<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 3, 1995
REGISTRATION NO. 33-57513
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
AMERISOURCE HEALTH 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 HEALTH 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 changed its name from "AmeriSource Distribution Corporation" on
March 30, 1995. The Registrant is referred to in the Prospectus by the new
name.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
AMERISOURCE HEALTH 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
---------------------------------------- -----------------------------------------------
<C> <S> <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 APRIL 3, 1995
PROSPECTUS
APRIL , 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 class of 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 $1,000,000.
(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 April , 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. 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.
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
SUBJECT TO COMPLETION, DATED APRIL 3, 1995
PROSPECTUS
APRIL , 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 class of 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 $1,000,000.
(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 April , 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:
-- ECHO(TM), the Company's proprietary software system, provides
sophisticated ordering and inventory management assistance to its
hospital and retail customers. Since the introduction of ECHO(TM)
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. The Company had net
losses of approximately $29.5 million, $23.3 million, $6.5 million, $18.6
million and $207.7 million during fiscal years 1990, 1991, 1992, 1993 and 1994.
During this period, the Company's gross profit percentage decreased from 6.32%
in fiscal 1990 to 5.47% in fiscal 1994. 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
<TABLE>
<S> <C>
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
</TABLE>
- ---------------
(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."
5
<PAGE> 9
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.
6
<PAGE> 10
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................ 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)
PRO FORMA EARNINGS (LOSS)
PER SHARE(3):
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(4):
Adjusted operating income(5).... $ 86,054 $ 19,376 $ 21,939
Interest expense................ 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(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 DECEMBER 31, 1994
--------------------------
ACTUAL AS ADJUSTED(6)
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Current assets........................................................................ $ 855,867 $ 855,867
Working capital....................................................................... 298,499 325,211
Total assets.......................................................................... 915,727 913,440
Long-term debt, including current portion............................................. 664,807 576,318
Stockholders' equity (deficit)........................................................ (312,745) (199,831)
</TABLE>
- ---------------
(see footnotes on the following page)
7
<PAGE> 11
- ---------------
(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.
Operating income is presented to assist the investor in evaluating the
Company's results of operations before financing costs and in the case of
adjusted operating income, before non-recurring charges. 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) Pro forma earnings (loss) per share represents the Company's historical per
share data and weighted average common shares outstanding restated to
reflect the 2.95-for-1 stock split to be declared in connection with the
Offering. The pro forma earnings (loss) per share will be the historical
amounts reflected in the Company's financial statements when the 2.95-for-1
stock split becomes effective.
(4) 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).
(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 Selected Financial
Data and the Company's consolidated financial statements included elsewhere
in this Prospectus. The Company believes adjusted operating income provides
investors with an evaluation of the Company's historical results of
operations on a comparable basis, since the unusual items noted above were
incurred in some historical periods, but not in others. The presentation of
adjusted operating income should not be interpreted to suggest that the
Company will not incur similar unusual items in the future, although none
are currently anticipated.
(6) 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.
8
<PAGE> 12
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. The Receivables Program (as defined herein) is expected to
liquidate beginning in October 1999. 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
$664.8 million and its stockholders' deficit was $312.7 million. After giving
effect to the Refinancing and the Offering, on a pro forma basis as of December
31, 1994, the Company's aggregate long-term indebtedness would have been
approximately $576.3 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; (v) the Company's ability to generate or service
receivables pursuant to the Receivables Program may be impaired; and (vi)
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."
9
<PAGE> 13
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
10
<PAGE> 14
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 Stockholders. 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 and board of directors of the Company who
own shares of Common Stock of the Company and VPI 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."
11
<PAGE> 15
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 transfers such Receivables to a master
trust in exchange for, among other things, certain trade receivables-backed
certificates (the "Certificates"). Contemporaneously, variable principal
Certificates in an aggregate principal amount of up to $230 million face amount
were sold to a group of financial institutions. The Company has accounted for
the transactions contemplated by the terms of the Receivables Purchase Agreement
as a sale of receivables from AmeriSource to ARC and as a financing transaction
by ARC on the Company's consolidated financial statements. The Certificates
represent fractional undivided interests in the Receivables and other assets of
the master trust, and do not otherwise represent recourse obligations of the
Company. 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 the following step-ups: (i)
with respect to the ABR tranche (based on the higher of the prime rate or
federal funds rate plus 50 basis points), an additional 50 basis points
beginning one year after the closing date (December 13, 1994) and (ii) with
respect to the LIBOR tranche, an additional 12 1/2 basis points beginning six
months after the closing date, an additional 12 1/2 basis points beginning nine
months after the closing date, and an additional 75 basis points beginning one
year after the closing date. 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. Given existing market
conditions, the Company expects that such interest rate contracts will apply to
in excess of $150 million of the new Certificates, will be for a term of
approximately two years and will cap the related variable interest rates at
approximately 8%. Such new Certificates are expected to be issued shortly 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.
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."
12
<PAGE> 16
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.
13
<PAGE> 17
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
Receivables securitization financing(2)......................... 202,000 202,000
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......... 664,807 576,318
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.................................................... 8 100
Class B (non-voting and convertible): 15,000,000 shares
authorized, as adjusted; 12,980,885 shares issued as
adjusted.................................................... 130 130
Class C (non-voting and convertible): 2,000,000 shares
authorized; 1,475,000 shares issued as adjusted............. 15 15
Capital in excess of par value.................................... 4,787 127,203
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.................................... $ 352,062 $ 376,487
========= ===========
</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 and $0.5 million of cash proceeds from
the Option Exercises. 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.
(2) Comprises the Certificates outstanding under the Receivables Program, which
represent fractional undivided interests in the Receivables and other assets
of the master trust, and do not otherwise represent recourse obligations of
the Company. See "The Refinancing."
14
<PAGE> 18
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)(2)......... 38,270 46,838 63,094 67,824 (101,992) 18,000 21,939
Interest expense................... 73,675 72,208 71,025 66,696 62,611 15,233 17,323
Non-recurring charges(3)........... 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(4)............. -- -- 6,348 (11,144) (656) (656) (11,749)
Cumulative effects of accounting
changes(5)....................... -- -- -- -- (34,598) (34,598) --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net (loss)......................... $ (29,489) $ (23,319) $ (6,476) $ (18,618) $ (207,671) $ (32,675) $ (10,863)
========= ========= ========= ========= ========= ========= =========
PRO FORMA EARNINGS (LOSS) PER
SHARE(6):
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>
15
<PAGE> 19
<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(7)....... $ 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
(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 $ 855,867
Working capital.................... 236,962 252,468 268,424 217,160 133,355 228,716 298,499
Total assets....................... 756,932 783,145 848,474 867,944 711,644 943,865 915,727
Long-term debt, including current
portion.......................... 539,731 570,979 588,005 549,342 487,708 591,977 664,807
Stockholders' equity (deficit)..... (44,946) (68,271) (74,747) (93,040) (300,726)(6) (125,715) (312,745)(8)
</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) Operating income is presented to assist the investor in evaluating the
Company's results of operations before financing costs and in the case of
adjusted operating income, before non-recurring charges.
(3) 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.
(4) 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.
(5) 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.
(6) Pro forma earnings (loss) per share represents the Company's historical per
share data and weighted average common shares outstanding restated to
reflect the 2.95-for-1 stock split to be declared in connection with the
Offering. The pro forma earnings (loss) per share will be the historical
amounts reflected in the Company's financial statements when the 2.95-for-1
stock split becomes effective.
(7) 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. The
Company believes adjusted operating income provides investors with an
evaluation of the Company's historical results of operations on a comparable
basis, since the unusual items noted above were incurred in some historical
periods, but not in others. The presentation of adjusted operating income
should not be interpreted to suggest that the Company will not incur similar
unusual items in the future, although none are currently anticipated.
16
<PAGE> 20
(8) 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.
17
<PAGE> 21
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 transferred 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 for fiscal 1994, assuming average borrowings outstanding
under the Credit Agreement and Receivables Program of approximately $204.6
million and $201.0 million, respectively, 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. The Receivables Program is
expected to liquidate beginning in October 1999.
18
<PAGE> 22
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THREE MONTHS
SEPTEMBER 30, ENDED DECEMBER 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-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.
19
<PAGE> 23
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.
Interest expense payable currently for the three months ended December 31,
1994 of $12.6 million increased $1.8 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. 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
20
<PAGE> 24
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.
21
<PAGE> 25
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. The primary sources of the Company's
working capital and cash operating requirements are cash flows from operations
and borrowings under the Receivables Program and the Credit Agreement.
22
<PAGE> 26
During the three-month period ended December 31, 1994, the Company's
operating activities consumed $160.0 million in cash. The increase of $33.2
million in accounts receivable and 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 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 Receivables Program
financing 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. Borrowings under the Receivables
Program were $202.0 million at December 31, 1994 at an interest rate of 7.05%.
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
23
<PAGE> 27
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'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
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<PAGE> 28
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 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> 29
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 approximately 75% of the pharmaceuticals purchased by federal
government 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> 30
- - 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> 31
(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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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 23.6%
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 7.0% 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> 33
- 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 9.6% 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> 34
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> 35
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, and in all cases
plaintiffs have established these lawsuits, along with several other suits to
which the Company is not a party, as a class action. In essence, these lawsuits
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 used "chargeback agreements" to give some institutional pharmacies
discounts that were not allegedly 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. In March 1995, the Company was named as a defendant, along with
several other wholesale distributors and pharmaceutical manufacturers, in an
additional civil action filed by independent retail pharmacies in the United
States District Court for the Eastern District of Arkansas. Effective October
26, 1994, the Company entered into a Judgment Sharing Agreement with other
wholesaler and pharmaceutical manufacturer
32
<PAGE> 36
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 $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.
33
<PAGE> 37
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.................. 48 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.
34
<PAGE> 38
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.
35
<PAGE> 39
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 1993 124,000 50,000 -- --
Officer 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 $15,000 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. In connection with the Offering, the Company expects to grant
options to acquire Common Stock pursuant to the 1995 Option Plan to 100
employees, several of whom are participants in the Company's other stock option
plans.
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<PAGE> 40
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,
37
<PAGE> 41
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 has adopted 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. During the four year period after the
date of grant, 50 percent of the Common Stock acquired upon exercise of a
holder's 1995 Option Plan stock options will not be transferable for a period
38
<PAGE> 42
of one year after the date of exercise. 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 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 has adopted 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 1,376,250 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).
39
<PAGE> 43
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.
AGREEMENTS WITH EMPLOYEES
The Company intends to offer employment contracts to Messrs. McNamara, Yost
and Flowers. The employment contracts are expected to provide for three year
terms of employment, each subject to a one year extension at the Company's
discretion, annual base salaries substantially commensurate with present levels,
and incentive compensation, bonuses and benefits in accordance with the
Company's then prevailing practices.
Each contract is expected to include customary termination for cause
provisions, whereupon the Company's obligations under the respective employment
contract would cease. By a majority vote of the Board of Directors, the Company
would also be able to terminate the employment of the employee without cause,
whereupon the Company would remain obligated to pay the greater of (i) one year
of such employee's then current salary and (ii) the base salary of the employee
for the balance of the term of employment contract. The contracts may also
provide for acceleration of all or a portion of the employee's AmeriSource stock
options then outstanding upon a termination without cause. Each contract is also
expected to prohibit direct and indirect competition with the Company for a
period of one year after termination of employment. The contracts will also
contain customary prohibitions against the disclosure of confidential
information and the solicitation of the Company's employees and customers.
The Company has entered into noncompetition and nondisclosure agreements
with certain officers and key employees of the Company, including Messrs.
McNamara, Yost, Flowers and Hilzinger. The agreements provide that the employee
will not (i) during the course of employment by AmeriSource and for a period of
one year thereafter, engage in any business that directly or indirectly competes
with the Company, and (ii) for a one-year period after termination of
employment, solicit or divert the Company's employees or the business of the
Company's customers. The agreements also provide that the employees will not
disclose confidential information at any time during or after their employment
with the Company.
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
40
<PAGE> 44
$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.
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<PAGE> 45
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%
</TABLE>
<TABLE>
<CAPTION>
OWNERSHIP AFTER
THE OFFERING AND
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> 46
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 60 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
43
<PAGE> 47
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.
44
<PAGE> 48
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 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).
45
<PAGE> 49
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 8.74% 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 transfers such Receivables to a master
trust in exchange for, among other things, Certificates. Contemporaneously,
variable principal Certificates in an aggregate principal amount of up to $230
million face amount were sold to a group of financial institutions. The Company
has accounted for the transactions contemplated by the terms of the Receivables
Purchase Agreement as a sale of Receivables from AmeriSource to ARC and as a
financing transaction by ARC on the Company's consolidated financial statements.
The Certificates represent fractional undivided interests in the Receivables and
other assets of the master trust, and do not otherwise represent recourse
obligations of the Company. 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 the
following step-ups: (i) with respect to the ABR tranche (based on the higher of
the prime rate or federal funds rate plus 50 basis points), an additional 50
basis points beginning one year after the closing date (December 13, 1994) and
(ii) with respect to the
46
<PAGE> 50
LIBOR tranche, an additional 12 1/2 basis points beginning six months after the
closing date, an additional 12 1/2 basis points beginning nine months after the
closing date, and an additional 75 basis points beginning one year after the
closing date. 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. Given existing market conditions, the Company expects
that such interest rate contracts will apply to in excess of $150 million of the
new Certificates, will be for a term of approximately two years and will cap the
related variable interest rates at approximately 8%. Such new Certificates are
expected to be issued shortly 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.
According to its terms, the Receivables Program is expected to liquidate
beginning in October 1999, whereupon the payment of the then-outstanding
principal of the Certificates will commence. The Certificates are also subject
to early liquidation upon the occurrence of certain events. In the event of a
liquidation, losses on Receivables will first be absorbed by the residual
certificate held by ARC and collections on Receivables will first be allocated
to make payments of outstanding principal of the Certificates in accordance with
their ratable interests in the assets of the master trust, after giving effect
to the allocation of losses to the residual interest.
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,
47
<PAGE> 51
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."
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."
48
<PAGE> 52
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
certain current officers 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 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
49
<PAGE> 53
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
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.
50
<PAGE> 54
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.
51
<PAGE> 55
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
52
<PAGE> 56
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.
53
<PAGE> 57
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).
54
<PAGE> 58
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> 59
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 Note 12, as to which date is January 30, 1995
F-2
<PAGE> 60
[This Page Intentionally Left Blank]
F-3
<PAGE> 61
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> 62
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;
532,143 shares issued............................................ 5 5
Class B (Non-voting and convertible): 30,000,000 shares authorized;
12,980,885 shares issued......................................... 130 130
Class C (Non-voting and convertible): 2,000,000 shares authorized;
1,475,000 shares issued.......................................... 15 15
Capital in excess of par value....................................... 4,676 4,676
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> 63
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> 64
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............. $ 5 $ 130 $15 $ 4,348 $ (72,219) $(550) $ (68,271)
Net (loss)................... (6,476) (6,476)
--
------ ------- --------- --------- ------ ---------
September 30, 1992............. 5 130 15 4,348 (78,695) (550) (74,747)
Net (loss)................... (18,618) (18,618)
Repurchase of stock
options................... (18) (18)
Purchase of 3,503 shares of
Class A Common Stock...... (3) (3)
Capital contribution......... 346 346
--
------ ------- --------- --------- ------ ---------
September 30, 1993............. 5 130 15 4,676 (97,313) (553) (93,040)
Net (loss)................... (207,671) (207,671)
Purchase of 44,250 shares of
Class A Common Stock...... (15) (15)
--
------ ------ --------- --------- ----- ---------
September 30, 1994............. $ 5 $ 130 $15 $ 4,676 $(304,984) $(568) $(300,726)
====== ====== ====== ======= ========= ===== =========
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE> 65
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> 66
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.
Pro Forma Share Presentation
The Company's (loss) per share and share data in the financial statements
have been retroactively restated to reflect the pro forma effect of the
2.95-for-1 stock split to be declared in connection with the proposed public
offering by the Company of its Common Stock discussed in Note 12. The pro forma
(loss) per share and share information will be the historical amounts as
presented when the 2.95-for-1 stock split becomes effective.
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.
F-9
<PAGE> 67
AMERISOURCE DISTRIBUTION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
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.
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 $.34 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
F-10
<PAGE> 68
AMERISOURCE DISTRIBUTION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- EXCESS OF COST OVER NET ASSETS ACQUIRED -- (CONTINUED)
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 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.
F-11
<PAGE> 69
AMERISOURCE DISTRIBUTION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- TAXES ON INCOME -- (CONTINUED)
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.
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
F-12
<PAGE> 70
AMERISOURCE DISTRIBUTION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- TAXES ON INCOME -- (CONTINUED)
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 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
F-13
<PAGE> 71
AMERISOURCE DISTRIBUTION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- LONG-TERM DEBT -- (CONTINUED)
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 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
F-14
<PAGE> 72
AMERISOURCE DISTRIBUTION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- LONG-TERM DEBT -- (CONTINUED)
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.
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,
3,503 shares of Class A common stock were purchased as treasury stock. During
fiscal 1994, 44,250 shares of Class A common stock were purchased as treasury
stock.
F-15
<PAGE> 73
AMERISOURCE DISTRIBUTION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
F-16
<PAGE> 74
AMERISOURCE DISTRIBUTION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- PENSION AND OTHER BENEFIT PLANS -- (CONTINUED)
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% 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 $.34 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 1,716,347 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, 62,872
and 121,872 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 1,531,603 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 368,160 shares of Distribution Class A common stock were
granted at an exercise price of $.34 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, 9,440 options were canceled and during fiscal 1992 an
additional 18,880 options were canceled, leaving 339,840 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 1,069,375 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, 29,500 options were
extinguished, leaving 1,039,875 options outstanding at an exercise price of $.34
per share under the 1991 Option Plan as of September 30, 1994.
F-17
<PAGE> 75
AMERISOURCE DISTRIBUTION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- PENSION AND OTHER BENEFIT PLANS -- (CONTINUED)
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 time of
non-qualified stock options to acquire up to approximately 5 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.
F-18
<PAGE> 76
AMERISOURCE DISTRIBUTION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- LEGAL MATTERS AND CONTINGENCIES -- (CONTINUED)
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 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
F-19
<PAGE> 77
AMERISOURCE DISTRIBUTION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- LEGAL MATTERS AND CONTINGENCIES -- (CONTINUED)
Company believes that its insurance coverage and supplier indemnification are
adequate to cover any losses should they occur.
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 statements 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 agreed to purchase on a
continuous basis Receivables originated by the Company. Pursuant to the
Receivables Program, ARC transfers such Receivables to a master trust in
exchange for, among other things, certain trade
F-20
<PAGE> 78
AMERISOURCE DISTRIBUTION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11 -- SUBSEQUENT EVENTS -- (CONTINUED)
receivables-backed certificates (the "Certificates"). Contemporaneously,
Certificates in an aggregate principal amount of up to $230 million face amount
were sold to investors. The Company will account for the transactions
contemplated by the terms of the Receivables Purchase Agreement as a sale of
Receivables from AmeriSource to ARC and as a financing transaction by ARC on the
Company's consolidated financial statements. 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 the following step-ups:
(i) with respect to the ABR tranche (based on the higher of the prime rate or
federal funds rate plus 50 basis points), an additional 50 basis points
beginning one year after the closing date (December 13, 1994) and (ii) with
respect to the LIBOR tranche, an additional 12 1/2 basis points beginning six
months after the closing date, an additional 12 1/2 basis points beginning nine
months after the closing date, and an additional 75 basis points beginning one
year after the closing date.
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 2,571,478 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 1,338,894
shares of common stock from VPI upon the exercise of the Distribution Plan and
the 1991 Option Plan at a price of $.34 per share. In
F-21
<PAGE> 79
AMERISOURCE DISTRIBUTION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12 -- SUBSEQUENT EQUITY TRANSACTIONS -- (CONTINUED)
December 1994, 336,448 options under the Partners Plan were exercised resulting
in the issuance of 336,448 shares of Class A Common Stock and the buyback of
107,085 shares of Class A Common Stock to satisfy minimum tax withholdings.
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> 80
[This Page Intentionally Left Blank]
F-23
<PAGE> 81
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.............................................................. $ 29,325 $ 25,311
Restricted cash................................................... 6,748
Accounts receivable less allowance for doubtful accounts:
12/94 -- $11,986; 9/94 -- $9,370............................... 302,765 272,281
Merchandise inventories........................................... 514,480 351,676
Prepaid expenses and other........................................ 2,549 2,442
----------- -------------
Total current assets...................................... 855,867 651,710
Property and Equipment, at cost..................................... 68,832 67,598
Less accumulated depreciation..................................... 27,618 26,416
----------- -------------
41,214 41,182
Deferred financing costs and other, less accumulated amortization:
12/94 -- $1,434; 9/94 -- $7,239................................... 18,646 18,752
----------- -------------
$ 915,727 $ 711,644
========= ==========
</TABLE>
See notes to consolidated financial statements.
F-24
<PAGE> 82
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................................................. 43,932 27,485
Accrued income taxes............................................. 10,305 11,488
Deferred income taxes............................................ 29,258 29,258
------------ -------------
Total current liabilities..................................... 557,368 518,355
Long-Term Debt
Revolving credit facility........................................ 147,041 175,897
Receivables securitization financing............................. 202,000
Senior subordinated notes........................................ 166,134 166,134
Other debt....................................................... 1,308 1,293
Convertible subordinated debentures.............................. 238 238
Senior debentures................................................ 147,970 144,013
------------ -------------
664,691 487,575
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 -- 868,591 shares; 9/94 -- 532,143 shares...... 8 5
Class B (Non-voting and convertible): 30,000,000 shares
authorized; 12,980,885 shares issued......................... 130 130
Class C (Non-voting and convertible): 2,000,000 shares
authorized; 1,475,000 shares issued.......................... 15 15
Capital in excess of par value................................... 4,787 4,676
Retained earnings (deficit)...................................... (315,847) (304,984)
Cost of common stock in treasury................................. (1,838) (568)
------------ -------------
(312,745) (300,726)
------------ -------------
$ 915,727 $ 711,644
========== ==========
</TABLE>
See notes to consolidated financial statements.
F-25
<PAGE> 83
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
---------- ----------
(UNAUDITED)
<S> <C> <C>
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.......................................................... 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> 84
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:
Restricted cash............................................... (6,748)
Accounts receivable........................................... (33,221) (34,080)
Merchandise inventories....................................... (162,804) (51,104)
Prepaid expenses.............................................. (107) 429
Accounts payable, accrued expenses and income taxes........... 29,062 30,037
Debentures issued in lieu of payment of interest.............. 3,957 3,558
Miscellaneous................................................... 307 (637)
----------- ---------
NET CASH (USED IN) OPERATING ACTIVITIES....................... (159,952) (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.......................................... 593,505 244,400
Long-term debt repayments.......................................... (420,393) (205,893)
Deferred financing costs........................................... (6,253) (55)
Exercise of stock options.......................................... 114
Purchases of treasury stock........................................ (1,270)
----------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES..................... 165,703 38,452
----------- ---------
Increase (decrease) in cash.......................................... 4,014 (8,614)
Cash at beginning of period.......................................... 25,311 27,136
----------- ---------
CASH AT END OF PERIOD................................................ $ 29,325 $ 18,522
========= =========
</TABLE>
See notes to consolidated financial statements.
F-27
<PAGE> 85
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.
The Company's (loss) per share and share data in the financial statements
have been retroactively restated to reflect the pro forma effect of the
2.95-for-1 stock split to be declared in connection with the proposed public
offering by the Company of its Common Stock discussed in Note 6. The pro forma
(loss) per share and share information will be the historical amounts as
presented when the 2.95-for-1 stock split becomes effective.
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").
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 the following step-ups: (i) with respect to the ABR tranche (based on
the higher of the prime rate or federal funds rate plus 50 basis points), an
additional 50 basis points beginning one year after the closing date (December
13, 1994) and (ii) with respect to the LIBOR tranche, an additional 12 1/2 basis
points beginning six months after the closing date, an
additional 12 1/2 basis points beginning nine months after the closing date, and
an additional 75 basis points beginning one year after the closing date.
Pursuant to the Receivables Program, on December 13, 1994, the Company sold $305
million in Receivables to ARC in exchange for cash of $201 million and a
subordinated note. ARC in turn transferred the Receivables to the master trust
for the Certificates and a residual interest in the master trust. The Company
has accounted for the transactions contemplated by the terms of the
F-28
<PAGE> 86
AMERISOURCE DISTRIBUTION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
NOTE 2 -- INDEBTEDNESS AND FINANCIAL ARRANGEMENTS -- (CONTINUED)
Receivables Purchase Agreement as a sale of Receivables from AmeriSource to ARC
and as a financing transaction by ARC on the Company's consolidated financial
statements. The Certificates represent fractional undivided interests in the
Receivables and other assets of the master trust, and do not otherwise represent
recourse obligations of the Company. The assets and liabilities of the master
trust have been consolidated with the Company at December 31, 1994. According to
its terms, the Receivables Program is expected to liquidate beginning in October
1999, whereupon the payment of the then-outstanding principal of the
Certificates will commence. The Certificates are also subject to early
liquidation upon the occurence of certain events. In the event of a liquidation,
losses on Receivables will first be absorbed by the residual certificate held by
ARC and collections on Receivables will first be allocated to make payments of
outstanding principal of the Certificates in accordance with their ratable
interests in the assets of the master trust, after giving effect to the
allocation of losses to the residual interest. Fees of $706,000 incurred through
December 31, 1994 in connection with establishing the Receivables Program have
been deferred and are being amortized on a straight-line basis over five years.
Interest expense on the Certificates during the three months ended December 31,
1994 was $752,000. The $202 million in Certificates outstanding at December 31,
1994 bore interest at 7.05%. Restricted cash of $6,748,000 at December 31, 1994,
represents amounts deposited in the master trust from collections on the
Receivables, which are designated for specific purposes pursuant to the
Receivables Program.
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.
F-29
<PAGE> 87
AMERISOURCE DISTRIBUTION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
NOTE 4 -- LEGAL MATTERS AND CONTINGENCIES -- (CONTINUED)
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 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
F-30
<PAGE> 88
AMERISOURCE DISTRIBUTION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
NOTE 4 -- LEGAL MATTERS AND CONTINGENCIES -- (CONTINUED)
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 statements 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.
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 $.34 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 and
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 2,571,478 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 1,338,894
shares of common stock from VPI upon the exercise of the Distribution Plan and
the 1991 Option Plan at a price of $.34 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> 89
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> 90
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> 91
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...................... 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> 92
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...................... 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> 93
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...................... 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> 94
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...................................... $ 29,325 $ -- $ -- $ 29,325
Restricted cash........................... 6,748 6,748
Accounts receivable....................... 302,765 302,765
Merchandise inventories................... 514,480 514,480
Prepaid expenses.......................... 2,549 2,549
---------- -------------- ---------
Total current assets............... 855,867 855,867
Property and equipment, net................. 41,214 41,214
Deferred financing costs and other.......... 18,646 (2,287) 16,359
---------- -------------- ------------- ---------
Total assets....................... $ 915,727 $ -- $ (2,287) $ 913,440
=========== ============= ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of other debt............. $ 116 $ -- $ -- $ 116
Accounts payable.......................... 473,757 473,757
Accrued expenses.......................... 43,932 (17,848) (5,490) 20,594
Accrued income taxes...................... 10,305 (3,374) 6,931
Deferred income taxes..................... 29,258 29,258
---------- -------------- ------------- ---------
Total current liabilities.......... 557,368 (17,848) (8,864) 530,656
Long-term debt
Revolving credit facility................. 147,041 183,982 (32,352) 298,671
Receivables securitization financing...... 202,000 202,000
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
---------- -------------- ------------- ---------
664,691 17,848 (106,337) 576,202
Other liabilities........................... 6,413 6,413
Stockholders' equity (deficit)
Common stock.............................. 153 92 245
Capital in excess of par value............ 4,787 122,416 127,203
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)................. $ 915,727 $ -- $ (2,287) $ 913,440
=========== ============= ============ ===========
</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 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 and $456 of cash proceeds from the Option exercises.
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> 95
- ------------------------------------------------------
- ------------------------------------------------------
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
Risk Factors.............................. 9
The Refinancing........................... 12
Use of Proceeds........................... 13
Dividend Policy........................... 13
Dilution.................................. 13
Capitalization............................ 14
Selected Financial Data................... 15
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 18
Business.................................. 26
Management................................ 34
Certain Relationships and Transactions.... 40
Principal Stockholders.................... 42
Description of Capital Stock.............. 43
Description of Indebtedness and
Securitization Program.................. 45
Shares Eligible for Future Sale........... 48
Certain United States Federal Tax
Considerations for Non-U.S. Holders of
Common Stock............................ 49
Underwriting.............................. 51
Legal Matters............................. 53
Experts................................... 53
Additional Information.................... 54
Incorporation of Certain Documents by
Reference............................... 54
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
APRIL , 1995
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 96
[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
Risk Factors.............................. 9
The Refinancing........................... 12
Use of Proceeds........................... 13
Dividend Policy........................... 13
Dilution.................................. 13
Capitalization............................ 14
Selected Financial Data................... 15
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 18
Business.................................. 26
Management................................ 34
Certain Relationships and Transactions.... 40
Principal Stockholders.................... 42
Description of Capital Stock.............. 43
Description of Indebtedness and
Securitization Program.................. 45
Shares Eligible for Future Sale........... 48
Certain United States Federal Tax
Considerations for Non-U.S. Holders of
Common Stock............................ 49
Underwriting.............................. 51
Legal Matters............................. 53
Experts................................... 53
Additional Information.................... 54
Incorporation of Certain Documents by
Reference............................... 54
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
APRIL , 1995
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 97
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
NASD filing fee......................................................... 15,680
Nasdaq National Market listing fee...................................... 50,000
Blue Sky fees and expenses.............................................. 25,000
Printing and engraving expenses......................................... 250,000
Legal fees and expenses................................................. 275,000
Accounting fees and expenses............................................ 235,000
Transfer Agent and Registrar fees and expenses.......................... 6,800
Miscellaneous........................................................... 90,175
-----------
$ 1,000,000
==========
</TABLE>
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.
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
II-1
<PAGE> 98
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
- ------- ---------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement, dated April , 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 (incorporated by reference to Exhibit 2.6 to Issuer's Form 8-A (No.
000-20485), filed with the Securities and Exchange Commission on March 24, 1995).
</TABLE>
II-2
<PAGE> 99
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ---------------------------------------------------------------------------------
<S> <C>
4.7 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).
4.8 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.
4.9 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).
4.10 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).
4.11 Form of Certificate of Issuer's Class A Common Stock, $0.01 par value per share
(incorporated by reference to Exhibit 1 to Issuer's Form 8-A (No. 000-20485),
filed with the Securities Exchange Commission on March 24, 1995).
*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).
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).
</TABLE>
II-3
<PAGE> 100
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ---------------------------------------------------------------------------------
<S> <C>
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 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).
10.13 Amendment No. 2 to Partners Plan.
10.14 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).
10.15 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).
10.16 Issuer 1995 Stock Option Plan.
10.17 Issuer Non-Employee Directors Stock Option Plan.
10.18 Registration Rights Agreement dated as of March 30, 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.
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.
II-4
<PAGE> 101
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> 102
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 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 April 3, 1995.
AmeriSource Health 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. 2 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
<S> <C> <C>
Chairman of the Board, April 3, 1995
JOHN F. MCNAMARA* President and Chief Executive
- ------------------------------------------ Officer (Principal Executive
John F. McNamara Officer)
Vice President, Chief Financial April 3, 1995
/s/ KURT J. HILZINGER Officer and Treasurer (Principal
- ------------------------------------------ Financial Officer)
Kurt J. Hilzinger
Vice President, Controller April 3, 1995
JOHN A. KURCIK* and Assistant Treasurer
- ------------------------------------------ (Principal Accounting Officer)
John A. Kurcik
BRUCE C. BRUCKMANN* Director April 3, 1995
- ------------------------------------------
Bruce C. Bruckmann
Director April 3, 1995
MICHAEL DELANEY*
- ------------------------------------------
Michael Delaney
Director April 3, 1995
RICHARD C. GOZON*
- ------------------------------------------
Richard C. Gozon
Director April 3, 1995
LAWRENCE C. KARLSON*
- ------------------------------------------
Lawrence C. Karlson
Director April 3, 1995
GEORGE H. STRONG*
- ------------------------------------------
George H. Strong
</TABLE>
II-6
<PAGE> 103
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
<S> <C> <C>
Director April 3, 1995
JAMES A. URRY*
- ------------------------------------------
James A. Urry
Director April 3, 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> 104
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. 2 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
April 3, 1995
II-8
<PAGE> 105
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NUMBER
- ------- ------------------------------------------------------------------- -----------
<S> <C> <C>
1.1 Form of Underwriting Agreement, dated April , 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 (incorporated by reference to Exhibit 2.6
to Issuer's Form 8-A (No. 000-20485), filed with the Securities and
Exchange Commission on March 24, 1995).
4.7 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).
4.8 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.
4.9 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).
</TABLE>
<PAGE> 106
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NUMBER
- ------- ------------------------------------------------------------------- -----------
<S> <C> <C>
4.10 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).
4.11 Form of Certificate of Issuer's Class A Common Stock, $0.01 par
value per share (incorporated by reference to Exhibit 1 to Issuer's
Form 8-A (No. 000-20485), filed with the Securities Exchange
Commission on March 24, 1995).
*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).
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).
</TABLE>
<PAGE> 107
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NUMBER
- ------- ------------------------------------------------------------------- -----------
<S> <C> <C>
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 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).
10.13 Amendment No. 2 to Partners Plan.
10.14 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).
10.15 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).
10.16 Issuer 1995 Stock Option Plan.
10.17 Issuer Non-Employee Directors Stock Option Plan.
10.18 Registration Rights Agreement dated as of March 30, 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.
<PAGE> 1
6,600,000 Shares
AmeriSource Distribution Corporation
Class A Common Stock
UNDERWRITING AGREEMENT
March , 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
<PAGE> 2
-2-
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, 5,280,000 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 1,320,000 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
<PAGE> 3
-3-
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. On the basis
of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, 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
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 set forth in Schedule I hereto
opposite the name of such U.S. Underwriter.
On the basis of the representations and warranties
contained in this Agreement, and subject to its terms and
conditions, 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
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
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
<PAGE> 4
-4-
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 U.S. 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 who own capital stock 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 ("DLJ"). Notwithstanding the
foregoing, during such period (i) the Company may grant options
for shares of its Common Stock pursuant to the Company's
existing stock option plans, (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
and (iii) 399 Venture Partners Inc. ("VPI"), members of the
Company's Board of Directors and members of the Company's
management may offer, sell, contract to sell, grant any option
to purchase, or otherwise dispose of from time to time without
the consent of DLJ or the several Underwriters (a) all or a
portion of its capital
<PAGE> 5
-5-
stock of the Company to one or more persons in private transactions
(i.e., transactions not involving a public sale, public distribution
or other public disposition of shares of capital stock of the
Company, nor any sale pursuant to Rule 144 or Rule 144A promulgated
under the Act) and (b) such amount of the Company's capital stock
to the Company as contemplated by the Registration Statement.
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 Cahill Gordon & Reindel, 80 Pine Street, New York,
New York. 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 Company.
Delivery to the U.S. Underwriters of and payment for
any Additional Shares to be purchased by the U.S. 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 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
<PAGE> 6
-6-
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 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 (next day) 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
<PAGE> 7
-7-
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
supplement to the Prospectus of which you shall not
previously have been advised or to which you shall
reasonably object in writing within five business days
after being given a copy thereof; 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
judgment of the Company or in the opinion of its counsel
or in the opinion of counsel for the Underwriters it
becomes necessary to amend or supplement the Prospectus in
order to make the statements of material facts 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 of material facts 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.
<PAGE> 8
-8-
(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 reasonably request, to
continue such qualification in effect so long as required
for distribution of the Shares and to file documents as
may be necessary in order to effect such registration or
qualification; provided that in no event shall the Company
be obligated to qualify to do business in any jurisdiction
where it is not now so qualified or to take any action
that would subject it to service of process in suits,
other than those arising out of the offering or sale of
the Shares, in any jurisdiction where it is not now so
subject.
(h) To mail and make generally available to its
stockholders as soon as reasonably practicable an earnings
statement which need not be audited 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 Rule 158 under
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
<PAGE> 9
-9-
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 reasonably practicable 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 included in the Registration
Statement (each a "Preliminary Prospectus") and all
amendments and supplements to 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 by you or your
counsel with the consent of the Company 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 Nasdaq National Market, (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. Except as expressly provided in this
Section (k), the Underwriters agree to
<PAGE> 10
-10-
pay all of their costs and expenses, including fees and
disbursements of their counsel.
(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 Nasdaq National Market 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:
(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 to the Company's
knowledge, 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 as of the date of such amendment or supplement
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,
when filed with the Commission, will not contain and, as
amended or supplemented, if applicable, will not contain,
as of the date of such amendment or supplement, 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
<PAGE> 11
-11-
Prospectus (or any supplement or amendment to them) based
upon information relating to any Underwriter furnished to
the Company in writing by or on behalf of such Underwriter
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(a)
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, each is validly existing as a
corporation in good standing under the laws of its
jurisdiction of incorporation and has the corporate power
and corporate authority to carry on its respective
business as it is currently being conducted and to own,
lease and operate its properties as described in the
Prospectus, 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, 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) Except as described in the Prospectus, all of
the outstanding shares of capital stock of, or other
ownership interests in, each of the Company's subsidiaries
<PAGE> 12
-12-
have been duly authorized and validly issued and are fully
paid and non-assessable, and are owned by the Company or a
subsidiary thereof, 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
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 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, which
breach or default would have a material adverse effect on
the Company and its subsidiaries, taken as a whole.
(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 Act, the Securities Exchange Act of 1934, as amended
(the "Exchange Act") or 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
<PAGE> 13
-13-
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 assuming compliance with
all applicable state securities or Blue Sky laws, 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 would result in a
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 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,
except such that would not result in a material adverse
change in the business, prospects, financial condition or
results of operations of the Company and its subsidiaries,
taken as a whole, 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) Except as disclosed in the Prospectus, 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 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 a 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"),
<PAGE> 14
-14-
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 and its subsidiaries, taken as a
whole.
(n) 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 such failure or events 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.
(o) Except as otherwise set forth in the Prospectus
or such as are not material to the business, prospects,
<PAGE> 15
-15-
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 of such leased property 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 in accordance with generally accepted
accounting principles; 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.
<PAGE> 16
-16-
(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) Except as described in the Prospectus, 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 or properly extended, 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
Nasdaq National Market 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
<PAGE> 17
-17-
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
(i) 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 or (ii) made
in any preliminary prospectus if (A) a copy of the Prospectus
(as amended or supplemented, if the Company shall have
furnished any amendments or supplements thereto) was not sent
or given by or on behalf of the Underwriters to the person
asserting any such loss, claim, damage or liability or
obtaining such judgment at or prior to the written confirmation
of the sale of the Shares as required by the Act and (B) such
untrue statement or omission has been corrected in the
Prospectus (as so amended or supplemented).
(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
<PAGE> 18
-18-
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 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. 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 and
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 or any such officer or any person controlling the
Company, based upon the Registration Statement, 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 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
<PAGE> 19
-19-
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 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
<PAGE> 20
-20-
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 that might result in 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 and its subsidiaries, taken as
a whole, (ii) since the date of the latest balance sheet
included in the Registration Statement and the Prospectus
there shall not have been any change, or any development
that
<PAGE> 21
-21-
might result in 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) since the date of the
latest balance sheet included in the Registration
Statement and the Prospectus, the Company and its
subsidiaries shall have not incurred a 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> 22
-22-
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 Paragraph 4 of Section 2 hereof.
(h) (i) The Company shall have complied in all
material respects 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> 23
-23-
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 change or development involving a
prospective change in the condition, financial or otherwise, of
the Company and its subsidiaries, taken as a whole, or the
earnings, affairs, or business of the Company and its
subsidiaries, taken as a whole, whether or not arising in the
ordinary course of business, which would, in your judgment,
materially impair the investment quality of 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 and its subsidiaries, taken as a
whole, (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 the applicable 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
<PAGE> 24
-24-
non-defaulting 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 its controlling persons
and of the several Underwriters set forth in or made pursuant
to this Agreement shall remain operative and in full force and
<PAGE> 25
-25-
effect, and will survive 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 without
regard to the principles of conflicts of law thereof.
This Agreement may be signed in various counterparts
which together shall constitute one and the same instrument.
<PAGE> 26
-26-
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> 27
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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> 28
SCHEDULE I
Number of Firm Shares
U.S. Underwriters to be Purchased
---------------------
Donaldson, Lufkin & Jenrette
Securities Corporation
Smith Barney Inc.
BT Securities Corporation
---------------------------------
Total
<PAGE> 29
SCHEDULE II
Number of Firm Shares
International Underwriters to be Purchased
---------------------
Donaldson, Lufkin & Jenrette
Securities Corporation
Smith Barney Inc.
Bankers Trust International PLC
---------------------------------
Total
<PAGE> 30
ANNEX I
Required Stockholder Lock-ups
399 Venture Partners Inc. .............................. 10,021,073 shares
<PAGE> 1
EXHIBIT 4.8
================================================================================
AMERISOURCE RECEIVABLES MASTER TRUST
POOLING AND SERVICING AGREEMENT
dated as of December 13, 1994
among
AMERISOURCE RECEIVABLES CORPORATION,
as transferor,
AMERISOURCE CORPORATION,
as the initial Servicer,
and
MANUFACTURERS AND TRADERS TRUST COMPANY,
as Trustee
================================================================================
<PAGE> 2
|| TABLE OF CONTENTS
<TABLE>
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ARTICLE I
DEFINITIONS
SECTION 1.01 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II
CONVEYANCE OF CERTAIN ASSETS; ISSUANCE
OF CERTIFICATES
SECTION 2.01 Creation of the Trust; Conveyance of Certain Assets . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 2.02 Acceptance by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 2.03 Representations and Warranties of ARC Relating to the Trust Assets . . . . . . . . . . . . . . . . . 3
SECTION 2.04 No Assumption of Obligations Relating to Receivables, Related
Transferred Assets or Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
SECTION 2.05 Conveyance of Receivables by the Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE III
ADMINISTRATION AND SERVICING
OF RECEIVABLES
SECTION 3.01 Acceptance of Appointment and Other Matters Relating to the Servicer . . . . . . . . . . . . . . . . 6
SECTION 3.02 Duties of the Servicer and ARC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 3.03 Lockbox Accounts; Concentration Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 3.04 Servicing Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 3.05 Records of the Servicer and Reports to be Prepared by the Servicer . . . . . . . . . . . . . . . . . 13
SECTION 3.06 Monthly Servicer's Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 3.07 Annual Servicing Report of Independent Public Accountants;
Forms 10-Q and 10-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 3.08 Rights of the Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 3.09 Ongoing Responsibilities of AmeriSource . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 3.10 Further Action Evidencing Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE IV
RIGHTS OF CERTIFICATEHOLDERS AND
ALLOCATION AND APPLICATION OF COLLECTIONS
SECTION 4.01 Rights of Certificateholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 4.02 Establishment of Trust Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 4.03 Daily Calculations and Funds Allocations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 4.04 Investment of Funds in Trust Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 4.05 Attachment of Trust Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
</TABLE>
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ARTICLE V
DISTRIBUTIONS AND REPORTS TO
CERTIFICATEHOLDERS
SECTION 5.01 Distributions to Holders of Investor Certificates and Purchasers . . . . . . . . . . . . . . . . . . 35
SECTION 5.02 Distributions on the ARC Revolving Certificate and the Residual
Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 5.03 Information to Certificateholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 5.04 Notice of Early Liquidation at Seller Election . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
ARTICLE VI
THE CERTIFICATES
SECTION 6.01 The Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 6.02 Authentication of Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 6.03 Registration of Transfer and Exchange of Certificates . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 6.04 Mutilated, Destroyed, Lost or Stolen Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 6.05 Persons Deemed Owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 6.06 Appointment of Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 6.07 Access to List of Certificateholders' Names and Addresses . . . . . . . . . . . . . . . . . . . . . . 48
SECTION 6.08 Authenticating Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 6.09 Tax Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 6.10 Issuance of Additional Series of Certificates and Sales
of Purchased Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 6.11 Changes in Amount of Investor Revolving Certificates . . . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 6.12 Book-Entry Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 6.13 Notices to Clearing Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 6.14 Definitive Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 6.15 Letter of Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
ARTICLE VII
ARC
SECTION 7.01 Representations and Warranties of ARC Relating to ARC and the
Transaction Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
SECTION 7.02 Covenants of ARC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 7.03 Indemnification by ARC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
ARTICLE VIII
THE SERVICER
SECTION 8.01 Representations and Warranties of the Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
SECTION 8.02 Covenants of the Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
</TABLE>
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SECTION 8.03 Merger or Consolidation of, or Assumption of the
Obligations of, the Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
SECTION 8.04 Indemnification by the Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
SECTION 8.05 Servicer Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
SECTION 8.06 Limitation on Liability of the Servicer and Others . . . . . . . . . . . . . . . . . . . . . . . . . 75
ARTICLE IX
LIQUIDATION EVENTS
SECTION 9.01 Liquidation Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
SECTION 9.02 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
SECTION 9.03 Additional Rights Upon the Occurrence of Certain Events . . . . . . . . . . . . . . . . . . . . . . . 79
ARTICLE X
SERVICER DEFAULTS
SECTION 10.01 Servicer Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
SECTION 10.02 Trustee to Act; Appointment of Successor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
SECTION 10.03 Notification of Servicer Default; Notification
of Appointment of Successor Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
ARTICLE XI
THE TRUSTEE
SECTION 11.01 Duties of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
SECTION 11.02 Certain Matters Affecting the Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
SECTION 11.03 Limitation on Liability of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
SECTION 11.04 Trustee May Deal with Other Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
SECTION 11.05 Servicer To Pay Trustee's Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
SECTION 11.06 Eligibility Requirements for Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
SECTION 11.07 Resignation or Removal of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
SECTION 11.08 Successor Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
SECTION 11.09 Merger or Consolidation of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
SECTION 11.10 Appointment of Co-Trustee or Separate Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
SECTION 11.11 Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
SECTION 11.12 Trustee May Enforce Claims Without Possession of Certificates . . . . . . . . . . . . . . . . . . . 94
SECTION 11.13 Suits for Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
SECTION 11.14 Rights of Investor Certificateholders To Direct Trustee . . . . . . . . . . . . . . . . . . . . . . 95
SECTION 11.15 Representations and Warranties of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
SECTION 11.16 Maintenance of Office or Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
</TABLE>
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ARTICLE XII
TERMINATION
SECTION 12.01 Termination of Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
SECTION 12.02 Final Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
SECTION 12.03 Rights Upon Termination of the Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
ARTICLE XIII
MISCELLANEOUS PROVISIONS
SECTION 13.01 Amendment, Waiver, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
SECTION 13.02 Actions by Certificateholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
SECTION 13.03 Limitation on Rights of Certificateholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
SECTION 13.04 Limitation on Rights of Purchasers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
SECTION 13.05 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
SECTION 13.06 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
SECTION 13.07 Severability of Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
SECTION 13.08 Certificates Nonassessable and Fully Paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
SECTION 13.09 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
SECTION 13.10 Nonpetition Covenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
SECTION 13.11 No Waiver; Cumulative Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
SECTION 13.12 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
SECTION 13.13 Third-Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
SECTION 13.14 Integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
SECTION 13.15 Binding Effect; Assignability; Survival of Provisions . . . . . . . . . . . . . . . . . . . . . . . 106
SECTION 13.16 Recourse to ARC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
SECTION 13.17 Recourse to Trust Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
SECTION 13.18 Submission to Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
SECTION 13.19 Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
SECTION 13.20 Certain Partial Releases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
SECTION 13.21 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
||
EXHIBITS
EXHIBIT A Form of Lockbox Account Letter Agreement
EXHIBIT B Form of Concentration Account Letter Agreement
EXHIBIT C-1 Form of Daily Report (Pre-Liquidation
EXHIBIT C-2 Form of Daily Report (Liquidation)
EXHIBIT D-1 Form of Settlement Statement (Pre-Liquidation)
EXHIBIT D-2 Form of Settlement Statement (Liquidation)
EXHIBIT E Form of Monthly Servicer's Certificate
</TABLE>
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<TABLE>
<S> <C>
EXHIBIT F Form of Monthly Report to Certificateholders
EXHIBIT G Form of ARC Revolving Certificate
EXHIBIT H Form of Residual Certificate
EXHIBIT I Form of Owner Regulation S Certification
EXHIBIT J Form of Transferee Regulation S Certification
EXHIBIT K Form of Depositary Regulation S Certification
EXHIBIT L Form of Transfer to Regulation S Certification
EXHIBIT M Form of Placement Agent Exchange Instructions
EXHIBIT N Form of Restrictive Legends
EXHIBIT O-1 Form of Phase I Intercreditor Agreement
EXHIBIT O-2 Form of Phase II Intercreditor Agreement
SCHEDULES
SCHEDULE 1 Offices of the Transferor, the Servicer and the Seller Where Records are Maintained
SCHEDULE 2 Account Banks
APPENDIX
APPENDIX A Definitions
</TABLE>
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This POOLING AND SERVICING AGREEMENT, dated as of December 13, 1994
(this "Agreement"), is made among AMERISOURCE RECEIVABLES CORPORATION, a
Delaware corporation ("ARC"), as transferor, AMERISOURCE CORPORATION, a
Delaware corporation ("AmeriSource"), as initial Servicer, and Manufacturers
and Traders Trust Company, a New York banking corporation, as Trustee.
In consideration of the mutual agreements herein, each party agrees as
follows for the benefit of the other parties and the Certificateholders to the
extent provided herein:
ARTICLE I
DEFINITIONS
SECTION 1.01 Definitions. Whenever used in this Agreement,
capitalized terms, unless otherwise defined herein, have the meanings that
Appendix A assigns to them, and this Agreement shall be interpreted in
accordance with the conventions set forth in Parts B, C and D of Appendix A.
ARTICLE II
CONVEYANCE OF CERTAIN ASSETS; ISSUANCE
OF CERTIFICATES
SECTION 2.01 Creation of the Trust; Conveyance of Certain Assets.
(a) By execution and delivery of this Agreement, ARC does hereby transfer,
assign, set over and otherwise convey to the Trust, for the benefit of the
Certificateholders, all its right, title and interest in, to and under, without
recourse except as expressly provided otherwise herein, (i) each Receivable and
any Notes Receivable that is or have been transferred by the Seller to ARC,
pursuant to the Purchase Agreement or the Subscription Agreement, from and
including the date on which the first Purchases occur under the Purchase
Agreement to but excluding the Purchase Termination Date, (ii) all Related
Assets, (iii) the Seller Transaction Documents (excluding the Subscription
Agreement) (all of ARC's right, title and interest in, to and under such Seller
Transaction Documents and the Related Assets being called the "Related
Transferred Assets"), (iv) all funds from time to time on deposit in each of
the Trust Accounts and all funds from time to time on deposit in each of the
Bank Accounts representing Collections on, or other proceeds of, the foregoing
and, in each case, all certificates and instruments, if any, from time to time
evidencing such funds, all investments made with such funds, all claims
thereunder or in connection therewith and all interest, dividends, monies,
instruments, securities and other property from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or all
of the foregoing, (v) funds in an amount, if positive, equal to, as of the
First Issuance Date, (A) the
<PAGE> 8
Investor Initial Invested Amount minus (B) the Base Amount (which funds the
Trustee is directed to deposit into the Equalization Account on the date
hereof), and (vi) all moneys due or to become due and all amounts received or
receivable with respect to any of the foregoing and all proceeds of the
foregoing. Such property shall constitute the assets of the Trust
(collectively, the "Trust Assets"). The foregoing transfer, assignment,
setover and conveyance to the Trust shall be made to the Trustee, on behalf of
the Trust, and each reference in this Agreement to such transfer, assignment,
setover and conveyance shall be construed accordingly.
(b) In connection with the transfer described in subsection (a), ARC
and the Servicer have recorded and filed or caused to be recorded and filed, in
connection with the First Issuance Date, as an expense of the Servicer paid out
of the Servicing Fee, financing statements (and continuation statements with
respect to such financing statements when applicable) with respect to the Trust
Assets (whether now existing or hereafter created) meeting the requirements of
applicable state law in such manner and in such jurisdictions as the Servicer
reasonably determined were necessary or desirable to perfect, and maintain
perfection of, the transfer and assignment of the Trust Assets to the Trust.
The Trustee shall be under no obligation whatsoever to file such financing
statements, or continuation statements to such financing statements, or to make
any other filing under the UCC in connection with such transfer. In connection
with the transfer described in subsection (a), ARC and the Servicer further
agree to deliver to the Trustee each Trust Asset (including any original
documents or instruments included in the Trust Assets as are necessary to
effect such transfer) in which the transfer of an interest is perfected under
the UCC or otherwise by possession. ARC or the Servicer shall deliver each
such Trust Asset to the Trustee, as an expense of the Servicer paid out of the
Servicing Fee, immediately upon the transfer of any such Trust Asset to the
Trustee pursuant to subsection (a).
(c) In connection with the transfer described above in subsection
(a), the Servicer shall, on behalf of ARC, as an expense of the Servicer paid
out of the Servicing Fee, on or prior to the Closing Date, mark the master data
processing records evidencing the Receivables with the following legend:
"THE RECEIVABLES DESCRIBED HEREIN HAVE BEEN SOLD TO
AMERISOURCE RECEIVABLES CORPORATION PURSUANT TO A RECEIVABLES
PURCHASE AGREEMENT, DATED AS OF DECEMBER 13, 1994, AMONG
AMERISOURCE CORPORATION, AS SELLER, AND AMERISOURCE
RECEIVABLES CORPORATION, AS PURCHASER; AND SUCH RECEIVABLES
HAVE BEEN TRANSFERRED TO THE AMERISOURCE RECEIVABLES MASTER
TRUST PURSUANT TO A POOLING AND SERVICING AGREEMENT, DATED AS
OF DECEMBER 13, 1994, AMONG AMERISOURCE RECEIVABLES
CORPORATION, AS TRANSFEROR, AMERISOURCE CORPORATION, AS THE
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<PAGE> 9
INITIAL SERVICER, AND MANUFACTURERS AND TRADERS TRUST COMPANY,
AS TRUSTEE."
(d) Upon the request of ARC, the Trustee will cause Certificates in
authorized denominations evidencing the entire interest in the Trust to be duly
authenticated and delivered to or upon the order of ARC pursuant to Section
6.02.
SECTION 2.02 Acceptance by Trustee. The Trustee hereby acknowledges
its acceptance on behalf of the Trust of all right, title and interest to the
property, now existing and hereafter created, conveyed to the Trust pursuant to
Section 2.01(a) and declares that it shall maintain such right, title and
interest, upon the trust herein set forth, for the benefit of all
Certificateholders, on the terms and subject to the conditions hereinafter set
forth.
