<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 8, 1995
REGISTRATION NO. 33-57513
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
AMERISOURCE DISTRIBUTION CORPORATION*
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 6719 23-2546940
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
300 CHESTER FIELD PARKWAY
MALVERN, PENNSYLVANIA 19355
(610) 296-4480
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
TERESA T. CICCOTELLI, ESQ.
AMERISOURCE DISTRIBUTION CORPORATION
300 CHESTER FIELD PARKWAY
MALVERN, PENNSYLVANIA 19355
(610) 296-4480
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
Copies to:
<TABLE>
<S> <C>
CRAIG L. GODSHALL, ESQ. JOHN J. SCHUSTER, ESQ.
DECHERT PRICE & RHOADS CAHILL GORDON & REINDEL
4000 BELL ATLANTIC TOWER 80 PINE STREET
1717 ARCH STREET NEW YORK, NEW YORK 10005
PHILADELPHIA, PENNSYLVANIA 19103-2793
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
As soon as practicable on or after the effective date of this Registration
Statement.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box: / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- ---------------
* The Registrant intends to change its name to "AmeriSource Health Corporation."
The Registrant is referred to in the Prospectus by the proposed new name.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
AMERISOURCE DISTRIBUTION CORPORATION
------------------------
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501 OF REGULATION S-K AND
RULE 404(A)
<TABLE>
<CAPTION>
FORM S-2 ITEM AND CAPTION LOCATION IN PROSPECTUS
---------------------------------------- -----------------------------------------------
<S> <C> <C>
1. Forepart of the Registration Statement
and Outside Front Cover Page of
Prospectus............................ Cover Page of Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus................... Inside Front and Outside Back Cover Page of
Prospectus
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges.... Prospectus Summary; Risk Factors
4. Use of Proceeds......................... Use of Proceeds
5. Determination of Offering Price......... Underwriting
6. Dilution................................ Dilution
7. Selling Security Holders................ Not Applicable
8. Plan of Distribution.................... Underwriting
9. Description of Securities to be
Registered............................ Description of Capital Stock
10. Interests of Named Experts and
Counsel............................... Legal Matters
11. Information with Respect to the
Registrant............................ Prospectus Summary; Risk Factors; Dividend
Policy; The Refinancing; Capitalization;
Selected Financial Data; Management's
Discussion and Analysis of Financial Condition
and Results of Operations; Business;
Management; Certain Relationships and
Transactions; Principal Stockholders;
Description of Capital Stock; Description of
Indebtedness and Securitization Program; Shares
Eligible for Future Sale; Unaudited Pro Forma
Financial Statements; Consolidated Financial
Statements
12. Incorporation of Certain Information by
Reference............................. Incorporation of Certain Information by
Reference
13. Disclosure of Commission Position on
Indemnification for Securities
Act Liabilities....................... Not Applicable
</TABLE>
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD
BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES
LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MARCH 8, 1995
PROSPECTUS
, 1995
6,600,000 SHARES
[AMERISOURCE LOGO]
COMMON STOCK
All of the shares of Common Stock, par value $0.01 per share ("Common
Stock"), offered hereby are being offered by AmeriSource Health Corporation
("AmeriSource" or the "Company"). Of the 6,600,000 shares of Common Stock being
offered, 5,280,000 shares are being offered for sale in the United States and
Canada by the U.S. Underwriters (the "U.S. Offering") and 1,320,000 shares are
being offered for sale outside the United States and Canada in a concurrent
offering by the International Managers (the "International Offering" and,
together with the U.S. Offering, the "Offering"). The initial public offering
price and the underwriting discount per share are the same for both the U.S.
Offering and the International Offering. The Common Stock being offered hereby
is the only voting stock of the Company. There are three classes of Company
Common Stock, two of which are non-voting.
Prior to the Offering, there has been no public market for the Common
Stock. It is currently estimated that the initial public offering price will be
between $18.00 and $20.00 per share. See "Underwriting" for information relating
to the factors to be considered in determining the initial public offering
price.
The Common Stock has been approved for listing on the Nasdaq National
Market under the symbol "ASHC," subject to official notice of issuance.
SEE "RISK FACTORS" FOR CERTAIN INFORMATION THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
PRICE UNDERWRITING PROCEEDS
TO THE DISCOUNTS AND TO THE
PUBLIC COMMISSIONS(1) COMPANY(2)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share................................. $ $ $
Total(3).................................. $ $ $
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) See "Underwriting" for indemnification arrangements with the Underwriters.
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted the U.S. Underwriters a 30-day option to purchase up
to 990,000 additional shares of Common Stock on the same terms as set forth
above to cover over-allotments, if any. If such option is exercised in full,
the total Price to the Public, Underwriting Discounts and Commissions and
Proceeds to the Company will be $ , $ and $ ,
respectively. See "Underwriting."
The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by the
Underwriters and subject to various prior conditions including their right to
reject orders in whole or in part. It is expected that delivery of the
certificates for the shares of Common Stock offered hereby will be made in New
York, New York on or about , 1995.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SMITH BARNEY INC.
BT SECURITIES CORPORATION
<PAGE> 4
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. SHIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
SUBJECT TO COMPLETION, DATED MARCH 8, 1995
PROSPECTUS
, 1995
6,600,000 SHARES
[AMERISOURCE LOGO]
COMMON STOCK
All of the shares of Common Stock, par value $0.01 per share ("Common
Stock"), offered hereby are being offered by AmeriSource Health Corporation
("AmeriSource" or the "Company"). Of the 6,600,000 shares of Common Stock being
offered, 1,320,000 shares are being offered for sale outside the United States
and Canada by the International Managers (the "International Offering") and
5,280,000 shares are being offered for sale in the United States and Canada in a
concurrent offering by the U.S. Underwriters (the "U.S. Offering" and, together
with the International Offering, the "Offering"). The initial public offering
price and the underwriting discount per share are the same for both the
International Offering and the U.S. Offering. The Common Stock being offered
hereby is the only voting stock of the Company. There are three classes of
Company Common Stock, two of which are non-voting.
Prior to the Offering, there has been no public market for the Common
Stock. It is currently estimated that the initial public offering price will be
between $18.00 and $20.00 per share. See "Underwriting" for information relating
to the factors to be considered in determining the initial public offering
price.
The Common Stock has been approved for listing on the Nasdaq National
Market under the symbol "ASHC," subject to official notice of issuance.
SEE "RISK FACTORS" FOR CERTAIN INFORMATION THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
PRICE UNDERWRITING PROCEEDS
TO THE DISCOUNTS AND TO THE
PUBLIC COMMISSIONS(1) COMPANY(2)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share................................. $ $ $
Total(3).................................. $ $ $
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) See "Underwriting" for indemnification arrangements with the Underwriters.
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted the U.S. Underwriters a 30-day option to purchase up
to 990,000 additional shares of Common Stock on the same terms as set forth
above to cover over-allotments, if any. If such option is exercised in full,
the total Price to the Public, Underwriting Discounts and Commissions and
Proceeds to the Company will be $ , $ and $ ,
respectively. See "Underwriting."
The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by the
Underwriters and subject to various prior conditions including their right to
reject orders in whole or in part. It is expected that delivery of the
certificates for the shares of Common Stock offered hereby will be made in New
York, New York on or about , 1995.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SMITH BARNEY INC.
BANKERS TRUST INTERNATIONAL PLC
<PAGE> 5
[MAP OF UNITED STATES]
- ---------------
NORTH CENTRAL REGION NORTHEAST REGION
Mishawaka, IN Thorofare, NJ
Toledo, OH Springfield, MA
Harrisburg, PA
MID CENTRAL REGION Baltimore, MD
Columbus, OH
Louisville, KY SOUTHERN REGION
Chattanooga, TN
WESTERN REGION Valdosta, GA
Minneapolis, MN Johnson City, TN
Portland, OR Dallas, TX
Joplin, MO Lynchburg, VA
Sacramento, CA* Orlando, FL*
SOUTH CENTRAL REGION CORPORATE OFFICE
Paducah, KY Malvern, PA
* Announced opening of new facility.
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the financial statements, including the notes thereto, included
elsewhere or incorporated by reference in this Prospectus. Investors should
carefully consider the information set forth under the heading "Risk Factors."
All industry statistics in this Prospectus were obtained from data prepared by
the National Wholesale Druggists' Association. Unless otherwise indicated, all
references in this Prospectus to the Company or AmeriSource shall mean the
Company and its subsidiaries on a consolidated basis.
THE COMPANY
AmeriSource is the fifth largest full-service wholesale distributor of
pharmaceutical products and related health care services in the United States.
The Company services its customers nationwide through 16 drug distribution
facilities and one specialty products distribution facility. AmeriSource is
typically the primary source of supply to its customers and offers a broad range
of services designed to enhance the operating efficiencies and competitive
position of its customers and suppliers. The Company benefits from a diverse
customer base that includes hospitals and managed care facilities (46%),
independent community pharmacies including retail drug stores, nursing homes and
clinics (34%) and chain drug stores including pharmacy departments of
supermarkets and mass merchandisers (20%).
Over the past five years, AmeriSource has significantly expanded its
national presence as a leading, innovative wholesale distributor, and has
achieved significant growth in revenues and adjusted operating income (as
defined herein). The Company's revenues have increased from $2.6 billion in
fiscal 1990 to $4.3 billion in fiscal 1994, a compound annual growth rate of
13.8%, while adjusted operating income increased from $43.8 million in fiscal
1990 to $86.1 million in fiscal 1994, a compound annual growth rate of 18.4%.
The Company's growth is primarily the result of market share gains in existing
markets, geographic expansion and overall industry growth. The Company believes
it is well-positioned to continue its revenue growth and increase operating
income through the execution of the following key elements of its business
strategy:
- Expanding into New Geographic Markets. The Company believes that there
are substantial opportunities to grow by expanding into new geographic
areas through opening new distribution facilities and making selective,
complementary acquisitions. During the past 17 months, AmeriSource has
opened three new distribution facilities in Dallas, Texas, Portland,
Oregon and Springfield, Massachusetts. The Company plans to open new
distribution facilities in Sacramento, California and Orlando, Florida
during calendar 1995. In addition, the Company believes that as industry
consolidation pressures continue, opportunities will arise to selectively
acquire local and regional drug wholesale companies. Prior to the
Acquisition (as defined herein) in 1988, AmeriSource's management team
completed 18 acquisitions over a 10-year period. The completion of the
Offering and the Refinancing (as defined herein) will significantly
increase the Company's financial flexibility, including its ability to
pursue acquisitions.
- Increasing Market Share in Existing Markets. The Company believes that
it is well positioned to continue to grow in its existing markets by: (i)
providing superior distribution services and specialty value-added
programs which reduce its customers' cost of operations; (ii) maintaining
its low cost operating structure to ensure that the Company's services are
priced competitively in the marketplace; (iii) continuing to focus on the
higher growth hospital and managed care market segment through the use of
dedicated facilities and advanced information systems; and (iv)
maintaining a decentralized operating structure which responds to
customers' needs more quickly and efficiently and ensures the continued
development of local and regional management talent. These factors have
allowed AmeriSource to compete effectively in the marketplace, generate
above-average industry sales growth over the last three years and develop
new types of customers, such as the federal government.
- Continuing Growth of Specialty Services. AmeriSource works closely with
both customers and suppliers to develop an extensive range of specialty
services. In addition to enhancing the Company's
3
<PAGE> 7
profitability, these services increase customer loyalty and strengthen the
Company's overall role in the health care distribution channel. These
services include:
-- ECHOTM, the Company's proprietary software system, provides
sophisticated ordering and inventory management assistance to its
hospital and retail customers. Since the introduction of ECHOTM in
early fiscal 1991, the Company has installed approximately 2,000
systems nationwide and believes that its installed base of systems
is one of the largest in the wholesale drug industry.
-- Family Pharmacy(R) enables small chain and independent community
pharmacies to compete more effectively by providing innovative
marketing and merchandising programs and enhancing access to
pharmaceutical benefit programs of large health care provider
groups. Family Pharmacy(R) has grown dramatically in recent years,
and as of December 31, 1994 its 1,861 member-stores would in effect
constitute one of the largest drugstore chains in the United
States.
-- Income Rx(R) provides an integral value-added service to hospital
and retail customers by continually reviewing the marketplace for
generic pharmaceutical products that offer the best price, quality
and availability. In addition, Income RePax(R) repackages
pharmaceuticals from bulk quantities into smaller units thereby
providing customers with lower product, inventory and dispensing
(labor) costs.
-- Health Services Plus distributes oncology and other specialty
products to clinics and physician groups on a national basis. Rita
Ann Distributors markets cosmetics and fragrances to chain
drugstores and other retail customers.
- Maintaining Low Cost Operating Structure. AmeriSource has the lowest
operating cost structure among its four major national competitors. Over
the past six years, the Company has reduced its selling and
administrative expenses as a percentage of revenues from 5.36% in fiscal
1988 to 3.31% in fiscal 1994. The Company continues to achieve
productivity and operating income gains from ongoing investments in
advanced management information systems and warehouse automation
technology, and from operating leverage due to above industry average
volume per facility. In fiscal 1994, the Company's average revenue per
facility was $287 million compared to a calendar 1993 industry average of
approximately $175 million.
The wholesale drug industry in the United States continues to experience
significant growth. Industry sales grew from $30 billion in 1990 to an estimated
$53 billion in 1994. Factors contributing to this growth include an aging
population, new product introductions, the increased use of outpatient drug
therapies, a higher concentration of distribution through wholesalers by both
manufacturers and customers and rising pharmaceutical prices. In response to
rising health care costs, governmental and private payors have adopted cost
containment measures that encourage the use of efficient drug therapies to
prevent or treat diseases instead of expensive prolonged hospital stays and
surgical procedures. In addition, drug wholesalers offer their customers and
suppliers more efficient distribution and inventory management. As a result,
from 1980 to 1994, the percentage of total pharmaceutical sales through
wholesale drug distributors increased from approximately 57% to approximately
78%. The industry also continues to undergo significant consolidation, with the
number of wholesalers in the continental United States down from 139 at the end
of 1980 to approximately 55 as of December 31, 1994.
After giving effect to the Offering and the Option Exercises (as defined
herein), the outstanding Common Stock of the Company will be owned 47.2% by 399
Venture Partners Inc., a wholly-owned indirect subsidiary of Citicorp ("VPI"),
and 12.8% by management level employees of the Company (45.1% and 12.2%,
respectively, if the over-allotment option is exercised in full). See
"Management" and "Principal Stockholders." The Company was formed to acquire
Alco Health Services Corporation, a public company listed on Nasdaq, in 1988
through a leveraged buyout (the "Acquisition"). The Company changed its name
from Alco Health Distribution Corporation on July 15, 1994. The address of the
principal executive office of the Company is 300 Chester Field Parkway, Malvern,
Pennsylvania 19355, and its telephone number is (610) 296-4480.
In connection with the Acquisition, the Company incurred approximately $545
million of indebtedness, with a resulting high level of interest expense. Due to
its high leverage, the Company has experienced
4
<PAGE> 8
significant net losses in each fiscal year since 1988. Since the Acquisition,
the Company has refinanced all such indebtedness at substantially lower interest
rates. See "Risk Factors," "The Refinancing" and "Capitalization." The Company
recorded approximately $209.0 million of goodwill at the time of the Acquisition
in 1988. After a detailed evaluation of the recoverability of its goodwill, the
Company wrote-off its remaining goodwill balance of $179.8 million in the
quarter ended June 30, 1994. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and the audited consolidated financial statements and related notes
thereto included elsewhere in this Prospectus.
THE OFFERING
Common Stock offered hereby................. 6,600,000 shares
Common Stock to be outstanding after the
Offering(1)................................. 21,212,193 shares
Use of Proceeds............................. For repayment of indebtedness
and general corporate purposes.
See "Use of Proceeds."
Nasdaq National Market Symbol............... ASHC
- ---------------
(1) Includes 1,293,902 shares to be outstanding as a result of the Option
Exercises and does not include up to approximately 1.1 million shares of
Common Stock reserved for issuance upon exercise of options available for
future grant under the Company's 1995 Stock Option Plan (as defined herein)
and Directors Plan (as defined herein), which is equivalent to 5% of all
shares after giving effect to the Offering and the Option Exercises and is
subject to an increase of approximately 50,000 shares if the over-allotment
option is exercised in full. See "Management -- Stock Options" and
"Description of Capital Stock."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered by prospective investors.
------------------------
Unless otherwise indicated, the information in this Prospectus assumes that
the Underwriters' over-allotment option will not be exercised. Unless otherwise
indicated, solely for the purposes of disclosure in this Prospectus, all share
amounts and information derived therefrom have been adjusted to reflect: (i) the
2.95-for-1 stock split that will be implemented concurrently with the sale of
Common Stock offered hereby; (ii) the issuance of 2,571,478 shares of Common
Stock currently reserved for issuance upon the exercise of options under the
Purchase Plan (as defined herein) and the 1991 Option Plan (as defined herein),
which options will expire 90 days after the closing of the Offering and which
the Company expects will be exercised during such period and AmeriSource's
subsequent repurchase of 168,045 shares of Common Stock from the Purchase Plan
and the 1991 Option Plan option holders to enable the holders to satisfy certain
tax withholding obligations, and the exercise of options in December 1994 for
336,448 shares of Common Stock under the Partners Plan (as defined herein) and
AmeriSource's subsequent repurchase of 107,085 shares of Common Stock from
Partners Plan option holders to enable them to satisfy certain tax withholding
obligations; and (iii) the Company's expected repurchase from VPI of 1,338,894
shares of Common Stock upon the exercise of options under the Purchase Plan and
the 1991 Option Plan at a price of $0.34 per share. The transactions
contemplated by clauses (ii) and (iii) above are collectively referred to herein
as the "Option Exercises." The term "Common Stock" referred to in this
Prospectus is the Class A Common Stock, $0.01 par value per share, Class B
Common Stock, $0.01 par value per share and Class C Common Stock, $0.01 par
value per share of the Company. The Class A Common Stock is the Company's only
class of voting stock. Unless otherwise indicated, the Company's historical
earnings (loss) per share data and weighted average common shares outstanding as
presented in the Summary Financial Data and Selected Financial Data have been
restated for the 2.95-for-1 stock split to be declared in connection with the
Offering.
5
<PAGE> 9
SUMMARY FINANCIAL DATA
The summary financial data should be read in conjunction with "The
Refinancing," "Use of Proceeds," "Capitalization," "Selected Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the audited and unaudited consolidated financial statements and
related notes thereto, and the unaudited pro forma financial statements and
related notes included elsewhere in this Prospectus. The information for interim
periods is unaudited; however, in the opinion of management, all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of such information have been included. The interim results of
operations may not be indicative of the results for the full fiscal year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED SEPTEMBER 30, DECEMBER 31,
-------------------------------------------------------------- -----------------------
1990 1991 1992 1993 1994 1993 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................ $2,564,008 $2,827,161 $3,329,909 $3,719,025 $4,301,832 $1,045,776 $1,157,100
Gross profit.................... 162,120 178,769 199,723 209,438 235,191 53,999 63,237
Selling and administrative
expenses...................... 113,586 116,044 125,696 130,338 142,497 33,034 39,598
Write-off of excess of cost over
net assets acquired(1)........ -- -- -- -- 179,824 -- --
Operating income (loss)(2)...... 38,270 46,838 63,094 67,824 (101,992) 18,000 21,939
Interest expense and cost of
receivables program........... 73,675 72,208 71,025 66,696 62,611 15,233 17,323
Income (loss) before
extraordinary items and
cumulative effects of
accounting changes............ (29,489) (23,319) (12,824) (7,474) (172,417) 2,579 886
Net (loss)...................... (29,489) (23,319) (6,476) (18,618) (207,671) (32,675) (10,863)
EARNINGS (LOSS) PER SHARE:
Income (loss) before
extraordinary items and
cumulative effects of
accounting changes............ $ (2.00) $ (1.58) $ (0.87) $ (0.51) $ (11.69) $ .18 $ .06
Extraordinary items............. -- -- 0.43 (0.75) (0.04) (.04) (.80)
Cumulative effects of accounting
changes....................... -- -- -- -- (2.35) (2.35) --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net (loss)...................... $ (2.00) $ (1.58) $ (0.44) $ (1.26) $ (14.08) $ (2.21) $ (.74)
========== ========== ========== ========== ========== ========== ==========
Weighted average common shares
outstanding................... 14,750 14,750 14,750 14,750 14,750 14,750 14,750
PRO FORMA DATA(3):
Adjusted operating income(4).... $ 86,054 $ 19,376 $ 21,939
Interest expense and cost of
receivables program........... 33,695 8,430 10,843
Income (loss) before taxes,
extraordinary items and
cumulative effects of
accounting changes............ (135,687) 9,570 11,096
Income (loss) before
extraordinary items and
cumulative effects of
accounting changes............ (151,648) 7,419 5,039
Income (loss) per share before
extraordinary items and
cumulative effects of
accounting changes............ $ (7.15) $ .35 $ .24
Weighted average common shares
outstanding................... 21,212 21,212 21,212
OTHER OPERATING DATA:
Adjusted operating income(4).... $ 43,815 $ 57,848 $ 68,643 $ 73,291 $ 86,054 $ 19,376 $ 21,939
Adjusted operating income as a %
of revenues................... 1.71% 2.05% 2.06% 1.97% 2.00% 1.85% 1.90%
Number of facilities at end of
period........................ 19 19 18 16 15 17 17
Average revenue per facility.... $ 134,948 $ 148,798 $ 184,995 $ 232,439 $ 286,789 -- --
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1994
--------------------------
ACTUAL AS ADJUSTED(5)
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Current assets........................................................................ $ 522,304 $ 522,304
Working capital....................................................................... (34,312) (7,600)
Total assets.......................................................................... 712,975 710,688
Long-term debt, including current portion............................................. 462,807 374,318
Stockholders' equity (deficit)........................................................ (312,745) (199,831)
</TABLE>
- ---------------
(see footnotes on the following page)
6
<PAGE> 10
- ---------------
(1) During the quarter ended June 30, 1994, the Company wrote off the remaining
unamortized balance of its excess of cost over net assets acquired
("goodwill") of $179.8 million. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Note 2 to the audited
consolidated financial statements included elsewhere in this Prospectus.
(2) Excludes non-recurring charges as shown in the Selected Financial Data. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 9 to the audited consolidated financial statements
included elsewhere herein for an explanation of the charges in 1992 and
1993.
(3) The pro forma data represents the historical data for the fiscal year ended
September 30, 1994 and the three months ended December 31, 1994 and 1993
adjusted to give effect to the Refinancing, the Offering and the Option
Exercises as if each transaction had occurred at the beginning of the
periods presented. See "Use of Proceeds," "The Refinancing" and the
unaudited pro forma financial statements including notes thereto, included
elsewhere in this Prospectus. Pro forma interest expense includes the cost
of the Receivables Program (as defined herein).
(4) Adjusted operating income is defined as operating income plus amortization
of intangibles for each period plus a $5.5 million stock option compensation
charge in fiscal 1991, a $4.1 million environmental remediation charge in
fiscal 1994 and the $179.8 million write-off of goodwill in the quarter
ended June 30, 1994. Adjusted operating income is not an alternative to
operating income or cash flows (as determined under generally accepted
accounting principles) as an indicator of operating and cash flow
performance and should be read in conjunction with the Selected Financial
Data and the Company's consolidated financial statements included elsewhere
in this Prospectus. However, the Company believes it provides useful
information to assist in evaluating the Company's historical results of
operations.
(5) Represents the historical data as of December 31, 1994 adjusted to give
effect to the Refinancing, the Offering and the Option Exercises as if each
transaction had occurred on December 31, 1994. See "Use of Proceeds," "The
Refinancing," and the unaudited pro forma financial statements including
notes thereto, included elsewhere in this Prospectus.
7
<PAGE> 11
RISK FACTORS
Prospective purchasers of the Common Stock offered hereby should consider
carefully the specific factors set forth below as well as the other information
set forth elsewhere and incorporated by reference in this Prospectus.
HISTORY OF NET LOSSES
The Company has reported significant net losses since the Acquisition. The
Company had a net loss of approximately $10.9 million in the first quarter of
fiscal year 1995 (which included an extraordinary charge of $11.7 million
related to the Refinancing) and a net loss for fiscal year 1994 of approximately
$207.7 million (which included a one-time charge of $33.4 million relating to
changes in accounting for income taxes). In addition, the Company's net loss for
fiscal year 1994 included a write-off of its remaining goodwill balance of
$179.8 million in the quarter ended June 30, 1994. As discussed in "Management's
Discussion and Analysis of Financial Condition and Results of Operations," as
part of its evaluation of the recoverability of its goodwill during early 1994,
the Company determined that its projected operating results were being adversely
impacted by competition for market share, health care industry consolidation and
the impact on drug prices of group purchasing organizations, managed care and
health care reform. As part of that evaluation process, the Company's
projections indicated that its long-term viability would require modification of
its capital structure to reduce indebtedness and increase equity in the near-to
mid-term. In the first quarter of fiscal 1995, the Company effected the
Refinancing. After giving effect thereto and to the Offering, pro forma interest
expense for fiscal 1994 would have been approximately $33.7 million. There are
no scheduled principal payments of any of the Company's indebtedness until
January 3, 2000. See "The Refinancing" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
FINANCIAL LEVERAGE
As of December 31, 1994, the Company's aggregate long-term indebtedness was
$462.8 million and its stockholders' deficit was $312.7 million. After giving
effect to the Refinancing (including the off-balance sheet Receivables Program)
and the Offering, on a pro forma basis as of December 31, 1994, the Company's
aggregate long-term indebtedness would have been approximately $374.3 million.
Although the application of the proceeds of the Offering will reduce the
Company's indebtedness, the terms of the Company's financing agreements contain
numerous financial and operating covenants and prohibitions, including
requirements that the Company satisfy certain financial ratios and maintain
certain specified levels of net worth. In addition, the Company is more highly
leveraged than certain of its competitors, which may place the Company at a
competitive disadvantage. See "Capitalization" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
The degree to which the Company is leveraged could have important
consequences to stockholders of the Company, including the following: (i) the
Company could be more vulnerable to changes in general economic conditions; (ii)
the Company's ability to obtain additional financing for working capital,
capital expenditures, acquisitions, general corporate purposes or other purposes
may be impaired; (iii) a significant portion of the Company's cash flow from
operations must be dedicated to the payment of interest and, after 1999, the
principal on the Company's indebtedness; (iv) the Amended and Restated Credit
Agreement dated December 13, 1994 among the Company and its senior lenders (the
"Credit Agreement") and the Indenture (the "Issuer Indenture") relating to the
Company's 11 1/4% Senior Debentures due 2005 (the "Senior Debentures") contain
restrictions on the payment of dividends and impose other operating and
financial restrictions; and (v) certain of the Company's borrowings are at a
floating rate of interest, which causes the Company to be more vulnerable to
increases in interest rates. See "Description of Indebtedness and Securitization
Program."
8
<PAGE> 12
CONCENTRATION OF OWNERSHIP
Upon completion of the Offering and the Option Exercises, VPI will own
beneficially approximately 47.2% of the Company's outstanding Common Stock
(including non-voting Common Stock which is convertible at the holder's option
into voting Common Stock) and members of the management of the Company will own
beneficially approximately 12.8% of the Company's outstanding Common Stock. If
these stockholders were to vote all of their shares in a similar manner, they
would effectively control the Company. In most circumstances, they would have
sufficient voting power to elect the entire Board of Directors of the Company
and, in general, to determine (without the consent of the Company's other
stockholders) the outcome of any corporate transaction or other matter submitted
to the stockholders for approval, including mergers, consolidations and the sale
of all or substantially all of the Company's assets, and to prevent or cause a
change in control of the Company.
COMPETITION
The wholesale distribution of pharmaceuticals, health and beauty aids and
other healthcare products is highly competitive. The Company competes with
numerous national and regional distributors, some of which are larger and have
substantially greater financial resources than the Company. The Company's
national competitors include McKesson Corporation, Bergen Brunswig Corporation,
Cardinal Health, Inc. and FoxMeyer Health Corporation. In addition, the Company
competes with local distributors, direct-selling manufacturers and other
specialty distributors. Competitive factors include price, service and delivery,
credit terms, breadth of product line, customer support and marketing programs.
In part due to competitive pressures, the Company's gross profit margins have
declined from 6.00% in fiscal 1992 to 5.47% in fiscal 1994. There can be no
assurance that the Company will not encounter increased competition in the
future that could adversely affect the Company's business. The drug wholesale
industry continues to undergo significant consolidation, with the number of
wholesalers in the continental United States down from 139 at the end of 1980 to
approximately 55 as of December 31, 1994. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on its senior and regional management, the loss of
certain of whom could adversely affect the Company. The Company intends to offer
employment contracts to John F. McNamara, R. David Yost and David M. Flowers,
Chairman, President and Chief Executive Officer, Group President -- Central
Region and Group President -- Eastern Region, respectively, of the Company.
However, no member of the Company's management is currently subject to an
employment contract. There can be no assurance that, over time, the Company will
be able to retain Messrs. McNamara, Yost and Flowers or all of its other senior
and regional managers.
EXPANSION THROUGH ACQUISITIONS
The Company intends to expand into new and contiguous geographic markets,
in part, through selected acquisitions of drug wholesalers. There can be no
assurance that suitable acquisition candidates will be identified, that
acquisitions can be consummated on acceptable terms or that any acquired
companies can be integrated successfully into the Company's operations. No
substantive acquisition negotiations by the Company are currently pending, and
the Company currently has no commitments, understandings or arrangements with
respect to any specific acquisition. The Credit Agreement contains restrictions
on the Company's ability to make acquisitions. See "Description of Indebtedness
and Securitization Program -- The Credit Agreement."
SHARES ELIGIBLE FOR FUTURE SALE; DEMAND REGISTRATION RIGHTS
No prediction can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sale, will have on the market
price of the Common Stock prevailing from time to time. Sales of substantial
amounts of Common Stock or the perception that such sales could occur, could
adversely affect prevailing market prices of the Common Stock. The existing
stockholders of AmeriSource (the "Existing Stockholders") were granted piggyback
registration rights with respect to the Company's common stock when
9
<PAGE> 13
they purchased such shares. These piggyback registration rights cover
substantially all of the 14,612,193 shares of Common Stock beneficially owned by
the Existing Shareholders. In addition, VPI has demand rights to require
registration of the 10,021,073 shares of Common Stock held by it. Of the
21,212,193 shares of Common Stock outstanding after the Offering (and after the
Option Exercises), approximately 9.7 million shares will be shares of Class A
Common Stock, 10.0 million shares will be shares of Class B Common Stock and 1.5
million shares will be shares of Class C Common Stock. The Existing Stockholders
are subject to restrictions on any public sale or distribution of Common Stock
for a period of 90 days beginning on the effective date of the Registration
Statement. Sales thereafter are subject to maximum quantity limitations. In
addition, members of the management of the Company, VPI and directors of the
Company have agreed, subject to certain exceptions, not to register for sale or
offer, sell or transfer any shares of Common Stock for a period of 180 days
after the date of this Prospectus, without the prior written consent of
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"). These agreements
cover approximately 3.0 million shares of Class A Common Stock and 9.8 million
shares of Class B Common Stock. Following the Option Exercises, certain members
of AmeriSource's management intend to obtain margin loans secured by the shares
of Common Stock acquired pursuant to such options from DLJ and Smith Barney Inc.
primarily to satisfy withholding tax liability. In the event of a default, those
shares of Common Stock may be sold during the 180-day period following closing
of the Offering. See "Shares Eligible for Future Sale."
DILUTION
Purchasers of Common Stock in the Offering will experience immediate and
substantial dilution in net tangible book value per share of Common Stock from
the initial public offering price. The Existing Stockholders will experience an
increase in net tangible book value per share as a result of the Offering.
Assuming an offering price of $19.00 per share (the midpoint of the range of
prices set forth on the cover of this Prospectus), the dilution in net tangible
book value to purchasers of Common Stock in the Offering would be $28.94 per
share, and the Existing Stockholders, including certain members of the
management of AmeriSource, VPI, current and former employees and directors of
AmeriSource, and others, would experience an increase in net tangible book value
of $14.13 per share as a result of the Offering. See "Dilution" and "Principal
Stockholders."
ABSENCE OF PUBLIC MARKET FOR THE COMMON STOCK
Prior to the Offering, there has been no public market for the Common
Stock. A class of the Company's non-voting common stock trades on an infrequent
basis in the over-the-counter market. Although the Common Stock has been
approved for listing on the Nasdaq National Market (subject to official notice
of issuance), there can be no assurance that an active or liquid trading market
in the Common Stock will develop upon completion of the Offering or, if
developed, that it will be sustained. The initial public offering price of the
Common Stock will be determined through negotiations between the Company and the
Underwriters and may not be indicative of the market price for the Common Stock
after the Offering. The market price for shares of the Company's Common Stock
may be highly volatile depending on changes in general market and industry
conditions. See "Underwriting."
10
<PAGE> 14
THE REFINANCING
In December 1994, the Company sold substantially all of its trade accounts
receivable and notes receivable (the "Receivables") to AmeriSource Receivables
Corporation ("ARC"), an indirect wholly-owned special purpose subsidiary of the
Company, in exchange for cash of $201.0 million and a residual certificate of
$71.3 million pursuant to a trade receivables securitization program (the
"Receivables Program"). Concurrently, the Company entered into a Receivables
Purchase Agreement with ARC, whereby the Company agreed to sell, and ARC agreed
to purchase on a continuous basis, Receivables originated by AmeriSource.
Pursuant to the Receivables Program, ARC will transfer such Receivables to a
master trust in exchange for, among other things, certain trade
receivables-backed certificates (the "Certificates") representing a right to
receive a variable principal amount. Contemporaneously, variable principal
Certificates in an aggregate principal amount of up to $230 million face amount
were sold to a group of financial institutions. During the five year term of the
Receivables Program, the cash generated by collections on the Receivables will
be used to purchase, among other things, additional Receivables originated by
the Company and/or repay the Certificates. The Certificates bear interest at a
rate selected by the Company equal to (i) the higher of (a) the applicable prime
lending rate and (b) the federal funds rate plus 50 basis points or (ii) LIBOR
plus 50 basis points. The interest rates for the Certificates are subject to
certain step-ups up to a maximum amount of an additional 100 basis points over
the otherwise applicable rate. ARC is currently negotiating the terms of new
Certificates that do not contain an interest step-up feature, a majority of
which will be fixed principal, variable rate obligations and the remainder of
which will be variable principal, variable rate obligations. The Company expects
to enter into interest rate protection contracts with respect to a majority of
the fixed principal, variable rate obligations. Such new Certificates are
expected to be issued prior to consummation of the Offering and will, among
other things, refinance the existing Certificates and eliminate a significant
portion of the Company's floating rate exposure. None of the Certificates have
been registered under the Securities Act, and the Certificates may not be
offered or sold in the United States absent registration or an applicable
exemption from the registration requirements.
At the same time that it entered into the Receivables Program, the Company
and its senior lenders amended its existing revolving credit agreement. Among
other things, the amended Credit Agreement: (i) extended the term of the
original credit agreement until January 3, 2000; (ii) established the amount the
Company may borrow at $380 million; (iii) reduced the initial borrowing rate to
LIBOR plus 225 basis points and provided interest rate stepdowns upon the
occurrence of certain events; (iv) modified the borrowing base availability from
inventory- and receivable-based to inventory-based only; and (v) increased the
Company's ability to make acquisitions and pay dividends.
With the proceeds of the Receivables Program and the Credit Agreement, on
January 12, 1995, the Company redeemed all of its outstanding 14 1/2% Senior
Subordinated Notes due 1999 (the "Notes") at a redemption price of 106% of the
principal amount plus accrued interest through the redemption date and repaid
amounts under the former credit facility. With the redemption of the Notes, the
Company has refinanced all of the debt originally incurred in the leveraged
buyout to finance the Acquisition. The consummation of the Receivables Program,
the execution of the Credit Agreement and the redemption of the Notes is
referred to elsewhere in this Prospectus as the "Refinancing." See "Description
of Indebtedness and Securitization Program."
11
<PAGE> 15
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby are estimated to be approximately $116.6 million (approximately
$134.2 million if the Underwriters' over-allotment option is exercised in full)
assuming an initial public offering price of $19.00 per share and after
deduction of underwriting discounts and commissions and estimated offering
expenses. The Company expects to use a portion of the proceeds of the Offering
(assuming the Offering was consummated on January 15, 1995) to redeem $74.3
million principal amount of 11 1/4% Senior Debentures due 2005 pursuant to an
optional redemption provision in the Issuer Indenture at a price equal to 110%
of the principal amount thereof plus accrued and unpaid interest through the
date of redemption. The balance of the net proceeds will be used to fund
internal growth and further expansion and for general corporate purposes,
including working capital requirements. Pending application of the net proceeds,
the Company intends to repay revolving borrowings under the Credit Agreement.
Borrowings currently bear interest at an annual rate equal to, at the Company's
option, either the applicable prime rate plus 1.00% or LIBOR plus 2.25% (10.0%
and 8.5%, respectively, at January 31, 1995) and mature on January 3, 2000. Such
interest rates are subject to reduction upon the occurrence of certain events
including improved financial performance and the sale of certain minimum equity
amounts by the Company. Following the Offering, the Company's interest rates
will be reduced to the applicable prime rate plus 0.50% or LIBOR plus 1.75%
(9.5% and 8.0%, respectively, at January 31, 1995).
DIVIDEND POLICY
Payment of dividends is within the discretion of the Company's Board of
Directors and will depend, among other factors, upon the Company's earnings,
financial condition and capital requirements and the terms of the Company's
financing agreements. The Company plans to retain future earnings for use in the
business and, accordingly, the Company does not anticipate paying dividends in
the foreseeable future. The Company has not paid any cash dividends to its
stockholders. The Credit Agreement restricts the ability of the Company to make
dividend payments unless certain financial tests are met.
DILUTION
At December 31, 1994, assuming the 2.95-for-1 stock split, the deficiency
in net tangible book value (total tangible assets minus total liabilities) of
the Company was $326.1 million, or ($24.07) per share of outstanding Common
Stock. After giving effect to: (i) the sale of the 6,600,000 shares of Common
Stock pursuant to the Offering at an assumed initial offering price of $19.00
per share (the midpoint of the range of prices set forth on the cover of this
Prospectus) and the application of the net proceeds therefrom (after deducting
estimated offering expenses and underwriting discounts and commissions) and (ii)
the Option Exercises, the pro forma deficiency in net tangible book value of the
Company at December 31, 1994 would have been $210.9 million or ($9.94) per
share, representing an immediate increase in net tangible book value of $14.13
per share to the Existing Stockholders and an immediate dilution of $28.94 per
share to persons purchasing shares of Common Stock in this Offering. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share(1)..................... $ 19.00
Net tangible book value deficiency per share at December 31,
1994...................................................... $(24.07)
Increase per share due to the Option Exercises............... 1.91
Increase per share attributable to new investors............. 12.22
-------
Pro forma net tangible book value deficiency per share after
the Offering and the Option Exercises........................ (9.94)
-------
Dilution per share to new investors............................ $(28.94)
=======
</TABLE>
- ---------------
(1) Before deduction of expenses related to the Offering.
12
<PAGE> 16
CAPITALIZATION
The following table sets forth the unaudited capitalization of the Company
as of December 31, 1994 on an actual basis and as adjusted to reflect (i) the
Refinancing, (ii) the Offering (assuming an offering price of $19.00 per share,
the midpoint of the range as set forth on the cover of this Prospectus) and
(iii) the Option Exercises. This table should be read in conjunction with the
consolidated financial statements of the Company and related notes, the
unaudited pro forma financial statements and related notes, "The Refinancing"
and "Use of Proceeds" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1994
----------------------------
ACTUAL AS ADJUSTED(1)
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Long-term debt (including current portion):
Revolving credit facility....................................... $ 147,041 $ 298,671
14 1/2% Senior subordinated notes............................... 166,134 --
Other debt...................................................... 1,662 1,662
11 1/4% Senior debentures....................................... 147,970 73,985
--------- --------------
Total long-term debt, including current portion......... 462,807 374,318
Stockholders' equity (deficit):
Preferred stock, $.01 par value: 5,000,000 shares authorized
(cancelled, as adjusted); none issued........................ -- --
Common stock, $.01 par value:
Class A (voting and convertible): 50,000,000 shares
authorized, as adjusted; 10,040,069 shares issued as
adjusted.................................................... 3 100
Class B (non-voting and convertible): 15,000,000 shares
authorized, as adjusted; 12,980,885 shares issued as
adjusted.................................................... 44 130
Class C (non-voting and convertible): 2,000,000 shares
authorized; 1,475,000 shares issued as adjusted............. 5 15
Capital in excess of par value.................................... 4,888 127,203
Retained earnings (deficit)....................................... (315,847) (321,794)
Cost of common stock in treasury.................................. (1,838) (5,485)
--------- --------------
Total stockholders' equity (deficit)......................... (312,745) (199,831)
--------- --------------
Total capitalization.................................... $ 150,062 $ 174,487
========= ===========
</TABLE>
- ---------------
(1) Adjusted to reflect the Refinancing, the Offering and the Option Exercises.
Assumes the application of $116.6 million of the net proceeds from the
Offering to: redeem one-half of the 11 1/4% senior debentures for $81.0
million (including a $7.0 million redemption premium) representing a price
equal to 110% of the principal amount plus accrued interest through the
date of redemption; pay $3.2 million (net) related to the Option Exercises;
and repay $32.4 million of borrowings under the Credit Agreement. Pro forma
adjustments to retained earnings (deficit) include extraordinary charges
due to the Offering of $7.0 million from the early extinguishment of debt
and $2.3 million from the write-off of deferred financing costs, net of a
$3.4 million tax benefit. Pro forma adjustments to common stock and capital
in excess of par value include: $116.6 million of net proceeds from the
Offering; reclassification of $5.5 million in accrued compensation
associated with the 1991 Option Plan; $0.5 million of cash proceeds from
the Option Exercises; and the 2.95-for-1 stock split. Pro forma adjustments
to the cost of common stock in treasury include $3.2 million related to the
repurchase of shares to satisfy minimum tax withholding obligations related
to the Option Exercises and $0.5 million related to common stock
repurchased from VPI. Pro forma adjustments to stockholders' equity
(deficit) do not include estimated tax benefits of $13.9 million related to
the exercise of the non-qualified options under the Option Exercises noted
above, which will be recorded as an addition to capital in excess of par
value when such tax benefits are realized by the Company.
