UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1996
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________ to __________
1-9810
Commission File Number -------------------------------------------------------
OWENS & MINOR, INC.
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(Exact name of registrant as specified in its charter)
Virginia 54-01701843
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4800 Cox Road, Glen Allen, Virginia 23060
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (804) 747-9794
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock, $2 par value New York Stock Exchange
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Preferred Stock Purchase Rights New York Stock Exchange
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10 7/8% Senior Subordinated Notes due 2006 New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act:
None
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value of Common Stock held by non-affiliates (based
upon the closing sales price) was approximately $289,700,000 as of March 4,
1997. In determining this figure, the Company has assumed that all of its
officers, directors and persons known to the Company to be the beneficial owners
of more than five percent of the Company's Common Stock are affiliates. Such
assumption shall not be deemed conclusive for any other purpose.
The number of shares of the Company's Common Stock outstanding as of March
4, 1997 was 31,912,718 shares.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Owens & Minor, Inc. Annual Report to Shareholders for the
year ended December 31, 1996 (the "1996 Annual Report") are incorporated by
reference into Part II of this Form 10-K and portions of the Owens & Minor, Inc.
definitive Proxy Statement for the 1997 Annual Meeting of Shareholders (the
"1997 Proxy Statement") are incorporated by reference into Part III of this Form
10-K. With the exception of the specific information referred to in Items 5, 6,
7 and 8 hereof with respect to the 1996 Annual Report and Items 10, 11, 12 and
13 hereof with respect to the 1997 Proxy Statement, the 1996 Annual Report and
the 1997 Proxy Statement are not deemed to be filed as a part of this report.
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<TABLE>
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TABLE OF CONTENTS
and
CROSS REFERENCE SHEET
Page Number(s)
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Form Annual Proxy
10-K Report Statement
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PART I
Item 1 Business 2-9
Item 2 Properties 10
Item 3 Legal Proceedings 10-12
Item 4 Submission of Matters to a
Vote of Security Holders 12
PART II
* Item 5 Market for Registrant's Common
Equity and Related Stockholder
Matters 16 35
* Item 6 Selected Financial Data 16 12-13
* Item 7 Management's Discussion and
Analysis of Financial
Condition and Results
of Operations 16 14-17
* Item 8 Financial Statements and
Supplementary Data 16 18-33
Item 9 Changes in and Disagreements
with Accountants on Accounting
and Financial Disclosure 16
PART III
** Item 10 Directors and Executive Officers 17 2-6
of the Registrant
** Item 11 Executive Compensation 17 14-19
** Item 12 Security Ownership of Certain 17 8-9
Beneficial Owners and
Management
** Item 13 Certain Relationships and 17 9-10
Related Transactions
PART IV
Item 14 Exhibits, Financial Statement 18-22
Schedules, and Reports on
Form 8-K
* Information related to this item is hereby incorporated by reference to the
1996 Annual Report.
** Information related to this item is hereby incorporated
by reference to the 1997 Proxy Statement.
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OWENS & MINOR, INC.
PART I
Item 1. Business
Company Overview
Owens & Minor, Inc. (the "Company" or "O&M") is one of the two largest
distributors of medical/surgical supplies in the United States. The Company
distributes approximately 250,000 finished medical/surgical products produced by
approximately 3,000 manufacturers to over 4,000 customers from 46 distribution
centers nationwide. The Company's customers are primarily hospitals and also
include alternate care facilities such as clinics, nursing homes, physicians'
offices, surgicenters and home healthcare. The majority of the Company's sales
consists of disposable products, including dressings, endoscopic products,
intravenous products, latex gloves, needles and syringes, sterile procedure
trays, surgical products and gowns, urological products and wound closure
products. The Company was incorporated in Virginia on December 7, 1926 as a
successor to a partnership founded in Richmond, Virginia in 1882.
The Company has significantly expanded its national presence over the last five
years. This expansion resulted from both internal growth and acquisitions,
including the May 1994 acquisition of Stuart Medical, Inc. ("Stuart"), then the
third largest distributor of medical/surgical supplies in the United States with
1993 net sales of approximately $890.5 million. Since 1991, the Company has
grown from 27 medical distribution centers serving 37 states to 46 distribution
centers serving 50 states currently.
The Company is committed to providing its customers and suppliers with the
highest quality and most cost effective distribution system for the delivery of
medical/surgical supplies and services. 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 provide
its customers with cost containment solutions to their inventory management
needs; (iii) maintain the highest quality of service; and (iv) enhance
relationships with major medical/surgical supply manufacturers.
Industry Overview
Distributors of medical/surgical supplies provide a wide variety of disposable
medical and surgical products to healthcare providers, including hospitals,
integrated healthcare systems ("IHSs") and alternate care providers. 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. The increase in consumption has
been the result of an aging population, new healthcare procedures and new
healthcare products. The increasing reliance is driven by customers seeking to
take advantage of cost savings achievable through the use of distributors. The
healthcare industry has also been characterized by the consolidation of
healthcare providers into
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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. Additionally,
these large healthcare providers are gradually shifting the utilization of
medical/surgical supplies from the acute care setting to the alternate care
setting. This trend allows the providers to reduce their overall cost, but
changes their inventory management needs from a large single location (hospital)
to several smaller locations (surgicenters). The economies of scale that a
distributor can generate by servicing a number of facilities should allow it to
meet these needs at a lower cost than an individual healthcare provider or
manufacturer.
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, including enhanced inventory management services that
provide a continuous inventory replenishment process ("CRP"), asset management
consulting and stockless and just-in-time inventory programs. 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 smaller distributors.
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 national healthcare
networks ("Networks") and group purchasing organizations ("GPOs").
National Healthcare Networks and Group Purchasing Organizations. Networks and
GPOs are entities that act on behalf of a group of healthcare providers to
obtain pricing and other benefits that the individual members may not be able to
obtain. Hospitals, physicians and other types of healthcare providers have
joined Networks and GPOs to obtain services from medical/surgical supply
distributors ranging from discounted product pricing to logistical and clinical
support in exchange for a fee. Networks and GPOs negotiate directly with both
medical/surgical supply manufacturers and distributors on behalf of their
members, establishing exclusive or multi-vendor relationships.
Because the combined purchasing volumes of their member institutions are very
large, Networks and GPOs have the buying power to negotiate price discounts for
the most commonly used medical/surgical products and logistical services.
Accordingly, O&M believes that successful relationships with Networks and GPOs
are central to the Company's ability to maintain market share. Sales to the
Company's top five Network or GPO customers represented approximately 60% of its
net sales in 1996.
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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. Most Networks and
GPOs do not compel members to use O&M when it is the Network's or the GPO's
primary distributor, O&M believes that, in such circumstances, the incentives
for Network or GPO members to buy supplies through the Network's or GPO's
contract with the Company are strong, and that these contracts yield significant
sales volumes. The Company plans to continue to maintain and strengthen its
relationships with selected Networks and GPOs as a means of securing its leading
market position. Since 1985, the Company has been a distributor for VHA Inc.,
the nation's second largest network for not-for-profit hospitals, representing
over 1,400 healthcare organizations. Net sales to member hospitals of VHA Inc.
represented approximately 41% of the Company's net sales in 1996.
Integrated Healthcare Systems. An IHS is an organization which is composed of
several healthcare facilities 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 usually are the key component of any IHS.
O&M believes that IHSs have 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 IHSs frequently rely on cost containment as a
competitive advantage, IHSs have become an important source of demand for O&M's
enhanced inventory management and other value-added services.
In February 1994, the Company was selected by Columbia/HCA Healthcare
Corporation ("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 services to Columbia hospitals and other healthcare
facilities. Columbia is the Company's largest customer owning over 350 hospitals
and IHSs throughout the United States. Net sales to Columbia represented
approximately 11% of the Company's net sales in 1996.
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Individual Providers. In addition to contracting with healthcare providers at
the IHS level and indirectly through Networks and GPOs, O&M contracts directly
with healthcare providers. In 1996, hospitals represented over 90% of the
Company's net sales. Not-for-profit hospitals represented a majority of these
facilities. With the gradual shift of medical/surgical supply usage from the
hospital to alternate sites, the Company has also targeted clinics, nursing
homes, physician offices and surgicenters to increase its market leadership.
Sales to such alternate site customers comprised the balance of the Company's
net sales in 1996.
Contracts and Pricing
Industry practice is for healthcare providers to negotiate product pricing
directly with manufacturers and then negotiate distribution pricing terms with
distributors. Contracts in the medical/surgical supply distribution industry set
forth the price at which products will be distributed, but generally do not
require minimum volume purchases by customers and are terminable by the customer
upon short notice. Accordingly, most of the Company's contracts with customers
do not guarantee minimum sales volumes.
The majority of the Company's contracts compensate the Company on a fixed
cost-plus percentage basis under which a negotiated percentage distributor fee
is added to the product cost agreed to by the customer and the manufacturer. The
Company also sells products 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. Under this type of pricing, as the Company's sales to an institution
grow, the cost-plus pricing charged to such customer decreases. Additionally,
the Company has 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 and a contract review process.
Services
The Company's core competency is the timely and accurate delivery of bulk
medical/surgical supplies at a 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.
The Company's information technology ("IT") systems enable the Company to offer
its customers the following services to minimize their inventory holding
requirements:
o 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.
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o CostTrack(SM). CostTrack(SM)is an activity-based management program
utilized to price value-added services accurately. By identifying
costs associated with activities, CostTrack(SM) enables customers to
select the most cost-effective services.
o 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.
o 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.
Information Technology
The Company believes IT is the most effective method to reduce costs and provide
incremental services. In addition to the IT based customer services previously
discussed, the Company continually invests in improved technology, such as
Electronic Data Interchange (EDI) and client/server technology, to further
increase operational efficiencies throughout the distribution process.
EDI is an integral part of the Company's IT and business strategy. EDI includes
computer-to-computer electronic data interchange for business transactions, such
as purchasing, invoicing, funds transfer and contract pricing. The Company has
been successful in implementing several EDI transaction sets. A few examples
are: customer purchase orders (over 83% of all items ordered from the Company
are ordered through EDI), customer invoices, customer payments, vendor purchase
orders and vendor invoices. The Company anticipates implementing cash
application, contract notification and vendor payments in 1997. With each EDI
implementation, the Company is able to reduce its operating costs by reducing
the manual effort involved in a process.
Currently the majority of the Company's computing needs are met by traditional
mainframe-based software applications. However, the Company's IT strategic plan
is to migrate to a distributed computing environment employing client/server
technology when cost beneficial. The Company believes client/server technology
will allow more flexibility and cost savings than the mainframe. To better focus
on its client/server initiative and facilitate business growth, the Company has
outsourced data center support for its mainframe-based heritage systems. A new
inventory forecasting system implemented during 1996 is the Company's first
client/server application.
Another benefit of the Company's commitment to IT is its increased capability to
provide increased, more timely and more accurate, information to its employees,
customers and suppliers. This information allows the recipients to make cost
saving decisions related to product utilization and process costs. The value of
this information continues to grow as healthcare providers, suppliers and
distributors continually look for ways to reduce costs.
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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, IHS
customers and alternate site 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 their 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 CostTrack(SM) and PANDAC(R).
Suppliers
The Company is the only national distributor that does not manufacture or sell
products under its own label, and believes that this independence has enabled it
to develop strong and mutually beneficial relationships with its suppliers. The
Company believes that its size, strong, long-standing relationships and
independence enable it to obtain attractive terms and incentives from
manufacturers. These terms and incentives contribute significantly to the
Company's gross margin.
The Company has long-standing relationships with virtually all major
manufacturers of medical/surgical supplies. Approximately 19% of the Company's
net sales in 1996 were sales of Johnson & Johnson Hospital Services, Inc.
products.
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
250,000 finished medical/surgical products produced by approximately 3,000
manufacturers. The significant and ongoing healthcare product and procedural
changes challenge distributors and healthcare providers to create more efficient
inventory management systems.
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The Company has responded to these ongoing changes 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 has implemented additional programs to manage
inventory including a client/server based inventory forecasting system,
warehouse slotting and reconfiguration techniques, CRP and FOCUS (Focus on
Consolidation Utilization and Standardization). 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. CRP, 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.
The FOCUS program is the Company's product standardization and consolidation
initiative. By moving market share to its most efficient suppliers, the Company
reduces operational costs for its customer, its suppliers and itself. To qualify
as a FOCUS partner, the Company requires participating manufacturers to satisfy
minimum requirements, such as automated purchasing, exceeding minimum fill rates
and offering a flexible returned goods policy. O&M believes the increased
efficiency resulting from the FOCUS program will reduce operating expenses.
Accounts Receivable
The Company's average days sales outstanding have been significantly less than
the industry average as determined by the National Health Care Credit Group. The
Company actively manages its accounts receivable to minimize credit risk and
does not believe that credit risk associated with accounts receivable poses a
risk to its results from operations.
Distribution
The Company employs a decentralized approach to sales and customer service,
operating 46 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 supported by corporate
personnel. The Company believes that the decentralized nature of its
distribution system provides customers with flexible and individualized service
and contributes to overall cost reductions.
The Company delivers most medical/surgical supplies with a leased fleet of
trucks. Parcel services are used to transport all other medical/surgical
supplies. Distribution centers generally service hospitals and other customers
within a 100 to 150 mile radius. The frequency of deliveries from distribution
centers to principal accounts varies by customer account.
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Competition
The medical/surgical supply distribution industry in the United States is highly
competitive and consists of (i) three major, nationwide distributors, the
Company, Allegiance Corporation, a recent spin-off of Baxter International Inc.,
and McKesson Corp., which recently acquired General Medical Corporation, (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, the ability to fill and invoice accurately, delivery time,
efficient computer communication capabilities, services provided, breadth of
product line and the ability to meet special requirements of customers.
The Company believes its decentralized approach to distribution offers it a
unique competitive advantage. Not only can the Company compete with large
national distributors with its economies of scale, but with its decentralized
distribution process, the Company offers a higher level of customer service
by being located near the customer thus allowing the Company to effectively
compete with the smaller local distributors.
Regulation
The medical/surgical supply distribution industry is subject to regulation by
federal, state and local government agencies. Each of the Company's distribution
centers is licensed to distribute medical/surgical supply products as well as
certain pharmaceutical and related products. The Company must comply with
regulations, including operating and security standards for each of its
distribution centers, of the Food and Drug Administration, the Drug Enforcement
Agency, the Occupational Safety and Health Administration, state boards of
pharmacy and, in certain areas, state boards of health. The Company believes
that it is in material compliance with all statutes and regulations applicable
to distributors of medical/surgical supply products and pharmaceutical and
related products, as well as other general employee health and safety laws and
regulations.
The current government focus on healthcare reform and the escalating cost of
medical care has increased pressures on all participants in the healthcare
industry to reduce the costs of products and services. The Company does not
believe that the continuation of these trends will have a significant effect on
the Company's results of operations or financial condition.
Employees
As of December 31, 1996, the Company employed approximately 3,000 full and
approximately 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.
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Item 2. Properties
The corporate headquarters of the Company is located in western Henrico County,
a suburb of Richmond, Virginia, in leased facilities. The Company owns two
undeveloped parcels of land which are adjacent to the Company's corporate
headquarters. In 1996, the Company sold its Greensburg, Pennsylvania and
Youngstown, Ohio facilities.
The Company has leased back the Greensburg facility for a ten year period.
The Company leases offices and warehouses for its 46 distribution centers in 43
cities throughout the United States. In 1997, new facilities are planned for Los
Angeles and Cleveland. Expansions are planned for three more facilities.
O&M continuously reevaluates the efficiency of its distribution system. O&M
believes that its facilities are adequate to carry on its business as currently
conducted. All of the Company's distribution centers are leased from
unaffiliated third parties. A number of the leases relating to the above
properties are scheduled to terminate within the next several years. The Company
believes that, if necessary, it could find facilities to replace such leased
premises without suffering a material adverse effect on its business.
Item 3. Legal Proceedings
As of March 3, 1997, Stuart had been named as a defendant along with product
manufacturers, distributors, healthcare providers, trade associations and others
in approximately 280 lawsuits, filed in various federal and state courts (the
"Cases"). The Cases represent the claims of approximately 400 plaintiffs
claiming personal injuries and approximately 260 spouses asserting claims for
loss of consortium. The Cases seek damages for personal injuries allegedly
attributable to spinal fixation devices. The great majority of the Cases seek
compensatory and punitive damages in unspecified amounts.
Prior to December 1992 and the Company's acquisition of Stuart in 1994, Stuart
distributed spinal fixation devices manufactured by Sofamor SNC, a predecessor
of Sofamor Danek Group, Inc. ("Sofamor Danek"). Approximately 30% of the Cases
involve plaintiffs implanted with spinal fixation devices manufactured by
Sofamor Danek. Such plaintiffs allege that Stuart is liable to them under
applicable products liability law for injuries caused by such devices
distributed and sold by Stuart. In addition, such plaintiffs allege that Stuart
distributed and sold the spinal fixation devices through deceptive and
misleading means and in violation of applicable law. In the remaining Cases,
plaintiffs seek to hold Stuart liable for injuries caused by other
manufacturers' devices that were neither distributed nor sold by Stuart. Such
plaintiffs allege that Stuart engaged in a civil conspiracy and concerted action
with manufacturers, distributors and others to promote the sale of spinal
fixation devices through deceptive and misleading means and in violation of
applicable law. Stuart never manufactured any spinal fixation devices. The
Company believes that affirmative defenses are available to Stuart. All Cases
filed against Stuart have been, and will continue to be, vigorously defended.
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A majority of the Cases have been transferred to, and consolidated for pretrial
proceedings, in the Eastern District of Pennsylvania in Philadelphia under the
style MDL Docket No. 1014: In re Orthopedic Bone Screw Products Liability
Litigation. Discovery proceedings, including the taking of depositions, have
been ongoing in certain of the Cases that were first to be filed. Discovery in
certain Cases filed later may begin in 1997. Because of the preliminary status
of the Cases, the Company is unable at this time to determine with certainty
whether or not Stuart may be held liable.
In January 1997, the presiding judge entered an order preliminarily approving a
settlement agreement between one manufacturer of spinal fixation devices,
AcroMed Corporation ("AcroMed"), and the plaintiff's legal committee in the
multi-district litigation. Under the proposed terms of the settlement, AcroMed
would establish a settlement fund consisting of $100 million in cash and the
proceeds of its product liability insurance coverage. Stuart did not distribute
devices manufactured by AcroMed and is not a party to the AcroMed settlement. A
final hearing will be held later in 1997 to approve the fairness, adequacy and
reasonableness of the settlement. It is anticipated that nonsettling defendants,
including other manufacturers and distributors, will object to the terms of the
settlement and the proposed terms of the notice of the settlement.
The Company believes that Stuart may be named as a defendant in additional
similar cases in the future as a result of the pending AcroMed settlement or as
statutes of limitations approach expiration.
Based upon management's analysis of indemnification agreements between Stuart
and Sofamor Danek, the manufacturer of the devices distributed by Stuart, the
Company believes that Stuart is entitled to indemnification by Sofamor Danek at
least with respect to claims brought by plaintiffs implanted with devices
manufactured by Sofamor Danek. Such Cases are being defended by Stuart's
insurance carriers. Regarding those Cases filed by plaintiffs implanted with
other manufacturers' devices, one of Stuart's primary insurance carriers has
notified a representative of the former shareholders of Stuart that it will
withdraw its provision of defense of such Cases and another one of Stuart's
primary insurance carriers has notified a representative of the former
shareholders of Stuart that it has declined to provide a defense for such Cases,
in both instances asserting that such Cases involve only conspiracy and
concerted action claims. The former shareholders of Stuart are contesting the
insurance companies' withdrawal and declination of the defense of such Cases.
The Company and Stuart are also contractually 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. 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, and accordingly has accrued no liability therefor. Except as set
forth above, the Company is not aware of any uncertainty as to the availability
and adequacy of such insurance or indemnification, although there can be no
assurance that Sofamor Danek and the former shareholders will have sufficient
financial resources in the future to meet such obligations.
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
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outcome of these proceedings will not have a material adverse effect on the
Company's financial condition or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of 1996.
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Executive and Other Officers of the Registrant
Identification of Executive and Other Officers
Following are the names and ages, as of December 31, 1996, of the executive and
other officers of Owens & Minor, Inc., their positions and summaries of their
backgrounds and business experience. James L. Grigg, a new officer, was elected
at the Board of Directors meeting on June 3, 1996. All of the other officers
were elected at the annual meeting of the Board of Directors held April 30,
1996. All officers are elected to serve until the 1997 Annual Meeting of
Shareholders, or such time as their successors are elected.
G. Gilmer Minor, III, age 56, has been employed by the Company for 34 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, age 45, has been employed by the Company and National Healthcare
and Hospital Supply Corporation, which was acquired by the Company in 1989, for
14 years. From 1990 to 1992, Mr. Smith served as Group Vice President for the
western region. In January 1993, Mr. Smith assumed the 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.
Henry A. Berling, age 54, has been employed by the Company for 31 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. In
August 1996, Mr. Berling assumed an additional role and became
Executive Vice President, Partnership Development and Chief Sales Officer.
Drew St. J. Carneal, age 58, has been employed by the Company for eight 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.
James L. Grigg, age 49, joined the Company in June 1996 as Senior Vice
President, Product. Prior to joining the Company, Mr. Grigg was employed by
FoxMeyer Health Corp. from November 1992 to June 1996 serving as Vice
President, Trade Relations and Product Management. Prior to that he was
employed by Twin City Wholesale Drug from January 1992 to October 1992 serving
as
13
<PAGE>
Director, Purchasing. From April 1989 to January 1992, Mr. Grigg was
employed by A.L. Laboratories serving as Vice President Operations and
Regulatory Affairs. In August 1996, Mr. Grigg assumed an additional role and
became Senior Vice President, Supply Chain Management.
Ann Greer Rector, age 39, joined the Company in August 1995 as Vice President
and Controller. Prior to joining the Company, Ms. Rector was employed by USAir
Group, Inc. from 1983 to 1995 serving in various financial positions including
Vice President and Controller from 1992 through July 1995. In August 1996, Ms.
Rector was promoted to Senior Vice President and Chief Financial Officer.
Thomas J. Sherry, age 48, has been employed by the Company and Stuart, which was
acquired by the Company, for 21 years. With the Company's acquisition of Stuart
in 1994, he became Vice President, Sales and Marketing. From 1976 to 1994, Mr.
Sherry had been employed by Stuart, serving in various sales and management
positions and most recently, Executive Vice President. In August 1996, Mr.
Sherry was promoted to Senior Vice President, Customer Care.
Richard F. Bozard, age 49, has been employed by the Company for nine years since
1988. In 1991, Mr. Bozard was elected Vice President and Treasurer. Prior to
joining the Company, he served as an officer for CIT/Manufacturers Hanover Bank
and Trust. From 1984 to 1986, he was with Williams Furniture where his last
position was President.
Charles C. Colpo, age 39, has been employed by the Company for 16 years since
1981 when he joined the Company as Manager, Internal Audit. In April 1984, Mr.
Colpo was promoted to Division Vice President (DVP) and served as DVP for three
divisions from 1984 to 1994. In 1994, he served as Director, Business Process
Redesign. In 1995, Mr. Colpo was promoted to Vice President, Inventory
Management. In August 1996, Mr. Colpo became Vice President, Supply Chain
Process.
Hugh F. Gouldthorpe, Jr., age 58, has been employed by the Company for 11 years
since 1986 when he joined the Company as Director of Hospital Sales for the
Wholesale Drug Division. In 1987, Mr. Gouldthorpe was promoted to Vice President
and in 1989, he was promoted to Vice President, General Manager. In 1991, he was
elected Vice President, Corporate Communications and in 1993, Vice President,
Quality and Communications. Prior to joining the Company, Mr. Gouldthorpe was
employed by E.R. Squibb and Sons serving in a variety of positions.
Wayne B. Luck, age 40, has been employed by the Company for five years since
1992. In 1992, he served as Manager of Electronic Data Interchange (EDI) and
Distribution Systems and subsequently Manager, Applications and Director,
Application Services. In 1995, he was elected Vice President, Information
Technology.
Bruce J. MacAllister, age 45, has been employed by the Company for four years
since 1993 when he joined the Company as Division Vice President. Prior to
joining the Company, Mr. MacAllister was employed by Proctor & Gamble in a
variety of sales and marketing positions. In 1995, he was elected Group Vice
President, Southern and Western Regions.
14
<PAGE>
Michael L. Roane, age 42, has been employed by the Company for five years since
1992 when he joined the Company as Vice President, Human Resources. Prior to
joining the Company, Mr. Roane was employed by Philip Morris Co. from 1980 to
1992 where his last position was Manager, Employee Relations Operations.
Hue Thomas, III, age 58, has been employed by the Company for 27 years since
1970. In 1984, Mr. Thomas served as Assistant General Manager, Medical/Surgical
Division. In 1985, he served as Assistant Corporate Vice President, and in 1987
he was elected Vice President. In 1989, he was elected Vice President, General
Manager, Medical/Surgical Division. In 1991, he was elected Vice President,
Corporate Relations.
15
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Information regarding the market price of the Company's Common Stock and related
stockholder matters is set forth in the 1996 Annual Report under the heading
"Stock Market and Dividend Information" on page 35 and is incorporated by
reference herein.
Item 6. Selected Financial Data
The information required under this item is contained in the 1996 Annual Report
under the heading "Selected Financial Data" on pages 12 and 13 and is
incorporated by reference herein.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The information required under this item is contained in the 1996 Annual Report
under the heading "Management's Discussion and Analysis of Financial Condition
and Results of Operations" on pages 14 through 17 and is incorporated by
reference herein.
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements and notes as of December 31, 1996 and 1995
and for each of the years in the three-year period ended December 31, 1996,
together with the independent auditors' report of KPMG Peat Marwick LLP dated
February 5, 1997, appearing on pages 18 through 33 of the 1996 Annual Report are
incorporated by reference herein.
The information required under Item 302 of Regulation S-K is set forth in the
1996 Annual Report in Note 15 "Quarterly Financial Data (Unaudited)" in the
Notes to Consolidated Financial Statements on page 32 and is incorporated by
reference herein.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There were no changes in or disagreements with accountants on accounting and
financial disclosures during the two-year period ended December 31, 1996.
16
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required for this item is contained in Part I of this Form 10-K
and in the 1997 Proxy Statement under the heading "Proposal 1: Election of
Directors" on pages 2 through 6 and is incorporated by reference herein.
Item 11. Executive Compensation
The information required under this item is contained in the 1997 Proxy
Statement under the heading "Compensation of Directors" on page 14, "Summary
Compensation Table" on pages 15 and 16, "Executive Severance Agreement" on page
16, "Consulting Arrangement" on page 16, "Option Grants in Last Fiscal Year" on
page 17, "Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-end
Option Values" on page 17 and "Retirement Plans" on pages 18 and 19 and is
incorporated by reference herein.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required under this item is contained in the 1997 Proxy
Statement under the heading "Capital Stock Owned by Principal Shareholders and
Management" on pages 8 and 9 and is incorporated by reference herein.
Item 13. Certain Relationships and Related Transactions
The information required under this item is contained in the 1997 Proxy
Statement under the heading "Transactions with Management and Others" on pages 9
and 10 and is incorporated by reference herein.
17
<PAGE>
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
</TABLE>
<TABLE>
<CAPTION>
Page Numbers
-----------------------
1996 Annual Form
Report * 10-K
----------- -----
<S> <C>
(a) The following documents are filed as part of this report:
1. Consolidated Financial Statements:
Independent Auditors' Report of
KPMG Peat Marwick LLP 33
Consolidated Balance Sheets as of
December 31, 1996 and 1995 19
Consolidated Statements of Operations for the years
ended December 31, 1996, 1995 and 1994 18
Consolidated Statements of Cash Flows for the
years ended December 31, 1996, 1995 and 1994 20
Notes to Consolidated Financial Statements 21-32
2. Financial Statement Schedules:
Independent Auditors' Report of KPMG
Peat Marwick LLP 24
Schedule II - Valuation and Qualifying Accounts 25
</TABLE>
* Incorporated by reference from the indicated
pages of the 1996 Annual Report.
All other schedules are omitted because the related information is
included in the Consolidated Financial Statements or notes thereto or because
they are not applicable.
3. Exhibits
(2) Agreement of Exchange dated December 22, 1993, as amended and restated on
March 31, 1994, by and among Stuart Medical, Inc., the Company and certain
shareholders of Stuart Medical, Inc. (incorporated herein by reference to the
Company's Proxy Statement/Prospectus dated April 6, 1994, Annex III)**
18
<PAGE>
(3) (a) Amended and Restated Articles of Incorporation of the Company
(incorporated herein by reference to the Company's Annual Report on Form 10-K,
Exhibit 3(a), for the year ended December 31, 1994)
(b) Amended and Restated Bylaws of the Company (incorporated
herein by reference to the Company's Annual Report on Form 10-K, Exhibit 3(b),
for the year ended December 31, 1994)
(4) (a) Owens & Minor, Inc. $11.5 million 0% Subordinated Note
dated May 31, 1989, due May 31, 1997, between the Company and Hygeia Ltd.
(incorporated herein by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1990)
(b) Amendment to Owens & Minor, Inc. 0% Subordinated Note due May
31, 1997 (incorporated herein by reference to the Company's Annual Report on
Form 10-K, Exhibit 4(b), for the year ended December 31, 1994)
(c) Indenture dated as of May 29, 1996 among the Company, 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 & Co., Stuart Medical, Inc., as Guarantors, and Crestar
Bank, as Trustee (incorporated herein by reference to the Company's Quarterly
Report on Form 10-Q, Exhibit 4(a), for the quarter ended June 30, 1996)
(d) Amended and Restated Rights Agreement dated as of May 10, 1994
between the Company and Wachovia Bank of North Carolina, N.A., Rights Agent
(incorporated herein by reference to the Company's Quarterly Report on Form
10-Q, Exhibit 4, for the quarter ended June 30, 1995)
(e) Credit Agreement dated as of May 24, 1996 among the Company, as
borrower, certain of the Company's subsidiaries, as guarantors, various banks
and lending institutions identified on the signature pages thereto, NationsBank,
N.A., as agent, Bank of America National Trust and Savings Association and
Crestar Bank, as co-agents, and NationsBank, N.A., as Administrative Agent
(incorporated herein by reference to the Company's Quarterly Report on Form
10-Q, Exhibit 4(b), for the quarter ended June 30, 1996)
(10) (a) Owens & Minor, Inc. Annual Incentive Plan (incorporated
herein by reference to the Company's definitive Proxy Statement dated March 25,
1991)*
(b) 1985 Stock Option Plan as amended on January 27, 1987
(incorporated herein by reference to the Company's Annual Report on Form 10-K,
Exhibit 10(f), for the year ended December 31, 1987)*
(c) Owens & Minor, Inc. Pension Plan, as amended and restated
effective January 1, 1994 ("Pension Plan")*
(d) Amendment No. 1 to Pension Plan*
19
<PAGE>
(e) Owens & Minor, Inc. Supplemental Executive Retirement
Plan dated July 1, 1991 ("SERP") (incorporated herein by reference to the
Company's Annual Report on Form 10-K, Exhibit 10(i), for the year ended
December 31, 1991)*
(f) First Amendment to SERP, effective July 30, 1996 (incorporated
herein by reference to the Company's Quarterly Report on Form 10-Q, Exhibit
10(e), for the quarter ended September 30, 1996)*
(g) Owens & Minor, Inc. Executive Severance Agreements
(incorporated herein by reference to the Company's Annual Report on Form 10-K,
Exhibit 10(j), for the year ended December 31, 1991)*
(h) Owens & Minor, Inc. Directors' Stock Option Plan
(incorporated herein by reference to the Company's Annual Report on Form
10-K, Exhibit 10(k), for the year ended December 31, 1991)*
(i) Agreement dated May 1, 1991 by and between Owens & Minor,
Inc. and W. Frank Fife (incorporated herein by reference to the Company's
Annual Report on Form 10-K, exhibit 10(m), for the year ended December 31,
1992)*
(j) Owens & Minor, Inc. 1993 Stock Option Plan (incorporated
herein by reference to the Company's Annual Report on Form 10-K, exhibit 10(k),
for the year ended December 31, 1993)*
(k) Amended and Restated Owens & Minor, Inc. 1993 Directors'
Compensation Plan ("Directors' Plan")*
(l) The forms of agreement with directors entered into pursuant to
(i) the Stock Option Program, (ii) the Deferred Fee Program and (iii) the Stock
Purchase Program of the Directors' Plan (incorporated herein by reference to the
Company's Quarterly Report on Form 10-Q, Exhibit (10), for the quarter ended
March 31, 1996)*
(m) Consulting Agreement effective as of January 1, 1997 by and
between the Company and Robert E. Anderson, III*
(n) Form of Letter Agreement dated as of November 21, 1996
regarding additional retirement compensation payable to Robert E. Anderson,
III*
(o) Form of Enhanced Authorized Distribution Agency
Agreement ("ADA Agreement") dated as of November 16, 1993 by and between
VHA, Inc. (formerly Voluntary Hospitals of America, Inc.) and the Company
(incorporated herein by reference to Form 10-K/A to the Company's Annual
Report on Form 10-K for the year ended December 31, 1993)***
20
<PAGE>
(p) Form of Amendments to ADA Agreement dated as of August 9,
1994, September 15, 1994 and November 15, 1994, respectively (incorporated
herein by reference to the Company's Annual Report on Form 10-K, exhibit 10(n),
for the year ended December 31, 1994)
(q) Form of Amendment to ADA Agreement dated as of November 10,
1995 (incorporated herein by reference to Form 10-K/A to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995) ***
(r) Form of letter agreement extending term of ADA Agreement
(s) Amended and Restated Purchase and Sale Agreement dated as of
May 28, 1996 among Owens & Minor Medical, Inc. ("O&M Medical"), the Company and
O&M Funding Corp. ("O&M Funding") (incorporated herein by reference to the
Company's Quarterly Report on Form 10-Q, exhibit 10(a), for the quarter ended
June 30, 1996)
(t) Amended and Restated Receivables Purchase Agreement dated as
of May 28, 1996 among O&M Funding, O&M Medical, the Company, Receivables Capital
Corporation and Bank of America National Trust and Savings Association, as
Administrator (incorporated herein by reference to the Company's Quarterly
Report on Form 10-Q, exhibit 10(b), for the quarter ended June 30, 1996)
(u) Amended and Restated Parallel Asset Purchase Agreement dated
as of May 28, 1996 among O&M Funding, O&M Medical, the Company, the Parallel
Purchasers from time to time party thereto and Bank of America National Trust
and Savings Association, as Administrative Agent (incorporated herein by
reference to the Company's Quarterly Report on Form 10-Q, exhibit 10(c), for the
quarter ended June 30, 1996)
(11) Calculation of Net Income (Loss) Per Common Share
(13) Owens & Minor, Inc. 1996 Annual Report to Shareholders
(21) Subsidiaries of Registrant
(23) Consent of KPMG Peat Marwick LLP, independent auditors
* A management contract or compensatory plan or arrangement required to be filed
as an exhibit to this Form 10-K.
** The schedules to this Agreement have been omitted pursuant to Item 601(b)(2)
of Regulation S-K. The Company hereby undertakes to file supplementally with the
Commission upon request a copy of the omitted schedules.
*** The Company has requested confidential treatment by the Commission of
certain portions of this Agreement, which portions have been omitted and filed
separately with the Commission.
21
<PAGE>
(b) Reports on Form 8-K
There were no reports filed on Form 8-K during the fourth quarter of
1996.
Note 1. With the exception of the information incorporated in this Form 10-K by
reference thereto, the 1996 Annual Report shall not be deemed "filed" as a part
of this Form 10-K.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
OWENS & MINOR, INC.
By /s/ G. Gilmer Minor, III
------------------------
G. Gilmer Minor, III
Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dated indicated:
/s/ G. Gilmer Minor, III /s/ C. G. Grefenstette
- -------------------------------------- -------------------------
G. Gilmer Minor, III C. G. Grefenstette
Chairman, President and Chief Executive Director
Officer and Director (Principal Executive
Officer)
/s/ Ann Greer Rector /s/ Vernard W. Henley
- --------------------------------------- -------------------------
Ann Greer Rector Vernard W. Henley
Senior Vice President and Chief Director
Financial Officer (Principal Financial
and Accounting Officer)
/s/ Josiah Bunting, III /s/ E. Morgan Massey
- -------------------------------------- --------------------------
Josiah Bunting, III E. Morgan Massey
Director Director
/s/ R. E. Cabell, Jr. /s/ James E. Rogers
- -------------------------------------- --------------------------
R. E. Cabell, Jr. James E. Rogers
Director Director
/s/ James B. Farinholt, Jr. /s/ James E. Ukrop
- -------------------------------------- --------------------------
James B. Farinholt, Jr. James E. Ukrop
Director Director
/s/ William F. Fife /s/ Anne Marie Whittemore
- -------------------------------------- ---------------------------
William F. Fife Anne Marie Whittemore
Director Director
Each of the above signatures is affixed as of March 27, 1997.
23
<PAGE>
Independent Auditors' Report on
Financial Statement Schedule
The Board of Directors
Owens & Minor, Inc.:
Over date of February 5, 1997, we reported on the consolidated balance sheets
of Owens & Minor, Inc. and subsidiaries as of December 31, 1996 and 1995, and
the related consolidated statements of operations and cash flows for each of
the years in the three-year period ended December 31, 1996, as contained in the
1996 annual report to shareholders. These consolidated financial statements and
our report thereon are incorporated by reference in the December 31, 1996
annual report on Form 10-K. In connection with our audits of the aforementioned
consolidated financial statements, we also audited the related financial
statement schedule included on page 25 of this annual report on Form 10-K. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this financial statement
schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
/s/ KPMG Peat Marwick LPP
----------------------
KPMG Peat Marwick LLP
Richmond, Virginia
February 5, 1997
24
<PAGE>
Schedule II
Owens & Minor, Inc. and Subsidiaries
Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
(In thousands)
Additions Additions
Balance at Charged to Charged-to Balance
Beginning Costs and Other at End
Year of Year Expenses Accounts** Deductions* of Year
---- ------- ---------- ---------- ----------- -------
<S> <C>
Allowance for doubtful accounts deducted
from accounts and notes receivable in
the Consolidated Balance Sheets
1996 $ 6,010 $ 838 $ - $ 353 $ 6,495
1995 5,340 827 - 157 6,010
1994 4,678 1,149 40 527 5,340
</TABLE>
* Uncollectible accounts written off.
