CORE MARK INTERNATIONAL INC, 10-K405, 1999-03-22

CORE MARK INTERNATIONAL INC
10-K405, 1999-03-22
MISCELLANEOUS NONDURABLE GOODS

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM _______TO_______

COMMISSION FILE NUMBER 333-14217

============

CORE-MARK INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

DELAWARE 91-1295550
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

395 OYSTER POINT BOULEVARD, SUITE 415
SOUTH SAN FRANCISCO, CA 94080
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (650) 589-9445

Securities registered pursuant to Section 12(b) of the Act: NONE

Securities registered pursuant to Section 12(g) of the Act: NONE

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
---- ----

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]

As of February 28, 1999, all of the Registrant's voting stock was held by
affiliates of the Registrant. (See Item 12.)

Registrant's Common Stock outstanding at February 28, 1999 was 5,500,000
shares.

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FORWARD-LOOKING STATEMENTS OR INFORMATION

Certain statements contained in this annual report on Form 10-K under
the captions "Business" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and elsewhere herein and in
the documents incorporated herein by reference are not statements of
historical fact but are future-looking or forward-looking statements that may
constitute "forward-looking statements" within the meaning of Section 21E of
the Securities Exchange Act of 1934, as amended. Certain, but not necessarily
all, of such forward-looking statements can be identified by the use of such
forward-looking terminology as the words "believes," "expects," "may,"
"will," "should," or "anticipates" (or the negative of such terms) or other
variations thereon or comparable terminology, or because they involve
discussions of Core-Mark International, Inc.'s strategy. Such forward-looking
statements are based upon a number of assumptions concerning future
conditions that may ultimately prove to be inaccurate. The ability of
Core-Mark International, Inc. (the "Company") to achieve the results
anticipated in such statements is subject to various risks and uncertainties
and other factors which may cause the actual results, level of activity,
performance or achievements of the Company or the industry in which it
operates to be materially different from any future results, level of
activity, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the general
state of the economy and business conditions in the United States and Canada;
adverse changes in consumer spending; the ability of the Company to implement
its business strategy, including the ability to integrate recently acquired
businesses into the Company; the ability of the Company to obtain financing;
competition; the level of retail sales of cigarettes and other tobacco
products; possible effects of legal proceedings against manufacturers and
sellers of tobacco products; and the effect of government regulations
affecting such products. As a result of the foregoing and other factors
affecting the Company's business beyond the Company's control, no assurance
can be given as to future results, levels of activity, performance or
achievements and neither the Company nor any other person assumes
responsibility for the accuracy and completeness of these statements.

PART I

ITEM 1. BUSINESS

GENERAL

The Company, with net sales of almost $2.5 billion in 1998, is one of
the largest broad-line, full-service wholesale distributors of packaged
consumer products to the convenience retail industry in western North
America. The Company's principal customers include traditional and petroleum
convenience stores, grocery stores, drug stores, mass merchandisers and
liquor stores. The Company offers its customers a wide variety of products
including cigarettes, candy, snacks, fast food, groceries, health and beauty
care products and other general merchandise.

The Company's principal markets include the western United States and
western Canada. The Company services its United States customers from 15
distribution facilities, seven of which are located in California. In Canada,
the Company services its customers from four distribution facilities.

HISTORY

The Company's origins date back to 1888, when Glaser Bros., a
family-owned-and-operated candy and tobacco distribution business, was founded.
In late 1994, the Company repurchased the common stock in the Company from its
previous ownership. In early 1995, members of senior management and certain
lenders acquired equity in a new holding company which held all of the stock of
the Company. In August 1996, the Company completed a recapitalization. The
Company's equity is now held 75% by Jupiter Partners, L.P. ("Jupiter") and 25%
by senior management.

INDUSTRY OVERVIEW

Wholesale distributors provide valuable services to both manufacturers
of consumer products and convenience retailers. Manufacturers benefit from
wholesale distributors' broad retail coverage, inventory management and
efficient processing of small orders. Wholesale distributors provide
convenience retailers access to a broad product line, the ability to place
small quantity orders, inventory management and access to trade credit. In
addition, large full-service wholesale distributors such as the Company offer
retailers the ability to participate in manufacturer-sponsored marketing
programs, merchandising and category management services and systems focused
on minimizing customers' investment in inventory.

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The wholesale distribution industry is highly fragmented and
historically has consisted of a large number of small, privately-owned
businesses and a small number of large, full-service wholesale distributors
serving multiple geographic regions. Relative to smaller competitors, large
distributors such as the Company benefit from several competitive advantages,
including purchasing power, the ability to service chain accounts, economies
of scale in sales and operations, the ability to spread fixed corporate costs
over a larger revenue base and the resources to invest in management
information services ("MIS") and other productivity enhancing technology.
These factors have led to a consolidation of the wholesale distribution
industry as companies either exit the industry or are acquired by large
distributors seeking to further leverage their existing operations.

BUSINESS STRATEGY

The Company's business strategy is to increase net sales and improve
operating margins. To achieve these goals, the Company intends to: (i) increase
sales to existing customers, particularly of higher gross margin, non-cigarette
products; (ii) add new customer locations in existing markets, particularly
along existing routes; (iii) continue to implement distribution productivity
enhancement programs; and (iv) make selective acquisitions.

INCREASE SALES TO EXISTING CUSTOMERS. Because the Company generally
carries many products that its typical retail store customer purchases from
other suppliers, a primary element of its growth strategy is to increase
sales to existing customers. The Company's typical customer purchases its
products from the Company, from manufacturers who distribute directly to
retailers, and from a variety of smaller local distributors or jobbers. The
Company is particularly focused on becoming the retail customer's primary
supplier. The Company attempts to do this by implementing programs designed
to eliminate the need for deliveries provided by local distributors and
jobbers. Such programs are centered on increasing non-cigarette sales that
provide higher gross margins than those associated with the distribution of
cigarettes. As part of the effort, the Company provides compensation
incentives to its sales force as well as a number of value-added services and
marketing programs to its customers. These programs include: (i) Tully's to
Go (a turnkey food service operation that maximizes profit with minimal
labor); (ii) Smart Sets (which helps ensure that retailers display the right
product in the right place); (iii) SmartStock-Registered Trademark- (which
provides state of the art category management for key, high-volume,
high-impulse convenience retail categories); and (iv) Profit Builder (a
Company publication which offers manufacturer promotions).

ADD NEW CUSTOMER LOCATIONS IN EXISTING MARKETS. The Company also seeks to
leverage its existing distribution network by securing additional customers
along existing routes. The Company believes it has many opportunities to add
additional customers at low marginal distribution costs. The Company continues
to focus on a number of new trade channels, including hotel gift shops, military
bases, correctional facilities, college bookstores, movie theaters and video
rental stores. The Company believes that there is significant opportunity to
increase net sales and profitability by adding new customers and maximizing
economies of scale.

PRODUCTIVITY ENHANCEMENT PROGRAMS. During the past five years, the
Company has devoted a significant portion of its capital spending to a variety
of productivity enhancement programs. These productivity enhancement programs
include: (i) BOSS, a batch order selection system that increases the efficiency
and reduces the cost of full-case order fulfillment; (ii) Pick-to-Light, a
paperless picking system that reduces the travel time for the selection of
less-than-full-case order fulfillment; (iii) Radio Frequency, a hand-held
wireless computer technology that eliminates paperwork and updates receiving
inventory levels and stocking requirements on a real-time basis; (iv) Checker
Automation, an on-line order verification system that has significantly reduced
labor costs by automating inspection of order accuracy; and (v) fleet management
tools such as Roadshow, a software program that optimizes the routing of
customer deliveries. The Company intends to continue to pursue cost reductions
by completing the roll-out of some of these and other programs.

SELECTIVE ACQUISITIONS. The wholesale distribution industry is highly
fragmented and comprised mainly of a large number of small, privately-held
businesses. Management believes that the consolidation that has taken place in
recent years will continue and that numerous attractive acquisition
opportunities will arise. Given the current utilization rates of the Company's
existing warehouse and distribution facilities as well as the quality of the
Company's in-house MIS capability, management believes that a significant amount
of incremental sales can be integrated into the Company's operations without
significant additions to fixed costs.

2
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PRODUCTS DISTRIBUTED

The products distributed by the Company include cigarettes, food
products such as candy, fast food, snacks, groceries and non-alcoholic
beverages, and non-food products such as film, batteries and other sundries,
health and beauty care products and tobacco products other than cigarettes.
Cigarette net sales constituted approximately 68% of the Company's total net
sales in 1998.

CIGARETTE PRODUCTS

The Company offers substantially all brands of cigarettes from all of
the major manufacturers, including national premium labels such as Marlboro,
Winston and Player; discount labels such as Viceroy, Basic, GPC and Doral;
and deep discount labels such as the Company's private label brand, Best
Buy-Registered Trademark-, as well as Best Value and Monarch.

FOOD AND NON-FOOD PRODUCTS

The Company offers its customers a wide variety of food and non-food
products (approximately 37,000 stock keeping units (SKU's)), including candy,
snacks, fast food, groceries, non-alcoholic beverages, health and beauty care
products and general merchandise. The Company's strategy is to offer its
convenience retail store customers a variety of food and non-food products at
reasonable prices in flexible quantities.

FOOD PRODUCTS. The Company's candy products include such brand name
items as Snickers, Hershey Kisses, M&M's, Lifesavers and Dentyne. The Company
also offers its own private label Cable Car-Registered Trademark- candy line.
The Company's snack products include brand names such as Keebler, Nabisco and
Planters.

The Company's grocery products include national brand name items ranging
from canned vegetables, soups, cereals, baby food, frozen foods, soaps and paper
products to pet foods from such manufacturers as Del Monte, Carnation, Kellogg's
and Purina. The Company offers a variety of non-alcoholic beverages, including
juices, bottled water and sports drinks under brand names such as Tropicana,
Veryfine and Gatorade.

The Company's fast food products include prepared sandwiches, hot deli
foods, slush drinks, hot beverages, pastries and pizza, as well as packaged
supplies and paper goods, including brand name items such as Superior Coffee,
Tyson chicken, Oscar Mayer meats and Kraft and Heinz condiments. Since 1994, the
Company has targeted the fountain, slush, hot beverage (coffee and hot
chocolate) and frozen food product categories, which present significant growth
opportunities as sales in these product categories are among the fastest growing
product offerings of the convenience store industry.

NON-FOOD PRODUCTS. General merchandise products range from film, tape,
batteries, cigarette lighters and glue to automotive products and include brand
names such as Fuji, Kodak, Scotch and Mead Envelope. Health and beauty care
products include analgesics, hair care, cosmetics, hosiery, dental products and
lotions, from manufacturers of brand names such as Crest, Tylenol, Johnson &
Johnson Band-Aid, Vicks, Gillette and Jergens. The Company's broad assortment of
tobacco products includes imported and domestic cigars, smokeless tobacco
(snuff), chewing tobacco, smoking tobacco and smoking accessories.

CUSTOMERS

The Company's current customer base is comprised of a wide range of
retailers, including traditional and petroleum convenience stores, grocery
stores, drug stores, mass-merchandisers and liquor stores. The Company also
provides services to hotel gift shops, military bases, correctional facilities,
college bookstores, movie theaters and video rental stores. In 1998, the
Company's largest customer accounted for 3.6% of net sales, and the Company's
ten largest customers accounted for approximately 27% of net sales. As a result
of its size and geographic coverage, the Company supplies a number of regional
and national chain corporations and, therefore, is able to distribute products
to all or substantially all of such customers' individual store locations in the
Company's market area.

The Company strives to offer its customers greater flexibility,
service and value than other distributors. The Company's willingness to work
with retailers to arrive at a suitable delivery time, thereby allowing the
store owner to schedule its labor requirements effectively, is an important
facet of this flexibility. The Company believes that its ability to provide
fully integrated technological services (electronic data interchange (EDI)
services, store automation integration, data exchange, consultative services,
retail price management systems and UPC control), bar-coded shelf labels to
assist in effective shelf space management, timely communication of
manufacturer price change information, seasonal and holiday special
product/promotional offerings and salesperson assistance in order preparation
are also important to the retailer in its selection of the Company as its
supplier.

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SUPPLIERS AND MANUFACTURERS

The Company purchases products for resale to its customers from
approximately 2,500 suppliers and manufacturers located throughout the United
States and Canada. Although the Company purchases cigarette and tobacco
products from all major United States and Canadian manufacturers,
approximately 30%, 13%, 10% and 8% of the Company's net sales in 1998 were
derived from products purchased by the Company from Philip Morris, R.J.
Reynolds, Imperial Tobacco and Brown & Williamson, respectively. No other
supplier's products represented more than 10% of net sales. In addition,
Philip Morris manufactures the Company's private label Best Buy-Registered
Trademark- cigarettes. The loss of or a major change in the Company's
relationships with any of these manufacturers or in any of their structured
incentive programs could have a material adverse effect on the Company's
business and financial results.

The Company generally has no long-term purchase agreements (other than
for Best Buy-Registered Trademark- products) and buys substantially all its
products as needed.

CIGARETTE PRODUCTS

The Company controls major purchases of cigarettes centrally in order to
minimize inventory levels. Daily replenishment of cigarette inventory and brand
selection is controlled by the local division based on demands of the local
market. The U.S. cigarette manufacturers charge all wholesale customers the same
price for national brand cigarettes regardless of volume purchased. However,
cigarette manufacturers do offer certain structured incentive programs
(including Philip Morris' Masters Program and R.J. Reynolds' Partners Program)
to wholesalers instead of the routine allowances associated with non-cigarette
products. These programs are based upon, among other things, purchasing volume
and often include performance-based criteria related to the quality of the
Company's efforts to keep certain brands and volumes of cigarettes on the retail
shelves.

FOOD PRODUCTS

Food products (other than frozen foods) are purchased directly from
manufacturers by buyers in each of the Company's distribution facilities.
Management believes that decentralized purchasing of food products results in
higher service levels, improved product availability tailored to individual
markets and reduced inventory investment. Although each division has individual
buyers, the Company negotiates corporate pricing where possible to maximize
purchasing power.

In February 1996, the Company established its Artic Cascade division, a
consolidated frozen warehouse which purchases frozen foods for all of the
Company's United States divisions. By consolidating the frozen food purchases,
the Company is able to obtain such products at lower cost. Buying in one
location also allows the Company to offer a wide selection of quality products
to retailers at more competitive prices.

NON-FOOD PRODUCTS

The majority of the Company's non-food products, other than cigarettes
and tobacco products (primarily health and beauty care products and general
merchandise), are purchased by Allied Merchandising Industry ("AMI"), one of the
Company's operating divisions that specializes in these categories. This
specialization seeks to ensure a better selection and more competitive wholesale
costs and enables the Company to reduce its overall general merchandise and
health and beauty care inventory levels. Tobacco products, other than
cigarettes, are purchased directly from the manufacturers by each of the
divisions.

DISTRIBUTION

The Company maintains 19 distribution facilities, of which 15 are located
in the western United States and four are located in western Canada. These
distribution facilities include two consolidating warehouse operations, AMI and
Artic Cascade. Each distribution facility is outfitted with modern equipment
(including freezers and coolers as required) for receiving, stocking, order
selection and loading a large volume of customer orders on trucks for delivery.
Each facility provides warehouse, distribution, sales and support functions for
its geographic area under the supervision of a division manager. In addition,
the Company believes that the majority of its distribution facilities have the
capacity to absorb significant future growth in net sales.

The Company's trucking system includes straight trucks and tractors
(primarily leased by the Company) and trailers (primarily owned by the
Company). The Company's standard is to maintain its transportation fleet to
an average age of five

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years or less. The Company employs a state-of-the-art, computerized truck
routing system to efficiently construct delivery routes.

COMPETITION

The convenience retail distribution business is comprised of one national
distributor in the United States (McLane, a subsidiary of Wal-Mart) and several
national distributors in Canada, a number of large, multi-regional competitors
(participants with a presence in several contiguous regional markets) and a
large number of small, privately-owned businesses that compete in one or two
markets. Multi-regionals include the Company in the west, GSC Enterprises in the
south and southeast, H.T. Hackney in the southeast, and Eby-Brown Company in the
midwest. Relative to smaller competitors, multi-regional distributors such as
the Company benefit from several competitive advantages including greater
purchasing power, the ability to service chain accounts, scale cost advantages
in sales and warehouse operations, the ability to spread fixed corporate costs
over a larger revenue base and the resources to invest in both MIS and
productivity enhancing technology. These factors have led to a consolidation of
the industry as small competitors exit the industry and some larger convenience
retail distributors seek acquisitions to increase the utilization of their
existing operations.

The Company also competes with wholesale clubs and certain retail stores
whose sales are primarily cigarettes, characterized by high volumes and very
aggressive pricing. These competitors have become a factor in the industry
within recent years, particularly in California markets. The wholesale clubs
have been aggressive in their pricing of cigarettes and candy, and wholesalers
have been forced to reduce margins to compete in densely populated markets with
a large number of wholesale clubs. Wholesale clubs require the convenience store
owner to take the time to travel, to shop at their location, pay cash and choose
from a very limited selection. They also provide none of the merchandising
support that the Company routinely offers. Consequently, national chains do not
routinely purchase product at the wholesale clubs.

The principal competitive factors in the Company's business include
price, customer order fill rates, trade credit and the level and quality of
value-added services offered. Management believes the Company competes
effectively by offering a full product line, flexible delivery schedules,
competitive prices, high levels of customer service and an efficient
distribution network.

EMPLOYEES

As of December 31, 1998, the Company had 2,389 employees.

The Company is a party to local collective bargaining agreements with
the International Brotherhood of Teamsters covering clerical, warehouse and
transportation personnel at its facilities in Hayward, California, and
covering warehouse and transportation personnel in Las Vegas, Nevada. The
Company is party to a collective bargaining agreement with United Food
Commercial Workers covering warehouse and transportation personnel in
Calgary, Alberta. The Company is a party to a collective bargaining agreement
with Industrial Wood and Allied Workers of Canada covering warehouse
personnel in Victoria, British Columbia. The agreements covering employees in
Hayward and Las Vegas expire on January 15, 2000 and March 31, 1999,
respectively. The agreement covering employees in Calgary expires on August
31, 2001. The agreement covering employees in Victoria expires on April 5,
1999. These agreements cover an aggregate of less than 10% of the Company's
employees.

Management believes that the Company's relations with its employees are
good.

ITEM 2. PROPERTIES

The Company does not own any real property. The principal executive
offices of the Company are located in South San Francisco, California, and
consist of approximately 22,000 square feet of leased office space. In addition,
the Company leases approximately 24,000 square feet in Vancouver, British
Columbia for its Canadian regional corporate, tax and management information
systems departments and 11 small offices for use by sales personnel in certain
parts of the United States and Canada. The Company also leases its 19
distribution facilities, 15 of which are located in the western United States
and four in western Canada. Each distribution facility is equipped with modern
equipment (including freezers and coolers at 18 facilities) for receiving,
stocking, order selection and shipping a large volume of customer orders. The
Company believes that it currently has sufficient capacity at its distribution
facilities to meet its anticipated needs and that its facilities are in
satisfactory condition.

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The Company's leases expire on various dates between 1999 and 2008, and
in many instances give the Company renewal options. The aggregate rent paid in
connection with the Company's distribution facilities, regional sales offices
and corporate and administrative offices was approximately $6.7 million in 1997
and $7.0 million in 1998. The Company's distribution facilities range from
28,000 to 194,000 square feet and account for approximately 1.7 million square
feet in aggregate. Management believes that the Company's current utilization of
warehouse facilities is approximately 70% to 80% in the aggregate.

ITEM 3. LEGAL PROCEEDINGS

REGULATORY AND LEGISLATIVE MATTERS

The tobacco industry is currently subject to significant regulatory
restrictions, such as the requirement that product packages display warning
labels, a prohibition on television and radio advertising and prohibitions on
sales to minors. In August 1996, the United States Food and Drug
Administration (the "FDA") determined that it had jurisdiction over
cigarettes and smokeless tobacco products and issued regulations restricting
the sale, distribution and advertising of cigarette and smokeless tobacco
products, especially to minors. The FDA regulations are significant not only
because of their substance, but also because the FDA determined that it has
jurisdiction over cigarettes and smokeless tobacco as "combination products
having both a drug component, including nicotine, and device components." The
regulations regulate such products as "devices." The major U.S. tobacco
manufacturers challenged the jurisdiction of the FDA to regulate tobacco
products as "drugs" or "devices" and in April 1997 the U.S. District Court
for the Middle District of North Carolina held that the FDA could impose
restrictions on access to and labeling of tobacco products, but did not have
authority to restrict the promotion and advertisement of such products. The
court stayed implementation of the FDA regulations except for those
establishing a federal minimum age of 18 for the sale of tobacco products and
requiring proof of age for anyone under the age of 27. On August 14, 1998,
however, the United States Court of Appeals for the Fourth Circuit reversed
the decision of the District Court, finding that the FDA lacked statutory
authority to regulate tobacco products altogether. The FDA's petitions for
rehearing and rehearing en banc were denied and, on January 19, 1999, the FDA
filed a petition for review by the Supreme Court which is currently pending.

In November 1998, 46 states, five territories and the District of
Columbia entered into a settlement with four major tobacco companies to
resolve litigation over smoking-related costs incurred by state Medicaid
programs. Included in the terms of the settlement are conditions that tobacco
companies participating in the settlement may not: target youth in the
advertising, promotion or marketing of tobacco products (including the use of
cartoons in such promotion); use tobacco brand names to sponsor concerts,
athletics events or other events in which a significant percentage of the
audience is under 18 years of age; advertise products in conspicuous places
outdoors (such as billboards) or on transit vehicles; merchandise a tobacco
brand name through the marketing, distribution or sale of apparel or other
merchandise; provide free samples of tobacco products in any area except an
adults-only facility; distribute or sell cigarettes in pack sizes of less
than 20; or lobby state legislatures on certain anti-tobacco initiatives
(such as limitations on youth access to vending machines). Many of these
provisions took effect in November 1998; most of the remaining provisions
will take effect by April 23, 1999. The Company is unable to assess the
effects that this agreement will have on the sale of the Company's products;
there can be no assurance that these new restrictions will not result in a
material reduction of the consumption of tobacco products in the United
States and thus will not have a material adverse effect on the Company's
business and financial position.

