As filed with the Securities and Exchange Commission on July 28, 1998
Registration No. 333-58665
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------------
<TABLE>
<S> <C>
OWENS & MINOR, INC. Virginia 54-1701843
OWENS & MINOR TRUST I Delaware 54-1896890
(Exact name of each registrant as (State or other jurisdiction (I.R.S. Employer
specified in its charter) of incorporation or organization) Identification No.)
</TABLE>
4800 Cox Road
Glen Allen, Virginia 23060
(804) 747-9794
(Address, including zip code, and telephone number, including
area code, of registrants' principal executive offices)
Drew St. J. Carneal
Owens & Minor, Inc.
4800 Cox Road
Glen Allen, Virginia 23060
(804) 747-9794
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies To:
C. Porter Vaughan, III
Hunton & Williams
951 East Byrd Street
Richmond, Virginia 23219-4074
(804) 788-8285
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: From time to time after the effective date of this Registration
Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [*]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [*]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [*]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [*]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [*]
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
PROSPECTUS
JULY _____, 1998
2,640,000 Securities
Owens & Minor Trust I
$2.6875 TERM CONVERTIBLE SECURITIES, SERIES A ("TECONS(SM)")
(LIQUIDATION AMOUNT $50 PER SECURITY) FULLY AND UNCONDITIONALLY GUARANTEED AS
SET FORTH HEREIN BY AND CONVERTIBLE INTO COMMON STOCK OF
Owens & Minor, Inc.
The $2.6875 Term Convertible Securities, Series A (the "TECONS"), liquidation
amount $50 per security, offered for resale hereby (the "Offering") represent
preferred undivided beneficial interests in the assets of Owens & Minor Trust I,
a statutory business trust formed under the laws of the State of Delaware ("O&M
Trust" or the "Trust"). The TECONS were issued and sold (the "Original
Offering") on May 13, 1998 and May 19, 1998 (each an "Original Offering Date")
to certain initial purchasers (the "Initial Purchasers") and were simultaneously
sold by the Initial Purchasers in transactions exempt from the registration
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
in the United States to persons reasonably believed by the Initial Purchasers to
be qualified institutional buyers ("Qualified Institutional Buyers") as defined
in Rule 144A under the Securities Act and outside the United States to non-U.S.
persons in offshore transactions in reliance on Regulation S under the
Securities Act.
Owens & Minor, Inc., a Virginia corporation ("O&M" or the "Company"), directly
or indirectly owns all the common securities (the "Common Securities" or the
"Trust Common Securities," and together with the TECONS, the "Trust
Securities"), representing common undivided beneficial interests in the assets
of O&M Trust. O&M Trust exists for the sole purpose of issuing the TECONS and
the Trust Common Securities and investing the proceeds thereof in 5.375% Junior
Subordinated Convertible Debentures due 2013 (the "Junior Subordinated
Debentures") of O&M in an aggregate principal amount equal to the aggregate
liquidation amount of the Trust Securities. The Junior Subordinated Debentures
and the TECONS in respect of which this Prospectus is being delivered are
referred to herein as the "Offered Securities." The Junior Subordinated
Debentures are unsecured obligations of O&M and subordinate and junior in right
of payment to certain other indebtedness of O&M as described herein, including
$150,000,000 aggregate principal amount of the Company's 10 7/8% Senior
Subordinated Notes (the "Existing Notes") outstanding as of the date hereof.
Upon a Declaration Event of Default (as defined herein), the holders of the
TECONS will have a preference over the holders of the Trust Common Securities
with respect to payments in respect of Distributions (as defined herein) and
payments upon redemption, liquidation and otherwise.
The TECONS (and the Junior Subordinated Debentures and the securities issuable
upon conversion) in respect of which this Prospectus is being delivered (the
"Offered Securities") may be offered and sold from time to time by the holders
thereof named herein or in a supplement hereto (collectively, the "Selling
Holders") pursuant to this Prospectus as supplemented. The Offered Securities
may be sold by the Selling Holders from time to time directly to purchasers or
through agents, underwriters or dealers. See "Plan of Distribution" and "Selling
Holders." If required, the names of any such agents or underwriters involved in
the sale of the Offered Securities and the applicable agent's commission,
dealer's purchase price or underwriter's discount, if any, will be set forth in
an accompanying supplement to this Prospectus (the "Prospectus Supplement"). The
Selling Holders will receive all of the net proceeds from the sale of the
Offered Securities and will pay all underwriting discounts and selling
commissions, if any, applicable to any such sale. The Company is responsible for
payment of all other expenses incident to the offer and sale of the Offered
Securities. The Selling Holders and any broker-dealers, agents or underwriters
who participate in the distribution of the Offered Securities may be deemed to
be "underwriters" within the meaning of the Securities Act, and any commission
received by them and any profit on the resale of the Offered Securities
purchased by them may be deemed to be underwriting commissions or discounts
under the Securities Act. See "Plan of Distribution" for a description of
indemnification arrangements.
(CONTINUED ON PAGE 2)
SEE "RISK FACTORS" FOR A DESCRIPTION OF CERTAIN RISK FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS, ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
(CONTINUED FROM COVER PAGE)
Holders of the TECONS are entitled to receive cumulative cash distributions at
an annual rate of $2.6875 per TECONS, accumulating from May 13, 1998 and payable
quarterly in arrears on each January 31, April 30, July 31 and October 31,
commencing on July 31, 1998. The term "Distributions" as used herein includes
such cash distributions and any interest payable thereon unless otherwise
stated. The Distribution rate and the Distribution and other payment dates for
the TECONS will correspond to the interest rate and the interest and other
payment dates on the Junior Subordinated Debentures deposited in the Trust as
trust assets. If principal or interest is not paid on the Junior Subordinated
Debentures, including as a result of the Company's election to extend the
interest payment period on the Junior Subordinated Debentures as described
below, the Trust will not make payments on the Trust Securities. The Junior
Subordinated Debentures provide that, so long as the Company shall not be in
default in the payment of interest on the Junior Subordinated Debentures, the
Company shall have the right to defer payments of interest on the Junior
Subordinated Debentures by extending the interest payment period from time to
time for a period not exceeding 20 consecutive quarterly interest periods (each,
an "Extension Period"). No interest shall be due and payable during an Extension
Period and, as a consequence, distributions on the Trust Securities will also be
deferred, but at the end of such Extension Period the Company shall pay all
interest then accrued and unpaid on the Junior Subordinated Debentures, together
with interest thereon at the rate specified for the Junior Subordinated
Debentures to the extent permitted by applicable law, compounded quarterly
("Compounded Interest"). All references herein to interest shall include
Compounded Interest unless otherwise stated. There could be multiple Extension
Periods of varying lengths throughout the term of the Junior Subordinated
Debentures, not to exceed 20 consecutive quarters; provided, that no such period
may extend beyond the stated maturity of the Junior Subordinated Debentures.
During any such Extension Period, the Company may not declare or pay dividends
on, or redeem, purchase, acquire or make a distribution or liquidation payment
with respect to, any of its common stock or preferred stock; provided that the
foregoing will not apply to any stock dividends paid by the Company in its
common stock, par value $2.00 per share (the "O&M Common Stock" or the "Common
Stock"). See "Description of the Junior Subordinated Debentures -- Interest" and
" -- Option to Extend Interest Payment Period" and "Risk Factors -- Option to
Extend Interest Payment Period; Tax Impact of Extension."
The payment of Distributions out of moneys held by O&M Trust and payments on
liquidation of O&M Trust and the redemption of TECONS, as set forth below, are
guaranteed by the Company on a subordinated basis (the "Guarantee") as and to
the extent described herein. The Guarantee is a full and unconditional guarantee
from the time of issuance of the TECONS, but the Guarantee covers Distributions
and other payments on the TECONS only if and to the extent that O&M Trust has
funds available therefor, which will not be the case unless the Company has made
a payment to the Property Trustee (as defined herein) of interest or principal
on the Junior Subordinated Debentures deposited in the Trust as trust assets.
The obligations of the Company under the Guarantee are subordinate and junior in
right of payment to all other liabilities of the Company, including the Junior
Subordinated Debentures, and will rank pari passu in right of payment with the
most senior preferred stock issued, from time to time, if any, by O&M. The
obligations of the Company under the Junior Subordinated Debentures are
subordinate and junior in right of payment to all present and future Senior and
Subordinated Debt (as defined herein). Because the Company is a holding company,
the Junior Subordinated Debentures (and the Company's obligations under the
Guarantee) are also effectively subordinated to all existing and future
liabilities, including trade payables, of the Company's subsidiaries, except to
the extent that the Company is a creditor of the subsidiaries recognized as
such.
Each TECONS is convertible in the manner described herein at the option of the
holder, at any time prior to the Conversion Expiration Date (as defined herein),
into O&M Common Stock at the initial rate of 2.4242 shares of O&M Common Stock
for each TECONS (equivalent to an initial conversion price of $20.625 per share
of O&M Common Stock for each TECONS), subject to adjustment in certain
circumstances. See "Description of the TECONS -- Conversion Rights." The O&M
Common Stock is listed on the New York Stock Exchange (the "NYSE") under the
symbol "OMI." On July 24, 1998, the reported last sale price of the O&M Common
Stock on the NYSE Composite Tape was $12.1875 per share.
The Junior Subordinated Debentures are redeemable by the Company (in whole or in
part) from time to time, on or after May 2, 2001 at the prices specified herein
or at any time in certain circumstances upon the occurrence of a Tax Event (as
defined herein) at 100% of the principal amount thereof plus accrued and unpaid
interest thereon to the date fixed for redemption (the "Redemption Price"). If
the Company redeems Junior Subordinated Debentures, the Trust must redeem, at
the Redemption Price, Trust Securities having an aggregate liquidation amount
equal to the aggregate principal amount of the Junior Subordinated Debentures so
redeemed. See "Description of the TECONS -- Mandatory Redemption." The TECONS
will be redeemed upon maturity of the Junior Subordinated Debentures. The Junior
Subordinated Debentures mature on April 30, 2013. In addition, upon the
occurrence of a Special Event (as defined herein) arising from a change in law
or a change in legal interpretation, unless the Junior Subordinated Debentures
are redeemed in the limited circumstances described below, the Trust shall be
dissolved with the result that the Junior Subordinated Debentures will be
distributed to the holders of the Trust Securities, on a pro rata basis, in lieu
of any cash distribution. In the case of a Special Event that is a Tax Event,
the Company will have the right in certain circumstances to redeem the Junior
Subordinated Debentures, which would result in the redemption by the Trust of
the Trust Securities in the same amount on a pro rata basis. See "Description of
the TECONS -- Special Event Redemption or Distribution" and "Description of the
Junior Subordinated Debentures."
<PAGE>
In the event of the voluntary or involuntary dissolution, winding up or
termination of the Trust, the holders of the TECONS will be entitled to receive,
for each TECONS, a liquidation amount of $50 plus accumulated and unpaid
distributions thereon (including interest thereon) to the date of payment,
unless in connection with such dissolution, the Junior Subordinated Debentures
are distributed to the holders of the TECONS. See "Description of the TECONS --
Liquidation Distribution upon Dissolution."
No person has been authorized to give any information or to make any
representations other than those contained or incorporated by reference in this
Prospectus (this "Prospectus") in connection with the offer made hereby and if
given or made such information or representation must not be relied upon as
having been authorized by the Company, the Trust or any other person. Neither
the delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company or the Trust since the date hereof or that the
information contained or incorporated by reference herein is correct as of any
time subsequent to its date. This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy the securities offered hereby by
anyone in any jurisdiction in which such offer or solicitation is not authorized
or in which the person making such offer or solicitation is not qualified to do
so or to anyone to whom it is unlawful to make such offer or solicitation.
TABLE OF CONTENTS
PAGE
Prospectus Summary............................4
Risk Factors.................................10
Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividend
Requirements .............................17
Use of Proceeds..............................17
Price Range of Common Stock and Dividends....17
Business.....................................19
Owens & Minor Trust I........................28
Description of the TECONS....................31
Description of the Guarantee................ 49
Description of the Junior Subordinated
Debentures................................52
Relationship Among the TECONS, the Junior
Subordinated Debentures and the Guarantee.61
Certain Federal Tax Consequences.............63
Certain ERISA Considerations................ 68
Selling Holders............................. 71
Plan of Distribution........................ 73
Legal Matters............................... 73
Experts..................................... 74
Available Information....................... 74
Incorporation of Certain Documents by
Reference............................... 74
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements
appearing elsewhere and incorporated by reference in this Prospectus. Unless the
context otherwise requires, references in this Prospectus to "O&M" or the
"Company" are to Owens & Minor, Inc., a Virginia corporation, and its
consolidated subsidiaries.
THE COMPANY
O&M is one of the two largest distributors of medical and surgical supplies in
the United States. The Company stocks and distributes approximately 140,000
finished medical and surgical products produced by approximately 2,400 suppliers
to approximately 4,000 customers from 42 distribution centers nationwide. The
Company's customers are primarily acute care hospitals and hospital-based
systems, which account for more than 90% of the Company's net sales, and also
include alternate care facilities such as clinics, surgery centers,
rehabilitation facilities, nursing homes, physicians' offices and home
healthcare. The majority of the Company's sales consist of disposable gloves,
dressings, endoscopic products, intravenous products, needles and syringes,
sterile procedure trays, surgical products and gowns, urological products and
wound closure products. In 1997, the Company reported net sales of $3.12 billion
and net income of $24.3 million.
The Company has significantly expanded its national presence over the last five
years through both internal growth and acquisitions. Since 1992, the Company has
grown from 29 medical distribution centers serving 37 states to 42 distribution
centers serving 50 states and the District of Columbia. In May 1994, the Company
acquired Stuart Medical, Inc. ("Stuart"), then the third largest distributor of
medical and surgical supplies in the United States with 1993 net sales of
approximately $890.5 million.
The Company distributes its products in a low-cost, efficient manner through its
use of advanced warehousing, delivery, purchasing and other techniques. The
Company has reduced the cost of its distribution infrastructure by implementing
warehouse technology, rationalizing its supplier relationships and reducing the
number of stock-keeping units ("SKUs") it carries from 250,000 to 140,000 during
1997.
The Company is committed to providing its customers and suppliers with the most
responsive, efficient and cost effective distribution system for the delivery of
medical and surgical products and services. To meet this commitment, the Company
has implemented the following strategy: (i) maintain the highest quality of
service in the medical/surgical supply distribution industry; (ii) develop and
distribute information technology that enables customers to reduce supply chain
costs and manage inventory more effectively; and (iii) service integrated
healthcare networks.
RECENT OPERATING RESULTS AND DEVELOPMENTS
For the quarter ended June 30, 1998, the Company's net sales were $799.0
million, an increase of 2.9% from net sales of $776.7 million in the second
quarter of 1997. Net income for the quarter ended June 30, 1998 was $0.1
million, including an after tax restructuring charge of $6.6 million. Net income
(loss) per basic and diluted common share was $(0.01) for the quarter, compared
to $0.14 for the same quarter in 1997.
For the six months ended June 30, 1998, the Company's net sales were $1.60
billion, an increase of 4.6% from net sales of $1.53 billion in the six months
ended June 30, 1997. Net income, after the restructuring charge, was $6.9
million in the first six months of 1998, compared to $10.8 million in the same
period last year. Net income per basic and diluted common share was $0.15 in the
first six months of 1998, compared to $0.26 in the same period last year.
During the second quarter of 1998, gross margin as a percentage of net sales
increased to 10.3% from 10.0% for the same period in 1997. This improvement
reflects the Company's continuing success with supply chain initiatives.
Selling, general and administrative expenses as a percentage of net sales were
7.6%, up from 7.5% for the same period in 1997. The Company incurred
approximately $0.7 million of expense during the second quarter of 1998
associated with Year 2000 systems remediation efforts.
The Company reduced its outstanding financing, excluding the TECONS, by $40.0
million in the second quarter of 1998. The Company's capitalization ratio
including the TECONS as equity was 43.8% at the end of the second quarter of
1998, compared to 50.2% at the end of the second quarter of 1997. Both of these
comparisons exclude the effect of its accounts receivable securitization
facility. The capitalization ratio at June 30, 1998 including the TECONS as debt
was 70.1%.
<PAGE>
On May 13, 1998, O&M applied substantially all of the proceeds of the Original
Offering to repurchase 1,150,000 shares of its Series B Preferred Stock.
On May 26, 1998, Columbia/HCA Healthcare Corporation ("Columbia/HCA") informed
the Company of its intention to cancel its medical/surgical supply contract. The
terms of this contract, which terminates in May 1999, permit cancellation by
either party without cause on 90 days notice. In 1997, approximately 11% of the
Company's net sales were to Columbia/HCA facilities.
The Company and Columbia/HCA have agreed upon a plan for transition of the
Columbia/HCA business. This plan will result in a reduction in purchases by
Columbia/HCA from the Company beginning in the third quarter of 1998. By the end
of the third quarter, the majority of the Columbia/HCA business should have
transferred from the Company.
The Company's preliminary estimates are that net income will be reduced by
approximately $1.5 million to $2.0 million in 1998 and approximately $3.0
million to $4.0 million in 1999, as the result of the early termination of this
contract. In addition, as a result of the contract termination, the Company
recorded a one-time restructuring charge of $6.6 million after taxes in the
second quarter of 1998, to reflect the Company's plan to downsize warehouse
operations in those divisions with the highest volumes of sales to Columbia/HCA
facilities. This charge consists primarily of costs associated with employee
separations and reductions in warehouse space.
***
The Company is a Virginia corporation incorporated in 1926, succeeding a
partnership founded in Richmond, Virginia in 1882. The Company's executive and
administrative offices are located at 4800 Cox Road, Glen Allen, Virginia 23060
and the Company's telephone number is (804) 747-9794.
<PAGE>
THE TECONS OFFERING
Securities Offered............ 2,640,000 $2.6875 Term Convertible Securities,
Series A ("TECONS").
Issuer........................ Owens & Minor Trust I, a Delaware business
trust. The sole assets of the Trust will consist
of the 5.375% Junior Subordinated Convertible
Debentures due 2013 (the "Junior
Subordinated Debentures") of O&M.
Guarantor..................... Owens & Minor, Inc., a Virginia corporation.
Distributions................. Distributions on the TECONS will accumulate from
May 13, 1998 and will be payable at an annual
rate of $2.6875 per TECONS. Subject to the
Distribution deferral provisions described
below, Distributions will be payable quarterly
in arrears on each January 31, April 30, July 31
and October 31, commencing July 31, 1998.
Because Distributions on the TECONS constitute
interest for U.S. federal income tax purposes,
corporate holders thereof will not be entitled
to a dividends received deduction.
Distribution Deferral The ability of the Trust to pay Distributions
Provisions.................... on the TECONS is solely dependent on the
receipt of interest payments from O&M on the
Junior Subordinated Debentures. So long as
O&M shall not be in default in the payment of
interest on the Junior Subordinated
Debentures, O&M has the right to defer
payments of interest on the Junior
Subordinated Debentures from time to time for
successive Extension Periods not exceeding 20
consecutive quarters for each such period;
provided that no such period may extend beyond
the stated maturity of the Junior Subordinated
Debentures. Quarterly Distributions on the
TECONS would be deferred by the Trust (but
would continue to accumulate quarterly and
accrue interest) until the end of any such
Extension Period. Upon the termination of an
Extension Period, payment is due on all
accrued and unpaid amounts on the Junior
Subordinated Debentures and upon such payment,
the Trust would be required to pay all
accumulated and unpaid Distributions. O&M
will give notice of its deferral of an
interest payment to the Trust no later than
ten business days prior to the related record
date (unless the Property Trustee shall be the
sole holder of the Junior Subordinated
Debentures, in which case notice will be given
no later than one business day prior to the
earlier of (i) the next succeeding Interest
Payment Date (as defined herein) or (ii) the
date the Company is required to give notice of
the related record date). See "Description of
the TECONS - Distributions" and "Description
of the Junior Subordinated Debentures - Option
to Extend Interest Payment Period" and "Risk
Factors -- Option to Extend Interest Payment
Period; Tax Impact of Extension." If a
deferral of an interest payment occurs, the
holders of the TECONS will accrue income for
U.S. federal income tax purposes in advance of
any corresponding cash Distribution. See
"Certain Federal Tax Consequences -- Interest
Income and Original Issue Discount" and "Risk
Factors - Option to Extend Interest Payment
Period; Tax Impact of Extension."
Rights Upon Deferral of During any period in which interest payments on
Distributions................. the Junior Subordinated Debentures are deferred,
interest will accrue on the Junior Subordinated
Debentures (compounded quarterly) and quarterly
Distributions will continue to accumulate with
interest thereon (to the extent permitted by
applicable law) at the Distribution rate,
compounded quarterly. O&M has agreed, among
other things, not to declare or pay any dividend
on its common stock or preferred stock or make
any guarantee payments with respect thereto
during any Extension Period, provided that the
foregoing shall not apply to any stock dividends
payable in O&M Common Stock. See "Description of
the Junior Subordinated Debentures - Option to
Extend Interest Payment Period" and "Risk
Factors - Option to Extend Interest Payment
Period; Tax Impact of Extension."
Conversion Rights............. Each TECONS is convertible at any time prior to
the close of business on April 30, 2013 (or, in
the case of TECONS called for redemption, prior
to the close of business on the Business Day (as
defined herein) prior to the applicable
redemption date) at the option of the holder
into shares of O&M Common Stock, at the rate of
2.4242 shares of O&M Common Stock for each
TECONS (equivalent to a conversion price of
$20.625 per share of O&M Common Stock for each
TECONS), subject to adjustment in certain
circumstances. The reported last sale price of
O&M Common Stock on the NYSE Composite Tape on
July 24, 1998, was $12.1875 per share. In
connection with any conversion of a TECONS, the
Conversion Agent (as defined herein) will
exchange such TECONS for the appropriate
principal amount of the Junior Subordinated
Debentures held for the Trust and immediately
convert such Junior Subordinated Debentures into
O&M Common Stock. No fractional shares of O&M
Common Stock will be issued as a result of
conversion, but in lieu thereof such fractional
interest will be paid by O&M in cash. See
"Description of the TECONS -- Conversion
Rights."
Liquidation Amount............ In the event of any liquidation of the Trust,
holders will be entitled to receive $50 per
TECONS plus an amount equal to any accumulated
and unpaid Distributions thereon to the date of
payment, unless Junior Subordinated Debentures
are distributed to such holders. See
"Description of the TECONS -- Liquidation
Distribution upon Dissolution."
Redemption.................... The Junior Subordinated Debentures will be
redeemable for cash, at the option of the
Company, in whole or in part, from time to
time on or after May 2, 2001 at the prices
specified herein or at any time in certain
circumstances upon the occurrence of a Tax
Event at a redemption price equal to 100% of
the principal amount to be redeemed plus any
accrued and unpaid interest thereon, including
Compounded Interest, if any, to the date of
redemption. If the Company redeems Junior
Subordinated Debentures, the Trust must
redeem, at the Redemption Price, Trust
Securities having an aggregate liquidation
amount equal to the aggregate principal amount
of the Junior Subordinated Debentures so
redeemed. The TECONS will not have a stated
maturity date, although they will be subject
to mandatory redemption upon the repayment of
the Junior Subordinated Debentures at their
stated maturity (April 30, 2013), upon
acceleration, earlier redemption or
otherwise. See "Description of the TECONS -
Mandatory Redemption" and "Description of the
Junior Subordinated Debentures -- Optional
Redemption."
Guarantee..................... O&M will irrevocably and unconditionally
guarantee, on a subordinated basis and to the
extent set forth herein, the payment in full of
(i) any accumulated and unpaid Distributions and
the amount payable upon redemption of the TECONS
to the extent O&M has made a payment to the
Property Trustee of interest or principal on the
Junior Subordinated Debentures and (ii)
generally, the liquidation amount of the TECONS
to the extent the Trust has assets available for
distribution to holders of TECONS. The Guarantee
will be unsecured and will be subordinate and
junior in right of payment to all other
liabilities of O&M and will rank pari passu in
right of payment with the most senior preferred
stock issued, from time to time, if any, by O&M.
See "Description of the Guarantee."
Voting Rights................. Generally, holders of the TECONS will not have
any voting rights. If (i) the Property Trustee
fails to enforce its rights under the Junior
Subordinated Debentures or (ii) the Guarantee
Trustee (as defined herein) fails to enforce its
rights under the Guarantee, a record holder of
the TECONS may institute a legal proceeding
directly against O&M to enforce such rights
without first instituting any legal proceeding
against any other person or entity.
Notwithstanding the foregoing, if an Indenture
Event of Default (as defined herein) occurs and
is continuing and is attributable to the failure
of O&M to pay interest or principal on the
Junior Subordinated Debentures or O&M has failed
to make a Guarantee Payment (as defined herein),
a holder of the TECONS may directly institute a
proceeding against O&M for enforcement of the
amount of such payment to be made to such
holder. See "Description of the TECONS Voting
Rights" and " - Declaration Events of Default."
Special Event Distribution; Upon the occurrence of a Special Event (as
Tax Event Redemption.......... defined herein), except in certain limited
circumstances, O&M may cause the Trust to be
dissolved and cause the Junior Subordinated
Debentures to be distributed to the holders of
the TECONS. In the case of a Tax Event (as
defined herein), O&M may also elect to cause the
TECONS to remain outstanding and pay Additional
Interest (as defined herein), if any, on the
Junior Subordinated Debentures. In certain
circumstances upon the occurrence of a Tax
Event, the Junior Subordinated Debentures may be
redeemed by O&M at 100% of the principal amount
thereof plus accrued and unpaid interest
thereon. See "Description of
the TECONS -- Special Event Redemption or
Distribution."
Junior Subordinated Debentures The Junior Subordinated Debentures will mature
of O&M........................ on April 30, 2013 and will bear interest at the
rate of 5.375% per annum, payable quarterly in
arrears. So long as O&M shall not be in default
in the payment of interest on the Junior
Subordinated Debentures, O&M has the right to
defer payments of interest on the Junior
Subordinated Debentures from time to time for
successive periods not exceeding 20 consecutive
quarters for each such period; provided that no
such period may extend beyond the stated
maturity of the Junior Subordinated Debentures.
Prior to the termination of any Extension
Period, O&M may pay all or a portion of the
accrued and unpaid interest or may further defer
interest payments provided the Extension Period,
as previously and further extended, does not
exceed 20 consecutive quarters. During any
Extension Period no interest shall be due, but
such interest shall continue to accrue and
compound quarterly. Upon termination of the
Extension Period, payment is due on all accrued
and unpaid amounts. After the payment of all
amounts then due, O&M may commence a new
Extension Period, subject to the conditions of
this paragraph. During any Extension Period, O&M
will be prohibited from paying dividends on any
of its common stock or preferred stock or making
any guarantee payments with respect thereto;
provided that the foregoing shall not apply to
any stock dividend or other stock distribution
payable by the Company. The payment of principal
and interest on the Junior Subordinated
Debentures will be subordinated in right of
payment to all present and future Senior and
Subordinated Debt of O&M. In addition, payment
of principal and interest on the Junior
Subordinated Debentures will be structurally
subordinated to the liabilities of O&M's
subsidiaries. As of June 30, 1998, the Company
had $150.0 million of Senior and Subordinated
Debt outstanding. The Indenture (as defined
herein), under which the Junior Subordinated
Debentures will be issued, does not limit the
aggregate amount of Senior and Subordinated Debt
that may be incurred by O&M and does not limit
the liabilities of the Company's subsidiaries.
The Junior Subordinated Debentures will have
provisions with respect to interest, optional
redemption and conversion into O&M Common Stock
and certain other terms substantially similar or
analogous to those of the TECONS. See
"Description of the Junior Subordinated
Debentures" and "Risk Factors - Leverage and
Subordination."
Use of Proceeds............... There will be no proceeds to the Company or
the Trust from the sale of TECONS pursuant to
this Prospectus.
Book-Entry; Delivery and Form. TECONS sold in reliance on Rule 144A are
represented by a single permanent global TECONS
certificate registered in the name of a nominee
of DTC. TECONS sold in offshore transactions in
reliance on Regulation S under the Securities
Act are represented by a single temporary global
TECONS in definitive, fully registered form
deposited with the Property Trustee, as
custodian for, and registered in the name of,
DTC for the accounts of Morgan Guaranty Trust
Company of New York, Brussels office, as
operator of the Euroclear System ("Euroclear"),
and Cedel Bank, S.A. ("Cedel"). TECONS resold
under this Prospectus will be represented by a
single permanent global TECONS certificate
registered in the name of a nominee of DTC. See
"Description of the TECONS -- Book-Entry;
Delivery and Form" and " -- The Global TECONS."
RISK FACTORS
Prospective purchasers of the TECONS should carefully consider the specific
matters set forth under "Risk Factors" as well as the other information and data
included, or incorporated by reference, in this Prospectus prior to making an
investment in the TECONS.
<PAGE>
RISK FACTORS
Prospective investors should consider carefully all the information contained
and incorporated by reference in this Prospectus, including the following risk
factors. This Prospectus contains forward-looking statements that are inherently
uncertain. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Company, or industry results, to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Factors that might cause or contribute to such
differences include, but are not limited to, the following risk factors. The
Company assumes no obligation to update the forward-looking information to
reflect actual results or changes in the factors affecting such forward-looking
information.
DEPENDENCE ON SALES TO CERTAIN CUSTOMERS
In 1997, net sales to member hospitals under contract with VHA, Inc. ("VHA"), a
national healthcare network, represented approximately 40% of the Company's net
sales. The termination of the Company's relationship with VHA would not
necessarily result in the loss of all of its member hospitals as customers,
but there can be no assurance of the effects of such a termination on the
Company. See "Business -- Customers."
On May 26, 1998, Columbia/HCA informed the Company of its intention to cancel
its medical/surgical supply contract. The terms of this contract, which
terminates in May 1999, permit cancellation by either party without cause on 90
days notice. In 1997, approximately 11% of the Company's net sales were to
Columbia/HCA facilities.
The Company and Columbia/HCA have agreed upon a plan for transition of the
Columbia/HCA business. This plan will result in a reduction in purchases by
Columbia/HCA from the Company beginning in the third quarter of 1998. By the end
of the third quarter, the majority of the Columbia/HCA business should have
transferred from the Company.
The Company's preliminary estimates are that net income will be reduced by
approximately $1.5 million to $2.0 million in 1998 and approximately $3.0
million to $4.0 million in 1999, as the result of the early termination of this
contract. In addition, as a result of the contract termination, the Company
recorded a one-time restructuring charge of $6.6 million after taxes in the
second quarter of 1998, to reflect the Company's plan to downsize warehouse
operations in those divisions with the highest volumes of sales to Columbia/HCA
facilities. This charge consists primarily of costs associated with employee
separations and reductions in warehouse space.
COMPETITION
The medical/surgical supply distribution industry in the United States is highly
competitive and consists of three major nationwide distributors: the Company,
Allegiance Corporation and McKesson Corp., which acquired General Medical
Corporation in February 1997. The industry also includes Bergen Brunswig Medical
Corporation, which is a wholly owned subsidiary of Bergen Brunswig Corporation
and is a smaller national distributor of medical and surgical products, and 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
orders accurately, delivery time, efficient computer communication capabilities,
services provided, breadth of product line and inventory management, including
the benefits of information technology and the ability to meet special
requirements of customers.
Further consolidation of medical and surgical supply distributors is expected to
continue through the purchase of smaller distributors by larger companies as a
result of competitive pressures in the marketplace. Increased competition from
these and future competitors, including those having greater financial and other
resources than the Company, could reduce sales and prices, adversely affecting
the Company's results of operations. See "Business -- Industry Overview" and
"Business -- Competition."