** Adjusted for the allowance reserve acquired with the Emery acquisition.
25
<PAGE>
Form 10-K
Exhibit Index
Exhibit #
10 (c) Owens & Minor, Inc. Pension Plan, as amended and restated effective
January 1, 1994
10 (d) Amendment No. 1 to Pension Plan
10 (k) Amended and Restated Owens & Minor, Inc. 1993 Directors'
Compensation Plan
10 (m) Consulting Agreement effective as of January 1, 1997 by and between
the Company and Robert E. Anderson, III
10 (n) Form of Letter Agreement dated as of November 21, 1996 regarding
additional retirement compensation payable to Robert E. Anderson,
III
10 (r) Form of letter agreement extending term of ADA Agreement
11 Calculation of Net Income (Loss) per Common Share
13 Owens & Minor, Inc. 1996 Annual Report to Shareholders
21 Subsidiaries of Registrant
23 Consent of KPMG Peat Marwick LLP, independent auditors
27 Financial Data Schedule
Exhibit 10 (c)
OWENS & MINOR, INC.
PENSION PLAN
Effective Date
March 31, 1957
<PAGE>
As Amended and Restated
January 1, 1994
<PAGE>
TABLE OF CONTENTS
ARTICLE PAGE
INTRODUCTION . . . . . . . . . . . . . . . . . 1
DEFINITIONS. . . . . . . . . . . . . . . . . . 2
1.01 Absence on Authorized Leave. . . . . 2
1.02 Accrued Benefit. . . . . . . . . . . 2
1.03 Actuarial Equivalent . . . . . . . . 3
1.04 Affiliate. . . . . . . . . . . . . . 3
1.05 Annuity Starting Date. . . . . . . . 3
1.06 Beneficiary. . . . . . . . . . . . . 3
1.07 Board. . . . . . . . . . . . . . . . 4
1.08 Committee. . . . . . . . . . . . . . 4
1.09 Compensation . . . . . . . . . . . . 4
1.10 Contributions. . . . . . . . . . . . 6
1.11 Corporation. . . . . . . . . . . . . 6
1.12 Credited Service . . . . . . . . . . 6
1.13 Defined Benefit Plan . . . . . . . . 9
1.14 Defined Contribution Plan. . . . . . 9
1.15 Delayed Retirement Date. . . . . . . 9
1.16 Disability Retirement Date . . . . . 9
1.17 Early Retirement Date. . . . . . . . 9
1.18 Effective Date . . . . . . . . . . . 9
1.19 Employee . . . . . . . . . . . . . . 10
1.20 Employer . . . . . . . . . . . . . . 10
1.21 ERISA. . . . . . . . . . . . . . . . 11
1.22 Fiduciary. . . . . . . . . . . . . . 11
1.23 Fund . . . . . . . . . . . . . . . . 11
1.24 Highly Compensated Employee. . . . . 11
1.25 Hours of Service . . . . . . . . . . 14
1.26 IRC. . . . . . . . . . . . . . . . . 16
1.27 Limitation Year. . . . . . . . . . . 16
1.28 Normal Retirement Age. . . . . . . . 16
1.29 Normal Retirement Date . . . . . . . 17
1.30 One Year Break in Service. . . . . . 17
1.31 Participant. . . . . . . . . . . . . 18
1.32 Past Service Compensation. . . . . . 18
1.33 Plan . . . . . . . . . . . . . . . . 19
1.34 Plan Year. . . . . . . . . . . . . . 19
1.35 Service. . . . . . . . . . . . . . . 19
1.36 Social Security Retirement Age . . . 21
1.37 Spouse . . . . . . . . . . . . . . . 21
1.38 Surviving Spouse . . . . . . . . . . 21
1.39 Total and Permanent Disability or
Totally and Permanently Disabled . . 21
1.40 Trust Agreement. . . . . . . . . . . 22
1.41 Trustee. . . . . . . . . . . . . . . 22
1.42 Year of Service. . . . . . . . . . . 22
ELIGIBILITY AND PARTICIPATION. . . . . . . . . 24
2.01 Eligibility. . . . . . . . . . . . . 24
2.02 Eligibility on Reemployment. . . . . 25
2.03 Participation. . . . . . . . . . . . 25
2.04 Reemployment of Retired Participants 25
<PAGE>
RETIREMENT BENEFITS. . . . . . . . . . . . . . 27
3.01 Normal Retirement Benefit. . . . . . 27
3.02 Delayed Retirement Benefit . . . . . 28
3.03 Early Retirement Benefit . . . . . . 30
3.04 Disability Retirement Benefit. . . . 31
3.05 Minimum Benefit. . . . . . . . . . . 32
3.06 Post-Retirement Medical Benefits . . 33
3.07 Early Retirement Incentive . . . . . 38
NORMAL AND OPTIONAL METHODS OF RETIREMENT
BENEFIT PAYMENTS
4.01 Normal Form of Payment . . . . . . . 41
4.02 Available Options. . . . . . . . . . 41
4.03 Maximum Option Payable . . . . . . . 43
4.04 Automatic Option . . . . . . . . . . 43
4.05 Lump Sum Payments. . . . . . . . . . 44
4.06 Rollover Distributions . . . . . . . 46
4.07 Consent Prior to Distribution from the
Plan . . . . . . . . . . . . . . . . 48
4.08 No Reduction of Accrued Benefits . . 49
BENEFITS ON TERMINATION OF EMPLOYMENT. . . . . 51
5.01 Vesting of Benefits. . . . . . . . . 51
5.02 Payment of Deferred Vested Benefit . 52
BENEFITS ON DEATH. . . . . . . . . . . . . . . 54
6.01 Death After Eligibility for Early
Retirement . . . . . . . . . . . . . 54
6.02 Death After Eligibility for Normal
Retirement . . . . . . . . . . . . . 55
6.03 Death After Eligibility for
Disability Retirement . . . . . . . 55
6.04 Death of a Vested Participant. . . . 58
6.05 Death Subsequent to Retirement . . . 60
6.06 Lump Sum Death Benefit . . . . . . . 60
FUNDING. . . . . . . . . . . . . . . . . . . . 61
7.01 Contributions by the Employer. . . . 61
7.02 Trust Fund . . . . . . . . . . . . . 61
7.03 Funding Standard Account . . . . . . 61
FIDUCIARIES AND ADMINISTRATION OF THE PLAN . . 63
8.01 General. . . . . . . . . . . . . . . 63
8.02 Employer Responsibilities. . . . . . 63
8.03 Trustee. . . . . . . . . . . . . . . 64
8.04 Administrative Committee . . . . . . 65
8.05 Claims for Benefits. . . . . . . . . 66
8.06 Claims Procedures. . . . . . . . . . 67
8.07 Records. . . . . . . . . . . . . . . 68
8.08 Missing Persons. . . . . . . . . . . 69
MAXIMUM BENEFITS AND REQUIRED DISTRIBUTION
OF BENEFITS . . . . . . . . . . 70
9.01 Maximum Retirement Benefit . . . . . 70
9.02 Multiple Plan Participation. . . . . 76
9.03 Required Distribution of Benefits. . 77
AMENDMENT AND TERMINATION OF THE PLAN. . . . . 81
<PAGE>
10.01 Amendment of the Plan . . . . . . . 81
10.02 Termination of the Plan . . . . . . 81
10.03 Twenty-five (25) Highest Paid
Limitation - Effective for Plan
Years Beginning before
January 1, 1994 . . . . . . . . . . 83
10.04 Restriction on Benefits for Top
Twenty-Five (25) Highly
Compensated Employees - Effective for
Plan Years Commencing on and
After January 1, 1994. . . . . . . . 88
PROVISIONS RELATIVE TO EMPLOYERS INCLUDED
IN PLAN . . . . . . . . . . . . 89
11.01 Method of Participation . . . . . . 89
11.02 Withdrawal from Participation . . . 89
TOP HEAVY PLAN PROVISIONS. . . . . . . . . . . 91
12.01 General . . . . . . . . . . . . . . 91
12.02 Minimum Benefits. . . . . . . . . . 91
12.03 Definitions . . . . . . . . . . . . 91
12.04 Multiple Plan Participation . . . . 96
12.05 No Duplication of Minimum Benefit. . 96
12.06 Actuarial Assumptions . . . . . . . 96
12.07 Vesting. . . . . . . . . . . . . . . 97
MISCELLANEOUS. . . . . . . . . . . . . . . . . 98
13.01 Governing Law . . . . . . . . . . . 98
13.02 Construction . . . . . . . . . . . . 98
13.03 No Employment Contract . . . . . . . 98
13.04 Receipt Prior to Payment . . . . . . 98
13.05 Payments to Minors and Incompetents 99
13.06 Non-alienability of Benefits . . . . 99
13.07 Merger of Plans . . . . . . . . . . 104
13.08 Mistake of Fact . . . . . . . . . . 105
13.09 Exclusive Benefit . . . . . . . . . 106
13.10 Expenses . . . . . . . . . . . . . 106
13.11 Indemnification . . . . . . . . . . 106
13.12 Small Payments . . . . . . . . . . 106
13.13 Counterparts . . . . . . . . . . . 106
ADOPTION OF THE PLAN . . . . . . . . . . . . . 107
<PAGE>
INTRODUCTION
The Owens & Minor, Inc. Pension Plan became effective
March 31, 1957, and was subsequently amended with the most
recent amendment and restatement being effective January 1,
1989.
The amended and restated Retirement Plan herein contained
constitutes an amendment, effective January 1, 1994, to the
earlier plan provisions, rather than a replacement of such
plan. The plan provisions as in effect immediately prior to
this January 1, 1994, amendment and restatement, modified by
Section 6.04 and Section 10.02 of this amended and restated
Plan, shall remain in effect for those Participants who are
not actively employed by the participating Employers at any
time after such date. The assets held under the 1984 trust
shall continue to be held pursuant to the Plan as herein
amended.
The purpose of this Plan is to provide retirement
security for eligible Employees. It is intended that this
Plan, together with the Trust Agreement established to carry
out the funding of the Plan, meet all the requirements of
the Internal Revenue Code of 1986 ("IRC"), as amended, and
the Plan shall be interpreted, wherever possible, to comply
with the terms of the IRC and all formal regulations and
rulings issued under the IRC.
Effective January 1, 1994, the Plan as amended and
restated has the terms and provisions hereinafter set forth.
1
<PAGE>
ARTICLE I
DEFINITIONS
As used herein and in the concomitant Trust Agreement,
unless otherwise required by the context, the following
words and phrases shall have the meanings indicated:
1.01 Absence on Authorized Leave means any absence
approved by the Employer, provided that the Employee
returns to the service of the Employer prior to the
termination of such leave. An absence shall not be
considered an Absence on Authorized Leave unless the
Employee returns to the service of the Employer and
remains for a period at least equal to the length of
the absence. When granting a leave of absence, the
Employer shall act in a nondiscriminatory manner
with respect to all Employees in similar standing.
1.02 Accrued Benefit means, for any Participant as of any
date, the sum of his Future Service Benefit
determined in accordance with Section 3.01(a) as of
such date and his Past Service Benefit determined in
accordance with Section 3.01(b), provided however,
that the amount so determined shall not take into
consideration any years of Credited Service in
excess of forty (40).
Credited Service prior to the Participant's
initial Plan Year of participation shall be excluded
for purposes of determining the above Accrued
Benefit. Notwithstanding the preceding, for
Participants of the Plan on December 31, 1984, whose
participation commenced at age twenty-five (25), it
shall be conclusively determined that his
participation commenced at age twenty-one (21).
Notwithstanding anything contained hereinabove,
for Participants under the Plan as of December 31,
1993, in no event will the amount as hereinbefore
determined be less than the accrued benefit
determined at December 31, 1993, under the
provisions of the Plan as in effect on December 31,
1993.
1.03 Actuarial Equivalent means a benefit of equivalent
value when computed on the basis of the factors
denoted in the Appendix to this Plan.
1.04 Affiliate means an organization which is a member of
the same controlled group of organizations, as
defined in IRC Sections 414(b), (c), (m) and (o), as
the Employer but which is not an Employer.
1.05 Annuity Starting Date means:
2
<PAGE>
1.05(a) the first day of the first period for
which an amount is payable as an annuity,
or
1.05(b) in the case of a benefit not payable in
the form of an annuity, the first day on
which all events have occurred which
entitle the Participant to such benefit,
or
1.05(c) the first day of the first period for
which a benefit is to be received by
reason of Total and Permanent Disability.
1.06 Beneficiary means any person designated by a
Participant or otherwise entitled to receive such
benefits as may become payable under the provisions
of the Plan after the death of such Participant.
The designation of a Beneficiary shall be made
on forms provided by the Committee, and such forms
shall be maintained in files held by the Committee.
A Participant from time to time may change his
Beneficiary by written notice to the Committee, and
upon such change, the rights of all previously
designated Beneficiaries to receive any benefits
under the Plan shall cease. If, at the date of
death of the Participant, there is no valid and
current Beneficiary designation on file with the
Committee, then any death benefits which would have
been payable to the Beneficiary shall be payable to
the Participant's Spouse, if any; if none, equally
to the Participant's surviving children, if any; or
if none, then to the Participant's estate. The
interpretation of the Committee with respect to any
Beneficiary designation, subject to applicable law,
shall be binding and conclusive upon all parties,
and no person who claims to be a Beneficiary, or any
other person, shall have any right to question any
action of the Committee, which in the judgment of
the Committee fulfills the intent of the Participant
who filed such designation.
If a Beneficiary designated by a Participant is
not the Participant's Spouse, then the Spouse's
written consent shall be required for the
designation of the alternate Beneficiary to become
effective and such consent must be limited to a
benefit for a specific alternate Beneficiary or form
of benefits and acknowledge the effect of the
consent. Such consent shall be witnessed by a
representative of the Committee or a notary public.
Any change in the designation of an alternate
Beneficiary shall also require the consent of the
Spouse for such change to become effective. The
Committee may accept an election other than that
3
<PAGE>
provided hereunder without the consent of the Spouse
if there is no Spouse, the Spouse cannot be located,
or under such other circumstances as may be
prescribed by regulations. Any spousal consent
shall be applicable only to the Spouse granting such
consent.
1.07 Board means the board of directors of the
Corporation.
1.08 Committee means the Administrative Committee
provided for in Article VIII.
1.09 Compensation means, for any Employee, the total
annual nondeferred compensation of an Employee from
the Employer during the Plan Year, including
overtime payments, and bonuses, but excluding
indirect or extraordinary compensation, provided,
compensation for any Plan Year shall include only
compensation while a Participant of the Plan. For
Employees classified as salesmen, "Compensation"
means gross commissions less expenses. Compensation
for any Employee shall include any amounts which the
Employee could have elected to receive as cash in
the current year as taxable income (a) prior to
having such amount contributed to the Savings and
Protection Plan for Employees of Owens & Minor,
Inc., which is maintained pursuant to IRC Section
401(k) and/or (b) in lieu of a non-taxable benefit
under the Owens & Minor Flexible Benefit Plan which
is maintained pursuant to IRC Section 125, but
excluding any contributions by the Employer to this
or any other employee benefit program other than the
amount(s) specifically stated herein.
Effective January 1, 1994, in no event shall
Compensation as hereinbefore determined exceed one
hundred fifty thousand dollars ($150,000) or such
greater amount as may be determined by the Secretary
of Treasury pursuant to IRC Section 401(a)(17). In
determining the Compensation of an Employee for
purposes of this limit, the rules of IRC Section
414(q)(6) shall apply, except in applying such
rules, the term "family" shall include only the
spouse of the Employee and any lineal descendants of
the Employee who have not attained age nineteen (19)
before the close of the year. If, as a result of
the application of such rules, the adjusted one
hundred fifty thousand dollar ($150,000) limit is
exceeded, then the limitation shall be prorated
among the affected individuals in proportion to each
such individual's Compensation as determined under
this Section prior to the application of the limit.
Effective January 1, 1989 through December 31, 1993,
4
<PAGE>
in no event shall Compensation as hereinbefore
determined have exceeded two hundred thousand
dollars ($200,000) or such greater amount as may
have been determined by the Secretary of Treasury
pursuant to IRC Section 401(a)(17), provided that
the increase determined as of any January 1 of a
calendar year by the Secretary of Treasury shall
have been effective for Plan Years beginning in such
calendar year.
Compensation of an Employee who is at any time
simultaneously in the employ of more than one
Employer shall be the sum of such earnings received
by the Employee from all Employers.
1.10 Contributions means the payments as provided herein
by the Employer to the Fund.
1.11 Corporation means Owens & Minor, Inc., a Virginia
corporation, or any successor thereto. The
Corporation is the sponsor, named Fiduciary and
administrator of the Plan for purposes of ERISA as
it relates to the employees of each Employer.
1.12 Credited Service means, for any Employee as of any
date, the sum of past Credited Service, if any,
under Section 1.12(a) and future Credited Service
under Section 1.12(b), subject to Sections 1.12(c),
1.12(d), 1.12(e) and 1.12(f), if applicable.
1.12(a) If the Employee was employed by the
Employer on March 31, 1976, he shall
receive credit for past service. Past
service shall mean the number of years and
months of continuous employment by the
Employer of an Employee from his most
recent hiring date prior to March 31,
1976, until March 31, 1976.
1.12(b) Future service shall be the total number
of Plan Years during which the Employee
has at least one thousand (1,000) Hours of
Service for the Employer during the period
of time commencing on the later of (i)
March 31, 1976; or (ii) if Section 1.12(c)
is applicable, the first day of the Plan
Year coincident with or immediately
preceding the applicable reemployment
date. For Plan Years beginning after
December 31, 1980, an Employee shall
receive one-twelfth (1/12) of a year of
Credited Service for each month of
Credited Service during which at least
eighty-three and one-third (83 1/3) Hours
of Service are credited to him, provided
5
<PAGE>
that no more than one (1) year of Credited
Service shall be credited for any Plan
Year. In the year of termination due to
retirement, death or disability, an
Employee shall receive one-twelfth (1/12)
of a year of Credited Service for each
full or partial month that he worked
during the Plan Year.
1.12(c) Notwithstanding the above, if a terminated
Participant is subsequently reemployed and
again becomes a Participant, his Credited
Service shall not include any periods of
employment prior to reemployment if the
number of his consecutive One Year Breaks
in Service as of his reemployment date
equals or exceeds the greater of (i) five
(5) consecutive One Year Breaks in
Service, or (ii) his Credited Service
prior to such break and his vested
percentage under Section 5.01 was zero at
date of termination. However, the
provisions of Section 1.12(c)(i) shall
apply only to Employees actively
participating in the Plan on and after the
first day of the Plan Year following
December 31, 1984.
1.12(d) Any Employee who was excluded from
participation in the Plan for periods
prior to January 1, 1988, because his
original date of employment with the
Employer from which Credited Service was
determined was within five (5) years of
his Normal Retirement Age, and who
completes an Hour of Service on or after
January 1, 1988, shall receive Credited
Service in accordance with the provisions
of this Section 1.12 for any period of
employment prior to the date he is
eligible to commence participation in the
Plan in accordance with Section 2.01.
1.12(e) For those Participants of the Plan on
December 31, 1984, who had commenced
participation in the Plan at age twenty-five
(25), it shall be conclusively
presumed that participation commenced at
the later of the attainment of age twenty-one
(21) or such other age after
satisfaction of the service requirement
for eligibility to participate.
1.12(f) Notwithstanding anything contained herein
to the contrary, Credited Service shall
not include:
(i) Years of Credited Service
accumulated with an Employer prior
6
<PAGE>
to the Employer's affiliation with
the Corporation;
(ii) Years of Credited Service
accumulated due to Absence on
Authorized Leave;
(iii) Except as provided in Sections
1.12(d) and 1.12(e) above, years
of Credited Service prior to the
date a Participant commenced
participation in the Plan; and
(iv) Any years of Credited Service in
excess of forty (40).
1.13 Defined Benefit Plan means a plan established and
qualified under IRC Section 401 or 403, except to
the extent it is, or is treated as, a Defined
Contribution Plan.
1.14 Defined Contribution Plan means a plan established
and qualified under IRC Section 401 or 403 which
provides for an individual account for each
Participant therein and for benefits based solely on
the amount contributed to each Participant's account
and any income and expenses or gains or losses (both
realized and unrealized) which may be allocated to
such accounts.
1.15 Delayed Retirement Date means the first day of any
month coinciding with or next following the actual
date the Participant severs his employment with the
Employer after his Normal Retirement Date.
1.16 Disability Retirement Date means the first day of
any month, prior to a Participant's Normal
Retirement Date, coinciding with or next following a
determination by the Committee that the Participant
is Totally and Permanently Disabled.
1.17 Early Retirement Date means the first day of any
month, prior to a Participant's Normal Retirement
Date, provided the Participant has attained age
fifty-five (55) and completed at least ten (10)
years of Service with any Employers subject to this
Plan. A Participant who had (a) met the eligibility
requirements for Plan participation prior to January
1, 1981 and (b) reached age fifty-five (55) prior to
January 1, 1981, may retire early without regard to
the requirement to complete at least ten (10) years
of Service.
1.18 Effective Date means, with respect to all employees
of Owens, Minor & Bodeker, Incorporated, except
those classified as sales employees, March 31, 1957;
with respect to employees of Owens, Minor & Bodeker,
7
<PAGE>
Incorporated of North Carolina, March 31, 1959; with
respect to employees of Powers and Anderson,
Incorporated and Powers and Anderson Surgical
Instrument Company, Incorporated, March 31, 1969.
With respect to employees of any other subsidiary or
Affiliate, the January 1 or July 1 following
affiliation as a subsidiary or Affiliate.
1.19 Employee means any person employed by the Employer
including officers and any director who is active in
the business of the Employer in a capacity other
than as director only but excluding any person
considered a leased employee within the definition
of IRC Section 414(n).
A leased employee is any person other than an
employee of the Employer who pursuant to an
agreement between the Employer and any other person
(leasing organization) has performed services for
the Employer or for the Employer and related
persons, determined in accordance with IRC Section
414(n)(6), on a substantially full time basis for a
period of at least one year, and such services are
of a type historically performed by employees in the
business field of the Employer. Contributions or
benefits provided a leased employee by the leasing
organization which are attributable to services
performed for the Employer shall be treated as
provided by the Employer.
1.20 Employer means, collectively or individually as the
context may indicate, the Corporation and any other
organization which (a) is a member of the same
controlled group of organizations as the Corporation
as determined pursuant to IRC Sections 414(b), (c),
(m) and (o), (b) the Board has authorized to adopt
the Plan, and (c) by taking appropriate action has
adopted the Plan and become signatory to the Trust
Agreement, or any successor to one or more of such
entities.
1.21 ERISA means the Employee Retirement Income Security
Act of 1974, as amended from time to time.
1.22 Fiduciary means the Corporation, Employer, Trustee,
Committee and any individual, corporation, firm or
other entity which assumes in accordance with
Article VIII responsibilities of the Corporation,
Employer, Trustee or Committee respecting management
of the Plan or the disposition of its assets.
1.23 Fund means the trust fund created in accordance with
Article VII.
8
<PAGE>
1.24 Highly Compensated Employee means:
1.24(a) Any employee who as of the Determination
Date meets one of the following criteria --
(i) was a Five Percent (5%) Owner of
the Employer or Affiliate;
(ii) received (or is projected to
receive) compensation from the
Employer or Affiliate in excess of
seventy-five thousand dollars
($75,000) (or such larger amount
as may be determined by the
Secretary of Treasury) for the
Plan Year;
(iii) received (or is projected to
receive) compensation from the
Employer or Affiliate in excess of
fifty thousand dollars ($50,000)
(or such larger amount as may be
determined by the Secretary of
Treasury) for the Plan Year and
was, as of the Determination Date,
in the top-paid group consisting
of the top twenty percent (20%) of
the employees (considering all
employees of the Employer or
Affiliate) when ranked on the
basis of compensation received (or
projected to be received) during
the Plan Year; or
(iv) was an officer and received (or is
projected to receive) compensation
greater than fifty percent (50%)
of the amount in effect under IRC
Section 415(b)(1)(A) for the Plan
Year. If, as of the Determination
Date, no officer of the Employer
or Affiliate is identified
pursuant to this subparagraph, the
highest paid officer of the
Employer or Affiliate as of such
date shall be treated as a Highly
Compensated Employee hereunder.
No more than fifty (50) employees
or, if lesser, the greater of
three (3) employees or ten percent
(10%) of the employees, shall be
treated as officers.
If an employee is a Family Member of
another employee who is (i) a Five Percent
(5%) Owner of the Employer or Affiliate,
or (ii) one (1) of the top ten (10)
highest paid employees of the Employer or
9
<PAGE>
Affiliate on the Determination Date, the
compensation paid to and contributions
made on behalf of such Family Member shall
be deemed to have been made on behalf of
such employee. In calculating the
compensation paid to such Family Member,
the compensation of the Employee, the
Employee's spouse and any lineal
descendants under the age of nineteen (19)
shall be limited to one hundred fifty
thousand dollars ($150,000) (as adjusted
by the Secretary of Treasury).
An employee who works only a de
minimis amount of service may be
considered a Highly Compensated Employee.
1.24(b) The following employees shall be excluded
for purposes of determining who is in the
top-paid group under (a)(iii) as of the
Determination Date:
(i) employees who have not completed
six (6) months of service;
(ii) employees who normally work less
than seventeen and one-half (17
1/2) hours per week;
(iii) employees who normally work not
more than six (6) months during
any year;
(iv) employees who have not attained
age twenty-one (21);
(v) except to the extent provided in
regulations, employees who are
included in a collective
bargaining agreement between
employee representatives and the
Employer or Affiliate; and
(vi) employees who are nonresident
aliens and who receive no earned
income, within the meaning of IRC
Section 911(d)(2), from the
Employer or Affiliate which
constitutes income from sources
within the United States, within
the meaning of IRC Section
861(a)(3).
1.24(c) For purposes of this Section, the
following definitions shall apply:
(i) The term "Family Member" as used
herein shall mean with respect to
any employee, such employee's
spouse and lineal ascendants or
descendants and the spouses of
10
<PAGE>
such lineal ascendants or
descendants.
(ii) The term "Five Percent (5%) Owner"
shall have the same meaning as is
specified in IRC Section 416(i).
1.24(d) The determination of compensation shall be
made without regard to IRC Sections 125,
402(a)(8) and 402(h)(1)(B), and in the
case of contributions by the Employer made
pursuant to a salary reduction agreement,
without regard to IRC Section 403(b).
1.24(e) For purposes of this Section,
"Determination Date" shall mean the single
date during a Plan Year as of which the
Corporation shall substantiate that the
Plan complies with the nondiscrimination
requirements of IRC Sections 401(a)(4),
410(b), and 414(s), on the basis of the
Corporation's workforce on that date as
reasonably representative of the
Corporation's workforce and the Plan's
coverage throughout the Plan Year.
1.25 Hours of Service means the sum of:
1.25(a) Each hour for which an employee is paid,
or entitled to payment, for the
performance of duties for the Employer
during the applicable computation period.
1.25(b) Each hour for which an employee is paid,
or entitled to payment, by the Employer on
account of a period of time during which
no duties are performed (irrespective of
whether the employment relationship has
terminated) due to vacation, holiday,
illness, incapacity (including
disability), layoff, jury duty or leave of
absence. However, the determination of
hours under this Section 1.25(b) shall be
subject to the following restrictions:
(i) No more than five hundred one
(501) hours shall be credited to
an employee during any single
continuous period during which the
employee performs no duties
(whether or not such period occurs
in a single computation period).
(ii) No hours shall be credited to an
employee if payment is made or due
under a plan maintained solely for
the purpose of complying with
applicable workers' compensation,
unemployment compensation or
11
<PAGE>
disability insurance laws.
(iii) Hours shall not be credited for a
payment which solely reimburses an
employee for medical or medically
related expenses incurred by the
employee.
1.25(c) Each hour for which an employee is paid,
or entitled to payment, by the Employer on
account of a period of time during which
no duties are performed due to an Absence
on Authorized Leave or due to military
duty and any other periods in which an
employee was not paid or entitled to
payment and presumably would have
performed services for the Employer but
for the fact that the employee was on a
military leave of absence for service in
the armed forces of the United States of
America, provided that the employee
entered such service directly from the
employ of the Employer and was discharged
from such service and reemployed by the
Employer within the period during which
his employment rights as a veteran are
protected by law.
1.25(d) Each hour for which back pay, irrespective
of mitigation of damages, is either
awarded or agreed to by the Employer
provided that the same hours shall not be
credited both under Sections 1.25(a),
1.25(b), or 1.25(c) and 1.25(d) hereunder.
Hours of Service shall not include any period
during which the employee was employed by a
predecessor of the Employer, unless the
predecessor's organization maintained the Plan or a
predecessor plan, or credit for such period of
employment otherwise is granted under the Plan.
Hours of Service under Sections 1.25(a), 1.25(c)
and 1.25(d) shall be determined from the Employer
records. Hours of Service under Section 1.25(b)
shall be determined in accordance with Department of
Labor Regulations 2530.200b-2. Hours of Service
hereunder shall be credited to the appropriate
computation period in accordance with Department of
Labor Regulation 2530.200b-2(c).
Notwithstanding anything herein to the contrary,
nothing in this Section 1.25 shall be construed to
alter, amend, modify, invalidate, impair or
supersede any law of the United States or any rule
or regulation issued under any such law.
12
<PAGE>
1.26 IRC means the Internal Revenue Code of 1986, as
amended from time to time. Any reference to any
section of the IRC shall be deemed to include any
applicable regulations and rulings pertaining to
such section and also shall be deemed a reference to
comparable provisions of future laws.
1.27 Limitation Year means the twelve (12) month period
commencing on January 1 and ending on December 31.
1.28 Normal Retirement Age means the later of (a) the
date on which a Participant attains the age of
sixty-five (65) or (b) the fifth anniversary of the
date the Participant commenced participation in the
Plan.
1.29 Normal Retirement Date means the first day of the
month coinciding with or next following the date on
which the Participant attains his Normal Retirement
Age.
1.30 One Year Break in Service means a Plan Year during
which an Employee has not completed more than five
hundred (500) Hours of Service. For purposes of
this definition, the number of Hours of Service
shall be determined in accordance with Section 1.25,
except that a One Year Break in Service shall not be
deemed to have occurred if the failure to complete
more than five hundred (500) Hours of Service is due
solely to an Absence on Authorized Leave or a leave
taken pursuant to the Family and Medical Leave Act
of 1993.
For periods commencing on or after January 1,
1985, and to the extent not already credited, Hours
of Service shall be credited solely for purposes of
determining whether a One Year Break in Service has
occurred with respect to an Employee who is absent
from work regardless of whether the Employee is paid
for such absence:
1.30(a) By reason of the pregnancy of the
Employee;
1.30(b) By reason of the birth of a child of the
Employee;
1.30(c) By reason of the placement of a child with
the Employee in connection with the
adoption of such child by such Employee;
or
1.30(d) For purposes of caring for such child for
a period beginning immediately following
such birth or placement.
Hours of Service to be credited for such purpose
shall be:
13
<PAGE>
(i) the Hours of Service which otherwise
normally would have been credited to such
Employee but for such absence; or
(ii) in any case in which the Committee is
unable to determine the hours in (i)
above, eight (8) Hours of Service per
normal work day of absence.
The total number of hours treated as Hours of
Service by reason of any such pregnancy, birth or
placement shall not exceed five hundred one (501)
hours. The hours in items (i) and (ii) above shall
be treated as Hours of Service hereunder:
(iii) only in the Plan Year in which the absence
from work begins, if an Employee would be
prevented from incurring a One Year Break
in Service in such Plan Year solely
because the period of absence is treated
as Hours of Service as provided in
Sections 1.30(a), 1.30(b), 1.30(c) or
1.30(d) above; or
(iv) in any other case, in the immediately
following Plan Year.
Further, the Committee may request that the
Employee furnish any information the Committee may
require to establish that the absence is for the
reasons hereinbefore provided and the number of days
for which there was such an absence. If such
information is not submitted in a timely manner, no
Hours of Service shall be credited pursuant to this
paragraph.
1.31 Participant means any Employee who becomes a
Participant as provided in Article II.
1.32 Past Service Compensation means, for any Employee,
for periods effective on and after January 1, 1989,
the total of his Compensation while a Participant
during calendar years 1984-1988, inclusive, divided
by the total of his Credited Service during those
years. For periods prior to January 1, 1989, Past
Service Compensation shall be determined in
accordance with the provisions of the Plan as in
effect from time-to-time prior to such date.
1.33 Plan means the Owens & Minor, Inc. Pension Plan, as
contained herein or as duly amended.
1.34 Plan Year means each twelve (12) month period
beginning on January 1 and ending on December 31;
however, for 1976, the Plan Year began on March 31
and ended on December 31, 1976. For purposes of
14
<PAGE>
Credited Service and Years of Service, Hours of
Service for the 1976 Plan Year shall be one and
one-third (1 1/3) times his actual Hours of Service
during the period March 31, 1976 to December 31,
1976.
1.35 Service means, for any Employee as of any date, the
sum of past Service, if any, under Section 1.35(a)
and future Service under Section 1.35(b), subject to
Sections 1.35(c), 1.35(d), 1.35(e), 1.35(f) and
1.35(g), if applicable.
1.35(a) If the Employee was employed by the
Employer on March 31, 1976, he shall
receive credit for past service. Past
service shall mean the number of years and
months of continuous employment by the
Employer of an Employee from his most
recent hiring date prior to March 31,
1976, until March 31, 1976.
1.35(b) Future service shall be the total number
of Plan Years during which the Employee
has at least one thousand (1,000) Hours of
Service for the Employer during the period
of time commencing on the later of (i)
March 31, 1976; or (ii) if Section 1.35(c)
is applicable, the first day of the Plan
Year coincident with or immediately
preceding the applicable reemployment
date.
1.35(c) Notwithstanding the above, if a terminated
Participant is subsequently reemployed and
again becomes a Participant, his Service
shall not include any periods of
employment prior to reemployment if the
number of his consecutive One Year Breaks
in Service as of his reemployment date
equals or exceeds the greater of (i) five
(5) consecutive One Year Breaks in
Service, or (ii) his Service as of his
termination date and his vested percentage
under Section 5.01 was zero at date of
termination. However, the provisions of
Section 1.35(c)(i) shall apply only to
Employees actively participating in the
Plan on and after the first day of the
Plan Year following December 31, 1984.
1.35(d) Any Employee who was excluded from
participation in the Plan for periods
prior to January 1, 1988, because his
original date of employment with the
Employer from which Service was determined
was within five (5) years of his Normal
Retirement Age, and who completes an Hour
15
<PAGE>
of Service on or after January 1, 1988,
shall receive Service for purposes of
vesting and eligibility for early
retirement in accordance with the
provisions of this Section 1.35 for such
period of employment.
For purposes of determining the vested
percentage in Section 5.01:
1.35(e) Periods of paid or unpaid leave taken
pursuant to the Family and Medical Leave
Act of 1993 shall be included;
1.35(f) Periods of employment with an Affiliate
which would have constituted Service had
the Employee been employed by the Employer
shall be included as if such periods had
been performed for the Employer; and
1.35(g) Periods of employment with the Employer
other than as an Employee which would have
constituted Service had the Employee been
employed as an Employee shall be included
as if such periods had been performed as
an Employee.
1.36 Social Security Retirement Age means the retirement
age under Section 216(l) of the Social Security Act
except that such Section shall be applied without
regard to the age increase factor and as if the
early retirement age under Section 216(l)(2) of such
Act were sixty-two (62).
1.37 Spouse means the person to whom the Participant is
legally married.
1.38 Surviving Spouse means, as of any date, the person
to whom the Participant has been legally married
throughout the one (1) year period immediately
preceding such date.
1.39 Total and Permanent Disability or Totally and
Permanently Disabled means a medically determinable
physical or mental impairment which prevents a
Participant from engaging in any substantially
gainful activity, with such disability likely to be
permanent; provided, that any such inability to
engage in any gainful activity shall be certified by
a medical examiner satisfactory to the Employer and
provided, further, that in no event shall a
Participant be considered Totally and Permanently
Disabled unless and until he is determined to be
eligible for and receiving disability benefits under
the provisions of the Social Security Act.
16
<PAGE>
A Participant who has applied for disability
benefits in the Social Security Act may be deemed to
be receiving such benefits pending subsequent
favorable disposition of such application by the
Social Security Administration. Any Participant who
is determined to be Totally and Permanently Disabled
may be required to submit to medical examination at
any time after such determination and prior to his
sixty-fifth (65th) birthday, but not more than
semi-annually to determined whether he is then Totally
and Permanently Disabled. If on the basis of such
examination it is found that he is no longer Totally
and Permanently Disabled, or if he engages in
gainful employment except for purposes of
rehabilitation as determined by the Employer, the
period of his disability for purposes of this
Section will then cease. In the event such
Participant refuses to submit to medical
examination, the period of his disability will be
deemed to have ended until he submits to such
examination.
1.40 Trust Agreement means the agreement entered into
between the Employer and the Trustee pursuant to
Article VII.
