.
Until definitive Securities are ready for delivery, the
Company may prepare and the Trustee shall authenticate temporary Securities.
Temporary Securities shall be substantially in the form of definitive Securities
but may have variations that the Company considers appropriate for temporary
Securities. Without unreasonable delay, the Company shall prepare and the
Trustee shall authenticate definitive Securities in exchange for temporary
Securities. Until such exchange, temporary Securities shall be entitled to the
same rights, benefits and privileges as definitive Securities.
SECTION 2.11. Cancellation.
The Company at any time may deliver Securities to the Trustee
for cancellation. The Registrar and the Paying Agent shall forward to the
Trustee any Securities surrendered to them for transfer, exchange or payment.
The Trustee and no one else shall cancel all Securities surrendered for
transfer, exchange, payment or cancellation. The Company may not issue new
Securities to replace, or reissue or resell, Securities which the Company has
redeemed, paid, purchased on the open market or otherwise, or otherwise acquired
or have been delivered to the Trustee for cancellation. The Trustee (subject to
the record-retention requirements of the Exchange Act) may, but shall not be
required to destroy cancelled Securities.
SECTION 2.12. Defaulted Interest.
If the Company defaults in a payment of interest on the
Securities, it shall pay the defaulted interest, plus any interest payable on
the defaulted interest pursuant to Section 4.01 hereof, to the persons who are
Securityholders on a subsequent special record date, and such term, as used in
this Section 2.12 with respect to the payment of any defaulted interest, shall
mean the fifteenth day next preceding the date fixed by the Company for the
payment of defaulted interest, whether or not such day is a Business Day. At
least 15 days before such special record date, the Company shall mail to each
Securityholder and to the Trustee a
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notice that states such special record date, the payment date and the amount of
defaulted interest to be paid.
ARTICLE III.
REDEMPTION
SECTION 3.01. Notices to Trustee.
If the Company wants to redeem Securities pursuant to
paragraph 5 of the Securities at the applicable redemption price set forth
thereon, it shall notify the Trustee in writing of the redemption date and the
principal amount of Securities to be redeemed.
The Company shall give the notice provided for in this Section
3.01 at least 45 days before the redemption date (unless a shorter notice shall
be agreed to by the Trustee in writing), together with an Officers' Certificate
stating that such redemption will comply with the conditions contained herein.
SECTION 3.02. Selection of Securities To Be Redeemed.
If less than all of the Securities are to be redeemed pursuant
to paragraph 5 thereof, the Trustee shall select the Securities to be redeemed
pro rata or by lot or in such other manner as the Trustee shall deem appropriate
and fair and in such a manner as to comply with any applicable requirements of
the New York Stock Exchange. The Trustee shall make the selection from the
Securities then outstanding, subject to redemption and not previously called for
redemption. The Trustee may select for redemption portions (equal to $1,000 or
any integral multiple thereof) of the principal of Securities that have
denominations larger than $1,000. Provisions of this Indenture that apply to
Securities called for redemption also apply to portions of Securities called for
redemption.
SECTION 3.03. Notice of Redemption.
At least 30 days but not more than 60 days before a redemption
date, the Company shall mail a notice of redemption by first class mail to each
Holder whose Securities are to be redeemed.
The notice shall identify the Securities to be redeemed and
shall state:
(1) the redemption date;
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(2) the redemption price;
(3) the CUSIP number;
(4) the name and address of the Paying Agent to which
the Securities are to be surrendered for redemption;
(5) that Securities called for redemption must be
surrendered to the Paying Agent to collect the redemption
price;
(6) that, unless the Company defaults in making the redemption
payment, interest on Securities called for redemption ceases to accrue
on and after the redemption date and the only remaining right of the
Holders is to receive payment of the redemption price upon surrender to
the Paying Agent; and
(7) if any Security is being redeemed in part, the portion of
the principal amount of such Security to be redeemed and that, after
the redemption date, upon surrender of such Security, a new Security or
Securities in principal amount equal to the unredeemed portion thereof
will be issued.
At the Company's request, the Trustee shall give the notice of
redemption on behalf of the Company, in the Company's name and at the Company's
expense.
SECTION 3.04. Effect of Notice of Redemption.
Once a notice of redemption is mailed, Securities called for
redemption become due and payable on the redemption date and at the redemption
price. Upon surrender to the Paying Agent, such Securities shall be paid at the
redemption price, plus accrued interest thereon to the redemption date, but
interest installments whose maturity is on or prior to such redemption date
shall be payable to the Holders of record at the close of business on the
relevant record dates referred to in the Securities. The Trustee shall not be
required to (i) issue, authenticate, register the transfer of or exchange any
Security during a period beginning 15 days before the date a notice of
redemption is mailed and ending at the close of business on the date the
redemption notice is mailed, or (ii) register the transfer or exchange of any
Security so selected for redemption in whole or in part, except the unredeemed
portion of any Security being redeemed in part.
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SECTION 3.05. Deposit of Redemption Price.
At least one Business Day before the redemption date, the
Company shall deposit with the Paying Agent (or if the Company is its own Paying
Agent, shall, on or before the redemption date, segregate and hold in trust)
money sufficient to pay the redemption price of and accrued interest on all
Securities to be redeemed on that date other than Securities or portions thereof
called for redemption on that date which have been delivered by the Company to
the Trustee for cancellation.
SECTION 3.06. Securities Redeemed in Part.
Upon surrender of a Security that is redeemed in part, the
Trustee shall authenticate for the Holder a new Security equal in principal
amount to the unredeemed portion of the Security surrendered.
ARTICLE IV.
COVENANTS
SECTION 4.01. Payment of Securities.
The Company shall pay the principal of and interest on the
Securities in the manner provided in the Securities. An installment of principal
or interest shall be considered paid on the date due if the Trustee or Paying
Agent (other than the Company, a Subsidiary or an Affiliate of the Company)
holds on that date money designated for and sufficient to pay the installment in
full and is not prohibited from paying such money to the Holders of the
Securities pursuant to the terms of this Indenture.
The Company shall pay interest on overdue principal at the
same rate per annum borne by the Securities. The Company shall pay interest on
overdue installments of interest at the same rate per annum borne by the
Securities, to the extent lawful.
SECTION 4.02. Maintenance of Office or Agency.
The Company shall maintain in the Borough of Manhattan, The
City of New York, an office or agency where Securities may be surrendered for
registration of transfer or exchange or for presentation for payment and where
notices and demands to or upon the Company in respect of the Securities and this
Indenture may be served. The Company shall give prompt written notice to the
Trustee of the location, and any change in the location, of such office or
agency. If at any time the Company shall fail to
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maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the address of the Trustee set forth in Section 13.02.
The Company may also from time to time designate one or more
other offices or agencies where the Securities may be presented or surrendered
for any or all such purposes and may from time to time rescind such
designations; provided that no such designation or rescission shall in any
manner relieve the Company of its obligation to maintain an office or agency in
the Borough of Manhattan, The City of New York, for such purposes. The Company
shall give prompt written notice to the Trustee of any such designation or
rescission and of any change in the location of any such other office or agency.
The Company hereby designates [ ] as one such office or
agency of the Company.
SECTION 4.03. Limitation on Transactions with
Affiliates and Related Persons.
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 Section 4.03 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 Section 4.06, (iv) the payment
of reasonable fees
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to directors of the Company or its Subsidiaries and (v) Investments
in employees in the ordinary course of business.
SECTION 4.04. Limitation on Indebtedness.
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
(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 (other
than a Securitization Subsidiary); provided, however, that 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 this 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
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Indebtedness outstanding on the Issue Date and Indebtedness Incurred under the
prior clause (i) above or the Securities; provided, however, that (I) such
Indebtedness does not exceed the principal amount (or accrued amount, if less)
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 Securities, such refunding
Indebtedness is made pari passu with or subordinate in right of payment to the
Securities and, in the case of any refunding of Indebtedness that is subordinate
in right of payment to the Securities, such refunding Indebtedness is
subordinate in right of payment to the Securities on terms no less favorable to
the Holders than those contained in the Indebtedness 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 Section 4.14 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 Securities
and Indebtedness of the Guarantors under the Guarantees.
Notwithstanding anything in this 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.
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SECTION 4.05. Limitation on Certain Asset Dispositions.
(a) 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
Securities) 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 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 that 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 Securities 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 Securities until there are aggregate
unutilized Net Available Proceeds from Asset Dispositions otherwise subject to
the
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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
Securities 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
Securities 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 Securities 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 Securities 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 Securities 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 this Indenture) and the amount of Net
Available Proceeds then required to be otherwise applied in accordance with this
Section shall be reset to zero, subject to any subsequent Asset Disposition.
In the event that the Company makes an Offer to Purchase the
Securities, 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 this
Indenture relating to such Offer to Purchase occurring as a result of such
compliance shall not be deemed an Event of Default or a Default.
(b) The Company will mail the Offer for an Offer to Purchase
required pursuant to Section 4.05(a) not more than 365 days after consummation
of the Asset Disposition resulting in the Offer to Purchase; provided, however,
that the Company may defer making any Offer to Purchase outstanding Securities
until there are aggregate unutilized Net Available Proceeds from Asset
Dispositions otherwise subject to the first two sentences of Section 4.05(a)
equal to or in excess of $5 million (at which time, the entire unutilized Net
Available Proceeds from Asset Dispositions otherwise subject to the first two
sentences of Section 4.05(a), and not just
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the amount in excess of $5 million, shall be applied as required pursuant to the
first paragraph of Section 4.05(a)). Each Holder shall be entitled to tender all
or any portion of the Securities owned by such Holder pursuant to the Offer to
Purchase, subject to the requirement that any portion of a Security tendered
must be tendered in an integral multiple of $1,000 principal amount and subject
to any proration of the Offer among tendering Holders if the aggregate amount of
Securities tendered exceeds the Net Available Proceeds.
(c) Not later than the date of the Offer with respect to an
Offer to Purchase pursuant to this Section 4.05, the Company shall deliver to
the Trustee an Officers' Certificate as to the Purchase Amount.
On or prior to the Purchase Date specified in the Offer to
Purchase, the Company shall (i) accept for payment (on a pro rata basis, if
necessary) Securities or portions thereof validly tendered pursuant to this
Offer, (ii) deposit with the Paying Agent (or, if the Company is acting as its
own Paying Agent, segregate and hold in trust as provided in Section 2.04) money
sufficient to pay the Purchase Price of all Securities or portions thereof so
accepted and (iii) deliver or cause to be delivered to the Trustee for
cancellation all Securities so accepted together with an Officers' Certificate
stating the Securities or portions thereof accepted for payment by the Company.
The Paying Agent (or the Company, if so acting) shall promptly mail or deliver
to Holders of Securities so accepted payment in an amount equal to the Purchase
Price for such Securities, and the Trustee shall promptly authenticate and mail
or deliver to each Holder a new Security or Securities equal in principal amount
to any unpurchased portion of the Security surrendered as requested by the
Holder. Any Security not accepted for payment shall be promptly mailed or
delivered by the Company to the Holder thereof. The Company shall publicly
announce the results of the Offer on or as soon as practicable after the
Purchase Date.
(d) Notwithstanding the foregoing, this Section 4.05
shall not apply to any Asset Disposition consummated in compliance with the
provisions of Section 5.01.
SECTION 4.06. Limitation on Restricted Payments.
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)
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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 Securities
(each of the transactions described in clauses (i) through (iv) (other than any
exception 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 clause (i) of Section 4.04, 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 (other than a
Securitization Subsidiary) that has been converted into or exchanged for Capital
Stock of the
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Company 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 Section 4.06, 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 this
Indenture, (ii) the renewal, extension, refunding or refinancing of any
Indebtedness otherwise permitted pursuant to clause (v) of Section 4.04, (iii)
the exchange or conversion of any Indebtedness of the Company or any Subsidiary
of the Company (other than a Securitization Subsidiary) 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
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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
(B) the Company's Common Stock not to exceed $1.5 million in any fiscal quarter
of the Company plus 4.5 cents 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 (which amount per share shall be adjusted
periodically (including as adjusted) upon any change after the Issue Date in the
number of shares of Common Stock issuable upon conversion of the 4 1/2% Series B
Cumulative Preferred Stock by multiplying the amount thereof by a fraction, the
numerator of which shall be the number of shares of Common Stock issuable upon
conversion of one share of the 4 1/2% Series B Cumulative Preferred Stock as of
the Issue Date and the denominator of which shall be the number of shares of
Common Stock issuable upon conversion of one share of the 4 1/2% Series B
Cumulative Preferred Stock as of such date of 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.
SECTION 4.07. Corporate Existence.
Subject to Article Five, the Company shall do or shall cause
to be done all things necessary to preserve and keep in full force and effect
its corporate existence and the corporate, partnership or other existence of
each of its Subsidiaries (other than a Securitization Subsidiary) in accordance
with the respective organizational documents of each such Subsidiary and the
rights (charter and statutory) and material franchises of the Company and its
Subsidiaries (other than a Securitization Subsidiary); provided, however, that
the Company shall not be required to preserve any such right or franchise, or
the corporate existence of any Subsidiary, if the Board of Directors of the
Company shall determine that the preservation thereof is no longer desirable in
the conduct of the business of the Company and its Subsidiaries, taken as a
whole, and that the loss thereof is not, and will not be, adverse in any
material respect to the Holders; provided, further, however, that a
determination of the Board of Directors of the Company shall not be required in
the event of a merger of one or more wholly-owned Subsidiaries of the Company
with or into
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another wholly-owned Subsidiary of the Company or another Person, if the
surviving Person is a wholly-owned Subsidiary of the Company (other than a
Securitization Subsidiary) organized under the laws of the United States or a
State thereof or of the District of Columbia.
SECTION 4.08. Payment of Taxes and Other Claims.
The Company shall pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, (1) all material taxes,
assessments and governmental charges levied or imposed upon the Company or any
Subsidiary of the Company or upon the income, profits or property of the Company
or any Subsidiary of the Company and (2) all lawful claims for labor, materials
and supplies which, in each case, if unpaid, might by law become a material
liability, or Lien upon the property, of the Company or any Subsidiary of the
Company; provided, however, that the Company shall not be required to pay or
discharge or cause to be paid or discharged any such tax, assessment, charge or
claim whose amount, applicability or validity is being contested in good faith
by appropriate proceedings and for which appropriate provision has been made.
SECTION 4.09. Notice of Defaults.
(1) In the event that any Indebtedness of the Company or any
of its Subsidiaries is declared due and payable before its maturity because of
the occurrence of any default (or any event which, with notice or lapse of time,
or both, would constitute such a default) under such Indebtedness, the Company
shall promptly give written notice to the Trustee of such declaration, the
status of such default or event and what action the Company is taking or
proposes to take with respect thereto.
(2) Upon becoming aware of any Default or Event of Default,
the Company shall promptly deliver an Officers' Certificate to the Trustee
specifying the Default or Event of Default.
SECTION 4.10. Maintenance of Properties.