<PAGE>
CHANGING HEALTHCARE ENVIRONMENT
In recent years, the healthcare industry has undergone significant change driven
by various efforts to reduce costs, including potential national healthcare
reform, trends toward managed care, cuts in Medicare, consolidation of
pharmaceutical and medical and surgical supply distributors and the development
of large, sophisticated purchasing groups. The Company cannot predict whether
any healthcare reform efforts will be enacted and what effect any such reforms
may have on the Company, its practices and products or its customers and
suppliers. Changes in governmental support of healthcare services, the method by
which such services are delivered, the prices for such services or other
legislation or regulations governing such services or mandated benefits may have
a material adverse effect on the Company's results of operations.
READINESS FOR YEAR 2000
The Company is dependent upon computer-based systems to conduct its business
with both customers and suppliers. During 1997, the Company completed a
comprehensive review of these systems to identify those that could be affected
by the Year 2000 issue and has developed a strategy for remediation. This
strategy includes retirement of outdated software and replacement or repair of
the remaining software. The Company is also working closely with both customers
and suppliers to ensure that they have developed plans to address the Year 2000
issue. The Company expects that its Year 2000 remediation efforts will be
substantially complete by the end of the first quarter of 1999. Although the
Company expects its remediation efforts to be completed on a timely basis,
failure to do so could have a material adverse effect on the Company's results
of operations.
LEGAL PROCEEDINGS
The Company is a party to various legal actions described under the caption
"Business -- Legal Proceedings." There can be no assurance that an adverse
outcome of such legal actions would not have a material adverse effect on the
Company's results of operations. See "Business -- Legal Proceedings."
HOLDING COMPANY STRUCTURE
The Company conducts business through its direct subsidiaries, Owens & Minor
Medical, Inc. ("O&M Medical") and Stuart, and its indirect subsidiaries and has
no operations of its own. The Company will be dependent on the cash flow from
its subsidiaries in order to meet its debt service obligations, including its
obligations under the Junior Subordinated Debentures.
SUBORDINATION
The Junior Subordinated Debentures will be subordinated to all Senior and
Subordinated Debt (as defined herein) including, but not limited to,
indebtedness under the Revolving Credit Facility and the 10.875% Senior
Subordinated Notes due 2006. The obligations of the Company under the Guarantee
are subordinate and junior in right of payment to all liabilities of the Company
and pari passu in right of payment with the most senior preferred stock issued,
from time to time, if any, by the Company. As of June 30, 1998, the Company had
approximately $150.0 million in aggregate principal amount of Senior and
Subordinated Debt.
Upon any payment or distribution of assets to creditors upon any liquidation,
dissolution, winding up, receivership, reorganization, assignment for the
benefit of creditors, marshaling of assets and liabilities or any bankruptcy,
insolvency or similar proceedings of the Company, the holders of Senior and
Subordinated Debt will first be entitled to receive payment in full of all
amounts due or to become due under all Senior and Subordinated Debt before the
holders of the Junior Subordinated Debentures will be entitled to receive any
payment in respect of the principal of, premium, if any, or interest on such
Junior Subordinated Debentures. No payments on account of principal, premium, if
any, or interest in respect of the Junior Subordinated Debentures may be made if
there shall have occurred and be continuing a default in any payment under any
Senior and Subordinated Debt or during certain periods when an event of default
under certain Senior and Subordinated Debt permits the lenders thereunder to
accelerate the maturing of such Senior and Subordinated Debt. See "Description
of Junior Subordinated Debentures -- Subordination." The Guarantee will rank (i)
subordinate and junior in right of payment to all other liabilities of the
Company, including the Junior Subordinated Debentures, except those made pari
passu or subordinated by their terms and (ii) pari passu in right of payment
with the most senior preferred stock issued, from time to time, if any, by the
Company. See "Description of the Guarantee."
The Junior Subordinated Debentures will be effectively subordinated to the
indebtedness and other obligations (including trade payables) of the Company's
subsidiaries. At March 31, 1998, the obligations of the Company's subsidiaries
aggregated approximately $302.8 million. The ability of the Company to pay
principal of, premium, if any, and interest on the Junior Subordinated
Debentures will be dependent upon the receipt of funds from its subsidiaries by
way of dividends, fees, interest, loans or otherwise. There are no terms in the
Junior Subordinated Debentures, the TECONS or the Guarantee that limit the
Company's or its subsidiaries' ability to incur additional indebtedness. The
Company's subsidiaries are separate and distinct legal entities and have no
obligation, contingent or otherwise, to pay any amounts due pursuant to the
Junior Subordinated Debentures or the TECONS or to make any funds available
therefor, whether by dividends, loans or other payments, and do not guarantee
the payment of interest or distributions on or principal of the Junior
Subordinated Debentures or the TECONS. Any right of the Company to receive any
assets of any of its subsidiaries upon any liquidation, dissolution, winding up,
receivership, reorganization, assignment for the benefit of creditors,
marshaling of assets and liabilities or any bankruptcy, insolvency or similar
proceedings of the Company (and the consequent right of the holders of the
Junior Subordinated Debentures and the TECONS to participate in the distribution
of, or to realize proceeds from, those assets) will be effectively subordinated
to the claims of any such subsidiary's creditors (including trade creditors and
holders of debt issued by such subsidiary). The Company currently conducts
substantially all of its operations through its subsidiaries. See "Description
of the Guarantee" and "Description of the Junior Subordinated Debentures --
Subordination."
RISK OF FRAUDULENT TRANSFER
Various fraudulent conveyance laws have been enacted for the protection of
creditors and may be applied by a court on behalf of any unpaid creditor or a
representative of O&M's creditors in a lawsuit to subordinate or avoid the
Junior Subordinated Debentures in favor of other existing or future creditors of
O&M. Under applicable provisions of the U.S. Bankruptcy Code or comparable
provisions of state fraudulent transfer or conveyance laws, if O&M at the time
of issuance of the Junior Subordinated Debentures, (i) incurred such
indebtedness with intent to hinder, delay or defraud any present or future
creditor of O&M or contemplated insolvency with a design to prefer one or more
creditors to the exclusion in whole or in part of others or (ii) received less
than reasonably equivalent value or fair consideration for issuing the Junior
Subordinated Debentures and O&M (a) was insolvent, (b) was rendered insolvent by
reason of the issuance of the Junior Subordinated Debentures, (c) was engaged or
about to engage in business or a transaction for which the remaining assets of
O&M constitute unreasonably small capital to carry on its business or (d)
intended to incur, or believed that it would incur, debts beyond its ability to
pay such debts as they mature, then, in each case, a court of competent
jurisdiction could void, in whole or in part, the Junior Subordinated
Debentures. Among other things, a legal challenge of the Junior Subordinated
Debentures on fraudulent conveyance grounds may focus on the benefits, if any,
realized by O&M as a result of the issuance by O&M of the Junior Subordinated
Debentures.
The measure of insolvency for purposes of the foregoing will vary depending upon
the law applied in such case. Generally, however, O&M would be considered
insolvent if the sum of its debts, including contingent liabilities, were
greater than all of its assets at fair valuation or if the present fair market
value of its assets were less than the amount that would be required to pay the
probable liability on its existing debts, including contingent liabilities, as
they become absolute and mature. There can be no assurance that, after providing
for all prior claims, there will be sufficient assets to satisfy the claims of
the holders of the Junior Subordinated Debentures.
Management believes that, for purposes of all such insolvency, bankruptcy and
fraudulent transfer or conveyance laws, the Junior Subordinated Debentures are
being incurred without the intent to hinder, delay or defraud creditors and for
proper purposes and in good faith, and that O&M after the issuance of the Junior
Subordinated Debentures will be solvent, will have sufficient capital for
carrying on its business and will be able to pay its debts as they mature. There
can be no assurance, however, that a court passing on such questions would agree
with management's view.
ABILITY OF O&M TRUST TO MAKE DISTRIBUTIONS
The ability of O&M Trust to make distributions and other payments on the TECONS
is solely dependent upon the Company making interest and other payments on the
Junior Subordinated Debentures deposited as trust assets as and when required.
If the Company were not to make distributions or other payments on the Junior
Subordinated Debentures for any reason, including as a result of the Company's
election to defer the payment of interest on the Junior Subordinated Debentures
by extending the interest period on the Junior Subordinated Debentures, O&M
Trust will not make payments on the Trust Securities. In such an event, holders
of the TECONS would not be able to rely on the Guarantee since distributions and
other payments on the TECONS are subject to the Guarantee only if and to the
extent that the Company has made a payment to the Property Trustee of interest
or principal on the Junior Subordinated Debentures deposited in the Trust as
trust assets. Instead, holders of TECONS would rely on the enforcement by the
Property Trustee of its rights as registered holder of the Junior Subordinated
Debentures against the Company pursuant to the terms of the Indenture (as
defined herein). However, if the Trust's failure to make distributions on the
TECONS is a consequence of the Company's exercise of its right to extend the
interest payment period for the Junior Subordinated Debentures, the Property
Trustee will have no right to enforce the payment of distributions on the TECONS
until an Event of Default (as defined herein) under the Declaration (as defined
herein) shall have occurred.
The Declaration provides that the Company shall pay for all debts and
obligations (other than with respect to the Trust Securities) and all costs and
expenses of O&M Trust, including any taxes and all costs and expenses with
respect thereto, to which the Trust may become subject, except for United States
withholding taxes. No assurance can be given that the Company will have
sufficient resources to enable it to pay such debts, obligations, costs and
expenses on behalf of the Trust.
OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX IMPACT OF EXTENSION
So long as the Company shall not be in default in the payment of interest on the
Junior Subordinated Debentures, the Company has the right under the Indenture to
defer payments of interest on the Junior Subordinated Debentures by extending
the interest payment period from time to time on the Junior Subordinated
Debentures for an extension period not exceeding 20 consecutive quarterly
interest periods (an "Extension Period"), during which no interest shall be due
and payable. In such an event, quarterly distributions on the TECONS would not
be made by the Trust during any such Extension Period. If the Company exercises
the right to extend an interest payment period, the Company may not during such
Extension Period declare or pay dividends on, or redeem, purchase, acquire or
make a distribution or liquidation payment with respect to, any of its common
stock or preferred stock; provided that (i) the Company will be permitted to pay
accumulated dividends upon the exchange or redemption of any series of preferred
stock of the Company as may be outstanding from time to time, in accordance with
the terms of such stock and (ii) the foregoing will not apply to stock dividends
paid by the Company. Under its Amended and Restated Certificate of
Incorporation, the Company is authorized to issue up to 10,000,000 shares of
preferred stock. As of June 30, 1998, no shares of the Company's preferred stock
were outstanding. The Company may from time to time offer shares of its
preferred stock to the public.
Prior to the termination of any Extension Period, the Company may further extend
such Extension Period; provided that such Extension Period together with all
such previous and further extensions thereof may not exceed 20 consecutive
quarterly interest periods. Upon the termination of any Extension Period and the
payment of all amounts then due, the Company may commence a new Extension
Period, subject to the above requirements. The Company may also prepay at any
time all or any portion of the interest accrued during an Extension Period.
Consequently, there could be multiple Extension Periods of varying lengths
throughout the term of the Junior Subordinated Debentures, not to exceed 20
consecutive quarters or to cause any extension beyond the maturity of the Junior
Subordinated Debentures.
<PAGE>
Should an Extension Period occur, a holder of TECONS will accrue income (in the
form of original issue discount) for United States federal income tax purposes
in respect of its pro rata share of the Junior Subordinated Debentures held by
the Trust. As a result, a holder of TECONS will include such interest income in
gross income for United States federal income tax purposes in advance of the
receipt of cash attributable to such original issue discount interest income,
and will not receive the cash related to such income from the Trust if the
holder disposes of the TECONS prior to the record date for the payment of
distributions with respect to such Extension Period. See "Certain Federal Tax
Consequences -- Interest Income and Original Issue Discount" and " -- Sale or
Redemption of TECONS."
The Company has no current intention of exercising its right to defer payments
of interest by extending the interest payment period on the Junior Subordinated
Debentures. However, should the Company elect to exercise such right in the
future, the market price of the TECONS is likely to be affected. A holder that
disposes of its TECONS during an Extension Period, therefore, might not receive
the same return on its investment as a holder that continues to hold its TECONS.
In addition, as a result of the existence of the Company's right to defer
interest payments, the market price of the TECONS (which represents preferred
undivided beneficial interests in the assets of the Trust) may be more volatile
than the market prices of other securities on which original issue discount
accrues that are not subject to such deferrals.
SPECIAL EVENT REDEMPTION OR DISTRIBUTION
Upon the occurrence and during the continuation of a Tax Event or Investment
Company Event (each as defined herein), which may occur at any time, the Trust
shall, unless the Junior Subordinated Debentures are redeemed in the limited
circumstances described below, be dissolved with the result that Junior
Subordinated Debentures having an aggregate principal amount equal to the
aggregate stated liquidation amount of the TECONS and Common Securities would be
distributed on a Pro Rata Basis (as defined herein) to the holders of the TECONS
and Common Securities in liquidation of such Trust. In the case of a Tax Event,
in certain circumstances, the Company shall have the right to redeem at any time
the Junior Subordinated Debentures in whole or in part, in which event the Trust
will redeem TECONS and Common Securities on a Pro Rata Basis to the same extent
as the Junior Subordinated Debentures are redeemed. There can be no assurance as
to the market prices for TECONS or the Junior Subordinated Debentures which may
be distributed in exchange for TECONS if a dissolution and liquidation of the
Trust were to occur. Accordingly, the TECONS that an investor may purchase, or
the Junior Subordinated Debentures that the investor may receive on dissolution
and liquidation of the Trust, may trade at a discount to the price that the
investor paid to purchase the TECONS, offered hereby. Because holders of TECONS
may receive Junior Subordinated Debentures upon the occurrence of a Special
Event (as defined herein), prospective purchasers of TECONS are also making an
investment decision with regard to the Junior Subordinated Debentures and should
carefully review all the information regarding the Junior Subordinated
Debentures.
There can be no assurance that future federal legislation will not prevent the
Company from deducting interest on the Junior Subordinated Debentures. This
would constitute a Tax Event and could result in the distribution of any Junior
Subordinated Debentures to holders of the TECONS or, in certain circumstances,
the redemption of such securities by the Company and the distribution of the
resulting cash in redemption of the TECONS.
"Tax Event" means that the Regular Trustees (as defined herein) shall have
obtained an opinion of a nationally recognized independent tax counsel
experienced in such matters (a "Dissolution Tax Opinion") to the effect that on
or after the date of the Prospectus as a result of (a) any amendment to, or
change (including any announced prospective change) in, the laws (or any
regulations thereunder) of the United States or any political subdivision or
taxing authority thereof or therein, (b) any amendment to, or change in, an
interpretation or application of any such laws or regulations by any legislative
body, court, governmental agency or regulatory authority (including the
enactment of any legislation and the publication of any judicial decision or
regulatory determination), (c) any interpretation or pronouncement that provides
for a position with respect to such laws or regulations that differs from the
theretofore generally accepted position or (d) any action taken by any
governmental agency or regulatory authority, which amendment or change is
enacted, promulgated, issued or effective or which interpretation or
pronouncement is issued or announced or which action is taken, in each case on
or after the date of the Prospectus (including, without limitation, any of the
foregoing arising with respect to, or resulting from, any proposal, proceeding
or other action commencing on or before the date of this Prospectus), there is
more than an insubstantial risk that (i) the Trust is, or will be within 90 days
of the date thereof, subject to United States federal income tax with respect to
income accrued or received on the Junior Subordinated Debentures, (ii) the Trust
is, or will be within 90 days of the date thereof, subject to more than a de
minimis amount of other taxes, duties or other governmental charges or (iii)
interest payable by the Company to the Trust on the Junior Subordinated
Debentures is not, or within 90 days of the date thereof will not be, deductible
by the Company for United States federal income tax purposes. According to a
petition recently filed in the United States Tax Court by a corporation
unrelated to the Company and the Trust, the Internal Revenue Service has
challenged the deductibility for United States federal income tax purposes of
interest payments on certain purported debt instruments held by entities
intended to be taxable as partnerships for United States federal income tax
purposes, where those entities, in turn, issued preferred securities to
investors. Although the overall structure of the financing arrangement involved
in that case is somewhat similar to the financing structure for the Junior
Subordinated Debentures and the Trust, the relevant facts in that case appear to
differ significantly from those relating to the Junior Subordinated Debentures
and the Trust. Whether the Internal Revenue Service would attempt to challenge
the deductibility of interest on the Junior Subordinated Debentures cannot be
predicted. The Company, based on the advice of counsel, intends to take the
position that interest payments on the Junior Subordinated Debentures will be
deductible by the Company for United States federal income tax purposes. See
"Certain Federal Tax Consequences -- Classification of the Junior Subordinated
Debentures." Adverse developments relating to the deductibility of interest,
whether arising in connection with the case currently pending in the United
States Tax Court or not, could give rise to a Tax Event.
"Investment Company Event" means that the Regular Trustees shall have received
an opinion of nationally recognized independent counsel experienced in practice
under the Investment Company Act of 1940, as amended (the "1940 Act"), that as a
result of the occurrence of a change in law or regulation or a change in
interpretation or application of law or regulation by any legislative body,
court, governmental agency or regulatory authority (a "Change in 1940 Act Law"),
there is more than an insubstantial risk that the Trust is or will be considered
an "investment company" which is required to be registered under the 1940 Act,
which Change in 1940 Act Law becomes effective on or after the date of any
accompanying Prospectus relating to Junior Subordinated Debentures.
"Special Event" means a Tax Event or an Investment Company Event.
LIMITED VOTING RIGHTS
Generally, holders of TECONS will not have any voting rights, and will not be
able to appoint, remove or replace, or to increase or decrease the number of,
Trustees, which rights are vested exclusively in the holders of the Common
Securities.
TRADING PRICES OF TECONS
The TECONS may trade at a price that does not fully reflect the value of accrued
but unpaid interest with respect to the underlying Junior Subordinated
Debentures. A holder who disposes of its TECONS between record dates for
payments of distributions thereon will be required to include accrued but unpaid
interest on the Junior Subordinated Debentures through the date of disposition
in income as ordinary income, and to add such amount to its adjusted tax basis
in its pro rata share of the underlying Junior Subordinated Debentures deemed
disposed of. Accordingly, such a holder will recognize a capital loss to the
extent the selling price (which may not fully reflect the value of accrued but
unpaid interest) is less than the holders adjusted tax basis (which will include
accrued but unpaid interest). Subject to certain limited exceptions, capital
losses cannot be applied to offset ordinary income for United States federal
income tax purposes.
POTENTIAL MARKET VOLATILITY DURING EXTENSION PERIOD
As described above, the Company has the right to extend an interest payment
period on the Junior Subordinated Debentures from time to time for a period not
exceeding 20 consecutive quarterly interest periods. If the Company determines
to extend an interest payment period, or if the Company thereafter extends an
Extension Period or prepays interest accrued during an Extension Period as
described above, the market price of the TECONS is likely to be affected. In
addition, as a result of such rights, the market price of the TECONS (which
represent an undivided interest in Junior Subordinated Debentures) may be more
volatile than other securities on which original issue discount accrues that do
not have such rights. A holder that disposes of its TECONS during an Extension
Period, therefore, may not receive the same return on its investment as a holder
that continues to hold its TECONS.
POSSIBLE PRICE VOLATILITY OF THE TECONS AND LACK OF PUBLIC MARKET
There can be no assurance that an active trading market for the TECONS will
develop or be sustained. If such a market were to develop, the TECONS could
trade at prices that may be higher or lower than their offering price depending
upon many factors, including prevailing interest rates, the Company's operating
results and the markets for similar securities. Historically, the market for
non-investment grade debt has demonstrated substantial volatility in the prices
of securities similar to the TECONS. There can be no assurance that the future
market for the TECONS will not be subject to similar volatility. Accordingly, no
assurance can be given as to the liquidity of the TECONS.
The Initial Purchasers have informed the Company that they currently intend to
make a market in the TECONS. However, they are not obligated to do so, and any
such market making may be discontinued at any time without notice. See "Plan of
Distribution."
<PAGE>
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDEND REQUIREMENTS
The following table sets forth the ratio of earnings to combined fixed charges
and preferred stock dividend requirements.
Three Months
Year ended December 31, Ended March 31,
------------------------------- ---------------
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
Ratio of earnings to combined
fixed charges and preferred
stock dividend
requirements ................ 6.23 1.35 0.48(1) 1.32 1.83 1.96
- -------------------
(1) Earnings are inadequate by $20.4 million to cover combined fixed charges and
preferred stock dividend requirements.
The ratio of earnings to combined fixed charges and preferred stock dividend
requirements represents the number of times combined fixed charges and the
preferred stock dividend requirements are covered by earnings. For purposes of
computing this ratio, earnings consist of income (loss) from continuing
operations before income tax provision (benefit), plus fixed charges. Fixed
charges consist of net interest expense, discount on accounts receivable
securitization, amortization of debt issuance costs and such portion of rental
expense which the Company estimates to be representative of the interest factor
attributable to such rental expense. The preferred stock dividend requirements
are computed by increasing the preferred stock dividend by an amount
representing the pre-tax earnings which would be required to cover such
preferred stock dividend requirements. A statement setting forth the computation
of the above ratios is on file as an exhibit to the Registration Statement of
which this Prospectus is a part.
During the period from May 10, 1994 until May 13, 1998, 1,150,000 shares of the
Company's Series B Preferred Stock were outstanding, and during that period the
Company paid Preferred Stock dividends of approximately $20.7 million. On May
13, 1998, O&M applied substantially all of the proceeds of the Original Offering
to repurchase 1,150,000 shares of its Series B Preferred Stock.
USE OF PROCEEDS
There will be no proceeds to the Company or the Trust from the sale of the
TECONS pursuant to this Prospectus.
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
O&M Common Stock trades on the NYSE under the symbol "OMI." The following table
sets forth for the periods indicated the high and low prices for the Common
Stock as reported on the NYSE Composite Tape.
High Low
1996
First Quarter............................. $12.75 $11.25
Second Quarter............................ 14.38 11.63
Third Quarter............................. 11.75 9.25
Fourth Quarter............................ 10.88 9.25
1997
First Quarter............................. $11.38 $9.75
Second Quarter............................ 16.25 10.75
Third Quarter............................. 15.38 12.63
Fourth Quarter............................ 14.88 13.13
1998
First Quarter............................. $19.88 $13.13
Second Quarter............................ 18.88 10.00
Third Quarter (through July 24)........... 13.13 10.00
On July 24, 1998, the reported last sale price of O&M Common Stock on the NYSE
Composite Tape was $12.1875 per share. As of July 24, 1998, there were
approximately 14,500 common shareholders.
The Company paid cash dividends to common shareholders of $0.045 per share in
each quarter of 1996 and 1997 and $0.05 per share in each of the first quarter
and the second quarter of 1998. Covenants in the Company's Revolving Credit
Facility and indenture for the Existing Notes restrict the ability of the
Company to pay cash dividends on its common stock.
<PAGE>
BUSINESS
OVERVIEW OF THE COMPANY
O&M is one of the two largest distributors of medical and surgical supplies in
the United States. The Company stocks and distributes approximately 140,000
finished medical and surgical products produced by approximately 2,400 suppliers
to approximately 4,000 customers from 42 distribution centers nationwide. The
Company's customers are primarily acute care hospitals and hospital-based
systems, which account for more than 90% of the Company's net sales, and also
include alternate care facilities such as clinics, surgery centers,
rehabilitation facilities, nursing homes, physicians' offices and home
healthcare. The majority of the Company's sales consist of disposable gloves,
dressings, endoscopic products, intravenous products, needles and syringes,
sterile procedure trays, surgical products and gowns, urological products and
wound closure products. In 1997, the Company reported net sales of $3.12 billion
and net income of $24.3 million.
The Company has significantly expanded its national presence over the last five
years through both internal growth and acquisitions. Since 1992, the Company has
grown from 29 medical distribution centers serving 37 states to 42 distribution
centers serving 50 states and the District of Columbia. In May 1994, the Company
acquired Stuart, then the third largest distributor of medical and surgical
supplies in the United States with 1993 net sales of approximately $890.5
million.
The Company distributes its products in a low-cost, efficient manner through its
use of advanced warehousing, delivery, purchasing and other techniques. The
Company has reduced the cost of its distribution infrastructure by implementing
warehouse technology, rationalizing its supplier relationships and reducing the
number of SKUs it carries from 250,000 to 140,000 during 1997.
BUSINESS STRATEGY
The Company is committed to providing its customers and suppliers with the most
responsive, efficient and cost effective distribution system for the delivery of
medical and surgical products and services. To meet this commitment, the Company
has implemented the following strategy:
(i) Maintain the highest quality of service in the medical/surgical supply
distribution industry. O&M distributes approximately 140,000 medical and
surgical supplies to approximately 4,000 customers nationwide. The Company
maintains its high quality distribution services by providing customers with
local sales and service support and timely delivery of supplies. In addition,
the Company provides services to assist customers with cost containment,
efficiency and standardization.
(ii) Convert information into knowledge into profits. The Company has created a
valuable database of information from its customers and suppliers as well as
from its own internal activities. The Company uses this information about
product usage, ordering patterns and supplier agreements to help customers
reduce delivery costs and manage inventory more effectively. For example, the
Company's CostTrack activity-based management program enables customers to
select the distribution services that are most valuable to them and to make
process changes that reduce system costs. The Company's Decision Support System
("DSS") enables the Company to provide customers with account-specific
information on product usage and ordering patterns.
(iii) Service integrated healthcare networks. Major acute care hospitals have
become hospital consolidators, aligning with or acquiring outpatient and
long-term care facilities to form integrated healthcare networks ("IHNs"). The
Company works as a partner with IHNs to identify and fulfill the distinct order
management and distribution needs of the various segments of each network. Using
technological tools, the Company assists its IHN customers to operate as unified
networks, align business functions, standardize products and reduce costs. For
instance, with DSS, the Company can provide the IHN with comparisons of product
usage, ordering and pricing patterns for each of the facilities within the
network so that the IHN can standardize its facilities with the appropriate
products at the lowest cost.
<PAGE>
INDUSTRY OVERVIEW
Distributors of medical and surgical supplies provide a wide variety of medical
and surgical products to healthcare providers, including hospitals and
hospital-based systems, IHNs and alternate care providers. In recent years, the
medical/surgical supply distribution industry has grown due to the rising
consumption of medical and surgical supplies. The increase in consumption has
been the result of an aging population and emerging medical technology resulting
in new healthcare procedures and products. The healthcare industry has also been
characterized by the consolidation of healthcare providers into larger and more
sophisticated entities that are increasingly seeking lower procurement costs and
incremental services through a broad distribution network capable of meeting all
of their inventory management needs. In recent years, major acute care hospitals
have become hospital consolidators, aligning with or acquiring any number of
outpatient and long-term care facilities to form IHNs. As a whole, these IHNs
provide a full continuum of inpatient, outpatient and long-term care and are
looking for partners to fulfill the distinct order management and distribution
needs of their entire network.
The traditional role of a distributor involves warehousing and delivering
medical and surgical supplies to a customer. Increasingly, distributors assist
their partners to operate as a more unified network and act as asset managers.
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, is more useful to both suppliers and customers than
that of smaller distributors. 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.
These services have been built upon the large distributors' capabilities to
develop and manage large databases of information with the flexibility to
interact with various customer needs. The Company expects that further
consolidation in the medical/surgical supply distribution industry will continue
because of the competitive advantages enjoyed by larger distributors.
CUSTOMERS
The Company currently markets its distribution services to approximately 4,000
healthcare providers, including hospitals, IHNs 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 may be unavailable to
individual members. Hospitals, physicians and other types of healthcare
providers have joined Networks and GPOs to obtain services from medical and
surgical supply distributors ranging from discounted product pricing to
logistical and clinical support. Networks and GPOs negotiate directly with both
medical and surgical product suppliers and distributors on behalf of their
members, establishing exclusive or multi-supplier relationships.
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 supplier. 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 and surgical
products and for logistical services 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 suppliers. 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. 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. Sales to the Company's top five Network or
GPO customers represented approximately 78% of its net sales in 1997. Since
1985, the Company has been a distributor for VHA, one of the largest provider
networks for not-for-profit hospitals, representing over 1,500 healthcare
organizations. Sales to members of VHA represented approximately 40% of the
Company's net sales in 1997.
<PAGE>
INTEGRATED HEALTHCARE NETWORKS
An IHN 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 IHN 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 seeks to offer a broad spectrum of healthcare
services and comprehensive geographic coverage to a particular local market.
Although an IHN may include alternate care facilities, hospitals are usually the
key component of any IHN.
O&M believes that IHNs 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 IHN 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 IHNs are usually committed to using the
primary distributor designated at the corporate level because they are all part
of the same legal entity. Because IHNs frequently rely on cost containment as a
competitive advantage, IHNs have become an important source of demand for O&M's
enhanced inventory management and other value-added services.
Since 1994, the Company has been the primary distributor for Columbia/HCA, an
investor-owned system of hospitals and alternate care facilities. The Company
provides distribution and other inventory management services to Columbia/HCA
hospitals and alternate care facilities. Columbia/HCA is the Company's largest
IHN customer, owning over 300 hospitals and over 600 alternate care providers
throughout the United States.
On May 26, 1998, Columbia/HCA informed the Company of its intention to cancel
its medical/surgical supply contract. The terms of this contract, which
terminates in May 1999, permit cancellation by either party without cause on 90
days notice. In 1997, approximately 11% of the Company's net sales were to
Columbia/HCA facilities.
The Company and Columbia/HCA have agreed upon a plan for transition of the
Columbia/HCA business. This plan will result in a reduction in purchases by
Columbia/HCA from the Company beginning in the third quarter of 1998. By the end
of the third quarter, the majority of the Columbia/HCA business should have
transferred from the Company.
The Company's preliminary estimates are that net income will be reduced by
approximately $1.5 million to $2.0 million in 1998 and approximately $3.0
million to $4.0 million in 1999, as the result of the early termination of this
contract. In addition, as a result of the contract termination, the Company
recorded a one-time restructuring charge of $6.6 million after taxes in the
second quarter of 1998, to reflect the Company's plan to downsize warehouse
operations in those divisions with the highest volumes of sales to Columbia/HCA
facilities. This charge consists primarily of costs associated with employee
separations and reductions in warehouse space.
INDIVIDUAL PROVIDERS
In addition to contracting with healthcare providers at the IHN level and
through Networks and GPOs, O&M contracts directly with healthcare providers. In
1997, not-for-profit hospitals represented a majority of these facilities.
CONTRACTS AND PRICING
Industry practice is for healthcare providers to negotiate product pricing
directly with suppliers and then negotiate distribution pricing terms with
distributors. Contracts in the medical/surgical supply distribution industry
establish the price at which products will be distributed, but generally do not
require minimum purchase volumes 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 Company continuously makes proposals
for the acquisition of new contracts from existing and possible new customers
and the retention of business from existing customers. There can be no assurance
that the Company will retain any particular contracts when they come up for
renewal or that it will obtain any new contracts for which proposals are
requested.
<PAGE>
The majority of the Company's contracts compensate the Company on a cost-plus
percentage basis under which a negotiated percentage distributor fee is added to
the product cost agreed to by the customer and the supplier. This negotiated
distributor fee is calculated either on a fixed cost-plus percentage basis or a
variable cost-plus percentage basis that varies according to the services
rendered and the dollar volume of purchases. Under this variable type of
pricing, as the Company's sales to an institution grow, the cost-plus pricing
charged to the customer decreases. Additionally, the Company has contracts that
charge incremental fees for additional distribution and enhanced inventory
management services, such as more 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 and 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. See "Business -- Asset Management."
The Company's information technology ("IT") systems enable the Company to offer
its customers the following services to minimize their inventory holding
requirements:
FOCUS ON CONSOLIDATION, UTILIZATION & STANDARDIZATION (FOCUS). The FOCUS program
drives standardization and consolidation that increases the volume of purchases
from the Company's most efficient suppliers and provides operational benefit for
customers.
COSTTRACK. CostTrack is an activity-based costing and pricing model that allows
management to identify the cost-drivers in specific distribution activities,
giving customers the information they need to make decisions about the
distribution services they require. CostTrack is also used to price value-added
services accurately.
