NEW GMH INC, S-1/A, 1996-12-03

NEW GMH INC
S-1/A, 1996-12-03
DRUGS, PROPRIETARIES & DRUGGISTS' SUNDRIES

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 3, 1996

REGISTRATION NO. 333-16317
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------

AMENDMENT NO. 1

TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
GENERAL MEDICAL INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 5190 54-1726677
(State or other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Identification No.)
Incorporation or Classification Code
Organization) Number)

8741 LANDMARK ROAD
RICHMOND, VIRGINIA 23228
(804) 264-7500
(Address and telephone number of Registrant's principal executive offices)
----------------
DONALD B. GARBER
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
GENERAL MEDICAL INC.
8741 LANDMARK ROAD
RICHMOND, VIRGINIA 23228
(804) 264-7500
(Name, address and telephone number of agent for service)
----------------
Copies to:

EILEEN NUGENT SIMON, WELLFORD L. SANDERS, JR., ESQ. MARGARET A. DAVENPORT,
ESQ. MCGUIRE, WOODS, BATTLE ESQ.
SKADDEN, ARPS, SLATE, & BOOTHE, L.L.P. DEBEVOISE & PLIMPTON
MEAGHER & FLOM LLP 919 ONE JAMES CENTER 875 THIRD AVENUE
THIRD AVENUE 901 EAST CARY STREET NEW YORK, NEW YORK 10022
NEW YORK, NEW YORK 10022 RICHMOND, VIRGINIA 23219 (212) 909-6000
(212) 735-3000 (804) 775-1000

----------------
Approximate date of commencement of proposed sale of the securities to the
public:
As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, check the following
box. [_]

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. [_]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

If delivery of the Prospectus is expected to be made pursuant to Rule 434
under the Securities Act, check the following box. [_]
----------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT, OR UNTIL THIS REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>

EXPLANATORY NOTE

This Registration Statement contains two forms of prospectus: one to be used
in connection with an underwritten public offering in the United States and
Canada (the "U.S. Prospectus") and one to be used in a concurrent underwritten
public offering outside the United States and Canada (the "International
Prospectus"). The U.S. Prospectus and the International Prospectus are
identical except for the front and back cover pages. The form of U.S.
Prospectus is included herein and is followed by the alternate pages to be
used in the International Prospectus. The alternate pages for the
International Prospectus included herein are each labeled "Alternate Page for
International Offering." Final forms of each prospectus will be filed with the
Securities and Exchange Commission under Rule 424(b) under the Securities Act
of 1933, as amended.
<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE +
+WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES +
+LAWS OF ANY SUCH JURISDICTION. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

SUBJECT TO COMPLETION, DATED DECEMBER 3, 1996
PROSPECTUS
SHARES

LOGO

GENERAL MEDICAL INC.

COMMON STOCK

--------

All of the shares of Common Stock, $.01 par value per share (the "Common
Stock"), offered hereby are being sold by General Medical Inc. Of the
shares of Common Stock offered hereby, a total of shares are being
offered for sale in the United States and Canada (the "U.S. Offering") by the
U.S. Underwriters (as defined) and a total of shares are being offered by
the Managers (as defined) in a concurrent international offering outside the
United States and Canada (the "International Offering" and, together with the
U.S. Offering, the "Offerings").

Prior to the Offerings, there has not been any public market for the Common
Stock. It is currently anticipated that the initial public offering price will
be between $ and $ per share. See "Underwriting" for information
relating to the factors that will be considered in determining the initial
public offering price.

Application has been made to have the Common Stock quoted on the Nasdaq
National Market ("Nasdaq") under the symbol "GENM."

--------

SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.

--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.

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- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share $ $ $
- -------------------------------------------------------------------------------------------
Total(3) $ $ $
</TABLE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) For information regarding indemnification of the U.S. Underwriters and
the Managers, see "Underwriting."
(2) Before deducting expenses estimated at payable by the Company.

(3) The Company has granted the U.S. Underwriters a 30-day option to purchase
up to additional shares of Common Stock solely to cover
over-allotments, if any. See "Underwriting." If such option is exercised
in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and $ ,
respectively.

--------

The shares of Common Stock are being offered by the several U.S. Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain conditions. It is expected that certificates for the shares
of Common Stock offered hereby will be available for delivery on or about
, 1997, at the office of Smith Barney Inc., 333 West 34th Street, New York,
New York 10001.

--------
SMITH BARNEY INC. MORGAN STANLEY & CO.
INCORPORATED

ALEX. BROWN & SONS
INCORPORATED CS FIRST BOSTON

, 1997
<PAGE>

[PICTURES TO COME]

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL ON THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON NASDAQ, IN THE OVER-THE-COUNTER
MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT
ANY TIME. DURING THIS OFFERING, CERTAIN PERSONS AFFILIATED WITH PERSONS
PARTICIPATING IN THE DISTRIBUTION MAY ENGAGE IN TRANSACTIONS FOR THEIR OWN
ACCOUNTS OR FOR THE ACCOUNTS OF OTHERS IN THE COMMON STOCK PURSUANT TO
EXEMPTIONS FROM RULES 10B-6, 10B-7 AND 10B-8 UNDER THE SECURITIES EXCHANGE ACT
OF 1934.
<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and the consolidated financial
statements and related notes thereto appearing elsewhere in this Prospectus.
Industry data used throughout this Prospectus was obtained from industry
publications and internal Company estimates that the Company believes to be
reliable, but has not been independently verified. Unless the context otherwise
requires, all references to "GMI" herein refer to General Medical Inc., the
issuer of the Common Stock offered hereby; all references to "Holdings" herein
refer to GM Holdings, Inc., a wholly-owned subsidiary of GMI with no business
operations of its own; all references to "General Medical" herein refer to
General Medical Corporation, a wholly-owned subsidiary of Holdings and the
Company's principal operating subsidiary, and all references to the "Company"
herein refer collectively to GMI and its subsidiaries. See "The Company."
Except where otherwise indicated, the information in this Prospectus, including
all share and per share amounts, (i) gives effect to an increase in authorized
shares and a -to-one stock split of both the Common Stock and the Company's
Class A Common Stock (the "Stock Split") each to be effected prior to the
Offerings, and (ii) assumes the U.S. Underwriters' over-allotment option is not
exercised.

THE COMPANY

The Company is the leading national distributor of medical and surgical
supplies that services the full continuum of healthcare providers, from
hospitals to physicians to extended care providers, and is the third largest
distributor of such products in the United States. The Company had 1995
revenues of approximately $1.5 billion, of which 58% were derived from the
acute care market (hospitals and ambulatory surgical centers), 31% from the
physician care market (physicians and clinics) and 11% from the extended care
market (nursing homes, home healthcare organizations and rehabilitation
facilities). The Company is placing an increasing emphasis on sales to these
markets through integrated healthcare networks ("IHNs") which operate
healthcare facilities across the market continuum. The Company distributes a
broad array of products, comprising more than 130,000 stock-keeping units
("SKUs") which are supplied by over 4,000 medical and surgical product
manufacturers. Additionally, the Company offers a variety of value-added
services to its customers, particularly in the area of cost containment and
inventory management. The Company's more than 700 person sales force is divided
into four groups, targeting acute care providers, physician care providers,
extended care providers and IHNs.

According to an industry source, sales of medical/surgical supplies in the
United States exceeded $28 billion in 1995, and are estimated to be growing at
an annual rate of seven to eight percent. The Company believes that there are
several major trends currently characterizing the industry, including: (i) the
continuing consolidation of healthcare providers within and across markets,
(ii) the rising importance of multi-market and national distribution
capabilities, (iii) an increasing emphasis on value-added services that lower
healthcare providers' administrative and other costs associated with
medical/surgical supply management, (iv) a shift in the delivery of healthcare
from acute care settings to alternate sites, such as physician offices and
extended care facilities and (v) the growing importance of an efficient
distribution model as customers become more cost-conscious and sophisticated in
their purchasing.

The Company believes that its multi-market focus and national presence
provide it with competitive advantages and position it to benefit from trends
impacting the industry. First, as healthcare providers form IHNs, the Company
has the opportunity to sell products and services to new and existing customers
across different markets. The Company's current IHN customers include Cigna
Health Corp. ("Cigna"), Geisinger Health Systems ("Geisinger") and Maricopa
Health Systems ("Maricopa"), all of which operate in multiple healthcare
markets. The Company also has the potential to grow as customers continue to
consolidate within individual markets. For example, the Company has
distribution relationships with MedPartners, Inc. ("MedPartners"), a physician
care provider, which recently acquired Caremark International, Inc.
("Caremark"), another physician care provider, and Tenet Healthcare Corporation
("Tenet"), an acute care provider, which recently announced

3
<PAGE>

its intention to acquire OrNda Healthcare Corp. ("OrNda"), which also operates
acute care facilities. Second, the Company believes that its ability to provide
access to multiple markets on a national basis is attractive to both healthcare
providers and manufacturers. In particular, the Company believes manufacturers
increasingly must rely on distributors such as the Company in order to gain
access to the physician care and extended care markets, which manufacturers may
not be able to access directly on an economical basis due to small order
quantities and the large number of healthcare providers in such markets. For
example, Allegiance Corporation ("Allegiance"), a manufacturer and distributor
which competes with the Company in distribution in the acute care market,
recently signed a contract with the Company whereby the Company has become a
preferred distributor of Allegiance products to the physician care and extended
care markets. Third, hospitals and other large customers are increasingly
looking to distributors to assist them in lowering their administrative burdens
and total supply costs. For example, hospitals are increasingly requiring
distributors to deliver product in small units of measure and on a just-in-time
basis to multiple sites within a facility. The Company believes it is well-
qualified to provide services which address these needs, due to its existing
expertise in serving the physician care and extended care markets, which are
typically serviced under such a distribution model. Fourth, the Company
believes that its position as a national distributor to all markets lowers its
distribution costs by enhancing purchasing power and leveraging overhead costs.

The Company's business objective is to continue to be the leading national
distributor of medical and surgical supplies that services the full continuum
of healthcare providers. To pursue this objective and continue to improve its
profitability, the Company has implemented the following strategies: (i) drive
sales growth in each of the Company's markets with an increased emphasis on the
alternate-site markets, (ii) reduce customers' total medical/surgical supply
costs through the provision of value-added services, (iii) provide
manufacturers with access to multiple markets, (iv) realign its distribution
network to provide high quality customer service and reduce costs and (v)
acquire local and regional distributors in order to leverage the Company's
distribution network and broaden the Company's market presence.

PERFORMANCE OVERVIEW

The Company's revenues have grown at a compound annual growth rate of
approximately 19.6% from $729.6 million in 1991 to $1,492.1 million in 1995.
This revenue growth is attributable to internal growth as well as to six
acquisitions completed by the Company since 1994. The acquisitions have
enhanced the Company's national presence in the physician and extended care
markets and its position as a nationwide distributor serving the full continuum
of healthcare providers. Following the acquisitions, the Company's adjusted
EBITDA (as defined herein) as a percentage of revenues declined from
approximately 3.9% in 1994 to approximately 3.0% in 1995. This decline was
primarily due to continued price pressures in the medical/surgical supply
industry combined with delays in the Company's integration of the companies it
acquired in 1994 and 1995. The Company has responded to this decline through a
series of initiatives including: (i) a reduction in the Company's workforce by
over 200 employees, (ii) the reorganization of its sales management structure,
(iii) the realignment of its distribution network, (iv) the use of product mix
management tools for account managers, and (v) the renegotiation of a number of
contracts to better reflect the costs associated with the products and services
provided. The Company believes that these initiatives have contributed to the
improvement in the Company's profitability. For the nine months ended September
30, 1996, adjusted EBITDA increased to $48.7 million or 3.8% of revenues from
$32.5 million or 3.0% of revenues in the comparable period in 1995. For the
three months ended September 30, 1996, adjusted EBITDA increased to $18.5
million or 4.3% of revenues compared to $8.6 million or 2.3% of revenues in the
comparable period of 1995.

4
<PAGE>

THE OFFERINGS

<TABLE>
<S> <C>
Common Stock offered in the Offerings:
U.S. Offering.............................. shares(1)
International Offering..................... shares
--------
Total....................................................... shares(1)
Capital Stock to be outstanding after the Of-
ferings:
Common Stock............................... shares(2)
Class A Common Stock....................... shares(2)
-----------
Total....................................................... shares(1)(3)
</TABLE>

Use of proceeds.......................
The estimated net proceeds from the
Offerings, together with amounts
borrowed under the New Credit
Facilities (as defined) to be
entered into by General Medical
prior to or as of the closing of
the Offerings, will be used to
repay certain outstanding
indebtedness of Holdings, GMI's
wholly owned subsidiary, to
consummate the Debenture Tender
Offer (as defined) by General
Medical and to pay related fees and
expenses.

For a description of certain
transactions being undertaken in
connection with the Offerings, and
upon which the closing of the
Offerings will be conditioned, see
"Use of Proceeds," "Capitalization"
and "Description of Certain
Indebtedness."

Nasdaq National Market symbol......... "GENM"
- --------
(1) Does not include shares of Common Stock that are subject to an over-
allotment option granted by the Company to the U.S. Underwriters. See
"Underwriting."

(2) Other than voting rights, the Common Stock and Class A Common Stock have
identical attributes. On all matters submitted to a vote of stockholders,
holders of Common Stock are entitled to one vote per share. Except with
respect to certain matters submitted for a class vote, holders of Class A
Common Stock are not entitled to voting rights. See "Description of Capital
Stock."

(3) Excludes shares of Common Stock reserved for issuance upon the
exercise of outstanding stock options granted pursuant to the Company's
stock incentive plans. See "Management--Compensation of Directors and
Executive Officers."

5
<PAGE>

SUMMARY CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION

The following summary consolidated historical and pro forma financial
information for each of the two years ended December 31, 1991 and 1992, and for
the eight month period ended August 31, 1993, the four month period ended
December 31, 1993, each of the two years ended December 31, 1994 and 1995 and
the nine month period ended September 30, 1996, has been derived from the
audited consolidated financial statements of the Company and its predecessor.
The summary interim consolidated financial information as of and for the nine
month period ended September 30, 1995 has been derived from unaudited
consolidated financial statements of the Company. Results for the interim
periods are not necessarily indicative of the results for the full fiscal year.
The unaudited selected consolidated pro forma financial information reflects
the effect of adjustments to the historical consolidated financial statements
of the Company necessary to give effect to the transactions as described in the
notes below, and is based upon available information and certain assumptions
that the Company believes are reasonable under the circumstances. The pro forma
financial information is presented for comparative and informational purposes
only and is not necessarily indicative of future results or of the results that
would have been obtained had the transactions assumed therein been completed on
the dates indicated. The information presented below should be read in
conjunction with "Selected Consolidated Historical and Pro Forma Financial
Information," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Consolidated Financial Statements of the Company
and related notes, all included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
PREDECESSOR(1) COMPANY
----------------------------- -----------------------------------------------------------
EIGHT
MONTHS FOUR
YEAR ENDED ENDED MONTHS ENDED YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, AUGUST 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
------------------ ---------- ------------ ---------------------- ----------------------
1991 1992 1993 1993 1994(2) 1995(3) 1995 1996
-------- -------- ---------- ------------ ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $729,624 $853,967 $611,641 $300,921 $1,113,840 $1,492,143 $1,099,442 $1,271,428
Cost of sales........... 598,543 703,968 503,744 249,219 912,182 1,214,714 895,775 1,036,701
-------- -------- -------- -------- ---------- ---------- ---------- ----------
Gross profit............ 131,081 149,999 107,897 51,702 201,658 277,429 203,667 234,727
Selling, general and
administrative
expenses............... 111,829 123,931 88,210 43,969 161,662 236,429 174,290 189,704
Consolidation costs(4).. -- -- -- -- -- 10,216 9,561 2,031
Loss (gain) on sale of
manufacturing
assets(5).............. -- -- -- -- (2,788) 709 -- --
Amortization of
intangibles............ -- -- -- 3,833 11,524 9,392 7,235 5,673
-------- -------- -------- -------- ---------- ---------- ---------- ----------
Income from continuing
operations before
interest expense and
income taxes (benefit). 19,252 26,068 19,687 3,900 31,260 20,683 12,581 37,319
Interest expense........ 12,282 10,221 3,828 8,534 32,006 45,183 33,262 35,836
Income taxes (benefit).. 3,175 6,181 6,565 (727) 2,719 (6,028) (5,260) 2,540
-------- -------- -------- -------- ---------- ---------- ---------- ----------
Income (loss) from
continuing operations.. $ 3,795 $ 9,666 $ 9,294 $ (3,907) $ (3,465) $ (18,472) $ (15,421) $ (1,057)
======== ======== ======== ======== ========== ========== ========== ==========
Net income (loss)(6)(7). $ (2,962) $ 43,179 $ 10,435 $ (3,907) $ (3,465) $ (18,472) $ (15,421) $ (1,057)
======== ======== ======== ======== ========== ========== ========== ==========
PRO FORMA OPERATING
DATA:
Pro forma net income
(loss) (8)............. $ (6,129) $ 8,881
Pro forma net income
(loss) per share (9)...
Pro forma weighted
average number of
shares outstanding (9).
OTHER OPERATING DATA:
Gross margin............ 18.0% 17.6% 17.6% 17.2% 18.1% 18.6% 18.5% 18.5%
Adjusted EBITDA(10)..... $ 22,121 $ 28,938 $ 21,574 $ 8,891 $ 43,815 $ 44,636 $ 32,541 $ 48,686
Adjusted EBITDA
margin(11)............. 3.0% 3.4% 3.5% 3.0% 3.9% 3.0% 3.0% 3.8%
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
----------------------
ACTUAL PRO FORMA(12)
-------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA (AT PERIOD END):
Working capital.......................................... $175,162 $186,441
Total assets............................................. 685,199 677,866
Long-term debt, less current maturities.................. 419,850 307,173
Stockholders' equity..................................... 58,399 175,023
</TABLE>

(footnotes appear on following page)

6
<PAGE>

- --------

(1) General Medical, the Company's principal operating subsidiary, was
acquired on August 31, 1993 in a business combination accounted for as a
purchase. The consolidated financial information with respect to the
Predecessor (as defined) reflects historical results and, accordingly,
does not reflect the effects of purchase accounting adjustments or
interest associated with debt incurred to finance the acquisition.
(2) The operations of Titus (as defined) and Foster (as defined) are included
in the consolidated operating results of the Company since the dates of
the acquisitions on July 28, 1994 and August 31, 1994, respectively.
(3) The acquisition of Randolph was consummated on January 5, 1995. The
operations of Randolph are included in the consolidated operating results
of the Company as of the beginning of 1995.

(4) Reflects costs associated with the consolidation of General Medical's
distribution facilities. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business--Distribution"
and Note 3 of Notes to the Company's Consolidated Financial Statements.

(5) Represents a gain in 1994 and a loss in 1995 from the sale of certain
manufacturing assets of a wholly-owned subsidiary of General Medical.

(6) Reflects a $6.8 million loss in 1991 from discontinuance of the operations
of a 94%-owned subsidiary of the Predecessor. Gains from discontinued
operations in 1992 and 1993 of $34.0 million and $1.1 million resulted
from the sale of a wholly-owned subsidiary of the Predecessor net of
applicable tax.
(7) Net income for 1992 reflects the cumulative effect of a change in
accounting principle for the adoption of SFAS No. 109, "Accounting for
Income Taxes" of $0.5 million.

(8) Pro forma net income (loss) is presented to give effect to (i) the
Offerings at an assumed initial public offering price of $ per share,
(ii) initial borrowings under the New Credit Facilities, and (iii) the
application of the net proceeds therefrom to repay certain outstanding
indebtedness as described in "Use of Proceeds," each determined as of the
beginning of the respective periods. See "Use of Proceeds,"
"Capitalization" and "Selected Consolidated Historical and Pro Forma
Financial Information."

(9) Pro forma net income (loss) per share and pro forma weighted average
number of shares outstanding assume an offering price of $ per share,
which price is used to measure the potentially dilutive effect of equity
securities issued or granted since November 18, 1995. See "Dilution,"
"Management--Compensation of Directors and Executive Officers" and
"Description of Capital Stock."

(10) Adjusted EBITDA represents the sum of income (loss) from continuing
operations before income taxes (benefit), interest expense, depreciation
and amortization and nonrecurring consolidation charges less the gain (in
1994) from the sale of certain manufacturing assets. The Company believes
that adjusted EBITDA, while providing additional information related to
the Company's ability to generate cash to enable it to make capital
expenditures and service debt and other obligations, should not be
considered in isolation or as a substitute for the consolidated statement
of operations data prepared in accordance with generally accepted
accounting principles. For example, adjusted EBITDA should not be
considered as an alternative to net income as an indicator of operating
performance or as an alternative to the use of cash flows as a measure of
liquidity.

(11) This margin is calculated as adjusted EBITDA as a percentage of revenues.

(12) Gives effect to (i) the Offerings at an assumed initial public offering
price of $ per share, (ii) initial borrowings under the New Credit
Facilities, and (iii) the application of the net proceeds therefrom to
repay certain outstanding indebtedness as described in "Use of Proceeds."
In connection with the repayment of long-term debt, the Company will incur
an extraordinary after-tax charge of approximately $18.8 million, or $
per share, which is reflected in stockholders' equity. This charge will be
recorded upon completion of the Offerings. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources."

7
<PAGE>

RISK FACTORS

In addition to the other information contained in the Prospectus,
prospective investors should carefully consider the following risk factors in
evaluating an investment in the shares of the Common Stock offered hereby.

INTENSE AND INCREASING COMPETITION

The distribution of medical and surgical supplies to the acute care,
physician care and extended care markets is extremely competitive. In each of
these markets, the Company competes with numerous national, regional and local
companies, including several major distributors and manufacturers. Some of the
Company's competitors have greater financial resources, sales and marketing
experience and distribution capabilities than the Company. Most of the
Company's products are available from several sources, and the Company's
customers tend to have relationships with several distributors. In addition,
competitors of the Company could obtain exclusive rights from manufacturers to
market particular products not currently subject to exclusive distribution
arrangements. Manufacturers could also increase their efforts to sell directly
to healthcare providers, and thereby eliminate the role of distributors, such
as the Company. Price reductions by the Company's competitors could result in
similar price reductions by the Company. The changing United States healthcare
environment in recent years has led increasingly to intense competition among
medical and surgical distributors and to industry consolidation among
healthcare providers and medical/surgical supply distributors. Acquisitions of
significant Company customers which have distribution relationships with the
Company's competitors could result in the loss of such customers by the
Company, thereby negatively impacting its business and operating results. In
addition, barriers to entry in each of these markets are relatively low, and
the risk of new competitors entering any market, including the risk of any of
the Company's existing competitors expanding into new markets, particularly on
a local level, is high. In each of the acute care, physician care and extended
care markets, any of the foregoing competitive pressures, as well as further
consolidation of medical/surgical supply distributors and of healthcare
providers generally, may inhibit the Company's ability to achieve price
increases and may negatively impact revenues and margins in the future. See
"Business--Competition."

UNITED STATES HEALTHCARE ENVIRONMENT

In recent years, the healthcare industry has undergone significant change
driven by various efforts to reduce costs, including potential national
healthcare reform, trends toward managed care, cuts in Medicare, consolidation
of medical and surgical supply distributors and the development of large,
sophisticated purchasing groups. The Company cannot predict whether any
healthcare reform efforts will be enacted and what effect any such reforms may
have on the Company or its customers and suppliers. Changes in governmental
support of healthcare services, the method by which such services are
delivered, the prices for such services or other legislation or regulations
governing such services or mandated benefits may have a material adverse
effect on the Company's results of operations. See "Business--Government
Regulation."

SIGNIFICANT LEVERAGE

Although the Company's indebtedness and interest expense will decrease after
the Offerings and the application of proceeds therefrom, the Company will
continue to be significantly leveraged. At September 30, 1996, on a pro forma
basis after giving effect to the Offerings, the application of the estimated
net proceeds therefrom and the refinancing of the Company's existing credit
facilities, and assuming that all of the 12 1/8% Series A Subordinated Pay-In-
Kind Debentures due 2005 of General Medical (the "12 1/8% Debentures") are
acquired in the Debenture Tender Offer, the Company's consolidated
indebtedness would have been $307.9 million and its stockholders' equity would
have been $175.0 million. On such a pro forma basis, this indebtedness would
have consisted of (i) $51.7 million in borrowings under the New Revolving
Credit Facility, (ii) $150 million in borrowings under the Interim Receivables
Facility, (iii) $105.0 million in principal amount of the 10 7/8% Series A
Senior Subordinated Notes due 2003 of General Medical (the "10 7/8% Notes"),
and (iv) $1.2 million of other indebtedness. The Company may incur additional
indebtedness in the future, subject to certain limitations contained in the
instruments governing its indebtedness. See "Use of Proceeds,"
"Capitalization," "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources" and "Description
of Certain Indebtedness."

8
<PAGE>

The degree to which the Company is leveraged has important consequences to
holders of Common Stock, including the following: (i) a substantial portion of
the Company's cash flow from operations must be dedicated to the payment of
the principal of and interest on its indebtedness and will not be available
for payment of cash dividends, for acquisitions or for other purposes; (ii)
the Company's ability to obtain additional financing in the future for working
capital, interest expense, capital expenditures, funding of acquisitions or
other purposes may be limited; (iii) the Company's high level of indebtedness
could limit its flexibility in planning for, or reacting to changes in, the
medical and surgical supply distribution industry generally, including adverse
government regulation, or its ability to satisfy capital expenditure
requirements or to meet its contractual or financial obligations; (iv) the
Company's high degree of leverage will make it more sensitive to a downturn in
general economic conditions; (v) pursuant to the instruments governing its
indebtedness, the Company is subject to restrictive financial and operating
covenants that could limit its ability to conduct its business or pay
dividends; and (vi) the Company may be more highly leveraged than other
companies with which it competes, which may place it at a competitive
disadvantage.

There can be no assurance that the Company's cash flow from operations and
borrowings under the New Credit Facilities will be sufficient to fund working
capital, to meet all of its debt service requirements or to fund its capital
expenditure requirements for the foreseeable future. To the extent that the
Company is unable to fund such activities, the Company may need to raise
additional funds through public or private financings. There can be no
assurance that the Company would be successful in raising any such funds. If
additional funds are raised through the issuance of equity securities, the
percentage ownership of the Company's stockholders at that time would be
diluted. Further, such equity securities may have rights, preferences or
privileges senior to those of the Common Stock.

PREMIER AND CERTAIN OTHER GPOS REPRESENT A SIGNIFICANT PERCENTAGE OF REVENUES;
CERTAIN CONTRACT RISKS

The Company conducts business with a large number of hospitals which are
affiliated with and represented by group purchasing organizations ("GPOs").
GPOs negotiate pricing arrangements with medical supply manufacturers and
distributors whereby certain pricing levels are made available to the GPOs'
affiliated hospitals, although the actual distribution and credit relationship
is directly between the distributor and the hospital. The Company derives
substantial revenues from servicing hospitals affiliated with five particular
GPOs--Premier Purchasing Partners, L.P. ("Premier"), Tenet, Mercy Resource
Management Inc. ("Mercy"), Hospital Services Corporation of America ("HSCA")
and AmeriNet, Inc. ("AmeriNet"). For the nine months ended September 30, 1996,
sales to hospitals and other organizations affiliated with Premier represented
approximately 23% of the Company's total revenues. Sales to hospitals and
other organizations affiliated with the other GPOs named above represented
approximately 21% of total revenues for such period; none of those GPOs
represented more than 10% of the Company's total revenues for such period. The
Company's arrangements with its principal GPOs are terminable by either party
with 30 to 90 days notice, and it is not unusual for GPOs to have several
concurrent arrangements with a variety of distributors. In 1996, Premier
acquired Sun Health Alliance. Prior to this acquisition, the Company did not
have a contract with Premier in respect of Premier member hospitals, but had a
contract with Sun Health Alliance in respect of the hospitals which were
members of Sun Health Alliance, which contract expired in March 1996. The
Company continues to do business with such hospitals, as well as with certain
other Premier member hospitals, while it is negotiating the terms of an
"umbrella" contract with Premier. There can be no assurance as to whether such
an agreement will be reached and, if so, when such agreement will occur.

In addition, the Company believes that the recent Sun Health Alliance and
Premier consolidation may result in Premier renegotiating its arrangements
with its existing distributors to obtain better terms or possibly to reduce
the number of distributors with which it negotiates medical and surgical
supply pricing on behalf of its member hospitals. The loss of the Company's
existing arrangement with Premier or of any of its contracts with any other
principal GPO, or of any significant portion of the revenues derived from
hospitals affiliated with Premier or any such GPO, could have a material
adverse effect on the Company's operating results. See "Business--Customers."

9
<PAGE>

NET LOSSES IN RECENT PERIODS

For the year ended December 31, 1995 and the nine months ended September 30,
1996, the Company sustained net losses of $18.5 million and $1.1 million,
respectively. The Company attributes these losses in significant part to its
highly leveraged capital structure and to purchase accounting adjustments
resulting from the August 1993 acquisition of General Medical by Holdings.
There can be no assurance that the Company will not incur net losses in
subsequent periods. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

INFORMATION SYSTEMS

The Company is dependent on its information systems to receive and process
customer orders and to distribute products to its customers in a timely and
cost-effective manner. The Company's inventory and warehouse management
information systems are not currently fully integrated. This lack of
integration may adversely affect the Company's ability to receive and process
customer orders and to distribute products efficiently. The Company has begun
to integrate its information systems through a $10-15 million system upgrade
and expects to achieve full integration by 1999. There can be no assurance,
however, that the integration and upgrade of the information systems will be
successfully implemented by then, or at all, or that such integration will not
temporarily adversely affect the Company's ability to receive and process
customer orders and to distribute products. Further, there can be no assurance
that once the systems are fully integrated, increased operating efficiency
will be realized. See "Business--Management Information Systems."

REALIGNMENT OF DISTRIBUTION NETWORK

An element of the Company's growth strategy is to provide high quality
customer service and reduce its costs by realigning its distribution network,
a process which was begun in the third quarter of 1995. There can be no
assurance, however, that this strategy will be successfully implemented or
that the changes to the Company's distribution network will achieve the
intended cost reductions or benefits to customer service. See "Business--
Distribution."

DEPENDENCE ON MANUFACTURERS

The Company distributes over 130,000 different SKUs from approximately 4,000
manufacturers and is dependent on these manufacturers for the manufacture and
supply of products. For the year ended December 31, 1995, the Company's top
ten suppliers accounted for approximately 46% of the cost of products
purchased by the Company for resale. Currently, the Company relies on
manufacturers to provide (i) account managers with technical and selling
support, (ii) agreeable purchasing and delivery terms, (iii) sales performance
incentives, (iv) financial support of sales and marketing programs, and (v)
promotional materials. The Company's ability to maintain good relations with
these manufacturers will affect the profitability of its business. There can
be no assurance that the Company will maintain good relations with its
manufacturers. See "Business--Suppliers."

RISKS ASSOCIATED WITH ACQUISITION STRATEGY

An element of the Company's growth strategy is to supplement its internal
growth with the acquisition of local and regional medical/surgical supply
distributors that could potentially leverage the Company's distribution
network and broaden the Company's market presence, particularly in the
physician and extended care markets. The Company's ability to expand through
acquisitions will depend upon the availability of suitable acquisition
candidates, the Company's ability to consummate such transactions and the
availability of acceptable financing. There can be no assurance that the
Company will be effective in making acquisitions. Acquisitions involve

10
<PAGE>

numerous risks, including possible adverse short-term effects on the Company's
operating results or the market price of the Common Stock, the incurrence of
additional leverage to finance acquisitions or the issuance of equity
securities as consideration for such acquisitions. In addition, integrating
acquired businesses may result in a loss of customers of the acquired
businesses and may place significant demands on the Company's operations,
information systems, financial resources and management. The failure to
effectively integrate acquired businesses with the Company's operations could
adversely affect the Company's results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business--Strategy."

GOVERNMENT REGULATION

The Company and its customers and suppliers are subject to extensive Federal
and state regulation, and the Company cannot predict the extent to which
future legislative and regulatory developments concerning their practices and
products or the healthcare industry may affect the Company. The Company's
operations are subject to review and inspection by local, state and
governmental entities. The Company's suppliers are also subject to similar
governmental requirements. See "Business--Government Regulation."

LIABILITY EXPOSURE

The distribution of medical/surgical supplies entails risks of product
liability. The Company generally obtains indemnification agreements from
manufacturers and currently maintains insurance coverage for product liability
claims. Despite the fact that the Company has not to date experienced any
significant unreimbursed losses from product liability claims, there can be no
assurance that indemnification from manufacturers and coverage under insurance
policies will be adequate to cover future product liability claims against the
Company. In addition, liability insurance coverage is expensive, difficult to
maintain and may be unobtainable in the future on acceptable terms. The
Company operates approximately 235 trucks to deliver medical supplies. The
Company has experienced various claims regarding motor vehicle accidents, all
of which have been covered by insurance. The Company believes that it
maintains adequate insurance coverage for such claims. Nevertheless, the
amount and scope of any coverage may be inadequate in the event that a product
liability or motor vehicle accident claim is successfully asserted against the
Company.

DIVIDEND POLICY; RESTRICTIONS ON PAYMENTS OF DIVIDENDS

Following the Offerings, the Company intends to retain future earnings for
use in its business. Additionally, payments of dividends by GMI and its
subsidiaries will be restricted pursuant to the terms of the Company's
indebtedness. As a result, GMI does not anticipate paying dividends in the
foreseeable future.

GMI is a holding company with no business operations of its own. GMI's only
asset is all of the outstanding stock of Holdings, which owns all of the
outstanding stock of General Medical. Accordingly, GMI and Holdings will be
dependent on the earnings and cash flow of, and dividends and other
distributions from, General Medical to pay their expenses and to pay any cash
dividends or distributions. There can be no assurance that General Medical
will generate sufficient cash flow to pay dividends or distributions to
Holdings for payment to GMI or that applicable state law and contractual
restrictions, including negative covenants contained in General Medical's debt
instruments, will permit such distributions and dividends. The terms of the
New Credit Agreement (as defined) and the 10 7/8% Notes restrict General
Medical from paying dividends or making distributions except in very limited
circumstances, including paying certain expenses of Holdings and GMI. See "--
Significant Leverage," "Dividend Policy" and "Description of Certain
Indebtedness."

CONTROL OF THE COMPANY BY CERTAIN STOCKHOLDERS

Upon completion of the Offerings, approximately % of the Common Stock
will be owned by affiliates of Kelso & Company, L.P. ("Kelso"), % will be
owned by officers and employees of the Company, % will be owned by
affiliates of Morgan Stanley Group Inc. (the "Morgan Stanley Affiliates"), and
% will be owned by John Rutledge Partners, L.P. ("Rutledge"). In addition,
another stockholder, Chase Equity Associates, L.P., a California Limited
Partnership ("CEA"), owns shares of the Company's non-voting Class A Common

11
<PAGE>

Stock, which is convertible into voting Common Stock on a one-for-one basis at
the option of the holder. See "Principal Stockholders." A group of these
stockholders could, by combining their voting power, exercise control over the
Company. After the Offerings, a majority of the Board of Directors will
consist of persons who are either associated with Kelso or are members of the
Company's management. See "Certain Transactions--Stockholders Agreement."

SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS

Sales of a substantial number of shares of Common Stock in the public market
following the Offerings could adversely affect the market price for the Common
Stock. Upon completion of the Offerings, GMI will have an aggregate of
shares of Common Stock outstanding (the "Outstanding Common Shares") and
shares of Class A Common Stock outstanding (the "Outstanding Class A Common
Shares"), based upon the number of shares of Common Stock outstanding at
, 1997. GMI will also have shares of Common Stock reserved for issuance
upon the exercise of outstanding options (the "Issuable Common Shares"). An
aggregate of of the Outstanding Common Shares and Issuable Common Shares
and of the Outstanding Class A Common Shares are subject to lock-up
agreements, as hereinafter described. Each of (i) the Company, (ii) the
Company's officers and directors set forth under the heading "Management" in
this Prospectus, and (iii) certain of its stockholders have agreed that, for a
period of 180 days after the date of this Prospectus, they will not, without
the prior written consent of Smith Barney Inc., offer, sell, contract to sell
or otherwise dispose of, any shares of Common Stock or securities convertible
into or exercisable or exchangeable for Common Stock, or grant any options or
warrants to purchase Common Stock. See "Underwriting." In addition, certain of
the Company's stockholders, including affiliates of Kelso, are entitled to
certain registration rights with respect to their shares of Common Stock. If
such stockholders sell or cause to be sold a large number of shares in the
public market, such sales could have an adverse effect on the market price of
the Common Stock. See "Certain Transactions" and "Shares Eligible for Future
Sale."

RELIANCE ON KEY EXECUTIVES

The Company's success depends to a significant extent upon the continued
services of its executive officers and other key management and sales
personnel. Although the Company believes it has incentive and compensation
programs designed to retain key executives, the Company generally does not
have employment contracts with its executive officers, and few of its
executive officers are bound by non-competition agreements. The unavailability
of the continuing services of its executive officers and other key management
and sales personnel could have a material adverse effect on the Company's
business. See "Management."

DILUTION

Purchasers of the shares of Common Stock offered hereby will experience
immediate and substantial dilution in net tangible book value per share from
the Offerings. At the assumed initial public offering price of $ per
share, new investors will experience dilution in net tangible book value per
share of $ . To the extent outstanding options to purchase Common Stock
are exercised, there will be further dilution. See "Dilution."

FORWARD-LOOKING STATEMENTS

This Prospectus contains certain forward-looking statements concerning the
Company's operations, economic performance and financial condition. Such
statements are subject to various risks and uncertainties. Actual results
could differ materially from those currently anticipated due to a number of
factors, including those identified under this "Risk Factors" section and
elsewhere in this Prospectus.

ABSENCE OF PRIOR PUBLIC TRADING MARKET; POTENTIAL VOLATILITY OF STOCK PRICE

Prior to the Offerings, there has been no public trading market for the
Common Stock, and there can be no assurance that an active or significant
trading market for the Common Stock will develop or will continue after the
Offerings or that the market price of the Common Stock will not decline below
the initial public offering

12
<PAGE>

price. The initial public offering price of the Common Stock will be
determined by negotiations among the Company and the Representatives (as
defined). See "Underwriting." Furthermore, the market price of the Company's
Common Stock may be subject to fluctuations in response to quarter-to-quarter
variations in operating results, changes in earnings estimates by investment
analysts or changes in business or regulatory conditions affecting the
Company, its customers, its suppliers or its competitors. The Company has
experienced, and in the future may experience, quarterly variations in
operating results. Operating results in any quarter are not necessarily
indicative of results which may be expected for any other period. The stock
market historically has experienced volatility which has particularly affected
the market prices of securities of many companies in the healthcare industry
and which sometimes has been unrelated to the operating performances of such
companies. These market fluctuations may adversely affect the market price of
the Common Stock. Following the Offerings, sales or the expectation of sales
of substantial amounts of Common Stock in the public market by the Company or
its stockholders could adversely affect the prevailing market prices for the
Common Stock. See "Shares Eligible for Future Sale."

13
<PAGE>

THE COMPANY

The Company's principal operating subsidiary, General Medical, was
incorporated in Virginia in 1950 as Richmond Surgical Supply, and has been
doing business under its current name since 1965. In 1980, Whitaker Corp.
purchased General Medical, and in 1987, Rabco Health Services, Inc. ("Rabco"
or the "Predecessor") purchased General Medical from Whitaker Corp. Affiliates
of Kelso, acting through Holdings, purchased General Medical in August 1993
from Rabco (the "Original Acquisition") and General Medical became a wholly-
owned subsidiary of Holdings.

General Medical acquired F.D. Titus and Son Inc. ("Titus") in July 1994 (the
"Titus Acquisition"). Titus, headquartered in The City of Industry,
California, was one of the largest medical/surgical suppliers to alternate-
site markets in the United States. General Medical purchased the medical
supply distribution business of Foster Medical Supply, Inc. ("Foster") in
August 1994 (the "Foster Acquisition"). Foster, headquartered in Waltham,
Massachusetts, distributed medical supplies primarily in New England, New
York, Ohio, Maryland, Michigan and Florida. In January 1995, General Medical
acquired Randolph Medical Inc. ("Randolph") by way of merger (the "Randolph
Acquisition"). Randolph, headquartered in Livonia, Michigan, operated sales
and distribution facilities serving alternate-site markets in the upper
Midwestern United States.

In January 1995, by way of merger, Holdings became a direct wholly-owned
subsidiary of GMI, which was formerly named New GMH, Inc. (the "New GMH
Merger"). GMI and Holdings are each a holding company incorporated in
Delaware. See "Dividend Policy." The Company's principal executive office is
located at 8741 Landmark Road, Richmond, Virginia 23228, and its phone number
is (804) 264-7500.

14
<PAGE>

USE OF PROCEEDS

The net proceeds from the Offerings after deducting underwriting discounts
and commissions and estimated offering expenses are estimated to be
approximately $ million (approximately $ million if the U.S.
Underwriters' over-allotment option is exercised in full), assuming an initial
public offering price of $ per share.

The estimated net proceeds from the Offerings will be used (i) to redeem all
of the outstanding 12 1/2% Senior Notes of Holdings (the "Holdings Notes")
(including payment of accrued interest) (the "Holdings Notes Redemption");
(ii) to fund, in part, the Debenture Tender Offer (as defined immediately
below); and (iii) to pay fees and expenses. The Holdings Notes bear interest
at the rate of 12 1/2% per annum and mature in 2004 and are redeemable at 100%
of the principal amount thereof, plus accrued interest to the date of
redemption. The 12 1/8% Debentures bear interest at the rate of 12 1/8% per
annum and mature in 2005.

Concurrently with the Offerings, the Company is causing General Medical to
offer to purchase for cash (the "Debenture Tender Offer") all outstanding 12
1/8% Debentures and, in connection therewith, to solicit certain consents (the
"Consent Solicitation") from the holders of at least a majority in principal
amount of the 12 1/8% Debentures to effect certain amendments to the indenture
governing the 12 1/8% Debentures (the "Debenture Indenture"), including the
elimination of certain of the restrictive covenants thereunder. The Debenture
Tender Offer is conditioned upon, among other things, (i) the valid tender
pursuant to the Debenture Tender Offer by the holders of at least a majority
of the aggregate outstanding principal amount of the 12 1/8% Debentures prior
to the expiration date of the Debenture Tender Offer, (ii) initial borrowings
under the New Credit Facilities, (iii) the consummation of the Offerings, and
(iv) the execution of a supplemental indenture to the Debenture Indenture
implementing the proposed amendments to the Debenture Indenture by General
Medical and the trustee thereunder following receipt of the consents of
holders of at least a majority in principal amount of the 12 1/8% Debentures.
There can be no assurance that all of the 12 1/8% Debentures will be acquired
pursuant to the Debenture Tender Offer or that the terms of the Debenture
Tender Offer will not vary from those assumed by the Company herein.

The closing of the Offerings, the closing of the Debenture Tender Offer, the
Holdings Notes Redemption, and the initial borrowings under the New Credit
Facilities will be contingent upon each other and are expected to occur
simultaneously. For further information with respect to the Company's
indebtedness, see "Description of Certain Indebtedness."