13
<PAGE> 17
SELECTED FINANCIAL DATA
The following table sets forth selected financial data and other operating
data of the Company. The statement of operations data and balance sheet data are
derived from the audited and unaudited consolidated financial statements of the
Company. The Company's historical per share data and weighted average common
shares outstanding have been restated for the 2.95-for-1 stock split to be
declared in connection with the Offering. The Company's primary and fully
diluted earnings per share are the same. The selected financial data should be
read in conjunction with the consolidated financial statements and related notes
thereto and Management's Discussion and Analysis of Financial Condition and
Results of Operations included elsewhere in this Prospectus. The information for
interim periods is unaudited; however, in the opinion of management, all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of such information have been included. The interim results of
operations may not be indicative of the results for the full fiscal year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED SEPTEMBER 30, DECEMBER 31,
-------------------------------------------------------------- -----------------------
1990 1991 1992 1993 1994 1993 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................... $2,564,008 $2,827,161 $3,329,909 $3,719,025 $4,301,832 $1,045,776 $1,157,100
Cost of goods sold................. 2,401,888 2,648,392 3,130,186 3,509,587 4,066,641 991,777 1,093,863
---------- ---------- ---------- ---------- ---------- ---------- ----------
Gross profit....................... 162,120 178,769 199,723 209,438 235,191 53,999 63,237
Selling and administrative
expenses......................... 113,586 116,044 125,696 130,338 142,497 33,034 39,598
Environmental remediation.......... -- -- -- -- 4,075 -- --
Stock option compensation.......... -- 5,500 -- -- -- -- --
Depreciation....................... 4,719 4,877 5,384 5,809 6,640 1,589 1,700
Amortization of intangibles........ 5,545 5,510 5,549 5,467 4,147 1,376 --
Write-off of excess of cost over
net assets acquired(1)........... -- -- -- -- 179,824 -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating income (loss)............ 38,270 46,838 63,094 67,824 (101,992) 18,000 21,939
Interest expense and cost of
receivables program.............. 73,675 72,208 71,025 66,696 62,611 15,233 17,323
Non-recurring charges(2)........... 928 951 2,244 2,223 -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before taxes,
extraordinary items and
cumulative effects of accounting
changes.......................... (36,333) (26,321) (10,175) (1,095) (164,603) 2,767 4,616
Taxes on income (benefit).......... (6,844) (3,002) 2,649 6,379 7,814 188 3,730
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before extraordinary
items and cumulative effects of
accounting changes............... (29,489) (23,319) (12,824) (7,474) (172,417) 2,579 886
Extraordinary items(3)............. -- -- 6,348 (11,144) (656) (656) (11,749)
Cumulative effects of accounting
changes(4)....................... -- -- -- -- (34,598) (34,598) --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net (loss)......................... $ (29,489) $ (23,319) $ (6,476) $ (18,618) $ (207,671) $ (32,675) $ (10,863)
========= ========= ========= ========= ========= ========= =========
EARNINGS (LOSS) PER SHARE:
Income (loss) before extraordinary
items and cumulative effects of
accounting changes............... $ (2.00) $ (1.58) $ (0.87) $ (0.51) $ (11.69) $ .18 $ .06
Extraordinary items................ -- -- 0.43 (0.75) (0.04) (.04) (.80)
Cumulative effects of accounting
changes.......................... -- -- -- -- (2.35) (2.35) --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net (loss)......................... $ (2.00) $ (1.58) $ (0.44) $ (1.26) $ (14.08) $ (2.21) $ (.74)
========= ========= ========= ========= ========= ========= =========
Weighted average common shares
outstanding...................... 14,750 14,750 14,750 14,750 14,750 14,750 14,750
</TABLE>
14
<PAGE> 18
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED SEPTEMBER 30, DECEMBER 31,
-------------------------------------------------------------- -----------------------
1990 1991 1992 1993 1994 1993 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER OPERATING DATA:
Adjusted operating income(5)....... $ 43,815 $ 57,848 $ 68,643 $ 73,291 $ 86,054 $ 19,376 $ 21,939
Adjusted operating income as a % of
revenues......................... 1.71% 2.05% 2.06% 1.97% 2.00% 1.85% 1.90%
Number of facilities at end of
period........................... 19 19 18 16 15 17 17
Average revenue per facility....... $ 134,948 $ 148,798 $ 184,995 $ 232,439 $ 286,789 -- --
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT DECEMBER 31,
-------------------------------------------------------------- -----------------------
1990 1991 1992 1993 1994 1993 1994(7)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets..................... $ 496,701 $ 530,212 $ 600,845 $ 627,483 $ 651,710 $ 702,663 $ 522,304
Working capital.................... 236,962 252,468 268,424 217,160 133,355 228,716 (34,312)
Total assets....................... 756,932 783,145 848,474 867,944 711,644 943,865 712,975
Long-term debt, including current
portion.......................... 539,731 570,979 588,005 549,342 487,708 591,977 462,807
Stockholders' equity (deficit)..... (44,946) (68,271) (74,747) (93,040) (300,726)(6) (125,715) (312,745)(6)
</TABLE>
- ---------------
(1) During the quarter ended June 30, 1994, the Company wrote off the remaining
unamortized balance of its excess of cost over net assets acquired
("goodwill"). See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note 2 to the consolidated
financial statement included elsewhere in this Prospectus.
(2) See "Management's Discussion and Analysis of Financial Condition and Results
of Operation" and Note 9 to the consolidated financial statements for a
discussion of the non-recurring charges in 1992 and 1993.
(3) Extraordinary items were as follows: extraordinary credits of $4.5 million
during 1992 relating to the extinguishment of debt resulting from the
settlement of a shareholder appraisal action arising from the Acquisition;
extraordinary credits of $1.9 million in 1992 and $0.7 million in 1993,
respectively, representing the utilization of net operating loss
carryforwards; extraordinary charges of $11.9 million in fiscal 1993 and
$0.7 million in fiscal 1994, respectively, net of tax benefits, representing
the write-off of unamortized financing fees relating to debt refinancings
and premiums paid on the purchase and retirement of a portion of the senior
subordinated notes and extraordinary charges of $11.7 million, net of tax
benefits, in the three months ended December 31, 1994, relating to the
amendment of the revolving credit facility and the redemption premium of the
senior subordinated notes.
(4) Consists of the cumulative effect of $1.2 million for the change in the
accounting for postretirement benefits other than pensions and the
cumulative effect of $33.4 million for the change in the accounting for
income taxes.
(5) Adjusted operating income is defined as operating income plus amortization
of intangibles for each period plus a $5.5 million stock option compensation
charge in fiscal 1991, a $4.1 million environmental remediation charge in
fiscal 1994 and the $179.8 million write-off of goodwill in the quarter
ended June 30, 1994. Adjusted operating income is not an alternative to
operating income or cash flows (as determined under generally accepted
accounting principles) as an indicator of operating and cash flow
performance and should be read in conjunction with the Company's
consolidated financial statements included elsewhere in this Prospectus.
However, the Company believes it provides useful information to assist in
the evaluation of the Company's historical results of operations.
(6) Includes the effect of the following charges recorded during the fiscal year
ended September 30, 1994: (i) a $179.8 million write-off of excess of cost
over net assets acquired during the three months ended June 30, 1994; (ii)
extraordinary charges of $0.7 million, net of tax benefits, related to the
early extinguishment of debt; (iii) the cumulative effect of $1.2 million
for the change in the accounting for postretirement benefits other than
pensions; (iv) the cumulative effect of $33.4 million for the change in the
accounting for income taxes and, during the three months ended December 31,
1994, (v) extraordinary charges of $11.7 million, net of tax benefits,
related to the amendment of the revolving credit facility and the redemption
premium of the senior subordinated notes.
(7) Reflects the sale of substantially all of the Company's trade accounts and
notes receivable in December, 1994, the effect of which was to reduce the
accounts and notes receivable and reduce outstanding borrowings as of
December 31, 1994. See "The Refinancing," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Note 2 to the
unaudited consolidated financial statements as of and for the three months
ended December 31, 1994 included elsewhere in this Prospectus.
15
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements contained elsewhere herein.
RECENT DEVELOPMENTS
As a result of the Offering and the Refinancing, the Company believes that
its liquidity and capital resources will be enhanced. In December 1994, the
Company sold approximately $272.3 million of its accounts receivable to a master
trust for approximately $201.0 million in cash and $71.3 million of residual
certificates. The cash proceeds were used to redeem all $166.1 million of the
14 1/2% senior subordinated notes due 1999 at a redemption price of 106%, to pay
fees and expenses related thereto and to repay approximately $10.7 million of
revolving credit borrowings. Upon consummation of the Offering, the Company will
redeem $74.3 million of its 11 1/4% Senior Debentures at a redemption price of
110% of the principal amount thereof plus accrued and unpaid interest through
the date of redemption (assuming a redemption date of January 15, 1995), pay
fees and expenses related thereto and further reduce outstanding borrowings
under the revolving credit facility.
At the same time that it entered into the Receivables Program, the Company
and its senior lenders amended its existing credit agreement. Among other
things, the amended Credit Agreement: (i) extended the term of the Credit
Agreement until January 3, 2000; (ii) established the amount the Company may
borrow at $380 million; (iii) reduced the initial borrowing rate to LIBOR plus
225 basis points (LIBOR plus 175 basis points upon consummation of the Offering)
with further interest rate stepdowns upon the occurrence of certain events; (iv)
modified the borrowing base availability from inventory and receivables based to
inventory based only; and (v) increased the Company's ability to make
acquisitions and pay dividends. At January 31, 1995, borrowings under the Credit
Agreement were $344.8 million.
The Company believes that its liquidity, capital resources and cash flows
are sufficient to fund working capital requirements, planned capital
expenditures and interest and principal payments for the foreseeable future. Pro
forma interest expense, assuming average borrowings outstanding under the Credit
Agreement of approximately $201.0 million adjusted for the Offering and the
Refinancing, would have been approximately $33.7 million. There are no mandatory
scheduled repayments under the Credit Agreement and no scheduled principal
payments of other debt until January 3, 2000.
16
<PAGE> 20
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS
FISCAL YEAR ENDED SEPTEMBER ENDED DECEMBER
30, 31,
---------------------------- ----------------
1992 1993 1994 1993 1994
<S> <C> <C> <C> <C> <C>
Revenues................................... 100.00% 100.00% 100.00% 100.00% 100.00%
Cost of goods sold......................... 94.00 94.37 94.53 94.84 94.53
------ ------ ------ ------ ------
Gross profit............................. 6.00 5.63 5.47 5.16 5.47
Operating expenses:
Selling and administrative............... 3.77 3.50 3.31 3.16 3.42
Environmental remediation................ -- -- 0.09 -- --
Depreciation............................. 0.16 0.16 0.15 0.15 0.15
Amortization of intangibles.............. 0.17 0.15 0.10 0.13 --
Write-off of excess of cost over net
assets acquired....................... -- -- 4.18 -- --
------ ------ ------ ------ ------
Operating income (loss).................... 1.89 1.82 (2.37 ) 1.72 1.90
Interest expense and cost of receivables
program-in cash....................... 1.49 1.14 1.02 1.04 1.09
Interest expense-pay in kind............. 0.52 0.55 0.35 0.34 0.34
Amortization of deferred financing
costs................................. 0.12 0.11 0.09 0.08 0.07
Non-recurring charges.................... 0.07 0.06 -- -- --
------ ------ ------ ------ ------
Income (loss) before taxes, extraordinary
items and cumulative effects of
accounting changes....................... (0.31 ) (0.03 ) (3.83 ) 0.26 0.40
Taxes on income............................ 0.08 0.17 0.18 0.01 0.32
------ ------ ------ ------ ------
Income (loss) before extraordinary items
and cumulative effects of accounting
changes.................................. (0.39 ) (0.20 ) (4.01 ) 0.25 0.08
Extraordinary charges-early retirement of
debt, net of income tax benefit.......... -- (0.32 ) (0.02 ) (0.06 ) (1.02 )
Extraordinary credits:
Settlement of litigation................. 0.13 -- -- -- --
Reduction of income tax provision from
carryforward of prior year operating
losses................................ 0.06 0.02 -- -- --
Cumulative effect of change in accounting
for postretirement benefits other than
pensions................................. -- -- (0.03 ) (0.12 ) --
Cumulative effect of change in accounting
for income taxes......................... -- -- (0.78 ) (3.19 ) --
------ ------ ------ ------ ------
Net (loss)................................. (0.19 )% (0.50 )% (4.83 )% (3.12 )% (0.94 )%
====== ====== ====== ====== ======
</TABLE>
THREE MONTHS ENDED DECEMBER 31, 1994 COMPARED WITH THREE MONTHS ENDED DECEMBER
31, 1993
Revenues in the first quarter of fiscal 1995 increased 10.6% to $1.2
billion from $1.0 billion in fiscal 1994. The increase reflects real volume
growth, the pass through to customers of price increases from manufacturers and
the opening of two new distribution facilities in November 1994. The most
significant revenue increase was in the hospital customer group, where revenues
were approximately 16% ahead of the comparable period of the prior year.
Gross profit in the three months ended December 31, 1994 increased to $63.2
million, an increase of 17.1% from the same quarter of fiscal 1994, due to
increased revenues, increased purchase discounts and a greater level of price
increases from manufacturers resulting in greater opportunities for forward
purchasing. As a percentage of revenues, the gross profit margin for the quarter
was 5.47% as compared to 5.16% in the prior year, due primarily to increased
purchase discounts and a greater level of price increases from manufacturers
resulting in greater opportunities for forward purchasing. The Company is not
able to predict whether such opportunities and the resulting favorable impact on
the results of operations will continue in the future.
17
<PAGE> 21
Selling and administrative expenses for the first quarter of fiscal 1995
were $39.6 million compared to $33.0 million for the first quarter of fiscal
1994, an increase of 19.9%. The cost increases reflect inflationary increases
and increases in warehouse and delivery expenses which are variable with the
level of sales volume as well as start-up expenses incurred to open the two new
distribution facilities. As a percentage of revenues, selling and administrative
expenses were 3.42% in the first quarter compared to 3.16% in the same quarter
last year.
The decrease in amortization of intangibles in the first quarter of fiscal
1995 was as a result of the write-off of the value of the excess of cost over
net assets acquired ("goodwill"), which the Company recorded in the quarter
ended June 30, 1994.
Excluding costs of $763,000 associated with the Receivables Program,
interest expense payable currently for the three months ended December 31, 1994
of $11.8 million increased $1.0 million compared with interest expense payable
currently for the three months ended December 31, 1993. The increase is due
primarily to higher interest rates on the Company's variable rate borrowings,
partially offset by lower average borrowings. In connection with the Receivables
Program, the Company expects to enter into interest rate protection contracts
with respect to a majority of the variable rate receivable-based certificates.
The weighted average interest rate on the Company's variable rate borrowings
during the three months ended December 31, 1994 was 9.0% as compared to 6.7%
during the three months ended December 31, 1993. The lower average debt levels
in the three months ended December 31, 1994 were due in part to the
implementation of the Receivables Program, which reduced borrowings in
mid-December 1994 by $201 million. Interest expense which is not payable
currently (pay-in-kind interest) was $4.0 million for the three months ended
December 31, 1994 as compared to $3.6 million for the three months ended
December 31, 1993.
The income tax provision for the three months ended December 31, 1994 was
computed on a regular tax basis and based on an estimate of the full year
effective tax rate. The extraordinary charge of $15.4 million, net of a tax
benefit of $3.7 million, relates to the amendment of the Credit Agreement and
the redemption premium of the 14 1/2% senior subordinated notes and the
consequent write-off of unamortized financing fees.
YEAR ENDED SEPTEMBER 30, 1994 COMPARED WITH YEAR ENDED SEPTEMBER 30, 1993
Revenues for the fiscal year ended September 30, 1994 were $4.3 billion, an
increase of 15.7% over the $3.7 billion in revenues for 1993. The revenue
growth, which occurred for all customer groups, reflects real volume growth as
well as the pass through to customers of price increases from manufacturers.
Price increases accounted for approximately one-tenth of the revenue increase in
1994. As compared with the prior fiscal year, sales to hospitals and managed
care facilities grew by 27%, sales to chain drug stores, excluding brokerage
business, increased by 8% and sales to independent community pharmacies
increased by 4%. During 1994, sales to hospitals and managed care facilities
accounted for 46% of total revenues, while sales to independent community
pharmacies represented 34% and sales to chain drug stores, 20% of the total.
Gross profit of $235.2 million for 1994 increased by 12.3% over 1993,
primarily due to the increase in revenues. As a percentage of revenues, gross
profit declined to 5.47% in 1994 from 5.63% in 1993. The reduction in the gross
profit percentage resulted from continued industry price competition and
increased sales to larger volume, lower margin customers, such as hospitals.
Selling and administrative expenses for 1994 were $142.5 million compared
to $130.3 million for 1993, an increase of 9.3%. The cost increases reflect
inflationary increases and increases in warehouse and delivery expenses which
are variable with the level of sales volume. Continued emphasis on cost
containment programs as well as the economies associated with the significant
revenue growth, reduced overall selling and administrative expenses as a
percentage of revenues to 3.31% in 1994 from 3.50% in 1993.
Operating expenses in 1994 include a provision of $4.1 million to cover the
expected environmental remediation costs with respect to the Company's former
Charleston, South Carolina distribution center. In addition, in the third
quarter of fiscal 1994, the Company completed a detailed evaluation of the
recovery of the recorded value of the excess of cost over net assets acquired
("goodwill") and concluded that projected operating results together with its
then existing capital structure would not support the future recovery of the
remaining goodwill balance. Accordingly, the Company wrote off the remaining
goodwill balance of $179.8
18
<PAGE> 22
million in the quarter ended June 30, 1994. Goodwill of approximately $209
million was recorded at the time of the Acquisition in 1988.
Interest expense which is payable currently (cash interest), principally
related to the revolving credit facility and the senior subordinated notes, was
$43.7 million in 1994 as compared with $42.4 million in 1993, an increase of
3.3%. The increase was a result of higher interest rates on the Company's
variable rate borrowings offset in part by lower variable rate borrowing levels
and the reduction in principal amount of the senior subordinated notes. Interest
expense in 1994 reflects reductions as a result of the purchase and retirement
of an aggregate principal amount of $8.9 million of senior subordinated notes,
which occurred during the fourth quarter of fiscal 1993 and first quarter of
fiscal 1994. Interest expense in 1994 includes $621,000 paid to the holders of
an aggregate of $165.7 million in principal amount of senior subordinated notes
(see Note 4 of "Notes to Consolidated Financial Statements"). During 1994, the
average outstanding debt level was $430 million at an average interest rate of
10.0%. In 1993, the comparable average outstanding debt level was $441 million
at an average interest rate of 9.6%. The decrease in interest expense which is
not currently payable (pay-in-kind interest) of $5.5 million was due to the
refinancing in July, 1993 of the 18% senior subordinated debentures, 18 1/2%
merger debentures and 19 1/2% junior subordinated debentures with the 11 1/4%
senior debentures. Interest expense in 1994 includes $4.0 million in
amortization of financing fees as compared with $3.9 million in 1993.
Income tax expense in 1994 and 1993 has been determined based on the
alternative minimum tax system. As noted below, the Company changed its method
of accounting for income taxes effective October 1, 1993. The extraordinary
charge of $679,000, net of a tax benefit of $23,000, relates to the purchase and
retirement of an aggregate principal amount of $4.4 million of senior
subordinated notes.
Effective October 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106 "Employers' Accounting for Postretirement Benefits
Other Than Pensions" (Statement 106) and Statement of Financial Accounting
Standards No. 109 "Accounting for Income Taxes" (Statement 109). The Company
recorded, as of October 1, 1993, a total of $34.6 million in non-cash charges to
net income for the effects of transition to these two new standards. Statement
106 requires that the expected cost of providing postretirement medical benefits
be accrued during employees' working years rather than on a pay-as-you-go basis
as was previously permitted. The cumulative effect of this change in accounting
principle resulted in a non-cash charge to net income of $1.2 million as of
October 1, 1993. Statement 109 requires a change in the method of accounting for
income taxes from the deferred method to the liability method. Under the
liability method, deferred taxes result from differences between the tax and
financial reporting bases of assets and liabilities and are adjusted for changes
in tax rates and tax laws when changes are enacted. The cumulative effect of
this change in accounting principle resulted in a non-cash charge to net income
of $33.4 million as of October 1, 1993, principally related to the provision of
deferred income taxes to reflect the tax consequences on future years of the
difference between the tax and financial reporting basis of merchandise
inventories.
YEAR ENDED SEPTEMBER 30, 1993 COMPARED WITH YEAR ENDED SEPTEMBER 30, 1992
Revenues for the fiscal year ended September 30, 1993 were $3.7 billion, an
increase of 11.7% over the $3.3 billion in revenues for 1992. The revenue
growth, which occurred for all customer groups, was attributable to the addition
of new accounts, increased sales to existing accounts through value added
services and price increases. Price increases accounted for approximately
one-fourth of the revenue increase in 1993. As compared with the prior fiscal
year, sales to hospitals and managed care facilities increased by 24%, sales to
independent community pharmacies increased by 3% and sales to chain stores grew
by 7%. Sales to hospitals and managed care facilities accounted for 42% of total
revenues in 1993, while sales to independent community pharmacies represented
37% and sales to chain drug stores, 21% of the total.
As a percentage of revenues, gross profit declined to 5.63% in 1993 from
6.00% in 1992. The decline in 1993 resulted from: increased sales to large
volume, lower margin and lower-cost-to-service customers, principally hospitals;
price competition within the industry; and a reduction in inventory purchasing
gains associated with the decline in the rate and frequency of manufacturer
price increases.
19
<PAGE> 23
Selling and administrative expenses for the year ended September 30, 1993
were $130.3 million, or 3.50% of revenues, compared to $125.7 million, or 3.77%
of revenues for the prior year. Selling and administrative expenses, which
increased by $4.6 million, or 3.7% from the prior year, reflect the economies
associated with the revenue growth and reductions due to cost containment
measures and productivity improvements. The expense percentage improvement in
1993 also reflects the partial benefits of two distribution facility
consolidations completed during the latter part of 1993. Expenses in 1993
include $1 million in costs incurred with respect to the two completed facility
consolidations as well as an additional consolidation which began in late 1993
and is expected to be completed during the first quarter of fiscal 1994.
As a result of the above, operating income increased 7.5%, or $4.7 million,
to $67.8 million for the fiscal year ended September 30, 1993 in comparison to
the prior year, while operating income as a percentage of revenues was 1.82% in
1993 versus 1.89% in 1992.
Interest expense which is payable currently (cash interest), principally
related to the revolving credit facility and the senior subordinated notes, was
$42.4 million in 1993 as compared with $49.8 million in 1992, a decrease of
14.9%. The decrease is attributable to reduced borrowings and lower average
interest rates. During 1993, the average outstanding debt level was $441 million
at an average interest rate of 9.6%. In 1992, the comparable average outstanding
debt level was $480 million at an average interest rate of 10.3%. Interest
expense in 1993 includes $3.9 million in amortization of financing fees as
compared with $4.0 million in 1992. Interest on the senior debentures, senior
subordinated debentures, merger debentures and junior subordinated debentures
which, at the option of the Company, is not currently payable (pay in kind
interest), amounted to $20.4 million in 1993 as compared with $17.3 million in
1992.
The non-recurring charges in 1993 consist of $1.3 million in losses on the
disposal of three warehouses and charges of $969,000 for the write-down to net
realizable value of two additional warehouses no longer in operation which are
designated for sale. The non-recurring charges in 1992 consist of a loss of
$287,000 incurred on the sale of a warehouse no longer in operation and the
write-off of $2.0 million in professional fees incurred in connection with a
public offering attempted during 1992 which was later abandoned due to market
conditions.
Income tax expense in both 1993 and 1992 was computed based on the
alternative minimum tax system. The extraordinary charge of $16.7 million, net
of a tax benefit of $4.8 million, relates to the write-off of unamortized
financing fees relating to the refinancings of the revolving credit facility and
the Company's debt and premiums paid on the purchase and retirement of a portion
of the senior subordinated notes. The extraordinary credits for income taxes in
1993 and 1992 represent the utilization of net operating losses carried forward
from earlier periods.
INFLATION
The Company uses the LIFO method of accounting in order to minimize the
effect of inflation on inventory value. Under this method, the effect of
suppliers' price increases is charged directly to cost of goods sold.
Concurrently, the Company increases selling prices, where possible, in order to
maintain its gross profit margin. The effect of price inflation, as measured by
the excess of LIFO costs over FIFO costs, was $5.3 million in 1994, $13.5
million in 1993 and $13.2 million in 1992.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's operating results have generated sufficient
cash flows which, together with borrowings under the revolving credit facility
and credit terms from suppliers, have provided sufficient capital resources to
finance working capital and cash operating requirements, fund capital
expenditures and interest currently payable on outstanding debt. Future cash
flows are expected to be sufficient to fund capital expenditures and interest
currently payable over the near-term.
During the three-month period ended December 31, 1994, the Company's
operating activities consumed $184.6 million in cash. The increase of $162.8
million in merchandise inventories offset by the $23.8 million increase in
accounts payable accounted for most of the use of funds. The increases in
merchandise inventories
20
<PAGE> 24
and accounts payable reflect the timing of seasonal purchases and related
payments as well as purchases in anticipation of manufacturer price increases. A
portion of the increase in merchandise inventories during the quarter was the
result of the opening of the Springfield, Massachusetts and Portland, Oregon
distribution facilities. Operating cash uses during the three-month period ended
December 31, 1994 included $5.0 million in interest payments and $1.4 million in
income tax payments.
During the fiscal year ended September 30, 1994, operating activities
provided cash of $84.0 million, compared to a generation of $99.2 million in
cash during the fiscal year ended September 30, 1993. Accounts receivable and
merchandise inventories increased during fiscal 1994 by $24.9 million and $5.3
million, respectively, offset by an increase of $70.2 million in accounts
payable. The increases in accounts receivable and merchandise inventories are
commensurate with the Company's revenue growth. Accounts payable, accrued
expenses and income taxes increased by $76.8 million in 1994 as compared to an
increase of $77.1 million in 1993. These year to year increases reflect
increased credit from suppliers due to the Company's improved operating
performance as well as increases to support the expanded revenue base and
increases in tax liabilities as a result of the Company's return to taxpayor
status. A portion of the increase in merchandise inventories was the result of
the opening of the Dallas, Texas distribution facility, which occurred in the
first quarter of fiscal 1994. Operating cash uses during fiscal 1994 included
$46.1 million in interest payments and $3.9 million in income tax payments.
Capital expenditures required for the Company's business historically have
not been substantial. Capital expenditures for the three months ended December
31, 1994 were $3.4 million and relate principally to the opening of the two new
distribution centers and additional investment in management information
systems. Capital expenditures for the fiscal year ended September 30, 1994 were
$8.5 million and related principally to improvements in warehouse distribution
and management information systems. Capital expenditures for fiscal 1995 are
projected to approximate $9.5 million. As a result of the sale of receivables
under the Receivables Program in December 1994, borrowings under the Company's
revolving credit facility were reduced to $147.0 million at December 31, 1994
(at an average interest rate of 9.0%) from the $175.9 million (at an average
interest rate of 8.1%) outstanding at September 30, 1994. Cash used in financing
activities during fiscal 1994 included $5.0 million in payments associated with
the redemption of an aggregate principal amount of $4.4 million of senior
subordinated notes. As a result of the cash generated during fiscal 1994,
borrowings under the Company's revolving credit facility were reduced to $175.9
million at September 30, 1994 from the $248.0 million outstanding at September
30, 1993.
In December, 1994, the Company called the senior subordinated notes for
redemption. The senior subordinated notes were redeemed on January 12, 1995. At
January 31, 1995 borrowings under the Credit Agreement were $344.8 million.
The Company has become aware that its former Charleston, South Carolina
distribution center was previously owned by a fertilizer manufacturer and that
there is evidence of residual contamination remaining from the fertilizer
manufacturing process operated on that site over thirty years ago. The Company
engaged an environmental consulting firm to conduct a soil survey and initiated
a groundwater study during fiscal 1994. The preliminary results of the
groundwater study indicate that there is lead in the groundwater at levels
requiring further investigation and response. A preliminary engineering analysis
was prepared by outside consultants during the third quarter of fiscal 1994, and
indicated that, if both soil and groundwater remediation are required, the most
likely cost of remediation efforts at the Charleston site is estimated to be
$4.1 million. Accordingly, a liability of $4.1 million was recorded during the
third quarter of fiscal 1994 to cover future consulting, legal and remediation
and ongoing monitoring costs. The Company has notified the appropriate state
regulatory agency from whom approval must be received before proceeding with any
further tests or with the actual site remediation. The approval process and
remediation could take several years to accomplish and the actual costs may
differ from the liability which has been recorded. The accrued liability, which
is reflected in other long-term liabilities on the accompanying consolidated
balance sheet, is based on an estimate of the extent of contamination and choice
of remedy, existing technology and presently enacted laws and regulations,
however, changes in remediation standards, improvements in cleanup technology
and discovery of additional information concerning the site could affect the
estimated liability in the future. The Company is investigating the possibility
of asserting claims against responsible parties for recovery of these costs.
Whether or not any
21
<PAGE> 25
recovery may be forthcoming is unknown at this time, although the Company
intends to vigorously enforce its rights and remedies.
The Company's primary ongoing cash requirements will be to fund payment of
principal and interest on indebtedness, finance working capital and fund capital
expenditures. An increase in interest rates would adversely affect the Company's
operating results and the cash flow available after debt service to fund
operations and any expansion and, if permitted to do so under its revolving
credit facility and the indenture for the senior debentures, the ability to pay
dividends on its capital stock.
The Company wrote-off its goodwill balance of $179.8 million in the quarter
ended June 30, 1994. The goodwill was recorded at the time of the leveraged
buyout transaction ("Acquisition") in 1988. Since the Acquisition, the Company
has been unable to achieve the operating results projected at the time of the
Acquisition. The projections at the time of the Acquisition were developed based
on historical experience, industry trends and management's estimates of future
performance. These projections assumed significant growth rates in revenues,
stable gross profit margins and cash flow from operations to reduce Acquisition
indebtedness and did not anticipate long-term losses or indicate an inability to
recover the value of goodwill. Due to persistent competitive pressures and a
shift in the customer mix to larger volume, lower margin customers, gross profit
margins have declined from 7.10% in fiscal 1989 to 5.63% in fiscal 1993 and
5.47% in fiscal 1994, resulting in: operating results which are substantially
below the projections made at the time of the Acquisition; an increase in the
Company's indebtedness; and an accumulated deficit in retained earnings at June
30, 1994 before the goodwill write-off of $126.4 million.
During the period since the Acquisition, the Company has been affected by
price competition for market share within the industry, health care industry
consolidation and the impact of group purchasing organizations, managed care and
health care reform on drug prices. As a result of the negative impact of these
factors and the Company's expectation that such factors would continue to
negatively impact operating results into the foreseeable future, the Company
initiated a detailed evaluation of the long-term expected effects of these
factors on the ability to recover the recorded value of goodwill over its
remaining estimated life. Based on industry trends, interest rate trends and the
health care reform environment, in the quarter ended June 30, 1994, the Company
revised its operating projections and concluded that the projected operating
results (the "Projection") would not support the future recovery of the
remaining goodwill balance.
The methodology employed to assess the recoverability of the Company's
goodwill was to project results of operations forward 36 years, which
approximated the remaining amortization period of the goodwill balance at June
30, 1994. The Company then evaluated the recoverability of goodwill on the basis
of the Projection. The Company's Projection assumed that, based on industry
conditions and competitive pressures, future revenue growth would approximate
12.6% in the near-term gradually declining to approximately 5% over the
longer-term. These assumptions reflected expected benefits in the near-term from
continued industry consolidation, and an expectation that manufacturers would
continue to increase their reliance on wholesalers in their own cost control
measures in the face of healthcare reform. Over the next five to ten year
period, growth in revenue was expected to moderate as the industry consolidation
trend was completed, and over the long-term (next twenty years), stable growth
of 5% was assumed. The gross profit percentage was projected to gradually
decline over the projected period from the then current rate to 3.60% in the
fiscal year 2000 and to 2.68% in the longer term. The short-term gross profit
declines reflected the impact of the worsened trends in 1994 caused by
consolidation of certain major competitors and deteriorated gross profit margins
from existing contracts with certain group purchasing organizations. The
long-term decline in gross profit reflected the Company's belief that continued
industry wide competitive pricing pressures would drive margins down, as the
consolidated industry attempts to maintain market share. Operating expenses were
projected to increase 6% per year in the near-term and 5% per year in the
longer-term principally reflecting the Company's expectations regarding
inflation. Working capital levels (as a percentage of revenues) were projected
to improve as the Company aggressively managed its investment in receivables and
inventory over the projected period. For purposes of the Projection, the Company
had assumed that it would be able to refinance its current revolving credit
facility when it expired in 1996. For purposes of the Projection, the Company
assumed that it would be able to increase its variable rate borrowings to
finance increasing working capital and interest payment requirements. In order
to meet the working capital and interest payment requirements projected in
fiscal year
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<PAGE> 26
2000, the revolving credit facility would have to be increased to $460 million.
Interest rates on the variable rate revolving credit facility were assumed to
increase to 9.75% to reflect then current expectations of future short-term
borrowing rates. The Projection also indicated that cash flow from operations
would not be sufficient to satisfy maturities of the Company's fixed rate debt
obligations, which consisted of the 14 1/2% senior subordinated notes due in
fiscal 1998 and fiscal 1999 and the 11 1/4% senior debentures due in fiscal
2005. The Projection assumed that these fixed rate debt obligations would be
refinanced at the time of the scheduled maturities at identical interest rates.
The Company determined that unless it was able to develop successful strategic,
operating or financing initiatives which would change these assumptions, the
projected future operating results based on these assumptions represented the
best estimate of the Company's projected performance given the Company's
existing high leverage and industry trends.
The Projection reflected significant cumulative losses indicating that the
carrying value of goodwill was not recoverable. Accordingly, the Company wrote
off its remaining goodwill balance of $179.8 million in the quarter ended June
30, 1994. More importantly, while the Company believed the reliability of any
projection over such an extended period is highly uncertain, the Projection also
indicated that the Company's long-term viability would require modification of
its then current capital structure to reduce its indebtedness and increase its
equity in the near to mid-term future. While the Projection indicated that in
fiscal 1998 cash flow from operations would not be sufficient to satisfy
required interest and principal payments on its current debt obligations, the
Company believed and the Projection indicated, that cash flow generated from
operations in the near-term (fiscal years 1995 through 1997) would be sufficient
to service its then current debt obligations. The Company was unable to provide
any assurance that the Company would be successful in efforts to restructure or
recapitalize in order to be able to operate in a profitable manner for the
long-term.
In December 1994, the Company sold substantially all of its Receivables to
ARC, pursuant to the Receivables Program. Pursuant to the Receivables Program,
ARC will continuously transfer Receivables to a master trust in exchange for,
among other things, Certificates representing a right to receive a variable
principal amount. Contemporaneous with the consummation of the Receivables
Program, the Company amended its existing Credit Agreement with its senior
lenders and redeemed all of the outstanding Notes at a redemption price of 106%
of the principal amount plus accrued interest through the redemption date. See
"The Refinancing" and "Description of Indebtedness and Securitization Program."
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<PAGE> 27
BUSINESS
AmeriSource is the fifth largest full-service wholesale distributor of
pharmaceutical products and related health care services in the United States.
The Company services its customers nationwide through 16 drug distribution
facilities and one specialty products distribution facility. AmeriSource is
typically the primary source of supply to its customers and offers a broad range
of services designed to enhance the operating efficiencies and competitive
position of its customers and suppliers. The Company benefits from a diverse
customer base that includes hospitals and managed care facilities (46%),
independent community pharmacies including retail drug stores, nursing homes and
clinics (34%) and chain drug stores including pharmacy departments of
supermarkets and mass merchandisers (20%).
Over the past five years, AmeriSource has achieved significant growth in
revenues and adjusted operating income. The Company's revenues have increased
from $2.6 billion in fiscal 1990 to $4.3 billion in fiscal 1994, a compound
annual growth rate of 13.8%, while adjusted operating income increased from
$43.8 million in fiscal 1990 to $86.1 million in fiscal 1994, a compound annual
growth rate of 18.4%. The Company's growth is primarily the result of market
share gains in existing markets, geographic expansion and overall industry
growth.
BUSINESS STRATEGY
Over the past five years, AmeriSource has significantly expanded its
national presence as a leading, innovative wholesale distributor of
pharmaceutical products and related health care services. The Company believes
it is well-positioned to continue its revenue growth and increase operating
income through the execution of the following key elements of its business
strategy:
- - Expanding into New Geographic Markets. The Company believes that there are
substantial opportunities to grow by expanding into new geographic areas
through opening new distribution facilities and making selective,
complementary acquisitions. During the past 17 months, the Company has opened
three new distribution facilities. In October 1993, the Company opened a
facility in Dallas, Texas, and in November 1994, the Company opened two
additional facilities in Portland, Oregon and Springfield, Massachusetts. Each
of these new facilities began operations with an existing customer base in its
regional marketplace, providing for profitable operations (on an operating
income basis) almost immediately upon opening. The Company plans to open new
distribution facilities in Sacramento, California and Orlando, Florida during
calendar 1995. In addition, the Company believes that as industry
consolidation pressures continue, opportunities will arise to selectively
acquire local and regional drug wholesale companies facilitating expansion
into new geographic areas and enhancement of its competitive position in
existing markets. Prior to the Acquisition in 1988, AmeriSource's management
team completed 18 acquisitions over a 10-year period. The completion of the
Offering and the Refinancing will significantly increase the Company's
financial flexibility, including its ability to pursue acquisitions.
- - Increasing Market Share in Existing Markets. The Company believes that it is
well positioned to continue to grow in its existing markets by: (i) providing
superior distribution services and specialty value-added programs which reduce
its customers' cost of operations; (ii) maintaining its low cost operating
structure to ensure that the Company's services are priced competitively in
the marketplace; (iii) continuing to focus on the higher growth hospital and
managed care market segment through the use of dedicated facilities and
advanced information systems; and (iv) maintaining its decentralized operating
structure to respond to customers' needs more quickly and efficiently and to
ensure the continued development of local and regional management talent.
These factors have allowed AmeriSource to compete effectively in the
marketplace, generate above-average industry sales growth over the last three
years and develop new types of customers, such as the federal government. For
example, over the past two years the Company has been awarded contracts to
provide pharmaceuticals to approximately 80% of Veterans Administration
hospital facilities nationwide. In addition, the Company continues to grow
with its existing customers. In January 1995, the Company was selected by VHA
Inc., one of the nation's largest healthcare providers, as one of its three
preferred providers.
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<PAGE> 28
- - Continuing Growth of Specialty Services. The Company works closely with both
customers and suppliers to develop an extensive range of specialty services.
In addition to enhancing the Company's profitability, these services increase
customer loyalty and strengthen the Company's overall role in the healthcare
distribution channel. These services include:
-- ECHO(TM), the Company's proprietary software system, provides
sophisticated ordering and inventory management assistance to its
hospital and retail customers. In addition to facilitating the
primary supply arrangement between the Company and its customers,
ECHO(TM) enables the Company's customers to reduce their costs
through ordering more efficiently, selecting from best price
alternatives and maintaining formulary compliance. Since the
introduction of ECHO(TM) in early fiscal 1991, the Company has
installed approximately 2,000 systems nationwide, 600 of which were
installed in fiscal 1994, and believes that its installed base of
systems is one of the largest in the wholesale drug industry.
-- Family Pharmacy(R) enables small chain and independent community
pharmacies to compete more effectively through: (i) innovative
advertising, marketing and promotional campaigns; (ii) value-added
merchandising programs including private label product lines; and
(iii) enhanced access to pharmaceutical benefit programs of large
health care groups, including third party payor programs. Family
Pharmacy(R) has grown dramatically in recent years, adding over 550
new member-stores in fiscal 1994. As of December 31, 1994, the
1,861 Family Pharmacy(R) member-stores in effect constitute one of
the largest drugstore chains in the United States.
-- The Company's Income Rx(R) program provides an integral value-added
service to its hospital and retail pharmacist customers by
continually reviewing the marketplace for generic products that
offer the best price, quality and availability. With the increasing
importance of generic pharmaceuticals this program represents a
significant opportunity for growth and profitability. Revenues
attributable to AmeriSource's sale of generic and multi-source
pharmaceuticals (including through the Income Rx(R) program) have
increased to approximately $450 million in fiscal 1994, more than
twice what they were in fiscal 1992.
-- AmeriSource operates a pharmaceutical repackaging business that
markets products through its Income RePax(R) program. Repackaging
pharmaceuticals from bulk quantities into smaller units provides
the Company's customers with lower product, inventory and
dispensing (labor) costs.
-- The Company's Health Services Plus subsidiary distributes oncology
and other specialty products to clinics and physician groups on a
national basis. Rita Ann Distributors markets cosmetics and
fragrances to chain drugstores and independent retail customers.
- - Maintain Low Cost Operating Structure. AmeriSource has the lowest operating
cost structure among its four major national competitors. Over the past six
years, the Company has significantly reduced operating expenses and investment
in net working capital as a percentage of revenues. Specifically, the Company
has reduced its selling and administrative expenses as a percentage of
revenues from 5.36% in fiscal 1988 to 3.31% in fiscal 1994. In addition, the
Company continues to achieve productivity and operating income gains from
continued investments in advanced management information systems, warehouse
automation technology, and from operating leverage due to above industry
average volume per facility. In fiscal 1994, the Company's average revenue per
facility was $287 million compared to a calendar 1993 industry average of $175
million. The addition of two new facilities in November 1994 was accomplished
with minimal incremental investment in corporate overhead. As these facilities
continue to expand in their regional markets, the Company believes that its
growth and profitability will be further enhanced.
INDUSTRY OVERVIEW
The Company has benefited from the significant growth of the full-service
drug wholesale industry in the United States. Industry sales grew from $30
billion in 1990 to an estimated $53 billion in 1994. The factors contributing to
this growth, and the sources of future growth for the industry, include (i) an
aging population,
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<PAGE> 29
(ii) the introduction of new pharmaceuticals, (iii) the increased use of
outpatient drug therapies, (iv) a higher concentration of distribution through
wholesalers by both manufacturers and customers, and (v) rising pharmaceutical
prices.
Aging Population. The number of individuals over age 65 in the United
States has grown 23% from approximately 26 million in 1980 to approximately 32
million in 1990 and is projected to increase an additional 9% to more than 35
million by the year 2000. This age group suffers from a greater incidence of
chronic illnesses and disabilities than the rest of the population and is
estimated to account for approximately two-thirds of total health care
expenditures in the United States.
Introduction of New Pharmaceuticals. Traditional research and development
as well as the advent of new research and production methods, such as
biotechnology, continue to generate new compounds that are more effective in
treating diseases. These compounds have been responsible for significant
increases in pharmaceutical sales. The Company believes that ongoing research
and development expenditures by the leading pharmaceutical manufacturers will
contribute to continued growth of the industry.
Cost Containment Efforts. In response to rising health care costs,
governmental and private payors have adopted cost containment measures that
encourage the use of efficient drug therapies to prevent or treat diseases.
While national attention has been focused on the overall increase in aggregate
health care costs, the Company believes drug therapy has had a beneficial impact
on overall health care costs by reducing expensive surgeries and prolonged
hospital stays. Pharmaceuticals currently account for less than 9% of overall
healthcare costs, and manufacturers' emphasis on research and development is
expected to continue the introduction of cost effective drug therapies.