DECISION SUPPORT SYSTEM. DSS enables the Company to customize and analyze
information for its customers so that they can make better, well-supported
business decisions. Through distribution activities, the Company collects and
stores a wealth of information about customers' product usage, ordering patterns
and contractual agreements with suppliers. This leading-edge technology enables
comparisons of information about product usage, ordering and pricing for each of
the facilities within an integrated healthcare network. With this information in
hand, a customer can standardize all facilities on the right products at the
lowest cost.
PANDAC(R). The PANDAC(R) wound closure management system 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.
INFORMATION TECHNOLOGY
O&M makes major investments each year in IT to improve operational efficiency,
enhance business decision making and support supply chain management initiatives
with customers and suppliers.
Electronic Data Interchange is an integral part of the Company's IT and business
strategy, and the Company is at the forefront in using electronic commerce
technologies with customers and suppliers for efficient purchasing, invoicing,
funds transfer and contract pricing. Computer-to-computer transfer of data
through EDI significantly reduces the paperwork and manual effort required to
process business transactions and is a key contributor to the Company's
operational efficiency. With the rapid evolution of the Internet, the Company is
responding in 1998 with the introduction of an electronic product catalog and an
Internet-based direct ordering system for use by customers.
<PAGE>
In 1997, the Company introduced its data warehousing system and DSS. DSS, which
won the Data Warehousing Institute 1997 Best Practices Award, gives users
throughout the Company the ability to access a repository of business data for
ad hoc reporting and analysis. Selected customers are also using the DSS
information to make cost saving decisions related to product standardization and
utilization. In 1998, the DSS capabilities will be made available to customers
and suppliers.
Currently, the majority of the Company's computing needs is met by traditional
mainframe-based software applications. A new inventory forecasting system
implemented during 1996 was the Company's first client/server application, and
the Company continues to enhance this inventory forecasting system. In 1998, O&M
will be undertaking a major initiative to implement a new client/server
warehouse management system in all operating Divisions. This new system will
enable the Company to standardize warehousing business practices across the
country and to continue to promote operational efficiency.
The Company is working to ensure that its systems are date compliant for the
next millennium, and is either replacing, repairing or retiring computer
hardware, system software and business applications as needed to ensure Year
2000 compliance. The Company is also working closely with customers and
suppliers to ensure that they have developed plans to address the Year 2000
issue. The Company expects that its Year 2000 remediation efforts will be
substantially complete by the end of the first quarter of 1999.
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 240 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. The first tier of the Company's sales force focuses on developing
relationships with large hospitals, IHN customers and certain alternate site
customers. The second tier, the sales representatives, aims to increase
penetration of existing accounts and provides daily support services to existing
accounts. The remaining tier, the Company's customer service representatives,
provides general daily support and information to new and existing customers.
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 division sales and marketing personnel receive performance based
compensation aligned with customer satisfaction and O&M's financial performance.
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 and
PANDAC(R).
SUPPLIERS
The Company believes that its size, strong, long-standing relationships and
independence enable it to obtain attractive terms and incentives from suppliers
and contribute significantly to the Company's gross margin. The Company conducts
business with approximately 2,400 suppliers and has well established
relationships with virtually all of the major suppliers of medical and surgical
supplies. Approximately 20% of the Company's net sales in 1997 were sales of
Johnson & Johnson Hospital Services, Inc. products.
<PAGE>
DISTRIBUTION
The Company employs a decentralized approach to sales and customer service,
operating 42 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. Although the Company continues to seek opportunities to reduce costs,
it still supports the belief 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 and surgical supplies with a leased fleet of
trucks. Distribution centers generally service hospitals and other customers
within, on average, a 100 to 150 mile radius. Parcel services are used to
transport all other medical and surgical supplies. The frequency of deliveries
from distribution centers to principal accounts varies by customer account.
ASSET MANAGEMENT
The Company aims to provide the highest quality of service in the
medical/surgical supply distribution industry by focusing on providing suppliers
and customers with local sales and service support and the most responsive,
efficient and cost effective distribution of medical and surgical products. The
Company draws on technology to provide a broad range of value-added services in
order to attract and retain customers and suppliers and control inventory and
accounts receivable. The Company has made significant investments in information
technology and advanced warehousing, delivery and purchasing techniques to help
customers reduce delivery costs, manage inventory more effectively and
electronically place orders for supplies.
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
140,000 finished medical and surgical products produced or distributed by
approximately 2,400 suppliers. The majority of these products consists of
disposable gloves, dressings, endoscopic products, intravenous products, needles
and syringes, sterile procedure trays, surgical products and gowns, urological
products and wound closure products. The significant and ongoing emphasis on
cost control in the healthcare industry puts pressure on distributors and
healthcare providers to create more efficient inventory management systems.
The Company has responded to these ongoing changes by developing and 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, to 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. The
forecasting system uses historical information to analyze current and historic
trends to reduce the cost of carrying unnecessary inventory and to increase
inventory turnover. CRP, which utilizes computer-to-computer interfaces, allows
suppliers 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 increasing the volume of purchases from its most efficient suppliers, the
Company reduces operational costs for its customers, its suppliers and itself.
To qualify as a FOCUS partner, the Company requires participating suppliers to
satisfy minimum requirements, such as automated purchasing, exceeding minimum
fill rates and offering a flexible returned goods policy.
In 1997, the Company reduced its number of SKUs to approximately 140,000 from
250,000 and also reduced the number of suppliers with which it conducts business
from approximately 3,000 to 2,400. In addition, the Company increased its
inventory turnover to 9.9 times at December 31, 1997 from 8.9 times at December
31, 1996.
<PAGE>
ACCOUNTS RECEIVABLE
The Company's credit practices are consistent with those of other medical and
surgical supply distributors. The Company actively manages its accounts
receivable to minimize credit risk and does not believe that credit risk
associated with accounts receivable poses a significant risk to its results of
operations. The Company reduced accounts receivable days sales outstanding
(excluding the impact of the Receivables Financing Facility) to 33.4 days in
1997 from 36.1 days in 1996.
COMPETITION
The medical/surgical supply distribution industry in the United States is highly
competitive and consists of three major nationwide distributors, the Company,
Allegiance Corporation and McKesson Corp., which acquired General Medical
Corporation in February 1997. The industry also includes Bergen Brunswig Medical
Corporation, which is a wholly owned subsidiary of Bergen Brunswig Corporation
and is a smaller national distributor of medical and surgical supplies, and 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
orders accurately, delivery time, efficient computer communication capabilities,
services provided, breadth of product line, inventory management including the
benefits of information technology and the ability to meet special requirements
of customers.
Further consolidation of medical and surgical supply distributors is expected to
continue through the purchase of smaller distributors by larger companies as a
result of competitive pressures in the market place. The Company believes it
competes with large national distributors based on economies of scale. The
Company believes its decentralized approach to distribution enables it to
effectively compete with smaller local distributors by being located near the
customer and offering a high level of customer service.
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 and 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 and 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 pressure on all participants in
the healthcare industry to reduce the costs of products and services.
EMPLOYEES
As of March 31, 1998, the Company employed approximately 3,000 employees.
Approximately 33 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.
PROPERTIES
The Company's corporate headquarters are located in western Henrico County, in 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.
<PAGE>
The Company leases offices and warehouses for its 42 distribution centers in 41
cities throughout the United States. In 1997, the Company opened one new
distribution center, relocated one distribution center and expanded one
distribution center. Three distribution centers were consolidated into existing
locations. The Company continuously evaluates the efficiency of its distribution
and administrative support systems. The Company expands or reduces facilities as
needed to meet current and anticipated business needs.
The Company 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 related 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 these leased
premises without suffering a material adverse effect on its business.
LEGAL PROCEEDINGS
As of January 30, 1998, Stuart is named as a defendant along with product
manufacturers, distributors, healthcare providers, trade associations and others
in approximately 136 lawsuits, filed in various federal and state courts (the
"Cases"). The Cases represent the claims of approximately 145 plaintiffs
claiming personal injuries and approximately 73 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, Stuart distributed spinal fixation devices manufactured
by Sofamor SNC, a predecessor of Sofamor Danek Group, Inc. ("Sofamor Danek").
Approximately one third of the claims 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, and, in a number of Cases, discovery has
been completed and these Cases have been remanded back for trial to those
jurisdictions where they were originally filed. The Company is unable at this
time to determine with certainty whether or not Stuart may be held liable.
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.
<PAGE>
In addition, as of February 16, 1998, 30 individual lawsuits seeking monetary
damages, in most cases of an unspecified amount, have been filed by multiple
plaintiffs in federal and state courts against the Company, manufacturers, and
other distributors and sellers of natural rubber latex products. These lawsuits
allege injuries ranging from dermatitis and allergic reactions to anaphylactic
shock arising from the use of latex products, principally medical gloves. The
Company may be named as a defendant in additional similar cases in the future.
In the course of its medical supply business, the Company has distributed latex
products, including medical gloves, but it does not, nor has it ever,
manufactured any latex products. The defense costs of these lawsuits are being
paid by the Company's insurers and the Company believes at this time that any
potential liability and future defense costs will also be covered by its
insurance, subject to policy limits and insurer solvency. Since all of these
cases are in early stages of trial preparation, the likelihood of an unfavorable
outcome for the Company or the amount or range of potential loss with respect to
any of these matters cannot be reasonably determined at this time.
The Company is party to a lawsuit claiming failure to meet certain contractual
obligations involving a distribution agreement. The plaintiff is seeking $3.3
million in compensatory damages, and the Company has, in turn, filed a
counterclaim alleging breach of contract. At this time, management believes that
the final outcome of this lawsuit will not materially affect the Company's
financial condition or results of operations.
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.
<PAGE>
OWENS & MINOR TRUST I
O&M Trust is a statutory business trust formed under the Delaware Business Trust
Act (the "Business Trust Act") pursuant to a declaration of trust dated May 13,
1998 among certain of the Trustees and the Company (the "Declaration") and the
filing of a certificate of trust with the Secretary of State of the State of
Delaware, copies of which have been filed as an exhibit to the Registration
Statement of which this Prospectus is a part. The Declaration is qualified under
the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act").
TRUST SECURITIES
Upon issuance of the TECONS, the holders thereof will own all of the issued and
outstanding TECONS. The Company will acquire Common Securities in an amount
equal to at least 3% of the total capital of the Trust and will own, directly or
indirectly, all of the issued and outstanding Common Securities. The Trust
exists for the purpose of (a) issuing its Trust Securities for cash and
investing the proceeds thereof in an equivalent amount of Junior Subordinated
Debentures and (b) engaging in such other activities as are necessary,
convenient and incidental thereto. The rights of the holders of the Trust
Securities, including economic rights, rights to information and voting rights,
are as set forth in the Declaration, the Business Trust Act and the Trust
Indenture Act. The Declaration does not permit the incurrence by the Trust of
any indebtedness for borrowed money or the making of any investment other than
in the Junior Subordinated Debentures. In the Declaration, the Company has
agreed to pay for all debts and obligations (other than with respect to the
Trust Securities) and all costs and expenses of the Trust, including the fees
and expenses of the Trustees and any income taxes, duties and other governmental
charges, and all costs and expenses with respect thereto, to which the Trust may
become subject, except for United States withholding taxes.
POWERS AND DUTIES AND TRUSTEES
The number of trustees (the "Trustees") of O&M Trust shall initially be five.
Three of such Trustees (the "Regular Trustees") are individuals who are
employees or officers of the Company. The fourth such trustee will be The First
National Bank of Chicago, which is unaffiliated with the Company and which will
serve as the property trustee (the "Property Trustee") and act as the indenture
trustee for purposes of the Trust Indenture Act. The fifth such trustee is First
Chicago Delaware Inc., which has its principal place of business in the State of
Delaware (the "Delaware Trustee"). Pursuant to the Declaration, legal title to
the Junior Subordinated Debentures purchased by the Trust will be held by the
Property Trustee for the benefit of the holders of the Trust Securities, and the
Property Trustee will have the power to exercise all rights, powers and
privileges under the Indenture with respect to the Junior Subordinated
Debentures. In addition, the Property Trustee will maintain exclusive control of
a segregated non-interest bearing bank account (the "Property Account") to hold
all payments in respect of the Junior Subordinated Debentures purchased by the
Trust for the benefit of the holders of Trust Securities. The Property Trustee
will promptly make distributions to the holders of the Trust Securities out of
funds from the Property Account. The Guarantee is separately qualified under the
Trust Indenture Act and will be held by The First National Bank of Chicago,
acting in its capacity as indenture trustee with respect thereto, for the
benefit of the holders of the TECONS. As used in this Prospectus, the term
"Property Trustee" with respect to the Trust refers to The First National Bank
of Chicago acting either in its capacity as a Trustee under the Declaration and
the holder of legal title to the Junior Subordinated Debentures purchased by the
Trust or in its capacity as indenture trustee under, and the holder of, the
Guarantee, as the context may require. The Company, as the direct or indirect
owner of all of the Common Securities of the Trust, will have the exclusive
right (subject to the terms of the Declaration) to appoint, remove or replace
Trustees and to increase or decrease the number of Trustees, provided that the
number of Trustees shall be, except under certain circumstances, at least five
and the majority of Trustees shall be Regular Trustees. The term of the Trust
set forth in this Prospectus may terminate earlier as provided in the
Declaration.
The duties and obligations of the Trustees of the Trust shall be governed by the
Declaration, the Business Trust Act and the Trust Indenture Act. Under its
Declaration, the Trust shall not, and the Trustees shall cause the Trust not to,
engage in any activity other than as required or authorized by the Declaration.
In particular, the Trust shall not and the Trustees shall cause the Trust not to
(a) invest any proceeds received by the Trust from holding the Junior
Subordinated Debentures purchased by the Trust but shall promptly distribute
from the Property Account all such proceeds to holders of Trust Securities
pursuant to the terms of the Declaration and of the Trust Securities; (b)
acquire, dispose of, or substitute for, any Trust assets other than as expressly
provided in the Declaration; (c) possess Trust property for other than a Trust
purpose; (d) make any loans, other than loans represented by the Junior
Subordinated Debentures; (e) possess any power or otherwise act in such a way as
to vary the assets of the Trust or the terms of its Trust Securities in any way
whatsoever; (f) issue any securities or other evidences of beneficial ownership
of, or beneficial interests in, the Trust other than its Trust Securities; (g)
incur any indebtedness for borrowed money or (h)(i) direct the time, method and
place of exercising any trust or power conferred upon the Indenture Trustee (as
defined under "Description of the Junior Subordinated Debentures") with respect
to the Junior Subordinated Debentures deposited in the Trust as trust assets or
upon the Property Trustee with respect to the TECONS, (ii) waive any past
default that is waivable under the Indenture or the Declaration, (iii) exercise
any right to rescind or annul any declaration that the principal of all of the
Junior Subordinated Debentures deposited in the Trust as trust assets shall be
due and payable or (iv) consent to any amendment, modification or termination of
the Indenture or such Junior Subordinated Debentures, in each case where such
consent shall be required, unless in the case of this clause (h) the Property
Trustee shall have received an unqualified opinion of nationally recognized
independent tax counsel recognized as expert in such matters to the effect that
such action will not cause the Trust to be classified for United States federal
income tax purposes as an association taxable as a corporation or a partnership
and that the Trust will continue to be classified as a grantor trust for United
States federal income tax purposes.
BOOKS AND RECORDS
The books and records of O&M Trust will be maintained at the principal office of
the Trust, located at 4800 Cox Road, Glen Allen, Virginia 23060, and will be
open for inspection by a holder of TECONS or his representative for any purpose
reasonably related to his interest in O&M Trust during normal business hours.
THE PROPERTY TRUSTEE
The Property Trustee, for the benefit of the holders of the Trust Securities of
the Trust, is authorized under the Declaration to exercise all rights under the
Indenture with respect to the Junior Subordinated Debentures deposited in O&M
Trust as trust assets, including its rights as the holder of such Junior
Subordinated Debentures to enforce the Company's obligations under such Junior
Subordinated Debentures upon the occurrence of an Indenture Event of Default.
The Property Trustee shall also be authorized to enforce the rights of holders
of TECONS under the Guarantee. If the Trust's failure to make distributions on
the TECONS is a consequence of the Company's exercise of any right under the
terms of the Junior Subordinated Debentures deposited in the Trust as trust
assets to extend the interest payment period for such Junior Subordinated
Debentures, the Property Trustee will have no right to enforce the payment of
distributions on such TECONS until an event of default under the Declaration
with respect to the Trust Securities (an "Event of Default" or "Declaration
Event of Default") shall have occurred. Holders of at least a majority in
liquidation amount of the TECONS held by the Trust will have the right to direct
the Property Trustee with respect to certain matters under the Declaration and
the Guarantee. If the Property Trustee fails to enforce its rights under the
Indenture or fails to enforce the Guarantee, to the extent permitted by
applicable law, any holder of TECONS may, after a period of 30 days has elapsed
from such holder's written request to the Property Trustee to enforce such
rights, institute a legal proceeding against the Company to enforce such rights
or the Guarantee, as the case may be. In addition, the holders of at least 25%
in aggregate liquidation preference of the outstanding TECONS would have the
right to directly institute proceedings for enforcement of payments to such
holders of principal of, or premium, if any, or interest on the Junior
Subordinated Debentures having a principal amount equal to the aggregate
liquidation preference of the TECONS of such holders (a "Direct Action"). In
connection with such Direct Action, the Company will be subrogated to the rights
of such holder of TECONS under the Declaration to the extent of any payment made
by the Company to such holders of TECONS in such Direct Action.
<PAGE>
Notwithstanding the foregoing, if an Event of Default has occurred and is
continuing and such event is attributable to the failure of the Company to pay
interest or principal on the Junior Subordinated Debentures on the date such
interest or principal is otherwise payable (or in the case of redemption, on the
redemption date), then a holder of TECONS may directly institute a proceeding
for enforcement of payment to such holder of the principal of or interest on the
Junior Subordinated Debentures having a principal amount equal to the aggregate
liquidation amount of the TECONS of such holder (a "Holder Direct Action") on or
after the respective due date specified in the Junior Subordinated Debentures.
In connection with such Holder Direct Action, the Company will be subrogated to
the rights of such holder of TECONS under the Declaration to the extent of any
payment made by the Company to such holder of TECONS in such Holder Direct
Action.
<PAGE>
DESCRIPTION OF THE TECONS
The TECONS will be issued pursuant to the terms of the Declaration which is
qualified under the Trust Indenture Act. The Property Trustee, The First
National Bank of Chicago, but not the other Trustees of the Trust, will act as
the indenture trustee for purposes of the Trust Indenture Act. The terms of the
TECONS and the Declaration include those stated in the Declaration and those
made part of the Declaration by the Trust Indenture Act and the Business Trust
Act. The following summarizes the material terms and provisions of the TECONS
and is qualified in its entirety by reference to, the Declaration, the Business
Trust Act and the Trust Indenture Act.
GENERAL
The Declaration authorizes the Trust to issue the TECONS, which represent
preferred undivided beneficial interests in the assets of the Trust, and the
Common Securities, which represent common undivided beneficial interests in the
assets of the Trust. All of the Common Securities will be owned, directly or
indirectly, by the Company. The Common Securities and the TECONS rank pari passu
with each other and will have equivalent terms except that (i) if a Declaration
Event of Default occurs and is continuing, the rights of the holders of the
Common Securities to payment in respect of periodic Distributions and payments
upon liquidation, redemption or otherwise are subordinated to the rights of the
holders of the TECONS and (ii) holders of Common Securities have the exclusive
right (subject to the terms of the Declaration) to appoint, remove or replace
Trustees and to increase or decrease the number of Trustees. The Declaration
does not permit the issuance by the Trust of any securities or other evidences
of beneficial ownership of, or beneficial interests in, the Trust other than the
TECONS and the Common Securities, the incurrence of any indebtedness for
borrowed money by the Trust or the making of any investment other than in the
Junior Subordinated Debentures. Pursuant to the Declaration, the Property
Trustee will own and hold the Junior Subordinated Debentures as trust assets for
the benefit of the holders of the TECONS and the Common Securities. The payment
of Distributions out of moneys held by the Property Trustee and payments on
redemption of the TECONS or liquidation of the Trust are guaranteed by the
Company on a subordinated basis as and to the extent described under
"Description of the Guarantee." The Property Trustee will hold the Guarantee for
the benefit of holders of the TECONS. The Guarantee is a full and unconditional
guarantee from the time of issuance of the TECONS, but the Guarantee covers
Distributions and other payments on the TECONS only if and to the extent that
the Company has made a payment to the Property Trustee of interest, premium or
principal on the Junior Subordinated Debentures deposited in the Trust as trust
assets. See " -- Voting Rights."
DISTRIBUTIONS
Distributions on the TECONS will be fixed at an annual rate of $2.6875 per
TECONS. Distributions in arrears for more than one calendar quarter will bear
interest thereon at the rate per annum of 5.375% (to the extent permitted by
law), compounded quarterly. The term "Distributions" as used herein includes any
such interest payable unless otherwise stated. The amount of distributions
payable for any period will be computed on the basis of a 360-day year of twelve
30 day months.
Distributions on the TECONS will be cumulative, will accumulate from May 13,
1998 and, except as otherwise described below, will be payable quarterly in
arrears on each January 31, April 30, July 31 and October 31, commencing on July
31, 1998, but only if, and to the extent that, interest payments are made in
respect of Junior Subordinated Debentures held by the Property Trustee.
So long as the Company shall not be in default in the payment of interest on the
Junior Subordinated Debentures, the Company has the right under the Trust
Indenture to defer payments of interest on the Junior Subordinated Debentures by
extending the interest payment period from time to time on the Junior
Subordinated Debentures for a period not exceeding 20 consecutive quarterly
interest periods and, as a consequence, the Trust would defer quarterly
Distributions on the TECONS (though such Distributions would continue to
accumulate, to the extent permitted by applicable law, at the rate of 5.375% per
annum, compounded quarterly) during any such Extension Period; provided that no
such period may extend beyond the stated maturity of the Junior Subordinated
Debentures. If the Company exercises the right to extend an interest payment
period, the Company may not declare or pay dividends on, or redeem, purchase,
acquire or make a distribution or liquidation payment with respect to, any of
its common stock or preferred stock during such Extension Period; provided that
the foregoing will not apply to any stock dividends or other stock distribution
payable by the Company. The provisions of the immediately preceding sentence
will not restrict the ability of the Company to redeem rights issued pursuant to
the Amended and Restated Rights Agreement, dated as of May 10, 1994, between the
Company and Wachovia Bank of North Carolina, N.A., as Rights Agent, as it may be
amended from time to time, in an amount per right issued thereunder not to
exceed that in effect on the issue date of the Junior Subordinated Debentures.
Prior to the termination of any such Extension Period, the Company may further
extend such Extension Period; provided that such Extension Period together with
all such previous and further extensions thereof may not exceed 20 consecutive
quarterly interest periods. Upon the termination of any Extension Period and the
payment of all amounts then due, the Company may commence a new Extension
Period, subject to the above requirements. The Company may also prepay at any
time all or any portion of the interest accrued during an Extension Period.
Consequently, there could be multiple Extension Periods of varying lengths
throughout the term of the Junior Subordinated Debentures, not to exceed 20
consecutive quarters or to cause any extension beyond the maturity of the Junior
Subordinated Debentures. See "Description of the Junior Subordinated Debentures
- -- Interest" and " -- Option to Extend Interest Payment Period" and "Risk
Factors -- Option to Extend Interest Payment Period; Tax Impact of Extension."
Payments of accumulated distributions will be payable to holders of TECONS as
they appear on the books and records of the Trust on the first record date after
the end of an Extension Period.
<PAGE>
Distributions on the TECONS must be paid on the dates payable to the extent that
the Property Trustee has cash on hand in the Property Account to permit such
payment. The funds available for distribution to the holders of the TECONS will
be limited to payments received by the Property Trustee in respect of the Junior
Subordinated Debentures that are deposited in the Trust as trust assets. See
"Description of the Junior Subordinated Debentures." If the Company does not
make interest payments on the Junior Subordinated Debentures, the Property
Trustee will not make distributions on the TECONS. Under the Declaration, if and
to the extent the Company does make interest payments on the Junior Subordinated
Debentures deposited in the Trust as trust assets, the Property Trustee is
obligated to make distributions on the Trust Securities on a Pro Rata Basis. As
used in this Prospectus, the term "Pro Rata Basis" shall mean pro rata to each
holder of TECONS according to the aggregate liquidation amount of the Trust
Securities of O&M Trust held by the relevant holder in relation to the aggregate
liquidation amount of all Trust Securities of O&M Trust outstanding unless, in
relation to a payment, a Declaration Event of Default has occurred and is
continuing, in which case any funds available to make such payment shall be paid
first to each holder of the TECONS pro rata according to the aggregate
liquidation amount of the TECONS held by the relevant holder in relation to the
aggregate liquidation amount of all the TECONS outstanding, and only after
satisfaction of all amounts owed to the holders of TECONS, to each holder of
Common Securities of O&M Trust pro rata according to the aggregate liquidation
amount of all Common Securities outstanding.
The payment of distributions on the TECONS is guaranteed by the Company on a
subordinated basis as and to the extent set forth under "Description of the
Guarantee." The Guarantee is a full and unconditional guarantee from the time of
issuance of the TECONS but the Guarantee covers distributions and other payments
on the TECONS only if and to the extent that the Company has made a payment to
the Property Trustee of interest or principal on the Junior Subordinated
Debentures deposited in the Trust as trust assets. Distributions on the TECONS
will be made to the holders thereof as they appear on the books and records of
the Trust on the relevant record dates, which, as long as the TECONS remain in
book-entry form, will be one Business Day (as defined herein) prior to the
relevant Distribution payment date. Distributions payable on any TECONS that are
not punctually paid on any Distribution payment date as a result of the Company
having failed to make the corresponding interest payment on the Junior
Subordinated Debentures will forthwith cease to be payable to the person whose
name such TECONS is registered on the relevant record date, and such defaulted
Distribution will instead be payable to the person in whose name such TECONS is
registered on the special record date established by the Regular Trustees, which
record date shall correspond to the special record date or other specified date
determined in accordance with the Indenture; provided, however, that
Distributions shall not be considered payable on any Distribution payment date
falling within an Extension Period unless the Company has elected to make a full
or partial payment of interest accrued on the Junior Subordinated Debentures on
such Distribution payment date. Distributions on the TECONS will be paid through
the Property Trustee who will hold amounts received in respect of the Junior
Subordinated Debentures in the Property Account for the benefit of the holders
of the Trust Securities. Subject to any applicable laws and regulations and the
provisions of the Declaration, each such payment will be made as described under
" -- Book-Entry; Delivery and Form" and " -- The Global TECONS" below. In the
event that the TECONS do not continue to remain in book-entry form, the Regular
Trustees shall have the right to select relevant record dates which shall be
more than one Business Day prior to the relevant payment dates. The Declaration
provides that the payment dates or record dates for the TECONS shall be the same
as the payment dates and record dates for the Junior Subordinated Debentures.
All distributions paid with respect to the Trust Securities shall be paid on a
Pro Rata Basis to the holders thereof entitled thereto. If any date on which
distributions are to be made on the TECONS is not a Business Day, then payment
of the distribution to be made on such date will be made on the next succeeding
day that is a Business Day (and without any interest or other payment in respect
of any such delay) except that, if such Business Day is in the next succeeding
calendar year, such payment shall be made on the immediately preceding Business
Day, in each case with the same force and effect as if made on such date.
"Business Day" shall mean any day other than Saturday, Sunday or any other day
on which banking institutions in the City of New York in the State of New York
are authorized or required by any applicable law to close.
<PAGE>
CONVERSION RIGHTS
GENERAL
The TECONS will be convertible at any time prior to the close of business on
April 30, 2013 (or in the case of the TECONS called for redemption, prior to the
close of the business on the Business Day prior to the Redemption Date) (the
"Conversion Expiration Date"), at the option of the holders thereof and in the
manner described below, into shares of O&M Common Stock at an initial conversion
rate of 2.4242 shares of O&M Common Stock for each TECONS (equivalent to a
conversion price of $20.625 per share of O&M Common Stock for each TECONS (the
"Initial Conversion Price")), subject to adjustment as described under " --
Conversion Price Adjustments -- General" and " -- Conversion Price Adjustments
- -- Fundamental Change" below. If a TECONS is surrendered for conversion after
the close of business on any regular record date for payment of a Distribution
and before the opening of business on the corresponding Distribution payment
date, then, notwithstanding such conversion, the Distribution payable on such
Distribution payment date will be paid in cash to the person in whose name the
TECONS is registered at the close of business on such record date, and (other
than a TECONS or a portion of a TECONS called for redemption on a redemption
date occurring after such record date and on or prior to such Distribution
payment date) when so surrendered for conversion, the TECONS must be accompanied
by payment of an amount equal to the Distribution payable on such Distribution
payment date.
The terms of the TECONS provide that a holder of a TECONS wishing to exercise
its conversion right shall surrender such TECONS, together with an irrevocable
conversion notice, to the conversion agent (initially the Property Trustee) (the
"Conversion Agent"), which shall, on behalf of such holder, exchange such TECONS
for an equivalent amount of Junior Subordinated Debentures and immediately
convert such Junior Subordinated Debentures into O&M Common Stock. Holders may
obtain copies of the required form of the conversion notice from the Conversion
Agent. So long as a book-entry system for the TECONS is in effect, however,
procedures for converting the TECONS into shares of O&M Common Stock will
differ, as described under " -- Book-Entry; Delivery and Form" and " -- The
Global TECONS."
No fractional shares of O&M Common Stock will be issued as a result of
conversion, but in lieu thereof such fractional interest will be paid by O&M in
cash based on the market price of O&M Common Stock on the date such TECONS are
surrendered for conversion.
CONVERSION PRICE ADJUSTMENTS -- GENERAL
The Initial Conversion Price is subject to adjustment (under formulae set forth
in the Trust Indenture) in certain events, including:
(i) the issuance of O&M Common Stock as a dividend or distribution on
O&M Common Stock;
(ii) certain subdivisions and combinations of O&M Common Stock;
<PAGE>
(iii) the issuance to all holders of O&M Common Stock of certain rights or
warrants to purchase O&M Common Stock at less than the then current
market price;
(iv) the distribution to all holders of O&M Common Stock of (A) equity
securities of the Company (other than O&M Common Stock), (B)
evidences of indebtedness of the Company and/or (C) other assets
(including securities, but excluding (1) any rights or warrants
referred to in clause (iii) above, (2) any rights or warrants to
acquire any capital stock of any entity other than the Company, (3)
any dividends or distributions in connection with the liquidation,
dissolution or winding-up of the Company, (4) any dividends payable
solely in cash that may from time to time be fixed by the Board of
Directors of the Company and (5) any dividends or distributions
referred to in clause (i) above);
(v) distributions to all holders of O&M Common Stock, consisting of
cash, excluding (a) any cash dividends on O&M Common Stock to the
extent that the aggregate cash dividends per share of O&M Common
Stock in any consecutive 12-month period do not exceed the greater
of (x) the amount per share of O&M Common Stock of the cash
dividends paid on O&M Common Stock in the immediately preceding
12-month period, to the extent that such dividends for the
immediately preceding 12-month period did not require an adjustment
of the conversion price pursuant to this clause (v) (as adjusted to
reflect subdivisions or combinations of O&M Common Stock), and (y)
15% of the average of the daily Closing Price (as defined in the
Trust Indenture) of O&M Common Stock for the ten consecutive Trading
Days (as defined in the Trust Indenture) immediately prior to the
date of declaration of such dividend, and (b) any dividend or
distribution in connection with the liquidation, dissolution or
winding up of the Company or a redemption of any rights issued under a
rights agreement; provided, however, that no adjustment shall be
made pursuant to this clause (v) if such distribution would
otherwise constitute a Fundamental Change (as defined below) and be
reflected in a resulting adjustment described below; and
(vi) payment in respect of a tender or exchange offer by the Company or
any subsidiary of the Company for O&M Common Stock to the extent
that the cash and value of any other consideration included in such
payment per share of O&M Common Stock exceed (by more than 10%, with
any smaller excess being disregarded in computing the adjustment
provided hereby) the first reported sale price per share of O&M
Common Stock on the Trading Day next succeeding the Expiration Time
(as defined in the Trust Indenture) for such tender or exchange
offer.