The following table sets forth the estimated sources and uses of funds
assuming that the Offerings and the application of the proceeds therefrom
occurred on September 30, 1996 (dollars in thousands).

<TABLE>
<CAPTION>
<S> <C>
SOURCES OF FUNDS:
Proceeds from the Offerings......................................... $150,000
New Revolving Credit Facility(1)(2)................................. 51,707
Interim Receivables Facility(1)..................................... 150,000
--------
Total............................................................. $351,707
========
USES OF FUNDS:
Holdings Notes Redemption (including accrued interest).............. $ 65,125
Debenture Tender Offer (including accrued interest)(2).............. 71,852
Repayment of indebtedness under Existing Credit Facility............ 187,661
Estimated fees and expenses(3)...................................... 27,069
--------
Total............................................................. $351,707
========
</TABLE>
- --------

15
<PAGE>

million (depending on the available level of accounts receivable). As of
September 30, 1996, the Company would have had approximately $42.7 million
remaining availability under the New Revolving Credit Facility. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

(2) Assumes that all of the 12 1/8% Debentures are acquired pursuant to the
Debenture Tender Offer and a consent payment is made with respect to all
of the 12 1/8% Debentures. There can be no assurance that all of the 12
1/8% Debentures will be so acquired or that the terms of the Debenture
Tender Offer will not vary from those assumed by the Company herein. To
the extent that less than all of the 12 1/8% Debentures are acquired,
amounts drawn under the New Revolving Credit Facility will be decreased
accordingly and as a result the Company's borrowing availability
thereunder will increase accordingly.

(3) Represents fees and expenses related to the foregoing transactions,
including estimated underwriting discounts and commissions and offering
expenses payable by the Company, estimated premiums in the Debenture
Tender Offer, lender fees, legal, accounting and other professional fees,
and a $3 million payment made to terminate certain financial advisory
services provided to the Company by Kelso (the "Termination Fee"). See
"Certain Transactions-- Relationships with Insiders."

DIVIDEND POLICY

GMI has never declared or paid cash dividends on its capital stock.
Following the completion of the Offerings, GMI intends to retain any future
earnings for use in its business. Additionally, payments of dividends by GMI
and its subsidiaries will be restricted under the terms of the Company's
indebtedness. GMI does not anticipate paying any cash dividends in the
foreseeable future. GMI is a holding company with no operations or significant
assets other than all of the outstanding stock of Holdings, which in turn has
no operations or significant assets other than its 100% equity interest in
General Medical. The timing, amount and form of dividends, if any, will
depend, among other things, on the Company's results of operations, financial
condition, cash requirements, plans for expansion, terms of the Company's
indebtedness and other factors deemed relevant by the Board of Directors. See
"Risk Factors--Dividend Policy; Restrictions on Payments of Dividends."

16
<PAGE>

DILUTION

At September 30, 1996, the net tangible book value of the Company was
million, or $ per share of Common Stock. The net tangible book value per
share represents the amount of total assets (excluding intangible assets) less
total liabilities, divided by the total number of shares of Common Stock
outstanding.

After giving effect to the receipt of $ million of estimated net
proceeds from the sale by the Company of shares of Common Stock in the
Offerings assuming an initial public offering price of $ per share, and the
application of such estimated net proceeds as described under "Use of
Proceeds," the pro forma net tangible book value of the Company at September
30, 1996 would have been $ million, or $ per share of Common Stock.
This represents an immediate increase in net tangible book value of $ per
share of Common Stock to the existing stockholders of the Company ("Existing
Stockholders") and an immediate dilution to new investors in the Offerings of
$ per share of Common Stock. The following table illustrates such
dilution:

<TABLE>
<S> <C>
Assumed per share initial price to public................................ $
Net tangible book value per share at September 30, 1996, after giving
effect to the Stock Split............................................. $
Increase in net tangible book value per share attributable to new in-
vestors............................................................... $
Pro forma net tangible book value per share after the Offerings.......... $
-----
Dilution per share to new investors...................................... $
=====
</TABLE>

The following table sets forth, at September 30, 1996, on a pro forma basis
and assuming completion of the Offerings, the difference between the Existing
Stockholders and the new investors who purchase Common Stock in the Offerings
at an assumed initial public offering price of $ per share, with respect
to the number of shares purchased from the Company, the total consideration
paid and the average price per share paid:

<TABLE>
<CAPTION>
SHARES TOTAL
PURCHASED CONSIDERATION
-------------- -------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- ------ ------- ---------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders.......... $ % $ % $
New investors.................. $
--- ----- --- -----
Total(1)................... $ 100.0% $ 100.0%
=== ===== === =====
</TABLE>
- --------
(1) Excludes shares of Common Stock reserved for issuance upon the
exercise of outstanding stock options granted pursuant to the Company's
stock incentive plans at an average exercise price of approximately $
per share. To the extent such options are exercised, there will be further
dilution to new investors. See "Management--Compensation of Directors and
Executive Officers" and "Description of Capital Stock."

17
<PAGE>

CAPITALIZATION

The following table sets forth at September 30, 1996, (i) the historical
consolidated capitalization of the Company and (ii) the unaudited pro forma
capitalization, as adjusted to reflect the sale by the Company of shares
of Common Stock in the Offerings, assuming an offering price of $ per
share and the application of the estimated net proceeds therefrom. See "Use of
Proceeds," "Selected Consolidated Historical and Pro Forma Financial
Information" and "Description of Capital Stock."

<TABLE>
<CAPTION>
SEPTEMBER 30,
1996
------------------
AS
ACTUAL ADJUSTED
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt:
Existing Credit Facility................................. $187,661 $ --
New Revolving Credit Facility(1)(2)...................... -- 51,707
Interim Receivables Facility(1).......................... -- 150,000
10 7/8% Notes............................................ 105,000 105,000
12 1/8% Debentures(2).................................... 70,779 --
12 1/2% Holdings Notes................................... 55,944 --
Other.................................................... 466 466
-------- --------
Total long-term debt................................... 419,850 307,173
-------- --------
Stockholders' equity:
Common Stock, $.01 par value per share; shares au-
thorized; shares issued and outstanding, actual;
shares issued and outstanding, as
adjusted(3)............................................. 91 91
Class A Common Stock, $.01 par value per share;
shares authorized; shares issued and outstanding.... 12 12
Additional paid-in capital............................... 111,823 246,073
Predecessor basis adjustment............................. (20,814) (20,814)
Retained deficit(4)...................................... (26,901) (44,527)
Treasury stock (at cost)................................. (5,812) (5,812)
-------- --------
Total stockholders' equity............................. 58,399 175,023
-------- --------
Total capitalization....................................... $478,249 $482,196
======== ========
</TABLE>
- --------

(1) The New Credit Facilities will provide for borrowings under the New
Revolving Credit Facility of up to $150 million (depending on the
borrowing base) and under the Interim Receivables Facility of up to $200
million. As of September 30, 1996, the Company would have had
approximately $42.7 million remaining availability under the New Revolving
Credit Facility. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."

(4) Retained deficit, as adjusted, reflects an $18.8 million charge incurred
in connection with the repayment of long-term debt resulting in the
recognition of a one-time extraordinary after-tax charge as well as the
tax effect of the Termination Fee. See "Certain Transactions--Relationship
with Insiders." These charges are expected to be recorded upon completion
of the Offerings.

18
<PAGE>

SELECTED CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION

The following selected consolidated historical and pro forma financial
information as of December 31, 1994 and 1995, and for the eight month period
ended August 31, 1993, the four month period ended December 31, 1993, each of
the two years ended December 31, 1994 and 1995 and the nine month period ended
September 30, 1996, has been derived from the audited consolidated financial
statements of the Company and the Predecessor included elsewhere in this
Prospectus. The selected consolidated historical and pro forma financial
information of the Predecessor as of and for the years ended December 31, 1991
and 1992, and the balance sheet information of the Company as of December 31,
1993 has been derived from audited consolidated financial information not
included herein. The selected interim consolidated financial information as of
and for the nine month period ended September 30, 1995 has been derived from
unaudited consolidated financial statements of the Company. In the opinion of
management, the unaudited financial statements include all adjustments,
consisting only of normal recurring accruals, necessary for the fair
presentation of the financial information for such period. Results for the
interim periods are not necessarily indicative of the results for the full
fiscal year. The unaudited selected consolidated pro forma financial
information reflects the effect of adjustments to the historical consolidated
financial statements of the Company necessary to give effect to the
transactions as described in the notes below, and is based upon available
information and certain assumptions that the Company believes are reasonable
under the circumstances. The pro forma financial information is presented for
comparative and informational purposes only and is not necessarily indicative
of future results or of the results that would have been obtained had the
transactions assumed therein been completed on the dates indicated. The
information presented below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements of the Company and related notes, all
included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
PREDECESSOR(1) COMPANY
----------------------------- -----------------------------------------------------------------------------------
FOUR
EIGHT MONTHS
MONTHS ENDED
YEAR ENDED ENDED DECEM- YEAR ENDED
DECEMBER 31, AUGUST 31, BER 31, DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
------------------ ---------- -------- ---------------------------------- ----------------------------------
1995 PRO 1996 PRO
1991 1992 1993 1993 1994(2) 1995(3) FORMA(4) 1995 1996 FORMA(4)
-------- -------- ---------- -------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OP-
ERATIONS DATA:
Revenues........ $729,624 $853,967 $611,641 $300,921 $1,113,840 $1,492,143 $1,492,143 $1,099,442 $1,271,428 $1,271,428
Cost of sales... 598,543 703,968 503,744 249,219 912,182 1,214,714 1,214,714 895,775 1,036,701 1,036,701
-------- -------- -------- -------- ---------- ---------- ---------- ---------- ---------- ----------
Gross profit.... 131,081 149,999 107,897 51,702 201,658 277,429 277,429 203,667 234,727 234,727
Selling, general
and
administrative
expenses(5).... 111,829 123,931 88,210 43,969 161,662 236,429 236,079 174,290 189,704 189,442
Consolidation
costs(6)....... -- -- -- -- -- 10,216 10,216 9,561 2,031 2,031
Loss (gain) on
sale of
manufacturing
assets(7)...... -- -- -- -- (2,788) 709 709 -- -- --
Amortization of
intangibles.... -- -- -- 3,833 11,524 9,392 9,392 7,235 5,673 5,673
-------- -------- -------- -------- ---------- ---------- ---------- ---------- ---------- ----------
Income from
continuing
operations
before interest
expense and
income taxes
(benefit)...... 19,252 26,068 19,687 3,900 31,260 20,683 21,033 12,581 37,319 37,582
Interest
expense(8)..... 12,282 10,221 3,828 8,534 32,006 45,183 25,132 33,262 35,836 19,673
Income taxes
(benefit)...... 3,175 6,181 6,565 (727) 2,719 (6,028) 2,030 (5,260) 2,540 9,028
-------- -------- -------- -------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss)
from continuing
operations..... $ 3,795 $ 9,666 $ 9,294 $ (3,907) $ (3,465) $ (18,472) $ (6,129) $ (15,421) $ (1,057) $ 8,881
======== ======== ======== ======== ========== ========== ========== ========== ========== ==========
Net income
(loss)(9)(10).. $ (2,962) $ 43,179 $ 10,435 $ (3,907) $ (3,465) $ (18,472) $ (6,129) $ (15,421) $ (1,057) $ 8,881
======== ======== ======== ======== ========== ========== ========== ========== ========== ==========
Pro forma net
income (loss)
per share(11)..
Pro forma
weighted
average number
of shares
outstanding(11).
OTHER OPERATING
DATA:
Gross margin.... 18.0% 17.6% 17.6% 17.2% 18.1% 18.6% 18.6% 18.5% 18.5% 18.5%
Adjusted
EBITDA(12)..... $ 22,121 $ 28,938 $ 21,574 $ 8,891 $ 43,815 $ 44,636 $ 44,986 $ 32,541 $ 48,686 $ 48,948
Adjusted EBITDA
margin(13)..... 3.0% 3.4% 3.5% 3.0% 3.9% 3.0% 3.0% 3.0% 3.8% 3.8%
BALANCE SHEET
DATA
(AT PERIOD
END):
Working capital. $ 52,539 $ 88,212 $ 73,626 $ 119,879 $ 174,482 $ 164,235 $ 175,162 $ 186,441
Total assets.... 192,072 225,932 443,097 601,346 683,517 662,835 685,199 677,866
Long-term debt,
less current
maturities..... 108,219 92,157 250,000 344,547 424,643 411,712 419,850 307,173
Stockholders'
equity
(deficiency)... (33,138) 10,002 50,176 72,776 57,179 62,217 58,399 175,023
</TABLE>
(footnotes appear on following page)

19
<PAGE>

- --------

(1) General Medical, the Company's principal operating subsidiary, was
acquired on August 31, 1993 in a business combination accounted for as a
purchase. The consolidated financial information with respect to the
Predecessor reflects historical results and, accordingly, does not reflect
the effects of purchase accounting adjustments or interest associated with
debt incurred to finance the acquisition.
(2) The operations of Titus and Foster are included in the consolidated
operating results of the Company since the dates of acquisition on July
28, 1994 and August 31, 1994, respectively.
(3) The acquisition of Randolph was consummated on January 5, 1995. The
operations of Randolph are included in the consolidated operating results
of the Company as of the beginning of 1995.

(4) Gives effect to the (i) Offerings at an assumed initial public offering
price of $ per share, (ii) initial borrowings under the New Credit
Facilities, and (iii) the application of the net proceeds therefrom to
repay certain outstanding indebtedness as described in "Use of Proceeds."
In connection with the repayment of long-term debt, the Company will incur
an extraordinary after-tax charge of approximately $18.8 million, or $
per share, which is reflected in stockholders' equity. This charge will be
recorded upon completion of the Offerings. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources."

(5) Pro forma financial information reflects the elimination of a $0.4 million
and $0.3 million fee for the year ended December 31, 1995, and the nine
months ended September 30, 1996, respectively, resulting from the
termination of the arrangement with Kelso to provide financial advisory
services. See "Certain Transactions--Relationship with Insiders."

(6) Reflects costs associated with the consolidation of General Medical's
distribution facilities. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business--Distribution"
and Note 3 of Notes to the Company's Consolidated Financial Statements.

(7) Represents a gain in 1994 and a loss in 1995 from the sale of certain
manufacturing assets of a wholly-owned subsidiary of General Medical.
(8) Pro forma interest expense is determined as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1995 SEPTEMBER 30, 1996
----------------- ------------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Interest expense on the Existing Credit
Facility repaid........................ $(16.0) $(12.4)
Interest expense on the 12 1/2% Holdings
Notes repaid........................... (6.8) (5.7)
Interest expense on the 12 1/8% Deben-
tures repaid........................... (7.3) (6.1)
Amortization on existing deferred debt
issuance costs......................... (2.9) (2.6)
Interest expense on the Interim Receiv-
ables Facility at 6.25%
(LIBOR plus 0.75%)..................... 9.4 7.0
Interest expense on the New Revolving
Credit Facility at 7.0%
(LIBOR plus 1.50%) on average
borrowings of $43.4 million in
1995 and $60.0 million in 1996......... 3.0 3.2
Amortization of new deferred debt issu- .6 .5
ance costs............................. ------ ------
Net adjustment to interest expense...... (20.0) (16.1)
Historical interest expense ............ 45.1 35.8
------ ------
Pro forma interest expense ............. $ 25.1 $ 19.7
====== ======
</TABLE>

(9) Reflects a $6.8 million loss in 1991 from discontinuance of the operations
of a 94%-owned subsidiary of the Predecessor. Gains from discontinued
operations in 1992 and 1993 of $34.0 million and $1.1 million resulted
from the sale of a wholly-owned subsidiary of the Predecessor net of
applicable tax.
(10) Net income for 1992 reflects the cumulative effect of a change in
accounting principle for the adoption of SFAS No. 109, "Accounting for
Income Taxes" of $0.5 million.

(11) Pro forma net income (loss) per share and pro forma weighted average
number of shares outstanding assume an offering price of $ per share,
which price is used to measure the potentially dilutive effect of equity
securities issued or granted since November 18, 1995. See "Dilution,"
"Management--Compensation of Directors and Executive Officers" and
"Description of Capital Stock."

(12) Adjusted EBITDA represents the sum of income (loss) from continuing
operations before income taxes (benefit), interest expense, depreciation,
amortization and nonrecurring consolidation charges less the gain (in
1994) from the sale of certain manufacturing assets. The Company believes
that adjusted EBITDA, while providing additional information related to
the Company's ability to generate cash to enable it to make capital
expenditures and service debt and other obligations, should not be
considered in isolation or as a substitute for the consolidated statement
of operations data prepared in accordance with generally accepted
accounting principles. For example, adjusted EBITDA should not be
considered as an alternative to net income as an indicator of operating
performance or as an alternative to the use of cash flows as a measure of
liquidity.
(13) This margin is calculated as adjusted EBITDA as a percentage of revenues.

20
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

The Company is the leading national distributor of medical and surgical
supplies that services the full continuum of healthcare providers, from
hospitals to physicians to extended care providers, and the third largest
distributor of such products in the United States. The Company's results in
recent years have been significantly affected by strategies and acquisitions
undertaken by the Company to expand its business in each of these markets and
to address significant changes in the healthcare industry, including ongoing
consolidation of healthcare providers and the emergence of integrated
healthcare networks. In addition, the Company has pursued a number of
significant initiatives in order to increase its profitability, including
eliminating duplicative positions, reorganizing its sales management
structure, realigning its distribution network and developing product mix
management tools, as well as renegotiating a number of contracts to better
reflect the costs associated with the products and services provided.

The Company's revenues have grown at a compound annual growth rate of
approximately 19.6%, from $729.6 million in 1991 to $1,492.1 million in 1995.
This revenue growth is attributable to internal growth as well as to six
acquisitions of medical and surgical supply distributors made by the Company
in 1994 and 1995. The Company's internal growth resulted from the addition of
new customers and increased sales to existing customer accounts, which the
Company attributes in part to its experienced sales force and its focus on
value-added customer services. The acquisitions of Titus and Foster in 1994,
followed by the acquisition of Randolph in early 1995, enhanced the Company's
national presence in the physician care and extended care markets and its
position as a nationwide distributor serving the full continuum of healthcare
providers.

During 1995, adjusted EBITDA margins declined to approximately 3.0% from
approximately 3.9% in 1994. This decline in adjusted EBITDA margins was
primarily due to continued price pressures, especially in the acute care
market, and delays in integrating companies acquired in 1994 and 1995. In
response to this margin decline, the Company renegotiated a number of
contracts to better reflect the costs associated with the products and
services provided, and implemented the following additional initiatives:

Elimination of Duplicative Positions. As part of an integration initiative
launched in late 1995, the Company reduced its workforce by over 200
employees, many of whom were performing duplicative functions. The Company
believes that this personnel reduction will result in substantial annual cost
savings.

Reorganization of Sales Management Structure. The Company also initiated a
reorganization of its management structure to reflect the changing demands of
its business. This restructuring has generated increased focus on targeted
markets by dedicating account managers and sales management to each of the
Company's markets. Management believes this targeted approach will allow the
Company to achieve accelerated market share growth, especially in the
physician care and extended care markets, while servicing customers in the
most cost-effective manner.

Realignment of Distribution Network. In the third quarter of 1995, the
Company began implementation of a strategy to realign its distribution
network. Prior to the implementation of this strategy, the Company had 61
distribution centers, which were limited in their ability to meet customer
needs in the most cost-effective manner. The realignment of the distribution
network will be based upon 18 Area Customer Service Centers, complemented by
Local Customer Service Centers. The Company believes that the realignment of
its distribution network, expected to be substantially completed in 1997, will
improve customer service and efficiency while reducing operating costs.

Development of Product Mix Management Tools. In early 1996, the Company
developed product mix management tools for its account managers to assist
certain customers in reducing total costs. The Company believes that such
tools allow its account managers to identify opportunities to maximize value
for the customer.

21
<PAGE>

The Company believes that the renegotiation of a number of contracts to
better reflect the costs associated with the products and services provided,
combined with the initiatives described above, have contributed to the
improvement in the Company's profitability. For the nine months ended
September 30, 1996, adjusted EBITDA increased to $48.7 million or 3.8% of
revenues from $32.5 million or 3.0% of revenues in the comparable period in
1995. For the three months ended September 30, 1996, adjusted EBITDA increased
to $18.5 million or 4.3% of revenues compared to $8.6 million or 2.3% of
revenues in the comparable period of 1995. See "Quarterly Results." The
Company also believes that these initiatives will position the Company to
further improve its ability to service its customers and pursue additional
growth in sales and profits.

RESULTS OF OPERATIONS

The following table sets forth certain operating data of the Company as a
percentage of revenues for the periods indicated below:

<TABLE>
<CAPTION>
PREDECESSOR COMPANY
----------- ---------------------------------------
EIGHT FOUR
MONTHS MONTHS NINE MONTHS
ENDED ENDED YEAR ENDED ENDED
AUG. 31, DEC. 31, DECEMBER 31, SEPTEMBER 30,
----------- -------- --------------- --------------
1993 1993(1) 1994(2) 1995(2) 1995 1996
----------- -------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Revenues.................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales............. 82.4 82.8 81.9 81.4 81.5 81.5
----- ----- ----- ----- ------ ------
Gross profit.............. 17.6 17.2 18.1 18.6 18.5 18.5
Selling, general, and ad-
ministration expenses.... 14.4 14.6 14.5 15.8 15.9 14.9
Consolidation costs....... 0.0 0.0 0.0 0.7 0.8 0.2
Gain (loss) on sale of
manufacturing assets..... 0.0 0.0 0.2 0.0 0.0 0.0
Amortization of intangi-
bles..................... 0.0 1.3 1.0 0.7 0.7 0.5
----- ----- ----- ----- ------ ------
Operating profit.......... 3.2% 1.3% 2.8% 1.4% 1.1% 2.9%
===== ===== ===== ===== ====== ======
Adjusted EBITDA(3)........ 3.5% 3.0% 3.9% 3.0% 3.0% 3.8%
===== ===== ===== ===== ====== ======
</TABLE>
- --------

(1) Operating results for the four months ended December 31, 1993 reflect the
effects of the August 1993 acquisition of General Medical by Holdings.

(2) Operating results for the year ended December 31, 1994 reflect the full
effects of the August 1993 acquisition of General Medical by Holdings and
the results of the Titus Acquisition and the Foster Acquisition from their
respective dates. The Randolph Acquisition is included in 1995 operating
results for the entire year.

(3) Adjusted EBITDA represents the sum of income (loss) from continuing
operations before income taxes (benefit), interest expense, depreciation,
amortization and nonrecurring consolidation charges less the gain (in
1994) from the sale of certain manufacturing assets. See Notes 12 and 13
to the table in "Selected Consolidated Historical and Pro Forma Financial
Information."

NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1995

Revenues increased $172.0 million, or 15.6%, to $1,271.4 million for the
nine months ended September 30, 1996, as compared to $1,099.4 million for the
nine months ended September 30, 1995. On a per day basis, revenues increased
$0.9 million per day to $6.7 million per day for the nine months ended
September 30, 1996, as compared to $5.8 million per day for the nine months
ended September 30, 1995. Gross profit increased by $31.0 million, or 15.2%,
to $234.7 million for the nine months ended September 30, 1996, as compared to
$203.7 million for the nine months ended September 30, 1995.

The increase in revenues and gross profit was primarily due to internally
generated sales and gross profit increases in all markets as a result of
increased sales to existing accounts, the addition of new customers and the
introduction of products new to the distribution supply chain. During this
period, the Company's acute care sales increased 22.8%; approximately one-
third of this increase was derived from a new customer contract. Sales in the
alternate-site market (which includes physicians and extended care providers)
increased 6.1%. Sales in the alternate-site market were impacted by the
Company's decision to focus on profitability while completing the integration
of its acquisitions.

22
<PAGE>

As a percentage of revenues, gross profit remained unchanged at 18.5% in the
nine months ended September 30, 1996, as compared to the nine months ended
September 30, 1995. During the nine months ended September 30, 1996, the
Company took several steps that improved profitability in each of its
individual markets; however, the resulting improvement was offset by a shift
in the mix of sales attributable to each market. First, the Company
renegotiated a number of contracts to better reflect the costs associated with
the products and services provided. Second, the Company realized the full
effect of the reorganization of its sales management structure which
established dedicated account managers and sales management for each of the
Company's markets. Third, the Company has developed product mix management
tools for its account managers to assist certain customers in reducing total
costs. The Company believes that such tools allow its account managers to
identify opportunities to maximize value for the customer.

Selling, general and administrative expenses increased $15.4 million, or
8.8%, to $189.7 million for the nine months ended September 30, 1996, as
compared to $174.3 million for the nine months ended September 30, 1995.
However, as a percentage of revenues, selling, general and administrative
expenses decreased to 14.9% for the nine months ended September 30, 1996 as
compared to 15.9% for the nine months ended September 30, 1995. This
percentage decrease was attributable to the elimination of duplicative
positions, the reorganization of the Company's sales management structure and
the realignment of the Company's distribution network, as well as sales growth
in the acute care market, where the cost to deliver product is generally lower
as a percentage of sales.

Amortization of intangibles decreased $1.6 million in the nine months ended
September 30, 1996 as compared to the nine months ended September 30, 1995.
There was a $1.9 million decrease due to several short-lived intangibles
reaching full amortization and the write-off of certain trademarks associated
with the manufacturing business that was sold in the nine months ended
September 30, 1995. This decrease was partially offset by a $0.3 million
increase due to the amortization of additional intangibles associated with the
acquisitions completed in the nine months ended September 30, 1995.

Interest expense increased $2.6 million in the nine months ended September
30, 1996 as compared to the nine months ended September 30, 1995. This
increase was the result of an increase in average borrowings during the nine
months ended September 30, 1996 to support the Company's sales growth.

In the third quarter of 1995, the Company began implementation of a strategy
to realign its distribution network. This consolidation plan, which should be
substantially complete by the end of 1997 at a total estimated cost of $15.0
million, will include charges for employee termination and relocation,
facility shutdown costs and losses from the sale and abandonment of property.
In the nine month period ended September 30, 1996, total charges resulting
from such plan amounted to $2.0 million, as compared to $9.6 million in the
nine month period ended September 30, 1995.

YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994

Revenues increased $378.0 million, or 34.0%, to $1,492.1 million for 1995 as
compared to $1,113.8 million for 1994. On a per day basis, revenues increased
$1.5 million per day to $5.9 million per day for 1995 as compared to $4.4
million per day for 1994. Gross profit increased by $75.7 million, or 37.5%,
to $277.4 million for 1995 as compared to $201.7 million for 1994.

The increase in sales and gross profit was primarily due to the Titus
Acquisition, completed on July 28, 1994, the Foster Acquisition, completed on
August 31, 1994, and the Randolph Acquisition, completed on January 5, 1995.
These acquisitions accounted for $265.8 million and $64.7 million of
additional sales and gross profit, respectively, for 1995. In addition,
internally generated sales and gross profit increased in all markets as a
result of increased sales to existing accounts, the addition of new customers
and the introduction of products new to the distribution supply chain. During
this period, acute care sales increased 21.3% while alternate-site sales
increased 56.3%.

As a percentage of revenues, gross profit increased to 18.6% in 1995 as
compared to 18.1% in 1994. This was a result of an increase in physician care
and extended care business attributable to the acquisitions of Titus, Foster
and Randolph.

23
<PAGE>

Selling, general and administrative expenses increased $74.7 million, or
46.3%, to $236.4 million for 1995 as compared to $161.7 million for 1994. The
inclusion of the results of Titus, Foster and Randolph in 1995 represented
$62.4 million of the increase in 1995. As a percentage of revenues, selling,
general and administrative expenses increased to 15.8% for 1995 as compared to
14.5% for 1994. This percentage increase related to the increase in sales to
the physician care and extended care markets and to the Company's just-in-time
OPTIMA accounts, which are more labor intensive to service due to smaller
selling units and multiple delivery points. See "Business--Services."

Amortization of intangibles decreased $2.1 million in 1995 as compared to
1994. A $4.7 million decrease was due to several short-lived intangibles
reaching full amortization. This was partially offset by a $2.6 million
increase due to the full-year effect of the amortization of goodwill related
to the Titus Acquisition and Foster Acquisition and additional goodwill
associated with the Randolph Acquisition.

Interest expense increased $13.2 million in 1995 as compared to 1994. This
can be attributed to two factors: (i) an increase in average debt outstanding
due to additional borrowings to fund acquisitions and sales growth that
resulted in incremental interest expense of $9.4 million and $2.1 million
respectively, and (ii) an increase of 1.5% in the average interest rate on
borrowings that contributed $1.7 million of additional interest expense.

In connection with the realignment of the Company's distribution network,
the Company recorded a one-time charge of $8.6 million in September 1995
consisting of severance ($3.7 million), net facility lease cancellation costs
($4.5 million) and a loss from a plan to dispose of long-lived assets ($0.4
million) related to facility shutdowns reasonably expected to occur within one
year. In 1995, total charges resulting from such plan amounted to $10.2
million.

YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993

The following table reflects adjustments to depreciation and amortization on
property, plant and equipment and other relevant adjustments related to the
August 1993 acquisition of General Medical by Holdings. Interest expense
resulting from additional borrowings related to such acquisition has also been
included.

<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------ ---------------------------------------------
EIGHT MONTHS FOUR MONTHS PRO FORMA HISTORICAL
ENDED ENDED YEAR ENDED YEAR ENDED
AUG. 31, DEC. 31, DEC. 31, DEC.31,
------------ ----------- ---------- ----------
1993 1993 ADJUSTMENTS 1993 1994
------------ ----------- ----------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues........................................................ $611,641 $300,921 $ -- $912,562 $1,113,840
Cost of sales................................................... 503,744 249,219 -- 752,963 912,182
-------- -------- -------- -------- ----------
Gross profit.................................................... 107,897 51,702 -- 159,599 201,658
Selling, general, and administrative expenses................... 88,210 43,969 60 132,239 161,662
Consolidation costs............................................. -- -- -- -- --
Gain on sale of assets.......................................... -- -- -- -- (2,788)
Amortization of intangibles..................................... -- 3,833 7,226 11,059 11,524
Interest expense................................................ 3,828 8,534 13,799 26,161 32,006
-------- -------- -------- -------- ----------
Income(loss) from continuing operations before taxes on income
(benefit)...................................................... 15,859 (4,634) (21,085) (9,860) (746)
Taxes on income (benefit)....................................... 6,565 (727) (5,838) -- 2,719
-------- -------- -------- -------- ----------
Income (loss) from continuing operations........................ $ 9,294 $ (3,907) $(15,247) $ (9,860) $ (3,465)
======== ======== ======== ======== ==========
</TABLE>

Revenues increased $201.4 million, or 22.1%, to $1,113.8 million for 1994 as
compared to $912.6 million for 1993. On a per day basis, revenues increased
$0.8 million per day to $4.4 million per day for 1994 as compared to $3.6
million per day for 1993. Gross profit increased by $42.1 million, or 26.3%,
to $201.7 million for 1994 as compared to $159.6 million for 1993.

24
<PAGE>

One factor contributing to the gains in sales and gross profit was the Titus
Acquisition, completed on July 28, 1994, and the Foster Acquisition, completed
on August 31, 1994. These acquisitions accounted for $113.7 million and $29.8
million of additional sales and gross profit, respectively, for 1994. In
addition, internally generated sales and gross profit increased in all markets
as a result of increased sales to existing accounts, the addition of new
customers and the introduction of products new to the distribution supply
chain. During this period, acute care sales increased 2.7% while alternate-
site sales increased 82.2%.

As a percentage of revenues, gross profit increased to 18.1% in 1994 as
compared to 17.5% in 1993. This was a result of an increase in physician care
and extended care business attributable to the Titus Acquisition and Foster
Acquisition, and internally generated sales growth in these markets.

Selling, general and administrative expenses increased $29.5 million, or
22.2%, to $161.7 million for 1994 as compared to $132.2 million for 1993. This
dollar increase related to the inclusion of the results of Titus and Foster in
1994. However, as a percentage of revenues, selling, general and
administrative expenses remained constant at 14.5% over the two periods.

The Company earned $2.8 million in income during 1994 related to the sale of
certain assets of General Medical. The assets sold did not represent a
significant line of business for General Medical.

Amortization of intangibles increased $0.5 million in 1994 due to the
amortization of additional goodwill resulting from the acquisitions of Titus
and Foster.

Interest expense for 1994 increased $5.9 million as a result of additional
debt utilized to fund the acquisitions of Titus and Foster and an increase of
approximately 1.34% in the average borrowing rate over the prior year.

QUARTERLY RESULTS

The following table sets forth certain unaudited quarterly operating results
for each quarter in 1995 and the first, second and third quarters of 1996.
This information is unaudited but, in the opinion of the Company's management,
includes all adjustments necessary for a fair presentation of the results of
operations for such periods. The operating results in any quarter are not
necessarily indicative of the results which may be expected for any other
interim period or for the year ended December 31, 1996.

<TABLE>
<CAPTION>
1995 QUARTER ENDING 1996 QUARTER ENDING
------------------------------------ --------------------------
MAR 31 JUN 30 SEP 30 DEC 31 MAR 31 JUN 30 SEP 30
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $357,071 $364,421 $377,950 $392,701 $418,902 $424,076 $428,450
Gross profit............ 68,739 66,970 67,961 73,759 76,485 76,992 81,250
Operating profit
(loss)(1).............. 8,986 6,884 (3,289) 8,102 10,686 12,235 14,398
Adjusted EBITDA(2)...... 13,762 10,144 8,635 12,095 14,186 16,005 18,495
Gross margin............ 19.2% 18.4% 18.0% 18.8% 18.3% 18.2% 19.0%
Operating margin........ 2.5% 1.9% (0.9)% 2.1% 2.6% 2.9% 3.4%
Adjusted EBITDA mar-
gin(2)................. 3.9% 2.8% 2.3% 3.1% 3.4% 3.8% 4.3%
</TABLE>
- --------
(1) Operating profit represents income (loss) before income tax and interest
expense.

(2) Adjusted EBITDA represents the sum of income (loss) from continuing
operations before income taxes (benefit), interest expense, depreciation,
amortization and nonrecurring consolidation charges. The adjusted EBITDA
margin is calculated as adjusted EBITDA as a percentage of revenues. See
Notes 12 and 13 to the table in "Selected Consolidated Historical and Pro
Forma Financial Information."

LIQUIDITY AND CAPITAL RESOURCES

The Company's primary source of liquidity is cash flow generated from
operations and funds available to it under its Existing Credit Facility. For
the nine months ended September 30, 1996, continuing operating activities
provided net cash of $28.2 million, as compared to using net cash of $24.6
million for the nine months ended

25
<PAGE>

September 30, 1995. This increase is mainly the result of (i) improved
profitability, (ii) improved working capital management and (iii) a reduction
in inventory levels as a result of the Company's realignment of its
distribution network. In addition, the Company received $2.1 million from the
purchase price accounting adjustments related to the Foster Acquisition and
generated $1.1 million from the sale of fixed assets. The increase in cash
provided by operations reduced debt outstanding under its Existing Credit
Facility and also funded capital expenditures made during 1996 related to the
realignment of the Company's distribution network.

The Company's primary cash needs are working capital, interest expense,
capital expenditures and funding for acquisitions. As of September 30, 1996,
on a pro forma basis after giving effect to the consummation of the Offerings
and the transactions described in "Use of Proceeds," the Company would have
had available approximately $42.7 million under the New Revolving Credit
Facility (of a maximum availability of $150 million, depending on the
borrowing base) and up to $50 million remaining availability under the Interim
Receivables Facility. As of September 30, 1996, on a pro forma basis after
giving effect to the consummation of the Offerings and the transactions
described in "Use of Proceeds," the Company would have had $51.7 million
outstanding under the New Revolving Credit Facility and $150 million
outstanding under the Interim Receivables Facility, as well as $106.2 million
of additional consolidated indebtedness outstanding. On such pro forma basis
as of September 30, 1996, the outstanding amount of the Company's consolidated
indebtedness (other than trade payables and accrued expenses) would have been
$307.9 million, and for the nine month period ended September 30, 1996,
interest expense would have been $19.7 million. At September 30, 1996, the
outstanding amount of the Company's consolidated indebtedness (other than
trade payables and accrued expenses) was $420.6 million, including
approximately $187.7 million of secured debt. For the nine month period ended
September 30, 1996, interest expense was $35.8 million.

During the nine month period ended September 30, 1996, the Company expended
$8.3 million on capital items. The majority of these expenditures ($7.6
million) was used to purchase warehouse equipment and racking attributed to
the modernization of the Company's warehouse operations in connection with the
realignment of its distribution network. It is anticipated that an additional
$6.0 million will be spent during the remainder of 1996 and 1997 related to
this plan. The remaining capital expenditures of $0.7 million related to small
office equipment, replacement warehouse equipment and, to a smaller extent,
computer hardware and software upgrades. The Company has embarked on an
initiative to upgrade its distribution system computer hardware and software.
The Company anticipates spending approximately $7 to $10 million on this
initiative over the next 15 months and an additional $3 to $5 million in 1998
and 1999.

The Company's most significant use of working capital is for accounts
receivable and inventories, which represented 50% and 37% of total tangible
assets at September 30, 1996, respectively. Due to the magnitude of the
Company's accounts receivable and inventories, the Company's management places
significant emphasis on managing trade receivables including the related
credit and collection processes and inventory levels and turnover.

Days sales of accounts receivable outstanding and days sales of inventory,
for continuing operations only, were as follows:

<TABLE>
<CAPTION>
SEPTEMBER 30, RECEIVABLE DAYS INVENTORY DAYS
------------- --------------- --------------
<S> <C> <C>
1995................................. 43.7 44.5
1996................................. 43.8 42.4
</TABLE>

The decrease in inventory days for the nine month period ended September 30,
1996 is due to improved inventory management related to the consolidation of
the distribution network. The foregoing table does not reflect inventory
purchases by the Company in contemplation of price increases or otherwise to
take advantage of available price discounts. Typically, these purchases
involve comparable increases in accounts payable.

The Company did not make any significant acquisitions during the nine month
period ended September 30, 1996. The Company intends, however, to make
acquisitions in the future if suitable candidates become available. See
"Business--Strategy."

The Company expects that funds generated from operations and borrowings
under the New Credit Agreement will be sufficient to meet its cash needs for
the foreseeable future.

26
<PAGE>

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" ("Statement 121"), which requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying value.
Statement 121 also addresses the accounting for long-lived assets that are
expected to be disposed of. The Company adopted Statement 121 in 1995. Based
on current circumstances, such adoption did not materially impact the
Company's annual financial results.

In October 1995, the FASB issued Statement No. 123, "Accounting for Stock-
Based Compensation" ("Statement 123"), which provides an alternative to APB
Opinion No. 25, "Accounting for Stock Issued to Employees," in accounting for
stock-based compensation issued to employees. Statement 123 allows for a fair
value based method of accounting for employee stock options and similar equity
instruments. However, for companies that continue to account for stock-based
compensation arrangements under APB Opinion No. 25, Statement 123 requires
disclosure of the pro forma effect on net income and net income per share of
its fair value based accounting for those arrangements. These disclosure
requirements are effective for fiscal years beginning after December 15, 1995,
or upon initial adoption of Statement 123, if earlier. The Company adopted
Statement 123 in 1996, by disclosing pro forma net income and earnings per
share amounts assuming the fair value method was adopted on January 1, 1995.
The adoption of this standard did not impact the Company's results of
operations, financial position or liquidity.

EFFECTS OF INFLATION

The Company has generally been able to pass along inflationary increases in
the cost of products purchased by the Company through increased prices to
customers. During the last three years, the cost of products purchased
increased at an average annual rate of less than 1%.

27
<PAGE>

BUSINESS

GENERAL

The Company is the leading national distributor of medical and surgical
supplies that services the full continuum of healthcare providers, from
hospitals to physicians to extended care providers, and is the third largest
distributor of such products in the United States. The Company had 1995
revenues of approximately $1.5 billion, of which 58% were derived from the
acute care market (hospitals and ambulatory surgical centers), 31% from the
physician care market (physicians and clinics) and 11% from the extended care
market (nursing homes, home healthcare organizations and rehabilitation
facilities). The Company is placing an increasing emphasis on sales to these
markets through IHNs which operate healthcare facilities across the market
continuum. The Company distributes a broad array of products, comprising more
than 130,000 SKUs supplied by over 4,000 medical and surgical product
manufacturers. Additionally, the Company offers a variety of value-added
services to its customers, particularly in the area of cost containment and
inventory management. The Company's more than 700 person sales force is
divided into four groups, targeting acute care providers, physician care
providers, extended care providers and IHNs.

INDUSTRY

According to an industry source, sales of medical/surgical supplies in the
United States exceeded $28 billion in 1995 and are estimated to be growing at
an annual rate of seven to eight percent. The industry is comprised of three
primary markets: (i) acute care, a market that includes hospitals and
ambulatory surgical centers, (ii) physician care, a market that includes sole
practitioners, group practices and clinics, and (iii) extended care, a market
that includes nursing homes, home healthcare organizations and rehabilitation
facilities. The Company believes growth in the medical/surgical supply
distribution industry has resulted primarily from medical/surgical supply and
equipment manufacturers increasing the number and volume of products sold
through distributors and an overall increase in the volume of medical/surgical
supplies being consumed. This overall increase in consumption is due primarily
to the aging of the U.S. population and the development of new medical
procedures which have necessitated an increase in the number and volume of
medical supplies consumed each year. The Company believes that the physician
care and extended care markets of the medical/surgical supply distribution
industry are growing more rapidly than the acute care market due in large part
to the shift in the provision of healthcare away from more expensive acute
care settings into lower cost physician office and extended care settings.

Historically, the medical/surgical supply distribution industry has been
highly fragmented. During the past ten years, the overall healthcare market
has been characterized by the consolidation of healthcare providers into
larger and more sophisticated entities which are seeking to lower their total
costs. These providers have been increasingly seeking lower total product
costs and incremental services from their medical/surgical supply
distributors. These trends have driven a significant and ongoing consolidation
of the distribution industry and the formation of a small number of industry
participants with national capabilities. Despite this consolidation activity,
the Company believes that there are approximately 800 distribution companies
in the United States today.

The Company believes that the healthcare industry is currently characterized
by the following major trends:

Consolidation of Healthcare Providers Within and Across Industry Markets.

The Company believes that market forces are encouraging healthcare providers
to consolidate, both within and across the three industry markets, to maintain
their competitive position. Single market customers continue to consolidate
within their individual markets. Additionally, consolidation by healthcare
providers across markets has given rise to IHNs operating healthcare
facilities across two or more of the acute care, physician care and extended
care markets.

28
<PAGE>

Rising Importance of Multi-Market and National Distribution Capabilities.