In addition, a number of bills were introduced in Congress during 1997
and 1998 that would confirm or expand the FDA's jurisdiction, but none were
enacted. No legislation addressing FDA jurisdiction over tobacco products has
been introduced in 1999 as of this date, but similar legislation is
nonetheless possible. In addition, proposals have been made in recent years
to require additional warning notices on tobacco products, to disallow
advertising and promotional expenses as deductions under federal tax law and
to further regulate the production and distribution of cigarettes and
smokeless tobacco. While neither the FDA regulations, the state Medicaid
litigation settlement, nor recent legislation would impose restrictions on
the sale of cigarettes and smokeless tobacco products to adults, there can be
no assurance such restrictions will not be proposed in the future or that any
such proposed legislation or regulations would not result in a material
reduction of the consumption of tobacco products in the United States or
would not have a material adverse effect on the Company's business and
financial position.

Over the past decade, various state and local governments have imposed
significant regulatory restrictions on tobacco products, including sampling
and advertising bans or restrictions, packaging regulations and prohibitions
on smoking in restaurants, office buildings and public places. With a limited
number of exceptions, the state Medicaid litigation settlement prohibits the
participating tobacco manufacturers from challenging any restriction relating
to tobacco control

<PAGE>

enacted prior to June 1, 1998. Additional state and local legislative and
regulatory actions are being considered and are likely to be promulgated in
the future. The Company is unable to assess the future effects that these
various proposals may have on the sale of the Company's products.

The Company is subject to various federal, state and local
environmental, health and safety laws and regulations. Generally, these laws
impose limitations on the discharge of pollutants and the presence of
hazardous substances in the workplace and establish standards for vehicle and
employee safety and for the handling of solid and hazardous wastes. These
laws include the Resource Conservation and Recovery Act, the Comprehensive
Environmental Response, Compensation and Liability Act, the Clean Air Act,
the Hazardous Materials Transportation Act and the Occupational Safety and
Health Act. Future developments, such as stricter environmental or employee
health and safety laws and regulations thereunder, could affect the Company's
operations. The Company does not currently anticipate that the cost of its
compliance with or of any foreseeable liabilities under environmental and
employee health and safety laws and regulations will have a material adverse
effect on its business and financial condition.

LEGAL MATTERS

As previously reported, in May 1996, the Court of Appeals for the Fifth
Circuit decertified a federal class action purportedly brought on behalf of all
cigarette smokers in the United States. Following the decertification, lawyers
for the class brought state class action lawsuits in a number of states, with
the objective of filing such lawsuits in all fifty states, the District of
Columbia and Puerto Rico. Several of these state lawsuits name cigarette
distributors as defendants.

As previously reported, in January 1998, the Company was served with a
summons and First Amended Complaint in an action brought by Operating
Engineers Local 12 Health and Welfare Trust (on behalf of itself and all
others similarly situated), now part of a coordinated proceeding pending in
the Superior Court for San Diego County, against the principal tobacco
manufacturers, the Company and other distributors and retailers of tobacco
products. The complaint seeks, inter alia, compensatory and punitive damages,
restitution for monies expended by the Trust for health care of its members
who have used tobacco products, and forms of injunctive relief.

From April 1998 through the date of this filing, the Company was named
as a defendant in 23 additional similar actions brought by various union
health and welfare trusts, coordinated into a single proceeding now pending
in the Superior Court for San Diego County, against major tobacco
manufacturers as well as other distributors. The complaints seek, inter alia,
compensatory and punitive damages, restitution for monies expended by the
trusts for health care of its members who have used tobacco products, and
forms of injunctive relief.

As previously reported, in May 1998, a division of the Company was
named a defendant and served in an individual tobacco litigation complaint
filed in a state court in Broward County, Florida. The other defendants
include the principal U.S. tobacco manufacturers as well as other
distributors/retailers. The case is brought on behalf of two individuals,
residents of Florida, who have purchased cigarette products distributed by
the Company, and alleges, among other things, the plaintiffs have suffered
personal injuries and economic losses from the use of such cigarettes. The
suit seeks, on behalf of the plaintiffs, compensatory damages and punitive
damages.

In November 1998, the Company was served with a summons and complaint
in an action brought by the Pechanga Band of Luiseno Mission Indians, which
is now part of the coordinated proceedings involved in the union health and
welfare trust cases noted above. The complaint seeks, inter alia,
compensatory and punitive damages, restitution for monies expended by the
tribe for the health care of its members who have used tobacco products, and
forms of injunctive relief.

The Company does not believe that these actions will have a material
adverse effect on the Company's financial condition. The Company has been
indemnified with respect to certain claims alleged in each of the above
actions.

In addition, the Company is a party to other lawsuits incurred in the
ordinary course of its business. The Company believes it is adequately
insured with respect to such lawsuits or that such lawsuits will not result
in losses material to its consolidated financial position or results of
operations.

<PAGE>

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

Not applicable.

ITEM 6. SELECTED HISTORICAL
CONSOLIDATED FINANCIAL AND OTHER DATA

The following table sets forth selected historical consolidated
financial and other data for the Company. The historical financial data as of
the end of and for each year in the five year period ended December 31, 1998
have been derived from the Company's audited consolidated financial
statements. The consolidated financial data set forth below should be read in
conjunction with the historical consolidated financial statements of the
Company and the related notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations," all contained
elsewhere in this Form 10-K.

<PAGE>

CORE-MARK INTERNATIONAL, INC. AND SUBSIDIARIES
SELECTED HISTORICAL
CONSOLIDATED FINANCIAL AND OTHER DATA

YEAR ENDED DECEMBER 31,
(IN THOUSANDS)
------------------------------------------------------------------
1994 1995 1996 1997 1998
------------ ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:

Net sales (a)....................... $1,855,356 $2,047,187 $2,175,367 $2,395,867 $2,476,376
Costs of goods sold (b)............. 1,719,999 1,901,604 2,017,654 2,216,162 2,295,659
--------- --------- --------- --------- ---------
Gross profit (b).................... 135,357 145,583 157,713 179,705 180,717
Operating and administrative
expenses........................ 116,080 125,245 130,493 148,902 150,977
--------- --------- --------- --------- ---------
Operating income (b)................ 19,277 20,338 27,220 30,803 29,740
Interest expense, net............... 5,773 6,987 9,916 18,181 15,402
Amortization of debt
refinancing costs (c)........ 1,600 1,065 1,319 1,498 2,204
--------- --------- --------- --------- ---------
Income before income taxes
and extraordinary item.......... 11,904 12,286 15,985 11,124 12,134
Income tax expense.................. 2,816 5,563 6,941 4,834 4,925
--------- --------- --------- --------- ---------
Income before extraordinary item.... 9,088 6,723 9,044 6,290 7,209
Extraordinary item, net of tax (d).. -- -- (1,830) -- --
--------- --------- --------- --------- ---------
Net income (b)...................... $ 9,088 $ 6,723 $ 7,214 $ 6,290 $ 7,209
--------- --------- -------- -------- --------
--------- --------- -------- -------- --------

OTHER DATA:

EBITDAL (e)......................... $ 24,271 $ 29,696 $ 35,169 $ 41,597 $ 56,419
Cash provided by (used in):
Operating activities............ 54,708 12,529 26,621 17,547 5,933
Investing activities............ (5,974) (16,896) (6,079) (30,739) (5,311)
Financing activities............ (43,586) 11,397 (18,972) 3,549 9,533
Depreciation and amortization (f)... 5,541 5,943 6,573 7,528 8,065
LIFO expense (income) (b)........... (547) 3,415 1,376 3,266 18,614
Capital expenditures................ 5,376 7,286 6,079 9,378 5,311

</TABLE>

AS OF DECEMBER 31,
(IN THOUSANDS)
------------------------------------------------------------------
1994 1995 1996 1997 1998
------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:

Total assets....................... $293,743 $324,536 $329,036 $336,580 $359,390
Total debt, including current
maturities..................... 84,627 101,598 193,463 197,012 208,124
Mandatorily redeemable
preferred stock (g)............ 41,767 -- -- -- --

</TABLE>

See Notes to Selected Historical Consolidated Financial and Other Data.

<PAGE>

CORE-MARK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO SELECTED HISTORICAL CONSOLIDATED
FINANCIAL AND OTHER DATA

(a) In the second quarter of 1995, the Company completed two acquisitions which
added approximately $62 million in net sales for the year ended December
31, 1995. In February 1997, the Company completed an acquisition which
added approximately $136 million in net sales for the year ended December
31, 1997.

(b) The Company's U.S. inventories are valued at the lower of cost or market.
Cost of goods sold is determined on a last-in, first-out (LIFO) basis.
During periods of rising prices, the LIFO method of costing inventories
generally results in higher costs being charged against income compared to
the FIFO method ("LIFO expense") while lower costs are retained in
inventories. Conversely, during periods of declining prices or a decrease
of the Company's inventory quantities, the LIFO method of costing
inventories generally results in lower costs being charged against income
compared to the FIFO method ("LIFO income"). During the year ended December
31, 1998, the Company recognized LIFO expense of $18.6 million, primarily
due to several increases in domestic cigarette wholesale prices during
1998. However, the LIFO expense in 1998 was more than offset by profits
resulting from such price increases. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" for more
information on the impact of the LIFO inventory valuation method on other
accounting periods.

(c) Amortization of debt refinancing costs reflects the amortization of all
costs associated with issuing, restructuring and refinancing debt.

(d) In connection with the August 7, 1996 Recapitalization, the Company fully
repaid the outstanding debt under a previously existing credit facility.
The early extinguishment of this debt resulted in a one-time extraordinary
charge to income to write-off unamortized debt refinancing costs of $1.8
million, which is net of a $1.2 million income tax benefit (see Note 3 in
the Notes to the Consolidated Financial Statements contained elsewhere in
this Form 10-K).

(e) EBITDAL represents operating income before depreciation, amortization and
LIFO expense (income), each as defined herein. EBITDAL should not be
considered in isolation or as a substitute for net income, operating
income, cash flows or other consolidated income or cash flow data prepared
in accordance with generally accepted accounting principles, or as a
measure of a company's profitability or liquidity. EBITDAL is included
because it is one measure used by certain investors to determine a
company's ability to service its indebtedness.

(f) Depreciation and amortization includes depreciation on property and
equipment, amortization of goodwill and other non-cash charges, and
excludes amortization of debt refinancing costs.

(g) Series B Preferred Stock, with a $50.0 million stated value and a mandatory
redemption date of December 31, 1995, was issued in conjunction with a
restructuring in 1991 and was initially recorded at a discounted fair value
and accreted through March 1995, at which time it was exchanged, along with
warrants owned by the senior lenders, for equity in a holding company that
was also owned by certain members of management. At that time, the carrying
value of the Preferred Stock was reclassified into additional paid-in
capital.

<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the "Selected
Historical Consolidated Financial and Other Data" and the consolidated financial
statements of Core-Mark International, Inc. (the "Company") and notes thereto
included elsewhere in this Form 10-K.

GENERAL

The Company is one of the largest broad-line, full-service wholesale
distributors of packaged consumer products to the convenience retail industry
in western North America. The products distributed by the Company include
cigarettes, food products such as candy, fast food, snacks, groceries and
non-alcoholic beverages, and non-food products such as film, batteries and
other sundries, health and beauty care products and tobacco products other
than cigarettes. In the year ended December 31, 1998, approximately 68%, 22%
and 10% of the Company's net sales were derived from cigarettes, food
products and non-food products, respectively.

TOBACCO INDUSTRY BUSINESS ENVIRONMENT

Manufacturers and distributors of cigarettes and other tobacco
products are currently facing a number of significant issues that affect the
business environment in which they operate including proposed additional
governmental regulation (see Item 3. "Legal Proceedings - Regulatory and
Legislative Matters"); actual and proposed excise tax increases (see "Impact
of Tobacco Taxes"); increased litigation involving health and other effects
of cigarette smoking and other uses of tobacco (see Item 3. "Legal
Proceedings - Legal Matters"); and potential litigation by the U.S.
Department of Justice to recover federal Medicare costs allegedly connected
to smoking.

In June 1997, a so called "national settlement" of many of these
issues was proposed following negotiations among major U.S. tobacco
manufacturers, state attorneys general, representatives of the public health
community and attorneys representing plaintiffs in certain smoking and health
litigation. The national settlement required implementation by federal
legislation, however, and such legislation was considered but not passed by
the Congress in 1998. Similar federal legislation has not been introduced to
date in 1999.

In light of failure of the national settlement legislation, the four
largest U.S. cigarette manufacturers and the attorneys general of 46 states,
5 territories, and the District of Columbia agreed to a settlement of
approximately $400 billion for public health-care costs allegedly connected
to smoking. The settlement -- which takes effect in each settling
jurisdiction when the courts in each such jurisdiction enter a final consent
decree consistent with the settlement (and any appeals of such decree are
disposed of or become time-barred) -- allows for payment of the agreed sum by
the cigarette manufacturers over 25 years, settles the state and territory
health-care claims against the tobacco industry, and imposes a number of new
marketing, advertising, sales and other restrictions on tobacco products (see
Item 3. "Legal Proceedings - Regulatory and Legislative Matters"). As a
direct result of this settlement, the major cigarette manufacturers raised
the wholesale price of cigarettes by $4.50 per carton, effective November 24,
1998, bringing the total per-carton price increase in the United States in
1998 to $6.35.

Effective January 1, 1999, the State of California increased the state
excise tax on cigarettes by $5.00 per carton. California is the Company's
largest market, representing approximately 44% of carton sales in 1998.

The Company believes that price and tax increases of this magnitude
will have a negative impact on overall industry unit sales. Accordingly, the
Company believes that these price and tax increases will negatively affect
the Company's business of distributing tobacco products by decreasing the
volume of product sales. The Company does not believe that it is able to
quantify the impact of these higher prices and taxes on future sales of
cigarettes and other tobacco products. Manufacturer price increases will also
increase the Company's debt and interest expense levels. The Company believes
that it has adequate financing arrangements in place at the present time to
finance the additional working capital requirements of the most recent
manufacturer price increases. However, depending upon future levels of
manufacturer price increases, or if the terms or amounts of state and
provincial excise taxes were adversely changed, the Company may be required
to seek additional financing in order to meet such higher working capital
requirements.

<PAGE>

During the most recent five year period, the Company's sales of
cigarettes were (in thousands):

For the year ended
December 31, Net Sales Cartons
----------- --------- -------
<S> <C> <C>
1994 $1,299,687 80,703
1995 1,446,697 88,933
1996 1,505,744 90,897
1997 1,603,362 92,368
1998 1,671,860 87,951

</TABLE>

The Company's business strategy has included, and continues to include,
increasing sales of higher margin, non-tobacco products, a strategy which is
intended to lessen the impact of potential future declines in unit sales and
profitability of its tobacco distribution business.

IMPACT OF LIFO INVENTORY VALUATION METHOD

The Company's U.S. inventories are valued at the lower of cost or market.
Cost of goods sold is determined on a last-in, first-out (LIFO) basis using
Producer Price Indices as determined by the U.S. Department of Labor Statistics.
The Company's Canadian inventories are valued on a first-in, first-out (FIFO)
basis. The LIFO method of determining cost of goods sold has had a significant
impact on the results of operations, which is quantified separately in the
discussion below.

During periods of price inflation in the Company's product lines, the
LIFO methodology generally results in higher expenses being charged to cost of
goods sold ("LIFO expense") while lower costs are retained in inventories.
Historically, increases in the Company's cost of cigarettes resulted from a
combination of cost increases by cigarette manufacturers and increases in
federal and state excise taxes. In 1996 and 1997, LIFO expense of $1.4 million
and $3.3 million, respectively, is primarily the result of increases in
cigarette prices. In 1998, cigarette manufacturers increased prices
significantly, resulting in LIFO expense of $18.6 million for the year.

YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997

NET SALES. Net sales for 1998 were $2,476.4 million, an increase of $80.5
million or 3.4% over 1997. The increase in net sales was due to higher net sales
in both cigarettes and food and non-food products.

Net sales of cigarettes for 1998 were $1,671.9 million, an increase of
$68.5 million or 4.3% over 1997. The Company's total cigarette unit sales for
1998 were 88.0 million cartons, a decrease of 4.4 million cartons or 4.8%
from 1997. The increase in net sales dollars of cigarettes was principally
due to increases in manufacturers' list prices that were passed along to the
Company's customers. The decrease in carton sales occurred both in the U.S.,
which declined by 3.2 million cartons or 4.2% and Canada, which declined by
1.2 million cartons or 7.8%. In the U.S. the decrease in carton sales
occurred primarily in California, and was principally due to increased price
competition. Outside of California, carton sales increased 6.7%. The
California market, which is generally the most price competitive market in
which the Company operates, has been significantly affected by sales of
cigarettes originally intended for export, but which are reintroduced into
the domestic market (known in the industry as "grey market" cigarettes).
Although "grey market" cigarettes are produced by the major tobacco
companies, the product is intended for export only, and traditional
wholesalers, like the Company, are prohibited from acquiring and selling
these products by the manufacturers who produce them. These "grey market"
cigarettes sell for substantially less than cigarettes intended for domestic
sale, and the Company has lost volume because of these products. In August
1998, the California Legislature passed a law prohibiting the sale and
distribution of these export cigarettes. However, the Company is unable to
predict what effect this new legislation will have on the sale of "grey
market" cigarettes in the state of California. In Canada, the decline in
cigarette volume is primarily due to the loss of one customer whose purchases
were heavily oriented toward cigarettes.

<PAGE>

YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
(CONTINUED)

Net sales of food and non-food products in 1998 were $804.5 million, an
increase of $12.0 million or 1.5% over 1997. The increase occurred primarily in
grocery sales, which increased $12.5 million or 18.5%, fast food sales, which
increased $9.2 million or 9.9%, and snack sales, which increased $7.1 million or
13.0%. The increases were partially offset by decreases in confection sales of
$21.0 million, or 8.3%, which resulted from the loss of one customer whose
purchases were heavily oriented towards confection products.

GROSS PROFIT. Gross profit for 1998 was $180.7 million, an increase of
$1.0 million or 0.6% over 1997. Gross profit dollars in the cigarette category
increased over 1997, despite lower volumes, as gross profit dollars per carton
increased over the previous year. Gross profit margins on cigarette sales were
virtually unchanged from 1997.

Gross profit on food and non-food products declined slightly from 1997,
on a small increase in sales volume of $12 million. The Company experienced a
small decline in gross profit margins on these food and non-food product lines.

The Company recognized LIFO expense of $18.6 million in 1998, as compared
to $3.3 million in 1997. The great majority of the Company's LIFO expense is the
result of price increases in the domestic cigarette categories. In 1998, the
wholesale price of cigarettes increased by $6.35 per carton, as compared to
$1.20 per carton in 1997. The impact of LIFO expense on the financial
statements, which was caused by the sharp increase in the price of cigarettes,
was more than offset by profits resulting from such price increases.

OPERATING AND ADMINISTRATIVE EXPENSES. Operating and administrative
expenses for 1998 were $151.0 million, an increase of $2.1 million or 1.4% over
1997. However, such expenses in 1998 decreased to 6.1% of net sales as compared
to 6.2% for 1997. The higher expenses as a percent of net sales in 1997 reflect
approximately $2.4 million (0.1% of 1997 net sales) of one-time duplicative
facility costs incurred as a result of the Sosnick acquisition (see Note 10 in
the Notes to the Consolidated Financial Statements contained elsewhere in this
Form 10-K).

OPERATING INCOME. As a result of the foregoing factors, operating income
for 1998 was $29.7 million, a decrease of $1.1 million or 3.5% compared to 1997.
As a percentage of net sales, operating income for 1998 was 1.2%, as compared to
1.3% in 1997.

NET INTEREST EXPENSE. Net interest expense for 1998 was $15.4 million, a
decrease of $2.8 million or 15.3% from 1997. The net decrease resulted from a
decrease in the Company's borrowing rates as a result of the securitization of
certain receivables described below (see "Asset Securitization") and a decrease
in average debt levels.

AMORTIZATION OF DEBT REFINANCING COSTS. Debt refinancing costs were
$2.2 million for 1998, an increase of $0.7 million or 47.1% over 1997. This
increase resulted primarily from the write off of a portion of unamortized
costs resulting from the modification of the Revolving Credit Facility (see
"Asset Securitization").

YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996

NET SALES. Net sales for 1997 were $2,395.9 million, an increase of
$220.5 million or 10.1% over 1996. The increase in net sales was due to the
Sosnick acquisition (which contributed approximately $136 million in sales
during 1997) and higher net sales of food and non-food products.

Net sales of cigarettes for 1997 were $1,603.4 million, an increase of
$97.6 million or 6.5% over 1996. The increase in net sales of cigarettes was
principally due to the acquisition of the Sosnick Companies (which
contributed approximately $74 million in cigarette net sales in 1997) and an
increase in cigarette prices offset by a general decline in cigarette unit
volume (excluding Sosnick unit volume). The Company's total cigarette unit
volume in 1997 was 92.4 million cartons, an increase of 1.5 million cartons
or 1.6% over 1996. The Sosnick acquisition contributed approximately 4.8
million in unit sales in 1997, offsetting declines in unit volumes in the
U.S. and Canada of approximately 3.0 and 0.4 million cartons, respectively.
Unit declines are primarily the result of lower cigarette sales by the
Company's customer base, and the termination of some high volume, marginally
profitable cigarette business.

