<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 8, 1997
REGISTRATION NO. 333-16317
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 2
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:
<TABLE>
<S> <C> <C>
EILEEN NUGENT SIMON, ESQ. WELLFORD L. SANDERS, JR., ESQ. MARGARET A. DAVENPORT, ESQ.
SKADDEN, ARPS, SLATE, MCGUIRE, WOODS, BATTLE & 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
</TABLE>
----------------
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. [_]
----------------
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
AGGREGATE
TITLE OF EACH CLASS OF OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1)(2) REGISTRATION FEE(3)
- --------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $0.1 par value per share.... $186,300,000 $56,454.55
</TABLE>
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- -------------------------------------------------------------------------------
(1) Includes shares of Common Stock which the U.S. Underwriters have an option
to purchase to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to paragraphs (a) and (o) of Rule 457 under the
Securities Act.
(3) $52,272.73 was paid with the initial filing of this Registration
Statement. An additional $4,181.82 has been paid in connection herewith.
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 JANUARY 7, 1997
PROSPECTUS
9,000,000 SHARES
[LOGO] GM/(R)/
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 9,000,000
shares of Common Stock offered hereby, a total of 7,200,000 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 1,800,000 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"). A significant portion of the
net proceeds of the Offerings will be used to repay indebtedness held by
certain stockholders of the Company. See "Use of Proceeds."
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 $16.00 and $18.00 per share. See "Underwriting" for information
relating to the factors that will be considered in determining the initial
public offering price.
The Common Stock has been approved for quotation on the Nasdaq National
Market ("Nasdaq") under the symbol "GENM."
--------
SEE "RISK FACTORS" BEGINNING ON PAGE 9 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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share $ $ $
- -------------------------------------------------------------------------------------------
Total(3) $ $ $
</TABLE>
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- --------------------------------------------------------------------------------
(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 1,350,000 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 CREDIT SUISSE FIRST BOSTON
, 1997
<PAGE>
SERVING THE FULL CONTINUUM OF HEALTHCARE PROVIDERS...
- ------------------------------
[PICTURE OF DOCTORS OPERATING]
- ------------------------------
ACUTE CARE
Hospitals
Surgery Centers
------------------------------
[LOGO] GM/(R)/ GENERAL MEDICAL INC.
Beyond Distribution.
[PICTURE]
------------------------------
EXTENDED CARE
Nursing Homes
Home Health Care
Rehabilitation Facilities
- ------------------------------
[PICTURE OF DOCTOR AND CHILD]
- ------------------------------
PHYSICIAN CARE
Physicians
Clinics
PROVIDING QUALITY SERVICE AND EFFICIENT DISTRUBUTION NATIONWIDE.
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 AND 10B-7 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 1.36-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 a leading national distributor of medical and surgical
supplies, servicing 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 approximately 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.
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 has announced its intention to acquire
OrNda Healthcare Corp. ("OrNda"), another operator of acute care facilities.
None of the
3
<PAGE>
above-mentioned customers accounted for more than 1% of the Company's 1995
revenues, except that hospitals owned by Tenet accounted for approximately 2%
of such revenues. 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 an agreement 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 spreading overhead costs
over a larger sales base.
The Company's business objective is to be the leading national distributor of
medical and surgical supplies servicing the full continuum of healthcare
providers. To pursue this objective and to 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 medical/surgical supply distributors that could
complement the Company's existing distribution network as well as enhance the
Company's market presence.
4
<PAGE>
THE OFFERINGS
<TABLE>
<S> <C>
Common Stock offered in the Offerings:
U.S. Offering.............................. 7,200,000 shares(1)
International Offering..................... 1,800,000 shares
----------------
Total........................................... 9,000,000 shares(1)
Capital Stock to be outstanding after the Of-
ferings:
Common Stock............................... 20,994,050 shares(2)(3)
Class A Common Stock....................... 1,651,355 shares(2)
--------------------
Total........................................... 22,645,405 shares(1)(3)(4)
</TABLE>
Use of proceeds......................
The estimated net proceeds from
the Offerings, together with
amounts borrowed under the New
Credit Facilities, comprised of a
New Revolving Credit Facility and
an Interim Receivables Facility
(each 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 and the
Consent Solicitation (each as
defined) by General Medical, to
repay outstanding indebtedness
under the Existing Credit Facility
(as defined) 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 1,350,000 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. The Class A Common Stock
is convertible into Common Stock on a one-for-one basis. See "Description
of Capital Stock."
(3) Includes 129,850 shares of Common Stock to be issued prior to the
Offerings pursuant to the Securities Purchase Agreement (as defined). See
"Certain Transactions--Other Agreements."
(4) Excludes 1,317,336 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
-------- -------- ---------- ------------ ---------- ---------- ---------- ----------
(AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGE AND 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)............. $ (6,711) $ 8,269
Pro forma net income
(loss) per share....... $ (0.29) $ 0.36
Pro forma weighted
average number of
shares outstanding..... 22,923 22,799
OTHER OPERATING DATA:
Gross margin............ 18.0% 17.6% 17.6% 17.2% 18.1% 18.6% 18.5% 18.5%
Cash flows provided by
(used in):
Operating activities.... $ 10,965 $ 13,892 $ 5,805 $ 10,500 $ (12,604) $ (33,194) $ (24,580) $ 28,224
Investing activities.... (1,664) 36,093 (1,592) (221,618) (95,968) (31,566) (29,266) (5,164)
Financing activities.... (8,037) (37,262) (7,630) 218,721 106,741 62,625 50,342 (21,454)
Adjusted EBITDA(9)...... 22,121 28,938 21,639 8,891 43,815 44,636 32,541 48,686
Adjusted EBITDA
margin(10)............. 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(11)
-------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA (AT PERIOD END):
Working capital.......................................... $175,162 $186,053
Total assets............................................. 685,199 680,111
Long-term debt, less current maturities.................. 419,850 301,857
Stockholders' equity..................................... 58,399 182,196
</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,
respectively, 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) Gives effect to (i) the Offerings at an assumed initial public offering
price of $17.00 per share, (ii) estimated initial borrowings under the New
Credit Facilities, and (iii) the application of the proceeds therefrom to
repay certain outstanding indebtedness and to pay fees and expenses as
described in "Use of Proceeds," each determined as of the beginning of the
respective periods. Also gives effect to the acquisition of 51% in
principal amount of the 12 1/8% Debentures pursuant to the Debenture
Tender Offer.
The Company is seeking to acquire 100% in principal amount of the 12 1/8%
Debentures in the Debenture Tender Offer. The following compares the effect
on pro forma operating data if 51% and 100%, respectively, in principal
amount of the 12 1/8% Debentures are acquired (amounts in thousands, except
per share amounts):
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996
---------------- -------------
51% 100% 51% 100%
------- ------- ------ ------
<S> <C> <C> <C> <C>
Pro forma net income (loss)................ $(6,711) $(6,288) $8,269 $8,807
Pro forma net income (loss) per share...... $(0.29) $(0.27) $0.36 $0.39
Pro forma weighted average number of shares
outstanding............................... 22,923 22,923 22,799 22,799
</TABLE>
See "Use of Proceeds," "Capitalization" and "Selected Consolidated
Historical and Pro Forma Financial Information."
(9) 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. Management uses
adjusted EBITDA as a performance indicator and believes that it provides
additional information related to the Company's ability to generate cash
for capital expenditures, debt service and other obligations. Also,
increases and decreases in adjusted EBITDA and adjusted EBITDA margin (as
defined) are indicators of the change in cash generated from internal
growth as well as from the impact of the Company's recent acquisitions.
EBITDA excludes, however, items that are significant components in
understanding and assessing the Company's financial performance and, as
presented, may not be comparable to similarly titled measures as
calculated by other companies. Furthermore, adjusted EBITDA is not
determined in accordance with generally
7
<PAGE>
accepted accounting principles and should not, therefore, be viewed by
investors as an alternative to operating income as an indicator of
performance. Similarly, adjusted EBITDA should not be viewed as an
alternative to cash flows from operating, investing and financing
activities as presented in the consolidated statements of cash flows. For
balanced disclosure of operating results and cash flow activities, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(10) This margin is calculated as adjusted EBITDA as a percentage of revenues.
(11) Gives effect to (i) the Offerings at an assumed initial public offering
price of $17.00 per share, (ii) estimated initial borrowings under the
New Credit Facilities, and (iii) the application of the proceeds
therefrom to repay certain outstanding indebtedness and to pay fees and
expenses as described in "Use of Proceeds." Also gives effect to the
acquisition of 51% in principal amount of the 12 1/8% Debentures pursuant
to the Debenture Tender Offer.
The Company is seeking to acquire 100% in principal amount of the 12 1/8%
Debentures in the Debenture Tender Offer. The following compares the effect
on pro forma balance sheet data if 51% and 100%, respectively, in principal
amount of the 12 1/8% Debentures are acquired (amounts in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1996
-----------------
51% 100%
-------- --------
<S> <C> <C>
Pro forma working capital................................ $186,053 $188,901
Pro forma total assets................................... 680,111 678,766
Pro forma long-term debt, less current maturities........ 301,857 306,918
Pro forma stockholders' equity........................... 182,196 178,638
</TABLE>
In connection with the repayment of long-term debt and the write-off of
related deferred financing costs, the Company will incur an extraordinary
after-tax charge of approximately $16.9 million, or $0.73 per share,
assuming 51% in principal amount of the 12 1/8% Debentures are acquired
pursuant to the Debenture Tender Offer. If 100% in principal amount of the
12 1/8% Debentures are acquired, such charge would be $20.4 million, or
$0.89 per share. Additionally, the Company will incur a one-time charge of
$1.8 million, or $0.08 per share, representing the after-tax effect of the
$3.0 million payment made to terminate certain financial advisory services
provided to the Company by Kelso (the "Termination Fee"). See "Certain
Transactions--Relationship with Insiders." These charges are reflected in
stockholders' equity, and will be recorded upon completion of the
Offerings. See "Use of Proceeds."
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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.
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 22% 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 contracts 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 SunHealth Alliance, Inc. ("SunHealth"). Prior to
this acquisition, the Company did not have a contract with Premier in respect
of Premier member hospitals, but had a contract with SunHealth in respect of
the hospitals which were members of SunHealth. The Company has executed a
letter of understanding with Premier confirming that the Company's contract
with SunHealth is to continue in accordance with the terms thereof unless
superseded by a contract between Premier and the Company, or terminated
pursuant to the SunHealth contract. The Company believes that the recent
SunHealth and Premier consolidation may result in Premier renegotiating its
contracts with its existing distributors to obtain better terms or possibly to
reduce the number of distributors with which it negotiates medical/surgical
supply pricing on behalf of its member hospitals. There can be no assurance
that the Company would continue as a distributor to Premier or SunHealth if
such renegotiation were to occur. The loss of the Company's contract 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
results of operations. See "Business--Customers."
INTENSE AND INCREASING COMPETITION
The distribution of medical/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 many of 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
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<PAGE>
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
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview" and "Business--Competition."
HISTORY OF NET LOSSES
The Company has incurred net losses every year since its inception on August
31, 1993. The Company has an accumulated net deficit from inception of
approximately $26.9 million through September 30, 1996. For the four months
ended December 31, 1993, fiscal years ended December 31, 1994 and 1995, and
the nine months ended September 30, 1996, the Company sustained net losses of
$3.9 million, $3.5 million, $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. The Company had
interest expense of approximately $8.5 million, $32.0 million, $45.2 million
and $35.8 million, respectively, and amortization of intangibles of
approximately $3.8 million, $11.5 million, $9.4 million and $5.7 million,
respectively, over such periods. There can be no assurance that the Company
will not incur net losses in future periods.
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 General Medical's existing
credit facility (the "Existing Credit Facility"), and assuming that 51% in
principal amount 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 $302.6 million and its stockholders' equity would have been $182.2
million. On such a pro forma basis, this indebtedness would have consisted of
(i) $11.7 million in borrowings under the New Revolving Credit Facility, (ii)
$150.0 million in borrowings under the Interim Receivables Facility, (iii)
$34.7 million in principal amount of remaining 12 1/8% Debentures, (iv) $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 (v) $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. The Company is seeking to acquire 100% in principal amount
of the 12 1/8% Debentures in the Debenture Tender Offer. If 100% in principal
amount of the 12 1/8% Debentures are acquired in the Debenture Tender Offer,
consolidated indebtedness would have totaled $307.7 million, consisting of (i)
$51.5 million in borrowings under the New Revolving Credit Facility, (ii)
$150.0 million in borrowings under the Interim Receivables Facility, (iii)
$105.0 million in principal amount of the 10 7/8% Notes, and (iv) $1.2 million
of other indebtedness. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
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
10
<PAGE>
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.
CHANGING 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/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."
FORMER SHAREHOLDER LITIGATION; LIABILITY EXPOSURE
On July 20, 1995, the former controlling shareholder of Rabco, the
predecessor of the Company, commenced a proceeding against General Medical,
Holdings, Kelso and one of its officers, and certain present and former
officers and a director of the Company, alleging fraud, breach of fiduciary
duty and participation in and inducing breach of fiduciary duty in connection
with the Original Acquisition. The plaintiff sought compensatory damages in an
amount not less than $25 million, or, in the alternative, rescissionary
damages in an amount not less than $50 million, and punitive damages in an
amount not less than $25 million, attorneys fees and other relief. 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 order. The Company believes that the decision of the trial
court dismissing the plaintiff's action was correct and intends to vigorously
defend against the plaintiff's appeal. However, if the plaintiff were to
prevail on appeal, and if on remand there were an adverse determination on the
merits in the proceeding, there can be no assurance that such litigation would
not have a material adverse effect on the Company. See "Business--Legal
Proceedings."
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. 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. See "Business--Legal Proceedings." 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. 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.
DEPENDENCE ON AND INTEGRATION OF 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
11
<PAGE>
efficiently. The Company has begun to integrate and upgrade its information
systems through an estimated $15 million initiative and expects to complete
this initiative 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 initiative 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 and upgraded, increased operating efficiency will
be realized.
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 and which is described
in more detail under "Business--Distribution." 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
benefits to customer service or cost reductions.
DEPENDENCE ON MANUFACTURERS
The Company distributes approximately 130,000 different SKUs from over 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.
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 complement the Company's existing distribution network
as well as enhance 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
numerous risks, including possible adverse short-term effects on the Company's
operating results, fluctuations in the market price of the Common Stock, the
incurrence of additional indebtedness to finance acquisitions and 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 have an adverse effect on the Company's results of
operations.
POTENTIAL ADVERSE EFFECTS OF 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 adversely affect the Company.
DIVIDEND POLICY; RESTRICTIONS ON PAYMENTS OF DIVIDENDS
Following the Offerings, the Company intends to retain future earnings for
use in its business and does not anticipate paying dividends in the
foreseeable future. Additionally, payments of dividends by GMI and its
subsidiaries will be restricted pursuant to the terms of the Company's
indebtedness.
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<PAGE>
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 36.87% of the capital stock
of the Company will be owned by affiliates of Kelso & Company, L.P. ("Kelso"),
4.84% will be owned by directors and executive officers of the Company, 5.05%
will be owned by certain entities, the investments of which are managed by PG
Investors, Inc., a wholly-owned subsidiary of Morgan Stanley Group, Inc., and
4.62% 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 nonvoting Class A Common
Stock, which are convertible into voting Common Stock on a one-for-one basis
at the option of the holder, representing approximately 6.12% of the capital
stock of the Company. See "Principal Stockholders." Upon completion of 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.
GMI, certain members of management of the Company and certain affiliates of
Kelso are also parties to a Stockholders Agreement. 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
20,994,050 shares of Common Stock outstanding (the "Outstanding Common
Shares") and 1,651,355 shares of Class A Common Stock outstanding (the
"Outstanding Class A Common Shares"). The Outstanding Common Shares include
129,850 shares of Common Stock to be issued prior to the Offerings pursuant to
the Securities Purchase Agreement, and exclude 1,317,336 shares of Common
Stock reserved for issuance upon the exercise of outstanding options (the
"Issuable Common Shares"). 11,733,306 of the Outstanding Common Shares,
724,022 Issuable Common Shares and 1,630,955 Outstanding Class A Common Shares
will be subject to lock-up agreements. 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 have agreed that, for a period of 180 days
after the date of this Prospectus, subject to certain exceptions, 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 Class
A Common Stock or securities convertible into or exercisable or exchangeable
for Common Stock or Class A Common Stock, or grant any options or warrants to
purchase Common Stock or Class A Common Stock. 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," "Description of Capital Stock--
Registration Rights" 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.
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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 results of operations.
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 $17.00 per
share, new investors will experience immediate dilution in net tangible book
value per share in an amount equal to $20.55, assuming that 51% in principal
amount of the 12 1/8% Debentures are acquired in the Debenture Tender Offer. If
100% in principal amount of the 12 1/8% Debentures are acquired, new investors
will experience dilution in net tangible book value per share in an amount
equal to $20.65. To the extent outstanding options to purchase Common Stock are
exercised, there will be further dilution. See "Dilution."
EFFECT OF CERTAIN CHARTER PROVISIONS
Effective upon completion of the Offerings, the Company will be authorized to
issue 1,000,000 shares of undesignated preferred stock, a $.01 par value per
share ("Preferred Stock"). The Board of Directors has the authority to issue
the Preferred Stock in one or more series and to fix the price, rights,
preferences, privileges and restrictions thereof, including dividend rights,
dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares
constituting a series or the designation of such series, without any further
vote or action by the Company's stockholders. The issuance of Preferred Stock,
while providing desirable flexibility in connection with possible acquisitions
and other corporate purposes, could have the effect of delaying, deferring or
preventing a change in control of the Company without further action by the
stockholders and may adversely affect the market price of the Common Stock and
the voting and other rights of the holders of Common Stock. The issuance of
Preferred Stock with voting and conversion rights may adversely affect the
voting power of the holders of Common Stock, including the loss of voting
control to others. The Company has no current plans to issue any shares of
Preferred Stock.