The Company believes that healthcare providers are increasingly looking for
a single distributor to meet all of their distribution needs in order to
aggregate purchasing power and take full advantage of value-added cost
reduction programs. Thus, as providers consolidate within and across the three
industry markets, the Company believes that it is increasingly important for
distributors to be able to provide service not only on a national basis to any
given market, but also within each of the industry's three markets. Another
trend the Company believes is affecting medical and surgical supply
distributors is that manufacturers increasingly must rely on distributors for
efficient access to the physician care and extended care markets which
manufacturers can not access directly on an economical basis due to the small
order quantities and large number of providers.

Increasing Emphasis on Value-Added Services Oriented Towards Total Cost
Reduction.

The Company believes that the administrative costs associated with
purchasing, tracking and carrying inventory and distributing supplies within
an acute care facility are often greater than the cost of the supplies. As a
result, customers are increasingly evaluating distributors not only on product
cost and timely and accurate delivery, but also on their ability to provide
value-added services that lower the administrative and other overhead costs
associated with medical and surgical supplies. Customers increasingly want
distributors to deliver unit of measurement purchases "just-in-time" to
numerous sites within a healthcare facility, instead of making bulk
deliveries. In addition, certain customers are seeking distributors that can
provide programs to assist in inventory management, capitation and physician
linking.

Shift of Healthcare Delivery to Alternate-Site Markets

The Company believes that the delivery of healthcare is shifting from acute
care settings to alternate sites, such as physician offices and extended care
facilities, due to cost containment pressures from government and private
reimbursement sources. The growth of managed care has resulted in (i) more
procedures being performed in outpatient settings, (ii) the length of stay for
inpatient procedures continuing to fall and (iii) hospitals sharing insurance
risk as they take on capitated contracts from managed care entities. This
trend has led to a general increase in the level of care required by
alternate-site patients as well as the emergence of specialized long-term
facilities. As a result of the foregoing, industry sources believe that demand
for medical and surgical supplies in the alternate-site markets will increase
at a faster rate than the overall industry.

Growing Importance of Efficient Distribution Model.

The Company believes that as customers become more cost-conscious and
sophisticated in their purchasing, it is essential that distributors maximize
operating efficiencies and minimize the cost of their distribution model.
Under such constraints, smaller distributors that lack purchasing power and
companies with high cost distribution models are increasingly disadvantaged.

STRATEGY

Drive Sales Growth in Each of the Company's Markets.

The Company intends to drive sales growth in each of its markets by
increasing sales to existing accounts, by pursuing new accounts, by targeting
large consolidating participants within particular industry markets and by
focusing on IHNs. During 1996, the Company directed its efforts to improving
profitability while completing the integration of acquisitions made by the
Company of distributors to the physician care and extended care markets. The
Company expects to increase its sales in the physician care and extended care
markets through the

29
<PAGE>

hiring of additional account managers, emphasizing sales of certain product
lines, including injectable pharmaceuticals, and pursuing selected local and
regional acquisitions.

Reduce Customers' Total Medical/Surgical Supply Costs through Value-Added
Services.

The Company has developed, and is continuing to develop, a range of value-
added services designed to lower its customers' total supply costs. For
instance, the Company believes that many large acute care providers are
increasingly seeking to lessen their administrative burdens by having
distributors deliver products in small units of measure and just-in-time to
multiple sites within the healthcare facility. The Company believes it is
well-positioned to provide such specialized services by capitalizing on the
expertise it has developed from serving physician care and extended care
customers. The Company also offers fee-based, logistics management programs,
such as its OPTIMA program for acute care providers. Under the OPTIMA program,
the Company exclusively manages the majority of the customer's
medical/surgical supply needs. The benefits of the OPTIMA program to the
Company's customers include reductions in the following areas: inventory
carrying costs, incoming freight expense, stock obsolescence and handling and
administrative costs. In addition, OPTIMA eliminates the need for the customer
to operate a warehousing facility. The Company believes that it offers one of
the most comprehensive portfolios of services in each of the markets it
serves.

Provide Access to Multiple Markets.

The Company believes that its ability to provide access to multiple markets
on a national basis is attractive to both healthcare providers and
manufacturers. In particular, the Company believes manufacturers increasingly
must rely on distributors such as the Company in order to gain access to the
physician care and extended care markets, which manufacturers may not be able
to access directly on an economical basis due to small order quantities and
the large number of healthcare providers in such markets. Allegiance, a
manufacturer and distributor which competes with the Company in distribution
in the acute care market, recently signed a contract with the Company whereby
the Company has become a preferred distributor of Allegiance products to the
physician care and extended care markets.

Realign Distribution Network to Provide High Quality Customer Service and
Reduce Costs.

The Company has begun a reorganization of its distribution network. At the
inception of this program in 1995, the Company had 61 distribution centers.
The new strategy reflects a consolidation of all of the physician care and
extended care business and a majority of the acute care business into 18 Area
Customer Service Centers ("ACSCs"). By servicing a larger geographic area and
a larger customer base with such ACSCs, the Company's overall inventory can be
reduced while at the same time, each distribution center can more economically
maintain a broader line of inventory. Additionally, to support the
requirements of certain customers, 17 Local Customer Service Centers ("LCSCs")
will provide service on a local basis. In addition to providing high quality
service, the Company believes this program will reduce distribution costs and
improve profitability.

Acquire Local and Regional Distributors.

The Company believes that there are opportunities for the Company to acquire
businesses that could potentially leverage the Company's distribution network
and broaden the Company's market presence, particularly in the physician care
and extended care markets. The Company has completed six acquisitions since
1994, substantially enhancing the Company's national scope and presence in the
physician care and extended care markets. The Company intends to pursue the
acquisition of local and regional medical supply companies serving the
physician care and extended care markets. The Company believes that there are
approximately 800 such companies in the United States, which typically have
annual sales of less than $25 million.

CUSTOMERS

Most of the Company's customers provide healthcare services in one of the
three markets of the healthcare industry: acute care, physician care and
extended care. The Company believes, however, that many of its customers are
evolving from single market providers to multi-market IHNs.

30
<PAGE>

Acute Care Customers. Acute care, comprised of hospitals and ambulatory
surgical centers, represents the Company's largest market, representing 58% of
1995 sales. The Company has approximately 4,300 individual hospital customers,
the largest of which accounted for less than 1% of the Company's sales in each
of the last three years.

The acute care market is the most mature and highly consolidated market in
which the Company operates, as sales by the three largest distributors,
including the Company, represent a significant portion of the sales in the
market. Product price levels and distributor gross margins have generally
declined in the past few years, although pricing and margin pressures have
eased recently.

The Company services both independent hospitals and hospitals affiliated
with group purchasing organizations ("GPOs"), which in 1995 represented
approximately 25% and 75%, respectively, of the revenues generated by the
Company in the acute care market. The Company services a significant number of
hospitals affiliated with major GPOs. Hospitals that are affiliated with GPOs
typically are members of several GPOs. A GPO negotiates pricing arrangements
with manufacturers and members of the GPO, generally with respect to staple
products only. GPOs also negotiate pricing arrangements with distributors that
provide the distributors with access, on both an exclusive and a non-exclusive
basis, to special manufacturers' pricing; such pricing arrangements typically
set a purchase price for products sold by the distributor to the members equal
to the cost negotiated with the manufacturer plus a percentage. Where there is
an exclusive relationship between a manufacturer or distributor and a
particular GPO, hospitals generally utilize such manufacturer or distributor
in order to realize the benefits of that exclusive relationship, although they
are not required to do so. In the nine month period ended September 30, 1996,
sales to hospitals and other organizations affiliated with five GPOs--Premier
(comprised primarily of sales to Sun Health Alliance, which has since been
acquired by Premier), Tenet, Mercy, HSCA and AmeriNet--represented, in the
aggregate, approximately 44% of the Company's total revenues; 23% of total
revenues in such period were attributable to Premier affiliated hospitals and
other organizations alone. See "Risk Factors--Premier and Certain Other GPOs
Represent a Significant Percentage of Revenues; Certain Contract Risks." The
Company typically pays an administrative fee to the GPO which is reflected in
the Company's cost of goods sold. The Company believes that its fee
arrangements with GPOs are within the customary standards of the industry.

Ambulatory surgical centers are expanding rapidly both in number and
utilization because of their relative low cost of operations and the
development of new technologies, such as endoscopic surgery. The Company
believes it is well positioned to serve ambulatory surgical centers because of
these centers' demands for a broad array of products, frequent deliveries and
small unit of measurement purchases.

Physician Care Customers. Physicians and clinics constitute the Company's
second largest customer group, representing 31% of 1995 sales. The Company
services over 58,000 customers in this market, including 55,000 physician
offices and clinics and over 3,000 laboratory, industrial and other sites. The
Company believes that physician care customers are consolidating. The
Company's customers range from sole practitioners to physician practice
management companies such as MedPartners, which develops, consolidates and
manages integrated healthcare delivery systems, and Phycor Inc., which
operates multi-specialty clinics with approximately 3,060 physicians in 25
states and manages independent practice associations with over 8,700
physicians. The Company believes that the shift from care delivered in acute
settings to alternate sites such as physicians' offices has accelerated the
growth of the physician care market in recent years.

Extended Care Customers. Extended care customers, comprised of nursing
homes, home healthcare organizations and rehabilitation facilities, constitute
the Company's smallest customer group, representing 11% of 1995 sales. The
Company services over 8,000 nursing homes, consisting of chains and
independents, and other extended care customers. The Company's current
extended care customers include Hillhaven Corporation, which operates a large
number of nursing centers, pharmacies and retirement housing communities,
Healthsouth Corporation, which operates centers for rehabilitation services
for disabled patients in 33 states, and Apria HealthCare Group, Inc., which
provides and/or manages comprehensive integrated homecare services in 49
states. The Company believes that healthcare providers are increasingly
shifting care from acute care facilities to long-term and sub-acute care
facilities which have lower capital and operating costs.

31
<PAGE>

Integrated Healthcare Networks. The Company believes IHNs will become
increasingly important because of the expanding role of IHNs in healthcare
delivery and cost containment. An IHN is an organization which is comprised of
several healthcare providers operating healthcare facilities across the market
continuum. The Company's current IHN customers include Cigna, Geisinger and
Maricopa.

SALES AND MARKETING

In February 1995, the Company began a reorganization of its account managers
into three sales forces, each focused on one of the Company's three principal
markets. This reorganization has been substantially completed. IHNs are
targeted by a group of seven Company executives, which access the Company's
three sales forces to service the day-to-day needs of those customers in the
markets in which they operate. The Company believes that its distribution
sales force of more than 700 sales professionals is the largest in the
medical/surgical supply distribution business.

The Company's training facility, General Medical University, trains the
Company's account managers through an intensive program designed to teach
account managers to identify and solve customer needs, augment selling skills
and provide detailed product knowledge. In addition, General Medical
University also offers management development training to the Company's sales
and operations managers.

The field sales organization is supported by a corporate staff dedicated to
marketing, vendor relations and product management. The marketing personnel
design and implement specific programs for each of the markets, and also
produce sales tools and literature. The vendor relations and product
management personnel meet regularly with manufacturers.

SERVICES

The Company offers numerous services designed to reduce the Company's
customers' total medical/surgical supply costs. The Company believes that it
offers one of the most comprehensive portfolios of services in each of the
markets it serves.

ACUTE CARE MARKET

The Company has designed several enhanced inventory management programs to
meet acute care customers' needs for continued cost containment.

OPTIMA. The Company offers a fee-based materials management program to
service customers' supply needs, including obtaining products from
manufacturers who may have previously sold directly to the hospital and making
certain products available that are not generally carried by medical supply
distributors. When an OPTIMA program is fully implemented for a customer, the
Company's personnel deliver directly to end-user departments, often several
times per day. The customer is thus able to reduce or eliminate its inventory
storage facilities and reallocate the space and human resources required to
other uses. More recently, the Company has expanded its OPTIMA services to
meet the needs of all care delivery locations within integrated healthcare
networks developed by hospitals. The benefits of the OPTIMA program to the
Company's customers include reductions in the following areas: inventory
carrying costs, incoming freight expense, stock obsolescence and handling and
administrative costs. The Company believes that it is a leading provider of
materials management programs to acute care customers, with over sixty OPTIMA
programs in place as of October 31, 1996.

SURPASS. The Company offers a cost management program for ambulatory surgery
centers, with an array of customized services to assist these customers in
reducing product and logistics costs by decreasing inventory and improving
space utilization.

Assembled Products. The Company also operates assembled products centers
that assemble non-sterile medical procedure kits. This service allows
institutions to reduce costs associated with preparation of these necessary
supplies on site.

32
<PAGE>

Managed Services/Outsourcing. The Company has entered into a pilot
comprehensive cost management alliance with a key customer. The primary
objective of this alliance is to collaboratively develop and implement total
cost reduction programs which eliminate unnecessary inventory and operational
redundancy that exists in the current supply chain. The benefits of managed
services/outsourcing alliances include the ability to impact the customer's
total logistics costs across all product categories and care delivery
locations while expanding opportunities for increased profitability through
shared savings programs.

PHYSICIAN CARE MARKET

The specialized needs of the physician care customer include availability of
a broad product selection, assistance in making product selection decisions,
ease of ordering, education on industry issues and access to a single source
for supplies and service. The Company addresses these needs with the following
programs and services.

VIP Program (Value in Purchasing) acts in effect as a buying group for
primary care customers, enabling them to benefit from preferential pricing. It
also provides materials management assistance, inventory reports and ease of
ordering, as well as a regular publication on new legislation which may affect
their practice. With the advent of new federal regulations concerning the
monitoring and periodic testing of certain office-based diagnostic equipment,
the Company has recently prepared a quality assurance control program designed
to assist physicians and clinics in meeting those requirements.

The Physician Reference Catalog contains a broad array of products
distributed by the Company designed for use in clinics and physician offices.

Injectables Program is a source of pharmaceuticals used by physicians in
their offices, including anesthetics, antibiotics and vaccines. The Company
believes injectable pharmaceuticals represent a potential source of growth in
its physician supply business.

EXTENDED CARE MARKET

The Company has developed a specialized approach to meet the needs of the
extended care marketplace. The Spectra program provides services for asset
control and cash flow management, information and education, cost containment
and revenue enhancement. The specific components of the Spectra program
include: (i) discounted pricing on specific healthcare products; (ii) material
usage reports, inventory reports and fax order guides; (iii) a private labeled
computerized inventory tracking and bill processing system incorporating
electronic ordering and bar code technology; (iv) a third party billing
program that enables customers to have products billed directly to third party
insurance carriers, or that function as a third party administrator for those
wishing to be their own product provider; (v) preferred leasing and purchase
planning programs; (vi) customized seminars addressing pertinent issues
affecting extended care providers; and (vii) a quarterly newsletter with
reimbursement and regulatory updates as well as specific product promotions.

PRODUCTS

The Company believes that the breadth of its product offering enables it to
offer its customers one-stop shopping. The Company distributes a broad array
of products supplied by over 4,000 medical product manufacturers and
suppliers. These products, comprising over 130,000 SKUs, include disposable
products, such as dressings, needles, syringes, skin care preparations,
sterile procedure trays, gloves, sutures, and urological and incontinence
products. In addition, the Company distributes medical equipment, such as
wheelchairs, power tables, patient beds, laboratory testing equipment and
diagnostic testing instruments for physicians' offices. Furthermore, the
Company assembles non-sterile medical procedure kits and also distributes a
number of pharmaceutical products to the physician care market. As a result of
the changing dynamics in the pharmaceutical industry, particularly the
reduction in account managers for physicians' offices, pharmaceutical
manufacturers

33
<PAGE>

are increasingly seeking alternative means of distribution. The Company
believes that this trend represents an opportunity for the Company to increase
sales to the physician care market.

Approximately 3.7% of the Company's net sales in 1995 were from sales of
products offered under the General Medical private brand (i.e., products
manufactured by various third parties for distribution by the Company under
its own label).

DISTRIBUTION

In the third quarter of 1995, the Company began implementation of a strategy
to realign its distribution network with the goal of providing superior
service while minimizing operating costs. Prior to implementation of this
strategy, the Company had 61 distribution centers, which averaged
approximately 40,000 square feet, and were limited in their ability to meet
customer needs in a cost effective manner. The realignment of the distribution
network will be based upon 18 new Area Customer Service Centers ("ACSCs")
serving customers in all three industry markets.

The new strategy reflects a consolidation of all of the physician care and
extended care business and a majority of the acute care business into 18
ACSCs. These centers, which will average over 110,000 square feet, will have a
service area with a radius of 250 to 300 miles. By servicing a larger
geographic area and a larger customer base, the Company's overall inventory
can be reduced while at the same time, each distribution center can more
economically maintain a broader line of inventory. Additionally, these new
ACSCs will incorporate an increased amount of automation to augment operating
efficiencies and reduce costs. To complement the ACSCs, the Company intends to
operate 17 smaller Local Customer Service Centers ("LCSCs") to provide service
on a local basis. These centers will have limited staff and will be supported
by ACSCs. LCSCs are designed to be opened and closed as quickly as necessary
in response to changing customer needs. The foregoing strategy was initiated
in the third quarter of 1995; currently, the Company operates 49 distribution
centers, of which eight are ACSCs. The implementation of the strategy is
expected to be substantially completed by the end of 1997.

Upon receipt of a customer order at one of the Company's distribution
centers, the center's computer processes the order and pricing information to
facilitate accurate customer billing. Customer orders are routinely processed
for next day delivery by the Company's fleet of vehicles or by common carrier.
Hospital customers that are on a just-in-time/stockless inventory management
program frequently receive deliveries up to seven days a week and sometimes
several times per day.

MANAGEMENT INFORMATION SYSTEMS

To support its strategic efforts, the Company has developed information
systems to manage all aspects of its operations. These systems include an
inventory management system that enables the Company to access the cumulative
inventory of its service centers, to fill individual customer back orders and
to identify and relocate slow-moving products.

The Company maintains a decentralized information system with data
acquisition at the distribution centers and at regional data centers. These
local computers are linked to the central corporate mainframe. The
distribution center computers perform the Company's inventory and warehouse
management functions including but not limited to receiving orders, generating
pricing and shipping documents for the distribution center warehouses,
tracking inventory and recommending inventory purchases. The regional data
centers perform these same functions with respect to the operation of
distribution centers acquired pursuant to the Titus Acquisition and the
Randolph Acquisition. The central corporate mainframe performs all
administrative and financial functions for the Company.

The Company's inventory and warehouse management information systems are
currently not fully integrated. The Company has begun to integrate its
information systems through a $10-15 million system upgrade and expects to
achieve full integration by 1999. However, there can be no assurance that such
integration

34
<PAGE>

will be successfully implemented by then, or at all. The Company believes that
the completion of this integration will enhance its customer service
capabilities. See "Risk Factors--Information Systems."

The Company has a sales automation system that is used by many of its sales
representatives. This internally developed system allows sales representatives
to check pricing, order status and product availability, prepare customer
price quotations and help manage a customer's product mix. Additionally, the
Company is currently testing a pen-based sales representative computer system
that it believes will assist its sales representatives in more efficiently and
accurately taking orders.

The Company has an electronic order entry program which enables customers to
transmit orders electronically to the Company's computer systems.
Approximately 71% of acute care customer orders and 39% of alternate-site care
customer orders are currently placed with the Company in this manner. The
Company's computer systems confirm the orders to the customer and verify item,
price and quantity that will be shipped on a particular delivery date. The
Company's computer equipment interfaces with all major hardware and software
capable of electronic ordering. Electronic data interfacing is also used
extensively with manufacturers for purchase orders, contract prices and
accounts payable.

MANUFACTURERS

The Company believes that its volume of purchases, national presence and
ability to provide manufacturers with access to multiple healthcare markets
enable it to obtain attractive terms from manufacturers, including volume
discounts. The Company's vendor relations department negotiates all of its
contract terms with manufacturers. Individual orders are placed by the
Company's purchasing agents, located at the Company's service centers and
headquarters, who are responsible for purchasing and maintaining inventory.
Supplies and equipment are delivered directly from manufacturers to the
Company's distribution centers.

The Company, as a full line distributor, stocks and distributes products
from a broad range of approximately 4,000 manufacturers. This group includes
major manufacturers which supply national brand products and hundreds of
smaller manufacturers which supply niche products or more limited product
lines. In 1995, the ten largest suppliers to the Company (from largest to
smallest by purchases) were Johnson & Johnson; Becton, Dickinson & Company;
Kendall Company; Minnesota Mining & Mfg. Co.; Sherwood Medical Company (a
subsidiary of American Home Products); Auto Suture Company; Kimberly-Clark
Corporation; Abbott Laboratories; Safeskin Corporation; and Sterile Concepts,
Inc. For the year ended December 31, 1995, these suppliers accounted for
approximately 46% of the cost of the products purchased by the Company for
resale.

In September 1996, the Company signed an agreement with Allegiance whereby
the Company has become a preferred, non-exclusive distributor of Allegiance
products sold to the alternate-site markets. Allegiance may terminate the
agreement if the Company fails to meet certain sales levels. The Company
believes it will be able to achieve the required sales objectives under the
Allegiance agreement. The Company is continuously evaluating the product
offerings of medical/surgical supply manufacturers with the goal of
establishing distributor relationships.

COMPETITION

The distribution of medical and surgical supplies to the acute care,
physician care and extended care markets is extremely competitive. While the
Company believes that there are no medical/surgical distributors competing
with the Company in all three industry markets on a nationwide basis, it does
compete with numerous national, regional and local companies, including
several major distributors and manufacturers. Distribution to the acute care
market in the United States consists of (i) three major, nationwide
distributors, namely Allegiance, Owens & Minor, Inc. and the Company, (ii) a
few smaller, nationwide distributors and (iii) a number of regional and local
distributors. In the physician care market, the Company competes with numerous
other companies, including Henry Schein, Inc., Physician Sales & Service,
Inc., Durr-Fillauer Medical Inc. (a subsidiary of Bergen Brunswig Corporation)
and many other regional and local distributors. In the extended care market,
the Company

35
<PAGE>

faces competition from Gulf South Medical Supply, Inc., Redline Medical Supply
Co. and Medline Industries, Inc., various healthcare manufacturers and a
number of regional and local distributors. The Company believes that the
principal competitive factors in distributing products in its three primary
markets are the quality and level of customer service, product pricing,
breadth and quality of products offered, consistency and stability of business
relationships with customers and value-added services and products. The
Company believes that it competes favorably with respect to each of these
factors. See "Risk Factors--Intense and Increasing Competition."

GOVERNMENT REGULATION

The medical/surgical supply distribution industry is subject to regulation
by federal, state and local governmental agencies. Each of the Company's
distribution centers is licensed to distribute medical/surgical products as
well as certain pharmaceutical and related products. The Company must comply
with regulations, including operating and security standards for each of its
distribution centers, of the Food and Drug Administration, the Drug
Enforcement Agency, the Occupational Safety and Health Administration, state
boards of pharmacy and, in certain areas, state boards of health. The Company
believes that it is in material compliance with all statutes and regulations
applicable to distributors of medical/surgical products and pharmaceutical and
related products, as well as other general employee health and safety laws and
regulations, and possesses all material permits and licenses required for the
conduct of its business.

EMPLOYEES

The Company employs approximately 3,000 people, of whom approximately 479
are located at its corporate headquarters and administrative offices; 2,471 at
its distribution centers and sales offices; 42 at its assembled products
centers; and 11 at its one manufacturing facility. Three of the distribution
centers have unionized warehouse employees, totalling 56 employees. The
Company has not experienced any work stoppages and believes its relations with
its employees are satisfactory.

FACILITIES

The Company owns or leases offices and warehouses in cities throughout the
United States. The following table sets forth the general location of each of
the distribution centers and other facilities owned or leased by the Company.

<TABLE>
<CAPTION>
DISTRIBUTION CENTER LOCATION LEASED/OWNED
- ---------------------------- ------------
<S> <C>
Gilbert, Arizona................................................... Leased
Phoenix, Arizona................................................... Leased
Little Rock, Arkansas.............................................. Leased
Los Angeles, California............................................ Leased
Sacramento, California............................................. Leased
Walnut, California................................................. Leased
West Sacramento, California........................................ Leased
Denver, Colorado................................................... Leased
Branford, Connecticut.............................................. Leased
Hartford, Connecticut.............................................. Leased
Ft. Lauderdale, Florida............................................ Leased
Jacksonville, Florida.............................................. Leased
Orlando, Florida................................................... Leased
Tampa, Florida..................................................... Leased
Atlanta, Georgia................................................... Leased
Savannah, Georgia.................................................. Leased
Chicago, Illinois.................................................. Leased
St. Charles, Illinois.............................................. Leased
</TABLE>

36
<PAGE>

<TABLE>
<CAPTION>
DISTRIBUTION CENTER LOCATION LEASED/OWNED
- ---------------------------- ------------
<S> <C>
Ft. Wayne, Indiana................................................. Leased
Des Moines, Iowa................................................... Leased
Wichita, Kansas.................................................... Leased
Louisville, Kentucky............................................... Leased
New Orleans, Louisiana............................................. Leased
Baltimore, Maryland................................................ Leased
Boston, Massachusetts.............................................. Leased
Detroit, Michigan.................................................. Leased
Livonia, Michigan.................................................. Leased
Twin Cities, Minnesota............................................. Leased
Kansas City, Missouri.............................................. Leased
Cranbury, New Jersey............................................... Leased
Albuquerque, New Mexico............................................ Leased
Rochester, New York................................................ Leased
Asheville, North Carolina.......................................... Leased
Charlotte, North Carolina.......................................... Leased
Brookland Heights, Ohio............................................ Leased
Cleveland, Ohio.................................................... Leased
Columbus, Ohio..................................................... Leased
Harrisburg, Pennsylvania........................................... Leased
Knoxville, Tennessee............................................... Leased
Austin, Texas...................................................... Leased
Dallas, Texas...................................................... Leased
Houston, Texas..................................................... Leased
San Antonio, Texas................................................. Leased
Newport News, Virginia............................................. Leased
Richmond, Virginia................................................. Leased
<CAPTION>
DISTRIBUTION CENTER LOCATION LEASED/OWNED
- ---------------------------- ------------
<S> <C>
Roanoke, Virginia.................................................. Leased
Seattle, Washington................................................ Leased
Huntington, West Virginia.......................................... Leased
Green Bay, Wisconsin............................................... Owned
<CAPTION>
OTHER FACILITIES
- ----------------
<S> <C>
Administrative Offices:
City of Industry, California..................................... Leased
Richmond, Virginia (headquarters)................................ Owned
Manufacturing:
Richmond, Virginia............................................... Leased
Retail Store:
Alhambra, California............................................. Leased
Sales Offices:
Chatsworth, California........................................... Leased
Hayward, California.............................................. Leased
Los Angeles, California.......................................... Leased
San Diego, California............................................ Leased
Las Vegas, Nevada................................................ Leased
Pittsburgh, Pennsylvania......................................... Leased
</TABLE>

37
<PAGE>

The Company believes that its facilities are adequate to carry on its
business as currently conducted. A number of leases relating to the above-
described properties are scheduled to terminate within the next several years.
The Company believes that, if necessary, it could find facilities to replace
such leased premises without suffering a material effect on its business.

It is anticipated that all of the principal properties owned by the Company
will be subject to first priority liens granted in favor of the lenders under
the New Credit Agreement. See "Description of Certain Indebtedness--New Credit
Facilities."

LEGAL PROCEEDINGS

On July 20, 1995, a former shareholder of Rabco, the predecessor of the
Company, purportedly for himself and on behalf of all others similarly
situated, commenced a proceeding in New York State Supreme Court against
General Medical, Holdings, Kelso and one of its officers, and certain present
and former officers and directors of the Company alleging fraud, breach of
fiduciary duty, and inducing breach of fiduciary duty in connection with the
Original Acquisition. On September 30, 1996, an order was entered granting the
defendants' motion to dismiss the proceeding. On November 1, 1996, the
plaintiff filed a notice of appeal from such final disposition decision and
order. The Company and the other defendants intend vigorously to defend this
action. The outcome of this litigation cannot be reasonably estimated.

Other than as set forth above, there are no legal proceedings pending to
which the Company is a party or to which any of its properties is subject,
other than routine litigation incidental to its business which either is
covered by insurance or is not expected to have a material adverse effect on
the Company. The Company generally obtains indemnification agreements from
manufacturers who agree, subject to certain limitations specified therein, to
indemnify and hold the Company harmless from and against any claims, losses or
liabilities the Company may suffer or incur as a result of products
liabilities and other claims arising out of the use of such manufacturers'
products. In addition, a number of such manufacturers have named the Company
as an additional insured under their general liability insurance policies. See
"Risk Factors--Liability Exposure."

38
<PAGE>

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

GMI's, Holdings' and General Medical's executive officers and directors, as
well as additional information with respect to those persons, are set forth in
the table below. Directors are elected at each annual meeting of stockholders,
and hold office until the next annual meeting and until their successors are
duly elected and qualified, or until their earlier resignation or removal. All
executive officers hold office at the pleasure of the Board of Directors.

There are no family relationships among directors and executive officers.
For information regarding the stock ownership of GMI by GMI's directors and
executive officers, see "Principal Stockholders."

The directors and executive officers of the GMI, Holdings and General
Medical are:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Steven B. Nielsen....... 49 Chairman, President, Chief Executive Officer and Director
F. DeWight Titus, III... 62 Vice Chairman, Executive Vice President and Director
Donald B. Garber........ 44 Senior Vice President and Chief Financial Officer
Jerry E. Neal........... 55 Senior Vice President
G. Keith Nedrow......... 54 Senior Vice President, General Counsel and Secretary
Mitchell J. Blutt....... 40 Director
Michael B. Goldberg..... 49 Director
David M. Roderick....... 72 Director
John Rutledge........... 48 Director
Wellford L. Sanders, 51 Director
Jr.....................
Thomas R. Wall, IV...... 38 Director
</TABLE>

Mr. Nielsen has been Chairman of the Board and Chief Executive Officer of
GMI since its formation in May 1994 and of Holdings and General Medical since
September 1993. Mr. Nielsen has served as President of General Medical since
December 1988 and as a director since January 1989. Prior to December 1988, he
was Executive Vice President and Chief Operating Officer since joining General
Medical in 1984. Before joining General Medical, Mr. Nielsen was a group
president in charge of Bergen Brunswig Medical Supply Company.

Mr. Titus has been Vice Chairman and a director of GMI, Holdings and General
Medical since October 1994 and has also served as Executive Vice President
since February 1996. Mr. Titus is President and Chief Executive Officer of
F.D. Titus and Son Inc. ("Titus"), which was acquired by General Medical in
July 1994, and has served Titus in that capacity since 1992. Prior to that,
Mr. Titus was President and Chief Operating Officer of Titus from 1982 to 1992
and Executive Vice President from 1972 to 1982.

Mr. Garber has been Senior Vice President and Chief Financial Officer of GMI
since its formation in May 1994 and of Holdings and General Medical since
August 1989. Mr. Garber also held the position of Treasurer of GMI since its
formation in May 1994 to January 1995 and of Holdings and General Medical from
September 1993 to January 1995. Prior to that he held the position of Vice
President and Controller and other financial positions since joining General
Medical in 1982. Before joining General Medical, Mr. Garber held various
positions with Ernst & Whinney, a firm of certified public accountants.

Mr. Neal has been Senior Vice President of GMI since its formation in May
1994 and of Holdings and General Medical since October 1994. Mr. Neal is Chief
Financial/Administrative Officer of F.D. Titus and Son Inc., which was
acquired by General Medical in July 1994, and has served in that capacity
since 1989. Prior to that, Mr. Neal was Senior Vice President, Controller of
Mattel Toys, Inc. from 1979 to 1989.

Mr. Nedrow has been Senior Vice President, General Counsel and Secretary of
GMI, Holdings and General Medical since January 1995. Mr. Nedrow previously
served as Vice President, General Counsel and Secretary of GMI since its
formation in May 1994 and of Holdings and General Medical since September
1993. Mr. Nedrow

39
<PAGE>

joined General Medical in April 1987 as General Counsel and Assistant
Secretary. Prior to joining the Company, he served on the legal staffs of the
A.H. Robins Company, Rorer Group, Kellogg Company and Hartford-ITT.

Dr. Blutt has been a director of GMI, Holdings and General Medical since
January 1, 1995. Dr. Blutt joined Chase Capital Partners, a New York general
partnership, formerly known as Chemical Venture Partners ("CCP"), and an
affiliate of Chase Equity Associates, L.P., a California limited partnership,
formerly known as Chemical Equity Associates ("CEA"), and The Chase Manhattan
Corporation, in July 1987 and has been a General Partner of CCP since June
1988 and an Executive Partner since June 1991. Dr. Blutt is also a director of
Hanger Orthopedic Group, Inc., Cyberonics, Inc. and numerous privately-held
companies. Dr. Blutt also has been engaged in the practice of medicine for
over five years. Prior to joining CCP, Dr. Blutt was a Robert Wood Johnson
Foundation Fellow at the University of Pennsylvania from July 1985 to June
1987. He is an adjunct Assistant Professor at the New York Hospital/Cornell
Medical Center.

Mr. Goldberg has been a director of GMI since its formation in May 1994 and
of Holdings and General Medical since August 1993. Mr. Goldberg has been a
Managing Director of Kelso since October 1991. Mr. Goldberg served as a
Managing Director and jointly managed the mergers and acquisitions department
at The First Boston Corporation from 1989 to May 1991. Prior to 1989, Mr.
Goldberg was a partner at the law firm of Skadden, Arps, Slate, Meagher & Flom
from 1980 to 1989. Mr. Goldberg is also a director of Hosiery Corporation of
America, Inc., Universal Outdoor Holdings, Inc. and United Refrigerated
Services, Inc.

Mr. Roderick has been a director of GMI since its formation in May 1994 and
of Holdings and General Medical since September 1993. Mr. Roderick was
Chairman and Chief Executive Officer of USX Corporation from 1979 to 1989 and
served as a director until 1994. He was President of USX Corporation from 1975
to 1979. Mr. Roderick is Chairman and a director of Earle M. Jorgensen Company
and is a also member of the boards of American Standard, Inc. and Presbyterian
University Hospital, and is a Director of Kelso. He is past Chairman of both
the American Iron and Steel Institute and the International Iron and Steel
Institute. Mr. Roderick is a co-founder and is Chairman Emeritus of the U.S.-
Korea Business Council and is a past Chairman of the National Alliance of
Business. He is a Trustee and past Chairman of the Board of Trustees of
Carnegie Mellon University. Mr. Roderick is a past member of Business
Roundtable and a member of the Business Council.

Dr. Rutledge has been a director of GMI, Holdings and General Medical since
January 1995. Dr. Rutledge has been Chairman of Rutledge & Company, Inc., a
merchant banking firm, since January 1991. He is the founder of Claremont
Economics Institute, and has been its Chairman since January 1979. Dr.
Rutledge is also a director of American Standard, Inc., Earle M. Jorgensen
Company, Utendahl Capital Partners, Lazard Freres Funds, CST, Inc. and
Amerindo Technology Fund.

Mr. Sanders has been a director of GMI since its formation in May 1994 and
of Holdings and General Medical since October 1993. Mr. Sanders has been a
partner of the law firm of McGuire, Woods, Battle & Boothe, L.L.P. since 1986.
Mr. Sanders is also a director of Catherines Stores Corporation and Peebles
Inc.

Mr. Wall has been a director of GMI since its formation in May 1994 and of
Holdings and General Medical since September 1993. Mr. Wall has been a
Managing Director of Kelso since 1990 and prior thereto General Partner of
Kelso since 1989. From 1986 to 1989, Mr. Wall was a Vice President of Kelso.
Mr. Wall is also a director of AMF Holdings Inc., CCA Holdings Corp., CCT
Holdings Corp., IXL Holdings, Inc., Mitchell Supreme Fuel Company, Mosler
Inc., Peebles Inc., TransDigm, Inc. and Tyler Refrigeration Corporation.

On December 23, 1992, Kelso and its chief executive officer, without
admitting or denying the findings contained therein, consented to an
administrative order in respect of a Securities and Exchange Commission
inquiry relating to the 1990 acquisition of a portfolio company by a Kelso
affiliate. The order found that Kelso's tender offer filing in connection with
the acquisition did not comply fully with the Securities and Exchange
Commission's tender offer reporting requirements, and required Kelso and its
chief executive officer to comply with these requirements in the future.

40
<PAGE>

COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS

Compensation of Directors

Non-officer directors of the Company, other than those directors who are
Kelso employees, are paid an annual retainer of $20,000. In addition, all out-
of-pocket expenses of directors related to meetings attended are reimbursed by
the Company. They receive no additional compensation for committee
participation or for their services as directors of the Company. Officers of
the Company who serve as directors do not receive compensation for their
services as directors other than the compensation they receive as officers of
the Company.

Executive Compensation

The following information relates to compensation of the Company's Chief
Executive Officer, its four most highly compensated executive officers and an
additional individual who ceased serving as an executive officer in June 1995
(the "Named Executives"). The following information does not reflect any
compensation awarded to, earned by, or paid to the Named Executives subsequent
to December 31, 1995, except as may otherwise be indicated. Compensation
awarded to, earned by, or paid to the Named Executives during fiscal year 1996
will be reported in GMI's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------- ------------
SECURITIES
NAME AND PRINCIPAL SALARY UNDERLYING ALL OTHER
POSITION YEAR ($) BONUS ($) OPTIONS COMPENSATION(1)
- ------------------ ---- -------- --------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Steven B. Nielsen...... 1995 $408,154 $4,620
Chairman of the Board, 1994 312,000 $45,000(5) 4,620
President, Chief 1993 293,769 4,497
Executive Officer and
Director
F. DeWight Titus, III.. 1995 297,284 600
Vice Chairman, 1994 242,064(2) 179,750(6) 600
Executive Vice 1993 242,928 129,411 1,735
President and Director
James C. Robison....... 1995 401,015(3) 4,620
Executive Vice 1994 207,200 30,000(5) (4) 4,620
President, Chief 1993 186,780 4,497
Operating Officer and
Director
Donald B. Garber....... 1995 216,161 4,486
Senior Vice President 1994 189,705 25,000(5) 4,560
and Chief Financial 1993 157,086 4,497
Officer
Jerry E. Neal.......... 1995 235,321 600
Senior Vice President 1994 215,771(2) 179,750(6) 600
1993 201,998 129,411 1,735
G. Keith Nedrow........ 1995 142,200 3,475
Senior Vice President 1994 134,018 12,000(5) 3,804
General Counsel and 1993 118,441 3,337
Secretary
</TABLE>
- --------
(1) Amounts represent contributions to the General Medical 401(k) Plan, which
is a defined contribution plan.

(2) Messrs. Titus and Neal became employees of the Company on July 28, 1994 as
a result of the Titus Acquisition. The annual compensation disclosed in
the table includes $151,816 and $133,983, respectively, paid to such
persons by Titus for services rendered in 1994 prior to the date of the
Titus Acquisition.
(3) Mr. Robison's employment with the Company terminated on June 9, 1995.
Pursuant to a release agreement dated June 9, 1995, salary reflected above
includes $90,000 of accrued compensation, to be paid in 1996.

(4) Mr. Robison's options were cancelled in 1995.
(5) These payments represent discretionary awards paid to the Named Executives
in 1995 for 1994 performance. No awards were granted to the Named
Executives relative to 1995.

(6) This payment represents a $179,750 bonus award paid in 1995 for 1994
performance.

41
<PAGE>

GRANTS OF STOCK OPTIONS

No stock options were granted to or exercised by the Named Executives during
the fiscal year ended December 31, 1995. The following tables sets forth
information concerning the number of unexercised options held by each of the
Named Executives at December 31, 1995.

NUMBER OF UNEXERCISED OPTIONS AT FISCAL YEAR END

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL YEAR IN-THE-MONEY OPTIONS
END AT FISCAL YEAR END(1)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Steven B. Nielsen........... $ $
F. DeWight Titus, III.......
Donald B. Garber............
Jerry E. Neal...............
G. Keith Nedrow.............
</TABLE>
- --------
(1) Prior to the Offerings, there has been no public market for the Common
Stock.

1993 Stock Incentive Plan

The 1993 Stock Incentive Plan, as amended (the "Plan"), provides for the
grant from time to time to employees of the Company of incentive and non-
qualified options, restricted stock and incentive stock awards with respect to
an aggregate of shares of Common Stock. As of December 31, 1995, options
outstanding under the Plan entitled the holders to purchase approximately
shares of Common Stock at an exercise price of $ per share, approximately
shares of Common Stock at an exercise price of $ per share and
shares of Common Stock at an exercise price of $ per share. The foregoing
options were granted subject to a vesting schedule that provided for 40% of
each option to vest over a five year period, subject to immediate vesting upon
certain events (including an initial public offering covering not less than
25% of the then outstanding shares of the Company's Common Stock on a fully
diluted basis) ("service options") and 60% of each option to vest upon the
satisfaction of performance and other financial criteria ("performance
options").

On June 18, 1996, the Plan was amended and options for shares of Common
Stock at an exercise price of $ per share were granted in substitution for
the 60% performance options previously granted, subject to revised vesting
criteria ("replacement performance options"). The service options remain
in effect and will immediately vest upon consummation of the Offerings.

The vesting of replacement performance options will be accelerated upon a
Change of Control or Liquidity Event, as defined below. With respect to
options granted on and after June 18, 1996, "Change of Control" means a
transaction or series of transactions whereby 50% or more, in the aggregate,
of the voting power of the Company is transferred to any "person" (as such
term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of
1934) other than Kelso or any person who directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, Kelso. "Liquidity Event" means the closing of the sale by Kelso
of a number of shares of Common Stock which, together with all other shares of
Common Stock previously sold by Kelso, is greater than 50% of the Common Stock
owned of record by Kelso on December 31, 1995. For purposes of these
definitions, "Kelso" means KIA IV and KEP II.

Additional service options were granted June 18, 1996 to designated
individuals with respect to approximately shares of Common Stock at an
exercise price of $ per share and on October 14, 1996 to designated
individuals with respect to shares of Common Stock at an exercise price
of $ per share. These options vest over a five year period.

42
<PAGE>

No restricted stock or incentive stock awards are outstanding under the
Plan.

1994 Non-Employee Directors Stock Incentive Plan

The 1994 Non-Employee Directors Stock Incentive Plan, as amended, provides
for the grant from time to time to non-employee directors of the Company of
options to purchase an aggregate of shares of Common Stock. The purpose of
the 1994 Non-Employee Directors Stock Incentive Plan is to encourage ownership
in the Company by non-employee members of the Board of Directors, to promote
long-term shareholder value and to provide non-employee members of the Board
of Directors with an incentive to continue as directors of the Company. One
option has been granted under such Plan, which entitles the holder to purchase
shares of Common Stock at $ per share. The option was fully vested upon
grant.

Executive Incentive Plan

Each Named Executive and certain other members of senior executive
management of General Medical are eligible to participate in the General
Medical Executive Incentive Plan (the "Executive Incentive Plan"). Under the
Executive Incentive Plan, each participant is eligible to receive an incentive
payment, payable within 90 days after the end of the fiscal year, in an amount
equal to the product of the participant's annual salary times the multiplier
(a percentage specified in the Executive Incentive Plan), based upon General
Medical's actual EBITDA (as defined in the Executive Incentive Plan) plus a
share in a bonus pool, determined by reference to the amount, if any, by which
General Medical's actual EBITDA for a fiscal year exceeds General Medical's
budgeted EBITDA for such fiscal year. Certain field executives are eligible to
receive a portion of the incentive payment based on individual market
criteria.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Decisions regarding the compensation of executive officers are made by the
Compensation Committee of the Board of Directors, the members of which are
Michael B. Goldberg, David M. Roderick and Thomas R. Wall, IV. Mr. Goldberg
and Mr. Wall are managing directors of Kelso.