The Company shall cause all material properties owned by or
leased to it or any of its Subsidiaries and used or useful in the conduct of its
business or the business of any of its Subsidiaries to be maintained and kept in
normal condition, repair and working order and supplied with all necessary
equipment and shall cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the
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judgment of the Company may be necessary, so that the business carried on in
connection therewith may be properly and advantageously conducted at all times;
provided, however, that nothing in this Section shall prevent the Company or any
of its Subsidiaries from discontinuing the use, operation or maintenance of any
of such properties, or disposing of any of them, if such discontinuance or
disposal is, in the judgment of the Board of Directors or of the board of
directors of the Subsidiary concerned, or of an officer (or other agent employed
by the Company or of any of its Subsidiaries) of the Company or such Subsidiary
having managerial responsibility for any such property, desirable in the conduct
of the business of the Company or any of its Subsidiaries, and if such
discontinuance or disposal is not adverse in any material respect to the
Holders.
SECTION 4.11. Compliance Certificate.
The Company shall deliver to the Trustee within 55 days after
the end of each of the first three fiscal quarters of the Company and within 100
days after the close of each fiscal year a certificate signed by the principal
executive officer, principal financial officer or principal accounting officer
stating that a review of the activities of the Company has been made under the
supervision of the signing officers with a view to determining whether a Default
or Event of Default has occurred and whether or not the signers know of any
Default or Event of Default by the Company that occurred during such fiscal
quarter or fiscal year. If they do know of such a Default or Event of Default,
the certificate shall describe all such Defaults or Events of Default, their
status and the action the Company is taking or proposes to take with respect
thereto. The first certificate to be delivered by the Company pursuant to this
Section 4.11 shall be for the fiscal quarter ending September 30, 1996.
SECTION 4.12. 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 will
file with the SEC the annual reports, quarterly reports and other documents
which the Company would have been required to file with the SEC 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 SEC 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
will 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
Security
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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 SEC pursuant to the preceding sentence, and (b) if,
notwithstanding the preceding sentence, the filing of such documents by the
Company with the SEC is not permitted under the Exchange Act, promptly upon
written request supply copies of such documents to any prospective Holder. The
Company will also comply with ss. 314(a) of the TIA.
SECTION 4.13. Waiver of Stay, Extension or Usury Laws.
The Company and each Guarantor covenants (to the extent that
it may lawfully do so) that it shall not at any time insist upon, plead, or in
any manner whatsoever claim or take the benefit or advantage of, any stay or
extension law or any usury law or other law, which would prohibit or forgive the
Company or such Guarantor from paying all or any portion of the principal of
and/or interest on the Securities as contemplated herein, wherever enacted, now
or at any time hereafter in force, or which may affect the covenants or the
performance of this Indenture; and (to the extent that it may lawfully do so)
the Company and each Guarantor hereby expressly waives all benefit or advantage
of any such law, and covenants that it shall not hinder, delay or impede the
execution of any power herein granted to the Trustee, but shall suffer and
permit the execution of every such power as though no such law had been enacted.
SECTION 4.14. Change of Control.
(a) The Company shall, within 30 days following the date of
the consummation of a transaction resulting in a Change of Control, mail an
Offer with respect to an Offer to Purchase all outstanding Securities at a
purchase price in cash equal to 101% of their aggregate principal amount plus
accrued interest to the Purchase Date. Each Holder shall be entitled to tender
all or any portion of the Securities owned by such Holder pursuant to the Offer
to Purchase, subject to the requirement that any portion of a Security tendered
must be tendered in an integral multiple of $1,000 principal amount.
(b) On or prior to the Purchase Date specified in the Offer to
Purchase, the Company shall (i) accept for payment all Securities or portions
thereof validly tendered pursuant to the Offer, (ii) deposit with the Paying
Agent (or, if the Company is acting as its own Paying Agent, segregate and hold
in trust as provided in Section 2.04) money sufficient to pay the Purchase Price
of all Securities or portions thereof so accepted and (iii) deliver or cause to
be delivered to the Trustee for
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cancellation all Securities so accepted together with an Officers' Certificate
stating the Securities or portions thereof accepted for payment by the Company.
The Paying Agent (or the Company, if so acting) shall promptly mail or deliver
to Holders of Securities so accepted payment in an amount equal to the Purchase
Price for such Securities, and the Trustee shall promptly authenticate and mail
or deliver to each Holder a new Security or Securities equal in principal amount
to any unpurchased portion of the Security surrendered as requested by the
Holder. Any Security not accept for payment shall be promptly mailed or
delivered by the Company to the Holder thereof. The Company shall publicly
announce the results of the Offer on or as soon as practicable after the
Purchase Date.
(c) A "Change of Control" will be deemed to have occurred in
the event that (whether or not otherwise permitted by this 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
Securities, 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 this
Indenture relating to such Offer to Purchase occurring as a result of such
compliance shall not be deemed a Default or an Event of Default.
SECTION 4.15. Limitation on Senior Subordinated Indebtedness.
The Company shall not (i) directly or indirectly Incur any
Indebtedness that by its terms would expressly rank senior in right of payment
to the Securities and expressly rank subordinate in right of payment to any
Senior Indebtedness and (ii) permit any Guarantor to and no Guarantor will
directly or indirectly Incur any
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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.
SECTION 4.16. Limitations Concerning Distributions
and Transfers by Subsidiaries.
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) this 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
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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 Section 4.16 or (j) restrictions of
the type referred to in clause (iii) of this Section 4.16 contained in security
agreements securing Indebtedness of a Subsidiary of the Company to the extent
that such Liens were otherwise incurred in accordance with Section 4.18 and
restrict the transfer of property subject to such agreements.
SECTION 4.17. Limitation on Issuance and Sale
of Capital Stock of Subsidiaries.
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 Section 4.05 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).
SECTION 4.18. Limitation on Liens.
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 Securities (and, if the Company shall so determine, any other
Indebtedness of the Company or such Subsidiary, including Indebtedness which is
subordinate in right of payment to the Securities; provided, however, that Liens
securing the Securities and any Indebtedness pari passu with the Securities 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 Securities or the Guarantees, prior to such
Indebtedness, as to such property or
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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
Securities; (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
Section 4.04; (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 Section 7.07.
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ARTICLE V.
MERGERS; SUCCESSOR CORPORATION
SECTION 5.01. Restriction on 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, 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 Securities or such Subsidiary's Guarantee, as the case may be,
and under this 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 Section 4.04; (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 Section 4.18, the Company,
any such Subsidiary or the Surviving Entity, as the case may be, shall have
secured the Securities as required by said Section 4.18. The provisions of this
Section 5.01 shall not apply to any merger of a Subsidiary of
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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 this Indenture in connection with any transaction complying with
the provisions of Section 4.05.
SECTION 5.02. Successor Corporation Substituted.
Upon any consolidation of the Company or any Subsidiary of the
Company with, or merger of the Company or any such Subsidiary into, any other
Person or any sale, assignment, lease, conveyance or other disposition of all or
substantially all of the Company's consolidated assets (as an entirety or
substantially as an entirety in one transaction or a series of related
transactions, including by way of liquidation or dissolution) in accordance with
Section 5.01, upon the execution of a supplemental indenture by the Surviving
Person in form and substance satisfactory to the Trustee (as evidenced by the
Trustee's execution thereof), the Surviving Person shall succeed to, and be
substituted for, and may exercise every right and power of and shall assume all
obligations of, the Company or such Subsidiary, as the case may be, under this
Indenture and the Securities or the Guarantees, as the case may be, with the
same effect as if such Surviving Person had been named as the Company or such
Subsidiary, as the case may be, herein, and thereafter, except in the case of a
lease, the predecessor Person shall be relieved of all obligations and covenants
under this Indenture and the Securities or the Guarantees, as the case may be.
ARTICLE VI.
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default.
An "Event of Default" occurs if:
(1) the Company fails to pay interest on any Securities when
the same becomes due and payable and the Default continues for a period
of 30 days, whether or not such payment is prohibited by Article Eight
hereof;
(2) the Company fails to pay the principal of any Securities
when the same becomes due and payable at maturity, upon redemption,
upon repurchase pursuant to an Offer to Purchase or otherwise, whether
or not such payment is prohibited by Article Eight hereof;
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(3) the Company fails to perform or comply with any of
the provisions of Section 5.01;
(4) the Company fails to observe or perform any other
covenant, warranty or agreement contained in the Securities or this
Indenture, and the Default continues for the period and after the
notice specified in the last paragraph of this Section 6.01;
(5) a default or defaults 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 $10
million or more individually or in the aggregate that has resulted in
the acceleration of the payment of such Indebtedness or the Company or
any of its Subsidiaries fails to pay principal when due at the stated
maturity of any such Indebtedness;
(6) there shall have been any 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;
(7) the Company or any Material Subsidiary pursuant to
or within the meaning of any Bankruptcy Law:
(A) commences a voluntary case or proceeding,
(B) consents to the entry of an order for relief
against it in an involuntary case or proceeding,
(C) consents to the appointment of a Custodian
of it or for all or substantially all of its property, or
(D) makes a general assignment for the benefit
of its creditors;
(8) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(A) is for relief against the Company or any
Material Subsidiary in an involuntary case or proceeding,
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(B) appoints a Custodian of the Company or any
Material Subsidiary or for all or substantially all of
its property, or
(C) orders the liquidation of the Company or any
Material Subsidiary,
and in each case the order or decree remains unstayed and in effect for 60 days;
provided, however, that if the entry of such order or decree is appealed and
dismissed on appeal then the Event of Default hereunder by reason of the entry
of such order or decree shall be deemed to have been cured; or
(9) 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 this Indenture) or is
declared null and void and 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 such Guarantee and this
Indenture).
The term "Bankruptcy Law" means Title 11, U.S. Code or any
similar Federal, state or foreign law for the relief of debtors. The term
"Custodian" means any receiver, trustee, assignee, liquidator, sequestrator or
similar official under any Bankruptcy Law.
A Default under clause (4) is not an Event of Default until
the Trustee notifies the Company, or the Holders of at least 25% in principal
amount of the outstanding Securities notify the Company and the Trustee, of the
Default in writing and the Company does not cure the Default within 30 days
after receipt of the notice. The notice must specify the Default, demand that it
be remedied and state that the notice is a "Notice of Default." Such notice
shall be given by the Trustee if so requested by the Holders of at least 25% in
principal amount of the Securities then outstanding. When a Default is cured, it
ceases.
SECTION 6.02. Acceleration.
If an Event of Default with respect to the Securities (other
than an Event of Default specified in clause (7) or (8) of Section 6.01 with
respect to the Company) occurs and is continuing, the Trustee or the Holders of
at least 25% in aggregate principal amount of the outstanding Securities by
notice in writing to the Company (and to the Trustee if given by the Holders)
may declare
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the unpaid principal of and accrued interest to the date of acceleration on all
the outstanding Securities to be due and payable immediately and, upon any such
declaration, such principal amount and accrued interest shall become immediately
due and payable.
If an Event of Default specified in clause (7) or (8) of
Section 6.01 with respect to the Company occurs all unpaid principal of and
accrued interest on the outstanding Securities shall ipso facto become
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holder thereof.
After a declaration of acceleration, but before a judgment or
decree of the money due in respect of the Notes has been obtained, the Holders
of not less than a majority in aggregate principal amount of the Securities then
outstanding by written notice to the Trustee may rescind an acceleration and its
consequences if all existing Events of Default (other than the nonpayment of
principal of and interest on the Securities which has become due solely by
virtue of such acceleration) have been cured or waived and if the rescission
would not conflict with any judgment or decree. No such rescission shall affect
any subsequent Default or impair any right consequent thereto.
SECTION 6.03. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee
may pursue any available remedy by proceeding at law or in equity to collect the
payment of principal of or interest on the Securities or to enforce the
performance of any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not
possess any of the Securities or does not produce any of them in the proceeding.
A delay or omission by the Trustee or any Securityholder in exercising any right
or remedy maturing upon an Event of Default shall not impair the right or remedy
or constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative to the
extent permitted by law.
SECTION 6.04. Waiver of Past Default.
Subject to Sections 2.09, 6.07 and 10.02, prior to the
declaration of acceleration of the Securities, the Holders of not less than a
majority in aggregate principal amount of the outstanding Securities by written
notice to the Trustee may waive
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an existing Default or Event of Default and its consequences, except a Default
in the payment of principal of or interest on any Security as specified in
clauses (1) and (2) of Section 6.01 or a Default in respect of any term or
provision of this Indenture that may not be amended or modified without the
consent of each Holder affected as provided in Section 10.02. The Company shall
deliver to the Trustee an Officers' Certificate stating that the requisite
percentage of Holders have consented to such waiver and attaching copies of such
consents. In case of any such waiver, the Company, the Trustee and the Holders
shall be restored to their former positions and rights hereunder and under the
Securities, respectively. This paragraph of this Section 6.04 shall be in lieu
of ss. 316(a)(1)(B) of the TIA and such ss. 316(a)(1)(B) of the TIA is hereby
expressly excluded from this Indenture and the Securities, as permitted by the
TIA.
Upon any such waiver, such Default shall cease to exist and be
deemed to have been cured and not to have occurred, and any Event of Default
arising therefrom shall be deemed to have been cured and not to have occurred
for every purpose of this Indenture and the Securities, but no such waiver shall
extend to any subsequent or other Default or Event of Default or impair any
right consequent thereon.
SECTION 6.05. Control by Majority.
Subject to Section 2.09, the Holders of a majority in
principal amount of the outstanding Securities may 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 it. However, the Trustee may refuse
to follow any direction that conflicts with law or this Indenture, that the
Trustee determines may be unduly prejudicial to the rights of another
Securityholder, or that may involve the Trustee in personal liability; provided,
however, that the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction. In the event the Trustee takes
any action or follows any direction pursuant to this Indenture, the Trustee
shall be entitled to indemnification satisfactory to it in its sole discretion
against any loss or expense caused by taking such action or following such
direction. This Section 6.05 shall be in lieu of ss. 316(a)(1)(A) of the TIA,
and such ss. 316(a)(1)(A) of the TIA is hereby expressly excluded from this
Indenture and the Securities, as permitted by the TIA.
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SECTION 6.06. Limitation on Suits.
A Securityholder may not pursue any remedy with respect to
this Indenture or the Securities unless:
(1) the Holder gives to the Trustee written notice of a
continuing Event of Default;
(2) the Holders of at least 25% in aggregate principal
amount of the outstanding Securities make a written request to
the Trustee to pursue a remedy;
(3) such Holder or Holders offer and, if requested,
provide to the Trustee indemnity satisfactory to the Trustee
against any loss, liability or expense;
(4) the Trustee does not comply with the request within
60 days after receipt of the request and the offer and, if
requested, the provision of indemnity; and
(5) during such 60-day period the Holders of a majority in
principal amount of the outstanding Securities (excluding Affiliates of
the Company) do not give the Trustee a direction which, in the opinion
of the Trustee, is inconsistent with the request.