Higher Concentration of Distribution Through Wholesalers. Over the past
decade, manufacturers of pharmaceuticals have significantly increased the
distribution of their products through wholesalers as the cost and complexity of
maintaining inventories and arranging for delivery of pharmaceutical products
has risen. Drug wholesalers offer their customers and suppliers more efficient
distribution and inventory management. As a result, from 1980 to 1994, the
percentage of total pharmaceutical sales through wholesale drug distributors
increased from approximately 57% to approximately 78%. Order processing,
inventory management and product delivery by wholesale drug distributors allow
manufacturers to allocate their resources to research and development,
manufacturing and marketing their products. Customers benefit from this shift by
having a single source of supply for a full line of pharmaceutical products as
well as lower inventory costs, more timely and efficient delivery, and improved
purchasing and inventory information. In addition, customers also benefit from
the range of value-added programs developed by wholesale drug distributors that
are targeted to the specific needs of these customers, which, in turn, reduce
their costs and increase their operating efficiencies.
Pharmaceutical Price Increases By Drug Manufacturers. The Company believes
that price increases by pharmaceutical manufacturers will equal or exceed the
overall Consumer Price Index. The Company believes that this increase will be
due in large part to the relatively inelastic demand in the face of higher
prices charged for patented drugs as manufacturers have attempted to recoup
costs associated with the development, clinical testing and Food and Drug
Administration ("FDA") approval of new products.
At the same time that sales through the wholesale drug industry have grown,
the number of pharmaceutical wholesalers in the United States has decreased from
139 at the end of 1980 to approximately 55 as of December 31, 1994. Industry
analysts expect this consolidation trend to continue during the 1990s, with the
industry's largest companies increasing their percentage of total industry
sales.
OPERATIONS
Decentralized Structure. The Company believes that operating economies of
scale exist principally at the distribution facility level. Beginning in fiscal
1989, the Company undertook an extensive consolidation program, which closed 17
of the 31 facilities open on October 1, 1988. During the course of this
consolidation program, the Company continued to significantly increase its
revenues in each fiscal year. During fiscal 1994, the Company's average revenue
per facility was approximately $287 million, compared to the calendar 1993
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<PAGE> 30
industry average of $175 million. Five AmeriSource facilities each have annual
volume of over $400 million and an additional seven facilities each have annual
volume in excess of $175 million, which provides the Company with continued
opportunities for significant leverage of fixed overhead and other costs.
To expand into new geographic markets, AmeriSource opened three new
facilities during the past 17 months, and currently operates 16 drug wholesale
distribution facilities and one specialty products distribution facility,
organized into six regions across the United States. The Company also plans to
open additional distribution facilities in Sacramento, California and Orlando,
Florida during calendar 1995. Several operating units of the Company have over
100 years of history in the business and are among the nation's first drug
distribution businesses. Unlike its more centralized competitors, the Company is
structured as an organization of locally managed profit centers. Management of
each operating unit has fiscal responsibility for its unit, and each operating
unit has an established executive, sales and operations staff. The operating
unit's results, including earnings and asset management goals, have a direct
impact on management compensation. The operating units utilize the Company's
corporate staff for marketing, financial, legal and executive management
resources and corporate coordination of asset and working capital management.
Customers and Markets. The Company benefits from a diverse customer base
that includes hospitals and managed care facilities (46%), independent community
pharmacies including retail drug stores, nursing homes and clinics (34%) and
chain drug stores including pharmacy departments of supermarkets and mass
merchandisers (20%). The Company offers a broad range of services designed to
enhance the operating efficiencies and competitive position of its customers and
manufacturers. In addition, AmeriSource is typically the primary source of
supply for its customers, delivering on a daily basis. The table below
summarizes how the Company's customer sales mix has changed over the last five
fiscal years.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------------------------------
1990 1991 1992 1993 1994
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Hospitals and Managed Care
Facilities................. $ 844 33% $1,001 35% $1,253 38% $1,554 42% $1,968 46%
Independents................. 1,108 43% 1,203 43% 1,356 41% 1,397 37% 1,450 34%
Chains....................... 612 24% 623 22% 721 21% 768 21% 884 20%
------ --- ------ --- ------ --- ------ --- ------ ---
Total.................... $2,564 100% $2,827 100% $3,330 100% $3,719 100% $4,302 100%
====== ==== ====== ==== ====== ==== ====== ==== ====== ====
</TABLE>
No single customer represented more than 4% of the Company's total revenues
during fiscal 1994 other than the federal government which, in the aggregate,
accounted for approximately 10%. Excluding the federal government, the Company's
top ten customers represented approximately 15% of total revenues during fiscal
1994. The Company believes it is less dependent on any single customer than its
four largest competitors. A profile of each customer segment follows:
- Hospitals and Managed Care Facilities. AmeriSource is one of the
nation's top three distributors in serving the hospital and managed care market
segment, which is currently the fastest growing customer segment in the
industry. Because hospitals and managed care facilities purchase large volumes
of high priced, easily handled pharmaceuticals, the Company benefits from quick
turnover of both inventory and receivables and lower than average operating
expenses. The Company intends to continue to focus on the higher growth hospital
and managed care market segment through the use of dedicated facilities and
advanced information systems such as ECHO(TM). As a percentage of total
revenues, sales to hospitals and managed care facilities increased from 33% in
fiscal 1990 to 46% in fiscal 1994, and have grown at a compound rate of 24.3%
over this period.
- Independents. Independent community pharmacy owners represent the
largest segment of the industry and provide the greatest opportunity for the
Company's value-added services. The Company's sales to independent customers
have risen at a compound rate of 7.7% over the five-year period from fiscal 1990
through fiscal 1994 due to the general growth of this customer segment and to
the success of the Company's customized marketing and merchandising programs,
such as its Family Pharmacy(R) program.
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<PAGE> 31
- Chains. This category includes chain drug stores, including pharmacy
departments of supermarkets and mass merchandisers. The Company's sales to
chains have risen at a compound rate of 10.9% over the five-year period from
fiscal 1990 through fiscal 1994. This growth rate reflects the results from the
Company entering into new contracts with several drug store chains, offset by
the discontinuance in 1990 and 1991 of certain chain accounts, at the Company's
election, because of their minimal profit contribution. The Company targets the
smaller regional chain business for which the Company can provide higher margin,
value-added services.
Products and Services. AmeriSource provides services that improve the
operating efficiencies of both its customers and suppliers. In addition, the
Company is typically the primary source of product for its customers, delivering
on a daily basis. The Company continually enhances its services and packages
these services into programs designed to address the special needs of its
various customer segments. These programs include a variety of management,
merchandising and information processing services and programs, that enable
customers to increase sales, reduce costs and compete more effectively. The
Company believes that its broad range of customized services assists in
attracting new customers and developing customer loyalty.
In fiscal 1991, the Company introduced ECHO(TM), a proprietary software
system that provides ordering and inventory management assistance for
pharmaceutical products. The ECHO(TM) system is an interactive computerized
method for reviewing pricing history, placing orders and tracing purchasing
effectiveness. By creating a master file for each customer, the system
automatically updates pricing data, monitors contract compliance, provides
generic and therapeutic equivalent alternative purchase information and suggests
order quantity information based on the customer's historical purchasing levels.
As a result of its success and fast growth among its hospital and managed care
customers, the Company has recently introduced ECHO(TM) to certain of its retail
customers with the goal of increasing the competitiveness and reducing the costs
of its retail pharmacy customers. Since the introduction of ECHO(TM), the
Company has installed approximately 2,000 systems nationwide, 600 of which were
installed in fiscal 1994. The Company believes its installed base of systems is
one of the largest in the wholesale drug industry.
The Family Pharmacy(R) program, another of the Company's customized
services, enables small chain and independent community pharmacies to compete
more effectively. These services include merchandising and pricing information,
shelf labels and plan-o-grams, readily identifiable logos, signs and store
decor, store operations manuals, advertising and promotional campaigns, and
monthly newsletters. The Company also distributes private label vitamins and
health and beauty aids under the Family Pharmacy(R) label, which provides higher
profit margins both to the Company and the retailer. In addition, the Company
negotiates with large health care groups, including third party payors, on
behalf of member-stores for delivery of pharmaceutical benefit programs. The
Family Pharmacy(R) program, initiated in 1982, had 1,169 member-stores as of
December 31, 1991 and has increased its membership to 1,861 member-stores as of
December 31, 1994. The combined member-stores of the Family Pharmacy(R) program
in effect would constitute one of the largest drug chains in the United States.
The Company's Income Rx(R) generic program provides an integral value-added
service to its hospital and retail pharmacist customers by continually reviewing
the marketplace for generic products that offer the best price, quality and
availability. As with the industry, the Company has significantly increased
sales of generic and multi-source pharmaceuticals over the past five years.
Revenues attributable to the sale of generic and multi-source pharmaceuticals
(including sales through the Income Rx(R) program) have increased to
approximately $450 million in fiscal 1994, more than twice what they were in
fiscal 1992. These products generate higher gross profit margins for wholesalers
than branded pharmaceuticals. The Company estimates that industry sales of these
products will double by 1996 due to the number of brands losing patent
protection as well as third party payors' continued emphasis on cost
containment. With the increasing importance of generic pharmaceuticals, the
Income Rx(R) program represents a significant opportunity for growth and
profitability.
For all customer segments, the Company offers its Income RePax(R) program.
Through the Income RePax(R) program, the Company purchases bulk quantities of
certain pharmaceuticals and repackages them into smaller units, which enables
pharmacists to sell pharmaceuticals at prices competitive with those of national
drug chain operations. The Company's repackaging facility, located in
Louisville, Kentucky, is licensed by the FDA and maintains rigid quality control
standards. The Company also operates Health
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<PAGE> 32
Services Plus, which is a distributor of oncology and other special purpose
products to clinics and alternate site businesses on a national basis, and Rita
Ann Distributors, which is a distributor of cosmetics and fragrances to the
Company's chain drugstore and other retail customers.
Suppliers. AmeriSource purchases pharmaceutical and other products from a
number of manufacturers, none of which account for more than approximately 7% of
its purchases. The five largest suppliers in fiscal 1994 accounted for
approximately 27% of total purchases. Historically, the Company has not
experienced difficulty in purchasing desired products from suppliers. The
Company has agreements with many of its suppliers which generally require the
Company to maintain an adequate quantity of a supplier's products in inventory.
The majority of contracts with suppliers are terminable upon 30 days notice by
either party. While each of the Company's operating units on average carries a
broad range of items from approximately 800 suppliers, purchases are
concentrated among the top 25 manufacturers and about 250 items (SKUs). It is
estimated that products from these 25 manufacturers account for approximately
half the total annual sales volume of the Company. The Company believes that its
relationships with its suppliers are good.
Management Information Systems. The Company has continually invested in
advanced management information systems and automated warehouse technology. For
example, in fiscal 1994, AmeriSource introduced its BOSS warehouse automation
system, a paperless warehouse production program customized to AmeriSource's
unique requirements. Under the BOSS system, merchandise is received, placed in
inventory, retrieved and shipped utilizing customized radio frequency equipment.
The Company's management information systems also provide for, among other
things, electronic order entry by customers, invoice preparation and purchasing
and inventory tracking. As a result of electronic order entry, the costs of
receiving and processing orders have not increased as rapidly as sales volume.
The Company's customized systems strengthen customer relationships by allowing
the customer to lower its operating costs and by providing the basis for a
number of the value-added services the Company provides to its customers,
including marketing data, inventory replenishment, single-source billing,
computer price updates and price labels. AmeriSource believes that its
management information systems are capable of serving its needs for the
foreseeable future.
COMPETITION
The Company engages in the wholesale distribution of pharmaceuticals,
health and beauty aids and other products in a highly competitive environment.
The Company competes with numerous national and regional distributors, some of
which are larger and have substantially greater financial resources than the
Company. The Company's national competitors include McKesson Corporation, Bergen
Brunswig Corporation, Cardinal Health, Inc. and FoxMeyer Health Corporation. In
addition, the Company competes with local distributors, direct-selling
manufacturers and other specialty distributors. Competitive factors include
price, service and delivery, credit terms, breadth of product line, customer
support and marketing programs. There can be no assurance that the Company will
not encounter increased competition in the future that could adversely affect
the Company's business. The drug wholesale industry continues to undergo
significant consolidation, with the number of wholesalers in the continental
United States down from 139 at the end of 1980 to approximately 55 as of
December 31, 1994.
PROPERTIES
As of December 31, 1994, the Company conducted its business from office and
operating unit facilities at 26 locations throughout the United States. In the
aggregate, AmeriSource's operating units occupy approximately 1.5 million square
feet of office and warehouse space, of which approximately 754,000 square feet
is owned and the balance is leased under lease agreements with expiration dates
ranging from 1995 to 2009. The Company's 16 drug distribution facilities range
in size from approximately 43,600 square feet to 151,000 square feet. Leased
facilities are located in the following states: Kentucky, Massachusetts,
Minnesota, New Jersey, Ohio, Oregon, Pennsylvania, Tennessee and Texas. The
Company has entered into a lease for a distribution facility in California, and
is negotiating a distribution facility lease in Florida. Owned facilities are
located in the following states: Georgia, Indiana, Kentucky, Maryland, Missouri,
Ohio, Pennsylvania, Tennessee and Virginia. The Company utilizes a fleet of
owned and leased vans and trucks, as well as contract
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<PAGE> 33
carriers to deliver its products. The Company believes that its properties are
adequate to serve the Company's current and anticipated needs without making
capital expenditures materially higher than historical levels.
EMPLOYEES
As of December 31, 1994, the Company employed approximately 2,400 persons,
of which approximately 2,180 were full-time employees. Approximately 11% of full
and part-time employees are covered by collective bargaining agreements. The
Company believes that its relationship with its employees is good.
REGULATORY MATTERS
The United States Drug Enforcement Administration, the FDA and various
state boards of pharmacy regulate the distribution of pharmaceutical products
and controlled substances, requiring wholesale distributors of these substances
to register for permits and to meet various security and operating standards. As
a wholesale distributor of pharmaceuticals and certain medical/surgical products
and as a repackager of certain pharmaceutical products, the Company is subject
to these regulations. The Company has received all necessary regulatory
approvals and believes that it is in substantial compliance with all applicable
wholesale distribution requirements.
The Company's former Charleston, South Carolina distribution center was
previously owned by a fertilizer manufacturer. There is evidence of residual
soil contamination remaining from the fertilizer manufacturing process operated
on that site over thirty years ago. The Company engaged an environmental
consulting firm to conduct a soil survey and initiated a groundwater study
during fiscal 1994. The preliminary results of the groundwater study indicate
that there is lead in the groundwater at levels requiring further investigation
and response. A preliminary engineering analysis was prepared by outside
consultants and indicated that if both soil and groundwater remediation are
required, the most likely cost of remediation efforts at the Charleston site is
estimated to be $4.1 million. Accordingly, a liability of $4.1 million was
recorded during fiscal 1994 to cover future consulting, legal and remediation
and ongoing monitoring costs. The Company has notified the appropriate state
regulatory agency from whom approval must be received before proceeding with any
further tests or with the actual site remediation. The approval process and
remediation could take several years to accomplish and the actual costs may
differ from the liability that has been recorded. The accrued liability, which
is reflected in other long-term liabilities on the Company's consolidated
balance sheet, is based on an estimate of the extent of contamination and choice
of remedy, existing technology and presently enacted laws and regulations.
However, changes in remediation standards, improvements in cleanup technology
and discovery of additional information concerning the site could affect the
estimated liability in the future. The Company is investigating the possibility
of asserting claims against responsible parties for recovery of these costs.
Whether or not any recovery may be forthcoming is unknown at this time, although
the Company intends to vigorously enforce its rights and remedies.
LEGAL PROCEEDINGS
In November 1993, the Company was named a defendant, along with six other
wholesale distributors and twenty-four pharmaceutical manufacturers, in fourteen
civil actions filed by independent retail pharmacies in the United States
District Court for the Southern District of New York. Plaintiffs seek to
establish these lawsuits and over thirty-four others (to which the Company is
not a party) filed by other pharmacies as class actions. In essence, these
lawsuits all claim that the manufacturer and wholesaler defendants have
combined, contracted and conspired to fix the prices charged to plaintiffs and
class members for prescription brand name pharmaceuticals. Specifically,
plaintiffs claim that the defendants use "chargeback agreements" to give some
institutional pharmacies discounts that are not made available to retail drug
stores. Plaintiffs seek injunctive relief, treble damages, attorneys' fees and
costs. These actions have been transferred to the United States District Court
for the Northern District of Illinois for consolidated and coordinated pretrial
proceedings. Effective October 26, 1994, the Company entered into a Judgment
Sharing Agreement with other wholesaler and pharmaceutical manufacturer
defendants. Under the Judgment Sharing Agreement: (a) the manufacturer
defendants agreed to reimburse the wholesaler defendants for litigation costs
incurred, up to an aggregate of $9 million; and (b) if a judgment is entered
into against both manufacturers and wholesalers, the total
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<PAGE> 34
exposure for joint and several liability of the Company is limited to the lesser
of 1% of such judgment or $1 million. In addition, the Company has released any
claims that it might have had against the manufacturers for the claims presented
by the plaintiffs in these lawsuits. The Judgment Sharing Agreement covers the
federal court litigation as well as the cases which have been filed in various
state courts. Plaintiffs have filed a motion to declare the Judgment Sharing
Agreement unenforceable. The Company believes that the plaintiffs' motion is
without merit, and together with the other parties to the Judgment Sharing
Agreement, has filed a memorandum against the plaintiffs' motion.
The Company believes it has meritorious defenses to the claims asserted in
these lawsuits and intends to vigorously defend itself in all of these cases.
The Company has received notices from the Internal Revenue Service
asserting deficiencies in federal corporate income taxes for the Company's
taxable years 1987 through 1991. The notices indicate an aggregate increase in
net taxable income for these years of approximately $24 million and relate
principally to the deductibility of costs incurred with respect to the
Acquisition. The Company has analyzed these matters with tax counsel and
believes it has meritorious defenses to the deficiencies asserted by the
Internal Revenue Service. The Company will contest the asserted deficiencies
through the administrative appeals process and, if necessary, litigation. The
Company believes that any amounts assessed will not have a material effect on
the financial condition of the Company.
The Company is a party to various lawsuits arising in the ordinary course
of business. The Company, however, does not believe that the outcome of these
lawsuits, individually or in the aggregate, will have a material adverse effect
on its business or financial condition.
31
<PAGE> 35
MANAGEMENT
DIRECTORS AND OFFICERS OF THE REGISTRANT
The following table sets forth information concerning the directors and
officers of the Company.
<TABLE>
<CAPTION>
NAME AGE TITLE
<S> <C> <C>
John F. McNamara(1)(2)............ 59 Chairman, President and Chief Executive Officer
David M. Flowers.................. 47 Group President -- Eastern Region
R. David Yost..................... 47 Group President -- Central Region
Kurt J. Hilzinger................. 34 Vice President, Chief Financial Officer and Treasurer
Teresa T. Ciccotelli.............. 43 Vice President, Legal Counsel and Secretary
Robert D. Gregory................. 65 Vice President, Human Resources and Assistant Secretary
John A. Kurcik.................... 42 Vice President, Controller and Assistant Treasurer
Robert E. McHugh.................. 53 Vice President, Marketing
J. Michael McNamara............... 38 Senior Vice President, Sales
Bruce C. Bruckmann................ 41 Director
Michael A. Delaney(1)............. 40 Director
Richard C. Gozon(3)............... 56 Director
Lawrence C. Karlson(2)............ 52 Director
George H. Strong(3)............... 68 Director
James A. Urry(1).................. 41 Director
Barton J. Winokur(1).............. 55 Director
</TABLE>
- ---------------
(1) Member of Compensation Committee.
(2) Member of Acquisition Committee.
(3) Member of Audit Committee.
John F. McNamara. Mr. McNamara has been Chairman, President and Chief
Executive Officer of the Company and AmeriSource since 1989 and has been
President of AmeriSource since 1987. Prior to holding these positions, he was
Chief Operating Officer of AmeriSource from 1986 to 1989 and Executive Vice
President of AmeriSource from 1985 to 1987. He also served as Chairman, from
1986 to 1990, and President, from 1981 to 1986, of the Kauffman-Lattimer
division of AmeriSource. Mr. McNamara served on the executive committee of the
National Wholesale Druggists' Association from 1991 through 1994 and served as
its chairman of the board from November 1993 to November 1994.
David M. Flowers. Mr. Flowers has been Group President of the Eastern
Region since 1989. Prior to that he was President of the AmeriSource Southeast
Region from 1988 to 1989 and President of the Duff Brothers Division of
AmeriSource from 1984 to 1987.
R. David Yost. Mr. Yost has been Group President of the Central Region
since 1989. Before serving in these positions he was President, from 1986 to
1989, and Executive Vice President and General Manager, from 1984 to 1986, of
the Kauffman-Lattimer Division of AmeriSource.
Kurt J. Hilzinger. Mr. Hilzinger has served as Vice President, Chief
Financial Officer and Treasurer since January 1995. Prior to that, he served as
Vice President, Finance and Treasurer since October 1993, and as Vice President,
Financial Planning since March 1991. Before joining the Company, he was a Vice
President in the Corporate Advisory Division of Citicorp from 1986 to 1991.
Teresa T. Ciccotelli. Ms. Ciccotelli has served as Vice President, Legal
Counsel and Secretary since 1989. Prior to that, from 1985 to 1989, she was an
attorney with Alco Standard Corporation.
Robert D. Gregory. Mr. Gregory has been Vice President, Human Resources
and Assistant Secretary of the Company since 1989 and Vice President, Human
Resources of AmeriSource since 1986. Prior to that, from 1984 to 1986, he served
as Manager, Employee Relations for Alco Standard Corporation.
32
<PAGE> 36
John A. Kurcik. Mr. Kurcik has been Vice President, Controller and
Assistant Treasurer of the Company since 1989. Mr. Kurcik was Controller, from
1987, and Director of Accounting, from 1985 to 1987, of AmeriSource.
Robert E. McHugh. Mr. McHugh joined the Company as Vice President,
Marketing in August 1991. Prior to that he was President of J.E. Goold from 1990
to 1991 and Vice President, Industry Affairs of the National Wholesale
Druggists' Association from 1983 to 1990.
J. Michael McNamara. Mr. McNamara has served as Senior Vice
President-Sales of the Company since November 1994. Previously, he served as
Regional Vice President of the West Central Region of AmeriSource since April
1991. Prior to that he was Vice President, Sales and Marketing of the Company
from 1990 to 1991, Vice President and General Manager of the Toledo Division of
AmeriSource from 1988 to 1990, and Director of Marketing of the Columbus
Division of AmeriSource from 1984 to 1988.
Bruce C. Bruckmann. Mr. Bruckmann has been a director since August 1992.
Mr. Bruckmann previously was a director of the Company since 1989 and of
AmeriSource since 1988. Mr. Bruckmann resigned as a director of both companies
in December 1991. Mr. Bruckmann is a Managing Director of Bruckmann, Rosser,
Sherrill & Co., Inc. Until January 1995, Mr. Bruckmann was a Managing Director
of Citicorp Venture Capital Ltd. and of Court Square Capital Limited. Mr.
Bruckmann is Chairman of the Board of Polyfibron Technologies, Inc. He serves as
a director of Chromcraft Revington, Inc., Cort Furniture Rental Corporation, New
Cort Holdings Corporation, Mohawk Industries, Inc., Hancor Holding Corp.,
Triumph Group, Inc., Fair Markets, Inc., FF Holdings Corporation and Farm Fresh,
Inc.
Michael A. Delaney. Mr. Delaney has been a director since January 1995.
Mr. Delaney has been a Vice President of Citicorp Venture Capital Ltd. since
1989. From 1986 through 1989 he was Vice President of Citicorp Mergers and
Acquisitions, an affiliate of VPI. Mr. Delaney is also a director of Sybron
Chemicals, Inc., GVC Holdings, JAC Holdings, DRA International, Enterprise Radio
Corporation and Southern Coil Processing, Inc.
Richard C. Gozon. Mr. Gozon was elected to the board of directors in 1994.
Mr. Gozon has been Executive Vice President of Weyerhaeuser Company since June
1994. Mr. Gozon formerly was President and Chief Operating Officer of Alco
Standard Corporation from 1988 to 1993. He is also a director of UGI Corp., The
Triumph Group and Nocopi Technologies.
Lawrence C. Karlson. Mr. Karlson was elected to the board of directors in
1994. Mr. Karlson is Chairman of Karlson Corporation and serves as a director of
Meridian Bank Corp. and CDI Corporation.
George H. Strong. Mr. Strong was elected to the board of directors in
1994. Mr. Strong is a private investor and serves as a director of Corefunds,
Health South Rehabilitation Corp. and Integrated Health Services, Inc.
James A. Urry. Mr. Urry has been a director since January 1995. Mr. Urry
has been with Citibank, N.A. since 1981, serving as a Vice President since 1986.
He has been a Vice President of Citicorp Venture Capital Ltd. since 1989. He is
also a director of York International Corp., Cort Furniture Rental Corporation
and New Cort Holdings Corporation.
Barton J. Winokur. Mr. Winokur has been a director since 1990. Mr. Winokur
is a partner of Dechert Price & Rhoads and serves as a director of CDI
Corporation, FF Holdings Corporation, Farm Fresh, Inc., Davco Restaurants, Inc.
and The Bibb Company.
The directors were appointed to the board of the Company to serve until
their successors are elected and qualified. Each director is a citizen of the
United States. Officers are elected annually by the Board of Directors to serve
for the ensuing year and until their respective successors are elected. There
are no arrangements or understandings between any of the officers and any other
person pursuant to which he or she was elected an officer. J. Michael McNamara,
Senior Vice President-Sales, is the son of John F. McNamara, Chairman, President
and Chief Executive Officer of the Company.
33
<PAGE> 37
EXECUTIVE COMPENSATION
The following table sets forth, for fiscal years ending September 30, 1992,
1993 and 1994, certain information regarding the cash compensation paid by the
Company, as well as certain other compensation paid or accrued for those years,
to each of the executive officers of the Company, in all capacities in which
they served:
<TABLE>
<CAPTION>
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION COMPENSATION(2)
<S> <C> <C> <C> <C> <C>
John F. McNamara................ 1994 $396,609 $200,000 -- $ 8,468(3)
Chairman, President and 1993 380,340 150,000 $ 110 7,434(3)
Chief Executive Officer 1992 340,340 185,000 -- --
David M. Flowers................ 1994 $169,430 $100,000 -- $ 8,822(4)
Group President -- Eastern 1993 159,980 75,000 -- 8,428(4)
Region 1992 149,480 65,000 -- --
R. David Yost................... 1994 $179,790 $100,000 -- $ 8,704(5)
Group President -- Central 1993 170,340 75,000 -- 9,079(5)
Region 1992 156,840 75,000 -- --
Kurt J. Hilzinger............... 1994 $137,833 $ 65,000 -- $ 985(6)
Vice President, Chief
Financial Officer 1993 124,000 50,000 -- --
and Treasurer 1992 99,810 20,000 -- --
</TABLE>
- ---------------
(1) The amounts shown consist of cash bonuses earned in the fiscal year
identified but paid in the subsequent fiscal year.
(2) In accordance with SEC provisions, amounts of All Other Compensation are
excluded for the Company's 1992 fiscal year.
(3) "All Other Compensation" for Mr. McNamara in 1994 and 1993 respectively
includes the following: (i) $967 and $782 in club dues, (ii) $1,450 and
$1,200 in tax return preparation fees, (iii) $4,497 and $5,237 in
contributions under the Company's Employee Investment Plan, (iv) for fiscal
1994, $1,554 for spousal travel expenses and (v) for fiscal 1993, $215 in
miscellaneous items.
(4) "All Other Compensation" for Mr. Flowers in 1994 and 1993 respectively
includes the following: (i) $4,175 and $3,191 in club dues, (ii) for fiscal
1994, $150 for spousal travel expenses, and (iii) $4,497 and $5,237 in
contributions under the Company's Employee Investment Plan.
(5) "All Other Compensation" for Mr. Yost in 1994 and 1993 respectively includes
the following: (i) $2,311 and $1,692 in club dues, (ii) $1,850 and $2,150
in tax return preparation fees, (iii) for fiscal 1994, $46 for spousal
travel expenses, and (iv) $4,497 and $5,237 in contributions under the
Company's Employee Investment Plan.
(6) "All Other Compensation" for Mr. Hilzinger in 1994 includes $985 in
contributions under the Company's Employee Investment Plan.
Any outside director of the Company is paid an annual fee of $12,000 (which
will increase to $15,000 effective April 1, 1995) for service as a director of
the Company, plus an additional fee of $1,000 for attendance at each meeting of
the board of directors in excess of four annually and $500 per telephonic
meeting of the board of directors. There are no fees paid for attendance at
committee meetings. Certain outside directors of the Company may also be
entitled to receive stock options for Common Stock pursuant to the AmeriSource
Non-Employee Directors Stock Option Plan ("Directors Plan"). See "-- Stock
Options."
STOCK OPTIONS
A total of 61 employees own shares of Common Stock or options to acquire
Common Stock pursuant to the Purchase Plan, the Partners Plan and the 1991
Option Plan.
34
<PAGE> 38
Purchase Plan. As of October 31, 1989, the Company adopted the AmeriSource
Health Corporation and Subsidiaries Employee Stock Purchase Plan (the "Purchase
Plan") to enable certain members of its management (the "Management Investors")
to participate in the equity ownership of the Company on the terms agreed to at
the time of the Acquisition. The Management Investors include Messrs. Flowers,
John McNamara and Yost, other current officers of the Company and additional
members of management of the Company and its subsidiaries. The securities of the
Company subject to the Purchase Plan originally included (a) up to 2,212,500
shares of the Company's Common Stock and (b) $750,000 aggregate principal amount
of the Company's 19 1/2% Junior Subordinated Debentures due 2001 (the "Junior
Subordinated Debentures").
The Management Investors have been subject to restrictions on the sale or
transfer of their Common Stock. Before January 1, 1994, a Management Investor
could not transfer his or her securities except with the consent of the Company
or in connection with specified events, such as the sale of the Company. If a
Management Investor's employment with the Company was terminated, the Company
had the right to repurchase the Common Stock owned or subject to options. VPI is
required, under certain circumstances, to allow the Management Investors to
participate if it proposes to sell shares of the Company's common stock.
As of December 31, 1994, Management Investors had purchased 227,150 shares
of Common Stock under the Purchase Plan and held options to purchase 1,531,603
shares of Common Stock (at an exercise price of $0.07 per share) pursuant to the
Purchase Plan. Of the 1,531,603 shares subject to options, 343,269 shares will
be repurchased from VPI by the Company for $0.34 per share before being issued
pursuant to such options. No further awards will be granted under the Purchase
Plan.
By the terms of the Purchase Plan, the options issued under the Purchase
Plan will expire 90 days after the closing of the Offering. Accordingly, the
Company expects all such options will be exercised during such time period. Upon
exercise of the Purchase Plan options, the holders will be subject to
withholding tax liability based upon the difference between the exercise price
and the estimated fair market value of the Common Stock at the time of exercise.
In lieu of selling shares of Common Stock to satisfy their withholding
requirement, certain members of AmeriSource's management intend to obtain margin
loans secured by the shares of Common Stock acquired pursuant to such options
from Smith Barney Inc. and DLJ. See "Shares Eligible for Future Sale."
Partners Plan. On December 11, 1990, the Company adopted its Partners Stock
Option Plan (the "Partners Plan") to enable employees of the Company other than
the Management Investors to participate in the equity ownership of the Company.
The Partners Plan was intended to distribute the equity ownership more broadly
in order to further incentivize employees. An aggregate of 776,316 shares of
Common Stock was originally available under the Partners Plan. On March 2, 1991,
options ("Partners Options") for an aggregate of 368,160 shares of Common Stock
were granted to 39 optionees, each of whom received options for 9,440 shares. As
of September 30, 1994, there were 339,840 shares subject to options under the
Partners Plan held by 36 optionees. Each Partners Option became 100% exercisable
on September 30, 1994 at an exercise price of $0.34 per share and each was
exercised by December 31, 1994. The Partners Plan originally required the holder
to hold the Common Stock so acquired for two years, but the Company has waived
this holding period requirement. No further awards will be granted under the
Partners Plan. Upon exercise of the Partners Plan options, the holders were
subject to tax liability based upon the difference between the exercise price
and the estimated fair market value for private sales of the Common Stock. To
assist holders of Partners Options with such tax liability, the Company offered
to repurchase from such option holders up to 35% of their shares of Common Stock
obtained through exercise of their options, and did repurchase 107,085 shares at
the estimated fair market price for private sales of the Common Stock.
1991 Stock Option Plan. The Company's 1991 Stock Option Plan (the "1991
Option Plan"), which was adopted by the Board of Directors on February 19, 1992
and approved by the stockholders on April 7, 1992, provides for the granting of
non-qualified stock options to acquire up to an aggregate of 1,069,375 shares of
Common Stock to the Management Investors and certain other members of the
Company's management. Options to acquire the entire 1,069,375 shares of Common
Stock subject to this plan were granted on April 8, 1992.
The options under the 1991 Option Plan once granted to the recipient are
not subject to forfeiture and have an exercise price of $0.34 per share and were
exercisable at a rate of 50% per year on each of January 1,
35
<PAGE> 39
1993 and January 1, 1994. The options granted, which represent the shares
unallocated under the Purchase Plan and options never granted under a
performance stock option plan originally announced by the Company in 1989,
reflect achievements in operating performance through fiscal 1991. Of the shares
subject to options, 995,625 shares will be repurchased from VPI by the Company
for $0.34 per share pursuant to a prior agreement. As of September 30, 1994,
there were 1,039,875 shares of Common Stock subject to options under the 1991
Option Plan.
Options granted to employees must be exercised by the earlier of November
3, 1999, the date the Company is sold or 90 days after the date of a public
offering. Employees whose employment terminates for reasons other than death,
disability or retirement must hold the shares acquired upon exercise for a
period of three years. The 1991 Option Plan permits, with the consent of the
administering committee and if permitted by the restrictions in the Company's
financing agreements, the exercise of options by delivery of shares of Common
Stock owned by the optionee, by withholding of such shares of Common Stock upon
exercise of the option in lieu of or in addition to cash or by financing made
available by the Company.
The 1991 Option Plan will continue to be administered by the Board of
Directors of the Company until the Company registers the Common Stock under
Section 12 of the Exchange Act of 1934, as amended (the "Exchange Act"),
whereupon, the 1991 Option Plan will be administered by a committee of
Disinterested Persons as defined in the 1991 Option Plan. The Committee will
have the power and authority to determine the extent to which exceptions to the
exercisability of options may be granted, to determine the effect of certain
dispositions or a change in control of the Company on outstanding options, to
establish procedures, loans or financing arrangements to assist in the exercise
of options and the satisfaction of tax withholding obligations, to adopt
regulations to carry out the 1991 Option Plan and to amend options granted under
the plan to carry out the purpose of the 1991 Option Plan.
Because the options issued under the 1991 Option Plan will expire 90 days
after the closing of the Offering, the Company expects all such options will be
exercised during such time period. Upon exercise of the 1991 Option Plan
options, the holders will be subject to withholding tax liability based upon the
difference between the exercise price and the estimated fair market value of the
Common Stock at the time of exercise. In lieu of selling shares of Common Stock
to satisfy their withholding requirement, certain members of AmeriSource's
management intend to obtain margin loans secured by the shares of Common Stock
acquired pursuant to such options from Smith Barney and DLJ. See "Shares
Eligible for Future Sale."
1995 Stock Option Plan. The Company expects to adopt the 1995 Option Plan,
which will provide for the granting over time of non-qualified stock options to
acquire up to approximately 1.1 million shares (equivalent to 5% of all shares
after giving effect to the Offering and the Option Exercises and subject to
increase of approximately 50,000 shares if the over-allotment option is
exercised in full) of Common Stock to employees of the Company. Such options
will be granted based upon performance and with vesting schedules to be
determined at the time of grant.
The Company expects to grant options to acquire approximately 895,000
shares of Common Stock under the 1995 Option Plan on the effective date of the
Registration Statement of which this Prospectus is a part, at an exercise price
equal to the price to the public set forth on the cover page of this Prospectus.
Messrs. McNamara, Yost, Flowers and Hilzinger are expected to receive options to
acquire 100,000, 65,000, 65,000 and 40,000 shares of Common Stock, respectively,
at such time.
The 1995 Option Plan will be administered by a yet to be determined
committee of directors who are Disinterested Persons as defined in the 1995
Option Plan, which will have the power and authority to determine the employees
to whom awards are granted, the number of shares of Common Stock with respect to
such awards, and the terms of such awards, including the exercise price of the
stock options and any vesting periods. The 1995 Option Plan will contain such
other provisions, terms and conditions as such committee shall decide.
Under the 1995 Option Plan, the exercise price of options will not be less
than the fair market value of the Common Stock on the date of the grant. Options
granted to employees will typically vest over four years and will not be
exercisable after the expiration of six years from the date of the grant or such
sooner date determined by the committee. The 1995 Option Plan will permit, with
the consent of the committee and if permitted by the restrictions in the
Company's financing agreements, the exercise of options by delivery of
36
<PAGE> 40
shares of Common Stock owned by the optionee, by withholding of such shares of
Common Stock upon exercise of the option in lieu of or in addition to cash or by
financing made available by the Company. The 1995 Option Plan will permit the
committee to accelerate vesting upon a change of control and to adjust the
number and kind of shares subject to options in the event of a reorganization,
merger, consolidation, recapitalization, reclassification, stock split, stock
dividend or combination of shares.
Directors Plan. The Company expects to adopt the Directors Plan, which will
provide for the granting of stock options on a non-discretionary basis to
certain non-employee directors of the Company. An aggregate of 50,000 shares of
Common Stock have been reserved for issuance under the Directors Plan. The
Directors Plan is expected to provide for automatic grants of an option to
purchase shares of Common Stock to certain non-employee directors who are not
affiliates of VPI on an annual basis, which options will become exercisable over
time. The option exercise price must be equal to 100% of the fair market value
of the Common Stock on the date of grant of the option. Options granted to
directors under the Directors Plan will be treated as nonstatutory stock options
under the Internal Revenue Code, as amended. The Directors Plan will be
administered by a committee of disinterested directors to be determined.
The Directors Plan will permit, with the consent of the committee and if
permitted by the restrictions in the Company's financing agreements, the
exercise of options by delivery of shares of Common Stock owned by the optionee,
by withholding of such shares of Common Stock upon exercise of the option in
lieu of or in addition to cash or by financing made available by the Company.
The Directors Plan will permit the committee to adjust the number and kind of
shares subject to options in the event of a reorganization, merger,
consolidation, recapitalization, reclassification, stock split, stock dividend
or combination of shares. The Board of Directors may amend the Directors Plan at
any time or may terminate any plan without approval of the stockholders;
provided, however, that stockholder approval is required for any amendment to
the plan that increases the number of shares for which options may be granted or
changes in any material respect the limitations or provisions of the options
subject to the plans. However, no action by the Board of Directors or
stockholders may alter or impair any option previously granted to an optionee
without such optionee's consent.
VALUE OF UNEXERCISED OPTIONS
The following table sets forth information regarding the number and value
of unexercised options held by the named executive officers of the Company as of
January 31, 1995. None of the named executive officers were granted or exercised
any stock options in fiscal 1994.
<TABLE>
<CAPTION>
NUMBER OF SHARES COVERED BY
OUTSTANDING OPTIONS AND OPTION
VALUES AS OF JANUARY 31, 1995
---------------------------------------------------------
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
JANUARY 31, 1995 JANUARY 31, 1995
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE(1) UNEXERCISABLE
<S> <C> <C> <C> <C>
John F. McNamara........................ 725,700 0 $13,662,300 0
Chairman, President and Chief
Executive Officer
David M. Flowers........................ 212,400 0 4,003,600 0
Group President -- Eastern Region
R. David Yost........................... 238,950 0 4,499,050 0
Group President -- Central Region
Kurt J. Hilzinger....................... 73,750 0 1,327,500 0
Vice President, Chief Financial
Officer and Treasurer
</TABLE>
- ---------------
(1) The value of unexercised in-the-money options is estimated based upon a
price per share of $19.00 (the midpoint of the range of prices set forth on
the cover of this Prospectus).
37
<PAGE> 41
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee of the Board of Directors during
fiscal 1994 was composed of John F. McNamara, Bruce C. Bruckmann and Barton J.
Winokur. Mr. McNamara is Chairman, President and Chief Executive Officer of the
Company. Mr. Winokur is a partner of Dechert Price & Rhoads, which performed
legal services for the Company during fiscal 1994. Upon consummation of the
Offering, the Compensation Committee will be composed of Michael A. Delaney,
James A. Urry and Barton J. Winokur.
EMPLOYMENT CONTRACTS
The Company intends to offer employment contracts to Messrs. McNamara, Yost
and Flowers.
CERTAIN RELATIONSHIPS AND TRANSACTIONS
The Company acquired Alco Health Services Corporation, the predecessor to
AmeriSource Corporation, through a two-step acquisition -- a tender offer by the
Company for approximately 92% of AmeriSource Corporation's shares in 1988 and a
merger to acquire the remaining equity interest of AmeriSource Corporation in
1989 (the "Acquisition"). As a result of the tender offer and merger,
AmeriSource Corporation became a wholly-owned subsidiary of the Company.
Approximately $551.4 million was required to consummate the Acquisition and to
pay related fees and expenses. Such funds were derived from borrowings pursuant
to the AmeriSource Corporation senior credit facility, the issuance of
AmeriSource Corporation notes, the Company's issuance of debentures to the
remaining stockholders of AmeriSource Corporation and a capital contribution
from the Company. The Company obtained the funds to make the capital
contribution from the sale of 5,000,000 shares of common stock and borrowings
from an affiliate of VPI, which were refinanced though the issuance of
subordinated indebtedness to VPI.
On July 26, 1993, the Company issued $126.5 million principal amount of its
Senior Debentures in a public offering. Substantially all the net proceeds of
the offering (approximately $122.1 million) were applied to redeem debt of the
Company issued in connection with the Acquisition at a redemption price of 100%
of the principal amount thereof, plus accrued and unpaid interest thereon
through the date of redemption. Contemporaneously, the Company called its 18%
Senior Subordinated Debentures due 2001 (the "Senior Subordinated Debentures")
and the Junior Subordinated Debentures for redemption. As of July 26, 1993, the
Company had outstanding $21.7 million principal amount of Senior Subordinated
Debentures and $39.2 million principal amount of Junior Subordinated Debentures.