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 price. The initial public offering price of the
Common Stock will be determined by negotiations among the Company and the
Representatives (as defined). Smith Barney Inc. will serve as "qualified
independent underwriter" in connection with the Offerings, and the initial
public price will be no higher than that recommended by Smith Barney Inc. in
such capacity. See "Underwriting." Furthermore, the market price of the
Company's Common Stock may be subject to fluctuations in response to such
factors as 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.
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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. The Company's principal executive office is located at 8741 Landmark
Road, Richmond, Virginia 23228, and its phone number is (804) 264-7500.
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USE OF PROCEEDS
The net proceeds from the Offerings after deducting underwriting discounts
and commissions and estimated offering expenses are estimated to be
approximately $140.6 million (approximately $162.0 million if the U.S.
Underwriters' over-allotment option is exercised in full), assuming an initial
public offering price of $17.00 per share.
The estimated net proceeds from the Offerings, together with initial
borrowings under the New Revolving Credit Facility and the Interim Receivables
Facility, 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 the Debenture Tender
Offer (including payment of premium and accrued interest) and the Consent
Solicitation; (iii) to repay indebtedness under the Existing Credit Facility;
and (iv) to pay fees and expenses. The Holdings Notes are held of record by
certain stockholders of the Company, the investments of which are managed by
PG Investors, Inc., a wholly-owned subsidiary of Morgan Stanley Group, Inc.
See "Principal Stockholders." The Holdings Notes bear interest at the rate of
12 1/2% per annum, 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, which are subject to the Debenture Tender Offer, 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 51% in principal amount
of the 12 1/8% Debentures to effect certain amendments to the Debenture
Indenture (as defined) governing the 12 1/8% Debentures, 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 51% in
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 51% in
principal amount of the 12 1/8% Debentures. A beneficial owner of at least a
majority in principal amount of the outstanding 12 1/8% Debentures has
indicated to the Company its intention to tender all of its 12 1/8% Debentures
in the Debenture Tender Offer and to consent to the amendments to the
Debenture Indenture being sought pursuant to the Consent Solicitation. 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. Such
beneficial owner, which also owns at least a majority in principal amount of
the outstanding 10 7/8% Notes, has indicated to the Company its intention to
consent to certain amendments to the 10 7/8% Note Indenture (as defined) also
being sought by the Company.
The closing of the Offerings is contingent upon, among other things, the
Holdings Notes Redemption, initial borrowings under the New Credit Facilities
and the valid tender of not less than 51% in principal amount of the 12 1/8%
Debentures pursuant to the Debenture Tender Offer. These transactions are
expected to occur at or about the same time. For further information with
respect to the Company's indebtedness, see "Description of Certain
Indebtedness."
16
<PAGE>
The following table sets forth the estimated sources and uses of funds
assuming that the Offerings, the initial borrowings under the New Credit
Facilities and the application of the proceeds therefrom occurred on September
30, 1996, giving effect to the valid tender and consent of 51% and 100%,
respectively, in principal amount of the 12 1/8% Debentures in the Debenture
Tender Offer and the Consent Solicitation (dollars in thousands).
<TABLE>
<CAPTION>
51% 100%
-------- --------
<S> <C> <C>
SOURCES OF FUNDS:
Gross proceeds from the Offerings.......................... $153,000 $153,000
New Revolving Credit Facility(1)(2)........................ 11,709 51,452
Interim Receivables Facility(1)............................ 150,000 150,000
-------- --------
Total.................................................... $314,709 $354,452
======== ========
USES OF FUNDS:
Holdings Notes Redemption (including accrued interest)..... $ 65,125 $ 65,125
Debenture Tender Offer (including premium and accrued in-
terest) and
Consent Solicitation(2)................................... 41,890 81,633
Repayment of indebtedness under Existing Credit Facility... 187,661 187,661
Estimated fees and expenses(3)............................. 20,033 20,033
-------- --------
Total.................................................... $314,709 $354,452
======== ========
</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
(depending on the available level of accounts receivable). Assuming 51% in
principal amount of the 12 1/8% Debentures are acquired in the Debenture
Tender Offer, the Company would have had approximately $82.7 million
remaining availability under the New Revolving Credit Facility based on the
borrowing base as of September 30, 1996. Assuming 100% in principal amount
of the 12 1/8% Debentures are acquired, such availability would have been
$42.9 million. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources--Debt
Instruments."
(2) To the extent that more than 51% in principal amount of the 12 1/8%
Debentures are acquired in the Debenture Tender Offer, amounts drawn under
the New Revolving Credit Facility will be increased to purchase such 12
1/8% Debentures (and to pay the related premium and accrued interest), and
the Company's borrowing availability thereunder will decrease accordingly.
A portion of the funds represent consent payments with respect to amending
the 10 7/8% Note Indenture.
(3) Represents fees and expenses related to the foregoing transactions,
including lender fees, legal, accounting and other professional fees, and
the $3.0 million 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 and does not anticipate paying any cash dividends in the
foreseeable future. Additionally, payments of dividends by GMI and its
subsidiaries will be restricted under the terms of the Company's indebtedness.
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."
17
<PAGE>
DILUTION
At September 30, 1996, the net tangible book value of the Company was a
deficit of $(209.2) million, or $(15.48) per share of Common Stock and Class A
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 and Class A Common Stock
outstanding.
After giving effect to the receipt of $140.6 million of estimated net
proceeds from the sale by the Company of 9,000,000 shares of Common Stock in
the Offerings assuming an initial public offering price of $17.00 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 a deficit of $(80.3) million, or $(3.55) per share of
Common Stock and Class A Common Stock, assuming that 51% in principal amount
of the 12 1/8% Debentures are acquired pursuant to the Debenture Tender Offer.
This represents an immediate increase in net tangible book value of $11.93 per
share of Common Stock and Class A Common Stock to the existing stockholders of
the Company ("Existing Stockholders") and an immediate dilution to new
investors of $20.55 per share. Assuming that 100% in principal amount of the
12 1/8% Debentures are acquired, the pro forma net tangible book value of the
Company would have been a deficit of $(82.6) million, or $(3.65) per share of
Common Stock and Class A Common Stock. This represents an immediate increase
in net tangible book value of $11.83 per share of Common Stock and Class A
Common Stock to the existing stockholders and an immediate dilution to new
investors in an amount equal to $20.65 per share. The following table
illustrates such dilution:
<TABLE>
<CAPTION>
51% 100%
--- ----
<S> <C> <C>
Per share initial price to public..................... $ 17.00 $ 17.00
Deficit in net tangible book value per share at
September 30, 1996................................. (15.48) (15.48)
Increase in net tangible book value per share 11.93 11.83
attributable to new investors...................... ------- -------
Pro forma deficit in net tangible book value per share (3.55) (3.65)
after the Offerings.................................. ------- -------
Immediate dilution per share to new investors......... $ 20.55 $ 20.65
======= =======
</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 $17.00 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... 13,646,085 60.0% $110,274,727 41.9% $ 8.08
New investors........... 9,000,000 40.0 153,000,000 58.1 $ 17.00
---------- ----- ------------ -----
Total(1)............ 22,646,085 100.0% $263,274,727 100.0%
========== ===== ============ =====
</TABLE>
- --------
(1) Excludes 1,276,536 shares of Common Stock at September 30, 1996 reserved
for issuance upon the exercise of outstanding stock options granted
pursuant to the Company's stock incentive plans, at a weighted average
exercise price of approximately $10.58 per share, and includes 129,850
shares of Common Stock to be issued prior to the Offerings pursuant to the
Securities Purchase Agreement. To the extent options are exercised, there
will be further dilution to new investors. See "Management--Compensation
of Directors and Executive Officers," "Certain Transactions--Other
Agreements" and "Description of Capital Stock."
18
<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 an amendment to the Company's
Certificate of Incorporation to provide for the authorization of 1,000,000
shares of undesignated Preferred Stock, the sale by the Company of 9,000,000
shares of Common Stock in the Offerings, assuming an offering price of $17.00
per share, and initial borrowings under the New Credit Facilities, and the
application of the estimated net proceeds therefrom, giving effect to the
valid tender and consent of 51% and 100%, respectively, in principal amount of
the 12 1/8% Debentures in the Debenture Tender Offer and the Consent
Solicitation. See "Use of Proceeds," "Selected Consolidated Historical and Pro
Forma Financial Information" and "Description of Capital Stock."
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
----------------------------
AS ADJUSTED
------------------
ACTUAL 51% 100%
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt:
Existing Credit Facility....................... $187,661 $ -- $ --
New Revolving Credit Facility(1)(2)............ -- 11,709 51,452
Interim Receivables Facility(1)................ -- 150,000 150,000
10 7/8% Notes.................................. 105,000 105,000 105,000
12 1/8% Debentures(2).......................... 70,779 34,682 --
12 1/2% Holdings Notes......................... 55,944 -- --
Other.......................................... 466 466 466
-------- -------- --------
Total long-term debt......................... 419,850 301,857 306,918
-------- -------- --------
Stockholders' equity:
Preferred Stock, $.01 par value; 1,000,000
shares authorized; no shares issued and
outstanding .................................. -- -- --
Common Stock, $.01 par value per share;
50,000,000 shares authorized; 12,390,323
shares issued and outstanding, actual;
21,520,173 shares
issued and outstanding, as adjusted(3)........ 124 215 215
Class A Common Stock, $.01 par value per share;
10,000,000 shares authorized; 1,651,355 shares
issued and outstanding........................ 17 17 17
Additional paid-in capital..................... 111,785 254,456 254,456
Predecessor basis adjustment................... (20,814) (20,814) (20,814)
Retained deficit(4)............................ (26,901) (45,866) (49,424)
Treasury stock (at cost)....................... (5,812) (5,812) (5,812)
-------- -------- --------
Total stockholders' equity................... 58,399 182,196 178,638
-------- -------- --------
Total capitalization............................. $478,249 $484,053 $485,556
======== ======== ========
</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 (depending on the available level of accounts receivable).
Assuming 51% or 100%, respectively, in principal amount of the 12 1/8%
Debentures are acquired in the Debenture Tender Offer, the Company would
have had approximately $82.7 million or $42.9 million, respectively,
remaining availability under the New Revolving Credit Facility based on
the borrowing base at September 30, 1996. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
(2) Although the Company is seeking to acquire 100% in principal amount of the
12 1/8% Debentures in the Debenture Tender Offer, there can be no
assurance that 100% in principal amount of the 12 1/8% Debentures will be
acquired or that the terms of the Debenture Tender Offer will not vary
from those assumed by the Company herein. To the extent that more than 51%
in principal amount of the 12 1/8% Debentures are acquired, amounts drawn
under the New Revolving Credit Facility will be increased to purchase such
12 1/8% Debentures and the Company's borrowing availability thereunder
will decrease accordingly. A beneficial owner of more than 51% in
principal amount of the outstanding 12 1/8% Debentures has indicated to
the Company its intention to tender all of its 12 1/8% Debentures in the
Debenture Tender Offer and to consent to the amendments to the Debenture
Indenture being sought pursuant to the Consent Solicitation.
(3) Excludes 1,276,536 shares of Common Stock at September 30, 1996 reserved
for issuance upon the exercise of outstanding stock options granted
pursuant to the Company's stock incentive plans, and includes 129,850
shares of Common Stock to be issued prior to the Offerings pursuant to the
Securities Purchase Agreement. See "Management--Compensation of Directors
and Executive Officers," "Certain Transactions--Other Agreements" and
"Description of Capital Stock."
(4) Retained deficit, as adjusted to give effect to the acquisition of 51% or
100%, respectively, in principal amount of the 12 1/8% Debentures in the
Debenture Tender Offer, reflects a charge of $16.9 million or $20.4
million, respectively, incurred in connection with the repayment of long-
term debt and the write-off of related deferred financing costs resulting
in the recognition of a one-time extraordinary after-tax charge as well as
a $1.8 million charge representing the after-tax effect of the $3.0
million Termination Fee. See "Certain Transactions--Relationship with
Insiders." These charges are expected to be recorded upon completion of
the Offerings.
19
<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 have 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)
-------- -------- ---------- --------- ---------- ---------- ---------- ---------- ---------- ----------
(AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGE AND 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 43,969 161,662 236,429 236,079 174,290 189,704 189,441
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 26,094 33,262 35,836 20,684
Income taxes
(benefit)...... 3,175 6,181 6,565 (727) 2,719 (6,028) 1,650 (5,260) 2,540 8,629
-------- -------- -------- --------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss)
from continuing
operations..... $ 3,795 $ 9,666 $ 9,294 $ (3,907) $ (3,465) $ (18,472) $ (6,711) $ (15,421) $ (1,057) $ 8,269
======== ======== ======== ========= ========== ========== ========== ========== ========== ==========
Net income
(loss)(9)(10).. $ (2,962) $ 43,179 $ 10,435 $ (3,907) $ (3,465) $ (18,472) $ (6,711) $ (15,421) $ (1,057) $ 8,269
======== ======== ======== ========= ========== ========== ========== ========== ========== ==========
Net loss per
share.......... -- -- -- $ (0.36) $ (0.29) $ (1.33) $ -- $ (1.11) $ (0.08) $ --
Weighted average
number of
shares
outstanding.... -- -- -- 10,706 11,835 13,923 -- 13,930 13,799 --
Pro forma net
income (loss)
per share...... -- -- -- -- -- -- $ (0.29) -- -- $ 0.36
Pro forma
weighted
average number
of shares
outstanding.... -- -- -- -- -- -- 22,923 -- -- 22,799
BALANCE SHEET
DATA
(AT PERIOD
END):
Working capital. $ 52,539 $ 88,212 -- $ 73,626 $ 119,879 $ 174,482 -- $ 164,235 $ 175,162 $ 186,053
Total assets.... 192,072 225,932 -- 443,097 601,346 683,517 -- 662,835 685,199 680,111
Long-term debt,
less current
maturities..... 108,219 92,157 -- 250,000 344,547 424,643 -- 411,712 419,850 301,857
Stockholders'
equity
(deficiency)... (33,138) 10,002 -- 50,176 72,776 57,179 -- 62,217 58,399 182,196
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%
Cash flows
provided by
(used in):
Operating
activities..... $ 10,965 $ 13,892 $ 5,805 $ 10,500 $ (12,604) $ (33,194) -- $ (24,580) $ 28,224 --
Investing
activities..... (1,664) 36,093 (1,592) (221,618) (95,968) (31,566) -- (29,266) (5,164) --
Financing
activities..... (8,037) (37,262) (7,630) 218,721 106,741 62,625 -- 50,342 (21,454) --
Adjusted
EBITDA(11)..... 22,121 28,938 21,639 8,891 43,815 44,636 44,986 32,541 48,686 48,948
Adjusted EBITDA
margin(12)..... 3.0% 3.4% 3.5% 3.0% 3.9% 3.0% 3.0% 3.0% 3.8% 3.8%
</TABLE>
- -------
(footnotes appear on following page)
20
<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 (i) the Offerings at an assumed initial public offering
price of $17.00 per share, (ii) estimated initial borrowings under the New
Credit Facilities, and (iii) the application of the proceeds therefrom to
repay certain outstanding indebtedness and to pay fees and expenses as
described in "Use of Proceeds." Also assumes that 51% in principal amount
of the 12 1/8% Debentures are acquired by the Company pursuant to the
Debenture Tender Offer. In connection with the repayment of long-term debt
and the write-off of related deferred financing costs, the Company will
incur an extraordinary after-tax charge of approximately $16.9 million, or
$0.73 per share, which is reflected in stockholders' equity. This charge
will be recorded upon completion of the Offerings. The Company is seeking
to acquire 100% in principal amount of the 12 1/8% Debentures in the
Debenture Tender Offer. If 100% in principal amount of the 12 1/8%
Debentures were acquired, the extraordinary after-tax charge would be
approximately $20.4 million, or $0.89 per share. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources." Pro forma stockholders'
equity at September 30, 1996 also reflects a one-time charge of $1.8
million, or $0.08 per share, representing the after-tax effect of the $3.0
million Termination Fee, which charge will be recorded upon the
consummation of the Offerings. See "Certain Transactions--Relationships
with Insiders."