A Securityholder may not use this Indenture to prejudice the
rights of another Securityholder or to obtain a preference or priority over such
other Securityholder.
SECTION 6.07. Rights of Holders To Receive Payment.
Notwithstanding any other provision of this Indenture, the
right of any Holder to receive payment of principal of and interest on the
Security, on or after the respective due dates expressed in the Security, or to
bring suit for the enforcement of any such payment on or after such respective
dates, shall not be impaired or affected without the consent of the Holder.
SECTION 6.08. Collection Suit by Trustee.
If an Event of Default in payment of interest or principal
specified in Section 6.01(1) or (2) occurs and is continuing, the Trustee may
recover judgment in its own name and as trustee of an express trust against the
Company or any other obligor on the Securities for the whole amount of principal
and accrued interest remaining unpaid, together with interest overdue on
principal and to the extent that payment of such interest is
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lawful, interest on overdue installments of interest, in each case at the rate
per annum borne by the Securities and such further amount as shall be sufficient
to cover the costs and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel.
SECTION 6.09. Trustee May File Proofs of Claim.
The Trustee may file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Securityholders allowed in any judicial proceedings relative to the Company (or
any other obligor upon the Securities), its creditors or its property and shall
be entitled and empowered to collect and receive any monies or other property
payable or deliverable on any such claims and to distribute the same, and any
Custodian in any such judicial proceedings is hereby authorized by each
Securityholder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the
Securityholders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agent and
counsel, and any other amounts due the Trustee under Section 7.07. Nothing
herein contained shall be deemed to authorize the Trustee to authorize or
consent to or accept or adopt on behalf of any Securityholder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Securityholder in any such proceeding.
SECTION 6.10. Priorities.
If the Trustee collects any money or property pursuant to this
Article Six, it shall pay out the money or property in the following order:
First: to the Trustee for amounts due under
Section 7.07;
Second: to Holders for amounts due and unpaid on the
Securities for principal and interest, ratably, without
preference or priority of any kind, according to the amounts
due and payable on the Securities for principal and interest,
respectively; and
Third: to the Company.
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The Trustee, upon prior written notice to the Company, may fix
a record date and payment date for any payment to Securityholders pursuant to
this Section 6.10.
SECTION 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under
this Indenture or in any suit against the Trustee for any action taken or
omitted by it as Trustee, a court in its discretion may require the filing by
any party litigant in the suit of an undertaking to pay the costs of the suit,
and the court in its discretion may assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in the suit, having due
regard to the merits and good faith of the claims or defenses made by the party
litigant. This Section 6.11 shall not apply to a suit by the Trustee, a suit by
a Holder or group of Holders of more than 10% in aggregate principal amount of
the outstanding Securities, or to any suit instituted by any Holder for the
enforcement or the payment of the principal or interest on any Securities on or
after the respective due dates expressed in the Security.
ARTICLE VII.
TRUSTEE
SECTION 7.01. Duties of Trustee.
(a) If a Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture and
use the same degree of care and skill in their exercise as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs.
(b) Except during the continuance of a Default:
(1) The Trustee shall not be liable except for the
performance of such duties as are specifically set forth
herein; and
(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions conforming to the requirements of this Indenture; however, the
Trustee shall examine the certificates and opinions to determine
whether or not they conform to the requirements of this Indenture.
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(c) The Trustee shall not be relieved from liability for its
own negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) This paragraph does not limit the effect of paragraph (b)
of this Section 7.01;
(2) The Trustee shall not be liable for any error of judgment
made in good faith by a Trust Officer, unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts; and
(3) The Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05.
(d) No provision of this Indenture shall require the Trustee
to expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder or to take or omit to take any
action under this Indenture or take any action at the request or direction of
Holders if it shall have reasonable grounds for believing that repayment of such
funds is not assured to it or it does not receive an indemnity satisfactory to
it in its sole discretion against such risk, liability, loss, fee or expense
which might be incurred by it in compliance with such request or direction.
(e) Every provision of this Indenture that in any way relates
to the Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section
7.01.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree with the Company. Money held in
trust by the Trustee need not be segregated from other funds except to the
extent required by law.
SECTION 7.02. Rights of Trustee.
Subject to Section 7.01:
(a) The Trustee may rely on any document believed by it to be
genuine and to have been signed or presented by the proper person. The
Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate and an Opinion of Counsel, which shall
conform to the provisions of Section
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13.05. The Trustee shall not be liable for any action it takes or omits
to take in good faith in reliance on such certificate or opinion.
(c) The Trustee may act through attorneys and agents of its
selection and shall not be responsible for the misconduct or negligence
of any agent or attorney (other than an agent who is an employee of the
Trustee) appointed with due care.
(d) The Trustee shall not be liable for any action it takes or
omits to take in good faith which it reasonably believes to be
authorized or within its rights or powers.
(e) The Trustee may consult with counsel and the advice or
opinion of such counsel as to matters of law shall be full and complete
authorization and protection from liability in respect of any action
taken, omitted or suffered by it hereunder in good faith and in
accordance with the advice or opinion of such counsel.
(f) Any request or direction of the Company mentioned herein
shall be sufficiently evidenced by a Company Request or Company Order
and any resolution of the Board of Directors may be sufficiently
evidenced by a Board Resolution.
(g) The Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request
or direction of any of the Securityholders pursuant to this Indenture,
unless such Securithyholders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and
liabilities which might be incurred by it in compliance with such
request or direction.
(h) The Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of indebtedness
or other paper or document, but the Trustee, in its discretion, may
make such further inquiry or investigation into such facts or matters
as it may see fit, and, if the Trustee shall determine to make such
further inquiry or investigation, it shall be entitled to examine the
books, records and premises of the Company, personally or by agent or
attorney.
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SECTION 7.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become
the owner or pledgee of Securities and may otherwise deal with the Company or
its Affiliates with the same rights it would have if it were not Trustee. Any
Agent may do the same with like rights. However, the Trustee is subject to
Sections 7.10 and 7.11.
SECTION 7.04. Trustee's Disclaimer.
The Trustee shall not be responsible for and makes no
representation as to the validity or adequacy of this Indenture or the
Securities, it shall not be accountable for the Company's use of the proceeds
from the Securities, and it shall not be responsible for any statement of the
Company in this Indenture or any document issued in connection with the sale of
Securities or any statement in the Securities other than the Trustee's
certificate of authentication.
SECTION 7.05. Notice of Defaults.
If a Default or an Event of Default occurs and is continuing
and the Trustee knows of such Defaults or Events of Default, the Trustee shall
mail to each Securityholder notice of the Default or Event of Default within 30
days after the occurrence thereof. Except in the case of a Default or an Event
of Default in payment of principal of or interest on any Security or a Default
or Event of Default in complying with Section 5.01, the Trustee may withhold the
notice if and so long as a committee of its Trust Officers in good faith
determines that withholding the notice is in the interest of Securityholders.
This Section 7.05 shall be in lieu of the proviso to ss. 315(b) of the TIA and
such proviso to ss. 315(b) of the TIA is hereby expressly excluded from this
Indenture and the Securities, as permitted by the TIA.
SECTION 7.06. Reports by Trustee to Holders.
If required by TIA ss. 313(a), within 60 days after each June
15 beginning with the June 15 following the date of this Indenture, the Trustee
shall mail to each Securityholder a report dated as of such June 15 that
complies with TIA ss. 313(a). The Trustee also shall comply with TIA ss. 313(b),
(c) and (d).
A copy of each such report at the time of its mailing to
Securityholders shall be filed with the SEC and each stock exchange, if any, on
which the Securities are listed.
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The Company shall promptly notify the Trustee in writing if
the Securities become listed on any stock exchange or of any delisting thereof.
SECTION 7.07. Compensation and Indemnity.
The Company shall pay to the Trustee from time to time such
compensation as the Company and the Trustee shall from time to time agree in
writing for its services. The Trustee's compensation shall not be limited by any
law on compensation of a trustee of an express trust. The Company shall
reimburse the Trustee upon request for all reasonable disbursements, expenses
and advances (including fees, disbursements and expenses of its agents and
counsel) incurred or made by it in addition to the compensation for its services
except any such disbursements, expenses and advances as may be attributable to
the Trustee's negligence or bad faith. Such expenses shall include the
reasonable compensation, disbursements and expenses of the Trustee's agents,
accountants, experts and counsel and any taxes or other expenses incurred by a
trust created pursuant to Section 9.01 hereof.
The Company shall indemnify the Trustee for, and hold it
harmless against any and all loss, damage, claims, liability or expense,
including taxes (other than franchise taxes imposed on the Trustee and taxes
based upon, measured by or determined by the income of the Trustee), arising out
of or in connection with the acceptance or administration of the trust or trusts
hereunder, including the costs and expenses of defending itself against any
claim or liability in connection with the exercise or performance of any of its
powers or duties hereunder, except to the extent that such loss, damage, claim,
liability or expense is due to its own negligence or bad faith. The Trustee
shall notify the Company promptly of any claim asserted against the Trustee for
which it may seek indemnity. However, the failure by the Trustee to so notify
the Company shall not relieve the Company of its obligations hereunder. The
Company shall defend the claim and the Trustee shall cooperate in the defense
(and may employ its own counsel) at the Company's expense; provided, however,
that the Company's reimbursement obligation with respect to counsel employed by
the Trustee will be limited to the reasonable fees of such counsel. The Company
need not pay for any settlement made without its written consent, which consent
shall not be unreasonably withheld. The Company need not reimburse any expense
or indemnify against any loss or liability incurred by the Trustee as a result
of the violation of this Indenture by the Trustee.
To secure the Company's payment obligations in this Section
7.07, the Trustee shall have a Lien prior to the
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Securities against all money or property held or collected by the Trustee, in
its capacity as Trustee, except money or property held in trust to pay principal
of or interest on particular Securities.
When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 6.01(7) or (8) occurs, the expenses
(including the reasonable fees and expenses of its agents and counsel) and the
compensation for the services shall be preferred over the status of the Holders
in a proceeding under any Bankruptcy Law and are intended to constitute expenses
of administration under any Bankruptcy Law. The Company's obligations under this
Section 7.07 and any claim arising hereunder shall survive the resignation or
removal of any Trustee, the discharge of the Company's obligations pursuant to
Article Eight and any rejection or termination under any Bankruptcy Law.
SECTION 7.08. Replacement of Trustee.
The Trustee may resign at any time by so notifying the Company
in writing. The Holders of a majority in principal amount of the outstanding
Securities may remove the Trustee by so notifying the Trustee and the Company in
writing and may appoint a successor Trustee with the Company's consent. The
Company may remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged a bankrupt or an insolvent
under any Bankruptcy Law;
(3) a custodian or other public officer takes charge of
the Trustee or its property; or
(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in
the office of Trustee for any reason (the Trustee in such event being referred
to herein as the retiring Trustee), the Company shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office, the
Holders of a majority in principal amount of the Securities may appoint a
successor Trustee to replace the successor Trustee appointed by the Company.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. As promptly as
practicable after that, the retiring Trustee shall transfer, after payment of
all sums then owing to the Trustee
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pursuant to Section 7.07, all property held by it as Trustee to the successor
Trustee, subject to the Lien provided in Section 7.07, the resignation or
removal of the retiring Trustee shall become effective, and the successor
Trustee shall have the rights, powers and duties of the Trustee under this
Indenture. A successor Trustee shall mail notice of its succession to each
Securityholder.
If a successor Trustee does not take office within 60 days
after the retiring Trustee resigns or is removed, the retiring Trustee, the
Company or the Holders of at least 10% in principal amount of the outstanding
Securities may petition any court of competent jurisdiction for the appointment
of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any
Securityholder may petition any court of competent jurisdiction for the removal
of the Trustee and the appointment of a successor Trustee.
Notwithstanding replacement of the Trustee pursuant to this
Section 7.08, the Company's obligations under Section 7.07 shall continue for
the benefit of the retiring Trustee.
SECTION 7.09. Successor Trustee by Merger, etc.
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation or banking corporation, the resulting, surviving or transferee
corporation or banking corporation without any further act shall be the
successor Trustee.
SECTION 7.10. Eligibility; Disqualification.
This Indenture shall always have a Trustee which shall be
eligible to act as Trustee under TIA ss.ss. 310(a)(1) and 310(a)(2). The Trustee
shall have a combined capital and surplus of at least $50,000,000 as set forth
in its most recent published annual report of condition. If the Trustee has or
shall acquire any "conflicting interest" within the meaning of TIA ss. 310(b),
the Trustee and the Company shall comply with the provisions of TIA ss. 310(b).
If at any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section, the Trustee shall resign immediately in the manner
and with the effect hereinbefore specified in this Article Seven.
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SECTION 7.11. Preferential Collection of Claims
Against Company.
The Trustee shall comply with TIA ss. 311(a), excluding any
creditor relationship listed in TIA ss. 311(b). A Trustee who has resigned or
been removed shall be subject to TIA ss. 311(a) to the extent indicated therein.
ARTICLE VIII.
SUBORDINATION OF SECURITIES
SECTION 8.01. Securities Subordinated to Senior Indebtedness.
The Company covenants and agrees, and the Trustee and each
Holder of the Securities by his acceptance thereof likewise covenant and agree,
that all Securities shall be issued subject to the provisions of this Article;
and each person holding any Security, whether upon original issue or upon
transfer, assignment or exchange thereof, accepts and agrees that all payments
of the principal of and interest on the Securities by the Company shall, to the
extent and in the manner set forth in this Article, be subordinated and junior
in right of payment to the prior payment in full of all amounts payable under
Senior Indebtedness.
SECTION 8.02. No Payment on Securities in
Certain Circumstances.
(a) No direct or indirect payment by or on behalf of the
Company of principal of or interest on the Securities, whether pursuant to the
terms of the Securities, upon acceleration or otherwise, shall 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, whether at
maturity, on account of mandatory redemption or prepayment, acceleration or
otherwise (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 (a "Payment Blockage 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
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repaid in full, no direct or indirect payment shall be made by or on behalf of
the Company of principal of or interest on the Securities, except from those
funds held in trust for the benefit of the Holders of any Securities 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 herein or in the Securities to the
contrary, (x) in no event shall a Payment Blockage Period extend beyond 179 days
from the date the Payment Blockage Notice in respect thereof was given and (y)
in no event shall a Payment Blockage Notice be effective for purposes of this
Section 8.02(a) unless and until 360 days shall have elapsed since the
effectiveness of the immediately prior Payment Blockage Notice. Not more than
one Payment Blockage Period may be commenced with respect to the Securities
during any period of 360 consecutive days. No default or event of default that
existed or was continuing on the date of commencement of any 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 Period 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 360 consecutive days,
unless such default or event of default has been cured or waived for a period of
not less than 90 consecutive days.