<PAGE>

YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
(CONTINUED)

Net sales of food and non-food products in 1997 were $792.5 million, an
increase of $122.9 million or 18.4% over 1996. The increase was primarily due to
the Company's continued focus on increasing food and non-food product sales and
to the Sosnick acquisition (which contributed approximately $62 million in net
sales in 1997). The increase occurred primarily in fast food sales, which
increased $29.2 million or 46.1%, candy sales, which grew $28.6 million or
12.7%, and snack sales, which were higher by $15.4 million or 39.7%.

GROSS PROFIT. Gross profit for 1997 was $179.7 million, an increase of
$22.0 million or 13.9% over 1996. The improvement was primarily due to increased
gross profits from continued sales growth in the food and non-food product
categories and the Sosnick acquisition. The gross profit margin for the year
ended December 31, 1997 increased to 7.5% of net sales as compared to 7.3% of
net sales for the year ended December 31, 1996. This increase resulted primarily
from the growth in food and non-food sales (which carry significantly higher
margins than cigarettes) to 33.1% of the Company's total 1997 net sales, from
30.8% for 1996. In 1997, the Company recognized LIFO expense of $3.3 million
compared to $1.4 million in 1996. This increase in LIFO expense was primarily
due to several increases in domestic cigarette wholesale prices totaling
approximately $1.20 per carton during 1997 (compared to $0.40 per carton in
1996), which was more than offset by profits related to such price increases.

OPERATING AND ADMINISTRATIVE EXPENSES. Operating and administrative
expenses for 1997 were $148.9 million, an increase of $18.4 million or 14.1%
over 1996. Such expenses for 1997 increased to 6.2% of net sales as compared to
6.0% for 1996. The increase reflects approximately $2.4 million (0.1% of net
sales) of one-time duplicative facility costs as a result of the Sosnick
acquisition, higher levels of staffing during the initial integration process
and other integration costs associated with the acquisition. The remaining
increase in expenses as a percentage of sales is primarily attributable to the
decline in cigarette volumes and the slightly higher handling costs associated
with the increased sales growth of the higher margin food and non-food product
categories.

OPERATING INCOME. As a result of the factors discussed above, operating
income for 1997 was $30.8 million, an increase of $3.6 million or 13.2% over
1996. As a percentage of net sales, operating income for 1997 and 1996 remained
constant at 1.3%.

NET INTEREST EXPENSE. Net interest expense for 1997 was $18.2 million, an
increase of $8.3 million or 83.4% over 1996. This increase resulted from an
increase in average debt levels and the Company's average interest rate
primarily due to the recapitalization and senior subordinated note offering
which occurred in the third quarter of 1996, as well as additional debt incurred
to finance the Sosnick acquisition.

AMORTIZATION OF DEBT REFINANCING COSTS. The Company successfully
completed a refinancing and note offering in the third quarter of 1996. The
costs directly related to such transactions are being amortized over the
terms of the related debt. Debt refinancing costs for 1997 were $1.5 million,
compared to $1.3 million in 1996.

ASSET SECURITIZATION

On April 1, 1998, the Company entered into a transaction to securitize
its U.S. trade accounts receivable portfolio ("Accounts Receivable Facility").
In connection with this transaction, the Company formed a wholly-owned special
purpose bankruptcy-remote subsidiary (the "Special Purpose Company" or "SPC"),
to which the U.S. trade accounts receivable originated by the Company are sold
or contributed, without recourse, pursuant to a receivables sale agreement. The
receivables have been assigned, with a call option by the SPC, to a trust formed
pursuant to a pooling agreement. On April 1, 1998, the SPC issued two classes of
term certificates with an aggregate principal value of $55 million, and variable
certificates of up to $30 million representing fractional undivided interests in
the receivables and the proceeds thereof.

On a daily basis, collections related to sold receivables are
administered by the Company acting as servicer, pursuant to a servicing
agreement. Pursuant to supplements to the pooling agreement, certificate
holders' accrued interest expense and other securitization expenses are
reserved out of daily collections, before such remaining collections are
returned to the Company by the SPC to pay for the SPC's purchase of newly
originated receivables from the Company. The revolving period of the
securitization expires in January 2003, or earlier if an early amortization
event, as defined in the pooling agreement, occurs. The interest rate on the
fixed term certificates is 0.28% (Class A) and 0.65% (Class B) above the
Eurodollar Rate which was 5.06% as of December 31, 1998. The interest rate on
the variable certificates is 0.50% above the commercial paper rate (as
defined in the securitization agreement), which was 4.90% as of December 31,
1998.

<PAGE>

ASSET SECURITIZATION (CONTINUED)

In connection with the securitization of accounts receivable, the
Company amended its Revolving Credit Facility. The amendment reduced the
available credit facility from $175 million to $120 million, reduced its
interest rates from 1.5% to 1.0% above the Prime Rate, and from 2.5% to 2.0%
above the Eurodollar Rate, as defined in the amendment, and extended the
maturity through April, 2003. As a result of this modification, the Company
wrote off $0.9 million of unamortized refinancing costs relating to the
Revolving Credit Facility in the second quarter of 1998. Based on certain
criteria in the Revolving Credit Facility, the Company further reduced its
interest rates effective October 1, 1998, from 1.0% to 0.75% above the Prime
Rate, and from 2.0% to 1.75% above the Eurodollar Rate, which are the rates
in effect at December 31, 1998.

The net result of the (i) securitization of the Company's U.S. trade
accounts receivable portfolio and (ii) the modification of the Revolving
Credit Facility was to lower the Company's cost of borrowings, and to
increase its variable-rate borrowing capacity from $175 million to $205
million. The Company incurred approximately $1.6 million for legal,
professional and other costs related to the transactions described above.
These costs were capitalized and classified as other assets and are being
amortized over the term of these transactions.

LIQUIDITY AND CAPITAL RESOURCES

The Company's liquidity requirements arise primarily from the funding
of its working capital needs, capital expenditure programs and debt service
requirements with respect to its credit facilities. The Company has no
mandatory reductions of principal on its Revolving Credit Facility, its
Accounts Receivable Facility or its $75 million Senior Subordinated Notes
prior to their final maturities in 2003. The Company has historically
financed its operations through internally generated funds and borrowings
under its credit facilities.

In November 1998, the four largest U.S. cigarette manufacturers and
the state attorneys general of almost all of the fifty states, agreed to a
multi-billion dollar settlement over public health costs connected to smoking
(see "Tobacco Industry Business Environment"). As a direct result of this
settlement, the cigarette manufacturers raised the wholesale price of
cigarettes by $4.50 per carton, effective November 24, 1998, in order to
cover initial costs of the settlement. This manufacturer price increase
resulted in an increase in inventories and trade accounts receivable for the
Company, and correspondingly higher debt and interest levels. The Company
believes that it will be able to adequately finance the corresponding
increase in working capital requirements relating to its existing business
under its current credit facilities. At current levels of business activity,
the Company has substantial excess borrowing capacity under its current
credit facilities. However, if manufacturers' price increases or federal
excise tax increases (over and above currently enacted increases) continued
to sharply escalate, or if payment terms for state and provincial taxes were
adversely changed (see "Impact of Tobacco Taxes"), the Company might be
required to seek additional financing in order to meet such higher working
capital requirements.

The Company's debt obligations totaled $208.1 million at December 31,
1998, an increase of $11.1 million or 5.6% from $197.0 million at December
31, 1997. As of December 31, 1998, the amount outstanding under the Revolving
Credit Facility was $59.1 million; an additional $32.8 million, after taking
into account the borrowing base, was available to be drawn. In addition, the
amount outstanding under the Accounts Receivable Facility was $74.0 million
as of December 31, 1998. Under this facility, at December 31, 1998, the
Company had sufficient collateral to issue up to its limit of variable
certificates, or an additional $11.0 million. The net increase in outstanding
debt is due primarily to an increase in working capital funding requirements
resulting principally from increases in trade accounts receivable and
inventory, primarily a result of increases in cigarette manufacturers' list
prices that were passed along to the Company's customers. Debt requirements
are generally the highest at December 31 when the Company historically
carries higher inventory.

The Company's principal sources of liquidity are net cash provided by
operating activities and its credit facilities. In 1998, net cash provided by
operating activities was $5.9 million as compared to $17.6 million in 1997.
The decrease resulted principally from changes in net working capital. In
1996, net cash provided by operating activities was $26.6 million. The
decrease from 1996 to 1997 resulted principally from changes in net working
capital.

The Company made capital expenditures of $5.3 million in 1998. In
1999, the Company estimates it will spend approximately $7.5 million for
capital requirements, principally consisting of warehouse facilities and
other equipment.

<PAGE>

IMPACT OF TOBACCO TAXES

State and Canadian provincial tobacco taxes represent a significant
portion of the Company's net sales and cost of goods sold attributable to
cigarettes and other tobacco products. During 1998, such taxes on cigarettes
represented approximately 24% of cigarette net sales in the U.S. and 46% in
Canada. In general, such taxes have been increasing, and many states and
Canadian provinces are currently weighing proposals for higher excise taxes
on cigarettes and other tobacco products.

In November 1998, Proposition 10 was passed in the California general
election. This proposition, which was effective January 1, 1999, increased
California state excise taxes on cigarettes by $5.00 per carton, as well as
increased taxes on cigars and other tobacco products.

Under current law, almost all state and Canadian provincial taxes are
payable by the Company under credit terms which, on the average, exceed the
credit terms the Company has approved for its customers to pay for products
which include such taxes. This practice has benefited the Company's cash
flow. If the Company were required to pay such taxes at the time such
obligation was incurred without the benefit of credit terms, the Company
would incur a substantial permanent increase in its working capital
requirements and might be required to seek additional financing in order to
meet such higher working capital requirements. Consistent with industry
practices, the Company has secured a bond to guarantee its tax obligations to
those states and provinces requiring such a surety (a majority of states in
the Company's operating areas).

The U.S. federal excise tax on cigarettes is currently $2.40 per
carton of cigarettes. In August 1997, legislation was enacted that will raise
the federal excise tax by $1.00 per carton of cigarettes starting in the year
2000 and by an additional $.50 per carton of cigarettes in 2002. Unlike the
state and provincial taxes described above, U.S. federal excise taxes on
cigarettes are paid by the cigarette manufacturers and passed through to the
Company as a component of the cost of cigarettes. Such increases in U.S.
federal taxes will increase the Company's working capital requirements by
increasing the balances of its inventories and accounts receivable. The
President as well as various members of Congress have suggested additional
excise taxes on cigarette and tobacco products, either as part of the
proposed legislative resolution of various issues affecting the U.S. tobacco
industry discussed above or to finance unrelated federal spending.

IMPACT OF YEAR 2000 COMPLIANCE ISSUES

In accordance with the safe harbor provisions of the Private
Securities Act of 1995, the Company notes that certain statements contained
in the following discussion concerning year 2000 issues are forward-looking
in nature and are subject to many risks and uncertainties. These
forward-looking statements include such matters as the Company's projected
state of readiness, the Company's projected cost of remediation, the expected
date of completion of each phase and the expected completion date of
contingency plans. Such statements also constitute "year 2000 readiness
disclosure" within the meaning of the year 2000 Information and Readiness
Disclosure Act.

The Company relies upon various information technology and
non-information technology systems that the Company is currently in the
process of assessing and modifying or converting to be year 2000 compliant.
Year 2000 compliance indicates that computer software, hardware and embedded
processors are able to correctly process the year 2000 date parameter. The
systems being assessed for year 2000 compliance include the Company's
computer programs, certain building infrastructure components (including
elevators, alarm systems and certain HVAC systems), certain data collection
and transmission devices and the systems of customers, vendors and other
constituents with whom the Company has material relationships that could have
an impact on the Company's operations. Non-compliance could result in a
disruption of the business, which could have a material impact on the
Company's results of operations, financial position and/or cash flows.

The most reasonable and likely result of non-compliance would be the
Company's inability to utilize its computer systems to process daily
transactions, which could result in increased operating costs and delayed
shipments to customers, and as a result, the possible monetary losses from
canceled future business and lawsuits for breach of contract with these
customers. The Company is currently in the process of developing contingency
plans for various business disruptions, which will include procedures to
mitigate the effect of year 2000 non-compliance issues. The contingency plans
will include procedures for alternate processing of daily transactions in the
event of an inability to use the Company's computer systems, as well as
procedures for transmitting and receiving data from third parties with
non-compliant systems.

<PAGE>

IMPACT OF YEAR 2000 COMPLIANCE ISSUES (CONTINUED)

The assessment phase of the Company's systems was complete as of
December 31, 1998. The Company has completed modification or conversion and
testing of approximately 85% of the Company's systems as of December 31,
1998. The Company presently believes that the modification or conversion of
existing systems will be completed in the second quarter of 1999.

The Company has initiated formal communications with customers,
vendors and other constituents with whom the Company has material
relationships, to determine the extent to which the Company is vulnerable to
those third parties' failure to become year 2000 compliant. The Company
presently believes that the third party assessment process will be completed
by June 30, 1999 and was approximately 80% complete as of December 31, 1998.
However, there can be no assurance that the systems of other companies will
be modified or converted on time, which could have an adverse effect on the
Company's operations.

The Company has utilized and will continue to utilize internal
resources to modify or convert and test for year 2000 compliance. The
estimated total cost for the assessment, modification or converting and
testing of the Company's systems is approximately $1.1 million. These costs
represent approximately 45% of the fiscal 1998 information technology
department expenses and are comprised of $0.1 million for assessment and $1.0
million for software modification or conversion. As a result of the year 2000
compliance effort, the Company believes that no information technology
projects have been deferred that will have a material impact on the Company's
operations. All of the costs related to year 2000 compliance have been
expensed as incurred, and have been and are expected to be, funded through
operating cash flows. The Company has incurred approximately $1.0 million of
costs as of December 31, 1998 which were comprised of $0.1 million for
assessment and $0.9 million for software modification or conversion.

The costs associated with year 2000 compliance are based on
management's estimates, which were derived using numerous assumptions of
future events, including the cost and continued availability of certain
resources, and other factors. However, there can be no assurance that these
estimates will be achieved and actual results could differ materially from
those anticipated.

INFLATION

In response to increases or decreases in manufacturers' prices with
respect to any of the Company's products, the Company historically has
adjusted its selling price in order to maintain its gross profit dollars.
Therefore, inflation and deflation generally do not have a material impact on
the Company's gross profit. As described in "Tobacco Industry Business
Environment", significant increases in manufacturers' prices of cigarettes
have occurred, due to the settlement of a number of legal issues facing the
industry. The Company has been able to pass along to its customers all of the
price increases that have occurred to date, and, based upon the past
experience of the Company, would expect to pass along any future price or tax
increases.

During the past several years, low levels of overall inflation have
resulted in historically low interest rates, which have benefited the
Company's results of operations because of the Company's high degree of
leverage. If interest rates were to increase, as a result of increased
inflation or otherwise, the Company could be adversely affected.

NEW ACCOUNTING PRONOUNCEMENTS

See Note 11 "New Accounting Pronouncements" included in the Notes to
the Consolidated Financial Statements contained elsewhere in this Form 10-K.

<PAGE>

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's major risk exposure is changes in short-term interest
rates on its domestic variable rate debt. Depending upon the borrowing option
chosen, the variable rate debt is based upon either the bank's Prime Rate,
the Eurodollar Rate, or the Commercial Paper rate, plus an applicable margin
over one of these base rates. If interest rates on existing variable rate
debt rose 54 basis points (which approximates 10%), the Company's results
from operations and cash flows would not be materially affected.

The Company conducts business in Canada. However, changes in the
U.S./Canadian exchange rate had no material impact on the overall results of
the Canadian operation, as virtually all revenues and expenses of such
operations are Canadian dollar based.

<PAGE>

ITEM 8. FINANCIAL STATEMENTS

PAGE
----
<S> <C>
Independent Auditors' Report (Deloitte & Touche LLP)............................................. 20

Independent Auditors' Report (KPMG LLP).......................................................... 21

Consolidated Balance Sheets as of December 31, 1997 and 1998..................................... 22

Consolidated Statements of Income for the years ended December 31, 1996, 1997 and 1998........... 23

Consolidated Statements of Shareholders' Equity (Deficit) for the years ended December 31, 1996,
1997 and 1998................................................................................. 24

Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1997 and 1998....... 25

Notes to Consolidated Financial Statements....................................................... 26

</TABLE>

<PAGE>

INDEPENDENT AUDITORS' REPORT

TO THE BOARD OF DIRECTORS
CORE-MARK INTERNATIONAL, INC.:

We have audited the accompanying consolidated balance sheet of Core-Mark
International, Inc. and subsidiaries (the "Company") as of December 31, 1998,
and the related consolidated statements of income, shareholders' equity
(deficit) and cash flows for the year then ended. These 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 audit.

We conducted our audit 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 audit provides a reasonable basis for our opinion.

In our opinion, such 1998 consolidated financial statements present
fairly, in all material respects, the financial position of Core-Mark
International, Inc. and subsidiaries as of December 31, 1998, and the results of
their operations and their cash flows for the year then ended, in conformity
with generally accepted accounting principles.

/s/ Deloitte & Touche LLP

SAN FRANCISCO, CALIFORNIA
FEBRUARY 25, 1999

20
<PAGE>

INDEPENDENT AUDITORS' REPORT

TO THE BOARD OF DIRECTORS
CORE-MARK INTERNATIONAL, INC.:

We have audited the accompanying consolidated balance sheets of Core-Mark
International, Inc. and subsidiaries (the "Company") as of December 31, 1997 and
1996, and the related consolidated statements of income, shareholders' equity
(deficit) and cash flows for each of the years in the two-year period ended
December 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Core-Mark
International, Inc. and subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
two-year period ended December 31, 1997, in conformity with generally accepted
accounting principles.

/s/ KPMG LLP

SAN FRANCISCO, CALIFORNIA
FEBRUARY 20, 1998

<PAGE>

CORE-MARK INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1998
(IN THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
1997 1998
------ -------
<S> <C> <C>
ASSETS

Current assets:

Cash ................................................................. $ 15,281 $ 24,586
Receivables:
Trade accounts, less allowance for doubtful
accounts of $2,950 and $2,761, respectively.................. 96,610 103,412
Other............................................................. 12,806 12,578
Inventories, net of LIFO allowance of $15,718 and
$34,332, respectively............................................. 103,246 112,481
Prepaid expenses and other............................................ 5,847 6,576
-------- --------
Total current assets.............................................. 233,790 259,633

Property and equipment:
Equipment............................................................. 47,587 52,032
Leasehold improvements................................................ 9,046 9,300
-------- --------
56,633 61,332
Less accumulated depreciation and amortization........................ (28,633) (33,283)
-------- --------
Net property and equipment........................................ 28,000 28,049
Other assets ............................................................. 8,277 7,227
Goodwill, net of accumulated amortization of
$17,293 and $19,375, respectively..................................... 66,513 64,481
-------- --------
$336,580 $359,390
-------- --------
-------- --------

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

Current liabilities:
Trade accounts payable................................................ $ 50,737 $ 48,867
Cigarette and tobacco taxes payable................................... 43,506 45,073
Income taxes payable.................................................. 1,085 2,698
Deferred income taxes................................................. 7,599 6,992
Other accrued liabilities............................................. 28,647 34,514
-------- --------
Total current liabilities......................................... 131,574 138,144

Long-term debt............................................................. 197,012 208,124
Other accrued liabilities and deferred income taxes........................ 9,030 9,260
-------- --------
Total liabilities..................................................... 337,616 355,528

Commitments and contingencies

Shareholders' equity (deficit):
Common stock; $.01 par value; 10,000,000 shares authorized;
5,500,000 shares issued and outstanding........................... 55 55
Additional paid-in capital............................................ 26,121 26,121
Accumulated deficit................................................... (22,286) (15,077)
Accumulated comprehensive loss:
Cumulative currency translation adjustments....................... (2,879) (4,225)
Additional minimum pension liability.............................. (2,047) (3,012)
-------- --------
Total shareholders' equity (deficit).................................. (1,036) 3,862
-------- --------
$336,580 $359,390
-------- --------
-------- --------
</TABLE>

The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.

<PAGE>

CORE-MARK INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS OF DOLLARS)

1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Net sales............................................ $2,175,367 $2,395,867 $2,476,376
Cost of goods sold................................... 2,017,654 2,216,162 2,295,659
------------ ------------ ------------

Gross profit................................... 157,713 179,705 180,717

Operating and administrative expenses................ 130,493 148,902 150,977
------------ ------------ ------------

Operating income............................... 27,220 30,803 29,740

Interest expense, net................................ 9,916 18,181 15,402
Amortization of debt refinancing costs............... 1,319 1,498 2,204
------------ ------------ ------------

Income before income taxes and
extraordinary item.......................... 15,985 11,124 12,134

Income tax expense................................... 6,941 4,834 4,925
------------ ------------ ------------

Income before extraordinary item............... 9,044 6,290 7,209

Extraordinary item - loss on early
extinguishment of debt, net of income
tax benefit of $1,220.......................... (1,830) -- --
------------ ------------ ------------

Net income........................................... $ 7,214 $ 6,290 $ 7,209
------------ ------------ ------------
------------ ------------ ------------

</TABLE>

The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.