On the date of redemption, VPI owned approximately $21.3 million principal
amount of Senior Subordinated Debentures and $37.9 million principal amount of
Junior Subordinated Debentures, certain investors currently or previously
affiliated with VPI owned $0.4 million principal amount of Senior Subordinated
Debentures and $0.8 million principal amount of Junior Subordinated Debentures,
and the Management Investors owned $0.5 million principal amount of Junior
Subordinated Debentures. All the amounts set forth above include accrued and
unpaid interest. As a result of the redemption of the Senior Subordinated
Debentures and the Junior Subordinated Debentures, VPI, certain investors
currently or previously affiliated with VPI and the Management Investors were
paid $59.2 million, $1.2 million and $0.5 million, respectively. See Note 4 to
the Financial Statements of the Company included in this Prospectus.
On October 21, 1991, an involuntary bankruptcy petition under Chapter 7 of
the United States Bankruptcy Code was filed against RDS Acquisition Corp.
("RDS"), which was a customer of the Company. Affiliates of VPI had substantial
equity and debt interests in RDS and related entities. VPI indemnified the
Company for up to $5.8 million of the amounts owed by RDS to the Company on
October 25, 1991, for which the Company did not otherwise recover from RDS. On
July 26, 1993, VPI paid $5.8 million to the Company pursuant to such
indemnification.
Pursuant to a prior arrangement, 343,269 and 995,625 shares of the
Company's Common Stock will be repurchased from VPI by the Company at $0.34 per
share before being issued pursuant to options granted under the Purchase Plan
and the 1991 Option Plan, respectively.
During fiscal years 1992, 1993 and 1994, Dechert Price & Rhoads performed,
and currently does perform, legal services for the Company. Barton J. Winokur, a
partner of Dechert Price & Rhoads and a director of the Company, owns 14,750
shares of the Common Stock of the Company.
38
<PAGE> 42
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the ownership
of the Company's voting Common Stock and all of the Company's Common Stock, by
each of the Company's directors, all directors and executive officers as a group
and each person who is known by the Company to beneficially own five percent or
more of the Company's voting Common Stock. As of December 31, 1994, after giving
effect to the 2.95-for-1 stock split and the Option Exercises, there would be
3,106,308 shares of the Company's voting Common Stock and 14,612,193 shares of
the Company's total voting and non-voting Common Stock outstanding.
<TABLE>
<CAPTION>
OWNERSHIP PRIOR TO THE OFFERING
--------------------------------------------------------------------------------------------------
NUMBER OF NUMBER OF NUMBER OF
CLASS A CLASS B CLASS C
COMMON PERCENT OF COMMON PERCENT OF COMMON PERCENT OF NUMBER OF
STOCK CLASS A STOCK CLASS B STOCK CLASS C ALL SHARES
BENEFICIALLY COMMON BENEFICIALLY COMMON BENEFICIALLY COMMON BENEFICIALLY PERCENT OF
OWNED STOCK OWNED STOCK OWNED STOCK OWNED ALL SHARES
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DIRECTORS AND OFFICERS:
John F. McNamara(1)........ 725,700 23.4% -- * -- * 725,700 5.0%
David M. Flowers(1)........ 212,400 6.8 -- * -- * 212,400 1.5
R. David Yost(1)........... 238,950 7.7 -- * -- * 238,950 1.6
Kurt J. Hilzinger(1)....... 73,750 2.4 -- * -- * 73,750 *
Bruce C. Bruckmann(2)...... 1,681 * 67,632 * -- * 69,313 *
Michael A. Delaney(2)...... -- * -- * -- * -- *
James A. Urry(2)........... -- * -- * -- * -- *
Barton J. Winokur.......... 14,750 * -- * -- * 14,750 *
All directors and executive
officers as a group (6
persons)(3).............. 1,267,232 40.8 67,632 * -- * 1,334,863 9.1
OTHER VOTING 5%
STOCKHOLDERS:
399 Venture Partners Inc.
("VPI")(4)............... 234,926 7.6% 9,786,147 97.6% -- * 10,021,073 68.6%
<CAPTION>
OWNERSHIP AFTER
THE OPTION EXERCISES
-----------------------
NUMBER OF
COMMON
STOCK PERCENT OF
BENEFICIALLY COMMON
OWNED STOCK
<S> <C> <C>
DIRECTORS AND OFFICERS:
John F. McNamara(1)........ 725,700 3.4%
David M. Flowers(1)........ 212,400 1.0
R. David Yost(1)........... 238,950 1.1
Kurt J. Hilzinger(1)....... 73,750 *
Bruce C. Bruckmann(2)...... 69,313 *
Michael A. Delaney(2)...... -- *
James A. Urry(2)........... -- *
Barton J. Winokur.......... 14,750 *
All directors and executive
officers as a group (6
persons)(3).............. 1,334,863 6.3
OTHER VOTING 5%
STOCKHOLDERS:
399 Venture Partners Inc.
("VPI")(4)............... 10,021,073 47.2%
</TABLE>
- ---------------
* Less than 1%.
(1) Pursuant to the Purchase Plan, Messrs. Flowers, McNamara and Yost received
options, with limitations on exercise, to acquire 147,500, 442,500 and
147,500 shares, respectively, of Common Stock. Pursuant to the 1991 Option
Plan, Messrs. Flowers, McNamara, Yost and Hilzinger received options, with
limitations on exercise, to acquire 64,900, 283,200, 91,450 and 73,750
shares, respectively, of Common Stock. All of these options are currently
exercisable.
(2) Messrs. Delaney and Urry disclaim beneficial ownership relating to the
shares of Common Stock held by VPI.
(3) Pursuant to the Purchase Plan and the 1991 Option Plan, executive officers
received options, with limitations on exercise, to acquire 737,500 shares
and 513,300 shares, respectively, of voting Common Stock, all of which are
exercisable currently. In addition, members of AmeriSource's management own
an aggregate of 387,136 shares of the voting Common Stock and options to
acquire an aggregate of 2,478,553 shares of the voting Common Stock. All of
these options are currently exercisable. Certain members of AmeriSource's
management intend to pledge shares of voting Common Stock in connection with
margin loans incurred primarily to satisfy certain withholding tax
liability.
(4) VPI disclaims beneficial ownership as to shares of Common Stock held by
investors currently or previously affiliated with VPI. VPI's address is 1209
Orange Street, Wilmington, Delaware 19801. VPI is a wholly-owned, indirect
subsidiary of Citicorp. Pursuant to a prior agreement, the Company will
repurchase for $0.34 per share, 343,269 shares and 995,625 shares from VPI
upon exercise of options pursuant to the Purchase Plan and the 1991 Option
Plan, respectively, for reissuance to management in connection with their
exercise of options.
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<PAGE> 43
DESCRIPTION OF CAPITAL STOCK
The following statements are brief summaries of certain provisions relating
to the Company's capital stock and are qualified in their entirety by the
provisions of the Company's Certificate of Incorporation, as amended. The
Company's Certificate of Incorporation, as amended, is an exhibit to the
Registration Statement of which this Prospectus is a part.
COMMON STOCK
The currently authorized Common Stock of the Company consists of 50,000,000
shares of Class A Common Stock, 15,000,000 shares of Class B Common Stock and
2,000,000 shares of Class C Common Stock. As of December 31, 1994, without
giving effect to the 2.95-for-1 stock split and the Option Exercises, 238,262
shares of Class A Common Stock, 3,854,163 shares of Class B Common Stock and
500,000 shares of Class C Common Stock were issued and outstanding. As of
December 31, 1994, after giving effect to the 2.95-for-1 stock split and the
Option Exercises, 3,106,307 shares of Class A Common Stock, 10,030,886 shares of
Class B Common Stock and 1,475,000 shares of Class C Common Stock would have
been issued and outstanding. Upon completion of the Offering, the Company will
have 21,212,193 shares of Common Stock outstanding (22,202,193 shares if the
over-allotment option is exercised). Class A Common Stock is referred to
elsewhere in this Prospectus as "Common Stock."
There is no established public trading market for the Class A Common Stock
and Class B Common Stock. As of December 31, 1994, the Class A Common Stock was
held by 24 holders of record, and the Class B Common Stock was held by 11
holders of record. As of September 30, 1994, the Class C Common Stock was held
by approximately 12 holders of record. The Class C Common Stock trades on a
limited basis in the over-the-counter market. Information concerning the
historical trading prices for Class C Common Stock is not published by
nationally-recognized independent sources.
Contemporaneously with and subject to the completion of the Offering made
hereby, all outstanding shares of Common Stock and all options to acquire shares
of the Company's Common Stock will be adjusted for a 2.95-for-1 stock split. No
fractional shares of Common Stock will be issued in connection with the stock
split. Each holder of Common Stock will receive a cash payment in lieu of a
fractional share to which such holder would otherwise be entitled pursuant to
the stock split in the amount of the value of the fractional share at the
offering price to the public.
Class A Common Stock. Holders of Class A Common Stock are entitled to one
vote per share on all matters on which holders of Class A Common Stock are
entitled to vote and have no cumulative voting rights. Holders of Class A Common
Stock do not have the preemptive right to subscribe for shares of Class A Common
Stock issued by the Company, nor do they have any redemption rights. Holders of
Class A Common Stock may elect at any time to convert any and all such shares
into Class B Common Stock, on a share-for-share basis. Holders of Class A Common
Stock are entitled to receive such dividends, if any, as may from time to time
be declared by the Board of Directors of the Company out of funds legally
available therefor. The Credit Agreement contains limitations on the Company's
ability to pay dividends to its stockholders. See "Dividend Policy."
Upon liquidation, dissolution or winding up of the Company, holders of
Class A Common Stock are entitled to a pro rata share of the distribution of
assets remaining after the payment of debts and expenses and after payment of
the liquidation preference accorded to the holders of any preferred stock of the
Company which may be issued in the future. Each share of Class A Common Stock
has the same rights, privileges and preferences as every other share of Class A
Common Stock. Shares of the Class A Common Stock to be issued pursuant to the
Offering, when issued and paid for, will be fully paid and nonassessable. The
transfer agent and registrar for the Class A Common Stock is Mellon Securities
Trust Company.
Class B Common Stock. The rights of holders of Class B Common Stock and
holders of Class A Common Stock are identical and entitle the holders thereof to
the same rights, privileges, benefits and notices, except as otherwise described
herein. Holders of Class B Common Stock generally do not possess the right to
vote on any matters to be voted upon by the stockholders of the Company, except
as provided by law. Under
40
<PAGE> 44
Section 242(b)(2) of the Delaware General Corporation Law, the holders of the
Class B Common Stock shall be entitled to vote as a class upon any proposed
amendment to the Company's Certificate of Incorporation, if such amendment would
increase or decrease the number of shares or the par value of the shares of such
class, or alter or change the powers, preferences or special rights of the
shares of such class so as to affect them adversely. Holders of Class B Common
Stock may elect at any time to convert any and all of such shares into Class A
Common Stock, on a share-for-share basis, to the extent the holder thereof is
not prohibited from owning additional voting securities by virtue of regulatory
restrictions.
Class C Common Stock. The rights of holders of Class C Common Stock and
holders of Class A Common Stock are identical and entitle the holders thereof to
the same rights, privileges, benefits and notices, except as otherwise described
herein. Holders of Class C Common stock generally do not possess the right to
vote on any matters to be voted upon by the stockholders of the Company, except
as provided by law. Under Section 242(b)(2), of the Delaware General Corporation
Law, the holders of the Class C Common Stock shall be entitled to vote as a
class upon any proposed amendment to the Company's Certificate of Incorporation
if such amendment would increase or decrease the number of shares or the par
value of the shares of such class, or alter or change the powers, preferences or
special rights of the shares of such class so as to affect them adversely. The
Class C Common Stock is subject to substantial restrictions on transfer and has
certain registration and "take-along" rights. A share of Class C Common Stock
will automatically be converted into a share of Class A Common Stock (a)
immediately prior to its sale in a future public offering or (b) at such time as
such share of Class C Common Stock has been sold publicly after the Offering in
a transaction that complies with any maximum quantity limitations applicable to
such sale. Once a share of Class C Common Stock has been converted into Class A
Common Stock it will no longer be subject to any restrictions on transfer nor
will it be entitled to the benefits of registration and take-along-rights.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
Section 203 of the Delaware General Corporation Law prevents an "interested
stockholder" (defined in Section 203, generally, as a person owning 15% or more
of a corporation's outstanding voting stock) from engaging in a "business
combination" (defined in Section 203, generally, as mergers, asset sales and
other transactions resulting in a financial benefit to the interested
stockholder) with a publicly-held Delaware corporation for three years following
the date such person became an interested stockholder unless (i) before such
person became an interested stockholder, the board of directors of the
corporation approved either the business combination or the transaction that
resulted in the interested stockholder becoming an interested stockholder; (ii)
upon consummation of the transaction that resulted in the interested stockholder
becoming an interested stockholder, the interested stockholder owns at least 85%
of the voting stock of the corporation outstanding at the time the transaction
commenced (excluding stock held by directors who are also officers of the
corporation and by employee stock plans that do not provide employees with the
rights to determine confidentially whether shares held subject to the plan will
be tendered in a tender or exchange offer); or (iii) following the transaction
in which such person became an interested stockholder, the business combination
is approved by the board of directors of the corporation and authorized at a
meeting of stockholders by the affirmative vote of the holders of two-thirds of
the outstanding voting stock of the corporation not owned by the interested
stockholder. The Company will opt out of Section 203 prior to the Offering, but
this will not be effective until one year after the Offering. Accordingly, the
provisions of Section 203 will apply to the Company for approximately one year
following the consummation of the Offering.
41
<PAGE> 45
DESCRIPTION OF INDEBTEDNESS AND SECURITIZATION PROGRAM
THE CREDIT AGREEMENT
On December 13, 1994, the Company amended its existing credit agreement
with a syndicate of senior lenders providing a senior secured credit facility of
$380 million. As a result of the amendment, the effective interest rate on
borrowings under the Credit Agreement have been reduced by 100 basis points. In
addition, among other things, the amendment (i) extended the term of the
original credit agreement until January 3, 2000; (ii) provided interest rate
stepdowns upon the occurrence of certain events; (iii) modified the borrowing
base availability from inventory- and receivable-based to inventory-based; and
(iv) increased the Company's ability to make acquisitions and pay dividends.
The senior lenders under the Credit Agreement consist of a group of 13
financial institutions with General Electric Capital Corporation ("GECC") acting
as the administrative agent for the group. The maximum amount that may be
borrowed under the Credit Agreement is limited to the extent of a sufficient
borrowing base (up to a maximum of $380 million), which is essentially 65% of
eligible inventory in fiscal year 1995, 62.5% of eligible inventory in fiscal
year 1996, and 60% of eligible inventory thereafter. As of January 31, 1995, the
Company's borrowing base was approximately $387.5 million.
The Credit Agreement will terminate, the commitment of the syndicate to
make revolving credit loans expire, and any outstanding loans thereunder must be
repaid in full, on January 3, 2000. Indebtedness under the Credit Agreement may
be prepaid, although such indebtedness may be subsequently reborrowed. The
indebtedness under the Credit Agreement may be permanently repaid in full at any
time at the option of the Company, without premium or penalty, upon prior
written notice to GECC, and the credit facility may be permanently reduced in
part at any time and from time to time at the option of the Company, without
premium or penalty, upon prior written notice and in certain minimum amounts.
At the Company's option, borrowings under the Credit Agreement bear
interest at a rate per annum determined as follows: (i) a LIBOR rate, adjusted
for statutory reserves and assessments, plus 2.25% or (ii) the applicable prime
rate of interest most recently published or announced from time to time in
effect on such day, plus 1%. The margins relative to interest rates for
borrowings under the Credit Agreement are subject to stepdown reduction of up to
1.00% if the Company (i) meets certain interest coverage tests or (ii) obtains
at least $100 million of aggregate gross cash proceeds from the sale of equity
securities of the Company and meets certain debt-to-earnings tests. Interest on
loans under the Credit Agreement is payable quarterly or, if earlier, at the end
of the applicable interest period loan intervals. The interest rates under the
Credit Agreement are subject to reduction upon the occurrence of certain events
including improved financial performance and the sale of certain minimum equity
amounts by the Company.
Under the terms of the Credit Agreement, the Company granted the senior
lenders a perfected first priority security interest in substantially all of the
Company's assets (except accounts receivable and certain related assets),
including, without limitation, real property, fixed assets, equipment,
inventory, stock of subsidiaries, trademarks and intangible assets, to secure
its borrowings under the Credit Agreement.
The Credit Agreement contains numerous restrictive financial and other
covenants, including without limitation: (i) restrictions on the incurrence of
indebtedness, guaranteed indebtedness, leases, liens and contingent obligations;
(ii) restrictions on mergers, acquisitions, sales of assets, investments,
employee loans and transactions with affiliates; (iii) restrictions on
distributions and dividends to the Company's stockholders and changes in the
capital structure of the Company; (iv) restrictions on optional redemptions,
prepayments, distributions, cancellations and modifications with respect to
other debt; (v) restrictions on capital expenditures; (vi) restrictions with
respect to environmental matters and employee benefit plan obligations; (vii)
restrictions on speculative transactions; (viii) restrictions on modifications
to compensation plans, lock box account and tax sharing arrangements, business
type and fiscal year-end; and (ix) financial tests, including, among others,
those measuring AmeriSource's tangible net worth, current ratio, and interest
coverage ratio. The Credit Agreement restricts the payment of dividends and the
making of loans by AmeriSource to the Company and, consequently, the Company's
ability to pay cash interest on the Senior
42
<PAGE> 46
Debentures and its ability to make the mandatory repurchase of the Senior
Debentures required by the Issuer Indenture upon a Change in Control (as defined
below).
The events of default under the Credit Agreement include, among others: (i)
any failure of the Company to pay principal or interest thereunder when due;
(ii) the breach by the Company of covenants, representations or warranties
contained in the Credit Agreement; (iii) any failure to pay amounts due under
certain other indebtedness or contingent obligations of the Company, or defaults
that result in or permit the acceleration of certain other indebtedness or
contingent obligations of the Company; (iv) certain events of bankruptcy,
insolvency or dissolution of the Company; (v) the incurrence of certain
pension-related liabilities; (vi) the existence of certain undischarged
judgments or decrees against the Company that remain unstayed for 30 consecutive
days; (vii) the occurrence of a Material Adverse Effect (as such term is defined
in the Credit Agreement), other than changes in the value of the collateral
granted in connection with the Credit Agreement and changes in the financial
condition of the Company that affect or will affect the calculations made under
the financial covenants in the Credit Agreement, but do not create or would be
reasonably expected to create a breach or default under any such financial
covenants; (viii) the failure or invalidity of any provision of the collateral
documents delivered in connection with the Credit Agreement or any security
interest granted to the senior lenders thereby; (ix) a Liquidation Event (as
defined in the Receivables Program (as defined herein) documents), and certain
material miscalculations, misrepresentations or breaches of warranties made in
connection with the Receivables Program; and (x) the occurrence of a Change in
Control Date, defined in the Credit Agreement as when (a) the Company shall fail
to own and control 100% of the issued and outstanding stock of AmeriSource, with
certain exceptions relating to a Qualified Public Offering (as defined in the
Credit Agreement) of the Company's common stock or (b) VPI, VPI's employees,
VPI's affiliates and the Company's employees fail to own and control, in the
aggregate, 50% of the issued and outstanding stock of the Company, with certain
exceptions relating to a Qualified Public Offering of the common stock of the
Company.
The Company is required to pay a commitment fee of 1/2 of 1% per annum on
the average unused portion of the credit facility, subject to stepdown
reductions to a minimum of 1/4 of 1% per annum if the Company meets certain
interest coverage tests or obtains aggregate gross proceeds of $100 million from
the sale of equity securities of the Company and meets certain debt-to-earnings
tests. The Company must also pay an annual administrative agent's fee of
$150,000 to GECC, payable in advance for each year.
At January 31, 1995, the $344.8 million outstanding under the Credit
Agreement bore interest at an effective rate of 9.11% per annum. Initial
borrowings under the original Credit Agreement were used to extinguish the
obligations outstanding under the Company's predecessor revolving credit
facility, which was due to expire in December 1993.
RECEIVABLES SECURITIZATION PROGRAM
In the first quarter of fiscal 1995, the Company sold substantially all of
its trade accounts receivable and notes receivable to ARC pursuant to the
Receivables Program. Contemporaneously, the Company entered into a Receivables
Purchase Agreement with ARC, whereby the Company agreed to sell, and ARC agreed
to purchase on a continuous basis Receivables originated by the Company.
Pursuant to the Receivables Program, ARC will transfer such Receivables to a
master trust in exchange for, among other things, Certificates representing a
right to receive a variable principal amount. Contemporaneously, variable
principal Certificates in an aggregate principal amount of up to $230 million
face amount were sold to a group of financial institutions. During the initial
five-year term of the Receivables Program, the cash generated by collections on
the Receivables will be used to purchase, among other things, additional
Receivables originated by the Company and/or repay the Certificates. The
Certificates bear interest at a rate selected by the Company equal to (i) the
higher of (a) the prime lending rate of Bankers Trust Company and (b) the
federal funds rate plus 50 basis points or (ii) LIBOR plus 50 basis points. The
interest rates for the Certificates are subject to step-ups to a maximum amount
of an additional 100 basis points over the otherwise applicable rate. ARC is
currently negotiating the terms of new Certificates that do not contain an
interest step-up feature, a majority of which will be fixed principal, variable
rate obligations and the remainder of which will be variable principal, variable
rate obligations. The Company expects to enter into interest rate protection
contracts with respect to a
43
<PAGE> 47
majority of the fixed principal, variable rate obligations. Such new
Certificates are expected to be issued prior to consummation of the Offering and
will, among other things, refinance the existing Certificates. None of the
Certificates have been registered under the Securities Act, and the Certificates
may not be offered or sold in the United States absent registration or an
applicable exemption from the registration requirements.
Contemporaneous with the consummation of the Receivables Program and the
execution of the amendment to the Credit Agreement, the Company called for
optional redemption all of the outstanding Notes at a redemption price of 106%
of the principal amount plus accrued interest through the redemption date of
January 12, 1995. The Notes were redeemed on January 12, 1995.
THE SENIOR DEBENTURES
On July 26, 1993, the Company issued $126.5 million principal amount of its
Senior Debentures in a public offering. Interest on the Senior Debentures is
payable semi-annually on January 15 and July 15 of each year. Through and
including the semi-annual interest payment due July 15, 1998, the Company may
elect, at its option, to issue additional Senior Debentures in satisfaction of
its interest payment obligations. The Senior Debentures are senior unsecured
obligations of the Company and rank pari passu in right of payment with all
senior borrowings of the Company and rank senior in right of payment to all
subordinated indebtedness of the Company. As indebtedness of the Company, the
Senior Debentures are structurally subordinated to all indebtedness and other
obligations of AmeriSource. Substantially all the net proceeds of the Senior
Debenture offering (approximately $122.1 million) were applied to redeem the
Senior Subordinated Debentures, the Company's 18 1/2% Subordinated Debentures
due 2004 and the Junior Subordinated Debentures at a redemption price of 100% of
the principal amount thereof, plus accrued and unpaid interest thereon to the
date of redemption.
The indenture relating to the Senior Debentures contains restrictions
relating to, among other things, the payment of dividends, the repurchase of
stock and the making of certain other restricted payments, the incurrence of
additional indebtedness and the issuance of preferred stock, the creation of
certain liens, certain asset sales, transactions with subsidiaries and other
affiliates, dividends and other payment restrictions affecting subsidiaries, and
mergers and consolidations.
The Issuer Indenture provides that in the event of a "Change in Control"
(as defined below), the Company will be obligated to make an offer to repurchase
all outstanding Senior Debentures at a purchase price equal to 101% of the
principal amount thereof, plus accrued and unpaid interest to the purchase date,
provided, that transactions with affiliates, including transactions that
increase the debt of the Company, may not result in a change in control. "Change
in Control" is defined in the Issuer Indenture as any transaction or series of
transactions the result of which (i) any party or group other than VPI, the
Management Investors or their respective related parties or affiliates becomes
the beneficial owner of more than 50% of the aggregate voting power (on a fully
diluted basis) of the Company or (ii) during any two consecutive calendar years,
individuals who at the beginning of such period constituted the Company's Board
of Directors (together with new directors approved by a majority of such
directors) cease for any reason to constitute a majority of the directors then
in office. Except under certain circumstances in connection with a public equity
offering, the Senior Debentures may not be redeemed prior to July 15, 1998. On
or after July 15, 1998, the Company may, at its option, redeem the Senior
Debentures in whole or in part at redemption prices of 105.62% (if redeemed
during the 12-month period beginning July 15, 1998), 102.81% (if redeemed during
the 12-month period beginning July 15, 1999), and 100% (if redeemed thereafter),
plus accrued and unpaid interest to the date of redemption. The Issuer Indenture
also provides that, at any time prior to July 26, 1997, the Company may, at its
option within 60 days of the Public Offering Consummation Date (as defined in
the Issuer Indenture), redeem up to one-half of the Senior Debentures then
outstanding with the net proceeds from one or more "Public Equity Offerings"
(defined in the Issuer Indenture as any underwritten public offering of equity
securities of the Company pursuant to a registration statement filed pursuant to
the Securities Act of 1933, as amended (the "Securities Act")) at 110%;
provided, that at least one-half of the aggregate principal amount of the Senior
Debentures originally issued must remain outstanding immediately after any such
redemption. The Company intends to use a portion of the proceeds of the Offering
to redeem Senior Debentures. See "Use of Proceeds."
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<PAGE> 48
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding
21,212,193 shares of Common Stock. The 6,600,000 shares of Common Stock to be
sold in the Offering made hereby will be freely tradeable without restriction
under the Securities Act, unless acquired by an "affiliate" of the Company
(defined in Rule 144 under the Securities Act, generally, as a person who, by
virtue of equity ownership or otherwise, controls, or is controlled by, or is
under common control with, the Company). The remaining 14,612,193 shares
outstanding, excluding the shares of Class C Common Stock, upon completion of
the Offering will be "restricted securities" as defined in Rule 144, absent
registration of such shares under the Securities Act. The Company intends to
file Form S-8 Registration Statements to register shares of Common Stock
acquired by members of management pursuant to the exercise of options under the
Purchase Plan, the 1991 Option Plan and the Partners Plan.
Shares of Common Stock held by affiliates and restricted securities may not
be sold unless they are registered under the Securities Act or are sold pursuant
to an applicable exemption from registration, including the exemption from
registration set forth in Rule 144 promulgated by the Securities and Exchange
Commission (the "Commission"). Generally, Rule 144 will permit an affiliate or a
person who has held restricted securities for more than two years to sell within
any three-month period a number of shares that does not exceed the greater of 1%
of the then outstanding shares of Common Stock or the average weekly trading
volume of such stock during the four calendar weeks preceding such sale,
provided that the Company has either filed certain periodic reports with the
Commission or made publicly available certain information concerning it and
provided that such sales are made in normal "brokers' transactions" or in
transactions directly with a "market maker" without the solicitation of buy
orders by the brokers or such affiliates. A person who is deemed not an
affiliate of the Company at any time during the three months preceding a sale
and who has held restricted securities for more than three years may sell such
shares under Rule 144 without regard to the volume limitations described.
The Common Stock has been approved for listing on the Nasdaq National
Market under the symbol "ASHC," subject to official notice of issuance. Sales of
substantial amounts of Common Stock in the public market under Rule 144 could
have a depressive effect on the price of the Common Stock. VPI, certain current
and former affiliates of VPI, current and former employees and directors of
AmeriSource, and the Management Investors hold their shares of Company common
stock subject to certain restrictions on sales and transfers, including
restrictions on sales in the public market. The holders of Class C Common Stock
may sell in the public market after 90 days following the closing of the
Offering, in which event their shares are automatically converted into Common
Stock, provided that for 270 days after such 90-day period, any sales must meet
the maximum quantity limitations and other requirements of Rule 144 set forth
above. See "Management -- Stock Purchase Plan."
The Existing Stockholders were granted piggyback registration rights with
respect to the Common Stock when they purchased their shares. After the
Offering, an aggregate of 14,612,913 shares of Common Stock owned by the
Existing Stockholders will be entitled to piggyback registration rights. In
addition, VPI, which will hold in the aggregate 10,021,073 shares of Common
Stock after the Offering, has been granted demand rights to require the
registration of its shares. The Existing Stockholders (other than VPI and
current employees and directors of the Company, who have agreed to restrictions
for a 180-day period as discussed below) are subject to restrictions on public
sale or distribution for a period of 90 days following the effective date of the
Registration Statement.
VPI and directors and members of AmeriSource's management holding, in the
aggregate, approximately 12.8 million shares of Common Stock have agreed not to
file, or cause the Company to file, a registration statement with respect to,
enter into any agreement providing for or effect any public sale, public
distribution or other public disposition of shares of capital stock of the
Company, including any sale pursuant to Rule 144 or Rule 144A promulgated under
the Securities Act, for a period of 180 days following the closing date of the
Offering without the prior written consent of DLJ. Such investors have further
agreed that they will not otherwise dispose of any shares of capital stock of
the Company unless the person to whom such disposition is made agrees to
substantially the same as the foregoing. A total of approximately 1.8 million
shares of
45
<PAGE> 49
Common Stock currently outstanding (excluding the shares sold in the Offering)
are not subject to the 180-day restriction; however, all such shares are subject
to restrictions on public sale or distribution for a period of 90 days as
described above.
Upon exercise of options granted under the Purchase Plan and 1991 Option
Plan, the holders will be subject to withholding tax liability based upon the
difference between the exercise price and the estimated fair market value of the
Common Stock at the time of exercise. In lieu of selling shares of Common Stock
to satisfy their withholding requirement, certain members of AmeriSource's
management intend to obtain margin loans from Smith Barney Inc. and DLJ. In
connection with such margin loans, such management have each agreed to pledge
the shares of Common Stock acquired pursuant to exercise of such options as
collateral for the margin loans. Under certain circumstances, Smith Barney Inc.
and DLJ may foreclose on and sell such pledged Common Stock, and such sales may
occur in the 180-day period following the closing of the Offering.
CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS OF COMMON STOCK
The following discussion concerns the material United States federal income
and estate tax consequences of the ownership and disposition of Common Stock
applicable to Non-U.S. Holders of such Common Stock. In general, a "Non-U.S.
Holder" is any person other than (i) a citizen or resident of the United States,
(ii) a corporation or partnership created or organized in the United States or
under the laws of the United States or of any State, or (iii) an estate or trust
that is subject (or potentially subject) to U.S. federal income tax on its
worldwide income on a net basis. The discussion is based on current law and is
for general information only. The discussion does not address aspects of federal
taxation other than income and estate taxation (such as, for example, gift taxes
and generation skipping transfer taxes) and does not address all aspects of
federal income and estate taxation. The discussion does not consider any
specific facts or circumstances that may apply to a particular Non-U.S. Holder.
Accordingly, prospective investors are urged to consult their tax advisors
regarding the United States federal, state, local and non-U.S. income and other
tax consequences of holding and disposing of shares of Common Stock.
Dividends. In general, dividends paid to a Non-U.S. Holder will be subject
to United States withholding tax at a 30% rate (or any lower rate prescribed by
an applicable tax treaty) unless the dividends are either (i) effectively
connected with a trade or business carried on by the Non-U.S. Holder within the
United States, or (ii) if a tax treaty applies, attributable to a United States
permanent establishment maintained by the Non-U.S. Holder. Dividends effectively
connected with such a trade or business or attributable to such a permanent
establishment will generally not be subject to withholding (if the Non-U.S.
Holder files certain forms with the payor of the dividend) and will generally be
subject to United States federal income tax at the same rates applicable to U.S.
holders. In the case of a Non-U.S. Holder that is a corporation, such
effectively connected income or income attributable to a permanent establishment
also may be subject to the branch profits tax (which is generally imposed on a
foreign corporation on the repatriation from the United States of effectively
connected earnings and profits) unless imposition of the branch profits tax is
precluded by a treaty. To determine the applicability of a tax treaty providing
for a lower rate of withholding on dividends that are neither effectively
connected income nor attributable to a permanent establishment, dividends paid
to an address in a foreign country are presumed under current Treasury
regulations to be paid to a resident of that country, unless the Company has
definite knowledge that such presumption is not warranted or an applicable
treaty (or United States Treasury regulations thereunder) requires some other
method for determining a Non-U.S. Holder's residence. Proposed Treasury
regulations that are not currently effective would, if finally adopted, require
Non-U.S. Holders to file certain forms to obtain the benefit of an applicable
tax treaty providing for a lower rate of withholding tax on dividends. Such
forms would contain the holder's name and address and an official statement by
the competent authority in the foreign country (as designated in the applicable
tax treaty) attesting to the holder's status as a resident thereof.
Sale of Common Stock. Generally, a Non-U.S. Holder will not be subject to
United States federal income tax on any gain realized upon the disposition of
his Common Stock unless (i) the Company is or has been a "U.S. real property
holding corporation" for federal income tax purposes (which the Company does not
46
<PAGE> 50
believe that it is or is likely to become); (ii) the gain is effectively
connected with a trade or business carried on by the Non-U.S. Holder within the
United States or, if a tax treaty applies, attributable to a permanent
establishment maintained by the Non-U.S. Holder in the United States; (iii) in
the case of a Non-U.S. Holder who is an individual, the Non-U.S. Holder holds
the shares as a capital asset and is present in the United States for 183 days
or more in the taxable year of the disposition and certain other conditions are
satisfied; or (iv) the Non-U.S. Holder is subject to tax pursuant to the
provisions of U.S. tax law applicable to certain United States expatriates.
Estate Tax. Common Stock owned or treated as owned by an individual who is
not a citizen or resident (as defined for United States federal estate tax
purposes) of the United States at the time of death will be includible in the
individual's gross estate for United States federal estate tax purposes, unless
an applicable tax treaty provides otherwise, and may be subject to United States
federal estate tax.
Backup Withholding and Information Reporting. The Company generally must
report annually to the Internal Revenue Service and to each Non-U.S. Holder the
amount of dividends paid to, and the tax withheld with respect to, each Non-U.S.
Holder. These reporting requirements apply regardless of whether withholding was
reduced or eliminated by an applicable tax treaty. Copies of these information
returns also may be made available under the provisions of a specific treaty or
agreement to the tax authorities in the country in which the Non-U.S. Holder
resides. United States backup withholding tax (which generally is a withholding
tax imposed at the rate of 31% on certain payments to persons that fail to
furnish the information required under the United States information reporting
requirements) will generally not apply to dividends paid on Common Stock to a
Non-U.S. Holder at an address outside the United States.
The payment of the proceeds from the disposition of Common Stock to or
through the United States office of a broker will be subject to information
reporting and backup withholding unless the owner certifies, among other things,
its status as a Non-U.S. Holder (and the broker does not have knowledge to the
contrary), or otherwise establishes an exemption. The payment of the proceeds
from the disposition of Common Stock to or through a non-U.S. office of a
non-U.S. broker will generally not be subject to information reporting (except
under the circumstances described in the following sentence) and, under current
temporary regulations, will not be subject to backup withholding. Information
reporting will apply to dispositions through (a) a non-U.S. office of a U.S.
broker and (b) a non-U.S. office of a non-U.S. broker that is either a
"controlled foreign corporation" for United States federal income tax purposes
or a person 50% or more of whose gross income from all sources for a certain
three year period was effectively connected with a United States trade or
business unless the broker has documentary evidence in its files that the owner
is a Non-U.S. holder (and does not have actual knowledge to the contrary).
Moreover, under proposed regulations, back-up withholding would also apply to
proceeds from such dispositions if such broker had actual knowledge that the
payee is a U.S. person.
The backup withholding and information reporting rules are currently under
review by the Treasury Department and their application to the Common Stock is
subject to change.
47
<PAGE> 51
UNDERWRITING
Subject to certain terms and conditions contained in the Underwriting
Agreement, the United States underwriters named below (the "U.S. Underwriters"),
for whom DLJ, Smith Barney Inc. and BT Securities Corporation are acting as
representatives (the "U.S. Representatives"), and the international underwriters
named below (the "International Managers" and, together with the U.S.
Underwriters, the "Underwriters"), for whom DLJ, Smith Barney Inc. and Bankers
Trust International PLC are acting as representatives (the "International
Representatives" and, together with the U.S. Representatives, the
"Representatives"), have severally agreed to purchase from the Company an
aggregate of 6,600,000 shares of Common Stock. The number of shares of Common
Stock that each Underwriter has agreed to purchase is set forth opposite its
name below:
<TABLE>
<CAPTION>
NUMBER OF
U.S. UNDERWRITERS U.S. SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation....................
Smith Barney Inc.......................................................
BT Securities Corporation..............................................
-------------
U.S. Offering Subtotal............................................ 5,280,000
-------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
INTERNATIONAL
INTERNATIONAL UNDERWRITERS SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation....................
Smith Barney Inc.......................................................
Bankers Trust International PLC........................................
-------------
International Offering Subtotal................................... 1,320,000
-------------
Total........................................................ 6,600,000
===========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase shares of Common Stock are subject to approval of
certain legal matters by counsel and to certain other conditions precedent. If
any of the shares of Common Stock are purchased by the Underwriters pursuant to
the Underwriting Agreement, all such shares of Common Stock (other than shares
of Common Stock covered by the over-allotment option described below) must be so
purchased.
Prior to the Offering, there has been no established public trading market
for the Common Stock. The initial price to the public for the Common Stock
offered hereby will be determined by negotiation among the Company and the
Representatives. Among the factors to be considered in such negotiations will be
the history of and the prospects for the industry in which the Company competes,
the ability of the Company's management, the past and present operations of the
Company, the historical results of operations of the Company, the prospects for
future earnings of the Company, the general condition of the securities markets
at the time of the Offering, and the recent market prices of securities of
generally comparable companies. There can be no assurance that an active trading
market will develop for the Common Stock or that the Common Stock will trade in
the public market subsequent to the Offering at or above the initial offering
price.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriters may be required to make in respect thereof.
The Company has been advised by the Representatives that the Underwriters
propose to offer the Common Stock to the public initially at the price to the
public set forth on the cover page of this Prospectus and to certain dealers
(who may include the Underwriters) at such price less a concession not to exceed
$ per share. The Underwriters may allow, and such dealers may reallow,
discounts not in excess of $ per share to any Underwriter and certain
other dealers.
The Company has granted to the U.S. Underwriters an option to purchase up
to an aggregate of 990,000 additional shares of Common Stock at the initial
public offering price less underwriting discounts and commissions solely to
cover overallotments. Such option may be exercised at any time until 30 days
after the date of this Prospectus. To the extent that the U.S. Underwriters
exercise such option, each of the U.S.
48
<PAGE> 52
Underwriters will be committed, subject to certain conditions, to purchase a
number of option shares proportionate to such Underwriter's initial commitment
as indicated in the preceding table.
The Representatives do not intend to confirm sales of Common Stock in
excess of % of the number of Common Stock offered in the Offering to any
accounts over which they exercise discretionary authority.
VPI and directors and members of AmeriSource's management holding, in the
aggregate, approximately 12.8 million shares of Common Stock have agreed not to
file, or cause the Company to file, a registration statement with respect to,
enter into any agreement providing for or effect any public sale, public
distribution or other public disposition of shares of capital stock of the
Company, including any sale pursuant to Rule 144 or Rule 144A promulgated under
the Securities Act, for a period of 180 days following the closing date of the
Offering without the prior written consent of DLJ. See "Shares Eligible for
Future Sale."
Pursuant to the Agreement Between U.S. Underwriters and International
Managers, each U.S. Underwriter has agreed that, as part of the distribution of
the shares of Common Stock, (i) it is not purchasing any shares of Common Stock
for the account of anyone other than a United States or Canadian Person (as
defined below) and (ii) it has not offered or sold, and will not offer or sell,
directly or indirectly, any shares of Common Stock or distribute this Prospectus
outside the United States or Canada or to anyone other than a United States or
Canadian Person. Pursuant to such agreement, each International Underwriter has
agreed that, as part of the distribution of shares of Common Stock (i) it is not
purchasing any shares of Common Stock for the account of any United States or
Canadian Person and (ii) it has not offered or sold, and will not offer or sell,
directly or indirectly, any shares of Common Stock or distribute this Prospectus
in the United States or Canada or to any United States or Canadian Person. The
foregoing limitations do not apply to stabilization transactions, to certain
other transactions between the U.S. Underwriters and the International Managers
specified in the Agreement Between U.S. Underwriters and International Managers
or to purchases, offers or sales by a U.S. Underwriter who is also acting as an
International Underwriter or by an International Underwriter who is also acting
as a U.S. Underwriter. As used herein, "United States" means the United States
of America, its territories, its possessions and all areas subject to its
jurisdiction, and "United States or Canadian Person" means any individual who is
a resident in the United States or Canada, or any corporation, pension, profit
sharing or other trust or entity organized under or governed by the laws of the
United States or Canada or of any political subdivision thereof (other than the
foreign branch of any United States or Canadian Person), and includes any United
States or Canadian branch of a person other than a United States or Canadian
Person.
Pursuant to the Agreement Between U.S. Underwriters and International
Managers, sales may be made among the U.S. Underwriters and the International
Managers of such number of shares of Common Stock to be purchased pursuant to
the Underwriting Agreement as may be mutually agreed. Unless otherwise agreed,
the price of any shares so sold shall be the Price to the Public set forth on
the cover page hereof, less any amount not greater than the per share amount of
the concession to dealers set forth above, and the currency of settlement shall
be U.S. Dollars.
Pursuant to the Agreement Between U.S. Underwriters and International
Managers, each U.S. Underwriter has represented that it has not offered or sold,
and has agreed not to offer or sell, any shares of Common Stock directly or
indirectly in contravention of the securities laws of Canada or any province or
territory thereof and has represented that any offer of shares of Common Stock
in Canada will be made only pursuant to an exemption from the requirement to
file a prospectus in the province or territory of Canada in which such offer is
made. Similarly, each International Underwriter has represented and agreed that
(i) it has not offered or sold and will not offer or sell any shares of Common
Stock in the United Kingdom by means of any document (other than in
circumstances which do not constitute an offer to the public within the meaning
of the Companies Act of 1985 of Great Britain), (ii) it has complied with and
will comply with all applicable provisions of the Financial Services Act of 1986
with respect to anything done by it in relation to the shares of Common Stock
in, from or otherwise involving the United Kingdom, and (iii) it has only issued
or passed on and will only issue or pass on to any person in the United Kingdom
any document received by it in connection with the proposed offer or sale of the
shares of Common Stock, other than any document which consists of or
49
<PAGE> 53
forms part of listing particulars, supplementary listing particulars or any
other document required or permitted to be published by listing rules under Part
IV of the Financial Services Act 1986, if that person is of a kind described in
Article 9(3) of the Financial Services Act 1986 (Investment
Advertisements)(Exemptions) Order 1988, or to any person to whom the document
may otherwise lawfully be issued or passed on.