Affiliates of Kelso beneficially own shares of Common Stock as designated
under "Principal Stockholders." Pursuant to an agreement entered into at the
time of the Original Acquisition, the Company pays Kelso an annual fee for
financial advisory services, reimburses Kelso for certain out-of-pocket
expenses incurred, and has agreed to indemnify Kelso against claims arising in
connection with such services which agreement will be terminated prior to
completion of the Offerings for a one-time payment of $3 million. See "Certain
Transactions--Relationship with Insiders."

43
<PAGE>

PRINCIPAL STOCKHOLDERS

GMI's capital stock consists of Common Stock, which has voting rights, and
Class A Common Stock, which does not have voting rights except in certain
limited circumstances described under "Description of Capital Stock--Common
Stock and Class A Common Stock." Common Stock is convertible into Class A
Common Stock by any Regulated Stockholder (as defined in the Company's
Certificate of Incorporation) at any time. See "Description of Capital Stock--
Common Stock Conversion Rights." Class A Common Stock is convertible into
Common Stock at any time at the holder's option and is subject to mandatory
conversion into Common Stock upon notice by the Company, subject to certain
restrictions applicable to Regulated Stockholders. See "Description of Capital
Stock--Class A Common Stock Conversion Rights."

The following table sets forth certain information as of November 7, 1996
regarding (a) the beneficial ownership of Common Stock immediately prior to
the Offerings, (b) the beneficial ownership of Common Stock as adjusted to
reflect the sale of the shares of Common Stock in the Offerings, (c) the
beneficial ownership of Class A Common Stock immediately prior to and after
the Offerings and (d) the beneficial ownership of the combined classes of
capital stock, in each case by (i) each person known to GMI to own
beneficially more than 5% of the outstanding shares of Common Stock, (ii) each
of GMI's directors, (iii) each of the executive officers named in the table
under "Management--Compensation of Directors and Executive Officers--Summary
Compensation Table" and (iv) all of GMI's directors and executive officers as
a group.

<TABLE>
<CAPTION>
PERCENT
OF CLASS A PERCENT
COMMON OF
PERCENT OF PERCENT STOCK COMBINED
COMMON OF COMMON SHARES OF PRIOR TO CAPITAL
SHARES OF STOCK PRIOR STOCK CLASS A AND AFTER STOCK
NAME OF BENEFICIAL COMMON TO THE AFTER THE COMMON THE AFTER THE
OWNER(A) STOCK OFFERINGS OFFERINGS STOCK OFFERINGS OFFERINGS
- ------------------ --------- ----------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Kelso Investment
Associates IV, L.P.(b). 70.37% %
Kelso Equity Partners
II, L.P.(b)............ 1.58
Joseph S. Schuchert(b).. (c) 71.95
Frank T. Nickell(b)..... (c) 71.95 (d) 4.12
George E. Matelich(b)... (c) 71.95
Thomas R. Wall, IV(b)... (c) 71.95
Michael B. Goldberg(b).. * (c) *
Chase Equity Associates,
L.P.(e)................ (f) 83.94
Mitchell J. Blutt(e).... (f) 83.94
John Rutledge Partners,
L.P.(g)................ 8.82 8.44
John Rutledge(g)........ (h) 8.82
PG Investors, Inc.(i)... (j) 8.54
David M. Roderick(k).... 1.24
Wellford L. Sanders,
Jr.(l)................. (m) *
Steven B. Nielsen(n).... (o) 2.87
F. DeWight Titus,
III(n)................. (p) 3.43
Donald B. Garber(n)..... (q) *
Jerry E. Neal(n)........ (r) *
G. Keith Nedrow(n)...... (s) *
All directors and
executive officers of
GMI as a group(c)(t)... (u) 7.30 1.24
</TABLE>
- --------
* Less than 1%
(a) The information as to beneficial ownership is based on statements
furnished to GMI by the beneficial owners. As used in this table,
"beneficial ownership" means the sole or shared power to vote, or direct
the voting of a security, or the sole or shared investment power with
respect to a security (i.e. the power to dispose of, or direct the
disposition of). A person is deemed as of any date to have "beneficial
ownership"

44
<PAGE>

of any security that such person has the right to acquire within 60 days
after such date. For purposes of computing the percentage of outstanding
shares held by each person named above, any security that such person has
the right to acquire within 60 days of the date of calculation is deemed to
be outstanding, but is not deemed to be outstanding for purposes of
computing the percentage ownership of any other person.
(b) The business address for such person(s) is c/o Kelso & Company, 320 Park
Avenue, 24th Floor, New York, New York 10022.

(c) Messrs. Schuchert, Nickell, Matelich and Wall may be deemed to share
beneficial ownership of shares of Common Stock owned of record by KIA IV
and KEP II, by virtue of their status as general partners of the general
partner of KIA IV and as general partners of KEP II. Messrs. Schuchert,
Nickell, Matelich and Wall disclaim beneficial ownership of the shares of
Common Stock owned of record by KIA IV and KEP II. Mr. Goldberg may be
deemed to share beneficial ownership of shares of Common Stock owned of
record by KIA IV and KEP II by virtue of his status as a limited partner
of the general partner of KIA IV and a limited partner of KEP II. Mr.
Goldberg disclaims such beneficial ownership. KIA IV and KEP II, due to
their common control, could be deemed to beneficially own each other's
shares, but each disclaims such beneficial ownership.
(d) These shares are held in an individual retirement account for the benefit
of Mr. Nickell.
(e) The business address for such person(s) is c/o Chase Capital Partners, 380
Madison Avenue, 12th Floor, New York, New York 10017.
(f) Dr. Blutt may be deemed to share beneficial ownership of shares of Class A
Common Stock owned of record by Chase Equity Associates, L.P., by virtue
of his statue as a general partner of the general partner of such
partnership. Dr. Blutt expressly disclaims beneficial ownership of such
shares.
(g) The business address for John Rutledge Partners, L.P. is c/o Rutledge &
Company, Inc., One East Putnam Avenue, Greenwich, Connecticut 06830.
(h) Dr. Rutledge may be deemed to share beneficial ownership of shares of
Common Stock and Class A Common Stock owned of record by John Rutledge
Partners, L.P. by virtue of his status as Chairman and a stockholder of
the general partner of such partnership. Dr. Rutledge expressly disclaims
beneficial ownership of such shares.
(i) The business address for PG Investors, Inc. is c/o Morgan Stanley & Co.
Incorporated, 1585 Broadway, New York, New York 10036.
(j) The shares of Common Stock set forth on this line consist of
shares owned by Princes Gate Investors, L.P., shares owned by Acorn
Partnership I, L.P., shares owned by PGI Investments Limited,
shares owned by PGI Sweden AB and shares owned by Gregor von
Opel (Princes Gate Investors, L.P., Acorn Partnership I, L.P., PGI
Investments Limited, PGI Sweden AB and Gregor von Opel are collectively
referred to herein as "PGI"). PG Investors Inc. ("Investors"), which is a
wholly-owned subsidiary of Morgan Stanley Group, Inc. ("Morgan Stanley"),
manages the investments of PGI, and as such may be deemed to be the
beneficial owner of the shares owned by PGI, as such term is
defined in Rule 13d-3 under the Securities Exchange Act of 1934, as
amended. PGI is a private association of international investors assembled
by Morgan Stanley to make short- to medium-term investments in companies
that require funds to accomplish specific strategic objectives.
(k) The business address for Mr. Roderick is 600 Grant Street, Suite 6200,
Pittsburgh, Pennsylvania 15219-4777.
(l) The business address for Mr. Sanders is c/o McGuire, Woods, Battle &
Boothe, L.L.P., One James Center, 901 East Cary Street, Richmond, Virginia
23219.
(m) Includes shares subject to a stock option that is presently
exercisable.
(n) The business address of such person(s) is c/o General Medical Corporation,
8741 Landmark Road, Richmond, Virginia 23228.
(o) Includes shares subject to stock options that are presently
exercisable.
(p) Includes shares subject to stock options that are presently
exercisable.
(q) Includes shares subject to stock options that are presently
exercisable.
(r) Represents shares subject to stock options that are presently exercisable.
(s) Includes shares subject to stock options that are presently
exercisable.
(t) The shares of Common Stock set forth on this line do not include any
shares of Common Stock which Mr. Goldberg, Mr. Wall, Dr. Blutt and Dr.
Rutledge may be deemed to beneficially own. See footnotes (c), (f) and (h)
above.
(u) Includes shares subject to stock options that are presently
exercisable.

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<PAGE>

CERTAIN TRANSACTIONS

RELATIONSHIP WITH INSIDERS

Pursuant to an agreement entered into at the time of the Original
Acquisition, General Medical agreed to pay Kelso an annual fee for financial
advisory services and to reimburse Kelso for out-of-pocket expenses incurred.
General Medical also agreed to indemnify Kelso against certain claims, losses,
damages, liabilities and expenses which may arise in connection with rendering
such financial advisory services. Kelso received a fee of $350,000 from
General Medical in 1995 and $262,500 in the nine month period ended September
30, 1996 for providing such financial advisory services (including the
services of two officers of Kelso, Messrs. Goldberg and Wall, as members of
the Board of Directors of GMI and its subsidiaries). It is currently expected
that, prior to completion of the Offerings, the foregoing arrangement will be
terminated upon the making of a one-time payment of $3 million by GMI to
Kelso; however, arrangements for indemnification and reimbursement of certain
expenses will remain.

Mr. Sanders, a director of GMI, is a partner of the law firm of McGuire,
Woods, Battle & Boothe, L.L.P., which provides legal services to the Company.

TAX SHARING AGREEMENT

Holdings, General Medical and certain of General Medical's subsidiaries
entered into a Tax Sharing Agreement as of August 31, 1993. In January 1995,
connection with the New GMH Merger, the Tax Sharing Agreement was amended to
add GMI as a party thereto. The Tax Sharing Agreement provides, among other
things, that Holdings and General Medical shall pay to GMI, on a periodic
basis, an amount equal to what the federal, state and local tax liability of
Holdings, General Medical and certain of General Medical's subsidiaries would
be if Holdings, General Medical and such subsidiaries paid such federal, state
and local taxes on a consolidated basis themselves.

STOCKHOLDERS AGREEMENT

The summary of the Stockholders Agreement, dated August 27, 1993, by and
among Holdings, KIA IV, KEP II and the stockholders listed on the schedule
thereto (the "Stockholders Agreement") set forth below does not purport to be
complete and is qualified in its entirety by reference to the Stockholders
Agreement and the Letter Agreements which are filed as exhibits to the
Registration Statement of which this Prospectus is a part. The Stockholders
Agreement was assumed by GMI on January 23, 1995.

The provisions of the Stockholders Agreement are applicable to all of the
shares of Common Stock owned by KIA IV, KEP II and the Management Shareholders
(as defined therein) (collectively, the "Shareholders") or hereafter owned by
the Shareholders. The Stockholders Agreement provides for (i) various
restrictions on the transfer of shares of Common Stock, (ii) certain rights of
the Management Shareholders to sell, and the obligation of GMI to purchase
such Management Shareholders shares of Common Stock, subject to certain terms
and conditions, (iii) certain rights of GMI to purchase from the Management
Shareholders, and the obligation of the Management Shareholders to sell shares
of Common Stock to GMI, subject to certain terms and conditions, (iv) certain
tag-along rights of the Management Shareholders and certain drag-along rights
of KIA IV and KEP II, (v) certain rights of first refusal of GMI to purchase
shares of Common Stock held by the Management Shareholders, subject to certain
terms and conditions and (vi) certain rights of GMI to purchase shares of
Common Stock upon an Involuntary Transfer (as defined therein). All of such
rights and agreements will terminate upon the consummation of the Offerings.
The Stockholders Agreement also provides for certain voting and transfer
restrictions imposed on the Shareholders with respect to a proposed
transaction, whereby, 50% or more of the aggregate voting power of GMI is
transferred to one or more third parties.

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<PAGE>

The Stockholders Agreement also provides KIA IV and KEP II with certain
rights to demand registration of its Common Stock under the Securities Act as
well as certain "piggyback" registration rights in favor of the Shareholders
and their Permitted Transferees (as defined therein). Such registration rights
will survive the consummation of the Offerings.

OTHER AGREEMENTS

A portion of the equity capital contributed by Holdings in connection with
the funding of the Foster Acquisition was funded by the sale of shares
of Holdings Class A Common Stock (which were converted to Class A Common Stock
pursuant to the New GMH Merger) to CEA for an aggregate purchase price of
$10.0 million, pursuant to the terms of a Stock Subscription Agreement ("Stock
Subscription Agreement"), dated as of August 31, 1994, among Holdings, GMI and
CEA, and with KIA IV and KEP II with respect to certain provisions. A portion
of the equity capital contributed by Holdings in connection with the funding
of the Titus Acquisition was funded by the sale of the 12 1/2% Notes and the
issuance of an aggregate of shares of Holdings Common Stock (which
were converted to Common Stock pursuant to the New GMH Merger) to PGI for an
aggregate purchase price of $48.3 million pursuant to the terms of a
Securities Purchase Agreement, dated as of July 28, 1994, among Holdings and
the members of PGI listed on the signature pages thereof, and a
Securityholders Agreement (the "Securityholders Agreement"), dated as of July
28, 1994, among Holdings, GMI, KIA IV, KEP II and the members of PGI.

The summary of certain provisions of the Stock Subscription Agreement and
the Securityholders Agreement set forth below does not purport to be complete
and is qualified in its entirety by reference to the Stock Subscription
Agreement and the Securityholders Agreement which are attached as exhibits to
the Registration Statement of which this Prospectus is a part.

THE STOCK SUBSCRIPTION AGREEMENT

Pursuant to the Stock Subscription Agreement, Holdings, GMI, CEA, KIA IV and
KEP II entered into certain agreements which include, among others, the
following: (i) certain rights of CEA and its affiliates to designate a non-
voting observer to be admitted to, and to receive all information from, the
Board of Directors of GMI and the boards of certain of GMI's subsidiaries,
(ii) the right of CEA and its affiliates to receive certain financial and
other information GMI or any of its subsidiaries is obligated to deliver
pursuant to certain provisions of the Credit Agreement, (iii) certain
restrictions on the transfer of Class A Common Stock by Holders (as defined
therein), (iv) piggyback registration rights, subject to certain terms and
conditions, (v) certain co-sale rights of the Holders, and (vi) certain drag-
along rights of KIA IV, KEP II and their Permitted Transferees (as defined
therein). All of such rights and agreements, other than the piggyback
registration rights, will terminate upon the consummation of the Offerings.

In addition, in the event that a Holder reasonably and in good faith
determines that it has a Regulatory Problem (as hereinafter defined), GMI, KIA
IV and KEP II will use their best efforts to take all actions as are
reasonably requested by such Holder (provided that GMI, KIA IV and KEP II
shall not be obligated to make any payments in connection with such actions)
in order (A) to effectuate and facilitate any transfer by such Holder of any
Securities (as defined therein) of GMI then held by such Holder to any person
designated by such Holder and reasonably acceptable to GMI, and/or (B) to
permit such Holder (or any Affiliate of such Holder) to exchange all or any
portion of the voting Securities then held by such person on a share-for-share
basis for shares of a class of nonvoting Securities of GMI, which nonvoting
Securities shall be identical in all respects to such voting Securities,
except that such new Securities shall be nonvoting and shall be convertible
into voting Securities on such terms as are reasonably requested by such
Holder in light of regulatory considerations then prevailing.

As defined in the Stock Subscription Agreement, "Regulatory Problem" means
any set of facts or circumstances wherein it has been asserted by any
governmental regulatory agency (or a Holder reasonably and in good faith
believes that there is a substantial risk of such assertion) that CEA is not
entitled to hold, or exercise any voting or other significant right with
respect to, the Securities.

47
<PAGE>

THE SECURITYHOLDERS AGREEMENT

Pursuant to the terms of the Securityholders Agreement, Holdings, GMI, KIA
IV, KEP II and PGI entered into certain agreements with respect to the
Holdings Common Stock (which were converted to Common Stock pursuant to the
New GMH Merger) issued to PGI in connection with the financing of the Titus
Acquisition.

According to the terms of the Securityholders Agreement, each member of PGI
and any transferee of such member may sell, assign, pledge, hypothecate,
encumber or otherwise transfer ("Transfer") its Common Stock without
restriction; provided that, (i) as a condition precedent to any such Transfer
(other than any Transfer pursuant to a Public Offering (as defined therein) or
in compliance with Rule 144), such transferee shall have executed and
delivered to each other party to the Securityholders Agreement an instrument
confirming that such transferee agrees to be bound by the terms of the
Securityholders Agreement and (ii) that no registration under Section 12(g) of
the Exchange Act shall be required as a result of such Transfer.

The Securityholders Agreement also provides for the following rights and
agreements: (i) certain tag-along rights of Holders (as defined therein), (ii)
certain rights of KIA IV and KEP II to compel the sale of all of the Common
Stock held by all Holders, subject to certain terms and conditions, (iii)
certain put rights of the Holders and certain call rights of GMI, (iv) demand
and piggyback registration rights with the respect to the Common Stock held by
the Holders and (v) the provision of certain financial and other information
to the Holders by the Company. All of such rights and agreements, other than
the demand and piggyback registration rights and the provision of certain
financial and other information, will terminate upon the consummation of the
Offerings.

In addition, pursuant to the terms of the Securityholders Agreement, GMI
agreed to contribute to the capital of Holdings, to be used in accordance with
the mandatory redemption provisions of the Holdings Notes, 100% of the net
cash proceeds received by GMI from (i) any Public Offering of Capital Stock
(each as defined in the Holdings Notes), (ii) the incurrence of any Debt (as
defined in the Holdings Notes) or (iii) the Transfer (as defined in the
Holdings Notes) of any shares of Capital Stock (as defined in the Holdings
Notes) of Holdings or its subsidiaries.

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<PAGE>

DESCRIPTION OF CAPITAL STOCK

The following description of the GMI's capital stock does not purport to be
complete and is subject in all respects to applicable Delaware law and to the
provisions of GMI's certificate of incorporation (the "Certificate of
Incorporation"), as amended, and its By-Laws, copies of which have been filed
as exhibits to the Registration Statement of which this Prospectus is a part.

The authorized capital stock of GMI consists of shares of Common Stock,
$.01 par value per share, and shares of Class A Common Stock, $.01 par
value per share. Immediately following the completion of the Offering, GMI
estimates that there will be shares of Common Stock and shares of
Class A Common Stock outstanding, and shares of Common Stock held as
Treasury stock.

As of the date of this Prospectus, there are 169 and 7 holders of record of
the Common Stock and Class A Common Stock, respectively.

COMMON STOCK AND CLASS A COMMON STOCK

The Class A Common Stock is convertible into Common Stock on a one-for-one
basis as described below under "--Class A Common Stock Conversion Rights."
Except as to voting rights and as otherwise provided in the Certificate of
Incorporation or as otherwise required by applicable law, all the shares of
Common Stock and Class A Common Stock are identical and entitle the holders
thereof to the same rights and privileges, subject to the same qualifications,
limitations and restrictions.

Holders of Common Stock are entitled to one vote per share on all matters on
which the stockholders are entitled to vote. Holders of Common Stock possess
full and complete voting power for the election of directors, and do not have
cumulative voting rights. Therefore, holders of a majority of the shares of
Common Stock voting for the election of directors can elect all of the
directors. In such event, the holders of the remaining shares of Common Stock
will not be able to elect any directors.

Holders of Class A Common Stock do not have voting rights except in certain
limited circumstances. Matters upon which the holders of Class A Common Stock
will have the right to vote as a separate class include: (i) any merger or
consolidation of the Company with or into another entity or entities, or any
recapitalization or reorganization, in which shares of Class A Common Stock
would receive or be exchanged for consideration different on a per share basis
from consideration received with respect to or in exchange for shares of
Common Stock or would otherwise be treated differently from shares of Common
Stock in connection with such transaction, except that shares of Class A
Common Stock may, without a separate class vote, receive or be exchanged for
non-voting securities which are otherwise identical on a per share basis in
amount and form to the voting securities received with respect to or exchanged
for Common Stock so long as (A) such non-voting securities are convertible
into such voting securities on the same terms as the Class A Common Stock is
convertible into Common Stock and (B) all other consideration is equal on a
per share basis; and (ii) any amendment to the provision of the Certificate of
Incorporation set forth in clause (i) above or any other amendment, repeal or
modification of any provision of the Certificate of Incorporation that
adversely affects the powers, preferences or special rights of holders of
Class A Common Stock.

Holders of Common Stock and Class A Common Stock are entitled to receive
such dividends, share and share alike, as may be declared from time to time by
GMI's Board of Directors out of funds legally available therefor, subject to
the terms of the agreements governing the terms of the Company's long-term
debt. GMI does not anticipate paying cash dividends in the foreseeable future.
See "Dividend Policy." The Certificate of Incorporation provides, however,
that if dividends are declared which are payable in shares of common stock of
GMI, or options, warrants or rights to acquire shares of such common stock or
securities convertible into or exchangeable for shares of such common stock,
the shares, options, warrants, rights or securities so payable shall be
payable in shares of, or options, warrants or rights to acquire or securities
convertible into or exchangeable for, common stock of the same class upon
which the dividend or distribution is being paid. However, if the

49
<PAGE>

dividends consist of other voting securities of GMI, GMI will make available
to each holder of Class A Common Stock, at such holder's request, dividends
consisting of non-voting securities of GMI which are otherwise identical to
the voting securities and which are convertible into or exchangeable for such
voting securities on the same terms as the Class A Common Stock is convertible
into Common Stock.

In the event of the liquidation, dissolution or winding up of GMI, the
holders of Common Stock and Class A Common Stock are entitled to share ratably
in all assets remaining after payment of liabilities.

The Common Stock and Class A Common Stock have no preemptive or redemption
rights and are not subject to further calls or assessments by GMI. The Common
Stock has the limited conversion rights set forth under "--Common Stock
Conversion Rights." The Class A Common Stock has the conversion rights
described under "--Class A Common Stock Conversion Rights."

Application has been made for quotation of the Common Stock on Nasdaq under
the symbol "GENM."

The Transfer Agent and Registrar for the Common Stock and the Class A Common
Stock is .

COMMON STOCK CONVERSION RIGHTS

The Certificate of Incorporation grants any Regulated Stockholder (as
defined) the right, at any time and from time to time, to convert any or all
of the shares of Common Stock held by such stockholder into the same number of
shares of Class A Common Stock. As defined in the Certificate of
Incorporation, a "Regulated Stockholder" is any stockholder (i) that is
subject to the provisions of Regulation Y of the Board of Governors of the
Federal Reserve System, 12 C.F.R. Part 225 (or any successor to such
Regulation), (ii) that holds shares of Common Stock or Class A Common Stock
and (iii) that has provided written notice to GMI of its status as a Regulated
Stockholder.

CLASS A COMMON STOCK CONVERSION RIGHTS

The Certificate of Incorporation provides that each record holder of Class A
Common Stock shall be entitled, subject to certain restrictions relating to
Regulated Stockholders, at any time and from time to time in such holder's
sole discretion and at such holder's option, to convert any or all of the
shares of such holder's Class A Common Stock into the same number of shares of
Common Stock. However, a particular Regulated Stockholder may not convert
Class A Common Stock constituting Restricted Stock (as hereinafter defined)
into Common Stock if immediately prior thereto, or as a result of such
conversion, the number of shares of Common Stock which constitute such
Restricted Stock held by all holders thereof would exceed the number of shares
of Common Stock which such Regulated Stockholder reasonably determines it and
its Affiliates (as hereinafter defined) may own, control or have the power to
vote under any law, regulation, rule or other requirement of any governmental
authority at the time applicable to such Regulated Stockholder or its
Affiliates. Each Regulated Stockholder also has the right to provide for
further restrictions upon the conversion of any shares of Restricted Stock
held by such Regulated Stockholder by providing GMI with written notice of
such restrictions and legending such Restricted Stock as to the existence of
such restrictions. In addition, each holder of Class A Common Stock may
convert such shares into Common Stock if such holder reasonably believes that
such converted shares will be transferred within 15 days pursuant to a
Conversion Event (as hereinafter defined) and such holder agrees not to vote
any such shares of Common Stock prior to such Conversion Event and undertakes
to promptly convert such shares back into Class A Common Stock if such shares
are not transferred pursuant to a Conversion Event.

As defined in the Certificate of Incorporation, (i) a "Conversion Event"
means (A) any public offering or public sale of securities of GMI (including a
public offering registered under the Securities Act, a public sale pursuant to
Rule 144 thereunder or any similar rule then in force or a transaction
described in Rule 144(f) thereunder), (B) any sale of securities of GMI to a
person or group of persons (within the meaning of the Securities Exchange Act
of 1934, as amended (the "Exchange Act")), if, after such sale, such person or
group

50
<PAGE>

of persons in the aggregate would own or control securities which possess in
the aggregate the ordinary voting power to elect a majority of GMI's directors
(provided that such sale has been approved by GMI's Board of Directors or a
committee thereof), (C) any sale of securities of GMI to a person or group of
persons (within the meaning of the Exchange Act) if, after such sale, such
person or group of persons in the aggregate would own or control securities of
GMI (excluding any Class A Common Stock being converted and disposed of in
connection with such Conversion Event) which possess in the aggregate the
ordinary voting power to elect a majority of GMI's directors, (D) any sale of
securities of GMI to a person or group of persons (within the meaning of the
Exchange Act) if, after such sale, such person or group of persons would not,
in the aggregate, own, control or have the right to acquire more than 2% of
the outstanding securities of any class of voting securities of GMI, (E) any
sale of securities of GMI pursuant to Section 5(h) of the Stock Subscription
Agreement and (F) a merger, consolidation or similar transaction involving GMI
if, after such transaction, a person or group of persons (within the meaning
of the Exchange Act) in the aggregate would own or control securities which
possess in the aggregate the ordinary voting power to elect a majority of the
surviving corporation's directors (provided that the transaction has been
approved by GMI's Board of Directors or a committee thereof); (ii) "Person"
means an individual, a partnership, a limited liability company, a
corporation, a trust, a joint venture, an unincorporated organization or a
government or any department or agency thereof, (iii) "Affiliate" means with
respect to any Person, any other person, directly or indirectly controlling,
controlled by or under common control with such Person and (iv) "Restricted
Stock" means, with respect to any Regulated Stockholder, any outstanding
shares of Common Stock and/or Class A Common Stock ever held of record by such
Regulated Stockholder or its Affiliates, excluding treasury shares; provided,
however, that any such shares shall cease to be Restricted Stock with respect
to such Regulated Stockholder when such shares are transferred in a
transaction which is a Conversion Event or are acquired by GMI or any
subsidiary of GMI; and provided, further, that GMI shall have no
responsibility for determining whether any outstanding shares of Common Stock
and/or Class A Common Stock constitute Restricted Stock with respect to any
particular Regulated Stockholder, but shall instead be entitled to receive,
and rely exclusively upon, a written notice provided by such Regulated
Stockholder designating such shares as Restricted Stock.

In addition, all of the Class A Common Stock, other than shares of Class A
Common Stock held of record by any Regulated Stockholder or its Affiliates,
will be automatically and mandatorily converted into the same number of shares
of Common Stock without any action on the part of any holder upon notice to
such effect by GMI to the record holders of Class A Common Stock.

For summaries of certain agreements with respect to Common Stock and Class A
Common Stock see "Certain Transactions--Stockholders Agreement," "--Other
Agreements," "--The Stock Subscription Agreement" and "--the Securityholders
Agreement."

REGISTRATION RIGHTS

Stockholders Agreement

Demand Registration. Pursuant to the Stockholders Agreement, KIA IV and KEP
II are entitled to demand that GMI register their shares of Common Stock a
maximum of three times. The Company is required to use its best efforts to
effect the registration of the Common Stock to be sold by KIA IV and KEP II at
the earliest possible date, subject to certain limitations. In connection with
any such demand registration, the Company must take all other appropriate
related actions, including listing the shares on a securities exchange.

Piggyback Registration. Pursuant to the Stockholders Agreement, KIA IV, KEP
II, the Management Stockholders (as defined therein) or any of their Permitted
Transferees (as defined therein) are entitled to certain "piggyback"
registration rights. When the Company proposes to register for sale Common
Stock or other equity securities owned by a stockholder, the parties entitled
to piggyback rights may include their shares of Common Stock in such
registration by giving notice to the Company of such request.

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<PAGE>

Securityholders Agreement

Demand Registration. Pursuant to the terms of the Securityholders Agreement,
PGI may demand registration of PGI's shares of Common Stock beginning one year
after the later of the date of the Company's Initial Public Offering (as
defined therein) and the date of the Company's most recent public offering
following the Company's Initial Public Offering pursuant to which PGI could
exercise piggyback rights as set forth below. PGI may demand registration of
Common Stock having a value of not less than $20 million or for all shares
owned if such Common Stock is valued at less than $20 million. The Company
shall not be required to effect more than one demand registration in any six-
month period.

Piggyback Registration. Pursuant to the terms of the Securityholders
Agreement, at any time after the Initial Public Offering (as defined therein),
if the Company proposes to file a registration statement under the Securities
Act with respect to the sale of securities on its own or for the account of
other stockholders, PGI shall have the opportunity to have the Company
register its shares of the Common Stock for sale on the same terms and
conditions as the registration of the Company's or stockholder's securities.

Stock Subscription Agreement

Piggyback Rights. Pursuant to the terms of the Stock Subscription Agreement,
CEA has piggyback registration rights substantially similar to the provisions
of the Stockholders Agreement, subject to certain exceptions. CEA may only
require the Company to register its shares for sale where KIA IV or KEP II or
their Permitted Transferees sell stock in the registration.

INDEMNIFICATION

LIMITATIONS ON DIRECTORS' LIABILITY

GENERAL

Article VIII of the By-Laws of GMI ("Article VIII") defines the rights of
certain individuals, including directors and officers, to indemnification by
GMI against expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by such individuals in
connection with certain actions, suits or proceedings against such
individuals. The provisions of Article VIII are not exclusive of any other
rights to which those seeking indemnification may be entitled.

Under the Delaware General Corporation Law (the "DGCL"), directors and
officers as well as other employees and individuals may be indemnified against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by them in connection with
specified actions, suits or proceedings, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
the corporation--"derivative action") if they acted in good faith and in a
manner they reasonably believed to be in or not opposed to the best interests
of their employer and, with respect to any criminal action or proceeding, had
no reasonable cause to believe their conduct was unlawful. A similar standard
of care is applicable in the case of derivative actions, except that
indemnification only extends to expenses (including attorney's fees) actually
and reasonably incurred in connection with the defense or settlement of such
an action and the DGCL requires court approval before there can be any
indemnification when the person seeking indemnification has been found liable
to such person's employer.

INDEMNIFICATION PURSUANT TO THE BY-LAWS

Article VIII provides that each person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than a derivative action), by reason of the fact that he is or was a
director or officer of GMI, or is or was a director or officer of GMI serving
at the request of GMI, as a director or officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, shall be indemnified by GMI, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding if such person acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of GMI, and with
respect to any criminal action or proceedings, had no reasonable cause to
believe his conduct was unlawful. In the case of derivative actions, Article
VIII extends similar protection to such

52
<PAGE>

individuals; however, Article VIII specifies that no indemnification shall be
made in respect of a derivative claim, issue or matter as to which such
persons have been adjudged to be liable to GMI unless and only to the extent
that the Delaware Court of Chancery or the court in which such action or suit
was brought determines that such person is entitled to indemnity.

Generally, indemnification will be made pursuant to Article VIII in the
event that the Board of Directors of GMI, the stockholders or in certain
circumstances, independent legal counsel, determines that indemnification is
proper because the indemnified individual has met the requisite standard of
conduct specified in Article VIII or if ordered by a court of competent
jurisdiction. Article VIII provides that GMI shall, in certain instances, pay
the expenses incurred in defending or investigating the actions, suits or
proceedings specified above in advance of final disposition of such action,
suit or proceeding.

LIMITATION OF DIRECTORS' PERSONAL LIABILITY PURSUANT TO THE CERTIFICATE OF
INCORPORATION

Article SIXTH ("Article SIXTH") of the Certificate of Incorporation limits
the personal liability of GMI's directors to GMI or any of their respective
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to
GMI or their respective stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) pursuant to Section 174 of the DGCL or (iv) or any transaction from
which the director derived an improper personal benefit.

Article SIXTH is consistent with the DGCL which permits Delaware
corporations to include in their certificates of incorporation a provision
limiting directors' personal liability for monetary damages for breach of the
duty of care to a corporation or its subsidiaries.

Under Delaware law directors of GMI could be held liable for gross
negligence in the performance of their duty of care but not for simple
negligence. Article SIXTH absolves directors of liability for negligence in
the performance of their duties, including gross negligence. Directors of GMI
remain liable for breaches of their duty of loyalty to GMI and their
respective stockholders, as well as for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law and
transactions from which a director derives improper personal benefit. Article
SIXTH does not absolve GMI's directors of liability under Section 174 of the
DGCL, which makes directors personally liable for unlawful dividends or
unlawful stock repurchases or redemptions and expressly sets forth a
negligence standard with respect to such liability.

GMI maintains a standard policy of officers' and directors' liability
insurance.

SECTION 203 OF THE DGCL

GMI is a Delaware corporation. However, it has elected to not be governed by
Section 203 of the DGCL, pursuant to the provisions of such section. In
general, Section 203 prevents an "interested stockholder" (defined as a person
who is the owner of 15% or more of a corporation's voting stock, or who, as an
affiliate or associate of a corporation, was the owner of 15% or more of that
corporation's voting stock within the prior three years) from engaging in a
"business combination" (as defined under the DGCL) with a Delaware corporation
for three years following the date such person became an interested
stockholder unless certain conditions are satisfied.

53
<PAGE>

DESCRIPTION OF CERTAIN INDEBTEDNESS

Each of the following summaries of certain provisions of certain debt
instruments of the Company does not purport to be complete and is subject to,
and is qualified in its entirety by reference to, all the provisions of such
debt instruments.

NEW CREDIT FACILITIES

General Medical has received a commitment letter, dated , 1996 (the
"Commitment Letter") pursuant to which The Chase Manhattan Bank ("Chase") has
agreed to provide, and Chase Securities Inc. has agreed to arrange, new credit
facilities (the "New Credit Facilities"), consisting of the New Revolving
Credit Facility (as defined below) and the Interim Receivables Facility (as
defined below).

The following is a summary of certain terms and provisions expected to be
included in the New Credit Facilities based upon the terms set forth in the
Commitment Letter and the exhibits thereto. This summary does not purport to
be a complete description of the New Credit Facilities and is subject to the
detailed provisions of, and is qualified in its entirety by reference to, the
definitive documentation of the New Credit Facilities which will be filed as
an exhibit to the Registration Statement of which this Prospectus is a part
upon the execution thereof.

NEW REVOLVING CREDIT FACILITY

General

The new revolving credit facility (the "New Revolving Credit Facility") will
be provided under a new credit agreement (the "New Credit Agreement") in an
amount equal to the lesser of $150.0 million or the then current Borrowing
Base (the "Commitment"), with availability based upon the sum of (x) 60% of
General Medical's Eligible Inventory (as defined therein) plus 50% of the
aggregate undrawn amount of commercial letters of credit issued for certain
limited purposes and (y) cash and cash equivalents held in a concentration
account by the Agent for the benefit of General Medical. Up to $25 million of
the Commitment will be available for the issuance of letters of credit.
Borrowings under the New Credit Agreement mature and the Commitment will
expire on the fifth anniversary of the effective date of the New Credit
Agreement. The initial borrowings thereunder will be used to refinance in part
the Existing Credit Agreement, to provide working capital and for general
corporate purposes.

Interest Rate

Interest on revolving loans under the New Credit Agreement will be payable,
at General Medical's option, at a rate per annum equal to the (i) Alternate
Base Rate, plus the appropriate interest rate margin ("Base Rate Loans") or
(ii) at a rate equal to the Eurodollar Interbank Offered Rate for the
appropriate interest period multiplied by the Statutory Reserves Adjustment
(as defined therein) plus the appropriate interest rate margin ("Eurodollar
Loans"). "Alternate Base Rate" means the higher of the Federal Funds Effective
Rate plus 1/2 of 1%, the Base CD rate plus 1% or the prime rate of Chase. The
appropriate interest rate margin will vary depending upon the ratio of Total
Debt/EBITDA maintained by General Medical. Interest on Base Rate Loans will be
payable quarterly in arrears. Interest on Eurodollar Loans will be payable at
the end of each interest period (other than interest periods consisting of six
months, in which case interest shall be payable every three months). If
General Medical shall default in the payment of principal or interest or any
other amounts due under the New Credit Agreement, such defaulted amounts shall
bear interest, to the extent permitted by law, at a rate per annum equal to
(i) in the case of the nonpayment of principal or interest, 2% above the rate
which would otherwise be payable in respect thereof, or (ii) in the case of
such other amounts, at the Alternate Base Rate plus 2%. Such interest shall be
payable on demand.

Fees

General Medical will be obligated to pay certain fees pursuant to the New
Credit Agreement including: (a) an unused Commitment Fee at the appropriate
margin, payable quarterly in arrears; (b) letter of credit fees for

54
<PAGE>

commercial letters of credit and for standby letters of credit on the average
daily undrawn amount of each such type of letter of credit at the appropriate
interest rate margin, respectively, payable quarterly in arrears, plus
issuance, fronting, amendment fees and standard documentary and processing
charges at the appropriate interest rate margin; and (c) an annual Agents'
fee, payable quarterly.

Collateral; Guarantee

Borrowings under the New Credit Agreement will be fully secured by a lien on
all inventory, equipment, real property, general intangibles and other
property of General Medical and its subsidiaries (other than the Receivable
Subsidiary) and the proceeds thereof, by a lien on the capital stock of all
subsidiaries of General Medical and any subordinated intercompany
indebtedness. Borrowings under the New Credit Agreement will be guaranteed by
certain subsidiaries of General Medical.

Mandatory Prepayment

The Commitment may be automatically and permanently reduced by an amount
equal to a portion of the net proceeds to Holdings, General Medical or any
subsidiary of such entities from (i) asset sales, (ii) debt issuances
(excluding certain permitted debt issuances) and (iii) equity issuances
subject, in each case, to certain exceptions. A portion of the net proceeds of
asset sales may be reinvested in new assets or investments in the same general
line of business.

Optional Prepayment

General Medical will be entitled, at its option, to prepay or reduce the
Commitment subject to prior notice and certain amount limitations.

Covenants

The New Credit Agreement will contain certain covenants, customary for
transactions of this type which may include (i) limitations on consolidation,
merger and the sale or acquisition of assets by General Medical and its
subsidiaries, (ii) limitations on the incurrence of liens by General Medical
and its subsidiaries, (iii) limitations on the incurrence of indebtedness by
General Medical and its subsidiaries, (iv) limitations on annual capital
expenditures by General Medical and its subsidiaries, (v) limitations on
investments and loans by General Medical and its subsidiaries, (vi)
limitations on dividends and other restricted payments by General Medical and
its subsidiaries in respect of their capital stock, (vii) limitations on sale-
leaseback transactions, (viii) limitations on sales of accounts receivable
(with an exception for the Interim Receivables Facility), (ix) limitations on
voluntary prepayments or amendments of certain indebtedness and (x)
limitations on transactions with affiliates, in each case subject to certain
exceptions.

It is anticipated that the New Credit Agreement will also contain certain
financial covenants, which may include consolidated net worth, leverage ratio
(the definition of which will be agreed upon) and fixed charge coverage ratio
(the levels of which will be agreed upon).

Events of Default

Defaults under the New Credit Agreement will include (i) any failure of
General Medical to pay when due amounts owing in connection with the New
Credit Agreement and other amounts payable under the New Credit Agreement,
(ii) any failure to pay amounts under certain other agreements or defaults
that result in or permit the acceleration of certain other indebtedness, (iii)
the breach of certain terms and conditions or representations or warranties in
the New Credit Agreement and related documents, (iv) certain events of
bankruptcy, insolvency or dissolution, (v) the rendering of certain judgments,
(vi) defaults and other adverse matters related to certain pension plan
liabilities, (vii) any change in control of Holdings or General Medical,
(viii) the failure or invalidity of the security interests provided to the
Banks thereunder and (vii) a default under the Indentures, in each case,
subject to certain grace periods and exceptions.

55
<PAGE>

INTERIM RECEIVABLES FACILITY

The Company expects to establish an interim receivables facility (the
"Interim Receivables Facility"), with Chase Securities Inc. as arranger,
pursuant to which Chase and a syndicate of banks and other financial
institutions (together with Chase, the "Participants"), will provide interim
financing of up to $200.0 million supported by the Company's trade
receivables.

General Medical will form and capitalize a special-purpose bankruptcy-remote
subsidiary (the "Receivables Subsidiary") that will purchase, on a revolving
basis, all trade receivables and related property (collectively, the
"Receivables") generated by General Medical and certain of its subsidiaries
and affiliates (in such capacity, the "Sellers"). The purchases of Receivables
by the Receivables Subsidiary will be financed through the Interim Receivables
Facility which will be structured as either (i) revolving loans made by the
Participants to the Receivables Subsidiary that are secured by the
Receivables, (ii) the limited recourse purchase of a participation interest in
such Receivables by the Participants, or (iii) the limited recourse purchase
of such Receivables by a master trust financed by the issuance of securities
to the Participants.

The Receivables Subsidiary will purchase, at a discount, the Receivables
from each Seller (or, alternatively, from General Medical, if each other
Seller first sells its respective Receivables to General Medical) pursuant to
a receivables sale agreement (the "Receivables Sale Agreement"). Such
discounting will reflect historical losses, interest costs and turnover rates,
servicing fees and other ongoing expenses associated with the Receivables. The
Receivables Subsidiary is expected to finance its initial purchase of
Receivables with a combination of cash proceeds from the loans made by, or the
sale of participation interests or securities to, the Participants, an initial
capital contribution by General Medical in exchange for an equity interest in
the Receivables Subsidiary and, if so provided under the Receivables Sale
Agreement, subordinated unsecured notes issued by the Receivables Subsidiary
in payment for the Receivables. Ongoing purchases of Receivables by the
Receivables Subsidiary will be financed with a combination of collections in
respect of the Receivables, proceeds from new loans or increases in advances
under the participation interests or securities by the Participants, increases
in the amount owing under subordinated unsecured notes, if any, further
capital contributions by General Medical in exchange for equity interests in
the Receivables Subsidiary and (to a limited extent) through offsets against
certain repurchase obligations of the Sellers to the Receivables Subsidiary.