<PAGE>

CORE-MARK INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)

ACCUMULATED TOTAL
COMMON STOCK ADDITIONAL OTHER SHAREHOLDERS'
------------------ PAID-IN ACCUMULATED COMPREHENSIVE EQUITY COMPREHENSIVE
SHARES AMOUNT CAPITAL DEFICIT INCOME (LOSS) (DEFICIT) INCOME
--------- ------- ----------- ------------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995................ 100 $ -- $128,351 $ (35,790) $ (4,892) $ 87,669

Net income................................ -- -- -- 7,214 -- 7,214 $ 7,214
Additional minimum pension liability...... -- -- -- -- 587 587 587
Foreign currency translation adjustments.. -- -- -- -- (295) (295) (295)
Recapitalization:
Issuance of new $.01 par value common... 27 -- 41,250 -- -- 41,250 --
Repurchase of old $.01 par value
common............................... (91) -- (141,250) -- -- (141,250) --
Stock split: 155,000 for 1............. 5,499,964 55 (55) -- -- -- --
Transaction costs....................... -- -- (2,175) -- -- (2,175) --
---------- ---- -------- ------- ------- ------- --------
Balance, December 31, 1996................ 5,500,000 55 26,121 (28,576) (4,600) (7,000) $ 7,506
--------
--------
Net income................................ -- -- -- 6,290 -- 6,290 6,290
Additional minimum pension liability...... -- -- -- -- 945 945 945
Foreign currency translation adjustments.. -- -- -- -- (1,271) (1,271) (1,271)
---------- ---- -------- ------- ------- ------- --------
Balance, December 31, 1997................ 5,500,000 55 26,121 (22,286) (4,926) (1,036) $ 5,964
--------
--------
Net income................................ -- -- -- 7,209 -- 7,209 7,209
Additional minimum pension liability...... -- -- -- -- (965) (965) (965)
Foreign currency translation adjustments.. -- -- -- -- (1,346) (1,346) (1,346)
---------- ---- -------- ------- ------- ------- --------
BALANCE, DECEMBER 31, 1998................ 5,500,000 $55 $26,121 $(15,077) $(7,237) $ 3,862 $ 4,898
--------- --- ------- --------- -------- ------- --------
--------- --- ------- --------- -------- ------- --------
</TABLE>

The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.

<PAGE>

CORE-MARK INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS OF DOLLARS)

1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
CASH PROVIDED BY
OPERATING ACTIVITIES:

Net income............................................................. $ 7,214 $ 6,290 $ 7,209
Adjustments to reconcile net income to
net cash provided by operating activities:
LIFO expense.................................................. 1,376 3,266 18,614
Amortization of goodwill...................................... 1,978 2,073 2,082
Depreciation and amortization................................. 4,595 5,455 5,983
Amortization of debt refinancing fees......................... 1,319 1,498 2,204
Extraordinary loss on early extinguishment of debt............ 1,830 -- --
Deferred income taxes......................................... 901 1,912 (1,183)
Other adjustments for non-cash and
non-operating activities................................ 235 (557) (71)
Changes in operating assets and liabilities, net of acquisitions:
(Increase) decrease in trade accounts receivable.............. 2,790 690 (7,760)
(Increase) decrease in other receivables...................... 1,094 (679) 76
(Increase) decrease in inventories............................ (4,096) 69 (29,151)
Increase in prepaid expenses and other........................ (1,006) (52) (1,236)
Increase (decrease) in trade accounts payable................. 4,410 (253) (1,007)
Increase in cigarette and tobacco taxes payable............... 3,368 453 2,726
Increase (decrease) in other accrued
liabilities and income taxes payable.................... 613 (2,618) 7,447
------ ------ ------
Net cash provided by operating activities.............................. 26,621 17,547 5,933
------ ------ ------

INVESTING ACTIVITIES:
Additions to property and equipment................................ (6,079) (9,378) (5,311)
Net assets of acquired businesses.................................. -- (21,361) --
------ ------ ------
Net cash used in investing activities.................................. (6,079) (30,739) (5,311)
------ ------ ------

FINANCING ACTIVITIES:
Issuance of senior subordinated notes.............................. 75,000 -- --
Net borrowings (payments) under revolving credit agreement......... 16,865 3,549 (62,888)
Debt refinancing fees.............................................. (8,662) -- (1,579)
Net proceeds from sale of common stock............................. 39,075 -- --
Net proceeds from securitization of trade accounts receivable...... -- -- 74,000
Purchases of common shares......................................... (141,250) -- --
------ ------ ------
Net cash provided by (used in) financing activities.................... (18,972) 3,549 9,533
------ ------ ------

Effects of changes in foreign exchange rates........................... (248) (845) (850)
------ ------ ------
Increase (decrease) in cash............................................ 1,322 (10,488) 9,305
Cash, beginning of year................................................ 24,447 25,769 15,281
------ ------ ------
CASH, END OF YEAR $ 25,769 $ 15,281 $ 24,586
-------- -------- --------
-------- -------- --------

SUPPLEMENTAL CASH FLOW INFORMATION:
Cash payments during the year for:
Interest......................................................... $6,732 $ 17,937 $15,201
Income taxes..................................................... 7,427 2,301 4,523

</TABLE>

The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.

<PAGE>

CORE-MARK INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

1. ORGANIZATION AND FORM OF BUSINESS

Core-Mark International, Inc. and subsidiaries (the "Company") is a
full-service wholesale distributor of tobacco, food and other consumer products
to convenience stores, grocery stores, mass merchandisers and liquor and drug
stores in western North America.

On August 7, 1996, the Company completed a recapitalization as described
in Note 3. Upon completion of the recapitalization, and at December 31, 1996,
1997 and 1998, Jupiter Partners L.P. owned 75% and senior management retained
ownership of 25%, respectively, of the outstanding stock of the Company.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

These financial statements have been prepared on the accrual basis of
accounting in accordance with generally accepted accounting principles. This
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates. Management believes any differences resulting from
estimates will not have a material effect on the Company's consolidated
financial position, results of operations or cash flows.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the Company and its wholly
owned subsidiaries. All significant intercompany balances and transactions are
eliminated.

FOREIGN CURRENCY

Assets and liabilities of the Company's Canadian operations are
translated at exchange rates in effect at year-end. Income and expenses are
translated at average rates for the year. Adjustments resulting from such
translation are included in cumulative currency translation adjustments in other
comprehensive income, a separate component of shareholders' equity.

EXCISE TAXES

State and provincial excise taxes paid by the Company on cigarettes were
$479.2 million, $505.4 million and $466.8 million, for the years ended December
31, 1996, 1997 and 1998, respectively, and are included in net sales and cost of
goods sold.

INVENTORIES

Inventories are valued at the lower of cost or market. In the United
States, cost is determined on a last-in, first-out (LIFO) basis using Producer
Price Indices as determined by the Department of Labor and Statistics. Under
LIFO, current costs of goods sold are matched against current sales. Inventories
in Canada amount to $20.3 million and $17.5 million at December 31, 1997 and
1998, respectively, and are valued on a first-in, first-out (FIFO) basis.

During periods of rising prices, the LIFO method of costing inventories
generally results in higher current costs being charged against income while
lower costs are retained in inventories. An increase in cost of goods sold and a
decrease in inventories of $1.4 million, $3.3 million and $18.6 million resulted
from using the LIFO method for the years ended December 31, 1996, 1997 and 1998,
respectively.

<PAGE>

Core-Mark International, Inc.
Notes to Consolidated Financial Statements

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost, net of accumulated
depreciation and amortization. Depreciation and amortization are provided on
the straight-line method over the estimated useful lives of owned assets. The
estimated useful lives for equipment are principally 5 to 15 years. Leasehold
improvements are amortized over the estimated useful life of the property or
over the term of the lease, whichever is shorter.

GOODWILL

Goodwill, which is the excess of purchase price over fair value of net
assets acquired, is amortized on a straight-line basis over a forty-year period.
Amortization expense for the year ended December 31, 1996 was $2.0 million and
for each of the years ended December 31, 1997 and 1998 was $2.1 million.

The Company assesses the recoverability of long-lived assets, including
goodwill, by determining whether the amortization of such assets over the
remaining life can be recovered through undiscounted future operating cash flows
of the related operations. Based on this calculation, the Company is of the
opinion that there is no impairment of long-lived assets as of December 31,
1998.

REVENUE RECOGNITION

The Company recognizes revenue at the time the product is shipped to the
customer.

STOCK-BASED COMPENSATION PLAN

In 1997, the Company adopted a Stock Option Plan for its key employees.
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its employee stock options. Under APB 25,
because the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recognized. The Company has adopted the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting
for Stock-Based Compensation."

PENSION COSTS AND OTHER POSTRETIREMENT BENEFIT COSTS

Pension costs and other postretirement benefit costs charged to earnings
are determined on the basis of annual valuations by an independent actuary.
Adjustments arising from plan amendments, changes in assumptions and experience
gains and losses are amortized over the expected average remaining service life
of the employee group.

INCOME TAXES

The Company accounts for income taxes under the liability method in
accordance with Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes" (see Note 7).

RECLASSIFICATIONS

Prior years' amounts in the consolidated financial statements have been
reclassified where necessary to conform to the current year's presentation.

<PAGE>

Core-Mark International, Inc.
Notes to Consolidated Financial Statements

3. CAPITAL TRANSACTIONS

AUGUST 7, 1996 RECAPITALIZATION

On August 7, 1996, the Company completed a recapitalization (the
"Recapitalization") which resulted in the purchase of newly issued common stock
of the Company by Jupiter Partners L.P. ("Jupiter") for $41.3 million in cash,
the redemption of all of the common stock held by three financial institutions
and a portion of the common stock held by six members of senior management for
$135.0 million in cash and $6.3 million initial value of subordinated notes due
2004. Pursuant to the stock subscription agreement between the Company and
Jupiter, the Company paid an affiliate of Jupiter an advisory fee of $2.2
million on August 7, 1996. Upon completion of the Recapitalization, Jupiter and
senior management owned 75% and 25%, respectively, of the outstanding common
stock of the Company. Jupiter also purchased from the Company an $18.8 million
subordinated note due 2004. Both of these subordinated notes were repaid during
1996 using the proceeds of the senior subordinated notes discussed in Note 4.

Simultaneously with the closing of the stock purchase and the
redemptions, the Company fully repaid the outstanding debt under the previously
existing credit facility. The early extinguishment of the previously existing
debt resulted in a one-time extraordinary charge to income to write-off
unamortized debt refinancing costs of $1.8 million, which is net of a $1.2
million income tax benefit.

4. FINANCING

Long-term debt consisted of the following at December 31 (in thousands):

1997 1998
-------- --------
<S> <C> <C>
Accounts receivable facility........................ $ - $ 74,000
Revolving credit facility........................... 122,012 59,124
Senior subordinated notes........................... 75,000 75,000
-------- --------

Long-term debt................................. $197,012 $208,124
-------- --------
-------- --------

</TABLE>

ACCOUNTS RECEIVABLE FACILITY

On April 1, 1998, the Company entered into a transaction to securitize
its U.S. trade accounts receivable portfolio ("Accounts Receivable Facility").
In connection with this transaction, the Company formed a wholly-owned special
purpose, bankruptcy-remote subsidiary (the "Special Purpose Company" or "SPC"),
to which the U.S. trade accounts receivable originated by the Company are sold
or contributed, without recourse, pursuant to a receivables sale agreement. The
receivables have been assigned, with a call option by the SPC, to a trust formed
pursuant to a pooling agreement. On April 1, 1998, the SPC issued two classes of
term certificates with an aggregate principal value of $55 million, and variable
certificates of up to $30 million representing fractional undivided interests in
the receivables and the proceeds thereof.

The interest rate on the fixed term certificates is 0.28% (Class A) and
0.65% (Class B) above the Eurodollar Rate which was 5.06% as of December 31,
1998. The interest rate on the variable certificates is 0.50% above the
commercial paper rate (as defined in the securitization agreement), which was
4.90% as of December 31, 1998. There is a commitment fee and facility fee of
0.375% and 0.1%, respectively, on the total value of available variable
certificates. As of December 31, 1998, the amount outstanding under the Accounts
Receivable Facility was $74.0 million, with sufficient collateral to issue an
additional $11.0 million of variable certificates.

<PAGE>

Core-Mark International, Inc.
Notes to Consolidated Financial Statements

4. FINANCING (CONT.)

REVOLVING CREDIT FACILITY

In connection with the securitization of accounts receivable, on April
1, 1998, the Company amended its Revolving Credit Facility. The amendment
reduced the Revolving Credit Facility from $175 million to $120 million,
extended the maturity from June 30, 2001 through April 1, 2003, and reduced
interest rates. The Revolving Credit Facility initially provided for
aggregate borrowings of up to $210.0 million, consisting of: (i) a $35.0
million term loan (the "Term Loan"), which was repaid as discussed below, and
(ii) a revolving credit facility (the "Revolving Credit Facility") under
which borrowings in the amount of up to $175.0 million were available for
working capital and general corporate purposes. Borrowings under this
facility remain subject to borrowing base limitations based upon levels of
eligible inventories, accounts receivable, other receivables and cash.
Included in this facility are letters of credit up to a maximum of $40.0
million.

Under the Revolving Credit Facility, the Company must maintain certain
financial covenants as prescribed in the credit agreement, including, but not
limited to, current ratio, net worth, leverage and interest coverage, and
operating income before certain non-cash items. The Revolving Credit Facility
limits certain activities of the Company, including, but not limited to,
indebtedness, creation of liens, acquisitions and dispositions, capital
expenditures, investments and dividends.

Under the Revolving Credit Facility the Company has the option to borrow
under: (i) Revolving Credit Loans, which prior to the amendment, bore interest
at 1.5% above the bank's Prime Rate; or (ii) Eurodollar Loans, which prior to
the amendment, bore interest at 2.5% above the bank's Eurodollar Rate. The
amendment reduced interest rates to 1.0% above the Prime Rate, and to 2.0% above
the Eurodollar Rate, as defined in the amendment. The Company has the ability to
further reduce interest rates based on certain leverage ratio criteria as
defined in the amendment. Based on this criteria, the Company further reduced
its interest rates, effective October 1, 1998, from 1.0% to 0.75% above the
Prime Rate, and from 2.0% to 1.75% above the Eurodollar Rate, which are the
rates in effect at December 31, 1998. The bank's Prime Rate and Eurodollar Rate
was 7.75% and 5.06%, respectively, at December 31, 1998.

As of December 31, 1998, the amount outstanding under the Revolving
Credit Facility was $59.1 million; an additional $32.8 million, after taking
into account the borrowing base, was available to be drawn. There is a
commitment fee of 0.375% on the unused portion of the Revolving Credit Facility.
The obligations are secured by all assets of the Company, with the exception of
U.S. trade accounts receivable, which are utilized to support the Accounts
Receivable Facility.

The Company had letters of credit of $8.3 million and $4.9 million
outstanding at December 31, 1997 and 1998, respectively. The letters of credit
are issued primarily to secure the Company's bond and insurance programs. The
Company pays fees of 1.75% per annum on the outstanding portion of letters of
credit. Prior to the amendment these fees were 2.50% per annum.

The net result of the (i) securitization of the Company's U.S. trade
accounts receivable portfolio and (ii) the modification of the Revolving Credit
Facility was to lower the Company's cost of borrowings, and to increase its
variable-rate borrowing capacity from $175 million to $205 million. The Company
incurred approximately $1.6 million for legal, professional and other costs
related to the transactions described above. These costs were capitalized and
classified as other assets and are being amortized over the term of these
facilities.

In 1996, the Company incurred approximately $8.7 million for legal,
professional, and other costs related to the original Revolving Credit Facility,
and the Senior Subordinated Notes described below. These costs were capitalized
and classified as other assets, and were initially amortized on a straight-line
basis over the term of those facilities. As a result of the 1998 amendment to
the Revolving Credit Facility, the Company wrote off $0.9 million of costs
relating to the original credit facility.

SENIOR SUBORDINATED NOTES

On September 27, 1996, the Company issued $75.0 million of 11 3/8% Senior
Subordinated Notes (the "Notes") which mature on September 15, 2003, the
proceeds of which were used to repay in full the Term Loan discussed above and
the subordinated notes discussed in Note 3. Interest on the Notes is payable
semi-annually on March 15 and September 15 of each year. The Notes limit certain
activities of the Company, including, but not limited to, changes in control,
incurrence of indebtedness, creation of liens, acquisitions and dispositions,
investments and dividends.

<PAGE>

Core-Mark International, Inc.
Notes to Consolidated Financial Statements

5. COMMITMENTS AND CONTINGENCIES

LEASES

The Company leases the majority of its sales and warehouse distribution
facilities, automobiles and trucks under lease agreements expiring at various
dates through 2008, excluding renewal options. The leases generally require the
Company to pay taxes, maintenance and insurance. Management expects that in the
normal course of business, leases that expire will be renewed or replaced by
other leases.

Future minimum rental payments under non-cancelable operating leases
(with initial or remaining lease terms in excess of one year) were as follows as
of December 31, 1998 (in thousands):

<TABLE>
<S> <C>
1999 ................................................... $11,920
2000 ................................................... 10,460
2001 ................................................... 8,737
2002 ................................................... 5,734
2003 ................................................... 3,250
Thereafter.............................................. 8,029
-------
Total minimum lease payments....................... 48,130
Less minimum sublease rental income................ (664)
-------
$47,466
-------
-------
</TABLE>

Rental expense for operating leases was $11.7 million, $13.3 million and
$13.9 million for the years ended December 31, 1996, 1997 and 1998,
respectively.

CLAIMS AND ASSESSMENTS

The Company is a defendant to claims seeking damages for injuries
allegedly arising from the use of tobacco products. The Company has been
indemnified with respect to certain claims in each of the lawsuits regarding
tobacco products. The Company is also a defendant to claims arising in the
ordinary course of business. Management believes that the disposition of
these matters will not have a material adverse effect on the Company's
consolidated financial position, results of operations or cash flows.

<PAGE>

Core-Mark International, Inc.
Notes to Consolidated Financial Statements

6. EMPLOYEE BENEFIT PLANS

PENSION PLAN

The Company sponsors a qualified pension plan and a non-pension
postretirement benefit plan for employees hired before September 1986. The
following tables provide a reconciliation of the changes in the plans' benefit
obligations and fair value of assets over the two-year period ending December
31, 1998, and a statement of the December 31 funded status for both years (in
thousands):

<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
------------------------------- ------------------------------
1997 1998 1997 1998
--------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
BENEFIT OBLIGATION RECONCILIATION
January 1 obligation $ 14,642 $ 14,791 $ 1,937 $ 2,063
Service cost - - 37 22
Interest cost 1,072 1,115 145 135
Participant contributions - - 69 64
Actuarial (gain)/loss 149 1,480 44 (93)
Benefit payments (1,072) (1,136) (169) (129)
------------ ------------ ------------ ------------
December 31 obligation $ 14,791 $ 16,250 $ 2,063 $ 2,062
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------

FAIR VALUE OF PLAN ASSETS RECONCILIATION
January 1 fair value of plan assets $ 13,810 $ 14,558 $ - $ -
Actual return on plan assets 1,820 1,447 - -
Employer contributions - - 100 65
Participant contributions - - 69 64
Benefit payments (1,072) (1,136) (169) (129)
------------ ------------ ------------ ------------
December 31 fair value of plan assets $ 14,558 $ 14,869 $ - $ -
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------

FUNDED STATUS
December 31 funded status $ (233) $ (1,381) $ (2,063) $ (2,062)
Unrecognized:
Unamortized prior service cost - - (185) (168)
Actuarial loss 2,047 3,012 1,048 904
------------ ------------ ------------ ------------
Net amount recognized $ 1,814 $ 1,631 $ (1,200) $ (1,326)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>

The following table provides the amounts recognized in the Company's
consolidated balance sheets as of December 31 (in thousands):

<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
------------------------------- ------------------------------
1997 1998 1997 1998
--------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Accrued benefit liability $ (233) $ (1,381) $ (1,200) $ (1,326)
Additional minimum pension
liability 2,047 3,012 - -
---------- --------- ----------- -----------
Net amount recognized $ 1,814 $ 1,631 $ (1,200) $ (1,326)
---------- --------- ----------- -----------
---------- --------- ----------- -----------
</TABLE>

<PAGE>

Core-Mark International, Inc.
Notes to Consolidated Financial Statements

6. EMPLOYEE BENEFIT PLANS (CONT.)

The following table provides components of the net periodic pension and other
benefit cost for fiscal years 1997 and 1998 (in thousands):

<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
------------------------------- ------------------------------
1997 1998 1997 1998
--------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Service cost $ - $ - $ 37 $ 22
Interest cost 1,072 1,115 145 135
Expected return on plan assets (966) (1,047) - -
Amortization of:
Prior service cost - - (17) (17)
Net actuarial loss 197 115 65 50
------------- ------------- ------------- ------------
Net periodic benefit cost $ 303 $ 183 $ 230 $ 190
------------- ------------- ------------- ------------
------------- ------------- ------------- ------------
</TABLE>

The amount included within accumulated other comprehensive income in the
Company's consolidated statement of shareholders' equity was $3,012,000 at
December 31, 1998 and $2,047,000 at December 31, 1997.

The prior-service costs are amortized on a straight-line basis over the
average remaining service period of active participants. Gains and losses in
excess of 10% of the greater of the benefit obligation and market-related value
of assets are amortized over the average remaining service period of active
participants.

The assumptions used in the measurement of the Company's benefit obligations are
shown in the following table:

<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
--------------- --------------- --------------- --------------
1997 1998 1997 1998
--------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
December 31 weighted-average
assumptions:
Discount rate 7.50% 7.00% 7.50% 7.00%
Expected return on plan assets 7.50 7.50 N/A N/A
Rate of compensation increase N/A N/A N/A N/A
</TABLE>

For measurement purposes, an 11% annual rate of increase in the per
capita cost of covered health care benefits was assumed for 1997 and 10% for
1998. The rate was assumed to decrease gradually each year to a rate of 6% for
2002 and remain at that level thereafter.