1.41 Trustee means such individual, individuals or
financial institution, or a combination of them as
shall be designated in the Trust Agreement to hold
in trust the assets of the Plan and shall include
any successor Trustee to the Trustee initially
designated thereunder.
1.42 Year of Service means, for any Employee, a stated
twelve (12) consecutive month period during which
the Employee completed one thousand (1,000) or more
Hours of Service.
If an Employee is simultaneously in the employ
of more than one Employer or is transferred from the
employment of one Employer to the employment of
another Employer, the number of Hours of Service
completed during any twelve (12) consecutive month
period shall be the sum of the number of Hours of
Service completed for each Employer during such
period.
For purposes of determining eligibility in
Article II:
1.42(a) Periods of paid or unpaid leave taken
pursuant to the Family and Medical Leave
Act of 1993 shall be included;
1.42(b) Periods of employment with an Affiliate
17
<PAGE>
which would have constituted Years of
Service had the Employee been employed by
the Employer shall be included as if such
periods had been performed for the
Employer; and
1.42(c) Periods of employment with the Employer
other than as an Employee which would have
constituted Years of Service had the
Employee been employed as an Employee
shall be included as if such periods had
been performed as an Employee.
18
<PAGE>
ARTICLE II
ELIGIBILITY AND PARTICIPATION
2.01 Eligibility - Each person who was a Participant on
December 31, 1993, shall continue as a Participant
after such date, subject to the provisions
hereinafter contained.
Any Employee who was previously excluded from
participation in the Plan because his original date
of employment with the Employer from which Credited
Service was determined was within five (5) years of
his Normal Retirement Age and who completes an Hour
of Service on or after January 1, 1988, shall become
a Participant as of January 1, 1988, provided he has
otherwise met the requirements for participation in
the Plan. If such an Employee does not become a
Participant as of January 1, 1988, because he does
not otherwise meet the requirements for
participation in the Plan, he shall be eligible to
participate on the January 1 or July 1 following his
satisfaction of the eligibility requirements of the
Plan as hereinafter provided.
Each Employee who was not a Participant on
December 31, 1993, and each person who becomes an
Employee after such date and who is not already a
Participant automatically shall become a Participant
on the January 1 or July 1 coinciding with or next
following the latest of (a) January 1, 1994, (b) the
Effective Date, (c) the attainment of age twenty-one
(21), and (d) the completion of a Year of Service
subsequent to the date on which he completed his
first Hour of Service. Notwithstanding the
preceding, Employees of a subsidiary or Employer
acquired by the Corporation shall become
Participants on the January 1 or July 1 subsequent
to the date of acquisition of such subsidiary or
Employer and the completion of the eligibility
requirements contained hereinabove.
Upon the completion of the first twelve (12)
month period noted in (d) above, the twelve (12)
month period for determining the Year of Service
shall be based on Plan Years starting with the Plan
Year in which occurs the first anniversary of the
date on which an Employee completes the applicable
first Hour of Service.
2.02 Eligibility on Reemployment - If an Employee ceases
to be a Participant due to his termination of
employment and he is subsequently reemployed as an
Employee, he once again shall become a Participant
on his reemployment date.
19
<PAGE>
2.03 Participation - Each person who becomes a
Participant shall remain a Participant so long as he
remains an Employee or is entitled to future
benefits under the terms of the Plan.
2.04 Reemployment of Retired Participants - If a
Participant is reemployed as an Employee after the
commencement of a retirement benefit due to
retirement at his Early Retirement Date or the
commencement of a benefit in accordance with the
provisions of Section 5.02 but prior to the
attainment of his Normal Retirement Age, his
retirement benefit shall be discontinued. The
Participant's rights to future benefits under the
Plan shall be subject to redetermination upon any
subsequent termination of employment or retirement
under the Plan in accordance with the Plan
provisions then in effect. Any benefits thereafter
payable shall be adjusted to reflect the Actuarial
Equivalent value of the retirement benefits received
by the Participant in the period during which he was
in receipt of a retirement benefit. Notwithstanding
the preceding, the monthly retirement benefit
thereafter payable shall not be less than the
monthly retirement benefit payable immediately
before his latest reemployment plus the Actuarial
Equivalent of any monthly retirement benefit
suspended while the Participant is not employed in
service as described in Department of Labor
Regulations 2530.203-3(c)(1).
If a Participant is reemployed as an Employee
after the commencement of his monthly retirement
benefit under any of the provisions of the Plan and
after attainment of his Normal Retirement Age, he
shall continue to receive the monthly retirement
benefit payment determined and paid in every respect
as if he were no longer employed by the Employer.
Any such Participant shall be entitled to an
additional monthly retirement benefit upon his
subsequent termination of employment based on any
accrual earned during his period of reemployment
after his Normal Retirement Age as indicated in the
Appendix.
20
<PAGE>
ARTICLE III
RETIREMENT BENEFITS
3.01 Normal Retirement Benefit - Upon retirement at his
Normal Retirement Date, a Participant shall receive
a monthly retirement benefit which shall commence on
his retirement date and shall be paid in accordance
with Article IV. The amount of such monthly
retirement benefit shall be one-twelfth (1/12) of
the sum of Sections 3.01(a) and 3.01(b) following:
3.01(a) Future Service Benefit: For each Plan
Year beginning after December 31, 1988,
one and one-fourth percent (1.25%) of the
Participant's Compensation for such Plan
Year. In computing the Future Service
Benefit, any Compensation for any period
prior to the Participant's participation
in the Plan shall be disregarded.
3.01(b) Past Service Benefit: If the Participant
participated in the Plan on December 31,
1988, he may receive a Past Service
Benefit in addition to his Future Service
Benefit. His Past Service Benefit shall
be the product of:
(i) Three-fourths of one percent
(0.75%) of the first twelve
thousand dollars ($12,000) of the
Participant's Past Service
Compensation plus one and one-fourth
percent (1.25%) of any
excess of his Past Service
Compensation over twelve thousand
dollars ($12,000); and
(ii) The Participant's Credited Service
prior to January 1, 1989.
Notwithstanding anything to the contrary
contained hereinabove, for Participants under the
Plan as of January 1, 1994, in no event shall the
amount as determined hereinabove be less than the
accrued benefit determined at December 31, 1993,
under the provisions of the Plan as in effect on
December 31, 1993. Provided, however, that in no
event shall the number of years of Credited Service
taken into consideration under this Section 3.01
exceed forty (40).
3.02 Delayed Retirement Benefit - Upon retirement at his
Delayed Retirement Date, a Participant shall receive
a monthly retirement benefit which shall commence on
the date of his retirement and shall be paid in
accordance with Article IV. The amount of the
monthly retirement benefit shall be equal to the
21
<PAGE>
benefit computed in accordance with Section 3.01 as
of his Delayed Retirement Date.
If a Participant continues employment with his
Employer beyond his Normal Retirement Date, payment
of the Participant's monthly retirement benefit
shall be subject to the following requirements:
3.02(a) Each Participant whose monthly retirement
benefit is suspended under this Section
3.02 shall be notified of the suspension
of his benefit payments during his
continued period of employment after his
Normal Retirement Date. The notification
shall be made by personal delivery or
first class mail during the first calendar
month or payroll period (if applicable) in
which the Participant's monthly retirement
benefit is suspended. The notification
shall contain the following information
(either expressly or by reference to the
Plan's summary plan description):
(i) A description of the specific
reasons why benefit payments are
being suspended;
(ii) A general description and a copy
of the Plan provisions relating to
the suspension of benefit
payments;
(iii) A statement that applicable
Department of Labor Regulations
can be found in Section 2530.203-3
of the Code of Federal
Regulations; and
(iv) A description of the Plan's
procedure for affording a review
of the suspension of benefits.
3.02(b) As of his Normal Retirement Age, a
Participant's monthly retirement benefit
may be suspended under this Section 3.02
for each month, or, if applicable, each
four (4) or five (5) week payroll period
ending in a calendar month during which
the Participant completes forty (40) or
more Hours of Service (other than Hours of
Service credited only on account of back
pay that was awarded or agreed to by the
Employer). During each calendar month or
payroll period (if applicable) in which a
Participant meets the preceding
requirements, he shall be deemed to be in
the "service" of the Employer for purposes
of this Section 3.02. A Participant who
22
<PAGE>
has reached his Normal Retirement Age and
who does not perform forty (40) or more
Hours of Service during any such calendar
month or payroll period (if applicable)
shall be deemed to have terminated
employment with the Employer and, as a
result, shall be entitled to a monthly
retirement benefit for the period for
which he is deemed terminated. Payment of
the benefit for such period shall be made
in accordance with Section 3.02(c).
3.02(c) Upon the actual retirement of a
Participant who does not complete forty
(40) or more Hours of Service in any month
or four (4) or five (5) week payroll
period (if applicable) pursuant to Section
3.02(b), the Participant's monthly
retirement benefit shall be increased by
the Actuarial Equivalent of the payments
which otherwise would have been payable by
reason of the Participant being deemed to
have terminated his employment with the
Employer.
3.02(d) Upon the actual retirement of a
Participant who is deemed to have
terminated his employment under Section
3.02(b), the Participant shall be entitled
to receive a monthly retirement benefit
equal to the greater of (i) the benefit
determined in accordance with Section
3.02(c), or (ii) the benefit provided
under this Section 3.02 including any
Credited Service earned after his Normal
Retirement Date. Payment of such
Participant's monthly retirement benefit
shall commence not later than the first
day of the third month after the calendar
month in which the Participant actually
retires under the provisions of this
Section 3.02.
3.02(e) The Committee shall follow the procedure
described in the Plan's summary plan
description for the review of claims. A
Participant may request, and the Committee
shall render, a determination of whether
specific contemplated employment shall
result in suspension of his benefit
payments.
3.03 Early Retirement Benefit - Upon retirement at his
Early Retirement Date, a Participant shall receive a
monthly retirement benefit which shall commence on
his Normal Retirement Date and shall be paid in
accordance with Article IV. The amount of the
23
<PAGE>
monthly retirement benefit shall be the
Participant's Accrued Benefit as of his Early
Retirement Date.
Notwithstanding anything contained herein to the
contrary, a Participant who retires at an Early
Retirement Date shall have the right to elect, in
writing, to receive his retirement benefit
commencing as of his Early Retirement Date or on the
first day of any month thereafter which precedes his
Normal Retirement Date. If the Participant makes
the election to receive his retirement benefit at an
earlier commencement date, the amount of monthly
retirement benefit payable at such earlier
commencement date shall be the Participant's Accrued
Benefit as of his Early Retirement Date reduced by
the Actuarial Equivalent factors for early
retirement for the period by which the benefit
commencement date precedes what otherwise would be
the Participant's Normal Retirement Date.
3.04 Disability Retirement Benefit - Upon retirement at
his Disability Retirement Date, a Participant shall
receive a monthly retirement benefit which shall
commence on his Normal Retirement Date, if he is
then living, and shall be paid in accordance with
Article IV. The amount of the monthly retirement
benefit shall be the monthly benefit to which the
Participant would have been entitled under Section
3.01 had he remained in service as an Employee until
his Normal Retirement Date and then retired, with
Credited Service up to a maximum of forty (40) years
computed as of what otherwise would have been his
Normal Retirement Date and with Compensation during
such period of disability being considered to
continue at the same amount as for the Plan Year
preceding the onset of disability.
If a Totally and Permanently Disabled
Participant whose disability retirement benefit is
being deferred recovers prior to his Normal
Retirement Date to the extent that he is no longer
Totally and Permanently Disabled, he no longer shall
be entitled to a disability retirement benefit under
this Section 3.04.
If a Participant whose disability retirement
benefit is being deferred returns to the employ of
the Employer, he shall resume his status as an
active Participant. If such Participant does not
return to the employ of the Employer, he shall be
considered to have terminated his employment as of
the date he is no longer Totally and Permanently
Disabled. In either event, the period during which
24
<PAGE>
the Participant was Totally and Permanently Disabled
shall be considered for purposes of Credited Service
up to a maximum of forty (40) years. To effectuate
this result, if the Employee is paid or entitled to
payment, directly or indirectly, by the Employer
during the Employee's period of Total and Permanent
Disability, from sources other than this Plan, he
shall be credited with Hours of Service in
accordance with Section 1.25(b) without regard to
Section 1.25(b)(i). If the Employee is not being
paid or entitled to payment, directly or indirectly,
by the Employer during his period of Total and
Permanent Disability, he shall be credited with the
number of Hours of Service that he presumably would
have performed and been compensated for but for the
fact that he became Totally and Permanently
Disabled.
3.05 Minimum Benefit - Notwithstanding any other
provisions of the Plan:
3.05(a) The normal retirement benefit of any
Participant accrued as of January 1, 1981,
shall not be less than such Participant's
normal retirement benefit accrued on that
date as computed according to the terms of
the Plan in effect on December 31, 1980.
The normal retirement benefit of any
Participant of the prior plan as of March
30, 1976, shall not be less than the
Participant's normal retirement benefit
accrued on that date under the prior plan.
Notwithstanding the preceding, for
Participants under the Plan as of
January 1, 1989, in no event shall the
amount as determined pursuant to Section
3.01 be less than the accrued benefit
determined at December 31, 1988, under the
provisions of the Plan as in effect on
December 31, 1988. Notwithstanding
anything to the contrary contained
hereinabove, for Participants under the
Plan as of January 1, 1994, in no event
shall the amount as determined pursuant to
Section 3.01 be less than the accrued
benefit determined at December 31, 1993,
under the provisions of the Plan as in
effect on December 31, 1993.
3.06 Post-Retirement Medical Benefits - In the event the
Corporation allows for the funding of post-retirement
medical benefits pursuant to IRC Section
401(h) in this Plan, the following provisions shall
be applicable:
25
<PAGE>
3.06(a) Retired Participants, who meet the
requirements set forth in the Owens &
Minor, Inc. Health Insurance Plan (for
Retired Employees) (hereinafter referred
to as the "Health Care Plan") shall be
entitled to the benefits provided under
the Health Care Plan, except as otherwise
provided in this Section. The current
Health Care Plan is incorporated herein by
reference. Benefits payable under the
Health Care Plan may be paid from the Plan
as hereafter provided, but only to the
extent funded.
3.06(b) A separate account (the "Health Care
Fund") shall be maintained on the books of
the Plan to fund benefits payable under
this Section. However, for all investment
purposes, the assets attributable to the
Health Care Fund may be commingled with
other Plan assets. The Health Care Fund
shall be credited with (i) future Employer
contributions specifically designated as
being made to the Plan for the purpose of
funding health care benefits under this
Section and all required contributions
made to the Health Care Plan by or on
behalf of retired Participants, their
Spouses and dependents and (ii) the gains
and losses credited on the foregoing
amounts under a reasonable investment
accounting system established by the
Committee. Health Care Plan benefits
shall be payable only from the amounts
credited to the Health Care Fund, which
shall be reduced accordingly.
Administrative expenses attributable to
the Health Care Plan which are not
directly paid by the Employer shall be
paid only from the Health Care Fund.
3.06(c) Health Care Plan benefits are intended to
be subordinate to the Plan's retirement
benefits. Accordingly, the maximum
contributions to the Plan made after this
Section 3.06 becomes effective for the
purpose of providing Health Care Plan
benefits shall not exceed twenty-five
percent (25%) of the total actual
contributions to the Plan (other than
contributions to fund past service
credits) after the date this Section 3.06
became effective. For purposes of
applying this limitation, the Corporation
may conclusively rely on an actuarial
certification prepared by an actuary
26
<PAGE>
appointed by the Corporation demonstrating
compliance. If any amounts are
inadvertently or negligently contributed
to the Health Care Fund in excess of the
limitation imposed by this Section
3.06(c), such excess allocation shall have
been contributed to the Health Care Fund
by mistake and in violation of this limit
and shall be withdrawn from that Fund
promptly and returned to the Employer or
shall be applied to provide retirement
benefits otherwise payable under the Plan.
Retired Participant contributions to the
Health Care Fund also shall be treated as
contributions subject to this limit.
3.06(d) To the extent the Health Care Plan
requires that persons covered by the Plan
make contributions to be eligible for
benefits, contributions shall be made to
the Plan (but such contributions shall not
be taken into account in applying any
limitation of IRC Section 415 except to
the extent that subsection (h) requires
that contributions for certain individuals
be accounted for separately and treated as
"annual additions" subject to the defined
contribution plan limits of the IRC).
3.06(e) Health Care Plan benefits shall not
constitute a portion of any person's
Accrued Benefits and therefore, are not
subject to the vesting requirements of IRC
Section 411 nor are such Health Care Plan
benefits subject to protection under IRC
Section 411(d)(6) from reduction or
elimination. Neither are Health Care Plan
benefits protected by corresponding
provisions of ERISA, nor do such benefits
constitute "benefit liabilities" protected
under Title IV of ERISA from elimination
in the event the Plan is terminated. The
Corporation expressly reserves the right
to change, reduce or eliminate the
benefits provided under the Health Care
Plan prospectively or retroactively at any
time and in any manner. No person may
rely on the future continuation of Health
Care Plan benefits since the Corporation
has expressly reserved the right to change
or reduce benefits or terminate the Plan
at any time. Whether or not the
Corporation formally eliminates or reduces
Health Care Plan benefits, such benefits
shall only be provided to the extent such
benefits can be paid from assets then
27
<PAGE>
credited to the Health Care Plan, and the
Corporation shall have no obligation to
contribute amounts to fund such benefits.
3.06(f) If the Health Care Plan is terminated
after the payment of or provision for all
benefits promised under the Health Care
Plan for expenses incurred prior to such
termination, any surplus remaining in the
Health Care Fund shall be returned to the
Employer, as required by IRC Section
401(h). In lieu of terminating the Health
Care Plan, the Employer may spin off all
or a portion of the Health Care Plan and
cause the spunoff portion to be merged
into another pension plan or to be
converted into or merged with an IRC
Section 501(c)(9) trust.
3.06(g) Benefits shall be provided under the
Health Care Plan in a manner that does not
discriminate in favor of persons who are
or were officers, significant shareholders
or highly compensated employees of the
Employer or Affiliate, or their Spouses or
dependents. Discrimination shall be
tested separately with respect to the
retirement and health care benefits
provided under the Plan and if either
category of benefits is discriminatory,
the entire Plan is discriminatory.
3.06(h) To the extent that a separate health care
account must be maintained with respect to
a Participant who is a Key Employee
pursuant to IRC Section 401(h) or other
applicable provisions of law, a separate
account shall be maintained on the books
of the Health Care Fund, and Health Care
Plan benefits payable with respect to the
Participant from whom the account is
maintained (or his or her Spouse or
dependents) shall be payable only from
such account. The Committee may withdraw
surplus funds from such separate accounts
for any other Health Care Plan purpose.
Amounts credited to such accounts shall
not exceed the defined contribution plan
annual addition limits of IRC Section 415.
3.06(i) Employer contributions for Health Care
Plan benefits shall be designated as being
made for the Health Care Plan at the time
they are made and shall be credited to the
Health Care Fund. Such contributions
shall be deductible in accordance with the
rules set forth in Treasury Regulations
and other applicable provision of law. In
28
<PAGE>
determining how much may be deducted from
contributions to the Plan to provide
Health Care Plan benefits, the actuary
appointed by the Corporation may take into
account reasonably projected increases in
health care costs due to inflation and
other factors. Lump sum contributions may
be made by the Employer to satisfy past
service costs or experience losses of the
Health Care Plan without the need for
amortization.
3.06(j) In determining the amount of Employer
contributions necessary to fund Health
Care Plan benefits, the actuary appointed
by the Corporation shall reduce the
contributions that would otherwise be
required for any period by the full amount
(i.e., without amortization) then credited
to the Health Care Plan which, during the
period in question, has become unnecessary
for paying Health Care Plan benefits on
account of terminations of employment,
deaths and other such events, determined
in a reasonable manner selected by the
actuary.
3.06(k) The Health Care Plan shall be administered
in accordance with its terms except to the
extent the Committee or the Corporation
has expressly been given administrative
powers or duties under this Section. The
Corporation or the Committee may delegate
any such powers or duties to their
counterparts under the Health Care Plan.
3.06(l) This Section shall supersede any
previously adopted inconsistent provision
of the Health Care Plan, the Plan and the
Trust Agreement. Except to that extent,
all other provisions of the Health Care
Plan, the Plan and the Trust Agreement
shall apply with respect to this Section.
3.07 Early Retirement Incentive - In the event the Board
resolves that an early retirement incentive shall be
provided under this Plan, the following provisions
shall be applicable:
3.07(a) Eligibility - Effective as of such date as
resolved by the Board, any Participant may
elect, as provided in Section 3.07(c)
below, the Early Retirement Incentive
provided in Section 3.07(b) below,
provided the Participant has met the
eligibility requirements as follows as of
such date:
29
<PAGE>
(i) the Participant is an active
Employee or is on Absence due to
Authorized Leave;
(ii) the Participant has attained a
minimum age as determined by the
Board as of such date; and
(iii) the Participant has completed a
minimum number of years of
Credited Service as determined by
Board as of such date; or
(iv) the Participant has attained a
specified age and number of years
of service, with such requirements
to be determined by the Board.
3.07(b) Benefit - A Participant who elects the Early
Retirement Incentive in accordance with this
Section 3.07 shall have his monthly Early
Retirement Incentive benefit calculated as the
sum of paragraphs (i) and (ii) following:
(i) the amount of monthly retirement
benefit determined in accordance
with Section 3.01, assuming the
following:
(A) the Participant completed a
number of additional years of
Credited Service, as
determined by the Board as of
the effective date of such
Early Retirement Incentive;
and
(B) The Participant's attained age
will be increased by a
specified number of years, as
determined by the Board as of
such date, but in no event
shall such Participant's age
be increase beyond the age of
sixty-five (65);
(ii) an amount payable until the
Participant attains the age of
sixty-five (65) equal to the
estimate primary Social Security
benefit that would be applicable
at the Participant's attainment of
age sixty-five (65) under the
provisions of the Social Security
Act as in effect on the January 1
of the calendar year prior to the
effective date of such Early
Retirement Incentive, assuming the
Participant would continue to
receive Compensation at the same
rate as he was receiving during
30
<PAGE>
the calendar year prior to the
effective date of such Early
Retirement Incentive.
3.07(c) Election Period - The Participant must
exercise his election to accept the Early
Retirement Incentive, as may be herein
provided, by completing an election form
provided by the Committee. Such completed
election form must be submitted to the
Committee within forty-five (45) days, or
such longer period as may be determined by
the Board, following notification to the
Participant of his eligibility for the
Early Retirement Incentive. Benefits
shall commence as of the date or dates, as
determined by the Board and as may be
elected by the Participant.
31
<PAGE>
ARTICLE IV
NORMAL AND OPTIONAL
METHODS OF RETIREMENT BENEFIT PAYMENTS
4.01 Normal Form of Payment - The normal form of payment
shall be a monthly retirement benefit commencing on
the date specified in Section 3.01, 3.02, 3.03, 3.04
or Section 5.02 and shall continue to be paid to the
Participant on the first day of each month
thereafter during his lifetime.
4.02 Available Options - No less than thirty (30) days
and no more than ninety (90) days prior to the
Annuity Starting Date, each Participant and his
Spouse shall be given a written notice to the effect
that benefits thereafter payable shall be in the
form specified in Section 4.04 unless the
Participant, with the written consent of his Spouse,
elects to the contrary during the ninety (90) day
period prior to the Annuity Starting Date. The
notice shall describe, in a manner intended to be
understood by the Participant and his Spouse, (a)
the terms and conditions of the joint and survivor
annuity specified in Section 4.04 which shall
include a general explanation of the financial
effect of the election or absence of election, (b)
the rights of the Participant's Spouse, (c) the
relative values of the various optional forms of
payment available under the Plan, and (d) the right
to make and the effect of a revocation of a previous
election to waive the joint and survivor annuity
specified in Section 4.04.
If a Participant or his Spouse requests
additional information, as permitted under the terms
of the notice, commencement of benefits for any
purpose hereunder shall not begin until at least
ninety (90) days following the receipt of such
additional information.
In accordance with the preceding provisions of
this Section 4.02, each Participant, with the
written consent of his Spouse, shall have the right
to elect to have his retirement benefit paid under
any one of the options hereinafter set forth in this
Section 4.02 in lieu of the applicable retirement
benefit otherwise provided for in Section 4.01. The
amount of any optional retirement benefit shall be
the Actuarial Equivalent of the amount of retirement
benefit that otherwise would have been payable to
him as provided for in Section 4.01.
A Participant who desires to have his retirement
benefit paid under one of the optional forms
provided in this Section 4.02 shall make such an
election by written request to the Committee on
<PAGE>
32
forms provided by the Committee. An election by a
Participant to receive his retirement benefit under
any of the optional methods of payment as provided
in this Section 4.02 and the spousal consent to such
optional form of payment may be revoked by such
Participant in writing to the Committee at any time
prior to his Annuity Starting Date. After
retirement benefit payments have commenced, no
future elections or revocations of an optional form
will be permitted under any circumstances.
4.02(a) TEN (10) YEAR CERTAIN AND CONTINUOUS OPTION
A Participant may elect to receive a
decreased retirement benefit during his
lifetime, and in the event of his death
subsequent to retirement but before one
hundred twenty (120) monthly retirement
benefit payments have fallen due, such
decreased retirement benefit shall be
continued to his Beneficiary until the
remainder of the payments have been paid.
If the designated Beneficiary is not
living at the death of the Participant,
the Actuarial Equivalent of the remaining
certain payments shall be paid in a lump
sum to the Beneficiary determined in
accordance with Section 1.06. If payments
are continued to a Beneficiary and the
Beneficiary dies before a combined total
of the monthly benefit payments have been
made to the Participant and the
Beneficiary, the Actuarial Equivalent of
the remaining certain payments shall be
paid in a lump sum to the estate of the
Beneficiary.
4.02(b) JOINT AND SURVIVOR OPTION
A Participant may elect to receive a
decreased retirement benefit during his
lifetime and have one hundred percent
(100%) or fifty percent (50%) of such
decreased retirement benefit continue
after his death to his designated
Beneficiary, during the lifetime of the
Beneficiary. If the designated
Beneficiary is not living at the death of
the Participant, no additional benefits
shall be payable on behalf of the
Participant.
4.03 Maximum Option Payable - If a Participant elects an
optional form of payment, and the designated
Beneficiary is not the Spouse of the Participant,
33
<PAGE>
the option elected shall be restricted so that the
minimum distribution incidental benefit requirements
of IRC Section 401(a)(9) and Treasury Regulation
1.401(a)(9)-2 are met.
4.04 Automatic Option - Unless a married Participant,
with the consent of his Spouse, has elected an
optional form of payment under Section 4.02 and has
not revoked the election, or has elected to be
excluded from the effects of this automatic option,
it automatically shall be assumed that the married
Participant elected the Joint and Survivor Option of
Section 4.02(b) with one hundred percent (100%) of
his benefit amount payable after his death to his
Beneficiary and with his Surviving Spouse on the
effective date of this option designated as his
Beneficiary. This automatic option shall become
effective and benefits adjusted accordingly as of
the date benefit payments commence. If this
automatic option is in effect and the Participant's
Spouse at the time of the Participant's death does
not qualify as a Surviving Spouse, then no death
benefit shall be payable with respect to the
Participant.
It is specifically provided that the Spouse of
the Participant shall consent in writing to any form
of payment other than that provided under this
Section 4.04 during the ninety (90) day period prior
to the Annuity Starting Date. The Spouse's written
consent shall be witnessed by a representative of
the Committee or a notary public. The Committee may
accept a Participant's election without the consent
of his Spouse if there is no Spouse, the Spouse
cannot be located, or under such other circumstances
as may be prescribed by regulations. Any spousal
consent shall apply only to the Spouse granting such
written consent.
4.05 Lump Sum Payments - Notwithstanding any other
provisions of this Plan, if the Actuarial Equivalent
of a terminated or retiring Participant's vested
Accrued Benefit payable at Normal Retirement Date as
calculated at the date of distribution does not
exceed three thousand five hundred dollars ($3,500)
(including any previous distributions made to the
Participant) or such other amount as may be
prescribed by the Secretary of Treasury, the
Committee shall direct that such amount be paid in a
lump sum to such terminated or retiring Participant.
If the Actuarial Equivalent of a Participant's
vested Accrued Benefit at the time of any
distribution hereunder exceeds three thousand five
hundred dollars ($3,500) (including any previous
34
<PAGE>
distributions made to the Participant), then the
Actuarial Equivalent of the vested Accrued Benefit
at any subsequent time shall be deemed to exceed
three thousand five hundred dollars ($3,500). For
purposes of this Section 4.05, the date of
distribution shall be deemed to be the date of
termination of employment, provided that any
disparity between such dates is due to reasonable
administrative delay. No other benefits of any type
shall be payable to such former Participant or his
Spouse, Surviving Spouse or Beneficiaries.
If a terminated or retiring Participant who
received a distribution under this Section 4.05 is
subsequently reemployed and again becomes a
Participant, his Credited Service shall not include
any periods of employment prior to his reemployment
date unless (a) the amount of the payment is repaid
to the Fund, plus interest determined pursuant to
IRC Section 411(c)(2)(C) [one hundred twenty percent
(120%) of the Federal mid-term rate determined
pursuant to IRC Section 1274 for the first month of
such Plan Year] between the date of payment and the
date of repayment, (b) the repayment is made prior
to the earlier of (i) five (5) years after the first
day on which the Participant is subsequently
reemployed by the Employer, or (ii) the close of the
first period of five (5) consecutive One Year Breaks
in Service commencing after the distribution, and
(c) the distribution was made no later than the
close of the second Plan Year following the Plan
Year in which the termination occurred. The Federal
mid-term rate shall automatically be adjusted by the
Secretary of Treasury in accordance with IRC Section
411(c)(2)(C).
If the distribution (plus interest) is repaid,
the Participant's Credited Service shall be based on
all periods of employment subject to any
restrictions in Section 1.12. If the distribution
(plus interest) is not repaid and the distribution
was not made by the end of the second Plan Year
following the Plan Year in which his termination of
employment occurred, his prior Credited Service
shall be included, and his subsequent benefit shall
be reduced by the Accrued Benefit attributable to
the Participant's prior distribution.
4.06 Rollover Distributions - This Section 4.06 applies
to distributions made on or after January 1, 1993.
Notwithstanding any provision of the Plan to the
contrary that would otherwise limit a Distributee's
election under this Article, a Distributee may
elect, at the time and in the manner prescribed by
35
<PAGE>
the Employer, to have any portion of an Eligible
Rollover Distribution paid directly to an Eligible
Retirement Plan specified by the Distributee in a
Direct Rollover.
4.06(a) Definitions.
(i) Eligible Rollover Distribution:
An Eligible Rollover Distribution
is any distribution of all or any
portion of the balance to the
credit of the Distributee, except
that an Eligible Rollover
Distribution does not include:
any distribution that is one of a
series of substantially equal
periodic payments (not less
frequently than annually) made for
the life (or life expectancy) of
the Distributee or the joint lives
(or joint life expectancies) of
the Distributee and the
Distributee's designated
Beneficiary, or for a specified
period of ten (10) years or more;
any distribution to the extent
such distribution is required
under IRC Section 401(a)(9); and
the portion of any distribution
that is not includible in gross
income (determined without regard
to the exclusion for net
unrealized appreciation with
respect to employer securities).
(ii) Eligible Retirement Plan: An
Eligible Retirement Plan is an
individual retirement account
described in IRC Section 408(a),
an individual retirement annuity
described in IRC Section 408(b),
an annuity plan described in IRC
Section 403(a), or a qualified
trust described in IRC Section
401(a), that accepts the
Distributee's Eligible Rollover
Distribution. However, in the
case of an Eligible Rollover
Distribution to the surviving
spouse, an Eligible Retirement
Plan is an individual retirement
account or individual retirement
annuity.
(iii) Distributee: A Distributee
includes an Employee or former
Employee. In addition, the
36
<PAGE>
Employee's or former Employee's
surviving spouse and the
Employee's or former Employee's
spouse or former spouse who is the
alternate payee under a qualified
domestic relations order, as
defined in IRC Section 414(p), are
Distributees with regard to the
interest of the spouse or former
spouse.
(iv) Direct Rollover: A Direct
Rollover is a payment by the Plan
to the Eligible Retirement Plan
specified by the Distributee.
4.07 Consent Prior to Distribution from the Plan -
Notwithstanding anything contained in the Plan to
the contrary, the written consent of the Participant
and his Spouse (or where either the Participant or
the Spouse has died, the survivor) shall be required
prior to any distribution of any portion of the
Accrued Benefit if the present value of the
nonforfeitable Accrued Benefit exceeds three
thousand five hundred dollars ($3,500) (including
any prior distributions made under the Plan) and any
such distribution is made prior to the later of the
date the Participant attains (or would have
attained) his Normal Retirement Age or age sixty-two
(62). For purposes of this Section 4.07, if the
present value of the vested Accrued Benefit at the
time of any distribution under the Plan exceeds
three thousand five hundred dollars ($3,500), then
the present value of the vested Accrued Benefit at
any subsequent time will be deemed to exceed three
thousand five hundred dollars ($3,500).
No less than thirty (30) days and no more than
ninety (90) days prior to the Annuity Starting Date,
the Committee shall provide written notice to the
Participant of the right to defer any distribution
under the Plan until the later of the date the
Participant attains (or would have attained) his
Normal Retirement Age or age sixty-two (62). The
notice shall include a general description of the
material features and optional forms of payment
available under the Plan and shall be provided in
the same manner as provided in Section 4.02. The
Participant and his Spouse must consent in writing
to such distribution in the ninety (90) day period
prior to the Annuity Starting Date.
Notwithstanding the preceding, the Participant's
consent only shall be required for distribution of
the benefit in the form of the qualified joint and
37
<PAGE>
survivor annuity under Section 4.04 prior to the
later of the date he attains his Normal Retirement
Age or age sixty-two (62). The consent of the
Participant and his Spouse shall not be required to
the extent that a distribution from the Plan is
required to satisfy IRC Section 401(a)(9) or 415.
4.08 No Reduction of Accrued Benefits - Notwithstanding
anything contained herein to the contrary, the
following provisions shall be applicable to the
Plan.
4.08(a) In no event shall any amendment to the
Plan decrease a Participant's Accrued
Benefit or eliminate an optional form of
payment, unless such amendment is
effective on a prospective basis with
regard to Accrued Benefits after the
effective date of such amendment.
4.08(b) In no event shall a Participant's Accrued
Benefit be reduced on account of any
increase in his age or Credited Service;
provided, that this provision shall not
apply to benefits under the Plan
commencing before entitlement to benefits
payable under Title II of the Social
Security Act, which benefits under the
Plan (i) do not exceed such Social
Security benefits, and (ii) terminate when
such Social Security benefits commence.
4.08(c) If the provisions of IRC Section 416 and
regulations issued thereunder apply to the
Plan, in no event shall a Participant's
Accrued Benefit or benefit payable at his
Normal Retirement Date be lower than the
minimum benefit required under IRC Section
416.
4.08(d) The benefit of a Participant, Spouse,
Surviving Spouse or Beneficiary who is
receiving benefits under the Plan, or a
Participant who is terminated from
employment and has a nonforfeitable right
to benefits, shall not be decreased due to
any increase in the benefit levels payable
under Title II of the Social Security Act
or any increase in the wage base under
Title II if the increase takes place after
the earlier of the date of first receipt
of such benefits or the date of
separation, as the case may be.
38
<PAGE>
ARTICLE V
BENEFITS ON TERMINATION OF EMPLOYMENT
5.01 Vesting of Benefits - All rights to all benefits
under the Plan will cease upon a Participant's
termination of employment with the Employer or
Affiliate prior to retirement, other than by death,
except as otherwise provided in this Article V and
in Section 6.05.
If a Participant's employment with the Employer
or Affiliate is terminated prior to retirement,
other than by death, but after the Participant has
completed at least five (5) years of Service, he
shall receive a monthly retirement benefit
commencing on his Normal Retirement Date, if he is
then alive, payable in accordance with Section 5.02.
The amount of the benefit shall be equal to the
Participant's Accrued Benefit as of his date of
termination of employment with Compensation
determined based on the IRC Section 401(a)(17)
compensation limit as in effect on his date of
termination of employment. Notwithstanding anything
contained herein to the contrary, in all events, a
Participant shall be one hundred percent (100%)
vested upon the attainment of his Normal Retirement
Age.
No amendments to the Plan made subsequent to
termination of employment of any Participant shall
affect the amount of retirement benefit to which
such Participant is entitled except as otherwise
specifically provided herein.
If a Participant who is entitled to a deferred
retirement benefit under the provisions of this
Section 5.01 later is reemployed as an Employee
prior to the commencement of such retirement
benefit, his rights to any such retirement benefit
shall thereupon be suspended. Such Participant's
rights to benefits under the Plan shall be subject
to redetermination at any subsequent termination of
employment or retirement under the Plan in
accordance with the provisions of the Plan then in
effect.
5.02 Payment of Deferred Vested Benefit - A terminated
Participant who is entitled to a deferred vested
benefit in accordance with the provisions of Section
5.01 shall be entitled to receive his benefit
commencing as of his Normal Retirement Date, if he
is then alive, paid in accordance with Article IV.
Notwithstanding the preceding, a terminated
39
<PAGE>
Participant who has completed at least ten (10)
years of Service at his date of termination of
employment may elect in writing to have his
otherwise deferred monthly retirement benefit
commence on the first day of the month coinciding
with or next following his attainment of the age of
fifty-five (55) or on the first day of any month
thereafter which precedes his Normal Retirement
Date. If a terminated Participant makes an election
to receive his retirement benefit at an earlier
commencement date, the amount of the monthly
retirement benefit payable at such earlier
commencement date shall be equal to the amount of
monthly retirement benefit otherwise deferred to his
Normal Retirement Date reduced by the Actuarial
Equivalent factors to reflect the period by which
the benefit commencement date precedes what
otherwise would be the Participant's Normal
Retirement Date.