SECTION 2.03 Representations and Warranties of ARC Relating to the
Trust Assets.
(a) Representations and Warranties. At the time that any Receivable
or Related Asset is sold or transferred by ARC to the Trust, ARC hereby
represents and warrants that:
(i) Valid Transfer. Each transfer made by ARC pursuant to
this Agreement constitutes a valid transfer and assignment of all of
its right, title and interest in, to and under the Receivables and the
Related Transferred Assets to the Trust that is perfected and of first
priority under the UCC and otherwise, enforceable against creditors
of, and purchasers from, ARC and the Seller and free and clear of any
Adverse Claim (other than any Permitted Adverse Claim and any Adverse
Claim arising solely as a result of any action taken by the Trustee
under this Agreement).
(ii) Quality of Title. (A) Immediately before each transfer
to be made by ARC hereunder, each Receivable and Related Transferred
Asset that was then to be transferred to the Trust hereunder was owned
by ARC free and clear of any Adverse Claim (other than any Permitted
Adverse Claim and any Adverse Claim arising solely as a result of any
action taken by the Trustee under this Agreement); and, in connection
with the First Issuance Date, ARC and the Servicer made, or caused to
be made, all filings and took all other action under applicable law in
each relevant jurisdiction in order to protect and perfect the Trust's
interest in such Receivables, such Related Transferred Assets and the
funds in the Trust Accounts against all creditors of, and purchasers
from, ARC and the Seller.
(B) Each transfer of Receivables and Related Transferred
Assets by ARC to the Trust pursuant to this Agreement constitutes a
valid transfer and assignment to the Trust of all right, title and
interest of ARC in the Receivables and the Related Transferred Assets,
free and clear of any Adverse Claim (other than any Permitted Adverse
Claim and any Adverse Claim arising solely as the result of any action
taken by the Trustee under this Agreement), and constitutes either an
absolute transfer of
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<PAGE> 10
such property to the Trust or a grant of a first priority perfected
security interest in such property to the Trust. Whenever the Trust
accepts a transfer of a Receivable or a Related Transferred Asset
hereunder, it shall have acquired a valid and perfected first priority
interest in such Receivable or Related Transferred Asset free and
clear of any Adverse Claim (other than any Permitted Adverse Claim and
any Adverse Claim arising solely as a result of any action taken by
the Trustee under this Agreement).
(C) No effective financing statement or other instrument
similar in effect that covers all or part of any Receivable, any
Related Transferred Asset, any other Trust Asset or any interest in
any thereof is on file in any recording office except financing
statements as to which termination statements or releases are filed on
the Closing Date or the day after the Closing Date and except such as
may be filed (1) in favor of the Seller in accordance with the
Contracts, (2) in favor of ARC pursuant to the Purchase Agreement or
the Subscription Agreement, and (3) in favor of the Trustee, for the
benefit of the Certificateholders, in accordance with this Agreement
or otherwise filed by or at the direction of the Trustee. No
effective financing statement or instrument similar in effect relating
to perfection that covers any inventory of the Seller that might give
rise to Receivables is on file in any recording office except for (so
long as the Intercreditor Agreement is in effect) financing statements
or instruments in favor of the Seller Agent.
(D) No acquisition of any Receivable or Related Transferred
Asset by ARC or the Trust constitutes a fraudulent transfer or
fraudulent conveyance under the United States Bankruptcy Code or
applicable state bankruptcy or insolvency laws or is otherwise void or
voidable or subject to subordination under similar laws or principles
or for any other reason.
(E) The transfer of the Receivables and Related Transferred
Assets by the Seller to ARC constitutes a true and valid assignment
and transfer for consideration of such Receivables and Related
Transferred Assets under applicable state law (and not merely a pledge
of such Receivables and Related Transferred Assets for security
purposes), enforceable against the creditors of the Seller, and any
Receivables and Related Transferred Assets so transferred do not
constitute property of the Seller.
(iii) Governmental Approvals. With respect to each
Receivable and Related Transferred Asset, all consents, licenses,
approvals or authorizations of, or notices to or registrations,
declarations or filings with, any Governmental Authority required to
be obtained, effected or made by the Seller, the Servicer or ARC in
connection with the conveyance of the Receivable and Related
Transferred Asset by the Seller to ARC, or by ARC to the Trust, have
been duly obtained, effected or given and are in full force and
effect, except, in respect of enforceability against a Federal
Obligor, for any consents or filings referred to in 31 U.S.C. Sections
3727(b) and (c) (the "Assignment of Claims Act") and any consents
required by states with respect to any
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Receivables arising from State and Local Obligors so long as such
Receivables are not reported as Eligible Receivables.
(iv) Eligible Receivables. (A) On the date on which the
Seller transfers a Receivable to ARC, and ARC transfers such
Receivable to the Trust, unless otherwise identified by the Servicer
in the Daily Report for such date, such Receivable is an Eligible
Receivable, and (B) on the date of each Daily Report or Settlement
Statement that identifies a Receivable as an Eligible Receivable, such
Receivable is an Eligible Receivable.
(b) Notice of Breach. The representations and warranties set forth
in subsection (a) shall survive the transfer and assignment of the Receivables
and the Related Transferred Assets to the Trust. Upon discovery by ARC, the
Servicer or the Trustee of a breach of any of the representations and
warranties set forth in this subsection (a), the party discovering the breach
shall give written notice to the other parties to this Agreement within four
Business Days following the discovery. The Trustee's obligations in respect of
discovering any breach are limited as provided in Section 11.02(g).
SECTION 2.04 No Assumption of Obligations Relating to Receivables,
Related Transferred Assets or Contracts. The transfer, assignment, setover and
conveyance described in Section 2.01 does not constitute and is not intended to
result in a creation or an assumption by the Trust, the Trustee or any Investor
Certificateholder of any obligation of the Servicer, ARC, the Seller or any
other Person in connection with the Receivables or the Related Transferred
Assets or under the related Contracts or any other agreement or instrument
relating thereto, including any obligation to any Obligors. None of the
Trustee, the Trust or any Investor Certificateholder shall have any obligation
or liability to any Obligor or other customer or client of the Seller
(including any obligation to perform any of the obligations of the Seller to
any Obligor under any such Receivables, related Contracts or any other related
purchase orders or other agreements or otherwise). No such obligation or
liability is intended to be assumed by the Trustee, the Trust or any Investor
Certificateholder hereunder, and any such assumption is hereby expressly
disclaimed.
SECTION 2.05 Conveyance of Receivables by the Trust. Pursuant to the
terms of a PI Agreement, the Trustee, on behalf of the Trust, from time to time
may sell, transfer, assign, set over and otherwise convey Purchased Interests
to a Purchaser or the Purchaser Agent for the account of a Purchaser; and the
Trustee, on behalf of the Trust, is authorized and directed (subject to the
applicable terms of Section 6.10), upon the written request of the Seller, to
enter into one or more PI Agreements in the form annexed to each such written
request. Pursuant to a PI Agreement, Collections allocated to Purchased
Interests may be reinvested and such Purchased Interests may be recomputed,
each from time to time as provided therein. Each Purchased Interest shall be
equally and ratably entitled as provided herein to the benefits of this
Agreement without preference, priority or distinction, all in
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accordance with the terms and provisions of this Agreement except as otherwise
expressly provided herein.
ARTICLE III
ADMINISTRATION AND SERVICING
OF RECEIVABLES
SECTION 3.01 Acceptance of Appointment and Other Matters Relating to
the Servicer.
(a) Designation of Servicer. The servicing, administering and
collection of the Receivables and the Related Transferred Assets shall be
conducted by the Person designated as Servicer hereunder from time to time in
accordance with this section. Until the Trustee gives a Termination Notice to
AmeriSource pursuant to Section 10.01, AmeriSource is hereby designated as, and
AmeriSource hereby agrees to act as, the Servicer under this Agreement and the
other Transaction Documents with respect to the Receivables and the Related
Transferred Assets, and the Certificateholders and the Purchasers by their
acceptance of the Certificates and Purchased Interests consent to AmeriSource
acting as the Servicer.
(b) Delegation of Certain Servicing Activities. In the ordinary
course of business, the Servicer may at any time delegate its duties hereunder
with respect to the Receivables and the Related Transferred Assets to any
Person. Each Person to whom any such duties are delegated in accordance with
this subsection is herein called a "Sub-Servicer". Notwithstanding any such
delegation by the Servicer (including any such delegation by the Servicer to a
Seller), the Servicer shall remain liable for the performance of all duties and
obligations of the Servicer pursuant to the terms of this Agreement and the
other Transaction Documents and such delegation shall not relieve the Servicer
of its liability and responsibility with respect to its duties. The fees and
expenses of any Sub-Servicers shall be as agreed between the Servicer and the
Sub-Servicers from time to time and none of the Trust, the Trustee or the
Certificateholders shall have any responsibility therefor. Upon any
termination of a Servicer pursuant to Section 10.01, all Sub-Servicers
designated pursuant to this subsection by such Servicer shall automatically
also be terminated.
(c) Termination. The designation of the Servicer (and each
Sub-Servicer) under this Agreement (and, in the case of any Sub-Servicer, under
the agreement or other document in which the Servicer makes a delegation of
servicing duties to the Sub-Servicer) shall automatically cease and terminate
upon termination of the Trust pursuant to Section 12.01.
(d) Resignation of the Servicer. The Servicer shall not resign from
the obligations and duties hereby imposed on it except upon its determination
that (i) the performance of its duties is no longer permissible under
applicable law and (ii) there is no reasonable action that
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it could take to make the performance of its duties permissible under
applicable law. If the Servicer makes a determination that it must resign for
the reasons stated above, it shall, prior to the tendering of its resignation,
deliver to the Trustee an Opinion of Counsel for the Servicer, in form and
substance reasonably satisfactory to the Trustee, confirming the satisfaction
of the conditions set forth in clause (i) of the preceding sentence. No
resignation by the Servicer shall become effective until the Trustee or a
Successor Servicer shall have assumed the responsibilities and obligations of
the Servicer in accordance with Section 10.02. If the Servicer has tendered
its resignation and no Successor Servicer has been appointed, the Trustee may
appoint, or may petition a court of competent jurisdiction to appoint, a
Successor Servicer hereunder. The Trustee shall give prompt notice to the
Applicable Rating Agencies of the appointment of any Successor Servicer.
SECTION 3.02 Duties of the Servicer and ARC.
(a) Duties of the Servicer in General. The Servicer shall service
and administer the Receivables and the Related Transferred Assets and, subject
to the terms and provisions of this Agreement, shall have full power and
authority, acting alone or through any of its Sub-Servicers, to do any and all
things in connection with such servicing and administration that it may deem
necessary or appropriate. The Trustee shall execute and deliver to the
Servicer any powers of attorney or other instruments or documents that are
prepared by the Servicer and stated in an Officer's Certificate to be, and
shall furnish the Servicer with any documents in its possession, necessary or
appropriate to enable the Servicer to carry out its servicing and
administrative duties. The Servicer shall exercise the same care and apply the
same policies with respect to the collection, administration and servicing of
the Receivables and the Related Transferred Assets that it would exercise and
apply if it owned such Receivables and the Related Transferred Assets, all in
substantial compliance with applicable law and in accordance with the Credit
and Collection Policy.
The Servicer shall take or cause to be taken all such actions as it
deems necessary or appropriate to collect each Receivable and Related
Transferred Asset (and shall cause each of its Sub-Servicers (if any) to take
or cause to be taken all such actions as the Servicer deems necessary or
appropriate to collect each Receivable and Related Transferred Asset for which
a Sub-Servicer is responsible in its capacity as Sub-Servicer) from time to
time, all in accordance with applicable law and the Credit and Collection
Policy.
Without limiting the generality of the foregoing and subject to the
next preceding paragraph and Section 10.01, the Servicer or its designee is
hereby authorized and empowered, unless such power and authority is revoked by
the Trustee on account of the occurrence of a Servicer Default, (i) to instruct
the Trustee to make withdrawals and payments from the Trust Accounts as set
forth in this Agreement, (ii) to execute and deliver, on behalf of the Trust
for the benefit of the Certificateholders, any and all instruments of
satisfaction or cancellation, or of partial or full release or discharge, and
all other comparable instruments, with respect to the Receivables and the
Related Transferred Assets,
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(iii) to make any filings, reports, notices, applications and registrations
with, and to seek any consents or authorizations from, the Securities and
Exchange Commission and any state securities authority on behalf of the Trust
as may be necessary or appropriate to comply with any federal or state
securities laws or reporting requirements or other laws or regulations, and
(iv) after the delinquency of any Receivable or any default in connection with
a Related Transferred Asset and to the extent permitted under and in compliance
with the Credit and Collection Policy and with all applicable laws, rules,
regulations, judgments, orders and decrees of courts and other governmental
authorities (whether federal, state, local or foreign) and all other tribunals,
to commence or settle collection proceedings with respect to such Receivable
and otherwise to enforce the rights and interests of the Trust and the
Certificateholders in, to and under such Receivable or Related Transferred
Asset (as applicable). The Trustee shall promptly comply with the instructions
of the Servicer to withdraw funds and make payments from the Trust Accounts
pursuant to the terms of this Agreement.
(b) Identification and Transfer of Collections. The Servicer shall
cause Collections and all other Trust Assets that consist of cash or cash
equivalents to be deposited into the Bank Accounts and the Trust Accounts
pursuant to the terms and provisions of Section 3.03 and Article IV. Following
notification from the Seller to the Servicer or discovery by the Servicer that
collections of any receivable or other asset that is not a Collection of a
Receivable or a Related Transferred Asset have been deposited into a Bank
Account or the Master Collection Account, the Servicer shall cause all such
collections to be segregated, apart and in different accounts, from the Bank
Accounts and the Trust Accounts. The Servicer and, to the extent applicable,
the Trustee shall hold all such funds in trust, separate and apart from such
Person's other funds. On each Business Day, after such misapplied collections
have been reasonably identified by the Servicer to the Trustee, the Servicer
shall instruct the Trustee to, and the Trustee shall, turn over to the
appropriate Lockbox Bank, Seller or other applicable AmeriSource Person (or
their designees) all such misapplied collections less all reasonable and
appropriate out-of-pocket costs and expenses, if any, incurred by the Servicer
in collecting such receivables.
All payments made by an Obligor that is obligated to make payments
with respect to both Transferred Receivables and other Receivables shall be
applied against the specified Receivables, if any, that are designated by such
Obligor by reference to the applicable invoice as the Receivables with respect
to which such payments should be applied. In the absence of such designation,
such payments shall be applied against the oldest outstanding Receivables owed
by such Obligor.
Following notification from a Lockbox Bank that any item has been
returned or is uncollected and that such Lockbox Bank has not been otherwise
reimbursed pursuant to the terms of the applicable Lockbox Agreement for any
amounts it credited to the relevant Lockbox Account (and then transferred to
the Master Collection Account), the Servicer shall
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instruct the Trustee to, and the Trustee shall, turn over to such Lockbox Bank
Collections in such amount from Collections on deposit in the Master Collection
Account.
(c) Modification of Receivables, Etc. So long as no Servicer Default
shall have occurred and be continuing, the Servicer may adjust, and may permit
each Sub-Servicer appointed by it to adjust, in accordance with Section 3.02(a)
and the Credit and Collection Policy, the outstanding unpaid balance of any
Receivable, or otherwise modify the terms of any Receivable or amend, modify or
waive any term or condition of any Contract related thereto, all as it may
determine to be appropriate to maximize collection thereof. The Servicer
shall, or shall cause the applicable Sub-Servicer to, write off Receivables
from time to time in accordance with the terms of this Agreement (including
Section 7.02(g)) and the Credit and Collection Policy.
(d) Documents and Records. At any time when AmeriSource shall not be
the Servicer, ARC, to the extent that it is entitled to do so under the
Purchase Agreement, shall, upon the request of the then-acting Servicer, cause
the Seller to deliver to the Servicer, and the Servicer shall hold in trust for
ARC and the Trustee in accordance with their respective interests, all Records
that evidence or relate to the Receivables and Related Transferred Assets of
the Seller.
(e) Certain Duties to the Seller. The Servicer, if other than
AmeriSource, shall, as soon as practicable after a demand by the Seller,
deliver to the Seller all documents, instruments and records in its possession
that evidence or relate to accounts receivable of the Seller or other
AmeriSource Persons that are not Receivables or Related Transferred Assets, and
copies of all documents, instruments and records in its possession that
evidence or relate to Receivables and Related Transferred Assets.
(f) Identification of Eligible Receivables. The initial Servicer
will (i) establish and maintain such procedures as are necessary for
determining no less frequently than each Business Day whether each Receivable
qualifies as an Eligible Receivable, and for identifying, on any Business Day,
all Receivables that are not Eligible Receivables, and (ii) include in each
Daily Report information that shows whether, and to what extent, the
Receivables described in such Daily Report are Eligible Receivables.
(g) Authorization to Act as ARC's Agent. Without limiting the
generality of subsection (a), ARC hereby appoints the Servicer as its agent for
the following purposes: (i) specifying accounts to which payments are to be
made to ARC, (ii) making transfers among, and deposits to and withdrawals from,
all deposit accounts of ARC for the purposes described in the Transaction
Documents, and (iii) arranging payment by ARC of all fees, expenses and other
amounts payable by ARC pursuant to the Transaction Documents. ARC irrevocably
agrees that (A) it shall be bound by all actions taken by the Servicer pursuant
to the preceding sentence, and (B) the Trustee and the banks holding all
deposit accounts of
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ARC are entitled to accept submissions, determinations, selections,
specifications, transfers, deposits and withdrawal requests, and payments from
the Servicer on behalf of ARC.
(h) Grant of Power of Attorney. ARC and the Trustee hereby each
grant to the Servicer a power of attorney, with full power of substitution, to
take in the name of ARC and the Trustee all steps that are necessary or
appropriate to endorse, negotiate, deposit or otherwise realize on any writing
of any kind held or transmitted by ARC or transmitted or received by the
Trustee (whether or not from ARC) in connection with any Receivable or Related
Transferred Asset. The power of attorney that ARC and the Trustee have granted
to the Servicer may be revoked by the Trustee, and shall be revoked by ARC, on
the date on which the Trustee shall be entitled to exercise the powers granted
to the Trustee pursuant to Section 3.08(b). In exercising its power granted
hereby, the Servicer shall take directions from the Trustee, if any, arising
out of the exercise of the rights granted under Section 11.14.
(i) Turnover of Collections. If the Servicer, ARC or any of their
respective agents or representatives shall at any time receive any cash, checks
or other instruments constituting Collections (including any payments received
by ARC on account of any Seller Noncomplying Receivables Adjustment or Seller
Dilution Adjustment), such recipient shall segregate such payments and hold
such payments in trust for, and in a manner acceptable to, the Trustee and
shall, promptly upon receipt (and in any event within two Business Days
following receipt), remit all such cash, checks and instruments, duly endorsed
or with duly executed instruments of transfer, to a Bank Account or the Master
Collection Account; provided, however, that post-dated checks received by the
Servicer in the ordinary course of business and not aggregating at any one time
in the possession of the Servicer more than $50,000 may be held by the Servicer
for deposit on the date appearing on each such check. In the event that the
aggregate principal amount of post-dated checks held by the Servicer in this
manner at any one time exceeds $50,000, the Servicer shall promptly make
arrangements for such checks to be transferred to and held by the Trustee or a
co-trustee or separate trustee appointed pursuant to Section 11.10.
SECTION 3.03 Lockbox Accounts; Concentration Accounts. (a) Each
Lockbox Account shall be subject to a Lockbox Agreement substantially in the
form of Exhibit A. Unless instructed otherwise by the Servicer (or, after the
occurrence and continuance of a Liquidation Event, the Trustee), each Lockbox
Bank shall be instructed by the Servicer to remit, on a daily basis (but
subject to the Lockbox Bank's customary funds availability schedule), all
amounts deposited in the Lockbox Accounts maintained with it to a Concentration
Account or the Master Collection Account. Any Concentration Account shall be
maintained in the name of the Trustee on behalf of the Trust pursuant to a
Concentration Account Agreement substantially in the form of Exhibit B. Except
as expressly provided in this Agreement and the applicable Account Agreements,
none of the Seller, ARC, the Servicer, or any Person claiming by, through or
under the Seller, ARC or the Servicer shall have any control over the use of,
or any right to withdraw any item or amount from, any
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Lockbox Account or Concentration Account. The Servicer and the Trustee are
each hereby irrevocably authorized and empowered, as ARC's attorney-in-fact, to
endorse any item deposited in a lockbox or presented for deposit in any Lockbox
Account or Concentration Account requiring the endorsement of ARC, which
authorization is coupled with an interest and is irrevocable. Each Lockbox
Account shall be maintained with a Lockbox Bank that has a short-term debt
rating of at least A-1 or its equivalent by the Applicable Rating Agency or
shall be a segregated trust account at a national bank with a long-term debt
rating of at least BBB by S&P or otherwise approved by the Applicable Rating
Agency.
(b) The Servicer shall instruct (or shall cause the Seller to
instruct) all Obligors to make all payments due to ARC or the Seller relating
to or constituting Collections (or any proceeds thereof) (i) to lockboxes
maintained at the Lockbox Banks for deposit in a Lockbox Account or a
Concentration Account or (ii) directly to a Lockbox Account. If ARC or the
Seller receives any Collections or any other payment of proceeds of any other
Related Transferred Asset, the Servicer shall cause such recipient to (x)
segregate such payment and hold it in trust for the benefit of the Trustee and
the Certificateholders, and (y) as soon as practicable, but no later than the
second Business Day following receipt of such item by such Person, deposit such
payment in a Bank Account or the Master Collection Account. The Servicer
shall, and shall cause ARC and the Seller to, use reasonable efforts to prevent
the deposit of any amounts other than Collections in any Lockbox Account or
Concentration Account. In the event that the Servicer is notified by the
Seller that any amount other than Collections has been deposited in any Lockbox
Account or Concentration Account, the Servicer shall promptly instruct the
appropriate Account Bank and the Trustee to segregate such amount, and shall
direct such Account Bank or the Trustee (as appropriate) to turn over such
amounts to the Seller or other AmeriSource Person (or their designees) to whom
such amounts are owed.
(c)(i) The Servicer may, from time to time after the Closing Date,
designate a new account as a Lockbox Account or a Concentration Account, and
such account shall become a Lockbox Account or Concentration Account (and the
bank at which such account is maintained shall become a Lockbox Bank or a
Concentration Account Bank for purposes of this Agreement); provided, however,
that the Trustee shall have received not less than 15 Business Days' prior
written notice of the account and/or the bank that are proposed to be added as
a Bank Account or an Account Bank (as applicable) and, not less than ten
Business Days prior to the effective date of any such proposed addition, the
Trustee shall have received (x) counterparts of a Lockbox Agreement or a
Concentration Account Agreement, as applicable, with each new Account Bank,
duly executed by such new Account Bank and all other parties thereto and (y)
copies of all other agreements and documents signed by the new Account Bank or
such other parties with respect to any new Lockbox Account or Concentration
Account, as applicable.
(ii) The Servicer may, from time to time after the Closing Date,
terminate an account as a Lockbox Account or a Concentration Account or a bank
as an Account Bank; provided,
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however, that (x) no such termination shall occur unless the Trustee shall have
received not less than ten Business Days' prior written notice of the account
and/or the bank that are proposed to be terminated as a Bank Account or an
Account Bank (as applicable) and, not less than ten Business Days prior to the
effective date of any such proposed termination, the Trustee shall have
received counterparts of an agreement, duly executed by the applicable Account
Bank and reasonably satisfactory in form and substance to the Trustee, pursuant
to which such Account Bank agrees that, if it receives any funds or items that
constitute Collections on or after the effective date of the termination of the
applicable Bank Account or the effective date of its termination as an Account
Bank (as the case may be), such Account Bank or former Account Bank (as
applicable) shall cause such funds and items to be delivered in the form
received to another lockbox or transferred to another Lockbox Account,
Concentration Account or the Master Collection Account promptly after such
Account Bank or former Account Bank (as applicable) discovers that it has
received any such funds or items, and (y) notwithstanding clause (x), ARC and
the Servicer may at any time establish alternative collection procedures that
do not require the use of Lockbox Accounts with the consent of each Purchaser
Agent and any Enhancement Provider and upon satisfaction of the Rating Agency
Condition.
(d) The Servicer shall instruct each Concentration Account Bank (if
any), to transfer on a daily basis in same day funds to the Master Collection
Account all collected funds on deposit in the Concentration Account maintained
with such Concentration Account Bank. All such transfers shall be made in
accordance with the relevant Concentration Account Agreement.
SECTION 3.04 Servicing Compensation. ARC hereby agrees to pay to the
Servicer, as full compensation for servicing activities performed under the
Transaction Documents, a servicing fee (the "Servicing Fee") in respect of each
Calculation Period (or portion thereof) prior to the termination of the Trust
pursuant to Section 12.01, payable in arrears on each Settlement Date. The
Servicing Fee shall be paid out of funds in the Master Collection Account as
more fully described in Article IV, and shall be payable to the Servicer solely
to the extent amounts are available for payment pursuant to Article IV. In no
event shall the Trust, the Trustee or the Certificateholders be liable for
payment of the Servicing Fee.
At any time when AmeriSource or any of its Affiliates is the Servicer,
the Servicing Fee for any Calculation Period shall be equal to one-twelfth of
the product of (a) 2%, multiplied by (b) the aggregate Unpaid Balance of the
Receivables as measured on the first Business Day of the most recently ended
Calculation Period. If AmeriSource ceases to be the Servicer, the Servicing
Fee for a Successor Servicer that is not an Affiliate of AmeriSource shall be
an amount equal to the greater of (i) the amount calculated pursuant to the
preceding sentence and (ii) an alternative amount specified by such Servicer
not exceeding the sum of (x) 110% of the aggregate reasonable costs and
expenses incurred by such Servicer during such Calculation Period in connection
with the performance of its obligations under this Agreement and the other
Transaction Documents, and (y) the other
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costs and expenses that are to be paid out of the Servicing Fee, as described
in the next sentence; provided, however, that the amount provided for in clause
(x) shall not exceed one-twelfth of 2.5% of the aggregate Unpaid Balance of the
Receivables as measured on the last Business Day of the most recently ended
Calculation Period. The fees, costs and expenses of the Trustee, the Paying
Agent, any authenticating agent, the Lockbox Banks, the Concentration Account
Banks and the Transfer Agent and Registrar, and certain other costs and
expenses payable from the Servicing Fee pursuant to other provisions of this
Agreement, and all other fees and expenses that are not expressly stated in
this Agreement, any Series Supplement or any PI Agreement to be payable by the
Trust or ARC, other than Federal, ]state, local and foreign income and
franchise taxes, if any, or any interest or penalties with respect thereto, of
the Trust, shall be paid out of the Servicing Fee and shall be paid by the
Servicer from the funds that constitute the Servicing Fee. The Servicing Fee
shall be paid to the Servicer solely to the extent that funds are available to
make such payment pursuant to Sections 4.03(g) or (h) (as the case may be), and
there shall be no recourse to ARC for all or any part of the Servicing Fee that
is payable from time to time if such funds are at any time insufficient to pay
the Servicing Fee.
SECTION 3.05 Records of the Servicer and Reports to be Prepared by
the Servicer.
(a) Keeping of Records and Books of Account. The Servicer shall
maintain at all times accurate and complete books, records and accounts
relating to the Receivables, Related Transferred Assets and Contracts of each
Seller and all Collections thereon in which timely entries shall be made.
The Servicer shall maintain and implement administrative and operating
procedures (including an ability to generate duplicates of Records evidencing
Receivables and the Related Transferred Assets in the event of the destruction
of the originals thereof), and shall keep and maintain all documents, books,
records and other information that the Servicer deems reasonably necessary,
consistent with Section 3.02(a), for the collection of all Receivables and
Related Transferred Assets. Without limiting the generality of the foregoing,
the Servicer shall back up the receivables data every night and store the
back-up off site. The Servicer shall further (i) implement a "hot site"
disaster recovery program with a third party vendor for all of its processing
locations within 150 days of the Closing Date, and (ii) maintain all such "hot
site" disaster programs at all times thereafter.
(b) Receivables Reviews. The Servicer shall provide the Trustee
access to the documentation regarding the Receivables when the Trustee is
required, in connection with the enforcement of the rights of
Certificateholders or the Purchasers or by applicable statutes or regulations,
to review such documentation, such access being afforded without charge but
only (i) upon reasonable request, (ii) during normal business hours, (iii)
subject to the Servicer's normal security and confidentiality procedures, (iv)
at reasonably accessible offices in the continental United States of America
designated by the Servicer and (v) upon five Business Days' prior notice;
provided, however, that no notice shall be required if a
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Liquidation Event shall have occurred and be continuing. The Servicer, the
Seller and the Trustee shall provide each Purchaser Agent with such
information, access, audit and inspection rights as shall be specified in each
Receivables Purchase Agreement.
(c) Daily Reports. Prior to 11:00 a. m., New York City time, on each
Business Day, the Servicer shall prepare and deliver to the Trustee and any
Agent a report substantially in the form of Exhibit C (as the same may be
supplemented in accordance with any Supplement or PI Agreement) or in such
other form as is reasonably acceptable to the Trustee and the Servicer (each
such report being a "Daily Report"); provided, that if, on any Business Day,
the Servicer is unable to prepare and deliver a Daily Report to the Trustee
because of acts of God or the public enemy, riots, acts of war, acts of
terrorism, epidemics, fire, failure of communication lines, equipment or power
failure, computer systems failure, flood, embargoes, weather, earthquakes or
other unanticipated disruptions of the Servicer's ability to monitor the
origination and/or preparation of Receivables, then the Base Amount used in
preparation of the Daily Report shall be the lowest Base Amount shown in the
Daily Reports delivered during the immediately preceding month (such amount, an
"Estimated Base Amount"). The Servicer may use an Estimated Base Amount to
prepare the Daily Report until the earlier to occur of (i) the disruption no
longer prevents the Servicer from preparing the Daily Report using the actual
data required by the Daily Report and delivering it to the Trustee, and (ii)
the sixth Business Day following the commencement of such disruption.
No later than 11:15 a. m. on the 2nd Business Day of the Look Back
Period, the Servicer shall deliver to the Trustee a modified Daily Report for
the Determination Date, reflecting the exclusion of the Affected Receivables
from the Base Amount. With respect to each other Business Day falling in the
Look Back Period (including such 2nd Business Day), two Daily Reports shall be
prepared and delivered to the Trustee pursuant to Section 3.05(c) (and clearly
marked to distinguish between them); (1) one reflecting exclusion of Affected
Receivables in the Base Amount; and (2) another including the Affected
Receivables in the Base Amount (to the extent permitted by other terms of the
Transaction Documents).
(d) Settlement Statement. On each Report Date, the Servicer shall
prepare and deliver to the Trustee and the Applicable Rating Agencies a report
substantially in the form of Exhibit D (as the same may be supplemented in
accordance with any Supplement or PI Agreement) or in such other form as is
reasonably acceptable to the Trustee and the Servicer (each such report being a
"Settlement Statement").
(e) Notice of Seller Change Events; Supplements to Settlement
Statements. Sections 1.7 and 1.8 of the Purchase Agreement describe
circumstances under which (i) Subsidiaries of AmeriSource may be added to the
Program as a Seller and (ii) the Seller may terminate its status as Seller
under the Program (each event being herein called a "Seller Change Event").
Those Sections of the Purchase Agreement require AmeriSource to give written
notice to ARC of the occurrence of a Seller Change Event not less than 30 days
prior to the occurrence thereof, and ARC hereby agrees to give prompt written
notice of its receipt
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of any such notice to the Trustee and the Applicable Rating Agencies. If the
notice is given to the Trustee, within five Business Days after the receipt of
the notice by the Trustee (or such later date, as specified in the notice, on
which the applicable Seller Change Event shall become effective), the Servicer
shall deliver to the Trustee and the Applicable Rating Agencies a supplement to
the Settlement Statement then in effect, which supplement shall show (A) the
calculation or recalculation of the Required Reserves and the Discount Rate
Reserve (if necessary) to reflect the addition of accounts receivable
originated by any such Subsidiary that is being added to the Program as a
Seller, and the exclusion of any Receivables originated by any such Subsidiary
that is terminating its status as a Seller (as applicable), and (B) the Loss
Discount and the Purchase Discount Reserve Ratio for any such Subsidiary that
is being added to the Program as a Seller. For purposes of all calculations
hereunder and under the Purchase Agreement, the Required Reserves and (if
applicable) the Loss Discount and the Purchase Discount Reserve Ratio for the
relevant Subsidiary of AmeriSource shown in such supplement shall supersede
and/or supplement the calculation of such items in the then outstanding
Settlement Statement, effective as of the fifth Business Day following the
Trustee's receipt of such notice (or such later date, as specified in such
notice, on which the applicable Seller Change Event shall become effective).
SECTION 3.06 Monthly Servicer's Certificate. On each Report Date,
the Servicer shall deliver to the Trustee, the Paying Agent, ARC and the
Applicable Rating Agencies a certificate of an Authorized Officer of the
Servicer substantially in the form of Exhibit E, with such additions as may be
required by any Supplement. ARC will join in each certificate delivered with
respect to a Cut-Off Date that is the end of a calendar quarter for purposes of
confirming that ARC, AmeriSource and the Seller shall not have any obligations
to any Restricted Federal Obligor or State Obligor that (a) are due and
payable, (b) could be set off against the Unpaid Balance of the Receivable owed
by such Obligor, except for obligations that are being contested in good faith
and by appropriate proceedings and against which ARC, AmeriSource and/or the
Seller (as applicable) maintain reserves in accordance with GAAP and (c) the
method for calculating tax reserves reflected in the books and records of
AmeriSource and ARC complies with GAAP and fairly presents estimated tax
liabilities to the best of AmeriSource's and ARC's knowledge.
SECTION 3.07 Annual Servicing Report of Independent Public
Accountants; Forms 10-Q and 10-K. (a)(i) On or before 120 days after the end
of each fiscal year of ARC, beginning with the fiscal year ending September 30,
1994, the Servicer shall, as an expense of the Servicer paid out of the
Servicing Fee, cause Ernst & Young or another firm of nationally recognized
independent public accountants (which may also render other services to the
Servicer, the Seller or ARC) to furnish a report to the Trustee, the Servicer,
the Applicable Rating Agencies and ARC (which report shall be addressed to the
Trustee and shall relate to ARC's most recently ended fiscal year). The
accountants' report shall set forth the results of their performance of certain
procedures that will have been agreed upon prior to the First Issuance Date by
the Servicer and ARC with respect to the Settlement
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Statements and Daily Reports delivered to the Trustee pursuant to Section 3.05
during the prior fiscal year.
(ii) Each accountants' report shall state that the accountants have
compared the amounts contained in the Settlement Statements and a sample
randomly selected from all Daily Reports delivered to the Trustee during the
period covered by the report with the records (including computer records) from
which the amounts were derived and that, on the basis of such comparison, the
amounts are in agreement with the documents and records, except for such
exceptions as they believe to be immaterial and such other exceptions as shall
be set forth in the report. Except as provided otherwise in a Supplement, a
copy of the report may be obtained by any Investor Certificateholder by a
request in writing to the Trustee addressed to the Corporate Trust Office.
(b) Promptly after the filing of such reports with the Securities and
Exchange Commission, the Servicer shall provide each of the Applicable Rating
Agencies with copies of each Quarterly Report on Form 10-Q and each Annual
Report on Form 10-K of the Servicer.
SECTION 3.08 Rights of the Trustee.
(a) The Trustee has (for the benefit of the Certificateholders) the
exclusive dominion and control over the Bank Accounts, and ARC shall take any
action that the Trustee may reasonably request to effect or evidence such
dominion and control. At any time following the occurrence of a Servicer
Default, the Trustee is hereby authorized to give notice to the Account Banks,
as provided in the Account Agreements, of the revocation of the Servicer's
authority to give instructions or take any other actions with respect to the
Bank Accounts that the Servicer would otherwise be authorized to give or to
take pursuant to Sections 3.02 and 3.03.
(b) At any time following the designation of a Servicer other than
AmeriSource until a Successor Servicer (if other than the Trustee) has been
appointed:
(i) The Trustee may direct any Obligors of Receivables to pay
all amounts payable under any Receivable or any Related Transferred
Assets directly to the Trustee or its designee; provided, however,
that the Trustee shall provide the Seller with a copy of such notice
at least one Business Day prior to sending it to any Obligor and
consult in good faith with the Seller as to the text of the notice.
(ii) The Trustee may direct the Seller to make payment of all
amounts payable to ARC under any Transaction Document to which the
Seller is a party directly to the Trustee or its designee.
(iii) ARC and the Servicer shall, at the Trustee's request
and as an expense of the Servicer paid out of the Servicing Fee, give
notice of the Trust's ownership of the
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Receivables and the Related Transferred Assets to each Obligor and
direct that payments be made directly to the Trustee or its designee.
(iv) ARC shall, and shall cause the Seller to, at the
Trustee's request, (A) assemble all of the Records that are necessary
or appropriate to collect the Receivables and Related Transferred
Assets, and shall make the same available to the Trustee at one or
more places selected by the Trustee or its designee, (B) segregate all
cash, checks and other instruments received by it from time to time
constituting Collections in a manner acceptable to the Trustee and
shall, promptly upon receipt (and, subject to Section 3.02(i), in no
event later than the first Business Day following receipt), remit all
such cash, checks and instruments, duly endorsed or with duly executed
instruments of transfer, to the Trustee or its designee and (C)
permit, upon not less than two Business Days' prior written notice,
any Successor Servicer and its agents, employees and assignees access
to their respective facilities and their respective Records.
(c) Each of ARC and the Servicer hereby authorizes the Trustee, from
time to time after the designation of a Servicer other than AmeriSource, to
take any and all steps in ARC's name and on behalf of ARC and the Servicer that
are necessary or appropriate, in the reasonable determination of the Trustee,
to collect all amounts due under any and all Receivables or Related Transferred
Assets, including endorsing the name of ARC or the Seller on checks and other
instruments representing Collections and enforcing such Receivables and the
Related Transferred Assets.
(d) ARC hereby irrevocably appoints the Trustee to act as ARC's
attorney-in-fact, with full authority in the place and stead of ARC and in the
name of ARC or otherwise, from time to time after the designation of a Servicer
other than AmeriSource, to take (subject to Section 11.14 hereof) any action
and to execute any instrument or document that the Trustee, in its reasonable
determination, may deem necessary to accomplish the purposes of this Agreement,
including:
(i) to ask, demand, collect, sue for, recover, compromise,
receive and give acquittance and receipts for moneys due and to become
due under or in respect of any Receivable or any Related Transferred
Asset,
(ii) to receive, endorse, and collect any drafts or other
instruments, documents and chattel paper, in connection with clause
(i),
(iii) to file any claims or take any action or institute any
proceedings that the Trustee in its reasonable determination may deem
necessary or appropriate for the collection of any of the Receivables
or any Related Transferred Asset or otherwise to enforce the rights of
the Trustee and the Certificateholders with respect to any of the
Receivables or any Related Transferred Asset, and
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(iv) to perform the affirmative obligations of ARC under any
Transaction Document.
ARC hereby acknowledges, consents and agrees that the power of attorney granted
pursuant to this subsection is irrevocable and coupled with an interest.
SECTION 3.09 Ongoing Responsibilities of AmeriSource. Anything
herein to the contrary notwithstanding:
(a) If at any time AmeriSource shall not be the Servicer, it
shall deliver all Collections received or deemed received by it or its
Subsidiaries to the Trustee no later than two Business Days after
receipt or deemed receipt thereof and the Trustee shall distribute
such Collections to the same extent as if such Collections had
actually been received from the related Obligor on the applicable
dates. So long as AmeriSource or any of its Subsidiaries shall hold
any Collections or deemed Collections required to be paid to the
Trustee, each of them shall hold such amounts in trust (and separate
and apart from its own funds) and shall clearly mark its records to
reflect such trust. AmeriSource hereby grants to the Trustee an
irrevocable power of attorney, with full power of substitution,
coupled with an interest, upon the occurrence of a Servicer Default,
to take in the name of AmeriSource all steps necessary or appropriate
to endorse, negotiate or otherwise realize on any writing or other
right of any kind held or transmitted by AmeriSource or transmitted
and received by the Trustee (whether or not from AmeriSource) in
connection with any Receivable or Related Transferred Asset.
(b) AmeriSource hereby irrevocably agrees that, if at any
time it shall cease to be the Servicer, it shall act (if the then
current Servicer so requests) as the data processing agent of the
Servicer and, in such capacity, AmeriSource shall conduct (and shall
cause any other necessary Persons to conduct) the data processing
functions of the administration of the Receivables, the Related
Transferred Assets and the Collections thereon in substantially the
same way that AmeriSource (or its Sub-Servicers) conducted such data
processing functions while AmeriSource acted as the Servicer.
AmeriSource and each such other Person shall be entitled to reasonable
compensation for such service to be paid from the Servicing Fee.
(c) Notwithstanding any termination of AmeriSource as
Servicer hereunder, AmeriSource shall continue to indemnify the
Trustee on the terms set out in Section 11.05 with respect to
circumstances existing, or actions taken or omitted, prior to such
termination.
SECTION 3.10 Further Action Evidencing Transfers. (a) Each of ARC
and the Servicer agrees that from time to time, as an expense of the Servicer
paid out of the Servicing Fee, it will promptly execute and deliver (or cause
the relevant Sub-Servicer to
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execute and deliver) all further instruments and documents, and will promptly
take all further action (or cause the relevant Sub-Servicer to take all further
action) that the Trustee may reasonably request, in order to perfect, protect
or more fully evidence the conveyances hereunder, or to enable the Investor
Certificateholders or the Trustee to exercise or enforce any of their
respective rights under any Transaction Documents. Without limiting the
generality of the foregoing, upon the Trustee's request, ARC (or, in the case
of clause (ii) below, the Servicer) will, or will cause the Servicer to:
(i) execute and file such financing or continuation
statements, or amendments thereto or assignments thereof, and such
other instruments or notices, as may be required from time to time
pursuant to Section 7.02(c) or as the Trustee reasonably determines
necessary or desirable, and
(ii) mark its master data processing records that evidence or
list Receivables or Related Transferred Assets as described in Section
2.01(d).
The Servicer shall cause all financing statements and continuation statements
and any other necessary documents relating to the right, title and interest of
the Trustee (for the benefit of the Certificateholders) in and to the Trust
Assets to be promptly recorded, registered and filed, and at all times to be
kept recorded, registered and filed, all in such manner and in such places as
may be required by law fully to preserve, maintain and protect the right, title
and interest of the Trustee hereunder (for the benefit of the
Certificateholders) in and to all property comprising the Trust Assets. The
Servicer shall deliver to the Trustee file-stamped copies of, or filing
receipts for, any document recorded, registered or filed as provided above, as
soon as available following such recording, registration or filing. ARC shall
cooperate fully with the Servicer in connection with the obligations set forth
above and will execute any and all documents that are reasonably required to
fulfill the intent of this section.
(b) If (i) ARC or the Servicer fails to perform any of its agreements
or obligations under any Transaction Document and does not remedy such failure
within the applicable cure period, if any, and (ii) the Trustee in good faith
reasonably believes that the performance of such agreements and obligations is
necessary or appropriate to protect the interests of the Certificateholders
under this Agreement, then the Trustee or its designee may (but shall not be
required to) itself perform, or cause performance of, such agreement or
obligation, and the reasonable expenses of the Trustee or its designee incurred
in connection therewith shall be payable by the Servicer as provided in Section
11.05 and (if applicable) by ARC as provided in Section 7.03. If, at any time,
ARC or the Servicer fails to file any financing statement or continuation
statement, or amendment thereto or assignment thereof, that is required to be
filed pursuant to this Agreement or any of the other Transaction Documents, the
Trustee may (but shall not be required to), and ARC and the Servicer hereby
authorize the Trustee to, file such financing or continuation statements, and
amendments thereto and assignments thereof, relative to all or any of the
Receivables or the Related Transferred
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Assets now existing or hereafter arising in the name of ARC or the Servicer as
an expense of the Servicer paid out of the Servicing Fee.
ARTICLE IV
RIGHTS OF CERTIFICATEHOLDERS AND
ALLOCATION AND APPLICATION OF COLLECTIONS
SECTION 4.01 Rights of Certificateholders. Each Fixed Principal
Certificate shall represent a fractional undivided interest in the Trust,
consisting of the right to receive Collections, funds on deposit in the Trust
Accounts and other Trust Assets, to the extent and at the times provided herein
and in the relevant Supplement, in payment of the principal amount of such
Fixed Principal Certificate, interest accrued on such principal amount from
time to time at the applicable Certificate Rate, and other Obligations owed to
the Holder of such Fixed Principal Certificate (all such undivided interests
being collectively called the "Fixed Principal Interest").
Each Revolving Certificate shall represent a fractional undivided
interest in the Trust, consisting of a right to receive Collections, funds on
deposit in the Trust Accounts and other Trust Assets, to the extent and at the
times provided herein, in payment of the principal amount of such Revolving
Certificate (which principal amount shall vary from time to time in accordance
with the terms of this Agreement) and interest accrued on the principal amount
of any Investor Revolving Certificate from time to time at the applicable
Certificate Rate, and other Obligations owed to the Holder of an Investor
Revolving Certificate (all such undivided interests being collectively called
the "Revolving Certificate Interest").
The Residual Certificate shall represent the ownership interest in the
remainder of the Trust Assets not allocated pursuant to this Agreement to the
Fixed Principal Interest or the Revolving Certificate Interest, including the
right to receive payments at the times and in the amounts specified in this
Article IV to be paid to ARC in respect of the Residual Certificate (the
"Residual Interest"). The Residual Certificate will not bear interest.
SECTION 4.02 Establishment of Trust Accounts. (a) The Trustee shall
establish and maintain in the name of the Trustee, on behalf of the Trust and
for the benefit of the Certificateholders, the segregated trust accounts
referred to in subsections (b) through (g) below (and such additional accounts
as may be required by any Supplement). Each of the Trust Accounts shall be
established and maintained in the corporate trust department of the Trustee and
shall bear a designation clearly indicating that funds deposited therein are
held for the benefit of the Certificateholders and the Purchasers.
(b) All Collections and all other Trust Assets consisting of cash or
cash equivalents shall be transferred from the Bank Accounts and deposited in a
segregated trust account
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maintained with the Trustee (the "Master Collection Account"). In addition, on
the first day of the Liquidation Period, any funds in the Equalization Account
will be transferred to the Master Collection Account. Funds on deposit in the
Master Collection Account will be allocated as provided in Section 4.03. As
described in Section 4.03(g), certain funds in the Master Collection Account
shall be allocated from time to time prior to commencement of the Liquidation
Period to an administrative sub-account of the Master Collection Account or to
a separate trust account created by the Trustee at the direction of ARC (such
sub-account or separate account being referred to herein as the "Carrying Cost
Account"). Funds shall be withdrawn from the Carrying Cost Account to pay
interest on the Fixed Principal Certificates and the Revolving Certificates,
yield on Purchased Interests and other Carrying Costs when due. If on any day
funds allocated to the Carrying Cost Account are not sufficient to pay all
amounts of such Carrying Costs then due, then in the event that there are any
funds on deposit in the Equalization Account or the Defeasance Account, such
funds shall be withdrawn (in an amount equal to the lesser of the amount of the
deficiency and the amount of such funds) and transferred to the Carrying Cost
Account. On the first day of the Liquidation Period, the Carrying Cost Account
shall be closed and thereafter funds that had been allocated thereto shall be
distributed in the same manner as other funds in the Master Collection Account,
as provided in Section 4.03(h).
(c) From time to time prior to the commencement of the Liquidation
Period, funds will be deposited into a segregated trust account maintained by
the Trustee (the "Equalization Account") from the Master Collection Account,
and withdrawn from the Equalization Account for deposit into the Master
Collection Account, to compensate for fluctuations in the Base Amount or to
segregate funds that would otherwise be remitted by the Trustee to ARC during a
Look Back Period, as provided in Sections 4.03(c), (f) and (g). On the first
day of the Liquidation Period, all funds in the Equalization Account shall be
transferred to the Master Collection Account for disposition in the same manner
as other funds in the Master Collection Account, as provided in Section
4.03(h).
(d) Any Trust Accounts established pursuant to any Supplement shall
be held by the Trustee for the benefit of only such Series of Certificates as
are indicated in that Supplement. The Master Collection Account, Carrying Cost
Account and Equalization Account shall be held by the Trustee for the benefit
of all Certificateholders and Purchasers, except to the extent indicated in any
Supplement with respect to the Series issued pursuant to that Supplement. Each
Trust Account shall be a segregated account maintained in the corporate trust
department of the Trustee, the corporate trust department of a bank that has a
long-term debt rating of at least "BBB" by S&P or with an Eligible Institution.
(e) At the times specified in Section 4.03(g), the Servicer shall
allocate funds pursuant to clauses Second, Fifth and Sixth of Section 4.03(g)
to an administrative sub-account of the Master Collection Account or to a
separate trust account created by the Trustee at the direction of ARC (such
sub-account or separate account being the "Defeasance Account"). If the
Defeasance Account is a separate trust account, it shall be established and
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maintained in the name of the Trustee in the corporate trust department of the
Trustee and shall bear a designation clearly indicating that funds deposited
therein are held for the benefit of the Investor Certificateholders and the
Purchasers. Funds shall be withdrawn from the Defeasance Account to make the
payments described in Section 4.03(g) to Holders of the relevant Series of
Investor Certificates or Purchased Interests. If the Liquidation Commencement
Date occurs, at any time when funds are being allocated to the Defeasance
Account, the Servicer shall in the Daily Report reallocate all funds that are
on deposit or would otherwise be allocated to the Defeasance Account to the
Master Collection Account, within one Business Day after the occurrence of the
Liquidation Commencement Date, for allocation pursuant to Section 4.03(h).
Notwithstanding anything to the contrary provided herein, ARC may in no event
deposit its own funds into the Defeasance Account. On each Settlement Date
after the commencement of the Accumulation Period for a particular Series, the
Trustee shall withdraw from the Defeasance Account and deposit into a
segregated trust account maintained by the Trustee (the "Principal Funding
Account") an amount equal to the lesser of (i) the applicable Principal
Accumulation Amount for such Settlement Date and (ii) the applicable Controlled
Deposit Amount for such Settlement Date to be applied to the repayment of the
Invested Amount of such Series on the Expected Final Payment Date for such
Series as provided in Section 4.03(g). The Principal Funding Account shall be
established and maintained in the name of the Trustee in the corporate trust
department of the Trustee and shall bear a designation clearly indicating that
funds deposited therein are held for the benefit of the Investor
Certificateholders and the Purchasers. Upon the occurrence and continuance of
an Unmatured Liquidation Event, no further payments shall be made from the
Principal Funding Account. If the Liquidation Commencement Date occurs at any
time when funds are being allocated to the Principal Funding Account, the
Servicer shall in the Daily Report reallocate all funds that are on deposit or
would otherwise be allocated to the Principal Funding Account to the Master
Collection Account, within one Business Day after the occurrence of the
Liquidation Commencement Date, for allocation pursuant to Section 4.03(h).
(f) From time to time prior to the commencement of the Liquidation
Period, funds will be allocated to an administrative sub-account of the Master
Collection Account or to a separate trust account created by the Trustee at the
direction of ARC (such sub-account or separate account being the "Set-Aside
Account") for the purposes described in Section 4.03(c)(iii). If the Set-Aside
Account is a separate trust account, it shall be established and maintained in
the name of the Trustee in the corporate trust department of the Trustee and
shall bear a designation clearly indicating that funds deposited therein are
held for the benefit of the Investor Certificateholders and the Purchasers.
(g) From time to time after the commencement of the Liquidation
Period, funds that would otherwise be remitted by the Trustee to ARC in respect
of the ARC Revolving Amount will be deposited to a segregated trust account
maintained by the Trustee (the "Accumulation Account"). Until the earlier to
occur of (i) the date that falls twelve months after the Liquidation
Commencement Date, (ii) the day on which Investor Certificates, Purchased
Interests and other Obligations shall have been paid in full and (iii) the
first
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Business Day on or after the Liquidation Commencement Date on which (A) the
amount of funds then held in the Trust Accounts that are allocated to pay the
Investor Repayment Amount equals or exceeds (B) the Investor Repayment Amount
(the earliest of such dates being the "Accumulation Account Termination Date"),
all amounts payable to ARC in respect of the ARC Revolving Amount pursuant to
clause Second of Section 4.03(h) shall be deposited in the Accumulation Account
instead of being paid to ARC. If at any time prior to the Accumulation Account
Termination Date, the amount of funds in the Accumulations Account exceeds the
difference of (1) the Investor Repayment Amount minus (2) the amount of funds
then held in the Trust Accounts that are allocated to pay the Investor
Repayment Amount, then the amount of such excess funds shall be released from
the Accumulation Account and shall be paid to ARC. No funds shall be allocated
to the Accumulation Account from and after the Accumulation Account Termination
Date. On such date, the Servicer (or, after the occurrence and during the
continuance of a Servicer Default, the Trustee) shall calculate, or shall cause
to be calculated, an amount equal to (x) the aggregate amount of funds held in
the Accumulation Account in respect of the ARC Revolving Amount, minus (y) the
Seller Adjustments accrued during the Liquidation Period which have not yet
been paid. The amount of such difference, if positive, will be paid to ARC.
The funds remaining in the Accumulation Account after the payment of such
amount to ARC shall be transferred to the Master Collection Account and applied
to the items listed in Section 4.03(h), in the order of priority specified
therein.
(h) The Trustee shall possess (for its benefit and for the benefit of
the Certificateholders) all right, title and interest in and to all funds on
deposit from time to time in each of the Trust Accounts and in all proceeds
thereof. The Trust Accounts shall be under the sole dominion and control of
the Trustee for the benefit of the applicable Certificateholders. The Servicer
agrees that it shall have no right of setoff against, and no right otherwise to
deduct from, any funds held in any of the Trust Accounts or the Bank Accounts
for any amount owed to it by the Trustee, the Trust or any Certificateholder.
Pursuant to the authority granted to the Servicer in Section 3.02, the Servicer
shall have the power, revocable after the occurrence and during the continuance
of a Servicer Default by the Trustee or by the Trustee at the direction of the
Majority Investors, to make withdrawals and payments from the Bank Accounts and
to instruct the Trustee to make withdrawals and payments from the Trust
Accounts for the purposes of carrying out the Servicer's or the Trustee's
duties hereunder.
SECTION 4.03 Daily Calculations and Funds Allocations.