Assumed health care cost trend rates have a significant effect on the
amounts reported for the postretirement health care plans. A 1% change in
assumed health care cost trend rates would have the following effects (dollars
in thousands):

<TABLE>
<CAPTION>
1%
--------------------------------
INCREASE DECREASE
--------------- --------------
<S> <C> <C>
Effect on total of service and interest cost components of net
periodic postretirement health care benefit cost $ 27 $(23)
Effect on the health care component of the accumulated
postretirement benefit obligation 380 (321)
</TABLE>

SAVINGS PLANS

The Company maintains defined contribution plans in the United States,
subject to Section 401(k) of the Internal Revenue Code, and in Canada, subject
to the Department of National Revenue Taxation Income Tax Act. Eligible
employees may elect to contribute on a tax-deferred basis from 1% to 10% of
their compensation. A contribution of up to 6% is considered to be a "basic
contribution" and the Company makes a matching contribution of $0.50 for each
dollar of a participant's basic contribution. The Company's contributions to the
plans were $1,017,000, $1,158,000 and $1,133,000 for 1996, 1997 and 1998,
respectively.

<PAGE>

Core-Mark International, Inc.
Notes to Consolidated Financial Statements

6. EMPLOYEE BENEFIT PLANS (CONT.)

STOCK-BASED COMPENSATION PLAN

During 1997, the Company adopted a Stock Option Plan ("Option Plan") for
its key employees, which provides for equity-based incentive awards. Upon
adoption of the Option Plan, the Company had 300,000 options available for
granting. Granted options vest over five years and become exercisable after
eight years, with certain exercise acceleration provisions, including a change
of control of the Company or an initial public stock offering. The Company
issues options to employees with a grant price equal to the fair value.
Accordingly, no compensation expense has been recognized on the Company's Option
Plan.

A summary of the Company's option activity and related information is as
follows:

<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Options outstanding, beginning of the year.................... -- 211,000
Granted.................................................. 213,000 13,000
Exercised................................................ -- --
Forfeitures.............................................. (2,000) (9,000)
------- -------
Options outstanding, end of year.............................. 211,000 215,000
------- -------
------- -------

Options exercisable at end of year............................ -- --

Options available for grant at end of year.................... 89,000 85,000
</TABLE>

All of the Company's options granted in 1997 and 1998 have an exercise
price of $10.00 and a weighted-average remaining contractual life of 6.1 years.

Pro forma information regarding net income is required by SFAS 123, and
has been determined as if the Company had recorded compensation cost based on
the fair value of the awards at the grant dates. The fair value for the options
was estimated at the date of grant using a Black-Scholes option pricing model
with the following assumptions: risk free interest rate of 5.76% for 1997 and
4.76% for 1998; volatility of 0.00%; dividend yield of 0.00%; and an expected
life of the option of 5 years. The weighted-average estimated fair value per
option granted in 1997 and 1998 was $2.47 and $2.10, respectively. For the
purpose of pro forma disclosure, the estimated fair value of the options is
amortized to expense over the options' vesting period. Based on these
assumptions, pro forma net income for 1997 and 1998 would have been $6,186,000,
and $7,103,000, respectively.

7. INCOME TAXES

The Company's income tax expense, before extraordinary items, consists of
the following for the years ended December 31 (in thousands):

<TABLE>
<CAPTION>
1996 1997 1998
---------- --------- --------
<S> <C> <C> <C>
Current:
Federal.................................................. $4,648 $1,646 $4,594
State.................................................... 1,220 648 1,238
Foreign.................................................. 172 628 276
------ ------ ------
6,040 2,922 6,108
Deferred:
Federal.................................................. 733 1,565 (1,590)
State.................................................... (45) 181 313
Foreign.................................................. 213 166 94
------ ------ ------
901 1,912 (1,183)
------ ------ ------
Income tax expense............................................ $6,941 $4,834 $4,925
------ ------ ------
------ ------ ------
</TABLE>

<PAGE>

Core-Mark International, Inc.
Notes to Consolidated Financial Statements

7. INCOME TAXES (CONT.)

A reconciliation between the Company's income tax expense and income
taxes computed by applying the statutory federal income tax rate to income
before income taxes and extraordinary items is as follows for the years ended
December 31 (in thousands):

<TABLE>
<CAPTION>
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Expected federal income tax expense at the statutory rate..... $5,595 $3,894 $4,247
Increase (decrease) in taxes resulting from:
Goodwill amortization.................................... 692 692 692
State income tax expense, net of federal tax benefit..... 952 673 844
Other, net............................................... (298) (425) (858)
------ ------ ------
Income tax expense............................................ $6,941 $4,834 $4,925
------ ------ ------
------ ------ ------
</TABLE>

Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The tax effects of
significant temporary differences which comprise deferred tax assets and
liabilities are as follows at December 31 (in thousands):

<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards...................................... $ 8,908 $ 7,953
Employee benefits, including postretirement benefits.................. 3,419 3,847
Other................................................................. 4,615 6,031
-------- --------
Total deferred tax assets......................................... 16,942 17,831
Less valuation allowance.............................................. (7,742) (7,153)
-------- --------
Net deferred tax assets........................................... 9,200 10,678
-------- --------

Deferred tax liabilities:
Inventories........................................................... 8,722 8,077
Other................................................................. 10,671 11,560
-------- --------
Total deferred tax liabilities.................................... 19,393 19,637
-------- --------
Net deferred tax liabilities...................................... $ 10,193 $ 8,959
-------- --------
-------- --------
</TABLE>

In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. At each balance sheet date, a
valuation allowance has been established against the deferred tax assets based
on management's assessment. During 1996, 1997 and 1998, the Company recorded a
reduction of $1.5 million, $1.6 million and $0.6 million, respectively in the
valuation allowance due to changes in factors affecting the realizability of the
Company's deferred tax assets including generation of taxable income and changes
in limitations on utilization of net operating loss carryforwards.

At December 31, 1998, the Company has available for U.S. federal income
tax return purposes net operating losses totaling approximately $23.6 million,
subject to certain limitations, which will expire between the years 2005 and
2007. The Company also has available for U.S. income tax return purposes
investment tax credits and alternative minimum tax credits totaling $0.5 million
and $2.9 million, respectively. The investment tax credits expire by the year
2000 while the alternative minimum tax credits have an indefinite utilization
period.

<PAGE>

Core-Mark International, Inc.
Notes to Consolidated Financial Statements

8. FAIR MARKET VALUE OF FINANCIAL INSTRUMENTS

The carrying amount for the Company's cash, trade accounts receivable,
other receivables, trade accounts payable, cigarette and tobacco taxes payable
and other accrued liabilities approximates fair market value because of the
short maturity of these financial instruments.

The carrying amount of the Revolving Credit Facility and Accounts
Receivable Facility, variable rate instruments, approximates fair market
value. The rate of interest, which is tied to either the bank's Prime Rate or
Eurodollar Rate or the commercial paper rate, fluctuates with market
conditions. The fair value of the Notes, calculated based on quoted market
prices, was $79,313,000 and $76,125,000 at December 31, 1997 and 1998,
respectively.

9. SEGMENT INFORMATION

The Company is a broad-line, full service wholesale distributor of
packaged consumer products to the convenience retail industry in western North
America, with revenues generated from the sale of cigarettes, tobacco products,
candy, food, health and beauty aids and general merchandise. The Company's
principal customers include traditional and petroleum convenience stores,
grocery stores, drug stores, mass merchandisers and liquor stores. Management
has determined that the only reportable segment of the Company is its wholesale
distribution segment, based on the level at which executive management reviews
the results of operations in order to make decisions regarding performance
assessment and resource allocation. Wholesale distribution segment information
as of and for the years ended December 31 is set forth below (dollars in
thousands):

<TABLE>
<CAPTION>
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Net sales from external customers............................. $2,175,367 $2,395,867 $2,476,376
Segment depreciation and amortization expense (1)............. 4,195 4,967 5,435
Segment interest expense..................................... 11,245 13,739 13,739
Segment pre-tax operating income (2).......................... 18,353 19,625 18,631
Capital expenditures.......................................... 6,079 9,378 5,311

Segment assets................................................ 322,977 341,583
</TABLE>

-----------------
(1) Represents depreciation of property and equipment, and amortization
of certain deferred assets that are shown as an expense in arriving
at segment pre-tax operating income.
(2) Represents operating income, including allocated interest expense,
but excluding amortization of goodwill and debt refinancing costs,
and income taxes.

A reconciliation of certain of the segment information reported above, to
the applicable items in the consolidated financial statements are as follows
(dollars in thousands):

INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM

<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Segment information .................................... $ 18,353 $ 19,625 $ 18,631
Less: Goodwill and other unallocated amortization ...... 2,378 2,561 2,630
Interest expense: unallocated and other........... (1,329) 4,442 1,663
Amortization of debt refinancing costs ........... 1,319 1,498 2,204
-------- -------- --------
Consolidated total...................................... $ 15,985 $ 11,124 $ 12,134
-------- -------- --------
-------- -------- --------
</TABLE>

<PAGE>

Core-Mark International, Inc.
Notes to Consolidated Financial Statements

9. SEGMENT INFORMATION (CONT.)

INTEREST EXPENSE

<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Segment information........................................... $ 11,245 $ 13,739 $ 13,739
Add: Unallocated and other.................................... (1,329) 4,442 1,663
--------- ------- --------
Consolidated total............................................ $ 9,916 $ 18,181 $ 15,402
--------- -------- --------
--------- -------- --------

DEPRECIATION AND AMORTIZATION

<CAPTION>
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Segment information........................................... $ 4,195 $ 4,967 $ 5,435
Add: Unallocated and other.................................... 400 488 548
--------- ------- --------
Consolidated total............................................ $ 4,595 $ 5,455 $ 5,983
--------- ------- --------
--------- ------- --------

ASSETS

<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Segment information........................................... $ 322,977 $ 341,583
Add: Corporate assets......................................... 13,603 17,807
--------- ---------
Consolidated total............................................ $ 336,580 $ 359,390
--------- ---------
--------- ---------
</TABLE>

The Company operates in the United States and Canada. Foreign and
domestic net sales and identifiable assets are as follows as at and for the
years ended December 31, (in thousands):

<TABLE>
<CAPTION>
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Net Sales:
United States................................................. $1,639,500 $1,871,149 $2,008,813
Canada........................................................ 535,867 524,718 467,563
---------- ---------- ----------
Total......................................................... $2,175,367 $2,395,867 $2,476,376
---------- ---------- ----------
---------- ---------- ----------

Identifiable Assets:
United States................................................. $ 279,171 $ 305,464
Canada........................................................ 43,806 36,119
Corporate..................................................... 13,603 17,807
---------- ----------
Total......................................................... $ 336,580 $ 359,390
---------- ----------
---------- ----------
</TABLE>

10. ACQUISITION OF THE SOSNICK COMPANIES

On February 3, 1997, the Company acquired certain assets and the business
of two related companies, Melvin Sosnick Company and Capital Cigar Company
(collectively "Sosnick" or the "Sosnick Companies"), a wholesale distributor to
the convenience retail market in northern California and northern Nevada.

The assets acquired included trade accounts receivable, inventories and
warehouse equipment. The acquisition excluded the assumption of substantially
all of the liabilities of Sosnick (such as notes payable, trade accounts
payable, commitments to lease warehouse facilities and other liabilities). The
acquisition has been accounted for using the purchase method of accounting, and
the results of operations of Sosnick have been included in the consolidated
financial statements since the date of acquisition. The purchase price for the
assets and the business totaled $21.4 million.

The excess of the purchase price over the fair value of assets acquired
and liabilities assumed was $4.1 million and has been recorded as goodwill, and
is being amortized on a straight-line basis over a period of 40 years.

<PAGE>

Core-Mark International, Inc.
Notes to Consolidated Financial Statements

10. ACQUISITION OF THE SOSNICK COMPANIES (CONT.)

PRO FORMA INFORMATION (UNAUDITED)

The Company's net sales for the year ended December 31, 1996 would have
been $2,409 million if the acquisition had occurred as of January 1, 1996. The
Company's net sales for the year ended December 31, 1997 would have been $2,410
million if the acquisition had occurred as of January 1, 1997. The impact of the
acquisition on net income before the effect of the extraordinary item would not
have been material for the years ended December 31, 1996 and 1997.

11. NEW ACCOUNTING PRONOUNCEMENTS

In 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting
Comprehensive Income," which prescribes standards for reporting comprehensive
income and its components. Comprehensive income consists of net income or loss
for the current period and other comprehensive income (income, expenses, gains
and losses that currently bypass the income statement and are reported directly
in a separate component of equity). SFAS 130 requires that components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. SFAS 130 is effective for
financial statements issued for periods beginning after December 15, 1997, and
was first reflected in the Company's first quarter of 1998 interim financial
statements. Comprehensive income was included in the Consolidated Statement of
Shareholders' Equity (Deficit) in the Company's consolidated financial
statements for the year ended December 31, 1998.

In 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS 131 changes the way companies report
segment information and requires segments to be determined and reported based on
how management measures performance and makes decisions about allocating
resources. SFAS 131 is effective for financial statements issued for periods
beginning after December 15, 1997, and is reflected in the Company's
consolidated financial statements for the year ended December 31, 1998 (see Note
9).

In 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits." This Statement revises employers'
disclosures about pension and other postretirement benefit plans. It does not
change the measurement or recognition of those plans. This Statement
standardizes the disclosure requirements for pensions and other postretirement
benefits to the extent practicable, requires additional information on changes
in the benefit obligations and fair values of plan assets that will facilitate
financial analysis and eliminates certain disclosures. Restatement of
disclosures for the prior year has been made for comparative purposes. This
Statement has been adopted by the Company effective December 31, 1998, and is
reflected herein (see Note 6).

In 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which standardizes the accounting for
derivatives, requiring recognition as either assets or liabilities on the
balance sheet and measurement at fair value. The Company plans to adopt this
statement for fiscal 1999. The Company has not yet determined the effect
adoption of this statement will have on the Company's consolidated financial
position, results of operations or cash flows.

In 1998, the American Institute of Certified Public Accountants issued
Statement of Opinion ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." This SOP provides guidance
on accounting for the costs of computer software developed or obtained for
internal use. This SOP requires that entities capitalize certain internal-use
software costs once certain criteria are met. Currently, the Company
generally expenses the costs of developing or obtaining internal-use software
as incurred. The Company is currently evaluating SOP 98-1, but does not
expect it to have a material impact on its consolidated financial statements.
This SOP is effective for the Company's consolidated financial statements for
the year ended December 31, 1999.

<PAGE>

Core-Mark International, Inc.
Notes to Consolidated Financial Statements

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

(a) Previous independent accountants

(1) (i) On January 27, 1998, the Registrant determined not to
engage KPMG Peat Marwick LLP as the independent public
accountants for its 1998 fiscal year and has appointed
Deloitte & Touche LLP as its independent public
accountants for its 1998 fiscal year.

(ii) The reports of KPMG Peat Marwick LLP on the Registrant's
consolidated financial statements for the fiscal years
ended December 31, 1997 and 1996 did not contain an
adverse opinion or a disclaimer of opinion and were not
qualified or modified as to uncertainty, audit scope or
accounting principles.

(iii) The Audit Committee of the Registrant's Board of Directors
recommended the decision to change independent
accountants, whose decision was approved by the Board of
Directors.

(iv) In connection with the audits of the Registrant's
consolidated financial statements for the fiscal years
ended December 31, 1997 and 1996, and through March 20,
1998, there were no disagreements with KPMG Peat Marwick
LLP on any matters of accounting principles or practices,
financial statement disclosure, or auditing scope or
procedure, which disagreements if not resolved to the
satisfaction of KPMG Peat Marwick LLP, would have caused
KPMG Peat Marwick LLP to make reference to the matter in
connection with its report.

(v) During the Registrant's two most recent fiscal years and
through March 20, 1998, there were no "reportable events"
as defined in Item 304 (a)(1)(v) of Regulation S-K.

(2) The Registrant has received from KPMG Peat Marwick LLP a letter
addressed to the Securities and Exchange Commission stating
whether or not it agrees with the above statements. The copy of
the letter from KPMG Peat Marwick LLP to the Securities and
Exchange Commission dated March 20, 1998 is incorporated herein
by reference as Exhibit 16.1.

(b) New Independent Auditors

(i) On January 27, 1998, the Registrant determined to engage
Deloitte & Touche LLP as its new independent accountants
effective for the 1998 fiscal year. During the Registrant's two
most recent fiscal years and through January 27, 1998, neither
the Registrant nor anyone else on its behalf consulted Deloitte
& Touche LLP regarding any of the matters or events set forth in
Item 304 (a)(2)(i) and (ii) of Regulation S-K.

None.

<PAGE>

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The executive officers and directors of the Company are as follows (as of
December 31, 1998):

NAME AGE POSITION
---- --- --------
<S> <C> <C>
Gary L. Walsh.................................... 57 Chairman and Director
Robert A. Allen.................................. 49 President, Chief Executive Officer and Director
Leo Granucci..................................... 60 Senior Vice President, Sales and Marketing
Leo F. Korman.................................... 51 Senior Vice President, Chief Financial Officer
and Secretary
Basil P. Prokop.................................. 55 President, Canada Division
J. Michael Walsh................................. 50 Senior Vice President, Distribution
Thomas A. Berglund............................... 38 Director
Terry J. Blumer.................................. 40 Director
John F. Klein.................................... 35 Director
John A. Sprague.................................. 46 Director

</TABLE>

GARY L. WALSH has been Chairman and a director of the Company since
1990. He served as Chief Executive Officer of the Company from 1990 through
1997. Effective January 1, 1998, Mr. Walsh retired from his position as Chief
Executive Officer. Mr. Walsh served as President from 1990 until 1996.

ROBERT A. ALLEN has been Chief Executive Officer of the Company since
January 1998 and President since January 1996. He served as Chief Operating
Officer of the Company from January 1996 to December 1997. Prior to 1996, he
served as Senior Vice President, Distribution from 1992 through 1995, and as
Vice President, Distribution from 1989 to 1992. He has been a director of the
Company since 1994.

LEO GRANUCCI has been Senior Vice President, Sales and Marketing since
1994. Prior thereto, he served for seven years as Executive Vice President of
Sales and Marketing at Bergen Brunswig, a wholesale pharmaceutical distribution
company.

LEO F. KORMAN has been Senior Vice President and Chief Financial Officer
since January 1994 and served as Vice President and Chief Financial Officer from
1991 to 1994.

BASIL P. PROKOP has been President of the Canada Division since 1992. Mr.
Prokop joined the Company in 1984.

J. MICHAEL WALSH has been Senior Vice President, Distribution since
January 1996. Prior thereto, he served as Senior Vice President, Operations
since 1992 and served as Vice President, Operations from 1991 to 1992.

THOMAS A. BERGLUND has been a director of the Company since August 1996.
He is a Principal at Jupiter and has been associated with the firm since 1994.
Prior to that he served for three years as an employee of the Invus Group, a
privately funded buy-out group specializing in food-related companies.

TERRY J. BLUMER has been a director of the Company since August 1996.
Prior to co-founding Jupiter in 1994, Mr. Blumer was associated with Goldman,
Sachs & Co. for over eight years, most recently as an Executive Director.

JOHN F. KLEIN has been a director of the Company since August 1996. He is
a Principal at Jupiter and has been associated with the firm since 1995. Prior
to that, he served for three years as a consultant at Bain & Company, a
management consulting firm.

JOHN A. SPRAGUE has been a director of the Company since August 1996.
Prior to co-founding Jupiter in 1994, Mr. Sprague was associated with Forstmann
Little & Co. for eleven years, most recently as a partner. He is a director of
Harmon Industries.

39
<PAGE>

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (CONT.)

Directors are elected for one year terms and hold office until their
successors are elected and qualified or until their earlier resignation or
removal. Executive officers of the Company are appointed by and serve at the
discretion of the Board of Directors. The only family relationship between any
of the executive officers or directors is between Gary L. Walsh and J. Michael
Walsh, who are brothers.

ITEM 11. EXECUTIVE COMPENSATION

COMPENSATION OF DIRECTORS

Directors of the Company do not receive compensation for service as
directors other than reimbursement for reasonable expenses incurred in
connection with attending the meetings.

EXECUTIVE COMPENSATION

The following table summarizes the compensation paid to the Company's
chief executive officer and its four other most highly compensated executive
officers for the years ended December 31, 1998, 1997 and 1996.

SUMMARY COMPENSATION TABLE

ANNUAL COMPENSATION
-------------------
ALL OTHER
FISCAL SALARY BONUS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($)(1)(2)(3)
- --------------------------- ---- --- --- ------------
<S> <C> <C> <C> <C>
Robert A. Allen....................................... 1998 $298,077 $300,000 $7,882
President and Chief Executive Officer 1997 $250,000 $ 87,000 $7,203
1996 $247,457 $102,000 $7,658

Leo Granucci.......................................... 1998 $208,483 $125,000 $7,151
Senior Vice President, Sales and Marketing 1997 $200,762 $ 74,000 $6,801
1996 $200,465 $ 50,000 $7,190

Leo F. Korman......................................... 1998 $206,524 $140,000 $7,135
Senior Vice President and Chief Financial Officer 1997 $198,875 $ 74,000 $6,786
1996 $198,581 $ 95,000 $7,082

J. Michael Walsh...................................... 1998 $198,581 $110,000 $7,070
Senior Vice President, Distribution 1997 $191,226 $ 60,000 $6,663
1996 $190,693 $ 52,500 $6,484

Basil P. Prokop....................................... 1998 $161,812 $ 21,565 $5,003
President, Canada Division 1997 $162,665 $ 64,996 $5,240
1996 $165,528 $ 35,339 $3,729

</TABLE>

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

(1) These figures for 1998 consist of the sum of: (i) Company matching
contributions to the Savings Plan (defined below) in the following amounts:
Mr. Allen, $4,800; Mr. Granucci, $4,800; Mr. Korman, $4,800; and Mr. J.M.
Walsh, $4,800; (ii) Company matching contributions to the Registered
Retirement Savings Plan (defined below) for Mr. Prokop, $3,033; (iii) life
and other insurance premiums in the following amounts: Mr. Allen, $3,082;
Mr. Granucci, $2,351; Mr. Korman, $2,335; Mr. J.M. Walsh, $2,270; and Mr.
Prokop, $1,970.
40

<PAGE>

EXECUTIVE COMPENSATION (CONT.)

