UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to ______________
Commission file number 1-9810
OWENS & MINOR, INC.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Virginia 54-1701843
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4800 Cox Road, Glen Allen, Virginia 23060
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(Address of principal executive offices) (Zip Code)
Post Office Box 27626, Richmond, Virginia 23261-7626
- --------------------------------------------------------------------------------
(Mailing address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (804) 747-9794
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No _____
The number of shares of Owens & Minor, Inc.'s common stock outstanding as
of August 7, 1998 was 32,543,434 shares.
<PAGE>
Owens & Minor, Inc. and Subsidiaries
Index
Page
Part I. Financial Information
Consolidated Statements of Operations - Three Months and Six
Months Ended June 30, 1998 and 1997 3
Consolidated Balance Sheets -
June 30, 1998 and December 31, 1997 4
Consolidated Statements of Cash Flows - Six Months
Ended June 30, 1998 and 1997 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Part II. Other Information 16
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
Owens & Minor, Inc. and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
(In thousands, except per share data)
(Unaudited) Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -----------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C>
Net sales $ 798,978 $ 776,722 $ 1,596,928 $ 1,526,345
Cost of goods sold 716,445 698,681 1,432,308 1,373,202
-------- -------- -------- -------
Gross margin 82,533 78,041 164,620 153,143
-------- -------- -------- --------
Selling, general and administrative
expenses 61,079 58,597 122,021 115,034
Depreciation and amortization 4,505 4,332 8,973 8,537
Interest expense, net 3,190 3,759 6,803 7,706
Discount on accounts receivable
securitization 1,377 1,487 2,986 3,353
Distribution on mandatorily
redeemable preferred securities 935 - 935 -
Nonrecurring restructuring expenses 11,200 - 11,200 -
--------
-------- -------- --------
Total expenses 82,286 68,175 152,918 134,630
-------- -------- -------- --------
Income before income taxes 247 9,866 11,702 18,513
Income tax provision 102 4,096 4,798 7,749
-------- -------- -------- --------
Net income 145 5,770 6,904 10,764
Dividends on preferred stock 604 1,294 1,898 2,588
-------- -------- -------- --------
Net income (loss) attributable to
common stock $ (459) $ 4,476 $ 5,006 $ 8,176
======== ======== ======== ========
Net income (loss) per common share -
basic $ (0.01) $ 0.14 $ 0.15 $ 0.26
Net income (loss) per common share -
diluted $ (0.01) $ 0.14 $ 0.15 $ 0.26
Weighted average shares - basic 32,546 32,000 32,442 31,958
Weighted average shares - diluted 32,625 32,081 32,566 32,021
Cash dividends per common share $ 0.050 $ 0.045 $ 0.100 $ 0.090
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Owens & Minor, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands, except per share data) June 30, December 31,
1998 1997
-------------------------------
Assets (Unaudited)
Current assets
Cash and cash equivalents $ 629 $ 583
Accounts and notes receivable, net
of allowance of $6,277 and $6,312 197,988 187,878
Merchandise inventories 328,739 285,529
Other current assets 22,694 25,274
----------- -----------
Total current assets 550,050 499,264
Property and equipment, net of accumulated
depreciation of $45,310 and $41,500 24,873 26,628
Goodwill, net of accumulated
amortization of $20,570 and $18,298 160,548 162,821
Other assets, net 29,532 23,850
=========== ===========
Total assets $ 765,003 $ 712,563
=========== ===========
Liabilities and shareholders' equity
Current liabilities
Accounts payable $ 283,606 $ 224,072
Accrued payroll and related liabilities 5,994 7,840
Other accrued liabilities 37,821 33,563
----------- -----------
Total current liabilities 327,421 265,475
Long-term debt 150,000 182,550
Accrued pension and retirement plans 5,644 5,237
----------- -----------
Total liabilities 483,065 453,262
Company-obligated mandatorily redeemable
preferred securities of subsidiary
trust, holding solely convertible
debentures of Owens & Minor, Inc. 132,000 -
----------- -----------
Shareholders' equity
Preferred stock, par value $100 per
share; authorized - 10,000 shares
Series A; Participating Cumulative
Preferred Stock; none issued - -
Series B; Cumulative Preferred Stock;
4.5%, convertible; issued and
outstanding - none and
1,150 shares - 115,000
Common stock, par value $2 per share;
authorized - 200,000 shares; issued
and outstanding - 32,532 shares and
32,213 shares 65,064 64,426
Paid-in capital 11,247 8,005
Retained earnings 73,627 71,870
----------- -----------
Total shareholders' equity 149,938 259,301
=========== ===========
Total liabilities and shareholders'
equity $ 765,003 $ 712,563
=========== ===========
See accompanying notes to consolidated financial statements.
<PAGE>
Owens & Minor, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands) Six Months Ended
(Unaudited) June 30,
-------------------------
1998 1997
---------- -----------
Operating activities
Net income $ 6,904 $ 10,764
Adjustments to reconcile net income to cash
provided by operating activities
Depreciation and amortization 8,973 8,537
Provision for losses on accounts and notes
receivable 224 43
Provision for LIFO reserve 2,497 1,750
Changes in operating assets and liabilities:
Accounts and notes receivable (10,334) (16,122)
Merchandise inventories (45,707) (21,674)
Accounts payable 73,919 47,911
Net change in other current assets
and current liabilities 6,504 392
Other, net (339) 1,609
---------- -----------
Cash provided by operating activities 42,641 33,210
---------- -----------
Investing activities
Additions to property and equipment (2,453) (4,567)
Additions to computer software (2,961) (2,005)
Proceeds from sale of property and equipment 38 1,741
---------- -----------
Cash used for investing activities (5,376) (4,831)
---------- -----------
Financing activities
Net proceeds from issuance of mandatorily redeemable
preferred securities 127,610 -
Repurchase of preferred stock (115,000) -
Reduction of long-term debt (32,550) (17,549)
Other financing, net (14,386) (6,934)
Cash dividends paid (6,010) (5,466)
Proceeds from exercise of stock options 3,117 1,065
---------- -----------
Cash used for financing activities (37,219) (28,884)
---------- -----------
Net increase (decrease) in cash and cash equivalents 46 (505)
Cash and cash equivalents at beginning of year 583 743
========== ===========
Cash and cash equivalents at end of period $ 629 $ 238
========== ===========
See accompanying notes to consolidated financial statements.
<PAGE>
Owens & Minor, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
1. Accounting Policies
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (which are comprised only of
normal recurring accruals and the use of estimates) necessary to present
fairly the consolidated financial position of Owens & Minor, Inc. and its
wholly owned subsidiaries (the "Company") as of June 30, 1998 and the
consolidated results of operations for the three and six month periods and
cash flows for the six month periods ended June 30, 1998 and 1997.
2. Interim Results of Operations
The results of operations for interim periods are not necessarily indicative
of the results to be expected for the full year.
3. Interim Gross Margin Reporting
The Company uses estimated gross margin rates to determine the cost of goods
sold during interim periods. To improve the accuracy of its estimated gross
margins for interim reporting purposes, the Company takes physical inventory
counts at selected distribution centers. Reported results of operations for
the three and six month periods ended June 30, 1998 and 1997 reflect the
results of such counts, to the extent that they are materially different from
estimated amounts. Management will continue a program of interim physical
inventories at selected distribution centers to the extent it deems
appropriate to ensure the accuracy of interim reporting and to minimize
year-end adjustments.
4. Nonrecurring Restructuring Expenses
During the three month period ended June 30, 1998, the Company recorded a
nonrecurring charge of $11.2 million, or $6.6 million after tax, related to
the impact of the cancellation of its medical/surgical distribution contract
with Columbia/HCA Healthcare Corporation ("Columbia/ HCA"). The restructuring
plan includes reductions in warehouse space and in the number of employees in
those divisions which have the highest volume of business with Columbia/HCA
facilities. This restructuring plan is expected to be substantially complete
by late in the fourth quarter of 1998.
The major components of this liability are as follows:
Losses under lease commitments $ 4.2
Asset writeoffs 4.0
Employee separations 2.5
Other 0.5
=========
Total $11.2
=========
No charges were made against this liability during the quarter ended June 30,
1998.
<PAGE>
5. Net Income (Loss) per Common Share
The following sets forth the computation of basic and diluted net income per
common share:
<TABLE>
<CAPTION>
(In thousands, except per share data) Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
1998 1997 1998 1997
---------- --------- --------- ----------
<S> <C>
Numerator:
Net income $ 145 $ 5,770 $ 6,904 $ 10,764
Preferred stock dividends 604 1,294 1,898 2,588
--------------------------------------------------------------------------------
Numerator for basic and diluted
net income (loss) per common
share - net income (loss)
available to common shareholders (459) 4,776 5,006 8,176
--------------------------------------------------------------------------------
Denominator:
Denominator for basic net income
(loss) per common share -
weighted average shares 32,546 32,000 32,442 31,958
Effect of dilutive securities:
Stock options 79 81 124 63
--------------------------------------------------------------------------------
Denominator for diluted net income
(loss) per common share -
adjusted weighted average shares 32,625 32,081 32,566 32,021
--------------------------------------------------------------------------------
Net income (loss) per common share -
basic $ (0.01) $ 0.14 $ 0.15 $ 0.26
Net income (loss) per common share -
diluted $ (0.01) $ 0.14 $ 0.15 $ 0.26
--------------------------------------------------------------------------------
</TABLE>
6. Mandatorily Redeemable Preferred Securities
In May 1998, Owens & Minor Trust I (the "Trust"), a statutory business trust
sponsored and wholly-owned by Owens & Minor, Inc. ("O&M") issued 2,640,000
shares of $2.6875 Term Convertible Securities, Series A, (the "Securities")
for aggregate proceeds of $132 million. Each Security has a liquidation value
of $50. The proceeds were invested by the Trust 5.375% Junior Subordinated
Convertible Debentures of the O&M (the "Debentures"). The Debentures are the
sole assets of the Trust. O&M applied substantially all of the net proceeds
of the Debentures to repurchase 1,150,000 shares of its Series B Cumulative
Preferred Stock at its par value.