(a) Calculation of Carrying Cost Reserve. On each Business Day prior
to the Liquidation Commencement Date, the Servicer will calculate an amount
equal to the Carrying Cost Reserve for such Business Day. "Carrying Cost
Reserve" means an amount equal to (i) the Accrued Carrying Costs (as defined
below), plus (ii) an amount equal to (A) the aggregate outstanding principal
amount of all Investor Certificates and Purchased Interests multiplied by (B)
the weighted average of the interest rates per annum on the then-
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issued Series of Investor Certificates and Purchased Interests as of the most
recent Cut-Off Date; provided, however, that if any Investor Certificate or
Purchased Interest bears interest at a variable rate calculated by reference to
an interest index rate (such as LIBO or prime), and ARC may elect to change the
index from time to time, then the index resulting in the highest interest rate
payable on such Investor Certificates or Purchased Interest shall be deemed to
have applied on the Cut-Off Date and such highest interest rate shall be
multiplied by 1.52, multiplied by (C) the greater of (i) 1/4 and (ii) a
fraction the numerator of which is the product of 1.75 and the number of
Turnover Days and the denominator of which is 360. "Accrued Carrying Costs"
means, at any time, the sum of the then accrued and unpaid Carrying Costs, plus
the amount of Carrying Costs that will, or are estimated to, have accrued by
the next Settlement Date.
(b) Calculation of the Base Amount. On each Business Day prior to
the Liquidation Commencement Date, the Servicer will calculate the Base Amount
for such day. On any Business Day, the "Base Amount" will equal the result of
(i) the Net Eligible Receivables as reported in the Daily Report for that
Business Day, minus (ii) the Required Reserves for that Business Day, minus
(iii) the Discount Rate Reserve as of the opening of business on that Business
Day, minus (iv) any other amount required to be subtracted by any Supplement or
PI Agreement on that Business Day.
(c) Variable Amount.
(i) Calculation of Variable Amount. On each Business Day
prior to the Liquidation Commencement Date, the Servicer shall
calculate an amount (whether positive or negative, the "Variable
Amount") equal to (A) the Base Amount at the opening of business on
such day, minus (B) the Certificate Calculation Amount, minus (C) the
PI Calculation Amount, plus (D) the balance on deposit in the
Equalization Account; provided, that for purposes of this calculation
(but without double counting), the Certificate Calculation Amount
shall be reduced by the aggregate amount of reductions to the ARC
Revolving Certificate made pursuant to subsection (d), and such
reductions shall be given effect for purposes of all calculations
required by this subsection or by subsection (f). The Variable Amount
will be allocated in the manner described hereinafter and will be
reported by the Servicer in the Daily Report for such day.
(ii) Allocation of Positive Variable Amount. On any Business
Day when the Variable Amount is zero or a positive number, the
Servicer shall, if so directed by ARC, take one or more of the
following actions:
(A) If there are funds on deposit in the Set-Aside
Account, then the Servicer shall, before taking any of the
other actions referred to below, transfer all such funds to
the Master Collection Account for application along with other
funds on deposit in the Master Collection Account on that day
in
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such manner that there would not be a negative Variable Amount
after giving effect to such transfer and such application(s).
(B) If the positive Variable Amount exceeds the
amount on deposit in the Set-Aside Account (or there are no
funds on deposit in the Set-Aside Account), ARC may direct the
Servicer to (1) transfer funds (if any) on deposit in the
Equalization Account into the Master Collection Account for
application along with other funds on deposit in the Master
Collection Account on that day and/or (2) increase the
principal amount of one or more Revolving Certificates or
Purchased Interests specified by ARC such that the sum of the
amount of any such transfer and the amount(s) of any such
increase(s) equals not more than the remaining (or total)
positive Variable Amount; provided, however, that (x) any such
allocation to any Investor Revolving Certificate shall be
subject to Section 6.11(b), and any such allocation to any
Purchased Interest shall be subject to the applicable PI
Agreement, (y) no such allocation to any Investor Revolving
Certificate or Purchased Interest shall be made during a Look
Back Period, and (z) no funds shall be released from the
Equalization Account during a Look Back Period.
(iii) Allocation of Negative Variable Amount. On any
Business Day when the Variable Amount is a negative number, the
Servicer, at the direction of ARC, shall take one or more of the
following actions with Collections available in the Master Collection
Account for applications on such day:
(A) allocate the Collections to one or more
Revolving Certificates or Purchased Interests in reduction of
the principal amounts of the Revolving Certificates or
Purchased Interests or to the Defeasance Account in accordance
with clause Second of subsection (g), and/or
(B) transfer a portion of the Collections to the
Equalization Account, pursuant to clause Fourth of subsection
(g),
such that the aggregate amount of the transfer, the reduction(s) and
the allocations to the Defeasance Account equals the absolute value of
the Variable Amount; provided, that if the amount of Collections
available for such purposes on such day, after any required deposits
to the Carrying Cost Account, is less than the absolute value of the
Variable Amount, then (x) any such allocation to any Revolving
Certificate or Purchased Interest or to the Defeasance Account shall
not exceed an amount equal to the applicable Revolving
Certificateholder's, Purchaser's or Series' Allocable Daily
Collections on such day (less any amount of such Allocable Daily
Collections transferred to the Carrying Cost Account in accordance
with subsection (g)) and (y) if any allocation is made to any
Revolving Certificate or Purchased Interest, or to the Defeasance
Account, then the remainder of such available Collections shall be
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transferred to the Set-Aside Account for the benefit of any holder who
may be entitled to receive such Collections pursuant to Section
5.01(i).
In addition, on any Business Day when the Variable Amount is a
negative number and the amount of Collections available for
application on such day (after making deposits to the Carrying Cost
Account) equals or exceeds the absolute value of such negative number,
ARC may direct the Servicer to remove all or part of the funds then on
deposit in the Set-Aside Account and allocate the funds to one or more
Revolving Certificates or Purchased Interests in reduction of the
outstanding principal amount of such Revolving Certificates or
Purchased Interests or to allocate the funds to the Equalization
Account.
If, at any time when funds are being allocated to or are on
deposit in the Set-Aside Account, the Liquidation Commencement Date
occurs, all funds then allocated to or on deposit in the Set-Aside
Account shall be paid to the holders of the then-issued and
outstanding Certificates and Purchased Interests on the next
Settlement Date in the manner described in Section 5.01(i).
(iv) Reallocation of ARC Revolving Amount. On any Business
Day prior to the Liquidation Commencement Date, ARC may direct the
Servicer to reallocate all or a portion of the principal amount of the
ARC Revolving Certificate to an Investor Revolving Certificate
(subject to the requirements of Section 6.11(b)) or a Purchased
Interest (subject to the requirements of the related PI Agreement).
In addition, ARC may (subject to the terms of any Supplement
or PI Agreement) direct the Servicer to direct the Trustee, pursuant
to clause Eighth in subsection (g), to pay to a holder of an Investor
Revolving Certificate or a Purchaser, in reduction of the principal
amount of such Investor Revolving Certificate or the applicable
Purchased Interest, Collections that would otherwise be payable to
ARC.
(d) Calculation of Seller Adjustments; Related Adjustments to ARC
Revolving Amount. On each Business Day, the Servicer shall calculate and
report the aggregate amount of Noncomplying Receivables and Dilution
Adjustments for the day and shall report the aggregate amount of payments
actually made by the Seller to ARC on the day in respect of Noncomplying
Receivables and Dilution Adjustments. The ARC Revolving Amount shall be
reduced by an amount equal to the lesser of (x) the Noncomplying Receivables
and Dilution Adjustments for such Business Day, less the aggregate amount of
cash payments in respect of Noncomplying Receivables and Dilution Adjustments
made by the Seller to ARC and by ARC to the Trustee on such day (such
difference being a "Seller Adjustment"), (y) the ARC Revolving Amount, and (z)
on any Business Day prior to the Liquidation Commencement Date, the amount by
which (1) the sum of the Base Amount plus the balance on deposit in the
Equalization Account is less than (2) the sum of the Certificate Calculation
Amount plus the PI Calculation Amount. The foregoing reduction in the ARC
Revolving
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Amount shall occur without any payment in respect thereof being made to ARC,
and shall be made (on each Business Day prior to the Liquidation Commencement
Date) before giving effect to the adjustments to the ARC Revolving Amount made
pursuant to subsection (c).
(e) Certain Calculations in the Liquidation Period.
(i) On the Liquidation Commencement Date and on each
Settlement Date thereafter, the Servicer shall calculate an amount
(the "Available Subordinated Amount"), which shall equal:
(A) on the Liquidation Commencement Date, the result
of (w) the Unpaid Balance of Receivables held by the Trust at
the opening of Business on the next preceding Business Day,
minus (x) the sum of the Certificate Calculation Amount and
the PI Calculation Amount, as of the next preceding Business
Day (but after giving effect to all allocations and other
adjustments made pursuant to this section on such next
preceding Business Day), plus (y) the balance on deposit in
the Equalization Account at the end of the next preceding
Business Day, minus (z) the Discount Rate Reserve as of the
next preceding Business Day, and
(B) on each Settlement Date thereafter, the result
(but not less than zero nor greater than the initial Available
Subordinated Amount) of (x) the Available Subordinated Amount
as calculated on the next preceding Settlement Date (or on the
Liquidation Commencement Date, in the case of the first
Settlement Date falling after the Liquidation Commencement
Date) minus (y) the Charged-Off Amount (if positive) with
respect to the most recently ended Calculation Period plus (z)
(so long as the Available Subordinated Amount has not been
reduced to zero) the amount of the Net Recoveries (if
positive) with respect to the most recently ended Calculation
Period.
(ii) On each Settlement Date after the Liquidation
Commencement Date, the Servicer shall calculate an amount (the
"Allocable Charged-Off Amount"), which shall equal:
(A) zero, so long as the Available Subordinated
Amount is greater than zero,
(B) on the first Settlement Date on which the
Available Subordinated Amount is reduced to zero, the excess
(if any) of (x) the Charged-Off Amount for the most recently
ended Calculation Period, over (y) the Available Subordinated
Amount as of the next preceding Settlement Date (or as of the
Liquidation Commencement Date, if this occurs on the first
Settlement Date falling after the Liquidation Commencement
Date), and
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(C) on each subsequent Settlement Date, the
Charged-Off Amount (if positive) for the most recently ended
Calculation Period.
(iii) If the Allocable Charged-Off Amount calculated on any
Settlement Date is greater than zero, the Allocable Charged-Off Amount
shall be allocated on the Settlement Date among the various
outstanding Classes of Investor Certificates, outstanding Purchased
Interests and the ARC Revolving Certificate as follows:
(A) a portion of the Allocable Charged-Off Amount
equal to the product of the Allocable Charged-Off Amount
multiplied by the ARC Allocation Percentage shall be allocated
to the ARC Revolving Certificate,
(B) the remainder of the Allocable Charged-Off
Amount shall be allocated to the various outstanding Classes
of Investor Certificates and Purchased Interests in the
following priority:
First, to the various Subordinated Classes
and Subordinated Purchased Interests, in accordance
with their respective Class Allocation Percentages,
until their respective Class Invested Amounts and PI
Invested Amounts have been reduced to zero, and
Second, any remaining Allocable Charged-Off
Amount to the Senior Classes and Senior Purchased
Interests, in accordance with their respective Class
Allocation Percentages, until their respective Class
Invested Amounts and PI Invested Amounts have been
reduced to zero.
(iv) Any Net Recoveries (if positive) with respect to any
Calculation Period ending after the Available Subordinated Amount has
been reduced to zero shall be allocated among the various outstanding
Classes of Investor Certificates, outstanding Purchased Interests and
the ARC Revolving Certificate as follows:
(A) a portion of such Net Recoveries equal to the
product of such Net Recoveries multiplied by the ARC
Allocation Percentage shall be allocated to the ARC Revolving
Certificate,
(B) the remainder of such Net Recoveries shall be
allocated to the various outstanding Classes of Investor
Certificates and Purchased Interests in the following
priority:
First, to the various Senior Classes and
Senior Purchased Interests, in accordance with their
respective Class Allocation Percentages, until all
previous reductions to their respective Class
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Invested Amounts and PI Invested Amounts on account
of Allocable Charged-Off Amounts have been
reinstated, and
Second, any remaining Net Recoveries to the
Subordinated Classes and Subordinated Purchased
Interests, in accordance with their respective Class
Allocation Percentages, until all previous reductions
to their respective Class Invested Amounts and PI
Invested Amounts on account of Allocable Charged-Off
Amounts have been reinstated.
(v) No Class or Purchased Interest will be deemed to be
"outstanding" for purposes of clause (iii) or (iv) after its Class
Invested Amount or PI Invested Amount has been reduced to zero. The
portion of the Allocable Charged-Off Amount allocated to any Class or
Purchased Interest (as to such Class or Purchased Interest, its
"Investor Allocable Charged-Off Amount") or to the ARC Revolving
Certificate will reduce the invested amount and the outstanding
principal amount of such Class or Purchased Interest or the ARC
Revolving Amount for all purposes. The portion of the Net Recoveries
allocated to any Class or Purchased Interest (as to such Class or
Purchased Interest, its "Investor Net Recoveries") or to the ARC
Revolving Certificate will increase the invested amount and the
outstanding principal amount of such Class or Purchased Interest or
the ARC Revolving Amount for all purposes.
(f) Withdrawals from Equalization Account and Set-Aside Account.
Subject to the last paragraph of this Section 4.03(f), on any Business Day
prior to the Liquidation Commencement Date, the Servicer may instruct the
Trustee in writing to withdraw funds from the Set-Aside Account and/or the
Equalization Account and allocate such funds to (i) the reduction of the
principal amount of the ARC Revolving Certificate and/or one or more Investor
Revolving Certificates (subject to the requirements of Section 6.11(b)) or
Purchased Interests (subject to the requirements of the related PI Agreement),
and/or (ii) the Defeasance Account, so long as (x) there would not be a
negative Variable Amount after giving effect to such transfer and such
application(s) and (y) in the case of any such withdrawal from the Equalization
Account, no funds are on deposit in the Set-Aside Account (including as a
result of transfers made on that day).
In addition, on any Business Day when there is a negative Variable
Amount and funds are on deposit in the Equalization Account, subject to the
last paragraph of this Section 4.03(f), the Servicer may instruct the Trustee
in writing to withdraw funds from the Equalization Account and apply them as
described in clause (i) above; provided, that (x) any such allocation to any
Revolving Certificate or Purchased Interest shall not exceed an amount equal to
the applicable Revolving Certificateholder's or Purchaser's pro rata share of
such funds (prorating on the basis of such Revolving Certificateholder's or
Purchaser's Ratable Principal Amount as a percentage of the sum of the Ratable
Principal Amounts of the ARC Revolving Certificate and of all then-outstanding
Investor Certificates and Purchased Interests) and (y) if any such allocation
is made to any Revolving Certificate or Purchased
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Interest, then the remainder of such funds in the Equalization Account shall be
transferred to the Set-Aside Account.
No funds shall under any circumstances be withdrawn from the
Equalization Account during a Look Back Period. If on any Business Day the
Trustee has received (or is deemed to have received) a Confirmation Notice, the
Servicer may instruct the Trustee in writing to withdraw the Segregated Cash
(calculated prior to giving effect to the purchase of Receivables at the end of
the related Look Back Period) from the Equalization Account and remit such
funds to ARC on such Business Day.
(g) Daily Allocation of Funds in the Master Collection Account Prior
to the Liquidation Commencement Date. On each Business Day prior to the
Liquidation Commencement Date, the Servicer shall allocate all collected funds
(including Collections attributable to all Receivables, whether or not such
Receivables are Eligible Receivables or constitute Excess Concentration
Balances) then on deposit in the Master Collection Account (other than funds
that are required to be returned to AmeriSource Persons (or their designees)
pursuant to Section 3.02(b)) to the following items, in the following order of
priority, each of which (except as expressly provided otherwise below) shall be
paid on the next Settlement Date:
First, to the Carrying Cost Account until the amount allocated
to the Carrying Cost Account equals the Carrying Cost Reserve
calculated pursuant to subsection (a); provided, that the amount
allocated pursuant to this clause First to ordinary course expenses as
described in Section 7.02(m) shall not exceed $50,000 in any
Calculation Period,
Second, to the Defeasance Account in respect of any Series of
Investor Certificates or Purchased Interest as to which an
Accumulation Period, Pay-Out Period or Prepayment Accumulation Period
has commenced until the amount on deposit therein in respect of such
Series or Purchased Interest equals:
(x) in the case of a Series or Purchased Interest in
an Accumulation Period, the Controlled Deposit Amount for such
Series or Purchased Interest,
(y) in the case of a Series or Purchased Interest in
a Pay-Out Period, the outstanding principal amount of such
Series or Purchased Interest, and
(z) in the case of a Series in a Prepayment
Accumulation Period, the amount of principal to be prepaid
with respect to such Series or Purchased Interest,
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in an amount on each Business Day equal to the product of (i) the
balance of collected funds on deposit in the Master Collection Account
after allocation to clause First above and (ii) the applicable
Defeasance Allocation Percentage,
Third, to make payments on such Business Day (i) to the
Revolving Certificateholders or Purchasers in respect of one or more
of the Revolving Certificates or Purchased Interests to reduce the
outstanding principal amount of such Revolving Certificates or
Purchased Interests, to the extent such reduction is required or
permitted by subsection (c) or (f) and (ii) under the circumstances
described in subsections (c) and (f), to the Set-Aside Account;
provided that if a Look Back Period exists, funds that would otherwise
be remitted to ARC pursuant to this clause shall be deposited to the
Equalization Account,
Fourth, to fund the Equalization Account, to the extent such
funding is required or permitted by subsection (c),
Fifth, to the Defeasance Account in respect of any repayment
or prepayment of any Series of Investor Certificates that is to occur
during an Accumulation Period, a Pay-Out Period or a Prepayment
Accumulation Period in an amount equal to any amounts (other than in
respect of Carrying Costs and principal and amounts assigned to the
following clause Sixth by the related Supplements) owed to the Holders
of Investor Certificates of such Series in connection with the
Program,
Sixth, to the Defeasance Account in respect of any other
amounts that are required to be paid as a result of repayments or
prepayments of any Series of Investor Certificates or Purchased
Interests during an Accumulation Period, a Pay-Out Period or a
Prepayment Accumulation Period in accordance with the related
Supplements,
Seventh, to pay on the next Settlement Date (i) other accrued
and unpaid expenses of the Program (including indemnification payments
to be made pursuant to Section 7.03 and ordinary course expenses not
covered by clause First above but excluding, during a Look Back
Period, amounts owed to the Seller or AmeriSource, as Servicer), and
(ii) all other amounts payable to Investor Certificateholders or
Holders of a Purchased Interest pursuant to the related Supplements,
and
Eighth, to make payments to ARC on such Business Day in
respect of the Residual Certificate; provided, however, that ARC may,
from time to time, direct the Trustee to set aside all or any part of
the funds to be paid pursuant to this clause Eighth in order to (i)
pay all or part of the funds to the Holders of one or more Investor
Revolving Certificates or Purchasers in order to effect the
allocations described in subsection (c), or (ii) hold the funds in the
Master Collection Account until the Trustee receives instructions from
ARC concerning the application of the funds; and provided, further,
that if a Look Back Period exists, funds that would
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otherwise would be remitted to ARC pursuant to this clause shall be
deposited in the Equalization Account.
If, on any day, the amount of Collections that is then allocated to the
Carrying Cost Account exceeds the amount of Collections that are then required
to be allocated to the Carrying Cost Account, the Servicer shall reallocate
such Collections on such day to one or more of the obligations described above
in clauses Second through Eighth in that order of priority.
Collections in the Master Collection Account that are allocated to the
priority described in clause Seventh shall be paid on the next Settlement Date;
provided, however, that, if the Collections available on such Settlement Date
to pay the amount required to be paid pursuant to clause Seventh are
insufficient to pay the full amount thereof, the portion of such amount that is
not paid on such Settlement Date shall be paid on each Business Day following
such Settlement Date on which Collections are available to pay such remaining
amount until it is paid in full.
Payments to be made during a Pay-Out Period will commence on the
Settlement Date that occurs in the month following the month in which the first
day of the Pay-Out Period occurs, and will be made on each Settlement Date that
occurs thereafter until the Investor Certificates that are being paid during
such Pay-Out Period have been paid in full. During a Pay-Out Period, the
Holders of the Series of Investor Certificates that are being paid out during
such Pay-Out Period shall receive the amounts allocated to the Defeasance
Account pursuant to clause Second in payment of the outstanding principal
amount of such Series, pursuant to clause Fifth in payment of certain other
amounts that are payable with respect to such Series, and pursuant to clause
Sixth in payment of any other amounts that are payable with respect to such
Series.
On the Expected Final Payment Date with respect to any Series, all
funds that have been deposited in the Principal Funding Account pursuant to
Section 4.02(e) with respect to such Series prior to the end of the most
recently ended Calculation Period shall be applied to the repayment of the
principal amount of the Certificates of such Series.
If, on any day prior to the Liquidation Commencement Date, funds on
deposit in the Master Collection Account and available for allocation under any
of clauses First through Seventh above are less than the amount of the
obligations described in such clause, then the available Collections shall be
allocated by the Servicer to the holders of such obligations pro rata according
to the respective amounts of such obligations held by them (in the case of
Investor Certificate holders and Purchasers, as weighted in accordance with any
adjustment factors used in determining their respective Ratable Principal
Amounts). All other obligations in lower priority categories shall remain
unsatisfied until the obligations in the preceding category have been
satisfied.
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(h) Allocation of Funds in the Master Collection Account During
Liquidation. On the Liquidation Commencement Date, the outstanding principal
amount of each of the then-issued and outstanding Revolving Certificates shall
cease to fluctuate, and the outstanding principal amount of each Revolving
Certificate and Purchased Interest shall be fixed as of such day (except as
reduced by the application of Collections hereunder).
On each Business Day on and after the Liquidation Commencement Date,
the Servicer shall allocate all collected funds (including Collections
attributable to all Receivables whether or not such Receivables are Eligible
Receivables or constitute Excess Concentration Balances) then on deposit in the
Master Collection Account (other than funds that are required to be returned to
AmeriSource Persons (or their designees) or Lockbox Banks pursuant to Section
3.02(b)) as follows; provided, however, that funds so allocated shall be held
in trust by the Trustee and, based upon and in accordance with the related
Settlement Statement, paid to the relevant Certificateholders or other
specified payees on the next Settlement Date (commencing with the first
Settlement Date falling after the Calculation Period during which the
Liquidation Period commences, except that distributions will be made pursuant
to clause First below on each Settlement Date in the Liquidation Period):
First, to pay accrued Carrying Costs; provided, however, that
if AmeriSource is the Servicer, then the allocation to be made
pursuant to this clause First to pay the Servicing Fee shall equal
only the portion of the Servicing Fee that is to be paid to Persons
other than an AmeriSource Person,
Second, to make payments of the Principal Distribution Amounts
with respect to (x) each outstanding Senior Class and Senior Purchased
Interest (ratably in accordance with their respective Class Allocation
Percentages) until (and only until) the outstanding principal amounts
thereof have been repaid in full, (y) to each outstanding Subordinated
Class and Subordinated Purchased Interest (ratably in accordance with
their respective Class Allocation Percentages) until the outstanding
principal amounts thereof have been repaid in full, and (z) the ARC
Revolving Certificate until the outstanding principal amount thereof
has been paid in full; provided that prior to the Accumulation Account
Termination Date, amounts payable to ARC pursuant to this clause
Second shall be deposited in the Accumulation Account,
Third, to pay other Obligations owed to the Investor
Certificateholders (as set forth in the related Supplement) or
Purchasers (as set forth in the related PI Agreement),
Fourth, to pay the accrued and unpaid Servicing Fee that has
not been paid pursuant to clause First, and
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Fifth, to pay (x) other accrued and unpaid expenses of the
Program (including indemnification payments to be made pursuant to
Section 7.03, but excluding any such expenses that have been paid
pursuant to clause Third) and (y) all other amounts payable to the
Investor Certificateholders pursuant to the related Supplements
(including, without limitation, any non-usage fees).
If, on any day during the Liquidation Period, funds on deposit in the
Master Collection Account and available for allocation under any of clauses
First through Fifth above are less than the amount of the obligations described
in such clause, then the available Collections shall be allocated by the
Servicer to the holders of such obligations pro rata according to the
respective amounts of such obligations held by them (in the case of Investor
Certificateholders and Purchasers, as weighted in accordance with any
adjustment factors used in determining their respective Ratable Principal
Amounts and subject to the following paragraph of this Section). All other
obligations in lower priority categories shall remain unsatisfied until the
obligations in the preceding category have been satisfied.
If, on any day during the Liquidation Period, the amount of funds on
deposit in the Master Collection Account and available for allocation to
Investor Certificateholders and Purchasers under any of clauses First through
Third is less than the amount of the obligations to such Persons described in
such clause, then the available Collections shall be allocated by the Servicer
(1) to the Holders of such obligations relating to any Senior Class or Senior
Purchased Interest until the same have been paid in full and (2) thereafter to
the holders of such obligations relating to any Subordinated Class or
Subordinated Purchased Interest. The allocation among holders within each of
clauses (1) and (2) shall be made pro rata according to the respective amounts
of such obligations held by them (as weighted in accordance with any adjustment
factors used in determining their respective Ratable Principal Amounts).
After the payment in full of all amounts described in priority clauses
First through Fifth, ARC shall surrender the Residual Certificate to the
Trustee for cancellation and the Trustee shall make the payments and other
transfers required by Section 12.03 to ARC in respect of the ARC Revolving
Certificate and the Residual Certificate. The Trust shall terminate pursuant
to Section 12.01 after such payments and other transfers have been made to ARC
in respect of the Residual Certificate.
SECTION 4.04 Investment of Funds in Trust Accounts. On any day when
funds on deposit in any Trust Account shall exceed $10,000 (after giving effect
to the allocations of such funds required by this Article IV), and at such
other times as investment is practicable, the Trustee, at the direction of the
Servicer, shall invest and reinvest monies on deposit in such Trust Account (in
the name of the Trustee) in such Eligible Investments as are specified in a
notice from the Servicer, subject to the restrictions set forth hereinafter.
The Trustee shall, at the direction of the Servicer, invest the funds in the
Equalization Account, the Carrying Cost Account and all other Trust Accounts in
Eligible Investments. All Eligible Investments made from funds in any Trust
Account, and the interest, dividends and income
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received thereon and therefrom and the net proceeds realized on the sale
thereof, shall be deposited in such Trust Account. The Trustee may liquidate
an Eligible Investment prior to maturity if such liquidation would not result
in a loss of all or part of the principal portion of such Eligible Investment
or if, prior to the maturity of such Eligible Investment, a default occurs in
the payment of principal, interest or any other amount with respect to such
Eligible Investment. In the absence of negligence of the Trustee or willful
misconduct by the Trustee, the Trustee shall have no liability in connection
with investment losses incurred on Eligible Investments. It is intended for
income tax purposes that the income earned through investment of funds in the
Trust Accounts shall be treated as income of ARC.
SECTION 4.05 Attachment of Trust Accounts. If the Trustee receives
written notice that any account designated as a Trust Account has or will
become subject to any writ, judgment, warrant of attachment, execution or
similar process, the Trustee shall (notwithstanding any other provision of the
Transaction Documents) promptly notify ARC, the Servicer and the
Certificateholders thereof, and shall not deposit or transfer funds into such
Trust Account but shall cause funds otherwise required to be deposited into
such Trust Account to be held in another account pending distribution of such
funds in the manner required by the Transaction Documents.
ARTICLE V
DISTRIBUTIONS AND REPORTS TO
CERTIFICATEHOLDERS
Payments on the Certificates and Purchased Interests shall be made as
provided in Sections 5.01 and 5.02, except as otherwise provided in the
applicable Supplement or PI Agreement. All payments made by the Trustee or the
Paying Agent pursuant to Sections 5.01 and 5.02 shall be made based upon the
information set forth in and pursuant to the applicable Daily Report or
Settlement Statement delivered to the Trustee.
SECTION 5.01 Distributions to Holders of Investor Certificates and
Purchasers. (a) On each Settlement Date, the Paying Agent shall distribute,
in respect of the period from the preceding Settlement Date to (but excluding)
the then-current Settlement Date, to each Fixed Principal Certificateholder of
record on the Report Date immediately prior to the then-current Settlement Date
(other than as provided in Section 12.02 respecting a final distribution) its
pro rata share (based on the aggregate amount of accrued and unpaid interest on
the Fixed Principal Certificates held by such Certificateholder) of the amounts
that (i) prior to the Liquidation Commencement Date, are allocated to the
Carrying Cost Account with respect to Fixed Principal Yield pursuant to clause
First of Section 4.03(g), and (ii) on and after the Liquidation Commencement
Date, are on deposit in the Master Collection Account and allocated to Fixed
Principal Yield pursuant to clause First of Section 4.03(h).
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(b)(i) On each Settlement Date that occurs during a Pay-Out Period in
which one or more Series of Fixed Principal Certificates is/are being repaid or
during the Liquidation Period (commencing with the first Settlement Date
falling after the Calculation Period during which the Pay-Out Period or
Liquidation Period commences), the Paying Agent shall distribute to each Holder
of record of Fixed Principal Certificates of such Series as of the Report Date
immediately prior to the then-current Settlement Date (other than as provided
in Section 12.02 respecting a final distribution) its pro rata share (based on
the aggregate outstanding principal amount of Fixed Principal Certificates held
by such Certificateholder) of (A) in the case of Settlement Dates that occur
during a Pay-Out Period, the amounts on deposit in the Defeasance Account that
are allocated to the Principal Distribution Amount of the related Series
pursuant to clause Second of Section 4.03(g) during the most recently ended
Calculation Period, (B) in the case of Settlement Dates that occur during the
Liquidation Period, the amounts on deposit in the Master Collection Account
that are allocated to the Principal Distribution Amount of the related Series
pursuant to clause Second of Section 4.03(h), and (C) in the case of the first
Settlement Date on which such distributions are made in any Pay-Out Period, and
provided that no Liquidation Event or Unmatured Liquidation Event has occurred
and is continuing, in addition to the amount described in clause (A) or (B)
above, as applicable, the amounts on deposit in the Principal Funding Account
that are allocated to the Fixed Principal Invested Amount of the related
Series.
(ii) On the Expected Final Payment Date with respect to any
Series of Fixed Principal Certificates, unless the Liquidation Period
shall have commenced the Paying Agent shall distribute, to each Holder
of record of Fixed Principal Certificates of such Series as of the
Report Date immediately prior to the then-current Settlement Date such
Fixed Principal Certificateholder's pro rata share (based on the
aggregate outstanding principal amount of Fixed Principal Certificates
held by such Certificateholder) of the amounts on deposit in the
Principal Funding Account that are allocated to the Fixed Principal
Invested Amount of the related Series.
(iii) On each Settlement Date during the Revolving Period for
any Series of Fixed Principal Certificates on which any full or
partial prepayment of the principal amount of the Investor
Certificates of that Series is to be made in accordance with the
related Supplement, the Paying Agent shall distribute, to each Holder
of record of Fixed Principal Certificates of such Series as of the
Report Date immediately prior to the then-current Settlement Date such
Fixed Principal Certificateholder's pro rata share (based on the
aggregate outstanding principal amount of Fixed Principal Certificates
held by such Certificateholder) of the amounts on deposit in the
Defeasance Account that are allocated to the Fixed Principal Invested
amount of, and any other amounts (including any Prepayment Premium)
payable to, the related Series.
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(c) On each Settlement Date, the Paying Agent shall distribute to
each Investor Revolving Certificateholder of record on the Report Date
immediately prior to the then-current Settlement Date (other than as provided
in Section 12.02 respecting a final distribution) its pro rata share of the sum
of the amounts, if any, that (i) prior to the Liquidation Commencement Date,
are allocated to the Carrying Cost Account with respect to Investor Revolving
Yield payable on such Settlement Date, pursuant to clause First of Section
4.03(g), and (ii) on and after the Liquidation Commencement Date, are on
deposit in the Master Collection Account and are allocated to Investor
Revolving Yield payable on such Settlement Date pursuant to clause First of
Section 4.03(h). Also, on each Business Day prior to the Liquidation
Commencement Date, the Paying Agent shall distribute to each such Investor
Revolving Certificateholder the amounts, if any, that are allocated to reduce
the portion of the Investor Revolving Invested Amount represented by the
related Investor Revolving Certificate pursuant to Section 4.03(c) or (f) and
clause Third of Section 4.03(g) or are due as interest on the Investor
Revolving Certificate in accordance with the applicable Supplement.
(d) On each Settlement Date that occurs during a Pay-Out Period in
which one or more Series of Investor Revolving Certificates is/are being repaid
or during the Liquidation Period (commencing with the first Settlement Date
falling after the Calculation Period during which the Pay-Out Period or
Liquidation Period commences), the Paying Agent shall distribute to each Holder
of record of Investor Revolving Certificates of such Series as of the Report
Date immediately prior to the then-current Settlement Date (other than as
provided in Section 12.02 respecting a final distribution) its pro rata share
(based on the aggregate outstanding principal amount of Investor Revolving
Certificates held by the Certificateholder) of (i) in the case of Settlement
Dates that occur during a Pay-Out Period, the amounts on deposit in the
Defeasance Account that are allocated to the Investor Revolving Invested Amount
of the related Series pursuant to clause Second or Third of Section 4.03(g)
during the most recently ended Calculation Period and (ii) in the case of
Settlement Dates that occur during the Liquidation Period, the amounts on
deposit in the Master Collection Account that are allocated to the Investor
Revolving Invested Amount of the related Series pursuant to clause Second of
Section 4.03(h). In addition, on each Business Day during such a Pay-Out
Period, the Paying Agent shall distribute to each such Holder of Investor
Revolving Certificates such amounts as shall be directed by the Servicer in the
applicable Daily Report from amounts allocated to such Series as described in
the preceding sentence. On each Business Day during such a Pay-Out Period or
during the Liquidation Period, the Paying Agent shall distribute to each such
holder such amounts as shall be directed by the Servicer in the Daily Report as
being due on an Investor Revolving Certificate as interest pursuant to the
related Supplement.
(e) On each Settlement Date that occurs during a Pay-Out Period with
respect to one or more Series of Investor Certificates, the Paying Agent shall
distribute, in respect of the period from the preceding Settlement Date to (but
excluding) the then-current Settlement Date, to each Holder of record of
Investor Certificates of such Series as of the Report Date
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immediately prior to the then-current Settlement Date (other than as provided
in Section 12.02 respecting a final distribution) its pro rata share (based on
the aggregate outstanding amount of Obligations owed to the Investor
Certificateholder, other than Obligations constituting the outstanding
principal amount of or interest on the Investor Certificates, but giving effect
to the priorities set forth in clauses Fifth and Sixth of Section 4.03(g)) of
the amounts on deposit in the Defeasance Account allocable to the Obligations
owed to such Investor Certificateholders (other than obligations in respect of
principal of or interest on the Investor Certificates) pursuant to clauses
Fifth and Sixth of Section 4.03(g).
(f) On each Settlement Date that occurs during the Liquidation
Period, the Paying Agent shall distribute, in respect of the period from the
preceding Settlement Date to (but excluding) the then-current Settlement Date,
to each Investor Certificateholder of record on the Report Date immediately
prior to the then-current Settlement Date (other than as provided in Section
12.02 respecting a final distribution) its pro rata share (based on the
aggregate outstanding amount of Obligations owed to such Investor
Certificateholder pursuant to clauses Third and Fifth of Section 4.03(h)) of
the amounts on deposit in the Master Collection Account allocable to the
Obligations owed to Investor Certificateholders pursuant to clauses Third and
Fifth of Section 4.03(h).
(g) On each Settlement Date, the Paying Agent shall distribute to
each Purchaser the amounts required pursuant to the applicable PI Agreement.
(h) Each distribution to Investor Certificateholders shall be made by
the Paying Agent (i) by wire transfer of immediately available funds on the
date on which such distribution is required to be made, to an account at a bank
or other entity having appropriate facilities therefor that the Person entitled
thereto specifies in a written notice given to the Trustee on or prior to the
Report Date immediately preceding the Settlement Date on which such payment is
to be made, if such Person is the Holder of Investor Certificates in an
aggregate Stated Amount or principal amount equal to or in excess of
$1,000,000, and (ii) in all other cases, by check mailed to each such other
Certificateholder at its address appearing in the Certificate Register, in
either case without presentation or surrender of any Investor Certificate held
by the Certificateholder or the making of any notation thereon; provided,
however, that, except as expressly provided otherwise in Section 6.04, the
final principal payment to be made on any Certificate in connection with the
retirement of a Series of Certificates will be made to each Holder of a
Certificate of such Series only upon presentation and surrender by such Holder
of each of its Certificates of such Series at the office or offices specified
in a notice of such final principal payment that the Trustee delivers or causes
to be delivered to each Holder not less than 15 Business Days prior to such
final principal payment date.
(i) On the first Settlement Date that occurs after the Calculation
Period during which the Liquidation Commencement Date occurs, the Paying Agent
shall distribute to each Certificateholder and Purchaser of record on the
Record Date immediately prior to such
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Settlement Date, its pro rata share (based on the Ratable Principal Amount of
such Certificateholder or Purchaser) of amounts on deposit in the Set-Aside
Account as of the Liquidation Commencement Date in repayment of the principal
amount owed to such Certificateholder; provided, however, that (i) such pro
rata shares shall be calculated by including in the aggregate amount to be
distributed amounts that were distributed to any Holder of an Investor
Revolving Certificate or Purchaser in connection with the deposit of such
amounts into the Set-Aside Account and (ii) the amounts previously so
distributed to such Holders or Purchasers shall be deducted from the amounts
distributable to them pursuant to this paragraph (i).
SECTION 5.02 Distributions on the ARC Revolving Certificate and the
Residual Certificate. (a) On each Business Day prior to the Liquidation
Commencement Date, the Paying Agent shall distribute to ARC in respect of the
ARC Revolving Certificate the amount to be paid, if any, to reduce the ARC
Revolving Amount pursuant to clause Third of Section 4.03(g); provided, that if
a Look Back Period exists, amounts otherwise payable to ARC pursuant to this
Section shall be deposited in the Equalization Account.
(b) On each Business Day prior to the Liquidation Commencement Date,
the Paying Agent shall distribute to ARC in respect of the Residual Certificate
the amount payable to ARC in respect of the Residual Certificate pursuant to
clause Eighth of Section 4.03(g) to the extent that funds are available to make
such payments; provided, that if a Look Back Period exists, amounts otherwise
payable to ARC pursuant to this Section shall be deposited in the Equalization
Account.
(c) Distributions to ARC in respect of the ARC Revolving Certificate
and the Residual Certificate hereunder shall be made by the Paying Agent on the
date on which the distribution is required to be made by wire transfer of
immediately available funds, no later than 2:00 p. m., New York City time (or
later, to the extent delayed by any circumstance outside of the Paying Agent's
reasonable control), on the date on which the distribution is required to be
made, to an account at a bank or other entity having appropriate facilities
therefor that ARC specifies in a written notice given to the Trustee on or
prior to the Report Date immediately preceding the Settlement Date on which the
payment is to be made.
SECTION 5.03 Information to Certificateholders.
(a) Monthly Report. Within seven days after each Settlement Date,
the Paying Agent, on behalf of the Trustee, shall send to each Investor
Certificateholder a copy of a monthly report prepared by the Servicer in the
form of Exhibit F, and shall send to the Applicable Rating Agencies without any
request therefor by any of them, each Settlement Statement by first-class mail,
postage prepaid, to the address of such Investor Certificateholder that is
indicated in the Certificate Register.
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(b) Annual Tax Information. On or before February 15, of each
calendar year, beginning with calendar year 1995, the Servicer, on behalf of
the Trustee, shall furnish or cause to be furnished to each Person who at any
time during the preceding calendar year was an Investor Certificateholder the
information for the preceding calendar year, or the applicable portion thereof
during which the Person was a Holder of record of an Investor Certificate, as
is required to be provided by an issuer of indebtedness under the Internal
Revenue Code to the Holders of the issuer's indebtedness and such other
customary information as is necessary to enable the Investor Certificateholders
to prepare their federal income tax returns. Such obligation of the Servicer
shall be deemed to have been satisfied to the extent that substantially
comparable information shall be provided by the Paying Agent to the Investor
Certificateholder pursuant to this Agreement or any requirements of the
Internal Revenue Code as from time to time in effect. Notwithstanding anything
to the contrary contained in this Agreement, the Trustee shall, to the extent
required by applicable law, from time to time furnish to the appropriate
Persons a Form 1099-INT within the period required by applicable law.
SECTION 5.04 Notice of Early Liquidation at Seller Election. If ARC
shall receive a notice from a Seller, pursuant to Section 8.1 of the Purchase
Agreement, to the effect that the Seller desires to terminate its agreement to
sell Receivables to ARC, ARC shall deliver a copy of the notice to the Trustee,
and the Trustee shall deliver a copy to each Investor Certificateholder and to
the Applicable Rating Agencies, as soon as practicable, which notice shall
become effective at the time, and subject to the conditions, specified in the
notice and in Section 8.1 of the Purchase Agreement.
ARTICLE VI
THE CERTIFICATES
SECTION 6.01 The Certificates. The Investor Certificates in each
Series shall be substantially in the forms contemplated by the Supplements
pursuant to which the Investor Certificates are issued, and the ARC Revolving
Certificate and the Residual Certificate shall be substantially in the forms of
Exhibit G and Exhibit H, respectively. Upon issuance, all Certificates shall
be executed and delivered by ARC to the Trustee for authentication and
redelivery as provided in Section 6.02. Except to the extent provided
otherwise in an applicable Supplement, Investor Certificates shall be issued in
minimum denominations of $1,000,000 and in integral multiples of $1,000,000.
Each Series of Fixed Principal Certificates initially shall be issued as one or
more Series of Fixed Principal Certificates in an aggregate original principal
amount equal to the Fixed Principal Initial Invested Amount for the Series.
Each Series of Investor Revolving Certificates initially shall be issued as one
or more Series of Investor Revolving Certificates in an aggregate original
principal amount equal to the Investor Revolving Initial Invested Amount for
the Series and with an initial aggregate Stated Amount in the amount set out in
the related Supplement. The ARC
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Revolving Certificate and the Residual Certificate each shall be a single
certificate. The Investor Revolving Certificates and the ARC Revolving
Certificate together shall represent the Revolving Certificate Interest. The
Residual Certificate shall represent the Residual Interest.
Each Certificate issued as a Definitive Certificate shall be executed
by manual or facsimile signature on behalf of ARC by its President or any Vice
President or by any attorney-in-fact duly authorized to execute the Definitive
Certificate on behalf of any such officer. The Definitive Certificates shall
be authenticated on behalf of the Trust by manual signature of a duly
authorized signatory of the Trustee. Definitive Certificates bearing the
manual or facsimile signature of the individual who was, at the time when the
signature was affixed, authorized to sign on behalf of ARC or the Trust (as
applicable) shall be valid and binding obligations of the Trust,
notwithstanding that the individuals or any of them ceased to be so authorized
prior to the authentication and delivery of the Definitive Certificates or does
not hold such office on the date of issuance of such Definitive Certificates.
No Definitive Certificates shall be entitled to any benefit under this
Agreement, or be valid for any purpose, unless there appears on the Definitive
Certificate a certificate of authentication substantially in the form provided
for herein executed by or on behalf of the Trustee by the manual signature of a
duly authorized signatory, and the certificate of authentication upon any
Definitive Certificate shall be conclusive evidence, and the only evidence,
that the Definitive Certificate has been duly authenticated and delivered
hereunder and is entitled to the benefits of this Agreement. Except as
otherwise provided in the applicable Supplement, all Definitive Certificates
shall be dated the date of their authentication.
As provided in any Supplement, Investor Certificates of any Series may
be issued and sold pursuant to an exemption from the Securities Act. Any
Series sold pursuant to Rule 144A, Regulation S or another exemption under the
Securities Act, including Rule 144 (as enacted under the Securities Act), may
be delivered in book-entry form as provided in Sections 6.12 and 6.13.
SECTION 6.02 Authentication of Certificates. (a) Contemporaneously
with the assignment and transfer of the Receivables and the other Trust Assets
to the Trust, the Trustee shall authenticate and deliver the ARC Revolving
Certificate and the Residual Certificate to ARC.
(b) On each Subsequent Issuance Date, upon the order of ARC, the
Trustee shall authenticate and deliver to ARC the Series of Certificates that
are to be issued originally on such Subsequent Issuance Date (the "Subsequent
Issuance Investor Certificates") pursuant to the applicable Supplement. Upon
the issuance of the Subsequent Issuance Investor Certificates on each
Subsequent Issuance Date, the ARC Revolving Amount automatically shall be
reduced by an amount equal to the portion of the ARC Revolving Amount allocated
to the new Series pursuant to the related Supplement. The Subsequent Issuance
Investor Certificates shall be duly authenticated by or on behalf of the
Trustee, in authorized
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denominations equal, in the aggregate, to (i) the portion of the Fixed
Principal Invested Amount that is attributable to the Series, in the case of a
Series of Fixed Principal Certificates or (ii) the aggregate Stated Amounts of
the Certificates, in the case of a Series of Investor Revolving Certificates.
SECTION 6.03 Registration of Transfer and Exchange of Certificates.
(a) The Trustee, as agent for ARC, shall keep, or shall cause to be kept, at
the office or agency to be maintained in accordance with the provisions of
Section 11.16, a register in written form or capable of being converted into
written form within a reasonable time (the "Certificate Register") in which,
subject to such reasonable regulations as it may prescribe, a transfer agent
and registrar (which may be the Trustee) (the "Transfer Agent and Registrar")
shall provide for the registration of the Certificates and of transfers and
exchanges of the Certificates as herein provided. ARC hereby appoints the
Trustee as the initial Transfer Agent and Registrar.
ARC, or the Trustee as agent for ARC, may revoke the appointment as
Transfer Agent and Registrar and remove the then-acting Transfer Agent and
Registrar if the Trustee or ARC (as applicable) determines in its sole
discretion that the then-acting Transfer Agent and Registrar has failed to
perform its obligations under this Agreement in any material respect. The
then-acting Transfer Agent and Registrar shall be permitted to resign as
Transfer Agent and Registrar upon 30 days' prior written notice to the Trustee,
ARC and the Servicer; provided, however, that such resignation shall not be
effective and the then-acting Transfer Agent and Registrar shall continue to
perform its duties as Transfer Agent and Registrar until the Trustee has
appointed a successor Transfer Agent and Registrar reasonably acceptable to ARC
and the Person so appointed has given the Trustee written notice that it
accepts the appointment. The provisions of Sections 11.01 through 11.05 shall
apply to the Transfer Agent and Registrar as if all references to "the Trustee"
in the applicable provisions of Sections 11.01 through 11.05 were references to
the Transfer Agent and Registrar.
It is intended that the registration of Certificates that is described
in this subsection comply with the registration requirements contained in
Section 163 of the Internal Revenue Code.
(b) In connection with each issuance of a Series of Certificates, ARC
will determine whether such Certificates may be purchased by employee benefit
plans (as defined in ERISA) and shall cause the Certificates evidencing the
Series to bear a legend describing any restrictions on the purchases.
(c) No transfer of all or any part of the ARC Revolving Certificate
shall be made unless (i) ARC shall have given the Applicable Rating Agencies
and the Trustee prior written notice of the proposed transfer, (ii) the Rating
Agency Condition shall have been satisfied in connection with the proposed
transfer and (iii) ARC shall have delivered to the Trustee a Tax Opinion with
respect to such transfer.
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(d) ARC shall not transfer, assign, exchange or otherwise convey or
pledge, hypothecate or otherwise grant a security interest in the Residual
Certificate or any interest represented thereby, and any attempt to transfer,
assign, exchange, convey, pledge, hypothecate or grant a security interest in
the Residual Certificate or any interest represented thereby shall be void and
of no effect.
(e) Subject to the requirements of subsection (b) and, if applicable,
subsection (c) having been fulfilled, upon surrender for registration of
transfer of any Certificate, and, in the case of Investor Certificates, at any
office or agency of the Transfer Agent and Registrar maintained for such
purpose, ARC shall execute, and the Trustee shall authenticate and deliver, in
the name of the designated transferee or transferees, one or more new
Certificates of the appropriate Class and Series that (i) in the case of the
Fixed Principal Certificates, are in authorized denominations of like aggregate
fractional interest in the Fixed Principal Interest and (ii) in the case of the
Investor Revolving Certificates, are in authorized denominations of like
aggregate fractional interest in the Revolving Certificate Interest, and, in
the case of each Investor Certificate, that bear numbers that are not
contemporaneously outstanding.
At the option of an Investor Certificateholder, its Investor
Certificates may be exchanged for other Investor Certificates of the same Class
and Series (and bearing the same interest rate as the Investor Certificate
surrendered for registration of exchange) of authorized denominations of like
aggregate fractional interests in the Fixed Principal Interest or the Revolving
Certificate Interest (as applicable) and bearing numbers that are not
contemporaneously outstanding, upon surrender of the Investor Certificates to
be exchanged at any such office or agency. Whenever any Investor Certificates
are so surrendered for exchange, ARC shall execute, and the Trustee shall
authenticate and deliver, the appropriate number of Investor Certificates of
the Class and Series that the Investor Certificateholder making the exchange is
entitled to receive. Every Investor Certificate presented or surrendered for
registration of transfer or exchange shall be accompanied by a written
instrument of transfer in a form satisfactory to the Trustee or the Transfer
Agent and Registrar duly executed by the Certificateholder thereof or his
attorney-in-fact duly authorized in a writing delivered to the Transfer Agent
and Registrar.
No service charge shall be made for any registration of transfer or
exchange of Certificates, but the Transfer Agent and Registrar or any
co-transfer agent and co-registrar may require the Certificateholder to cover
any tax or governmental charge that may be imposed in connection with any
transfer or exchange of Investor Certificates.
All Certificates surrendered for registration of transfer and exchange
shall be cancelled and disposed of in a manner satisfactory to the Trustee.
(f) Certificates may be surrendered for registration of transfer or
exchange at the office of the Transfer Agent and Registrar designated in
Section 13.06.
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(g) Transfers of Book-Entry Certificates, in whole or in part, issued
in accordance with Section 6.12 and the Series Supplements shall be made in
accordance with this subsection. Subject to clauses (i) through (iv) below,
transfers of a Book-Entry Certificate shall be limited to transfers of the
Book-Entry Certificate in whole, but not in part, to nominees of the Clearing
Agency or to a successor of the Clearing Agency or such successor's nominee.
(i) For transfers within a Regulation S Temporary Book-Entry
Certificate, if the Certificateholder of a Regulation S Temporary
Book-Entry Certificate wishes at any time to transfer their interest
to a Person who wishes to take delivery thereof in the form of a
beneficial interest in the Regulation S Temporary Book-Entry
Certificate, the transfer may be effected in accordance with this
clause. Upon delivery (A) by a Certificateholder of an interest in a
Regulation S Temporary Book-Entry Certificate to Euroclear or Cedel,
as the case may be, of a certification in the form set forth in
Exhibit I (the "Owner Regulation S Certification"), (B) by the
transferee of the beneficial interest in the Regulation S Temporary
Book-Entry Certificate to Euroclear or Cedel, as the case may be, of a
written certification in the form set forth in Exhibit J (the
"Transferee Regulation S Certification"), and (C) by Euroclear or
Cedel, as the case may be, to the Transfer Agent and Registrar of a
certification in the form set forth in Exhibit K (the "Depositary
Regulation S Certification"), the Transfer Agent and Registrar may
direct either Euroclear or Cedel, as the case may be, to reflect on
its records the transfer of a beneficial interest in the Regulation S
Temporary Book-Entry Certificate from the Certificateholder providing
the Owner Regulation S Certification to the Person providing the
Transferee Regulation S Certification.
(ii) For transfer of an interest in an Unrestricted
Book-Entry Certificate for an interest in the 144A Book-Entry
Certificate, if the Certificateholder of a beneficial interest in
Unrestricted Book-Entry Certificate deposited with the Clearing Agency
wishes at any time to exchange its interest in the Unrestricted
Book-Entry Certificate, or to transfer its interest in the
Unrestricted Book-Entry Certificate to a Person who wishes to take
delivery thereof in the form of an interest in the 144A Book-Entry
Certificate, the Certificateholder may, subject to the rules and
procedures of Euroclear or Cedel and the Clearing Agency, as the case
may be, give directions for the Transfer Agent and Registrar to
exchange or cause the exchange or transfer or cause the transfer of
the interest for an equivalent beneficial interest in the 144A
Book-Entry Certificate. Upon receipt by the Transfer Agent and
Registrar of instructions from Euroclear or Cedel (based on
instructions from a Member Organization) or from a Clearing Agency
Participant, as applicable, or the Clearing Agency, as the case may
be, directing the Transfer Agent and Registrar to credit or cause to
be credited a beneficial interest in the 144A Book-Entry Certificate
equal to the beneficial interest in the Unrestricted Book-Entry
Certificate to be exchanged or transferred (such instructions to
contain information regarding the Clearing Agency
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Participant account to be credited with the increase, and, with
respect to an exchange or transfer of an interest in the Unrestricted
Book-Entry Certificate, information regarding the Clearing Agency
Participant account to be debited with the decrease), the Transfer
Agent and Registrar shall instruct the Clearing Agency to reduce the
Unrestricted Book-Entry Certificate by the aggregate principal amount
of the beneficial interest in the Unrestricted Book-Entry Certificate
to be exchanged or transferred, and the Transfer Agent shall instruct
the Clearing Agency, concurrently with the reduction, to increase the
principal amount of the 144A Book-Entry Certificate by the aggregate
principal amount of the beneficial interest in the Unrestricted
Book-Entry Certificate to be so exchanged or transferred, and to
credit or cause to be credited to the account of the Person specified
in the instructions a beneficial interest in the 144A Book-Entry
Certificate equal to the reduction in the principal amount of the
Unrestricted Book-Entry Certificate.
(iii) For transfers of an interest in the 144A Book-Entry
Certificate for an interest in the Regulation S Book-Entry
Certificate, if the Certificateholder of a beneficial interest in the
144A Book-Entry Certificate wishes at any time to exchange its
interest in the 144A Book-Entry Certificate for an interest in a
Regulation S Book-Entry Certificate, or to transfer its interest in
the 144A Book-Entry Certificate to a Person who wishes to take
delivery thereof in the form of an interest in the Regulation S Book-
Entry Certificate, the Certificateholder may, subject to the rules and
procedures of the Clearing Agency, give directions for the Transfer
Agent and Registrar to exchange or cause the exchange or transfer or
cause the transfer of the interest for an equivalent beneficial
interest in the Regulation S Book-Entry Certificate. Upon receipt by
the Transfer Agent and Registrar of (A) instructions given in
accordance with the Clearing Agency's procedures from a Clearing
Agency Participant directing the Transfer Agent and Registrar to
credit or cause to be credited a beneficial interest in the Regulation
S Book-Entry Certificate in an amount equal to the beneficial interest
in the 144A Book-Entry Certificate to be exchanged or transferred, (B)
a written order given in accordance with the Clearing Agency's
procedures containing information regarding the account of the
depositaries for Euroclear or Cedel or another Clearing Agency
Participant, as the case may be, to be credited with the increase and
the name of the account and (C) a certificate in the form of Exhibit L
attached hereto given by the Certificateholder of the beneficial
interest, the Transfer Agent and Registrar shall instruct the Clearing
Agency to reduce the 144A Book-Entry Certificate by the aggregate
principal amount of the beneficial interest in the 144A Book-Entry
Certificate to be so exchanged or transferred and the Transfer Agent
and Registrar shall instruct the Clearing Agency, concurrently with
the reduction, to increase the principal amount of the Regulation S
Book-Entry Certificate by the aggregate principal amount of the
beneficial interest in the 144A Book-Entry Certificate to be so
exchanged or transferred, and to credit or cause to be credited to the
account of the Person specified in the instructions a beneficial
interest
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in the Regulation S Book-Entry Certificate equal to the reduction in
the principal amount of the 144A Book-Entry Certificate.