(2) These figures for 1997 consist of the sum of: (i) Company matching
contributions to the Savings Plan (defined below) in the following amounts:
Mr. Allen, $4,500; Mr. Granucci, $4,500; Mr. Korman, $4,500; and Mr. J.M.
Walsh, $4,440; (ii) Company matching contributions to the Registered
Retirement Savings Plan (defined below) for Mr. Prokop, $3,250; (iii) life
and other insurance premiums in the following amounts: Mr. Allen, $2,703;
Mr. Granucci, $2,301; Mr. Korman, $2,286; Mr. J.M. Walsh, $2,223; and Mr.
Prokop, $1,990.

(3) These figures for 1996 consist of the sum of: (i) Company matching
contributions to the Savings Plan (defined below) in the following amounts:
Mr. Allen, $4,750; Mr. Granucci, $4,711; Mr. Korman, $4,620; Mr. J.M.
Walsh, $4,094; (ii) Company matching contributions to the Registered
Retirement Savings Plan (defined below) for Mr. Prokop, $1,716; (iii) life
and other insurance premiums in the following amounts: Mr. Allen, $2,908;
Mr. Granucci, $2,479; Mr. Korman, $2,462; Mr. J.M. Walsh, $2,390; and Mr.
Prokop, $2,013.

CERTAIN AGREEMENTS WITH MANAGEMENT

Each member of the Company's top five executive officers has entered into
an agreement with the Company which provides that if the employment of such
officer party thereto is terminated other than for Cause (as defined therein) or
other than as a result of such officer's resignation for Good Reason (as defined
therein), the Company may, in its sole discretion, continue to pay to such
officer, for a period of up to one year following such termination, such
officer's base salary as in effect on the effective date of such termination.
Under these agreements each of such officers has agreed not to engage in
activities that compete with those of the Company (i) while such officer is an
employee of the Company and (ii) if the Company makes the severance payments
described above to such officer, for an additional period of one year after such
employment terminates if such officer's employment with the Company terminates
for Cause or as a result of his resignation other than for Good Reason.

INDEMNIFICATION AGREEMENTS

Each of the Company's directors and Mr. Leo F. Korman, the Company's
Chief Financial Officer, and certain other officers of the Company
(collectively, the "Indemnitees"), is party to an identical indemnification
agreement with the Company. Pursuant to such agreements, the Company has agreed
generally to indemnify and hold harmless each Indemnitee against any losses
incurred in connection with any suit, arbitration or proceeding resulting from
such Indemnitee's service as an officer, agent, employee or director of the
Company, provided that the Company will generally not be required to indemnify
an Indemnitee in connection with losses arising out of the Indemnitee's own
fraudulent or willful misconduct. Each indemnification agreement terminates upon
the occurrence of a Change of Control (as defined in the agreements) of the
Company, provided that the Company's obligations to indemnify for events
occurring prior to such Change of Control continue.

THE SAVINGS PLAN

The Company maintains the Core-Mark International, Inc. Nest Egg Savings
Plan (the "Savings Plan"), which is a defined contribution plan with a cash or
deferred arrangement (as described under Section 401(k) of the Internal Revenue
Code of 1986, as amended). All non-union U.S. employees of the Company and its
affiliates (unless a bargaining agreement expressly provides for participation)
are eligible to participate in the Savings Plan after completing one year of
service.

Eligible employees may elect to contribute on a tax deferred basis from
1% to 10% of their compensation (as defined in the Savings Plan), subject to
statutory limitations. A contribution of up to 6% is considered to be a "basic
contribution" and the Company makes a matching contribution of $0.50 for each
dollar of a participant's basic contribution (all of which may be subject to
certain statutory limitations).

Each participant has a fully vested (nonforfeitable) interest in all
contributions made by the individual and all earnings thereon. Each participant
must be employed at the end of each quarter to receive an allocation of matching
contribution for the most recent calendar quarter.

The amount of Company matching contributions that the following officers
have accrued in the Savings Plan as of December 31, 1998 is as follows: Robert
A. Allen $28,756; Leo Granucci $15,426; Leo F. Korman $28,013; and J. Michael
Walsh $28,639.
41

<PAGE>

THE REGISTERED RETIREMENT SAVINGS PLAN (CANADA)

The Company maintains the Core-Mark International, Inc. Group Retirement
Savings Plan (Canada) (the "Registered Retirement Savings Plan" or "RRSP"),
which is a defined contribution plan with a cash or deferred arrangement (as
described under the Department of National Revenue Taxation Income Tax Act). All
non-union Canadian employees of the Company and its affiliates (unless a
bargaining agreement expressly provides for participation) are eligible to
participate in the Registered Retirement Savings Plan after completing one year
of service.

Eligible employees may elect to contribute on a tax deferred basis from
1% to 10% of their compensation (as defined in the RRSP), subject to statutory
limitations. A contribution of up to 6% is considered to be a "basic
contribution" and the Company makes a matching contribution of $0.50 for each
dollar of a participant's basic contribution (all of which may be subject to
certain statutory limitations).

Basil P. Prokop has $27,811 of Company matching contributions in the
Registered Retirement Savings Plan as of December 31, 1998.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth as of December 31, 1998, certain
information regarding the beneficial ownership of the common stock of the
Company (i) by each person who is known by the Company to own beneficially more
than 5% of the outstanding shares of common stock of the Company, (ii) by each
of the Company's directors and executive officers and (iii) by all directors and
executive officers as a group. The Company believes that the beneficial owners
of the securities listed below, based on information furnished by such owners,
have sole investment and voting power with respect to all the shares of common
stock of the Company shown as being beneficially owned by them.

NUMBER OF
SHARES OF PERCENTAGE OF
COMMON STOCK OF TOTAL SHARES OF
THE COMPANY COMMON STOCK OF
NAME AND ADDRESS OF BENEFICIALLY THE COMPANY
BENEFICIAL OWNERS(a) OWNED -------------
------------------- ------------
<S> <C> <C>
Jupiter............................................................... 4,125,000 75.0%
Robert A. Allen....................................................... 281,875 5.1
Leo Granucci.......................................................... 158,125 2.9
Leo F. Korman......................................................... 213,125 3.9
Basil P. Prokop....................................................... 164,999 3.0
Gary L. Walsh......................................................... 343,751 6.2
J. Michael Walsh...................................................... 213,125 3.9
Thomas A. Berglund.................................................... -- --
Terry J. Blumer....................................................... 4,125,000(b) 75.0
John F. Klein......................................................... -- --
John A. Sprague....................................................... 4,125,000(b) 75.0
All directors and executive officers
as a group (10 persons) (b)....................................... 5,500,000 100.0%

</TABLE>

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

(a) The address for Jupiter, Mr. Berglund, Mr. Blumer, Mr. Klein and Mr. Sprague
is 30 Rockefeller Plaza, Suite 4525, New York, New York 10112. The address for
Gary L. Walsh, Mr. Allen, Mr. Granucci, Mr. Korman, Mr. Prokop and J. Michael
Walsh is 395 Oyster Point Boulevard, Suite 415, South San Francisco, California
94080.

(b) Represents the shares owned by Jupiter. Messrs. Sprague and Blumer exercise
investment and voting power over the shares owned by Jupiter and accordingly are
deemed to "beneficially own" such shares in accordance with Rule 13d-3
promulgated under the Exchange Act. Each of Messrs. Blumer and Sprague disclaim
beneficial ownership of all shares of the Company owned by Jupiter, except to
the extent of their respective ownership interests in such partnership.

42
<PAGE>

STOCKHOLDERS AGREEMENT

On August 7, 1996, the Company entered into a Stockholders Agreement (the
"Stockholders Agreement") with Jupiter, the five executive officers and one
former executive officer listed in the table above (individually, a "Management
Stockholder" and collectively, the "Management Stockholders"), which parties
constitute all of the Company's common stockholders. The Stockholders Agreement
(a) places significant restrictions on the ability of a Management Stockholder
to transfer, pledge or otherwise dispose of 60% of his shares of common stock of
the Company (the "Restricted Shares") prior to the Company's initial public
offering of common stock, and limits the amount of Restricted Shares that may be
sold by such Management Stockholder after such initial public offering, (b)
restricts the ability of a Management Stockholder to pledge his shares of common
stock that do not constitute Restricted Shares, (c) grants "tag-along" rights
(i.e., rights to participate in a sale on a PRO RATA basis) to each stockholder
in connection with the sale (i) by Jupiter of any of its common stock of the
Company and (ii) by a Management Stockholder of any of his Restricted Shares,
and (d) grants to Jupiter "drag-along" rights (i.e., the right to require
Management Stockholders to participate on a PRO RATA basis in a sale by Jupiter)
with respect to shares of common stock held by the Management Stockholders,
whether or not Restricted Shares, in connection with a sale by Jupiter of common
stock constituting at least 1% of the Company's common stock. The Stockholders
Agreement also grants to the Company, first, and Jupiter, second, certain call
rights with respect to the purchase of Restricted Shares held by a Management
Stockholder in the event that, prior to the fifth anniversary of the date of the
Stockholders Agreement, such Management Stockholder's employment with the
Company is terminated (other than as a result of death, disability or
resignation for Good Reason (as defined therein)). The call provision also
applies in the event such Management Stockholder breaches his obligations under
the Severance and Non-Competition Agreement described under "Certain Agreements
with Management". The purchase price with respect to such call rights under the
Stockholders Agreement is the lower of $10 per share and a specified formula
described therein (the "Repurchase Formula"), in the event the call right arises
as a result of such Management Stockholder's termination for Cause (as defined
therein), his resignation other than for Good Reason or a breach of his
obligations under the Severance and Non-Competition Agreement to which he is a
party. The purchase price with respect to a call right arising as a result of
any other employment termination is the Repurchase Formula. Jupiter has agreed
that neither it nor the Company will exercise their respective call rights with
respect to the Restricted Shares held by Gary L. Walsh in the event that, after
December 31, 1997, his employment with the Company is terminated without cause
or he resigns without cause or for Good Reason. Mr. Walsh resigned as chief
executive officer, effective January 1, 1998.

REGISTRATION RIGHTS AGREEMENT

Pursuant to a Registration Rights Agreement, dated as of August 7, 1996
(the "Registration Rights Agreement"), the Company granted certain demand
registration rights to Jupiter and certain "piggy-back" registration rights to
Jupiter and the Management Stockholders with respect to the sale of common stock
of the Company held by them. In addition to customary priority cut-back
provisions relating to underwritten offerings, the Registration Rights Agreement
imposes limitations on the number of shares of common stock of the Company that
may be included in a "piggy-back" registration by a Management Stockholder.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.

43
<PAGE>

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) The following financial statements, schedules and exhibits are filed as
part of this report or are incorporated herein as indicated.

1. Financial Statements

The consolidated financial statements listed in Item 8. Financial
Statements, which appear on page 19, are included herein.

2. Financial Statement Schedule

The following financial statement schedule of Core-Mark International,
Inc. for the fiscal years ended December 31, 1996, 1997, and 1998 is filed as
part of this Report and should be read in conjunction with the Consolidated
Financial Statements of Core-Mark International, Inc. and subsidiaries.

Schedule II - Valuation and Qualifying Accounts

Schedules not listed above have been omitted because they are not
applicable or are not required or the information required to be set forth
therein is included in the Consolidated Financial Statements or Notes thereto.

3. Exhibits

The following Exhibits are filed as part of, or incorporated by
reference into, this Report:

EXHIBIT
NUMBER EXHIBIT
-------- -------
<S> <C>
2.1 Stock Subscription Agreement, dated June 17, 1996, by and
among Jupiter Partners, L.P., as amended, incorporated herein
by reference from Exhibit 2.1 to Core-Mark International,
Inc.'s Registration Statement on Form S-4 (Registration No.
333-14217).

2.2 Stock Purchase Agreement, dated June 17, 1996, by and between
Core-Mark L.L.C. and the Company, as amended, incorporated
herein by reference from Exhibit 2.2 to Core-Mark
International, Inc.'s Registration Statement on Form S-4
(Registration No. 333-14217).

3.1.1 Articles of Incorporation of the Company, incorporated herein
by reference from Exhibit 3.1 to Core-Mark International,
Inc.'s Registration Statement on Form S-4 (Registration
No. 333-14217).

3.1.2 Restated Articles of Incorporation of the Company dated
August 18, 1998 (Filed herewith).

3.2 Amended By-laws of the Company (Filed herewith).

4.1 Indenture, dated as of September 27, 1996, between the Company
and Bankers Trust Company as Trustee, incorporated herein by
reference from Exhibit 4.1 to Core-Mark International, Inc.'s
Registration Statement on Form S-4 (Registration No.
333-14217).

44
<PAGE>

4.2 Form of Face of Exchange Security, incorporated herein by
reference from Exhibit 4.4 to Core-Mark International, Inc.'s
Registration Statement on Form S-4 (Registration
No. 333-14217).

10.1.1 Manufacturing Rights Agreement by and among Famous Value
Brands, Core-Mark International Inc., Core-Mark Interrelated
Companies, Inc. and C/M Products, Inc., incorporated herein by
reference from Exhibit 10.1 to Core-Mark International, Inc.'s
Registration Statement on Form S-4 (Registration
No. 333-14217).

*10.1.2 Amendment dated December 31, 1997 to Manufacturing Rights
Agreement by and among Famous Value Brands, Core-Mark
International Inc., Core-Mark Interrelated Companies, Inc. and
C/M Products, Inc., incorporated herein by reference from
exhibit 10.11 to Core-Mark International Inc.'s Annual Report
on Form 10-K filed March 20, 1998 (Registration
No. 333-14217).

10.2.1 Manufacturing Agreement for "Best Buy" Cigarettes by and
between Famous Value Brands and C/M Products, Inc.,
incorporated herein by reference from Exhibit 10.2 to
Core-Mark International, Inc.'s Registration Statement on Form
S-4 (Registration No. 333-14217).

*10.2.2 Amendment dated December 31, 1997 to Manufacturing Agreement
for "Best Buy" Cigarettes by and between Famous Value Brands
and C/M Products, Inc., incorporated herein by reference from
exhibit 10.12 to Core-Mark International Inc.'s Annual Report
on Form 10-K filed March 20, 1998 (Registration No.
333-14217).

10.3.1 Trademark License Agreement by and between Famous Value Brands
and Core-Mark Interrelated Companies, Inc., incorporated
herein by reference from Exhibit 10.3 to Core-Mark
International, Inc.'s Registration Statement on Form S-4
(Registration No. 333-14217).

10.3.2 Amendment dated December 31, 1997 to Trademark License
Agreement by and between Famous Value Brands and Core-Mark
Interrelated Companies, Inc., incorporated herein by reference
from exhibit 10.13 to Core-Mark International Inc.'s Annual
Report on Form 10-K filed March 20, 1998 (Registration No.
333-14217).

10.4 Stockholders Agreement dated as of August 7, 1996, by and
among the Company and all of the holders of its Common Stock,
incorporated herein by reference from Exhibit 10.5 to
Core-Mark International, Inc.'s Registration Statement on Form
S-4 (Registration No. 333-14217).

10.5.1 Severance and Noncompetition Agreement, dated August 7, 1996,
between the Company and Gary L. Walsh, incorporated herein by
reference from Exhibit 10.6.1 to Core-Mark International,
Inc.'s Registration Statement on Form S-4 (Registration No.
333-14217).

10.5.2 Schedule of Severance and Non Competition Agreements omitted
pursuant to Instruction no. 2 to Item 601 of Regulation S-K,
incorporated herein by reference from Exhibit 10.6.2 to
Core-Mark International, Inc.'s Registration Statement on Form
S-4 (Registration No. 333-14217).

10.6 Letter, dated August 7, 1996, from Jupiter Partners LP to Gary
L. Walsh, incorporated herein by reference from Exhibit 10.7
to Core-Mark International, Inc.'s Registration Statement on
Form S-4 (Registration No. 333-14217).

10.7 Purchase Agreement, dated September 24, 1996, between the
Company, Chase Securities Inc. and Donaldson, Lufkin &
Jenrette Securities Corporation, incorporated herein by
reference from Exhibit 10.8 to Core-Mark International, Inc.'s
Registration Statement on Form S-4 (Registration
No. 333-14217).

10.8.1 Indemnification Agreement, dated November 12, 1996, between
the Company and John F. Klein, incorporated herein by
reference from Exhibit 10.9.1 to Core-Mark International,
Inc.'s Registration Statement on Form S-4 (Registration
No. 333-14217).

10.8.2 Schedule of Indemnification Agreements omitted pursuant to
Instruction No. 2 to Item 601 of Regulation S-K, incorporated
herein by reference from Exhibit 10.9.2 to Core-Mark
International, Inc.'s Registration Statement on Form S-4
(Registration No. 333-14217).

<PAGE>

10.9 Purchase Agreement dated January 31, 1997 between the Company
and Melvin Sosnick Company and Capital Cigar Company,
incorporated herein by reference from Exhibit (i) to Core-Mark
International, Inc.'s Current Report on Form 8-K filed
February 18, 1997 (Registration No. 333-14217).

10.10 $120,000,000 Amended and Restated Credit Agreement dated as of
April 1, 1998, among Core-Mark International Inc., the
Several Lenders from time to time Parties Hereto and The
Chase Manhattan Bank, as Administrative Agent, incorporated
herein by reference from exhibit 10.14 to Core-Mark
International, Inc. Quarterly Report on Form 10-Q filed August
14, 1998 (Registration No. 333-14217).

10.11 Amended and Restated Security Agreement dated as of April 1,
1998, among Core-Mark International, Inc., C/M Products, Inc.,
Core-Mark Interrelated Companies, Inc., and Core-Mark
Midcontinent, Inc., in favor of The Chase Manhattan Bank, as
Administrative Agent, incorporated herein by reference from
exhibit 10.16 to Core-Mark International Inc. Quarterly Report
on Form 10-Q filed August 14, 1998 (Registration No.
333-14217).

10.12 Amendment to Borrower Stock Pledge Agreement dated as of April
1, 1998, between Core-Mark International, Inc., and The Chase
Manhattan Bank, as Administrative Agent, incorporated herein
by reference from exhibit 10.17 to Core-Mark International,
Inc. Quarterly Report on Form 10-Q filed August 14, 1998
(Registration No. 333-14217).

10.13 Pooling Agreement, dated as of April 1, 1998, among Core-Mark
Capital Corporation, Core-Mark International, Inc., as
Servicer, and The Chase Manhattan Bank, as Trustee,
incorporated herein by reference from exhibit 10.18 to
Core-Mark International, Inc. Quarterly Report on Form 10-Q
filed August 14, 1998 (Registration No. 333-14217).

10.14 Series 1998-1 Supplement to the Pooling Agreement, dated as of
April 1, 1998, among Core-Mark Capital Corporation, Core-Mark
International, Inc., as Servicer, and The Chase Manhattan
Bank, incorporated herein by reference from exhibit 10.19 to
Core-Mark International, Inc. Quarterly Report on Form 10-Q
filed August 14, 1998 (Registration No. 333-14217).

10.15 Series 1998-2 Supplement to the Pooling Agreement, dated as of
April 1, 1998, among Core-Mark Capital Corporation, Core-Mark
International, Inc., as Servicer, and The Chase Manhattan
Bank, incorporated herein by reference from exhibit 10.20 to
Core-Mark International, Inc. Quarterly Report on Form 10-Q
filed August 14, 1998 (Registration No. 333-14217).

10.16 Servicing Agreement, dated as of April 1, 1998, among
Core-Mark Capital Corporation, Core-Mark International, Inc.,
as Servicer, Subsidiaries of Core-Mark International, Inc., as
Subservicers, and The Chase Manhattan Bank, incorporated
herein by reference from exhibit 10.21 to Core-Mark
International, Inc. Quarterly Report on Form 10-Q filed August
14, 1998 (Registration No. 333-14217).

10.17 Receivables Sale and Contribution Agreement, dated as of April
1, 1998, among Core-Mark Capital Corporation, Core-Mark
International, Inc., Core-Mark Midcontinent, Inc., and
Core-Mark Interrelated Companies, Inc., as Sellers,
incorporated herein by reference from exhibit 10.22 to
Core-Mark International, Inc. Quarterly Report on Form 10-Q
filed August 14, 1998 (Registration No. 333-14217).

16 Letter to Securities and Exchange Commission from KPMG Peat
Marwick LLP dated January 27, 1998 from Exhibit 16 to
Core-Mark International Inc.'s Current Report on Form 8-K
filed January 27, 1998 (Registration No. 333-14217),
incorporated herein by reference from exhibit 16 to Core-Mark
International, Inc. Annual Report on Form 10-K filed March 20,
1998 (Registration No. 333-14217).

16.1 Letter to Securities and Exchange Commission from KPMG Peat
Marwick LLP dated March 20, 1998, incorporated herein by
reference from exhibit 16.1 to Core-Mark International Inc.
Annual Report on Form 10-K filed March 20, 1998 (Registration
No. 333-14217).

21 List of Subsidiaries of the Company, incorporated herein by
reference from Exhibit 21 to Core-Mark International, Inc.'s
Registration Statement on Form S-4 (Registration
No. 333-14217).

27 Financial Data Schedule

<PAGE>

* Portions of these exhibits have been omitted pursuant to an
Order Granting Confidential Treatment Under the Securities
Exchange Act of 1934 by the Company with the Commission
pursuant to Rule 24b-2, under the Securities Exchange Act of
1934, as amended.

</TABLE>

(b) Reports on Form 8-K

None.

<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized in the City of South
San Francisco, California, on March 19, 1999.

CORE-MARK INTERNATIONAL, INC.