If any adjustment is required to be made as set forth in clause (v) above as a
result of a distribution which is a dividend described in subclause (a) of
clause (v) above, such adjustment would be based upon the amount by which such
distribution exceeds the amount of the dividend permitted to be excluded
pursuant to such subclause (a) of clause (v). If an adjustment is required to be
made as set forth in clause (v) above as a result of a distribution which is not
such a dividend, such adjustment would be based upon the full amount of such
distribution. If an adjustment is required to be made as set forth in clause
(vi) above, such adjustment would be calculated based upon the amount by which
the aggregate consideration paid for the O&M Common Stock acquired in the tender
or exchange offer exceeds 110% of the value of such shares based on the first
reported sale price of O&M Common Stock on the Trading Day next succeeding the
Expiration Time. In lieu of making such a conversion price adjustment in the
case of certain dividends or distributions, the Company may provide that upon
the conversion of the TECONS the holder converting such TECONS will receive, in
addition to the O&M Common Stock to which such holder is entitled, the cash,
securities or other property which such holder would have received if such
holder had, immediately prior to the record date for such dividend or
distribution, converted its TECONS into O&M Common Stock.
No adjustment in the conversion price will be required unless the adjustment
would require a change of at least 1% in the conversion price then in effect;
provided, however, that any adjustment that would otherwise be required to be
made shall be carried forward and taken into account in any subsequent
adjustment.
The Company from time to time may, to the extent permitted by law, reduce the
conversion price by any amount for any period of at least 20 Business Days (as
defined in the Trust Indenture), in which case the Company shall give at least
15 days' notice of such reduction. In particular, the Company may, at its
option, make such reduction in the conversion price, in addition to those set
forth above, as the Company deems advisable to avoid or diminish any income tax
to holders of O&M Common Stock resulting from any dividend or distribution of
stock (or rights to acquire stock) or from any event treated as such for tax
purposes or for any other reasons. See "Certain Federal Tax Consequences --
Adjustment of Conversion Price."
<PAGE>
CONVERSION PRICE ADJUSTMENTS -- FUNDAMENTAL CHANGE
In the event that the Company shall be a party to any transaction or series of
transactions constituting a Fundamental Change, including, without limitation,
(i) any recapitalization or reclassification of O&M Common Stock (other than a
change in par value or as a result of a subdivision or combination of O&M Common
Stock), (ii) any consolidation or merger of the Company with or into another
corporation as a result of which holders of O&M Common Stock shall be entitled
to receive securities or other property or assets (including cash) with respect
to or in exchange for O&M Common Stock (other than a merger which does not
result in a reclassification, conversion, exchange or cancellation of the
outstanding O&M Common Stock); (iii) any sale or transfer of all or
substantially all of the assets of the Company; or (iv) any compulsory share
exchange, pursuant to any of which holders of O&M Common Stock shall be entitled
to receive other securities, cash or other property, then appropriate provision
shall be made so that the holder of each TECONS then outstanding shall have the
right thereafter to convert such TECONS only into (x) if any such transaction
does not constitute a Common Stock Fundamental Change (as defined below), the
kind and amount of the securities, cash or other property that would have been
receivable upon such recapitalization, reclassification, consolidation, merger,
sale, transfer or share exchange by a holder of the number of shares of O&M
Common Stock issuable upon conversion of such TECONS immediately prior to such
recapitalization, reclassification, consolidation, merger, sale, transfer or
share exchange, after, in the case of a Non-Stock Fundamental Change (as defined
below), giving effect to any adjustment in the conversion price in accordance
with clause (i) of the following paragraph, and (y) if any such transaction
constitutes a Common Stock Fundamental Change, shares of common stock of the
kind received by holders of O&M Common Stock as result of such Common Stock
Fundamental Change in an amount determined in accordance with clause (ii) of the
following paragraph. The company formed by such consolidation or resulting from
such merger or which acquires such assets or which acquires the O&M Common
Stock, as the case may be, shall enter into a supplemental indenture with the
Indenture Trustee (as defined herein), satisfactory in form to the Indenture
Trustee and executed and delivered to the Indenture Trustee, the provisions of
which shall establish such right. Such supplemental indenture shall provide for
adjustments which, for events subsequent to the effective date of such
supplemental indenture, shall be as nearly equivalent as practical to the
relevant adjustments provided for in the preceding paragraphs and in this
paragraph.
Notwithstanding any other provision in the preceding paragraphs, if any
Fundamental Change occurs, the conversion price in effect will be adjusted
immediately after that Fundamental Change as follows:
(i) in the case of a Non-Stock Fundamental Change, the conversion price
per share of O&M Common Stock immediately following such Non-Stock
Fundamental Change will be the lower of (A) the conversion price in
effect immediately prior to such Non-Stock Fundamental Change, but
after giving effect to any other prior adjustments effected pursuant
to the preceding paragraphs, and (B) the result obtained by
multiplying the greater of the Applicable Price (as defined below)
or the then applicable Reference Market Price (as defined below) by a
fraction of which the numerator will be 100 and the denominator of
which will be an amount based on the date such Non-Stock Fundamental
Change occurs. For the 12-month period beginning May 13, 1998, the
denominator will be 105.375, and the denominator will decrease by
0.671875 during each successive 12-month period; provided that the
denominator shall in no event be less than 100.0.
(ii) in the case of a Common Stock Fundamental Change, the conversion
price per share of O&M Common Stock immediately following the Common
Stock Fundamental Change will be the conversion price in effect
immediately prior to the Common Stock Fundamental Change, but after
giving effect to any other prior adjustments effected pursuant to
the preceding paragraphs, multiplied by a fraction, the numerator of
which is the Purchaser Stock Price (as defined below) and the
denominator of which is the Applicable Price; provided, however,
that in the event of a Common Stock Fundamental Change in which (A)
100% of the value of the consideration received by a holder of O&M
Common Stock (subject to certain limited exceptions) is shares of
common stock of the successor, acquiror or other third party (and
cash, if any, paid with respect to any fractional interests in the
shares of common stock resulting from the Common Stock Fundamental
Change) and (B) all of the O&M Common Stock (subject to certain
limited exceptions) shall have been exchanged for, converted into,
or acquired for, shares of common stock (and cash, if any, with
respect to fractional interests) of the successor, acquiror or other
third party, the conversion price per share of O&M Common Stock
immediately following the Common Stock Fundamental Change shall be
the conversion price in effect immediately prior to the Common Stock
Fundamental Change divided by the number of shares of common stock
of the successor, acquiror, or other third party received by a
holder of one share of O&M Common Stock as a result of the Common
Stock Fundamental Change.
<PAGE>
The foregoing conversion price adjustments are designed, in "Fundamental Change"
transactions where all or substantially all of the O&M Common Stock is converted
into securities, cash, or property and not more than 50% of the value received
by the holders of O&M Common Stock consists of stock listed or admitted for
listing subject to notice of issuance on a national securities exchange or
quoted on the Nasdaq National Market of the Nasdaq Stock Market, Inc. (a
"Non-Stock Fundamental Change," as defined herein), to increase the securities,
cash or property into which each TECONS is convertible.
In a Non-Stock Fundamental Change transaction where the initial value received
per share of O&M Common Stock (measured as described in the definition of
Applicable Price below) is lower than the then applicable conversion price of
the TECONS but greater than or equal to the Reference Market Price (as defined
herein), the conversion price will be adjusted as described above with the
effect that each TECONS will be convertible into securities, cash or property of
the same type received by the holders of O&M Common Stock in such transaction
but in an amount per TECONS equal to the amount indicated as the denominator as
of the date of such transaction as set forth in clause (i) above with respect to
conversion prices for Non-Stock Fundamental Changes.
In a Non-Stock Fundamental Change transaction where the initial value received
per share of O&M Common Stock (measured as described in the definition of
Applicable Price below) is lower than both the conversion price of a TECONS and
the Reference Market Price, the conversion price will be adjusted as described
above but calculated as though such initial value had been the Reference Market
Price.
In a Fundamental Change transaction where all or substantially all the O&M
Common Stock is converted into securities, cash, or property and more than 50%
of the value received by the holders of O&M Common Stock (subject to certain
limited exceptions) consists of listed or Nasdaq National Market traded common
stock (a "Common Stock Fundamental Change," as defined herein), the foregoing
adjustments are designed to provide in effect that (a) where O&M Common Stock is
converted partly into such common stock and partly into other securities, cash,
or property, each TECONS will be convertible solely into a number of shares of
such common stock determined so that the initial value of such shares (measured
as described in the definition of Purchaser Stock Price below) equals the value
of the shares of O&M Common Stock into which such TECONS was convertible
immediately before the transaction (measured as aforesaid) and (b) where O&M
Common Stock is converted solely into such common stock, each TECONS will be
convertible into the same number of shares of such common stock receivable by a
holder of the number of shares of O&M Common Stock into which such TECONS was
convertible immediately before such transaction. In determining the amount and
type of consideration received by a holder of O&M Common Stock in the event of a
Fundamental Change, consideration received by a holder of O&M Common Stock
pursuant to a statutory right of appraisal will be disregarded.
"Applicable Price" means (i) in the event of a Non-Stock Fundamental Change in
which the holders of O&M Common Stock receive only cash, the amount of cash
receivable by a holder of one share of O&M Common Stock and (ii) in the event of
any other Fundamental Change, the average of the Closing Prices (as defined in
the First Supplemental Indenture) for one share of O&M Common Stock during the
ten Trading Days immediately prior to the record date for the determination of
the holders of O&M Common Stock entitled to receive cash, securities, property
or other assets in connection with such Fundamental Change or, if there is no
such record date, prior to the date on which the holders of the O&M Common Stock
will have the right to receive such cash, securities, property or other assets.
<PAGE>
"Common Stock Fundamental Change" means any Fundamental Change in which more
than 50% of the value (as determined in good faith by the Company's Board of
Directors) of the consideration received by holders of O&M Common Stock (subject
to certain limited exceptions) pursuant to such transaction consists of shares
of common stock that, for the ten consecutive Trading Days immediately prior to
such Fundamental Change has been approved for listing or approved for listing
subject to notice of issuance or admitted for trading on a national securities
exchange or quoted on the Nasdaq National Market, provided, however, that a
Fundamental Change will not be a Common Stock Fundamental Change unless either
(i) the Company continues to exist after the occurrence of such Fundamental
Change and the outstanding TECONS continue to exist as outstanding TECONS or
(ii) the outstanding TECONS continue to exist as TECONS and are convertible into
shares of common stock of the successor to the Company.
"Fundamental Change" means the occurrence of any transaction or event or series
of transactions or events pursuant to which all or substantially all of the O&M
Common Stock is exchanged for, converted into, acquired for or constitutes
solely the right to receive cash, securities, property or other assets (whether
by means of an exchange offer, liquidation, tender offer, consolidation, merger,
combination, reclassification, recapitalization or otherwise); provided,
however, in the case of a plan involving more than one such transaction or event
for purposes of adjustment of the conversion price, such Fundamental Change will
be deemed to have occurred when substantially all of the O&M Common Stock has
been exchanged for, converted into, or acquired for or constitutes solely the
right to receive cash, securities, property or other assets but the adjustment
shall be based upon the consideration that the holders of O&M Common Stock
received in the transaction or event as a result of which more than 50% of the
O&M Common Stock shall have been exchanged for, converted into, or acquired for,
or shall constitute solely the right to receive such cash, securities,
properties or other assets.
"Non-Stock Fundamental Change" means any Fundamental Change other than a
Common Stock Fundamental Change.
"Purchaser Stock Price" means, with respect to any Common Stock Fundamental
Change, the average of the Closing Prices for one share of common stock received
by holders of O&M Common Stock in such Common Stock Fundamental Change during
the ten Trading Days immediately prior to the record date for the determination
of the holders of O&M Common Stock entitled to receive such shares of common
stock or, if there is no such record date, prior to the date upon which the
holders of O&M Common Stock shall have the right to receive such shares of
common stock.
"Reference Market Price" will initially mean $11.00 (which represents 66 2/3% of
the last reported sale price per share of O&M's Common Stock on the NYSE on May
7, 1998) and, in the event of any adjustment to the conversion price other than
as a result of a Fundamental Change, the Reference Market Price will also be
adjusted so that the ratio of the Reference Market Price to the conversion price
after giving effect to any adjustment will always be the same as the ratio of
the initial Reference Market Price to the Initial Conversion Price of the
TECONS.
Conversions of the TECONS may be effected by delivering them to the office or
agency of the Company maintained for such purpose in the Borough of Manhattan,
the City of New York.
Conversion price adjustments may, in certain circumstances, result in
constructive distributions that could be taxable as dividends under the Internal
Revenue Code of 1986, as amended (the "Code"), to holders of TECONS or to
holders of O&M Common Stock issued upon conversion thereof. See "Certain Federal
Tax Consequences -- Adjustment of Conversion Price."
No adjustment in the conversion price will be required unless the adjustment
would require a change of at least 1% in the conversion price then in effect;
provided, however, that any adjustment that would otherwise be required to be
made shall be carried forward and taken into account in any subsequent
adjustment.
<PAGE>
SPECIAL EVENT REDEMPTION OR DISTRIBUTION
If, at any time, a Tax Event or an Investment Company Event (each as hereinafter
defined, and each a "Special Event") shall occur and be continuing, the Trust
shall, unless the Junior Subordinated Debentures are redeemed in the limited
circumstances described below, be dissolved with the result that, after
satisfaction of creditors of the Trust, Junior Subordinated Debentures with an
aggregate principal amount equal to the aggregate stated liquidation amount of
the TECONS and the Common Securities would be distributed on a Pro Rata Basis to
the holders of the TECONS and the Common Securities in liquidation of such
holders' interests in the Trust, within 90 days following the occurrence of such
Special Event; provided, however, that in the case of the occurrence of a Tax
Event, as a condition of such dissolution and distribution, the Regular Trustees
shall have received an opinion of nationally recognized independent tax counsel
experienced in such matters (a "No Recognition Opinion"), which opinion may rely
on any then applicable published revenue rulings of the Internal Revenue
Service, to the effect that the holders of the TECONS will not recognize any
gain or loss for United States federal income tax purposes as a result of such
dissolution and distribution of Junior Subordinated Debentures; and, provided,
further, that, if at the time there is available to the Trust the opportunity to
eliminate, within such 90 day period, the Special Event by taking some
ministerial action, such as filing a form or making an election, or pursuing
some other similar reasonable measure, which has no adverse effect on the Trust
or the Company or the holders of the TECONS, the Trust will pursue such measure
in lieu of dissolution. Furthermore, if in the case of the occurrence of a Tax
Event, (i) the Regular Trustees have received an opinion (a "Redemption Tax
Opinion") of nationally recognized independent tax counsel experienced in such
matters that, as a result of a Tax Event, there is more than an insubstantial
risk that the Company would be precluded from deducting the interest on the
Junior Subordinated Debentures for United States federal income tax purposes
even if the Junior Subordinated Debentures were distributed to the holders of
TECONS and Common Securities in liquidation of such holders' interests in the
Trust as described above or (ii) the Regular Trustees shall have been informed
by such tax counsel that a No Recognition Opinion cannot be delivered to the
Trust, the Company shall have the right, upon not less than 30 nor more than 60
days notice, to redeem the Junior Subordinated Debentures in whole or in part
for cash within 90 days following the occurrence of such Tax Event, and promptly
following such redemption TECONS and Common Securities with an aggregate
liquidation amount equal to the aggregate principal amount of the Junior
Subordinated Debentures so redeemed will be redeemed by the Trust at the
Redemption Price on a Pro Rata Basis; provided, however, that if at the time
there is available to the Company or the Regular Trustees the opportunity to
eliminate, within such 90 day period, the Tax Event by taking some ministerial
action, such as filing a form or making an election, or pursuing some other
similar reasonable measure, which has no adverse effect on the Trust, the
Company or the holders of the TECONS, the Company will pursue such measure in
lieu of redemption and provided further that the Company shall have no right to
redeem the Junior Subordinated Debentures while the Regular Trustees on behalf
of the Trust are pursuing any such ministerial action. The Common Securities
will be redeemed on a Pro Rata Basis with the TECONS, except that if an Event of
Default under the Declaration has occurred and is continuing, the TECONS will
have a priority over the Common Securities with respect to payment of the
Redemption Price.
"Tax Event" means that the Regular Trustees shall have obtained an opinion of a
nationally recognized independent tax counsel experienced in such matters (a
"Dissolution Tax Opinion") to the effect that on or after the date of this
Prospectus as a result of (a) any amendment to, or change (including any
announced prospective change) in, the laws (or any regulations thereunder) of
the United States or any political subdivision or taxing authority thereof or
therein, (b) any amendment to, or change in, an interpretation or application of
any such laws or regulations by any legislative body, court, governmental agency
or regulatory authority (including the enactment of any legislation and the
publication of any judicial decision or regulatory determination), (c) any
interpretation or pronouncement that provides for a position with respect to
such laws or regulations that differs from the theretofore generally accepted
position or (d) any action taken by any governmental agency or regulatory
authority, which amendment or change is enacted, promulgated, issued or
effective or which interpretation or pronouncement is issued or announced or
which action is taken, in each case on or after the date of this Prospectus
(including, without limitation, any of the foregoing arising with respect to, or
resulting from, any proposal, proceeding or other action commencing on or before
the date of this Prospectus), there is more than an insubstantial risk that (i)
the Trust is, or will be within 90 days of the date thereof, subject to United
States federal income tax with respect to income accrued or received on the
Junior Subordinated Debentures, (ii) the Trust is, or will be within 90 days of
the date thereof, subject to more than a de minimis amount of other taxes,
duties or other governmental charges or (iii) interest payable by the Company to
the Trust on the Junior Subordinated Debentures is not, or within 90 days of the
date thereof will not be, deductible by the Company for United States federal
income tax purposes.
<PAGE>
"Investment Company Event" means that the Regular Trustees shall have received
an opinion of nationally recognized independent counsel experienced in practice
under the Investment Company Act of 1940, as amended (the "1940 Act"), that as a
result of the occurrence of a change in law or regulation or a change in
interpretation or application of law or regulation by any legislative body,
court, governmental agency or regulatory authority (a "Change in 1940 Act Law"),
there is more than an insubstantial risk that the Trust is or will be considered
an "investment company" which is required to be registered under the 1940 Act,
which Change in 1940 Act Law becomes effective on or after the date of this
Prospectus.
On the date fixed for any distribution of Junior Subordinated Debentures, upon
dissolution of the Trust, (i) the TECONS and the Common Securities will no
longer be deemed to be outstanding, (ii) the depositary or its nominee, as the
record holder of the TECONS, will receive a registered global certificate or
certificates representing the Junior Subordinated Debentures to be delivered
upon such distribution, and (iii) any certificates representing TECONS not held
by the depositary or its nominee will be deemed to represent Junior Subordinated
Debentures having an aggregate principal amount equal to the aggregate stated
liquidation amount of, with an interest rate identical to the distribution rate
of, and accrued and unpaid interest equal to accumulated and unpaid
distributions on, such TECONS, until such certificates are presented to the
Company or its agent for transfer or reissuance.
There can be no assurance as to the market price for the Junior Subordinated
Debentures which may be distributed in exchange for TECONS if a dissolution and
liquidation of the Trust were to occur. Accordingly, the Junior Subordinated
Debentures which the investor may subsequently receive on dissolution and
liquidation of the Trust may trade at a discount to the price of the TECONS
exchanged.
MANDATORY REDEMPTION
Upon the repayment of the Junior Subordinated Debentures, whether at maturity,
upon redemption or otherwise, the proceeds from such repayment or payment will
be promptly applied to redeem TECONS and Common Securities having an aggregate
liquidation amount equal to the aggregate principal amount of the Junior
Subordinated Debentures so repaid, upon not less than 30 nor more than 60 days'
notice, at the Redemption Price. The Common Securities will be entitled to be
redeemed on a Pro Rata Basis with the TECONS, except that if an Event of Default
under the Declaration has occurred and is continuing, the TECONS will have a
priority over the Common Securities with respect to payment of the Redemption
Price. Subject to the foregoing, if fewer than all outstanding TECONS and Common
Securities are to be redeemed, the TECONS and Common Securities will be redeemed
on a Pro Rata Basis. In the event fewer than all outstanding TECONS are to be
redeemed, TECONS registered in the name of and held by DTC or its nominee will
be redeemed as described under " -- Redemption Procedures" below.
REDEMPTION PROCEDURES
The Trust may not redeem any outstanding TECONS unless all accumulated and
unpaid distributions have been paid on all TECONS for all quarterly distribution
periods terminating on or prior to the date of redemption.
If the Trust gives a notice of redemption in respect of TECONS (which notice
will be irrevocable) then, by 12:00 noon, New York City time, on the redemption
date, and provided that the Company has paid to the Property Trustee a
sufficient amount of cash in connection with the related redemption or maturity
of the Junior Subordinated Debentures, the Property Trustee will irrevocably
deposit with the Depositary funds sufficient to pay the applicable Redemption
Price and will give the Depositary irrevocable instructions and authority to pay
the Redemption Price to the holders of the TECONS. See " -- The Global TECONS."
If notice of redemption shall have been given and funds deposited as required,
then, immediately prior to the close of business on the date of such deposit,
distributions will cease to accumulate on the TECONS called for redemption, such
TECONS shall no longer be deemed to be outstanding and all rights of holders of
such TECONS so called for redemption will cease, except the right of the holders
of such TECONS to receive the Redemption Price, but without interest on such
Redemption Price. Neither the Trustees nor the Trust shall be required to
register or cause to be registered the transfer of any TECONS which have been so
called for redemption. If any date fixed for redemption of TECONS is not a
Business Day, then payment of the Redemption Price payable on such date will be
made on the next succeeding day that is a Business Day (and without any interest
or other payment in respect of any such delay) except that, if such Business Day
falls in the next calendar year, such payment will be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on such date fixed for redemption. If the Company fails to repay Junior
Subordinated Debentures on maturity or on the date fixed for this redemption or
if payment of the Redemption Price in respect of TECONS is improperly withheld
or refused and not paid by the Property Trustee or by the Company pursuant to
the Guarantee described under "Description of the Guarantee," distributions on
such TECONS will continue to accumulate (in accordance with the continued
accrual of interest on the Debentures), from the original redemption date of the
TECONS to the date of payment, in which case the actual payment date will be
considered the date fixed for redemption for purposes of calculating the
Redemption Price.
<PAGE>
In the event that fewer than all of the outstanding TECONS are to be redeemed,
the TECONS will be redeemed as described below under " -- Book-Entry; Delivery
and Form" and " -- The Global TECONS."
If a partial redemption of the TECONS would result in the delisting of the
TECONS by any national securities exchange or other organization on which the
TECONS are then listed, pursuant to the Indenture, the Company may only redeem
Junior Subordinated Debentures in whole and, as a result, the Trust may only
redeem the TECONS in whole.
Subject to the foregoing and applicable law (including, without limitation,
United States federal securities laws), the Company or any of its subsidiaries
may at any time and from time to time purchase outstanding TECONS by tender, in
the open market or by private agreement.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
In the event of any voluntary or involuntary dissolution, liquidation,
winding-up or termination of the Trust, the holders of the TECONS and Common
Securities at the date of dissolution, liquidation, winding-up or termination of
the Trust will be entitled to receive on a Pro Rata Basis solely out of the
assets of the Trust, after satisfaction of liabilities of creditors (to the
extent not satisfied by the Company as provided in the Declaration), an amount
equal to the aggregate of the stated liquidation amount of $50 per Trust
Security plus accumulated and unpaid distributions thereon to the date of
payment (such amount being the "Liquidation Distribution"), unless, in
connection with such dissolution, liquidation, winding-up or termination, Junior
Subordinated Debentures in an aggregate principal amount equal to the aggregate
stated liquidation amount of such Trust Securities and bearing accrued and
unpaid interest in an amount equal to the accumulated and unpaid distributions
on such Trust Securities, shall be distributed on a Pro Rata Basis to the
holders of the TECONS and Common Securities in exchange therefor.
If, upon any such dissolution, the Liquidation Distribution can be paid only in
part because the Trust has insufficient assets available to pay in full the
aggregate Liquidation Distribution, then the amounts payable directly by the
Trust on the TECONS and the Common Securities shall be paid on a Pro Rata Basis.
The holders of the Common Securities will be entitled to receive distributions
upon any such dissolution on a Pro Rata Basis with the holders of the TECONS,
except that if an Event of Default under the Declaration has occurred and is
continuing, the TECONS shall have a priority over the Common Securities with
respect to payment of the Liquidation Distribution.
Pursuant to the Declaration, the Trust shall terminate: (i) on April 30, 2018,
the expiration of the term of the Trust; (ii) when all of the Trust Securities
shall have been called for redemption and the amounts necessary for redemption
thereof shall have been paid to the holders of Trust Securities in accordance
with the terms of the Trust Securities; (iii) when all of the Junior
Subordinated Debentures shall have been distributed to the holders of Trust
Securities in exchange for all of the Trust Securities in accordance with the
terms of the Trust Securities; or (iv) upon distribution of O&M Common Stock to
all holders of Trust Securities upon conversion of all outstanding TECONS.
NO MERGER, CONSOLIDATION OR AMALGAMATION OF THE TRUST
The Trust may not consolidate, amalgamate, merge with or into, or be replaced
by, or convey, transfer or lease its properties and assets to, any corporation
or other entity.
<PAGE>
DECLARATION EVENTS OF DEFAULT
An event of default under the Indenture (an "Indenture Event of Default")
constitutes an Event of Default under the Declaration with respect to the Trust
Securities; provided that pursuant to the Declaration, the holder of the Common
Securities will be deemed to have waived any such Event of Default with respect
to the Common Securities until all Events of Default with respect to the TECONS
have been cured or waived. Until all such Events of Default with respect to the
TECONS have been so cured or waived, the Property Trustee will be deemed to be
acting solely on behalf of the holders of the TECONS, and only the holders of
the TECONS will have the right to direct the Property Trustee with respect to
certain matters under the Declaration and consequently under the Indenture. In
the event that any Event of Default with respect to the TECONS is waived by the
holders of the TECONS as provided in the Declaration, such waiver will also
constitute a waiver of such Event of Default with respect to the Common
Securities for all purposes under the Declaration without any further act, vote
or consent of the holders of the Common Securities. See " -- Voting Rights"
below.
Upon the occurrence of an Event of Default, the Property Trustee as the holder
of all of the Junior Subordinated Debentures will have the right under the
Indenture to declare the principal of and interest on the Junior Subordinated
Debentures to be immediately due and payable. In addition, the Property Trustee
will have the power to exercise all rights, powers and privileges of the holder
of the Junior Subordinated Debentures under the Indenture. See "Description of
the Junior Subordinated Debentures."
REGISTRATION RIGHTS
The Trust and the Company have agreed with the Initial Purchasers, for the
benefit of the holders of the TECONS, that the Company will use its reasonable
best efforts, and at its cost, to file on or before the 90th day following the
date of original issuance of the TECONS a shelf registration statement (the
"Shelf Registration Statement") with respect to resales of the TECONS, the
Guarantee, the Junior Subordinated Debentures and the shares of O&M Common Stock
issuable upon conversion (the "Registrable Securities") and to keep such
registration statement effective until the earlier of (i) the sale pursuant to
such registration statement or Rule 144 under the Securities Act of all the
Registrable Securities and (ii) two years after the date of the original
issuance of the TECONS. Holders will be required to provide certain information
to the Company to be included in the registration statement in order to use the
prospectus for resales. The Company shall provide to each holder copies of the
prospectus, notify each holder when such registration statement has become
effective and take certain other actions as are required to permit resales. In
the event that (i) the Shelf Registration Statement is not declared effective on
or prior to the 150th day following the date of original issuance of the TECONS
or (ii) if use of the Shelf Registration Statement for resales is suspended for
any time during the two-year period after the date of original issuance of the
TECONS for a period in excess of 30 days during any three-month period or 60
days during any 12-month period (each, a "permitted black-out period"), then
additional amounts (in addition to amounts otherwise due on the TECONS) will
accrue at an annual rate of 0.50% on the TECONS if clause (i) applies from
October 10, 1998 until such registration statement is declared effective and if
clause (ii) applies, then during the period, other than any permitted black-out
period, use is so suspended. The Registration Statement of which this Prospectus
is a part constitutes the Shelf Registration Statement.
VOTING RIGHTS
Except as provided below, under " -- Modification and Amendment of the
Declaration" and "Description of the Guarantee" and as otherwise required by the
Business Trust Act, the Trust Indenture Act and the Declaration, the holders of
the TECONS will have no voting rights.
Subject to the requirements of this paragraph, the holders of a majority in
aggregate liquidation amount of the TECONS have the right (i) on behalf of all
holders of TECONS, to waive any past default that is waivable under the
Declaration and (ii) to direct the time, method and place of conducting any
proceeding for any remedy available to the Property Trustee, or exercising any
trust or power conferred upon the Property Trustee under the Declaration,
including the right to direct the Property Trustee, as the holder of the Junior
Subordinated Debentures, to (A) direct the time, method and place of conducting
any proceeding for any remedy available to the Indenture Trustee (as defined
herein), or executing any trust or power conferred on the Indenture Trustee with
respect to the Junior Subordinated Debentures, (B) waive any past default that
is waivable under Section 6.06 of the Indenture, or (C) exercise any right to
rescind or annul a declaration that the principal of all the Junior Subordinated
Debentures shall be due and payable; provided that where a consent under the
Indenture would require the consent of (a) holders of Junior Subordinated
Debentures representing a specified percentage greater than a majority in
principal amount of the Junior Subordinated Debentures or (b) each holder of
Junior Subordinated Debentures affected thereby, no such consent shall be given
by the Property Trustee without the prior consent of, in the case of clause (a)
above, holders of TECONS representing such specified percentage of the aggregate
liquidation amount of the TECONS or, in the case of clause (b) above, each
holder of all TECONS affected thereby. The Property Trustee shall not revoke any
action previously authorized or approved by a vote of the holders of TECONS. The
Property Trustee shall notify all holders of record of TECONS of any notice of
default received from the Indenture Trustee with respect to the Junior
Subordinated Debentures. Other than with respect to directing the time, method
and place of conducting any proceeding for any remedy available to the Property
Trustee or the Indenture Trustee as set forth above, the Property Trustee shall
be under no obligation to take any of the foregoing actions at the direction of
the holders of the TECONS unless the Property Trustee shall have obtained an
opinion of nationally recognized independent tax counsel recognized as an expert
in such matters to the effect that the Trust will not be classified for United
States federal income tax purposes as an association taxable as a corporation or
a partnership on account of such action and will be treated as a grantor trust
for United States federal income tax purposes following such action. If the
Property Trustee fails to enforce its rights under the Declaration (including,
without limitation, its rights, powers and privileges as a holder of the Junior
Subordinated Debentures under the Indenture), any holder of TECONS may, to the
extent permitted by applicable law, after a period of 30 days has elapsed from
such holder's written request to the Property Trustee to enforce such rights,
institute a legal proceeding directly against the Company to enforce the
Property Trustee's rights under the Declaration, without first instituting a
legal proceeding against the Property Trustee or any other Person. In addition,
in case of an Event of Default which is attributed to the failure of the Company
to pay interest or principal on the Junior Subordinated Debentures, a holder of
TECONS may directly institute a proceeding for enforcement of payment to such
holder of the principal of, or interest on, the Junior Subordinated Debentures
having a principal amount equal to the aggregate liquidation amount of the
TECONS of such holder. See " -- Declaration Events of Default."
A waiver of an Indenture Event of Default by the Property Trustee at the
direction of holders of the TECONS will constitute waiver of the corresponding
Event of Default under the Declaration in respect of the Trust Securities.