A Participant who has no vested interest in his
Accrued Benefit shall be deemed to be paid his
entire interest in the Plan upon his termination of
employment and shall forfeit the nonvested portion
of his Accrued Benefit as of such date. However, if
the Participant is reemployed and again becomes a
Participant prior to incurring five (5) consecutive
One Year Breaks in Service, such forfeited portion
of the Accrued Benefit shall be reinstated.
40
<PAGE>
ARTICLE VI
BENEFITS ON DEATH
6.01 Death After Eligibility for Early Retirement - If an
active Participant dies after (a) attaining age
fifty-five (55) and completing at least ten (10)
years of Service or (b) meeting the eligibility
requirements for Plan participation prior to January
1, 1981 and reaching age fifty-five (55) prior to
January 1, 1981, or a Participant who retired at his
Early Retirement Date dies prior to the commencement
of his early retirement benefit, a death benefit
shall be payable to his Surviving Spouse. The death
benefit shall be determined assuming that the
Participant had retired and elected to have his
early retirement benefit paid under the Joint and
Survivor Option of Section 4.02(b) with one hundred
percent (100%) of his benefit payable after his
death to his Surviving Spouse as his designated
Beneficiary.
The amount of the death benefit payable to the
Surviving Spouse shall be equal to the Participant's
Accrued Benefit as of his date of death reduced by
the Actuarial Equivalent factors for early
retirement for the period by which the benefit
commencement date precedes what otherwise would be
the Participant's Normal Retirement Date and the
payment of the benefit under the one hundred percent
(100%) Joint and Survivor Option of Section 4.02(b).
The Surviving Spouse may elect in writing to
have the death benefit commence on the first day of
the month coinciding with or next following the
Participant's date of death or on the first day of
any month thereafter which precedes what otherwise
would be the Participant's Normal Retirement Date.
If the Surviving Spouse does not make such election,
the benefit shall commence on what otherwise would
be the Participant's Normal Retirement Date. Such
benefit shall continue on the first day of each
month thereafter for the Surviving Spouse's
lifetime.
6.02 Death After Eligibility for Normal Retirement - If
an active Participant dies after attaining his
Normal Retirement Age or if a Participant who has
retired at his Normal Retirement Date or Delayed
Retirement Date dies prior to the commencement of
his normal or delayed retirement benefit, a death
benefit shall be payable to his Surviving Spouse.
The death benefit shall be determined assuming that
the Participant had retired and elected to have his
benefit paid under the Joint and Survivor Option of
Section 4.02(b) with one hundred percent (100%) of
41
<PAGE>
his benefit payable after his death to his Surviving
Spouse as his designated Beneficiary.
The amount of the death benefit payable to the
Surviving Spouse shall be equal to the benefit the
Participant would have been entitled to under the
applicable provisions of Section 3.01 or 3.02 as of
the Participant's date of death, reduced by the
Actuarial Equivalent factors for the payment of the
benefit under the one hundred percent (100%) Joint
and Survivor Option of Section 4.02(b).
The benefit payable to the Surviving Spouse
shall commence on the first day of the month
coinciding with or next following the Participant's
date of death and shall continue on the first day of
each month thereafter for the Surviving Spouse's
lifetime.
6.03 Death After Eligibility for Disability Retirement -
If a Totally and Permanently Disabled Participant
who has retired at his Disability Retirement Date
dies prior to the commencement of his disability
retirement benefit, a death benefit shall be payable
to his Surviving Spouse. The death benefit shall be
determined assuming that the Participant had elected
to have his disability retirement benefit paid under
the Joint and Survivor Option of Section 4.02(b)
with one hundred percent (100%) of his benefit
payable after his death to his Surviving Spouse as
his designated Beneficiary.
The amount of the death benefit payable to the
Surviving Spouse and the commencement date shall be
determined in accordance with the following
provisions.
6.03(a) If the Totally and Permanently Disabled
Participant dies after attaining age
fifty-five (55) and completing at least
ten (10) years of Service, including
Service granted during the period he was
retired for Total and Permanent
Disability, unless the Participant had met
the eligibility requirements for Plan
participation and reached age fifty-five
(55) prior to January 1, 1981, in which
event the ten (10) year Service
requirement shall not apply, the death
benefit payable to his Surviving Spouse
shall be determined assuming that the
Participant elected to commence his
benefit as of the first day of the month
coinciding with or next following his date
of death based on the Participant's
Compensation as of the Plan Year preceding
42
<PAGE>
the date he became Totally and Permanently
Disabled and Credited Service and Service
computed as of the date of his death. The
amount so determined shall be reduced by
the Actuarial Equivalent factors for early
retirement for the period by which the
benefit commencement date precedes what
otherwise would be the Participant's
Normal Retirement Date and the payment of
the benefit under the one hundred percent
(100%) Joint and Survivor Option of
Section 4.02(b).
The Surviving Spouse may elect in
writing to have the death benefit commence
on the first day of the month coinciding
with or next following the Participant's
death or on the first day of the any month
thereafter which precedes what otherwise
would be the Participant's Normal
Retirement Date. If the Surviving Spouse
does not make such an election, the
benefit shall commence on what otherwise
would be the Participant's Normal
Retirement Date. Such benefit shall
continue on the first day of each month
thereafter for the Surviving Spouse's
lifetime.
6.03(b) If a Totally and Permanently Disabled
Participant dies prior to attaining age
fifty-five (55) and completing at least
ten (10) years of Service including
Service granted during the period he was
retired for Total and Permanent
Disability, the death benefit payable to
his Surviving Spouse shall commence on
what otherwise would be his Normal
Retirement Date and be determined based on
the Participant's Compensation as of the
Plan Year preceding the date he became
Totally and Permanently Disabled and
Credited Service and Service computed as
of the Participant's date of death. The
amount so determined shall be reduced by
the Actuarial Equivalent factors for the
payment of the benefit under the one
hundred percent (100%) Joint and Survivor
Option of Section 4.02(b).
The benefit payable to the Surviving
Spouse shall commence on what otherwise
would be the Participant's Normal
Retirement Date and shall continue on the
first day of each month thereafter for the
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Surviving Spouse's lifetime.
6.04 Death of a Vested Participant - If an active
Participant who has satisfied the requirements for
full vesting pursuant to Section 5.01 or if a
terminated Participant who had satisfied the
requirements for full vesting pursuant to Section
5.01 at his date of termination of employment dies
before he is otherwise eligible to commence a
retirement benefit under the provisions of the Plan,
a death benefit shall be payable to his Surviving
Spouse. The death benefit shall be determined
assuming that the Participant had elected to have
his deferred vested retirement benefit paid under
the Joint and Survivor Option of Section 4.02(b)
with one hundred percent (100%) of his benefit
payable after his death to his Surviving Spouse as
his designated Beneficiary.
The amount of the benefit payable to the
Surviving Spouse and the commencement date shall be
determined in accordance with the following
provisions.
6.04(a) If the Participant had completed ten (10)
years of Service at his date of death or
the date of his termination of employment
the death benefit payable to his Surviving
Spouse shall be equal to the Participant's
vested Accrued Benefit as of the date of
his death or the date of his termination
of employment. The amount so determined
shall be reduced by the Actuarial
Equivalent factors for early retirement to
reflect the period by which the benefit
commencement date precedes what otherwise
would be the Participant's Normal
Retirement Date and the payment of the
benefit under the one hundred percent
(100%) Joint and Survivor Option of
Section 4.02(b).
The Surviving Spouse may elect in
writing to have the death benefit commence
on the first day of the month coinciding
with or next following the later of the
date of the Participant's death or the
date the Participant would have attained
the age of fifty-five (55) or on the first
day of any month thereafter which precedes
what otherwise would be the Participant's
Normal Retirement Date. If the Surviving
Spouse does not make such an election, the
benefit shall commence on what otherwise
44
<PAGE>
would be the Participant's Normal
Retirement Date. Such benefit shall
continue on the first day of each month
thereafter for the Surviving Spouse's
lifetime.
6.04(b) If the Participant had not completed ten
(10) years of Service at his date of death
or the date of his termination of
employment, the death benefit payable to
the Participant's Surviving Spouse shall
commence on what would otherwise be the
Participant's Normal Retirement Date and
shall be equal to the Participant's vested
Accrued Benefit as of the date of his
death or the date of his termination of
employment and the amount so determined
shall be reduced by the Actuarial
Equivalent factors for payment of the
benefit under the one hundred percent
(100%) Joint and Survivor Option of
Section 4.02(b).
The benefit payable to the Surviving
Spouse shall commence on what would
otherwise have been the Participant's
Normal Retirement Date and continue on the
first day of each month thereafter for the
Surviving Spouse's lifetime.
6.05 Death Subsequent to Retirement - Upon the death of a
retired or Totally and Permanently Disabled
Participant who is receiving benefits under the
Plan, his Spouse, Surviving Spouse or Beneficiary
shall be entitled to any benefits due under the
basic or elected alternate form of payment of his
monthly retirement benefit. If the period of
guaranteed payments is exhausted at the death of a
retired Participant, no death benefit shall be
payable. If a death benefit is payable under any
alternate form except that provided in Section 4.04,
the Beneficiary may request that the Actuarial
Equivalent value of the outstanding benefits be paid
to him in a lump sum. If a death benefit is payable
pursuant to Section 4.04, the Surviving Spouse may
elect, in writing, to have the death benefit paid in
an alternate form specified in Section 4.02 or in a
lump sum.
6.06 Lump Sum Death Benefit - Notwithstanding anything
contained herein to the contrary, if the Actuarial
Equivalent of the benefit payable to the Surviving
Spouse under Section 6.01, 6.02, 6.03 or 6.04 does
not exceed three thousand five hundred dollars
($3,500), the Committee shall direct payment of the
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<PAGE>
benefit in a lump sum to the Surviving Spouse. No
lump sum distribution shall be made hereunder after
the first day of the first period for which an
amount is received as an annuity by the Surviving
Spouse unless the Surviving Spouse consents in
writing to a lump sum payment.
ARTICLE VII
FUNDING
7.01 Contributions by the Employer - The entire cost of
benefits under the Plan shall be borne by the
Employer through the Fund. The Employer intends to
make its Contributions in such actuarially
determined amounts as shall be sufficient to provide
the benefits of the Plan and meet the minimum
funding standards as required by law. Funds
released through terminations of employment shall be
applied to reduce the Employer's future
Contributions.
7.02 Trust Fund - On behalf of all Employers, the
Corporation shall enter into an agreement with the
Trustee whereunder the Trustee will receive, invest
and administer as a trust fund all Contributions
made under this Plan in accordance with the Trust
Agreement. The provisions of such Trust Agreement
are incorporated by reference as a part of the Plan,
and the rights of all persons hereunder are subject
to the terms of the Trust Agreement. The Trust
Agreement specifically provides, among other things,
for the investment and reinvestment of the Fund and
the income thereof, management of the Fund,
responsibilities and immunities of the Trustee,
removal of the Trustee and appointment of a
successor, accounting by the Trustee and
disbursement of the Fund.
7.03 Funding Standard Account - The Corporation (which
shall be the plan administrator for all Employers in
regard to this appointment) shall engage, on behalf
of all Participants, an actuary, an insurance
company or an actuarial firm which maintains on its
staff at least one (1) person who is recognized by
the Secretaries of Labor and Treasury as an enrolled
actuary. In addition to performing actuarial
valuations and providing actuarial statements as
necessary for the annual reports required by the
Secretary of Labor, such actuary shall maintain a
funding standard account in accordance with rules
and regulations as from time to time shall be set
forth by the Secretary of Treasury or his delegate.
The status of such funding standard account shall be
reported on an annual basis to the Employer and such
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government agencies as may be required.
In maintaining the funding standard account, the
actuary may rely upon any certification or other
information relating to employee data, Fund assets
and Contribution amounts and dates made as provided
or caused to be provided to the actuary by the
Employer, Trustee, independent qualified public
accountant or any Fiduciary to the extent such
reliance is so stated by the actuary in his
certification or report.
ARTICLE VIII
FIDUCIARIES AND ADMINISTRATION OF THE PLAN
8.01 General - Each Fiduciary who is delegated specific
duties or responsibilities under the Plan or any
Fiduciary who assumes such a position with the Plan
shall discharge his duties solely in the interest of
Participants, Spouses, Surviving Spouses and
Beneficiaries and for the purpose of providing such
benefits as stipulated herein to such Participants,
Spouses, Surviving Spouses and Beneficiaries. In
carrying out such duties and responsibilities, each
Fiduciary shall act with the care, skill, prudence
and diligence under the circumstances then
prevailing that a prudent man acting in a like
capacity and familiar with such matters would use in
exercising such authority or duties.
A Fiduciary may serve in more than one Fiduciary
capacity and may employ one or more persons to
render advice with regard to his Fiduciary
responsibilities. If a Fiduciary is serving as such
without compensation, all expenses reasonably
incurred by such Fiduciary shall be reimbursed by
the Employer or, at the Corporation's direction,
from the Fund.
A Fiduciary may delegate any of his
responsibilities for the operation and
administration of the Plan. In limitation of this
right, a Fiduciary may not delegate any
responsibilities as contained herein relating to the
management or control of the Fund except through the
employment of an investment manager as provided in
Section 8.03 and in the Trust Agreement.
8.02 Employer Responsibilities - The Employer established
and maintains the Plan for the benefit of its
Employees and of necessity retains control of the
operation and administration of the Plan. In
accordance with specific provisions of the Plan, the
Employer has, as herein indicated, delegated certain
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of these rights and obligations to the Corporation,
Trustee and Committee and these parties shall be
responsible solely for these delegated rights and
obligations.
The Corporation shall cause an annual actuarial
valuation of the Plan to be made, which will
indicate the amount of Contributions necessary to
comply with the minimum funding standards as may be
required by law.
The Employer shall indemnify each member of the
Board, the Committee, Trustee and any other person
to whom any fiduciary responsibility with respect to
the Plan is delegated, from and against any and all
liabilities, costs and expenses incurred by such
persons as a result of any act or omission to act in
connection with the performance of their fiduciary
duties, responsibilities and obligations under the
Plan and ERISA, except for liabilities and claims
arising from such Fiduciary's willful misconduct or
gross negligence. For this purpose, the Employer
may obtain, pay for and keep current a policy or
policies of insurance; however, such insurance shall
not release the Employer of liability under this
provision.
The Employer shall supply such full and timely
information for all matters relating to the Plan as
the Committee, Trustee, actuary and accountant, if
any, engaged on behalf of the Plan by the
Corporation may require for the effective discharge
of their respective duties.
8.03 Trustee - The Trustee, in accordance with the Trust
Agreement, shall have exclusive authority and
discretion to manage and control the Fund, except
that the Corporation (who shall be the named
Fiduciary for all Employers in regard to this
appointment) in its discretion may employ at any
time and from time to time an investment manager [as
defined in ERISA Section 3(38)] to direct the
Trustee with respect to all or a designated portion
of the assets comprising the Fund.
8.04 Administrative Committee - The Corporation shall
appoint a committee of not less than three (3)
persons to hold office during the pleasure of the
Corporation, such committee to be known as the
Administrative Committee. No compensation shall be
paid from the Fund to members of the Committee for
service on such Committee. The Committee shall
choose from among its members a chairman and a
secretary. Any action of the Committee shall be
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determined by the vote of a majority of its members.
Either the chairman or the secretary may execute any
certificate or other written direction on behalf of
the Committee.
The Committee shall hold meetings upon such
notice, at such place or places and at such time or
times as the Committee from time to time may
determine. Meetings may be called by the chairman
or any two (2) members. A majority of the members
of the Committee at the time in office shall
constitute a quorum for the transaction of business.
In accordance with the provisions hereof, the
Committee has been delegated certain administrative
functions relating to the Plan with the duty and
discretionary authority necessary to enable it
properly to carry out such duties. The Committee
shall have no power in any way to modify, alter, add
to or subtract from, any provisions of the Plan.
The Committee shall have the duty and discretionary
authority to construe the Plan and to determine all
questions that may arise thereunder relating to (a)
the eligibility of individuals to participate in the
Plan, (b) the amount of retirement benefit or other
benefits to which any Participant, Spouse, Surviving
Spouse or Beneficiary may become entitled hereunder,
and (c) any situation not specifically covered by
the provisions of the Plan. All disbursements by
the Trustee, except for the payment of operating
expenses of the Plan and Fund at the direction of
the Corporation as provided in Section 13.10, shall
be made upon, and in accordance with, the written
directions of the Committee. When the Committee is
required in the performance of its duties hereunder
to administer, construe or reach a determination
under any of the provisions of the Plan, it shall do
so on a uniform, equitable and nondiscriminatory
basis.
The Committee shall establish rules and
procedures to be followed by Participants, Spouses,
Surviving Spouses and Beneficiaries in filing
applications for benefits and for furnishing and
verifying proofs necessary to establish age, years
of Credited Service, Service, Compensation, and any
other matters required in order to establish their
rights to benefits in accordance with the Plan.
8.05 Claims for Benefits - All claims for benefits under
the Plan shall be submitted to the Committee, who
shall have the responsibility for determining the
eligibility of any Participant, Spouse, Surviving
Spouse or Beneficiary for benefits. All claims for
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benefits shall be made in writing and shall set
forth the facts which such Participant, Spouse,
Surviving Spouse or Beneficiary (the "applicant")
believes to be sufficient to entitle him to the
benefit claimed. The Committee may adopt forms for
the submission of claims for benefits, in which case
all claims for benefits shall be filed on such
forms. The Committee shall provide applicants with
all such forms.
Upon receipt by the Committee of a claim for
benefits, it shall determine all facts which are
necessary to establish the right of an applicant to
benefits under the provisions of the Plan and the
amount thereof as herein provided. The Committee
shall approve, deny and investigate all questionable
claims. Upon request, the Committee shall afford
any applicant the right of a hearing with respect to
any finding of fact or determination related to any
claim for benefits under the Plan. If any claim for
benefits is denied, the applicant shall be notified
of such decision in accordance with the provisions
of Section 8.06.
8.06 Claims Procedures - The applicant shall be notified
in writing of any adverse decision with respect to
his claim within ninety (90) days after its
submission. The notice shall be written in a manner
calculated to be understood by the applicant and
shall include:
8.06(a) The specific reason or reasons for the
denial;
8.06(b) Specific references to the pertinent Plan
provisions on which the denial is based;
8.06(c) A description of any additional material
or information necessary for the applicant
to perfect the claim and an explanation
why such material or information is
necessary; and
8.06(d) An explanation of the Plan's claim review
procedures.
If special circumstances require an extension of
time for processing the initial claim, a written
notice of the extension and the reason therefor
shall be furnished to the applicant before the end
of the initial ninety (90) day period. In no event
shall such extension exceed ninety (90) days.
If a claim for benefits is denied or the
applicant has no response to such claim within
ninety (90) days of its submission (in which case
the claim for benefits shall be deemed denied), the
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applicant or his duly authorized representative, at
the applicant's sole expense, may appeal the denial
to the Committee within sixty (60) days of the
receipt of written notice of the denial or sixty
(60) days from the date such claim is deemed denied.
In pursuing such appeal, the applicant or his duly
authorized representative may:
8.06(e) Request in writing that the Committee
review the denial;
8.06(f) Review pertinent documents; and
8.06(g) Submit issues and comments in writing.
The decision on review shall be made within
sixty (60) days of receipt of the request for
review, unless special circumstances require an
extension of time for processing, in which case a
decision shall be rendered as soon as possible but
not later than one hundred twenty (120) days after
receipt of the request for review. If such an
extension of time is required, written notice of the
extension shall be furnished to the applicant before
the end of the original sixty (60) day period. The
decision on review shall be made in writing, shall
be written in a manner calculated to be understood
by the applicant, and shall include specific
references to the provisions of the Plan on which
the denial is based. If the decision on review is
not furnished within the time specified above, the
claim shall be deemed denied on review.
8.07 Records - All acts and determinations of the
Committee shall be duly recorded, and all such
records and other documents as may be necessary in
exercising its duties under the Plan shall be
preserved in the custody of the Committee. Such
records and documents at all times shall be open for
inspection to, and for the purpose of making copies
by, any person designated by the Corporation. The
Committee shall provide such timely information,
resulting from the application of its
responsibilities under the Plan, as needed by the
Trustee, actuary and accountant, if any, engaged on
behalf of the Plan by the Corporation for the
effective discharge of their respective duties.
8.08 Missing Persons - The Committee shall direct the
Trustee to make a reasonable effort to locate all
persons entitled to benefits under the Plan;
however, notwithstanding any provision in the Plan
to the contrary, if after a period of five (5) years
from the date such benefit is due, any such person
entitled to benefits has not been located, his
rights under the Plan shall stand suspended. Before
this provision becomes operative, the Trustee shall
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send a certified letter to such person at his last
known address advising him that his interest or
benefits under the Plan shall be suspended. Any
such suspended amounts shall be held by the Trustee
for a period of three (3) additional years (or a
total of eight (8) years from the time the benefits
first become payable); provided, that if a person
subsequently makes a valid claim with respect to
such suspended benefits, his right to benefits shall
be reinstated.
ARTICLE IX
MAXIMUM BENEFITS AND REQUIRED DISTRIBUTION OF BENEFITS
9.01 Maximum Retirement Benefit - Anything herein to the
contrary notwithstanding, effective for Plan Years
commencing on and after January 1, 1987, the
following provisions shall be applicable:
9.01(a) The monthly retirement benefit payable in
the form of a straight life annuity from
the Plan on behalf of a Participant, when
combined with any benefits from any other
qualified Defined Benefit Plan maintained
by the Employer or Affiliate, shall not
exceed the amount provided in the
following paragraphs of this Section 9.01,
as may be modified by Section 9.02. If
the normal form of payment determined
under Section 4.01 is other than a
straight life annuity or a qualified joint
and survivor annuity, the amount
determined hereunder shall be reduced on
an Actuarial Equivalent basis to reflect
such other payment form, with the
exception that the interest assumption
shall in no event be less than five
percent (5%).
If a Participant has completed ten
(10) or more years of participation in the
Plan, the maximum monthly benefit payable
in accordance with this Section 9.01 shall
be the smaller of Section 9.01(a)(i) and
Section 9.01(a)(ii) following:
(i) Seven thousand five hundred
dollars ($7,500), or such greater
amount determined by the Secretary
of Treasury as of January 1 of
each calendar year. Such amount
shall be the maximum monthly
amount pursuant to this Section
9.01(a)(i) for that calendar year
and shall apply to the Limitation
Year ending with or within that
calendar year.
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(ii) The average monthly compensation
the Participant received from the
Employer during the three (3)
consecutive calendar years which
would produce the highest such
average. For purposes of this
Section 9.01(a)(ii),
"compensation" shall mean a
Participant's earned income,
wages, salaries, fees for
professional services and other
amounts received for personal
services actually rendered in the
course of employment with an
Employer maintaining the Plan
(including, but not limited to,
commissions paid salesmen,
compensation for services on the
basis of a percentage of profits,
commissions on insurance premiums,
tips, bonuses, fringe benefits,
reimbursements and expense
allowances) and excluding the
following:
(A) Employer contributions to a
plan of deferred compensation
to the extent such
contributions are not included
in the gross income of the
Employee for the taxable year
in which contributed, or on
behalf of an Employee to a
simplified employee pension
plan to the extent such
contributions are deductible
under IRC Section 404(h), and
any distributions from a plan
of deferred compensation
whether or not includible in
the gross income of the
Employee when distributed.
(B) Amounts realized from the
exercise of a non-qualified
stock option, or when
restricted stock (or property)
held by an employee becomes
freely transferable or is no
longer subject to a
substantial risk of
forfeiture;
(C) Amounts realized from the
sale, exchange or other
disposition of stock acquired
under a qualified stock
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option; and
(D) Other amounts which receive
special tax benefits, or
contributions made by an
Employer (whether or not under
a salary reduction agreement)
towards the purchase of an IRC
Section 403(b) annuity
contract (whether or not the
contributions are excludable
from gross income of the
Employee).
Compensation for any
Limitation Year is the
compensation actually paid or
includible in gross income during
the year.
9.01(b) If the payment of a benefit begins before
a Participant attains his Social Security
Retirement Age, the amount set forth in
Section 9.01(a)(i) shall be reduced to the
Actuarial Equivalent of such amount;
provided that in no event shall the
interest assumption be less than five
percent (5%).
The adjustments provided for in this
section shall be made in a manner
consistent with the reduction for old age
insurance benefits commencing before the
Social Security Retirement Age under the
Social Security Act until age sixty-two
(62) is reached.
9.01(c) If the payment of a benefit begins after a
Participant attains his Social Security
Retirement Age, the amount set forth in
Section 9.01(a)(i) shall be increased to
the Actuarial Equivalent of such amount;
provided that in no event shall the
interest assumption be greater than five
percent (5%).
9.01(d) Notwithstanding the preceding provisions
of this Section 9.01, the benefits payable
with respect to a Participant under this
Plan shall be deemed not to exceed the
limitations of this Section 9.01 if:
(i) The retirement benefits payable
with respect to such Participant
under this Plan and under all
other Defined Benefit Plans to
which the Employer contributes do
not exceed ten thousand dollars
($10,000) for the applicable Plan
Year and for any prior Plan Year;
and
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(ii) The Employer has not at any time
maintained a Defined Contribution
Plan in which the Participant
participated.
9.01(e) If a Participant has completed less than
ten (10) years of participation in the
Plan, the maximum monthly benefit payable
in accordance with Section 9.01(a)(i)
shall be the amount determined under
Section 9.01(a)(i) multiplied by a
fraction the numerator of which is the
number of years (or part thereof) of
participation in the Plan and the
denominator of which is ten (10). If a
Participant has completed less than ten
(10) years of Service, the maximum benefit
payable in accordance with Section
9.01(a)(ii) and the ten thousand dollar
($10,000) limit of Section 9.01(d) shall
be the amounts determined under such
sections multiplied by a fraction of the
numerator of which is the number of years
(or part thereof) of Service and the
denominator of which is ten (10).
However, in no event shall the provisions
of this Section 9.01(e) reduce the limits
of Sections 9.01(a) and 9.01(d) to an
amount less than one-tenth (1/10th) of
such limits without the application of
this Section 9.01(e). To the extent
provided in regulations, this section
shall be applied separately with respect
to each change in the benefit structure of
the Plan.
9.01(f) If a Participant is covered by one or more
Defined Benefit Plans maintained by the
Employer, all such plans shall be
aggregated in determining whether the
maximum benefit limitations hereunder have
been met. Further, the maximum retirement
benefit as noted above may be decreased as
determined necessary by the Employer to
ensure that all plans will remain
qualified under the IRC. Any such
adjustment by the Employer shall be
communicated in writing to the Committee
and the actuary employed on behalf of the
Plan.
9.01(g) If (i) an Employee is a Participant in
this Plan as of the first day of the first
Plan Year commencing on or after January
1, 1987, (ii) the Plan was in existence on
May 6, 1986, and (iii) the requirements of
IRC Section 415 have been met for all Plan
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Years, then to the extent such
Participant's "current accrued benefit"
exceeds the limitations otherwise provided
in this Section 9.01, the limitations
determined pursuant to Section 9.01(a)(i)
for said Participant shall be equal to his
"current accrued benefit" for purposes of
this Section 9.01 and the following
Section 9.02.
For purposes of this Section 9.01(g),
"current accrued benefit" means a
Participant's Accrued Benefit as of the
last day of the Plan Year prior to the
Plan Year to which this Section 9.01
applies when expressed as an annual
benefit within the meaning of IRC Section
415(b)(2) excluding any change in the
terms and conditions of the Plan or cost-
of-living adjustments occurring on and
after May 5, 1986.
9.01(h) In the case of a governmental plan within
the meaning of IRC Section 414(d), or a
plan maintained by a not-for-profit
organization (other than a governmental
unit), the following rules shall apply:
(i) The reference to Social Security
Retirement Age in Section 9.01(b)
shall be replaced with "age sixty-
two (62)" wherever it appears.
(ii) The following sentence shall be
added to the end of Section
9.01(b): "The reduction under
this Section 9.01(b) shall not
reduce the limitation under
Section 9.01(a)(i) below (A)
seventy-five thousand dollars
($75,000) if the benefit begins at
or after attainment of age fifty-five
(55), or (B) if the benefit
begins before the attainment of
age fifty-five (55), the Actuarial
Equivalent of the seventy-five
thousand dollar ($75,000)
limitation for age fifty-five
(55)".
(iii) The reference to Social Security
Retirement Age in Section 9.01(c)
shall be replaced with "age sixty-five
(65)" wherever it appears.
9.02 Multiple Plan Participation - If an Employee is a
Participant in one or more Defined Benefit Plans and
one or more Defined Contribution Plans maintained by
the Employer, the sum of his Defined Benefit Plan
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<PAGE>
Fraction and his Defined Contribution Plan Fraction
shall not exceed 1.0 during any Limitation Year.
If the sum of the Defined Benefit Plan Fraction
and the Defined Contribution Plan Fraction exceeds
1.0 for any Limitation Year, the Employer shall
adjust or freeze the rate of benefit accrual for
purposes of a Defined Benefit Plan or the amount of
"Annual Additions" [as defined in IRC Section
415(c)(2)] to a Defined Contribution Plan on behalf
of the Participant so that the sum of such fractions
shall not exceed 1.0.
For purposes of maximum Annual Additions to
Defined Contribution Plans and maximum annual
benefits payable from Defined Benefit Plans, all
Defined Contribution Plans and all Defined Benefit
Plans respectively, whether or not terminated, shall
be combined and treated as one plan.
For purposes of this Section 9.02, the term,
"Defined Benefit Plan Fraction" shall mean a
fraction the numerator of which is the Participant's
projected annual benefit (as defined in the Defined
Benefit Plan) determined as of the close of the
Limitation Year, and the denominator of which is the
lesser of:
9.02(a) The product of 1.25 multiplied by the
dollar limitation in effect in Section
9.01(a)(i) for such Limitation Year; or
9.02(b) The product of 1.4 multiplied by the
amount which may be taken into account in
Section 9.01(a)(ii) with respect to each
individual under the Plan for such
Limitation Year.
The term "Defined Contribution Plan Fraction"
shall mean a fraction the numerator of which is the
sum of all of the Annual Additions to the
Participant's individual account under the Defined
Contribution Plan as of the close of the Limitation
Year, and the denominator of which is the sum of the
lesser of the following amounts determined for such
Limitation Year, and for each prior Limitation Year
of employment with the Employer:
9.02(c) The product of 1.25 multiplied by the
dollar limitation in effect pursuant to
IRC Section 415(c)(1)(A) for such year
determined without regard to IRC Section
415(c)(6); or
9.02(d) The product of 1.4 multiplied by an amount
determined pursuant to IRC Section
415(c)(1)(B) with respect to each
individual under the Plan for such
Limitation Year.
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The limitation on aggregate benefits from a
Defined Benefit Plan and a Defined Contribution Plan
contained in ERISA Section 2004 shall be complied
with by a reduction (if necessary) in the
Participant's benefits under the Defined Benefit
Plan before a reduction of any such Defined
Contribution Plan.
9.03 Required Distribution of Benefits - Unless the
Participant otherwise elects under the provisions of
the Plan, any payment of benefits to the Participant
shall begin not later than sixty (60) days after the
close of the Plan Year in which occurs the latest
of:
9.03(a) the date on which the Participant attains
his Normal Retirement Age;
9.03(b) the tenth (10th) anniversary of the date
the Employee becomes a Participant; and
9.03(c) the date the Participant terminates his
service with the Employer.
Notwithstanding anything contained herein to the
contrary, the entire interest of each Participant
shall begin to be distributed not later than April 1
of the calendar year following the calendar year in
which the Participant attains age seventy and one-half
(70 1/2) in accordance with IRC Section
401(a)(9) and the regulations issued thereunder,
inclusive of the minimum distribution incidental
benefit requirements of Section 1.401(a)(9)-2 of the
regulations. The spousal benefit requirements under
the Plan shall be construed and enforced according
to the requirements of IRC Sections 401(a)(11) and
417 and ERISA Section 205. Benefits payable under
this Section 9.03 shall be paid in accordance with
Article IV.
Distributions may be made only over one of the
following period: (a) the life of the Participant,
or the joint lives of the Participant and his
designated Beneficiary, or (b) a period certain not
extending beyond the life expectancy of the
Participant or the joint life expectancy of the
Participant and his designated Beneficiary.
9.03(d) If the distributions of a Participant's
interest has begun and the Participant
dies before his entire interest has been
distributed to him, the remaining portion
of such interest shall be distributed at
least as rapidly as under the method of
distribution in effect as of his date of
death.
9.03(e) If the designated Beneficiary is the
spouse of the Participant, the Beneficiary
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may elect to commence the benefit within a
reasonable period of time after the
Participant's death but in no event may
such election be made later than (i) the
December 31 of the calendar year
immediately following the calendar year in
which the Participant died or (ii) the
December 31 of the calendar year in which
the Participant would have attained age
seventy and one-half (70 1/2). The
benefit may be paid over the life or over
a period certain not extending beyond the
life expectancy of the designated
Beneficiary. If the spouse dies before
the distribution begins, then the five (5)
year distribution requirement of Section
9.03(g) shall apply as if the Beneficiary
were the Participant.
9.03(f) If the benefit is paid to a designated
Beneficiary, as defined in IRC Section
401(a)(9)(E) inclusive of Section
1.401(a)(9)-1 D-1 and D-2 of the
regulations, other than the Participant's
spouse, the distribution shall commence no
later than December 31 of the calendar
year immediately following the calendar
year in which the Participant died. The
benefit may be paid over the life or over
a period certain not extended beyond the
life expectancy of the designated
Beneficiary.
9.03(g) If there is no designated Beneficiary, as
defined in IRC Section 401(a)(9) inclusive
of Section 1.401(a)(9)-1 D-1 and D-2 of
the regulations, at the death of the
Participant, then distribution of the
Participant's entire interest shall be
completed by December 31 of the calendar
year containing the fifth anniversary of
the Participant's death.
9.03(h) The benefit payable under the provisions
of this Plan may not be paid in any form
which would violate the required
distribution requirements of his Section
9.03.
Life expectancies shall be computed by the use
of the expected return multiples in Tables V and VI
of Section 1.72-9 of the regulations under IRC
Section 72. The life expectancy of the Participant
and Spouse, if applicable, shall be recalculated
annually, unless the Participant elects otherwise.
59
ARTICLE X
AMENDMENT AND TERMINATION OF THE PLAN
10.01 Amendment of the Plan - The Corporation shall have
the right at any time by action of the Board to
modify, alter or amend the Plan in whole or in part;
provided, that the duties, powers and liability of
the Trustee shall not be increased without its
written consent; the amount of benefits which at the
time of any such modification, alteration or
amendment have accrued for any Participant, Spouse,
Surviving Spouse or Beneficiary hereunder shall not
be affected adversely thereby; and no such amendment
shall have the effect of causing a reversion to the
Employer of any part of the principal or income of
the Fund.
10.02 Termination of the Plan - The Employer expects to
continue the Plan indefinitely, but continuance is
not assumed as a contractual obligation, and each
Employer reserves the right at any time by action of
its board of directors to terminate the Plan as
applicable to itself. If the Employer terminates or
partially terminates the Plan, or it is otherwise
terminated or partially terminated, the rights of
the Participants affected thereby to benefits then
accrued shall be nonforfeitable, and the Trustee
shall continue to administer the Fund as instructed
by the Committee in accordance with the provisions
hereof. Notwithstanding the above, no Participant
shall have any recourse toward the satisfaction of
his Accrued Benefit other than from assets of the
Plan or the Pension Benefit Guaranty Corporation
(PBGC) if a PBGC liability is present.
If the Plan is terminated as provided in this
Article X, the Committee shall determine the
equitable share of the Fund with respect to any
Employer for whom the Plan has terminated. The
administration of that portion of the Fund
applicable to any Employer for which the Plan has
not been terminated shall be unaffected, and any
references hereinafter contained in this Article X
to the Fund shall refer only to that portion
applicable to the Employer for whom the Plan has
terminated.
The Committee shall allocate and administer the
Fund to provide benefits for Participants on the
date of termination and any Spouses, Surviving
Spouses or Beneficiaries then receiving benefits in
accordance with Article IV. Such allocation of the
Fund shall be made in the order of precedence and
amounts indicated in ERISA Section 4044 according to
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principles set forth in such Section and such other
portions of ERISA as it incorporates by reference.
For the purpose of making such allocation, any
regulations issued pursuant to such Section shall be
deemed part of such Section.
The allocation of that portion of the Fund
computed above shall be based on the method of
payment of monthly retirement benefits or death
benefits as specified in the Plan. If Fund assets
on or after the date of termination are insufficient
to fund all benefits within any class, the benefits
of all higher order of precedence shall be funded,
the benefits of all lower order of precedence shall
be unfunded, and the assets remaining shall be
allocated among members of that class on the basis
of their respective actuarial reserves, subject to
the provisions of ERISA Section 4044.
If upon termination of its participation in the
Plan, an Employer fails to pay or reimburse the
Trustee, actuary, accountant or attorney for the
outstanding charges or expenses incurred hereunder,
the Trustee is empowered to satisfy such claims by
lien upon that portion of the Fund attributable to
such Employer prior to making any allocation to
Participants, vested terminated Participants,
retired Participants, Totally and Permanently
Disabled Participants, Spouses, Surviving Spouses
and Beneficiaries of the Plan in accordance with
this Article X.