The interest rates applicable to the Interim Receivables Facility will be,
at the option of the Receivables Subsidiary, the Eurodollar Rate plus 0.75%
per annum or the ABR (plus a spread, if applicable). The Receivables
Subsidiary may elect interest periods of one, two, three or six months for
interest based on the Eurodollar Rate. The "ABR" means the highest of (i) the
rate of interest publicly announced by Chase as its prime rate in effect at
its principal office in New York City, (ii) the secondary market rate for
three-month certificates of deposit (adjusted for statutory reserve
requirements) plus 1% and (iii) the federal funds effective rate from time to
time plus 0.5%. The "Eurodollar Rate" means the rate (adjusted for statutory
reserve requirements for eurocurrency liabilities) at which eurodollar
deposits for one, two, three or six months (as selected by the Receivables
Subsidiary) are offered to Chase in the interbank eurodollar market.

The Receivables Sale Agreement is expected to contain certain restrictions
on the Sellers customary for facilities of this type, including but not
limited to limitations on liens on the Receivables, limitations on
modifications of the terms of the Receivables, limitations on changes from
historical credit and collection practices and limitations on changes in
payment instructions. General Medical will continue to service the Receivables
(including all billing and collection activities) sold by it and the other
Sellers and will receive a customary servicing fee from the Receivables
Subsidiary for providing such services.

The agreement providing for the funding of the Interim Receivables Facility
is expected to contain certain restrictions on the Receivables Subsidiary
customary for facilities of this type, including but not limited to
limitations on liens on the Receivables, limitations on indebtedness
(including guarantee obligations), and limitations on changes from historical
credit and collection practices. Such agreement also will contain certain
conditions precedent customary for facilities of this type.

56
<PAGE>

The Participants' commitments under the Interim Receivables Facility will
terminate on the earlier of (i) the fifth anniversary of the initial closing
of the Interim Receivables Facility, (ii) the occurrence of a material
insolvency or bankruptcy event with respect to the Sellers or the Receivables
Subsidiary and (iii) the occurrence and continuance of certain termination
events, including but not limited to nonpayments by the Sellers or the
Receivables Subsidiary of amounts when due, violation of covenants by the
Sellers or the Receivables Subsidiary, incorrectness of the representations
and warranties of the Sellers or the Receivables Subsidiary, cross-default and
cross-acceleration (including to indebtedness under the New Revolving Credit
Facility), material judgments against the Sellers or the Receivables
Subsidiary, termination events under the Receivables Sale Agreement and
invalidity of any transaction documents or security documents relating to the
Interim Receivables Facility.

Notwithstanding the Participants' five-year commitment, it is intended that
the Interim Receivables Facility be an interim facility that will be
refinanced with the proceeds of either (i) a structured receivables financing
consisting of a securitization of the Receivables, funded by means such as the
issuance of highly rated commercial paper, medium-term notes, certificates or
other forms of borrowings or (ii) another form of receivables financing.

If the Interim Receivables Facility has not been replaced within a period of
time to be agreed upon, but in any event not less than 180 days after the
initial closing of the Interim Receivables Facility, then the spread over the
Eurodollar Rate and the spread over the ABR will be increased to equal the
then applicable spread over the Eurodollar Rate or the ABR, as the case may
be, under the New Revolving Credit Facility.

The Interim Receivables Facility requires a commitment fee of 1/4 of 1% per
annum on the Facility Amount minus the net aggregate investment made by the
Participants (net of any amounts that have been paid to the Participants out
of collections). If the Interim Receivables Facility has not been replaced
within a period of time to be agreed upon, but in any event not less than 180
days after the initial closing of the Interim Receivables Facility, then the
commitment fee will adjust to the commitment fee then applicable under the New
Revolving Credit Facility.

10 7/8% NOTES

The 10 7/8% Notes were issued under an Indenture (the "10 7/8% Note
Indenture") dated as of August 31, 1993 between General Medical and The Bank
of New York, as trustee. The 10 7/8% Notes will remain outstanding following
the consummation of the Offerings. The following summary of certain provisions
of the 10 7/8% Note Indenture does not purport to be complete and is subject
to, and qualified in its entirety by reference to, all of the provisions of
the 10 7/8% Notes and the 10 7/8% Note Indenture. A copy of the 10 7/8% Note
Indenture is filed as an exhibit to the Registration Statement of which this
Prospectus is a part. Capitalized terms used in this section and not otherwise
defined shall have the meanings ascribed thereto in the 10 7/8% Notes or the
10 7/8% Note Indenture, as applicable.

The 10 7/8% Notes are unsecured senior subordinated obligations of General
Medical, limited to $105 million aggregate principal amount, and will mature
on August 15, 2003. The 10 7/8% Notes bear interest from August 31, 1993, or
from the most recent date to which interest has been paid or provided for,
payable semi-annually on February 15 and August 15 of each year, commencing on
February 15, 1994, to the persons who are registered holders thereto at the
close of business on the February 1 or August 1 preceding such interest
payment date. The 10 7/8% Notes bear interest at the rate of 10 7/8% per
annum. As of November 8, 1996, $105 million principal amount of 10 7/8% Notes
were outstanding.

57
<PAGE>

The 10 7/8% Notes are redeemable, at General Medical's option, in whole or
in part, at any time on or after August 15, 1998, and prior to maturity, at
the redemption prices (expressed as percentages of principal amount) set forth
below, plus, in each case, accrued interest (if any) to the redemption date
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date).

<TABLE>
<CAPTION>
REDEMPTION PRICE
OF THE 10
YEAR 7/8% NOTES
---- ----------------
<S> <C>
1998.................................................... 105.438%
1999.................................................... 102.719%
2000 and thereafter..................................... 100.000%
</TABLE>

Restrictive Covenants

The 10 7/8% Note Indenture and the Debenture Indenture (together, the
"Indentures") currently contain a number of covenants, including, among other
things, covenants requiring the filing with the Commission and the
distribution to Holders of certain reports under the Exchange Act, restricting
General Medical and its subsidiaries with respect to the incurrence of
indebtedness, restricting (with respect to certain subsidiaries) the issuance
or sale of capital stock, limiting the making of certain restricted payments
as described below in "--Restricted Payments," restricting certain sales of
assets or capital stock of a subsidiary, restricting certain affiliate
transactions, restricting the consummation of certain transactions such as a
sale of substantially all assets, mergers or consolidations and requiring the
repurchase of 10 7/8% Notes or 12 1/8% Debentures, as the case may be, in the
event that a Change of Control occurs.

Limitations on Indebtedness

General Medical and its Restricted Subsidiaries currently may not (subject
to certain exceptions) incur Indebtedness unless on the date of such
incurrence, after giving effect on a pro forma basis to such Indebtedness and
certain transactions in connection therewith, (i) if the date is on or prior
to December 31, 1997, the Consolidated Coverage Ratio for the most recent four
consecutive fiscal quarters would be greater than 1.75 to 1.0, and (ii) if
such date is after December 31, 1997, the Consolidated Coverage Ratio for the
most recent four consecutive fiscal quarters would be greater than 2.0 to 1.0.

Restricted Payment

Subject to certain exceptions, the Indentures currently restrict the ability
of General Medical, among other things, with respect to (i) the declaration or
payment of any dividends or any other distributions of any sort in respect of
its Capital Stock, (ii) the purchase, redemption or other acquisition or
retirement for value of any Capital Stock of General Medical, held by any
Person or of any Capital Stock of a Subsidiary held by any Affiliate of
General Medical (other than a Restricted Subsidiary), (iii) except under
certain circumstances, the purchase, repurchase, redemptions, defeasance or
other acquisition or retirement for value, prior to scheduled maturity,
scheduled repayment or scheduled sinking fund payment of any Subordinated
Obligations or (iv) except under certain circumstances, the making of any
Investment, in any Affiliate of the Company or in any Unrestricted Subsidiary
(collectively, a "Restricted Payment").

Pursuant to the Indentures, General Medical may not, and may not permit any
Restricted Subsidiary to, directly or indirectly, make a Restricted Payment if
at the time General Medical or such Restricted Subsidiary makes such
Restricted Payment (1) a Default shall have occurred and be continuing (or
would result therefrom); (2) General Medical is not able to incur an
additional $1.00 of Indebtedness pursuant to certain indebtedness limitation
provisions contained in the Indentures; or (3) the aggregate amount of such
Restricted Payment and all other Restricted Payments since the Issue Date
would exceed the sum of: (a) 50% of the Consolidated Net Income accrued during
the applicable period; (b) the aggregate Net Cash Proceeds received by General
Medical from the issuance or sale of its Capital Stock subsequent to the Issue
Date (other than an issuance or sale to a Subsidiary); (c) the amount by which
Indebtedness of General Medical is reduced upon the conversion or exchange
(other than by a Subsidiary of General Medical) of any Indebtedness of General
Medical convertible

58
<PAGE>

or exchangeable for Capital Stock; (d) certain adjustments with respect to
Restricted and Unrestricted Subsidiaries and Investments therein; and (e)
$10.0 million.

The restrictions on Restricted Payments do not prohibit, among other things,
(i) any purchase or redemption of Capital Stock or Subordinated Obligations of
General Medical made by exchange for, or out of the proceeds of the
substantially concurrent sale of, Capital Stock of General Medical; (ii) any
purchase or redemption of Subordinated Obligations of General Medical made by
exchange for, or out of the proceeds of the substantially concurrent sale of,
Indebtedness of General Medical which is permitted to be Incurred pursuant to
certain limitations on indebtedness; (iii) dividends paid within 60 days after
the date of declaration thereof if at such date of declaration such dividend
would have complied with this covenant; provided, however, that at the time of
payment of such dividend, no other Default shall have occurred and be
continuing (or result therefrom); and (iv) Investments in Unrestricted
Subsidiaries in a cumulative aggregate amount not to exceed $20 million.

EXISTING INDEBTEDNESS TO BE REFINANCED UPON CONSUMMATION OF THE OFFERINGS

The Company intends to refinance the existing indebtedness of the Company in
connection with the Offerings. The summaries of such indebtedness contained
herein do not purport to be complete and are subject to, and qualified in
their entirety by reference to, the provisions of the various agreements and
indentures related thereto, copies of which have been filed as exhibits to the
Registration Statement of which this Prospectus is a part. Capitalized terms
used in this section and not otherwise defined shall have the meanings
ascribed thereto in the Holdings Notes, the 12 1/8% Debentures, the Debenture
Indenture or the Existing Credit Facility, as applicable.

HOLDINGS NOTES

The Holdings Notes were issued in an initial aggregate principal amount of
approximately $50.0 million. As of November 8, 1996, $63.5 million principal
amount of Holdings Notes were outstanding (including $13.5 million principal
amount of Additional Holdings Notes (as defined below). All of the Holdings
Notes (including the Additional Holdings Notes) will be redeemed using net
proceeds of the Offerings.

The Holdings Notes are unsecured senior obligations of Holdings and will
mature on July 15, 2004. The Holdings Notes bear interest from July 28, 1994,
or from the most recent date to which interest has been paid or provided for,
payable semi-annually on January 15 and July 15 of each year. The Holdings
Notes bear interest at the rate of 12.5% per annum and have an effective rate
of 15.26% when taking into account the original issue discount, and bear
interest at a rate of 14.5% per annum on overdue principal. Holdings may
elect, at its option, to issue additional Holdings Notes ("Additional Holdings
Notes") in satisfaction of its interest obligations with respect to the
Holdings Notes through and including the January 15, 1999 interest payment
date. The Holdings Notes provide that, no later than July 15, 1999, Holdings
must redeem any and all Additional Holdings Notes at a redemption price,
payable in cash, equal to the principal amount of such Additional Securities
together with accrued and unpaid interest thereon through the date of such
redemption.

The Holdings Notes are redeemable, at Holdings' option in whole or in part,
at any time prior to maturity, upon 10 business days written notice to the
holder thereof, at a redemption price, payable in cash, equal to the principal
amount of the Holdings Notes so redeemed, together with accrued and unpaid
interest thereon through the date of such redemption.

The terms of the Holdings Notes require Holdings (subject to certain
exceptions) to make a mandatory redemption of an amount of such Notes held by
certain holders thereof equal to the net cash proceeds of (i) any Public
Offering by Holdings, the Company or any subsidiary of Holdings of any shares
of Capital Stock, (ii) any incurrence by the Company of any Debt or any
incurrence by Holdings of Debt ranking pari passu with or junior to the
Holdings Notes or (iii) any Transfer of Capital Stock. Such mandatory
redemption must be made of the Holdings Notes held by certain holders at a
redemption price, payable in cash, equal to the principal amount of such
Holdings Notes together with accrued and unpaid interest thereon through the
date of such redemption.

59
<PAGE>

GMI will cause Holdings to redeem all of the outstanding Holdings Notes. The
Holdings Notes Redemption price is 100% of the principal amount thereof, plus
accrued interest to the redemption date, for an aggregate price of
approximately $65 million (assuming that the Offerings and the application of
the proceeds therefrom occurred on September 30, 1996).

12 1/8% DEBENTURES

The 12 1/8% Debentures were issued under the Debenture Indenture dated as of
August 31, 1993 between General Medical and The Bank of New York, as trustee
(the "Debenture Trustee").

The 12 1/8% Debentures are unsecured subordinated obligations of General
Medical, limited to $50 million aggregate principal amount plus the principal
amount of any Additional 12 1/8% Debentures (as defined below) issued by
General Medical to make certain interest payments on the 12 1/8% Debentures,
and will mature on August 15, 2005. The 12 1/8% Debentures bear interest from
August 31, 1993, or from the most recent date to which interest has been paid
or provided for, payable semi-annually on February 15 and August 15 of each
year. Interest on the 12 1/8% Debentures which is payable on or prior to
August 15, 1998, may be paid, at the election of General Medical, in
additional 12 1/8% Debentures (the "Additional 12 1/8% Debentures") valued at
100% of the principal amount thereof. The 12 1/8% Debentures bear interest at
the rate of 12 1/8% per annum. As of November 8, 1996, $70.8 million in
principal amount of 12 1/8% Debentures were outstanding (including $20.8
million principal amount of Additional 12 1/8% Debentures).

The 12 1/8% Debentures are redeemable, at General Medical's option, in whole
or in part, at any time on or after August 15, 1998, and prior to maturity, at
the redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant payment date):

<TABLE>
<CAPTION>
REDEMPTION PRICE
OF THE
YEAR DEBENTURES
---- ----------------
<S> <C>
1998.................................................... 105.000%
1999.................................................... 102.500%
2000 and thereafter..................................... 100.000%
</TABLE>

The Debenture Indenture requires General Medical to make a mandatory
redemption payment on February 11, 1999 with respect to the 12 1/8% Debentures
to retire an aggregate principal amount of 12 1/8% Debentures equal to 100% of
the aggregate principal amount of the Additional 12 1/8% Debentures issued by
General Medical prior to such date. The redemption price is equal to 100% of
the principal amount of the 12 1/8% Debentures redeemed plus accrued interest
(if any) to the redemption date (subject to the right of Holders of record on
the relevant record date to receive interest due on the relevant interest
payment date). General Medical may, at its option, receive credit against such
mandatory redemption payment for the principal amount of 12 1/8% Debentures
otherwise acquired or redeemed by General Medical and delivered to the
Debenture Trustee for cancellation.

Concurrently with the Offerings, GMI is causing General Medical to conduct
the Debenture Tender Offer pursuant to which General Medical will offer to
purchase 100% of the 12 1/8% Debentures and will seek the consent of holders
of the 12 1/8% Debentures to certain amendments to such restrictive covenants.

The Debenture Indenture contains certain covenants that are substantially
similar to the covenants contained in the 10 7/8% Note Indenture as described
above in "--10 7/8 Notes."

EXISTING CREDIT FACILITY

In October 1995, General Medical entered into an amendment to its existing
credit facility (the "Existing Credit Facility") providing for, among other
things, an increase in the credit commitment to an aggregate of

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<PAGE>

$235.0 million and the modification of covenants to permit the consolidation
of the General Medical's distribution centers. Borrowings under this long-term
facility, which expires August 31, 1998, are secured by specified assets, in
accordance with a formula, as defined in the Existing Credit Facility.
Additionally, the Existing Credit Facility requires the maintenance of certain
levels of working capital, net worth and cash flows, and imposes restrictions
on investments, fixed asset additions, cash dividends and other borrowings.
Under the most restrictive provisions of the Existing Credit Facility, General
Medical must maintain a consolidated net worth amount of not less than $142.0
million and is prohibited from paying any dividends except in certain
circumstances to Holdings. Interest on outstanding amounts under the Existing
Credit Facility will vary with changing market rates.

AGREEMENTS BY THE COMPANY AND HOLDINGS

In connection with the execution of the amendment and restatement of the
Existing Credit Agreement on July 28, 1994, Holdings amended and restated an
agreement it had entered into in favor of Chemical Bank, as administrative
agent. This amended and restated agreement was subsequently amended on
November 21, 1994 and is herein referred to as the "Holdings Agreement." The
Company executed a similar agreement in favor of Chemical Bank, as
administrative agent (the "GMI Agreement"). Each of the Holdings Agreement and
the GMI Agreement contain certain affirmative covenants of Holdings and GMI,
respectively, as well as certain negative covenants restricting Holdings and
GMI, as the case may be, from engaging in certain activities until all
obligations under the Existing Credit Facility have been paid in full and the
commitments thereunder have been terminated. As a result, the Holdings
Agreement and the GMI Agreement will terminate upon the refinancing of the
Existing Credit Facility upon the consummation of the Offerings.

The foregoing summary of the Holdings Agreement and the GMI Agreement is
qualified in its entirety by reference to, the Holdings Agreement and the GMI
Agreement which are filed as exhibits to the Registration Statement of which
this Prospectus is a part.

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<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

There has been no public trading market for the Common Stock prior to the
Offerings. No prediction can be made as to the effect, if any, that market
sales of shares of Common Stock or the availability of shares of Common Stock
for sale will have on the market price prevailing from time to time.
Nevertheless, sales of substantial amounts of Common Stock in the public
market after the lapse of the restrictions described below could adversely
affect prevailing market prices and the ability of the Company to raise equity
capital in the future at a time and price which it deems appropriate.

Upon completion of the Offerings, GMI will have shares of Common Stock
( shares if the U.S. Underwriters' over-allotment option is exercised in
full) outstanding (the "Outstanding Common Shares") and shares of Class A
Common Stock outstanding (the "Outstanding Class A Common Shares"). GMI will
also have outstanding options to acquire an additional shares of Common
Stock ("Issuable Common Shares") pursuant to GMI's stock incentive plans. An
aggregate of of the Outstanding Common Shares and Issuable Common
Shares and of the Outstanding Class A Common Shares are subject to Lock-up
Agreements, as that term is hereinafter defined, for a period of 180 days
after the date of this Prospectus. In addition, Outstanding Common
Shares, Class A Common Shares and Issuable Common Shares are
held by persons whom GMI believes are Affiliates of GMI, as that term is
hereinafter defined, and are therefore subject to certain restrictions on
resale, as described below.

Of the Outstanding Common Shares, the Common Shares to be
sold pursuant to the Offerings and Outstanding Common Shares previously
registered under the Securities Act will generally be freely tradeable without
restriction, except for any shares of Common Stock that may be held by
Affiliates. The remaining Outstanding Common Shares were issued and
sold without registration under the Securities Act, and public sale thereof
will be restricted except to the extent such Outstanding Common Shares are
registered under the Securities Act or sold in accordance with applicable
exemptions from registration, including Rule 144 under the Securities Act
("Rule 144"), as described below.

The Issuable Common Shares are subject to issuance upon the exercise
of nontransferable stock options granted under GMI's stock incentive plans.
GMI may register such Issuable Common Shares, along with an additional amount
to cover future issuances of plan options, following the closing of the
Offerings. Shares of Common Stock issued pursuant to plan options after the
effective date of a registration statement covering such shares generally may
be sold immediately in the public market; however, certain Affiliates and non-
Affiliates own in the aggregate plan options, and any shares of Common
Stock issued to such persons upon exercise of such options would be subject to
Lock-up Agreements. See "Management--Grants of Stock Options." Of the
Issuable Common Shares subject to options, of such Issuable Common
Shares would be held by persons who are presently non-Affiliates, and after
the effective date of the registration statement covering such Issuable Common
Shares would be freely tradeable without restriction upon issuance, except
that of such Issuable Common Shares would be subject to Lock-up
Agreements.

Each of GMI's executive officers and directors and certain other
stockholders have agreed, subject to certain limited exceptions, not to offer,
sell, contract to sell or otherwise dispose of any Outstanding Common Shares,
Outstanding Class A Common Shares or Issuable Common Shares held by them for a
period of 180 days following the date of this Prospectus, without the written
consent of Smith Barney Inc., pursuant to the terms of individual lock-up
agreements (each a "Lock-up Agreement"). An aggregate of of the
Outstanding Common Shares and Issuable Common Shares and Outstanding Class
A Common Shares held by Affiliates and certain non-Affiliates are subject to
Lock-up Agreements. See "Underwriting."

Under Rule 144 as currently in effect, any person who has beneficially owned
"restricted" shares of Common Stock (i.e., shares acquired directly or
indirectly from GMI or an Affiliate in a transaction or chain of transactions
not involving any public offering) for at least two years, is entitled to
sell, within any three-month period, a number of such shares (which number
must include shares of other persons whose shares are aggregated with such
shares) that does not exceed the greater of 1% of the then-outstanding shares
of Common Stock or the average weekly trading volume of the Common Stock on
Nasdaq during the four calendar weeks preceding such sale. Sales under Rule
144 are subject to certain restrictions relating to manner of sale, notice and
the availability

62
<PAGE>

of current public information about GMI. In addition, a person who has not
been an Affiliate of GMI at any time during the three months preceding a sale,
and who has beneficially owned shares for at least three years, would be
entitled to sell such shares without regard to the foregoing volume
limitations, manner of sale provisions or notice or other requirements of Rule
144. Sales of shares of Common Stock by an Affiliate of GMI (or by a person
who has been an Affiliate within the three months preceding the sale), are
subject to such volume limitations, manner of sale provisions and notice and
other requirements of Rule 144, regardless of the period of time that such
shares are held by such Affiliate (and whether such shares were acquired not
by way of public offering). Because GMI's obligation to file periodic reports
with the Commission pursuant to the Securities Exchange Act of 1934 was
suspended prior to the filing of the Registration Statement of which this
Prospectus is a part, sales under Rule 144 cannot take place prior to 90 days
after the date of this Prospectus. "Affiliates" of GMI include all executive
officers and directors of GMI and all other persons that directly, or
indirectly through one or more intermediaries, control, or are controlled by,
or are under common control with, GMI.

The Securities and Exchange Commission has proposed amendments to Rule 144
and 144(k) that would permit resales of "restricted" shares under Rule 144
after a one-year, rather than a two-year holding period, subject to compliance
with the other provisions of Rule 144, and would permit resale of such shares
by non-Affiliates under Rule 144(k) after a two-year, rather than a three-year
holding period. Adoption of such amendments could result in resales of Common
Stock sooner than would be the case under Rule 144 and 144(k) as currently in
effect.

To the extent that the Company's existing resources and future earnings are
not sufficient to fund the Company's activities, including future acquistions,
or to repay indebtedness, the Company may need to raise additional funds
through public or private financings. If additional funds are raised through
the issuance of equity securities, the percentage ownership of the Company's
stockholders at that time would be diluted. Further, such equity securities
may have rights, preference or privileges senior to those of the Common Stock.

In addition, certain of GMI's stockholders, including affiliates of Kelso,
are entitled to certain registration rights with respect to their shares of
Common Stock and Class A Common Stock. If such stockholders, by exercising
such registration rights upon expiration or waiver of the Lock-up Agreement
described above, cause a large number of shares to be registered and sold in
the public market, such sales could have an adverse effect on the market price
of the Common Stock.

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<PAGE>

CERTAIN UNITED STATES TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS

The following is a general summary of certain United States federal income
and estate tax consequences expected to result under current law from the
purchase, ownership, sale or other taxable disposition of Common Stock by any
person or entity other than (a) a citizen or resident of the United States,
(b) a corporation or partnership created or organized in or under the laws of
the United States or of any state thereof, or (c) any estate or trust that is
not treated as a foreign estate or trust for United States federal income tax
purposes (a "non-U.S. Holder"). This summary does not address all United
States federal income and estate tax considerations that may be relevant to
non-U.S. Holders in light of their particular circumstances or to certain non-
U.S. Holders that may be subject to special treatment under United States
federal income tax laws. Furthermore, this summary does not discuss any
aspects of foreign, state or local taxation. This summary is based on current
provisions of the Code, existing, temporary and proposed regulations
promulgated thereunder and administrative and judicial interpretations
thereof, all of which are subject to change, possibly with retroactive effect.
Each prospective purchaser of Common Stock is advised to consult its tax
advisor with respect to the tax consequences of acquiring, holding and
disposing of Common Stock.

DIVIDENDS

Dividends paid to a non-U.S. Holder of Common Stock generally will be
subject to withholding of United States federal income tax at a 30% rate (or
such lower rate as may be specified by an applicable income tax treaty),
unless the dividend is effectively connected with the conduct of a trade or
business of the non-U.S. Holder within the United States, in which case the
dividend will be taxed at ordinary federal income tax rates. If the non-U.S.
Holder is a corporation, such effectively connected income may also be subject
to an additional "branch profits tax." A non-U.S. Holder may be required to
satisfy certain certification requirements in order to claim treaty benefits
or otherwise claim a reduction of, or exemption from, withholding tax pursuant
to the above described rules.

SALE OR OTHER DISPOSITION COMMON STOCK

A non-U.S. Holder generally will not be subject to United States federal
income tax in respect of any gain recognized on the sale or other taxable
disposition of Common Stock unless (i) the gain is effectively connected with
a trade or business of the non-U.S. Holder in the United States; (ii) in the
case of a non-U.S. Holder who is an individual and holds the Common Stock as a
capital asset, the holder is present in the United States for 183 or more days
in the taxable year of the disposition and either (a) the individual has a
"tax home" for United States federal income tax purposes in the United States
or (b) the gain is attributable to an office or other fixed place of business
maintained by the individual in the United States; (iii) the non-U.S. Holder
is subject to tax pursuant to the provisions of United States federal income
tax law applicable to certain United States expatriates; or (iv) the Issuer is
or has been during certain periods preceding the disposition a "U.S. real
property holding corporation" for United States federal income tax purposes
(which the Company does not believe it is or is likely to become) and,
assuming that the Common Stock continues to be "regularly traded on an
established securities market" for tax purposes, the non-U.S. Holder held,
directly or indirectly, at any time during the five-year period ending on the
date of disposition, more than 5% of the outstanding Common Stock.

BACKUP WITHHOLDING AND REPORTING REQUIREMENTS

DIVIDENDS. United States backup withholding tax will generally not apply to
dividends paid on Common Stock to a non-U.S. Holder at an address outside the
United States. The Issuer must report annually to the Internal Revenue Service
and to each non-U.S. Holder the amount of dividends paid to, and the tax, if
any, withheld with respect to, such holder. This information may also be made
available to the tax authorities in the non-U.S. Holder's country of
residence.

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<PAGE>

SALE OR OTHER DISPOSITION OF COMMON STOCK. Upon the sale or other taxable
disposition of Common Stock by a non-U.S. Holder to or through a United States
office of a broker, the broker must backup withhold at a rate of 31% and
report the sale to the Internal Revenue Service, unless the holder certifies
its non-U.S. status under penalties of perjury or otherwise establishes an
exemption. Upon the sale or other taxable disposition of Common Stock by a
non-U.S. Holder to or through the foreign office of a United States broker, or
a foreign broker with certain types of relationships to the United States, the
broker must report the sale to the Internal Revenue Service (but not backup
withhold) unless the broker has documentary evidence in its files that the
seller is a non-U.S. Holder and/or certain other conditions are met, or the
holder otherwise establishes an exemption.

BACKUP WITHHOLDING IS NOT AN ADDITIONAL TAX. Amounts withheld under the
backup withholding rules are generally allowable as a refund or credit against
such non-U.S. Holder's United States federal income tax liability, if any,
provided that the required information is furnished to the Internal Revenue
Service.

PROPOSED REGULATIONS. On April 22, 1996, the Internal Revenue Service issued
proposed regulations relating to withholding, backup withholding and
information reporting that, if adopted in their current form, would, among
other things, unify current certification procedures and forms and clarify
reliance standards. The proposed regulations would, among other things,
eliminate the general current law presumption that dividends paid to an
address in a foreign country are paid to a resident of that country and would
impose certain certification and documentation requirements on non-U.S.
Holders claiming the benefit of a reduced withholding rate with respect to
dividends under a tax treaty. These regulations generally are proposed to be
effective with respect to payments made after December 31, 1997, although in
certain cases they are proposed to be effective only with respect to payments
made after December 31, 1999. Proposed regulations are subject to change,
however, prior to their adoption in final form.

FEDERAL ESTATE TAXES

Common Stock owned or treated as owned by an individual who is not a citizen
or resident (as specially defined for United States federal estate tax
purposes) of the United States at the time of death will be included in such
individual's gross estate for United States federal estate tax purposes,
unless an applicable estate tax treaty provides otherwise.

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<PAGE>

UNDERWRITING

Under the terms and subject to the conditions in the U.S. Underwriting
Agreement, each of the underwriters of the U.S. Offering named below (the
"U.S. Underwriters"), for whom Smith Barney Inc., Morgan Stanley & Co.
Incorporated, Alex. Brown & Sons Incorporated and CS First Boston Corporation
are acting as the Representatives (the "Representatives"), has severally
agreed to purchase, and GMI has agreed to sell to each U.S. Underwriter, the
number of shares of Common Stock set forth opposite the name of such U.S.
Underwriter below:

<TABLE>
<CAPTION>
NUMBER OF
U.S. UNDERWRITERS SHARES
----------------- ---------
<S> <C>
Smith Barney Inc...............................................
Morgan Stanley & Co. Incorporated..............................
Alex. Brown & Sons Incorporated................................
CS First Boston Corporation....................................
---
Total..........................................................
===
</TABLE>

Under the terms and subject to the conditions contained in the International
Underwriting Agreement, each of the managers of the concurrent International
Offering named below (the "Managers"), for whom Smith Barney Inc., Morgan
Stanley & Co. International Limited, Alex. Brown & Sons Incorporated and CS
First Boston Limited are acting as the lead managers (the "Lead Managers"),
has severally agreed to purchase, and GMI has agreed to sell to each Manager,
the number of shares of Common Stock set forth opposite the name of such
Manager below:

<TABLE>
<CAPTION>
NUMBER OF
MANAGERS SHARES
-------- ---------
<S> <C>
Smith Barney Inc...............................................
Morgan Stanley & Co. International Limited.....................
Alex. Brown & Sons Incorporated................................
CS First Boston Limited........................................
---
Total..........................................................
===
</TABLE>

Each of the U.S. Underwriting Agreement and the International Underwriting
Agreement provides that the obligations of the several U.S. Underwriters and
the several Managers to pay for and accept delivery of the shares of Common
Stock offered hereby are subject to the approval of certain legal matters by
counsel and to certain other conditions. The U.S. Underwriters and the
Managers are obligated to take and pay for all shares of Common Stock offered
hereby (other than those covered by the over-allotment option described below)
if any such shares are taken.

The U.S. Underwriters and the Managers (collectively, the "Underwriters")
initially propose to offer part of the shares offered hereby directly to the
public at the public offering price set forth on the cover page of this

66
<PAGE>

Prospectus and part of the shares to certain dealers at a price that
represents a concession not in excess of $ per share under the public
offering price. The U.S. Underwriters and the Managers may allow, and such
dealers may reallow, a concession not in excess of $ per share to other U.S.
Underwriters or Managers, respectively, or to certain other dealers. After the
initial public offering, the public offering price and such concessions may be
changed by the Underwriters. The Representatives and the Lead Managers have
advised GMI that the U.S. Underwriters and the Managers do not intend to
confirm any sales to accounts over which they exercise discretionary
authority.

GMI has granted to the U.S. Underwriters an option, exercisable for 30 days
from the date of this Prospectus, to purchase up to an aggregate of
additional shares of Common Stock at the public offering price set forth on
the cover page of this Prospectus less underwriting discounts and commissions.
The U.S. Underwriters may exercise such option to purchase additional shares
solely for the purpose of covering over-allotments, if any, incurred in
connection with the sale of the shares of Common Stock offered hereby. To the
extent such option is exercised, each U.S. Underwriter will become obligated,
subject to certain conditions, to purchase approximately the same percentage
of such additional shares as the number of shares set forth opposite such U.S.
Underwriter's name in the preceding U.S. Underwriters table bears to the total
number of shares of Common Stock set forth therein.

More than 10% of the net proceeds from the Offerings will be used to redeem
all of the outstanding Holdings Notes. See "Use of Proceeds." All of the
Holdings Notes are owned by affiliates of Morgan Stanley & Co. Incorporated,
one of the Underwriters. Consequently, the Offerings are being made pursuant
to the provisions of Section 2710(c)(8) of the Conduct Rules of the National
Association of Securities Dealers, Inc. Pursuant to such provisions, the
public offering price of an equity security can be no higher than the price
recommended by a "qualified independent underwriter" meeting certain
standards. In accordance with this requirement, Smith Barney Inc. will serve
in such role, and the price of the Common Stock will be no higher than that
recommended by Smith Barney Inc. in its capacity as the qualified independent
underwriter. In such capacity and in its capacity as one of the Underwriters,
Smith Barney Inc. has participated in the preparation of the Registration
Statement of which this Prospectus is a part and performed due diligence with
respect thereto. GMI, Holdings and General Medical have agreed to indemnify
Smith Barney Inc., in its capacity as the qualified independent underwriter,
against certain liabilities, including liabilities under the Securities Act.

GMI, Holdings and General Medical and the U.S. Underwriters and the Managers
have agreed to indemnify each other against certain liabilities, including
liabilities under the Securities Act.

Each of (i) GMI, (ii) GMI's officers and directors set forth under the
heading "Management" in this Prospectus, and (iii) certain of its
stockholders, holding in the aggregate approximately shares of
Common Stock following consummation of the Offerings, have agreed that, for a
period of 180 days after the date of this Prospectus, they will not, without
the prior written consent of Smith Barney Inc., offer, sell, contract to sell
or otherwise dispose of, any shares of Common Stock or securities convertible
into or exercisable or exchangeable for Common Stock, or grant any options or
warrants to purchase Common Stock.

The U.S. Underwriters and the Managers have entered into an Agreement
Between U.S. Underwriters and Managers pursuant to which each U.S. Underwriter
has agreed that, as part of the distribution of the shares offered in the U.S.
Offering (i) it is not purchasing any such shares for the account of anyone
other than a U.S. or Canadian Person and (ii) it has not offered or sold, and
will not, offer, sell, resell or deliver, directly or indirectly, any of such
shares or distribute any prospectus relating to the U.S. Offering outside the
United States or Canada or to anyone other than a U.S. or Canadian Person. In
addition, each Manager has agreed that as part of the distribution of the
shares offered in the International Offering: (i) it is not purchasing any
such shares for the account of any U.S. or Canadian Person and (ii) it has not
offered or sold, and will not offer, sell, resell or deliver, directly or
indirectly, any of such shares or distribute any prospectus relating to the
International Offering in the United States or Canada or to any U.S. or
Canadian Person. Each Manager has also agreed that it will offer to sell
shares only in compliance with all relevant requirements of any applicable
laws.

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<PAGE>

The foregoing limitations do not apply to stabilization transactions or to
certain other transactions specified in the U.S. Underwriting Agreement, the
International Underwriting Agreement and the Agreement Between U.S.
Underwriters and Managers, including: (i) certain purchases and sales between
the U.S. Underwriters and the Managers, (ii) certain offers, sales, resales,
deliveries or distributions to or through investment advisors or other persons
exercising investment discretion, (iii) purchases, offers or sales by a U.S.
Underwriter who is also acting as Manager or by a Manager who is also acting
as a U.S. Underwriter and (iv) other transactions specifically approved by the
Representatives and the Lead Managers. As used herein, "U.S. or Canadian
Person" means any resident or national of the United States or Canada, any
corporation, partnership or other entity created or organized in or under the
laws of the United States or Canada or any estate or trust the income of which
is subject to United States or Canadian income taxation regardless of the
source of its income (other than the foreign branch of any U.S. or Canadian
Person), and includes any United States or Canadian branch of a person other
than a U.S. or Canadian Person.

Any offer of shares in Canada will be made only pursuant to an exemption
from the requirement to file a prospectus in the relevant province of Canada
in which such offer is made.

Each Manager agrees that (i) it will not offer or sell any shares of Common
Stock to persons in the United Kingdom, except to persons whose ordinary
activities involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of their businesses or
otherwise in circumstances which will not involve an offer to the public in
the United Kingdom within the meaning of the Public Offers of Securities
Regulations 1995 ("the Regulations"); (ii) it will comply with all applicable
provisions of the Financial Services Act 1986 and the Regulations with respect
to anything done by it in relation to the shares in, from, or otherwise
involving the United Kingdom; and (iii) it will only issue or pass on to any
person in the United Kingdom any document received by it in connection with
the offer of the shares if that person is of a kind described in Article 11(3)
of the Financial Services Act 1986 (Investment Advertisements) (Exemptions)
Order 1995, or is a person to whom such document may otherwise lawfully be
issued or passed on.

No action has been or will be taken in any jurisdiction by the Company, the
U.S. Underwriters or the Managers that would permit an offering to the general
public of the shares of Common Stock offered hereby in any jurisdiction other
than the United States.

Purchasers of the shares of Common Stock offered hereby may be required to
pay stamp taxes and other charges in accordance with the laws and practices of
the country of purchase in addition to the offering price set forth on the
cover page hereof.

Pursuant to the Agreement Between U.S. Underwriters and Managers, sales may
be made between the U.S. Underwriters and the Managers of such number of
shares as may be mutually agreed. The price of any shares so sold shall be the
public offering price as then in effect for shares of Common Stock being sold
by the U.S. Underwriters and the Managers, less all or any part of the selling
concession, unless otherwise determined by mutual agreement. To the extent
that there are sales between the U.S. Underwriters and the Managers pursuant
to the Agreement Between U.S. Underwriters and Managers, the number of shares
initially available for sale by the U.S. Underwriters and by the Managers may
be more or less than the number of shares appearing on the front cover of this
Prospectus.

Prior to the Offerings, there has been no public market for the Common
Stock. The initial public offering price for the shares of Common Stock
included in the Offerings will be determined by negotiations between GMI and
the Representatives. Among the factors to be considered in determining such
price will be the history of and prospects for the Company's business and the
industry in which it competes, an assessment of the Company's management and
the present state of the Company's development, the past and present revenues
and earnings of the Company, the prospects for growth of the Company's
revenues and earnings, the current state of the economy in the United States
and the current level of economic activity in the industry in which the
Company competes and in related or comparable industries, and currently
prevailing conditions in the securities markets, including current market
valuations of publicly traded companies which the Company and the Underwriters
believe to be comparable to the Company.

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<PAGE>

Application has been made to have the Common Stock quoted on the Nasdaq
National Market under the symbol "GENM." There can be no assurance that an
active or significant trading market for the Common Stock will develop or
continue or that the Common Stock will trade in the public market subsequent
to the Offerings or at or above the initial public offering price. See "Risk
Factors--Absence of Prior Public Trading Market; Potential Volatility of Stock
Price."

The Representatives have in the past provided and may continue to provide
investment banking services to the Company and Kelso and its affiliates.

Morgan Stanley & Co. Incorporated and Smith Barney Inc. are acting as Dealer
Managers in the Debenture Tender Offer and the Consent Solicitation, for which
they will receive customary compensation.

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<PAGE>

LEGAL MATTERS

Certain legal matters with respect to the validity of the shares of Common
Stock offered hereby will be passed upon for the Company by McGuire, Woods,
Battle & Boothe, L.L.P., and certain legal matters with respect to other
matters will be passed upon for the Company by Skadden, Arps, Slate, Meagher &
Flom LLP. Debevoise & Plimpton has acted as counsel for the Underwriters.
Skadden, Arps, Slate, Meagher & Flom LLP, Debevoise & Plimpton and McGuire,
Woods, Battle & Boothe, L.L.P. have from time to time represented, and may
continue to represent, the Underwriters in connection with various legal
matters. Skadden, Arps, Slate, Meagher & Flom LLP has from time to time
represented, and may continue to represent, the Company, Kelso and certain of
their respective affiliates in connection with certain legal matters.
Debevoise & Plimpton has from time to time represented, and may continue to
represent, Kelso and certain of its affiliates in connection with certain
legal matters. McGuire, Woods, Battle & Boothe, L.L.P. has from time to time
represented, and may continue to represent, the Company and certain affiliates
of Kelso in connection with certain legal matters. Wellford L. Sanders, Jr., a
partner of McGuire, Woods, Battle & Boothe, L.L.P., is a director of GMI.
Lawyers of McGuire, Woods, Battle & Boothe, L.L.P. who have performed services
in connection with the Offerings own an aggregate of shares of Common
Stock. Mr. Sanders has an option to purchase an additional shares of
Common Stock.

EXPERTS

The Consolidated Financial Statements and schedules of General Medical Inc.
as of December 31, 1994 and 1995, and September 30, 1996 and for the eight
month period ended August 31, 1993, the four month period ended December 31,
1993 and each of the two years ended December 31, 1994 and 1995 and the nine
month period ended September 30, 1996 included in this Prospectus and the
related financial statement schedules included elsewhere in the Registration
Statement (as defined herein), have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports appearing herein, and
elsewhere in the Registration Statement, and have been so included in reliance
upon the reports of such firm given upon their authority as experts in
accounting and auditing.

The Consolidated Financial Statements of Randolph Medical Inc. as of
September 30, 1994 and for each of the two years in the period ended September
30, 1994, appearing in this Prospectus and elsewhere in the Registration
Statement have been audited by Follmer, Rudzewicz & Co., P.C. independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given upon the authority of said
firm as experts in accounting and auditing.

AVAILABLE INFORMATION

GMI has filed with the Securities and Exchange Commission (the "Commission")
a Registration Statement on Form S-1 under the Securities Act, with respect to
the Common Stock offered hereby. This Prospectus, which is part of the
Registration Statement, does not contain all of the information set forth in
the Registration Statement. For further information with respect to GMI and
the Common Stock offered hereby, reference is hereby made to the Registration
Statement. Statements contained in this Prospectus regarding the contents of
any contract, agreement or other document are not necessarily complete. With
respect to each such contract, agreement or document filed as an exhibit to
the Registration Statement, reference is made to the exhibit for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in all respects by such reference.

GMI was subject to the informational requirements of the Exchange Act during
the fiscal year ended December 31, 1995 as a result of its filing a
Registration Statement on Form S-4 which became effective in January 1995.
GMI's obligation to file periodic reports with the Commission pursuant to the
Exchange Act has been suspended as a result of its having less than 300
holders of record of the Common Stock and Class A Common Stock as of January
1, 1996, the beginning of its 1996 fiscal year.

70
<PAGE>

As a result of the filing of the Registration Statement of which this
Prospectus is a part, GMI will become subject to the informational
requirements of the Exchange Act and, in accordance therewith, will be
required to file reports and other information with the Commission. The
Registration Statement filed by GMI with the Commission, as well as such
reports and other information filed by GMI with the Commission, may be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and
should also be available for inspection and copying at the regional offices of
the Commission located in the Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661 and 7 World Trade Center, 13th Floor, New York,
New York 10048. Copies of such material can also be obtained by mail from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. Copies of such material also will
be available for inspection at the offices of The Nasdaq Stock Market, Inc.,
1735 K Street, NW, Washington, DC 20006-1500. Such material may also be
accessed electronically by means of the Commission's home page on the Internet
(http://www.sec.gov).