(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........................... (3.7) (3.0)
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 $2.2 million in
1995 and $18.8 million in 1996......... 0.2 1.0
Amortization of new deferred debt issu- 0.8 0.6
ance costs............................. ------ ------
Net adjustment to interest expense...... (19.0) (15.1)
Historical interest expense ............ 45.1 35.8
------ ------
Pro forma interest expense ............. $ 26.1 $ 20.7
====== ======
</TABLE>
21
<PAGE>
The closing of the Offerings is contingent upon, among other things, the
valid tender of not less than 51% in principal amount of the 12 1/8%
Debentures pursuant to the Debenture Tender Offer. The pro forma financial
information includes the effects of acquiring 51% in principal amount of
the 12 1/8% Debentures. A beneficial owner of more than 51% in principal
amount of the outstanding 12 1/8% Debentures has indicated to the Company
its intention to tender all of its 12 1/8% Debentures in the Debenture
Tender Offer and to consent to the amendments to the Debenture Indenture
being sought pursuant to the Consent Solicitation. The Company is seeking
to acquire all of the 12 1/8% Debentures in the Debenture Tender Offer. The
following compares the effect on certain pro forma financial information if
51% and 100%, respectively, in principal amount of the 12 1/8% Debentures
are acquired (dollars in thousands, except per share amounts):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, 1995 1996
------------------ -----------------
51% 100% 51% 100%
-------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Pro forma income from
continuing operations
before interest ex-
pense and income tax-
es.................... $ 21,033 $ 21,033 $ 37,582 $ 37,582
Pro forma interest ex-
pense................. 26,094 25,295 20,684 19,795
Pro forma income taxes. 1,650 1,966 8,629 8,980
-------- -------- -------- --------
Pro forma income (loss)
from continuing opera- $ (6,711) $ (6,228) $ 8,269 $ 8,807
tions................. ======== ======== ======== ========
Pro forma net income $ (6,711) $ (6,228) $ 8,269 $ 8,807
(loss)................ ======== ======== ======== ========
Pro forma net income
(loss) per share...... $ (0.29) $ (0.27) $ 0.36 $ 0.39
Pro forma working capi-
tal................... $186,053 $188,901
Pro forma total assets. 680,111 678,766
Pro forma long-term
debt, less current ma-
turities.............. 301,857 306,918
Pro forma stockholders'
equity ............... 182,196 178,638
</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, respectively, 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) 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. Management uses
adjusted EBITDA as a performance indicator and believes that it provides
additional information related to the Company's ability to generate cash
for capital expenditures, debt service and other obligations. Also,
increases and decreases in adjusted EBITDA and adjusted EBITDA margin (as
defined) are indicators of the change in cash generated from internal
growth as well as from the impact of the Company's recent acquisitions.
EBITDA excludes, however, items that are significant components in
understanding and assessing the Company's financial performance and, as
presented, may not be comparable to similarly titled measures as
calculated by other companies. Furthermore, adjusted EBITDA is not
determined in accordance with generally accepted accounted principles and
should not, therefore, be viewed by investors as an alternative to
operating income as an indicator of performance. Similarly, adjusted
EBITDA should not be viewed as an alternative to cash flows from
operating, investing and financing activities as presented in the
consolidated statements of cash flows. For balanced disclosure of
operating results and cash flow activities, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
(12) This margin is calculated as adjusted EBITDA as a percentage of revenues.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company is a leading national distributor of medical and surgical
supplies, servicing 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's results in recent years
have been significantly affected by six acquisitions undertaken by the Company
in 1994 and 1995 to expand its business, especially in the physician care and
extended care markets. These acquisitions were made to address significant
changes in the healthcare industry, including the ongoing consolidation of
healthcare providers, the emergence of integrated healthcare networks and the
shift of delivery of healthcare from acute care settings to alternate sites.
See "Business--Industry."
The Company's (and the Predecessor'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. As compared to the prior fiscal year's amount,
revenues grew by approximately 17.0% in 1992, 6.9% in 1993, 22.1% in 1994 and
34.0% in 1995. See "Selected Consolidated Historical and Pro Forma Financial
Information." The Company's revenue growth over the last five years is
attributable to internal growth as well as to six acquisitions of
medical/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, Randolph in early 1995
and three smaller distributors 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.
The Company's gross margin increased from 18.1% in 1994 to 18.6% in 1995
primarily due to the acquisitions made in 1994 and 1995 which increased the
Company's sales to the alternate-site markets. Sales to the alternate-site
markets generally contribute relatively more to the Company's gross margin
than sales to the acute care market. The impact of the increased sales to the
alternate-site markets in 1995 was partially offset by downward price
pressure, especially in the acute care market. This downward price pressure
resulted in a reduction in prices by the Company in response to similar
reductions by its competitors, as well as to more aggressive negotiating by
customers. Management of the Company believes that these industry-wide price
pressures eased in late 1995, as customers increasingly recognized the value
of the services provided by distributors, including the Company. This enabled
the Company to renegotiate a number of contracts to better reflect the costs
associated with the products and services provided. These actions allowed the
Company to maintain its gross margin during the nine month period ended
September 30, 1996 at the 18.5% level achieved during the comparable period in
1995, despite an increased contribution during the 1996 nine-month period to
total sales from the acute care market, which generally contribute relatively
less to the Company's gross margin than sales to the alternate-site markets.
Selling, general and administrative expenses increased as a percentage of
revenues from 14.5% in 1994 to 15.8% in 1995 primarily due to delays in
integrating the companies acquired in 1994 and 1995, as well as to sales made
by the acquired companies to the physician care and extended care markets,
which are more labor intensive to service. In response to this increase, the
Company implemented the following initiatives to reduce its operating
expenses:
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. This personnel
reduction has resulted in substantial 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 while servicing customers
in the most cost-effective manner. This reorganization impacts both the
Company's cost of sales and selling, general and administrative expenses.
23
<PAGE>
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 ("ACSCs"),
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 efficiency and reduce operating costs. The
ACSCs, which will average over 110,000 square feet, will have a service area
with a radius of 250 to 300 miles. By having fewer distribution centers, each
of which services 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. In addition to providing high quality service, the Company believes
this program will reduce distribution costs and improve profitability.
These initiatives, combined with an increase in total revenues, contributed
to the decrease in selling, general and administrative expenses as a
percentage of revenues during the nine months ended September 30, 1996 to
14.9% from 15.9% during the comparable period in 1995. The Company believes
that these initiatives will position the Company to improve further its
ability to service its customers and pursue additional growth in sales and
profits.
The Company (and its predecessor) recorded a net loss in each of 1991, 1993,
1994 and 1995. The Company acquired General Medical, through Holdings, in
August 1993. Management believes that the net losses incurred in each period
since such acquisition were attributable in significant part to its highly
leveraged capital structure and to purchase accounting adjustments resulting
from the acquisition. See "Selected Consolidated Historical and Pro Forma
Financial Information."
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 11 and 12
to the table in "Selected Consolidated Historical and Pro Forma Financial
Information."
24
<PAGE>
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 markets (i.e., the physician care and extended care markets)
increased 6.1%. Sales in the alternate-site markets were impacted by the
Company's decision to focus on completing the integration of its acquisitions
of companies serving those markets. Such integration has been substantially
completed, and is not expected to impact the Company's operations in future
periods.
As a percentage of revenues, gross profit remained unchanged at 18.5% for
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 steps to improve its gross profit as a percentage of revenues.
First, the Company renegotiated a number of customer 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. The improvements resulting from
these steps were offset in full, however, by an increased percentage of total
sales from the acute care market, which generally contribute relatively less
to gross margin than sales in the alternate-site markets.
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 primarily to the elimination of
duplicative positions at a savings of approximately $5.3 million, and the
realignment of the Company's distribution network at a savings of
approximately $0.7 million. The reorganization of the Company's sales
management structure also contributed to the decrease as did the relative
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, includes 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.
The remaining
25
<PAGE>
estimated charges of approximately $2.8 million for the physical relocation of
inventory and employees will be recorded over the next fifteen months.
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 sales to the
physician care and extended care markets attributable to the acquisitions of
Titus, Foster and Randolph, which sales generally contribute relatively more
to gross margin than sales in the acute care market. The impact of the
increased sales to the alternate-site markets in 1995 was partially offset by
downward price pressure, especially in the acute care market.
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 was due to the increase in sales by
the acquired companies 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. Such
26
<PAGE>
adjustments are presented to give effect to such acquisition as if it had
occurred on January 1, 1993 and include all adjustments deemed necessary by
management of the Company for a fair presentation of such information.
<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.
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 $31.2
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 sales to the
physician care and extended care markets attributable to the Titus Acquisition
and Foster Acquisition, which sales generally contribute relatively more to
gross margin than sales in the acute care market, 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.
27
<PAGE>
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 11 and 12 to the table in "Selected Consolidated Historical and Pro
Forma Financial Information."
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's primary sources of cash have been cash generated
from operations and borrowings under its Existing Credit Facility. The
Company's primary cash requirements arise from working capital needs, which
primarily consist of accounts receivable and inventory, interest expense,
capital expenditures and funding for acquisitions. Management of the Company
believes that funds generated from operations and borrowings under the New
Credit Facilities will be sufficient to meet these cash needs for the
foreseeable future.
Net Cash Provided by or Used in Operating Activities
For the nine month periods ended September 30, 1996 and 1995, operating
activities provided net cash of $28.2 million and used net cash of $24.6
million, respectively. The increase in cash from operating activities during
1996 was principally due to an $18.1 million reduction in inventory levels due
to improved inventory management and the Company's ongoing realignment of its
distribution network, a $14.4 million reduction in net loss, a $6.6 million
reduction in receivables growth, and other working capital improvements of
$8.1 million. The increase in cash provided by operations for the nine months
ended September 30, 1996, compared to the comparable period in 1995, was used
to reduce debt outstanding under the Existing Credit Facility and to fund
capital expenditures related to the realignment of the Company's distribution
network.
For the years ended December 31, 1995 and 1994, net cash used by operating
activities amounted to $33.2 million and $12.6 million, respectively. As
compared to 1994, in 1995 the Company's net loss increased by $15.0 million
and working capital increased by approximately $13.0 million, principally for
receivables and inventory growth to support increased sales levels.
For the year ended December 31, 1994, the Company used net cash in operating
activities of $12.6 million, compared to net cash provided by operating
activities of $10.5 million and $5.8 million for the four month period ended
December 31, 1993 and the eight month period ended August 31, 1993,
respectively, principally due to an increase in working capital requirements
for receivables and inventory growth to support increased sales levels, as
well as acquisitions made during 1994.
28
<PAGE>
Working Capital. The Company's primary use of cash in operating activities
is working capital. Working capital totaled $175.2 million at September 30,
1996, $174.5 million at December 31, 1995, and $119.9 million at December 31,
1994. The increase in working capital from December 31, 1994 to September 30,
1996 related primarily to assets acquired in the acquisitions made in 1994 and
1995 as well as internal growth. 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.
The Company measures its working capital performance on a three month
rolling average basis. Days sales of accounts receivable outstanding and days
sales of inventory for the periods indicated, were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, RECEIVABLE DAYS INVENTORY DAYS
-------------------------------- --------------- --------------
<S> <C> <C>
1996................................. 43.8 42.4
1995................................. 43.7 44.5
</TABLE>
The decrease in inventory days for the three month period ended September
30, 1996 compared to the corresponding period in 1995 was due to improved
inventory management related to the consolidation of the Company's
distribution network and integration of acquired companies. The foregoing
table does not reflect unusually large inventory purchases occasionally made
by the Company in contemplation of price increases or otherwise to take
advantage of available price discounts. Such purchases are in excess of normal
operational requirements and typically are made on longer than customary
payment schedules, involving comparable increases in accounts payable. If such
excess purchases were included in the calculations presented above, inventory
days would have been 42.7 at September 30, 1996 and 46.2 at September 30,
1995. Pursuant to the Company's recently signed agreement with Allegiance, the
Company recently purchased $30 million of products from Allegiance, and its
inventory and accounts payable will rise accordingly.
Net Cash Used in Investing Activities
Net cash used in investing activities for the nine months ended September
30, 1996 was $5.2 million as compared to $29.3 million for the nine months
ended September 30, 1995. The nine months ended September 30, 1995 included
$27.3 million used for acquisitions, principally in connection with the
Randolph Acquisition. In the 1996 nine month period, the Company received $2.1
million in cash from purchase price accounting adjustments related to the
Foster Acquisition and generated $1.1 million in cash from the sale of fixed
assets. The increase in cash provided by operations reduced debt outstanding
under its Existing Credit Facility and also funded the capital expenditures
made during the 1996 nine month period related to the realignment of the
Company's distribution network.
For the years ended December 31, 1995 and 1994 and for the four month period
ended December 31, 1993, net cash used in investing activities was $31.6
million, $96.0 million and $221.6 million, respectively. Acquisitions, net of
dispositions, of businesses accounted for $24.3 million, $92.3 million and
$221.5 million, respectively, of the cash used during these periods. Investing
activities for the eight month period ended August 31, 1993 used cash
principally for capital expenditures.
Capital Expenditures. 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 fourth
quarter of 1996 and during 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 integrate and upgrade its
distribution system computer hardware and software. The Company anticipates
spending approximately $10 million on this initiative during
29
<PAGE>
the fourth quarter of 1996 and during 1997 and an additional $5 million
throughout 1998 and 1999. The Company expects to incur total capital
expenditures of $12.0 million in 1997, which it expects to fund with cash
generated from operations and borrowings under the New Credit Facilities.
Acquisitions. Although the Company did not make any significant acquisitions
during the nine month period ended September 30, 1996, and as of the date
hereof, is not presently involved in any discussions or negotiations regarding
any such acquisitions, the Company intends to make acquisitions in the future
if suitable candidates become available. See "Business--Strategy." The Company
expects cash flow from operations as well as borrowings under the New Credit
Facilities to fund future acquisitions as such needs arise.
Net Cash Provided by or Used in Financing Activities
For the nine months ended September 30, 1996, financing activities used
$21.5 million as compared to providing $50.3 million in the comparable period
of 1995. The majority of these changes represent repayments and borrowings
under the Company's Existing Credit Facility.
For the years ended December 31, 1995 and 1994 and the four month period
ended December 31, 1993, cash provided by financing activities was $62.6
million, $106.7 million and $218.7 million, respectively. These amounts
represented incremental borrowings and incremental issuances of Common Stock
to fund acquisitions and the growth in working capital of the Company. During
the eight months ended August 31, 1993, the Company used cash of $7.6 million,
primarily to pay for costs related to obtaining a new financing arrangement.
Debt Instruments. 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. At September 30, 1996, the Company had unused borrowing capacity
of $45.3 million under the Existing Credit Facility. For the nine month period
ended September 30, 1996, interest expense was $35.8 million.
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," and assuming 51% in principal amount of the 12 1/8% Debentures are
tendered in the Debenture Tender Offer, the Company would have had available
approximately $82.7 million under the New Revolving Credit Facility (of a
maximum availability of $150.0 million, depending on the borrowing base) and
up to $50.0 million remaining availability under the Interim Receivables
Facility (of a maximum availability of $200 million, depending on the
available level of accounts receivable). On such a pro forma basis as of
September 30, 1996, the Company would have had $11.7 million outstanding under
the New Revolving Credit Facility, $150.0 million outstanding under the
Interim Receivables Facility and $34.7 million in principal amount of
remaining 12 1/8% Debentures, 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 $302.6
million, and for the nine month period ended September 30, 1996, interest
expense would have been $20.7 million. If 100% in principal amount of the 12
1/8% Debentures are acquired in the Debenture Tender Offer, such indebtedness
would have totaled $307.7 million, consisting of $51.5 million outstanding
under the New Revolving Credit Facility, $150.0 million outstanding under the
Interim Receivables Facility, and $106.2 million of additional consolidated
indebtedness outstanding. On such a pro forma basis, interest expense for the
nine month period ended September 30, 1996 would have been $19.8 million.
After giving effect to the consummation of the Offerings, the Company would
have no principal repayments due on its 10 7/8% Notes until 2003.
Additionally, the New Revolving Credit Facility has no scheduled interim
principal repayments for its five-year duration and the Interim Receivables
Facility is to be replaced with a securitization of receivables. The 10 7/8%
Notes require semi-annual interest payments of $5.7 million. Assuming 51% in
principal amount of the 12 1/8% Debentures are acquired pursuant to the
Debenture Tender Offer, the outstanding 12 1/8% Debentures would require semi-
annual interest payments of $2.1 million (which on or prior to August 15, 1998
may be paid, at the election of the Company, in additional 12 1/8% Debentures
valued at 100% of the principal amount thereof). The New Revolving Credit
Facility and the Interim Receivables Facility will require interest payments
no less frequently than quarterly with interest rate options (i) based on the
highest of the Federal Funds rate (as defined) plus 0.5% per annum, the Base
CD rate (as defined) plus 1.0% or the Prime
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rate (as defined), plus an interest rate spread of 0.0% to 0.75% or (ii) at
interest rate spreads from 0.75% to 2.0% over LIBOR (as defined). Interest
rate spreads are determined based upon Company performance. The Company
intends to fund its debt service requirements out of operating cash flow.
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%.
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BUSINESS
GENERAL
The Company is a leading national distributor of medical and surgical
supplies, servicing 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);
revenues for the nine month period ended September 30, 1996 were approximately
$1.3 billion, of which 61% were derived from the acute care market, 29% from
the physician care market and 10% from the extended care market. 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 approximately 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 major healthcare industry trends impacting the
medical/surgical supply distribution industry are as follows:
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
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has given rise to IHNs operating healthcare facilities across two or more of
the acute care, physician care and extended care markets.
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 in these markets.
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, 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
The Company's business objective is to be the leading national distributor
of medical and surgical supplies servicing the full continuum of healthcare
providers. To pursue this objective and to continue to improve its
profitability, the Company has implemented the following strategies:
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
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by focusing on IHNs. During 1996, the Company directed its efforts to
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
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 can eliminate 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; manufacturers may not be able to
access such markets 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 having fewer distribution centers, each
of which serves 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 complement the Company's existing distribution network
as well as enhance 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/surgical
supply distributors serving the physician care and extended care markets. The
Company believes that there are
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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.
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 4% of the Company's sales in each
of the last three years and the nine months ended September 30, 1996.
The acute care distribution market is the most mature and highly
consolidated market in which the Company operates. Management of the Company
believes that sales by the three largest distributors, including the Company,
represent a significant portion of the sales in the market.
The Company services both independent hospitals and hospitals affiliated
with group purchasing organizations ("GPOs"). 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. Sales to
hospitals and other organizations affiliated with GPOs represented 78.1%,
79.6% and 78.2% of the Company's total acute care market sales in 1993, 1994
and 1995, respectively, and 76.5% and 77.3% of such sales in the nine month
periods ended September 30, 1995 and 1996, respectively. 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 45% of the Company's
total revenues; approximately 23% of total revenues in such period were
attributable solely to hospitals and other organizations affiliated with
Premier. 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 over 56,000 physician
offices and clinics and over 2,400 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 and manages
integrated healthcare delivery systems and provides healthcare services
through a network of over 7,250 affiliated physicians, and Phycor Inc., which
operates multi-specialty clinics with approximately 3,060 physicians in 25
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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,
represented 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.