BT Securities Corporation is a wholly-owned subsidiary of Bankers Trust
Corporation and an affiliate of Bankers Trust Company ("BTCo"). BTCo is one of
the agents and a lender under the Credit Agreement, for which it receives
customary compensation. A portion of the proceeds of the Offering will be
applied to repay revolving borrowings under the Credit Agreement. See "Use of
Proceeds" and "Description of Indebtedness and Securitization Program -- The
Credit Agreement." BTCo, as a lender under the Credit Agreement, will receive
its pro rata portion of such repayment. Concurrently with the execution of the
amendment to the Credit Agreement, BTCo was the purchaser of the Certificates
issued under the Receivables Program. BT Securities Corporation acted as advisor
to the Company in structuring the Certificates, for which it received customary
compensation. BT Securities Corporation, Bankers Trust International PLC and DLJ
are also acting as managers of an offering of new Certificates to be issued
under the Receivables Program in the institutional and Euromarkets, the net
proceeds of which would be used to retire certain of the existing Certificates.
Such new Certificates will not be registered under the Securities Act and may
not be offered or sold in the United States absent registration or an applicable
exemption from registration requirements. In addition, DLJ and BT Securities
Corporation and its affiliates have provided investment banking and other
advisory services to the Company and its affiliates and may continue to provide
such services to the Company and its affiliates in the future.
The Underwriters have reserved for sale at the initial public offering
price, less Underwriters' discount, up to 50,000 shares to employees and
directors of the Company as such persons have expressed an interest in
purchasing such shares of Common Stock in the Offering. The number of shares
available for sale to the general public will be reduced to the extent such
persons purchase such reserved shares. Any reserved shares not so purchased will
be offered by the Underwriters to the general public on the same basis as the
other shares offered hereby.
Certain members of AmeriSource's management intend to obtain margin loans
from DLJ and Smith Barney Inc., primarily to satisfy certain withholding tax
liability. In connection with such margin loans, such management will pledge the
shares of Common Stock acquired pursuant to exercise of such options as
collateral for the margin loans. Under certain circumstances, DLJ and Smith
Barney Inc. may foreclose on and sell such pledged Common Stock.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Dechert Price & Rhoads, Philadelphia, Pennsylvania.
Certain legal matters with respect to the shares of Common Stock offered hereby
will be passed upon for the Underwriters by Cahill Gordon & Reindel (a
partnership including a professional corporation), New York, New York. Barton J.
Winokur, a partner of Dechert Price & Rhoads, which performs various legal
services for the Company, is a director of the Company and owns 14,750 shares of
the Common Stock of the Company.
EXPERTS
The consolidated financial statements and schedules of AmeriSource
Distribution Corporation and AmeriSource Corporation as of September 30, 1994
and 1993 and for each of the three years in the period ended September 30, 1994
appearing and/or incorporated by reference in this Prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their reports thereon appearing elsewhere and/or incorporated by
reference herein and in the Registration Statement. Such consolidated financial
statements and schedules are included and/or incorporated by reference herein in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.
50
<PAGE> 54
ADDITIONAL INFORMATION
The Company has filed a Registration Statement (which term shall include
any amendments thereto) on Form S-2 with the Commission under the Securities Act
covering the shares of Common Stock offered hereby. This Prospectus does not
contain all of the information set forth in the Company's Registration
Statement, certain portions of which have been omitted pursuant to the rules and
regulations of the Commission. For further information with respect to the
Company and the Common Stock, reference is made to the Registration Statement,
including the exhibits and schedules thereto. The Company is subject to the
informational requirements of the Exchange Act and in accordance therewith files
reports and other information with the Commission. Copies of such materials may
be examined without charge at, or obtained upon payment of prescribed fees from,
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington D.C. 20549 and the regional offices of the Commission located at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60611-2511 and 13th Floor, 7 World Trade Center, New York, New York
10048. The statements contained in this Prospectus as to the contents of any
contract or other document filed as an exhibit are of necessity brief
descriptions and are not necessarily complete. Each statement is qualified in
its entirety by reference to such contract or document.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission by the Company
pursuant to the Exchange Act, are incorporated by reference in this Prospectus
and made a part hereof.
- The Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1994.
- The Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
December 31, 1994.
Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus to
the extent that a statement contained herein modifies, supersedes or replaces
such statement. Any statements modified or superseded shall not be deemed,
except as modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to any person to whom this
Prospectus is delivered, upon written or oral request of such person, a copy of
any or all of the documents which have been incorporated by reference in this
Prospectus, other than exhibits to such documents, unless such exhibits are
specifically incorporated by reference into the documents so incorporated.
Requests for such copies should be directed to Teresa T. Ciccotelli, Secretary,
AmeriSource Health Corporation, P.O. Box 959, Valley Forge, Pennsylvania 19482
(telephone (610) 296-4480).
51
<PAGE> 55
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
AMERISOURCE DISTRIBUTION CORPORATION AND SUBSIDIARIES
ANNUAL FINANCIAL STATEMENTS:
Report of Ernst & Young LLP, independent auditors..................................... F-2
Consolidated Balance Sheets as of September 30, 1994 and 1993......................... F-4
Consolidated Statements of Operations for the years ended September 30, 1994, 1993 and
1992................................................................................ F-6
Consolidated Statements of Changes in Stockholders' Equity for the years ended
September 30, 1994, 1993 and 1992................................................... F-7
Consolidated Statements of Cash Flows for the years ended September 30, 1994, 1993 and
1992................................................................................ F-8
Notes to Consolidated Financial Statements............................................ F-9
QUARTERLY FINANCIAL STATEMENTS (UNAUDITED):
Consolidated Balance Sheets as of December 31, 1994 and September 30, 1994............ F-24
Consolidated Statements of Operations for the three months ended
December 31, 1994 and 1993.......................................................... F-26
Consolidated Statements of Cash Flows for the three months ended
December 31, 1994 and 1993.......................................................... F-27
Notes to Consolidated Financial Statements............................................ F-28
</TABLE>
F-1
<PAGE> 56
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
AmeriSource Distribution Corporation
We have audited the accompanying consolidated balance sheets of AmeriSource
Distribution Corporation (formerly Alco Health Distribution Corporation) and
subsidiaries as of September 30, 1994 and 1993 and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
each of the three years in the period ended September 30, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
AmeriSource Distribution Corporation and subsidiaries at September 30, 1994 and
1993, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended September 30, 1994, in conformity
with generally accepted accounting principles.
As discussed in the notes to the consolidated financial statements (Notes 3
and 6), in 1994 the Company changed its methods of accounting for postretirement
benefits other than pensions and income taxes.
ERNST & YOUNG LLP
Philadelphia, Pennsylvania
November 2, 1994, except for Note 11,
as to which the date is December 13, 1994
and Notes 1 (Earnings Per Share) and 12,
as to which date is January 30, 1995
F-2
<PAGE> 57
[This Page Intentionally Left Blank]
F-3
<PAGE> 58
AMERISOURCE DISTRIBUTION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1994 1993
------------- -------------
<S> <C> <C>
Current Assets
Cash................................................................. $ 25,311 $ 27,136
Accounts receivable less allowance for doubtful accounts:
1994 -- $9,370; 1993 -- $7,681..................................... 272,281 251,999
Merchandise inventories.............................................. 351,676 346,371
Prepaid expenses..................................................... 2,442 1,977
------------- -------------
Total current assets............................................... 651,710 627,483
Property and Equipment, at cost........................................ 67,598 57,282
Less accumulated depreciation........................................ 26,416 21,176
------------- -------------
41,182 36,106
Other Assets
Excess of cost over net assets acquired.............................. 183,810
Deferred financing costs and other, less accumulated amortization:
1994 -- $7,239; 1993 -- $3,781..................................... 18,752 20,545
------------- -------------
18,752 204,355
------------- -------------
$ 711,644 $ 867,944
============ ============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 59
AMERISOURCE DISTRIBUTION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1994 1993
------------- -------------
<S> <C> <C>
Current Liabilities
Current portion of other debt........................................ $ 133 $ 122
Accounts payable..................................................... 449,991 379,826
Accrued expenses..................................................... 27,485 29,771
Accrued income taxes................................................. 11,488 604
Deferred income taxes................................................ 29,258
------------- -------------
Total current liabilities.......................................... 518,355 410,323
Long-Term Debt
Revolving credit facility............................................ 175,897 248,000
Senior subordinated notes............................................ 166,134 170,562
Other debt........................................................... 1,293 1,311
Convertible subordinated debentures.................................. 238 238
Senior debentures.................................................... 144,013 129,109
------------- -------------
487,575 549,220
Other Liabilities
Deferred compensation................................................ 522 701
Other................................................................ 5,918 740
------------- -------------
6,440 1,441
Stockholders' Equity
Preferred stock, $.01 par value: 5,000,000 shares authorized; none
issued
Common stock, $.01 par value:
Class A (Voting and convertible): 30,000,000 shares authorized;
180,387 1/2 shares issued........................................ 2 2
Class B (Non-voting and convertible): 30,000,000 shares authorized;
4,400,300 shares issued.......................................... 44 44
Class C (Non-voting and convertible): 2,000,000 shares authorized;
500,000 shares issued............................................ 5 5
Capital in excess of par value....................................... 4,775 4,775
Retained earnings (deficit).......................................... (304,984) (97,313)
Cost of common stock in treasury..................................... (568) (553)
------------- -------------
(300,726) (93,040)
------------- -------------
$ 711,644 $ 867,944
============ ============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 60
AMERISOURCE DISTRIBUTION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30
------------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Revenues................................................... $4,301,832 $3,719,025 $3,329,909
Costs and Expenses
Cost of goods sold....................................... 4,066,641 3,509,587 3,130,186
Selling and administrative............................... 146,644 135,805 131,245
Environmental remediation................................ 4,075
Depreciation............................................. 6,640 5,809 5,384
Write-off of excess of cost over net assets acquired..... 179,824
Interest................................................. 62,611 66,696 71,025
Non-recurring charges.................................... 2,223 2,244
---------- ---------- ----------
4,466,435 3,720,120 3,340,084
---------- ---------- ----------
(Loss) Before Taxes, Extraordinary Items and Cumulative
Effects of Accounting Changes............................ (164,603) (1,095) (10,175)
Taxes on Income............................................ 7,814 6,379 2,649
---------- ---------- ----------
(Loss) Before Extraordinary Items and Cumulative Effects
of Accounting Changes................................. (172,417) (7,474) (12,824)
Extraordinary Charge -- early retirement of debt, net of
income tax benefit....................................... (656) (11,890)
Extraordinary Credits:
Settlement of litigation................................. 4,486
Reduction of income tax provision from carryforward of
prior year operating losses........................... 746 1,862
Cumulative effect of change in accounting for
postretirement benefits other than pensions.............. (1,199)
Cumulative effect of change in accounting for income
taxes.................................................... (33,399)
---------- ---------- ----------
Net (Loss)....................................... $ (207,671) $ (18,618) $ (6,476)
========= ========= =========
(Loss) per share
(Loss) Before Extraordinary Items and Cumulative Effects
of Accounting Changes................................. $ (11.69) $ (.51) $ (.87)
Extraordinary Items...................................... (.04) (.75) .43
Cumulative effect of change in accounting for
postretirement benefits other than pensions........... (.08)
Cumulative effect of change in accounting for income
taxes................................................. (2.27)
---------- ---------- ----------
Net (Loss)....................................... $ (14.08) $ (1.26) $ (.44)
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 61
AMERISOURCE DISTRIBUTION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CAPITAL COMMON
COMMON STOCK IN EXCESS RETAINED STOCK
--------------------------- OF PAR EARNINGS IN
CLASS A CLASS B CLASS C VALUE (DEFICIT) TREASURY TOTAL
------- ------- ------- --------- --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
September 30, 1991............. $ 2 $44 $ 5 $ 4,447 $ (72,219) $(550) $ (68,271)
Net (loss)................... (6,476) (6,476)
-- --
------- --------- --------- ------ ---------
September 30, 1992............. 2 44 5 4,447 (78,695) (550) (74,747)
Net (loss)................... (18,618) (18,618)
Repurchase of stock
options................... (18) (18)
Purchase of 1,187 1/2 shares
of Class A Common Stock... (3) (3)
Capital contribution......... 346 346
-- --
------- --------- --------- ------ ---------
September 30, 1993............. 2 44 5 4,775 (97,313) (553) (93,040)
Net (loss)................... (207,671) (207,671)
Purchase of 15,000 shares of
Class A Common Stock...... (15) (15)
-- --
------- --------- --------- ------ ---------
September 30, 1994............. $ 2 $44 $ 5 $ 4,775 $(304,984) $(568) $(300,726)
====== ====== ====== ======= ========= ====== =========
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE> 62
AMERISOURCE DISTRIBUTION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30
---------------------------------------
1994 1993 1992
--------- ----------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net (loss)........................................... $(207,671) $ (18,618) $ (6,476)
Adjustments to reconcile net (loss) to net cash
provided by (used in) operating activities:
Depreciation...................................... 6,640 5,809 5,384
Amortization...................................... 8,120 9,407 11,510
Provision for losses on accounts receivable....... 4,612 3,186 3,443
Loss on disposal of property and equipment........ 185 2,267 332
Write-off of excess of cost over net assets
acquired........................................ 179,824
Provision for deferred income taxes............... (5,055)
Loss on early retirement of debt.................. 679 16,658
Gain on settlement of litigation.................. (4,486)
Cumulative effects of accounting changes.......... 34,598
Changes in operating assets and liabilities:
Accounts receivable............................. (24,894) (6,115) (31,130)
Merchandise inventories......................... (5,305) (10,346) (65,048)
Prepaid expenses................................ (465) (33) 377
Accounts payable, accrued expenses and income
taxes........................................ 76,847 77,102 57,080
Payments to settle litigation................... (5,250)
Debentures issued in lieu of payment of
interest..................................... 14,904 20,378 17,231
Other long-term liabilities..................... 4,075
Miscellaneous........................................ (3,083) (520) (974)
--------- ----------- ---------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES............................ 84,011 99,175 (18,007)
INVESTING ACTIVITIES
Capital expenditures................................. (8,483) (7,571) (8,297)
Proceeds from sales of property and equipment........ 457 1,500 642
--------- ----------- ---------
NET CASH (USED IN) INVESTING ACTIVITIES........... (8,026) (6,071) (7,655)
FINANCING ACTIVITIES
Long-term debt borrowings............................ 854,661 993,864 882,000
Long-term debt repayments............................ (931,857) (1,060,303) (873,197)
Deferred financing costs............................. (589) (13,660) (3,131)
Capital contribution................................. 346
Repurchase of stock options.......................... (10) (18)
Purchases of treasury stock.......................... (15) (3)
--------- ----------- ---------
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES............................ (77,810) (79,774) 5,672
--------- ----------- ---------
(DECREASE) INCREASE IN CASH............................ (1,825) 13,330 (19,990)
Cash at beginning of year.............................. 27,136 13,806 33,796
--------- ----------- ---------
CASH AT END OF YEAR.................................... $ 25,311 $ 27,136 $ 13,806
========= ========== =========
</TABLE>
See notes to consolidated financial statements.
F-8
<PAGE> 63
AMERISOURCE DISTRIBUTION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
AmeriSource Distribution Corporation (formerly Alco Health Distribution
Corporation) ("Distribution") is a Delaware corporation organized by an
affiliate of 399 Venture Partners Inc. ("VPI"), and other investors, including
members of management of AmeriSource Corporation ("AmeriSource") (formerly Alco
Health Services Corporation). Distribution was formed in November 1988 to
acquire AmeriSource in a leveraged buyout transaction (the "Acquisition"). The
accompanying financial statements present the consolidated financial position,
results of operations and cash flows of Distribution and its wholly-owned
subsidiary, AmeriSource Corporation (collectively, the "Company") as of the
dates and for the periods indicated. All material intercompany accounts and
transactions have been eliminated in consolidation.
Business
The Company is a wholesale distributor of pharmaceuticals and related
health care products.
Concentrations of Credit Risk
The Company sells its merchandise inventories to a large number of
customers in the health care industry including independent drug stores, chain
drug stores, hospitals, mass merchandisers, clinics and nursing homes. The
Company's trade accounts receivable are exposed to credit risk, however, the
risk is limited due to the diversity of the customer base and the customer
base's wide geographic dispersion. The Company performs ongoing credit
evaluations of its customers' financial conditions. The Company maintains
reserves for potential bad debt losses and such bad debt losses have been
historically within the Company's expectations.
Merchandise Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the last-in, first-out (LIFO) method, which results in a matching of
current costs and revenues. On a supplemental basis, if the first-in, first-out
(FIFO) method of valuation had been used for determining costs, inventories
would have been approximately $88,327,000 and $83,022,000 higher than the
amounts reported at September 30, 1994 and 1993, respectively.
Depreciation
The cost of property and equipment is depreciated over the estimated useful
lives of the related assets by the straight-line method.
Deferred Financing Costs
Deferred financing fees and related expenses are being amortized over 3 to
12 years.
Pension Plans
Pension costs, which are primarily computed using the projected unit credit
cost method, are funded based on the minimum required contribution under the
Employee Retirement Income Security Act of 1974.
Revenue Recognition
The Company recognizes revenues at the point at which product is shipped.
F-9
<PAGE> 64
AMERISOURCE DISTRIBUTION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Earnings Per Share
Earnings per share are based on 14,750,000 shares, (as adjusted for the
2.95-for-1 stock split as discussed in Note 12) representing the weighted
average shares outstanding during the periods presented including the effect of
the Distribution Plan and the 1991 Option Plan stock options (Note 6), since all
of the options outstanding under these plans will be satisfied with shares
purchased or to be purchased from VPI at $1.00 per share, pursuant to a prior
agreement.
NOTE 2 -- EXCESS OF COST OVER NET ASSETS ACQUIRED
The excess of cost over net assets acquired ("goodwill") was recorded at
the time of the Acquisition in 1988. Since the Acquisition, the Company has been
unable to achieve the operating results projected at the time of the
Acquisition. The projections at the time of the Acquisition were developed based
on historical experience, industry trends and management's estimates of future
performance. These projections assumed significant growth rates in revenues,
stable gross profit margins and cash flow from operations to reduce Acquisition
indebtedness and did not anticipate long-term losses or indicate an inability to
recover the value of goodwill. Due to persistent competitive pressures and a
shift in the customer mix to larger volume, lower margin customers, gross profit
margins have declined from 7.10% in fiscal 1989 to 5.63% in fiscal 1993 and
5.47% in fiscal 1994, resulting in: operating results which are substantially
below the projections made at the time of the Acquisition; an increase in the
Company's indebtedness; and an accumulated deficit in retained earnings at June
30, 1994 before the goodwill write-off of $126.4 million.
During the period since the Acquisition, the Company has been affected by
price competition for market share within the industry, health care industry
consolidation and the impact of group purchasing organizations, managed care and
health care reform on drug prices. Until fiscal 1994, the Company believed the
results since the Acquisition were not indicative of long-term market conditions
affecting pricing within the industry. In fiscal 1994, the Company determined
its poor operating results since the Acquisition and its expectations for future
operating results were being significantly affected by fundamental changes in
the market place in which the Company operates. As these factors became clear
and in conjunction with the increases in interest rates, a detailed
comprehensive evaluation of the Company's future prospects was prepared. The
evaluation determined the Company's financial losses were and continue to be
significantly affected by price sensitivity, aggressive pricing by better
capitalized competitors, consolidations in the wholesale drug distribution
industry and the impact of larger buying groups. Based on current industry
trends, interest rate trends and the health care reform environment, in the
third quarter of fiscal 1994, the Company concluded that the projected operating
results (the "Projection") would not support the future recovery of the
remaining goodwill balance.
The methodology employed to assess the recoverability of the Company's
goodwill was to project results of operations forward 36 years, which
approximated the remaining amortization period of the goodwill balance at June
30, 1994. The Company then evaluated the recoverability of goodwill on the basis
of the Projection.
The Projection reflects significant cumulative losses indicating that the
carrying value of goodwill is not recoverable. Unless the Company is able to
develop successful strategic, operating or financing initiatives which would
change the assumptions used in the Projection, the projected future operating
results based on these assumptions is the best estimate of the Company's
projected performance given the Company's existing high leverage and industry
trends. As a result, the Company concluded that the carrying value of goodwill
could not be recovered from expected future operations. Accordingly, the Company
wrote off its remaining goodwill balance of $179.8 million in the third quarter
of fiscal 1994. More importantly, while the Company believes the reliability of
any projection over such an extended period is highly uncertain, the Projection
also indicates that the Company's long-term viability will require modification
of its current capital structure to reduce its indebtedness and increase its
equity in the near to mid-term future. While the Projection indicates
F-10
<PAGE> 65
AMERISOURCE DISTRIBUTION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- EXCESS OF COST OVER NET ASSETS ACQUIRED -- (CONTINUED)
that in fiscal 1998 cash flow from operations will not be sufficient to satisfy
required interest and principal payments on its current debt obligations, the
Company believes and the Projection indicates, that cash flow generated from
operations in the near-term (fiscal years 1995 through 1997) is sufficient to
service its current debt obligations. No assurance can be given that the Company
will be successful in efforts to restructure or recapitalize in order to be able
to operate in a profitable manner for the long-term.
NOTE 3 -- TAXES ON INCOME
The income tax provision (benefit) is as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30
------------------------------
1994 1993 1992
------- ------ ------
<S> <C> <C> <C>
Current provision
Federal.................................................... $12,147 $4,633 $2,574
State and local............................................ 853 1,746 75
------- ------ ------
13,000 6,379 2,649
------- ------ ------
Deferred provision (benefit)
Federal.................................................... (5,625)
State and local............................................ 439
------- ------ ------
(5,186) -- --
------- ------ ------
Provision for income taxes...................................... $ 7,814 $6,379 $2,649
======= ====== ======
</TABLE>
A reconciliation of the statutory federal income tax rate to the effective
income tax rate is as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30
------------------------------
1994 1993 1992
------ ------- ------
<S> <C> <C> <C>
Statutory federal income tax rate............................... 35.0% 34.8% 34.0%
State and local income tax rate, net of federal tax benefit..... (.3) (104.1) (.5)
Tax effect of operating loss carryover.......................... 6.1 (13.5)
Amortization of difference in book and tax bases of net assets
acquired...................................................... (39.2) (168.6) (20.3)
Alternative minimum tax......................................... (274.2) (20.3)
Other........................................................... (6.3) (70.5) (5.4)
------ ------- ------
Effective income tax rate....................................... (4.7)% (582.6)% (26.0)%
====== ======= ======
</TABLE>
Effective October 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes" (Statement 109),
which requires a change in the method of accounting for income taxes from the
deferred method to the liability method. In accordance with Statement 109, the
Company recorded an adjustment of $33.4 million for the cumulative effect of
adopting Statement 109 as of October 1, 1993. As permitted under Statement 109,
prior period financial statements have not been restated. The cumulative effect
adjustment relates principally to the provision of deferred income taxes to
reflect the tax consequences on future years of the difference between the tax
and financial reporting basis of merchandise inventories.
F-11
<PAGE> 66
AMERISOURCE DISTRIBUTION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- TAXES ON INCOME -- (CONTINUED)
Deferred income taxes reflect the future tax consequences of differences
between the tax bases of assets and liabilities and their financial reporting
amounts. Significant components of the Company's deferred tax liabilities
(assets) as of September 30, 1994 are as follows (in thousands):
<TABLE>
<S> <C>
Inventory......................................................................... $ 35,712
Fixed assets...................................................................... 4,654
Other............................................................................. 351
--------
Gross deferred tax liabilities............................................... 40,717
--------
Net operating losses and tax credit carryovers.................................... (11,554)
Allowance for doubtful accounts................................................... (3,748)
Accrued expenses.................................................................. (3,524)
Other postretirement benefits..................................................... (497)
Other............................................................................. (3,173)
--------
Gross deferred tax assets.................................................... (22,496)
--------
Valuation allowance for deferred tax assets....................................... 10,350
--------
Net deferred tax liabilities................................................. $ 28,571
========
</TABLE>
The valuation allowance for deferred tax assets was $17.6 million at
October 1, 1993. For the fiscal years ended September 30, 1993 and 1992, the
deferred income tax provision (benefit) resulted from timing differences in the
recognition of certain expenses for tax and financial reporting purposes. Due to
limitations on the utilization of tax losses, the Company did not recognize any
deferred income tax (benefit) in 1993 or 1992. The principal components of
deferred taxes are as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED SEPTEMBER
30
-----------------
1993 1992
------ ------
<S> <C> <C>
Bad debts.................................................................. $ (254) $ 360
Deferred compensation...................................................... 164 (31)
Interest................................................................... (491)
Inventory.................................................................. (725) (492)
Insurance.................................................................. 113 (207)
Fixed assets............................................................... (970)
Other...................................................................... (138) (149)
Amount not recognized...................................................... 1,810 1,010
------ ------
$ -- $ --
====== ======
</TABLE>
An unused tax net operating loss carry-over of $6,910,000 expiring in 2008,
is available to offset future taxable income.
The Company was subject to the alternative minimum tax for the fiscal years
ended September 30, 1994 and September 30, 1992. The alternative minimum tax is
imposed at a 20% rate on the Company's alternative minimum taxable income which
is determined by making statutory adjustments to the Company's regular taxable
income. Net operating loss carryforwards were used to offset up to 90% of the
Company's alternative minimum taxable income. For 1992, the effect of utilizing
the net operating loss carryforward is represented for financial reporting
purposes as an extraordinary credit. The alternative minimum tax paid is allowed
as an indefinite credit carryover against the Company's regular tax liability in
the future when the Company's
F-12
<PAGE> 67
AMERISOURCE DISTRIBUTION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- TAXES ON INCOME -- (CONTINUED)
regular tax liability exceeds the alternative minimum tax liability. As of
September 30, 1994, the Company has a $7,142,000 alternative minimum tax credit
carryforward.
Income tax payments (refunds) amounted to $3,891,000, $395,000 and
$(1,089,000) in the years ended September 30, 1994, 1993 and 1992, respectively.
NOTE 4 -- LONG-TERM DEBT
On March 30, 1993, AmeriSource entered into a credit agreement (the "Credit
Agreement") with a syndicate of financial institutions providing senior secured
facilities of up to $425 million. The Credit Agreement provides for initial
borrowings based on commitments of $380 million, consisting of a term loan of
$20 million and a revolving credit loan of up to $360 million. The maximum
amount that may be borrowed under the Credit Agreement is limited to the extent
of a sufficient borrowing base, which is essentially 85% of eligible accounts
receivable and 60% of eligible inventory. Under the terms of the Credit
Agreement, AmeriSource has pledged substantially all its assets to secure its
borrowings under the Credit Agreement and AmeriSource's parent, Distribution,
has pledged the common stock of AmeriSource. The term loan matures, and the
commitment of the syndicate to make revolving credit loans expires, on April 1,
1996.
The term loan and the revolving credit loan bear interest at a rate per
annum equal to, at AmeriSource's option, LIBOR plus 3% or the prime rate plus
1 1/2%. AmeriSource has entered into a two-year interest rate cap of 12% with
respect to $100 million in borrowings under the revolving credit loan for the
purpose of limiting AmeriSource's exposure to an increase in interest rates. In
addition, AmeriSource is required to pay a fee of 1/2% per annum on the average
unused portion of the revolving credit loan commitment plus a $200,000 annual
administration fee. The Credit Agreement, as amended, contains certain
restrictive covenants and requires AmeriSource, among other things, to maintain
minimum defined net worth levels, satisfy certain financial ratios and places
certain limitations on investments, capital expenditures, additional debts,
changes in capital structure and dividend payments.
At September 30, 1994, the $20 million outstanding under the term loan and
the $156 million outstanding under the revolving credit loan bore interest at
the rate of 8.10% per annum. Initial borrowings under the Credit Agreement were
used to extinguish the obligations outstanding under AmeriSource's former
revolving credit facility, which was due to expire in December, 1993. An
extraordinary loss of $3.3 million, net of a tax benefit of $1.3 million, was
recorded during the fiscal year ended September 30, 1993 representing the
write-off of the unamortized financing fees relating to the former revolving
credit facility. In connection with the Credit Agreement, the Company incurred
approximately $7.7 million in financing fees which have been deferred and are
being amortized on a straight-line basis over the three year term of the
indebtedness.
The 14 1/2% Senior Subordinated Notes (the "Notes") were sold on September
15, 1989 in a public offering and are due September 15, 1999. The Notes are
unsecured obligations and are subordinated to the Credit Agreement and certain
other indebtedness, and may be redeemed at the option of the Company at a
premium, together with accrued and unpaid interest to the redemption date, at
any time on or after September 15, 1994. If, for the twelve-month period ending
on each of August 31, 1996 and 1997, the Company's consolidated fixed charge
ratio (as defined) exceeds 1.5 to 1, the Company shall be required to redeem or
otherwise repurchase in the open market and retire 5% and 10%, respectively, of
the principal amount of the Notes. The Company shall not be required to make
such redemption or repurchase until such time, and to the extent, funds become
available under the Credit Agreement or any successor or replacement facility.
In addition, the Company is required to redeem on August 31, 1998, 50% of the
aggregate principal amount of the Notes originally issued, reduced by any prior
redemptions or repurchases. During the fiscal year ended September 30, 1993, the
Company purchased and retired $4.4 million of the Notes. Premiums on the fiscal
1993 purchases resulted in an extraordinary loss of $549,000, net of a tax
benefit of $222,000. During the
F-13
<PAGE> 68
AMERISOURCE DISTRIBUTION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- LONG-TERM DEBT -- (CONTINUED)
fiscal year ended September 30, 1994, the Company purchased and retired an
additional $4.4 million of Notes, resulting in an extraordinary charge of
$679,000, net of a tax benefit of $23,000, consisting of the write-off of
related unamortized financing fees and premiums paid on redemption.
During the fiscal year ended September 30, 1994, the Company completed an
exchange of $40,329,000 principal amount of 14 1/2% Senior Subordinated Notes
due 1999, Series A (the "New Notes") and $101,000 in cash for $40,329,000
principal amount of its Notes. The only material difference between the terms of
the New Notes and the terms of the Notes is that the indenture of the New Notes
does not have the minimum consolidated net worth provisions set forth in the
indenture of the Notes. The indenture of the Notes requires the Company to
maintain a consolidated net worth (as defined) of $80 million. If the Company's
consolidated net worth, as defined in the indenture of the Notes, is less than
$80 million at the end of each of any two consecutive fiscal quarters, the
Company is required to offer to purchase (the "Offer") an amount of Notes equal
to 20% of the principal amount of Notes outstanding at the time the Offer is
made. The purchase price in any Offer is equal to 100% of the principal amount
purchased plus accrued interest to the date of purchase. The Offer required
could be triggered if the Company generated losses from operations, had charges
or expenses relating to a restructuring or recapitalization, or reductions in
the book value of tangible or intangible assets, if in each case the losses or
charges are of a sufficient magnitude. As a result of the elimination of the
minimum consolidated net worth provision in the indenture of the New Notes, the
Company would not be required to make an Offer to holders of the New Notes, even
in the event of a material decrease in the Company's consolidated net worth. In
addition to the exchange noted above, the Company paid the holders of an
aggregate of $125,388,000 in principal amount of Notes cash consideration of
$520,000 in exchange for each holder's agreement not to tender any of the Notes
as a result of any required Company Offer or to exercise any rights they have or
may have with respect to the consolidated net worth provision of the indenture
of the Notes. The total cash consideration of $621,000 noted above as well as
related fees and expenses of $600,000 were recognized as interest expense during
the fiscal year ended September 30, 1994.
On July 26, 1993, Distribution issued $126.5 million principal amount of
11 1/4% Senior Debentures ("Senior Debentures") due 2005 in a public offering.
Interest on the Senior Debentures will be payable semi-annually on January 15
and July 15 of each year, commencing January 15, 1994. Through and including the
semi-annual interest payment due July 15, 1998, Distribution may elect, at its
option, to issue additional Senior Debentures in satisfaction of its interest
payment obligations. The Senior Debentures are senior unsecured obligations of
Distribution and rank pari passu in right of payment with all senior borrowings
of Distribution and senior in right of payment to all subordinated indebtedness
of Distribution. As indebtedness of Distribution, the Senior Debentures are
structurally subordinated to all indebtedness and other obligations of
AmeriSource. Substantially all the net proceeds of the offering (approximately
$122 million) were applied to redeem the 18% Senior Subordinated Debentures,
18 1/2% Merger Debentures and 19 1/2% Junior Subordinated Debentures of
Distribution at a redemption price of 100% of the principal amount thereof, plus
accrued and unpaid interest thereon to the date of redemption. The indenture
relating to the Senior Debentures contains restrictions relating to, among other
things, the payment of dividends, the repurchase of stock and the making of
certain other restricted payments, the incurrence of additional indebtedness and
the issuance of preferred stock, the creation of certain liens, certain asset
sales, transactions with subsidiaries and other affiliates, dividends and other
payment restrictions affecting subsidiaries, and mergers and consolidations. The
debt refinancing resulted in an extraordinary charge of $12.8 million during the
fiscal year ended September 30, 1993 relating to the redemption of the Merger
Debentures and the write-off of deferred financing costs, net of a tax benefit
of $3.2 million. In connection with the Senior Debentures, the Company incurred
approximately $5.1 million in financing fees which have been deferred and are
being amortized on a straight-line basis over the twelve year life of the
indebtedness.
F-14
<PAGE> 69
AMERISOURCE DISTRIBUTION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- LONG-TERM DEBT -- (CONTINUED)
The indentures governing the Credit Agreement, the Notes, the New Notes and
the Senior Debentures contain restrictions and covenants, as amended, which
include limitations on incurrence of additional indebtedness, prohibition of
indebtedness senior to the Notes and New Notes and junior to the Credit
Agreement, restrictions on distributions and dividends to stockholders,
including Distribution, transactions with affiliates and certain corporate acts
such as mergers, consolidations and the sale of substantially all assets.
Additional covenants require compliance with financial tests, including current
ratio, leverage, interest coverage ratio, fixed charge coverage and maintenance
of minimum net worth.
Interest paid on the above indebtedness during the fiscal years ended
September 30, 1994, 1993 and 1992 amounted to $46.1 million, $39.7 million and
$52.2 million, respectively.
Financing fees and expenses incurred with respect to the above indebtedness
have been capitalized and are being amortized over the terms of the related
indebtedness. Total amortization of these fees and expenses (included in
interest expense) for the fiscal years ended September 30, 1994, 1993 and 1992
was $4.0 million, $3.9 million and $4.0 million, respectively.
The carrying amount of the Company's revolving credit facility approximates
fair value. The combined fair value of the Notes and New Notes is approximately
$176 million and is based on quoted market prices. The fair value of the Senior
Debentures is approximately $145 million and is based on quotes from brokers. It
was not practicable to estimate the fair value of the other debt or convertible
subordinated debentures.
NOTE 5 -- COMMON STOCK
The holders of the Class A common stock are entitled to one vote per share
on all matters to be voted upon by the stockholders of Distribution. Except as
otherwise required by law, holders of the Class B common stock and Class C
common stock generally do not possess the right to vote on any matters to be
voted upon by the stockholders of Distribution.
The holders of the Class A common stock may elect at any time to convert
any or all such shares into the Class B common stock on a share-for-share basis.
Holders of the Class B common stock may elect at any time to convert any or all
of such shares into the Class A common stock, on a share-for-share basis, to the
extent the holder thereof is not prohibited from owning additional voting
securities by virtue of regulatory restrictions.
The Class C common stock is subject to substantial restrictions on transfer
and has certain registration and "take-along" rights. A share of Class C common
stock will automatically be converted into a share of Class A common stock (a)
immediately prior to its sale in a subsequent public offering or (b) at such
time as such share of Class C common stock has been sold publicly after a
subsequent public offering in a transaction that complies with any maximum
quantity limitations applicable to such sale. Once a share of Class C common
stock has been converted into Class A common stock it will no longer be subject
to any restrictions on transfer nor will it be entitled to the benefits of
registration and take-along rights.
During fiscal 1992, the Company increased the number of shares of Class A
common stock and Class B common stock authorized to be issued from 10,000,000
each to 30,000,000 each and increased the number of shares of Class C common
stock authorized to be issued from 500,000 to 2,000,000. During fiscal 1993,
1,187 1/2 shares of Class A common stock were purchased as treasury stock.
During fiscal 1994, 15,000 shares of Class A common stock were purchased as
treasury stock.
NOTE 6 -- PENSION AND OTHER BENEFIT PLANS
AmeriSource provides a benefit for the majority of its employees under
noncontributory defined benefit pension plans. For each employee, the benefits
are based on years of service and average compensation.
F-15
<PAGE> 70
AMERISOURCE DISTRIBUTION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- PENSION AND OTHER BENEFIT PLANS -- (CONTINUED)
A summary of the components of net periodic pension cost charged to expense
for the company-sponsored defined benefit pension plans together with
contributions charged to expense for a multi-employer union administered defined
benefit pension plan the Company participates in follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30
---------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Service cost...................................................... $ 2,198 $ 1,912 $ 1,669
Interest cost on projected benefit obligation..................... 2,165 2,034 1,879
Actual return on plan assets...................................... (13) (2,842) (3,090)
Net amortization and deferral..................................... (2,038) 979 1,490
------- ------- -------
Net pension cost of defined benefit plans......................... 2,312 2,083 1,948
Net pension cost of multi-employer plan........................... 142 110 91
------- ------- -------
Total pension expense............................................. $ 2,454 $ 2,193 $ 2,039
======= ======= =======
</TABLE>
The following table sets forth (in thousands) the funded status and amount
recognized in the consolidated balance sheets for the company-sponsored defined
benefit pension plans:
<TABLE>
<CAPTION>
1994 1993
------------------------- -------------------------
ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEED BENEFITS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
BENEFITS ASSETS BENEFITS ASSETS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Plan assets at fair value....................... $24,457 $ 333 $24,155 $ 280
Actuarial present value of benefit obligations:
Vested..................................... 22,420 1,168 20,898 603
Accumulated, not vested.................... 421 210 576 171
----------- ----------- ----------- -----------
Accumulated benefit obligations................. 22,841 1,378 21,474 774
Effect of future pay increases............. 8,559 17 7,987 113
----------- ----------- ----------- -----------
Projected benefit obligation.................... 31,400 1,395 29,461 887
----------- ----------- ----------- -----------
Plan assets (less than) projected benefit
obligation.................................... (6,943) (1,062) (5,306) (607)
Unrecognized net transition asset............... (996) (1,167)
Unrecognized prior service cost................. 3,380 733 3,680 357
Adjustment to recognize minimum liability....... (813) (372)
Unrecognized net loss related to assumptions.... 4,013 149 2,117 128
----------- ----------- ----------- -----------
Pension (liability) recognized in balance
sheet......................................... $ (546) $ (993) $ (676) $(494)
========= ========= ========= =========
</TABLE>
Assumptions used in computing the funded status of the plans were as
follows:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ -----
<S> <C> <C> <C>
Discount rate............................................ 7.75% 7.25% 8.0%
Rate of increase in compensation levels.................. 6.25% 5.75% 6.5%
Expected long-term rate of return on assets.............. 10.00% 10.00% 10.0%
</TABLE>
Plan assets at September 30, 1994 are invested principally in listed
stocks, corporate and government bonds and cash equivalents.
Additionally, the Company sponsors the Employee Investment Plan, a defined
contribution 401(k) plan, which covers salaried and certain hourly employees.
Eligible participants may contribute to the plan up to 2%
F-16
<PAGE> 71
AMERISOURCE DISTRIBUTION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- PENSION AND OTHER BENEFIT PLANS -- (CONTINUED)
to 6% of their regular compensation before taxes. The Company matches the
employee contributions in an amount equal to 50% of the participants'
contributions. An additional discretionary Company contribution in an amount not
to exceed 50% of the participants' contributions may also be made depending upon
the Company's performance. All contributions are invested at the direction of
the employee in one or more funds. Employer contributions vest over a five-year
period depending upon an employee's years of service. Costs of the plan charged
to expense for the fiscal years ended September 30, 1994, 1993 and 1992 amounted
to
$1,093,000, $792,000 and $926,000, respectively.
Distribution adopted the AmeriSource Distribution Corporation and
Subsidiaries Employee Stock Purchase Plan (the "Distribution Plan") to enable
key members of management of AmeriSource to participate in the equity ownership
of Distribution. The securities subject to the Distribution Plan are
Distribution's Class A common stock. The purchase price for shares of
Distribution was $1.00 per share. Eligible management participants with prior
AmeriSource options were required to defer the purchase of some or all of the
Distribution Class A common stock allocated to them. Pursuant to the
Distribution Plan, management investors, on November 3, 1989, purchased options
on 581,812 1/2 shares of Distribution's Class A common stock which became
exercisable in 20% annual increments commencing on January 1, 1990 and expire
five years after the date of grant, or if Distribution has not gone public or
been sold within that five-year period, at the earlier of (i) 10 years from the
date of grant, (ii) the date Distribution is sold or (iii) 90 days after the
date Distribution goes public. During fiscal 1991 and 1993, respectively,
21,312 1/2 and 41,312 1/2 options purchased by management investors in fiscal
1990 were extinguished. No options were exercised during fiscal 1994 or 1993 and
no additional options will be issued under the Distribution Plan. As of
September 30, 1994, there were 519,187 1/2 options outstanding under the
Distribution Plan, all of which were exercisable.
Distribution adopted the AmeriSource Distribution Corporation Partners
Stock Option Plan (the "Partners Plan") to enable other employees of AmeriSource
to participate in the equity ownership of Distribution. On March 2, 1991,
options to acquire 124,800 shares of Distribution Class A common stock were
granted at an exercise price of $1.00 per share. The options under the Partners
Plan became exercisable when they vested on September 30, 1994 and expire on
December 31, 1994. If an option terminates or expires without having been
exercised, no new options may be granted covering the shares subject to such
option, and such shares shall cease to be reserved for future issuance under the
Partners Plan. No additional options will be granted under the Partners Plan.
During fiscal 1991, 3,200 options were canceled and during fiscal 1992 an
additional 6,400 options were canceled, leaving 115,200 options outstanding
under the Partners Plan as of September 30, 1994.
Distribution adopted the AmeriSource Distribution Corporation 1991 Stock
Option Plan (the "1991 Option Plan") for the granting of non-qualified stock
options to acquire up to an aggregate of 362,500 shares of Distribution Class A
common stock. The options granted to certain members of the Company's management
under the 1991 Stock Option Plan represented the shares unallocated under the
Distribution Plan and options never granted under a performance stock option
plan originally announced by Distribution in 1989 and reflect achievement in the
Company's operating performance through fiscal year ended September 30, 1991.
The options granted under the 1991 Option Plan are not subject to forfeiture,
exercisable at the rate of 50% per year on each of January 1, 1993 and January
1, 1994 and expire on November 3, 1994, or if prior to November 3, 1994,
Distribution has not gone public or been sold, then at the earlier of (i)
November 3, 1999, (ii) the date Distribution is sold or (iii) 90 days after the
date Distribution goes public. During fiscal 1994, 10,000 options were
extinguished, leaving 352,500 options outstanding at an exercise price of $1.00
per share under the 1991 Option Plan as of September 30, 1994.