GMI intends to furnish its stockholders with annual reports containing
financial statements audited by an independent certified public accounting
firm and quarterly reports containing unaudited financial information for the
first three quarters of each fiscal year.

71
<PAGE>

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
(1)FINANCIAL STATEMENTS OF GENERAL MEDICAL INC.
GENERAL MEDICAL INC. AND SUBSIDIARY:
Independent Auditors' Report............................................ F-2
Consolidated Balance Sheets at December 31, 1994 and 1995 and at Septem-
ber 30, 1996........................................................... F-4
Consolidated Statements of Operations for the Eight Month Period Ended
August 31, 1993 (Predecessor) and the Four Month Period Ended December
31, 1993 and the Years Ended December 31, 1994 and 1995 and the Nine
Month Period Ended September 30, 1996; including the Unaudited
Consolidated Statement of Operations for the Nine Month Period Ended
September 30, 1995..................................................... F-6
Consolidated Statements of Cash Flows for the Eight Month Period Ended
August 31, 1993 (Predecessor) and the Four Month Period Ended December
31, 1993 and the Years Ended December 31, 1994 and 1995 and the Nine
Month Period Ended September 30, 1996; including the Unaudited
Consolidated Statement of Cash Flows for the Nine Month Period Ended
September 30, 1995..................................................... F-7
Consolidated Statements of Stockholders' Equity for the Four Month
Period Ended December 31, 1993 and the Years Ended December 31, 1994
and 1995 and the Nine Month Period Ended September 30, 1996............ F-8
Notes to Consolidated Financial Statements.............................. F-9
(2)FINANCIAL STATEMENTS OF BUSINESS ACQUIRED OR TO BE ACQUIRED
RANDOLPH MEDICAL INC. AND SUBSIDIARIES:
Independent Auditors' Report............................................ F-20
Consolidated Balance Sheet at September 30, 1994........................ F-21
Consolidated Statement of Changes in Stockholders' Equity for the year
ended September 30, 1994............................................... F-22
Consolidated Statement of Income and Expenses for the years ended Sep-
tember 30, 1994 and 1993............................................... F-23
Consolidated Statement of Cash Flows for the years ended September 30,
1994 and 1993.......................................................... F-24
Notes to Consolidated Financial Statements.............................. F-26
</TABLE>

F-1
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors of

General Medical Inc.

We have audited the accompanying consolidated balance sheets of General
Medical Inc. (formerly New GMH, Inc.)(the "Company") and subsidiary as of
December 31, 1994 and 1995, and September 30, 1996, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the eight month period ended August 31, 1993 ("Predecessor") and for the four
month period ended December 31, 1993 and for the two years ended December 31,
1994 and 1995 and for the nine month period ended September 30, 1996
("Successor"). These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company and subsidiary at
December 31, 1994 and 1995, and September 30, 1996 and the results of the
Predecessor's operations and its cash flows for the eight month period ended
August 31, 1993 and the results of the Successor's operations and its cash
flows for the four month period ended December 31, 1993 and for the two years
ended December 31, 1994 and 1995 and for the nine month period ended September
30, 1996 in conformity with generally accepted accounting principles.

As more fully described in Notes 1 and 2 to the consolidated financial
statements, through its wholly-owned subsidiary, GM Holdings, Inc. acquired
General Medical Corporation as of August 31, 1993 in a business combination
accounted for as a purchase. As a result of the acquisition, the consolidated
financial statements for the Successor are presented on a different basis of
accounting than that of the Predecessor, and therefore are not directly
comparable.

DELOITTE & TOUCHE LLP

Richmond, Virginia

November 26, 1996

F-2
<PAGE>

[THIS PAGE INTENTIONALLY LEFT BLANK]

F-3
<PAGE>

GENERAL MEDICAL INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
DECEMBER 31,
------------------ SEPTEMBER 30,
1994 1995 1996
-------- -------- -------------
ASSETS
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.................. $ 5,772 $ 3,637 $ 5,243
Trade accounts receivable, net of reserves
of $3,158, $5,089 and $6,279,
respectively.............................. 156,548 202,528 212,901
Inventories--merchandise................... 135,035 163,558 159,619
Prepaid expenses........................... 1,040 5,392 3,464
-------- -------- --------
Total current assets..................... 298,395 375,115 381,227
-------- -------- --------
PROPERTY, PLANT AND EQUIPMENT:
Land....................................... 1,385 1,141 1,141
Buildings.................................. 10,310 8,529 8,529
Machinery and equipment.................... 20,455 29,383 34,630
Leasehold improvements..................... 1,539 2,099 4,267
-------- -------- --------
33,689 41,152 48,567
Less accumulated depreciation and
amortization.............................. (6,412) (12,136) (15,192)
-------- -------- --------
Property, plant and equipment, net....... 27,277 29,016 33,375
-------- -------- --------
EXCESS OF PURCHASE PRICE OVER NET ASSETS
ACQUIRED, NET............................... 253,263 255,407 249,607
OTHER ASSETS................................. 22,411 23,979 20,990
-------- -------- --------
TOTAL ASSETS................................. $601,346 $683,517 $685,199
======== ======== ========
</TABLE>

See notes to consolidated financial statements.

F-4
<PAGE>

GENERAL MEDICAL INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
DECEMBER 31,
------------------ SEPTEMBER 30,
1994 1995 1996
-------- -------- -------------
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................. $130,228 $149,439 $172,233
Accrued liabilities.......................... 37,520 34,015 17,994
Accrued consolidation costs.................. -- 7,839 6,099
Accrued compensation......................... 10,155 8,435 9,017
Current maturities of long-term debt......... 613 905 722
-------- -------- --------
Total current liabilities.................. 178,516 200,633 206,065
-------- -------- --------
Senior credit agreement........................ 140,354 207,812 187,661
Senior subordinated notes...................... 105,000 105,000 105,000
Subordinated pay-in-kind debentures............ 55,966 62,939 70,779
Senior notes, net of discount.................. 41,848 48,336 55,944
Deferred taxes................................. 5,157 596 740
Other long-term liabilities.................... 1,729 1,022 611
Commitments and contingencies
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 8,398,500,
8,938,902, 9,110,476 shares issued.......... 84 89 91
Class A convertible common stock, $.01 par
value; 1,214,231 shares issued.............. 12 12 12
Additional paid-in capital................... 101,941 109,115 111,823
Predecessor basis in accounting.............. (20,814) (20,814) (20,814)
Retained deficit............................. (7,372) (25,844) (26,901)
Treasury stock--at cost; 97,726, 364,863 and
386,355 shares held, respectively........... (1,075) (5,379) (5,812)
-------- -------- --------
Total stockholders' equity................. 72,776 57,179 58,399
-------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY..... $601,346 $683,517 $685,199
======== ======== ========
</TABLE>

F-5
<PAGE>

GENERAL MEDICAL INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
PREDECESSOR COMPANY COMPANY
------------ -------------------------------------- ---------------------------
EIGHT MONTH FOUR MONTH YEAR YEAR NINE MONTH NINE MONTH
PERIOD ENDED PERIOD ENDED ENDED ENDED PERIOD ENDED PERIOD ENDED
AUGUST 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1993 1993 1994 1995 1995 1996
------------ ------------ ------------ ------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Sales................. $610,849 $ 300,689 $1,112,716 $ 1,490,919 $ 1,098,502 $ 1,270,512
Other income.......... 792 232 1,124 1,224 940 916
-------- --------- ---------- ----------- ----------- -----------
611,641 300,921 1,113,840 1,492,143 1,099,442 1,271,428
Cost of sales........... 503,744 249,219 912,182 1,214,714 895,775 1,036,701
Selling, general and
administrative
expenses............... 88,210 43,969 161,662 236,429 174,290 189,704
Consolidation costs..... -- -- -- 10,216 9,561 2,031
Loss (gain) on sale of
manufacturing assets... -- -- (2,788) 709 -- --
Amortization of excess
of purchase price over
net assets acquired.... -- 1,780 5,530 6,678 4,996 5,043
Amortization of other
intangible assets...... -- 2,053 5,994 2,714 2,239 630
Interest expense........ 3,828 8,534 32,006 45,183 33,262 35,836
-------- --------- ---------- ----------- ----------- -----------
Income (loss) before
income taxes........... 15,859 (4,634) (746) (24,500) (20,681) 1,483
Income tax provision
(benefit).............. 6,565 (727) 2,719 (6,028) (5,260) 2,540
-------- --------- ---------- ----------- ----------- -----------
Income (loss) from
continuing operations.. 9,294 (3,907) (3,465) (18,472) (15,421) (1,057)
Income from discontinued
operations............. 1,141 -- -- -- -- --
-------- --------- ---------- ----------- ----------- -----------
Net income (loss)....... $ 10,435 $ (3,907) $ (3,465) $ (18,472) $ (15,421) $ (1,057)
======== ========= ========== =========== =========== ===========
Net loss per common
share:................. $ (0.47) $ (0.38) $ (1.73) $ (1.44) $ (0.10)
Weighted average number
of common and common
equivalent shares
outstanding............ 8,322,265 9,152,756 10,687,756 10,692,766 10,596,621
</TABLE>

See notes to consolidated financial statements.

F-6
<PAGE>

GENERAL MEDICAL INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
PREDECESSOR COMPANY COMPANY
------------ --------------------------------------- ---------------------------
EIGHT MONTH FOUR MONTH YEAR YEAR NINE MONTH NINE MONTH
PERIOD ENDED PERIOD ENDED ENDED ENDED PERIOD ENDED PERIOD ENDED
AUGUST 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1993 1993 1994 1995 1995 1996
------------ ------------ ------------ ------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income (loss) from
continuing
operations........... $ 9,294 $ (3,907) $ (3,465) $ (18,472) $ (15,421) $ (1,057)
Net income from
discontinued
operations........... 1,141 -- -- -- -- --
Adjustments to
reconcile net loss to
net cash provided by
(used in) operating
activities:
Depreciation and
amortization......... 1,952 1,158 3,819 4,345 3,164 3,663
Amortization of
deferred interest.... 131 701 2,517 3,428 2,463 3,018
Amortization of
deferred debenture
interest............. -- 2,021 9,158 14,097 10,432 11,753
Amortization of excess
of purchase price
over net assets
acquired and other
intangibles.......... -- 3,833 11,524 9,392 7,235 5,673
Deferred income taxes. (816) (2,322) (4,198) (4,305) (4,716) 144
Loss (gain) on sale of
fixed assets......... (9) (14) 68 57 59 69
Loss (gain) on sale of
manufacturing assets. -- -- (2,788) 709 -- --
Changes in assets and
liabilities, net of
effect of business
acquisitions:
Accounts receivable.. 4,175 (4,640) (19,014) (31,389) (17,745) (11,157)
Inventories.......... (3,874) (5,164) (11,096) (21,584) (14,422) 3,678
Accounts payable and
accrued expenses.... (5,319) 15,387 (7,302) 15,719 14,513 17,228
Income taxes payable. (623) (880) 5,175 (6,214) (5,640) 2,452
Accrued interest..... -- 4,345 2,743 756 (4,597) (5,453)
Other assets and
liabilities, net.... (247) (18) 255 267 95 (1,787)
--------- --------- ----------- ----------- ----------- -----------
Net cash provided by
(used in) operating
activities......... 5,805 10,500 (12,604) (33,194) (24,580) 28,224
--------- --------- ----------- ----------- ----------- -----------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Settlement on purchase
price of acquired
business............. -- -- -- -- -- 2,055
Receipts on (issuance
of) notes receivable. (55) 98 136 26 3 (17)
Proceeds from sale of
assets............... 64 399 5 889 3,923 1,100
Purchase of
businesses, net of
cash acquired........ -- (221,536) (97,383) (27,339) (27,339) --
Capital expenditures.. (1,601) (579) (3,786) (8,213) (5,853) (8,302)
Proceeds from sale of
manufacturing
business............. -- -- 5,060 3,071 -- --
--------- --------- ----------- ----------- ----------- -----------
Net cash used in
investing
activities......... (1,592) (221,618) (95,968) (31,566) (29,266) (5,164)
--------- --------- ----------- ----------- ----------- -----------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from
borrowing under
credit facilities.... 774,673 224,838 1,196,399 1,613,359 1,207,522 1,310,400
Payments of borrowing
under credit
facilities........... (773,941) (218,279) (1,151,044) (1,545,902) (1,153,370) (1,330,551)
Proceeds from
refinancing credit
facilities........... -- 88,440 -- -- -- --
Retirement of credit
facility............. -- (87,214) -- -- -- --
Proceeds from issuance
of senior notes...... -- -- 41,793 -- -- --
Proceeds from senior
subordinated debt.... -- 105,000 -- -- -- --
Proceeds from pay-in-
kind debentures...... -- 50,000 -- -- -- --
Payment of acquisition
and financing fees... (7,230) (18,611) (5,881) (2,926) (1,959) (636)
Payments on other long
term debt............ -- (350) (774) (685) (640) (398)
Proceeds from issuance
of common stock...... -- 75,000 27,221 1,106 1,106 32
Purchase of stock
warrant.............. (1,250) -- -- -- -- --
Proceeds from sale of
treasury stock....... 119 -- 226 -- -- --
Purchase of treasury
stock................ (1) (103) (1,199) (2,327) (2,317) (301)
--------- --------- ----------- ----------- ----------- -----------
Net cash provided by
(used in) financing
activities......... (7,630) 218,721 106,741 62,625 50,342 (21,454)
--------- --------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS........... (3,417) 7,603 (1,831) (2,135) (3,504) 1,606
CASH AND CASH
EQUIVALENTS, BEGINNING
OF PERIOD............. 15,813 -- 7,603 5,772 5,772 3,637
--------- --------- ----------- ----------- ----------- -----------
CASH AND CASH
EQUIVALENTS, END OF
PERIOD................ $ 12,396 $ 7,603 $ 5,772 $ 3,637 $ 2,268 $ 5,243
========= ========= =========== =========== =========== ===========
</TABLE>

See notes to consolidated financial statements.

F-7
<PAGE>

GENERAL MEDICAL INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

FOUR MONTH PERIOD ENDED DECEMBER 31, 1993, THE YEARS ENDED DECEMBER 31, 1994

AND 1995 AND THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1996
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
CLASS A CONVERTIBLE
COMMON STOCK COMMON STOCK ADDITIONAL TREASURY STOCK PREDECESSOR
---------------- ---------------------- PAID IN ---------------- BASIS IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL SHARES AMOUNT ACCOUNTING DEFICIT TOTAL
--------- ------ ------------ ------------------- ------- ------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial
capitalization,
August 31, 1993... 7,056,000 $70 445,000 $ 5 $ 74,925 -- $ -- $(20,814) $ -- $ 54,186
Purchase of stock
from
management stockholders. -- -- -- -- -- 11,287 (103) -- -- (103)
Net loss........... -- -- -- -- -- -- -- -- (3,907) (3,907)
--------- --- ------------ ------ -------- ------- ------- -------- -------- --------
Balance, December
31, 1993.......... 7,056,000 70 445,000 5 74,925 11,287 (103) (20,814) (3,907) 50,176
Purchase of stock
from
management stockholders. -- -- -- -- -- 109,071 (1,198) -- -- (1,198)
Issuance of common
stock............. 1,342,500 14 769,231 7 27,016 -- -- -- -- 27,037
Reissuance of
treasury stock.... -- -- -- -- -- (22,632) 226 -- -- 226
Net loss........... -- -- -- -- -- -- -- -- (3,465) (3,465)
--------- --- ------------ ------ -------- ------- ------- -------- -------- --------
Balance, December
31, 1994.......... 8,398,500 84 1,214,231 12 101,941 97,726 (1,075) (20,814) (7,372) 72,776
Purchase of stock
from
management stockholders. -- -- -- -- -- 267,137 (4,304) -- -- (4,304)
Issuance of common
stock............. 540,402 5 -- -- 7,174 -- -- -- -- 7,179
Net loss........... -- -- -- -- -- -- -- -- (18,472) (18,472)
--------- --- ------------ ------ -------- ------- ------- -------- -------- --------
Balance, December
31, 1995.......... 8,938,902 89 1,214,231 12 109,115 364,863 (5,379) (20,814) (25,844) 57,179
Purchase of stock
from
management stockholders. -- -- -- -- -- 21,492 (433) -- -- (433)
Issuance of common
stock............. 171,574 2 -- -- 2,708 -- -- -- -- 2,710
Net loss........... -- -- -- -- -- -- -- -- (1,057) (1,057)
--------- --- ------------ ------ -------- ------- ------- -------- -------- --------
Balance, September
30, 1996.......... 9,110,476 $91 1,214,231 $ 12 $111,823 386,355 $(5,812) $(20,814) $(26,901) $ 58,399
========= === ============ ====== ======== ======= ======= ======== ======== ========
</TABLE>

See notes to consolidated financial statements.

F-8
<PAGE>

GENERAL MEDICAL INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT AS OTHERWISE NOTED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation--The consolidated financial statements include the
accounts of General Medical Inc. (formerly New GMH, Inc.) (the "Company") and
its subsidiary, GM Holdings, Inc. ("Holdings"). The Company was formed on
January 23, 1995 as a nonoperating holding company for the purpose of
effecting a merger whereby Holdings became a wholly owned subsidiary of the
Company. The transaction represented a reorganization between entities under
common control and was accounted for in a manner similar to a pooling of
interests. Accordingly, there was no change in the underlying basis of assets
and liabilities of Holdings or its subsidiaries.

In August 1993, Holdings was formed to acquire General Medical Corporation,
a Virginia corporation, ("General Medical") from Rabco Health Services, Inc.
(the "Predecessor"). The consolidated financial statements and footnote
disclosures prior to the date of the Original Acquisition (as defined, see
Note 2) are not comparable due to the accounting for the Original Acquisition.

Nature of Business and Principles of Consolidation--The Company through
Holdings' wholly owned subsidiary, General Medical, operates in the health
care industry distributing medical and surgical products and equipment to the
nation's providers of healthcare, such as hospitals, physicians' offices and
clinics and extended care facilities.

All significant intercompany activity has been eliminated.

Fiscal Year--The fiscal year ends on the Sunday nearest December 31. The
year ended December 31, 1994 consisted of 52 weeks and ended on January 1,
1995. The year ended December 31, 1995 consisted of 52 weeks and ended on
December 31, 1995. The periods ended September 30, consisted of 39 weeks in
1995 and 1996 and ended on October 1, and September 29, respectively.

Cash Equivalents--Cash equivalents consist of short-term investments in
nonequity-type instruments recorded at cost, which approximates market. For
purposes of the consolidated statements of cash flows, all highly liquid
investments with an original maturity of three months or less are considered
to be cash equivalents.

Inventories--Inventories, which consist primarily of medical supplies and
equipment, are stated at the lower of cost or market, with cost determined
principally by the first-in, first-out method.

Property, Plant and Equipment--Property, plant and equipment is stated at
cost. Depreciation is provided using the straight line method over estimated
useful lives of 20--40 years for buildings, and 3--10 years for machinery and
equipment. Leasehold improvements are depreciated over the lesser of useful
life or the lease term.

Intangible Assets--Goodwill represents the excess of purchase price over net
assets acquired, and is being amortized on a straight line basis over 40 years
from the date of acquisition. Other intangible assets are being amortized on a
straight line basis over a period from 3 to 15 years for software, customer
lists and non-compete agreements, and over a period of 30 years for
trademarks.

The Company assesses the continuing recoverability of goodwill whenever
conditions exist that indicate impairment. The existence of an impairment is
measured by comparing the recorded value of goodwill to undiscounted expected
future operating cash flows. Identified impairment, if any, will be measured
and recorded based on any shortfall of undiscounted expected operating cash
flows as compared to the recorded value of goodwill, except as otherwise
discussed in Estimates, below.

F-9
<PAGE>

GENERAL MEDICAL INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Other Assets--Other assets include the deferred costs of obtaining financing
which are being amortized using the effective interest method over the life of
the related debt.

Revenue Recognition--Sales are recorded when merchandise is shipped to
customers. Sales returns and allowances are treated as reductions to sales and
are provided based on historical experience and current estimates.

Income Taxes--The Company provides for deferred income taxes under the asset
and liability method, whereby deferred income taxes result from temporary
differences between the tax basis of assets and liabilities and their reported
amounts in the financial statements.

Net Income (Loss) Per Share of Common Stock--The computation of net income
(loss) per common share is based on the weighted average number of shares of
common stock and class A convertible common stock outstanding during the
period plus (in periods in which they have a dilutive effect) the effect of
common equivalent shares contingently issuable from stock options.

Pursuant to Securities and Exchange Commission requirements, common and
common equivalent shares issued within a year prior to the initial filing of
the Company's proposed public offering have been included in the calculation
as if they were outstanding for all periods presented assuming that such
securities were issued or granted at a price below the expected offering
price.

Business and Credit Concentrations--The Company operates in one segment and
its customers generally fall into two broad markets within the healthcare
industry: acute care (hospitals and ambulatory surgical centers) and alternate
site (physician care and extended care) customers. They are not concentrated
in any specific geographic region. No single customer accounted for a
significant amount of the Company's sales, and there were no significant
accounts receivable from a single customer. The Company reviews customer
credit history before extending credit. The Company establishes an allowance
for doubtful accounts based upon factors surrounding the credit risk of
specific customers, historical trends, and other information.

Fair Value of Financial Instruments--The carrying amounts of all current
assets and liabilities which qualify as financial instruments at September 30,
1996, approximate fair value. The fair value of the Company's debt instruments
are discussed in Note 5.

Estimates--The preparation of financial statements, in conformity with
generally accepted accounting principles, requires management to make
estimates and assumptions that affect amounts reported and disclosed in the
financial statements. Actual results could differ from those estimates.

The Company assesses impairment of long lived assets used in operations,
including related goodwill, whenever changes or events indicate that the
carrying value may not be recoverable. Such impairments are recognized based
on any shortfall of carrying amounts to expected future undiscounted cash
flows.

Stock Based Compensation--The Financial Accounting Standards Board has
issued Statement of Financial Accounting Standards No. 123 "Accounting for
Stock Based Compensation" ("FAS 123"). This standard establishes a fair value
method for accounting for stock based compensation plans either through
recognition or disclosure. The Company adopted this standard in 1996 by
disclosing pro forma net income and earnings per share amounts assuming the
fair value method was adopted on January 1, 1995. (Also see Note 9)

Interim Financial Data (Unaudited)--The interim financial data for the nine-
month period ended September 30, 1995 is unaudited; however, in the opinion of
management, such interim data includes all adjustments,

F-10
<PAGE>

GENERAL MEDICAL INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

consisting only of normal recurring adjustments, necessary for a fair
statement of the results for the interim period.

2. ACQUISITIONS

Pursuant to a plan of merger, General Medical was acquired by Holdings in
August of 1993 for approximately $238.3 million (the "Original Acquisition").
The acquisition was accounted for using the purchase method of accounting
whereby the purchase cost was allocated to the fair value of assets acquired
and liabilities assumed based on valuations and other studies performed as of
the date of the Original Acquisition. The excess of the purchase price over
the fair value of net assets acquired was approximately $186.9 million net of
the effect of a basis adjustment of $20.8 million representing the continuing
interests of certain management shareholders. Such goodwill is being amortized
on a straight line basis over 40 years.

In 1994 and early 1995, the Company acquired through General Medical several
companies that operate in the same industry as General Medical, primarily in
the alternate care market:

In July of 1994, General Medical acquired the capital stock of F.D. Titus
and Son Inc. ("Titus"), for approximately $66.0 million (the "Titus
Acquisition"). In addition, in August of 1994, General Medical acquired
substantially all of the assets and assumed certain liabilities of Foster
Medical Supply, Inc. ("Foster"), for a purchase price of approximately
$32.5 million (the "Foster Acquisition"). The Foster purchase price was
subject to final agreement between the parties over disputed liabilities at
the date of the acquisition. In September of 1996, the Company received
$2.1 million in final settlement which was recorded as a reduction in
acquired goodwill.

Both of these acquisitions have been accounted for using the purchase
method of accounting and, accordingly, the operating results of the
acquired companies have been included in consolidated operating results
since the date of the respective acquisitions. Combined goodwill resulting
from the Titus Acquisition and the Foster Acquisition amounted to $71.5
million and is being amortized over 40 years on a straight line basis.

The Company also acquired Randolph Medical Inc. ("Randolph") on January
5, 1995 for an aggregate purchase price of $25.5 million (the "Randolph
Acquisition"). The purchase price exceeded the fair value of net assets
acquired by approximately $10.0 million. The resulting goodwill will be
amortized on a straight line basis over 40 years.

Following these acquisitions, Titus and Randolph have continued operations
under their respective names as subsidiaries of General Medical.

As a result of the Titus Acquisition, Foster Acquisition and Randolph
Acquisition (collectively, the "Acquisitions"), the results of the Company's
operations for the year ended December 31, 1995 are not comparable with the
results of operations for the corresponding period in 1994.

The following unaudited pro forma summary presents 1994 consolidated results
of operations as if the Acquisitions had occurred at January 1, 1994 and does
not purport to be indicative of what would have occurred had the Acquisitions
been made as of such date or the results which may occur in the future.

<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, 1994
-----------------
<S> <C>
Revenues............................................... $ 1,378,945
Net Loss............................................... $ (12,431)
Net Loss Per Common Share.............................. $ (1.16)
Weighted Average Number of Common and Common Equivalent
Shares Outstanding.................................... 10,761,386
</TABLE>

F-11
<PAGE>

GENERAL MEDICAL INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

3. CONSOLIDATION COSTS

During 1995, the Company entered into a plan to change the organizational
structure of its sales and operations functions. The reorganization was
undertaken to structure these areas along the lines of functional
responsibilities as opposed to multiple general managers. In addition, the
Company entered into a plan to redeploy its distribution resources in order to
better serve its customers and facilitate the integration of the acquired
companies. This consolidation plan was originally estimated to cost $15.0
million, and includes future charges for employee termination and relocation,
facility shutdown costs and losses expected from the sale and abandonment of
property. The Company recorded a one time charge of $8.6 million in September
1995 consisting of severance ($3.7 million), net facility lease cancellation
costs ($4.5 million) and a loss from a plan to dispose of long-lived assets
($0.4 million) related to facility shutdowns.

The plan, which was originally expected to be substantially complete by
September of 1996, has been delayed primarily due to the inability of the
Company to secure satisfactory warehouse space for relocated facilities.
Management currently expects that the facility consolidation will be
substantially completed by December of 1997, and believes that adjustment to
its original cost estimate is unnecessary at this time. Total plan charges for
the year ended December 31, 1995 and the nine-month period ended September 30,
1996 amounted to $10.2 million and $2.0 million, respectively. The remaining
estimated charges of approximately $2.8 million will be recorded over the next
fifteen months for the physical relocation of inventory and employees.

The following is a summary of accrued consolidation costs:

<TABLE>
<CAPTION>
BALANCE BALANCE BALANCE
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
TYPE OF COST 1994 ADDITIONS UTILIZATION 1995 UTILIZATION 1996
------------ ------------ --------- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Severance............... $-- $3,691 $(744) $2,947 $(1,110) $1,837
Facility lease cancella-
tions.................. -- 4,493 (36) 4,457 (392) 4,065
Other................... -- 435 -- 435 (238) 197
---- ------ ----- ------ ------- ------
Total................. $-- $8,619 $(780) $7,839 $(1,740) $6,099
==== ====== ===== ====== ======= ======
</TABLE>

In addition to the accrued costs above, total plan expenses have included
approximately $1.6 million in 1995 and $2.0 million in 1996 related to moving
expenses, additional severance, travel costs, equipment rental and
professional fees.

4. INTANGIBLE ASSETS

The components of intangible assets are as follows:

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------ -------------
1994 1995 1996
-------- -------- -------------
<S> <C> <C> <C>
Goodwill................................... $260,573 $269,395 $268,638
Accumulated Amortization................... (7,310) (13,988) (19,031)
-------- -------- --------
Goodwill, net.............................. $253,263 $255,407 $249,607
======== ======== ========
Other Intangible Assets
(included in other assets)
Customer Lists........................... $ 8,038 $ 604 $ 604
Other.................................... 5,575 6,367 4,804
-------- -------- --------
13,613 6,971 5,408
Accumulated Amortization................. (8,046) (2,350) (1,556)
-------- -------- --------
Other Intangible Assets, Net............... $ 5,567 $ 4,621 $ 3,852
======== ======== ========
</TABLE>

F-12

<PAGE>

GENERAL MEDICAL INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

5. LONG-TERM DEBT

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
----------------- -------------
1994 1995 1996
-------- -------- -------------
<S> <C> <C> <C>
Senior Credit Agreement:
8.625% fixed interest rate to April 6,
1995...................................... $120,000 $ -- $ --
8.6875% fixed interest rate to January 10,
1996...................................... -- 145,000 --
8.2188% fixed interest rate to October 14,
1996...................................... -- -- 135,000
8.6875% fixed interest rate to February 20,
1995...................................... 15,000 -- --
8.6875% fixed interest rate to January 24,
1996...................................... -- 35,000 --
8.1563% fixed interest rate to September
30, 1996.................................. -- -- 45,000
Variable interest rates including prime
plus 1.50%
(Prime was 8.50% at December 31, 1994 and
1995 and 8.25% at September 30, 1996).... 5,354 27,812 7,661
10.875% Series A Senior Subordinated Notes
due 2003.................................... 105,000 105,000 105,000
12.125% Series A Subordinated Pay-in Kind
Debentures due 2005......................... 55,966 62,939 70,779
12.5% (effective rate of 15.26%) Senior Notes
due 2004, fair value of $50,000 net of
unamortized bond discount of $8,152 at
December 31, 1994, fair value of $56,224 net
of unamortized bond discount of $7,888 at
December 31, 1995, value of $63,471 net of
unamortized bond discount of $7,527 at
September 30, 1996.......................... 41,848 48,336 55,944
Other obligations, due at various dates
through 1998, interest ranging from 7% to
10%......................................... 1,992 1,461 1,188
-------- -------- --------
345,160 425,548 420,572
Less: Current maturities..................... 613 905 722
-------- -------- --------
Total long-term debt......................... $344,547 $424,643 $419,850
======== ======== ========
</TABLE>

In October 1995, the Company entered into an amendment (the "Amendment") of
the Senior Credit Agreement (the "Credit Agreement") providing for, among other
things, an increase in the credit commitment to an aggregate of $235.0 million
and the modification of certain covenants to permit the consolidation of the
Company's distribution centers. Borrowings under this long-term facility, which
expires August 31, 1998, are secured by specified assets, in accordance with a
formula, as defined in the Credit Agreement. Additionally, the Credit Agreement
requires the maintenance of certain levels of working capital, net worth and
cash flows, and imposes restrictions on investments, fixed asset additions,
cash dividends and other borrowings. Under the most restrictive provisions of
the Credit Agreement, General Medical must maintain a consolidated net worth
amount of not less than $142.0 million and is prohibited from paying any
dividends except in certain circumstances to Holdings. Net worth is defined as
net worth determined in accordance with generally accepted accounting
principles adjusted for the predecessor basis in accounting adjustment,
amortization of goodwill and intangibles, depreciation of purchase accounting
appraisal adjustments to fixed assets and amortization of debt financing costs.
At September 30, 1996, General Medical was in compliance with all financial
covenants and had available, after letters of credit outstanding, unused
borrowing capacity of approximately $45.3 million.

Interest rates under the Credit Agreement vary, as General Medical may choose
from fixed and variable interest rate options. Under fixed rate borrowing
options, the Company may lock in borrowings up to six months at a time at rates
including a) the greatest of (i) the Prime Rate in effect on such day (ii) the
Base CD Rate in

F-13
<PAGE>

GENERAL MEDICAL INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

effect on such day plus 1% and (iii) the Federal Funds Effective Rate in
effect on such day plus 0.50%; plus 1.50% or b) the Adjusted LIBOR Rate plus
2.75% per annum as defined in the Credit Agreement. All amounts not covered
under one of the fixed rate options will incur variable interest rates based
upon the prime rate plus 1.50%. A commitment fee of 0.50% per annum is
assessed on the unused commitments.

On November 24, 1993, General Medical entered into a four-year interest rate
protection agreement. This agreement covers $33.0 million of debt drawn on
General Medical's revolving credit agreement. The agreement sets both a floor
and a cap as to the interest rate on the $33.0 million. If General Medical
borrows under the Credit Agreement at interest rates based on LIBOR rates
between 3.75% and 8.00%, the interest paid would be the rate at which
borrowings were made. If General Medical borrows under the Credit Agreement at
LIBOR interest rate of less than 3.75% (the floor), additional payments would
be due.

The Senior Subordinated Notes (the "Notes") require semi-annual payments of
interest. Interest on the Subordinated Pay-in-Kind Debentures (the
"Debentures") prior to August 15, 1998 may, at the election of General
Medical, be paid in additional Debentures; however, the Credit Agreement
required interest on the Debentures to be paid in additional Debentures
through August 31, 1996. The Notes and the Debentures may be redeemed after
August 15, 1998 at a redemption premium and after August 15, 2000 at par.

The Senior Notes are unsecured obligations of Holdings, issued July 28,
1994. The Senior Notes are redeemable, at Holdings' option, at any time prior
to maturity. The Senior Notes require semi-annual payments of interest which
may be paid at Holdings' option through the issuance of additional Senior
Notes ("Additional Securities"). However, Holdings must redeem any and all
Additional Securities prior to July 15, 1999. In addition, Holdings must make
a cash payment equal to the full amount of the accrued and unpaid original
issue discount related to the Senior Notes prior to July 15, 2002. Under the
terms of the Senior Notes, the Company is required to sell, at par value, up
to 331,148 shares of its common stock to the Notes purchasers if, at specified
dates, the Senior Notes remain outstanding or certain other conditions exist.
As of September 30, 1996, 248,361 shares have been issued pursuant to the
terms.

The terms of the Notes, Debentures and Senior Notes place certain
restrictive covenants on Holdings' and its subsidiary. In general, all cash
received is to be used to satisfy obligations under these borrowings.
Substantially all of the net assets of Holdings and its subsidiary are
restricted with regard to paying dividends, utilizing cash for investments,
issuing or redeeming common stock and preferred stock and incurring additional
debt. In addition, each of the debt obligations sets forth certain minimum
financial measures with regard to net worth and debt coverage ratios. At
September 30, 1996, Holdings and its subsidiary are in compliance with all of
the covenants.

All interest payments on the Senior Notes have been made (and it is
anticipated will continue to be made) through the issuance of Additional
Securities as permitted under the terms of the Senior Notes. Holdings' ability
to redeem all or any portion of the Senior Notes or Additional Securities is
limited to the extent that funds would be generated through a capital
infusion.

The estimated fair value amounts of the Notes, Debentures and the Senior
Notes have been determined by the Company, using appropriate market
information and valuation methodologies. Considerable judgment is required to
develop the estimates of fair value, thus, the estimates provided herein are
not necessarily indicative of the amounts that could be realized in a current
market exchange.

F-14
<PAGE>

GENERAL MEDICAL INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
----------------------------------- -----------------
1994 1995 1996
----------------- ----------------- -----------------
CARRYING FAIR CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Senior Credit Agreement.. $140,354 $140,354 $207,812 $207,812 $187,661 $187,661
10.875% Senior Subordi-
nated Notes............. 105,000 103,425 105,000 105,525 105,000 107,625
12.125% Subordinated Pay-
in-Kind Debentures...... 55,966 54,097 62,939 62,939 70,779 72,902
12.5% Senior Notes, net
of discount............. 41,848 41,848 48,336 48,336 55,944 56,527
</TABLE>

Long-term debt maturing after September 30, 1996 are as follows: $0.3
million (1997); $187.8 million (1998); $13.5 million (1999); $6.2 million
(2002); $105.0 million (2003); $43.8 million (2004) and $70.8 million (2005).

6. INCOME TAXES

Significant components of the income tax provision (benefit) are as follows:

<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------ ------------------------------------------------------
EIGHT MONTH FOUR MONTH YEAR ENDED NINE MONTH PERIOD
PERIOD ENDED PERIOD ENDED DECEMBER 31, ENDED SEPTEMBER 30,
AUGUST 31, DECEMBER 31, ---------------- -----------------------
1993 1993 1994 1995 1995 1996
------------ ------------ ------- ------- ------------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Currently payable:
Federal............... $ 6,580 $ 1,338 $ 5,498 $ (830) $ (599) $ 1,957
State................. 1,338 (80) 1,444 (893) 55 612
Deferred:
Federal............... (1,094) (1,568) (3,220) (3,262) (3,785) (18)
State................. (259) (417) (1,003) (1,043) (931) (11)
------- ------- ------- ------- ---------- ---------
$ 6,565 $ (727) $ 2,719 $(6,028) $ (5,260) $ 2,540
======= ======= ======= ======= ========== =========
</TABLE>

A reconciliation of income taxes computed at the federal statutory rate to
actual income tax expense is as follows:

<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------ ------------------------------------------------------
EIGHT MONTH FOUR MONTH YEAR ENDED NINE MONTH PERIOD
PERIOD ENDED PERIOD ENDED DECEMBER 31, ENDED SEPTEMBER 30,
AUGUST 31, DECEMBER 31, --------------- ------------------------
1993 1993 1994 1995 1995 1996
------------ ------------ ------ ------- ------------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Tax at statutory rate... $5,551 $(1,622) $ (261) $(8,330) $ (7,238) $ 504
State and local income
taxes, net of Federal
income tax effect...... 696 (235) (38) (1,261) (949) 76
Effect of goodwill...... -- 987 3,186 3,374 2,833 1,886
Other................... 318 143 (168) 189 94 74
------ ------- ------ ------- ----------- ---------
$6,565 $ (727) $2,719 $(6,028) $ (5,260) $ 2,540
====== ======= ====== ======= =========== =========
</TABLE>

F-15
<PAGE>

GENERAL MEDICAL INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The income tax effect of items comprising deferred taxes are as follows:

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
---------------- -------------
1994 1995 1996
------- ------- -------------
<S> <C> <C> <C>
Change in accounting method from LIFO to
FIFO....................................... $ 1,497 $ -- $ --
Intangible and fixed asset basis differences
and accelerated depreciation for tax
purposes................................... 7,948 7,432 6,592
Inventory costs capitalized for tax purposes
and inventory valuation allowance.......... (2,372) (3,173) (3,834)
Allowance for doubtful accounts............. (1,263) (1,333) (1,756)
Consolidation plan.......................... -- (3,136) (1,922)
Other differences........................... (653) 806 1,660
------- ------- ------
$ 5,157 $ 596 $ 740
======= ======= ======
</TABLE>

7. SUPPLEMENTAL CASH FLOW INFORMATION

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------ -------------------
1994 1995 1995 1996
-------- -------- ----------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash paid for interest and income
taxes:
Interest.......................... $ 17,499 $ 26,837 $ 24,912 $26,526
======== ======== ======== =======
Income taxes...................... $ 3,162 $ 4,491 $ 5,097 $ 1,960
======== ======== ======== =======
Non-cash investing and financing
activities:
Details of business acquired:
Fair value of assets acquired... $145,019 $ 37,298 $ 37,298 $ --
Less cash paid.................. (97,383) (27,339) (27,339) --
-------- -------- -------- -------
Liabilities assumed............. $ 47,636 $ 9,959 $ 9,959 $ --
======== ======== ======== =======
Interest accretion................ $ 5,966 $ 13,197 $ 13,197 $15,087
======== ======== ======== =======
Issuance of Common Stock for
business acquisitions............ $ 26,458 $ 5,000
======== ========
Increase in debt issuance costs... $ 3,971
========
</TABLE>

8. LEASES

The Company and its subsidiary have numerous operating leases covering real
property and equipment. Future minimum payments required under noncancelable
operating leases in effect at September 30, 1996 are as follows:

<TABLE>
<S> <C>
1997................................................................ $11,692
1998................................................................ 9,602
1999................................................................ 7,059
2000................................................................ 5,291
2001................................................................ 4,210
2002 and thereafter................................................. 12,590
-------
Total............................................................... $50,444
=======
</TABLE>

F-16
<PAGE>

GENERAL MEDICAL INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Total rental expense included in operations is as follows: the Predecessor--
eight month period ended August 31, 1993, $4.7 million; the Company--four
month period ended December 31, 1993, $2.4 million; years ended December 31,
1994 and 1995, $9.3 and $12.9 million, respectively; nine month period ended
September 30, 1996, $11.4 million.

9. EMPLOYEE BENEFIT AND STOCK PLANS

General Medical has a defined contribution 401(k) plan covering
substantially all nonunion employees. The plan provides for matching
contributions of 50 percent of a participant's contribution up to a maximum
participant contribution of 6 percent of salary. Benefit expense included in
operations is as follows: the Predecessor--eight month period ended August 31,
1993, $1.4 million; the Company--four month period ended December 31, 1993,
$0.6 million; years ended December 31, 1994 and 1995, $2.1 and $2.7 million,
respectively; nine month period ended September 30, 1996, $1.8 million.

Under a 1993 stock incentive plan, the Company may grant to employees
incentive and nonqualified options, restricted stock and incentive stock
awards with respect to an aggregate of 1,113,375 shares of its common stock.
The options must be granted at an exercise price of not less than fair market
value and expire within ten years from the date of grant.

Forty percent of the options granted are based on service and become
exercisable ratably according to a five year vesting schedule, subject to
immediate vesting upon certain events. Sixty percent of the options granted
represent a variable award and are subject to the satisfaction of performance
and other financial criteria. The determination of compensation cost to the
Company associated with the performance options will occur at the measurement
date, and will be measured by the difference in the fair market value of the
shares at the measurement date and the option price at the date of grant.

In June of 1996, the stock incentive plan was amended and options for
413,334 shares of common stock at an exercise price of $16 per share were
granted as replacement for the 60% performance options previously granted. The
replacement performance options are subject to revised vesting criteria that
will result in the recognition of compensation cost to the Company when
vesting becomes probable. Service options outstanding at the date of the
amendment remain in effect and will vest immediately upon consummation of the
proposed public offerings of equity securities. Service options granted
subsequent to the date of the amendment (241,719 in 1996) vest ratably over
five years.

The Company has a non-qualified, non-employee stock option plan which
provides that options for a maximum of 50,000 shares of common stock may be
granted to the Company's directors who are not officers or employees of the
Company, over a period not to exceed 10 years and at a price equal to the fair
market value of the shares at the date of grant. Ten thousand shares were
outstanding under the plan at December 31, 1994 and 1995 and September 30,
1996.