The Securities accrue and pay quarterly cash distributions at an annual rate
of 5.375% of the liquidation value. Each Security is convertible into 2.4242
shares of the common stock of O&M at the holder's option prior to May 1,
2013. The Securities are mandatorily redeemable upon the maturity of the
Debentures on April 30, 2013, and may be redeemed in whole or in part after
May 1, 2001. The obligations of the Trust, as provided under the terms of the
Securities, are fully and unconditionally guaranteed by O&M.
7. Condensed Consolidating Financial Information
The following tables present condensed consolidating financial information
for: O&M; on a combined basis, the guarantors of O&M's 10 7/8% Senior
Subordinated 10-year Notes (the "Notes") (all of the wholly owned
subsidiaries of O&M except for O&M Funding Corp. ("OMF") and the Trust); and
OMF and the Trust, O&M's non-guarantors of the Notes. Separate financial
statements of the guarantor subsidiaries are not presented because the
guarantors are jointly, severally and unconditionally liable under the
guarantees and O&M believes the condensed consolidating financial statements
are more meaningful in understanding the financial position of the guarantor
subsidiaries.
<PAGE>
Condensed Consolidating Financial Statements ( 1 )
<TABLE>
<CAPTION>
(In thousands)
For the six months ended Owens & Guarantor Non-guarantor
June 30, 1998 Minor, Inc. Subsidiaries Subsidiaries Eliminations Consolidated
- ------------------------------------------------------------------------------------------------------------------------------------
<S><C>
Statements of Operations
Net sales $ - $ 1,596,928 $ - $ - $ 1,596,928
Cost of goods sold - 1,432,308 - - 1,432,308
- ------------------------------------------------------------------------------------------------------------------------------------
Gross margin - 164,620 - - 164,620
- ------------------------------------------------------------------------------------------------------------------------------------
Selling, general and administrative expenses 5 121,889 127 - 122,021
Depreciation and amortization - 8,973 - - 8,973
Interest expense, net 8,595 (1,792) - - 6,803
Intercompany interest expense, net (6,705) 14,145 (6,352) (1,088) -
Discount on accounts receivable securitization - 40 2,946 - 2,986
Distribution on mandatorily redeemable preferred
securities - - 935 - 935
Nonrecurring restructuring expenses - 11,200 - - 11,200
- ------------------------------------------------------------------------------------------------------------------------------------
Total expenses 1,895 154,455 (2,344) (1,088) 152,918
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (1,895) 10,165 2,344 1,088 11,702
Income tax provision (benefit) (767) 4,156 952 457 4,798
- ------------------------------------------------------------------------------------------------------------------------------------
Net income (loss) (1,128) 6,009 1,392 631 6,904
Dividends on preferred stock 1,898 - - - 1,898
- ------------------------------------------------------------------------------------------------------------------------------------
Net income (loss) attributable to common stock $ (3,026) $ 6,009 $ 1,392 $ 631 $ 5,006
- ------------------------------------------------------------------------------------------------------------------------------------
June 30, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Statements of Operations
Net sales $ - $ 1,526,345 $ - $ - $ 1,526,345
Cost of goods sold - 1,373,202 - - 1,373,202
- ------------------------------------------------------------------------------------------------------------------------------------
Gross margin - 153,143 - - 153,143
- ------------------------------------------------------------------------------------------------------------------------------------
Selling, general and administrative expenses - 114,975 59 - 115,034
Depreciation and amortization - 8,537 - - 8,537
Interest expense, net 9,139 (1,433) - - 7,706
Intercompany interest expense, net (7,963) 14,878 (5,878) (1,037) -
Discount on accounts receivable securitization - 5 3,348 - 3,353
- ------------------------------------------------------------------------------------------------------------------------------------
Total expenses 1,176 136,962 (2,471) (1,037) 134,630
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (1,176) 16,181 2,471 1,037 18,513
Income tax provision (benefit) (482) 6,769 1,026 436 7,749
- ------------------------------------------------------------------------------------------------------------------------------------
Net income (loss) (694) 9,412 1,445 601 10,764
Dividends on preferred stock 2,588 - - - 2,588
- ------------------------------------------------------------------------------------------------------------------------------------
Net income (loss) attributable to common stock $ (3,282) $ 9,412 $ 1,445 $ 601 $ 8,176
- ------------------------------------------------------------------------------------------------------------------------------------
( 1 ) Certain amounts in the 1997 condensed consolidating financial statements have been reclassified to conform to the 1998
presentation.
</TABLE>
8
<PAGE>
Condensed Consolidating Financial Statements
<TABLE>
<CAPTION>
(In thousands)
As of Owens & Guarantor Non-guarantor
June 30, 1998 Minor, Inc. Subsidiaries Subsidiaries Eliminations Consolidated
- ------------------------------------------------------------------------------------------------------------------------------------
<S><C>
Balance Sheets
Assets
Current assets
Cash and cash equivalents $ 505 $ 124 $ - $ - $ 629
Accounts and notes receivable, net - 74,989 122,999 - 197,988
Merchandise inventories - 328,739 - - 328,739
Intercompany advances, net 150,163 102,420 947 (253,530) -
Other current assets - 22,694 - - 22,694
- ------------------------------------------------------------------------------------------------------------------------------------
Total current assets 150,668 528,966 123,946 (253,530) 550,050
Property and equipment, net - 24,873 - - 24,873
Goodwill, net - 160,548 - - 160,548
Intercompany investments 303,941 15,001 136,083 (455,025) -
Other assets, net 14,199 15,333 - - 29,532
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $ 468,808 $ 744,721 $ 260,029 $ (708,555) $ 765,003
- ------------------------------------------------------------------------------------------------------------------------------------
Liabilities and shareholders' equity
Current liabilities
Accounts payable $ - $ 283,606 $ - $ - $ 283,606
Accrued payroll and related liabilities - 5,994 - - 5,994
Intercompany advances, net 947 150,151 103,063 (254,161) -
Other accrued liabilities 1,326 35,268 1,227 - 37,821
- ------------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 2,273 475,019 104,290 (254,161) 327,421
Long-term debt 150,000 - - - 150,000
Intercompany long-term debt 136,083 - - (136,083) -
Accrued pension and retirement plans - 5,644 - - 5,644
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 288,356 480,663 104,290 (390,244) 483,065
- ------------------------------------------------------------------------------------------------------------------------------------
Company-obligated mandatorily redeemable
preferred securities of subsidiary trust, holding
solely convertible debentures of
Owens & Minor, Inc. - - 132,000 - 132,000
- ------------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity
Preferred stock - - - - -
Common stock 65,064 - 4,083 (4,083) 65,064
Paid-in capital 11,247 299,858 15,001 (314,859) 11,247
Retained earnings (cumulative deficit) 104,141 (35,800) 4,655 631 73,627
- ------------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 180,452 264,058 23,739 (318,311) 149,938
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 468,808 $ 744,721 $ 260,029 $ (708,555) $ 765,003
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Condensed Consolidating Financial Statements
(In thousands)
As of Owens & Guarantor Non-guarantor
December 31, 1997 Minor, Inc. Subsidiaries Subsidiaries Eliminations Consolidated
- ---------------------------------------------------------------------------------------------------------------------------------
<S><C>
Balance Sheets
Assets
Current assets
Cash and cash equivalents $ 505 $ 78 $ - $ - $ 583
Accounts and notes receivable, net - 100,336 87,542 - 187,878
Merchandise inventories - 285,529 - - 285,529
Intercompany advances, net 176,335 68,016 - (244,351) -
Other current assets - 25,274 - - 25,274
- ---------------------------------------------------------------------------------------------------------------------------------
Total current assets 176,840 479,233 87,542 (244,351) 499,264
Property and equipment, net - 26,628 - - 26,628
Goodwill, net - 162,821 - - 162,821
Intercompany investments 299,858 15,001 - (314,859) -
Other assets, net 6,180 17,670 - - 23,850
- ---------------------------------------------------------------------------------------------------------------------------------
Total assets $ 482,878 $ 701,353 $ 87,542 $ (559,210) $ 712,563
- ---------------------------------------------------------------------------------------------------------------------------------
Liabilities and shareholders' equity
Current liabilities
Accounts payable $ - $ 224,072 $ - $ - $ 224,072
Accrued payroll and related liabilities - 7,840 - - 7,840
Intercompany advances, net - 176,335 68,759 (245,094) -
Other accrued liabilities 2,480 30,564 519 - 33,563
- ---------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 2,480 438,811 69,278 (245,094) 265,475
Long-term debt 182,550 - - - 182,550
Accrued pension and retirement plans - 5,237 - - 5,237
- ---------------------------------------------------------------------------------------------------------------------------------
Total liabilities 185,030 444,048 69,278 (245,094) 453,262
- ---------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity
Preferred stock 115,000 - - - 115,000
Common stock 64,426 - - - 64,426
Paid-in capital 8,005 299,858 15,001 (314,859) 8,005
Retained earnings (cumulative deficit) 110,417 (42,553) 3,263 743 71,870
- ---------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 297,848 257,305 18,264 (314,116) 259,301
- ---------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 482,878 $ 701,353 $ 87,542 $ (559,210) $ 712,563
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Condensed Consolidating Financial Statements
(In thousands)
For the six months ended Owens & Guarantor Non-guarantor
June 30, 1998 Minor, Inc. Subsidiaries Subsidiaries Eliminations Consolidated