(b) In the event that, notwithstanding the foregoing, any
payment shall be received by the Trustee or any Holder when such payment is
prohibited by Section 8.02(a), such payment shall be held in trust for the
benefit of, and shall be paid over or delivered to, the holders of Designated
Senior Indebtedness or their respective representatives, or to the trustee or
trustees under any indenture pursuant to which any of such Designated Senior
Indebtedness may have been issued, as their respective interests may appear, but
only to the extent that, upon notice from the Trustee to the holders of
Designated Senior Indebtedness that such prohibited payment has been made, the
holders of the Designated Senior Indebtedness (or their representative or
representatives or a trustee) notify the Trustee in writing of the amounts then
due and owing on the Designated Senior Indebtedness, if any, and only the
amounts specified in such notice to the Trustee shall be paid to the holders of
Designated Senior Indebtedness.
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SECTION 8.03. Payment Over of Proceeds upon Dissolution, etc.
(a) 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 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 shall first be paid in full
before the Holders of the Securities or the Trustee on behalf of such Holders
shall be entitled to receive any payment by the Company of the principal of or
interest on the Securities, or any payment to acquire any of the Securities for
cash, property or securities, or any distribution with respect to the Securities
of any cash, property or securities. Before any payment may be made by, or on
behalf of, the Company of the principal of or interest on the Securities 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 Securities
or the Trustee on their behalf would be entitled, but for the subordination
provisions of this 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.
(b) In the event that, notwithstanding the foregoing provision
prohibiting such payment or distribution, any payment or distribution of assets
or securities of the Company of any kind or character, whether in cash, property
or securities, shall be received by the Trustee or any Holder of Securities at a
time when such payment or distribution is prohibited by Section 8.03(a) and
before all obligations in respect of Senior Indebtedness are paid in full, or
payment provided for, such payment or distribution shall be received and held in
trust for the benefit of, and shall be paid over or delivered to, the holders of
Senior Indebtedness (pro rata to such holders on the basis of the respective
amounts of Senior Indebtedness held by such holders) or their respective
representatives, or to the trustee or trustees under any indenture pursuant to
which any of such Senior Indebtedness may have been
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issued, as their respective interests may appear, for application to the payment
of Senior Indebtedness remaining unpaid until all such Senior Indebtedness has
been paid in full after giving effect to any concurrent payment, distribution or
provision therefor to or for the holders of such Senior Indebtedness.
(c) For purposes of this Section, the words "cash, property or
securities" shall not be deemed to include, so long as the effect of these
clauses (x) and (y) is not to cause the Securities to be treated in any case or
proceeding or similar event described in this Section as part of the same class
of claims as the Senior Indebtedness or any class of claims on a parity with or
senior to the Senior Indebtedness for any payment or distribution, (x) any
payment or distribution of securities of the Company or any other corporation
authorized by an order or decree giving effect, and stating in such order or
decree that effect is given, to the subordination of the Securities to the
Senior Indebtedness, and made by a court of competent jurisdiction in a
reorganization proceeding under any applicable bankruptcy, insolvency or other
similar law, or (y) securities of the Company or any other corporation provided
for by a plan of reorganization or readjustment which are subordinated, to at
least the same extent as the Securities, to the payment of all Senior
Indebtedness then outstanding (the securities described in clauses (x) and (y)
being hereinafter referred to as "Subordinated Reorganization Securities");
provided, however, that (i) if a new corporation results from such
reorganization or readjustment, such corporation assumes the Senior Indebtedness
and (ii) the rights of the holders of the Senior Indebtedness are not, without
the consent of such holders, altered by such reorganization or readjustment.
The consolidation of the Company with, or the merger of the
Company with or into, another corporation or the liquidation or dissolution of
the Company following the conveyance or transfer of its property as an entirety,
or substantially as an entirety, to another corporation upon the terms and
conditions provided in Article Five shall not be deemed a dissolution,
winding-up, liquidation or reorganization for the purposes of this Section if
such other corporation shall, as a part of such consolidation, merger,
conveyance or transfer, comply with the conditions stated in Article Five.
SECTION 8.04. Subrogation.
Upon the payment in full of all Senior Indebtedness, or
provision for payment, the Holders of the Securities shall be subrogated to the
rights of the holders of Senior Indebtedness to receive payments or
distributions of cash, property or securities
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of the Company made on such Senior Indebtedness until the principal of and
interest on the Securities shall be paid in full; and, for the purposes of such
subrogation, no payments or distributions to the holders of the Senior
Indebtedness of any cash, property or securities to which the Holders of the
Securities or the Trustee on their behalf would be entitled except for the
provisions of this Article, and no payment over pursuant to the provisions of
this Article to the holders of Senior Indebtedness by Holders of the Securities
or the Trustee on their behalf shall, as between the Company, its creditors
other than holders of Senior Indebtedness, and the Holders of the Securities, be
deemed to be a payment by the Company to or on account of the Senior
Indebtedness. It is understood that the provisions of this Article are and are
intended solely for the purpose of defining the relative rights of the Holders
of the Securities, on the one hand, and the holders of the Senior Indebtedness,
on the other hand.
If any payment or distribution to which the Holders of the
Securities would otherwise have been entitled but for the provisions of this
Article shall have been applied, pursuant to the provisions of this Article, to
the payment of all amounts payable under Senior Indebtedness, then and in such
case, the Holders of the Securities shall be entitled to receive from the
holders of such Senior Indebtedness any payments or distributions received by
such holders of Senior Indebtedness in excess of the amount required to make
payment in full, or provision for payment, of such Senior Indebtedness.
SECTION 8.05. Obligations of Company Unconditional.
Nothing contained in this Article or elsewhere in this
Indenture or in the Securities is intended to or shall impair, as among the
Company and the Holders of the Securities, the obligation of the Company, which
is absolute and unconditional, to pay to the Holders of the Securities the
principal of and interest on the Securities as and when the same shall become
due and payable in accordance with their terms, or is intended to or shall
affect the relative rights of the Holders of the Securities and creditors of the
Company other than the holders of the Senior Indebtedness, nor shall anything
herein or therein prevent the Holder of any Security or the Trustee on their
behalf from exercising all remedies otherwise permitted by applicable law upon
default under this Indenture, subject to the rights, if any, under this Article
of the holders of the Senior Indebtedness in respect of cash, property or
securities of the Company received upon the exercise of any such remedy.
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Without limiting the generality of the foregoing, nothing
contained in this Article shall restrict the right of the Trustee or the Holders
of Securities to take any action to declare the Securities to be due and payable
prior to their stated maturity pursuant to Section 6.01 or to pursue any rights
or remedies hereunder; provided, however, that all Senior Indebtedness then due
and payable shall first be paid in full before the Holders of the Securities or
the Trustee are entitled to receive any direct or indirect payment from the
Company of principal of or interest on the Securities.
SECTION 8.06. Notice to Trustee.
The Company shall give prompt written notice to the Trustee of
any fact known to the Company which would prohibit the making of any payment to
or by the Trustee in respect of the Securities pursuant to the provisions of
this Article. The Trustee shall not be charged with knowledge of the existence
of any default or event of default with respect to any Senior Indebtedness or of
any other facts which would prohibit the making of any payment to or by the
Trustee unless and until the Trustee shall have received notice in writing at
its Corporate Trust Office to that effect signed by an Officer of the Company,
or by a holder of Senior Indebtedness or trustee or agent therefor; and prior to
the receipt of any such written notice, the Trustee shall, subject to Article
Seven, be entitled to assume that no such facts exist; provided that if the
Trustee shall not have received the notice provided for in this Section at least
two Business Days prior to the date upon which by the terms of this Indenture
any moneys shall become payable for any purpose (including, without limitation,
the payment of the principal of or interest on any Security), then, regardless
of anything herein to the contrary, the Trustee shall have full power and
authority to receive any moneys from the Company and to apply the same to the
purpose for which they were received, and shall not be affected by any notice to
the contrary which may be received by it on or after such prior date. Nothing
contained in this Section 8.06 shall limit the right of the holders of Senior
Indebtedness to recover payments as contemplated by Section 8.03. The Trustee
shall be entitled to rely on the delivery to it of a written notice by a Person
representing himself or itself to be a holder of any Senior Indebtedness (or a
trustee on behalf of, or other representative of, such holder) to establish that
such notice has been given by a holder of such Senior Indebtedness or a trustee
or representative on behalf of any such holder.
In the event that the Trustee determines in good faith that
any evidence is required with respect to the right of any Person as a holder of
Senior Indebtedness to participate in any
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payment or distribution pursuant to this Article, the Trustee may request such
Person to furnish evidence to the reasonable satisfaction of the Trustee as to
the amount of Senior Indebtedness held by such Person, the extent to which such
Person is entitled to participate in such payment or distribution and any other
facts pertinent to the rights of such Person under this Article, and if such
evidence is not furnished, the Trustee may defer any payment to such Person
pending judicial determination as to the right of such Person to receive such
payment.
SECTION 8.07. Reliance on Judicial Order or
Certificate of Liquidating Agent.
Upon any payment or distribution of assets or securities
referred to in this Article, the Trustee and the Holders of the Securities shall
be entitled to rely upon any order or decree made by any court of competent
jurisdiction in which bankruptcy, dissolution, winding-up, liquidation or
reorganization proceedings are pending, or upon a certificate of the receiver,
trustee in bankruptcy, liquidating trustee, agent or other person making such
payment or distribution, delivered to the Trustee or to the Holders of the
Securities for the purpose of ascertaining the persons entitled to participate
in such distribution, the holders of the Senior Indebtedness and other
indebtedness of the Company, the amount thereof or payable thereon, the amount
or amounts paid or distributed thereon and all other facts pertinent thereto or
to this Article.
SECTION 8.08. Trustee's Relation to Senior Indebtedness.
The Trustee and any Paying Agent shall be entitled to all the
rights set forth in this Article with respect to any Senior Indebtedness which
may at any time be held by it in its individual or any other capacity to the
same extent as any other holder of Senior Indebtedness, and nothing in this
Indenture shall deprive the Trustee or any Paying Agent of any of its rights as
such holder.
With respect to the holders of Senior Indebtedness, the
Trustee undertakes to perform or to observe only such of its covenants and
obligations as are specifically set forth in this Article, and no implied
covenants or obligations with respect to the holders of Senior Indebtedness
shall be read into this Indenture against the Trustee. The Trustee shall not be
deemed to owe any fiduciary duty to the holders of Senior Indebtedness (except
as provided in Section 8.03(b)).
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SECTION 8.09. Subordination Rights Not Impaired
by Acts or Omissions of the Company
or Holders of Senior Indebtedness.
No right of any present or future holders of any Senior
Indebtedness to enforce subordination as provided herein shall at any time in
any way be prejudiced or impaired by any act or failure to act on the part of
the Company or by any act or failure to act, in good faith, by any such holder,
or by any noncompliance by the Company with the terms of this Indenture,
regardless of any knowledge thereof which any such holder may have or otherwise
be charged with. The provisions of this Article are intended to be for the
benefit of, and shall be enforceable directly by, the holders of Senior
Indebtedness.
SECTION 8.10. Securityholders Authorize Trustee To
Effectuate Subordination of Securities.
Each Holder of Securities by his acceptance of such Securities
authorizes and expressly directs the Trustee on his behalf to take such action
as may be necessary or appropriate to effectuate the subordination provided in
this Article, and appoints the Trustee his attorney-in-fact for such purposes,
including, in the event of any dissolution, winding up, liquidation or
reorganization of the Company (whether in bankruptcy, insolvency, receivership,
reorganization or similar proceedings or upon an assignment for the benefit of
creditors or otherwise) tending towards liquidation of the business and assets
of the Company, the filing of a claim for the unpaid balance of its or his
Securities in the form required in those proceedings.
SECTION 8.11. This Article Not To Prevent Events of Default.
The failure to make a payment on account of principal of or
interest on the Securities by reason of any provision of this Article shall not
be construed as preventing the occurrence of an Event of Default specified in
clause (1) or (2) of Section 6.01.
SECTION 8.12. Trustee's Compensation Not Prejudiced.
Nothing in this Article shall apply to amounts due to the
Trustee pursuant to other sections in this Indenture.
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SECTION 8.13. No Waiver of Subordination Provisions.
Without in any way limiting the generality of Section 8.09,
the holders of Senior Indebtedness may, at any time and from time to time,
without the consent of or notice to the Trustee or the Holders of the
Securities, without incurring responsibility to the Holders of the Securities
and without impairing or releasing the subordination provided in this Article or
the obligations hereunder of the Holders of the Securities to the holders of
Senior Indebtedness, do any one or more of the following: (a) change the manner,
place or terms of payment or extend the time of payment of, or renew or alter,
Senior Indebtedness or any instrument evidencing the same or any agreement under
which Senior Indebtedness is outstanding or secured; (b) sell, exchange, release
or otherwise deal with any property pledged, mortgaged or otherwise securing
Senior Indebtedness; (c) release any Person liable in any manner for the
collection of Senior Indebtedness and (d) exercise or refrain from exercising
any rights against the Company and any other Person.
SECTION 8.14. Subordination Provisions Not Applicable
to Money Held in Trust for Securityholders;
Payments May Be Paid Prior to Dissolution.
All money and United States Government Obligations deposited
in trust with the Trustee pursuant to and in accordance with Article Nine shall
be for the sole benefit of the Holders and shall not be subject to this Article
Eight.
Nothing contained in this Article or elsewhere in this
Indenture shall prevent (i) the Company, except under the conditions described
in Section 8.02, from making payments of principal of and interest on the
Securities, or from depositing with the Trustee any moneys for such payments or
from effecting a termination of the Company's and the Guarantors' obligations
under the Securities and the Indenture as provided in Article Nine, or (ii) the
application by the Trustee of any moneys deposited with it for the purpose of
making such payments of principal of and interest on the Securities, to the
holders entitled thereto unless at least two Business Days prior to the date
upon which such payment becomes due and payable, the Trustee shall have received
the written notice provided for in Section 8.02(b) or in Section 8.06. The
Company shall give prompt written notice to the Trustee of any dissolution,
winding-up, liquidation or reorganization of the Company.
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SECTION 8.15. Acceleration of Securities.
If payment of the Securities is accelerated because of an
Event of Default, the Company shall promptly notify holders of the Senior
Indebtedness of the acceleration.
ARTICLE IX.
DISCHARGE OF INDENTURE
SECTION 9.01. Termination of Company's Obligations.