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
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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 can 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.
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 can 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
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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 approximately 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 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 high quality
customer service while reducing costs. Prior to implementation of this
strategy, the Company had 61 distribution centers, which averaged
approximately 45,000 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 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 realignment of its
distribution network will be substantially completed by December 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.
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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 and upgrade
its information systems through an estimated $15 million system upgrade and
expects to complete this initiative by 1999. However, there can be no
assurance that such initiative will be successfully implemented by then, or at
all. The Company believes that the completion of this integration and upgrade
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 computer 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 over 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; Minnesota
Mining & Mfg. Co.; Kendall Company; Sherwood Medical Company (a subsidiary of
American Home Products); Kimberly-Clark Corporation; Auto Suture Company;
Safeskin Corporation; Abbott Laboratories; 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.
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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. In each of
these markets, the Company competes 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 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
At December 31, 1996, the Company employed 3,081 people, of whom 476 are
located at its corporate headquarters and administrative offices; 2,550 at its
distribution centers and sales offices; 42 at its assembled products centers;
and 13 at its one manufacturing facility. Three of the distribution centers
have unionized warehouse employees, totalling 40 employees. The Company has
not experienced any work stoppages and believes its relations with its
employees are satisfactory.
40
<PAGE>
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
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
Roanoke, Virginia.................................................. Leased
Seattle, Washington................................................ Leased
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION CENTER LOCATION LEASED/OWNED
- ---------------------------- ------------
<S> <C>
Huntington, West Virginia.......................................... Owned
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>
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, the former controlling shareholder of Rabco, the
predecessor of the Company, who previously held the positions of Chairman of
the Board of General Medical and Chairman of the Board, President and Chief
Executive Officer of Rabco, 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 a director of the Company, alleging
fraud, breach of fiduciary duty and participation in and inducing breach of
fiduciary duty in connection with the Original Acquisition. The plaintiff
sought compensatory damages in an amount not less than $25 million, or, in the
alternative, rescissionary damages in an amount not less than $50 million, and
punitive damages in an amount not less than $25 million, attorneys fees and
other relief. On September 30, 1996, an order was entered granting the
defendants' motion to dismiss the proceeding. The Court also denied the
plaintiff leave to replead his complaint. On November 1, 1996, the plaintiff
filed a notice of appeal from such order. On December 2, 1996, the plaintiff
filed an appellant's brief and the record on appeal. The Company believes that
the decision of the trial court dismissing the plaintiff's action was correct
and intends to vigorously defend against the plaintiff's appeal. However, if
the plaintiff were to prevail on appeal, and if on remand there were an
adverse determination on the merits in the proceeding, there can be no
assurance that such litigation would not have a material adverse effect on the
Company.
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.
42
<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., 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
43
<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.
44
<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 293,769 344,250 4,497
Executive Officer and
Director
F. DeWight Titus, III.. 1995 297,284 600
Vice Chairman, 1994 242,064(2) 179,750(6) 38,250 600
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) 4,620
President, Chief 1993 186,780 197,626(4) 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 157,086 153,000 4,497
Officer
Jerry E. Neal.......... 1995 235,321 600
Senior Vice President 1994 215,771(2) 179,750(6) 35,064 600
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 25,500 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.
45
<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........... 55,080 289,170 $243,000 $1,275,750
F. DeWight Titus, III....... 3,060 35,190 6,750 77,625
Donald B. Garber............ 24,480 128,520 108,000 567,000
Jerry E. Neal............... 2,806 32,258 6,189 71,157
G. Keith Nedrow............. 4,080 21,420 18,000 94,500
</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 1,514,190 shares of Common Stock. As of December 31, 1995,
options outstanding under the Plan entitled the holders to purchase
approximately 687,224 shares of Common Stock at an exercise price of $7.35 per
share, approximately 211,216 shares of Common Stock at an exercise price of
$9.56 per share and 25,500 shares of Common Stock at an exercise price of
$11.76 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 562,153 shares of
Common Stock at an exercise price of $11.76 per share were granted in
substitution for the 60% performance options previously granted ("replacement
performance options"). The replacement performance options will result in the
recognition of a minimum of $5.8 million of compensation cost to the Company
when vesting becomes probable. The 372,045 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 328,738 shares of Common Stock at an
exercise price of $11.76 per share and on October 14, 1996 to designated
individuals with respect to 40,800 shares of Common Stock at an exercise price
of $13.79 per share. These options vest over a five year period.
46
<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 68,000 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 13,600 shares of Common Stock at $7.35 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 immediately prior to
completion of the Offerings for a one-time payment of $3 million; however,
arrangements for indemnification and reimbursement of certain expenses will
remain. See "Certain Transactions--Relationship with Insiders."
47
<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 December 31, 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
SHARES OF PERCENT OF SHARES OF PERCENT STOCK COMBINED
COMMON COMMON COMMON OF COMMON SHARES OF PRIOR TO CAPITAL
STOCK PRIOR STOCK PRIOR STOCK STOCK CLASS A AND AFTER STOCK
NAME OF BENEFICIAL TO THE TO THE AFTER THE AFTER THE COMMON THE AFTER THE
OWNER(A) OFFERINGS OFFERINGS OFFERINGS OFFERINGS STOCK OFFERINGS OFFERINGS
- ------------------ ----------- ----------- --------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Kelso Investment
Associates IV, L.P.(b). 8,348,399 69.61% 8,348,399 39.77% 36.87%
Kelso Equity Partners
II, L.P.(b)............ 187,816 1.58 187,816 * *
Joseph S. Schuchert(b).. 8,536,215(c) 71.17 8,536,215 40.66 37.70
Frank T. Nickell(b)..... 8,536,215(c) 71.17 8,536,215 40.66 68,000(d) 4.12% 38.00
George E. Matelich(b)... 8,536,215(c) 71.17 8,536,215 40.66 37.70
Thomas R. Wall, IV(b)... 8,536,215(c) 71.17 8,536,215 40.66 37.70
Michael B. Goldberg(b).. * (c) * *
Chase Equity Associates,
L.P.(e)................ 1,386,155(f) 83.94 6.12
Mitchell J. Blutt(e).... 1,386,155(f) 83.94 6.12
John Rutledge Partners,
L.P.(g)................ 1,046,155 8.72 1,046,155 4.98 139,400 8.44 5.26
John Rutledge(g)........ 1,046,155(h) 8.72 1,046,155 4.98 4.62
PG Investors, Inc.(i)... 1,143,164(j) 9.53 1,143,164 5.46 5.05
David M. Roderick(k).... 20,400 1.24 *
Wellford L. Sanders,
Jr.(l)................. 23,800(m) * 23,800 *
Steven B. Nielsen(n).... 363,564(o) 3.01 466,040(v) 2.20 2.04
F. DeWight Titus,
III(n)................. 407,501(p) 3.40 416,681(w) 1.98 1.84
Donald B. Garber(n)..... 92,682(q) * 117,162(x) * *
Jerry E. Neal(n)........ 5,610(r) * 46,113(y) * *
G. Keith Nedrow(n)...... 18,144(s) * 22,224(z) * *
All directors and
executive officers of
GMI as a group(c)(t)... 911,301(u) 7.51 1,092,020(aa) 5.12 20,400 1.24 4.84
</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" 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
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<PAGE>
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 status 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 716,910
shares owned by Princes Gate Investors, L.P., 385,294 shares owned by
Acorn Partnership I, L.P., 84,443 shares owned by PGI Investments Limited,
84,443 shares owned by PGI Sweden AB and 42,224 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 1,013,314 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. Includes
129,850 shares of Common Stock to be issued pursuant to the Securities
Purchase Agreement prior to the Offerings.
(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 13,600 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 77,044 shares subject to stock options that are presently
exercisable.
(p) Includes 6,120 shares subject to stock options that are presently
exercisable.
(q) Includes 36,720 shares subject to stock options that are presently
exercisable.
(r) Represents shares subject to stock options that are presently exercisable.
(s) Includes 6,120 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 145,214 shares subject to stock options that are presently
exercisable.
(v) Includes 179,520 shares subject to stock options that will be exercisable
immediately following the Offerings.
(w) Includes 15,300 shares subject to stock options that will be exercisable
immediately following the Offerings.
(x) Includes 61,200 shares subject to stock options that will be exercisable
immediately following the Offerings.
(y) Includes 46,113 shares subject to stock options that will be exercisable
immediately following the Offerings.
(z) Includes 10,200 shares subject to stock options that will be exercisable
immediately following the Offerings.
(aa) Includes 325,933 shares subject to stock options that will be exercisable
immediately following the Offerings.
GMI, KIA IV, KEP II and certain members of management of the Company are
parties to a Stockholders Agreement. See "Certain Transactions--Stockholders
Agreement."
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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 each of 1994 and 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,
in their capacities as members of the Board of Directors of GMI and its
subsidiaries). It is currently expected that, immediately prior to completion
of the Offerings, the foregoing arrangement will be terminated in
consideration for 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 set forth below 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") 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 certain proposed
transactions whereby Common Stock of GMI is to be transferred to one or more
third parties. 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
restrictions and rights will survive the consummation of the Offerings.
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<PAGE>
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 1,046,154
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 an aggregate of 675,541 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 (the "Securities
Purchase Agreement"), among Holdings and the members of PGI listed on the
signature pages thereof, and a Securityholders Agreement (together with the
Securities Purchase Agreement, the "Securities Purchase and Securityholders
Agreements"), dated as of July 28, 1994, among Holdings, GMI, KIA IV, KEP II
and the members of PGI.
The summaries of the Stock Subscription Agreement and the Securities
Purchase and Securityholders Agreements set forth below do not purport to be
complete and are qualified in their entirety by reference to the Stock
Subscription Agreement and the Securities Purchase and Securityholders
Agreements which have been filed as exhibits to the Registration Statement of
which this Prospectus is a part.
THE STOCK SUBSCRIPTION AGREEMENT
Pursuant to the Stock Subscription Agreement, GMI, Holdings, 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
nonvoting 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.
THE SECURITIES PURCHASE AND SECURITYHOLDERS AGREEMENTS
Pursuant to the terms of the Securities Purchase and Securityholders
Agreements, GMI, Holdings, KIA IV, KEP II and PGI entered into certain
agreements with respect to the shares of Holdings common stock (which
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<PAGE>
were converted to shares of Common Stock pursuant to the New GMH Merger)
issued to PGI together with the Holdings Notes in connection with the
financing of the Titus Acquisition.
According to the terms of such Agreements, 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 Securities Purchase and Securityholders Agreements also provide 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 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 with respect to the demand and "piggyback" registration
rights and the provision of certain financial and other information, will
terminate upon the consummation of the Offerings.
Pursuant to the terms of the Securities Purchase and Securityholders
Agreements, PGI is entitled to receive additional shares of Common Stock in
certain circumstances. In accordance therewith, GMI has to date issued 337,773
shares of Common Stock to PGI, and expects to issue 17,259 shares of Common
Stock to PGI prior to the Offerings and 112,591 shares of Common Stock to PGI
on January 28, 1997. In addition, 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. The Holdings
Notes are to be redeemed with a portion of the net proceeds to be received by
GMI in the Offerings.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
The following description of 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 will consist of 50,000,000 shares of
Common Stock, $.01 par value per share, and 10,000,000 shares of Class A
Common Stock, $.01 par value per share, and 5,000,000 shares of Undesignated
Preferred Stock, $.01 par value per Share, after giving effect to amendments
to the Company's Certificate of Incorporation that have been approved by GMI's
board of directors and stockholders. Immediately following the completion of
the Offerings, there will be 21,520,173 shares of Common Stock and 1,651,355
shares of Class A Common Stock issued (526,123 shares of Common Stock will be
held by GMI as Treasury stock).
As of December 31, 1996, there were 144 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
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<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."
The Common Stock has been approved for quotation on Nasdaq under the symbol
"GENM."
The Transfer Agent and Registrar for the Common Stock and the Class A Common
Stock is First Union National Bank.
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
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<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" and "--Other
Agreements."
EFFECT OF CERTAIN CHARTER PROVISIONS
Effective upon completion of the Offerings, the Company will be authorized
to issue 1,000,000 shares of undesignated Preferred Stock. The Board of
Directors has the authority to issue the Preferred Stock in one or more series
and to fix the price, rights, preferences, privileges and restrictions
thereof, including dividend rights, dividend rates, conversion rights, voting
rights, terms of redemption, redemption prices, liquidation preferences and
the number of shares constituting a series or the designation of such series,
without any further vote or action by the Company's stockholders. The issuance
of Preferred Stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
delaying, deferring or preventing a change in control of the Company without
further action by the stockholders and may adversely affect the market price
of the Common Stock and the voting and other rights of the holders of Common
Stock. The issuance of Preferred Stock with voting and conversion rights may
adversely affect the voting power of the holders of Common Stock, including
the loss of voting control to others. The Company has no current plans to
issue any shares of Preferred Stock.
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. GMI is required to use its best efforts
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<PAGE>
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 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.
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 an 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 such other stockholders'
securities.
STOCK SUBSCRIPTION AGREEMENT
Piggyback Rights. Pursuant to the terms of the Stock Subscription Agreement,
CEA has piggyback registration rights substantially similar to those granted
pursuant to 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 (such actions, other than actions by or in the
right of the corporation, are referred to as "derivative actions"), 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.
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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 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 to any of its stockholders
in a manner 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. However, 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 its 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.
INSURANCE
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.
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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
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. 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
exhibits 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 an 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 Facility (as defined below), 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 (as defined below), 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 in the New Credit Agreement) 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 commercial
letters of credit and for standby letters of credit on the average daily
undrawn amount of each such
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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; 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 Receivables
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 or 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, notice periods and exceptions.
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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. Payments to Participants in the Interim Receivables
Facility will be dependent upon collections received from obligors on the
Receivables. The Interim Receivables Facility will be non-recourse to General
Medical. None of General Medical, any other Seller or the Receivables
Subsidiary will be obligated to make any payments to the Participants or in
respect of the Receivables (except in certain limited circumstances generally
relating to breaches of representations and warranties relating to the
eligibility of the Receivables).
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 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 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.
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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.
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, breaches of 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,
in each case subject to certain grace periods, notice periods and exceptions.
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
Definitions
The following definitions apply to the discussion of the 10 7/8% Notes:
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the term
"controlling" and "controlled" have meanings correlative to the foregoing.
"Affiliate" shall also mean any beneficial owner of shares representing 5% or
more of the total voting power of the Voting Stock (on a fully diluted basis)
of the Company or of rights or warrants to purchase such stock (whether or not
currently exercisable) and any Person who would be an Affiliate of any such
beneficial owner pursuant to the first sentence hereof.
"Capital Stock" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any
Preferred Stock, but excluding any debt securities convertible into such equity
or any of the foregoing.
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"Change of Control" means the occurrence of any of the following events:
(i) prior to the earlier to occur of (A) the first Public Equity Offering
of common stock of Parent or (B) the first Public Equity Offering of common
stock of the Company, the Permitted Holders cease to be the "beneficial
owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act),
directly or indirectly, of a majority in the aggregate of the total voting
power of the Voting Stock of the Company or Parent, whether as a result of
issuance of securities of the Company or Parent, any merger, consolidation,
liquidation or dissolution of the Company or Parent, any direct or indirect
transfer of securities by Parent or otherwise (for purposes of this clause
(i), the Permitted Holders shall be deemed to beneficially own any Voting
Stock of a corporation (the "specified corporation") held by any other
corporation (the "parent corporation") so long as the Permitted Holders
beneficially own (as so defined), directly or indirectly, in the aggregate
a majority of the voting power of the Voting Stock of the parent
corporation); or
(ii) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act), other than one or more Permitted Holders and other than
any ESOP, is or becomes the beneficial owner (as defined in Rules 13d-3 and
13d-5 under the Exchange Act, except that for purposes of this clause (ii)
a person shall be deemed to have "beneficial ownership" of all shares that
any such person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of
more than 35% of the total voting power of the Voting Stock of the Company
or Parent, as the case may be; provided, however, that the Permitted
Holders beneficially own (as defined in clause (i) above), directly or
indirectly, in the aggregate a lesser percentage of the total voting power
of the Voting Stock of the Company or Parent than such other person and do
not have the right or ability by voting power, contract or otherwise to
elect or designate for election a majority of the board of directors of the
Company or Parent, as the case may be (for the purposes of this clause
(ii), such other person shall be deemed to beneficially own any Voting
Stock of a specified corporation held by a parent corporation, if such
other person is the beneficial owner (as defined in this clause (ii)),
directly or indirectly, of more than 35% of the voting power of the Voting
Stock of such parent corporation and the Permitted Holders beneficially own
(as defined in clause (i) above), directly or indirectly, in the aggregate
a lesser percentage of the voting power of the Voting Stock of such parent
corporation and do not have the right or ability by voting power, contract
or otherwise to elect or designate for election a majority of the board of
directors of such parent corporation); or
(iii) at any time when Kelso or its Affiliates beneficially own, directly
or indirectly, less than 50% of the total voting power of the Voting Stock
of the Company or Parent, individuals who at the beginning of any period of
two consecutive years constituted the Board of Directors of the Company
(together with any new directors whose election by such Board of Directors
or whose nomination for election by the shareholders of the Company was
approved by a vote of a majority of the directors of the Company then still
in office who were either directors at the beginning of such period or
whose election or nomination for election was previously so approved) cease
for any reason to constitute a majority of the Board of Directors of the
Company then in office.