By
/s/ Leo F. Korman
-----------------------------------
Leo F. Korman, Senior Vice
President and Chief Financial
Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>

/s/ Gary L. Walsh
- --------------------------------------
Gary L. Walsh Chairman and Director March 19, 1999

/s/ Robert A. Allen
- --------------------------------------
Robert A. Allen President, Chief Executive Officer and Director March 19, 1999

/s/ Leo F. Korman
- --------------------------------------
Leo F. Korman Senior Vice President, Chief Financial Officer and March 19, 1999
Principal Accounting Officer

/s/ Thomas A. Berglund
- --------------------------------------
Thomas A. Berglund Director March 19, 1999

/s/ Terry J. Blumer
- --------------------------------------
Terry J. Blumer Director March 19, 1999

/s/ John F. Klein
- --------------------------------------
John F. Klein Director March 19, 1999

/s/ John A. Sprague
- --------------------------------------
John A. Sprague Director March 19, 1999

</TABLE>

<PAGE>

INDEPENDENT AUDITORS' REPORT

To The Board of Directors
Core-Mark International, Inc.

We have audited the accompanying consolidated balance sheet of Core-Mark
International, Inc. and subsidiaries (the "Company") as of December 31, 1998 and
the related consolidated statements of income, shareholders' equity (deficit)
and cash flows for the year ended December 31, 1998 and have issued our report
thereon dated February 25, 1999; such report is included elsewhere in this Form
10-K. Our audit also included the 1998 financial statement schedule of the
Company listed in Item 14 (a) 2. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audit. In our opinion, such 1998 financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.

/s/ Deloitte & Touche LLP

SAN FRANCISCO, CALIFORNIA
FEBRUARY 25, 1999

<PAGE>

INDEPENDENT AUDITORS' REPORT

To The Board of Directors
Core-Mark International, Inc.

Under date of February 20, 1998, we reported on the consolidated
balance sheets of Core-Mark International, Inc. and subsidiaries as of December
31, 1997 and 1996, and the related consolidated statements of income,
shareholders' equity (deficit) and cash flows for each of the years in the
two-year period ended December 31, 1997. In connection with our audits of the
aforementioned consolidated financial statements, we also audited the related
consolidated financial statement schedule. This financial statement schedule is
the responsibility of the Company's management. Our responsibility is to express
an opinion on this financial statement schedule based on our audits.

In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.

/s/ KPMG LLP

SAN FRANCISCO, CALIFORNIA
FEBRUARY 20, 1998

<PAGE>

SCHEDULE II

CORE-MARK INTERNATIONAL, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS)

Column A Column B Column C Column D Column E
Additions
-------------------------------------- ---------- --------------------------- ---------- ----------
Balance at Charged to Charged to Balance at
Beginning Costs and Other End of
Description of Year Expenses Accounts Deductions Year
- -------------------------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Year Ended December 31,
1996................................ $ 3,600 $ 895 $ _ $ (614)(a) $ 3,881
1997................................ 3,881 1,237 _ (2,168)(a) 2,950
1998................................ 2,950 810 _ (999)(a) 2,761

</TABLE>

(a) Deductions consist of accounts determined to be uncollectible and charged
against reserves, net of collections on accounts previously charged off.

<PAGE>

Exhibit 3.1.2

RESTATED CERTIFICATE OF INCORPORATION

CORE-MARK INTERNATIONAL, INC.

Core-Mark International, Inc. (hereinafter called the
"corporation"), a corporation organized and existing under and by virtue of
the General Corporation Law of the State of Delaware, does hereby certify:

FIRST: The present name of the corporation is Core-Mark
International, Inc., which is the name under which the corporation was
originally incorporated; and the date of filing the original certificate of
incorporation of the corporation with the Secretary of State of the State of
Delaware is March 1, 1995.

SECOND: The certificate of incorporation of the corporation is hereby
amended by striking out Article EIGHTH thereof in its entirety and restating and
integrating into a single instrument all of the provisions of such certificate
of incorporation as so amended.

THIRD: The provisions of the certificate of incorporation of the
corporation as heretofore amended and/or supplemented, and as herein amended,
are hereby restated and integrated into the single instrument which is
hereinafter set forth, and which is entitled Restated Certificate of
Incorporation of Core-Mark International, Inc. without any further amendment
other than the amendment herein certified and without any discrepancy between
the provisions of the certificate of incorporation as heretofore amended and
supplemented and the provisions of the said single instrument hereinafter set
forth.

FOURTH: The amendment and the restatement of the certificate of
incorporation herein certified have been duly adopted by the stockholders in
accordance with the provisions of Sections 228, 242, and 245 of the General
Corporation Law of the State of Delaware.

FIFTH: The certificate of incorporation of the corporation, as
amended and restated herein, shall at the effective time of this Restated
Certificate of Incorporation, read as follows:

1
<PAGE>

"RESTATED CERTIFICATE OF INCORPORATION

CORE-MARK INTERNATIONAL, INC.

THE UNDERSIGNED, being a natural person for the purpose of organizing
a corporation under the General Corporation Law of the State of Delaware
("DGCL"), hereby certifies that:

FIRST: The name of the Corporation is: Core-Mark International, Inc.
(the "Corporation").

SECOND: The address of the registered office of the Corporation in
the State of Delaware is: 32 Loockerman Square, Suite L-100, Dover, Kent County,
Delaware 19904. The name of the registered agent of the Corporation in the State
of Delaware at such address is: The Prentice-Hall Corporation System, Inc.

THIRD: The purpose of the Corporation is to engage in and conduct any
lawful act or activity for which corporations may be organized under the DGCL.

FOURTH: The total number of shares of capital stock that the
Corporation shall have authority to issue is ten million (10,000,000), all of
which shall be shares of Common Stock having a par value of one cent ($0.01) per
share.

FIFTH: In furtherance and not in limitation of the powers conferred
by law, subject to any limitations contained elsewhere in this Certificate of
Incorporation, By-Laws of the Corporation may be adopted, amended or repealed by
a majority of the Board of Directors of the Corporation, but any By-Laws of the
Corporation adopted by the Board of Directors may be amended or repealed by the
stockholders entitled to vote thereon. Election of directors need not be by
written ballot.

SIXTH: (a) A director of the Corporation shall not be personally
liable either to the Corporation or to any stockholder for monetary damages
for breach of fiduciary duty as a director, except (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, or (ii)
for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, or (iii) under Section 174 of the
DGCL or any successor provision thereto or (iv) for any transaction from
which the director shall have derived an improper personal benefit. Neither
amendment nor repeal of this paragraph (a) nor the adoption of any provision
of the Certificate of Incorporation inconsistent with this paragraph (a)
shall eliminate or reduce the effect of this paragraph (a) in respect of any
matter occurring, or any cause of action, suit or claim that, but for this
paragraph (a) of this Article SIXTH, would accrue or arise, prior to such
amendment, repeal or adoption of an inconsistent provision.

2
<PAGE>
(b) The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to, or testifies in, any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative in nature, by reason of the fact that such person is or was a
director, officer, employee, agent, stockholder or a holder of any ownership
interest in any stockholder of the Corporation (each, an "Indemnitee"), or is or
was serving at the request of the Corporation as a director or officer of
another corporation, partnership, joint venture, employee benefit plan, trust or
other enterprise (an "Other Entity"), against expenses (including attorneys'
fees and disbursements), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding to the full extent permitted by law. Persons who are not
Indemnitees of the Corporation may be similarly indemnified in respect of
service to the Corporation or to an Other Entity at the request of the
Corporation to the extent the Board of Directors at any time specifies that such
persons are entitled to the benefits of this Article SIXTH, and the Corporation
may adopt By-Laws or enter into agreements with any such person for the purpose
of providing for such indemnification.

(c) The Corporation shall, from time to time, reimburse or advance to
any Indemnitee or other person entitled to indemnification under this Article
SIXTH the funds necessary for payment of expenses (including attorney's fees and
disbursements) actually and reasonably incurred by such person in defending or
testifying in a civil, criminal, administrative or investigative action, suit or
proceeding; PROVIDED, HOWEVER, that the Corporation may pay such expenses in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such Indemnitee to repay such amount if it
shall ultimately be determined by final judicial decision that such Indemnitee
is not entitled to be indemnified by the Corporation against such expenses as
authorized by this Article SIXTH, and the Corporation may adopt By-Laws or enter
into agreements with such persons for the purpose of providing for such
advances.

(d) The Corporation shall have the power to purchase and maintain
insurance on behalf of any person who is or was an Indemnitee of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of an Other Entity against any liability
asserted against such person and incurred by such person in any such capacity,
or arising out of such person's status as such, whether or not the Corporation
would have the power to indemnify such person against such liability under the
provisions of this Article SIXTH or otherwise.

(e) The rights to indemnification and reimbursement or advancement of
expenses provided by, or granted pursuant to, this Article SIXTH shall

3
<PAGE>
not be deemed exclusive of any other rights to which a person seeking
indemnification or reimbursement or advancement of expenses may have or
hereafter be entitled under any statute, this Certificate of Incorporation,
the By-Laws, any agreement, any vote of stockholders or disinterested
directors or otherwise, both as to action in his or her official capacity and
as to action in another capacity while holding such office.

(f) The rights to indemnification and reimbursement or advancement of
expenses provided by, or granted pursuant to, this Article SIXTH shall continue
as to a person who has ceased to be an Indemnitee (or other person indemnified
hereunder) and shall inure to the benefit of the executors, administrators,
legatees and distributees of such person.

(g) The provisions of this Article SIXTH shall be a contract between
the Corporation, on the one hand, and each Indemnitee who serves in such
capacity at any time while this Article SIXTH is in effect and any other person
indemnified hereunder, on the other hand, pursuant to which the Corporation and
each such Indemnitee or other person intend to be legally bound. No repeal or
modification of this Article SIXTH shall affect any rights or obligations with
respect to any state of facts then or theretofore existing or thereafter arising
or any proceeding theretofore or thereafter brought or threatened based in whole
or in part upon any such state of facts.

(h) The rights to indemnification and reimbursement or advancement of
expenses provided by, or granted pursuant to, this Article SIXTH shall be
enforceable by any person entitled to such indemnification or reimbursement or
advancement of expenses in any court of competent jurisdiction. The burden of
proving that such indemnification or reimbursement or advancement of expenses is
not appropriate shall be on the Corporation. Neither the failure of the
Corporation (including its Board of Directors, its independent legal counsel and
its stockholders) to have made a determination prior to the commencement of such
action that such indemnification or reimbursement or advancement of expenses is
proper in the circumstances nor an actual determination by the Corporation
(including its Board of Directors, its independent legal counsel and its
stockholders) that such person is not entitled to such indemnification or
reimbursement or advancement of expenses shall constitute a defense to the
action or create a presumption that such person is not so entitled. Such a
person shall also be indemnified for any expenses incurred in connection with
successfully establishing his or her right to such indemnification or
reimbursement or advancement of expenses, in whole or in part, in any such
proceeding.

(i) Any Indemnitee of the Corporation serving in any capacity for
(a) another corporation of which a majority of the shares entitled to vote in
the election of its directors is held, directly or indirectly, by the
Corporation or (b) any

4
<PAGE>
employee benefit plan of the Corporation or any corporation referred to
in clause (a) shall be deemed to be doing so at the request of the Corporation.

(j) Any person entitled to be indemnified or to reimbursement or
advancement of expenses as a matter of right pursuant to this Article SIXTH may
elect to have the right to indemnification or reimbursement or advancement of
expenses interpreted on the basis of the applicable law in effect at the time of
the occurrence of the event or events giving rise to the applicable action, suit
or proceeding, to the extent permitted by law, or on the basis of the applicable
law in effect at the time such indemnification or reimbursement or advancement
of expenses is sought. Such election shall be made, by a notice in writing to
the Corporation, at the time indemnification or reimbursement or advancement of
expenses is sought; PROVIDED, HOWEVER, that if no such notice is given, the
right to indemnification or reimbursement or advancement of expenses shall be
determined by the law in effect at the time indemnification or reimbursement or
advancement of expenses is sought."

Executed on this 18th day of August, 1998.

CORE-MARK INTERNATIONAL, INC.

By: /s/ Leo F. Korman
-----------------------------
Name: Leo F. Korman
Title: SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER

<PAGE>
Exhibit 3.2

BY-LAWS

CORE-MARK INTERNATIONAL, INC.

(a Delaware corporation)

ARTICLE I
STOCKHOLDERS

SECTION I.1. ANNUAL MEETINGS. The annual meeting of stockholders for
the election of directors and for the transaction of such other business as may
properly come before the meeting shall be held each year at such date and time,
within or without the State of Delaware, as the Board of Directors shall
determine.

SECTION I.2. SPECIAL MEETINGS. Special meetings of stockholders for
the transaction of such business as may properly come before the meeting may be
called by order of the Board of Directors or by stockholders holding together at
least a majority of all the shares of the Corporation entitled to vote at the
meeting, and shall be held at such date and time, within or without the State of
Delaware, as may be specified by such order. Whenever the directors shall fail
to fix such place, the meeting shall be held at the principal executive office
of the Corporation.

SECTION I.3. NOTICE OF MEETINGS. Written notice of all meetings of
the stockholders, stating the place, date and hour of the meeting and the place
within the city or other municipality or community at which the list of
stockholders may be examined, shall be mailed or delivered to each stockholder
not less than 10 nor more than 60 days prior to the meeting. Notice of any
special meeting shall state in general terms the purpose or purposes for which
the meeting is to be held.

SECTION I.4. STOCKHOLDER LISTS. The officer who has charge of the
stock ledger of the Corporation shall prepare and make, at least 10 days
before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order, and showing
the address of each stockholder and the number of shares registered in the
name of each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, either at a place within
the city where the meeting is to be held, which place shall be specified in
the notice of the meeting, or, if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time
and place of

1
<PAGE>

the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.

The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by this
section, or the books of the Corporation, or to vote in person or by proxy at
any meeting of stockholders.

SECTION I.5. QUORUM. Except as otherwise provided by law, the
Corporation's Certificate of Incorporation or these By-Laws, a majority of the
shares entitled to vote, present in person or represented by proxy, shall
constitute a quorum at a meeting of the stockholders. If there is no quorum, a
majority of the shares entitled to vote at the meeting, present in person or
represented by proxy, may adjourn the meeting from time to time without further
notice until a quorum shall be obtained. When a quorum is obtained, it is not
broken by the subsequent withdrawal of any stockholder.

SECTION I.6. ORGANIZATION. Meetings of stockholders shall be
presided over by the Chairman, if any, or if none or in the Chairman's
absence the President, or if none or in the President's absence a Vice
President, or, if none of the foregoing is present, by a chairman to be
chosen by the stockholders entitled to vote who are present in person or by
proxy at the meeting. The Secretary of the Corporation, or in the Secretary's
absence an Assistant Secretary, shall act as secretary of every meeting, but
if neither the Secretary nor an Assistant Secretary is present, the presiding
officer of the meeting shall appoint any person present to act as secretary
of the meeting.

SECTION I.7. VOTING; PROXIES; REQUIRED VOTE. (a) At each meeting
of stockholders, every stockholder shall be entitled to vote in person or by
proxy appointed by instrument in writing, subscribed by such stockholder or
by such stockholder's duly authorized attorney-in-fact (but no such proxy
shall be voted or acted upon after three years from its date, unless the
proxy provides for a longer period), and, unless the Certificate of
Incorporation provides otherwise, shall have one vote for each share of stock
entitled to vote registered in the name of such stockholder on the books of
the Corporation on the applicable record date fixed pursuant to these
By-Laws. At all elections of directors taken at any meeting of stockholders,
the voting may be, but need not be, by written ballot. Directors shall be
elected by a plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote on the election of
directors. In all matters other than the election of directors, the
affirmative vote of the majority of shares present in person or represented
by proxy at the meeting and entitled to vote on the subject matter shall be
the act of the stockholders, whether or not a quorum is present when the vote
is taken.

<PAGE>

(b) Any action required or permitted to be taken at any meeting of
stockholders may, except as otherwise required by law or the Certificate of
Incorporation, be taken without a meeting, without prior notice, and without
a vote, if a consent in writing, setting forth the action so taken, shall be
signed by the holders of record of the issued and outstanding capital stock
of the Corporation having the number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted, and the writing or writings are filed
with the permanent records of the Corporation. Prompt notice of the taking of
corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.

SECTION I.8. INSPECTORS. The Board of Directors, in advance of any
meeting, may, but need not, appoint one or more inspectors of election to act
at the meeting or any adjournment thereof. If an inspector or inspectors are
not so appointed, the person presiding at the meeting may, but need not,
appoint one or more inspectors. In case any person who may be appointed as an
inspector fails to appear or act, the vacancy may be filled by appointment
made by the directors in advance of the meeting or at the meeting by the
person presiding thereat. Each inspector, if any, before entering upon the
discharge of his or her duties, shall take and sign an oath faithfully to
execute the duties of inspector at such meeting with strict impartiality and
according to the best of his ability. The inspectors, if any, shall determine
the number of shares of stock outstanding and the voting power of each, the
shares of stock represented at the meeting, the existence of a quorum, and
the validity and effect of proxies, and shall receive votes, ballots, or
consents, hear and determine all challenges and questions arising in
connection with the right to vote, count and tabulate all votes, ballots, or
consents, determine the result, and do such acts as are proper to conduct the
election or vote with fairness to all stockholders. On request of the person
presiding at the meeting, the inspector or inspectors, if any, shall make a
report in writing of any challenge, question, or matter determined by such
inspector or inspectors and execute a certificate of any fact found by such
inspector or inspectors.

ARTICLE II
BOARD OF DIRECTORS

SECTION II.1. GENERAL POWERS. The business, property, and affairs of
the Corporation shall be managed by, or under the direction of, the Board of
Directors.

SECTION II.2. QUALIFICATION; NUMBER; TERM; REMUNERATION. (a) Each
director shall be at least 18 years of age. A director need not be a
stockholder, a citizen of the United States, or a resident of the State of
Delaware. The number of directors constituting the entire Board shall be eight,
or such other number
3

<PAGE>

as may be fixed from time to time by resolution of the Board of Directors,
one of whom may be selected by the Board of Directors to be its Chairman. The
use of the phrase "entire Board" herein refers to the total number of
directors which the Corporation would have if there were no vacancies.

(b) Directors who are elected at an annual meeting of stockholders,
and directors who are elected in the interim to fill vacancies and newly created
directorships, shall hold office until the next annual meeting of stockholders
and until their successors are elected and qualified or until their earlier
resignation or removal.

(c) Directors may be paid their expenses, if any, of attendance at
each meeting of the Board of Directors and may be paid a fixed sum for
attendance at each meeting of the Board of Directors or a stated salary as
director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor.
Members of special or standing committees may be allowed like compensation
for attending committee meetings.

SECTION II.3. QUORUM AND MANNER OF VOTING. Except as otherwise
provided by law or by agreement of the stockholders, a majority of the entire
Board shall constitute a quorum. A majority of the directors present, whether
or not a quorum is present, may adjourn a meeting from time to time to
another time and place without notice. The vote of the majority of the
directors present at a meeting at which a quorum is present shall be the act
of the Board of Directors.

SECTION II.4. PLACES OF MEETINGS. Meetings of the Board of
Directors may be held at any place within or without the State of Delaware,
as may from time to time be fixed by resolution of the Board of Directors, or
as may be specified in the notice of meeting.

SECTION II.5. ANNUAL MEETING. Following the annual meeting of
stockholders, the newly elected Board of Directors shall meet for the purpose of
the election of officers and the transaction of such other business as may
properly come before the meeting. Such meeting may be held without notice
immediately after the annual meeting of stockholders at the same place at which
such stockholders' meeting is held.

SECTION II.6. REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held at such times and places as the Board of Directors
shall from time to time by resolution determine. Notice need not be given of
regular meetings of the Board of Directors held at times and places fixed by
resolution of the Board of Directors.

<PAGE>

SECTION II.7. SPECIAL MEETINGS. Special meetings of the Board of
Directors shall be held whenever called by the Chairman of the Board, the
President, or by a majority of the directors then in office.

SECTION II.8. NOTICE OF MEETINGS. A notice of the place, date, and
time and the purpose or purposes of each meeting of the Board of Directors
shall be given to each director by mailing the same at least five business
days before the meeting, or by telegraphing or telephoning the same or by
delivering the same personally not later than two days before the day of the
meeting.

SECTION II.9. ORGANIZATION. At all meetings of the Board of
Directors, the Chairman, if any, or, if none or in the Chairman's absence or
inability to act, the President, or in the President's absence or inability
to act, any Vice President who is a member of the Board of Directors, or in
such Vice President's absence or inability to act, a chairman chosen by the
directors, shall preside. The Secretary of the Corporation shall act as
secretary at all meetings of the Board of Directors when present, and, in the
Secretary's absence, the presiding officer may appoint any person to act as
secretary.

SECTION II.10. RESIGNATION. Any director may resign at any time
upon written notice to the Corporation and such resignation shall take effect
upon receipt thereof by the President or the Secretary, unless otherwise
specified in the resignation. Any or all of the directors may be removed,
with or without cause, by the holders of a majority of the shares of stock
outstanding and entitled to vote for the election of directors.

SECTION II.11. VACANCIES. Unless otherwise provided in these
By-Laws or in an agreement among or binding upon the stockholders, vacancies
on the Board of Directors, whether caused by resignation, death,
disqualification, removal, an increase in the authorized number of directors,
or otherwise, may be filled by the affirmative vote of a majority of the
remaining directors, although less than a quorum, or by a sole remaining
director, or at a special meeting of the stockholders, by the holders of
shares entitled to vote for the election of directors.

SECTION II.12. ACTION BY WRITTEN CONSENT. Any action required or
permitted to be taken at any meeting of the Board of Directors may be taken
without a meeting if all the directors consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the Board of
Directors.