The Company's 1992 Stock Option Plan (the "1992 Option Plan"), which was
adopted by the Board of Directors on March 31, 1992 and approved by the
stockholders on April 7, 1992, provides for the granting over
F-17
<PAGE> 72
AMERISOURCE DISTRIBUTION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- PENSION AND OTHER BENEFIT PLANS -- (CONTINUED)
time of non-qualified stock options to acquire up to approximately 1.7 million
shares of Distribution Class A common stock to employees of the Company. Such
options will be granted based upon performance and with vesting schedules to be
determined at the time of grant. Under the 1992 Option Plan, the exercise price
of options will not be less than the fair market value of the Class A common
stock on the date of the grant. Options granted to employees will not be
exercisable after the expiration of six years from the date of the grant or such
sooner date as determined. No options have been granted under the 1992 Option
Plan.
As a result of special termination benefit packages previously offered, the
Company provides medical, dental and life insurance benefits to certain retirees
and their dependents. These benefit plans are unfunded. Prior to October 1,
1993, the Company recognized the expenses for these plans on the cash basis.
Effective October 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 106 "Employers' Accounting for Postretirement Benefits Other Than
Pensions" (Statement 106), which requires that the cost of postretirement health
care benefits be recognized on the accrual basis as employees render service to
earn the benefit instead of on the cash basis when the benefits are paid. As of
October 1, 1993, the Company adopted Statement 106 by recognizing the
accumulated obligation related to these benefits. The cumulative effect of this
change in accounting principle resulted in a non-cash charge to net income of
$1.2 million. In addition to the cumulative effect adjustment, the expense for
postretirement benefits other than pensions for the fiscal year ended September
30, 1994, was $80,000, approximately equal to the cash payments. The cash
payments for such benefits in fiscal years 1993 and 1992, respectively, were
approximately the same as fiscal 1994. Since the plans are unfunded and relate
only to certain retirees, the fiscal 1994 expense accrual for these benefits
consisted solely of an interest cost component. The accumulated postretirement
benefit obligation was $1.1 million as of September 30, 1994. The weighted
average discount rate used in determining the accumulated postretirement benefit
obligation was 7.25% and 7.75% at October 1, 1993 and September 30, 1994,
respectively. A health care cost trend rate of 11.4% was assumed for fiscal
1995, gradually declining to an ultimate level of 5.5% over 15 years. Increasing
the assumed health care cost trend rates by 1% in each year and holding all
other assumptions constant, would increase the accumulated postretirement
benefit obligation as of September 30, 1994 by $77,500 and increase the
postretirement benefit cost in fiscal 1994 by $7,000.
NOTE 7 -- LEASES
The costs of capital leases are included in property and equipment and the
obligations therefor in other debt. Related amortization is included in
depreciation. At September 30, 1994, future minimum payments totaling
$21,346,000 under noncancelable operating leases with remaining terms of more
than one year were due as follows: 1995 -- $6,214,000; 1996 -- $5,197,000;
1997 -- $3,390,000; 1998 -- $1,885,000; 1999 -- $1,281,000; thereafter (through
2004) -- $3,379,000. In the normal course of business, operating leases are
generally renewed or replaced by other leases.
Total rental expense was $6,168,000 in 1994, $6,034,000 in 1993 and
$5,647,000 in 1992.
NOTE 8 -- LEGAL MATTERS AND CONTINGENCIES
In the ordinary course of its business, the Company becomes involved in
lawsuits, administrative proceedings and governmental investigations, including
antitrust, environmental, product liability and regulatory agency matters. In
some of these proceedings, plaintiffs may seek to recover large and sometimes
unspecified amounts and the matters may remain unresolved for several years. The
Company does not believe that these matters, individually or in the aggregate,
will have a material adverse effect on its business or financial condition.
In November 1993, the Company was named a defendant, along with six other
wholesale distributors and twenty-four pharmaceutical manufacturers, in fourteen
civil actions filed by independent retail pharmacies in
F-18
<PAGE> 73
AMERISOURCE DISTRIBUTION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- LEGAL MATTERS AND CONTINGENCIES -- (CONTINUED)
the United States District Court for the Southern District of New York.
Plaintiffs seek to establish these lawsuits and over thirty-four others (to
which the Company is not a party) filed by other pharmacies as class actions. In
essence, these lawsuits all claim that the manufacturer and wholesaler
defendants have combined, contracted and conspired to fix the prices charged to
plaintiffs and class members for prescription brand name pharmaceuticals.
Specifically, plaintiffs claim that the defendants use "chargeback agreements"
to give some institutional pharmacies discounts that are not made available to
retail drug stores. Plaintiffs seek injunctive relief, treble damages,
attorneys' fees and costs. These actions have been transferred to the United
States District Court for the Northern District of Illinois for consolidated and
coordinated pretrial proceedings. Effective October 26, 1994, the Company
entered into a Judgment Sharing Agreement with other wholesaler and
pharmaceutical manufacturer defendants. Under the Judgment Sharing Agreement:
(a) the manufacturer defendants agreed to reimburse the wholesaler defendants
for litigation costs incurred, up to an aggregate of $9 million; and (b) if a
judgment is entered into against both manufacturers and wholesalers, the total
exposure for joint and several liability of the Company is limited to the lesser
of 1% of such judgment or one million dollars. In addition, the Company has
released any claims which it might have had against the manufacturers for the
claims presented by the plaintiffs in these lawsuits. The Judgment Sharing
Agreement covers the federal court litigation as well as the cases which have
been filed in various state courts. The Company believes it has meritorious
defenses to the claims asserted in these lawsuits and intends to vigorously
defend itself in all of these cases.
The Company has become aware that its former Charleston, South Carolina
distribution center was previously owned by a fertilizer manufacturer and that
there is evidence of residual soil contamination remaining from the fertilizer
manufacturing process operated on that site over thirty years ago. The Company
engaged an environmental consulting firm to conduct a soil survey and initiated
a groundwater study during fiscal 1994. The preliminary results of the
groundwater study indicate that there is lead in the groundwater at levels
requiring further investigation and response. A preliminary engineering analysis
was prepared by outside consultants during the third quarter of fiscal 1994, and
indicated that, if both soil and groundwater remediation are required, the most
likely cost of remediation efforts at the Charleston site is estimated to be
$4.1 million. Accordingly, a liability of $4.1 million was recorded during the
third quarter of fiscal 1994 to cover future consulting, legal and remediation
and ongoing monitoring costs. The Company has notified the appropriate state
regulatory agency from whom approval must be received before proceeding with any
further tests or with the actual site remediation. The approval process and
remediation could take several years to accomplish and the actual costs may
differ from the liability which has been recorded. The accrued liability, which
is reflected in other long-term liabilities on the accompanying consolidated
balance sheet, is based on an estimate of the extent of contamination and choice
of remedy, existing technology and presently enacted laws and regulations,
however, changes in remediation standards, improvements in cleanup technology
and discovery of additional information concerning the site could affect the
estimated liability in the future. The Company is investigating the possibility
of asserting claims against responsible parties for recovery of these costs.
Whether or not any recovery may be forthcoming is unknown at this time, although
the Company intends to vigorously enforce its rights and remedies.
The Company has been named as a defendant in several lawsuits based upon
alleged injuries and deaths attributable to the product L-Tryptophan. The
Company did not manufacture L-Tryptophan; however, prior to an FDA recall, the
Company did distribute products containing L-Tryptophan from several of its
vendors. The Company believes that it is entitled to full indemnification by its
suppliers and the manufacturer of L-Tryptophan with respect to these lawsuits
and any other lawsuits involving L-Tryptophan in which the Company may be named
in the future. To date, the indemnity to the Company in such suits has not been
in dispute and, although the Company believes it is unlikely it will incur any
loss as a result of such lawsuits, the Company believes that its insurance
coverage and supplier indemnification are adequate to cover any losses should
they occur.
F-19
<PAGE> 74
AMERISOURCE DISTRIBUTION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- LEGAL MATTERS AND CONTINGENCIES -- (CONTINUED)
The Company has received Notices of Proposed Adjustment from the Internal
Revenue Service in connection with an audit of the Company's federal income tax
returns for the taxable years 1987 through 1991. The proposed adjustments
indicate a net increase to taxable income for these years of approximately $23
million and relate principally to the deductibility of costs incurred with
respect to the Acquisition. The Company has analyzed these matters with tax
counsel, believes it has meritorious defenses to the adjustments proposed by the
Internal Revenue Service and any amounts assessed will not have a material
effect on the financial condition of the Company.
At September 30, 1994, there were contingent liabilities with respect to
taxes, guarantees of borrowings by certain customers, lawsuits and environmental
and other matters occurring in the ordinary course of business. On the basis of
information furnished by counsel and others, management believes that none of
these contingencies will materially affect the Company.
On December 3, 1991, AmeriSource entered into a settlement agreement with
Bear Stearns & Co., Inc. ("Bear Stearns") resolving a civil action that had been
filed on August 14, 1989 and Bear Stearns' interest in an appraisal action
arising from the Acquisition. AmeriSource paid Bear Stearns $7,235,000 in 1992
and will pay $2,500,000 in November 2001, without interest and subject in
certain circumstances to earlier payment. The Delaware Chancery Court approved
the settlement of Bear Stearns' interest in the appraisal action and the
settlement of the remaining claims (representing less than 5% of the shares in
the original action) on similar terms. Payments of $600,000 were made during
fiscal 1992 in settlement of a portion of the remaining claims. These
settlements with Bear Stearns and the other dissenters resulted in an
extraordinary gain in 1992 of $4,486,000 from the extinguishment of the
associated debt.
NOTE 9 -- NON-RECURRING CHARGES
The non-recurring charges in 1993 consisted of $1,254,000 in losses on the
disposal of three warehouses and charges of $969,000 for the write-down to net
realizable value of two additional warehouses no longer in operation which were
designated for sale. The non-recurring charges in 1992 consisted of a loss of
$287,000 incurred on the sale of a warehouse no longer in operation and the
write off of $1,957,000 in professional fees incurred in connection with a
public offering attempted during 1992 which was later abandoned due to market
conditions.
NOTE 10 -- RELATED PARTY TRANSACTIONS
On October 21, 1991, an involuntary bankruptcy petition under Chapter 7 of
the United States Bankruptcy Code was filed against RDS Acquisition Corp.
("RDS"), which was a customer of the Company. Affiliates of VPI had substantial
equity and debt interests in RDS and related entities. VPI indemnified
AmeriSource for $5,800,000 of the amounts owed by RDS to AmeriSource on October
25, 1991, for which AmeriSource did not otherwise recover the amount owed.
NOTE 11 -- SUBSEQUENT EVENTS
In December 1994, the Company sold substantially all of its trade accounts
and notes receivable (the "Receivables") to AmeriSource Receivables Corporation
("ARC"), a special purpose wholly-owned subsidiary, pursuant to a trade
receivables securitization program (the "Receivables Program"). As contemplated
by the Receivables Program, the Company formed and capitalized ARC through a
contribution of $40 million. Contemporaneously, the Company entered into a
Receivables Purchase Agreement with ARC, whereby ARC
F-20
<PAGE> 75
AMERISOURCE DISTRIBUTION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11 -- SUBSEQUENT EVENTS -- (CONTINUED)
agreed to purchase on a continuous basis Receivables originated by the Company.
Pursuant to the Receivables Program, ARC will transfer such Receivables to a
master trust in exchange for, among other things, certain trade
receivables-backed certificates (the "Certificates") representing a right to
receive a variable principal amount. Contemporaneously, Certificates in an
aggregate principal amount of up to $230 million face amount were sold to
investors. During the five year term of the Receivables Program, the cash
generated by collections on the Receivables will be used to purchase, among
other things, additional Receivables originated by the Company. The Certificates
bear interest at a rate selected by the Company equal to (i) the higher of (a)
the prime lending rate and (b) the federal funds rate plus 50 basis points or
(ii) LIBOR plus 50 basis points. In addition, during the first seventy five days
of the Receivables Program, the Company may select an interest rate equal to the
federal funds rate plus 125 basis points. The interest rates for the
Certificates are subject to step-ups to a maximum amount of an additional 100
basis points over the otherwise applicable rate.
At the same time that it entered into the Receivables Program, the Company
and its senior lenders amended its existing Credit Agreement. Among other
things, the Amended and Restated Credit Agreement: (i) extended the term of the
Credit Agreement until January 3, 2000; (ii) established the amount the Company
may borrow at $380 million; (iii) reduced the initial borrowing rate to LIBOR
plus 225 basis points and provided for further interest rate stepdowns upon the
occurrence of certain events; (iv) modified the borrowing base availability from
inventory and receivable based to inventory based; and (v) increased the
Company's ability to make acquisitions and pay dividends.
Contemporaneously with the consummation of the Receivables Program and the
execution of the Amended and Restated Credit Agreement, the Company called for
optional redemption all of the outstanding Notes and New Notes at a redemption
price of 106% of the principal amount plus accrued interest through the
redemption date of January 12, 1995.
NOTE 12 -- SUBSEQUENT EQUITY TRANSACTIONS
In January 1995, the Company filed a registration statement with respect to
a proposed public offering by the Company of up to 7,590,000 shares of Class A
common stock, including an over-allotment option of up to 990,000 shares. The
net proceeds to the Company will be applied to fund the redemption of one-half
of the 11 1/4% senior debentures outstanding for 110% of the principal amount
plus accrued interest through date of redemption which will result in an
estimated extraordinary charge of $9.8 million. The balance of the net proceeds
will be used to fund internal growth and further expansion and for working
capital and other general corporate purposes. Prior to the sale of common stock
contemplated by the public offering, AmeriSource Distribution Corporation
intends to amend its certificate of incorporation to change its corporate name
to AmeriSource Health Corporation.
In conjunction with the sale of common stock, the Company intends to
authorize a 2.95-for-1 stock split. All references to earnings per share data in
the financial statements have been restated to give effect to the stock split.
In conjunction with the proposed public offering described above, the
Company anticipates that the company will issue 871,687 1/2 pre-split shares of
common stock upon the exercise of the options issued under The Distribution Plan
and the 1991 Option Plan which expire 90 days after the closing of the offering.
Also pursuant to a prior agreement, the Company expects to repurchase
453,862 1/2 pre-split shares of common stock from VPI upon the exercise of the
Distribution Plan and the 1991 Option Plan at a price of $1.00 per share. In
December 1994, 114,050 options under the Partners Plan were exercised resulting
in the issuance of 114,050 pre-split shares of Class A Common Stock and the
buyback of 36,300 pre-split shares of Class A Common Stock to satisfy minimum
tax withholdings.
F-21
<PAGE> 76
AMERISOURCE DISTRIBUTION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12 -- SUBSEQUENT EQUITY TRANSACTIONS -- (CONTINUED)
The Company expects to adopt the 1995 Option Plan and the Directors Plan
which will provide for the granting over time of stock options to acquire shares
of Class A Common Stock. In conjunction with the Offering, the Company intends
to eliminate all authorized shares of preferred stock and to reduce the
authorized number of shares of Class A Common Stock and Class B Common Stock.
NOTE 13 -- OTHER INFORMATION (UNAUDITED)
QUARTERLY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED(1)
------------------------------------------------------
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1993 1994 1994 1994
------------ ---------- ---------- -------------
<S> <C> <C> <C> <C>
Revenues....................................... $1,045,776 $1,067,112 $1,079,302 $ 1,109,642
Gross Profit................................... 53,999 58,480 57,455 65,257
Income (Loss) Before Extraordinary Items and
Cumulative Effects of Accounting Changes..... 2,579 3,822 (180,057) 1,239
Extraordinary Charge -- Early Retirement of
Debt......................................... (656)
Cumulative Effects of Accounting Changes....... (34,598)
Net Income (Loss).............................. (32,675) 3,822 (180,057) 1,239
Per Share:
Income (Loss) Before Extraordinary Items and
Cumulative Effects of Accounting Changes..... .18 .26 (12.21) .08
Extraordinary Items............................ (.04)
Cumulative Effects of Accounting Changes....... (2.35)
Net Income (Loss).............................. (2.21) .26 (12.21) .08
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1992 1993 1993 1993
------------ ---------- ---------- -------------
<S> <C> <C> <C> <C>
Revenues....................................... $ 917,681 $ 920,195 $ 918,499 $ 962,650
Gross Profit................................... 51,378 53,385 50,302 54,373
(Loss) Before Extraordinary Items.............. (2,895) (1,308) (2,257) (1,014)
Extraordinary Charge -- Early Retirement of
Debt......................................... (2,635) (9,255)
Extraordinary Credit -- Income Taxes........... 100 150 60 436
Net (Loss)..................................... (2,795) (3,793) (2,197) (9,833)
Per Share:
(Loss) Before Extraordinary Items.............. (.20) (.08) (.16) (.07)
Extraordinary Items............................ .01 (.17) .01 (.60)
Net (Loss)..................................... (.19) (.25) (.15) (.67)
</TABLE>
- ---------------
(1) December 31, 1993 amounts reflect the cumulative effect of the accounting
changes for postretirement benefits other than pensions and income taxes.
June 30, 1994 amounts reflect the write-off of goodwill discussed in Note 2.
F-22
<PAGE> 77
[This Page Intentionally Left Blank]
F-23
<PAGE> 78
AMERISOURCE DISTRIBUTION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER
31, SEPTEMBER 30,
1994 1994
----------- -------------
(UNAUDITED)
<S> <C> <C>
Current Assets
Cash.............................................................. $ 3,702 $ 25,311
Accounts receivable less allowance for doubtful accounts:
9/94 -- $9,370................................................. 272,281
Merchandise inventories........................................... 514,480 351,676
Prepaid expenses and other........................................ 4,122 2,442
----------- -------------
Total current assets...................................... 522,304 651,710
Property and Equipment, at cost..................................... 68,832 67,598
Less accumulated depreciation..................................... 27,618 26,416
----------- -------------
41,214 41,182
Other Assets
Residual interest in master trust................................. 135,028
Deferred financing costs and other, less accumulated amortization:
12/94 -- $1,434; 9/94 -- $7,239................................ 14,429 18,752
----------- -------------
149,457 18,752
----------- -------------
$ 712,975 $ 711,644
========= ==========
</TABLE>
See notes to consolidated financial statements.
F-24
<PAGE> 79
AMERISOURCE DISTRIBUTION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1994 1994
------------ -------------
(UNAUDITED)
<S> <C> <C>
Current Liabilities
Current portion of other debt.................................... $ 116 $ 133
Accounts payable................................................. 473,757 449,991
Accrued expenses................................................. 43,180 27,485
Accrued income taxes............................................. 10,305 11,488
Deferred income taxes............................................ 29,258 29,258
------------ -------------
Total current liabilities..................................... 556,616 518,355
Long-Term Debt
Revolving credit facility........................................ 147,041 175,897
Senior subordinated notes........................................ 166,134 166,134
Other debt....................................................... 1,308 1,293
Convertible subordinated debentures.............................. 238 238
Senior debentures................................................ 147,970 144,013
------------ -------------
462,691 487,575
Other Liabilities
Deferred compensation............................................ 528 522
Other............................................................ 5,885 5,918
------------ -------------
6,413 6,440
Stockholders' Equity
Preferred stock, $.01 par value:
5,000,000 shares authorized; none issued
Common Stock, $.01 par value:
Class A (Voting and convertible): 30,000,000 shares
authorized;
issued 12/94 -- 294,437 1/2 shares; 9/94 -- 180,387 1/2
shares....................................................... 3 2
Class B (Non-voting and convertible): 30,000,000 shares
authorized; 4,400,300 shares issued.......................... 44 44
Class C (Non-voting and convertible): 2,000,000 shares
authorized; 500,000 shares issued............................ 5 5
Capital in excess of par value................................... 4,888 4,775
Retained earnings (deficit)...................................... (315,847) (304,984)
Cost of common stock in treasury................................. (1,838) (568)
------------ -------------
(312,745) (300,726)
------------ -------------
$ 712,975 $ 711,644
========== ==========
</TABLE>
See notes to consolidated financial statements.
F-25
<PAGE> 80
AMERISOURCE DISTRIBUTION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
-------------------------
1994 1993
---------- ----------
<S> <C> <C>
(UNAUDITED)
Revenues............................................................ $1,157,100 $1,045,776
Costs and expenses
Cost of goods sold................................................ 1,093,863 991,777
Selling and administrative........................................ 39,598 34,410
Depreciation...................................................... 1,700 1,589
Interest and cost of Receivables Program.......................... 17,323 15,233
---------- ----------
1,152,484 1,043,009
Income before taxes, extraordinary items and cumulative effects of
accounting changes................................................ 4,616 2,767
Taxes on income..................................................... 3,730 188
---------- ----------
Income before extraordinary items and cumulative effects of
accounting changes................................................ 886 2,579
Extraordinary charges -- early retirement of debt, net of income tax
benefits.......................................................... (11,749) (656)
Cumulative effect of change in accounting for postretirement
benefits other than pensions...................................... (1,199)
Cumulative effect of change in accounting for income taxes.......... (33,399)
---------- ----------
Net (loss)................................................ $ (10,863) $ (32,675)
========= =========
Earnings (loss) per share
Income before extraordinary items and cumulative effects of
accounting changes............................................. $ .06 $ .18
Extraordinary items............................................... (.80) (.04)
Cumulative effect of change in accounting for postretirement
benefits other than pensions................................... (.08)
Cumulative effect of change in accounting for income taxes........ (2.27)
---------- ----------
Net (loss)................................................ $ (.74) $ (2.21)
========= =========
</TABLE>
See notes to consolidated financial statements.
F-26
<PAGE> 81
AMERISOURCE DISTRIBUTION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
-------------------------
1994 1993
----------- ---------
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES
Net (loss)......................................................... $ (10,863) $ (32,675)
Adjustments to reconcile net (loss) to net cash (used in) operating
activities:
Depreciation.................................................... 1,700 1,589
Amortization.................................................... 812 2,242
Provision for losses on accounts receivable..................... 2,737 961
(Gain) on disposal of property and equipment.................... (26) (8)
Deferred income taxes........................................... (184) (782)
Loss on early retirement of debt................................ 15,426 679
Cumulative effects of accounting changes........................ 34,598
Changes in operating assets and liabilities:
Accounts receivable........................................... (29,673) (34,080)
Merchandise inventories....................................... (162,804) (51,104)
Prepaid expenses.............................................. (107) 429
Residual interest in master trust............................. (31,471)
Accounts payable, accrued expenses and income taxes........... 28,310 30,037
Debentures issued in lieu of payment of interest.............. 3,957 3,558
Miscellaneous................................................... (2,389) (637)
----------- ---------
NET CASH (USED IN) OPERATING ACTIVITIES....................... (184,575) (45,193)
INVESTING ACTIVITIES
Capital expenditures............................................... (3,364) (1,946)
Proceeds from sales of property and equipment...................... 1,627 73
----------- ---------
NET CASH (USED IN) INVESTING ACTIVITIES....................... (1,737) (1,873)
----------- ---------
FINANCING ACTIVITIES
Long-term debt borrowings.......................................... 391,505 244,400
Long-term debt repayments.......................................... (420,393) (205,893)
Proceeds from sale of accounts receivable.......................... 201,000
Deferred financing costs........................................... (6,253) (55)
Exercise of stock options.......................................... 114
Purchases of treasury stock........................................ (1,270)
----------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES..................... 164,703 38,452
----------- ---------
(Decrease) in cash................................................... (21,609) (8,614)
Cash at beginning of period.......................................... 25,311 27,136
----------- ---------
CASH AT END OF PERIOD................................................ $ 3,702 $ 18,522
========= =========
</TABLE>
See notes to consolidated financial statements.
F-27
<PAGE> 82
AMERISOURCE DISTRIBUTION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
AmeriSource Distribution Corporation ("Distribution"), is a Delaware
corporation organized by an affiliate of 399 Venture Partners, Inc. ("VPI"), and
other investors, including members of management of AmeriSource Corporation
("AmeriSource"). Distribution was formed in November, 1988 to acquire
AmeriSource in a leveraged buyout transaction (the "Acquisition"). The
accompanying financial statements present the consolidated financial position,
results of operations and cash flows of Distribution and its wholly-owned
subsidiary AmeriSource Corporation (collectively, the "Company") as of the dates
and for the periods indicated. All material intercompany accounts and
transactions have been eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. In the opinion of management, all adjustments
(consisting only of normal recurring accruals) considered necessary to present
fairly the financial position as of December 31, 1994, the results of operations
for the three months ended December 31, 1994 and 1993 and the cash flows for the
three months ended December 31, 1994 and 1993 have been included. Certain
information and footnote disclosures normally included in financial statements
presented in accordance with generally accepted accounting principles, but which
are not required for interim reporting purposes, have been omitted. The
accompanying unaudited condensed consolidated financial statements should be
read in conjunction with the financial statements and notes thereto included in
the Company's Annual Report on Form 10-K for the fiscal year ended September 30,
1994.
NOTE 2 -- INDEBTEDNESS AND FINANCIAL ARRANGEMENTS
In December 1994, the Company sold substantially all of its trade accounts
and notes receivable (the "Receivables") to AmeriSource Receivables Corporation
("ARC"), a special purpose wholly-owned subsidiary, pursuant to a trade
receivables securitization program (the "Receivables Program").
Contemporaneously, the Company entered into a Receivables Purchase Agreement
with ARC, whereby ARC agreed to purchase on a continuous basis Receivables
originated by the Company. Pursuant to the Receivables Program, ARC will
transfer such Receivables to a master trust in exchange for, among other things,
certain trade receivables-backed certificates (the "Certificates") representing
a right to receive a variable principal amount. Contemporaneously, Certificates
in an aggregate principal amount of up to $230 million face amount were sold to
investors. During the five year term of the Receivables Program, the cash
generated by collections on the Receivables will be used to purchase, among
other things, additional Receivables originated by the Company. The Certificates
bear interest at a rate selected by the Company equal to (i) the higher of (a)
the prime lending rate and (b) the federal funds rate plus 50 basis points or
(ii) LIBOR plus 50 basis points. In addition, during the first seventy five days
of the Receivables Program, the Company may select an interest rate equal to the
federal funds rate plus 125 basis points (7.05% at December 31, 1994). The
interest rates for the Certificates are subject to step-ups to a maximum amount
of an additional 100 basis points over the otherwise applicable rate. Pursuant
to the Receivables Program, on December 13, 1994, the Company sold $305 million
in Receivables in exchange for cash of $201 million and a residual interest in
the master trust. The sale has been reflected as a reduction of accounts
receivable in the accompanying December 31, 1994 balance sheet. The Company has
established a valuation allowance of $12.0 million on the residual interest in
the master trust. The costs of $763,000 associated with the Receivables Program
are reported together with interest expense on indebtedness in the accompanying
statement of operations for the three months ended December 31, 1994. The sale
of the Receivables and the application of the proceeds of the sale to reduce
borrowings have been reflected as financing activities in the accompanying
statement of cash flows for the three months ended December 31, 1994.
F-28
<PAGE> 83
AMERISOURCE DISTRIBUTION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
NOTE 2 -- INDEBTEDNESS AND FINANCIAL ARRANGEMENTS -- (CONTINUED)
At the same time that it entered into the Receivables Program, the Company
and its senior lenders amended its existing Credit Agreement. Among other
things, the Amended and Restated Credit Agreement: (i) extended the term of the
Credit Agreement until January 3, 2000; (ii) established the amount the Company
may borrow at $380 million; (iii) reduced the initial borrowing rate to LIBOR
plus 225 basis points from LIBOR plus 300 basis points and provided for further
interest rate stepdowns upon the occurrence of certain events; (iv) modified the
borrowing base availability from inventory and receivable based to inventory
based; and (v) increased the Company's ability to make acquisitions and pay
dividends.
Contemporaneously with the consummation of the Receivables Program and the
execution of the Amended and Restated Credit Agreement, the Company called for
optional redemption all of the outstanding 14 1/2% senior subordinated notes at
a redemption price of 106% of the principal amount plus accrued interest through
the redemption date of January 12, 1995. In connection with the amendment of the
Credit Agreement and the redemption of the 14 1/2% senior subordinated notes,
the Company recorded an extraordinary charge of $11,749,000 during the three
months ended December 31, 1994 relating to the write-off of unamortized
financing fees and premiums to be paid on the redemption of the 14 1/2% senior
subordinated notes, net of tax benefits.
NOTE 3 -- EXCESS OF COST OVER NET ASSETS ACQUIRED
During the third quarter of the fiscal year ended September 30, 1994, the
Company concluded that the carrying value of its excess of cost over net assets
acquired ("goodwill") could not be recovered from expected future operations and
accordingly wrote off its remaining goodwill balance of $179.8 million. See
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
NOTE 4 -- LEGAL MATTERS AND CONTINGENCIES
In the ordinary course of its business, the Company becomes involved in
lawsuits, administrative proceedings and governmental investigations, including
antitrust, environmental, product liability and regulatory agency matters. In
some of these proceedings, plaintiffs may seek to recover large and sometimes
unspecified amounts and the matters may remain unresolved for several years. The
Company does not believe that these matters, individually or in the aggregate,
will have a material adverse effect on its business or financial condition.
In November 1993, the Company was named a defendant, along with six other
wholesale distributors and twenty-four pharmaceutical manufacturers, in fourteen
civil actions filed by independent retail pharmacies in the United States
District Court for the Southern District of New York. Plaintiffs seek to
establish these lawsuits and over thirty-four others (to which the Company is
not a party) filed by other pharmacies as class actions. In essence, these
lawsuits all claim that the manufacturer and wholesaler defendants have
combined, contracted and conspired to fix the prices charged to plaintiffs and
class members for prescription brand name pharmaceuticals. Specifically,
plaintiffs claim that the defendants use "chargeback agreements" to give some
institutional pharmacies discounts that are not made available to retail drug
stores. Plaintiffs seek injunctive relief, treble damages, attorneys' fees and
costs. These actions have been transferred to the United States District Court
for the Northern District of Illinois for consolidated and coordinated pretrial
proceedings. Effective October 26, 1994, the Company entered into a Judgement
Sharing Agreement with other wholesaler and pharmaceutical manufacturer
defendants. Under the Judgement Sharing Agreement: (a) the manufacturer
defendants agreed to reimburse the wholesaler defendants for litigation costs
incurred, up to an aggregate of $9 million; and (b) if a judgement is entered
into against both manufacturers and wholesalers, the total exposure for joint
and several liability of the Company is limited to the lesser of 1% of such
judgement or one million dollars. In addition, the Company has released any
claims which it might have had against the
F-29
<PAGE> 84
AMERISOURCE DISTRIBUTION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
NOTE 4 -- LEGAL MATTERS AND CONTINGENCIES -- (CONTINUED)
manufacturers for the claims presented by the plaintiffs in these lawsuits. The
Judgement Sharing Agreement covers the federal court litigation as well as the
cases which have been filed in various state courts. The Company believes it has
meritorious defenses to the claims asserted in these lawsuits and intends to
vigorously defend itself in all of these cases.
The Company has become aware that its former Charleston, South Carolina
distribution center was previously owned by a fertilizer manufacturer and that
there is evidence of residual soil contamination remaining from the fertilizer
manufacturing process operated on that site over thirty years ago. The Company
engaged an environmental consulting firm to conduct a soil survey and initiated
a groundwater study during fiscal 1994. The preliminary results of the
groundwater study indicate that there is lead in the groundwater at levels
requiring further investigation and response. A preliminary engineering analysis
was prepared by outside consultants during the third quarter of fiscal 1994, and
indicated that, if both soil and groundwater remediation are required, the most
likely cost of remediation efforts at the Charleston site is estimated to be
$4.1 million. Accordingly, a liability of $4.1 million was recorded during the
third quarter of fiscal 1994 to cover future consulting, legal and remediation
and ongoing monitoring costs. The Company has notified the appropriate state
regulatory agency from whom approval must be received before proceeding with any
further tests or with the actual site remediation. The approval process and
remediation could take several years to accomplish and the actual costs may
differ from the liability which has been recorded. The accrued liability, which
is reflected in other long-term liabilities on the accompanying consolidated
balance sheet, is based on an estimate of the extent of contamination and choice
of remedy, existing technology and presently enacted laws and regulations,
however, changes in remediation standards, improvements in cleanup technology
and discovery of additional information concerning the site could affect the
estimated liability in the future. The Company is investigating the possibility
of asserting claims against responsible parties for recovery of these costs.
Whether or not any recovery may be forthcoming is unknown at this time, although
the Company intends to vigorously enforce its rights and remedies.
The Company has been named as a defendant in a lawsuit based upon alleged
injuries and deaths attributable to the product L-Tryptophan. The Company did
not manufacture L-Tryptophan; however, prior to an FDA recall, The Company did
distribute products containing L-Tryptophan obtained from several of its
vendors. The Company believes that it is entitled to full indemnification by its
suppliers and the manufacturer of L-Tryptophan with respect to this lawsuit and
any other lawsuits involving L-Tryptophan in which the Company may be named in
the future. To date, the indemnity to the Company in similar suits has not been
in dispute and, the Company believes it is unlikely it will incur any loss as a
result of such lawsuits. The Company further believes that its insurance
coverage and supplier indemnification are adequate to cover any losses should
they occur. The Company has recently been informed that this matter has been
settled, without cost to the Company.
The Company has received notices from the Internal Revenue Service
asserting deficiencies in federal corporate income taxes for the Company's
taxable years 1987 through 1991. The notices indicate an aggregate increase in
net taxable income for these years of approximately $24 million and relate
principally to the deductibility of costs incurred with respect to the
Acquisition. The Company has analyzed these matters with tax counsel and
believes it has meritorious defenses to the deficiencies asserted by the
Internal Revenue Service. The Company will contest the asserted deficiencies
through the administrative appeals process and, if necessary, litigation. The
Company believes that any amounts assessed will not have a material effect on
the financial condition of the Company.
At December 31, 1994, there were contingent liabilities with respect to
taxes, guarantees of borrowings by certain customers, lawsuits and environmental
and other matters occurring in the ordinary course of business. On the basis of
information furnished by counsel and others, management believes that none of
these contingencies will materially affect the Company.
F-30
<PAGE> 85
AMERISOURCE DISTRIBUTION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
NOTE 5 -- EARNINGS PER SHARE
For the three months ended December 31, 1994 and December 31, 1993,
earnings (loss) per share are based on 14,750,000 shares (as adjusted for the
2.95-for-1 stock split as discussed in Note 6), representing the weighted
average number of shares of all classes of Distribution's common stock
outstanding during those periods including the effect of stock options.
Substantially all of the options outstanding will be satisfied with shares
purchased or to be purchased from VPI at $1.00 per share, pursuant to a prior
agreement.
NOTE 6 -- SUBSEQUENT EQUITY TRANSACTIONS
In January 1995, the Company filed a registration statement with respect to
a proposed public offering by the Company of up to 7,590,000 shares of Class A
common stock, including an over-allotment option of up to 990,000 shares. The
net proceeds to the Company will be applied to fund the redemption of one-half
of the 11 1/4% senior debentures outstanding for 110% of the principal amount
plus accrued interest through date of redemption which will result in an
estimated extraordinary charge of $9.8 million. The balance of the net proceeds
will be used to fund internal growth and further expansion and for working
capital and other general corporate purposes. Prior to the sale of common stock
contemplated by the public offering, AmeriSource Distribution Corporation
intends to amend its certificate of incorporation to change its corporate name
to AmeriSource Health Corporation.
In conjunction with the sale of common stock, the Company intends to
authorize a 2.95-for-1 stock split. All references to earnings per share data in
the financial statements have been restated to give effect to the stock split.
In conjunction with the proposed public offering described above, the Company
anticipates that the Company will issue 871,687 1/2 pre-split shares of common
stock upon the exercise of the options issued under the Distribution Plan and
the 1991 Option Plan which expire 90 days after the closing of the offering.
Also pursuant to a prior agreement, the Company expects to repurchase
453,862 1/2 pre-split shares of common stock from VPI upon the exercise of the
Distribution Plan and the 1991 Option Plan at a price of $1.00 per share. The
Company expects to adopt the 1995 Option Plan and the Directors Plan which will
provide for the granting over time of stock options to acquire shares of Class A
Common Stock. In conjunction with the offering, the Company intends to eliminate
all authorized shares of preferred stock and to reduce the authorized number of
shares of Class A Common stock and Class B Common Stock.
F-31
<PAGE> 86
INDEX TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Statement of Operations for the year ended September 30, 1994
(unaudited).......................................................................... P-3
Consolidated Statement of Operations for the three months ended December 31,
1994 (unaudited)..................................................................... P-4
Consolidated Statement of Operations for the three months ended December 31, 1993
(unaudited).......................................................................... P-5
Consolidated Balance Sheet as of December 31, 1994 (unaudited)......................... P-6
</TABLE>
P-1
<PAGE> 87
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The unaudited pro forma statements of operations for the fiscal year ended
September 30, 1994 and for the three months ended December 31, 1994 and 1993 set
forth below give effect to the Refinancing, the Option Exercises and the use of
the proceeds from the Offering of $125,400 assuming the sale of 6,600,000 shares
of Common Stock offered by this Prospectus assuming an offering price of $19.00
per share (the midpoint of the range as set forth on the cover of this
Prospectus), less estimated issuance costs of $8,838 as if
such transactions had occurred as of the beginning of the periods presented.
The unaudited pro forma balance sheet as of December 31, 1994 set forth
below gives effect to the Refinancing, the Option Exercises and the Offering as
if such transactions had occurred on December 31, 1994.
The unaudited pro forma financial statements are not necessarily indicative
of what the Company's results of operations and balance sheet would have been
had the Refinancing, the Option Exercises and the Offering been consummated at
the assumed dates, nor are they necessarily indicative of the Company's results
of operations and balance sheet for any future period. The unaudited pro forma
financial statements should be read in conjunction with the consolidated
financial statements and related notes thereto, "The Refinancing," "The
Offering" and "Use of Proceeds" included elsewhere in this Prospectus.
P-2
<PAGE> 88
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30, 1994
---------------------------------------------------------------
PRO FORMA ADJUSTMENTS
-------------------------------
OPTION
EXERCISES AND AS
HISTORICAL REFINANCING OFFERING ADJUSTED
<S> <C> <C> <C> <C>
Revenues.............................. $4,301,832 $ -- $ -- $4,301,832
Cost of goods sold.................... 4,066,641 4,066,641
Selling and administrative expenses... 142,497 142,497
Environmental remediation............. 4,075 4,075
Depreciation.......................... 6,640 6,640
Amortization of intangibles........... 4,147 4,147
Write-off of excess of cost over net
assets acquired..................... 179,824 179,824
---------- ----------
Operating income (loss)............... (101,992) (101,992)
Interest expense and other............ 62,611 (19,095)(1) (9,821)(2) 33,695
---------- ----------- ------------- ----------
(Loss) before taxes, extraordinary
items and cumulative effects of
accounting changes.................. (164,603) 19,095 9,821 (135,687)
Taxes on income....................... 7,814 5,380(3) 2,767(3) 15,961
---------- ----------- ------------- ----------
(Loss) before extraordinary items and
cumulative effects of accounting
changes(4).......................... $ (172,417) $ 13,715 $ 7,054 $ (151,648)
========= ======== ========== =========
(Loss) before extraordinary items and
cumulative effects of accounting
changes per share(4)................ $ (11.69) $ (7.15)
========= =========
Weighted average common shares
outstanding(5)...................... 14,750 21,212
========= =========
</TABLE>
- ---------------
(1) Adjusted for interest savings consisting of: (i) a $24,712 reduction due to
the redemption of the 14 1/2% senior subordinated notes; and (ii) a $3,539
reduction in amortization of deferred financing fees related to the senior
subordinated notes and the old revolving credit facility, offset by
additional interest of $7,605 associated with the amended and restated
revolving credit facility and Receivables Program and $1,551 of amortization
of deferred financing fees. The Receivables Program is assumed to bear a
cost of 5.9% per annum (representative of historical rates on fixed
principal certificates) on the assumed $201,000 in Certificates sold to
investors. The amended and restated revolving credit facility is assumed to
bear a weighted average interest rate of 6.1% per annum, which is
representative of historical interest rates.
(2) Adjusted for interest savings consisting of: (i) a $7,452 reduction due to
the redemption of one-half of the 11 1/4% senior debentures; (ii) a $217
reduction in amortization of deferred financing fees related to the senior
debentures and (iii) a $2,152 reduction due to an assumed pay down of
$41,335 in borrowings under the amended and restated revolving credit
facility. The amended and restated revolving credit facility is assumed to
bear a weighted average interest rate of 6.1% per annum, which is
representative of historical interest rates.
(3) Tax provision arising from the pro forma adjustments.
(4) Does not reflect an extraordinary charge of $656, net of tax benefits,
representing the write-off of unamortized financing fees relating to the
purchase and retirement of a portion of the senior subordinated notes, the
cumulative effect of $1,199 for the change in the accounting for
postretirement benefits other than pensions, the cumulative effect of
$33,399 for the change in the accounting for income taxes or a pro forma
extraordinary charge due to the Refinancing and Offering, consisting of
$16,293 from the early extinguishment of debt and a $11,613 write-off of
deferred financing fees.
(5) The historical weighted average common shares outstanding have been restated
for the 2.95-for-1 stock split to be declared in connection with the
Offering. The pro forma weighted average common shares outstanding reflects
the additional number of shares to be issued in connection with the Offering
and the Option Exercises.
P-3
<PAGE> 89
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31, 1994
---------------------------------------------------------------
PRO FORMA ADJUSTMENTS
-------------------------------
OPTION
EXERCISES AND AS
HISTORICAL REFINANCING OFFERING ADJUSTED
<S> <C> <C> <C> <C>
Revenues.............................. $1,157,100 $ -- $ -- $1,157,100
Cost of goods sold.................... 1,093,863 1,093,863
Selling and administrative expenses... 39,598 39,598
Depreciation.......................... 1,700 1,700
---------- ----------
Operating income...................... 21,939 21,939
Interest expense and cost of
receivables program................. 17,323 (3,864)(1) (2,616)(2) 10,843
---------- ----------- ------------- ----------
Income before taxes and extraordinary
items............................... 4,616 3,864 2,616 11,096
Taxes on income....................... 3,730 1,388(3) 939(3) 6,057
---------- ----------- ------------- ----------
Income before extraordinary
items(4)............................ $ 886 $ 2,476 $ 1,677 $ 5,039
========= ======== ========== =========
Income before extraordinary items per
share(4)............................ $ .06 $ .24
========= =========
Weighted average common shares
outstanding(5)...................... 14,750 21,212
========= =========
</TABLE>
- ---------------
(1) Adjusted for interest savings consisting of: (i) a $6,876 reduction due to
the redemption of the 14 1/2% senior subordinated notes; and (ii) a $599
reduction in amortization of deferred financing fees related to the senior
subordinated notes and the old revolving credit facility, offset by
additional interest of $3,289 associated with the amended and restated
revolving credit facility and Receivables Program and $322 of amortization
of deferred financing fees. The Receivables Program is assumed to bear a
cost of 8.1% per annum (representative of historical rates on fixed
principal certificates) on the assumed $201,000 in Certificates outstanding.
The amended and restated revolving credit facility is assumed to bear a
weighted average interest rate of 8.2% per annum, which is representative of
historical interest rates.