Subject to the provisions of Article Eight, the Company may
terminate its and the Guarantors' substantive obligations in respect of the
Securities by delivering all outstanding Securities to the Trustee for
cancellation and paying all sums payable by it on account of principal of and
interest on all Securities or otherwise. In addition to the foregoing, the
Company may, provided that no Default or Event of Default has occurred and is
continuing or would arise therefrom (or, with respect to a Default or Event of
Default specified in Section 6.01(7) or (8), any time on or prior to the 95th
calendar day after the date of such deposit (it being understood that this
condition shall not be deemed satisfied until after such 95th day)) and provided
that no default under any Senior Indebtedness would result therefrom, terminate
its and the Guarantors' substantive obligations in respect of the Securities
(except for its obligations to pay the principal of and interest on the
Securities and the Guarantors' guarantee thereof) by (i) depositing with the
Trustee, under the terms of an irrevocable trust agreement, money or direct
non-callable obligations of the United States of America for the payment of
which the full faith and credit of the United States is pledged ("United States
Government Obligations") sufficient (without reinvestment) to pay all remaining
indebtedness on the Securities, (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 Securities 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) delivering to the Trustee an Officers' Certificate
and an Opinion of Counsel each stating compliance with all conditions precedent
provided for herein. In addition, subject to the provisions of Article Eight
with respect to the creation of
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the defeasance trust provided for in the following clause (i), the Company may,
provided that no Default or Event of Default has occurred and is continuing or
would arise therefrom (or, with respect to a Default or Event of Default
specified in Section 6.01(7) or (8), any time on or prior to the 95th calendar
day after the date of such deposit (it being understood that this condition
shall not be deemed satisfied until after such 95th day)) and provided that no
default under any Senior Indebtedness would arise therefrom, terminate all of
its and the Guarantors' substantive obligations in respect of the Securities
(including its obligations to pay the principal of and interest on the
Securities 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 Securities, (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 Securities 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 this
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) delivering to the Trustee an Officers' Certificate and an
Opinion of Counsel each stating compliance with all conditions precedent
provided for herein.
Notwithstanding the foregoing paragraph, the Company's
obligations in Sections 2.03, 2.05, 2.06, 2.07, 4.01 (but not with respect to
termination of substantive obligations pursuant to the third sentence of the
foregoing paragraph), 4.02, 7.07, 7.08, 9.03 and 9.04 shall survive until the
Securities are no longer outstanding. Thereafter the Company's obligations in
Sections 7.07, 9.03 and 9.04 shall survive.
After such delivery or irrevocable deposit and delivery of an
Officers' Certificate and Opinion of Counsel, the Trustee upon request shall
acknowledge in writing the discharge of the Company's and the Guarantors'
obligations under the Securities and this Indenture except for those surviving
obligations specified above.
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SECTION 9.02. Application of Trust Money.
The Trustee shall hold in trust money or United States
Government Obligations deposited with it pursuant to Section 9.01, and shall
apply the deposited money and the money from United States Government
Obligations in accordance with this Indenture solely to the payment of principal
of and interest on the Securities.
SECTION 9.03. Repayment to Company.
Subject to Sections 7.07 and 9.01, the Trustee shall promptly
pay to the Company upon written request any excess money held by it at any time.
The Trustee shall pay to the Company upon written request any money held by it
for the payment of principal or interest that remains unclaimed for two years;
provided, however, that the Trustee before being required to make any payment
may at the expense of the Company cause to be published once in a newspaper of
general circulation in The City of New York or mail to each Holder entitled to
such money notice that such money remains unclaimed and that, after a date
specified therein which shall be at least 30 days from the date of such
publication or mailing, any unclaimed balance of such money then remaining shall
be repaid to the Company. After payment to the Company, Securityholders entitled
to money must look to the Company for payment as general creditors unless an
applicable abandoned property law designates another person and all liability of
the Trustee or Paying Agent with respect to such money shall thereupon cease.
SECTION 9.04. Reinstatement.
If the Trustee is unable to apply any money or United States
Government Obligations in accordance with Section 9.01 by reason of any legal
proceeding or by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application, the
Company's and the Guarantors' obligations under this Indenture and the
Securities shall be revived and reinstated as though no deposit had occurred
pursuant to Section 9.01 until such time as the Trustee is permitted to apply
all such money or United States Government Obligations in accordance with
Section 9.01; provided, however, that if the Company has made any payment of
interest on or principal of any Securities because of the reinstatement of its
obligations, the Company shall be subrogated to the rights of the Holders of
such Securities to receive such payment from the money or United States
Government Obligations held by the Trustee.
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ARTICLE X.
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 10.01. Without Consent of Holders.
The Company and the Guarantors, when authorized by a
resolution of their respective Boards of Directors, and the Trustee may amend or
supplement this Indenture or the Securities without notice to or consent of any
Securityholder:
(i) to cure any ambiguity, defect or inconsistency;
provided, however, that such amendment or supplement does not
adversely affect the rights of any Holder;
(ii) to effect the assumption by a successor Person of
all obligations of the Company under the Securities and this
Indenture in connection with any transaction complying with
Article Five of this Indenture;
(iii) to provide for uncertificated Securities in addition
to or in place of certificated Securities;
(iv) to comply with any requirements of the SEC in order to
effect or maintain the qualification of this Indenture under the
TIA;
(v) to make any change that would provide any additional
benefit or rights to the Holders;
(vi) to make any other change that does not adversely
affect the rights of any Holder under this Indenture;
(vii) to evidence the succession of another Person to any
Guarantor and the assumption by any such successor of the covenants
of such Guarantor herein and in the Guarantee;
(viii) to add to the covenants of the Company or the
Guarantors for the benefit of the Holders, or to surrender any
right or power herein conferred upon the Company or any Guarantor;
(ix) to secure the Securities pursuant to the requirements
of Section 4.18 or otherwise; or
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(x) to reflect the release of a Guarantor from its
obligations with respect to its Guarantee in accordance with
the provisions of Section 11.03 and to add a Guarantor
pursuant to the requirements of Section 11.07;
provided, however, that the Company has delivered to the Trustee an Opinion of
Counsel stating that such amendment or supplement complies with the provisions
of this Section 10.01.
SECTION 10.02. With Consent of Holders.
Subject to Section 6.07, the Company and the Guarantors, when
authorized by a resolution of their respective Boards of Directors, and the
Trustee may amend or supplement this Indenture or the Securities with the
written consent of the Holders of at least a majority in principal amount of the
outstanding Securities. Subject to Section 6.07, the Holders of a majority in
principal amount of the outstanding Securities may waive compliance by the
Company or any Guarantor with any provision of this Indenture or the Securities.
However, without the consent of each Securityholder affected, an amendment,
supplement or waiver, including a waiver pursuant to Section 6.04, may not:
(1) change the Stated Maturity of the principal of or any
installment of interest on any Security or alter the optional
redemption or repurchase provisions of any Security or this Indenture
in a manner adverse to the holders of the Securities;
(2) reduce the principal amount of any Security;
(3) reduce the rate or extend the time for payment of
interest on any Security;
(4) change the place or currency of payment of the principal
of or interest on any Security;
(5) modify any provisions of Section 6.04 (other than to add
sections of this Indenture or the Securities subject thereto) or 6.07
or this Section 10.02 (other than to add sections of this Indenture or
the Securities which may not be amended, supplemented or waived without
the consent of each Securityholder affected);
(6) reduce the percentage of the principal amount of
outstanding Securities necessary for amendment to or waiver of
compliance with any provision of this Indenture or the Securities or
for waiver of any Default;
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(7) waive a default in the payment of the principal of,
interest on, or redemption payment with respect to, any Security
(except a recission of acceleration of the Securities by the Holders as
provided in Section 6.02 and a waiver of the payment of default that
resulted from such acceleration);
(8) modify the ranking or priority of the Securities 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 any of the provisions of Article Eight or Article
Twelve in any manner adverse to the Holders;
(9) release any Guarantor which is a Material Subsidiary from
any of its obligations under its Guarantee or this Indenture otherwise
than in accordance with this Indenture; or
(10) modify the provisions relating to any Offer to Purchase
required pursuant to Section 4.05 or 4.14 in a manner materially
adverse to the Holders.
An amendment under this Section 10.02 may not make any change
under Article Eight, Article Nine, Article Eleven or Article Twelve hereof that
adversely affects in any material respect the rights of any holder of Senior
Indebtedness then outstanding unless the holders of such Senior Indebtedness (or
any representative thereof authorized to give a consent) shall have consented to
such change.
It shall not be necessary for the consent of the Holders under
this Section to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section
becomes effective, the Company shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such supplemental indenture.
SECTION 10.03. Compliance with Trust Indenture Act.
Every amendment to or supplement of this Indenture or the
Securities shall comply with the TIA as then in effect.
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SECTION 10.04. Revocation and Effect of Consents.
Until an amendment or waiver becomes effective, a consent to
it by a Holder is a continuing consent by the Holder and every subsequent Holder
of that Security or portion of that Security that evidences the same debt as the
consenting Holder's Security, even if notation of the consent is not made on any
Security. Subject to the following paragraph, any such Holder or subsequent
Holder may revoke the consent as to such Holder's Security or portion of such
Security by notice to the Trustee or the Company received before the date on
which the Trustee receives an Officers' Certificate certifying that the Holders
of the requisite principal amount of Securities have consented (and not
theretofore revoked such consent) to the amendment, supplement or waiver.
The Company may, but shall not be obligated to, fix a record
date for the purpose of determining the Holders entitled to consent to any
amendment, supplement or waiver. If a record date is fixed, then,
notwithstanding the last sentence of the immediately preceding paragraph, those
persons who were Holders at such record date (or their duly designated proxies),
and only those persons, shall be entitled to consent to such amendment,
supplement or waiver or to revoke any consent previously given, whether or not
such persons continue to be Holders after such record date. No such consent
shall be valid or effective for more than 90 days after such record date.
After an amendment, supplement or waiver becomes effective, it
shall bind every Securityholder, unless it makes a change described in any of
clauses (1) through (10) of Section 10.02. In that case the amendment,
supplement or waiver shall bind each Holder of a Security who has consented to
it and every subsequent Holder of a Security or portion of a Security that
evidences the same debt as the consenting Holder's Security.
SECTION 10.05. Notation on or Exchange of Securities.
If an amendment, supplement or waiver changes the terms of a
Security, the Trustee may require the Holder of the Security to deliver it to
the Trustee. The Trustee may place an appropriate notation on the Security about
the changed terms and return it to the Holder. Alternatively, if the Company or
the Trustee so determines, the Company in exchange for the Security shall issue
and the Trustee shall authenticate a new Security that reflects the changed
terms. Failure to make the appropriate notation or issue a new Security shall
not affect the validity and effect of such amendment, supplement or waiver.
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SECTION 10.06. Trustee To Sign Amendments, etc.
The Trustee shall be entitled to receive, and shall be fully
protected in relying upon, an Opinion of Counsel stating that the execution of
any amendment, supplement or waiver authorized pursuant to this Article Ten is
authorized or permitted by this Indenture and that such amendment, supplement or
waiver constitutes the legal, valid and binding obligation of the Company and
the Guarantors, enforceable in accordance with its terms (subject to customary
exceptions). The Trustee may, but shall not be obligated to, execute any such
amendment, supplement or waiver which affects the Trustee's own rights, duties
or immunities under this Indenture or otherwise. In signing any amendment,
supplement or waiver, the Trustee shall be entitled to receive an indemnity
reasonably satisfactory to it.
ARTICLE XI.
GUARANTEE
SECTION 11.01. Unconditional Guarantee.
Each Guarantor hereby unconditionally, jointly and severally,
guarantees to each Holder of a Security authenticated and delivered by the
Trustee and to the Trustee and its successors and assigns that: the principal of
and interest on the Securities will be promptly paid in full when due, subject
to any applicable grace period, whether at maturity, by acceleration or
otherwise, and interest on the overdue principal and interest on any overdue
interest on the Securities and all other obligations of the Company to the
Holders or the Trustee hereunder or under the Securities will be promptly paid
in full or performed, all in accordance with the terms hereof and thereof;
subject, however, to the limitations set forth in Section 11.04. Each Guarantor
hereby agrees that its obligations hereunder shall be unconditional,
irrespective of the validity, regularity or enforceability of the Securities or
this Indenture, the absence of any action to enforce the same, any waiver or
consent by any Holder of the Securities with respect to any provisions hereof or
thereof, the recovery of any judgment against the Company, any action to enforce
the same or any other circumstance which might otherwise constitute a legal or
equitable discharge or defense of a guarantor. Each Guarantor hereby waives
diligence, presentment, demand of payment, filing of claims with a court in the
event of insolvency or bankruptcy of the Company, any right to require a
proceeding first against the Company, protest, notice and all demands whatsoever
and covenants that the Guarantee will not be discharged except by complete
performance of the obligations contained in the Securities, this Indenture, and
this
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Guarantee. If any Holder or the Trustee is required by any court or otherwise to
return to the Company, any Guarantor, or any custodian, trustee, liquidator or
other similar official acting in relation to the Company or any Guarantor, any
amount paid by the Company or any Guarantor to the Trustee or such Holder, this
Guarantee, to the extent theretofore discharged, shall be reinstated in full
force and effect. Each Guarantor further agrees that, as between each Guarantor,
on the one hand, and the Holders and the Trustee, on the other hand, (x) the
maturity of the obligations guaranteed hereby may be accelerated as provided in
Article Six for the purpose of this Guarantee, notwithstanding any stay,
injunction or other prohibition preventing such acceleration in respect of the
obligations guaranteed hereby, and (y) in the event of any acceleration of such
obligations as provided in Article Six, such obligations (whether or not due and
payable) shall forth become due and payable by each Guarantor for the purpose of
this Guarantee.
SECTION 11.02. Severability.
In case any provision of this Guarantee shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
SECTION 11.03. Release of a Guarantor.
If the Securities are defeased in accordance with the terms of
this 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 Section 4.05 or (y) the
Company delivers to the Trustee an Officers' Certificate covenanting that the
Net Available Proceeds from such Asset Disposition shall be used in accordance
with Section 4.05 and within the time limits specified by such Section 4.05,
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 deemed released from all obligations under
this Article Eleven without any further action required on the part of the
Trustee or any Holder. The Trustee shall, at the sole cost and expense of the
Company and upon receipt at the reasonable request of the Trustee of an Opinion
of Counsel that the provisions of this Section 11.03 have been complied with,
deliver an appropriate instrument evidencing such
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release upon receipt of a request by the Company accompanied by an Officers'
Certificate certifying as to the compliance with this Section. Any Guarantor not
so released remains liable for the full amount of principal of and interest on
the Securities and the other obligations of the Company hereunder as provided in
this Article Eleven.
SECTION 11.04. Limitation of Guarantor's Liability.
Each Guarantor, and by its acceptance hereof each Holder and
the Trustee, hereby confirms that it is the intention of all such parties that
the guarantee by such Guarantor pursuant to its Guarantee not constitute a
fraudulent transfer or conveyance for purposes of title 11 of the United States
Code, as amended, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent
Transfer Act or any similar U.S. Federal or state or other applicable law. To
effectuate the foregoing intention, the Holders and such Guarantor hereby
irrevocably agree that the obligations of such Guarantor under the Guarantee
shall be limited to the maximum amount as will, 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 Section 11.05, result in the obligations of such Guarantor under the
Guarantee not constituting such fraudulent transfer or conveyance.
SECTION 11.05. Contribution.
In order to provide for just and equitable contribution among
the Guarantors, the Guarantors agree, inter se, that in the event any payment or
distribution is made by any Guarantor (a "Funding Guarantor") under the
Guarantee, such Funding Guarantor shall be entitled to a contribution from all
other Guarantors in a pro rata amount, based on the net assets of each Guarantor
(including the Funding Guarantor), determined in accordance with GAAP, subject
to Section 11.04, for all payments, damages and expenses incurred by that
Funding Guarantor in discharging the Company's obligations with respect to the
Securities or any other Guarantor's obligations with respect to the Guarantee.