ARTICLE III
COMMITTEES

<PAGE>

SECTION III.1. APPOINTMENT; MEMBERSHIP. In addition to the committees
established under Section 3.6 hereof, from time to time the Board of Directors
by a resolution adopted by a majority of the entire Board may appoint any
committee or committees for any purpose or purposes, to the extent lawful, which
shall have powers as shall be determined and specified by the Board of Directors
in the resolution of appointment.

SECTION III.2. PROCEDURES, QUORUM, AND MANNER OF ACTING. Each committee
shall fix its own rules of procedure, and shall meet where and as provided by
such rules or by resolution of the Board of Directors. Except as otherwise
provided by law, the presence of a majority of the then appointed members of
a committee shall constitute a quorum for the transaction of business by that
committee, and in every case where a quorum is present the affirmative vote
of a majority of the members of the committee present shall be the act of the
committee. Each committee shall keep minutes of its proceedings, and actions
taken by a committee shall be reported to the Board of Directors.

SECTION III.3. NOTICE OF MEETINGS. Notice of the place, date and
time and the purpose or purposes of each meeting of any committee of the
Board of Directors shall be given to each member of such committee the same
at least five business days before the meeting, or by telegraphing or
telephoning the same or by delivering the same personally not later than two
days before the day of the meeting.

SECTION III.4. ACTION BY WRITTEN CONSENT. Any action required or
permitted to be taken at any meeting of any committee of the Board of
Directors may be taken without a meeting if all the members consent thereto
in writing, and the writing or writings are filed with the minutes of
proceedings of the committee.

SECTION III.5. TERM; TERMINATION. In the event any person shall
cease to be a director of the Corporation, such person shall simultaneously
therewith cease to be a member of any committee appointed by the Board of
Directors.

SECTION III.6. STANDING COMMITTEES.

(a) COMPENSATION COMMITTEE. There shall be a committee of the
Board of Directors, which shall be the Compensation Committee. The
Compensation Committee shall have the authority and responsibility for
considering, adopting, authorizing and implementing the salary, bonus and
other benefits, direct and indirect, of, and any employment, severance,
termination, bonus, benefit or other similar agreements or plans with or for
the benefit of, the officers of the Corporation and shall have the authority
and responsibility for considering, authorizing and acting upon such other
matters as may be designated to such committee from time to time by the Board
of Directors. The vote of the majority of the members of the Compensation
Committee

<PAGE>

present at a meeting at which a quorum is present shall be the act of the
Compensation Committee.

(b) AUDIT COMMITTEE. There shall be a committee of the Board of
Directors, which shall be the Audit Committee. The Audit Committee shall have
the authority and responsibility for considering and recommending to the Board
of Directors the process for producing the Corporation's financial data,
internal controls and the independence of the Corporation's external auditors
and shall have the authority and responsibility for considering and recommending
to the Board of Directors such other matters as may be designated to such
committee from time to time by the Board of Directors. The vote of the majority
of the members of the Audit Committee present at a meeting at which a quorum is
present shall be the act of the Audit Committee.

ARTICLE IV
OFFICERS

SECTION IV.1. ELECTION AND QUALIFICATIONS. The Board of Directors
shall elect the officers of the Corporation, which shall include a Chief
Executive Officer, a President and a Secretary, and may include, by election
or appointment, one or more Vice Presidents (any one or more of whom may be
given an additional designation of rank or function), a Treasurer, and such
Assistant Secretaries, such Assistant Treasurers, and such other officers as
the Board of Directors may from time to time deem proper. Each officer shall
have such powers and duties as may be prescribed by these By-Laws and as may
be assigned by the Board of Directors or the Chief Executive Officer. Any two
or more offices may be held by the same person.

SECTION IV.2. TERM OF OFFICE AND REMUNERATION. Except as otherwise
provided in an employment agreement, the term of office of all officers shall
be one year and until their respective successors have been elected and
qualified, but any officer may be removed from office, either with or without
cause, at any time by the Board of Directors. Any vacancy in any office
arising from any cause may be filled for the unexpired portion of the term by
the Board of Directors. The remuneration of all officers of the Corporation
may be fixed by the Board of Directors or in such manner as the Board of
Directors shall provide.

SECTION IV.3. RESIGNATION; REMOVAL. Any officer may resign at any
time upon written notice to the Corporation and such resignation shall take
effect upon receipt thereof by the Chief Executive Officer, the President or
the Secretary, unless otherwise specified in the resignation. Any officer
shall be subject to removal, with or without cause, at any time by vote of a
majority of the entire Board.

<PAGE>

SECTION IV.4. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer
of the Corporation shall have general supervision over the business of the
Corporation, subject, however, to the control of the Board of Directors. The
Chief Executive Officer shall preside at all meetings of the stockholders and
at all meetings of the Board of Directors at which the Chairman (if there be
one) is not present. The Chief Executive Officer may execute and deliver, in
the name of the Corporation, powers of attorney, contracts, bonds and all
other obligations and instruments.

SECTION IV.5. CHAIRMAN OF THE BOARD. The Chairman of the Board of
Directors, if there be one, shall preside at all meetings of the stockholders
and the Board of Directors and shall have such other powers and duties as may
from time to time be assigned by the Board of Directors.

SECTION IV.6. PRESIDENT. At the request of the Chief Executive
Officer, or in the Chief Executive Officer's absence, at the request at the
Board of Directors, the President, if there be one, shall perform all of the
duties of the Chief Executive Officer and, in so performing, shall have all
the powers of, and be subject to all restrictions upon, the Chief Executive
Officer. The President may execute and deliver, in the name of the
Corporation, powers of attorney, contracts, bonds and all other obligations
and instruments. The President shall perform such other duties as from time
to time may be assigned to the President by the Board of Directors or by the
Chief Executive Officer.

SECTION IV.7. VICE PRESIDENT. A Vice President may execute and
deliver in the name of the Corporation contracts and other obligations and
instruments pertaining to the regular course of the duties of said office,
and shall have such other authority as from time to time may be assigned by
the Board of Directors or the Chief Executive Officer.

SECTION IV.8. TREASURER. The Treasurer shall in general have all
duties incident to the position of Treasurer and such other duties as may be
assigned by the Board of Directors or the Chief Executive Officer.

SECTION IV.9. SECRETARY. The Secretary shall in general have all
the duties incident to the office of Secretary and such other duties as may
be assigned by the Board of Directors or the Chief Executive Officer.

SECTION IV.10. ASSISTANT OFFICERS. Any assistant officer shall
have such powers and duties of the officer such assistant officer assists as
such officer or the Board of Directors shall from time to time prescribe.

ARTICLE V

<PAGE>

INDEMNIFICATION

SECTION V.1. INDEMNITY. The Corporation shall indemnify any person
who was or is a party or is threatened to be made a party to, or testifies
in, any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative in nature, by reason of the
fact that such person is or was a director, officer, employee, agent,
stockholder or a holder of any ownership interest in any stockholder of the
Corporation (each, an "Indemnitee"), or is or was serving at the request of
the Corporation as a director or officer of another corporation, partnership,
joint venture, employee benefit plan, trust or other enterprise (an "Other
Entity"), against expenses (including attorneys' fees and disbursements),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding to
the full extent permitted by law. Persons who are not Indemnitees of the
Corporation may be similarly indemnified in respect of service to the
Corporation or to an Other Entity at the request of the Corporation to the
extent the Board at any time specifies that such persons are entitled to the
benefits of this Article V, and the Corporation may enter into agreements
with any such person for the purpose of providing for such indemnification.

SECTION V.2. ADVANCEMENT OF EXPENSES. The Corporation shall, from
time to time, reimburse or advance to any indemnitee or other person entitled
to indemnification under this Article V the funds necessary for payment of
expenses (including attorney's fees and disbursements) actually and
reasonably incurred by such person in defending or testifying in a civil,
criminal, administrative or investigative action, suit or proceeding;
PROVIDED, HOWEVER, that the Corporation may pay such expenses in advance of
the final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such Indemnitee to repay such amount if it
shall ultimately be determined by final judicial decision that such
Indemnitee is not entitled to be indemnified by the Corporation against such
expenses as authorized by this Article V, and the Corporation may enter into
agreements with such persons for the purpose of providing for such advances.

SECTION V.3. INSURANCE. The Corporation shall have the power to
purchase and maintain insurance on behalf of any person who is or was an
Indemnitee of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of an Other Entity
against any liability asserted against such person and incurred by such
person in any such capacity, or arising out of such person's status as such,
whether or not the Corporation would have the power to indemnify such person
against such liability under the provisions of this Article V or otherwise.

SECTION V.4. RIGHTS NOT EXCLUSIVE. The rights to indemnification
and reimbursement or advancement of expenses provided by, or granted pursuant
to,

<PAGE>

this Article V shall not be deemed exclusive of any other rights to which a
person seeking indemnification or reimbursement or advancement of expenses
may have or hereafter be entitled under any statute, the Certificate of
Incorporation, these By-Laws, any agreement, any vote of stockholders or
disinterested directors or otherwise, both as to action in his or her
official capacity and as to action in another capacity while holding such
office.

SECTION V.5. CONTINUATION OF BENEFITS. The rights to indemnification
and reimbursement or advancement of expenses provided by, or granted pursuant
to, this Article V shall continue as to a person who has ceased to be an
Indemnitee (or other person indemnified hereunder) and shall inure to the
benefit of the executors, administrators, legatees and distributees of such
person.

SECTION V.6. BINDING EFFECT. The provisions of this Article V shall
be a contract between the Corporation, on the one hand, and each Indemnitee who
serves in such capacity at any time while this Article V is in effect and any
other person indemnified hereunder, on the other hand, pursuant to which the
Corporation and each such Indemnitee or other person intend to be legally bound.
No repeal or modification of this Article V shall affect any rights or
obligations with respect to any state of facts then or theretofore existing or
thereafter arising or any proceeding theretofore or thereafter brought or
threatened based in whole or in part upon any such state of facts.

SECTION V.7. PROCEDURAL RIGHTS. The rights to indemnification and
reimbursement or advancement of expenses provided by, or granted pursuant to,
this Article V shall be enforceable by any person entitled to such
indemnification or reimbursement or advancement of expenses in any court of
competent jurisdiction. The burden of proving that such indemnification or
reimbursement or advancement of expenses is not appropriate shall be on the
Corporation. Neither the failure of the Corporation (including its Board of
Directors, its independent legal counsel and its stockholders) to have made a
determination prior to the commencement of such action that such indemnification
or reimbursement or advancement of expenses is proper in the circumstances nor
an actual determination by the Corporation (including its Board of Directors,
its independent legal counsel and its stockholders) that such person is not
entitled to such indemnification or reimbursement or advancement of expenses
shall constitute a defense to the action or create a presumption that such
person is not so entitled. Such a person shall also be indemnified for any
expenses incurred in connection with successfully establishing his or her right
to such indemnification or reimbursement or advancement of expenses, in whole or
in part, in any such proceeding.

SECTION V.8. SERVICE DEEMED AT CORPORATION'S REQUEST. Any Indemnitee
of the Corporation serving in any capacity for (a) another corporation of which
a majority of the shares entitled to vote in the election of its directors is
held,

<PAGE>

directly or indirectly, by the Corporation or (b) any employee benefit plan
of the Corporation or any corporation referred to in clause (a) shall be
deemed to be doing so at the request of the Corporation.

SECTION V.9. ELECTION OF APPLICABLE LAW. Any person entitled to be
indemnified or to reimbursement or advancement of expenses as a matter of
right pursuant to this Article V may elect to have the right to
indemnification or reimbursement or advancement of expenses interpreted on
the basis of the applicable law in effect at the time of the occurrence of
the event or events giving rise to the applicable action, suit or proceeding,
to the extent permitted by law, or on the basis of the applicable law in
effect at the time such indemnification or reimbursement or advancement of
expenses is sought. Such election shall be made, by a notice in writing to
the Corporation, at the time indemnification or reimbursement or advancement
of expenses is sought; PROVIDED, HOWEVER, that if no such notice is given,
the right to indemnification or reimbursement or advancement of expenses
shall be determined by the law in effect at the time indemnification or
reimbursement or advancement of expenses is sought.

ARTICLE VI
BOOKS AND RECORDS

SECTION VI.1. LOCATION. The books and records of the Corporation may
be kept at such place or places within or outside the State of Delaware as the
Board of Directors or the respective officers in charge thereof may from time to
time determine. The record books containing the names and addresses of all
stockholders, the number and class of shares of stock held by each, and the
dates when they respectively became the owners of record thereof shall be kept
by the Secretary as prescribed in the By-Laws and by such officer or agent as
shall be designated by the Board of Directors.

SECTION VI.2. ADDRESSES OF STOCKHOLDERS. Notices of meetings and
all other corporate notices may be delivered personally or mailed to each
stockholder at the stockholder's address as it appears on the records of the
Corporation.

SECTION VI.3. FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF
RECORD. (a) In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted by the Board of Directors and which record date shall
not be more than 60 nor less than 10 days before the date of such meeting. If
no record date is fixed by the Board of Directors, the record date for
determining the stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the
day on which notice is

<PAGE>

given, or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; PROVIDED,
HOWEVER, that the Board of Directors may fix a new record date for the
adjourned meeting.

(b) In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the
Board of Directors may fix a record date, which record date shall not precede
the date upon which the resolution fixing the record date is adopted by the
Board of Directors and which date shall not be more than 10 days after the
date upon which the resolution fixing the record date is adopted by the Board
of Directors. If no record date has been fixed by the Board of Directors, the
record date for determining stockholders entitled to consent to corporate
action in writing without a meeting, when no prior action by the Board of
Directors is required, shall be the first date on which a signed written
consent setting forth the action taken or proposed to be taken is delivered
to the Corporation by delivery to its registered office in this State, its
principal place of business, or an officer or agent of the Corporation having
custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the Corporation's registered office shall be by
hand or by certified or registered mail, return receipt requested. If no
record date has been fixed by the Board of Directors and prior action by the
Board of Directors is required by this chapter, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting shall be at the close of business on the day on which the
Board of Directors adopts the resolution taking such prior action.

(c) In order that the Corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or
allotment of any rights or the stockholders entitled to exercise any rights
in respect of any change, conversion, or exchange of stock, or for the
purpose of any other lawful action, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted and which record date shall be not more
than 60 days prior to such action. If no record date is fixed, the record
date for determining stockholders for any such purpose shall be at the close
of business on the day on which the Board of Directors adopts the resolution
relating thereto.

ARTICLE VII
CERTIFICATES REPRESENTING STOCK

SECTION VII.1. CERTIFICATES; SIGNATURES. The shares of the
Corporation shall be represented by certificates, provided that the Board of
Directors of the Corporation may provide by resolution or resolutions that
some or all of any or all

<PAGE>

classes or series of its stock shall be uncertificated shares. Any such
resolution shall not apply to shares represented by a certificate until such
certificate is surrendered to the Corporation. Notwithstanding the adoption
of such a resolution by the Board of Directors, every holder of stock
represented by certificates and upon request every holder of uncertificated
shares shall be entitled to have a certificate, signed by or in the name of
the Corporation by the Chairman or Vice Chairman of the Board of Directors,
or the President or Vice President, and by the Treasurer or an Assistant
Treasurer, or the Secretary or an Assistant Secretary of the Corporation,
representing the number of shares registered in certificate form. Any and all
signatures on any such certificate may be facsimiles. In case any officer,
transfer agent, or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent, or registrar before such certificate is issued, it may be issued by
the Corporation with the same effect as if he were such officer, transfer
agent, or registrar at the date of issue. The name of the holder of record of
the shares represented thereby, with the number of such shares and the date
of issue, shall be entered on the books of the Corporation.

SECTION VII.2. TRANSFERS OF STOCK. Upon compliance with provisions
restricting the transfer or registration of transfer of shares of stock, if any,
shares of capital stock shall be transferable on the books of the Corporation
only by the holder of record thereof in person, or by duly authorized attorney,
upon surrender and cancellation of certificates for a like number of shares,
properly endorsed, and the payment of all taxes due thereon.

SECTION VII.3. FRACTIONAL SHARES. The Corporation may, but shall not
be required to, issue certificates for fractions of a share where necessary to
effect authorized transactions, or the Corporation may pay in cash the fair
value of fractions of a share as of the time when those entitled to receive such
fractions are determined, or it may issue scrip in registered or bearer form
over the manual or facsimile signature of an officer of the Corporation or of
its agent, exchangeable as therein provided for full shares, but such scrip
shall not entitle the holder to any rights of a stockholder except as therein
provided.

The Board of Directors shall have power and authority to make all
such rules and regulations as it may deem expedient concerning the issue,
transfer and registration of certificates representing shares of the
Corporation.

SECTION VII.4. LOST, STOLEN OR DESTROYED CERTIFICATES. The
Corporation may issue a new certificate of stock in place of any certificate
theretofore issued by it that is alleged to have been lost, stolen, or
destroyed, and the Board of Directors may require the owner of any allegedly
lost, stolen, or destroyed certificate, or his legal representative, to give
the Corporation a bond sufficient to indemnify the Corporation against any
claim that may be made against it on account of the alleged

<PAGE>

loss, theft or destruction of any such certificate or the issuance of any
such new certificate.

ARTICLE VIII
DIVIDENDS

SECTION VIII.1. Subject always to the provisions of law and the
Certificate of Incorporation, the Board of Directors shall have full power to
determine whether any, and, if any, what part of any, funds legally available
for the payment of dividends shall be declared as dividends and paid to
stockholders. The division of the whole or any part of such funds of the
Corporation shall rest wholly within the lawful discretion of the Board of
Directors, and it shall not be required at any time, against such discretion,
to divide or pay any part of such funds among or to the stockholders as
dividends or otherwise. Before payment of any dividend, there may be set
aside out of any funds of the Corporation available for dividends such sum or
sums as the Board of Directors from time to time, in its absolute discretion,
thinks proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
Corporation, or for such other purpose as the Board of Directors shall
determine to be in the best interests of the Corporation, and the Board of
Directors may modify or abolish any such reserve in the manner in which it
was created.

ARTICLE IX
RATIFICATION

SECTION IX.1. Any transaction questioned in any law suit on the
ground of lack of authority, defective or irregular execution, adverse interest
of a director, officer, or stockholder, non-disclosure, miscomputation, or the
application of improper principles or practices of accounting, may be ratified
before or after judgment, by the Board of Directors or by the stockholders, and
if so ratified shall have the same force and effect as if the questioned
transaction had been originally duly authorized. Such ratification shall be
binding upon the Corporation and its stockholders and shall constitute a bar to
any claim or execution of any judgment in respect of such questioned
transaction.

ARTICLE X
CORPORATE SEAL

SECTION X.1. The corporate seal shall have inscribed thereon the
name of the Corporation and the year of its incorporation, and shall be in
such form and contain such other words and/or figures as the Board of
Directors shall determine.

<PAGE>

The corporate seal may be used by printing, engraving, lithographing,
stamping, or otherwise making, placing, or affixing, or causing to be
printed, engraved, lithographed, stamped, or otherwise made, placed, or
affixed, upon any paper or document, by any process whatsoever, an
impression, facsimile, or other reproduction of said corporate seal.

ARTICLE XI
FISCAL YEAR

SECTION XI.1. The fiscal year of the Corporation shall be fixed, and
shall be subject to change, by the Board of Directors. Unless otherwise fixed by
the Board of Directors, the fiscal year of the Corporation shall be the calendar
year.

ARTICLE XII
WAIVER OF NOTICE

SECTION XII.1. Whenever notice is required to be given by these
By-Laws or by the Certificate of incorporation or by law, a written waiver
thereof, signed by the person or persons entitled to said notice, whether
before or after the time stated therein, shall be deemed equivalent to notice.

ARTICLE XIII
BANK ACCOUNTS, DRAFTS, CONTRACTS, ETC.

SECTION XIII.1. BANK ACCOUNTS AND DRAFTS. In addition to such bank
accounts as may be authorized by the Board of Directors, the primary
financial officer or any person designated by said primary financial officer,
whether or not an employee of the Corporation, may authorize such bank
accounts to be opened or maintained in the name and on behalf of the
Corporation as may be deemed necessary or appropriate, payments from such
bank accounts to be made upon and according to the check of the Corporation
in accordance with the written instructions of said primary financial
officer, or other person so designated by the Treasurer.

SECTION XIII.2. CONTRACTS. The Board of Directors may authorize
any person or persons, in the name and on behalf of the Corporation, to enter
into or execute and deliver any and all deeds, bonds, mortgages, contracts,
and other obligations or instruments, and such authority may be general or
confined to specific instances.

<PAGE>

SECTION XIII.3. PROXIES; POWERS OF ATTORNEY; OTHER INSTRUMENTS.
The Chairman, the President or any other person designated by either of them
shall have the power and authority to execute and deliver proxies, powers of
attorney, and other instruments on behalf of the Corporation in connection
with the rights and powers incident to the ownership of stock by the
Corporation. The Chairman, the President or any other person authorized by
proxy or power of attorney executed and delivered by either of them on behalf
of the Corporation may attend and vote at any meeting of stockholders of any
company in which the Corporation may hold stock, and may exercise on behalf
of the Corporation any and all of the rights and powers incident to the
ownership of such stock at any such meeting, or otherwise as specified in the
proxy or power of attorney so authorizing any such person. The Board of
Directors, from time to time, may confer like powers upon any other person.

SECTION XIII.4. FINANCIAL REPORTS. The Board of Directors may
appoint the primary financial officer or other fiscal officer and/or the
Secretary or any other officer to cause to be prepared and furnished to
stockholders entitled thereto any special financial notice and/or financial
statement, as the case may be, which may be required by any provision of law.

ARTICLE XIV
AMENDMENTS

SECTION XIV.1. The Board of Directors shall have power to adopt,
amend, or repeal by-laws. Any by-laws adopted by the Board of Directors may be
repealed or changed, and new by-laws made, by the stockholders, and the
stockholders may prescribe that any by-law made by them shall not be altered,
amended, or repealed by the Board of Directors.

<PAGE>
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