(2) Adjusted for interest savings consisting of: (i) a $1,979 reduction due to
the redemption of one-half of the 11 1/4% senior debentures; (ii) a $54
reduction in amortization of deferred financing fees related to the senior
debentures and (iii) a $583 reduction due to an assumed pay down of $33,175
in borrowings under the amended and restated revolving credit facility. The
amended and restated revolving credit facility is assumed to bear a weighted
average interest rate of 8.2% per annum, which is representative of
historical interest rates.
(3) Tax provision arising from the pro forma adjustments.
(4) Does not reflect an extraordinary charge of $11,749, net of tax benefits,
relating to the amendment of the revolving credit facility and the
redemption of the 14 1/2% senior subordinated notes or a pro forma
extraordinary charge due to the Offering, consisting of $7,034 from the
early extinguishment of debt and a $2,341 write-off of deferred financing
fees.
(5) The historical weighted average common shares outstanding have been restated
for the 2.95-for-1 stock split to be declared in connection with the
Offering. The pro forma weighted average common shares outstanding reflects
the additional number of shares to be issued in connection with the Offering
and the Option Exercises.
P-4
<PAGE> 90
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31, 1993
---------------------------------------------------------------
PRO FORMA ADJUSTMENTS
-------------------------------
OPTION
EXERCISES AND AS
HISTORICAL REFINANCING OFFERING ADJUSTED
<S> <C> <C> <C> <C>
Revenues.............................. $1,045,776 $ -- $ -- $1,045,776
Cost of goods sold.................... 991,777 991,777
Selling and administrative expenses... 33,034 33,034
Depreciation.......................... 1,589 1,589
Amortization of intangibles........... 1,376 1,376
---------- ----------
Operating income...................... 18,000 18,000
Interest expense and other............ 15,233 (4,460)(1) (2,343)(2) 8,430
---------- ----------- ------------- ----------
Income before taxes, extraordinary
items and cumulative effects of
accounting changes.................. 2,767 4,460 2,343 9,570
Taxes on income....................... 188 1,287(3) 676(3) 2,151
---------- ----------- ------------- ----------
Income before extraordinary items and
cumulative effects of accounting
changes(4).......................... $ 2,579 $ 3,173 $ 1,667 $ 7,419
========= ======== ========== =========
Income before extraordinary items and
cumulative effects of accounting
changes per share(4)................ $ .18 $ .35
========= =========
Weighted average common shares
outstanding(5)...................... 14,750 21,212
========= =========
</TABLE>
- ---------------
(1) Adjusted for interest savings consisting of: (i) a $6,022 reduction due to
the redemption of the 14 1/2% senior subordinated notes; and (ii) a $758
reduction in amortization of deferred financing fees related to the senior
subordinated notes and the old revolving credit facility, offset by
additional interest of $1,932 associated with the amended and restated
revolving credit facility and Receivables Program and $388 of amortization
of deferred financing fees. The Receivables Program is assumed to bear a
cost of 5.9% per annum (representative of historical rates on fixed
principal certificates) on the assumed $201,000 in Certificates outstanding.
The amended and restated revolving credit facility is assumed to bear a
weighted average interest rate of 5.7% per annum, which is representative of
historical interest rates.
(2) Adjusted for interest savings consisting of: (i) a $1,779 reduction due to
the redemption of one-half of the 11 1/4% senior debentures; (ii) a $54
reduction in amortization of deferred financing fees related to the senior
debentures and (iii) a $510 reduction due to an assumed pay down of $41,335
in borrowings under the amended and restated revolving credit facility. The
amended and restated revolving credit facility is assumed to bear a weighted
average interest rate of 5.7% per annum, which is representative of
historical interest rates.
(3) Tax provision arising from the pro forma adjustments.
(4) Does not reflect an extraordinary charge of $656, net of tax benefits,
representing the write-off of unamortized financing fees relating to the
purchase and retirement of a portion of the senior subordinated notes, the
cumulative effect of $1,199 for the change in the accounting for
postretirement benefits other than pensions, the cumulative effect of
$33,399 for the change in the accounting for income taxes or a pro forma
extraordinary charge due to the Refinancing and Offering, consisting of
$16,293 from the early extinguishment of debt and a $11,613 write-off of
deferred financing fees.
(5) The historical weighted average common shares outstanding have been restated
for the 2.95-for-1 stock split to be declared in connection with the
Offering. The pro forma weighted average common shares outstanding reflects
the additional number of shares to be issued in connection with the Offering
and the Option Exercises.
P-5
<PAGE> 91
UNAUDITED PRO FORMA BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1994
----------------------------------------------------------
PRO FORMA ADJUSTMENTS
-------------------------------
OPTION
EXERCISES AND AS
HISTORICAL REFINANCING(1) OFFERING(2) ADJUSTED
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash...................................... $ 3,702 $ -- $ -- $ 3,702
Merchandise inventories................... 514,480 514,480
Prepaid expenses.......................... 4,122 4,122
---------- -------------- ---------
Total current assets............... 522,304 522,304
Property and equipment, net................. 41,214 41,214
Residual interest in master trust........... 135,028 135,028
Deferred financing costs and other.......... 14,429 (2,287) 12,142
---------- -------------- ------------- ---------
Total assets....................... $ 712,975 $ -- $ (2,287) $ 710,688
=========== ============= ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of other debt............. $ 116 $ -- $ -- $ 116
Accounts payable.......................... 473,757 473,757
Accrued expenses.......................... 43,180 (17,848) (5,490) 19,842
Accrued income taxes...................... 10,305 > (3,374) 6,931
Deferred income taxes..................... 29,258 29,258
---------- -------------- ------------- ---------
Total current liabilities.......... 556,616 (17,848) (8,864) 529,904
Long-term debt
Revolving credit facility................. 147,041 183,982 (32,352) 298,671
14 1/2% Senior subordinated notes......... 166,134 (166,134) --
Other debt................................ 1,308 1,308
6 1/4% Convertible subordinated
debentures.............................. 238 238
11 1/4% Senior debentures................. 147,970 (73,985) 73,985
---------- -------------- ------------- ---------
462,691 17,848 (106,337) 374,202
Other liabilities........................... 6,413 6,413
Stockholders' equity (deficit)
Common stock.............................. 52 193 245
Capital in excess of par value............ 4,888 122,315 127,203
Retained earnings (deficit)............... (315,847) (5,947) (321,794)
Cost of common stock in treasury.......... (1,838) (3,647) (5,485)
---------- -------------- ------------- ---------
Total stockholders' equity
(deficit)........................ (312,745) 112,914 (199,831)
---------- -------------- ------------- ---------
Total liabilities and stockholders'
equity (deficit)................. $ 712,975 $ -- $ (2,287) $ 710,688
=========== ============= ============ ===========
</TABLE>
- ---------------
(1) The Refinancing assumes the redemption of the 14 1/2% senior subordinated
notes for $183,982 representing a price equal to 106% of the principal
amount plus accrued interest through the date of redemption.
(2) Reflects the: 2.95-for-1 stock split that will be implemented concurrently
with the Offering; the issuance of 2,571,478 shares of Common Stock upon the
exercise of options under the Purchase Plan and the 1991 Option Plan and
buyback of 168,045 shares of Common Stock valued at $3,193 to satisfy
minimum tax withholding obligations; and the repurchase from VPI of
1,338,894 shares of Common Stock for $454 upon the exercise of options under
the Purchase Plan and the 1991 Option Plan. Assumes the Company would have
used the net proceeds of $116,562 from the Offering to redeem one-half of
the 11 1/4% senior debentures for $81,019 representing a price equal to 110%
of the principal amount plus accrued interest through the date of redemption
and to pay down borrowings under the amended and restated revolving credit
facility by $32,352. Pro forma adjustments to retained earnings (deficit)
include extraordinary charges due to the Offering of $7,034 from the early
extinguishment of debt, $2,287 from the write-off of deferred financing
costs, net of a $3,374 tax benefit. Pro forma adjustments to common stock
and capital in excess of par value include: $116,562 of net proceeds from
the Offering; reclassification of $5,490 in accrued expenses associated with
the 1991 Option Plan; $456 of cash proceeds from the Option exercises; and
the 2.95-for-1 stock split. Pro forma adjustments to the cost of common
stock in treasury includes $3,193 related to the buyback of shares to
satisfy minimum tax withholding obligations related to the Option Exercises
and $454 related to common stock repurchased from VPI. Pro forma adjustments
to stockholders' equity (deficit) do not include estimated tax benefits of
$13,857 related to the exercise of the non-qualified options under the
option plans noted above, which will be recorded as an addition to capital
in excess of par value when realized by the Company.
P-6
<PAGE> 92
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, AMERI-SOURCE CORPORATION OR THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF ANY OFFER TO BUY ANY SECURITY OTHER THAN THE SECURITIES OFFERED
HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY ANY OF THE SECURITIES TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY OR AMERISOURCE CORPORATION SINCE SUCH DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary........................ 3
Summary Financial Data.................... 6
Risk Factors.............................. 8
The Refinancing........................... 11
Use of Proceeds........................... 12
Dividend Policy........................... 12
Dilution.................................. 12
Capitalization............................ 13
Selected Financial Data................... 14
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 16
Business.................................. 24
Management................................ 32
Certain Relationships and Transactions.... 38
Principal Stockholders.................... 39
Description of Capital Stock.............. 40
Description of Indebtedness and
Securitization Program.................. 42
Shares Eligible for Future Sale........... 45
Certain United States Federal Tax
Considerations for Non-U.S. Holders of
Common Stock............................ 46
Underwriting.............................. 48
Legal Matters............................. 50
Experts................................... 50
Additional Information.................... 51
Incorporation of Certain Documents by
Reference............................... 51
Index to Financial Statements............. F-1
Index to Unaudited Pro Forma Financial
Statements.............................. P-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
6,600,000 SHARES
[AMERISOURCE LOGO]
COMMON STOCK
--------------------
PROSPECTUS
--------------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SMITH BARNEY INC.
BT SECURITIES CORPORATION
, 1995
------------------------------------------------------
------------------------------------------------------
<PAGE> 93
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, AMERI-SOURCE CORPORATION OR THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF ANY OFFER TO BUY ANY SECURITY OTHER THAN THE SECURITIES OFFERED
HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY ANY OF THE SECURITIES TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY OR AMERISOURCE CORPORATION SINCE SUCH DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary........................ 3
Summary Financial Data.................... 6
Risk Factors.............................. 8
The Refinancing........................... 11
Use of Proceeds........................... 12
Dividend Policy........................... 12
Dilution.................................. 12
Capitalization............................ 13
Selected Financial Data................... 14
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 16
Business.................................. 24
Management................................ 32
Certain Relationships and Transactions.... 38
Principal Stockholders.................... 39
Description of Capital Stock.............. 40
Description of Indebtedness and
Securitization Program.................. 42
Shares Eligible for Future Sale........... 45
Certain United States Federal Tax
Considerations for Non-U.S. Holders of
Common Stock............................ 46
Underwriting.............................. 48
Legal Matters............................. 50
Experts................................... 50
Additional Information.................... 51
Incorporation of Certain Documents by
Reference............................... 51
Index to Financial Statements............. F-1
Index to Unaudited Pro Forma Financial
Statements.............................. P-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
6,600,000 SHARES
[AMERISOURCE LOGO]
COMMON STOCK
--------------------
PROSPECTUS
--------------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SMITH BARNEY INC.
BANKERS TRUST INTERNATIONAL PLC
, 1995
------------------------------------------------------
------------------------------------------------------
<PAGE> 94
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth an estimate of the expenses that will be
incurred in connection with the distribution of the Common Stock being
registered hereby.
<TABLE>
<S> <C>
SEC registration fee..................................................... $52,345.20
NASD filing fee.......................................................... 15,680.00
Nasdaq National Market listing fee....................................... 50,000.00
Blue Sky fees and expenses............................................... *
Printing and engraving expenses.......................................... *
Legal fees and expenses.................................................. *
Accounting fees and expenses............................................. *
Transfer Agent and Registrar fees and expenses........................... *
Miscellaneous............................................................ *
----------
*
=========
</TABLE>
- ---------------
* To be supplied by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Certificate of Incorporation, as amended (the "Charter")
provides that directors of the Company shall be entitled to all limitations on
the liability of directors available under the Delaware General Corporation Law
(the "DGCL"). Further, the Charter provides that a director shall not be liable
to the Company or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Company or its stockholders, (ii) for acts or omissions
by the director not in good faith or which involve intentional misconduct or a
knowing violation of the law, (iii) acts described under Section 174 of the DGCL
relating to the declaration of dividends and purchase or redemption of shares in
violation of the DGCL or (iv) for any transaction from which a director derived
an improper personal benefit. In addition, Section 145 of the DGCL and Article
IV of the Company's Bylaws under certain circumstances, provide for the
indemnification of the Company's officers and directors against liabilities
which they may incur in such capacities.
In general, any officer or director of the Company shall be indemnified by
the Company against expenses including attorneys' fees, judgments, fines and
settlements actually and reasonably incurred by that person in connection with a
legal proceeding as a result of such relationship, whether or not the
indemnified liability arises from an action by or in the right of the Company,
if the officer or director acted in good faith, and in the manner believed to be
in or not opposed to the Company's best interest, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe the conduct
was unlawful. Such indemnity is limited to the extent that (i) such person is
not otherwise indemnified and (ii) such indemnification is not prohibited by the
DGCL or any other applicable law.
Any indemnification under the previous paragraph (unless ordered by a
court) shall be made by the Company only as authorized in the specific case upon
the determination that indemnification of the director or officer is proper in
the circumstances because that person has met the applicable standard of conduct
set forth above. Such determination shall be made (i) by the Board of Directors
by a majority vote of a quorum of disinterested directors who are not parties to
such action or (ii) if such quorum is not obtainable or, even if obtainable a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion. To the extent that a director or officer of the Company shall
be successful in prosecuting an indemnity claim, the reasonable expenses of any
such person and the fees and expenses of any special legal counsel engaged to
determine the possibility of indemnification shall be borne by the Company.
II-1
<PAGE> 95
Expenses incurred by a director or officer of the Company in defending a
civil or criminal action, suit or proceeding shall be paid by the Company in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such director or officer to repay such
amount if it shall ultimately be determined that such person is not entitled to
be indemnified by the Company as authorized by the Bylaws.
The indemnification and advancement of expenses provided by, or granted
pursuant to Article IV of the Bylaws is not deemed exclusive of any other rights
to which those seeking indemnification or advancement of expenses may be
entitled, both as to action in that person's official capacity and as to action
in another capacity while holding such office.
The Board of Directors has the power to authorize the Company to purchase
and maintain insurance on behalf of the Company and others to the extent that
power to do so has not been prohibited by the DGCL, create any fund to secure
any of its indemnification obligations and give other indemnification to the
extent permitted by law. The obligations of the Company to indemnify a director
or officer under Article IV of the Bylaws is a contract between the Company and
such director or officer, and no modification or repeal of the Bylaws shall
detrimentally affect such officer or director with regard to that person's acts
or omissions prior to such amendment or repeal.
The Company has also purchased insurance for its directors and officers for
certain losses arising from claims or charges made against them in their
capacities as directors and officers of the Company.
Reference is made to Section 7 of the form Underwriting Agreement filed as
Exhibit 1.1 hereto for additional indemnification provisions.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ---------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement, dated , 1995 between AmeriSource
Distribution Corporation ("Issuer") and the Underwriters.
2 Not Applicable.
4.1 Indenture, dated as of May 30, 1986, between AmeriSource and Bankers Trust
Company, as trustee relating to the 6 1/4% Convertible Subordinated Debentures
due 2001 of AmeriSource (the "Convertible Debentures") including the form of
Convertible Debenture (incorporated by reference to Exhibit 4 to AmeriSource's
Current Report, dated July 1, 1986, on Form 8-K).
4.2 First Supplemental Indenture, dated as of October 31, 1989, to Indenture, dated
as of May 30, 1986 (incorporated by reference to Exhibit 4.23 to Issuer's and
AmeriSource's Annual Report on Form 10-K for the fiscal year ended September 30,
1989).
4.3 Second Supplemental Indenture, dated as of October 31, 1989, to Indenture, dated
as of May 30, 1986 (incorporated by reference to Exhibit 4.24 to Issuer's and
AmeriSource's Annual Report on Form 10-K for the fiscal year ended September 30,
1989).
4.4 Indenture dated July 15, 1993 between Issuer and Security Trust Company, N.A., as
trustee relating to the 11 1/4% Senior Debentures due 2005 (the "Senior
Debentures") of Issuer including the form of the Senior Debentures (incorporated
by reference to Exhibit 4 to Issuer's and AmeriSource's Form 10-Q for the quarter
ended June 30, 1993).
4.5 Amended and Restated Credit Agreement, dated as of December 13, 1994 (the
"Amended and Restated Credit Agreement") among AmeriSource, General Electric
Capital Corporation individually and as agent, Bankers Trust Company, as
co-agent, and the banks and other financial institutions named therein
(incorporated by reference to Exhibit 4.10 to Issuer's and AmeriSource's Form
10-K for the year ended September 30, 1994).
**4.6 First Amendment dated as of February 10, 1995 to the Amended and Restated Credit
Agreement.
</TABLE>
II-2
<PAGE> 96
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ---------------------------------------------------------------------------------
<C> <S>
**4.7 Second Amendment dated as of March , 1995 to the Amended and Restated Credit
Agreement.
4.8 Receivables Purchase Agreement, dated as of December 13, 1994 between
AmeriSource, as Seller and AmeriSource Receivables Corporation, as Purchaser
(incorporated by reference to Exhibit 4.11 to Issuer's and AmeriSource's Form
10-K for the year ended September 30, 1994).
4.9 AmeriSource Receivables Master Trust Pooling and Servicing Agreement, dated as of
December 13, 1994 among AmeriSource Receivables Corporation, as transferor,
AmeriSource, as the initial Servicer, and Manufacturers and Traders Trust
Company, as Trustee (incorporated by reference to Exhibit 4.12 to Issuer's and
AmeriSource's Form 10-K for the year ended September 30, 1994).
4.10 Revolving Certificate Purchase Agreement, dated as of December 13, 1994 among
AmeriSource Receivables Corporation, AmeriSource, The Revolving Purchasers and
Bankers Trust Company, as Agent and Revolving Purchaser (incorporated by
reference to Exhibit 4.13 to Issuer's and AmeriSource's Form 10-K for the year
ended September 30, 1994).
4.11 Series 1994-1 Supplement to Pooling and Servicing Agreement, dated as of December
13, 1994 among AmeriSource Receivables Corporation, as transferor, AmeriSource,
as initial Servicer, and Manufacturers and Traders Trust Company, as Trustee
(incorporated by reference to Exhibit 4.14 to Issuer's and AmeriSource's Form
10-K for the year ended September 30, 1994).
**4.12 Form of Certificate of Issuer's Class A Common Stock, $0.01 par value per share.
5.1 Opinion and Consent of Dechert Price & Rhoads.
6 Not Applicable.
7 Not Applicable.
8 Not Applicable.
10.1 Stock Purchase and Stockholders' Agreement, dated December 29, 1988, among Drexel
Burnham Lambert Incorporated, the other purchasers named therein, Distribution
and Citicorp Venture Capital Ltd. (incorporated by reference to Exhibit 10.3 to
the Registration Statement on Form S-1 Registration No. 33-27835, filed March 29,
1989).
10.2 Stock Purchase Agreement, dated as of December 29, 1988, among Issuer, Anthony C.
Howkins, The NTC Group, Inc., Barton J. Winokur and Citicorp Venture Capital Ltd.
(incorporated by reference to Exhibit 10.4 to the Registration Statement on Form
S-1, Registration No. 33-27835, filed March 29, 1989).
10.3 AmeriSource Master Pension Plan (incorporated by reference to Exhibit 10.9 to the
Registration Statement on Form S-1, Registration No. 33-27835, filed March 29,
1989).
10.4 AmeriSource 1988 Supplemental Retirement Plan (incorporated by reference to
Exhibit 10.10 to the Registration Statement on Form S-1, Registration No.
33-27835, filed March 29, 1989).
10.5 AmeriSource 1985 Deferred Compensation Plan (incorporated by reference to Exhibit
10.1 to AmeriSource's Annual Report on Form 10-K for the fiscal year ended
September 30, 1985).
10.6 Issuer and Subsidiaries Employee Stock Purchase Plan ("Stock Purchase Plan")
(incorporated by reference to Exhibit 10.13 to Amendment No. 1, filed August 15,
1989, to the Registration Statement on Form S-1, Registration No. 33-27835).
10.7 Form of Amendment No. 1 to Stock Purchase Plan (incorporated by reference to
Exhibit No. 10.35 to Issuer's Registration Statement on Form S-1, Amendment No.
2, Registration No. 33-44244).
10.8 Form of Securities Purchase and Holders Agreement among Issuer, Citicorp Venture
Capital Ltd. and a Management Investor (incorporated by reference to Exhibit
10.14 to Amendment No. 1, filed August 15, 1989, to the Registration Statement on
Form S-1, Registration No. 33-27835).
</TABLE>
II-3
<PAGE> 97
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ---------------------------------------------------------------------------------
<C> <S>
</TABLE>
<TABLE>
<C> <S>
10.9 Form of Non-qualified Stock Option Plan Agreement between Issuer and a Management
Investor (incorporated by reference to Exhibit (c)(4) to Amendment No. 1, filed
August 15, 1989, to the Schedule 13E-3).
10.10
Form of Take-Along and Registration Rights Agreement between Issuer and Citicorp
Venture Capital Ltd. (incorporated by reference to Exhibit 4.19 to Amendment No.
2, filed September 7, 1989, to the Registration Statement on Form S-1,
Registration No. 33-27835).
10.11
Issuer's Partners Stock Option Plan ("Partners Plan") (incorporated by reference
to Exhibit 10.29 to Issuer's Registration Statement on Form S-1, Amendment No. 1,
Registration No. 33-44244).
10.12
Form of Distribution Partners Stock Option Plan Agreement ("Partners Plan
Agreement") between Issuer and an optionee (incorporated by reference to Exhibit
10.30 to Issuer's Registration Statement on Form S-1, Amendment No. 1,
Registration No. 33-44244).
10.13
Form of Amendment No. 1 to Partners Plan (incorporated by reference to Exhibit
10.36 to Issuer's Registration Statement on Form S-1, Amendment No. 2,
Registration No. 33-44244).
**10.14
Amendment No. 2 to Partners Plan.
**10.15
Form of Amendment No. 1 to Partners Plan Agreement.
10.16
Issuer 1991 Stock Option Plan (incorporated by reference to Exhibit 10.33 to
Issuer's Registration Statement on Form S-1, Amendment No. 1, Registration No.
33-44244).
10.17
Agreement, dated October 14, 1994, among certain manufacturers and wholesalers of
prescription products, including AmeriSource (incorporated by reference to
Exhibit 10.13 to Issuer's and AmeriSource's Form 10-K for the year ended
September 30, 1994).
**10.18
Issuer 1995 Stock Option Plan.
**10.19
Issuer Non-Employee Directors Stock Option Plan.
**10.20
Registration Rights Agreement dated as of March , 1995 among Issuer and 399
Venture Partners, Inc.
11
Not Applicable.
12
Not Applicable.
13
Not Applicable.
15
Not Applicable.
16
Not Applicable.
23.1
Consent of Ernst & Young LLP (contained on page II-8).
23.2
Consent of Dechert Price & Rhoads (included in Exhibit 5.1).
*24.1
Power of Attorney.
25
Not Applicable.
26
Not Applicable.
27
Financial Data Schedules (incorporated by reference to Exhibit 27 to Issuer's and
AmeriSource's Form 10-K for the year ended September 30, 1994).
28
Not Applicable.
</TABLE>
- ---------------
* Previously filed.
** To be filed by amendment.
II-4
<PAGE> 98
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-5
<PAGE> 99
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Philadelphia, Commonwealth of Pennsylvania, on March 8, 1995.
AmeriSource Distribution Corporation
By: /s/ KURT J. HILZINGER
------------------------------------
Kurt J. Hilzinger
Vice President, Chief Financial
Officer and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
<C> <S> <C>
Chairman of the Board, March 8, 1995
JOHN F. MCNAMARA* President and Chief Executive
- ------------------------------------------ Officer (Principal Executive
John F. McNamara Officer)
Vice President, Chief March 8, 1995
/s/ KURT J. HILZINGER Financial Officer and
- ------------------------------------------ Treasurer (Principal
Kurt J. Hilzinger Financial Officer)
Vice President, Controller March 8, 1995
JOHN A. KURCIK* and Assistant Treasurer
- ------------------------------------------ (Principal Accounting
John A. Kurcik Officer)
BRUCE C. BRUCKMANN* Director March 8, 1995
- ------------------------------------------
Bruce C. Bruckmann
Director March 8, 1995
MICHAEL DELANEY*
- ------------------------------------------
Michael Delaney
Director March 8, 1995
RICHARD C. GOZON*
- ------------------------------------------
Richard C. Gozon
Director March 8, 1995
LAWRENCE C. KARLSON*
- ------------------------------------------
Lawrence C. Karlson
Director March 8, 1995
GEORGE H. STRONG*
- ------------------------------------------
George H. Strong
</TABLE>
II-6
<PAGE> 100
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
<C> <S> <C>
</TABLE>
<TABLE>
<C> <S> <C>
JAMES A. URRY* Director March 8, 1995
- ------------------------------------------
James A. Urry
Director March 8, 1995
BARTON J. WINOKUR*
- ------------------------------------------
Barton J. Winokur
</TABLE>
*By: /s/ TERESA T. CICCOTELLI
------------------------------
Teresa T. Ciccotelli
Attorney-in-Fact, Pursuant to
Power of Attorney
II-7
<PAGE> 101
CONSENT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated November 2, 1994, in Amendment No. 1 to the
Registration Statement (Form S-2 No. 33-57513) and related Prospectus of
AmeriSource Distribution Corporation for the registration of 7,590,000 shares of
its Common Stock and to the incorporation by reference therein of our reports
dated November 2, 1994, with respect to the consolidated financial statements
and schedules of AmeriSource Distribution Corporation and AmeriSource
Corporation included in their Form 10-K for the year ended September 30, 1994,
filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
Philadelphia, Pennsylvania
March 8, 1995
II-8
<PAGE> 1
6,600,000 Shares
AmeriSource Distribution Corporation
Class A Common Stock
UNDERWRITING AGREEMENT
, 1995
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SMITH BARNEY INC.
BT SECURITIES CORPORATION
As representatives of the
several U.S. underwriters
named in Schedule I hereto
c/o Donaldson, Lufkin & Jenrette
Securities Corporation
140 Broadway
New York, New York 10005
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SMITH BARNEY INC.
BANKERS TRUST INTERNATIONAL PLC
As representatives of the
several international
managers named in Schedule
II hereto
c/o Donaldson, Lufkin & Jenrette
Securities Corporation
Jupiter House
Trinton Court
14 Finsbury Square
London EC2A 1BR, England
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Dear Sirs:
AmeriSource Distribution Corporation, a Delaware corporation (the
"Company") proposes to issue and sell to the several Underwriters (as defined
below) an aggregate of 6,600,000 shares of its Class A Common Stock (par value
$0.01 per share) ("Common Stock"). The 6,600,000 shares of Common Stock to be
issued and sold by the Company are hereinafter called the Firm Shares.
It is understood that, subject to the conditions hereinafter stated,
__________ Firm Shares (the "U.S. Firm Shares") will be sold to the several U.S.
Underwriters named in Schedule I hereto (the "U.S. Underwriters") in connection
with the offering and sale of such U.S. Firm Shares in the United States and
Canada to United States and Canadian Persons (as such terms are defined in the
Agreement Between U.S. Underwriters and International Managers of even date
herewith), and _________ Firm Shares (the "International Shares") will be sold
to the several International Managers named in Schedule II hereto (the
"International Managers") in connection with the offering and sale of such
International Shares outside the United States and Canada to persons other than
United States and Canadian Persons. Donaldson, Lufkin & Jenrette Securities
Corporation, Smith Barney Inc. and BT Securities Corporation shall act as
representatives (the "U.S. Representatives") of the several U.S. Underwriters,
and Donaldson Lufkin & Jenrette Securities Corporation, Smith Barney Inc. and
Bankers Trust International PLC shall act as representatives (the "International
Representatives") of the several International Managers. The U.S. Underwriters
and the International Managers are hereinafter collectively referred to as the
Underwriters.
The Company also proposes to issue and sell to the several U.S.
Underwriters not more than an additional 990,000 shares of its Common Stock,
(the "Additional Shares"), if requested by the U.S. Underwriters as provided in
Section 2 hereof. The Firm Shares and the Additional Shares are herein
collectively called the Shares.
1. Registration Statement and Prospectus. The Company has prepared and
filed with the Securities and Exchange Commission (the "Commission") in
accordance with the provisions of the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder (collectively called the
"Act"), a registration statement on Form S-2 including a
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prospectus relating to the Shares, which may be amended. The registration
statement contains two prospectuses to be used in connection with the offering
and sale of the Shares: the U.S. prospectus, to be used in connection with the
offering and sale of Shares in the United States and Canada to United States
and Canadian Persons, and the international prospectus, to be used in
connection with the offering and sale of Shares outside the United States and
Canada to persons other than United States and Canadian Persons. The
international prospectus is identical to the U.S. prospectus except for the
outside front and back cover pages. The registration statement as amended at
the time when it becomes effective, including information (if any) deemed to be
part of the registration statement at the time of effectiveness pursuant to
Rule 430A under the Act, is hereinafter referred to as the Registration
Statement; and the U.S. prospectus and the international prospectus in the
respective forms first used to confirm sales of Shares are hereinafter referred
to as the Prospectus.
2. Agreements to Sell and Purchase. The Company hereby agrees to issue
and sell the U.S. Firm Shares to the several U.S. Underwriters, and each of the
U.S. Underwriters, upon the basis of the representations and warranties
contained in this Agreement, and subject to its terms and conditions, agrees,
severally and not jointly, to purchase from the Company at a price per share of
$________ (the "Purchase Price"), the number of U.S. Firm Shares (subject to
such adjustments to eliminate fractional shares as the U.S. Representatives may
determine) that bears the same proportion to the number of U.S. Firm Shares to
be sold by the Company as the number of Firm Shares set forth in Schedule I
hereto opposite the name of such U.S. Underwriter bears to the total number of
Firm Shares set forth opposite the names of all U.S. Underwriters in Schedule I
hereto.
The Company hereby agrees to issue and sell the International Shares
to the International Managers named in Schedule II hereto, and each of the
International Managers, upon the basis of the representations and warranties
contained in this Agreement, and subject to its terms and conditions, agrees,
severally and not jointly, to purchase from the Company at the Purchase Price
the respective number of Firm Shares set forth opposite the name of such
International Manager in Schedule II hereto.
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and
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conditions, the Company agrees to issue and sell to the U.S. Underwriters the
Additional Shares and the U.S. Underwriters shall have the right to purchase,
severally and not jointly, up to 990,000 Additional Shares from the Company at
the Purchase Price. Additional Shares may be purchased solely for the purpose of
covering over-allotments made in connection with the offering of the Firm
Shares. The U.S. Underwriters may exercise their right to purchase Additional
Shares in whole or in part from time to time by giving written notice thereof to
the Company within 30 days after the date of this Agreement. The U.S.
Representatives shall give any such notice on behalf of the U.S. Underwriters
and such notice shall specify the aggregate number of Additional Shares to be
purchased pursuant to such exercise and the date for payment and delivery
thereof. The date specified in any such notice shall be a business day (i) no
earlier than the Closing Date (as hereinafter defined), (ii) no later than ten
business days after such notice has been given and (iii) no earlier than two
business days after such notice has been given. If any Additional Shares are to
be purchased, each U.S. Underwriter, severally and not jointly, agrees to
purchase from the Company the number of Additional Shares (subject to such
adjustments to eliminate fractional shares as the U.S. Representatives may
determine) which bears the same proportion to the total number of Additional
Shares to be purchased from the Company as the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule I bears to the total number of
U.S. Firm Shares.
The Company hereby agrees and the Company shall, concurrently with the
execution of this Agreement, deliver an agreement executed by (i) each of the
directors and officers of the Company and (ii) each stockholder listed on Annex
I hereto, pursuant to which each such person agrees, not to offer, sell,
contract to sell, grant any option to purchase, or otherwise dispose of any
common stock of the Company or any securities convertible into or exercisable or
exchangeable for such common stock or in any other manner transfer all or a
portion of the economic consequences associated with the ownership of any such
common stock, except to the Underwriters pursuant to this Agreement, for a
period of 180 days after the date of the Prospectus without the prior written
consent of Donaldson, Lufkin & Jenrette Securities Corporation. Notwithstanding
the foregoing, during such period (i) the Company may grant stock options
pursuant to the Company's existing stock option plan and (ii) the Company may
issue shares of its common stock upon the exercise of an option or warrant or
the conversion of a security outstanding on the date hereof.
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3. Terms of Public Offering. The Company is advised by you that the
Underwriters propose (i) to make a public offering of their respective portions
of the Shares as soon after the effective date of the Registration Statement as
in your judgment is advisable and (ii) initially to offer the Shares upon the
terms set forth in the Prospectus.
Each U.S. Underwriter hereby makes to and with the Company the
representations and agreements of such U.S. Underwriter contained in the fifth
paragraph of Section 3 of the Agreement Between U.S. Underwriters and
International Managers of even date herewith. Each International Manager hereby
makes to and with the Company the representations and agreements of such
International Underwriter contained in the seventh, eighth, ninth and tenth
paragraphs of Section 3 of such Agreement.
4. Delivery and Payment. Delivery to the Underwriters of and payment
for the Firm Shares shall be made at 10:00 A.M., New York City time, on the
fifth business day (the "Closing Date") following the date of the initial public
offering, at such place outside the State of New York as you shall designate.
The Closing Date and the location of delivery of and the form of payment for the
Firm Shares may be varied by agreement between you and the Sellers.
Delivery to the Underwriters of and payment for any Additional Shares
to be purchased by the Underwriters shall be made at such place as the U.S.
Representatives shall designate at 10:00 A.M., New York City time, on the date
specified in the applicable exercise notice given by you pursuant to Section 2
(an "Option Closing Date"). Any such Option Closing Date and the location of
delivery of and the form of payment for such Additional Shares may be varied by
agreement between the U.S. Representatives and the Company.
Certificates for the Shares shall be registered in such names and
issued in such denominations as you shall request in writing not later than two
full business days prior to the Closing Date or an Option Closing Date, as the
case may be. Such certificates shall be made available to you for inspection not
later than 9:30 A.M., New York City time, on the business day next preceding the
Closing Date or an Option Closing Date, as the case may be. Certificates in
definitive form evidencing the Shares shall be delivered to you on the Closing
Date or an Option Closing Date, as the case may be, with any transfer taxes
thereon duly paid by the Company, for the
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respective accounts of the several Underwriters, against payment of the Purchase
Price therefor by certified or official bank checks payable in New York Clearing
House funds to the order of the applicable Sellers.
5. Agreements of the Company. The Company agrees with you:
(a) To use its best efforts to cause the Registration Statement to
become effective at the earliest possible time.
(b) To advise you promptly and, if requested by you, to confirm such
advice in writing, (i) when the Registration Statement has become effective
and when any post-effective amendment to it becomes effective, (ii) of any
request by the Commission for amendments to the Registration Statement or
amendments or supplements to the Prospectus or for additional information,
(iii) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of the suspension of
qualification of the Shares for offering or sale in any jurisdiction, or
the initiation of any proceeding for such purposes, and (iv) of the
happening of any event during the period referred to in paragraph (e) below
which makes any statement of a material fact made in the Registration
Statement or the Prospectus untrue or which requires the making of any
additions to or changes in the Registration Statement or the Prospectus in
order to make the statements therein not misleading. If at any time the
Commission shall issue any stop order suspending the effectiveness of the
Registration Statement, the Company will make every reasonable effort to
obtain the withdrawal or lifting of such order at the earliest possible
time.
(c) To furnish to you, without charge, four signed copies of the
Registration Statement as first filed with the Commission and of each
amendment to it, including all exhibits, and to furnish to you and each
Underwriter designated by you such number of conformed copies of the
Registration Statement as so filed and of each amendment to it, without
exhibits, as you may reasonably request.
(d) Not to file any amendment or supplement to the Registration
Statement, whether before or after the time when it becomes effective, or
to make any amendment or
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supplement to the Prospectus of which you shall not previously have been
advised or to which you shall reasonably object; and to prepare and file
with the Commission, promptly upon your reasonable request, any amendment
to the Registration Statement or supplement to the Prospectus which may be
necessary or advisable in connection with the distribution of the Shares by
you, and to use its best efforts to cause the same to become promptly
effective.
(e) Promptly after the Registration Statement becomes effective, and
from time to time thereafter for such period as in the opinion of counsel
for the Underwriters a prospectus is required by law to be delivered in
connection with sales by an Underwriter or a dealer, to furnish to each
Underwriter and dealer as many copies of the Prospectus (and of any
amendment or supplement to the Prospectus) as such Underwriter or dealer
may reasonably request.
(f) If during the period specified in paragraph (e) any event shall
occur as a result of which, in the opinion of counsel for the Underwriters
it becomes necessary to amend or supplement the Prospectus in order to make
the statements therein, in the light of the circumstances when the
Prospectus is delivered to a purchaser, not misleading, or if it is
necessary to amend or supplement the Prospectus to comply with any law,
forthwith to prepare and file with the Commission an appropriate amendment
or supplement to the Prospectus so that the statements in the Prospectus,
as so amended or supplemented, will not in the light of the circumstances
when it is so delivered, be misleading, or so that the Prospectus will
comply with law, and to furnish to each Underwriter and to such dealers as
you shall specify, such number of copies thereof as such Underwriter or
dealers may reasonably request.
(g) Prior to any public offering of the Shares, to cooperate with you
and counsel for the Underwriters in connection with the registration or
qualification of the Shares for offer and sale by the several Underwriters
and by dealers under the state securities or Blue Sky laws of such
jurisdictions as you may request, to continue such qualification in effect
so long as required for distribution of the Shares and to file such
consents to service of process or other documents as may be necessary in
order to effect such registration or qualification.
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(h) To mail and make generally available to its stockholders as soon
as reasonably practicable an earnings statement covering a period of at
least twelve months after the effective date of the Registration Statement
(but in no event commencing later than 90 days after such date) which shall
satisfy the provisions of Section 11(a) of the Act, and to advise you in
writing when such statement has been so made available.
(i) During the period of five years after the date of this Agreement,
(i) to mail as soon as reasonably practicable after the end of each fiscal
year to the record holders of its Common Stock a financial report of the
Company and its subsidiaries on a consolidated basis (and a similar
financial report of all unconsolidated subsidiaries, if any), all such
financial reports to include a consolidated balance sheet, a consolidated
statement of operations, a consolidated statement of cash flows and a
consolidated statement of shareholders' equity as of the end of and for
such fiscal year, together with comparable information as of the end of and
for the preceding year, certified by independent certified public
accountants, and (ii) to mail and make generally available as soon as
practicable after the end of each quarterly period (except for the last
quarterly period of each fiscal year) to such holders, a consolidated
balance sheet, a consolidated statement of operations and a consolidated
statement of cash flows (and similar financial reports of all
unconsolidated subsidiaries, if any) as of the end of and for such period,
and for the period from the beginning of such year to the close of such
quarterly period, together with comparable information for the
corresponding periods of the preceding year.
(j) During the period referred to in paragraph (i), to furnish to you
as soon as available a copy of each report or other publicly available
information of the Company mailed to the holders of Common Stock or filed
with the Commission and such other publicly available information
concerning the Company and its subsidiaries as you may reasonably request.
(k) To pay all costs, expenses, fees and taxes incident to (i) the
preparation, printing, filing and distribution under the Act of the
Registration Statement (including financial statements and exhibits), each
preliminary prospectus and all amendments and supplements to
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any of them prior to or during the period specified in paragraph (e), (ii)
the printing and delivery of the Prospectus and all amendments or
supplements to it during the period specified in paragraph (e), (iii) the
typing, printing, reproduction and delivery of this Agreement, the Blue Sky
Survey and all other agreements, memoranda, correspondence and other
documents prepared, printed and delivered in connection with the offering
of the Shares (including in each case any disbursements of counsel for the
Underwriters relating to such typing, printing, reproduction and delivery),
(iv) the registration or qualification of the Shares for offer and sale
under the securities or Blue Sky laws of the several states (including in
each case the fees and disbursements of counsel for the Underwriters
relating to such registration or qualification and memoranda relating
thereto), (v) filings and clearance with the National Association of
Securities Dealers, Inc. ("NASD") in connection with the offering
(including fees and disbursements of counsel for the Underwriters relating
thereto not to exceed [$5,000]), (vi) the listing of the Shares on the New
York Stock Exchange, (vii) furnishing such copies of the Registration
Statement, the Prospectus and all amendments and supplements thereto as may
be requested for use in connection with the offering or sale of the Shares
by the Underwriters or by dealers to whom Shares may be sold.
(l) To use the proceeds from the sale of the Shares in the manner
described in the Prospectus under the caption "Use of Proceeds."
(m) To use its best efforts to maintain the listing of the Common
Stock on the New York Stock Exchange for a period of five years after the
effective date of the Registration Statement.
(n) To use its best efforts to do and perform all things required or
necessary to be done and performed under this Agreement by the Company
prior to the Closing Date or any Option Closing Date, as the case may be,
and to satisfy all conditions precedent to the delivery of the Shares.
6. Representations and Warranties of the Company. The Company
represents and warrants to each Underwriter that:
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(a) The Registration Statement has become effective; no stop order
suspending the effectiveness of the Registration Statement is in effect,
and no proceedings for such purpose are pending before or threatened by the
Commission.
(b) (i) Each part of the Registration Statement, when such part became
effective, did not contain and each such part, as amended or supplemented,
if applicable, will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, (ii) the Registration Statement
and the Prospectus comply and, as amended or supplemented, if applicable,
will comply in all material respects with the Act and (iii) the Prospectus
does not contain and, as amended or supplemented, if applicable, will not
contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that the
representations and warranties set forth in this paragraph (b) do not apply
to statements or omissions in the Registration Statement or the Prospectus
based upon information relating to any Underwriter furnished to the Company
in writing by such Underwriter through you expressly for use therein.
(c) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Act, complied when so filed in all material
respects with the Act; and did not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(d) The Company and each of its subsidiaries has been duly
incorporated, is validly existing as a corporation in good standing under
the laws of its jurisdiction of incorporation and has the corporate power
and authority to carry on its business as it is currently being conducted
and to own, lease and operate its properties, and each is duly qualified
and is in good standing as a foreign corporation authorized to do business
in each jurisdiction in which the nature of its business or its ownership
or leasing of property requires such qualification,
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except where the failure to be so qualified would not have a material
adverse effect on the Company and its subsidiaries, taken as a whole.
(e) This Agreement has been duly authorized, executed and delivered by
the Company and is a valid and binding agreement of the Company enforceable
in accordance with its terms subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally, and subject, as to
enforceability, to general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing (regardless of
whether enforcement is sought in a proceeding at law or in equity), and
except that rights to indemnity and contribution hereunder may be limited
by applicable law or public policy related thereto.