- ------------------------------------------------------------------------------------------------------------------------------------
<S><C>
Statements of Cash Flows
Operating Activities
Net income (loss) $ (1,128) $ 6,009 $ 1,392 $ 631 $ 6,904
Adjustments to reconcile net income (loss) to cash
provided by (used for) operating activities
Depreciation and amortization - 8,973 - - 8,973
Provision for losses on accounts and notes receivable - 105 119 - 224
Provision for LIFO reserve - 2,497 - - 2,497
Changes in operating assets and liabilities
Accounts and notes receivable - 25,242 (35,576) - (10,334)
Merchandise inventories - (45,707) - - (45,707)
Accounts payable - 73,919 - - 73,919
Net change in other current assets
and current liabilities 1,319 5,411 (226) - 6,504
Other, net 554 (150) (112) (631) (339)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash provided by (used for) operating activities 745 76,299 (34,403) - 42,641
- ------------------------------------------------------------------------------------------------------------------------------------
Investing Activities
Additions to property and equipment - (2,453) - - (2,453)
Additions to computer software - (2,961) - - (2,961)
Proceeds from sale of property and equipment - 38 - - 38
- ------------------------------------------------------------------------------------------------------------------------------------
Cash used for investing activities - (5,376) - - (5,376)
- ------------------------------------------------------------------------------------------------------------------------------------
Financing Activities
Proceeds from mandatorily redeemable preferred
securities, net (4,390) - 132,000 - 127,610
Retirement of preferred stock (115,000) - - - (115,000)
Reductions of long-term debt (32,550) - - - (32,550)
Change in intercompany advances 154,088 (56,491) (97,597) - -
Other financing, net - (14,386) - - (14,386)
Cash dividends paid (6,010) - - - (6,010)
Exercise of stock options 3,117 - - - 3,117
- ------------------------------------------------------------------------------------------------------------------------------------
Cash provided by (used for) financing activities (745) (70,877) 34,403 - (37,219)
- ------------------------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents - 46 - - 46
Cash and cash equivalents at beginning of year 505 78 - - 583
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 505 $ 124 $ - $ - $ 629
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Condensed Consolidating Financial Statements
(In thousands)
For the six months ended Owens & Guarantor Non-guarantor
June 30, 1997 Minor, Inc. Subsidiaries Subsidiaries Eliminations Consolidated
- ------------------------------------------------------------------------------------------------------------------------------------
<S><C>
Statements of Cash Flows
Operating Activities
Net income (loss) $ (694) $ 9,412 $ 1,445 $ 601 $ 10,764
Adjustments to reconcile net income (loss) to cash
provided by (used for) operating activities
Depreciation and amortization - 8,537 - - 8,537
Provision for losses on accounts and notes receivable - (9) 52 - 43
Provision for LIFO reserve - 1,750 - - 1,750
Changes in operating assets and liabilities
Accounts and notes receivable - (2,278) (13,844) - (16,122)
Merchandise inventories - (21,674) - - (21,674)
Accounts payable - 47,911 - - 47,911
Net change in other current assets
and current liabilities 272 454 (334) - 392
Other, net 414 1,701 95 (601) 1,609
- ------------------------------------------------------------------------------------------------------------------------------------
Cash provided by (used for) operating activities (8) 45,804 (12,586) - 33,210
- ------------------------------------------------------------------------------------------------------------------------------------
Investing Activities
Additions to property and equipment - (4,567) - - (4,567)
Additions to computer software - (2,005) - - (2,005)
Proceeds from sale of property and equipment - 1,741 - - 1,741
- ------------------------------------------------------------------------------------------------------------------------------------
Cash used for investing activities - (4,831) - - (4,831)
- ------------------------------------------------------------------------------------------------------------------------------------
Financing Activities
Reductions of long-term debt (6,500) (11,049) - - (17,549)
Change in intercompany advances 10,409 (22,995) 12,586 - -
Other financing, net - (6,934) - - (6,934)
Cash dividends paid (5,466) - - - (5,466)
Exercise of stock options 1,065 - - - 1,065
- ------------------------------------------------------------------------------------------------------------------------------------
Cash provided by (used for) financing activities (492) (40,978) 12,586 - (28,884)
- ------------------------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (500) (5) - - (505)
Cash and cash equivalents at beginning of year 505 238 - - 743
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 5 $ 233 $ - $ - $ 238
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
Item 2. Owens & Minor, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following management discussion and analysis describes material changes in
the Company's financial condition since December 31, 1997. Trends of a material
nature are discussed to the extent known and considered relevant. This
discussion should be read in conjunction with the consolidated financial
statements, related notes thereto and management's discussion and analysis of
financial condition and results of operations included in the Company's 1997
Annual Report to Shareholders and Annual Report on Form 10-K for the year ended
December 31, 1997.
General
On May 26, 1998, Columbia/HCA informed the Company of its intention to cancel
its medical/surgical supply contract. 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. For the first
six months of 1998, approximately 12% of the Company's net sales were to
Columbia/HCA facilities.
Results of Operations
Second quarter and first six months of 1998 compared with 1997
Net sales. Net sales increased 2.9% to $799.0 million in the second quarter of
1998 from $776.7 million in the second quarter of 1997. Net sales increased 4.6%
to $1.60 billion in the first six months of 1998 from $1.53 billion in the first
six months of 1997. The increase in sales was a result of both new customer
contracts and increased penetration of existing accounts.
Gross margin. Gross margin as a percentage of net sales increased to 10.3% in
the second quarter and the first six months of 1998 from 10.0% in the second
quarter and the first six months of 1997. This improvement reflects the
Company's continuing success with supply chain initiatives with key suppliers.
The Company will continue to focus on improving margin levels through continued
emphasis on supply chain initiatives.
Selling, general and administrative expenses. Selling, general and
administrative (SG&A) expenses as a percentage of net sales increased to 7.6% in
the second quarter and the first six months of 1998 from 7.5% in the second
quarter and the first six months of 1997. The increase was primarily the result
of approximately $0.7 million of expense incurred in the second quarter of 1998
and $1.5 million in the first six months of 1998 in connection with the
Company's initiatives to enable computer processing in the Year 2000 and beyond.
In the second quarter of 1998, the Company continued to use information
technology to control costs through more extensive use of EDI in transactions
with both customers and suppliers. The positive results of SG&A expense
initiatives will continue to be partially offset with additional expenses
associated with the preparation of the Company's systems for the Year 2000.
Depreciation and amortization. Depreciation and amortization increased by 4.0%
in the second quarter of 1998 compared to the second quarter of 1997 and
increased by 5.1% in the first six months of 1998 compared to the first six
months of 1997. This increase was due primarily to the Company's continued
investment in information technology, including capital spending in the first
six months of 1998 for systems upgrades of $0.9 million associated with Year
2000 issues. The Company anticipates similar increases in depreciation and
amortization for the remainder of 1998 associated with additional capital
investment in information technology.
13
<PAGE>
Interest expense, net, and discount on accounts receivable securitization
(financing costs). Financing costs decreased to $4.6 million in the second
quarter of 1998 from $5.2 million in the second quarter of 1997, net of finance
charge income of $0.8 million in both periods. Financing costs decreased to $9.8
million in the first six months of 1998 from $11.1 million in the first six
months of 1997, net of finance charge income of $1.6 million and $1.8 million,
respectively. This reduction has been a result of the Company's ability to
reduce borrowings and lower effective interest rates. The Company reduced
outstanding debt, excluding the impact of the accounts receivable
securitization, by approximately $72.6 million in the first six months of 1998.
This reduction is due to improvement in cash flow from operations as a result of
the Company's improved profitability. The Company will continue to take action
to reduce financing costs by continuing its working capital reduction
initiatives and management of interest rates, although the future results of
these initiatives cannot be assured.
Distribution on mandatorily redeemable preferred securities and dividends on
preferred stock. In May 1998, the Trust issued $132 million of $2.6875 Term
Convertible Securities. O&M applied substantially all of the proceeds to
repurchase and retire 1,150,000 shares of its Series B Cumulative Preferred
Stock at its par value. The Securities accrue and pay cash distributions
quarterly at an annual rate of 5.375% of the liquidation value of $50. As of
June 30, 1998, the Company had accrued $0.9 million of distributions related to
these Securities.
Nonrecurring restructuring expenses. As a result of the Columbia/HCA contract
termination, the Company recorded a nonrecurring restructuring charge of $11.2
million, or $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. No charges were made against this liability during the quarter
ended June 30, 1998.
Income taxes. The Company had an income tax provision of $4.8 million in the
first six months of 1998 compared with $7.7 million in the first six months of
1997 and an effective tax rate of 41.0%, compared to 41.9% for the same period
in 1997.