In the event the consent of the Property Trustee as the holder of the Junior
Subordinated Debentures is required under the Trust Indenture with respect to
any amendment, modification or termination of the Trust Indenture or the Junior
Subordinated Debentures, the Property Trustee shall request the direction of the
holders of the Trust Securities with respect to such amendment, modification or
termination and shall vote with respect to such amendment, modification or
termination as directed by a majority in liquidation amount of the Trust
Securities voting together as a single class; provided, however, that where any
such amendment, modification or termination under the Indenture would require
the consent of holders of Junior Subordinated Debentures representing a
specified percentage greater than a majority in principal amount of the Junior
Subordinated Debentures, the Property Trustee may only give such consent at the
direction of the holders of Trust Securities representing such specified
percentage of the aggregate liquidation amount of the Trust Securities; and,
provided, further, that the Property Trustee shall be under no obligation to
take any such action in accordance with the directions of the holders of the
Trust Securities unless the Property Trustee has obtained an opinion of
nationally recognized independent tax counsel recognized as an expert in such
matters to the effect that the Trust will not be classified for United States
federal income tax purposes as an association taxable as a corporation or a
partnership on account of such action and will be treated as a grantor trust for
United States federal income tax purposes following such action.
Any required approval or direction of holders of TECONS may be given at a
separate meeting of holders of TECONS convened for such purpose, at a meeting of
all of the holders of Trust Securities or pursuant to written consent. The
Regular Trustees will cause a notice of any meeting at which holders of TECONS
are entitled to vote, or of any matter upon which action by written consent of
such holders is to be taken, to be mailed to each holder of record of TECONS.
Each such notice will include a statement setting forth (i) the date of such
meeting or the date by which such action is to be taken; (ii) a description of
any resolution proposed for adoption at such meeting on which such holders are
entitled to vote or of such matter upon which written consent is sought; and
(iii) instructions for the delivery of proxies or consents.
<PAGE>
No vote or consent of the holders of TECONS will be required for the Trust to
redeem and cancel TECONS or distribute Junior Subordinated Debentures in
accordance with the Declaration.
Notwithstanding that holders of TECONS are entitled to vote or consent under any
of the circumstances described above, any of the TECONS at such time that are
owned by the Company or by any entity directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company shall
not be entitled to vote or consent and shall, for purposes of such vote or
consent, be treated as if they were not outstanding.
The procedures by which persons owning TECONS, registered in the name of and
held by DTC or its nominee may exercise their voting rights are described under
" -- The Global TECONS" below. Holders of the TECONS will have no rights to
increase or decrease the number of Trustees or to appoint, remove or replace a
Trustee, which rights are vested exclusively in the holders of the Common
Securities.
MODIFICATION AND AMENDMENT OF THE DECLARATION
The Declaration may be modified and amended on approval of a majority of the
Regular Trustees, provided, that, if any proposed modification or amendment
provides for, or the Regular Trustees otherwise propose to effect, (a) any
action that would adversely affect the powers, preferences or special rights of
the Trust Securities, whether by way of amendment to the Declaration or
otherwise, or (b) the dissolution, winding-up or termination of the Trust other
than pursuant to the terms of the Declaration, then the holders of the
outstanding Trust Securities as a class will be entitled to vote on such
amendment or proposal and such amendment or proposal shall not be effective
except with the approval of at least a majority in liquidation amount of the
Trust Securities, provided that if any amendment or proposal referred to above
would adversely affect only the TECONS or the Common Securities, then only the
affected class will be entitled to vote on such amendment or proposal and such
amendment or proposal shall not be effective except with the approval of a
majority in liquidation amount of such class of Securities.
Notwithstanding the foregoing, (i) no amendment or modification may be made to
the Declaration unless the Regular Trustees shall have obtained (a) either a
ruling from the Internal Revenue Service or a written unqualified opinion of
nationally recognized independent tax counsel experienced in such matters to the
effect that such amendment will not cause the Trust to be classified for United
States federal income tax purposes as an association taxable as a corporation or
a partnership and to the effect that the Trust will continue to be treated as a
grantor trust for purposes of United States federal income taxation and (b) a
written unqualified opinion of nationally recognized independent counsel
experienced in such matters to the effect that such amendment will not cause the
Trust to be an "investment company" which is required to be registered under the
1940 Act; (ii) certain specified provisions of the Declaration may not be
amended without the consent of all of the holders of the Trust Securities; (iii)
no amendment which adversely affects the rights, powers and privileges of the
Property Trustee shall be made without the consent of the Property Trustee; (iv)
Article 4 of the Declaration relating to the obligation of the Company to
purchase the Common Securities and to pay certain obligations and expenses of
the Trust may not be amended without the consent of the Company; and (v) the
rights of holders of Common Securities under Article 5 of the Declaration to
increase or decrease the number of, and to appoint, replace or remove, Trustees
shall not be amended without the consent of each holder of Common Securities.
The Declaration further provides that it may be amended without the consent of
the holders of the Trust Securities to (i) cure any ambiguity; (ii) correct or
supplement any provision in the Declaration that may be defective or
inconsistent with any other provision of the Declaration; (iii) to add to the
covenants, restrictions or obligations of the Company; and (iv) to conform to
changes in, or a change in interpretation or application of certain 1940 Act
requirements by the Commission, which amendment does not adversely affect the
rights, preferences or privileges of the holders.
<PAGE>
DEBTS AND OBLIGATIONS
In the Declaration, the Company has agreed to pay for all debts and obligations
(other than with respect to the Trust Securities) and all costs and expenses of
O&M Trust, including the fees and expenses of its Trustees and any taxes and all
costs and expenses with respect thereto, to which O&M Trust may become subject,
except for United States withholding taxes. The foregoing obligations of the
Company under each Declaration are for the benefit of, and shall be enforceable
by, any person to whom any such debts, obligations, costs, expenses and taxes
are owed (a "Creditor") whether or not such Creditor has received notice
thereof. Any such Creditor may enforce such obligations of the Company directly
against the Company and the Company has irrevocably waived any right or remedy
to require that any such Creditor take any action against O&M Trust or any other
person before proceeding against the Company. The Company has agreed in each
Declaration to execute such additional agreements as may be necessary or
desirable in order to give full effect to the foregoing.
BOOK-ENTRY; DELIVERY AND FORM
The following describes the delivery and order of TECONS in connection with the
Original Offering and transactions in TECONS which are not being or have not
been resold under this Prospectus.
The certificates representing the TECONS have been issued in fully registered
form. TECONS resold in offshore transactions in reliance on Regulation S under
the Securities Act will initially be represented by a single, temporary global
TECONS in definitive, fully registered form (the "Temporary Regulation S Global
TECONS") deposited with the Property Trustee as custodian for DTC and registered
in the name of a nominee of DTC for the accounts of Euroclear and Cedel. The
Temporary Regulation S Global TECONS will be exchangeable for a single,
permanent global TECONS (the "Permanent Regulation S Global TECONS" and,
together with the Temporary Regulation S Global TECONS, the "Regulation S Global
TECONS") on or after May 13, 1999. Prior to May 13, 1999, beneficial interests
in the Temporary Regulation S Global TECONS may only be held through Euroclear
or Cedel, and any resale or other transfer of such interests to U.S. persons
shall not be permitted during such period unless such resale or transfer is made
pursuant to Rule 144A or Regulation S and in accordance with the certification
requirements described below.
TECONS resold in reliance on Rule 144A are represented by a single, permanent
global TECONS in definitive, fully registered form (the "Restricted Global
TECONS" and, with the Regulation S Global TECONS, the "Global TECONS") deposited
with the Trustee as custodian for DTC and registered in the name of a nominee of
DTC. The Restricted Global TECONS and the Temporary Regulation S Global TECONS
(and any TECONS issued in exchange therefor) are subject to certain restrictions
on transfer set forth therein and bear a legend regarding such restrictions.
Prior to May 13, 1999, a beneficial interest in the Temporary Regulation S
Global TECONS may be transferred to a person who takes delivery in the form of
an interest in the Restricted Global TECONS only upon receipt by the Trustee of
a written certification from the transferor to the effect that such transfer is
being made to a person who the transferor reasonably believes is a "qualified
institutional buyer" within the meaning of Rule 144A in a transaction meeting
the requirements of Rule 144A and in accordance with any applicable securities
laws of any state of the United States or any other jurisdiction. Beneficial
interests in the Restricted Global TECONS may be transferred to a person who
takes delivery in the form of an interest in the Regulation S Global TECONS
whether before, on or after May 13, 1999, only upon receipt by the Trustee of a
written certification to the effect that such transfer is being made in
accordance with Regulation S under the Securities Act. After the TECONS have
been registered and resold under the Securities Act, all certification
requirements with respect to the TECONS will cease.
RESALES UNDER THIS PROSPECTUS
TECONS resold under the Registration Statement of which this Prospectus forms a
part will be represented by a single, permanent global TECONS in definitive,
fully-registered form (the "Unrestricted Global TECONS" and with the Regulation
S Global TECONS and the Restricted Global TECONS, the "Global TECONS"), which is
deposited with the Property Trustee as custodian for DTC and registered in the
name of a nominee of DTC.
<PAGE>
Upon each sale by a Selling Holder of TECONS (or the Junior Subordinated
Debentures or shares of O&M Common Stock into which the TECONS or Junior
Subordinated Debentures, as the case may be, may be converted) offered hereby,
such Selling Holder will be required to deliver a notice (the "Notice") of such
sale to the Property Trustee and the Company. The Notice will, among other
things, identify the sale as a sale pursuant to the Registration Statement of
which this Prospectus forms a part, certify that the prospectus deliver
requirements, if any, of the Securities Act have been satisfied, and certify
that the Selling Holder and the number of TECONS (or Junior Subordinated
Debentures or shares of O&M Common Stock, as the case may be) are identified in
the Prospectus in accordance with the applicable rules and regulations under the
Securities Act. A copy of the Notice is included herein in Appendix A.
Additional copies may be requested from the Company, Attention: Drew St. J.
Carneal, Owens & Minor, Inc., P.O. Box 27626, Richmond, Virginia 23261-7626,
telephone number (804) 747-9794.
Upon receipt by the Property Trustee of the Notice relating to a sale of TECONS,
an appropriate adjustment will be made to reflect a decrease in the principal
amount of the Restricted Global TECONS or the Regulation S Global TECONS, as the
case may be, or the cancellation of a TECONS in certificated form upon the
transfer thereof, and a corresponding increase in the principal amount of the
Unrestricted Global TECONS.
TRANSFERS BETWEEN GLOBAL SECURITIES
Any beneficial interest in one of the Global TECONS that is transferred to a
person who takes delivery in the form of an interest in the other Global TECONS,
will, upon transfer, cease to be an interest in such Global TECONS and become an
interest in the other Global TECONS, and, accordingly, will thereafter be
subject to all transfer restrictions, if any, and other procedures applicable to
beneficial interest in such other Global TECONS for as long as it remains such
interest. Except in the limited circumstances described under "The Global
TECONS," owners of beneficial interests in Global TECONS will not be entitled to
receive physical delivery of Certificated TECONS (as defined below). The TECONS
are not issuable in bearer form.
RESALES TO INSTITUTIONAL ACCREDITED INVESTORS
TECONS which are not resold under this Prospectus and which are transferred to
institutional accredited investors (as defined in Rule 501(a)(1),(2),(3) or (7)
under the Securities Act) ("Institutional Accredited Investors") who are not
qualified institutional buyers ("Non-Global Purchaser") will be issued in
registered form ("Certificated TECONS"). Upon the transfer of Certificated
TECONS initially issued to a Non-Global Purchaser either to a qualified
institutional buyer or in accordance with Regulation S, such Certificated TECONS
will, unless the relevant Global TECONS has previously been exchanged in whole
for Certificated TECONS, be exchanged for an interest in a Global TECONS.
THE GLOBAL TECONS
Upon the issuance of the Global TECONS, DTC or its custodian have credited, or
will credit on its internal system, the respective principal amount of the
individual beneficial interests represented by such Global TECONS to the
accounts of persons who have accounts with such depositary. Such accounts were
initially designated by or on behalf of the Initial Purchasers. Ownership of
beneficial interests in the Global TECONS will be limited to persons who have
accounts with DTC ("participants") or persons who hold interests through
participants. Ownership of beneficial interests in the Global TECONS will be
shown on, and the transfer of that ownership will be effected only through,
records maintained by DTC or its nominee (with respect to interests of
participants) and the records of participants (with respect to interest of
persons other than participants). Qualified institutional buyers may hold their
interest in the Global TECONS directly through DTC if they are participants in
such system, or indirectly through organizations which are participants in such
system.
Investors may hold their interests in the Regulation S Global TECONS directly
through Cedel or Euroclear, if they are participants in such systems, or
indirectly through organizations that are participants in such systems.
Beginning May 13, 1999 (but not earlier), investors may also hold such interests
through organizations other than Cedel or Euroclear that are participants in the
DTC system. Cedel and Euroclear will hold interests in the Regulation S Global
TECONS on behalf of their participants through DTC.
<PAGE>
So long as DTC, or its nominee, is the registered owner or holder of the Global
TECONS, DTC or such nominee, as the case may be, will be considered the sole
owner or holder of the TECONS represented by such Global TECONS for all purposes
under the Trust Agreement and the TECONS. No beneficial owner of an interest in
the Global TECONS will be able to transfer that interest except in accordance
with the procedures provided for under "Book Entry; Delivery and Form," as well
as DTC's applicable procedures and, if applicable, those of Euroclear and Cedel.
Payments of the principal of, and interest on, the Global TECONS will be made to
DTC or its nominee, as the case may be, as the registered owner thereof. None of
the Company, the Trust or any paying agent will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests in the Global TECONS or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal or interest in respect of the Global TECONS, will credit participants'
accounts with payments in accounts proportionate to their respective beneficial
interests in the principal amount of the Global TECONS as shown on the records
of DTC or its nominee. The Company also expects that payments by participants to
owners of beneficial interests in the Global TECONS held through such
participants will be governed by standing instructions and customary practices,
as is now the case with securities held for the accounts of customers registered
in the name of nominees for such customers. Such payments will be the
responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way in
accordance with DTC rules and will be settled in same-day funds. If a holder
requires physical delivery of a Certificated TECONS for any reason, including to
sell TECONS to persons in states which require such delivery of such TECONS or
to pledge such TECONS, such holder must transfer its interest in the Global
TECONS in accordance with the normal procedures of DTC and the procedures set
forth in "Book Entry; Delivery and Form." Transfers between participants in
Euroclear and Cedel will be effected in the ordinary way in accordance with
their respective rules and operating procedures.
DTC has advised the Company that it will take any action permitted to be taken
by a holder of TECONS (including the presentation of TECONS for exchange as
described below) only at the direction of one or more participants to whose
accounts the DTC interests in the Global TECONS is credited and only in respect
of such portion of the aggregate liquidation amount of TECONS as to which such
participant or participants has or have given such direction.
The laws of some jurisdictions require that certain purchasers of securities
take physical delivery of securities in definitive form. Such laws may impair
the ability to transfer beneficial interests in the Global TECONS as represented
by a global certificate.
DTC is a limited-purpose trust company organized under the New York Banking Law,
a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). DTC holds securities that its
participants ("Participants") deposit with DTC. DTC also facilitates the
settlement among Participants of securities transactions, such as transfers and
pledges, in deposited securities without electronic computerized book-entry
changes in Participants' accounts, thereby eliminating the need for physical
movement of securities certification. Direct Participants include securities
brokers and dealers, banks, trust companies, clearing corporations and certain
other organizations ("Direct Participants"). DTC is owned by a number of its
Direct Participants and by the Nasdaq National Market, the American Stock
Exchange, Inc., and the National Association of Securities Dealers, Inc. Access
to the DTC System is also available to others, such as securities brokers and
dealers, banks and trust companies that clear transactions through or maintain a
direct or indirect custodial relationship with a Direct Participant either
directly or indirectly ("Indirect Participants"). The rules applicable to DTC
and its Participants are on file with the Commission.
Conversion and redemption notices shall be sent to DTC or its nominee. If less
than all of the TECONS of a Direct Participant are being converted or redeemed,
DTC or such nominee will reduce the amount of the interest of each Direct
Participant in such TECONS in accordance with its normal procedures.
<PAGE>
Although voting with respect to the TECONS is limited, in those cases where a
vote is required, neither DTC nor its nominee will itself consent or vote with
respect to TECONS. Under its usual procedures, DTC would mail an Omnibus Proxy
to the Trust as soon as possible after the record date. The Omnibus Proxy
assigns consenting or voting rights to those Direct Participants to whose
accounts the TECONS are credited on the record date (identified in a listing
attached to the Omnibus Proxy). O&M and the Trust believe that the arrangements
among DTC, Direct and Indirect Participants, and Beneficial Owners will enable
the Beneficial Owners to exercise rights equivalent in substance to the rights
that can be directly exercised by a holder of a beneficial interest in the
Trust.
Although DTC, Euroclear and Cedel have agreed to the foregoing procedures in
order to facilitate transfers of interest in the Global TECONS among
participants of DTC, Euroclear and Cedel, they are under no obligation to
perform or continue to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company nor the Property Trustee will have
any responsibility for the performance by DTC, Euroclear or Cedel or their
respective obligations under the rules and procedures governing their
operations. If DTC discontinues being the Depositary and a successor Depositary
is not obtained, certificates for the TECONS are required to be printed and
delivered. Additionally, the Regular Trustees (with the consent of O&M) may
decide to discontinue use of the system of book-entry transfers through DTC (or
any successor Depositary) with respect to the TECONS. In that event,
certificates for the TECONS will be printed and delivered.
The information in this section concerning DTC, Euroclear and Cedel and DTC's
book-entry system has been obtained from sources that O&M and the Trust believe
to be reliable, but neither O&M nor the Trust takes responsibility for the
accuracy thereof.
CONVERSION AGENT, REGISTRAR, TRANSFER AGENT AND PAYING AGENT
The Property Trustee will act as the initial Conversion Agent. In addition, in
the event the TECONS do not remain in book-entry only form, the following
provisions will apply:
Payment of distributions and payments on redemption of the TECONS will be
payable, the transfer of the TECONS will be registrable, and TECONS will be
exchangeable for TECONS of other denominations of a like aggregate liquidation
amount, at the corporate trust office of the Property Trustee in New York, New
York; provided that payment of distributions may be made at the option of the
Regular Trustees on behalf of the Trust by check mailed to the address of the
persons entitled thereto and that the payment on redemption of any TECONS will
be made only upon surrender of such TECONS to the Property Trustee.
The Property Trustee or one of its affiliates will act as registrar and transfer
agent for the TECONS. The Property Trustee will also act as paying agent and,
with the consent of the Regular Trustees, may designate additional paying
agents.
Registration of transfers of TECONS will be effected without charge by or on
behalf of the Trust, but upon payment (with the giving of such indemnity as the
Trust or the Company may require) in respect of any tax or other governmental
charges that may be imposed in relation to it.
The Trust will not be required to register or cause to be registered the
transfer of TECONS after such TECONS have been called for redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, prior to a default with respect to the Trust Securities,
undertakes to perform only such duties as are specifically set forth in the
Declaration and, after default, shall exercise the same degree of care as a
prudent individual would exercise in the conduct of his or her own affairs.
Subject to such provision, the Property Trustee is under no obligation to
exercise any of the powers vested in it by the Declaration at the request of any
holder of TECONS, unless offered reasonable indemnity by such holder against the
costs, expenses and liabilities which might be incurred thereby. The Property
Trustee is not required to expend or risk its own funds or otherwise incur
personal financial liability in the performance of its duties if the Property
Trustee reasonably believes that repayment or adequate indemnity is not
reasonably assured to it.
<PAGE>
The Company and certain of its subsidiaries maintain deposit accounts and
banking relationships with the Property Trustee.
GOVERNING LAW
The Declaration and the TECONS will be governed by, and construed in accordance
with, the internal laws of the State of Delaware.
MISCELLANEOUS
The Regular Trustees are authorized and directed to take such action as they
deem reasonable in order that the Trust will not be deemed to be an "investment
company" required to be registered under the 1940 Act or that the Trust will not
be classified for United States federal income tax purposes as an association
taxable as a corporation or a partnership and will be treated as a grantor trust
for United States federal income tax purposes. In this connection, the Regular
Trustees are authorized to take any action, not inconsistent with applicable
law, the certificate of trust or the Declaration, that the Regular Trustees
determine in their discretion to be reasonable and necessary or desirable for
such purposes, as long as such action does not adversely affect the interests of
holders of the Trust Securities.
The Company and the Regular Trustees on behalf of the Trust will be required to
provide to the Property Trustee annually a certificate as to whether or not the
Company and the Trust, respectively, is in compliance with all the conditions
and covenants under the Declaration.
<PAGE>
DESCRIPTION OF THE GUARANTEE
Set forth below is a summary of information concerning the Guarantee that will
be executed and delivered by the Company for the benefit of the holders from
time to time of TECONS. The Guarantee will be separately qualified under the
Trust Indenture Act and will be held by The First National Bank of Chicago,
acting in its capacity as indenture trustee with respect thereto, for the
benefit of holders of the TECONS. The terms of the Guarantee will be those set
forth in the Guarantee and those made part of such Guarantee by the Trust
Indenture Act. This description summarizes the material terms of the Guarantee
and is qualified in its entirety by reference to the Guarantee (a copy of which
may be obtained from the Trustee) and the Trust Indenture Act. Section and
Article references used herein are references to the provisions of the
Guarantee.
GENERAL
Pursuant to the Guarantee, the Company will irrevocably and unconditionally
agree, to the extent set forth therein, to pay in full, to the holders of the
TECONS, the Guarantee Payments (as defined herein) (without duplication of
amounts theretofore paid by O&M Trust), to the extent not paid by O&M Trust,
regardless of any defense, right of set-off or counterclaim that O&M Trust may
have or assert. The following payments or distributions with respect to TECONS,
to the extent not paid or made by O&M Trust (the "Guarantee Payments"), will be
subject to the Guarantee (without duplication): (i) any accumulated and unpaid
distributions on TECONS, and the redemption price, including all accumulated and
unpaid distributions to the date of redemption, with respect to any TECONS
called for redemption by O&M Trust but if and only to the extent that in each
case the Company has made a payment to the Property Trustee of interest or
principal on the Junior Subordinated Debentures deposited in O&M Trust as trust
assets and (ii) upon a voluntary or involuntary dissolution, winding-up or
termination of O&M Trust (other than in connection with the distribution of such
Junior Subordinated Debentures to the holders of TECONS or the redemption of all
of the TECONS upon the maturity or redemption of such Junior Subordinated
Debentures or distribution of O&M Common Stock upon conversion of all TECONS)
the lesser of (a) the aggregate of the liquidation amount and all accumulated
and unpaid distributions on the TECONS to the date of payment, to the extent O&M
Trust has funds available therefor, or (b) the amount of assets of O&M Trust
remaining available for distribution to holders of the TECONS in liquidation of
O&M Trust. The Company's obligation to make a Guarantee Payment may be satisfied
by direct payment of the required amounts by the Company to the holders of
TECONS or by causing O&M Trust to pay such amounts to such holders.
The Guarantee is a guarantee from the time of issuance of the TECONS, but the
Guarantee covers distributions and other payments on the TECONS only if and to
the extent that the Company has made a payment to the Property Trustee of
interest or principal on the Junior Subordinated Debentures deposited in O&M
Trust as trust assets. If the Company does not make interest or principal
payments on the Junior Subordinated Debentures deposited in O&M Trust as trust
assets, the Property Trustee will not make distributions on the TECONS and O&M
Trust will not have funds available therefor.
The Company's obligations under the Declaration, the Guarantee issued with
respect to TECONS, the Junior Subordinated Debentures purchased by the Trust and
the Indenture in the aggregate will provide a full and unconditional guarantee
on a subordinated basis by the Company of payments due on the TECONS.
CERTAIN COVENANTS OF THE COMPANY
The Company will covenant that, so long as any TECONS issued by O&M Trust remain
outstanding, the Company will not (A) declare or pay any dividends on, or
redeem, purchase, acquire or make a distribution or liquidation payment with
respect to, any of its common stock or preferred stock or make any guarantee
payment with respect thereto or (B) make any payment of interest, premium (if
any) or principal on any debt securities issued by the Company which rank pari
passu with or junior to the Junior Subordinated Debentures, if at such time (i)
the Company shall be in default with respect to its Guarantee Payments or other
payment obligations under the Guarantee, (ii) there shall have occurred any
Declaration Event of Default under the Declaration or (iii) the Company shall
have given notice of its election to defer payments of interest on the Junior
Subordinated Debentures by extending the interest payment period as provided in
the terms of the Junior Subordinated Debentures and such period, or any
extension thereof, is continuing; provided that the foregoing will not apply to
stock dividends or other stock distributions paid by the Company. The provisions
of the immediately preceding sentence will not restrict the ability of the
Company to redeem rights issued pursuant to the Amended and Restated Rights
Agreement, dated as of May 10, 1994, between the Company and Wachovia Bank of
North Carolina, N.A., as Rights Agent, as it may be amended from time to time,
in an amount per right issued thereunder not to exceed that in effect on the
issue date of the Junior Subordinated Debentures. In addition, so long as any
TECONS remain outstanding, the Company has agreed (i) to remain the sole direct
or indirect owner of all of the outstanding Common Securities issued by O&M
Trust and not to cause or permit the Common Securities to be transferred except
to the extent permitted by the Declaration; provided that any permitted
successor of the Company under the Indenture may succeed to the Company's
ownership of the Common Securities issued by the applicable O&M Trust and (ii)
not to take any action which would cause the O&M Trust to cease to be treated as
a grantor trust for United States federal income tax purposes except in
connection with a distribution of Junior Subordinated Debentures.
<PAGE>
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes that do not adversely affect the rights of
holders of TECONS (in which case no consent will be required), the Guarantee may
be amended only with the prior approval of the holders of not less than a
majority in liquidation amount of the outstanding TECONS issued by O&M Trust.
All guarantees and agreements contained in the Guarantee shall bind the
successors, assignees, receivers, trustees and representatives of the Company
and shall inure to the benefit of the holders of the TECONS then outstanding.
Except in connection with a consolidation, merger or sale involving the Company
that is permitted under the Indenture, the Company may not assign its
obligations under the Guarantee.
TERMINATION OF THE GUARANTEE
The Guarantee will terminate and be of no further force and effect as to the
TECONS upon full payment of the redemption price of all the TECONS, or upon
distribution of the Junior Subordinated Debentures to the holders of the TECONS
in exchange for all of the TECONS, or upon full payment of the amounts payable
upon liquidation of O&M Trust or upon distribution of O&M Common Stock upon
conversion of all of the TECONS. Notwithstanding the foregoing, the Guarantee
will continue to be effective or will be reinstated, as the case may be, if at
any time any holder of TECONS must restore payment of any sums paid under the
TECONS or the Guarantee.
The Company's obligations under the Guarantee to make the Guarantee Payments
will constitute an unsecured obligation of the Company and will rank subordinate
and junior in right of payment to all other liabilities of the Company,
including the Junior Subordinated Debentures, except those made pari passu or
subordinate by their terms, and pari passu in right of payment with the most
senior preferred stock issued, from time to time, if any, by the Company. The
Company's obligations under the Guarantee will rank pari passu with guarantees
of preferred stock of any affiliate of the Company. Because the Company is a
holding company, the Company's obligations under the Guarantee are also
effectively subordinated to all existing and future liabilities, including trade
payables, of the Company's subsidiaries, except to the extent that the Company
is a creditor of the subsidiaries recognized as such. The Declaration provides
that each TECONS holder's acceptance thereof agrees to the subordination
provisions and other terms of the Guarantee.
STATUS OF THE GUARANTEE
The Guarantee will constitute a guarantee of payment and not of collection (that
is, the guaranteed party may institute a legal proceeding directly against the
guarantor to enforce its rights under the guarantee without first instituting a
legal proceeding against any other person or entity). The Guarantee will be
deposited with The First National Bank of Chicago, as indenture trustee, to be
held for the benefit of the holders of the TECONS issued by O&M Trust. The First
National Bank of Chicago shall enforce the Guarantee on behalf of the holders of
the TECONS. The holders of not less than a majority in aggregate liquidation
amount of the TECONS have the right to direct the time, method and place of
conducting any proceeding for any remedy available in respect of the Guarantee,
including the giving of directions to The First National Bank of Chicago. If The
First National Bank of Chicago fails to enforce the Guarantee as above provided,
any holder of TECONS may institute a legal proceeding directly against the
Company to enforce its rights under the Guarantee, without first instituting a
legal proceeding against O&M Trust or any other person or entity.
<PAGE>
MISCELLANEOUS
The Company will be required to provide annually to The First National Bank of
Chicago a statement as to the performance by the Company of certain of its
obligations under the Guarantee and as to any default in such performance. The
Company is required to file annually with The First National Bank of Chicago an
officer's certificate as to the Company's compliance with all conditions under
the Guarantee.
The First National Bank of Chicago, prior to the occurrence of a default,
undertakes to perform only such duties as are specifically set forth in the
Guarantee and, after default with respect to the Guarantee, shall exercise the
same degree of care as a prudent individual would exercise in the conduct of his
or her own affairs. Subject to such provision, The First National Bank of
Chicago is under no obligation to exercise any of the powers vested in it by the
Guarantee at the request of any holder of TECONS unless it is offered reasonable
indemnity against the costs, expenses and liabilities that might be incurred
thereby.
GOVERNING LAW
The Guarantee will be governed by, and construed in accordance with, the laws of
the State of New York.
<PAGE>
DESCRIPTION OF THE JUNIOR SUBORDINATED DEBENTURES
Set forth below is a description of the Junior Subordinated Debentures in which
the Trust will invest the proceeds from the issuance and sale of the Trust
Securities and which will be deposited in the Trust as trust assets. The terms
of the Junior Subordinated Debentures include those stated in the Indenture
dated as of May 13, 1998 (the "Trust Indenture" or the "Indenture") between the
Company and The First National Bank of Chicago, as trustee (the "Indenture
Trustee"). The following description does not purport to be complete and is
qualified in its entirety by reference to the Indenture and the Trust Indenture
Act. Whenever particular provisions or defined terms in the Indenture are
referred to herein, such provisions or defined terms are incorporated by
reference herein.
The Indenture does not limit the aggregate principal amount of indebtedness
which may be issued thereunder and provides that junior subordinated debentures
may be issued thereunder from time to time in one or more series (collectively,
together with the Junior Subordinated Debentures, the "Subordinated
Debentures"). The Junior Subordinated Debentures constitute a separate series
under the Indenture.
Under certain circumstances involving the dissolution of the Trust following the
occurrence of a Special Event, Junior Subordinated Debentures may be distributed
to the holders of the Trust Securities in liquidation of the Trust. See
"Description of the TECONS -- Special Event Redemption or Distribution."
GENERAL
The Junior Subordinated Debentures are unsecured, subordinated obligations of
the Company, limited in aggregate principal amount to an amount equal to the sum
of (i) the stated liquidation amount of the TECONS issued by the Trust and (ii)
the proceeds received by the Trust upon issuance of the Common Securities to the
Company (which proceeds will be used to purchase an equal principal amount of
Junior Subordinated Debentures). Since the Company is a holding company, the
Company's rights and the rights of its creditors, including the holders of
Junior Subordinated Debentures to participate in the assets of any subsidiary
upon the latter's liquidation or recapitalization will be subject to the prior
claims of each subsidiary's creditors, except to the extent that the Company may
itself be a creditor with recognized claims against the subsidiary.
The entire principal amount of the Junior Subordinated Debentures will become
due and payable, together with any accrued and unpaid interest thereon, on April
30, 2013. The Junior Subordinated Debentures are not subject to any sinking
fund.