(iv) Notwithstanding any other provisions of this section, a
placement agent for the Investor Certificates may exchange beneficial
interests in the Regulation S Temporary Book-Entry Certificate held by
it for interests in the 144A Book-Entry Certificate only after
delivery by the placement agent of instructions for the exchange
substantially in the form of Exhibit M. Upon receipt of the
instructions provided in the preceding sentence, the Transfer Agent
and Registrar shall instruct the Clearing Agency to reduce the
principal amount of the Regulation S Temporary Book-Entry Certificate
to be so transferred and shall instruct the Clearing Agency to
increase the principal amount of the 144A Book-Entry Certificate and
credit or cause to be credited to the account of the placement agent a
beneficial interest in the 144A Book-Entry Certificate having a
principal amount equal to the amount by which the principal amount of
the Regulation S Temporary Book-Entry Certificate was reduced upon the
transfer pursuant to the instructions provided in the first sentence
of this subclause.
(v) In the event that a Book-Entry Certificate is exchanged
for a Definitive Certificate, the Certificates may be exchanged or
transferred for one another only in accordance with such procedures as
are substantially consistent with the provisions of clauses (i)
through (iii) above (including the certification requirements intended
to ensure that the exchanges or transfers comply with Rule 144 or
Regulation S under the Securities Act, as the case may be) and as may
be from time to time adopted by the Trustee.
(h) Certificateholders holding Definitive Certificates shall not
sell, transfer or otherwise dispose of the Certificates unless the sale is to a
transferee to whom the sale, transfer or disposition is being made pursuant to
an applicable exemption from the registration requirements of the Securities
Act and applicable state securities laws and, prior to the proposed sale,
transfer or disposition, the Certificateholder and the proposed transferee each
provide the Trustee and ARC with representations and, if requested by the
Trustee or ARC, an opinion of counsel (which may be in-house counsel), in each
case satisfactory in form and substance to the Trustee, concerning the proposed
sale, transfer or disposition and the availability of the exemption.
(i) Certificateholders shall not use any means of general
solicitation or distribution in connection with the marketing, sale, transfer
or other disposition of any Certificates. None of the Certificates may be
issued, sold, transferred or otherwise disposed of in a transaction registered
under the Securities Act. The Certificates shall bear restrictive legends
substantially as set forth in Exhibit N.
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SECTION 6.04 Mutilated, Destroyed, Lost or Stolen Certificates. If
(a) any mutilated Certificate is surrendered to the Transfer Agent and
Registrar, or the Transfer Agent and Registrar receives evidence to its
satisfaction of the destruction, loss or theft of any Certificate and (b) there
is delivered to the Transfer Agent and Registrar and the Trustee such security
or indemnity as may be required by them and ARC to hold each of them, the Trust
and ARC harmless, then, in the absence of notice to the Trustee that such
Certificate has been acquired by a bona fide purchaser, ARC shall execute and,
upon the request of ARC, the Trustee shall authenticate and deliver, in
exchange for or in lieu of any such mutilated, destroyed, lost or stolen
Certificate, a new Certificate of like Class, Series, tenor, terms and
principal amount and bearing a number that is not contemporaneously
outstanding. In connection with the issuance of any new Certificate under this
section, the Trustee or the Transfer Agent and Registrar may require the
payment by the Certificateholder of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the reasonable fees and expenses of the Trustee and
Transfer Agent and Registrar) connected therewith. Any duplicate Certificate
issued pursuant to this section shall constitute conclusive and indefeasible
evidence of ownership of an interest in the Trust, as if originally issued,
whether or not the lost, stolen or destroyed Certificate shall be enforceable
by anyone, and shall be entitled to all the benefits of this Agreement equally
and proportionately with any and all Certificates of the same Class and Series
that are duly issued hereunder.
SECTION 6.05 Persons Deemed Owners. Prior to due presentation of a
Certificate for registration of transfer, ARC, the Trustee, the Paying Agent,
the Transfer Agent and Registrar and any agent of any of them may treat the
Person in whose name any Certificate is registered as the owner of such
Certificate for the purpose of receiving distributions pursuant to Sections
5.01 and 5.02 and for all other purposes whatsoever, and none of ARC, the
Trustee, the Paying Agent, the Transfer Agent and Registrar or any agent of any
of them shall be affected by any notice to the contrary; provided, however,
that, in determining whether the Holders of the requisite principal amount or
Stated Amount (as applicable) of Certificates or Purchased Interests have given
any request, demand, authorization, direction, notice, consent or waiver
hereunder, Certificates and Purchased Interests owned by ARC, the Servicer or
any Affiliate thereof shall be disregarded and deemed not to be outstanding,
except that, in determining whether the Trustee shall be protected in relying
upon any such request, demand, authorization, direction, notice, consent or
waiver, only Certificates and Purchased Interests that the Trustee knows to be
so owned shall be so disregarded. Certificates and Purchased Interests so
owned that have been pledged in good faith shall not be disregarded and may be
regarded as outstanding if the pledgee establishes to the satisfaction of the
Trustee the pledgee's right so to act with respect to such Certificates or
Purchased Interests and that the pledgee is not ARC, the Servicer or an
Affiliate thereof.
SECTION 6.06 Appointment of Paying Agent. The Paying Agent initially
shall be the Trustee. ARC hereby appoints the Paying Agent as its agent to
make distributions to Certificateholders and Purchasers from the Master
Collection Account pursuant to Sections
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5.01 and 5.02 and to report the amounts of the distributions to the Trustee.
Any Paying Agent shall have the revocable power to withdraw funds from the
Master Collection Account for the purpose of making the distributions. The
Trustee or, at any time when the Trustee is also the Paying Agent, ARC may
revoke such power of the Paying Agent and remove the Paying Agent if the
Trustee or ARC (as applicable) determines in its sole discretion that the
Paying Agent shall have failed to perform its obligations under this Agreement
in any material respect. The Paying Agent shall be permitted to resign as
Paying Agent upon 30 days' prior written notice to the Trustee, ARC, the
Servicer and the Applicable Rating Agencies. Any resignation or removal of the
Paying Agent, and appointment of a successor Paying Agent, shall not become
effective until the appointment has been accepted by the successor Paying
Agent. If no successor Paying Agent shall have been appointed and shall have
accepted appointment within 30 days after the giving of the notice of
resignation, the resigning Paying Agent may petition any court of competent
jurisdiction to appoint a successor Paying Agent. In the event that the
Trustee shall no longer be the Paying Agent, the Trustee shall appoint a
successor Paying Agent (which shall be a bank or trust company) reasonably
acceptable to ARC, which appointment shall be effective on the date on which
the Person so appointed gives the Trustee written notice that it accepts the
appointment. The Trustee shall cause the successor Paying Agent or any
additional Paying Agent appointed by the Trustee to execute and deliver to the
Trustee an instrument in which it shall agree with the Trustee that, as Paying
Agent, it will hold all sums, if any, held for payment to the
Certificateholders and Purchasers in trust for the benefit of the
Certificateholders and Purchasers entitled thereto until the sums shall be paid
to the Certificateholders and Purchasers. The Paying Agent shall return all
unclaimed funds to the Trustee, and upon removal of a Paying Agent such Paying
Agent shall also return all funds in its possession to the Trustee. The
provisions of Sections 11.01 through 11.05 shall apply to the Paying Agent as
if all references in the applicable provisions thereof to "the Trustee" were
references to the Paying Agent.
SECTION 6.07 Access to List of Certificateholders' Names and
Addresses. The Trustee will furnish or cause to be furnished by the Transfer
Agent and Registrar to ARC, the Servicer, the Seller or the Paying Agent,
within two Business Days after receipt by the Trustee of a written request
therefor from the Servicer or the Paying Agent, a list in the form the Servicer
or the Paying Agent may reasonably require of the names and addresses of the
Certificateholders as of the most recent Settlement Date. If any Holder or
group of Holders of Investor Certificates in any Series evidencing not less
than 10% of the aggregate unpaid principal amount of the Series (the
"Applicant") applies in writing to the Trustee, and the application states that
the Applicant desires to communicate with other Certificateholders with respect
to their rights under this Agreement, any Supplement or the Certificates and is
accompanied by a copy of the communication that the Applicant proposes to
transmit, then the Trustee, after having been adequately indemnified by the
Applicant for its costs and expenses, shall afford or shall cause the Transfer
Agent and Registrar to afford the Applicant access during normal business hours
to the most recent list of Certificateholders held by the Trustee, within five
Business Days after the receipt of the application and indemnification.
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The list shall be as of a date no more than 45 days prior to the date of
receipt of the Applicant's request.
Every Certificateholder, by receiving and holding a Certificate,
agrees with the Trustee that neither the Trustee, the Transfer Agent and
Registrar, ARC, the Servicer, the Seller nor any of their respective agents
shall be held accountable by reason of the disclosure of any information as to
the names and addresses of the Certificateholders hereunder, regardless of the
sources from which the information was derived.
SECTION 6.08 Authenticating Agent. (a) The Trustee may appoint one
or more authenticating agents with respect to the Certificates that shall be
authorized to act on behalf of the Trustee in authenticating the Certificates
in connection with the issuance, delivery, registration of transfer, exchange
or repayment of the Certificates. Either the Trustee or the authenticating
agent, if any, then appointed and acting on behalf of the Trustee shall
authenticate the Certificates. Whenever reference is made in this Agreement to
the authentication of Certificates by the Trustee or the Trustee's certificate
of authentication, such reference shall be deemed to include authentication on
behalf of the Trustee by an authenticating agent and a certificate of
authentication executed on behalf of the Trustee by an authenticating agent.
Each authenticating agent must be acceptable to ARC.
(b) Any institution succeeding to the corporate agency business of an
authenticating agent shall continue to be an authenticating agent without the
execution or filing of any document or any further act on the part of the
Trustee, the authenticating agent or any other Person.
(c) An authenticating agent may at any time resign by giving written
notice of resignation to the Trustee and ARC. The Trustee may at any time
terminate the agency of an authenticating agent by giving notice of termination
to the authenticating agent and ARC. Upon receiving a notice of resignation or
upon a termination, or in case at any time an authenticating agent shall cease
to be acceptable to the Trustee or ARC, the Trustee may promptly appoint a
successor authenticating agent. Any successor authenticating agent, upon
acceptance of its appointment, shall become vested with all the rights, powers
and duties of its predecessor, with like effect as if originally named as an
authenticating agent. No successor authenticating agent shall be appointed
unless acceptable to the Trustee and ARC.
(d) The Servicer agrees to pay to each authenticating agent (if any),
as an expense of the Servicer paid out of the Servicing Fee, reasonable
compensation from time to time for services performed under this section.
(e) The provisions of Sections 11.01, 11.02 and 11.03 shall be
applicable to any authenticating agent as if the references in the applicable
provisions thereof to "the Trustee" were references to the authenticating
agent.
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(f) Pursuant to an appointment made under this section, the
Certificates may have endorsed thereon, in lieu of the Trustee's certificate of
authentication, an alternate certificate of authentication in substantially the
following form:
"This is one of the Certificates described in the Supplement dated as
of __________ ___, 199_.
Manufacturers and Traders Trust Company, as Trustee
By:
--------------------------
as Authenticating Agent
for the Trustee,
By:
--------------------------
Authorized Officer."
SECTION 6.09 Tax Treatment. It is the intent of ARC and the Investor
Certificateholders that, for purposes of Federal, state and local income and
franchise taxes and for other taxes measured by or imposed on income, the
Investor Certificates will be treated as evidence of indebtedness secured by
the Trust Assets and the Trust will not be characterized as an association
taxable as a corporation. ARC, by entering into this Agreement, and each
Investor Certificateholder, by its acceptance of its Investor Certificate,
agree to treat the Investor Certificates for purposes of Federal, state and
local income and franchise taxes and for any other taxes measured by or imposed
on income as indebtedness. The provisions of this Agreement and all related
Transaction Documents shall be construed to further these intentions of the
parties. In accordance with the foregoing, ARC agrees that it will report its
income for purposes of Federal, state and local income or franchise taxes, or
for purposes of any other taxes measured by or imposed on income, on the basis
that it is the owner of the Receivables. Except to the extent otherwise
required by applicable law or any Governmental Authority, or to the extent the
Trustee is otherwise advised by counsel, the Trustee hereby agrees to treat the
Trust as a security device only, and shall not file tax returns or obtain an
employer identification number on behalf of the Trust.
SECTION 6.10 Issuance of Additional Series of Certificates and Sales
of Purchased Interests. (a) ARC may from time to time direct the Trustee to
issue to it one or more Classes of any newly issued Series of Investor
Certificates and either (i) allocate to the Series a portion of the ARC
Revolving Amount or (ii) deposit an amount of funds equal to the initial
Invested Amount of the Certificates to the Defeasance Account (an "Unfunded
Certificate") or (iii) take a combination of the actions specified in clauses
(i) and (ii); provided, that the sum of the portion of the ARC Revolving Amount
that is transferred under clause (i) and the amount to be paid to the
Defeasance Account under clause (ii) equals the
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Initial Invested Amount of the Investor Certificates delivered to ARC (any such
event under clauses (i), (ii) or (iii), a "New Issuance"). In addition, to the
extent permitted for any Series of Investor Certificates as specified in the
related Supplement, the Investor Certificateholders of the Series may tender
their Investor Certificates to the Trustee, and ARC may allocate a portion of
the ARC Revolving Amount pursuant to the terms and conditions set forth in the
Supplement, in exchange for one or more newly issued Series of Investor
Certificates (an "Investor Exchange"). New Issuances and Investor Exchanges
collectively are referred to as "Subsequent Issuances".
(b) ARC may direct the Trustee to effect a Subsequent Issuance by
notifying the Trustee, in writing, at least five Business Days (or such shorter
period as shall be acceptable to the Trustee) in advance (a "Subsequent
Issuance Notice") of the date upon which the Subsequent Issuance is to occur (a
"Subsequent Issuance Date"). Any Subsequent Issuance Notice shall state the
designation of any Series to be issued on the Subsequent Issuance Date and,
with respect to each Class or Series: (i) its Initial Invested Amount (or the
method for calculating the Initial Invested Amount), (ii) its Certificate Rate
(or the method for allocating interest payments or other cash flows to the
Series), if any, and (iii) the Enhancement Provider, if any, with respect to
the Series.
(c) On the Subsequent Issuance Date, ARC shall deliver to the Trustee
for authentication under Section 6.02, and the Trustee shall authenticate and
deliver any such Class or Classes of Series of Investor Certificates only upon
delivery to it of the following:
(i) a Supplement satisfying the criteria set forth in
subsection (d) and in form reasonably satisfactory to the Trustee
executed by ARC and the Servicer and specifying the Principal Terms of
the Series,
(ii) the applicable Enhancement, if any,
(iii) the agreement, if any, pursuant to which the
Enhancement Provider agrees to provide the Enhancement, if any,
(iv) a Tax Opinion with respect to such Subsequent Issuance,
(v) evidence that the Rating Agency Condition has been
satisfied with respect to such Subsequent Issuance,
(vi) an Officer's Certificate of ARC that on the Subsequent
Issuance Date, after giving effect to the Subsequent Issuance (and the
repayment, on the date of the Subsequent Issuance Date, of any
existing Investor Certificates with funds (including proceeds of sale
of the new Series) on deposit in the Defeasance Account), any
requirements set out in the Supplement with respect to any then-
outstanding Series
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with respect to the amount of Certificates that may not, by their
terms, be transferred has been satisfied,
(vii) an Officer's Certificate of the Servicer stating that
no Liquidation Event, Unmatured Liquidation Event or Pay-Out Event has
occurred and is continuing and that the Subsequent Issuance is not
reasonably expected to result in a Liquidation Event or Pay-Out Event
at any time in the future,
(viii) in the case of an Investor Exchange, any Investor
Certificates that are being exchanged in connection therewith,
(ix) any other documents, certificates and Opinions of
Counsel as may be required by the applicable Supplement, and
(x) an Officer's Certificate of the Servicer to the effect
that all conditions specified in clauses (i) through (ix) have been
satisfied.
Upon satisfaction of the conditions, the Trustee shall cancel any applicable
Investor Certificates and issue, as provided above, the new Series of Investor
Certificates dated the Subsequent Issuance Date. Any such Series of Investor
Certificates shall be substantially in the form specified in the related
Supplement and shall bear, upon its face, the designation for the Series to
which it belongs, as selected by ARC. There is no limit to the number of
Subsequent Issuances that may be performed under this Agreement.
(d) In conjunction with a Subsequent Issuance, the parties hereto
shall execute a Supplement, which shall specify the relevant terms with respect
to any newly issued Series of Investor Certificates, which may include: (i)
its name or designation, (ii) the Initial Invested Amount or the method of
calculating the Initial Invested Amount, (iii) the Certificate Rate (or formula
for the determination thereof), (iv) the Subsequent Issuance Date, (v) the
rating agency or agencies rating the Series, (vi) the name of the Clearing
Agency, if any, (vii) the portion of the ARC Revolving Amount that has been
transferred to the Holders of the Series pursuant to the Subsequent Issuance,
(viii) the interest payment date or dates and the date or dates from which
interest shall accrue, (ix) the method of allocating Collections with respect
to Receivables for the Series and, if applicable, with respect to any Paired
Series and the method by which the principal amount of Investor Certificates of
the Series shall amortize or accrete and the method for allocating charge-offs,
(x) the names of any accounts to be used by the Series and the terms governing
the operation of any such account, (xi) the Ratable Principal Amount of the
Series and related terms, (xii) the Expected Final Payment Date, (xiii) the
terms of any Enhancement with respect to the Series, (xiv) the Enhancement
Provider, if applicable, (xv) the base rate applicable to the Series, (xvi) the
terms on which the Certificates of the Series may be repurchased or remarketed
to other investors, (xvii) any deposit into any account provided for the
Series, (xviii) the number of Classes of the Series, and if more than one
Class, the rights and priorities of each Class, (xix) whether any fees,
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breakage payments or early termination payments will be included in the funds
available to be paid for the Series, (xx) the subordination of the Series to
any other Series, (xxi) whether the Series will be a part of a group or subject
to being paired with any other Series, (xxii) whether the Series will be
prefunded and (xxiii) any other relevant terms of the Series (including whether
or not the Series will be pledged as collateral for an issuance of any other
securities, including commercial paper). The terms of the Supplement may
modify or amend the terms of this Agreement solely as applied to the new
Series.
(e) Except as specified in any Supplement for a related Series, all
Investor Certificates of any Series shall rank pari passu and be equally and
ratably entitled as provided herein to the benefits hereof (except that the
Enhancement provided for any Series shall not be available for any other
Series) without preference, priority or distinction on account of the actual
time or times of authentication and delivery, all in accordance with the terms
and provisions of this Agreement and the related Supplement.
(f) ARC may from time to time direct the Trustee, on behalf of the
Trust, to sell one or more Purchased Interests pursuant to a PI Agreement. No
Purchased Interest shall represent any interest in any Enhancement for the
benefit of any Series, any Class of Investor Certificates or any other
Purchased Interest, any Trust Account established pursuant to any Supplement or
any Purchaser Account established in respect of any other Purchased Interest
except to the extent set forth in the PI Agreement with respect to such other
Purchased Interest. Each PI Agreement may provide that no Investor
Certificateholder, Purchaser under any other PI Agreement or Enhancement
Provider shall be a third-party beneficiary thereof or have any benefit or any
legal or equitable right, remedy or claim under the PI Agreement.
(g) On or before the date of the initial sale of a Purchased Interest
pursuant to a particular PI Agreement, the parties hereto and the related
Purchaser will execute and deliver a PI Agreement that will specify the terms
of the Purchased Interest. The terms of the PI Agreement may modify or amend
the terms of this Agreement solely as applied to the Purchased Interest. The
obligation of the Trustee to execute and deliver the related PI Agreement is
subject to the satisfaction of the following conditions:
(i) on or before the tenth Business Day (or a shorter period
as shall be acceptable to the parties) immediately preceding the
related closing date, ARC shall have given the Trustee, the Servicer,
each Applicable Rating Agency (if any rated Investor Certificates are
outstanding), each Purchaser and each Enhancement Provider (if any)
written notice of the sale of the Purchased Interest and the closing
date,
(ii) ARC shall have delivered to the Trustee the related PI
Agreement, in form satisfactory to the Trustee, each executed by each
party thereto other than the Trustee,
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(iii) the Rating Agency Condition shall have been satisfied
with respect to the sale (if any rated Investor Certificates are
outstanding),
(iv) the sale will not (A) contravene any provision of this
Agreement, any Supplement, any agreement pursuant to which any
Enhancement is provided or any PI Agreement (or any agreement related
thereto) or (B) constitute, or result in (or reasonably be expected to
result, at any time in the future, in) the occurrence of, a
Liquidation Event, an Unmatured Liquidation Event or a Pay-Out Event,
(v) ARC shall have delivered to the Trustee, each Applicable
Rating Agency (if any rated Investor Certificates are outstanding),
each Purchaser and any Enhancement Provider, a Tax Opinion, dated the
closing date, with respect to the sale, and
(vi) ARC shall have delivered to the Trustee an Officer's
Certificate, dated the Closing Date for such Purchased Interest, to
the effect that each of the conditions set forth in this subsection
for the sale of the Purchased Interest and the execution and delivery
of the related PI Agreement has been satisfied.
Upon satisfaction of the above conditions, the Trustee shall execute and, at
the written direction of ARC, deliver the related PI Agreement and any related
documents that ARC shall reasonably request.
(h) ARC may from time to time direct the Trustee, on behalf of the
Trust, to extend any PI Agreement. The obligation of the Trustee to execute
and deliver all agreements, certificates, documents and filings required in
connection therewith, is subject to the satisfaction of the following
conditions:
(i) on or before the tenth Business Day (or a shorter period
as shall be acceptable to the parties) immediately preceding the date
of the extension, ARC shall have given the Trustee, the Servicer, the
Rating Agency (if any rated Investor Certificates are outstanding) and
any Enhancement Provider written notice of the extension and the date
on which the extension shall occur,
(ii) ARC shall have delivered to the Trustee the required
agreements, certificates, documents and filings, in form satisfactory
to the Trustee, executed by each party thereto other than the Trustee,
(iii) the extension will not (A) contravene any provision of
this Agreement, any Supplement, any agreement pursuant to which any
Enhancement is provided or any PI Agreement (or any agreement related
thereto) or (B) constitute, or result in the occurrence of, a
Liquidation Event, an Unmatured Liquidation Event or a Pay-Out Event,
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(iv) ARC shall have delivered to the Trust, the Rating Agency
(if any rated Investor Certificates are outstanding) and any
Enhancement Provider a Tax Opinion, dated the date of the extension,
with respect to the extension,
(v) ARC shall have delivered to the Trustee an Officer's
Certificate, dated the date of the extension, to the effect that each
of the conditions set forth in this subsection for the extension of
such PI Agreement and the execution and delivery of the related
documents has been satisfied, and
(vi) the Rating Agency Condition shall have been satisfied.
(i) Prior to the execution by the Trustee of any Supplement or PI
Agreement that allocates to any Certificate or Purchased Interest a Ratable
Principal Amount in excess of its outstanding principal amount, the Trustee
shall receive from the Servicer an Officer's Certificate to the effect that the
allocation will not dilute the benefit of the required dilution and loss
reserves to which any pre-existing Series or Purchased Interest is entitled
prior to the effectiveness of the Supplement or PI Agreement.
SECTION 6.11 Changes in Amount of Investor Revolving Certificates.
(a) The outstanding principal amount of an Investor Revolving Certificate
shall at no time exceed the Stated Amount then applicable to such Investor
Revolving Certificate. The Stated Amount of an Investor Revolving Certificate
may be increased or decreased from time to time by ARC, with the prior written
consent of the Holder of the Investor Revolving Certificate, if the following
conditions each shall have been satisfied on or prior to the effective date of
the proposed increase or decrease (as the case may be):
(i) ARC shall have delivered to the Trustee a Tax Opinion
with respect to the proposed increase, and
(ii) the Rating Agency Condition shall have been satisfied
with respect to the increase.
(b) ARC may, pursuant to the Supplement that applies to a particular
Investor Revolving Certificate, request the Holder of the Investor Revolving
Certificate to provide funds to the Trustee in respect of the Holder's Investor
Revolving Certificate in order to increase the then-outstanding principal
amount of the Investor Revolving Certificate, which requested increase shall be
subject to the further provisions of this subsection and to the provisions of
the Supplement. Except as otherwise provided in the related Supplement, all
the increases to be made on any day shall be in an aggregate amount not to
exceed the sum, if positive, of (i) the Variable Amount on the day on which the
increase takes effect and (ii) the ARC Revolving Amount as of the opening of
business on the day (after giving effect to any reduction in the amount of the
ARC Revolving Certificate as a result of any Seller Adjustments on the day).
No such increase may be requested or (even if previously
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requested) implemented during a Look Back Period, the Liquidation Period or the
Pay-Out Period for the Investor Revolving Certificate. ARC may make such a
request at any time prior to the earlier of (x) the Liquidation Commencement
Date and (y) the Pay-Out Period Commencement Date for the Investor Revolving
Certificate, and shall make any such request in a writing that is substantially
in the form required by the applicable Supplement, appropriately completed, and
that is delivered to the Holder of the Investor Revolving Certificate at the
time required by the applicable Supplement. The outstanding principal amount
of the Holder's Investor Revolving Certificate shall be increased on the
Business Day on which the Holder provides to ARC immediately available funds in
the amount of the requested increase by an amount equal to the amount of the
funds.
SECTION 6.12 Book-Entry Certificates. (a) If provided in any
Supplement, the Investor Certificates of any Series, upon original issuance,
will be issued in the form of one or more Book-Entry Certificates, to be
delivered to the applicable Clearing Agency, by, or on behalf of, ARC. The
Investor Certificates of the Series initially shall be registered on the
Certificate Register in the name of the nominee of the Clearing Agency, and no
Certificate Owner will receive a Definitive Certificate representing such
Certificate Owner's interest in the Investor Certificates, except as provided
in Section 6.14. Unless and until Definitive Certificates have been issued to
Certificate Owners pursuant to Section 6.14:
(i) the provisions of this section shall be in full force and
effect,
(ii) ARC, the Servicer, the Paying Agent, the Transfer Agent
and Registrar and the Trustee may deal with the Clearing Agency and
the Clearing Agency Participants for all purposes (including the
making of distributions on the Investor Certificates) as the
authorized representatives of the Certificate Owners,
(iii) to the extent that the provisions of this section
conflict with any other provisions of this Agreement, the provisions
of this section shall control, and
(iv) the rights of Certificate Owners shall be exercised only
through the Clearing Agency and the Clearing Agency Participants and
shall be limited to those established by law and agreements between
the Certificate Owners and the Clearing Agency and/or the Clearing
Agency Participants. Unless and until Definitive Certificates are
issued pursuant to Section 6.14, the initial Clearing Agency will make
book-entry transfers among the Clearing Agency Participants and
receive and transmit distributions of principal and interest on the
Investor Certificates to the Clearing Agency Participants.
(b) Certificates sold to Qualified Institutional Buyers in reliance
on Rule 144A under the Securities Act shall be represented by one or more
Book-Entry Certificates (the "144A Book-Entry Certificates"), in registered
form, without coupons, which will be deposited upon
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the order of ARC on the Closing Date with the Trustee as custodian for and
registered in the name of Cede & Co., as nominee of the Clearing Agency.
(c) Certificates sold in offshore transactions in reliance on
Regulation S shall be represented initially by temporary Book-Entry
Certificates (the "Regulation S Temporary Book-Entry Certificates"). The
Regulation S Temporary Book-Entry Certificates shall be exchanged on the later
of (i) 40 days after the later of (A) the Closing Date and (B) the completion
of the distribution of the Certificates, as certified by the Lead Placement
Agent and (ii) the date on which the requisite certifications are due to and
provided to the Trustee (the later of clauses (i) and (ii) is referred to as
the "Exchange Date") for permanent Book-Entry Certificates (the "Unrestricted
Book-Entry Certificates," and together with the Regulation S Temporary
Book-Entry Certificates, the "Regulation S Book-Entry Certificates"). The
Regulation S Book-Entry Certificates shall be issued in registered form,
without coupons, and deposited upon the order of ARC with the Trustee as
custodian for and registered in the name of a nominee of the Clearing Agency
for credit to the account of the depositaries for Euroclear and Cedel, which
depositaries shall, on behalf of Euroclear and Cedel, hold the interests on
behalf of account holders (each a "Member Organization"), which have rights in
respect of the Certificates credited to their securities accounts with
Euroclear or Cedel from time to time.
(d) A Certificateholder of the Regulation S Temporary Book-Entry
Certificate may receive payments in respect of the Certificates on the
Regulation S Temporary Book-Entry Certificate only after delivery to Euroclear
or Cedel, as the case may be, of a written certification substantially in the
form of the Owner Regulation S Certification, and upon delivery by Euroclear or
Cedel, as the case may be, to the Transfer Agent and Registrar of a
certification or certifications substantially in the form of the Depositary
Regulation S Certification. The delivery by the Certificateholder of the
Regulation S Temporary Book-Entry Certificate of the certification shall
constitute irrevocable instructions by the Certificateholder to Euroclear or
Cedel, as the case may be, to arrange for the exchange of the
Certificateholder's interest in the Regulation S Temporary Book-Entry
Certificate for a beneficial interest in the Unrestricted Book-Entry
Certificate after the Exchange Date in accordance with the paragraph below.
After (i) the Exchange Date and (ii) receipt by the Transfer Agent and
Registrar of written instructions from Euroclear or Cedel, as the case may be,
directing the Transfer Agent and Registrar to credit or cause to be credited to
either Euroclear's or Cedel's, as the case may be, depositary's account a
beneficial interest in the Unrestricted Book-Entry Certificate in a principal
amount equal to that of the beneficial interest in the Regulation S Temporary
Book-Entry Certificate, the Transfer Agent and Registrar shall instruct the
Clearing Agency to reduce the principal amount of the Regulation S Book-Entry
Certificate and increase the principal amount of the Unrestricted Book-Entry
Certificate, by the principal amount of the beneficial interest in the
Regulation S Temporary Book-Entry Certificate to be so transferred, and to
credit or cause to be credited to the account of Euroclear, Cedel or a
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Person who has an account with the Clearing Agency (a "Clearing Agency
Participant"), as the case may be, a beneficial interest in the Unrestricted
Book-Entry Certificate having a principal amount of the Regulation S Temporary
Book-Entry Certificate that was reduced upon the transfer.
Upon return of the entire principal amount of the Regulation S
Temporary Book-Entry Certificate to the Trustee in exchange for beneficial
interests in the Unrestricted Book-Entry Certificate, the Trustee shall cancel
the Regulation S Temporary Book-Entry Certificate by perforation and shall
forthwith destroy it.
SECTION 6.13 Notices to Clearing Agency. Whenever notice or other
communication to the Investor Certificateholders of any Series represented by
Global Certificates is required under this Agreement, unless and until
Definitive Certificates shall have been issued to Certificate Owners pursuant
to Section 6.14, the Trustee, the Servicer and the Paying Agent shall give all
such notices and communications specified herein to be given to the Investor
Certificateholders of the Series to the Clearing Agency.
SECTION 6.14 Definitive Certificates. If (a)(i) ARC advises the
Trustee in writing that the Clearing Agency is no longer willing or able to
discharge its responsibilities under any Letter of Representations properly,
and (ii) ARC is unable to locate a qualified successor, (b) ARC, at its option,
advises the Trustee in writing that, with respect to any Series, it elects to
terminate the Book-Entry system through the Clearing Agency or (c) after the
occurrence of a Servicer Default, Certificate Owners representing beneficial
interests aggregating not less than 50% of the Invested Amount of the Series
advise the Trustee and the Clearing Agency through the Clearing Agency
Participants in writing that the continuation of a Book-Entry system through
the Clearing Agency is no longer in the best interests of the Certificate
Owners of the Series, the Trustee shall notify the Clearing Agency of the
occurrence of any such event and of the availability of Definitive Certificates
of the Series to Certificate Owners of the Series requesting the same. Upon
surrender to the Trustee of the Investor Certificates of the Series by the
Clearing Agency accompanied by registration instructions from the Clearing
Agency for registration, the Trustee shall authenticate and deliver Definitive
Certificates of the Series. Neither ARC, the Transfer Agent and Registrar nor
the Trustee shall be liable for any delay in delivery of the instructions and
may conclusively rely on, and shall be protected in relying on, the
instructions. Upon the issuance of Definitive Certificates of any Series, all
references herein to obligations with respect to the Series imposed upon or to
be performed by the Clearing Agency shall be deemed to be imposed upon and
performed by the Trustee, to the extent applicable with respect to the
Definitive Certificates and the Trustee shall recognize the Holders of the
Definitive Certificates as Certificateholders hereunder.
SECTION 6.15 Letter of Representations. Notwithstanding anything to
the contrary in this Agreement or any Supplement, the parties hereto shall
comply with the terms of each Letter of Representations.
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ARTICLE VII
ARC
SECTION 7.01 Representations and Warranties of ARC Relating to ARC
and the Transaction Documents. On the date hereof and on each Subsequent
Issuance Date, ARC hereby represents and warrants that:
(a) Organization and Good Standing. ARC is a corporation
duly organized and validly existing and in good standing under the
laws of its jurisdiction of incorporation and has full power and
authority to own its properties and to conduct its business as the
properties presently are owned and the business presently is
conducted. ARC had at all relevant times, and now has, all necessary
power, authority and legal right to acquire, own and transfer the
Receivables and the Related Transferred Assets.
(b) Due Qualification. ARC is duly qualified to do business
and is in good standing as a foreign corporation (or is exempt from
such requirements), and has obtained all necessary licenses and
approvals, in all jurisdictions in which the ownership or lease of
property or the conduct of its business requires qualification,
licenses or approvals and where the failure so to qualify, to obtain
the licenses and approvals or to preserve and maintain the
qualification, licenses or approvals would have a substantial
likelihood of having a Material Adverse Effect.
(c) Power and Authority; Due Authorization. ARC has (i) all
necessary power and authority to (A) execute and deliver this
Agreement and the other Transaction Documents to which it is a party,
(B) perform its obligations under this Agreement and the other
Transaction Documents to which it is a party, and (C) transfer,
assign, set-over and convey its right, title and interest in, to and
under the Receivables, the Related Transferred Assets and the funds in
the Trust Accounts on the terms and subject to the conditions herein
and therein provided and (ii) duly authorized by all necessary action
the transfer, assignment, set-over and conveyance and the execution,
delivery and performance of this Agreement and the other Transaction
Documents to which it is a party and the consummation of the
transactions provided for in this Agreement and the other Transaction
Documents to which it is a party.
(d) Binding Obligations. This Agreement constitutes, and
each other Transaction Document to which ARC is a party when executed
and delivered will constitute, a legal, valid and binding obligation
of ARC, enforceable against it in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of
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creditors' rights generally and by general principles of equity,
regardless of whether enforceability is considered in a proceeding in
equity or at law.
(e) No Conflict or Violation. The execution, delivery and
performance of, and the consummation of the transactions contemplated
by, this Agreement and the other Transaction Documents to be signed by
ARC and the fulfillment of the terms hereof and thereof will not (i)
conflict with, violate, result in any breach of any of the terms and
provisions of, or constitute (with or without notice or lapse of time
or both) a default under, (A) its Certificate of Incorporation or
Bylaws or (B) any indenture, loan agreement, mortgage, deed of trust
or other material agreement or instrument to which ARC is a party or
by which it or any of its properties is bound, (ii) result in the
creation or imposition of any Adverse Claim upon any of its properties
pursuant to the terms of any such contract, indenture, loan agreement,
mortgage, deed of trust, or other agreement or instrument, other than
this Agreement and the other Transaction Documents, or (iii) conflict
with or violate any federal, state, local or foreign law or any
decision, decree, order, rule or regulation applicable to it or any of
its properties of any court or of any federal, state, local or foreign
regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over it or any of its properties,
which conflict, violation, breach, default or Adverse Claim,
individually or in the aggregate, would have a substantial likelihood
of having a Material Adverse Effect.
(f) Litigation and Other Proceedings. (i) There is no
action, suit, proceeding or investigation pending or, to the best
knowledge of ARC, threatened against it before any court, regulatory
body, arbitrator, administrative agency or other tribunal or
governmental instrumentality and (ii) it is not subject to any order,
judgment, decree, injunction, stipulation or consent order of or with
any court or other government authority that, in the case of clauses
(i) and (ii), (A) asserts the invalidity of this Agreement or any
other Transaction Document, (B) seeks to prevent the transfer of any
Receivables or Related Transferred Assets to the Trust, the issuance
of the Certificates or the consummation of any of the transactions
contemplated by this Agreement or any other Transaction Document, (C)
seeks any determination or ruling that would materially and adversely
affect the performance by ARC of its obligations under this Agreement
or any other Transaction Document or the validity or enforceability of
this Agreement or any other Transaction Document, (D) seeks to affect
adversely the income tax attributes of the transfers hereunder or the
Trust under the United States Federal income tax system or any state
income tax system or (E) individually or in the aggregate for all such
actions, suits, proceedings and investigations would have a
substantial likelihood of having a Material Adverse Effect.
(g) Governmental Approvals. All authorizations, consents,
orders and approvals of, or other action by, any Governmental
Authority that are required to be
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obtained by ARC, and all notices to and filings with any Governmental
Authority, (other than, in respect of enforceability against a Federal
Obligor, any consents or filings required by the Assignment of Claims
Act and any consents required by states with respect to any
Receivables arising from State and Local Obligors so long as such
Receivables are not reported as Eligible Receivables) that are
required to be made by it, in the case of each of the foregoing in
connection with the transfer of Receivables and Related Transferred
Assets to the Trust or the execution, delivery and performance by it
of this Agreement and any other Transaction Documents to which it is a
party and the consummation of the transactions contemplated by this
Agreement, have been obtained or made and are in full force and effect
(including the filing of the UCC financing statements referred to in
Section 2.03(a)(ii)(A), all of which, at the time required in Section
2.03(a)(ii)(A), will be duly made), except where the failure to obtain
or make any such authorization, consent, order, approval, notice or
filing, individually or in the aggregate for all such failures, would
not reasonably be expected to have a Material Adverse Effect.
(h) Bulk Sales Acts. No transaction contemplated by this
Agreement or by any other Transaction Document requires compliance
with, or will be subject to avoidance under, any bulk sales act or
similar law.
(i) Offices. ARC's principal place of business and chief
executive office is located at the address set forth under ARC's
signature hereto, and the offices where ARC, the Servicer and the
Seller keep all Records and all Contracts, purchase orders and
agreements related to the Receivables and the Related Transferred
Assets (and all original documents relating thereto) are located at
the addresses specified in Schedule 1 (or at such other locations,
notified to the Servicer and the Trustee in accordance with Section
7.02(c), in jurisdictions where all action required by Section 7.02(c)
has been taken and completed).
(j) Account Banks. The names and addresses of all the
Account Banks are specified in Schedule 2 or, after the Closing Date,
have been provided by the Servicer to the Trustee pursuant to Section
3.03(c), and the account numbers of the Bank Accounts at such Account
Banks have been specified in a letter provided on or prior to the
Closing Date to the Trustee or, after the Closing Date, have been
provided by the Servicer to the Trustee pursuant to Section 3.03(c).
The Account Agreements to which ARC is a party constitute the legal,
valid and binding obligations of the parties thereto enforceable
against such parties in accordance with their respective terms subject
to applicable bankruptcy, reorganization, insolvency, moratorium and
other laws affecting creditors' rights generally and general equitable
principles.
(k) Investment Company Act. ARC is not, and is not
controlled by, an "investment company" registered or required to be
registered under the Investment Company Act of 1940, as amended.
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The representations and warranties set forth in this section shall
survive the transfer and assignment of the Receivables and the other Trust
Assets to the Trust. Upon discovery by ARC, the Servicer or the Trustee of a
breach of any of the foregoing representations and warranties, the party
discovering the breach shall give written notice to the other parties to this
Agreement within three Business Days following the discovery. The Trustee's
obligations in respect of discovering any breach are limited as provided in
Section 11.02(g).
SECTION 7.02 Covenants of ARC. From the Closing Date until the day
following the Liquidation Commencement Date on which the Investor Invested
Amount shall be reduced to zero and all Obligations of ARC and the Servicer to
the Investor Certificateholders that have ever been outstanding shall have been
finally and fully paid and performed, ARC hereby covenants that it will:
(a) Compliance with Laws, Etc. Comply in all material
respects with all applicable laws, rules, regulations, judgments,
decrees and orders (including those relating to the Receivables, the
Related Transferred Assets, the funds in the Trust Accounts and the
related Contracts and any other agreements related thereto), in each
case to the extent the failure to comply, individually or in the
aggregate for all such failures, would have a substantial likelihood
of having a Material Adverse Effect.
(b) Preservation of Corporate Existence. Preserve and
maintain its corporate existence, rights, franchises and privileges in
the jurisdiction of its incorporation, and qualify and remain
qualified in good standing as a foreign corporation in each
jurisdiction where the failure to preserve and maintain such
existence, rights, franchises, privileges and qualifications would
have a substantial likelihood of having a Material Adverse Effect.
(c) Location of Records and Offices. Keep its principal
place of business and chief executive office, and keep (and will cause
the Servicer and the Seller to keep) substantially all Records,
Contracts, purchase orders and other agreements related to the
Receivables and the Related Transferred Assets (and all original
documents relating thereto), at the addresses referred to in Schedule
7.01(i) or, upon not less than 30 days' prior written notice given by
ARC to the Servicer and the Trustee, at such other locations in
jurisdictions where all action required pursuant to Section 3.10 shall
have been taken and completed. ARC will at all times maintain its
chief executive offices within the United States of America, and will
cause the Servicer to maintain at all times each office from which the
Servicer services, collects or administers Receivables and Related
Transferred Assets and the Servicer's chief executive offices within
the United States of America.
(d) Use of Funds. Apply all cash payments made to it
hereunder to make payments in the order of priority set out in Section
3.3 of the Purchase Agreement.
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(e) Reporting Requirements of ARC. Unless the Trustee and
the Required Investors shall otherwise consent in writing, furnish to
the Trustee, the Investor Certificateholders and the Applicable Rating
Agencies:
(i) Liquidation Events. As soon as possible, and in
any event within five Business Days after an Authorized
Officer of ARC has obtained knowledge of the occurrence of any
Liquidation Event or any Unmatured Liquidation Event, a
written statement of an Authorized Officer of ARC describing
the event and the action that ARC proposes to take with
respect thereto, in each case in reasonable detail,
(ii) Material Adverse Effect. As soon as possible
and in any event within five Business Days after an Authorized
Officer of ARC has knowledge thereof, written notice that
describes in reasonable detail any Adverse Claim against the
Trust Assets or any other event or occurrence that,
individually or in the aggregate for all such events or
occurrences, has had, or would have a substantial likelihood
of having, in the reasonable, good faith judgment of ARC, a
Material Adverse Effect,
(iii) Proceedings. As soon as possible and in any
event within five Business Days after an Authorized Officer of
ARC has knowledge thereof, written notice of (A) any
litigation, investigation or proceeding of the type described
in Section 7.01(f) not previously disclosed to the Trustee and
(B) any material adverse development that has occurred with
respect to any such previously disclosed litigation,
investigation or proceeding, and
(iv) Other. Promptly, from time to time, any other
information, documents, records or reports respecting the
Receivables or the Related Transferred Assets or any other
information respecting the condition or operations, financial
or otherwise, of ARC, in each case as the Trustee may from
time to time reasonably request in order to protect the
interests of the Trustee, the Trust or the Investor
Certificateholders under or as contemplated by this Agreement.
(f) Adverse Claims Except for any conveyances under the
Transaction Documents, not permit to exist any Adverse Claim (other
than Permitted Adverse Claims) to or in favor of any Person upon or
with respect to, or cause to be filed any financing statement or
equivalent document relating to perfection that covers, any
Receivable, related Contract, Related Transferred Asset or other Trust
Asset, or any interest therein. ARC shall defend the right, title and
interest of the Trust in, to and under the Trust Assets, whether now
existing or hereafter created, against all claims of third parties
claiming through or under ARC.
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In the event that ARC fails to keep any Trust Assets free and
clear of any Adverse Claim (other than Permitted Adverse Claims,
Adverse Claims arising hereunder and other Adverse Claims permitted by
any other Transaction Document), the Trustee may (without limiting its
other rights with respect to ARC's breach of its obligations
hereunder) make reasonable expenditures necessary to release the
Adverse Claim. The Trustee shall be entitled to indemnification for
the expenditures pursuant to Section 7.03. Alternatively, the Trustee
may deduct the expenditures as an offset to any amounts owed to ARC
hereunder.
(g) Extension or Amendment of Receivables; Change in Credit
and Collection Policy or Contracts. Not (i) extend, amend or
otherwise modify the terms of any Receivable or Contract (except as
permitted by the Credit and Collection Policy) in a manner that would
have a material adverse effect on the Investor Certificateholders or
the Purchasers, or (ii) permit the Seller to make any change in the
Credit and Collection Policy that would have a material adverse effect
on the Investor Certificateholders or the Purchasers; provided,
however, that ARC or the Servicer, as applicable, may change the terms
and provisions of the Credit and Collection Policy if (A) with respect
to any material change of collection policies, the change is made with
the prior written approval of each Purchaser Agent and the Rating
Agency Condition is satisfied with respect thereto, (B) with respect
to any material change of collection procedures, the change is made
with prior written notice to each Purchaser Agent and no material
adverse effect on any Series or Purchased Interest would result, and
(C) with respect to any material change in accounting policies
relating to Receivables that become Charged-Off Receivables, the
change is made in accordance with GAAP.
(h) Mergers, Acquisitions, Sales, Etc. Not:
(i)(A) be a party to any merger or consolidation, or
directly or indirectly purchase or otherwise acquire all or
substantially all of the assets or any stock of any class of,
or any partnership or joint venture interest in, any other
Person, or (B) except pursuant to the Transaction Documents,
directly or indirectly, sell, transfer, assign, convey or
lease, whether in one transaction or in a series of
transactions, all or substantially all of its assets, or sell
or assign with or without recourse any Receivables or Related
Transferred Assets (other than pursuant hereto) unless:
(x)(1) the corporation formed by the
consolidation or into which ARC is merged or the
Person that acquires by conveyance or transfer the
properties and assets of ARC substantially as an
entirety shall be, if ARC is not the surviving
entity, organized and existing under the laws of the
United States of America or any state thereof or the
District of Columbia, and shall expressly assume, by
an agreement
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supplemental hereto, executed and delivered to the
Trustee, in form satisfactory to the Trustee and each
Purchaser Agent, the performance of every covenant
and obligation of ARC hereunder, including its
obligations under Section 7.03, under each Supplement
and under each PI Agreement, and (2) ARC has
delivered to the Trustee an Officer's Certificate and
an Opinion of Counsel each stating that the
consolidation, merger, conveyance or transfer and the
supplemental agreement comply with this section, that
the supplemental agreement is a valid and binding
obligation of the surviving entity enforceable
against it in accordance with its terms, except as
such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting creditors' rights
generally from time to time in effect and except as
such enforceability may be limited by general
principles of equity (whether considered in a suit at
law or in equity), and that all conditions precedent
herein provided for relating to the transaction have
been complied with,
(y) the Rating Agency Condition shall have
been satisfied with respect to the consolidation,
merger, conveyance or transfer, and
(z) ARC shall have delivered to the Trustee,
the Rating Agency and each Enhancement Provider a Tax
Opinion, dated the date of the consolidation, merger,
conveyance or transfer, with respect thereto, or
(ii) except as contemplated in the Purchase
Agreement in connection with ARC's purchases of Receivables
and Related Assets from the Seller, (A) make, incur or suffer
to exist an investment in, equity contribution to, or payment
obligation in respect of the deferred purchase price of
property or services from, any Person, or (B) make any loan or
advance to any Person other than for reasonable and customary
operating expenses; provided, however, that so long as
AmeriSource Distribution Corporation's (the parent of
AmeriSource) 11 1/4% Senior Debentures due 2005 or
AmeriSource's 14 1/2% Senior Debentures and Senior Debentures,
Series A due 1999 remain outstanding, this clause will not
prohibit the making of any loan to AmeriSource.
(i) Change in Name. Not change its corporate name or the
name under or by which it does business, or permit either Seller to
change its corporate name or the name under or by which it does
business, unless ARC shall have given the Servicer and the Trustee 30
days' prior written notice thereof and unless, prior to the change in
name, ARC shall have filed (or shall have caused to be filed) any
financing statements or amendments as the Servicer or the Trustee
determines may be necessary
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to continue the perfection of the Trust's interest in the Receivables,
the Related Transferred Assets and the proceeds thereof.
(j) Amendment of Certificate of Incorporation; Change in
Business. Not amend Article 3,6,7,8 or 9 of its Certificate of
Incorporation, or engage in any business other than as contemplated by
the Transaction Documents, unless the Rating Agency Condition has been
satisfied in connection with the amendment or change in ARC's
business.
(k) Amendments to Purchase Agreement. Except as expressly
provided otherwise in this Agreement, make no amendment to the
Purchase Agreement that would adversely affect in any material respect
the interests of the Investor Certificateholders, the Purchasers or
any Enhancement Provider.
(l) Enforcement of Purchase Agreement. Perform all its
obligations under and otherwise comply with the Purchase Agreement
and, if requested by the Trustee, will enforce, for the benefit of the
Trust, the covenants and agreements of the Seller in the Purchase
Agreement.
(m) Other Indebtedness. Not (i) create, incur or permit to
exist any Indebtedness, Guaranty or liability or (ii) cause or permit
to be issued for its account any letters of credit or bankers'
acceptances, except for (A) Indebtedness incurred pursuant to the ARC
Notes, (B) other liabilities specifically permitted to be created,
incurred or owed by ARC pursuant to or in connection with the
Transaction Documents and (C) liabilities for reasonable and customary
operating expenses in an aggregate amount not to exceed $50,000 per
Calculation Period.
(n) Separate Corporate Existence. Hereby acknowledge that
the Trustee and the Investor Certificateholders are, and will be,
entering into the transactions contemplated by the Transaction
Documents in reliance upon ARC's identity as a legal entity separate
from the Seller, the Servicer and any other Person. Therefore, from
and after the Closing Date, ARC shall take all reasonable steps to
continue its identity as a separate legal entity and to make it
apparent to third Persons that ARC is an entity with assets and
liabilities distinct from those of the Servicer, the Seller and any
other Person, and that ARC is not a division of the Servicer, the
Seller or any other Person. Without limiting the generality of the
foregoing, ARC shall take such actions as shall be required in order
that:
(i) ARC will be a limited purpose corporation whose
primary activities will be substantially restricted in its
Certificate of Incorporation to purchasing or accepting
contributions of Receivables and Related Assets from the
Seller, entering into agreements for the servicing of the
Receivables and Related Assets, granting a security interest
in the Receivables and Related Transferred
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Assets to the Trustee and conducting any other activities that
it deems necessary or appropriate to carry out its primary
activities.
(ii) Not less than one member of ARC's Board of
Directors (the "Independent Director") will be an individual
who is not (and is not an Associate of) a direct, indirect or
beneficial ten percent stockholder, officer, director,
employee, affiliate, associate, or "major customer or
supplier" (as the term is defined in ARC's certificate of
incorporation) of any AmeriSource Person. ARC's Board of
Directors will not approve, or take any other action to cause
the filing of, a voluntary bankruptcy petition with respect to
ARC unless the Independent Director and all other members of
ARC's Board of Directors unanimously approve the taking of
such action in writing prior to the taking of such action.
(iii) ARC will restrict its Independent Director
from at any time serving as a trustee in bankruptcy for any
AmeriSource Person.
(iv) ARC will compensate each of its employees,
consultants and agents from its own funds for services
provided to ARC, except as provided herein in respect of the
Servicing Fee. ARC will engage no agents other than a
Servicer for the Receivables, which Servicer will be fully
compensated for its services to ARC by payment of the
Servicing Fee, the other agents expressly provided for in
Article VI of this Pooling Agreement whose compensation will
be paid as part of the Servicing Fee, placement agents for the
placement of Certificates and accountants and attorneys who,
except to the extent provided otherwise in clause (v), will be
compensated by ARC for their fees and other charges as agreed
to by ARC and such placement agents, accountants or attorneys
(as applicable).
(v) ARC will contract with the Servicer to perform
for ARC all operations required on a daily basis to service
the Receivables. ARC will pay the Servicer a fee as described
herein. ARC will not incur any material indirect or overhead
expenses for items shared between ARC and any AmeriSource
Person that are not reflected in the Servicing Fee, other than
shared items of expenses not reflected in the Servicing Fee,
such as legal, auditing and other professional services, that
will be allocated to the extent practical on the basis of
actual use or the value of services rendered, and otherwise on
a basis reasonably related to the actual use or the value of
services rendered, it being understood that AmeriSource will
pay all expenses owing by ARC or any AmeriSource Person
relating to the preparation, negotiation, execution and
delivery of the Transaction Documents, including, without
limitation, legal, commitment, agency and other fees.
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(vi) ARC's operating expenses or liabilities will
not be paid by any AmeriSource Person, recognizing that
certain organizational expenses of ARC and expenses of ARC
relating to creation and initial implementation of the
Program, however, have been or shall be paid by AmeriSource.
(vii) ARC will conduct its business at an office
segregated from the offices of each AmeriSource Person, which
office of ARC may consist of office space shared with an
AmeriSource Person, a portion of which is allocated solely to
ARC.
(viii) ARC will maintain corporate records and books
of account separate from those of every AmeriSource Person and
telephone numbers, mailing addresses, stationery and other
business forms that are separate and distinct from those of
every AmeriSource Person.
(ix) Any annual financial statements of any
AmeriSource Person that are provided to non-AmeriSource
Persons (other than representatives or advisors of AmeriSource
Persons) and which are consolidated to include ARC will
contain footnotes stating that AmeriSource has entered into a
sale of its accounts receivable to ARC (a separate corporate
entity) and will summarize the terms of the transaction.
(x) ARC's assets will be maintained in a manner
that facilitates their identification and segregation from
those of any AmeriSource Person.