"Consolidated Coverage Ratio" as of any date of determination means the ratio
of (i) the aggregate amount of EBITDA for the period of the most recent four
consecutive fiscal quarters ending at least 45 days prior to the date of such
determination to (ii) Consolidated Interest Expense for such four fiscal
quarters; provided, however, that (1) if the Company or any Restricted
Subsidiary has Incurred any Indebtedness (other than working capital
borrowings) since the beginning of such period that remains outstanding or if
the transaction giving rise to the need to calculate the Consolidated Coverage
Ratio is an Incurrence of Indebtedness, or both, EBITDA and Consolidated
Interest Expense for such period shall be calculated after giving effect on a
pro forma basis to such Indebtedness as if such Indebtedness has been Incurred
on the first day of such period and to the discharge of any other Indebtedness
(other than working capital borrowings) repaid, repurchased, defeased or
otherwise discharged with the proceeds of such new Indebtedness as if such
discharge had occurred on the first day of such period, (2) if since the
beginning of such period the Company or any Subsidiary shall have made any
Asset Disposition, the EBITDA for such period shall be reduced by an amount
equal to the EBITDA (if positive) directly attributable to the assets which are
the subject of such Asset Disposition for such period, or increased by an
amount equal to the EBITDA (if negative), directly attributable thereto for
such period and Consolidated
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Interest Expense for such period shall be reduced by an amount equal to the
Consolidated Interest Expense directly attributable to any Indebtedness of the
Company or any Restricted Subsidiary repaid, repurchased, defeased or otherwise
discharged with respect to the Company and its continuing Restricted
Subsidiaries in connection with, or with the proceeds of, such Asset
Dispositions for such period (or, if the Capital Stock of any Restricted
Subsidiary is sold, the Consolidated Interest Expense for such period directly
attributable to the Indebtedness of such Restricted Subsidiary to the extent
the Company and its continuing Restricted Subsidiaries are no longer liable for
such Indebtedness after such sale), (3) if since the beginning of such period
the Company or any Restricted Subsidiary (by merger or otherwise) shall have
made an Investment in any Subsidiary (or any person which becomes a Subsidiary)
or an acquisition of assets, including any acquisition of assets occurring in
connection with a transaction causing a calculation to be made hereunder, which
constitutes all or substantially all of an operating unit of a business, EBITDA
and Consolidated Interest Expense for such period shall be calculated after
giving pro forma effect thereto (including the Incurrence of any Indebtedness)
as if such Investment or acquisition occurred on the first day of such period
and (4) if since the beginning of such period any Person (that subsequently
became a Restricted Subsidiary or was merged with or into the Company or any
Restricted Subsidiary since the beginning of such period) shall have made any
Asset Disposition or any Investment that would have required an adjustment
pursuant to clause (2) or (3) above if made by the Company or a Restricted
Subsidiary during such period, EBITDA and Consolidated Interest Expense for
such period shall be calculated after giving pro forma effect thereto as if
such Asset Disposition or Investment occurred on the first day of such period.
For purposes of this definition, whenever pro forma effect is to be given to an
acquisition of assets, the amount of income or earnings relating thereto, and
the amount of Consolidated Interest Expense associated with any Indebtedness
Incurred in connection therewith, the pro forma calculations shall be
determined in good faith by a responsible financial or accounting Officer of
the Company. If any Indebtedness bears a floating rate of interest and is being
given pro forma effect, the interest of such Indebtedness shall be calculated
as if the rate in effect on the date of determination had been the applicable
rate for the entire period (taking into account any Interest Rate Protection
Agreement applicable to such Indebtedness if such Interest Rate Protection
Agreement has a remaining term in excess of 12 months).
"Consolidated Net Income" means, for any period, the net income of the
Company and its consolidated Subsidiaries; provided, however, that there shall
not be included in such Consolidated Net Income:
(i) any net income of any Person if such Person is not a Restricted
Subsidiary, except that (A) subject to the limitations contained in clause
(iv) below, the Company's equity in the net income of any such Person for
such period shall be included in such Consolidated Net Income up to the
aggregate amount of each actually distributed by such Person during such
period to the Company or a Restricted Subsidiary as a dividend or other
distribution (subject, in the case of a dividend or other distribution to a
Restricted Subsidiary, to the limitations contained in clause (iii) below)
and (B) the Company's equity in a net loss of any such Person (other than
an Unrestricted Subsidiary) for such period shall be included in
determining such Consolidated Net Income;
(ii) any net income (or loss) of any Person acquired by the Company or a
Subsidiary in a pooling of interests transaction for any period prior to
the date of such acquisition;
(iii) any net income of any Restricted Subsidiary to the extent such
Restricted Subsidiary is subject to restrictions, directly or indirectly,
on the payment of dividends or the making of distributions by such
Restricted Subsidiary, directly or indirectly, to the Company, except that
(A) if greater than the amount so calculated, but subject to the
limitations contained in clause (iv) below, the Company's equity in the net
income of any such Restricted Subsidiary for such period shall be included
in such Consolidated Net Income up to the aggregate amount of cash actually
distributed by such Restricted Subsidiary during such period to the Company
or another Restricted Subsidiary as a dividend or other distribution
(subject, in the case of a dividend or other distribution to another
Restricted Subsidiary, to the limitation contained in this clause) and (B)
the Company's equity in a net loss of any such Restricted Subsidiary for
such period shall be included in determining such Consolidated Net Income;
(iv) any gain (but not loss) realized upon the sale or other disposition
of any property, plant or equipment of the Company or its consolidated
Subsidiaries (including pursuant to any sale-and-leaseback
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<PAGE>
arrangement) which is not sold or otherwise disposed of in the ordinary
course of business and any gain (but not loss) realized upon the sale or
other disposition of any Capital Stock of any Person;
(v) extraordinary gains or losses;
(vi) the cumulative effect of a change in accounting principles;
(vii) Transaction Expenses; and
(viii) (A) compensation expense resulting from the issuance of Capital
Stock, stock options or stock appreciation rights issued to employees,
including officers, of the Company or any Subsidiary, or the exercise of
such options or rights, in each case to the extent the obligation (if any)
associated therewith is not expected to be settled by the payment of cash
by the Company or any Affiliate of the Company and (B) for purposes of
"Consolidated Net Income" as used in Section 4.05(a)(3)(a) of the 10 7/8%
Note Indenture only, compensation expense resulting from the repurchase of
any such Capital Stock, options and rights but only to the extent such
repurchase constituted a Restricted Payment (including pursuant to Section
4.05(b)(iv)) of the 10 7/8% Note Indenture and thereby reducing the amount
available to be paid as a Restricted Payment pursuant to Section 4.05 of
the 10 7/8% Note Indenture.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
An "Event of Default" occurs if:
(1) the Company defaults in any payment of interest on any Security when
the same becomes due and payable, whether or not such payment shall be
prohibited by Article 10, and such default continues for a period of 30
days;
(2) the Company defaults in the payment of the principal of any Security
when the same becomes due and payable at its Stated Maturity, upon
redemption, upon required repurchase, upon declaration or otherwise,
whether or not such payment shall be prohibited by Article 10;
(3) the Company fails to comply with Section 5.01;
(4) the Company fails to comply with Section 4.02, 4.03, 4.04, 4.05,
4.06, 4.07, 4.08, 4.09 or 4.10 of the 10 7/8% Note Indenture (other than a
failure to purchase Securities when required under Section 4.07 or 4.09 of
the 10 7/8% Note Indenture) and such failure continues for 30 days after
the notice specified below;
(5) the Company fails to comply with any of its agreements in the
Securities or this Indenture (other than those referred to in (1), (2), (3)
or (4) above) and such failure continues for 30 days after the notice
specified below;
(6) Indebtedness of the Company or any Significant Subsidiary is not paid
within any applicable grace period after final maturity or is accelerated
by the holders thereof because of a default and the total amount of such
Indebtedness unpaid or accelerated exceeds $5,000,000 or its foreign
currency equivalent;
(7) the Company or any Significant Subsidiary pursuant to or within the
meaning of any Bankruptcy Law:
(A) commences a voluntary case;
(B) consents to the entry of an order for relief against it in an
involuntary case;
(C) consents to the appointment of a Custodian of it or for any
substantial part of its property; or
(D) makes a general assignment for the benefit of its creditors;
or takes any comparable action under any foreign laws relating to
insolvency;
(8) a court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that:
(A) is for relief against the Company or any Significant Subsidiary
in an involuntary case;
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<PAGE>
(B) appoints a Custodian of the Company or any Significant Subsidiary
or for any substantial part of its property; or
(C) orders the winding up or liquidation of the Company or any
Significant Subsidiary;
or any similar relief is granted under any foreign laws and the order or
decree remains unstayed and in effect for 60 days; or
(9) any judgment or decree for the payment of money in excess of
$5,000,000 is entered against the Company or any Significant Subsidiary and
is not discharged and there is a period of 60 days following the entry of
such judgment or decree during which such judgment or decree is not
discharged, waived or the execution thereof stayed.
The foregoing will constitute Events of Default whatever the reason for any
such Event of Default and whether it is voluntary or involuntary or is
effected by operation of law or pursuant to any judgment, decree or order of
any court or any order, rule or regulation of any administrative or
governmental body.
The term "Bankruptcy Law" means Title 11, United States Code, or any similar
Federal or state law for the relief of debtors. The term "Custodian" means any
receiver, trustee, assignee, liquidator, custodian or similar official under
any Bankruptcy Law.
A Default under clause (4) or (5) of this Section is not an Event of Default
until the Trustee or the Holders of at least 25% in principal amount of the
Securities notify the Company of the Default and the Company does not cure
such Default within the time specified after receipt of such Notice. Such
Notice must specify the Default, demand that it be remedied and state that
such notice is a "Notice of Default".
The Company shall deliver to the Trustee, within 30 days after the
occurrence thereof, written notice in the form of an Officers' Certificate of
any event which with the giving of notice and the lapse of time would become
an Event of Default under clause (4), (5), (6) or (9) of this Section, its
status and what action the Company is taking or proposes to take with respect
thereto.
"Investment" in any Person means any direct or indirect advance, loan (other
than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of the Person making such
advance) or other extension of credit (including by way of Guarantee or
similar arrangement) or capital contribution to (by means of any transfer of
cash or other property to others or any payment for property or services for
the account or use of others), or any purchase or acquisition of Capital
Stock, Indebtedness or other similar instruments issued by such Person. For
purposes of the definition of "Unrestricted Subsidiary", the definition of
"Restricted Payment" and Section 4.05 of the 10 7/8% Note Indenture, (i)
"Investment" shall include the portion (proportionate to the Company's equity
interest in such Subsidiary) of the fair market value of the net assets of any
Subsidiary of the Company at the time that such Subsidiary is designated an
Unrestricted Subsidiary; provided, however, that upon a redesignation of such
Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue
to have a permanent "Investment" in an Unrestricted Subsidiary equal to an
amount (if positive) equal to (x) the Company's "Investment" in such
Subsidiary at the time of such redesignation less (y) the portion
(proportionate to the Company's equity interest in such Subsidiary) of the
fair market value of the net assets of such Subsidiary at the time that such
Subsidiary is designated a Restricted Subsidiary; and (ii) any property
transferred to or from an Unrestricted Subsidiary shall be valued at its fair
market value at the time of such transfer, in each case as determined in good
faith by the Board of Directors.
"Issue Date" means the date on which the Securities are originally issued.
"Net Cash Proceeds," with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof or any other entity.
"Restricted Subsidiary" means any Subsidiary of the Company that is not an
Unrestricted Subsidiary.
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<PAGE>
"Subordinated Obligation" means any Indebtedness of the Company (other than
Indebtedness owing to a Wholly Owned Subsidiary), whether outstanding on the
Issue Date or thereafter incurred, which is subordinate or junior in right of
payment to the Securities pursuant to a written agreement to that effect.
"Subsidiary" means, in respect of any Person, any corporation, association,
partnership or other business entity of which more than 50% of the total
voting power of shares of Capital Stock or other interests (including
partnership interests) entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by (i)
such Person, (ii) such Person and one or more Subsidiaries of such Person or
(iii) one or more Subsidiaries of such Person.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by
the Board of Directors in the manner provided below and (ii) any Subsidiary of
an Unrestricted Subsidiary. The Board of Directors may designate any
Subsidiary (including any newly acquired or newly formed Subsidiary) to be an
Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock or
Indebtedness of, or holds any Lien on any property of, the Company or any
Restricted Subsidiary of the Company that is not a subsidiary of the
Subsidiary to be so designated; provided, however, that either (A) the
Subsidiary to be so designated has consolidated total assets of $1,000 or less
or (B) if such Subsidiary has consolidated total assets greater than $1,000,
such designation would be permitted under Section 4.05 of the 10 7/8% Note
Indenture. The Board of Directors may designate any Unrestricted Subsidiary to
be a Restricted Subsidiary of the Company; provided, however, that immediately
after giving effect to such designation (x) the Company could Incur $1.00 of
additional Indebtedness under Section 4.03(a) of the 10 7/8% Note Indenture
and (y) no Default shall have occurred and be continuing. Any such designation
by the Board of Directors shall be evidenced to the Trustee by promptly filing
with the Trustee a copy of the board resolution giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing provisions.
The 10 7/8% Notes were issued under an indenture, dated as of August 31,
1993 between General Medical and The Bank of New York, as trustee (the "10
7/8% Note Indenture"). 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 which has been 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.
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>
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<PAGE>
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 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.
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<PAGE>
EXISTING INDEBTEDNESS TO BE REFINANCED UPON CONSUMMATION OF THE OFFERINGS
The Company intends to refinance a portion of 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 December 31, 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 scheduled to
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. 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 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. "Capital Stock" means, with respect to any Person,
any and all shares, interests, participations or other equivalents (however
designated) of such Person's capital stock whether now outstanding or issued
after the date of this Note, including without limitation, with respect to the
Issuer, the Common Stock. "Debt" of any Person means at any date, without
duplication, (i) all obligations of such Person for borrowed money, (ii) all
obligations of such Person evidenced by bonds, debentures, notes, or other
similar instruments, (iii) all obligations of such Person in respect of
letters of credit or other similar instruments (or reimbursement obligations
with respect thereto), except letters of credit or other similar instruments
issued to secure payment of Trade Payables, (iv) all obligations of such
Person to pay the deferred purchase price of property or services, except
Trade Payables, (v) all obligations of such Person as lessee under capital
leases, (vi) all Debt of others secured by a Lien on any asset of such Person,
whether or not such Debt is assumed by such Person and (vii) all Debt of
others Guaranteed by such Person. "Public Offering" means any primary or
secondary public offering of equity securities of the Issuer (or, after the
Merger, New Holdings) pursuant to an effective registration statement under
the Securities Act of 1933, as amended, other than pursuant to a registration
statement on any form registering the types of transactions generally eligible
for registration on Form S-4 or Form S-8 or any successor or similar form.
"Transfer of Capital Stock" means the sale, transfer, assignment, pledge or
other disposition of any shares of Capital Stock of General Medical or any
other Subsidiary of the Issuer.
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
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<PAGE>
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 United States Trust Company 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 (as defined below)).
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 12 1/8%
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% in principal amount of the 12 1/8% Debentures and will seek the
consent of holders of the 12 1/8% Debentures to amendments to certain of 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 $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
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<PAGE>
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 20,994,050 shares of Common
Stock (22,344,050 shares if the U.S. Underwriters' over-allotment option is
exercised in full) outstanding (the "Outstanding Common Shares") and 1,651,355
shares of Class A Common Stock outstanding (the "Outstanding Class A Common
Shares"). GMI will also have outstanding options to acquire an additional
1,317,336 shares of Common Stock ("Issuable Common Shares"). 11,733,306
Outstanding Common Shares, 724,022 Issuable Common Shares and 1,630,955
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, 11,361,771 Outstanding Common Shares, 1,613,955 Class
A Common Shares and 710,422 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 20,994,050 Outstanding Common Shares, the 9,000,000 Common Shares to
be sold pursuant to the Offerings and 11,431,226 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 562,824 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 1,317,336 Issuable Common Shares are subject to issuance upon the
exercise of nontransferable stock options granted under GMI's stock incentive
plans. GMI may register the 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, subject to any applicable 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, subject to certain
exceptions, without the written consent of Smith Barney Inc., pursuant to the
terms of individual lock-up agreements (each a "Lock-up Agreement").
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 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
71
<PAGE>
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. See "Certain Transactions" and
"Description of Capital Stock--Registration Rights." If such stockholders, by
exercising such registration rights upon expiration or waiver of the Lock-up
Agreements 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.
72
<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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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 Credit Suisse 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................................
Credit Suisse First Boston Corporation.........................
---------
Total.......................................................... 7,200,000
=========
</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
Credit Suisse First Boston (Europe) 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................................
Credit Suisse First Boston (Europe) Limited....................
---------
Total.......................................................... 1,800,000
=========
</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
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<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 1,350,000
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
have agreed that, for a period of 180 days after the date of this Prospectus,
subject to certain exceptions, 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 Class A Common Stock or securities
convertible into or exercisable or exchangeable for Common Stock or Class A
Common Stock, or grant any options or warrants to purchase Common Stock or
Class A Common Stock. See "Shares Eligible for Future Sale."
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 1996, 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>
The Common Stock has been approved for quotation 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.
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 10,200 shares of Common
Stock. Mr. Sanders has an option to purchase an additional 13,600 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.
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<PAGE>
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 as a result of the filing of such registration statement 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.
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.
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<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-3
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-5
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-6
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-7
Notes to Consolidated Financial Statements.............................. F-8
(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.