Net income. Net income decreased $5.6 million in the second quarter of 1998
compared to the second quarter of 1997 and decreased $3.9 million in the first
six months of 1998 compared to the first six months of 1997. The decrease was
due to the impact of the restructuring charge discussed above. Excluding the
effect of the restructuring charge, net income increased 17% and net income per
basic and diluted common share increased to $0.19 from $0.14 for the quarter
ended June 30, 1998 compared to the quarter ended June 30, 1997. This increase
was primarily due to the improvements previously discussed in gross margin and
reduced financing costs. Although the trend, before considering the
restructuring charge, has been favorable, and the Company continues to pursue
initiatives to improve gross margin and reduce SG&A expenses, the future impact
on net income cannot be assured.
Financial Condition, Liquidity and Capital Resources
Liquidity. The Company's liquidity improved during the second quarter of 1998
compared to the second quarter of 1997. Outstanding financing (excluding the
impact of the off balance sheet accounts receivable securitization) was reduced
by $72.6 million to $220.0 million at June 30, 1998 from $292.6 million at
December 31, 1997. The capitalization ratio at June 30, 1998, including the
Securities as equity, and excluding the effect of the accounts receivable
securitization, was 43.8% compared to 50.2% at June 30, 1997. The improvement
was the result of lower outstanding financing.
14
<PAGE>
In May 1998, O&M repurchased all of its outstanding Series B Cumulative
Preferred Stock, financing the repurchase with substantially all the proceeds of
the $132.0 million of Securities issued by the Trust. Management believes that
these transactions will result in lower overall costs of capital.
The Company expects that its available financing will be sufficient to fund its
working capital needs and long-term strategic growth plans, although this cannot
be assured. At June 30, 1998, the Company had approximately $225.0 million of
unused credit under its revolving credit facility.
Working Capital Management. During the second quarter of 1998, the Company's
working capital increased compared to the second quarter of 1997 as a result of
higher sales levels and increased cash flows from operations. The Company's
accounts receivable days sales outstanding (excluding the impact of the off
balance sheet accounts receivable securitization) decreased to 31.6 at June 30,
1998 from 32.8 at December 31, 1997. Inventory turnover decreased to 9.0 in the
second quarter of 1998 from 9.8 in the second quarter of 1997 and from 10.1 in
the fourth quarter of 1997 as a result of inventory purchasing opportunities.
Capital Expenditures. Capital expenditures were approximately $5.4 million in
the first six months of 1998, of which approximately $4.6 million was for
computer hardware and software, including $0.9 million for system upgrades for
the Year 2000 initiative. The Company expects to continue to invest in
technology, including system upgrades, as the most cost effective method of
reducing operating expenses. These capital expenditures are expected to be
funded through cash flow from operations.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities. This Statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. This Statement is effective for all
quarters of fiscal years beginning after June 15, 1999. Management believes the
effect on the Company of the adoption of this standard will be limited to
financial statement presentation and disclosure and will not have a material
effect on the financial condition or results of operations.
In March 1998, the AICPA Accounting Standards Executive Committee issued
Statement of Position (SOP) 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use. SOP 98-1 requires that certain costs
related to the development or purchase of internal-use software be capitalized
and amortized over the estimated useful life of the software. The SOP also
requires that costs related to the preliminary stage and the
post-implementation/operations stage of an internal-use computer software
development project be expensed as incurred. This Statement is effective for
fiscal years beginning after December 15, 1998. The Company has adopted this
standard effective January 1, 1998. Adoption of this standard did not have a
material impact on the Company's financial condition or results of operations
for the second quarter of 1998.
In February 1998, the FASB issued SFAS No. 132, Employers' Disclosures about
Pensions and Other Postretirement Benefits. SFAS No. 132 amends the disclosure
requirements of SFAS No. 87, Employers' Accounting for Pensions, SFAS No. 88,
Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pensions Plans and for Termination Benefits, and SFAS No. 106, Employers'
Accounting for Postretirement Benefits Other Than Pensions. This Statement
standardizes the disclosure requirements of SFAS No. 87 and SFAS No. 106 and
recommends a parallel format for presenting information about pensions and other
postretirement benefits. This Statement is effective for fiscal years beginning
after December 15, 1997. Management believes the effect on the Company of
adoption of this standard will be limited to changes in financial statement
presentation and disclosure.
15
<PAGE>
Forward-looking Statements
Certain statements in this discussion constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, including, but not
limited to, general economic and business conditions, competition, changing
trends in customer profiles, outcomes of outstanding litigation, and changes in
government regulations. Although the Company believes that its expectations with
respect to the forward-looking statements are based upon reasonable assumptions
within the bounds of its knowledge of its business and operations, there can be
no assurance that actual results, performance or achievements of the Company
will not differ materially from any future results, performance or achievements
expressed or implied by such forward-looking statements.
Readiness for Year 2000
The Company continues to work closely with both customers and suppliers to
ensure that they are continuing with the development of plans to address the
Year 2000 issue. As of June 30, 1998, the Company continues to implement its
strategy for remediation which is expected to be completed in 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. During the first six months of 1998, the
Company incurred $1.5 million of expenses and $0.9 million of capital
expenditures related to this strategy.
Part II. Other Information
Item 1. Legal Proceedings
Certain legal proceedings pending against the Company are described in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.
Through June 30, 1998, there have been no material developments in any legal
proceedings reported in such Annual Report.
Item 2. Changes in Securities
On May 12, 1998, O&M and Crestar Bank, as Trustee, executed Supplemental
Indenture No. 1 (the "Supplemental Indenture") in accordance with the terms of
the Indenture dated as of May 29, 1996 (the "Indenture") relating to the Notes.
The Supplemental Indenture made certain technical amendments to the Indenture to
permit O&M to effect the repurchase of its then outstanding Series B Cumulative
Preferred Stock with the proceeds of the offering the Securities.
The Indenture contained an exception to the Restricted Payment covenant
permitting O&M to make additional Investments constituting Restricted Payments
in Persons or entities in the same line of business as O&M as of May 29, 1996
(the issue date of the Notes) in an aggregate outstanding amount not to exceed
at any time $4 million whether or not O&M then has the ability to make a
Restricted Payment under the "basket" of the Restricted Payment covenant. The
Supplemental Indenture increased such permitted amount to $8 million and
provided that only the amount in excess of $4 million would constitute a
Restricted Payment for purposes of the "basket' under the Restricted Payment
covenant.
16
<PAGE>
The information required to be disclosed pursuant to subsection (c) of this Item
2 is incorporated by reference herein from Item 9 of O&M's Current Report on
Form 8-K dated May 13, 1998 and filed on May 28, 1998.
Item 4. Submission of Matters to a Vote of Shareholders
The following matters were submitted to a vote of O&M's shareholders at its
annual meeting held on April 28, 1998, with the voting results designated below
each such matter:
(1) Election of Henry A. Berling, James B. Farinholt, Jr., E. Morgan Massey and
Anne Marie Whittemore as directors of O&M for a three-year term.
Directors Votes For Votes Against or Broker
Withheld Abstentions Non-Votes
Henry A. Berling 35,862,288 202,490 0 0
James B. Farinholt, Jr. 35,858,956 205,822 0 0
E. Morgan Massey 35,851,778 213,000 0 0
Anne Marie Whittemore 35,857,415 207,363 0 0
(2) Ratification of the appointment of KPMG Peat Marwick LLP as O&M's
independent auditors.
Votes Against or
Votes For Withheld Abstentions
35,906,896 74,492 83,390
(3) Approval of the Owens & Minor, Inc. 1998 Stock Option and Incentive Plan.
Votes Against or
Votes For Withheld Abstentions
34,664,555 1,235,500 164,723
17
<PAGE>
(4) Approval of the Owens & Minor, Inc. 1998 Directors' Compensation Plan.
Votes Against or
Votes For Withheld Abstentions
34,424,313 1,441,974 198,491
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4.1 Supplemental Indenture No. 1 dated as of May 12, 1998 to 10
7/8% Senior Subordinated Notes Indenture dated as of May 29, 1996 between Owens
& Minor, Inc. ("O&M") and Crestar Bank
4.2 Amendment No. 1 dated as of April 27, 1998 to the Credit Agreement dated as
of September 15, 1997 among O&M, the Guarantors and Lenders identified therein
and NationsBank, N.A., as Administrative Agent
4.3 Junior Subordinated Debentures Indenture dated as of May 13, 1998 between
O&M and The First National Bank of Chicago (incorporated herein by reference
from O&M's Registration Statement on Form S-3, Registration No. 333-58665,
Exhibit 4.1)
4.4 First Supplemental Indenture dated as of May 13, 1998 between O&M and The
First National Bank of Chicago (incorporated herein by reference from O&M's
Registration Statement on Form S-3, Registration No. 333-58665, Exhibit 4.2)
4.5 Registration Rights Agreement dated as of May 13, 1998 between O&M and J.P.
Morgan Securities Inc., Donaldson, Lufkin & Jenrette Securities Corporation and
Merrill Lynch & Co. (incorporated herein by reference from O&M's Registration
Statement on Form S-3, Registration No. 333-58665, Exhibit 4.3)
4.6 Amended and Restated Declaration of Trust of Owens & Minor Trust I
(incorporated herein by reference from O&M's Registration Statement on Form S-3,
Registration No. 333-58665, Exhibit 4.4)
4.7 Restated Certificate of Trust of Owens & Minor Trust I (included in Exhibit
4.6)
4.8 Form of $2.6875 Term Convertible Security (included in Exhibit 4.6)
4.9 Form of 5.375% Junior Subordinated Convertible Debenture (included in
Exhibit 4.4)
4.10 Owens & Minor, Inc. Guarantee Agreement dated as of May 13, 1998
(incorporated herein by reference from O&M's Registration Statement on Form S-3,
Registration No. 333-58665, Exhibit 4.8)
18
<PAGE>
10.1 Owens & Minor, Inc. 1998 Stock Option and Incentive Plan
(incorporated herein by reference from Annex A of O&M's definitive
Proxy Statement filed pursuant to Section 14(a) of the Securities
Exchange Act on March 13, 1998 (File No. 001-09810))
10.2 Owens & Minor, Inc. 1998 Directors' Compensation Plan
(incorporated herein by reference from Annex B of O&M's definitive
Proxy Statement filed pursuant to Section 14(a) of the Securities
Exchange Act on March 13, 1998 (File No. 001-09810))
(b) Reports on Form 8-K
On May 28, 1998, O&M filed a Current Report on Form 8-K dated as of May
13, 1998 reporting the sale of the Securities (Item 9) and the
cancellation of the Columbia/HCA distribution contract. (Item 5).