(xi) ARC will strictly observe corporate formalities
in its dealings with each AmeriSource Person, and funds or
other assets of ARC will not be commingled with those of any
AmeriSource Person. ARC shall not maintain joint bank
accounts or other depository accounts to which any AmeriSource
Person (other than AmeriSource in its capacity as Servicer)
has independent access.
(xii) ARC shall not, directly or indirectly, be
named and shall not enter into an agreement to be named as a
direct or contingent beneficiary or loss payee on any
insurance policy with respect to any loss relating to the
property of an AmeriSource Person.
(xiii) Any transaction between ARC and an
AmeriSource Person will be fair and equitable to ARC, will be
the type of transaction which would be entered into by a
prudent Person in the position of ARC with an AmeriSource
Person, and will be on terms that are at least as favorable as
may be obtained from a Person that is not an AmeriSource
Person (it being understood and
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agreed that the transactions contemplated in the Transaction
Documents meet the requirements of this clause).
(xiv) Any AmeriSource Person that renders or
otherwise furnishes services to ARC will be compensated by ARC
at market rates for such services (it being understood and
agreed that the transactions contemplated in the Transaction
Documents meet the requirements of this clause).
(xv) Neither ARC nor any AmeriSource Person will be
or will hold itself out to be responsible for the debts of the
other.
(xvi) The duly elected Board of Directors of ARC and
ARC's duly appointed officers shall at all times have sole
authority to control decisions and actions with respect to the
daily business affairs of ARC.
(o) Net Worth. Not permit its net worth (as calculated in
accordance with GAAP) at any time to be less than 7.2% of the
aggregate Unpaid Balance of the Receivables at such time.
(p) Taxes. File or cause to be filed, and cause each Person
with whom it shares consolidated tax liability to file, all Federal,
state and local tax returns that are required to be filed by it,
except where the failure to file such returns could not reasonably be
expected to have an adverse effect, and pay or cause to be paid all
taxes shown to be due and payable on such returns or on any
assessments received by it, other than any taxes or assessments, the
validity of which are being contested in good faith by appropriate
proceedings and with respect to which ARC shall have set aside
adequate reserves on its books in accordance with GAAP and which
proceedings could not reasonably be expected to have a Material
Adverse Effect.
The covenants set forth in this section shall survive the transfer and
assignment of the Receivables and the other Trust Assets to the Trust. Upon
discovery by ARC, the Servicer or the Trustee of a breach of any of the
foregoing covenants, the party discovering the breach shall give written notice
to the other parties to this Agreement within three Business Days following
such discovery. The Trustee's obligations in respect of discovering any breach
are limited as provided in Section 11.02(g).
SECTION 7.03 Indemnification by ARC. (a) Without limiting any other
rights that any Indemnified Party may have hereunder or under applicable law,
ARC hereby agrees to indemnify the Trust, the Trustee, each Investor
Certificateholder and each of the successors, permitted transferees and assigns
of any such Person and all officers, directors, shareholders, controlling
Persons, employees and agents of any of the foregoing (each of the foregoing
Persons individually being called an "Indemnified Party"), forthwith on demand,
from and against any and all damages, losses, claims (whether on account of
settlements or otherwise,
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and whether or not the relevant Indemnified Party is a party to any action or
proceeding that gives rise to any Indemnified Losses (as defined below)),
judgments, liabilities and related reasonable costs and expenses (including
reasonable attorneys' fees and disbursements) (all of the foregoing
collectively being called "Indemnified Losses") awarded against or incurred by
any of them that arise out of or relate to this Agreement, any other
Transaction Document or any of the transactions contemplated herein or therein
or the use of proceeds herefrom or therefrom (including without limitation any
Indemnified Losses (i) relating to any Adverse Claim, without regard to whether
such Adverse Claim was a Permitted Adverse Claim or (ii) arising from any
failure to make any filing or obtain any consent as required by the Assignment
of Claims Act with respect to any Receivable). Payments to be made pursuant to
this section shall be paid to the extent that funds are available to make the
payments after all amounts to be paid to the Certificateholders pursuant to
Section 4.03(g) or (h) (as applicable) shall have been paid, and there shall be
no recourse to ARC for all or any part of any amounts payable pursuant to this
section if the funds are at any time insufficient to make all or part of any
such payments.
Notwithstanding the foregoing (and with respect to clause (ii) below,
without prejudice to the rights that the Trustee may have pursuant to the other
provisions of this Agreement or the provisions of any of the other Transaction
Documents), in no event shall any Indemnified Party be indemnified for any
Indemnified Losses (i) resulting from gross negligence or willful misconduct on
the part of such Indemnified Party (or the gross negligence or willful
misconduct on the part of any of its officers, directors, employees or agents),
(ii) to the extent they include Indemnified Losses in respect of Receivables
and reimbursement therefor that would constitute credit recourse to ARC for the
amount of any Receivable or Related Transferred Asset not paid by the related
Obligor, (iii) to the extent they are or result from lost profits, (iv) to the
extent they are or result from taxes (including interest and penalties thereon)
asserted with respect to (A) distributions on the Investor Certificates, (B)
franchise or withholding taxes imposed on any Indemnified Party other than the
Trust or the Trustee in its capacity as Trustee, or (C) federal or other income
taxes on or measured by the net income of such Indemnified Party and costs and
expenses in defending against the same, or (v) to the extent they constitute
consequential, special or punitive damages.
If for any reason the indemnification provided in this section is
unavailable to an Indemnified Party or is insufficient to hold an Indemnified
Party harmless, then ARC shall contribute to the amount paid by the Indemnified
Party as a result of any loss, claim, damage or liability in such proportion as
is appropriate to reflect not only the relative benefits received by the
Indemnified Party on the one hand and ARC on the other hand, but also the
relative fault (if any) of the Indemnified Party and ARC and any other relevant
equitable considerations.
(b) Notwithstanding anything to the contrary herein, ARC shall be
liable to all creditors of the Trust (but not to Holders of Investor
Certificates) for all liabilities of the
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Trust to the same extent as it would be if the Trust constituted a partnership
under Delaware law and ARC were a general partner thereof. Notwithstanding
anything to the contrary herein, any such creditor shall be a third party
beneficiary of this subsection.
ARTICLE VIII
THE SERVICER
SECTION 8.01 Representations and Warranties of the Servicer. On the
date hereof and on each Subsequent Issuance Date, the Servicer hereby makes,
and any Successor Servicer also shall be deemed to make by its acceptance of
its appointment hereunder, the following representations and warranties for the
benefit of the Trustee and the Certificateholders:
(a) Organization and Good Standing. The Servicer is a
corporation duly organized and validly existing and in good standing
under the laws of its jurisdiction of incorporation and has full power
and authority to own its properties and to conduct its business as the
properties presently are owned and as the business presently is
conducted.
(b) Due Qualification. The Servicer is duly qualified to do
business and is in good standing as a foreign corporation (or is
exempt from such requirements), and has obtained all necessary
licenses and approvals, in all jurisdictions in which the servicing of
the Receivables and the Related Transferred Assets as required by this
Agreement requires qualification, licenses or approvals and where the
failure so to qualify, to obtain the licenses and approvals or to
preserve and maintain the qualification, licenses or approvals would
have a substantial likelihood of having a material adverse effect on
its ability to perform its obligations as Servicer under this
Agreement or a Material Adverse Effect.
(c) Power and Authority; Due Authorization. The Servicer has
(i) all necessary power and authority to (A) execute and deliver this
Agreement and the other Transaction Documents to which it is a party,
and (B) perform its obligations under this Agreement and the other
Transaction Documents to which it is a party, and (ii) duly authorized
by all necessary action the execution, delivery and performance of
this Agreement and the other Transaction Documents to which it is a
party and the consummation of the transactions provided for in this
Agreement and the other Transaction Documents to which it is a party.
(d) Binding Obligations. This Agreement constitutes, and
each other Transaction Document to which the Servicer is a party when
executed and delivered will constitute, a legal, valid and binding
obligation of the Servicer, enforceable
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against it in accordance with its terms, except as enforceability may
be limited by bankruptcy, insolvency, reorganization or other similar
laws affecting the enforcement of creditors' rights generally and by
general principles of equity, regardless of whether enforceability is
considered in a proceeding in equity or at law.
(e) No Conflict or Violation. The execution and delivery by
the Servicer of this Agreement and the other Transaction Documents to
which it is a party, the performance by it of its obligations
hereunder and thereunder and the fulfillment by it of the terms hereof
and thereof that are applicable to it will not (i) conflict with,
violate, result in any breach of any of the terms and provisions of,
or constitute (with or without notice or lapse of time or both) a
default under, (A) its Certificate of Incorporation or Bylaws or (B)
any indenture, loan agreement, mortgage, deed of trust, or other
material agreement or instrument to which it is a party or by which it
or any of its properties is bound or (ii) conflict with or violate any
federal, state, local or foreign law or any decision, decree, order,
rule or regulation applicable to it or any of its properties of any
court or of any federal, state, local or foreign regulatory body,
administrative agency or other governmental instrumentality having
jurisdiction over it or any of its properties, which conflict,
violation, breach or default described, individually or in the
aggregate, would have a substantial likelihood of having a Material
Adverse Effect.
(f) Governmental Approvals. All authorizations, consents,
orders and approvals of, or other action by, any Governmental
Authority that are required to be obtained by the Servicer, and all
notices to and filings with any Governmental Authority that are
required to be made by it, in the case of each of the foregoing in
connection with the execution, delivery and performance by it of this
Agreement and any other Transaction Documents to which it is a party
and the consummation of the transactions contemplated by this
Agreement, have been obtained or made and are in full force and effect
(other than the filing of the UCC financing statements referred to in
Section 2.03(a)(ii)(A), all of which, at the time required in Section
2.03(a)(ii)(A), will be duly made), except where the failure to obtain
or make such authorization, consent, order, approval, notice or
filing, individually or in the aggregate for all such failures, would
not reasonably be expected to have a Material Adverse Effect.
(g) Litigation and Other Proceedings. (i) There is no
action, suit, proceeding or investigation pending or, to the best
knowledge of the Servicer, threatened against it before any court,
regulatory body, arbitrator, administrative agency or other tribunal
or governmental instrumentality and (ii) it is not subject to any
order, judgment, decree, injunction, stipulation or consent order of
or with any court or other government authority that, in the case of
clauses (i) and (ii), (A) seeks to affect adversely the income tax
attributes of the transfers hereunder or the Trust under the United
States federal income tax system or any state income tax system or (B)
individually or in the aggregate for all such actions, suits,
proceedings and
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investigations would have a substantial likelihood of having a
Material Adverse Effect.
The representations and warranties set forth in this section shall
survive the transfer and assignment of the Receivables and the other Trust
Assets to the Trust. Upon discovery by ARC, the Servicer or the Trustee of a
breach of any of the foregoing representations and warranties, the party
discovering the breach shall give written notice to the other parties to this
Agreement within three Business Days following the discovery. The Trustee's
obligations in respect of discovering any breach are limited as provided in
Section 11.02(g).
SECTION 8.02 Covenants of the Servicer. From the Closing Date until
the day following the Liquidation Commencement Date on which the Investor
Invested Amount shall be reduced to zero and all Obligations of ARC and the
Servicer to the Investor Certificateholders that have ever been outstanding
shall have been finally and fully paid and performed, the Servicer hereby
covenants and agrees, and any Successor Servicer by its acceptance of its
appointment hereunder shall be deemed to covenant and agree, as follows for the
benefit of the Trust and the Certificateholders:
(a) Compliance with Laws, Etc. The Servicer shall maintain
in effect all qualifications required under applicable law in order to
service properly the Receivables and shall comply in all material
respects with all applicable laws, rules, regulations, judgments,
decrees and orders, in each case to the extent the failure to comply,
individually or in the aggregate for all such failures, would have a
substantial likelihood of having a Material Adverse Effect.
(b) Preservation of Corporate Existence. The Servicer shall
preserve and maintain its corporate existence, rights, franchises and
privileges in the jurisdiction of its incorporation, and qualify and
remain qualified in good standing as a foreign corporation in each
jurisdiction where the failure to preserve and maintain such
existence, rights, franchises, privileges and qualification would have
a substantial likelihood of having a Material Adverse Effect.
(c) Compliance with Transaction Documents. The Servicer will
comply with the terms and provisions of each of the Transaction
Documents to which it is a party.
The covenants set forth in this section shall survive the transfer and
assignment of the Trust Assets to the Trust. Upon discovery by ARC, the
Servicer or the Trustee of a breach of any of the foregoing covenants, the
party discovering the breach shall give written notice to the other parties to
this Agreement within three Business Days following the discovery. The
Trustee's obligations in respect of discovering any breach are limited as
provided in Section 11.02(g).
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SECTION 8.03 Merger or Consolidation of, or Assumption of the
Obligations of, the Servicer. The Servicer shall not consolidate with or merge
into any other Person or convey, transfer or sell all or substantially all of
its properties and assets to any Person, unless:
(a)(i) the Servicer is the surviving entity or, if it is not
the surviving entity, the Person formed by the consolidation or into
which the Servicer is merged or the Person that acquires by
conveyance, transfer or sale all or substantially all of the
properties and assets of the Servicer shall be a corporation organized
and existing under the laws of the United States of America or any
State thereof or the District of Columbia and such corporation shall
expressly assume, by an agreement supplemental hereto, executed and
delivered to the Trustee and in form and substance satisfactory to the
Trustee, the performance of every covenant and obligation of the
Servicer hereunder and under the other Transaction Documents to which
the Servicer is a party, and (ii) the Servicer shall have delivered to
the Trustee an Officer's Certificate and an Opinion of Counsel for the
Servicer each stating that the consolidation, merger, conveyance,
transfer or sale and the supplemental agreement comply with this
subsection, that the supplemental agreement is a valid and binding
obligation of the surviving entity enforceable against it in
accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights generally
and by general principles of equity, and that all conditions precedent
in clause (i) that relate to the transaction have been complied with,
and
(b) the Trustee shall have received an Officer's Certificate
of the Servicer to the effect that the conditions set forth in
subsection (a) have been satisfied.
SECTION 8.04 Indemnification by the Servicer. Without limiting any
other rights that any Indemnified Party may have hereunder or under applicable
law, the Servicer hereby agrees to indemnify the Trust, the Trustee, and the
other Indemnified Parties forthwith on demand, from and against any and all
Indemnified Losses awarded against or incurred by any of them that arise out of
or relate to the Servicer's performance of, or failure to perform, any of its
obligations under or in connection with any Transaction Document.
Notwithstanding the foregoing (and with respect to subsection (b)
below, without prejudice to the rights that such Indemnified Party may have
pursuant to the other provisions of this Agreement or the provisions of any of
the other Transaction Documents), in no event shall any Indemnified Party be
indemnified against any Indemnified Losses (a) resulting from gross negligence
or willful misconduct on the part of such Indemnified Party (or the gross
negligence or willful misconduct on the part of any of its officers, directors,
employees or agents), (b) to the extent they include Indemnified Losses in
respect of Receivables and reimbursement therefore that would constitute credit
recourse to the Servicer for the amount of any Receivable or Related
Transferred Asset not paid by the related Obligor, (c) to the extent they are
or result from lost profits, (d) to the extent they are or result from taxes
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(including interest and penalties thereon) asserted with respect to (i)
distributions on the Investor Certificates, (ii) franchise or withholding taxes
imposed on any Indemnified Party other than the Trust or the Trustee in its
capacity as Trustee or (iii) federal or other income taxes on or measured by
the net income of the Indemnified Party and costs and expenses in defending
against the same, or (e) to the extent that they constitute consequential,
special or punitive damages.
If for any reason the indemnification provided in this section is
unavailable to an Indemnified Party or is insufficient to hold it harmless,
then the Servicer shall contribute to the amount paid by the Indemnified Party
as a result of any loss, claim, damage or liability in such proportion as is
appropriate to reflect not only the relative benefits received by the
Indemnified Party on the one hand and the Servicer on the other hand, but also
the relative fault of the Indemnified Party (if any) and the Servicer and any
other relevant equitable consideration.
SECTION 8.05 Servicer Liability. The Servicer shall be liable in
accordance with this Agreement only to the extent of the obligations
specifically undertaken by the Servicer in such capacity herein and as set
forth herein.
SECTION 8.06 Limitation on Liability of the Servicer and Others. No
recourse under or upon any obligation or covenant of this Agreement, any
Supplement, any Certificate or any other Transaction Document, or for any claim
based thereon or otherwise in respect thereof, shall be had against any
incorporator, shareholder, officer or director, as such, past, present or
future, of the Servicer or of any successor corporation, either directly or
through the Servicer, whether by virtue of any constitution, statute or rule of
law, or by the enforcement of any assessment or penalty or otherwise; it being
expressly understood that this Agreement, any Supplement, all other relevant
Transaction Documents and the obligations incurred hereunder or thereunder are
solely corporate obligations, and that no such personal liability whatsoever
shall attach to, or is or shall be incurred by the incorporators, shareholders,
officers or directors, as such, of the Servicer or of any successor
corporation, or any of them, by reason of the obligations, covenants or
agreements contained in this Agreement, any Supplement, any of the Certificates
or any other Transaction Documents, or implied therefrom; and that any and all
such personal liability of, either at common law or in equity or by
constitution or statute, and any and all such rights and claims against, every
such incorporator, shareholder, officer or director, as such, because of the
creation of the indebtedness hereby authorized, or under or by reason of the
obligations or covenants contained in this Agreement, any Supplement, any of
the Certificates or any other Transaction Documents, or implied therefrom, are
hereby expressly waived and released as a condition of, and as a consideration
for, the execution of this Agreement and any Supplement. The Servicer and any
director, officer, employee or agent of the Servicer may rely in good faith on
any document of any kind prima facie properly executed and submitted by any
Person respecting any matters arising hereunder. The Servicer shall not be
under any obligation to appear in, prosecute or defend any legal action that is
not incidental to its duties
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to service the Receivables in accordance with this Agreement or any Supplement
that in its reasonable opinion may involve it in any expense or liability. The
Servicer may, in its sole discretion, undertake any legal action relating to
the servicing, collection or administration of Receivables and Related
Transferred Assets that it may reasonably deem necessary or appropriate for the
benefit of the Certificateholders with respect to this Agreement and the rights
and duties of the parties hereto and the interests of the Certificateholders
hereunder.
ARTICLE IX
LIQUIDATION EVENTS
SECTION 9.01 Liquidation Events. Any of the following events shall
constitute a "Liquidation Event":
(a)(i) failure on the part of ARC or the Servicer to make any
payment of the principal amount of or any interest on any Investor
Certificate or Purchased Interest or deposit required by the terms of
any Transaction Document on or before five Business Days after the
date the payment or deposit is required to be made herein, or to make
any other payment required by the terms of any Transaction Document on
or before fifteen Business Days after the date such payment is
required to be made, (ii) failure on the part of the Seller to duly
observe or perform Section 6.1(h), 6.3(a) or (c) of the Purchase
Agreement or ARC to duly observe or perform Section 7.02(d), (f) or
(g) or clause (i) or (ii) of Section 7.02(e) of this Agreement, which
failure has a material adverse effect on the Investor
Certificateholders of any Series or any Purchased Interest and
continues unremedied for a period of five Business Days after the date
on which written notice of such failure, requiring same to be
remedied, shall have been given to ARC by the Trustee or to ARC and
the Trustee by any Investor Certificateholder or Purchaser, (iii)
failure on the part of ARC to duly observe or perform Section 7.02(o),
which failure continues for a period of thirty days, or (iv) failure
on the part of ARC to duly observe or perform any other covenant or
agreement set forth in any Transaction Document, which failure has a
material adverse effect on the Investor Certificateholders of any
Series or any Purchased Interest and continues unremedied for a period
of 30 days after the date on which written notice of the failure,
requiring the same to be remedied, shall have been given to ARC by the
Trustee or to ARC and the Trustee by any Investor Certificateholder or
Purchaser,
(b) any representation or warranty made by a Seller in
Section 5.1(d) or clause (i), (ii) or (iii) of Section 5.1(k) of the
Purchase Agreement or by ARC in Section 2.03(a)(i), (a)(ii)(A),
(a)(ii)(B) or (a)(ii)(C) of this Agreement shall prove to have been
incorrect in any material respect when made, and continues to be
incorrect in any material respect for a period of five Business Days
after the date on which
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written notice of the breach, requiring the same to be remedied, shall
have been given to ARC by the Trustee or to ARC and the Trustee by any
Investor Certificateholder or Purchaser, or any other representation
or warranty made by a Seller in any Transaction Document or by ARC in
any Transaction Document shall prove to have been incorrect in any
material respect when made, and continues to be incorrect in any
material respect for a period of 30 days after the date on which
written notice of the breach, requiring the same to be remedied, shall
have been given to ARC by the Trustee, or to ARC and the Trustee by
any Investor Certificateholder or Purchaser; provided, however, that a
mistake in representation of a Receivable as an Eligible Receivable
shall not constitute a Liquidation Event unless and until a Seller has
failed to make the cash payments (if any) owed under the Purchase
Agreement in respect of the Noncomplying Receivables and Dilution
Adjustment arising from the misrepresentation (it being understood
that certain of such mistakes may result in a non-cash adjustment
under the Purchase Agreement),
(c) an Event of Bankruptcy shall occur with respect to ARC,
the Servicer or the Seller or ARC shall become unable for any reason,
other than the commencement or continuation of a Look Back Period, to
transfer Receivables or Related Transferred Assets to the Trust in
accordance with the provisions of this Agreement; provided, however,
that if, at the time prior to the Liquidation Commencement Date, an
Event of Bankruptcy occurs as a result of a bankruptcy proceeding
being filed against ARC or the Seller, then, on and after the day on
which the bankruptcy proceeding is filed until the earlier to occur of
the dismissal of the proceeding and the Liquidation Commencement Date,
ARC shall not purchase Receivables and the Related Purchased Assets
from the Seller or transfer Receivables and Related Transferred Assets
to the Trust,
(d) the Trust shall become an "investment company" within the
meaning of the Investment Company Act of 1940, as amended,
(e)(i) the amount equal to the difference between (A) the sum
of the Certificate Calculation Amount plus the PI Calculation Amount,
and (B) the amount of funds then on deposit in the Equalization
Account exceeds (ii) the Base Amount, for a period of five or more
consecutive Business Days,
(f) the occurrence and continuance of a Servicer Default,
(g) AmeriSource shall cease to own 100% of the issued and
outstanding capital stock of ARC,
(h) the Internal Revenue Service or the PBGC shall file
notice of one or more Involuntary Adverse Claims that relate to claims
in an aggregate amount exceeding $2,000,000; provided, that if, within
five Business Days after an Authorized officer of
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ARC obtains actual knowledge of the filing of one or more Involuntary
Adverse Claims in an aggregate amount exceeding $2,000,000,
AmeriSource has provided to ARC, and ARC has provided to the Trustee,
one or more Acceptable Guarantee Instruments that has/have a term of
not less than 60 days and that is/are in an aggregate amount equal to
the lesser of (i) the aggregate amount of such Involuntary Adverse
Claim(s) and (ii) the aggregate Unpaid Balance of the Receivable or
Receivables encumbered by such Involuntary Adverse Claim(s), then the
filing of such Involuntary Adverse Claim(s) shall not constitute a
Liquidation Event under this subsection unless, at the expiration of a
period of 60 days after the date on which the Involuntary Adverse
Claim(s) was/were filed, the Involuntary Adverse Claim(s) still
encumber(s) the Trust Assets; and provided further, that under no
circumstances may the aggregate amount of Involuntary Adverse Claims
for which Acceptable Guarantee Instruments are provided pursuant to
the preceding proviso exceed $10,000,000 at any one time outstanding,
(i) the Trustee shall have received a Stop Date Notice,
(j) any foreclosure or similar proceedings in respect of any
security interests in the ARC Note or the stock of ARC shall have been
commenced, AmeriSource shall cease to have title to any such item, any
remedies under or in connection with the Seller Credit Agreement shall
have been exercised with respect to any such item, or AmeriSource
shall take any corporate action acquiescing to any of the foregoing,
it being understood that the grant of a security interest in the stock
of ARC or the ARC Note to a creditor of AmeriSource that is party to
an Intercreditor Agreement shall not be a Liquidation Event,
(k) the cessation of, or the failure to create, a valid
first-priority perfected ownership or security interest in favor of
the Trustee in the Receivables and the rights of ARC under the
Purchase Agreement, or
(l) the Intercreditor Agreement shall cease to be effective
at any time when the Seller's inventory shall be subject to Adverse
Claims in favor of the Seller Agent.
Upon the occurrence and continuance of any event described in subsection (c),
(d), (i) or (j), the Liquidation Commencement Date shall occur without any
notice or other action on the part of the Trustee, any Purchaser or the
Investor Certificateholders, immediately upon the occurrence of such
Liquidation Event. The Trustee shall give the Applicable Rating Agencies
notice of any such event; provided, however, that failure to give any such
notice will not result in any delay of the Liquidation Commencement Date. On
the tenth day after ARC receives notice or otherwise becomes aware of the
occurrence and continuance of any event described in subsection (a), (e), (h),
or (k) the Liquidation Commencement Date shall occur without any notice or
other action on the part of the Trustee, any Purchaser or the Investor
Certificateholders, unless waived by the Majority Investors or otherwise cured
prior
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to such tenth day. Upon the occurrence and continuance of any event described
in any subsection above (including subsection (a), (c), (d), (e), (h), (k), (i)
or (j)), after the applicable grace period, if any, set forth in such
subsection, the Trustee may (and, at the direction of the Majority Investors,
shall) by notice then given in writing to ARC, the Applicable Rating Agencies,
and the Servicer, declare that the Liquidation Commencement Date shall have
occurred as of the date of ARC's receipt of the notice.
Notwithstanding the foregoing, a delay in or failure in performance
referred to in subsection (a)(i) for a period of ten Business Days after the
applicable grace period, or in subsections a(ii), a(iii) or (b) for a period of
30 Business Days after the applicable grace period, shall not constitute a
Liquidation Event if the delay or failure could not have been prevented by the
exercise of reasonable diligence by ARC or the Servicer and the delay or
failure was caused by an act of God or the public enemy, riots, acts of war,
acts of terrorism, epidemics, flood, embargoes, weather, landslides, fire,
earthquakes or similar causes. The preceding sentence shall not relieve ARC or
the Servicer from using its best efforts to perform its obligations in a timely
manner in accordance with the terms of the Transaction Documents, and ARC
and/or the Servicer, as applicable, shall promptly give the Trustee, the
Applicable Rating Agencies, each Purchaser Agent and, in the case of any delay
or failure in performance by the Servicer, ARC, an Officer's Certificate
notifying them of the failure or delay by it.
SECTION 9.02 Remedies. Upon the occurrence of a Liquidation Event,
the Trustee shall have, in addition to all other rights and remedies available
to the Trustee under this Agreement or otherwise, (a) the right to apply
Collections to the payment of the Obligations of ARC and the Servicer under the
Transaction Documents, as provided herein, and (b) all rights and remedies
provided under all other applicable laws, which rights, in the case of each and
all of the foregoing, shall be cumulative. The Trustee shall exercise the
rights at the direction of the Investor Certificateholders pursuant to (and
subject to the limitations specified in) Section 11.14.
SECTION 9.03 Additional Rights Upon the Occurrence of Certain Events.
(a) If an Event of Bankruptcy shall occur with respect to ARC, this Agreement
and the Trust shall be deemed to have terminated on the day of the Event of
Bankruptcy; provided, that within seven Business Days of the date of written
notice to the Trustee of the Event of Bankruptcy, the Trustee shall:
(i) publish a notice in an Authorized Newspaper that an Event
of Bankruptcy has occurred with respect to ARC, that the Trust has
terminated, and that the Trustee intends to sell, dispose of or
otherwise liquidate the Receivables and the Related Transferred Assets
pursuant to this Agreement in a commercially reasonable manner and on
commercially reasonable terms, which shall include the solicitation of
competitive bids (a "Disposition"), and
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(ii) send written notice to the Investor Certificateholders
describing the provisions of this section and requesting each Investor
Certificateholder to advise the Trustee in writing whether (A) it
wishes the Trustee to instruct the Servicer not to effectuate a
Disposition, (B) it refuses to advise the Trustee as to the specific
action the Trustee shall instruct the Servicer to take or (C) it
wishes the Servicer to effect a Disposition.
If, after 60 days from the day notice pursuant to subsection (a)(i) is
first published (the "Publication Date"), the Trustee shall not have received
the written instruction described in subsection (a)(ii)(A) from Holders of
Investor Certificates representing in excess of 50% of the Certificate Invested
Amount, the Trustee shall instruct the Servicer to effectuate a Disposition,
and the Servicer shall proceed to consummate a Disposition. If, however,
Holders of Investor Certificates representing in excess of 50% of the
Certificate Invested Amount instruct the Trustee not to effectuate a
Disposition, the Trust shall be reconstituted and continue pursuant to the
terms of this Agreement.
(b) Notwithstanding the termination of this Agreement and the Trust
pursuant to subsection (a), the proceeds from any Disposition of the
Receivables and the Related Transferred Assets pursuant to subsection (a) shall
be treated as Collections on the Receivables and shall be allocated and
deposited in accordance with the provisions of Article IV.
(c) The Trustee may appoint an agent or agents to assist with its
responsibilities pursuant to this section with respect to competitive bids.
(d) ARC or any of its Affiliates shall be permitted to bid for the
Receivables and the Related Transferred Assets. The Trustee may obtain a prior
determination from any bankruptcy trustee, receiver or liquidator that the
terms and manner of any proposed Disposition are commercially reasonable.
(e) Notwithstanding the termination of this Agreement and the Trust
pursuant to subsection (a), the Trustee shall continue to have the rights
described in Section 9.2 and Article XI, and be subject to direction on terms
consistent with those set out in Section 11.14, pending the completion of any
Disposition and/or the reconstitution of the Trust.
ARTICLE X
SERVICER DEFAULTS
SECTION 10.01 Servicer Defaults. Any of the following events shall
constitute a "Servicer Default":
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(a) any failure by the Servicer in its capacity as Servicer
to make any payment, transfer or deposit required by any Transaction
Document to be made by it or to give instructions or to give notice to
the Trustee to make such payment, transfer or deposit, which failure
continues unremedied (i) in the case of payments of Fixed Principal
Yield, Investor Revolving Yield or PI Yield, for five Business Days
and (ii) in the case of all payments not included in clause (i), for
seven Business Days after the date on which an Authorized Officer of
the Servicer has actual knowledge of the failure,
(b) failure on the part of the Servicer in its capacity as
Servicer duly to observe or perform in any material respect any other
covenants or agreements of the Servicer set forth in this Agreement or
any other Transaction Document, which failure has a material adverse
effect on the Investor Certificateholders of any Series or any
Purchased Interest and continues unremedied for a period of 30 days
after the date on which written notice of the failure, requiring the
same to be remedied, shall have been given to the Servicer by the
Trustee, or to the Servicer and the Trustee by any Investor
Certificateholder or Purchaser,
(c) the Servicer shall assign its duties under this
Agreement, except as permitted by Sections 3.01(b) and 8.03,
(d) any representation, warranty or certification made by the
Servicer in any Transaction Document or in any certificate or other
document or instrument delivered pursuant to any Transaction Document
shall prove to have been incorrect in any material respect when made
or delivered, that has a material adverse effect on the Investor
Certificateholders of any Series or any Purchased Interest and which
material adverse effect continues unremedied for a period of 30 days
after the date on which written notice of the failure, requiring the
same to be remedied, shall have been given to the Servicer by the
Trustee, or to the Servicer and the Trustee by any Investor
Certificateholder or Purchaser, or
(e) any Event of Bankruptcy shall occur with respect to the
Servicer.
In the event of any Servicer Default, so long as the Servicer Default shall not
have been remedied, the Trustee may (and, at the direction of the Required
Investors, shall), by notice then given in writing to the Servicer (a
"Termination Notice"), terminate all (but not less than all) the rights and
obligations of the Servicer as Servicer under this Agreement and in and to the
Receivables, the Related Transferred Assets and the proceeds thereof.
As soon as possible, and in any event within five Business Days, after
an Authorized Officer of the Servicer has obtained knowledge of the occurrence
of any Servicer Default, the Servicer shall furnish the Trustee, each Purchase
Agent and the Applicable Rating
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Agencies, and the Trustee shall promptly furnish each Investor
Certificateholder, notice of the Servicer Default.
Notwithstanding the foregoing, a delay in or failure in performance
referred to in subsection (a) for a period of ten Business Days after the
applicable grace period, or in subsection (b) or (d) for a period of 30
Business Days after the applicable grace period, shall not constitute a
Servicer Default if the delay or failure could not have been prevented by the
exercise of reasonable diligence by the Servicer and the delay or failure was
caused by an act of God or the public enemy, riots, acts of war, acts of
terrorism, epidemics, flood, embargoes, weather, landslides, fire, earthquakes
or similar causes. The preceding sentence shall not relieve the Servicer from
using its best efforts to perform its obligations in a timely manner in
accordance with the terms of the Transaction Documents, and the Servicer shall
promptly give the Trustee, each Purchaser Agent and ARC an Officer's
Certificate notifying them of its failure or delay.
SECTION 10.02 Trustee to Act; Appointment of Successor. (a) On and
after the Servicer's receipt of a Termination Notice pursuant to Section 10.01,
the Servicer shall continue to perform all servicing functions under this
Agreement until the date specified in the Termination Notice or otherwise
specified by the Trustee in writing or, if no such date is specified in the
Termination Notice, or otherwise specified by the Trustee, until a date
mutually agreed upon by the Servicer and the Trustee. The Trustee shall, as
promptly as possible after the giving of a Termination Notice, nominate an
Eligible Servicer as successor servicer (the "Successor Servicer"); provided,
however, that (a) in so appointing any Successor Servicer, the Trustee shall
give due consideration to any Successor Servicer proposed by any Purchaser
Agent and (b) the Successor Servicer shall accept its appointment by a written
assumption in a form acceptable to the Trustee and each Purchaser Agent. Any
Person who is nominated to be a Successor Servicer shall accept its appointment
by a written assumption in form and substance acceptable to the Trustee. In
the event that a Successor Servicer has not been appointed or has not accepted
its appointment at the time when the Servicer ceases to act as Servicer, the
Trustee without further action shall automatically be appointed the Successor
Servicer. The Trustee may delegate any of its servicing obligations to an
affiliate or agent in accordance with Section 3.01(b). If the Trustee is
prohibited by applicable law from performing the duties of the Servicer
hereunder, the Trustee may appoint, or may petition a court of competent
jurisdiction to appoint, a Successor Servicer hereunder. The Trustee shall
give prompt notice to the Applicable Rating Agencies and each Investor
Certificateholder upon the appointment of a Successor Servicer.
(b) After the Servicer's receipt of a Termination Notice, and on the
date that a Successor Servicer shall have been appointed by the Trustee and
shall have accepted the appointment pursuant to subsection (a), all authority
and power of the Servicer under this Agreement shall pass to and be vested in
the Successor Servicer (a "Service Transfer"); and, without limitation, the
Trustee is hereby authorized and empowered to execute and deliver, on behalf of
the Servicer, as attorney-in-fact or otherwise, all documents and instruments,
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and to do and accomplish all other acts or things that the Trustee reasonably
determines are necessary or appropriate to effect the purposes of the Service
Transfer. Upon the appointment of the Successor Servicer and its acceptance
thereof, the Servicer agrees that it will terminate its activities as Servicer
hereunder in a manner that the Trustee indicates will facilitate the transition
of the performance of such activities to the Successor Servicer. The Servicer
agrees that it shall use reasonable efforts to assist the Successor Servicer in
assuming the obligations to service and administer the Receivables and the
Related Transferred Assets, on the terms and subject to the conditions set
forth herein, and to effect the termination of the responsibilities and rights
of the Servicer to conduct servicing hereunder, including the transfer to such
Successor Servicer of all authority of the Servicer to service the Receivables
and Related Transferred Assets provided for under this Agreement and all
authority over all cash amounts that shall thereafter be received with respect
to the Receivables or the Related Transferred Assets. The Servicer shall,
within five Business Days after the designation of a Successor Servicer,
transfer its electronic records (including software) relating to the
Receivables, the related Contracts and the Related Transferred Assets to the
Successor Servicer in such electronic form as the Successor Servicer may
reasonably request and shall promptly transfer to the Successor Servicer all
other records, correspondence and documents necessary for the continued
servicing of the Receivables and the Related Transferred Assets in the manner
and at such times as the Successor Servicer shall request. To the extent that
compliance with this subsection shall require the Servicer to disclose to the
Successor Servicer information of any kind that the Servicer reasonably deems
to be confidential, prior to the transfer contemplated by the preceding
sentence the Successor Servicer shall be required to enter into such licensing
and confidentiality agreements as the Servicer shall reasonably deem necessary
to protect its interest. All reasonable costs and expenses (including
attorneys' fees and disbursements) incurred in connection with transferring the
Receivables, the Related Transferred Assets and all related Records (including
the related Contracts) to the Successor Servicer and amending this Agreement
and the other Transaction Documents to reflect the succession as Servicer
pursuant to this subsection shall be paid by the predecessor Servicer (or, if
the Trustee serves as Successor Servicer on an interim basis, the initial
Servicer) within 15 days after presentation of reasonable documentation of the
costs and expenses.
(c) Upon its appointment and acceptance thereof, the Successor
Servicer shall be the successor in all respects to the Servicer with respect to
servicing functions under this Agreement and shall be subject to all the
responsibilities and duties relating thereto placed on the Servicer by the
terms and provisions hereof, and all references in this Agreement to the
Servicer shall be deemed to refer to the Successor Servicer.
(d) All authority and power granted to the Servicer or the Successor
Servicer under this Agreement shall automatically cease and terminate upon
termination of the Trust pursuant to Section 12.01, and shall pass to and be
vested in ARC and, without limitation, ARC is hereby authorized and empowered,
on and after the effective date of such termination, to execute and deliver, on
behalf of the Successor Servicer, as attorney-in-fact
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or otherwise, all documents and other instruments and to do and accomplish all
other acts or things that ARC reasonably determines are necessary or
appropriate to effect the purposes of such transfer of servicing rights. The
Successor Servicer agrees to cooperate with ARC in effecting the termination of
the responsibilities and rights of the Successor Servicer to conduct servicing
of the Receivables and the Related Transferred Assets. The Successor Servicer
shall, within five Business Days after such termination, transfer its
electronic records relating to the Receivables and the Related Transferred
Assets to ARC in such electronic form as ARC may reasonably request and shall
transfer all other records, correspondence and documents relating to the
Receivables and the Related Transferred Assets to ARC in the manner and at such
times as ARC shall reasonably request. To the extent that compliance with this
subsection shall require the Successor Servicer to disclose to ARC information
of any kind that the Successor Servicer deems to be confidential, ARC shall be
required to enter into such customary licensing and confidentiality agreements
as the Successor Servicer shall reasonably deem necessary to protect its
interests. All reasonable costs and expenses (including attorneys' fees and
disbursements) incurred by the Trustee, in its capacity as Successor Servicer,
in connection with the termination shall be paid by ARC within 15 days after
presentation of reasonable documentation of the costs and expenses.
SECTION 10.03 Notification of Servicer Default; Notification of
Appointment of Successor Servicer. Within four Business Days after an
Authorized Officer of the Servicer becomes aware of any Servicer Default, the
Servicer shall give written notice thereof to the Trustee and the Applicable
Rating Agencies, and the Trustee shall, promptly upon receipt of the written
notice, give notice to the Investor Certificateholders at their respective
addresses appearing in the Certificate Register. Upon any termination or
appointment of a Successor Servicer pursuant to this Article X, the Trustee
shall give prompt written notice thereof to the Investor Certificateholders at
their respective addresses appearing in the Certificate Register and to the
Applicable Rating Agencies.
ARTICLE XI
THE TRUSTEE
SECTION 11.01 Duties of Trustee. (a) The Trustee undertakes to
perform the duties and only the duties as are specifically set forth in this
Agreement. The provisions of this Article XI shall apply to the Trustee solely
in its capacity as Trustee, and not to the Trustee in its capacity as Servicer
if it is acting as the Servicer. Following the occurrence of a Servicer
Default of which a Responsible Officer has actual knowledge, the Trustee shall
exercise such of the rights and powers vested in it by this Agreement and use
the same degree of care and skill in their exercise as a prudent person would
exercise or use under the circumstances in the conduct of his or her own
affairs; provided, however, that if the Trustee shall assume the duties of the
Servicer pursuant to Section 10.02, the Trustee in performing the duties shall
use the degree of skill and attention customarily exercised by a servicer with
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respect to trade receivables that it services for itself or others. The
Trustee shall have no power to create, assume or incur indebtedness or other
liabilities in the name of the Trust other than as contemplated in, or
incidental to the performance of its duties under, this Agreement.
(b) The Trustee, upon receipt of all resolutions, certificates,
statements, opinions, reports, documents, orders or other instruments furnished
to the Trustee that are specifically required to be furnished pursuant to any
provision of this Agreement, shall examine them to determine whether they are
substantially in the form required by this Agreement. The Trustee shall give
written notice to the Person who furnished any item of the type listed in the
preceding sentence of any lack of substantial conformity of any such item to
the applicable requirements of this Agreement. In addition, the Trustee shall
give prompt written notice to the Investor Certificateholders and each
Purchaser Agent of any lack of substantial conformity of any such instrument to
the applicable requirements of this Agreement discovered by the Trustee that
would entitle a specified percentage of the Fixed Principal Certificateholders
or the Investor Revolving Certificateholders or the Holders of any Series of
Fixed Principal Certificates or Investor Revolving Certificates or Purchasers
or Purchaser Agents to take any action pursuant to this Agreement.
(c) Subject to subsection (a), no provision of this Agreement shall
be construed to relieve the Trustee from liability for its own negligent
action, its own negligent failure to act or its own willful misconduct;
provided, however, that:
(i) the Trustee shall not be liable for an error of judgment
made in good faith by a Responsible Officer or Responsible Officers of
the Trustee, unless it shall be proved that the Trustee was negligent
in ascertaining the pertinent facts,
(ii) the Trustee shall not be liable with respect to any
action taken, suffered or omitted to be taken by it in good faith in
accordance with the direction (as applicable) of the Majority
Investors, the Required Investors, all Investors, any Purchaser Agent,
or the Required Series Holders relating to the time, method and place
of conducting any proceeding for any remedy available to the Trustee,
or exercising any trust or power conferred upon the Trustee, under
this Agreement,
(iii) the Trustee shall not be charged with knowledge of (A)
any failure by the Servicer to comply with the obligations of the
Servicer referred to in subsections (a), (b) or (c) of Section 10.01,
(B) any breach of the representations and warranties of ARC set forth
in Section 2.03 or 7.01 or the representations and warranties of the
Servicer set forth in Section 8.01, (C) any breach of the covenants of
ARC set forth in Section 7.02 or the covenants of the Servicer set
forth in Section 8.02 or (D) the ownership of any Certificate or
Purchased Interest for purposes of Section 6.05, in each case unless a
Responsible Officer of the Trustee obtains actual knowledge of the
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matter or the Trustee receives written notice of the matter from the
Servicer or from any Holder,
(iv) the duties and obligations of the Trustee shall be
determined solely by the express provisions of this Agreement, the
Trustee shall not be liable except for the performance of the duties
and obligations that specifically shall be set forth in this
Agreement, no implied covenants or obligations shall be read into this
Agreement against the Trustee and, in the absence of bad faith on the
part of the Trustee, the Trustee may conclusively rely on the truth of
the statements and the correctness of the opinions expressed in any
certificates or opinions that are furnished to the Trustee and that
conform to the requirements of this Agreement, and
(v) without limiting the generality of this section or
Section 11.02, the Trustee shall have no duty (A) to see to any
recording, filing, or depositing of this Agreement or any agreement
referred to herein or any financing statement or continuation
statement evidencing a security interest in the Receivables or the
Related Transferred Assets, or to see to the maintenance of any such
recording or filing or depositing or to any rerecording, refiling or
redepositing of any thereof, (B) to see to the payment or discharge of
any tax, assessment, or other governmental charge or any Adverse Claim
or encumbrance of any kind owing with respect to, assessed or levied
against, any part of the Trust, (C) to confirm or verify the contents
of any reports or certificates of the Servicer delivered to the
Trustee pursuant to this Agreement that are believed by the Trustee to
be genuine and to have been signed or presented by the proper party or
parties or (D) to ascertain or inquire as to the performance or
observance of any of ARC's or the Servicer's representations,
warranties or covenants or the Servicer's duties and obligations as
Servicer.
(d) The Trustee shall not be required to expend or risk its own funds
or otherwise incur financial liability in the performance of any of its duties
hereunder or in the exercise of any of its rights or powers, if the Trustee
reasonably believes that the repayment of such funds or adequate indemnity
against such risk or liability is not reasonably assured to it, and none of the
provisions contained in this Agreement shall in any event require the Trustee
to perform, or be responsible for the manner of performance of, any obligations
of the Servicer under this Agreement except during the time, if any, that the
Trustee shall be the successor to, and be vested with the rights, duties,
powers and privileges of, the Servicer in accordance with the terms of this
Agreement.
(e) Except for actions expressly authorized by this Agreement, the
Trustee shall take no action reasonably likely to impair the interests of the
Trust in any Trust Asset now existing or hereafter created or to impair the
value of any Trust Asset now existing or hereafter created.
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(f) Except to the extent expressly provided otherwise in this
Agreement, the Trustee shall have no power to vary the corpus of the Trust,
including the power to (i) accept any substitute obligation for a Receivable
initially transferred to the Trust under Section 2.01 hereof, (ii) add any
other investment, obligation or security to the Trust, (iii) withdraw from the
Trust any Trust Asset, except for a withdrawal permitted under Section 12.01 or
a withdrawal that has been consented to by all of the Investor
Certificateholders.
(g) In the event that the Paying Agent or the Transfer Agent and
Registrar shall fail to perform any obligation, duty or agreement in the manner
or on the day on which such obligation, duty or agreement is required to be
performed by the Paying Agent or the Transfer Agent and Registrar, as the case
may be, under this Agreement, the Trustee shall be obligated, promptly upon its
actual knowledge thereof, to perform the obligation, duty or agreement in the
manner so required.
(h) Without limiting any of the foregoing, the Trustee is hereby
authorized to enter into the Intercreditor Agreement, and to perform its duties
and obligations thereunder to bind the Investor Certificateholders and the
Purchasers to the terms thereof.
SECTION 11.02 Certain Matters Affecting the Trustee. Except as
otherwise provided in Section 11.01:
(a) the Trustee may rely on and shall be protected in acting
on, or in refraining from acting in accordance with, any resolution,
Officer's Certificate, opinion of counsel, certificate of auditors or
any other certificate, statement, instrument, instruction, opinion,
report, notice, request, consent, order, appraisal, bond or other
paper or document and any information contained therein believed by it
to be genuine and to have been signed or presented to it pursuant to
this Agreement by the proper party or parties including, but not
limited to, reports and records required by Article III,
(b) the Trustee may consult with counsel and any Opinion of
Counsel shall be full and complete authorization and protection in
respect of any action taken or permitted or omitted by it hereunder in
good faith and in accordance with such Opinion of Counsel,
(c) the Trustee (including in its role as Successor Servicer,
if it ever acts in that capacity) shall be under no obligation to
exercise any of the rights or powers vested in it by this Agreement,
or to institute, conduct or defend any litigation or other proceeding
hereunder or in relation hereto, at the request, order or direction of
any of the Certificateholders, the Purchasers or any Purchaser Agent,
pursuant to the provisions of this Agreement, unless such
Certificateholders, the Purchasers or Purchaser Agent shall have
offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities that may be incurred therein or
thereby;
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provided, however, that nothing contained herein shall relieve the
Trustee of the obligations, upon the occurrence and continuance of a
Servicer Default that has not been cured, to exercise such of the
rights and powers vested in it by this Agreement and to use the same
degree of care and skill in their exercise as a prudent person would
exercise or use under the circumstances in the conduct of his or her
own affairs,
(d) the Trustee shall not be personally liable for any action
taken, permitted or omitted by it in good faith and believed by it to
be authorized or within the discretion or rights or powers conferred
upon it by this Agreement,
(e) the Trustee shall not be bound to make any investigation
into the facts of matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, consent,
order, approval, bond or other paper or document, unless requested in
writing to do so by the Required Investors; provided, however, that if
the payment within a reasonable time to the Trustee of the costs,
expenses, or liabilities likely to be incurred by it in connection
with making such investigation shall be, in the opinion of the
Trustee, not reasonably assured to the Trustee by the security
afforded to it by the terms of this Agreement, the Trustee may require
reasonable indemnity against such cost, expense, or liability as a
condition to proceeding with the investigation. The reasonable
expense of every examination shall be paid by the Servicer or, if paid
by the Trustee, shall be reimbursed by the Servicer upon demand,
(f) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents, representatives, attorneys or a custodian, and the
Trustee shall not be responsible for any misconduct or negligence on
the part of any agent, representative, attorney or custodian appointed
with due care by it hereunder,
(g) except as may be required by Section 11.01(b) hereof, the
Trustee shall not be required to make any initial or periodic
examination of any documents or records related to the Trust Assets
for the purpose of establishing the presence or absence of defects or
for any other purpose,
(h) whether or not therein expressly so provided, every
provision of this Agreement relating to the conduct or affecting the
liability of or affording protection to the Trustee shall be subject
to the provisions of this section,
(i) the Trustee shall have no liability with respect to the
acts or omissions of the Servicer (except and to the extent the
Servicer is the Trustee), including, but not limited to, acts or
omissions in connection with: (A) the servicing, management or
administration of the Receivables or the Related Transferred Assets,
(B) calculations made by the Servicer whether or not reported to the
Trustee, and (C) deposits into or
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withdrawals from any Bank Accounts or Trust Accounts established
pursuant to the terms of this Agreement, and
(j) in the event that the Trustee is also acting as Paying
Agent or Transfer Agent and Registrar hereunder, the rights and
protections afforded to the Trustee pursuant to this Article XI shall
also be afforded to the Trustee acting as Paying Agent or as Transfer
Agent and Registrar.
SECTION 11.03 Limitation on Liability of Trustee. The Trustee shall
at no time have any responsibility or liability for or with respect to the
correctness of the recitals contained herein or in the Certificates (other than
the certificate of authentication on the Certificates) or the Purchased
Interests. Except as set forth in Section 11.15, the Trustee makes no
representations as to the validity or sufficiency of this Agreement, any PI
Agreement, any Supplement, the Certificates (other than the certificate of
authentication on the Certificates) or the Purchased Interests, any other
Transaction Document or any Trust Asset or related document. The Trustee shall
not be accountable for the use or application by ARC of any of the Certificates
or the Purchased Interests or of the proceeds of such Certificates or the
Purchased Interests, or for the use or application of any funds paid to ARC or
the Servicer in respect of the Trust Assets or deposited by the Servicer in or
withdrawn by the Servicer from the Bank Accounts, the Trust Accounts or any
other accounts hereafter established to effectuate the transactions
contemplated herein or in the other Transaction Documents and in accordance
with the terms hereof or thereof.
The Trustee shall at no time have any responsibility or liability for
or with respect to the legality, validity, or enforceability of any ownership
or security interest in any Trust Asset, or the perfection or priority of such
a security interest or the maintenance of any such perfection or priority, or
for or with respect to the efficacy of the Trust or its ability to generate the
payments to be distributed to Certificateholders or Purchasers under this
Agreement, including: (a) the existence and substance of any Trust Asset or any
related Record or any computer or other record thereof, (b) the validity of the
transfer of any Trust Asset to the Trust or of any preceding or intervening
transfer, (c) the performance or enforcement of any Trust Asset, (d) the
compliance by ARC or the Servicer with any warranty or representation made
under this Agreement or in any other Transaction Document and the accuracy of
any such warranty or representation prior to the Trustee's receipt of actual
notice of any noncompliance therewith or any breach thereof, (e) any investment
of monies pursuant to Section 4.04 or any loss resulting therefrom, (f) the
acts or omissions of ARC, the Servicer or any Obligor, (g) any action of the
Servicer taken in the name of the Trustee, or (h) any action by the Trustee
taken at the instruction of the Servicer; provided, however, that the foregoing
shall not relieve the Trustee of its obligation to perform its duties under the
Agreement in accordance with the terms hereof.
Except with respect to a claim based on the failure of the Trustee to
perform its duties under this Agreement or based on the Trustee's negligence or
willful misconduct, no
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recourse shall be had against the Trustee in its individual capacity for any
claim based on any provision of this Agreement, any other Transaction Document,
the Certificates, the Purchased Interests, any Trust Asset or any assignment
thereof. The Trustee shall not have any personal obligation, liability, or
duty whatsoever to any Certificateholder, any Purchaser or any other Person
with respect to any such claim, and any such claim shall be asserted solely
against the Trust or any indemnitor who shall furnish indemnity to the Trust or
the Trustee as provided in this Agreement. Any obligation of the Trustee to
give any notice or statement to any rating agency hereunder shall constitute
only a best efforts obligation and the notice or statement shall be so provided
only as a matter of courtesy and accommodation, the Trustee having no liability
to any rating agency or any other Person for any failure to so provide the
notice or statement.
SECTION 11.04 Trustee May Deal with Other Parties. Subject to any
restrictions that may otherwise be imposed by Section 406 of ERISA or Section
4975(e) of the Internal Revenue Code, the Trustee in its individual or any
other capacity may deal with the other parties hereto (other than ARC) and
their respective affiliates, with the same rights as it would have if it were
not the Trustee.
SECTION 11.05 Servicer To Pay Trustee's Fees and Expenses. (a) To
the extent not paid by the Servicer to the Trustee from funds constituting the
Servicing Fee, the Servicer covenants and agrees to pay to the Trustee from
time to time, and the Trustee shall be entitled to receive, such reasonable
compensation as is agreed upon in writing between the Trustee and the Servicer
(which shall not be limited by any provision of law in regard to the
compensation of a trustee of an express trust) for all services rendered by it
in the execution of the trust hereby created and in the exercise and
performance of any of the powers and duties hereunder of the Trustee, and the
Servicer will pay or reimburse the Trustee upon its request for all reasonable
expenses, disbursements and advances incurred or made by the Trustee in
accordance with any of the provisions of the Transaction Documents to which it
is a party (including the reasonable fees and expenses of its agents, any
co-trustee and counsel) except any expense, disbursement or advance that may
arise from the Trustee's negligence or bad faith.
(b) In addition, the Servicer agrees to indemnify the Trustee from,
and hold it harmless against, any and all losses, liabilities, damages, claims
or expenses incurred by the Trustee in the execution of the Trust or in the
exercise or performance of any of the powers or duties of the Trustee
hereunder, other than those resulting from the gross negligence or willful
misconduct of the Trustee.
(c) If the Trustee is appointed Successor Servicer pursuant to
Section 10.02, the provisions of this section shall not apply to expenses,
disbursements and advances made or incurred by the Trustee in its capacity as
Successor Servicer, which shall be paid out of the Servicing Fee. The
Servicer's covenant to pay the fees, expenses, disbursements and
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advances provided for in this section shall survive the resignation or removal
of the Trustee and the termination of this Agreement.