The application of the Fund on the foregoing
basis shall be calculated by the actuary and
certified to the Trustee by the Committee as of the
date on which the Plan terminated. Subject to the
restrictions of ERISA, when the calculations are
completed, the interest of each Participant, vested
terminated Participant, retired Participant, Totally
and Permanently Disabled Participant, Spouse,
Surviving Spouse and Beneficiary shall continue to
be held in the Fund pursuant to the terms of this
Article X, or at the direction of the Committee, the
appropriate portion of the Fund shall be liquidated,
and each of their interests shall be distributed to
them in the form of annuity contracts, annuity
payments or installments. Any funds remaining after
the satisfaction of all liabilities to such
Participants, vested terminated Participants,
retired Participants, Totally and Permanently
Disabled Participants, Spouses, Surviving Spouses
and Beneficiaries under this Plan due to erroneous
actuarial computation or assumptions shall be
returned to the appropriate Employer.
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10.03 Twenty-five (25) Highest Paid Limitation - Effective
for Plan Years Beginning before January 1, 1994 - If
the Plan is terminated or a lump sum distribution is
made to a Participant who is one of the Twenty-five
(25) Highest Paid Employees at any time before the
Expiration Date, the following rules shall apply:
10.03(a) Upon the occurrence of either of the above
conditions, the Basic Benefit and any
Additional Benefit which may be provided
from Contributions by the Employer for any
of its Twenty-five (25) Highest Paid
Employees shall not be greater than the
amount of benefits which can be provided
by the larger of the following amounts
prior to the satisfaction of all Plan
liabilities relating to other Plan
Participants to whom this Section 10.03
does not apply:
(i) Twenty thousand dollars ($20,000).
(ii) Twenty percent (20%) of the first
fifty thousand dollars ($50,000)
of the Employee's average annual
compensation for the preceding
five (5) years multiplied by the
number of years since the Revision
Date, as hereinafter defined.
(iii) With respect to a Substantial
Owner, the dollar amount which
equals the Actuarial Equivalent of
the benefit guaranteed for such
Participant under ERISA Section
4022, or if the Plan has not
terminated, the Actuarial
Equivalent of the benefit that
would be guaranteed if the Plan
terminated on the date the benefit
commences, determined in
accordance with regulations of the
Pension Benefit Guaranty
Corporation (PBGC), and with
respect to Participants other than
Substantial Owners, the dollar
amount which equals the Actuarial
Equivalent of the maximum benefit
described in ERISA Section
4022(b)(3)(B) (determined on the
date the Plan terminates or on the
date benefits are distributed, as
if the Plan terminated, whichever
is earlier and determined in
accordance with PBGC regulations)
without regard to any other
limitation in ERISA Section 4022.
10.03(b) The provisions of Section 10.03(a) shall
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not restrict the current payment of full
retirement benefits called for by the Plan
for any retired Employee while the Plan is
in full effect. If any funds are realized
by operation of the restrictions set forth
in Section 10.03(a), they shall be used to
reduce subsequent Contributions by the
Employer, or if the Employer has ceased
its Contributions, they shall be used for
the benefit of Employees other than those
restricted by Section 10.03(a) on a basis
which shall not result in substantial
discrimination in favor of the more
highly-compensated Employees, subject to
any reversion of assets on Plan
termination pursuant to Section 10.02.
10.03(c) For purposes of this Section 10.03, the
following definitions shall apply:
(i) Additional Benefits - the benefits
provided by the Plan which are
over and above those which would
have been provided by the
provisions of the Plan in effect
prior to the applicable Revision
Date had the Plan been continued
without change;
(ii) Basic Benefit - the benefit
initially provided by the Plan
less any Additional Benefits;
(iii) Expiration Date - the tenth (10th)
anniversary of any Revision Date;
(iv) Revision Date - the effective date
of adoption of the Plan by the
Employer or the effective date of
any amendment to the Plan which
increases the benefits;
(v) Substantial Owner - a Participant
defined in ERISA Section
4022(b)(5); and
(vi) Twenty-five (25) Highest Paid
Employees - the twenty-five (25)
highest paid Employees of the
Employer as of the applicable
Revision Date, excluding, any
Employee whose anticipated annual
benefits are not expected to
exceed fifteen hundred dollars
($1,500).
10.03(d) If during the first ten (10) years after a
Revision Date, any benefit is to be
distributed in a lump sum (the amount of
which represents the lump sum Actuarial
Equivalent of the retirement benefit to
which the Participant otherwise would be
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entitled to receive as the normal form of
pension) to a Participant to whom this
Section 10.03 is applicable, prior to the
payment of such lump sum, the Participant
shall enter into an agreement with the
Employer. This agreement shall be in
accordance with requirements prescribed by
the Committee, Revenue Ruling 81-135 and
any rulings or regulations amendatory
thereof, including provisions that the
Participant (or in the event of his death,
his estate) will repay to the Fund a sum,
as determined by the actuary, equal to the
Actuarial Equivalent of the amounts by
which the Participant's monthly retirement
benefit under the Plan would have been
decreased during his then remaining
lifetime in accordance with this Section
10.03, and secure such obligation to repay
if the limitations contained in this
Section 10.03 become effective. The
agreement shall require the Participant,
promptly after the distribution to him of
the lump sum payment under the Plan, to
deposit as security with a depository
satisfactory to the Employer and the
Committee real or personal property with a
fair market value, as determined by the
depository, as of the date of deposit
equal to at least one hundred twenty-five
percent (125%) of the amount that would be
repayable had the Plan terminated on the
date of distribution of such lump sum. If
the fair market value, as determined by
the depository, of such property falls
below one hundred ten percent (110%) of
the amount that would have been repayable
to the Fund, the Participant shall deposit
with the depository additional properties
so as to render the total fair market
value, as determined by the depository, of
the security deposited equal to one
hundred twenty-five percent (125%) of the
amount which would have been repayable as
determined by the actuary. If the
conditions of this Section 10.03(d) are
met for the ten (10) year period following
such Revision Date, and the Plan is not
terminated, the property deposited as
security in the Fund shall be redelivered
to the Participant.
10.03(e) The provisions of this Section 10.03 shall
apply to former or retired Participants as
well as to Participants in active service.
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10.03(f) If it is determined by statute, court
decision in which the Internal Revenue
Service acquiesces, ruling by the Internal
Revenue Service or otherwise that the
provisions of this Section 10.03 no longer
are necessary to qualify the Plan under
the IRC, this Section 10.03 shall be
ineffective without amendment to the Plan.
10.04 Restriction on Benefits for Top Twenty-Five (25)
Highly Compensated Employees - Effective for Plan
Years Commencing on and After January 1, 1994 - The
benefit of any active or former highly compensated
employee, as defined in IRC Section 414(q), shall be
limited to a benefit that is nondiscriminatory under
IRC Regulation 1.401(a)(4)-5(b).
Benefits distributed to any of the twenty-five
(25) active or former most highly compensated
employees shall be restricted so that the annual
payments are no greater than an amount equal to the
payment that would be made on behalf of such highly
compensated employee under a single life annuity
that is the Actuarial Equivalent of the sum of such
highly compensated employee's Accrued Benefit and
any other benefits under the Plan.
The preceding paragraph shall not apply if: (a)
after payment of the benefit to such highly
compensated employee, the value of Plan assets
equals or exceeds one hundred ten percent (110%) of
the value of current liabilities as defined in IRC
Section 412(l)(7), or (b) the value of the benefits
for such highly compensated employee is less than
one percent (1%) of the value of current
liabilities.
For purposes of this Section 10.04, "benefit"
includes any loan in excess of the amount set forth
in IRC Section 72(p)(2)(A), any periodic income, any
withdrawal value payable to a living employee, and
any death benefit not provided for by insurance on
the employee's life.
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ARTICLE XI
PROVISIONS RELATIVE TO EMPLOYERS INCLUDED IN PLAN
11.01 Method of Participation - Any organization which is
a member of the same controlled group of
organizations as the Corporation [as determined
pursuant to IRC Sections 414(b), (c), (m) (o)], with
the approval of the Board, may become a party to the
Plan, by adopting the Plan as a retirement plan for
its Employees. Any organization which becomes a
party to the Plan promptly shall deliver to the
Trustee provided for in Article VII a certified copy
of the resolutions or other documents evidencing its
adoption of the Plan and a written instrument
showing the Board's approval of the organization
becoming a party to the Plan. This Plan shall be
construed as a single Plan for all participating
Employers.
11.02 Withdrawal from Participation - Any one or more of
the Employers included in the Plan may withdraw from
the Plan at any time by giving six (6) months
advance notice in writing of its or their intention
to withdraw to the Board and Committee (unless a
shorter notice is agreed to by the Board).
Upon receipt of notice of any such withdrawal,
the Committee shall certify to the Trustee the
equitable share of such withdrawing Employer in the
Fund (to be determined by the actuary employed on
behalf of the Plan by the Corporation). The Trustee
thereupon shall set aside from the Fund then held by
it such securities and other property as it, in its
sole discretion, shall deem to be equal in value to
such equitable share. If the Plan is to be
terminated with respect to such Employer, the amount
set aside shall be dealt with in accordance with the
provisions of Section 10.02. If the Plan is not to
be terminated with respect to such Employer, the
Trustee shall turn over such amount to the trustee
designated by such Employer, and such securities and
other property thereafter shall be held and invested
as a separate retirement trust of such Employer, and
shall be used and applied according to the terms of
a new agreement and declaration of trust between the
withdrawn Employer and the trustee.
Neither the segregation of the Fund assets upon
the withdrawal of an Employer nor the execution of a
new agreement and declaration of trust pursuant to
any of the provisions of this Section 11.02 shall
operate to permit any part of the corpus or income
of the Fund to be used for or diverted to purposes
other than for the exclusive benefit of
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Participants, Spouses, Surviving Spouses and
Beneficiaries, except as otherwise may be provided
in Sections 10.02, 13.08 and 13.10.
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ARTICLE XII
TOP HEAVY PLAN PROVISIONS
12.01 General - Notwithstanding anything contained herein
to the contrary, if the Plan, when combined with all
other plans required to be aggregated pursuant to
IRC Section 416(g), is deemed to be a Top Heavy Plan
for any Plan Year, the following conditions shall
become operative.
12.02 Minimum Benefits - For the first Plan Year
commencing on or after January 1, 1984, that the
Plan is deemed a Top Heavy Plan, and any Plan Year
thereafter in which the Plan is a Top Heavy Plan, a
minimum annual Accrued Benefit applicable to all
Non-Key Employees who are Participants equal to the
lesser of two percent (2%) of Top Heavy Compensation
multiplied by the Participant's number of years of
Top Heavy Service or twenty percent (20%) of his Top
Heavy Compensation shall be provided.
12.03 Definitions -
12.03(a) Key Employee means any employee, former
employee or beneficiary of a former
employee in an Employer plan who at any
time during the Plan Year or any of the
four (4) preceding Plan Years is:
(i) An officer of the Employer having
annual compensation greater than
fifty percent (50%) of the amount
in effect under IRC Section
415(b)(1)(A) for any such Plan
Year;
(ii) One (1) of the ten (10) employees
having annual compensation from
the Employer of more than the
limitation in effect under IRC
Section 415(c)(1)(A) and owning
(or considered as owning within
the meaning of IRC Section 318)
more than a one-half percent
(1/2%) interest and the largest
interest in the Employer;
(iii) A five percent (5%) owner of the
Employer; or
(iv) A one percent (1%) owner of the
Employer having annual
compensation from the Employer of
more than one hundred fifty
thousand dollars ($150,000).
For purposes of Section 12.03(a)(i),
no more than fifty (50) employees [or, if
lesser, the greater of three (3) or ten
percent (10%) of employees] shall be
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treated as officers. Further, for
purposes of determining the number of
officers taken into account under Section
12.03(a)(i), employees described in IRC
Section 414(q)(8) shall be excluded.
With respect to Section 12.03(a)(ii)
above, if two (2) Employees have the same
ownership interest in the Employer, the
Employee having the greater annual
compensation from the Employer shall be
treated as having a larger interest.
For purposes of this Section 12.03,
"compensation" shall have the same meaning
as in IRC Section 414(q)(7).
12.03(b) Non-Key Employee means an employee, former
employee or beneficiary of a former
employee who is not a Key Employee.
12.03(c) Top Heavy Plan generally means, on or
after January 1, 1984, any plan under
which, as of any determination date the
present value of the cumulative accrued
benefits for Key Employees exceed sixty
percent (60%) of the present value of the
cumulative accrued benefits for all
Employees.
For purposes of this definition:
(i) If the plan is a Defined Benefit
Plan, the present value of
cumulative accrued benefits shall
be the lump sum present value
determined pursuant to this
Article XII. If the plan is a
Defined Contribution Plan, the
present value of cumulative
accrued benefits shall be deemed
to be the market value of all
Employee accounts under the plan.
Notwithstanding the above, for
purposes of determining the
present value of the cumulative
accrued benefits, distributions
made within a five (5) year period
ending on the determination date
shall be included.
(ii) A plan shall be considered a Top
Heavy Plan for any Plan Year if,
on the last day of the preceding
Plan Year, the above conditions
were met. For the first Plan Year
that a Plan is in effect, the
determination of whether the Plan
is a Top Heavy Plan shall be made
as of the last day of such Plan
Year. Any such determination
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<PAGE>
shall be based on the valuation
date falling within that Plan
Year. For this purpose, the
valuation date must be the same
valuation date used for computing
Plan costs for minimum funding,
regardless of whether a valuation
is performed that year.
(iii) Each plan of the Employer required
to be included in an "aggregation
group" shall be treated as a Top
Heavy Plan if such group is a top
heavy group.
(iv) The term "aggregation group" means
(A) each plan of the Employer that
is currently effective or
which has terminated within
the five (5) year period
ending on the determination
date in which a Key Employee
is a Participant during the
Plan Year containing the year
of determination or any of the
four (4) preceding Plan Years;
(B) each other plan of the
Employer which enables any
plan in (A) to meet the
requirements of IRC Section
401(a)(4) or 410.
A permissive aggregation group
consists of plans of the Employer
that are required to be
aggregated, plus one (1) or more
plans of the Employer that are not
part of a required aggregation
group but satisfy the requirements
of IRC Sections 401(a)(4) and 410
when considered together with the
required aggregation group.
(v) If any individual has not
performed any service for the
Employer at any time during the
five (5) year period ending on the
determination date, any accrued
benefit for such individual shall
not be taken into account in the
testing procedure herein
described.
12.03(d) Top Heavy Compensation means a
Participant's average annual Full
Compensation during that period of five
(5) consecutive Testing Years for which
his aggregate Full Compensation was the
greatest. If he has fewer than five (5)
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consecutive Testing Years, his Top Heavy
Compensation shall mean his average annual
Full Compensation during that period
containing the largest number of
consecutive Testing Years; provided, that
if there is more than one such period, Top
Heavy Compensation shall be calculated on
the basis of such period for which such
average is the greatest.
12.03(e) Testing Year means a Plan Year which (i)
constitutes a year of Service for such
Participant, and (ii) begins prior to the
end of the last Plan Year for which the
Plan was a Top Heavy Plan. Except to the
extent excluded under the preceding
sentence, Plan Years beginning before 1984
shall be Testing Years.
12.03(f) Full Compensation means, for any Employee
for any Plan Year, his compensation [as
such term is defined in Section
9.01(a)(ii)] from the Employer or
Affiliate for such Plan Year, except that
Full Compensation for any Plan Year shall
not exceed one hundred fifty thousand
dollars ($150,000) or such greater amount
as may be determined by the Secretary of
Treasury pursuant to IRC Section
401(a)(17).
12.03(g) Top Heavy Service means a year of Credited
Service in which the Plan is deemed to be
a Top Heavy Plan with the exception that
Credited Service prior to January 1, 1984,
shall be excluded.
These definitions shall be interpreted
consistent with IRC Section 416 and rules and
regulations issued thereunder. Further, such law
and regulations shall be controlling in all
determinations under these definitions, inclusive of
any provisions and requirements stated thereunder
but hereinabove absent.
12.04 Multiple Plan Participation - If the Plan is deemed
to be a Top Heavy Plan for the Plan Year, then the
multiplier of 1.25 in Sections 9.02(a) and 9.02(c)
shall be reduced to 1.0 unless:
12.04(a) All plans required to be aggregated and
any other plans which may be permissively
aggregated pursuant to IRC Section 416(g)
are ninety percent (90%) or less top
heavy; and
12.04(b) The minimum accrued benefit referenced in
IRC Section 416(c)(1) and Section 12.02 is
modified by substituting three percent
(3%) for two percent (2%) and increasing
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twenty percent (20%) by one (1) percentage
point for each year of Top Heavy Service
(but not by more than ten (10) percentage
points).
12.05 No Duplication of Minimum Benefit - These Top Heavy
Plan provisions shall not require that the entire
defined benefit minimum benefit and defined
contribution minimum contribution be provided. To
the extent that there is a defined benefit accrued
benefit, it shall be controlling. To the extent
that there is an Employer contribution to a Defined
Contribution Plan, then there shall be a
determination as to whether the defined contribution
amount is comparable to the difference between the
defined benefit minimum benefit and the minimum
defined benefit accrued benefit required under IRC
Section 416. If the defined contribution amount is
not comparable, then the difference shall be
provided in the Defined Benefit Plan.
12.06 Actuarial Assumptions - For purposes of determining
whether a Defined Benefit Plan is a Top Heavy Plan,
calculations shall be based on the Actuarial
Equivalent factors with such determination made on
the valuation date which occurs within the Plan
Year. If more than one (1) plan is being used for
Top Heavy Plan testing, the same actuarial
assumptions shall be used for all such plans.
Further, pursuant to Internal Revenue Service
Regulation 1.416-1, T-26 and T-27, proportional
subsidies shall be ignored, and non-proportional
subsidies shall be considered.
12.07 Vesting - If the vesting schedule provided in
Section 5.01 is less liberal than the vesting
schedule hereinafter provided, then the following
vesting schedule shall apply for each Participant
with an Hour of Service after the Plan becomes a Top
Heavy Plan. This schedule shall remain in effect in
all future Plan Years.
Vested
Years of Service Percentage
---------------- ----------
Less than 3 years 0%
3 years or more 100%
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ARTICLE XIII
MISCELLANEOUS
13.01 Governing Law - The Plan shall be construed,
regulated and administered according to the laws of
the Commonwealth of Virginia, except in those areas
preempted by the laws of the United States of
America.
13.02 Construction - The headings and subheadings in the
Plan have been inserted for convenience of reference
only and shall not affect the construction of the
provisions hereof. In any necessary construction,
the masculine shall include the feminine and the
singular the plural, and vice versa.
13.03 No Employment Contract - This Plan shall not be
deemed to constitute a contract between the Employer
and any Participant or to be a consideration or
inducement for the employment of any Participant or
employee. No Participant shall acquire any right to
be retained in the Employer's employ by virtue of
the Plan, nor upon his dismissal or voluntary
termination of employment, shall he have any right
or interest in and to the Fund other than as
specifically provided herein. Except to the extent
required by law, the Employer shall not be liable
for the payment of any benefit provided for herein;
all benefits hereunder shall be payable only from
the Fund and only to the extent that the Fund is
sufficient therefor.
13.04 Receipt Prior to Payment - The Trustee, Committee,
or Employer, jointly or severally, may, but need
not, require a written receipt as a condition
precedent to any payment called for by the Plan to
be made to a Participant, Spouse, Surviving Spouse,
Beneficiary, or to their heirs, successors,
executors and legal representatives.
13.05 Payments to Minors and Incompetents - If any
Participant, Spouse, Surviving Spouse or Beneficiary
is a minor or in the judgment of the Committee is
physically or mentally incapable of personally
receiving and giving a valid receipt for any payment
due him under the Plan, the Committee may make such
payment or any part thereof to or for the benefit of
such Participant, Spouse, Surviving Spouse or
Beneficiary, or directly to or for the benefit of
any person determined by the Committee to have
incurred expense or assumed responsibility for the
expenses of such Participant, Spouse, Surviving
Spouse or Beneficiary.
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13.06 Non-alienability of Benefits - No benefits or other
amounts payable under the Plan shall be subject in
any manner to anticipation, sale, transfer,
assignment, pledge, encumbrance, charge or
alienation. If the Committee determines that any
person entitled to any payments under the Plan has
become insolvent or bankrupt or has attempted to
anticipate, sell, transfer, assign, pledge,
encumber, charge or otherwise in any manner alienate
any benefit or other amount payable to him under the
Plan or that there is any danger of any levy or
attachment or other court process or encumbrance on
the part of any creditor of such person entitled to
payments under the Plan, against any benefit or
other amounts payable to such person, the Committee
may, at any time, in its discretion, direct the
Trustee to withhold any or all payments to such
person under the Plan and apply the same for the
benefit of such person in such manner and in such
proportion as the Committee may deem proper.
Notwithstanding anything contained herein to the
contrary, with respect to a debt due by the
Participant to the Employer, a Participant, Spouse,
Surviving Spouse or Beneficiary in pay status may
assign or alienate rights to future benefit payments
provided that any such assignment or alienation:
13.06(a) is voluntary and revocable,
13.06(b) does not exceed ten percent (10%) of any
benefit payment, and
13.06(c) is neither for the purpose, nor has the
effect, of defraying plan administrative
costs.
Notwithstanding anything contained herein to the
contrary, upon the receipt by the Plan of a Domestic
Relations Order, the following provisions of this
Section 13.06 shall become effective.
13.06(d) Determination of Qualified Domestic
Relations Order - Upon receipt by the Plan
of a Domestic Relations Order, the
Committee shall promptly notify the
Participant and any Alternate Payee of
such receipt and the Plan's procedures for
determining if such order is a Qualified
Domestic Relations Order. In accordance
with reasonable procedures established by
the Committee, the Committee shall
determine whether such order is a
Qualified Domestic Relations Order and
shall notify the Participant and Alternate
Payee of such determination within a
reasonable time thereafter.
Notwithstanding anything contained herein
to the contrary, if a benefit is being
paid pursuant to a Domestic Relations
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Order on January 1, 1985, such order shall
be considered to be a Qualified Domestic
Relations Order. During the period of
time in which the Committee is making the
determination of whether the Domestic
Relations Order is a Qualified Domestic
Relations Order, the Committee shall
segregate in a separate account in the
Plan or in an escrow account the amounts
which would have been payable to the
Alternate Payee during such period if the
order had been determined to be a
Qualified Domestic Relations Order.
In the case of any payment before a
Participant has separated from service
with the Employer, a Domestic Relations
Order shall be a Qualified Domestic
Relations Order regardless of the fact
that such order requires that payment of
benefits be made to an Alternate Payee
(i) on or after the date on which the
Participant attains or first would
have attained his Early Retirement
Date,
(ii) as if the Participant had retired
on the date on which such payment
is to begin under such order
taking into account only the
present value of the benefits
actually accrued and not taking
into account the present value of
any Employer subsidy for early
retirement based on the interest
rate specified in the Plan or, if
no rate is specified, five percent
(5%), and
(iii) in any form in which such benefits
may be paid under the Plan to the
Participant (other than in the
form of a joint and survivor
annuity with respect to the
Alternate Payee and his or her
subsequent spouse).
13.06(e) Payment to Alternate Payee - If the
Domestic Relations Order is determined to
be a Qualified Domestic Relations Order
within eighteen (18) months, the Committee
shall pay the segregated amounts to the
person or persons entitled thereto.
If it is determined that the order is
not a Qualified Domestic Relations Order
or the issue as to whether such order is a
Qualified Domestic Relations Order is not
resolved within eighteen (18) months, then
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the Committee shall pay the segregated
amount to the person who would have been
entitled to such amounts as if there had
been no order.
Any determination that an order is a
Qualified Domestic Relations Order which
is made after the close of the eighteen
(18) month period shall be applied
prospectively only.
13.06(f) Definitions - For purposes of this Section
13.06, the following definitions shall be
applicable:
(i) Alternate Payee means any spouse,
child or other dependent of a
Participant who is recognized by a
Domestic Relations Order as having
a right to receive all, or a
portion of, the benefits payable
under a Plan with respect to such
Participant.
(ii) Domestic Relations Order - Any
judgment, decree or order
(including approval of a property
settlement agreement) which
(A) relates to the provisions of
child support, alimony
payments, or marital property
rights to a spouse, child or
other dependent of a
Participant, and
(B) is made pursuant to a state
domestic relations law
(including a community
property law).
(iii) Qualified Domestic Relations Order
- A Domestic Relations Order which
creates or recognizes the
existence of an Alternate Payee's
right to, or assigns to an
Alternate Payee the right to,
receive all or a portion of the
benefits payable with respect to a
Participant under the Plan;
provided that such Domestic
Relations Order clearly specifies
(A) the name and last known
mailing address (if any) of
the Participant and the name
and mailing address of each
Alternate Payee covered by the
order,
(B) the amount or percentage of
the Participant's benefit to
be paid by the Plan to each
76
<PAGE>
Alternate Payee or the manner
in which such amount or
percentage is to be
determined,
(C) the number of payments or
period to which such order
applies, and
(D) each plan to which such order
applies.
A Domestic Relations Order
meets the requirements of this
subsection only if such order does
not require the Plan
(E) to provide any type or form of
benefits, or any optional
payment form, not otherwise
provided under the Plan,
(F) to provide increased benefits
(determined on the basis of
Actuarial Equivalent value),
and
(G) to make payment of benefits to
an Alternate Payee which are
required to be paid to another
Alternate Payee under another
order previously determined to
be a Qualified Domestic
Relations Order.
13.06(g) Establishment of Plan Procedures - For
purposes of this Section 13.06, reasonable
procedures shall be established under the
Plan to determine the qualified status of
Domestic Relations Orders and to
administer distributions under Qualified
Domestic Relations Orders. The procedures
established by the Plan shall:
(i) be set forth in writing,
(ii) provide for the notification of
each person specified in a
Domestic Relations Order as
entitled to payment of benefits
under the Plan (at the address
included in the Domestic Relations
Order) of such procedures promptly
upon receipt by the Plan of the
Domestic Relations Order, and
(iii) permit an Alternate Payee to
designate a representative for
receipt of copies of notices that
are sent to the Alternate Payee
with respect to a Domestic
Relations Order.
13.07 Merger of Plans - If the Plan is merged or
77
<PAGE>
consolidated with another plan or assets or
liabilities of the Plan are transferred to another
plan, each then Participant shall not, as a result
of such event, be entitled on the day following such
merger, consolidation or transfer under the
termination of Plan provisions to a lesser benefit
than the benefit to which he was entitled to on the
date prior to the merger, consolidation or transfer
if the Plan had then terminated.
13.08 Mistake of Fact - Notwithstanding anything herein to
the contrary, there shall be returned to the
Employer any Contribution which was made as follows:
13.08(a) By a mistake of fact, as determined by the
Internal Revenue Service or in such other
manner as the Internal Revenue Service may
permit;
13.08(b) Prior to the receipt of initial
qualification; provided that the Plan
received an adverse determination with
respect to its initial qualification, and
the application for determination of
initial qualification was made by the time
prescribed by law for filing the
Employer's tax return for the taxable year
in which the Plan was adopted, or such
later date as the Secretary of Treasury
may prescribe; or
13.08(c) In an amount that exceeded the deductible
limits on such Contribution as set forth
under IRC Section 404, as determined by
the Internal Revenue Service or in such
other manner as the Internal Revenue
Service may permit.
The return of any Contribution as hereinbefore
provided shall be made within one (1) year after the
payment of the Contribution, denial of the initial
qualification or disallowance of the deduction (to
the extent disallowed), whichever is applicable.
Any Contribution returned due to mistake of fact
under Section 13.08(a) or disallowance of a tax
deduction under Section 13.08(c) shall be reduced by
its share of the losses and expenses of the Fund but
shall not be increased by income or gains of the
Fund. Any Contribution returned to the Employer due
to denial of initial qualification under Section
13.08(b) shall be equal to the entire assets of the
Plan attributable to Contributions by the Employer.
13.09 Exclusive Benefit - The Employer shall not be
entitled to any part of the corpus or income of the
Fund, and no part thereof shall be used for or
diverted to purposes other than for the exclusive
78
<PAGE>
benefit of Participants, Spouses, Surviving Spouses
and Beneficiaries hereunder except as provided in
Sections 13.08 and 13.10.
13.10 Expenses - The operating expenses of the Plan and
Fund shall be paid by the Employer or, upon the
direction of the Corporation, may be paid from the
Fund to the extent such expenses are permitted to be
charged against the Fund. The determination of
whether expenses may be charged against the Fund
shall be made by the Corporation.
13.11 Indemnification - The Employer shall indemnify and
hold harmless each person or persons who may serve
on the Committee from any and all claims, loss,
damages, expenses (including attorney's fees) and
liability (including any amounts paid in settlement)
arising from any act or omission of such person or
persons, except when the same is judicially
determined to be due to the gross negligence or
willful misconduct of such person or persons. No
Plan assets may be used for any such
indemnification.
13.12 Small Payments - If the retirement benefit payable
to a Participant at retirement is less than twenty-five
dollars ($25.00) per month, such benefit
payments shall be made on a quarterly, semi-annual
or annual basis.
13.13 Counterparts - The Plan and the Trust Agreement may
be executed in any number of counterparts, each of
which shall constitute but one and the same
instrument and may be sufficiently evidenced by any
one counterpart.
79
<PAGE>
ADOPTION OF THE PLAN
Notwithstanding anything contained herein to the contrary, this Plan is
amended and maintained under the condition that it shall continue to be approved
and qualified by the Internal Revenue Service under IRC Section 401(a) and that
the Trust hereunder is exempt under IRC Section 501(a), or under any comparable
Sections of any future legislation which amends, supplements or supersedes such
Sections.
If the Internal Revenue Service determines that the Plan as amended and
restated hereby is not qualified, the Corporation may modify the Plan to meet
Internal Revenue Service requirements.
As evidence of its adoption of the Plan, Owens & Minor, Inc. has caused this
instrument to be signed by its duly authorized officers and its corporate seal
is affixed hereto this ---------- day of--------------, 19--.
ATTEST: OWENS & MINOR, INC.
By:----------------- By:-------------------------
(Title)
80
<PAGE>
APPENDIX
ACTUARIAL EQUIVALENT FACTORS
Pursuant to the provisions of Section 1.02 of the Plan, the following bases
shall be used for the computation of Actuarial Equivalents under the Plan.
1. ELIGIBILITY AND PARTICIPATION -- ARTICLE II
(a) Reemployment of Retired Participants -- Section 2.04
For the purpose of the adjustments in this Section - the same basis
used for Available Options - Section 4.02.
2. RETIREMENT BENEFITS -- ARTICLE III
(a) Delayed Retirement Benefit - Section 3.02
For the purpose of the adjustments in this Section - the same basis
used for Available Options - Section 4.02.
(b) Early Retirement Benefit - Section 3.03
The reduction factors for commencement of a retired benefit due to a
Participant's early retirement are one-third of one percent (1/3%) per
month for each month by which the Participant's benefit commencement
date precedes his Normal Retirement Date.
3. NORMAL AND OPTIONAL METHODS OF RETIREMENT BENEFIT PAYMENTS -- ARTICLE IV
(a) Available Options - Section 4.02
Actuarial Equivalent means having an equivalent value computed as a
weighted average equal to (i) eighty percent (80%) of the actuarial
equivalent when computed on the basis of the 1971 Group Annuity
Mortality Table for Males for Employee mortality and the 1971 Group
Annuity Mortality Table for Males with a six (6) year setback in ages
for the mortality of Spouses and Beneficiaries of Employees and an
interest rate of seven percent (7%) per annum and (ii) twenty percent
(20%) of the actuarial equivalent when computed on the basis of the
1971 Group Annuity Mortality Table for Males with a six (6) year
81
<PAGE>
setback in ages for Employee mortality and the 1971 Group Annuity
Mortality Table for Males for the mortality of Spouses and
Beneficiaries of Employees and an interest rate of seven percent (7%)
per annum.
(b) Lump Sum Payments - Section 4.05
Actuarial Equivalent for lump sum payments shall be based on the
interest rates published by the Pension Benefit Guaranty Corporation
(PBGC) to value immediate and deferred annuities for plans terminating
as of the first day of the Plan Year coinciding with or immediately
preceding the date of distribution and on the UP-1984 Mortality Table.
Notwithstanding anything contained herein to the contrary, in no event
will any lump sum amount as hereinbefore determined for any
Participant ever be less than the lump sum value of the Participant's
Accrued Benefit on December 31, 1984, computed under the provisions of
the Plan as in effect on December 31, 1984.
4. BENEFITS ON TERMINATION OF EMPLOYMENT - ARTICLE V
(a) Payment of Deferred Vested Benefit - Section 5.02
For the purpose of the adjustments in this Section - the same basis
used for Early Retirement Benefit - Section 3.03.
5. BENEFITS ON DEATH - ARTICLE VI
(a) Death After Eligibility for Early Retirement - Section 6.01
For the purpose of the adjustments in this Section - the same
reduction factors used for Early Retirement Benefit - Section 3.03 and
the same basis used for Available Options - Section 4.02.
(b) Death After Eligibility for Normal Retirement - Section 6.02
For the purpose of the adjustments in the second paragraph of this
Section - the same basis used for Available Options - Section 4.02.
(c) Death After Eligibility for Disability Retirement - Section 6.03
82
<PAGE>
For the purpose of the adjustments in Section 6.03(a) - the same
reduction factors used for Early Retirement Benefit - Section 3.03 and
the same basis used for Available Options - Section 4.02. For the
purpose of the adjustments in Section 6.03(b) - the same basis used
for Available Options - Section 4.02.
(d) Death of a Vested Participant - Section 6.04
For the purpose of the adjustments in Section 6.04(a) - the same
reduction factors used for Early Retirement Benefit - Section 3.03 and
the same basis used for Available Options - Section 4.02. For the
purpose of the adjustments in Section 6.04(b) - the same basis used
for Available Options - Section 4.02.
(e) Death Subsequent to Retirement - Section 6.05
For the purpose of determining the value in this Section - the same
basis used for Lump Sum Payments - Section 4.05.
(f) Lump Sum Death Benefit - Section 6.06
For the purpose of determining the value in this Section - the same
basis used for Lump Sum Payments - Section 4.05.
6. MAXIMUM BENEFITS AND REQUIRED DISTRIBUTION OF BENEFITS -- ARTICLE IX
For purposes of Section 9.01 and the first paragraph of Sections
9.01(b) and 9.01(c), the mortality basis used shall be the same basis
used for Available Options - Section 4.02.
The early retirement factors described in Section 9.01(b) shall be the
same reduction factors used for Early Retirement Benefit - Section
3.03.
For purposes of Section 9.01(h)(ii) - the same basis used for
Available Options - Section 4.02.
7. AMENDMENT AND TERMINATION OF THE PLAN - ARTICLE X
For purposes of Sections 10.03(a)(iii), 10.03(d) and 10.04 - the same
basis used for Available Options - Section 4.02. For purposes of
determining the value in Section 10.03(d) - the same basis used for
Lump Sum Payments - Section
84
<PAGE>
4.05.
8. TOP HEAVY PLAN PROVISIONS - ARTICLE XII
For purposes of Section 12.06 - Actuarial
Assumptions - the same basis used for Available
Options - Section 4.02.
9. MISCELLANEOUS - ARTICLE XIII
For purposes of Section 13.06(f) - the same
basis used for Available Options - Section 4.02.
Exhibit 10 (d)
AMENDMENT NO. I
OWENS & MINOR, INC.
PENSION PLAN
WHEREAS, Owens & Minor, Inc. (hereinafter referred to as
the "Corporation") established the Owens & Minor, Inc.
Pension Plan (hereinafter referred to as the "Plan") as
amended and restated effective January 1, 1994; and
WHEREAS, the Corporation reserved the right in Article X
of the Plan to amend said Plan by action of its Board of
Directors; and
WHEREAS, the Corporation is now desirous of amending said
Plan in order to cease benefit accruals for certain
employees effective December 31, 1996 and to make certain
substantive, technical and administrative changes therein.
NOW, THEREFORE, the Plan is amended, effective December
31, 1996, in the following respects:
1. Section 1.02 of Article I is hereby amended by the
addition of the following paragraph at the conclusion
thereof:
Except as otherwise provided herein, effective
December 31, 1996, the Accrued Benefit of each
Participant shall be frozen as of such date.
Notwithstanding the preceding, Participants who have
as of January 1, 1997 completed at least five (5)
years of Service and whose age plus years of Service
equal at least sixty-five (65) shall continue to earn
an Accrued Benefit until the earlier of (i) December
31, 2001, or (ii) until retirement, death or
termination of employment. Notwithstanding the
preceding, in the event the Plan does not meet the
coverage requirements of IRC Section 410(b) during a
Plan Year, certain Highly Compensated Employees, as
provided herein, shall be excluded from earning any
additional Accrued Benefit under this paragraph for
such Plan Year. To the extent the coverage
requirements of IRC Section 410(b) can be passed for a
Plan Year, certain Highly Compensated Employees shall
be eligible to accrue benefits hereunder. The Highly
Compensated Employees eligible for benefit accruals
shall be based on Compensation for the Plan Year
beginning with the lowest paid Highly Compensated
Employee and progressing in ascending order of
Compensation until the coverage requirements of IRC
Section 410(b) can no longer be passed.
2. Section 1.12 is hereby amended by the addition of
paragraph 1.12(g) as follows:
1.12(g) Except as provided in Sections 1.02 and
3.01(a) as amended herein, a Participant
shall cease
<PAGE>
to earn years of Credited Service after December 31,
1996.
3. Section 1.35 is hereby amended by the addition of
paragraph 1.35(h) as follows:
1.35(h) Except as provided in Sections 1.02 and
3.01(a) as amended herein, a Participant
shall cease to earn years of Service after
December 31, 1996.
4. Section 2.01 of Article II is hereby amended by the addition
of the following paragraph at the conclusion thereof:
Effective December 31, 1996, no Employee, who is
not already a Participant, shall be eligible for
participation in the Plan.