SECTION 11.06. Execution of Guarantee.
To further evidence their Guarantee to the Holders, the
Guarantors hereby agree to execute the Guarantee in substantially the form set
forth in Exhibit A hereto to be endorsed on each Security ordered to be
authenticated and delivered by the Trustee. Each Guarantor hereby agrees that
its Guarantee set forth in
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Section 11.01 shall remain in full force and effect notwithstanding any failure
to endorse on each Security a notation of such Guarantee. Each such Guarantee
shall be signed on behalf of each Guarantor by its Chairman of the Board, its
President or one of its Vice Presidents prior to the authentication of the
Security on which it is endorsed, and the delivery of such Security by the
Trustee, after the authentication thereof hereunder, shall constitute due
delivery of such Guarantee on behalf of such Guarantor. Such signature upon the
Guarantee may be manual or facsimile signature of such officer and may be
imprinted or otherwise reproduced on the Guarantee, and in case such officer who
shall have signed the Guarantee shall cease to be such officer before the
Security on which such Guarantee is endorsed shall have been authenticated and
delivered by the Trustee or disposed of by the Company, such Security
nevertheless may be authenticated and delivered or disposed of as though the
Person who signed the Guarantee had not ceased to be such officer of the
Guarantor.
SECTION 11.07. Additional Guarantors.
The Company shall cause each Material Subsidiary (other than
any Securitization Subsidiary), whether formed or acquired after the Issue Date,
to execute and deliver to the Trustee, promptly upon any such formation or
acquisition (a) a supplemental indenture in form and substance satisfactory to
the Trustee which subjects such Material Subsidiary to the provisions of this
Indenture as a Guarantor, and (b) an Opinion of Counsel to the effect that such
supplemental indenture has been duly authorized and executed by such Material
Subsidiary and constitutes the legal, valid, binding and enforceable obligation
of such Material Subsidiary (subject to such customary exceptions concerning
fraudulent conveyance laws, creditors' rights and equitable principles as may be
acceptable to the Trustee in its discretion); 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 comply with the foregoing provisions of
this Section so long as any such restriction is in existence and to the extent
of any such restriction.
SECTION 11.08. Subordination of Subrogation and Other Rights.
Each Guarantor hereby agrees that any claim against the
Company that arises from the payment, performance or enforcement of such
Guarantor's obligations under its Guarantee or this Indenture, including,
without limitation, any right of subrogation, shall be
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subject and subordinate to, and no payment with respect to any such claim of
such Guarantor shall be made before, the payment in full in cash of all
outstanding Securities in accordance with the provisions provided therefor in
this Indenture.
ARTICLE XII.
SUBORDINATION OF GUARANTEE
SECTION 12.01. Guarantee Obligations Subordinated
to Guarantor Senior Debt.
Each Guarantor covenants and agrees, and the Trustee and each
Holder of the Securities by his acceptance thereof likewise covenant and agree,
that the Guarantees shall be issued subject to the provisions of this Article;
and each person holding any Security, whether upon original issue or upon
transfer, assignment or exchange thereof, accepts and agrees that all payments
of the principal of and interest on the Securities pursuant to the Guarantee
made by or on behalf of any Guarantor shall, to the extent and in the manner set
forth in this Article, be subordinated and junior in right of payment to the
prior payment in full of all amounts payable under Guarantor Senior Indebtedness
of such Guarantor.
SECTION 12.02. No Payment on Guarantees in
Certain Circumstances.
(a) No direct or indirect payment by or on behalf of any
Guarantor of principal of or interest on the Securities pursuant to such
Guarantor's Guarantee, whether pursuant to the terms of the Securities, upon
acceleration or otherwise, shall 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 Guarantor Senior Indebtedness of such Guarantor (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 Guarantor Senior Indebtedness. In addition, during the
continuance of any non-payment default or event of default with respect to any
Designated Guarantor Senior Indebtedness pursuant to which the maturity thereof
may be accelerated, and upon receipt by the Trustee of written notice (the
"Guarantor Payment Blockage Notice") from the holder or holders of such
Designated Guarantor Senior Indebtedness or the trustee or agent acting on
behalf of such Designated Guarantor 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 Guarantor Senior Indebtedness has been discharged or
<PAGE>
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paid in full, no direct or indirect payment shall be made by or on behalf of
such Guarantor of principal or interest on the Securities, except from those
funds held in trust for the benefit of the Holders of any Securities to such
Holders, during a period (a "Guarantor Blockage Period") commencing on the date
of receipt of such notice by the Trustee and ending 179 days thereafter.
Notwithstanding anything herein or in the Securities to the
contrary, (x) in no event shall a Guarantor Blockage Period extend beyond 179
days from the date the Guarantor Payment Blockage Notice was given and (y) in no
event shall a Guarantor Blockage Notice be effective for purposes of this
Section 12.02(a) unless and until 360 days shall have elapsed since the
effectiveness of the immediately prior Guarantor Payment Blockage Notice. Not
more than one Guarantor Blockage Period may be commenced with respect to any
Guarantor during any period of 360 consecutive days. No default or event of
default that existed or was continuing on the date of commencement of any other
Guarantor Blockage Period with respect to the Designated Guarantor Senior
Indebtedness initiating such Guarantor Payment Blockage Period may be, or be
made, the basis for the commencement of any other Guarantor Blockage Period by
the holder or holders of such Designated Guarantor Senior Indebtedness or the
trustee or agent acting on behalf of such Designated Guarantor Senior
Indebtedness, whether or not within a period of 360 consecutive days, unless
such default or event of default has been cured or waived for a period of not
less than 90 consecutive days.
(b) In the event that, notwithstanding the foregoing, any
payment shall be received by the Trustee or any Holder when such payment is
prohibited by Section 12.02(a), such payment shall be held in trust for the
benefit of, and shall be paid over or delivered to, the holders of such
Designated Guarantor Senior Indebtedness or their respective representatives, or
to the trustee or trustees under any indenture pursuant to which any of such
Designated Guarantor Senior Indebtedness may have been issued, as their
respective interests may appear, but only to the extent that, upon notice from
the Trustee to the holders of such Designated Guarantor Senior Indebtedness that
such prohibited payment has been made, the holders of such Designated Guarantor
Senior Indebtedness (or their representative or representatives or a trustee)
notify the Trustee in writing of the amounts then due and owing on such
Designated Guarantor Senior Indebtedness, if any, and only the amounts specified
in such notice to the Trustee shall be paid to the holders of such Designated
Guarantor Senior Indebtedness.
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SECTION 12.03. Payment Over of Proceeds upon Dissolution, etc.
(a) Upon any payment or distribution of assets or securities
of any Guarantor of any kind or character, whether in cash, property or
securities, upon any dissolution or winding-up or total or partial liquidation
or reorganization of such Guarantor, whether voluntary or involuntary or in
bankruptcy, insolvency, receivership or other proceedings, all amounts due or to
become due with respect to all Guarantor Senior Indebtedness of such Guarantor
shall first be paid in full before the Holders of the Securities or the Trustee
on behalf of such Holders shall be entitled to receive any payment by such
Guarantor of the principal of or interest on the Securities pursuant to such
Guarantor's Guarantee, or any payment to acquire any of the Securities for cash,
property or securities, or any distribution with respect to the Securities of
any cash, property or securities. Before any payment may be made by, or on
behalf of, any Guarantor of the principal of or interest on the Securities upon
any such dissolution or winding-up or liquidation or reorganization, any payment
or distribution of assets or securities of such Guarantor of any kind or
character, whether in cash, property or securities, to which the Holders of the
Securities or the Trustee on their behalf would be entitled, but for the
subordination provisions of this Indenture, shall be made by such Guarantor or
by any receiver, trustee in bankruptcy, liquidating trustee, agent or other
Person making such payment or distribution, directly to the holders of the
Guarantor Senior Indebtedness of such Guarantor (pro rata to such holders on the
basis of the respective amounts of such Guarantor Senior Indebtedness held by
such holders) or their representatives or to the trustee or trustees under any
indenture pursuant to which any of such Guarantor Senior Indebtedness may have
been issued, as their respective interests may appear, to the extent necessary
to pay all such Guarantor Senior Indebtedness in full after giving effect to any
concurrent payment, distribution or provision therefor to or for the holders of
such Guarantor Senior Indebtedness.
(b) In the event that, notwithstanding the foregoing provision
prohibiting such payment or distribution, any payment or distribution of assets
or securities of any Guarantor of any kind or character, whether in cash,
property or securities, shall be received by the Trustee or any Holder of
Securities at a time when such payment or distribution is prohibited by Section
12.03(a) and before all obligations in respect of the Guarantor Senior
Indebtedness of such Guarantor are paid in full, or payment provided for, such
payment or distribution shall be received and held in trust for the benefit of,
and shall be paid over or delivered to, the holders of such Guarantor Senior
Indebtedness
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(pro rata to such holders on the basis of the respective amounts of such
Guarantor Senior Indebtedness held by such holders) or their respective
representatives, or to the trustee or trustees under any indenture pursuant to
which any of such Guarantor Senior Indebtedness may have been issued, as their
respective interests may appear, for application to the payment of such
Guarantor Senior Indebtedness remaining unpaid until all such Guarantor Senior
Indebtedness has been paid in full after giving effect to any concurrent
payment, distribution or provision therefor to or for the holders of such
Guarantor Senior Indebtedness.
(c) For purposes of this Section, the words "cash, property or
securities" shall not be deemed to include, so long as the effect of these
clauses (x) and (y) is not to cause the Guarantee of any Guarantor to be treated
in any case or proceeding or similar event described in this Section as part of
the same class of claims as Guarantor Senior Indebtedness of such Guarantor or
any class of claims on a parity with or senior to Guarantor Senior Indebtedness
of such Guarantor for any payment or distribution, (x) any payment or
distribution of securities of any Guarantor or any other corporation authorized
by an order or decree giving effect, and stating in such order or decree that
effect is given, to the subordination of the Guarantee to the Guarantor Senior
Indebtedness of such Guarantor, and made by a court of competent jurisdiction in
a reorganization proceeding under any applicable bankruptcy, insolvency or other
similar law, or (y) securities of any Guarantor or any other corporation
provided for by a plan of reorganization or readjustment which are subordinated,
to at least the same extent as the Guarantee, to the payment of all Guarantor
Senior Indebtedness of such Guarantor then outstanding; provided, however, that
(i) if a new corporation results from such reorganization or readjustment, such
corporation assumes the Guarantor Senior Indebtedness of such Guarantor and (ii)
the rights of the holders of the Guarantor Senior Indebtedness of such Guarantor
are not, without the consent of such holders, altered by such reorganization or
readjustment. The consolidation of any Guarantor with, or the merger of any
Guarantor with or into, another corporation or the liquidation or dissolution of
any Guarantor following the conveyance or transfer of its property as an
entirety, or substantially as an entirety, to another corporation upon the terms
and conditions provided in Article Five shall not be deemed a dissolution,
winding-up, liquidation or reorganization for the purposes of this Section if
such other corporation shall, as a part of such consolidation, merger,
conveyance or transfer, comply with the conditions stated in Article Five.
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SECTION 12.04. Subrogation.
Upon the payment in full of all Guarantor Senior Indebtedness
of a Guarantor, or provision for payment, the Holders of the Securities shall be
subrogated to the rights of the holders of such Guarantor Senior Indebtedness to
receive payments or distributions of cash, property or securities of such
Guarantor made on such Guarantor Senior Indebtedness until the principal of and
interest on the Securities shall be paid in full; and, for the purposes of such
subrogation, no payments or distributions to the holders of such Guarantor
Senior Indebtedness of any cash, property or securities to which the Holders of
the Securities or the Trustee on their behalf would be entitled except for the
provisions of this Article, and no payment over pursuant to the provisions of
this Article to the holders of such Guarantor Senior Indebtedness by Holders of
the Securities or the Trustee on their behalf shall, as between such Guarantor,
its creditors other than holders of such Guarantor Senior Indebtedness, and the
Holders of the Securities, be deemed to be a payment by such Guarantor to or on
account of such Guarantor Senior Indebtedness. It is understood that the
provisions of this Article are and are intended solely for the purpose of
defining the relative rights of the Holders of the Securities, on the one hand,
and the holders of Guarantor Senior Indebtedness of each Guarantor, on the other
hand.
If any payment or distribution to which the Holders of the
Securities would otherwise have been entitled but for the provisions of this
Article shall have been applied, pursuant to the provisions of this Article, to
the payment of all amounts payable under Guarantor Senior Indebtedness, then and
in such case, the Holders of the Securities shall be entitled to receive from
the holders of such Guarantor Senior Indebtedness any payments or distributions
received by such holders of Guarantor Senior Indebtedness in excess of the
amount required to make payment in full, or provision for payment, of such
Guarantor Senior Indebtedness.
SECTION 12.05. Obligations of Guarantors Unconditional.
Nothing contained in this Article or elsewhere in this
Indenture or in the Securities or the Guarantee is intended to or shall impair,
as among the Guarantors and the Holders of the Securities, the obligation of
each Guarantor, which is absolute and unconditional, to pay to the Holders of
the Securities the principal of and interest on the Securities as and when the
same shall become due and payable in accordance with the terms of the Guarantee,
or is intended to or shall affect the relative rights of the Holders of the
Securities and creditors of any Guarantor other
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than the holders of Guarantor Senior Indebtedness, nor shall anything herein or
therein prevent the Holder of any Security or the Trustee on their behalf from
exercising all remedies otherwise permitted by applicable law upon default under
this Indenture, subject to the rights, if any, under this Article of the holders
of Guarantor Senior Indebtedness in respect of cash, property or securities of
any Guarantor received upon the exercise of any such remedy.
Without limiting the generality of the foregoing, nothing
contained in this Article shall restrict the right of the Trustee or the Holders
of Securities to take any action to declare the Securities to be due and payable
prior to their stated maturity pursuant to Section 6.01 or to pursue any rights
or remedies hereunder; provided, however, that all Guarantor Senior Indebtedness
of any Guarantor then due and payable shall first be paid in full before the
Holders of the Securities or the Trustee are entitled to receive any direct or
indirect payment from such Guarantor of principal of or interest on the
Securities pursuant to such Guarantor's Guarantee.
SECTION 12.06. Notice to Trustee.