Richmond, Virginia
November 26, 1996 (December 2,
1996 as to the second
paragraph of Note 10, and
January , 1997 as to the
fifteenth and sixteenth
paragraphs of Note 1) ----------------
The accompanying consolidated financial statements reflect the 1.36-to-one
stock split of Common Stock, which is to be effected on or about January 30,
1997. The above opinion is in the form which will be signed by Deloitte &
Touche LLP upon consummation of such stock split, which is described in Note 1
of the Notes to Consolidated Financial Statements, and assuming that, from
November 26, 1996 to the date of such stock split, no other events shall have
occurred, other than those described in Note 10 of Notes to Consolidated
Financial Statements, that would affect the accompanying consolidated
financial statements and notes thereto.
DELOITTE & TOUCHE LLP
Richmond, Virginia
January 7, 1997
F-2
<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-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
-------- -------- -------------
<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; 11,422,036,
12,156,983, 12,390,323 shares issued........ 114 122 124
Class A convertible common stock, $.01 par
value; 1,651,355 shares issued.............. 17 17 17
Additional paid-in capital................... 101,906 109,077 111,785
Predecessor basis in accounting.............. (20,814) (20,814) (20,814)
Retained deficit............................. (7,372) (25,844) (26,901)
Treasury stock--at cost; 132,907, 496,214 and
525,443 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-4
<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:................. $ (0.36) $ (0.29) $ (1.33) $ (1.11) $ (0.08)
Weighted average number
of common and common
equivalent shares
outstanding............ 10,705,948 11,835,416 13,923,016 13,929,830 13,799,072
</TABLE>
See notes to consolidated financial statements.
F-5
<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-6
<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.. 9,596,236 $ 96 605,200 $ 6 $ 74,898 -- $ -- $(20,814) $ -- $ 54,186
Purchase of stock
from
management stockholders. -- -- -- -- -- 15,350 (103) -- -- (103)
Net loss.......... -- -- -- -- -- -- -- -- (3,907) (3,907)
---------- ---- ------------ ------ -------- ------- ------- -------- -------- --------
Balance, December
31, 1993......... 9,596,236 96 605,200 6 74,898 15,350 (103) (20,814) (3,907) 50,176
Purchase of stock
from
management stockholders. -- -- -- -- -- 148,337 (1,198) -- -- (1,198)
Issuance of common
stock............ 1,825,800 18 1,046,155 11 27,008 -- -- -- -- 27,037
Reissuance of
treasury stock... -- -- -- -- -- (30,780) 226 -- -- 226
Net loss.......... -- -- -- -- -- -- -- -- (3,465) (3,465)
---------- ---- ------------ ------ -------- ------- ------- -------- -------- --------
Balance, December
31, 1994......... 11,422,036 114 1,651,355 17 101,906 132,907 (1,075) (20,814) (7,372) 72,776
Purchase of stock
from
management stockholders. -- -- -- -- -- 363,307 (4,304) -- -- (4,304)
Issuance of common
stock............ 734,947 8 -- -- 7,171 -- -- -- -- 7,179
Net loss.......... -- -- -- -- -- -- -- -- (18,472) (18,472)
---------- ---- ------------ ------ -------- ------- ------- -------- -------- --------
Balance, December
31, 1995......... 12,156,983 122 1,651,355 17 109,077 496,214 (5,379) (20,814) (25,844) 57,179
Purchase of stock
from
management stockholders. -- -- -- -- -- 29,229 (433) -- -- (433)
Issuance of common
stock............ 233,340 2 -- -- 2,708 -- -- -- -- 2,710
Net loss.......... -- -- -- -- -- -- -- -- (1,057) (1,057)
---------- ---- ------------ ------ -------- ------- ------- -------- -------- --------
Balance, September
30, 1996......... 12,390,323 $124 1,651,355 $ 17 $111,785 525,443 $(5,812) $(20,814) $(26,901) $ 58,399
========== ==== ============ ====== ======== ======= ======= ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-7
<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-8
<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 using the treasury stock
method based on an estimated public offering price of $17.00 per share.
The Board of Directors has approved an increase in the Company's authorized
shares and a 1.36-to-one stock split of both the Company's common stock and
class A common stock to be effected immediately prior to the Offerings. All
share and per share amounts have been restated to retroactively reflect the
change in authorized capital and the stock split.
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 and based on any shortfall of carrying
amounts to expected future undiscounted cash flows. Such impairments are
recognized based on the difference between the carrying amounts of such assets
and their estimated fair values.
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-9
<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 cash of approximately $64.3 million and $5.0
million in Company common stock having a fair value of $9.56 per share (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 cash 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 cash 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. In addition
to the acquisitions discussed above, the Company made three smaller
acquisitions during 1994 and 1995. These acquired businesses were not material
to the Company either individually or in the aggregate.
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.............................. $ (0.89)
Weighted Average Number of Common and Common Equivalent
Shares Outstanding.................................... 14,023,153
</TABLE>
F-10
<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, included in continuing operations, 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-11
<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-12
<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 450,364 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, 337,773 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-13
<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-14
<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-15
<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 1,514,190 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
562,153 shares of common stock at an exercise price of $11.76 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 at least $5.8 million 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 (328,738 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 68,000 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. There were 13,600 shares
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............ 1,263,526 $7.35 1,442,236 $7.71 937,540 $ 7.97
Granted................. 251,386 9.44 26,776 11.66 890,891 11.76
Exercised............... -- -- (22,032) 7.35 (8,160) 7.35
Canceled................ (72,676) 7.35 (509,440) 7.47 (543,735) 8.06
--------- --------- ---------
Outstanding, end of the
year................... 1,442,236 $7.71 937,540 $7.97 1,276,536 $10.58
--------- --------- ---------
Options exercisable at
year end............... 108,868 $7.35 140,642 $7.61 144,926 $ 7.56
========= ========= =========
</TABLE>
F-16
<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>
$ 7.35 308,380 7.2 131,512
9.56 67,066 8.1 13,414
11.76 901,090 9.7 --
--------- -------
1,276,536 8.9 144,926
========= =======
</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 $0.06 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............................... $5.46 $4.82
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 a
director of the Company, alleging fraud, breach of fiduciary duty, and
participation in and inducing breach of fiduciary duty in connection with the
Original Acquisition of General Medical by Holdings. The plaintiff sought
compensatory damages in an amount not less than $25 million, or, in the
alternative, rescissionary damages in an amount not less than $50 million, and
punitive damages in an amount not less than $25 million, attorneys fees and
other relief. On September 30, 1996, an order was entered granting the
defendants' motion to dismiss the proceeding. The Court also denied the
plaintiff leave to replead his complaint. On November 1, 1996, the plaintiff
filed a notice of appeal from such order. On December 2, 1996, the plaintiff
filed an appellant's brief and the record on appeal. The Company believes that
the decision of the trial court dismissing the plaintiff's action was correct
and intends to vigorously defend against the plaintiff's appeal. However, if
the plaintiff were to prevail on appeal, and if on remand there were an
adverse determination on the merits in the proceeding, there can be no
assurance that such litigation would not have a material adverse effect on the
Company. The outcome of this litigation can not 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 4% of the Company's revenues for the nine
F-17
<PAGE>
GENERAL MEDICAL INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 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 60,000,000 shares of common stock,
consisting of 50,000,000 shares of common stock and 10,000,000 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
1,721,695 shares of common stock and 1,046,154 shares of class A common stock
at $9.56 per share.
d. In the fourth quarter of 1995, the Company agreed to purchase from
certain former management employees approximately 165,920 shares of its common
stock and 7,752 shares under option at the price of $11.76 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 40,800 service options at an
exercise price of $13.79 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-18
<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... $(0.19) $(0.16) $(0.08) $0.09
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 loss per common share............ $(0.16) $(0.24) $(0.70) $(0.23)
</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............. $(0.11) $(0.03) $0.06
</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 $0.08 per common share in 1994, and a decrease in fourth quarter
pre-tax loss of $2.0 million or $0.15 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-19
<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 reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of 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-20
<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-21
<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-22
<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-23
<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-24
<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-25
<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-26
<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-27
<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-28
<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-29
<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-30
<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-31
<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-32
<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. 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-33
<PAGE>
QUALITY SERVICE AND EFFICIENT DISTRIBUTION SUPPORTED BY:
- ---------------------------- ----------------------------
[PICTURE OF ACCOUNT MANAGER] [PICTURE OF SUPPORT STAFF]
- ---------------------------- ----------------------------
A dedicated sales force of A highly-skilled, automated
highly-trained Account support staff.
Managers.
----------------------------
[PICTURE OF MEDICAL EQUIPMENT]
----------------------------
A broad array of products
supplied by over 4,000
medical product manufacturers
and suppliers.
- ---------------------------- ----------------------------
[PICTURE OF CONVEYOR] [PICTURE OF WAREHOUSE]
- ---------------------------- ----------------------------
Area Customer Service Centers Enhanced inventory
utilize conveyors for management programs support
efficient delivery. customer needs for cost
containment.
[LOGO](R)GENERAL MEDICAL INC.
<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.............................................................. 9
The Company............................................................... 15
Use of Proceeds........................................................... 16
Dividend Policy........................................................... 17
Dilution.................................................................. 18
Capitalization............................................................ 19
Selected Consolidated Historical and Pro Forma Financial Information...... 20
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 23
Business.................................................................. 32
Management................................................................ 43
Principal Stockholders.................................................... 48
Certain Transactions...................................................... 50
Description of Capital Stock.............................................. 53
Description of Certain Indebtedness....................................... 58
Shares Eligible for Future Sale........................................... 71
Certain United States Tax Consequences To Non-United States Holders....... 73
Underwriting.............................................................. 75
Legal Matters............................................................. 78
Experts................................................................... 78
Available Information..................................................... 79
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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
9,000,000 SHARES
GENERAL MEDICAL INC.
COMMON STOCK
[LOGO] GM/(R)/
--------
PROSPECTUS
, 1997
--------
SMITH BARNEY INC.
MORGAN STANLEY & CO.
INCORPORATED
ALEX. BROWN & SONS
INCORPORATED
CREDIT SUISSE FIRST BOSTON
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<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. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
[ALTERNATE PAGE FOR INTERNATIONAL OFFERING]
SUBJECT TO COMPLETION, DATED JANUARY 7, 1997
PROSPECTUS
9,000,000 SHARES
[LOGO] GM/(R)/ 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 9,000,000
shares of Common Stock offered hereby, a total of 1,800,000 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 7,200,000
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"). A significant portion of the
net proceeds of the Offerings will be used to repay indebtedness held by
certain stockholders of the Company. See "Use of Proceeds."
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 $16.00 and $18.00 per share. See "Underwriting" for information
relating to the factors that will be considered in determining the initial
public offering price.
The Common Stock has been approved for quotation on the Nasdaq National
Market ("Nasdaq") under the symbol "GENM."
--------
SEE "RISK FACTORS" BEGINNING ON PAGE 9 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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 Managers and the U.S.
Underwriters, 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 1,350,000 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 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
INTERNATIONAL CREDIT SUISSE FIRST BOSTON
, 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
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 9
The Company............................................................... 15
Use of Proceeds........................................................... 16
Dividend Policy........................................................... 17
Dilution.................................................................. 18
Capitalization............................................................ 19
Selected Consolidated Historical and Pro Forma Financial Information...... 20
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 23
Business.................................................................. 32
Management................................................................ 43
Principal Stockholders.................................................... 48
Certain Transactions...................................................... 50
Description of Capital Stock.............................................. 53
Description of Certain Indebtedness....................................... 58
Shares Eligible for Future Sale........................................... 71
Certain United States Tax Consequences To Non-United States Holders....... 73
Underwriting.............................................................. 75
Legal Matters............................................................. 78
Experts................................................................... 78
Available Information..................................................... 79
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
9,000,000 SHARES
GENERAL MEDICAL INC.
COMMON STOCK
[LOGO]GM
--------
PROSPECTUS
, 1997
--------
SMITH BARNEY INC.
MORGAN STANLEY & CO.
INTERNATIONAL
ALEX. BROWN & SONS
INTERNATIONAL
CREDIT SUISSE 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............. $53,319
National Association of Securities Dealers, Inc. filing fee..... 17,750
Nasdaq listing fee.............................................. 50,000
*Blue Sky fees and expenses......................................
*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 85,000 shares of the
Registrant's Common Stock for a purchase price of $1,000,000.
(b) On April 14, 1995, the Registrant issued 12,240 shares of Common Stock
to a former employee of the Registrant, pursuant to the exercise of an option
exercisable at $7.353 per share, for aggregate proceeds of $90,000.
(c) On August 7, 1995, the Registrant issued 2,040 shares of Common Stock to
a former employee of the Registrant, pursuant to the exercise of an option
exercisable at $7.353 per share, for aggregate proceeds of $15,000.
(d) On April 4, 1996, the Registrant issued 4,080 shares of Common Stock to
a former employee of the Registrant, pursuant to the exercise of an option
exercisable at $7.353 per share, for aggregate proceeds of $30,000.
(e) On April 26, 1996, the Registrant issued 4,080 shares of Common Stock to
a former employee of the Registrant, pursuant to the exercise of an option
exercisable at $7.353 per share, for aggregate proceeds of $30,000.
(f) The Registrant issued shares of Common Stock to the entities referred to
in the Prospectus as PGI, as follows: an aggregate of 112,591 shares in July
1995, an aggregate of 112,591 shares in January 1996, an aggregate of 112,591
shares in July 1996 and an aggregate of 129,850 shares to be issued prior to
the Offerings described in the Prospectus which is part of this Registration
Statement. Such shares were issued (or will be issued, as the case may be)
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.
*3.1(d) -- 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).
10.21 -- General Medical Executive Incentive Plan--1996, dated as of May
9, 1995.
+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, as amended.
+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) (amendment filed as Exhibit
10.37).
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE
------- -----
<C> <C> <S>
+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).
+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.
10.37 -- Form of Letter Agreement, dated January 2, 1997, among The
Company, Kelso Investment Associates IV, L.P., Kelso Equity
Partners II, L.P. and each New Kelso Investor.
11.1 -- Statement regarding computation of per share earnings.
**21.1 -- Subsidiaries of the Registrant.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE
------- -----
<C> <C> <S>
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.
+ Incorporated by reference.
B.CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
Schedule I--Condensed Financial Information of Registrant
Schedule II--Valuation and Qualifying Accounts
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.
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-6
<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 January 8, 1997.
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 January 8, 1997.
<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 Officer
- -------------------------------- (principal financial and accounting officer)
Donald B. Garber
*
- -------------------------------- 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-7
<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.............................................. 114 122
Class A convertible common stock.......................... 17 17
Additional paid-in capital................................ 101,906 109,077
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...... $3,050,643 306,983 347,549 $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..........................................................
*3.1(d) 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). ...................................................
10.21 General Medical Executive Incentive Plan--1996, dated as of May
9, 1995........................................................
+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, as amended. ............................................
+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) (amendment filed in Exhibit
10.37). .......................................................
+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>
<PAGE>
<TABLE>
<CAPTION>
PAGE
NO.
----
<C> <S> <C>
+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. ...........................................
10.37 Form of Letter Agreement, dated January 2, 1997, among the
Company, Kelso Investment Associates IV, L.P., Kelso Equity
Partners II, L.P. and each New Kelso Investor. ...............
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.
+ Incorporated by reference.
<PAGE>
EXHIBIT 10.21
GENERAL MEDICAL CORPORATION
EXECUTIVE INCENTIVE PLAN
1. PURPOSE. The Executive Incentive Plan is intended to motivate the
executives of General Medical Corporation (GM) to accomplish the goals of
GM, both financial and strategic; to provide competitive short-term
(annual) compensation to the executives of General Medical Corporation; and
to pay the executives in a manner that supports the mission and goals of
GM.
2. DEFINITIONS. For the purposes of the Plan, the following definitions shall
apply:
"EBITDA" means the annual consolidated earnings of GM, before interest
expenses, income taxes, depreciation and amortization, but reduced by any
and all costs of this plan and any other GM cash incentive compensation
plan; provided, however, that such numbers shall be determined on a basis
consistent with generally accepted accounting principles.
"Actual EBITDA" means the EBITDA achieved by GM for the Plan Year, rounded
to the nearest dollar. The Board of Directors, in its discretion, may
adjust actual EBITDA for any extraordinary accounting gain or loss during
the Plan Year or any change in accounting principles.
"Budgeted EBITDA" means EBITDA GM has budgeted for the Plan Year.
"Executive" means any corporate employee in Job Grade X2 or higher who
satisfies the eligibility requirements for a Member as described in Section
4.
"Member" means any Executive appointed as a participant in the Plan and
approved by the Board of Directors.
"Multiplier" means the incentive amount, expressed as a percent of salary,
at each level of EBITDA achievement.
"Plan" means the Executive Incentive Plan.
"Plan Year" means January 1, 1996 through December 31, 1996.
"Salary" means the salary dollars earned while an Executive is a Plan
participant during a Plan Year.
3. ELIGIBILITY FOR APPOINTMENT. An Executive of GM shall be eligible for
appointment to membership if the Executive is an employee in good standing
(i.e., is not subject to any formal disciplinary action, such as written
warning or probation).
4. MEMBERSHIP. Membership in the Plan shall be comprised of those Executives
appointed and approved as Members in the Plan, subject to the provisions of
Section 4.2 below. Membership ceases at the end of the Plan Year.
4.1 Members Appointed: The Members appointed for the Plan Year are set
forth in Exhibit A to this Plan.
4.2 Termination/Suspension of Membership: A Member's membership in the Plan
shall automatically terminate if:
(a) the Member dies during the Plan Year;
(b) the Member ceases to be an Executive; or
(c) the Member no longer satisfies the eligibility requirements of
Section 3 above.