Transactions under the various stock option and incentive plans for the
periods indicated were as follows:

<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1995 SEPTEMBER 30, 1996
------------------- ------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- -------- --------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning
of the year............ 929,063 $10.00 1,060,468 $10.49 689,368 $ 10.84
Granted................. 184,843 12.84 19,688 15.86 655,053 16.00
Exercised............... -- -- (16,200) 10.00 (6,000) 10.00
Canceled................ (53,438) 10.00 (374,588) 10.16 (399,805) 10.96
--------- ------ --------- ------ ---------- --------
Outstanding, end of the
year................... 1,060,468 $10.49 689,368 $10.84 938,616 $ 14.39
--------- ------ --------- ------ ---------- --------
Options exercisable at
year end............... 80,050 $10.00 103,413 $10.35 106,563 $ 10.28
========= ====== ========= ====== ========== ========
</TABLE>

F-17
<PAGE>

GENERAL MEDICAL INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The following table summarizes information about stock options outstanding at
September 30, 1996:

<TABLE>
<CAPTION>
NUMBER AVERAGE NUMBER
EXERCISE OUTSTANDING AT REMAINING EXERCISABLE
PRICE 9/30/96 CONTRACTUAL LIFE 9/30/96
-------- -------------- ---------------- -----------
<S> <C> <C> <C>
$10 226,750 7.2 96,700
13 49,313 8.1 9,863
16 662,553 9.7 --
------- --- -------
938,616 8.9 106,563
======= === =======
</TABLE>

The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations in accounting for
its plans. Accordingly, no compensation expense has been recognized for its
stock-based compensation plans. Had compensation cost for the Company's stock
incentive plans been determined based upon the fair value at the grant date for
awards under these plans consistent with the methodology prescribed under FAS
123, the Company's net loss and loss per share would have been increased by
approximately $0.9 million and $0.08 per share, for the nine month period ended
September 30, 1996. The adoption of FAS 123 would have had no significant
impact on the company's pro forma net loss or loss per share for the year ended
December 31, 1995.

Using the Black-Scholes model, the weighted average fair value of the options
granted and significant weighted average assumptions used were as follows:

<TABLE>
<CAPTION>
1995 1996
----- -----
<S> <C> <C>
Fair value of options granted............................... $7.43 $6.56
Risk-free interest rate..................................... 5.4% 6.4%
Expected life (years)....................................... 5.1 4.0
Expected dividends.......................................... none none
Volatility.................................................. 50% 50%
</TABLE>

10. COMMITMENTS AND CONTINGENCIES

The Company and its subsidiary are involved in certain litigation arising in
the normal course of business. In the opinion of management, the outcome of
such litigation will not have a material adverse effect on the Company's
consolidated financial position, results of operations or liquidity.

On July 20, 1995, a former stockholder of the Predecessor, purportedly for
himself and on behalf of all others similarly situated, commenced a proceeding
in New York Supreme Court against General Medical, Holdings, Kelso & Company
and one of its officers, and certain present and former officers and directors
of the Company alleging fraud, breach of fiduciary duty, and inducing breach of
fiduciary duty in connection with the Original Acquisition of General Medical
by Holdings. On September 30, 1996, an order was entered granting the
defendants' motion to dismiss the proceeding. On November 1, 1996, the
plaintiff filed a notice of appeal from such final disposition decision and
order. The Company and the other defendants intend vigorously to defend this
action. The outcome of this litigation cannot be reasonably estimated.

As discussed in Note 1, the Company has limited concentrations of credit risk
with respect to customer accounts receivable. No single customer accounts for
more than 1% of the Company's revenues for the nine month period ended
September 30, 1996. In 1996, sales to healthcare providers associated with the
Premier Purchasing Partners, L.P. and Tenet Healthcare Corporation group
purchasing organizations ("GPO's"), accounted for 22.8% and 8.0%, respectively.
As members of GPO's, members have incentives to purchase from

F-18
<PAGE>

GENERAL MEDICAL INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

their primary selected distributor, however, they operate independently and
are free to negotiate directly with distributors or manufacturers.

11. RELATED PARTY TRANSACTIONS

General Medical pays an annual fee to an affiliate of the majority
stockholder of the Company in connection with a financial advisory agreement.
The fee for the four months ended December 31, 1993 was $0.1 million. The
Company paid $0.4 million in each of the years ended December 31, 1994 and
1995. The fee for the nine month period ended September 30, 1996 was $0.3
million.

12. CAPITAL STRUCTURE

a. The Company is authorized to issue 20,000,000 shares of common stock,
consisting of 15,000,000 shares of common stock and 5,000,000 shares of class
A common stock.

The class A common stock is substantially identical to the common stock
except that the class A shares are not entitled to voting rights, with certain
exceptions stated in the charter and as otherwise required by applicable law.
Each class A stockholder is entitled to convert any or all of its shares into
voting common stock at any time at no cost to the stockholder, subject to
certain restrictions applicable to Regulated Stockholders (as defined in the
Company's charter). The Company has the right, at any time, to mandatorily
convert the class A shares into the same number of shares of voting common
stock, other than class A shares held of record by a Regulated Stockholder.

b. The Company is party to a stockholders agreement which sets forth certain
restrictions and rights with respect to the transfer of common stock of the
Company. The terms of the agreement provide, among other things, that sales of
shares of the Company's common stock by a management stockholder will be
subject to a right of first refusal granted to the Company, its majority
stockholders, and certain management stockholders who are parties to the
stockholders agreement. Under certain circumstances, the management
stockholders may require the Company to repurchase their shares at fair market
value upon termination of employment. The Company is not obligated to purchase
any shares from a management stockholder to the extent that such repurchase
would be prohibited by any debt instrument or agreement or if, in the
reasonable opinion of the Board of Directors of the Company, such repurchase
would be imprudent in view of the financial condition of the Company and its
subsidiary taken as a whole.

c. In 1994, related to the Titus and Foster acquisitions, the Company sold
1,265,952 shares of common stock and 769,231 shares of class A common stock at
$13.00 per share.

d. In the fourth quarter of 1995, the Company agreed to purchase from
certain former management employees approximately 122,000 shares of its common
stock and 5,700 shares under option at the price of $16.00 per share. Such
shares were repurchased in November of 1996 for approximately $2.1 million
including interest at 6.0%.

e. On October 14, 1996, the Company granted 30,000 service options at an
exercise price of $18.75 per share, representing fair market value at the date
of grant.

13. SUBSEQUENT EVENTS (UNAUDITED)

Refinancing--The Company has filed a Registration Statement on Form S-1 with
the Securities and Exchange Commission for the initial public offerings of its
equity securities. The Company expects that the existing Senior Credit
Agreement will be replaced with a New Revolving Credit Facility and, that
together with

F-19
<PAGE>

GENERAL MEDICAL INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

the estimated net proceeds from the offerings and a New Interim Receivables
Facility, it will repay outstanding indebtedness under the 12 1/2% Senior Notes
of Holdings, fund a tender offer on the 12 1/8% Debentures and pay certain
transaction fees and expenses.

The closings of the equity security offerings, the Debenture tender offer,
the redemption of the Senior Notes of Holdings and the initial borrowings under
the New Credit Facilities will be contingent upon each other and are expected
to occur simultaneously. As soon as practicable after the closings, the Company
expects to refinance the New Interim Receivables Facility with new financing
consisting of an off-balance sheet securitization of the trade receivables of
the Company's indirect subsidiaries. There can be no assurance, however, that
the aforementioned transactions will occur, or that the terms of the offerings
and the refinancing will not vary materially from those currently assumed by
the Company.

Related Party Transactions--Prior to the completion of the initial public
offerings, it is expected that a financial advisory agreement with the majority
stockholder of the Company will be terminated upon the making of a one-time
payment of $3.0 million. (Also see Note 11)

14. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following is the unaudited quarterly results of operations. (Dollars in
thousands, except per share amounts)

<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Year ended December 31, 1994:
Net revenues......................... $243,645 $244,688 $293,041 $332,466
Gross profit......................... 41,573 41,617 53,447 65,021
Net income (loss).................... (2,010) (1,705) (982) 1,232
Net income (loss) per common share... $(0.24) $(0.21) $(0.10) $0.12
Year ended December 31, 1995:
Net revenues......................... $357,071 $364,421 $377,950 $392,701
Gross profit......................... 68,739 66,970 67,961 73,759
Net loss............................. (2,192) (3,415) (9,814) (3,051)
Net income (loss) per common share... $(0.20) $(0.31) $(0.91) $(0.29)
</TABLE>

Nine month period ended September 30, 1996:
<TABLE>
<S> <C> <C> <C>
Net revenues................................... $418,902 $424,076 $428,450
Gross profit................................... 76,485 76,992 81,250
Net income (loss).............................. (1,469) (426) 838
Net income (loss) per common share............. $(0.14) $(0.04) $0.08
</TABLE>

The Company's accounting practice relating to physical inventory adjustments
for interim periods is to record an estimated amount based upon prior history.
These adjustments in 1994 and 1995 were not sufficient to reflect the actual
gain resulting from the physical inventory taken on September 30, 1994 and
1995. This resulted in an increase in fourth quarter pre-tax income of $1.1
million or $0.10 per common share in 1994, and a decrease in fourth quarter
pre-tax loss of $2.0 million or $0.19 per share in 1995. It is not practicable
to determine the periods during 1994 and 1995 to which these adjustments
relate. In addition, during the fourth quarter of 1994, the Company recognized
a gain of $2.8 million related to the sale of certain manufacturing assets.

F-20
<PAGE>

NOVEMBER 22, 1994

INDEPENDENT AUDITOR'S REPORT

Board of Directors
Randolph Medical Inc.
and Subsidiaries
31742 Enterprise Drive
Livonia, Michigan 48150

We have audited the consolidated balance sheet of Randolph Medical Inc. and
Subsidiaries (Michigan corporations) as of September 30, 1994, and the related
consolidated statements of changes in stockholders' equity, income and
expenses and cash flows for the years ended September 30, 1994 and 1993. These
consolidated financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining on a
test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement presentation.
We believe that our audits provide a reason-able basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Randolph
Medical Inc. and Subsidiaries as of September 30, 1994, and the results of its
operations and its cash flows for the years ended September 30, 1994 and 1993,
in conformity with generally accepted accounting principles.

FOLLMER, RUDZEWICZ & CO., P.C.
Southfield, Michigan

F-21
<PAGE>

RANDOLPH MEDICAL INC. AND SUBSIDIARIES
(Michigan corporations)

CONSOLIDATED BALANCE SHEET--SEPTEMBER 30, 1994

<TABLE>
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash on hand and in banks............................. $ 15,448
Accounts receivable--trade and other ................. $15,255,827
Less: Allowance for doubtful accounts................. 269,600 14,986,227
-----------
Accrued interest receivable........................... 75,306
Inventories, at lower of cost or market............... 7,711,992
Prepaid expenses...................................... 70,169
Deferred income taxes, portion due within one year.... 104,900
Notes receivable, portion due within one year......... 203,500
-----------
Total current assets................................. $23,167,542
NOTES RECEIVABLE, net of current portion--Note B....... 287,500
PROPERTY AND EQUIPMENT, at cost--Notes E and L......... $ 3,971,589
Less: Accumulated depreciation........................ 3,279,510 692,079
-----------
OTHER ASSETS:
Goodwill, net of amortization of $2,438............... $ 7,562
Memberships........................................... 13,500
Other investments--Note C ............................ 32,500
Security deposits .................................... 67,894
Cash surrender value of life insurance................ 849,541 970,997
----------- -----------
$25,118,118
===========
LIABILITIES
CURRENT LIABILITIES:
Note payable--Bank--Note D............................ $ 3,155,000
Accounts payable--trade and other..................... 8,019,245
Accrued expenses...................................... 1,275,453
Federal, state and local income taxes payable......... 291,144
Contractual obligations, portion due within one year.. 151,038
-----------
Total current liabilities............................ $12,891,880
CONTRACTUAL OBLIGATIONS, net of current portion--Note E
...................................................... 207,124
OTHER LIABILITIES...................................... 218,620
CONTINGENT LIABILITY--Note F........................... --
STOCKHOLDERS' EQUITY--STATEMENT ATTACHED
CAPITAL STOCK:
Common, par value $1 per share; authorized 70,000
shares, issued and outstanding 44,263 shares ........ $ 44,263
Preferred, par value $1 per share; authorized 10,000
shares, no shares issued ............................ --
PAID IN CAPITAL IN EXCESS OF PAR VALUE................. 340,102
RETAINED EARNINGS...................................... 11,416,129 11,800,494
----------- -----------
$25,118,118
===========
</TABLE>

The attached Notes to Consolidated Financial Statements form an integral part
of these statements.

F-22
<PAGE>

RANDOLPH MEDICAL INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the year ended September 30, 1994

<TABLE>
<CAPTION>
PAID IN
CAPITAL
IN
EXCESS
COMMON PREFERRED OF PAR RETAINED
STOCK STOCK VALUE EARNINGS TOTAL
------- --------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, October 1, 1993. $44,817 $ -- $254,098 $10,087,692 $10,386,607
Issuance of common
stock--Note I........... 344 -- 86,004 -- 86,348
Outstanding common stock
acquired--Note J........ (898) -- -- (197,430) (198,328)
Net income for the year
ended September 30,
1994--statement at-
tached.................. -- -- -- 1,525,867 1,525,867
------- ----- -------- ----------- -----------
Balance, September 30,
1994.................... $44,263 $ -- $340,102 $11,416,129 $11,800,494
======= ===== ======== =========== ===========
</TABLE>

The attached Notes to Consolidated Financial Statements form an integral part
of these statements.

F-23
<PAGE>

RANDOLPH MEDICAL INC. AND SUBSIDIARIES

COMPARATIVE CONSOLIDATED STATEMENT OF INCOME AND EXPENSES

<TABLE>
<CAPTION>
FOR THE YEARS ENDED SEPTEMBER 30,
-----------------------------------------
1993--RESTATED-NOTE
1994 P
-------------------- --------------------
PERCENT PERCENT
OF NET OF NET
AMOUNT SALES AMOUNT SALES
----------- ------- ----------- -------
<S> <C> <C> <C> <C>
SALES, net of returns................ $86,180,754 100.0% $74,320,365 100.0%
----------- ----- ----------- -----
COST OF GOODS SOLD:
Merchandise......................... $63,816,196 74.0% $54,645,339 73.5%
Freight............................. 686,264 .8 567,252 .8
----------- ----- ----------- -----
Total cost of goods sold........... $64,502,460 74.8% $55,212,591 74.3%
----------- ----- ----------- -----
Gross profit....................... $21,678,294 25.2% $19,107,774 25.7%
----------- ----- ----------- -----
OCCUPANCY EXPENSES................... $ 1,163,137 1.4% $ 1,010,466 1.5%
SELLING EXPENSES..................... 7,881,879 9.2 7,137,364 9.6
WAREHOUSE AND DELIVERY EXPENSES...... 4,083,599 4.7 3,343,704 4.4
GENERAL AND ADMINISTRATIVE EXPENSES.. 5,833,037 6.7 5,621,679 7.5
----------- ----- ----------- -----
Total expenses..................... $18,961,652 22.0% $17,113,213 23.0%
----------- ----- ----------- -----
Operating income................... $ 2,716,642 3.2% $ 1,994,561 2.7%
OTHER INCOME (EXPENSE)............... 247,961 .3 (289,018) (.4 )
----------- ----- ----------- -----
Income from continuing operations
before unusual item and provision
for Federal, state and local
income taxes...................... $ 2,964,603 3.5% $ 1,705,543 2.3%
UNUSUAL ITEM......................... (450,000) (.6 ) -- --
----------- ----- ----------- -----
Income from continuing operations
before provision for Federal,
state and local income taxes...... $ 2,514,603 2.9% $ 1,705,543 2.3%
----------- ----- ----------- -----
PROVISION FOR FEDERAL, STATE AND LO-
CAL
INCOME TAXES:
Current year........................ $ 1,064,950 1.2% $ 724,600 1.0%
Deferred............................ (63,100) (.1) 51,350 --
Prior year adjustment............... (13,114) -- (24,457) --
----------- ----- ----------- -----
$ 988,736 1.1% $ 751,493 1.0%
----------- ----- ----------- -----
Income from continuing operations.. $ 1,525,867 1.8% $ 954,050 1.3%
----------- ----- ----------- -----
DISCONTINUED OPERATIONS:
Income from discontinued operations
of subsidiaries (net of refundable
income taxes of $-0- and $138,600). $ -- -- % $ 56,498 -- %
Gain on disposal of Aheco, Inc. (net
of income taxes of
$-0- and $57,600).................. -- -- 77,484 --
----------- ----- ----------- -----
Net income from discontinued opera-
tions............................. $ -- -- % $ 133,982 -- %
----------- ----- ----------- -----
Net income......................... $ 1,525,867 1.8% $ 1,088,032 1.3%
=========== ===== =========== =====
</TABLE>

The attached Notes to Consolidated Financial Statements form an integral part
of these statements.

F-24
<PAGE>

RANDOLPH MEDICAL INC. AND SUBSIDIARIES

COMPARATIVE CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE YEARS ENDED
SEPTEMBER 30,
--------------------------
1994 1993
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers...................... $ 83,685,606 $ 72,342,591
Expenditures to suppliers and employees........... (82,100,460) (71,905,118)
Other operating cash receipts..................... 88,820 7,735
Interest received................................. 251,971 134,411
Interest (paid)................................... (236,930) (169,869)
Income taxes (paid)............................... (858,190) (399,953)
Discontinued operations........................... -- (82,102)
------------ ------------
Net cash provided by (used in) operating activ-
ities......................................... $ 830,817 $ (72,305)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets...................... $ 9,921 $ 531,473
Expenditures for property and equipment........... (319,768) (378,130)
Proceeds from notes receivable.................... 219,000 2,127
Expenditures for notes receivable................. -- (610,000)
Proceeds from sale of marketable securities....... 151,834 96,639
Expenditures for cash surrender value of life in-
surance.......................................... (135,667) (135,885)
------------ ------------
Net cash (used in) investing activities........... $ (74,680) $ (493,776)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under line-of-credit............... $ (306,000) $ 1,118,336
Proceeds from notes payable and contractual obli-
gations.......................................... 25,213 253,571
Payments of notes payable and contractual obliga-
tions............................................ (408,541) (637,480)
Proceeds from issuance of common stock............ 86,348 11,092
Expenditures for outstanding common stock ac-
quired........................................... (197,430) (188,712)
------------ ------------
Net cash provided by (used in) financing activ-
ities......................................... $ (800,410) $ 556,807
------------ ------------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS........ $ (44,273) $ (9,274)
CASH AND CASH EQUIVALENTS, AT BEGINNING OF YEAR.... 59,721 68,995
------------ ------------
CASH AND CASH EQUIVALENTS, AT END OF YEAR.......... $ 15,448 $ 59,721
============ ============
</TABLE>

F-25
<PAGE>

<TABLE>
<CAPTION>
FOR THE YEARS ENDED
SEPTEMBER 30,
------------------------
1994 1993
----------- -----------
<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH FLOWS
FROM OPERATING ACTIVITIES:
Net income..................................... $ 1,525,867 $ 1,088,032
Adjustments to reconcile net income to net cash
flows from
operating activities:
Allowance for doubtful accounts............... -- (47,900)
Reserve for notes receivable.................. 450,000 --
Depreciation.................................. 306,088 423,227
Amortization.................................. 250 3,175
(Gain) loss on sale of assets................. (138,128) (106,985)
Deferred income taxes......................... (63,100) 51,350
Changes in:
Accounts receivable........................... (2,495,148) (1,939,994)
Other receivables............................. 74,256 (15,202)
Accrued interest receivable................... (12,347) --
Refundable Federal, state and local income
taxes ....................................... -- 121,692
Inventories................................... (594,111) (1,480,689)
Prepaid expenses.............................. (4,868) 54,823
Deposits...................................... 12,950 550
Other assets.................................. (3,000) (3,000)
Accounts payable and accrued expenses......... 1,578,462 1,670,998
Deposits held................................. -- 10,120
Federal, state and local income taxes payable. 193,646 97,498
----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVI-
TIES............................................ $ 830,817 $ (72,305)
=========== ===========
</TABLE>

The attached Notes to Consolidated Financial Statements form an integral part
of these statements.

F-26
<PAGE>

RANDOLPH MEDICAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED SEPTEMBER 30, 1994 AND 1993

NOTE A--SUMMARY OF ACCOUNTING POLICIES

The following is a summary of certain accounting policies followed in the
preparation of these consolidated financial statements. The policies conform
to generally accepted accounting principles and have been consistently applied
in the preparation of the consolidated financial statements.

COMPANY OPERATIONS

The company and its subsidiaries are engaged in the sale and rentals of
medical supplies, equipment and surgical instruments.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the company
and its wholly-owned domestic subsidiaries, Rancare, Inc. and Randolph Home
Care, Inc. All significant intercompany transactions and account balances have
been eliminated.

CASH EQUIVALENTS

For purposes of the statement of cash flows, the company considers all
highly liquid debt instruments with a maturity of three months or less to be
cash equivalents.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

The company and its subsidiaries account for bad debts on the reserve method
computed on prior years' experience and management's estimate of the
collectability of each account.

INVENTORY VALUATION

The company's Livonia division's inventory is valued on a last-in, first-out
basis. The company's Cleveland and St. Charles divisions' inventories are
valued at the lower of cost or market, with cost determined on a first-in,
first-out basis. Maintenance, operating and office supplies are not
inventoried but are charged to expense when purchased.

PROPERTY AND EQUIPMENT

Management capitalizes expenditures for property and equipment. Expenditures
for maintenance and repairs are charged to operating expenses. Property and
equipment are carried at cost. Adjustments of the assets and the related
accumulated depreciation accounts are made for property and equipment
retirements and disposals, with the resulting gain or loss included in the
consolidated statement of income and expenses.

DEPRECIATION

Depreciation of property and equipment is computed using the straight-line
and accelerated methods over the estimated useful lives of assets at
acquisition. Depreciation expense for the years ended September 30, 1994 and
1993 was $306,088 and $423,227, respectively. Depreciation expense included in
income (loss) from discontinued operations for the years ended September 30,
1994 and 1993 was $-0- and $70,352, respectively.

F-27
<PAGE>

RANDOLPH MEDICAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

FOR THE YEARS ENDED SEPTEMBER 30, 1994 AND 1993
GOODWILL

Goodwill arising from the acquisition of net assets where the cost exceeded
the net asset value is amortized on a straight-line basis over a forty year
period. Amortization of goodwill for each of the years ended September 30,
1994 and 1993 was $250.

PATIENT LIST

The cost of a patient list obtained from Continuing Care Associates, Inc. by
Randolph Home Care, Inc. f/k/a Aheco, Inc. of $136,000 was being amortized
based on the patients no longer serviced over the 93 patients acquired. During
the year ended September 30, 1993, all of the assets of Aheco, Inc., including
the patient list, were sold to an unrelated entity.

Amortization of the patient list for the years ended September 30, 1994 and
1993 was $-0-and $2,925, respectively and is included in income (loss) from
discontinued operations.

INCOME TAXES

Income taxes are provided for at the applicable rates on the basis of items
included in determination of income for financial reporting purposes.

The company has available at September 30, 1994 unused investment credits
and operating loss carryforwards arising from the acquisition of the common
stock of Randolph Home Care, Inc. f/k/a Aheco, Inc. which may provide future
tax benefits, expiring as follows:

<TABLE>
<CAPTION>
UNUSED UNUSED
INVESTMENT CREDIT OPERATING LOSS
YEAR OF EXPIRATION CARRYFOWARDS CARRYFORWARDS
------------------ ----------------- --------------
<S> <C> <C>
2000.................................... $5,886 $ --
2001.................................... -- 183,640
------ --------
Available carryforwards................. $5,886 $183,640
====== ========
</TABLE>

DEFERRED INCOME TAXES

Deferred income taxes are provided for timing differences between financial
statement income and tax return income under the provision of SFAS No. 109
which requires deferred income taxes be computed on the liability method and
deferred tax assets are recognized only when realization is certain. The
principal timing differences arise from use of different depreciation methods
for tax returns and financial statements, capitalized inventory costs, the
allowance for doubtful accounts, vacation pay expense, and LIFO inventory. For
tax purposes, capitalized inventory costs are deducted upon sale of the
inventory item, bad debts are recognized under the direct write-off method,
and vacation pay is deducted when paid. The tax effects of such differences
are included annually on the income statement and balance sheet as a net
adjustment to deferred income taxes. At September 30, 1994, deferred income
taxes of $103,600 are reflected as a current asset of $104,900 and a long-term
liability of $208,500 on the balance sheet. The current provision of $(63,100)
is short-term on the statement of income and expenses.

F-28
<PAGE>

RANDOLPH MEDICAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

FOR THE YEARS ENDED SEPTEMBER 30, 1994 AND 1993

NOTE B--NOTES RECEIVABLE

The company and its subsidiaries have the following notes receivable as of
September 30, 1994:

<TABLE>
<CAPTION>
PORTION PORTION
DUE WITHIN DUE BEYOND
AMOUNT ONE YEAR ONE YEAR
---------- ---------- --------
<S> <C> <C> <C>
Various notes receivable with various pay-
ments, interest rates and due dates. All as-
sets of the company issuing the notes that
have not been previously encumbered have
been pledged as collateral ................. $391,000 $103,500 $287,500
Various notes receivable, net of an allowance
in the amount of $450,000, with various
payments plus interest at 2% above the prime
rate (the prime rate at September 30, 1994
was 7.75%) through September, 1999. The
notes are secured by the personal guarantees
of the officers-stockholders of the
companies issuing the notes. An officer-
stockholder of the company has personally
guaranteed $100,000 of the notes ........... 100,000 100,000 --
-------- -------- --------
$491,000 $203,500 $287,500
======== ======== ========
</TABLE>

NOTE C--OTHER INVESTMENTS

Other investments at September 30, 1994 consisted of non-marketable equity
securities. The securities are stated at the lower of cost or net realizable
value.

<TABLE>
<CAPTION>
FAIR MARKET
COST VALUE
------- -----------
<S> <C> <C>
Abco Dealers, Inc., 25 shares of Class A common stock....... $ 2,500 $210,312
Dexide, Inc., 15,000 shares of common stock................. 15,000 43,500
MES-SE...................................................... 15,000 15,000
------- --------
$32,500 $268,812
======= ========
</TABLE>

NOTE D--NOTE PAYABLE

At September 30, 1994, Randolph Medical Inc. and subsidiaries had drawn
$3,155,000 under an unsecured discretionary credit facility with a bank. The
companies may borrow up to $4,750,000 on a revolving basis with interest at a
floating rate calculated daily up to a maximum rate equal to the prime rate
(the prime rate at September 30, 1994 was 7.75%). The line is subject to
certain loan restrictions and covenants relating to working capital, tangible
net worth and others as more fully described in the loan agreement. The
company and its subsidiaries are in compliance with all of the covenants. The
agreement expires March, 1995.

F-29
<PAGE>

RANDOLPH MEDICAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

FOR THE YEARS ENDED SEPTEMBER 30, 1994 AND 1993

NOTE E--CONTRACTUAL OBLIGATIONS

The company and its subsidiaries are indebted under contractual obligations
at September 30, 1994 as follows:

<TABLE>
<CAPTION>
PORTION PORTION
DUE WITHIN DUE BEYOND
AMOUNT ONE YEAR ONE YEAR
---------- ---------- --------
<S> <C> <C> <C>
RANDOLPH MEDICAL INC.--LIVONIA DIVISION
Notes and capital leases payable to finan-
cial institutions in monthly installments
of $7,146, with various interest rates and
due dates, through April, 1997. Property
and equipment with a total cost of $288,833
has been pledged as collateral ............ $155,107 $ 61,873 $ 93,234
RANDOLPH MEDICAL INC.--CLEVELAND DIVISION
Notes and capital leases payable to finan-
cial institutions in monthly installments
of $930, with various interest rates and
due dates, through April, 1997. Property
and equipment with a total cost of $39,341
has been pledged as collateral............. 19,242 7,688 11,554
RANDOLPH MEDICAL INC.--ST. CHARLES DIVISION
13.2% capital lease payable to a financial
institution in monthly installments of
$254, including interest, through April,
1997. Property and equipment with a total
cost of $11,112 has been pledged as
collateral................................. 6,642 2,307 4,335
RANCARE, INC.
Note and capital lease payable to an
unrelated entity and a financial
institution in monthly installments of
$7,023, with various interest rates and due
dates, through December, 1996. Property and
equipment with a cost of $12,865 has been
pledged as collateral...................... 177,171 79,170 98,001
-------- -------- --------
Randolph Medical Inc. and subsidiaries to-
tal........................................ $358,162 $151,038 $207,124
======== ======== ========
</TABLE>

The following is a schedule of contractual obligation payments for each of
the next three years:

<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, AMOUNT
------------------------ ------
<S> <C>
1995.......................................................... $151,038
1996.......................................................... 149,901
1997.......................................................... 57,223
--------
$358,162
========
</TABLE>

F-30
<PAGE>

RANDOLPH MEDICAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

FOR THE YEARS ENDED SEPTEMBER 30, 1994 AND 1993

NOTE F--CONTINGENT LIABILITY

The company has an investment in MES-SE (see Note C). MES-SE has a letter of
credit with a bank with a current balance of $15,000 at September 30, 1994.
Randolph Medical Inc. is a guarantor of the liability to the bank.

The company is a defendant in various lawsuits. The lawsuits are in the
initial stages of litigation and the probable outcome cannot be determined at
this time. Management denies any liability in these matters and intends to
vigorously defend its position.

NOTE G--401(K) PLAN

The company and its' subsidiaries have a deferred salary compensation 401(K)
Plan covering substantially all employees. The company contributes 20% of the
first 6% of wages deferred by employees up to a maximum of $300 per employee
each plan year. Employee contributions for the years ended September 30, 1994
and 1993 were $476,480 and $293,152, respectively. Employer contributions for
the years ended September 30, 1994 and 1993 were $46,077 and $34,999,
respectively. The company has funded or accrued all calculated contributions
as of the balance sheet date.

NOTE H--EMPLOYEE STOCK OWNERSHIP PLAN

The company and its subsidiaries have an employee stock ownership plan
covering substantially all employees. The plan provides for contributions in
such amounts as the Board of Directors may determine annually. Contri-butions
for the years ended September 30, 1994 and 1993 were $119,587 and $267,125,
respectively. Contributions included in income (loss) from discontinued
operations for the years ended September 30, 1994 and 1993 were $-0- and
$(420), respectively. The company has funded or accrued all calculated
contributions as of the balance sheet date. Included in E.S.O.P. expense for
the years ended September 30, 1994 and 1993 are broker fees and appraisal fees
in the amounts of $17,777 and $15,316, respectively.

NOTE I--ISSUANCE OF COMMON STOCK

The company has granted stock appreciation rights which are exercisable at
the end of either five or six years depending upon the specific agreements.
The difference between the current valuation of the company's common stock and
the exercise price is paid sixty days after the company receives an
independent valuation of its common stock. The payment is made approximately
one-half in stock and one-half in cash. Stock appreciation rights for 344
shares matured and were exercised during the year ended September 30, 1994. As
a result, 344 shares of its $1 par value common stock were issued and paid in
capital in excess of par value was increased by $86,004.

NOTE J--OUTSTANDING COMMON STOCK ACQUIRED

The company purchased 898 shares of its $1 par value common stock during the
year ended September 30, 1994 at costs ranging from $201 to $251 per share for
a value of $198,328. These shares were immediately retired with a charge of
$197,430 to retained earnings.

NOTE K--STOCK COMPENSATION PLAN

During the year ended September 30, 1989, the company approved a stock
compensation plan for a key employee, which expired September 30, 1993.

F-31
<PAGE>

RANDOLPH MEDICAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

FOR THE YEARS ENDED SEPTEMBER 30, 1994 AND 1993

The plan provided for a performance bonus paid to the employee at 10% of the
difference between the fair market value of the capital stock of the company
of the current year end and the prior year end, as determined by the
appraisals of the company conducted for the company's employee stock ownership
plan. During the years ended September 30, 1994 and 1993, the company paid a
performance bonus to the employee of $169,300 and $22,000, respectively.

NOTE L--CAPITAL LEASES

Randolph Medical Inc.--Livonia Division, Randolph Medical Inc.--Cleveland
Division, Randolph Medical Inc.--St. Charles Division, and Rancare, Inc. are
the lessees of computer equipment under capital leases expiring in various
years. The assets and liabilities under these capital leases are recorded at
the lower of the present value of the minimum lease payments or the fair value
of the assets. The assets are depreciated over the lower of their related
lease terms or their estimated productive lives. Depreciation of the assets
under capital leases are included in depreciation expense for the years ended
September 30, 1994 and 1993.

The following is a summary of property held under capital leases:

<TABLE>
<CAPTION>
COMPUTER
EQUIPMENT
---------
<S> <C>
Cost .......................................................... $324,841
Less: Accumulated depreciation ................................ 231,056
--------
$ 93,785
========
</TABLE>

Depreciation on the assets under capital leases charged to expense for the
years ended September 30, 1994 and 1993 was $59,882 and $91,985, respectively.

Interest on the capital leases charged to expense for the years ended
September 30, 1994 and 1993 was $26,820 and $32,466, respectively.

Minimum future lease payments under capital leases as of September 30, 1994
are detailed as contractual obligations in Note E.

NOTE M--OPERATING LEASES

The company and its subsidiaries lease their operating facilities and
equipment under operating leases expiring in various years through 1999.

Minimum future rental payments under non-cancellable operating leases having
remaining terms in excess of one year as of September 30, 1994 for each of the
next five years and in the aggregate are:

<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, AMOUNT
------------------------ ----------
<S> <C>
1995........................................................ $ 818,999
1996........................................................ 775,623
1997........................................................ 483,360
1998........................................................ 338,777
1999........................................................ 68,055
----------
$2,484,814
==========
</TABLE>

F-32
<PAGE>

RANDOLPH MEDICAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

FOR THE YEARS ENDED SEPTEMBER 30, 1994 AND 1993
Total rent and lease expense for the years ended September 30, 1994 and 1993
was $789,536 and $689,187, respectively. Total rent and lease expense included
in income (loss) from discontinued operations for the years ended September
30, 1994 and 1993 was $-0-and $81,981, respectively.

During the year ended September 30, 1994, the company subleased its facility
in Madison Heights to an unrelated party. A deposit on the sublease of $10,120
is being held by the company. Total rental income for the years ended
September 30, 1994 and 1993 was $60,414 and $38,093, respectively.

Total minimum future rental payments have not been reduced by $32,141 of
sublease rentals to be received in the future under non-cancelable subleases.

NOTE N--CONCENTRATIONS OF CREDIT RISK

Financial instruments which potentially subject the company to concen-
trations of credit risk consist principally of temporary cash investments and
trade receivables.

The company places its temporary cash investments with high credit quality
financial institutions and limits the amount of credit exposure to any
particular investment. Concentrations of credit risk with respect to trade
receivables are limited due to the large number of customers comprising the
company's customer base and their economic and geographic diversification.
Most of the company's business activity is with customers located in the
midwest.

As of September 30, 1994, the company had no significant concentrations of
credit risk.

NOTE O--MAJOR SUPPLIER

During the year ended September 30, 1994, the company purchased
approximately 18% of its merchandise from one supplier. At September 30, 1994,
amounts due to that supplier included in trade accounts payable were
$1,302,716. In addition, amounts due from that supplier included in trade
accounts receivable were $110,792.

NOTE P--RESTATEMENT

Certain reclassifications have been made to prior years financial statements
to conform to the 1994 presentation.

NOTE Q--UNUSUAL ITEM

During the year ended September 30, 1994, the company recorded a non-
recurring charge to income in the amount of $450,000. This charge was to set
up a reserve to reflect the uncertainty of collection of certain non-operating
notes receivable that are described in Note B.

NOTE R--DISCONTINUED OPERATIONS

Aheco, Inc. discontinued operations in September, 1993. The assets sold
during the year ended September 30, 1993 consisted primarily of accounts
receivable, inventories and property and equipment. These assets were sold for
$960,000, which included a non-competition agreement. This resulted in a gain
from the disposal in the amount of $77,484. During the years ended September
30, 1994 and 1993, the company had income (loss) from discontinued operations
of Aheco, Inc. in the amount of $-0- and $130,297, respectively. During the
year ended September 30, 1994, Aheco, Inc. has resumed business activity as
Randolph Home Care, Inc.

F-33
<PAGE>

RANDOLPH MEDICAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

FOR THE YEARS ENDED SEPTEMBER 30, 1994 AND 1993

During the year ended September 30, 1993, the activities of Axis Medical
Management, Inc. and Michigan Medical, Inc. were discontinued and all
remaining assets were distributed to their parent corporations. During the
years ended September 30, 1994 and 1993, the company had income from
discontinued operations of the above companies in the amount of $-0- and
$3,685, respectively.

Following is a summary of the results of the discontinued operations:

<TABLE>
<CAPTION>
RANDOLPH
HOME CARE, INC. F/K/A
AHECO, INC. OTHER SUBSIDIARIES TOTAL
---------------------- ------------------- --------------------
FOR THE YEARS ENDED FOR THE YEARS ENDED FOR THE YEARS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
---------------------- ------------------- --------------------
1994 1993 1994 1993 1994 1993
---------------------- ------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Sales................... $ -- $ 1,323,774 $ -- $ -- $ -- $ 1,323,774
Costs and expenses...... -- 1,315,473 -- 1,500 -- 1,316,973
-------- ------------- -------- ---------- ------- ------------
Operating income........ $ -- $ 8,301 $ -- $ (1,500) $ -- $ 6,801
Other income (expense).. -- 40,996 -- 5,185 -- 46,181
-------- ------------- -------- ---------- ------- ------------
Income (loss) before
tax.................... $ -- $ 49,297 $ -- $ 3,685 $ -- $ 52,982
Income tax.............. -- (81,000) -- -- -- (81,000)
-------- ------------- -------- ---------- ------- ------------
Net income (loss)....... $ -- $ 130,297 $ -- $ 3,685 $ -- $ 133,982
======== ============= ======== ========== ======= ============
</TABLE>

NOTE S--SUBSEQUENT EVENT

The company is in the process of negotiating the sale of 100% of the
corporate stock.

F-34
<PAGE>

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR BY ANY OF THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT
RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THOSE SECU-
RITIES TO WHICH IT RELATES IN ANY STATE OR JURISDICTION TO ANY PERSON TO WHOM
IT IS NOT LAWFUL TO MAKE SUCH OFFER IN SUCH STATE OR JURISDICTION. THE DELIV-
ERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION CON-
TAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.

------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 8
The Company............................................................... 14
Use of Proceeds........................................................... 15
Dividend Policy........................................................... 16
Dilution.................................................................. 17
Capitalization............................................................ 18
Selected Consolidated Historical and Pro Forma Financial Information...... 19
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 21
Business.................................................................. 28
Management................................................................ 39
Principal Stockholders.................................................... 44
Certain Transactions...................................................... 46
Description of Capital Stock.............................................. 49
Description of Certain Indebtedness....................................... 54
Shares Eligible for Future Sale........................................... 62
Certain United States Tax Consequences To Non-United States Holders....... 64
Underwriting.............................................................. 66
Legal Matters............................................................. 70
Experts................................................................... 70
Available Information..................................................... 70
Index to Consolidated Financial Statements................................ F-1
</TABLE>

Until , 1997 (25 days after the date of this Prospectus), all dealers ef-
fecting transactions in the Common Stock, whether or not participating in this
distribution, may be required to deliver a Prospectus. This is in addition to
the obligation of dealers to deliver a Prospectus when acting as Underwriters
and with respect to their unsold allotments or subscriptions.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

GENERAL MEDICAL INC.

COMMON STOCK

[LOGO OF GENERAL MEDICAL INC. APPEARS HERE]

--------

PROSPECTUS

, 1997

--------

SMITH BARNEY INC.

MORGAN STANLEY & CO.
INCORPORATED

ALEX. BROWN & SONS
INCORPORATED

CS FIRST BOSTON

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>

SUBJECT TO COMPLETION, DATED DECEMBER 3, 1996
PROSPECTUS
SHARES

[LOGO OF GENERAL MEDICAL INC. APPEARS HERE]

GENERAL MEDICAL INC.

COMMON STOCK

--------

All of the shares of Common Stock, $.01 par value per share (the "Common
Stock"), offered hereby are being sold by General Medical Inc. Of the
shares of Common Stock offered hereby, a total of shares are being
offered in an international offering outside the United States and Canada (the
"International Offering") by the Managers (as defined) and a total of
shares are being offered by the U.S. Underwriters (as defined) in a concurrent
offering in the United States and Canada (the "U.S. Offering" and, together
with the International Offering, the "Offerings").

Application has been made to have the Common Stock quoted on the Nasdaq
National Market ("Nasdaq") under the symbol "GENM."

--------

SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) For information regarding indemnification of the Managers and the U.S.
Underwriters, see "Underwriting."
(2) Before deducting expenses estimated at payable by the Company.

--------

The shares of Common Stock are being offered by the several Managers named
herein, subject to prior sale, when, as and if accepted by them and subject to
certain conditions. It is expected that certificates for the shares of Common
Stock offered hereby will be available for delivery on or about , 1997, at
the office of Smith Barney Inc., 333 West 34th Street, New York, New York
10001.

--------
SMITH BARNEY INC. MORGAN STANLEY & CO.
INTERNATIONAL

ALEX. BROWN & SONS CS FIRST BOSTON
INTERNATIONAL

, 1997
<PAGE>

[ALTERNATE PAGE FOR INTERNATIONAL OFFERING]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR BY ANY OF THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RE-
LATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THOSE SECURI-
TIES TO WHICH IT RELATES IN ANY STATE OR JURISDICTION TO ANY PERSON TO WHOM IT
IS NOT LAWFUL TO MAKE SUCH OFFER IN SUCH STATE OR JURISDICTION. THE DELIVERY OF
THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.

------------

TABLE OF CONTENTS

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

GENERAL MEDICAL INC.

COMMON STOCK

[LOGO OF GENERAL MEDICAL INC. APPEARS HERE]

--------

PROSPECTUS

, 1997

--------

SMITH BARNEY INC.

MORGAN STANLEY & CO.
INTERNATIONAL

ALEX. BROWN & SONS
INTERNATIONAL

CS FIRST BOSTON

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The expenses in connection with the issuance and distribution of the
securities being registered, other than underwriting discounts and
commissions, are estimated as follows:

<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............. $52,273
National Association of Securities Dealers, Inc. filing fee..... 17,750
*Nasdaq listing fee..............................................
*Printing and engraving expenses.................................
*Legal fees and expenses.........................................
*Accounting fees and expenses....................................
*Transfer Agent and Registrar fees...............................
*Miscellaneous ..................................................
-------
Total...........................................................
=======
</TABLE>
- --------
* To be supplied by amendment.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

As authorized by Section 145 of the General Corporation Law of the State of
Delaware (the "Delaware Corporation Law"), each director and officer of the
Registrant may be indemnified by the Registrant against expenses (including
attorneys' fees, judgments, fines and amounts paid in settlement) actually and
reasonably incurred in connection with the defense or settlement of any
threatened, pending or completed legal proceedings in which he is involved by
reason of the fact that he is or was a director or officer of the Registrant
if he acted in good faith and in a manner that he reasonably believed to be in
or not opposed to the best interests of the Registrant, and, with respect to
any criminal action or proceeding, if he had no reasonable cause to believe
that his conduct was unlawful. If the legal proceeding, however, is by or in
the right of the Registrant, the director or officer may not be indemnified in
respect of any claim, issue or matter as to which he shall have been adjudged
to be liable for negligence or misconduct in the performance of his duty to
the Registrant unless a court determines otherwise.