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Owens & Minor, Inc.
-------------------
(Registrant)
Date August 13, 1998 /s/ Ann Greer Rector
---------------------- --------------------
Ann Greer Rector
Senior Vice President &
Chief Financial Officer
Date August 13, 1998 /s/ Olwen B. Cape
---------------------- -----------------
Olwen B. Cape
Vice President & Controller
Chief Accounting Officer
<PAGE>
Exhibits Filed with SEC
Exhibit #
4.1 Supplemental Indenture No. 1 dated as of May 12, 1998 to 10 7/8%
Senior Subordinated Notes Indenture dated as of May 29, 1996 between
Owens & Minor, Inc. ("O&M") and Crestar Bank
4.2 Amendment No. 1 dated as of April 27, 1998 to the Credit Agreement dated
as of September 15, 1997 among O&M, the Guarantors and Lenders identified
therein and NationsBank, N.A., as Administrative Agent
27 Financial Data Schedule
OWENS & MINOR, INC.
10 7/8% SENIOR SUBORDINATED NOTES DUE 2006
-----------------
SUPPLEMENTAL INDENTURE NO. 1
Dated as of May 12, 1998
to
INDENTURE
Dated as of May 29, 1996
-----------------
CRESTAR BANK, as Trustee
<PAGE>
SUPPLEMENTAL INDENTURE NO. 1, dated as of May 12, 1998 (the
"Supplemental Indenture"), by and between Owens & Minor, Inc., a corporation
duly organized and existing under the laws of the Commonwealth of Virginia,
having its principal office at 4800 Cox Road, Glen Allen, Virginia 23060 (the
"Company") and Crestar Bank, as Trustee (the "Trustee").
R E C I T A L S:
WHEREAS, the Company and the Trustee have heretofore executed
and delivered that certain Indenture, dated as of May 29, 1996 (the "Indenture")
providing for the issuance of its 10 7/8% Senior Subordinated Notes due 2006
(the "Notes"). All terms used, but not otherwise defined, in this First
Supplemental Indenture shall have the meanings assigned to such terms in the
Indenture;
WHEREAS, Section 10.02 of the Indenture provides that, the
Company and the Trustee may amend or supplement the Indenture with the consent
of holders of at least a majority in principal amount of the outstanding Notes;
WHEREAS, the holders of at least a majority in principal of
the outstanding Notes have consented to the adoption of the amendments contained
in this First Supplemental Indenture;
WHEREAS, Section 10.06 of the Indenture provides that the
Trustee shall execute any supplemental indenture or other amendment authorized
pursuant to Article TEN of the Indenture; and
WHEREAS, all things necessary to make this First Supplemental
Indenture a valid and binding agreement of the Company and the Trustee and a
valid amendment of and supplement to the Indenture have been done;
NOW, THEREFORE, the Company and the Trustee hereby agree as
follows:
ARTICLE ONE
(i) Section 1.01 of the Indenture is hereby amended by:
(a) adding the following defined terms:
"'Junior Subordinated Debentures' shall mean up to
$142,268,050 aggregate principal amount of Junior Convertible
Subordinated Debentures pursuant to agreements having terms
substantially similar to the summary of terms set forth in Annex A to
Supplemental Indenture No. 1 to this Indenture."
<PAGE>
"'Special Purpose Trust' means a statutory business trust
established by the Company for the purpose of issuing the TECONS for
aggregate gross proceeds of up to $138,000,000 and of issuing up to
$4,268,050 of common beneficial interests."
"'TECONS'SM means up to 2,760,000 $2.6875 Term Convertible
Securities of the Special Purpose Trust."
(b) Amending the definition of "Affiliate" to add the
following to the end thereof: "; provided, however, that the Special Purpose
Trust shall not be an Affiliate of the Company for purposes of this Indenture."
(c) Amending the definition of "Consolidated Interest Expense"
to add the following sentence at the end thereof: "Notwithstanding anything
herein to the contrary, interest payments on the Junior Subordinated Debentures
shall not be included in calculating Consolidated Interest Expense for the
Company."
(d) Amending the definition of "Consolidated Net Income" to
add the following sentence at the end thereof: "Notwithstanding anything herein
to the contrary, interest payments on the Junior Subordinated Debentures shall
not be taken into account in calculating Consolidated Net Income of the
Company."
(e) Amending the definition of "Indebtedness" to add the
following sentence at the end thereof: "Notwithstanding anything herein to the
contrary, any guarantee by the Company of any distributions to be made on the
TECONS shall not be Indebtedness so long as the terms of such guarantee are
substantially similar to the summary of terms set forth as Annex B to
Supplemental Indenture No. 1 to this Indenture."
(f) Adding the following to the last clause of the definition
of "Permitted Investments": "and any Investment constituting (x) the purchase of
common beneficial interests of the Special Purpose Trust in an aggregate amount
of up to $4,268,050 or (y) the funding of all debts and obligations (other than
with respect to the TECONS and common beneficial interests of the Special
Purpose Trust) and all costs and expenses of the Special Purpose Trust,
including the fees and expenses of the trustees thereof and any income taxes,
duties and other governmental charges, and all costs and expenses with respect
thereto, to which the Special Purpose Trust may become subject, except for
United States withholding taxes."
(g) Amending the definition of "Subsidiary" to add the
following to the end thereof: "and the Special Purpose Trust shall not be a
Subsidiary of the Company for purposes of this Indenture."
(ii) Section 4.04 of the Indenture is hereby amended by: (x)
deleting the word "and" before clause (vii) of the first paragraph thereof and
(y) adding the following at the end of the first paragraph "; and (viii) the
Junior Subordinated Debentures."
<PAGE>
(iii) Section 4.06 of the Indenture is hereby amended and
restated in its entirety as follows:
The Company will not, and will not permit any of its
Subsidiaries to, directly or indirectly, (i) declare or pay any
dividend, or make any distribution of any kind or character (whether in
cash, property or securities), in respect of any class of its Capital
Stock or to the holders thereof, excluding any (x) dividends or
distributions payable solely in shares of its Capital Stock (other than
Disqualified Stock) or in options, warrants or other rights to acquire
its Capital Stock (other than Disqualified Stock), or (y) in the case
of any Subsidiary of the Company, dividends or distributions payable to
the Company or a Subsidiary of the Company (other than a Securitization
Subsidiary), (ii) purchase, redeem, or otherwise acquire or retire for
value shares of Capital Stock of the Company or any of its
Subsidiaries, any options, warrants or rights to purchase or acquire
shares of Capital Stock of the Company or any of its Subsidiaries or
any securities convertible or exchangeable into shares of Capital Stock
of the Company or any of its Subsidiaries, excluding any such shares of
Capital Stock, options, warrants, rights or securities which are owned
by the Company or a Subsidiary of the Company (other than a
Securitization Subsidiary) and excluding the Junior Subordinated
Debentures, (iii) make any Investment in (other than a Permitted
Investment), or payment on a guarantee of any obligation of (other than
a payment on the guarantee referred to in the last sentence of the
definition of the term "Indebtedness"), any Person, other than the
Company or a Wholly Owned Subsidiary of the Company, (iv) redeem,
defease, repurchase, retire or otherwise acquire or retire for value,
prior to any scheduled maturity, repayment or sinking fund payment,
Indebtedness (other than the Junior Subordinated Debentures) which is
subordinate in right of payment to the Securities, or (v) make any
principal, premium or interest payment on, or redeem, defease,
repurchase, retire or otherwise acquire or retire for value, any Junior
Subordinated Debentures or TECONS (each of the transactions described
in clauses (i) through (v) (other than any exception to any such
clause) being a "Restricted Payment") if at the time thereof: (1) an
Event of Default, or an event that with the passing of time or giving
of notice, or both, would constitute an Event of Default, shall have
occurred and be continuing, or (2) upon giving effect to such
Restricted Payment, the Company could not Incur at least $1.00 of
additional Indebtedness pursuant to clause (i) of Section 4.04, or (3)
upon giving effect to such Restricted Payment, the aggregate of all
Restricted Payments made on or after the Issue Date exceeds the sum of:
(a) 50% of cumulative Consolidated Net Income of the Company (or, in
the case cumulative Consolidated Net Income of the Company shall be
negative, less 100% of such deficit) since the end of the fiscal
quarter in which the Issue Date occurs through the last day of the
fiscal quarter for which financial statements are available; plus (b)
100% of the aggregate net proceeds received after the Issue Date,
including the fair market value of property other than cash (determined
in good faith by the Board of Directors of the Company as evidenced by
a resolution of such Board of Directors filed with the Trustee), from
the issuance of Capital Stock (other than Disqualified Stock) of the
Company and warrants, rights or options on Capital Stock (other than
Disqualified Stock) of the Company (other than in respect of any such
issuance to a Subsidiary of the Company and other than pursuant to an
exchange offer for the TECONS) and the principal amount of Indebtedness
of the Company (other than the Junior Subordinated Debentures) or any
of its Subsidiaries (other than a Securitization Subsidiary) that has
been converted into or exchanged for Capital Stock of the Company which
Indebtedness was Incurred after the Issue Date; plus (c) in the case of
the disposition or repayment of any Investment constituting a
Restricted Payment made after the Issue Date, an amount equal to the
lesser of the return of capital with respect to such Investment and the
cost of such Investment, in either case, less the cost of the
disposition of such Investment; provided, however, that at the time any
such Investment is made the Company delivers to the Trustee a
resolution of its Board of Directors to the effect that, for purposes
of this Section 4.06, such Investment constitutes a Restricted Payment
made after the Issue Date; plus (d) $4 million; plus (e) 100% of the
excess, if any, of the aggregate net proceeds received by the Company
from the issuance of the Junior Subordinated Debentures to the Special
Purpose Trust utilizing proceeds of its issuance of TECONS over the
aggregate amount expended by the Company to repurchase the Company's 4
1/2% Series B Preferred Stock when and to the extent such Junior
Subordinated Debentures are subsequently converted into or exchanged
for Capital Stock (other than Disqualified Stock) of the Company.