If Junior Subordinated Debentures are distributed to holders of TECONS in
dissolution of the Trust, such Junior Subordinated Debentures will initially be
issued as a Global Security (as defined below). As described herein, under
certain limited circumstances, Junior Subordinated Debentures may be issued in
certificated form in exchange for a Global Security. See "Book-Entry and
Settlement" below. In the event that Junior Subordinated Debentures are issued
in certificated form, such Junior Subordinated Debentures will be in
denominations of $50 and integral multiples thereof and may be transferred or
exchanged at the offices described below. Payments on Junior Subordinated
Debentures issued as a Global Security will be made to DTC, a successor
depositary or, in the event that no depositary is used, to a paying agent for
the Junior Subordinated Debentures.
In the event that Junior Subordinated Debentures are issued in certificated
form, payments of principal and interest will be payable, the transfer of the
Junior Subordinated Debentures will be registrable, and Junior Subordinated
Debentures will be exchangeable for Junior Subordinated Debentures of other
denominations of a like aggregate principal amount, at the corporate trust
office of the Indenture Trustee in New York, New York; provided that payment of
interest may be made at the option of the Company by check mailed to the address
of the persons entitled thereto and that the payment of principal with respect
to any Junior Subordinated Debenture will be made only upon surrender of such
Junior Subordinated Debenture to the Indenture Trustee.
<PAGE>
SUBORDINATION
The payment of principal of, premium, if any, and interest on the Junior
Subordinated Debentures will, to the extent and in the manner set forth in the
Indenture, be subordinated in right of payment to the prior payment in full, in
cash or cash equivalents, of all Senior and Subordinated Debt of the Company.
Upon any payment or distribution of assets to creditors upon any liquidation,
dissolution, winding up, receivership, reorganization, assignment for the
benefit of creditors, marshaling of assets and liabilities or any bankruptcy,
insolvency or similar proceedings of the Company, the holders of all Senior and
Subordinated Debt will first be entitled to receive payment in full of all
amounts due or to become due thereon before the holders of the Junior
Subordinated Debentures will be entitled to receive any payment in respect of
the principal of, premium, if any, or interest on the Junior Subordinated
Debentures.
No payments on account of principal, premium, if any, or interest in respect of
the Junior Subordinated Debentures may be made by the Company if there shall
have occurred and be continuing a default in any payment with respect to Senior
and Subordinated Debt, whether at maturity, upon redemption, by declaration or
otherwise. In addition, during the continuance of any other event of default
(other than a payment default) with respect to Designated Senior and
Subordinated Debt pursuant to which the maturity thereof may be accelerated,
from and after the date of receipt by the Trustee of written notice from holders
of such Designated Senior and Subordinated Debt or from an agent of such
holders, no payments on account of principal, premium, if any, or interest in
respect of the Junior Subordinated Debentures may be made by the Company during
a period (the "Payment Blockage Period") commencing on the date of delivery of
such notice and ending 179 days thereafter (unless such Payment Blockage Period
shall be terminated by written notice to the Trustee from the holders of such
Designated Senior and Subordinated Debt or from an agent of such holders, or
such event of default has been cured or waived or has ceased to exist). Only one
Payment Blockage Period may be commenced with respect to the Junior Subordinated
Debentures during any period of 360 consecutive days. No event of default which
existed or was continuing on the date of the commencement of any Payment
Blockage Period with respect to the Designated Senior and Subordinated Debt
initiating such Payment Blockage Period shall be or be made the basis for the
commencement of any subsequent Payment Blockage Period by the holders of such
Designated Senior and Subordinated Debt, unless such event of default shall have
been cured or waived for a period of not less than 90 consecutive days.
By reason of such subordination, in the event of insolvency, funds that would
otherwise be payable to holders of Junior Subordinated Debentures will be paid
to the holders of Senior and Subordinated Debt of the Company to the extent
necessary to pay such Debt in full, and the Company may be unable to meet fully
its obligations with respect to the Junior Subordinated Debentures.
"Debt" is defined to mean, with respect to any person at any date of
determination (without duplication), (i) all indebtedness of such person for
borrowed money, (ii) all obligations of such person evidenced by bonds,
debentures, notes or other similar instruments, (iii) all obligations of such
person in respect of letters of credit or bankers' acceptances or other similar
instruments (or reimbursement obligations with respect thereto), (iv) all
obligations of such person to pay the deferred purchase price of property or
services, except trade payables, (v) all obligations of such person as lessee
under capitalized leases, (vi) all Debt of others secured by a lien on any asset
of such person, whether or not such Debt is assumed by such person; provided
that, for purposes of determining the amount of any Debt of the type described
in this clause, if recourse with respect to such Debt is limited to such asset,
the amount of such Debt shall be limited to the lesser of the fair market value
of such asset or the amount of such Debt, (vii) all Debt of others guaranteed by
such person to the extent such Debt is guaranteed by such person, (viii) all
redeemable stock valued at the greater of its voluntary or involuntary
liquidation preference plus accumulated and unpaid dividends and (ix) to the
extent not otherwise included in this definition, all obligations of such person
under currency agreements and interest rate agreements.
"Designated Senior and Subordinated Debt" is defined to mean (i) Debt under the
Credit Agreement dated as of September 15, 1997 (the "Credit Agreement") among
the Company, certain of its Subsidiaries, the various banks and lending
institutions identified on the signature pages thereto, NationsBank, N.A., as
agent, Bank of America NT and SA and Crestar Bank, as co-agents, and
NationsBank, N.A., as administrative agent, as such Credit Agreement has been
and may be amended, restated, supplemented, replaced, refinanced or otherwise
modified from time to time, and (ii) Debt constituting Senior and Subordinated
Debt which, at the time of its determination, (A) has an aggregate principal
amount of at least $30 million and (B) is specifically designated in the
instrument evidencing such Senior and Subordinated Debt as "Designated Senior
and Subordinated Debt" by the Company.
<PAGE>
"Senior and Subordinated Debt" is defined to mean the principal of (and premium,
if any) and interest on all Debt of the Company whether created, incurred or
assumed before, on or after the date of the Indenture; provided that such Senior
and Subordinated Debt shall not include (i) Debt of the Company to any
Affiliate, (ii) Debt of the Company that, when incurred and without respect to
any election under Section 1111(b) of Title 11, U.S. Code, was without recourse,
(iii) any other Debt of the Company which by the terms of the instrument
creating or evidencing the same is specifically designated as not being senior
in right of payment to the Junior Subordinated Debentures, and in particular the
Junior Subordinated Debentures shall rank pari passu with all other debt
securities and guarantees issued to any trust, partnership or other entity
affiliated with the Company which is a financing vehicle of the Company in
connection with an issuance of preferred securities by such financing entity,
and (iv) redeemable stock of the Company.
OPTIONAL REDEMPTION
Except as provided below, the Junior Subordinated Debentures may not be redeemed
prior to May 2, 2001. O&M shall have the right to redeem the Junior Subordinated
Debentures, in whole or in part, from time to time, on or after May 2, 2001,
upon not less than 30 nor more than 60 days notice, at the following prices
(expressed as percentages of the principal amount of the Junior Subordinated
Debentures) together with accrued and unpaid interest, including Compounded
Interest to, but excluding, the redemption date, if redeemed during the 12-month
period beginning April 30:
Year Redemption Price
---- ----------------
2001............ 103.3594%
2002............ 102.6875%
2003............ 102.0156%
2004............ 101.3438%
2005............ 100.6719%
and 100% if redeemed on or after April 30, 2006.
If the Junior Subordinated Debentures are redeemed on any Interest Payment Date
(as defined), accrued and unpaid interest shall be payable to holders of record
on the relevant record date.
So long as the corresponding TECONS are outstanding, the proceeds from the
redemption of any Junior Subordinated Debentures will be used to redeem TECONS.
The Company will also have the right to redeem the Junior Subordinated
Debentures at any time upon the occurrence of a Tax Event if certain conditions
are met as described under "Description of the TECONS -- Special Event
Redemption or Distribution."
The Company may not redeem any Junior Subordinated Debentures unless all accrued
and unpaid interest thereon, including Compounded Interest, has been or is
simultaneously paid for all quarterly periods terminating on or prior to the
date of notice of redemption.
If the Company gives a notice of redemption in respect of Junior Subordinated
Debentures (which notice will be irrevocable), then, by 12:00 noon, New York
City time, on the redemption date, the Company will deposit irrevocably with the
Indenture Trustee funds sufficient to pay the applicable Redemption Price and
will give irrevocable instructions and authority to pay such Redemption Price to
the holders of the Junior Subordinated Debentures. If notice of redemption shall
have been given and funds deposited as required, then upon the date of such
deposit, interest will cease to accrue on the Junior Subordinated Debentures
called for redemption, such Junior Subordinated Debentures will no longer be
deemed to be outstanding and all rights of holders of such Junior Subordinated
Debentures so called for redemption will cease, except the right of the holders
of such Junior Subordinated Debentures to receive the applicable Redemption
Price, but without interest on such Redemption Price. If any date fixed for
redemption of Junior Subordinated Debentures is not a Business Day, then payment
of the Redemption Price payable on such date will be made on the next succeeding
day that is a Business Day (and without any interest or other payment in respect
of any such delay) except that, if such Business Day falls in the next calendar
year, such payment will be made on the immediately preceding Business Day, in
each case with the same force and effect as if made on such date fixed for
redemption. If the Company fails to repay the Junior Subordinated Debentures on
maturity or the date fixed for this redemption, or if payment of the Redemption
Price in respect of Junior Subordinated Debentures is improperly withheld or
refused and not paid by the Company, interest on such Junior Subordinated
Debentures will continue to accrue, from the original redemption date to the
date of payment, in which case the actual payment date will be considered the
date fixed for redemption for purposes of calculating the applicable Redemption
Price. If fewer than all of the Junior Subordinated Debentures are to be
redeemed, the Junior Subordinated Debentures to be redeemed shall be selected by
lot or pro rata.
<PAGE>
In the event of any redemption in part, the Company shall not be required to (i)
issue, register the transfer of or exchange any Junior Subordinated Debentures
during a period beginning at the opening of business 15 days before any
selection for redemption of Junior Subordinated Debentures and ending at the
close of business on the earliest date on which the relevant notice of
redemption is deemed to have been given to all holders of Junior Subordinated
Debentures to be redeemed and (ii) register the transfer of or exchange any
Junior Subordinated Debentures so selected for redemption, in whole or in part,
except the unredeemed portion of any Junior Subordinated Debentures being
redeemed in part.
INTEREST
The Junior Subordinated Debentures will bear interest at the rate of 5.375% per
annum from May 13, 1998. Interest will be payable quarterly in arrears on each
January 31, April 30, July 31 and October 31 (each, an "Interest Payment Date"),
commencing on July 31, 1998, to the person in whose name such Junior
Subordinated Debenture is registered, subject to certain exceptions, at the
close of business on the Business Day next preceding such Interest Payment Date.
In the event (i) the TECONS shall not continue to remain in book-entry only form
or (ii) if following distribution of the Junior Subordinated Debentures to
holders of Trust Securities upon dissolution of the Trust as described under
"Description of the TECONS," the Junior Subordinated Debentures shall not
continue to remain in book-entry only form, the relevant record date will be the
fifteenth day of the month in which the relevant Interest Payment Date occurs.
Interest payable on any Junior Subordinated Debenture that is not punctually
paid or duly provided for on any Interest Payment Date will forthwith cease to
be payable to the person in whose name such Junior Subordinated Debenture is
registered on the relevant record date, and such defaulted interest will instead
be payable to the person in whose name such Junior Subordinated Debenture is
registered on the special record date or other specified date determined in
accordance with the Indenture; provided, however, that interest shall not be
considered payable by the Company on any Interest Payment Date falling within an
Extension Period unless the Company has elected to make a full or partial
payment of interest accrued on the Junior Subordinated Debentures on such
Interest Payment Date.
The amount of interest payable for any period will be computed on the basis of a
360-day year of twelve 30 day months. If any date on which interest is payable
on the Junior Subordinated Debentures is not a Business Day, then payment of the
interest payable on such date will be made on the next succeeding day that is a
Business Day (and without any interest or other payment in respect of any such
delay), except that, if such Business Day is in the next succeeding calendar
year, such payment shall be made on the immediately preceding Business Day, in
each case with the same force and effect as if made on such date.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
So long as the Company shall not be in default in the payment of interest on the
Junior Subordinated Debentures, the Company shall have the right to extend the
interest payment period from time to time for a period not exceeding 20
consecutive quarterly interest periods. The Company has no current intention of
exercising its right to extend an interest payment period. No interest shall be
due and payable during an Extension Period, except at the end thereof.
<PAGE>
During any Extension Period, the Company shall not (i) declare or pay any
dividends on, or redeem, purchase, acquire or make a distribution or liquidation
payment with respect to, any of its common stock or preferred stock or make any
guarantee payments with respect thereto; provided that the foregoing will not
apply to stock dividends or other stock distributions paid by the Company or
(ii) make any payment of principal, interest or premium, if any, on or repay,
repurchase or redeem any debt securities of the Company that rank pari passu
with or junior in interest to the Junior Subordinated Debentures. The provisions
of the immediately preceding sentence will not restrict the ability of the
Company to redeem rights issued pursuant to the Amended and Restated Rights
Agreement, dated as of May 10, 1994, between the Company and Wachovia Bank of
North Carolina, N.A., as Rights Agent, as it may be amended from time to time,
in an amount per right issued thereunder not to exceed that in effect on the
issue date of the Junior Subordinated Debentures. Prior to the termination of
any such Extension Period, the Company may further extend the interest payment
period; provided that such Extension Period together with all such previous and
further extensions thereof may not exceed 20 consecutive quarters or extend
beyond the maturity of the Junior Subordinated Debentures. On the Interest
Payment Date occurring at the end of each Extension Period, the Company shall
pay to the holders of Junior Subordinated Debentures of record on the record
date for such Interest Payment Date (regardless of who the holders of record may
have been on other dates during the Extension Period) all accrued and unpaid
interest on the Junior Subordinated Debentures, together with interest thereon
at the rate specified for the Junior Subordinated Debentures to the extent
permitted by applicable law, compounded quarterly. Upon the termination of any
Extension Period and the payment of all amounts then due, the Company may
commence a new Extension Period, subject to the above requirements. The Company
may also prepay at any time all or any portion of the interest accrued during an
Extension Period. Consequently, there could be multiple Extension Periods of
varying lengths throughout the term of the Junior Subordinated Debentures, not
to exceed 20 consecutive quarters; provided, that no such period may extend
beyond the stated maturity of the Junior Subordinated Debentures. The failure by
the Company to make interest payments during an Extension Period would not
constitute a default or an event of default under the Indenture or the Company's
currently outstanding indebtedness.
If the Property Trustee shall be the sole holder of the Junior Subordinated
Debentures, the Company shall give the Property Trustee notice of its selection
of such Extension Period one Business Day prior to the earlier of (i) the date
the distributions on the TECONS are payable or (ii) the date the Trust is
required to give notice to the NYSE or other applicable self-regulatory
organization or to holders of the TECONS of the record date or the date such
distribution is payable. The Trust shall give notice of the Company's selection
of such Extension Period to the holders of the TECONS.
If Junior Subordinated Debentures have been distributed to holders of Trust
Securities, the Company shall give the holders of the Junior Subordinated
Debentures notice of its selection of such Extension Period ten Business Days
prior to the earlier of (i) the next succeeding Interest Payment Date or (ii)
the date the Company is required to give notice to the NYSE (if the Junior
Subordinated Debentures are then listed thereon) or other applicable
self-regulatory organization or to holders of the Junior Subordinated Debentures
of the record or payment date of such related interest payment.
ADDITIONAL INTEREST
If at any time the Trust shall be required to pay any taxes, duties, assessments
or governmental charges of whatever nature (other than withholding taxes)
imposed by the United States, or any other taxing authority, then, in any such
case, O&M will pay as additional interest ("Additional Interest") on the Junior
Subordinated Debentures such additional amounts as shall be required so that the
net amounts received and retained by the Trust after paying any such taxes,
duties, assessments or other governmental charges will be equal to the amounts
the Trust would have received had no such taxes, duties, assessments or other
governmental charges been imposed.
<PAGE>
CONVERSION OF THE JUNIOR SUBORDINATED DEBENTURES
The Junior Subordinated Debentures are convertible into O&M Common Stock at the
option of the holders of the Junior Subordinated Debentures at any time prior to
the close of business on April 30, 2013 (or, in the case of Junior Subordinated
Debentures called for redemption, the close of business on the Business Day
prior to the Redemption Date) at the Initial Conversion Price subject to the
conversion price adjustments described under "Description of the TECONS --
Conversion Rights." The Trust has agreed not to convert Junior Subordinated
Debentures held by it except pursuant to a notice of conversion delivered to the
Conversion Agent by a holder of TECONS. Upon surrender of a TECONS to the
Conversion Agent for conversion, the Trust will distribute Junior Subordinated
Debentures to the Conversion Agent on behalf of the holder of the TECONS so
converted, whereupon the Conversion Agent will convert such Junior Subordinated
Debentures to O&M Common Stock on behalf of such holder. O&M's delivery to the
holders of the Junior Subordinated Debentures (through the Conversion Agent) of
the fixed number of shares of O&M Common Stock into which the Junior
Subordinated Debentures are convertible (together with the cash payment, if any,
in lieu of fractional shares) will be deemed to satisfy the obligation of O&M to
pay the principal amount of the Junior Subordinated Debentures so converted, and
the accrued and unpaid interest thereon attributable to the period from the last
date to which interest has been paid or duly provided for; provided, however,
that if any Junior Subordinated Debenture is converted after a record date for
payment of interest, the interest payable on the related Interest Payment Date
with respect to such Junior Subordinated Debenture shall be paid to the Trust
(which will distribute such interest to the converting holder) or other holder
of Junior Subordinated Debentures, as the case may be, despite such conversion.
COMPOUNDED INTEREST
Payments of Compounded Interest on the Junior Subordinated Debentures held by
the Trust will make funds available to pay any interest on distributions in
arrears in respect of the TECONS pursuant to the terms thereof.
CERTAIN COVENANTS OF THE COMPANY APPLICABLE TO THE JUNIOR SUBORDINATED
DEBENTURES
The Company covenants in the Indenture that, so long as the TECONS issued by O&M
Trust remain outstanding, the Company will not declare or pay any dividends on,
or redeem, purchase, acquire or make a distribution or liquidation payment with
respect to, or make any guarantee payment with respect to, any of its common or
preferred stock if at such time (i) the Company shall be in default with respect
to its Guarantee Payments or other payment obligations under the Guarantee, (ii)
there shall have occurred any Indenture Event of Default with respect to the
Junior Subordinated Debentures or (iii) the Company shall have given notice of
its election to defer payments of interest on such Junior Subordinated
Debentures by extending the interest payment period as provided in the terms of
such Junior Subordinated Debentures and such period, or any extension thereof,
is continuing; provided that (x) the Company will be permitted to pay accrued
dividends (and cash in lieu of fractional shares) upon the conversion of any
preferred stock of the Company as may be outstanding from time to time, in each
case in accordance with the terms of such stock and (y) the foregoing will not
apply to any stock dividends paid by the Company. The provisions of the
immediately preceding sentence will not restrict the ability of the Company to
redeem rights issued pursuant to the Amended and Restated Rights Agreement,
dated as of May 10, 1994, between the Company and Wachovia Bank of North
Carolina, N.A., as Rights Agent, as it may be amended from time to time, in an
amount per right issued thereunder not to exceed that in effect on the issue
date of the Junior Subordinated Debentures. The Company has agreed (i) to remain
the sole direct or indirect owner of all of the outstanding Common Securities
issued by O&M Trust and not to cause or permit the Common Securities to be
transferred except to the extent permitted by the Declaration; provided that any
permitted successor of the Company under the Indenture may succeed to the
Company's ownership of the Common Securities issued by O&M Trust, (ii) to comply
fully with all of its obligations and agreements contained in the related
Declaration and (iii) not to take any action which would cause O&M Trust to
cease to be treated as a grantor trust for United States federal income tax
purposes, except in connection with a distribution of Junior Subordinated
Debentures.
INDENTURE EVENTS OF DEFAULT
The Indenture provides that any one or more of the following described events,
which has occurred and is continuing, constitutes an "Indenture Event of
Default" with respect to the Junior Subordinated Debentures:
<PAGE>
(a) failure for 30 days to pay interest on the Junior Subordinated
Debentures of such series when due; provided that a valid extension of
the interest payment period by the Company shall not constitute a
default in the payment of interest for this purpose;
(b) failure to pay principal of or premium, if any, on the Junior
Subordinated Debentures when due whether at maturity, upon redemption,
by declaration or otherwise;
(c) failure to observe or perform any other covenant contained in the
Indenture for 90 days after written notice to the Company from the
Indenture Trustee or the holders of at least 25% in principal amount of
the outstanding Junior Subordinated Debenture; or
(d) certain events in bankruptcy, insolvency or reorganization of the
Company.
In each and every such case, unless the principal of all the Junior Subordinated
Debentures shall have already become due and payable, either the Indenture
Trustee or the holders of not less than 25% in aggregate principal amount of the
Junior Subordinated Debentures then outstanding, by notice in writing to the
Company (and to the Indenture Trustee if given by such holders), may declare the
principal of all the Junior Subordinated Debentures to be due and payable
immediately, and upon any such declaration the same shall become and shall be
immediately due and payable. (Section 6.01)
The holders of a majority in aggregate outstanding principal amount of the
Junior Subordinated Debentures have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Indenture
Trustee. (Section 6.06) The Indenture Trustee or the holders of not less than
25% in aggregate outstanding principal amount of the Junior Subordinated
Debentures may declare the principal due and payable immediately upon an
Indenture Event of Default, but the holders of a majority in aggregate
outstanding principal amount of the Junior Subordinated Debentures may annul
such declaration and waive the default if the default has been cured and a sum
sufficient to pay all matured installments of interest and principal otherwise
than by acceleration and any premium has been deposited with the Indenture
Trustee. (Sections 6.01 and 6.06)
The holders of a majority in aggregate outstanding principal amount of the
Junior Subordinated Debentures may, on behalf of the holders of all the Junior
Subordinated Debentures, waive any past default, except a default in the payment
of principal, premium, if any, or interest (unless such default has been cured
and a sum sufficient to pay all matured installments of interest and principal
otherwise than by acceleration and any premium has been deposited with the
Indenture Trustee) or a call for redemption of Junior Subordinated Debentures.
(Section 6.06) The Company is required to file annually with the Indenture
Trustee a certificate as to whether or not the Company is in compliance with all
the conditions and covenants under the Indenture. (Section 5.03)
Under the Declaration, an Indenture Event of Default with respect to the Junior
Subordinated Debentures will constitute a Declaration Event of Default.
MODIFICATION OF THE INDENTURE
The Indenture contains provisions permitting the Company and the Indenture
Trustee, with the consent of the holders of not less than a majority in
principal amount of the outstanding Junior Subordinated Debentures, to modify
the Indenture or any supplemental indenture affecting the rights of the holders
of such Junior Subordinated Debentures; provided that no such modification may,
without the consent of the holder of each outstanding Junior Subordinated
Debenture affected thereby, (i) extend the fixed maturity of the Junior
Subordinated Debentures, reduce the principal amount thereof, reduce the rate or
extend the time of payment of interest thereon, reduce any premium payable upon
the redemption thereof, or otherwise modify any terms affecting the amount or
timing of payments on any Junior Subordinated Debenture, or (ii) reduce the
percentage of Junior Subordinated Debentures, the holders of which are required
to consent to any modification of the Indenture. (Section 9.02)
<PAGE>
CONSOLIDATION, MERGER AND SALE
The Indenture provides that the Company may not consolidate with or merge into
any other person or transfer or lease its properties and assets substantially as
an entirety to any person and may not permit any person to merge into or
consolidate with the Company unless (i) either the Company will be the resulting
or surviving entity or any successor or purchaser is a corporation organized
under the laws of the United States of America, any State or the District of
Columbia, and any such successor or purchaser expressly assumes the Company's
obligations under the Indenture, and (ii) immediately after giving effect to the
transactions no Event of Default shall have occurred and be continuing. (Section
10.01)
DEFEASANCE AND DISCHARGE
Under the terms of the Indenture, the Company will be discharged from any and
all obligations in respect of the Junior Subordinated Debentures (except in each
case for certain obligations to register the transfer or exchange of Junior
Subordinated Debentures, replace stolen, lost or mutilated Junior Subordinated
Debentures, maintain paying agencies and hold moneys for payment in trust) if
(i) the Company irrevocably deposits with the Indenture Trustee cash or U.S.
Government Obligations, as trust funds in an amount certified to be sufficient
to pay at maturity (or upon redemption) the principal of, premium, if any, and
interest on all outstanding Junior Subordinated Debentures; (ii) such deposit
will not result in a breach or violation of, or constitute a default under, any
agreement or instrument to which the Company is a party or by which it is bound;
(iii) the Company delivers to the Indenture Trustee an opinion of counsel to the
effect that the holders of the Junior Subordinated Debentures will not recognize
income, gain or loss for United States federal income tax purposes as a result
of such defeasance and that defeasance will not otherwise alter holders' United
States federal income tax treatment of principal, premium and interest payments
on the Junior Subordinated Debentures (such opinion must be based on a ruling of
the Internal Revenue Service or a change in United States federal income tax law
occurring after the date of the Indenture, since such a result would not occur
under current tax law); (iv) the Company has delivered to the Indenture Trustee
an Officer's Certificate and an opinion of counsel, each stating that all
conditions precedent provided for relating to the defeasance contemplated by
such provision have been complied with; and (v) no event or condition shall
exist that, pursuant to the subordination provisions applicable to such series,
would prevent the Company from making payments of principal of, premium, if any,
and interest on the Junior Subordinated Debentures at the date of the
irrevocable deposit referred to above. (Section 11.01)
GOVERNING LAW
The Indenture and the Junior Subordinated Debentures will be governed by the
laws of the State of New York. (Section 13.05)
INFORMATION CONCERNING THE INDENTURE TRUSTEE
The Indenture Trustee, prior to default, undertakes to perform only such duties
as are specifically set forth in the Indenture and, after default, shall
exercise the same degree of care as a prudent individual would exercise in the
conduct of his or her own affairs. (Section 7.01) Subject to such provision, the
Indenture Trustee is under no obligation to exercise any of the powers vested in
it by the Indenture at the request of any holder of Junior Subordinated
Debentures, unless offered reasonable indemnity by such holder against the
costs, expenses and liabilities that might be incurred thereby. (Section 7.02)
The Indenture Trustee is not required to expend or risk its own funds or
otherwise incur personal financial liability in the performance of its duties if
the Trustee reasonably believes that repayment or adequate indemnity is not
reasonably assured to it. (Section 7.01)
The Company and certain of its subsidiaries maintain deposit accounts and
banking relationships with The First National Bank of Chicago.
<PAGE>
MISCELLANEOUS
The Company will have the right at all times to assign any of its rights or
obligations under the Indenture to a direct or indirect wholly-owned subsidiary
of the Company; provided that, in the event of any such assignment, the Company
will remain jointly and severally liable for all such obligations. Subject to
the foregoing, the Indenture will be binding upon and inure to the benefit of
the parties thereto and their respective successors and assigns. The Indenture
provides that it may not otherwise be assigned by the parties thereto other than
by the Company to a successor or purchaser pursuant to a consolidation, merger
or sale permitted by the Indenture. (Section 13.11)
BOOK-ENTRY AND SETTLEMENT
If distributed to holders of TECONS in connection with the involuntary or
voluntary dissolution, winding-up or liquidation of the Trust as a result of the
occurrence of a Special Event, the Junior Subordinated Debentures will be issued
(i) if to owners of beneficial interests in the Global TECONS, in the form of
one or more global certificates (each, a "Global Security") registered in the
name of the Depositary or its nominee or (ii) if to holders of certificated
TECONS, in registered form (each, a "Certificated Security"). Except under the
limited circumstances described below, Junior Subordinated Debentures
represented by the Global Security will not be exchangeable for, and will not
otherwise be issuable as, Junior Subordinated Debentures in definitive form. The
Global Securities described above may not be transferred except by the
Depositary to a nominee of the Depositary or by a nominee of the Depositary to
the Depositary or another nominee of the Depositary or to a successor Depositary
or its nominee.
The laws of some jurisdictions require that certain purchasers or securities
take physical delivery of such securities in definitive form. Such laws may
impair the ability to transfer beneficial interests in such a Global Security.
Except as provided herein, owners of beneficial interests in such a Global
Security will not be entitled to receive physical delivery of Junior
Subordinated Debentures in definitive form and will not be considered the
holders (as defined in the Indenture) thereof for any purpose under the
Indenture and no Global Security representing Junior Subordinated Debentures
shall be exchangeable, except for another Global Security of like denomination
and tenor to be registered in the name of the Depositary or its nominee.
Accordingly, each beneficial owner of an interest in a Global Security must rely
on the procedures of the Depositary, or, if such person is not a Participant, on
the procedures of the Participant through which such person owns its interest,
to exercise any rights of a holder under the Indenture.
THE DEPOSITARY
If Junior Subordinated Debentures are distributed to holders of TECONS in
liquidation of such holders' interests in the Trust, DTC will act as Depositary
for the Junior Subordinated Debentures. For a description of DTC and the
specific terms of the Depositary arrangements, see "Description of the TECONS --
The Global TECONS." As of the date of this Prospectus, the description therein
of DTC's book-entry system and DTC's and Euroclear's and Cedel's practices as
they relate to purchases, transfers, notices and payments with respect to the
TECONS apply in all material respects to any debt obligations represented by one
or more Global Securities held by the Company. The Company may appoint a
successor to DTC or any successor Depositary in the event DTC or such successor
Depositary is unable or unwilling to continue as a Depositary for the Global
Securities.
None of the Company, the Trust, the Property Trustee, any paying agent and any
other agent of the Company or the Indenture Trustee will have any responsibility
or liability for any aspect of the records relating to or payments made on
account of beneficial ownership interests in a Global Security for such Junior
Subordinated Debentures or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
DISCONTINUANCE OF THE DEPOSITARY'S SERVICES
A Global Security shall be exchangeable for Junior Subordinated Debentures
registered in the names of persons other than the Depositary or its nominee only
if (i) the Depositary notifies the Company that it is unwilling or unable to
continue as a depositary for such Global Security and no successor depositary
shall have been appointed, (ii) the Depositary, at any time, ceases to be a
clearing agency registered under the Exchange Act, at which time the Depositary
is required to be so registered to act as such depositary and no successor
depositary shall have been appointed, (iii) the Company, in its sole discretion,
determines that such Global Security shall be so exchangeable or (iv) there
shall have occurred an Event of Default with respect to such Junior Subordinated
Debentures. Any Global Security that is exchangeable pursuant to the preceding
sentence shall be exchangeable for Junior Subordinated Debentures registered in
such names as the Depositary shall direct. It is expected that such instructions
will be based upon directions received by the Depositary from its Participants
with respect to ownership of beneficial interests in such Global Security.
<PAGE>
RELATIONSHIP AMONG THE TECONS, THE JUNIOR
SUBORDINATED DEBENTURES AND THE GUARANTEE
As set forth in the Declaration, the Trust exists for the sole purpose of (a)
issuing the Trust Securities evidencing undivided beneficial interests in the
assets of the Trust, and investing the proceeds from such issuance and sale in
the Junior Subordinated Debentures and (b) engaging in such other activities as
are necessary and incidental thereto.
As long as payments of interest and other payments are made when due on the
Junior Subordinated Debentures, such payments will be sufficient to cover
distributions and other payments due on the TECONS primarily because (i) the
aggregate principal amount of Junior Subordinated Debentures held as trust
assets will be equal to the sum of the aggregate stated liquidation amount of
the TECONS and the proceeds received by the Trust upon issuance of the Common
Securities to the Company; (ii) the interest rate and interest and other payment
dates on the Junior Subordinated Debentures will match the distribution rate and
distribution and other payment dates for the TECONS; (iii) the Declaration
provides that the Company shall pay for all debts and obligations (other than
with respect to the Trust Securities) and all costs and expenses of the Trust,
including any taxes and all costs and expenses with respect thereto, to which
the Trust may become subject, except for United States withholding taxes; and
(iv) the Declaration further provides that the Trustees shall not cause or
permit the Trust, among other things, to engage in any activity that is not
consistent with the limited purposes of the Trust. With respect to clause (iii)
above, however, no assurance can be given that the Company will have sufficient
resources to enable it to pay such debts, obligations, costs and expenses on
behalf of the Trust.