(d) The Trustee shall look solely to the Servicer for payment of
amounts described in this Section 11.05, and the Trustee shall have no claim
for payment of such amounts against ARC or the Trust Assets.
SECTION 11.06 Eligibility Requirements for Trustee. The Trustee
hereunder shall at all times: (a) be (i) a banking institution organized under
the laws of the United States, (ii) a member bank of the Federal Reserve System
or (iii) any other banking institution or trust company, incorporated and doing
business under the laws of any State or of the United States, a substantial
portion of the business of which consists of receiving deposits or exercising
fiduciary powers similar to those permitted to national banks under the
authority of the Comptroller of the Currency, and that is supervised and
examined by a state or federal authority having supervision over banks, (b) not
be an Enhancement Provider or an Affiliate of BT Securities Corporation, and
(c) have, in the case of an entity that is subject to risk-based capital
adequacy requirements, risk-based capital of at least $50,000,000 or, in the
case of an entity that is not subject to risk-based capital adequacy
requirements, a combined capital and surplus of at least $50,000,000. If such
corporation or association publishes reports of condition at least annually,
pursuant to law or to the requirements of the aforesaid supervising or
examining authority, then, for the purpose of this section, the combined
capital and surplus of the corporation or association shall be deemed to be its
combined capital and surplus as set forth in its most recent report of
condition so published. If at any time the Trustee shall cease to be eligible
in accordance with the provisions of this section, the Trustee shall resign
immediately in the manner and with the effect specified in Section 11.07.
SECTION 11.07 Resignation or Removal of Trustee. (a) The Trustee
may at any time resign and be discharged from the trust hereby created by
giving 30 days' prior written notice thereof to ARC, the Servicer, the
Applicable Rating Agencies, the Investor Certificateholders and the Purchaser
Agents. Upon receiving the notice of resignation, ARC shall promptly appoint a
successor trustee who meets the eligibility requirements set forth in Section
11.06 by written instrument, in duplicate, one copy of which shall be delivered
to the resigning Trustee and one copy to the successor trustee. If no
successor trustee shall have been so appointed and shall have accepted
appointment within 30 days after the giving of the notice of resignation, the
resigning Trustee, upon notice to each Purchase Agent, may petition any court
of competent jurisdiction to appoint a successor trustee.
(b) If at any time the Trustee shall cease to be eligible to be the
Trustee hereunder in accordance with the provisions of Section 11.06 hereof and
shall fail to resign promptly after its receipt of a written request therefor
by the Servicer, or if at any time the Trustee shall be legally unable to act,
or shall be adjudged bankrupt or insolvent, or if a receiver for the Trustee or
of its property shall be appointed, or any public officer shall take charge or
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control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation, then the Servicer may remove the
Trustee and, subject to the consent of each Purchaser Agent (which consent
shall not be unreasonably withheld or delayed), promptly appoint a successor
trustee by written instrument, in duplicate, one copy of which shall be
delivered to the Trustee so removed and one copy to the successor trustee.
(c) Any resignation or removal of the Trustee and appointment of a
successor trustee pursuant to any of the provisions of this section shall not
become effective until acceptance of appointment by the successor trustee as
provided in Section 11.08 hereof.
SECTION 11.08 Successor Trustee. (a) Any successor trustee
appointed as provided in Section 11.07 shall execute, acknowledge and deliver
to ARC, the Servicer, the Investor Certificateholders, the Purchasers and the
predecessor Trustee an instrument accepting such appointment hereunder, and
thereupon the resignation or removal of the predecessor Trustee shall, upon
payment of its fees and expenses and other amounts owed to it pursuant to
Section 11.05, become effective and the successor trustee, without any further
act, deed or conveyance, shall become fully vested with all the rights, powers,
duties and obligations of its predecessor hereunder, with like effect as if
originally named as Trustee herein. The predecessor Trustee shall deliver to
the successor trustee, at the expense of the Servicer, all documents or copies
thereof and statements held by it hereunder; and ARC and the predecessor
Trustee shall execute and deliver such instruments and do such other things as
may reasonably be required for fully vesting and confirming in the successor
trustee all such rights, powers, duties and obligations. The Servicer shall
promptly give notice to the Applicable Rating Agencies upon the appointment of
a successor trustee.
(b) No successor trustee shall accept appointment as provided in this
section unless at the time of the acceptance the successor trustee shall be
eligible to become the Trustee under the provisions of Section 11.06.
(c) Upon acceptance of appointment by a successor trustee as provided
in this section, the successor trustee shall mail notice of the succession
hereunder to all Investor Certificateholders at their addresses as shown in the
Certificate Register.
SECTION 11.09 Merger or Consolidation of Trustee. Any Person into
which the Trustee may be merged or converted or with which it may be
consolidated, or any Person resulting from any merger, conversion or
consolidation to which the Trustee shall be a party, or any Person succeeding
to all or substantially all of the corporate trust business of the Trustee,
shall be the successor of the Trustee hereunder, if the Person meets the
requirements of Section 11.06, without the execution or filing of any paper or
any further act on the part of any of the parties hereto, anything herein to
the contrary notwithstanding. The Servicer shall promptly give notice to the
Applicable Rating Agencies upon any merger or consolidation of the Trustee.
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SECTION 11.10 Appointment of Co-Trustee or Separate Trustee. (a)
Notwithstanding any other provisions of this Agreement, at any time, for the
purpose of meeting any legal requirements of any jurisdiction in which any part
of the Trust may at the time be located, the Trustee shall have the power and
may execute and deliver all instruments to appoint one or more Persons (who may
be an employee or employees of the Trustee) to act as a co-trustee or
co-trustees, or separate trustee or separate trustees, of all or any part of
the Trust, and to vest in such Person or Persons, in such capacity and for the
benefit of the Certificateholders and the Purchasers, such title to the Trust,
or any part thereof, and, subject to the other provisions of this section, such
powers, duties, obligations, rights and trusts as the Trustee may consider
necessary or appropriate; provided, that such appointment shall be subject to
the prior written consent of ARC unless a Liquidation Event or Servicer
Termination Event is continuing; and provided further, that in any event the
Trustee will give ARC and the Servicer prior written notice of such
appointment. No co-trustee or separate trustee shall be required to meet the
terms of eligibility as a successor trustee under Section 11.06 and no notice
to Certificateholders, Purchaser Agents or Purchasers of the appointment of any
co-trustee or separate trustee shall be required under Section 11.08.
(b) Every separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
(i) all rights, powers, duties and obligations conferred or
imposed upon the Trustee shall be conferred or imposed upon and
exercised or performed by the Trustee and the separate trustee or
co-trustee jointly (it being understood that the separate trustee or
co-trustee is not authorized to act separately without the Trustee
joining in such act), except to the extent that under any law of any
jurisdiction in which any particular act or acts are to be performed
(whether as the Trustee hereunder or as successor to the Servicer
hereunder), the Trustee shall be incompetent or unqualified to perform
such act or acts, in which event such rights, powers, duties and
obligations (including the holding of title to the Trust or any
portion thereof in any such jurisdiction) shall be exercised and
performed singly by such separate trustee or co-trustee, but solely at
the direction of the Trustee,
(ii) no trustee hereunder shall be personally liable by reason of
any act or omission of any other trustee hereunder, and
(iii) the Trustee may at any time accept the resignation of or
remove any separate trustee or co-trustee.
(c) Any notice, request or other writing given to the Trustee shall
be deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Agreement and
the conditions of this Article XI. Each separate trustee and co-trustee,
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upon its acceptance of the trusts conferred, shall be vested with the estates
or property specified in its instrument of appointment, either jointly with the
Trustee or separately, as may be provided therein, subject to all the
provisions of this Agreement, specifically including every provision of this
Agreement relating to the conduct of, affecting the liability of, or affording
protection or indemnity to, the Trustee. Every such instrument shall be filed
with the Trustee and a copy thereof given to the Servicer.
(d) Any separate trustee or co-trustee may at any time constitute the
Trustee, its agent or attorney-in-fact with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect to this
Agreement or any other Transaction Document on its behalf and in its name. If
any separate trustee or co-trustee shall die, become incapable of acting,
resign or be removed, all its estates, properties, rights, remedies and trusts
shall vest in and be exercised by the Trustee, to the extent permitted by law,
without the appointment of a new or successor trustee.
SECTION 11.11 Tax Returns. No Federal income tax return shall be
filed on behalf of the Trust unless required by applicable law or any
Governmental Authority or the Trustee has been advised otherwise by counsel.
In the event the Trust shall be required to file tax returns, the Servicer
shall prepare or shall cause to be prepared any tax returns required to be
filed by the Trust and shall remit the returns to the Trustee for signature at
least five Business Days before the returns are due to be filed. The Trustee
shall promptly sign and deliver the returns to the Servicer and the Servicer
shall promptly file the returns. Subject to the responsibilities of the
Trustee set forth in Section 5.03(b), the Servicer, in accordance with that
section, shall also prepare or shall cause to be prepared all tax information
required by law to be made available to Certificateholders and Purchasers and
shall deliver the information to the Trustee at least five Business Days prior
to the date it is required by law to be made available to the
Certificateholders and Purchasers. The Trustee, upon request, will furnish the
Servicer with all the information known to the Trustee as may be reasonably
required in connection with the preparation of all tax returns of the Trust and
shall, upon request, execute such returns as the Trustee determines are
appropriate.
SECTION 11.12 Trustee May Enforce Claims Without Possession of
Certificates. All rights of action and claims under this Agreement, the
Certificates, the Purchased Interests or the other Transaction Documents may be
prosecuted and enforced by the Trustee without the possession of any of the
Certificates or Purchased Interests or the production thereof in any proceeding
relating thereto, and any such proceeding instituted by the Trustee shall be
brought in its own name as trustee. Any recovery of judgment shall, after
provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be
distributed to the Certificateholders or Purchasers in respect of which such
judgment has been obtained in the manner specified in Section 4.03(h).
SECTION 11.13 Suits for Enforcement. If a Liquidation Event or a
Servicer Default shall occur and be continuing, the Trustee, in its discretion
may, subject to the provisions of
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Sections 11.01 and 11.14, proceed to protect and enforce its rights and the
rights of the Certificateholders or Purchasers under this Agreement by suit,
action or proceeding in equity or at law or otherwise, whether for the specific
performance of any covenant or agreement contained in this Agreement or any
other Transaction Document or in aid of the execution of any power granted in
this Agreement or any other Transaction Document or for the enforcement of any
other legal, equitable or other remedy as the Trustee, being advised by
counsel, shall deem most effectual to protect and enforce any of the rights of
the Trustee or the Certificateholders or Purchasers. Nothing herein contained
shall be deemed to authorize the Trustee to authorize or consent to or accept
or adopt on behalf of any Certificateholder or Purchaser any plan of
reorganization, arrangement, adjustment or composition affecting the Investor
Certificates or the rights of any Holder thereof, or the Purchasers, or to
authorize the Trustee to vote in respect of the claim of any Investor
Certificateholder or Purchaser in any such proceeding.
SECTION 11.14 Rights of Investor Certificateholders To Direct
Trustee. The Required Investors shall have the right to direct the time,
method, and place of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred on the Trustee; provided,
however, that, subject to Section 11.01, the Trustee may decline to follow any
such direction if the Trustee, being advised by counsel, determines that the
action so directed may not be taken lawfully, or if a Responsible Officer or
Responsible Officers of the Trustee shall determine, in good faith, that the
proceedings so directed would be illegal or involve the Trustee in personal
liability or be unduly prejudicial to the rights of the Investor
Certificateholders not giving such direction; and provided further, that
nothing in this Agreement shall impair the right of the Trustee to take any
action deemed proper by the Trustee and that is not inconsistent with such
direction of the Required Investors.
SECTION 11.15 Representations and Warranties of Trustee. The Trustee
represents and warrants that:
(a) it is a banking corporation organized, existing and in
good standing under the laws of the State of New York,
(b) it has full power, authority and right to execute,
deliver and perform the Transaction Documents to which it is a party,
and has taken all necessary action to authorize the execution,
delivery and performance by it of the Transaction Documents, and
(c) the Transaction Documents to which it is a party have
been duly executed and delivered by the Trustee and, in the case of
all such Transaction Documents, are legal, valid and binding
obligations of the Trustee, enforceable in accordance with their
respective terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization or other similar laws affecting
the enforcement of
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creditors' rights generally and by general principles of equity,
regardless of whether such enforceability is considered in a
proceeding in equity or at law.
SECTION 11.16 Maintenance of Office or Agency. The Trustee will
maintain, at its address designated pursuant to Section 13.06, an office,
offices, agency or agencies where notices and demands to or upon the Trustee in
respect of the Certificates, the Purchased Interests and the Transaction
Documents to which it is a party may be served. The Trustee will give prompt
written notice to the Servicer and to the Certificateholders and Purchaser
Agents of any change in the location of the Certificate Register or any such
office or agency.
SECTION 11.17 No Bond. The Trustee and each co-trustee and separate
trustee from time to time appointed pursuant to this Agreement are relieved
from giving any bond, surety or security, and from making any inventories,
appraisals or accountings of the Trust Assets, in each case that would
otherwise have been required under the laws of the State of New York merely on
account of their acting in such capacities.
ARTICLE XII
TERMINATION
SECTION 12.01 Termination of Trust. (a) The Trust and the
respective obligations and responsibilities of ARC, the Servicer and the
Trustee created hereby (other than the obligation of the Trustee to make
payments to Certificateholders or Purchasers as hereinafter set forth and the
obligations of the Servicer contained in Sections 5.03(b) and 11.11) shall
terminate, except with respect to the duties and obligations described in
Sections 3.09, 7.03, 8.04, 11.05, 12.02(b), 13.10, 13.13, 13.15, 13.16 and
13.17 upon the earliest to occur of (i) March 2, 2010 (the "Final Scheduled
Payment Date"), (ii) the date that is 18 months after the Liquidation
Commencement Date and (iii) the day on which the Certificateholders, the
Purchasers and the Trustee shall have been paid all amounts required to be paid
to them pursuant to this Agreement and the Trustee has disposed of all property
held as part of the Trust (including pursuant to Section 12.03).
(b) If, by the earlier to occur of (i) 30 days prior to the Final
Scheduled Payment Date and (ii) seventeen months after the Liquidation
Commencement Date, the Invested Amount (after giving effect to any distribution
in respect of the Invested Amount to be made on such date) remains greater than
zero, the Receivables and the Related Transferred Assets shall be sold,
disposed and otherwise liquidated in a commercially reasonable manner and on
commercially reasonable terms, which shall include the solicitation of
competitive bids, by an institution acceptable to the Trustee and the Servicer.
Such institution shall either be (A) a nationally recognized investment bank,
(B) a nationally recognized commercial bank or (C) any other reputable
institution whose regular business includes the sale of receivables and
property similar to the Related Transferred Assets. The proceeds of any such
sale,
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disposition or liquidation of the Receivables and the Related Transferred
Assets will be treated as Collections on the Receivables and will be
immediately deposited in the Master Collection Account. Notwithstanding the
foregoing, the last payment of the principal of and interest on the Investor
Certificates of any Series shall be due and payable no later than the Sale Date
for the Series. If, from the earlier of clauses (i) and (ii) to the Sale Date
for any Series, the Servicer determines that the Invested Amount for the Series
on the applicable Sale Date (after giving effect to all changes therein on such
date) will exceed zero, the Servicer shall solicit bids for the sale of
interests in the Trust Assets in an amount equal to the sum of 110% of the
Invested Amount for the Series on the Sale Date for the Series (after giving
effect to all distributions required to be made on the Sale Date for the
Series). ARC shall be entitled to participate in and to receive notice of each
bid submitted in connection with the bidding process. Upon the expiration of
the period, the Servicer shall determine (x) the Highest Bid and (y) the
Available Final Distribution Amount for the Series. The Servicer shall sell
the interests in the Trust Assets on the Sale Date for the applicable Series to
the bidder with the Highest Bid and shall deposit the proceeds of such sale in
the Master Collection Account for allocation (together with the Available Final
Distribution Amount for such Series) to the Certificateholders of such Series.
SECTION 12.02 Final Distribution. (a) The Servicer shall give the
Trustee at least ten days' prior written notice of the date on which the Trust
is expected to terminate in accordance with Section 12.01(a). The notice shall
be accompanied by a certificate of an Authorized Officer of the Servicer
setting forth the information specified in Section 3.06 covering the period
during the then current calendar year through the date of the notice. Upon
receiving the notification from the Servicer, the Trustee shall give the Fixed
Principal Certificateholders, the Purchaser Agents or the Revolving
Certificateholders (as applicable) written notice as soon as practicable after
the Trustee's receipt of notice from the Servicer, which notice shall specify
(i) the Settlement Date upon which final payment with respect to the Fixed
Principal Certificates or the Revolving Certificates, as the case may be, is
expected to be made and (ii) the amount of any such final payment. The Trustee
shall give the notice to the Transfer Agent and Registrar and the Paying Agent
at the time such notice is given to Fixed Principal Certificateholders and the
Revolving Certificateholders. On the Settlement Date specified in the notice,
the Trustee shall, based upon the Settlement Statement relating to the
Settlement Date, cause to be distributed to the Fixed Principal
Certificateholders, the holders of the Purchased Interests or the Revolving
Certificateholders (as applicable) the amounts distributable to them on the
Settlement Date pursuant to Article IV and Article V. Each Fixed Principal
Certificateholder and Revolving Certificateholder shall present the
Certificates owned by them to the Trustee and surrender the Certificates for
cancellation at the address of the Trustee set forth in Section 13.06 not more
than ten Business Days after the Settlement Date upon which final payment with
respect to the Fixed Principal Certificates or the Revolving Certificates (as
applicable) has been made.
(b) Notwithstanding the termination of the Trust pursuant to Section
12.01(a), all funds then on deposit in the Master Collection Account shall
continue to be held in trust for
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the benefit of the Certificateholders and the Purchasers and the Paying Agent
or the Trustee shall pay such funds to the Fixed Principal Certificateholders,
the Revolving Certificateholders and the Purchasers at the time set forth in
Section 12.01(a). In the event that any of the Certificateholders shall not
have received final payment with respect to their Certificates within six
months after the date specified in the above-mentioned written notice from the
Trustee, the Trustee shall give a second written notice to the remaining
Certificateholders concerning payment of the final distribution with respect
thereto and surrender of their Certificates for cancellation. If within one
year after the second notice all the Certificates shall not have been
surrendered for cancellation, the Trustee may take appropriate steps, or may
appoint an agent to take appropriate steps, to contact the remaining
Certificateholders concerning surrender of their Certificates, and the cost
thereof shall be paid out of the funds in the Master Collection Account held
for the benefit of such Certificateholders. The Trustee and the Paying Agent
shall pay to ARC any monies held by them for the payment of principal of or
interest on the Certificates that remains unclaimed for two years after the
termination of the Trust pursuant to Section 12.01(a). After payment of the
monies to ARC, Certificateholders entitled to the money must look to ARC for
payment as general creditors unless an applicable abandoned property law
designates another Person.
SECTION 12.03 Rights Upon Termination of the Trust. Upon the
termination of the Trust pursuant to Section 12.01 and the surrender of the ARC
Revolving Certificate and the Residual Certificate by ARC to the Trustee, the
Trustee shall transfer, assign, set over and otherwise convey to ARC (without
recourse, representation or warranty), all right, title and interest of the
Trust in the Receivables, whether then existing or thereafter created, the
Related Transferred Assets and all of the other property previously conveyed to
the Trust pursuant to Section 2.01(b), except for amounts held by the Trustee
pursuant to Section 12.02(b) and except for the rights of RPA Indemnified
Parties (other than ARC and its officers, directors, shareholders, controlling
Persons, employees and agents) to indemnification and contribution under
Section 9.1 of the Purchase Agreement. The Trustee shall execute and deliver
the instruments of transfer and assignment (including any document necessary to
release the security interest in favor of the Trustee (for the benefit of the
Certificateholders or the Purchasers) in such Receivables and Related
Transferred Assets and to release any filing evidencing or perfecting such
security interest), in each case without recourse, representation or warranty,
that shall be reasonably requested by ARC to vest in ARC all right, title and
interest that the Trust had in the Trust Assets.
SECTION 12.04 Optional Repurchase of Investor Interests. Any Series
Supplement may provide that on any Settlement Date occurring on or after the
date that the Invested Amount of the related Series is reduced to 5% or less of
the initial aggregate principal amount of the Investor Certificates of such
Series, ARC shall have the option, upon the giving of ten days' prior written
notice by ARC to the Servicer, the Trustee and the Applicable Rating Agencies,
to repurchase the undivided interest of the Series in the Trust without any
payment of a Prepayment Premium by depositing into the Principal Funding
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Account, on such Settlement Date, an amount equal to the unpaid Invested Amount
of the Series plus accrued and unpaid interest on the unpaid principal amount
of the Series (and accrued and unpaid interest with respect to interest amounts
that were due but not paid on a prior Settlement Date) through the day
preceding the Settlement Date at the Certificate Rate applicable to such
Series. Upon tender of all outstanding Certificates of the Series by the
Certificateholders, the Trustee shall then distribute such amounts, together
with all other amounts on deposit in the Defeasance Account and the Principal
Funding Account with respect to that Series to the Certificateholders of the
Series on the next Settlement Date in repayment of the principal amount and all
accrued and unpaid interest owing to the Certificateholders. Following any
such repurchase, the Certificateholders of the Series shall have no further
rights with respect to the Receivables and the Trustee shall execute and
deliver the instruments of transfer and assignment (including any document
necessary to release the security interest in favor of the Trustee (for the
benefit of the Certificateholders) in the Receivables and Related Transferred
Assets and to release any filing evidencing or perfecting the security
interest), in each case without recourse, representation or warranty, as shall
be reasonably requested by ARC to vest in ARC all right, title and interest
that the Trust had in the Trust Assets. In the event that ARC fails for any
reason to deposit the aggregate purchase price for the Invested Amount of any
Series, payments shall continue to be made to the Certificateholders of the
Series in accordance with the terms of this Agreement.
ARTICLE XIII
MISCELLANEOUS PROVISIONS
SECTION 13.01 Amendment, Waiver, Etc. (a) This Agreement and any
Supplement may be amended from time to time by the Servicer, ARC and the
Trustee by a written instrument signed by each of them, without the consent of
any of the Certificateholders, the Purchasers or the Purchaser Agents;
provided, however, that such action shall not adversely affect in any material
respect the interests of any Certificateholder or Purchaser; and provided
further, that any amendment of this Agreement to effect any modification of the
Lockbox Account arrangements pursuant to Section 3.03(c)(ii)(y) shall not
require the consent of any of the Certificateholders, the Purchasers or the
Purchaser Agents. This Agreement and any Supplement may not be amended unless
ARC shall have delivered the proposed amendment to each Purchaser Agent and the
Applicable Rating Agencies at least ten Business Days (or such shorter period
as shall be acceptable to each of them) prior to the execution and delivery
thereof and the Rating Agency Condition has been satisfied with respect to such
amendment. If the terms of the Intercreditor Agreement require the Seller
Agent to consent in writing to any amendment, modification or amendment of this
Agreement, such amendment, modification or waiver shall not be effective unless
the Trustee shall have received a copy of such consent.
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(b) Any PI Agreement may be amended from time to time by the parties
thereto but without the consent of the Investor Certificateholders; provided,
however, that any amendment will not adversely affect in any material respect
the interests of the Certificateholders, as evidenced by an Officer's
Certificate of the Servicer.
(c) The provisions of this Agreement, any Supplement and any PI
Agreement may also be amended, modified or waived from time to time by the
Servicer, ARC and the Trustee with the consent of: (i) in the case of this
Agreement or any Supplement, (A) the Required Series Holders of each affected
Series and (B) if any Purchased Interest shall or would be adversely affected,
each Purchaser Agent, for the purpose of adding any provisions to or changing
in any manner or eliminating any of the provisions of this Agreement or any
Supplement or of modifying in any manner the rights of the Certificateholders
or the Purchasers; provided, however, that no amendment shall (w) reduce in any
manner the amount of or delay the timing of any distributions to be made to
Investor Certificateholders or deposits of amounts to be so distributed or the
amount available under any Enhancement without the consent of each affected
Certificateholder, (x) change the definition of or the manner of calculating
the interest of any Investor Certificateholder without the consent of each
affected Investor Certificateholder, (y) reduce the aforesaid percentage
required to consent to any amendment without the consent of each Investor
Certificateholder or (z) adversely affect the rating of any Series or Class by
any Applicable Rating Agency without the consent of the Holders of Investor
Certificates of the Series or Class evidencing not less than 66 2/3% of the
aggregate unpaid principal amount of the Investor Certificates of the Series or
Class or (ii) in the case of any PI Agreement, (A) each Purchaser Agent and the
other parties thereto and (B) the Required Series Holders of each adversely
affected Series.
ARC or the Trustee shall establish a record date for determining which
Certificateholders may give such waivers and consents. No waiver of any
Liquidation Event or other default hereunder given at any time shall apply to
any other prior or subsequent Liquidation Event or default.
(d) Promptly after the execution of any amendment, consent or waiver
described in subsection (b) or (c), the Trustee shall furnish written
notification of the substance of the amendment or consent to each Investor
Certificateholder, and the Servicer shall furnish written notification of the
substance of the amendment or consent to the Rating Agency and each Enhancement
Provider.
(e) It shall not be necessary for any waiver or consent given by the
Certificateholders under this section to approve the particular form of any
proposed amendment, but it shall be sufficient if the consent shall approve the
substance thereof. The manner of obtaining such waivers and consents and of
evidencing the authorization of the execution thereof by the Certificateholders
shall be subject to such reasonable requirements as the Trustee may prescribe.
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(f) Notwithstanding anything in this section to the contrary, no
amendment may be made to this Agreement, any Supplement or any PI Agreement
that would adversely affect in any material respect the interests of any
Enhancement Provider without the consent of the Enhancement Provider.
(g) Any Supplement or PI Agreement executed in accordance with the
provisions of Section 6.10 shall not be considered an amendment to this
Agreement for the purposes of this section.
(h) Prior to the execution of any amendment to this Agreement, the
Trustee shall be entitled to receive and rely upon an Opinion of Counsel
stating that the execution of the amendment is authorized or permitted by this
Agreement and that all conditions precedent to the execution and delivery have
been satisfied. The Trustee may, but shall not be obligated to, enter into any
amendment that affects the Trustee's own rights, duties or immunities under
this Agreement.
SECTION 13.02 Actions by Certificateholders and Purchasers. (a) By
its acceptance of Certificates pursuant to this Agreement and the applicable
Supplement, each Certificateholder (other than ARC and any AmeriSource Person)
acknowledges and agrees that, wherever in this Agreement a provision states
that an action may be taken or a notice, demand or instruction given by any
Series of Investor Certificateholders, any Class of Investor Certificateholders
or the Investor Certificateholders, the action, notice or instruction may be
taken or given by any Holder of an Investor Certificate of the Series or Class
or by any Investor Certificateholder, respectively, unless the provision
requires a specific percentage of the Series or Class of Investor
Certificateholders or of all Investor Certificateholders.
(b) By its acceptance of Certificates pursuant to this Agreement and
the applicable Supplement, each Certificateholder (other than ARC and any
AmeriSource Person) acknowledges and agrees that any request, demand,
authorization, direction, notice, consent, waiver or other act by the Holder of
a Certificate shall bind the Holder and every subsequent Holder of the
Certificate and of any Certificate issued upon the registration of transfer
thereof or in exchange therefor or in lieu thereof in respect of anything done
or omitted to be done by the Trustee or the Servicer in reliance thereon,
whether or not notation of the action is made upon such Certificate.
(c) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Agreement, any Supplement or any PI
Agreement to be given or taken by Certificateholders or any Purchaser Agent may
be embodied in and evidenced by one or more instruments of substantially
similar tenor signed by the Certificateholders or any Purchaser Agent in person
or by agent duly appointed in writing; and except as herein otherwise expressly
provided, the action shall become effective when the instrument or instruments
are delivered to the Trustee and, when required, to the Seller or the Servicer.
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Proof of execution of any such instrument or of a writing appointing any such
agent shall be sufficient for any purpose of this Agreement, any Supplement or
any PI Agreement and conclusive in favor of the Trustee, the Seller and the
Servicer, if made in the manner provided in this section.
(d) The fact and date of the execution by any Certificateholder or
any Purchaser Agent of any such instrument or writing may be proved in any
reasonable manner that the Trustee deems sufficient.
SECTION 13.03 Limitation on Rights of Certificateholders. (a) The
death or incapacity of any Certificateholder shall not operate to terminate
this Agreement or the Trust, nor shall the death or incapacity entitle such
Certificateholder's legal representatives or heirs to claim an accounting or to
take any action or commence any proceeding in any court for a partition or
winding up of the Trust, nor otherwise affect the rights, obligations and
liabilities of the parties hereto or any of them.
(b) No Certificateholder shall have any right to vote (except as
expressly provided otherwise in this Agreement) or in any manner otherwise to
control the operation and management of the Trust, or the obligations of the
parties hereto, nor shall anything herein set forth, or contained in the terms
of the Certificates, be construed so as to constitute the Certificateholders
from time to time as partners or members of an association, nor shall any
Certificateholder be under any liability to any third Person by reason of any
action taken by the parties to this Agreement pursuant to any provision hereof.
(c) No Certificateholder shall have any right by virtue of any
provisions of this Agreement to institute any suit, action or proceeding in
equity or at law upon or under or with respect to this Agreement, unless the
Certificateholder previously shall have given to the Trustee, and unless the
Required Investors shall have made, written request upon the Trustee to
institute such action, suit or proceeding in its own name as Trustee hereunder
and shall have offered to the Trustee such reasonable indemnity as it may
require against the costs, expenses and liabilities to be incurred therein or
thereby, and the Trustee, for 60 days after its receipt of such notice, request
and offer of indemnity, shall have neglected or refused to institute any such
action, suit or proceeding; it being understood and intended, and being
expressly covenanted by each Certificateholder with every other
Certificateholder and the Trustee, that no one or more Certificateholders shall
have any right in any manner whatever by virtue of, or by availing itself or
themselves of, any provisions of this Agreement to affect, disturb or prejudice
the rights of any other Investor Certificateholder or any Holder of any other
Series of Investor Certificates, or to obtain or seek to obtain priority over
or preference to any such other Investor Certificateholder or any such Holder
of any other Series of Investor Certificates, or to enforce any right under
this Agreement, except in the manner herein provided and for the equal, ratable
and common benefit of, in the case of actions affecting the Investor
Certificateholders as a class, all Investor Certificateholders or, in the case
of actions affecting the Holders of any Series of Fixed Principal Certificates
or
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Investor Revolving Certificates, the Holders of Fixed Principal Certificates or
Investor Revolving Certificates (as the case may be) of such Series, as
applicable. For the protection and enforcement of the provisions of this
section, each and every Certificateholder and the Trustee shall be entitled to
such relief as can be given either at law or in equity.
(d) By their acceptance of Certificates pursuant to this Agreement
and the applicable Supplement, the Certificateholders (other than ARC and any
AmeriSource Person) agree to the provisions of this section.
SECTION 13.04 Limitation on Rights of Purchasers. (a) Except as
expressly provided in this Agreement or a PI Agreement, neither any Purchaser
nor any Purchaser Agent shall have any right to vote, or in any manner
otherwise control the operation and management of the Trust, or the obligations
of the parties hereto.
(b) The Purchasers and any Purchaser Agent shall not have the right
to institute any suit, action or proceeding in equity or at law against the
Servicer or ARC for the enforcement of this Agreement, the Purchase Agreement
or any PI Agreement, except to the extent that such PI Agreement creates
independent and non-duplicative rights against ARC or the Servicer, unless any
Purchaser Agent previously shall have (i) made a request in writing to the
Trustee to institute such action, suit or proceeding and (ii) offered to the
Trustee reasonable security or indemnity against the costs, expenses and
liabilities to be incurred by it in compliance with such request, and the
Trustee, shall either have refused to institute any such suit, action or
proceeding or, for 15 days after the request and offer of security or
indemnity, shall have neglected to institute any such action, suit or
proceeding.
(c) It is understood and intended, and upon the purchase of each
Purchased Interest the related Purchaser Agent and the related Purchaser shall
be deemed to have expressly covenanted and agreed with every other Purchaser
and Investor Certificateholder and the Trustee, that neither such Purchaser
Agent nor any Purchaser shall have any right hereunder or under a PI Agreement
(i) to surrender, waiver, impair, disturb or prejudice the rights of the
holders of any other of the Purchased Interests or the Investor Certificates,
(ii) to obtain or seek to obtain priority over or preference to any other such
Purchaser or Investor Certificateholder or (iii) to enforce any right under
this Agreement or any PI Agreement against the Servicer or ARC, except in the
manner herein provided and for the equal, ratable and common benefit of all
Purchasers and Investors Certificateholders and except as otherwise expressly
provided in this Agreement or any PI Agreement. For the protection and
enforcement of the provisions of this section, each and every Purchaser and
Investor Certificateholder and the Trustee shall be entitled to such relief as
can be given either at law or in equity.
SECTION 13.05 Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT
OF LAWS PRINCIPLES, AND THE
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OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SECTION 13.06 Notices. All demands, notices, instructions and
communications hereunder shall be in writing and shall be deemed to have been
duly given if personally delivered, four Business Days after mailing if mailed
by registered mail, return receipt requested, or sent by facsimile transmission
(a) in the case of ARC, to its address set forth below its signature hereto,
(b) in the case of AmeriSource, to its address set forth below its signature
hereto, and (c) in the case of the Trustee, the Paying Agent or the Transfer
Agent and Registrar, to the address of the Trustee set forth on the signature
pages hereof; or, as to each party, at such other address or facsimile number
as shall be designated by it in a written notice to each other party given in
accordance with this section. Except to the extent expressly provided
otherwise in an applicable Supplement, any notice required or permitted to be
mailed to a Certificateholder shall be sent by first-class mail, postage
prepaid, to the address of the Certificateholder as shown in the Certificate
Register. Except to the extent expressly provided otherwise in an applicable
Supplement, any notice so mailed within the time prescribed in this Agreement
shall be conclusively presumed to have been duly given on the fourth Business
Day after the notice is so mailed, whether or not the Certificateholder
receives the notice. The Servicer shall deliver or make available to the
Applicable Rating Agencies each certificate and report required to be prepared,
forwarded or delivered pursuant to Section 3.05 (excluding the Daily Reports)
or 3.06 and a copy of any amendment, consent or waiver to this Agreement, at
the address of the Rating Agency set forth above or at the other address as
shall be designated by the Rating Agency in a written notice to the Servicer.
SECTION 13.07 Severability of Provisions. If any one or more of the
covenants, agreements, provisions or terms of this Agreement or any of the
other Transaction Documents shall for any reason whatsoever be held invalid,
then the unenforceable covenants, agreements, provisions or terms shall be
deemed severable from the remaining covenants, agreements, provisions or terms
of this Agreement or the other Transaction Documents (as applicable) and shall
in no way affect the validity or enforceability of the other provisions of this
Agreement, the Certificates, the Purchased Interests or any of the other
Transaction Documents or the rights of the Certificateholders or the
Purchasers.
SECTION 13.08 Certificates Nonassessable and Fully Paid. Except to
the extent otherwise expressly provided in Section 7.03 with respect to ARC, it
is the intention of the parties to this Agreement that the Certificateholders
shall not be personally liable for obligations of the Trust, that the interests
in the Trust represented by the Certificates shall be nonassessable for any
losses or expenses of the Trust or for any reason whatsoever and that
Certificates upon authentication thereof by the Trustee pursuant to Section
6.02 are and shall be deemed fully paid.
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SECTION 13.09 Further Assurances. ARC and the Servicer agree to do
and perform, from time to time, any and all acts and to execute any and all
further instruments required or reasonably requested by the Trustee more fully
to effect the purposes of this Agreement, including the execution of any
financing statements or continuation statements relating to the Receivables for
filing under the provisions of the UCC or other applicable law of any
applicable jurisdiction.
SECTION 13.10 Nonpetition Covenant. Notwithstanding any prior
termination of this Agreement, each of the Trustee, the Servicer, ARC, the
Paying Agent, the Authenticating Agent and the Transfer Agent and Registrar
(and each Investor Certificateholder or Purchaser by its acceptance of a
Certificate or Purchased Interest) agrees that it shall not, with respect to
the Trust or ARC, institute or join any other Person in instituting any
proceeding of the type referred to in the definition of "Event of Bankruptcy"
so long as any Certificates issued by the Trust shall be outstanding or there
shall not have elapsed one year plus one day since the last day on which any
such Certificates shall have been outstanding. The foregoing shall not limit
the right of the Servicer, ARC, the Paying Agent, the Authenticating Agent and
the Transfer Agent and Registrar to file any claim in or otherwise take any
action with respect to any such insolvency proceeding that was instituted
against ARC or the Trust by any Person other than the Servicer, ARC, the Paying
Agent, the Authenticating Agent or the Transfer Agent and Registrar. In
addition, each of the Servicer, the Paying Agent, the Authenticating Agent, the
Transfer Agent and Registrar and (as to the Trust) ARC agree that all amounts
owed to them by the Trust or ARC shall be payable solely from amounts that
become available for such payment pursuant to this Agreement and the
Receivables Purchase Agreement, and no such amounts shall constitute a claim
against the Trust or ARC to the extent that they are in excess of the amounts
available for their payment.
SECTION 13.11 No Waiver; Cumulative Remedies. No failure to exercise
and no delay in exercising, on the part of the Trustee, the Investor
Certificateholders, the Purchasers or the Holders of any Series of Investor
Certificates, any right, remedy, power or privilege hereunder shall operate as
a waiver thereof; nor shall any single or partial exercise of any right,
remedy, power or privilege hereunder preclude any other or further exercise
thereof or the exercise of any other right, remedy, power or privilege. The
rights, remedies, powers and privileges herein provided are cumulative and are
not exhaustive of any rights, remedies, powers and privileges provided by law.
SECTION 13.12 Counterparts. This Agreement may be executed in any
number of counterparts and by the different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original,
and all of which together shall constitute one and the same instrument.
SECTION 13.13 Third-Party Beneficiaries. This Agreement will inure
to the benefit of and be binding upon the parties hereto and the
Certificateholders, the Purchasers and their
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respective successors and permitted assigns. Except as otherwise expressly
provided in this Agreement, nothing contained in this Agreement shall confer
any rights upon any Person that is not a party to, or a permitted assignee of a
party to, this Agreement.
SECTION 13.14 Integration. This Agreement and the other Transaction
Documents contain a final and complete integration of all prior expressions by
the parties hereto with respect to the subject matter hereof and thereof and
shall together constitute the entire agreement among the parties hereto with
respect to the subject matter hereof and thereof, superseding all prior oral or
written understandings.
SECTION 13.15 Binding Effect; Assignability; Survival of Provisions.
This Agreement shall be binding upon and inure to the benefit of ARC, the
Servicer and the Trustee and their respective successors and permitted assigns;
provided, that ARC shall not delegate any of its obligations hereunder. This
Agreement shall create and constitute the continuing obligations of the parties
hereto in accordance with its terms, and shall remain in full force and effect
until the termination of the Trust pursuant to Section 12.01. The rights and
remedies with respect to (a) any breach of any representation and warranty made
by ARC in Section 2.03 or Section 7.01, (b) any breach of any representation
and warranty made by the Servicer in Section 8.01 and (c) the indemnification
and payment provisions in Sections 3.09, 7.03, 8.04, 11.05 and 12.02(b) shall
be continuing and shall survive any termination of this Agreement.
SECTION 13.16 Recourse to ARC. Except to the extent expressly
provided otherwise in the Transaction Documents, the obligations of ARC under
the Transaction Documents to which it is a party are solely the obligations of
ARC, and no recourse shall be had for payment of any fee payable by or other
obligation of or claim against ARC that arises out of any Transaction Document
to which ARC is a party against any director, officer or employee of ARC.
Payments to be made by ARC pursuant to this Agreement shall be paid to the
extent that funds are available to make the payments after all amounts to be
paid to the Certificateholders and the Purchasers pursuant to Section 4.03(g)
or 4.03(h) (as applicable) shall have been paid, and there shall be no recourse
to ARC for all or any part of any amounts payable pursuant to this Agreement if
the funds are at any time insufficient to make all or part of any such
payments. The provisions of this section shall survive the termination of this
Agreement.
SECTION 13.17 Recourse to Trust Assets. The Certificates do not
represent an obligation of, or an interest in, ARC, the Seller, the Servicer,
the Trustee or any Affiliate of any of them. Except as expressly provided
otherwise in this Agreement, the Certificates and Purchased Interests are
limited in right of payment to the Trust Assets.
SECTION 13.18 Submission to Jurisdiction. EACH PARTY HERETO HEREBY
IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY NEW YORK STATE OR
FEDERAL COURT SITTING IN THE BOROUGH OF
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MANHATTAN IN THE CITY OF NEW YORK, NEW YORK OVER ANY ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THE TRANSACTION DOCUMENTS, AND HEREBY (A)
IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF THE ACTION OR PROCEEDING MAY
BE HEARD AND DETERMINED IN THE STATE OR FEDERAL COURT, (B) IRREVOCABLY WAIVES,
TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO, THE DEFENSE OF AN INCONVENIENT
FORUM TO THE MAINTENANCE OF THE ACTION OR PROCEEDING, AND (C) IN THE CASE OF
ARC, IRREVOCABLY APPOINTS THE PROCESS AGENT AS ITS AGENT TO RECEIVE ON BEHALF
OF IT AND ITS PROPERTY SERVICE OF COPIES OF THE SUMMONS AND COMPLAINT AND ANY
OTHER PROCESS THAT MAY BE SERVED IN ANY ACTION OR PROCEEDING. THE SERVICE MAY
BE MADE BY MAILING OR DELIVERING A COPY OF THE PROCESS TO ARC IN CARE OF THE
PROCESS AGENT AT THE PROCESS AGENT'S ADDRESS, AND ARC HEREBY IRREVOCABLY
AUTHORIZES AND DIRECTS THE PROCESS AGENT TO ACCEPT THE SERVICE ON ITS BEHALF.
AS AN ALTERNATIVE METHOD OF SERVICE, EACH OF ARC AND THE SERVICER ALSO
IRREVOCABLY CONSENTS TO THE SERVICE OF ANY AND ALL PROCESS IN ANY ACTION OR
PROCEEDING BY THE MAILING OF COPIES OF THE PROCESS TO ARC OR THE SERVICER (AS
APPLICABLE) AT ITS ADDRESS SPECIFIED HEREIN. NOTHING IN THIS SECTION SHALL
AFFECT THE RIGHT OF ANY PARTY HERETO TO SERVE LEGAL PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR AFFECT THE RIGHT OF ANY PARTY HERETO TO BRING ANY ACTION OR
PROCEEDING AGAINST ANY OR ALL OF THE OTHER PARTIES HERETO OR ANY OF THEIR
RESPECTIVE PROPERTIES IN THE COURTS OF ANY OTHER JURISDICTION.
SECTION 13.19 Waiver of Jury Trial. EACH PARTY HERETO WAIVES ANY
RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY
RIGHTS UNDER OR RELATING TO THE TRANSACTION DOCUMENTS, OR ANY AMENDMENT,
INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR THAT MAY IN THE FUTURE BE
DELIVERED IN CONNECTION THEREWITH OR ARISING FROM ANY COURSE OF CONDUCT, COURSE
OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), ACTIONS OF ANY OF THE
PARTIES HERETO OR ANY OTHER RELATIONSHIP EXISTING IN CONNECTION WITH THE
TRANSACTION DOCUMENTS, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE
TRIED BEFORE A COURT AND NOT BEFORE A JURY.
SECTION 13.20 Certain Partial Releases. (a) In the event that the
Seller exercises its rights under Section 1.7 of the Purchase Agreement to
terminate the sale of any or all of the categories of Receivables described in
subsections (a) through (c) of that Section, the Trustee shall, upon the
request (and at the expense) of the Seller, execute and deliver to the
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Seller such statements of partial release relating to the UCC-1 financing
statements filed pursuant to the Purchase Agreement as shall be prepared by the
Seller and provided to the Trustee to evidence the termination, provided,
however, that the Trustee shall have received an Officer's Certificate of the
Servicer to the effect that all conditions to the termination specified in such
Section 1.7 have been satisfied (and shall not have received notice from any
Investor Certificateholder or Purchaser Agent to the contrary).
(b) In the event that any Seller is discontinued as a Seller pursuant
to Section 1.8 of the Purchase Agreement, the Trustee shall, upon the request
(and at the expense) of AmeriSource, execute and deliver to AmeriSource such
statements of partial release and/or amendment relating to the UCC-1 financing
statements filed against such Seller pursuant to the Purchase Agreement as
shall be prepared by AmeriSource and provided to the Trustee to evidence such
termination; provided, however, that the Trustee shall have received (i) an
Officer's Certificate of the Servicer to the effect that all conditions to such
termination specified in such Section 1.8 have been satisfied (and shall not
have received notice from any Investor Certificateholder or Purchaser Agent to
the contrary) and (ii) an Opinion of Counsel to the effect that the filing of
such statements of partial release and/or amendment will not impair the
validity, perfection or priority of ARC's or the Trust's rights in and to (A)
any Receivables or Related Assets conveyed prior to the effective date of such
termination or (B) any Receivables or Related Assets generated by AmeriSource
on or after the effective date of such termination. In addition, after a
termination that complies with the requirements set out in the preceding
sentence, the Trustee shall, upon the request (and at the expense) of
AmeriSource, execute and deliver to AmeriSource the termination statements
relating to the UCC-1 financing statements filed against the Seller pursuant to
the Purchase Agreement as shall be prepared by AmeriSource and provided to the
Trustee to evidence the termination; provided, however, that the Trustee shall
have received an Officer's Certificate of the Servicer to the effect that the
Trust no longer holds any Receivables generated by the terminated Seller.
SECTION 13.21 Confidentiality. The Trustee and the Servicer (if
other than AmeriSource) acknowledge that all information concerning the Seller,
ARC, any AmeriSource Person, the Receivables and the Related Transferred Assets
(collectively the "Confidential Information") that has been, is being and will
be delivered or made available by the Seller and ARC to the Trustee and the
Servicer is highly confidential; provided, that the term "Confidential
Information" shall not include any of the foregoing information that is or
becomes generally available to the public or is or becomes available to the
Trustee or the Servicer (as applicable) on a nonconfidential basis or was or
becomes known to the Trustee or the Servicer (as applicable) on a
nonconfidential basis without violation of the section.
Each of the Trustee and the Servicer (if other than AmeriSource)
hereby agrees to use their respective best efforts to hold in confidence all
Confidential Information; provided, that nothing herein shall prevent the
Trustee and the Servicer from delivering copies of any
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financial statements and other documents whether or not constituting
Confidential Information, and disclosing other information, whether or not
Confidential Information, to:
(a) the respective directors, officers, employees, agents and
professional consultants (each of which being a "Representative") of the
Trustee and the Servicer who, in the case of each Representative, shall be
subject to confidentiality arrangements at least substantially comparable
hereto; provided, that Confidential Information shall be disclosed to or used
by a Representative only for purposes of evaluating the transactions
contemplated by the Transaction Documents and making any necessary business
determinations with respect thereto or for any of the purposes set forth in the
paragraph below clause (b), or
(b) any federal or state regulatory authority having jurisdiction
over the Trustee or the Servicer.
Each of the Trustee and the Servicer (if other than AmeriSource)
recognizes the competitive value and confidential nature of the Confidential
Information and the irreparable damage that could result to the Seller, ARC or
the other AmeriSource Persons if any Confidential Information is disclosed to
any third party in violation of the requirements of this section. Each of the
Trustee and the Servicer (if other than AmeriSource) recognizes that money
damages would not be a sufficient remedy for any breach of the requirements of
this section, and each of the foregoing severally agrees that the Seller, ARC
and any other AmeriSource Person shall be entitled to equitable relief,
including injunctive relief and specific performance, in the event of any
breach or potential breach of the requirements of this section, in addition to
all other remedies available to the Seller, ARC and the other AmeriSource
Persons at law or in equity. None of the requirements of this section may be
waived or amended except by prior written consent of the Seller, ARC or the
other AmeriSource Person, as applicable, who provided the information to the
Person who wishes to disclose it, which written consent shall expressly refer
to the requirements of this section.
[Remainder of page intentionally left blank.]
page 109
<PAGE> 116
IN WITNESS WHEREOF, ARC, the Servicer and the Trustee have caused this
Agreement to be executed by their respective officers thereunto duly authorized
as of the day and year first above written.
AMERISOURCE RECEIVABLES CORPORATION,
as the Transferor
By: /s/ Kurt J. Hilzinger
-----------------------------------------
Title: Vice President
-------------------------------------
Address: P.O. Box 1735
Southeastern, Pennsylvania
19399- 1735
Attention: Kurt Hilzinger
Telephone: (610) 296-4480
Facsimile: (610) 993-9085
AMERISOURCE CORPORATION,
as initial Servicer
By: /s/ Kurt J. Hilzinger
----------------------------------------
Title: Vice President, Finance and Treasurer
-------------------------------------
Address: 300 Chester Field Parkway
Malvern, Pennsylvania 19355
Attention: Vice President Finance and
Treasurer
Telephone: (610) 296-4480
Facsimile: (610) 993-9085
MANUFACTURERS AND TRADERS TRUST COMPANY,
as the Trustee
By: /s/ Stuart McFadden
----------------------------------------
Title: Trust Officer
-------------------------------------
Address: One M&T Plaza
Buffalo, New York 14203
Attention: Russell Whitley
Telephone: (716) 842-5602
Facsimile: (716) 842-4474
<PAGE> 117
STATE OF )
----------
) SS.
COUNTY OF )
---------
On the __ day of December, 1994 before me personally came
__________________, who, being by me duly sworn, did depose and say that he
resides at ___________________; that he is the ____________ of AmeriSource
Receivables Corporation, a Delaware corporation, the corporation described in
and that executed the foregoing instrument; and that he signed his name thereto
by order of the board of directors of the corporation.
Given under my hand and notarial seal, this __ day of December, 1994.
-----------------------------
Notary Public
Type or
Print Name:
-----------------
My commission expires:
- ---------------------
<PAGE> 118
STATE OF )
----------
) SS.
COUNTY OF )
---------
On the __ day of December, 1994 before me personally came
__________________, who, being by me duly sworn, did depose and say that he
resides at ___________________; that he is the ____________ of AmeriSource
Corporation, a Delaware corporation, the corporation described in and that
executed the foregoing instrument; and that he signed his name thereto by order
of the board of directors of the corporation.
Given under my hand and notarial seal, this __ day of December, 1994.
-----------------------------
Notary Public
Type or
Print Name:
-----------------
My commission expires:
- ---------------------
<PAGE> 119
STATE OF )
----------
) SS.
COUNTY OF )
---------
On the __ day of December, 1994 before me personally came
__________________, who, being by me duly sworn, did depose and say that he
resides at ___________________; that he is the ____________ of Manufacturers
and Traders Trust Company, a New York banking corporation, the corporation
described in and that executed the foregoing instrument; and that he signed his
name thereto by order of the board of directors of the corporation.
Given under my hand and notarial seal, this __ day of December, 1994.
-----------------------------
Notary Public
Type or
Print Name:
-----------------
My commission expires:
- ---------------------
<PAGE> 120
EXHIBIT A
to Pooling Agreement
FORM OF
LOCKBOX ACCOUNT LETTER AGREEMENT
, 1994
------- --
[NAME OF LOCKBOX BANK]
[ADDRESS OF LOCKBOX BANK]
Ladies and Gentlemen:
By this letter agreement, (a) AmeriSource Corporation ("AmeriSource")
irrevocably transfers exclusive ownership and control of its lockbox[es]
numbered ___________ ([each, a] [the] "Lockbox"[and collectively referred to
herein as the "Lockboxes"]) and the corresponding demand deposit account[s]
numbered __________ ([each, a] [the] "Lockbox Account" [and collectively
referred to herein as the "Lockbox Accounts"]) maintained with you to
AmeriSource Receivables Corporation ("ARC"), and (b) ARC irrevocably transfers
all of its rights and title to and interest in the Lockbox[es] and the Lockbox
Account[s] acquired hereby to Manufacturers and Traders Trust Company, as
trustee (the "Trustee") for the benefit of certain holders of certificates
issued by the Trustee under a Pooling and Servicing Agreement, dated as of
December 13, 1994 (the "Pooling Agreement"), among ARC, AmeriSource, as initial
Servicer, and the Trustee (collectively, the "Certificateholders") and of ARC
(to the extent of ARC's residual interest in the Transferred Assets (as defined
in the Pooling Agreement). AmeriSource acknowledges and agrees that ARC is
transferring to the Trustee the rights, titles and interests transferred by
AmeriSource to ARC as provided above, and each of AmeriSource and ARC agrees to
cooperate fully with the Trustee and its agents and representatives (including,
without limitation, the Servicer referred to hereinafter) in the exercise of
such rights. The transfers described in this paragraph are effective on and as
of the date of this letter agreement.
By executing this letter agreement, you acknowledge the existence of
the Trustee's right to dominion and control over the Lockbox[es] and the
Lockbox Account[s] and its ownership of and security interest in the
Lockbox[es], all moneys and instruments delivered to the Lockbox[es], the
Lockbox Account[s] and the amounts from time to time on deposit therein, and
agree that, from and after the date hereof, you shall maintain the Lockbox[es]
and the Lockbox Account[s] and shall hold all such moneys and instruments and
such amounts for the benefit and subject to the interests of the Trustee (for
the benefit of itself, the Certificateholders and ARC (to the extent described
above)). You also acknowledge that your execution of this letter agreement is
a condition precedent to continued maintenance of
<PAGE> 121
the Lockbox Account[s] with you. The Lockbox Account[s] [is] [are] to be
maintained in the name of "Manufacturers and Traders Trust Company, as
Trustee."