<PAGE>
The foregoing provision will not be violated by (i) any
dividend on any class of Capital Stock of the Company or any Subsidiary
of the Company paid within 60 days after the declaration thereof if, on
the date when the dividend was declared, the Company or such
Subsidiary, as the case may be, could have paid such dividend in
accordance with the provisions of this Indenture, (ii) the renewal,
extension, refunding or refinancing of any Indebtedness otherwise
permitted pursuant to clause (v) of Section 4.04, (iii) the exchange or
conversion of any Indebtedness of the Company or any Subsidiary of the
Company (other than a Securitization Subsidiary) for or into Capital
Stock of the Company (other than Disqualified Stock of the Company),
(iv) any payments, loans or other advances made pursuant to any
employee benefit plans (including plans for the benefit of directors)
or employment agreements or other compensation arrangements, in each
case as approved by the Board of Directors of the Company in its good
faith judgment, (v) the redemption of the Company's rights issued
pursuant to the Amended and Restated Rights Agreement dated as of May
10, 1994, between the Company and Wachovia Bank of North Carolina,
N.A., as Rights Agent, 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, (vi) so long as no Default or Event of Default has occurred
and is continuing, any Investment made with the proceeds of a
substantially concurrent sale of Capital Stock of the Company (other
than Disqualified Stock); provided, however, that the proceeds of such
sale of Capital Stock shall not be (and have not been) included in
subclause (b) of clause (3) of the preceding paragraph, (vii) so long
as no Default or Event of Default has occurred and is continuing,
additional Investments constituting Restricted Payments in Persons or
entities in the same line of business as the Company as of the Issue
Date in an aggregate outstanding amount (valued at the cost thereof)
not to exceed at any time $8 million, (viii) the redemption,
repurchase, retirement or other acquisition of any Capital Stock of the
Company, Junior Subordinated Debentures or TECONS in exchange for or
out of the net cash proceeds of the substantially concurrent sale
(other than to a Subsidiary of the Company) of Capital Stock of the
Company (other than Disqualified Stock); provided, however, that the
proceeds of such sale of Capital Stock shall not be (and have not been)
included in subclause (b) of clause (3) of the preceding paragraph,
(ix) so long as no Default or Event of Default has occurred and is
continuing, (A) the payment of interest on the Junior Subordinated
Debentures in accordance with the terms of the indenture relating
thereto and (B) the payment of cash dividends on the Company's Common
Stock not to exceed $1.5 million in any fiscal quarter of the Company
plus 4.5(cent) per quarter per share of Common Stock of the Company
issued on conversion of the Junior Subordinated Debentures or on
exchange of the Company's Common Stock of the Company for the TECONS,
or (x) the redemption of the 4 1/2% Series B Cumulative Preferred Stock
with proceeds of the issuance by the Company of the Junior Subordinated
Debentures. Each Restricted Payment described in clauses (i), (iii),
(iv), (v) and (ix) of the previous sentence and Restricted Payments
described in clause (vii) of the previous sentence in an aggregate
amount in excess of $4 million at any one time outstanding shall be
taken into account for purposes of computing the aggregate amount of
all Restricted Payments pursuant to clause (3) of the preceding
paragraph.
<PAGE>
In calculating on any date the aggregate amount of Restricted
Payments made since the Issue Date, the aggregate amount of Restricted
Payments constituting interest payments on the Junior Subordinated
Debentures shall be deemed to be the sum of (A) with respect to the
period from the Issue Date to the end of the latest fiscal year for
which audited financial statements of the Company are available, the
amount of all interest payments on the Junior Subordinated Payments
made during such period, net of the income tax benefit of such payments
giving effect to the federal statutory rate and the state income tax
rate, net of federal income tax impact, reflected in the financial
statements for each fiscal year in such period plus (B) with respect to
all other periods, the product of (x) the aggregate amount of such
interest payments made during such period and (y) the remainder of 1
minus the highest combined marginal federal and Virginia corporate
income tax rate (expressed as a decimal).
ARTICLE TWO
(a) Except as expressly amended hereby, the Indenture is in
all respects ratified and confirmed and all the terms, conditions and provisions
thereof shall remain in full force and effect.
All provisions of this Supplemental Indenture shall be deemed
to be incorporated in, and made a part of the Indenture and the Indenture as
supplemented by this First Supplemental Indenture shall be read, taken and
construed as one and the same instrument for all purposes.
(b) The Trustee accepts the trusts created by the Indenture,
as supplemented by this Supplemental Indenture, and agrees to perform the same
upon the terms and subject to the conditions in the Indenture. The Trustee shall
not be responsible in any manner whatsoever for or in respect of the validity or
sufficiency of this Supplemental Indenture, or the due execution hereof by the
Company, or for or in respect of the recitals hereof, all of which recitals are
made by the Company solely.
(c) This Supplemental Indenture may be executed in any number
of counterparts, each of which so executed shall be deemed to be an original,
but all such counterparts shall together constitute but one and the same
instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Supplemental Indenture to be duly executed as of the day and year first above
written.
OWENS & MINOR, INC.
By:
Name: Ann Greer Rector
Title: Senior Vice President and Chief
Financial Officer
CRESTAR BANK
By:
Trust Officer
<PAGE>
ANNEX A
--------
Summary of Certain Terms of the Junior Subordinated Debentures
Maturity
The entire principal amount of the Junior Subordinated
Debentures will become due and payable, together with any accrued and unpaid
interest thereon, no earlier than on or about the 15th anniversary of their
issuance.
Subordination
The payment of principal of, premium, if any, and interest on
the Junior Subordinated Debentures will 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, marshalling 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.
A-1
<PAGE>
"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 accrued 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.
"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.
A-2
<PAGE>
Optional Redemption
The Company shall have the right to redeem the Junior
Subordinated Debentures, in whole or in part, from time to time, on or after a
date to be specified.
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 certain tax events
relating to the TECONS if certain conditions are met.
The Company may not redeem any Junior Subordinated Debentures
unless all accrued and unpaid interest thereon, including Compounded Interest
(as defined), has been or is simultaneously paid for all quarterly periods
terminating on or prior to the date of notice of redemption.
Interest
Interest on the Junior Subordinated Debentures will be payable
quarterly in arrears.
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 (each, an "Extension
Period"). 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. 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 on or repay, repurchase or redeem any debt securities of the
Company ranking 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 Guarantor to redeem rights issued pursuant to the
Amended and Restated Rights Agreement, dated as of May 10, 1994 between the
Guarantor 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 date hereof.. 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. 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.
A-3
<PAGE>
Additional Interest
If at any time the Special Purpose 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, the Company will pay as additional interest
on the Junior Subordinated Debentures such additional amounts as shall be
required so that the net amounts received and retained by the Special Purpose
Trust after paying any such taxes, duties, assessments or other governmental
charges will be equal to the amounts the Special Purpose Trust would have
received had no such taxes, duties, assessments or other governmental charges
been imposed.
Conversion of the Junior Subordinated Debentures
The Junior Subordinated Debentures are convertible into
Company Common Stock at the option of the holders of the Junior Subordinated
Debentures at any time prior to the close of business on their maturity date
(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 (as defined) subject to certain conversion price
adjustments. The Special Purpose Trust will agree 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 Special Purpose 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 Company Common Stock on behalf of
such holder. The Company's delivery to the holders of the Junior Subordinated
Debentures (through the Conversion Agent) of the fixed number of shares of
Company 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 the Company 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 Special
Purpose 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.