Payments of distributions and other payments due on the TECONS are guaranteed by
the Company on a subordinated basis as and to the extent set forth under
"Description of the Guarantee." If the Company does not make interest or other
payments on the Junior Subordinated Debentures, the Trust will not make
distributions or other payments on the TECONS. Under the Declaration, if and to
the extent the Company does make interest or other payments on the Junior
Subordinated Debentures, the Property Trustee is obligated to make distributions
or other payments on the TECONS. The Guarantee is a full and unconditional
guarantee from the time of issuance of the TECONS, but the Guarantee covers
distributions and other payments on the TECONS only if and to the extent that
the Company has made a payment to the Property Trustee of interest or principal
on the Junior Subordinated Debentures deposited in the Trust as trust assets.
The Property Trustee will have the power to exercise all rights, powers and
privileges under the Indenture with respect to the Junior Subordinated
Debentures, including its rights as the holder of the Junior Subordinated
Debentures to enforce the Company's obligations under the Junior Subordinated
Debentures upon the occurrence of an Indenture Event of Default, and will also
have the right to enforce the Guarantee on behalf of the holders of the TECONS.
In addition, the holders of at least a majority in liquidation amount of the
TECONS will have the right to direct the Property Trustee with respect to
certain matters under the Declaration and the Guarantee. If the Property Trustee
fails to enforce its rights under the Trust Indenture any holder of TECONS may,
to the extent permitted by applicable law, after a period of 30 days has elapsed
from such holder's written request to the Property Trustee to enforce such
rights, institute a legal proceeding against the Company to enforce such rights.
If the Property Trustee fails to enforce the Guarantee, to the extent permitted
by applicable law, any holder of TECONS may institute a legal proceeding
directly against the Company to enforce the Property Trustee's rights under the
Guarantee. Notwithstanding the foregoing, if the Company has failed to make a
guarantee payment, a holder of TECONS may directly institute a proceeding
against the Company for enforcement of the Guarantee for such payment. See
"Description of the TECONS" and "Description of the Guarantee."
The above mechanisms and obligations, taken together, provide a full and
unconditional guarantee by the Company of payments due on the TECONS.
<PAGE>
CERTAIN FEDERAL TAX CONSEQUENCES
GENERAL
The following is a summary of the principal United States federal income tax
consequences of the purchase, ownership and disposition of TECONS. The
statements of law and legal conclusions set forth in this summary regarding the
tax consequences to the beneficial owners of TECONS represent the opinion of
Hunton & Williams, Richmond, Virginia, counsel to the Company and the Trust.
This summary does not address all tax consequences that may be applicable to a
holder, nor does it address the tax consequences to (i) persons that may be
subject to special treatment under United States federal income tax law, such as
banks, insurance companies, thrift institutions, regulated investment companies,
real estate investment trusts, tax-exempt organizations and dealers in
securities or currencies, (ii) persons that will hold TECONS as part of a
position in a "straddle" or as part of a "hedging," "conversion" or other
integrated investment transaction for federal income tax purposes, (iii) except
with respect to the discussion under the caption "United States Alien Holders,"
persons whose functional currency is not the United States dollar or (iv)
persons that do not hold TECONS as capital assets.
This summary is based upon the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury Regulations, Internal Revenue Service (the "IRS") rulings and
pronouncements and judicial decisions now in effect, all of which are subject to
change at any time. Such changes may be applied retroactively in a manner that
could cause the tax consequences to vary substantially from the consequences
described below, possibly adversely affecting a beneficial owner of TECONS. In
addition, the authorities on which this summary is based (including authorities
distinguishing debt from equity) are subject to various interpretations, and it
is therefore possible that the federal income tax treatment of the TECONS may
differ from the treatment described below. No ruling has been received from the
IRS regarding the tax consequences of the TECONS. Counsel's opinion regarding
such tax consequences represents only counsel's best legal judgment based on
current authorities and is not binding on the IRS or the courts.
INVESTORS ARE ADVISED TO CONSULT WITH THEIR OWN TAX ADVISORS IN LIGHT OF THEIR
OWN PARTICULAR CIRCUMSTANCES AS TO THE FEDERAL TAX CONSEQUENCES OF THE PURCHASE,
OWNERSHIP AND DISPOSITION OF TECONS, AS WELL AS THE EFFECT OF ANY STATE, LOCAL
OR FOREIGN TAX LAWS.
CLASSIFICATION OF THE JUNIOR SUBORDINATED DEBENTURES
The Junior Subordinated Debentures are intended to be, and the Company intends
to take the position that the Junior Subordinated Debentures will be classified
for United States federal income tax purposes as, indebtedness under current
law. No assurance can be given, however, that such position will not be
challenged by the IRS. According to a petition recently filed in the United
States Tax Court by a corporation unrelated to the Company and the Trust, the
IRS has challenged the status as indebtedness, for United States federal income
tax purposes, of certain purported debt instruments held by entities intended to
be taxable as partnerships for United States federal income tax purposes, where
those entities, in turn, issued preferred securities to investors. Although the
overall structure of the financing arrangement involved in that case is somewhat
similar to the financing structure for the Junior Subordinated Debentures and
the Trust, the relevant facts involved in that case appear to differ
significantly from those relating to the Junior Subordinated Debentures and the
Trust. The remainder of this discussion assumes that the Junior Subordinated
Debentures will be classified for United States federal income tax purposes as
indebtedness of the Company.
CLASSIFICATION OF THE TRUST
In the opinion of Hunton & Williams, counsel to the Company and the Trust,
assuming full compliance with the terms of the Declaration, the Trust will be
classified for United States federal income tax purposes as a grantor trust and
not as an association taxable as a corporation. Accordingly, each holder of
TECONS should be considered the owner of a pro rata portion of the Junior
Subordinated Debentures held by the Trust and will be required to include in
gross income its pro rata share of income received or accrued with respect to
the Junior Subordinated Debentures. No portion of the amounts included in income
with respect to the TECONS will be eligible for the dividends received
deduction.
<PAGE>
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
Under Treasury Regulations (the "Regulations"), a "remote" contingency that
stated interest will not be timely paid will be ignored in determining whether a
debt instrument is issued with original issue discount ("OID"). The Company
believes that the likelihood of its exercising its option to defer payments of
interest on the Junior Subordinated Debentures is remote. Based on the
foregoing, the Junior Subordinated Debentures should not be considered to be
issued with OID at the time of their original issuance and, accordingly, a
holder of TECONS should include in gross income such holder's allocable share of
interest on the Junior Subordinated Debentures (other than an amount of the
first interest payment attributable to pre-issuance accrued interest, which a
holder may treat as a reduction of the issue price of the Junior Subordinated
Debentures rather than as gross income) in accordance with such holder's usual
method of tax accounting.
Under the Regulations, if the Company should actually exercise its option to
defer any payment of interest, the Junior Subordinated Debentures would at that
time be treated as issued with OID, and all stated interest on the Junior
Subordinated Debentures would thereafter be treated as OID so long as the Junior
Subordinated Debentures remained outstanding. In such event, all of a holder's
taxable interest income with respect to the Junior Subordinated Debentures would
be accounted for as OID on an economic accrual basis regardless of such holder's
usual method of tax accounting. Consequently, a holder would be required to
include OID in gross income even though the Company would not make any cash
payments during an Extension Period.
The Regulations have not been addressed in any rulings or other interpretations
by the IRS, and it is possible that the IRS could take a position contrary to
the interpretation herein.
MARKET DISCOUNT AND AMORTIZABLE PREMIUM
A secondary market purchaser of TECONS at a discount from the adjusted issue
price (that is, the principal amount plus any accrued but unpaid OID) of the pro
rata share of Junior Subordinated Debentures represented by the TECONS acquires
such TECONS with "market discount" if the discount is not less than the product
of (i) 0.25% of the adjusted issue price multiplied by (ii) the number of
complete years to maturity of the Junior Subordinated Debentures after the date
of purchase. A purchaser of TECONS with market discount generally will be
required to treat any gain on the sale, redemption or other disposition of all
or part of such TECONS as ordinary income to the extent of accrued (but not
previously taxable) market discount. However, accrued market discount should not
be recognized as income on the conversion of a Junior Subordinated Debenture
into O&M Common Stock, but the accrued market discount should attach to the
shares of O&M Common Stock received (including any fractional share interest
deemed received) and be recognized as ordinary income upon the disposition of
such O&M Common Stock. Market discount generally will accrue ratably during the
period from the date of purchase to the maturity date, unless the holder elects
to accrue such market discount on the basis of a constant interest rate. A
holder who acquires TECONS at a market discount may be required to defer some
interest deductions attributable to any indebtedness incurred or continued to
purchase or carry the TECONS.
A secondary market purchaser of TECONS at a premium over the stated principal
amount of the pro rata share of Junior Subordinated Debentures (plus accrued
interest) generally may elect to amortize such premium ("Section 171 premium"),
under a constant yield method, as an offset to interest income on the Junior
Subordinated Debentures. If the Junior Subordinated Debentures are deemed to be
issued with OID and TECONS are acquired at a premium, the premium will not be
Section 171 premium but will be amortized as a reduction in the amount of OID
includable in the holder's income.
DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES TO HOLDERS OF TECONS
A distribution by the Trust of the Junior Subordinated Debentures as described
under the caption "Description of TECONS -- Special Event Redemption or
Distribution" is conditioned on receipt by the Company of an opinion of counsel
to the effect that such distribution would be a non-taxable event to holders for
United States federal income tax purposes. Under current law, such a
distribution will be non-taxable and will result in the holder receiving
directly its pro rata share of the Junior Subordinated Debentures previously
held indirectly through the Trust, with a holding period and aggregate tax basis
equal to the holding period and aggregate tax basis such holder had in its
TECONS before such distribution. A holder will account for interest, market
discount and amortizable premium in respect of Junior Subordinated Debentures
received from the Trust in the manner described under " -- Interest Income and
Original Issue Discount" and "-- Market Discount and Amortizable Premium."
SALE OR REDEMPTION OF TECONS
Upon a sale (including redemption) of TECONS, a holder will recognize gain or
loss equal to the difference between its adjusted tax basis in the TECONS and
the amount realized on the sale of such TECONS (excluding any amount
attributable to any accrued interest with respect to such holder's pro rata
share of the Junior Subordinated Debentures not previously included in income,
which will be taxable as ordinary income). Provided that the Company does not
exercise its option to defer payment of interest on the Junior Subordinated
Debentures, and the Junior Subordinated Debentures are not considered to be
issued with OID, a holder's adjusted tax basis in the TECONS generally will be
its initial purchase price, increased by any market discount included in income
and reduced by any amortized Section 171 premium with respect to such TECONS. If
the Junior Subordinated Debentures are deemed to be issued with OID as a result
of the Company's deferral of any interest payment, a holder's tax basis in the
TECONS generally will be increased by OID previously includable in such holder's
gross income to the date of disposition and decreased by distributions or other
payments received on the TECONS since and including the commencement date of the
first Extension Period. Such gain or loss, except to the extent of any accrued
market discount, generally will be a capital gain or loss and generally will be
a long-term capital gain or loss if the TECONS have been held for the applicable
long-term holding period.
Should the Company exercise its option to defer any payment of interest on the
Junior Subordinated Debentures, the TECONS may trade at a price that does not
accurately reflect the value of accrued but unpaid interest with respect to the
underlying Junior Subordinated Debentures. As a result, and because a holder
will be required to include in income accrued but unpaid interest on Junior
Subordinated Debentures and to add such amount to its adjusted tax basis, such
holder may recognize a capital loss on a sale of TECONS during an Extension
Period. Subject to certain limited exceptions, capital losses cannot be applied
to offset ordinary income for United States federal income tax purposes.
CONVERSION OF TECONS TO O&M COMMON STOCK
A holder of TECONS generally will not recognize income, gain or loss upon the
conversion, through the Conversion Agent, of Junior Subordinated Debentures into
O&M Common Stock. A holder of TECONS will recognize gain upon the receipt of
cash in lieu of a fractional share of O&M Common Stock equal to the amount of
cash received less such holder's tax basis in such fractional share. Such gain
will be taxable as ordinary income to the extent of any accrued market discount
attached to the fractional share interest. See "-- Accrued Market Discount and
Amortizable Premium." Such holder's tax basis in the O&M Common Stock received
upon conversion will generally be equal to such holder's tax basis in the TECONS
delivered to the Conversion Agent for exchange, less the basis allocated to any
fractional share for which cash is received. Such holder's holding period in the
O&M Common Stock received upon conversion will generally include the holder's
holding period of the TECONS delivered to the Conversion Agent for exchange.
<PAGE>
ADJUSTMENT OF CONVERSION PRICE
Treasury Regulations promulgated under Section 305 of the Code would treat
holders of TECONS as having received a constructive distribution from O&M in
certain events pursuant to which the conversion rate of the Junior Subordinated
Debentures may be adjusted. Thus, under certain circumstances, a reduction in
the conversion price for the Junior Subordinated Debentures may result in deemed
dividend income to holders of TECONS. Holders of TECONS are advised to consult
their tax advisors as to the income tax consequences of adjustments in the
conversion rate of TECONS.
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING
The amount of interest paid and any OID accrued on the TECONS or, in the event
of conversion into O&M Common Stock, dividends paid to holders (other than
corporations and other exempt holders) will be reported to the IRS. It is
expected that such income will be reported to holders on Form 1099 and mailed to
holders by January 31 following each calendar year. "Backup" withholding at a
rate of 31% will apply to payments of interest or dividends and payments of
disposition (including redemption) proceeds to a non-exempt holder unless the
holder furnishes to the payor its taxpayer identification number, certifies that
such number is correct, and meets certain other conditions. Any amounts withheld
from a holder under the backup withholding rules will be allowable as a refund
or credit against such holder's United States federal income tax liability.
UNITED STATES ALIEN HOLDERS
For purposes of this discussion, a "United States Alien Holder" is any
corporation, individual, partnership, estate or trust that is, for U.S. federal
income tax purposes, a foreign corporation, a nonresident alien individual, a
foreign partnership, or a foreign estate or trust.
Payments on TECONS. Assuming that the Junior Subordinated Debentures are
classified for U.S. federal income tax purposes as indebtedness of O&M, and that
income with respect to the TECONS is not effectively connected with a trade or
business in the United States in which the United States Alien Holder is
engaged, under present U.S. federal income tax law, payments of interest
(including OID, if any) by the Trust or any of its paying agents to any holder
of a TECONS who or which is a United States Alien Holder generally would not be
subject to U.S. federal withholding tax; provided, that, (a) the beneficial
owner of the TECONS does not actually or constructively own 10% or more of the
total combined voting power of all classes of stock of O&M entitled to vote, (b)
the beneficial owner of the TECONS is not a controlled foreign corporation that
is related to O&M through stock ownership, and (c) either (A) the beneficial
owner of the TECONS certifies to the Trust or its agent, under penalties of
perjury, that it is a United States Alien Holder and provides its name and
address or (B) a securities clearing organization, bank or other financial
institution that holds customers' securities in the ordinary course of its trade
or business (a "Financial Institution"), and holds the TECONS in such capacity,
certifies to the Trust or its agent, under penalties of perjury, that such
statement has been received from the beneficial owner by it or by a Financial
Institution between it and the beneficial owner and furnishes the Trust or its
agent with a copy thereof.
If the Junior Subordinated Debentures were not classified for U.S. federal
income tax purposes as indebtedness of O&M, payments by the Trust or any of its
paying agents to any holder of a TECONS who or which is a United States Alien
Holder would be subject to U.S. withholding tax at a 30% rate (or a lower rate
prescribed by an applicable tax treaty). Prospective investors that would be
United States Alien Holders should consult their tax advisors concerning the
possible application of these rules.
Dividends on O&M Common Stock. Subject to the discussion below, dividends paid
to a United States Alien Holder of O&M Common Stock generally will be subject to
withholding tax at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty. For purposes of determining whether tax is to be
withheld at a 30% rate or at a reduced rate as specified by an income tax
treaty, the Company ordinarily will presume that dividends paid on or before
December 31, 1999, to an address in a foreign country are paid to a resident of
such country, absent knowledge that such presumption is not warranted.
Prospective investors should be aware, however, that in certain instances, an
investor may be required to provide an IRS Form 1001 in order to obtain a
reduced rate of withholding.
<PAGE>
Under the recently finalized Treasury Regulations applicable to dividends paid
after December 31, 1999, to obtain a reduced rate of withholding under a treaty,
a United States Alien Holder generally is required to provide an IRS Form W-8
certifying such United States Alien Holder's entitlement to benefits under a
treaty. Those regulations also provide special rules to determine whether, for
purposes of determining the applicability of a tax treaty, dividends paid to a
United States Alien Holder that is an entity should be treated as paid to the
entity or those holding an interest in that entity.
Generally, the payor must report to the IRS the amount of dividends paid, the
name and address of the recipient, and the amount, if any, of tax withheld. A
similar report is sent to the holder. Pursuant to tax treaties or certain other
agreements, the IRS may make its reports available to tax authorities in the
recipient's country of residence.
Sale or Exchange of TECONS or O&M Common Stock. A United States Alien Holder
(other than certain U.S. expatriates) will not be subject to U.S. federal income
tax on gain realized on a sale, exchange or other disposition of the TECONS or
O&M Common Stock unless (i) the United States Alien Holder is an individual who
is present in the U.S. for 183 days or more in the taxable year of disposition,
and certain other conditions are satisfied; (ii) the United States Alien Holder
is engaged in a trade or business in the United States and interest on the
TECONS or dividends on the O&M Common Stock are effectively connected with the
conduct of such trade or business; or (iii) O&M is or has been a "United States
real property holding corporation" within the meaning of section 897(c)(2) of
the Code during the shorter of the United States Alien Holder's holding period
or the five year period ending on the date of the sale, exchange or other
disposition and certain other conditions are satisfied.
The Company believes that it is unlikely that it is or will be treated as a
"United States real property holding corporation" within the meaning of Section
897(c)(2) of the Code. Even if O&M is treated as a "United States real property
holding corporation," gain realized by a United States Alien Holder on a
disposition of TECONS or O&M Common Stock will not be subject to U.S. federal
income tax so long as (i) the United States Alien Holder is deemed to have
beneficially owned not more than 5% of the O&M Common Stock or, in the case of a
disposition of TECONS, not more than 5% of the TECONS, and (ii) the O&M Common
Stock and the TECONS are currently and will be, at the time of disposition,
"regularly traded" on an established securities market (within the meaning of
Section 897(c)(3) of the Code and the temporary Treasury Regulations). There can
be no assurance that O&M Common Stock or the TECONS qualify or will continue to
qualify as "regularly traded" on an established securities market.
Effectively Connected Income. If a United States Alien Holder of TECONS or O&M
Common Stock is engaged in a trade or business in the United States, and if
interest (including any original issue discount) on the TECONS or dividends on
such Common Stock is effectively connected with the conduct of such trade or
business, the United States Alien Holder, although exempt from the withholding
tax on distributions on TECONS and dividends on O&M Common Stock, will generally
be subject to regular United States income tax on the interest (including any
original issue discount) and dividends and on any gain realized on the sale,
exchange or other disposition of TECONS or O&M Common Stock in the same manner
as if it were a United States person. Such a holder will be required to provide
to the payor a properly executed Internal Revenue Service Form 4224 (or a
successor form) in order to claim an exemption from withholding tax. After
December 31, 1999, to comply with this requirement, the United States Alien
Holder also must provide a valid United States taxpayer identification number.
In addition, if such United States Alien Holder is a foreign corporation, it may
be subject to a branch profits tax equal to 30% (or a lower rate prescribed by
an applicable treaty) of its effectively connected earnings and profits for the
taxable year.
POSSIBLE TAX LAW CHANGES
In both 1996 and 1997, the Clinton Administration proposed to amend the Code to
deny deductions of interest on instruments with features similar to those of the
Junior Subordinated Debentures when issued under arrangements similar to the
Trust. That proposal was not passed by, and is not currently pending before,
Congress. There can be no assurance, however, that future legislative proposals,
future regulations or official administrative pronouncements or future judicial
decisions will not affect the ability of the Company to deduct interest on the
Junior Subordinated Debentures. Such a change could give rise to a Tax Event,
which may permit the Company to cause a redemption of the TECONS, as described
more fully under "Description of the TECONS -- Special Event Redemption or
Distribution."
<PAGE>
CERTAIN ERISA CONSIDERATIONS
GENERAL
Before authorizing an investment in the TECONS, fiduciaries of pension, profit
sharing or other employee benefit plans, individual retirement accounts and
Keogh plans ("Plans") subject to the Employee Retirement Income Security Act of
1974, as amended ("ERISA") or Section 4975 of the Code should consider, among
other matters, (a) ERISA's fiduciary standards (including its prudence and
diversification requirements), (b) whether the investment constitutes
unauthorized delegation of fiduciary authority, (c) whether such fiduciaries
have authority to make such investment in the TECONS under the applicable Plan
investment policies and governing instruments, and (d) rules under ERISA and the
Code that prohibit Plan fiduciaries from causing a Plan to engage in a
"prohibited transaction."
Section 406 of ERISA and Section 4975 of the Code prohibit Plans from, among
other things, engaging in certain transactions involving "plan assets" with
persons who are "parties in interest" under ERISA or "disqualified persons"
under the Code ("Parties in Interest") with respect to such Plan. A violation of
these "prohibited transaction" rules may require "correction" and may result in
an excise tax or other liabilities under ERISA and/or Section 4975 of the Code
for such persons, unless exemptive relief is available under an applicable
statutory or administrative exemption. Employee benefit plans that are
governmental plans (as defined in Section 3(32) of ERISA) and certain church
plans (as defined in Section 3(33) of ERISA) are not subject to the requirements
of ERISA or Section 4975 of the Code. Foreign plans (as described in Section
4(b)(4) of ERISA) are also not subject to the requirements of ERISA. Such plans
may, however, be subject to federal, state or local laws or regulations which
may affect their investment in the TECONS. Any fiduciary of such a governmental,
church or foreign plan considering an investment in the TECONS should determine
the need for, and the availability, if necessary, of any exemptive relief under
such laws or regulations.
PLAN ASSETS
The Department of Labor (the "DOL") has issued a regulation (29 C.F.R. ss.
2510.3-101) (the "Plan Asset Regulation") concerning the definition of what
constitutes the assets of a Plan. The Plan Asset Regulation provides that, as a
general rule, the underlying assets and properties of corporations,
partnerships, trusts and certain other entities in which a Plan makes an
"equity" investment will be deemed, for purposes of ERISA, to be assets of the
investing Plan unless certain exceptions apply.
The Plan Asset Regulation provides an exception where the entity in which the
Plans are investing is an "operating company." The Trust will not be an
operating company for purposes of the Plan Asset Regulations.
Pursuant to another exception contained in the Plan Asset Regulation, the assets
of the Trust would not be deemed to be "plan assets" of investing Plans if,
immediately after the most recent acquisition of any equity interest in the
Trust, less than 25% of the value of each class of equity interests in the Trust
were held by Plans, other employee benefit plans not subject to ERISA or Section
4975 of the Code (such as governmental, church and foreign plans), and entities
holding assets deemed to be "plan assets" of any Plan (collectively, "Benefit
Plan Investors"). No assurance can be given that the value of the TECONS held by
Benefit Plan Investors will be less than 25% of the total value of such TECONS
at the completion of the initial offering or thereafter, and no monitoring or
other measures will be taken with respect to the satisfaction of the conditions
to this exception. All the Common Securities will be purchased and held,
directly or indirectly, by the Company.
Under another exception contained in the Plan Asset Regulation, if the TECONS
were to qualify as "publicly offered securities" under the Plan Asset
Regulation, the assets of the Trust would not be deemed to be "plan assets" by
reason of a Plan's acquisition or holding of such securities. The TECONS would
qualify as "publicly offered securities" if, among other things, they are freely
transferable, are offered pursuant to an effective registration statement, are
owned by 100 or more investors independent of the issuer and each other at the
time of the offering ("widely held"), and are subsequently registered under the
Exchange Act. It is expected that TECONS will be distributed pursuant to an
effective registration statement under the Securities Act and they may
subsequently be registered under the Exchange Act. Prior to an effective
registration statement, however, the TECONS will not constitute "publicly
offered securities." After distribution pursuant to an effective registration
statement it is possible that the TECONS will be "widely held," although such
result cannot be assured. Whether a security is "freely transferable" for
purposes of the Plan Asset Regulation is a factual question to be determined on
the basis of all relevant facts and circumstances.
<PAGE>
There can be no assurance that any of the exceptions set forth in the Plan Asset
Regulation will apply to the purchase of TECONS offered hereby and, as a result,
an investing Plan's assets could be considered to include an undivided interest
in the Junior Subordinated Debentures held by the Trust for purposes of the
fiduciary responsibility provisions of ERISA. Under ERISA, any person who
exercises any authority or control respecting the management or disposition of
the assets of a Plan is considered to be a fiduciary of such Plan. For example,
the Property Trustee could therefore become a fiduciary of the Plans that invest
in the TECONS and be subject to the general fiduciary requirements of ERISA in
exercising its authority with respect to the management of the assets of the
Trust. However, the Property Trustee will have only limited discretionary
authority with respect to the Trust's assets and the remaining functions and the
responsibilities performed by the Property Trustee will be for the most part
custodial and ministerial in nature. Inasmuch as the Property Trustee or another
person with authority or control respecting the management or disposition of the
Trust assets may become a fiduciary with respect to the Plans that will purchase
the TECONS, there may be an improper delegation by such Plans of the
responsibility to manage plan assets.
PROHIBITED TRANSACTIONS
Certain transactions involving the Trust and/or the TECONS could be deemed to
constitute direct or indirect prohibited transactions under ERISA and Section
4975 of the Code with respect to a Plan. For example, if the Company is a Party
in Interest with respect to an investing Plan (either directly or through its
subsidiaries), extension of credit between the Company and the Trust (as
represented by the Junior Subordinated Debentures and the Guarantee) would
likely be prohibited by Section 406(a)(1)(B) of ERISA and Section 4975(c)(1)(B)
of the Code.
The DOL has issued five prohibited transaction class exemptions ("PTCEs") that
may provide exemptive relief for direct or indirect prohibited transactions
resulting from the purchase or holding of the TECONS, assuming that assets of
the Trust were deemed to be "plan assets" of Plans investing in the Trust. Those
class exemptions are PTCE 96-23 (for certain transactions effected by in-house
asset managers), PTCE 95-60 (for certain transactions involving insurance
company general accounts), PTCE 91-38 (for certain transactions involving bank
collective investment funds), PTCE 90-1 (for certain transactions involving
insurance company pooled separate accounts), and PTCE 84-14 (for certain
transactions determined by independent qualified asset managers).
Because of ERISA's prohibitions and those of Section 4975 of the Code, the
TECONS may not be purchased or held by any Plan, or any entity whose underlying
assets include "plan assets" by reason of any Plan's investment in the entity (a
"Plan Asset Entity"), unless such purchase or holding is covered by the
exemptive relief provided by PTCE 96-23, 95-60, 91-38, 90-1 or 84-14 or another
applicable exemption. If a purchaser or holder of the TECONS that is a Plan or a
Plan Asset Entity elects to rely on an exemption other than PTCE 96-23, 95-60,
91-38, 90-1 or 84-14, the Company and the Trust may require a satisfactory
opinion of counsel or other evidence with respect to the availability of such
exemption for such purchase and holding. Any purchaser of the TECONS that is a
Plan or a Plan Asset Entity or is purchasing TECONS on behalf of or with "plan
assets" will be deemed to have represented by its purchase thereof that (a) if
the Company is a Party in Interest with respect to such Plan, then the purchase
of the TECONS is covered by exemptive relief provided by PTCE 96-23, 95-60,
91-38, 90-1 or 84-14 or another applicable exemption and (b) the Company is not
a "fiduciary," within the meaning of Section 3(21) of ERISA and the regulations
thereunder, with respect to such person's interest in the TECONS or the Junior
Subordinated Debentures.
<PAGE>
Any plans or other entities whose assets include Plan assets subject to ERISA or
Section 4975 of the Code proposing to acquire TECONS should consult with their
own counsel regarding the consequences of such investment.
<PAGE>
SELLING HOLDERS
The holders listed below and the beneficial owners of the TECONS and their
transferees, pledgees, donees or other successors, if not identified hereunder
then so identified in supplements to this Prospectus, are the Selling Holders
under this Prospectus. The following table sets forth, as of a recent
practicable date prior to the effectiveness of the Registration Statement of
which this Prospectus forms a part, certain information with respect to the
Selling Holders named below and the respective number of TECONS owned by each
Selling Holder that may be offered pursuant to this Prospectus. Such information
has been obtained from the Selling Holders, DTC and/or the Property Trustee.
Selling Holder Number of TECONS
AFTRA Health Fund......................................... 20,000
Argent Classic Convertible Arbitrage Fund L.P............. 55,000
Argent Classic Convertible Arbitrage Fund (Bermuda) L.P... 165,000
Argent Offshore Fund L.P. ................................ 30,000
Bankers Trust Trustee For Chrysler Corp. Emp #1 Pension
Plan Dated 4/1/89....................................... 33,800
Bear, Stearns & Co. ...................................... 20,000
Bond Fund Series-Oppenheimer Convertible Securities Fund.. 160,000
Boston College Endowment Fund............................. 2,400
BT Holdings (New York) Inc................................ 51,000
California Public Employees Retirement System............. 60,000
Chase Manhattan NA Trustee For IBM Corp. Retirement Plan
Trust Dated 12/18/45.................................... 57,200
Employers' Reinsurance Corporation........................ 21,500
Franklin & Marshall College............................... 2,700
Global Series Fund II - Prudential Incomevertible Fund I.. 60,000
Highbridge Capital Corporation............................ 45,000
Mainstay Convertible Fund................................. 130,000
Mega Life & Health Insurance Company...................... 5,000
Museum Of Fine Arts, Boston............................... 2,600
New Hampshire State Retirement System..................... 13,500
Parker-Hannifin Corporation............................... 3,400
Promutual................................................. 11,300
Putnam Balanced Retirement Fund........................... 7,000
Putnam Convertible Income-Growth Trust.................... 92,000
Putnam Convertible Opportunities And Income Trust......... 8,500
Putnam Funds Trust-Putnam High Yield Total Return Fund.... 800
Q Investments, L.P........................................ 24,750
R(2) Investments, LDC..................................... 20,250
Rhone-Poulenc Rorer Inc. Pension Fund..................... 4,400
Sage Capital.............................................. 10,000
State Street Bank Custodian For GE Pension Trust.......... 17,800
Susquehanna Capital Group................................. 7,500
The Northwestern Mutual Life Insurance Company............ 100,000(1)
University Of Rochester................................... 2,600
Van Kampen American Capital Convertible Securities Fund... 8,500
Van Kampen Harbor Fund.................................... 50,000
All Other Beneficial Holders.............................. 1,336,500
=========
Total 2,640,000
=========
(1) Includes 5,000 TECONS held in The Northwestern Mutual Life Insurance
Company Group Annuity Separate Account.
<PAGE>
None of the Selling Holders has, or within the past three years has had, any
position, office or other material relationship with the Trust or the Company or
any of their predecessors or affiliates. None of the Selling Holders owns any
shares of O&M Common Stock. Because the Selling Holders may, pursuant to this
Prospectus, offer all or some portion of the TECONS, the Junior Subordinated
Debentures or the O&M Common Stock issuable upon conversion of the TECONS, no
estimate can be given as to the amount of the TECONS, the Junior Subordinated
Debentures or the O&M Common Stock issuable upon conversion of the TECONS that
will be held by the Selling Holders upon termination of any such sales. In
addition, the Selling Holders identified above may have sold, transferred or
otherwise disposed of all or a portion of their TECONS, since the date of which
they provided the information regarding their TECONS, in transactions exempt
from the registration requirements of the Securities Act. See "Plan of
Distribution."