(f) All of the outstanding shares of capital stock of, or other
ownership interests in, each of the Company's subsidiaries have been duly
authorized and validly issued and are fully paid and non-assessable, and
are owned by the Company, free and clear of any security interest, claim,
lien, encumbrance or adverse interest of any nature.
(g) All the outstanding shares of capital stock of the Company and of
each subsidiary have been duly authorized and validly issued and are fully
paid, non-assessable and not subject to any preemptive or similar rights;
and the Shares to be issued and sold by the Company hereunder have been
duly authorized and, when issued and delivered to the Underwriters against
payment therefor as provided by this Agreement, will be validly issued,
fully paid and non-assessable, and the issuance of such Shares will not be
subject to any preemptive or similar rights.
(h) The authorized capital stock of the Company, including the Common
Stock, conforms as to legal matters to the description thereof contained in
the Prospectus.
(i) Neither the Company nor any of its subsidiaries is in violation of
its respective charter or by-laws or in violation of or in breach of or in
default in (nor has any event occurred which with notice or lapse or time,
or both, would be a breach or of a default in) the
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performance of any obligation, agreement or condition contained in any
bond, debenture, note or any other evidence of indebtedness or in any other
agreement, indenture or instrument material to the conduct of the business
of the Company and its subsidiaries, taken as a whole, to which the Company
or any of its subsidiaries is a party or by which it or any of its
subsidiaries or their respective property is bound.
(j) The execution, delivery and performance of this Agreement,
compliance by the Company with all the provisions hereof and the
consummation of the transactions contemplated hereby will not require any
consent, approval, authorization or other order of any court, regulatory
body, administrative agency or other governmental body (except as such may
be required under the securities or Blue Sky laws of the various states)
and will not conflict with or constitute a breach of any of the terms or
provisions of, or a default under, the charter or by-laws of the Company or
any of its subsidiaries or any agreement, indenture or other instrument to
which it or any of its subsidiaries is a party or by which it or any of its
subsidiaries or their respective property is bound, or violate or conflict
with any laws, administrative regulations or rulings or court decrees
applicable to the Company, any of its subsidiaries or their respective
property, which breach, default, violation or conflict might result in any
material adverse change in the business, prospects, financial condition or
results of operations of the Company and its subsidiaries, taken as a
whole.
(k) Except as otherwise set forth in the Prospectus, there are no
material legal or governmental proceedings pending to which the Company or
any of its subsidiaries is a party or of which any of their respective
property is the subject, and, to the best of the Company's knowledge, no
such proceedings are threatened or contemplated. No contract or document of
a character required to be described in the Registration Statement or the
Prospectus or to be filed as an exhibit to the Registration Statement is
not so described or filed as required.
(l) Neither the Company nor any of its subsidiaries has violated any
foreign, federal, state or local law or regulation relating to the
protection of human health and safety, the environment or hazardous or
toxic substances or wastes, pollutants or contaminants ("Environmental
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Laws"), nor any federal or state law relating to discrimination in the
hiring, promotion or pay of employees nor any applicable federal or state
wages and hours laws, nor any provisions of the Employee Retirement Income
Security Act or the rules and regulations promulgated thereunder, which in
each case might result in any material adverse change in the business,
prospects, financial condition or results of operation of the Company and
its subsidiaries, taken as a whole.
(m) The Company and each of its subsidiaries has such permits,
licenses, franchises and authorizations of governmental or regulatory
authorities ("permits"), including, without limitation, under any
applicable Environmental Laws, as are necessary to own, lease and operate
its respective properties and to conduct its business except where the
failure to have any such permit would not result in any material adverse
change in the business prospects, financial condition or results of
operations of the Company and its subsidiaries, taken as a whole; the
Company and each of its subsidiaries has fulfilled and performed all of its
material obligations with respect to such permits and no event has occurred
which allows, or after notice or lapse of time would allow, revocation or
termination thereof or results in any other material impairment of the
rights of the holder of any such permit except where the failure to have
any such permit would not result in any material adverse change in the
business prospects, financial condition or results of operations of the
Company and its subsidiaries, taken as a whole; and, except as described in
the Prospectus, such permits contain no restrictions that are materially
burdensome to the Company or any of its subsidiaries.
(n) In the ordinary course of its business, the Company conducts a
periodic review of the effect of Environmental Laws on the business,
operations and properties of the Company and its subsidiaries, in the
course of which it identifies and evaluates associated costs and
liabilities (including, without limitation, any capital or operating
expenditures required for clean-up, closure of properties or compliance
with Environmental Laws or any permit, license or approval, any related
constraints on operating activities and any potential liabilities to third
parties). On the basis of such review, the Company has reasonably concluded
that such associated costs and liabilities would not, singly or in the
aggregate, have a
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material adverse effect on the Company and its subsidiaries, taken as a
whole.
(o) Except as otherwise set forth in the Prospectus or such as are not
material to the business, prospects, financial condition or results of
operation of the Company and its subsidiaries, taken as a whole, the
Company and each of its subsidiaries has good and marketable title, free
and clear of all liens, claims, encumbrances and restrictions except liens
for taxes not yet due and payable, to all property and assets described in
the Registration Statement as being owned by it. All leases to which the
Company or any of its subsidiaries is a party are valid and binding and no
default has occurred or is continuing thereunder, which might result in any
material adverse change in the business, prospects, financial condition or
results of operation of the Company and its subsidiaries taken as a whole,
and the Company and its subsidiaries enjoy peaceful and undisturbed
possession under all such leases to which any of them is a party as lessee
with such exceptions as do not materially interfere with the use made by
the Company or such subsidiary.
(p) The Company and each of its subsidiaries maintains reasonably
adequate insurance.
(q) Ernst & Young LLP are independent public accountants with respect
to the Company as required by the Act.
(r) The financial statements, together with related schedules and
notes forming part of the Registration Statement and the Prospectus (and
any amendment or supplement thereto), present fairly the consolidated
financial position, results of operations and changes in financial position
of the Company and its subsidiaries on the basis stated in the Registration
Statement at the respective dates or for the respective periods to which
they apply; such statements and related schedules and notes have been
prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved, except as disclosed
therein; and the other financial and statistical information and data set
forth in the Registration Statement and the Prospectus (and any amendment
or supplement thereto) is, in all material respects, accurately presented
and prepared on a basis consistent with such financial statements and the
books and records of the Company.
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(s) The Company is not an "investment company" or a company
"controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(t) No holder of any security of the Company has any right to require
inclusion of shares of Common Stock or any other security of the Company in
the Registration Statement.
(u) The Company has complied with all provisions of Section 517.075,
Florida Statutes (Chapter 92-198, Laws of Florida).
(v) There are no outstanding subscriptions, rights, warrants, options,
calls, convertible securities, commitments of sale or liens related to or
entitling any person to purchase or otherwise to acquire any shares of the
capital stock of, or other ownership interest in, the Company or any
subsidiary thereof except as otherwise disclosed in the Registration
Statement.
(w) Except as disclosed in the Prospectus, there are no business
relationships or related party transactions required to be disclosed
therein by Item 404 of Regulation S-K of the Commission.
(x) All material tax returns required to be filed by the Company and
each of its subsidiaries in any jurisdiction have been filed, other than
those filings being contested in good faith, and all material taxes,
including withholding taxes, penalties and interest, assessments, fees and
other charges due pursuant to such returns or pursuant to any assessment
received by the Company or any of its subsidiaries have been paid, other
than those being contested in good faith and for which adequate reserves
have been provided.
(y) The Shares have been approved for listing on the New York Stock
Exchange subject to official notice of issuance.
7. Indemnification. (a) The Company agrees to indemnify and hold
harmless each Underwriter and each person, if any, who controls any Underwriter
within the meaning of Section 15 of the Act or Section 20 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), from and against any and
all losses, claims, damages, liabilities and judgments
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caused by any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement or the Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto) or any preliminary prospectus, or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages, liabilities or judgments are caused by any such untrue
statement or omission or alleged untrue statement or omission based upon
information relating to any Underwriters furnished in writing to the Company by
or on behalf of any Underwriter through you expressly for use therein.
(b) In case any action shall be brought against any Underwriter or any
person controlling such Underwriter, based upon any preliminary prospectus, the
Registration Statement or the Prospectus or any amendment or supplement thereto
and with respect to which indemnity may be sought against the Company, such
Underwriter shall promptly notify the Company in writing and the Company shall
assume the defense thereof, including the employment of counsel reasonably
satisfactory to such indemnified party and payment of all fees and expenses. Any
Underwriter or any such controlling person shall have the right to employ
separate counsel in any such action and participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such
Underwriter or such controlling person unless (i) the employment of such counsel
shall have been specifically authorized in writing by the Company, (ii) the
Company shall have failed to assume the defense and employ counsel or (iii) the
named parties to any such action (including any impleaded parties) include both
such Underwriter or such controlling person and the Company, and such
Underwriter or such controlling person shall have been advised by such counsel
that there may be one or more legal defenses available to it which are different
from or additional to those available to the Company, (in which case the Company
shall not have the right to assume the defense of such action on behalf of such
Underwriter or such controlling person, it being understood, however, that the
Company shall not, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable for the fees and
expenses of more than one separate firm of attorneys (in addition to any local
counsel) for all such Underwriters and controlling persons, which firm shall be
Cahill Gordon & Reindel or such other firm which shall be designated in writing
by
<PAGE> 17
-17-
Donaldson, Lufkin & Jenrette Securities Corporation and that all such fees and
expenses shall be reimbursed as they are incurred). The Company shall not be
liable for any settlement of any such action effected without the written
consent of the Company but if settled with the written consent of the Company,
the Company agrees to indemnify and hold harmless any Underwriter and any such
controlling person from and against any loss or liability by reason of such
settlement. Notwithstanding the immediately preceding sentence, if in any case
where the fees and expenses of counsel are at the expense of the indemnifying
party and an indemnified party shall have requested the indemnifying party to
reimburse the indemnified party for such fees and expenses of counsel as
incurred, such indemnifying party agrees that it shall be liable for any
settlement of any action effected without its written consent if (i) such
settlement is entered into more than ten business days after the receipt by such
indemnifying party of the aforesaid request and (ii) such indemnifying party
shall have failed to reimburse the indemnified party in accordance with such
request for reimbursement prior to the date of such settlement. No indemnifying
party shall, without the prior written consent of the indemnified party, effect
any settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such proceeding.
(c) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, its directors, its officers who sign the
Registration Statement, any person controlling the Company within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act to the same extent as
the foregoing indemnity from the Company to each Underwriter but only with
reference to information relating to such Underwriter furnished in writing by or
on behalf of such Underwriter through you expressly for use in the Registration
Statement, the Prospectus or any preliminary prospectus. In case any action
shall be brought against the Company, any of its directors, any such officer or
any person controlling the Company, the Prospectus or any preliminary prospectus
and in respect of which indemnity may be sought against any Underwriter, the
Underwriter shall have the rights and duties given to the Company (except that
if any Company shall have assumed the defense thereof) such Underwriter shall
not be required to do so, but may employ separate counsel therein and
participate in the
<PAGE> 18
-18-
defense thereof but the fees and expenses of such counsel shall be at the
expense of such Underwriter), and the Company, its directors, any such officers
and any person controlling the Company shall have the rights and duties given to
the Underwriter, by Section 7(b) hereof.
(d) If the indemnification provided for in this Section 7 is
unavailable to an indemnified party in respect of any losses, claims, damages,
liabilities or judgments referred to therein, then each indemnifying party, in
lieu of indemnifying such indemnified party, shall contribute to the amount paid
or payable by such indemnified party as a result of such losses, claims,
damages, liabilities and judgments (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand and the
Underwriters on the other hand from the offering of the Shares or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company and
the Underwriters in connection with the statements or omissions which resulted
in such losses, claims, damages, liabilities or judgments, as well as any other
relevant equitable considerations. The relative benefits received by the Company
and the Underwriters shall be deemed to be in the same proportion as the total
net proceeds from the offering (before deducting expenses) received by the
Company, and the total underwriting discounts and commissions received by the
Underwriters, bear to the total price to the public of the Shares, in each case
as set forth in the table on the cover page of the Prospectus. The relative
fault of the Company and the Underwriters shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission to state a material fact relates to information supplied by
the Company or the Underwriters and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 7(d) were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities or judgments referred to in the immediately
preceding
<PAGE> 19
-19-
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 7, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute pursuant to this
Section 7(d) are several in proportion to the respective number of Shares
purchased by each of the Underwriters hereunder and not joint.
8. Conditions of Underwriters' Obligations. The several obligations of
the Underwriters to purchase the Firm Shares under this Agreement are subject to
the satisfaction of each of the following conditions:
(a) All the representations and warranties of the Company contained in
this Agreement shall be true and correct on the Closing Date with the same
force and effect as if made on and as of the Closing Date.
(b) The Registration Statement shall have become effective not later
than 5:00 P.M., New York City time, on the date of this Agreement or at
such later date and time as you may approve in writing, and at the Closing
Date no stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that purpose shall
have been commenced or shall be pending before or, to the knowledge of the
Company, contemplated by the Commission.
(c) (i) Since the date of the latest balance sheet included in the
Registration Statement and the Prospectus, there shall not have been any
material adverse change, or any development involving a prospective
material adverse change, in the condition, financial or otherwise, or in
the earnings, affairs or business prospects, whether or not arising in the
ordinary course of business, of the Company, (ii) since the date of the
latest balance sheet
<PAGE> 20
-20-
included in the Registration Statement and the Prospectus there shall not
have been any change, or any development involving a prospective material
adverse change, in the capital stock or in the long-term debt of the
Company from that set forth in the Registration Statement and Prospectus,
(iii) the Company and its subsidiaries shall have no liability or
obligation, direct or contingent, which is material to the Company and its
subsidiaries, taken as a whole, other than those reflected in the
Registration Statement and the Prospectus and (iv) on the Closing Date you
shall have received a certificate dated the Closing Date, signed by Kurt J.
Hilzinger and John A. Kurcik, in their capacities as the Vice President,
Finance and Treasurer and Vice President and Controller of the Company,
respectively, confirming the matters set forth in paragraphs (a), (b), and
(c) of this Section 8.
(d) You shall have received on the Closing Date opinions (satisfactory
to you and counsel for the Underwriters), dated the Closing Date, of (i)
Dechert Price & Rhoads, counsel for the Company, in the form attached
hereto as Exhibit A, and (ii) Teresa Ciccotelli, General Counsel of the
Company, in the form attached hereto as Exhibit B.
(e) You shall have received on the Closing Date an opinion, dated the
Closing Date, of Cahill Gordon & Reindel, counsel for the Underwriters, to
such effect with respect to legal matters relating to this Agreement and
the sale of the Shares as you may require and such counsel shall have
received such papers and information as they request to enable them to pass
upon such matters. In addition, such counsel shall state that such counsel
has participated in conferences with officers and other representatives of
the Company, counsel for the Company, representatives of the independent
public accountants of the Company and your representatives at which the
contents of the Registration Statement and Prospectus and related
matters were discussed and, although such counsel is not passing upon and
does not assume any responsibility for the accuracy, completeness or
fairness of the statements contained in the Registration Statement and the
Prospectus, on the basis of the foregoing (relying as to materiality to a
large extent upon the opinions of officers and other representatives of the
Company), no facts have come to the attention of such counsel which lead
them to believe that the Registration Statement or any amendment
<PAGE> 21
-21-
thereto at the time such Registration Statement or amendment became
effective contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading or that the Prospectus or any
supplement thereto as of its date contained an untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading (it being
understood that such counsel need express no comment with respect to the
financial statements and schedules and other financial and statistical data
included in the Registration Statement or Prospectus or the exhibits to the
Registration Statement).
(f) You shall have received a letter on and as of the Closing Date, in
form and substance satisfactory to you, from Ernst & Young LLP, independent
public accountants, with respect to the financial statements and certain
financial information contained in the Registration Statement and the
Prospectus and substantially in the form and substance of the letter
delivered to you by Ernst & Young LLP on the date of this Agreement.
(g) The Company shall have delivered to you the agreements specified
in Section 2 hereof.
(h) (i) The Company shall not have failed at or prior to the Closing
Date to perform or comply with any of the agreements herein contained and
required to be performed or complied with by the Company at or prior to the
Closing Date.
The several obligations of the U.S. Underwriters to purchase any Additional
Shares hereunder are subject to the delivery to the U.S. Representatives on the
applicable Option Closing Date of such documents as you may reasonably request
with respect to the good standing of the Company, the due authorization and
issuance of such Additional Shares and other matters related to the issuance of
such Additional Shares.
9. Effective Date of Agreement and Termination. This Agreement shall
become effective upon the later of (i) execution of this Agreement and (ii) when
notification of the effectiveness of the Registration Statement has been
released by the Commission.
<PAGE> 22
-22-
This Agreement may be terminated at any time prior to the Closing Date
by you by written notice to the Company if any of the following has occurred:
(i) since the respective dates as of which information is given in the
Registration Statement and the Prospectus, any adverse change or development
involving a prospective adverse change in the condition, financial or otherwise,
of the Company or any of its subsidiaries or the earnings, affairs, or business
prospects of the Company or any of its subsidiaries, whether or not arising in
the ordinary course of business, which would, in your judgment, make it
impracticable to market the Shares on the terms and in the manner contemplated
in the Prospectus, (ii) any outbreak or escalation of hostilities or other
national or international calamity or crisis or change in economic conditions or
in the financial markets of the United States or elsewhere that, in your
judgment, is material and adverse and would, in your judgment, make it
impracticable to market the Shares on the terms and in the manner contemplated
in the Prospectus, (iii) the suspension or material limitation of trading in
securities on the New York Stock Exchange, the American Stock Exchange or the
NASDAQ National Market System or limitation on prices for securities on any such
exchange or National Market System, (iv) the enactment, publication, decree or
other promulgation of any federal or state statute, regulation, rule or order of
any court or other governmental authority which in your opinion materially and
adversely affects, or will materially and adversely affect, the business or
operations of the Company or any Subsidiary, (v) the declaration of a banking
moratorium by either federal or New York State authorities or (vi) the taking of
any action by any federal, state or local government or agency in respect of its
monetary or fiscal affairs which in your opinion has a material adverse effect
on the financial markets in the United States.
If on the Closing Date or on an Option Closing Date, as the case may
be, any one or more of the Underwriters shall fail or refuse to purchase the
Firm Shares or Additional Shares, as the case may be, which it or they have
agreed to purchase hereunder on such date and the aggregate number of Firm
Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters, as the case may be, agreed but failed or refused to
purchase is not more than one-tenth of the total number of Shares to be
purchased on such date by all Underwriters, each non-defaulting Underwriter
shall be obligated severally, in the proportion which the number of Firm Shares
set forth opposite its name in Schedule I bears to the total number of Firm
Shares which all the non-defaulting
<PAGE> 23
-23-
Underwriters, as the case may be, have agreed to purchase, or in such other
proportion as you may specify, to purchase the Firm Shares or Additional Shares,
as the case may be, which such defaulting Underwriter or Underwriters, as the
case may be, agreed but failed or refused to purchase on such date; provided
that in no event shall the number of Firm Shares or Additional Shares, as the
case may be, which any Underwriter has agreed to purchase pursuant to Section 2
hereof be increased pursuant to this Section 9 by an amount in excess of
one-ninth of such number of Firm Shares or Additional Shares, as the case may
be, without the written consent of such Underwriter. If on the Closing Date or
on an Option Closing Date, as the case may be, any Underwriter or Underwriters
shall fail or refuse to purchase Firm Shares, or Additional Shares, as the case
may be, and the aggregate number of Firm Shares or Additional Shares, as the
case may be, with respect to which such default occurs is more than one-tenth of
the aggregate number of Shares to be purchased on such date by all Underwriters
and arrangements satisfactory to you for purchase of such Shares are not made
within 48 hours after such default, this Agreement will terminate without
liability on the part of any non-defaulting Underwriter. In any such case which
does not result in termination of this Agreement, you shall have the right to
postpone the Closing Date or the applicable Option Closing Date, as the case may
be, but in no event for longer than seven days, in order that the required
changes, if any, in the Registration Statement and the Prospectus or any other
documents or arrangements may be effected. Any action taken under this paragraph
shall not relieve any defaulting Underwriter from liability in respect of any
default of any such Underwriter under this Agreement.
10. Miscellaneous. Notices given pursuant to any provision of this
Agreement shall be addressed as follows: (a) if to the Company: to AmeriSource
Distribution Corporation, 300 Chester Field Parkway, Malvern, Pennsylvania
19355, ATTENTION: Teresa T. Ciccotelli, and (b) if to any Underwriter or to you,
to you: c/o Donaldson, Lufkin & Jenrette Securities Corporation, 140 Broadway,
New York, New York 10005, Attention: Syndicate Department, or in any case to
such other address as the person to be notified may have requested in writing.
The respective indemnities, contribution agreements, representations,
warranties and other statements of the Company, its officers and directors and
of the several Underwriters set forth in or made pursuant to this Agreement
shall remain operative and in full force and effect, and will survive
<PAGE> 24
-24-
delivery of and payment for the Shares, regardless of (i) any investigation, or
statement as to the results thereof, made by or on behalf of any Underwriter or
by or on behalf of the Company, the officers or directors of the Company or any
controlling person of the Company, (ii) acceptance of the Shares and payment for
them hereunder and (iii) termination of this Agreement.
If this Agreement shall be terminated by the Underwriters because of
any failure or refusal on the part of the Company to comply with the terms or to
fulfill any of the conditions of this Agreement, the Company agrees to reimburse
the several Underwriters for all out-of-pocket expenses (including the fees and
disbursements of counsel) reasonably incurred by them.
Except as otherwise provided, this Agreement has been and is made
solely for the benefit of and shall be binding upon the Company, the
Underwriters, any controlling persons referred to herein and their respective
successors and assigns, all as and to the extent provided in this Agreement, and
no other person shall acquire or have any right under or by virtue of this
Agreement. The term "successors and assigns" shall not include a purchaser of
any of the Shares from any of the several Underwriters merely because of such
purchase.
This Agreement shall be governed and construed in accordance with the
laws of the State of New York.
This Agreement may be signed in various counterparts which together
shall constitute one and the same instrument.
<PAGE> 25
-25-
Please confirm that the foregoing correctly sets forth the agreement
between the Company and the several Underwriters.
Very truly yours,
AMERISOURCE DISTRIBUTION
CORPORATION
By:
-----------------------------------
Title:
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SMITH BARNEY INC.
BT SECURITIES CORPORATION
Acting severally on behalf of
themselves and the several
U.S. Underwriters named in
Schedule I hereto
By: DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By:
---------------------------
<PAGE> 26
-26-
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SMITH BARNEY INC.
BANKERS TRUST INTERNATIONAL PLC
Acting severally on behalf of
themselves and the several
International Managers
named in Schedule II hereto
By: DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By:
---------------------------
<PAGE> 27
SCHEDULE I
<TABLE>
<CAPTION>
Number of Firm Shares
U.S. Underwriters to be Purchased
- ----------------- ---------------------
<S> <C>
Donaldson, Lufkin & Jenrette
Securities Corporation
Smith Barney Inc.
BT Securities Corporation
---------------------
Total
</TABLE>
<PAGE> 28
SCHEDULE II
<TABLE>
<CAPTION>
Number of Firm Shares
International Underwriters to be Purchased
- -------------------------- ---------------------
<S> <C>
Donaldson, Lufkin & Jenrette
Securities Corporation
Smith Barney Inc.
Bankers Trust International PLC
---------------------
Total
</TABLE>
<PAGE> 29
ANNEX I
Required Stockholder Lock-ups
<PAGE> 30
Exhibit A to
Underwriting Agreement
[LETTERHEAD OF DECHERT PRICE & RHOADES]
[Date]
Donaldson, Lufkin & Jenrette
Securities Corporation
Smith Barney Inc.
BT Securities Corporation
c/o Donaldson, Lufkin & Jenrette
Securities Corporation
140 Broadway
New York, NY 10005
Re: AmeriSource Distribution Corporation
Ladies and Gentlemen:
We have acted as counsel to AmeriSource Distribution Corporation, a
Delaware corporation (the "Company"), in connection with the Underwriting
Agreement ("Underwriting Agreement") dated as of , 1995, among the Company and
Donaldson, Lufkin & Jenrette Securities Corporation, Smith Barney Inc., BT
Securities Corporation (collectively, the "U.S. Underwriters") and Donaldson
Lufkin & Jenrette Securities Corporation, Smith Barney Inc. and Bankers Trust
International PLC (the "International Representatives" and, together with the
U.S. Underwriters, the "Underwriters"), pursuant to which the Company will issue
and sell to the Underwriters an aggregate of 6,600,000 shares of its Class A
Common Stock (par value $0.01 per share) (the "Common Stock"). A registration
statement on form S-2 (File No. 33-_____) relating to the Common Stock was filed
by the Company with the Securities and Exchange Commission (the "Commission")
under the Securities Act of 1933, as amended (the "Act"), and, as thereafter
amended, became effective on , 1995 (such registration statement, as amended at
the time it became effective, is herein referred to as the "Registration
Statement" and the prospectus, dated , 1995, in the form filed with
the Commission pursuant to Rule 424(b)(1) of the General Rules and Regulations
under the Act, is herein referred to as the "Prospectus"). This opinion is
delivered to you pursuant to Section 8(d)(i) of the Underwriting Agreement.
Capitalized terms used in this opinion letter and not otherwise defined herein
have the meanings specified in the Underwriting Agreement.
<PAGE> 31
Donaldson, Lufkin & Jenrette
Securities Corporation
[Date]
-2-
We have examined originals or copies of corporate documents and
records of the Company, certificates of public officials and of officers of the
Company, and such other agreements, instruments, and other documents as we have
deemed necessary or appropriate for purposes of the opinions expressed below. We
have examined the actions taken by the Company in connection with the
authorization, execution and delivery of the Underwriting Agreement; and made
such inquiry of officers and directors of the Company as we have deemed
necessary and appropriate.
In making such examination and rendering the opinions set forth below,
we have assumed the genuineness of all signatures, the authenticity of all
documents submitted to us as originals and the conformity to authentic original
documents of all documents submitted to us as certified, conformed or
photostatic copies and the authenticity of the originals of such documents. As
to questions of fact material to our opinions, we have relied upon
representations of the Company in the Underwriting Agreement and on certificates
of its respective officers and of public officials.
In rendering the opinions set forth below, we have also assumed that
(a) each of the parties to the Underwriting Agreement other than the Company is
duly incorporated, validly existing and in good standing under the laws of the
jurisdiction of its organization and has the requisite corporate power and
corporate authority and has taken the corporate action necessary to deliver the
Underwriting Agreement and to consummate the transactions contemplated thereby;
and (b) the Underwriting Agreement constitutes legal, valid and binding
obligations of each such other party thereto, enforceable against such other
party in accordance with their respective terms.
Based upon the foregoing and subject to the assumptions and
qualifications set forth above and hereinafter, we are of the opinion that:
1. Each of the Company and AmeriSource Corporation ("AmeriSource") has
been duly incorporated and is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation, and has full corporate
power and authority to own or lease its respective properties and assets and to
conduct its respective businesses as described in the Registration Statement and
the Prospectus;
<PAGE> 32
Donaldson, Lufkin & Jenrette
Securities Corporation
[Date]
-3-
2. The Company has the authorized capital stock as set forth under the
caption "Capitalization" in the Registration Statement, all of the shares of
outstanding capital stock of the Company have been duly authorized and validly
issued and are fully paid and non-assessable and, to the best of our knowledge,
were not issued in violation of any preemptive rights or other rights to
subscribe for or purchase securities; and, all of the outstanding shares of
capital stock of AmeriSource have been duly authorized and validly issued, are
fully paid and non-assessable and (except as otherwise stated in the
Registration Statement and the Prospectus) are owned of record by the Company
subject to no security interest, encumbrance or adverse claim or restriction on
voting or transfer (except as may exist under the Act and state securities or
Blue Sky laws);
3. The Company meets the requirement for the use of Form S-2 under the
Act; based solely upon telephonic confirmation from the Commission, the
Registration Statement has become effective under the Act; the Prospectus has
been filed with the Commission as required by the Underwriting Agreement; and to
the best of our knowledge, no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceeding for that purpose has
been instituted or threatened by the Commission;
4. The Registration Statement, all Preliminary Prospectuses (as of
their respective issue dates), the Prospectus and each amendment or supplement
thereto comply as to form in all material respects with the requirements of the
Act and the respective rules and regulations of the Commission thereunder;
5. The Underwriting Agreement has been duly authorized, executed and
delivered by the Company and is a valid and binding agreement of the Company
enforceable in accordance with its terms (except as rights to indemnity and
contribution hereunder may be limited by applicable law);
6. The Shares to be issued and sold by the Company hereunder have been
duly and validly authorized by the Company. The Common Stock, when issued by the
Company and duly delivered to and paid for by the Underwriters in accordance
with the terms of the Underwriting Agreement, will have been validly issued and
will be fully paid and non-assessable and the issuance of such Shares is not
subject to any preemptive or similar rights;
<PAGE> 33
Donaldson, Lufkin & Jenrette
Securities Corporation
[Date]
-4-
7. The authorized capital stock of the Company, including the Common
Stock, conforms as to legal matters (in all material respects) to the
description thereof contained in the Prospectus;
8. Neither the Company nor AmeriSource, is in violation of its
respective charter or bylaws and, to the best of our knowledge after due
inquiry, neither the Company nor AmeriSource, is in violation of or in breach of
or in default under (nor has any event occurred which with notice or lapse of
time, or both, would constitute a breach of or a default under) any of the
provisions of any agreement or instrument filed or incorporated by reference as
an exhibit to the Registration Statement pursuant to Item 601(b)(4) or
601(b)(10) of Regulation S-K, which violation, breach or default could have a
material adverse effect on the business, prospects financial condition or
results of operations of the Company and any of its subsidiaries, taken as a
whole;
9. The execution, delivery and performance of this Agreement by the
Company and compliance by the Company with all of the provisions hereof and the
consummation of the transactions contemplated hereby will not require any
consent, approval, authorization or other order of any court, regulatory body,
administrative agency or other governmental body (except as such may be required
under the Act or other securities or Blue Sky laws) and will not conflict with
or constitute a breach of any of the terms or provisions of, or a default under,
the charter or by-laws of the Company or any of its subsidiaries or any
agreement, indenture or other instrument to which the Company or any of its
subsidiaries is a party or by which the Company or any of its subsidiaries or
their respective properties are bound, or violate or conflict with any laws,
administrative regulations or rulings or court decrees applicable to the Company
or any of its subsidiaries or their respective properties;
10. The statements in the Registration Statement and the Prospectus
under the caption "Certain United States Federal Tax Considerations For Non-U.S.
Holders of Common Stock" insofar as they constitute statements of law or legal
conclusions are accurate in all material respects;
11. The Company is not an "investment company" or a company
"controlled" by an "investment company" within the meaning of the Investment
Company Act of 1940, as amended;
<PAGE> 34
Donaldson, Lufkin & Jenrette
Securities Corporation
[Date]
-5-
12. To the best of such counsel's knowledge, after due inquiry, no
holder of any security of the Company has any right to require registration of
shares of Common Stock or any other security of the Company;
13. The Registration Statement has become effective under the Act, no
stop order suspending its effectiveness has been issued and no proceedings for
that purpose are, to the knowledge of such counsel, pending before or
contemplated by the Commission; and
14. The statements under the captions "The Refinancing", "Stock
Options", "Description of Indebtedness and Securitization Program", "Shares
Eligible for Future Sale", "Certain United States Federal Tax Considerations for
Non-U.S. Holders of Common Stock", "Description of Capital Stock" in the
Prospectus and Items 14 and 15 of Part II of the Registration Statement insofar
as such statements constitute a summary of legal matters documents or
proceedings referred to therein, fairly present the information called for with
respect to such legal matters, documents and proceedings.
We have participated in conferences with officers and other
representatives of the Company, representatives of the independent public
accountants of the Company and representatives of the Underwriters, at which the
contents of the Registration Statement and the Prospectus and related matters
were discussed and, although we are not passing upon, and do not assume any
responsibility for, the accuracy, completeness or fairness of the statements
contained in the Registration Statement and the Prospectus (except as set forth
in (7), (10) and (14) above) and have not made any independent check or
verification thereof, on the basis of the foregoing (relying as to materiality
to a large extent upon the statements of officers and other representatives of
the Company), no facts have come to our attention that lead us to believe that
either the Registration Statement at the time such Registration Statement became
effective and as of the Closing Date, contained an untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, or that the
Prospectus as of its date and as of the Closing Date, contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, except that we express
no opinion with respect to the financial statements, schedules and
<PAGE> 35
Donaldson, Lufkin & Jenrette
Securities Corporation
[Date]
-6-
other financial data included in the Registration Statement or the Prospectus.
The opinions expressed herein are limited to the laws of the United
States of America, the State of New York and the General Corporation Law of the
State of Delaware, and we express no opinion concerning the laws of any other
jurisdiction.
Our opinions expressed herein are solely for the benefit of
Underwriters and, without our express written consent, neither our opinion nor
this opinion letter may be assigned, quoted, circulated or be furnished to or
relied upon by any other person.
Very truly yours,
<PAGE> 36
Exhibit B of the
Underwriting Agreement
LETTERHEAD OF AMERISOURCE DISTRIBUTION CORPORATION
[Date]
Donaldson, Lufkin & Jenrette
Securities Corporation
Smith Barney Inc.
BT Securities Corporation
c/o Donaldson, Lufkin & Jenrette
Securities Corporation
140 Broadway
New York, NY 10005
Re: AmeriSource Distribution Corporation
Ladies and Gentlemen:
This opinion is being furnished to you pursuant to paragraph 8(d)(ii)
of the Underwriting Agreement dated as of , 1995 (the "Underwriting
Agreement") between AmeriSource Distribution Corporation, a Delaware
corporation (the "Company"), and Donaldson, Lufkin & Jenrette Securities
Corporation, Smith Barney Inc. and BT Securities Corporation (the
"Underwriters") and Donaldson Lufkin & Jenrette Securities Corporation, Smith
Barney Inc. and Bankers Trust International PLC (the "International
Representatives" and, together with the U.S. Underwriters, the "Underwriters").
The Underwriting Agreement relates to the issuance and sale to the Underwriters
by the Company of an aggregate of 6,600,000 shares of its Class A Common Stock
(par value $0.01 per share) (the "Common Stock"). A registration statement on
Form S-2 (File No. 33- ) relating to the Common Stock was filed by the
Company with the Securities and Exchange Commission (the "Commission") under
the Securities Act of 1933, as amended (the "Act"), and, as thereafter amended,
became effective on , 1995 (such registration statement, as amended,
at the time it became effective, is herein called the "Registration Statement"
and the prospectus, dated , 1995, in the form filed with the
Commission pursuant to Rule 424(b)(1) of the General Rules and Regulations
under the Act, is herein called the "Prospectus").
<PAGE> 37
-2-
As Vice President, Legal Counsel of the Company and AmeriSource
Corporation ("AmeriSource"), I have examined all such corporate records,
agreements, instruments and documents of the Company and AmeriSource, and have
made such other investigations as I have deemed necessary or appropriate for
purposes of the opinions expressed below and made such inquiry of officers and
directors of the Company as I have deemed necessary and appropriate.
In making such examination and rendering the opinions set forth below,
I have assumed the genuineness of all signatures, the authenticity of all
documents submitted to me as originals and the conformity to authentic original
documents of all documents submitted to me as certified, conformed or
photostatic copies and the authenticity of the originals of such documents. As
to questions of fact material to my opinions, I have relied upon representations
of the Company in the Underwriting Agreement and on certificates of the
Company's respective officers and of public officials.
Based upon the foregoing and subject to the assumptions and
qualifications set forth above and hereinafter, I am of the opinion that:
1. Each of the Company and AmeriSource is duly qualified to transact
business as foreign corporations in all U.S. jurisdictions in which the conduct
of their respective business or the ownership or leasing of property or assets
requires such qualification and in which the failure to so qualify would have a
material adverse effect on the business, prospects, financial condition or
results of operations of the Company and its subsidiaries, taken as a whole;
2. To the best of my knowledge, all of the shares of outstanding
capital stock of the Company were not issued in violation of any preemptive
rights or other rights to subscribe for or purchase securities;
3. There are no subsidiaries of the Company other than AmeriSource;
4. To the best of my knowledge, no options, warrants or other rights
to purchase, agreements or other obligations to issue or other rights to convert
any obligations into, or exchange any securities for, shares or capital stock of
or ownership interests in AmeriSource are outstanding;
<PAGE> 38
-3-
5. All of the outstanding shares of capital stock of the Company's
subsidiaries have been duly authorized and validly issued, are fully paid and
non-assessable and (except as otherwise stated in the Registration Statement and
the Prospectus) are owned of record by the Company subject to no security
interest, encumbrance or adverse claim or restriction on voting or transfer
(except as may exist under the Act and state securities or Blue Sky laws); and,
to the best of my knowledge, no options, warrants or other rights to purchase,
agreements or other obligations to issue or other rights to convert any
obligations into, or exchange any securities for, shares or capital stock of or
ownership interests in the Company's subsidiaries are outstanding;
6. To the best of my knowledge, except as set forth in the
Registration Statement and the Prospectus, no options, warrants or other rights
to purchase from the Company, agreements or other obligations of the Company to
issue or other rights to cause the Company to convert any obligations into, or
exchange any securities for, shares of capital stock or ownership interests in
the Company are outstanding;
7. To the best of my knowledge, neither the Company nor AmeriSource is
in violation of or in breach of or in default under (nor has any event occurred
which with notice or lapse of time, or both, would constitute a breach of or a
default under) any of the provisions of any agreement or instrument known to me,
to which the AmeriSource is a party or by which any of them is, or any of their
respective properties or assets may be bound or affected, which violation,
breach or default could have a material adverse effect on the business,
prospects, financial condition or results of operations of the Company and its
subsidiaries, taken as a whole;
8. The execution and delivery of the Underwriting Agreement, the
issuance and sale of the shares of Common Stock by the Company as contemplated
by the Underwriting Agreement and the fulfillment of the terms thereof by the
Company and the consummation of the transactions described in the Prospectus
under the caption "Use of Proceeds" will not, to the best of my knowledge,
violate or constitute a breach of or default under or otherwise give any other
party the right to terminate, the terms and provisions of any agreement or
instrument to which the Company or AmeriSource is a party or by which either of
them is, or any of their respective properties or assets may be bound or
affected, which violation, breach or default could have a material adverse
effect on the business, prospects,
<PAGE> 39
-4-
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole;
9. Except as disclosed in the Prospectus, to the best of my knowledge,
after reasonable inquiry, there is no proceeding pending or, to the best of my
knowledge, threatened, to which the Company or AmeriSource is or may be a party
or of which the business or property of the Company or AmeriSource is or may be
the subject which could reasonably be expected to result in any Material Adverse
Effect; or which seeks to restrain, enjoin, prevent the consummation of or
otherwise challenge the issuance or sale of the shares of Common Stock to the
Underwriters or the consummation of the transactions described in the Prospectus
under the "Use of Proceeds" caption;
10. No approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body or, to the best of my knowledge, third party, is necessary in
connection with the execution and delivery of the Underwriting Agreement and the
consummation of the transactions contemplated therein or as contemplated by the
Prospectus (other than as have been obtained and made under the Act and as may
be required by the NASD or as required by state securities or Blue Sky laws, as
to which I express no opinion);
11. To the best of my knowledge, there are no proceedings required to
be described in the Prospectus that are not described, or any contracts or
documents of a character required to be described in the Registration Statement
or the Prospectus or to be filed as exhibits to the Registration Statement that
were not described and filed as required; and
12. To the best of my knowledge, the Company and AmeriSource hold all
material permits, licenses, franchises and authorizations of governmental and
regulatory authorities ("permits") which are necessary to own, lease or operate
their respective properties and assets and to the conduct of their respective
business.
13. To the best of my knowledge, after due inquiry, neither the
Company nor any of its subsidiaries has violated any Environmental Laws, nor any
federal or state law relating to discrimination in the hiring, promotion or pay
of employees nor any applicable federal or state wages and hours laws, nor any
provisions of the Employee Retirement Income Security Act
<PAGE> 40
-5-
or the rules and regulations promulgated thereunder, which in each case might
result in any material adverse change in the business, prospects, financial
condition or results of operation of the Company and its subsidiaries, taken as
a whole; and
14. The Company is not an "investment company" or a company
"controlled" by an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
No facts have come to my attention that lead me to believe that the
Registration Statement at the time such Registration Statement became effective
under the Act and as of the Closing Date, contained an untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, or that the
Prospectus as of its date and as of the Closing Date, contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, except that I express
no belief with respect to the financial statements, schedules and other
financial or statistical data included in the Registration Statement or the
Prospectus.
The opinions expressed herein are limited to the laws and regulations
of the United States of America, the Commonwealth of Pennsylvania and the
General Corporation Law of the State of Delaware, and I express no opinion
concerning the laws of any other jurisdiction.
The opinions expressed herein are solely for the benefit of
Underwriters and, without my express written consent, neither my opinion nor
this opinion letter may be assigned, quoted, circulated or be furnished to or
relied upon by any other person.
Very truly yours,
AMERISOURCE DISTRIBUTION CORPORATION
Teresa T. Ciccotelli
Vice President, Legal Counsel
and Secretary
<PAGE> 1
DECHERT PRICE & RHOADS
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103-2793
Telephone: (215) 994-4000
March 8, 1995
AmeriSource Distribution Corporation
P.O. Box 959
Valley Forge, PA 19482
Re: 7,590,000 Shares of Class A Common Stock,
as described in the Registration Statement
on Form S-2 (Registration No. 33-57513)
Ladies and Gentlemen:
We have acted as your counsel in connection with the
registration under the Securities Act of 1933, as amended, of an aggregate of
7,590,000 shares of your Class A Common Stock, par value $0.01 per share (the
"Shares") pursuant to the above-referenced Registration Statement (the
"Registration Statement"). The Shares will be sold pursuant to an Underwriting
Agreement, dated the date hereof (the "Underwriting Agreement"), among you and
Donaldson, Lufkin & Jenrette Securities Corporation, Smith Barney Inc. and BT
Securities Corporation, as representatives of the several underwriters (the
"Underwriters").
We have participated in the preparation of the Registration
Statement and have reviewed the proposed form of the Underwriting Agreement, and
we have examined such corporate records and documents, certificates of officers
and matters of law as we have considered appropriate to enable us to give this
opinion.
Based upon the foregoing, it is our opinion that the Shares
have been duly authorized and, when delivered to the Underwriters against
payment therefor in accordance with the terms of the Underwriting Agreement,
will be validly issued, fully paid and non-assessable.
We hereby consent to the reference to our firm under the
caption "Legal Matters" in the Prospectus portion of the Registration Statement
and to the filing of this opinion as Exhibit 5.1 to the Registration Statement.
Very truly yours,
/s/ Dechert Price & Rhoads