5. Section 3.01(a) is hereby amended by the addition of
the following at the conclusion thereof:
Except as otherwise provided herein, effective
December 31, 1996, a Participant shall cease to accrue
any additional benefits under this Section 3.01(a)
after such date. Notwithstanding the preceding,
Participants who as of January 1, 1997 have completed
at least five years of Service and whose age plus
years of Service equal sixty-five (65) shall continue
to earn a benefit under this Section 3.01(a) until the
earlier of (i) December 31, 2001, or (ii) until
retirement, death or termination of employment.
Notwithstanding the preceding, in the event the Plan
does not meet the coverage requirements of IRC Section
410(b) during a Plan Year, certain Highly Compensated
Employees, as provided herein, shall be excluded from
earning any additional Accrued Benefit under this
paragraph for such Plan Year. To the extent the
coverage requirements of IRC Section 410(b) can be
passed for a Plan Year, certain Highly Compensated
Employees shall be eligible to accrue benefits
hereunder. The Highly Compensated Employees eligible
for benefit accruals shall be based on Compensation
for the Plan Year beginning with the lowest paid
Highly Compensated Employee and progressing in
ascending order of Compensation until the coverage
requirements of IRC Section 410(b) can no longer be
passed.
6. Section 5.01 of Article V is hereby amended by the
addition of the following paragraph at the conclusion
thereof:
Effective December 31, 1996, Participants shall
be one hundred percent (100%) vested at all times.
7. Item 3.(b) of the Appendix is hereby amended by the
addition of the following paragraph at the conclusion
thereof:
<PAGE>
Effective January 1, 1997, Actuarial Equivalent for
lump sum payments shall be based on the 1983 Group
Annuity Mortality Table using a blend of fifty percent
(50%) of the male mortality rate and fifty percent
(50%) of the female mortality rate and an interest
rate equal to the annual rate of interest on thirty
(30) year Treasury securities for the month before the
first day of the Plan Year coinciding with or
immediately preceding the date of distribution.
IN WITNESS WHEREOF, the Corporation has caused this
Amendment No. I to the Plan to be executed by its President
and its corporate seal to be affixed by the Secretary, both
duly authorized, effective the thirty-first day of December,
1996, unless otherwise indicated, but executed this -------
- --------- day of----------------------, 19 --------.
Attest: (SEAL)
- -----------------------------------------------
Secretary
OWENS & MINOR, INC.
- -----------------------------------------------
By
President
Exhibit 10(k)
OWENS & MINOR, INC.
1993 DIRECTORS' COMPENSATION PLAN
As Amended and Restated
Effective December 16, 1996
<PAGE>
ARTICLE I DEFINITIONS
1.01. Account. . . . . . . . . . . . . . I-1
1.02. Agreement. . . . . . . . . . . . . I-1
1.03. Allocation . . . . . . . . . . . . I-1
1.04. Award Date . . . . . . . . . . . . I-1
1.05. Beneficiary. . . . . . . . . . . . I-1
1.06. Board. . . . . . . . . . . . . . . I-1
1.07. Code . . . . . . . . . . . . . . . I-2
1.08. Committee. . . . . . . . . . . . . I-2
1.09. Common Stock . . . . . . . . . . . I-2
1.10. Common Stock Account . . . . . . . I-2
1.11. Company. . . . . . . . . . . . . . I-2
1.12. Compensation . . . . . . . . . . . I-2
1.13. Deferred Amount. . . . . . . . . . I-2
1.14. Deferred Fee Program . . . . . . . I-2
1.15. Disability . . . . . . . . . . . . I-2
1.16. Distribution Date. . . . . . . . . I-3
1.17. Election Date. . . . . . . . . . . I-3
1.18. Election Form. . . . . . . . . . . I-3
1.19. Extraordinary Distribution
Request Date . . . . . . . . . . . I-3
1.20. Extraordinary Distribution
Request Form . . . . . . . . . . . I-3
1.21. Fair Market Value. . . . . . . . . I-3
1.22. Meeting Fees . . . . . . . . . . . I-4
1.23. Option . . . . . . . . . . . . . . I-4
1.24. Participant. . . . . . . . . . . . I-4
1.25. Plan . . . . . . . . . . . . . . . I-4
1.26. Retainer Fee . . . . . . . . . . . I-4
1.27. Stock Award. . . . . . . . . . . . I-4
1.28. Stock Award Program. . . . . . . . I-4
1.29. Stock Option Program . . . . . . . I-4
1.30. Stock Purchase Program . . . . . . I-5
1.31. Stock Purchase Election. . . . . . I-5
1.32. Stock Purchase Election Form . . . I-5
ARTICLE II ADMINISTRATION . . . . . . . . . .II-1
ARTICLE III STOCK OPTION PROGRAM
3.01. Option Grants. . . . . . . . . . III-1
3.02. Option Price . . . . . . . . . . III-1
3.03. Maximum Option Period. . . . . . III-1
3.04. Exercise . . . . . . . . . . . . III-2
3.05. Payment of Option Price. . . . . III-2
3.06. Shareholder Rights . . . . . . . III-2
3.07. Stock Subject to Options . . . . III-2
ARTICLE IV DEFERRED FEE PROGRAM
4.01. Deferral Elections . . . . . . . .IV-1
4.02. Deferral Election Modifications. .IV-2
4.03. Cessation of Deferrals . . . . . .IV-3
4.04. Beneficiary Election
Modification . . . . . . . . . . .IV-4
4.05. Investments. . . . . . . . . . . .IV-4
4.06. Investment Directions. . . . . . .IV-5
4.07. New Investment Directions. . . . .IV-5
<PAGE>
4.08. Investment Transfers . . . . . . .IV-6
4.09. Pre-October 1, 1993 Restrictions .IV-7
4.10. Distribution Elections . . . . . .IV-7
4.11. Modified Distribution Elections. .IV-8
4.12. Extraordinary Distributions. . . .IV-9
ARTICLE V STOCK PURCHASE PROGRAM . . . . . . V-1
5.01. Common Stock Purchase. . . . . . . V-1
5.02. Stock Purchase Election
Modification . . . . . . . . . . . V-2
5.03. Issuance of Common Stock . . . . . V-2
5.04. Advance Approval. . . . . . . . . .V-2
ARTICLE VI STOCK AWARD PROGRAM
6.01. Awards . . . . . . . . . . . . . .VI-1
6.02. Vesting. . . . . . . . . . . . . .VI-1
6.03. Transferability. . . . . . . . . .VI-1
6.04. Shareholder Rights . . . . . . . .VI-1
6.05. Advance Approval . . . . . . . . .VI-1
ARTICLE VII SHAREHOLDER RIGHTS . . . . . . . VII-1
ARTICLE VIII ADJUSTMENT UPON CHANGE
IN COMMON STOCK. . . . . . . . VIII-1
ARTICLE IX COMPLIANCE WITH LAW, ETC.. . . . .IX-1
ARTICLE X GENERAL PROVISIONS
10.01. Unfunded Plan. . . . . . . . . . . X-1
10.02. Rules of Construction. . . . . . . X-1
10.03. Nontransferability . . . . . . . . X-1
ARTICLE XI AMENDMENT AND TERMINATION. . . . .XI-1
ARTICLE XII DURATION OF PLAN . . . . . . . . XII-1
ARTICLE XIII EFFECTIVE DATE OF PLAN . . . . XIII-1
<PAGE>
INTRODUCTION
The Owens & Minor, Inc. 1993 Directors' Compensation
Plan (the Plan) was adopted by the Board of Directors on
February 25, 1993, subject to the approval of the Plan by the
Company's shareholders and was amended and restated by the
Board of Directors effective December 16, 1996. Four programs
comprise the Plan: the Stock Option Program, the Deferred Fee
Program and the Stock Purchase Program; and the Stock Award
Program.
The Stock Option Program provides for the automatic
grant of Options to purchase Common Stock. Options are granted
on an annual basis and are subject to the terms and conditions
prescribed by the Plan. Participation in the Stock Option
Program is automatic.
The Deferred Fee Program allows Participants to defer
the receipt of all or part of their Retainer Fee, Meeting
Fees, Stock Awards, or a combination thereof, in accordance
with Revenue Ruling 71-419, 1971-2 C.B. 220. Participation in
the Deferred Fee Program is voluntary.
The Stock Purchase Program allows Participants to
receive all or part of their Retainer Fee, Meeting Fees or
both (to the extent such amounts are not deferred under the
Deferred Fee Program), in the form of Common Stock.
Participation in the Stock Purchase Program is voluntary.
The Stock Award Program provides for grants of common
stock of the Company to Participants. Stock is awarded on the
first meeting of the Board following the annual meeting of the
Company's shareholders or May 15th, whichever date shall first
occur.
The Plan is intended to assist the Company in
promoting a greater identity of interest between Participants
and the Company and its shareholders. The Plan is also
intended to assist the Company in attracting and retaining
non-employee Directors by affording them an opportunity to
share in the future success of the Company.
<PAGE>
ARTICLE I
DEFINITIONS
2.01 Account means an unfunded deferred compensation
account established by the Company pursuant to the Deferred
Fee Program, consisting of one or more Subaccounts established
in accordance with Section 4.05.
2.02 Agreement means a written agreement (including
any amendment or supplement thereto) between the Company and
a Participant specifying the terms and conditions of an Option
granted to such Participant.
2.03 Allocation means any date on which an amount
representing all or a part of a Participant's Compensation is
to be credited to his or her Account pursuant to an effective
deferral election. The Allocation Date for the Retainer Fee
shall be the first meeting of the Board following the Annual
Meeting or May 15th, whichever date shall first occur; and for
Meeting Fees shall be the first day of the month following the
meeting. The Allocation Date for a Stock Award is the
applicable Award Date.
2.04 Award Date means the date of each meeting of
the Board immediately following the annual meeting of the
Company's Shareholders or May 15th, whichever date shall first
occur;
2.05 Beneficiary means any person or entity
designated as such in a current Election Form. If there is no
valid designation or if no designated Beneficiary survives the
Participant, the Beneficiary is the Participant's estate.
2.06 Board means the Board of Directors of the
Company.
2.07 Code means the Internal Revenue Code of 1986,
and any amendments thereto.
2.08 Committee means the Governance and Nominating
Committee of the Board.
2.09 Common Stock means the Common Stock of the
Company.
2.19 Common Stock Account means the Subaccount whose
value shall be based on the value of units representing shares
of Common Stock and dividend equivalents.
1.11. Company means Owens & Minor, Inc.
2.20 Compensation means the sum of the Retainer Fee
and the Meeting Fees payable by the Company to each Partici-
pant, including any additional amount paid to a chairman of a
committee for additional services.
2.21 Deferred Amount means the amount (determined as
a percentage of the Retainer Fee, the Meeting Fees, and the
cash value of Stock Awards) subject to a current deferral
election.
2.22 Deferred Fee Program means the provisions of
the Plan that permit Participants to defer all or part of
their Compensation, and/or all or part of a Stock Award.
2.23 Disability means permanent and total disability
as determined under procedures established by the Committee
for purposes of the Plan.
2.24 Distribution Date means the date designated by
a Participant or Retired Participant in accordance with
Sections 4.10 and 4.11 for the commencement of payment of
<PAGE>
amounts credited to his or her Account.
2.25 Election Date means the date an Election Form
is received by the Secretary of the Company.
2.26 Election Form means a valid Deferred Fee
Program initial Election Form or modified Election Form (in
the forms approved by the Committee) properly completed and
signed.
2.27 Extraordinary Distribution Request Date means
the date an Extraordinary Distribution Request Form is
received by the Secretary of the Company.
2.28 Extraordinary Distribution Request Form means
the Deferred Fee Program Extraordinary Distribution Request
Form (in the form approved by the Committee) properly
completed and executed by a Participant or Beneficiary who
wishes to request an extraordinary distribution of amounts
credited to his or her Account in accordance with Section
4.12.
2.29 Fair Market Value means, on any given date, the
closing price of a share of Common Stock as reported on the
New York Stock Exchange composite tape on such date, or if the
Common Stock was not traded on the New York Stock Exchange on
such day, then on the next preceding day that the Common Stock
was traded on such exchange, all as reported by in the Wall
Street Journal.
2.30 Meeting Fees means the portion of a
Participant's Compensation that is based upon his or her
attendance at Board meetings and meetings of committees of the
Board.
2.31 Option means a stock option that entitles the
holder to purchase from the Company a stated number of shares
of Common Stock at the price set forth in an Agreement.
2.32 Participant means a member of the Board who is
not then an employee or officer of the Company. For purposes
of the Deferred Fee Program only, a Participant shall also
include a person who ceases to be a member of the Board as
long as an Account is being maintained for his or her benefit.
2.33 Plan means the Owens & Minor, Inc. 1993
Director's Compensation Plan.
1.26. Retainer Fee means the portion of a
Participant's Compensation that is fixed and paid without
regard to his or her attendance at meetings.
2.34 Stock Award means an award of Common Stock in
accordance with Article VI of this Plan.
2.35 Stock Award Program means the provisions of the
Plan relating to Stock Awards.
2.36 Stock Option Program means the provisions of
the Plan relating to Options.
2.37 Stock Purchase Program means the provisions of
the Plan that permit Participants to purchase Common Stock
with all or part of their Compensation.
2.38 Stock Purchase Election means a Participant's
election to receive all or part of his or her Compensation in
the form of Common Stock in accordance with the Stock Purchase
Program.
2.39 Stock Purchase Election Form means a valid
initial Stock Purchase Program election form or a modified
Stock Purchase Program election form (in the forms approved by
<PAGE>
the Committee) properly completed and signed.
ARTICLE II
ADMINISTRATION
The Plan shall be administered by the Committee. The Committee
shall grant Options and make Stock Awards in accordance with
the Plan and upon such terms (not inconsistent with the
provisions of this Plan) as the Committee may consider
appropriate. In addition, the Committee shall have complete
authority to interpret all provisions of this Plan; to
prescribe the form of Agreements and to approve the other
forms that are appropriate for use in conjunction with the
Plan; to adopt, amend, and rescind rules and regulations
pertaining to the administration of the Plan; and to make all
other determinations necessary or advisable for the
administration of this Plan. The express grant in the Plan of
any specific power to the Committee shall not be construed as
limiting any power or authority of the Committee. Any decision
made, or action taken, by the Committee or in connection with
the administration of this Plan shall be final and conclusive.
No member of the Committee shall be liable for any act done in
good faith with respect to this Plan. All expenses of
administering this Plan shall be borne by the Company.
ARTICLE III
STOCK OPTION PROGRAM
4.01 Option Grants. During the term of the Plan and
subject to the limitation set forth in Section 3.07, each
Participant will be granted an Option for 2,532 shares of
Common Stock at the first meeting of the Board following each
annual meeting of the Company's shareholders or May 15th,
whichever date shall first occur; during the term of this
Plan. All Options granted under this Plan will be evidenced by
Agreements which shall be subject to the applicable provisions
of the Plan.
4.02 Option Price. The price per share for Common Stock
purchased on the exercise of an Option shall be the Fair
Market Value of the Common Stock on the date the Option is
granted.
4.03 Maximum Option Period. The maximum period in which an
Option may be exercised shall be five years from the date of
grant; provided, however, that if the Participant ceases to be
a member of the Board, the Option may be exercised for one
year following the date he or she ceases to be a member of the
Board, or until the expiration of the Option period, whichever
is shorter. In the event of the Participant's death while he
or she is a member of the Board, the Option may be exercised
by the Participant's estate or by such person or persons who
succeed to Participant's rights by will or the laws of descent
and distribution for one year following the Participant's date
of death or until the expiration of the Option period,
whichever is shorter.
4.04 Exercise. Subject to the provisions of Section 3.03
and Article VIII, an Option may be exercised in whole at any
time or in part from time to time on and after the date of
<PAGE>
grant. An Option may be exercised with respect to any number
of whole shares less than the full number for which the Option
could be exercised. A partial exercise of an Option shall not
affect the right to exercise the Option from time to time in
accordance with this Plan and the applicable Agreement with
respect to the remaining shares subject to the Option.
4.05 Payment of Option Price. Payment of the Option price
shall be made in cash or a cash equivalent acceptable to the
Committee or by surrendering shares of Common Stock to the
Company. The total amount of cash or cash equivalent paid and
the Fair Market Value (determined as of the day preceding the
date of exercise) of any Common Stock surrendered shall not be
less than the aggregate option price for the number of shares
for which the option is being exercised.
4.06 Shareholder Rights. No Participant shall have any
rights as a shareholder with respect to shares subject to his
or her Option until the date of exercise of such Option.
4.07 Stock Subject to Options. Upon the exercise of any
Option, the Company may deliver to the Participant (or the
Participant's broker if the Participant so directs), shares
from its authorized but unissued Common Stock. The number of
shares of Common Stock that may be issued pursuant to the
exercise of Options or as Stock Awards under this Plan shall
not in the aggregate exceed 225,000. The maximum aggregate
number of shares of Common Stock that may be issued under this
Plan shall be subject to adjustment as provided in Article
VIII. If an Option is terminated, in whole or in part, for
any reason other than its exercise, the number of shares of
Common Stock allocated to the Option or portion thereof may be
reallocated to other Options to be granted under this Plan.
ARTICLE IV
DEFERRED FEE PROGRAM
2.01 Deferral Elections.
(a) A Participant may make a Deferral Election with
respect to all or a part of his or her Compensation or Stock
Awards to be earned and payable thereafter by completing and
executing an Election Form and submitting it to the Secretary
of the Company. A deferral election relating to a Retainer Fee
shall be in integral multiples of twenty-five percent (25%) of
the Retainer Fee. A deferral election relating to Meeting Fees
shall be in integral multiples of twenty-five percent (25%) of
each Meeting Fee. A deferral election relating to a Stock
Award shall be in integral multiples of twenty-five (25%) of
$5,000 (the cash value of each Stock Award).
(b) In accordance with the terms of the Plan, the
Participant shall indicate on the Election Form: (i) the
percentage of the Retainer Fee, the percentage of the Meeting
Fee, and the percentage of the Stock Award that he or she
wishes to defer; (ii) the Distribution Date; (iii) whether
distributions are to be in a lump sum, in installments or a
combination thereof; (iv) the Participant's Beneficiary or
Beneficiaries; and (v) the subaccounts to which the Deferred
Amount is to be allocated.
(c) A deferral election shall become effective with
respect to a Participant's Retainer Fee at the first meeting
<PAGE>
of the Board following each annual meeting of the Company's
shareholders or May 15th, whichever date shall first occur;
following the Election Date. A deferral election shall become
effective with respect to a Participant's Meeting Fees
accruing on and after the first day of the calendar month
following the Election Date. A deferral election shall become
effective with respect to a Participant's Stock Award earned
on and after the Award Date following the Election Date. A
deferral election shall remain in effect with respect to all
future Compensation and Stock Awards until a new deferral
election made by the Participant in accordance with Section
4.02 or Section 4.03 becomes effective.
5.02 Deferral Election Modifications. A Participant may
modify his or her deferral election with respect to
Compensation and/or Stock Awards to be earned and payable
thereafter by completing and executing a new Election Form and
submitting it to the Secretary of the Company. An election to
increase the amount of future Compensation to be deferred
shall become effective with respect to a Participant's
Retainer at the first meeting of the Board following each
annual meeting of the Company's shareholders or May 15th,
whichever date shall first occur; following the Election Date.
An election to increase the amount of future Compensation
deferred shall become effective with respect to a
Participant's Meeting Fees accruing on and after the first day
of the calendar month following the Election Date. An election
to increase the amount of future Stock Awards deferred shall
become effective as of the Award Date following the Election
Date. Subject to Section 4.03, an election to decrease the
amount of future Compensation to be deferred shall become
effective with respect to Compensation accruing on and after
the first day of the calendar month following the Election
Date. An election to decrease the amount of future Stock
Awards to be deferred shall become effective as of the Award
Date following the Election Date. Notwithstanding the
foregoing, to the extent any such modification of a deferral
election affects the Common Stock Account, it shall not become
effective until the first day of the calendar month that is at
least six months after the Election Date. Any amount credited
to a Participant's Account prior to such effective date will
continue to be subject to the provisions of the Participant's
last valid Election Form.
5.03 Cessation of Deferrals. A Participant may cease to
defer future Compensation and/or Stock Awards by completing
and executing a new Election Form, and submitting it to the
Secretary of the Company. An election by a Participant to
cease deferrals in the Deferred Fee Program shall become
effective with respect to Compensation accruing on or after
the first day of the calendar month following the Election
Date. An election to cease deferrals shall become effective
with respect to Stock Awards as of the Award Date following
the election Date. Notwithstanding the foregoing, to the
extent such election affects the Common Stock Account, it
shall not become effective until the first day of the calendar
month that is at least six months after the Election Date. Any
amounts credited to a Participant's Account prior to such
effective date will continue to be subject to the provisions
<PAGE>
of the Participant's last valid Election Form.
5.04 Beneficiary Election Modification. A Participant
shall be permitted at any time to modify his or her
Beneficiary designation, effective as of the Election Date, by
completing and executing a new Election Form and submitting it
to the Secretary of the Company.
5.05 Investments.
(a) The Company shall establish an Account (for
bookkeeping purposes only), for each Participant and for each
Beneficiary to whom installment distributions are being made.
On each Allocation Date, the Company shall allocate to each
Participant's Account an amount equal to his Deferred Amount.
(b) The Company shall establish within each Account
one or more Subaccounts, which shall be credited with earnings
and charged with losses, if any. One Subaccount shall be the
Common Stock Account. The other Subaccounts, if any, shall be
designated by the Committee from time to time.
(c) Subject to the provisions of Sections 4.06 and
4.07, on each Allocation Date, each Participant's Subaccount
shall be credited with an amount equal to the Deferred Amount
designated by the Participant for allocation to such
Subaccounts. Each Subaccount shall be credited with earnings
and charged with losses as if the amounts allocated thereto
actually had been invested in the investment designated as
that subaccount.
5.06 Investment Directions. In connection with his or her
initial deferral election, each Participant shall make an
investment direction on his or her Election Form with respect
to the portion of such Participant's Deferred Amount that is
to be allocated to each Subaccount of the Participant's
Account. Any apportionment of Deferred Amounts (and of
increases or decreases in Deferred Amounts) among the
Subaccounts shall be in integral multiples of ten percent
(10%). An investment direction shall become effective with
respect to a Subaccount other than the Common Stock Account on
the first day of the calendar month following the Election
Date. An investment direction shall become effective with
respect to the Common Stock Account on the later to occur of
(i) the first day of the calendar month that occurs six months
after the relevant Election Date and (ii) October 1, 1993. All
investment directions shall be irrevocable and shall remain in
effect with respect to all future Deferred Amounts until a new
irrevocable investment direction made by the Participant in
accordance with Section 4.07 becomes effective.
5.07 New Investment Directions. A Participant may make a
new investment direction with respect to his or her Deferred
Amount only by completing and executing a new Election Form
and submitting it to the Secretary of the Company. A new
investment direction shall become effective with respect to a
Subaccount other than the Common Stock Account on the first
day of the calendar month following the Election Date. A new
investment direction shall become effective with respect to
the Common Stock Account on the later to occur of (i) the
first day of the calendar month that is at least six months
after the relevant Election Date and (ii) October 1, 1993.
5.08 Investment Transfers. A Participant or a Beneficiary
(after the death of the Participant) may transfer to one or
<PAGE>
more different Subaccounts all or a part (in integral
multiples of ten percent (10%)) of the amounts credited to a
Subaccount by completing and executing a Transfer Form and
submitting it to the Secretary of the Company. Any transfer of
amounts among the Subaccounts and, unless the person
requesting the transfer is then subject to Section 16 of the
Exchange Act, the Common Stock Account, shall become effective
on the first day of the calendar month following the Transfer
Election Date. Any transfer to or from the Common Stock
Account requested by a person who is then subject to Section
16 of the Exchange Act shall become effective on the first day
of the calendar month that is at least six months after the
Transfer Election Date, but in no event, prior to October 1,
1993.
5.09 Pre-October 1, 1993 Restrictions. Notwithstanding the
foregoing, prior to October 1, 1993, each Participant will be
permitted to make no more than one investment direction
involving the Common Stock Account.
5.19 Distribution Elections.
(a) Each Participant shall designate on his or her
Election Form one of the following dates as a Distribution
Date with respect to amounts credited to his or her Account
thereafter: (i) the first day of the calendar month following
the date of the Participant's death; (ii) the first day of the
calendar month following the date of the Participant's
Disability; (iii) the first day of the calendar month
following the date of termination of the Participant's service
as a member of the Board; (iv) the first day of a calendar
month specified by the Participant which is at least six
months after the Election Date; or (v) the earliest to occur
of (i), (ii), (iii) or (iv). A Distribution Date election
shall become effective on the Election Date.
(b) Participant may request on his or her Election
Form that distributions from his or her Account be made in (i)
a lump sum, (ii) no more than one-hundred eighty (180)
monthly, sixty (60) quarterly or fifteen (15) annual
installments or (iii) a combination of (i) and (ii). Each
installment shall be determined by dividing the Account
balance by the number of remaining installments. If a
Participant receives a distribution from a Subaccount on an
installment basis, amounts remaining in such Subaccount before
payment shall continue to accrue earnings and incur losses in
accordance with the terms of Section Except as stated in
Section 4.10(c), all distributions shall be made to the
Participant.
(c) If the Distribution Date is the first day of
the month following the Participant's death or a fixed date
which in fact occurs after the Participant's death or if at
the time of death the Participant was receiving distributions
in installments, the balance remaining in the Participant's
Account shall be payable to his or her Beneficiaries as set
forth on the Participant's current Election Form or Forms.
Upon the death of a Beneficiary who is receiving distributions
in installments, the balance remaining in the Account of the
Beneficiary shall be payable to his or her estate in a lump
sum.
(d) All distributions shall be paid in cash and,
<PAGE>
except as provided in Section 4.12, shall be deemed to have
been made from each Subaccount pro rata.
5.20 Modified Distribution Elections. A Participant may
modify his or her election as to the Distribution Date and
form of distribution with respect to Compensation to be earned
and payable thereafter by completing and executing a new
Election Form and submitting it to the Secretary of the
Company. Any new Distribution Date or form of distribution
election shall become effective on the Election Date.
5.21 Extraordinary Distributions.
(a) Notwithstanding the foregoing, a Participant or
Beneficiary (after the death of the Participant) may request
an extraordinary distribution of all or part of the amount
credited to his or her Account on account of hardship. A
distribution shall be deemed to be "on account of hardship" if
such distribution is necessary to alleviate or satisfy an
immediate and heavy financial need of the Participant or
Beneficiary (after the death of the Participant).
(b) A request for an extraordinary distribution
shall be made by completing and executing an Extraordinary
Distribution Request Form and submitting it to the Secretary
of the Company. All extraordinary distributions shall be
subject to approval by the Committee. The Extraordinary
Distribution Request Form shall indicate: (i) the amount to be
distributed from the Account; (ii) the Subaccount(s) from
which the distribution is to be made; and (iii) the "hardship"
requiring the distribution. The amount of any extraordinary
distribution shall not exceed the lesser of the amount
determined by the Committee to be required to meet the
immediate financial need of the applicant or the amount
credited to the Participant's Account.
(c) An extraordinary distribution shall be made
with respect to amounts credited to any of the Subaccounts, if
the recipient is not then subject to Section 16 of the
Exchange Act, on the first day of the calendar month next
following approval of the extraordinary distribution request
by the Committee. An extraordinary distribution requested by
a Participant who is then subject to Section 16 of the
Exchange Act shall commence with respect to amounts credited
to the Common Stock Account on the first day of the calendar
month that is at least six months following the Extraordinary
Distribution Request Date or, if later, the first day of the
calendar month following approval of the extraordinary
distribution request by the Committee.
5.22 Advance Approval. Any provision of this Plan to the
contrary notwithstanding, no election to defer Compensation
and/or a Stock Award, election to alter the amount of
Compensation and/or Stock Awards to be deferred, or direction
to invest any portion of a Participant's Account in the Common
Stock Account shall be effective unless the transaction is
approved in advance by the Committee.
ARTICLE V
STOCK PURCHASE PROGRAM
2.02 Common Stock Purchase.
(a) A Participant may make a Stock Purchase
<PAGE>
Election with respect to all or part of his or her
Compensation to be earned and payable thereafter (other than
Compensation that is deferred under Article IV), by completing
and executing a Stock Purchase Election Form and submitting it
to the Secretary of the Company. The preceding sentence to the
contrary notwithstanding, the Stock Purchase Election shall be
effective only with respect to Compensation that is payable on
and after the first day of a calendar month that is at least
six months after the Election Date, but in no event before
October 1, 1993.
(b) A Stock Purchase Election relating to the
Retainer Fee shall be in integral multiples of twenty-five
percent (25%) of the Retainer Fee. A Stock Purchase Election
relating to Meeting Fees shall be in integral multiples of
twenty-five percent (25%) of each Meeting Fee. The Participant
shall indicate on the Stock Purchase Election Form whether the
Common Stock issued under this Article V shall be registered
in the name of the Participant or in the joint names of the
Participant and his or her spouse. A Stock Purchase Election
Form shall remain in effect with respect to all future
Compensation until a new Stock Purchase Election made by the
participant in accordance with Section 5.02 becomes effective.
2.03 Stock Purchase Election Modification. A Participant
may modify his or her Stock Purchase Election to increase or
decrease the amount of Compensation that will be applied to
the purchase of Common Stock under this Article V or to cease
purchases of Common Stock under this Article V. The new Stock
Purchase Election shall be effective with respect to
Compensation payable on and after the first day of the month
specified by the Participant; provided, however, that such
date is at least six months after the Election Date and on or
after October 1, 1993.
2.04 Issuance of Common Stock. Common Stock purchased
under this Article V shall be issued as of the date that the
Retainer Fee or Meeting Fee or both, as applicable, would have
been payable but for the Participant's Stock Purchase
Election. The number of shares issuable shall be determined by
dividing the amount of Retainer Fee or Meeting Fee otherwise
payable on that date by the Fair Market Value of the Common
Stock on the day preceding the date described in the preceding
sentence. A fractional share of Common Stock shall not be
issued but instead the Participant shall receive a cash
payment of the Compensation that cannot be applied to purchase
a whole share.
5.04. Advance Approval. Any provision of this Plan to the
contrary notwithstanding, no Stock Purchase Election shall
become effective and no Common Stock shall be issued under
this Article V unless the transaction is approved in advance
by the Committee.
ARTICLE VI
STOCK AWARD PROGRAM
7.01 Awards. Beginning in 1997 and during the term of
this Plan, on each Award Date, each Participant shall, except
to the extent that the Participant has made a deferral
election with respect to such shares in accordance with
<PAGE>
Article IV, be issued a number of whole shares of Common Stock
having an aggregate Fair Market Value equal to, or most nearly
equal to, $5,000.
7.02 Vesting. All of the shares of Common Stock issued
under this Article VI shall be immediately and fully vested.
7.03 Transferability. All of the shares of Common Stock
issued under this Article VI shall be immediately transferable
subject only to restrictions imposed by federal and state
securities and other laws.
7.04 Shareholder Rights. A Participant shall have all
rights as a shareholder with respect to shares of Common Stock
awarded pursuant to this Article VI.
ARTICLE VII
SHAREHOLDER RIGHTS
No Participant shall have any rights as a shareholder
with respect to shares subject to his or her Option until the
date that he or she exercises such Option. No Participant
shall have any rights as a shareholder with respect to his or
her participation in the Deferred Fee Program. No Participant
shall have any rights as a shareholder with respect to his or
her participation in the Stock Purchase Program until the date
for the issuance of shares as provided in Section 5.03. No
Participant shall have any rights as a Shareholder with
respect to his or her participation in the Stock Award Program
until the date a Stock Award is made as provided in Section
6.01.
ARTICLE VIII
ADJUSTMENT UPON CHANGE IN COMMON STOCK
The maximum number of shares as to which Options may
be granted under this Plan shall be proportionately adjusted,
and the terms of outstanding Options and the records of the
Company Stock Account shall be adjusted, as the Committee
shall determine to be equitably required in the event that (a)
the Company (i) effects one or more stock dividends, stock
split-ups, subdivisions or consolidations of shares or (ii)
engages in a transaction to which Section 424 of the Code
applies or Co) there occurs any other event which, in the
judgment of the Committee necessitates such action. Any
determination made under this Article VIII by the Committee
shall be final and conclusive.
The issuance by the Company of shares of stock of any
class, or securities convertible into shares of stock of any
class, for cash or property, or for labor or services, either
upon direct sale or upon the exercise of rights or warrants to
subscribe therefor, or upon conversion of shares or
obligations of the Company convertible into such shares or
other securities, shall not affect, and no adjustment by
reason thereof shall be made with respect to, outstanding
awards of Options or the records of the Company Stock Account.
ARTICLE IX
COMPLIANCE WITH LAW, ETC.
<PAGE>
No Option shall be exercisable, no Common Stock shall
be issued, no certificates for shares of Common Stock shall be
delivered, and no payment shall be made under this Plan except
in compliance with all applicable federal and state laws and
regulations, any listing agreement to which the Company is a
party, and the rules of all domestic stock exchanges on which
the Company's shares may be listed. The Company shall have the
fight to rely on an opinion of its counsel as to such
compliance. Any share certificate issued to evidence Common
Stock purchased under Article V, awarded under Article VI, or
for which an Option is exercised may bear such legends and
statements as the Committee may deem advisable to assure
compliance with federal and state laws and regulations. No
option shall be exercisable, no Common Stock shall be issued,
no certificate for shares shall be delivered, and no payment
shall be made under this Plan until the Company has obtained
such consent or approval as the Committee may deem advisable
from regulatory bodies having jurisdiction over such matters.
ARTICLE X
GENERAL PROVISIONS
11.01 Unfunded Plan. The Plan shall be unfunded, and the
Company shall not be required to segregate any assets that may
at any time be represented by grants under, or participation
in, this Plan. Any liability of the Company to any person with
respect to any grant under, or participation in, this Plan
shall be based solely upon any contractual obligations that
may be created pursuant to this Plan. No such obligation of
the Company shall be deemed to be secured by any pledge of, or
other encumbrance on, any property of the Company.
11.02 Rules of Construction. Headings are given to the
articles and sections of this Plan solely as a convenience to
facilitate reference. The use of the singular includes the
plural and the reference to one gender includes the other. The
reference to any statute, regulation, or other provision of
law shall be construed to refer to any amendment to or
successor of such provision of law.
11.03 Nontransferability. A Participant may not transfer or
assign any rights that he or she has under this Plan other
than by will or the laws of descent and distribution. During
the lifetime of the Participant, his or her Option may be
exercised only by the Participant. No right or interest of any
Participant or Beneficiary under the Plan shall be liable for,
or subject to, any lien, obligation or liability of such
Participant or Beneficiary.
ARTICLE XI
AMENDMENT AND TERMINATION
The Board may amend or terminate this Plan from time to time;
provided, however, that no amendment may become effective
until shareholder approval is obtained if (i) the amendment
increases the aggregate number of shares of Common Stock that
<PAGE>
may be issued under the Plan or (ii) the amendment changes the
class of individuals eligible to become Participants. No
amendment shall, without a Participant's consent, adversely
affect any rights of such Participant under any outstanding
Option, the Deferred Fee Program, the Stock Purchase Program,
or the Stock Award Program, as in effect at the time such
amendment is made. Notwithstanding the foregoing the Stock
Option Program shall not be amended more than once in any six
month period unless such amendment comports with changes in
the Code or the rules thereunder.
ARTICLE XII
DURATION OF PLAN
No Option may be granted and no Stock Award may be issued
under this Plan more than five years after the date that the
Plan is approved by shareholders as provided in Article XIII.
Options granted and Stock Awards issued before that date shall
remain valid in accordance with their terms. The Deferred Fee
Program shall remain in effect until all Participants'
Accounts have been distributed in full, unless sooner
terminated by the Board. No Stock Purchase Election shall be
made with respect to Compensation payable more than five years
after the date the Plan is approved by shareholders as
provided in Article XIII; provided, however, that the Board
may sooner terminate the Stock Purchase Program.
ARTICLE XIII
EFFECTIVE DATE OF PLAN
This Plan will be effective on the date that this
Plan is approved by a majority of the votes entitled to be
cast by the Company's shareholders, voting either in person or
by proxy, at a duly held shareholders' meeting.
Exhibit 10 (m)
CONSULTING AGREEMENT
This Agreement (this "Agreement") is entered into as
of November 21, 1996, by and between Owens & Minor, Inc., a
Virginia corporation ("Company") and Robert E. Anderson,
III, an individual, having his principal residence at Green
Bank Farm, Montpelier, Virginia ("Consultant").
The parties hereto agree as follows:
1. Engagement. Company hereby engages Consultant and
Consultant hereby agrees to hold himself available to
render, and to render at the request of Company, independent
consulting services for Company and its affiliates, to the
best of his ability, upon the terms and conditions
hereinafter set forth.
2. Term. The term of this Agreement shall begin on
January 1, 1997 and shall terminate on April 30, 1999;
provided, however, that in the event of death, disability,
or other incapacity resulting in the inability of Consultant
to perform the duties set forth herein, this Agreement may
be terminated and all compensation due hereunder shall cease
as of the date of death, disability or other incapacity.
3. Compensation. As compensation for all services
rendered by Consultant under this Agreement, Company shall
pay consultant the following sums:
(a) During the term of this Agreement Company
shall pay to Consultant each month, the sum of Seven
Thousand Nine Hundred Twenty-Six and 33/100ths Dollars
($7,926.33) per month, which shall be paid on the 15th
day of each calendar month.
All such compensation shall be payable without
deduction, including no deduction for federal income,
social security, or state income tax.
4. Duties. Consultant shall hold himself available to
render, and shall render at the request of Company from time
to time, consulting services for the Company, including,
without limitation, advice and assistance on the following:
(a) the development of a new Company office
building;
(b) marketing or investment opportunities in
the international market;
(c) acquisition opportunities for which, if
successful, Company will pay to Consultant a finders
fee to be negotiated;
(d) strategic planning and other services for
the Strategic Planning Committee and
Board of Directors.