Only Selling Holders identified above who beneficially own the Offered
Securities set forth opposite each such Selling Holder's name in the foregoing
table on the effective date of the Registration Statement of which the
Prospectus forms a part may sell such Offered Securities pursuant to the
Registration Statement. Prior to any use of this Prospectus in connection with
an offering of the TECONS and/or the Junior Subordinated Debentures or O&M
Common Stock issuable upon conversion of the TECONS by any holder not identified
above, this Prospectus will be supplemented to set forth the name and number of
shares beneficially owned by the Selling Securityholder intending to sell such
TECONS and/or O&M Common Stock, and the number of TECONS and/or shares of O&M
Common Stock to be offered. The Prospectus Supplement will also disclose whether
any Selling Securityholder selling in connection with such Prospectus Supplement
has held any position or office with, been employed by or otherwise has had a
material relationship with, the Company or any of its affiliates during the
three years prior to the date of the Prospectus Supplement if such information
has not been disclosed herein.
<PAGE>
PLAN OF DISTRIBUTION
The Offered Securities may be sold from time to time to purchasers directly by
the Selling Holders. Alternatively, the Selling Holders may from time to time
offer the Offered Securities to or through underwriters, broker/dealers or
agents, who may receive compensation in the form of underwriting discounts,
concessions or commissions from the Selling Holders or the purchasers of such
securities for whom they may act as agents. The Selling Holders and any
underwriters, broker/dealers or agents that participate in the distribution of
Offered Securities may be deemed to be "underwriters" within the meaning of the
Securities Act, and any profit on the sale of such securities any discounts,
commissions, concessions or other compensation received by any such underwriter,
broker/dealer or agent may be deemed to be underwriting discounts and
commissions under the Securities Act.
The Offered Securities may be sold from time to time in one or more transactions
at fixed prices, at the prevailing market prices at the time of sale, at varying
prices determined at the time of sale or at negotiated prices. The sale of
Offered Securities may be effected in transactions (which may involve crosses or
block transactions) (i) on any national securities exchange or quotation service
on which the Offered Securities may be listed or quoted at the time of sale,
(ii) in the over-the-counter market, (iii) in transactions otherwise than on
such exchanges or in the over-the-counter market or (iv) through the writing of
options. At the time a particular offering of the Offered Securities is made, a
Prospectus Supplement, if required, will be distributed which will set forth the
aggregate amount and type of Offered Securities being offered and the terms of
the offering, including the name or names of any underwriters, broker/dealers or
agents, any discounts, commissions and other terms constituting compensation
from the Selling Holders and any discounts, commissions or concessions allowed
or reallowed or paid to broker/dealers.
To comply with the securities laws of certain jurisdictions, if applicable, the
Offered Securities will be offered or sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain jurisdictions
the Offered Securities may not be offered or sold unless they have been
registered or qualified for sale in such jurisdictions or any exemption from
registration or qualification is available and is complied with.
The Selling Holders will be subject to applicable provisions of the Exchange Act
and the rules and regulations thereunder, which provisions may limit the timing
of purchases and sales of any of the Offered Securities by the Selling Holders.
The foregoing may affect the marketability of such securities.
The costs of the registration of the Offered Securities will be paid by the
Company, including, without limitation, Commission filing fees and expenses of
compliance with state securities or "blue sky" laws; provided, however, that the
Selling Holders will pay all underwriting discounts and selling commissions, if
any. The Selling Holders will be indemnified by the Company and the Trust,
jointly and severally against certain civil liabilities, including certain
liabilities under the Securities Act, or will be entitled to contribution in
connection therewith. The Company and the Trust will be indemnified by the
Selling Holders severally against certain civil liabilities, including certain
liabilities under the Securities Act, or will be entitled to contribution in
connection therewith.
The Trust does not intend to list the TECONS on any securities exchange.
Accordingly, no assurance can be given as to the liquidity of, or the trading
markets for, the TECONS.
LEGAL MATTERS
The validity of the Junior Subordinated Debentures, the Common Stock issuable
upon conversion of the TECONS, the Guarantee and certain matters relating
thereto and certain U.S. federal income taxation matters will be passed upon for
O&M and O&M Trust by Hunton & Williams, Richmond, Virginia, and the validity of
the TECONS will be passed upon for the Company and O&M Trust by Richards, Layton
& Finger, P.A., Wilmington, Delaware, special Delaware counsel to the Company
and O&M Trust.
<PAGE>
EXPERTS
The consolidated financial statements and financial statement schedule of Owens
& Minor, Inc. and its subsidiaries as of December 31, 1997 and 1996, and for
each of the years in the three-year period ended December 31, 1997, have been
incorporated by reference herein and in the Registration Statement in reliance
upon the reports of KPMG Peat Marwick LLP, independent auditors, incorporated by
reference herein, and upon the authority of said firm as experts in accounting
and auditing.
AVAILABLE INFORMATION
O&M is subject to the informational requirements of the Exchange Act, and in
accordance therewith files reports, proxy and information statements and other
information with the Commission. These reports, proxy and information statements
and other information may be inspected without charge and copied at the public
reference facilities maintained by the Commission at its principal offices at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's regional offices located at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661, and 7 World Trade Center, Suite
1300, New York, New York 10048. Copies of such materials also can be obtained at
prescribed rates from the Public Reference Section of the Commission at the
principal offices of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Such material may also be inspected at the offices of
the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.
Such material may also be accessed electronically by means of the Commission's
home page on the Internet at http:// www.sec.gov.
The Company has agreed that, whether or not it is required to do so by the rules
and regulations of the Commission, for so long as any of the TECONS remain
outstanding, it will furnish to the holders of the TECONS and file with the
Commission (i) all quarterly and annual financial information that would be
required in a filing with the Commission on Forms 10-Q and 10-K if the Company
were required to file such forms, including "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and, with respect to
the annual information only, a report thereon by the Company's certified
independent auditors and (ii) all reports that would be required to be filed
with the Commission on Form 8-K if the Company were required to file such
reports. In addition, for so long as any of the TECONS remain outstanding, the
Company has agreed to make available to any prospective purchaser of the TECONS
or any beneficial owner of the TECONS in connection with any sale thereof the
information required by Rule 144A(d)(4) under the Securities Act.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company hereby incorporates in this Prospectus by reference thereto and
makes a part hereof, the following documents, heretofore filed with the
Commission pursuant to the Exchange Act: (i) the Company's Annual Report on Form
10-K for the year ended December 31, 1997, (ii) the Company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1998 and (iii) the Company's
Current Report on Form 8-K filed May 28, 1998.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Exchange Act subsequent to the date of this Prospectus and prior to
termination of the offering being made hereby shall be deemed to be incorporated
in this Prospectus by reference and to be a part hereof from the respective
dates of the filing of such documents. Any statement contained herein or in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any subsequently filed document
which also is, or is deemed to be, incorporated by reference herein, modifies or
supersedes such earlier statement. Any statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company hereby undertakes to provide without charge to each person to whom a
copy of this Prospectus has been delivered, upon written or oral request of any
such person, a copy of any and all of the documents referred to above which have
been or may be incorporated in this Prospectus by reference, other than exhibits
to such documents which are not specifically incorporated by reference into such
documents. Requests for such copies should be directed to Drew St. J. Carneal,
Owens & Minor, Inc., P.O. Box 27626, Richmond, Virginia 23261-7626, telephone
(804) 747-9794.
<PAGE>
APPENDIX A
Notice of Transfer Pursuant to Registration Statement
The First National Bank of Chicago
153 West 51st Street, 5th Floor
New York, New York 10019
Attention: Corporate Trust Services Divisions
Owens & Minor, Inc.
4800 Cox Road
Glen Allen, Virginia 23060
Attention: General Counsel
Re: Owens & Minor Trust I (the "Trust") TECONS
Owens & Minor, Inc. (the "Company")
Dear Sirs:
Please be advised that ______________________ has transferred _________________
TECONS, (or 5.375% Junior Subordinated Convertible Debentures of the Company or
shares of Common Stock of the Company, issued in exchange for or upon conversion
of the TECONS) pursuant to an effective Registration Statement on Form S-3 (File
No. 333-58665) filed by the Company and the Trust.
We hereby certify that the prospectus delivery requirements, if any, of the
Securities Act of 1933, as amended, have been satisfied and that the above-named
beneficial owner of the transferred securities is named as a "Selling Holder" in
the Prospectus dated July _____, 1998 or in supplements thereto, and that the
aggregate amount of the securities transferred are (or are included in) the
securities listed in such Prospectus opposite such owner's name.
Dated: __________________ Sincerely,
___________________________________
Name:
By: _______________________________
(Authorized Signature)
<PAGE>
[OWENS & MINOR, INC. LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses in connection with the distribution
of the securities being registered, other than underwriting discounts and
commissions. All of the amounts shown are estimates, except the SEC registration
fee.
SEC Registration filing fee.........................$ 38,940
Printing and engraving expenses...................... 40,000
Blue sky fees and expenses (including counsel)....... 5,000
Legal fees and expenses.............................. 40,000
Fees of accountants.................................. 15,000
Fees of trustee...................................... 5,000
-------
Total...............................................$143,940
========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
INDEMNIFICATION OF DIRECTORS AND OFFICERS OF THE COMPANY
The Virginia Stock Corporation Act permits, and the registrant's Bylaws require,
indemnification of the registrant's directors and officers in a variety of
circumstances, which may include indemnification for liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). Under Sections
13.1-697 and 13.1-702 of the Virginia Stock Corporation Act, a Virginia
corporation generally is authorized to indemnify its directors and officers in
civil or criminal actions if they acted in good faith and believed their conduct
to be in the best interests of the corporation and, in the case of criminal
actions, had no reasonable cause to believe that the conduct was unlawful. The
Company's Bylaws require indemnification of directors and officers with respect
to certain liabilities, expenses and other amounts imposed upon them by reason
of having been a director or officer, except in the case of willful misconduct
or a knowing violation of criminal law. In addition, the Company carries
insurance on behalf of directors, officers, employees or agents that may cover
liabilities under the Securities Act. The Company's Bylaws also provide that, to
the full extent the Virginia Stock Corporation Act (as it presently exists or
may hereafter be amended) permits the limitation or elimination of the liability
of directors and officers, no director or officer of the Company shall be liable
to the Company or its shareholders for monetary damages with respect to any
transaction, occurrence or course of conduct. Section 13.1-692.1 of the Virginia
Stock Corporation Act presently permits the elimination of liability of
directors and officers in any proceeding brought by or in the right of the
Company or brought by or on behalf of stockholders of the Company, except for
liability resulting from such person's having engaged in willful misconduct or a
knowing violation of the criminal law or any federal or state securities law,
including, without limitation, any unlawful insider trading or manipulation of
the market for any security. Sections 13.1-692.1 and 13.1-696 through 704 of the
Virginia Stock Corporation Act are hereby incorporated by reference herein.
INDEMNIFICATION OF DIRECTORS AND OFFICERS OF THE TRUST
The Declaration provides that no Trustee, affiliate of any Trustee, paying
agent, or conversion agent, or any officer, director, shareholder, member,
partner, employee, representative or agent of any Trustee, paying agent, or
conversion agent (each an "Indemnified Person") shall be liable, responsible, or
accountable in damages or otherwise to the Trust or any (i) officer, director,
shareholder, partner, representative, employee or agent of the Trust or its
Affiliates, (ii) any officer, director, shareholder, employees, representatives
or agents of the Company and its affiliates or (iii) the holders from the time
of Trust's Common Securities and Preferred Securities (the persons referred to
in (i) - (iii) collectively, the "Covered Persons") for any loss, damage, or
claim incurred by reason of any act or omission performed or omitted by such
Indemnified Person reasonably believed to be within the scope of authority
conferred on such Indemnified Person by the Declaration or by law, except that
an Indemnified Person shall be liable for any such loss, damage, or claim
incurred by reason of such Indemnified Person's gross negligence (but, in the
case of the Property Trustee, subject to the Trust Indenture Act) or willful
misconduct with respect to such acts or omissions.
<PAGE>
The Declaration also provides that, to the full extent permitted by law, the
Company shall indemnify and hold harmless each Indemnified Person from and
against, any loss, damage or claim incurred by such Indemnified Person by reason
of any act or omission performed or omitted by such Indemnified Person in good
faith on behalf of the Trust and in a manner such Indemnified Person reasonably
believed to be within the scope of authority conferred on such Indemnified
Person by the Declaration, except that no Indemnified Person shall be entitled
to be indemnified in respect of any loss, damage or claim incurred by such
Indemnified Person by reason of gross negligence (but, in the case of the
Property Trustee, subject to the Trust Indenture Act) or willful misconduct with
respect to such acts or omissions.
The Declaration further provides that, to the full extent permitted by law,
expenses (including legal fees) incurred by an Indemnified Person in defending
any claim, demand, action, suit or proceeding shall, from time to time, be
advanced by the Company prior to the final disposition of such claim, demand,
action, suit or proceeding upon receipt by the Company of an undertaking by or
on behalf of the Indemnified Person to repay such amount if it shall be
determined that the Indemnified Person is not entitled to be indemnified as
authorized by the Declaration.
ITEM 16. EXHIBITS
Exhibits Description of Exhibit
4.1 Junior Subordinated Debentures Indenture dated as of May 13, 1998
between the Company and The First National Bank of Chicago*
4.2 First Supplemental Indenture dated as of May 13, 1998 between the
Company and The First National Bank of Chicago*
4.3 Registration Rights Agreement dated as of May 13, 1998 between
the Company and J.P. Morgan Securities Inc., Donaldson, Lufkin &
Jenrette Securities Corporation and Merrill Lynch & Co.*
4.4 Amended and Restated Declaration of Trust of Owens & Minor Trust
I*
4.5 Restated Certificate of Trust of Owens & Minor Trust I (included
in Exhibit 4.4)*
4.6 Form of Preferred Security (included in Exhibit 4.4)*
4.7 Form of Junior Subordinated Debenture (included in Exhibit 4.2)*
4.8 Preferred Securities Guarantee with respect to Preferred
Securities*
5.1 Opinion of Hunton & Williams
5.2 Opinion of Richards, Layton & Finger
8.1 Opinion of Hunton & Williams re: tax matters
12.1 Statement re: Computation of ratio of earnings to combined fixed
charges and preferred stock dividend requirements*
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Hunton & Williams (included in Exhibit 5.1)
23.3 Consent of Richards, Layton & Finger (included in Exhibit 5.2)
24.1 Powers of Attorney for the Company*
24.2 Powers of Attorney for the Company as sponsor, to sign the
Registration Statement on behalf of Owens & Minor Trust I (included
in Exhibit 4.4)*
25.1 Statement of Eligibility under the Trust Indenture Act of 1939, as
amended, of The First National Bank of Chicago, as Trustee, with
respect to the Junior Subordinated Debt Trust Securities Indenture*
25.2 Statement of Eligibility under the Trust Indenture Act of 1939, as
amended, of The First National Bank of Chicago, as Trustee, with
respect to the Preferred Securities of Owens & Minor Trust I*
25.3 Statement of Eligibility under the Trust Indenture Act of 1939, as
amended, of the First National Bank of Chicago, as Trustee, with
respect to the Preferred Securities Guarantee of the Company*
* Previously filed.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made of
the securities registered hereby, a post-effective amendment to this
registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in this registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
provided, however, that the undertakings set forth in paragraphs (1)(i)
and (1)(ii) above do not apply if the information required to be included
in a post-effective amendment by those paragraphs is contained in periodic
reports filed with or furnished to the Commission by the registrant
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act") that are incorporated by reference
in this registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination
of the offering.
<PAGE>
The undersigned Registrant hereby undertakes that, for purposes of determining
any liability under the Securities Act, each filing of the registrant's annual
report pursuant to Section 13(a) or Section 15(d) of the Exchange Act (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference
in the registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions described under Item 15 above, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrar of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of counsel the matter has been settled by against public policy
as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant certifies
that it has reasonable grounds to believe that it meets all of the requirements
for filing on Form S-3 and has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Richmond, Commonwealth of Virginia, on this 28th day of July, 1998.
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 Act, this registration statement
has been signed by the following persons in the capacities indicated on this
28th day of July, 1998.
Signature and Title Signature and Title
------------------- -------------------
By: /s/ G. Gilmer Minor, III By: /s/ Ann Greer Rector
-------------------------------- ---------------------------
G. Gilmer Minor, III Ann Greer Rector
Chairman, President and Chief Senior Vice President and Chief
Executive Officer Financial Officer
Director (Principal Financial Officer)
(Principal Executive Officer)
By: /s/ Olwen B. Cape By: /s/ Henry A. Berling*
-------------------------------- -------------------------------
Olwen B. Cape Henry A. Berling
Vice President and Controller Director
(Principal Accounting Officer)
By: By: /s/ R. E. Cabell, Jr.*
-------------------------------- ------------------------------
Josiah Bunting, III R. E. Cabell, Jr.
Director Director
By: /s/ James B. Farinholt, Jr.* By:
--------------------------------- -------------------------------
James B. Farinholt, Jr. Vernard W. Henley
Director Director
By: By: /s/ James E. Rogers*
-------------------------------- ------------------------------
E. Morgan Massey James E. Rogers
Director Director
By: By: /s/ Anne Marie Whittemore*
-------------------------------- -------------------------------
James E. Ukrop Anne Marie Whittemore
Director Director
* BY: /s/ G. Gilmer Minor, III
----------------------------
Attorney-in-fact
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Owens & Minor Trust
I certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Forms S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Richmond, State of Virginia on July 28, 1998.
OWENS & MINOR TRUST I
By: Owens & Minor, Inc., as Sponsor
By: /s/ Ann Greer Rector
---------------------------------
Name: Ann Greer Rector
Title: Senior Vice President and
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
4.1 Junior Subordinated Debentures Indenture dated as of May 13, 1998
between the Company and The First National Bank of Chicago*
4.2 First Supplemental Indenture dated as of May 13, 1998 between the
Company and The First National Bank of Chicago*
4.3 Registration Rights Agreement dated as of May 13, 1998 between the
Company and J.P. Morgan Securities Inc., Donaldson, Lufkin &
Jenrette Securities Corporation and Merrill Lynch & Co.*
4.4 Amended and Restated Declaration of Trust of Owens & Minor Trust
I*
4.5 Restated Certificate of Trust of Owens & Minor Trust I (included
in Exhibit 4.4)*
4.6 Form of Preferred Security (included in Exhibit 4.4)*
4.7 Form of Junior Subordinated Debenture (included in Exhibit 4.2)*
4.8 Preferred Securities Guarantee with respect to Preferred
Securities*
5.1 Opinion of Hunton & Williams
5.2 Opinion of Richards, Layton & Finger
8.1 Opinion of Hunton & Williams re: tax matters
12.1 Statement re: Computation of ratio of earnings to combined fixed
charges and preferred stock dividend requirements*
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Hunton & Williams (included in Exhibit 5.1)
23.3 Consent of Richards, Layton & Finger (included in Exhibit 5.2)
24.1 Powers of Attorney for the Company*
24.2 Powers of Attorney for the Company as sponsor, to sign the
Registration Statement on behalf of Owens & Minor Trust I (included
in Exhibit 4.4)*
25.1 Statement of Eligibility under the Trust Indenture Act of 1939, as
amended, of The First National Bank of Chicago, as Trustee, with
respect to the Junior Subordinated Debt Trust Securities Indenture*
25.2 Statement of Eligibility under the Trust Indenture Act of 1939, as
amended, of The First National Bank of Chicago, as Trustee, with
respect to the Preferred Securities of Owens & Minor Trust I*
25.3 Statement of Eligibility under the Trust Indenture Act of 1939, as
amended, of the First National Bank of Chicago, as Trustee, with
respect to the Preferred Securities Guarantee of the Company*
* Previously filed.
EXHIBIT 5.1
[Hunton & Williams Letterhead]
July 28, 1998
Owens & Minor, Inc.
Owens & Minor Trust I
c/o Owens & Minor, Inc.
4800 Cox Road
Glen Allen, Virginia 23060
Owens & Minor Trust I --
$132,000,000 $2.6875 Term Convertible Securities, Series A
Ladies and Gentlemen:
We have acted as counsel to Owens & Minor, Inc., a Virginia corporation
(the "Company"), and to Owens & Minor Trust I, a statutory business trust formed
under the Delaware Business Trust Act (the "Trust"), in connection with the
Registration Statement on Form S-3 (the "Registration Statement") filed by the
Company and the Trust with the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "Securities Act"), relating to the
registration of the Trust's $2.6875 Term Convertible Securities, Series A
("TECONS") to be sold by certain holders of such TECONS. The TECONS were issued
pursuant to the terms of an Amended and Restated Declaration of Trust dated as
of May 13, 1998 (the "Declaration of Trust") among the Company and The First
National Bank of Chicago, as Property Trustee, First Chicago Delaware, Inc., as
Delaware Trustee and certain officers of the Company as Regular Trustees
("Regular Trustees"), and are guaranteed by the Company to the extent described
in the Preferred Securities Guarantee Agreement dated as of May 13, 1998 (the
"Guarantee"). The Trust has acquired $136,082,500 aggregate principal amount of
5.375% Junior Subordinated Convertible Debentures Due 2013 of the Company (the
"Debentures") with the proceeds from the sale of the TECONS and the sale to the
Company of the common securities of the Trust. The Debentures were issued
pursuant to the terms of a Junior Subordinated Indenture dated as of May 13,
1998 as supplemented by a First Supplemental Indenture dated as of May 13, 1998
(the Indenture, as so supplemented is referred to as the "Indenture"), among the
Company and The First National Bank of Chicago, as Indenture Trustee (the
"Indenture Trustee").
We have examined originals or copies, certified or otherwise identified to our
satisfaction, of such documents, corporate records, certificates of public
officials and other documents as we have deemed necessary or advisable for the
purpose of rendering this opinion.
We do not purport to express an opinion on any laws other than the federal laws
of the United States of America, the laws of the Commonwealth of Virginia and
the State of New York and the General Corporation Law of the State of Delaware.
Based upon the foregoing and the further qualifications stated below, we are of
the opinion that:
(i) the Debentures have been duly authorized and, assuming that
they have been executed and authenticated in accordance with
the provisions of the Indenture and delivered to and paid for
by the Trust, are valid and binding obligations of the
Company, entitled to the benefits of the Indenture,
enforceable against the Company in accordance with their
terms, except that the enforcement thereof may be subject to
(i) bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance or other similar laws now or hereafter
in effect relating to creditors' rights generally and (ii)
general principles of equity, regardless of whether
enforcement is sought in a proceeding at law or in equity;
(ii) the Guarantee has been duly authorized, executed and delivered
by the Company and (assuming due authorization, execution and
delivery thereof by the guarantee trustee) constitutes a valid
and binding agreement of the Company enforceable against the
Company in accordance with its terms, except that the
enforcement thereof may be subject to (i) bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance
or other similar laws now or hereafter in effect relating to
creditors' rights generally and (ii) general principles of
equity, regardless of whether enforcement is sought in a
proceeding at law or in equity; and
(iii) the shares of Common Stock of the Company issuable upon
conversion of the TECONS have been duly authorized for
issuance by the Company upon such conversion by all necessary
corporate action and such Common Stock, when duly issued upon
such conversion, will be validly issued, fully paid and
nonassessable; no holder thereof is subject to personal
liability solely by reason of being such a holder; and the
issuance of such Common Stock upon such conversion is not
subject to preemptive rights.
We hereby consent to the filing of this opinion with the Securities and Exchange
Commission as an exhibit to the Registration Statement and to the statement made
in reference to this firm under the caption "Legal Matters" in the Registration
Statement. In giving this consent, we do not admit that we are within the
category of persons whose consent is required by Section 7 of the Securities Act
or the rules and regulations promulgated thereunder by the Securities and
Exchange Commission.
/s/ Hunton & Williams
Exhibit 5.2
[Richards, Layton & Finger Letterhead]
July 28, 1998
Owens & Minor Trust I
c/o Owens & Minor, Inc.
4800 Cox Road
Glen Allen, Virginia 23060
Re: Owens & Minor Trust I
Ladies and Gentlemen:
We have acted as special Delaware counsel for Owens & Minor,
Inc., a Virginia corporation (the "Company"), and Owens & Minor Trust I, a
Delaware business trust (the "Trust"), in connection with the matters set forth
herein. At your request, this opinion is being furnished to you.
For purposes of giving the opinions hereinafter set forth, our
examination of documents has been limited to the examination of originals or
copies of the following:
(a) The Certificate of Trust of the Trust, dated as of April
29, 1998 (the "Certificate"), as filed in the office of the Secretary of State
of the State of Delaware (the "Secretary of State") on April 29, 1998;
(b) The Declaration of Trust of the Trust, dated as of April
27, 1998, by and between the Company and the trustees of the Trust named
therein;
(c) The Amended and Restated Declaration of Trust of the
Trust, dated as of May 13, 1998 (including the Exhibits thereto) (the
"Declaration"), among the Company, as depositor, the trustees of the Trust named
therein and the holders, from time to time, of undivided beneficial interests in
the assets of the Trust;
<PAGE>
(d) Amendment No. 1 to the Registration Statement on Form S-3,
including a preliminary prospectus ("Prospectus"), relating to the $2.6875 Term
Convertible Securities, Series A of the Trust representing preferred undivided
beneficial interests in the assets of the Trust (each, a "Preferred Security"
and collectively, the "Preferred Securities"), as proposed to be filed by the
Company and the Trust with the Securities and Exchange Commission on or about
July 28, 1998; and
(e) A Certificate of Good Standing for the Trust, dated July
28, 1998, obtained from the Secretary of State.
Initially capitalized terms used herein and not otherwise
defined are used as defined in the Declaration.
For purposes of this opinion, we have not reviewed any
documents other than the documents listed in paragraphs (a) through (e) above.
In particular, we have not reviewed any document (other than the documents
listed in paragraphs (a) through (e) above) that is referred to in or
incorporated by reference into the documents reviewed by us. We have assumed
that there exists no provision in any document that we have not reviewed that is
inconsistent with the opinions stated herein. We have conducted no independent
factual investigation of our own but rather have relied solely upon the
foregoing documents, the statements and information set forth therein and the
additional matters recited or assumed herein, all of which we have assumed to be
true, complete and accurate in all material respects.
With respect to all documents examined by us, we have assumed
(i) the authenticity of all documents submitted to us as authentic originals,
(ii) the conformity with the originals of all documents submitted to us as
copies or forms, and (iii) the genuineness of all signatures.
For purposes of this opinion, we have assumed (i) that the
Declaration and the Certificate are in full force and effect and have not been
amended, (ii) except to the extent provided in paragraph 1 below, the due
creation or due organization or due formation, as the case may be, and valid
existence in good standing of each party to the documents examined by us under
the laws of the jurisdiction governing its creation, organization or formation,
(iii) the legal capacity of natural persons who are parties to the documents
examined by us, (iv) that each of the parties to the documents examined by us
has the power and authority to execute and deliver, and to perform its
obligations under, such documents, (v) the due authorization, execution and
delivery by all parties thereto of all documents examined by us, (vi) the
receipt by each Person to whom a Preferred Security is to be issued by the Trust
(collectively, the "Preferred Security Holders") of a Preferred Securities
Certificate for such Preferred Security and the payment for the Preferred
Security acquired by it, in accordance with the Declaration and the Registration
Statement, and (vii) that the Preferred Securities are issued and sold to the
Preferred Security Holders in accordance with the Declaration and the
Registration Statement. We have not participated in the preparation of the
Registration Statement and assume no responsibility for its contents.
<PAGE>
This opinion is limited to the laws of the State of Delaware
(excluding the securities laws of the State of Delaware), and we have not
considered and express no opinion on the laws of any other jurisdiction,
including federal laws and rules and regulations relating thereto. Our opinions
are rendered only with respect to Delaware laws and rules, regulations and
orders thereunder that are currently in effect.
Based upon the foregoing, and upon our examination of such
questions of law and statutes of the State of Delaware as we have considered
necessary or appropriate, and subject to the assumptions, qualifications,
limitations and exceptions set forth herein, we are of the opinion that:
1. The Trust has been duly created and is validly existing in
good standing as a business trust under the Delaware Business Trust Act.
2. The Preferred Securities will represent valid and, subject
to the qualifications set forth in paragraph 3 below, fully paid and
nonassessable undivided beneficial interests in the assets of the Trust.
3. The Preferred Security Holders, as beneficial owners of the
Trust, will be entitled to the same limitation of personal liability extended to
stockholders of private corporations for profit organized under the General
Corporation Law of the State of Delaware. We note that the Preferred Security
Holders may be obligated to make payments as set forth in the Declaration.
We consent to the filing of this opinion with the Securities
and Exchange Commission as an exhibit to the Registration Statement. In
addition, we hereby consent to the use of our name under the heading "Legal
Matters" in the Prospectus. In giving the foregoing consents, we do not thereby
admit that we come within the category of Persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder. Except as
stated above, without our prior written consent, this opinion may not be
furnished or quoted to, or relied upon by, any other Person for any purpose.
Very truly yours,
/s/ Richards, Layton & Finger PA
CDK
EXHIBIT 8.1
[Hunton & Williams Letterhead]
July 28, 1998
Owens & Minor, Inc.
4800 Cox Road
Glen Allen, Virginia 23060
Owens & Minor Trust I
Certain Federal Income Tax Matters
Ladies and Gentlemen:
We have acted as counsel to Owens & Minor, Inc. (the
"Company") and Owens & Minor Trust I (the "Trust") in connection with the
preparation of a Registration Statement on Form S-3 (the "Registration
Statement"), which has been filed with the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Act"), for the registration
under the Act of, among other securities, (1) $132 million aggregate principal
amount of 5.375% Junior Subordinated Convertible Debentures (the "Junior
Subordinated Debentures") issued by the Company to the Trust and (2) 2,640,000
$2.6875 Term Convertible Securities, Series A, liquidation amount $50 per
security, issued by the Trust. We have reviewed copies of (1) the Registration
Statement and the prospectus included therein (the "Prospectus") and (2) such
other documents as we have considered necessary or appropriate as a basis for
the opinion set forth below. We have also relied upon, and assumed the accuracy
of, certain written representations made to us by the Company.
Based on the foregoing, we confirm that the statements of law
and legal conclusions contained in the Prospectus under the caption "Certain
Federal Tax Consequences" constitute our opinion, subject to the assumptions,
conditions, and limitations described therein, and that the discussion
thereunder does not omit any material provision with respect to the matters
covered.
This opinion is solely for your benefit and may not be
distributed to or relied upon by any other person without our prior written
consent. We do not undertake to advise you of any changes in our opinion
expressed herein (or under the heading "Certain Federal Income Tax Consequences"
in the Prospectus) resulting from matters that might hereafter arise or be
brought to our attention.
We consent to the filing of this opinion as an exhibit to the
Registration Statement. We also consent to the reference to Hunton & Williams
under the captions "Certain Federal Tax Consequences" and "Legal Matters" in the
Prospectus. In giving this consent, we do not admit that we are in the category
of persons whose consent is required by Section 7 of the Act or the rules and
regulations promulgated thereunder by the Securities and Exchange Commission.
Very truly yours,
/s/ Hunton & Williams
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Owens & Minor, Inc.:
We consent to the incorporation by reference in the registration statement on
Form S-3 of Owens & Minor, Inc. of our reports dated February 4, 1998, relating
to the consolidated balance sheets of Owens & Minor, Inc. and subsidiaries as of
December 31, 1997 and 1996, and the related consolidated statements of
operations, changes in shareholders' equity and cash flows, and the related
financial statement schedule, for each of the years in the three-year period
ended December 31, 1997, which reports are included in the Form 10-K of Owens &
Minor, Inc. for the year ended December 31, 1997, incorporated by reference into
the registration statement. We also consent to the reference to our firm under
the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
Richmond, Virginia
July 27, 1998