1
<PAGE>
5. INCENTIVE. A Member shall be eligible to receive an annual incentive
payment in the following amount: the Member's Salary times the Multiplier
in Exhibit B that corresponds to the EBITDA Budget for the Plan Year. A
minimum EBITDA budget will be established annually, below which no
incentive payment will be made. Actual EBITDA will be rounded to the one
hundred thousand dollars and the Multiplier will be interpolated and
rounded to the closest tenth of one percent.
5.1 A member of the Corporate Group (from Exhibit A) will receive an
incentive based on the Member's Salary times the multiplier in Exhibit
B that corresponds to the Actual EBITDA for the Plan Year. If Actual
EBITDA exceeds Budgeted EBITDA, a pool shall be established as a
percentage of the additional EBITDA dollars generated in excess of
Budget. The percentage will vary, based on Actual EBITDA achievement,
as described in Exhibit B. A Member shall also receive a pro rata
portion of that pool equal to the Member's Salary divided by the total
Salaries of all Members, as calculated at the end of the Plan Year. A
Sample Calculation is shown in Exhibit C.
5.2 A member of the Field Group (from Exhibit A) will receive an incentive
calculated in the following manner:
5.2.1 Sales. 50% of the Member's Incentive is based on Corporate EBITDA
(as calculated above in section 5.1). Corporate and market segment
criteria (Exhibit D) determine the remaining 50% of the total
Incentive target. Of the corporate and market segment criteria,
80% will be determined by the respective market results and 20%
will be driven by corporate sales results. A Sample Calculation is
shown in Exhibit E.
5.2.2 Operations. 50% of the Member's Incentive is based on Corporate
EBITDA (as calculated above in Section 5.1). The remaining 50% of
the total Incentive target is determined by the Operations
criteria in Exhibit D. A Sample Calculation is shown in Exhibit F.
5.3 Board Approval: The Board of Directors shall approve the Budgeted
EBITDA and the Multiplier for each position. The Budgeted EBITDA and
Multiplier shall be disclosed to the Member as soon as possible after
the start of the Plan Year.
5.4 Discretionary Awards: If an Incentive is not otherwise due and payable
under the Plan, the Board of Directors, in its sole discretion, may
make discretionary awards.
6. INCENTIVE PAYMENT. The Incentive earned shall be paid to the Member (or if
the Member is deceased, the Member's estate) within ninety (90) days after
the expiration of the Plan Year, unless the Member is ineligible for an
Incentive as described in Section 7.
6.1 Partial Payment of Incentive: Any employee who is a Member for part of
the Plan Year, who is an employee of GM on December 31 of the Plan
Year, and who is not otherwise ineligible to receive an Incentive as
described in Section 7, shall be paid that pro rata portion of the
Incentive for the Member's position equal to the number of full
calendar months the Member was in the Plan divided by 12.
7. INELIGIBLE FOR INCENTIVE. A Member shall not be eligible for any Incentive
if:
(a) the Member's employment with GM terminates for any reason on or before
December 31 of the Plan Year;
(b) the Member is or was under formal disciplinary action (i.e., written
warning or probation) at any time during the Plan Year;
(c) the Member's last performance review (annual or interim) is less than
2.5;
(d) the Member ceases to be an Executive at any time during the Plan Year.
2
<PAGE>
8. MISCELLANEOUS. The Plan shall be governed by the following miscellaneous
terms:
(a) GM may amend or terminate this Plan at any time during the Plan Year,
but any such amendment or termination shall not, without the written
consent of the Member, materially adversely affect a Member's right
under the Plan that arise prior to the amendment or termination.
(b) No employee of GM shall have any right to be appointed or reappointed a
Member of the Plan, said appointment being solely in the discretion of
the Board of Directors.
(c) This plan and its provisions shall not be construed as (i) creating an
employment contract between GM and any Member, or (ii) requiring GM to
employ said Member for any specified period of time, in any specified
position, at any specified Salary, or at any specified job grade. All
Members are and shall remain employees at will of GM, regardless of any
provisions of this Plan.
3
<PAGE>
EXHIBIT A
EXECUTIVE INCENTIVE PLAN
PLAN MEMBERS
The Plan Members for 1996 are divided into two groups, as listed below. The
target incentive for Members of the Corporate Group is entirely (100%) based
on the EBITDA Budget for the Plan Year. For Members of the Field Group, 50% of
the target incentive is based on the EBITDA Budget for the Plan Year. The
remaining 50% of the target incentive is based on market segment criteria.
CORPORATE GROUP: Chairman & Chief Executive Officer
Executive Vice President & Vice Chairman
Senior Vice President & Chief Financial Officer
Senior Vice President & Executive Committee Member
Senior Vice President, General Counsel & Secretary
Senior Vice President, Human Resources & Administration
Senior Vice President, Operations and Vendor Relations
Vice President & Controller
Vice President & Treasurer
Vice President, Information Systems
FIELD GROUP: Vice President, Acute Care
Vice President, Extended Care
Vice President, Integrated Healthcare Systems
Vice President, Primary Care
Vice President, Field Operations
4
<PAGE>
EXHIBIT B
EXECUTIVE INCENTIVE PLAN
INCENTIVE PERCENTAGE MULTIPLIER TABLE
Annual Corporate Performance will influence either 50% or 100% of the total
potential annual incentive depending on the Member's Group designation (see
Exhibit A). The Corporate goal for 1996 is an Earnings Before Interest, Taxes,
Depreciation and Amortization (EBITDA) achievement of $70,100,000 with an
associated target payout of 50% of a Member's annual salary. Achievement will
be rounded to the closest $100,000 and the Multiplier will be rounded to the
closest tenth of one percent.
Corporate performance will be measured on the following scale:
<TABLE>
<CAPTION>
EBITDA $ ACHIEVEMENT MULTIPLIER (AS % OF SALARY)
-------------------- -----------------------------------------------------------------
<S> <C>
Below $68,000,000 0%
$68,000,000 20%
$68,700,000 25%
$69,400,000 35%
Budget $70,100,000 50%
$72,100,000 50%
$72,200,000 to $75,000,000 50%, plus a pro-rated portion of a pool established as 30% of all
additional EBITDA $ over target, less $600,000
$75,100,000 to $80,000,000 50%, plus a pro-rated portion of a pool established as 35% of all
additional EBITDA $ over target, less $600,000
$80,100+ 50%, plus a pro-rated portion of a pool established as 50% of all
additional EBITDA $ over target, less $600,000
</TABLE>
5
<PAGE>
EXHIBIT C
EXECUTIVE INCENTIVE PLAN
SAMPLE CALCULATION--CORPORATE
Assume a Vice President in the Corporate Group (see Exhibit A) with a Salary
of $100,000. In addition, assume General Medical achieves EBITDA of
$75,000,000 and the total pool of executive salaries is $2,000,000.
<TABLE>
<CAPTION>
Sample Calculation:
<S> <C>
The Member's Salary $100,000
times the Multiplier from Exhibit B x 50%
--------
$ 50,000
Additional Pool = ((75,000,000-70,100,000)*30%)-600,000 $870,000
Pro-rata Portion = $100,000/2,000,000 x 5%
--------
Additional Incentive $ 43,500
Total Incentive $ 93,500
</TABLE>
6
<PAGE>
EXHIBIT D
EXECUTIVE COMPENSATION PLANS
ASSIGNED CRITERIA & WEIGHTS FOR THE FIELD GROUP
VICE PRESIDENT, FIELD OPERATIONS
WEIGHT
------
Fill Rate 40%
Inventory Turnover Days 30%
Expense Control 30%
VICE PRESIDENT, ACUTE CARE
WEIGHT
------
Sales 20%
Gross Profit Dollars 40%
Gross Profit Percent 40%
VICE PRESIDENT, EXTENDED CARE
WEIGHT
------
Sales 20%
Gross Profit Dollars 40%
Gross Profit Percent 40%
VICE PRESIDENT, PRIMARY CARE
WEIGHT
------
Sales 50%
Gross Profit Percent 50%
Market Segment Criteria will be measured on the following scale:
ACHIEVEMENT (AS % OF PLAN) PAYOUT (AS % OF TARGET)
-------------------------- ------------------------
Below 95% 0%
95% 20%
96% 30%
97% 40%
98% 50%
99% 70%
100% 100%
101%-124% 2% for each 1% over 100%
125% and above 150%
7
<PAGE>
EXHIBIT E
EXECUTIVE INCENTIVE PLAN
SAMPLE CALCULATION--SALES
Assume a Vice President in the Field Group with a Salary of $100,000. General
Medical achieves EBITDA of $75,000,000 and the total pool of executive salaries
is $2,000,000. The individual market segment performance and weighting are
listed below. In addition, sales performance for the entire company is 104%.
<TABLE>
<S> <C>
EBITDA (50%)
The Member's Salary x 50% $ 50,000
times the Multiplier from Exhibit B x 50%
--------
$ 25,000
Additional Pool = ((75,000,000-70,100,000)*30%)--600,000 $870,000
Pro-rata Portion = (100,000/2)/2,000,000 x 2.5%
--------
Additional Incentive $ 21,750
Total EBITDA Incentive $ 46,750
MARKET SEGMENT CRITERIA (50%)
Market Segment Criteria Target = Member's Salary x 50% $ 50,000
Member's Market Performance (80% of target):
</TABLE>
<TABLE>
<CAPTION>
TARGET INCENTIVE
WEIGHT INCENTIVE PERFORMANCE PERCENT INCENTIVE
--------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
Sales 20% $ 8,000 100% 100% $ 8,000
Gross Profit Dollars 40% $16,000 105% 110% $17,600
Gross Profit Percent 40% $16,000 96% 30% $ 4,800
------- -------
$40,000 $30,400
Company Sales Perfor-
mance (20% of target):
<CAPTION>
TARGET INCENTIVE
INCENTIVE PERFORMANCE PERCENT INCENTIVE
--------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Total Incentive $10,000 104% 108% $10,800
EBITDA $46,750
Individual Market $30,400
Company Sales $10,800
-------
$87,950
</TABLE>
8
<PAGE>
EXHIBIT F
EXECUTIVE INCENTIVE PLAN
SAMPLE CALCULATION--OPERATIONS
Assume a Vice President, Field Operations with a salary of $100,000. General
Medical achieves EBITDA of $75,000,000. Operations performance is listed
below.
<TABLE>
<CAPTION>
EBITDA (50%)
<S> <C>
The Member's Salary x 50% $ 50,000
times the multiplier from Exhibit B x 50%
--------
$ 25,000
Additional Pool = ((75,000,000-70,000,000)*30%)-600,000 $870,000
Pro-Rata Portion = (100,000/2)/2,000,000 x 2.5%
--------
$ 21,750
Total EBITDA Incentive $ 46,750
OPERATIONS CRITERIA (50%)
Operations Criteria Target = Member's Salary x 50% $ 50,000
Operations Performance
</TABLE>
TARGET INCENTIVE
WEIGHT INCENTIVE PERFORMANCE PERCENT INCENTIVE
------ --------- ----------- --------- ---------
Fill Rate 40% $20,000 100% 100% $20,000
Inventory
Turnover
Days 30% $15,000 105% 110% $16,500
Expense $15,000 $ 4,500
Control 30% --------- 96% 30% ---------
$50,000 $41,000
--------- ---------
TOTAL INCENTIVE
---------------
EBITDA $46,750
$41,000
Operations Performance -------
$87,750
9
<PAGE>
EXHIBIT 10.23
GM HOLDINGS, INC.
1994 NON-EMPLOYEE DIRECTORS STOCK INCENTIVE PLAN
1.PURPOSE. The purpose of this GM Holdings, Inc. 1994 Non-Employee Directors
Stock Incentive Plan (the "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 with an
incentive to continue as directors of the Company.
2.DEFINITIONS. As used in the Plan, the following terms have the meanings
indicated:
(a)"Board" means the Board of Directors of the Company.
(b)"Change of Control" or "Public Offering" means the Company's offering
Company Stock to the general public through a registration statement filed
with the Securities and Exchange Commission that covers (together with
prior effective registrations) not less than 25% of the then outstanding
shares of Company Stock on a fully diluted basis (an "IPO"). "Change of
Control" also means a transaction or series of transactions whereby 50% or
more, in the aggregate, of the voting power of the Company is transferred
to one or more third parties.
(c)"Code" means the Internal Revenue Code of 1986, as amended.
(d)"Committee" means the committee appointed by the Board as described
under Section 13.
(e)"Company" means GM Holdings, Inc., a Delaware corporation.
(f)"Company Stock" means voting Common Stock, $.01 par value, of the
Company. If the par value of the Company Stock is changed, or in the event
of a change in the capital structure of the Company (as provided in Section
12), the shares resulting from such a change shall be deemed to be Company
Stock within the meaning of the Plan.
(g)"Date of Grant" means the date as of which a director is granted an
Incentive Award pursuant to Section 6.
(h)"Disabled" means the Participant's inability to perform the services
as a director, as determined by the Committee, and such determination shall
be conclusive.
(i)"Eligible Director" means a director described in Section 5 who is
eligible to receive an Incentive Award under the Plan.
(j)"Fair Market Value" means, if the Company Stock is not publicly
traded, the fair market value of a share of Company Stock as determined in
good faith by the Committee. At any time after there is a Public Offering
of Company Stock pursuant to an effective registration statement under the
Act, the Fair Market Value of a share of Company Stock shall be the
average, for any ten consecutive trading days within 30 days prior to the
applicable determination date, of the daily average of the high and low
trading prices or the bid and asked prices or, if high and low trading
prices or bid and asked prices are not available, the last sales prices, as
the case may be, for a share of Company Stock on the principal securities
exchange on which the Company Stock is then listed or, if the Company Stock
is not so listed, on the National Association of Securities Dealers
Automated Quotation System or, if not so quoted, on the principal other
market on which the Company Stock is then traded.
<PAGE>
(k)"Incentive Award" means the award of an Option under the Plan.
(l)"Option" means a right to purchase Company Stock granted under the
Plan, at a price determined in accordance with the Plan.
(m)"Parent" means, with respect to any corporation, a parent of that
corporation within the meaning of Code section 424(e).
(n)"Participant" means any person who receives an Incentive Award under
the Plan.
(o)"Reload Feature" means a feature of an Option described in a
Participant's stock option agreement that authorizes the automatic grant of
a Reload Option in accordance with the provisions of Section 7(c).
(p)"Reload Option" means an Option automatically granted to a Participant
equal to the number of shares of already owned Company Stock delivered by
the Participant in payment of the exercise price of an Option having a
Reload Feature.
(q)"Subsidiary" means, with respect to any corporation, a subsidiary of
that corporation within the meaning of Code section 424(f).
3.GENERAL. All Options granted as Incentive Awards under the Plan shall be
non-statutory in nature and shall not be entitled to special tax treatment
under Code section 422.
4.STOCK. Subject to Section 12 of the Plan, there shall be reserved for
issuance under the Plan an aggregate of 50,000 shares of Company Stock, which
shall be authorized, but unissued shares. Shares allocable to Options or
portions thereof granted under the Plan that expire or terminate unexercised
may again be subject to a new Option under the Plan. The Committee is
expressly authorized to make an Incentive Award to a Participant conditioned
upon the surrender for cancellation of an Option granted under an existing
Incentive Award.
5.ELIGIBILITY. Each director of the Company who is not otherwise an employee
of the Company or any Subsidiary and was not an employee of the Company or
Subsidiary for a period of at least one year before the date of the grant of
an Option under the Plan shall be eligible to participate in the Plan.
6.AWARD, TERMS, CONDITIONS AND FORM OF OPTIONS. Each Option shall be
evidenced by a written agreement in such form as the Board shall from time to
time approve, which agreement shall comply with and be subject to the
following terms and conditions:
(a)Award of Option. The Committee shall have the power and complete
discretion to select Eligible Directors to receive Options and to determine
the number of shares to be allocated to such Eligible Directors as part of
each Option.
(b)Option Exercise Price. The Option exercise price shall be the Fair
Market Value of the shares of Company Stock subject to such Option on the
Date of Grant.
(c)Exercise of Options. The Option shall be exercisable as of the Date of
Grant; provided, however, that no Option may be exercised:
(i)more than 36 months after the date the Participant ceases to be a
director of the Company; and
(ii) unless sooner terminated in accordance with the terms of the
Plan or the Option, after the expiration of ten years from the Date of
Grant.
(d)Exercise upon Change of Control. The Committee may, in its discretion,
grant Options that by their terms become fully exercisable upon a Change of
Control, notwithstanding other conditions on exercisability in the stock
option agreement.
2
<PAGE>
7.METHOD OF EXERCISE OF OPTIONS.
(a)Options may be exercised by the Participant giving written notice of
the exercise to the Company, stating the number of shares the Participant
has elected to purchase under the Option. Such notice shall be effective
only if accompanied by the exercise price in full in cash; provided that,
if the terms of the Option so permit, the Participant may (i) deliver, or
cause to be withheld from the Option Shares, shares of Company Stock
(valued at their Fair Market Value on the date of exercise) in satisfaction
of all or any part of the exercise price, (ii) deliver a properly executed
exercise notice together with irrevocable instructions to a broker to
deliver promptly to the Company, from the sale or loan proceeds with
respect to the sale of Company Stock or a loan secured by Company Stock,
the amount necessary to pay the exercise price, or (iii) deliver an
interest bearing promissory note, payable to the Company, in payment of all
or part of the exercise price together with such collateral as may be
required by the Committee at the time of exercise. The interest rate under
any such promissory note shall be established by the Committee and shall be
at least equal to the minimum interest rate required at the time to avoid
imputed interest under the Code.
(b)The Company may place on any certificate representing Company Stock
issued upon the exercise of an Option any legend deemed desirable by the
Company's counsel to comply with federal or state securities laws, and the
Company may require a customary written indication of the Participant's
investment intent. Until the Participant has made any required payment and
has had issued a certificate for the shares of Company Stock acquired, the
Participant shall possess no shareholder rights with respect to the shares.