The Company and each Guarantor shall give prompt written
notice to the Trustee of any fact known to the Company or such Guarantor which
would prohibit the making of any payment to or by the Trustee in respect of the
Securities pursuant to the provisions of this Article. The Trustee shall not be
charged with knowledge of the existence of any default or event of default with
respect to any Guarantor Senior Indebtedness or of any other facts which would
prohibit the making of any payment to or by the Trustee unless and until the
Trustee shall have received notice in writing at its Corporate Trust Office to
that effect signed by an Officer of the Company or such Guarantor, or by a
holder of Guarantor Senior Indebtedness or trustee or agent therefor; and prior
to the receipt of any such written notice, the Trustee shall, subject to Article
Seven, be entitled to assume that no such facts exist; provided that if the
Trustee shall not have received the notice provided for in this Section at least
two Business Days prior to the date upon which by the terms of this Indenture
any moneys shall become payable for any purpose (including, without limitation,
the payment of the principal of or interest on any Security), then, regardless
of anything herein to the contrary, the Trustee shall have full power and
authority to receive any moneys from any Guarantor and to apply the same to the
purpose for which they were received, and shall not be affected by any notice to
the contrary which may be received by it on or after such prior date. Nothing
contained in this Section 12.06 shall limit the right of the holders of
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Guarantor Senior Indebtedness to recover payments as contemplated by Section
12.03. The Trustee shall be entitled to rely on the delivery to it of a written
notice by a Person representing himself or itself to be a holder of any
Guarantor Senior Indebtedness (or a trustee on behalf of, or other
representative of, such holder) to establish that such notice has been given by
a holder of such Guarantor Senior Indebtedness or a trustee or representative on
behalf of any such holder.
In the event that the Trustee determines in good faith that
any evidence is required with respect to the right of any Person as a holder of
Guarantor Senior Indebtedness to participate in any payment or distribution
pursuant to this Article, the Trustee may request such Person to furnish
evidence to the reasonable satisfaction of the Trustee as to the amount of
Guarantor Senior Indebtedness held by such Person, the extent to which such
Person is entitled to participate in such payment or distribution and any other
facts pertinent to the rights of such Person under this Article, and if such
evidence is not furnished, the Trustee may defer any payment to such Person
pending judicial determination as to the right of such Person to receive such
payment.
SECTION 12.07. Reliance on Judicial Order or
Certificate of Liquidating Agent.
Upon any payment or distribution of assets or securities of a
Guarantor referred to in this Article, the Trustee and the Holders of the
Securities shall be entitled to rely upon any order or decree made by any court
of competent jurisdiction in which bankruptcy, dissolution, winding-up,
liquidation or reorganization proceedings are pending, or upon a certificate of
the receiver, trustee in bankruptcy, liquidating trustee, agent or other person
making such payment or distribution, delivered to the Trustee or to the Holders
of the Securities for the purpose of ascertaining the persons entitled to
participate in such distribution, the holders of Guarantor Senior Indebtedness
of such Guarantor and other indebtedness of such Guarantor, the amount thereof
or payable thereon, the amount or amounts paid or distributed thereon and all
other facts pertinent thereto or to this Article.
SECTION 12.08. Trustee's Relation to Guarantor
Senior Indebtedness.
The Trustee and any Paying Agent shall be entitled to all the
rights set forth in this Article with respect to any Guarantor Senior
Indebtedness which may at any time be held by it in its individual or any other
capacity to the same extent as any other
<PAGE>
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holder of Guarantor Senior Indebtedness, and nothing in this Indenture shall
deprive the Trustee or any Paying Agent of any of its rights as such holder.
With respect to the holders of Guarantor Senior Indebtedness,
the Trustee undertakes to perform or to observe only such of its covenants and
obligations as are specifically set forth in this Article, and no implied
covenants or obligations with respect to the holders of Guarantor Senior
Indebtedness shall be read into this Indenture against the Trustee. The Trustee
shall not be deemed to owe any fiduciary duty to the holders of Guarantor Senior
Indebtedness (except as provided in Section 12.03(b)).
SECTION 12.09. Subordination Rights Not Impaired by
Acts or Omissions of the Guarantors or
Holders of Guarantor Senior Indebtedness.
No right of any present or future holders of any Guarantor
Senior Indebtedness to enforce subordination as provided herein shall at any
time in any way be prejudiced or impaired by any act or failure to act on the
part of any Guarantor or by any act or failure to act, in good faith, by any
such holder, or by any noncompliance by any Guarantor with the terms of this
Indenture, regardless of any knowledge thereof which any such holder may have or
otherwise be charged with. The provisions of this Article are intended to be for
the benefit of, and shall be enforceable directly by, the holders of Guarantor
Senior Indebtedness.
SECTION 12.10. Securityholders Authorize Trustee To
Effectuate Subordination of Guarantee.
Each Holder of Securities by his acceptance of such Securities
authorizes and expressly directs the Trustee on his behalf to take such action
as may be necessary or appropriate to effectuate the subordination provided in
this Article, and appoints the Trustee his attorney-in-fact for such purposes,
including, in the event of any dissolution, winding up, liquidation or
reorganization of any Guarantor (whether in bankruptcy, insolvency,
receivership, reorganization or similar proceedings or upon an assignment for
the benefit of creditors or otherwise) tending towards liquidation of the
business and assets of such Guarantor, the filing of a claim for the unpaid
balance of its or his Securities in the form required in those proceedings.
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SECTION 12.11. This Article Not To Prevent Events of Default.
The failure to make a payment on account of principal of or
interest on the Securities by reason of any provision of this Article shall not
be construed as preventing the occurrence of an Event of Default specified in
clauses (1) or (2) of Section 6.01.
SECTION 12.12. Trustee's Compensation Not Prejudiced.
Nothing in this Article shall apply to amounts due to the
Trustee pursuant to other sections in this Indenture.
SECTION 12.13. No Waiver of Guarantee
Subordination Provisions.
Without in any way limiting the generality of Section 12.09,
the holders of Guarantor Senior Indebtedness may, at any time and from time to
time, without the consent of or notice to the Trustee or the Holders of the
Securities, without incurring responsibility to the Holders of the Securities
and without impairing or releasing the subordination provided in this Article or
the obligations hereunder of the Holders of the Securities to the holders of
Guarantor Senior Indebtedness, do any one or more of the following: (a) change
the manner, place or terms of payment or extend the time of payment of, or renew
or alter, Guarantor Senior Indebtedness or any instrument evidencing the same or
any agreement under which Guarantor Senior Indebtedness is outstanding or
secured; (b) sell, exchange, release or otherwise deal with any property
pledged, mortgaged or otherwise securing Guarantor Senior Indebtedness; (c)
release any Person liable in any manner for the collection of Guarantor Senior
Indebtedness and (d) exercise or refrain from exercising any rights against any
Guarantor and any other Person.
SECTION 12.14. Payments May Be Paid Prior to Dissolution.
Nothing contained in this Article or elsewhere in this
Indenture shall prevent (i) a Guarantor, except under the conditions described
in Section 12.02, from making payments of principal of and interest on the
Securities, or from depositing with the Trustee any moneys for such payments, or
(ii) the application by the Trustee of any moneys deposited with it for the
purpose of making such payments of principal of and interest on the Securities,
to the holders entitled thereto unless at least two Business Days prior to the
date upon which such payment becomes due and payable, the Trustee shall have
received the written notice provided for in Section 12.02(b) or in Section
12.06. A Guarantor
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shall give prompt written notice to the Trustee of any dissolution, winding-up,
liquidation or reorganization of such Guarantor.
ARTICLE XIII.
MISCELLANEOUS
SECTION 13.01. Trust Indenture Act Controls.
This Indenture is subject to the provisions of the TIA that
are required to be a part of this Indenture, and shall, to the extent
applicable, be governed by such provisions. If any provision of this Indenture
modifies any TIA provision that may be so modified, such TIA provision shall be
deemed to apply to this Indenture as so modified. If any provision of this
Indenture excludes any TIA provision that may be so excluded, such TIA provision
shall be excluded from this Indenture.
The provisions of TIA ss.ss. 310 through 317 that impose
duties on any Person (including the provisions automatically deemed included
unless expressly excluded by this Indenture) are a part of and govern this
Indenture, whether or not physically contained herein.
SECTION 13.02. Notices.
Any notice or communication shall be sufficiently given if in
writing and delivered in person, by facsimile and confirmed by overnight
courier, or mailed by first-class mail addressed as follows:
if to the Company:
Owens & Minor, Inc.
4800 Cox Road
Glen Allen, Virginia 23060
Attention: Glenn J. Dozier
Senior Vice President, Finance,
Chief Financial Officer
Facsimile: 804-273-0232
Telephone: 804-747-9794
with a copy to:
C. Porter Vaughan, III
Hunton & Williams
<PAGE>
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951 E. Byrd Street
Richmond, Virginia 23219
if to the Trustee:
Crestar Bank
919 E. Main Street, 10th Floor
Richmond, Virginia 23219
Attention: Kelly A. Pickerel, Vice President
Facsimile: 804-782-7855
Telephone: 804-782-5726
The Company or the Trustee by notice to the other may
designate additional or different addresses for subsequent notices or
communications.
Any notice or communication mailed, first class, postage
prepaid, to a Securityholder, including any notice delivered in connection with
TIA ss. 310(b), TIA ss. 313(c), TIA ss. 314(a) and TIA ss. 315(b), shall be
mailed to him at his address as set forth on the registration books of the
Registrar and shall be sufficiently given to him if so mailed within the time
prescribed. To the extent required by the TIA, any notice or communication shall
also be mailed to any Person described in TIA ss. 313(c).
Failure to mail a notice or communication to a Securityholder
or any defect in it shall not affect its sufficiency with respect to other
Securityholders. Except for a notice to the Trustee, which is deemed given only
when received, if a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
SECTION 13.03. Communications by Holders with Other Holders.
Securityholders may communicate pursuant to TIA ss. 312(b)
with other Securityholders with respect to their rights under this Indenture or
the Securities. The Company, the Trustee, the Registrar and any other person
shall have the protection of TIA ss. 312(c).
SECTION 13.04. Certificate and Opinion as to Conditions
Precedent.
Upon any request or application by the Company to the Trustee
to take or refrain from taking any action under this
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Indenture, the Company shall furnish to the Trustee at the request of the
Trustee:
(1) an Officers' Certificate in form and substance
satisfactory to the Trustee stating that, in the opinion of the
signers, all conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been complied with; and
(2) an Opinion of Counsel in form and substance satisfactory
to the Trustee stating that, in the opinion of such counsel, all such
conditions precedent have been complied with.
SECTION 13.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that the person making such certificate
or opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or
opinions contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such person, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(4) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with; provided,
however, that with respect to matters of fact an Opinion of Counsel may
rely on an Officers' Certificate or certificates of public officials.
SECTION 13.06. Rules by Trustee, Paying Agent, Registrar.
The Trustee may make reasonable rules for action by or at
a meeting of Securityholders. The Paying Agent or Registrar may
make reasonable rules for its functions.
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SECTION 13.07. Governing Law.
The laws of the State of New York shall govern this Indenture,
the Securities and the Guarantee without regard to principles of conflicts of
law.
SECTION 13.08. No Recourse Against Others.
A director, officer, employee or stockholder, as such, of the
Company or any Guarantor shall not have any liability for any obligations of the
Company or any Guarantor under the Securities, the Guarantee or this Indenture
or for any claim based on, in respect of or by reason of such obligations or
their creation. Each Securityholder by accepting a Security waives and releases
all such liability.
SECTION 13.09. Successors.
All agreements of the Company in this Indenture and the
Securities shall bind its successor. All agreements of each Guarantor in this
Indenture and Securities shall bind its successor. All agreements of the Trustee
in this Indenture shall bind its successor.
SECTION 13.10. Counterpart Originals.
The parties may sign any number of copies of this Indenture.
Each signed copy shall be an original, but all of them together represent the
same agreement.
SECTION 13.11. Severability.
In case any provision in this Indenture, in the Securities or
in the Guarantee shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby, and a Holder shall have no claim therefor against
any party hereto.
SECTION 13.12. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture,
loan or debt agreement of the Company or a Subsidiary. Any such indenture, loan
or debt agreement may not be used to interpret this Indenture.
<PAGE>
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SECTION 13.13. Legal Holidays.
If a payment date is a Legal Holiday at a place of payment,
payment may be made at that place on the next succeeding day that is not a Legal
Holiday, and no interest shall accrue for the intervening period.
[Signature Pages Follow]
<PAGE>
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SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed, and their respective corporate seals to be
hereunto affixed and attested, all as of the date first written above.
OWENS & MINOR, INC.
By: _____________________________
Name:
Title:
Attest: _____________________
OWENS & MINOR MEDICAL, INC.
By: ____________________________
Name:
Title:
Attest: _____________________
NATIONAL MEDICAL SUPPLY
CORPORATION
By: ____________________________
Name:
Title:
Attest: _____________________
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OWENS & MINOR WEST, INC.
By: ____________________________
Name:
Title:
Attest: ______________________
KOLEY'S MEDICAL SUPPLY, INC.
By: ____________________________
Name:
Title:
Attest: ______________________
LYONS PHYSICIAN SUPPLY COMPANY
By: ____________________________
Name:
Title:
Attest: ______________________
A. KUHLMAN & COMPANY
By: ____________________________
Name:
Title:
Attest: _______________________
<PAGE>
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STUART MEDICAL, INC.
By: ____________________________
Name:
Title:
Attest: ________________________
CRESTAR BANK, as Trustee
By: _____________________________
Name:
Title:
Attest: _______________________
<PAGE>
EXHIBIT A
OWENS & MINOR, INC.
No. $
_____% SENIOR SUBORDINATED NOTE DUE 2006
Owens & Minor, Inc. promises to pay to
or registered assigns the principal sum of
Dollars on the Maturity Date of _______, 2006.
Interest Payment Dates:
Record Dates:
IN WITNESS WHEREOF, OWENS & MINOR, INC. has caused this
instrument to be executed in its corporate name by a facsimile signature of its
_________________ and its ___________________ and has caused the facsimile of
its corporate seal to be affixed hereunto or imprinted hereon.
OWENS & MINOR, INC.
By __________________________
Title:
[SEAL]
Dated: By __________________________
Title:
Certificate of Authentication:
This is one of the ______% Senior Subordinated Notes due 2006
referred to in the within-mentioned Indenture.
By ______________________ Date:
Authorized Signatory
<PAGE>
A-2
(REVERSE OF SECURITY)
OWENS & MINOR, INC.
______% Senior Subordinated Note due 2006
1. Interest.
Owens & Minor, Inc., a Virginia corporation (the "Company"),
promises to pay interest at the rate of ______% per annum on the principal
amount of this Security semiannually commencing on ___________, 1996, until the
principal hereof is paid or made available for payment. Interest on the
Securities will accrue from and including the most recent date to which interest
has been paid or, if no interest has been paid, from and including __________,
1996, through but excluding the date on which interest is paid. If an Interest
Payment Date falls on a day that is not a Business Day, the interest payment to
be made on such Interest Payment Date will be made on the next succeeding
Business Day with the same force and effect as if made on such Interest Payment
Date, and no additional interest will accrue as a result of such delayed
payment. Interest will be computed on the basis of a 360-day year of twelve
30-day months.