<PAGE>
(e) such other projects as may be mutually
agreed upon by the Consultant and the
Company.
Consultant shall render such services conscientiously
and shall devote his best efforts and abilities thereto, at such
times during the term hereof, and in such manner, as Company and
Consultant shall mutually agree, it being acknowledged that
Consultant's services shall be non-exclusive and performed at such
places and at such times as are reasonably convenient to Consultant.
Consultant shall observe all policies and directives promulgated
from time to time by Company's Board of Directors or Officers.
5. Expenses.
(a) In conformity with the Company's travel
policy, as it may be amended from time to time,
Consultant shall be reimbursed by Company for
reasonable business expenses which are deductible by
Company for U.S. Federal income tax purposes and which
were incurred by consultant during the performance of
his services hereunder; provided, any such
reimbursement in excess of $100.00 in any month,
shall require Company's prior written approval.
Company's obligation to reimburse Consultant pursuant
to this subparagraph shall be subject to the
presentation to Company by Consultant of an itemized
account of such expenditures, together with supporting
vouchers, in accordance with Company's policies as in
effect from time to time.
(b) Company shall also reimburse Consultant
for the cost of COBRA premiums for medical insurance
covering Consultant during the term hereof.
6. Independent Contractor. It is expressly agreed that
Consultant is acting as an independent contractor in
performing his services hereunder. Company shall carry no
Workmen's Compensation insurance or any health or accident
insurance to cover Consultant. Company shall not pay any
contributions to Social Security, unemployment insurance,
federal or state withholding taxes, nor provide any other
contributions or benefits which might be expected in an
employer-employee relationship.
7. Disclosure of Information. Consultant shall not
disclose or appropriate to his own use, or to the use of any
third party, at any time during or subsequent to the term of
this Agreement, any secret or confidential information of
Company or any of Company's affiliates or subsidiaries of
which Consultant has been or hereafter becomes informed,
whether or not developed by Consultant, including, but not
limited to, information pertaining to customer lists,
services, methods, processes, prices, profits, contract
2
<PAGE>
terms or operation procedures, except as required in
connection with Consultant's performance of this Agreement,
or as required by a governmental authority. Company shall
have the right to obtain injunctive relief, without bond,
for violation of the terms of this paragraph and the terms
of this paragraph shall survive the term of this Agreement.
8. Non-competition. Without the prior written consent of
the Company, Consultant agrees that he will not during the
term of this Agreement engage in, or work or consult for,
any business that is in competition with the business of the
Company. For the purposes of this paragraph, "the business
of the Company" shall mean the distribution of health care
supplies and services to providers.
9. Assignment. This Agreement is a personal one, being
entered into in reliance upon and in consideration of the
singular personal skill and qualifications of Consultant.
Consultant shall therefore not voluntarily or by operation
of law assign or otherwise transfer the obligations incurred
on his part pursuant to the terms of this Agreement without
the prior written consent of Company. Any attempted
assignment or transfer by Consultant of his obligation
without such consent shall be wholly void.
10. Modification of Agreement. This Agreement may be
modified by the parties hereto only by a written
supplemental agreement executed by both parties.
11. Notice. Any notice required or permitted to be given
hereunder shall be sufficient if in writing, and if sent by
registered or certified mail, postage prepaid, addressed as
follows:
If Company:
Owens & Minor, Inc.
4800 Cox Road
Glen Allen, Virginia 23060
Attention: G. Gilmer Minor, III
If to Consultant:
Robert E. Anderson, III
Green Bank Farm
Montpelier, Virginia 23192
or to such other address as the parties hereto may
specify, in writing, from time to time.
12. Waiver of Breach. The waiver by either party of any
breach of any provision of this Agreement shall not operate
or be construed as a waiver of any subsequent breach.
3
<PAGE>
13. Titles. The titles of the Sections herein are for
convenience of reference only and are not to be considered
in construing this Agreement.
14. Governing Law. This Agreement has been executed and
delivered in the State of Virginia, and its interpretation,
validity and performance shall be construed and enforced in
accordance with the laws of such State.
15. Entire Agreement. This agreement contains the entire
contract of the parties with respect to the subject matter
hereof and supercedes all agreements and understandings
between the parties concerning the subject matter hereof.
Executed as of the date first above written.
Signatures of the parties
Owens & Minor, Inc.
By____________________________
its____________________________ ______________________
Robert E. Anderson, III
4
Exhibit 10(n)
November 21, 1996
Mr. Robert E. Anderson, III
Green Bank Farm
Montpelier, Virginia
Dear Mr. Anderson:
In consideration of your many years of service with
Owens & Minor, Inc. (The "Company"), the Board of Directors
has agreed to augment the retirement allowance that you will
receive under the Company's Supplemental Executive
Retirement Plan (the "SERP"). Accordingly, subject to and
effective as of your retirement from the Company on December
31, 1996, you shall receive, beginning on January 15, 1997
and on the fifteenth of each month thereafter until such
Additional Payment shall be terminated as set forth in the
SERP, the monthly amount of Four Thousand One Hundred and
Forty Dollars ($4,140) (the Additional Payment"), which
amount shall be in addition to any other retirement
allowance paid to you under the SERP.
Except as otherwise specifically set forth herein, all
of the rights, privileges and limitations of the Additional
Payment, including its duration, shall be governed by the
terms and conditions of the SERP as if the Additional
Payment were a retirement allowance payable thereunder.
Please sign and return the enclosed copy of this
letter for the Company's records. Thank you for your many
contributions to Owens & Minor, Inc.
Very truly yours,
By /s/ Gilmer Minor, III
---------------------------
Chairman, President and C.E.O.
Approved:
Name: By /s/ Robert E. Anderson
----------------------
Date: Nov. 26, 1996
Exhibit 10 (r)
December 9, 1996
Hue Thomas
Vice President
Owens & Minor
4800 Cox Road
Glen Allen, VA 23060
RE: Extension of Enhanced Medical-Surgical Authorized
Distribution Agreement - November 18, 1993
Dear Hue,
VHA and Owens & Minor agree to extend all the current terms
and conditions of the Enhanced Medical-Surgical Authorized
Distribution Agreement until June 30, 1997. Please sign
this document to me no later than December 19, 1996.
Enclosed is a FED EX envelope for your convenience in
returning this document to me.
Sincerely,
By /s/ Larry Dooley
-----------------
Vice President, Distribution Services
cc: Richard Heard
Rick Browning
Dwight Winstead
NAME: By /s/ Hue Thomas, III
-------------------
TITLE: Vice President
COMPANY: Owens & Minor
DATE: January 7, 1997
Exhibit 11
Owens & Minor, Inc. and Subsidiaries
Calculation of Net Income (Loss) per Common Share
<TABLE>
<CAPTION>
(In thousands, except per share data)
Year ended December 31,
1996 1995 1994
--------------- ---------------- ---------------
<S> <C>
Net income (loss) $ 12,965 $ (11,308) $ 7,919
Dividends on preferred stock 5,175 5,175 3,309
--------------- ---------------- ----------------
Net income (loss) attributable
to common shares $ 7,790 $ (16,483) $ 4,610
--------------- ---------------- ----------------
Weighted average common shares 31,630 30,820 30,764
Common share equivalents-dilutive
stock options 140 - 344
--------------- ---------------- ----------------
Weighted average common shares
and common share equivalents 31,770 30,820 31,108
=============== ================ ================
Net income (loss) per common share $ .25 $ (.53) $ .15
=============== ================ ================
</TABLE>
Selected Financial Data(1) (in thousands, except ratios and per share data)
Owens & Minor, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Year ended December 31, 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Statement of Operations:
Net sales $3,019,003 $2,976,486 $2,395,803
Cost of goods sold 2,720,613 2,708,668 2,163,459
- ---------------------------------------------------------------------------------------------------------------------------
Gross margin 298,390 267,818 232,344
- ---------------------------------------------------------------------------------------------------------------------------
Selling, general and administrative expenses 233,704 225,897 165,564
Depreciation and amortization 16,098 15,416 13,034
Interest expense, net 18,954 25,538 10,155
Discount on accounts receivable securitization 6,521 641 -
Nonrecurring restructuring expenses (2) - 16,734 29,594
- ---------------------------------------------------------------------------------------------------------------------------
Total expenses 275,277 284,226 218,347
- ---------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 23,113 (16,408) 13,997
Income tax provision (benefit) 10,148 (5,100) 6,078
- ---------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations 12,965 (11,308) 7,919
Discontinued operations - - -
Cumulative effect of change in accounting principles - - -
- ---------------------------------------------------------------------------------------------------------------------------
Net income (loss) 12,965 (11,308) 7,919
Dividends on preferred stock 5,175 5,175 3,309
- ---------------------------------------------------------------------------------------------------------------------------
Net income (loss) attributable to common stock $ 7,790 $ (16,483) $ 4,610
- ---------------------------------------------------------------------------------------------------------------------------
Common Share Data:
Net income (loss) per common share:
Continuing operations $ .25 $ (.53) $ .15
Discontinued operations - - -
Cumulative effect of change in accounting principles - - -
- ---------------------------------------------------------------------------------------------------------------------------
Net income (loss) per common share $ .25 $ (.53) $ .15
- ---------------------------------------------------------------------------------------------------------------------------
Cash dividends per common share $ .180 $ .180 $ .170
- ---------------------------------------------------------------------------------------------------------------------------
Weighted average common shares and common share equivalents 31,770 30,820 31,108
- ---------------------------------------------------------------------------------------------------------------------------
Price range of common stock per share:
High $ 14.38 $ 14.88 $ 18.13
Low $ 9.25 $ 11.63 $ 13.25
- ---------------------------------------------------------------------------------------------------------------------------
Selected Ratios of Continuing Operations:
Gross margin as a percent of net sales 9.9% 9.0% 9.7%
Selling, general and administrative expenses as a percent of net sales 7.7% 7.6% 6.9%
Average receivable days sales outstanding (3) 36.1 37.7 35.9
Average inventory turnover 8.9 8.3 8.8
Return on average total equity 5.4% (4.6%) 3.7%
Current ratio 1.7 2.1 1.8
- ---------------------------------------------------------------------------------------------------------------------------
Balance Sheet Data:
Working capital $ 192,990 $ 331,663 $ 281,788
Total assets 679,501 857,803 868,560
Long-term debt 167,549 323,308 248,427
Capitalization ratio (3) 54.8% 61.9% 49.2%
Shareholders' equity 242,400 235,271 256,176
Book value per common share $ 3.99 $ 3.90 $ 4.59
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
------
12
<TABLE>
<CAPTION>
Year ended December 31, 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Statement of Operations:
Net sales $1,396,971 $1,177,298 $1,021,014
Cost of goods sold 1,249,660 1,052,998 918,304
- -----------------------------------------------------------------------------------------------------------------------------
Gross margin 147,311 124,300 102,710
- -----------------------------------------------------------------------------------------------------------------------------
Selling, general and administrative expenses 107,771 91,371 78,191
Depreciation and amortization 7,593 5,861 4,977
Interest expense, net 1,530 1,128 3,192
Discount on accounts receivable securitization - - -
Nonrecurring restructuring expenses (2) - - -
- -----------------------------------------------------------------------------------------------------------------------------
Total expenses 116,894 98,360 86,360
- -----------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 30,417 25,940 16,350
Income tax provision (benefit) 11,900 10,505 6,681
- -----------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations 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) 20,134 20,392 12,027
Dividends on preferred stock - - -
- -----------------------------------------------------------------------------------------------------------------------------
Net income (loss) attributable to common stock $ 20,134 $ 20,392 $ 12,027
- -----------------------------------------------------------------------------------------------------------------------------
Common Share Data:
Net income (loss) per common share:
Continuing operations $ .60 $ .52 $ .33
Discontinued operations .03 .20 .08
Cumulative effect of change in accounting principles .02 (.03) -
- -----------------------------------------------------------------------------------------------------------------------------
Net income (loss) per common share $ .65 $ .69 $ .41
- -----------------------------------------------------------------------------------------------------------------------------
Cash dividends per common share $ .140 $ .110 $ .088
- -----------------------------------------------------------------------------------------------------------------------------
Weighted average common shares and common share equivalents 31,013 29,682 29,462
- -----------------------------------------------------------------------------------------------------------------------------
Price range of common stock per share:
High $ 15.59 $ 10.11 $ 10.78
Low $ 8.42 $ 7.33 $ 4.17
- -----------------------------------------------------------------------------------------------------------------------------
Selected Ratios of Continuing Operations:
Gross margin as a percent of net sales 10.5% 10.6% 10.1%
Selling, general and administrative expenses as a percent of net sales 7.7% 7.8% 7.7%
Average receivable days sales outstanding (3) 34.2 35.7 38.1
Average inventory turnover 11.5 11.4 11.1
Return on average total equity 14.6% 14.4% 10.6%
Current ratio 2.0 1.8 1.9
- -----------------------------------------------------------------------------------------------------------------------------
Balance Sheet Data:
Working capital $ 139,091 $ 99,826 $ 122,675
Total assets 334,322 274,540 311,786
Long-term debt 50,768 24,986 67,675
Capitalization ratio (3) 27.1% 17.6% 41.1%
Shareholders' equity 136,943 116,659 97,091
Book value per common share $ 4.50 $ 3.97 $ 3.34
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31, 1990 1989 1988 1987 1986
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Statement of Operations:
Net sales $916,709 $708,089 $500,435 $367,034 $ 272,222
Cost of goods sold 827,441 641,011 445,456 326,651 239,170
- -----------------------------------------------------------------------------------------------------------------------------------
Gross margin 89,268 67,078 54,979 40,383 33,052
- -----------------------------------------------------------------------------------------------------------------------------------
Selling, general and administrative expenses 67,171 57,943 42,668 31,302 26,204
Depreciation and amortization 4,210 2,795 2,416 1,922 1,319
Interest expense, net 5,858 5,078 2,230 2,006 1,789
Discount on accounts receivable securitization - - - - -
Nonrecurring restructuring expenses (2) - - - - -
- -----------------------------------------------------------------------------------------------------------------------------------
Total expenses 77,239 65,816 47,314 35,230 29,312
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 12,029 1,262 7,665 5,153 3,740
Income tax provision (benefit) 4,634 628 3,032 2,148 1,806
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations 7,395 634 4,633 3,005 1,934
Discontinued operations 1,380 1,855 3,734 3,481 2,968
Cumulative effect of change in accounting principles - - - - -
- -----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) 8,775 2,489 8,367 6,486 4,902
Dividends on preferred stock - - - - -
- -----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) attributable to common stock $ 8,775 $ 2,489 $ 8,367 $ 6,486 $ 4,902
- -----------------------------------------------------------------------------------------------------------------------------------
Common Share Data:
Net income (loss) per common share:
Continuing operations $ .26 $ .02 $ .16 $ .11 $ .07
Discontinued operations .05 .07 .13 .12 .11
Cumulative effect of change in accounting principles - - - - -
- -----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) per common share $ .31 $ .09 $ .29 $ .23 $ .18
- -----------------------------------------------------------------------------------------------------------------------------------
Cash dividends per common share $ .077 $ .077 $ .075 $ .065 $ .059
- -----------------------------------------------------------------------------------------------------------------------------------
Weighted average common shares and common share equivalents 28,755 28,412 28,263 28,187 27,702
- -----------------------------------------------------------------------------------------------------------------------------------
Price range of common stock per share:
High $ 4.45 $ 4.71 $ 4.52 $ 4.37 $ 4.00
Low $ 3.19 $ 3.37 $ 2.62 $ 2.32 $ 2.62
- -----------------------------------------------------------------------------------------------------------------------------------
Selected Ratios of Continuing Operations:
Gross margin as a percent of net sales 9.7% 9.5% 11.0% 11.0% 12.1%
Selling, general and administrative expenses as a percent
of net sales 7.3% 8.2% 8.5% 8.5% 9.6%
Average receivable days sales outstanding (3) 39.2 41.4 41.0 41.0 40.6
Average inventory turnover 10.8 8.5 7.6 8.0 8.3
Return on average total equity 9.1% .8% 6.3% 5.4% 5.0%
Current ratio 1.9 2.4 2.7 2.8 2.7
- -----------------------------------------------------------------------------------------------------------------------------------
Balance Sheet Data:
Working capital $ 117,983 $ 133,309 $ 106,545 $ 89,056 $ 71,317
Total assets 290,233 258,683 189,916 154,390 126,779
Long-term debt 71,339 85,324 46,819 33,713 42,562
Capitalization ratio (3) 45.6% 52.4% 37.8% 32.3% 51.0%
Shareholders' equity 85,002 77,560 77,170 70,761 40,878
Book value per common share $ 2.99 $ 2.75 $ 2.75 $ 2.52 $ 2.05
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) See Note 2 of Notes to Consolidated Financial Statements for a discussion of
acquisitions that may affect comparability of data.
(2) The Company incurred $16.7 and $29.6 million in 1995 and 1994, respectively,
or $0.33 and $0.57, respectively, per common share, of nonrecurring
restructuring expenses related to its restructuring plans developed in
conjunction with its combination with Stuart Medical, Inc. See further
discussion in Note 3 of Notes to Consolidated Financial Statements.
(3) Excludes impact of off balance sheet receivables securitization agreement.
See further discussion in Note 7 of Notes to Consolidated Financial Statements.
----
13
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Owens & Minor, Inc. and Subsidiaries
General
Owens & Minor, Inc. and subsidiaries (the Company) is one of the two largest
distributors of medical/surgical supplies in the United States. The Company
distributes approximately 250,000 finished medical/surgical products produced by
approximately 3,000 manufacturers to over 4,000 customers from 46 distribution
centers nationwide. The Company's customers are primarily hospitals, which
account for over 90% of the Company's net sales, and also include alternate care
facilities such as nursing homes, clinics, surgicenters, physicians' offices and
home healthcare. The majority of the Company's sales consist of dressings,
endoscopic products, intravenous products, latex gloves, needles and syringes,
sterile procedure trays, surgical products and gowns, urological products and
wound closure products.
NET SALES
(Billions)
92 93 94 95 96
------ ------ ------ ------ ------
$1.18 $1.40 $2.40 $2.98 $3.02
In 1996, the Company's net income was $13.0 million or $0.25 per common share
as compared to a net loss of $11.3 million or $0.53 per common share in 1995.
The significant increase was the result of several gross margin, selling,
general and administrative (SG&A) expense and financing cost initiatives and the
completion, in 1995, of a restructuring plan developed in connection with the
1994 acquisition of Stuart Medical, Inc. (Stuart).
The gross margin initiatives included the implementation of price increases
in December 1995 and the first quarter of 1996, the introduction of charges for
certain enhanced delivery and management services and the implementation of
improved terms with major suppliers. These initiatives 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 10.0% in the fourth quarter of 1996 from
8.7% in the fourth quarter of 1995, and to 9.9% for the year ended December 31,
1996 from 9.0% for the year ended December 31, 1995. The Company did experience
sales losses related to the price increases; however, the losses were more than
offset by new accounts and further penetration of existing accounts resulting in
the moderate sales growth for the year.
In an effort to reduce SG&A expenses in 1996, the Company reduced overtime
and temporary employee costs, further reduced distribution center costs through
the closure of three and the downsizing of five distribution centers, improved
inventory management systems and modified its benefit plans. As a result of
these measures, the Company's SG&A expenses as a percentage of net sales
decreased to 7.5% in the fourth quarter of 1996 from 8.2% in the fourth quarter
of 1995, although SG&A expenses increased slightly for the year ended December
31, 1996 to 7.7% compared to 7.6% for the year ended December 31, 1995.
The reduction in financing costs to $5.9 million in the fourth quarter of
1996, from $7.9 million in the fourth quarter of 1995, was achieved through the
reduction in outstanding financing of approximately $89.1 million at December
31, 1996 from December 31, 1995 and the completion of a refinancing plan which
reduced the Company's effective interest rate.
Results of Operations
The following table presents the Company's consolidated statements of
operations on a percentage of net sales basis.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
Year Ended December 31, 1996 1995 1994
- --------------------------------------------------------------------------
<S> <C>
Net sales 100.0% 100.0 % 100.0%
Cost of goods sold 90.1 91.0 90.3
- --------------------------------------------------------------------------
Gross margin 9.9 9.0 9.7
Selling, general and
administrative expenses 7.7 7.6 6.9
Depreciation and
amortization 0.5 0.5 0.6
Interest expense, net 0.7 0.9 0.4
Discount on accounts
receivable securitization 0.2 - -
Nonrecurring restructuring
expenses - 0.6 1.2
- --------------------------------------------------------------------------
Total expenses 9.1 9.6 9.1
Income (loss) before
income taxes 0.8 (0.6) 0.6
Income tax provision
(benefit) 0.4 (0.2) 0.3
- --------------------------------------------------------------------------
Net income (loss) 0.4% (0.4)% 0.3%
- --------------------------------------------------------------------------
</TABLE>
Results of Operations -- 1996 Compared to 1995
Net sales
Net sales increased 1.4% to $3.02 billion in 1996 from $2.98 billion in 1995.
The Company's anticipated moderate sales growth was primarily a result of price
increases implemented in December 1995 and the first quarter of 1996. As a
result of the price increases the Company lost a portion of its customer base;
however, the Company has offset the losses by obtaining new accounts and further
penetrating existing accounts. Due to the Company's continued operational and
financial improvement, the Company has refocused its sales efforts towards
improved growth in 1997; however, such improvement cannot be assured.
Gross margin
Gross margin as a percentage of net sales increased to 9.9% in 1996 from 9.0%
in 1995. The increase was the result of several margin enhancement initiatives.
These included the implementation of the price increase, the standardization of
suppliers and products and the increased utilization of an activity-based
management system designed to identify costs associated with certain delivery
---
14
<PAGE>
GROSS MARGIN% VS
SG&A% OF NET SALES
92 93 94 95 96
------ ------ ------ ------ ------
GROSS MARGIN% 10.6% 10.5% 9.7% 9.0% 9.9%
SG&A% 7.8% 7.7% 6.9% 7.6% 7.7%
and management services. Gross margin was also favorably impacted by a $2.8
million decline in its annual LIFO (last-in, first-out) provision. This decline
was due to reduced inventory levels and moderate inflation rates. In 1997, the
Company will focus on maintaining these margin levels through the continued
utilization of the activity-based management system and continued
standardization of suppliers and products.
Selling, general and administrative expenses
For the year, SG&A expenses as a percentage of net sales increased to 7.7% in
1996 from 7.6% in 1995. However, SG&A expenses decreased $4.6 million to 7.5% of
net sales in the fourth quarter of 1996 from 8.2% in the fourth quarter of 1995.
The SG&A expense decline in the fourth quarter was a result of many cost-saving
initiatives including the reduction of approximately 400 full-time equivalent
(FTE) employees since March 31, 1996; the reduction in the cost of employee
retirement plans of approximately $2.0 million annually; the more cost effective
utilization of computer resources; the completion of 22 warehouse
reconfigurations in 1995; the implementation of improved inventory management
systems in a majority of facilities; the continued automation of administrative
functions through the utilization of electronic data interchange (EDI); and the
refocus on best practices within the Company. The increase for the year in SG&A
expenses as a percentage of net sales was primarily a result of increased
personnel costs incurred in connection with the implementation in 1995 of new
contracts providing for enhanced service levels and services not previously
provided by the Company, system conversions and reconfiguring warehouse systems.
In 1997, the Company will continue its focus on operational improvement and SG&A
expense reduction. The results of the Company's efforts will be partially offset
by the costs associated with computer system changes required to recognize the
year 2000. However, with the continued implementation of EDI transaction sets
and the continued standardization of internal processes, the Company believes it
will be able to maintain or reduce SG&A expenses as a percentage of net sales.
FULL-TIME
EQUIVALENT
EMPLOYEES
92 93 94 95 96
------ ------ ------ ------ ------
1,528 1,776 3,624 4,197 3,425
Depreciation and amortization
Depreciation and amortization increased by 4.4% in 1996 compared to 1995.
This increase was due primarily to the Company's continued investment in
improved information technology (I/T). The Company has been implementing its
migration to a distributed computing environment employing client/server
technology when cost beneficial. The Company anticipates similar increases in
depreciation and amortization in 1997 associated with additional capital
investment in I/T.
Interest expense, net and discount on accounts
receivable securitization (financing costs)
Financing costs, net of finance charge income of $4.7 million and $3.8
million in 1996 and 1995, respectively, decreased to $25.5 million in 1996 from
$26.2 million in 1995. Financing costs, net of finance charge income of $1.1
million and $1.2 million in the fourth quarter of 1996 and 1995, respectively,
decreased to $5.9 million in 1996 from $7.9 million in 1995. (Finance charge
income represents payments from customers for past due balances on their
accounts.) The decline in financing costs has been a result of the Company's
ability to reduce working capital requirements by substantially completing the
implementation of its client/server-based inventory forecasting system and
strengthening its accounts receivable collection procedures. Due to the
reduction in working capital requirements, the Company has reduced outstanding
financing by approximately $89.1 million since December 31, 1995. Additionally
during 1996, the Company completed a refinancing plan that, in addition to its
improved financial performance, reduced the effective rate of its outstanding
financing. The Company will continue to take action to reduce working capital
requirements through the increased utilization of the Company's new inventory
forecasting system, product standardization and the strengthening of its methods
of monitoring and enforcing contract payment terms.
Income taxes
The Company had an income tax provision of $10.1 million in 1996
(representing an effective tax rate of 43.9%), compared with an income tax
benefit of $5.1 million in 1995. A reconciliation of the statutory income tax
rate to the Company's effective income tax rate is provided in Note 12 of Notes
to Consolidated Financial Statements.
Net income
Net income increased $24.3 million in 1996 compared to 1995. Excluding
nonrecurring restructuring expenses net of taxes, net income increased $14.0
million in 1996 compared to 1995. The increase was primarily due to the
initiatives previously discussed related to gross margin, SG&A expenses and
financing costs. Although the trend has been favorable and the Company continues
to pursue these and other initiatives, the future impact on net income cannot be
assured.
---
15
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations continued
Owens & Minor, Inc. and Subsidiaries
Results of Operations -- 1995 Compared to 1994
Net sales
Net sales increased 24.2% to $2.98 billion in 1995 from $2.40 billion in
1994. Assuming the Stuart acquisition had occurred January 1, 1994, the increase
would have been approximately 8.2% due to the additional sales volume from
contracts entered into in 1993 and 1994 with large healthcare providers, such as
Columbia/HCA Healthcare Corporation, the United States Department of Defense and
Premier Inc., 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 reserve. The reserve increased by $3.7 million
in 1995 compared to $0.7 million in 1994.
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 items
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 Inc. customer
base and the concentration of management's effort to integrate the operations of
Stuart.
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 I/T and the amortization of goodwill and depreciation associated with
the Stuart acquisition.
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 higher interest rates.
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.
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 reconciliation of the statutory income tax rate to the
Company's effective income tax rate is provided in Note 12 of Notes to
Consolidated Financial Statements.
Net income (loss)
The Company incurred a net loss of $11.3 million in 1995 compared to net
income of $7.9 million in 1994. Excluding the nonrecurring restructuring
expenses and the related tax benefit, the Company incurred a net loss of $1.0
million in 1995. As previously discussed, the loss incurred during 1995 was due
to the combination of a decline in gross margin percentage, an increase in SG&A
expenses and an increase in interest expense.
FINANCING
(Millions)
92 93 94 95 96
---- ---- ---- ---- ----
Outstanding Financing (excluding
accounts receivable securitization) 25 51 248 383 294
Financing Costs 1.1 1.5 10.2 26.2 25.5
Financial Condition, Liquidity and Capital Resources
Liquidity
The Company's liquidity position improved significantly in 1996 compared to
1995. Outstanding financing was reduced $89.1 million and its capitalization
ratio (excluding the impact of the off balance sheet accounts receivable
securitization) decreased to 54.8% at December 31, 1996 from 61.9% at December
31, 1995. The improvement was the result of increased earnings, reduced working
capital requirements and the completion of the Company's refinancing plan in the
second quarter of 1996. The refinancing plan included refinancing its $425.0
million revolving credit facility by issuing $150.0 million of 10.875% senior
subordinated 10-year notes (Notes), increasing its available receivables
financing facility (Receivables Financing Facility) to $150.0 million from $75.0
million and entering into a new $225.0 million revolving credit facility (New
Senior Credit Facility).
The Notes were issued on May 29, 1996, and mature on June 1, 2006. The Notes
are redeemable after June 1, 2001 at the Company's option subject to certain
restrictions. The Notes are general unsecured obligations of the Company and are
unconditionally guaranteed on a joint and several basis
---
16
<PAGE>
by all of the direct and indirect subsidiaries of the Company except for O&M
Funding Corp. (OMF). As of December 31, 1996, the debt ratings of the Notes were
B1 by Moody's and B+ by Standard & Poor's.
Under the terms of the Receivables Financing Facility which expires May 1999,
a subsidiary of the Company is entitled to transfer, without recourse, certain
of the Company's trade receivables and to receive up to $150.0 million from an
unrelated third party purchaser at a cost of funds at commercial paper rates
plus a charge for administrative and credit support services. At December 31,
1996 the Company had received $126.0 million under the agreement.
The New Senior Credit Facility expires in May 2001 with interest based on, at
the Company's discretion, the London Interbank Offered Rate (LIBOR) or the Prime
Rate. The New Senior Credit Facility limits the amount of indebtedness the
Company may incur; requires the Company to maintain certain financial covenants
including covenants related to tangible net worth, cash flow coverage, current
ratio, leverage ratio and fixed charge coverage ratio; and restricts the ability
of the Company to materially alter the character of the business through
consolidation, merger or purchase or sale of assets. At December 31, 1996, the
Company was in compliance with these covenants.
The Company expects that borrowings under the Notes, 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 plans, although
this cannot be assured. At December 31, 1996, the Company had approximately
$218.5 million of unused credit under the New Senior Credit Facility. The
Company manages its interest rate exposure through off balance sheet interest
rate swaps and believes interest rate fluctuations will not significantly affect
operating results.
Working Capital Management
In 1996, the Company made significant improvement in working capital
management. Inventory turnover for the year improved to 8.9 times in 1996 (9.4
times in the fourth quarter of 1996) from 8.3 times in 1995. This improvement
was due to the implementation of the Company's client/ server-based inventory
forecasting system and the reduction of the number of items from multiple
manufacturers distributed by the Company. The Company has also reduced accounts
receivable days sales outstanding (excluding the impact of the Receivables
Financing Facility) for the year to 36.1 days in 1996 (33.9 days in the fourth
quarter of 1996) from 37.7 days in 1995. This reduction has been achieved
through strengthening the Company's methods of monitoring and enforcing contract
payment terms and basing a portion of its sales force incentives on reducing
days sales outstanding.
Capital Expenditures
Capital expenditures were approximately $13.2 million in 1996, of which
approximately $10.4 million was for computer systems, including the continued
conversion of certain applications from a mainframe computer system to
client/server technology. The Company expects to continue to invest in
technology for the foreseeable future. These capital expenditures are expected
to be funded through cash flow from operations.
Recent Accounting Pronouncements
In 1996, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 125 ("SFAS 125"), Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities, which
requires recognition of financial assets and liabilities, including receivables
sold with recourse, using a financial-components approach which focuses on
control of the assets transferred. This standard is effective for transfers and
servicing of financial assets and extinguishments of liabilities occurring after
December 31, 1996. Management believes the adoption of this new standard will
not have a material impact on the financial condition or results of operations
of the Company.
FASB issued Statement of Financial Accounting Standards No. 123 ("SFAS 123"),
Accounting for Stock-Based Compensation, in 1995. SFAS 123 prescribes accounting
and reporting standards for all stock-based compensation plans. The Company has
elected to continue following present accounting rules and has provided the pro
forma disclosure requirements of net income and earnings per share as if the
fair-value-based method had been adopted in Note 11 of Notes to the Consolidated
Financial Statements.
In 1995, FASB issued Statement of Financial Accounting Standards No. 121
("SFAS 121"), Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of. 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 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 has not had a material impact on
the financial condition or results of operations of the Company.
Forward-Looking Statements
Certain statements in this discussion constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, including, but not
limited to, general economic and business conditions, competition, changing
trends in customer profiles and changes in government regulations. Although the
Company believes that its expectations with respect to the forward-looking
statements are based upon reasonable assumptions within the bounds of its
knowledge of its business and operations, there can be no assurance that actual
results, performance or achievements of the Company will not differ materially
from any future results, performance or achievements expressed or implied by
such forward-looking statements.
---
17
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data)
Owens & Minor, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Year ended December 31, 1996 1995 1994
<S> <C>
- --------------------------------------------------------------------------------------------------------------------
Net sales $3,019,003 $2,976,486 $2,395,803
Cost of goods sold 2,720,613 2,708,668 2,163,459
- --------------------------------------------------------------------------------------------------------------------
Gross margin 298,390 267,818 232,344
- --------------------------------------------------------------------------------------------------------------------
Selling, general and administrative expenses 233,704 225,897 165,564
Depreciation and amortization 16,098 15,416 13,034
Interest expense, net 18,954 25,538 10,155
Discount on accounts receivable securitization 6,521 641 -
Nonrecurring restructuring expenses - 16,734 29,594
- --------------------------------------------------------------------------------------------------------------------
Total expenses 275,277 284,226 218,347
- --------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 23,113 (16,408) 13,997
Income tax provision (benefit) 10,148 (5,100) 6,078
- --------------------------------------------------------------------------------------------------------------------
Net income (loss) 12,965 (11,308) 7,919
Dividends on preferred stock 5,175 5,175 3,309
- --------------------------------------------------------------------------------------------------------------------
Net income (loss) attributable to common stock $ 7,790 $ (16,483) $ 4,610
- --------------------------------------------------------------------------------------------------------------------
Net income (loss) per common share $ .25 $ (.53) $ .15
- --------------------------------------------------------------------------------------------------------------------
Cash dividends per common share $ .18 $ .18 $ .17
- --------------------------------------------------------------------------------------------------------------------
Weighted average common shares and common
share equivalents 31,770 30,820 31,108
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
----
18
<PAGE>
CONSOLIDATED BALANCE SHEETS (in thousands, except per share data)
Owens & Minor, Inc. and Subsidiaries
<TABLE>
<CAPTION>
December 31, 1996 1995
<S> <C>
- -----------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 743 $ 215
Accounts and notes receivable, net of allowance of $6,495 in 1996 and $6,010 in
1995 147,243 265,238
Merchandise inventories 281,839 326,380
Other current assets 25,675 32,069
- -----------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 455,500 623,902
Property and equipment, net 29,231 39,049
Excess of purchase price over net assets acquired, net 167,366 171,911
Other assets, net 27,404 22,941
- -----------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 679,501 $ 857,803
- -----------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ - $ 4,055
Accounts payable 224,037 241,048
Accrued payroll and related liabilities 5,001 5,534
Other accrued liabilities 33,472 41,602
- -----------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 262,510 292,239
Long-term debt 167,549 323,308
Accrued pension and retirement plans 7,042 6,985
- -----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 437,101 622,532
- -----------------------------------------------------------------------------------------------------------------------
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 and outstanding - 1,150 shares 115,000 115,000
Common stock, par value $2 per share; authorized - 200,000 shares;
issued and outstanding - 31,907 shares in 1996 and 30,862 shares in 1995 63,814 61,724
Paid-in capital 5,086 2,144
Retained earnings 58,500 56,403
- -----------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 242,400 235,271
- -----------------------------------------------------------------------------------------------------------------------
Commitments and contingencies
- -----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 679,501 $ 857,803
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
----
19
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Owens & Minor, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Year ended December 31, 1996 1995 1994
<S> <C>
- ---------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income (loss) $ 12,965 $(11,308) $ 7,919
Adjustments to reconcile net income (loss) to cash provided by
(used for) operating activities
Depreciation and amortization 16,098 15,416 13,034
Provision for losses on accounts and notes receivable 838 827 1,149
Provision for LIFO reserve 908 3,700 671
Changes in operating assets and liabilities, net of effects
from acquisitions
Accounts and notes receivable 117,157 24,175 (144,917)
Merchandise inventories 43,633 (6,229) (81,318)
Accounts payable (9,670) (17,107) 22,375
Net change in other current assets and current liabilities 5,025 (18,753) 25,323
Other, net 1,178 (2,151) 1,883
- ---------------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES 188,132 (11,430) (153,881)
- ---------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Business acquisitions, net of cash acquired - - (40,608)
Additions to property and equipment (6,242) (13,876) (6,634)
Additions to computer software (6,985) (7,396) (1,586)
Proceeds from sale of property and equipment 6,865 3,597 73
- ---------------------------------------------------------------------------------------------------------------------
CASH USED FOR INVESTING ACTIVITIES (6,362) (17,675) (48,755)
- ---------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Additions to long-term debt 150,000 77,970 197,088
Reductions of long-term debt (314,877) (242) (55,032)
Other short-term financing, net (7,341) (38,723) 65,426
Cash dividends paid (10,868) (10,730) (7,664)
Exercise of stock options 1,844 532 1,283
- ---------------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES (181,242) 28,807 201,101
- ---------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 528 (298) (1,535)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 215 513 2,048
- ---------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 743 $ 215 $ 513
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
----
20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Owens & Minor, Inc. and Subsidiaries
NOTE 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
The Company's merchandise inventories are valued on a last-in, first-out (LIFO)
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, 1996 and 1995, goodwill was $181.1 million and the related
accumulated goodwill amortization was $13.7 million and $9.2 million,
respectively. Based upon management's assessment of future cash flows of
acquired businesses, the carrying value of goodwill at December 31, 1996 has not
been impaired. The carrying value of goodwill could 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, if such is not pursued, then a product design and 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, 1996 and 1995
was $11.1 million and $8.6 million, respectively. Depreciation and amortization
expense includes $2.8 million, $2.2 million and $2.0 million, respectively, of
software amortization for the years ended December 31, 1996, 1995 and 1994.