AmeriSource and ARC hereby irrevocably instruct you, and the Trustee,
by its acknowledgement hereof, hereby instructs you, at all times from and
after the date hereof until your receipt of contrary and/or terminating
instructions from the Trustee:
(a) to collect mail from the Lockbox[es] on each of your
business days at times that correspond with the delivery of mail
thereto,
(b) to follow your usual operating procedures for the
handling of any remittance received in the Lockbox[es] or the Lockbox
Account[s] that contains restrictive endorsements, irregularities
(such as a variance between the written and numerical amounts),
undated or postdated items, missing signatures or incorrect payees,
(c) to endorse and process all checks and other remittance
items received in the Lockbox Account[s] or the Lockbox[es] (including
any checks and other remittance items covered by clause (b) above that
are eligible for endorsement and processing) and deposit such checks
and remittance items in the Lockbox Account[s],
(d) to maintain a record of all checks and other remittance
items received in the Lockbox[es] and the Lockbox Account[s] and to
provide the Servicer (acting on behalf of the Trustee) and, upon
request, the Trustee, with photostatic copies, vouchers, enclosures,
etc. of such checks and remittance items on a daily basis, and
(e) to remit, on a daily basis, in immediately available
funds, all available amounts deposited in the Lockbox Account[s] to
the following account (the "Concentration Account") or such other
account as the Trustee or the Servicer may specify:
Corestates Bank
1339 Chestnut Street
Philadelphia, Pennsylvania 19107
ABA # 031000011
For credit to the
Manufacturers and Traders Trust Company, as
Trustee
Account No. 01019301
No such transfer of funds shall either reflect the rounding off of any
funds so transferred or constitute a partial remittance except for (i)
amounts applied to fees and expenses under the terms of this letter
agreement, and (ii) amounts deducted for returned checks that were
previously deposited in [a] [the] Lockbox Account and with respect to
which funds were previously transferred to the Concentration Account.
page 2
<PAGE> 122
All transfers referred to in paragraph (e) above shall be made by you
irrespective of, and without deduction for, any counterclaim, defense,
recoupment or set-off (except as expressly permitted otherwise by this letter
agreement) and shall be final, and you agree that you will not seek to recover
any amount from the Trustee, ARC, or the Servicer for any reason once any
payment or transfer has been made.
The Trustee's instructions with respect to the Lockbox[es] and the
Lockbox Account[s] may be given through a Servicer that the Trustee may appoint
from time to time and will notify you thereof in writing, and you agree to
follow the instructions of such Servicer with the same effect as if such
instructions were given by the Trustee directly (subject to any limitations on
such appointment imposed by the Trustee that are communicated in writing to
you) until such time as the Trustee notifies you of the revocation of the
Servicer's authority to act for the Trustee. The initial servicer will be
AmeriSource. The Trustee and the Servicer shall each provide to you a list of
their respective employees authorized to issue instructions and give notices
with respect to the Lockbox[es] and the Lockbox Account[s], which lists may be
revised from time to time, and you shall be entitled to rely on (and to assume)
the authority of any employee of the Trustee or the Servicer identified on such
lists, and are hereby authorized to act on any notice given on behalf of the
Trustee or the Servicer by any such employee, subject to any limitations on the
appointment of the Servicer and the revocation of the Servicer's authority as
provided above.
AmeriSource and ARC also hereby irrevocably notify you that, at all
times from and after the date hereof until your receipt of contrary and/or
terminating instructions from the Trustee, the Trustee shall be entitled
(subject to your rights set forth herein) to exercise in the place and stead of
AmeriSource and ARC (or either of them) any and all rights in respect of or in
connection with the Lockbox[es], this letter agreement and the Lockbox
Account[s], including, without limitation (i) the right to specify that
payments are to be made out of or in connection with the Lockbox Account[s] to
different accounts or at different times than those specified in clauses (c)
and (e) above (subject to your customary and then-current procedures for
lockbox processing) and (ii) the right to require preparation of duplicate
monthly bank statements on the Lockbox Account[s] for mailing directly to an
address specified by the Trustee.
By executing this letter agreement you acknowledge that you have not
heretofore received a notice, writ, order or any form of legal process from any
other person asserting, claiming or exercising, any right of set-off, banker's
lien or other purported form of claim with respect to the items collected from
the Lockbox[es], the Lockbox Account[s] or any funds from time to time therein
or in transit thereto, and agree to immediately inform the Trustee in writing
of any such action in the future.
By executing this letter agreement, you irrevocably waive and agree
not to assert, any right to setoff against, or otherwise deduct from, any items
collected from the Lockbox[es], the Lockbox Account[s] or any funds from time
to time therein or in transit thereto;
page 3
<PAGE> 123
provided, however, that you may (i) debit [a] [the] Lockbox Account for any
items deposited in [such] [the] Lockbox Account that are returned or otherwise
not collected in accordance with your customary practices for the chargeback of
returned items and (ii) apply funds in the Lockbox Account[s] for reimbursement
of any fees and expenses incurred by you in connection with this letter
agreement, to the extent that such fees and expenses are not paid or reimbursed
by AmeriSource.
AmeriSource shall pay, or reimburse you for, customary and reasonable
fees and expenses incurred by you in the maintenance and operation of the
Lockbox Account[s] in accordance with this letter agreement. The Trustee will
have no liability to you or the Servicer for any costs, fees or charges under
your usual and customary procedures or this letter agreement.
You also agree that, notwithstanding anything to the contrary herein:
(i) you shall promptly notify all relevant postmasters that the Trustee is
authorized to have access to the Lockbox[es]; and (ii) you shall promptly
notify the Trustee of your failure to receive timely payment of any fee under
this letter agreement.
You may terminate this letter agreement by cancelling the Lockbox
Account[s] and Lockbox[es], which cancellation and termination shall become
effective only upon sixty days' prior written notice thereof from you to the
Trustee. Upon the termination of this letter agreement, you will close the
Lockbox Account[s] and transfer any monies remaining therein to the Master
Collection Account. You agree that you shall forward all incoming mail
addressed to [any of] the Lockbox[es] or [the] Lockbox Account[s] and all wire
transfers and deposits to [any of] the Lockbox Account[s] that you receive
after such cancellation in the form received to another lockbox or to another
lockbox account or the Concentration Account or to such other address or
account as the Trustee (or the Servicer on behalf of the Trustee) shall
specify, promptly after you discover that you have received any such mail or
transfers. This letter agreement may also be terminated upon written notice to
you by the Trustee. Except as expressly set forth in this paragraph, this
letter agreement may not be terminated or amended without the prior written
consent of the Trustee.
All notices and other communications provided for hereunder shall,
unless otherwise stated herein, be in writing (including facsimile
communication) and shall be personally delivered or sent by certified mail,
postage prepaid, by facsimile or by overnight courier, to the intended person
at the address or facsimile number of such person set forth under its name on
the signature pages hereof or at such other address or facsimile number as
shall be designated by such person in a written notice to the other parties
hereto given in accordance with the requirements of this paragraph. All
notices and other communications hereunder shall also be provided to the
Trustee and shall be addressed as follows until you receive written notice from
the Trustee to the contrary:
page 4
<PAGE> 124
Manufacturers and Traders Trust Company
One M&T Plaza
Buffalo, New York 14203
Attention: Russell Whitley
Telephone: (716) 842-5602
Facsimile: (716) 842-4474.
All notices and communications provided for hereunder shall be
effective, (i) if personally delivered, when received, (ii) if sent by
certified mail, four business days after having been deposited in the mail,
postage prepaid and properly addressed, (iii) if transmitted by facsimile, when
sent, receipt confirmed by telephone or electronic means and (iv) if sent by
overnight courier, two business days after having been given to such courier
unless sooner received by the addressee.
This letter agreement shall be binding upon you and your successors
and assigns and shall inure to the benefit of AmeriSource, ARC, and the Trustee
and their respective successors, transferees and assigns; provided, however,
that you may not assign your rights and duties under this letter agreement
without the prior written consent of the Trustee.
This letter agreement shall be governed by and construed in accordance
with the laws of the State of New York, not including the choice of law rules
thereof.
Please acknowledge your agreement to the terms set forth in this
letter agreement by signing [four (4) copies] of this letter agreement in the
space provided below and returning such copies to us at the address indicated
below for AmeriSource.
Very truly yours,
AmeriSource Corporation
By:
-------------------------------
Title:
---------------------------
Address: 300 Chester Field Parkway
Malvern, Pennsylvania
19355
Attention: Kurt Hilzinger
Telephone: (610) 296-4480
Facsimile: (610) 993-9085
page 5
<PAGE> 125
AmeriSource Receivables Corporation
By:
-------------------------------
Title:
---------------------------
Address: P.O. Box 1735
Southeastern,
Pennsylvania
19399-1735
Attention: Kurt Hilzinger
Telephone: (610) 296-4480
Facsimile: (610) 993-9085
page 6
<PAGE> 126
TO: AmeriSource Corporation
AmeriSource Receivables Corporation
Manufacturers and Traders Trust Company, as Trustee
The undersigned hereby acknowledges and agrees to the foregoing letter
agreement as of this ___ day of _______, 1994.
[NAME OF LOCKBOX BANK]
By:
-------------------------------
Title:
-----------------------------
Address:
-------------------
-------------------
Telephone:
-------------------
Facsimile:
-------------------
page 7
<PAGE> 127
TO: [NAME OF LOCKBOX BANK]
[ADDRESS OF LOCKBOX BANK]
The undersigned hereby acknowledges and agrees to the foregoing letter
agreement dated as of the ___ day of ________, 1994:
MANUFACTURERS AND TRADERS TRUST COMPANY,
as Trustee
By:
--------------------------------------
Title:
------------------------------------
page 8
<PAGE> 128
EXHIBIT B
to Pooling Agreement
FORM OF
CONCENTRATION ACCOUNT LETTER AGREEMENT
November , 1994
--
Corestates Bank
1339 Chestnut Street
Philadelphia, Pennsylvania 19107
Ladies and Gentlemen:
By this letter agreement, (a) AmeriSource Corporation ("AmeriSource")
irrevocably transfers exclusive ownership and control of its demand deposit
account numbered 01019301 (the "Concentration Account") maintained with you to
AmeriSource Receivables Corporation ("ARC"), and (b) ARC irrevocably transfers
all of its rights and title to and interest in the Concentration Account
acquired hereby to Manufacturers and Traders Trust Company, as trustee (the
"Trustee") for the benefit of certain holders of certificates issued by the
Trustee under a Pooling and Servicing Agreement, dated as of December 13, 1994
(the "Pooling Agreement"), among ARC, AmeriSource, as initial Servicer, and the
Trustee (collectively, the "Certificateholders") and of ARC (to the extent of
ARC's residual interest in the Transferred Assets (as defined in the Pooling
Agreement). AmeriSource acknowledges and agrees that ARC is transferring to
the Trustee the rights, titles and interests transferred by AmeriSource to ARC
as provided above, and each of AmeriSource and ARC agrees to cooperate as
provided in the Pooling Agreement with the Trustee and its agents and
representatives (including, without limitation, the Servicer referred to
hereinafter) in the exercise of such rights. The transfers described in this
paragraph are effective on and as of the date of this letter agreement.
By executing this letter agreement, you acknowledge the existence of
the Trustee's right to dominion and control over the Concentration Account and
its ownership of and security interest in the Concentration Account, all moneys
and instruments delivered to the Concentration Account and the amounts from
time to time on deposit therein, and agree that, from and after the date
hereof, you shall maintain the Concentration Account and shall hold all such
moneys and instruments and such amounts for the benefit and subject to the
interests of the Trustee (for the benefit of itself, the Certificateholders and
ARC (to the extent described above)). You also acknowledge that your execution
of this letter agreement is a condition precedent to continued maintenance of
the
<PAGE> 129
Concentration Account with you. The Concentration Account is to be
maintained in the name of "Manufacturers and Traders Trust Company, as
Trustee."
AmeriSource and ARC hereby irrevocably instruct you, and the Trustee,
by its acknowledgement hereof, hereby instructs you, at all times from and
after the date hereof until your receipt of contrary and/or terminating
instructions from the Trustee:
(a) to follow your usual operating procedures for the
handling of any remittance received in the Concentration Account that
contains restrictive endorsements, restrictive or conditional
notations (i.e., "paid in full" or "final payment"), irregularities
(such as a variance between the written and numerical amounts),
undated or postdated items, missing signatures or incorrect payees,
(b) to endorse and process all checks and other remittance
items received in the Concentration Account (including any checks and
other remittance items covered by clause (a) above that are eligible
for endorsement and processing),
(c) to maintain a record of all checks and other remittance
items received in the Concentration Account and to provide the
Servicer (acting on behalf of the Trustee) and, upon request, the
Trustee, with photostatic copies, vouchers, enclosures, etc. of such
checks and remittance items on a daily basis, and
(d) to remit, on a daily basis, in immediately available
funds, all available and collected amounts deposited in the
Concentration Account to the following account (the "Master Collection
Account") or such other account as the Trustee or the Servicer may
specify:
Manufacturers and Traders Trust Company
One M&T Plaza
Buffalo, New York 14203
ABA # 022000046
For credit to the
MANUFACTURERS AND TRADERS TRUST COMPANY,
AS TRUSTEE
Account No. 185481728
No such transfer of funds shall either reflect the rounding off of any
funds so transferred or constitute a partial remittance except for (i)
amounts applied to fees and expenses under the terms of this letter
agreement, and (ii) amounts deducted for returned checks that were
previously deposited in the Concentration Account and with respect to
which funds were previously transferred to the Master Collection
Account.
page 2
<PAGE> 130
All transfers referred to in paragraph (d) above shall be made by you
irrespective of, and without deduction for, any counterclaim, defense,
recoupment or set-off (except as expressly permitted otherwise by this letter
agreement) and shall be final, and you agree that you will not seek to recover
any amount from the Trustee, ARC or the Servicer for any reason once any
payment or transfer has been made.
The Trustee's instructions with respect to the Concentration Account
may be given through a Servicer that the Trustee may appoint from time to time
and will notify you thereof in writing, and you agree to follow the
instructions of such Servicer with the same effect as if such instructions were
given by the Trustee directly (subject to any limitations on such appointment
imposed by the Trustee that are communicated in writing to you) until such time
as the Trustee notifies you of the revocation of the Servicer's authority to
act for the Trustee. The initial servicer will be AmeriSource. The Trustee
and the Servicer shall each provide to you a list of their respective employees
authorized to issue instructions and give notices with respect to the
Concentration Account, which lists may be revised from time to time, and you
shall be entitled to rely on (and to assume) the authority of any employee of
the Trustee or the Servicer identified on such lists, and are hereby authorized
to act on any notice given on behalf of the Trustee or the Servicer by any such
employee, subject to any limitations on the appointment of the Servicer and the
revocation of the Servicer's authority as provided above.
AmeriSource and ARC also hereby irrevocably notify you that, at all
times from and after the date hereof until your receipt of contrary and/or
terminating instructions from the Trustee, the Trustee shall be entitled
(subject to your rights set forth herein) to exercise in the place and stead of
AmeriSource and ARC (or either of them) any and all rights in respect of or in
connection with this letter agreement and the Concentration Account, including,
without limitation (i) the right to specify that payments are to be made out of
or in connection with the Concentration Account to different accounts or at
different times than those specified in clauses (b) and (d) above (subject to
your customary and then-current procedures for account processing) and (ii) the
right to require preparation of duplicate monthly bank statements on the
Concentration Account for mailing directly to an address specified by the
Trustee.
By executing this letter agreement you acknowledge that you have not
heretofore received a notice, writ, order or any form of legal process from any
other person asserting, claiming or exercising any right of set-off, banker's
lien or other purported form of claim with respect to the items collected from
the Concentration Account or any funds from time to time therein or in transit
thereto, and agree to immediately inform the Trustee in writing of any such
action in the future.
By executing this letter agreement, you irrevocably waive and agree
not to assert any right to setoff against, or otherwise deduct from, any items
collected from the Concentration Account or any funds from time to time therein
or in transit thereto; provided, however, that you may (i) debit the
Concentration Account for any items deposited in the Concentration
page 3
<PAGE> 131
Account that are returned or otherwise not collected in accordance with your
customary practices for the chargeback of returned items and (ii) apply funds
in the Concentration Account for reimbursement of any fees and expenses
incurred by you in connection with this letter agreement, to the extent that
such fees and expenses are not paid or reimbursed by AmeriSource.
AmeriSource shall pay, or reimburse you for, customary and reasonable
fees and expenses incurred by you in the maintenance and operation of the
Concentration Account in accordance with this letter agreement. The Trustee
will have no liability to you or the Servicer for any costs, fees or charges
under your usual and customary procedures or this letter agreement.
You also agree that, notwithstanding anything to the contrary herein,
you shall promptly notify the Trustee of your failure to receive timely payment
of any fee under this letter agreement.
You may terminate this letter agreement by cancelling the
Concentration Account, which cancellation and termination shall become
effective only upon sixty days' prior written notice thereof from you to the
Trustee. Upon the termination of this letter agreement, you will close the
Concentration Account and transfer any monies remaining therein to the Master
Collection Account. You agree that you shall forward all wire transfers and
deposits to the Concentration Account that you receive after such cancellation
in the form received to the Master Collection Account or to such other address
or account as the Trustee (or the Servicer on behalf of the Trustee) shall
specify, promptly after you discover that you have received any such transfers.
This letter agreement may also be terminated upon written notice to you by the
Trustee. Except as expressly set forth in this paragraph, this letter
agreement may not be terminated or amended without the prior written consent of
the Trustee.
All notices and other communications provided for hereunder shall,
unless otherwise stated herein, be in writing (including facsimile
communication) and shall be personally delivered or sent by certified mail,
postage prepaid, by facsimile or by overnight courier, to the intended person
at the address or facsimile number of such person set forth under its name on
the signature pages hereof or at such other address or facsimile number as
shall be designated by such person in a written notice to the other parties
hereto given in accordance with the requirements of this paragraph. All
notices and other communications hereunder shall also be provided to the
Trustee and shall be addressed as follows until you receive written notice from
the Trustee to the contrary:
page 4
<PAGE> 132
Manufacturers and Traders Trust Company
One M&T Plaza
Buffalo, New York 14203
Attention: Corporate Trust and Agency Services
Telephone: (716) 842-5602
Facsimile: (716) 842-4474.
All notices and communications provided for hereunder shall be
effective, (i) if personally delivered, when received, (ii) if sent by
certified mail, four business days after having been deposited in the mail,
postage prepaid and properly addressed, (iii) if transmitted by facsimile, when
sent, receipt confirmed by telephone or electronic means and (iv) if sent by
overnight courier, two business days after having been given to such courier
unless sooner received by the addressee.
This letter agreement shall be binding upon you and your successors
and assigns and shall inure to the benefit of AmeriSource, ARC and the Trustee
and their respective successors, transferees and assigns; provided, however,
that you may not assign your rights and duties under this letter agreement
without the prior written consent of the Trustee.
This letter agreement shall be governed by and construed in accordance
with the laws of the State of New York, not including the choice of law rules
thereof.
Please acknowledge your agreement to the terms set forth in this
letter agreement by signing [four (4) copies] of this letter agreement in the
space provided below and returning such copies to us at the address indicated
below for AmeriSource.
Very truly yours,
AmeriSource Corporation
By:
----------------------------------------------
Title: Vice President, Legal Counsel
Address: 300 Chester Field Parkway
Malvern, Pennsylvania 19355
Attention: Teresa T. Ciccotelli
Telephone: (610) 296-4480
Facsimile: (610) 647-0141
page 5
<PAGE> 133
AmeriSource Receivables Corporation
By:
----------------------------------------------
Title:
------------------------------------------
Address: P.O. Box 1735
Southeastern, Pennsylvania 19399-1735
Attention: Kurt Hilzinger
Telephone: (610) 993-3407
Facsimile: (610) 993-9085
page 6
<PAGE> 134
TO: AmeriSource Corporation
AmeriSource Receivables Corporation
Manufacturers and Traders Trust Company, as Trustee
The undersigned hereby acknowledges and agrees to the foregoing letter
agreement as of this ___ day of November, 1994.
CORESTATES BANK
By:
----------------------------------------------
Title:
------------------------------------------
Address: 1339 Chestnut Street
Philadelphia, Pennsylvania 19107
Telephone:
----------------------------------
Facsimile:
----------------------------------
page 7
<PAGE> 135
TO: CORESTATES BANK
1339 Chestnut Street
Philadelphia, Pennsylvania 19107
The undersigned hereby acknowledges and agrees to the foregoing letter
agreement dated as of the ___ day of ________, 1994:
MANUFACTURERS AND TRADERS TRUST COMPANY,
as Trustee
By:
--------------------------------------
Title:
------------------------------------
page 8
<PAGE> 136
EXHIBIT C-1
to Pooling Agreement
FORM OF
DAILY REPORT (PRE-LIQUIDATION)
------------------------------
<PAGE> 137
EXHIBIT C-2
to Pooling Agreement
FORM OF
DAILY REPORT (LIQUIDATION)
--------------------------
<PAGE> 138
EXHIBIT D-1
to Pooling Agreement
FORM OF
SETTLEMENT STATEMENT (PRE-LIQUIDATION)
--------------------------------------
<PAGE> 139
EXHIBIT D-2
to Pooling Agreement
FORM OF
SETTLEMENT STATEMENT (LIQUIDATION)
----------------------------------
<PAGE> 140
EXHIBIT E
to Pooling Agreement
FORM OF
MONTHLY SERVICER'S CERTIFICATE
TO: Manufacturers and Traders Trust Company
[Paying Agent]
AmeriSource Receivables Corporation
[Name of Rating Agency]
AMERISOURCE CORPORATION (the "Servicer") hereby certifies that:
(A) This Certificate is being delivered pursuant to Section 3.06 of
the Pooling and Servicing Agreement, dated as of December 13, 1994, (as the
same may be amended, supplemented, amended and restated or otherwise modified
from time to time, the "Pooling Agreement"), among AmeriSource Receivables
Corporation, as Transferor, the Servicer, and Manufacturers and Traders Trust
Company, as the Trustee.
(B) As of the date of this Certificate, the Authorized Officer (as
defined in the Pooling Agreement) that is executing this Certificate is not
aware of the occurrence and continuance of any Liquidation Event, Unmatured
Liquidation Event or Pay-Out Event (each as defined in the Pooling Agreement).
[If a Liquidation Event, Unmatured Liquidation Event and/or Pay-Out Event has
occurred and is continuing, specify each such Liquidation Event, Unmatured
Liquidation Event and/or Pay-Out Event (as applicable) of which the Authorized
Officer executing this Certificate is aware and the nature and status thereof
and further certify that such information is true and accurate in all material
respects.]
(C) The method for calculating tax reserves reflected in the books
and records of AmeriSource and ARC complies with GAAP and fairly presents
estimated tax liabilities to the best of AmeriSource's and ARC's knowledge.
[(D) Neither AmeriSource nor ARC have any obligations to any
Restricted Federal Obligor or State Obligor that are due and payable and could
be set off against the Unpaid Balance of the Receivable owed by such Obligor.]
<PAGE> 141
IN WITNESS WHEREOF, the Servicer has caused this Certificate to be
executed by its duly authorized officer this __ day of _______________, 19__.
AMERISOURCE CORPORATION
By:
----------------------------------------------
Title:
--------------------------------------------
[AMERISOURCE RECEIVABLES
CORPORATION
By:
------------------------------------------
Title: ]
----------------------------------------
<PAGE> 142
EXHIBIT F
to Pooling Agreement
FORM OF
MONTHLY REPORT TO CERTIFICATEHOLDERS
------------------------------------
<PAGE> 143
EXHIBIT G
to Pooling Agreement
FORM OF
ARC REVOLVING CERTIFICATE
THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), THE SECURITIES OR "BLUE SKY" LAWS OF ANY STATE
OR THE LAWS OF ANY FOREIGN COUNTRY. THIS CERTIFICATE MAY NOT BE RESOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS SUCH RESALE, TRANSFER OR
DISPOSITION IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
AND APPLICABLE STATE SECURITIES LAWS AND FOREIGN LAWS. IN ADDITION TO THE
RESTRICTIONS SET FORTH ABOVE, RESALE, TRANSFER OR DISPOSITION OF THIS
CERTIFICATE IS PROHIBITED TO THE EXTENT SET FORTH IN THE POOLING AGREEMENT (AS
DEFINED BELOW).
AMERISOURCE RECEIVABLES MASTER TRUST
ARC REVOLVING CERTIFICATE
THIS CERTIFIES THAT AMERISOURCE RECEIVABLES CORPORATION is the
registered owner of a nonassessable, fully-paid, fractional undivided interest
in the AmeriSource Receivables Master Trust (the "Trust"), which was created
pursuant to the Pooling and Servicing Agreement, dated as of December 13, 1994
(as the same may be amended, supplemented, amended and restated or otherwise
modified from time to time, the "Pooling Agreement"), by and among AmeriSource
Receivables Corporation, a Delaware corporation, as Transferor ("ARC"),
AmeriSource Corporation, as initial Servicer (in such capacity, the
"Servicer"), and Manufacturers and Traders Trust Company, as trustee (in such
capacity, together with its successors and assigns in such capacity, the
"Trustee"). This Certificate is the duly authorized ARC Revolving Certificate
designated and issued under the Pooling Agreement. To the extent not otherwise
defined herein, capitalized terms have the meanings assigned to them in
Appendix A to the Pooling Agreement. This Certificate is subject to the terms,
provisions and conditions of, and is entitled to the benefits afforded by, the
Pooling Agreement, to which terms, provisions and conditions the holder of this
Certificate by virtue of the acceptance hereof assents and by which the holder
is bound.
The outstanding principal amount of this Certificate may vary from
time to time as is further set forth in the Pooling Agreement.
<PAGE> 144
This Certificate shall not bear interest.
The Pooling Agreement may be amended and the rights and obligations of
the parties thereto and of the holder of this Certificate modified as set forth
in the Pooling Agreement.
Unless the certificate of authentication hereon shall have been
executed by or on behalf of the Trustee by the manual signature of a duly
authorized signatory, this Certificate shall not entitle the holder hereof to
any benefit under the Pooling Agreement or under any other Transaction Document
or be valid for any purpose.
This Certificate does not represent a recourse obligation of, or an
interest in, ARC, the Seller, the Servicer, the Trustee or any Affiliate of any
of them. This Certificate is limited in right of payment to the Trust Assets.
ARC may not transfer, assign, exchange or otherwise convey or pledge,
hypothecate or otherwise grant a security interest in this Certificate or any
interest represented hereby except in compliance with the terms, conditions and
restrictions set forth in the Pooling Agreement.
This Certificate shall be construed in accordance with the laws of the
State of New York, without reference to its conflict of laws principles, and
all obligations, rights and remedies under, or arising in connection with, this
Certificate shall be determined in accordance with the laws of the State of New
York.
2
<PAGE> 145
IN WITNESS WHEREOF, ARC has caused this Certificate to be executed by
its officer thereunto duly authorized.
AMERISOURCE RECEIVABLES CORPORATION
By:
----------------------------------------
Title:
-----------------------------------
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is the ARC Revolving Certificate referred to in the Pooling
Agreement.
MANUFACTURERS AND TRADERS TRUST COMPANY,
as Trustee
By:
----------------------------------------
Title:
-----------------------------------
Dated: , 1994
---------------------------
3
<PAGE> 146
EXHIBIT H
to Pooling Agreement
FORM OF
RESIDUAL CERTIFICATE
THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), THE SECURITIES OR "BLUE SKY" LAWS OF ANY STATE
OR THE LAWS OF ANY FOREIGN COUNTRY. THIS CERTIFICATE MAY NOT BE RESOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS SUCH RESALE, TRANSFER OR
DISPOSITION IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
AND APPLICABLE STATE SECURITIES LAWS AND FOREIGN LAWS. IN ADDITION TO THE
RESTRICTIONS SET FORTH ABOVE, RESALE, TRANSFER OR DISPOSITION OF THIS
CERTIFICATE IS PROHIBITED TO THE EXTENT SET FORTH IN THE POOLING AGREEMENT (AS
DEFINED BELOW).
AMERISOURCE RECEIVABLES MASTER TRUST
RESIDUAL CERTIFICATE
THIS CERTIFIES THAT AMERISOURCE RECEIVABLES CORPORATION is the
registered owner of a nonassessable, fully-paid, remainder interest in the
AmeriSource Receivables Master Trust (the "Trust"), which was created pursuant
to the Pooling and Servicing Agreement, dated as of December 13, 1994 (as the
same may be amended, supplemented, amended and restated or otherwise modified
from time to time, the "Pooling Agreement"), by and among AmeriSource
Receivables Corporation ("ARC"), AmeriSource Corporation, as initial Servicer
(in such capacity, the "Servicer"), and Manufacturers and Traders Trust
Company, as Trustee (in such capacity, together with its successors and assigns
in such capacity, the "Trustee"). This Certificate is the duly authorized
Residual Certificate designated and issued under the Pooling Agreement. To the
extent not otherwise defined herein, capitalized terms have the meanings
assigned to them in Appendix A to the Pooling Agreement. This Certificate is
subject to the terms, provisions and conditions of, and is entitled to the
benefits afforded by, the Pooling Agreement, to which terms, provisions and
conditions the holder of this Certificate, by virtue of the acceptance hereof,
assents and by which the holder is bound.
This Certificate represents the ownership interest in the remainder of
the Trust Assets not allocated pursuant to the Pooling Agreement to the Fixed
Principal Interest,
<PAGE> 147
the Purchased Interests or the Revolving Certificate Interest, including the
right to receive payments at the times and in the amounts specified in the
Pooling Agreement.
This Certificate shall not bear interest.
The Pooling Agreement may be amended and the rights and obligations of
the parties thereto and of the holder of this Certificate modified as set forth
in the Pooling Agreement.
Unless the certificate of authentication hereon shall have been
executed by or on behalf of the Trustee by the manual signature of a duly
authorized signatory, this Certificate shall not entitle the holder hereof to
any benefit under the Pooling Agreement or under any other Transaction Document
or be valid for any purpose.
This Certificate does not represent an obligation of, or an interest
in ARC, the Seller, the Servicer, the Trustee or any Affiliate of any of them.
This Certificate is limited in right of payment to the Trust Assets.
ARC may not transfer, assign, exchange or otherwise convey or pledge,
hypothecate or otherwise grant a security interest in this Certificate or any
interest represented hereby except in compliance with the terms, conditions and
restrictions set forth in the Pooling Agreement.
This Certificate shall be construed in accordance with the laws of the
State of New York, without reference to its conflict of laws principles, and
all obligations, rights and remedies under, or arising in connection with, this
Certificate shall be determined in accordance with the laws of the State of New
York.
2
<PAGE> 148
IN WITNESS WHEREOF, ARC has caused this Certificate to be executed by
its officer thereunto duly authorized.
AMERISOURCE RECEIVABLES CORPORATION
By:
----------------------------------------
Title:
------------------------------------
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is the Residual Certificate referred to in the Pooling Agreement.
MANUFACTURERS AND TRADERS TRUST COMPANY,
as Trustee
By:
----------------------------------------
Title:
------------------------------------
Dated: , 1994
---------------------------
3
<PAGE> 149
EXHIBIT I
to Pooling Agreement
FORM OF
OWNER REGULATION S CERTIFICATION
FORM OF CERTIFICATE TO BE GIVEN BY CERTIFICATEHOLDER
<TABLE>
<S> <C>
[Euroclear [Cedel, societe anonyme
151 Boulevard Jacqmain 67 Boulevard Grand-Duchesse Charlotte
B-1210 Brussels, Belgium] L-1331 Luxembourg]
</TABLE>
Re: [Description of Certificates] issued pursuant to the Pooling
and Servicing Agreement dated as of December 13, 1994, among
AmeriSource Receivables Corporation, AmeriSource Corporation
and Manufacturers and Traders Trust Company, as Trustee, (the
"Certificates").
This is to certify that as of the date hereof, and except as set forth
below, the beneficial interest in the Certificates held by you for our account
is owned by persons that are not U.S. persons (as defined in Rule 901 under the
Securities Act of 1933, as amended).
The undersigned undertakes to advise you promptly by tested telex on
or prior to the date on which you intend to submit your certification relating
to the Certificates held by you in which the undersigned has acquired, or
intends to acquire, a beneficial interest in accordance with your operating
procedures if any applicable statement herein is not correct on such date. In
the absence of any such notification, it may be assumed that this certification
applies as of such date.
[This certification excepts beneficial interests in and does not
relate to U.S. $_________ principal amount of the Certificates appearing in
your books as being held for our account but that we have sold or as to which
we are not yet able to certify.]
We understand that this certification is required in connection with
certain securities laws in the United States of America. If administrative or
legal proceedings are commenced or threatened in connection with which this
certification is or would be relevant, we irrevocably authorize you to produce
this certification or a copy thereof to any interested party in such
proceedings.
<TABLE>
<S> <C>
Dated: ,* By: ,
------------------- --------------------------------
Account Holder
</TABLE>
* Certification must be dated on or after the 15th day before the date
of the Euroclear or Cedel certificate to which this certification relates.
1
<PAGE> 150
EXHIBIT J
to Pooling Agreement
FORM OF
TRANSFEREE REGULATION S CERTIFICATION
FORM OF CERTIFICATE TO BE GIVEN BY TRANSFEREE OF BENEFICIAL
INTEREST IN A REGULATION S TEMPORARY BOOK-ENTRY CERTIFICATE
<TABLE>
<S> <C>
[Euroclear [Cedel, societe anonyme
151 Boulevard Jacqmain 67 Boulevard Grand-Duchesse Charlotte
B-1210 Brussels, Belgium] L-1331 Luxembourg]
</TABLE>
Re: [Description of Certificates] issued pursuant to the Pooling
and Servicing Agreement dated as of December 13, 1994, among
AmeriSource Receivables Corporation, AmeriSource Corporation
and Manufacturers and Traders Trust Company, as Trustee, (the
"Certificates").
This is to certify that as of the date hereof, and except as set forth
below, for purposes of acquiring a beneficial interest in the Certificates, the
undersigned certifies that it is not a U.S. person (as defined in Rule 901
under the Securities Act of 1933, as amended).
The undersigned undertakes to advise you promptly by tested telex on
or prior to the date on which you intend to submit your certification relating
to the Certificates held by you in which the undersigned intends to acquire a
beneficial interest in accordance with your operating procedures if any
applicable statement herein is not correct on such date. In the absence of any
such notification, it may be assumed that this certification applies as of such
date.
We understand that this certification is required in connection with
certain securities laws in the United States of America. If administrative or
legal proceedings are commenced or threatened in connection with which this
certification is or would be relevant, we irrevocably authorize you to produce
this certification or a copy thereof to any interested party in such
proceedings.
<TABLE>
<S> <C> <C>
Dated: , By:
------------------- -------------------------------------
</TABLE>
1
<PAGE> 151
EXHIBIT K
to Pooling Agreement
FORM OF
DEPOSITARY REGULATION S CERTIFICATION
FORM OF CERTIFICATE TO BE GIVEN BY EUROCLEAR OR CEDEL
[Trustee and Transfer Agent and Registrar]
Re: [Description of Certificates] issued pursuant to the Pooling
and Servicing Agreement dated as of December 13, 1994, among
AmeriSource Receivables Corporation, AmeriSource Corporation
and Manufacturers and Traders Trust Company, as Trustee, (the
"Certificates").
This is to certify that, based solely on certifications we have
received in writing, by tested telex or by electronic transmission from member
organizations appearing in our records as persons being entitled to a portion
of the principal amount set forth below (our "Member Organizations") as of the
date hereof, $__________ principal amount of the Certificates is owned by
persons (a) that are not U.S. persons (as defined in Rule 901 under the
Securities Act of 1933, as amended (the "Securities Act")) or (b) who purchased
their Certificates (or interests therein) in a transaction or transactions that
did not require registration under the Securities Act.
We further certify (a) that we are not making available herewith for
exchange any portion of the related Regulation S Temporary Book-Entry
Certificate excepted in such certifications and (b) that as of the date hereof
we have not received any notification from any of our Member Organizations to
the effect that the statements made by them with respect to any portion of the
part submitted herewith for exchange are no longer true and cannot be relied
upon as of the date hereof.
We understand that this certification is required in connection with
certain securities laws of the United States of America. If administrative or
legal proceedings are commenced or threatened in connection with which this
certification is or would be relevant, we irrevocably authorize you to produce
this certification or a copy hereof to any interested party in such
proceedings.
<TABLE>
<S> <C>
Date: * Yours faithfully,
-----------------
* To be dated no earlier By:
--------------------------------------
than the Effective Date. [Morgan Guaranty Trust Company of New
York, Brussels Office, as Operator of
the Euroclear Clearance System]
[Cedel, societe anonyme]
</TABLE>
1
<PAGE> 152
EXHIBIT L
to Pooling Agreement
FORM OF
TRANSFER TO REGULATION S CERTIFICATION
FORM OF TRANSFER CERTIFICATE FOR EXCHANGE OR TRANSFER FROM 144A
BOOK-ENTRY CERTIFICATE TO REGULATION S TEMPORARY BOOK-ENTRY
CERTIFICATE OR UNRESTRICTED BOOK-ENTRY CERTIFICATE
[Trustee and Transfer Agent and Registrar]
Re: [Description of Certificates] issued pursuant to the Pooling
and Servicing Agreement dated as of December 13, 1994, among
AmeriSource Receivables Corporation, AmeriSource Corporation
and Manufacturers and Traders Trust Company, as Trustee, (the
"Certificates").
Reference is hereby made to the Pooling and Servicing Agreement dated
as of December 13, 1994 (the "Agreement") between AmeriSource Receivables
Corporation, as transferor, AmeriSource Corporation, as initial Servicer, and
Manufacturers and Traders Trust Company, as Trustee. Capitalized terms used
but not defined herein shall have the meanings given to them in the Agreement.
This letter relates to U.S. $___________ principal amount of
Certificates that are held as a beneficial interest in the 144A Book-Entry
Certificate (CUSIP No. _______) with DTC in the name of [insert name of
transferor] (the "Transferor"). The Transferor has requested an exchange or
transfer of the beneficial interest for an interest in the Regulation S
Book-Entry Certificate (CUSIP No. _______) to be held with [Euroclear] [Cedel]
through DTC.
In connection with the request and in receipt of the Certificates, the
Transferor does hereby certify that the exchange or transfer has been effected
in accordance with the transfer restrictions set forth in the Agreement and the
Certificates and:
(a) pursuant to and in accordance with Regulation S under the
Securities Act of 1933, as amended (the "Securities Act"), and
accordingly the Transferor does hereby certify that:
(i) the offer of the Certificates was not made to a
States person in the United of America,
[(ii) at the time the buy order was originated, the
transferee was outside the United States of America or the
Transferor and any person acting
1
<PAGE> 153
on its behalf reasonably believed that the transferee was
outside the United States of America,
(ii) the transaction was executed in, on or through
the facilities of a designated offshore securities market and
neither the Transferor nor any person acting on its behalf
knows that the transaction was pre-arranged with a buyer in
the United States of America,]*
(iii) no directed selling efforts have been made in
contravention of the requirements of Rule 903(b) or 904(b) of
Regulation S, as applicable,
(iv) the transaction is not part of a plan or scheme
to evade the registration requirements of the Securities Act,
and
(b) with respect to transfers made in reliance on Rule 144
under the Securities Act, the Transferor does hereby certify that the
Certificates are being transferred in a transaction permitted by Rule
144 under the Securities Act.
This certification and the statements contained herein are made for
your benefit and the benefit of the issuer and the [placement agent].
[Insert name of Transferor]
Dated: By:
------------------- -------------------------------
Title:
-------------------
* Insert one of these two provisions, which come from the definition of
"offshore transactions" in Regulation S.
2
<PAGE> 154
EXHIBIT M
to Pooling Agreement
FORM OF
PLACEMENT AGENT EXCHANGE INSTRUCTIONS
EXCHANGE INSTRUCTIONS FROM [placement agent]
Depository Trust Company
55 Water Street
50th Floor
New York, New York 10041
Re: [Description of Certificates] issued pursuant to the Pooling
and Servicing Agreement dated as of December 13, 1994, among
AmeriSource Receivables Corporation, AmeriSource Corporation
and Manufacturers and Traders Trust Company, as Trustee, (the
"Certificates").
Pursuant to Section 6.03 of the Pooling and Servicing Agreement dated
as of December 13, 1994 (the "Agreement") among AmeriSource Receivables
Corporation, as transferor, AmeriSource Corporation, as initial Servicer, and
Manufacturers and Traders Trust Company, as Trustee, _______________________
(the "Placement Agent") hereby requests that $____________ aggregate principal
amount of the Certificates held by you for our account and represented by the
Regulation S Temporary Book-Entry Certificate (CUSIP No. _______) (as defined
in the Agreement) be exchanged for an equal principal amount represented by the
144A Book-Entry Certificate (CUSIP No. _______) to be held by you for our
account.
Dated: [placement agent]
---------------------------
By:
---------------------------------
Title:
----------------------------
1
<PAGE> 155
EXHIBIT N
to Pooling Agreement
FORM OF
RESTRICTIVE LEGENDS
ARC REVOLVING CERTIFICATE
THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), THE SECURITIES OR "BLUE SKY" LAWS OF ANY STATE
OR THE LAWS OF ANY FOREIGN COUNTRY. THIS CERTIFICATE MAY NOT BE RESOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS SUCH RESALE, TRANSFER OR
DISPOSITION IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
AND APPLICABLE STATE SECURITIES LAWS AND FOREIGN LAWS. IN ADDITION TO THE
RESTRICTIONS SET FORTH ABOVE, RESALE, TRANSFER OR DISPOSITION OF THIS
CERTIFICATE IS PROHIBITED TO THE EXTENT SET FORTH IN THE POOLING AGREEMENT (AS
DEFINED BELOW).
RESIDUAL CERTIFICATE
THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), THE SECURITIES OR "BLUE SKY" LAWS OF ANY STATE
OR THE LAWS OF ANY FOREIGN COUNTRY. THIS CERTIFICATE MAY NOT BE RESOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS SUCH RESALE, TRANSFER OR
DISPOSITION IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
AND APPLICABLE STATE SECURITIES LAWS AND FOREIGN LAWS. IN ADDITION TO THE
RESTRICTIONS SET FORTH ABOVE, RESALE, TRANSFER OR DISPOSITION OF THIS
CERTIFICATE IS PROHIBITED TO THE EXTENT SET FORTH IN THE POOLING AGREEMENT (AS
DEFINED BELOW).
SERIES 1994-1 INVESTOR REVOLVING CERTIFICATE
THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER THE SECURITIES OR BLUE
SKY LAWS OF ANY STATE OF THE UNITED STATES OF AMERICA. THE CERTIFICATEHOLDER
HEREOF, BY PURCHASING THIS CERTIFICATE, AGREES THAT THIS CERTIFICATE MAY
1
<PAGE> 156
BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY IN COMPLIANCE WITH
THE SECURITIES ACT AND OTHER APPLICABLE LAWS AND ONLY (1) PURSUANT TO RULE 144A
UNDER THE SECURITIES ACT ("RULE 144A") TO A PERSON THAT THE CERTIFICATEHOLDER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF
RULE 144A (A "QUALIFIED INSTITUTIONAL BUYER"), PURCHASING FOR ITS OWN ACCOUNT
OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER, AND WHOM THE
CERTIFICATEHOLDER HAS INFORMED, IN EACH CASE, THAT THE OFFER, RESALE, PLEDGE OR
OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (2) IN A TRANSACTION
COMPLYING WITH THE PROVISIONS OF REGULATION S UNDER THE SECURITIES ACT OR (3)
PURSUANT TO ANOTHER EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT AND
THE TRUSTEE AND ARC RECEIVES WRITTEN REPRESENTATIONS OF THE TRANSFEROR AND
TRANSFEREE SATISFACTORY TO THE TRUSTEE AND ARC REGARDING THE DISPOSITIONS, AND,
IF THE TRUSTEE OR ARC SO REQUIRES, AN OPINION OF COUNSEL OF THE TRANSFEROR
SATISFACTORY TO THE TRUSTEE AND ARC WITH RESPECT TO THE AVAILABILITY OF SUCH
EXEMPTION PRIOR TO THE RESALE OR TRANSFER. WITH RESPECT TO CLAUSES (1), (2)
AND (3), SUBJECT TO THE RECEIPT BY THE TRUSTEE OF OTHER EVIDENCE ACCEPTABLE TO
THE TRUSTEE THAT THE OFFER, RESALE, PLEDGE OR TRANSFER IS IN COMPLIANCE WITH
THE SECURITIES ACT AND OTHER APPLICABLE LAWS, IN EACH CASE IN ACCORDANCE WITH
ALL APPLICABLE SECURITIES LAWS OF THE UNITED STATES OF AMERICA OR OTHER
APPLICABLE JURISDICTION AND SECURITIES AND BLUE SKY LAWS OF THE STATES OF THE
UNITED STATES OF AMERICA. THE CERTIFICATEHOLDER OF THIS CERTIFICATE AGREES
THAT IT WILL, AND EACH SUBSEQUENT CERTIFICATEHOLDER IS REQUIRED TO, NOTIFY ANY
PURCHASER OF THIS CERTIFICATE OF THE RESALE RESTRICTIONS REFERRED TO ABOVE.
2
<PAGE> 157
EXHIBIT O-1
to Pooling Agreement
FORM OF
PHASE I INTERCREDITOR AGREEMENT
-------------------------------
1
<PAGE> 158
EXHIBIT O-2
to Pooling Agreement
FORM OF
PHASE II INTERCREDITOR AGREEMENT
--------------------------------
1
<PAGE> 159
SCHEDULE 1
to Pooling Agreement
OFFICES of
the TRANSFEROR, the SERVICER
and the SELLER Where RECORDS
ARE MAINTAINED
----------------------------
AmeriSource Corporation AmeriSource-Louisville
300 Chester Field Parkway 244 E. Woodlawn
Malvern, PA 19355 Louisville, KY 40214
AmeriSource-Chattanooga AmeriSource-Lynchburg
300 Tallan Building 9221 Timberlake Road
Two Union Square Lynchburg, VA 24502
Chattanooga, TN 37402
AmeriSource-Paducah
322 North 3rd Street
Paducah, KY 42001
AmeriSource-Minneapolis
6810 Shady Oak Road
Eden Prairie, MN 55344
AmeriSource-Thorofare
400 Grove Road
Thorofare, NJ 08086
Rita-Ann Distributors
901 Curtain Ave.
Baltimore, MD 21218
AmeriSource-Columbus
1200 E. 5th Avenue
Columbus, OH 43219
AmeriSource-Toledo
3145 Nebraska Avenue
Toledo, OH 43607
<PAGE> 160
SCHEDULE 2
to Pooling Agreement
ACCOUNT BANKS - LOCKBOX BANKS
-----------------------------
BANK ONE, COLUMBUS, N.A.
100 East Broad Street
5th Floor
Columbus, OH 43271-0157
Box: 0813
Acct: 1006535
CITIZENS BANK & TRUST CO.
P.O. Box 2400
333 Broadway
Paducah, KY 42002-2400
Box: 2400
Acct: 0148571
CORESTATES BANK, N.A.
30 North 3rd Street
Harrisburg, PA 17101
Box: 9390
Acct: 61488545
CRESTAR BANK
1010 Main Street
Lynchburg, VA 24504
Box: 79301
Acct: 13389564
FIRST NATIONAL BANK OF MARYLAND
25 South Charles Street
MC 101-745
18th Floor
Baltimore, MD 21201
Box: 64041
Acct: 18197041
1ST SOURCE BANK
P.O. Box 1602
100 North Michigan
South Bend, IN 46634
1
<PAGE> 161
Box: 4181
Acct: 1192590
MERCANTILE BANK OF JOPLIN
P.O. Box 8
Joplin, MO 64802
Box: 1747
Acct: 6000038684
NATIONAL CITY BANK
P.O. Box 36000
Louisville, KY 40232
Box: Section #318
Acct: 71131114
NATIONSBANK OF NORTH CAROLINA, N.A.
101 South Tryon Street
Mail Code NC1-002-28-14
Charlotte, NC 28255
Box: 65839
Acct: 001671452
NATIONSBANK OF TEXAS, N.A.
101 South Tryon Street
Mail Code NC1-002-28-14
Charlotte, NC 28255
Box: 841046
Acct: 129285627
NEW JERSEY NATIONAL BANK
600 Cuthbert Boulevard
Haddon Township, NJ 08108
Box: 41950
Acct: 1142662
NORWEST BANK MINNESOTA, N.A.
6th & Marquette
Minneapolis, MN 55479-0085
Box: 8617
Acct: 6355004016
2
<PAGE> 162
PNC BANK, NATIONAL ASSOCIATION
Two PNC Plaza, 31st Floor
620 Liberty Avenue
Pittsburgh, PA 15265
Box: 896
Acct: 2115709
PNC BANK, KENTUCKY, INC.
539 South Fourth Avenue
Louisville, KY 40292
Box: Dept. # 97311
Acct: 3095332730
SOCIETY NATIONAL BANK
P.O. Box 10099
Toledo, OH 43699-0099
Box: 1028
Acct: 500793585
TRUST COMPANY BANK
25 Park Place
MC 118, 23rd Floor
Atlanta, GA 30302
Box: 055
Acct: 8801346506 (Chattanooga)
Box: 304
Acct: 8801948319 (Johnson City)
Box: 593
Acct: 8801522312 (Valdosta)
ACCOUNT BANKS - CONCENTRATION ACCOUNT BANK
------------------------------------------
CORESTATES BANK
1339 Chestnut Street
Philadelphia, PA 19107
Acct: 01019301
3
<PAGE> 1
EXHIBIT 10.13
Amendment No. 2 to
Alco Health Distribution Corporation
Partners Stock Option Plan
Dated: ____________, 1995
Background
On December 11, 1990, the Board of Directors of AmeriSource
Health Corporation, formerly know as Alco Health Distribution Corporation (the
"Company") adopted the Alco Health Distribution Corporation Partners Stock
Option Plan (the "Partners Plan") to enable certain members of the management of
the Company to participate in the equity ownership of the Company. Amendment
No. 1 to the Partners Plan ("Amendment No. 1"), which was adopted by the Board
of Directors on February 19, 1992 and approved by stockholders on April 7, 1992,
provided for, among other things, disinterested administration of the Partners
Plan after the Company registers its Class A Common Stock, par value $0.01 per
share, under Section 12 of the Securities Exchange Act of 1934, as amended. The
Partners Plan as amended by Amendment No. 1 is referred to herein as the
"Existing Plan." The Company's Board of Directors now wishes to make certain
modifications to and amendments of the Existing Plan ("Amendment No. 2"), as
follows:
Section 1. Defined Terms; References. Unless otherwise defined
in this Amendment No. 2, terms defined in the Existing Plan are used herein as
defined in the Existing Plan. All references to sections in this Amendment No.
2 shall refer to sections in the Existing Plan, unless otherwise indicated.
Section 2. Amendments to Existing Plan. The Existing Plan is
hereby amended by deleting all references to "Alco Health Distribution
Corporation" in the Existing Plan (except with respect to Section 2(e) which
shall be modified in accordance with Section 3 of this Amendment No. 2) and
substituting in its stead the name "AmeriSource Health Corporation"
Section 3. Amendments to Section 2 of the Existing Plan. Section
2 of the Existing Plan is hereby amended by deleting the definition of "Company"
set forth in Section 2(e) in its entirety and inserting the following in its
stead:
"e. "Company" means AmeriSource Health
Corporation, formerly named Alco Health
Distribution Corporation."
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Section 4. Amendments to Section 7 of the Existing Plan. Section
7 of the Existing Plan is hereby amended by:
a. deleting the text set forth in Section 7(f)
in its entirety and inserting the following in its stead:
"(f) Mandatory Holding Period After Exercise.
Intentionally Omitted."
b. deleting the text set forth in Section 7(h)
in its entirety and inserting the following in its stead:
"(h) Calculation of Fair Market Value.
Intentionally Omitted."
2
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EXHIBIT 10.16
AMERISOURCE HEALTH CORPORATION
1995 STOCK OPTION PLAN
Date Adopted: February 21, 1995
<PAGE> 2
AMERISOURCE HEALTH CORPORATION
1995 STOCK OPTION PLAN
1. Purpose of the Plan
The purpose of the Plan is to assist the
Company and its Subsidiaries in attracting and retaining valued employees by
offering them a greater stake in the Company's success and a closer identity
with it, and to encourage ownership of the Company's stock by such employees.
2. Definitions
2.01 "1934 ACT" means the Securities Exchange Act
of 1934, as amended.
2.02 "AMERISOURCE" means AmeriSource Corporation,
a Delaware corporation and a wholly-owned subsidiary of the
Company.
2.03 "BOARD" means the Board of Directors of the
Company.
2.04 "CODE" means the Internal Revenue Code of
1986, as amended.
2.05 "COMMITTEE" means the committee designated by
the Board to administer the Plan under Section 4. The Committee
shall have at least two members, each of whom shall be a member of
the Board and shall be a Disinterested Person.
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2.06 "COMMON STOCK" means the Company's Class A
Common Stock, $0.01 par value per share, or such other class or
kind of shares or other securities resulting from the application
of Section 7.
2.07 "COMPANY" means AmeriSource Health
Corporation, a Delaware corporation, or any successor corporation.
2.08 "DISINTERESTED PERSON" means a person defined
in Rule 16b-3(c)(2)(i) promulgated by the Securities and Exchange
Commission under the 1934 Act, or any successor definition adopted
by the Securities and Exchange Commission.
2.09 "EMPLOYEE" means an officer or other key
employee of the Company or a Subsidiary including a director who is
such an employee.
2.10 "FAIR MARKET VALUE" means, on any given date,
the previous days' closing price of actual sales of shares of
Common Stock on the principal national securities exchange on which
the Common Stock is listed, or if not listed, as reported on the
NASDAQ Stock Market, on such date or, if the Common Stock was not
traded or reported on such date, on the last preceding day on which
the Common Stock was traded or reported; provided, however, that
the Option price for any Options granted on the date that the
Registration Statement is declared or deemed effective by the
Securities and Exchange Commission shall be equal to the price to
the public set forth on the cover page of the definitive prospectus
included in the Registration Statement.
2.11 "HOLDER" means an Employee to whom an Option
is granted.
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2.12 "MATURE COMMON STOCK" means Common Stock
owned for six months or more, or such other period as the Committee
may determine subject to applicable accounting regulations, by the
respective Holder. 2.13 "OPTION" means a non-qualified
stock option granted from time to time under Section 6 of the Plan.
2.14 "PLAN" means the AmeriSource Health
Corporation 1995 Stock Option Plan herein set forth, as amended
from time to time.
2.15 "REGISTRATION STATEMENT" means the Company's
Form S-2 Registration Statement (No. 33-57513), as amended.
2.16 "RETIREMENT" means retirement from the active
employment of the Company or a Subsidiary pursuant to the relevant
provisions of the applicable pension plan of such entity or as
otherwise determined by the Committee.
2.17 "SUBSIDIARY" means any corporation (other
than the Company) in an unbroken chain of corporations beginning
with the Company (or any subsequent parent of the Company) if each
of the corporations other than the last corporation in the unbroken
chain owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other
corporations in such chain.
2.18 "VPI" means 399 Venture Partners, Inc., a
Delaware corporation.
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3. Eligibility
Any Employee is eligible to receive an Option
grant.
4. Administration and Implementation of Plan
4.01 The Plan shall be administered by the
Committee, which shall have full power to interpret and administer
the Plan and full authority to act in selecting the Employees to
whom Options will be granted, in determining the amount of Options
to be granted to each such Employee and the terms and conditions of
Options granted under the Plan.