2. Method of Payment.
The interest payable on the Securities, and punctually paid or
duly provided for, on any Interest Payment Date will, as provided in the
Indenture, be paid to the person in whose name this Security is registered at
the close of business on the regular record date, which shall be the __________
or ___________ (whether or not a Business Day) next preceding such Interest
Payment Date. Any such interest not so punctually paid or duly provided for, and
any interest payable on such defaulted interest (to the extent lawful), will
forthwith cease to be payable to the Holder on such regular record date and
shall be paid to the person in whose name this Security is registered at the
close of business on a special record date for the payment of such defaulted
interest to be fixed by the Company, notice of which shall be given to Holders
not less than 15 days prior to such special record date. Payment of the
principal of and interest on this Security will be made at the agency of the
Company maintained for that purpose in New York, New York and at any other
office or agency maintained by the Company for such purpose, in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts; provided, however, that at the
option of the Company payment of interest may be made by check mailed to the
<PAGE>
A-3
address of the person entitled thereto as such address shall appear in the
Security register.
3. Paying Agent and Registrar.
Initially, Crestar Bank (the "Trustee") will act as Paying
Agent and Registrar. The Company may change any Paying Agent, Registrar or
co-Registrar without notice to the Holders of Securities. The Company or any of
its Subsidiaries may act as Registrar, co-Registrar or, except in certain
circumstances specified in the Indenture, Paying Agent.
4. Indenture.
This Security is one of a duly authorized issue of Securities
of the Company, designated as its ______% Senior Subordinated Notes due 2006
(the "Securities"), limited in aggregate principal amount to $150,000,000
(except for Securities issued in substitution for destroyed, lost or stolen
Securities) issuable under an indenture dated as of _________, 1996 (the
"Indenture"), among the Company, the Guarantors (herein collectively called the
"Guarantors", which term includes any successor Person or additional Guarantor
under the Indenture) and the Trustee. The terms of the Securities include those
stated in the Indenture and those made part of the Indenture by the Trust
Indenture Act of 1939 (the "Act") (15 U.S. Code ss.ss. 77aaa-77bbbb) as in
effect on the date of the Indenture and the date the Indenture is qualified
under the Act. The Securities are subject to all such terms, and Holders of
Securities are referred to the Indenture and the Act for a statement of them.
Each Securityholder, by accepting a Security, agrees to be bound to all of the
terms and provisions of the Indenture, as the same may be amended from time to
time. Payment on each Security is guaranteed on a senior subordinated basis,
jointly and severally, by the Guarantors pursuant to Article Eleven of the
Indenture.
The Securities are subordinated in right of payment to all
Senior Indebtedness of the Company to the extent and in the manner provided in
the Indenture. Each Holder of a Security, by accepting a Security, agrees to
such subordination, authorizes the Trustee to give effect to such subordination
and appoints the Trustee as attorney-in-fact for such purpose.
Capitalized terms contained in this Security to the extent not
defined herein shall have the meanings assigned to them in the Indenture.
<PAGE>
A-4
5. Optional Redemption.
(a) The Securities are not redeemable prior to ________, 2001,
except as provided in clause (b) below of this paragraph 5. On and after such
date, the Securities may be redeemed at any time, in whole or in part, at the
option of the Company, at redemption prices (expressed as percentages of the
principal amount) set forth below, if redeemed during the 12-month period
beginning ________ of the year indicated below, in each case together with
interest accrued to the date fixed for redemption:
Year Percentage
2001............................... %
2002............................... %
2003............................... %
2004 and thereafter................ 100.00%
(b) At any time prior to _________, 1999, the Company may
redeem up to 33-1/3% of the principal amount of the Securities 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
Securities remains outstanding immediately after any such redemption (excluding
any Securities owned by the Company or any of its Affiliates). Notice of
redemption pursuant to this paragraph must be mailed to Holders of Securities
not later than 60 days following consummation of such public offering.
6. Purchase upon Occurrence of a
Change of Control.
Within 30 days of the occurrence of a Change of Control, the
Company will offer to purchase the Securities, in whole and not in part, at a
purchase price equal to 101% of the principal amount thereof plus any accrued
and unpaid interest thereon.
7. Notice of Redemption.
Notice of redemption will be mailed by first class mail at
least 30 days but not more than 60 days before the redemption date to each
Holder of Securities to be redeemed at his registered address. Securities in
denominations larger than $1,000 may be redeemed in part. On and after the
redemption date, interest
<PAGE>
A-5
ceases to accrue on those Securities or portion of them called for
redemption.
8. Denominations; Transfer; Exchange.
The Securities are in registered form without coupons in
denominations of $1,000 and integral multiples of $1,000. A Holder may transfer
or exchange Securities in accordance with the Indenture. The Registrar may
require a Holder, among other things, to furnish appropriate endorsements and
transfer documents and to pay any taxes and fees required by law or permitted by
the Indenture. The Registrar need not transfer or exchange any Securities
selected for redemption.
9. Persons Deemed Owners.
The registered Holder of a Security may be treated as the
owner of it for all purposes.
10. Unclaimed Funds.
If funds for the payment of principal or interest remain
unclaimed for two years, the Trustee or Paying Agent will repay the funds to the
Company at its request. After such repayment Holders of Securities entitled to
such funds must look to the Company for payment unless an abandoned property law
designates another person.
11. Discharge Prior to Redemption or Maturity.
The Indenture will be discharged and cancelled except for
certain Sections thereof, subject to the terms of the Indenture, upon the
payment of all the Securities or upon the irrevocable deposit with the Trustee
of funds or United States Government Obligations sufficient for such payment or
redemption.
12. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture or the Securities
may be amended or supplemented with the consent of the Holders of at least a
majority in principal amount of the outstanding Securities, and any past default
or compliance with any provision may be waived with the consent of the Holders
of a majority in principal amount of the outstanding Securities. Without notice
to or the consent of any Holder, the Company, the Guarantors and the Trustee may
amend or supplement the Indenture or the Securities to cure any ambiguity,
defect or inconsistency, or to make any change that does not adversely affect
the rights of any Holder of Securities.
<PAGE>
A-6
13. Restrictive Covenants.
The Securities are general unsecured senior subordinated
obligations of the Company limited to the aggregate principal amount of
$150,000,000. The Indenture restricts, among other things, the ability of the
Company or any of its Subsidiaries to permit any Liens to be imposed on their
assets, to make certain payments and investments, limits the Indebtedness which
the Company and its Subsidiaries may incur and limits the terms on which the
Company may engage in Asset Dispositions. The Company is also obligated under
certain circumstances to make an offer to purchase Securities with the net cash
proceeds of certain Asset Dispositions. The Company must report quarterly to the
Trustee on compliance with certain covenants in the Indenture.
14. Successor Corporation.
Pursuant to the Indenture, the ability of the Company to
consolidate with, merge with or into or transfer its assets to another person is
conditioned upon certain requirements, including certain financial requirements
applicable to the surviving Person.
15. Defaults and Remedies.
If an Event of Default shall occur and be continuing, the
principal of all of the outstanding Securities, plus all accrued and unpaid
interest, if any, to the date the Securities become due and payable, may be
declared due and payable in the manner and with the effect provided in the
Indenture.
16. Trustee Dealings with Company.
The Trustee in its individual or any other capacity, may
become the owner or pledgee of Securities and make loans to, accept deposits
from, and perform services for the Company or its Affiliates, and may otherwise
deal with the Company or its Affiliates, as if it were not Trustee.
17. No Recourse Against Others.
A director, officer, employee or stockholder, as such, of the
Company or any Guarantor shall not have any liability for any obligations of the
Company or any Guarantor under the Securities, the Guarantee or the Indenture or
for any claim based on, in respect of or by reason of such obligations or their
creation. Each Holder of a Security by accepting a Security waives and releases
all such liability. The waiver and release are part of the consideration for the
issue of the Securities.
<PAGE>
A-7
18. Authentication.
This Security shall not be valid until the Trustee signs the
certificate of authentication on the other side of this Security.
19. Abbreviations.
Customary abbreviations may be used in the name of
Securityholder or an assignee, such as TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
20. CUSIP Numbers.
Pursuant to a recommendation promulgated by the Committee on
Uniform Security Identification Procedures, the Company has caused CUSIP numbers
to be printed on the Securities and has directed the Trustee to use CUSIP
numbers in notices of redemption as a convenience to Securityholders. No
representation is made as to the accuracy of such numbers either as printed on
the Securities or as contained in any notice of redemption and reliance may be
placed only on the other identification numbers placed thereon.
The Company will furnish to any Holder of record of Securities
upon written request and without charge a copy of the Indenture.
<PAGE>
A-8
[FORM OF NOTATION ON SECURITY RELATING TO GUARANTEE]
SENIOR SUBORDINATED GUARANTEE
The Guarantors (as defined in the Indenture referred to in the
Security upon which this notation is endorsed) hereby, jointly and severally,
unconditionally guarantee on a senior subordinated basis (such guarantee by each
Guarantor being referred to herein as the "Guarantee") the due and punctual
payment of the principal of, premium, if any, and interest on the Securities,
whether at maturity, by acceleration or otherwise, the due and punctual payment
of interest on the overdue principal, premium and interest, if any, on the
Securities, and the due and punctual performance of all other obligations of the
Company to the Holders or the Trustee, all in accordance with the terms set
forth in Article Eleven of the Indenture.
The obligations of each Guarantor to the Holders of Securities
and to the Trustee pursuant to the Guarantee and the Indenture are expressly set
forth, and are expressly subordinated and subject in right of payment to the
prior payment in full of all Guarantor Senior Indebtedness of such Guarantor, to
the extent and in the manner provided, in Article Twelve of the Indenture, and
reference is hereby made to such Indenture for the precise terms of the
Guarantee therein made.
The Guarantee shall not be valid or obligatory for any purpose
until the certificate of authentication on the Securities upon which the
Guarantee is noted shall have been executed by the Trustee under the Indenture
by the manual signature of one of its authorized officers.
This Guarantee shall be governed by and construed in
accordance with the laws of the State of New York without regard to principles
of conflicts of law.
This Guarantee is subject to release upon the terms set forth
in the Indenture.
OWENS & MINOR MEDICAL, INC.
By: ______________________
Name:
Title:
<PAGE>
A-9
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:
<PAGE>
A-10
ASSIGNMENT FORM
If you the Holder want to assign this Security, fill in the
form below and have your signature guaranteed:
I or we assign and transfer this Security to:
______________________________________________________________________________
______________________________________________________________________________
____________________________________________________________________________
(Print or type name, address and zip code and
social security or tax ID number of assignee)
and irrevocably appoint ___________________________________________________,
agent to transfer this Security on the books of the Company. The
agent may substitute another to act for him.
Dated: ________________________ Signed: ___________________________
(Sign exactly as
name appears on the
other side of this
Security)
Signature Guarantee: _________________________________________________
<PAGE>
A-11
OPTION OF HOLDER TO ELECT PURCHASE
If you the Holder want to elect to have this Security purchased by
the Company, check the box: |_|
If you want to elect to have only part of this Security purchased
by the Company, state the amount: $ ____________
Date: ___________________ Your signature: ___________________________
(Sign exactly as your
name appears on the
other side of this
Security)
Signature Guarantee: _____________________________________________________
<PAGE>
EXHIBIT 5
Hunton & Williams
Riverfront Plaza - East Tower
951 East Byrd Street
Richmond, Virginia 23219-4074
FILE NO.: 26333.89
DIRECT DIAL: (804) 788-8200
____________, 1996
Board of Directors
Owens & Minor, Inc.
4800 Cox Road
Glen Allen, Virginia 23060
OWENS & MINOR, INC. --
REGISTRATION STATEMENT ON FORM S-3 (FILE NO. 333-01695)
Ladies and Gentlemen:
We have acted as counsel to Owens & Minor, Inc., a Virginia
corporation (the "Company"), and its subsidiaries, 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 (the "Guarantors"), in connection with the
registration of the offering of (a) an aggregate of $150,000,000 of the
Company's Senior Subordinated Notes due 2006 (the "Notes") and (b) guarantees of
the Notes (the "Guarantees") by each of the Guarantors, as set forth in the
Registration Statement on Form S-3 No. 333-01695 (the "Registration Statement")
filed with the Securities and Exchange Commission (the "Commission") pursuant to
the Securities Act of 1933, as amended. The Notes and the Guarantees are to be
issued pursuant to an indenture (the "Indenture") to be entered into among the
Company, the Guarantors and Crestar Bank.
In rendering this opinion, we have relied upon, among other things, our
examination of such records of the Company and the Guarantors and certificates
of their respective officers and of public officials as we have deemed
necessary.
Based upon the foregoing and subject to the further qualifications
stated below, we are of the opinion that:
1. The Company is duly incorporated, validly existing and in
good standing under the laws of the Commonwealth of Virginia;
2. Each of the Guarantors is duly incorporated, validly existing
and in good standing under the laws of its respective jurisdiction of
incorporation; and
3. When the Notes and Guarantees have been issued and sold upon the
terms and conditions set forth in the Registration Statement and have been duly
executed, authenticated and delivered in accordance with the terms of the
Indenture, (x) the Notes will be validly authorized and issued and binding
obligations of the Company and (y) the Guarantees will be validly authorized and
issued and binding obligations of the Guarantors.
<PAGE>
We hereby consent to the filing of this opinion with the Commission as
an exhibit to the Registration Statement and to the statement made in reference
to this firm under the caption "Legal Matters" in the Registration Statement.
Very truly yours,
EXHIBIT 12
RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED DECEMBER 31,
MARCH 31,
Pro Forma Pro Forma
1996(1) 1996 1995 1995(1) 1995 1994 1993 1992 1991
-------------- ------- ------- ----------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income (loss) from
continuing operations
before income taxes $1,589 $2,665 $7,779 $(20,815) $(16,408) $13,997 $30,417 $25,940 $16,350
------ ------ ------ ---------- ---------- -------- -------- -------- --------
Adjustments:
Interest expense, net of
amortization of deferred
debt issuance costs 6,083 5,350 5,329 28,402 24,447 9,996 1,521 1,121 3,147
Discount on accounts
receivable securitization 974 744 -- 641 641 -- -- -- --
Amortization of deferred
debt issuance costs 563 450 62 1,543 1,091 159 9 7 45
One-third of rent expense 2,073 2,073 2,177 8,997 8,997 7,088 4,286 3,776 3,489
----- ------- ------- --------- --------- --------- --------- --------- ---------
Total fixed charges 9,693 8,617 7,568 39,583 35,176 17,243 5,816 4,904 6,681
----- ------- ------- --------- --------- --------- --------- --------- ---------
Total earnings $11,282 $11,282 $15,347 $18,768 $18,768 $31,240 $36,233 $30,844 $23,031
======= ======== ======== ======== ======== ======== ======== ======== ========
Ratio of earnings to fixed
charges (deficiency) 1.16 1.31 2.03 $(20,815) $(16,408) 1.81 6.23 6.29 3.45
========= ==================== ========== ========== ========== ========== ========= =========
</TABLE>
- ---------------------------
(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).
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
April 25, 1996