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.
STOCK-BASED COMPENSATION
The Company uses the intrinsic value method of Accounting Principles Board
Opinion No. 25 to account for stock-based compensation. This method requires
compensation expense to be recognized for the excess of the quoted market price
of the stock at grant date or the measurement date over the amount an employee
must pay to acquire the stock. The disclosure requirements of Statement of
Financial Accounting Standards
No. 123 are included in Note 11 of the Notes to Consolidated Financial
Statements.
----
21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Owens & Minor, Inc. and Subsidiaries
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.
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.
NOTE 2 - BUSINESS ACQUISITIONS
On May 10, 1994, Owens & Minor, Inc. paid an aggregate purchase price of
$155.2 million, consisting of $40.2 million in cash and 1.15 million 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 7.0 million 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 $159.0 million,
which is being amortized on a straight-line basis over 40 years.
The following unaudited pro forma results of operations for the year ended
December 31, 1994 assume the Stuart acquisition occurred January 1, 1994. 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
<S> <C>
- ----------------------------------------------------------------------------
Net sales (000's) $2,718,000
Net income (000's) $ 28,100
Net income per common share $ .74
- ----------------------------------------------------------------------------
</TABLE>
The pro forma results are not necessarily indicative of what actually would
have occurred if the Stuart acquisition had been in effect for 1994. 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 $6.5 million against established acquisition liabilities.
On October 1, 1994, the Company acquired substantially all of 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.
NOTE 3 - NONRECURRING RESTRUCTURING EXPENSES
During 1995 and 1994, the Company incurred $16.7 million and $29.6 million,
respectively, of nonrecurring restructuring expenses related to two
restructuring plans. Under the first plan, the Company incurred $13.2 million
and $29.6 million 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 $9.3 million and $15.2 million 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 processes and
systems that optimize warehouse resources and revising existing processes and
systems to utilize the most efficient practices of both companies to increase
efficiencies within the combined company (approximately
----
22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Owens & Minor, Inc. and Subsidiaries
$3.9 million and $7.1 million 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 accommodate the
needs of the combined companies; and costs associated with the conversion to an
outsourced mainframe computer (approximately $7.3 million in 1994), 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 $3.2 million in 1994 and accrued liabilities of $1.4 million at
December 31, 1995.
Under the second plan, which was implemented in December 1995, the Company
incurred $3.5 million 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 $1.7 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 $2.6 million. During 1996, the Company substantially completed both
restructuring plans and charged approximately $3.0 million against the
established accrued liabilities.
NOTE 4 - MERCHANDISE INVENTORIES
The Company's merchandise inventories are 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 $22.9 million, $22.0
million and $18.3 million as of December 31, 1996, 1995 and 1994, respectively.
In 1995, the Company recorded a $2.0 million provision for specifically
identified slow-moving inventory. During 1996, inventory quantities were
reduced. This reduction resulted in a liquidation of LIFO inventory carried at
lower costs prevailing in prior years as compared with the cost of 1996
purchases, the effect of which increased net income by approximately $1.2
million or $0.04 per common share.
NOTE 5 - PROPERTY AND EQUIPMENT
The Company's investment in property and equipment consists of the
following:
<TABLE>
<CAPTION>
(In thousands)
December 31, 1996 1995
<S> <C>
- -------------------------------------------------------------------
Warehouse equipment $ 22,824 $ 22,489
Computer equipment 19,657 19,056
Office and other equipment 10,710 11,138
Land and buildings 2,966 9,891
Leasehold improvements 8,316 7,100
- -------------------------------------------------------------------
64,473 69,674
Accumulated depreciation and amortization (35,242) (30,625)
- -------------------------------------------------------------------
Property and equipment, net $ 29,231 $ 39,049
- -------------------------------------------------------------------
</TABLE>
Depreciation and amortization expense for property and equipment in 1996,
1995 and 1994 was $8.7 million, $8.5 million and $7.7 million, respectively.
NOTE 6 - ACCOUNTS PAYABLE
Accounts payable balances were $224.0 million and $241.0 million as of
December 31, 1996 and 1995, respectively, of which $183.0 million and $192.7
million, respectively, were trade accounts payable and $41.0 million and $48.3
million, respectively, were drafts payable. Drafts payable are checks written in
excess of bank balances to be funded upon clearing the bank.
----
23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Owens & Minor, Inc. and Subsidiaries
NOTE 7 - LONG-TERM DEBT AND OFF BALANCE SHEET FINANCING
The Company's long-term debt consists of the following:
<TABLE>
<CAPTION>
(In thousands)
December 31, 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
CARRYING ESTIMATED Carrying Estimated
AMOUNT FAIR VALUE Amount Fair Value
<S> <C>
- ----------------------------------------------------------------------------------------------------------------------------
10.875% Senior Subordinated Notes, mature June 2006 $150,000 $159,000 $ - $ -
Revolving credit facilities with interest based on London Interbank
Offered Rate (LIBOR) or Prime Rate expires
May 2001, credit limit of $225,000 and $425,000 at
December 31, 1996 and 1995, respectively 6,500 6,500 313,300 313,300
$11.5 million, 0% Subordinated Note, matures May 1997, effective
interest rate 10.4% 11,049 11,258 10,008 10,622
9.1% Convertible Subordinated Debenture, converted March 1996 - - 3,333 3,333
Other - - 722 722
- ----------------------------------------------------------------------------------------------------------------------------
167,549 176,758 327,363 327,977
Current maturities - - (4,055) (4,055)
- ----------------------------------------------------------------------------------------------------------------------------
Long-term debt $167,549 $176,758 $323,308 $323,922
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Concurrently with the Stuart acquisition in 1994, the Company entered into
a $350.0 million Senior Credit Facility to fund the $40.2 million cash paid in
the acquisition, repay certain long-term indebtedness of Stuart and fund working
capital requirements. On February 28, 1995, the Senior Credit Facility was
amended to provide an increase in principal amount up to $425.0 million
primarily to fund the Company's working capital and capital expenditure needs.
During May 1996 the Company refinanced its $425.0 million Senior Credit Facility
by issuing $150.0 million of 10.875% Senior Subordinated 10-year notes (Notes),
increasing its available receivables financing facility (Receivables Financing
Facility) to $150.0 million from $75.0 million and entering into a new $225.0
million revolving credit facility (New Senior Credit Facility).
The Notes were issued on May 29, 1996, and mature on June 1, 2006. Interest
on the Notes is payable semi-annually on June 1 and December 1. The Notes are
redeemable, after June 1, 2001, at the Company's option subject to certain
restrictions. The Notes are unconditionally guaranteed on a joint and several
basis by all direct and indirect subsidiaries of the Company, other than O&M
Funding Corp. (OMF).
The New Senior Credit Facility expires in May 2001 with interest based on,
at the Company's discretion, the London Interbank Offered Rate (LIBOR) or the
Prime Rate. The Company is charged a commitment fee of 0.25% on the unused
portion of the New Senior Credit Facility. The New Senior Credit Facility limits
the amount of indebtedness the Company may incur, requires the Company to
maintain certain financial covenants including covenants related to tangible net
worth, cash flow coverage, current ratio, leverage ratio and fixed charge
coverage ratio, and restricts the ability of the Company to materially alter the
character of the business through consolidation, merger or purchase or sale of
assets. At December 31, 1996, the Company was in compliance with these
covenants.
Net interest expense includes finance charge income of $4.7 million, $3.8
million and $2.0 million in 1996, 1995 and 1994, respectively. Finance charge
income represents payments from customers for past due balances on their
accounts. Cash payments for interest during 1996, 1995 and 1994 were $22.1
million, $29.0 million and $9.8 million, respectively.
The estimated fair value of long-term debt is based on the borrowing rates
currently available to the Company for loans with similar terms and average
maturities.
The annual maturities of long-term debt for the five years subsequent to
December 31, 1996 are as follows: $11.0 million in 1997, $0 in 1998, 1999 and
2000 and $6.5 million in 2001. At December 31, 1996, the 0% Subordinated Note is
classified as long-term due to the Company's intent and ability to refinance the
note through its revolving credit facility.
OFF BALANCE SHEET FINANCING
On December 28, 1995, the Company entered into the Receivables Financing
Facility 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 $75.0 million from an unrelated third party purchaser at a cost of funds at
----
24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Owens & Minor, Inc. and Subsidiaries
commercial paper rates plus a charge for administrative and credit support
services. In May 1996, the Receivables Financing Facility was modified to allow
the Company to receive up to $150.0 million under the agreement and to extend
the term of the agreement from December 1996 to May 1999. At December 31, 1996
and 1995 the Company had received $126.0 million and $59.3 million,
respectively, under the agreement. To continue use of the Receivables Financing
Facility, the Company is required to be in compliance with the covenants of the
New Senior Credit Facility.
The Company manages its interest rate risk, primarily through the use of
interest rate swap and cap agreements. The Company's interest rate swap
agreements as of December 31, 1996 included $100.0 million notional amounts
which effectively converted a portion of the Company's fixed rate financing
instruments to variable rate instruments. Under these swap agreements, expiring
in May 2006, the Company pays the counterparties a variable rate based on the
six-month LIBOR and the counterparties pay the Company a fixed interest rate
ranging from 7.27% to 7.32%. At the option of the counterparties, these swaps
can be terminated in 2001. The Company also had $90.0 million and $105.0 million
as of December 31, 1996 and 1995, respectively, notional amounts of interest
rate swaps which effectively converted a portion of the Company's variable rate
financing instruments to fixed rate instruments. Under these swap agreements,
which expire in 1997 and 1998, the Company pays the counterparties a fixed rate
ranging from 6.45% to 7.72% and the counterparties pay the Company a variable
rate based on either the three-month or six-month LIBOR. As of December 31,
1995, the Company also had $20.0 million notional amounts of interest rate caps
which had a cap rate of 6.5% and expired during 1996. Payments from the
counterparties under these agreements were based on the three-month LIBOR.
The payments received or disbursed related to the interest rate swaps and
the amortization of the cap fees are included in interest expense, net. Based on
estimates of the prices obtained from a dealer, the Company had an unrealized
gain of approximately $0.7 million for the fixed to variable rate swaps and an
unrealized loss of approximately $1.5 million for the variable to fixed rate
swaps at December 31, 1996 and an unrealized loss of approximately $3.0 million
and $48.0 thousand for the variable to fixed rate swaps and caps, respectively,
as of December 31, 1995.
The Company is exposed to certain losses in the event of nonperformance by
the counterparties to these off balance sheet agreements. However, the Company's
exposure is not material and nonperformance is not anticipated.
NOTE 8 - CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The following table presents condensed consolidating financial information
for: Owens & Minor, Inc.; on a combined basis, the guarantors of Owens & Minor,
Inc.'s Notes (all of the wholly owned subsidiaries of Owens & Minor, Inc. except
for OMF); and OMF, Owens & Minor, Inc.'s only non-guarantor subsidiary of the
Notes. Separate financial statements of the guarantor subsidiaries are not
presented because the guarantors are jointly, severally and unconditionally
liable under the guarantees and the Company believes the condensed consolidating
financial statements are more meaningful in understanding the financial position
of the guarantor subsidiaries.
<TABLE>
<CAPTION>
(In thousands)
AS OF AND FOR THE YEAR ENDED OWENS & GUARANTOR
DECEMBER 31, 1996 MINOR, INC. SUBSIDIARIES OMF ELIMINATIONS CONSOLIDATED
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Current assets $ 159,243 $ 437,669 $59,374 $ (200,786) $ 455,500
Noncurrent assets 306,735 232,125 - (314,859) 224,001
- ------------------------------------------------------------------------------------------------------------------------------
Total assets $ 465,978 $ 669,794 $59,374 $ (515,645) $ 679,501
- ------------------------------------------------------------------------------------------------------------------------------
Current liabilities $ 2,588 $ 417,939 $43,319 $ (201,336) $ 262,510
Noncurrent liabilities 156,500 18,091 - - 174,591
Shareholders' equity 306,890 233,764 16,055 (314,309) 242,400
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 465,978 $ 669,794 $59,374 $ (515,645) $ 679,501
- ------------------------------------------------------------------------------------------------------------------------------
Net sales $ 21,700 $3,019,003 $ 9,709 $ (31,409) $3,019,003
Expenses 22,310 3,007,425 8,262 (31,959) 3,006,038
- ------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (610) $ 11,578 $ 1,447 $ 550 $ 12,965
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
----
25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Owens & Minor, Inc. and Subsidiaries
NOTE 9 - RETIREMENT PLANS
PENSION AND RETIREMENT PLAN
The Company has a noncontributory pension plan covering substantially all
employees. At December 31, 1996, substantially all of the benefits of employees
under this plan were frozen, with all participants becoming fully vested. The
changes in this plan resulted in a 1996 curtailment gain of approximately $2.0
million, which is recorded in selling, general and administrative expenses in
the Company's Consolidated Statement of Operations.
The Company will continue to fund the plan based on federal law
requirements and amounts deductible for income tax purposes, until which time
the plan assets equal its liabilities and can be terminated. As of December 31,
1996, plan assets consist primarily of equity securities, including 34 thousand
shares of the Company's common stock, and U.S. Government securities.
The Company also has a noncontributory, unfunded retirement plan for
certain officers and other key employees. Benefits are based on a percentage of
the employees' compensation. The Company maintains life insurance policies on
plan participants to act as a financing source for the plan.
The following table sets forth the plans' financial status and the amounts
recognized in the Company's Consolidated Balance Sheets:
<TABLE>
<CAPTION>
(In thousands) Pension Plan Retirement Plan
- ---------------------------------------------------------------------------------------------------------------------------
December 31, 1996 1995 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligations
Vested $(18,166) $(15,092) $ (1,386) $ (1,256)
Non-vested - (1,580) (1,234) (1,384)
- ---------------------------------------------------------------------------------------------------------------------------
Total accumulated benefit obligations (18,166) (16,672) (2,620) (2,640)
Additional amounts related to projected salary increases (158) (2,298) (2,397) (1,937)
- ---------------------------------------------------------------------------------------------------------------------------
Projected benefit obligations for service rendered to date (18,324) (18,970) (5,017) (4,577)
Plan assets at fair market value 16,950 14,741 - -
- ---------------------------------------------------------------------------------------------------------------------------
Plan assets under projected benefit obligations (1,374) (4,229) (5,017) (4,577)
Unrecognized net loss from past experience - 1,793 1,839 1,702
Unrecognized prior service cost (benefit) - 334 (237) (20)
Unrecognized net (asset) obligation being recognized over
17 years - (107) 246 287
Adjustment required to recognize minimum liability
under SFAS 87 - - - (31)
- ---------------------------------------------------------------------------------------------------------------------------
Accrued pension liability $ (1,374) $ (2,209) $ (3,169) $ (2,639)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The components of net periodic pension cost for both plans are as follows:
<TABLE>
<CAPTION>
(In thousands)
Year Ended December 31, 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
Service cost-benefits earned during the year $ 2,598 $ 1,865 $ 1,314
Interest cost on projected benefit obligations 1,714 1,425 1,232
Actual (return) loss on plan assets (1,566) (2,521) 436
Curtailment gain (1,988) - -
Net amortization and deferral 422 1,470 (1,462)
- -------------------------------------------------------------------------------------------------------------------------
Net periodic pension cost $ 1,180 $ 2,239 $ 1,520
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
The weighted average discount rate, rate of increase in future compensation
levels used in determining the actuarial present value of the projected benefit
obligations and the expected long-term rate of return on plan assets were
assumed to be 7.5%, 5.5% and 8.5%, respectively, for both 1996 and 1995.
----
26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Owens & Minor, Inc. and Subsidiaries
OTHER RETIREMENT BENEFITS
The Company substantially terminated its postretirement medical plan in
1996. The termination resulted in a reduction in the Company's accumulated
postretirement benefit obligation of approximately $1.6 million which will be
recognized in income over the lives of the remaining participants in the plan
(approximately 13 years).
The following table sets forth the plan's financial status and the amount
recognized in the Company's Consolidated Balance Sheets:
<TABLE>
<CAPTION>
(In thousands)
December 31, 1996 1995
<S> <C>
- --------------------------------------------------------------------------------------------------------------------------
Accumulated postretirement benefit obligation:
Retirees $ (376) $ (329)
Fully eligible active plan participants (556) (837)
Other active plan participants - (919)
- --------------------------------------------------------------------------------------------------------------------------
Accumulated postretirement benefit obligation (932) (2,085)
Unrecognized prior service benefit (1,567) -
Unrecognized net gain from past experience - (52)
- --------------------------------------------------------------------------------------------------------------------------
Accrued postretirement benefit liability $(2,499) $(2,137)
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
The components of net periodic postretirement benefit cost are as follows:
<TABLE>
<CAPTION>
(In thousands)
Year Ended December 31, 1996 1995 1994
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------
Service cost-benefits earned during the year $308 $ 275 $206
Interest cost on accumulated postretirement benefit obligations 177 152 160
Net amortization (78) (120) 6
- ------------------------------------------------------------------------------------------------------------------------
Net periodic postretirement benefit cost $407 $ 307 $372
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
For measurement purposes, a 12.0% annual rate of increase in the per capita
cost of covered healthcare benefits was assumed for 1996; 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, 1996 by $35 thousand and
the aggregate of the service cost and interest cost components of net periodic
postretirement benefit cost for the year then ended by $48 thousand. The
weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.5% for both 1996 and 1995.
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 $1.0 million and
$1.1 million in 1996 and 1995, respectively, of expenses related to this plan.
Effective January 1, 1997, the Company enhanced this plan to provide for a
minimum contribution by the Company to the plan for all eligible employees of 1%
of their salary. This contribution can be increased at the Company's discretion.
NOTE 10 - SHAREHOLDERS' EQUITY
On May 10, 1994, the Company issued 1.15 million 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 and is convertible into
approximately 6.1 shares of common stock at the shareholder's option. After
April 1997, the preferred stock is redeemable by the Company at a price of $100
subject to certain restrictions.
----
27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Owens & Minor, Inc. and Subsidiaries
The changes in common stock, paid-in capital and retained earnings are
shown as follows:
<TABLE>
<CAPTION>
COMMON
SHARES COMMON PAID-IN RETAINED
(In thousands, except per share data) OUTSTANDING STOCK CAPITAL EARNINGS TOTAL
<S> <C>
- --------------------------------------------------------------------------------------------------------------------------
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 189 379 904 - 1,283
Net income - - - 7,919 7,919
Common stock cash dividends ($0.17 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
Other - - 761 - 761
- --------------------------------------------------------------------------------------------------------------------------
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 64 128 404 - 532
Net loss - - - (11,308) (11,308)
Common stock cash dividends ($0.18 per share) - - - (5,555) (5,555)
Preferred stock cash dividends ($4.50 per share) - - - (5,175) (5,175)
Other - - 117 - 117
- --------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1995 30,862 61,724 2,144 56,403 120,271
Proceeds from exercised stock options 206 412 1,432 - 1,844
Convertible debt conversion 867 1,734 1,766 - 3,500
Net income - - - 12,965 12,965
Common stock cash dividends ($0.18 per share) - - - (5,693) (5,693)
Preferred stock cash dividends ($4.50 per share) - - - (5,175) (5,175)
Other (28) (56) (256) - (312)
- --------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1996 31,907 $63,814 $ 5,086 $58,500 $127,400
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
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.
NOTE 11 - STOCK-BASED COMPENSATION
The Company has five stock-based compensation plans which provide for the
granting of stock options, stock appreciation rights (SARs) and common stock.
The plans are administered by the Compensation and Benefits Committee of the
Board of Directors and allow the Company to award or grant from time to time to
employees and directors of the Company incentive, non-qualified and deferred
compensation stock options, SARs and restricted and unrestricted stock. Two of
the plans expired prior to December 31, 1996, except with respect to options
outstanding under the plans. The remaining three plans have expiration dates of
April 1998 and April 2001. The total common shares originally available for
issuance under the remaining plans was approximately 3.0 million.
The restricted stock and stock options issued under the plans generally
vest over three years and the stock options have a maximum term of 10 years. As
of December 31, 1996, there were no SARs outstanding
----
28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Owens & Minor, Inc. and Subsidiaries
under the plans. The following table summarizes the activity and terms of
outstanding options at December 31, 1996, and for the years in the three-year
period then ended:
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
AVERAGE Average Average
EXERCISE Exercise Exercise
(In thousands, except per share data) SHARES PRICE Shares Price Shares Price
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
Options outstanding beginning of year 1,745 $12.41 1,742 $12.36 1,031 $ 8.80
Granted 629 $13.38 221 $13.17 953 $14.93
Exercised (206) $ 8.95 (64) $ 8.31 (227) $ 7.00
Expired/cancelled (246) $12.67 (154) $14.59 (15) $12.03
- --------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 1,922 $13.06 1,745 $12.41 1,742 $12.36
Exercisable options at end of year 1,053 $12.40 978 $11.19 545 $ 9.09
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1996, the following option groups were outstanding:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
- --------------------------------------------------------------------------------------------------------------------
WEIGHTED WEIGHTED AVERAGE WEIGHTED
RANGE OF EXERCISE NUMBER OF AVERAGE REMAINING NUMBER OF AVERAGE
PRICES OPTIONS (000'S) EXERCISE PRICE CONTRACTUAL LIFE OPTIONS (000'S) EXERCISE PRICE
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
$ 8.00 - 12.00 486 $ 8.75 2.3 430 $ 8.60
$12.01 - 16.50 1,436 $14.52 8.3 623 $15.03
- --------------------------------------------------------------------------------------------------------------------
1,922 $13.06 6.8 1,053 $12.40
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------
WEIGHTED AVERAGE
RANGE OF EXERCISE REMAINING
PRICES CONTRACTUAL LIFE
- --------------------------------------
<S> <C>
$ 8.00 - 12.00 1.3
$12.01 - 16.50 7.6
- ---------------------------------
5.0
- ---------------------------------
</TABLE>
Using the intrinsic value method, the Company's 1996, 1995 and 1994 net
income/(loss) includes stock-based compensation expense (net of tax benefit) of
approximately $50 thousand, $0 and $290 thousand, respectively. The weighted
average fair value of options granted in 1996 and 1995 was $3.90 and $3.80 per
option, respectively. Had the Company included in stock-based compensation
expense the fair value at grant date of stock option awards granted in 1996 and
1995, net income/(loss) would have been $12.3 million or $0.23 per common share
and $(11.5) million or $(0.54) per common share for the years ended December 31,
1996 and 1995, respectively. These pro forma amounts may not be representative
of the effects on pro forma net income in future periods. The fair value of each
option is estimated on the date of grant using the Black-Scholes option pricing
model with the following assumptions used for grants in both 1996 and 1995:
dividend yield 1.8%, expected volatility 32.0%, risk-free interest rate 6.3% and
expected lives 4.0 years.
NOTE 12 - INCOME TAXES
The income tax provision (benefit) consists of the following:
<TABLE>
<CAPTION>
(In thousands)
Year Ended December 31, 1996 1995 1994
<S> <C>
- -------------------------------------------------------------------------------------------------------------------------
Current tax provision (benefit)
Federal $ 6,186 $(13,009) $6,663
State 1,556 (172) 1,635
- -------------------------------------------------------------------------------------------------------------------------
Total current provision (benefit) 7,742 (13,181) 8,298
- -------------------------------------------------------------------------------------------------------------------------
Deferred tax provision (benefit)
Federal 1,923 7,731 (1,816)
State 483 350 (404)
- -------------------------------------------------------------------------------------------------------------------------
Total deferred provision (benefit) 2,406 8,081 (2,220)
- -------------------------------------------------------------------------------------------------------------------------
Income tax provision (benefit) $10,148 $ (5,100) $6,078
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
----
29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Owens & Minor, Inc. and Subsidiaries
A reconciliation of the federal statutory rate to the Company's effective
income tax rate is shown below:
<TABLE>
<CAPTION>
Year Ended December 31, 1996 1995 1994
<S> <C>
- ----------------------------------------------------------------------------------------------------------------------
Federal statutory rate 35.0 % (34.0)% 35.0%
Increases (reductions) in the rate resulting from:
State income taxes, net of federal income tax impact 5.0 (3.3) 4.6
Nondeductible goodwill amortization 7.5 9.5 2.8
Nontaxable income (4.6) (4.5) -
Other, net 1.0 1.2 1.0
- ----------------------------------------------------------------------------------------------------------------------
Effective rate 43.9 % (31.1)% 43.4%
- ----------------------------------------------------------------------------------------------------------------------
</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>
(In thousands)
Year Ended December 31, 1996 1995
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------
Deferred tax assets:
Allowance for doubtful accounts $ 3,053 $ 2,794
Accrued liabilities not currently deductible 7,597 6,802
Employee benefit plans 3,636 3,916
Merchandise inventories 2,613 1,836
Nonrecurring restructuring expenses 420 1,898
Property and equipment - 318
Tax loss carryforward, net 1,665 1,051
Other 847 612
- ------------------------------------------------------------------------------------------------------------------------
Total deferred tax assets 19,831 19,227
- ------------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Property and equipment 1,437 -
Computer software 1,869 -
Other 1,293 1,589
- ------------------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities 4,599 1,589
- ------------------------------------------------------------------------------------------------------------------------
Net deferred tax asset (included in other current assets and other assets, net) $15,232 $17,638
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1996 and 1995, the Company had a $0.35 million and $0.65
million valuation allowance, respectively, for state net operating losses. 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, 1996.
Cash payments for income taxes for 1996, 1995 and 1994 were $8.0 million,
$6.1 million and $8.2 million, respectively.
NOTE 13 - COMMITMENTS AND CONTINGENCIES
The Company has a commitment through September 1998 to outsource the
management and operation of its mainframe computer. This commitment is
cancellable at any time on 180 days prior notice and a minimum payment of $8.1
million. The Company also has entered into noncancellable agreements to lease
certain office and warehouse facilities with remaining terms ranging from one to
10 years. Certain leases include renewal options, generally for five-year
increments. At December 31, 1996, future minimum annual payments under
noncancellable agreements with original terms in excess of one year are as
follows:
<TABLE>
<CAPTION>
(In thousands) Total
<S> <C>
- ------------------------------------------------------
1997 $18,903
1998 17,741
1999 14,492
2000 11,133
2001 8,684
Later years 21,964
- ------------------------------------------------------
Total minimum payments $92,917
- ------------------------------------------------------
</TABLE>
----
30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Owens & Minor, Inc. and Subsidiaries
Minimum lease payments have not been reduced by minimum sublease rentals
aggregating $1.9 million due in the future under noncancellable subleases.
Rent expense for the years ended December 31, 1996, 1995 and 1994 was $25.6
million, $27.0 million and $21.3 million, respectively.
The Company sold transportation equipment with a net book value of
approximately $407 thousand in a sale/leaseback transaction in 1994. The gain
realized in the sale transaction totaling $1.3 million 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. In 1996, 1995 and 1994, net sales to
Columbia/HCA Healthcare Corporation totaled $0.32 billion, $0.25 billion and
$0.16 billion or approximately 11%, 8% and 7%, respectively, of the Company's
net sales. Net sales to member hospitals under contract with VHA Inc. totaled
$1.2 billion in 1996 and 1995, approximately 41% and 40%, respectively, of the
Company's net sales and $1.0 billion, approximately 40% of the Company's net
sales, in 1994. 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.
NOTE 14 - LEGAL PROCEEDINGS
Stuart has been named as a defendant along with product manufacturers,
distributors, healthcare providers, trade associations and others in
approximately 250 lawsuits, filed in various federal and state courts (the
"Cases"). The Cases represent the claims of approximately 400 plaintiffs
claiming personal injuries and approximately 250 spouses asserting claims for
loss of consortium. The Cases seek damages for personal injuries allegedly
attributable to spinal fixation devices. The great majority of the Cases seek
compensatory and punitive damages in unspecified amounts.
Prior to December 1992 and the Company's acquisition of Stuart in 1994,
Stuart distributed spinal fixation devices manufactured by Sofamor SNC, a
predecessor of Sofamor Danek Group, Inc. ("Sofamor Danek"). Approximately 30% of
the Cases involve plaintiffs implanted with spinal fixation devices manufactured
by Sofamor Danek. Such plaintiffs allege that Stuart is liable to them under
applicable products liability law for injuries caused by such devices
distributed and sold by Stuart. In addition, such plaintiffs allege that Stuart
distributed and sold the spinal fixation devices through deceptive and
misleading means and in violation of applicable law. In the remaining Cases,
plaintiffs seek to hold Stuart liable for injuries caused by other
manufacturers' devices that were neither distributed nor sold by Stuart. Such
plaintiffs allege that Stuart engaged in a civil conspiracy and concerted action
with manufacturers, distributors and others to promote the sale of spinal
fixation devices through deceptive and misleading means and in violation of
applicable law. Stuart never manufactured any spinal fixation devices. The
Company believes that affirmative defenses are available to Stuart. All Cases
filed against Stuart have been, and will continue to be, vigorously defended.
A majority of the Cases have been transferred to, and consolidated for
pretrial proceedings, in the Eastern District of Pennsylvania in Philadelphia
under the style MDL Docket No. 1014: In re Orthopedic Bone Screw Products
Liability Litigation. Discovery proceedings, including the taking of
depositions, have been ongoing in certain of the Cases that were first to be
filed. Discovery in certain Cases filed later may begin in 1997. Because of the
preliminary status of the Cases, the Company is unable at this time to determine
with certainty whether or not Stuart may be held liable.
In January 1997, the presiding judge entered an order preliminarily
approving a settlement agreement between one manufacturer of spinal fixation
devices, AcroMed Corporation ("AcroMed"), and the plaintiff's legal committee in
the multi-district litigation. Under the proposed terms of the settlement,
AcroMed would establish a settlement fund consisting of $100 million in cash and
the proceeds of its product liability insurance coverage. Stuart did not
distribute devices manufactured by AcroMed and is not a party to the AcroMed
settlement. A final hearing will be held later in 1997 to approve the fairness,
adequacy and
----
31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Owens & Minor, Inc. and Subsidiaries
reasonableness of the settlement. It is anticipated that nonsettling defendants,
including other manufacturers and distributors, will object to the terms of the
settlement and the proposed terms of the notice of the settlement.
The Company believes that Stuart may be named as a defendant in additional
similar cases in the future as a result of the pending AcroMed settlement or as
statutes of limitations approach expiration.
Based upon management's analysis of indemnification agreements between
Stuart and Sofamor Danek, the manufacturer of the devices distributed by Stuart,
the Company believes that Stuart is entitled to indemnification by Sofamor Danek
at least with respect to claims brought by plaintiffs implanted with devices
manufactured by Sofamor Danek. Such Cases are being defended by Stuart's
insurance carriers. Regarding those Cases filed by plaintiffs implanted with
other manufacturers' devices, one of Stuart's primary insurance carriers has
notified a representative of the former shareholders of Stuart that it will
withdraw its provision of defense of such Cases and another one of Stuart's
primary insurance carriers has notified a representative of the former
shareholders of Stuart that it has declined to provide a defense for such Cases,
in both instances asserting that such Cases involve only conspiracy and
concerted action claims. The former shareholders of Stuart are contesting the
insurance companies' withdrawal and declination of the defense of such Cases.
The Company and Stuart are also contractually 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. 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, and accordingly has accrued no liability therefor. Except as set
forth above, the Company is not aware of any uncertainty as to the availability
and adequacy of such insurance or indemnification, although there can be no
assurance that Sofamor Danek and the former shareholders will have sufficient
financial resources in the future to meet such obligations.
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.
NOTE 15 - QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table presents the summarized quarterly financial data for
1996 and 1995:
<TABLE>
<CAPTION>
1996
(In thousands, except per share data) -----------------------------------------------------
QUARTER 1ST 2ND 3RD 4TH
<S> <C>
- --------------------------------------------------------------------------------------------------------------------------
Net sales $771,312 $749,938 $744,146 $753,607
- --------------------------------------------------------------------------------------------------------------------------
Gross margin 74,179 74,511 74,486 75,214
- --------------------------------------------------------------------------------------------------------------------------
Net income 1,519 2,931 3,750 4,765
- --------------------------------------------------------------------------------------------------------------------------
Net income per common share $ .01 $ .05 $ .08 $ .11
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1995
-----------------------------------------------------
Quarter 1st 2nd 3rd 4th
<S> <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>
----
32
<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, 1996 and 1995, and the related
consolidated statements of operations and cash flows for each of the years in
the three-year period ended December 31, 1996. 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, 1996 and 1995, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1996, in conformity with generally accepted accounting
principles.
/s/ KPMG PEAT MARWICK LLP
Richmond, Virginia
February 5, 1997
Report of Management
The management of Owens & Minor, Inc. is responsible for the preparation,
integrity and objectivity of the consolidated financial statements and related
information presented in this annual report. The consolidated financial
statements were prepared in conformity with generally accepted accounting
principles applied on a consistent basis and include, when necessary, the best
estimates and judgments of management.
The Company maintains a system of internal controls that provides
reasonable assurance that its assets are safeguarded against loss or
unauthorized use, that transactions are properly recorded and that financial
records provide a reliable basis for the preparation of the consolidated
financial statements.
The Audit Committee of the Board of Directors, composed entirely of
directors who are not current employees of Owens & Minor, Inc., meets
periodically and privately with the Company's independent auditors and internal
auditors, as well as with Company management, to review accounting, auditing,
internal control and financial reporting matters. The independent auditors and
internal auditors have direct access to the Audit Committee with and without
management present to discuss the results of their activities.
/s/ G. Gilmer Minor, III /s/ Ann Greer Rector
- ------------------------- -----------------------
G. Gilmer Minor, III Ann Greer Rector
Chairman, President & Chief Executive Officer Senior Vice President &
Chief Financial Officer
<PAGE>
Stock Market and Dividend Information
[LOGO] Owens & Minor, Inc.'s common stock trades on the New York Stock Exchange
under the symbol OMI. The following table indicates the range of high
and low sales prices per share of the Company's common shares as
reported on the New York Stock Exchange and the quarterly cash dividends
paid by the Company:
Year 1996
- ---------------------------------------------------------------------
Quarter 1st 2nd 3rd 4th
- ---------------------------------------------------------------------
Market Price
High $ 12.75 $14.38 $11.75 $10.88
Low $11.25 $11.63 $ 9.25 $ 9.25
Dividends per
share $ .045 $ .045 $ .045 $ .045
- ---------------------------------------------------------------------
Year 1995
- ---------------------------------------------------------------------
Quarter 1st 2nd 3rd 4th
- ---------------------------------------------------------------------
Market Price
High $14.88 $14.13 $14.75 $13.38
Low $12.25 $11.63 $12.13 $11.63
Dividends per
share $ .045 $ .045 $ .045 $ .045
- ---------------------------------------------------------------------
Year 1994
- ---------------------------------------------------------------------
Quarter 1st 2nd 3rd 4th
- ---------------------------------------------------------------------
Market Price
High $18.13 $17.13 $16.75 $16.75
Low $14.63 $14.13 $13.25 $13.63
Dividends per
share $ .035 $ .045 $ .045 $ .045
- ---------------------------------------------------------------------
As of December 31, 1996, there were approximately 17,000 common
shareholders.
---
35
<PAGE>
Exhibit 21
Owens & Minor, Inc. and Subsidiaries
Subsidiaries of Registrant
<TABLE>
<CAPTION>
Subsidiary State of Incorporation
- ---------- -----------------------
<S> <C>
Owens & Minor Medical, Inc. Virginia
National Medical Supply Corporation Delaware
Owens & Minor West, Inc. California
Koley's Medical Supply, Inc. Nebraska
Lyons Physician Supply Company Ohio
A. Kuhlman & Co. Michigan
Stuart Medical, Inc. Pennsylvania
O&M Funding Corp. Virginia
</TABLE>
Exhibit 23
Consent of Independent Auditors
The Board of Directors
Owens & Minor, Inc.:
We consent to incorporation by reference in the Registration Statements (Nos.
33-04536, 33-32497, 33-41402, 33-41403, 33-63248 and 33-65606) on Form S-8 and
the Registration Statement (No. 33-44428) on Form S-3 of Owens & Minor, Inc. of
our report dated February 5, 1997, relating to the consolidated balance sheets
of Owens & Minor, Inc. and subsidiaries as of December 31, 1996 and 1995, and
the related consolidated statements of operations and cash flows for each of the
years in the three-year period ended December 31, 1996, which report is
incorporated by reference in the 1996 annual report on Form 10-K of Owens &
Minor, Inc. We also consent to the incorporation by reference in the
aforementioned Registration Statements of our report dated February 5, 1997,
relating to the financial statement schedule of Owens & Minor, Inc., which
report appears on page 25 of this Form 10-K.
/s/ KPMG Peat Marwick LPP
- ---------------------------
KPMG Peat Marwick LLP
Richmond, Virginia
March 24, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 743
<SECURITIES> 0
<RECEIVABLES> 153,738
<ALLOWANCES> 6,495
<INVENTORY> 281,839
<CURRENT-ASSETS> 455,500
<PP&E> 64,473
<DEPRECIATION> 35,242
<TOTAL-ASSETS> 679,501
<CURRENT-LIABILITIES> 262,510
<BONDS> 167,549
0
115,000
<COMMON> 63,814
<OTHER-SE> 63,586
<TOTAL-LIABILITY-AND-EQUITY> 679,501
<SALES> 3,019,003
<TOTAL-REVENUES> 3,019,003
<CGS> 2,720,613
<TOTAL-COSTS> 2,969,577
<OTHER-EXPENSES> 6,521
<LOSS-PROVISION> 838
<INTEREST-EXPENSE> 18,954
<INCOME-PRETAX> 23,113
<INCOME-TAX> 10,148
<INCOME-CONTINUING> 12,965
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,965
<EPS-PRIMARY> 0.25
<EPS-DILUTED> 0.25
</TABLE>