A-4
<PAGE>
Compounded Interest
Payments of Compounded Interest on the Junior Subordinated
Debentures held by the Special Purpose Trust will make funds available to pay
any amount 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 will covenant that, so long as the TECONS issued
by the Special Purpose 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 stock or preferred stock if at such time (i) the Company
shall be in default with respect to its Guarantee Payments (as defined) or other
payment obligations under the Guarantee, (ii) there shall have occurred any
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 or other stock distributions
paid by the Company. The provision 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 (as defined) issued by the Special Purpose
Trust and not to cause or permit the Common Securities to be transferred except
to the extent permitted by the Declaration (the instrument relating to the
TECONS); 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 Special Purpose Trust, (ii) to comply fully with all of its obligations
and agreements contained in the Declaration and (iii) not to take any action
which would cause the Special Purpose 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.
A-5
<PAGE>
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:
(a) failure for 30 days to pay interest on the Junior Subordinated
Debentures 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
Debentures of such series; 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.
A-6
<PAGE>
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. 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.
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. 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.
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 extent 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 Debentures, or (ii)
reduce the percentage of Junior Subordinated Debentures, the holders of which
are required to consent to any such modification of the Indenture.
A-7
<PAGE>
Consolidation, Merger and Sale
The Indenture will provide 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 transaction, no Event of Default
shall have occurred and be continuing.
A-8
<PAGE>
ANNEX-B
-------
Summary of Certain Terms 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 the Special Purpose Trust), to the
extent not paid by the Special Purpose Trust, regardless of any defense, right
of set-off or counterclaim that the Special Purpose Trust may have or assert.
The following payments or distributions with respect to TECONS, to the extent
not paid or made by the Special Purpose 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 the Special Purpose Trust but if and only to
the extent that in each case the Company has made a payment to the Property
Trustee (as defined) of interest or principal on the Junior Subordinated
Debentures deposited in the Special Purpose Trust as trust assets and (ii) upon
a voluntary or involuntary dissolution, winding-up or termination of the Special
Purpose 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
upon conversion of all TECONS into Common Stock) 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 the Special Purpose Trust has funds
available therefor, or (b) the amount of assets of the Special Purpose Trust
remaining available for distribution to holders of the TECONS in liquidation of
the Special Purpose 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 the Special Purpose 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 the Special Purpose Trust as trust assets. If the Company does not make
interest or principal payments on the Junior Subordinated Debentures deposited
in the Special Purpose Trust as trust assets, the Property Trustee will not make
distributions on the TECONS and the Special Purpose Trust will not have funds
available therefor.
B-1
<PAGE>
Certain Covenants of the Company
In the Guarantee, the Company will covenant that, so long as
any TECONS issued by the Special Purpose 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 (the instrument relating to the TECONS) 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 paid by the Company. The provisions of the
immediately preceding sentence will not restrict the ability of the Guarantor to
redeem rights issued pursuant to the Amended and Restated Rights Agreement,
dated as of May 10, 1994 between the Guarantor 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 date
hereof. 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 (as defined) issued by the Special Purpose 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 Special Purpose Trust, and (ii) not to take any action
which would cause the Special Purpose 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.
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 the Special Purpose 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.
B-2
<PAGE>
Termination of the Guarantee; Ranking of 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 the Special Purpose Trust, or upon
conversion of all TECONS into Common Stock. 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
other Preferred Securities Guarantees (as defined) 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.
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 Indenture Trustee, to be held for the
benefit of the holders of the TECONS issued by the Special Purpose Trust. Such
trustee 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 such trustee. If such trustee 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 the Special
Purpose Trust or any other person or entity.
B-3
EXHIBIT 4.2
AMENDMENT NO. 1
THIS AMENDMENT NO. 1 (the "Amendment") dated as of April 27, 1998, to
the Credit Agreement referenced below, is by and among OWENS & MINOR, INC., a
Virginia corporation, (the "Borrower"), the Guarantors and Lenders identified
therein, and NATIONSBANK, N.A., as Administrative Agent.
W I T N E S S E T H
WHEREAS, the Lenders have established a $225 million credit facility
for the benefit of the Borrower pursuant of the terms of that Credit Agreement
dated as of September 15, 1997 (as amended and modified, the "Credit Agreement")
among the Borrower, the Guarantors and Lenders identified therein and
NationsBank, N.A., as Administrative Agent;
WHEREAS, the Borrower has requested certain modifications to the Credit
Agreement;
WHEREAS, the modifications requested hereby require the consent of the
Required Lenders; and
WHEREAS, the Required Lenders have consented to the requested
modifications on the terms and conditions set forth herein and have authorized
the Administrative Agent to enter into this Amendment on their behalf to give
effect to this Amendment;
NOW, THEREFORE, IN CONSIDERATION of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Definitions. Terms used but not otherwise defined shall have the
meanings provided in the Credit Agreement.
2. Amendment. The Credit Agreement is amended and modified in the
following respects:
2.1 The following definitions are amended or added in Section 1.01 to
read as follows:
"Consolidated Fixed Charges" means, for the applicable period
ending as of a Determination Date, the sum of (i) all Interest Expense
on all Indebtedness during such period (including for purposes hereof,
dividends paid on the Preferred Securities without duplication for
interest payable under the Junior Subordinated Debentures), (ii) all
Rentals (other than Rentals on Capitalized Leases to the extent such
Rentals are included in Interest Expense or as a current maturity of a
Capitalized Lease under subsection (iii) hereof) payable during such
period, (iii) current maturities of Funded Debt and current maturities
of Capitalized Leases as of such Determination Date, and (iv) all
dividends paid in cash or property and redemptions made of capital
stock (other than dividends paid to, or redemptions of capital stock
owned by, the Borrower or a wholly-owned Subsidiary, and without
duplication for items treated as Interest Expense hereunder in respect
of the Preferred Securities and Junior Subordinated Debentures) during
such period, in each case for the Borrower and its Subsidiaries on a
consolidated basis determined, except as provided above, in accordance
with generally accepted accounting principles.
<PAGE>
"Consolidated Net Income Available for Fixed Charges" means,
for the applicable period ending as of a Determination Date, the sum of
Consolidated Net Income
plus (to the extent deducted in determining
Consolidated Net Income) (i) all provisions for any federal,
state or other income taxes, (ii) depreciation, amortization
and other non-cash charges, including without limitation any
accrual necessary for purposes of conforming with Financial
Accounting Standards Board Statement Number 106 (as defined by
generally accepted accounting principles) to the extent that
the accrued portion thereof constitutes a non-cash charge,
(iii) Interest Expense (including for purposes hereof,
dividends paid on the Preferred Securities without duplication
for interest payable under the Junior Subordinated
Debentures), and (iv) all Rentals,
minus (v) all Capital Expenditures,
for the Borrower and its Subsidiaries on a consolidated basis
determined, except as provided above, in accordance with generally
accepted accounting principles.
"Consolidated Net Worth" means total stockholders' equity for
the Borrower and its Subsidiaries on a consolidated basis as determined
in accordance with generally accepted accounting principles (but
including, without duplication, in any event, for purposes hereof, the
Preferred Securities and the Indebtedness evidenced by the Junior
Subordinated Debentures).
"Consolidated Tangible Net Worth" means Consolidated Net Worth
minus goodwill, patents, trade names, trade marks, copyrights,
franchises, organizational expense, deferred assets other than prepaid
insurance and prepaid taxes and such other assets as are properly
classified as "intangible assets", for the Borrower and its
Subsidiaries on a consolidated basis as determined in accordance with
generally accepted accounting principles.
"Consolidated Total Debt" means all Indebtedness of the
Borrower and its Subsidiaries on a consolidated basis determined in
accordance with generally accepted accounting principles plus to the
extent not included under generally accepted accounting principles,
items referenced in the definition of "Indebtedness" (but excluding,
without duplication, in any event, for purposes hereof, the Preferred
Securities and the Indebtedness evidenced by the Junior Subordinated
Debentures and the Borrower's Guaranty Obligations with respect to the
Preferred Securities).
"Funded Debt" means, for any Person, (i) all Indebtedness of
such Person for borrowed money or which has been incurred in connection
with the acquisition of assets, in each case having a final maturity of
one or more years from the date of origin thereof (or which is
renewable or extendable at the option of the obligor for a period or
periods more than one year from the date of origin), (ii) all
Capitalized Lease obligations for such Person, and (iii) all Guaranty
Obligations by such Person of Funded Debt of others. For purposes
hereof, Funded Debt shall include, without duplication, payments in
respect of Funded Debt which constitute current liabilities of the
obligor under generally accepted accounting principles, and shall
exclude, without duplication, the Preferred Securities and the
Indebtedness evidenced by the Junior Subordinated Debentures.
<PAGE>
"Junior Subordinated Debentures" means junior subordinated
convertible deferrable interest debentures or other similar
subordinated debt securities issued by the Borrower or any Subsidiary
the interest payments on which are used to make cash distributions on
Preferred Securities, on substantially the terms described in Exhibit A
to Amendment No. 1.