4.02 The Committee's powers shall include, but not
be limited to, the power: (a) to determine whether, to what extent
and under what circumstances an Option may be granted; (b) to
determine whether, to what extent and under what circumstances an
Option may be exercised; (c) to determine whether, to what extent
and under what circumstances exceptions to the exercisability of an
Option (including accelerating the exercisability) may be granted;
(d) to condition an Option grant upon the attainment of specified
performance goals; (e) to determine the effect, if any, of a change
in control of the Company (including a merger of the Company into,
a consolidation of the Company with, or an acquisition of the
Company by a person or entity or a liquidation of the Company) upon
outstanding Options; (f) to establish an arrangement through
registered broker-dealers whereby temporary financing may be made
available to a
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Holder by the broker-dealer, under the rules and regulations of the
Federal Reserve Board, for the purpose of assisting the Holder in
the exercise of an Option; (g) to establish procedures at the
Committee's discretion, and if permitted by the restrictions in the
Company's and AmeriSource's financing agreements, for a Holder (i)
to have withheld from the total number of shares to be acquired
upon the exercise of an Option that number of shares having a Fair
Market Value, which, together with such cash as shall be paid in
respect of fractional shares, shall equal the minimum statutory tax
withholding obligation incurred by the Holder upon such exercise,
or (ii) to exercise an Option by delivering a number of shares of
Mature Common Stock already owned by such Holder having a Fair
Market Value that shall equal the option exercise price and/or the
tax withholding obligation incurred by the Holder upon such
exercise; (h) to condition an Option grant upon such Employee's
execution of non-compete, non-disclosure or similar arrangements in
favor of the Company and/or its Subsidiaries and satisfactory in
form and substance to the Committee; and (i) to establish a loan
program, or to cause AmeriSource to establish a loan program, if
permitted by the restrictions in the Company's and AmeriSource's
financing agreements, to loan to a Holder who is still employed by
the Company at the time of exercise an amount sufficient to satisfy
the exercise price and/or tax obligation incurred by the Holder
upon such exercise and thereafter loan promptly to such Holder such
additional amounts sufficient to pay further withholding
obligations as may be determined from
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time to time to be payable as a result of such exercise. Any
amounts loaned to such Holder shall be evidenced by a promissory
note from such Holder on such terms as are mutually agreed to by
the Committee and the Holder; provided, however, that such loan
shall bear a market rate of interest and shall be full recourse.
4.03 The Committee shall have the power to adopt
regulations for carrying out the Plan and to make changes in such
regulations as it shall, from time to time, deem advisable. The
Committee shall have the power unilaterally and without approval of
a Holder to amend an existing Option in order to carry out the
purposes of the Plan so long as such amendment does not take away
any benefit granted to a Holder by the Option and as long as the
amended Option comports with the terms of the Plan. Any
interpretation by the Committee of the terms and provisions of the
Plan and the administration thereof, and all action taken by the
Committee, shall be final and binding on Holders.
5. Shares of Stock Subject to the Plan
5.01 Subject to adjustment as provided in Section
7, the total number of shares of Common Stock available for Options
under the Plan shall be 1,116,431 shares, subject to increase by
such number of shares as equals 5% of any and all Common Stock sold
pursuant to the over-allotment option contained in the Underwriting
Agreement between the Company and the several underwriters named
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therein relating to the offering of Common Stock registered
pursuant to the Registration Statement.
5.02 Any shares issued by the Company through the
assumption or substitution of outstanding grants from an acquired
company shall not reduce the shares available for Options under the
Plan. Any shares issued hereunder may consist, in whole or in
part, of authorized and unissued shares or treasury shares. If any
shares subject to any Option granted hereunder are forfeited or
such Option otherwise terminates without the issuance of such
shares or the payment of other consideration in lieu of such
shares, the shares subject to such Option, to the extent of any
such forfeiture or termination, shall again be available for grants
of Options under the Plan.
6. Options
Options give an Employee the right to
purchase a specified number of shares of Common Stock from the Company for a
specified time period at a fixed price. The grant of Options shall be subject
to the following terms and conditions:
6.01 OPTION GRANTS: Options shall be evidenced by
Option award certificates. Such certificates shall conform to the
requirements of the Plan, and may contain such other provisions as
the Committee shall deem advisable.
6.02 OPTION PRICE: The price per share at which
Common Stock may be purchased upon exercise of an Option shall be
determined by the Committee and shall
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be not less than the Fair Market Value of a share of Common Stock
on the date of grant.
6.03 TERM OF OPTIONS: The Option certificates
shall specify when an Option may be exercisable and the terms and
conditions applicable thereto. The term of an Option shall in no
event be greater than six years from the date of grant or such
shorter term as specified by the Committee in the Option award
certificate. If an Option is exercised sooner than six months from
the date of grant, then the shares acquired upon such exercise must
be held for at least six months from the date of grant of the
Option.
6.04 RESTRICTION ON TRANSFERABILITY: No Option
shall be transferable otherwise than by will or the laws of descent
and distribution and, during the lifetime of the Holder shall be
exercisable only by the Holder. Upon the death of a Holder, the
person to whom the rights have passed by will or by the laws of
descent and distribution may exercise an Option only in accordance
with this Section 6.
6.05 PAYMENT OF OPTION PRICE: The Option price of
the shares of Common Stock acquired upon the exercise of an Option
shall be paid in full in cash at the time of the exercise or, with
the consent of the Committee, and if permitted by the restrictions
in the Company's and AmeriSource's financing agreements, in whole
or in part in Mature Common Stock valued at Fair Market Value on
the date of exercise by delivering to the Company such Mature
Common Stock already owned by the Holder.
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6.06 MANDATORY HOLDING PERIOD AFTER EXERCISE:
During the four-year period after the date of grant of an Option,
the Holder shall be required to hold 50% of the shares of Common
Stock acquired upon exercise of such Option for a period of one
year after the date of exercise. Any purported transfer of shares
of Common Stock acquired upon exercise of an Option in violation of
the Plan shall be null and void and of no force and effect and the
purported transferree(s) shall have no rights or privileges in or
with respect to the Company.
6.07 TERMINATION BY DEATH: If a Holder's
employment by the Company or a Subsidiary terminates by reason of
death, any Option held by such Holder may thereafter be exercised,
to the extent such Option was exercisable at the time of death or
on such accelerated basis as the Committee may determine at or
after grant, by the legal representative of the Holder, until the
expiration of the stated term of the Option or until such shorter
term before the expiration of the Option as the Committee may
determine.
6.08 TERMINATION BY REASON OF RETIREMENT OR
DISABILITY: If a Holder's employment by the Company or a
Subsidiary terminates by reason of disability (as determined by the
Committee) or Retirement, any Option held by such Holder may
thereafter be exercised by the Holder (or, where appropriate, the
Holder's legal representative), to the extent it was exercisable at
the time of such termination or on such accelerated basis as the
Committee may determine at or after grant, until the
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expiration of the stated term of the Option or until such shorter
term before the expiration of the Option as the Committee may
determine.
6.09 OTHER TERMINATION: If a Holder's employment
by the Company or Subsidiary terminates for any reason other than
death, disability or Retirement, the Option shall terminate 30 days
after the date of such termination of employment.
7. Adjustments Upon Changes in Capitalization
In the event of a reorganization,
recapitalization, stock split, reverse stock split, spin-off, split-off, split
up, stock dividend, issuance of stock rights, combination of shares, merger,
consolidation or any other change in the corporate structure of the Company
affecting Common Stock, or any distribution to stockholders in respect of stock
other than a cash dividend, the Committee shall make the adjustments in the
number and kind of shares authorized by the Plan and any adjustments to
outstanding Options as it determines appropriate. No fractional shares of
Common Stock shall be issued pursuant to such an adjustment. The Fair Market
Value of any fractional shares resulting from adjustments pursuant to this
section shall, where appropriate, be paid in cash to the Holder. If during the
term of any Option granted hereunder the Company shall be, with the prior
approval of a majority of the members of the Board, merged into or consolidated
with or otherwise combined with or acquired by a person or entity, or there is
a liquidation of the Company, then at the election of the Committee, the
Company may take such other action as the
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Committee shall determine to be reasonable under the circumstances to permit
the Holder to realize the value of such Option, including without limitation
paying cash to such Holder equal to the value of the Option or requiring the
acquiring corporation to grant options or stock to such Holder having a value
equal to the value of the Option.
8. Effective Date, Termination and Amendment
The Plan shall become effective on March __,
1995, subject to stockholder approval. The Plan shall remain in full force and
effect until the earlier of 10 years from the date of its adoption by the
Board, or the date it is terminated by the Board. The Board shall have the
power to amend, suspend or terminate the Plan at any time, provided that no
such amendment shall be made without stockholder approval which shall:
8.01 Increase (except as provided in Section 7)
the total number of shares available for issuance pursuant to the
Plan;
8.02 Change the class of employees eligible to be
Holders;
8.03 Change the provisions of this Section 8; or
8.04 Make any other change for which stockholder
approval is required under Section 16(b)(3) or any successor
provision of the 1934 Act.
Termination of the Plan pursuant to this Section 8 shall
not affect Options outstanding under the Plan at the time of termination.
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9. General Provisions
9.01 Nothing contained in the Plan, or any Option
granted pursuant to the Plan, shall confer upon any Employee any
right with respect to continuance of employment by the Company or a
Subsidiary, nor interfere in any way with the right of the Company
or a Subsidiary to terminate the employment of any Employee at any
time.
9.02 For purposes of this Plan, transfer of
employment between the Company and its Subsidiaries shall not be
deemed termination of employment.
9.03 Holders shall be responsible to make
appropriate provision for all taxes required to be withheld in
connection with any Option, the exercise thereof and the transfer
of shares of Common Stock pursuant to this Plan. Such
responsibility shall extend to all applicable Federal, state, local
or foreign withholding taxes. In the case of the exercise of
Options, the Company shall, at the election of the Holder, but only
with the consent of the Committee, and if permitted by the
restrictions in the Company's and AmeriSource's financing
agreements, have the right to repurchase from shares already held
by the Holder, the number of shares of Mature Common Stock whose
Fair Market Value equals the withholding tax obligation of such
Holder or to make loans or cause AmeriSource to make loans on the
terms set forth in Section 4.02(i) to pay the applicable tax
obligation incurred by the Holder upon such exercise.
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9.04 The Company shall not be obligated to deliver
certificates for Common Stock upon the exercise of an Option unless
the Holder has made payment in full for such Common Stock required
by Sections 6.02 and 6.05 and has arranged for withholding of all
taxes required by Section 9.03.
9.05 Without amending the Plan, Options may be
granted to Employees who are foreign nationals or employed outside
the United States or both, on such terms and conditions different
from those specified in the Plan as may, in the judgment of the
Committee, be necessary or desirable to further the purpose of the
Plan.
9.06 Upon exercise of an Option, the Holder shall
be required to make such representations and furnish such
information as may, in the opinion of counsel for the Company, be
appropriate to permit the Company to issue or transfer the shares
of Common Stock in compliance with the provisions of applicable
federal or state securities laws. The Company, in its discretion,
may postpone the issuance and delivery of shares of Common Stock
upon any exercise of an Option until completion of such
registration or other qualification of such shares under any
federal or state laws, or stock exchange listing, as the Company
may consider appropriate. The Company is not obligated to register
or qualify the shares of Common Stock issued pursuant to Options
under federal or state securities laws and may refuse to issue such
shares if neither registration nor exemption therefrom is
practical. The Board may require that prior to the issuance or
transfer of any shares of Common Stock upon
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exercise of an Option, the recipient enter into a written agreement
to comply with any restrictions on subsequent disposition that the
Board or the Company deems necessary or advisable under any
applicable federal and state securities laws. Certificates
representing the shares of Common Stock issued hereunder may be
legended to reflect such restrictions.
9.07 To the extent that Federal laws (such as the
1934 Act, the Code or the Employee Retirement Income Security Act
of 1974, as amended) do not otherwise control, the Plan and all
determinations made and actions taken pursuant hereto shall be
governed by the law of Delaware and construed accordingly.
9.08 Upon the occurrence of a Change in Control,
each Option then outstanding shall become immediately exercisable
to the full extent of the shares of Common Stock subject thereto;
provided, that (i) such Holder was employed by the Company at the
time of such Change in Control and (ii) either (x) such Holder is
employed by the Company on the first anniversary date of the Change
in Control, (y) such Holder's employment is subsequently terminated
by the Company other than for Cause during the one-year period
following such Change in Control, or (z) such Holder voluntarily
terminates such Holder's employment during the one-year period
following such Change in Control as a result of a Constructive
Termination. For purposes of this Plan, "Cause" means willful
misconduct or dishonesty, or conviction of or failure to contest
prosection for a felony, or excessive absenteeism unrelated to
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illness. For purposes of this Plan, a "Change in Control" shall be
deemed to have occurred if any "person" or "group" (within the
meaning of Sections 13(d) and 14(d)(2) of the 1934 Act, other than
VPI and its Affiliates (as defined in Rule 12b-2 under the 1934
Act) becomes the "beneficial owner" (as defined in Section 13(d)(3)
under the 1934 Act) of securities of the Company representing more
than 35 percent (35%) of the total aggregate voting power of the
Company's then outstanding securities entitled to vote generally in
the election of directors, and such person or group owns more
aggregate voting power of the Company's then outstanding securities
entitled to vote generally in the election of directors than any
other person or group. For purposes of this Plan, "Constructive
Termination" means when the Company (a) requires Holder to assume
duties inconsistent with, or the Company makes a significant
diminution or reduction in the nature or scope of Holder's
authority or duties from, the authority or duties assigned to or
held by Holder during the 30 days immediately prior to the Change
in Control, or (b) materially reduces Holder's base salary,
incentive compensation opportunities or fringe benefits or (c)
relocates Holder's site of employment to a location more than 50
miles away from Holder's site of employment 30 days immediately
prior to the Change in Control. Notwithstanding anything else
contained in this Section 9.07, a Holder shall be eligible to
exercise Options both before and after a Change in Control to the
full extent otherwise permitted under the Plan.
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EXHIBIT 10.17
AMERISOURCE HEALTH CORPORATION
NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
Date Adopted: February 21, 1995
<PAGE> 2
AMERISOURCE HEALTH CORPORATION
NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
1. Purpose of the Plan. The purpose of the Plan is to
assist the Company and its Subsidiaries in attracting and retaining services of
experienced and knowledgeable independent directors of the Company for the
benefit of the Company and its stockholders and to provide additional
incentives for such independent directors to continue to work for the best
interests of the Company and its stockholders through continuing ownership of
its common stock.
2. Definitions
2.01 "1934 ACT" means the Securities Exchange Act of
1934, as amended.
2.02 "AMERISOURCE" means AmeriSource Corporation, a
Delaware corporation and a wholly-owned subsidiary of the Company.
2.03 "BOARD" means the Board of Directors of the Company.
2.04 "CODE" means the Internal Revenue Code of 1986, as
amended.
2.05 "COMMITTEE" means the committee designated by the
Board to administer the Plan under Section 4. The Committee shall
have at least two members, each of whom shall be a member of the
Board and shall be a Disinterested Person.
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2.06 "COMMON STOCK" means the Company's Class A Common
Stock, $0.01 par value per share, or such other class or kind of
shares or other securities resulting from the application of Section
7.
2.07 "COMPANY" means AmeriSource Health Corporation, a
Delaware corporation, or any successor corporation.
2.08 "DISINTERESTED PERSON" means a person defined in
Rule 16b-3(c)(2)(i) promulgated by the Securities and Exchange
Commission under the 1934 Act, or any successor definition adopted
by the Securities and Exchange Commission.
2.09 "ELIGIBLE DIRECTOR" means each director of the
Company who is not (i) otherwise an employee of the Company or any
Subsidiary or (ii) an employee of VPI or any affiliate of VPI.
2.10 "FAIR MARKET VALUE" means, on any given date, the
previous days' closing price of actual sales of shares of Common
Stock on the principal national securities exchange on which the
Common Stock is listed, or if not listed, as reported on the
National Association of Securities Dealers Automated Quotation
System, on such date or, if the Common Stock was not traded or
reported on such date, on the last preceding day on which the Common
Stock was traded or reported.
2.11 "HOLDER" means an Eligible Director to whom an
Option is granted.
2.12 "INITIAL GRANT" shall have the meaning set forth in
Section 3.
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2.13 "MATURE COMMON STOCK" means Common Stock owned for
six months or more, or such other period as the Committee may
determine subject to applicable accounting regulations, by the
respective Holder.
2.14 "OPTION" means a non-qualified stock option granted
from time to time under Section 3 of the Plan.
2.15 "OPTION EXERCISE PERIOD" means (i) with respect to
Options granted under the Initial Grant, the period commencing three
(3) years after the date of Initial Grant and ending six years from
the date of grant and (ii) with respect to all Options granted under
this Plan other than under the Initial Grant, the period commencing
one (1) year after the date of grant and ending ten years from the
date of grant.
2.16 "PLAN" means the AmeriSource Health Corporation
Non-Employee Directors Stock Option Plan herein set forth, as
amended from time to time.
2.17 "REGISTRATION STATEMENT" means the Company's Form
S-2 Registration Statement (No. 33-57513), as amended.
2.18 "SUBSIDIARY" means any corporation (other than the
Company) in an unbroken chain of corporations beginning with the
Company (or any subsequent parent of the Company) if each of the
corporations other than the last corporation in the unbroken chain
owns stock possessing 50% or more of the total combined voting power
of all classes of stock in one of the other corporations in such
chain.
2.19 "VPI" means 399 Venture Partners, Inc., a subsidiary
of Citicorp.
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3. Eligibility; Grant of Option
An Option to acquire 5,000 shares of Common Stock
shall be granted (the "Initial Grant") to each Eligible Director on the date
that the Company's Registration Statement is declared or deemed to be effective
by the Securities and Exchange Commission, subject to approval of the Plan by
the stockholders of the Company. Thereafter, each Eligible Director shall be
granted an Option to acquire 5,000 shares of Common Stock following such
Eligible Director's election or reelection to the Board, as the case may be, by
the stockholders at the Company's annual stockholders' meeting during each year
from 1996 through 1997, inclusive.
4. Administration and Implementation of Plan
4.01 The Plan shall be administered by the Committee,
which shall have full power to interpret and administer the Plan and
full authority to act in determining the terms and conditions of
Options granted under the Plan.
4.02 The Committee's powers shall include, but not be
limited to, the power: (a) to determine whether, to what extent and
under what circumstances exceptions to the exercisability of an
Option (including accelerating the exercisability) may be granted;
(b) to determine the effect, if any, of a change in control of the
Company (including a merger of the Company into, a consolidation of
the Company with, or an acquisition of the Company by a person or
entity or a liquidation of the Company)
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upon outstanding Options; (c) to establish an arrangement through
registered broker-dealers whereby temporary financing may be made
available to a Holder by the broker-dealer, under the rules and
regulations of the Federal Reserve Board, for the purpose of
assisting the Holder in the exercise of an Option; (d) to establish
procedures at the Committee's discretion, and if permitted by the
restrictions in the Company's and AmeriSource's financing
agreements, for a Holder (i) to have withheld from the total number
of shares to be acquired upon the exercise of an Option that number
of shares having a Fair Market Value, which, together with such cash
as shall be paid in respect of fractional shares, shall equal the
minimum statutory tax withholding obligation incurred by the Holder
upon such exercise, or (ii) to exercise an Option by delivering a
number of shares of Mature Common Stock already owned by such Holder
having a Fair Market Value that shall equal the option exercise
price and/or the tax withholding obligation incurred by the Holder
upon such exercise; and (e) to establish a loan program, or to cause
AmeriSource to establish a loan program, if permitted by the
restrictions in the Company's and AmeriSource's financing
agreements, to loan to a Holder who is still a director of the
Company at the time of exercise an amount sufficient to satisfy the
exercise price and/or tax obligation incurred by the Holder upon
such exercise and thereafter loan promptly to such Holder such
additional amounts sufficient to pay further withholding obligations
as may be determined from time to time to be payable as a result of
such exercise. Any amounts
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loaned to such Holder shall be evidenced by a promissory note from
such Holder on such terms as are mutually agreed to by the Committee
and the Holder; provided, however, that such loan shall bear a
market rate of interest and shall be full recourse.
4.03 The Committee shall have the power to adopt
regulations for carrying out the Plan and to make changes in such
regulations as it shall, from time to time, deem advisable. The
Committee shall have the power unilaterally and without approval of
a Holder to amend an existing Option in order to carry out the
purposes of the Plan so long as such amendment does not take away
any benefit granted to a Holder by the Option and as long as the
amended Option comports with the terms of the Plan. Any
interpretation by the Committee of the terms and provisions of the
Plan and the administration thereof, and all action taken by the
Committee, shall be final and binding on Holders.
5. Shares of Common Stock Subject to the Plan
5.01 Subject to adjustment as provided in Section 7, the
total number of shares of Common Stock available for Options under
the Plan shall be 50,000 shares of Common Stock.
5.02 The grant of an Option shall reduce the shares of
Common Stock as to which Options may be granted by the number of
shares subject to such Option. Any shares of Common Stock issued by
the Company through the assumption or
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substitution of outstanding grants from an acquired company shall
not reduce the shares available for Options under the Plan. Any
shares issued hereunder may consist, in whole or in part, of
authorized and unissued shares or treasury shares. If any shares
subject to any Option granted hereunder are forfeited or such Option
otherwise terminates without the issuance of such shares or the
payment of other consideration in lieu of such shares, the shares
subject to such Option, to the extent of any such forfeiture or
termination, shall again be available for grants of Options under
the Plan. In the event there are insufficient shares of Common
Stock available for Options under the Plan to satisfy all of the
Option grants under Section 3 on the same day, such Option grants
shall be reduced pro-rata.
6. Options
Options give an Eligible Director the right to
purchase a specified number of shares of Common Stock from the Company for a
specified time period at a fixed price. The grant of Options shall be subject
to the following terms and conditions:
6.01 OPTION GRANTS: Options shall be evidenced by Option
award certificates. Such certificates shall conform to the
requirements of the Plan, and may contain such other provisions as
the Committee shall deem advisable.
6.02 OPTION PRICE: The price per share at which Common
Stock may be purchased upon exercise of an Option shall be
determined by the Committee and shall
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be not less than the Fair Market Value of a share of Common Stock on
the date of grant; provided, however, that the Option price for the
Initial Grant shall be equal to the price to the public set forth on
the cover page of the definitive prospectus included in the
Registration Statement.
6.03 EXERCISE OF OPTION: Subject to Section 4 of this
Plan, each Option granted under this Plan may be exercised in full
at one time or in part from time to time only during the Option
Exercise Period by the giving of written notice, signed by the
person or persons exercising the Option, to the Company stating the
number of shares of Common Stock with respect to which the Option is
being exercised, accompanied by full payment for such shares
pursuant to Section 6.04 hereof.
6.04 TRANSFER AND EXERCISE: No Option shall be
transferable by the Holder except by will or the laws of descent and
distribution. In the event of the death, retirement or any other
termination of Board service of a Holder except for removal for
cause, the Option, if otherwise exercisable by the Holder at the
time of such termination, may be exercised upon the earlier of (A)
the end of the Option Exercise Period and (B) within one year after
such termination. In the event of termination for cause, all
previously granted Options shall be of no further force and effect.
Termination for cause shall be defined as termination on account of
any act of (x) fraud or intentional misrepresentation, or (y)
embezzlement, misappropriation or conversion of assets or
opportunities of the Company or any Subsidiary.
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<PAGE> 10
6.05 PAYMENT OF OPTION PRICE: The Option price of the
shares of Common Stock acquired upon the exercise of an Option shall
be paid in full in cash at the time of the exercise or, with the
consent of the Committee, and if permitted by the restrictions in
the Company's and AmeriSource's financing agreements, in whole or in
part in Mature Common Stock valued at Fair Market Value on the date
of exercise by delivering to the Company such Mature Common Stock
already owned by the Holder.
7. Adjustments Upon Changes in Capitalization
In the event of a reorganization, recapitalization,
stock split, reverse stock split, spin-off, split-off, split up, stock
dividend, issuance of stock rights, combination of shares, merger,
consolidation or any other change in the corporate structure of the Company
affecting Common Stock, or any distribution to stockholders in respect of stock
other than a cash dividend, the Committee shall make the adjustments in the
number and kind of shares authorized by the Plan and any adjustments to
outstanding Options as it determines appropriate. No fractional shares of
Common Stock shall be issued pursuant to such an adjustment. The Fair Market
Value of any fractional shares resulting from adjustments pursuant to this
section shall, where appropriate, be paid in cash to the Holder. If during the
term of any Option granted hereunder the Company shall be, with the prior
approval of a majority of the members of the Board, merged into or consolidated
with or otherwise combined with or acquired by a person or entity, or there is
a liquidation of the Company,
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then at the election of the Committee, the Company may take such other action
as the Committee shall determine to be reasonable under the circumstances to
permit the Holder to realize the value of such Option, including without
limitation paying cash to such Holder equal to the value of the Option or
requiring the acquiring corporation to grant options or stock to such Holder
having a value equal to the value of the Option.
8. Effective Date, Termination and Amendment
The Plan shall become effective on March __, 1995,
subject to stockholder approval. The Plan shall remain in full force and
effect until the earlier of 10 years from the date of its adoption by the
Board, or the date it is terminated by the Board. The Board shall have the
power to amend, suspend or terminate the Plan at any time, provided that no
such amendment shall be made without stockholder approval that shall:
8.01 Increase (except as provided in Section 7) the total
number of shares available for issuance pursuant to the Plan;
8.02 Change the class of directors eligible to be Holders;
8.03 Change the provisions of this Section 8; or
8.04 Make any other change for which stockholder approval
is required under Section 16(b) or any successor provision of the
1934 Act.
Termination of the Plan pursuant to this Section 8 shall not
affect Options outstanding under the Plan at the time of termination.
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<PAGE> 12
9. General Provisions
9.01 No person affiliated with the Company or any
Subsidiary or other person shall have any claim or right to be
granted an Option hereunder. Neither this Plan nor any action taken
hereunder shall be construed as (i) giving any Holder any right to
continue to be affiliated with the Company, (ii) giving any Holder
any equity or interest of any kind in any assets of the Company, or
(iii) creating a trust of any kind or a fiduciary relationship of
any kind between the Company and any such person. No Holder shall
have any of the rights of a stockholder with respect to shares of
Common Stock covered by an Option until such time as the Option has
been exercised and shares have been issued to such person.
9.02 Holders shall be responsible to make appropriate
provision for all taxes required to be withheld in connection with
any Option, the exercise thereof and the transfer of shares of
Common Stock pursuant to this Plan. Such responsibility shall
extend to all applicable Federal, state, local or foreign
withholding taxes. In the case of the exercise of Options, the
Company shall, at the election of the Holder, but only with the
consent of the Committee, and if permitted by the restrictions in
the Company's and AmeriSource's financing agreements, have the right
to repurchase from shares already held by the Holder, the number of
shares of Mature Common Stock whose Fair Market Value equals the
withholding tax obligation of such Holder
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or to make loans or cause AmeriSource to make loans on the terms set
forth in Section 4.02(e) to pay the applicable tax obligation
incurred by the Holder upon such exercise.
9.03 The Company shall not be obligated to deliver
certificates for Common Stock upon the exercise of an Option unless
the Holder has made payment in full for such Common Stock required
by Sections 6.02 and 6.05 and has arranged for withholding of all
taxes required by Section 9.02.
9.04 Without amending the Plan, Options may be granted to
Eligible Directors who are foreign nationals or employed outside the
United States or both, on such terms and conditions different from
those specified in the Plan as may, in the judgment of the
Committee, be necessary or desirable to further the purpose of the
Plan.
9.05 Upon exercise of an Option, the Holder shall be
required to make such representations and furnish such information
as may, in the opinion of counsel for the Company, be appropriate to
permit the Company to issue or transfer the shares of Common Stock
in compliance with the provisions of applicable federal or state
securities laws. The Company, in its discretion, may postpone the
issuance and delivery of shares of Common Stock upon any exercise of
an Option until completion of such registration or other
qualification of such shares under any federal or state laws, or
stock exchange listing, as the Company may consider appropriate.
The Company is not obligated to register or qualify the shares of
Common Stock issued
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<PAGE> 14
pursuant to Options under federal or state securities laws and may
refuse to issue such shares if neither registration nor exemption
therefrom is practical. The Board may require that prior to the
issuance or transfer of any shares of Common Stock upon exercise of
an Option, the recipient enter into a written agreement to comply
with any restrictions on subsequent disposition that the Board or
the Company deems necessary or advisable under any applicable
federal and state securities laws. Certificates representing the
shares of Common Stock issued hereunder may be legended to reflect
such restrictions.
9.06 To the extent that Federal laws (such as the 1934
Act, the Code or the Employee Retirement Income Security Act of
1974, as amended) do not otherwise control, the Plan and all
determinations made and actions taken pursuant hereto shall be
governed by the law of Delaware and construed accordingly.
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<PAGE> 1
EXHIBIT 10.18
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT dated as of March 30,
1995 among AMERISOURCE DISTRIBUTION CORPORATION, a Delaware corporation (the
"Company"), and 399 VENTURE PARTNERS, INC., a Delaware corporation ("VPI").
The Company desires to grant registration rights to VPI.
NOW, THEREFORE, for good and valuable consideration
the receipt and sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows:
1. Demand Registrations.
(a) Requests for Registration. Subject to
paragraph (b), at any time and from time to time (i) the holders of at least
50% of the Registrable Securities may request registration under the Securities
Act of all or part of their Registrable Securities on Form S-1 or any similar
long-form registration ("Long-Form Registrations"), (ii) the holders of at
least 50% of the Registrable Securities may request registration under the
Securities Act of all or part of their Registrable Securities on Form S-2 or
S-3 or any similar short-form registration ("Short-Form Registrations") if
available and (iii) the holders of at least 50% of the Registrable Securities
may request that the Company file with the Securities and Exchange Commission a
registration statement under the Securities Act on any applicable form pursuant
to Rule 415 under the Securities Act (the "Required Registration"). Within ten
days after receipt of any such request with respect to clauses (i) and (ii),
the Company will give written notice of such requested registration to all
other holders of Registrable Securities and will include in such registration
all Registrable Securities with respect to which the Company has received
written requests for inclusion therein within 15 days after the receipt of the
Company's notice. All registrations requested pursuant to this paragraph 1(a)
are referred to herein as "Demand Registrations". The Company acknowledges
that VPI may request a Demand Registration in connection with a public offering
of Holders Securities.
(b) Long-Form Registrations. If at any time the Company
is eligible to use a Short-Form Registration, the holders of Registrable
Securities will not be entitled to request a Long-Form Registration at such
time. If the Company is not eligible to use a Short-Form Registration,
the holders of Registrable Securities will be entitled to request a Long-Form
Registration, up to a maximum of 2 Long-Form Registrations. A registration
will not count as one of the permitted Long-Form Registrations until it has
become effective, and no Long-Form Registration will count as one
<PAGE> 2
of the permitted Long-Form Registrations unless the holders of Registrable
Securities are able to register and sell at least 90% of the Registrable
Securities requested to be included in such registration.
(c) Short-Form Registrations. In addition to the
Long-Form Registrations provided pursuant to paragraph 1(b), the holders
of Registrable Securities will be entitled to request an unlimited number of
Short-Form Registrations in which the Company will pay all Registration
Expenses; provided that the aggregate offering value of the Registrable
Securities requested to be registered in any Short-Form Registration must equal
at least $20,000,000. Demand Registrations will be Short-Form Registrations
whenever the Company is permitted to use any applicable short form.
(d) Required Registration. (i) Subject to the
availability of required financial information, within 45 days after the
Company receives written notice of a request for a Required Registration, the
Company shall file with the Securities and Exchange Commission a registration
statement under the Securities Act for the Required Registration. The Company
shall use its best efforts to cause the Required Registration to be declared
effective under the Securities Act as soon a practical after filing, and once
effective, the Company shall (subject to the provisions of paragraph 1(f)(ii)
below) cause such Required Registration to remain effective for such time
period as is specified in such request, but for no time period longer than the
period ending on the earlier of (i) the fourth anniversary of the date of
filing of the Required Registration or (ii) the date on which all Registrable
Securities have been sold pursuant to the Required Registration or (iii) the
date as of which there are no longer any Registrable Securities in existence
(the "Effective Period").
(ii) Holdback Agreement. If any holder
or holders of Registrable Securities notify the Company in writing that they
intend to effect the sale of all or substantially all of the Registrable
Securities pursuant to a single integrated offering pursuant to a then
effective registration statement pursuant to subparagraph (d)(i) above (a
"Sale"), the Company shall not effect any public sale or distribution of its
equity securities, or any securities convertible into or exchangeable or
exercisable for its equity securities, during the 90-day period beginning on
the date such notice of a Sale is received.
(iii) Limitations on Additional
Securities. If in connection with any Sale the Managing Underwriter (as
defined below) advises the Company that, in its opinion, the inclusion of any
other securities other than Registrable Securities would adversely affect the
marketability of the offering, then no such securities shall be permitted to be
included. Additionally, if in connection with an offering, the number of
Registrable Securities and other securities (if any) requested to be included
in such Sale exceeds the number of Registrable Securities and other securities
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<PAGE> 3
which can be sold in such offering without adversely affecting the
marketability of the offering, the Company shall include in such Sale (i)
first, the Registrable Securities requested to be included in such Sale, pro
rata among the holders of such Registrable Securities on the basis of the
number of Registrable Securities owned by each such holder, and (ii) second,
other securities requested to be included in such Sale to the extent permitted
hereunder.
(iv) Selection of Underwriter. The holders
of a majority of Registrable Securities shall have the right to retain and
select an investment banker and manager (the "Managing Underwriter") to
administer the Required Registration, subject to the Company's approval
which shall not be unreasonably withheld.
(v) Required Registration Expenses. In
addition to the provisions in paragraph 4 below, all expenses incurred in
connection with the management of the Required Registration (whether incurred
by the Company or the holders of Registrable Securities) shall be borne by the
Company (including, without limitation, all fees and expenses of the
investment banker and Managing Underwriter) (excluding discounts and
commissions).
(e) Priority on Demand Registrations. Other than with
respect to registration rights which have been granted by the Company prior to
the date hereof, the Company will not include in any Long-Form or Short-Form
Demand Registration any securities which are not Registrable Securities
without the prior written consent of the holders of at least 50% of the
Registrable Securities initially requesting such registration. If a Demand
Registration is an underwritten offering and the managing underwriters advise
the Company in writing that in their opinion the number of Registrable
Securities and, if permitted hereunder, other securities requested to be
included in such offering exceeds the number of Registrable Securities and
other securities, if any, which can be sold therein without adversely affecting
the marketability of the offering, the Company will include in such
registration prior to the inclusion of any securities which are not Registrable
Securities the number of Registrable Securities requested to be included which
in the opinion of such underwriters can be sold without adversely affecting the
marketability of the offering, pro rata among the respective holders thereof on
the basis of the amount of Registrable Securities owned by each such holder;
provided that in the event any holders of Registrable Securities under the
Securities Purchase Agreement (the "Management Registrable Securities") have
requested that such securities be included in such offering (other than a
Required Registration), such Management Registrable Securities shall be
included pro rata among the respective holders thereof and the holders of
Registrable Securities on the basis of the amount of Management Registrable
Securities and Registrable Securities owned by each such holder.
(f) Restrictions on Demand Registrations. The Company
(acting upon the good faith determination of the Company's board of
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<PAGE> 4
directors) may postpone the filing or the effectiveness of a registration
statement for a Demand Registration until the sixth month anniversary of the
effective date of a previously requested Demand Registration. Additionally,
the Company may (i) postpone for up to six months the filing or the
effectiveness of a registration statement for a Demand Registration or (ii)
suspend the effectiveness of the registration statement filed for the Required
Registration if the Company's board of directors reasonably determines in its
good faith judgment that such Demand Registration would have an adverse effect
on any proposal or plan by the Company or any of its subsidiaries to engage (i)
in any material acquisition or disposition of assets(other than in the ordinary
course of business) or any merger, consolidation, tender offer or similar
transaction or (ii) any private or public debt or equity financing which is
material to the Company and its Subsidiaries taken as a whole; provided that in
any of the events described in the previous two sentences, the holders of
Registrable Securities initially requesting such Demand Registration will be
entitled to withdraw such request and, if such request is withdrawn, such
Demand Registration will not count as one of the permitted Demand Registrations
hereunder; provided further the Company may cause only one postponement or
suspension described in this paragraph during any 365 day period.
(g) Selection of Underwriters. Any Long-Form or
Short-Form Demand Registration shall be pursuant to an underwritten offering
with the managing underwriter or underwriters selected by the holders of
a majority of the Registrable Securities included in any Demand Registration,
subject to the Company's approval which will not be unreasonably withheld.
2. Piggyback Registrations. The parties hereto hereby acknowledge
that (a) the Company has provided piggyback registration rights to VPI and
certain other stockholders pursuant to the Securities Purchase Agreement, (b)
the Securities Purchase Agreement shall remain in full force and effect and
(c) nothing contained herein shall be deemed to impair the rights of VPI under
such agreement.
3. Registration Procedures. Whenever the holders of
Registrable Securities have requested that any Registrable Securities be
registered pursuant to this Agreement, the Company will use its best efforts to
effect the registration of such Registrable Securities in accordance with the
intended method of disposition thereof, and pursuant thereto the Company will
as expeditiously as possible:
(a) prepare and file with the Securities and
Exchange Commission a registration statement with respect to such Registrable
Securities and use its best efforts to cause such registration statement to
become effective (provided that before filing a registration statement or
prospectus or any amendments or supplements thereto, the Company will furnish
to the counsel selected by
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<PAGE> 5
the holders of a majority of the Registrable Securities covered by such
registration statement copies of all such documents proposed to be filed, which
documents will be subject to the review of such counsel);
(b) subject to paragraph (e), prepare and file with the
Securities and Exchange Commission such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may
be necessary to keep such registration statement effective for a period which
will terminate when all Registrable Securities covered by such registration
statement have been sold (but not before the expiration of the 40-day period
referred to in Section 4(3) of the Securities Act and Rule 174 thereunder, if
applicable) and comply with the provisions of the Securities Act with respect
to the disposition of all securities covered by such registration statement
during such period in accordance with the intended methods of disposition by
the sellers thereof set forth in such registration statement;
(c) furnish to each seller of Registrable Securities
such number of copies of such registration statement, each amendment and
supplement thereto, the prospectus included in such registration statement
(including each preliminary prospectus) and such other documents as such seller
may reasonably request in order to facilitate the disposition of the
Registrable Securities owned by such seller;
(d) use its best efforts to register or qualify such
Registrable Securities under such other securities or blue sky laws of such
jurisdictions as any seller reasonably requests and do any and all other acts
and things which may be reasonably necessary or advisable to enable such
seller to consummate the disposition in such jurisdictions of the Registrable
Securities owned by such seller (provided that the Company will not be required
to (i) qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this subparagraph, (ii) subject itself
to taxation in any such jurisdiction or (iii) consent to general service of
process in any such jurisdiction);
(e) promptly notify each seller of such Registrable
Securities, at any time when a prospectus relating thereto is required to be
delivered under the Securities Act, of the happening of any event as a result
of which the prospectus included in such registration statement contains an
untrue statement of a material fact or omits any fact necessary to make the
statements therein not misleading, and, at the request of any such seller, the
Company will prepare a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
prospectus will not contain an untrue statement of a material fact or omit to
state any fact necessary to make the statements therein not misleading;
provided, however, that upon not less than five days' notice to the holders of
Registrable Securities, the Company may defer the filing of an amendment or
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<PAGE> 6
withdraw an amendment or may defer the effectiveness of an amendment or the
preparation of a supplement if the Board of Directors of the Company
determines, in good faith, that such amendment or supplement, or the disclosure
of any information in connection therewith, would (i) have a material adverse
affect upon the Company or its subsidiaries or (ii) substantially interfere
with a significant transaction of a type which would allow the Company to
postpone a Demand Registration under paragraph 1(e);
(f) cause all such Registrable Securities to be listed
on each securities exchange on which similar securities issued by the Company
are then listed and, if not so listed, to be listed on the NASD automated
quotation system;
(g) provide a transfer agent and registrar for all such
Registrable Securities not later than the effective date of such registration
statement;
(h) enter into such customary agreements (including
underwriting agreements in customary form) and take all such other actions as
the holders of a majority of the Registrable Securities being sold or the
underwriters, if any, reasonably request in order to expedite or facilitate
the disposition of such Registrable Securities;
(i) make available for inspection by any seller of
Registrable Securities, any underwriter participating in any disposition
pursuant to such registration statement and any attorney, accountant or other
agent retained by any such seller or underwriter (collectively, the
"Inspectors"), all financial and other records, pertinent corporate documents
and properties of the Company (collectively, the "Records"), and cause the
Company's officers, directors, employees and independent accountants to supply
all information reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with such registration statement. Records
which the Company determines, in good faith, to be confidential and any
Records which it notifies the Inspectors are confidential shall not be
disclosed by the Inspectors unless (i) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in such registration
or (ii) the release of such Records is ordered pursuant to a subpoena or other
order from a court of competent jurisdiction. Each such seller agrees that
information obtained by it as a result of such inspections shall be deemed
confidential and shall not be used by it as the basis for any market
transactions in the securities of the Company or its affiliates unless
and until such is made generally available to the public. Each such seller
further agrees that it will, upon learning that disclosure of such Records is
sought in a court of competent jurisdiction, give notice to the Company and
allow the Company at its expense, to undertake appropriate action to prevent
disclosure of the Records deemed confidential;
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<PAGE> 7
(j) otherwise use its best efforts to comply with all
applicable rules and regulations of the Securities and Exchange
Commission, and make available to its security holders, as soon as reasonably
practicable, an earnings statement covering the period of at least twelve
months beginning with the first day of the Company's first full calendar
quarter after the effective date of the registration statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the Securities Act
and Rule 158 thereunder; and
(k) obtain a cold comfort letter from the
Company's independent public accountants in customary form and covering such
matters of the type customarily covered by cold comfort letters.
4. Registration Expenses.
(a) All expenses incident to the Company's
performance of or compliance with this Agreement, including without limitation
all registration and filing fees, fees and expenses of compliance with
securities or blue sky laws, printing expenses, messenger and delivery
expenses, and fees and disbursements of counsel for the Company and all
independent certified public accountants, underwriters (excluding discounts and
commissions) and other Persons retained by the Company will be borne by the
Company.
(b) In connection with each Demand
Registration, the Company will reimburse the holders of Registrable Securities
covered by such registration for the reasonable fees and disbursements of one
counsel chosen by the holders of a majority of the Registrable Securities
initially requesting such registration.
5. Holdback Agreements.
(a) Restrictions on Public Sale by Holder of
Registrable Securities. Each holder of Registrable Securities agrees not to
effect any public sale or distribution of the issue of securities being
registered or a similar security of the Company or any securities convertible
into or exchangeable or exercisable for such securities, including a sale
pursuant to Rule 144 under the Securities Act, during the 14 days prior to, and
during the 90-day period beginning on, the effective date of any registration
statement covering Common Stock (except as part of such registration), if and
to the extent requested by the Company in the case of a non-underwritten public
offering or if and to the extent requested by the managing underwriter or
underwriters in the case of an underwritten public offering.
(b) Restrictions on Public Sale by the
Company and Others. The Company and its affiliates (other than holders of
Registrable Securities) agree (i) not to effect any public sale or distribution
of any securities similar to those being registered in accordance with
paragraph 1 (other than similar securities convertible into or exchangeable or
exercisable for such securities) during the 14 days prior to, and during the
90-day
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<PAGE> 8
period beginning on, the effective date of any registration statement (except
as part of such registration statement) filed pursuant to this Agreement; and
(ii) that any agreement entered into after the date of this Agreement pursuant
to which the Company issues or agrees to issue any privately placed securities
shall contain a provision under which holders of such securities agree not to
effect any public sale or distribution of any such securities during the
periods described in (i) above, in each case including a sale pursuant to Rule
144 under the Securities Act; provided, however, that the provisions of this
paragraph (b) shall not prevent the conversion or exchange of any securities
pursuant to their terms into or for other securities.
6. Indemnification.
(a) The Company agrees to indemnify, to the extent
permitted by law, each holder of Registrable Securities, its officers
and directors and each Person who controls such holder (within the meaning of
the Securities Act) against all losses, claims, damages, liabilities and
expenses caused by any untrue or alleged untrue statement of material fact
contained in any registration statement, prospectus or preliminary prospectus
or any amendment thereof or supplement thereto or any omission or alleged
omission of a material fact required to be stated therein or necessary to make
the statements therein not misleading, except insofar as the same are caused by
or contained in any information furnished in writing to the Company by such
holder expressly for use therein or by such holder's failure to deliver a copy
of the most current registration statement or prospectus or any amendments or
supplements thereto after the Company has furnished such holder with a
sufficient number of copies of the same. In connection with an underwritten
offering, the Company will indemnify such underwriters, their officers and
directors and each Person who controls such underwriters (within the meaning of
the Securities Act) to the same extent as provided above with respect to the
indemnification of the holders of Registrable Securities.
(b) In connection with any registration statement in
which a holder of Registrable Securities is participating, each such holder
will furnish to the Company in writing such information and affidavits as the
Company reasonably requests for use in connection with any such registration
statement or prospectus and, to the extent permitted by law, will indemnify
the Company, its directors and officers and each Person who controls the
Company (within the meaning of the Securities Act) against any losses, claims,
damages, liabilities and expenses resulting from any untrue or alleged untrue
statement of material fact contained in the registration statement, prospectus
or preliminary prospectus or any amendment thereof or supplement thereto or
any omission or alleged omission of a material fact required to be stated
therein or necessary to make the statements therein not misleading, but only
to the extent that such untrue statement or omission is contained in any
information or affidavit so furnished in writing by such holder; provided that
the obligation to indemnify will be
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<PAGE> 9
individual to each holder and will be limited to the net amount of proceeds
received by such holder from the sale of Registrable Securities pursuant to
such registration statement.
(c) If any action or proceeding (including any
governmental investigation) shall be brought or asserted against any Person
entitled to indemnification under clauses (a) or (b) above (an "Indemnified
Party") in respect of which indemnity may be sought from any party who has
agreed to provide such indemnification (an "Indemnifying Party"), the
Indemnifying Party shall assume the defense thereof, including the employment
of counsel reasonably satisfactory to such Indemnified Party, and shall assume
the payment of all expenses. Such Indemnified Party shall have the right to
employ separate counsel in any such action and to participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Party unless (i) the Indemnifying Party has agreed to pay such
fees and expenses or (ii) the named parties to any such action or proceeding
(including any impleaded parties) include both such Indemnified Party and the
Indemnifying Party, and such Indemnified Party shall have been advised by
counsel that there is a conflict of interest under applicable standards of
professional responsibility on the part of counsel employed by the Indemnifying
Party to represent such Indemnified Party (in which case, if such Indemnified
Party notifies the Indemnifying Party in writing that it elects to employ
separate counsel at the expense of the Indemnifying Party, the Indemnifying
Party shall not have the right to assume the defense of such action or
proceeding on behalf of such Indemnified Party; it being understood, however,
that the Indemnifying Party shall not, in connection with any one such action
or proceeding or separate but substantially similar or related actions or
proceedings 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 (together with appropriate local counsel) at any
time for all such Indemnified Parties). The Indemnifying Party shall not be
liable for any settlement of any such action or proceeding effected without its
written consent, but if settled with its written consent, or if there be a
final judgment for the plaintiff in any such action or proceeding, the
Indemnifying Party shall indemnify and hold harmless such Indemnified Parties
from and against any loss or liability (to the extent stated above) by reason
of such settlement or judgment.
(d) The indemnification provided for under this Agreement
will remain in full force and effect regardless of any investigation made by
or on behalf of the indemnified party or any officer, director or controlling
Person of such indemnified party and will survive the transfer of securities.
The Company also agrees to make such provisions, as are reasonably requested
by any indemnified party, for contribution to such party in the event the
Company's indemnification is unavailable for any reason.
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<PAGE> 10
7. Participation in Underwritten Registrations. No
Person may participate in any registration hereunder which is underwritten
unless such Person (a) agrees to sell such Person's securities on the basis
provided in any underwriting arrangements approved by the Person or Persons
entitled hereunder to approve such arrangements and (b) completes and executes
all questionnaires, powers of attorney, indemnities, underwriting agreements
and other documents required under the terms of such underwriting arrangements.
8. Definitions.
"Common Stock" means (i) the Class A Common Stock,
par value $.01 per share, of the Company including any shares of Class A Common
Stock issued or issuable upon conversion of Class B Common Stock, and (ii)
Capital Stock issued or issuable with respect to the securities referred to in
clause (i) by way of a stock dividend or stock split, or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization.
"Holders Securities" means any securities of VPI or
any affiliate of VPI which are exchangeable, convertible or otherwise similarly
exercisable into Registrable Securities.
"Person" means any individual, partnership, joint
venture, corporation, trust, unincorporated organization or government or
department or agency thereof.
"Registrable Securities" means (i) the Common Stock
held by VPI, its affiliates and their respective employees on the date hereof
or acquired hereafter by VPI, its affiliates, or their respective employees,
and (ii) any Common Stock issued or issuable with respect to the securities
referred to in clause (i) by way of a stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization. As to any particular Registrable
Securities, such securities will cease to be Registrable Securities when they
have been distributed to the public pursuant to a offering registered under the
Securities Act sold to the public through a broker, dealer or market maker in
compliance with Rule 144 under the Securities Act (or any similar rule then in
force). For purposes of this Agreement, a Person will be deemed to be a holder
of Registrable Securities whenever such Person has the right to acquire
directly or indirectly such Registrable Securities (upon conversion or exercise
in connection with a transfer of securities or otherwise, but disregarding any
restrictions or limitations upon the exercise of such right), whether or not
such acquisition has actually been effected.
"Securities Purchase Agreement" means the Securities
Purchase and Holders Agreement initially by and among the Company, Citicorp
Venture Capital, Ltd., and certain management investors named therein.
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<PAGE> 11
9. Information. The Company may require each seller
of Registrable Securities to promptly furnish in writing to the Company such
information regarding the distribution of the Registrable Securities as it may
from time to time reasonably request and such other information as may be
legally required or reasonably requested in connection with such registration.
10. Amended or Supplemented Prospectus. Each
seller of Registrable Securities agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in paragraph
3(e), such seller will forthwith discontinue disposition of Registrable
Securities pursuant to the registration statement covering such Registrable
Securities until such seller's receipt of the copies of the supplemented or
amended prospectus contemplated by paragraph 3(e), and, if so directed by the
Company, such seller will deliver to the Company all copies, other than
permanent file copies then in such seller's possession, of the most recent
prospectus covering such Registrable Securities at the time of receipt of such
notice.
11. Miscellaneous.
(a) No Inconsistent Agreements. The Company
will not hereafter enter into any agreement with respect to its securities
which is inconsistent with or violates the rights granted to the holders of
Registrable Securities in this Agreement.
(b) Adjustments Affecting Registrable
Securities. The Company will not take any action, or permit any change to
occur, with respect to its securities which would materially and adversely
affect the ability of the holders of Registrable Securities to include such
Registrable Securities in a registration undertaken pursuant to this Agreement
or which would materially and adversely affect the marketability of such
Registrable Securities in any such registration (including, without limitation,
effecting a stock split or a combination of shares).
(c) Remedies. Any Person having rights
under any provision of this Agreement will be entitled to enforce such rights
specifically to recover damages caused by reason of any breach of any provision
of this Agreement and to exercise all other rights granted by law. The parties
hereto agree and acknowledge that money damages may not be an adequate remedy
for any breach of the provisions of this Agreement and that any party may in
its sole discretion apply to any court of law or equity of competent
jurisdiction (without posting any bond or other security) for specific
performance and for other injunctive relief in order to enforce or prevent
violation of the provisions of this Agreement.
(d) Amendments and Waivers. Except as
otherwise provided herein, the provisions of this Agreement may be amended or
waived only upon the prior written consent of the Company and holders of at
least 50% of the Registrable Securities.
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<PAGE> 12
(e) Successors and Assigns. All covenants
and agreements in this Agreement by or on behalf of any of the parties hereto
will bind and inure to the benefit of the respective successors and assigns of
the parties hereto whether so expressed or not. In addition, whether or not
any express assignment has been made, the provisions of this Agreement which
are for the benefit of purchasers or holders of Registrable Securities are also
for the benefit of, and enforceable by, any subsequent holder of Registrable
Securities; provided that no Demand Registration may be requested by any
subsequent holder of Registrable Securities unless such holder holds at least
$20 million in Registrable Securities (such securities being valued for
purposes of this clause (e) at the initial public offering price) and such
subsequent holder is not a then present customer, pharmaceutical supplier or,
in the Company's reasonable judgment, competitor of the Company in the
full-service drug wholesale business. Upon request, the Company will inform
any holder of Registrable Securities whether it or any person is a customer,
pharmaceutical supplier or, in the Company's reasonable judgment, competitor of
the Company.
(f) Severability. Whenever possible, each
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of this
Agreement is held to be prohibited by or invalid under applicable law, such
provision will be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of this Agreement.
(g) Counterparts. This Agreement may be
executed simultaneously in two or more counterparts, any one of which need not
contain the signatures of more than one party, but all such counterparts taken
together will constitute one and the same Agreement.
(h) Descriptive Headings. The descriptive
headings of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
(i) Governing Law. The corporate law of
Delaware will govern all issues concerning the relative rights of the Company
and its stockholders. All other questions concerning the construction,
validity and interpretation of this Agreement and the exhibits and schedules
hereto will be governed by the internal law, and not the law of conflicts, of
the State of New York.
(j) Notices. All notices, demands or other
communications to be given or delivered under or by reason of the provisions of
this Agreement shall be in writing and shall be deemed to have been given when
delivered personally to the recipient, sent to the recipient by reputable
express courier service (charges prepaid) or
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<PAGE> 13
mailed to the recipient by certified or registered mail, return receipt
requested and postage prepaid. Such notices, demands and other communications
will be sent to the Company and VPI at the address indicated below:
To the Company:
AmeriSource Distribution Corporation
300 Chester Field Parkway
Malvern, Pa. 19355
Attention: Teresa T. Ciccotelli
with a copy to:
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103-2793
Attention: Craig L. Godshall, Esq.
To VPI:
399 Park Avenue
New York, New York 10043
Attention: James A. Urry
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
(k) Termination. Notwithstanding anything in this
Agreement to the contrary, this Agreement shall terminate at such time as the
Registrable Securities constitute less than 5% of the Company's Common
Stock on a fully-diluted basis and such securities may be exchanged for a new
certificate or other evidence of ownership which are not required to bear a
restrictive legend and may be resold in a public offering in compliance with
the Securities Act without subsequent registration under the Securities Act.
* * * * *
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<PAGE> 14
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first written above.
AMERISOURCE DISTRIBUTION CORPORATION
By: /s/ Teresa T. Ciccotelli
------------------------------------
Name: Teresa T. Ciccotelli
Title: Vice President, Legal Counsel
and Secretary
399 VENTURE PARTNERS, INC.
By: /s/ James A. Urry
------------------------------------
Name:
Title:
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