The Certificate of Incorporation of the Registrant, a copy of which is filed
as Exhibits 3.1(a) and 3.1(b) to this Registration Statement, provides that to
the fullest extent permitted by the Delaware Corporation Law, a director of
the Registrant shall not be liable to the Registrant or its stockholders for
monetary damages for breach of fiduciary duty as a director.

The Bylaws of the Registrant, a copy of which is filed as Exhibit 3.2(a) to
this Registration Statement, provides that the Registrant shall indemnify to
the full extent authorized by law any person made or threatened to be made a
party to an action, suit or proceeding, whether criminal, civil,
administrative or investigative, by reason of the fact that he is or was a
director, officer, employee or agent of the Registrant or was serving, at the
request of the Registrant, as a director, officer, employee or agent of
another corporation or other entity.

The Registrant maintains a standard policy of officers' and directors'
liability insurance.

Reference is made to Item 17 for the undertakings of the Registrant with
respect to indemnification for liabilities arising under the Securities Act.

II-1
<PAGE>

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

(a) On April 14, 1995, Don Randolph, President of Randolph Medical Inc., a
wholly-owned subsidiary of General Medical, purchased shares of the
Registrant's Common Stock for a purchase price of $1,000,000.

(b) On April 14, 1995, the Registrant issued 9,000 shares of Common Stock to
a former employee of the Registrant, pursuant to the exercise of an option
exercisable at $ per share, for aggregate proceeds of $ .

(c) On August 7, 1995, the Registrant issued 1,500 shares of Common Stock to
a former employee of the Registrant, pursuant to the exercise of an option
exercisable at $ per share, for aggregate proceeds of $ .

(d) On April 4, 1996, the Registrant issued 3,000 shares of Common Stock to
a former employee of the Registrant, pursuant to the exercise of an option
exercisable at $ per share, for aggregate proceeds of $ .

(e) On April 26, 1996, the Registrant issued 3,000 shares of Common Stock to
a former employee of the Registrant, pursuant to the exercise of an option
exercisable at $ per share, for aggregate proceeds of $ .

(f) The Registrant issued shares of Common Stock to the entities referred to
in the Prospectus as PGI, as follows: an aggregate of 82,787 shares in July
1995, an aggregate of 82,787 shares in January 1996 and an aggregate of 82,787
shares in July 1996. Such shares were issued pursuant to the Securityholders
Agreement as an adjustment of the purchase price paid by PGI for the shares of
Common Stock acquired by PGI thereunder.

No underwriters participated in the foregoing transactions and such sales of
shares were consummated in transactions not involving any public offering and
exempt from the registration requirements of the Securities Act by virtue of
Section 4(2) thereof.

ITEM 16. EXHIBITS AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULES

A.EXHIBITS

The following exhibits are attached hereto:

<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE
------- -----
<C> <C> <S>
*1.1 -- Form of Underwriting Agreement.
2.1 -- Agreement and Plan of Merger, dated as of January 23, 1995, among
GM Holdings, Inc., GMI and GM Holdings Acquisition Corporation
(filed as an exhibit to General Medical Corporation's Annual
Report on Form 10-K for the fiscal year ended December 31, 1994
and incorporated herein by reference).
2.2 -- Stock Purchase Agreement, dated as of May 24, 1994, among F.
DeWight Titus, III, Helen A. Titus, Timothy E. Titus and General
Medical Corporation (filed as an exhibit to General Medical
Corporation's Current Report on Form 8-K dated August 11, 1994 and
incorporated herein by reference).
2.3 -- Exchange Agreement, dated as of July 28, 1994, by and among F.
DeWight Titus, III, GM Holdings, Inc. and GMI (filed as an exhibit
to GM Holdings Inc.'s Current Report on Form 8-K dated August 11,
1994 and incorporated herein by reference).
2.4 -- Asset Purchase Agreement, dated as of July 13, 1994, between
Foster Medical Supply, Inc. and General Medical Corporation (filed
as an exhibit to General Medical Corporation's Current Report on
Form 8-K dated September 15, 1994 and incorporated herein by
reference).
</TABLE>

II-2
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE
------- -----
<C> <C> <S>
2.5 -- Exchange Agreement Amendment, dated as of November 21, 1994,
among F. DeWight Titus, III, GM Holdings, Inc. and GMI (filed
as an exhibit to GMI's Registration Statement on Form S-4 (File
No. 33-85824) and incorporated herein by reference).
2.6 -- Merger Agreement, dated as of January 4, 1995, among Randolph
Medical Inc., General Medical Corporation, Randolph Acquisition
Corporation and the Shareholders named therein (filed as an
exhibit to General Medical Corporation's Current Report on Form
8-K dated January 19, 1995 and incorporated herein by
reference).
3.1(a) -- Certificate of Incorporation of GMI, as amended August 25, 1994
and January 17, 1995 (filed as an exhibit to GMI's Registration
Statement on Form S-4 (File No. 33-85824) and incorporated
herein by reference).
**3.1(b) -- Certificate of Amendment of Certificate of Incorporation of
GMI.
**3.1(c) -- Certificate of Amendment of Certificate of Incorporation of
GMI.
3.2(a) -- By-Laws of GMI (filed as an exhibit to GMI's Registration
Statement on Form S-4
(File No. 33-85824) and incorporated herein by reference).
4.1 -- Specimen certificates representing GMI's Common Stock, $.01 par
value, and Class A Common Stock, $.01 par value.
4.2 -- Indenture, dated as of August 31, 1993, between GM Acquisition
Corp. (predecessor to General Medical Corporation) and The Bank
of New York, relating to the 10 7/8% Series A Senior
Subordinated Notes Due 2003 (filed as an exhibit to General
Medical Corporation's Registration Statement on Form S-1 (No.
33-69874) and incorporated herein by reference).
4.3 -- Indenture, dated as of August 31, 1993, between GM Acquisition
Corp. and United States Trust Company of New York, relating to
the 12 1/8% Series A Subordinated Pay-In-Kind 12 1/8%
Debentures Due 2005 (filed as an exhibit to General Medical
Corporation's Registration Statement on Form S-1 (No. 33-69874)
and incorporated herein by reference).
4.4 -- Form of 12 1/2% Senior Notes due 2004 of GM Holdings, Inc.
(included as Exhibit A to the Securities Purchase Agreement
referred to in Exhibit 10.28 below.)
*5.1 -- Opinion of McGuire, Woods, Battle & Boothe, L.L.P. as to the
validity of the offered shares.
10.1 -- Amended and Restated Credit Agreement, dated as of July 28,
1994 (the "Amended and Restated Credit Agreement"), by and
among General Medical Corporation, Chemical Bank, as
Administrative Agent and as Issuing Bank and the financial
institutions listed on the signature pages thereto (filed as an
exhibit to General Medical Corporation's Current Report on Form
8-K dated August 11, 1994 and incorporated herein by
reference).
10.2 -- Amended and Restated Holdings Agreement, dated as of July 28,
1994 (the "Amended and Restated Holdings Agreement"), by GM
Holdings, Inc. in favor of Chemical Bank, as Administrative
Agent (filed as an exhibit to GM Holdings, Inc.'s Current
Report on Form 8-K dated August 11, 1994 and incorporated
herein by reference).
10.3 -- New Holdings Agreement, dated as of July 28, 1994, by GMI in
favor of Chemical Bank, as Administrative Agent (included as
Exhibit L to the Amended and Restated Credit Agreement which is
filed as an exhibit to General Medical Corporation's Current
Report on Form 8-K dated August 11, 1994 and incorporated
herein by reference).
10.4 -- Security Agreement, dated as of August 31, 1993, by and among
General Medical, General Medical Manufacturing Company, and
Chemical Bank, as Collateral Agent (filed as an exhibit to
General Medical Corporation's Registration Statement on Form S-
1 (No. 33-69874) and incorporated herein by reference).
10.5 -- Form of Confirmation, dated as of July 28, 1994, of Security
Agreement by and among General Medical Corporation, General
Medical Manufacturing Company, and Chemical Bank, as Collateral
Agent (included as Exhibit D to the Amended and Restated Credit
Agreement which is filed as an exhibit to General Medical
Corporation's Current Report on Form 8-K dated August 11, 1994
and incorporated herein by reference).
</TABLE>

II-3
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE
------- -----
<C> <C> <S>
10.6 -- Pledge Agreement, dated as of August 31, 1993, made by General
Medical Corporation in favor of the Collateral Agent (filed as
an exhibit to General Medical Corporation's Registration
Statement on Form S-1 (No. 33-69874) and incorporated herein by
reference).
10.7 -- Form of Supplement and Confirmation, dated as of July 28, 1994,
to the Pledge Agreement, dated as of August 31, 1993, made by
General Medical Corporation in favor of the Collateral Agent
(included as Exhibit E to the Amended and Restated Credit
Agreement which is filed as an exhibit to General Medical
Corporation's Current Report on Form 8-K dated August 11, 1994
and incorporated herein by reference).
10.8 -- Assumption Agreement, dated as of August 31, 1993, made by
General Medical Corporation, in favor of the Administrative
Agent and the Lenders (filed as an exhibit to General Medical
Corporation's Registration Statement on Form S-1 (No. 33-69874)
and incorporated herein by reference).
10.9 -- Guarantee Agreement, dated as of July 28, 1994, from F.D. Titus
and Son Inc., a California corporation, to the Lenders and the
Administrative Agent (included as Exhibit F to the Amended and
Restated Credit Agreement which is filed as an exhibit to GM
Holdings, Inc.'s Current Report on Form 8-K dated August 11,
1994 and incorporated herein by reference).
10.10 -- Confirmation, dated as of July 28, 1994, to the Guarantee
Agreement, dated as of August 31, 1993, from General Medical
Manufacturing Corporation to the Lenders and the Administrative
Agent (included as Exhibit F to the Amended and Restated Credit
Agreement which is filed as an exhibit to GM Holdings, Inc.'s
Current Report on Form 8-K dated August 11, 1994 and
incorporated herein by reference).
10.11 -- Registration Agreement, dated August 25, 1993, by and among GM
Acquisition Corp., Morgan Stanley & Co. Incorporated and
Chemical Securities Inc. (filed as an exhibit to General Medical
Corporation's Registration Statement on Form S-1 (No. 33-69874)
and incorporated herein by reference).
10.12 -- Placement Agreement, dated August 25, 1993, by and among GM
Acquisition Corp., Morgan Stanley and Chemical Securities Inc.
(filed as an exhibit to General Medical Corporation's
Registration Statement on Form S-1 (No. 33-69874) and
incorporated herein by reference).
10.13 -- Tax Sharing Agreement, dated as of August 31, 1993, by and among
GM Holdings, Inc., General Medical Corporation and certain of
General Medical Corporation's subsidiaries (filed as an exhibit
to General Medical Corporation's Registration Statement on Form
S-1 (No. 33-69874) and incorporated herein by reference).
10.14 -- Amended and Restated Indemnification Agreement, dated as of
August 27, 1993, by and between Rabco Health Services Inc. and
Steven M. Grossman (filed as an exhibit to General Medical
Corporation's Registration Statement on Form S-1 (No. 33-69874)
and incorporated herein by reference).
10.15 -- Amended and Restated Indemnification Agreement, dated as of
August 27, 1993, by and between Rabco Health Services Inc. and
Richard A. Bernstein (filed as an exhibit to General Medical
Corporation's Registration Statement on Form S-1 (No. 33-69874)
and incorporated herein by reference).
10.16 -- Amended and Restated Indemnification Agreement, dated as of
August 27, 1993, by and between Rabco Health Services Inc. and
Ira A. Gomberg (filed as an exhibit to General Medical
Corporation's Registration Statement on Form S-1 (No. 33-69874)
and incorporated herein by reference).
10.17 -- Amended and Restated Indemnification Agreement, dated as of
August 27, 1993, by and between Rabco Health Services Inc. and
Ilan Reich (filed as an exhibit to General Medical Corporation's
Registration Statement on Form S-1 (No. 33-69874) and
incorporated herein by reference).
</TABLE>

II-4
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE
------- -----
<C> <C> <S>
10.18 -- Amended and Restated Indemnification Agreement, dated as of
August 27, 1993, by and between Rabco Health Services Inc. and
Stuart Turner (filed as an exhibit to General Medical
Corporation's Registration Statement on Form S-1 (No. 33-69874)
and incorporated herein by reference).
10.19 -- Amended and Restated Indemnification Agreement, dated as of
August 27, 1993, by and between Rabco Health Services Inc. and
Laurence Usdin (filed as an exhibit to General Medical
Corporation's Registration Statement on Form S-1 (No. 33-69874)
and incorporated herein by reference).
10.20 -- Non-Competition Agreement, dated as of May 7 1992, by and among
Rabco, FoxMeyer Drug Company, Richard A. Bernstein and Stuart
Turner (filed as an exhibit to General Medical Corporation's
Registration Statement on Form S-1 (No. 33-69874) and
incorporated herein by reference).
*10.21 -- General Medical Executive Incentive Plan--1996, dated as of
.
10.22 -- General Medical Senior Management Incentive Plan--1994 (filed as
an exhibit to General Medical Corporation's Registration
Statement on Form S-1 (No. 33-69874) and incorporated herein by
reference).
*10.23 -- General Medical 1994 Non-Employee Directors Stock Incentive
Plan, dated as of .
10.24 -- 1993 Stock Incentive Plan, as amended (filed as an exhibit to
General Medical Corporation's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994 and incorporated herein by
reference).
10.25 -- Stockholders Agreement, dated as of August 27, 1993, among the
Company, Kelso Investment Associates IV, L.P., Kelso Equity
Partners II, L.P. and certain management investors (filed as an
exhibit to GM Holdings, Inc.'s Registration Statement on Form S-
1 (No. 33-73180) and incorporated herein by reference).
10.26 -- Form of Letter Agreement among the Company, Kelso Investment
Associates IV, L.P., Kelso Equity Partners II, L.P. and each New
Kelso Investor (filed as an exhibit to GM Holdings, Inc.'s
Registration Statement on Form S-1 (No. 33-73180) and
incorporated herein by reference).
10.27 -- Securities Purchase Agreement, dated as of July 28, 1994, among
GM Holdings, Inc. and the Purchasers listed on the signature
pages thereof (filed as an exhibit to GM Holdings, Inc.'s
Current Report on Form 8-K dated August 11, 1994 and
incorporated herein by reference).
10.28 -- Form of Securityholders Agreement, dated as of July 28, 1994,
among GM Holdings, Inc., GMI, Kelso Investment Associates, IV,
L.P., Kelso Equity Partners II, L.P., Princess Gate Investors,
L.P., Acorn Partnership I, L.P., PGI Investments Limited, PGI
Sweden AB, Gregor Von Opel and PG Holdings, Inc., as Agent
(filed as an exhibit to GM Holdings, Inc.'s Current Report on
Form 8-K dated August 11, 1994 and incorporated herein by
reference).
10.29 -- Stock Subscription Agreement, dated as of August 31, 1994, by
and among GM Holdings, Inc. and Chemical Equity Associates, A
California limited partnership (filed as an exhibit to GMI's
Registration Statement on Form S-4 (File No. 33-85824) and
incorporated herein by reference).
10.30 -- First Amendment to Amended and Restated Credit Agreement, dated
as of November 15, 1994, among the signatories to the Amended
and Restated Credit Agreement (filed as an exhibit to GMI's
Registration Statement on Form S-4 (File No. 33-85824) and
incorporated herein by reference).
10.31 -- Second Amendment to Amended and Restated Credit Agreement and
First Amendment to Amended and Restated Holdings Agreement,
dated as of December 7, 1994, among the signatories to the
Amended and Restated Credit Agreement and the Amended and
Restated Holdings Agreement (filed as an exhibit to GMI's
Registration Statement on Form S-4 (File No. 33-85824) and
incorporated herein by reference).
</TABLE>

II-5
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE
------- -----
<C> <C> <S>
10.32 -- Letter Agreements dated December 5, 1994 between GM Holdings,
Inc. and Princes Gate Investors, L.P., Acorn Partnership I,
L.P., PGI Investments Limited, PGI Sweden AB and Gregor Von Opel
(filed as an exhibit to GMI's Registration Statement on Form S-4
(File No. 33-85824) and incorporated herein by reference).
10.33 -- First Amendment to the Tax Sharing Agreement, dated as of
January 23, 1995, among GMI, GM Holdings, Inc., General Medical
Corporation and certain General Medical Corporation's
subsidiaries (filed as an exhibit to General Medical
Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994 and incorporated herein by reference).
10.34 -- Assignment and Assumption of the Stockholders Agreement, dated
as of January 23, 1995, among GM Holdings, Inc., GMI, Kelso
Investment Associates IV, L.P. and Kelso Equity Partners II,
L.P. (filed as an exhibit to General Medical Corporation's
Annual Report on Form 10-K for the fiscal year ended December
31, 1994 and incorporated herein by reference).
10.35 -- Guarantee Agreement, dated as of January 5, 1995, from Randolph
Medical Inc. to the Lenders named therein and Chemical Bank, as
Administrative Agent and Issuing Bank (filed as an exhibit to
General Medical Corporation's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994 and incorporated herein by
reference).
10.36 -- Pledge Agreement, dated as of January 5, 1995, made by Randolph
Medical Inc. in favor of Chemical Bank, as Collateral Agent
(filed as an exhibit to General Medical Corporation's Annual
Report on Form 10-K for the fiscal year ended December 31, 1994
and incorporated herein by reference). Subsidiaries of the
registrant.
11.1 -- Statement regarding computation of per share earnings.
**21.1 -- Subsidiaries of the Registrant.
23.1 -- Consent of Deloitte & Touche LLP, Independent Auditors and
Report on Schedules.
23.2 -- Consent of Follmer, Rudzewicz & Co., P.C., Independent Auditors.
*23.3 -- Consent of McGuire, Woods, Battle & Boothe, L.L.P. (included in
Exhibit 5.1).
**24.1 -- Power of Attorney.
</TABLE>
- --------
* To be supplied by amendment.

** Previously filed.

B.CONSOLIDATED FINANCIAL STATEMENT SCHEDULES

Schedule I--Condensed Financial Information of Registrant
Schedule II--Valuation and Qualifying Account

All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable and, therefore, have been
omitted.

ITEM 17. UNDERTAKINGS

The undersigned Registrant hereby undertakes that:

(1) That for purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective; and

(2) That for purposes of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

II-6
<PAGE>

The undersigned Registrant hereby further undertakes to provide to the
underwriter at the closing specified in the underwriting agreements,
certificates in such denominations and registered in such names as required by
the underwriter to permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.

II-7
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement Amendment to be signed on its
behalf by the undersigned, thereunto duly authorized, in the County of
Henrico, Commonwealth of Virginia, on December 3, 1996.

GENERAL MEDICAL INC.

By: /s/ Donald B. Garber
-------------------------------

Donald B. Garber

Senior Vice President and

Chief Financial Officer

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement Amendment has been signed by the following persons in
the capacities indicated on December 3, 1996.

<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
______________* _______________ Chairman of the Board, President,
Steven B. Nielsen Chief Executive Officer and Director
(principal executive officer)
/s_____Donald/B. Garber ______ Senior Vice President and Chief Financial
Donald B. Garber Officer
(principal financial and accounting
officer)
______________* _______________ Director
Michael B. Goldberg
______________ _______________ Director
Mitchell J. Blutt
______________ _______________ Director
David M. Roderick
______________ _______________ Director
John Rutledge
______________* _______________ Director
Wellford L. Sanders, Jr.
______________* _______________ Vice Chairman and Director
F. DeWight Titus, III
______________* _______________ Director
Thomas R. Wall, IV
</TABLE>

* By: /s/ Donald B. Garber

- ---------------------------

Donald B. Garber
Attorney-in-fact

II-8
<PAGE>

SCHEDULE I

GENERAL MEDICAL INC.--PARENT ONLY

BALANCE SHEETS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 31
------------------
1994 1995
-------- --------
<S> <C> <C>
ASSETS
Investment in subsidiary.................................... $ 72,776 $ 59,156
Other assets................................................ 57 --
-------- --------
Total assets............................................ $ 72,833 $ 59,156
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued liabilities......................................... $ -- $ 1,977
Long-term payable to subsidiary............................. 57 --
Stockholders' equity:
Common stock.............................................. 84 89
Class A convertible common stock.......................... 12 12
Additional paid-in capital................................ 101,941 109,115
Predecessor basis in accounting........................... (20,814) (20,814)
Retained deficit.......................................... (7,372) (25,844)
Treasury stock............................................ (1,075) (5,379)
-------- --------
Total stockholders' equity.............................. 72,776 57,179
-------- --------
Total liabilities and stockholders' equity.............. $ 72,833 $ 59,156
======== ========
</TABLE>

See notes to financial statements.

S-1
<PAGE>

SCHEDULE I

GENERAL MEDICAL INC.--PARENT ONLY

STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
FOUR MONTHS YEAR YEAR
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Loss in subsidiary operations............ $(3,907) $(3,465) $(18,472)
======= ======= ========
</TABLE>

See notes to financial statements.

S-2
<PAGE>

SCHEDULE I
GENERAL MEDICAL INC.--PARENT ONLY

STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
FOUR MONTHS YEAR YEAR
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash (invested in) received from
subsidiary............................ $(67,010) $(25,962) $ 1,471
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of treasury
stock................................. -- 226 --
Purchase of treasury stock............. (103) (1,199) (2,327)
Proceeds from issuance of common stock. 67,113 26,935 856
-------- -------- -------
Net cash provided by (used in)
financing activities................ 67,010 25,962 (1,471)
NET CHANGE IN CASH AND CASH EQUIVALENTS.. 0 0 0
CASH AT BEGINNING OF PERIOD.............. 0 0 0
-------- -------- -------
CASH AT END OF PERIOD.................... $ 0 $ 0 $ 0
======== ======== =======
</TABLE>

See notes to financial statements.

S-3
<PAGE>

GENERAL MEDICAL INC.--PARENT ONLY

NOTES TO THE PARENT ONLY FINANCIAL STATEMENTS FOR THE FOUR MONTHS ENDED
DECEMBER 31, 1993 AND THE YEARS ENDED DECEMBER 31, 1994 AND 1995.

1. BASIS OF PRESENTATION

The accompanying financial statements are presented on the basis of
recording investments in the Company's wholly owned subsidiary on the equity
method of accounting. The Company was incorporated in December 1994 as a
holding company in order to effect a merger whereby Holdings became a wholly
owned subsidiary of the Company. Predecessor financial information prior to
the date of the Original Acquisition is not comparative.

2. TAX SHARING AGREEMENT

The Company, Holdings and General Medical are party to a Tax Sharing
agreement which provides that General Medical and Holdings compute their taxes
on a stand-alone basis and remit such amounts to the Company. The Company will
compute and file taxes for the consolidated group.

3. DIVIDEND RECEIVED

During 1995, the Company received a dividend of $1.6 million from Holdings
in order to fund stock repurchases.

S-4
<PAGE>

SCHEDULE II

GENERAL MEDICAL INC.

VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
COLUMN C--ADDITIONS
---------------------
COLUMN B--
BALANCE AT (1)-- (2)-- COLUMN D-- COLUMN E--
BEGINNING CHARGED TO CHARGED TO DEDUCTIONS BALANCE AT
OF COSTS AND OTHER (OBSOLESCENCE END OF
COLUMN A--DESCRIPTION PERIOD EXPENSES ACCOUNTS WRITEOFFS) PERIOD
--------------------- ---------- ---------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for Obsolete &
Slow Moving Inventory:
Predecessor:
Eight Months Ended
August 31, 1993...... $3,050,643 308,983 347,549 $3,010,077
Company:
Four Months Ended
December 31, 1993.... $3,010,077 678,930 326,579 $3,362,428
Year Ended December
31,
1994................. $3,362,428 1,083,599 (210,265) 822,470 $3,413,292
1995................. $3,413,292 2,028,966 797,288 $4,642,970
</TABLE>

S-5
<PAGE>

SCHEDULE II

GENERAL MEDICAL INC.

VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
COLUMN C--ADDITIONS
----------------------
COLUMN B-- (1)-- (2)-- COLUMN D-- COLUMN E--
BALANCE AT CHARGED TO CHARGED TO DEDUCTIONS BALANCE AT
BEGINNING OF COSTS AND OTHER (BAD DEBT END OF
COLUMN A--DESCRIPTION PERIOD EXPENSES ACCOUNTS WRITEOFFS) PERIOD
--------------------- ------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful
Accounts:
Predecessor:
Eight Months Ended Au-
gust 31, 1993........ $1,842,627 (355,175) 188,990 $1,298,462
Company:
Four Months Ended De-
cember 31, 1993...... $1,298,462 444,584 308,774 $1,434,272
Year Ended December 31,
1994.................. $1,434,272 798,784 1,451,041 525,949 $3,158,148
1995.................. $3,158,148 2,905,965 369,600 1,344,915 $5,088,798
</TABLE>

S-6
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
PAGE
NO.
----
<C> <S> <C>
*1.1 Form of Underwriting Agreement...............................
2.1 Agreement and Plan of Merger, dated as of January 23, 1995,
among GM Holdings, Inc., GMI and GM Holdings Acquisition
Corporation (filed as an exhibit to General Medical
Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994 and incorporated herein by
reference)...................................................
2.2 Stock Purchase Agreement, dated as of May 24, 1994, among F.
DeWight Titus, III, Helen A. Titus, Timothy E. Titus and
General Medical Corporation (filed as an exhibit to General
Medical Corporation's Current Report on Form 8-K dated August
11, 1994 and incorporated herein by reference)...............
2.3 Exchange Agreement, dated as of July 28, 1994, by and among
F. DeWight Titus, III, GM Holdings, Inc. and GMI (filed as an
exhibit to GM Holdings Inc.'s Current Report on Form 8-K
dated August 11, 1994 and incorporated herein by reference)..
2.4 Asset Purchase Agreement, dated as of July 13, 1994, between
Foster Medical Supply, Inc. and General Medical Corporation
(filed as an exhibit to General Medical Corporation's Current
Report on Form 8-K dated September 15, 1994 and incorporated
herein by reference).........................................
2.5 Exchange Agreement Amendment, dated as of November 21, 1994,
among F. DeWight Titus, III, GM Holdings, Inc. and GMI (filed
as an exhibit to GMI's Registration Statement on Form S-4
(File No. 33-85824) and incorporated herein by reference)....
2.6 Merger Agreement, dated as of January 4, 1995, among Randolph
Medical Inc., General Medical Corporation, Randolph
Acquisition Corporation and the Shareholders named therein
(filed as an exhibit to General Medical Corporation's Current
Report on Form 8-K dated January 19, 1995 and incorporated
herein by reference).........................................
3.1(a) Certificate of Incorporation of GMI, as amended August 25,
1994 and January 17, 1995 (filed as an exhibit to GMI's
Registration Statement on Form S-4 (File No. 33-85824) and
incorporated herein by reference)............................
**3.1(b) Certificate of Amendment of Certificate of Incorporation of
GMI..........................................................
**3.1(c) Certificate of Amendment of Certificate of Incorporation of
GMI..........................................................
3.2(a) By-Laws of GMI (filed as an exhibit to GMI's Registration
Statement on Form S-4
(File No. 33-85824) and incorporated herein by reference)....
*4.1 Specimen certificates representing GMI's Common Stock, $.01
par value, and Class A Common Stock, $.01 par value..........
4.2 Indenture, dated as of August 31, 1993, between GM
Acquisition Corp. (predecessor to General Medical
Corporation) and The Bank of New York, relating to the 10
7/8% Series A Senior Subordinated Notes Due 2003 (filed as an
exhibit to General Medical Corporation's Registration
Statement on Form S-1 (No. 33-69874) and incorporated herein
by reference)................................................
4.3 Indenture, dated as of August 31, 1993, between GM
Acquisition Corp. and United States Trust Company of New
York, relating to the 12 1/8% Series A Subordinated Pay-In-
Kind 12 1/8% Debentures Due 2005 (filed as an exhibit to
General Medical Corporation's Registration Statement on Form
S-1 (No. 33-69874) and incorporated herein by reference).....
4.4 Form of 12 1/2% Senior Notes due 2004 of GM Holdings, Inc.
(included as Exhibit A to the Securities Purchase Agreement
referred to in Exhibit 10.28 below.).........................
*5.1 Opinion of McGuire, Woods, Battle & Boothe, L.L.P. as to the
validity of the offered shares...............................
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
PAGE
NO.
----
<C> <S> <C>
10.1 Amended and Restated Credit Agreement, dated as of July 28, 1994
(the "Amended and Restated Credit Agreement"), by and among
General Medical Corporation, Chemical Bank, as Administrative
Agent and as Issuing Bank and the financial institutions listed
on the signature pages thereto (filed as an exhibit to General
Medical Corporation's Current Report on Form 8-K dated August
11, 1994 and incorporated herein by reference)..................
10.2 Amended and Restated Holdings Agreement, dated as of July 28,
1994 (the "Amended and Restated Holdings Agreement"), by GM
Holdings, Inc. in favor of Chemical Bank, as Administrative
Agent (filed as an exhibit to GM Holdings, Inc.'s Current Report
on Form 8-K dated August 11, 1994 and incorporated herein by
reference)......................................................
10.3 New Holdings Agreement, dated as of July 28, 1994, by GMI in
favor of Chemical Bank, as Administrative Agent (included as
Exhibit L to the Amended and Restated Credit Agreement which is
filed as an exhibit to General Medical Corporation's Current
Report on Form 8-K dated August 11, 1994 and incorporated herein
by reference)...................................................
10.4 Security Agreement, dated as of August 31, 1993, by and among
General Medical, General Medical Manufacturing Company, and
Chemical Bank, as Collateral Agent (filed as an exhibit to
General Medical Corporation's Registration Statement on Form S-1
(No. 33-69874) and incorporated herein by reference)............
10.5 Form of Confirmation, dated as of July 28, 1994, of Security
Agreement by and among General Medical Corporation, General
Medical Manufacturing Company, and Chemical Bank, as Collateral
Agent (included as Exhibit D to the Amended and Restated Credit
Agreement which is filed as an exhibit to General Medical
Corporation's Current Report on Form 8-K dated August 11, 1994
and incorporated herein by reference)...........................
10.6 Pledge Agreement, dated as of August 31, 1993, made by General
Medical Corporation in favor of the Collateral Agent (filed as
an exhibit to General Medical Corporation's Registration
Statement on Form S-1 (No. 33-69874) and incorporated herein by
reference)......................................................
10.7 Form of Supplement and Confirmation, dated as of July 28, 1994,
to the Pledge Agreement, dated as of August 31, 1993, made by
General Medical Corporation in favor of the Collateral Agent
(included as Exhibit E to the Amended and Restated Credit
Agreement which is filed as an exhibit to General Medical
Corporation's Current Report on Form 8-K dated August 11, 1994
and incorporated herein by reference)...........................
10.8 Assumption Agreement, dated as of August 31, 1993, made by
General Medical Corporation, in favor of the Administrative
Agent and the Lenders (filed as an exhibit to General Medical
Corporation's Registration Statement on Form S-1 (No. 33-69874)
and incorporated herein by reference)...........................
10.9 Guarantee Agreement, dated as of July 28, 1994, from F.D. Titus
and Son Inc., a California corporation, to the Lenders and the
Administrative Agent (included as Exhibit F to the Amended and
Restated Credit Agreement which is filed as an exhibit to GM
Holdings, Inc.'s Current Report on Form 8-K dated August 11,
1994 and incorporated herein by reference)......................
10.10 Confirmation, dated as of July 28, 1994, to the Guarantee
Agreement, dated as of August 31, 1993, from General Medical
Manufacturing Corporation to the Lenders and the Administrative
Agent (included as Exhibit F to the Amended and Restated Credit
Agreement which is filed as an exhibit to GM Holdings, Inc.'s
Current Report on Form 8-K dated August 11, 1994 and
incorporated herein by reference)...............................
10.11 Registration Agreement, dated August 25, 1993, by and among GM
Acquisition Corp., Morgan Stanley & Co. Incorporated and
Chemical Securities Inc. (filed as an exhibit to General Medical
Corporation's Registration Statement on Form S-1 (No. 33-69874)
and incorporated herein by reference)...........................
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
PAGE
NO.
----
<C> <S> <C>
10.12 Placement Agreement, dated August 25, 1993, by and among GM
Acquisition Corp., Morgan Stanley and Chemical Securities Inc.
(filed as an exhibit to General Medical Corporation's
Registration Statement on Form S-1 (No. 33-69874) and
incorporated herein by reference)..............................
10.13 Tax Sharing Agreement, dated as of August 31, 1993, by and
among GM Holdings, Inc., General Medical Corporation and
certain of General Medical Corporation's subsidiaries (filed as
an exhibit to General Medical Corporation's Registration
Statement on Form S-1 (No. 33-69874) and incorporated herein by
reference).....................................................
10.14 Amended and Restated Indemnification Agreement, dated as of
August 27, 1993, by and between Rabco Health Services Inc. and
Steven M. Grossman (filed as an exhibit to General Medical
Corporation's Registration Statement on Form S-1 (No. 33-69874)
and incorporated herein by reference)..........................
10.15 Amended and Restated Indemnification Agreement, dated as of
August 27, 1993, by and between Rabco Health Services Inc. and
Richard A. Bernstein (filed as an exhibit to General Medical
Corporation's Registration Statement on Form S-1 (No. 33-69874)
and incorporated herein by reference)..........................
10.16 Amended and Restated Indemnification Agreement, dated as of
August 27, 1993, by and between Rabco Health Services Inc. and
Ira A. Gomberg (filed as an exhibit to General Medical
Corporation's Registration Statement on Form S-1 (No. 33-69874)
and incorporated herein by reference)..........................
10.17 Amended and Restated Indemnification Agreement, dated as of
August 27, 1993, by and between Rabco Health Services Inc. and
Ilan Reich (filed as an exhibit to General Medical
Corporation's Registration Statement on Form S-1 (No. 33-69874)
and incorporated herein by reference)..........................
10.18 Amended and Restated Indemnification Agreement, dated as of
August 27, 1993, by and between Rabco Health Services Inc. and
Stuart Turner (filed as an exhibit to General Medical
Corporation's Registration Statement on Form S-1 (No. 33-69874)
and incorporated herein by reference)..........................
10.19 Amended and Restated Indemnification Agreement, dated as of
August 27, 1993, by and between Rabco Health Services Inc. and
Laurence Usdin (filed as an exhibit to General Medical
Corporation's Registration Statement on Form S-1 (No. 33-69874)
and incorporated herein by reference)..........................
10.20 Non-Competition Agreement, dated as of May 7 1992, by and among
Rabco, FoxMeyer Drug Company, Richard A. Bernstein and Stuart
Turner (filed as an exhibit to General Medical Corporation's
Registration Statement on Form S-1 (No. 33-69874) and
incorporated herein by reference)..............................
*10.21 General Medical Senior Management Incentive Plan--1996, dated
as of . ..................................................
10.22 General Medical Senior Management Incentive Plan--1994 (filed
as an exhibit to General Medical Corporation's Registration
Statement on Form S-1 (No. 33-69874) and incorporated herein by
reference). ...................................................
*10.23 General Medical 1994 Non-Employee Directors Plan, dated as of
. ........................................................
10.24 1993 Stock Incentive Plan, as amended (filed as an exhibit to
General Medical Corporation's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994 and incorporated herein
by reference).
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
PAGE
NO.
----
<C> <S> <C>
10.25 Stockholders Agreement, dated as of August 27, 1993, among the
Company, Kelso Investment Associates IV, L.P., Kelso Equity
Partners II, L.P. and certain management investors (filed as an
exhibit to GM Holdings, Inc.'s Registration Statement on Form S-
1 (No. 33-73180) and incorporated herein by reference)..........
10.26 Form of Letter Agreement among the Company, Kelso Investment
Associates IV, L.P., Kelso Equity Partners II, L.P. and each New
Kelso Investor (filed as an exhibit to GM Holdings, Inc.'s
Registration Statement on Form S-1 (No. 33-73180) and
incorporated herein by reference)...............................
10.27 Securities Purchase Agreement, dated as of July 28, 1994, among
GM Holdings, Inc. and the Purchasers listed on the signature
pages thereof (filed as an exhibit to GM Holdings, Inc.'s
Current Report on Form 8-K dated August 11, 1994 and
incorporated herein by reference)...............................
10.28 Form of Securityholders Agreement, dated as of July 28, 1994,
among GM Holdings, Inc., GMI, Kelso Investment Associates, IV,
L.P., Kelso Equity Partners II, L.P., Princess Gate Investors,
L.P., Acorn Partnership I, L.P., PGI Investments Limited, PGI
Sweden AB, Gregor Von Opel and PG Holdings, Inc., as Agent
(filed as an exhibit to GM Holdings, Inc.'s Current Report on
Form 8-K dated August 11, 1994 and incorporated herein by
reference)......................................................
10.29 Stock Subscription Agreement, dated as of August 31, 1994, by
and among GM Holdings, Inc. and Chemical Equity Associates, A
California limited partnership (filed as an exhibit to GMI's
Registration Statement on Form S-4 (File No. 33-85824) and
incorporated herein by reference)...............................
10.30 First Amendment to Amended and Restated Credit Agreement, dated
as of November 15, 1994, among the signatories to the Amended
and Restated Credit Agreement (filed as an exhibit to GMI's
Registration Statement on Form S-4 (File No. 33-85824) and
incorporated herein by reference)...............................
10.31 Second Amendment to Amended and Restated Credit Agreement and
First Amendment to Amended and Restated Holdings Agreement,
dated as of December 7, 1994, among the signatories to the
Amended and Restated Credit Agreement and the Amended and
Restated Holdings Agreement (filed as an exhibit to GMI's
Registration Statement on Form S-4 (File No. 33-85824) and
incorporated herein by reference)...............................
10.32 Letter Agreements dated December 5, 1994 between GM Holdings,
Inc. and Princes Gate Investors, L.P., Acorn Partnership I,
L.P., PGI Investments Limited, PGI Sweden AB and Gregor Von Opel
(filed as an exhibit to GMI's Registration Statement on Form S-4
(File No. 33-85824) and incorporated herein by reference).......
10.33 First Amendment to the Tax Sharing Agreement, dated as of
January 23, 1995, among GMI, GM Holdings, Inc., General Medical
Corporation and certain General Medical Corporation's
subsidiaries (filed as an exhibit to General Medical
Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994 and incorporated herein by reference)...
10.34 Assignment and Assumption of the Stockholders Agreement, dated
as of January 23, 1995, among GM Holdings, Inc., GMI, Kelso
Investment Associates IV, L.P. and Kelso Equity Partners II,
L.P. (filed as an exhibit to General Medical Corporation's
Annual Report on Form 10-K for the fiscal year ended December
31, 1994 and incorporated herein by reference)..................
10.35 Guarantee Agreement, dated as of January 5, 1995, from Randolph
Medical Inc. to the Lenders named therein and Chemical Bank, as
Administrative Agent and Issuing Bank (filed as an exhibit to
General Medical Corporation's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994 and incorporated herein by
reference)......................................................
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
PAGE
NO.
----
<C> <S> <C>
10.36 Pledge Agreement, dated as of January 5, 1995, made by Randolph
Medical Inc. in favor of Chemical Bank, as Collateral Agent
(filed as an exhibit to General Medical Corporation's Annual
Report on Form 10-K for the fiscal year ended December 31, 1994
and incorporated herein by reference). Subsidiaries of the
registrant.....................................................
11.1 Statement regarding computation of per share earnings.
**21.1 Subsidiaries of the Registrant.
23.1 Consent of Deloitte & Touche LLP, Independent Auditors and
Report on Schedules.
23.2 Consent of Follmer, Rudzewicz & Co., P.C., Independent
Auditors.
*23.3 Consent of McGuire, Woods, Battle & Boothe, L.L.P. (included in
Exhibit 5.1).
**24.1 Power of Attorney.
</TABLE>
- --------
* To be supplied by amendment.

**Previously filed.

<PAGE>

EXHIBIT 11.1

GENERAL MEDICAL INC. AND SUBSIDIARY
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS

<TABLE>
<CAPTION>
FOUR MONTH NINE MONTH NINE MONTH
PERIOD ENDED YEAR ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED
AUGUST 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1993 1994 1995 1995 1996
------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Shares outstanding be-
ginning of period...... 7,500,000 7,489,713 9,515,005 9,515,005 9,788,270
Weighted average shares
issued during period,
net(1)................. 0 890,033 450,451 420,202 0
Weighted average shares
purchased during peri-
od..................... (4,362) (53,617) (104,327) (69,068) (18,276)
SEC SAB 83 shares(2).... 826,627 826,627 826,627 826,627 826,627
--------- --------- ---------- ---------- ----------
Weighted average number 8,322,265 9,152,756 10,687,756 10,692,766 10,596,621
of shares.............. ========= ========= ========== ========== ==========
Net loss................ $(3,907) $(3,465) $(18,472) $(15,421) $(1,057)
--------- --------- ---------- ---------- ----------
Net loss per share...... $(0.47) $(0.38) $(1.73) $(1.44) $(0.10)
========= ========= ========== ========== ==========
</TABLE>
- --------
<TABLE>
<S> <C>
(1)Weighted average common shares issued, net
of
SAB 83 common shares issued in 1996
(2)Common shares issued....................... 171,574
Employee options granted.................... 655,053
-------
SEC SAB 83 shares........................... 826,627
=======
</TABLE>

<PAGE>

EXHIBIT 23.1

INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULES

To the Board of Directors of
General Medical Inc.
Richmond, Virginia

We consent to the use in this Amendment No. 1 to Registration Statement No.
333-16317 of General Medical Inc. (formerly New GMH, Inc.) of our report dated
November 26, 1996, appearing in the Prospectus, which is a part of this
Registration Statement, and to the references to us under the heading
"Experts" in such Prospectus.

Our audits of the financial statements referred to in our aforementioned
report also included the financial statement schedules of General Medical Inc.
listed in Item 16(b). These financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express
an opinion based on our audits. In our opinion, such financial statement
schedules, when considered in relation to the basic financial statements taken
as a whole, present fairly in all material respects the information set forth
therein.

DELOITTE & TOUCHE LLP

Richmond, Virginia

November 26, 1996

<PAGE>

EXHIBIT 23.2

FOLLMER, RUDZEWICZ & CO., P.C.
CERTIFIED PUBLIC ACCOUNTANTS

INDEPENDENT AUDITORS' CONSENT

We consent to the use in this Amendment No. 1 to Registration Statement No.
333-16317 of General Medical Inc. (formerly New GMH, Inc.) of our report dated
November 22, 1994 relating to the financial statements of Randolph Medical
Inc. and Subsidiaries, appearing in the Prospectus, which is part of this
Registration Statement.

We also consent to the reference to us under the heading "Experts" in such
Prospectus.

/s/ Follmer, Rudzewicz & Co., P.C.
-------------------------------

FOLLMER, RUDZEWICZ & CO., P.C.
Southfield, Michigan November 27,
1996