"Permitted Investments" means (i) cash and Cash Equivalents,
(ii) receivables owing to the Borrower or its Restricted Subsidiaries
or any of its receivables and advances to suppliers, in each case if
created, acquired or made in the ordinary course of business and
payable or dischargeable in accordance with customary trade terms,
(iii) subject to the limitations set out in Section 7.05(b),
investments by the Borrower and its Restricted Subsidiaries in and to a
Credit Party, including any investment in a corporation which, after
giving effect to such investment, will become an Additional Credit
Party (provided such Additional Credit Party shall execute a Joinder
Agreement), (iv) loans and advances in the usual and ordinary course of
business to officers, directors and employees for expenses (including
moving expenses related to a transfer) incidental to carrying on the
business of the Borrower or any Restricted Subsidiary in an aggregate
amount not to exceed $3,000,000 at any time outstanding, (v)
investments (including debt obligations) received in connection with
the bankruptcy or reorganization of suppliers and customers and in
settlement of delinquent obligations of, and other disputes with,
customers and suppliers arising in the ordinary course of business,
(vi) investments in a Securitization Subsidiary or Special Purpose
Vehicle relating to a Qualified Securitization Transaction, (vii)
investments in a PS Affiliate of up to $5,000,000 in the aggregate; and
(viii) additional loan advances and/or investments of a nature not
contemplated by the foregoing clauses hereof, provided that such loans,
advances and/or investments made pursuant to this clause (viii) shall
not exceed $10,000,000 in aggregate amount at any time outstanding. As
used herein, "investment" means all investments, in cash or by delivery
of property made, directly or indirectly in any Person, whether by
acquisition of shares of capital stock, indebtedness or other
obligations or securities or by loan advance, capital contribution or
otherwise.
"Preferred Securities" means pass-through securities, capital
securities or other preferred securities issued by a statutory business
trust or other similar special purpose entity owned or controlled by
the Borrower or any Subsidiary the proceeds of which are invested in or
exchanged for Junior Subordinated Debentures.
"PS Affiliate" means any trust or other special purpose entity
which is the issuer of Preferred Securities.
"Restricted Subsidiary" means any Subsidiary other than a
Securitization Subsidiary or PS Affiliate (i) which is organized under
the laws of the United States or any State thereof; (ii) which conducts
substantially all of its business and has substantially all of its
assets within the United States; and (iii) of which more than 50% (by
number of votes) of the Voting Stock is beneficially owned, directly or
indirectly, by the Borrower.
"Subordinated Debt" means (i) the indebtedness evidenced by
the Senior Subordinated Notes, (ii) the indebtedness evidenced by the
Junior Subordinated Debentures and (iii) any other Indebtedness which
by its terms is specifically subordinated in right of payment to the
prior payment of the Loans and obligations hereunder and under the
other Credit Documents on terms and conditions satisfactory to the
Required Banks.
2.2 The reference in the second sentence of Section 5.15
to"(not including any Securitization Subsidiary)" is amended to read as follows:
<PAGE>
(not including any Securitization Subsidiary or any PS
Affiliate)
2.3 The references in Section 6.12 to the phrase "(other than
a Securitization Subsidiary)" are amended to read as follows:
(other than a Securitization Subsidiary or PS Affiliate)
2.4 Section 7.01(e) is amended to read as follows:
(e) (i) Indebtedness evidenced by the Senior Subordinated
Notes, (ii) Indebtedness evidenced by the Junior Subordinated
Debentures in an aggregate principal amount up to $143,750,000, and
(iii) other Subordinated Debt acceptable to the Required Lenders in
their sole discretion.
2.5 In Section 7.03, clause (v) is renumbered as "(vi)" and a
new clause (v) is added immediately preceding to read as follows:
(v) guaranty by the Borrower of the Preferred Securities on
substantially the terms described in Exhibit A to Amendment No. 1, and
2.6 Section 7.07 is amended in the following respects:
(a) In subsection (c), clause (i) is amended to read
as follows:
(i) regularly scheduled non-default principal payments on the
Senior Subordinated Notes and the Junior Subordinated Debentures, and
regularly scheduled non-default interest payments on the Senior
Subordinated Notes and the Junior Subordinated Debentures, and
(b) A new subsection (d) is added to read as
follows:
(d) designate any other indebtedness as "Designated Senior and
Subordinated Debt" within the meaning provided in the indenture or
other governing instruments relating to the Junior Subordinated
Debentures without the prior written consent of the Required Banks.
2.7 In the second sentence of Section 7.09, the "or"
immediately preceding clause (ii) is amended to "," and a new clause (iii) is
added to the end to read as follows:
or (iii) a PS Affiliate.
2.8 Section 7.11 is amended in the following respects:
(a) The parenthetical references to "(other than a
Securitization Subsidiary pursuant to a Qualified Securitization
Transaction permitted hereunder)" is amended to read as follows:
(other than a Securitization Subsidiary pursuant to a
Qualified Securitization Transaction permitted hereunder or
any PS Affiliate)
<PAGE>
(b) There shall be inserted at the very end of
thereof, immediately after the phrase "except as may be provided herein
or in the indenture relating to the Senior Subordinated Notes" the
following:
or in the indenture relating to the Junior
Subordinated Debentures
2.9 In Section 7.12 there shall be added at the very end of
subsection (ii) thereof the following:
(except that no such demonstration shall be necessary for
payments made under the Preferred Securities and the Junior
Subordinated Debentures)
2.10 A new section 7.14 is added to read as follows:
Section 7.14 Repurchase of Series B Preferred Stock; Issuance
of Preferred Securities and Junior Subordinated Debentures.
As part of the refinancing contemplated by Amendment No. 1 to
this Credit Agreement, the Borrower and the PS Affiliate will enter
into a series of transactions to repurchase all of the Borrower's
Series B Cumulative Preferred Stock pursuant to agreements with
Wilmington Securities (copies of which will be made available to the
Administrative Agent and the Banks), and to issue the Preferred
Securities and the Junior Subordinated Debentures on substantially the
terms described in Exhibits A and B to Amendment No. 1. It is
understood and agreed that the execution and delivery of these
agreements and performance by the Borrower and the PS Affiliate and
their Subsidiaries of their obligations thereunder and under any
related agreements shall not, in and of themselves, constitute a
default under this Credit Agreement.
3. In connection with the issuance of the Preferred Securities, the
Borrower is also seeking a consent from the holders of the Senior Subordinated
Notes and certain amendments to the indenture relating thereto in connection
therewith, a copy of which is attached as Exhibit B. The Administrative Agent
hereby confirms consent by the Required Banks to the amendments described in
Exhibit B hereto.
4. This Amendment shall be effective upon satisfaction of the following
conditions:
(a) execution of this Amendment by the Borrower and the
Administrative Agent;
(b) receipt by the Bank of legal opinions of counsel to the Credit
Parties relating to this Amendment in form and substance satisfactory to the
Administrative Agent and the Required Lenders;
(c) receipt by the Administrative Agent for the ratable benefit of
the consenting Lenders of an Amendment Fee of 12.5 basis points on the aggregate
amount of Commitments held by each of the Lenders consenting to this Amendment.
<PAGE>
5. Except as modified hereby, all of the terms and provisions of the
Credit Agreement (including Schedules and Exhibits) shall remain in full force
and effect.
6. The Borrower agrees to pay all reasonable costs and expenses of the
Administrative Agent in connection with the preparation, execution and delivery
of this Amendment, including without limitation the reasonable fees and expenses
of Moore & Van Allen, PLLC.
7. This Amendment may be executed in any number of counterparts, each
of which when so executed and delivered shall be deemed an original and it shall
not be necessary in making proof of this Amendment to produce or account for
more than one such counterpart.
8. This Amendment shall be deemed to be a contract made under, and for
all purposes shall be construed in accordance with the laws of the Commonwealth
of Virginia.
[Remainder of Page Intentionally Left Blank]
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart
of this Amendment to be duly executed under seal and delivered as of the date
and year first above written.
BORROWER: OWENS & MINOR, INC.,
a Virginia corporation
By:_______________________________
Name:
Title:
GUARANTORS: OWENS & MINOR MEDICAL, INC.,
a Virginia corporation
NATIONAL MEDICAL SUPPLY CORPORATION,
a Delaware corporation
OWENS & MINOR WEST, INC.,
a California corporation
KOLEY'S MEDICAL SUPPLY, INC.,
a Nebraska corporation
LYONS PHYSICIAN SUPPLY COMPANY,
an Ohio corporation
A. KUHLMAN & COMPANY,
a Michigan corporation
STUART MEDICAL, INC.,
a Pennsylvania corporation
By:_______________________________
Name:
Title:
ADMINISTRATIVE
AGENT: NATIONSBANK, N.A., as Administrative Agent
for and on behalf of the Lenders
By:_______________________________
Name:
Title:
<PAGE>
CONSENT TO AMENDMENT NO. 1
NationsBank, N.A.,
as Administrative Agent
101 N. Tryon Street
Independence Center, 15th Floor
NC1-001-15-04
Charlotte, North Carolina 28255
Attn: Agency Services
Re: Credit Agreement dated as of September 15, 1997 (as amended
and modified, the "Credit Agreement") among Owens & Minor,
Inc., the Guarantors and Lenders identified therein and
NationsBank, N.A., as Administrative Agent. Terms used but not
otherwise defined shall have the meanings provided in the
Credit Agreement.
Amendment No. 1 dated April __, 1998 (the "Subject Amendment")
relating to the Credit Agreement
Ladies and Gentlemen:
This should serve to confirm our receipt of, and consent to, the
Subject Amendment. We hereby authorize and direct you, as Administrative Agent
for the Lenders, to enter into the Subject Amendment on our behalf in accordance
with the terms of the Credit Agreement upon your receipt of such consent and
direction from the Required Lenders, and agree that the Borrower may rely on
such authorization.
Sincerely,
-----------------------------
[Name of Lender]
By:__________________________
Name:
Title:
<PAGE>
Exhibit A
Description of Junior Subordinated Debentures and Preferred Securities
<PAGE>
Exhibit B
Description of Amendments relating to Senior Subordinated Notes
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