(c)If a Participant exercises an Option that has a Reload Feature by
delivering already owned shares of Company Stock in payment of the exercise
price, the Participant shall automatically be granted a Reload Option. At
the time the Option with a Reload Feature is awarded, the Committee may
impose such restrictions on the Reload Option as it deems appropriate, but
in any event the Reload Option shall be subject to the following
restrictions:
(i)The exercise price of shares of Company Stock covered by a Reload
Option shall be not less than 100% of the Fair Market Value of such
shares on the Date of Grant of the Reload Option;
(ii)If so provided in the option agreement, a Reload Option shall not
be exercisable within the first six months after it is granted;
provided that, subject to the terms of the option agreement, this
restriction shall not apply if the Participant becomes Disabled or dies
during the six-month period;
(iii) The Reload Option shall be subject to the same restrictions on
exercisability imposed on the underlying Option (possessing the Reload
Feature) delivered unless the Committee specifies different
limitations;
(iv)The Reload Option shall not be exercisable until the expiration
of any retention holding period imposed on the disposition of any
shares of Company Stock covered by the underlying Option (possessing
the Reload Feature) delivered;
(v)The Reload Option shall not have a Reload Feature.
The Committee may, in its discretion, cause the Company to place on any
certificate representing Company Stock issued to a Participant upon the
exercise of an underlying Option (possessing a Reload Feature as evidenced by
the stock option agreement for such Option) delivered pursuant to this
subsection (c), a legend restricting the sale or other disposition of such
Company Stock.
8.NONTRANSFERABILITY OF OPTIONS. Options, by their terms, shall not be
transferable except by will or by the laws of descent and distribution or,
pursuant to a qualified domestic relations order, as defined in Code section
414(p) ("QDRO"), and shall be exercisable, during the Participant's lifetime,
only by the Participant or, an alternative payee under a QDRO, or by his
guardian, duly authorized attorney-in-fact or other legal representative.
3
<PAGE>
9.EFFECTIVE DATE OF THE PLAN. The Plan shall be effective on March 1, 1994.
Until the requirements of any applicable state securities laws have been met,
no Option shall be exercisable.
10.TERMINATION, MODIFICATION, CHANGE. If not sooner terminated by the Board,
this Plan shall terminate at the close of business on February 28, 2004. No
Options shall be granted under the Plan after its termination. The Board may
terminate the Plan or may amend the Plan in such respects as it shall deem
advisable. A termination or amendment of the Plan shall not, without the
consent of the Participant, adversely affect a Participant's rights under an
Incentive Award previously granted to him.
11.LIMITATION OF RIGHTS.
(a)No Right to Continue as a Director. Neither the Plan nor the granting
of an Option nor any other action taken pursuant to the Plan, shall
constitute or be evidence of any agreement or understanding, express or
implied, that the Company will retain any person as a director for any
period of time.
(b)No Shareholders Rights Under Options. A Participant shall have no
rights as a shareholder with respect to shares of Company Stock covered by
his Options until the date of exercise of the Option, and, except as
provided in Section 12, no adjustment will be made for dividends or other
rights for which the record date is prior to the date of such exercise.
12.CHANGE IN CAPITAL STOCK STRUCTURE.
(a)In the event of a stock dividend, stock split or combination of
shares, recapitalization or merger in which the Company is the surviving
corporation or other change in the Company's capital stock (including, but
not limited to, the creation or issuance to shareholders generally of
rights, options or warrants for the purchase of common stock or preferred
stock of the Company), the number and kind of shares of stock or securities
of the Company to be subject to the Plan and to Options then outstanding or
to be granted thereunder, the maximum number of shares or securities which
may be delivered under the Plan, the exercise price and other relevant
provisions shall be appropriately adjusted by the Committee, whose
determination shall be binding on all persons. If the adjustment would
produce fractional shares with respect to any unexercised Option, the
Committee may adjust appropriately the number of shares covered by the
Option so as to eliminate the fractional shares.
(b)If the Company is a party to a consolidation or a merger in which the
Company is not the surviving corporation, a transaction that results in the
acquisition of substantially all of the Company's outstanding stock by a
single person or entity, or a sale or transfer of substantially all of the
Company's assets, the Committee may take such actions with respect to
outstanding Incentive Awards as the Committee deems appropriate.
(c)Notwithstanding anything in the Plan to the contrary, the Committee
may take the foregoing actions without the consent of any Participant, and
the Committee's determination shall be conclusive and binding on all
persons for all purposes.
13.ADMINISTRATION OF THE PLAN. The Plan shall be administered by a Committee
appointed by the Board consisting of not less than two members of the Board.
The Committee shall be the Compensation Committee unless the Board shall
appoint another Committee to administer the Plan. The Committee shall have
general authority to impose any limitation or condition upon an Incentive
Award the Committee deems appropriate to achieve the objectives of the
Incentive Award and the Plan, subject to the following provisions:
(a)The Committee shall have all powers vested in it by the terms of the
Plan, including, without limitation, the authority (within the limitations
described herein) to prescribe the form of the agreement embodying awards
of stock options under the Plan, to construe the Plan, and to determine all
questions arising under the Plan. The Committee shall have the power to
amend the terms of previously granted
4
<PAGE>
Incentive Awards so long as the terms as amended are consistent with the
terms of the Plan and provided that the consent of the Participant is
obtained with respect to any amendment that would be detrimental to him.
(b)The Committee may adopt rules and regulations for carrying out the
Plan. The interpretation and construction of any provision of the Plan by
the Committee shall be final and conclusive. The Committee may consult with
counsel, who may be counsel to the Company, and shall not incur any
liability for any action taken in good faith in reliance upon the advice of
counsel.
(c)A majority of the members of the Committee shall constitute a quorum,
and all actions of the Committee shall be taken by a majority of the
members present. Any action may be taken by a written instrument signed by
all of the members, and any action so taken shall be fully effective as if
it had been taken at a meeting.
(d)The Board from time to time may appoint members previously appointed
and may fill vacancies, however caused, in the Committee.
(e)No member of the Committee shall be liable for anything done or
omitted to be done by him or any other member of the Committee in
connection with the Plan, except for his own willful misconduct or as
expressly provided by statute.
14.NOTICE. All notices and other communications required or permitted to be
given under this Plan shall be in writing and shall be deemed to have been
duly given if delivered personally or mailed first class, postage prepaid, as
follows (a) if to the Company--at its principal business address to the
attention of the President; (b) if to any Participant--at the last address of
the Participant known to the sender at the time the notice or other
communication is sent.
15.INTERPRETATION. The terms of this Plan shall be governed by the laws of
the Commonwealth of Virginia.
IN WITNESS WHEREOF, the Company has caused this Plan to be executed this
day of March, 1994.
GM HOLDINGS, INC.
By
-----------------------------------
5
<PAGE>
FIRST AMENDMENT TO
THE GM HOLDINGS, INC.
1994 NON-EMPLOYEE DIRECTORS STOCK INCENTIVE PLAN
AMENDMENT, dated as of January 23, 1995, to the GM Holdings, Inc. 1994 Stock
Incentive Plan, by GM Holdings, Inc. (the "Company").
The Company maintains the GM Holdings, Inc. 1994 Non-Employee Directors
Stock Incentive Plan (the "Plan"). Pursuant to an Agreement and Plan of
Merger, dated and effective January 23, 1995 (the "Agreement"), the Company
became a direct wholly-owned subsidiary of New GMH, Inc. ("New GMH"). The
Company wishes to amend the Plan to (1) transfer Plan sponsorship and the
responsibility for maintaining and administering the Plan to New GMH,
effective as of January 23, 1995, (2) change the name of the Plan to the New
GMH, Inc. 1994 Non-Employee Directors Stock Incentive Plan, (3) evidence the
conversion of all options outstanding under the Plan into identical options to
purchase shares of New GMH common stock, and (4) make any other changes
required by the Agreement.
NOW, THEREFORE, the Plan is amended as follows:
I. The first page of the Plan is amended by adding the following paragraphs
at the top of the page:
Effective January 23, 1995, the name of the Plan, in every place it
appears, is changed to the New GMH, Inc. 1994 Non-Employee Directors Stock
Incentive Plan, and all references in the Plan to the "Company" shall mean
New GMH, Inc., a Delaware corporation.
New GMH, Inc. hereby assumes all of the Company's rights and obligations
as Plan sponsor with respect to the Plan and all outstanding Options
granted under the Plan, effective as of January 23, 1995. After January 23,
1995, GM Holdings, Inc. shall no longer maintain the Plan or be Plan
sponsor.
II. The first page of each Nonstatutory Stock Option Agreement relating to
Options outstanding under the Plan is amended by adding the following
paragraph at the top of the page:
Effective January 23, 1995, the name of the Plan, in every place it appears,
is changed to the New GMH, Inc. 1994 Non-Employee Directors Stock Incentive
Plan, and all references in the Agreement to the "Company" shall mean New GMH,
Inc., a Delaware corporation.
III. In all respects not amended, the Plan is hereby ratified and confirmed.
* * * * *
WITNESS the following signature this day of , 1995.
GM HOLDINGS, INC.
BY:
--------------------
NEW GMH, INC.
BY:
6
<PAGE>
1994 NON-EMPLOYEE DIRECTORS STOCK INCENTIVE PLAN
NONSTATUTORY STOCK OPTION AGREEMENT
BETWEEN
GM HOLDINGS, INC.
AND
[PARTICIPANT]
NSO
7
<PAGE>
GM HOLDINGS, INC.
1994 NON-EMPLOYEE DIRECTORS STOCK INCENTIVE PLAN
NONSTATUTORY STOCK OPTION AGREEMENT
THIS AGREEMENT, dated the 18th of March, 1994, between GM HOLDINGS, INC., a
Delaware corporation (the "Company"), and ("Participant"), is made
pursuant and subject to the provisions of the Company's 1994 Non-Employee
Directors Stock Incentive Plan (the "Plan"), and all terms used herein that
are defined in the Plan shall have the same meaning given them in the Plan:
W I T N E S S E T H :
1. Grant of Option. Pursuant to the provisions of the Plan, the Company has
granted to the Participant on the 18th day of March, 1994 (the "Date of
Grant"), subject to the terms and conditions of the Plan and subject further
to the terms and conditions herein set forth, the right and option to purchase
from the Company (the "Option") all or any part of an aggregate of 10,000
shares of Company Common Stock at the purchase price of $10.00 per share (the
"Option Price"), being not less than 100% of the Fair Market Value per share
of the Common Stock on the Date of Grant, such Option to be exercisable as
hereinafter provided. The Option evidenced hereby is intended to be a
nonstatutory stock option that does not receive special tax treatment under
Code section 422.
2. Terms and Conditions. The Option evidenced hereby is subject to the
following terms and conditions:
(a) Expiration Date. This Option shall expire ten years from the Date of
Grant.
(b) Nontransferability. This Option shall be nontransferable except by
will or by the laws of descent and distribution and, during the lifetime of
the Participant, may be exercised only by the Participant, except as
provided in Section 3 below.
(c) Exercise of Option. Subject to the provisions of Section 3 below,
this Option shall be fully exercisable on the Date of Grant and may be
exercised while the Participant is a director or within thirty-six months
after the date the Participant ceases to be a director.
(d) Method of Exercising and Payment for Shares. This Option may only be
exercised by written notice delivered to the Treasurer at the Company's
principal office. The exercise date will be (i) in the case of notice by
mail, the date of postmark or (ii) if delivered in person, the date of
delivery. Such notice shall be accompanied by payment of the Option Price
in full by cash (which shall include payment by check, bank draft or money
order payable to the order of the Company). Instead of paying cash, a
Participant may substitute for all or any portion of the cash payment,
shares of the Company's Common Stock owned by him duly endorsed for
transfer having a Fair Market Value on the date of exercise at least equal
to the payment or portion thereof, or the Participant may exercise by means
of a so-called "cashless exercise" pursuant to which Common Stock may be
issued directly to the Participant's designated broker/dealer upon receipt
by the Company of the Option Price in cash from such broker/dealer.
3. Termination of Option.
(a) Generally. The right of the Participant and his successors in
interest to exercise this Option shall terminate thirty-six months after
the date the Participant ceases to be a director of the Company, except as
provided in subsection 3(b) below.
(b) Exercise following Death. In the event the Participant dies while he
is a director of the Company, or within thirty-six months following the
date he ceases to be a director, and before the exercise in full or
expiration of this Option, the Participant's estate (or the person or
persons to whom the rights under this Option shall have passed by will or
the laws of descent and distribution) may exercise this Option at any time
within one year next following Participant's death for the entire number of
shares remaining subject to this Option.
8
<PAGE>
(c) Notwithstanding subsections 3(a) and (b) above, in no event may this
Option be exercised after the Expiration Date.
4. Governing Law. This Agreement shall be governed by the laws of the
Commonwealth of Virginia.
5. Conflicts. In the event of any conflict between the provisions of the
Plan as in effect on the Date of Grant and the provisions of this Agreement,
the provisions of the Plan shall govern. All references herein to the Plan
shall mean the Plan as in effect on the date hereof. Terms defined in the Plan
are used herein as so defined.
6. Participant Bound by Plan. In consideration of the grant of this Option,
the Participant agrees that he will comply with such conditions as the Board
and the Committee may impose on the exercise of the Option.
7. Binding Effect. Subject to the limitations stated above and in the Plan,
this Agreement shall be binding upon and inure to the benefit of the legatees,
distributees and personal representatives of Participant and the successors of
the Company.
8. Change in Capital Stock Structure. In the event of changes in the capital
stock structure of the Company, appropriate adjustments in the number of
shares for which the Option shall be exercisable, or the exercise price, or
both, shall be made as provided in Section 12 of the Plan.
9. Tax Obligations Upon Exercise. The difference between the "Fair Market
Value" of Company Stock purchased when the Option is exercised and the Option
Price is compensation taxable to the Participant as ordinary income and
subject to applicable federal and state income taxes.
10. Successors and Assigns. This Agreement shall be binding on the Company
and shall be enforceable against its successors and assigns.
11. Notice Provisions. Any notice or election required or permitted under
this Option shall be delivered in writing to the President at the Company's
principal offices in Richmond, Virginia.
IN WITNESS WHEREOF, GM HOLDINGS, INC. has caused this Agreement to be signed
by the President and the Participant has affixed his signature hereto.
GM HOLDINGS, INC.
By
--------------------------
President
--------------------------
PARTICIPANT
9
<PAGE>
EXHIBIT 10.37
Kelso & Company
320 Park Avenue, 24th Floor
New York, NY 10022
January 2, 1997
[New Kelso Investor]
Dear [New Kelso Investor]:
Reference is made to the Letter Agreement dated (Date) among GM Holdings
Inc., Kelso Investment Associates IV, L.P., Kelso Equity Partners II, L.P. and
[New Kelso Investor] (the "Letter Agreement").
Effective upon the date hereof the Letter Agreement (including all
amendments and supplements thereto and all restatements thereof) shall be
terminated and of no further force or effect.
Please execute and return the enclosed counterpart of this letter.
General Medical Inc.
By:_____________________________
Name:
Title:
Kelso Investment Associates IV, L.P.
By:_____________________________
Name:
Title:
Kelso Equity Partners II, L.P.
By:_____________________________
Name:
Title:
The foregoing is hereby accepted and agreed
to as of the date first above written:
- --------------------
Name: [New Kelso Investor]
<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...... 10,200,000 10,186,010 12,940,407 12,940,407 13,312,047
Weighted average shares
issued during period,
net(1)................. 0 1,210,445 612,613 571,476 0
Weighted average shares
purchased during peri-
od..................... (5,933) (72,920) (141,885) (93,934) (24,856)
SEC SAB 83 shares(2).... 511,881 511,881 511,881 511,881 511,881
---------- ---------- ---------- ---------- ----------
Weighted average number 10,705,948 11,835,416 13,923,016 13,929,830 13,799,072
of shares.............. ========== ========== ========== ========== ==========
Net loss (in thousands). $(3,907) $(3,465) $(18,472) $(15,421) $(1,057)
---------- ---------- ---------- ---------- ----------
Net loss per share...... $(0.36) $(0.29) $(1.33) $(1.11) $(0.08)
========== ========== ========== ========== ==========
</TABLE>
- --------
<TABLE>
<S> <C>
(1)Weighted average common shares issued,
net of
SAB 83 common shares issued in 1996
(2)Common shares issued..................... 233,341
Employee options granted................. 931,691
Less shares assumed reacquired under the (653,151)
treasury stock method.................. --------
SEC SAB 83 shares........................ 511,881
========
</TABLE>
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULES
To the Board of Directors and Stockholders of
General Medical Inc.
Richmond, Virginia
We consent to the use in this Amendment No. 2 to Registration Statement No.
333-16317 of General Medical Inc. (formerly New GMH, Inc.) (the "Company") of
our report dated November 26, 1996 (December 2, 1996 as to the second
paragraph of Note 10, and January , 1997 as to the fifteenth and sixteenth
paragraphs of Note 1), 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.
Richmond, Virginia
January , 1997
----------------
The above consent is in the form which will be signed by Deloitte &
Touche LLP upon the consummation of the 1.36-to-one stock split of
Common Stock, which is to be effected on or about January 30, 1997 and
which is described in Note 1 of the Notes to Consolidated Financial
Statements of General Medical Inc.
DELOITTE & TOUCHE LLP Richmond, Virginia January 8, 1997
<PAGE>
EXHIBIT 23.2
FOLLMER, RUDZEWICZ & CO., P.C.
CERTIFIED PUBLIC ACCOUNTANTS
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 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 January 8, 1997
